How is money created? If you ask average people on the street this question, most of them have absolutely no idea. This is rather odd, because we all use money constantly. You would think that it would only be natural for all of us to know where it comes from. So where does money come from? A lot of people assume that the federal government creates our money, but that is not the case. If the federal government could just print and spend more money whenever it wanted to, our national debt would be zero. But instead, our national debt is now nearly 16 trillion dollars. So why does our government (or any sovereign government for that matter) have to borrow money from anybody? That is a very good question. The truth is that in theory the U.S. government does not have to borrow a single penny from anyone. But under the Federal Reserve system, the U.S. government has purposely allowed itself to be subjugated to a financial system in which it will be constantly borrowing larger and larger amounts of money. In fact, this is how it works in the vast majority of the countries on the planet at this point. As you will see, this kind of system is not sustainable and the structural problems caused by such a system are at the very heart of our debt problems today.
So where does money come from? In the United States, it comes from the Federal Reserve.
When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.
Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.
The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.
So why does the U.S. government go to all this trouble? Why doesn’t the U.S. government create the money itself?
Those are very good questions.
One of the primary reasons why our system is structured this way is so that wealthy people can get even wealthier by lending money to the U.S. government and other national governments.
For example, last year the U.S. government spent more than 454 billion dollars just on interest on the national debt.
Over the centuries, the ultra-wealthy have found lending to national governments to be a very, very profitable enterprise.
The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.
But wait.
There is a problem.
Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.
So where will the U.S. government get the money to pay that debt?
Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.
But that never actually happens, does it?
And the creators of the Federal Reserve understood this as well. They understood that the U.S. government would not have enough money to both run the government and service the national debt. They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.
That is why I call the Federal Reserve a perpetual debt machine. The Federal Reserve was created to trap the U.S. government in an endlessly expanding debt spiral from which there is no escape.
And the Federal Reserve is doing a great job at what it was designed to do. Today, the U.S. national debt is more than 5000 times larger than it was when the Federal Reserve was first created.
Another way that money comes into existence in our economy is through the process of fractional reserve banking.
I originally pulled the following simplified explanation of fractional reserve banking off of the website of the Federal Reserve Bank of New York, but it has been pulled down since then. But I still think it is helpful in understanding the basics of how fractional reserve banking works….
“If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000).”
When you put your money into the bank, it does not say there. The bank only keeps a relatively small amount of money sitting around to satisfy the withdrawal demands of account holders. If all of us went down to the banks right now and demanded our money, that would create a major problem.
If I put 100 dollars into the bank and the bank lends out 90 of those dollars to you, now it looks like there are 190 dollars floating around. I have “100 dollars” in my bank account and you have “90 dollars” that you just borrowed.
The new debt that you have taken on (90 dollars) has “created” more money. But of course you are going to end up paying back more than 90 dollars to the bank, so more debt has been created than the amount of money that has been created.
And that is one of the big problems with our financial system. It is designed so that the amount of debt and the amount of money are supposed to be perpetually expanding, and the amount of debt created is always greater than the amount of money that is created.
So is it any wonder that our society is swamped with nearly 55 trillion dollars of total debt at this point?
A debt-based financial system is unsustainable by nature because it will always create debt bubbles that will inevitably burst.
Our founding fathers never intended for our financial system to work this way.
According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is supposed to have the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.
So why has this authority been given to a private institution that is dominated by the big Wall Street banks and that has actually argued in court that it is “not an agency” of the federal government?
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 its Constitution; I mean an additional article, taking from the federal government the power of borrowing.
But instead, we have become enslaved to a system where government borrowing actually creates our money.
The borrower is the servant of the lender, and we have allowed our government to enslave us to the tune of nearly 16 trillion dollars.
There are alternatives to this system. Things do not have to work this way.
Unfortunately, the vast majority of our politicians consider the Federal Reserve to be good for America and steadfastly refuse to do anything to change the status quo.
So if you are waiting for “solutions” to these problems on the national level you are going to be waiting for a very long time.
The debt problems that the United States and Europe are experiencing did not come into existence by accident. They are the result of fundamental structural problems with the financial system.
A debt-based financial system is always going to fail in the long run. Unfortunately, most Americans still do not understand this and so we will all get to suffer the consequences.
What is the biggest economic problem that the United States is facing? Very simply, our biggest problem is that we have way too much debt. Over the past 30 years, household debt, corporate debt and government debt have all grown much faster than our GDP has. But no nation on earth has ever been able to expand debt much faster than national output indefinitely. All debt bubbles eventually burst. Right now, we are living in the greatest debt bubble in the history of the world. All of this debt has fueled a “false prosperity” which has enabled many Americans to live like kings and queens. But no nation (or household) can pile on more debt forever. At some point the weight of the debt becomes just too great. It is amazing that the United States has been able to pile up as much debt as it has. Over the years, many authors have predicted that U.S. government finances would collapse long before the U.S. national debt ever got to this level. So the mountain of debt that we have accumulated is quite an “achievement” if you want to look at it that way. But the clock is ticking on this debt bubble and when it collapses we will say “bye bye” to our vastly inflated standard of living and we will discover that we have destroyed the economy for all future generations of Americans.
Household Debt
Sometimes a picture is worth a thousand words. When most Americans think of the “debt problem” in this country, they think of the debt of the federal government.
But that is not the only debt bubble that we are facing.
Thirty years ago, household debt in the United States was approaching the 2 trillion dollar mark. Today, it is sitting at about 13 trillion dollars….
We have been trained to pay for everything with debt.
We pay for our homes with debt, and mortgage debt as a percentage of GDP has more than tripled since 1955.
We pay for our cars with debt, and at this point about 70 percent of all auto purchases in the United States involve an auto loan.
We pay for higher education with debt, and the total amount of student loan debt in America recently surpassed the one trillion dollar mark.
Wherever we go we pay with plastic.
If you want a heated cat bed and a cute little cat sweater for your little kitty just put it on your Visa or Mastercard.
Amazingly, consumer debt in America has risen by a whopping 1700% since 1971, and if you can believe it, 46% of all Americans carry a credit card balance from month to month.
We are absolutely addicted to debt and we do not know how to stop.
State And Local Government Debt
Our state and local governments are also addicted to debt.
30 years ago, state and local government debt was approaching the 400 million dollar mark. Today, state and local government debt is hovering around the 3 trillion dollar mark….
In the United States today, we don’t just have one “government debt problem” – the truth is that we have hundreds of them. All over the country, state and local governments are facing bankruptcy because of too much debt.
For example, according to Fox News the city of Stockton, California is right on the verge of declaring bankruptcy. In fact, an announcement could come as early as this week….
Stockton, Calif., is set to declare bankruptcy as early as this week, according to local officials, a move that would make it one of the largest U.S. cities ever to file for reorganization.
On Monday, a state-required mediation with creditors to find a fiscal solution is scheduled to expire. Stockton’s City Council is then slated to meet Tuesday to decide whether to adopt a budget for operating in bankruptcy, a move widely considered the last step before the city formally submits a Chapter 9 petition to federal bankruptcy court.
Federal Government Debt
Of course the biggest offender of all is the federal government. 30 years ago, Ronald Reagan was running around proclaiming what a nightmare it was that the U.S. national debt was reaching the one trillion dollar mark.
Well, now we are about to blast through the 16 trillion dollar mark with no end in sight….
Running up debt at a much faster rate than our GDP is rising is a recipe for national financial suicide. Our politicians continue to steal about 150 million dollars an hour from future generations and everybody just acts like this is perfectly normal.
We are going down the same path that Greece, Portugal, Italy, Ireland and Spain have gone.
In fact, we already have more government debt per capita than all of those nations do.
Incredibly, the national debt has grown more under Obama in less than 4 years than it did under George W. Bush during his entire 8 year term.
Since Barack Obama entered the White House, we have accumulated more than five trillion dollars of additional debt.
We are on the road to national financial oblivion, and most Americans don’t seem to care.
Debt From Sea To Shining Sea
Now let’s add up all the debt in the country. When you total up all household debt, business debt and government debt, it comes to more than 300% of our GDP….
In fact, if current trends continue we will hit 400% of GDP before too long.
As you can see from the chart, there was a little “hiccup” during the last recession, but now the debt bubble is growing again.
So how high can it go before the entire system collapses?
Total credit market debt owed is roughly 10 times larger than it was about 30 years ago.
How in the world did we accumulate 10 times more debt in just 30 years?
If we do that again in the next 30 years, our total debt will be more than 500 trillion dollars in the 2040s.
Unfortunately, that is the way that debt spirals work. They either have to keep expanding or they collapse.
So will the U.S. debt spiral continue to expand?
Or will we soon see a collapse?
Sadly, this exact same thing is happening all over the world. The government debt to GDP ratio in Japan (the third largest economy in the world) blew past the 200% mark quite a while ago, and almost every country in the EU is absolutely drowning in debt.
The world has never faced anything quite like this. There is way, way too much debt in the world, but the only way we can continue to enjoy this level of prosperity under the current system is to pile up a lot more debt.
The western world is like a debt addict in a deep state of denial. Some debt addicts end up with dozens of credit card accounts. They will keep opening more accounts as long as someone will let them. Most debt addicts actually believe that they will be able to get out of the hole at some point, but most never do.
Most Americans still believe that we are experiencing “temporary” economic problems that will eventually go away. Most Americans still believe that even greater prosperity is still ahead.
Sadly, what the mainstream media and the two major political parties are telling them is a bunch of lies.
We have enjoyed the greatest prosperity that we will ever see in the United States, and when the debt bubble bursts there is going to be an immense amount of pain.
That is a very painful truth, but it is better to come to grips with it now than be blindsided by it later.
It has been said that there are two ways to conquer and enslave a nation. One way is by using the sword, and the other is by using debt. Fortunately, America is not in danger of being conquered by the sword right now, but America is being conquered by debt. The borrower is the servant of the lender, and today we owe China more than a trillion dollars. By running a gigantic trade deficit with us, China has been able to become incredibly wealthy. We have begged them to lend us back some of the money that we have sent them and this has made them even wealthier. Now China is gobbling up U.S. real estate and U.S. assets at an astounding pace. In fact, some cities are in danger of becoming completely dominated by Chinese ownership. One of those cities is Toledo, Ohio. In many “rust belt” areas, real estate can be had for a song, and the Chinese are taking full advantage of this. America was once the wealthiest nation on earth, but now we are drowning in debt and we are being sold off in chunks to the highest bidder. Is this the legacy that we are going to leave for future generations?
According to a recent Fortune article, Chinese investors have been very busy purchasing distressed commercial real estate in Toledo lately….
In March 2011, Chinese investors paid $2.15 million cash for a restaurant complex on the Maumee River in Toledo, Ohio. Soon they put down another $3.8 million on 69 acres of newly decontaminated land in the city’s Marina District, promising to invest $200 million in a new residential-commercial development. That September, another Chinese firm spent $3 million for an aging hotel across a nearby bridge with a view of the minor league ballpark.
Toledo is being promoted to Chinese investors as a “5-star logistics region“. From Toledo it is very easy to get to Chicago, Detroit, Cleveland, Pittsburgh, Columbus and Indianapolis.
With a population of 287,000, Toledo is only the fourth largest city in Ohio, but it lies at the junction of two important highways — I-75 and I-80/90. “My vision is to make Toledo a true international city,” Toledo’s Mayor Mike Bell told the Toledo Blade.
For some reason the Chinese seem to be very interested in that area of the country. Last month, I wrote about how one Chinese group plans to develop a 200 acre “China city” just 40 minutes away from Toledo….
A Chinese group known as “Sino-Michigan Properties LLC” has bought up 200 acres of land near the town of Milan, Michigan. Their plan is to construct a “China City” with artificial lakes, a Chinese cultural center and hundreds of housing units for Chinese citizens. Essentially, it would be a little slice of communist China dropped right into the heartland of America. This “China City” would be located about 40 minutes from both Detroit and Toledo, and it would be marketed to Chinese business people that want to start businesses in the United States.
But it is not just the rust belt that is being bought up by the Chinese. A recent Forbes article documented several of the huge real estate deals that the Chinese are doing in New York right now….
According to a recent report in the New York Times, investors from China are “snapping up luxury apartments” and are planning to spend hundreds of millions of dollars on commercial and residential projects like Atlantic Yards in Brooklyn. Chinese companies also have signed major leases at the Empire State Building and at 1 World Trade Center, the report said.
In addition to real estate, the Chinese are also buying up businesses and natural resources all over the United States.
For example, the Dalian Wanda Group recently bought U.S. movie theater chain AMC Entertainment for 2.6 billion dollars.
Also, the Obama administration has been allowing companies owned by the Chinese government to gobble up U.S. oil and gas deposits worth billions of dollars.
So how in the world did we come to be so completely and totally dominated by China?
Well, the key to all of this is the trade deficit.
Most Americans can’t even tell you what a trade deficit is, but it is at the very heart of our economic problems.
Basically, we buy far, far more from other countries than they buy from us.
Most Americans don’t realize this, but the truth is that the United States has a trade imbalance that is more than 5 times larger than any other nation on earth has.
Overall, the U.S. has run a trade deficit of more than 8 trillion dollars with the rest of the globe since 1975.
If you go into a Wal-Mart of a dollar store today and you start looking at product labels, you will notice that hundreds of products say “made in China” and very few of them say that they were made in this country.
Every single month, China sends us gigantic mountains of plastic crap to sell in our stores and we send them gigantic mountains of our money.
The U.S. trade deficit with China during 2011 was $295.4 billion. That was the largest trade deficit that one country has had with another country in the history of the planet.
Sadly, so far our trade deficit with China in 2012 is about 12 percent larger than it was last year.
So things are getting even worse.
To get an idea of how far things have come, let us take a look back at the 1980s for a moment.
Back in 1985, the U.S. trade deficit with China was only 6 million dollars for the entire year.
All of this imbalanced trade is absolutely killing us.
Today, the United States spends about 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.
So why doesn’t China buy more stuff from us?
Well, there are a whole lot of reasons. One of the main reasons is that they slap huge tariffs on many American-made goods.
For example, according to the New York Times a Jeep Grand Cherokee that costs $27,490 in the United States costs about $85,000 in China thanks to all the tariffs.
So why do we allow China to keep doing this to us?
That is a very good question.
Meanwhile, China is continually getting wealthier and we are continually getting poorer.
All of the money that is leaving this country and going to China could be going to U.S. businesses and U.S. workers instead. In turn, those businesses and workers would pay taxes on that money to support the government.
Instead, we have to go beg China to lend us the money that we just sent to them.
At this point, China now holds approximately 1.17 trillion dollars of U.S. government debt.
None of this ever had to happen.
But it did happen because we were stupid.
Now China has mountains of money to literally buy us up.
But China is not the only country that we have an imbalanced trading relationship with.
For example, the new “free trade agreement” between the United States and South Korea that Barack Obama has been touting went into full effect on March 15, 2012.
So how has that “free trade agreement” turned out so far? The following is from a recent article by Pat Buchanan….
The U.S. trade deficit with Korea tripled in one month. Imports from South Korea jumped 15 percent to $5.5 billion in April, while U.S. exports to South Korea fell 12 percent to $3.7 billion. Suddenly, the U.S. trade deficit with Seoul surged to an annual rate of $22 billion.
Shades of NAFTA. When it passed in 1993, we had a $1.6 billion trade surplus with Mexico. By 2010, our trade deficit with Mexico had reached $61.6 billion.
Ouch.
The truth is that these free trade agreements are not fair and balanced.
U.S. workers end up competing for jobs with workers in countries where it is legal to pay slave labor wages. And other countries often have far fewer rules and regulations to follow as well. In his recent article, Buchanan described why all Americans should be economic nationalists….
Global free trade means U.S. workers compete with Asian and Latin American workers whose wages are a fraction of our own and whose benefits may be nonexistent. Global free trade means U.S factories that relocate to Indonesia or India need not observe U.S. laws on health, safety, pollution or paying a minimum wage.
Global free trade means that companies that move factories outside the United States can send their products back to the United States free of charge and undercut businessmen who retain their American workers and live within American laws.
Free trade makes suckers and fools out of patriots.
Unfortunately, both major political parties in the United States are absolutely married to the one world economic agenda that the elite are pushing.
So we will continue to bleed wealth, businesses and jobs at an astounding pace.
You can get a really good idea of the horrific manufacturing job losses in the United States over the past 40 years by checking out this map right here.
Overall, the United States has lost a total of more than 56,000 manufacturing facilities since 2001.
According to the Economic Policy Institute, since 2001 America has lost approximately 2.8 million jobs due to our trade deficit with China alone.
There seems to be absolutely no concern with protecting American jobs these days.
If you can believe it, Chinese corporations are even building our bridges. The following is a brief excerpt from a recent ABC News article….
In New York there is a $400 million renovation project on the Alexander Hamilton Bridge.
In California, there is a $7.2 billion project to rebuild the Bay Bridge connecting San Francisco and Oakland.
In Alaska, there is a proposal for a $190 million bridge project.
These projects sound like steps in the right direction, but much of the work is going to Chinese government-owned firms.
“When we subsidize jobs in China, we’re not creating any wealth in the United States,” said Scott Paul, executive director for the Alliance for American Manufacturing.
Americans need to start understanding that our trade deficit is causing us to lose massive numbers of businesses and jobs and that this is making us poorer as a nation.
Even if you take away the effect of the housing collapse, household net worth still declined by 25 percent between 2005 and 2010.
A lot of that decline in wealth was due to the recent recession, but the point I am trying to make is that we are getting poorer as a nation.
A decade ago, the United States was ranked number one in average wealth per adult. By 2010, the United States had fallen to seventh.
And when you factor in our debts, we are a complete and total mess. U.S. consumers are more than 11 trillion dollars in debt and the federal government is nearly 16 trillion dollars in debt.
We are getting deeper in debt at the same time that our ability to service that debt is declining.
The reality is that our economy is completely falling apart and it no longer produces enough jobs for everyone.
In fact, it isn’t even close.
Right now there are about 3.7 workers that are “officially” unemployed for every single job opening.
So what we are doing right now is clearly not working.
We need to fundamentally change direction as a nation.
Unfortunately, that is not going to happen any time soon.
The election results from Greece are in and the pro-bailout forces have won, but just barely. It is being projected that the pro-bailout New Democracy party will have about 130 seats in the 300 seat parliament, and Pasok (another pro-bailout party) will have about 33 seats. Those two parties have alternated ruling Greece for decades, and it looks like they are going to form a coalition government which will keep Greece in the euro. On Monday we are likely to see financial markets across the globe in celebration mode. But the truth is that nothing has really changed. Greece is still in a depression. The Greek economy has contracted by close to 25 percent over the past four years, and now they are going to stay on the exact same path that they were before. Austerity is going to continue to grind away at what remains of the Greek economy and money is going to continue to fly out of the country at a very rapid pace. Greece is still drowning in debt and completely dependent on outside aid to avoid bankruptcy. Meanwhile, things in Spain and Italy are rapidly getting worse. So where in that equation is room for optimism?
Right now the ingredients for a “perfect storm” are developing in Europe. Government spending is being slashed all across the continent, ECB monetary policy is very tight, new regulations and deteriorating economic conditions are causing major banks to cut back on lending and there is panic in the air.
Unless something dramatic changes, things are going to continue to get worse.
Yes, the Greek election results mean that Greece will stay in the euro – at least for now.
But is that really a reason for Greeks to celebrate?
Right now, the unemployment rate in Greece is about 22 percent. Businesses continue to shut down at a staggering rate and suicides are spiking.
So far this month, about 500 million euros a day has been pulled out of Greek banks. The entire Greek banking system is on the verge of collapse.
Meanwhile, the Greek government is still running up more debt. It is being projected that the Greek budget deficit will be about 7 percent of GDP this year.
The Greeks went to the polls and they voted for more of the same.
Are they crazy?
Someone once said that the definition of insanity is doing the same thing over and over again and expecting different results.
Unfortunately, it looks like things are going to continue to get worse in Greece for quite some time.
And the rest of Europe is heading into a very bleak economic future as well.
At the moment, unemployment in the eurozone is at a record high.
Most analysts expect it to go even higher.
To say that Spain has an unemployment problem would be a massive understatement. The unemployment rate in Spain is even higher than the unemployment rate in Greece is. In fact, unemployment in Spain is the highest that it has ever been since the introduction of the euro.
The Spanish banking system is a complete and total disaster at this point. The Spanish government has already asked for a 100 billion euro bailout for its banks.
But that might not be nearly enough.
Spain is facing a housing collapse similar to what the United States went through back in 2008 and 2009. Right now, home prices in Spain are absolutely collapsing….
Fresh data yesterday shows how desperate the crisis is becoming in Spain. The property crash is accelerating. House prices fell at a 12.6pc rate in the first quarter of this year, compared to 11.2pc the quarter before, and 7.4pc in the quarter before that. Prices have fallen 26pc from their peak.
“Fundamentals point to a further 25pc decline,” said Standard & Poor’s in a report on Thursday. It may take another four years to clear a glut of one million homes left from the building boom.
Meanwhile, money is being pulled out of banks in Spain at a very alarming rate. As panic spreads we are seeing slow motion bank runs all over Europe. Over the past few months massive amounts of money have been moved from troubled nations to “safe havens” such as Switzerland and Germany.
Investors are getting very nervous and yields on Italian and Spanish debt are spiking again.
Last week yields on Spanish debt hit their highest levels since the introduction of the euro. Without massive ECB intervention the yield on 10 year Spanish bonds will almost certainly blow well past the 7 percent danger mark.
The credit rating agencies are indicating that there is danger ahead. Moody’s recently downgraded Spanish debt to just one notch above junk status. Spain is heading down the exact same road that Greece has gone.
The situation in Europe is very grim.
Greece is going to need bailouts for as far as the eye can see.
Spain is almost certainly going to need a huge bailout.
Italy is almost certainly going to need a huge bailout.
Ireland and Portugal look like they are going to need more money.
France is increasingly looking vulnerable, and Francois Hollande appears to have no real solutions up his sleeve.
As I have said so many times before, watch Europe.
Every few weeks there are headlines that declare that “Europe has been saved” but things just keep getting worse.
The governor of the Bank of England, Mervyn King, said the following a few weeks ago….
“Our biggest trading partner is tearing itself apart with no obvious solution.”
And that is the truth. There is no obvious solution to the problems in Europe. The politicians could kick the can down the road for a while longer, but in the end there will be no avoiding the pain that is coming.
Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions
We are watching a slow-motion financial train wreck that is absolutely unprecedented happen right in front of our eyes and our politicians are powerless to stop it.
It is going to be a long, hot summer for the European financial system.
On election day in Greece, the mood was incredibly somber. Instead of celebrating, most Greeks seemed resigned to a very hard future. As an article in the Telegraph described, the entire nation seems to be grinding to a halt….
This is the election that is supposed to decide whether Greece stays in the euro. Yet as it, and Europe, face what could be their Katrina moment, the dominant sense here is not of panic, or fear, or even hope – but of a country in suspended animation, grinding to a halt.
The Athens Heart shopping centre, in the southern suburbs, is polished, full of big brands, and almost totally empty of customers. “We’ve had five sales all day,” says Steryiani Vlachakou, the assistant in the Champion sportswear store. “It’s been getting a lot, lot worse.”
Sadly, it is not only Greece that is doomed.
The truth is that all of Europe is doomed, and when Europe falls the entire globe is going to feel it.
So get ready for the hard times that are coming. The pain is going to be immense and most people are not even going to see it coming.
Why is the economy going to collapse? Have you ever been asked that question? If so, what did you say? Sometimes it is difficult to communicate dozens of complicated economic and financial concepts in a package that the average person on the street can easily digest. It can be very frustrating to know that something is true but not be able to explain it clearly to someone else. Hopefully many of you out there will find the list below useful. It is a list of 70 numbers that show why we are headed for a national economic nightmare. So why does the title of the article single out Barack Obama? Well, it is because right now he is the biggest cheerleader for the economy. He is attempting to convince all of us that everything is just fine and that the economy is heading in a positive direction. Well, the truth is that everything is not fine and things are about to get a whole lot worse. Certainly others should share in the blame as well. Congress has been steering the economy in the wrong direction for decades, the “too big to fail” banks have turned Wall Street into a pyramid of risk, leverage and debt, and the Federal Reserve has more power over the financial system than anyone else does. Our economy has been in decline for quite a while now, and soon we are going to smash directly into an economic brick wall. Unfortunately, a lot of Americans are in denial about this. A lot of people out there doubt that an economic collapse is coming. Well, if you know someone that believes that the U.S. economy is going to be “just fine”, just show them the list below.
The following are 70 facts that Barack Obama does not want you to see….
$3.59 – When Barack Obama entered the White House, the average price of a gallon of gasoline was $1.85. Today, it is $3.59.
22 – It is hard to believe, but today the poverty rate for children living in the United States is a whopping 22 percent.
23 – According to U.S. Representative Betty Sutton, an average of 23 manufacturing facilities permanently shut down in the United States every single day during 2010.
30 – Back in 2007, about 10 percent of all unemployed Americans had been out of work for 52 weeks or longer. Today, that number is above 30 percent.
32 – The amount of money that the federal government gives directly to Americans has increased by 32 percent since Barack Obama entered the White House.
35 – U.S. housing prices are now down a total of 35 percent from the peak of the housing bubble.
40 – The official U.S. unemployment rate has been above 8 percent for 40 months in a row.
42 – According to one survey, 42 percent of all American workers are currently living paycheck to paycheck.
48 – Shockingly, at this point 48 percent of all Americans are either considered to be “low income” or are living in poverty.
49 – Today, an astounding 49.1 percent of all Americans live in a home where at least one person receives benefits from the government.
60 – According to a recent Gallup poll, only 60 percent of all Americans say that they have enough money to live comfortably.
61 – At this point the Federal Reserve is essentially monetizing much of the U.S. national debt. For example, the Federal Reserve bought up approximately 61 percent of all government debt issued by the U.S. Treasury Department during 2011.
63 – One recent survey found that 63 percent of all Americans believe that the U.S. economic model is broken.
$6000 – If you can believe it, the median price of a home in Detroit is now just $6000.
$10,000 – According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.
49,000 – In 2011, our trade deficit with China was more than 49,000 times larger than it was back in 1985.
50,000 – The United States has lost an average of approximately 50,000 manufacturing jobs a month since China joined the World Trade Organization in 2001.
56,000 – The United States has lost more than 56,000 manufacturing facilities since 2001.
$85,000 – According to the New York Times, a Jeep Grand Cherokee that costs $27,490 in the United States costs about $85,000 in China thanks to all the tariffs.
$175,587 – The Obama administration spent $175,587 to find out if cocaine causes Japanese quail to engage in sexually risky behavior.
$328,404 – Over the next 75 years, Medicare is facing unfunded liabilities of more than 38 trillion dollars. That comes to $328,404 for each and every household in the United States.
$361,330 – This is what the average banker in New York City made in 2010.
440,00 – If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to totally pay it off.
500,000 – According to the Economic Policy Institute, America is losing half a million jobs to China every single year.
2,000,000 – Family farms are being systematically wiped out of existence in the United States. According to the U.S. Department of Agriculture, the number of farms in the United States has fallen from about 6.8 million in 1935 to only about 2 million today.
2,600,000 – In 2010, 2.6 million more Americans fell into poverty. That was the largest increase that we have seen since the U.S. government began keeping statistics on this back in 1959.
5,400,000 – When Barack Obama first took office there were 2.7 million long-term unemployed Americans. Today there are twice as many.
16,000,000 – It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.
$20,000,000 – The amount of money the U.S. government was spending to create a version of Sesame Street for children in Pakistan.
25,000,000 – Today, approximately 25 million American adults are living with their parents.
40,000,000 – According to Professor Alan Blinder of Princeton University, 40 million more U.S. jobs could be sent offshore over the next two decades if current trends continue.
46,405,204 – The number of Americans currently on food stamps. When Barack Obama first entered the White House there were only 32 million Americans on food stamps.
88,000,000 – Today there are more than 88 million working age Americans that are not employed and that are not looking for employment. That is an all-time record high.
100,000,000 – Overall, there are more than 100 million working age Americans that do not currently have jobs.
$150,000,000 – This is approximately the amount of money that the Obama administration and the U.S. Congress are stealing from future generations of Americans every single hour.
$2,000,000,000 – The amount of money that JP Morgan has admitted that it will lose from derivatives trades gone bad. Many analysts are convinced that the real number will actually end up being much higher.
$147,000,000,000 – In the U.S., medical costs related to obesity are estimated to be approximately 147 billion dollars a year.
295,500,000,000 – Our trade deficit with China in 2011 was $295.5 billion. That was the largest trade deficit that one country has had with another country in the history of the planet.
$359,100,000,000 – During the first quarter of 2012, U.S. public debt rose by 359.1 billion dollars. U.S. GDP only rose by 142.4 billion dollars.
$454,000,000,000 – During fiscal 2011, the U.S. government spent over 454 billion dollars just on interest on the national debt.
$1,000,000,000,000 – The total amount of student loan debt in the United States recently surpassed the one trillion dollar mark.
$1,170,000,000,000 – China now holds approximately 1.17 trillion dollars of U.S. government debt. Yet the U.S. government continues to send them millions of dollars in foreign aid every year.
$1,600,000,000,000 – The amount that has been added to the U.S. national debt since the Republicans took control of the U.S. House of Representatives. This is more than the first 97 Congresses added to the national debt combined.
$5,000,000,000,000 – The U.S. national debt has risen by more than 5 trillion dollars since the day that Barack Obama first took office. In a little more than 3 years Obama has added more to the national debt than the first 41 presidents combined.
$5,000,000,000,000 – What the real U.S. budget deficit in 2011 would have been if the federal government had used generally accepted accounting principles.
$11,440,000,000,000 – The total amount of consumer debt in the United States.
$200,000,000,000,000 – Today, the 9 largest banks in the United States have a total of more than 200 trillion dollars of exposure to derivatives. When the derivatives market completely collapses there won’t be enough money in the entire world to fix it.
The summer of 2012 is shaping up to be very similar to the summer of 2008. Things look incredibly bleak for the global economy right now. Economic activity and lending are slowing down all over the planet, and fear is starting to paralyze the entire global financial system. Things did not look this bad back in the summer of 2011 and things certainly did not look this bad back in the summer of 2010. It is almost as if a “perfect storm” is brewing. Today, the global financial system is a finely balanced pyramid of risk, debt and leverage. Such a system requires a high degree of confidence and stability. But when confidence disappears and fear and panic take over, the house of cards can literally start collapsing at any time. Right now we are watching a slow-motion train wreck unfold and nobody seems to know how to stop it. Unless some kind of a miracle happens, things are going to look much different when we reach the start of 2013 than they do today.
The following are 21 signs that this could be a long, hot, crazy summer for the global financial system….
#1 There are rumors that major financial institutions are cancelling employee vacations in anticipation of a major financial crisis this summer. The following are a couple of tweets quoted in a recent article by Kenneth Schortgen Jr….
Todd Harrison tweet: Hearing (not confirmed) @PIMCO asked employees to cancel vacations to have “all hands on deck” for a Lehman-type tail event. Confirm?
Todd M. Schoenberger tweet: @todd_harrison @pimco I heard the same thing, but I also heard the same for “some” at JPM. Heard it today at a hedge fund luncheon.
As Schortgen points out, these are not just your average Twitter users….
Todd Harrison is the CEO of the award winning internet media company Minyanville, while Todd Shoenberger is a managing principal at the Blackbay Group, and an adjunct professor of Finance at Cecil College.
#2 The Bank for International Settlements is warning that global lending is contracting at the fastest pace since the financial crisis of 2008.
#4 The government of Portugal has just announced that it will be bailing out three major banks.
#5 Many U.S. banking stocks are being hit extremely hard. For example, Morgan Stanley stock has declined by 40 percent over the past four months.
#6 Yields on Spanish debt and yields on Italian debt have been absolutely soaring.
#7 10 year U.S. Treasury notes hit a record low on Friday because investors are scared and they are looking for safety. The following is from a recent USA Today article….
“Treasuries are at 1.46 because people are freaking out,” says Mark Vitner, senior economist at Wells Fargo Economics.
#8 New orders for factory goods in the United States have declined three times in the last four months. That is a sign that the “economic recovery” in the U.S. has clearly stalled.
#9 U.S. job growth in May was well below expectations and the unemployment rate has increased to 8.2 percent.
#10 Economies all over the developed world are seriously slowing down right now. The following is from a recent article by Ambrose Evans-Pritchard….
Brazil wilted in the first quarter. India grew at the slowest pace in nine years. China’s HSBC manufacturing index fell further into contraction in May, with new orders dropping sharply and inventories rising.
#12 Over the past five years, the stock markets of Greece, Spain, Italy, Portugal, Ireland and Cyprus have all fallen by more than 50 percent. Will we soon see similar results all over the rest of Europe?
#13 The Greek economy is literally shutting down. Just check out the chaos that unpaid bills are already causing….
And unpaid bills are now threatening Greece’s electricity supply. State-owned Electricity Market Operator (LAGIE), a clearing house for power transactions, hasn’t paid independent power producers for electricity it bought from them. They, in turn, haven’t paid their natural gas supplier, Public Gas Corporation (Depa), which now doesn’t have the money to pay its supplier. Payment is due on June 22. Alas, its supplier is Gazprom in Russia, and they insist on getting paid. If not, they will shut the valve, and Depa won’t get the gas to supply the independent producers, which will have to take their power plants off line, removing about a third of the country’s electricity production.
#14 It is estimated that there are 273 billion dollars of failed real estate loans in the Spanish banking system.
#15 In March, 66 billion euros was pulled out of Spanish banks and sent out of the country. That was an all-time record and that was before we even knew the results of the recent elections in Greece and France. The numbers for April and May will almost certainly be even worse.
#16 The unemployment rate in Spain is 24.4 percent and for those under the age of 25 it is over 50 percent.
#17 Former Italian Prime Minister Silvio Berlusconi is warning that Italy may have to take drastic actions if something is not done soon….
“People are in shock. Confidence has collapsed. We have never had such a dark future,” he said. Indeed, the jobless rate for youth has jumped from 27pc to 35pc in a year. Terrorism has returned. Anarchists knee-capped the head of Ansaldo Nucleare last month. Italy’s tax office chief was nearly blinded by a letter bomb.
“If Europe refuses to listen to our demands, we should say ‘bye, bye’ and leave the euro. Or tell the Germans to leave the euro if they are not happy,” he said.
#18 It now looks like Cyprus is going to be the next European nation to need a bailout.
#19 Switzerland is threatening to implement capital controls in order to stop the massive flow of money that is coming in from banks around the rest of Europe.
#20 As I wrote about the other day, World Bank President Robert Zoellick is warning that “the summer of 2012″ could end up being very similar to what we experienced back in 2008….
“Events in Greece could trigger financial fright in Spain, Italy and across the eurozone. The summer of 2012 offers an eerie echo of 2008.”
#21 Germany’s former vice-Chancellor, Joschka Fischer, is warning that the entire EU could fall apart over this crisis….
“Let’s not delude ourselves: If the euro falls apart, so will the European Union, triggering a global economic crisis on a scale that most people alive today have never experienced”
When was the last time that we saw so much bad economic news come out all at once?
2008 perhaps?
We truly live in unprecedented times.
It will be exciting to watch what happens, but it is also important to keep in mind that the coming economic crisis will cause extreme pain for millions upon millions of people.
For example, the suicide of a mother and a son due to the deteriorating economy has absolutely shocked the entire nation of Greece….
A 60-year-old Greek musician and his 91-year-old mother jumped to their deaths from their 5th floor apartment, driven to despair by financial woes. This double death is the latest in a rising epidemic of crisis-induced suicides in Greece.
Witness accounts vary – some say the mother, who suffered from Alzheimer’s, jumped first, screaming a prayer as she plummeted to her death. Other neighbors say the mother and her son jumped together, holding hands.
But the one thing everyone seems to agree on is that the family had been struggling for a long time. The night before, Antonis Perris posted a suicide note of sorts on a popular Greek forum, saying he had no way of resolving the family’s financial issues.
“The problem is that I didn’t realize that I would need to have cash, because the economic crisis came so suddenly. Even though I have been selling our possessions, we have no cash flow, we have no money to buy food anymore and my credit card is maxed out with 22% interest rate.”
Perris continued to say that both his and his mother’s health deteriorated, and that he saw no solution to his most basic problems – getting food and medical help.
Would you pool your debt with a bunch of debt addicts that have no intention of reducing their wild spending habits? Of course you wouldn’t. But that is exactly what Germany is being asked to do. Increasingly, “eurobonds” are being touted as the best long-term solution to the financial crisis in Europe. These eurobonds would represent jointly issued debt by all 17 members of the eurozone. This debt would also be guaranteed by all 17 members of the eurozone. This would allow all countries in the eurozone to enjoy the same credit rating that Germany does, and borrowing costs for nations such as Greece, Portugal, Italy and Spain would plummet. But borrowing costs for Germany would rise substantially. In fact, it is being estimated that Germany could be facing an extra 50 billion euros a year in interest expenses. So over ten years that would come to about 500 billion euros. Needless to say, Germany is not thrilled about this idea. But new French President Francois Hollande is pushing eurobonds very hard, and he has the support of the OECD, the IMF and many top Italian politicians. In the end, this could be the key to the future of the eurozone. If the Germans give in and decide that they are willing to deeply subsidize their profligate neighbors indefinitely, then the euro could potentially be saved. If not, then this issue could end up shattering Europe.
It is easy to try to portray the Germans as the “bad guys” in all this, but try to step into their shoes for a minute.
If you had some relatives that were spending wildly and that had already run up $100,000 in credit card debt, would you be a co-signer on their next credit card application?
Of course not.
The recent elections in France and Greece made it abundantly clear that the populations of those two countries are rejecting austerity.
Instead, they want a return to the debt-fueled prosperity that they have always enjoyed in the past.
Unfortunately, they need German help to be able to do that.
That is why new French President Francois Hollande is pushing so hard for eurobonds. He wants the rest of the eurozone to be able to “piggyback” on Germany’s sterling credit rating so that everyone can return to the days of wild borrowing and spending.
But Germans greatly fear what a co-mingling of eurozone debt could eventually mean. Not only would Germany’s borrowing costs rise dramatically, but there is also a concern that the rest of the eurozone could eventually pull Germany down with them.
Austria, Finland and the Netherlands are also against eurobonds, but the key is Germany.
For now, Germany is not budging on the issue of eurobonds at all. The following is a statement that German Chancellor Angela Merkel made during a recent speech in Berlin….
“It’s just about not spending more than you collect. It’s astonishing that this simple fact leads to such debates”
And she is right.
Why is it so controversial to insist that people not spend more than they bring in?
But this is the problem that is created when you create a false lifestyle fueled by debt that goes on for decades. People become accustomed to that false standard of living and they throw hissy fits when that false standard of living begins to disappear.
The Germans don’t want to make great sacrifices just so the Greeks, the French and the Italians can go back to borrowing and spending wildly.
Why would the Germans want to do that?
And as a recent CNN article noted, German politicians believe that eurobonds are explicitly banned under existing EU treaties anyway….
“There is no way of introducing them under the current [EU] treaties. Indeed, there is an explicit ban on them,” one senior German official said, adding Berlin would not drop its opposition in the foreseeable future. “That’s a firm conviction which will not change in June.”
But politicians such as Hollande are complaining that austerity could seriously damage living standards throughout Europe.
And Hollande is right about that.
When you inflate your standard of living with borrowed money for many years, eventually there comes a time when you must pay a great price.
Anyone that has ever been in trouble with credit card debt knows how painful that can be.
It is shameful for the rest of Europe to be pleading and begging Germany to help them.
They should take care of themselves.
As I wrote about the other day, Greece would be much better off in the long run if it left the euro and created a new financial system based on sound financial principles.
But in the financial press all over the world there are calls for someone to come up with a “plan” to “rescue” Europe. For example, the following is from a recent Wall Street Journal article….
There have been two main responses to the crisis: austerity, and kicking cans down roads. Austerity, in case you haven’t noticed, is so last year. It’s out. Which means that unless something else is found, some other comprehensive plan, the other main response, can kicking, is going to run out of road.
Just about everybody backed the idea of eurobonds, except for the Germans, and since they’re the ones with all the money, they’re kind of the only ones whose vote counts anyway. So, it’s time to go to plan B. Only there’s no Plan B, and there’s no time, either.
If Germany does not agree to subsidize the rest of the eurozone, will that ultimately mean that the eurozone will be forced to break up?
Probably.
And that would cause a huge amount of pain in the short-term.
But the euro never was a good idea in the first place. It was foolish to expect a monetary union to work smoothly in the absence of fiscal and political union.
And to be honest, the entire world would be a better place with less European integration. The EU has become a horrifying bureaucratic nightmare and it would be wonderful if the entire thing broke up.
But for now, the only thing that is in danger is the euro.
Increasingly, it is looking like Greece may be the first country to exit the euro.
This week, former Greek Prime Minister Lucas Papademos admitted that the Greek government is considering making preparations for Greece to leave the euro.
Not only that, Reuters is reporting that top officials in the eurozone are now working on “contingency plans” for a Greek exit from the euro….
Each euro zone country will have to prepare a contingency plan for the eventuality of Greece leaving the single currency, euro zone sources said on Wednesday.
Officials reached the consensus on Monday afternoon during an hour-long teleconference of the Eurogroup Working Group (EWG).
As well as confirmation from three euro zone officials, Reuters has seen a memo drawn up by one member state detailing some of the elements that euro zone countries should consider.
So obviously a Greek exit from the euro has become a very real possibility.
A recent Bloomberg article detailed how a Greek exit from the euro could play out during the 46 hours that global financial markets are closed over the weekend….
Greece may have only a 46-hour window of opportunity should it need to plot a route out of the euro.
That’s how much time the country’s leaders would probably have to enact any departure from the single currency while global markets are largely closed, from the end of trading in New York on a Friday to Monday’s market opening in Wellington, New Zealand, based on a synthesis of euro-exit scenarios from 21 economists, analysts and academics.
Over the two days, leaders would have to calm civil unrest while managing a potential sovereign default, planning a new currency, recapitalizing the banks, stemming the outflow of capital and seeking a way to pay bills once the bailout lifeline is cut. The risk is that the task would overwhelm any new government in a country that has had to be rescued twice since 2010 because it couldn’t manage its public finances.
At this point, everyone is afraid of what is going to happen if Greece is forced to start issuing drachmas again. As CNBC is reporting, some big European corporations are already beginning to implement their own “contingency plans”….
Big tourism operators like TUI of Germany and Kuoni of Britain are demanding the addition of so-called drachma clauses to contracts with Greek hoteliers should the euro no longer be in use here. British newspapers are filled with advice columns for travelers worried about the wisdom of planning a vacation in Greece, or even Portugal and Spain, should the euro crisis worsen. Large multinational companies like Vodafone Group, Reckitt Benckiser and Diageo have taken to sweeping cash every day from euro accounts back to Britain to limit their exposure.
Sadly, this is probably only a small taste of the financial anarchy that is coming.
France is likely to keep pushing hard for the creation of eurobonds.
Germany is likely to keep fiercely resisting this.
At some point, a moment of crisis will arrive and a call will have to be made.
Will Germany give in or will political turmoil end up shattering Europe?
It will be interesting to see how all of this plays out.
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.
“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.
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.
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.
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.
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.
The bank runs that we are watching right now in Greece are shocking, but they are only just the beginning. Since May 6th, nearly one billion dollars has been withdrawn from Greek banks. For a small nation like Greece, that is an absolutely catastrophic number. At this point, the entire Greek banking system is in danger of collapsing. If you had money in a Greek bank, why wouldn’t you pull it out? If Greece leaves the euro, all euros in Greek banks will likely be converted to drachmas, and the value of those drachmas will almost certainly decline dramatically. In fact, it has been estimated that Greek citizens could see the value of their bank accounts decline by up to 50 percent if Greece leaves the euro. So if you had money in a Greek bank, it would only make sense to withdraw it and move it to another country as quickly as possible. And as the eurozone begins to unravel, this is a scenario that we are going to see play out in country after country. As member nations leave the eurozone, you would be a fool to have your euros in Italian banks or Spanish banks when you could have them in German banks instead. So the bank runs that are happening in Greece right now are only a preview of things to come. Before this crisis is over we are going to see bank runs happening all over Europe.
If Greece leaves the euro, the consequences are likely to be quite messy. Those that are promoting the idea that a “Grexit” can be done in an orderly fashion are not being particularly honest. The following is from a recent article in the Independent….
“Whoever tells you a Greek exit would be no big deal is an idiot, lying or disingenuous,” said Sony Kapoor of the European think-tank Re-Define. Economists fear that a disorderly exit would prompt a huge run by investors on Spanish and Italian debt, forcing those countries to seek support from an EU bailout fund, which, with a capacity of just €500bn, is widely regarded as too small to cope with those pressures.
A Greek exit from the euro would not only result in a run on Spanish and Italian bonds, but it would also likely result in a run on Spanish and Italian banks.
If Greece is allowed to leave the euro, that will be a signal that other countries will eventually be allowed to leave as well. Nobody in their right mind would want their euros stuck in Spanish or Italian banks if those countries end up converting back to national currencies.
Fear is a powerful motivator. If Greece converts their euros back to drachmas, that will be a clear signal that all euros are not created equally. The race to move money into German banks will accelerate dramatically.
And a Greek exit from the euro is looking more likely with each passing day. Even the IMF is now admitting that it is a very real possibility….
Christine Lagarde, head of the IMF, warned she was “technically prepared for anything” and said the utmost effort must be made to ensure any Greek exit was orderly. The effect was likely to be “quite messy” with risks to growth, trade and financial markets. “It is something that would be extremely expensive and would pose great risks but it is part of options that we must technically consider,” she said.
Meanwhile, banks in other troubled European nations are already on shaky ground. The Spanish banking system is an absolute disaster zone at this point and on Monday night Moody’s downgraded the credit ratings of 26 Italian banks.
The situation in Italy is especially worth keeping a close eye on. As Ambrose Evans-Pritchard recently noted, things are not looking good for Italy at all….
Italy’s former premier Romano Prodi said the EU risks instant contagion to Spain, Italy, and France if Greece leaves. “The whole house of cards will come down”, he said
Angelo Drusiani from Banca Albertini said the only way to avert catstrophe is to convert the European Central Bank into a lender of last resort. Otherwise Italy faces “massive devaluation, three to five years of hyperinflation, and unbearable unemployment.”
So what can be done about any of this?
Well, there is actually a lot that could be done if politicians in Europe were willing to think outside of the established global financial paradigm.
The truth is that Greece could solve their current financial problems in four easy steps. They would have to be willing to stick it to the rest of Europe and to risk being blackballed by the international community, but it could be done.
The following is my prescription for Greece….
1) Default on all debts.
2) Leave the euro.
3) Issue drachmas that are debt-free and that do not come from a central bank. Instead, have the Greek government create them and spend them directly into circulation.
4) Enjoy a return to prosperity.
In such a scenario, the Greek national debt would no longer be a problem, the Greek government would never have to borrow any more money and austerity would no longer be needed.
Yes, inflation would be an issue with the new currency, but a bit of inflation would be a walk in the park compared to the horrible economic depression that Greece is experiencing right now.
And once the Greek economy was growing again, it would certainly be possible for them to make the transition to “hard money” if they wanted to.
It is imperative that we all understand that just because the global financial system works a certain way today does not mean that it must always work that way.
If you have a few minutes, I want you to watch an incredible speech by a 12-year-old Canadian girl named Victoria Grant. In this 6 minute speech, she details how the bankers are defrauding the people of Canada and how the Canadian government does not actually need to borrow a single penny from the bankers….
If a 12-year-old girl can figure this out, then why can’t the rest of us?
Sadly, the financial world still seems enamored with the corrupt central banking system that has gotten us into this mess. In fact, one recent poll found that Federal Reserve Chairman Ben Bernanke has a 75 percent approval rating from global investors.
Right now, America is going down the same path as Greece, Spain and Italy have gone. Eventually we will hit a wall and our financial system will fall apart.
We need the American people to understand that the Federal Reserve system is a perpetual debt machine. The U.S. national debt is now more than 5000 times larger than it was when the Fed was first created. It is at the very core of our national financial problems.
When will people wake up and realize that central banking is the problem and not the solution?
When will people wake up and realize that national governments do not have to go into debt to anyone if they do not want to?
In our world today, there is far more debt than there is money.
It is a system that will inevitably crash.
But there are other alternatives.
Unfortunately, politicians all over the globe continue to want to be married to our current debt-based financial system.
As a result, we will suffer the consequences of that system.
How is money created? If you ask average people on the street this question, most of them have absolutely no idea. This is rather odd, because we all use money constantly. You would think that it would only be natural for all of us to know where it comes from. So where does money come from? A lot of people assume that the federal government creates our money, but that is not the case. If the federal government could just print and spend more money whenever it wanted to, our national debt would be zero. But instead, our national debt is now nearly 16 trillion dollars. So why does our government (or any sovereign government for that matter) have to borrow money from anybody? That is a very good question. The truth is that in theory the U.S. government does not have to borrow a single penny from anyone. But under the Federal Reserve system, the U.S. government has purposely allowed itself to be subjugated to a financial system in which it will be constantly borrowing larger and larger amounts of money. In fact, this is how it works in the vast majority of the countries on the planet at this point. As you will see, this kind of system is not sustainable and the structural problems caused by such a system are at the very heart of our debt problems today.
The U.S. Economy By The Numbers: 70 Facts That Barack Obama Does Not Want You To See
The following are 70 facts that Barack Obama does not want you to see….
$3.59 – When Barack Obama entered the White House, the average price of a gallon of gasoline was $1.85. Today, it is $3.59.
22 – It is hard to believe, but today the poverty rate for children living in the United States is a whopping 22 percent.
23 – According to U.S. Representative Betty Sutton, an average of 23 manufacturing facilities permanently shut down in the United States every single day during 2010.
30 – Back in 2007, about 10 percent of all unemployed Americans had been out of work for 52 weeks or longer. Today, that number is above 30 percent.
32 – The amount of money that the federal government gives directly to Americans has increased by 32 percent since Barack Obama entered the White House.
35 – U.S. housing prices are now down a total of 35 percent from the peak of the housing bubble.
40 – The official U.S. unemployment rate has been above 8 percent for 40 months in a row.
42 – According to one survey, 42 percent of all American workers are currently living paycheck to paycheck.
48 – Shockingly, at this point 48 percent of all Americans are either considered to be “low income” or are living in poverty.
49 – Today, an astounding 49.1 percent of all Americans live in a home where at least one person receives benefits from the government.
53 – Last year, an astounding 53 percent of all U.S. college graduates under the age of 25 were either unemployed or underemployed.
60 – According to a recent Gallup poll, only 60 percent of all Americans say that they have enough money to live comfortably.
61 – At this point the Federal Reserve is essentially monetizing much of the U.S. national debt. For example, the Federal Reserve bought up approximately 61 percent of all government debt issued by the U.S. Treasury Department during 2011.
63 – One recent survey found that 63 percent of all Americans believe that the U.S. economic model is broken.
71 – Today, 71 percent of all small business owners believe that the U.S. economy is still in a recession.
80 – Americans buy 80 percent of the pain pills sold on the entire globe each year.
81 – Credit card debt among Americans in the 25 to 34 year old age bracket has risen by 81 percent since 1989.
85 – 85 percent of all artificial Christmas trees are made in China.
86 – According to one survey, 86 percent of Americans workers in their sixties say that they will continue working past their 65th birthday.
90 – In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.
93 – The United States now ranks 93rd in the world in income inequality.
95 – The middle class continues to shrink – 95 percent of the jobs lost during the last recession were middle class jobs.
107 – Each year, the average American must work 107 days just to make enough money to pay local, state and federal taxes.
350 – The average CEO now makes approximately 350 times as much as the average American worker makes.
400 – According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.
$500 – In some areas of Detroit, Michigan you can buy a three bedroom home for just $500.
627 – In 2010, China produced 627 million metric tons of steel. The United States only produced 80 million metric tons of steel.
877 – 20,000 workers recently applied for just 877 jobs at a Hyundai plant in Montgomery, Alabama.
900 – Auto parts exports from China to the United States have increased by more than 900 percent since the year 2000.
$1580 – When Barack Obama first took office, an ounce of gold was going for about $850. Today an ounce of gold costs more than $1580 an ounce.
1700 – Consumer debt in America has risen by a whopping 1700% since 1971.
2016 – It is being projected that the Chinese economy will be larger than the U.S. economy by the year 2016.
$4155 – The average American household spent a staggering $4,155 on gasoline during 2011.
$4300 – The amount by which real median household income has declined since Barack Obama entered the White House.
$6000 – If you can believe it, the median price of a home in Detroit is now just $6000.
$10,000 – According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.
49,000 – In 2011, our trade deficit with China was more than 49,000 times larger than it was back in 1985.
50,000 – The United States has lost an average of approximately 50,000 manufacturing jobs a month since China joined the World Trade Organization in 2001.
56,000 – The United States has lost more than 56,000 manufacturing facilities since 2001.
$85,000 – According to the New York Times, a Jeep Grand Cherokee that costs $27,490 in the United States costs about $85,000 in China thanks to all the tariffs.
$175,587 – The Obama administration spent $175,587 to find out if cocaine causes Japanese quail to engage in sexually risky behavior.
$328,404 – Over the next 75 years, Medicare is facing unfunded liabilities of more than 38 trillion dollars. That comes to $328,404 for each and every household in the United States.
$361,330 – This is what the average banker in New York City made in 2010.
440,00 – If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to totally pay it off.
500,000 – According to the Economic Policy Institute, America is losing half a million jobs to China every single year.
2,000,000 – Family farms are being systematically wiped out of existence in the United States. According to the U.S. Department of Agriculture, the number of farms in the United States has fallen from about 6.8 million in 1935 to only about 2 million today.
$2,000,000 – At this point, the U.S. national debt is rising by more than 2 million dollars every single minute.
2,600,000 – In 2010, 2.6 million more Americans fell into poverty. That was the largest increase that we have seen since the U.S. government began keeping statistics on this back in 1959.
5,400,000 – When Barack Obama first took office there were 2.7 million long-term unemployed Americans. Today there are twice as many.
16,000,000 – It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.
$20,000,000 – The amount of money the U.S. government was spending to create a version of Sesame Street for children in Pakistan.
25,000,000 – Today, approximately 25 million American adults are living with their parents.
40,000,000 – According to Professor Alan Blinder of Princeton University, 40 million more U.S. jobs could be sent offshore over the next two decades if current trends continue.
46,405,204 – The number of Americans currently on food stamps. When Barack Obama first entered the White House there were only 32 million Americans on food stamps.
88,000,000 – Today there are more than 88 million working age Americans that are not employed and that are not looking for employment. That is an all-time record high.
100,000,000 – Overall, there are more than 100 million working age Americans that do not currently have jobs.
$150,000,000 – This is approximately the amount of money that the Obama administration and the U.S. Congress are stealing from future generations of Americans every single hour.
$2,000,000,000 – The amount of money that JP Morgan has admitted that it will lose from derivatives trades gone bad. Many analysts are convinced that the real number will actually end up being much higher.
$147,000,000,000 – In the U.S., medical costs related to obesity are estimated to be approximately 147 billion dollars a year.
295,500,000,000 – Our trade deficit with China in 2011 was $295.5 billion. That was the largest trade deficit that one country has had with another country in the history of the planet.
$359,100,000,000 – During the first quarter of 2012, U.S. public debt rose by 359.1 billion dollars. U.S. GDP only rose by 142.4 billion dollars.
$454,000,000,000 – During fiscal 2011, the U.S. government spent over 454 billion dollars just on interest on the national debt.
$1,000,000,000,000 – The total amount of student loan debt in the United States recently surpassed the one trillion dollar mark.
$1,170,000,000,000 – China now holds approximately 1.17 trillion dollars of U.S. government debt. Yet the U.S. government continues to send them millions of dollars in foreign aid every year.
$1,600,000,000,000 – The amount that has been added to the U.S. national debt since the Republicans took control of the U.S. House of Representatives. This is more than the first 97 Congresses added to the national debt combined.
$5,000,000,000,000 – The U.S. national debt has risen by more than 5 trillion dollars since the day that Barack Obama first took office. In a little more than 3 years Obama has added more to the national debt than the first 41 presidents combined.
$5,000,000,000,000 – What the real U.S. budget deficit in 2011 would have been if the federal government had used generally accepted accounting principles.
$11,440,000,000,000 – The total amount of consumer debt in the United States.
$15,734,596,578,458.59 – The U.S. national debt as of June 7, 2012.
$200,000,000,000,000 – Today, the 9 largest banks in the United States have a total of more than 200 trillion dollars of exposure to derivatives. When the derivatives market completely collapses there won’t be enough money in the entire world to fix it.