Posts Tagged ‘U.S. debt’
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
The U.S. government, after winning World War II for the Allies, was very convincing. It told central banks around the world that they should hold the U.S. dollar as their reserve currency instead of gold, based on the idea the U.S. dollar would be backed by gold. Only limited amounts of U.S. dollars could be printed, because the currency was tied to gold bullion. Central banks bought into the idea.
Unfortunately, a few decades down the road, the concept of a U.S. dollar backed by gold was thrown out the window (thank you, President Nixon). Eventually we were introduced to the modern day printing press—printing money out of thin air at the will of the Federal Reserve without the U.S. dollar being tied to any “hard” currency like gold.
Why would anyone agree to this horrible idea?
Back in those days, the U.S. economy was prospering. Our government was in good shape and didn’t have much debt. And the logistics made sense, too, as time passed. Why wouldn’t a central bank have in its reserves the currency of the world’s strongest economy and military? Why wouldn’t a central banker keep U.S. dollars in his vault as opposed to hard-to-carry and hard-to-store gold?
Years have passed since the U.S. dollar “unglued” itself from gold. Things have changed, too. America is not so glorious anymore. Ever-rising debt and the never-ending printing of U.S. dollars have resulted in some countries changing their policy on U.S. dollar-backed reserves. And the fundamental factors that keep the U.S. dollar strong are deteriorating quickly.
The balance sheet of the U.S. economy does not look as good as … Read More
The stock market…a place where rationality has been thrown out the door in favor of trading for immediate profits…profits based on what the government and Federal Reserve are planning to do next. It’s no longer a place for average investors to make money, as the fundamentals that drive key stock indices higher don’t really matter anymore. The notion has become “If it’s good news, buy! And if it’s bad news, then buy even more!”
We have been witnessing this phenomenon on key stock indices for a while now, and from my experience, such erratic behavior by the stock market usually comes at the end of a long up or down cycle.
Congress had decided to “kick the can” of U.S. debt down the road a little longer. When news broke last Thursday that they were planning to increase the U.S. debt limit for a few weeks and then come back to debate it, key stock indices had the best day of the year. Look at the circled area in the chart below:
Chart courtesy of www.StockCharts.com
Hold on a minute!
Why did the S&P 500 jump so much on the Republicans saying they would put in a temporary new U.S. debt ceiling instead of debating it? Isn’t increasing the U.S. debt load bad? After all, we are the biggest debtor in the global economy.
Dear reader, this is the new norm on key stock indices. The bad news, meaning we will have higher U.S. debt, is taken as good news by key stock indices. And assets that should be increasing in value are actually being punished. Case in point: gold … Read More
According to Bank of America Merrill Lynch indices, 30-year U.S. bonds have declined more than five percent so far in 2013. Their decline in January 2013 was 4.3%—the biggest monthly decline since March 2012. (Source: Bank of America Merrill Lynch, February 6, 2013.)
The following is a price chart of the 30-year U.S. bonds—almost looks like a free-fall:
Chart courtesy of www.StockCharts.com
Why are the U.S. bonds prices falling? After all, wasn’t the Fed buying the majority of new U.S. bonds issued, thus pushing down yields? There is no rocket science behind this. The fact of the matter is that U.S. debt has increased significantly over the past four years. Just like you wouldn’t lend money to a person who has lots of debt already and poor job prospects, neither do U.S. bonds holders.
According to the Congressional Budget Office (CBO), the U.S. budget deficit will decrease to $854 billion in the fiscal year of 2013, after it was over $1.0 trillion for the past four years in a row. As the saying goes, “I’ll believe it when I see it.” (The CBO’s numbers do not include any extraordinary events, like interest rates rising, the government having to take a write-down on student loans, natural catastrophes—they left no room for these kinds of events.)
Even if you believe the CBO forecast, this means the “official” U.S. debt will move from its current $16.5 trillion to $17.4 trillion. Looking at U.S. debt in relation to gross domestic product (GDP) paints a worse picture. The $17.4-trillion current U.S. debt would equate to more than 109.3 … Read More
Gold and silver are currently taking a breather on the charts, but if the global risk holds, I wouldn’t be surprised to see a rally in the precious metals this year.
I can see gold breaking to $1,800 an ounce, something that nearly materialized on October 5, 2012, when the price of cash gold traded at $1,795.78 prior to slipping. In fact, the previous time the precious metal was trading above $1,800 was on November 8, 2011. We could see a move above, given the eurozone mess, U.S. debt and fiscal cliff, and the mixed results in China.
Silver is holding at around $30.00 an ounce, but I’m not as bullish on the white metal, as the price is largely driven by the direction of the global economy.
I continue to like gold going forward, given the financial crisis in the eurozone; trust me, it is not going to get better anytime soon…it could even take years. Moreover, with a recession holding in the eurozone, the crisis could deepen and impact the global economy.
Across the Pacific, there are some encouraging signs in China; but prolonged weakness in the eurozone and Europe will negatively impact China along with the other Asian countries, like South Korea, Japan, and the smaller emerging Asian markets.
For those of you who took my advice to hold on and accumulate gold on weakness down to $1,600, it has been a nice ride. In my view, major price weakness should be viewed as an opportunity to accumulate the yellow metal in 2013, unless $1,600 can’t hold.
I favor the metal plays and continue to see opportunities, … Read More
In 2012, small-cap stocks were the second-best performing group, following the technology sector. The Russell 2000 was the top performer in December and has been since the end of the first quarter. How the small-caps fare this year will, again, depend on the global economy.
My stock analysis is that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.
As we move into 2013, the focus will be on any remaining fiscal cliff fallout and the impact of the deal, along with the eurozone mess, the U.S. national debt, and jobs growth.
For 2013, my stock analysis is cautious to start the year, based on the high global risk.
The fact that the economy is triggering some jobs growth is encouraging. My analysis is that this will likely continue in 2013, although the unemployment rate is expected to remain relatively high at over seven percent.
My stock analysis tells me that we need to see leadership from such areas as the financial and technology sectors. The big banks were strong in 2012, but we also need to see technology take a leadership role.
It definitely will be a tricky year, given the global and domestic issues, along with suspect earnings and revenue growth to start the first quarter, which you can read … Read More
I’m worried about U.S. debt (which this morning surpassed $16.3 trillion) and I’m concerned it’s going to increase even further. We all know that, since the financial crisis hit in 2008, U.S. debt has skyrocketed. Now with cities and states across the U.S. struggling with their budget deficit and liabilities, I’m concerned the U.S. government will become the ultimate banker—or, I shall say, bankruptcy trustee—adding more to the U.S. debt in the process.
Cities and states are unable to cope with the budget deficits they have created and are struggling to the point where some have filed for bankruptcy and some are becoming doubtful of their fiscal state. Since 1981, 42 U.S. municipalities have filed for bankruptcy; 10 of them in last four years. (Source: Global Research, July 19, 2012). The cities couldn’t handle their respective budget deficits and were not able to pay their obligations.
On the state front, the Illinois state pension is running out of funds to cover its obligation and the state might need to draw funds from education, infrastructure, and local aid. Illinois is scrambling to deal with $83.0 billion in pension deficits and $8.0 billion in unpaid expenses. (Source: Bloomberg, October 29, 2012.)
With so many cities and states in trouble due to their vast budget deficits, the federal government may need to help them by stepping in and increasing its own budget deficit. Ask yourself this question: the federal government didn’t let too-big-to-fail companies like AIG, Citigroup, and General Motors fail, so won’t it bail out its own cities and states?
Sure, if the fiscal cliff is allowed to happen, personal income taxes … Read More
The outcome of Tuesday night will be critical not only for the direction of the country on both the political and economic front, but also on the direction of foreign policy.
The latest national poll by CNN has the race to the White House at a dead heat, with Obama at 48% and Romney at 47%. In the key Ohio race, support for Obama has fallen from 52% on October 2 to the current 50%, but that two percent could be enough to win back the White House.
At this point, I don’t really care who wins, but something will need to be done about job creation, the $16.2 trillion in U.S. debt, and the pending “fiscal cliff.”
Whether you are a Democrat or a Republican, you know that we need job creation. The October non-farm job creation report showed 171,000 new jobs, which was better than expected; but there is a long way to go, as the job creation reading is too low to drive the unemployment rate down. The unemployment rate is well below the four-percent level in 2006 and 2007.
Obama and Romney have different strategies for lowering the unemployment rate and driving job creation. While Obama wants to extend the Bush-era tax cuts to those making under $250,000 a year, which represents the majority of working Americans, Romney wants the cuts to apply to all income earners. While I’m not here to take a side, the … Read More
When consumers are cautious, they tend to hold back on any major purchases, such as homes, vehicles, furniture, appliances and travel, to list a few. This will impact spending and gross domestic product (GDP) growth and the ability of companies to expand their businesses and hire new employees, according to my market view.
Consumer confidence in May was another disappointment, with a reading of 64.9. This was below the estimate of 69.4 and the downwardly revised 68.7 in April. The reading is at a multi-year low. To tell you how bad the readings are: economists suggest a reading of 90 indicates a healthy economy, something that has not happened since December 2007 when the recession began. My market view is that it will be some time until the confidence reading heads back towards the pre-recession reading level of 90. This cannot be good.
And, while home building and permits are much improved, the critical home prices continue to fall, which I discussed in Homebuilders Show Improvement, But Stay Selective. The Case-Shiller 20-city Index contracted another 2.6% in March, following a 3.5% decline in February. Lower home values translate into less home wealth and less desire to spend until the situation improves, based on my market view. A strong housing market is important in many ways; for example, homeowners buy new furnishings, including many big-ticket items. This is not happening; home prices continue to decline, dragged down by continued high foreclosures and short sales where homes are dumped at prices below mortgage value.
My market view is that, to drive the economy, consumers need to spend. We have historically … Read More
The debt and growth problems in the eurozone continue to dominate the headlines. The eurozone countries are looking at the impact of Greece exiting the 17-country eurozone. Greece can’t even elect a coalition government to deal with the austerity measures.
Now there’s news that the eurozone is continuing to slide. Not really a surprise. The eurozone composite Purchasing Managers’ Index (PMI) contracted to 45.9 in May, the lowest level since June 2009, and below the 46.7 reading in April. It was also the ninth time the PMI was below the neutral 50 level since June 2009. The reading clearly indicates that growth will be challenged.
France is stalling. Germany, the largest and most influential country in Europe, expanded at a muted 0.5% in the first quarter. Moreover, declining inventories suggest less demand for goods. The problem is that the weakened countries of Germany and France are not conducive to economic recovery in the eurozone. You will discover over time that this is true.
My concern is that the fragility of the eurozone impacts the global economies that trade with the region. The 27-nation European Union is clearly feeling the pinch. Britain just entered its second recession since the financial crisis in 2008, impacted by the sluggishness in the eurozone. Britain saw its gross domestic product (GDP) contract 0.3% in the first quarter following a 0.2% decline in the fourth quarter. The country continues to face budgetary concerns and, without higher exports to drive revenue income, Britain will continue to face hardship this year and into 2013.
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