Barack Obama

Denial Is Not Just A River In Egypt: 10 Hilarious Examples Of How Clueless Our Leaders Are About The Economy

March 13, 2013 by Michael

They didn’t see it coming last time either. Back in 2007, President Bush, Federal Reserve Chairman Ben Bernanke and just about every prominent voice in the financial world were all predicting that we would experience tremendous economic prosperity well into the future. In fact, as late as January 2008 Bernanke boldly declared that “the Federal Reserve is not currently forecasting a recession.” At the time, only the “doom and gloomers” were warning that everything was about to fall apart. And of course we all know what happened. But just a few short years later, history seems to be repeating itself. Barack Obama, Federal Reserve Chairman Ben Bernanke and almost every prominent voice in the financial world are all promising that the U.S. “economic recovery” is going to continue even though Europe is coming apart like a 20 dollar suit. But the economic fundamentals tell a different story. Our national debt is more than $6,000,000,000,000 larger than it was back in 2008, the number of Americans on food stamps just hit another brand new all-time record, and the bankers up on Wall Street are selling gigantic mountains of the exact same kind of toxic derivatives that caused so much trouble the last time around. But all of our “leaders” swear that everything is going to be okay. You can believe them if you want, but denial is not just a river in Egypt, and another crash is inevitably coming.

Sadly, many Americans are not even going to see the crash coming because they still have faith in the “experts”. They haven’t figured out that the “experts” really do not know what they are doing.

The blind are leading the blind, and in the end the results are going to be absolutely tragic.

The following are 10 hilarious examples of how clueless our leaders are about the economy…

#1 When I first came across the following chart the other day, it made me chuckle. It is a chart that supposedly tells us the “probability” of a recession, and it was taken from the website of the Federal Reserve Bank of St. Louis. According to the chart, right now there is a 0.16% chance of a recession…

#2 Federal Reserve Chairman Ben Bernanke has also been proclaiming his belief that the U.S. economy will continue to grow. The following is an excerpt from his recent remarks to Congress…

The pause in real GDP growth last quarter does not appear to reflect a stalling-out of the recovery. Rather, economic activity was temporarily restrained by weather-related disruptions and by transitory declines in a few volatile categories of spending, even as demand by U.S. households and businesses continued to expand. Available information suggests that economic growth has picked up again this year.

And Bernanke also insists that the labor market is “improving”…

Consistent with the moderate pace of economic growth, conditions in the labor market have been improving gradually.

Of course the labor market is not actually improving. I showed this using the Fed’s own numbers the other day.

And you can put stock in Bernanke’s forecasting ability if you like, but considering his track record of failure in the past, that might not be too wise. Just check out what he was saying before the last financial crisis: “30 Ben Bernanke Quotes That Are So Stupid That You Won’t Know Whether To Laugh Or Cry“.

#3 Although Bernanke has such a nightmarish track record of failure, Warren Buffett still has faith in him. In fact, Buffett loves all of the money printing that Bernanke has been doing…

The U.S. economy might be “dead in the water” without the stimulus provided by the Federal Reserve under Chairman Ben Bernanke, according to Warren Buffett, CEO of Berkshire Hathaway.

“I think very cheap money makes things happen, it makes asset values higher. When asset values are higher, people do have a greater propensity to spend,” Buffett told CNBC.

“I think Bernanke has sort of carried the load himself during this period.”

If Buffett thinks the wild money printing that the Fed has been doing is so wonderful, then he probably would have absolutely loved living in the Weimar Republic.

#4 Barack Obama continues to insist that we do not have a debt crisis, but that we will not be able to balance the budget any time in the foreseeable future either.

Even though the national debt has grown by more than 6 trillion dollars under his leadership and our debt to GDP ratio is now well over 100%, Obama does not believe that it is a significant problem…

“We don’t have an immediate crisis in terms of debt”

And Obama certainly does not plan to even come close to balancing the budget during his second term. In fact, he openly admits that we won’t see a balanced budget at any point within the next decade…

“We’re not gonna balance the budget in 10 years”

Sadly, the truth is that the U.S. will never have a balanced budget ever again under our current system, but most of our politicians are not willing to go that far and admit that sad fact to the American people just yet.

#5 But of course it would certainly help if the U.S. government would stop wasting so much money. For example, did you know that the federal government is helping dead people get free cell phones? The following is from a recent article in the New York Post…

Dead people don’t need cell phones.

That’s the message Rep. Tim Griffin of Arkansas wants to send Congress, after he says a controversial government-backed program that helps provide phones to low-income Americans ended up sending mobiles to the dead relatives of his constituents. Griffin has introduced a bill that targets the phone hand-out program, which has ballooned into a fiscal headache for the government.

And of course a lot of living people are abusing the free cell phone program as well. Rep. Griffin says that he has heard of some people getting as many as 10 free cell phones from the government…

“I’ve also gotten calls from people who say their employees were bragging about having 10 phones.”

#6 Meanwhile, the most prominent economic journalist in the United States, Paul Krugman of the New York Times, continues to insist that it is a good thing for the government to be running up so much debt…

First of all… that trillion-dollar deficit is overwhelmingly the result of a depressed economy. And when the economy’s depressed it’s good to run a deficit. You don’t want the government to try and balance its budget right now.

Krugman is also operating under the delusion that the federal government “can’t run out of cash”, that it can just print money whenever it wants and that printing giant piles of money would not hurt anything.

The United States is a country that has its own currency–can’t run out of cash because we print the money. If you even try to think what would happen–suppose that investors get down on the United States. Even so, that would weaken the dollar, not send interest rates soaring, and that would be good. That would help our exports

It is frightening that the top economic journalist in America has such little understanding of how our system actually works. I would encourage Krugman to read a couple of my previous articles so that he won’t be so ignorant in the future…

-“Where Does Money Come From? The Giant Federal Reserve Scam That Most Americans Do Not Understand”

-“10 Things That Every American Should Know About The Federal Reserve”

#7 Many Americans have wondered why the federal government never seems to go after the big Wall Street banks. Well, now we know why. The other day, the Attorney General of the United States admitted that the federal government is very hesitant to prosecute anyone from the big banks because of what it might do to the global economy…

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy”

So I guess we now live in a world where there is a different set of rules for the big banks, eh?

Most of us already knew that this was the case, but it is quite chilling to hear the Attorney General of the United States publicly admit this.

#8 Many of the big Wall Street banks are absolutely giddy that the Dow keeps setting new all-time highs, and many of them are projecting wonderful things ahead for the U.S. economy. For example, here is one forecast from Morgan Stanley’s Vincent Reinhart …

“In the Morgan Stanley forecast for the US, the trajectory of economic activity marks an inflection point midway through 2013. The severe financial crisis of 2008-09 necessitated significant downward adjustments by the private sector to the levels of aggregate demand and efficient supply. As the event recedes further into history, however, the drag on growth from these ongoing level adjustments plays out.

In our forecast, the expansion of real GDP steps up to around 2-3/4 percent in the second half of this year and beyond.”

#9 Vice-President Joe Biden is pushing economic optimism to ridiculous levels. Apparently he believes that most Americans are “no longer worried” that a major economic crisis is coming…

But all kidding aside, I think the American people have moved — Democrats, Republicans, independents. They know that the possibilities for this country are immense. They’re no longer traumatized by what was a traumatizing event, the great collapse in 2008. They’re no longer worried, I think, about our economy being overwhelmed either by Europe writ large, the EU, or China somehow swallowing up every bit of innovation that exists in the world. They’re no longer, I think, worried about our economy being overwhelmed beyond our shores.

And I don’t think they’re any more — there’s no — there’s very little doubt in any circles out there about America’s ability to be in position to lead the world in the 21st century, not only in terms of our foreign policy, our incredible defense establishment, but economically.

#10 Right now, many in the financial world are projecting that this will be a year to remember for the stock market. During a recent interview with Fox Business, Wharton School of Business Finance Professor Jeremy Siegel declared that the Dow will cross the 16,000 mark by the end of this year…

“I think by the end of this year, we’ll be in the 16,000 to 17,000 range.”

Of course it is true that other analysts have a much different view of things. Many of them are absolutely amazed that the U.S. economy has become so disconnected from economic reality. For example, just check out what Steve Russell and Hamish Baillie, fund managers at the Ruffer Investment Company, recently had to say…

“If this was explained to a recently arrived Martian he would no doubt be puzzled – US unemployment has almost doubled since 2007, GDP [gross domestic product] growth is a third lower and debt as a percentage of GDP is within a whisker of doubling. The market is forward looking but this is extreme”

So who is right and who is wrong?

Time will tell.

Fortunately, it appears that the American people are getting fed up with the constant stream of lies that they have been told.

According to a new Pew Research survey, just 26 percent of all Americans trust the government to do the right thing.

So what about you?

Do you trust what the government and the “experts” are telling you?

Do you trust them to do the right thing?

Feel free to post a comment with your thoughts below…

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

February 27, 2013February 27, 2013 by Michael

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

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

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

That is what America is like today.

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

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

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

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

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

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

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

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

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

Will the sequester cuts hurt the economy a bit?

Of course.

Government spending cuts always hurt the economy.

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

Of course.

Tax increases always hurt the economy.

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

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

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

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

Of course not.

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

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

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

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

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

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

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

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

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

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

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

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

Really?

How stupid do they think we all are?

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

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

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

Remember, these are actually very small cuts.

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

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

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

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

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

Why aren’t more people getting upset over that?

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

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

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

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

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

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

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

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

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

Shame on you Democrats.

Shame on you Republicans.

Shame on you America.

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

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

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

Not that living within our means would be easy.

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

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

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

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

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

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

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

And a day of reckoning is coming.

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

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

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

I hope that you are getting ready.

Shocking Numbers That Show The Media Is Lying To You About Unemployment In America

February 1, 2013 by Michael

Did you know that the percentage of the U.S. labor force that is employed has continually been falling since 2006 according to the Bureau of Labor Statistics? Did you know that the increase in the number of Americans “not in the labor force” during Barack Obama’s first four years in the White House was more than three times greater than the increase in the number of Americans “not in the labor force” during the entire decade of the 1980s? The mainstream media would have us believe that 157,000 jobs were added to the U.S. economy in January. Based on that news, the Dow broke the 14,000 barrier for the first time since October 2007. But if you actually look at the “non-seasonally adjusted” numbers, the number of Americans with a job actually decreased by 1,446,000 between December and January. But nowhere in the mainstream media did you hear that the U.S. economy lost more than 1.4 million jobs between December and January. It is amazing the things that you can find out when you actually take the time to look at the hard numbers instead of just listening to the media spin. Back in 2007, more than 146 million Americans were employed. Today, only 141.6 million Americans are employed even though our population has grown steadily since then. When the government and the media tell you that we are in a “recovery” and that unemployment is lower than it was a couple of years ago, I encourage you to dig deeper. The truth is that even the government’s own numbers tell us that the percentage of the U.S. labor force that is employed continues to fall and that the U.S. economy is heading into a recession. The Obama administration and the media have been lying to you about unemployment and about the true condition of our economy. After you see the numbers that I have compiled in this article, I think that you will agree with me.

First of all, let’s take a look at the percentage of the civilian labor force that has been employed over the past several years. These numbers come directly from the Bureau of Labor Statistics. As you can see, this is a number that has been steadily falling since 2006…

2006: 63.1

2007: 63.0

2008: 62.2

2009: 59.3

2010: 58.5

2011: 58.4

In January, only 57.9 percent of the civilian labor force was employed.

Do the numbers above represent a positive trend or a negative trend?

Even a 2nd grader could answer that question.

So how in the world can the Obama administration and the mainstream media claim that the employment picture is getting better and that we are in a “recovery”?

But most Americans believe what they are told. It is almost as if we are in some kind of a “matrix” where reality is defined by the corporate-controlled propaganda that is relentlessly pumped into our brains.

The only way that the government has been able to show a declining unemployment rate is by dumping massive numbers of Americans into the “not in the labor force” category.

Just check out how the number of Americans “not in the labor force” has absolutely skyrocketed in recent years…

2006: 77,387,000

2007: 78,743,000

2008: 79,501,000

2009: 81,659,000

2010: 83,941,000

2011: 86,001,000

In January, there were supposedly 89,868,000 Americans that were at least 16 years of age that were not in the labor force.

That number has risen by more than 8 million since Barack Obama first entered the White House, and that is highly unusual, because the number of Americans “not in the labor force” only increased by 2,518,000 during the entire decade of the 1980s.

You sure can get the numbers to look more “favorable” if you pretend that millions upon millions of American workers simply “don’t want a job” any longer. The truth is that if the labor force participation rate was at the same level it was at when Barack Obama was first elected, the official unemployment rate would be well above 10 percent.

But that wouldn’t do at all, would it? 7.9 percent sounds so much nicer.

And of course even if you do have a job that does not mean that you are doing okay.

If you can believe it, in America today 41 percent of all workers make $20,000 a year or less.

To me, that is a mind blowing statistic. It would be incredibly challenging for anyone to live on $20,000 a year, much less try to support a family.

If you live in Washington D.C. or New York City and you have a “good job” working for the establishment, you may not realize it, but there are tens of millions of American families that are really hurting out there. According to the U.S. Census Bureau, more than 146 million Americans are either “poor” or “low income” at this point, and most of those people actually do have jobs.

For much more on the “working poor” in the United States, please see my previous article entitled “35 Statistics About The Working Poor In America That Will Blow Your Mind“.

If something is not done, the middle class will continue to disappear and poverty in America will continue to explode.

In a previous article, I noted that during Obama’s first term, the number of Americans on food stamps increased by an average of about 11,000 per day.

How bad do things have to get before people realize that we are living through a nightmare?

Sadly, most Americans still have faith in the system.

Most Americans are still convinced that our politicians will somehow find a way to turn things around.

Most Americans will gather around their television sets this weekend and watch the Super Bowl and laugh at all the funny commercials without even thinking about how America is literally falling apart all around them.

But there is one group of Americans that is acutely aware of how bad things have really gotten. Small businesses have traditionally been the primary engine of job growth in this country, but right now small business owners all over the nation are facing a tremendous crisis.

Millions of small businesses are on the verge of extinction, and yet our politicians just continue to pile on more taxes, more rules and more regulations.

A recent Gallup poll found that 61 percent of all small business owners in America are “worried about the potential cost of healthcare”, and that an astounding 30 percent of all small business owners in America are not hiring and fear that they will go out of business within the next 12 months.

In a previous article entitled “We Are Witnessing The Death Of Small Business In America“, I detailed how small businesses in America are being systematically wiped out. Small businesses are dying all around us, and the number of new small businesses continues to decline.

According to economist Tim Kane, the following is how the decline in the number of startup jobs per one thousand Americans breaks down by presidential administration…

Bush Sr.: 11.3

Clinton: 11.2

Bush Jr.: 10.8

Obama: 7.8

Is that a good trend or a bad trend?

All of this is so simple that even the family pet should be able to figure it out, and yet most Americans seem oblivious to all of this. They just keep gobbling up the mainstream media propaganda and they just continue to go out and wildly spend money.

It is almost as if we didn’t learn any lessons from 2008.

Even while household spending in Europe has moderated, household spending in the United States continues to soar. Just check out the chart in this article.

And guess what? The infamous “no money down mortgages” are back. If we wait long enough, perhaps “interest only mortgages” will make a comeback as well.

Unfortunately, I am afraid that time is running out. we have been living in the biggest debt bubble in the history of the world, and it is only a matter of time until it bursts.

2008 was just a “hiccup” compared to what is coming. Our politicians and the Federal Reserve were able to keep the house of cards from completely crashing down back then, but they are not going to be able to avert the economic horror show that is rapidly approaching.

I hope that you are getting prepared. Back in 2008, millions of Americans suddenly lost their jobs, and because many of them did not have any savings, many of them suddenly lost their homes. One of the most important things that you can do to prepare for the coming crisis is to build up an emergency fund. If things suddenly go bad, you don’t want to lose your house and everything that you have always worked for.

In addition, anything that you can do to become more self-sufficient and more independent of the system is a good thing, because the system is failing. The years ahead are going to be much more chaotic than what we are experiencing right now, and when the next crisis strikes you will be very thankful for the time and the energy that you put into preparing.

So what are all of you seeing in your own areas?

Are businesses shutting down?

Are people having a hard time finding good jobs?

Please feel free to post a comment with your thoughts below…

Federal Reserve Money Printing Is The Real Reason Why The Stock Market Is Soaring

January 28, 2013 by Michael

You can thank the reckless money printing that the Federal Reserve has been doing for the incredible bull market that we have seen in recent months. When the Federal Reserve does more “quantitative easing”, it is the financial markets that benefit the most. The Dow and the S&P 500 have both hit levels not seen since 2007 this month, and many analysts are projecting that 2013 will be a banner year for stocks. But is a rising stock market really a sign that the overall economy is rapidly improving as many are suggesting? Of course not. Just because the Federal Reserve has inflated another false stock market bubble with a bunch of funny money does not mean that the U.S. economy is in great shape. In fact, the truth is that things just keep getting worse for average Americans. The percentage of working age Americans with a job has fallen from 60.6% to 58.6% while Barack Obama has been president, 40 percent of all American workers are making $20,000 a year or less, median household income has declined for four years in a row, and poverty in the United States is absolutely exploding. So quantitative easing has definitely not made things better for the middle class. But all of the money printing that the Fed has been doing has worked out wonderfully for Wall Street. Profits are soaring at Goldman Sachs and luxury estates in the Hamptons are selling briskly. Unfortunately, this is how things work in America these days. Our “leaders” seem far more concerned with the welfare of Wall Street than they do about the welfare of the American people. When things get rocky, their first priority always seems to be to do whatever it takes to pump up the financial markets.

When QE3 was announced, it was heralded as the grand solution to all of our economic problems. But the truth is that those running things knew exactly what it would do. Quantitative easing always pumps up the financial markets, and that overwhelmingly benefits those that are wealthy. In fact, a while back a CNBC article discussed a very interesting study from the Bank of England which showed a clear correlation between quantitative easing and rising stock prices…

It said that the Bank of England’s policies of quantitative easing – similar to the Fed’s – had benefited mainly the wealthy.

Specifically, it said that its QE program had boosted the value of stocks and bonds by 26 percent, or about $970 billion. It said that about 40 percent of those gains went to the richest 5 percent of British households.

Many said the BOE’s easing added to social anger and unrest. Dhaval Joshi, of BCA Research wrote that “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it.”

So should we be surprised that stocks are now the highest that they have been in more than 5 years?

Of course not.

And who benefits from this?

The wealthy do. In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.

Unfortunately, all of this reckless money printing has a very negative impact on all the rest of us. When the Fed floods the financial system with money, that causes inflation. That means that the cost of living has gone up even though your paycheck may not have.

If you go to the supermarket frequently, you know exactly what I am talking about. The new “sale prices” are what the old “regular prices” used to be. They keep shrinking many of the package sizes in order to try to hide the inflation, but I don’t think many people are fooled. Our food dollars are not stretching nearly as far as they used to, and we can blame the Federal Reserve for that.

For much more on rising prices in America, please see this article: “Somebody Should Start The ‘Stuff Costs Too Much’ Party“.

Sadly, this is what the Federal Reserve does. The system was designed to create inflation. Before the Federal Reserve came into existence, the United States never had an ongoing problem with inflation. But since the Fed was created, the United States has endured constant inflation. In fact, we have come to accept it as “normal”. Just check out the amazing chart in the video posted below…

The chart in that video kind of reminds me of a chart that I shared in a previous article…

Not that I expect the United States to enter a period of hyperinflation in the near future.

Actually, despite all of the reckless money printing that the Fed has been doing, I expect that at some point we are going to see another wave of panic hit the financial markets like we saw back in 2008. The false stock market bubble will burst, major banks will fail and the financial system will implode. It could unfold something like this…

1 – A derivatives panic hits the “too big to fail” banks.

2 – Financial markets all over the globe crash.

3 – The credit markets freeze up.

4 – Economic activity in the United States starts to grind to a halt.

5 – Unemployment rises above 20 percent and mortgage defaults soar to unprecedented levels.

6 – Tax revenues fall dramatically and austerity measures are implemented by the federal government, state governments and local governments.

7 – The rest of the globe rapidly loses confidence in the U.S. financial system and begins to dump U.S. debt and U.S. dollars.

I write about derivatives a lot, because they are one of the greatest threats that the global financial system is facing. In fact, right now a derivatives scandal is threatening to take down the oldest bank in the world…

Banca Monte dei Paschi di Siena, the world’s oldest bank, was making loans when Michelangelo and Leonardo da Vinci were young men and before Columbus sailed to the New World. The bank survived the Italian War, which saw Siena’s surrender to Spain in 1555, the Napoleonic campaign, the Second World War and assorted bouts of plague and poverty.

But MPS may not survive the twin threats of a gruesomely expensive takeover gone bad and a derivatives scandal that may result in legal action against the bank’s former executives. After five centuries of independence, MPS may have to be nationalized as its losses soar and its value sinks.

So when you hear the word “derivatives” in the news, pay close attention. The bankers have turned our financial system into a giant casino, and at some point the entire house of cards is going to come crashing down.

In response to the coming financial crisis, I believe that our “leaders” will eventually resort to money printing unlike anything we have ever seen before in a desperate attempt to resuscitate the system. When that happens, I believe that we will see the kind of rampant inflation that so many people have been warning about.

So what do you think about all of this?

Do you believe that Federal Reserve money printing is the real reason why the stock market is soaring?

Please feel free to post a comment with your thoughts below…

37 Statistics Which Show How Four Years Of Obama Have Wrecked The U.S. Economy

January 21, 2013 by Michael

The mainstream media covered the inauguration of Barack Obama with breathless anticipation on Monday, but should we really be celebrating another four years of Obama? The truth is that the first four years of Obama were an absolute train wreck for the U.S. economy. Over the past four years, the percentage of working age Americans with a job has fallen, median household income has declined by more than $4000, poverty in the U.S. has absolutely exploded and our national debt has ballooned to ridiculous proportions. Of course all of the blame for the nightmarish performance of the economy should not go to Obama alone. Certainly much of what we are experiencing today is the direct result of decades of very foolish decisions by Congress and previous presidential administrations. And of course the Federal Reserve has more influence over the economy than anyone else does. But Barack Obama steadfastly refuses to criticize anything that the Federal Reserve has done and he even nominated Ben Bernanke for another term as Fed Chairman despite his horrific track record of failure, so at a minimum Barack Obama must be considered to be complicit in the Fed’s very foolish policies. Despite what the Obama administration tells us, the U.S. economy has been in decline for a very long time, and that decline has accelerated in many ways over the past four years. Just consider the statistics that I have compiled below. The following are 37 statistics which show how four years of Obama have wrecked the U.S. economy…

1. During Obama’s first term, the number of Americans on food stamps increased by an average of about 11,000 per day.

2. At the beginning of the Obama era, 32 million Americans were on food stamps. Today, more than 47 million Americans are on food stamps.

3. According to one calculation, the number of Americans on food stamps now exceeds the combined populations of “Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.”

4. The number of Americans receiving money directly from the federal government each month has grown from 94 million in the year 2000 to more than 128 million today.

5. According to the U.S. Census Bureau, more than 146 million Americans are either “poor” or “low income” at this point.

6. The unemployment rate in the United States is exactly where it was (7.8 percent) when Barack Obama first entered the White House in January 2009.

7. When Barack Obama first entered the White House, 60.6 percent of all working age Americans had a job. Today, only 58.6 percent of all working age Americans have a job.

8. During the first four years of Obama, the number of Americans “not in the labor force” soared by an astounding 8,332,000. That far exceeds any previous four year total.

9. During Obama’s first term, the number of Americans collecting federal disability insurance rose by more than 18 percent.

10. The Obama years have been absolutely devastating for small businesses in America. According to economist Tim Kane, the following is how the number of startup jobs per 1000 Americans breaks down by presidential administration…

Bush Sr.: 11.3

Clinton: 11.2

Bush Jr.: 10.8

Obama: 7.8

11. Median household income in America has fallen for four consecutive years. Overall, it has declined by over $4000 during that time span.

12. The economy is not producing nearly enough jobs for the hordes of young people now entering the workforce. Approximately 53 percent of all U.S. college graduates under the age of 25 were either unemployed or underemployed in 2011.

13. According to a report from the National Employment Law Project, 58 percent of the jobs that have been created since the end of the recession have been low paying jobs.

14. Back in 2007, about 28 percent of all working families were considered to be among “the working poor”. Today, that number is up to 32 percent even though our politicians tell us that the economy is supposedly recovering.

15. According to the Center for Economic and Policy Research, only 24.6 percent of all of the jobs in the United States are “good jobs” at this point.

16. According to the U.S. Census Bureau, the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.

17. According to the Economic Policy Institute, the United States is losing half a million jobs to China every single year.

18. The United States has fallen in the global economic competitiveness rankings compiled by the World Economic Forum for four years in a row.

19. According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001. That number declined steadily over the course of the next decade and was only at 21.6 percent in 2011.

20. The United States actually has plenty of oil and we should not have to import oil from the Middle East. We need to drill for more oil, but Obama has been very hesitant to do that. Under Bill Clinton, the number of drilling permits approved rose by 58 percent. Under George W. Bush, the number of drilling permits approved rose by 116 percent. Under Barack Obama, the number of drilling permits approved actually decreased by 36 percent.

21. When Barack Obama took office, the average price of a gallon of gasoline was $1.84. Today, the average price of a gallon of gasoline is $3.26.

22. Under Barack Obama, the United States has lost more than 300,000 education jobs.

23. For the first time ever, more than a million public school students in the United States are homeless. That number has risen by 57 percent since the 2006-2007 school year.

24. Families that have a head of household under the age of 30 now have a poverty rate of 37 percent.

25. More than three times as many new homes were sold in the United States in 2005 as were sold in 2012.

26. Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row.

27. Health insurance costs have risen by 29 percent since Barack Obama became president.

28. Today, 77 percent of all Americans live paycheck to paycheck at least part of the time.

29. It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

30. The total amount of money that the federal government gives directly to the American people has grown by 32 percent since Barack Obama became president.

31. The Obama administration has been spending money on some of the most insane things imaginable. For example, in 2011 the Obama administration spent $592,527 on a study that sought to figure out once and for all why chimpanzees throw poop.

32. U.S. taxpayers spend more than 20 times as much on the Obamas as British taxpayers spend on the royal family.

33. The U.S. government has run a budget deficit of well over a trillion dollars every single year under Barack Obama.

34. When Barack Obama was first elected, the U.S. debt to GDP ratio was under 70 percent. Today, it is up to 103 percent.

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

36. As I wrote about yesterday, when you break it down the amount of new debt accumulated by the U.S. government during Obama’s first term comes to approximately $50,521 for every single household in the United States. Are you ready to contribute your share?

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

But despite all of these numbers, the mainstream media and the left just continue to shower Barack Obama with worship and praise. Newsweek recently heralded Obama’s second term as “The Second Coming“, and at Obama’s pre-inauguration church service Reverand Ronald Braxton openly compared Obama to Moses…

At Metropolitan African Methodist Episcopal Church, Braxton reportedly crafted his speech around Obama’s personal political slogan: “Forward!”

Obama, said Braxton, was just like Moses facing the Red Sea: “forward is the only option … The people couldn’t turn around. The only thing that they could do was to go forward.” Obama, said Braxton, would have to overcome all obstacles – like opposition from Republicans, presumably, or the bounds of the Constitution. Braxton continued, “Mr. President, stand on the rock,” citing to Moses standing on Mount Horeb as his people camped outside the land of Israel.

But it wasn’t enough to compare Obama with the founder of Judaism and the prophet of the Bible. Braxton added that Obama’s opponents were like the Biblical enemies of Moses, and that Obama would have to enter the battle because “sometimes enemies insist on doing it the hard way.”

So what do you think the next four years of Obama will bring?

Please feel free to post a comment with your thoughts below…

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

January 20, 2013 by Michael

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

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

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

How many times have we heard that before?

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

Instead, we are running trillion dollar deficits.

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

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

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

Oh really?

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

Perhaps we should all run our finances that way.

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

Of course real life does not work that way.

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

United States

Debt to GDP ratio in 2007: 66.6 percent

Debt to GDP ratio in 2012: 103 percent

United Kingdom

Debt to GDP ratio in 2007: 43.4 percent

Debt to GDP ratio in 2012: 85.0 percent

France

Debt to GDP ratio in 2007: 63.7 percent

Debt to GDP ratio in 2012: 86 percent

Germany

Debt to GDP ratio in 2007: 67.6 percent

Debt to GDP ratio in 2012: 80.5 percent

Spain

Debt to GDP ratio in 2007: 39.6 percent

Debt to GDP ratio in 2012: 69.3 percent

Ireland

Debt to GDP ratio in 2007: 24.8 percent

Debt to GDP ratio in 2012: 106.4 percent

Portugal

Debt to GDP ratio in 2007: 63.9 percent

Debt to GDP ratio in 2012: 108.1 percent

Italy

Debt to GDP ratio in 2007: 106.6 percent

Debt to GDP ratio in 2012: 120.7 percent

Greece

Debt to GDP ratio in 2007: 106.1 percent

Debt to GDP ratio in 2012: 170.6 percent

The Eurozone As A Whole

Debt to GDP ratio in 2007: 68.4 percent

Debt to GDP ratio in 2012: 87.3 percent

Japan

Debt to GDP ratio in 2007: 172.1 percent

Debt to GDP ratio in 2012: 211.7 percent

So how does all of this end?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Are you ready?

The Federal Reserve Shows Barack Obama Who The Real Boss Is

January 13, 2013 by Michael

Barack Obama has greatly expanded the powers of the presidency during his time in the White House, but there is one institution that he simply will not mess with. There is one organization that is considered to be so sacred in Washington D.C. that Obama will not dare utter a single negative word against it. That organization is the Federal Reserve. Even though he has shown that he is unafraid to pick a fight with just about everyone else in Washington, Obama flat out refuses to criticize the Fed and he even reappointed Ben Bernanke for another term as Fed Chairman even though Bernanke has a track record of failure that would make the Chicago Cubs look good. Perhaps Obama is aware of what has happened to other presidents that have chosen to tangle with the Fed. In any event, it has become clear that Obama submits to anything that the Fed says without question, and the controversy over the “trillion dollar coin” is another perfect example of this. For weeks, there has been much speculation in the mainstream media about the possibility that the Obama administration may print up a one trillion dollar coin that it would use to keep paying the bills of the federal government if an agreement to raise the debt ceiling is not reached. But on Saturday the Federal Reserve killed that idea, and we shouldn’t be surprised by that because under no circumstances will the Fed ever accept a threat to their monopoly over money creation in the United States. If the Federal Reserve had allowed Obama to print up a debt-free trillion dollar coin, that would have set a very dangerous precedent for the Fed. The American people would have realized that the federal government can actually create debt-free money whenever it wants and that it does not actually have to borrow money from anyone. That is something that the Fed probably would have moved heaven and earth to keep from happening. But now we won’t ever know how far the Fed would really be willing to go to keep their monopoly over money creation, because Obama has no plans to challenge this latest ruling from “the real boss” of our financial system.

Sadly, most Americans don’t even realize that a private banking cartel has a monopoly over all money creation in this country. In recent years they have abused this power by wildly printing money (“quantitative easing“), and by making more than 16 trillion dollars in secret loans to their friends during the last financial crisis. Under our system, the private Federal Reserve creates money whenever they want, and nobody else gets to create money. It is an insane system, but very, very few of our politicians will ever dare to question it.

At this point, the U.S. Treasury Department is essentially just an arm of the Federal Reserve. That is why it was no surprise that the Fed and the Treasury Department issued a joint statement on Saturday. According to Treasury spokesman Anthony Coley, both the Treasury and the Fed have come to the conclusion that under no circumstances should a trillion dollar coin be printed up by the Obama administration…

“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit”

But of course it was actually the Federal Reserve which made this decision. The following is from a report posted by Zeke Miller of Buzzfeed.com…

The Federal Reserve was responsible for killing a controversial proposal to circumvent the debt limit, a senior administration official told BuzzFeed Sunday.

On Saturday the Treasury Department released a statement ruling out the only remaining alternative to Congress raising the nation’s borrowing limit, which would utilize a loophole in federal law to mint a $1 trillion coin to be deposited in the Federal Reserve and ensure the federal government could pay all bills and debt obligations.

According to that Buzzfeed article, the Federal Reserve would have actually refused to recognize the trillion dollar coin if the Obama administration had tried to deposit it with the Fed…

But it was the Federal Reserve that killed the proposal, the official told BuzzFeed, denying a purely political rationale for the announcement, saying the independent central bank would not have credited the Treasury’s accounts for the vast sum for depositing the coin.

Wow.

So there you go.

The real boss has told Barack Obama how it is going to be, and Obama plans to meekly comply.

So why is the Federal Reserve so adamant about maintaining their monopoly over money creation?

Well, it is all about compound interest. Albert Einstein once made the following statement about compound interest…

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

When the Federal Reserve system was initially created back in 1913, the bankers that created it intended for it to be a perpetual debt machine that would extract massive amounts of wealth from the U.S. government (and ultimately from all of us) through the mechanism of compound interest. Each year, hundreds of billions of dollars of interest are transferred into the pockets of the wealthy bankers and foreign nations that own our debt. This is one of the reasons why I preach about the evils of government debt until I am blue in the face. The debt-based Federal Reserve system is a way to systematically steal the wealth of the United States, and it is happening right in front of our eyes, but very few people actually understand it well enough to complain about it.

Unfortunately, we are rapidly getting to the point where we have accumulated so much debt that it is threatening to collapse our entire financial system. The following comes from a recent Zero Hedge article…

By now most are aware of the various metrics exposing the unsustainability of US debt (which at 103% of GDP, it is well above the Reinhart-Rogoff “viability” threshold of 80%; and where a return to just 5% in blended interest means total debt/GDP would double in under a decade all else equal simply thanks to the “magic” of compounding), although there is one that captures perhaps best of all the sad predicament the US self-funding state (where debt is used to fund nearly half of total US spending) finds itself in. It comes from Zhang Monan, researcher at the China Macroeconomic Research Platform: “The US government is now trying to repay old debt by borrowing more; in 2010, average annual debt creation (including debt refinance) moved above $4 trillion, or almost one-quarter of GDP, compared to the pre-crisis average of 8.7% of GDP.”

This is a key statistic most forget when they discuss the stock and flow of US debt: because whereas the total US deficit, and thus net debt issuance, is about $1 trillion per year, one has to factor that there is between $3 and $4 trillion in maturities each year, which have to be offset by a matched amount of gross issuance just to keep the stock of debt flat (pre deficit funding). The assumption is that demand for this gross issuance will always exist as old maturities are rolled into new debt, however, this assumption is contingent on one very key variable: interest rates not rising.

Do you understand what is being said there?

Not only is our debt rising by more than a trillion dollars a year, we also need to roll over trillions of dollars of federal debt each year. If interest rates on that debt start rising, we are going to start feeling the pain very rapidly.

As I have mentioned previously, the average rate of interest on U.S. government debt was 6.638 percent back in 2000. If we returned to that level today, we would be paying more than a trillion dollars a year just in interest on the national debt.

The main thing keeping interest rates low right now is the fact that the U.S. dollar is the de facto reserve currency of the world. If that ends, interest rates on U.S. debt will skyrocket. The following is from a recent article by Chris Ferreira…

The US Dollar is the reserve currency of the world. You need it to buy oil, a vital component of any economy. Since other countries like China cannot print US dollars at their leisure, they have to get it from somewhere. They get it from trade with the US. The US buys products in Asia and the rest of the world with US dollars, and in turn these same dollar surpluses are used to buy oil and US bonds, creating a much needed artificial demand for US dollars.

This is also how the enormous US 558$ billion trade deficit in 2011 was financed. The US has been in a trade deficit since the 1980′s and it continues the grow as jobs and manufacturing are being lost to more competitive nations. The trade deficit also accounts for the national debt. The financing of the debt creates artificial demand for US bonds which helps lower the interest rate and coincidentally helps to raise the debt levels even higher.

Unfortunately, the rest of the world is starting to move away from the U.S. dollar. Over the past couple of years, a whole host of international currency agreements have been signed that are intended to start reducing the use of the U.S. dollar in international trade. For much more on this, please see the following article: “The Giant Currency Superstorm That Is Coming To The Shores Of America When The Dollar Dies“.

Most Americans have absolutely no idea how very close we are to financial catastrophe. The only way we can continue to service our enormous 16 trillion dollar debt is for interest rates on that debt to remain super low. But the only way those interest rates can remain low is for the U.S. dollar to remain absolutely dominant in international trade. Once the rest of the world rejects the U.S. dollar, the game is over.

We are headed for total system meltdown, but neither major political party is going to do a thing about it. They are both just going to continue to meekly comply with the dictates of the real boss of our financial system – the Federal Reserve.

It is imperative that we educate the American people about these things. Please share this article with as many people as you can, and the following is another great article for anyone that does not understand how the Federal Reserve is destroying our financial system: “10 Things That Every American Should Know About The Federal Reserve“.

If Obama Can Just Create A Trillion Dollar Coin, Then Why Do We Have To Pay Taxes?

January 7, 2013 by Michael

If Barack Obama can “solve” the debt ceiling crisis by printing up some trillion dollar coins, then why does the federal government need our money? As another debt ceiling showdown approaches, many in the liberal media are suggesting that if Congress does not raise the debt ceiling that Obama should just have the U.S. Treasury create a trillion dollar platinum coin and use it to pay our bills. It sounds crazy, but many notable voices (including Paul Krugman of the New York Times) are supporting this idea. But if the federal government has had the power to create trillion dollar coins out of thin air all this time, then why do we have to pay taxes? Not only that, why do we have a national debt? If the federal government can just create money whenever it wants, then why does the federal government ever have to borrow it from others? The U.S. Constitution actually grants Congress the power to “coin money”, so why is the Federal Reserve doing it? Those are some very important questions. Most Americans don’t even realize that the U.S. government never actually needed to borrow a single penny from anyone else. The U.S. Congress has the authority to create debt-free money whenever it wants to. Conceivably, the entire federal government could be funded without ever borrowing a single dollar and without ever receiving a single dollar from any of us in taxes. Just imagine that – a nation without a single penny of national debt, no income tax and no IRS. What a wonderful world that would be. Of course there would be other potential dangers under such a system (such as runaway inflation), and those dangers would have to be addressed. But the truth is that we don’t have to have an income tax or 16 trillion dollars of government debt. We only have those things because we have chosen to have those things.

Sometimes, a crisis can illuminate options that most people had not considered previously. As another debt ceiling crisis draws closer, many are looking for ways for the U.S. government to be able to continue to pay its bills if Congress does not authorize an increase in the debt ceiling.

If a debt ceiling agreement is not worked out, the U.S. government will soon only be able to pay about half the bills that are coming due after interest payments on the national debt (which will almost certainly be prioritized) are made.

That is why a lot of people on the left are pushing the “trillion dollar coin” alternative. So how would this work exactly? The mechanics were recently explained by Jim Pethokoukis on his American Enterprise Institute blog…

There are limits on how much paper money the U.S. can circulate and rules that govern coinage on gold, silver, and copper. BUT, the Treasury has broad discretion on coins made from platinum. The theory goes that the U.S. Mint would create a handful of trillion dollar (or more) platinum coins. The President would then order the coins deposited at the Fed, who would then put the coin(s) in the Treasury who now can pay all their bills and a default is removed from the equation. The effects on the currency market and inflation are unclear, to say the least.

In my opinion, if anyone in the federal government is going to be creating money out of thin air, it should be the U.S. Congress. After all, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been granted the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

But those that are pushing Obama to create a “trillion dollar coin” point to a law that Congress passed that allows the U.S. Treasury to mint platinum coins. The following is from a recent CNN article…

Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to “mint and issue platinum bullion coins and proof platinum coins.”

This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.

But it wouldn’t quite be that easy. According to a recent ABC News article, some elements of the coin design would have to be determined by legislation…

The more difficult part comes sometime after the decision is made to coin the platinum and before the Mint gets to work in sculpting the pieces.

At that point, the American people must decide whose face will adorn the trillion dollar trinket. The process to determine the “specs” of the coin, U.S. Mint Public Affairs Specialist Genevieve Billia warns, must be “determined by legislation,” creating the potential for another congressional impasse.

So we would likely end up back at square one.

But if printing up a “trillion dollar coin” does not work out, Paul Krugman of the New York Times has come up with another option…

Don’t like the platinum coin option? Here’s a functionally equivalent alternative: have the Treasury sell pieces of paper labeled “moral obligation coupons”, which declare the intention of the government to redeem these coupons at face value in one year.

It should be clearly stated on the coupons that the government has no, repeat no, legal obligation to pay anything at all; you see, they’re not debt, and therefore don’t count against the debt limit. But that shouldn’t keep them from having substantial market value.

Of course there is a very, very low probability that any of these wild ideas will ever be tried, but this debate has raised some very interesting points.

The truth is that we do not have to have a system where more money is only created when more debt is created. We could have a system where the federal government directly creates debt-free money that is spent directly into circulation by the federal government.

In fact, this has happened before.

As I have written about previously, during the presidency of JFK a limited number of debt-free United States Notes were issued by the U.S. Treasury and spent by the U.S. government directly into circulation without any new debt being created. In fact, each bill said “United States Note” right at the top.

Unfortunately, after JFK’s presidency no more debt-free United States Notes were ever issued.

But even before JFK, there were times when debt-free United States Notes were being used. According to Wikipedia, United States Notes were first used during the Civil War….

They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.

So why are we using debt-based Federal Reserve Notes today instead of debt-free United States Notes?

If the Federal Reserve did not exist and the U.S. government directly created money instead of borrowing it, it is conceivable that we could have a national debt of $0.00 today instead of $16,432,707,263,449.56.

Which option do you think our children and our grandchildren will wish that we had opted for?

In a system where the government directly created money, it is also conceivable that we could completely do away with the income tax and the IRS completely. The U.S. once prospered greatly without an income tax, and it could do so again.

And the truth is that our system of taxation is broken beyond repair. If you doubt this, just read this article.

So what would the downside be to such a system? Well, of course rampant inflation would be a huge danger. Allowing Congress to print up money whenever they wanted to would be playing with fire. That is why it would be imperative for there to be a hard cap on what the federal government could spend. For example, you could set the cap on spending by the federal government at 20 percent of GDP. That way we would hopefully never end up looking like the Weimar Republic.

And the current federal debt could be paid down a little at a time using newly created debt-free currency. This would have to be done slowly to keep inflation under control, but it could be done.

Of course if you wanted to continue to fund the federal government through taxation, there are other options that would still allow you to do away with the income tax. For example, one of the ways that our founders intended for the federal government to be funded was through tariffs, and we could definitely raise a lot of money that way. Plus, that would have the added benefit of making American companies much more competitive again and it would reduce the flow of American jobs out of the country.

So am I in favor of having Barack Obama create a trillion dollar coin to get around the debt ceiling crisis?

Most definitely not. If it does not violate the letter of the Constitution (which I believe it does), it sure does violate the spirit of it.

But if the U.S. Congress decided to shut down the Federal Reserve and the IRS and they decided to abolish the income tax, and instead they started directly issuing debt-free currency directly into circulation, that is something I would very much be in favor of.

Yes, that system would not be perfect either, but it would be far more preferable to what we have today.

So what do you think? Should we keep our current system of debt-based money, or would a system of debt-free money be better?

Please feel free to post a comment with your opinion below…

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