The entire world is in a state of mourning today as details regarding the horrific damage caused by the massive tsunami in Japan continue to trickle in. The magnitude 8.9 earthquake that caused the tsunami was the largest earthquake that Japan has ever experienced in modern times. Waves as high as 30 feet swept over northern Japan. The tsunami waters reached as far as 6 miles inland, and authorities have already recovered hundreds of dead bodies. Those of us that have seen footage of this disaster on television will never forget it. But this nightmare is not over yet. There have been dozens of aftershocks, and many of them have been quite large. In fact, there have been 19 earthquakes of at least magnitude 6.0 in the area over the last 24 hours. So what is this disaster going to do to the 3rd largest economy in the world? Japan already had a national debt that was well over 200 percent of GDP. Could this be the “tipping point” that pushes the Japanese economy over the edge and into oblivion?
It is hard to assess the full scope of the damage to Japan at this point, but virtually everyone agrees that much of northern Japan is a complete and total disaster area at this point. Many towns have essentially been destroyed. Some are estimating that the economic damage from this disaster will be in the hundreds of billions of dollars. Others believe that the final total will be in the trillions of dollars.
Fortunately, major cities such as Tokyo came through this event relatively unscathed and most of the major manufacturing facilities are not in the areas that were most directly affected by the earthquake and the tsunami.
But let there be no doubt, this was a nation-changing event. Japan will never quite be the same again.
Also, it isn’t just Japan that will be affected by this. The truth is that economic ripples from this event will be felt all over the world.
An economist from High Frequency Economics, Carl Weinberg, told AFP the following about the economic consequences of this disaster….
“There is no way to assess even the direct damage to Japan’s economy or to the global economy. This is a sad day for Japan, and economic aftershocks could affect the whole world’s economy.”
It is literally going to take months to figure out exactly how much damage has been done. Let us just hope that we don’t see any more major earthquakes in the area.
The Japanese are a very resilient people and the Bank of Japan is already vowing that it will be doing whatever is necessary to ensure the stability of the financial markets. The Bank of Japan has announced that it is going to provide as much liquidity as necessary to keep the Japanese economy functioning normally.
But the truth is that the Bank of Japan has already been printing money like crazy….
Is a tsunami of new yen really going to solve the economic damage that has been done by the earthquake and the tsunami?
Of course not.
The truth is that the economy of Japan was already deeply struggling before this disaster.
The national debt of Japan is now well over 200% of GDP and there seems to be no doubt that they will need to borrow massive amounts of money to deal with the aftermath of this crisis.
But in light of what has just happened, will the citizens of Japan still have enough resources to continue to fund the rampant spending of the Japanese government?
At this point, it is estimated that this gigantic mountain of debt breaks down to 7.5 million yen for every single citizen of Japan.
Politicians in Japan have been pledging for years to do something about all of this debt, but nobody has been able to make much progress.
Even before this disaster, the major credit rating agencies were warning that they may have to downgrade Japanese government debt. The earthquake and the tsunami are certainly not going to make the Japanese even more credit-worthy.
Hideo Kumano, the chief economist at Dai-ichi Life Research Institute, has said that a “tipping point” will come when world financial markets finally recognize that the government of Japan simply cannot afford to service its debt any longer….
“It’s hard to predict when the bond market might collapse, but it would happen when the market judges that Japan’s ability to finance its debt is not sustainable anymore.”
Is the massive tsunami that just hit Japan such a tipping point?
Other countries such as Greece and Ireland would have already collapsed if it had not been for the massive international bailouts that they received.
So who is going to bail Japan out?
This could potentially be one of the greatest economic disasters that the world has seen since World War 2.
With the world already on the verge of a major financial collapse, this is the last thing that world financial markets needed.
In fact, much of the rest of the world had been hoping that an influx of capital from Japan would help to stabilize things.
For example, Japanese insurance companies had recently announced that they were planning on buying up lots of European sovereign debt, but now obviously those plans are on hold. As a result of this disaster, Japanese insurance companies will be forced to sell off assets like crazy in order to pay settlements. But as Zero Hedge is correctly pointing out, without Japanese financial institutions stepping in to soak up Eurozone bonds this is going to make the European sovereign debt crisis even worse.
But right now the focus in on the devastation in Japan. At the moment it is unclear how much of the economic infrastructure of Japan has survived.
For example, as USA Today is reporting, some factories cannot even be reached by phone at this point….
Toyota’s phone calls to its plants in affected areas were not being answered, said Shiori Hashimoto, a spokeswoman in Tokyo. The Toyota City-based carmaker began production at a new plant in Miyagi this year that makes Yaris compact cars and has capacity to make 120,000 vehicles a year.
What is clear is that the cost of recovering and rebuilding after this disaster is going to put extraordinary financial stress on the Japanese government.
Bill Gross, the manager of the biggest bond fund in the world, has forgotten more about bonds than most of us will ever learn. That is why the big move that PIMCO has just made is so unsettling. At one time PIMCO held more U.S. government debt than any other bond fund on the globe, but now news has come out that they have gotten rid of all their U.S. government-related securities. So should we be alarmed? For months Gross has been warning that the bull market in bonds is coming to an end, and now it looks like he is putting his words into action.s Gross has often publicly decried the rampant government spending that has been going on over the last several years, and apparently he has seen enough. He is taking his ball and he is going home. This really is a stunning move by PIMCO. Gross must really believe that something fundamental has shifted. Gross didn’t get to where he is today by being stupid. But so far world financial markets are taking this news in stride. Nobody seems all that alarmed that the largest bond fund in the world has dumped all of their U.S. Treasuries. But with world financial markets in such a state of chaos right now, shouldn’t we all take note when one of the biggest players in the game makes such a bold move?
Gross believes that interest rates on U.S. Treasuries are way too low right now and that they will start going up when the Federal Reserve ends the current round of quantitative easing in June. Gross has indicated that if interest rates on U.S. Treasuries go up high enough, PIMCO might get back in.
But if interest rates do start going up that is going to make servicing the monolithic U.S. national debt much more expensive, and that would not be good news for U.S. government finances.
But would the Federal Reserve really allow interest rates on U.S. Treasuries to go up substantially? Wouldn’t they just step in at some point and start buying U.S. government debt again?
Probably.
But the truth is that the Ponzi Scheme of the U.S. Treasury issuing bonds and the Federal Reserve buying them up cannot last forever as Gross noted in his March newsletter….
“Basically, the recent game plan is as simple as the Ohio State Buckeyes’ “three yards and a cloud of dust” in the 1960s. When applied to the Treasury market it translates to this: The Treasury issues bonds and the Fed buys them. What could be simpler, and who’s to worry? This Sammy Scheme as I’ve described it in recent Outlooks is as foolproof as Ponzi and Madoff until… until… well, until it isn’t.”
Gross also noted in his newsletter that the Federal Reserve is currently buying up about 70 percent of all new U.S. government debt.
So what is going to happen when that stops?
Nobody knows for certain, but it sure is going to be interesting to watch.
The market for U.S. Treasuries has not been working “normally” for quite some time now, and there is some legitimate doubt as to whether it will ever fully get back to “normal” again.
Meanwhile, the sovereign debt crisis in Europe continues to get even worse.
The yield on 10-year Portuguese bonds is now above 7 percent, the yield on 10-year Irish bonds is now above 9 percent and the yield on 10-year Greek bonds is now above 12 percent.
Most people expect European leaders to soon come to an agreement to add billions more to existing bailout funds, but there is no guarantee that is actually going to happen.
In fact, the Germans are making waves by insisting that the financially troubled nations in the EU must be willing to agree to limits on their future budget deficits. A recent article on CNBC described the situation this way….
Before the Germans will agree to pump in extra cash from their taxpayers, backed by the French, they want each leader to agree to legislation at home that will limit the size of their future national deficits. The Greeks are already refusing point blank. Things may boil to the surface at an extraordinary summit on Friday.
So what if an agreement can’t be reached?
Could the dominoes in Europe start to fall?
Very few people actually want to see a wave of sovereign defaults in Europe, but the current situation cannot go on forever. At some point the Germans are going to get sick and tired of bailing out other members of the EU.
The global addiction to debt is about to start having some very serious consequences.
For decades, most of the governments of the industrialized world have been running up debt as if it would never come back to haunt them. Now the world is absolutely covered in red ink and everyone is looking for a way to solve the problem.
But there is not going to be a debt jubilee to come along and save everyone. This debt bubble is either going to keep expanding or it is going to burst.
At one point, at least some of the debt-ridden nations will try to inflate their way out of debt by recklessly printing money. To a certain extent that has already been going on. But it will not work. It will only cause a whole lot of inflation.
This is just more evidence that any economic system based on debt is destined to fall. When we allowed a private central bank to start issuing debt-based currency in this country back in 1913 we set ourselves up to fail. As I have written about previously, the Federal Reserve should never have been allowed to come into existence, and it should have been shut down by Congress long before now.
But now the United States is caught in the same debt trap that most of the other nations around the world are caught in. The global addiction to debt is going to have some very, very serious consequences. Instead of moving into a great time of peace and prosperity, everything is about to come falling apart.
Things could have been different. Things did not have to turn out this way. But here we are on the edge of one of the biggest financial disasters in human history and most Americans still don’t understand what is happening.
So what do you all think about all of this? Please feel free to leave a comment with your opinion below….
The ratio of government handouts to wages and salaries in the United States is now at an all-time high. According to TrimTabs Investment Research, government handouts have reached a level that is equivalent to 35 percent of all wages and salaries in the United States. Considering the fact that this figure was only 21 percent back in the year 2000 and only 10 percent back in 1960 that is very frightening. The sad truth is that today the American people are more dependent on direct government payments than they ever have been before. What this does is that it takes formerly independent Americans and transforms them into “sheeple” and pets of the government. Today we have tens of millions of Americans that eagerly await the crumbs that the federal government tosses them each month. This is one reason why our national debt is exploding, but our politicians like this system because it enables them to buy votes. Meanwhile, the federal government and the international corporations that dominate our economy have rigged the game so that power and money are becoming increasingly centralized in their hands. As a result of the system that the “big boys” have developed, millions of small businesses across the country are being absolutely crushed, the standard of living of the middle class is gradually being destroyed and more American families slip into poverty ever single day. What we need to do is to dramatically reduce the power of both the federal government and the big corporations so that small businesses and individuals can thrive once again, but instead “activists” such as Michael Moore are out there demanding even more taxes and even more government handouts.
Not that a “safety net” is a bad thing. We simply are not going to allow tens of millions of Americans to starve out in our streets. However, it has gotten to the point where the majority of American families are now dependent on the U.S. government in one form or another and that is very, very wrong.
More government handouts are never a long-term solution to anything. Handouts do not give people dignity. Handouts do not teach people to be independent. Handouts do not enable people to live the “American Dream”. Handouts are not the path to prosperity.
What the American people need are jobs and an environment where small businesses can thrive. But instead, the federal government has allowed the big global corporations to ship millions of our jobs out of the country and the federal government continues to burden our small businesses with an endless array of new taxes and regulations.
Who is successful in America today?
It is the big boys. Everyone else is being crushed.
This is what the founding fathers tried to warn us about. They did not want the federal government to have much power at all, and they were deeply suspicious of large corporations.
But we have turned our backs on the principles of the founding fathers.
We should be figuring out how to get back to the America that our founding fathers originally tried to create, but instead all of the attention is being given to “activists” such as Michael Moore who are calling for even more taxes and even more government handouts. The following video is of Michael Moore giving a speech to protesters in Madison, Wisconsin on March 5th, 2011. His speech was entitled “America Is Not Broke”….
Yes, the “little guy” is being absolutely crushed in America today. But for people like Michael Moore the solution is always to tax the middle class more and to pass out even more government handouts.
That isn’t going to solve anything. Most of the ultra-wealthy have turned avoiding taxes into an art form. A third of all the wealth in the world is now held in “offshore banks“. Many of our largest corporations don’t pay a dime in federal taxes even as they pass out multi-million dollar bonuses to their executives.
Raising taxes in most definitely not the answer. Those that have mastered the art of avoiding taxes will continue to do so no matter how high you raise them.
The truth is that we need to shut down the IRS and scrap the current tax system entirely. It simply does not work.
What we need to do is to get the federal government and the big corporations under control and transfer the power back to the American people.
That is what our founding fathers intended. They intended for the common man to be empowered to start businesses, create wealth and pursue happiness.
But instead tens of millions of Americans have become addicted to government handouts. When large numbers of people give up and willingly become wards of the government that is not good for society.
Unfortunately, more Americans today are dependent on the U.S. government than ever before. Just consider the following statistics….
-According to TrimTabs Investment Research, social welfare benefits in the United States have risen by $514 billion over the past two years alone.
-As 2007 began, only about 26 million Americans were on food stamps, but today over 44 million Americans are now on food stamps.
-Over 50 million Americans are now on Medicaid.
-Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 American is on Medicaid.
–53 million Americans received $703 billion in Social Security benefits in 2010.
-Right now the U.S. government is either writing or guaranteeing well over 90 percent of all mortgages in the United States.
-It is being projected that extended unemployment benefits will cost the federal government $34 billion over the next two years.
-30 U.S. states have borrowed a total of $41.5 billion from the federal government just so that they could continue paying out unemployment benefits during the recession.
-Entitlement programs such as Social Security and Medicare now account for 58% of all U.S. government spending.
But what else should we expect? The federal government has been using a sledgehammer to endlessly pound away on the capacity of small businesses and individuals to create wealth and jobs and opportunities. The business atmosphere in the United States is now so toxic that it is amazing that any small businesses have survived.
Most Americans find themselves with no other way to make a living other than to work for someone else. But the big global corporations have discovered that they can make much larger profits by getting rid of American workers and by shipping our jobs overseas and our politicians are allowing them to get away with it.
The truth is that both political parties don’t have the answers. Neither party seems to have any clue about how to stop millions of jobs from leaving the United States and neither party seems to have any clue about how to create a business environment inside the United States where individuals and small businesses can actually thrive.
How much longer will it be before we all finally admit that we are experiencing total system failure in this country? Should we all just quit trying and sit on our couches waiting for the next government handout? The truth is that there aren’t nearly enough jobs for all Americans anyway.
The middle class is dying and the establishment has us all fighting with each other. The left and the right are busy fighting about taxes and budget cuts while the ultra-wealthy continue to enjoy massive profits and incredibly low taxes in the globalized economic system that we have allowed our politicians to create.
Yes, there are tens of millions of Americans that are deeply suffering right now and they need to be helped.
But government handouts are never a long-term solution to anything. What we need to do is to massively reduce the power of the federal government, massively reduce the power of the big corporations and stop businesses and jobs from being shipped out of the country. We also need to create an environment in the United States that is very favorable to small businesses. That would give our country a chance to start creating good jobs again.
But instead, we continue to allow our politicians to destroy our economy. We actually have 10 percent fewer middle class jobs in this country than we did just ten years ago. The middle class is being systematically destroyed. All of the wealth and all of the power are slowly being transferred into the hands of big government and the big corporations.
The vast majority of the rest of us are being transformed from strong, independent, prosperous Americans into dehumanized sheeple that can’t wait for the next government check to come in.
Does anyone out there actually believe that this is what our founding fathers originally intended?
The price of oil is shaping up to be the number one economic story of 2011, and right now the eyes of the investing world are closely watching the developing situation in Saudi Arabia. All of the other recent Middle East revolutions have been organized on the Internet, and now all over Facebook and Twitter there are calls for a “Day of Rage” in Saudi Arabia on March 11. The Saudi monarchy is attempting to head off any protests by promising to give $37 billion in “benefits” to the people and by publicly proclaiming that all political demonstrations are specifically banned. In addition, the Saudi government is stationing thousands of security forces at various potential “hot spots” around the country. So far similar measures have not done much to quell unrest in other nations in the Middle East, but Saudi Arabia will be a true test of the revolutionary fervor that is sweeping the region. The Saudis have a long history of brutally repressing their own people. They simply do not mess around. So a revolution in Saudi Arabia will not be nearly as “easy” as it was in Tunisia, Egypt or Libya. However, if a revolution does sweep across Saudi Arabia, it is going to send the price of oil into unprecedented territory. Saudi Arabia is the number one exporter of oil in the world, and if their oil fields get shut down even for a little while it is going to have a dramatic effect on the global economy. With the world already on the verge of a major sovereign debt crisis, the last thing it needs is for the price of oil to start soaring into the stratosphere.
Right now the investing world is not sure what to think about all of this, and financial markets do not like uncertainty. One piece of really bad news could send markets all over the globe crashing down.
Speculation in oil futures is absolutely rampant. A recent report on CNN noted the following….
The speculative fervor is so remarkable that the big trading firms now have nearly twice as many long contracts open as they did in 2008, when oil spiked to $147 in the summer, a development that either foreshadowed or caused the global economic meltdown, depending on how you look at it.
In particular, the number of investors that are betting that a revolution in Saudi Arabia is going to send the price of oil up to $200 a barrel has exploded in recent days.
$200 a barrel?
Are people actually betting that is going to happen?
The all-time record is only $147 a barrel. Just a few months ago it was absolutely unthinkable to most economists that we could potentially see $200 oil in 2011.
But it would be a mistake to assume that a full-blown revolution is guaranteed to break out in Saudi Arabia. Remember, this is a nation that has a very, very long history of denying even the most basic freedoms to the people.
For example, in Saudi Arabia the practice of any religion other than Islam is strictly forbidden. By law, citizens of Saudi Arabia are not permitted to change religion. Even foreign visitors are forbidden to openly practice any other religion. It is a whole different world. You cannot go to the store and buy a Bible in Saudi Arabia. In fact, if you try to pass out Bibles in Saudi Arabia you will be thrown into prison.
So if you plan of being a revolutionary in Saudi Arabia you had better put your big boy pants on, because the Saudis play hardball.
Much of the rest of the globe is desperately hoping that a revolution does not happen in Saudi Arabia because the global economic situation is precarious at best.
In Europe, if the price of oil causes a significant economic slowdown right now it could have global implications. Moody’s Investors Service just slashed Greece’s debt rating three levels all the way down to B1. But Greece is far from alone. Several European governments are finding it much more expensive to finance their debts these days. We are right on the edge of a major European sovereign debt crisis and the chaos in the Middle East could potentially be just the thing to spark a panic.
The United States could feel a rise in the price of oil even more than Europe because the U.S. economy is so spread out and it is so dependent on products from overseas.
Did you know that in 1960 only 8 percent of the things Americans bought were made overseas but that today 60 percent of the things Americans buy are made overseas?
It’s true.
So what would happen if the cost of transporting all of those products suddenly doubled? All of the products we buy must be transported somehow, and a rise in transportation costs will be passed on to U.S. consumers.
But the truth is that the pain is already here. Already, millions of American families are starting to feel some very real financial pain from the chaos in the Middle East.
From February 18th to March 4th, the average price of gasoline in the United States rose 33 cents. That was the biggest two week increase ever recorded.
Ouch.
The rise in the price of oil has some broader economic implications as well.
The more the price of oil goes up the bigger our trade deficit is going become. As the trade deficit gets bigger, that means that more money is going out of the country and less money is going to support American businesses and American workers. When American workers lose jobs, that means that they aren’t producing wealth anymore and they aren’t paying taxes anymore. Instead, they become a drain on the system as they start receiving government handouts.
When millions of Americans go from being productive, taxpaying workers to unemployed welfare cases it causes our federal budget deficit to become even larger.
Most Americans do not understand how connected our trade deficit and our federal budget deficit really are. One feeds right into the other.
Unfortunately, the Federal Reserve seems to think that the solution to any economic problem these days is to print more money.
One of the reasons why the price of oil and other commodities has been going up over the last six months is because of all of this reckless money printing.
Now Lockhart is saying that because of the oil price increases they may have to do more money printing?
How bizarre is that?
Unfortunately, several other top Fed officials have dropped hints about a possible “QE3” lately. It just seems like the insanity never stops.
Let us hope that the Fed does not go there because the U.S. dollar is falling apart fast enough already.
In any event, the rest of 2011 is certainly going to be very interesting to watch.
Even if a revolution does not happen in Saudi Arabia, the price of oil will most likely continue to slowly move higher just as it has been doing for months.
But if a full-blown revolution does happen in Saudi Arabia, it could literally change the global economy almost overnight. The entire world financial system would be thrown into a state of chaos.
Oil is the lifeblood of the world economy. Without a continuous supply of very inexpensive oil, life as we know it would dramatically change. Most of us just assumed that we would always live in a world where we would always have an endless supply of very cheap oil.
Well, the times they are a changing.
You had better buckle up because it is going to be a bumpy ride.
It is not just the United States that is headed for an economic collapse. The truth is that the entire world is heading for a massive economic meltdown and the people of earth need to be warned about the coming economic disaster that is going to sweep the globe. The current world financial system is based on debt, and there are alarming signs that the gigantic global debt bubble is getting ready to burst. In addition, global prices for the key resources that the major economies of the planet depend on are rising very rapidly. Despite all of our advanced technology, the truth is that human civilization simply cannot function without oil and food. But now the price of oil and the price of food are both increasing dramatically. So how is the current global economy supposed to keep functioning properly if it soon costs much more to ship products between continents? How are the billions of people that are just barely surviving today supposed to feed themselves if the price of food goes up another 30 or 40 percent? For decades, most of the major economies around the globe have been able to take for granted that massive amounts of cheap oil and massive amounts of cheap food will always be there. So what happens when that paradigm changes?
At last check, the price of U.S. crude was over 104 dollars a barrel and the price of Brent crude was over 115 dollars a barrel. Many analysts fear that if the crisis in Libya escalates or if the chaos in the Middle East spreads that we could see the all-time record of 147 dollars a barrel broken by the end of the year. That would be absolutely disastrous for the global economy.
But it isn’t just the chaos in the Middle East that is driving oil prices. The truth is that oil prices have been moving upwards for months. The recent revolutions in the Middle East have only accelerated the trend.
Let’s just hope that the “day of rage” being called for in Saudi Arabia later this month does not turn into a full-blown revolution like we have seen in other Middle Eastern countries. The Saudis keep a pretty tight grip on their people, but at this point anything is possible. A true revolution in Saudi Arabia would send oil prices into unprecedented territory very quickly.
But even without all of the trouble in the Middle East the world was already heading for an oil crunch. The global demand for oil is rising at a very vigorous pace. For example, last year Chinese demand for oil increased by almost 1 million barrels per day. That is absolutely staggering. The Chinese are now buying more new cars every year than Americans are, and so Chinese demand for oil is only going to continue to increase.
Much could be done to increase the global supply of oil, but so far our politicians and the major oil company executives are sitting on their hands. They seem to like the increasing oil prices.
So for now it looks like oil prices will continue to rise and this is going to result in much higher prices at the gas pump.
Already, ABC News is reporting that regular unleaded gasoline is going for $5.29 a gallon at one gas station in Orlando, Florida.
The U.S. economy in particular is vulnerable to rising oil prices because our entire economic system is designed around cheap gasoline. If the price of gas goes up to 5 or 6 dollars a gallon and it stays there it is going to have a catastrophic effect on the U.S. economy.
Just remember what happened back in 2008. The price of oil hit an all-time high of $147 a barrel and then a few months later the entire financial system had a major meltdown.
Well, as the price of oil rises it is going to create a whole lot of imbalances in the global financial system once again.
This is definitely a situation that we should all be watching.
But it is not just the price of oil that could cause a global economic disaster.
The global price of food could potentially be even more concerning. As you read this, there are about 3 billion people around the globe that live on the equivalent of 2 dollars a day or less. Those people cannot afford for food prices to go up much.
But global food prices are rising. According to the United Nations, the global price of food has risen for 8 consecutive months. Last month, the global price of food set a brand new all-time record high. Many are starting to fear that we could actually be in the early stages of a major global food crisis.
The price of just about every major agricultural commodity has been absolutely soaring during the past year….
*The price of corn has doubled over the last six months.
*The commodity price of orange juice has doubled since 2009.
*The price of sugar is the highest it has been in 30 years.
Unfortunately, the production of food in most countries around the world is very highly dependent on oil, so as oil goes up in price this is going to make the food crisis even worse.
Hold on to your hats folks.
Also, as I have written about previously, the world is facing some very serious problems when it comes to water. Due to the greed of the global elite, there is not nearly enough fresh water to go around. The following are some very disturbing facts about the global water situation….
*According to USAID, one-third of all humans will face severe or chronic water shortages by the year 2025.
*Of the 60 million people added to the world’s cities every year, the vast majority of them live in impoverished slums and shanty-towns with no sanitation facilities whatsoever.
*In northern China, the water table is dropping one meter per year due to overpumping.
These days, one of the trendy things to do is to call water “the oil of the 21st century”, but unfortunately that is not a completely inaccurate statement. Fresh, clean water is something that we all need, but right now world supplies are getting tight.
Our politicians and the global elite could be doing something about this if they really wanted to, but right now they seem perfectly fine with what is happening.
On top of everything else, the sovereign debt crisis is worse than it has ever been before.
All of the major global central banks have been feverishly printing money in an attempt to “paper over” this crisis, but it is not going to work.
Most Americans don’t realize it, but right now the continent of Europe is a financial basket case. Greece and Ireland would have imploded already if they had not been bailed out, and now Portugal is on the verge of collapse. The interest rate on Portugal’s 10-year notes has now been above 7% for about 3 weeks, and most analysts believe that it is only a matter of time before they are forced to accept a bailout.
Sadly, if the entire global economy experiences a slowdown because of rising oil prices, we could see half a dozen European nations default on their debts if they are not bailed out.
For now the Germans seem fine with bailing out the weak sisters that are all around them, but that isn’t going to last forever.
A day or reckoning is coming for Europe, and when it arrives the reverberations are going to be felt all across the face of the earth. The euro is on very shaky ground already, and whether or not it can survive the coming crisis is an open question.
Of course there are some very serious concerns about Asia as well. The national debt of Japan is now well over 200% of GDP and nobody seems to have a solution for their problems. Up to this point, Japan has been able to borrow massive amounts of money at extremely low interest rates from their own people, but that isn’t going to last forever either.
As I have written about so many times before, the biggest debt problem of all is the United States. Barack Obama is projecting that the federal budget deficit for this fiscal year will be a new all-time record 1.65 trillion dollars. It is expected that the total U.S. national debt will surpass the 15 trillion dollar mark by the end of the fiscal year.
Shouldn’t we have some sort of celebration when that happens?
15 trillion dollars is quite an achievement.
Most Americans cannot even conceive of a debt that large. If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.
But the United States is not alone. The truth is that wherever you look, there is a sea of red ink covering the planet.
The current global financial system is entirely based on debt. If the total amount of debt does not continually expand, the system will crash. If somehow a way was found to keep this system going perpetually (which is impossible), the size of global debt would keep on increasing infinitely.
Now the World Economic Forum says that we need to grow the total amount of debt by another 100 trillion dollars over the next ten years to “support” the anticipated amount of “economic growth” around the world that they expect to see.
The entire global financial system is a gigantic Ponzi scheme. It is designed to keep everyone enslaved to perpetual debt. If at some point the debt spiral gets interrupted in some significant way, we are going to witness an economic disaster that is going to make what happened in 2008 look like a Sunday picnic.
The more research that one does on the current global economic situation, the more clear it becomes that we are absolutely doomed.
The end of QE2 is still several months away and yet quite a few top Federal Reserve officials are already hinting that more quantitative easing may be necessary. Apparently the U.S. economy is not moving forward as rapidly as they would like. So it looks like “QE3″ could be on the way. But did anyone out there actually believe that quantitative easing would come to a complete stop in June? Whether they call it “QE3″ or something else entirely, the reality of the matter is that we have now come to a time when the Federal Reserve is going to be continually purchasing a significant percentage of all new U.S. government debt. This is essentially a gigantic Ponzi scheme, but sadly there is just not enough money in the rest of the world to be able to continue to feed the U.S. government’s voracious appetite for debt. Right now Ben Bernanke and his cohorts are trying to break the news to us gently, but anyone with half a brain can see what is happening. The only way for the game to keep going is for the Federal Reserve to print lots more money, and that is going to be incredibly bad for the U.S. economy in the long run.
The other day James Bullard, President of the Federal Reserve Bank of St. Louis, made national headlines when he declared that Fed officials should “never say never” when it comes to QE3 and more quantitative easing. But the truth is that other Fed officials have been dropping public hints about the “need” for QE3 for several weeks now. Just consider the following quotes from top Federal Reserve officials….
Federal Reserve Chairman Ben Bernanke in response to a question about the potential for QE3 at the National Press Club….
“In the end, we’ll just ask the same questions. Where’s the economy going, and what do various inflation indicator look like? We’ll ask those questions. If unemployment is still too low, then we may continue. If we’re moving towards full employment, then we won’t need to stimulate more.”
William Dudley, President of the Federal Reserve Bank of New York during a recent speech at New York University….
“The economy can be allowed to grow rapidly for quite some time before there is a real risk that shrinking slack will result in a rise in underlying inflation.”
James Bullard, President of the Federal Reserve Bank of St Louis during a recent speech at the Bowling Green Area Chamber of Commerce….
“The natural debate now is whether to complete the program, or to taper off to a somewhat lower level of asset purchases. Quantitative easing has been an effective tool, even while the policy rate is near zero. The economic outlook has improved since the program was announced.”
Charles Evans, President of the Federal Reserve Bank of Chicago during a recent interview with The Financial Times….
“The message that comes out of what I think of as high-quality research on this subject is that policy ought to remain accommodative for really quite a while, even a while after conditions start to improve.”
So how in the world did things get to the point where the Federal Reserve feels forced to recklessly print gigantic piles of money?
Well, it didn’t happen overnight. Back during the 1980s and 1990s there were many people that desperately tried to warn about what would happen if U.S. government debt was not brought under control.
Unfortunately, our politicians did not heed those warnings.
Today, the U.S. national debt has reached a grand total of $14,137,541,098,872.71. It is 14 times larger than it was just 30 years ago. It is the largest single debt in the history of the world.
So why don’t our politicians just balance the budget now so that we don’t keep having to borrow so much money?
Well, there are some huge problems. First of all, when you combine entitlement programs such as Social Security and Medicare with interest on the national debt, it comes to approximately 64 percent of all federal government spending.
But that is not the bad news.
In the years ahead, entitlement spending and interest on the national debt are both projected to absolutely explode.
We are rapidly approaching a time when spending on entitlement programs and interest on the national debt will be significantly greater than all of the revenue that the federal government brings in each year. All federal revenues will be spoken for even before a single penny is spent on defense, education, running the government or anything else.
Either entitlement programs are going to have to be seriously reformed or the U.S. government is going to have to come up with a massive amount of extra money from somewhere or the U.S. government is going to have to borrow increasingly large piles of money from someone.
Unfortunately, there are no easy solutions and most of our politicians are scared to death to touch entitlement programs because it will mean that they will lose votes.
But our entitlement programs were never meant to be as massive as they are today. Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 American is on Medicaid.
Obviously something has to be done, because the debt that we are passing on to future generations is absolutely criminal.
For example, every single child born in America today inherits $45,000 in U.S. government debt.
Isn’t that lovely?
Of course our liberal friends believe that the answer is just to raise taxes.
Oh really?
The truth is that our taxation system is deeply broken.
Small business owners and middle class Americans are being taxed into oblivion while those at the top of the food chain often pay no federal taxes whatsoever.
For example, did you know that Citigroup did not pay a dime of federal taxes in the third quarter? Meanwhile, their executives continue to bring in bonus packages worth millions.
Did you know that even though Boeing receives billions in federal subsidies every year and even though it has a bunch of juicy government contracts it did not pay a single penny in federal corporate income taxes from 2008 to 2010?
Did you know that while Exxon-Mobil did pay $15 billion in taxes in 2009, not a single penny went to the U.S. government? Meanwhile, their CEO brought in over 29 million dollars in total compensation that year.
You can find a lot more examples of this phenomenon right here.
Those at the top of the food chain are experts at avoiding federal taxes. So liberals can raise rates all they want but it won’t do much good.
As I have written about previously, the truth is that approximately a third of all the wealth in the world is now held in “offshore” banks. The ultra-wealthy and the monolithic predator corporations that dominate the global economy don’t mess around when it comes to paying taxes. They don’t care if they aren’t paying their “fair share”. They simply know how to play the game and they laugh at all the rest of us.
Our entire system is broken beyond repair and needs to be reconstructed from the ground up.
But of course that simply is not going to happen.
So what can be done?
Not a whole heck of a lot.
The truth is that the U.S. economy is on the verge of a major collapse.
Marc Faber, the author of the Gloom, Boom and Doom report recently gave a speech in which he declared that the U.S. financial system is in such disastrous shape that only a “reboot” will be able to save it….
I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it.
But can we just “reboot” the system and expect things to go back to normal?
Of course not.
The truth is that when the rest of the world completely loses faith in the U.S. dollar and in U.S. Treasuries the dominoes are going to start to fall. Eventually we are going to see a financial panic that is going to make 2008 look like a Sunday picnic. Our economic system will massively implode as all of the gigantic mountains of debt and paper money collapse like a house of cards.
Right now the Federal Reserve is desperately trying to hold the system together by “papering over” all of the mistakes. But in the end it is not going to work. In fact, what we are witnessing now are the very early stages of hyperinflation. A lot of other nations in the past have thought that they could just print their way out of trouble, but many of those “experiments” ended in total disaster.
Marc Faber is certainly right about one thing – all of this money printing is going to give us substantial inflation to go along with the high unemployment that we already have. This is called “stagflation” and anyone that remembers the 1970s knows that it is not a lot of fun.
But the Federal Reserve seems absolutely determined to print more money. Fed officials are doing the same thing now that they did right before QE2. They are dropping hints about QE3 and they are trying to break it to us gently.
Well, it is about time that someone told the American people the truth. All of this money printing is going to end in disaster and so you had better get prepared.
In the shocking video you are about to watch, Howard Dean declares that it is the job of the government to redistribute our wealth. Not only that, he says it in such a way that indicates that he believes that such a notion should be obvious to anyone with half a brain. Well, while it is true that the United States has become a highly socialized nation, the reality is that this is not what the founding fathers intended. The founders intended for us to live in a land where we would have enough freedom and enough liberty to be able to work hard and enjoy life, liberty and the pursuit of happiness. They did not intend for a gigantic federal government to take huge amounts of money from one group of people and give it to another group of people. In any nation where a large scale redistribution of wealth is happening, the incentive to work goes right out the window. Pretty soon you end up with an entire class of people that have learned how to “make a living” by being a parasite of the government, and that is not good for any economy.
If our founding fathers were alive today, they would be horrified by what we have turned into. In 1816, Thomas Jefferson wrote the following….
“To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it.”
The sad truth is that democracy starts to break down once people start realizing that they can vote themselves money out of the national treasury. In fact, that is a very large part of what politics in America is all about today. Politicians are constantly promising what they are “going to do” for various groups of people.
“When the people find that they can vote themselves money, that will herald the end of the republic.”
Not that our founding fathers were against charity. In fact, they believed in it very much. It is just that they did not believe in repressive taxation by a huge national government and they did not believe in large scale redistributions of wealth.
With all of that in mind, watch this shocking video of Howard Dean declaring that it is the job of the government to redistribute our wealth….
Obviously Howard Dean envisions an “America” that is very different from the one that our founding fathers intended.
But does that mean that all government welfare programs are bad?
Of course not.
In fact, if we were to cut them all off today we would have millions of people starving in the streets.
A very large percentage of Americans today don’t even know how to take care of themselves. If we pulled away all government support all of a sudden there would be chaos and anarchy in the streets.
The sad reality is that we have tens of millions of Americans that are now deeply dependent on the socialist system that we have established.
Unfortunately, this is what socialism does – it turns people into pets of the government. Our society should be teaching people to be self-sufficient, but instead we are teaching people to allow the government to take care of them from the cradle to the grave.
So does that mean that our founding fathers would be in favor of the rampant corporate greed that we are witnessing today?
Of course not.
As I have written about previously, the founding fathers were against all large concentrations of power. During the Boston Tea Party, it was the tea of perhaps the most powerful corporation in the entire world at the time (the East India Trading Company) that our founders dumped into the harbor.
If you study early American history, you soon come to realize that corporations were generally very limited in scope and size for many, many years. The era of the giant corporation is relatively new, and our founding fathers never intended for our society to be dominated by gigantic international corporations.
So when the Democrats argue that we should give more power to the federal government and the Republicans argue that we should give more power to the big corporations they are both wrong.
Our founding fathers did not intend for our federal government to have nearly so much power and they did not intend for big, wealthy corporations to have so much power either.
Fortunately, many Americans today are getting back in touch with those principles. There is a growing dissatisfaction with the size of government, and according to Gallup two-thirds of Americans are now dissatisfied with the size and influence of major corporations in America today.
However, it is one thing to discuss the finer points of political and economic philosophy, but it is another thing altogether to deal with the reality of tens of millions of people that cannot feed themselves.
As I have mentioned many times before, there are over 43 million Americans on food stamps today.
So what are we going to do with all of them?
Allow them to starve?
Almost 53 million Americans receive Social Security payments.
What are we going to do – cut off Social Security and watch millions of elderly and disabled people freeze to death in their own homes?
Of course not.
But we have got to start swinging the pendulum back in the other direction. Right now one out of every six Americans is enrolled in some kind of anti-poverty program run by the federal government.
How many Americans being taken care of by the federal government will be too much?
One out of five?
One out of four?
One out of three?
Eventually the entire system crumbles when there are too few people still willing to work hard.
If you ever get the chance to visit a communist country you should. You will notice that nobody really works very hard. That is because there is no incentive to work hard. Very little real wealth gets produced and everyone suffers for it.
So does that mean the U.S. system works?
Of course not.
What we have in the United States today is not real capitalism. It is more aptly called “corporatism”. The big corporations and the big financial institutions have accumulated an absolutely stunning amount of economic power and over the decades they have gotten the government to tilt all of the rules of the game in their favor.
In America today, it is really hard for the average person to start a successful business. The big, powerful international corporations that dominate our economy are everywhere.
So most Americans today have to rely on working for an employer. Unfortunately, the big employers have started to realize that they can make much larger profits by shipping our jobs overseas. That is really bad news for the U.S. middle class.
Well, can’t we just tax all of these big corporations like crazy and even everything out?
Unfortunately it just does not work that way in today’s global society.
As I have written about previously, the ultra-wealthy and many of the biggest corporations have figured out how to “minimize” their tax burdens. While you and I are being taxed into oblivion, the global elite have figured out how to move their money around to escape taxation as much as possible. In fact, it is estimated that today approximately a third of all the wealth in the world is held in “offshore” tax havens.
Ultra-wealthy individuals and mega-powerful corporations can call just about anywhere “home” in today’s global economy. That is just the way the world works now.
In order to “tax the rich”, you first must get legal jurisdiction over their money.
Our tax system has become entirely unfair and it simply does not work. The whole thing needs to be scrapped.
But as we discuss tax policy, there are tens of millions of Americans that are living in poverty.
So what are we going to do about the growing number of Americans that cannot even feed themselves without government help?
Well, the truth is that what they really need is not more handouts.
If you give people handouts, they will just need more handouts tomorrow.
No, what all of these Americans really need are good jobs.
Unfortunately, there are a whole lot less good jobs in America today than there were ten years ago.
Our politicians have stood by as the giant corporations have moved thousands of facilities over to places such as China and India where they can legally pay people slave labor wages.
Since 2001, over 42,000 U.S. factories have closed down for good, and that number is going to continue to increase unless someone stops it.
But nobody is.
Virtually all of our politicians are just standing off to the side with their hands in their pockets.
Our entire economic system is breaking down. Millions of Americans families are scrambling to find some way to survive. Over the past two years, U.S. consumers have withdrawn $311 billion more from savings and investment accounts than they have put into them.
Other Americans are going very deep into debt because they don’t have any other options. When they finally can’t keep up with all the debt, many of these families are losing their cars and their homes.
We are in the middle of an economic nightmare that is absolutely unprecedented. “Redistributing the wealth” would just be like rearranging the deck chairs on the Titanic at this point. It would not fix a darn thing.
When our politicians promise that a little “change” here or a little “tweak” there will get our economy back to normal they are lying to you and most of them know it.
What we need is a comprehensive overhaul of our entire economy. Basically what we need to do is to go back to the blueprint (the U.S. Constitution) and essentially start over.
But most Americans are not ready for that. Most Americans are still enjoying the tremendous prosperity that the biggest debt binge in the history of the world has purchased for us. Most Americans still do not believe that an economic collapse is really coming.
But a massive economic collapse is coming. This whole thing is going to come crashing down and it is not going to be pretty.
Have you been unemployed lately? If so, then you probably know how frustrating it is to try to find a job in the United States today. It now takes the average unemployed worker about 33 weeks to find a job. There are millions of Americans that have not been able to find a full-time job even after searching hard for an entire year. Some areas of the United States have been devastated so badly by the economic downturn that they are starting to resemble war zones. Unless you have been there, it is hard to even try to describe the extreme frustration that one feels when you are unable to pay the mortgage and feed your family. It can be absolutely soul-crushing. But it is not the fault of those who are unemployed. The truth is that our economy is dying and it is not producing nearly enough jobs anymore. Unfortunately, as you will see from the facts listed below, most of the things that are causing our economy to die have no realistic chance of being changed any time soon.
The following are 10 reasons why it has become so insanely difficult to find a job in America today….
#2 There is a lot more competition for the very few job openings that are actually available. According to Gallup, the U.S. unemployment rate has been hovering around 10 percent for over a year. When Gallup includes “underemployed Americans” that have part-time jobs but really want full-time jobs in the numbers, they get a lot worse. Currently, Gallup says that 19.3 percent of the workforce is either unemployed or underemployed.
#3 The U.S. economy is producing an extremely low number of new jobs. The federal government says that only about 36,000 jobs were added in January. Well, an increase of 150,000 jobs per month is necessary just to keep up with population growth. We continue to fall farther and farther behind.
#4 All across the nation, state and local governments are rapidly cutting jobs. Government jobs used to be considered some of the safest jobs available, but today state and local governments all across America are facing horrific budget crunches. In fact, things have gotten so extreme that some cities are cutting their police forces by up to 50 percent.
#5 U.S. businesses are being absolutely crushed by regulations, and yet the government just keeps piling them on. For example, the U.S. Food and Drug Administration is projecting that the food service industry will have to spend an additional 14 million hours every single year just to comply with new federal regulations that mandate that all vending machine operators and chain restaurants must label all products that they sell with a calorie count in a location visible to the consumer. These kinds of ridiculous regulations are chasing U.S. businesses out of the country at a blistering pace.
#6 When you combine all forms of taxation, businesses pay more taxes in the United States than just about anywhere else in the world. Some of the biggest corporations have figured out how to get around this, but many other businesses are being absolutely crushed by this. All of this taxation is also chasing businesses out of the country. Now Barack Obama is at it again. He has just proposed an increase in unemployment taxes. This is going to make it even less likely that businesses will want to hire more employees.
#7 Advances in technology mean that less workers are needed today. A robot can do the labor that a hundred workers used to perform. A computer can do the work that a thousand people used to perform. Our society now needs less manual labor than it used to, and that is not going to change. In fact, our society is only going to become more computerized and more automated. That means that the ultra-wealthy do not need as many of us to work for them.
#8 Nations such as China are taking jobs away from us. Tens of thousands of factories and millions of jobs are moving to China. There is a reason why Barack Obama mentioned China four times during his State of the Union address. China now even makes more beer than the United States does. China has been very shrewd. They have invited international corporations to come over and take advantage of their vast population by paying them slave labor wages. The U.S. middle class is being shredded by this. Why should companies pay U.S. workers 10 or 20 times more than they could pay a Chinese worker?
#9 Every single year, the U.S. buys hundreds of billions of dollars more stuff from the rest of the world than they buy from us. This is called a trade deficit, and it is killing the U.S. economy. The hundreds of billions of dollars going to the rest of the world could be going to U.S. businesses, and in turn U.S. businesses would need more workers. But instead of fixing our trade balance problem, our politicians continue to insist that “globalism” is going to be really, really “good” for us.
#10 Every single year the U.S. federal government spends hundreds of billions of dollars just on interest on the national debt. This is money that we don’t get any economic benefit from. If we were not in so much debt, the U.S. government would be able to spend that money on goods and services inside the United States and that would support a lot more jobs. This is just one of the ways that our horrific national debt is a tremendous drag on our economy.
Well, it was nice while it lasted. One of the really good things that came out of the recent economic downturn was that millions of American families decided to get out of debt. In particular, we had seen a sustained trend of reduced credit card usage in the United States. It looked like Americans had finally wised up. But we should have known that Americans would not be willing to tighten their belts forever. Unfortunately, it appears that getting out of debt is no longer so “trendy”. In fact, the month of December was the third month in a row in which consumer credit grew in the United States. Prior to that, consumer credit in the United States had declined for 20 months in a row. The American people were doing so, so good. Why did they have to stop? It appears that the American people have fallen off the wagon and have gotten a taste for credit card debt once again. This time, however, the credit card companies are back with interest rates that are higher than ever. In fact, one national credit card company has hundreds of thousands of customers signed up for a card that charges interest rates of up to 59.9%.
59.9%?
You mean there are people that are stupid enough to actually sign up for a credit card that will charge them 59.9% interest?
Unfortunately the answer is yes.
In fact, the top rate was 79.9% before First Premier Bank lowered it.
These cards are targeted at Americans that have a poor credit history, and these days there are a whole lot of those.
A recent story on the website of CNN described how large numbers of U.S. consumers with poor credit are gobbling up credit cards like these. Unfortunately, many of these consumers are also not smart enough to realize what they are getting into. The CNN story contained a quote from a woman who was in complete shock when she discovered that her interest rate was going to go up by 50 percentage points….
“I about had a heart attack when I got a disclosure notice saying that my starting rate of 29.9% was going up to 79.9%.”
First Premier Bank has since lowered the top rate on those cards to 59.9%, but that it still completely outrageous.
Not only are the interest rates on those cards super high, but they also charge a whole bunch of fees on those cards as well. The following are some of the fees that First Premier Bank charges….
*$45 processing fee to open the account
*Annual fee of $30 for the first year
*$45 fee for every subsequent year
*A monthly servicing fee of $6.25
So you would think that nobody in their right mind would ever sign up for such a card, right?
Wrong.
CNN is reporting that almost 700,000 Americans have signed up for the card.
Ouch.
In fact, CNN says that First Premier Bank gets between 200,000 to 300,000 new applications a month for the card, but that they only open about 50,000 new accounts each month.
Are there really this many Americans that are this gullible?
If Americans would just remember the “DBS” rule they would be so much better off.
DBS = Don’t Be Stupid
Do you know how long it would take to pay off a credit card with a 59.9 percent interest rate?
Just a 20 percent interest rate is bad enough.
According to the credit card repayment calculator, if you owe $6000 on a credit card with a 20 percent interest rate and only pay the minimum payment each time, it will take you 54 years to pay off that credit card.
During that time you will pay $26,168 in interest rate charges in addition to the $6000 in principal that you are required to pay back.
Ouch!
The number one piece of financial advice that most of the “financial gurus” give is that you should get out of credit card debt – particularly credit card debt that has a high interest rate.
Unfortunately, 46% of all Americans carry a credit card balance from month to month today.
Of U.S. households that have credit card debt, the average amount owed on credit cards is $15,788.
This is how the bankers enslave us.
We end up paying them 3, 4 or even 5 times as much as we originally borrowed.
Month after month after month we slave away to make them wealthy.
So how do you stop this vicious cycle?
You quit buying stuff that you can’t afford!
Unfortunately, the vast majority of Americans have never received any formal training on how to manage finances.
Most of us were never taught any of this stuff in school. Most of us were totally unprepared when the financial predators started preying on us in college. Most of us got sucked in and spent years and years trapped in credit card debt.
When you carry a balance from month to month you are willingly signing up to become a debt servant to the big banks. They get rich while you suffer.
The sad thing is that the mainstream media is pointing to increased credit card spending as a sign that the U.S. economy is getting back to normal.
But gigantic mountains of debt is what got us into all of this trouble in the first place.
Average household debt in the United States has now reached a level of 136% of average household income.
In China that figure is only 17%.
Obviously, we have a massive, massive problem with debt in this country.
Cranking the debt spiral back up is not going to cause the economy to recover.
Well, the profits of the big banks might recover, but the rest of us will suffer.
If you want to be financially free, then it is time to pay off your credit card debt and get off the debt payment treadmill for good.
The entire global economy is on the verge of collapse, so now is a great time to renounce consumerism. Instead, we need to be preparing ourselves and our families for the hard times that are coming.
So what do you all think about the outrageous interest rates that the credit card companies are charging these days? Feel free to post your thoughts in the comments section below….
Bill Gross, the manager of the biggest bond fund in the world, has forgotten more about bonds than most of us will ever learn. That is why the big move that PIMCO has just made is so unsettling. At one time PIMCO held more U.S. government debt than any other bond fund on the globe, but now news has come out that they have gotten rid of all their U.S. government-related securities. So should we be alarmed? For months Gross has been warning that the bull market in bonds is coming to an end, and now it looks like he is putting his words into action.s Gross has often publicly decried the rampant government spending that has been going on over the last several years, and apparently he has seen enough. He is taking his ball and he is going home. This really is a stunning move by PIMCO. Gross must really believe that something fundamental has shifted. Gross didn’t get to where he is today by being stupid. But so far world financial markets are taking this news in stride. Nobody seems all that alarmed that the largest bond fund in the world has dumped all of their U.S. Treasuries. But with world financial markets in such a state of chaos right now, shouldn’t we all take note when one of the biggest players in the game makes such a bold move?
Has The Tsunami In Japan Destroyed The Japanese Economy?
It is hard to assess the full scope of the damage to Japan at this point, but virtually everyone agrees that much of northern Japan is a complete and total disaster area at this point. Many towns have essentially been destroyed. Some are estimating that the economic damage from this disaster will be in the hundreds of billions of dollars. Others believe that the final total will be in the trillions of dollars.
Fortunately, major cities such as Tokyo came through this event relatively unscathed and most of the major manufacturing facilities are not in the areas that were most directly affected by the earthquake and the tsunami.
But let there be no doubt, this was a nation-changing event. Japan will never quite be the same again.
Also, it isn’t just Japan that will be affected by this. The truth is that economic ripples from this event will be felt all over the world.
An economist from High Frequency Economics, Carl Weinberg, told AFP the following about the economic consequences of this disaster….
It is literally going to take months to figure out exactly how much damage has been done. Let us just hope that we don’t see any more major earthquakes in the area.
The Japanese are a very resilient people and the Bank of Japan is already vowing that it will be doing whatever is necessary to ensure the stability of the financial markets. The Bank of Japan has announced that it is going to provide as much liquidity as necessary to keep the Japanese economy functioning normally.
But the truth is that the Bank of Japan has already been printing money like crazy….
Is a tsunami of new yen really going to solve the economic damage that has been done by the earthquake and the tsunami?
Of course not.
The truth is that the economy of Japan was already deeply struggling before this disaster.
The national debt of Japan is now well over 200% of GDP and there seems to be no doubt that they will need to borrow massive amounts of money to deal with the aftermath of this crisis.
Up until now the Japanese government has been able to borrow money at ultra-low interest rates of around 1.30 percent for 10-year bonds, drawing on a huge pool of savings from its own citizens.
But in light of what has just happened, will the citizens of Japan still have enough resources to continue to fund the rampant spending of the Japanese government?
At this point, it is estimated that this gigantic mountain of debt breaks down to 7.5 million yen for every single citizen of Japan.
Politicians in Japan have been pledging for years to do something about all of this debt, but nobody has been able to make much progress.
Even before this disaster, the major credit rating agencies were warning that they may have to downgrade Japanese government debt. The earthquake and the tsunami are certainly not going to make the Japanese even more credit-worthy.
Hideo Kumano, the chief economist at Dai-ichi Life Research Institute, has said that a “tipping point” will come when world financial markets finally recognize that the government of Japan simply cannot afford to service its debt any longer….
Is the massive tsunami that just hit Japan such a tipping point?
Other countries such as Greece and Ireland would have already collapsed if it had not been for the massive international bailouts that they received.
So who is going to bail Japan out?
This could potentially be one of the greatest economic disasters that the world has seen since World War 2.
With the world already on the verge of a major financial collapse, this is the last thing that world financial markets needed.
In fact, much of the rest of the world had been hoping that an influx of capital from Japan would help to stabilize things.
For example, Japanese insurance companies had recently announced that they were planning on buying up lots of European sovereign debt, but now obviously those plans are on hold. As a result of this disaster, Japanese insurance companies will be forced to sell off assets like crazy in order to pay settlements. But as Zero Hedge is correctly pointing out, without Japanese financial institutions stepping in to soak up Eurozone bonds this is going to make the European sovereign debt crisis even worse.
But right now the focus in on the devastation in Japan. At the moment it is unclear how much of the economic infrastructure of Japan has survived.
For example, as USA Today is reporting, some factories cannot even be reached by phone at this point….
What is clear is that the cost of recovering and rebuilding after this disaster is going to put extraordinary financial stress on the Japanese government.
Julian Jessop of Capital Economics certainly does not sound optimistic about what this is going to mean for the Japanese economy….
Hopefully the full extent of the damage is not as bad as many are now fearing.
But the truth is that this is a huge, huge event for a world economy that was already on the verge of collapse.
May our thoughts and our prayers be with the Japanese people at this time.
This is truly one of the biggest disasters that any of us have ever seen, and Japan will never be the same again.