Tag: debt

Are You Ready for the Coming Debt Revolution?

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Nothing to Lose

There is a specter haunting America … and all the developed nations of the world.

It is the specter of a debt revolution.

We left off yesterday talking about how the economy of the last 30 years – and especially that of the last six years – has favored the old over the young.

“Rise up, ye young’uns,” we as much as said, “you have nothing to lose but your parents’ debts.”

We showed how the value of U.S. corporate equity, mainly held by older people, had multiplied by 28 times since 1981. That was no honest bull market in stocks; it was a market sent soaring by an explosion of credit.

But what did it do for young people whose only assets are their time and their youthful energy? Alas, the real economy has increased by only five times over the same period.

 

Non-fin equity vs. GDPNon-financial corporate equity valuation vs. GDP 1980 – 2015, indexed. The gap has never been larger than today, via Saint Louis Federal Reserve Research – click to enlarge.

 

A Grim and Menacing Specter

And when you look more closely at work and wages, the specter grows grimmer and more menacing. Average hourly wages have barely budged in the last 30 years. And average household incomes have fallen – from $57,000 to $52,000 – in the 21st century.

But as our fingers came to rest yesterday, there was one question hanging in the air, like the smoke from an exploded hand grenade: Why? Was this huge shift – of trillions of dollars of wealth from young working people to old asset holders – an accident?

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To the Class of 2015 – You Chumps!

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Dull, Embarrassing, Earnest and Trivial

 

A long, long time ago
On graduation day
You handed me your book
I signed this way

“Roses are red, my love
Violets are blue
Sugar is sweet, my love
And boy are we screwed”

– With apologies to Bobby Vinton

 

turmmitgarten2bc

Image credit: Merlon Drâs

 

Last year at about this time, we waited for the phone to ring. Not calling were thousands of universities in need of someone to give the annual commencement speech.

Every year, we prepare an appropriate graduation speech. And every year, with the unanimous accord of America’s institutions of higher learning, we do not give it.

With six children who have gone to college, we have heard more than our share of these speeches. They are almost always dull, embarrassing, earnest and trivial.

The University of Virginia had a TV newscaster. St. John’s College had socialist philosopher Cornel West.

 

Cornel WestWhen socialist philosopher Cornel West is in a good mood, he actually looks vaguely threatening …

Photo credit: Evan Agostini / AP

 

We can’t remember the others – most likely because they had nothing memorable to say either.

 

Class of 2015: The Most Indebted in History

It is unlikely that we would ever be called upon to give a speech to graduating students. But if we were, we would say the following: Congratulations, Class of 2015: You chumps! The Wall Street Journal reports that you are the most indebted generation in history.

The average graduate with student debt has a little more than $35,000 of it. The whole bill for student debt this year is expected to reach $68 billion – a tenfold increase over the last 20 years.

 

1-average student debtAverage graduate debt over time – 2015 produced yet another record.

 

That may seem like a lot of money. And big numbers get reported in the headlines along with the celebrity news. But student debt is like the foul smell of gangrene: It testifies to a deeper, inner corruption.

We are now 25 centuries after Pericles and Socrates. But today, the typical university has no more interest in learning than a rat terrier or a congressman. Our government is a disgrace to honest democracy, if there were such a thing; it is a scam and a deceit.

Rich, powerful special interests wager billions of dollars on hollow puppet candidates, knowing their investment will pay off hugely if they are successful. Our money system is an elaborate fraud, too. It steals from laborers, merchants and artisans and rewards speculators, insiders and layabouts. The entire system is sick and dysfunctional.

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BUG APPROACHING WINDSHIELD

I know Americans are math challenged. Public schools are too busy teaching diversity and environmental propaganda about global warming to spend any time on adding, subtracting, multiplying or dividing. Here are a couple charts of doom. Japan has been on a kamikaze mission to destroy their economic system for the last 25 years and the plane is about to hit the carrier. Their total debt now stands at 1.053 QUADRILLION Yen. That’s right. QUADRILLION. That equals $8.8 trillion.

Interest rates in January on their 10 Year bonds reached an all-time low of 0.20%. This morning they reached 0.46%. When you are already paying $130 billion per year in interest and your interest rates double in a matter of months, you’ve gotta problem. If the worldwide bond market reassessment of risk continues, it won’t only be Greece crashing and burning. One of the biggest economies in the world will implode. And it will take the world with it.

U.S. 10 year Treasury rates are also soaring. Politicians and central bankers across the globe have done nothing but add debt, devalue currencies, create mal-investment with 0% interest rates, and prop up financial markets for the last six years. Now the bill is coming due. The slightest increase in interest rates will trigger a worldwide financial Armageddon. Bugs will be meeting windshields across the world.


A Remote Ranch in Argentina, the Debtberg and Betting Against the Consensus

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Debt Disaster Coming!

In the 1970s, after President Nixon changed the world’s monetary system, your editor was deeply involved in a quixotic, but remarkable, effort to stop the US government from wrecking the country.

After Nixon cut the last link between the dollar and gold – the saving grace of every monetary system since Hammurabi – your editor saw the handwriting on the wall. It said: Debt Disaster Coming!

As director of the National Taxpayers Union, he worked on two major initiatives to stop this disaster from occurring. One was an amendment to the US Constitution. The “Balanced Budget Amendment” would have blocked the feds from running deficits except in times of war or national emergency.

Thirty-two states approved the amendment – two short of those needed to implement it. (Now we see how easily the feds could have gotten around this amendment anyway: We have a state of war all the time!)

The other effort was a lawsuit. On behalf of America’s children, we sued the US government in Bonner v. Baker. The “Baker” was James Baker, who at that time was the US secretary of the Treasury.

National debt was a tax on future generations, we argued. Laying on this sort of inter-generational obligation amounted to taxation without representation and should be banned. The court threw out our suit.

 

Reagan and BakerRonald Reagan and James Baker (who became treasury secretary after Donald Regan switched to the chief of staff position in 1985)

Photo credit: Discovery Channel

 

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A Mountain of Debt and no Growth

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Too Many Geezers

So far, we’ve proposed two reasons why the 21st century has been such a dud …

First … the developed nations are cursed with too many geezers. We have nothing against old people (especially as we hope to be one ourselves all too soon). But old people do not build a new economy; young people do. And today, there are not enough young people to power the kind of economic growth we’ve gotten used to.

Second… rules, regulations, subsidies, laws and orders now protect established financial interests against upstart competitors. Businesses get older along with the population, as government creeps over more and more of the economy.

The feds use monopoly force to prevent competition and reward today’s voters and capital owners. The baby born in 2015 finds himself subject to debts, obligations and restrictions that were meant to benefit his grandparents. Today, we give you another reason for the flop that is the 21st century. As you will see, they are all related…

 

1-2014-3_FR pages_webimage2013Pages in the Federal Register. There was a brief reprieve from over-regulation in the Reagan era, but shortly thereafter the regulatory State went into action again at full blast. Capitalism is slowly but surely asphyxiated, and with it any chance to escape the debt trap is dying with it (chart source: the George Washington University regulatory studies center) – click to enlarge.

 

Caveat Creditor

We begin with this report from Fox Business:

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MEN GO MAD IN HERDS

The Chinese real estate bubble has been imploding for the last year. The Chinese economy is barely growing at 1.6% after decades of 10% growth. There are millions of unoccupied condos. There are dozens of ghost cities and empty office towers. It’s the most corrupt nation on earth. We are in the midst of a global recession.It’s pure madness that the Chinese stock market would soar when its leading economic indicators crash to 2008 lows.

Its stock market has gone up 115% in the last 9 months. It has gone up 80% in the last 5 months. It has gone up 35% in the last month. Housewives and other uneducated gamblers have opened a record 10.8 million new stock accounts this year, more than the total number for all of 2012 and 2013 combined.

The Hong Kong stock market has gone up 14% in three weeks.

Since real estate investing is failing miserably, the Chinese middle class have piled into stocks on margin. Where have I seen that before? Margin debt on the Shanghai Stock Exchange climbed to a record 1.16 trillion yuan on Thursday. When has buying overvalued stocks on margin when the economy is tanking ever gone wrong before? Have we already forgotten 2000 and 2008? Humans truly act like irrational herds of cattle stampeding in whatever direction they are pushed by their keepers.

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The American Dream – Moonshine and Scam

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Infection

When we left you yesterday, we were trying to connect the bloated, cankerous ankles of the US economy to the sugar rush of its post-1971 credit-based money system.

Today, we look at the face of our government. It is older… with more worry lines and wrinkles. But whence cometh that pale and stupid look?

That is also the result of the same advanced diabetic epizootic that has infected American society.

 

sheriff-and-stills-1200Moonshine production facility in the 1920s …

Photo credit: University of Washington Library Digital Collections

Soft and Mushy

After real money and real savings left the economy circa 1971, GDP growth rates fell. Wages atrophied. And now, for the first time in 35 years, American business deaths outnumber business births. The body economic grew soft and mushy – unable to hold itself erect or to stand on its own two feet. Thenceforth, it needed the crutch of increasing credit.

The new credit-based monetary system meant that Americans had less real wealth. But until 2007, they could still get what they wanted by borrowing. Few noticed that they were borrowing from the company store and becoming slaves to their credit masters.

No one ever figured out how to create gold. So, Washington insiders changed the money system in two steps. In 1968, LBJ asked Congress to end the requirement for the dollar to be backed by gold. And in 1971, “Tricky Dicky” ended the direct convertibility of dollars to gold.

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THE REAL REASON THE AMERICAN DREAM IS UNRAVELING

Marketwatch posted an article this week titled Why the American Dream is Unraveling, in 4 charts. As usual, the MSM journalist and the liberal Harvard academic can create charts that reveal a huge problem, but they completely misdiagnose the causes and offer the typical wrong solution of taking more money from producers and handing it to the poor, with no strings attached. This has been the standard operating procedure since LBJ began his War on Poverty 50 years ago. Do these control freaks ever step back and assess how that war is going?

The poverty rate had plunged from 34% in 1950 to below 20% before LBJ ever declared war. It continued down to 15% just as the welfare programs began to be implemented. The percentage of people living in poverty hasn’t budged from the 15% range since the war began. This war has been just as successful as the war on drugs and the war on terrorism. Any time a politician declares war on something, expect a huge price tag and more of the “problem” they are declaring war upon.

The Federal government runs over 80 means-tested welfare programs that provide cash, food, housing, medical care, and targeted social services to poor and low-income Americans. Over 100 million Americans received benefits from at least one of these programs. Federal and state governments spent $943 billion in 2013 on these programs at an average cost of $9,000 per recipient (not including Social Security & Medicare). That is 27% of the total Federal budget. Welfare spending as a percentage of the Federal budget was less than 2% prior to the launch of the War on Poverty.

In the 50 years since this war started, U.S. taxpayers have spent over $22 trillion on anti-poverty programs. Adjusted for inflation, this spending (which does not include Social Security or Medicare) is three times the cost of all U.S. military wars since the American Revolution. In terms of LBJ’s main goal of reducing the “causes” rather than the mere “consequences” of poverty, the War on Poverty has utterly failed. In fact, a large proportion of the population is now completely dependent upon government handouts, incapable of self-sufficiency, and enslaved in a welfare mentality that has destroyed their communities.

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The End is Kind of Nigh

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All Good Things Must End

Today, I’m going to tell you about the end of the world. Not the end of the world exactly. But the end of the fiat money system President Nixon gave birth to in 1971… when he cut the dollar loose from gold.

And it may feel like the end of the world, because of the social chaos it will provoke. What follows is taken from a speech I gave at Doug Casey’s La Estancia de Cafayate …

rorschach (1)

Meet Rorschach, from Alan Moore’s “Watchmen”

 

Drowning in Credit

I’ve been predicting the end of the world – at least the end of the post-1971 monetary world – for a long time. I hope I’m wrong about it. But sooner or later, I’ll be right. In the meantime, I’m like a surgeon who has just botched an operation. He sees the patient stiff on the table and wonders if he should go back to the textbooks. Maybe the anklebone is not connected to the shin bone after all.

But the textbooks are hopeless. They’re written by modern economists. And they believe an economy is mechanistic, not humanistic. These folks have fixes for every problem and wrenches in both hands. They also run our central banks. And they think they know what is going on… and what they’re going to do about it.

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WHO NEEDS FUNDAMENTALS WHEN YOU HAVE THE FED

These two charts tell you all you need to know about how disconnected Wall Street is from reality. Corporate profits are tanking. Consumer spending is tanking. Inflation in the things you need to live your everyday life is rising. Real median household income lingers at levels from 25 years ago. Greece, Portugal, Italy, Spain and Ireland are more insolvent than they were three years ago. The EU is disintegrating. Japan is committing economic hara-kiri. China’s trillions of real estate mal-investment is going bust. The OPEC countries, along with Russia, Brazil and Mexico are seeing their economies destroyed by low priced oil.

The US shale oil boom is going bust rapidly. Without the $500 billion of subprime auto and student loan debt injected into the veins of the American debt drug addicts, the economy would officially be in recession. Instead, recession is only a fact of life for the 99%. This cannot be sustained. So it won’t. At this point, we don’t even need a trigger event. The house of cards is so high, it will tumble just due to its sheer size. Look out below.


BREAKING BAD (DEBT) – EPISODE TWO

‘If you’re committed enough, you can make any story work. I once told a woman I was Kevin Costner, and it worked because I believed it’ – Saul Goodman – Breaking Bad

“As calamitous as the sub-prime blowup seems, it is only the beginning. The credit bubble spawned abuses throughout the system. Sub-prime lending just happened to be the most egregious of the lot, and thus the first to have the cockroaches scurrying out in plain view. The housing market will collapse. New-home construction will collapse. Consumer pocketbooks will be pinched. The consumer spending binge will be over. The U.S. economy will enter a recession.” – Eric Sprott – 2007

In Part One of this article I provided the background of how our current debt saturated economy got to this point of ludicrousness. The “crazy” bloggers, prophets of doom, and analysts who could do basic math were warning of an impending financial crisis in 2006 and 2007, which would be caused by the issuance of hundreds of billions in subprime slime by the Too Big To Trust Wall Street shysters. Subprime mortgages, auto loans, and credit card lines provided the kindling for the 2008 conflagration.

Under normal circumstances we wouldn’t have seen such irrational, reckless, greedy behavior from Wall Street for another generation. But, Wall Street didn’t have to accept the consequences of their actions. They were bailed out and further enriched by their puppets at the Federal Reserve, the lackey politicians they installed in Washington D.C., and on the backs of honest, hard-working, tax paying Americans. The lesson they learned was they could continue to take excessive, reckless, unregulated risks without concern for losses, downside, or consequences.

In reality, the Fed and government have worked in tandem with Wall Street to create the subprime economic recovery. The scheme has been to revive the bailed out auto industry by artificially boosting sales through dodgy, low interest, extended term debt. With the Feds taking over the entire student loan market, they have doled out hundreds of billions to kids who don’t have the educational skills to succeed in college, in order to keep them out of the unemployment calculation.

That’s why you have a 5.7% unemployment rate when 41% of the working age population (102 million people) is not working. The appearance of economic recovery has been much more important to the ruling class than an actual economic recovery for average Americans, because the .1% have made out like bandits anyway. Who has benefited from the $650 billion of student loan and auto debt disseminated by the oligarchs in the last four years, the borrowers or lenders?

Continue reading “BREAKING BAD (DEBT) – EPISODE TWO”

BREAKING BAD (DEBT) – EPISODE ONE

“At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” – Fed chairman, Ben Bernanke, Congressional testimony, March, 2007

“Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich.” – James Grant, Grant’s Interest Rate Observer

The Federal Reserve issued their fourth quarter Report on Household Debt and Credit last week to the sounds of silence in the mainstream media. There were minor press releases issued by the “professional” financial journalists regurgitating the Federal Reserve’s storyline. Actual analysis, connecting the dots, describing how the massive issuance of student loan and auto loan debt has produced a fake economic recovery, and how the accelerating default rates in auto loans and student loans will produce the next subprime debt implosion, were nowhere to be seen on CNBC, Bloomberg, the WSJ, or any other status quo propaganda media outlet. Their job is not to analyze or seek truth. Their job is to keep their government patrons and Wall Street advertisers happy, while keeping the masses sedated, misinformed, and pliable.

Luckily, the government hasn’t gained complete control over the internet yet, so dozens of truth telling blogs have done a phenomenal job zeroing in on the surge in defaults. The data in the report tells a multitude of tales conflicting with the “official story” sold to the public. The austerity storyline, economic recovery storyline, housing recovery storyline, and strong auto market storyline are all revealed to be fraudulent by the data in the report. Total household debt grew by $117 billion in the fourth quarter and $306 billion for the all of 2014. Non-housing debt in the 4th quarter of 2008, just as the last subprime debt created financial implosion began, was $2.71 trillion. After six years of supposed consumer austerity, total non-housing debt stands at a record $3.15 trillion. This is after hundreds of billions of the $2.71 trillion were written off and foisted upon the backs of taxpayers, by the Wall Street banks and their puppets at the Federal Reserve.

The corporate media talking heads cheer every increase in consumer debt as proof of economic recovery. In reality every increase in consumer debt is just another step towards another far worse economic breakdown. And the reason is simple. Real median household income is still below 1989 levels. The average American family hasn’t seen their income go up in 25 years. What they did see was their chains of debt get unbearably heavy. Non-housing consumer debt (credit card, auto, student loan, other) was $800 billion in 1989.

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Gold and Debt: Astonishing Comparisons

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Debt and budgets in the trillions of dollars and euros are difficult to comprehend.  The US budget is nearly $4 Trillion per year while the US official national debt exceeds $18 Trillion.  A single large bank may hold contracts for more than $50 Trillion in derivative contracts.  Global debt is approximately $200 Trillion.

Let’s relate those numbers to gold prices, gold mined each year, and gold mined throughout history.

  • According to McKinsey & Company total global debt as of December 2014 was about $200 Trillion. Although the exact amount of mined gold is unknown, assume that 172,000 metric tons of gold have been mined throughout history.  At 32,151 (troy) ounces per metric ton, that calculates to about 5.5 billion ounces of gold.  If that gold backed the debt at 100%, each ounce of gold would back $36,000 in debt.
  • According to McKinsey & Company, the global debt has increased by about $57 Trillion in the last seven years. In round numbers 3,000 metric tons of gold are mined each year.  The debt increase in the last seven years would equate to gold mined in those seven years at nearly $85,000 per ounce.
  • Official United States national debt increased in the last ten years by about $10.5 Trillion. Assuming the US mines about 200 metric tons of gold per year, the US added approximately $160,000 in debt per ounce of gold mined in the US.

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The Day the ATMs Run Out …

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Receding Tide

Please remember this warning when you go to the ATM to get cash… and there is none! While we were thinking about what was really going on with today’s strange new money system, a startling thought occurred to us.

Our financial system could take a surprising and catastrophic twist that almost nobody imagines, let alone anticipates. Do you remember when a lethal tsunami hit the beaches of Southeast Asia, killing thousands of people and causing billions of dollars of damage?

Well, just before the 80-foot wall of water slammed into the coast an odd thing happened: The water disappeared. The tide went out farther than anyone had ever seen before. Local fishermen headed for high ground immediately. They knew what it meant. But the tourists went out onto the beach looking for shells!

 

atm

The same thing could happen to the money supply: Cash could evaporate suddenly and disastrously – just before we drown in it.

Photo via toastmagazine.net

 

Credit Money

Here’s how … and why:

If you look at M2 money supply – which measures coins and notes in circulation as well as bank deposits and money market accounts – America’s money stock amounted to $11.7 trillion as of last month. But there was just $1.3 trillion of physical currency in circulation – about only half of which is in the US. (Nobody knows for sure.)
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