Broke nations are bailing out other broke nations with borrowed money. Round and round we go – where we stop nobody knows. As of April, 41 different countries had active financial “arrangements” with the IMF. Sometimes they are called “bailouts” and sometimes they are called other things, but in every single case they involve loans. And most of the time, these loans come with very stringent conditions. It is a form of “global governance” that most people don’t even know about. For decades, the IMF has been able to use money as a way to force developing nations to do what it wants them to do. But up until fairly recently, this had mostly only been done with poor nations. But now an increasing number of wealthy nations are turning to the IMF for help. We have already seen Greece, Portugal, Ireland and Cyprus receive bailouts which were partly funded by the IMF, Spain has received a bailout for its banking sector, and as I noted yesterday, it is being projected that Italy will need a major bailout within six months. How long can this go on before the entire system collapses?
Well, that would depend on how much money the lender has.
And so where does the IMF get their money?
The IMF gets their money from a bunch of nations that are absolutely drowning in debt themselves.
The IMF is funded by “wealthy” nations that dominate the global economy. The following is how Wikipedia describes the IMF’s quota system…
The IMF’s quota system was created to raise funds for loans. Each IMF member country is assigned a quota, or contribution, that reflects the country’s relative size in the global economy. Each member’s quota also determines its relative voting power. Thus, financial contributions from member governments are linked to voting power in the organization.
These are the five largest contributors to IMF funding…
United States – 16.75%
Japan – 6.23%
Germany – 5.81%
France – 4.29%
UK – 4.29%
But those countries are in trouble themselves. The U.S. has a debt to GDP ratio of over 100%. Japan has a debt to GDP ratio of over 200%.
The truth is that these countries are funding the IMF with borrowed money.
So what happens when the contributors run out of money and can’t contribute anymore?
All over the globe, an increasing number of countries are reaching out to the IMF for help. For example, on Thursday we learned that Pakistan is getting a new bailout from the IMF…
Pakistan and the International Monetary Fund have reached an initial agreement on a bailout of at least $5.3 billion.
Pakistani Finance Minister Muhammad Ishaq Dar and IMF mission chief Jeffrey Franks announced the agreement at a press conference Thursday.
And the new government in Egypt is hoping that the revolution that just occurred will not stop the flow of IMF funds…
In recent months, a handful of neighboring countries such as Qatar have been keeping Egypt’s economy afloat by loaning the country’s central bank cash. That has bought Morsi government time to delay implementing the politically-sensitive measures the IMF has sought as a precondition before it gives Cairo a $4.8 billion credit line. In particular, the IMF had said that Egypt must raise taxes and begin phasing out fuel subsidies.
It’s not the only cash at stake. Other international donors have vowed another $9.7 billion for the country once the IMF program is in place. Roughly $1.55 billion in bilateral aid from Washington could also be held up: under U.S. law, the administration can’t loan money to countries where the military is involved in an unconstitutional change in government.
But what often happens with these bailouts is that the “conditions” that are imposed prove extremely difficult to meet. For example, Greece has not implemented all of the “reforms” that they were ordered to implement, and so the flow of future funds may be threatened…
As Greece looks set to miss a key reform deadline set by international lenders, which could jeopardize further financial aid, a Greek government minister said it wasn’t Greece’s fault that it couldn’t live up to the demands of a flawed bailout program.
“There are failures [by Greece],but you assume that the program that has been effectively imposed on us is perfect, which is far from the case,” Nikos Dendias, minister of Public Order and Citizen Protection, told CNBC on Thursday.
His comments come after Greek finance ministry officials said on Wednesday that Greece would not meet targets on reforming its public sector by the deadline set by international lenders, putting further financial aid in jeopardy.
Once a nation gets hooked on bailout money from the IMF or from other international sources, it can be very hard to get off of it. But that is what these globalist organizations like – they want to be able to use money as a form of control.
As we saw with Greece, sometimes a nation will need bailout after bailout. And it appears that is also going to be the case with Portugal. The Portuguese government is on the verge of collapsing and their financial situation is being described as “very fragile”…
Portugal had been held up as an example of a bailout country doing all the right things to get its economy back in shape. That reputation is now harder to sustain and even before this latest crisis, the International Monetary Fund reported last month that Lisbon’s debt position was “very fragile”.
Coming soon after the near-collapse of the Greek government, which has been given until Monday to show it can meet the demands of its own EU-IMF bailout, the euro zone may be on the brink of falling back into full-on crisis.
Right now, Portuguese bond yields are absolutely soaring and the Portuguese economy is rapidly heading into depression.
Portugal is going to desperately need the assistance of the IMF.
But what happens when the nations that primarily fund the IMF start failing themselves?
The U.S. is a complete and total financial disaster and so is Japan. Much of Europe is already experiencing a full-blown economic depression and even China is showing signs of trouble.
So if the “wealthy” nations fail, who is going to be there to help the “poor” nations?
As stocks have risen in recent years, the big hedge funds and the “too big to fail” banks have used borrowed money to make absolutely enormous profits. But when you use debt to potentially multiply your profits, you also create the possibility that your losses will be multiplied if the markets turn against you. When the next stock market crash happens, and the gigantic pyramid of risk, debt and leverage on Wall Street comes tumbling down, will highly leveraged banks such as Goldman Sachs ask the federal government to bail them out? The use of leverage is one of the greatest threats to our financial system, and yet most Americans do not even really understand what it is. The following is a basic definition of leverage from Investopedia: “The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.” Leverage allows firms to make much larger bets in the financial markets than they otherwise would be able to, and at this point Goldman Sachs and the big hedge funds are pushing leverage to ridiculous extremes. When the financial markets go up and they win on those bets, they can win very big. For example, revenues at Goldman Sachs increased by about 30 percent in 2012 and Goldman stock has soared by more than 40 percent over the past 12 months. Those are eye-popping numbers. But leverage is a double-edged sword. When the markets turn, Goldman Sachs and many of these large hedge funds could be facing astronomical losses.
Sadly, it appears that Wall Street did not learn any lessons from the financial crisis of 2008. Hedge funds have ramped up leverage to levels not seen since before the last stock market crash. The following comes from a recent Bloomberg article entitled “Hedge-Fund Leverage Rises to Most Since 2004 in New Year“…
Hedge funds are borrowing more to buy equities just as loans by New York Stock Exchange brokers reach the highest in four years, signs of increasing confidence after professional investors trailed the market since 2008.
Leverage among managers who speculate on rising and falling shares climbed to the highest level to start any year since at least 2004, according to data compiled by Morgan Stanley. Margin debt at NYSE firms rose in November to the most since February 2008, data from NYSE Euronext show.
So why is this so important?
Well, as a recent Zero Hedge article explained, even a relatively small drop in stock prices could potentially absolutely devastate many hedge funds…
What near record leverage means is that hedge funds have absolutely zero tolerance for even the smallest drop in prices, which are priced to absolute and endless central bank-intervention perfection – sorry, fundamentals in a time when global GDP growth is declining, when Europe and Japan are in a double dip recession, when the US is expected to report its first sub 1% GDP quarter in years, when corporate revenues and EPS are declining just don’t lead to soaring stock prices.
It also means that with virtually all hedge funds in such hedge fund hotel names as AAPL (the stock held by more hedge funds – over 230 – than any other), any major drop in the price would likely lead to a wipe out of the equity tranche at the bulk of AAPL “investors”, sending them scrambling to beg for either more LP generosity, or to have their prime broker repo desk offer them even more debt. And while the former is a non-starter, the latter has so far worked, which means that most hedge funds have been masking losses with more debt, which then suffers even more losses, and so on.
By the way, Apple (AAPL) just fell to an 11-month low. Apple stock has now declined by 26 percent since it hit a record high back in September. That is a very bad sign for hedge funds.
But hedge funds are not the only ones flirting with disaster. In a previous article about the derivatives bubble, I pointed out the ridiculous amount of derivatives exposure that some of these “too big to fail” banks have relative to their total assets…
According to the Comptroller of the Currency, four of the largest U.S. banks are walking a tightrope of risk, leverage and debt when it comes to derivatives. Just check out how exposed they are…
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
Take another look at those figures for Goldman Sachs. If you do the math, Goldman Sachs has total exposure to derivatives contracts that is more than 362 times greater than their total assets.
That is utter insanity, but we haven’t had a derivatives crash yet so everyone just keeps pretending that the emperor actually has clothes on.
When the derivatives crisis happens, things in the financial markets are going to fall apart at lightning speed. A recent article posted on goldsilverworlds.com explained what a derivatives crash may look like…
When one big bank faces some kind of trouble and fails, the banks with the largest exposure to derivates (think JP Morgan, Citygroup, Goldman Sachs) will realize that the bank on the other side of the derivatives trade (the counterparty) is no longer good for their obligation. All of a sudden the hedged position becomes a naked position. The net position becomes a gross position. The risk explodes instantaneously. Markets realize that their hedged positions are in reality not hedged anymore, and all market participants start bailing almost simultaneously. The whole banking and financial system freezes up. It might start in Asia or Europe, in which case Americans will wake up in the morning to find out that their markets are not functioning anymore; stock markets remain closed, money at the banks become inaccessible, etc.
But for now, the party continues. Goldman Sachs and many of the big hedge funds are making enormous piles of money.
In fact, according to the Wall Street Journal, Goldman Sachs recently gave some of their top executives 65 million dollars worth of restricted stock…
Goldman Sachs Group Inc. GS -0.76% handed insiders including Chief Executive Lloyd Blankfein and his top lieutenants a total of $65 million in restricted stock just hours before this year’s higher tax rates took effect.
The New York securities firm gave 10 of its directors and executives early vesting on 508,104 shares previously awarded as part of prior years’ compensation, according to a series of filings with the Securities and Exchange Commission late Monday.
And the bonuses that employees at Goldman receive are absolutely obscene. A recent Daily Mail article explained that Goldman employees in the UK are expected to receive record-setting bonuses this year…
Britain’s army of bankers will re-ignite public fury over lavish pay rewards as staff at Goldman Sachs are expected to reward themselves £8.3 billion in bonuses on Wednesday.
The American investment bank, which employs 5,500 staff in the UK, will be the first to unveil its telephone number-sized rewards – an average of £250,000 a person – as part of the latest round of bonus updates.
The increase, up from £230,000 last year, comes as British families are still struggling to make ends meet five years after banks brought the economy to the brink of meltdown.
Wouldn’t you like to get a “bonus” like that?
Life is good at these firms while the markets are going up.
But what happens when the party ends?
What happens if the markets crash in 2013?
When you bet big, you either win big or you lose big.
For now, the gigantic bets that Wall Street firms are making with borrowed money are paying off very nicely.
But a day of reckoning is coming. The next stock market crash is going to rip through Wall Street like a chainsaw and the carnage is going to be unprecedented.
Are you sure that the people holding your money will be able to make it through what is ahead? You might want to look into it while you still can.
Why are Greece, Spain, Italy, Portugal and so many other countries experiencing depression-like conditions right now? It is because they have too much debt. Why do they have too much debt? It is because they allowed themselves to become enslaved to the bankers. Borrowing money from the bankers can allow a nation to have a higher standard of living in the short-term, but it always results in a lower standard of living in the long-term. Why is that? It is because you always have to pay back more money than you borrowed. And when you get to the point of having a debt to GDP ratio in excess of 100%, you are basically drowning in debt. Huge amounts of money that could be going to providing essential services and stimulating your economy are now going to service your horrific debt. Today, citizens in Greece, Spain, Portugal and Italy are experiencing a standard of living far below what they should be because the bankers have trapped them in endless debt spirals. Sadly, the vast majority of the people living in those countries have absolutely no idea what is at the root cause of their problems.
The truth is that no sovereign nation on earth ever has to borrow a single penny from anyone.
In theory, there is nothing stopping a government from printing up debt-free money and spending it into circulation.
But that is not the way our world works.
Instead, our national governments borrow money that has been zapped into existence out of thin air by central banks.
Now what kind of sense does that make?
Why don’t our governments just create the money themselves?
If the government of Greece had been directly issuing debt-free Greek currency all these years, they would have a national debt of zero and they would not be in the middle of a deep depression today.
So why isn’t anyone proposing that they go to such a system?
Instead, everyone is trying to figure out a way that the Greeks can muddle through this depression and keep paying on their unsustainable debts.
It is such a tragedy what has happened to Greece. The city of Boston has a larger economy than the entire nation of Greece at this point.
But this is what happens when you allow the bankers to trap your country in debt. The central banking systems of the world are designed to be endless debt spirals that systematically transfer wealth from the people through the governments and into the hands of the ultra-wealthy.
Just look at what is happening in the United States. The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.
Greece, Spain, Italy, Portugal and the rest of the nations of the western world did not get into all this debt by accident.
This happened by design.
And we can see what happens when the system starts to unravel by looking at what is happening in Greece and in Spain right now.
The following are 11 things that can happen when you allow your country to become enslaved to the bankers….
#1 At some point nations that are drowning in debt must implement “austerity measures” in an attempt to stay solvent.
This causes economic slowdown and unemployment skyrockets. We are seeing this happen in Greece, Spain and a whole bunch of other nations right now.
Over the past four years, the Greek economy has contracted by close to 25 percent. Just this week it was announced that the unemployment rate in Greece has risen to 23.1 percent.
A year ago it was just 16.8 percent
In Spain, the unemployment rate is even higher. It has hit 24.6 percent, and some analysts expect it to eventually reach 30 percent.
This would have never happened if these nations had not gotten into so much debt.
#2 Economic progress can actually go backwards in a debt-based system.
In Greece, a very large number of citizens have actually been giving up their cars and have gone back to riding bikes….
The high cost of road tax, fuel and repairs is forcing Greeks to ditch their cars in huge numbers. According to the government’s statistics office, the number of cars on Greek roads declined by more than 40 percent in each of the last two years. Meanwhile, more than 200,000 bikes were sold in 2011, up about a quarter from the previous year.
#3 Your banking system will inevitably melt down at some point.
Every debt bubble eventually bursts, and authorities all over Europe are desperately trying to keep the European banking system from completely imploding.
But despite their efforts, people are pulling money out of banks in southern Europe at a staggering pace. Just check out the slow motion bank run that is unfolding in Spain….
Capital outflows from Spain more than quadrupled in May to €41.3 billion ($50.7 billion) compared with May 2011, according to figures released on Tuesday by the Spanish central bank.
In the first five months of 2012, a total of €163 billion left the country, the figures indicate. During the same period a year earlier, Spain recorded a net inflow of €14.6 billion.
#4 In all countries with a debt-based system, eventually your taxes will be raised to ridiculous levels.
When the income tax was introduced in the United States back in 1913, the vast majority of Americans were in the 1 percent tax bracket.
Throughout the years there have been countless promises that taxes would be limited, but those promises always end up getting broken.
Even when they give us “tax cuts” with one hand, they usually end up raising taxes ten different ways with the other hand.
In the United States today, we are literally taxed in dozens and dozens of different ways.
Our politicians love to come up with new and inventive ways to tax us without us really even feeling it.
In the end, they are going to take as much away from us as they can possibly get away with.
Just look at what is happening in France.
The newly elected socialist president of France says that his party plans to raise the top tax rate in France to 75 percent.
But even though our politicians tax us to death, they still manage to run up gigantic mountains of debt on top of that.
#5 Your currency slowly but steadily becomes worthless.
Most people don’t realize that inflation is a tax. Every dollar you currently have in the bank is constantly losing value. That is because in a debt-based system like we have, the total amount of money and the total amount of debt is supposed to keep perpetually expanding.
Since the Federal Reserve was created, the U.S. dollar has declined in value by well over 95 percent.
This did not happen by accident. Every other major currency around the globe has been steadily declining in value as well.
#6 When things get bad enough, there will be rioting in the streets.
A few weeks ago, a total of more than a million public employees took to the streets in more than 80 different Spanish cities. You can view footage of some of the violent clashes with police that took place right here.
#7 When a debt-based economy crashes, money becomes very tight and shortages tend to happen.
Just look at what is happening in Greece. Medicine shortages have become a tremendous problem. The following is from a recent Bloomberg article….
Mina Mavrou, who runs a pharmacy in a middle-class Athens suburb, spends hours each day pleading with drugmakers, wholesalers and colleagues to hunt down medicines for clients. Life-saving drugs such as Sanofi (SAN)’s blood-thinner Clexane and GlaxoSmithKline Plc (GSK)’s asthma inhaler Flixotide often appear as lines of crimson data on pharmacists’ computer screens, meaning the products aren’t in stock or that pharmacists can’t order as many units as they need.
“When we see red, we want to cry,” Mavrou said. “The situation is worsening day by day.”
The 12,000 pharmacies that dot almost every street corner in Greek cities are the damaged capillaries of a complex system for getting treatment to patients. The Panhellenic Association of Pharmacists reports shortages of almost half the country’s 500 most-used medicines.
#8 Your population will eventually become so desperate that they will start banding together to loot food and supplies from stores.
When people have no work and they cannot feed their families they often find themselves doing things that they never imagined that they would do. Just check out what is happening in Spain right now….
Unemployed fieldworkers and other members of the union went to two supermarkets, one in Ecija (Sevilla) and one in Arcos de la Frontera (Cadiz) and loaded up trolleys with basic necessities. They said that the people were being expropriated and they planned to “expropriate the expropriators”.
The foodstuffs, including milk, sugar, chickpeas, pasta and rice, have been given to charities to distribute, who say they are unable to cope with all the requests for help they receive. Unemployment in the Sierra de Cadiz is now 40%.
#9 If things get bad enough, even essential services may start shutting down.
Authorities in Greece are legitimately concerned that there may be interruptions in the supply of natural gas and electricity. Suppliers are leaving bills unpaid for extended periods of time, and one day millions of Greeks may wake up to find that the power to their homes has been cut off….
Greece’s power regulator RAE told Reuters on Friday it was calling an emergency meeting next week to avert a collapse of the debt-stricken country’s electricity and natural gas system.
“RAE is taking crisis initiatives throughout next week to avert the collapse of the natural gas and electricity system,” the regulator’s chief Nikos Vasilakos told Reuters.
RAE took the decision after receiving a letter from Greece’s natural gas company DEPA, which threatened to cut supplies to electricity producers if they failed to settle their arrears with the company.
#10 In an economic depression, many people begin to totally lose hope.
An increasing number of parents in southern Europe are facing such desperate situations that they are actually abandoning their babies.
The following is from a recent CNBC article….
According to SOS Villages, a European charity that attempts to help families in financial hardship before abandonment occurs, in the last year alone 1,200 children in Greece and 750 in Italy have been abandoned. That is almost double the 400 children abandoned in Italy a year ago, and up from 114 children abandoned in Greece in 2003.
#11 Just like we saw during the Great Depression of the 1930s, there is a spike in suicides when an economy crashes.
Greece has never seen anything like what is happening now. The suicide rate has been absolutely soaring.
The following is from a Reuters article back in April….
On Monday, a 38-year-old geology lecturer hanged himself from a lamp post in Athens and on the same day a 35-year-old priest jumped to his death off his balcony in northern Greece. On Wednesday, a 23-year-old student shot himself in the head.
In a country that has had one of the lowest suicide rates in the world, a surge in the number of suicides in the wake of an economic crisis has shocked and gripped the Mediterranean nation – and its media – before a May 6 election.
If you live in the United States, you need to watch what is happening in Europe very closely, because similar conditions will come to the United States soon enough.
Just like Europe, we have allowed ourselves to become enslaved to the bankers, and now we will suffer the consequences.
Sadly, most Americans do not even realize how we got into this mess. The following is from a recent article by Professor Steven Yates….
It should have been clear that the country—indeed, Western civilization itself—was on the wrong trajectory as governments and central banks, working in tandem, severed ties between their currencies and precious metals, allowing massive credit expansion to run rampant and the national debt to skyrocket—making, e.g., the pseudo-prosperity of the roaring 1990s possible. Nixon had “closed the gold window” on August 15, 1971; our national debt was around $400 billion. Slightly over ten years later, the debt crossed the $1 trillion threshold. Ten years after that, it reached $6 trillion. When George W. Bush left office having been the biggest spending Republican in U.S. history, it had risen to over $11 trillion. Today, under the watch of the catastrophic Obama presidency, by the time this reaches print the national debt might have surmounted $16 trillion with no end in sight.
The United States has accumulated the greatest mountain of debt in the history of the world and it will totally crush us at some point.
Unfortunately, the vast majority of Americans are living paycheck to paycheck and are totally unprepared for the economic chaos that is coming.
One study found that 64 percent of all Americans have less than $1000 in the bank.
Can you believe that?
Even though we could be on the verge of another global food crisis, most Americans do not have enough food in their homes to last a single month.
Even though the U.S. economy is on the verge of another recession, most Americans are still running out and buying toys that they don’t need and paying for them with credit cards that they should not be using.
If you want to see where we are headed, just look at Greece and Spain.
They are going through economic hell, and we will be joining them soon enough.
Get ready while you can.
Why isn’t the U.S. economy in a depression right now? The number one reason is because the federal government has stolen more than five trillion dollars from future generations since Barack Obama was elected and has used that money to pump up our grossly inflated standard of living. Whether the federal government spends money wisely or foolishly, the truth is that the vast majority of it still ends up in the pockets of the American people who then use it to buy the things they need for their daily lives. If the U.S. government had not borrowed and spent an extra five trillion dollars that we did not have over the past several years, we would be in the middle of a rip-roaring economic depression right now. So any talk that Barack Obama is “improving the economy” is a total farce. It is a five trillion dollar lie. The reality is that Barack Obama and the U.S. Congress have been stealing trillions of dollars from future generations in order to make things tolerable in the present. If the federal government adopted a balanced budget next year, the debt-fueled prosperity that we are currently enjoying would start disappearing very rapidly and all hell would break loose in America.
At this point, the U.S. national debt is over 15.7 trillion dollars.
When Ronald Reagan took office it was less than a trillion dollars.
If you were to divide the national debt up equally, it would come to more than $50,000 for every man, woman and child in the United States.
So the share of the national debt for an average family of four would be about $200,000.
When the government borrows and spends money that it does not have, that increases the amount of dollars in circulation and it causes GDP to go up.
That is one of the reasons why our politicians like to borrow and spend money that we do not have. It makes the economic statistics look good. They can point to those economic statistics as a reason to send them back for another term.
This is a major flaw in our system. Most of our politicians do not care about how they are raping future generations financially. Most of them just care about getting elected again.
If you will notice carefully, neither Mitt Romney nor Barack Obama are promising to balance the budget any time soon. Like so many politicians in the past, they promise to do it “eventually”, but “eventually” never arrives.
According to a recent article in the Washington Times, Mitt Romney declared during a recent campaign appearance that he has no plans to balance the federal budget in his first year….
“My job is to get America back on track to have a balanced budget. Now I’m not going to cut $1 trillion in the first year”
Why would he say that?
Why wouldn’t he want to balance the budget?
He went on to explain that….
“The reason,” he explained, “is taking a trillion dollars out of a $15 trillion economy would cause our economy to shrink [and] would put a lot of people out of work.”
Romney is right about this. Taking a trillion dollars out of a 15 trillion dollar economy would plunge us into an economic nightmare.
And that would make him look bad.
Of course if Obama wins the election we can just expect more of the same from him as well.
For example, just check out what White House Chief of Staff Jack Lew had to say about balancing the budget recently….
“The time for austerity is not today,” Lew told NBC News “Meet the Press.” “If we were to put in austerity measures right now, it would take the economy in the wrong way.”
Why is the time for austerity not today?
It is because the 2012 election is coming up and Obama wants the economic statistics to look good.
But can you blame our politicians for being cowardly?
Just look at what is happening in Greece. After several years of austerity they are in the midst of a full-blown economic depression and they still have not balanced their budget.
Do we want to end up like Greece?
Most Americans do not realize this, but the U.S. already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.
So why haven’t we collapsed yet?
Well, because we continue to borrow larger and larger amounts of money.
It took from the founding of America until 1995 for the federal government to accumulate 5 trillion dollars of debt.
Under Obama, we have accumulated more than 5 trillion dollars of new debt in just over 3 years.
Amazingly, Obama has added more to the national debt than George W. Bush did during his entire 8 year term.
And let there be no mistake – George W. Bush was a wild spender. A fiscal conservative he most certainly was not.
But Barack Obama does not seem troubled by any of this.
Barack Obama is prancing about the countryside touting his great “economic plan”, but the truth is that the only reason the economy has not totally collapsed is because he is stealing 150 million dollars an hour from our children and our grandchildren.
Sadly, most Americans don’t understand that the current level of prosperity that we are enjoying is a grand illusion. Most Americans still expect things to return to the way that they used to be, and they are increasingly becoming angry that it is taking so long to get back there.
In fact, a whole host of recent surveys have shown that Americans are very dissatisfied with the direction the economy is heading in….
Four recent surveys have found that on average only 28% of Americans are satisfied with the condition of the country, while 70% are dissatisfied. Three recent surveys have found that between 69% and 83% of Americans believe that the country is still in recession (it isn’t), and only half believe that a recovery is under way.
What they don’t realize is that if we were not massively ripping off our kids and our grandkids things would be much, much worse.
Thomas Jefferson understood that government borrowing is essentially the same as theft from future generations.
He once made the following statement….
And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
What we are doing to our children and our grandchildren is so immoral that it is hard to put into words.
We are running up trillions upon trillions of dollars of debt in their name just so that our lives can be more comfortable right now.
How could we be so selfish?
The sad thing is that even with all of this reckless spending our economy is still not in great shape.
In fact, the middle class continues to shrink at an alarming rate. The following are just a few statistics from a recent article I did about this phenomenon….
-Today, approximately 48 percent of all Americans are currently either considered to be “low income” or are living in poverty.
-Back in 1960, social welfare benefits made up approximately 10 percent of all salaries and wages. In the year 2000, social welfare benefits made up approximately 21 percent of all salaries and wages. Today, social welfare benefits make up approximately 35 percent of all salaries and wages.
-The United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.
-Every year now, we see millions of Americans fall out of the middle class. In 2010, 2.6 million more Americans descended into poverty. That was the largest increase that we have seen since the U.S. government began keeping statistics on this back in 1959.
-At this point, approximately 22 percent of all American children are living in poverty.
-When Barack Obama took office, there were 32 million Americans on food stamps. Now, there are more than 46 million Americans on food stamps.
So how much worse would things be if a trillion dollars of federal spending was suddenly removed from the economy?
Are you starting to get the picture?
As bad as things are right now, they are about to get a whole lot worse.
So why can’t we just keep on borrowing and spending forever?
Well, just like Greece found out, debt always catches up with you eventually.
During fiscal 2011, the U.S. government spent over 454 billion dollars just on interest on the national debt.
But just like we are seeing in Europe, if confidence in U.S. government debt starts to disappear the U.S. government could end up facing much higher interest rates to borrow money.
If the average rate on U.S. government debt only rose to 7 percent (in the past it has actually been much higher than that), then the U.S. government would be spending about 1.1 trillion dollars a year just on interest on the national debt.
During fiscal year 2011, the U.S. government spent 3.7 trillion dollars but it only brought in about 2.4 trillion dollars.
So if we were spending 1.1 trillion dollars just on interest, that would be close to half of all the revenue the federal government brings in.
Right now, the Federal Reserve is manipulating the system in a desperate attempt to keep interest rates down. During 2011, the Federal Reserve bought up approximately 61 percent of all government debt issued by the U.S. Treasury Department.
But most Americans have no idea how fragile our financial system is.
Most Americans just assume that we will always be the greatest economy on the planet and that there is nothing to be worried about.
Sadly, one way or another this debt bubble is going to burst and then our debt-fueled false prosperity is going to disappear.
Most Americans are not going to understand what is happening and they are going to go absolutely nuts.
Everywhere you turn these days, someone is proclaiming that the economy is improving. Barack Obama is endlessly touting the “improvement” in the economy, the mainstream media is constantly talking about “the economic recovery” and an increasing number of Americans seem to be buying into this line of thinking. A new NBC/Wall Street Journal poll found that 37 percent of Americans believe that the economy will improve over the next year, while only 17 percent of Americans believe that it will get worse. But is the economy actually improving? Not really. At the moment things are relatively stable. Some economic statistics are improving slightly and some continue to get even worse. However, it is very important to keep in mind that one of the biggest reasons why things have stabilized is because the federal government is pumping more than a trillion dollars a year into the economy that it does not have. The Obama administration is engaging in a debt binge unlike anything America has ever seen before, and yet many economic indicators are still in decline. So what is going to happen when the federal government stops injecting gigantic waves of borrowed money into the economy? That is a frightening thing to think about. The best efforts of our “leaders” in Washington D.C. are not accomplishing a whole lot. The Federal Reserve has pushed interest rates as low as they can go and the federal government is spending unprecedented amounts of money. But even with the federal government and the Federal Reserve pushing the accelerator all the way to the floor, the economy is still not improving much at all. Millions upon millions of Americans out there are anticipating some sort of a “great economic recovery”, and they are going to be bitterly disappointed.
But right now there are some “bright spots” in the economy, and you are bound to run into family and friends that will repeat to you the nonsense that they are hearing on the television about how the economy is recovering.
When they try to convince you that the economy is getting better, ask them these questions….
If the economy is getting better, then why did new home sales in the United States hit a brand new all-time record low during 2011?
If the economy is getting better, then why are there 6 million less jobs in America today than there were before the recession started?
If the economy is getting better, then why is the average duration of unemployment in this country close to an all-time record high?
If the economy is getting better, then why has the number of homeless female veterans more than doubled?
If the economy is getting better, then why has the number of Americans on food stamps increased by 3 million since this time last year and by more than 14 million since Barack Obama entered the White House?
If the economy is getting better, then why has the number of children living in poverty in America risen for four years in a row?
If the economy is getting better, then why is the percentage of Americans living in “extreme poverty” at an all-time high?
If the economy is getting better, then why is the Federal Housing Administration on the verge of a financial collapse?
If the economy is getting better, then why do only 23 percent of American companies plan to hire more employees in 2012?
If the economy is getting better, then why has the number of self-employed Americans fallen by more than 2 million since 2006?
If the economy is getting better, then why did an all-time record low percentage of U.S. teens have a job last summer?
If the economy is getting better, then why does median household income keep declining? Overall, median household income in the United States has declined by a total of 6.8% since December 2007 once you account for inflation.
If the economy is getting better, then why has the number of Americans living below the poverty line increased by 10 million since 2006?
If the economy is getting better, then why is the average age of a vehicle in America now sitting at an all-time high?
If the economy is getting better, then why are 18 percent of all homes in the state of Florida currently sitting vacant?
If the economy is getting better, then why are 19 percent of all American men between the ages of 25 and 34 living with their parents?
If the economy is getting better, then why does the number of “long-term unemployed workers” stay so high? When Barack Obama first took office, the number of “long-term unemployed workers” in the United States was approximately 2.6 million. Today, that number is sitting at 5.6 million.
But there is some good news.
When Barack Obama first took office, an ounce of gold was going for about $850. Today, the price of an ounce of gold is over $1700.
The era of great prosperity that America has enjoyed for so long is coming to an end.
In fact, our long-term economic decline is about to accelerate.
So enjoy this “bubble of hope” while you can, because it won’t last long.
As I have written about previously, many are warning that Europe is on the verge of a nightmarish financial crisis that could potentially plunge us into a global recession even worse than 2008.
So let us hope for the best, but let us also prepare for the worst.
Just because the economy is about to go through hard times does not mean that you have to go through hard times personally.
Right now, you can decide to make an investment or start a business that will thrive in a tough economic environment.
Victory often goes to the most prepared. So don’t just sit there while the storm clouds gather. Instead, this should be a time when you are gathering resources and developing a gameplan for the coming economic chaos.
Those that choose to have blind faith in “the system” are going to be tremendously disappointed in the years ahead. Just because you have a job right now does not mean that it is always going to be there. Just because your stock portfolio is doing well right now does not mean that will always be the case.
Hopefully we all learned some important lessons from 2008. The global financial situation can turn on a dime. When markets fall apart, they tend to do so very rapidly.
Ultimately, the debate about whether the economy is improving or not is going to be ended very emphatically. When the next wave of the financial crisis hits, there will be no doubt about what direction things are going.
Don’t let the next wave catch you by surprise.
Now is the time to prepare.
Do you hear that sound? It is the sound of Europe being hit with a cold dose of financial reality. The air has been let out of the balloon, and investors all over the world are realizing that absolutely nothing has been solved in Europe. The solutions being proposed by the politicians in Europe are just going to make things worse. You don’t solve a sovereign debt crisis by shredding confidence in sovereign debt. But that is exactly what the “voluntary 50% haircut” has done. You don’t solve a sovereign debt crisis by pumping up your “bailout fund” with borrowed money from China, Russia and Brazil. More debt is just going to make things even worse down the road. You don’t solve a sovereign debt crisis by causing a massive credit crunch. By giving European banks only until June 2012 to dramatically improve their credit ratios, it is going to force many of them to seriously cut back on lending. A massive credit crunch would significantly slow down economic activity in Europe and that is about the last thing that the Europeans need right now. If the deal that was reached last week was the “best shot” that Europe has got, then we are all in for a world of hurt.
On Monday, investors all over the globe began to understand the situation that we are now facing. The Dow was down 276 points, and the euphoria of late last week had almost entirely dissipated.
But much more important is what is happening to European bonds.
Investors are reacting very negatively to the European debt deal by demanding higher returns on bonds.
Perhaps the most important financial number in the world right now is the yield on 10 year Italian bonds.
The yield on 10 year Italian bonds is up over 6 percent, and the 6 percent mark is a key psychological barrier. If it stays above this mark or goes even higher, that is going to mean big trouble for Italy.
The Italian government just can’t afford for debt to be this expensive. The higher the yield on 10 year bonds goes, the worse things are going to be for Italy financially.
Of course it was completely and totally predictable that this would happen as a result of the “voluntary 50% haircut” that is being forced on private Greek bondholders, but the politicians over in Europe decided to go this route anyway.
Major Italian banks also got hammered on Monday. The following is how a CNN article described the carnage….
Shares of UniCredit, the largest bank in Italy, sunk more than 4% on Friday in Milan and were down nearly another 6% Monday. Intesa, the second-largest Italian bank, slipped 7% Monday, while Mediobanca, Italy’s third-largest financial institution, fell about 4%.
The financial world can handle a financial collapse in Greece. But a financial collapse in Italy would essentially be the equivalent of financial armageddon for Europe.
That is why Italy is so vitally important.
Another EU nation to watch closely is Portugal.
The yield on 2 year Portuguese bonds is now over 18 percent. A year ago, the yield on those bonds was about 4 percent.
In many ways, Portugal is in even worse shape than Greece.
A recent article by Ambrose Evans-Pritchard discussed the debt problems that Portugal is faced with. The following statistic was quite eye-opening for me….
Portugal’s public and private debt will reach 360pc of GDP by next year, far higher than in Greece.
Like Greece, Portugal is essentially insolvent at this point. Their current financial situation is unsustainable and politicians in Portugal are already suggesting that they should be able to get a “sweet deal” similar to what Greece just got.
You see, the truth is that what this Greek debt deal has done is that it has opened up Pandora’s Box. Most of the financially troubled nations in Europe are eventually going to want a “deal”, and this uncertainty is going to drive investors crazy.
There is very little positive that can be said about this debt deal. It has bought Europe a few months perhaps, but that is about it.
As the new week dawned, financial professionals all over the globe were harshly criticizing this deal….
*The CEO of TrimTabs Investment Research, Charles Biderman, says that the big problem with this deal is that the fundamental issues have not been addressed….
“The euphoria about the latest euro zone bailout will fade quickly, as investors realize that the underlying solvency issues have not been addressed”
*Bob Janjuah of Nomura Securities International in London was even harsher….
“This latest round of euro zone shock and awe is, in my view, nothing more than a confidence trick and has possibly even set up an even worse financial outcome.”
In fact, Janjuah says that the debt deal is essentially a “Ponzi scheme”….
This latest bailout relies on the market not calling what I see is a huge “bluff”, because if the market does call it, the bailout simply won’t be credible or even deliverable. It is instead akin to a self-referencing ponzi scheme, and I can’t believe eurozone policymakers have even considered going down this route. After all, we all have recent experience of how such ponzi schemes end, and we all remember how eurozone officials often belittled and berated US policymakers for their role in the US housing/CDO/SIV financial bubble.
*The chief economist at High Frequency Economics, Carl Weinberg, is calling the European debt deal a scheme “of Madoffian proportions“….
“Now they (EU Leaders) are keen to tap into resources that are not their own to fund this crazy scheme of guarantees, leveraged off guarantees to sell bonds and bank shares that no one may want to buy, (in order) to restore value in the banking system destroyed by other bonds that no one wants to own right now. This is a construct of Madoffian proportions”
Even George Soros is criticizing the deal. George Soros is saying that this European debt deal will help stabilize things for a maximum of three months.
Of course with Soros there is always an agenda and you never know what his motives are. Perhaps he is honestly concerned about the financial health of Europe, or perhaps he is trying to feed the panic to get Europe to crash even faster. With Soros you never really know what he is up to.
In any event, the crisis in Europe is already claiming financial casualties in the United States.
MF Global, a securities firm headed up by former New Jersey governor Jon Corzine, has filed for bankruptcy protection.
As a recent CNBC article noted, the firm failed because of bad debts on European sovereign debt….
The bankruptcy protection filing from MF Global — a mid-sized trading firm run by former New Jersey Gov. and Goldman Sachs CEO Jon Corzine — only helped amplify the realization that more difficulties remain. MF Global got into trouble mainly because Corzine made tragically wrong bets on European sovereigns that unraveled when it became clear that bondholders of Greek debt will not be made whole as the nation tries to make its way out of its fiscal morass.
As time goes on, there will be more financial casualties. The truth is that someone is going to pay the price for the financial foolishness of these countries in Europe.
Politicians in Europe did not want to increase the “bailout fund” with any of their own money, so they are going to go crawling to China, Russia and Brazil and beg those countries to lend them huge amounts of money.
This is incredibly foolish, and it is already fairly clear that China is going to play hardball with Europe. China has Europe exactly where China wants them, and China will likely demand all sorts of crazy things before they will lend Europe any cash for this bailout fund.
As a recent CNN article noted, Europe is going to be in a lot of trouble if they can’t get money out of China, Russia and Brazil….
The hope is that China and other sovereign wealth fund will invest in new special vehicles that will allow the EFSF to add leverage to increase the amount of funding available.
Without the help of China, Brazil, Russia and others, Europe is back where it started. And it still seems clear that the stronger northern European nations aren’t keen on the idea of a full bailout of their southern siblings.
What a mess.
It is a comedy of errors for the politicians over in Europe. They can’t seem to get anything right. In fact, everything that they do seems to make a financial collapse in Europe even more likely.
Keep a close eye on the bond yields over in Europe. Especially keep a close eye on the yield on 10 year Italian bonds.
A massive financial storm is coming to Europe.
It is going to rock the entire globe.
Now is the time to make certain that your financial house is not built on a foundation of sand. Get your assets into safe places and keep them safe because the road ahead is going to be quite rocky.