U.S. National Debt

Is This The Generation That Is Going To Financially Destroy America?

Did you know that the federal government is going to spend more than 4 trillion dollars this year?  To put that into perspective, U.S. GDP for the entire year of 2017 is going to be somewhere between 18 and 19 trillion dollars.  So when you are talking about 4 trillion dollars you are talking about a huge chunk of our economy.  But of course the federal government doesn’t bring in 4 trillion dollars a year.  At the beginning of Barack Obama’s first term, we were 10.6 trillion dollars in debt, and now we are nearly 20 trillion dollars in debt.  That means that we have been adding more than a trillion dollars a year to the national debt.  When you break that down, that means that we have essentially been stealing more than a hundred million dollars from future generations of Americans every single hour of every single day to pay for our debt-fueled lifestyle.  Even Federal Reserve Chair Janet Yellen is warning that this is not sustainable, and yet we just keep on doing it.

Nobody can pretend that what we have today is the kind of limited federal government that our founders intended.  When federal spending accounts for more than 20 percent of GDP, it is hard to argue that we haven’t moved very far down the road toward socialism.  As I mentioned above, total federal spending will surpass 4 trillion dollars for the first time ever in 2017…

Both the Congressional Budget Office and the White House Office of Management and Budget project that federal spending will top $4 trillion for the first time in fiscal 2017, which began on Oct. 1, 2016 and will end on Sept. 30.

In its “Update to the Budget and Economic Outlook: 2017 to 2027” published last week, CBO projected that total federal spending in fiscal 2017 will hit $4,008,000,000,000.

I was recently asked how we are going to pay for a 4 trillion dollar government if we abolish the income tax like I am proposing.

Well, the truth is that we would have to dramatically reduce the size and scope of the federal government.  Our founders always intended for the individual state governments to be much stronger than they are right now, and it is time for us to restore that constitutional balance.

Something desperately needs to be done, because we have a federal government that is completely and totally out of control.  Even the Congressional Budget Office agrees that we are headed toward absolute disaster if our leaders in Washington don’t start displaying some fiscal responsibility…

A large and continuously growing federal debt would increase the chance of a fiscal crisis in the United States. Specifically, investors might become less willing to finance federal borrowing unless they were compensated with high returns. If so, interest rates on federal debt would rise abruptly, dramatically increasing the cost of government borrowing. That increase would reduce the market value of outstanding government securities, and investors could lose money. The resulting losses for mutual funds, pension funds, insurance companies, banks, and other holders of government debt might be large enough to cause some financial institutions to fail, creating a fiscal crisis. An additional result would be a higher cost for private-sector borrowing because uncertainty about the government’s responses could reduce confidence in the viability of private-sector enterprises.

It is impossible for anyone to accurately predict whether or when such a fiscal crisis might occur in the United States. In particular, the debt-to-GDP ratio has no identifiable tipping point to indicate that a crisis is likely or imminent. All else being equal, however, the larger a government’s debt, the greater the risk of a fiscal crisis.

The likelihood of such a crisis also depends on conditions in the economy. If investors expect continued growth, they are generally less concerned about the government’s debt burden. Conversely, substantial debt can reinforce more generalized concern about an economy. Thus, fiscal crises around the world often have begun during recessions and, in turn, have exacerbated them.

I get so frustrated with Republicans in Congress, because they are supposed to be watching out for us.

During the 2010 elections, one of the biggest mid-term landslides of all time gave Republicans control of the House of Representatives and they have had it ever since.  One of the pillars of the “Tea Party revolution” was fiscal responsibility, but the national debt has just continued to explode.

When the Republicans took control of the House in early 2011, we were about 14 trillion dollars in debt, and now we are nearly 20 trillion dollars in debt.

We have been betrayed, and those that have done this to us need to be held accountable.

Of course the big reason why our politicians never want to control spending is because they know what it will do to our economy.

During the Obama years, we spent more than 9 trillion dollars that we didn’t have.  If we could somehow go back and take 9 trillion dollars out of the economy over those 8 years, we would be in the worst depression in U.S. history right now.

Nobody in Washington wants to be responsible for plunging us into an economic depression, and so they just keep stealing from the future in order to prop things up in the short-term.

And a similar thing could be said about central bank intervention.  If the Federal Reserve and other global central banks had not pumped trillions upon trillions of dollars into the financial system over the past 8 years, we would be in the midst of a horrific economic nightmare right now.

But now all of that “hot money” has created epic financial bubbles all over the planet, and when they finally burst the ensuing crisis will be far, far worse than if they had never intervened in the first place.

Global central banks now have more than 20 trillion dollars in assets on their balance sheets and the world is more than 217 trillion dollars in debt.  The desperate measures that national governments and central banks have been taking have delayed the coming crisis, but they have also guaranteed that it will be far worse than it could have otherwise been.

The stage is set for the worst financial crisis in world history, and the only way that it can continue to be delayed is for our leaders to continue to inflate the bubbles larger and larger and larger.

But of course no bubble can last forever, and the bigger they become the harder they burst.

The World Is Now $217,000,000,000,000 In Debt And The Global Elite Like It That Way

The borrower is the servant of the lender, and through the mechanism of government debt virtually the entire planet has become the servants of the global money changers.  Politicians love to borrow money, but over time government debt slowly but surely impoverishes a nation.  As the elite get governments around the globe in increasing amounts of debt, those governments must raise taxes in order to keep servicing those debts.  In the end, it is all about taking money from us and transferring it into government pockets, and then taking money from government pockets and transferring it into the hands of the elite.  It is a game that has been going on for generations, and it is time for humanity to say that enough is enough.

According to the Institute of International Finance, global debt has now reached a new all-time record high of 217 trillion dollars…

Global debt levels have surged to a record $217 trillion in the first quarter of the year. This is 327 percent of the world’s annual economic output (GDP), reports the Institute of International Finance (IIF).

The surging debt was driven by emerging economies, which have increased borrowing by $3 trillion to $56 trillion. This amounts to 218 percent of their combined economic output, five percentage points greater year on year.

Never before in human history has our world been so saturated with debt.

And what all of this debt does is that it funnels wealth to the very top of the global wealth pyramid.  In other words, it makes global wealth inequality far worse because this system is designed to make the rich even richer and the poor even poorer.

Every year the gap between the wealthy and the poor grows, and it has gotten to the point that eight men have as much wealth as the poorest 3.6 billion people on this planet combined…

Eight men own the same wealth as the 3.6 billion people who make up the poorest half of humanity, according to a new report published by Oxfam today to mark the annual meeting of political and business leaders in Davos.

This didn’t happen by accident.  Sadly, most people don’t even understand that this is literally what our system was designed to do.

Today, more than 99 percent of the population of the planet lives in a country that has a central bank.  And debt-based central banking is designed to get national governments trapped in endless debt spirals from which they can never possibly escape.

For example, just consider the Federal Reserve.  During the four decades before the Federal Reserve was created, our country enjoyed the best period of economic growth in U.S. history.  But since the Fed was established in 1913, the value of the U.S. dollar has fallen by approximately 98 percent and the size of our national debt has gotten more than 5000 times larger.

It isn’t an accident that we are 20 trillion dollars in debt.  The truth is that the debt-based Federal Reserve is doing exactly what it was originally designed to do.  And no matter what politicians will tell you, we will never have a permanent solution to our debt problem until we get rid of the Federal Reserve.

In 2017, interest on the national debt will be nearly half a trillion dollars.

That means that close to 500 billion of our tax dollars will go out the door before our government spends a single penny on the military, on roads, on health care or on anything else.

And we continue to pile up debt at a rate of more than 100 million dollars an hour.  According to the Congressional Budget Office, the federal government will add more than a trillion dollars to the national debt once again in 2018…

Unless current laws are changed, federal individual income tax collections will increase by 9.5 percent in fiscal 2018, which begins on Oct. 1, according to data released today by the Congressional Budget Office.

At the same time, however, the federal debt will increase by more than $1 trillion.

We shouldn’t be doing this, but we just can’t seem to stop.

Let me try to put this into perspective.  If you could somehow borrow a million dollars today and obligate your children to pay it off for you, would you do it?

Maybe if you really hate your children you would, but most loving parents would never do such a thing.

But that is precisely what we are doing on a national level.

Thomas Jefferson was strongly against government debt because he believed that it was a way for one generation to steal from another generation.  And he actually wished that he could have added another amendment to the U.S. Constitution which would have banned 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.”

And the really big secret that none of us are supposed to know is that governments don’t actually have to borrow money.

But if we start saying that too loudly the people that are making trillions of dollars from the current system are going to get very, very upset with us.

Today, we are living in the terminal phase of the biggest debt bubble in the history of the planet.  Every debt bubble eventually ends tragically, and this one will too.

Bill Gross recently noted that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”.  One wrong move and the whole thing could blow sky high.

When everything comes crashing down and a great crisis happens, we are going to have a choice.

We could try to rebuild the fundamentally flawed old system, or we could scrap it and start over with something much better.

My hope is that we will finally learn our lesson and discard the debt-based central banking model for good.

The reason why I am writing about this so much ahead of time is so that people will actually understand why the coming crisis is happening as it unfolds.

If we can get everyone to understand how we are being systematically robbed and cheated, perhaps people will finally get mad enough to do something about it.

House Of Cards: Netflix Is One Of The Poster Children For Tech Bubble 2.0

How can a company that is going to generate $2,000,000,000 in negative free cash flow in 2017 be worth 70 billion dollars?  Netflix has soared in popularity in recent years, but so have their financial losses.  Just like during the original tech bubble, investors are ignoring basic fundamentals and are greatly rewarding firms that are bleeding giant mountains of cash year after year just because they are trendy “tech companies”.  But somewhere along the line you actually have to quit losing money if you are going to survive.  Just ask tech bubble 1.0 victims Pets.com, Webvan and Etoys.com.  The investors that poured enormous amounts of money into those companies ended up losing everything, and similar tragedies will play out as tech bubble 2.0 bursts.

So far in 2017, the S&P 500 is up about 8 percent, but FANG stocks (Facebook, Amazon, Netflix and Google) are up a whopping 30 percent.

But at least Facebook, Amazon and Google are making money.

Netflix is not.

So why in the world has the stock shot up by more than 30 percent so far this year?  It just doesn’t make any sense at all.  According to CNBC, during the first quarter Netflix had $423 million in negative free cash flow, and for the entire year it is being projected that it will have $2 billion in negative free cash flow…

The California-based company is now dumping cash into original content to maintain its dominance over its growing field of rivals. The company’s had $423 million negative free cash flow during the quarter, wider than the $261 million negative free cash flow a year ago. Netflix expects to have $2 billion in negative free cash flow this year.

The bleeding of cash at Netflix only seems to be accelerating.  The number for the first quarter of 2017 was 62 percent worse than the number for the first quarter of 2016, and it was more than twice as bad as the number for the first quarter of 2015.

It is hard to imagine that Netflix will ever be more popular than it is right now.

So if Netflix is not making a profit at this point, when will it ever make a profit?

Similar things could be said about Twitter.  This is a company that has never made a yearly profit and that is actually starting to see revenues decline.  But somehow the stock just continues to go up.  Since the last time I wrote about Twitter, the market cap has shot up another 1.5 billion dollars.

At this point, the market values Twitter at 13 billion dollars, but in the entire history of the company it has actually lost 2 billion dollars.

What we are witnessing is a modern day version of “tulip mania”, and at some point this irrational euphoria will come to a sudden end.  In fact, there are already some signs that tech bubble 2.0 may be in a significant amount of trouble.  The following is an excerpt from a Bloomberg article entitled “Investors Go All-In on Tech Giants”…

The tech-powered rally has catapulted the sector to a price-to-earnings ratio of 24.4, or 41 percent above the 10-year average. But as Google and Amazon stretch to nearly $1,000 a share, not everyone is comfortable with the valuations. Investors pulled more than $716 million from the most popular technology exchange-traded fund last week — the $17.4 billion Technology Select Sector SPDR Fund, or XLK — its largest weekly outflow in over a year, data compiled by Bloomberg show.

“Most everybody remembers 2000, so they might be getting a little nervous with this development,” said Maley. “I just wonder how many people have said to themselves, ‘If AMZN gets to $1,000, I’m going to take at least some profits.’”

All over the financial world, prominent voices are warning that the enormous financial bubbles that we see all around us are not sustainable and that a major crisis is heading our way.  I wrote about some of these voices yesterday, and today we can add Paul Singer to the list…

Given groupthink and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose (don’t ask us what hell looks like…), a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral. The only way to take advantage of those opportunities is to have ready access to capital.

When the financial markets collapse, Donald Trump will likely get most of the blame.

But Donald Trump did not create the stock market bubble, and he will not be responsible for ending it either.

Since the Federal Reserve was created in 1913, we have seen this same story play out over and over again.  There have been 18 distinct recessions or depressions since the Fed was established, and the more the Fed interferes in the marketplace the larger the booms and busts tend to be.

And it could be argued that this time around the Fed has manipulated financial markets more than ever before.  Interest rates were pushed as low as possible and trillions of dollars were pumped into the financial system during the Fed’s quantitative easing programs.  Of course those actions were going to create a huge bubble, and of course that bubble is going to inevitably burst.

Unfortunately, this is not just a game.  Real people with real hopes and real dreams are going to be absolutely devastated.  Millions of Americans that were carefully saving for retirement are going to be financially crippled, and pension funds all over the nation are going to be wiped out.

I don’t know why we can’t seem to learn from history.  And I am not talking about events that happened decades ago.  The build up to this coming crisis is so similar to what we witnessed just before the crashes of 2000 and 2008, but we just keep getting fooled over and over again.

But once things fall apart this time, I think that the American people will finally be fed up.  I think that they will be sick and tired of an unelected, unaccountable central bank that creates endless booms and busts, and I think that they will finally be ready to push Congress to shut the Federal Reserve down for good.

Financial Weapons Of Mass Destruction: The Top 25 U.S. Banks Have 222 Trillion Dollars Of Exposure To Derivatives

The recklessness of the “too big to fail” banks almost doomed them the last time around, but apparently they still haven’t learned from their past mistakes.  Today, the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives.  In other words, the exposure that these banks have to derivatives contracts is approximately equivalent to the gross domestic product of the United States times twelve.  As long as stock prices continue to rise and the U.S. economy stays fairly stable, these extremely risky financial weapons of mass destruction will probably not take down our entire financial system.  But someday another major crisis will inevitably happen, and when that day arrives the devastation that these financial instruments will cause will be absolutely unprecedented.

During the great financial crisis of 2008, derivatives played a starring role, and U.S. taxpayers were forced to step in and bail out companies such as AIG that were on the verge of collapse because the risks that they took were just too great.

But now it is happening again, and nobody is really talking very much about it.  In a desperate search for higher profits, all of the “too big to fail” banks are gambling like crazy, and at some point a lot of these bets are going to go really bad.  The following numbers regarding exposure to derivatives contracts come directly from the OCC’s most recent quarterly report (see Table 2), and as you can see the level of recklessness that we are currently witnessing is more than just a little bit alarming…

Citigroup

Total Assets: $1,792,077,000,000 (slightly less than 1.8 trillion dollars)

Total Exposure To Derivatives: $47,092,584,000,000 (more than 47 trillion dollars)

JPMorgan Chase

Total Assets: $2,490,972,000,000 (just under 2.5 trillion dollars)

Total Exposure To Derivatives: $46,992,293,000,000 (nearly 47 trillion dollars)

Goldman Sachs

Total Assets: $860,185,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $41,227,878,000,000 (more than 41 trillion dollars)

Bank Of America

Total Assets: $2,189,266,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $33,132,582,000,000 (more than 33 trillion dollars)

Morgan Stanley

Total Assets: $814,949,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $28,569,553,000,000 (more than 28 trillion dollars)

Wells Fargo

Total Assets: $1,930,115,000,000 (more than 1.9 trillion dollars)

Total Exposure To Derivatives: $7,098,952,000,000 (more than 7 trillion dollars)

Collectively, the top 25 banks have a total of 222 trillion dollars of exposure to derivatives.

If you are new to all of this, you might be wondering what a “derivative” actually is.

When you buy a stock you are purchasing an ownership interest in a company, and when you buy a bond you are purchasing the debt of a company.  But when you buy a derivative, you are not actually getting anything tangible.  Instead, you are simply making a side bet about whether something will or will not happen in the future.  These side bets can be extraordinarily complex, but at their core they are basically just wagers.  The following is a pretty good definition of derivatives that comes from Investopedia…

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

Those that trade derivatives are essentially engaged in a form of legalized gambling, and some of the brightest names in the financial world have been warning about the potentially destructive nature of these financial instruments for a very long time.

In a letter that he wrote to shareholders of Berkshire Hathaway in 2003, Warren Buffett actually referred to derivatives as “financial weapons of mass destruction”…

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Warren Buffett was right on the money when he made that statement, and of course the derivatives bubble is far larger today than it was back then.

In fact, the total notional value of derivatives contracts globally is in excess of 500 trillion dollars.

This is a disaster that is just waiting to happen, and investors such as Buffett are quietly positioning themselves to take advantage of the giant crash that is inevitably coming.

According to financial expert Jim Rickards, Buffett’s Berkshire Hathaway Inc. is hoarding 86 billion dollars in cash because he is likely anticipating a major stock market downturn…

Far from a bullish sign, Buffett’s cash hoard could mean he’s preparing for a market crash. When the crash comes, Buffett can walk through the wreckage with his checkbook open and buy great companies for a fraction of their current value.

That’s the real Buffett style, but you won’t hear that from your broker or wealth manager. If Buffett has a huge cash allocation, shouldn’t you?

He knows what’s coming. Now you do too.

Warren Buffett didn’t become one of the wealthiest men in the entire world by being stupid.  He knows that stocks are ridiculously overvalued at this point, and he is poised to make his move after the pendulum swings in the other direction.

And he might not have too long to wait.  In recent weeks I have been writing about many of the signs that the U.S. economy is slowing down substantially, and today we received even more bad news…

Despite high levels of economic confidence expressed by business owners and consumers, one key indicator shows that it has not translated into much action yet.

Loan issuance declined in the first quarter from the previous three-month period, the first time that has happened in four years, according to an SNL Financial analysis of bank earnings reports filed for the period. The total of recorded loans and leases fell to $9.297 trillion from $9.305 trillion in the fourth quarter of 2016.

This is precisely what we would expect to see if a new economic downturn was beginning.  Our economy is very highly dependent on the flow of credit, and when that flow begins to diminish that is a very bad sign.

For the moment, financial markets continue to remain completely disconnected from the hard economic data, but as we saw in 2008 the markets can plunge very rapidly once they start catching up with the real economy.

Warren Buffett is clearly getting prepared for the crisis that is ahead.

Are you?

The Federal Reserve Must Go

If you want to permanently fix America’s economy, there really is no other choice.  Even before Ron Paul’s rallying cry of “End The Fed” shook America during the peak of the Tea Party movement, I was a huge advocate of shutting down the Federal Reserve.  Because no matter how hard we try to patch it up otherwise, the truth is that our debt-based financial system has been fundamentally flawed from the very beginning, and the Federal Reserve is the very heart of that system.  The following is a free preview of an upcoming book that I am working on about how to turn this country is a more positive direction…

*****

As the publisher of The Economic Collapse Blog, there have been times when I have been criticized for focusing too much on our economic problems and not enough on the solutions.  But I believe that in order to be willing to accept the solutions that are necessary, people need to have a full understanding of the true severity of our problems.  It isn’t by accident that we ended up 20 trillion dollars in debt.  In 1913, a bill was rushed through Congress right before Christmas that was based on a plan that had been secretly developed by very powerful Wall Street bankers.  G. Edward Griffin did an amazing job of documenting the development of this plan in his groundbreaking book “The Creature from Jekyll Island: A Second Look at the Federal Reserve”.  At that time, most Americans had no idea what a central bank does or what one would mean for the U.S. economy.  Sadly, even though more than a century has passed since that time, most Americans still do not understand the Federal Reserve.

The Federal Reserve was designed to create debt, and of course the Wall Street bankers were very excited about such a system because it would make them even wealthier.  Since the Fed was created in 1913, the U.S. national debt has gotten more than 5000 times larger and the value of the U.S. dollar has declined by about 98 percent.  So the Federal Reserve is doing what it was originally designed to do.  In fact, it has probably worked better than the original designers ever dreamed possible.

There is often a lot of confusion about the Federal Reserve, because a lot of people think that it is simply an agency of the federal government.  But of course that is not true at all.  In fact, as Ron Paul likes to say, the Federal Reserve is about as “federal” as Federal Express is.

The Fed is an independent central bank that has even argued in court that it is not an agency of the federal government.  Yes, the president appoints the leadership of the Fed, but the Fed and other central banks around the world have always fiercely guarded their “independence”.  On the official Fed website, it is admitted that the 12 regional Federal Reserve banks are organized “much like private corporations”, and they very much operate like private entities.  They even issue shares of stock to the private banks that own them.

In case you were wondering, the federal government has zero shares.

The American people are constantly being told that Fed decisions must be “above politics” because they are “too important” to be politicized.  So even though everything else in our society is up for political debate, somehow we have become convinced that the Federal Reserve should be off limits.

Today, the Federal Reserve has more power over the performance of the U.S. economy than anyone else does, and that includes the president.  The Fed has become known as “the fourth branch of government”, and a single statement from the chairman of the Fed can send global financial markets soaring or tumbling.

So even though presidents tend to get most of the credit or most of the blame for how the U.S. economy is doing, the truth is that the Fed is actually the one pulling most of the strings.  In conjunction with Congress, presidents can monkey around with regulations and tax rates, but at the end of the day their influence over the economy pales in comparison to what the Fed is able to do.

For those that have never encountered this material before, this can be difficult to grasp at first, so let’s start with something very simple.

Go to your wallet or purse and pull out a dollar bill.

At the very top, you will notice that it says “Federal Reserve Note” in big, bold letters.

If you ask 99 percent of the people in the United States where money comes from, they will not be able to tell you.  Our money is actually created and issued by the Federal Reserve, but that is not what our founders intended.  According to Article I, Section 8 of the U.S. Constitution, Congress was expressly given the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

So why is the Federal Reserve doing it?

Many Americans are still operating under the assumption that the federal government has a “printing press” and that if we ever get into too much debt trouble the government could simply create and spend lots more money into circulation.

But that is not the way that our system currently operates.

Instead, it is the Federal Reserve that creates all new money.  Once that new money is created, the federal government then borrows it and spends it into circulation.

Previously, I have written about how this works…

When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.

Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.

The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.

(http://theeconomiccollapseblog.com/archives/why-donald-trump-must-shut-down-the-federal-reserve-and-start-issuing-debt-free-money)

This doesn’t seem to make any sense at all.

Why does the U.S. government have to borrow money that the Federal Reserve creates?  Why can’t they just create the money themselves?

This is the big secret that nobody is supposed to know about.

Theoretically, the federal government doesn’t have to borrow a penny.  Instead of borrowing money the Federal Reserve creates, it could just create money directly and spend it into circulation.

But then we wouldn’t be 20 trillion dollars in debt.

Once the Federal Reserve has received U.S. Treasury bonds in exchange for the “Federal Reserve Notes” that the federal government has requested, the Fed auctions off those bonds to the highest bidder.  But as I have noted so many times before, this process always creates more debt than it does money…

The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.

But wait.

There is a problem.

Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.

So where will the U.S. government get the money to pay that debt?

Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.

But that never actually happens, does it?

And the creators of the Federal Reserve understood this as well. They understood that the U.S. government would not have enough money to both run the government and service the national debt. They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.

(http://theeconomiccollapseblog.com/archives/why-donald-trump-must-shut-down-the-federal-reserve-and-start-issuing-debt-free-money)

Beginning in 1913, this process has created an endless debt spiral that has resulted in the U.S. being 20 trillion dollars in debt.  It is the biggest mountain of debt in the history of the world, and it didn’t have to happen.

In fact, if we had been using debt-free money all this time we could theoretically be completely out of debt.

A lot of conservatives out there are still under the illusion that if we could just grow the economy fast enough that we could possibly pay back all of this debt someday, but as I have demonstrated in a previous article, this is mathematically impossible.  (http://theeconomiccollapseblog.com/archives/it-is-mathematically-impossible-to-pay-off-all-of-our-debt)

All of this debt threatens to destroy the bright future that our children and our grandchildren were supposed to have.  It is absolutely immoral to pass such a large debt on to future generations, but we are doing it anyway.

Of course the United States is far from alone in this regard.  Today, more than 99.9% of the population of the world lives in a country that has a central bank.

There is literally nothing else that the entire planet agrees upon almost unanimously, and yet somehow virtually the whole globe has chosen to adopt debt-based central banking.

Do you think that this is just a coincidence?

A handful of extremely small nations such as the Federated States of Micronesia still do not have a central bank, but the only large country not to have one is North Korea.

I don’t understand why more people are not talking about this.  If we really want to reform how things are done economically, it should start with central banking.

The truth is that we do not need a central bank.

Let me say that again.

We do not need a central bank.

The greatest period of economic growth in all of U.S. history was when there was no income tax and no central bank. (http://theeconomiccollapseblog.com/archives/during-the-best-period-of-economic-growth-in-u-s-history-there-was-no-income-tax-and-no-federal-reserve)

Such a system would be unimaginable to many people today, but it is entirely possible.

Instead of a central bank creating debt-based currency for us, the federal government could create debt-free money directly.

And instead of socialist central planners setting our interest rates for us, we could allow the free market to set our interest rates.

We are supposed to be a free market nation with a free market economy, and so we don’t need Fed bureaucrats to run it for us.

The free market will always do a better job in the long run then bureaucrats will.  As I noted earlier, the greatest period of economic growth in U.S. history was right before the Federal Reserve was created in 1913, but since that time there have been 18 distinct recessions or depressions: 1918, 1920, 1923, 1926, 1929, 1937, 1945, 1949, 1953, 1958, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008.

Now we stand poised on the brink of another major downturn, and people still aren’t getting it.

As long as the Federal Reserve exists, there will be “booms” and “busts” like this.

It is time for a change.

During the good times, criticism of the Fed tends to subside.  And without a doubt, the bubble following the end of the last recession lasted much longer than a lot of people initially would have thought, but all Fed-created bubbles eventually end.

We desperately need to get free from this system, and a huge step in that direction would be a rejection of debt-based currency.

If you don’t think that this can happen, you should consider what happened in 1963.  President John F. Kennedy signed Executive Order 11110 which authorized the U.S. Treasury to issue debt-free “United States Notes” which were directly created by the federal government.

Unfortunately, he was assassinated shortly after that executive order was signed.

You can still find debt-free “United States Notes” in circulation today, and they are often for sale on auction sites such as eBay because people like to collect them.

At any time, the White House could do something similar today.

All it takes is the willingness to do so.

The borrower is the servant of the lender, and the debt-based Federal Reserve system has turned all of us into debt slaves.

If we do not want future generations of Americans to be enslaved to debt, we need to shut down the Federal Reserve and start using debt-free currency.  Any essential functions that the Fed is currently performing can ultimately be taken over by the U.S. Treasury, and of course we can make the transition gradual so that we don’t completely panic global financial markets.

The global elite are using central banking and debt-based currencies to dominate the planet.  Today, the total amount of debt in the world has shot past 150 trillion dollars, and it will only continue to grow until humanity wakes up and realizes the insanity of using a debt-based financial system.

Here in the United States, we need people in government that understand these things and that are willing to do something about it.

The Federal Reserve must go, and I will never make any apologies for saying that.

Foreigners Are Dumping U.S. Debt At A Record Pace And Our $20 Trillion National Debt Is Poised To Become A Major Crisis

Dollar Spiral - Public DomainWhile most of the country has been focused on the inauguration of Donald Trump, a very real crisis has been brewing behind the scenes. Foreigners are dumping U.S. debt at a faster rate than we have ever seen before, and U.S. Treasury yields have been rising. This is potentially a massive problem, because our entire debt-fueled standard of living is dependent on foreigners lending us gigantic mountains of money at ultra-low interest rates. If the average rate of interest on U.S. government debt just got back to 5 percent, which would still be below the long-term average, we would be paying out about a trillion dollars a year just in interest on the national debt. If foreigners keep dumping our debt and if Treasury yields keep climbing, a major financial implosion of historic proportions is absolutely guaranteed within the next four years.

One of the most significant aspects of the “Obama legacy” is the appalling mountain of debt that he has left behind. As I write this article, the U.S. national debt is sitting at 19.944 trillion dollars. During Obama’s eight years, a staggering 9.3 trillion dollars was added to the national debt. When you break that number down, it comes to more than a hundred million dollars every single hour of every single day while Obama was living in the White House. In just two terms, Obama added almost as much to the national debt as all of the other presidents before him combined.

What Obama and the members of Congress that cooperated with him have done to future generations of Americans is beyond criminal.

Unfortunately, hardly anyone is talking about this right now, but the consequences are about to start catching up with us in a major way.

The only possible way that our game of “borrow, spend and stick future generations with the bill” can continue is if the rest of the world participates. In other words, we need them to continue to buy our debt.

Unfortunately for us, a major shift is now taking place. According to Zero Hedge, the most recent numbers that we have show foreigners dumping more than 400 million dollars of U.S. debt over the past 12 months…

The wholesale liquidation of US Treasuries continued in November, when according to the just released TIC data, foreign central banks sold another $936 million in US paper in November 2016, which due to an offset of $892 million in buying one year ago, means that for the 12 month period ended November, foreign central banks have now sold a new all time high of $405 million in the past 12 months, up from a record $403 million in LTM sales as of one month ago.

This isn’t a catastrophic emergency just yet, but if we continue down this road we will eventually get there. The only way that the U.S. government can continue on with business as usual is if it can continue to borrow billions upon billions of dollars at ultra-low interest rates. Now that Treasury yields are rising, some people are beginning to get quite nervous…

As we pointed out one month ago, what has become increasingly obvious is that both foreign central banks, sovereign wealth funds, reserve managers, and virtually every other official institution in possession of US paper, is liquidating their holdings at a disturbing pace, something which in light of the recent surge in yields to over 2 year highs, appears to have been a prudent move.

In some cases, like China, this is to offset devaluation pressure; in others such as Saudi Arabia and other petroleum exporting nations, it is to provide the funds needed to offset the drop in the petrodollar, and to backstop the country’s soaring budget deficit. In all cases, it may suggest concerns about a spike in future debt issuance by the US, especially now under the pro-fiscal stimulus Trump administration.

Someday historians are going to look back in horror at what took place during the Obama years.

The amount that was added to the national debt during his years comes to “approximately $75,129 for every person in the United States who had a full-time job in December”. There is no possible justification for this. But because there haven’t been any catastrophic consequences so far, most people assume that this theft from future generations of Americans must be okay.

In a previous article, I explained that government debt greatly stimulates the economy. If we had not borrowed and spent 9.3 trillion dollars over the past eight years, we would be in the worst economic depression in U.S. history right now.

But most people don’t understand this. They don’t get the fact that we are living way, way above our means. And they also don’t get the fact that the only way that Donald Trump can keep the party going is to borrow and spend just like Obama was doing.

And even with all of Obama’s recklessness, he was still the only president in all of U.S. history not to have a single year when U.S. GDP grew by at least three percent. The following comes from the Hill…

Despite the trillions of dollars in government spending pumped into the economy every year under Obama, America has never once enjoyed an annual GDP growth rate at 3 percent or higher, making Obama the least successful president—at least when it comes to economics—in modern history.

A historically sluggish GDP isn’t the only concern worth mentioning. Under Obama’s tenure, average annual food stamp enrollment has risen by more than 15 million (compared to 2008). The home ownership rate is the lowest it has been since 1995, the earliest year provided in the U.S. Census Bureau’s most recent report. The Bureau of Labor Statistics reports more than 590,000 Americans say they are not in the labor force because they are discouraged, a figure that’s 26 percent higher than even the worst annual average under George W. Bush. Additionally, the employment-population ratio has been continuously below the 60-percent threshold under Obama; the last time it was this low was 1985.

Now that Donald Trump is president, he is going to have some very hard choices in front of him.

If Donald Trump and the Republicans stop borrowing and spending so much money, the economy will immediately start suffering.

But if they do continue down the same path that Obama put us on, it is a recipe for national suicide.

So either we take our medicine now, or we risk completely destroying the bright future that our children and grandchildren were supposed to enjoy.

Wake up America, because time is running out.

Financial Armageddon Approaches: U.S. Banks Have 247 Trillion Dollars Of Exposure To Derivatives

Nuclear War - Public DomainDid you know that there are 5 “too big to fail” banks in the United States that each have exposure to derivatives contracts that is in excess of 30 trillion dollars?  Overall, the biggest U.S. banks collectively have more than 247 trillion dollars of exposure to derivatives contracts.  That is an amount of money that is more than 13 times the size of the U.S. national debt, and it is a ticking time bomb that could set off financial Armageddon at any moment.  Globally, the notional value of all outstanding derivatives contracts is a staggering 552.9 trillion dollars according to the Bank for International Settlements.  The bankers assure us that these financial instruments are far less risky than they sound, and that they have spread the risk around enough so that there is no way they could bring the entire system down.  But that is the thing about risk – you can try to spread it around as many ways as you can, but you can never eliminate it.  And when this derivatives bubble finally implodes, there won’t be enough money on the entire planet to fix it.

A lot of readers may be tempted to quit reading right now, because “derivatives” is a term that sounds quite complicated.  And yes, the details of these arrangements can be immensely complicated, but the concept is quite simple.  Here is a good definition of “derivatives” that comes from Investopedia…

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

I like to refer to the derivatives marketplace as a form of “legalized gambling”.  Those that are engaged in derivatives trading are simply betting that something either will or will not happen in the future.  Derivatives played a critical role in the financial crisis of 2008, and I am fully convinced that they will take on a starring role in this new financial crisis.

And I am certainly not the only one that is concerned about the potentially destructive nature of these financial instruments.  In a letter that he once wrote to shareholders of Berkshire Hathaway, Warren Buffett referred to derivatives as “financial weapons of mass destruction”…

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Since the last financial crisis, the big banks in this country have become even more reckless.  And that is a huge problem, because our economy is even more dependent on them than we were the last time around.  At this point, the four largest banks in the U.S. are approximately 40 percent larger than they were back in 2008.  The five largest banks account for approximately 42 percent of all loans in this country, and the six largest banks account for approximately 67 percent of all assets in our financial system.

So the problem of “too big to fail” is now bigger than ever.

If those banks go under, we are all in for a world of hurt.

Yesterday, I wrote about how the Federal Reserve has implemented new rules that would limit the ability of the Fed to loan money to these big banks during the next crisis.  So if the survival of these big banks is threatened by a derivatives crisis, the money to bail them out would probably have to come from somewhere else.

In such a scenario, could we see European-style “bail-ins” in this country?

Ellen Brown, one of the most fierce critics of our current financial system and the author of Web of Debt, seems to think so…

Dodd-Frank states in its preamble that it will “protect the American taxpayer by ending bailouts.” But it does this under Title II by imposing the losses of insolvent financial companies on their common and preferred stockholders, debtholders, and other unsecured creditors. That includes depositors, the largest class of unsecured creditor of any bank.

Title II is aimed at “ensuring that payout to claimants is at least as much as the claimants would have received under bankruptcy liquidation.” But here’s the catch: under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured.

The over-the-counter (OTC) derivative market (the largest market for derivatives) is made up of banks and other highly sophisticated players such as hedge funds. OTC derivatives are the bets of these financial players against each other. Derivative claims are considered “secured” because collateral is posted by the parties.

For some inexplicable reason, the hard-earned money you deposit in the bank is not considered “security” or “collateral.” It is just a loan to the bank, and you must stand in line along with the other creditors in hopes of getting it back.

As I mentioned yesterday, the FDIC guarantees the safety of deposits in member banks up to a certain amount.  But as Brown has pointed out, the FDIC only has somewhere around 70 billion dollars sitting around to cover bank failures.

If hundreds of billions or even trillions of dollars are ultimately needed to bail out the banking system, where is that money going to come from?

It would be difficult to overstate the threat that derivatives pose to our “too big to fail” banks.  The following numbers come directly from the OCC’s most recent quarterly report (see Table 2), and they reveal a recklessness that is on a level that is difficult to put into words…

Citigroup

Total Assets: $1,808,356,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $53,042,993,000,000 (more than 53 trillion dollars)

JPMorgan Chase

Total Assets: $2,417,121,000,000 (about 2.4 trillion dollars)

Total Exposure To Derivatives: $51,352,846,000,000 (more than 51 trillion dollars)

Goldman Sachs

Total Assets: $880,607,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $51,148,095,000,000 (more than 51 trillion dollars)

Bank Of America

Total Assets: $2,154,342,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $45,243,755,000,000 (more than 45 trillion dollars)

Morgan Stanley

Total Assets: $834,113,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $31,054,323,000,000 (more than 31 trillion dollars)

Wells Fargo

Total Assets: $1,751,265,000,000 (more than 1.7 trillion dollars)

Total Exposure To Derivatives: $6,074,262,000,000 (more than 6 trillion dollars)

As the “real economy” crumbles, major hedge funds continue to drop like flies, and we head into a new recession, there seems to very little alarm among the general population about what is happening.

The mainstream media is assuring us that everything is under control, and they are running front page headlines such as this one during the holiday season: “Kylie Jenner shows off her red-hot, new tattoo“.

But underneath the surface, trouble is brewing.

A new financial crisis has already begun, and it is going to intensify as we head into 2016.

And as this new crisis unfolds, one word that you are going to want to listen for is “derivatives”, because they are going to play a major role in the “financial Armageddon” that is rapidly approaching.

The U.S. Government Is Spending 400,000 Dollars On A Single Helmet

What - Public DomainWould you pay $400,000 for a single helmet?  Of course you wouldn’t – but that is precisely what the U.S. government is doing.  Just the helmet for the pilot of the new F-35 Lightning II is going to cost taxpayers nearly half a million dollars.  And since we are going to need 2,400 of those helmets, the total bill is going to end up approaching a billion dollars.  But what is a billion dollars between friends, eh?

Sadly, our military has a very long history of wasting money like this.  Back in the 1980s, the “six hundred dollar toilet seat” became quite famous.  Average Americans were absolutely outraged that the government was wasting so much of our hard-earned money, and promises were made that things would change.  Here is more on what transpired back then from Wikipedia…

Beginning in 1981, President Ronald Reagan began an expansion in the size and capabilities of the United States armed forces, which entailed major new expenditures on weapons procurement. By the mid-1980s, this spending became a scandal when the Project On Government Oversight reported that the Pentagon had vastly overpaid for a wide variety of items, most notoriously paying $435 for a hammer, $600 for a toilet seat, and $7,000 for a coffee pot.

But of course things haven’t changed, have they?

Instead, they have gotten even worse.

I have no idea how a single helmet could be worth $400,000.

Does it grant magic wishes?

Does it turn the user into a mutant superhero?

Here is an excerpt from the USA Today article that is reporting on this super expensive helmet…

When the joint strike fighter, the F-35 Lightning II, finally takes to the skies on its first official mission, it will be one of the most advanced and one of the most expensive planes ever.

And the pilots flying the aircraft will be wearing the most advanced and most expensive helmet ever.

The helmet will give pilots quicker access to the information they need to see and has special cameras to “see” through the bottom of the plane. But it will cost an estimated $400,000 per helmet — more than four times as much as the Air Force paid for head wear for other aircraft such as the F-16.

Is that why the helmet is so expensive?

It can help the pilot see through the bottom of the plane?

Really?

If you just go down to your local Ford dealer they will be glad to show you lots of new trucks that can “see behind them”, and the best truck on the lot only costs about $50,000.

Or better yet, if F-35 pilots really want to see what is going on underneath them they should just slap a window on the bottom of the plane.

Of course I am just being facetious, but I think that you get the point.

We all work really hard for our money, and it is quite disheartening to watch the government waste it so flippantly.

And this week the Republicans in Congress have agreed to suspend the debt ceiling for the rest of the time that Barack Obama is in the White House.  In one of his final acts as House Speaker, John Boehner has given Barack Obama a wonderful parting gift…

Outgoing House Speaker John Boehner presented his newly forged budget deal to his Republican colleagues at a private meeting this morning, outlining his plan to avert another government shutdown and raise the debt ceiling as a parting gift to his successor.

The deal would increase federal spending by $80 billion over two years and raise the federal borrowing limit through 2017. The 144-page bill, which was released Monday shortly before midnight, was welcomed by Democrats who have been pushing for budget negotiations all year.

Thank you John Boehner for selling us all down the river time after time.  You have done a great disservice to our nation.

This new budget agreement is actually going to significantly increase spending.  Here are some more of the details from the New York Times…

For this fiscal year alone, the deal would add $50 billion in spending, divided equally between defense and domestic programs, as well as $16 billion for emergency war spending, half for the military, half for the State Department. Together, that represents an increase of $66 billion in the spending limits for 2016, not far off the $70 billion increase Mr. Obama requested in his budget.

Personally, I can’t wait to see how much of that 16 billion dollars is for lethal military aid for Ukraine.  Many of you that have been following this closely know exactly what I am talking about.

Of course this budget deal still must be approved by Congress, but that is just a formality at this point.  Many “conservatives” in Congress are voicing displeasure with this deal, but is anyone listening?  The following comes from Business Insider…

Conservatives moved quickly to revolt over a blockbuster budget deal reached among congressional leaders and the White House early Tuesday morning, calling it a “betrayal” days before US House of Representatives Speaker John Boehner (R-Ohio) is set to leave Congress.

“This budget deal is a betrayal of all the fiscally conservative promises Republicans made in the last election. It is emblematic of why working-class Americans are angry with congressional Republicans,” said prominent right-leaning economist Stephen Moore, in a statement released by the conservative group FreedomWorks.

The Tea Party is supposed to be standing against the tax and spend agenda of the Democrats and the establishment Republicans, but enthusiasm for the Tea Party seems to be subsiding.  In fact, according to Gallup support for the Tea Party has hit an all-time low of 17 percent.

So we will just continue to witness business as usual in D.C. until disaster strikes.  At this point it is expected that somewhere around 100 Republicans in the House will support this deal, and with all of the Democrats on board that should be enough to get it to pass.

Since Boehner reached his first “budget deal” with Barack Obama back in 2011, the U.S. national debt has increased  by $3,970,023,503,348.07.  It is a betrayal of a magnitude that is difficult to put into words.

Overall, the federal government has been stealing 100 million dollars from future generations of Americans every single hour of every single day since Barack Obama first entered the White House.

When I tell most people that, I can tell that they don’t really believe me, and truthfully that statistic does sound completely and utterly ridiculous.

But it is true.

When you multiply 100,000,000 by 24 by 365 you get 876,000,000,000.  And if you multiply that number by 7 (the number of years that Obama has “served” so far rounding up), you get 6.132 trillion.

Well, according to CNSNews.com the U.S. national debt has risen by more than seven and a half trillion dollars since Barack Obama was first inaugurated…

Since Obama took office, the total debt of the federal government has already increased by $7,525,761,885,381.30—rising from $10,626,877,048,913.08 on Jan. 20, 2009 to $18,152,638,934,294.38 on Oct. 23, 2015.

When you break that number down, the amount of new debt added under Obama comes to $64,134.73 per household…

The $7,525,761,885,381.30 that the total debt has increased so far during the Obama presidency equals $64,134.73 for each of the 117,343,000 households that were in the United States as of June.

Are you ready to cough up your share?

The truth is that it is already mathematically impossible for the U.S. government to pay off this debt.

What our politicians are attempting to do now is to keep borrowing money and extending the game for as long as they possibly can.

If that sounds like a really bad plan to you, that is because it is a really bad plan.

What our leaders have done to future generations of Americans is beyond criminal.  But the American people have come to accept this as “normal”, and only a very small percentage of us are still complaining about it.

So the jokers in Washington will just keep on doing what they are doing until it all comes tumbling down all around them.  By then, it will be far too late to do anything about it.

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