Posts Tagged ‘national debt’
The savings of 500 million individuals living in the European Union are on the line.
Let me explain:
We all know Cyprus, one of the smallest countries in the eurozone and part of the European Union, went through what many feared. To save itself from default and pay down its out-of-control national debt, the government imposed a one-off capital levy on the bank accounts of individuals in that country. If you had more than a certain amount of money in your savings account, the government outright confiscated a portion of it.
Poland, another European Union country, did something very similar. In an effort to reduce its national debt, the government took assets from private pensions and made them public. (This incident never even made the big mainstream headlines.)
When these events took place, I started writing how this would be a new trend—governments would find new and crafty ways to take money from savers in their efforts to make the governments’ dire conditions better, be it for paying off their national debt or bailing out banks.
Now, we learn of documents from a European Union official stating more of the same is on the way. The savings of the individuals in those countries will be used to fund the countries’ long-term investments and reduce the gap that the region’s banks have created by pulling back on their lending.
The document, revealed by Reuters, said, “The Commission will ask the bloc’s insurance watchdog in the second half of this year for advice on a possible draft law to mobilize more personal pension savings for long-term financing.” (Source: “EU executive sees personal … Read More
“Michael, you don’t know what you are talking about.” That’s pretty much what I was told back in 2005 and 2006 when I was warning extensively that the U.S. housing market would collapse.
When a boom in any form of investment is going on, and millions of people are participating in that boom, it’s hard to convince people the boom is about to bust. At a certain point, we start hearing that old saying “it’s different this time,” which means people simply don’t believe the boom will end. They try to legitimize it.
But like all booms, the bust did happen. The housing market went bust big-time, and we all know what happened after that.
Today, there’s another asset class that is booming, that investors large and small are literally running to. No, I’m not talking about the stock market (it’s already in bust mode). I’m talking about the greenback, the good old U.S. dollar.
In recent days, and despite trillions of dollars in new money created by the Federal Reserve, the U.S. dollar has gained traction as investors search for safety amid the collapsing emerging markets.
Personally, I think investors are wrong to find security in the U.S. dollar. In fact, I see its days as the leading currency of the world being numbered.
But the fundamentals that make the dollar a “safe haven” are damaged. Aside from the fact the Federal Reserve has printed trillions in new money and the government continues to take on never-to-be-repaid debt daily, central banks around the world are reducing the amount of the reserves they keep in U.S. dollars.
Please look … Read More
What the Federal Reserve is doing in the U.S.—its effort to get the economy going via its money printing program—has already been tried by the second-largest economy in the world: Japan.
Unfortunately, the easy monetary policy implemented by the Bank of Japan didn’t spur the Japanese economy. So why would it work for the U.S. economy?
One of the core purposes of easy monetary policy by the Federal Reserve was to improve lending so businesses would borrow money and grow (hopefully creating jobs) and consumers would borrow and spend (creating economic activity). All of this would lead to improved consumer confidence.
The Bank of Japan started a scheme to increase lending in Japan in 2010. It gave funds to its biggest banks to lend to companies. It set aside 21.5 trillion yen for this scheme; but sadly, only 8 trillion yen has been used. (Source: Reuters, October 17, 2013.) Easy money policies, and a program specially designed to give money to banks to lend out to companies, did not work in the Japanese economy.
And consumer confidence in the Japanese economy remains bleak. The index that tracks consumer confidence in the country stood at 41.9 in November. At the beginning of the year, it hovered near 45.0. A subset of consumer confidence, an index tracking consumers’ willingness to buy durable goods, stood at the lowest level of the year in November at 42.4 compared to 44.9 in January. (Source: Japan’s Cabinet Office, December 10, 2013.) The bottom line: after years of easy money policies and with a national debt-to-GDP multiple of 205%, there’s been no improvement in consumer confidence … Read More
Then something happened that I thought was strange.
We started circling in the air. Not once or twice, which is common when air traffic gets congested, but we circled for what seemed to be 20 to 30 minutes. I told my wife, “Something is up. I wish the captain would come back on and tell us what’s going on.”
And finally that announcement came. The captain came on and said, “Ladies and gentleman, as you probably know, we have been circling up here for the last little while.”
The captain then proceeded to tell us President Obama had left the Miami airport on Air Force One within the last hour or so, and when that happens, commercial airlines are not allowed to take off or land for a specific amount of time. We were stuck in the backlog of flights trying to land because Air Force One had recently taken off.
The next day, I heard on the news that President Obama was in Florida the night before for Democratic fundraisers and to play golf on Saturday morning.
This got me thinking and researching.
Air Force One costs approximately $200,000 per hour to operate. (Source: USA Today, May 22, 2012.) But that doesn’t include the cost of lost productivity for the thousands of business people who are often delayed when Air Force One travels (or the thousands of tourists who are inconvenienced).
According to Kiplinger Washington Editors, … Read More
Can you believe the mainstream headlines these days? I’m reading about the Dow Jones Industrial Average going to 19,000… I’m reading that stocks are rising because the amount of stocks for investors to buy has diminished…
It’s all rubbish!
The chart below of the Dow Jones Industrial Average breaking above 16,000 makes it look like people just woke up the morning of November 18 and said, “I need to rush out and buy stocks today!”
In my opinion, we are looking at the biggest bear market trap we’ve ever seen. The year 2008 is a distant memory. The notion of fear of “missing out” is back.
Investors are pouring billions into stocks…
Chart courtesy of www.StockCharts.com
According to the Investment Company Institute, long-term U.S. equity mutual funds had a net inflow of $5.4 billion for the week ended November 6. In the prior week, which ended on October 30, investors bought $4.2 billion worth of long-term U.S. equity mutual funds. (Source: Investment Company Institute, November 13, 2013.)
As investors are pouring back into stocks, the fundamentals that drive the key stock indices are dissipating. Each day, we hear weak economic news, which suggests key stock indices are moving beyond reality. And the disparity between the performance of key stock indices and the most basic fundamentals continues to grow.
Corporate earnings of companies in key stock indices are very weak. The corporate earnings “surprise” rate (this is the rate that shows how much higher or lower corporate earnings were registered) came in at 1.8% in the third quarter—far below the four-year average of 6.5%.
S&P 500 companies posted an increase in … Read More
For its fiscal year (ended September 30, 2013), the U.S. government posted a budget deficit of $680 billion…that’s after four years of annual trillion-dollar budget deficits. And with the onset of a new fiscal year, the trend continues. (There are projections the U.S. government will have a budget deficit each year until at least 2038.)
The Department of the Treasury’s Bureau of the Fiscal Service reported the U.S. government registered a budget deficit of $92.0 billion in the first month of its fiscal year 2014 (October 2013). The government’s revenues were $199 billion, and its spending amounted to $291 billion. (Source: Bureau of the Fiscal Service, Department of the Treasury, November 13, 2013.)
As a result of continuous budget deficits, the national debt has skyrocketed to $17.0 trillion, and with the crises that are currently taking place in the U.S. economy—municipal bankruptcies, soaring pension liabilities, and student debt delinquencies—I expect it to go to $34.0 trillion.
On the other hand, there’s the Canadian government. According to its most recent economic and fiscal projection, it expects to have a budget surplus (when revenues are more than expenses) by its fiscal year 2015-2016. It then plans to use this surplus to start paying off the small national debt it has accumulated. (Source: Department of Finance Canada, November 12, 2013.)
Note the difference: while the U.S. government expects to post budget deficits for a very long time to come, Canada—a major player in the global economy—is very close to a budget surplus.
If the U.S. government continues to follow the same trajectory (spending more and borrowing more), it’s not sustainable in the long … Read More
The mainstream and politicians tell us the “wounds” of the financial crisis are over and the U.S. economy is in recovery mode. This simply isn’t true.
A few of the key indicators I follow to see where an economy stands are personal income, consumer demand, and businesses’ activity. All three of these indicators are telling me the U.S. economy is definitely going in the wrong direction.
First of all, the income gap in the U.S. economy continues to grow. The top earners make more, while the lowest income earners make less. According to the Wage Statistic from Social Security, in 2012, 23 million of the lowest wage earners earned a total of $47.0 billion in the U.S. economy. But those who earned $10.0 million or more annually in the year 2012 earned $64.3 billion! Here comes the kicker: there were only 2,915 wage earners in this category in the U.S. economy last year. (Source: Social Security, November 5, 2013.) Yes, you read that right. Less than 3,000 people cumulatively made more than 23 million people.
The bottom line: while Wall Street and big business has boomed again, the average working American family is struggling under an after-inflation personal income that is lower than it was in 2009—four years ago. In 1999, real median household income (that’s adjusted for inflation) in the U.S. economy was $56,030. By 2012, that number was $51,017. (Source: “Real Median Household Income in the United States,” U.S. Department of Commerce, September 18, 2013.)
Next, American consumers are pulling back on their spending—something that’s not supposed to happen when an economy is recovering.
One indicator of consumer … Read More
We have seen cities like Detroit and others in California tell their municipal bonds investors, “Sorry, we can’t pay you.” The reason behind this? Their budget deficit was out of control, they reached the breaking point, and they filed for bankruptcy.
But the troubles of municipalities and cities aren’t behind us. In fact, they are marching forward with full force. And it’s not just rural cities and counties that are struggling to fix their budget deficit; major ones are doing the exact same thing. And truth be told, they are failing at it.
Take Fresno, California, for example. In the fiscal year 2014—which began on July 1, 2013 and ends on June 30, 2014—Fresno, one of the largest cities in California, will register a budget deficit of $6.0 million. If the city is unable to reduce its budget deficit in the fiscal year 2014, then its budget deficit can grow to as much as $32.2 million in the next five years. (Source: “FY 2014 Adopted Budget,” City of Fresno, California, May 29, 2013.)
And Fresno has worked very hard to keep its budget deficit under control. In the last four years, the city has decreased its workforce by 1,200 employees (25% of the city’s workforce), reduced or completely eliminated the maintenance and replacement of equipment, and now relies on volunteers for parks maintenance, community centers, and for different functions in the police department. The city has also reduced the number of employees working in public safety. One would assume that after this many cuts, the budget deficit would be controlled; but that’s certainly not the case for Fresno, California.
While … Read More
The U.S. Department of the Treasury has reported that for the federal government’s fiscal 2013 year, which ended on September 30, 2013, the U.S. government budget deficit was $680 billion—the smallest budget deficit in five years. (Source: Bureau of the Fiscal Service, October 30, 2013.)
Should this be taken as great news? No, it’s “smoke and mirrors,” as I will explain below. But the mainstream certainly thinks this year’s budge deficit, which came in below $1.0 trillion, is good news. They forget that no matter how you look at it, any budget deficit, no matter how small or large, is adding to a bigger problem at hand—our massive national debt.
Let’s face it: a budget deficit at the end of the day means the government spent more money than it received. Where does this extra money that the government spends come from? The answer is simple: it borrows. And as a result, the national debt rises.
Our national debt has increased significantly over the past few years. At the beginning of 2008, the U.S. national debt stood at $9.2 trillion. Today, it stands above $17.0 trillion. (Source: Treasury Direct web site, last accessed October 31, 2013.) This represents an increase of almost 85% in the national debt in the matter of a few years.
I believe the national debt will double from here…from $17.0 trillion to $34.0 trillion.
Why am I so negative on the national debt? I’m skeptical because I don’t believe this year’s numbers present the real story on government spending. Let me explain…
In the fiscal 2013 year, the U.S. government paid … Read More
At the very core, this U.S. government shutdown means that about one million federal employees will be told to go home without pay. Non-essential services will be stopped until further notice. This will be mainly due to a lack of funds. (Source: Committee for a Responsible Federal Budget, September 24, 2013.) National parks will be closed; museums will be shut along with many other services.
What government services will be available? Social security and the Medicare payments will be sent out to those who already rely on it. For those who are applying for it during the U.S. government shutdown, they will not have their applications processed for the time being.
As bad as all of this may sound, this U.S. government shutdown isn’t the first one we’ve seen. Since 1976, there have been 17 instances when the U.S. government wasn’t able to come to a decision on funding. Mind you, many U.S. government shutdowns only lasted over the weekend, so their effects were minimal. The last two long U.S. government shutdowns were 17 years ago and they lasted a total of 27 days. (Source: Ibid.)
With all this, there are many different opinions. With so many people sent home, the U.S. government shutdown is an immediate money-saver. But on the other hand, those who aren’t getting paid are likely pulling back on spending and that will affect gross domestic product (GDP) growth for the U.S. economy.
As all this happens, I stay far away from making political predictions, as after all, that’s all we are dealing with here—two political parties pitted against each other resulting in a U.S. government … Read More
I often write about the crisis faced by the municipalities, cities, and states across the U.S. as they continue to register budget deficits year after year. Cities like Detroit and others in California have already filed for bankruptcy. When all of this was happening, I kept asking: when will the U.S. government bail out the troubled cities?
Well, it’s started to happen…
The U.S. government will be giving the city of Detroit $150 million for “demolition and redevelopment purposes.” In addition, it will also provide the city with almost $140 million to better its transit system. Another $25.0 million will be granted to the city to assist in its streetcar project. (Source: Newsmax, September 27, 2013.)
The economic situation for “Motor City” has gone from bad to worse. But I ask one question: if the U.S. government “helps out” Detroit, won’t other cities struggling with a budget deficit feel shortchanged? After all, they are in dire need of money too!
Take San Jose, for example. The city has been posting a budget deficit since the 2002-2003 fiscal year. The cumulative budget deficit since then to now has accumulated to a total $680 million. (Source: San Jose’s Mayor Office web site, last accessed September 30, 2013.) And it just doesn’t end at the city level. States have also been caught in the same budget deficit trap.
Credit rating firm Fitch Ratings, in assigning a revised credit rating to Connecticut, said, “The Negative Outlook reflects the state’s reduced fiscal flexibility at a time of lingering economic and revenue uncertainty. The enacted budget for the new biennium delays repayment of deficit borrowing, adds … Read More
I want to share with my readers a chart that I find very interesting. The chart below (courtesy of our research group) compares the number of Americans on food stamps since the so-called recovery began in the S&P 500.
As you can see for yourself, they are following the same trajectory! Our research shows that since late 2009, for every one-percent increase in food stamps usage in the U.S., the S&P 500 increased two percent!
Yes, food stamps usage has skyrocketed in this country. In October of 2009, there were 37.67 million Americans using some form of food stamps. In June of this year, that number reached 47.76 million people! (Source: United Stated Department of Agriculture web site, last accessed September 26, 2013.) This is an increase of more than 10 million Americans using food stamps in just four years.
During the same time, the S&P 500 has increased from around the 1,000 level to above 1,600—an increase of more than 55%.
This is very troublesome. And it’s a black-and-white example of how the rich (those buying stocks) are getting richer in this country, while the poor (those who can’t afford to buy stocks) are getting poorer.
An average American would think we should not be seeing the poor getting poorer when our government is spending rigorously and our central bank is printing $85.0 billion a month in new money—all in the name of economic growth. After all, doesn’t economic growth mean the standard of living improves for everyone?
The reality is simple: the Fed’s action of aggressively creating trillions of dollars in new paper money is helping the rich … Read More
Based on the record stock market highs in September and the lack of a follow-through, the stock market looks somewhat exhausted at this time. This is not to say that the upside potential for the remainder of the year is gone, but I do believe it is fairly limited, given the advance so far.
As we soon move into the fourth quarter, I expect the investment climate will get a whole lot more interesting, especially in the month of October.
At this juncture, I’m feeling cautious towards the stock market. Like many other traders and investors, I don’t like it when there are so many uncertainties waiting to be addressed.
In fact, the third-quarter earnings season makes me nervous. (Read “How Easy Money Is Hiding the Real Problems in Corporate America.”) Based on the gross domestic product (GDP) growth and the Federal Reserve’s recent announcement to continue buying bonds, you have to wonder how corporate America will not be impacted.
As I have said numerous times in the past, the four-year rally from the March 2009 lows was largely pushed higher by the Fed’s quantitative easing, not solely on economic or corporate results. The economy is clearly better off now than it was in 2008, but the country is also straddled with a massive national debt that needs to be resolved, which is why we could see a forced government shutdown in a few weeks if the two parties cannot agree on a resolution by the October 1 debt limit deadline. We have nearly $17.0 trillion in debt that needs to be dealt with.
The Fed also needs … Read More
The “Bernie” Madoff name became famous while the stock market was falling during the credit and financial crisis. He was responsible for running one of the biggest Ponzi schemes in U.S. history—if I recall correctly, it was a $65.0-billion scheme. But as the scam got bigger, Madoff couldn’t go on. He was caught, prosecuted, and sentenced to more than 100 years in jail.
What did we learn from the Madoff ordeal? At the very least, we learned Ponzi schemes eventually become impossible to hide, no matter how smart and cunning the perpetrator.
Wednesday of this week, we learned that the Federal Reserve’s Ponzi scheme of printing paper money and giving it to the government via the purchase of U.S. Treasuries will go on.
While the Fed says it wants to keep the “stimulus” going until the economy gets better, as I have written in these pages many times, the Fed cannot stop printing because if it did stop, three things would happen: 1) the stock market would collapse; 2) housing prices would fall; and 3) the government would have no real buyer for its debt (especially in light of China and Japan pulling back on buying U.S. Treasuries).
Madoff’s $65.0-billion Ponzi scheme is nothing when I look at the U.S. national debt figures. While it looks like we are beyond the point of no return, our national debt level would have to double from $17.0 trillion to $34.0 trillion before our debt-to-gross domestic product (GDP) ratio matches that of Japan. (And don’t for a moment think that’s not going to happen!)
In 2011, only two years ago, we heard Congress … Read More
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