Posts tagged GDP
Ignored Reality Is Going To Wipe Out The Human Race
To inform people is hard slugging. Everything is lined up against the public being informed, or the policymakers for that matter. News is contaminated by its service to special interests and hidden agendas. Many scientists or their employers are dependent on federal money. Even psychologists and anthropologists were roped into the government’s torture and occupation programs. Economists tell lies for corporations and Wall Street. Plant and soil scientists tell lies for agribusiness and Monsanto. Truth tellers are slandered and persecuted. However, persistence can eventually win out. In the long-run, truth sometimes emerges. But not always. And not always in time.
I have been trying to inform the American people, economists, and policymakers for more than a decade about the adverse impacts of jobs offshoring on the US economy. The word has eventually gotten out. Last week I was contacted by 8th grade students competing for their school in CSPAN’s StudentCam Documentary Contest. They want to interview me on the subject of jobs offshoring for their documentary film.
America is a strange place. Here are eighth graders far ahead of the economics profession, the President, the Congress, the Federal Reserve, Wall Street, and the financial press in their understanding of one of the fundamental problems of the US economy. Yet, people say the public schools are failing. Obviously, not the one whose students contacted me.
Is it too late? I know much, but not all. So this is not the final word. I think it might be too late. When skilled jobs are sent abroad, the skills disappear at home. So do the supply chains and the businesses associated with the skills. Things close down, and abilities are lost. Why take a major in college for a job that is offshored. A culture disappears.
But we can start them back up, right? Perhaps not. When a First World country exports its technology and know-how abroad to a Third World country in order to benefit from lower cost labor, how does the First World country get the work back? Living standards and the cost of living in Third World countries are much lower than in First World countries. The populations of First World countries cannot pay their mortgages, car payments, student loans, medical care, and grocery bills with the wages of Third World countries.
When First World wages drop, mortgage, car, credit card, and student loan payments do not drop. Americans cannot live on Chinese, Indian, and Indonesian wages. Once the technology and know-how is transferred, the low wage country has the advantage in the absence of tariff protection.
For America to revive, our economy would have to be walled off with high tariffs, and subsidies would have to be provided in order to recreate US industry and manufacturing. But many corporations now produce offshore, and America is broke. The government has been $1 trillion dollars in the hole each year for the last 5 years.
Jobs offshoring diminished the US tax base. When a job is sent abroad, so is that job’s contribution to US GDP and tax base. When millions of jobs are sent abroad, US GDP and tax base cannot support government spending levels. To the extent that there are any replacement jobs, they are in lowly paid domestic services, such as waitresses, bartenders, retail clerks, and hospital orderlies. These jobs do not provide a tax base or consumer spending power comparable to manufacturing jobs and tradable professional services such as software engineering and information technology.
Republicans and increasingly Democrats, as both parties are dependent on the same sources of campaign contributions, blame “entitlements.” By entitlements they mean welfare.
In fact, entitlements consist of Social Security and Medicare. Entitlements are funded by the payroll tax, approximately 15% of payroll. The fact that a person pays the payroll tax all his working life is why the person is entitled to Social Security and Medicare if they live to retirement age. Welfare, such as food stamps and housing subsidies, are a small part of the federal budget and are not entitlements.
Ever since President Reagan was betrayed three decades ago by Alan Greenspan and David Stockman, both of whom sold out to Wall Street and raised the Social Security payroll tax above what was needed to pay Social Security benefits in order to protect Wall Street’s stock and bond portfolios from exaggerated deficit fears, Social Security payroll tax revenues have exceeded Social Security payments. As of today, Social Security revenues exceed payments to beneficiaries by an accumulated $2 trillion. The money was used by the federal government to pay for its wars and other spending programs. The Social Security Trust Fund holds non-marketable IOUs from the Treasury. These IOUs can only be made good from an excess of tax revenues over expenditures or by the Treasury selling $2 trillion in bonds, notes, and bills and paying off its IOUs to the Social Security Trust Fund. This is not going to happen.
The Federal Reserve could not care less about the US population. The Fed was established for the purpose of protecting and aiding banks. Currently, the Fed, as if America were a Banana Republic which America appears to be becoming, is printing one thousand billion dollars per year in order to support the banks and to finance the federal deficit.
This is bad news for Americans, as it means that their fiat money is being created at a far greater rate than the demand for the dollar. The implication for our future is a drop in the dollar’s value. As there are no jobs, a drop in the dollar’s value means high inflation on top of unemployment and double the misery of the Great Depression.
As bad as this is, it is minor compared to the destruction of the planet’s environment. Online information shows that the Gulf of Mexico ecosystem is in crisis after the BP spill and use of Corexit, a dispersant used to hide, not clean up, the spilled oil. http://www.opednews.com/articles/Gulf-ecosystem-in-crisis-a-by-Dahr-Jamail-Corporation-BP_Ecosystems_Gulf-Oil-Spill-Disaster_Gulf-Shrimping-Industry-131020-15.html
The Fukushima catastrophe has hardly begun. Yet already the radioactive water pouring into the Pacific Ocean has made fish dangerous to eat unless a person is willing to accept a higher risk of cancer.
Fukushima has the potential of making Japan uninhabitable and of polluting the air, water, and soil of the US with radioactivity. Yet the crisis is seldom mentioned in the US media. In Japan the government just passed a law that could be used to imprison Japanese journalists who report truthfully on the dire situation.
Take the time to familiarize yourself with the online information about Fukushima.. According to the presstitute media, Americans face threats from Iran and Syria and from whistleblowers such as Edward Snowden. The real threats are simply not in the news.
If you search Fukushima, you will find information that the presstitute media hides from you. See for example, http://www.globalresearch.ca/28-signs-that-the-west-coast-is-being-absolutely-fried-with-nuclear-radiation-from-fukushima/5355280
There are a number of other threats to the environment on which our lives depend. One is the effort to extract more productivity from the soil by use of GMOs. Monsanto has altered the genes of several crops so that the crops can be sprayed with RoundUp to eliminate weeds. The results have been to deplete the soil of nutrients, to destroy the micro-biology of the soil so that new plant diseases and funguses are activated, and to produce superweeds that require heavier doses of the glyphosate in RoundUp. The heavier dose of RoundUp worsens the aforementioned problems. US agricultural soil is losing its potency.
Now we come to chemtrails, branded another “conspiracy theory.” http://en.wikipedia.org/wiki/Chemtrail_conspiracy_theory However, the US government’s efforts to geo-engineer weather as a military weapon and as a preventative of global warming appear to be real. The DARPA and HAARP programs are well known and are discussed publicly by scientists. See, for example, http://news.sciencemag.org/2009/03/darpa-explore-geoengineering Search Chemtrails, and you will find much information that is kept from you. See, for example, http://www.globalresearch.ca/chemtrails-a-planetary-catastrophe-created-by-geo-engineering/5355299 and http://www.geoengineeringwatch.org
Some describe chemtrails as a plot by the New World Order, the Rothchilds, the Bilderbergers, or the Masons, to wipe out the “useless eaters.” Given the amount of evil that exists in the world, these conspiracy theories might not be as farfetched as they sound.
However, I do not know that. What does seem to be possibly true is that the scientific experiments to modify and control weather are having adverse real world consequences. The claim that aluminum is being sprayed into the atmosphere and when it comes to earth is destroying the ability of soil to be productive might not be imaginary. Those concerned about chemtrails say that weather control experiments have deprived the western United States of rainfall, while sending the rain to the east where there have been hurricane level deluges and floods.
In the West, sparse rainfall and lightning storms without rain are resulting in forests drying out and burning down. Deforestation adversely affects the environment in many ways, including the process of photosynthesis by which trees convert carbon dioxide into oxygen. The massive loss of forests means more carbon dioxide and less oxygen. Watershed and species habitat are lost, and spreading aridity further depletes ground and surface water. If these results are the consequences of weather modification experiments, the experiments should be stopped.
In North Georgia where I spend some summers, during 2013 it rained for 60 consecutive days, not all day, but every day, and some days the rainfall was 12 inches–hurricane level–and roads were washed out. I received last summer 4 automated telephone warnings from local counties not to drive and not to attempt to drive through accumulations of water on the highways.
One consequence of the excess of water in the East is that this year there are no acorns in North Georgia. Zilch, zero, nada. Nothing. There is no food for the deer, the turkeys, the bear, the rodents. Starving deer will strip bark from the trees. Bears will be unable to hibernate or will be able only to partially hibernate, forced to seek food from garbage. Black bears are already invading homes in search of food.
Unusual drought in the West and unusual flood in the East could be coincidental or they could be consequences of weather modification experiments.
The US, along with most of the world, already had a water problem prior to possible disruptions of rainfall by geo-engineering. In his book, Elixir, Brian Fagan tells the story of humankind’s mostly unsuccessful struggle with water. Both groundwater and surface water are vanishing. The water needs of large cities, such as Los Angeles and Phoenix, and the irrigation farming that depends on the Ogallala aquifer are unsustainable. Fagan reminds us that “the world’s supply of freshwater is finite,” just like the rest of nature’s resources. Avoiding cataclysm requires long-range thinking, but humanity is focused on immediate needs. Long-range thinking is limited to finding another water source to deplete. Cities and agriculture have turned eyes to the Great Lakes.
Los Angeles exists because the city was able to steal water from hundreds of miles away. The city drained Owens Lake, leaving a huge salt flat in its place, drained the Owens Valley aquifer, and diverted the Owens River to LA via aqueduct. Farming and ranching in the Owens Valley collapsed. Today LA takes water from the Colorado River, which originates in Wyoming and Colorado, and from Lake Perris 440 miles away.
Water depletion is not just an American problem. Fagan reports that “underground aquifers in many places are shrinking so rapidly that NASA satellites are detecting changes in the earth’s gravity.”
If the government is experimenting with weather engineering, scientists are playing God when they have no idea of the consequences. It is a tendency of scientists to become absorbed by the ability to experiment and to ignore unintended consequences.
Readers have asked me to write about Fukushima and chemtrails because they trust me to tell them the truth. The problem is that I am not qualified to write about these matters with anything approaching the same confidence that I bring to economic, war and police state matters.
The only advice I can give is that when you hear the presstitute media smear a concern or explanation as “conspiracy theory,” have a closer look. The divergence between what is happening and what you are told is so vast that it pays to be suspicious, cynical even, of what “your” government and “your” presstitute media tell you. The chances are high that it is a lie.
Reprinted with permission from www.paulcraigroberts.org
About Dr. Paul Craig Roberts
Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.
All-Time High Unemployment: The Economic Depression In Europe Just Keeps Getting Deeper
The unemployment rate in the eurozone is higher than it has ever been before. This week we learned that eurozone unemployment came in at an all-time high of 12.2 percent for September. Back in January 2012, it was sitting at just 10.4 percent. So anyone that believes that “things are getting better” in Europe is just being delusional. In fact, the economic depression in Europe just keeps getting deeper. The funny thing is that the mainstream media will barely call what is going on in Europe a “recession” even though the unemployment rates in both Spain and Greece are now much higher than anything that the United States ever experienced during the “Great Depression” of the 1930s. There haven’t been as many headlines about the financial crisis in Europe lately because the ECB has been papering over the debt problems of the periphery (at least for the moment), but the economic conditions on the ground for average Europeans just continue to get even worse. Later on in this article, you will read about a 25-year-old Spanish man with three college degrees that moved to London in a desperate search for a job who is now cleaning up poop for a living. The economic collapse of Europe continues to march on, and there is no end in sight.
All you have to do is look at the latest unemployment numbers to realize that things are getting worse in Europe.
In Italy, the unemployment rate is up to 12.5 percent.
In January 2012, less than two years ago, it was sitting at just 8.9 percent.
In Greece, the unemployment rate is up to an astounding 27.6 percent.
In January 2012, it was sitting at just 21.4 percent.
In Spain, the unemployment rate is up to 26.6 percent.
The youth unemployment statistics in the eurozone are even more horrifying…
Unemployment among the under-25s rose by 22,000 in September to 3,548,000 – nudging up youth jobless rate to 24.1%. In France, the youth jobless rate jumped from 25.6% to 26.1%, while in Italy it increased from 40.2% to 40.4%.
But as bad as those numbers are, they are nothing compared to what is going on in Spain and Greece. In Spain, the youth unemployment rate is up to 56.5 percent, and in Greece the youth unemployment rate is up to 57.3 percent.
And of course unemployment is not the only problem that the European economy is dealing with right now. The following are some more facts about the European economy that show that the economic depression in Europe just keeps getting deeper…
-European car sales are on pace to hit a 23 year low in 2013.
-The percentage of “bad loans” in Spain has soared to a new all-time record high.
-The number of mortgage applications in Spain has fallen 90 percent since the peak of the market.
-Citigroup is projecting that the unemployment rate in Greece will reach 32 percent in 2015.
-The number of unemployed workers in Cyprus is now five times higher than it was before the financial crisis of 2008.
-It is being projected that Spain’s debt to GDP ratio will rise to nearly 100 percent by the end of next year.
-The debt to GDP ratio of Portugal is already up to 123 percent.
-The debt to GDP ratio of Italy is already up to 127 percent.
-Even though Greece has implemented a whole host of “austerity measures”, the debt to GDP ratio of Greece is now up to 156 percent.
But what these numbers cannot really communicate is the tremendous amount of pain and despair that millions upon millions of Europeans are experiencing right now.
For example, consider the story of Benjamin Serra Bosch, a 25-year-old Spanish man that moved to London in a desperate search for a job. He has three college degrees, including a Master’s Degree from the IEBS Business School in Barcelona. The following is a rough translation of a message that he recently posted on Facebook…
My name is Benjamín Serra, I have two bachelor degrees and a master’s degree, and I clean toilets.
No, it is not a joke. I do it to pay the rent for my room in London.
I’ve been working in a famous chain of cafes in the United Kingdom since May, and for the first time today, after 5 months working there, I see it clearly. I have been cleaning toilets. My thought was: “I received distinction in my two degrees and I clean other peoples’ poop in a country that isn’t my own.” Well, I also make coffee, clean the tables and wash cups.
And I am not ashamed to do so. Cleaning is a very decent job. What embarrasses me is having to do so because no one has given me an opportunity in Spain. Like me, there are many Spaniards, especially in London. “You are a plague,” I was told once here. And let’s not kid ourselves. We are not young people on an adventure to learn the language and have new experiences. We are immigrants.
I’ve always been very proud, I am not going to deny. Those who know me, you know. And I have to bust out a smile at customers who look over my shoulder as I am simply a “barista” (as they call it here). Some are so outrageous that it makes me want to pull out my University and master degrees and put them in their face. But it would not really do anything. It appears that those titles now only serve to clean the poop that I clean from the toilets in the cafe. A pity.
I thought that it deserved something better after putting so much effort in my academic life. It seems that I was wrong.
As economic conditions continue to decline all over Europe, anger and frustration with the “European experiment” continue to grow. UKIP’s Nigel Farage expressed these sentiments very eloquently during a speech on the 23rd of October when he stated that “what we are saying, large numbers of us from every single EU member state is: we don’t want that flag, we don’t want the anthem that you all stood so ram-rod straight for yesterday, we don’t want EU passports, we don’t want political union.”
Unfortunately, the elite of Europe are so obsessed with their little experiment that the only “solutions” to these economic problems that they are even willing to consider involve even more European integration.
And Americans certainly should not be looking down their noses at what is happening in Europe.
What is going on in Italy, France, Spain and Greece will be coming here soon enough. In fact, even during the midst of this so-called “economic recovery”, poverty continues to absolutely explode in the United States.
Economic conditions in both the United States and Europe have never even gotten close to where they were prior to 2008, and now the next major wave of the economic collapse is rapidly approaching.
This is just the beginning. Things are going to get much worse in the years ahead.
This article first appeared here at the Economic Collapse Blog. Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.
Image credit: http://theeconomiccollapseblog.com
9 Signs That China Is Making A Move Against The U.S. Dollar
On the global financial stage, China is playing chess while the U.S. is playing checkers, and the Chinese are now accelerating their long-term plan to dethrone the U.S. dollar. You see, the truth is that China does not plan to allow the U.S. financial system to dominate the world indefinitely. Right now, China is the number one exporter on the globe and China will have the largest economy on the planet at some point in the coming years. The Chinese would like to see global currency usage reflect this shift in global economic power. At the moment, most global trade is conducted in U.S. dollars and more than 60 percent of all global foreign exchange reserves are held in U.S. dollars. This gives the United States an enormous built-in advantage, but thanks to decades of incredibly bad decisions this advantage is starting to erode. And due to the recent political instability in Washington D.C., the Chinese sense vulnerability. China has begun to publicly mock the level of U.S. debt, Chinese officials have publicly threatened to stop buying any more U.S. debt, the Chinese have started to aggressively make currency swap agreements with other major global powers, and China has been accumulating unprecedented amounts of gold. All of these moves are setting up the moment in the future when China will completely pull the rug out from under the U.S. dollar.
Today, the U.S. financial system is the core of the global financial system. Because nearly everybody uses the U.S. dollar to buy oil and to trade with one another, this creates a tremendous demand for U.S. dollars around the planet. So other nations are generally very happy to take our dollars in exchange for oil, cheap plastic gadgets and other things that U.S. consumers “need”.
Major exporting nations accumulate huge piles of our dollars, but instead of just letting all of that money sit there, they often invest large portions of their currency reserves into U.S. Treasury bonds which can easily be liquidated if needed.
So if the U.S. financial system is the core of the global financial system, then U.S. debt is “the core of the core” as some people put it. U.S. Treasury bonds fuel the print, borrow, spend cycle that the global economy depends upon.
That is why a U.S. debt default would be such a big deal. A default would cause interest rates to skyrocket and the entire global economic system to go haywire.
Unfortunately for us, the U.S. debt spiral cannot go on indefinitely. Our debt is growing far, far more rapidly than our GDP is, and therefore our debt is completely and totally unsustainable.
The Chinese understand what is going on, and when the dust settles they plan to be the last ones standing. In the aftermath of a U.S. collapse, China anticipates having the largest economy on the planet, more gold than anyone else, and a respected international currency that the rest of the globe will be able to use to conduct international trade.
And China is not just going to sit back and wait for all of this to happen. In fact, they are already doing lots of things to get the ball moving. The following are 9 signs that China is making a move against the U.S. dollar…
#1 Chinese credit rating agency Dagong has downgraded U.S. debt from A to A- and has indicated that further downgrades are possible.
#2 China has just entered into a very large currency swap agreement with the eurozone that is considered a huge step toward establishing the yuan as a major world currency. This agreement will result in a lot less U.S. dollars being used in trade between China and Europe…
The swap deal will allow more trade and investment between the regions to be conducted in euros and yuan, without having to convert into another currency such as the U.S. dollar first, said Kathleen Brooks, a research director at FOREX.com.
“It’s a way of promoting European and Chinese trade, but not doing it with the U.S. dollar,” said Brooks. “It’s a bit like cutting out the middleman, all of a sudden there’s potentially no U.S. dollar risk.”
#3 Back in June, China signed a major currency swap agreement with the United Kingdom. This was another very important step toward internationalizing the yuan.
#4 China currently owns about 1.3 trillion dollars of U.S. debt, and this enormous exposure to U.S. debt is starting to become a major political issue within China.
#5 Mei Xinyu, Commerce Minister adviser to the Chinese government, warned this week that if the U.S. government ever does default that China may decide to completely stop buying U.S. Treasury bonds.
#6 According to Yahoo News, China has already been looking for ways to diversify away from the U.S. dollar…
There have been media reports this week that China’s State Administration of Foreign Exchange, the body that handles the country’s $3.66 trillion of foreign exchange reserve, is looking to diversify into real estate investments in Europe.
#7 Xinhua, the official news agency of China, called for a “de-Americanized world” this week, and also made the following statement about the political turmoil in Washington: “The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.”
#8 Xinhua also said the following about the U.S. debt deal on Thursday: “[P]oliticians in Washington have done nothing substantial but postponing once again the final bankruptcy of global confidence in the U.S. financial system”. The commentary in the government-run publication also declared that the debt deal “was no more than prolonging the fuse of the U.S. debt bomb one inch longer.”
#9 China is the largest producer of gold in the world, and it has also been importing an absolutely massive amount of gold from other nations. But instead of slowing down, the Chinese appear to be accelerating their gold buying. In fact, money manager Stephen Leeb says that his sources are telling him that China plans to buy another 5,000 tons of gold. There are many that are convinced that China eventually plans to back the yuan with gold and try to make it the number one alternative to the U.S. dollar.
So exactly what would happen if the Chinese announced someday that they were going to back their currency with gold and would no longer be using the U.S. dollar in international trade?
It would change the face of the global economy almost overnight. In a previous article, I described some of the things that we could expect to see happen…
If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy. Demand for the U.S. dollar and U.S. debt would drop like a rock, and prices on the things that we buy every day would soar. At that point you could forget about cheap gasoline or cheap Chinese imports. Our entire way of life depends on the U.S. dollar being the primary reserve currency of the world and being able to import things very inexpensively. If the rest of the world (led by China) starts to reject the U.S. dollar, it would result in a massive tsunami of currency coming back to our shores and a very painful adjustment in our standard of living. Today, most U.S. currency is actually used outside of the United States. If someday that changes and we are no longer able to export our inflation that is going to mean big trouble for us.
The fact that we get to print up giant mountains of money and virtually everyone around the world uses it has been a huge boon for the U.S. economy.
When that changes, the word “catastrophic” is not going to be nearly strong enough to describe what is going to happen.
According to a Rasmussen Reports survey that was released this week, only 13 percent of all Americans believe that the country is on the right track. But the truth is that these are the good times. The American people haven’t seen anything yet.
Someday people will look back and desperately wish that they could go back to the “good old days” of 2012 and 2013. This is about as good as things are going to get, and it is only downhill from here.
Image credit: http://theeconomiccollapseblog.com
Debt Ceiling Delusions
The popular take on the current debt ceiling stand-off is that the Tea Party wing of the Republican Party has a delusional belief that it can hit the brakes on new debt creation without bringing on an economic catastrophe. While Republicans are indeed kidding themselves if they believe that their actions will not unleash deep economic turmoil, there are much deeper and more significant delusions on the other side of the aisle. Democrats, and the President in particular, believe that continually taking on more debt to pay existing debt is a more responsible course of action. Even worse, they appear to believe that debt accumulation is the equivalent of economic growth.
If Republicans were to inexplicably prevail, and the federal government were to cut spending so that its expenditures matched its tax revenues (a truly radical idea) the country’s financial mess would be laid bare. The government would have to weigh the relative costs and benefits of making interest payments on Treasury debt (primarily to foreign creditors) or to trim entitlements promised to U.S. citizens. But those are choices we will have to make sooner or later anyway. In fact we should have dealt with these issues years ago. But generations of mechanistic debt ceiling increases have allowed us to perpetually kick the can down the road. What could possibly be gained by doing it again, particularly if it is done with no commitment to change course?
The Democrats’ argument that America needs to pay its bills is just hollow rhetoric. Paying off one’s Visa bill with a new and bigger MasterCard bill can’t be considered a legitimate payment of debt. At best it is a transfer. But in the government’s case, it doesn’t even qualify as that. Treasury debt is primarily bought by the Fed, foreign central banks, and major financial institutions. None of that will change with a debt ceiling increase. We will just go to the same people for greater quantities. So it’s like paying off your Visa card with a bigger Visa card.
According to modern economists, an elimination of deficit spending will immediately cause a dollar for dollar decrease in GDP. For example, if the government stopped sending food stamp payments to poor people, then grocery stores would lose business, employees would be laid off, and the economy would contract. But this one dimensional view fails to appreciate that the purchasing power of the food stamps had to come from somewhere. The government can’t create something from nothing. Taxation transfers purchasing power from people living in the present to other people living in the present. In contrast, borrowing transfers purchasing power from people living in the future to people living in the present. The good news for politicians is that future people don’t vote in current elections (and current voters don’t seem to appreciate the cost to their future selves of current policy).
The Obama Administration has congratulated itself for turning around the contracting economy that it inherited from President Bush. But even if you take the obscenely low official inflation statistics at face value, we only grew at an anemic 1.075% annual pace from 2009 to 2012 (far below the between 3% and 4% that the U.S. averaged post World War II). Sadly, this growth pales in comparison to the accumulation of new debt that we are borrowing from the future.
U.S. GDP is measured at roughly $15 trillion per year. 2% growth means that each year the GDP is approximately $300 billion larger than the prior year. But in the less than five years since Obama took office, the federal government has added, on average, about $1.3 trillion per year in new debt, a pace that is four times higher than the growth. If the deficit were subtracted from GDP, America would be shown to be stuck in a severe recession that Washington can’t acknowledge. But such a reality is more consistent with the dismal job prospects and stagnant incomes experienced by most Americans.
The belief that deficits add to the economy, and that debt can be dealt with in an imaginary future (that never seems to arrive) is the foundation upon which the President can chastise the Republicans as irresponsible suicide bombers. Using this logic, he can argue (with a straight face) that borrowing is the equivalent of paying. That the President can make this delusional argument is not so surprising (no lie too great for the typical politician to attempt). What is alarming is that the media and the public have swallowed it so willingly. As they call for limitless increases in borrowing, Democrats have offered no plan to reduce the current debt and they are unwilling to negotiate with Republicans on that topic. Yet somehow they have been perceived as the party of fiscal responsibility.
While the Republicans have a dismal track record of their own when it comes to budgetary management, it can’t be disputed that the minor dip in that rate of increase in spending that resulted from the recent Sequester, happened only because they dug in on the issue. Without the 2011 debt ceiling drama, there is no chance that any spending would have been touched.
Democrats had warned that the $85 billion in sequestration cuts slated for fiscal year 2013 (about 2% of the Federal budget) would be sufficient to bring on economic Armageddon. But guess what? We survived. Recently, Senate Majority Leader Harry Reid continued with such rhetoric by declaring that there are no more cuts to be found anywhere in the $3.8 Trillion dollar federal budget. (Apparently he missed last week’s 60 Minutes piece on the spreading epidemic of federal disability fraud.)
We have to acknowledge what even the Republicans haven’t fully grasped. We are in such a deep debt hole that there is no solution that does not involve serious economic pain. Tea Party Republicans rightly believe that government spending is a drag on economic growth. As a result, they conclude that immediate spending cuts will help with the “recovery”. But they are confusing real economic growth with the delusional expansion created by deficit spending (which is actually damaging the real economy). If they cut the deficit, this phony economy may likely implode and cause widespread distress.
So even though a reduction in government borrowing and spending does help the economy, it won’t feel very helpful tomorrow. The more we borrow and spend today, the more we will suffer tomorrow when the bills come due. Ironically, cutting government spending now helps the economy by allowing the economic adjustment to happen sooner rather than later. But this type of long-term thinking is very difficult for politicians to consider.
Unfortunately our debts don’t leave us much in the way of choices. We can choose to pay now or try to pay later. But the longer we wait the steeper the bill.
Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.
Bankrupt ideas lead to bankrupt governments
This is so true. Yet we can’t keep ourselves from spending. The slightest proposed cut to government elicits howls of pain and anguish. We can’t cut Defense. We can’t cut Social Security. We can’t cut Medicaid or Medicare. And we can’t cut subsidies to farmers, or “homeland security” or get rid of any of the agencies. We can’t cut anything.
And we have this giant debt to show for our spendthrift ways. That’s not good.
But what’s that you say? Both Dick Cheney and Paul Krugman say debt and deficits don’t matter? Are you serious? Well hell, lets do Obamacare too. What’s next? Pyramids? OK. How about a hypertube through the middle of the Earth straight to China. Think of the jobs. And since there are no consequences to running up these giant deficits let’s pay each of the engineers on the project $3 million per year. Then let’s give them half the year off to spend the money on boats and Virgin Galactic flights. More jobs!
Something (everything) for nothing is a recipe for prosperity! This is easy.
(From The Washington Times)
As we listen to the budget battles among the political class over the next few weeks, it is important to keep in mind that federal spending is at record levels in nominal terms and near the all-time high as a percentage of gross domestic product (GDP), except during World War II. During the second Clinton administration, federal spending was about 20 percent lower as a percentage of GDP than it is now. Yet I do not recall starvation among the American people, nor the acutely ill being thrown out of hospitals because they could not pay, nor children not finding schools to attend. It did not happen, nor did it happen from the end of the Civil War until World War I, when federal spending was only about 3 percent of GDP, in contrast to today’s 22 percent..
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About Nick Sorrentino
Nick Sorrentino is the co-founder and editor of AgainstCronyCapitalism.org. A political and communications consultant with clients across the political spectrum, he lives just outside of Washington DC where he can keep an eye on Leviathan.
By Tyler Durden
Rejoice America: You Are Now $3 Trillion Wealthier… Due To A Definition Change
Two months ago the US suddenly found itself “wealthier” by over $500 billion in Gross Domestic Product as a result of a simple definition revision that retroactively added trillions in cumulative gains from, wait for it, intangibles. More importantly, as Paul Singer explained, “As part of the revisions, the Bureau of Economic Analysis will change the way pension payments are counting in GDP. Previous to the change, when a company paid money into a pension plan, the money was counted as wages in the GDP calculation. After the change, what companies have promised to pay in the future, not what they are actually paying, will be added to GDP. This is fantastic. The bigger the unpayable promise made to unsuspecting retirees (promises that are not fully funded), the more GDP supposedly goes up!” As it turns out, it was not just economic “output” that benefited from this definition change. As today’s release of the Fed’s very much revised Flow of Funds report confirmed, US households as of this moment are wealthier by over $3 trillion, just because the re-definition of the Pension Fund line item, which is no longer counted as “Reserves” but the broader “Entitlements.”
End result: whereas Americans last quarter had net worth of $70.3 trillion, as a result of this revision, they now have $73.5 trillion. Revisionist Definition wealth for everyone!
Unfortunately, “wealth” attained as a result of definition changes can’t be spent at places like Wal Mart, which perhaps explains why, as reported earlier, it has just a bit too much inventory in backlog and has to cut orders due a pile up in merchandise.
Janet Yellen: What A Horrifying Choice For Fed Chairman She Would Be
Are you ready for Janet Yellen? Wall Street wants her, the mainstream media wants her and it appears that her confirmation would be a slam dunk. She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is actually good for an economy. She was reportedly the architect for many of the unprecedented monetary decisions that Ben Bernanke made during his tenure, and that has many on Wall Street and in the media very excited. Noting that we “already know that Yellen is on board with Bernanke’s easy money policies”, CNN recently even went so far as to publish a rabidly pro-Yellen article with this stunning headline: “Dear Mr. President: Name Yellen now!“ But after watching what a disaster Bernanke has been, do we really want more of the same? It doesn’t really matter whether she is a woman, a man, a giant lizard or a robot, the question is whether or not she is going to continue to take us down the path to ruin that Bernanke has taken us. As I have written about so many times, the Federal Reserve is at the very heart of our economic problems, and under Bernanke the Fed has created a mammoth financial bubble unlike anything that we have ever seen before. If Yellen keeps us going down that road, financial disaster is inevitable.
Sadly, Yellen is not a woman that believes in free markets. She had the following to say back in 1999…
“Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not.”
Yellen believes that without the “routine intervention” of the central planners at the Fed, our economy will not produce satisfactory results.
So if you thought that Bernanke was an “interventionist”, you haven’t seen anything yet. In fact, according to Time Magazine, Yellen was continually urging Bernanke to do even more “to help stimulate the economy”…
But as the most recent financial crisis proved, a good Fed chief needs to be willing to think outside the box to achieve its goals of low, steady inflation and full employment. This is exactly what Bernanke did — using the powers of his office to launch a massive bond-buying program aimed at lowering interest rates further down the yield curve and promising to keep short-term interest rates at near zero for years. Bernanke, however, didn’t launch these programs immediately. Behind the scenes, it was reportedly Yellen who was the most forceful advocate for the Fed doing more to help stimulate the economy.
It is truly frightening to think that Yellen might turn out to be “Bernanke on steroids”.
Let’s hope that she is not the choice.
But the media is endlessly hyping her. They keep proclaiming that she has a “good track record” when it comes to forecasting future economic conditions.
Back in February 2007, before the housing crash and the last financial crisis, she made the following statement…
“The bottom line for housing is that the concerns we used to hear about the possibility of a devastating collapse—one that might be big enough to cause a recession in the U.S. economy—while not fully allayed have diminished. Moreover, while the future for housing activity remains uncertain, I think there is a reasonable chance that housing is in the process of stabilizing, which would mean that it would put a considerably smaller drag on the economy going forward.”
And during a speech in December 2007 she offered up this gem…
“To sum up the story on the outlook for real GDP growth, my own view is that, under appropriate monetary policy, the economy is still likely to achieve a relatively smooth adjustment path, with real GDP growth gradually returning to its roughly 2½ percent trend over the next year or so, and the unemployment rate rising only very gradually to just above its 4¾ percent sustainable level.”
And in front of the Financial Crisis Inquiry Commission in 2010 she openly admitted that she did not see the last financial crisis coming…
“For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”
So if she didn’t see the last crisis coming, will she see the next one coming?
Right now, she insists that everything is going to be just fine in our immediate future.
Do you believe her?
Meanwhile, economic warning flags are popping up all over the place. As Zero Hedge recently noted, perhaps this is why a lot of high profile candidates don’t want the Fed job. Perhaps they don’t want to be blamed for the giant economic mess that is about to happen…
With so many candidates dropping out of the race, one has to wonder why the attraction of the ‘most-powerful’ job in the world is fading. Perhaps it is not wanting to stuck between the rock of the ‘broken-market-diminishing-returns’ of moar QE and the hard place of an economy/market that is sputtering and needs moar. As Bloomberg’s Rich Yamarone notes, There’s a little known rule of thumb in the economics world: when the annual growth rate of key U.S. indicators falls below 2 percent, the economy slides into recession in the next 12 months… and more than one of them is flashing red.
But we have far bigger worries on our hands than just another recession.
Over the past several years, Fed intervention has been systematically destroying confidence in the U.S. dollar and has been making U.S. government debt less desirable. Foreigners are already starting to dump U.S. debt, and it is only a matter of time before the U.S. dollar loses its status as the de facto reserve currency of the world.
By “kicking the can down the road”, the Fed has created tremendous structural problems which are going to come back to bite us big time in the long run.
Recklessly printing money, monetizing debt and driving interest rates down to ridiculously low levels may have had some benefits in the short-term, but in the end this giant Ponzi scheme is going to collapse in spectacular fashion. The following is how James Howard Kunstler puts it…
The Fed can only pretend to try to get out of this self-created hell-hole. The stock market is a proxy for the economy and a handful of giant banks are proxies for the American public, and all they’ve really got going is a hideous high-frequency churn of trades in conjectural debentures that pretend to represent something hidden in the caboose of a choo-choo train of wished-for value — and hardly anyone in the nation, including those with multiple graduate degrees in abstruse crypto-sciences, can even pretend to understand it all.
When reality crosses the finish line ahead of poor, exhausted Mr. Bernanke, havoc must ensue. All the artificial props fall away and the so-called American economy is revealed for what it is: a surreal landscape of ruin with nothing left but salvage value. Very few people will get a living off of the salvage operations, and there will be fights and skirmishes everywhere by one gang or another for control of the pickings. The utility of money itself may be bygone, along with the legitimacy of anyone or anything claiming institutional authority. This is what comes of all attempts to get something for nothing.
The American people deserve to know the truth.
The Fed is not our “savior”. The truth is that the Fed is the primary cause of many of our biggest economic problems. For much more on this, please see my previous article entitled “25 Fast Facts About The Federal Reserve – Please Share With Everyone You Know“.
Unfortunately, Wall Street and the mainstream media love the Fed and they appear to very much love Janet Yellen.
Yellen would be an absolutely horrifying choice for Fed Chairman, but so would any of the other names that have been floated.
America has embraced the foolishness of the financial central planners at the Federal Reserve, and in the end we will all pay a great price for that.
Image credit: http://theeconomiccollapseblog.com
The Greatest Debt Crisis The World Has Ever Seen Is Coming
The largest mountain of debt in the history of the world just continues to grow even larger, and everyone knows that this colossal debt spiral is not going to end well. But we all keep playing along because nobody wants the party to end. Right now, there is an unprecedented ocean of red ink covering the planet. Globally, governments have never been in so much debt, corporations have never been in so much debt and consumers have never been in so much debt. But every time someone suggests that this is a problem and that we should at least try to get debt levels to settle down a bit, people start screaming that “austerity” will hurt the global economy. And of course it will. But we can’t continue to live way, way above our means indefinitely. Well, we can try, but at some point this entire house of cards is going to come crashing down and we are going to be facing the greatest economic crisis the world has ever seen.
It is kind of like watching a slow-motion train wreck that you have no chance of possibly stopping that you know will end up killing lots of innocent people. This debt crisis is going to end up destroying the global financial system, but there is not a thing that you or I can do to prevent it from happening. The unprecedented debt binge that we are witnessing right now is going to continue until someday we hit a brick wall of financial disaster. We can yell and we can scream, but it isn’t going to stop what is happening.
As the Telegraph recently noted, even the Bank for International Settlements is warning that debt levels are way too high. According to the BIS, total public and private debt levels are now 30 percent higher than they were in 2008…
“This looks like to me like 2007 all over again, but even worse,” said William White, the BIS’s former chief economist, famous for flagging the wild behavior in the debt markets before the global storm hit in 2008.
“All the previous imbalances are still there. Total public and private debt levels are 30pc higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets that are ending in a boom-bust cycle,” said Mr White, now chairman of the OECD’s Economic Development and Review Committee.
The BIS can see the disaster coming, but even they have no chance of preventing it.
For the rest of this article, I am going to focus on government debt, but please keep in mind that corporate debt and consumer debt are also totally out of control globally. It would be very hard to overstate the nightmare that we are facing.
But of course national governments are the biggest offenders when it comes to debt…
Looking purely at the numbers, Japan’s medium-term fundamentals are among the bleakest in the world.
Total government debt amounts to over 200% of the country’s entire GDP– a figure so large that the Japanese government spends 51.5% of the 43 trillion yen ($430 billion) they collect in tax revenue just to pay interest!
Perhaps even more astounding is that ‘primary balance expenses,’ i.e. normal government expenditures, totaled 70.3 trillion yen, or 163% of tax revenue.
The only way they’ve managed to stay afloat is by issuing more debt, which makes the problem even worse. In fact, 46% of the 2013 budget is being financed by debt.
These guys are running out of rope. And fast.
China is facing a different sort of a problem. In that nation, the growth of private domestic debt is wildly out of control.
According to a recent World Bank report, private domestic debt in China has grown from 9 trillion dollars in 2008 to 23 trillion dollars today.
There is no way that is sustainable, and at some point that massive bubble is going to burst.
Even though some European nations have supposedly implemented “austerity measures” in recent years, debt levels continue to rise rapidly. The following are some numbers that were recently released which show that government debt to GDP ratios for some of the most financially troubled nations in Europe are absolutely soaring…
- Euroarea: 92.2%, up from 88.2% a year ago
- Greece: 160.5%, up from 136.5% a year ago
- Italy: 130.3%; up from 123.8% a year ago
- Portugal: 127.2%, up from 112.3% a year ago
- Ireland: 125.1%, up from 106.8% a year ago
- Spain: 88.2%, up from 73.0% a year ago
- Netherlands: 72.0%, up from 66.7% a year ago
Anyone that tells you that the crisis in Europe is “over” is lying to you. The debt crisis is getting worse, not better.
The United States
The biggest mountain of debt of all can be found in the United States.
30 years ago, the national debt was a little bit above a trillion dollars.
Today, it is rapidly approaching 17 trillion dollars.
At this point, the U.S. already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain. And since Barack Obama entered the White House, the debt to GDP level has soared to unprecedented heights…
Sadly, this is just the beginning.
One reason for this is that the U.S. is facing some tremendous demographic challenges in the years ahead.
In other words, our population is getting older.
It is being projected that the number of Americans on Social Security will rise from 57 million today to more than 100 million in 25 years.
How in the world are we possibly going to pay for that?
Already, we are very heavily dependent on foreigners to pay our bills.
According to the U.S. Treasury, foreigners hold approximately 5.6 trillion dollars of our debt at this point.
So what would happen if we went to war with Syria and they decided to quit borrowing from us and they started dumping our debt instead?
That is a very good question.
And actually, according to Zero Hedge foreigners have already started to dump a little bit of our debt…
Today’s TIC data showed something disturbing: for the fourth month in a row, foreigners were net sellers of US Treasury paper in July, as total foreign holdings declined from $5.600 trillion to $5.590 trillion which represents 49% of total marketable debt (including the debt owned by the Fed of course). In other words, since peaking at $5.724 trillion in March, foreign-held debt has declined by $134 trillion, at a time when yields have surged on fears the Fed’s tapering of its own purchases of bonds will mean less Fed frontrunning opportunities.
We certainly cannot afford for that to continue, because we desperately need other nations to finance our reckless spending.
Our debt is wildly out of control, and the only way we can keep the entire system from collapsing is to go into even more debt.
That is a whole lot of money.
But most Americans do not consider it to be a problem because disaster has not struck yet.
Unfortunately, they simply don’t understand how quickly an exponential problem can overwhelm you. I think that the following illustration from Simon Black is particularly helpful…
Let’s say you’re at a party in a small apartment that’s about 500 square feet in size. Then suddenly, at 11pm, a pipe bursts, starting a trickle into the living room.
Aside from the petty annoyance, would you feel like you were in danger? Probably not. This is a linear problem– the rate at which the water is leaking is more or less constant, so the guests can keep partying through the night without worry.
But let’s assume that it’s an exponential leak.
At first, there’s just one drop of water. But each minute, the rate doubles. So by 11:01pm, there’s 2 drops. By 11:02, 4 drops. And so forth.
By 11:27pm, there’s only six inches of standing water. Yet by 11:31pm, just four minutes later, the entire room is under nearly 8 feet of water. And the party’s over.
For nearly half an hour, it all seemed safe and manageable. People had all the time in the world to leave, right up until the bitter end. 11:27, 11:28, 11:29. Then it all went from benign to deadly in a matter of minutes.
By the time that our politicians and the talking heads on the mainstream media admit that we have a debt emergency on our hands, it will probably be far, far too late.
The greatest debt crisis the world has ever seen is coming, and there is nothing that anyone can do to stop it.
But you can take measures to get prepared for it.
Please get prepared while you still can.
Image credit: http://thetruthwins.com
Submitted by Tyler Durden
The Complete Interactive Financial States Of America
Like many Americans since the recession hit, you have likely wondered if relocating to another state would be a good financial move. In this expansive interactive infographic below, we compare just how well each state is fairing in these challenging times. How does your state rank?
The graphic is interactive – choose from across the top indicators of health, and select individual states for more details…
A Quadrillion Yen And Counting – The Japanese Debt Bomb Could Set Off Global Panic At Any Moment
How much is 1,000,000,000,000,000 yen worth? Well, a quadrillion yen is worth approximately 10.5 trillion dollars. It is an amount of money that is larger than the “the economies of Germany, France and the U.K. combined“. It is such an astounding amount of debt that it is hard to even get your mind around it. The government debt to GDP ratio in Japan will reach 247 percent this year, and the Japanese currently spend about 50 percent of all central government tax revenue on debt service. Realistically, there are only two ways out of this overwhelming debt trap for the Japanese. Either they default or they try to inflate the debt away. At this point, the Japanese have chosen to try to inflate the debt away. They have initiated the greatest quantitative easing experiment that a major industrialized nation has attempted since the days of the Weimar Republic. Over the next two years, the Bank of Japan plans to zap 60 trillion yen into existence out of thin air and use it to buy government bonds. By the time this program is over, the monetary base in Japan will have approximately doubled. But authorities in Japan are desperate. They know that the Japanese debt bomb could set off global panic at any time, and they are trying to find a way out that will not cause too much pain.
Unfortunately, the only way that this bizarre quantitative easing program will work is if investors in Japanese bonds act very, very irrationally. You see, the only way that Japan has been able to pile up this much debt in the first place is because they have been able to borrow gigantic piles of money at super low interest rates.
Right now, the yield on 10 year Japanese bonds is sitting at an absurdly low 0.76%. But even with such ridiculously low interest rates, the central government of Japan is still spending about half of all tax revenue on debt service.
If interest rates go up, the game is over.
But now that the Japanese government has announced that it plans to double the monetary base, it would be extremely irrational for investors not to demand higher rates on Japanese government debt. After all, why would you want to loan money to the Japanese government for less than one percent a year when the purchasing power of your money could potentially be halved over the next two years?
Amazingly, this is exactly what the Japanese government is counting on. They are counting on being able to wildly print up money and monetize debt, but also keep yields on Japanese bonds at insanely low levels at the same time.
For the moment, it is actually working. Investors in Japanese bonds are behaving very, very irrationally.
But if that changes at some point, we could potentially be looking at the greatest Asian economic crisis of all time.
And there are some very sharp minds out there that believe that is exactly what is going to happen.
For example, the founder of Hayman Capital Management, Kyle Bass, has been sounding the alarm about Japan for a long time. He correctly predicted the subprime mortgage meltdown, and in the process he made hundreds of millions of dollars for his clients. Now he believes that the next major crash is going to be in Japan.
According to Bass, the bond bubble in Japan is so large that once it begins to implode fear is going to start spreading like wildfire…
Remember, Japanese banks in general have 900% of their tangible assets invested in JGBs that are the most negatively convex instrument you can put into a portfolio. Assume for instance that a bank holds a 10 year bond yielding 80 basis points. A 100 basis point move will cost the JGB investor about 10 years of expected interest payments.
Think about the psychology of all the players and financial implications if rates do move 100 basis points. Think about the solvency of a nation which currently spends 50% of its central government tax revenues on debt service, half of which earns the lowest yields of any country in the world.
You can’t look at this as a simple question. You need to think about this as a multivariate equation. You have to think about the incentives and the fears of all the participants. And you need to think about the fiscal sustainability of the government.
If rates even rise by a full percentage point, it could start a stampede toward the exits that nobody in the entire world would be able to control…
I ran a survey of 1,009 Japanese investors where we asked: “If rates were to move up 100 basis points, would that engender more confidence and make you want to buy more JGBs?” or, “Would you take your money elsewhere, even if it were hamstringing your government’s ability to operate?” 8 – 9% of respondents that said that they would buy more bonds and almost 80% said they would run, not walk the other way.
For much more on this, you can watch a video of Kyle Bass discussing why Japan is doomed right here.
And of course Japan is not the only “debt bomb” that could potentially go off over in Asia. As I mentioned in another article, the major problem over in China is the level of private debt…
In China, the big problem is the absolutely stunning growth of private domestic debt. According to a recent World Bank report, the total amount of credit in China has risen from 9 trillion dollars in 2008 to 23 trillion dollars today.
That increase is roughly equivalent to the entire U.S. commercial banking system.
There is simply way, way too much debt in our world today. Never before has there been so much red ink all over the planet at the same time.
Many in the mainstream media insist that this party can go on indefinitely.
But that is what they said about the housing bubble too.
Sadly, the truth is that every financial bubble eventually bursts, and this global debt bubble will be no exception.
I hope that you are getting prepared while you still can.
Image credit: http://theeconomiccollapseblog.com