Have you noticed that a really bad mood seems to have descended on world financial markets? Fear and pessimism are everywhere. The global economy never truly recovered from the financial crisis of 2008, and right now everyone is keeping their eyes open for the next “Lehman Brothers moment” that will send world financial markets into another tailspin. Investors have been very nervous for quite some time now, but this week things seem to be going to a whole new level. Fears about the spread of the debt crisis in Europe and about the failure of debt ceiling talks in the United States have really hammered global financial markets. On Monday, the Dow Jones Industrial Average dropped 151 points. Italian stocks fared even worse. The stock market in Italy fell more than 3 percent on Monday. The stock markets in Germany and France fell more than 2 percent each. On top of everything else, the fact that protesters have stormed the U.S. embassy in Syria is causing tensions to rise significantly in the Middle East. Everywhere you turn there seems to be more bad news and large numbers of investors are getting closer to hitting the panic button. Hopefully things will cool down soon, because if not we could soon have another full-blown financial crisis on our hands.
Even many of those that have always tried to reassure us suddenly seem to be in a really bad mood.
For example, U.S. Treasury Secretary Timothy Geithner admitted to “Meet the Press” that the U.S. economy is really struggling and that for many Americans “it’s going to feel very hard, harder than anything they’ve experienced in their lifetime now, for a long time to come.”
Does Geithner know something that we don’t?
To say that what Americans are facing will be “harder than anything they’ve experienced in their lifetime now, for a long time to come” is very, very strong language.
It certainly is not helping things that the Democrats and the Republicans still have not agreed on a deal to raise the debt ceiling. It is mid-July and Barack Obama and John Boehner continue to point fingers at each other.
Of course if they do reach a “deal” it will likely be a complete and total joke just like their last “deal” was.
But for now they are playing politics and trying to position themselves well for the 2012 election season.
Meanwhile, world financial markets are starting to get a little nervous about this situation. The newly elected head of the IMF, Christine Lagarde, has stated that she “can’t imagine for a second” that we are going to see the U.S. default on any debt. Most investors seem to agree with Lagarde for now, but if we get to August 2nd without a deal being reached things could change very quickly.
But it isn’t just the debt ceiling crisis that is causing apprehension in the United States. The truth is that there are a host of indications that the U.S. economy is continuing to struggle.
Even big Wall Street banks are laying people off. A recent Reuters article described the bad mood that has descended on Wall Street right now….
Goldman Sachs Group Inc (GS.N), Morgan Stanley (MS.N) and some other large U.S. investment banks are not just laying off weak performers and back-office employees. They are also cutting the pay of those they are keeping, scrutinizing expense reports and expecting even the most profitable workers to bring in more business for the same amount of compensation.
That is not a good sign for the U.S. economy.
If the corrupt Wall Street banks are even struggling, what does that mean for the rest of us?
But the big trouble recently has been in Europe. The sovereign debt crisis continues to get worse and worse.
As I wrote about yesterday, the emerging financial crisis in Italy has EU officials in a bit of a tizzy. If Italy requires a bailout it is going to be an unmitigated disaster.
One of the most respected financial journalists in Europe, Ambrose Evans Pritchard, says that financial tensions in the EU are rising to dangerous levels….
If the ECB’s Jean-Claude Trichet is right in claiming that Europe was on the brink of a 1930s financial cataclysm a year ago – and I think he is – it is hard see how the threat is any less serious right now.
Fall-out from Greece flattened Portugal and Ireland last week. It is engulfing Spain and Italy, countries with €6.3 trillion of public and private debt between them.
Last year it was just small countries like Greece and Ireland that were causing all the trouble.
Now Italy (the fourth largest economy in the EU) and Spain (the fifth largest economy in the EU) are making headlines.
Up to this point, the EU has had all kinds of nightmares just trying to bail countries like Greece out.
What is going to happen if Italy or Spain goes under?
At this point things with Greece have gone so badly that some EU officials are actually suggesting that Greece should just default on some of the debt.
Yes, you read the correctly.
There are news reports coming out of Europe that say that EU leaders are actually considering allowing the Greek government to default on some of their bonds. According to The Telegraph, “the move would be part of a new bail-out plan for Greece that would put the country’s overall debt levels on a sustainable footing.”
All of this chaos is causing bond yields in Europe to go soaring.
Earlier today, The Calculated Risk blog detailed some of the stunning bond yields that we are now seeing in Europe….
The Greek 2 year yield is up to a record 31.1%.
The Portuguese 2 year yield is up to a record 18.3%.
The Irish 2 year yield is up to a record 18.1%.
And the big jump … the Italian 2 year yield is up to a record 4.1%. Still much lower than Greece, Portugal and Ireland, but rising.
Could you imagine paying 31.1% interest on your credit cards?
Well, imagine what officials in the Greek government must be feeling right about now.
If these bond yields do not go down, we are going to have a full-blown financial crisis on our hands in Europe. If these bond yields keep rising, we are going to have a complete and total financial nightmare in Europe.
The only way that any of these nations that are drowning in debt can keep going is if they can borrow more money at low interest rates. There are very few nations on earth that would be able to survive very high interest rates on government debt for an extended period of time.
Pay attention to what is happening in Europe, because it will eventually happen in the United States. Right now we are only paying a little more than $400 billion in interest on the national debt each year because of the super low interest rates we are able to get.
When that changes, our interest costs are going to absolutely skyrocket.
Not that the United States needs any more economic problems.
Right now Americans are more pessimistic about the economy than they have been in ages.
*According to Gallup, the percentage of Americans that lack confidence in U.S. banks is now at an all-time high of 36%.
*According to one recent poll, 39 percent of Americans believe that the U.S. economy has now entered a “permanent decline”.
*Another recent survey found that 48 percent of Americans believe that it is likely that another great Depression will begin within the next 12 months.
The American people are in a really bad mood and investors around the world are in a really bad mood. More bad financial news seems to come out every single day now. Everyone seems to be waiting for that one “moment” that is going to set off another financial panic.
Hopefully we can get through the rest of this summer without world financial markets falling apart. But the truth is that the global economy is even more vulnerable today than it was back in 2008. None of the things that caused the financial crash of 2008 have been fixed.
We will eventually have a repeat of 2008. In fact, next time things could be even worse.
The entire world financial system is a house of cards sitting on a foundation of sand. Eventually another storm is going to come and the crash is going to be great.
In the past, there certainly have been governments that have gotten into trouble with debt, but what we are experiencing now is the first truly global sovereign debt crisis. There has never been a time in recorded history when virtually all of the governments of the world were drowning in debt all at the same time. This sovereign debt crisis is never going to end until there is a major global financial collapse. There simply is no way to unwind the colossal web of debt that we have constructed in an orderly fashion. Right now the EU and the IMF have been making “emergency loans” to nations such as Greece, Ireland and Portugal, but that is only going to buy those countries a few additional months. Giving more loans to nations that are already drowning in red ink may “kick the can down the road” for a little while but it isn’t going to solve anything. Meanwhile, dozens more nations all over the globe are rapidly approaching a day of reckoning.
All of the bailouts that you are hearing about right now are simply delaying the pain. The reality is that when the “emergency loans” for Greece stop, Greece is going to default. Greece is toast. The game is over for them. You can stick a fork in Greece because it is done.
One of the big problems for Greece is that since it is part of the euro it can’t independently print more money. If Greece cannot raise enough euros internally Greece must turn to outside assistance.
Unfortunately, at this point Greece has accumulated such a mammoth debt that it cannot possibly sustain it. By the end of the year, it is projected that the national debt of Greece will soar to approximately 166% of GDP.
The financial collapse of Greece is inevitable. If they keep using the euro they will collapse. If they quit using the euro they will collapse. When the rest of Europe decides that it is tired of propping Greece up the game will be over.
At this point very few people are interested in lending Greece more money.
As I wrote about yesterday, many of the nations around the world are only able to keep going because they are able to borrow huge amounts of money at low interest rates.
Well, nobody wants to lend money to Greece at a low rate of interest anymore.
Fortunately for the rest of the world, Greece is just a very, very small part of the global economy, but when interest rates start spiking like that on U.S. debt or Japanese debt the entire world financial system will be thrown into chaos.
So why is there so much of a focus on Greece right now?
Well, there is a real danger that the panic will start to spread.
The other day, Moody’s Investors Service slashed the credit rating on Portuguese government debt by four notches.
Portuguese debt is now considered to be “junk”.
But even more alarming is that Moody’s stated that what is going on in Greece played a role in reducing the credit rating of Portugal.
The following is a portion of what Moody’s had to say when they cut the credit rating of Portugal by four notches….
Although Portugal’s Ba2 rating indicates a much lower risk of restructuring than Greece’s Caa1 rating, the EU’s evolving approach to providing official support is an important factor for Portugal because it implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well. This development is significant not only because it increases the economic risks facing current investors, but also because it may discourage new private sector lending going forward and reduce the likelihood that Portugal will soon be able to regain market access on sustainable terms.
Do you understand what is being said there?
Basically, Moody’s is saying that the terms of the Greek bailout make Portuguese debt less attractive because Portugal will likely be forced into a similar bailout at some point.
If the EU is not going to fully guarantee the debt of the member nations, then that debt becomes less attractive to investors.
The downgrade of Portugal is having all kinds of consequences. The cost of insuring Portuguese government debt set a new record high on Wednesday, and yields on Portuguese bonds have gone haywire.
If you want to get an idea of just how badly Portuguese bonds have been crashing, just check out this chart.
But it is not just Portugal that is having problems.
That certainly is not going to help the PIIGS much.
But Europe is not the only one facing a horrific debt crunch.
In Japan, the national debt is now up to about 226 percent of GDP. So far the Japanese government has been able to handle a debt load this massive because the citizens of Japan have been willing to lend the government gigantic mountains of money at interest rates so low that they are hard to believe.
When that paradigm changes, and it will, Japan is going to be in a massive amount of trouble. In fact, an article in Forbes has warned that even a very modest increase in interest rates would cause interest payments on Japanese government debt to exceed total government revenue by the year 2019.
Of course the biggest pile of debt sitting out there is the national debt of the United States. The U.S. is so enslaved to debt that there is literally no way out under the current system. To say that America is in big trouble would be a massive understatement.
In fact, the whole world is headed for trouble.
Right now government debt around the globe continues to soar at an exponential pace. At some point a wall is going to be hit.
“These processes are not linear,” warns Prof. Reinhart. “You can increase debt for a while and nothing happens. Then you hit the wall, and—bang!—what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big.”
That is the nature of debt bubbles – they keep expanding and expanding until the day that they inevitably burst.
Governments around the world will issue somewhere in the neighborhood of 5 trillion dollars more debt this year alone. Debt to GDP ratios all over the globe continue to rise at a frightening pace.
Because the world is so interconnected today, the collapse of even one nation will devastate banks all over the planet. If even one domino is toppled there is no telling where things may end.
The combination of huge amounts of debt and huge amounts of leverage is incredibly toxic, and that is what we have all over the globe today. Almost every major nation is drowning in a sea of red ink and almost all of our major financial institutions are leveraged to the hilt.
There is only one way that the sovereign debt crisis can end.
Right now, interest rates are near historic lows. The U.S. government is able to borrow gigantic mountains of money for next to nothing. U.S. consumers are still able to get home loans, car loans and student loans at ridiculously low interest rates. When this low interest rate environment changes (and it will), it is going to absolutely devastate the U.S. economy. Without low interest rates, the U.S. financial system dies. When it comes to borrowing money, it is the rate of interest that causes the pain. If you could borrow as much money as you wanted at a zero rate of interest for the rest of your life you would never, ever have a debt problem. But when there is a cost to borrowing money that changes things. The higher the rate of interest goes, the more painful debt becomes.
The only reason that U.S. government finances have not fallen apart completely already is because the federal government is still able to borrow huge amounts of money very cheaply. If interest rates on U.S. government debt even return just to “average” levels, it is going to be absolutely catastrophic.
So what happens if rates go above “average”?
The reality is that if there is a major crisis that causes interest rates on U.S. Treasuries to go well beyond “normal” levels it is going to cause a complete and total collapse.
In 2010, the U.S. government paid out just $413 billion in interest even though the national debt soared to 14 trillion dollars by the end of the year.
That means that the U.S. government paid somewhere in the neighborhood of 3 percent interest for the year.
Considering how rapidly the U.S. dollar has been declining and how much money printing the Federal Reserve has been doing, a rate of interest that low is absolutely ridiculous.
The shorter the term, the more ridiculous the rates of interest on U.S. Treasuries are.
For example, the rate of interest on 3 month U.S. Treasuries right now is just barely above zero.
The Federal Reserve has been playing all kinds of games in an attempt to keep interest rates on U.S. government debt low, and so far they have been pretty successful at it.
But they aren’t going to be able to do it forever.
Up until now, other nations and investors around the world have continued to participate in the system even though they know that the Federal Reserve is cheating.
However, there are signs that a lot of investors are finally getting fed up and are ready to walk away from U.S. government debt.
China has been dumping short-term U.S. government debt. Russia has been dumping U.S. government debt. Pimco has been dumping U.S. government debt.
Others are taking things even farther.
In fact, there are some investors that plan on cashing in on the loss of confidence in U.S. Treasuries. Renowned investor Jim Rogers says that he is now going to be shorting 30 year U.S. government bonds.
“I cannot imagine or conceive lending money to the United States government for 30-years at 3, 4, 5 or 6 percent —you pick a number — in U.S. dollars”
And he is right. Who in the world would be stupid enough to loan the U.S. government money at a 4 or 5 percent rate of interest for the next 30 years?
Actually, most U.S. government debt is financed in the short-term these days. In fact, the U.S. government issues a higher percentage of short-term debt than any other industrialized nation.
This trend really got started during the Clinton administration. Back then they figured out that the U.S. could reduce its borrowing costs substantially by relying much more heavily on short-term debt. The Bush and Obama administrations have continued this trend.
So these days the U.S. government constantly has huge amounts of debt that are maturing and that need to be rolled over.
This is great as long as interest rates stay very, very low.
But when interest rates rise the whole game will change.
In a recent article, Pat Buchanan explained that the Obama administration is being completely unrealistic when it assumes that interest rates on U.S. government debt will stay incredibly low over the next decade….
“The average rate of interest the Fed has had to pay to borrow for the last two decades has been 5.7 percent. However, President Obama is projecting the cost of money at only 2.5 percent.
A return to the normal Fed rate would, by 2020, add $4.9 trillion to the cumulative deficit”
Most Americans really cannot grasp how incredibly low interest rates are right now.
Sometimes a picture is worth a thousand words.
The following chart shows how interest rates on 10 year U.S. Treasury bonds have declined over the last several decades.
As confidence in the U.S. dollar and in U.S. government debt declines, interest rates will go up.
In fact, there are troubling signs that we are starting to see a move in that direction right now. Last week, the yield on 5 year U.S. Treasuries experienced the biggest one week percentage jump ever recorded.
The big danger is that the political wrangling in Washington D.C. will start to cause a panic. The managing director of Standard & Poor’s recently told Reuters that if the U.S. government starts defaulting on debt at the beginning of August, the credit rating on U.S. Treasury bonds that are supposed to mature on August 4th will go from AAA all the way down to D….
Chambers, who is also the chairman of S&P’s sovereign ratings committee, told Reuters on Tuesday that U.S. Treasury bills maturing on August 4 would be rated ‘D’ if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply, he said.
“If the U.S. government misses a payment, it goes to D,” Chambers said. “That would happen right after August 4, when the bills mature, because they don’t have a grace period.”
When a credit rating gets slashed, interest rates on that debt can go up dramatically.
You are delusional if you believe that something like that can never happen here.
Right now the U.S. national debt is completely and totally out of control. If the U.S. government had to start paying interest rates of 10, 15 or 20 percent to borrow money it would be a total nightmare.
This year the U.S. government will have income of about 2.2 trillion dollars.
If in future years the U.S. government is spending a trillion or a trillion and a half dollars just on interest on the national debt, then how in the world is it going to be possible to even run the government, much less balance the budget?
But rising interest rates would not just devastate the federal government.
It would become much more expensive for state and local governments to borrow money.
Student loans would become much more expensive.
Car loans would become much more expensive.
Home loans would become out of reach for everyone except the very wealthy.
As we saw during the housing crash of a few years ago, rising interest rates can absolutely wipe homeowners out.
On a standard home loan, if you change the rate of interest from 5 percent to 10 percent you increase the mortgage payment by approximately 50 percent.
If you change the rate of interest from 5 percent to 15 percent, you roughly double the mortgage payment.
As the 30 year fixed rate mortgage chart below shows, interest rates are near historic lows right now….
Keep in mind that even with such ridiculously low interest rates the U.S. real estate market has been deader than a doornail.
So what would a significant spike in interest rates do to it?
When all of these low interest rates go away the entire financial system is going to change dramatically.
A significant spike in interest rates would wipe out U.S. government finances, it would push state and local governments all over the country to the brink of bankruptcy, it would bring economic activity to a standstill and it would destroy any hopes for a housing recovery.
This country, and in particular the federal government, is enslaved to debt but right now we are not feeling the full pain of that debt because interest rates are so low.
If you want to know when things are really going to start coming apart, just keep an eye on interest rates. When they really start spiking you can start sounding the alarm.
The truth is that the state of the economy is going to continue to get worse. Our debt is growing every single day and our country is getting poorer every single day. When interest rates start surging it is going to start knocking over a lot of dominoes.
I hope you are getting prepared for when that happens.
Every year when July 4th rolls around, Americans from coast to coast celebrate July 4th with cookouts, outdoor concerts and fireworks. We love celebrating Independence Day and yet we are deeply enslaved to debt. We like to think of ourselves as “free” and yet we have rolled up the biggest pile of debt the world has ever seen. The people that we have borrowed all of this money from expect to be paid. Sadly, instead of addressing the problem, we have been loading more debt on to the backs of future generations with each passing year. What we are doing to our kids and our grandkids is so immoral that is almost defies description. At the heart of this debt-based system stands the Federal Reserve. It is a perpetual debt machine that was designed to trap the U.S. government in a spiral of debt permanently. Today, the U.S. national debt is 4700 times larger than it was when the Federal Reserve was created back in 1913. This year alone, we will add more to the national debt than we did from the presidency of George Washington to the beginning of the presidency of Ronald Reagan. So yes, enjoy the hotdogs and the fireworks, but also remember that we will never be free as long as this constantly expanding debt problem is hanging over our heads.
If you know anyone that does not take our national debt problem seriously, please share with them the video posted below. It is entitled “Economic Armageddon and You” and it is definitely worth the 5 minutes that it takes to watch it. Someone out there did a really great job of explaining our debt problem in a way that almost anyone can understand….
So is there any solution to this problem?
Not under the current system.
The debt-based Federal Reserve system is designed to expand U.S. government debt indefinitely. But of course all debt bubbles burst eventually and we are rapidly reaching that point.
It is being projected that the U.S. national debt will hit 344% of GDP by the year 2050 if we continue on our current course. The truth is that it would never get even close to that high because the whole system would completely collapse long before then.
We need to transition to an entirely new system that has nothing to do with the Federal Reserve or Federal Reserve notes. We need an entirely new system where the money is not based on debt.
But even though more Americans than ever are awake to the flaws in our monetary system, the truth is that neither major political party is remotely ready to even consider an end to the current financial system.
Many Republicans believe that if we can just cut government spending enough we can solve the problem. Many Democrats believe that if we can just “raise enough revenue” we can solve the problem.
Neither of those solutions will work.
Many conservatives are so frustrated with the whole thing that they just want Congress to refuse to raise the debt ceiling. I have taken a lot of heat over the past couple of days for suggesting that this is a bad idea.
If we refuse to raise the debt ceiling, our borrowing costs will absolutely explode. Even if the U.S. government adopted a “balanced budget” by some miracle, the reality is that the federal government would still need to “roll over” very large amounts of debt every single year. If interest rates on U.S. debt rise substantially it will be beyond catastrophic.
In 2010, the U.S. government paid $413 billion in interest on the national debt.
If interest rates were to start rising as a result of a debt default, interest on the national debt would likely double or even triple.
Look, if we want to come anywhere close to balancing the budget under our current system, it will be a whole lot easier to do if we are spending 400 billion dollars on interest on the national debt rather than 1.2 trillion dollars.
Today, the U.S. government only takes in about 2.2 trillion dollars in taxes. How in the world are we going to have a chance if we have to pay out a trillion dollars just in interest on the national debt?
The yield on 10-year U.S. Treasuries rose from 2.86% to 3.18% just this past week. Let us hope that this is not the beginning of a bad trend.
A refusal to raise the debt ceiling would also likely set off another recession (or worse). The following is what a new article on CNBC says would happen if the U.S. does not raise the debt ceiling by August 2nd….
A U.S. default would not only be historic, it would also almost certainly lead to a new financial crisis. Interest rates would likely spike, equity markets would plunge along with the value of the dollar, and the country could fall back into a recession.
We have to raise the debt ceiling.
So does this mean that I am advocating “kicking the can down the road”?
No.
If you are a conservative, you can still get the same result that you want without destroying the credit rating of the United States.
All the Republicans in Congress have to do is to pledge that they will never pass anything but a balanced budget for 2012 or for any year beyond that. Without the permission of the House of Representatives, Barack Obama and the Democrats cannot continue their deficit spending. The sad truth is that the Republicans have been enabling and actively participating in this debt binge all along.
A balanced budget would definitely hurt the economy, but at least it would not wreck our credit rating and cause our borrowing costs to multiply.
But is that what the Republicans are shooting for?
No.
It is being reported that the Republicans and the Democrats have tentatively agreed to between $1 trillion and $2 trillion in budget cuts over the next 10 years.
So that comes to $200 billion in spending cuts a year at most.
Considering the fact that we are running budget deficits of about a trillion and a half dollars a year, that is not nearly enough.
So don’t accuse me of wanting to kick the can down the road. I want to actually do something substantial about the national debt. I just don’t think it is a good idea to trash our credit rating in the process.
It is the Republicans and the Democrats in Congress that are kicking the can down the road.
Trillion dollar deficits are not acceptable. Our nation is on the road to financial ruin.
But it is not just the federal government that is in massive financial trouble.
The reality is that we have “government debt problems” from coast to coast.
Did you hear that the government of Minnesota shut down the other day?
As the financial health of almost every single state government continues to decline, this type of thing is going to become more common.
In the state of Illinois things are so bad that some income tax refunds have not been paid since 2009. The following is a brief excerpt from an article on the Economic Policy Journal blog….
I repeat, this is no time to own state or municipal bonds. The desperation level at various states and municipalities is getting more and more intense.
With the start of a new budget year just two days away, thousands of Illinois businesses are still waiting for state income tax refunds dating back to 2009.
In a recent article entitled “Is The Economy Improving?“, I went into greater detail about the horrific financial crisis that Illinois is facing….
*****
Did you know that things have gotten so bad in Illinois at this point that the Illinois state government is letting bills go unpaid for long periods of time on a regular basis?
It’s true.
Right now they have billions in unpaid bills and they are facing a financial future that is so bleak that it is almost indescribable.
In one recent article, author Stephen Lendman described the horrific financial crisis that Illinois is facing right now….
With spending exceeding revenues, and obligations not postponed, unpaid bills are growing “at a frightening rate. For instance, IGPA’s Fiscal Futures Model indicates (they) could reach $40 billion by July 1, 2013, with an associated delay in paying those bills of more than five years.”
Besides its $13 billion deficit and $6 billion in unpaid bills, its pension fund is about $130 billion in the red – a red flag that state workers may lose out altogether, wiping out their promised retirement savings.
But it isn’t just the state government that is having problems. According to Cook County Treasurer Maria Pappas, the average household in Chicago would owe a whopping $63,525 if all local government debt was divided up equally among all of the households.
*****
How can we claim that our country is free when we are enslaved to such horrible debt burdens?
The borrower is always a servant of the lender. As a nation, we are becoming a little bit less independent every single day.
So enjoy celebrating Independence Day while you still can.
If we continue on the path that we are currently on, nobody is going to be celebrating much of anything in the future.
As the deadline to raise the debt ceiling draws closer, many are now wondering if Barack Obama will try to go around Congress if a deal is not reached by August 2nd. In particular, a number of voices (including U.S. Treasury Secretary Timothy Geithner) are now touting the 14th Amendment as a way to get around the debt ceiling. There are others that believe that Barack Obama should invoke “national security” in order to avoid a default. If the Republicans and the Democrats do not reach a deal by the end of July, things are going to get really, really interesting and there is no telling what Barack Obama may do.
Section 4 of the 14th Amendment to the U.S. Constitution says the following….
“The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
At a breakfast hosted by Politico last month, U.S. Treasury Secretary Timothy Geithner actually pulled out a copy of the Constitution and read this clause out loud.
Geithner (and others) are now attempting to argue that the debt ceiling is actually unconstitutional. They believe that the phrase “shall not be questioned” means that if the U.S. government refuses to make debt payments it would be directly violating the U.S. Constitution.
So what does Barack Obama think of this legal theory?
Reporters have been trying to ask him this question, but right now Obama is not answering.
Certainly Obama would very much prefer to have the Republicans and the Democrats reach a deal far before the debt ceiling deadline arrives.
So what will Obama do if a deal is not reached?
Nobody seems to know.
But this clause of the 14th Amendment brings up some deeper issues as well.
Does this clause make it unconstitutional for all future generations to renounce the national debt?
Does this clause make it illegal for all U.S. citizens to even question the validity of the U.S. national debt?
Most Americans would like to think that when it comes to constitutional questions there should always be some clear answers. But the truth is that for many constitutional questions there are a lot of gray areas.
When there is something in the U.S. Constitution that we do not like, that does not mean that we get to ignore it. We have way too many politicians doing that already.
Personally, I would like to see this phrase in the 14th Amendment changed. I think that this phrase is way too vague and could potentially open up a whole can of worms.
But of much more immediate concern is raising the debt ceiling.
Yesterday, I talked about how horrible our national debt is and I also talked about how dangerous refusing to raise the debt ceiling would be.
A large number of Americans that are deeply concerned about the national debt are also completely opposed to raising the debt ceiling.
But if we default right now, it is going to make our national debt problem much, much worse.
Think of it this way – if you had friends that were drowning in debt, would you tell them to immediately start defaulting on their mortgage, their car loans and their credit cards?
Of course not.
The penalties, fees and interest rate hikes would kill them.
Well, it is the same thing with the federal government. Right now we have a great credit rating and we are able to borrow money at extremely low interest rates.
If that suddenly changed, interest rates on our debt would go up dramatically. Just look at Greece. Greece is paying somewhere around 28 percent interest on 2 year bonds. If that happened to us, it would be a complete and total nightmare.
Even if we adopted a “balanced budget” next fiscal year, we would still need to roll over gigantic amounts of debt.
If interest rates on U.S. government debt started skyrocketing, interest payments on the U.S. national debt would very quickly start eating up the majority of our tax dollars. We would soon have very, very little money to spend on anything else.
Wrecking our credit rating just to make a point about fiscal responsibility is not going to solve anything.
What point would there be to wrecking our financial system when neither political party has a viable plan for something better?
A lot of people (including some readers of this column) are actually rooting for a financial crash so they can watch the world go down in flames.
Yes, an economic collapse is coming, but that doesn’t mean that we should wish for it and try to get it to happen faster.
Look, you are probably going to die someday. That doesn’t mean that you should go out and run your car into the nearest tree.
If we blow out our national credit rating right now, it is going to make it 10 times worse to try to get a handle on our national debt.
Plus, if the world financial system was to crash, it would create a massive amount of economic pain for hundreds of millions of people.
Most Americans cannot even conceive of what the consequences of a complete and total financial collapse would be. It is not something that we should be wishing for. Life as we know it would change dramatically.
Once our economic system crashes, it is not going to be able to be put back together again so easily. Most Americans have no idea how bad things could get.
Yes, we must do something about the national debt. We must stop spending ourselves into oblivion. We must dismantle the current debt-based financial system that we are operating under and we must transition to something new.
But to purposely default by refusing to raise the debt limit would bring a whole lot of future financial pain into the present and would make it almost impossible to transition to a new financial system in an orderly fashion.
The sad thing is that a whole lot of people out there actually believe that the current system can be fixed. Many Republicans believe that if we can just cut spending enough we will be okay. Many Democrats believe that if we can just raise taxes on the wealthy enough we will be okay.
But the truth is that the current system cannot be fixed. It is designed to be a perpetual government debt machine from which there is no escape. We have reached a terminal phase of the debt spiral and we get closer to a collapse every single day.
According to John Williams of Shadow Government Statistics, if the U.S. government used GAAP accounting principles the “real” U.S. government budget deficit each year would be somewhere in the neighborhood of 5 trillion dollars. Williams believes that the U.S. government is essentially bankrupt and that our current system is not anywhere close to sustainable….
Generally, you’ll find that the accounting for unfunded liabilities for Social Security, Medicare and other programs on a net-present-value (NPV) basis indicates total federal debt and obligations of about $75 trillion. That’s 15 times the gross domestic product (GDP). The debt and obligations are increasing at a pace of about $5 trillion a year, which is neither sustainable nor containable. If the U.S. was a corporation on a parallel basis, it would be headed into bankruptcy rather quickly.
Sadly, Williams is right. We are drowning in debt. Something has got to be done.
But refusing to raise the debt limit is not going to help. If we allow our credit rating to be destroyed we could quickly find ourselves paying a trillion dollars or more just in interest on the national debt every single year.
If we want to handle the national debt monster, we need to do it the right way. One thing that we need to do is to admit how bad the situation really is.
The truth is that we are in a lot more than $14.3 trillion in debt.
For example, according to The Financial Armageddon blog, the combined total for all “U.S. government bailouts” and “U.S. government guarantees” related to the financial crisis comes to a grand total of over 20 trillion dollars.
Also, the “unfunded liabilities” of the U.S. government are estimated to be somewhere between $60 trillion and $100 trillion.
If Bill Gates gave every penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.
There are no easy solutions to our problems. If we refuse to raise the debt ceiling our interest costs on the national debt may end up doubling or even tripling in short order. That is not going to help us get our fiscal house in order.
Right now the state of the economy is so fragile that one really bad “shock” could cause it to totally fall apart. The U.S. economy is like a patient that is barely hanging on in the operating room. If we don’t show patience and discipline we could end up with a total disaster.
Look, you will probably not find many writers on the entire Internet that harp on the horror of the U.S. national debt more than I do. It is a crisis that is so nightmarish that it is hard to even put into words.
But refusing to raise the debt ceiling is not going to solve anything. In fact, it would only accelerate our demise.
Our economic system is in bad enough shape already. Let’s not do any unnecessary damage to it.
Sadly, that is the truth. We are in a permanent decline. Just “tweaking” a few things is not going to work. Doing what the Democrats are telling us to do is not going to work. Doing what the Republicans are telling us to do is not going to work.
Our financial system is fundamentally flawed from the Federal Reserve on down. If we continue on the path that we are on, a horrific collapse is inevitable.
We need truly dramatic changes if our way of life is going to survive.
Unfortunately, most Democrats and most Republicans believe that they can fix the current system somehow.
It really is hard to find the words to describe the true horror of the national debt. The U.S. government has been on the greatest debt binge in all of human history, and a day of reckoning is coming that is going to be so painful that it is going to shock America to the core. We have lived so far above our means for so long that none of us really has any concept of what “normal” is like anymore. The United States has enjoyed the greatest party in the history of the world, but now this decades-old party is ending and the bills are coming due. It was Dick Cheney who famously said that “deficits don’t matter”. Well, try telling that to the nation of Greece right about now. The horror that Greece is just beginning to experience is a preview of what is going to happen to us as well. Only when it happens to us it is going to be so much worse, because when we go down we are going to bring the entire global financial system down with us.
What we have done to future generations is beyond sickening. Previous generations entrusted to us the greatest economic machine in the history of the world and we destroyed it. Now we are leaving to our children and our grandchildren an economic future that has been totally wiped out and a national debt of more than 14 trillion dollars that we expect them to repay.
In Washington D.C. these days, there is a lot of talk about the debt ceiling. But whatever the politicians do, it is not going to solve our debt problems. If the debt ceiling does not get raised, we move the financial pain into the present. World financial markets would crash and that would be followed by a devastating economic nightmare.
If we do raise the debt ceiling, that will “kick the can down the road” a little bit farther. However, world financial markets will still crash eventually and our eventual economic nightmare will be even worse.
Well, can’t we just “inflate our way” out of debt?
No, unfortunately things are just not that easy. If we try to inflate our way out of debt, interest rates will likely rise just as quickly as inflation does, and that would be absolutely catastrophic.
Before interest rates even reached 20% we would hit a point where it would take every single dollar taken in by the federal government just to pay the interest on the national debt.
Meanwhile, rapidly rising inflation would devastate the value of all of your bank accounts and every other single financial asset that you own.
So no, inflating our way out of debt is not going to work.
At the moment, the U.S. federal government is able to borrow gigantic quantities of money at super low interest rates.
When that changes, all hell is going to be unleashed.
The following are 41 statistics about the national debt that are almost too crazy to believe….
2 – 30 years ago, the U.S. national debt was approximately 14 times smaller.
3 – It took from the presidency of George Washington to the presidency of Ronald Reagan for the U.S. government to accumulate one trillion dollars of debt.
4 – Since then, we have added more than 13 trillion dollars of additional debt.
5 – The United States government is responsible for more than a third of all the government debt in the entire world.
6 – If you divide up the national debt equally among all U.S. households, each one owes over $125,000.
7 – Mandatory federal spending is going to surpass total federal revenue for the first time ever in this fiscal year. That was not supposed to happen until 50 years from now.
8 – Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.
11 – The U.S. national debt is currently rising by well over 4 billion dollars every single day.
12 – The U.S. government is borrowing over 2 million more dollars every single minute.
13 – The U.S. government borrows an average of about 168 million dollars every single hour.
14 – The combined debt of the major GSEs (Fannie Mae, Freddie Mac and Sallie Mae) has increased from 3.2 trillion in 2008 to 6.4 trillion in 2011. Thanks to George W. Bush, Barack Obama and the U.S. Congress, U.S. taxpayers are guaranteeing that debt. This is debt that is not even included in the $14.3 trillion national debt figure.
15 – Some experts estimate that the unfunded liabilities of the U.S. government for programs such as Social Security and Medicare are in the neighborhood of 60 trillion dollars. Other experts claim that the total for federal government unfunded liabilities could be well over $100 trillion. But what almost everyone agrees on is that it is going to be virtually impossible to even come close to meeting all of those obligations.
16 – The U.S. government currently has to borrow approximately 41 cents of every single dollar that it spends.
17 – The total compensation that the federal government workforce earned last year came to a grand total of approximately 447 billion dollars.
18 – The level of government waste in this country is absolutely mind blowing. For example, the Department of Health and Human Services has just announced a brand new $500 million program that will, among other things, seek to solve the problem of 5-year-old children that “can’t sit still” in a kindergarten classroom.
20 – The cost for the first week of airstrikes on Libya was 600 million dollars. Keep in mind that the leader of the opposition in Libya has admitted that his forces contain large numbers of the same “al-Qaeda fighters” that were shooting at American troops in Iraq. So we are going broke and we are helping al-Qaeda take power in Libya at the same time.
21 – Just one day of the war in Afghanistan costs more money than it took to build the entire Pentagon.
22 – In 1980, government transfer payments accounted for just 11.7% of all income. Today, government transfer payments account for 18.4% of all income.
23 – 59 percent of all Americans now receive money from the federal government in one form or another.
24 – Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 Americans is on Medicaid.
25 – Back in 1950, each retiree’s Social Security benefit was paid for by approximately 16 workers. Today, each retiree’s Social Security benefit is paid for by approximately 3.3 workers. By 2025 it is projected that there will be approximately two workers for each retiree.
27 – Back in the 1950s, corporate taxes accounted for about 30 percent of all federal revenue. In 2009, corporate taxes accounted for just 6.6 percent.
29 – If the U.S. government was forced to use GAAP accounting principles (like all publicly-traded corporations must), the U.S. government budget deficit would be somewhere in the neighborhood of $4 trillion to $5 trillion each and every year.
30 – According to a shocking U.S. government report, interest on the national debt and mandatory spending on entitlement programs will absorb approximately 92 cents of every dollar of federal revenue by the year 2019.
34 – It is now being projected that by the year 2021, interest payments on the national debt will amount to $1.1 trillion dollars a year.
35 – If interest rates move up even slightly, the interest on the national debt is going to be a whole lot worse. A recent article in the Huffington Post laid this out really well….
According to a recent note from the sage of Dallas based Hayman Capital, highly respected Kyle Bass, a move back to 5% (2006 levels) in short term interest rates will increase annual U.S. interest expense by almost $700 billion annually. This is against current U.S. government tax revenues of $2.228 trillion (CBO FY 2011 forecast).
37 – A trillion $10 bills, if they were taped end to end, would wrap around the globe more than 380 times. That amount of money would still not be enough to pay off the U.S. national debt.
38 – If Bill Gates gave every penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.
39 – If you were alive when Jesus was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now. But this year alone the U.S. government is going to add more than a trillion dollars to the national debt.
40 – If you went out today and started spending one dollar every single second, it would take you over 31,000 years to spend one trillion dollars.
41 – If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.
You might be depressed after reading all of those statistics about the national debt, but there is some good news.
If you would like to help address this problem, the federal government is actually taking online donations that will go towards paying off the national debt.
Try not to laugh.
The national debt is a problem that should have been handled 20 or 30 years ago.
But it wasn’t.
So now what we have to look forward to is a very bleak future. Even if we totally scrapped our current monetary system and repudiated the debt, the transition would be “rocky” at best and we would not enjoy anything close to the standard of living that we are enjoying today.
Unfortunately, the vast majority of our politicians in Washington D.C. would never even dream of abandoning the current system. Most of them still totally believe in it.
But this current system is headed for an inevitable collapse. There is no way of getting around it.
Even most of our top politicians are now admitting that our current state of affairs is “unsustainable”. They just don’t have the guts to do anything about it.
The rest of the world needs to sit up and take notice of what is going on in Greece right now. This is what can happen when you allow government debt to spiral out of control. Once it becomes clear that you can’t pay your debts, a financial collapse can happen very suddenly and you start losing your sovereignty to those that you must turn to for financial help. So is the financial collapse of Greece the “canary in the coal mine” for the global economy? EU finance ministers have given the Greek government two weeks from Monday to approve another round of brutal austerity measures. If the austerity measures are not approved, Greece will not receive the next bailout installment of 12 billion euros. If that happens, the whole globe better buckle up because it is going to get crazy.
July 3rd is the deadline. Basically the EU has put a gun to the head of the Greek government. Without this bailout money, Greece will default and economic hell will break loose all across the country.
It is important to keep in mind that this is just the first Greek bailout that we are talking about. Last year, the EU and the IMF agreed to provide the Greek government with a 110 billion euro bailout. The current 12 billion euro installment is part of that package.
Sadly, it has become apparent that the first bailout is not going to be nearly enough for Greece. A second bailout, which will be the same size or even larger, is already being discussed. This is going to put the Greek people even more under the heel of the money powers in Europe.
Keep in mind that all of these “bailouts” are just more loans. There is no way that the Greeks are ever going to be able to repay all of this money.
But this is what happens when a nation lets debt get out of control. For years and years it can seem like all of that debt does not have any consequences, but then the day of reckoning comes and it is a complete and total nightmare.
In order to get the next installment of 12 billion euros, European finance ministers are insisting that the Greek Parliament approves a package of austerity measures that will be worth approximately 28 billion euros.
At this point, it is uncertain whether those austerity measures will pass.
However, the pressure on the Greek government to get them pushed through is immense.
These austerity measures include tax increases, budget cuts and a “large-scale privatization program”.
This is often what happens to third world nations that cannot pay their debts. Organizations such as the IMF or the World Bank will come in and insist that they tax their people more, cut back on their spending and sell some of their public assets to big corporations.
As we can see from the wild protests that have been taking place in Greece, a significant percentage of the Greek population is not happy with all of these austerity measures.
Unfortunately, the EU and the IMF are able to put a lot more pressure on the Greek government than the Greek people are.
Greek Prime Minister George Papandreou recently gave the following warning to the Greek people about what could happen if this debt crisis ends badly….
The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks, and the country’s credibility.
Not only would a Greek default be a total disaster for Greece, it would potentially be a total disaster for the entire global financial system.
Sung Won Sohn, an economics professor at California State University, recently made the following statement about the seriousness of the debt crisis in Europe….
“The European debt crisis has the potential to have as big an impact as the subprime mortgage crisis did in the United States”
So will these bailouts solve the problem?
No, giving Greece more loans is only going to kick the can down the road for a little while longer.
The truth is that Greece is bankrupt. Unless huge amounts of Greek debt are forgiven, Greece is going to default sooner or later.
When confidence in the finances of a nation is lost, borrowing costs can go up very quickly. Today, the yield on two year Greek bonds is up to 28.6%.
Anyone that has ever been late on paying their credit cards knows how painful an interest rate like that can be.
So why doesn’t Greece just slash government spending to the bone and get their financial house in order?
Well, it is not that easy. Harsh austerity measures have already been implemented. As a result, unemployment is rampant and there is rioting in the streets.
A year of wage and pension cuts, benefit losses and tax increases has taken its toll: almost a quarter of the population now live below the poverty line, unemployment is at a record 16% and, as the economy contracts for a third year, economists estimate that about 100,000 businesses have closed.
As the economy crumbles, Greece has descended into an almost permanent state of civil unrest.
The fact that the EU and the IMF want even more austerity measures has sparked some wild rioting In Greece in recent days. You can see video of the stunning violence going on in Greece right here.
Not all protesters are being violent. Some of them are showing their displeasure in non-violent ways. For example, workers for Greece’s state-owned electric utility are staging 48 hours of rolling strikes that are designed to create blackouts over large areas.
The frightening thing is that Greece is not alone. Ireland has already received a bailout and they are probably going to need another one at some point.
The employment situation in Spain is absolutely nightmarish. Spain will probably be able to squeak by without a bailout if the global economy stays stable, but if the dominoes start to fall Spain could be in a massive amount of trouble very quickly.
Not that many people are talking about Italy, but the truth is that Italy has a huge debt problem. On Friday, Moody’s warned that it may downgrade Italy’s Aa2 debt rating at some point within the next 90 days.
Belgium and France also have very substantial debt problems. They probably would not be the first dominoes to fall, but if the “contagion” starts to spread they could certainly have massive problems.
The truth is that Europe’s entire financial system is extremely vulnerable right now. Big banks all over Europe (and especially in Germany) are leveraged to the hilt. All it would take to topple many of them is a stiff breeze.
When Lehman Brothers collapsed, it was leveraged 31 to 1.
German banks are also holding a massive amount of Greek debt.
That is why there is so much fear that the crisis in Greece could spread across the rest of Europe and start toppling dominoes.
The sovereign debt crisis in Europe did not happen overnight and it is going to be with us for a long, long time even if the global economy remains relatively stable.
At the moment, the best that officials in Europe can seem to come up with is to put off the pain for another day. Pimco’s Mohamed El-Erian told CNBC the following on Monday….
“This problem is not going to go away. It’s going to weigh on markets here and we’re going to see the same set of headlines over and over again. We simply cannot continue to kick the can down the road, because we’re coming to the end of the road in Greece.”
So if Europe starts having major problems will the U.S. step in and help?
Yes, if the crisis in Europe gets worse, the Federal Reserve will probably step in just like they did back in 2008.
But the U.S. is rapidly approaching a day of reckoning like the one that Greece is going through. The U.S. government has piled up the biggest mountain of debt in the history of the world and faith in the U.S. dollar is dying.
The economic crisis in the United States gets worse with each passing year. Yes, the Federal Reserve can print up stacks of money and send it over to Europe, but that isn’t going to solve anything in the long run. The truth is that the U.S. is not even going to be able to keep itself from drowning.
The world financial system is far more vulnerable today than it was back in 2008. The next wave of the financial collapse is going to hit at some point, and when it does it is going to probably be even more painful than the last wave.
Our world is becoming an incredibly unstable place.
A day is coming when the rest of the world will decide that it no longer has faith in U.S. dollars or in U.S. debt. When that day arrives, the game will be over. Traditionally, two of the biggest things that the U.S. economy has had going for it were the U.S. dollar and U.S. Treasuries. The U.S. dollar has been the default reserve currency of the world for decades. All over the globe it was seen as a strong, stable currency that was desirable for international trade. U.S. government debt has long been considered the “safest debt” in the entire world. Whenever there was a major crisis, investors would flock to U.S. Treasuries because they were considered a rock. Sadly, all of this is now changing. Today the rest of the world is losing faith in the U.S. financial system. In fact, even the United Nations is now warning of the collapse of the dollar. But if the U.S. dollar and U.S. Treasuries collapse, that will be an absolute nightmare for the U.S. economy. If the rest of the world does not want our dollars someday, then what are we going to give them in exchange for all of the oil and all of the cheap imported goods they send us? If the rest of the world does not want our debt someday, then how in the world are we going to be able to continue to consume far, far more wealth than we produce?
The rest of the world is watching the U.S. government run up record-setting budget deficits and they are watching the Federal Reserve print money like there is no tomorrow and they realize that the U.S. financial system is slowly imploding.
As mentioned above, now even the United Nations is warning that the U.S. dollar could collapse. The following is a brief excerpt from a recent news report put out by Reuters….
The United Nations warned on Wednesday of a possible crisis of confidence in, and even a “collapse” of, the U.S. dollar if its value against other currencies continued to decline.
In a mid-year review of the world economy, the UN economic division said such a development, stemming from the falling value of foreign dollar holdings, would imperil the global financial system.
But it is not just the United Nations that is concerned about the U.S. dollar.
On April 18th, Standard & Poor’s altered its outlook on U.S. government debt from “stable” to “negative” and warned that the U.S. could soon lose its prized AAA rating.
At one time, it would have been unthinkable for Standard & Poor’s to do such a thing.
But today it is amazing that it has taken them so long to make such a move. U.S. government finances are falling apart.
When the credit rating of U.S. government debt starts declining, interest rates will go up. Just ask the government of Greece how painful that can be. Today, Greece is paying over 16 percent on 10 year bonds.
S&P is noting the U.S. government’s long-range fiscal problems. Generally, you’ll find that the accounting for unfunded liabilities for Social Security, Medicare and other programs on a net-present-value (NPV) basis indicates total federal debt and obligations of about $75 trillion. That’s 15 times the gross domestic product (GDP). The debt and obligations are increasing at a pace of about $5 trillion a year, which is neither sustainable nor containable. If the U.S. was a corporation on a parallel basis, it would be headed into bankruptcy rather quickly.
Look, the rest of the world is not stupid. They know that the U.S. government is hurtling towards financial disaster. The appetite among foreigners for U.S. government debt is decreasing rapidly.
In fact, according to Zero Hedge, foreigners are dumping U.S. debt at a very rapid pace right now.
In addition, the cost to insure U.S. debt has risen sharply in recent days.
Right now, the Federal Reserve has been buying up most new U.S. government debt with dollars that it has created out of thin air. This is a giant Ponzi scheme, and it is a major contributing factor to the decline of faith in the U.S. dollar.
The dollar has fallen by 17 percent compared to other major national currencies since 2009. What makes that fact even sadder is that all major currencies have been rapidly losing value compared to hard assets over that time period. The dollar is just sliding faster than almost all of the other global currencies that are constantly losing value as well.
Anyone with half a brain could have seen that this would be the end result of reckless government borrowing, but unfortunately our politicians have been ignoring this problem for decades.
Now a day or reckoning is fast approaching and it is going to be very painful.
The U.S. government has piled up the biggest mountain of debt in the history of the world. Just consider a few shocking facts about this unprecedented debt….
#4 In the new budget that the Obama administration has proposed, the U.S. government would spend 3.7 trillion dollars in 2012 and by 2021 the U.S. government would be spending a whopping 5.6 trillion dollars per year.
#5 The U.S. government currently has to borrow approximately 41 cents of every single dollar that it spends.
#6 The total compensation that the federal government workforce earned last year came to a grand total of approximately 447 billion dollars.
#7 The U.S. national debt is currently rising by well over 4 billion dollars every single day.
#8 The U.S. government is borrowing over 2 million more dollars every single minute.
#10 Unfunded liabilities for entitlement programs such as Social Security and Medicare are estimated to be well over $100 trillion, and nobody in the U.S. government seems to have any idea how we are actually even going to come close to meeting all of those obligations.
#11 If you were alive when Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now. But this year alone the U.S. government is going to go about 1.6 trillion dollars more into debt.
#12 If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.
So have our politicians learned anything from the mistakes of the past?
No.
The U.S. government continues to spend money on some of the most ridiculous things imaginable. For example, the Department of Health and Human Services has just announced a brand new $500 million program that will, among other things, seek to solve the problem of 5-year-old children that “can’t sit still” in a kindergarten classroom.
Isn’t it good to see the government investing our hard-earned tax dollars so wisely?
Of course if our kids weren’t being constantly fed foods packed with sugar, high fructose corn syrup and aspartame we wouldn’t have to spend 500 million dollars to deal with this problem.
When it comes to government waste, nobody seems to do it any better than the U.S. government.
Our politicians continue to assume that the rest of the world will always want our dollars and our debt, but that is simply not the case.
Over the past couple of years, global leader after global leader has publicly talked about the need for a new world reserve currency.
In fact, globalist institutions such as the IMF and the World Bank have been very busy discussing what the world is going to use as a global reserve currency after the death of the dollar.
The rest of the world is not sitting around waiting to see if the U.S. financial system is going to recover. They are already making plans for the demise of the dollar. They are increasingly using other currencies to trade with. They are becoming more hesitant to buy more of our debt. They are realizing that the days of U.S. dominance are coming to an end.
So what is that going to mean for us?
It is going to be a complete and total disaster.
Right now, we live far, far beyond our means. We borrow gigantic piles of money to make up the difference between what we produce and what we consume. We are absolutely dependent on the fact that the rest of the world will take our dollars in exchange for the things that we need.
The current situation is not sustainable.
It will come to an end.
When it does, our standard of living is going to feel like it has changed overnight.
At times it really is breathtaking how corrupted the U.S. government has become. Government corruption has become so endemic in our society that most people have just kind of accepted it as “normal”. But shouldn’t we all get hopping mad when we learn that the Federal Reserve sent billions of dollars in bailout money to addresses in the Cayman Islands? Shouldn’t we all be furious when one of the leading candidates for the 2012 Republican presidential nomination, Mitt Romney, declares that he is “not going to spend my time focusing on the Federal Reserve”? Shouldn’t we all be alarmed when Nancy Pelosi gives a speech in which she says that “elections shouldn’t matter”? Shouldn’t we all demand that someone be held accountable when we find out that a CBO analysis shows that the “$38.5 billion” in spending cuts will only reduce the budget deficit for this year by $352 million dollars? On top of everything else, shouldn’t we all be absolutely horrified when the TSA gropes little 6 year old girls and virtually none of our politicians demand change?
$38.5 Billion In Budget Cuts Is Really Just $352 Million In Deficit Reduction?
Yesterday I wrote about how a close examination of the “budget cut deal” reveals that the 38.5 billion dollars in budget cuts are largely illusory.
However, even I was not ready for what the Congressional Budget Office had to say about this deal. What I read in the Washington Post today absolutely floored me. According to the Washington Post, the Congressional Budget Office is saying that the budget deal will only cut the budget deficit for this year by less than one percent of what was being claimed by Republican and Democrat leaders….
The Congressional Budget Office estimate shows that compared with current spending rates the spending bill due for a House vote Thursday would pare just $352 million from the deficit through Sept. 30. About $8 billion in cuts to domestic programs and foreign aid are offset by nearly equal increases in defense spending.
What a joke.
The reality is that U.S. government is increasing by over 2 million dollars every single minute. So the entire “savings” from this “budget deal” will account for approximately 3 hours of government spending.
Look, the U.S. government ran a budget deficit of $188 billion dollars for the month of March alone. We are in debt up to our eyeballs and it is getting worse at a mind blowing pace.
When are people going to wake up and realize that neither political party is the least bit serious about dealing with our debt problem any time soon?
The Federal Reserve Sent Billions In Bailout Aid To Millionaires and Billionaires In The Cayman Islands
Most Americans don’t even understand what the Federal Reserve is, and yet they get to throw trillions of dollars around while being more or less completely unaccountable the entire time.
In a new article for Rolling Stone (which is a must read), Matt Taibbi exposes some of the folks that the Federal Reserve has been sending money to….
The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. “Our jaws are literally dropping as we’re reading this,” says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. “Every one of these transactions is outrageous.”
How in the world does it benefit the American people to send billions of dollars to some ultra-wealthy people down in the Cayman Islands?
In light of what we have already found out, it is absolutely amazing that Congress is still refusing to authorize a complete audit of the Federal Reserve.
The corruption of the Fed is crying out to be investigated.
Unfortunately, many of our top politicians are openly declaring that they have no intention of going after the Federal Reserve.
Mitt Romney Declares That He Will Not Be Going After Ben Bernanke Or The Federal Reserve
In case anyone needs one more sign that Mitt Romney is just another shill for the establishment, just check out the two statements by Romney below.
According to Politico, Romney recently told CNBC’s Larry Kudlow that he is not concerned about the Federal Reserve at all….
“I think Ben Bernanke is a student of monetary policy; he’s doing as good a job as he thinks he can do,” Romney said when Kudlow asked what kind of job Bernanke is doing. “I’m not going to spend my time going after Ben Bernanke. I’m not going to spend my time focusing on the Federal Reserve.”
That’s just great. The Republican candidate with perhaps the greatest amount of “establishment support” says that he thinks that Bernanke is doing a good job and he does not plan to spend any time focusing on the Federal Reserve.
So if Romney gets in the Federal Reserve will continue to be able to dish out trillions to their friends without any interference.
Nancy Pelosi Declares That “Elections Shouldn’t Matter”
How are we supposed to respond when the top Democrat in the House of Representatives declares that “elections shouldn’t matter as much as they do”?
During a recent speech, Pelosi implored establishment Republicans to “take back your party” so that elections won’t “matter” as much….
To my Republican friends: take back your party. So that it doesn’t matter so much who wins the election, because we have shared values about the education of our children, the growth of our economy, how we defend our country, our security and civil liberties, how we respect our seniors. Because there are so many things at risk right now — perhaps in another question I’ll go into them, if you want. But the fact is that elections shouldn’t matter as much as they do… But when it comes to a place where there doesn’t seem to be shared values then that can be problematic for the country, as I think you can see right now.
Apparently what Pelosi wants is for America to go back to a time when all of us just went along with the false left/right paradigm and when we were all content to sleep while the establishment agenda rolled right along.
Well guess what Nancy? Some of us are starting to wake up.
6 Year Old Girl Molested By The TSA
How far have we fallen as a nation when a 6 year old girl has to have her private areas touched in public by the TSA before she is allowed to get on an airplane?
America is becoming a very strange place.
The following is video that was posted on YouTube of the recent incident involving a 6 year old girl….
So is this what we have become as a nation?
Will we subject ourselves to anything as long as the authorities insist that it will keep us a little bit safer?
Pretty soon America is going to be unrecognizable.
I have previously written about how in one town in Missouri, girls scouts have actually been banned from selling girl scout cookies in their own front yards.
How crazy is that?
In Cleveland, authorities haves announced plans to have “trash supervisors” go snooping through trash cans to ensure that people are actually recycling according to city guidelines.
The control freaks we keep voting into office seem to have an obsession with running ever detail of our lives.
In many areas of the nation we aren’t even allowed to do acts of kindness anymore.
For example, in Houston, Texas a couple named Bobby and Amanda Herring that had been feeding homeless people for over a year has been banned by the city from doing so.
So what is next?
Are they going to ban kids from taking lunches to school?
It is already happening….
At one public school in the Chicago area, children have been banned from bringing their lunches from home. Instead, it is mandatory that they eat the food that the cafeteria serves.
Meanwhile, the Federal Reserve gets to create trillions of dollars out of thin air and they get to send it to whoever they want.
What a country we have, eh?
Our system has become corrupted beyond all recognition. Government corruption is out of control and it is getting worse with each passing day.
So when are the American people going to get sick of all this nonsense?
When are….
Wait.
American Idol is on tonight.
Perhaps all of this can just wait for another time.
After all, who wants to miss what J-Lo and Steven Tyler are going to say tonight?
Those two are really a couple of characters!
Our leaders know what they are doing, right?
We can trust our politicians to act in our best interest, right?
So instead of writing about all of this “doom and gloom”, perhaps I should just lighten up and focus on fun things like American Idol a little bit more.
Have you noticed that a really bad mood seems to have descended on world financial markets? Fear and pessimism are everywhere. The global economy never truly recovered from the financial crisis of 2008, and right now everyone is keeping their eyes open for the next “Lehman Brothers moment” that will send world financial markets into another tailspin. Investors have been very nervous for quite some time now, but this week things seem to be going to a whole new level. Fears about the spread of the debt crisis in Europe and about the failure of debt ceiling talks in the United States have really hammered global financial markets. On Monday, the Dow Jones Industrial Average dropped 151 points. Italian stocks fared even worse. The stock market in Italy fell more than 3 percent on Monday. The stock markets in Germany and France fell more than 2 percent each. On top of everything else, the fact that protesters have stormed the U.S. embassy in Syria is causing tensions to rise significantly in the Middle East. Everywhere you turn there seems to be more bad news and large numbers of investors are getting closer to hitting the panic button. Hopefully things will cool down soon, because if not we could soon have another full-blown financial crisis on our hands.
Corrupted!: 5 Shocking Examples Of Government Corruption That Will Blow Your Mind
$38.5 Billion In Budget Cuts Is Really Just $352 Million In Deficit Reduction?
Yesterday I wrote about how a close examination of the “budget cut deal” reveals that the 38.5 billion dollars in budget cuts are largely illusory.
However, even I was not ready for what the Congressional Budget Office had to say about this deal. What I read in the Washington Post today absolutely floored me. According to the Washington Post, the Congressional Budget Office is saying that the budget deal will only cut the budget deficit for this year by less than one percent of what was being claimed by Republican and Democrat leaders….
What a joke.
The reality is that U.S. government is increasing by over 2 million dollars every single minute. So the entire “savings” from this “budget deal” will account for approximately 3 hours of government spending.
Look, the U.S. government ran a budget deficit of $188 billion dollars for the month of March alone. We are in debt up to our eyeballs and it is getting worse at a mind blowing pace.
When are people going to wake up and realize that neither political party is the least bit serious about dealing with our debt problem any time soon?
The Federal Reserve Sent Billions In Bailout Aid To Millionaires and Billionaires In The Cayman Islands
Most Americans don’t even understand what the Federal Reserve is, and yet they get to throw trillions of dollars around while being more or less completely unaccountable the entire time.
In a new article for Rolling Stone (which is a must read), Matt Taibbi exposes some of the folks that the Federal Reserve has been sending money to….
How in the world does it benefit the American people to send billions of dollars to some ultra-wealthy people down in the Cayman Islands?
In light of what we have already found out, it is absolutely amazing that Congress is still refusing to authorize a complete audit of the Federal Reserve.
The corruption of the Fed is crying out to be investigated.
Unfortunately, many of our top politicians are openly declaring that they have no intention of going after the Federal Reserve.
Mitt Romney Declares That He Will Not Be Going After Ben Bernanke Or The Federal Reserve
In case anyone needs one more sign that Mitt Romney is just another shill for the establishment, just check out the two statements by Romney below.
According to Politico, Romney recently told CNBC’s Larry Kudlow that he is not concerned about the Federal Reserve at all….
That’s just great. The Republican candidate with perhaps the greatest amount of “establishment support” says that he thinks that Bernanke is doing a good job and he does not plan to spend any time focusing on the Federal Reserve.
So if Romney gets in the Federal Reserve will continue to be able to dish out trillions to their friends without any interference.
Nancy Pelosi Declares That “Elections Shouldn’t Matter”
How are we supposed to respond when the top Democrat in the House of Representatives declares that “elections shouldn’t matter as much as they do”?
During a recent speech, Pelosi implored establishment Republicans to “take back your party” so that elections won’t “matter” as much….
Apparently what Pelosi wants is for America to go back to a time when all of us just went along with the false left/right paradigm and when we were all content to sleep while the establishment agenda rolled right along.
Well guess what Nancy? Some of us are starting to wake up.
6 Year Old Girl Molested By The TSA
How far have we fallen as a nation when a 6 year old girl has to have her private areas touched in public by the TSA before she is allowed to get on an airplane?
America is becoming a very strange place.
The following is video that was posted on YouTube of the recent incident involving a 6 year old girl….
So is this what we have become as a nation?
Will we subject ourselves to anything as long as the authorities insist that it will keep us a little bit safer?
Pretty soon America is going to be unrecognizable.
I have previously written about how in one town in Missouri, girls scouts have actually been banned from selling girl scout cookies in their own front yards.
How crazy is that?
In Cleveland, authorities haves announced plans to have “trash supervisors” go snooping through trash cans to ensure that people are actually recycling according to city guidelines.
The control freaks we keep voting into office seem to have an obsession with running ever detail of our lives.
In many areas of the nation we aren’t even allowed to do acts of kindness anymore.
For example, in Houston, Texas a couple named Bobby and Amanda Herring that had been feeding homeless people for over a year has been banned by the city from doing so.
So what is next?
Are they going to ban kids from taking lunches to school?
It is already happening….
At one public school in the Chicago area, children have been banned from bringing their lunches from home. Instead, it is mandatory that they eat the food that the cafeteria serves.
Meanwhile, the Federal Reserve gets to create trillions of dollars out of thin air and they get to send it to whoever they want.
What a country we have, eh?
Our system has become corrupted beyond all recognition. Government corruption is out of control and it is getting worse with each passing day.
So when are the American people going to get sick of all this nonsense?
When are….
Wait.
American Idol is on tonight.
Perhaps all of this can just wait for another time.
After all, who wants to miss what J-Lo and Steven Tyler are going to say tonight?
Those two are really a couple of characters!
Our leaders know what they are doing, right?
We can trust our politicians to act in our best interest, right?
So instead of writing about all of this “doom and gloom”, perhaps I should just lighten up and focus on fun things like American Idol a little bit more.
What do all of you think?