The Beginning Of The End
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All Of This Whining About The Fiscal Cliff Is Pathetic

The fiscal cliff is coming!  Run for the hills!  There have been endless stories in the mainstream media about the “fiscal cliff” that our country is facing if the Democrats and the Republicans can’t come to some sort of an agreement.  If there is no agreement, taxes will go up and government spending will be reduced by a very small amount.  And yes, that would likely push the U.S. economy into another recession, although there are many that would argue that we are already in a recession right now.  In any event, there is a tremendous amount of distress out there about the fact that something might interrupt the debt-fueled prosperity that we have all been enjoying.  You can almost hear them now: “No! Please don’t cut government spending! Please don’t raise taxes! Please keep stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day so that we can continue this economic illusion that feels so very good.”  The American people want the government to give everything to everybody, but they definitely do not want to pay for it.  They want a big government that showers them with government checks and government benefits, but they don’t want to cough up the ridiculous amount of money that it would take to fund such a government.  So we just keep ripping off our kids and our grandkids.  What we are doing to future generations is not just immoral, it is criminal.  If they get the chance, someday they will look back and curse us for destroying their futures and destroying their country.  So why do we continue to do this to them?  Because we are greedy and selfish and we are absolutely desperate to maintain the massively overinflated standard of living that we have been enjoying.  We have lived way above our means for so long that we don’t even know what “normal” is supposed to be anymore.

But nobody can spend far more money than they bring in forever.  At some point an adjustment comes, and our adjustment is going to be exceedingly painful.

Right now, the overwhelming consensus in the United States seems to be that we should put off any economic pain for as long as possible.  The American people don’t want significant cuts to government spending and they don’t want taxes to be raised to pay for the spending that we are already doing.

But if the Republicans and the Democrats don’t agree to a deal soon, we are going to see taxes raised substantially and government spending cut by a little bit.  A recent CBS News article did a good job of describing exactly what this “fiscal cliff” that we are facing actually is…

There are two parts to the so-called fiscal cliff. The first is the scheduled expiration of the tax cuts enacted in 2001 and 2003 under President George W. Bush, the payroll tax holiday enacted under President Obama, and a host of other tax breaks. The second is $1.2 trillion in automatic spending cuts to defense and domestic programs that are looming due to a 2011 deal that resulted from House Republicans’ reluctance to raise the debt limit.

Now, it’s true that if lawmakers fail to work out any sort of deal, there will be severe long-term consequences for the economy: According to the Tax Policy Center, going off the “cliff” would affect 88 percent of U.S. taxpayers, with their taxes rising by an average of $3,500 a year. Many economists, as well as the nonpartisan Congressional Budget Office, say the combination of spending cuts and tax hikes that are set to take effect would tip the economy into a new recession.

Please keep in mind that the “$1.2 trillion in automatic spending cuts” is not for a single year.  When you break it down, the cuts to spending would be somewhere around 100 billion dollars a year.  And a lot of those “cuts” are actually spending increases that would be cancelled.  So those spending cuts would not really put much of a dent in our yearly budget deficits at all.

The tax increases would be more significant.  Middle class families would be paying thousands of dollars more per year in taxes.  These tax increases would raise some more revenue for the federal government, but they would also do significant damage to the economy in the short-term.

Do you know what they call a combination of government spending cuts and tax increases over in Europe?

They call it “austerity”.

Nations like Greece and Spain have tried this.  They cut spending and raised taxes in an attempt to reduce government budget deficits.  What happens is that the spending cuts and the tax increases cause a significant economic slowdown and this causes tax revenues to come in much lower than projected.  So then more spending cuts and tax hikes are necessary in order to try to get closer to balancing the budget.  But then tax revenues fall even more.

In the end, both Greece and Spain still have large budget deficits and yet the economies of both nations are suffering through depression-like conditions.  The unemployment rate in both nations is now over 25 percent.  Just check out this chart right here to see how nightmarish austerity has been for the economies of both Greece and Spain.

So that is why everybody is freaking out about the fiscal cliff.  They don’t want to go down the same road of austerity.  They want to keep living in an economic fantasy land where we can borrow our way to “prosperity”.

But it is all a lie.  The lines at the Apple stores, the crazed consumers on Black Friday, the restaurants teeming full with people and the government that thinks that it can take care of everyone from the cradle to the grave and yet keep taxes low.  It is all a giant lie.

And no, please do not think that I am in favor of raising taxes.  I most definitely am not.  I believe that the government brings in more than enough money already.

Personally, I believe that we could have a system that completely eliminates income taxes and that funds the government through tariffs and various other forms of taxation.  It was good enough for the Founding Fathers and it should be good enough for us.  But that is a subject for another article.

Our current system has allowed us to live way beyond our means for an extended period of time, but it is only a matter of time until it all comes crashing down.

In fact, the game is already over.  We have already destroyed the future.  At this point it is only a matter of how long we can keep kicking the can down the road and putting off the pain.

Sadly, what we have done on a national level is simply a reflection of our “buy now, pay later” society.  We have become a nation that is constantly willing to sacrifice the future in order to make the present more pleasant.

Just check out this video.  We have become addicted to a prosperity that we cannot possibly pay for.  But as long as someone will keep lending us the money we will continue to enjoy it.

As I have mentioned previously, the government has spent about 11 dollars for every 7 dollars of revenue that it has actually brought in while Barack Obama has been president.

We print, borrow and spend without giving any thought to what we are doing to the future of this country.  We are shredding confidence in our currency and we are wrecking the greatest economic machine that the world has ever seen.

And all of our politicians and all of our “leaders” prance about as if they are the smartest generation of Americans ever, and they think that they are an “example” for the rest of the world, but if our Founding Fathers were around today they would be absolutely horrified about what they have done to the country that they built.

If you think that the economy is bad now, you just wait.

We are still in the “economic fantasy land” phase where we are enjoying a massively inflated standard of living constructed on a mountain of borrowed fiat currency.  Our economy is being held up by trillions of borrowed dollars, and all of that money makes the U.S. economy appear to be far more prosperous than it actually should be.

When we have to start living closer to what our real standard of living should be things are going to get really bad.

Most Americans simply don’t understand that if the federal government went to a balanced budget tomorrow it would instantly plunge the U.S. economy into a depression.

Just look at Greece and Spain.  The same thing is going to happen to us one way or another.

So enjoy this false prosperity while you still can.  This is about as good as things are going to get, and from here on out it is downhill for America.

The Man Without A Plan

Barack Obama is a man without a plan.  When you are young, they often tell you to “fake it until you make it”, but Barack Obama is taking this to ridiculous extremes.  Barack Obama has absolutely no idea what he is doing when it comes to the economy, and yet he continues to give speeches in which he declares that he is the man for the job.  The State of the Union speech the other night was just abysmal.  The federal government is spending way too much money, and yet Barack Obama is proposing even more government spending.  Entrepreneurs and small businesses are being taxed into oblivion and yet Barack Obama is proposing even higher taxes.  Our economy is being strangled to death by crippling regulations, and yet Barack Obama is proposing a vast array of new regulations.  Barack Obama always gives a nice speech, but it has become appallingly evident that he is totally out of ideas.  So our country will continue to drift aimlessly along without a direction and without a plan until the next financial tsunami comes along and makes things even worse.

And the American people are starting to clue in to the fact that Obama does not have a plan and does not have anything new to say.  Just check out how the audiences for his State of the Union addresses have declined each year….

2009: 52.3 million

2010: 48 million

2011: 42.8 million

2012: 37.8 million

His ratings are falling almost as fast as the ratings for American Idol are.

It is amazing how Barack Obama can use so many words to say so very little.

He always tickles our ears but then he never delivers the goods.  Toward the beginning of his speech the other night, he made the following statement….

“Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that’s built to last—an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values”

Well, that sounds pretty good.  Except for the fact that everything he has done for the past 3 years has been the exact opposite of that.

It is almost as if he woke up that morning and decided that he would try the whole “do the opposite” thing once made famous by George Costanza on Seinfeld.

Obama says that our employment situation is getting better, but that is not really true.  The only way that the federal government can claim that there is an 8.5 percent unemployment rate is because they have decided that millions of Americans that have been unemployed for a long time should not be considered “part of the workforce” any longer.

If the number of Americans that were considered to be part of the workforce was the same today as it was back in 2007, the “official” unemployment rate put out by the U.S. government would be up to approximately 11 percent.

Sadly, the number of Americans that are dependent on the government continues to soar even higher.

Since Barack Obama took office, the number of Americans on food stamps has actually increased by 14 million.

Things have not gotten better for average Americans.

They have gotten worse.

In fact, 10 million more Americans have fallen below the poverty line since 2006.  And in 2010, more Americans fell into poverty than ever before.

A lot of people out there are really hurting, and the American people deserve some real answers.

But instead, Obama was saying stuff like this the other night….

“I intend to fight obstruction with action, and I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place”

Oh really?

What is Obama actually doing about the things that caused the last financial crisis?

The “financial reform” bill was a complete and total joke.  Obama has been shamefully soft on the big Wall Street banks that caused the last crisis.

Today, the “too big to fail” banks are larger than ever.  The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.

So now they are more of a danger to the financial system than ever.

And not a single Wall Street executive has gone to jail for what they did during the last financial crisis.

Thanks Obama.

But of course Obama was never going to seriously go after Wall Street.

After all, they are the ones that fund his campaigns.

Most Americans don’t realize this, but 3 of the top 7 donors to Obama’s campaign in 2008 were “too big to fail” banks.

And the Obama administration has been absolutely packed with ex-Wall Street bankers.  Last year, Michael Brenner wrote the following about the composition of the Obama administration….

Wall Street’s takeover of the Obama administration is now complete. The mega-banks and their corporate allies control every economic policy position of consequence. Mr. Obama has moved rapidly since the November debacle to install business people where it counts most. Mr.William Daley from JP Morgan Chase as White House Chief of Staff. Mr. Gene Sperling from the Goldman Sachs payroll to be director of the National Economic Council. Eileen Rominger from Goldman Sachs named director of the SEC’s Investment Management division. Even the National Security Advisor, Thomas Donilon, was executive vice president for law and policy at the disgraced Fannie Mae after serving as a corporate lobbyist with O’Melveny & Roberts. The keystone of the business friendly team was put in place on Friday. General Electric Chairman and CEO Jeffrey Immelt will serve as chair of the president’s Council on Jobs and Competitiveness.

During his State of the Union address, Obama also promised to bring manufacturing jobs back to America….

“Think about the America within our reach: A country that leads the world in educating its people. An America that attracts a new generation of high-tech manufacturing and high-paying jobs”

That sounds great, except for the fact that Obama has been doing everything he can to get more American jobs shipped out of the country.

The Obama administration has been aggressively pushing new “free trade” agreements with Panama, South Korea and Colombia.  The Obama administration has also made the Trans-Pacific Partnership (“the NAFTA of the Pacific“) an extremely high priority.

And of course we have all seen how wonderfully the first NAFTA worked out.

Our “free trade” policies have been an absolute nightmare for the American worker.

During 2010, an average of 23 manufacturing facilities a day shut down in the United States.  Overall, more than 56,000 manufacturing facilities in the United States have shut down since 2001.

We are bleeding jobs at a pace that is hard to believe.

Amazingly, the United States has lost an average of 50,000 manufacturing jobs a month since China joined the World Trade Organization in 2001.

Yet Obama promises more of the same and that is  supposed to help?

During his speech, Obama correctly noted that many foreign manufacturers are heavily subsidized….

“It’s not fair when foreign manufacturers have a leg up on ours, only because they’re heavily subsidized”

So are we going to deeply penalize those that have been cheating?

Are we going to warn them that we will stop trading with them unless they stop?

Of course not.

Obama is going to do next to nothing to stop what China and other predatory nations are doing to us.

Today, the United States spends approximately 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States, and the U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

But the Obama administration doesn’t seem to care much about these things.

In fact, just check out what U.S. Trade Representative Ron Kirk told Tim Robertson of the Huffington Post about the Obama administration’s attitude toward keeping manufacturing jobs in America….

Let’s increase our competitiveness… the reality is about half of our imports, our trade deficit is because of how much oil [we import], so you take that out of the equation, you look at what percentage of it are things that frankly, we don’t want to make in America, you know, cheaper products, low-skill jobs that frankly college kids that are graduating from, you know, UC Cal and Hastings [don’t want], but what we do want is to capture those next generation jobs and build on our investments in our young people, our education infrastructure.

Oh, but Obama now says that he is going to toughen up on trade….

“I’m announcing the creation of a Trade Enforcement Unit that will be charged with investigating unfair trading practices in countries like China. There will be more inspections”

Oh boy – “inspections” – yeah, that is really going to have the Chinese shaking in their boots.

Meanwhile, the Chinese just keep hitting us with new tariffs.  According to the New York Times, a Jeep Grand Cherokee that costs $27,490 in the United States will now cost about $85,000 in China thanks to these new tariffs.

So is Obama going to hit China with tough new tariffs in return?

Of course not.

Meanwhile, our economy continues to bleed businesses and jobs.  According to Professor Alan Blinder of Princeton University, 40 million more U.S. jobs could be sent offshore over the next two decades if current trends continue.

But if you listen to Obama, he makes it seem like many of our industries are in better shape than ever….

“We bet on American ingenuity, and tonight the American auto industry is back.”

Yes, the American auto industry is no longer on the brink of bankruptcy, but it is not “back”.  Just consider the following stats….

*In 1970, General Motors had about a 60 percent share of the U.S. automobile market.  Today, that figure is down to about 20 percent.

*Back in 2000, about 17 million new automobiles were sold in the United States.  During 2011, less than 13 million new automobiles were sold in the United States.

*Japan builds more cars than anyone else on the globe.  Japan now manufactures about 5 million more automobiles than the United States does.

*Since Alan Mulally became CEO of Ford, the company has reduced its North American workforce by nearly half.

*In the year 2000, the U.S. auto industry employed more than 1.3 million Americans.  Today, the U.S. auto industry employs about 698,000 people.

Obama bailed out the auto industry, and they responded by sending even more of our jobs overseas.

During his speech, Obama declared that there will be no more bailouts….

“No bailouts, no handouts, and no copouts.”

That is kind of funny because Obama is basically the all-time champion of handing out bailouts.

If Barack Obama and John McCain had not aggressively pushed for the Wall Street bailouts back in 2008, they never would have happened.

And once Obama became president, there was a seemingly endless parade of bailouts and “stimulus packages”.

So what do you honestly think he will do when the next financial crisis happens?  Do you think he would actually be able to resist the temptation for more bailouts?

Obama also says that he wants to spend more money on training for American workers….

“Join me in a national commitment to train two million Americans with skills that will lead directly to a job.”

But the American people already have enough training.  There are tons of college-educated Americans that are among the ranks of the unemployed right now.

What the American people need are jobs.

Unfortunately, jobs are leaving this country at an unprecedented pace.

Back in the year 2000, more than 20 percent of all jobs in America were manufacturing jobs.  Today, about 5 percent of all jobs in America are manufacturing jobs.

Not only that, but our incomes are also going down.  Because U.S. workers now have to compete for jobs with workers that make slave labor wages on the other side of the globe, pay in this country continues to decline.

A recent White House reported entitled “Investing in America: Building an Economy That Lasts” actually bragged that our trade policies have driven wages in America down.  The following chart is from that report….

The Obama administration has been very good for the largest corporations.

For the rest of us, not so much.

But Obama now says that he wants America to be a place that encourages entrepreneurs and small businesses to thrive….

“It means we should support everyone who’s willing to work; and every risk-taker and entrepreneur who aspires to become the next Steve Jobs.”

Unfortunately, the reality is that the federal government is strangling entrepreneurs and small businesses to death with taxes and crippling regulations.

According to the Bureau of Labor Statistics, 16.6 million Americans were self-employed back in December 2006.  Today, that number has shrunk to 14.5 million.

That is not a good trend.

And right now small businesses are extremely hesitant to bring on new workers.

One recent survey found that 77 percent of all U.S. small businesses do not plan to hire any more workers in the coming year.

So obviously what the Obama administration is doing is not working.

During his speech, Obama also spoke of developing our own energy resources….

“A future where we are in control of our own energy, and our security and prosperity aren’t so tied to unstable parts of the world.”

Hopefully most of those watching laughed when they heard this, because this had to have been a joke.

America is absolutely swimming in oil and natural gas, and yet the Obama administration has blocked the development of those resources at every turn.

Instead, Obama has been very busy trying to push green energy companies on us, but they have had a nasty habit of going bankrupt.

During his speech, Obama also spoke of the need for “comprehensive immigration reform”.

But apparently Obama’s idea of “immigration reform” is to grant “backdoor amnesty” to the vast majority of the illegal immigrants in the United States and to continue to leave our borders completely wide open.

The consequences of such a policy are very serious.  As I wrote about the other day, there are now 1.4 million gang members living inside the United States, and that number has risen by an astounding 40 percent since 2009.

The last thing we need is more “immigration reform” from Barack Obama.

Of course the “class warfare” part was the centerpiece of Obama’s speech the other night.

Referring to it as the “defining issue of our time”, Obama said that now is the time to hit the wealthy with higher taxes….

“We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.”

This is going to be what Barack Obama is going to base his entire 2012 campaign on.  He is going to try to tap into the economic frustrations of the poor and the middle class and he is going to try to get them to blame the rich and the “party of the rich” (the Republicans).

But taxing the rich is not going to solve our problems.  If Bill Gates donated his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for about 15 days.

The truth is that the ultra-wealthy are always several steps ahead of the U.S. government.  The global elite are hiding 18 trillion dollars in offshore banks, and they are absolute experts at avoiding taxes.

No, the people that always get hit when taxes are raised are small business owners that try to do things “by the book” and middle class families that are barely scraping by.

What we need to do is to get rid of the income tax system entirely.  It is deeply corrupt and it is full of thousands of loopholes.

Trust me, I know.  I used to study this stuff.

But Obama seems to think that taxing the rich is the solution to all of our problems….

“We don’t begrudge financial success in this country. We admire it. When Americans talk about folks like me paying my fair share of taxes, it’s not because they envy the rich. It’s because they understand that when I get tax breaks I don’t need and the country can’t afford, it either adds to the deficit, or somebody else has to make up the difference – like a senior on a fixed income; or a student trying to get through school; or a family trying to make ends meet. That’s not right. Americans know it’s not right. They know that this generation’s success is only possible because past generations felt a responsibility to each other, and to their country’s future, and they know our way of life will only endure if we feel that same sense of shared responsibility. That’s how we’ll reduce our deficit.”

Oh really?

If we just accept Obama’s plan the deficit will be fixed?

That worked out so well during his first term.  During the first three years of the Obama administration, the U.S. government accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.

The truth is that Obama does not plan to fix anything.  Barack Obama’s proposed 2012 budget projects that the national debt will rise to 26 trillion dollars a decade from now.  And his budget numbers are ridiculously optimistic.

Not that our tax system does not need reform.

If we are going to have an income tax system (which we should not), then it should at least be fair.

There is no way in the world that General Electric and Mitt Romney should pay a lower tax rate than you and I do.

In a previous article, I noted some of the big corporations that have made enormous profits and yet have paid less than zero in taxes in recent years….

What U.S. corporations are able to get away with is absolutely amazing.

The following figures come directly out of a report by Citizens for Tax Justice.  These are combined figures for the tax years 2008, 2009 and 2010.

During those three years, all of the corporations below made a lot of money.  Yet all of them paid net taxes that were below zero for those three years combined.

How is that possible?  Well, it turns out that instead of paying in taxes to the federal government, they were actually getting money back.

So for these corporations, their rate of taxation was actually below zero.

If you have not seen these before, you are going to have a hard time believing some of these statistics…..

*Honeywell*

Profits: $4.9 billion

Taxes: -$34 million

*Fed Ex*

Profits: $3 billion

Taxes: -$23 million

*Wells Fargo*

Profits: $49.37 billion

Taxes: -$681 million

*Boeing*

Profits: $9.7 billion

Taxes: -$178 million

*Verizon*

Profits: $32.5 billion

Taxes: -$951 million

*Dupont*

Profits: $2.1 billion

Taxes -$72 million

*American Electric Power*

Profits: $5.89 billion

Taxes -$545 million

*General Electric*

Profits: $7.7 billion

Taxes: -$4.7 billion

Are you starting to get the picture?

Hopefully we can all agree that there is something seriously wrong with those numbers.

But fixing holes in the tax system is one thing – blaming America’s economic ills on the wealthy is another.

During his speech, Obama made the following statement….

“You can call this class warfare all you want”

And yes, we will hear the term “class warfare” over and over again for the rest of 2012.

Obama actually believes that “blaming the 1%” can get him sent back to the White House again.

But that isn’t going to solve any of our problems.

Instead, we should be focusing on the root causes of our economic problems.

I would love to see a president get up during a State of the Union address and declare that we need to shut down the Federal Reserve.

Since the Federal Reserve was created in 1913, the U.S. dollar has lost over 95 percent of its purchasing power.

Since the Federal Reserve was created in 1913, the U.S. national debt has gotten more than 5000 times larger.

Thanks to the debt-based Federal Reserve system, we are going into debt at a pace that is unlike anything the world has ever seen.

Right now, the federal government is stealing 150 million dollars an hour from our children and our grandchildren.

But Barack Obama loves the Federal Reserve.

In fact, he actually nominated Ben Bernanke for a second term as Federal Reserve Chairman even though Bernanke has a track record of incompetence that is legendary.

So no, nobody should be applauding Barack Obama for his absolutely abysmal speech the other night.

He is a man without a plan and he has been an absolute disaster for America.

Should We Be Alarmed That The Biggest Bond Fund In The World Has Dumped All Of Their U.S. Treasury Bonds?

Bill Gross, the manager of the biggest bond fund in the world, has forgotten more about bonds than most of us will ever learn. That is why the big move that PIMCO has just made is so unsettling.  At one time PIMCO held more U.S. government debt than any other bond fund on the globe, but now news has come out that they have gotten rid of all their U.S. government-related securities.  So should we be alarmed?  For months Gross has been warning that the bull market in bonds is coming to an end, and now it looks like he is putting his words into action.s  Gross has often publicly decried the rampant government spending that has been going on over the last several years, and apparently he has seen enough.  He is taking his ball and he is going home.  This really is a stunning move by PIMCO.  Gross must really believe that something fundamental has shifted.    Gross didn’t get to where he is today by being stupid.  But so far world financial markets are taking this news in stride.  Nobody seems all that alarmed that the largest bond fund in the world has dumped all of their U.S. Treasuries.  But with world financial markets in such a state of chaos right now, shouldn’t we all take note when one of the biggest players in the game makes such a bold move?

Gross believes that interest rates on U.S. Treasuries are way too low right now and that they will start going up when the Federal Reserve ends the current round of quantitative easing in June.  Gross has indicated that if interest rates on U.S. Treasuries go up high enough, PIMCO might get back in.

But if interest rates do start going up that is going to make servicing the monolithic U.S. national debt much more expensive, and that would not be good news for U.S. government finances.

But would the Federal Reserve really allow interest rates on U.S. Treasuries to go up substantially?  Wouldn’t they just step in at some point and start buying U.S. government debt again?

Probably.

But the truth is that the Ponzi Scheme of the U.S. Treasury issuing bonds and the Federal Reserve buying them up cannot last forever as Gross noted in his March newsletter….

“Basically, the recent game plan is as simple as the Ohio State Buckeyes’ “three yards and a cloud of dust” in the 1960s. When applied to the Treasury market it translates to this: The Treasury issues bonds and the Fed buys them. What could be simpler, and who’s to worry? This Sammy Scheme as I’ve described it in recent Outlooks is as foolproof as Ponzi and Madoff until… until… well, until it isn’t.”

Gross also noted in his newsletter that the Federal Reserve is currently buying up about 70 percent of all new U.S. government debt.

So what is going to happen when that stops?

Nobody knows for certain, but it sure is going to be interesting to watch.

The market for U.S. Treasuries has not been working “normally” for quite some time now, and there is some legitimate doubt as to whether it will ever fully get back to “normal” again.

Meanwhile, the sovereign debt crisis in Europe continues to get even worse.

The yield on 10-year Portuguese bonds is now above 7 percent, the yield on 10-year Irish bonds is now above 9 percent and the yield on 10-year Greek bonds is now above 12 percent.

Most people expect European leaders to soon come to an agreement to add billions more to existing bailout funds, but there is no guarantee that is actually going to happen.

In fact, the Germans are making waves by insisting that the financially troubled nations in the EU must be willing to agree to limits on their future budget deficits.  A recent article on CNBC described the situation this way….

Before the Germans will agree to pump in extra cash from their taxpayers, backed by the French, they want each leader to agree to legislation at home that will limit the size of their future national deficits. The Greeks are already refusing point blank. Things may boil to the surface at an extraordinary summit on Friday.

So what if an agreement can’t be reached?

Could the dominoes in Europe start to fall?

Very few people actually want to see a wave of sovereign defaults in Europe, but the current situation cannot go on forever.  At some point the Germans are going to get sick and tired of bailing out other members of the EU.

The global addiction to debt is about to start having some very serious consequences.

For decades, most of the governments of the industrialized world have been running up debt as if it would never come back to haunt them.  Now the world is absolutely covered in red ink and everyone is looking for a way to solve the problem.

But there is not going to be a debt jubilee to come along and save everyone.  This debt bubble is either going to keep expanding or it is going to burst.

At one point, at least some of the debt-ridden nations will try to inflate their way out of debt by recklessly printing money.  To a certain extent that has already been going on.  But it will not work.  It will only cause a whole lot of inflation.

This is just more evidence that any economic system based on debt is destined to fall.  When we allowed a private central bank to start issuing debt-based currency in this country back in 1913 we set ourselves up to fail.  As I have written about previously, the Federal Reserve should never have been allowed to come into existence, and it should have been shut down by Congress long before now.

But now the United States is caught in the same debt trap that most of the other nations around the world are caught in.  The global addiction to debt is going to have some very, very serious consequences.  Instead of moving into a great time of peace and prosperity, everything is about to come falling apart.

Things could have been different.  Things did not have to turn out this way.  But here we are on the edge of one of the biggest financial disasters in human history and most Americans still don’t understand what is happening.

So what do you all think about all of this?  Please feel free to leave a comment with your opinion below….

Budget Cuts?

As violent protests erupted outside, the leaders of the world’s largest economies plotted the future course of the global economy at this weekend’s G20 summit.  So what was decided?  Well, according to various reports in the mainstream media, it was the “deficit hawks” who got their way.  Apparently the consensus of the G20 meetings was that a round of tough budget cuts is the medicine that the world economy needs.  In fact, the G20 leaders all pledged to cut their respective budget deficits in half by 2013.  Canadian Prime Minister Stephen Harper, one of the key advocates of budget cuts, said that the G20 nations need to walk a “tightrope” between stimulating their economies and debt reduction.  But as the largest economies around the globe transition from reckless government spending to budget reductions and austerity measures, what is that really going to mean for the world economy?

Well, the truth is that as good as “budget cuts” sound, they can have some very nasty short-term side effects.

You see, there is no getting around the fact that whenever governments spend more money it is good for economic growth.  The problem is that a large number of governments around the globe have been consistently spending way beyond their means for decades and now they find themselves up to their eyeballs in debt.

The exploding sovereign debt levels around the globe are not sustainable by any definition, and so it was undeniable that something had to be done.

In fact, European Commission President José Manuel Barroso put it quite succinctly during the G20 meetings in Toronto when he told the press the following….

“There is no more room for deficit spending.”

The reality is that nations such as Greece, Spain, Portugal and Italy are already on the verge of default.  Japan has accumulated so much debt that it makes headlines almost constantly in the newspapers over there.  The exploding U.K. debt was one of the key factors that enabled the Conservatives to take power in the most recent election.

But nobody has more debt than the United States.  As of June 1st, the U.S. National Debt was $13,050,826,460,886.97.  The U.S. government has accumulated the most colossal mountain of debt the world has ever seen and it is exploding at a rate that is breathtaking.

So, yes, the largest economies of the world have a major problem with government debt.

But are budget cuts and austerity measures the correct solution?

It depends who you ask.

The reality is that the U.S., the U.K. and many of the other most powerful economies in the world now find themselves between a rock and a hard place.

If they continue recklessly going into debt their economies will continue to be stimulated (at least to some degree), but interest expenses will continue to spiral upwards and borrowing costs will go through the roof as credit ratings fall.  In the end, nation after nation would end up defaulting and the world financial system would crash hard.

However, if the G20 nations actually do implement the hard budget cuts that are necessary to get their debts under control, it will suck a ton of money out of the system and could send the already vulnerable global economy into a devastating deflationary depression.

The truth is that neither option is a good option.

Either path is going to contain a good amount of economic pain.

So what do you do when there is no good solution?

Stephen Lewis of Monument Securities recently argued that the path of “fiscal stimulus” has been totally played out and so there is no good reason to continue to go down that path….

“Growth could be negative again as soon as the fourth quarter. There is no easy way out since fiscal stimulus has already been pushed as far as it can credibly go without endangering US credit-worthiness.”

However, Chris Whalen, a former Federal Reserve official and now head of Institutional Risk Analytics says that unless the printing presses are quickly cranked up again we are definitely headed for deflation….

“The party is over from fiscal support. These hard-money men are fighting the last war: they don’t recognise that money velocity has slowed and we are going into deflation. The only default option left is to crank up the printing presses again.”

So what is the right answer?

For now, G20 leaders have decided that budget cuts and austerity measures are the right answer.

Not that Barack Obama and U.S. Federal Reserve chairman Ben Bernanke didn’t fight behind the scenes for additional “stimulus” for the world economy.

You see, when it comes to “Helicopter Ben”, his first instinct is to always pump more money into the economy.  In fact, according to one major U.K. newspaper, U.S. Federal Reserve chairman Ben Bernanke has been fighting an intense behind the scenes war for control of U.S. monetary policy.  Bernanke is reportedly frightened that the U.S. could be headed for a deflationary spiral and has been pushing the idea of a fresh injection of money into the U.S. economy.

But for now Bernanke has lost.  Barack Obama has joined the other leaders of the G20 in promising to cut their budget deficits by 50 percent by 2013.

Not that we are actually going to see that happen.

We all know how reliable Barack Obama’s promises are.  He was busy breaking his 2008 campaign promises before he was even sworn in.

And the day will come when Barack Obama needs to turn the economy around in order to win some votes, and when that day arrives the temptation to “stimulate” the economy with some more government spending will prove irresistible.

But for the moment, Obama is lining up with the other G20 leaders and is swearing that he is going to get spending under control.

That should settle world financial markets down for the moment, but the reality is that as all of the major economies around the world suddenly see a dramatic reduction in government spending, a substantial economic slowdown will be inevitable.

When the world economy slows down, unemployment will spike, the global real estate mess will get even worse and “austerity riots” could even break out in many areas of the globe.

So at some point, the pendulum will once again swing back towards “stimulus” and world leaders will indulge their debt addictions once again.  But that will only make the long-term global economic problems even worse.

The truth is that the entire world economic system is broken.  It is built on a fraudulent pyramid of debt, derivatives, central banking and paper money that is doomed to fail.  But world leaders will continue to keep it alive for as long as they can.

Right now their big solution is to get all of the major industrialized nations to agree to huge budget cuts.  These budget cuts, if they are actually implemented, are very likely to lead to a severe economic slowdown and potentially even a deflationary depression.

But continuing on the path that the G20 leaders were on would have resulted in a wave of sovereign defaults and hyperinflationary meltdowns.

So the G20 leaders have decided to change course and they are hoping that they can navigate the economic minefield ahead and bring our economies through all of this okay.

But in the end they are going to fail.

Stimulus Waste

Back in February 2009, the U.S. Congress passed an $862 billion “economic stimulus” bill to help the struggling American economy recover from the horrible financial crisis of 2007 and 2008.  Right now, federal agencies are spending this stimulus money at the rate of approximately 196 million dollars an hour, and they will continue to spend it in staggering amounts up until the September 30, 2010 deadline.  Unfortunately, instead of being spent on useful projects that would revitalize U.S. industry and put American workers back to work, much of this money is being flushed directly down the toilet on some of the most wasteful projects imaginable.  The truth is that nobody is better at wasting money than the U.S. government.  In fact, some of the things that the U.S. government has been spending money on are absolutely mind blowing. 

The following are just some of the examples of “stimulus waste” that we have seen over the last 16 months….   

*Florida Atlantic University in Boca Raton, Florida used $15,551 in stimulus money to pay two researchers to study how alcohol affects a mouse’s motor functions.

*The U.S. government handed over a staggering $54 million in “stimulus cash” to Connecticut’s politically-connected Mohegan Indian tribe, which runs one of the highest grossing casinos in the country.

*Syracuse professor of psychology Michael Carey received $219,000 in federal stimulus money for a study that examines the sex patterns of college women

*$1.15 million in stimulus funds was allocated for the installation of a new guard rail around the non-existent Optima Lake in Oklahoma.

*Researchers at the State University of New York at Buffalo received $389,000 to pay 100 residents of Buffalo $45 each to record how much malt liquor they drink and how much pot they smoke each day.  Instead of spending nearly $400,000, the U.S. government could have achieved the same goal by having a couple of scientists join a fraternity.

*$100,000 in federal stimulus funds were used for a martini bar and a brazilian steakhouse.

*A dinner cruise company in Chicago got nearly $1 million in stimulus funds to combat terrorism.

*$233,000 in stimulus money went to the University of California at San Diego to study why Africans vote.

*The Cactus Bug Project at the University Of Florida was allocated $325,394 in stimulus funds to study the mating decisions of cactus bugs.  According to the project proposal, one of the questions that will be answered by the study is this: “Whether males with large weapons are more or less attractive to females.”

*One Denver developer received $13 million in tax credits to construct a senior housing complex despite that fact that the same developer is being sued as a slumlord for running rodent-infested apartment buildings in the city of San Francisco.

*Sheltering Arms Senior Services was awarded a contract worth $22.3 million in stimulus money to weatherize homes for poor families in Houston, Texas – but a new report from Texas Watchdog says that the weatherization work was performed so badly that 33 of the 53 homes will need to be completely redone.

*A liberal theater in Minnesota named “In the Heart of the Beast” (in reference to a well known quote by communist radical Che Guevara) received $100,000 for socially conscious puppet shows.

*California’s inspector general found that $1 million in stimulus funds for a program to give summer jobs to young people was improperly used for overhead expenses such as rent and utility bills.

*Landon Cox, a Duke University assistant professor of computer science, was awarded $498,000 in stimulus money to study Facebook.

*The town of Union, New York is being urged to spend $578,000 in stimulus money that it did not request for a homelessness problem that it claims it does not have.

*Lastly, who could forget the $3.4 million “ecopassage” to help turtles cross a highway in Tallahassee, Florida?

Yes, the U.S. government sure knows how to waste money.

And the truth is that there is simply no way that the U.S. government would have been able to accumulate a debt of over $13 trillion dollars (and growing exponentially) without being incredibly skilled at wasting money.

In fact, the Pentagon says that there are literally trillions of dollars that it cannot account for.

Now how in the world do you lose track of trillions of dollars?

That takes some major league incompetence.

It is enough to make you want to pull your hair out.  We were once the wealthiest, most prosperous nation on the planet, but we have recklessly squandered our great wealth.  Over and over we kept voting for corrupt politicians who endlessly wasted our money on the most ridiculous things.

So now we will pay the price.

We are already being taxed brutally, but because of all the debt our “leaders” have gotten us into we are going to be taxed even more.  We did not demand accountability from our government, and so now we get to face the consequences.

But no amount of taxes will ever be enough for this government.  If we give them more money they just take that as a signal to get into even more debt.  As a nation we are on a path that can only be described as financial insanity.

So is there any hope that the U.S. government will stop wasting so much money?  Not with the current collection of Republicans and Democrats that currently inhabit Washington D.C. 

The truth is that both parties have been wasting our money for decades.  Many politicians will often talk about the need to “control spending”, but when time comes to do it very few of them are ever willing to take action.

So until the American people decide to start sending a different kind of politician to Washington D.C. we are probably going to continue to see huge mountains of money being wasted. 

Wake up America. 

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