National Debt

Anyone who hasn’t sensed a mood change in this country since the 2008 financial meltdown is either ignorant or in denial. Millions of Americans fall into one of these categories, but many people realize something has changed – and not for the better. The sense of pure financial panic that existed during September and October of 2008 had not been seen since the dark days of 1929. Our leaders used the initial terror and fear to ram through TARP and stimulus packages that rewarded the perpetrators of the financial collapse rather than helping the middle class who lost 8 million jobs, destroyed by Wall Street criminality. The stock market plunged by 57% from its 2007 high by March 2009. What has happened since September 2008 has set the stage for the next downward leg in this Crisis. The rich and powerful have pulled out all the stops and saved themselves at the expense of the many. Despite overwhelming proof of unabashed mortgage fraud, rating agency bribery, document forgery on a grand scale and insider trading based on non-public information, the brazen audacity of Wall Street oligarchs is reminiscent of the late stages of the Roman Empire.   

Watching pompous politicians, egotistical economists, arrogant investment geniuses, clueless media pundits, and self- proclaimed experts on the Great Depression predict an economic recovery and a return to normalcy would be amusing if it wasn’t so pathetic. Their lack of historical perspective does a huge disservice to the American people, as their failure to grasp the cyclical nature of history results in a broad misunderstanding of the Crisis the country is facing. The ruling class and opinion leaders are dominated by linear thinkers that believe the world progresses in a straight line. Despite all evidence of history clearly moving through cycles that repeat every eighty to one hundred years (a long human life), the present generations are always surprised by these turnings in history. I can guarantee you this country will not truly experience an economic recovery or progress for another fifteen to twenty years. If you think the last four years have been bad, you ain’t seen nothing yet. Hope is not an option. There is too much debt, too little cash-flow, too many promises, too many lies, too little common sense, too much mass delusion, too much corruption, too little trust, too much hate, too many weapons in the hands of too many crazies, and too few visionary leaders to not create an epic worldwide implosion. Too bad. We stand here in the year 2012 with no good options, only less worse options. Decades of foolishness, debt accumulation, and a materialistic feeding frenzy of delusion have left the world broke and out of options. And still our leaders accelerate the debt accumulation, while encouraging the masses to carry-on as if nothing has changed since 2008.

In my continuing attempt to debunk what the European Union presents as facts; I turn my attention to France. I have already given you the correct debt to GDP ratios for Spain, Italy, Portugal and Germany which follows the exact principles of what any corporation in America or Europe would be mandated to report or suffer the slings and arrows of being held accountable for Fraud. I include contingent liabilities, derivatives, promises to pay, various guarantees and all of the normal accounting practices to be considered on any balance sheet except the sovereign nations of Europe. In the end, of course, it is your decision but at least we can begin any consideration based upon the facts and not based upon a fictitious account. Again, I divide up the liabilities into two categories, their national obligations and their European obligations; the European Union, the European Central Bank and finally for the other European institutions for which they bear some burden. Then I add it all up, divide by their GDP and we arrive at a factual accounting. Nothing complicated here except sleuthing about to get the data which is no easy task as it is hidden in various nooks and crannies.

When considering the financial condition of each and every country in the European Union there are certain facts that are left out and left out on purpose. In our opinion, the structural deformity of the European Union is, in itself, one of the main reasons that any attempt at a fiscal or economic fix never seems to work. Whether some proposed firewall is $760 billion or $1.3 Trillion or $13 Trillion makes no difference as in zero, nada, nothing and null. It is an IOU, a promise to pay and it is not counted in any European sovereign debt numbers nor is it counted in the figures for the European Union’s debt. It will not stop Spain or Portugal or Italy from asking for or needing money. This whole discussion is a head fake, a deception and a ruse carefully plotted out for investors in one more attempt to mislead the entire world. If you wish to be a statistic in the Greater Fool Theory be my guest but I refuse to be apart of this unadulterated scam.

When I first attempted to find a more realistic debt to GDP ratio for Spain, Belgium, Italy et al I did it on a stand-alone basis; no inclusion of their European liabilities. When I approached Germany, given their size and importance in the EU, I focused upon their liabilities to the European Union. Several institutions have since asked me to consider the total liabilities for each country as every nation in the European Union has national debts as well as debts for their percentage of ownership for the EU and the European Central Bank. Using the combination of national liabilities and any nation’s percentage of EU/ECB liabilities one then could ascertain a final and complete picture of a real debt to GDP number that, unlike the Eurostat data, would be inclusive of sovereign guarantees, contingent liabilities and their responsibilities to the EU and the ECB. This schematic then would tell each of us what a given country actually owed so the total reality could be assessed for judgment.  Given that Spain is currently in focus and that nowhere that I have ever seen has there been an accurate national debt coupled with Spain’s European debt schematic; I have decided to provide you one.

It is a fact that when it comes to the oddly resilient Japanese hyperlevered economic model, the bodies of those screaming for the end of the JGB bubble litter the sides of central planning's tungsten brick road. Yet in the aftermath of last month's stunning surge in the country's trade deficit, this, and much more may soon be finally ending. Because as Caixin's Andy Xie writes "The day of reckoning for the yen is not distant. Japanese companies are struggling with profitability. It only gets worse from here. When a major company goes bankrupt, this may change the prevailing psychology. A weak yen consensus will emerge then." As for the bubble pop, it will be a sudden pop, not the 30 year deflationary whimper Mrs. Watanabe has gotten so used to: "Yen devaluation is likely to unfold quickly. A financial bubble doesn't burst slowly. When it occurs, it just pops. The odds are that yen devaluation will occur over days. Only a large and sudden devaluation can keep the JGB yield low. Otherwise, the devaluation expectation will trigger a sharp rise in the JGB yield. The resulting worries over the government's solvency could lead to a collapse of the JGB market." It gets worse: "Of course, the government will collapse with the JGB market." And once Japan falls, the rest of the world follows, says Xie, which is why he is now actively encouraging China, and all other Japanese trade partners of the world's rapidly declining 3rd largest economy to take precautions for when this day comes... soon.

The next country that could follow Greece out of Valhalla and down to meet Poseidon at Hades gates is Portugal. They trod the path once before but look likely to be headed out on a second journey. The country’s private and household debt are approximately 300% of the total GDP of Portugal and their economy is contracting; around 4.00% by some estimates. While the European Commission estimates a debt to GDP ratio of 111% for this year; the actual data tells another story. Further aggravating a future restructuring are the CDS contracts with a net position of $5.2 billion and a gross amount of $67.30 billion which is about twice the amount of the net exposure for Greece.

Watching your debates and speeches of late, it is clear that you are all (with possibly the exception of Ron Paul) missing the point and only continuing to widen the gap between the US Government and the American people.

Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.

All you need to read.

The first session of this 112^th Congress was spent with Democrats and Republicans at loggerheads over the debt ceiling, taxes, spending cuts, the deficit super committee, appropriations bills and finally the extension of unemployment compensation and a two-month extension of the payroll tax cut. Standard and Poor's downgrade of the United States' federal debt was due in part to all the haggling over how, and actually whether, to reduce the debt. No One Is Willing to Pay the Political Price to Cut Spending This year Obama asked Congress for, and was given, an additional $1.2 trillion of borrowing authority, which will increase the debt limit to $16.4 trillion, just enough to get him past the 2012 election. It could be close, however. If budget projections prove to be overly optimistic, Obama could face another cliffhanger over a further increase in the debt ceiling in the midst of the presidential election in November. How embarrassing to have to say "re-elect me – and by the way, I need to borrow some more money to pay this month's bills."

Only in a debt-based money system could debt be curiously cast as an asset. We’ve made “extend and pretend” a quaint phrase for a burgeoning market for financial lying and profiteering aimed toward preventing the collapse of a debt- (or lack-) based system that was already doomed by its initial design to collapse. This primer will detail the major components and basic evolution of fake wealth creation, accelerating debt expansion, hollowing out of the economy, and inevitable financial implosion.

The added weight on the gross national debt as well as the dis-incentive for people to seek better education would prove to be one of the greatest risk for America as a whole.

We have a "let's pretend" economy: let's pretend the unemployment rate actually reflects the number of people with full-time jobs and the number of people seeking jobs, let's pretend the Federal government borrowing 10% of the GDP every year is sustainable without any consequences, let's pretend the stock market actually reflects the economy rather than Federal Reserve monetary intervention, and so on. We also have a "let's pretend" education/student-loan game running: let's pretend college is "worth" the investment, and let's pretend student loans are about education. There are three dirty little secrets buried under the education/student-loan complex's high-gloss sheen: 1. Student loans have little to do with education and everything to do with creating a new profit center for subprime-type lenders guaranteed by the Savior State. 2. A college diploma's value in the real world of getting a job and earning a good salary in a post-financialization economy has been grossly oversold. 3. Many people are taking out student loans just to live; the loans are essentially a form of "State funding" a.k.a. welfare that must be paid back. We've got a lot of charts that reflect reality rather than hype, so let's get started. Despite all the bleating rationalizations issued by the Education Complex, higher education costs have outstripped the rest of the economy's cost structure. Funny how nobody ever asks if there is any real competitive pressure in the Education Complex; there isn't, and why should there be when students can borrow $30,000 a year?

And now for some pure irony, we have a member of the Fed, granted a gold bug, but a Fed member nonetheless, one of the same people who not only enacted ZIRP, but encourage easy money every time there is a downtick in the market, complaining about, get this, Wall Street's "continued preoccupation, bordering upon fetish" with QE3. The irony continues: "Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery, rescuing the economy from the Financial Panic of 2008–09, and then kept the medication in the financial bloodstream to ensure recovery....I believe adding to the accommodative doses we have applied rather than beginning to wean the patient might be the equivalent of medical malpractice." So let's get this straight: these academic titans, who for one reason or another, are given free rein to determine the fate of the once free world with their secret decisions every two or three months, are completely unaware of classical conditioning, discovered by Pavlov nearly 90 years ago, also known as a salivation response. The same Fed is shocked, shocked, that every time the market dips, the red light goes off, and the "balls to the wall" crowd scream for more, more, more free money. Really Fisher? Really? Oh, and let us guess what happens the next time the S&P slides into the tripple digits: will the Fed a) do nothing, thereby letting the market slide to its fair value in the 400 point range, or b) print. Our money, in the form of hard yellow metal, is on the latter, just like we predicted, correctly, back in March 2009 in " Bailoutspotting (Or The Search For The Great Financial Methadone Clinic" that nothing will ever change vis-a-vis the great market junkie until it all comes crashing down.