Borrowing

The U.S. Economy: Soul Crushing Total System Failure

No matter how often the pretty people on television tell us that the U.S. economy is getting better, it isn’t going to change the soul crushing agony that millions of American families are going through right now.  The stock market may have gotten back to where it was in 2008, but the job market sure hasn’t.  As I wrote about a few days ago, the percentage of working age Americans that are actually employed has stayed very flat since late 2009, and the average duration of unemployment is hovering near an all-time high.  Sadly, this is not just a temporary downturn.  The U.S. economy has been slowly declining for several decades and is nearing total system failure.  Right now, many poverty statistics are higher than they have ever been since the Great Depression.  Many measurements of government dependence are the highest that we have ever seen in all of U.S. history.  The emerging one world economic system (otherwise known as “free trade”) has cost the U.S. economy tens of thousands of businesses, millions of jobs and hundreds of billions of dollars of our national wealth.  The federal government is going into unprecedented amounts of debt in order to try to maintain our current standard of living, but there is no way that they will be able to sustain this kind of borrowing for too much longer.  So enjoy this bubble of false prosperity while you can, because things will soon get significantly worse.

As the U.S. economy experiences total system failure, it will be imperative for all of us not to wait around waiting for someone to rescue us.

And I am not just talking about the government.

Today, millions upon millions of Americans are waiting around hoping that someone out there will hire them.

Well, the truth is that our politicians have made it so complicated and so expensive to hire someone that many small businesses try to avoid hiring as much as possible.

Businesses generally only want to hire people if they can make a profit by doing so.  When our politicians keep piling on the taxes and the regulations and the paperwork, that creates a tremendous incentive not to hire workers.

Michael Fleischer, the President of Bogen Communications, once wrote an op-ed in the Wall Street Journal entitled “Why I’m Not Hiring”.  The following is how Paul Hollrah of Family Security Matters summarized the nightmarish taxes that are imposed on his company when Fleischer hires a new worker….

According to Fleischer, Sally grosses $59,000 a year, which shrinks to less than $44,000 after taxes and other payroll deductions. The $15,311 deducted from Sally’s gross pay is comprised of New Jersey state income tax: $1,893; Social Security taxes: $3,661; state unemployment insurance: $126; disability insurance: $149; Medicare insurance: $856; federal withholding tax: $6,250; and her share of medical and dental insurance: $2,376. Roughly 25.9 percent of Sally’s income is siphoned off by Washington and Trenton before she receives her paychecks.

But then there are the additional costs of employing Sally. In addition to her gross salary, her employer must pay the lion’s share of her healthcare insurance premiums: $9,561; life and other insurance premiums: $153; federal unemployment insurance: $56; disability insurance: $149; worker’s comp insurance: $300; New Jersey state unemployment insurance: $505; Medicare insurance: $856; and the employer’s share of Social Security taxes: $3,661.

Over and above her gross salary, Bogen Communications must pay an additional $15,241 in benefits and state and federal taxes, bringing the total cost of employing Sally to approximately $74,241 per year. Sally gets to keep $43,689, or just 58.8% of that total.

Are you starting to understand why so many businesses are hesitant to hire new workers?

The big corporations can handle all of the paperwork and regulations that come with hiring a new worker fairly well, but for small businesses hiring a new worker can be a massive undertaking. That new worker is going to have to almost be a miracle worker in order to justify all of the hassle and expense.

But the federal government just keeps piling more burdens on to the backs of employers.  That is one reason why there is such an uproar over Obamacare.  It is going to make hiring workers even less attractive.

These days, most small businesses are trying to get by with as few workers as possible, and many big businesses are trying to ship as many jobs as they can overseas.

Sadly, even if you do find a good job it can disappear at any moment.

The following is from a comment that a reader named Jeff recently left on one of my articles….

It’s sad what’s happening here in this country. So many lucky ones defend it. In America it’s not exactly about hard work anymore, it’s about who you know always. The ability to keep people stupid as well as in debt was established here well by corporations also. You cannot start a solid hiring business like you could years ago.

I know many of folks who don’t break a sweat and earn more money than I ever will in a week. The system is getting crazy only creating two extremes. I fought for this country right after 9/11 as a young naive person. Using my grandfather’s old stories to see the dream that this country was always suppose to have.

The company I still unfortunately work for (cause other places are worse), 4 years ago they froze our salaries. No raises yet, this is when the company was bought by an investment group for 500 million.

Now we are getting sold to Japan for 1 billion. A 500 million dollar profit. Sorry if I may be ignorant in this way of business. But it seems the only one who benefited from this is that group of investors. 400+ well skilled jobs lost, no raises or rewards, a whole lot more work and contract obligations to meet, and less contact with management when problems surface.

I just think the United States of America is becoming the world’s poker table.

I want out of this country so bad. I don’t even know what happen to people here. The younger generation scares me how dumb they are and everyone seems so easily bought with eyecandy.

Can you imagine that?

Can you imagine your boss walking in one day and declaring that the business has just been sold to foreigners and that you are about to lose your job?

In America today, it can be absolutely soul crushing to lose a job.  It isn’t as if you are going to run out and get another fantastic job in a week or two.

When you are unemployed, people look at your differently.  It gets to the point where you don’t even want to interact with other people because you know that your unemployment is probably going to be the number one topic of conversation.

When you are out of work for six months or more, it is easy to feel like a failure – especially when so many other people are looking at you as if you are a failure too.

But in most cases, individual Americans are not to blame for not being able to find work.

Rather it is the entire system that is failing all of us.

The U.S. economy is bleeding good jobs and the middle class in America has become a bizarre game of musical chairs.  When the music stops each round you might lose your spot.  You just never know.

Looking for work in the United States in this economic environment can be a demoralizing endeavor.  For example, a recent Esquire article described what one unemployed man named Scott Annechino found when he attended a job fair in San Francisco….

A glass elevator carries him to the third floor, where the front-desk girl, who knows it’s her job to be cheerful, told him the job fair is supposed to be.

A pasty kid, maybe thirty, in a too-big shirt and a cheap tie, greets him and tells him the companies are set up in rooms along the hall and that he should definitely visit all of them. Annechino, forty-four years old, wearing his best suit and shined black shoes, walks to the first exhibitor: Devcon, a home-security company. The door is closed, no one inside. Annechino looks around for an explanation. “Oh, I just got an e-mail from my contact there saying they wouldn’t be able to make it today,” the pasty kid says, fingering his BlackBerry.

A couple of other potential employers who were supposed to be here didn’t make it, either — Konica Minolta, Santa Clara University. “Yeah …” the kid says. Annechino moves to the next room. State Farm. They’re looking for people who can put up fifty grand to start their own insurance agency. The Art Institute is next, mostly looking for people who might want to go to art school. New York Life. The U. S. Army, where men wearing fatigues and combat boots offer brochures.

That’s it.

If you want to check out the rest of the sad unemployment stories in that article, you can find them right here.

But even if you do have a job, that doesn’t mean that everything is just fine.  Average American families are finding that the prices of the basic things that they need are rising much faster than their paychecks are.

According to one recent study, more than half of all Americans feel as though they are really struggling to afford just the basics at this point….

“Every retailer wants to think ‘Everything I sell is worth it! Shoppers will love it’, but the hard reality is 52% Americans feel they barely have enough to afford the basics,” said Candace Corlett, president of WSL/Strategic Retail.

Just buying food and gas is a major financial ordeal for many families these days.  On average, a gallon of gasoline in the United States now costs $3.83.  Many Americans burn up a huge chunk of their paychecks just going back and forth to work in their cars.

So what is the solution?

Well, according to the Obama administration the answer is even more government dependence.  The federal government is now actually running ads encouraging even more people to go on food stamps….

Can you believe that?

Apparently having 46.5 million Americans on food stamps is not enough.  The federal government is spending our tax money on advertisements that try to convince even more Americans that they need to be on food stamps.

What the American people really need are good jobs, but those keep getting shipped out of the country.

Meanwhile, people are becoming increasingly desperate.

For example one Colorado man was recently caught stealing parts from toilets in public restrooms….

Donald Allen Citron, 48, faces 18 charges, including burglary and theft. He’s accused of stealing toilet parts from several locations, including Southwest Plaza Mall, University of Denver, and Craig Hospital.

Most of the crimes happened in just a few minutes, but police Citron is a plumber and all he needed was a wrench and a screw driver to steal pipes and the plumbing in toilets. The items he’s accused of stealing are valued at around $6,400.

They are calling him “the crapper scrapper”.

Other Americans are not willing to stoop to crime and instead suffer quietly and anonymously.

A reader named Katie recently left the following heartbreaking comment on one of my articles….

I’m almost homeless. Through no fault of my own I’d like to point out. I don’t drink, smoke, or do drugs. I don’t even eat fast food unless I have too.

Four years ago I had a house, car, family, stuff, an IRA, and really everything that people in this country aspire to. I had a great job that I enjoyed so did my boyfriend. Even our relationship was great.

We didn’t get hit by the economy right away. We were in Katrina damaged parts of the country and there was still a lot of construction going on and the economic boom that comes with it.

Then I got laid off. Doesn’t seem to matter that I go to interview after interview. I use indeed, monster, craigslist, and newspapers to search for jobs even outside my area.

Now my boyfriend has passed away suddenly, and his family got everything. I personally have only a living father left, who hasn’t the room but I’m camping in his yard. All my friends say they don’t have the room either. Which makes me wonder just how much of friends they are. Considering if the situation was reversed I have in the past and would open my home to anyone that needed help.

If something happens to him I really don’t know what I’m going to do. I need to get on my feet and I know that jobs are hard to come by. I’m sick of the people who have jobs saying ‘get a job you lazy bum’. I’m hardly lazy and I’m trying desperately to be employed; not being homeless would be rather awesome in my opinion. I’m not picky, regardless of my degree I’ll pick up trash or clean toilets. McDonald’s, Taco Bell and the other fast food places don’t even bother with a call back. And when I call to inquire about my application it’s always the same, ‘we will call you when we make a decision’. Such a cop-out.

So no. In my (granted meaningless opinion) the economy is not getting better. To even suggest that when unemployment is so high or the rate of food stamps. Is utter ludicrous at best. I notice that those talking heads on the cable news and radio never seem to mention that the homeless shelters have a higher occupancy level than ever before. Nor would they mention the fact that we have those shelters in abundance now across the country in comparison to the Great Depression.

I’m getting real tired of hearing how great the economy is doing. When obviously it’s not. All you have to do is open your eyes and see. Business are not coming back yet and foreclosed homes sit empty everywhere. The unemployment rate only counts the people who are getting unemployment benefits. So the people who fall off the unemployment benefits don’t get counted. Because the must have gotten a job, right? Hardly. In fact the homeless in this country are almost never counted correctly. It’s too hard to count them all, or at least that’s the excuse.

I know it’s meaningless, especially to those who see homeless and immediately have a bias, but that’s my opinion on the current state of our economy. You can count me in the 80%. Only a fool would see this as a recovery.

Please say a prayer for Katie and the millions of other Americans just like her.  It can be absolutely soul crushing to lose everything that you ever worked for and not see any light at the end of the tunnel.

Unfortunately, the U.S. economy is not going to be improving in the long run.  What we are experiencing right now is about as good as it is going to get.  The truth is that it is pretty much downhill from here.

It is fairly simple to figure out what is happening to us as a nation.

You can’t keep buying far more than you sell.

You can’t keep spending far more than you bring in.

You can’t keep running up debt in larger and larger amounts indefinitely.

The U.S. economy is running on borrowed money and on borrowed time.

At some point, both are going to run out.

Are you ready for that?

This Is What An Economic Depression Looks Like In The 21st Century

Do you want to see what a 21st century economic depression looks like?  Just look at Greece.  Once upon a time, the Greek economy was thriving, the Greek government was borrowing money like there was no tomorrow and Greek citizens were thoroughly enjoying the bubble of false prosperity that all that debt created.  Those that warned that Greece was headed for a financial collapse were laughed at and were called “doom and gloomers”.  Well, nobody is laughing now.  You see, the truth is that debt is a very cruel master.  Greeks were able to live way beyond their means for many, many years but eventually a day of reckoning arrived.  At this point, the Greek economy has been in a recession for five years in a row, and the economic crisis in that country is rapidly getting even worse.  It was just recently announced that the overall rate of unemployment in Greece has soared above 20 percent and the youth unemployment rate has risen to an astounding 48 percent.  One out of every five retail stores has been shut down and parents are literally abandoning children in the streets.  The frightening thing is that this is just the beginning.  Things are going to get a lot worse in Greece.  And in case you haven’t been paying attention, these kinds of conditions are coming to the United States as well.  We are heading down the exact same road as Greece went down, and the economic pain that this country is eventually going to suffer is going to be beyond anything that most Americans would dare to imagine.

All debt spirals eventually come to an end.  For years, Greece borrowed huge amounts of very cheap money, but there came a point when the debt became absolutely strangling and the rest of the world refused to lend the Greek government money at such cheap rates anymore.

Greece would have defaulted long before now if the EU and the IMF had not stepped in to bail them out.  But along with those bailouts came strings.  The EU and the IMF insisted that the Greek government cut spending and raise taxes.

Well, those spending cuts and tax increases caused the economy to slow down.  Tax revenues decreased and deficit reduction targets were missed.  So the EU and the IMF insisted on even more spending cuts and tax increases.

Even after all of the spending cuts and all of the tax increases that we have seen, the debt to GDP ratio in Greece is still higher than it was before the crisis began.  Today, the Greek national debt is sitting at 142 percent of GDP.

Now the EU and the IMF are demanding even more austerity measures before they will release any more bailout money.

Needless to say, the Greek people are pretty much exasperated by all of this.  They created this mess by going into so much debt, but they certainly don’t like the solutions that are being imposed upon them.

Protesters in Greece are absolutely outraged that the EU and the IMF are now demanding a 22 percent reduction in the minimum wage.

Most families in Greece are just barely surviving at this point.  Unfortunately, Greece is probably looking at depression conditions for many years to come.

Over the past three years, the size of the Greek economy has shrunk by 16 percent.

In 2012, it is being projected that the Greek economy will shrink by another 5 percent.

Sadly, that projection is probably way too optimistic.

Over the past couple of months, it has been like someone has pulled the rug out from under the Greek economy.  Just check out the following numbers from an article in the Telegraph by Ambrose Evans-Pritchard….

Another normal day at the Hellenic Statistical Authority.

We learn that:

Greece’s manufacturing output contracted by 15.5pc in December from a year earlier.

Industrial output fell 11.3pc, compared to minus 7.8pc in November.

Unemployment jumped to 20.9pc in November, up from 18.2pc a month earlier.

I have little further to add. This is what a death spiral looks like.

Can you imagine unemployment going up by 2.7 percent in one month?

This is what a 21st century economic depression looks like.

And needless to say, civil unrest is rampant in Greece.

The following is how a USA Today article described some of the protests that we saw in Greece this week….

Scores of youths, in hoods and gas masks, used sledge hammers to smash up marble paving stones in Athens’ main Syntagma Square before hurling the rubble at riot police.

The country’s two biggest labor unions stopped railway, ferry and public transport schedules, and hospitals worked on skeleton staff while most public services were disrupted. Unions were planning protests in Athens and other cities around midday.

Greek citizens are exasperated by the endless rounds of austerity that are being imposed upon them.  They wonder how far all of this is going to go.

How much higher can taxes go in Greece?  Greece already has tax rates that are among the highest in Europe….

Greece has the third highest rate of VAT in Europe, second highest gas/petrol tax, third highest tax on social insurance contributions, fifth highest VAT on alcohol, highest property tax and one of the worst corporate tax rates, without the quality of living or competitiveness to match.

How much farther can government pay be cut?  Greek civil servants have had their incomes slashed by about 40 percent since 2010.

How would you feel if your pay was reduced by 40 percent?

Large numbers of Greeks are rapidly reaching the end of their ropes.  The following is from a recent article in the Independent….

“People are scared and haven’t really realised what’s happening yet,” George Pantsios, an electrician for the country’s public power corporation, said. He has only been receiving half of his €850 monthly wage since August. “But once we all lose our jobs and can’t feed our kids, that’s when it’ll go boom and we’ll turn into Tahrir Square.”

Instead of turning violent, others are simply giving in to despair.  According to the Daily Mail, large numbers of Greek children are being abandoned because their parents simply cannot afford to take care of them anymore.  The note that one mother left with her little toddler was absolutely heartbreaking….

One mother, it said, ran away after handing over her two-year-old daughter Natasha.

Four-year-old Anna was found by a teacher clutching a note that read: ‘I will not be coming to pick up Anna today because I cannot afford to look after her. Please take good care of her. Sorry.’

Sadly, there are an increasing number of Greeks that are giving up on life entirely.  The number of suicides in Greece rose by 40 percent during just one recent 12 month time period.

But we haven’t even seen the worst in Greece yet.  The worst is still yet to come.

And the people of Greece are going to get angrier and angrier and angrier.

According to one recent poll, about 90 percent all of Greeks are unhappy with the interim government led by Prime Minister Lucas Papademos.

This week, that government has started to fall apart.  Over just the past few days, 6 members of the 48-member government cabinet have resigned.  Not only is there real doubt if the new austerity measures will be approved, there is very real doubt if this government will be able to hold together much longer.

Frustration with the EU and the IMF has reached a fever pitch in Greece.  Just check out what Reuters is reporting….

In a letter obtained by Reuters on Friday, the Federation of Greek Police accused the officials of “…blackmail, covertly abolishing or eroding democracy and national sovereignty” and said one target of its warrants would be the IMF’s top official for Greece, Poul Thomsen.

So what is going to happen next in Greece?

The truth is that nobody knows.

But whatever kind of “deals” are reached, the reality is that nothing is going to keep Greece from continuing to experience depression-like conditions for quite some time.

Unfortunately, Greece is not an isolated case.

Portugal, Ireland, Italy and Spain are all going down the same path and Europe does not have enough money to bail all of them out.

To get an idea of how much money it would take to bail out the financially troubled nations of Europe, just check out this infographic that was recently posted on ZeroHedge.

A day of reckoning is coming for the United States as well.  As CNBC recently noted, the U.S. debt problem is far worse than the European debt problem is.

That is why I have written over and over about the U.S. national debt and about how the U.S. government is spending too much money.

Right now, the U.S. government is still able to borrow gigantic mountains of very cheap money and is spending money as if tomorrow will never come.

Well, just like we saw in Greece, when debt gets out of control a day of great pain eventually arrives.

What we are watching unfold in Greece right now is coming to America.

You better get ready.

If The U.S. Government Keeps Spending Money Like This We Are Doomed And If The U.S. Government Stops Spending Money Like This We Are Doomed

If you increased your credit card spending by a couple thousand dollars per month would your lifestyle improve?  Of course it would.  By going into large amounts of debt, it is possible to live a lifestyle that you can’t really afford, at least for a while.  But if you keep racking up huge amounts of credit card debt every single month, eventually it gets to a point where it is extremely difficult to even keep up with the minimum monthly payments and the credit card companies will not lend you any more money.  Well, on a larger scale it is the same thing with government debt.  Right now, the U.S. government is spending more than a trillion dollars more than it takes in every year.  Even if the U.S. government spends all of that money on incredibly stupid stuff, it still gets into the pockets of ordinary Americans.  In turn, those ordinary Americans use that money to pay the mortgage, buy food, shop at the mall, etc.  All of this borrowing and spending by the U.S. government has created a “false prosperity” bubble that is not real.  It may feel real to you right now, but it is unsustainable by definition.  If the U.S. government suddenly started spending only the money that it actually brought in every year, our economy would be doomed and all of this “false prosperity” would rapidly disappear.  But if the U.S. government continues to rack up debt at this pace we are doomed as well.  In fact, every dollar that gets borrowed makes our eventual collapse ever worse.  We are heading down the exact same road that Greece has gone.  Eventually the rest of the world is not going to lend us gigantic mountains of super cheap money anymore.  When the flow of cheap money stops, it can be extremely painful.  Anyone that has ever seen the interest rates on their credit cards go above 20 percent knows how this feels.  If we had addressed these problems as a nation a decade or two ago, perhaps we could have found a solution.  But now there is no way out under our current financial system and a devastating economic collapse is on the horizon no matter what we do.

If there was a Hollywood movie where some crooks successfully stole 150 million dollars, what would you think of those crooks?

Would you have admiration for them?

Would you be disgusted with them?

Would you feel like your intelligence was insulted because nobody could ever steal 150 million dollars and get away with it?

Well, right now the federal government is stealing approximately 150 million dollars from our children and our grandchildren every single hour.

That’s right – the U.S. government is borrowing an astounding 150 million dollars an hour that our children and our grandchildren will be expected to deal with.

It is a theft so vast that it is almost unimaginable.

So what should be done?

A lot of people out there think that our problems would be solved if the government would just quit borrowing so much money.

Well, it is just not that simple.

Look at Greece.  They were forced by the EU and the IMF to dramatically reduce government spending.  But when Greece reduced government spending, that caused the economy to shrink rapidly and it caused tax receipts to go down more than expected.  So Greek budget deficits were even larger than anticipated and so Greece was forced to cut spending even more.  But that created even more economic problems.

A recent article by John Mauldin described the nightmarish effect that this cycle has had on Greece….

And as Greece began shake and bake its way to “austerity,” the very act of cutting deficits pushed the country into recession, which lowered tax revenues and increased expenses, putting the elusive goal of a balanced budget even further off. We should quickly note that this is not just a Greek problem. Spain’s “draconian” cuts have meant that its 6% deficit target for the year has this week been raised to a more likely 8%, making it harder to get back to even.

For country after country, this is the Endgame. It is the end of the Debt Supercycle. Debt has grown to the size that it cannot be sustained. The market will not lend any more money on terms that can be afforded, and any efforts to cut spending and raise taxes will result in an even worse economy, in various degrees of recession, with falling revenues and rising costs.

This is what happens when a country that has been spending far beyond its means is forced to dramatically cut back.

Those that are convinced that balancing the federal budget in the United States will be relatively painless should take a close look at what is happening in Greece.

As I have written about previously, the Greek economy has been plunged into a 21st century “Great Depression”.  In Greece, 20 percent of all retail stores have already shut down, the unemployment rate for those under the age of 24 is sitting at 39 percent, and one third of the entire nation is living in poverty.

And this is only just the beginning for Greece.

Things are going to get even worse.

Unfortunately, many believe that the United States is destined to experience far worse pain than Greece is currently experiencing.

For example, Peter Schiff insists that the United States is in worse financial shape than Europe at this point.  Just check out this video….

Anyone that attempts to downplay the U.S. debt problem is making a serious mistake.  Yes, we are still able to borrow trillions of dollars for next to nothing, but that is going to come to an end.

Remember all of those “suckers” that signed up for mortgages at “teaser rates” that later got jacked up dramatically?

Of course you do.

So what happened to them?

When the rates went up many of them ended up losing everything.

Well, we have gotten ourselves into the exact same kind of a position.  All of this cheap money has enabled us to live very nicely for now, but when the cheap money ends the nightmare will begin.

Right now, our debt is growing much, much faster than our economy is.  Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.

What would your household finances look like if your total debt grew by 61 percent next year but your income only grew by 4 percent?

When I was a little boy, the U.S. national debt was considered to be a huge national crisis.  Politicians from both major political parties were promising that they would fix things.

But what has happened since then?

Well, when Ronald Reagan took office the U.S. national debt was less than 1 trillion dollars.  Today, the U.S. national debt is over 15.2 trillion dollars.

During 2011, the federal government went into more debt than the U.S. government accumulated from the time that George Washington became president to the time that Ronald Reagan became president.

That may be hard to believe, but it is true.

During fiscal year 2011, the U.S. government spent 3.7 trillion dollars but it only brought in 2.4 trillion dollars.

That is utter insanity, and yet most Americans have become convinced that this is “normal” and that there is nothing to worry about.

It is hard to grasp how much money a trillion dollars is.

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.

That is how much money a trillion dollars is.

And things look even worse when you look at the balance sheet of the U.S. government.

The U.S. government has total assets of 2.7 trillion dollars and has total liabilities of 17.5 trillion dollars.  Those liabilities do not even count 4.7 trillion dollars of intragovernmental debt that is currently outstanding.

But it is not just the federal government that has been living a fantasy.

The chart posted below shows the growth of total debt in America over the past several decades.  Consumers, businesses and government officials have been on a debt binge that is absolutely unprecedented….

The scary thing is that even with all of this borrowed money, our economy is still in the dumps.

So what in the world is it going to look like when the debt bubble totally bursts?

Even with all of this “borrowed prosperity”, anger at the government is rapidly growing.  A recent Gallup poll found that “satisfaction with government” in the United States is now at an all-time record low of 29 percent.

So how angry will the American people be when all of this “borrowed prosperity” disappears?

When this whole thing comes tumbling down, a lot of people are going to blame our problems on “capitalism”.

In fact, it is already happening.  Just check out what the founder of the World Economic Forum is saying….

“We have a general morality gap, we are over-leveraged, we have neglected to invest in the future, we have undermined social coherence, and we are in danger of completely losing the confidence of future generations,” said Klaus Schwab, host and founder of the annual World Economic Forum.

“Solving problems in the context of outdated and crumbling models will only dig us deeper into the hole.

“We are in an era of profound change that urgently requires new ways of thinking instead of more business-as-usual,” the 73-year-old said, adding that “capitalism in its current form, has no place in the world around us.”

But capitalism is not the problem.  Capitalism has produced the greatest eras of prosperity that the world has ever seen.

No, the real problem is our debt-based financial system that is managed and run by the central banks of the world.

You see, debt-based central banking is not capitalism.  But way too many people equate the two.

A lot of people cannot even imagine this, but theoretically you could have capitalism without any debt whatsoever.

But what we have today is a financial system that has debt as the very foundation.  And such a system is inevitably going to fail someday.

As I have written about so many times before, the Federal Reserve is at the very heart of our economic problems here in the United States.

The Federal Reserve was designed to be a perpetual debt machine.  And it has performed that task very well.  The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.

So yes, even though things seem somewhat “stable” for the moment, there are all kinds of reasons to be concerned about the viability of our economy and our financial system in the years ahead.

The other day, I was quoted in a Reuters article about our coming economic problems….

“Most people have a gut feeling that something has gone terribly wrong, but that doesn’t mean that they understand what is happening,” he said. “A lot of Americans sense that a massive economic storm is coming and they want to be prepared for it.”

Of course the Reuters reporter did not even bother to spell my name correctly, but at least he got the quote right.

A great economic storm is coming.

Don’t let this false prosperity and this “calm before the storm” fool you.

We are living in the greatest debt bubble the world has ever seen, and no matter how it plays out there is going to be a massive amount of pain.

You might want to get yourself and your family prepared for that.

The Worst In The World – The U.S. Balance Of Trade Is Mind-Blowingly Bad

Did you know that we buy about a half a trillion dollars more stuff from the rest of the world than they buy from us?  The U.S. balance of trade is not only mind-blowingly bad – it is the worst in the world.  It is being projected that the U.S. trade deficit for 2011 will be 558.2 billion dollars.  That would be an increase of more than 11 percent from last year.  As I have written about previously, the United States is the worst in the world at a lot of things, but as far as the economic well-being of our nation is concerned, our balance of trade is particularly important.  Every single month, far more money goes out of this country than comes into it.  Tax revenues are significantly reduced as all of this money gets sucked out of our communities.  The federal government, state governments and local governments borrow gigantic piles of money to try to make up the difference, but all of this borrowing just makes our debt problems a whole lot worse.  In the end, no amount of government debt is going to be able to cover over the fact that our national economic pie is shrinking.  We are continually consuming far more wealth than we produce, and that is a recipe for economic disaster.

The “current account balance” is one key indicator of how a country is doing economically.  The following is how the CIA World Factbook defines “current account balance”….

This entry records a country’s net trade in goods and services, plus net earnings from rents, interest, profits, and dividends, and net transfer payments (such as pension funds and worker remittances) to and from the rest of the world during the period specified.

If someone were to ask you what countries in the world have strong, thriving economies right now, what countries would you think of?

Would countries like China, Germany, Russia and Saudi Arabia come to mind?

Well, all of those nations have huge positive current account balances.  In fact, China has the best current account balance in the world at +$305 billion.

So who is on the other end of the scale?

The following information comes directly from a CIA World Factbook chart….

190 Turkey $ -48,420,000,000

191 Canada $ -48,500,000,000

192 India $ -51,780,000,000

193 France $ -54,400,000,000

194 United Kingdom $ -56,190,000,000

195 Spain $ -63,650,000,000

196 Italy $ -67,940,000,000

197 United States $ -470,200,000,000

The United States is rated dead last at number 197.

Just take a close look at those numbers for a minute.

The U.S. had a current account balance of negative 470 billion dollars in 2010.  That figure was almost 7 times worse than the next worst country (Italy).

Not only does the United States have the worst current account balance in the entire world, the truth is that no other country is even in the same ballpark as us.

We are bleeding wealth so fast that it is hard to even describe it.

But perhaps a real life example can help put this all into perspective.

One 22-year-old Saudi Arabian student has a collection of sports cars that is worth more than 12 million dollars.  Reportedly, his collection includes at least three Lamborghinis, five Ferraris and five Porsches.

And guess who paid for it?

You did.

Every month, billions of dollars go out of the United States to help pay for the insane lifestyles of the ultra-wealthy oil barons of the Middle East.

Meanwhile, dozens of major U.S. cities are degenerating into hellholes.

Once upon a time, Detroit was one of the greatest industrial cities that the world has ever seen.  It was the envy of the entire globe.

But now Detroit is an utter nightmare….

*An analysis of census figures found that 48.5% of all men living in Detroit from age 20 to age 64 did not have a job in 2008.

*If you can believe it, the median price of a home in Detroit is now just $6000.

*Only 25 percent of students in Detroit graduate from high school.

So what happened to Detroit?

Well, just as has been happening in so many other U.S. cities, industry has been leaving at an astounding pace.

As I have written about previously, an average of 23 manufacturing facilities a day were shut down in the United States during 2010.

Overall, the U.S. has lost a total of more than 56,000 manufacturing facilities since 2001.

This country is bleeding middle class jobs profusely, and neither major political party seems to care.

American family budgets are being stretched tighter and tighter these days.  There are not nearly enough good jobs to go around and yet the cost of everything just seems to keep going up.

Many families are going into massive amounts of debt in an attempt to make ends meet.  According to a recent CNN article, credit card use in the United States is experiencing a major upswing once again….

Purchases made with credit cards rose 8.2% in the first quarter of 2011, 9% in the second quarter and 10.6% in the third quarter, according to First Data.

Of course American consumers were out in force on Black Friday once again this year.  They gleefully filled up their carts with cheap plastic crap made overseas, and many racked up huge credit card balances in the process.

But most of us never stop to think about those that make all of these cheap plastic products for us.

Thanks to the globalization of the economy, big corporations and corrupt governments can make stuff in countries where it is legal to pay slave labor wages and then ship their products into the United States for free.

It is important for all of us to learn what actually happens to these people that are working so hard for slave labor wages.  The following comes from a recent article in the Guardian….

At the Hung Hing factory the researcher found that the 8,000 workers put in up to 100 hours of overtime a month, far in excess of the legal maximum. Workers say they have to sign a document agreeing to work additional overtime on top of the legal maximum. The basic wage was £132 a month (up to £250 with maximum overtime payments) but wages were paid up to three weeks late.

Workers complained of inadequate training with the factory machines and last year one worker died when he fell into a machine. They said there were frequent injuries and concerns over the chemicals used. There were also complaints about the standard of the dormitories, where water for washing and flushing toilets is turned off at 10pm.

How in the world are American workers supposed to “compete” for jobs at those wage levels?

As I have written about previously, Professor Alan Blinder of Princeton University is warning that 40 million more U.S. jobs could be sent offshore over the next two decades if nothing is done to stop this.

But instead, our “representatives” in Congress just keep pushing more “free trade” agreements as the answer to our problems.  Congress has passed new free trade agreements with South Korea, Colombia and Panama, and the Obama administration has made “the NAFTA of the Pacific” a very high priority.

Well, if “free trade” is supposed to create so many jobs, then why was last decade the worst decade for the creation of jobs since the Great Depression?

If you can believe it, zero jobs were created between 1999 and 2009.  The following comes from an article in Washington Monthly….

“If any single number captures the state of the American economy over the last decade, it is zero. That was the net gain in jobs between 1999 and 2009—nada, nil, zip. By painful contrast, from the 1940s through the 1990s, recessions came and went, but no decade ended without at least a 20 percent increase in the number of jobs.”

But our leaders don’t care about us.  In fact, even the members of Obama’s “jobs panel” have been shipping jobs out of the United States at a very rapid pace.

The U.S. has run a negative balance of trade with the rest of the globe every single year since 1976.  During that time, the U.S. has run up a total trade deficit of more than 7.5 trillion dollars with the rest of the planet.

That 7.5 trillion dollars could have gone to support U.S. workers and U.S. businesses.

But it didn’t.  Instead, it went out of the country and it made foreigners wealthier as our own cities slowly rotted.

Now we are actually passing laws that encourage wealthy foreigners to come in and buy up pieces of the United States.

For example, there is actually a bill in Congress that would automatically give residence visas to any foreigners that are willing to spend at least half a million dollars to buy houses inside the United States.

The idea behind the bill is that this will get the housing market moving again.

There aren’t enough Americans with good jobs to buy houses, so we have now decided to beg foreigners to buy them.

How bizarre is that?

Until our horrendous balance of trade is fixed, the employment situation in this country is going to continue to get worse.

Any politician that tries to sell you on a “jobs plan” that does not address our balance of trade is either totally incompetent or is straight out lying to you.

The economic infrastructure of America is crumbling a little bit more every single day.  If something dramatic is not done, we will continue to bleed businesses, bleed jobs and bleed wealth.

Please share this information with as many people as you can.  The American people need to understand what is happening to the economy.  We need to work to wake up as many people as we can before it is too late.

14 Reasons Why We Should Nationalize The Federal Reserve

One of the most important steps that we could take to bring prosperity back to America would be to nationalize the Federal Reserve.  Doing so would allow the federal government to quit borrowing money, dramatically reduce taxes and eventually pay off the entire U.S. national debt.  Instead of inheriting the largest debt in the history of the world, future generations would actually have a chance at economic prosperity because they would not be forced to pay off the horrific debt of previous generations.  The Federal Reserve is a perpetual debt machine, it has almost completely destroyed the value of the U.S. dollar and it has an absolutely nightmarish track record of incompetence.  There are no good reasons to keep the status quo.  Our current debt-based monetary system will inevitably lead to a complete and total economic collapse.  We desperately need to make a change while we still can.  As you will see below, there are a ton of good reasons why we should nationalize the Federal Reserve.

Right now, most Americans believe that the Federal Reserve is actually an agency of the federal government.  But that is simply not the case.  The truth is that the Federal Reserve is about as “federal” as Federal Express is.

The Federal Reserve openly admits as much.  For example, in defending itself against a Bloomberg request for information under the Freedom of Information Act, the Federal Reserve stated in court that it was “not an agency” of the U.S. government and therefore not subject to the Freedom of Information Act.

So who owns the Federal Reserve?

As the Federal Reserve’s own website describes, it is the member banks that own it….

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

The debt-based monetary system established by the Federal Reserve has greatly enriched the big banks and the people that own them.  This has been at the expense of the American people.

A private central bank should not issue our currency, set interest rates and run our economy.  Rather, we need to return control over the currency to the American people where it belongs.

The following are 14 reasons why we should nationalize the Federal Reserve….

#1 The U.S. Constitution says that the federal government is the one that should be issuing our money.

In particular, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been given the responsibility to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

#2 Our current debt-based monetary system is a perpetual debt machine.  It is absolutely imperative that we nationalize the Federal Reserve and begin to issue debt-free money.

In a previous article about money and debt, I explained how more government debt is created whenever the U.S. government puts more money into circulation….

When the government wants more money, the U.S. government swaps U.S. Treasury bonds for “Federal Reserve notes”, thus creating more government debt.  Usually the money isn’t even printed up – most of the time it is just electronically credited to the government.  The Federal Reserve creates these “Federal Reserve notes” out of thin air.  These Federal Reserve notes are backed by nothing and have no intrinsic value of their own.

This process creates a huge problem.  When each new dollar is created, the interest owed by the federal government on that new dollar is not also created at the same time.

Therefore, more debt is actually created than the amount of money that the federal government receives from the Federal Reserve.

This is a Ponzi scheme that is designed to drain wealth from the American people and transfer it to the banking system.

This is why I call the Federal Reserve system a perpetual debt machine.  Today, the U.S. national debt is more than 5,000 times larger than it was 100 years ago.

Back in 1910, prior to the passage of the Federal Reserve Act, the national debt was only about $2.6 billion.

By going to a system of debt-free money, the U.S. government would never have to borrow a single dollar ever again.

#3 Our current debt-based monetary system requires very high personal income taxes to pay for it.  It is no accident that the personal income tax was introduced at about the same time that the Federal Reserve system came into existence.

If we nationalized the Federal Reserve and capped federal government spending at a reasonable percentage of GDP, it would be entirely possible to massively cut taxes and still keep our promises regarding Social Security and other important social programs at the same time.

I believe that eventually the entire personal income tax system could be completely wiped out and the IRS could be totally shut down.  This would save our economy billions upon billions of dollars in income tax compliance costs.

However, as an initial first step, I believe that we should eliminate all payroll taxes, all “self-employment taxes” and all taxes on the first $100,000 earned by every American.

This would provide much needed relief to the millions of poor and middle income families that have been hurt so badly by this economic downturn.

Also, I believe that we could instantly reduce the corporate tax rate to levels that would be competitive with the rest of the world, while closing corporate tax loopholes at the same time.  This would remove the temptation for companies to leave the United States in order to escape our brutally high corporate tax rates.

Yes, the proposals above would definitely cut taxes.

So where would we make up the difference?

Well, the U.S. Constitution provides one clue.  According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress has the right to impose “duties, imposts and excises” on goods sold in this country.

For way too long, big corporations have been taking advantage of sweatshops in the third world.  For way too long, other nations have used predatory trade practices to take unfair advantage of us.  For way too long, we have allowed nations with horrific human rights records to ship their goods into our country for free.

Well, we need to bring that to an end.  By raising tariffs we would raise money for the federal government and we could potentially start to reverse the flow of jobs and businesses that have been leaving this country.

Access to the U.S. market is a privilege, not a right.  High tariffs would be imposed on goods from any country that allows slave labor wages to be paid.  Very high tariffs would be imposed on goods from any country that is using predatory trade practices against us.  Extremely high tariffs would be imposed on any nation that does not respect basic human rights.

However, please keep in mind that none of this would work if we did not nationalize the Federal Reserve.  The tax cuts proposed above would be suicidal under our current debt-based monetary system.  But if we nationalize the Fed, we really could do this.  It may sound crazy, but it really would work.

#4 If we nationalize the Federal Reserve, there would be no more budget deficits.  If the federal government was a bit short one year, it would just print up a little bit of extra money in order to make up the difference.

It would also be very important to cap federal government spending as a percentage of GDP so that we don’t have crazy Congress critters creating a lot of inflation by spending us into oblivion.

Just because we would be adopting a debt-free monetary system does not mean that we could throw spending discipline out the window.  Rather, it would actually become more important than ever.

#5 If we nationalize the Federal Reserve, we would instantly reduce the national debt by 1.6 trillion dollars.  That is the amount that is currently on the balance sheet of the Federal Reserve.  The Federal Reserve just created this money out of thin air anyway, so it was never their money to begin with.  Some members of Congress have already proposed cancelling the debt held by the Federal Reserve, and it is a great idea.

#6 If we nationalize the Federal Reserve, we could eventually get rid of the entire national debt.

Under our current system, the U.S. national debt will never, ever be paid off.  We are 15 trillion dollars in debt, and at this point we add more than a trillion dollars to that number every year.

As I have written about previously, if the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

But under our current system we are not paying it off.  Rather we keep piling up more debt at an astounding pace.

In a system of debt-free money, there would be no more budget deficits, and we could actually start slowly paying off the national debt with newly issued “United States money”.

This would have to be done very slowly so as to not shock the financial system, but it could be done.  As U.S. debt becomes due, a small percentage of it could be retired each year.

It is entirely conceivable that within 30 to 40 years we could pay it off entirely without causing tremendous damage to the financial system.

#7 If we nationalize the Federal Reserve, we will eventually totally eliminate the interest on the national debt.  Most Americans don’t understand this, but each year we spend hundreds of billions of dollars just on interest on the national debt.  For example, the U.S. government spent over 454 billion dollars on interest on the national debt during fiscal year 2011.

Under a debt-free monetary system, that number would eventually go to zero.  That would save the federal government a ton of money.

#8 While there is certainly a danger that we would have inflation under a debt-free monetary system, the reality is that we are absolutely guaranteed inflation under the Federal Reserve system.

Most Americans believe that inflation is a fact of life, but the sad truth is that the United States has only had a major, ongoing problem with inflation since the Federal Reserve was created back in 1913.

If you do not believe this, just check out this chart.

Sadly, the U.S. dollar has lost well over 95 percent of its value since the Federal Reserve was created.

So, yes, there would be a need for monetary discipline under a debt-free monetary system, but it would be hard to do worse than the Federal Reserve has already been doing.

#9 If we nationalize the Federal Reserve, we would eliminate all of the financial bubbles that the Federal Reserve has been creating.

For example, there would not have been such a bad housing crash if the Federal Reserve had not created such perfect conditions for a housing bubble in the first place.

We should eliminate the Federal Reserve and allow the market to set interest rates.  Having a central authority that sets interest rates is just simply wrong and it creates all sorts of problems.

#10 The Federal Reserve has not been doing a good job.

In case anyone has not noticed, Federal Reserve Chairman Ben Bernanke has a very long track record of incompetence.  Nearly every major judgment that he has made since taking over that position has been dead wrong.

We are always told that we need someone to run the economy and that the Fed is there to keep depressions from happening.

Well, the truth is that the Fed actually greatly contributed to the Great Depression and it was at least partly responsible for the financial crash of 2008.

Now we are right on the verge of yet another massive financial implosion.

If someone keeps wrecking your car, you don’t let them keep driving it, do you?

#11 If we nationalize the Federal Reserve, we could potentially transition to “sound money” at some point.

There is great debate about this of course.  But it is a debate that we need to have.

But before we go to “hard money” we need to do something about this horrific debt that we have piled up for future generations first.  We simply cannot lock this debt in and expect them to pay for our mistakes.

We made this mess, so we need to clean it up.

Going to a debt-free monetary system would allow us to do that.

#12 If we nationalize the Federal Reserve, our local banks will have much more freedom.  Most Americans simply do not understand just how much power the Federal Reserve actually has over our local banks.

For example, just last year Federal Reserve officials walked into one bank in Oklahoma and demanded that they take down all the Bible verses and all the Christmas buttons that the bank had been displaying.

#13 If we nationalize the Federal Reserve, we won’t have trillions of dollars of secret loans being made to big financial institutions on Wall Street and in foreign countries.

Most Americans don’t realize this, but the Federal Reserve made $16.1 trillion in secret loans to their friends during the last financial crisis.

Meanwhile, hundreds of small banks were left out in the cold and the American people got no help.

This is rampant corruption and it needs to be stopped.

#14 The Federal Reserve needs to be nationalized because it is an unelected, unaccountable “fourth branch of government” that has gotten completely and totally out of control.  Even some members of Congress are now openly complaining about how much power the Fed has.  For example, Ron Paul told MSNBC last year that he believes that the Federal Reserve is now more powerful than Congress…..

“The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress.”

To learn much more about the Federal Reserve and how it is destroying prosperity in America, there is a great animated documentary on YouTube entitled “The American Dream” that you can watch right here.

It is absolutely imperative that the American people get educated about the Federal Reserve and about why a debt-based monetary system is bad for us.

In 1922, Henry Ford wrote the following….

“The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.”

The U.S. government does not need to go into debt to anyone.

The U.S. government is a sovereign nation.

So why in the world are we 15 trillion dollars in debt?

We have allowed ourselves to become willingly enslaved.

In the book of Proverbs, it tells us the following….

The rich ruleth over the poor, and the borrower is servant to the lender.

By allowing ourselves to become enslaved to debt, we have become the servants of the international banking system.

Our founding fathers attempted to warn us about this.

For example, Thomas Jefferson strongly believed that when the federal government borrows money in one generation which must be paid back by future generations it is equivalent to stealing….

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.

Not only that, Thomas Jefferson also once stated that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing….

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

If we had implemented that advice, how much better off would we be today?

We can still do this.

We can take back control of our financial system.

We can nationalize the Federal Reserve.

We can dramatically cut taxes and eventually shut down the IRS.

We can give our children and grandchildren a future that is debt free.

We can escape the tyranny of the international bankers.

The choice, America, is up to you.

Without Low Interest Rates, The U.S. Financial System Dies

Right now, interest rates are near historic lows.  The U.S. government is able to borrow gigantic mountains of money for next to nothing.  U.S. consumers are still able to get home loans, car loans and student loans at ridiculously low interest rates.  When this low interest rate environment changes (and it will), it is going to absolutely devastate the U.S. economy.  Without low interest rates, the U.S. financial system dies.  When it comes to borrowing money, it is the rate of interest that causes the pain.  If you could borrow as much money as you wanted at a zero rate of interest for the rest of your life you would never, ever have a debt problem.  But when there is a cost to borrowing money that changes things.  The higher the rate of interest goes, the more painful debt becomes.

The only reason that U.S. government finances have not fallen apart completely already is because the federal government is still able to borrow huge amounts of money very cheaply.  If interest rates on U.S. government debt even return just to “average” levels, it is going to be absolutely catastrophic.

So what happens if rates go above “average”?

The reality is that if there is a major crisis that causes interest rates on U.S. Treasuries to go well beyond “normal” levels it is going to cause a complete and total collapse.

In 2010, the U.S. government paid out just $413 billion in interest even though the national debt soared to 14 trillion dollars by the end of the year.

That means that the U.S. government paid somewhere in the neighborhood of 3 percent interest for the year.

Considering how rapidly the U.S. dollar has been declining and how much money printing the Federal Reserve has been doing, a rate of interest that low is absolutely ridiculous.

The shorter the term, the more ridiculous the rates of interest on U.S. Treasuries are.

For example, the rate of interest on 3 month U.S. Treasuries right now is just barely above zero.

The Federal Reserve has been playing all kinds of games in an attempt to keep interest rates on U.S. government debt low, and so far they have been pretty successful at it.

But they aren’t going to be able to do it forever.

Up until now, other nations and investors around the world have continued to participate in the system even though they know that the Federal Reserve is cheating.

However, there are signs that a lot of investors are finally getting fed up and are ready to walk away from U.S. government debt.

China has been dumping short-term U.S. government debt.  Russia has been dumping U.S. government debt. Pimco has been dumping U.S. government debt.

Others are taking things even farther.

In fact, there are some investors that plan on cashing in on the loss of confidence in U.S. Treasuries.  Renowned investor Jim Rogers says that he is now going to be shorting 30 year U.S. government bonds.

Just check out what Rogers recently told CNBC….

“I cannot imagine or conceive lending money to the United States government for 30-years at 3, 4, 5 or 6 percent —you pick a number — in U.S. dollars”

And he is right.  Who in the world would be stupid enough to loan the U.S. government money at a 4 or 5 percent rate of interest for the next 30 years?

Actually, most U.S. government debt is financed in the short-term these days.  In fact, the U.S. government issues a higher percentage of short-term debt than any other industrialized nation.

This trend really got started during the Clinton administration.  Back then they figured out that the U.S. could reduce its borrowing costs substantially by relying much more heavily on short-term debt.  The Bush and Obama administrations have continued this trend.

So these days the U.S. government constantly has huge amounts of debt that are maturing and that need to be rolled over.

This is great as long as interest rates stay very, very low.

But when interest rates rise the whole game will change.

In a recent article, Pat Buchanan explained that the Obama administration is being completely unrealistic when it assumes that interest rates on U.S. government debt will stay incredibly low over the next decade….

“The average rate of interest the Fed has had to pay to borrow for the last two decades has been 5.7 percent. However, President Obama is projecting the cost of money at only 2.5 percent.

A return to the normal Fed rate would, by 2020, add $4.9 trillion to the cumulative deficit”

Most Americans really cannot grasp how incredibly low interest rates are right now.

Sometimes a picture is worth a thousand words.

The following chart shows how interest rates on 10 year U.S. Treasury bonds have declined over the last several decades.

As confidence in the U.S. dollar and in U.S. government debt declines, interest rates will go up.

In fact, there are troubling signs that we are starting to see a move in that direction right now.  Last week, the yield on 5 year U.S. Treasuries experienced the biggest one week percentage jump ever recorded.

The big danger is that the political wrangling in Washington D.C. will start to cause a panic.  The managing director of Standard & Poor’s recently told Reuters that if the U.S. government starts defaulting on debt at the beginning of August, the credit rating on U.S. Treasury bonds that are supposed to mature on August 4th will go from AAA all the way down to D….

Chambers, who is also the chairman of S&P’s sovereign ratings committee, told Reuters on Tuesday that U.S. Treasury bills maturing on August 4 would be rated ‘D’ if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply, he said.

“If the U.S. government misses a payment, it goes to D,” Chambers said. “That would happen right after August 4, when the bills mature, because they don’t have a grace period.”

When a credit rating gets slashed, interest rates on that debt can go up dramatically.

Just ask the citizens of Greece.

Today, the interest rate on 2 year Greek bonds is over 26 percent.

You are delusional if you believe that something like that can never happen here.

Right now the U.S. national debt is completely and totally out of control.  If the U.S. government had to start paying interest rates of 10, 15 or 20 percent to borrow money it would be a total nightmare.

This year the U.S. government will have income of about 2.2 trillion dollars.

If in future years the U.S. government is spending a trillion or a trillion and a half dollars just on interest on the national debt, then how in the world is it going to be possible to even run the government, much less balance the budget?

But rising interest rates would not just devastate the federal government.

It would become much more expensive for state and local governments to borrow money.

Student loans would become much more expensive.

Car loans would become much more expensive.

Home loans would become out of reach for everyone except the very wealthy.

As we saw during the housing crash of a few years ago, rising interest rates can absolutely wipe homeowners out.

On a standard home loan, if you change the rate of interest from 5 percent to 10 percent you increase the mortgage payment by approximately 50 percent.

If you change the rate of interest from 5 percent to 15 percent, you roughly double the mortgage payment.

As the 30 year fixed rate mortgage chart below shows, interest rates are near historic lows right now….

Keep in mind that even with such ridiculously low interest rates the U.S. real estate market has been deader than a doornail.

So what would a significant spike in interest rates do to it?

When all of these low interest rates go away the entire financial system is going to change dramatically.

A significant spike in interest rates would wipe out U.S. government finances, it would push state and local governments all over the country to the brink of bankruptcy, it would bring economic activity to a standstill and it would destroy any hopes for a housing recovery.

This country, and in particular the federal government, is enslaved to debt but right now we are not feeling the full pain of that debt because interest rates are so low.

If you want to know when things are really going to start coming apart, just keep an eye on interest rates.  When they really start spiking you can start sounding the alarm.

The truth is that the state of the economy is going to continue to get worse.  Our debt is growing every single day and our country is getting poorer every single day.  When interest rates start surging it is going to start knocking over a lot of dominoes.

I hope you are getting prepared for when that happens.

20 Questions To Ask Anyone Foolish Enough To Believe The Economic Crisis Is Over

If you listen to Ben Bernanke, Barack Obama and the mainstream media long enough, and if you didn’t know any better, you might be tempted to think that the economic crisis is long gone and that we are in the midst of a burgeoning economic recovery.  Unfortunately, the truth is that the economic crisis is far from over.  In 2010, more homes were repossessed than ever before, more Americans were on food stamps than ever before and a smaller percentage of American men had jobs than ever before.  The reality is that the United States is an economic basket case and all of these natural disasters certainly are not helping things.  The Federal Reserve has been printing gigantic piles of money and the U.S. government has been borrowing and spending cash at a dizzying pace in an all-out effort to stabilize things.  They have succeeded for the moment, but our long-term economic problems are worse then ever.  We are still in the middle of a full-blown economic crisis and things are about to get even worse.

If you know someone that is foolish enough to believe that the economic crisis is over and that our economic problems are behind us, just ask that person the following questions….

#1 During the 23 months of the “Obama recovery”, an average of about 23,000 jobs a month have been created.  It takes somewhere in the neighborhood of 150,000 jobs a month just to keep up with population growth.  So shouldn’t we hold off a bit before we declare the economic crisis to be over?

#2 During the “recession”, somewhere between 6.3 million and 7.5 million jobs were lost.  During the “Obama recovery”, approximately 535,000 jobs have been added.  When will the rest of the jobs finally come back?

#3 Of the 535,000 jobs that have been created during the “Obama recovery”, only about 35,000 of them are permanent full-time jobs. Today, “low income jobs” account for 41 percent of all jobs in the United States. If our economy is recovering, then why can’t it produce large numbers of good jobs that will enable people to provide for their families?

#4 Agricultural commodities have been absolutely soaring this decade.  The combined price of cotton, wheat, gasoline and hogs is now more than 3 times higher than it was back in 2002.  So how in the world can the Federal Reserve claim that inflation has been at minimal levels all this time?

#5 Back in 2008, banks had a total of 27 billion dollars in excess reserves at the Fed.  Today, banks have a total of approximately 1.5 trillion dollars in excess reserves at the Fed.  So what is going to happen when all of this money eventually hits the economy?….

#6 If the U.S. economy is recovering, then why are shipments by U.S. factories still substantially below 2008 levels?

#7 Why are imports of goods from overseas growing much more rapidly than shipments of goods from U.S. factories?

#8 According to Zillow, the average price of a home in the U.S. is about 8 percent lower than it was a year ago and that it continues to fall about 1 percent a month. During the first quarter of 2011, home values declined at the fastest rate since late 2008. So can we really talk about a “recovery” when the real estate crisis continues to get worse?

#9 According to a shocking new survey, 54 percent of Americans believe that a housing recovery is “unlikely” until at least 2014.  So how is the housing industry supposed to improve if so many people are convinced that it will not?

#10 The latest GDP numbers out of Japan are a complete and total disaster.  During the first quarter GDP declined by a stunning 3.7 percent.  Of course I have been saying for months that the Japanese economy is collapsing, but most mainstream economists were absolutely stunned by the latest figures.  So will the rest of the world be able to avoid slipping into a recession as well?

#11 Next week, Republicans in the House of Representatives are going to allow a vote on raising the debt ceiling.  Everyone knows that this is an opportunity for Republican lawmakers to “look tough” to their constituents (the vast majority of which do not want the debt ceiling raised).  Everyone also knows that eventually the Republicans are almost certainly going to cave on the debt ceiling after minimal concessions by the Democrats.  The truth is that neither “establishment Republicans” nor “establishment Democrats” are actually serious about significantly cutting government debt.  So why do we need all of this political theater?

#12 Why are so many of our once great manufacturing cities being transformed into hellholes?  In the city of Detroit today, there are over 33,000 abandoned houses, 70 schools are being permanently closed down, the mayor wants to bulldoze one-fourth of the city and you can literally buy a house for one dollar in the worst areas.

#13 According to one new survey, about half of all Baby Boomers fear that when they retire they are going to end up living in poverty.  So who is going to take care of them all when the money runs out?

#14 According to the U.S. Bureau of Labor Statistics, an average of about 5 million Americans were being hired every single month during 2006.  Today, an average of about 3.5 million Americans are being hired every single month.  So why are our politicians talking about “economic recovery” instead of “the collapse of the economy” when hiring remains about 50 percent below normal?

#15 Since August, 2 million more Americans have left the labor force.  But the entire period from August to today was supposed to have been a time of economic growth and recovery.  So why are so many Americans giving up on looking for a job?

#16 According to Gallup, 41 percent of Americans believed that the economy was “getting better” at this time last year.  Today, that number is at just 27 percent.  Are Americans losing faith in the U.S. economy?

#17 According to the U.S. Census, the number of children living in poverty has gone up by about 2 million in just the past 2 years, and one out of every four American children is currently on food stamps.  During this same time period, Barack Obama and Ben Bernanke have told us over and over that the U.S. economy has been getting better. So what is the truth?

#18 America has become absolutely addicted to government money. 59 percent of all Americans now receive money from the federal government in one form or another. U.S. households are now receiving more income from the U.S. government than they are paying to the government in taxes. Americans hate having their taxes raised and they hate having their government benefits cut.  So is there any hope that this will ever be turned around before disaster strikes?

#19 The combined debt of the major GSEs (Fannie Mae, Freddie Mac and Sallie Mae) has increased from 3.2 trillion in 2008 to 6.4 trillion in 2011.  How in the world is the U.S. government going to be able to afford to guarantee all of that debt on top of everything else?

#20 If the U.S. national debt (more than 14 trillion dollars) was reduced to a stack of 5 dollar bills, it would reach three quarters of the way to the moon.  The U.S. government borrows about 168 million dollars every single hour.  If Bill Gates gave every penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.  So how in the world can our politicians tell us that everything is going to be okay?

How Can America Create Wealth If Our Industrial Base Is Destroyed? 50,000 Manufacturing Jobs Have Been Lost Every Month Since 2001

Any economy that constantly consumes far more wealth than it produces is eventually going to be in for a very hard fall.  Many point to relatively stable GDP numbers as evidence that the U.S. economy is doing okay, but the truth is that we have had to borrow increasingly massive amounts of money to keep GDP numbers up at that level.  The U.S. government is going to run an all-time record deficit of about 1.65 trillion dollars this year and average household debt in the United States has now reached a level of 136% of average household income.  But borrowing endless amounts of money and consuming massive amounts of wealth with that borrowed money is a road that leads to economic oblivion.  The only way to have a healthy economy in the long run is to create wealth.  But how can America create wealth if our industrial base is being absolutely destroyed?  According to Forbes, the United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001.  Hundreds of formerly thriving industries in the United States are being totally wiped out.  China uses every trick in the book to win trade battles.  They deeply subsidize their domestic industries, they openly steal technology, they blatantly manipulate currency rates and they allow their citizens to be paid slave labor wages.  So yes, the products coming from China are cheaper, but in the process tens of thousands of factories in the U.S. are shutting down, millions of jobs are being lost and the ability of America to create wealth is being compromised.

In 2010, the U.S. trade deficit was just a whisker under $500 billion.  Much of that trade deficit was with China.

During 2010, we spent $365 billion on goods from China while they only spent $92 billion on goods from us.

Does a 4 to 1 ratio sound like a “fair and balanced” trade relationship to anyone out there?

Our trade deficit with China in 2010 was the largest trade deficit that one country has ever had with another country in the history of the world.

In fact, the U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

Needless to say, that is not a good trend.

Our industrial base and our ability to create wealth is being wiped out so rapidly that it has now become a very serious threat to our national security.

According to Forbes, there is only one steel plant inside the United States that is still capable of producing steel of high enough quality to meet the needs of the U.S. military, and even that plant has been bought by a European company.

Meanwhile, China produced 11 times as much steel as America did last year.

Not only that, China is now the number one supplier of components that are critical to the operation of U.S. defense systems.

How in the world did we let that happen?

So what happens if we have a conflict with China someday?

But of more immediate concern is the loss of jobs that the destruction of our industrial base is causing.

For example, the Ivex Packaging Paper plant in Joliet, Illinois just announced that it is shutting down for good after 97 years in business.  79 good jobs will be lost.  Meanwhile, China has become the number one producer of paper products in the entire world.

But China is not just wiping the floor with us when it comes to things like steel and paper.

The truth is that China has now become the world’s largest exporter of high technology products.  Back in 1998, the United States had 25 percent of the world’s high tech export market and China had just 10 percent. Ten years later, the United States had less than 15 percent and China’s share had soared to 20 percent.

So how is China doing it?  Well, as noted above, they are pulling every trick that they can think of.

Most Americans think that we have “free trade” with nations such as China.  That is a complete and total lie and anyone that believes that we have “free trade” with China does not know what they are talking about.

China subsidizes their domestic industries to such an extreme extent that many global industries no longer even come close to resembling “free markets” as a recent story in Forbes noted….

According to a story in the January 20, 2009 New York Times, government subsidies so thoroughly disrupted pricing in the global market for antibiotics that many western producers had to either move facilities to Asia or exit the business entirely. The reason this might matter to intelligence analysts is that the last U.S. source of key ingredients for antibiotics — a Bristol-Myers Squibb plant in East Syracuse, New York — has now closed, leaving the U.S. dependent on foreign sources in a future conflict.

Our politicians and our business leaders have pursued economic policies that are so self-destructive that it defies explanation.

How in the world could anyone be so stupid?

Since 2001, over 42,000 U.S. factories have closed down for good.  Millions of jobs have been lost.  The ability of the once great American economic machine to create wealth has been neutered.

The business environment in America is completely and totally pathetic at this point.  The number of small businesses that are being created is also way, way down.

According to the U.S. Census Bureau, only 403,765 small businesses were created in the 12 months that ended in March 2009.  That was down 17.3% from the previous year, and it was the smallest number of small businesses created since records began being kept in 1977.

The truth is that the U.S. economy is dying.

We continue to consume about the same amount of wealth that we always have, but our net worth is declining.

According to the Federal Reserve, more than two-thirds of Americans have seen their net worth decline during this economic downturn.  In fact, the Fed says that between 2007 and 2009, the wealth of the average American family declined by 23%.

So if it seems like your family and everyone around you is getting poorer, that is because it really is happening.

We really are becoming poorer as a nation.

We can see evidence of this all around us.  Just consider a few of the examples that have been in the news in recent days….

*One school district in the Chicago area is laying off 363 teachers.

*The U.S. Postal Service is offering $20,000 buyouts to thousands of workers as they attempt to slash 7,500 good paying jobs.

*The city of Detroit, once a shining example of middle class America, is now a rotting cesspool of economic decline and it saw its population decline by 25 percent over the decade that recently ended.

Americans are not feeling the full impact of America’s industrial decline yet because we have been filling the gap in wealth creation with massive amounts of debt.

In the years since 1975, the United States had run a total trade deficit of 7.5 trillion dollars with the rest of the world.  That 7.5 trillion dollars could have gone to support U.S. businesses and U.S. workers, but instead it left the country and went into the hands of foreigners that do not pay taxes.

Therefore, the U.S. government, state governments and our local governments have had to borrow massive amounts of money to make up the difference.

Most people do not realize it, but the destruction of America’s industrial base has played a very significant role in the government debt crisis we are facing today.

In addition, the millions upon millions of workers that have lost their jobs as America’s industrial base has been destroyed are now a drain on the system.  Instead of creating wealth and being involved in economically productive activity, millions of American workers are now totally dependent on the U.S. government for survival.

Do you think that it is just some sort of accident that we have 44 million Americans on food stamps?

Don’t you think that a large percentage of those people would actually like to have good jobs that would enable them to sufficiently feed their families?

If we continue on the path that we are currently on we are not going to have much of an economy left.

Not that all trade is bad.  Certainly not.  For example, trade with Canada is generally a very good thing.

However, the horribly unbalanced and unfair trade relationships that we have with nations such as China are ripping our industrial base apart.  Our politicians have not been telling us the truth about what the “global economy” will mean for American workers.  Most U.S. workers never realized that globalism would mean that they would be competing for jobs with workers willing to work for one-tenth the pay on the other side of the globe.

Those people that believe that we can indefinitely maintain an economy where we consume far more wealth than we create are completely and totally delusional.

Until the American people wake up and start demanding change from our politicians on these issues, 50,000 (or more) manufacturing jobs will continue to fly out the doors every single month and even more Americans will become dependent on government welfare.

Is that what you want?

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