The Debt

Caught In A Lie: Bernanke Promised Congress The Federal Reserve Would Not Monetize The Debt But Now That Is Exactly What Is Happening

On June 3rd, 2009 Federal Reserve Chairman Ben Bernanke promised the U.S. Congress that the Federal Reserve would not monetize the debt of the U.S. government.  On November 3rd, 2010 the Federal Reserve announced a massive quantitative easing plan which will involve the purchase of 600 billion dollars of U.S. Treasury securities by the middle of 2011.  Creating 600 billion dollars out of thin air and using them to buy up U.S. government securities is monetizing the debt.  So Federal Reserve Chairman Ben Bernanke has been caught in a lie.  Will we ever be able to trust a single word that he says ever again?

Monetizing the debt is a desperate act.  It is a signal that we are rapidly reaching the end of the game.  Slamming interest rates all the way to the floor did not revive the U.S. economy.  Hundreds of billions of dollars in extra government spending did not do the trick either.  The U.S. economy is still dying and the U.S. government is now beginning to find it very difficult to locate buyers for all the debt that it is constantly issuing.

So the Fed apparently hopes that this new round of quantitative easing will be a way to finance the exploding U.S. government debt and spark an “economic recovery” at the same time.

But didn’t Bernanke promise that the Fed was not going to do this?

Didn’t he pledge to Congress that the Federal Reserve would not monetize the debt?

Yes, he did.  The following is video footage of Bernanke from June 3rd, 2009 promising that the Federal Reserve would not monetize the debt….

So much for keeping his promises.

But what else can Bernanke do?

The truth is that we are reaching the end of the economic rope and the Federal Reserve has already played all of the other tricks that they have in their bag.

Buying up massive amounts of U.S. government debt and showering the U.S. economy with money is a desperate attempt to keep the shell game going for a few more rounds.

Once upon a time, the U.S. dollar was the strongest currency on the planet.  The rest of the world loved to use it as a reserve currency and they were more than glad to buy up U.S. Treasuries.

But now the mood has changed dramatically.  The rest of the world does not intend to keep lending us well over a trillion dollars each and every year.  The market for dollar-denominated debt is not what it once was.

In fact, Peter Schiff, the CEO of Euro Pacific Capital, believes that the primary reason for this new round of quantitative easing is that the U.S. government is having an increasingly difficult time financing its debts….

At the end of the day, all this deflation talk is a red herring. The true purpose of QE 2 is to disguise the decreasing ability of the Treasury to finance its debts. As global demand for dollar-denominated debt falls, the Fed is looking for an excuse to pick up the slack. By announcing QE 2, it can monetize government debt without the markets perceiving a funding problem.

But the markets are not populated by a bunch of idiots.  They are going to see what is going on.  The Federal Reserve is monetizing the debt.  This is going to make U.S. government debt even less attractive to foreign investors as I wrote about yesterday….

As foreigners begin to balk at all of this nonsense, the U.S. government will either have to start paying higher interest rates on government debt in order to attract enough investors, or the Federal Reserve will just have to drop all pretense and permanently start buying up most of the debt.  Either way, once faith has been lost in U.S. Treasuries the financial world will never, ever be the same.

If there comes a point when China and Japan realize that the game is up, they are going to start bailing out of U.S. Treasuries faster than you can say “panic”.  That could create a crisis of unprecedented proportions.  Of course the Federal Reserve could just keep whipping up increasingly large batches of dollars out of thin air to soak up all the excess debt flooding the market, but that kind of a Ponzi scheme would not work for long, and it would likely set off horrific inflation.

In order for the current world financial system to maintain stability, there must be faith in the U.S. dollar and in U.S. Treasuries.  Once faith in those two pillars is gone, it is inevitable that the whole system will come crashing down.

Most Americans have no idea that the entire global financial system is hanging by a thread.  They have no idea that their futures could be radically altered if things go badly.

We like to think that we live in such a “democratic” society, but the decisions on which our economic future rest are in the hands of a group of unelected, unaccountable central bankers.

The truth is that the Federal Reserve is about as “federal” as Federal Express is.  The Fed is not part of the U.S. government.  If you watch interviews with top Federal Reserve officials, they love to talk about how “independent” they are.  In defending itself against a Bloomberg request for information under the Freedom of Information Act, the Federal Reserve objected by declaring that it was “not an agency” of the U.S. government and therefore it was not subject to the Freedom of Information Act.

The institution that has the most power by far over the U.S. economy does not answer to the American people, and the American people are so “comfortably numb” that they don’t even realize it.

In fact, most Americans do not even know that the Federal Reserve, in association with their buddies on Wall Street, caused the first Great Depression.

But Ben Bernanke does.

At a November 8th, 2002 conference to honor Milton Friedman’s 90th birthday, Bernanke actually confessed that Milton Friedman and Anna J. Schwartz were right when they wrote that the Federal Reserve caused the Great Depression….

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

So does that make you feel better?

Ben Bernanke says that the folks over at the Federal Reserve are very sorry that they caused the Great Depression of the 1930s and they promise not to do it again.

Of course we have already seen how much Ben Bernanke’s promises are worth.

With people like Bernanke in charge, there is not a lot of reason for optimism.

Meanwhile, Bernanke and his fellow central bankers are heading down to Jekyll Island this weekend for a grand celebration.

That’s right.

The Federal Reserve is holding a conference this weekend entitled “A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve” to celebrate the 100 year anniversary of the infamous 1910 Jekyll Island meeting that spawned the draft legislation that would ultimately create the U.S. Federal Reserve.

They will surely be congratulating themselves on doing such a fine job of running the U.S. economy.

Yeah, they are doing a fine job of running it – right off a cliff and into oblivion.

9 Reasons Why Quantitative Easing Is Bad For The U.S. Economy

Buckle up and hold on – a new round of quantitative easing is here and things could start getting very ugly in the financial world over the coming months.  The truth is that many economists fear that an out of control Federal Reserve is “crossing the Rubicon” by announcing another wave of quantitative easing.  Have we now reached a point where the Federal Reserve is simply going to fire up the printing presses and shower massive wads of cash into the financial system whenever the U.S. economy is not growing fast enough?  If so, what does the mean for inflation, the stability of the world financial system and the future of the U.S. dollar?  The Fed says that the plan is to purchase $600 billion of U.S. Treasury securities by the middle of 2011.  In addition, the Federal Reserve has announced that it will be “reinvesting” an additional $250 billion to $300 billion from the proceeds of its mortgage portfolio in U.S. Treasury securities over the same time period.  So that is a total injection of about $900 billion.  Perhaps the Fed thought that number would sound a little less ominous than $1 trillion.  In any event, the Federal Reserve seems convinced that quantitative easing is going to work this time.  So should we believe the Federal Reserve?

The truth is that the Federal Reserve has tried this before.  In November 2008, the Federal Reserve announced a $600 billion quantitative easing program.  Four months later the Fed felt that even more cash was necessary, so they upped the total to $1.8 trillion.

So did quantitative easing work then?

No, not really.  It may have helped stabilize the economy in the short-term, but unemployment is still staggeringly high.  Monthly U.S. home sales continue to come in at close to record low levels.  Businesses are borrowing less money.  Individuals are borrowing less money.  Stores are closing left and right.

The Fed is desperate to crank the debt spiral that our economic system is now based upon back up again.  The Fed thinks that somehow if it can just pump enough nearly free liquidity into the banking system, the banks will turn around and lend it out at a markup and that this will get the debt spiral cranking again.

The sad truth is that the Federal Reserve is not trying to build an economic recovery on solid financial principles.  Rather, what the Federal Reserve envisions is an “economic recovery” based on new debt creation.

So will $900 billion be enough to get the debt spiral cranked up again?

No.

If 1.8 trillion dollars didn’t work before, why does the Federal Reserve think that 900 billion dollars is going to work now?  This new round of quantitative easing will create more inflation and will cause speculative asset bubbles, but it is not going to fix what is wrong with the economy.  The damage is just too vast as Charles Hugh Smith recently explained….

Anyone who believes a meager one or two trillion dollars in pump-priming can overcome $15-$20 trillion in overpriced assets and $10 trillion in uncollectible debt may well be disappointed.

In fact, economists over at Goldman Sachs estimate that it would take a staggering $4 trillion in quantitative easing to get the economy rolling again.

Of course that may eventually be what happens.  The Fed may be starting at $900 billion just to get the door open.  With these kinds of bureaucrats, once you give them an inch they usually end up taking a mile.

So why should we be concerned about quantitative easing?  The following are 9 reasons why quantitative easing is bad for the U.S. economy….

#1 Quantitative Easing Will Damage The Value Of The U.S. Dollar

Each time you add a new dollar to the system, it decreases the value of each existing dollar by just a little bit.  Now the Federal Reserve is pumping 900 billion dollars into the system and that is going to have a significant impact.  Bill Gross, the manager of the largest mutual fund in the entire world, said on Monday that he believes that more quantitative easing could result in a decline of the U.S. dollar of up to 20 percent….

“I think a 20 percent decline in the dollar is possible.”

#2 Inflation Is Going To Hit Already Struggling U.S. Consumers Really Hard

Already, investors have been fleeing from the U.S. dollar and other paper currencies and have been flocking to commodities, precious metals and oil.  That means that the price of food is going to go up.  The price of gasoline is also going to go up.  American families are going to find their budgets stretched even more in the months ahead.

#3 Once An Inflationary Spiral Gets Going It Is Really Hard To Stop

The Federal Reserve is playing a very dangerous game by flirting with inflation.  Once an inflationary spiral gets going, it is really difficult to stop.  Just ask anyone who lived through the Weimar Republic or anyone who lives in Zimbabwe today.  If the Federal Reserve is now going to be dumping hundreds of billions of fresh dollars into the system whenever the economy gets into trouble it is inevitable that we will see rampant inflation at some point. 

#4 Inflation Is A Hidden Tax On Every American

Tens of millions of Americans have worked incredibly hard to save up a little bit of money.  These Americans are counting on that money to pay for a home, or to pay for retirement or to pay for the education of their children.  Well, inflation is like a hidden tax on all of those savings.  In fact, inflation is a hidden tax on every single dollar that all of us own.  We have been taxed more than enough – we certainly don’t need the Federal Reserve imposing another hidden tax on all of us.

#5 The Solution To The Housing Bubble Is Not Another Housing Bubble

Today, approximately a third of all U.S. real estate is estimated to have negative equity.  The Federal Reserve apparently believes that by flooding the system with gigantic sacks of cash banks will start making home loans like crazy again and home prices will rise substantially once again – thus wiping out most of that negative equity.

But the solution to the housing bubble is not another housing bubble.  The kinds of crazy home loans that were made back in the middle of the decade should never be made again.  Market forces should be allowed to bring the housing market to a new equilibrium where ordinary Americans can actually afford to purchase homes.  But that is not how our system works anymore.  Today, everything has to be manipulated.

#6 More Quantitative Easing Threatens To Destabilize The Global Financial System

We have already entered a time of increasing global financial instability, and the Federal Reserve is not going to help things by introducing hundreds of billions of new dollars into the game.  Over the past two decades, bubble after bubble has caused tremendous economic problems, and now all of this new money could give rise to new bubbles.  Already, we see financial institutions and investors pumping up carry trade bubbles, engaging in currency speculation and driving up commodity prices to ridiculous levels.

#7 Quantitative Easing Is An Aggressive Move In A World Already On The Verge Of A Currency War

Quantitative easing will likely help U.S. exporters by causing the value of the U.S. dollar to sink.  However, this gain by U.S. exporters will come at the expense of foreigners.  It is essentially a “zero sum” game.  So all of those exporting countries that are already upset with us will become even more furious as the U.S. dollar declines.  Could we witness the first all-out “global currency war” in 2011?   

#8 Quantitative Easing Threatens The Status Of The Dollar As The World Reserve Currency

As the Federal Reserve continues to play games with the U.S. dollar, quite a few nations around the globe will start evaluating whether or not they want to continue to trade with the U.S. dollar and use it as a reserve currency.

In fact, a recent article on The Market Oracle website explained how this is already happening….

In September, China supported a Russian proposal to start direct trading using the yuan and the ruble rather than pricing their trade or taking payment in U.S. dollars or other foreign currencies. China then negotiated a similar deal with Brazil. And on the eve of the IMF meetings in Washington on Friday, Premier Wen stopped off in Istanbul to reach agreement with Turkish Prime Minister Erdogan to use their own currencies in a planned tripling Turkish-Chinese trade to $50 billion over the next five years, effectively excluding the dollar.

#9 It Is Going To Become More Expensive For The U.S. Government To Borrow Money

Right now, the U.S. government has been able to borrow money at ridiculously low interest rates.  But as the Federal Reserve keeps buying up hundreds of billions in U.S. Treasuries, the rest of the world is going to start refusing to participate in the ongoing Ponzi scheme.

Peter Schiff, the CEO of Euro Pacific Capital, says that one of the big reasons for more quantitative easing is because the U.S. government is already starting to have difficulty finding enough people to borrow from….

At the end of the day, all this deflation talk is a red herring. The true purpose of QE 2 is to disguise the decreasing ability of the Treasury to finance its debts. As global demand for dollar-denominated debt falls, the Fed is looking for an excuse to pick up the slack. By announcing QE 2, it can monetize government debt without the markets perceiving a funding problem.

But the truth is that foreigners are not stupid.  They can see the shell game that is being played.  As Bill Gross noted on Monday, U.S. government debt will soon become a lot less attractive to foreign investors….

QEII not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices.

As foreigners begin to balk at all of this nonsense, the U.S. government will either have to start paying higher interest rates on government debt in order to attract enough investors, or the Federal Reserve will just have to drop all pretense and permanently start buying up most of the debt.  Either way, once faith has been lost in U.S. Treasuries the financial world will never, ever be the same.

Most Americans have absolutely no idea how fragile the world financial system is right now.  Once the rest of the world loses faith in the U.S. dollar and in U.S. Treasuries this entire thing could completely unravel very quickly.   

The Federal Reserve is playing a very dangerous game.  They are openly threatening the delicate balance of the world financial system. 

Once the toothpaste is out of the tube, it is really hard to put it back in again.  Cross your fingers and hold on tight, because things are going to get really bumpy ahead.

The Federal Reserve Is Holding A Conference On Jekyll Island To Celebrate 100 Years Of Dominating America: “A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve”

The Federal Reserve is going back to Jekyll Island to celebrate the 100 year anniversary of the infamous 1910 Jekyll Island meeting that spawned the draft legislation that would ultimately create the U.S. Federal Reserve.  The title of this conference is “A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve”, and it will be held on November 5th and 6th in the exact same building where the original 1910 meeting occurred.  In November 1910, the original gathering at Jekyll Island included U.S. Senator Nelson W. Aldrich, Assistant Secretary of the Treasury Department A.P. Andrews and many representatives from the upper crust of the U.S. banking establishment.  That meeting was held in an environment of absolute and total secrecy.  100 years later, Federal Reserve bureaucrats will return to Jekyll Island once again to “celebrate” the history and the future of the Federal Reserve.

Sadly, most Americans have no idea how the Federal Reserve came into being.  Forbes magazine founder Bertie Charles Forbes was perhaps the first writer to describe the secretive nature of the original gathering on Jekyll Island in a national publication…. 

Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundred of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written… The utmost secrecy was enjoined upon all. The public must not glean a hint of what was to be done. Senator Aldrich notified each one to go quietly into a private car of which the railroad had received orders to draw up on an unfrequented platform. Off the party set. New York’s ubiquitous reporters had been foiled… Nelson (Aldrich) had confided to Henry, Frank, Paul and Piatt that he was to keep them locked up at Jekyll Island, out of the rest of the world, until they had evolved and compiled a scientific currency system for the United States, the real birth of the present Federal Reserve System, the plan done on Jekyll Island in the conference with Paul, Frank and Henry… Warburg is the link that binds the Aldrich system and the present system together. He more than any one man has made the system possible as a working reality.

It was a system that was designed by the bankers and for the bankers.  Now, the bureaucrats running the system are returning to Jekyll Island to congratulate themselves.  Those attending the conference on November 5th and 6th include Federal Reserve Chairman Ben Bernanke, former Fed Chairman Alan Greenspan, Goldman Sachs managing director E. Gerald Corrigan and the heads of the various regional Federal Reserve banks.  You can view the entire agenda of the conference right here.  It looks like that there will be plenty of hors d’oeuvres to go around, but should the Federal Reserve really be celebrating their accomplishments at a time when the U.S. economy is literally falling to pieces?

Today, 63 percent of Americans do not think that they will be able to maintain their current standard of living.  1.47 million Americans have been unemployed for more than 99 weeks.  We are facing a complete and total economic disaster.

Today, the Federal Reserve has more power over the economy than any other single institution in the United States.  It is the Fed that primarily determines if we will see high inflation or low inflation, whether the money supply with expand or contract and whether we will have high interest rates or low interest rates.  The President and the U.S. Congress have far less power to influence the economy than the Federal Reserve does.

As this election has demonstrated, the American people are absolutely furious about the state of the U.S. economy, but American voters have been mostly blaming our politicians.  They just don’t understand that it is actually the Federal Reserve that has the most control over the performance of the economy.

It would be hard to understate how powerful the U.S. Federal Reserve really is in 2010.  U.S. Representative Ron Paul recently told MSNBC that he believes that the Federal Reserve is actually 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.”

So how has the Federal Reserve performed over the years?

Well, since 1913 inflation has been on a relentless march upwards, U.S. government debt has increased exponentially and the U.S. dollar has lost over 96 percent of its value.

That is not a record to be celebrating.

The truth is that the Federal Reserve was created to enslave the United States government in an endlessly expanding spiral of debt from which it would never be able to escape.  As I wrote about yesterday, that is exactly what has happened.  The U.S. government debt is escalating at an exponential rate.  It is a trap from which the U.S. government will never be able to get out of under our current system.

Now many at the Federal Reserve are touting more “quantitative easing” as the solution to our economic problems.  But anyone with a brain should be able to see that creating a gigantic pile of paper money out of thin air and dumping it into the economy is only going to make our long-term problems even worse.

But the Federal Reserve system was never designed to benefit the American people.  It was designed to make massive amounts of money for the banking establishment.  As I wrote about in “11 Reasons Why The Federal Reserve Is Bad“, the Federal Reserve was created to transfer wealth from the American people to the U.S. government and from the U.S. government to the super wealthy.

The sad truth is that the Federal Reserve is at the very core of our economic and financial problems, and that is nothing to celebrate.

Living Beyond Our Means: 3 Charts That Prove That We Are In The Biggest Debt Bubble In The History Of The World

Do you want to see something truly frightening?  Just check out the 3 charts posted further down in this article.  These charts prove that we are now in the biggest debt bubble in the history of the world.  As Americans have enjoyed an incredibly wonderful standard of living over the past three decades, most of them have believed that it was because we are the wealthiest, most prosperous nation on the planet with economic and financial systems that are second to none.  But that is not even close to accurate.  The reason why we have had an almost unbelievably high standard of living over the past three decades is because we have piled up the biggest mountains of debt in the history of the world.  Once upon a time the United States was the wealthiest country on the planet, but all of that prosperity was not good enough for us.  So we started borrowing and borrowing and borrowing and we have now been living beyond our means for so long that we consider it to be completely normal. 

We have been robbing future generations blind for so long that it doesn’t even seem to bother most people anymore.  We have become accustomed to living in debt.  We go into massive amounts of debt to get an education, we go into massive amounts of debt to buy a home, we go into massive amounts of debt to buy our cars, and we even pile up debt to buy holiday gifts and to purchase groceries.

Just check out the chart posted below.  It shows the total credit market debt owed in the United States.  In other words, it is a measure of what everyone owes (government, businesses and consumers). 

30 years ago, total credit market debt owed was less than 5 trillion dollars.  Today, it is over 50 trillion dollars.  Total credit market debt is now at a level equivalent to about 360 percent of GDP.  This is what has been fueling the great era of “economic prosperity” that we have been experiencing….        

So what is the answer to this problem? 

The truth is that there is not an easy answer under our current system.  The only way that the U.S. economy continues to “grow” is if the debt bubble continues to “expand”. 

If our leaders allowed the debt bubble to “pop” and the U.S. economy went into a deleveraging cycle, it would mean that we would start living far below our means for an extended period of time and it would spawn a deflationary depression that would make the Great Depression look like a Sunday picnic.

Most Americans are in no mood to take that kind of hard medicine.

Do you really think that the American people are going to vote in politicians who tell them that it is time to live below our means and that we are going to have to experience a standard of living far below what our parents experienced in order to pay for all the debt that they racked up?

No, that is clearly a dog that isn’t going to hunt. 

The American people want to hear that better times are ahead.

One way to give the American people “better times”, for the short-term at least, is to crank the debt spiral back up.

By introducing another huge flood of paper money into the economy, the Federal Reserve and the U.S. government are hoping that banks will start lending again and that U.S. consumers will start going into more debt again.  Already, as you can see from the chart below, U.S. household debt has started to sink just a little bit.  But considering the fact that approximately 70 percent of our GDP is generated by U.S. consumer spending, that is not good news for “economic growth” statistics.

Three decades of “economic expansion” have been fueled by consumer debt that has spiralled completely out of control.  Over the past 30 years, total U.S. household debt has gone from less than 2 trillion dollars to almost 14 trillion dollars….

So where did the housing bubble come from?  It came from Americans going into insane amounts of debt that they could not afford.  The truth is that only the top 5 percent of all U.S. households have earned enough additional income to match the rise in housing costs since 1975.

Not only that, but Americans are going into staggering amounts of debt in order to pay for their educations.  Total student loan debt in the United States is climbing at a rate of approximately $2,853.88 per second, and today Americans owe an all-time record of more than $849 billion on student loans, which is actually more than the total amount that Americans owe on their credit cards.

The truth is that American families are stretched thinner financially than they ever have been in the post-World War 2 era.  According to a poll taken last year, 61 percent of Americans “always or usually” live paycheck to paycheck.  That was up significantly from 49 percent in 2008 and 43 percent in 2007.

Many Americans have come to the absolute breaking point.  1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008.

But remember, approximately 70 percent of our GDP is generated by U.S. consumer spending, so without more consumer spending there won’t be more economic growth.

So, instead of Obama and the Federal Reserve encouraging Americans to get out of debt and to save money, they are trying to get the American people to spend even more money and to go into even more debt because they desperately need positive “economic growth” figures. 

The worst offender of all when it comes to debt, of course, is the U.S. federal government.  Over the last 30 years, the U.S. national debt has gone from about 1 trillion dollars to almost 14 trillion dollars….

This is the largest single debt in the history of the world.

So just how big is one trillion dollars?

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. 

Yet somehow the U.S. government has accumulated a debt that is well over 13 trillion dollars.

Unfortunately, it keeps getting worse month after month after month.

According to the U.S. Treasury Department, the U.S. national debt is rapidly closing in on 14 trillion dollars and and will climb to an estimated $19.6 trillion by 2015.

Should we all throw a big party when it crosses the 20 trillion dollar mark?

I can just hear the theme song now….

“I’m going to party like I’m 19.99 trillion in debt!”

But the cold, hard reality is that we are in far, far more trouble than what the official government numbers tell us.

In a recent article, Boston University economics professor Laurence J. Kotlikoff analyzed the financial condition of the U.S. government, and he summarized the horror we are facing by making the following statement….

“Let’s get real. The U.S. is bankrupt.”

After carefully going over Congressional Budget Office data, Kotlikoff came to the conclusion that the U.S. government is now facing a “fiscal gap” of $202 trillion dollars.

Now how in the world did that happen?

Well, it turns out that we have made promises to future generations that we cannot possibly even come close to keeping.

Social Security and Medicare are fiscal nightmares that are far more immense than anything that U.S. government has ever faced before.

According to an official U.S. government report, rapidly growing interest costs on the U.S. national debt together with spending on major entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every dollar of federal revenue by the year 2019.  That is before a single penny is spent on anything else.

That is just 9 years away.

When people speak of the financial situation of the U.S. government being “unsustainable”, they aren’t kidding around.

The truth is that the U.S. government has been running gigantic Ponzi schemes which are about to collapse.

Take the Social Security shell game for example.  Back in 1950, each retiree’s Social Security benefit was paid for by approximately 16 workers.  Today, each retiree’s Social Security benefit is paid for by approximately 3.3 workers.  By 2025, it is projected that there will be approximately two workers for each retiree.

So exactly how is that supposed to work?

For much more on the coming Social Security nightmare, please see an article that I posted earlier this year: 22 Statistics About America’s Coming Pension Crisis That Will Make You Lose Sleep At Night.

Sadly, Professor Kotlikoff is not exaggerating in the least when he proclaims that the U.S. government is bankrupt.

At our current pace, the Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080.

Public debt at a level of 100 percent of GDP is supposed to be an absolute nightmare scenario.

Needless to say, the whole thing is going to come crashing down long, long before we ever get to 2080.

We have been living far, far beyond our means for decades, and it has been the greatest party in the history of the world.

But it is time to turn out the lights because the party is over.

The Calm Before The Storm

An eerie calm has descended upon world financial markets as they await perhaps the two most important financial events of the year this week.  On Tuesday, investors will be eagerly awaiting the results of one of the most anticipated midterm elections in U.S. history.  On Wednesday, the Federal Reserve is expected to end months of speculation by formally announcing the details of a new round of quantitative easing.  If either the election or the meeting of the Federal Reserve open market committee delivers a highly unexpected result, it could have a dramatic impact on world financial markets.  In fact, many are looking at this week as a potential turning point for the U.S. economy.  The decisions that are made or not made this week could set us down a road from which the U.S. economy may never recover.

At this point, it looks like the Republicans will take control of the U.S. House of Representatives and will pick up a number of U.S. Senate seats as well.

There are many in the financial world who already consider Barack Obama to be the most “anti-business” president in U.S. history, so a defeat for the Democrats on Tuesday would be greatly welcomed by many on Wall Street.  Barack Obama’s decline in popularity since he was elected has been absolutely stunning.  According to Gallup, Barack Obama had an average approval rating of just 44.7% during the seventh quarter of his presidency, which was a brand new low.  In fact, Obama’s average approval rating has fallen during every single quarter since he took office.  Things have gotten so bad for Obama that one new poll has found that 47% of Democrats now think that Barack Obama should be challenged for the 2012 Democratic presidential nomination. 

However, if the Democrats were able to do surprisingly well on Tuesday, it would not only shock the political pundits, but it would also likely put world financial markets in a very bad mood. 

If the Republicans do very well on Tuesday, it will likely mean that there will be no more extensions for those receiving long-term unemployment benefits.  Some state governments are already anticipating this and are making preparations.  For example, armed security guards are now being posted at all 36 full-service unemployment offices in the state of Indiana.  It is estimated that approximately 2 million Americans will lose their unemployment insurance benefits during this upcoming holiday season if  Congress does not authorize another emergency extension of benefits by the end of November.  If the Republicans do very well on Tuesday, it would make it much more likely that the extension will not happen.

But if millions of unemployed Americans suddenly find themselves without any unemployment checks, that is only going to cause the anger and frustration regarding this economy to grow.

Either way, the unfortunate truth is that this election is not going to change much.

Over the past five elections, incumbents have been re-elected to the U.S. House of Representatives at an average rate of 96 percent.

This time will be a little different of course, but not that much different.  The sad truth is that we are still likely to see about 80 percent of the exact same faces going back to the U.S. Congress for the next session.

However, even if the American people could somehow vote out every single member of Congress, it would still not do much to fundamentally change our economic situation because the U.S. Congress does not run the economy and neither does the President.

Of course both of those institutions can influence the U.S. economy, but it is actually the Federal Reserve that runs the economy.

The Federal Reserve controls the money supply.  The Federal Reserve controls our interest rates.  If the U.S. government wants more money it has to go get it from the Federal Reserve.  It is the Federal Reserve that is tasked with the mandate of keeping unemployment low while also keeping inflation at a “reasonable” level.

But these days, Federal Reserve officials don’t really seem to be that concerned about the dangers of inflation.  In fact, several top Federal Reserve officials have come out in recent weeks and have made public statements not only advocating more quantitative easing, but also suggesting that inflation is not a danger because it is actually “too low” right now.

In fact, there have been some rumblings that many officials at the Fed would actually welcome more inflation because they think that it would somehow stimulate the economy.  In fact, a Federal Reserve paper that was released in September actually floated the idea that a spike in oil prices would be quite good for the U.S. economy.

And these are the people running our economy?

Are we all caught in an episode of The Twilight Zone?

Well, as far as rising oil prices are concerned, the Fed will almost surely get its wish.  As I have written about previously, the price of oil is almost certainly heading to 100 dollars a barrel.

But if the price of oil shoots up, isn’t that going to cause significant inflationary pressure on the prices of thousands of other goods and services?

Of course.

Unfortunately, very few of our leaders seem too concerned about inflation or about protecting the value of the U.S. dollar these days.

In fact, now even the IMF is publicly proclaiming that the U.S. dollar is “overvalued”.

What a mess.

But there is another aspect of a new round of “quantitative easing” that the American people really wouldn’t like if they could actually figure out what is going on.

You see, the truth is that “quantitative easing” is not only just a way to stimulate the economy, it is also a way to give backdoor bailouts to the big banks without having to go through the U.S. Congress.

In a previous article, I described how this works….

1) The big U.S. banks have massive quantities of junk mortgage-backed securities that are worth little to nothing that they desperately want to get rid of.

2) They convince the Federal Reserve (which the big banks are part-owners of) to buy up these “toxic assets” at significantly above market price.

3) The Federal Reserve creates massive amounts of money out of thin air to buy up all of these troubled assets.  The public is told that all of this “quantitative easing” is necessary to stimulate the U.S. economy.

4) The big banks are re-capitalized and have gotten massive amounts of bad mortgage securities off their hands, the Federal Reserve has found a way to pump hundreds of billions (if not trillions) of dollars into the economy, and most of the American people are none the wiser.

Now how do you think the American people would feel about “quantitative easing” if they really understood all this?

But unfortunately, most Americans will be watching the election results on Tuesday night without having even a basic understanding of how our economy is really run.

Already, there are a ton of signs that the U.S. economy is heading in a very bad direction, and dumping a handful of Congress critters out of office might feel good, but it isn’t going to do much to really change our economic problems.

The American people desperately need to be educated about how our financial system really works.  But unfortunately, most Americans will likely not wake up until the whole house of cards comes crashing down.

Why Is Indiana Putting Armed Security Guards Into 36 Unemployment Offices Across The State?

Did you ever think that things in America would get so bad that we would need to put armed guards into our unemployment offices?  Well, that is exactly what is happening in Indiana.  Armed security guards will now be posted at all 36 full-service unemployment offices in the state of Indiana.  So why is this happening now?  Well, Indiana Department of Workforce Development spokesman Marc Lotter says that the agency is bringing in the extra security in anticipation of an upcoming deadline when thousands upon thousands of Indiana residents could have their unemployment benefits cut off.  But it is not just the state of Indiana that could have a problem.  In fact, one recent study found that approximately 2 million Americans will lose their unemployment insurance benefits during this upcoming holiday season unless Congress authorizes another emergency extension of benefits by the end of November.  At this point, however, that is looking less and less likely.

So perhaps all the states will have to start putting armed security guards in their unemployment offices.  The truth is that frustration among unemployed Americans is growing by the day.

Could we soon see economic riots similar to what we have seen in Greece and France?

Let’s hope not.

The following is a video news report about the armed guards that are going into Indiana unemployment offices….

So could things really get out of hand when thousands of unemployed workers in Indiana find out that they aren’t going to get checks any longer?

Indiana Department of Workforce Development spokesman Marc Lotter makes it sound like that is very much on his mind….

“Given the upcoming expiration of the federal extensions and the increased stress on some of the unemployed, we thought added security would provide an extra level of protection for our employees and clients.”

So who is paying for all of this extra security?

The Feds of course.

The additional cost of the new security will be approximately $1 million, and it will be paid for with U.S. government funds designated for the administration of the unemployment system according to Lotter.

This is not a good trend.  As you go through your daily life, just start taking note of the places that now have armed security that did not have armed security five or ten years ago.

Unfortunately, as the U.S. economy goes downhill even further, the amount of security that people feel is “necessary” is likely to go up even more.

So is America going to become an armed camp where the people and institutions with money are protected by armed guards from the hordes of frustrated unemployed workers that can’t feed themselves or their families?

Americans are certainly not in a good mood about the economy.  According to a recent poll conducted by CNBC, 92 percent of Americans believe that the performance of the U.S. economy is either “fair” or “poor”.

The lack of jobs is the main thing that the American people are so mad about.  In fact, it is hard for even highly educated people to find work in 2010.  In America today, 317,000 waiters and waitresses have college degrees. 

People are really hurting and they are getting to the end of their ropes.  Over 41 million Americans are now on food stamps, and one out of every six Americans is enrolled in at least one federal anti-poverty program.  It is getting hard to believe that this is even America anymore.  For many more statistics that reveal the economic horror we are now facing as a nation, please see my previous article entitled “30 Reasons Why People Should Be Getting Really Nervous About The State Of The U.S. Economy“.

But it is not just unemployment that is the problem.  In recent years, millions upon millions of Americans have been forced to take reduced hours or a cut in pay due to the economy.  Millions of others have had to take jobs that barely enable them to survive.  In fact, the number of Americans working part-time jobs “for economic reasons” is now the highest it has been in at least five decades.

So why aren’t there even close to enough jobs for everyone?  Well, there are a number of contributing factors, including the fact that we have been “offshoring” and “outsourcing” millions of our jobs and now it is really starting to catch up with us.  I have discussed this so many times now that I am starting to sound like a broken record.

But instead of fixing the fundamental problems with our economy, the Federal Reserve wants to print yet another gigantic pile of paper money and throw it at the problem.  It is called “quantitative easing“, and it may help smooth things over for a few months, but it is also going to make our long-term problems even worse.

Unfortunately, the Federal Reserve does not really seem concerned about protecting the value of the U.S. dollar at this point.  Not that they ever did, but it would be nice to see Fed officials paying at least some lip service to the dangers of inflation.

Instead, various Fed officials have been publicly making statements about the need for more quantitative easing for weeks.  Right now they seem desperate to put the American people back to work – even if it ends up crashing the value of the dollar.   

But now even the IMF seems supportive of a dollar devaluation.  On Thursday, the IMF actually said that the U.S. dollar is “overvalued” and that adjustments need to be made.

We’ll see what the Fed decides to do next week.  Most analysts believe that they will announce a quantitative easing program of some sort or another.

But what have we come to as a nation when those who control our economy believe that the best solution to our economic problems is to print another big pile of paper money and chuck it into the system?

We’ve got an absolutely gigantic economic mess on our hands, and none of our “leaders” seem to have any idea about how to fix it.

Meanwhile, millions of unemployed Americans are just going to become more and more frustrated – especially when it gets to the point when they aren’t receiving unemployment checks anymore.

5 Dangers To Global Crops That Could Dramatically Reduce The World Food Supply

The world food situation is starting to get very, very tight.  Unprecedented heat and wildfires this summer in Russia and horrific flooding in Pakistan and China have been some of the primary reasons for the rapidly rising food prices we are now seeing around the globe.  In places such as Australia and the African nation of Guinea-Bissau, the big problem for crops has been locusts.  In a world that already does not grow enough food for everyone (thanks to the greed of the elite), any disruption in food production can cause a major, major problem.  Tonight, thousands of people around the world will starve to death.  So what happens if things get even worse?  Many agricultural scientists are now warning that global food production is facing dangers that are absolutely unprecedented.  Crop diseases such as UG99 wheat rust and the “unintended effects” of genetic modification pose challenges that previous generations simply did not have to face.  The outbreak of a real, live global famine looks increasingly possible with each passing year.  So are you and your family prepared if a global famine does strike?

Already, there are huge warning signs on the horizon.  Just check out what agricultural commodities have been doing.  They have been absolutely soaring.      

A recent article on the Forbes website noted a few of the agricultural commodities that have skyrocketed during this year….

Here’s what’s happened to some key farm commodities so far in 2010…

•Corn: Up 63%
•Wheat: Up 84%
•Soybeans: Up 24%
•Sugar: Up 55%

Are you ready to pay 84 percent more for a loaf of bread?

You better get ready – these raw material prices will filter down to U.S. consumers eventually.

So what is going to happen if the world food situation gets even tighter?

Don’t think that it can’t happen.

The following are 5 potential dangers to global crops that could dramatically reduce the world food supply…. 

UG99 Wheat Rust

UG99 is commonly known as “wheat rust” or “stem rust” because it produces reddish-brown flakes on wheat stalks.  The International Maize and Wheat Improvement Center in Mexico believes that approximately 19 percent of the global wheat crop is in imminent danger of being infected with UG99.

Ultimately, it is estimated that about 80 percent of the wheat on the globe is capable of catching the disease.

There is no known cure.

This current strain of wheat rust was discovered in Uganda in 1999 and has spread into areas of Kenya, Sudan, Ethiopia, Yemen and Iran.  It is feared that this crippling disease will spread even farther into south Asia, devastating the fertile growing regions of Afghanistan, Pakistan, India and Bangladesh.

If that happens, you might as well kiss world food stability goodbye.

A recent article in the Financial Times contained an absolutely stunning quote from one prominent agricultural scientist….

“You can talk about crying wolf,” says Ronnie Coffman, director of the Durable Rust Resistance in Wheat project at the University of Cornell in the US, “but it is a wolf”, he asserts, driving across the corn fields of Kansas.

Later on in the same article, Coffman warns that this disease could cause a devastating famine in which literally millions of people would die….

“It can be absolutely devastating if environmental conditions are right,“ he says. “You can count the number of people who could die from this in the millions.”

Mad Soy Disease

Mad Soy disease is spreading at an alarming rate among soy farms down in Brazil.  Previously the disease had been confined to the north part of the country, but now it has been increasingly spreading south.  This disease retards the maturation of infected plants, and it has been causing yield losses of up to 40 percent.  The USDA says that “there are no known effective treatments.”

Verticillium Wilt

Verticillium Wilt is a fungus that prevents lettuce from absorbing water, causing it to quickly grow yellow and eventually wilt.  This dangerous fungus is very hard to get rid of totally because it can stay in the soil for up to seven years.

Today, Verticillium Wilt is spreading all over Monterey County, California.  Considering the fact that Monterey County produces more than 60 percent of the lettuce in the United States, that is very bad news.

Late Blight

In 2009, a disease known as “late blight” attacked potato and tomato plants in the United States with a ferocity never seen before.  According to a press release from Cornell University, late blight had “never occurred this early and this widespread in the U.S.” when it started showing up all over the place early last year.

Late blight begins as ugly brown spots on the stems of potato and tomato plants, and as the spots increase in size, white fungal growth develops until finally a soft rot completely collapses the stem.

This was the disease that was responsible for the Irish potato famine in the 1850s.  A major new outbreak could occur without warning.

Genetic Modification

While it may or may not technically be a disease (depending on how you look at it), genetic modification is having a very serious affect on crops around the globe.

For example, about 10 years ago Chinese farmers began to widely adopt Monsanto’s genetically modified Bt cotton.  Well, researchers have found that since that time, mirid bugs that are resistant to the Bt pesticide have experienced a complete and total population boom.

Today, six provinces in Northern China are experiencing what can only be described as a “mirid bug plague”.  Mirid bugs eat more than 200 different kinds of fruit, vegetables and grains.  Chinese farmers in the region are completely frustrated.

In the United States, a different problem is developing.  The complete and total reliance of so many U.S. farmers on Monsanto’s Roundup herbicide has resulted in several varieties of glyphosate-resistant “superweeds” developing in many areas of the United States. 

The most feared of these “superweeds”, Pigweed, can grow to be seven feet tall and it can literally wreck a combine.  Pigweed has been known to produce up to 10,000 seeds at a time, it is resistant to drought, and it has very diverse genetics.

Superweeds were first spotted in Georgia in 2004, and since then they have spread to South Carolina, North Carolina, Arkansas, Tennessee, Kentucky and Missouri. 

In some areas, superweeds have become so bad that literally tens of thousands of acres of U.S. farmland have actually been abandoned.

But that is what we get for trying to “play God”.

We think that we can just do whatever we want with nature and there will not be any consequences.

One of the most frightening things about genetic modification is that it actually reduces that amount of crop diversity in the world.

For example, if nearly all farmers start using the same “brand” of genetically modified plants that are all virtually identical, it sets up a situation where crop diseases and crop failures can cascade across the planet very easily.

Genetic variety is a very desirable thing, but today our scientists are just doing pretty much whatever they want without really considering the consequences. 

It has been said many times that genetic engineering is similar to “performing heart surgery with a shovel”.

The truth is that we just do not know enough about how our ecosystems work to be messing around with them so dramatically.

Perhaps even more frightening is that once these genetically engineered monstrosities have been released into our environment, it is absolutely impossible to recall them.  They essentially become a permanent part of our ecosystem.

But can we afford to make any serious mistakes at this point?

The truth is that we already live in a world that is not able to feed itself.

Tonight, approximately 1 billion people across the globe will go to bed hungry.  Every 3.6 seconds someone in the world starves to death, and three-fourths of those who starve to death are children under the age of five.

It is currently being projected that global demand for food will more than double over the next 50 years.

So what is going to happen if we start seeing widespread crop failures in the coming years?

The global food supply is not nearly as stable as most people believe.  At some point, it is going to be tested severely.

Is Crime Making A Comeback? 12 Crime Statistics That Make You Wonder What Is Happening To America

For about a decade and a half, crime rates in the United States have generally fallen.  That is the good news.  The bad news is that even during those “good” years, the United States still had the most car thefts, the most rapes and the most murders in the world.  And even though the United States has the most people in prison in the entire world by a large margin, there are all kinds of signs that there are still enough criminals out there for crime to start moving back up again.  Sure, there are some areas that are still recording small decreases in the crime rate, but there are other areas where the jump in crime statistics is more than a bit alarming.  There are millions of Americans that have been out of work for over a year at this point, and when people lose everything that they have they tend to totally lose it.  People get desperate when they lose their homes and they don’t have anything to eat.  For example, police in Chesterfield, Virginia are investigating 16 separate incidents just this month in which thieves stole food or drinks from homes, cars and even people walking on the street.  It wasn’t money that these crooks were after.  They just wanted something to eat.  As the economy gets even worse over the next couple of years, it is inevitable that we are going to start to see a lot more of this kind of thing.  Frustration and anger are on the rise from coast to coast, and when people don’t feel like they have anything to live for they become very dangerous.

As mentioned at the beginning of the article, it is undeniable that violent crime rates are significantly lower than they were 15 or 20 years ago in many areas of the nation.  An unprecedented standard of living fueled by our addiction to debt has kept most Americans fat, happy and generally sedated.  However, there are indications that we are approaching a “turning point” – a moment when crime rates start to go up significantly once again.

In fact, there are some forms of crime (such as sexual crime against children) that are already at ridiculously high record-setting levels.  For example, how in the world did we ever get to the point as a society where we have 400,000 registered sex predators running around?

As the economy continues to unravel, things are not going to get any better.  In fact, people who are suffering are only going to become more desperate.  Already, there are quite a few troubling signs out there.  The following are 12 crime statistics that make you wonder what is happening to America….

#1 The murder rate in New York City has increased more than 15 percent in 2010, and the number of rapes has shot up from 943 in 2009 to 1075 so far this year.

#2 In the city of Detroit, crime has gotten so bad and the citizens are so frustrated by the lack of police assistance that they have resorted to forming their own organizations to fight back.  One group, known as “Detroit 300”, was formed after a 90-year-old woman on Detroit’s northwest side was brutally raped in August.

#3 Crime in Miami Beach was up almost 11 percent during the first half of 2010.

#4 The murder rate in Tempe, Arizona is now the highest it has been in 10 years.

#5 Shoplifting is completely and totally out of control.  According to the National Association of Shoplifting Prevention, every single day Americans steal more than $35 million worth of goods from retail stores.

#6 Today, there are approximately 400,00 registered sex offenders in the United States.

#7 U.S. authorities claim that there are now over 1 million members of criminal gangs operating inside the United States. According to federal statistics, these 1 million gang members are responsible for up to 80% of the violent crimes committed in the U.S. each year.

#8 The median age of the victims of imprisoned sex offenders in the United States is 13 years old.

#9 The crime rate in the San Diego school system is escalating out of control. The following is what San Diego School Police Chief Don Braun recently told the press about the current situation….

“Violent crime in schools has risen 31 percent. Property crime has risen 12 percent. Weapons violations (have gone up) almost 8 percent.”

#10 53 percent of all investigated burglaries in the states of California, New Mexico, Nevada, Arizona and Texas are perpetrated by illegal aliens.

#11 Law enforcement officials estimate that about 600,000 Americans and 65,000 Canadians are trading dirty child pictures online.  They also say that the total profit from creating and trading these images is approximately two to three billion dollars every year.

#12 Each year, one out of every five people in the U.S. is victimized by crime.  No other nation on the planet has a rate that is higher.

So will the police step in to protect us all as crime increases?

Well, unfortunately police forces all across the United States are being slashed because the money just isn’t there anymore.

So all of us may soon be facing much more crime with much fewer police to assist us.

For example, because of extreme budget cuts and police layoffs, Oakland, California Police Chief Anthony Batts has announced that there are a number of crimes that his department simply will no longer respond to due to a lack of resources.  The following is a partial list of the crimes that police officers in Oakland will no longer be responding to….

  • burglary
  • theft
  • embezzlement
  • grand theft
  • grand theft: dog
  • identity theft
  • false information to peace officer
  • required to register as sex or arson offender
  • dump waste or offensive matter
  • loud music
  • possess forged notes
  • pass fictitious check
  • obtain money by false voucher
  • fraudulent use of access cards
  • stolen license plate
  • embezzlement by an employee
  • extortion
  • attempted extortion
  • false personification of other
  • injure telephone/power line
  • interfere with power line
  • unauthorized cable tv connection
  • vandalism

Not that Oakland wasn’t already a mess before all this, but now how long do you think it will be before total chaos and anarchy reigns on the streets of Oakland?

But this kind of thing is not just happening in Oakland.

The sheriff’s department in Ashtabula County, Ohio has been reduced from 112 deputies to 49 deputies, and now there is just one vehicle remaining to patrol all 720 square miles of the county.

So what in the world are the citizens of that county supposed to do to protect themselves?

Well, Judge Alfred Mackey said that the citizens of the county should do the following….

“Arm themselves.”

So is that where all of this is going?

Every man and woman for themselves?

The truth is that there are already many communities across the United States where it is simply not a good idea to go out of your home at night.

There has never been a bigger gang problem in U.S. history than we are facing today, there have never been more sex predators running around, and millions of Americans are going to become increasingly desperate as they lose their homes and can’t find jobs.

So how is crime where you live?  Feel free to leave a comment with what you are seeing in your neighborhood….

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