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China Is On A Debt Binge And A Buying Spree Unlike Anything The World Has Ever Seen Before

Chinese Black Dragon - Photo by AngelusWhen it comes to reckless money creation, it turns out that China is the king.  Over the past five years, Chinese bank assets have grown from about 9 trillion dollars to more than 24 trillion dollars.  This has been fueled by the greatest private debt binge that the world has ever seen.  According to a recent World Bank report, the level of private domestic debt in China has grown from about 9 trillion dollars in 2008 to more than 23 trillion dollars today.  In other words, in just five years the amount of money that has been loaned out by banks in China is roughly equivalent to the amount of debt that the U.S. government has accumulated since the end of the Reagan administration.  And Chinese bank assets now absolutely dwarf the assets of the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England combined.  You can see an amazing chart which shows this right here.  A lot of this “hot money” has been flowing out of China and into U.S. companies, U.S. stocks and U.S. real estate.  Unfortunately for China (and for the rest of us), there are lots of signs that the gigantic debt bubble in China is about to burst, and when that does happen the entire world is going to feel the pain.

It was Zero Hedge that initially broke this story.  Over the past several years, most of the focus has been on the reckless money printing that the Federal Reserve has been doing, but the truth is that China has been far more reckless

You read that right: in the past five years the total assets on US bank books have risen by a paltry $2.1 trillion while over the same period, Chinese bank assets have exploded by an unprecedented $15.4 trillion hitting a gargantuan CNY147 trillion or an epic $24 trillion – some two and a half times the GDP of China!

 Putting the rate of change in perspective, while the Fed was actively pumping $85 billion per month into US banks for a total of $1 trillion each year, in just the trailing 12 months ended September 30, Chinese bank assets grew by a mind-blowing $3.6 trillion!

I was curious to see what all of this debt creation was doing to the money supply in China.  So I looked it up, and I discovered that M2 in China has grown by about 1000% since 1999…

M2 Money Supply China

So what has China been doing with all of that money?

Well, they have been on a buying spree unlike anything the world has ever seen before.  For example, according to Reuters China has essentially bought the entire oil industry of Ecuador…

China’s aggressive quest for foreign oil has reached a new milestone, according to records reviewed by Reuters: near monopoly control of crude exports from an OPEC nation, Ecuador.

Last November, Marco Calvopiña, the general manager of Ecuador’s state oil company PetroEcuador, was dispatched to China to help secure $2 billion in financing for his government. Negotiations, which included committing to sell millions of barrels of Ecuador’s oil to Chinese state-run firms through 2020, dragged on for days.

And the Chinese have been doing lots of shopping in the United States as well.  The following is an excerpt from a recent CNBC article entitled “Chinese buying up California housing“…

At a brand new housing development in Irvine, Calif., some of America’s largest home builders are back at work after a crippling housing crash. Lennar, Pulte, K Hovnanian, Ryland to name a few. It’s a rebirth for U.S. construction, but the customers are largely Chinese.

“They see the market here still has room for appreciation,” said Irvine-area real estate agent Kinney Yong, of RE/MAX Premier Realty. “What’s driving them over here is that they have this cash, and they want to park it somewhere or invest somewhere.”

Apparently a lot of these buyers have so much cash that they are willing to outbid anyone if they like the house…

The homes range from the mid-$700,000s to well over $1 million. Cash is king, and there is a seemingly limitless amount.

“The price doesn’t matter, 800,000, 1 million, 1.5. If they like it they will purchase it,” said Helen Zhang of Tarbell Realtors.

So when you hear that housing prices are “going up”, you might want to double check the numbers.  Much of this is being caused by foreign buyers that are gobbling up properties in certain “hot” markets.

We see this happening on the east coast as well.  In fact, a Chinese firm recently purchased one of the most important landmarks in New York City

Chinese conglomerate Fosun International Ltd. (0656.HK) will buy office building One Chase Manhattan Plaza for $725 million, adding to a growing list of property purchases by Chinese buyers in New York city.

The Hong Kong-listed firm said it will buy the property from JP Morgan Chase Bank, according to a release on the Hong Kong Stock Exchange website.

Chinese firms, in particular local developers, have looked overseas to diversify their property holdings as the economy at home slows. Chinese individuals also have been investing in property abroad amid tight policy measures in the mainland residential market.

Earlier this month, Chinese state-owned developer Greenland Holdings Group agreed to buy a 70% stake in an apartment project next to the Barclays Center in Brooklyn, N.Y., in what is the largest commercial-real-estate development in the U.S. to get direct backing from a Chinese firm.

And in a previous article, I discussed how the Chinese have just bought up the largest pork producer in the entire country…

Just think about what the Smithfield Foods acquisition alone will mean.  Smithfield Foods is the largest pork producer and processor in the world.  It has facilities in 26 U.S. states and it employs tens of thousands of Americans.  It directly owns 460 farms and has contracts with approximately 2,100 others.  But now a Chinese company has bought it for $4.7 billion, and that means that the Chinese will now be the most important employer in dozens of rural communities all over America.

For many more examples of how the Chinese are gobbling up companies, real estate and natural resources all over the United States, please see my previous article entitled “Meet Your New Boss: Buying Large Employers Will Enable China To Dominate 1000s Of U.S. Communities“.

But more than anything else, the Chinese seem particularly interested in acquiring real money.

And by that, I mean gold and silver.

In recent years, the Chinese have been buying up thousands of tons of gold at very depressed prices.  Meanwhile, the western world has been unloading gold at a staggering pace.  By the time this is all over, the western world is going to end up bitterly regretting this massive transfer of real wealth.

Unfortunately for the Chinese, it appears that the unsustainable credit bubble that they have created is starting to burst.  According to Bloomberg, the amount of bad loans that the five largest banks in China wrote off during the first half of this year was three times larger than last year…

China’s biggest banks are already affected, tripling the amount of bad loans they wrote off in the first half of this year and cleaning up their books ahead of what may be a fresh wave of defaults. Industrial & Commercial Bank of China Ltd. and its four largest competitors expunged 22.1 billion yuan of debt that couldn’t be collected through June, up from 7.65 billion yuan a year earlier, regulatory filings show.

And Goldman Sachs is projecting that China may be facing 3 trillion dollars in credit losses as this bubble implodes…

Interest owed by borrowers rose to an estimated 12.5 percent of China’s economy from 7 percent in 2008, Fitch Ratings estimated in September. By the end of 2017, it may climb to as much as 22 percent and “ultimately overwhelm borrowers.”

Meanwhile, China’s total credit will be pushed to almost 250 percent of gross domestic product by then, almost double the 130 percent of 2008, according to Fitch.

The nation might face credit losses of as much as $3 trillion as defaults ensue from the expansion of the past four years, particularly by non-bank lenders such as trusts, exceeding that seen prior to other credit crises, Goldman Sachs Group Inc. estimated in August.

The Chinese are trying to get this debt spiral under control by tightening the money supply.  That may sound wise, but the truth is that it is going to create a substantial credit crunch and the entire globe will end up sharing in the pain…

Yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing’s relentless drive to tighten the monetary spigots in the world’s second-largest economy.

The higher yields on government debt have pushed up borrowing costs broadly, creating obstacles for companies and government agencies looking to tap bond markets. Several Chinese development banks, which have mandates to encourage growth through targeted investments, have had to either scale back borrowing plans or postpone bond sales.

This could ultimately be a much bigger story than whether or not the Fed decides to “taper” or not.

It has been the Chinese that have been the greatest source of fresh liquidity since the last financial crisis, and now it appears that source of liquidity is tightening up.

So as the flow of “hot money” out of China starts to slow down, what is that going to mean for the rest of the planet?

And when you consider this in conjunction with the fact that China has just announced that it is going to stop stockpiling U.S. dollars, it becomes clear that we have reached a major turning point in the financial world.

2014 is shaping up to be a very interesting year, and nobody is quite sure what is going to happen next.

The U.S. Government Will Borrow Close To 4 Trillion Dollars This Year

DebtWhen you add maturing debt to the new debt that the federal government is accumulating, the total is quite eye catching.  You see, the truth is that the U.S. government must not only borrow enough money to fund government spending for this year, it must also “roll over” existing debt that has reached maturity.  Of course the government never actually pays any of that debt off.  Instead, it essentially takes out new debts to cover the old ones.  So the U.S. government is actually borrowing far more money each year than most Americans realize.  For fiscal year 2013, the U.S. budget deficit will be about $845 billion, but on top of that the government will also have to borrow about 3 trillion dollars to pay off old debt that is maturing.  Overall, the U.S. government will borrow close to 4 trillion dollars this year, and that number will likely be even higher next year.  That is not going to cause a crisis as long as interest rates stay super low, but if interest rates begin to rise substantially, the game will change dramatically.

When the government borrows money, it has to pay it back someday.  Back in the old days, the federal government used to issue lots of debt that would not mature for a very long time.  But in recent years things have been very different

In order to fund the government, the Treasury Department periodically auctions Treasury securities with various maturities ranging from 30-day Treasury bills to 30-year Treasury bonds, with 2-3-5-7-year and 10-year Treasury notes in between. It used to be that the bulk of Treasury borrowing was done in the longer-term instruments with maturities of at least 10 years.

In more recent years, however, this trend has shifted more toward shorter-term Treasury securities. There are pros and cons to both strategies. Generally speaking, the shorter maturities are considered more risky since short-term interest rates can vary frequently. Shorter-term maturities obviously have to be rolled over much more often. That raises the risk that there might not be enough buyers when the government needs them.

At this point, the average maturity of outstanding government debt is only 65 months, and only about 10 percent of all Treasury debt matures outside of a decade.

So what does that mean?

It means that the federal government must constantly roll over massive amounts of debt.  Once again, this is not too much of a problem as long as interest rates stay super low, but as John Cochrane pointed out, if rates start rising back to “normal” levels things could get quite hairy very quickly…

Here’s the nightmare scenario: Suppose that four years from now, interest rates rise 5 percent, i.e. back to normal, and the US has $20 trillion outstanding. Interest costs alone will rise $1 trillion (5% of $20 trillion) – doubling already unsustainable deficits! This is what happened to Italy, Spain, and Portugal. Don’t think it can’t happen to us. It’s even more likely, because fear of inflation – which did not hit them, since they are on the Euro – can hit us.

Sadly, those running things appears to be quite clueless.  For example, retiring U.S. Representative Michele Bachmann recently asked Federal Reserve Chairman Ben Bernanke why the national debt has remained frozen in place for 56 straight days even though we have been borrowing lots of money.  Bernanke seemed to have no idea how to answer that question

As Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee Wednesday, Bachmann asked how there could be no increase reported in the total debt when the government is racking up about $4 billion a day in new debt.

“After nearly 10 years as the head of the Federal Reserve, Chairman Bernanke could not answer my question today in Financial Services Committee,” Bachmann told WND.

She wondered if there’s a political motive.

“I asked whether the Treasury Department was cooking the federal government’s books as it was reported that the Feds debt balance sheet remained at $16,699,396,000,000 for 56 days straight, presumably so the Treasury Department wouldn’t officially register that once again the Congress had exceeded its legal borrowing limits.”

For the moment, the federal government is able to recklessly borrow and spend money and investors are rewarding this behavior with super low interest rates.

Unfortunately, this state of affairs is completely and totally unsustainable.  At some point global financial markets will begin to behave rationally, and when that happens it is going to mean a tremendous amount of pain for the United States.

Over the past decade, the U.S. government has added more than 11 trillion dollars to the national debt at a time when the U.S. economy has been steadily declining.  Anyone that thinks that we can continue to pile up more debt like this indefinitely does not know what they are talking about.

The following are some more statistics about the U.S. national debt for you to consider…

-Back in 1980, the U.S. national debt was less than one trillion dollars.  Today, it is rapidly approaching 17 trillion dollars.

-During Obama’s first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined.

-The U.S. national debt is now more than 23 times larger than it was when Jimmy Carter became president.

-If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.

-If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

-If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

-Some suggest that “taxing the rich” is the answer.  Well, if Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

-If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for 2011 would have been 5 trillion dollars instead of 1.3 trillion dollars.

-The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain does.

-At this point, the United States government is responsible for more than a third of all the government debt in the entire world.

-The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.

-The U.S. national debt is now more than 37 times larger than it was when Richard Nixon took us off the gold standard.

-The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.

-Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay.  Kotlikoff speaks of a “fiscal gap” which he defines as “the present value difference between projected future spending and revenue”.  His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.

For the moment everything is fine because interest rates are incredibly low and the mockers in the “deficits don’t matter” fan club are having a field day.

But what is going to happen when interest rates return to rational levels?

How will the U.S. government be able to borrow the trillions of dollars that it needs to borrow every single year?

That is why it is so important to watch interest rates.  When they start skyrocketing, big trouble is ahead.

All Of This Whining And Crying About The Sequester Shows Why America Is Doomed

CryingIf we can’t even cut federal spending by 2.4 percent without much of the country throwing an absolute hissy fit, then what hope does America have?  All of this whining and crying about the sequester is absolutely disgraceful.  The truth is that even if the sequester goes into effect, the U.S. government will still take in more money than ever before in 2013 and it will still spend more money than ever before in 2013.  So it is a bit disingenuous to call what is about to happen “a spending cut”, but for the sake of argument let’s concede that point.  Even if the budget really was being “cut” by 85 billion dollars, that only would only amount to a “cut” of 2.4 percent to federal spending.  It would barely make a dent in the federal budget deficit for 2013.  The U.S. government would still accumulate about as much new debt in fiscal year 2013 as it did in all the years from the inauguration of George Washington to the inauguration of Ronald Reagan combined.  Our debt to GDP ratio would continue to soar.  The sequester cuts would essentially only be a minor bump on the road to financial oblivion.  But if you listen to Barack Obama and his allies, they would have you believe that we are facing a great national crisis because of these impending cuts.  They would have you believe that hundreds of thousands of people will lose their jobs and that many government agencies will no longer be able to operate effectively.  They would have you believe that “granny won’t get her lunch” and “roofs blown off by Hurricane Sandy won’t get repaired”.  Well, if all of that is true, then what in the world would our country look like if we actually cut a trillion dollars from the federal budget this year and started living within our means?

Have you ever known people that are already hundreds of thousands of dollars in debt and yet go out and regularly blow thousands more dollars on wild shopping sprees?

Such debt addicts may be very proud of their new homes, their new cars, their new clothes and all of their fancy electronic gadgets, but it was all purchased with debt.  When a “day of reckoning” finally arrives, many debt addicts lose absolutely everything and end up in the street.

That is what America is like today.

Our politicians like to show off all of the stuff that our government is spending money on, but the truth is that we are spending gigantic mountains of money that we simply do not have.  We are literally stealing from our kids and our grandkids so that we can continue to enjoy a massively inflated standard of living that we have not earned.

But we can’t stop ourselves.  Americans are absolutely addicted to big government.  They want a gigantic government that sends out free money to more than 100 million Americans every month, but they absolutely do not want to pay for it.  They would rather steal money from their children and their grandchildren to pay for it.

This has got to stop, because we are literally destroying the future of this country.

If Americans really want a massively bloated government that takes care of everyone from the cradle to the grave then they should pay for it.

If Americans don’t want to pay for it, then they should reduce the size of the government to a level where they are willing to pay for it.

But stealing money from future generations of Americans to pay our bills is absolutely disgraceful.

As I talked about in a previous article, we are stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day.

Is there anyone out there that is willing to stand up and defend that kind of theft?

But the vast majority of Americans don’t want to do anything to stop it, because they don’t want to harm “the economy” (i.e. our ridiculously bloated standard of living).

Will the sequester cuts hurt the economy a bit?

Of course.

Government spending cuts always hurt the economy.

If we raised taxes to help pay the bills that the federal government has been racking up, would that hurt the economy?

Of course.

Tax increases always hurt the economy.

But if we continue on the path that we are today, America is doomed.

The U.S. national debt is the biggest single debt in the history of the world.  It is now more than 16.6 trillion dollars, and it has gotten more than 23 times larger since Jimmy Carter first entered the White House.

If our politicians suddenly decided to go to a balanced budget today, our debt-fueled “bubble economy” would disappear and we would immediately plunge into a deep economic depression.

Do the American people have the character to be able to handle that kind of an “adjustment” to our standard of living?

Of course not.

That is why so many of our politicians are scared to death of doing anything about the debt.

And even these small sequester “cuts” are freaking everyone out.  Many of our politicians and many in the mainstream media are openly declaring that “the sky is falling”.  Just check out the following short excerpt from a recent New York Times article

The owner of a Missouri smokehouse that makes beef jerky is worried about a slowdown in food safety inspections. A Montana school district is drawing up a list of teachers who could face layoffs. Officials at an Arizona border station fear that lines to cross the border could lengthen. And if Olympic National Park in Washington cannot hire enough workers to plow backcountry trails, they may stay closed until the snow melts in July.

But that is nothing compared to what others are saying.  CNN is declaring that if the sequester cuts happen, “granny won’t get her lunch” and “roofs blown off by Hurricane Sandy won’t get repaired”.

And check out these ominous warnings from Barack Obama about what will happen if the sequester cuts go into effect…

“Emergency responders like the ones who are here today — their ability to help communities respond to and recover from disasters will be degraded.  Border Patrol agents will see their hours reduced.  FBI agents will be furloughed.  Federal prosecutors will have to close cases and let criminals go.  Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country.  Thousands of teachers and educators will be laid off.  Tens of thousands of parents will have to scramble to find childcare for their kids.  Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.”

The Obama administration has even decided to release hundreds of illegal immigrants in anticipation of the cuts…

Immigration and Customs Enforcement officials have released “several hundred” immigrants from deportation centers across the country, saying the move is an effort to cut costs ahead of budget cuts due to hit later this week.

Announcing the news Tuesday, ICE officials said that the immigrants were released under supervision and continue to face deportation. After reviewing hundreds of cases, those released were considered low-risk and “noncriminal,” officials said.

The claims about the sequester cuts just seem to get more ridiculous with each passing day.  Homeland Security Secretary Janet Napolitano is warning that the cuts will make the U.S. more vulnerable to terrorist attacks,  and Obama recently decided not to send an aircraft carrier to the Persian Gulf because of “budget concerns“.

Apparently he sees no problem with using the U.S. military to score political points.

And Federal Reserve Chairman Ben Bernanke says that the budget cuts will result in “less actual deficit reduction in the short run”.

Really?

How stupid do they think we all are?

Yes, the sequester cuts will have an impact on the economy, but they won’t cause the sky to fall.

The following is what the CBO says the economic impact of the cuts is likely to be

The Congressional Budget Office estimates the cuts will cost 750,000 jobs and hit growth by 0.6 percentage points, assuming the cuts remain in effect for the remainder of the fiscal year. Some economists expect a slightly bigger impact.

Remember, these are actually very small cuts.

In fact, according to U.S. Representative Lynn Jenkins, the U.S. government will actually be spending more money in 2013 than it did in 2012 even if the sequester cuts go into effect…

“There’s a fact that says we are going to take in more money this fiscal year than we have ever taken in before,” Jenkins said.  “The budget this year, we will spend more money this year than we spent last year even if the sequester goes into effect.  We will spend more money even if the sequester goes into effect.”

So why is everyone whining and crying over such a very small amount of money?

If you want to get upset about something, why not get upset about things that are increasing our debt by trillions of dollars?

For example, according to a Government Accountability Office report that was just released, Obamacare is going to cause the federal debt to rise by $6.2 trillion.

Why aren’t more people getting upset over that?

Sadly, it is because America is a debt addict.  Most Americans don’t really care much when federal spending skyrockets out of control, but if anyone tries to slow down the spending a little bit they throw hissy fits.

And please don’t tell me that “the big government Republicans” are much better than “the big government Democrats” on budget issues.  The Republicans have caved in and have gone along with all of this wild spending every single time.

On March 27th, they will have another opportunity to do something.  That is when the current continuing resolution expires.

At that time, the Republicans could refuse to pass anything but a balanced budget.

Or they could at least refuse to pass anything except a budget that would cut the federal budget deficit in half.

But they won’t do anything once again.  They will cave in and go along with the status quo because they are cowards.

So we will continue to rip off future generations to fuel our current bloated standard of living.

Thomas Jefferson understood that government borrowing is theft from future generations.  He once made the following statement….

And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

Shame on you Democrats.

Shame on you Republicans.

Shame on you America.

You are destroying the future of America for your own selfish reasons.

If future generations get the chance, they will look back on what you did to them and they will curse you for it.

For much more on our exploding national debt, please see the following article: “55 Facts About The Debt And U.S. Government Finances That Every American Voter Should Know“.

Not that living within our means would be easy.

Like I said, it would mean a deep economic depression, and it would also likely mean a tremendous amount of societal chaos.

Even now, while we are still living in the boom times, things are really starting to get crazy out there.  Just check out what is going on in Oakland

Oakland’s crime problems have gotten so bad that some people aren’t even bothering to call the cops anymore; instead, they’re trying to solve and prevent crimes themselves.

KPIX 5 cameras caught up with a half dozen neighbors in East Oakland’s Arcadia Park neighborhood Monday as they walked the streets on the lookout for crime. The vigilance has never seemed more necessary than now; 25 homes in the neighborhood have been burglarized over the last two months alone.

In a neighborhood that has started to feel like the wild west, people have even started posting “wanted” signs.

“You have to walk around in your house with a gun to feel safe here,” said Alaska Tarvins of the Arcadia Park Board of Directors.

If this is how bad things are now, how bad will they be when a day of reckoning for our economy arrives?

And a day of reckoning is coming.

Our politicians can try to keep kicking the can down the road for as long as they can, but eventually time will run out.  Just take a look at what is happening in Greece and Spain.  Meanwhile, all of this can kicking is just making the eventual crisis even worse.

We can borrow our way to prosperity for a while, but in the end there is always a very bitter price to pay for doing so.

I would love to tell you that there is a chance that all of this will be turned around, but the truth is that all of this whining and crying about the sequester shows that America is doomed.

I hope that you are getting ready.

Cry

The Sovereign Debt Bubble Will Continue To Expand Until – BANG – The System Implodes

The Sovereign Debt Bubble Will Continue To Expand Until - BANG - The System Implodes - Photo by Jeff KubinaWhy are so many politicians around the world declaring that the debt crisis is “over” when debt to GDP ratios all over the planet continue to skyrocket?  The global economy has never seen anything like the sovereign debt bubble that we are experiencing today.  The United States, Japan, and nearly every major nation in Europe are absolutely drowning in debt.  We have heard a lot about “austerity” over in Europe in recent years, but debt to GDP ratios continue to rise in Greece, Spain, Italy, Ireland and Portugal.  In general, most economists consider a debt to GDP ratio of 100% to be a “danger level”, and most of the economies of the western world have either already surpassed that level or are rapidly approaching it.  Of course the biggest debt offender of all in many ways is the United States.  The U.S. debt to GDP ratio has risen from 66.6 percent to 103 percent since 2007, and the U.S. government accumulated more new debt during Barack Obama’s first term than it did under the first 42 U.S. presidents combined.  This insane sovereign debt bubble will continue to expand until a day of reckoning arrives and the system implodes.  Nobody knows exactly when that moment will be reached, but without a doubt it is coming.

But if you listen to the mainstream media in the United States, you would be tempted to think that this giant bubble of debt is not much of a concern at all.  For example, in a recent article in the Washington Post entitled “The case for deficit optimism“, Ezra Klein wrote the following…

“Here’s a secret: For all the sound and fury, Washington’s actually making real progress on debt.”

How many times have we heard that before?

About a decade ago, government officials were projecting that we would be swimming in gigantic government surpluses by now.

Instead, we are running trillion dollar deficits.

But right now there is a lot of optimism about the economy.  The stock market recently hit a 5 year high and the business community is loving all of the false prosperity that all of this debt is buying us.

Even Warren Buffett does not really seem concerned about the exploding U.S. government debt.  He recently made the following statement

“It is not a good thing to have it going up in relation to GDP.  That should be stabilized. But the debt itself is not a problem.”

Oh really?

A debt of 16 trillion dollars “is not a problem”?

Perhaps we should all run our finances that way.

Why don’t we all go out and open up 20 different credit cards, run them all up to the max, and then tell the credit card companies that we can’t pay them back but that it “is not a problem”.

Of course real life does not work that way.

The truth is that government debt is becoming a monstrous problem all over the globe.  Just check out how debt to GDP ratios all over the planet have grown over the past five years

United States

Debt to GDP ratio in 2007: 66.6 percent

Debt to GDP ratio in 2012: 103 percent

United Kingdom

Debt to GDP ratio in 2007: 43.4 percent

Debt to GDP ratio in 2012: 85.0 percent

France

Debt to GDP ratio in 2007: 63.7 percent

Debt to GDP ratio in 2012: 86 percent

Germany

Debt to GDP ratio in 2007: 67.6 percent

Debt to GDP ratio in 2012: 80.5 percent

Spain

Debt to GDP ratio in 2007: 39.6 percent

Debt to GDP ratio in 2012: 69.3 percent

Ireland

Debt to GDP ratio in 2007: 24.8 percent

Debt to GDP ratio in 2012: 106.4 percent

Portugal

Debt to GDP ratio in 2007: 63.9 percent

Debt to GDP ratio in 2012: 108.1 percent

Italy

Debt to GDP ratio in 2007: 106.6 percent

Debt to GDP ratio in 2012: 120.7 percent

Greece

Debt to GDP ratio in 2007: 106.1 percent

Debt to GDP ratio in 2012: 170.6 percent

The Eurozone As A Whole

Debt to GDP ratio in 2007: 68.4 percent

Debt to GDP ratio in 2012: 87.3 percent

Japan

Debt to GDP ratio in 2007: 172.1 percent

Debt to GDP ratio in 2012: 211.7 percent

So how does all of this end?

Well, it is going to be messy, but it is very difficult to say exactly when the system will collapse under the weight of too much debt.  Some nations, such as Japan, are able to handle very high debt loads because they have a very high level of domestic saving.  Up to this point, an astounding 95 percent of all Japanese government bonds have been purchased domestically.  But other nations collapse under the weight of government debt even before they reach a debt to GDP ratio of 100%.  The following is an excerpt from a recent Congressional Research Service report

It is hard to predict at what point bond holders would deem it to be unsustainable. A few other advanced economies have debt-to-GDP ratios higher than that of the United States. Some of those countries in Europe have recently seen their financing costs rise to the point that they are unable to finance their deficits solely through private markets. But Japan has the highest debt-to-GDP ratio of any advanced economy, and it has continued to be able to finance its debt at extremely low costs.

When a government runs up massive amounts of debt, it is playing with fire.  You can pile up mountains of government debt for a while, but eventually it catches up with you.

Over the past 10 years, the U.S. national debt has grown by an average of 9.3 percent per year, but the overall U.S. economy has only grown by an average of just 1.8 percent per year.  That is unsustainable by definition.

There is going to be a tremendous price to pay for the debt binge that the U.S. government has indulged in over the past decade.  During Barack Obama’s first term, the amount of new debt accumulated by the federal government breaks down to about $50,521 for every single household in the United States.  That is utter insanity.

If you can believe it, we have accumulated more new government debt under Obama than we did from the inauguration of George Washington to the end of the Clinton administration.

And most Americans realize that something is seriously wrong.  One recent poll found that only 34 percent of all Americans believe that the country is heading in the right direction, and 60 percent of all Americans believe that the country is heading in the wrong direction.

If we keep piling up so much debt, at some point a moment of great crisis will arrive.  When that moment arrives, we could see havoc throughout the entire global financial system.  For instance, most people don’t really understand the key role that U.S. Treasuries play in the derivatives market.  The following is from a recent article posted on Zero Hedge

This time around, things will be far worse if nothing is solved. If the US loses another AAA rating, then the financial markets could face systemic risk. The reason for this is that US Treasuries are one of the senior most forms of collateral used by the banks to backstop the $600+ trillion derivatives market.

As any trader who trades on margin can tell you, when the value of your collateral is called into question, those on the other side of the trade come looking for you to put up more capital on your trades. This can result in assets being sold en masse (similar to what happened after Lehman failed) and things can get very ugly very fast.

For much more on the danger that derivatives pose to our financial system, please see this article: “The Coming Derivatives Panic That Will Destroy Global Financial Markets“.

Once again, nobody knows exactly when the sovereign debt bubble will burst, but if we continue down the path that we are currently on, it will inevitably happen at some point.

And according to Professor Carmen Reinhart, when this bubble does burst things could unravel very rapidly…

“These processes are not linear,” warns Prof. Reinhart. “You can increase debt for a while and nothing happens. Then you hit the wall, and—bang!—what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big.”

At some point the global financial system will hit the wall that Professor Reinhart has warned about.

Are you ready?

When Will The Bubble Burst?

What Have We Gotten For The Trillion Dollars We Have Spent On Wars In Afghanistan, Iraq And Libya?

Over a trillion U.S. taxpayer dollars have been spent on wars in Afghanistan, Iraq and Libya.  Whether you are for the wars or against the wars, it is important for all of us to step back and evaluate what we have really gotten for all of that money.  In Libya, we have actually helped al-Qaeda forces that were shooting at U.S. soldiers in Iraq and Afghanistan take over the country.  Now they have announced that they will be imposing strict Sharia law on all of Libya.  After 10 years of having our boys shot up in Afghanistan, the Afghan government is so “grateful” that they are publicly saying that they will side with Pakistan in any future war against the United States.  In Iraq, Islamic radicals are beheading and murdering dozens and dozens of Christians and the new Iraqi government seemingly can’t wait to push the remaining U.S. soldiers out of the country.  We ran up well over a trillion dollars of new debt to “liberate” these countries, but are they really in better shape than they were before these wars?  Are we really in better shape than we were before these wars?

Today, the United States military has at least one base in more than half of all the nations on the planet.

The U.S. spends more than 7 times as much on the military as any other country on earth does.

Without a doubt, the United States will always need a strong military.  But with the national debt soaring to unprecedented heights, is it really wise for us to try to be the police of the entire globe?

We have poured well over a trillion dollars into Afghanistan, Iraq and Libya and we have very little to show for it.

Are Afghanistan, Iraq and Libya safer places than before we went to war with them?

No.

Are Afghanistan, Iraq and Libya producing fewer “terrorists” than before we went to war with them?

No.

Are we safer than before we started all these wars?

No.

Our government has spent well over a trillion dollars and the blood of thousands upon thousands of U.S. soldiers has been spilled and in the final analysis very little has actually been accomplished.

Let’s take a closer look at these conflicts and see exactly what we have gotten for all of the money that we have spent….

Libya

In Libya, we have actually helped al-Qaeda take power.

In Afghanistan and Iraq we were supposedly fighting to do just the opposite.

So just what in the world is going on here?

The price tag for the first week of airstrikes on Libya alone was 600 million dollars.

Yes, Gaddafi was a tyrant, but have we invested a lot of time and effort only to watch as an even worse government takes power?

According to The Telegraph, the leader of the Libyan rebels was openly admitting that his “troops” included jihadists that were firing bullets at U.S. forces in Iraq….

Abdel-Hakim al-Hasidi, the Libyan rebel leader, has said jihadists who fought against allied troops in Iraq are on the front lines of the battle against Muammar Gaddafi’s regime.

A recent article by Kurt Nimmo for Infowars.com discussed some of the other ways that al-Qaeda has been active in Libya during the fight against Gaddafi….

Despite Aujali’s assurance, Abdel Hakim Belhadj, the former head of LIFG, was appointed to run a military council in September. He fought with al-Qaeda and the Taliban in Afghanistan.

In February, it was reported that al-Qaeda had set-up an Islamic emirate in Derna, in eastern Libya, headed by a former prisoner at Guantanamo Bay, Abdelkarim al-Hasadi.

Now that they have won, the “rebels” have announced that they will be imposing strict Sharia law all over Libya.

According to a new article posted on The Telegraph, Mustafa Abdul-Jalil, the chairman of NATO’s National Transitional Council, has even announced plans to repeal polygamy laws because they are not compliant with Sharia law….

Mr Abdul-Jalil went further, specifically lifting immediately, by decree, one law from Col. Gaddafi’s era that he said was in conflict with Sharia – that banning polygamy.

Should we be cheering this?

Why would the U.S. government want to spend a single penny helping al-Qaeda take over Libya and set up Sharia law there?

There should not be a single American (conservative or liberal) that supports what has gone down in Libya.

Afghanistan

The U.S. military has now been in Afghanistan for 10 years.  World War II lasted less than 6 years.  The U.S. government has spent over 467 billion dollars on the war in Afghanistan, and thousands upon thousands of our troops have been killed or wounded there.

Even after all this time, a single day of the war in Afghanistan costs more money than it took to build the entire Pentagon.

So are the Afghans grateful that we have sacrificed so much to bring “democracy” to that nation?

Of course not.

Just check out what Afghan President Hamid Karzai said during one recent interview….

“God forbid, If ever there is a war between Pakistan and America, Afghanistan will side with Pakistan”

Did you catch that?

Karzai says that in a future war between Pakistan and the United States, Afghanistan is going to be fighting against us.

But didn’t we bring them freedom?

No, we did not.

Instead, one radical Islamic government replaced another.

Today, there are officially zero Christian churches left in Afghanistan.

The new constitution of Afghanistan says that that Islam is the “religion of the state“.

The new constitution of Afghanistan also states that “no law can be contrary to the beliefs and provisions of the sacred religion of Islam”.

Earlier this year, I wrote about one Afghan man that was actually sentenced to death for converting to Christianity….

In Afghanistan right now, a one-legged Afghan Red Cross worker named Said Musa is sitting in a prison cell awaiting his execution.  Musa, a father of six children, was arrested by the Afghan government as he attempted to seek asylum at the German embassy last year.  He was sentenced to death by an Afghan court that was established by the new Afghan government that the United States worked so hard to set up.  He has been tortured and sexually abused for months.  An Afghan judge has told him that he will be hung within a matter of days.  So what was his crime?  He was a Muslim that has become a Christian.  Under Sharia law, that is punishable by death.  Is this is the “freedom” that we have sacrificed so many American lives to bring to Afghanistan?

Thankfully he was later released from prison and was able to get out of the country.

However, this just shows that the people of Afghanistan are currently experiencing a level of freedom that is quite comparable to what they experienced under the Taliban.

After all that the United States has done over there, very little positive change has taken place.

Iraq

Up to now, it is estimated that the U.S. government has spent over 800 billion dollars on the war in Iraq.

Thousands upon thousands of U.S. soldiers lost arms and legs in Iraq.

Thousands of U.S. soldiers will never be coming home at all.

But after all of our efforts, Iraq is still a far less safe place than it was before we invaded.

Christians and other religious minorities once were able to worship in peace, but now they are racing to get out of Iraq as fast as they can.

Why?

Well, because Christians and other religious minorities are being brutally targeted by Islamic radicals.

For example, about a year ago more than 80 Iraqi Christians were beheaded on a single day.  All that the Christians were trying to do was attend a church service.  One four-month-old baby was actually beheaded right in front of her parents.  You can see pictures of the shocking violence from that day right here.

Iraq is a complete and total disaster zone at this point.

The Iraqi government says that it is willing for U.S. military trainers to stay in the country, but they also say that there will be no more immunity for U.S. soldiers.

We have left the country in far worse shape than we found it, and Iraq is now a bigger breeding ground for terrorists than it ever was before.

You see, the truth is that the populations of these countries will continue to hold a grudge once we leave.  They are simply not going to forgive and forget.  There are millions of Islamic radicals in these countries that will never, ever, ever forgive the United States.  The hatred that they feel for us could be passed down for generations.

We have not brought freedom to the people of Afghanistan, Iraq and Libya.  Instead, we have just replaced the tyranny that they were suffering under with new forms of tyranny.

Meanwhile, we continue to spend ourselves into oblivion.

Yes, the U.S. will always need a strong military.

Yes, there are areas where we actually need to spend more on the military.  For example, now that Barack Obama has completely gutted our strategic nuclear arsenal, that is one area that we desperately need to attend to.

However, we simply cannot continue to recklessly spend money like we are today.  We are in debt up to our eyeballs, and trying to be “the police of the world” is very expensive….

*Before the start of the “War on Terror”, the U.S. national debt was under 6 trillion dollars.  Today, it is getting very close to 15 trillion dollars.

*Right now, the U.S. military is in nearly 130 different nations and it has a total of approximately 700 military bases around the world.  It takes about 100 billion dollars a year to maintain these bases.

*U.S. military spending is greater than the military spending of China, Russia, Japan, India, and the rest of NATO combined.

*The United States accounts for 46.5% of all military spending on the planet.  China is in second place with only 6.6%.

Meanwhile, our national security just continues to deteriorate.  Millions of people have illegally poured across our border with Mexico and the federal government is actually suing border states such as Arizona to keep them from trying to stop this.

Our national security priorities are way, way out of whack.  We continue to waste money in some of the most bizarre ways imaginable and yet we continue to become less secure with each passing year.

Yes, the United States needs a very, very strong military.

Yes, national security needs to be a very, very high priority.

But what we have been doing over the past decade has not worked.  In fact, the Bush/Obama foreign policy has been an abject failure.  We have poured hundreds of billions of dollars down the drain and we are less secure today than at any point since World War II.

It is time to admit that Barack Obama and George W. Bush have been fundamentally wrong about these wars.  Because of their foolishness, we are less safe today and our allies are less safe today.

Afghanistan is not our friend now.  Neither is Iraq.  Libya looks like it is going to become an al-Qaeda paradise thanks to us.

There is very little “freedom” in those 3 nations today.  Instead, “Islamic law” is being shoved down the throats of the people living in those countries.

So, in the final analysis, what have we really accomplished?

Economic Recovery?

If this is supposed to be an “economic recovery” it sure is pathetic.  In fact, as you will read below, the numbers tell us that this is the worst economic recovery that the American economy has ever seen.  If what we had experienced was a “normal” recession and a “normal” recovery, then jobs, economic growth and home values would have come roaring back by now.  But they haven’t.  The Federal Reserve injected unprecedented amounts of new money into the system and the federal government went into unprecedented amounts of new debt, but all of that effort has not accomplished much.  It did buy us a little bit of time and a period of relative economic stability, but now there are all kinds of signs that we are about to go into another recession (or something even worse).  So is it really honest for Ben Bernanke and Barack Obama to be using the term “economic recovery” to describe what is happening?

The truth is that what is really taking place is that the long-term economic decline of the United States is beginning to accelerate.

But most Americans simply don’t understand what is going on.

The mainstream media teaches us to blame our politicians for the economy.  One recent survey found that 44 percent of the American people believe that the U.S. economy is “worse than when Obama was inaugurated”.

Yes, Barack Obama is a horrible president.  But the economic downfall of this nation is not all his fault.  George W. Bush was a horrible president too.  So was Bill Clinton.  Congress has been corrupt and incompetent for decades.

Of course the institution that is most responsible for our economic problems is the Federal Reserve.  Thankfully, more Americans than ever are starting to realize this.

But if you listen to Ben Bernanke and Barack Obama, you would think that a great “economic recovery” has begun.  They would have us believe that they know exactly what our problems are and that they know exactly how to get us out of this mess.

Unfortunately, what we have experienced is not much of an “economic recovery” at all.  According to the Wall Street Journal, this is the worst “recovery” from a recession that the U.S. economy has ever seen….

On economic growth, real GDP has risen 0.8% over the 13 quarters since the recession began, compared to an average increase of 9.9% in past recoveries. From the beginning of the recession to April 2011, real personal income has grown just .9% compared to 9.4% for the same period in previous post 1960 recessions.

So what is really going on?

Sadly, what we are experiencing right now is a brief period of stability in the middle of a downward spiral toward economic oblivion.

The CEO of Pimco, Mohamed El-Erian, says that it should now be obvious to everyone that all of the efforts of the U.S. government and the Federal Reserve to stimulate the economy simply have not been enough to solve the structural economic challenges that we are facing….

“It’s clear that the stimulus-induced recovery hasn’t overcome the structural challenges to large-scale job creation.”

The U.S. economy is not producing enough jobs.  Today, there are 25 million Americans that are either unemployed or underemployed.

But the inability to create jobs is not a new phenomenon for the U.S. economy.  The truth is that between 2000 and 2007, the U.S. economy had its poorest stretch of job creation since the Great Depression.

However, since 2007 the employment situation in this country has gotten a lot worse.  Take a minute and watch the stunning video posted below.  It shows how rampant unemployment swept across this country between 2007 and 2011….

Our politicians promised us that globalization would be great for the U.S. economy.

Well, it was great for the big corporations to be able to pay slave labor wages to workers on the other side of the globe, but things have not worked out so well for workers in this country.

Millions of our jobs have been lost.  Millions more jobs are being lost.  Yet our politicians do nothing to stop the bleeding.

Things have gotten so bad that even the top of the food chain is shipping jobs overseas.

Just consider this recent headline which appeared in Business Insider: “Goldman Sachs Is Firing Employees In The US So It Can Hire 1,000 In Singapore

If even jobs at Goldman Sachs are being sent out of the country, are any of our jobs safe?

Many Americans would love to start a business instead of having to work for someone else, but the economic environment has become incredibly toxic for small businesses in the United States.

The rate of new business creation in the United States has been declining steadily since the 1980s.  Our politicians are literally choking the entrepreneurial spirit to death in this country.

Today, more Americans than ever are dependent on the government.  In fact, it has gotten to the point where the U.S. economy itself is highly dependent on the government.

So what is going to happen when the government is not handing out so many goodies?

The era of rampant spending in Washington D.C. seems to be coming to an end, at least for now.  The U.S. national debt has become so outrageous that many members of Congress are finally determined to start making some cuts.

While it is true that cutting government spending is long overdue, most Americans don’t realize that cutting government spending will also mean that “the economic sugar high” that we have been experiencing will start to wear off.

If we try to live within our means, that is going to cause a lot of economic pain, and the American people are not too good about making sacrifices these days.

Look, whoever is elected in 2012 is going to be in for a rough ride.  Some very difficult economic times are ahead, and whoever is elected in 2012 is going to get blamed.  By 2016, the president is probably going to be the most hated person in America.

But the truth is that these economic problems have been building for decades.

We didn’t get here by accident, and our economic problems are not going to be solved overnight.

In fact, many financial analysts are warning that they are about to get a lot worse.

For example, David Rosenberg of Gluskin Sheff says that there is a 99 percent chance that the U.S. will fall into another recession by the end of 2012.

As the economy continues to crumble, U.S. cities will become increasingly hostile places in which to live.

According to a recent Rasmussen Reports national telephone survey, 41 percent of Americans say that crime has increased where they live over the past year and only 6 percent of Americans say that crime has decreased where they live over the past year.

But just wait until the economy really collapses – that is when all hell will break loose.

In a recent article entitled “Is The Economy Improving?“, I quoted statistic after statistic that showed that the U.S. economy is actually continuing to decline.

The American people are starting to lose patience.  In fact, people all over the country are starting to get more than a little crazy.  For example, there is a now a national “epidemic” of people robbing pharmacies in order to get a hold of painkillers.

Pharmacists all over the country are being robbed at gunpoint.  Some prescription painkillers will reportedly sell for as much as 80 dollars a pill on the street.  As a recent article in the Washington Post noted, things are getting really dangerous out there for pharmacists….

“It’s an epidemic,” said Michael Fox, a pharmacist on New York’s Staten Island who has been stuck up twice in the last year. “These people are depraved. They’ll kill you.”

Armed robberies at pharmacies rose 81 percent between 2006 and 2010, from 380 to 686, the U.S. Drug Enforcement Administration says. The number of pills stolen went from 706,000 to 1.3 million. Thieves are overwhelmingly taking oxycodone painkillers like OxyContin or Roxicodone, or hydrocodone-based painkillers like Vicodin and Norco. Both narcotics are highly addictive.

But this is what our country is turning into.

We are a nation of addicts.

Our national addiction to debt and our national addiction to greed have brought us to the brink of economic disaster.

If you are waiting for an “economic recovery”, you should stop waiting.

This is about as good as things are going to get.

From here on out, things are just going to keep going downhill.

Most Americans are going to be absolutely blindsided by the economic collapse that is coming.

But that doesn’t have to be you.

You still have some time to get prepared.

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