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Lasting Debt

“Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008. “They are opportunities to do big things.”

Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT] Photo credit: Ashlee Rezin / Sun-Times

At the time of his remark, Emanuel was eager to exploit the 2008 financial crisis to raid the public treasury. With the passage of the American Recovery and Reinvestment Act in February 2009, Emanuel’s wish was granted. The Obama administration had the opportunity to do big things.

Politically, the passage of the Recovery Act was a huge success. Washington was able to dole out funds to their preferred projects like never before. What could be better for a Congressman than to direct massive amounts of funds to infrastructure, healthcare, energy, security, law enforcement, and just about everything else?

Some Congressman even directed money to bridges and buildings that were then named after them. No doubt, this flattered their egos. But what it really did was memorialize their political swindle.

Economically, the Recovery Act was a great big dud. The money was frittered away without producing any lasting wealth. However, it did produce lasting debt. Since the Recovery Act’s passage, the U.S. national debt has nearly doubled from roughly $10.6 trillion to nearly $20 trillion.

…click on the above link to read the rest of the article…

ECB – Draghi & Tapering

September 4, 2017

ECB – Draghi & Tapering

The European Central Bank (ECB) is expected to begin reducing its bond purchases gradually tampering its stimulation program of Quantitative Easing (QE). Nevertheless, reliable sources tell of the ECB being extremely cautious fearing what will happen if buyers do not appear and rates begin to rise sharply. The difference between the ECB and the Fed is stark. The ECB owns 40% of Eurozone government debt. The Fed does not even come close.

Obviously, the European financial markets have become addicted to the unprecedented inflow of cheap money even though there has been no appreciable rise in economic growth or inflation as was expected. This raises the question only asked behind the curtain: Will the economy spiral downward if QE ends? The Fed never reached the levels of ECB’s QE program so there is no comparison with the States.

The ECB expects to gradually lower the constant QE purchases of government debt in the Eurozone, which has really kept the governments on life-support. In part, this is why Macron is pushing to federalize Europe in its budgetary and financial markets. There is a fear that there will be severe distortions on the exchanges in the months ahead. What is hoped is that the Euro will decline and make the difficult weaning more tolerable by increasing exports and creating inflation. A lower currency will help to stimulate the Eurozone whereas a rising currency will only add to the deflationary pressures.

The ECB will most likely allow bonds to simply mature rather than sell them back to the marketplace. Any news of the ECB actually selling bonds would send a wave of panic through the European markets. Thus, the only practical way to approach this is to (1) reduce purchases and (2) allow current holding to mature and hopefully they money will be reinvested by the private sector.

…click on the above link to read the rest of the article…

When Assets (Such as Real Estate) Become Liabilities

December 27, 2016

When Assets (Such as Real Estate) Become Liabilities

December 27, 2016

It will be the middle class that accepted the notion that “real estate is the foundation of family wealth” that will be stripmined by higher taxes on immobile assets such as real estate.

Correspondent Joel M. submitted an article that struck me as a harbinger of the future: In Greece, Property Is Debt:

“At law courts throughout Greece, people are lining up to file papers renouncing their inheritance. Not necessarily because some feckless uncle left them with a pile of debt at the end of his revels; they are turning their backs on what used to be a pillar of Greece’s economy and society: real estate.

Growing personal debt, declining incomes and ever higher taxes as Greece’s depression grinds on have turned property and the dream of easy money into dread of a catastrophic burden.

After many years in which only very valuable properties were taxed, many Greeks went from paying almost no taxes on real estate to not having enough money to pay.

In 2010, property taxes accounted for 0.26 percent of gross domestic product, while this year they are around 2 percent, according to state budget figures. ‘Suddenly, the state treated the Greeks as if they were rich, at the precise moment that they ceased to be rich.’

Among the many disruptions of the past few years, this one shows how traditional conceptions — and a sense of security — can be shattered. With a history full of wars, bankruptcies and rampant inflation, Greeks had always seen land as a haven.

But it is private debt — at 222 billion euros last year — that may prove an even greater danger. This shows in government revenues. With the unified tax, ownership of every kind of property is now subject to taxation.

…click on the above link to read the rest of the article…

Essential history: ‘Forever debt’ Federal Reserve system invented to pay interest without ever ever ever repaying debt – definition of ‘Ponzi scheme’

February 26, 2016

Essential history: ‘Forever debt’ Federal Reserve system invented to pay interest without ever ever ever repaying debt – definition of ‘Ponzi scheme’

Posted on February 25, 2016 by Carl Herman

Ponzi scheme: criminal fraud of paying existing “investors” only and always from new “investors.” Collapse occurs without new “investors” and/or existing “investors” panic to cash-in.

The US Federal Reserve is based on the 1694-created Bank of England because this model allows government finance with debt that is never meant to be repaid. It is an “investment” model that pays interest guaranteed through tax collection. Its invention was to finance England’s government and military in a history of continuous centuries of war.

It’s cleverness allowed British finance to fund a short-term empire over rival European powers.

Although we can appreciate this historical manipulation, this is a Ponzi scheme because the system collapses without new “investors” of government debt securities.

This Ponzi scheme model is our US Federal Reserve System today:

not “US Federal” but admitted privately-owned,
without “Reserve” other than creating what is used for money out of nothing,
not a “System” but literal criminal fraud because it doesn’t create its claimed “monetary supply,” but the Orwellian opposite of a “debt supply” that is adding negative numbers forever.

US Treasury securities of bills, notes, and bonds continuously mature and must be repaid if the owner chooses to cash-in rather than renew the debt security. The US federal government debt is now $19 trillion, having risen over a trillion each year of the Obama administration.

This amount of total debt compared with ~100 million US households means that the average US household of ~$50,000 annual income owes ~$190,000 each should investors withdraw from this US government funding scheme. If your household income is more than $50,000, then use this ratio to estimate your share for repayment; for example, a $150,000 annual family income would owe $570,000 if US Treasury holders requested repayment rather than continue rolling-over their loans to the US government.

…click on the above link to read the rest of the article…

The Damage Has Been Done And The Consequences Will Be Suffered: “Have a Healthy Storage of Food, Precious Metals and Necessary Supplies”

January 1, 2016

The Damage Has Been Done And The Consequences Will Be Suffered: “Have a Healthy Storage of Food, Precious Metals and Necessary Supplies”

While the band plays on and Americans celebrate New Year’s many have no idea what may be in store in 2016. Mainstream financial pundits like to paint a rosy picture of the current economic conditions, suggesting that the government’s green shoots of yesteryear have now turned to full blown money trees, wherein consumers are spending, businesses are selling and everyone has an unlimited flow of cash.

But as noted by analysts at CrushTheStreet.com in their latest video report, “what we have become accustomed to in terms of normal is rapidly coming to an end.”

Indeed, with the Federal Reserve recently having raised interest rates, corporate bond markets starting to crack, and abysmal sales numbers over the holiday season, 2016 could very well spell disaster for financial markets, including government bonds.

So serious is the potential destruction to come that, according to the report, you’d better be ready with an alternate monetary mechanism of exchange such as gold or silver, as well as food and other stockpiles to mitigate supply disruptions and shortages.

Watch Perfect Storm Market Collapse courtesy of Crush The Street:

What we have become accustomed to in terms of normal is rapidly coming to an end… the global monetary experiment is literally bursting at the seams.

…

The economy is more dependent now than ever on the circulation of increasing systemic leverage.

…

The damage has been done and the consequences will be suffered… A loss of faith in the dollar will be a loss of faith in credit… and when perceived value in credit is lost, prices in the bond markets will collapse… Already we are seeing bonds outside of government debt implode.

…click on the above link to read the rest of the article…

Money is also Perishable – Debasement & Devaluation Easier than Taxing or Defaulting

November 2, 2015

Money is also Perishable – Debasement & Devaluation Easier than Taxing or Defaulting

QUESTION: Martin; Why in the world anyone would invest in government debt when they all default in the end?

ANSWER: Honestly, most people are oblivious to the fact that government always default in modern times. Jean Baptiste Say took the position that a rational businessman will never hoard money because of inflation and he will promptly spend any money he gets “for the value of money is also perishable.” (A Treatise on Political Economy, Book I Chapter XV; 1803 id/138–9). Before modern times, money was ALWAYS debased or devalued as a means of paying expenses. It was easier to do this even under using metal for coins than to tax or borrow.

In the modern era, the Princes of Europe began to borrow money and quickly learned to imprison and default on their bankers.It was Edward I of England who borrowed from the Jews and when he could not repay, he suddenly discovered they were Jewish and banned them from England while not allowing them to take property.

Honestly, it is just insane. They do not do their research and governments are always responsible for creating wars and destroying the savings of the people. Even Adam Smith in his 1776 Wealth of Nations expressed it best.

We are just fools. We insanely believe that we can replace one politicians with another and something will really change. The ONLY possible way to achieve change is to change the very system of how government functions. Until we are prepared to do that, suck it up for your future belongs to the madness and corruption of politicians.

Look Out Below: Corporate Debt In Emerging Markets Has QUADRUPLED Since 2004

September 30, 2015

Look Out Below: Corporate Debt In Emerging Markets Has QUADRUPLED Since 2004

Debt has skyrocketed globally. And see this.

Governments have – of course – dramatically increased their debt since 2008 to fund questionable actions.

But 141 years of history shows that excessive private debt in and of itself can cause depressions.

American corporations are piling on record amounts of debt. And see this.

Private debt has also gone absolutely ballistic in China recently.

But it’s not just the U.S. and China …

The Telegraph reports today:

The International Monetary Fund (IMF) … said corporate debts in emerging markets ballooned to $18 trillion (£12 trillion) last year, from $4 trillion in 2004 as companies gorged themselves on cheap debt.

It said the quadrupling in debt had been accompanied by weaker balance sheets, making companies more vulnerable to US rate rises.

What could possibly go wrong?

The Massive Debt Bomb is Going to Explode: “We Are Reaching a Limit”

September 11, 2015

The Massive Debt Bomb is Going to Explode: “We Are Reaching a Limit”

debt-slavery

Debt now defines us.

Personal and household debt is at unprecedented historical levels. Many Americans are stretched many times past their limit with no hope of getting out of the black.Student loan debt is its own huge bubble, waiting to burst, and perhaps big enough to trigger another crisis in its own right. Dozens of states and cities are on the verge of default, as are places like Puerto Rico.

Then there’s federal government debt. The next round of drama in the debt ceiling charade is coming up this fall. Partisan politics will be showcased, and programs targeted for cuts, before Congress once again rubber stamps putting the country into further rounds of endless debt. The Fiscal Times reports:

In July, Lew warned Congress that the government’s use of “extraordinary measures” to continue to finance the government on a temporary basis without breaching the current $18.1 trillion debt ceiling would last through Oct. 30.

Fears of provoking yet another debt ceiling crisis that would threaten a first-ever default on U.S. borrowing have hung over Washington for months.

The American people will never escape this debt, and it may even cause another government shutdown/showdown.

How bad will it really get? What will happen if individuals and governments just can’t make payments?

Will America ever be like Greece, Argentina or other unfortunate nations?

USA Watchdog’s Greg Hunter speaks with David Morgan of Silver-Investor.com about the impact of the massive debt bomb looming over all our heads:

The main problem America and the world has is what Morgan calls “the debt bomb.” He says the debt is at the center of the black hole of our problems. Morgan explains, “We are reaching a limit. All systems reach a limit. No tree grows to the sky.”

…click on the above link to read the rest of the article…

Cash as a Policy Tool – An Interview with the Hon. Dr. Harald Malmgren

September 6, 2015

Cash as a Policy Tool – An Interview with the Hon. Dr. Harald Malmgren

The Hon. Dr. Harald Malmgren, Chief Executive of Malmgren Global, advises governments and companies on international trade and investment. A former senior aide to US Presidents John F. Kennedy, Lyndon B. Johnson, Richard Nixon and Gerald Ford and to Senators Abraham Ribicoff and Russell Long, US Senate Committee on Finance, he is a frequent author of articles and papers on global economic, political and security affairs.

E. Tavares: Prof. Malmgren, it is a pleasure and a privilege to be speaking with you today. We would like to talk about cash – the actual bills and coins – as a policy tool, something which is not often discussed. Before we get into that, what are the main developments you are seeing in the transactional space around the world?

H. Malmgren: Banks in the US and Europe are trying to develop a cashless transactions system. The concept is to establish a comprehensive ledger for a business or a person that records everything received and spent, and all of the assets held – mortgages, investment portfolios, debts, contractual financial obligations, and anything else of market value including pleasure boats, automobiles, and other machinery. There would be no need for cash because the ledger would tell you and anyone you were considering a transaction with how much is available and would be transactable at any specific moment. Any purchase, past or recent could be found and details provided whenever such information was sought. Governments would very much like such ledgers to exist because they could view everything that is taking place financially in real time, including ability to evaluate net worth, patterns of spending and of earned and unearned income, and of course, an instant assessment of all taxable activities.

…click on the above link to read the rest of the article…

Why we need to lie to ourselves about the state of the economy

August 30, 2015

Why we need to lie to ourselves about the state of the economy

Since 2007, global debt has grown by US$57 trillion, or 17 per cent of the world’s gross domestic product. Photo: Louie Douvis

Like the characters in Samuel Beckett’s Waiting for Godot, the world awaits the return of wealth and prosperity. But the global economy may be entering a period of stagnation.

Over the last 35 years, the economic growth necessary to increase living standards, increase wealth and manage growing inequality has been based increasingly on rising borrowings and financial rather than real engineering. There was reliance on debt-driven consumption. It resulted in global trade and investment imbalances, such as that between China and the US or Germany and the rest of Europe.

Everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road.

Citizens demanded and governments allowed the build-up of retirement and healthcare entitlements as well as public services to win or maintain office. The commitments were rarely fully funded by taxes or other provisions.

The 2008 global financial crisis was a warning of the unstable nature of these arrangements. But there has been no meaningful change. Since 2007, global debt has grown by US$57 trillion, or 17 per cent of the world’s gross domestic product. In many countries, debt has reached unsustainable levels, and it is unclear how or when it is to be reduced without defaults that would wipe out large amounts of savings.

Imbalances remain. Entitlement reform has proved politically difficult. Financial institutions and activity dominate many economies.

The official policy is “extend and pretend”, whereby everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road. The assumption was that government spending, lower interest rates and supplying abundant cash to the money markets would create growth. While the measures did stabilise the economy, they did not lead to a full recovery. Instead, they set off dangerous asset price bubbles in shares, bonds, real estate and even fine arts and collectibles.

Krugman’s Dopey Diatribe Deifying The Public Debt

August 23, 2015

Krugman’s Dopey Diatribe Deifying The Public Debt

Actually, dopey does not even begin to describe Paul Krugman’s latest spot of tommyrot. But least it appear that the good professor is being caricaturized, here are his own words. In a world drowning in government debt what we desperately need, by golly, is more of the same:

That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.

Yes, indeed. There is currently about $60 trillion of public debt outstanding on a worldwide basis compared to less than $20 trillion at the turn of the century. But somehow this isn’t enough, even though the gain in public debt——-from the US to Europe, Japan, China, Brazil and the rest of the debt saturated EM world—–actually exceeds the $35 billion growth of global GDP during the last 15 years.

But rather than explain why economic growth in most of the world is slowing to a crawl despite this unprecedented eruption of public debt, Krugman chose to smack down one of his patented strawmen. Noting that Rand Paul had lamented that 1835 was the last time the US was “debt free”, the Nobel prize winner offered up a big fat non sequitir:

Wags quickly noted that the U.S. economy has, on the whole, done pretty well these past 180 years, suggesting that having the government owe the private sector money might not be all that bad a thing. The British government, by the way, has been in debt for more than three centuries, an era spanning the Industrial Revolution, victory over Napoleon, and more.

Neither Rand Paul nor any other fiscal conservative ever said that public debt per se would freeze economic growth or technological progress hard in the horse and boggy age. The question is one of degree and of whether at today’s unprecedented public debt levels we get economic growth—–even at a tepid rate—–in spite of rather than because of soaring government debt.

…click on the above link to read the rest of the article…

Paul Krugman “What Ails The World Right Now Is That Governments Aren’t Deep Enough In Debt”

August 21, 2015

Paul Krugman “What Ails The World Right Now Is That Governments Aren’t Deep Enough In Debt”

This was written by a Nobel prize winning economist without a trace or sarcasm, irony or humor. It is excerpted, and presented without commentary.

From the NYT:

Debt Is Good

… the point simply that public debt isn’t as bad as legend has it? Or can government debt actually be a good thing?

Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.

I know that may sound crazy. After all, we’ve spent much of the past five or six years in a state of fiscal panic, with all the Very Serious People declaring that we must slash deficits and reduce debt now now now or we’ll turn into Greece, Greece I tell you.

But the power of the deficit scolds was always a triumph of ideology over evidence, and a growing number of genuinely serious people — most recently Narayana Kocherlakota, the departing president of the Minneapolis Fed — are making the case that we need more, not less, government debt.

Why?

One answer is that issuing debt is a way to pay for useful things, and we should do more of that when the price is right.The United States suffers from obvious deficiencies in roads, rails, water systems and more; meanwhile, the federal government can borrow at historically low interest rates. So this is a very good time to be borrowing and investing in the future, and a very bad time for what has actually happened: an unprecedented decline in public construction spending adjusted for population growth and inflation.

…click on the above link to read the rest of the article…

Welcome to the world of ZIRP zombies

August 15, 2015

Welcome to the world of ZIRP zombies

Interest rates in the US, Europe and the UK were reduced to close to zero in the wake of the Lehman crisis nearly seven years ago.

Initially zero interest rate policy (ZIRP) was a temporary measure to counter the price deflation that immediately followed the crisis, but since then interest rates have been kept suppressed at the zero bound. It had been hoped that the stimulus of close-to-zero interest rates would also guarantee economic recovery. It has failed in this respect and the low bond yields that result have only encouraged the rapid expansion of government debt.

It is clear that monetary policies of central banks are the problem. Instead of boosting recovery they have simply destroyed the mechanism which recycles savings into capital for production. They have brought about Keynes’s wish, expressed in his General Theory that he “looked forward to the euthanasia of the rentier”, whose function in providing finance for entrepreneurs is to be replaced by the state: entrepreneurs “who are so fond of their craft that their labour could be obtained much cheaper than at present.”[1]

Instead of storing the fruits of his labour in the form of bank deposits to be made available to the investing entrepreneur, the saver is discouraged from saving, instead being forced to speculate for capital gain. In that sense, ZIRP is the logical end-point of Keynes’s ideal.

The mistake is to subscribe to the ancient view that interest is usury and that it only benefits the idle rich, a stance that appeared to be taken by Keynes. What Keynes missed is that interest rates are an expression of time preference, or the compensation for making money available today in return for a reward tomorrow. If you try to ban interest rates by imposing ZIRP, then the vital function of distributing savings in the interests of progress simply ceases. An economy with ZIRP joins the ranks of the living dead.

…click on the above link to read the rest of the article…

Rocco Galati challenges role of Bank of Canada in latest case

May 9, 2015

Rocco Galati challenges role of Bank of Canada in latest case

Maverick lawyer argues central bank should provide interest-free money for infrastructure

The lawyer best known for stopping the Supreme Court appointment of Judge Marc Nadon has turned his sights on the Bank of Canada.

Rocco Galati has taken on a case for a group called the Committee for Monetary and Economic Reform, or COMER, which wants the central bank to return to the practice of lending federal and provincial governments interest-free money for infrastructure.

“They felt it was important in the face of the financial sector meltdown in 2008, the banking meltdown, and the drastic reduction and elimination of human capital infrastructure such as health care, universities and basically the stuff that the Bank of Canada from 1938 to 1974 funded,” Galati said in an interview with CBC’s The Exchange with Amanda Lange.

His clients have been dismissed as conspiracy theorists, but Galati argues the law is there to support their case.

The Bank of Canada was set up in 1935 in the wake of the Great Depression to provide a means for settling international accounts and to provide interest-free loans to government to finance infrastructure investments.

History of infrastructure funding

Projects like the St. Lawrence Seaway and the Trans-Canada highway were funded in this way, and the central bank also underwrote Canada’s Second World War effort as well as the building of hospitals and universities.

But in 1974, the central bank stopped providing interest-free loans to government so it could join the Bank for International Settlements, a kind of central bank of central banks.

Galati argues that from then on private banks became government’s lender, contravening the act that established the central bank.

…click on the above link to read the rest of the article…

One Last Look At The Real Economy Before It Implodes – Part 3

March 21, 2015

One Last Look At The Real Economy Before It Implodes – Part 3

In the previous installments of this series, we discussed the hidden and often unspoken crisis brewing within the employment market, as well as in personal debt. The primary consequence being a collapse in overall consumer demand, something which we are at this very moment witnessing in the macro-picture of the fiscal situation around the world. Lack of real production and lack of sustainable employment options result in a lack of savings, an over-dependency on debt and welfare, the destruction of grass-roots entrepreneurship, a conflated and disingenuous representation of gross domestic product, and ultimately an economic system devoid of structural integrity — a hollow shell of a system, vulnerable to even the slightest shocks.

This lack of structural integrity and stability is hidden from the general public quite deliberately by way of central bank money creation that enables government debt spending, which is counted toward GDP despite the fact that it is NOT true production (debt creation is a negation of true production and historically results in a degradation of the overall economy as well as monetary buying power, rather than progress). Government debt spending also disguises the real state of poverty within a system through welfare and entitlements. The U.S. poverty level is at record highs, hitting previous records set 50 years ago during Lyndon Johnson’s administration. The record-breaking rise in poverty has also occurred despite 50 years of the so called “war on poverty,” a shift toward American socialism that was a continuation of the policies launched by Franklin D. Roosevelt’s ‘New Deal’.

…click on the above link to read the rest of the article…

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