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

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

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

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

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

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

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

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

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

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

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

Yes, you read that correctly.

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

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

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

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

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

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

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

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

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

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

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

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

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

Would You Like To Steal 128 Million Dollars?

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

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

But let’s turn this around for a moment.

What if someone stole 128 million dollars from you?

How would you feel about that?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Federal Reserve Is Monetizing A Staggering Amount Of U.S. Government Debt

Federal Reserve Balance SheetThe Federal Reserve is creating hundreds of billions of dollars out of thin air and using that money to buy U.S. government debt and mortgage-backed securities and take them out of circulation.  Since the middle of 2008, these purchases have caused the Fed’s balance sheet to balloon from under a trillion dollars to nearly four trillion dollars.  This represents the greatest central bank intervention in the history of the planet, and Janet Yellen says that she does not anticipate that it will end any time soon because “the recovery is still fragile”.  Of course, as I showed the other day, the truth is that quantitative easing has done essentially nothing for the average person on the street.  But what QE has done is that it has sent stocks soaring to record highs.  Unfortunately, this stock market bubble is completely and totally divorced from economic reality, and when the easy money is taken away the bubble will collapse.  Just look at what happened a few months ago when Ben Bernanke suggested that the Fed may begin to “taper” the amount of quantitative easing that it was doing.  The mere suggestion that the flow of easy money would start to slow down a little bit was enough to send the market into deep convulsions.  This is why the Federal Reserve cannot stop monetizing debt.  The moment the Fed stops, it could throw our financial markets into a crisis even worse than what we saw back in 2008.

The problems that plagued our financial system back in 2008 have never been fixed.  They have just been papered over temporarily by trillions of easy dollars from the Federal Reserve.  All of this easy money is keeping stocks artificially high and interest rates artificially low.

Right now, the Federal Reserve is buying approximately 85 billion dollars worth of U.S. government debt and mortgage-backed securities each month.  We are told that the portion going to buy U.S. government debt each month is approximately 45 billion dollars, but who knows what the Fed is actually doing behind the scenes.  In any event, by creating money out of thin air and using it to remove U.S. Treasury securities out of circulation, the Federal Reserve is essentially monetizing U.S. government debt at a staggering rate.

But Federal Reserve officials continue to repeatedly deny that what they are doing is monetizing debt.   For instance, Federal Reserve Bank of Atlanta President Dennis Lockhart strongly denied this back in April: “I object to the view that the Fed is monetizing the debt”.

How in the world can Fed officials possibly deny that they are monetizing the debt?

Well, because the Fed is promising that it is going to eventually sell back all of the securities that it is currently buying.

Since the Fed does not plan to keep all of this government debt on its balance sheet indefinitely, that means that they are not actually monetizing it according to their twisted logic.

Try not to laugh.

And of course that will never, ever happen.  There is no possible way that the Fed will ever be able to stop recklessly creating money and then turn around and sell off 3 trillion dollars worth of government debt and mortgage-backed securities that it has accumulated since 2008.  Just look at the chart posted below.  Does this look like something that the Federal Reserve will ever be able to “unwind”?…

Federal Reserve Balance Sheet

Remember, just the suggestion that the Fed would begin to slow down the pace of this buying spree a little bit was enough to send the financial markets into panic mode a few months ago.

If the Fed does decide to permanently stop quantitative easing at some point, stocks will drop dramatically and interest rates will skyrocket because there will be a lot less demand for U.S. Treasuries.  In fact, interest rates have already risen substantially over the past few months even though quantitative easing is still running.

Right now, the Fed is supplying a tremendous amount of the demand for U.S. debt securities in the marketplace.  According to Zero Hedge, Drew Brick of RBS recently made the following statement about the staggering amount of government debt that is currently being monetized by the Fed…

“On a rolling six-month average, in fact, the Fed is now responsible for monetizing a record 70% of all net supply measured in 10y equivalents. This represents a reliance on the Fed that is greater than ever before in history!

Overall, the Federal Reserve now holds 32.47 percent of all 10 year equivalents, and that percentage is rising by about 0.3 percent each week.

If the Federal Reserve does not keep doing this, the financial markets are going to crash because they are being propped up artificially by all of this funny money.

But if the Federal Reserve keeps doing this, it is going to become increasingly obvious to the rest of the world that the Fed is simply monetizing debt and is starting to behave like the Weimar Republic.

The remainder of the planet is watching what the Federal Reserve is doing very carefully, and they are starting to ask themselves some very hard questions.

Why should they continue to use our dollars to trade with one another when the Fed is wildly creating money out of thin air and rapidly devaluing the existing dollars that they are holding?

And why should they continue to lend us trillions of dollars at ultra-low interest rates that are way below the real rate of inflation when the U.S. government is already drowning in debt and the money that will be used to pay those debts back will be steadily losing value with each passing day?

The Federal Reserve is in very dangerous territory.  If the Fed wants the current system to continue, it is going to have to stop this reckless money printing at some point or else the rest of the world will eventually decide to stop participating in it.

If the Fed wants to go ahead and make quantitative easing a permanent part of our system, then eventually it will need to go all the way and start monetizing all of our debt.

Right now, the Fed is stuck in the middle of a “no man’s land” where it is monetizing a significant amount of U.S. government debt but it is trying to sell everyone else on the idea that it is not really monetizing debt.  This is a state of affairs that cannot go on indefinitely.

At some point, the Fed is going to have to make a decision.  And for now the Fed seems to be married to the idea that eventually things will get back to “normal” and they will stop monetizing debt.

Even Janet Yellen is admitting that quantitative easing “cannot continue forever”.

However, she also said on Thursday that it is important not to end quantitative easing too rapidly, “especially when the recovery is still fragile“.

Well, at this point quantitative easing has been going on in one form or another for about five years now.

Will it ever end?

And when it does, how bad will the financial crash be?

Meanwhile, with each passing day the faith that the rest of the world has in our dollar and in our financial system continues to erode.

If the Fed continues to behave this recklessly, it is inevitable that the rest of the globe will begin to move even more rapidly away from the U.S. dollar and will become much more hesitant to lend us money.

Ultimately, the Federal Reserve is faced with only bad choices.  The status quo is not sustainable, ending quantitative easing will cause the financial markets to crash, and going “all the way” with quantitative easing will just turn us into the Weimar Republic.

But anyone with half a brain should have been able to see that this debt-based financial system that the Federal Reserve is at the heart of was going to end tragically anyway.  The 100 year anniversary of the Federal Reserve is coming up, and the truth is that it should have been abolished long ago.

The consequences of decades of very foolish decisions are catching up with us, and this is all going to end very, very badly.

I hope that you are getting ready.

A Quadrillion Yen And Counting – The Japanese Debt Bomb Could Set Off Global Panic At Any Moment

Shibuya Crossing in Tokyo, JapanHow much is 1,000,000,000,000,000 yen worth?  Well, a quadrillion yen is worth approximately 10.5 trillion dollars.  It is an amount of money that is larger than the “the economies of Germany, France and the U.K. combined“.  It is such an astounding amount of debt that it is hard to even get your mind around it.  The government debt to GDP ratio in Japan will reach 247 percent this year, and the Japanese currently spend about 50 percent of all central government tax revenue on debt service.  Realistically, there are only two ways out of this overwhelming debt trap for the Japanese.  Either they default or they try to inflate the debt away.  At this point, the Japanese have chosen to try to inflate the debt away.  They have initiated the greatest quantitative easing experiment that a major industrialized nation has attempted since the days of the Weimar Republic.  Over the next two years, the Bank of Japan plans to zap 60 trillion yen into existence out of thin air and use it to buy government bonds.  By the time this program is over, the monetary base in Japan will have approximately doubled.  But authorities in Japan are desperate.  They know that the Japanese debt bomb could set off global panic at any time, and they are trying to find a way out that will not cause too much pain.

Unfortunately, the only way that this bizarre quantitative easing program will work is if investors in Japanese bonds act very, very irrationally.  You see, the only way that Japan has been able to pile up this much debt in the first place is because they have been able to borrow gigantic piles of money at super low interest rates.

Right now, the yield on 10 year Japanese bonds is sitting at an absurdly low 0.76%.  But even with such ridiculously low interest rates, the central government of Japan is still spending about half of all tax revenue on debt service.

If interest rates go up, the game is over.

But now that the Japanese government has announced that it plans to double the monetary base, it would be extremely irrational for investors not to demand higher rates on Japanese government debt.  After all, why would you want to loan money to the Japanese government for less than one percent a year when the purchasing power of your money could potentially be halved over the next two years?

Amazingly, this is exactly what the Japanese government is counting on.  They are counting on being able to wildly print up money and monetize debt, but also keep yields on Japanese bonds at insanely low levels at the same time.

For the moment, it is actually working.  Investors in Japanese bonds are behaving very, very irrationally.

But if that changes at some point, we could potentially be looking at the greatest Asian economic crisis of all time.

And there are some very sharp minds out there that believe that is exactly what is going to happen.

For example, the founder of Hayman Capital Management, Kyle Bass, has been sounding the alarm about Japan for a long time.  He correctly predicted the subprime mortgage meltdown, and in the process he made hundreds of millions of dollars for his clients.  Now he believes that the next major crash is going to be in Japan.

According to Bass, the bond bubble in Japan is so large that once it begins to implode fear is going to start spreading like wildfire…

Remember, Japanese banks in general have 900% of their tangible assets invested in JGBs that are the most negatively convex instrument you can put into a portfolio. Assume for instance that a bank holds a 10 year bond yielding 80 basis points. A 100 basis point move will cost the JGB investor about 10 years of expected interest payments.

Think about the psychology of all the players and financial implications if rates do move 100 basis points. Think about the solvency of a nation which currently spends 50% of its central government tax revenues on debt service, half of which earns the lowest yields of any country in the world.

You can’t look at this as a simple question. You need to think about this as a multivariate equation. You have to think about the incentives and the fears of all the participants. And you need to think about the fiscal sustainability of the government.

If rates even rise by a full percentage point, it could start a stampede toward the exits that nobody in the entire world would be able to control…

I ran a survey of 1,009 Japanese investors where we asked: “If rates were to move up 100 basis points, would that engender more confidence and make you want to buy more JGBs?” or, “Would you take your money elsewhere, even if it were hamstringing your government’s ability to operate?” 8 – 9% of respondents that said that they would buy more bonds and almost 80% said they would run, not walk the other way.

For much more on this, you can watch a video of Kyle Bass discussing why Japan is doomed right here.

And of course Japan is not the only “debt bomb” that could potentially go off over in Asia.  As I mentioned in another article, the major problem over in China is the level of private debt…

In China, the big problem is the absolutely stunning growth of private domestic debt.  According to a recent World Bank report, the total amount of credit in China has risen from 9 trillion dollars in 2008 to 23 trillion dollars today.

That increase is roughly equivalent to the entire U.S. commercial banking system.

There is simply way, way too much debt in our world today.  Never before has there been so much red ink all over the planet at the same time.

Many in the mainstream media insist that this party can go on indefinitely.

But that is what they said about the housing bubble too.

Sadly, the truth is that every financial bubble eventually bursts, and this global debt bubble will be no exception.

I hope that you are getting prepared while you still can.

Farewell Bernanke – Thanks For Inflating The Biggest Bond Bubble The World Has Ever Seen

Barack Obama And Ben BernankeFederal Reserve Chairman Ben Bernanke is on the way out the door, but the consequences of the bond bubble that he has helped to create will stay with us for a very, very long time.  During Bernanke’s tenure, interest rates on U.S. Treasuries have fallen to record lows.  This has enabled the U.S. government to pile up an extraordinary amount of debt.  During his tenure we have also seen mortgage rates fall to record lows.  All of this has helped to spur economic activity in the short-term, but what happens when interest rates start going back to normal?  If the average rate of interest on U.S. government debt rises to just 6 percent, the U.S. government will suddenly be paying out a trillion dollars a year just in interest on the national debt.  And remember, there have been times in the past when the average rate of interest on U.S. government debt has been much higher than that.  In addition, when the U.S. government starts having to pay more to borrow money so will everyone else.  What will that do to home sales and car sales?  And of course we all remember what happened to adjustable rate mortgages when interest rates started to rise just prior to the last recession.  We have gotten ourselves into a position where the U.S. economy simply cannot afford for interest rates to go up.  We have become addicted to the cheap money made available by a grossly distorted financial system, and we have Ben Bernanke to thank for that.  The Federal Reserve is at the very heart of the economic problems that we are facing in America, and this time is certainly no exception.

This week Barack Obama publicly praised Ben Bernanke and stated that Bernanke has “already stayed a lot longer than he wanted” as Chairman of the Federal Reserve.  Bernanke’s term ends on January 31st, but many observers believe that he could leave even sooner than that.  Bernanke appears to be tired of the job and eager to move on.

So who would replace him?  Well, the mainstream media is making it sound like the appointment of Janet Yellen is already a forgone conclusion.  She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is good for an economy.  It seems likely that she would continue to take us down the path that Bernanke has taken us.

But is it a fundamentally sound path?  Keeping interest rates pressed to the floor and wildly printing money may be producing some positive results in the short-term, but the crazy bubble that this is creating will burst at some point.  In fact, the director of financial stability for the Bank of England, Andy Haldane, recently admitted that the central bankers have “intentionally blown the biggest government bond bubble in history” and he warned about what might happen once it ends…

“If I were to single out what for me would be biggest risk to global financial stability right now it would be a disorderly reversion in the yields of government bonds globally.” he said. There had been “shades of that” in recent weeks as government bond yields have edged higher amid talk that central banks, particularly the US Federal Reserve, will start to reduce its stimulus.

“Let’s be clear. We’ve intentionally blown the biggest government bond bubble in history,” Haldane said. “We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted.”

Posted below is a chart that demonstrates how interest rates on 10-year U.S. Treasury bonds have fallen over the last several decades.  This has helped to fuel the false prosperity that we have been enjoying, but there is no way that the U.S. government should have been able to borrow money so cheaply.  This bubble that we are living in now is setting the stage for a very, very painful adjustment…

Interest Rate On 10 Year U.S. Treasuries

So what will that “adjustment” look like?

The following analysis is from a recent article by Wolf Richter

Ten-year Treasury notes have been kicked down from their historic pedestal last July when some poor souls, blinded by the Fed’s halo of omnipotence and benevolence, bought them at a minuscule yield of 1.3%. For them, it’s been an ice-cold shower ever since. As Treasuries dropped, yields meandered upward in fits and starts. After a five-week jump from 1.88% in early May, they hit 2.29% on Tuesday last week – they’ve retreated to 2.19% since then. Now investors are wondering out loud what would happen if ten-year Treasury yields were to return to more normal levels of 4% or even 5%, dragging other long-term interest rates with them. They know what would happen: carnage!

And according to Richter, there are already signs that the bond bubble is beginning to burst…

Wholesale dumping of Treasuries by exasperated foreigners has already commenced. Private foreigners dumped $30.8 billion in Treasuries in April, an all-time record. Official holders got rid of $23.7 billion in long-term Treasury debt, the highest since November 2008, and $30.1 billion in short-term debt. Sell, sell, sell!

Bond fund redemptions spoke of fear and loathing: in the week ended June 12, investors yanked $14.5 billion out of Treasury bond funds, the second highest ever, beating the prior second-highest-ever outflow of $12.5 billion of the week before. They were inferior only to the October 2008 massacre as chaos descended upon financial markets. $27 billion in two weeks!

In lockstep, average 30-year fixed-rate mortgage rates jumped from 3.59% in early May to 4.15% last week. The mortgage refinancing bubble, by which banks have creamed off billions in fees, is imploding – the index has plunged 36% since early May.

If interest rates start to climb significantly, that will have a dramatic affect on economic activity in the United States.

And we have seen this pattern before.

As Robert Wenzel noted in a recent article on the Economic Policy Journal, we saw interest rates rise suddenly just prior to the October 1987 stock market crash, and we also saw them rise substantially prior to the financial crisis of 2008…

As Federal Reserve chairman Paul Volcker left the Fed chairmanship in August 1987, the interest rate on the 10 year note climbed from 8.2% to 9.2% between June 1987 and September 1987. This was followed, of course by the October 1987 stock market crash.

As Federal Reserve chairman Alan Greenspan left the Fed chairmanship at the end of January 2006, the interest rate on the 10 year note climbed from 4.35% to 4.65%. It then climbed above 5%.

So keep a close eye on interest rates in the months ahead.  If they start to rise significantly, that will be a red flag.

And it makes perfect sense why Bernanke is looking to hand over the reins of the Fed at this point.  He can probably sense the carnage that is coming and he wants to get out of Dodge while he still can.

QE3? Several Top Federal Reserve Officials Seem To Think That More Quantitative Easing Is Necessary

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.

25 Questions To Ask Anyone Who Is Delusional Enough To Believe That This Economic Recovery Is Real

If you listen to the mainstream media long enough, you just might be tempted to believe that the United States has emerged from the recession and is now in the middle of a full-fledged economic recovery.  In fact, according to Obama administration officials, the great American economic machine has roared back to life, stronger and more vibrant than ever before.  But is that really the case?  Of course not.  You would have to be delusional to believe that.  What did happen was that all of the stimulus packages and government spending and new debt that Obama and the U.S. Congress pumped into the economy bought us a little bit of time.  But they have also made our long-term economic problems far worse.  The reality is that the U.S. cannot keep supporting an economy on an ocean of red ink forever.  At some point the charade is going to come crashing down. 

And GDP is not a really good measure of the economic health of a nation.  For example, if you would have looked at the growth of GDP in the Weimar republic in the early 1930s, you may have been tempted to think that the German economy was really thriving.  German citizens were spending increasingly massive amounts of money.  But of course that money was becoming increasingly worthless at the same time as hyperinflation spiralled out of control.

Well, today the purchasing power of our dollar is rapidly eroding as the price of food and other necessities continues to increase.  So just because Americans are spending a little bit more money than before really doesn’t mean much of anything.  As you will see below, there are a whole bunch of other signs that the U.S. economy is in very, very serious trouble. 

Any “recovery” that the U.S. economy is experiencing is illusory and will be quite temporary.  The entire financial system of the United States is falling apart, and the powers that be can try to patch it up and prop it up for a while, but in the end this thing is going to come crashing down.

But as obvious as that may seem to most of us, there are still quite a few people out there that are absolutely convinced that the U.S. economy will fully recover and will soon be stronger than ever.

So the following are 25 questions to ask anyone who is delusional enough to believe that this economic recovery is real….  

#1) In what universe is an economy with 39.68 million Americans on food stamps considered to be a healthy, recovering economy?  In fact, the U.S. Department of Agriculture forecasts that enrollment in the food stamp program will exceed 43 million Americans in 2011.  Is a rapidly increasing number of Americans on food stamps a good sign or a bad sign for the economy?

#2) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March.  This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005.  So can you please explain again how the U.S. real estate market is getting better?

#3) The Mortgage Bankers Association just announced that more than 10 percent of U.S. homeowners with a mortgage had missed at least one payment in the January-March period.  That was a record high and up from 9.1 percent a year ago.  Do you think that is an indication that the U.S. housing market is recovering?

#4) How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together?

#5) With the U.S. Congress planning to quadruple oil taxes, what do you think that is going to do to the price of gasoline in the United States and how do you think that will affect the U.S. economy?

#6) Do you think that it is a good sign that Arnold Schwarzenegger, the governor of the state of California, says that “terrible cuts” are urgently needed in order to avoid a complete financial disaster in his state?

#7) But it just isn’t California that is in trouble.  Dozens of U.S. states are in such bad financial shape that they are getting ready for their biggest budget cuts in decades.  What do you think all of those budget cuts will do to the economy?

#8) In March, the U.S. trade deficit widened to its highest level since December 2008.  Month after month after month we buy much more from the rest of the world than they buy from us.  Wealth is draining out of the United States at an unprecedented rate.  So is the fact that the gigantic U.S. trade deficit is actually getting bigger a good sign or a bad sign for the U.S. economy?

#9) Considering the fact that the U.S. government is projected to have a 1.6 trillion dollar deficit in 2010, and considering the fact that if you went out and spent one dollar every single second it would take you more than 31,000 years to spend a trillion dollars, how can anyone in their right mind claim that the U.S. economy is getting healthier when we are getting into so much debt?

#10) The U.S. Treasury Department recently announced that the U.S. government suffered a wider-than-expected budget deficit of 82.69 billion dollars in April.  So is the fact that the red ink of the U.S. government is actually worse than projected a good sign or a bad sign?

#11) According to one new report, the U.S. national debt will reach 100 percent of GDP by the year 2015.  So is that a sign of economic recovery or of economic disaster?

#12) Monstrous amounts of oil continue to gush freely into the Gulf of Mexico, and analysts are already projecting that the seafood and tourism industries along the Gulf coast will be devastated for decades by this unprecedented environmental disaster.  In light of those facts, how in the world can anyone project that the U.S. economy will soon be stronger than ever?

#13) The FDIC’s list of problem banks recently hit a 17-year high.  Do you think that an increasing number of small banks failing is a good sign or a bad sign for the U.S. economy?

#14) The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke.  So what do you think will happen if a significant number of small banks do start failing?

#15) Existing home sales in the United States jumped 7.6 percent in April.  That is the good news.  The bad news is that this increase only happened because the deadline to take advantage of the temporary home buyer tax credit (government bribe) was looming.  So now that there is no more tax credit for home buyers, what will that do to home sales? 

#16) Both Fannie Mae and Freddie Mac recently told the U.S. government that they are going to need even more bailout money.  So what does it say about the U.S. economy when the two “pillars” of the U.S. mortgage industry are government-backed financial black holes that the U.S. government has to relentlessly pour money into?

#17) 43 percent of Americans have less than $10,000 saved for retirement.  Tens of millions of Americans find themselves just one lawsuit, one really bad traffic accident or one very serious illness away from financial ruin.  With so many Americans living on the edge, how can you say that the economy is healthy?

#18) The mayor of Detroit says that the real unemployment rate in his city is somewhere around 50 percent.  So can the U.S. really be experiencing an economic recovery when so many are still unemployed in one of America’s biggest cities?

#19) Gallup’s measure of underemployment hit 20.0% on March 15th.  That was up from 19.7% two weeks earlier and 19.5% at the start of the year.  Do you think that is a good trend or a bad trend?

#20) One new poll shows that 76 percent of Americans believe that the U.S. economy is still in a recession.  So are the vast majority of Americans just stupid or could we still actually be in a recession?

#21) The bottom 40 percent of those living in the United States now collectively own less than 1 percent of the nation’s wealth.  So is Barack Obama’s mantra that “what is good for Wall Street is good for Main Street” actually true?

#22) Richard Russell, the famous author of the Dow Theory Letters, says that Americans should sell anything they can sell in order to get liquid because of the economic trouble that is coming.  Do you think that Richard Russell is delusional or could he possibly have a point?

#23) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010.  In fact, that was almost twice the level of a year earlier.  Does that look like a good trend to you?

#24) In March, the price of fresh and dried vegetables in the United States soared 49.3% – the most in 16 years.  Is it a sign of a healthy economy when food prices are increasing so dramatically?

#25) 1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008.  Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005.  So shouldn’t we at least wait until the number of Americans filing for bankruptcy is not setting new all-time records before we even dare whisper the words “economic recovery”?

Get Ready To Taste The Bitter Side Of Keynesian Economics

Most Americans have no idea what the term “Keynesian economics” means, but the truth is that it has been deeply influencing U.S. economic policy for decades.  Essentially, it is an economic theory that originated with a 20th century British economist named John Maynard Keynes, and it advocates government intervention in the economy in order to smooth out economic cycles.  The general idea was that lower interest rates and increased government spending could be used to increase aggregate demand when the economy was experiencing a downturn, thus increasing economic activity and reducing unemployment.

And you know what?

To a certain degree, Keynesian economic theory actually does work.

Increased government spending DOES stimulate the economy.

But the problem is that governments all over the world decided that they would just run constant budget deficits and stimulate the economy all the time.

All of this debt has brought a temporary prosperity to many of the nations around the globe, but there is one huge problem with debt.

It has to be paid back eventually.

With interest.

So what happens when nations have to start spending huge chunks of their national budgets just to service all the debt that they have piled up?

Well, that is when they taste the bitter side of Keynesian economics.

In fact, we see that starting to happen all over the world right now.

All of a sudden, governments all over the globe are talking about huge budget cuts, pay decreases, and higher taxes.

We all know about what is going on in Greece right now, but suddenly it seems like “austerity measures” are being implemented all over the place.  Just consider the following examples….

*Portugal has pledged to impose fresh austerity measures that include much higher taxes and dramatic budget cuts.

*Barack Obama is personally pressuring Spain to make severe austerity cuts.

*It’s not just Southern Europe that is facing these austerity measures either.  It is being reported that Germans are bracing themselves for a “bitter” round of budget cuts.

*The exploding debt situation in the U.K.was a major issue in the most recent election.  Bank of England governor Mervyn King has even gone so far as to warn that public anger over the “austerity measures” that soon must be implemented in the U.K. will be so painful that whichever party is seen as responsible will be out of power for a generation.

*Federal Reserve Chairman Ben Bernanke says that United States citizens will soon have to make difficult choices between higher taxes and reduced government spending.

*California Governor Arnold Schwarzenegger is reportedly planning to seek “terrible cuts” to eliminate an $18.6 billion budget deficit facing the most-populous U.S. state through June 2011.

*In fact, many U.S. states are getting ready for their biggest budget cuts in decades.

Austerity measures for everyone?

That is the way it is shaping up.

So what happens when austerity measures are implemented?

Well, just as Keynesian economics correctly predicts that economic growth goes up when government spending increases, it also correctly tells us that economic growth goes down when government spending decreases.

So all of these austerity measures are going to mean economic pain for a whole lot of people.

Not only that, but there are now whispers that this European debt crisis could potentially cause the break up of the euro.

Whether or not that is actually the case, officials in Europe are sure seizing on this crisis to advocate for increased centralization of power in the EU.

For example, senior administrators of the European Union are proposing that they be given unprecedented power to scrutinize the spending plans of member countries before national parliaments can vote on those budgets.

Talk about a loss of sovereignty.

But not only that, the Governor of the Bank of England, Mervyn King, has come right out and said that he believes that the European Union must become a federalized fiscal union if it is to survive.

Doesn’t it seem like whenever there is a crisis the solution that is always being proposed is to give centralized institutions even more power?

There has also been talk that nations such as Greece could end up being ejected from the euro, but the reality is that such a scenario is not very likely.

For one thing, the ECB has already come out and said that under current EU law, ejection of a nation from the monetary union is “legally next to impossible”.

In addition, leaders throughout Europe realize that if the euro fails then the entire EU may fail as well.  German Chancellor Angela Merkel made this very clear when she recently warned that if the euro collapses, “then Europe and the idea of European union will fail.”

For many in Europe that would seem like a disaster, but the truth is that it would be a wonderful, wonderful thing if the euro failed.

Why?

Because it would represent a major defeat for those who are seeking to drag us towards a “world currency” and a “global government”.

It would also be a huge victory for those who still believe in national sovereignty and the decentralization of economic power.

So let us hope that the euro breaks up.

But don’t count on it.

Meanwhile, the one thing that we can count on is all of the economic pain that all of these new austerity measures are going to bring.

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