The Beginning Of The End Ad
Gold Buying Guide: Golden Eagle Coins
Lear Capital: The Best Source for Buying Gold & Precious Metal Investing

Recent Posts

The Preppers Blueprint Economic Collapse Blog Get Prepared Now Ad

Enter your email to subscribe to The Economic Collapse Blog:

Delivered by FeedBurner

Total Government And Personal Debt In The U.S. Has Hit 41 Trillion Dollars ($329,961.34 Per Household)

We are living in the greatest debt bubble in the history of the world.  In 1980, total government and personal debt in the United States was just over the 3 trillion dollar mark, but today it has surpassed 41 trillion dollars.  That means that it has increased by almost 14 times since Ronald Reagan was first elected president.  I am searching for words to describe how completely and utterly insane this is, but I am coming up empty.  We are slowly but surely committing national suicide, and yet most Americans don’t even understand what is happening.

According to 720 Global, total government debt plus total personal debt in the United States was just over 3 trillion dollars in 1980.  That broke down to $38,552 per household, and that figure represented 79 percent of median household income at the time.

Today, total government debt plus total personal debt in the United States has blown past the 41 trillion dollar mark.  When you break that down, it comes to $329,961.34 per household, and that figure represents 584 percent of median household income.

If anyone can make a good argument that we are not in very serious debt trouble, I would love to hear it.

And remember, the figures above don’t even include corporate debt.  They only include government debt on the federal, state and local levels, and all forms of personal debt.

So do you have $329,961.34 ready to pay your share of the debt that we have accumulated?

Nobody that I know could write that kind of a check.  The truth is that as a nation we are flat broke.  The only way that the game can keep going is for all of us to borrow increasingly larger sums of money, but of course that is not sustainable by any definition.

Eventually we are going to slam into a wall and the game will be over.

One of my pet peeves is the national debt.  Our politicians spend money in some of the most ridiculous ways imaginable, and yet no matter how much we complain about it nothing ever seems to change.

For example, the U.S. military actually spends 42 million dollars a year on Viagra.

Yes, you read that correctly.

42 million of your tax dollars are being spent on Viagra every year.

And overall spending on “erectile dysfunction medicines” each year comes to a grand total of 84 million dollars

According to data from the Defense Health Agency, DoD actually spent $41.6 million on Viagra — and $84.24 million total on erectile dysfunction prescriptions — last year.

And since 2011, the tab for drugs like Viagra, Cialis and Levitra totals $294 million — the equivalent of nearly four U.S. Air Force F-35 Joint Strike Fighters.

Is this really where our spending on “national defense” should be going?  We are nearly 20 trillion dollars in debt, and yet we continue to spend money like there is no tomorrow.  For much more on the exploding size of our national debt and the very serious implications that this has for our future, please see my previous article entitled “Would You Like To Steal 128 Million Dollars?”

I didn’t think that our debt bubble could ever possibly get this big, but I didn’t think that our stock market bubble could ever possibly get quite get this large either.  For a few moments, I would like for you to consider a list of facts about this stock market bubble that was recently published by Zero Hedge

  • The S&P 500 Cyclically Adjusted Price to Earnings (CAPE) valuation has only been greater on one occasion, the late 1990s. It is currently on par with levels preceding the Great Depression.
  • CAPE valuation, when adjusted for the prevailing economic growth trend, is more overvalued than during the late 1920’s and the late 1990’s. (LINK)
  • S&P 500 Price to Sales Ratio is at an all-time high
  • Total domestic corporate profits (w/o IVA/CCAdj) have grown at an annualized rate of .097% over the last five years. Prior to this period and since 2000, five year annualized profit growth was 7.95%. (note- period included two recessions) (LINK)
  • Over the last ten years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned.
  • The top 200 S&P 500 companies have pension shortfalls totaling $382 billion and corporations like GE spent more on share buybacks ($45b) than the size of their entire pension shortfall ($31b) which ranks as the largest in the S&P 500. (LINK)
  • Using data back to 1987, the yield to maturity on high-yield (non-investment grade) debt is in the 3rd percentile. Per Prudential as cited in the Wall Street Journal, yields on high-yield debt, adjusted for defaults, are now lower than those of investment grade bonds. Currently, the yield on the Barclays High Yield Index is below the expected default rate.
  • Implied equity and U.S. Treasury volatility has been trading at the lowest levels in over 30 years, highlighting historic investor complacency. (LINK)

Our financial markets are far more primed for a crash than they were in 2008.

The only times in our entire history that are even comparable are the late 1920s just before the infamous crash of 1929 and the late 1990s just before the dotcom bubble burst.

A whole lot of people out there seem to be entirely convinced that things will somehow be different this time.  They seem to believe that the laws of economics no longer apply and that we will never pay a significant price for decades of exceedingly foolish decisions.

Overall, the world is now 217 trillion dollars in debt.  Earlier this year, Bill Gross raised eyebrows when he said that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”, and I very much agree with him.

There is no way that this is going to end well.  Yes, central bank manipulation may be enough to keep the party going for a little while longer, but eventually the whole thing is going to come crashing down in a disaster of unprecedented magnitude.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Would You Like To Steal 128 Million Dollars?

What would you do with 128 million dollars?  Many people like to daydream about winning the lottery, and I have to admit that when I was much younger I would do the same thing.  If you were suddenly financially set for life, you could quit your job, buy your dream home, travel the world and spend your days doing whatever you felt like doing.  We only get one trip through this crazy journey called life, and an enormous mountain of cash could make the journey a whole lot nicer.  So if you could steal 128 million dollars and be absolutely certain that you could get away with it, would you do it?

You would probably be surprised at how many people out there would answer that question affirmatively.  Money is a very powerful motivator, and if the fear of getting caught was out of the equation a lot of people out there would certainly be willing to “bend the rules” for a cool 128 million dollars.

But let’s turn this around for a moment.

What if someone stole 128 million dollars from you?

How would you feel about that?

Every crime has a victim, and losing that amount of money would be unimaginable.

Perhaps you think that this scenario is way too outlandish to even be considering.  After all, who in the world could steal 128 million dollars from someone and get away with it?

Well, what if I told you that this has been happening every day?

And what if I told you that this has actually been happening every single hour of every single day for many years?

When Barack Obama entered the White House, the U.S. national debt was just over 10.6 trillion dollars, and when he left the White House 8 years later it was sitting just shy of 20 trillion dollars.

So during those 8 years more than 9 trillion dollars was added to the national debt.  But for purposes of this example we will round down to an even 9 trillion dollars.

When you divide 9 trillion dollars by 8, you get an average of 1.125 trillion dollars that was added to the national debt per year during the Obama era.

Dividing that figure by 365, you find that an average of $3,082,191,780 was added to the national debt every single day during the Obama administration.

And since there are 24 hours in a day, that means that an average of $128,424,657 was stolen from our children and our grandchildren every single hour of every single day while Barack Obama was president.

When you borrow and spend 128 million dollars that you do not have every single hour of every single day, of course that is going to have a huge impact on the economy.  I am often asked why we are not in a horrendous economic depression yet, and this is one of the biggest reasons.  If we were to go back and take 9 trillion dollars of government spending out of the economy over the last eight years, we would be in the worst depression in American history right now.

But even with all of this added debt, the U.S. economy has still only grown at an average yearly rate of just 1.33 percent over the past 10 years, and that is absolutely terrible.

Our leaders in D.C. were able to prop things up in the short-term by going on the greatest debt binge in U.S. history, but of course they have also made our long-term financial problems much, much worse in the process.

Many people don’t realize this, but the growth of the national debt was actually accelerating as the Obama era drew to a close.  In fact, we added more than 1.4 trillion dollars to the debt during fiscal year 2016.

Once upon a time a lot of people out there would get really upset about the growth of our debt, but these days most Americans seem to have accepted that this is how we do things.  This fiscal liberals seem to have won, and our nation is steamrolling down a road toward financial oblivion.

When you point out the economic disasters in Greece, Italy, Cyprus, Venezuela and Zimbabwe, it doesn’t seem to register with most Americans that our country is on the exact same path.

By borrowing money, you can live way above your means for a while, but eventually you have to pay a price for being so reckless.  This has been true all throughout human history, and it will be true in our case as well.

In a letter to John Taylor on November 26th, 1798, Thomas Jefferson explained that he wished that he could have added one more amendment to the U.S. Constitution…

I wish it were possible to obtain a single amendment to our constitution; I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of it’s constitution; I mean an additional article taking from the federal government the power of borrowing.

Jefferson wrote extensively about how government debt is a way for one generation to steal money from another generation.

And what we are doing to our children and our grandchildren is absolutely inexcusable.

The term “child abuse” is not nearly strong enough to describe what is taking place, and I don’t know why more people are not seething with anger over what is being done to them.  I am going to do whatever I can to stop this madness, and I hope that you will help me.

Have you ever run up a lot of credit card debt?  If you really wanted to, you could go out today and start living like a millionaire by running up huge credit card balances.  But eventually a day of reckoning would arrive, and you would get to a point where your debts were no longer sustainable.

It is the same thing on a national level.  We have been living way beyond our means for quite a while, but we have been stealing from future generations in order to do it.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Is This The Generation That Is Going To Financially Destroy America?

Did you know that the federal government is going to spend more than 4 trillion dollars this year?  To put that into perspective, U.S. GDP for the entire year of 2017 is going to be somewhere between 18 and 19 trillion dollars.  So when you are talking about 4 trillion dollars you are talking about a huge chunk of our economy.  But of course the federal government doesn’t bring in 4 trillion dollars a year.  At the beginning of Barack Obama’s first term, we were 10.6 trillion dollars in debt, and now we are nearly 20 trillion dollars in debt.  That means that we have been adding more than a trillion dollars a year to the national debt.  When you break that down, that means that we have essentially been stealing more than a hundred million dollars from future generations of Americans every single hour of every single day to pay for our debt-fueled lifestyle.  Even Federal Reserve Chair Janet Yellen is warning that this is not sustainable, and yet we just keep on doing it.

Nobody can pretend that what we have today is the kind of limited federal government that our founders intended.  When federal spending accounts for more than 20 percent of GDP, it is hard to argue that we haven’t moved very far down the road toward socialism.  As I mentioned above, total federal spending will surpass 4 trillion dollars for the first time ever in 2017…

Both the Congressional Budget Office and the White House Office of Management and Budget project that federal spending will top $4 trillion for the first time in fiscal 2017, which began on Oct. 1, 2016 and will end on Sept. 30.

In its “Update to the Budget and Economic Outlook: 2017 to 2027” published last week, CBO projected that total federal spending in fiscal 2017 will hit $4,008,000,000,000.

I was recently asked how we are going to pay for a 4 trillion dollar government if we abolish the income tax like I am proposing.

Well, the truth is that we would have to dramatically reduce the size and scope of the federal government.  Our founders always intended for the individual state governments to be much stronger than they are right now, and it is time for us to restore that constitutional balance.

Something desperately needs to be done, because we have a federal government that is completely and totally out of control.  Even the Congressional Budget Office agrees that we are headed toward absolute disaster if our leaders in Washington don’t start displaying some fiscal responsibility…

A large and continuously growing federal debt would increase the chance of a fiscal crisis in the United States. Specifically, investors might become less willing to finance federal borrowing unless they were compensated with high returns. If so, interest rates on federal debt would rise abruptly, dramatically increasing the cost of government borrowing. That increase would reduce the market value of outstanding government securities, and investors could lose money. The resulting losses for mutual funds, pension funds, insurance companies, banks, and other holders of government debt might be large enough to cause some financial institutions to fail, creating a fiscal crisis. An additional result would be a higher cost for private-sector borrowing because uncertainty about the government’s responses could reduce confidence in the viability of private-sector enterprises.

It is impossible for anyone to accurately predict whether or when such a fiscal crisis might occur in the United States. In particular, the debt-to-GDP ratio has no identifiable tipping point to indicate that a crisis is likely or imminent. All else being equal, however, the larger a government’s debt, the greater the risk of a fiscal crisis.

The likelihood of such a crisis also depends on conditions in the economy. If investors expect continued growth, they are generally less concerned about the government’s debt burden. Conversely, substantial debt can reinforce more generalized concern about an economy. Thus, fiscal crises around the world often have begun during recessions and, in turn, have exacerbated them.

I get so frustrated with Republicans in Congress, because they are supposed to be watching out for us.

During the 2010 elections, one of the biggest mid-term landslides of all time gave Republicans control of the House of Representatives and they have had it ever since.  One of the pillars of the “Tea Party revolution” was fiscal responsibility, but the national debt has just continued to explode.

When the Republicans took control of the House in early 2011, we were about 14 trillion dollars in debt, and now we are nearly 20 trillion dollars in debt.

We have been betrayed, and those that have done this to us need to be held accountable.

Of course the big reason why our politicians never want to control spending is because they know what it will do to our economy.

During the Obama years, we spent more than 9 trillion dollars that we didn’t have.  If we could somehow go back and take 9 trillion dollars out of the economy over those 8 years, we would be in the worst depression in U.S. history right now.

Nobody in Washington wants to be responsible for plunging us into an economic depression, and so they just keep stealing from the future in order to prop things up in the short-term.

And a similar thing could be said about central bank intervention.  If the Federal Reserve and other global central banks had not pumped trillions upon trillions of dollars into the financial system over the past 8 years, we would be in the midst of a horrific economic nightmare right now.

But now all of that “hot money” has created epic financial bubbles all over the planet, and when they finally burst the ensuing crisis will be far, far worse than if they had never intervened in the first place.

Global central banks now have more than 20 trillion dollars in assets on their balance sheets and the world is more than 217 trillion dollars in debt.  The desperate measures that national governments and central banks have been taking have delayed the coming crisis, but they have also guaranteed that it will be far worse than it could have otherwise been.

The stage is set for the worst financial crisis in world history, and the only way that it can continue to be delayed is for our leaders to continue to inflate the bubbles larger and larger and larger.

But of course no bubble can last forever, and the bigger they become the harder they burst.

The Debt Ceiling Deadline Has Passed, And Now The Biggest Test Of Donald Trump’s Presidency Begins…

Trump First Weekly Address - Public DomainOn Wednesday, the temporary suspension of the debt ceiling ended, and so now the federal government is not going to be able to go into any more debt until the debt ceiling is raised.  For the moment, the Trump administration can implement “emergency measures” to stay under the debt limit, but it won’t be too long before we get to a major crisis point because the federal government is quickly running out of cash.  Already, the U.S. Treasury has less cash on hand than Apple or Google, and that cash balance is going to keep on dropping until the debt ceiling is finally lifted.

You may remember that the debt ceiling became a major issue a couple of times during the Obama years.  Last time around, Barack Obama and the Republicans in Congress agreed to a horrendous deal which suspended the debt ceiling until several months after the 2016 election

Since President Barack Obama signed the “Bipartisan Budget Act” on Nov. 2, 2015 there had been no legal limit on the amount of money the federal government could borrow until now. That law included a section entitled “Temporary Extension of Public Debt Limit.” It said that the law imposing a limit on the federal debt “shall not apply for the period beginning on the date of the enactment of this Act and ending on March 15, 2017.”

During the 16 and a half months between the signing of that deal and today, the U.S. national debt rose by a whopping $1,414,397,000,000.

But now the U.S. national debt will not be allowed to rise by another penny until the debt ceiling is raised or suspended once again.

The Trump administration is pushing hard to get the debt ceiling raised, and this is a complete reversal from how Donald Trump felt about the debt ceiling back in 2013.  The following comes from the L.A. Times

Trump sided with hard-liners in 2013, publicly opposing an increase. “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!” he tweeted then.

Trump was actually right about the debt ceiling in 2013, and he is wrong now.

We simply cannot afford to keep adding trillions of dollars to the national debt.  What we are doing to future generations of Americans is beyond criminal, because we are literally destroying their future just so that we can enjoy an inflated standard of living that we do not deserve today.

Treasury Secretary Steven Mnuchin has already begun to implement “extraordinary measures” to keep us under the debt ceiling.  The first step that was taken was the suspension of the sale of SLGS securities

“Today,” Mnuchin wrote, “Treasury is announcing that it will suspend the sale of State and Local Government Series (SLGS) securities. SLGS are special-purpose Treasury securities issued to states and municipalities to assist them in conforming to certain tax rules. These securities count against the debt limit. The suspension of SLGS sales will commence on March 15, 2017, and continue until the debt limit is either raised or suspended. As in the past, it is likely Treasury will utilize additional extraordinary measures.”

The federal government will be able to keep going for a little while by implementing such “extraordinary measures”, but the Treasury cash balance is going to continue to dwindle and at some point a major squeeze is going to happen.

As things get tighter and tighter, the Trump administration will become increasingly desperate to get the debt ceiling raised.  As I wrote about yesterday, the key for Trump is going to be finding 218 votes in the House of Representatives that will be willing to go along with him.

You would think that since Republicans control the House that this should be easy, but the truth is that there are a lot of conservative Republicans that are not inclined to agree to a debt ceiling increase without substantial accompanying budget cuts.

The proposed budget that Trump released this week is getting a lot of criticism from the left for cuts to social programs, but the truth is that it actually doesn’t reduce the deficit at all

President Trump’s “skinny” budget blueprint for 2018 features a proposed $54 billion increase in defense spending and an equal number of spending cuts from the smallest part of the federal budget.

That means his changes won’t add to next year’s projected $487 billion deficit. But they won’t reduce it, either.

And remember, that “$487 billion” figure is just for show.  During the Obama years the U.S. national debt increased by an average of well over a trillion dollars a year, and that is almost certainly going to continue for years to come as long as the debt ceiling is raised.

Republicans are supposed to be the party of fiscal responsibility.

So now is their big test.

If they raise the debt ceiling and continue adding more than a trillion dollars a year to the national debt, they will lose all credibility with conservative voters on fiscal issues.

But if they try to force the federal government to start living within its means that is going to severely harm the economy in the short-term.

Donald Trump is going to have to try to figure out a way to navigate this crisis.  He has already promised that he will not touch Social Security and Medicare, and those are the two biggest drivers of our budget deficits.  In fact, it is being projected that entitlement spending and interest on the debt will eat up every single penny that the federal government takes in within 20 years.

So if Trump won’t touch the big entitlement programs, where will he possibly find enough cuts to satisfy the fiscal conservatives in Congress?

Without them, Trump does not have enough votes to raise the debt ceiling.

In addition, many of the conservatives in Congress absolutely hate the new Republican health care plan, and they hope to use this debt ceiling crisis as leverage to change the bill.

If Trump can’t work out something with conservatives, perhaps he could turn to the Democrats.  But most Democrats are extremely resistant to work with him on anything after all that has been said and done, and so for Trump to get a deal with them he would have to make extreme concessions.

This represents the biggest political test for the Trump presidency so far, and if we get down the road a couple of months and nothing gets done, this debt ceiling crisis could spark the kind of financial crisis that I describe in my novel entitled “The Beginning Of The End“.

Barack Obama pushed things right to the brink a couple of times, but he was savvy enough politically to never let things go over the edge.

Now it is Trump’s turn, and somehow he has got to find a way to get the debt ceiling raised without making extremely deep compromises that would gut the rest of his agenda.

And he had better get to work on this quickly, because time is running out and the clock is ticking…

Drowning In Debt: 35 Percent Of All Americans Have Debt That Is At Least 180 Days Past Due

drowning-help-public-domainMore than a third of all Americans can’t pay their debts.  I don’t know about you, but to me that is a shocking figure.  As you will see below, 35 percent of the people living in this country have debt in collections.  When a debt is in  collections, it is at least 180 days past due.  And this is happening during the “economic recovery” that the mainstream media keeps touting, although the truth is that Barack Obama is going to be the only president in United States history to never have a single year when the economy grew by at least 3 percent.  But at least things are fairly stable for the moment, and if this many Americans are having trouble paying their bills right now, what are things going to look like when the economy becomes extremely unstable once again.

The 35 percent figure is a nugget that I discovered in a CNN article about Detroit that I was reading earlier today

And the city’s troubles have left a mark on the financial stability of its residents in a big way, according to a new report from the Urban Institute.

About 66% of residents have debt in collections — meaning more than 180 days past due — at a median amount of $1,847. Across the U.S., 35% of Americans have debt in collections.

It is hard to believe that 66 percent of the residents of one of our largest cities could have debt in collections, but without a doubt the city of Detroit is a complete and utter economic wasteland at this point.

But to me, the 35 percent figure for the nation as a whole is a much greater concern.

And much of the debt that is in collections is credit card debt.

In the immediate aftermath of the last financial crisis, many Americans started getting out of debt, and that was a very good thing.

Unfortunately, that trend has completely reversed itself over the past few years, and now credit card balances are rising at a pace that is quite alarming

Using data from the U.S. Census Bureau and the Federal Reserve, ValuePenguin found that the average credit card debt for households that carry a balance is a shocking $16,048 — a figure that has risen by 10% over the past three years. At the average variable credit card interest rate of 16.1%, this translates to nearly $2,600 in credit card interest alone. And many credit cards have interest rates much higher than the average.

Even scarier, consider that based on the average interest rate and a minimum payment of 1.5% of the balance, it would take nearly 14 years for the typical indebted household to pay off its existing credit card debt, at a staggering cost of more than $40,200. Keep in mind that this assumes no additional credit card debt is added to the tab along the way.

Those that have been there know exactly how it feels to be drowning in credit card debt.

You know, they don’t teach you about credit cards in high school or in college.  At least they didn’t in my day.  So once I got out into the “real world” and discovered the joy of instantly getting whatever I wanted with a credit card, I didn’t understand how painful it would be to pay that money back someday.

If you have credit card balances that are out of control, they can keep you up late into the night.  The worry and the fear can eat away at you like a cancer, and many people play a game of moving balances from one card to another in a desperate attempt to stay afloat.

Fortunately I learned my hard lessons at an early enough age to get things turned around.  Now I warn others about the danger of credit card debt through my writing, and my hope is that the things that I share on my websites are doing some good for others that may be struggling financially.

When you are deep in debt, it is exceedingly difficult to build up any wealth of your own.  This is one of the primary reasons why 69 percent of all Americans have less than $1,000 in savings today.

In essence, more than two-thirds of the country is living paycheck to paycheck, and that is a recipe for disaster when the next major economic downturn in the U.S. strikes.

Overall, household debt in America has now reached a grand total of 12.3 trillion dollars.  When you break that down, it comes to $38,557 for every man, woman and child in the entire nation.

So for a family of five, your share of that total would be $192,785.

And remember, that is just household debt.  That total does not include any form of business debt or any form of government debt.

We truly are a “buy now, pay later” society.  We were the wealthiest and most prosperous nation on the entire planet, and previous generations handed us the keys to the greatest economic machine in world history, but that wasn’t good enough for us.

We always had to have more, more, more – and now we have accumulated more debt than any society in the history of the globe.

It is inevitable that this giant debt bubble is going to burst.  Anyone with an ounce of common sense can see that.

What we experienced in 2008 was just a preview of the hard times that are coming.  The next recession is going to be even worse, and most economists are convinced that it will happen within the next four years no matter who is elected president in November.  The following comes from the Wall Street Journal via the Calculated Risk blog

Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60%.

Just like the last time around, millions of those that are “living on the edge” financially will fall out of the middle class and into poverty when they lose their jobs.

Hopefully most of you that have been reading my work for an extended period of time have already been getting out of debt and have been building up a financial cushion.

Sadly, most of the country continues to act as if they are living in a pre-2008 world, and the economic wake up call that is coming is going to be incredibly painful for those that thought they could get away with being exceedingly reckless financially.

China Is On A Debt Binge And A Buying Spree Unlike Anything The World Has Ever Seen Before

Chinese Black Dragon - Photo by AngelusWhen it comes to reckless money creation, it turns out that China is the king.  Over the past five years, Chinese bank assets have grown from about 9 trillion dollars to more than 24 trillion dollars.  This has been fueled by the greatest private debt binge that the world has ever seen.  According to a recent World Bank report, the level of private domestic debt in China has grown from about 9 trillion dollars in 2008 to more than 23 trillion dollars today.  In other words, in just five years the amount of money that has been loaned out by banks in China is roughly equivalent to the amount of debt that the U.S. government has accumulated since the end of the Reagan administration.  And Chinese bank assets now absolutely dwarf the assets of the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England combined.  You can see an amazing chart which shows this right here.  A lot of this “hot money” has been flowing out of China and into U.S. companies, U.S. stocks and U.S. real estate.  Unfortunately for China (and for the rest of us), there are lots of signs that the gigantic debt bubble in China is about to burst, and when that does happen the entire world is going to feel the pain.

It was Zero Hedge that initially broke this story.  Over the past several years, most of the focus has been on the reckless money printing that the Federal Reserve has been doing, but the truth is that China has been far more reckless

You read that right: in the past five years the total assets on US bank books have risen by a paltry $2.1 trillion while over the same period, Chinese bank assets have exploded by an unprecedented $15.4 trillion hitting a gargantuan CNY147 trillion or an epic $24 trillion – some two and a half times the GDP of China!

 Putting the rate of change in perspective, while the Fed was actively pumping $85 billion per month into US banks for a total of $1 trillion each year, in just the trailing 12 months ended September 30, Chinese bank assets grew by a mind-blowing $3.6 trillion!

I was curious to see what all of this debt creation was doing to the money supply in China.  So I looked it up, and I discovered that M2 in China has grown by about 1000% since 1999…

M2 Money Supply China

So what has China been doing with all of that money?

Well, they have been on a buying spree unlike anything the world has ever seen before.  For example, according to Reuters China has essentially bought the entire oil industry of Ecuador…

China’s aggressive quest for foreign oil has reached a new milestone, according to records reviewed by Reuters: near monopoly control of crude exports from an OPEC nation, Ecuador.

Last November, Marco Calvopiña, the general manager of Ecuador’s state oil company PetroEcuador, was dispatched to China to help secure $2 billion in financing for his government. Negotiations, which included committing to sell millions of barrels of Ecuador’s oil to Chinese state-run firms through 2020, dragged on for days.

And the Chinese have been doing lots of shopping in the United States as well.  The following is an excerpt from a recent CNBC article entitled “Chinese buying up California housing“…

At a brand new housing development in Irvine, Calif., some of America’s largest home builders are back at work after a crippling housing crash. Lennar, Pulte, K Hovnanian, Ryland to name a few. It’s a rebirth for U.S. construction, but the customers are largely Chinese.

“They see the market here still has room for appreciation,” said Irvine-area real estate agent Kinney Yong, of RE/MAX Premier Realty. “What’s driving them over here is that they have this cash, and they want to park it somewhere or invest somewhere.”

Apparently a lot of these buyers have so much cash that they are willing to outbid anyone if they like the house…

The homes range from the mid-$700,000s to well over $1 million. Cash is king, and there is a seemingly limitless amount.

“The price doesn’t matter, 800,000, 1 million, 1.5. If they like it they will purchase it,” said Helen Zhang of Tarbell Realtors.

So when you hear that housing prices are “going up”, you might want to double check the numbers.  Much of this is being caused by foreign buyers that are gobbling up properties in certain “hot” markets.

We see this happening on the east coast as well.  In fact, a Chinese firm recently purchased one of the most important landmarks in New York City

Chinese conglomerate Fosun International Ltd. (0656.HK) will buy office building One Chase Manhattan Plaza for $725 million, adding to a growing list of property purchases by Chinese buyers in New York city.

The Hong Kong-listed firm said it will buy the property from JP Morgan Chase Bank, according to a release on the Hong Kong Stock Exchange website.

Chinese firms, in particular local developers, have looked overseas to diversify their property holdings as the economy at home slows. Chinese individuals also have been investing in property abroad amid tight policy measures in the mainland residential market.

Earlier this month, Chinese state-owned developer Greenland Holdings Group agreed to buy a 70% stake in an apartment project next to the Barclays Center in Brooklyn, N.Y., in what is the largest commercial-real-estate development in the U.S. to get direct backing from a Chinese firm.

And in a previous article, I discussed how the Chinese have just bought up the largest pork producer in the entire country…

Just think about what the Smithfield Foods acquisition alone will mean.  Smithfield Foods is the largest pork producer and processor in the world.  It has facilities in 26 U.S. states and it employs tens of thousands of Americans.  It directly owns 460 farms and has contracts with approximately 2,100 others.  But now a Chinese company has bought it for $4.7 billion, and that means that the Chinese will now be the most important employer in dozens of rural communities all over America.

For many more examples of how the Chinese are gobbling up companies, real estate and natural resources all over the United States, please see my previous article entitled “Meet Your New Boss: Buying Large Employers Will Enable China To Dominate 1000s Of U.S. Communities“.

But more than anything else, the Chinese seem particularly interested in acquiring real money.

And by that, I mean gold and silver.

In recent years, the Chinese have been buying up thousands of tons of gold at very depressed prices.  Meanwhile, the western world has been unloading gold at a staggering pace.  By the time this is all over, the western world is going to end up bitterly regretting this massive transfer of real wealth.

Unfortunately for the Chinese, it appears that the unsustainable credit bubble that they have created is starting to burst.  According to Bloomberg, the amount of bad loans that the five largest banks in China wrote off during the first half of this year was three times larger than last year…

China’s biggest banks are already affected, tripling the amount of bad loans they wrote off in the first half of this year and cleaning up their books ahead of what may be a fresh wave of defaults. Industrial & Commercial Bank of China Ltd. and its four largest competitors expunged 22.1 billion yuan of debt that couldn’t be collected through June, up from 7.65 billion yuan a year earlier, regulatory filings show.

And Goldman Sachs is projecting that China may be facing 3 trillion dollars in credit losses as this bubble implodes…

Interest owed by borrowers rose to an estimated 12.5 percent of China’s economy from 7 percent in 2008, Fitch Ratings estimated in September. By the end of 2017, it may climb to as much as 22 percent and “ultimately overwhelm borrowers.”

Meanwhile, China’s total credit will be pushed to almost 250 percent of gross domestic product by then, almost double the 130 percent of 2008, according to Fitch.

The nation might face credit losses of as much as $3 trillion as defaults ensue from the expansion of the past four years, particularly by non-bank lenders such as trusts, exceeding that seen prior to other credit crises, Goldman Sachs Group Inc. estimated in August.

The Chinese are trying to get this debt spiral under control by tightening the money supply.  That may sound wise, but the truth is that it is going to create a substantial credit crunch and the entire globe will end up sharing in the pain…

Yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing’s relentless drive to tighten the monetary spigots in the world’s second-largest economy.

The higher yields on government debt have pushed up borrowing costs broadly, creating obstacles for companies and government agencies looking to tap bond markets. Several Chinese development banks, which have mandates to encourage growth through targeted investments, have had to either scale back borrowing plans or postpone bond sales.

This could ultimately be a much bigger story than whether or not the Fed decides to “taper” or not.

It has been the Chinese that have been the greatest source of fresh liquidity since the last financial crisis, and now it appears that source of liquidity is tightening up.

So as the flow of “hot money” out of China starts to slow down, what is that going to mean for the rest of the planet?

And when you consider this in conjunction with the fact that China has just announced that it is going to stop stockpiling U.S. dollars, it becomes clear that we have reached a major turning point in the financial world.

2014 is shaping up to be a very interesting year, and nobody is quite sure what is going to happen next.

The Coming Food Stamp Riots

Riot Control - Photo by James McCauleyIt may not happen this month, or even this year, but food stamp riots are coming to America.  In fact, we got a small preview of the coming food stamp riots this past weekend when a “temporary system failure” caused food stamp cards to stop working in 17 U.S. states.  Within hours, there were “mini-riots” at Wal-Marts and other retailers that rely heavily on food stamp users.  So what would happen if food stamp benefits were cut off or reduced for an extended period of time?  As you will see below, if Congress had not pushed through a “deal”, the USDA would have started cutting off food stamp benefits on November 1st.  Considering the fact that 47 million Americans are on food stamps and more than 100 million Americans are enrolled in at least one welfare program run by the federal government, that could have sparked massive rioting.  So the good news is that the coming food stamp riots will probably not happen in November.  The bad news is that the “deal” in Congress only delays the political fighting until after Christmas.  In just a few months we will be dealing with a potential “government shutdown” and a debt ceiling deadline once again.

Most Americans have no idea what almost just happened.  According to Reuters, the state of North Carolina had already cut off some welfare benefits for the month of November…

North Carolina has become the first state to cut off welfare benefits to poor residents in the wake of the partial federal government shutdown, ordering a halt to processing November applications until a deal is reached to end the federal standstill.

More than 20,000 people – most of them children – receive monthly benefits aimed at helping them buy food and other basic supplies through North Carolina’s welfare program, called Work First, which is fully funded by the federal government. Recipients must reapply each month.

And as Mac Slavo recently detailed, the USDA was already planning to cut off food stamp assistance to millions of Americans on November 1st…

We say next month because the USDA, which oversees the Supplemental Nutritional Assistance Program (SNAP), has just issued an order to SNAP agency directors calling for their respective States to implement an emergency contingency program because of government funding issues. In a letter obtained by the Crossroads Urban Center food pantry, the USDA is directing state agencies to, “delay their November issuance files and delay transmission to State Electronic Benefit Transfer (EBT) vendors until further notice.”

What this means is that should Congress fail to increase the debt ceiling this week, come November there will literally be millions of people in the United States who will have exactly zero dollars transferred to their EBT cards.

What will happen to the nearly 50 million people who depend on these benefits to survive?

In fact, there have been quite a few news reports that have confirmed this

In Utah, Fox News 13 in Salt Lake City reported that a local provider recently received a letter from the USDA sticking to the November 1 cut-off date.

“This is going to create a huge hardship for the people we serve here in our food pantry,” Bill Tibbits, Associate Director at Crossroads Urban Center, told Fox News 13.

“What this means [is] if there’s not a deal, if Congress doesn’t reach a deal to get federal government back up and running, in Utah about 100,000 families won’t get food stamp benefit,” added Tibbits.

The USDA letter says in part, “in the interest of preserving maximum flexibility, we are directing states to hold their November issuance files and delay transmission to state electronic benefit transfer vendors until further notice.”

So what would have happened if tens of millions of Americans suddenly had their food stamp benefits cut off without warning?

Well, what happened last weekend can give us a few clues.  Just check out what happened at one Wal-Mart in Mississippi

Customers staged a disturbance then walked out of a Mississippi Walmart store with groceries that hadn’t been paid for Saturday night after a computer glitch left them unable to use their food stamp cards.

People in 17 states found themselves unable to buy groceries with their Supplemental Nutrition Assistance Program cards after a routine check by vendor Xerox Corp. resulted in a temporary system failure.

Shortly after the mini-riot, managers decided to temporarily close the store, citing customer safety.

Due to this technical glitch, many parents were left wondering how they were going to feed their families.  If this is the kind of anger that is unleashed over a single failed trip to the grocery store, what would we see if this kind of thing went on for an extended period of time?

At some Wal-Mart stores down in Louisiana, EBT cards were not showing any limits on Saturday night, and within two hours many store shelves in the grocery section were completely cleared of merchandise…

Shelves in Walmart stores in Springhill and Mansfield, LA were reportedly cleared Saturday night, when the stores allowed purchases on EBT cards even though they were not showing limits.

The chaos that followed ultimately required intervention from local police, and left behind numerous carts filled to overflowing, apparently abandoned when the glitch-spurred shopping frenzy ended.

Springhill Police Chief Will Lynd confirms they were called in to help the employees at Walmart because there were so many people clearing off the shelves. He says Walmart was so packed, “It was worse than any black Friday” that he’s ever seen.

Sadly, this was only a very small preview of the massive food stamp riots that are eventually coming to America.  I like how Mike Adams explained what we are likely to see in the future…

Why does any of this matter? Because this is exactly the same way these people will behave when the federal government goes into default and nearly 50 million EBT cards stop working nationwide.

Fifty million. Consider that for a moment. Most of those 50 million people live in high-density cities. Many are proud owners of Obama phones, Obama food stamps, Obama unemployment checks and Obama subsidized housing. They have absolutely no clue that the government upon which they wholly depend to put food on the table is teetering on the verge of permanent collapse. (Seriously, they cannot conceive of the idea of government “running out of money” because they do not understand where money comes from.) Because of this distorted belief, they do not prepare for any future events other than more Obama handouts. Their entire “preparedness” plan is to vote for Democrats, because that’s who they know will give them the most handouts. And they will always win the popular vote, too, because any politician promising to restore responsible fiscal spending to the government by cutting programs will be viciously accused of being “mean” or involved in “hating poor people.” So the government handouts will only ratchet higher and higher, ensnaring more and more people, until the entire system is unsustainable and collapses under its own weight.

When that system of dependence fails, those who depend on it will panic in mere hours. As proof of this, consider the fact that this mass looting of Wal-Mart stores happened in less than three hours after the Saturday EBT card glitch struck. Police had to be called in to prevent the situation from getting completely out of control, and it was offline for only part of one day.

Now imagine what will happen when EBT cards go offline for 24, 48 or even 72 hours. And imagine it happening in every U.S. city simultaneously.

Of course not all Americans would go wild when food stamp benefits are cut off.

Other Americans express their desperation in other ways.  According to Bloomberg, an increasing number of people are starting to sell hair, breast milk and their own eggs in a desperate attempt to make ends meet…

Hair, breast milk and eggs are doubling as automated teller machines for some cash-strapped Americans such as April Hare.

Out of work for more than two years and facing eviction from her home, Hare recalled Louisa May Alcott’s 19th-century novel and took to her computer.

“I was just trying to find ways to make money, and I remembered Jo from ‘Little Women,’ and she sold her hair,” the 35-year-old from Atlanta said. “I’ve always had lots of hair, but this is the first time I’ve actually had the idea to sell it because I’m in a really tight jam right now.”

The mother of two posted pictures of her 18-inch auburn mane on www.buyandsellhair.com, asking at least $1,000 and receiving responses within hours. Hare, who also considered selling her breast milk, joins others exploring unconventional ways to make ends meet as the four-year-old economic expansion struggles to invigorate the labor market and stimulate incomes.

We have moved into a time when things are becoming increasingly unstable and when people are becoming increasingly desperate.

In an attempt to keep order, the authorities will become increasingly forceful in the years ahead.  At this point, many law enforcement officers already believe that there is very little that they cannot do to exert their “authority” over the rest of us.  Just check out video of a drunk off-duty police officer “arresting” a woman that refused to go out on a date with him right here.  Sadly, this type of behavior is becoming way too common these days.

And it looks like major financial institutions are getting ready for the chaos that is eventually coming as well.  In fact, according to an article by Paul Joseph Watson, Chase Bank is now placing a limit on cash withdrawals and is banning business customers from sending wire transfers out of the country…

Chase Bank has moved to limit cash withdrawals while banning business customers from sending international wire transfers from November 17 onwards, prompting speculation that the bank is preparing for a looming financial crisis in the United States by imposing capital controls.

Numerous business customers with Chase BusinessSelect Checking and Chase BusinessClassic accounts have received letters over the past week informing them that cash activity (both deposits and withdrawals) will be limited to a $50,000 total per statement cycle from November 17 onwards.

Fortunately, the chaos that would have been unleashed if Congress had not made a deal has now been delayed for a few months.

But by kicking the can down the road, our politicians continue to make our long-term problems even worse.  Either we are going to have tremendous pain now, or we are going to have even worse pain later.  Peter Schiff explained the choice that we are facing this way…

If Republicans were to inexplicably prevail, and the federal government were to cut spending so that its expenditures matched its tax revenues (a truly radical idea) the country’s financial mess would be laid bare. The government would have to weigh the relative costs and benefits of making interest payments on Treasury debt (primarily to foreign creditors) or to trim entitlements promised to U.S. citizens. But those are choices we will have to make sooner or later anyway. In fact we should have dealt with these issues years ago. But generations of mechanistic debt ceiling increases have allowed us to perpetually kick the can down the road. What could possibly be gained by doing it again, particularly if it is done with no commitment to change course?

The Democrats’ argument that America needs to pay its bills is just hollow rhetoric. Paying off one’s Visa bill with a new and bigger MasterCard bill can’t be considered a legitimate payment of debt. At best it is a transfer. But in the government’s case, it doesn’t even qualify as that. Treasury debt is primarily bought by the Fed, foreign central banks, and major financial institutions. None of that will change with a debt ceiling increase. We will just go to the same people for greater quantities. So it’s like paying off your Visa card with a bigger Visa card.

We are living on borrowed time that has been purchased by stealing money from future generations.

We are literally destroying the future in order to make the present more palatable.

But whether it is this year, or next year or the year after that, at some point we are going to experience the pain that results from decades of incredibly foolish decisions.

I hope that you are getting ready.

The Japanese Financial System Is Beginning To Spin Wildly Out Of Control

Wildly Out Of ControlThe financial system of the third largest economy on the planet is starting to come apart at the seams, and the ripple effects are going to be felt all over the globe.  Nobody knew exactly when the Japanese financial system was going to begin to implode, but pretty much everyone knew that a day of reckoning for Japan was coming eventually.  After all, the Japanese economy has been in a slump for over a decade, Japan has a debt to GDP ratio of well over 200 percent and they are spending about 50 percent of all tax revenue on debt service.  In a desperate attempt to revitalize the economy and reduce the debt burden, the Bank of Japan decided a few months ago to start pumping massive amounts of money into the economy.  At first, it seemed to be working.  Economic activity perked up and the Japanese stock market went on a tremendous run.  Unfortunately, there is also a very significant downside to pumping your economy full of money.  Investors start demanding higher returns on their money and interest rates go up.  But the Japanese government cannot afford higher interest rates.  Without super low interest rates, Japanese government finances would totally collapse.  In addition, higher interest rates in the private sector would make it much more difficult for the Japanese economy to expand.  In essence, pretty much the last thing that Japan needs right now is significantly higher interest rates, but that is exactly what the policies of the Bank of Japan are going to produce.

There is a lot of fear in Japan right now.  On Thursday, the Nikkei plunged 7.3 percent.  That was the largest single day decline in more than two years.  Then on Monday the index fell by another 3.2 percent.

And according to Business Insider, things are not looking good for Tuesday at this point…

In post-close futures trading, the Nikkei has dropped by another couple hundred points, and has dropped below 14,000.

Are we witnessing the beginning of a colossal financial meltdown by the third largest economy on the planet?  The Bank of Japan is starting to lose control, and if Japan goes down hard the crisis could spread to Europe and North America very rapidly.  The following is from a recent article by Graham Summers

As Japan has indicated, when bonds start to plunge, it’s not good for stocks. Today the Japanese Bond market fell and the Nikkei plunged 7%. The entire market down 7%… despite the Bank of Japan funneling $19 billion into it to hold things together.

This is what it looks like when a Central Bank begins to lose control. And what’s happening in Japan today will be coming to the US in the not so distant future.

If you think the Fed is not terrified of this, think again. The Fed has pumped over $1 trillion into foreign banks, hoping to stop the mess from getting to the US. As Japan is showing us, the Fed will fail.

Investors, take note… the financial system is sending us major warnings…

If you are not already preparing for a potential market collapse, now is the time to be doing so.

And all of this money printing is absolutely crushing the Japanese yen.  Since the start of 2013, the yen has declined 16 percent against the U.S. dollar, even though the U.S. dollar is also being rapidly debased.   Just check out this chart of the yen vs. the U.S. dollar.  It is absolutely stunning…

Japanese Yen

The term “currency war” is something that you are going to hear a lot more over the next few years, and what you can see in the chart above is only the beginning.

What the Bank of Japan is doing right now is absolutely unprecedented.  It has announced that it plans to inject the equivalent of approximately $1.4 trillion into the Japanese economy in less than two years.

As Kyle Bass recently discussed, that dwarfs the quantitative easing that the Federal Reserve has been doing…

“What they’re doing represents 70% of what the Fed is doing here with an economy 1/3 the size of ours”

The big problem for Japan will come when government bond yields really start to rise.  The yield on 10 year government bonds has been creeping up over the past few months, and if they hit the 1.0% mark that will set off some major red flags.

Because Japan has a debt to GDP ratio of more than 200 percent, the only way that it can avoid a total meltdown of government finances is to have super low interest rates.  The video posted below does a great job of elaborating on this point…

It really is very simple.  If interest rates rise substantially, Japan will be done.

Investor Kyle Bass is one of those that have been warning about this for a long time…

There’s a fatalism, he says, in everyone he talks to in Japan. Their thinking is changing, and the way they talk to him about debt is changing. They already spend 50% of tax revenue on debt service.

“If rates go up, it’s game over.”

The financial problems in Cyprus and Greece are just tiny blips compared to what a major financial crisis in Japan would potentially be like.  The Japanese economy is larger than the economies of Germany and Italy combined.  If the house of cards in Japan comes tumbling down, trillions of dollars of investments all over the globe are going to be affected.

And what is happening right now in Japan should serve as a sober warning to the United States.  Like Japan, the money printing that the Federal Reserve has been doing has caused economic activity to perk up a bit and it has sent the stock market on an unprecedented run.

Unfortunately, no bubble that the Federal Reserve has ever created has been able to last forever.  At some point, we will pay a very great price for all of the debt that the U.S. government has been accumulating and all of the reckless money printing that the Fed has been engaged in.

So enjoy the calm before the storm while you still can.

It won’t last for long.

The Federal Reserve Shows Barack Obama Who The Real Boss Is

The Federal Reserve Shows Barack Obama Who The Real Boss IsBarack Obama has greatly expanded the powers of the presidency during his time in the White House, but there is one institution that he simply will not mess with.  There is one organization that is considered to be so sacred in Washington D.C. that Obama will not dare utter a single negative word against it.  That organization is the Federal Reserve.  Even though he has shown that he is unafraid to pick a fight with just about everyone else in Washington, Obama flat out refuses to criticize the Fed and he even reappointed Ben Bernanke for another term as Fed Chairman even though Bernanke has a track record of failure that would make the Chicago Cubs look good.  Perhaps Obama is aware of what has happened to other presidents that have chosen to tangle with the Fed.  In any event, it has become clear that Obama submits to anything that the Fed says without question, and the controversy over the “trillion dollar coin” is another perfect example of this.  For weeks, there has been much speculation in the mainstream media about the possibility that the Obama administration may print up a one trillion dollar coin that it would use to keep paying the bills of the federal government if an agreement to raise the debt ceiling is not reached.  But on Saturday the Federal Reserve killed that idea, and we shouldn’t be surprised by that because under no circumstances will the Fed ever accept a threat to their monopoly over money creation in the United States.  If the Federal Reserve had allowed Obama to print up a debt-free trillion dollar coin, that would have set a very dangerous precedent for the Fed.  The American people would have realized that the federal government can actually create debt-free money whenever it wants and that it does not actually have to borrow money from anyone.  That is something that the Fed probably would have moved heaven and earth to keep from happening.  But now we won’t ever know how far the Fed would really be willing to go to keep their monopoly over money creation, because Obama has no plans to challenge this latest ruling from “the real boss” of our financial system.

Sadly, most Americans don’t even realize that a private banking cartel has a monopoly over all money creation in this country.  In recent years they have abused this power by wildly printing money (“quantitative easing“), and by making more than 16 trillion dollars in secret loans to their friends during the last financial crisis.  Under our system, the private Federal Reserve creates money whenever they want, and nobody else gets to create money.  It is an insane system, but very, very few of our politicians will ever dare to question it.

At this point, the U.S. Treasury Department is essentially just an arm of the Federal Reserve.  That is why it was no surprise that the Fed and the Treasury Department issued a joint statement on Saturday.  According to Treasury spokesman Anthony Coley, both the Treasury and the Fed have come to the conclusion that under no circumstances should a trillion dollar coin be printed up by the Obama administration…

“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit”

But of course it was actually the Federal Reserve which made this decision.  The following is from a report posted by Zeke Miller of Buzzfeed.com

The Federal Reserve was responsible for killing a controversial proposal to circumvent the debt limit, a senior administration official told BuzzFeed Sunday.

On Saturday the Treasury Department released a statement ruling out the only remaining alternative to Congress raising the nation’s borrowing limit, which would utilize a loophole in federal law to mint a $1 trillion coin to be deposited in the Federal Reserve and ensure the federal government could pay all bills and debt obligations.

According to that Buzzfeed article, the Federal Reserve would have actually refused to recognize the trillion dollar coin if the Obama administration had tried to deposit it with the Fed…

But it was the Federal Reserve that killed the proposal, the official told BuzzFeed, denying a purely political rationale for the announcement, saying the independent central bank would not have credited the Treasury’s accounts for the vast sum for depositing the coin.

Wow.

So there you go.

The real boss has told Barack Obama how it is going to be, and Obama plans to meekly comply.

So why is the Federal Reserve so adamant about maintaining their monopoly over money creation?

Well, it is all about compound interest.  Albert Einstein once made the following statement about compound interest…

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

When the Federal Reserve system was initially created back in 1913, the bankers that created it intended for it to be a perpetual debt machine that would extract massive amounts of wealth from the U.S. government (and ultimately from all of us) through the mechanism of compound interest.  Each year, hundreds of billions of dollars of interest are transferred into the pockets of the wealthy bankers and foreign nations that own our debt.  This is one of the reasons why I preach about the evils of government debt until I am blue in the face.  The debt-based Federal Reserve system is a way to systematically steal the wealth of the United States, and it is happening right in front of our eyes, but very few people actually understand it well enough to complain about it.

Unfortunately, we are rapidly getting to the point where we have accumulated so much debt that it is threatening to collapse our entire financial system.  The following comes from a recent Zero Hedge article

By now most are aware of the various metrics exposing the unsustainability of US debt (which at 103% of GDP, it is well above the Reinhart-Rogoff “viability” threshold of 80%; and where a return to just 5% in blended interest means total debt/GDP would double in under a decade all else equal simply thanks to the “magic” of compounding), although there is one that captures perhaps best of all the sad predicament the US self-funding state (where debt is used to fund nearly half of total US spending) finds itself in. It comes from Zhang Monan, researcher at the China Macroeconomic Research Platform: “The US government is now trying to repay old debt by borrowing more; in 2010, average annual debt creation (including debt refinance) moved above $4 trillion, or almost one-quarter of GDP, compared to the pre-crisis average of 8.7% of GDP.

This is a key statistic most forget when they discuss the stock and flow of US debt: because whereas the total US deficit, and thus net debt issuance, is about $1 trillion per year, one has to factor that there is between $3 and $4 trillion in maturities each year, which have to be offset by a matched amount of gross issuance just to keep the stock of debt flat (pre deficit funding). The assumption is that demand for this gross issuance will always exist as old maturities are rolled into new debt, however, this assumption is contingent on one very key variable: interest rates not rising.

Do you understand what is being said there?

Not only is our debt rising by more than a trillion dollars a year, we also need to roll over trillions of dollars of federal debt each year.  If interest rates on that debt start rising, we are going to start feeling the pain very rapidly.

As I have mentioned previously, the average rate of interest on U.S. government debt was 6.638 percent back in 2000.  If we returned to that level today, we would be paying more than a trillion dollars a year just in interest on the national debt.

The main thing keeping interest rates low right now is the fact that the U.S. dollar is the de facto reserve currency of the world.  If that ends, interest rates on U.S. debt will skyrocket.  The following is from a recent article by Chris Ferreira

The US Dollar is the reserve currency of the world. You need it to buy oil, a vital component of any economy. Since other countries like China cannot print US dollars at their leisure, they have to get it from somewhere. They get it from trade with the US. The US buys products in Asia and the rest of the world with US dollars, and in turn these same dollar surpluses are used to buy oil and US bonds, creating a much needed artificial demand for US dollars.

This is also how the enormous US 558$ billion trade deficit in 2011 was financed. The US has been in a trade deficit since the 1980′s and it continues the grow as jobs and manufacturing are being lost to more competitive nations. The trade deficit also accounts for the national debt. The financing of the debt creates artificial demand for US bonds which helps lower the interest rate and coincidentally helps to raise the debt levels even higher.

Unfortunately, the rest of the world is starting to move away from the U.S. dollar.  Over the past couple of years, a whole host of international currency agreements have been signed that are intended to start reducing the use of the U.S. dollar in international trade.  For much more on this, please see the following article: “The Giant Currency Superstorm That Is Coming To The Shores Of America When The Dollar Dies“.

Most Americans have absolutely no idea how very close we are to financial catastrophe.  The only way we can continue to service our enormous 16 trillion dollar debt is for interest rates on that debt to remain super low.  But the only way those interest rates can remain low is for the U.S. dollar to remain absolutely dominant in international trade.  Once the rest of the world rejects the U.S. dollar, the game is over.

We are headed for total system meltdown, but neither major political party is going to do a thing about it.  They are both just going to continue to meekly comply with the dictates of the real boss of our financial system – the Federal Reserve.

It is imperative that we educate the American people about these things.  Please share this article with as many people as you can, and the following is another great article for anyone that does not understand how the Federal Reserve is destroying our financial system: “10 Things That Every American Should Know About The Federal Reserve“.

The Great Seal Of The United States - A Symbol Of Your Enslavement - Photo by Ipankonin

Ready Made Resources 2015
Finca Bayano
Panama Relocation Tours
The 1 Must Own Gold Stock
180x350




 

Credible Warning

ProphecyHour

Facebook Twitter More...