New DVDs By Michael Snyder
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 Federal Reserve Chairman Ben Bernanke claims that the Federal Reserve averted a second Great Depression by bailing out the big Wall Street banks during the last financial crisis, and he says that if a similar financial crisis comes along that the correct “policy response” will be to do the exact same thing again. This was the theme of the lecture that Bernanke delivered to students at George Washington University on Tuesday. In previous lectures Bernanke has defended the existence of the Fed and detailed the history of Fed activities, but on Tuesday he addressed things that have happened since he has been at the helm of the Fed. And according to Bernanke, he has been doing a great job. Bernanke told the students that the “threat of a second Great Depression was very real” and that the Federal Reserve did exactly what needed to be done to fix the financial system. Unfortunately, the truth is that all Bernanke did was kick the can a bit farther down the road. You can’t fix a debt problem with more debt, and the debt bubble we are living in today is far larger than it was in 2008. Will Bernanke still be trying to portray himself as a hero when this house of cards finally falls apart?
During his lecture to the students on Tuesday, Bernanke stated the following….
“I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could have had a much worse outcome in the economy.”
So what did that “forceful policy response” entail?
Well, on slide 24 of his presentation to the students Bernanke tells us….
• On October 10, 2008, G‐7 countries agreed to
work together to stabilize the global financial
system. They agreed to
– prevent the failure of systemically important
financial institutions
– ensure financial institutions’ access to funding and
capital
– restore depositor confidence
– work to normalize credit markets
Please note that not all financial institutions got bailed out.
In fact, hundreds of small and mid-size U.S. banks failed during the financial crisis.
It was only the “systemically important financial institutions” that got bailed out.
So who decided which financial institutions were important enough to be bailed out?
The Federal Reserve made those decisions. There were no Congressional votes and no input from the public. The Federal Reserve determined who the winners and the losers would be in secret and without any public debate.
Sure sounds “democratic”, eh?
But we are told to trust them because they are supposedly the experts.
So once the Federal Reserve bailed out the “too big to fail” banks, what was the outcome?
On page 25 of his presentation to the students Bernanke claimed that the bailouts successfully prevented the global financial system from collapsing….
• The international policy response averted the collapse of the global financial system.
But it wasn’t just big Wall Street banks that got bailed out. Bernanke says that AIG was also bailed out because the insurance company was deemed to be too “interconnected with many other parts of the global financial system” to be allowed to fail….
Because AIG was interconnected with many other parts of the global financial system, its failure would have had a massive effect on other financial firms and markets.
Once again, we see that it is the Federal Reserve who picks the winners and the losers.
AIG got bailed out and was then able to pay 100 cents on the dollar of what it owed to Goldman Sachs.
That sure worked out well for Goldman Sachs.
In all, the Federal Reserve issued a grand total of more than 16 trillion dollars in secret loans during the financial crisis.
The big Wall Street banks got showered with cash while hundreds of smaller banks were allowed to die like dogs.
The fact that the Fed greatly favors the big Wall Street banks has allowed them to grow massively in size and in power.
Back in 1970, the 5 biggest U.S. banks held 17 percent of all U.S. banking industry assets.
Today, the 5 biggest U.S. banks hold 52 percent of all U.S. banking industry assets.
The “too big to fail” banks just keep getting bigger and bigger and bigger.
Yet during his presentation to the students, Bernanke tried to talk out of both sides of his mouth by claiming that it is not a good thing for some banks to be “too big to fail”….
“But clearly, it is something fundamentally wrong with a system in which some companies are ‘too big to fail.'”
So who is to blame for them being so big?
Well, the Federal Reserve is probably the biggest culprit.
Thanks Bernanke.
The big Wall Street banks are bigger than ever and they are also more unstable than ever.
According to the Comptroller of the Currency, the biggest U.S. banks have exposure to derivatives that is absolutely mind blowing. Just check out these numbers which have just been released….
JPMorgan Chase – $70.1 Trillion
Citibank – $52.1 Trillion
Bank of America – $50.1 Trillion
Goldman Sachs – $44.2 Trillion
So what is going to happen when that bubble pops?
Is Bernanke going to zap tens of trillions of dollars into existence to bail out that gigantic mess?
Meanwhile, the debt bubble that we are all living in just keeps exploding in size.
Total student loan debt in the United States is over 1 trillion dollars at this point. Consumer debt is rising. Millions of mortgages are past due.
The American people are not in better financial condition than they were during the last financial crisis. In fact, they are significantly worse off.
All over America, state and local governments are also drowning in debt. In fact, there have been several very notable municipal bankruptcies lately.
And the U.S. government is racking up debt at a pace that is almost unimaginable.
When the last financial crisis began, the U.S. national debt was about 10 trillion dollars.
Today, it has risen to 15.5 trillion dollars.
So Bernanke did not fix anything.
The best that can be said is that he kicked the can down the road a little bit and made our long-term financial problems a lot worse at the same time.
Bernanke can create money out of thin air and loan it to his friends all he wants, but he is not going to be able to prevent this house of cards from crashing down indefinitely.
So grab a bucket of popcorn and get ready. The next few years are going to be fascinating to watch.
 The U.S. dollar has probably been the closest thing to a true global currency that the world has ever seen. For decades, the use of the U.S. dollar has been absolutely dominant in international trade. This has had tremendous benefits for the U.S. financial system and for U.S. consumers, and it has given the U.S. government tremendous power and influence around the globe. Today, more than 60 percent of all foreign currency reserves in the world are in U.S. dollars. But there are big changes on the horizon. The mainstream media in the United States has been strangely silent about this, but some of the biggest economies on earth have been making agreements with each other to move away from using the U.S. dollar in international trade. There are also some oil producing nations which have begun selling oil in currencies other than the U.S. dollar, which is a major threat to the petrodollar system which has been in place for nearly four decades. And big international institutions such as the UN and the IMF have even been issuing official reports about the need to move away form the U.S. dollar and toward a new global reserve currency. So the reign of the U.S. dollar as the world reserve currency is definitely being threatened, and the coming shift in international trade is going to have massive implications for the U.S. economy.
A lot of this is being fueled by China. China has the second largest economy on the face of the earth, and the size of the Chinese economy is projected to pass the size of the U.S. economy by 2016. In fact, one economist is even projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.
So China is sitting there and wondering why the U.S. dollar should continue to be so preeminent if the Chinese economy is about to become the number one economy on the planet.
Over the past few years, China and other emerging powers such as Russia have been been quietly making agreements to move away from the U.S. dollar in international trade. The supremacy of the U.S. dollar is not nearly as solid as most Americans believe that it is.
As the U.S. economy continues to fade, it is going to be really hard to argue that the U.S. dollar should continue to function as the primary reserve currency of the world. Things are rapidly changing, and most Americans have no idea where these trends are taking us.
The following are 10 reasons why the reign of the dollar as the world reserve currency is about to come to an end….
#1 China And Japan Are Dumping the U.S. Dollar In Bilateral Trade
A few months ago, the second largest economy on earth (China) and the third largest economy on earth (Japan) struck a deal which will promote the use of their own currencies (rather than the U.S. dollar) when trading with each other. This was an incredibly important agreement that was virtually totally ignored by the U.S. media. The following is from a BBC report about that agreement….
China and Japan have unveiled plans to promote direct exchange of their currencies in a bid to cut costs for companies and boost bilateral trade.
The deal will allow firms to convert the Chinese and Japanese currencies directly into each other.
Currently businesses in both countries need to buy US dollars before converting them into the desired currency, adding extra costs.
#2 The BRICS (Brazil, Russia, India, China, South Africa) Plan To Start Using Their Own Currencies When Trading With Each Other
The BRICS continue to flex their muscles. A new agreement will promote the use of their own national currencies when trading with each other rather than the U.S. dollar. The following is from a news source in India….
The five major emerging economies of BRICS — Brazil, Russia, India, China and South Africa — are set to inject greater economic momentum into their grouping by signing two pacts for promoting intra-BRICS trade at the fourth summit of their leaders here Thursday.
The two agreements that will enable credit facility in local currency for businesses of BRICS countries will be signed in the presence of the leaders of the five countries, Sudhir Vyas, secretary (economic relations) in the external affairs ministry, told reporters here.
The pacts are expected to scale up intra-BRICS trade which has been growing at the rate of 28 percent over the last few years, but at $230 billion, remains much below the potential of the five economic powerhouses.
#3 The Russia/China Currency Agreement
Russia and China have been using their own national currencies when trading with each other for more than a year now. Leaders from both Russia and China have been strongly advocating for a new global reserve currency for several years, and both nations seem determined to break the power that the U.S. dollar has over international trade.
#4 The Growing Use Of Chinese Currency In Africa
Who do you think is Africa’s biggest trading partner?
It isn’t the United States.
In 2009, China became Africa’s biggest trading partner, and China is now aggressively seeking to expand the use of Chinese currency on that continent.
A report from Africa’s largest bank, Standard Bank, recently stated the following….
“We expect at least $100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015.”
China seems absolutely determined to change the way that international trade is done. At this point, approximately 70,000 Chinese companies are using Chinese currency in cross-border transactions.
#5 The China/United Arab Emirates Deal
China and the United Arab Emirates have agreed to ditch the U.S. dollar and use their own currencies in oil transactions with each other.
The UAE is a fairly small player, but this is definitely a threat to the petrodollar system. What will happen to the petrodollar if other oil producing countries in the Middle East follow suit?
#6 Iran
Iran has been one of the most aggressive nations when it comes to moving away from the U.S. dollar in international trade. For example, it has been reported that India will begin to use gold to buy oil from Iran.
Tensions between the U.S. and Iran are not likely to go away any time soon, and Iran is likely to continue to do what it can to inflict pain on the United States in the financial world.
#7 The China/Saudi Arabia Relationship
Who imports the most oil from Saudi Arabia?
It is not the United States.
Rather, it is China.
As I wrote about the other day, China imported 1.39 million barrels of oil per day from Saudi Arabia in February, which was a 39 percent increase from one year earlier.
Saudi Arabia and China have teamed up to construct a massive new oil refinery in Saudi Arabia, and leaders from both nations have been working to aggressively expand trade between the two nations.
So how long is Saudi Arabia going to stick with the petrodollar if China is their most important customer?
That is a very important question.
#8 The United Nations Has Been Pushing For A New World Reserve Currency
The United Nations has been issuing reports that openly call for an alternative to the U.S. dollar as the reserve currency of the world.
In particular, one UN report envisions “a new global reserve system” in which the U.S. no longer has dominance….
“A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency.”
#9 The IMF Has Been Pushing For A New World Reserve Currency
The International Monetary Fund has also published a series of reports calling for the U.S. dollar to be replaced as the reserve currency of the world.
In particular, one IMF paper entitled “Reserve Accumulation and International Monetary Stability” that was published a while back actually proposed that a future global currency be named the “Bancor” and that a future global central bank could be put in charge of issuing it….
“A global currency, bancor, issued by a global central bank (see Supplement 1, section V) would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy. As trade and finance continue to grow rapidly and global integration increases, the importance of this broader perspective is expected to continue growing.”
#10 Most Of The Rest Of The World Hates The United States
Global sentiment toward the United States has dramatically shifted, and this should not be underestimated.
Decades ago, we were one of the most loved nations on earth.
Now we are one of the most hated.
If you doubt this, just do some international traveling.
Even in Europe (where we are supposed to have friends), Americans are treated like dirt. Many American travelers have resorted to wearing Canadian pins so that they will not be treated like garbage while traveling over there.
If the rest of the world still loved us, they would probably be glad to continue using the U.S. dollar. But because we are now so unpopular, that gives other nations even more incentive to dump the dollar in international trade.
So what will happen if the reign of the U.S. dollar as the world reserve currency comes to an end?
Well, some of the potential effects were described in a recent article by Michael Payne….
“The demise of the dollar will also bring radical changes to the American lifestyle. When this economic tsunami hits America, it will make the 2008 recession and its aftermath look like no more than a slight bump in the road. It will bring very undesirable changes to the American lifestyle through massive inflation, high interest rates on mortgages and cars, and substantial increases in the cost of food, clothing and gasoline; it will have a detrimental effect on every aspect of our lives.”
Most Americans don’t realize how low the price of gasoline in the United States is compared to much of the rest of the world.
There are areas in Europe where they pay about twice what we do for gasoline. Yes, taxes have a lot to do with that, but the fact that the U.S. dollar is used for almost all oil transactions also plays a significant role.
Today, America consumes nearly a quarter of the world’s oil. Our entire economy is based upon our ability to cheaply transport goods and services over vast distances.
So what happens if the price of gasoline doubles or triples from where it is at now?
In addition, if the reign of the U.S. dollar as global reserve currency ends, the U.S. government is going to have a much harder time financing its debt.
Right now, there is a huge demand for U.S. dollars and for U.S. government debt since countries around the world have to keep huge reserves of U.S. currency lying around for the sake of international trade.
But what if that all changed?
What if the appetite for U.S. dollars and U.S. debt dried up dramatically?
That is something to think about.
At the moment, the global financial system is centered on the United States.
But that will not always be the case.
The things talked about in this article will not happen overnight, but it is important to note that these changes are picking up steam.
Under the right conditions, a shift in momentum can become a landslide or an avalanche.
Clearly, the conditions are right for a significant move away from the U.S. dollar in international trade.
So when will this major shift occur?
Only time will tell.
 Are you better off today than you were four years ago? If not, then you are just like most other Americans. According to a CBS News/New York Times poll that was released a few days ago, 80 percent of Americans say that their financial situation is not “better today” than it was four years ago. But if you turn on the television and listen to what the “pundits” are saying, you would be tempted to think that we were in the midst of a robust economic recovery. You would be tempted to think that the U.S. economy is in great shape and that we are heading for a really bright future. But the fact that the stock market is soaring does not mean much to most Americans. In fact, most Americans couldn’t care less that the Dow is well above 13,000 and that the NASDAQ is above 3,000. What most Americans care about is having a job and being able to provide for their families. If you haven’t paid the mortgage in three months or if you don’t have enough money to take your daughter to go see the doctor it really is not going to matter to you how well the boys and girls over on Wall Street are doing. Right now most American families are doing worse than they were doing four years ago, and no amount of media hype is going to change that fact.
Yes, the stock market is doing really well for the moment, but the truth is that more than 50 percent of all stocks and bonds are owned by just 1 percent of the U.S. population.
Good for them. It looks like the trillions of dollars that the Federal Reserve poured into the big Wall Street banks is really paying off nicely for the financial community.
Meanwhile, much of the rest of the country is deeply suffering.
It was recently reported that 1.5 million American families live on less than two dollars a day (before counting government benefits).
That is horrifying.
According to the U.S. Census Bureau, the percentage of Americans living in “extreme poverty” is now sitting at an all-time high.
All across this country poverty is exploding. Food banks are experiencing more demand than ever before and those offering free healthcare are absolutely swamped.
And every single measure of government dependence has gone way up since Barack Obama entered the White House.
For example, since Barack Obama became president the number of Americans on food stamps has gone up by 45 percent.
Just think about that.
At this point the federal government is helping to feed an all-time record 46.5 million Americans every month.
Oh yeah, times are good.
According to the U.S. Census Bureau, 49 percent of all Americans live in a home that receives direct monetary benefits from the federal government.
That is much higher than it has been historically.
For example, back in 1983 less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.
The big problem is that there are simply not enough jobs for everyone.
Listening to the media, you would be tempted to think that the U.S. economy is now pumping out huge numbers of good jobs.
But that is simply not the case.
Right now there are 5.6 million fewer jobs than there were when the last recession began back in late 2007.
So where are the millions of jobs you promised us Obama?
The federal government is trying to convince us that the unemployment rate is going down, but that is not really true.
The key is to look at the percentage of working age Americans that actually have jobs. During the last recession that percentage fell dramatically as you can see from the chart below. After every other recession since World War II the employment to population ratio has always bounced back. But it has not happened this time. Instead, the employment to population ratio has remained between 58 and 59 percent since the end of 2009….
We have not had a jobs recovery. Hopefully we will have one before the next recession hits, but we are running out of time for that.
Tonight there are millions upon millions of hard working Americans that are staring at their television screens and wondering why they can’t find good jobs. The pretty people on television are telling them that the employment situation is getting much better but they can’t find work no matter how hard they try. It is a cruel joke on them.
When Barack Obama entered the White House, the number of “long-term unemployed workers” in the United States was approximately 2.6 million. Today, that number is sitting at 5.6 million.
Thanks for the improvement Obama.
Meanwhile, the average duration of unemployment continues to hover near a record high. Just look at the chart posted below. Does this look like a “jobs recovery” to you?….
But of course Obama and those that support him want to make things sound like they are getting better. They want people to run out and vote for him again in November.
If things are going well for you right now, be thankful, and also remember the millions upon millions of Americans out there that are deeply hurting in this economy.
If you gathered together all of the workers that are “officially” unemployed in the United States at this point into one nation, they would constitute the 68th largest country in the entire world. It would be a nation larger than Greece or Portugal.
That is a lot of people.
Obama promised us that the Wall Street bailouts would make everything better. He promised us that if we poured gigantic mountains of money into Wall Street that it would end up helping “Main Street”.
Well, the last time I looked Goldman Sachs was doing just fine.
So where is the help for Main Street?
In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.
How much wealthier do they have to get before they start creating more jobs for the rest of us?
Obama (like most of our politicians) is a complete fraud when it comes to the economy. He is all saddle and no horse. He talks a good game but he doesn’t have any game.
As Wall Street has recovered, the rest of the country has actually been in decline. Median household income in the United States is down 7.8 percent since December 2007 after adjusting for inflation. Millions of American families are reaching the breaking point and millions of other families have already reached it.
Incomes have been declining but the cost of living has not.
For example, health insurance costs have risen by 23 percent since Barack Obama became president.
Has your paycheck increased by 23 percent?
The average price of a gallon of gasoline in the United States has increased by more than 90 percent since Barack Obama became president.
Has your paycheck increased by 90 percent?
Millions of American families have lost their homes while Obama has been president and millions more will soon lose their homes. At this point there are more than 6 million mortgages in the United States that are overdue.
It is a horrible, horrible feeling to know that you can’t pay your mortgage and that you will soon lose your home and your family will be put out on the street.
None of us would ever want to end up in that situation.
And the housing market sure has not shown any signs of recovery under Barack Obama.
In January, U.S. home prices were the lowest that they have been in more than a decade.
Weren’t home prices and home sales supposed to be turning around by now?
Under Barack Obama, new home sales in the United States set a brand new all-time record low in 2009, they set a brand new all-time record low again in 2010, and they set a brand new all-time record low once again during 2011.
That trend is not going in the right direction.
Of course Barack Obama is not solely responsible for the performance of the U.S. economy. Congress should share part of the blame as well, and the Federal Reserve is more responsible for our economic performance than anyone else is.
But one area where Barack Obama has had a huge impact is in the area of government spending.
While Barack Obama has been president, the U.S. national debt has risen from 10.6 trillion to 15.5 trillion.
Thanks Obama.
During the first three years of the Obama administration, the U.S. government has accumulated more debt than it did between 1776 and 1995.
So is Obama planning a change of course?
Of course not.
At this point, our national debt is increasing by about 150 million dollars every single hour.
So should we be thanking Obama for stealing 150 million dollars from our children and our grandchildren every hour?
Should we be thanking Obama for ruining our future?
I think not.
But you know what?
According to the CBS News/New York Times poll mentioned above, about half of America would actually vote for Obama if the next presidential election was held today.
That alone is a clear sign that this country is in a massive amount of trouble.
The truth is that the leaders we elect are an accurate reflection of who we are as a country.
And when you look at the collection of misfits in Washington D.C. right now, that does not say a lot about the character of this nation.
So where does America go from here?
That is up to you America.
 How would you feel if you worked for a state or local government for 20 or 30 years only to have your pension slashed dramatically or taken away entirely? Well, this exact scenario is playing out from coast to coast and in the years ahead millions of elderly Americans are going to be affected by broken promises and vanishing pensions. In the old days, things were much different. You would get hired by a big company or a government institution and you knew that the retirement benefits that they were promising you would be there when you retired in a few decades. Unfortunately, we have now arrived at a time when government institutions and big companies have promised far more than they are able to deliver, and “pension reform” has become one of the hot button issues all over the nation. Many Americans that have been basing their financial futures on their pensions are waking up one day and finding that their pensions are either gone or have been cut back dramatically. According to Northwestern University Professor John Rauh, the latest estimate of the total amount of unfunded pension and healthcare obligations for state and local governments across the United States is 4.4 trillion dollars. America is continually becoming a poorer nation and all of that money is simply not going to magically materialize somehow. So where is that 4.4 trillion dollars going to come from? Well, either pension benefits are going to have to be cut a lot more all over America or taxes will need to be raised dramatically. Either way, we are all going to feel the pain of these broken promises.
There simply is not enough money out there to keep all of the pension commitments that have been made. Something has got to give. In the end, millions of elderly Americans will likely be plunged into poverty as pensions disappear.
Some local governments around the nation are already declaring bankruptcy and are either eliminating pensions or are cutting them very deeply. Just check out what just happened in Central Falls, Rhode Island….
For years, city officials promised robust union contracts and pensions without raising revenue to pay for them. Last August, the math caught up with them. Central Falls was broke, its pension fund short $46 million. It declared bankruptcy.
“My daughters grew up here, went to school here. It’s all gone,” said Mike Geoffroy, a retired firefighter.
He said he could not make the payments on his house after his pension was cut by $1,100 a month.
When will the math catch up with the city where you are living?
For years and years most of our state and local politicians have been ignoring this problem. But eventually a day comes when you simply cannot ignore it any longer.
Check out what Pensacola Mayor Ashton Hayward said about the situation in his city recently….
“When our annual pension liability is more than our yearly property tax revenues, we have to do something”
Keep in mind that taxpayers don’t get any new services for money spent on pensions. It is money that goes straight into the pockets of retired workers. State and local governments are desperately trying to pay retired workers what they are owed and fund ongoing government functions at the same time, but many have reached the breaking point.
All over the country, state and local governments are going broke. The following is from a recent article by Duff McDonald….
Alabama’s Jefferson County has actually gone bankrupt. Stockton, California is all but ready to do the same. And all you have to do is look to Detroit—or any of the nearby auto towns named after a Buick model of one sort or another—and you see fiscal crisis playing out right now. Look in your own backyard—or at the potholes on your neighborhood roads—and you will likely find the same.
Things are so bad in Stockton, California that they are actually skipping debt payments….
The city of 290,000 that rode the wave of the housing boom in the late 1990s and early 2000s now finds itself littered with foreclosed homes, saddled with pension, health care and other obligations it can’t afford, and unable to pay its bills.
The City Council voted last month to suspend $2 million in bond payments and begin negotiations with bond holders, creditors and unions.
And did you notice what is being blamed for the financial problems in Stockton?
Pension and healthcare benefits.
Sadly, we are seeing pension nightmares erupt all over the nation right now.
For example, check out what is happening to the Public School Employees’ Retirement System and State Employees’ Retirement System in Pennsylvania….
PSERS had an accrued unfunded liability of nearly $26.5 billion, the amount of money the fund is short to cover existing retirement benefits. That hole is expected to grow to $43 billion by 2019. SERS is $12.5 billion in the red, and that shortfall is expected to climb to nearly $18 billion by 2018. Unless the stock market makes giant sustained gains, taxpayers will have to refill those funds.
That doesn’t sound good at all.
In California, the Orange County Employees Retirement System is estimated to have a 10 billion dollar unfunded pension liability.
How in the world can a single county be facing a 10 billion dollar hole?
This is madness.
The state of Illinois is facing an unfunded pension liability of more than 77 billion dollars. Considering the fact that the state of Illinois is flat broke and on the verge of default, it is inevitable that a lot of those pension obligations will never be paid.
In fact, there are going to be a whole lot of broken promises all over the country.
Pension consultant Girard Miller told California’s Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities.
That comes to about $22,000 for every single working adult in the state of California.
So where is all of that money going to come from?
But at least most state and local government employees are still covered by pension plans, even if they are failing.
In the private sector, pension plans are vanishing at lightning speed.
According to the Boston College Center for Retirement Research, the percentage of workers in America covered by a traditional pension plan fell from 62 percent in 1983 to 17 percent in 2007.
That isn’t just a trend.
That is a tidal wave.
And many of the private pension plans that still exist are massively underfunded. For example, Verizon’s pension plan is underfunded by 3.4 billion dollars.
So what should Americans do in light of all this?
Well, the number one thing to realize is that the pension plan you have been counting on could disappear at any time.
We live in an economic environment that is extremely unstable, and about the only thing you can count on in this environment is rapid and dramatic change.
Do not plan your financial future around a pension plan. If you do, you are likely to be bitterly disappointed.
Americans that plan to retire in the coming years should do their best to try to fund their own retirements.
Unfortunately, most Americans are not putting away much of anything for retirement. As I have written about previously, one study found that American workers are $6.6 trillion short of what they need to retire comfortably.
Ouch.
Over the next 20 years approximately 10,000 Baby Boomers will be retiring every single day.
A lot of them are going to be blindsided by empty pension funds and broken promises.
We are facing a retirement crisis of unprecedented magnitude, and there is not much hope in sight.
And if there is a major stock market crash, things are going to be much, much worse.
Most pension funds and retirement plans are heavily invested in the stock market. If we were to see a major financial crisis like we saw back in 2008 it would be absolutely devastating. Millions of Americans could see their retirement plans wiped out in short order.
Once again, please do not place your faith in the system.
If you do, you are likely to end up holding a bag of broken promises.
A gigantic tsunami of unfunded pension obligations is coming. A lot of state and local governments are going to go broke. A lot of promises are going to be broken.
If you hope to retire any time soon, you better plan on being able to take care of yourself.
 Who ever imagined that Ben Bernanke would become a poster child for the student loan debt problem in America? Recently Bernanke told Congress that his son will graduate from medical school with about $400,000 of student loan debt. For most Americans, such a staggering amount of debt would almost certainly guarantee a lifetime of debt slavery. Unfortunately, Bernanke’s son is not alone. According to the Federal Reserve Bank of New York, approximately 167,000 Americans have more than $200,000 of student loan debt. The cost of a college education has increased much more rapidly than the rate of inflation over the past several decades, and most students enter the “real world” today with a debt burden that will stay with them for most of their working lives. In an economy where there are so few good jobs for college graduates, it can be incredibly difficult to get married, buy a house or afford to have children when you are drowning in student loan debt. It would be hard to overstate the financial pain that student loans are causing many young adults in America today. The student loan debt problem is a national crisis and it is not going away any time soon.
The Federal Reserve Bank of New York says that the total amount of student loan debt in America now exceeds the total of all credit card debt in the country. It also exceeds the total of all auto loans.
The New York Fed says that there is a total of $870 billion owed on student loans in the United States right now. Other sources claim that the total amount of student loan debt in the United States will soon exceed one trillion dollars.
Either way, we are talking about an extraordinary amount of money.
Sadly, approximately two-thirds of all U.S. college students graduate with student loan debt these days. The average amount of student loan debt at graduation is approximately $25,000.
That might not be so bad if the economy was full of good paying jobs for college graduates, but that simply is not the case.
As college tuition continues to soar, the student loan debt problem continues to get even worse. U.S. college students are borrowing about twice as much money as they did a decade ago after adjusting for inflation.
That is not a good trend.
The truth is that it has simply gotten way too expensive to go to college.
Back in 1952, a full year of tuition at Harvard was only $600.
Today, the price tag is $35,568.
So why is a Harvard education 59 times more expensive than it used to be?
Somebody is getting rich off of all this, and it isn’t the students.
In fact, many students are looking at a life of debt slavery for decades to come.
The following is a quote from one recent graduate from a recent Politico article….
“I pay almost $1,000 a month just in student loan repayment. I will have to do so for the next 30 years. How will I ever afford to buy a house, have children or save for the future?”
After working so hard all the way through school, is that any kind of a “future” to look forward to?
The system is failing our young people.
Many young college graduates have found themselves unable to make their payments or have simply decided to quit making payments.
Officially, the student loan default rate has nearly doubled since 2005. But a new report from the Federal Reserve Bank of New York says that things may be even worse than that. According to the New York Fed, approximately one out of every four student loan balances are past-due at this point.
But it isn’t just young people getting into trouble with student loan debt.
These days, financial institutions are increasingly targeting parents. Federal student loans often do not cover all of the expenses of college in this day and age, and so increasingly loans are being made to parents to make up the difference. Student loans made to directly to parents have increased by 75 percent since the 2005-2006 academic year.
Unfortunately, what students and parents are getting in return for all of this money is not that great.
I spent eight years of my life studying at U.S. colleges and universities. The institutions that I attended were supposed to be better than most. But most of the classes that I took were a total joke. A 6-year-old child could have passed most of them.
Almost everyone agrees that the quality of college education in America is in a serious state of decline. The goal is to get these kids through the system and to keep collecting the big tuition checks.
When I was in school, I could hardly believe how little was being required of me. But being as lazy as I was, I certainly did not complain.
If only more parents realized what was really going on.
The following are some facts about the quality of college education in the United States from a USA Today article….
-“After two years in college, 45% of students showed no significant gains in learning; after four years, 36% showed little change.”
-“Students also spent 50% less time studying compared with students a few decades ago”
-“35% of students report spending five or fewer hours per week studying alone.”
-“50% said they never took a class in a typical semester where they wrote more than 20 pages”
-“32% never took a course in a typical semester where they read more than 40 pages per week.”
Are you starting to get the picture?
If you are in college right now, enjoy the good times while they last, because when you graduate you will find that there are very few good jobs available for the hordes of new college graduates that are pouring into the labor market.
For a new college graduate, things can be rather depressing. Just consider the following statistics….
*About a third of all college graduates end up taking jobs that don’t even require college degrees.
*In the United States today, there are more than 100,000 janitors that have college degrees.
*In the United States today, 317,000 waiters and waitresses have college degrees.
There are millions of college graduates that are unemployed in America today. There are millions of others that have been forced to take very low paying jobs because that is all they can get.
It is no coincidence that incomes for households led by someone between the ages of 25 and 34 have fallen by about 12 percent after you adjust for inflation since the year 2000.
Young people in America are under intense financial pressure right now.
Many are unable to make it at all and have moved back in with Mom and Dad. As I wrote about recently, approximately 25 million American adults are living with their parents at this point.
The system of higher education in this country is badly broken and it desperately needs to be fixed.
So do you have a solution to these problems or do you have a student loan debt horror story to share?
Please feel free to leave a comment with your opinion below….
 We live in a world that is becoming increasingly unstable, and the potential for an event that could cause “sudden change” to the U.S. economy is greater than ever. There are dozens of potentially massive threats that could easily push the U.S. economy over the edge during the next 12 months. A war in the Middle East, a financial collapse in Europe, a major derivatives crisis or a horrific natural disaster could all change our economic situation very rapidly. Most of the time I write about the long-term economic trends that are slowly but surely ripping the U.S. economy to pieces, but the truth is that just a single really bad “black swan event” over the next 12 months could accelerate our economic problems dramatically. If oil was cut off from the Middle East or a really bad natural disaster suddenly destroyed a major U.S. city, the U.S. economy would be thrown into a state of chaos. Considering how bad the U.S. economy is currently performing, it would be easy to see how a major “shock to the system” could push us into the “next Great Depression” very easily. Let us hope that none of these things actually happen over the next 12 months, but let us also understand that we live in a world that has become extremely chaotic and extremely unstable.
In the list below, you will find some “sudden change” events that are somewhat likely and some that are quite unlikely. I have tried to include a broad range of potential “black swan events”, but there are certainly dozens more massive threats that could potentially be listed.
The following are 15 potentially massive threats to the U.S. economy over the next 12 months….
#1 War With Syria – U.S. Senator John McCain is now publicly calling for U.S. airstrikes against Syria. A military conflict with Syria becomes more likely with each passing day.
#2 War With Iran – A war in the Middle East involving Iran could literally erupt at any time. The following is from a Reuters news report that was issued on Monday….
President Barack Obama appealed to Benjamin Netanyahu on Monday to give sanctions time to curb Iran’s nuclear ambitions, but the Israeli prime minister offered no sign of backing away from possible military action, saying his country must be the “master of its fate.”
#3 A Disorderly Greek Debt Default – Many reporters in Europe seem to think that this is becoming increasingly likely. So what would a disorderly Greek debt default mean for the global financial system? A leaked report that was authored by the Institute of International Finance says that a disorderly Greek debt default would have some very serious consequences. You can read the full text of that leaked report right here.
#4 An Economic Collapse In Spain – Spain has one of the largest economies in Europe and it is rapidly becoming a basket case. As I have written about previously, the unemployment rate in Spain has hit 19.9 percent, and the unemployment rate for workers under the age of 25 is up to 49.9 percent. Unfortunately, the situation in Spain continues to deteriorate. The following is from a recent article by Marc Chandler….
However, the devolution in Spain is particularly troubling. The new fiscal compact had just been signed last week, which includes somewhat more rigorous fiscal rule and enforcement, when Spain’s PM Rajoy revealed that this year’s deficit would come in around 5.8 percent of GDP rather the 4.4 percent target. This of course follows last year’s 8.5 percent overshoot of the 6 percent target.
The problem that for Spain is that the 4.4 percent target was based on forecasts for more than 2 percent growth this year. However, in late February, the EU cuts its forecast to a 1 percent contraction. This still seems optimistic. The IMF forecasts a 1.7 percent contraction, which the Spanish government now accepts.
#5 The Price Of Gasoline – The average price of a gallon of gasoline in the United States has risen for 27 days in a row and is now up to $3.77. Virtually all forms of economic activity are affected by the price of gasoline, and if the price of gas keeps going up it is eventually going to have dramatic consequences for the U.S. economy.
#6 The Student Loan Debt Bubble – Just like we saw with the housing bubble, the student loan debt bubble just continues to grow and grow and grow. At some point the nearly 1 trillion dollar bubble is going to burst. What effect will it have on our financial system when that finally happens?
#7 State And Local Government Debt Crisis – It is being reported that California is running out of cash again and there are cities all over the country that are on the verge of bankruptcy. Could we see a significant municipal bond crisis in the next 12 months?
#8 The Collapse Of A Major U.S. Bank – A number of top U.S. banks are looking increasingly shaky. In a recent article, David Trainer explained why he has such serious concerns about Bank of America right now….
In my opinion, there are four actions taken by financial services that signal the company is headed to serious trouble.
1. Management shake-up and major layoffs – lots of layoffs over the past year
2. Exploiting accounting rules to boost earnings – SFAS 159
3. Drawing down reserves to boost earnings: to the tune of $13.3 billion in 2011 and 2012
4. Bilking customers with new fees: tried it before and trying it again
Bank of America has taken all four steps.
#9 A Derivatives Crisis – The International Swaps and Derivatives Association recently ruled that the Greek debt deal will not trigger payouts on credit default swaps. This is seriously shaking confidence in the global market for derivatives. But the global financial system simply cannot afford a major derivatives crisis.
Estimates of the notional value of the worldwide derivatives market range from $600 trillion all the way up to $1.5 quadrillion. The notional value of all derivatives held by Bank of America is approximately $75 trillion. JPMorgan Chase is holding derivatives with a notional value of approximately $79 trillion.
When the derivatives bubble finally bursts it is going to be a financial horror show unlike anything we have ever seen.
#10 The Fall Of The Japanese Economy – The Japanese economy shrank at a 2.3 percent rate during the fourth quarter of 2011. Japan has a debt to GDP ratio of over 200 percent and a major debt crisis involving Japan could erupt at any time.
#11 A “Solar Megastorm” – Scientists tell us that there is a “1 in 8 chance” that a “solar megastorm” will hit the earth by 2014. A recent Daily Mail article detailed what some of the consequences of such an event would be….
‘We live in a cyber cocoon enveloping the Earth. Imagine what the consequences might be,’ Daniel Baker, of the University of Colorado’s Laboratory for Atmospheric and Space Physics told National Geographic when asked about a potential ‘megastorm’.
‘Every time you purchase a gallon of gas with your credit card, that’s a satellite transaction.
‘Imagine large cities without power for a week, a month, or a year. The losses could be $1 to $2 trillion, and the effects could be felt for years.
#12 A Major West Coast Earthquake Or Volcanic Eruption – On Monday, there was a 4.0 earthquake in San Francisco and a 6.1 earthquake in Argentina. Is the “Ring of Fire” waking up again?
#13 Tornado Damage To Major U.S. Cities – Last year, the U.S. experienced one of the worst tornado seasons of all time. This year, we have already seen the worst tornado outbreak ever recorded in the United States in the month of March. A couple of towns in Indiana were completely wiped out by that outbreak. So what should we expect when we get to the heart of tornado season this year?
#14 Severe Drought In The United States – Last summer was one of the driest summers on record in the United States, and in many areas there is simply not enough water available for farmers this year. Some are even projecting that we could see “dust bowl conditions” return to some areas of the country eventually.
#15 An Asteroid Strike In 2013 – Although scientists tell us that the probability is extremely low, the truth is that there is a slight chance that a sizeable asteroid could hit the earth in February 2013. The asteroid is estimated to be between 60 and 100 meters wide, and it is projected to pass by our planet “at a distance of under 27,000 km“. If it did hit us (and scientists say that the odds of that happening are very low) it would potentially be as serious an event as the Tunguska Event in Siberia in 1908. Mac Slavo of shtfplan.com recently described how awesome the Tunguska Event really was….
On June 30, 1908 an incoming meteor exploded approximately 5 miles above Siberia. The force of the air burst explosion, estimated at between 15 and 30 megatons, or about 1000 times bigger than the atomic bomb that destroyed Hiroshima, was so powerful that it annihilated everything in an 830 square mile area, and reports suggest that that explosion was heard up to 1000 miles away. Because of the remoteness of the impact zone, the Tunguska Event over Siberia had very little effect on the human population in the region, but the destruction of some 80 million trees in the area shows just how powerful a blast was created.
Of course there are so many other “sudden change” events that could potentially happen – a terror event in a major U.S. city, a deadly pandemic, an EMP attack, cyberterrorism or a major political scandal could all possibly cause a stock market crash and an economic collapse in the United States.
In the world that we are living in today, you just never know what is going to happen.
So what are all of you concerned about over the next 12 months?
Do you see the potential for some “black swan events” to happen?
Please feel free to post a comment with your thoughts below….
 How is the U.S. economy doing in 2012? Unfortunately, it is not doing nearly as well as the mainstream media would have you believe. Yes, things have stabilized for the moment but this bubble of false hope will not last for long. The long-term trends that are ripping our economy and our financial system to shreds continue unabated. When you step back and look at the broader picture, it is hard to deny that we are in really bad shape and that things are rapidly getting worse. Later on in this article you will find a list of interesting facts that show the true state of the U.S. economy. Hopefully many of you will find this list to be a useful tool that you can share with your family and friends. Each day the foundations of our economy crumble a little bit more, and we need to wake up as many Americans as we can to what is really going on while there is still time. We have accumulated way too much debt, we consume far more wealth than we produce, millions of our jobs are being shipped overseas, our big cities are decaying, family budgets are being squeezed more than ever, poverty is rampant and we have raised several generations of Americans that expect the government to fix all of their problems. The U.S. economy is at a crossroads, and the decisions that the American people make in 2012 are going to be incredibly important.
The statistics listed below are presented without much commentary. They pretty much speak for themselves.
After reading this list, it will be hard for anyone to argue that we are on the right track.
The following are 55 interesting facts about the U.S. economy in 2012….
#1 As you read this, there are more than 6 million mortgages in the United States that are overdue.
#2 In January, U.S. home prices were the lowest that they have been in more than a decade.
#3 In Florida right now, some drivers are paying nearly 6 dollars for a gallon of gas.
#4 On average, you could buy about 10 gallons of gas for an hour of work back in the mid-90s. Today, the average hour of work will get you less than 6 gallons of gas.
#5 Sadly, 43 percent of all American families spend more than they earn each year.
#6 According to Gallup, the unemployment rate was at 8.3% in mid-January but rose to 9.0% in mid-February.
#7 The percentage of working age Americans that have jobs is not increasing. The employment to population ratio has stayed very steady (hovering between 58% and 59%) since the beginning of 2010.
#8 If you gathered together all of the workers that are “officially” unemployed in the United States into one nation, they would constitute the 68th largest country in the entire world.
#9 When Barack Obama first took office, the number of “long-term unemployed workers” in the United States was approximately 2.6 million. Today, that number is sitting at 5.6 million.
#10 The average duration of unemployment in the United States is hovering close to an all-time record high.
#11 According to Reuters, approximately 23.7 million American workers are either unemployed or underemployed right now.
#12 There are about 88 million working age Americans that are not employed and that are not looking for employment. That is an all-time record high.
#13 According to CareerBuilder, only 23 percent of American companies plan to hire more employees in 2012.
#14 Back in the year 2000, about 20 percent of all jobs in America were manufacturing jobs. Today, about 5 percent of all jobs in America are manufacturing jobs.
#15 The United States has lost an average of approximately 50,000 manufacturing jobs a month since China joined the World Trade Organization in 2001.
#16 Amazingly, more than 56,000 manufacturing facilities in the United States have been shut down since 2001.
#17 According to author Paul Osterman, about 20 percent of all U.S. adults are currently working jobs that pay poverty-level wages.
#18 During the Obama administration, worker health insurance costs have risen by 23 percent.
#19 An all-time record 49.9 million Americans do not have any health insurance at all at this point, and the percentage of Americans covered by employer-based health plans has fallen for 11 years in a row.
#20 According to the New York Times, approximately 100 million Americans are either living in poverty or in “the fretful zone just above it”.
#21 In the United States today, corporate profits are at an all-time high. The percentage of Americans that are living in “extreme poverty” is also at an all-time high according to the U.S. Census Bureau.
#22 In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.
#23 The poorest 50 percent of all Americans now collectively own just 2.5% of all the wealth in the United States.
#24 The number of children living in poverty in the state of California has increased by 30 percent since 2007.
#25 According to the National Center for Children in Poverty, 36.4% of all children that live in Philadelphia are living in poverty, 40.1% of all children that live in Atlanta are living in poverty, 52.6% of all children that live in Cleveland are living in poverty and 53.6% of all children that live in Detroit are living in poverty.
#26 Since Barack Obama entered the White House, the number of Americans on food stamps has increased from 32 million to 46 million.
#27 As the economy has slowed down, so has the number of marriages. According to a Pew Research Center analysis, only 51 percent of all Americans that are at least 18 years old are currently married. Back in 1960, 72 percent of all U.S. adults were married.
#28 In 1984, the median net worth of households led by someone 65 or older was 10 times larger than the median net worth of households led by someone 35 or younger. Today, the median net worth of households led by someone 65 or older is 47 times larger than the median net worth of households led by someone 35 or younger.
#29 If you can believe it, 37 percent of all U.S. households that are led by someone under the age of 35 have a net worth of zero or less than zero.
#30 After adjusting for inflation, U.S. college students are borrowing about twice as much money as they did a decade ago.
#31 According to the Student Loan Debt Clock, total student loan debt in the United States will surpass the 1 trillion dollar mark at some point in 2012. If you went out right now and starting spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.
#32 Today, 46% of all Americans carry a credit card balance from month to month.
#33 Incredibly, one out of every seven Americans has at least 10 credit cards.
#34 The average interest rate on a credit card that is carrying a balance is now up to 13.10 percent.
#35 Of the U.S. households that do have credit card debt, the average amount of credit card debt is an astounding $15,799.
#36 Overall, Americans are carrying a grand total of $798 billion in credit card debt. If you were alive when Jesus was born and you spent a million dollars every single day since then, you still would not have spent $798 billion by now.
#37 It may be hard to believe, but the truth is that consumer debt in America has increased by a whopping 1700% since 1971.
#38 At this point, about 70 percent of all auto purchases in the United States involve an auto loan.
#39 In the United States today, 45 percent of all auto loans are made to subprime borrowers.
#40 Mortgage debt as a percentage of GDP has more than tripled since 1955.
#41 According to a recent study conducted by the BlackRock Investment Institute, the ratio of household debt to personal income in the United States is now 154 percent.
#42 To get the same purchasing power that you got out of $20.00 back in 1970 you would have to have more than $116 today.
#43 When Barack Obama first took office, an ounce of gold was going for about $850. Today an ounce of gold costs more than $1700 an ounce.
#44 The number of Americans that are not paying federal incomes taxes is at an all-time high.
#45 A staggering 48.5% of all Americans live in a household that receives some form of government benefits. Back in 1983, that number was below 30 percent.
#46 The amount of money that the federal government gives directly to Americans has increased by 32 percent since Barack Obama entered the White House.
#47 During 2012, the U.S. government must roll over nearly 3 trillion dollars of old debt.
#48 The U.S. debt to GDP ratio has now reached 101 percent.
#49 At the moment, the U.S. national debt is sitting at a grand total of $15,419,800,222,325.15.
#50 The U.S. national debt is now more than 22 times larger than it was when Jimmy Carter became president.
#51 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.
#52 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.
#53 If Bill Gates gave every single penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for about 15 days.
#54 Right now, the U.S. national debt is increasing by about 150 million dollars every single hour.
#55 Spending by the federal government accounted for about 2 percent of GDP back in 1800. It accounted for 23.8 percent in 2011, and according to former U.S. Comptroller General David M. Walker, it will account for 36.8 percent of GDP by 2040.
Bad news, eh?
But it isn’t just our economy that is decaying.
We are witnessing a tremendous amount of social decay as well. As I wrote about the other day, America is rapidly decomposing right in front of our eyes.
When the water level of a river drops far enough, it will reveal rocks that have been hidden from view for a very long time. Well, a similar thing is happening in America right now. For decades, our debt-fueled prosperity has masked a lot of the social decay that has been going on.
But now that our prosperity is evaporating, a lot of frightening stuff is being revealed.
Unfortunately, another major financial crisis is rapidly approaching and economic conditions in the United States are going to get a lot worse.
So what is our country going to look like when that happens?
That is a very good question.
 The global financial system is not a game of checkers. It is a game of chess. All over the world today, news headlines are proclaiming that this new Greek debt deal has completely eliminated the possibility of a chaotic Greek debt default. Unfortunately, that is simply not the case. Rather, the truth is that this new deal actually “sets the table” for a Greek debt default. When I was studying and working in the legal arena, I learned that sometimes you make an agreement so that you can get the other side to break it. That may sound very strange to the average person on the street, but this is how the game is played at the highest levels. It is all about strategy. And in this case, the new debt deal imposes such strict conditions on Greece that it is almost inevitable that Greece will fail to meet some of them. When Greece does fail, Germany and the other northern European nations may try to claim that they “did everything that they could” but that Greece just did not “live up to its obligations”. So does this mean that we will definitely see a chaotic Greek debt default? No. What this does mean is that the chess pieces are being moved into position for one.
The following are 8 reasons why the Greek debt deal may not stop a chaotic Greek debt default….
#1 Greece Is Being Set Up To Fail
The terms of this new debt deal impose some incredibly harsh austerity measures on Greece and from now on the Greek government will be subject to “permanent monitoring” by EU officials.
In other words, they will be under a microscope.
Any violation of the terms of the debt deal could be used as a pretext to bring down the hammer and cut off bailout funds. Potentially, this could even happen just a few weeks from now.
It has become obvious that there are many politicians in Europe that would very much like to kick Greece out of the euro. In a recent column, the International Business Editor of The Telegraph summed up the situation this way….
It is clear that Berlin, Helsinki, and the Hague have taken the decision to eject Greece from the euro whatever the country now does. Even if Greece complies to the letter with the impossible terms of the EU-IMF Troika, it will not make any difference. A fresh pretext will be found.
#2 The Next Greek Election Could Bring An End To The Bailout Deal Overnight
The next national Greek elections are scheduled for April. Political parties opposed to the bailout have been surging in recent polls. It is becoming increasingly likely that the next Greek government will abandon this new deal entirely.
The following is what hedge fund manager Dennis Gartman told CNBC about what is likely to happen after the next elections….
“A new government is going to come to power following elections that shall take place sometime this spring, and if anyone anywhere believes that the next Greek government shall do anything other than abrogate all the agreements made with the ‘troika,’ then we have a bridge we’d like to sell them at a very high price”
With each passing day anger and frustration inside Greece continue to rise, and those that are currently holding power in Greece are becoming very unpopular.
One current member of Greek Parliament recently talked about what he thinks will happen in the aftermath of the next election….
“If we achieve a Left-dominated government, we will politely tell the Troika to leave the country, and we may need to discuss an orderly return to the Drachma”
#3 This Bailout Deal Is Going To Make Economic Conditions In Greece Even Worse
In a previous article, I listed some of the new austerity measures that are being imposed on Greece by this new agreement….
The EU and the IMF are demanding that Greece fire 15,000 more government workers immediately and a total of 150,000 government workers by 2015.
The EU and the IMF are demanding that wages for government workers be cut by another 20 percent.
The EU and the IMF are demanding that the minimum wage be slashed by more than 20 percent.
The EU and the IMF are also demanding significant reductions in unemployment benefits and pension benefits.
The austerity measures that have already been implemented over the past few years have already pushed Greece into an economic depression.
These new austerity measures will deepen that depression.
At the moment, the Greek national debt is sitting at about 160 percent of GDP.
We are being told that these new austerity measures will reduce that ratio to 120 percent by 2020, but already there are many in the financial world that are calling such a goal “comical“.
Even with this new deal, the Greek national debt is still completely and total unsustainable. A “confidential report” produced by analysts from the European Central Bank, the European Commission, and the International Monetary Fund says the following about what this new debt deal is likely to accomplish….
There are notable risks. Given the high prospective level and share of senior debt, the prospects for Greece to be able to return to the market in the years following the end of the new program are uncertain and require more analysis. Prolonged financial support on appropriate terms by the official sector may be necessary. Moreover, there is a fundamental tension between the program objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece competitiveness will inevitably lead to a higher debt to GDP ratio in the near term. In this context, a scenario of particular concern involves internal devaluation through deeper recession (due to continued delays with structural reforms and with fiscal policy and privatization implementation). This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020. Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.
The GDP of Greece fell by 6.8 percent during 2011.
2012 was already expected to be even worse, and all of these new austerity measures certainly are not going to help things.
And every time the Greek economy contracts that makes a chaotic debt default even more likely.
#4 The Greek Parliament Must Still Vote On This Bailout Deal
It is anticipated that the Greek Parliament will vote on this new agreement on Wednesday.
It is expected to pass.
But when it comes to Greece these days, there are no guarantees.
#5 The Greek Constitution Must Still Be Modified
Under the terms of this new agreement, Greece is being required to change its constitution.
The following is how an article in The Economist describes this requirement….
Over the next two months Greece has promised to adopt legislation “ensuring that priority is granted to debt-servicing payments”, with a view to enshrining this in the constitution “as soon as possible”. These arrangements may not amount to the budget “commissar” once threatened by some creditors, but the effect may be pretty much the same.
So will this actually get done?
We will see.
Forcing a sovereign country to modify its constitution is a very serious thing. If I was a Greek citizen, I would be highly insulted by this.
#6 Several European Parliaments Still Need To Approve This Deal
The German Parliament still must approve this new agreement. This is also the case for the Netherlands and Finland as well.
Many politicians in all three nations have been highly critical of the Greek bailouts.
It is expected that all of these parliaments will approve this deal, but you just never know.
#7 Private Investors Still Have To Agree To This New Deal
Private investors are being asked to take a massive “haircut” on Greek debt. The following is how the size of the “haircut” was described by a USA Today article….
Banks, pension funds and other private investors are being asked to forgive some €107 billion ($142 billion) of the total €206 billion ($273 billion) in devalued Greek government bonds they hold.
There is absolutely no guarantee that a solid majority of private investors will agree to this.
In the end, probably the only thing that is guaranteed is that litigation regarding this “haircut” is likely to stretch on for many years to come.
#8 The Global Financial Community Still Expects Greece To Default
Almost all of the analysts that were projecting a chaotic Greek debt default are still projecting one today. Yes, many of them believe that “the can has been kicked down the road” for a few months, but most of them are still convinced that a default by Greece is inevitable.
The following comes from a Bloomberg article that was released after the Greek debt deal was announced….
“The danger of Greece saving itself into economic depression and having to default and exit the common currency zone remains substantial,” said Christian Schulz, an economist at Berenberg Bank in London. Jennifer McKeown of Capital Economics Ltd. repeated her forecast that Greece will quit the euro by the end of the year.
The odds that this agreement will survive for very long are not great.
It will be nearly impossible for Greece to meet all of the conditions being imposed upon it by this new deal. All of the politicians in northern Europe that are just itching to cut off aid to Greece will soon have the excuse that they need for doing so.
And the Greek people could decide to bring all of this to an end very quickly. If they elect a new government in April that does not support this bailout agreement, the game will be over.
So don’t be fooled by all the headlines.
A chaotic Greek debt default has not been averted.
The truth is that a chaotic Greek debt default is now closer than ever.
 Any financial system that is based on debt is doomed to fail. Today, we are living in the greatest debt bubble that the world has ever seen, and if all of a sudden people could not use credit to buy things our economy would immediately ground to a halt. Unfortunately, no debt bubble can last forever. When this current debt bubble finally bursts, faith in the financial system is going to disappear, credit is going to freeze up and there is going to be a massive wave of bank failures. Right now, Greece is a warning sign for the world. Nobody wants to lend money to Greece, the Greek banking system is dying, one out of every four businesses has already shut down, unemployment is soaring and the Greek economy has now been in recession for five years in a row. Sadly, the economic implosion in Greece is rapidly accelerating. The Greek economy shrunk at a 7 percent annual rate during the 4th quarter of 2011. That wasn’t supposed to happen. Things were supposed to be getting better in Greece by now. But instead the Greek depression is getting even worse, and very soon the rest of the world is going to be going through what Greece is currently experiencing.
Unfortunately, most in the mainstream media are treating what is happening in Greece as an “isolated incident” rather than as a very serious warning sign for the world.
Thankfully, there are at least a few reporters out there that are realizing the gravity of the situation. The following is how one reporter from the New York Times recently described what life is like in Greece now….
By many indicators, Greece is devolving into something unprecedented in modern Western experience. A quarter of all Greek companies have gone out of business since 2009, and half of all small businesses in the country say they are unable to meet payroll. The suicide rate increased by 40 percent in the first half of 2011. A barter economy has sprung up, as people try to work around a broken financial system. Nearly half the population under 25 is unemployed. Last September, organizers of a government-sponsored seminar on emigrating to Australia, an event that drew 42 people a year earlier, were overwhelmed when 12,000 people signed up. Greek bankers told me that people had taken about one-third of their money out of their accounts; many, it seems, were keeping what savings they had under their beds or buried in their backyards. One banker, part of whose job these days is persuading people to keep their money in the bank, said to me, “Who would trust a Greek bank?”
Can you imagine?
Greece is experiencing a full-blown economic collapse and nobody can see a light at the end of the tunnel at this point.
As I have written about previously, the overall rate of unemployment in Greece has now risen above 20 percent and the youth unemployment rate in Greece has soared to an astounding 48 percent.
Deleveraging can be an extremely painful process. Greece has been forced to try to reduce the size of its budget deficit, but every time it cuts government spending that causes economic activity (and thus government revenues) to slow down as well.
Now the EU and the IMF are demanding that even more very painful austerity measures be implemented in Greece even though Greece is already experiencing a full-blown depression.
The EU and the IMF are demanding that Greece fire 15,000 more government workers immediately and a total of 150,000 government workers by 2015.
The EU and the IMF are demanding that wages for government workers be cut by another 20 percent.
The EU and the IMF are demanding that the minimum wage be slashed by more than 20 percent.
The EU and the IMF are also demanding significant reductions in unemployment benefits and pension benefits.
Of course all of those cuts are going to make the short-term economic conditions in Greece even worse.
The rioting, looting and burning of buildings that we are witnessing right now in Greece is likely to continue for quite some time as exasperated citizens attempt to express their frustrations to politicians that simply do not seem to care.
According to the National Confederation of Greek Commerce, recent rioting resulted in damage to 153 businesses in Athens. 45 of those businesses were totally destroyed.
You can view some stunning footage of the current rioting in Greece right here.
Despite all of the austerity measures that have already been implemented, the truth is that Greece is very likely to default soon anyway.
There is a very good chance that the new austerity agreement that the Greek parliament just approved will never be implemented. There are new elections scheduled for April and the current party in power is polling in the single digits.
The new Greek government is likely to look much different from the current one, and nobody knows for sure if the new government will follow through on any of the promises being made by the current government.
In addition, the German parliament must approve this new deal with Greece, and the German parliament is not scheduled to vote on it until February 27th. Considering the mood in Germany right now, approval is not guaranteed.
So there are all kinds of things that could go wrong with the “deals” that are currently being discussed. The truth is that a Greek default in the coming months seems to become more likely by the day.
Some in the financial world almost seem eager for a Greek default. The following is what Jon Moulton, the chairman of Better Capital, recently told CNBC….
“If I was Greek, I wouldn’t be going for these measures, I’d be going for default and getting it over with. Would you like two to three years of pain or 20?”
But a disorderly Greek default would not be a pleasant thing for the global economy at all. A recent article in the Guardian detailed what some of the consequences of a Greek default and exit from the eurozone might be….
But default and “re-drachmatisation” would be a costly and chaotic process. In the long term the euro might be strengthened if some of its weaker members headed for the door. But in the short term banks across the eurozone might have to be closed to prevent a run on the single currency as investors speculated about which country might be next. A new wave of bank nationalisations would be likely to follow as lenders counted their losses on now worthless Greek debt.
Capital controls would have to be imposed and borders shut to stop money flooding out of Greece. Portugal, Italy and Spain would come under intense pressure from investors wary about the risk of another victim. Banks everywhere, already reluctant to lend, would cut back hard, nervous about their exposure to the bonds of all Europe’s crisis-hit states.
And the financial crisis in Europe is going to continue to spread well beyond Greece. Moody’s Investors Service just downgraded the credit ratings of six European nations. The following is how Bloomberg described the downgrades….
Spain was downgraded to A3 from A1 with a negative outlook, Italy was downgraded to A3 from A2 with a negative outlook and Portugal was downgraded to Ba3 from Ba2 with a negative outlook, Moody’s said. It also reduced the ratings of Slovakia, Slovenia and Malta.
Countries such as Italy, Spain, Portugal, Ireland and Hungary are heading down the exact same road that Greece has gone. Greece was the first one to experience a full-blown depression, but soon Greece will have a lot of company.
Greece is most definitely a warning sign for the world. If you keep recklessly piling up debt, eventually a day of reckoning comes. It is inevitable.
But Barack Obama does not seem to understand this. He continues to pile another 150 million dollars on to our national debt every single hour. He knows that cutting spending significantly right now would hurt the economy and that would significantly hurt his chances for another term.
Needless to say, Barack Obama is not likely to do anything that is going to significantly hurt his chances for another four years in the White House.
So we continue to roll on toward disaster.
The U.S. financial system is like a car with no brakes that is heading straight toward a 5,000 foot drop at 100 miles an hour.
It is all going to seem like fun and games to some people until we hit the canyon floor.
Once that happens, nobody will be laughing.
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Broken Promises: Pensions All Over America Are Being Savagely Cut Or Are Vanishing Completely
There simply is not enough money out there to keep all of the pension commitments that have been made. Something has got to give. In the end, millions of elderly Americans will likely be plunged into poverty as pensions disappear.
Some local governments around the nation are already declaring bankruptcy and are either eliminating pensions or are cutting them very deeply. Just check out what just happened in Central Falls, Rhode Island….
When will the math catch up with the city where you are living?
For years and years most of our state and local politicians have been ignoring this problem. But eventually a day comes when you simply cannot ignore it any longer.
Check out what Pensacola Mayor Ashton Hayward said about the situation in his city recently….
Keep in mind that taxpayers don’t get any new services for money spent on pensions. It is money that goes straight into the pockets of retired workers. State and local governments are desperately trying to pay retired workers what they are owed and fund ongoing government functions at the same time, but many have reached the breaking point.
All over the country, state and local governments are going broke. The following is from a recent article by Duff McDonald….
Things are so bad in Stockton, California that they are actually skipping debt payments….
And did you notice what is being blamed for the financial problems in Stockton?
Pension and healthcare benefits.
Sadly, we are seeing pension nightmares erupt all over the nation right now.
For example, check out what is happening to the Public School Employees’ Retirement System and State Employees’ Retirement System in Pennsylvania….
That doesn’t sound good at all.
In California, the Orange County Employees Retirement System is estimated to have a 10 billion dollar unfunded pension liability.
How in the world can a single county be facing a 10 billion dollar hole?
This is madness.
The state of Illinois is facing an unfunded pension liability of more than 77 billion dollars. Considering the fact that the state of Illinois is flat broke and on the verge of default, it is inevitable that a lot of those pension obligations will never be paid.
In fact, there are going to be a whole lot of broken promises all over the country.
Pension consultant Girard Miller told California’s Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities.
That comes to about $22,000 for every single working adult in the state of California.
So where is all of that money going to come from?
But at least most state and local government employees are still covered by pension plans, even if they are failing.
In the private sector, pension plans are vanishing at lightning speed.
According to the Boston College Center for Retirement Research, the percentage of workers in America covered by a traditional pension plan fell from 62 percent in 1983 to 17 percent in 2007.
That isn’t just a trend.
That is a tidal wave.
And many of the private pension plans that still exist are massively underfunded. For example, Verizon’s pension plan is underfunded by 3.4 billion dollars.
So what should Americans do in light of all this?
Well, the number one thing to realize is that the pension plan you have been counting on could disappear at any time.
We live in an economic environment that is extremely unstable, and about the only thing you can count on in this environment is rapid and dramatic change.
Do not plan your financial future around a pension plan. If you do, you are likely to be bitterly disappointed.
Americans that plan to retire in the coming years should do their best to try to fund their own retirements.
Unfortunately, most Americans are not putting away much of anything for retirement. As I have written about previously, one study found that American workers are $6.6 trillion short of what they need to retire comfortably.
Ouch.
Over the next 20 years approximately 10,000 Baby Boomers will be retiring every single day.
A lot of them are going to be blindsided by empty pension funds and broken promises.
We are facing a retirement crisis of unprecedented magnitude, and there is not much hope in sight.
And if there is a major stock market crash, things are going to be much, much worse.
Most pension funds and retirement plans are heavily invested in the stock market. If we were to see a major financial crisis like we saw back in 2008 it would be absolutely devastating. Millions of Americans could see their retirement plans wiped out in short order.
Once again, please do not place your faith in the system.
If you do, you are likely to end up holding a bag of broken promises.
A gigantic tsunami of unfunded pension obligations is coming. A lot of state and local governments are going to go broke. A lot of promises are going to be broken.
If you hope to retire any time soon, you better plan on being able to take care of yourself.