Thursday, September 27, 2012

The Magnitude of the Mess We're In

The next Treasury secretary will confront problems so daunting that even Alexander Hamilton would have trouble preserving the full faith and credit of the United States.

Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.

The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.

The government has to get the money to finance its spending by taxing or borrowing. While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.
Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve? Foreign governments accounted for most of the rest, as American citizens' and institutions' purchases and sales netted to about zero. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II.

The Fed has effectively replaced the entire interbank money market and large segments of other markets with itself. It determines the interest rate by declaring what it will pay on reserve balances at the Fed without regard for the supply and demand of money. By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended economic consequences.

Did you know that the Federal Reserve is now giving money to banks, effectively circumventing the appropriations process? To pay for quantitative easing—the purchase of government debt, mortgage-backed securities, etc.—the Fed credits banks with electronic deposits that are reserve balances at the Federal Reserve. These reserve balances have exploded to $1.5 trillion from $8 billion in September 2008.
The Fed now pays 0.25% interest on reserves it holds. So the Fed is paying the banks almost $4 billion a year. If interest rates rise to 2%, and the Federal Reserve raises the rate it pays on reserves correspondingly, the payment rises to $30 billion a year. Would Congress appropriate that kind of money to give—not lend—to banks?

The Fed's policy of keeping interest rates so low for so long means that the real rate (after accounting for inflation) is negative, thereby cutting significantly the real income of those who have saved for retirement over their lifetime.

The Consumer Financial Protection Bureau is also being financed by the Federal Reserve rather than by appropriations, severing the checks and balances needed for good government. And the Fed's Operation Twist, buying long-term and selling short-term debt, is substituting for the Treasury's traditional debt management.

This large expansion of reserves creates two-sided risks. If it is not unwound, the reserves could pour into the economy, causing inflation. In that event, the Fed will have effectively turned the government debt and mortgage-backed securities it purchased into money that will have an explosive impact. If reserves are unwound too quickly, banks may find it hard to adjust and pull back on loans. Unwinding would be hard to manage now, but will become ever harder the more the balance sheet rises.

The issue is not merely how much we spend, but how wisely, how effectively. Did you know that the federal government had 46 separate job-training programs? Yet a 47th for green jobs was added, and the success rate was so poor that the Department of Labor inspector general said it should be shut down. We need to get much better results from current programs, serving a more carefully targeted set of people with more effective programs that increase their opportunities.

Did you know that funding for federal regulatory agencies and their employment levels are at all-time highs? In 2010, the number of Federal Register pages devoted to proposed new rules broke its previous all-time record for the second consecutive year. It's up by 25% compared to 2008. These regulations alone will impose large costs and create heightened uncertainty for business and especially small business.

This is all bad enough, but where we are headed is even worse.

Monday, September 24, 2012

Dictatorship USA - only one penstroke away

By Executive Order, Barack Hussein Obama completely bypassed the U.S. Constitution and powers of Congress and bestowed upon himself the power to impose a brutal version of Martial Law.

Through Presidential Executive Order, Barack Obama gave himself massive powers that allow himself to instantly bring about socialism in America and create a Soviet-like statist regime–whenever he wants.

He can now:
-Raise gas prices
-fix any food prices
-cut back on health care for citizens
-reduce our pay
-bail out any person or company he wants
-halt consumer production and replace it with government work
-hike up airfares
-force the production of electric cars
-break existing labor contracts
-and much more

READ MORE:
http://www.westernjournalism.com/when-exactly-did-america-cease-to-be-a-republic/

Wednesday, September 19, 2012

Coming soon: Planned Economic Collapse Caused by a War of Financial Weapons



Earlier today we casually wondered whether the US stands to lose more by supporting China or Japan in their escalating diplomatic spat, considering the threat of a US Treasury sell off is certainly not negligible, a dilemma complicated by the fact that as today's TIC data indicated both nations own almost the same amount of US paper, just over $1.1 trillion. In a stunning turn of events, it appears that China has taken our thought experiment a step further and as the Telegraph's Ambrose Evans-Pritchard reports, based on a recommendation by Jin Baisong from the Chinese Academy of International Trade (a branch of the commerce ministry) China is actively considering "using its power as Japan’s biggest creditor with $230bn (£141bn) of bonds to "impose sanctions on Japan in the most effective manner" and bring Tokyo’s festering fiscal crisis to a head." I.e., dump Japan's bonds en masse.

Should this stunning recommendation be enacted, not only would it be the first time in world history that insurmountable credit is used as a weapon of retaliation, it would mark a clear phase transition in the evolution of modern warfare: from outright military incursions, to FX wars, to trade wars, culminating with "bond wars" which could in the span of minutes cripple the entire Japanese fiscal house of cards still standing solely due to the myth that unserviceable debt can be pushed off into perpetuity (as previously discussed here).

Not needing further explanation is the reality that should China commence a wholesale Japanese bond dump, it may well lead to that long anticipated Japanese bond market collapse, as creditor after creditor proceeds to sell into a market in which the BOJ is the buyer of only resort in the best case, and into a bidless market in the worst.

The immediate outcome would be soaring inflation as the BOJ is forced to monetize debt for dear life, buying up first hundreds of billions, then trillions in the secondary market to avoid a complete rout, matched by trillions of reserves created out of thin air which may or may not be halted by the Japanese deflationary gate, and which most certainly could waterfall into the economy especially if Japanese citizens take this as an all clear signal that the Japanese economy is about to be crippled in all out economic warfare with the most dangerous such opponent, and one which just defected from the "global insolvent creditor" game of Mutual Assured Destruction.

Further complicating things is that Japan has no clear means of retaliation: it owns no Chinese bonds of its own it can dump as a containment measure. Instead, Japan is at best left with the threat of damages incurred on the Chinese economy should Japan be lost as a trading parting. It appears, however, that to China such a gambit is no longer a major concern.

Ironically, this terminal bond war escalation would also mean that Japan's last ditch alternative is to threaten the US with dumping America's bonds in turn if the US i) does not step up on behalf of Japan and ii) if Japan is forced to promptly convert debt from one denomination into another. The fallout effect would be most dramatic.




http://www.zerohedge.com/news/bond-wars-chinese-advisor-calls-japanese-bond-dump

Tuesday, September 18, 2012

Fukushima USA? NRC says YES. And 100 times more likely to happen!

Nuclear Regulatory Commission Engineers Charge Government Coverup: Reactor Meltdown “Absolute Certainty” If Dam Fails … 100s of Times More Likely than Tsunami that Hit Fukushima


An engineer with the Nuclear Regulatory Commission (NRC) says the agency has withheld documents showing reactor sites downstream of dams are vulnerable to flooding, and an elevated risk to the public’s safety.

Richard Perkins, an NRC reliability and risk engineer, was the lead author on a July 2011 NRC report detailing flood preparedness. He said the NRC blocked information from the public regarding the potential for upstream dam failures to damage nuclear sites.

Perkins, in a letter submitted Friday with the NRC Office of Inspector General, said that the NRC “intentionally mischaracterized relevant and noteworthy safety information as sensitive, security information in an effort to conceal the information from the public.”
The engineer is among several nuclear experts who remain particularly concerned about the Oconee plant in South Carolina, which sits on Lake Keowee, 11 miles downstream from the Jocassee Reservoir. Among the redacted findings in the July 2011 report — and what has been known at the NRC for years, the engineer said — is that the Oconee facility, which is operated by Duke Energy, would suffer almost certain core damage if the Jocassee dam were to fail. And the odds of it failing sometime over the next 20 years, the engineer said, are far greater than the odds of a freak tsunami taking out the defenses of a nuclear plant in Japan.

“The probability of Jocassee Dam catastrophically failing is hundreds of times greater than a 51 foot wall of water hitting Fukushima Daiichi,” the engineer said. “And, like the tsunami in Japan, the man‐made ‘tsunami’ resulting from the failure of the Jocassee Dam will –- with absolute certainty –- result in the failure of three reactor plants along with their containment structures.

“Although it is not a given that Jocassee Dam will fail in the next 20 years,” the engineer added, “it is a given that if it does fail, the three reactor plants will melt down and release their radionuclides into the environment.”


READ MORE:
http://www.washingtonsblog.com/2012/09/nuclear-regulartory-commission-engineers-charge-government-coverup-reactor-meltdown-absolute-certainty-if-dam-fails-100s-of-times-more-likely-than-tsunami-that-hit-fukushima.html


Tuesday, September 11, 2012

The Coming Economic Apocalypse

Bob Woodward has yet another book coming out and the consummate Washington insider provides us with a glimpse of what’s in it. In doing so, he inadvertently confirms what so many internet pundits have been warning about — an economic catastrophe of unimaginable proportions.


In the article in the Washington Post Woodward describes the debt-ceiling confrontation between Congress and the President. It is likely that Mr. Woodward or most other political types do not recognize the admissions contained within the article. For these people, politics is a game of winners and losers. That is where the drama and excitement is.

For these folks, economics is a sideshow. To them, economics is to politics like the Toledo Mud Hens are to the New York Yankees. If the Mud Hens send someone to the majors then these people consider how it might affect the Yankees chances of winning the World Series.

It is Woodward’s fascination with the interplay of politics and politicians that dominate his article. The title of the article evidences this Beltway fixation: Inside story of Obama’s struggle to keep Congress from controlling outcome of debt ceiling crisis. The real story is missed. That is the admission of the hopeless condition of the US economy.

Anyone concerned with the impending economic collapse will find Woodward’s account fascinating, although not for the reasons he did. He stumbled into truth, important truth, and seems to have missed it entirely. What follows is an excerpt from the article with the emboldening added by me:

Another possible outcome, Geithner said, was perhaps worse. “Suppose we have an auction and no one shows up?”
The cascading impact would be unknowable. The world could decide to dump U.S. Treasuries. Prices would plummet, interest rates would skyrocket. The one pillar of stability, the United States, the rock in the global economy, could collapse.
“So,” the president said, “if we give $1.2 trillion now in spending cuts” — the amount in the House bill to get the first increase in the debt ceiling for about six to nine months — “what happens next time?” The Republicans would then come back next year, in the middle of the presidential campaign, and impose more conditions on the next debt ceiling increase. He could not give the Republicans that kind of leverage, that kind of weapon. It was hostage taking. It was blackmail. “This will forever change the relationship between the presidency and the Congress.
“Imagine if, when Nancy Pelosi had become speaker, she had said to George W. Bush, ‘End the Iraq war, or I’m going to cause a global financial crisis.’ ”
So, Obama said, they had to break the Republicans on this. Otherwise, they would be back whenever it suited them politically.
They were out of options, Geithner said. The only one might be accepting the House bill, loathsome as it might be. “The 2008 financial crisis will be seen as a minor blip if we default,” he said.
The president said, “The Republicans are forcing the risk of a default on us. I can’t stop them from doing that. We can have the fight now, or we can have the fight later on, but the fight is coming to us.”
So, no, Obama said, he was not going to cave. Period. He said good night, got up and left. He was very agitated.
Geithner thought there was one other consideration. He did not mention it to anyone, not even the president, but he had thought about it a great deal. It was not just that Obama faced an economic choice or a political choice. He faced a moral choice.
The president should not put himself in the position of saying unequivocally that he would veto, Geithner concluded, for one simple reason: No one could be sure how to put the American or the global economy back together again. The impact would be calamitous.
“And the people who would bear the pain of that would be the people less prepared,” Geithner told others, “less able to absorb that cost. It would be something you could not cure. It is not something you can come back and say, a week later, ‘Oh, we fixed it.’ It would be indelible, incurable. It would last for generations.”
"Turbo Timmy" Geithner confesses the desperate nature of the situation. The government is broke.  Geithner fears the world knows this when he says: “Suppose we have an auction and no one shows up?” Geithner knows that we cannot finance our deficits using traditional credit markets. The deficits are too large and the government has no credibility regarding the required spending cuts. Geithner was admitting that markets would not allow the US government to continue its profligate ways. That admission is major news, although not to Woodward and his politically-oriented audience.

Credit markets have (or nearly have) stopped US government debt financing. That’s why we have the Federal Reserve, the counterfeiter of last resort. If government can raise the debt limit, then it would be legal for the Treasury to issue new debt. The Treasury’s sibling, the Fed, would buy it by printing new money. That would allow the government to pay its bills for a while longer.

One must wonder about the intelligence and stewardship of Timmy and the other attendees of this meeting. When Geithner declares:  ”It would be indelible, incurable. It would last for generations,” he is stating the inevitable. Raising the debt limit does nothing to change the US condition other than temporarily postpone his predicted outcome.

The two emboldened sentences of Geithner’s reveal what the American people need to know. No one will buy US Treasuries other than the Federal Reserve. Raising the debt limit only puts the government more hopelessly in debt, ensuring that Treasuries will be even more difficult to sell. Without intending it, Geithner admits that Bernanke will be printing money until the electricity is shut off or until hyperinflation shuts everything economic down. In either case, we reach his “indelible, incurable” situation which will “last for generations.”

Now, don’t you feel better knowing Woodward’s inside account of what is going on. These geniuses were rearranging the chairs on the Titanic instead of addressing the iceberg that will sink the country. At least Woodward seemed to enjoy the political intrigue.

http://www.economicnoise.com/2012/09/10/bob-woodward-inadvertently-confirms-the-coming-economic-apocalypse/

Saturday, September 8, 2012

Govt warns of 'zombie apocalypse'


No, really: Govt warns of 'zombie apocalypse'


WASHINGTON (AP) -- "The zombies are coming!" the Homeland Security Department says.

Tongue firmly in cheek, the government urged citizens Thursday to prepare for a zombie apocalypse, part of a public health campaign to encourage better preparation for genuine disasters and emergencies. The theory: If you're prepared for a zombie attack, the same preparations will help during a hurricane, pandemic, earthquake or terrorist attack.

The Federal Emergency Management Agency hosted an online seminar for its Citizen Corps organization to help emergency planners better prepare their communities for disaster. The federal Centers for Disease Control and Prevention last year first launched a zombie apocalypse social media campaign for the same purposes.

Emergency planners were encouraged to use the threat of zombies - the flesh-hungry, walking dead - to encourage citizens to prepare for disasters. Organizers also noted the relative proximity to Halloween.
Among the government's recommendations were having an emergency evacuation plan and a change of clothes, plus keeping on hand fresh water, extra medications and emergency flashlights.

A few of the government's suggestions tracked closely with some of the 33 rules for dealing with zombies popularized in the 2009 movie "Zombieland," which included "always carry a change of underwear" and "when in doubt, know your way out."

http://hosted.ap.org/dynamic/stories/U/US_ZOMBIE_APOCALYPSE?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2012-09-06-17-39-15

Civilization May Not Survive 'Death Spiral'

Economist Richard Duncan: Civilization May Not Survive 'Death Spiral'

By Terry Weiss

Richard Duncan, formerly of the World Bank and chief economist at Blackhorse Asset Mgmt., says America's $16 trillion federal debt has escalated into a "death spiral, "as he told CNBC.

And it could result in a depression so severe that he doesn't "think our civilization could survive it."

And Duncan is not alone in warning that the U.S. economy may go into a "death spiral."

Since the recession, noted economists including Laurence Kotlikoff, a former member of President Reagan's Council of Economic Advisers, have come to similar conclusions.

Kotlikoff estimates the true fiscal gap is $211 trillion when unfunded entitlements like Social Security and Medicare are included.

However, while the debt crisis numbers are well known to most Americans, the economy hasn't suffered a major correction for almost 4 years.

So the questions remain: Is the threat of collapse for real? And if so, when?

A team of scientists, economists, and geopolitical analysts believes they have proof that the threat is indeed real - and the danger imminent.

One member of this team, Chris Martenson, a pathologist and former VP of a Fortune 300 company, explains their findings:

"We found an identical pattern in our debt, total credit market, and money supply that guarantees they're going to fail. This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses. Governments around the globe are chiefly responsible.

http://moneymappress.com/pro/Pyramid0712MMR2Y.php?code=PPYRN851&n=PYRAMIDMMR12EADMMP&utm_source=outbrain&utm_medium=ppc&utm_term=top&utm_content=small%2Bvideo&utm_campaign=death%2Bspiral


"And what's really disturbing about these findings is that the pattern isn't limited to our economy. We found the same catastrophic pattern in our energy, food, and water systems as well."


According to Martenson: "These systems could all implode at the same time. Food, water, energy, money. Everything."

Another member of this team, Keith Fitz-Gerald, the president of The Fitz-Gerald Group, went on to explain their discoveries.

"What this pattern represents is a dangerous countdown clock that's quickly approaching zero. And when it does, the resulting chaos is going to crush Americans," Fitz-Gerald says.

Dr. Kent Moors, an adviser to 16 world governments on energy issues as well as a member of two U.S. State Department task forces on energy also voiced concerns over what he and his colleagues uncovered.

"Most frightening of all is how this exact same pattern keeps appearing in virtually every system critical to our society and way of life," Dr. Moors stated.


"It's a pattern that's hard to see unless you understand the way a catastrophe like this gains traction," Dr. Moors says. "At first, it's almost impossible to perceive. Everything looks fine, just like in every pyramid scheme. Yet the insidious growth of the virus keeps doubling in size, over and over again - in shorter and shorter periods of time - until it hits unsustainable levels. And it collapses the system."

Martenson points to the U.S. total credit market debt as an example of this unnerving pattern.

"For 30 years - from the 1940s through the 1970s - our total credit market debt was moderate and entirely reasonable," he says. "But then in seven years, from 1970 to 1977, it quickly doubled. And then it doubled again in seven more years. Then five years to double a third time. And then it doubled two more times after that.

"Where we were sitting at a total credit market debt that was 158% larger than our GDP in the early 1940s... By 2011 that figure was 357%."

Dr. Moors warns this type of unsustainable road to collapse can be seen today in our energy, food and water production. All are tightly connected and contributing to the economic disaster that lies directly ahead.

Keith Fiz-Gerald: Germany's military held a secret investigation into this unsustainable pattern and concluded it could lead to "political instability and extremism." Details here
According to polls, the average American is sensing danger. A recent survey found that 61% of Americans believe a catastrophe is looming - yet only 15% feel prepared for such a deeply troubling event.

Fitz-Gerald says people should take steps to protect themselves from what is happening. "The amount of risky financial derivatives floating around the globe is as much as 20 times size of the entire GDP of the world," he says. "It's unsustainable and impossible to unwind in any kind of orderly way."

Moreover, he adds: "People can also forget that the FDIC can only cover a fraction of US bank deposits. It's a false sense of security. Just like state pensions, which could be suspended at any time. A collapse could wipe out these programs. Entitlements like Social Security and Medicare are already bankrupt and simply being propped up."

We can see the strain on society already.

In two years, Congress won't have any money for transportation, reports the Washington Post. Cities like Trenton, NJ have layed off one-third of their police force due to budget cuts. And other cities like Colorado Springs, CO removed one-third of streetlights, trashcans, and bus routes, reports CNN.

Fitz-Gerald also warns of a period of devastating inflation. A recent survey, reports USA Today, notes that in the coming years it could take $150,000 a year in household income for a family to afford basic living expenses - and maybe go out to a movie.

Right now, in fact, "52% of Americans feel they barely have enough to afford the basics."

"If our research is right," says Fitz-Gerald, "Americans will have to make some tough choices on how they'll go about surviving when basic necessities become nearly unaffordable and the economy becomes dangerously unstable."

"People need to begin to make preparations with their investments, retirement savings, and personal finances before it's too late," says Fitz-Gerald
 

http://moneymorning.com/ob/economist-richard-duncan-civilization-may-not-survive-death-spiral/