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The Ticking Trillion Dollar Debt Bomb

Phoenix Capital Research's picture



Since the EU Crisis went into overdrive in 2010, EU politicians have largely resorted to political posturing rather than implementing any actual financial solutions to the EU’s debt and banking crisis.


To clarify that statement, we view a “real solution” as one that A) cleared bad debts from the system, B) brought debt levels down to manageable levels, and C) got the troubled country’s economy back on track.


By way of example, real solutions would involve outright debt defaults, bank failures, and very likely one or more countries leaving the Euro. However, no major EU leader ever seriously promotes any of these ideas because doing so would akin to committing political suicide as the rest of the political class would blame them for what followed.

As a result, EU politicians continue to kick the can down the road with half-measures such as austerity measures in exchange for bailouts. The end result is that nothing is ever solved as those in charge of the decisions that matter have no incentives to actually do anything beneficial for their countries’ economies.  See Greece whose economy has completely imploded to the point that children are being admitted to hospitals every week for malnutrition… and it will still have a Debt to GDP of 120% in 2022!


It is now obvious that US politicians have seen this work well for their European counterparts (nothing gets fixed, not tough choices have to be made and almost no one gets kicked out of office), and are now adopting this strategy on this side of the pond.


Consider the fiscal cliff issue, which our political leaders discussed endlessly for over a month, only to then pass a “deal” which both raised taxes AND failed to cut the deficit or debt.


Again, nothing solved, but plenty of posturing and blame.


Expect more of this. Today, the top story for the US is gun control even though we will officially breach the debt ceiling in roughly one month’s time. The last time we did this the US lost one of its AAA ratings from a credit agency and the markets imploded wiping out over a trillion dollars in household wealth in a matter of days.


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.


Another consequence of the US losing another AAA rating would be a potential spike in interest rates as a result of us having a lower credit rating. A 100 basis point move higher in interest rates means the US paying another $100+ billion in interest payments on its debt. The US is slated to pay some $300+ billion in interest payments in 2013. This amount could explode higher if interest rates rose.


We already have a Debt to GDP ratio of over 100%. Our deficit to GDP is nearly 10%. These are Greece type levels. And while the US has several advantages Greece does not (it produces the reserve currency of the world and is also the largest economy), the bond markets can be very unforgiving of fiscal profligacy.


But US politicians don’t care. They know that the US economy is a disaster and will be getting worse. The issue for them is not fixing this, but shifting the blame for what’s coming onto the other party.


Bottomline: the US debt situation is not going to be brought under control. We’ll either breach the debt ceiling or pass some hurried bill to raise it. Neither of these will help our credit rating or our fiscal issues.


Buckle up, 2013 is going to be an “interesting” year.


With that in mind, smart investors are taking advantage of the market rally to position themselves for what’s coming… much as they did in late 2007.


We offer several FREE Special Reports designed to help them do this. They include:


Preparing Your Portfolio For Obama’s Economic Nightmare


What Europe’s Crisis Means For You and Your Savings


How to Protect Yourself From Inflation


And last but not least…


Bullion 101: Everything You Need to Know About Investing in Gold and Silver Bullion…


You can pick up FREE copies of all of the above at:






Phoenix Capital Research


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Fri, 01/18/2013 - 13:56 | 3166715 hungrydweller
hungrydweller's picture

I don't even read the crap.  I go straight to the comment section for entertainment.  Keep up the good work ladies and germs.

Fri, 01/18/2013 - 13:46 | 3166677 Jack Sheet
Jack Sheet's picture

Here we have today's serving of high grade bullshit from Phenix Crapitall Research.

Fri, 01/18/2013 - 13:33 | 3166638 nofluer
nofluer's picture

We already have a Debt to GDP ratio of over 100%. Our deficit to GDP is nearly 10%.

The second of these is an issue because if we pay off our outstanding national debt, we'd just run it up again and be right back where we started - in a deep, deep hole.

But the first of these is not an issue. I haven't looked lately, but during the Clintoon admin, US 401Ks totaled over $16 Tn. If the US Govt "pulled a Kirchner" and confiscated all 401Ks, the US could come very near to paying off the national debt overnight, which is why the second is the real issue.

Spending MUST be brought under control!!!! That is the FIRST priority!!! Without getting govt spending levels under revenue levels, sooner or later we're toast!

Fri, 01/18/2013 - 11:43 | 3166251 etresoi
etresoi's picture

blah, blah, blah and for only a few dollars a month, we will continue to tell you the obvios.  Remove this shit from ZH..

Fri, 01/18/2013 - 13:47 | 3166680 Jack Sheet
Jack Sheet's picture

Bring back Rubber Scrota !

Fri, 01/18/2013 - 16:10 | 3167280 NotApplicable
NotApplicable's picture

I think his asbestos underwear finally gave out.

In other news, this very article is linked on infowars (attributed to ZH, rather than PCR, LOL)

Fri, 01/18/2013 - 11:39 | 3166236 trx
trx's picture

Before deciding on anything, please read this:

“The magnitude of the problem and its effects are so large, market participants would do well to heed Douglas Adams famous advice in The Hitchhikers Guide to the Galaxy: Find dark glasses that go black in the case of a crisis and a towel to suck on.”

America – The 15 Trillon Dollar Baby

Fri, 01/18/2013 - 11:16 | 3166124 Salah
Salah's picture

Graham, this is all you need to know.  Every rotten structure, house, building, virtual entity, etc...will just sit there and decompose, unless acted upon by an outside force.  This was certainly true in the Summer of 2008, but along came that 'outside force'.  No one in "finance-land" wants to entertain the notion that geopolitical security issues will drastically affect, yeah--even trump, the economic realm.  After all, the Cold War is over, the mighty U.S. M-I Complex rules the planet, etc, etc.  Why even consider a thinking alternative to decades of what we've all taken for granted?

But that's exactly what happened when Mr. Putin set up and executed a swifly-moving gambit on his southern flank in Georgia, August 2008.   The shit hit the fan in the subterranean financial world of deep-deep plate tectonics, and Lo and behold!, there was Lehman, Bear-Stearns, et al.

It's about to happen again.  

And it's really funny, all this stuff get coordinated astrologically....maybe Martin Armstong, Arch Crawford & Co. etc. will have the last laugh.


Fri, 01/18/2013 - 11:13 | 3166107 semperfi
semperfi's picture

"...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."

"Another consequence of the US losing another AAA rating would be a potential spike in interest rates..."

" ..... the bond markets can be very unforgiving of fiscal profligacy."

What this analysis fails to factor in is that The Fed, ie, Benny Boy, is THE BOND MARKET, and all of this is just a moot point. 

Ben = "the other side of the trade"
Ben = "interest rate setter"

Whatever the ending will be, it WILL NOT start off as a bond crisis - more likely it will start off Zimbab-num Style, ie, Hyperinflation.


Fri, 01/18/2013 - 11:25 | 3166157 Snakeeyes
Snakeeyes's picture

Debt star is more like it. Debt growth since Q2 2008 was 113%, real GDP growth as 2.6% TOTAL. This is criminal.


Fri, 01/18/2013 - 10:49 | 3166015 new game
new game's picture

the question becomes???when does the printing become hyper m supply velocity and unstoppable.

ben may be able to buy the rate down, but there is a point of no return and LOST CONFIDENCE.

pm mkts of phys are suggesting the gig is up///???...

Fri, 01/18/2013 - 12:47 | 3166489 donsluck
donsluck's picture

I think we here at ZH may have gotten lost in our words. We must be careful how we express ideas. It's a trap to consider computer entries as "printing". It is not "printing". It would be useful to research how long it would take to actually convert all debt into hard currency.

Fri, 01/18/2013 - 10:41 | 3165982 johnnymustardseed
johnnymustardseed's picture

Another consequence of the US losing another AAA rating would be a potential spike in interest rates as a result of us having a lower credit rating.

Bullshit! FED funds rate to primary dealers is about ZERO and the FED can buy those 10 year treasuries forever at a rate when inflation is factored in of negative 2%. Sorry, this game will continue

Fri, 01/18/2013 - 10:57 | 3166043 tango
tango's picture

The reason we won't have zero rates forever was alluded to in the article.  Once the FED starts buying ALL US debt, other nations, particularly China, wil immediately see the handwriting on the wall and begin selling US dollars.   The FED could buy them (monetize) but quickly nations would give up on the dollar, a situation that would spread to the US.  So there is a limit to how far one can bend perception.  

Fri, 01/18/2013 - 12:44 | 3166478 donsluck
donsluck's picture

They won't be selling what most people consider "dollars" but instead treasuries and bonds. The physical dollar value will increase, because we will slowly move to a cash (hard cash, not money markets and such) economy.

Fri, 01/18/2013 - 11:16 | 3166121 semperfi
semperfi's picture

Ben can bend perception longer than those betting against it (shorting treasuries) can remain solvent.

Fri, 01/18/2013 - 10:40 | 3165980 f16hoser
Fri, 01/18/2013 - 10:38 | 3165971 TerminalDebt
TerminalDebt's picture

Obummer will just keep lying to the public about what the debt really is.




Fri, 01/18/2013 - 11:16 | 3166125 semperfi
semperfi's picture

fixed it:    Obummer will just keep lying

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