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The real story behind America’s new $20 trillion debt

September 12, 2017

The real story behind America’s new $20 trillion debt

Late yesterday afternoon the federal government of the United States announced that the national debt had finally breached the inevitable $20 trillion mark.

This was a long time coming. It should have happened back in March, except that a new debt ceiling was put in place, freezing the national debt.

For the last six months it was essentially illegal for the government to increase the debt.

This is pretty brutal for Uncle Sam. The US government hasn’t run a budget surplus in two decades; they depend on debt in order to keep everything running.

And without the ability to ‘officially’ borrow money, they’ve basically spent the last six months ‘unofficially’ borrowing money by plundering federal pension funds and resorting to what the Treasury Department itself calls “extraordinary measures” to keep the government running.

Late last week the debt ceiling crisis came to a temporary armistice as the government agreed once again to temporarily suspend the debt limit.

Overnight, the national debt soared hundreds of billions of dollars as months of ‘unofficial’ borrowing made its way on to the official books.

The national debt is now $20.1 trillion. That’s larger than the size of the entire US economy.

You’d think this would be front page news with warnings being shouted from the rooftops of America.

Yet curiously the story has scarcely been covered.

Today’s front page of the New York Times tells us about Hurricane Irma, North Korea, and alcoholism in Iran.

Even the Wall Street Journal’s front page has zero mention of this story.

In fairness, the number itself is irrelevant. $20 trillion is merely a big, round, psychologically significant number… but in reality no more important than $19.999 trillion.

The real story isn’t the number or the size of the debt itself. It’s the trend. And it’s not good.

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

The real story behind America’s new $20 trillion debt

September 12, 2017

The real story behind America’s new $20 trillion debt

Late yesterday afternoon the federal government of the United States announced that the national debt had finally breached the inevitable $20 trillion mark.

This was a long time coming. It should have happened back in March, except that a new debt ceiling was put in place, freezing the national debt.

For the last six months it was essentially illegal for the government to increase the debt.

This is pretty brutal for Uncle Sam. The US government hasn’t run a budget surplus in two decades; they depend on debt in order to keep everything running.

And without the ability to ‘officially’ borrow money, they’ve basically spent the last six months ‘unofficially’ borrowing money by plundering federal pension funds and resorting to what the Treasury Department itself calls “extraordinary measures” to keep the government running.

Late last week the debt ceiling crisis came to a temporary armistice as the government agreed once again to temporarily suspend the debt limit.

Overnight, the national debt soared hundreds of billions of dollars as months of ‘unofficial’ borrowing made its way on to the official books.

The national debt is now $20.1 trillion. That’s larger than the size of the entire US economy.

You’d think this would be front page news with warnings being shouted from the rooftops of America.

Yet curiously the story has scarcely been covered.

Today’s front page of the New York Times tells us about Hurricane Irma, North Korea, and alcoholism in Iran.

Even the Wall Street Journal’s front page has zero mention of this story.

In fairness, the number itself is irrelevant. $20 trillion is merely a big, round, psychologically significant number… but in reality no more important than $19.999 trillion.

The real story isn’t the number or the size of the debt itself. It’s the trend. And it’s not good.

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

The world’s most powerful bank issues a major warning

September 7, 2017

The world’s most powerful bank issues a major warning

In 1869, a 48-year old Jewish immigrant from the tiny village of Trappstadt in Germany’s Bavaria region hung a shingle outside of his small office in lower Manhattan to officially launch his new business.

His name was Marcus Goldman, and the business he started, what’s now known as Goldman Sachs, has become the preeminent investment bank in the world with nearly $1 trillion in assets.

They didn’t get there by winning any popularity contests.

Goldman Sachs has been at the heart of nearly every major banking scandal in recent history.

The company has settled lawsuits on countless charges, ranging from exchange rate manipulation, stock price manipulation, demanding bribes from their own clients, front-running retail customers, and just about every shady business practice that would put money in their pockets.

Yet throughout it all, Goldman Sachs has been protected from any serious punishment by its friends in highest offices of government.

Four out of the last eight US Treasury Secretaries, including the current one, have formerly been on the payroll of Goldman Sachs.

Three current Federal Reserve Bank presidents are Goldman Sachs alumni.

The current president of the European Central Bank and the current head of the Bank of England are both former Goldman Sachs employees.

You get the idea.

On its face, there’s nothing wrong with government staffing its departments with top executives from the private sector; taxpayers would probably rather have someone who knows what s/he’s doing behind the desk rather than some random guy off the street.

But the consequent favoritism that results from this revolving door is blatant and repulsive.

Case in point: in 2008 when the financial system was going up in flames and most banks were suffering enormous losses, the government orchestrated a sweetheart bailout deal, of which Goldman was the primary beneficiary.

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

Why you might as well paint a giant bulls-eye on your bank account

September 6, 2017

Why you might as well paint a giant bulls-eye on your bank account

Vegetarians be forewarned… you won’t like what follows.

We slaughtered a pig yesterday at the farm. I have two freezers full of pork now, and countless strips of bacon curing in the kitchen.

I’ve written about this before– out here at the farm I’m able to organically produce almost everything that I eat… meat, eggs, rice, nuts, and just about every kind of fruit and vegetable imaginable. A lot of it gets canned and stored.

We even grow wheat which we turn into organic flour, plus oats and all sorts of other grains.

As I’ve described in the past, this is a pretty powerful feeling. I know that, no matter what happens in the world, I’ll always have a source of food.

And even if it’s all rainbows and buttercups from here on out, I get to eat clean, organic food. There’s hardly any downside.

Invariably as I meet people throughout my travels around the world, I’m always asked why I spend so much time in Chile.

I usually tell them about my business ventures here and that I founded a company that’s rapidly becoming one of the largest blueberry producers in the world.

But when I talk about the farm and growing my own food, people often respond with furrowed eyebrows and a hint of derision– “Oh, so you’re, like, preparing for the end of the world…”

It’s as if embracing a little bit of independence and self-reliance requires paranoid delusion and chronic pessimism.

Fortunately I’m no longer in middle school, so my decisions aren’t based on what the cool kids might think.

In truth I’m wildly optimistic about the future.

Yes, there will come a time when bankrupt western governments will have to suffer the consequences of their reckless financial decisions.

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

Italy’s newest bank bailout cost as much as its annual defense budget

Italy’s newest bank bailout cost as much as its annual defense budget

Two more Italian banks failed over the weekend– Banco Popolare di Vicenza and Veneto Banca.

(In other news, the sky is blue.)

The Italian Prime Minister himself stated that depositors’ funds were at risk, so the government stepped in with a bailout and guarantee package that could cost taxpayers as much as 17 billion euros.

That’s a lot of money in Italy– around 1% of GDP. In fact it’s basically as much as the 17.1 billion euros they spent on national defense last year (according to an estimate by Italian think tank IAI).

You don’t have to have a PhD in economics to figure out that NO government can afford to spend its entire defense budget every time a couple of medium-sized banks need a bailout.

That goes especially for Italy, whose public debt level is already 132% of GDP… and rising. They simply don’t have the money.

Moreover, the European Union actually has a series of new rules collectively known as the “Bank Recovery and Resolution Directive” which is supposed to prevent failing banks from being bailed out with taxpayer funds.

Here’s the thing– Italy has LOTS of banks that are on the ropes.

So with taxpayer resources exhausted (and technically prohibited), who’s going to be on the hook next time a bank goes under?

Easy. By process of elimination, the only other party left to fleece is the depositor.

Here’s how it works:

Let’s say a bank takes in $1 billion in deposits.

Naturally the bank doesn’t just keep $1 billion in cash sitting in its vault. They invest the money. They make loans. They buy assets.

So the bank’s balance sheet shows $1 billion worth of assets, and $1 billion worth of deposits that they owe to their customers.

But sometimes banks screw up when they invest their customers’ funds. Loans go bad. Borrowers default.

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

It’s time to become your own banker. Here’s how–

It’s time to become your own banker. Here’s how–

Sometimes I wonder why most of the giant mega-banks are based in New York.

They should be here in Las Vegas, the gambling capital of the world. Because that’s precisely what they’re doing with your money.

Actually it’s not even your money.

From a legal perspective, every single penny you deposit at the bank becomes THEIR money. You’re nothing more than an unsecured creditor of the bank.

And now that they legally own what used to be your money, the bank can gamble it away on whatever crazy investment fad best serves their interests.

Here’s an easy way to understand it:

Imagine you were moving and needed to rent a storage facility for a few months to store your stuff.

You rent a U-Haul and move everything into the storage unit.

The way banking works, the second you drive away, the storage company now owns your furniture. Not you.

And as the brand new owners of what used to be your furniture, the storage company can do whatever they want with it.

They can rent out the furniture to another customer, charging steep fees to let a complete stranger sit on your sofa and watch your TV.

(Naturally you’ll never see a penny of that money.)

Of course, that complete stranger might not treat your furniture all that well. He might even destroy it. No more furniture.

Often the facilities get in on the business together; one storage company will rent your furniture to another company, which rents it to another, and then another.

After a while no one actually knows where your sofa is. But it doesn’t matter because the storage companies are all making lots of money, and few people ever really ask.

Eventually their standards drop so low that they stop performing credit checks altogether when someone wants to rent furniture from them.

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

Just a quick reminder of who’s really in charge

Just a quick reminder of who’s really in charge

Today the world of banking and finance waited with baited breath for the Federal Reserve in the United States to hike… or not to hike… interest rates.

This happens several times each year as the central bank’s Federal Open Market Committee gathers to set monetary policy in the Land of the Free.

To be clear, there is no greater power over a nation than having control of its money supply and interest rates.

Think about it: interest rates influence just about EVERYTHING in the economy.

Changes in interest rates influence housing prices, company stock prices, retail sales, food prices, oil prices, and major business purchases.

Interest rates have a significant impact over employment, business investment, inflation, and the currency’s international exchange rate.

Increases in the interest rate even have the power to bring a government to its knees.

This is pretty extraordinary power. And it has been awarded to an unelected committee that has an astonishing track record of getting it wrong.

Former Fed chair Ben Bernanke famously predicted in January 2008 that “the Federal Reserve is currently NOT forecasting a recession.”

It turns out that the recession had officially started one month before in December 2007.

While that’s just one small example, the numbers show that these guys perpetually miss the mark.

In January 2011 the Fed projected 2011 GDP growth would be 3.7%. It turned out to be 2%. So proportionally speaking they were off by 85%.

In January 2012 they predicted 2.5% growth that year. Actual growth in 2012 was 1.6%, so they were ‘only’ off by 56%.

Their 2016 GDP growth forecast was 2.4%, while actual growth was 1.6%, another 50% error.

And just recently for the first quarter of 2017, the Fed’s predictions were 1.2% growth, while actual GDP growth was just 0.7%… a 70%+ overshoot.

Here’s the funny thing– even the Federal Reserve’s own internal study shows that they consistently miss the mark in their projections.

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

This bubble finally burst. Which one’s next?

This bubble finally burst. Which one’s next?

Like so many other high-flying Silicon Valley startups, Clinkle was supposed to ‘make the world a better place’.

Founded in 2011 by a guy barely out of his teens, the company picked up early buzz after proclaiming they would disrupt mobile payments. Or something.

Silicon Valley venture capital firms were apparently so impressed with the idea that they showered the company with an unprecedented level of cash.

(Given that investing in an early stage company is high-risk, investors might provide a few hundred thousand dollars in funding, at most. Clinkle raised $25 million.)

The company went on to burn through just about every penny of its investors’ capital.

There were even photos that surfaced of the 21-year old CEO literally setting bricks of cash on fire.

At the end of the farce, Clinkle never actually managed to build its supposedly ‘world-changing’ product, and the website is now all but defunct.

This is rapidly becoming a familiar story in Silicon Valley.

For the last 6-7 years, Silicon Valley startups have been able to raise unbelievable amounts of cash.

Yet so many of those companies haven’t managed to turn a profit. Ever.

There’s some of the big names like Uber and AirBnb which are supposedly worth tens of billions of dollars despite having racked up enormous losses.

(Last year ride-sharing company Lyft promised investors that it would cap its losses at ‘only’ $600 million per year. . .)

But there are countless other examples of startups being anointed with absurd valuations and continually replenished with fresh capital even though they keep losing money… and have no plan to ever make money.

Snapchat’s investment prospective summed it up best:

“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.”

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

Three reasons why the banking system is rigged against you

October 1, 2016

Three reasons why the banking system is rigged against you

If there were ever any doubt about how completely RIGGED the banking system is against depositors, allow me to introduce the following:

Exhibit A: Governments are working to make banks LESS safe

Yesterday an unelected bureaucrat that no one has ever heard of made a stunning announcement that has sweeping implications for anyone with a bank account.

Dombrovskis is Europe’s top financial services official, so he controls bank regulations in the European Union.

He issued a stern warning to global bank regulators yesterday that he is prepared to reject any further plans they might have to tighten bank capital requirements.

This might sound rather dry, but it’s incredibly important.

“Bank capital” is the most critical component of any bank balance sheet.

Capital is like a bank’s rainy day fund; when things start to go bad, a bank’s capital provides a margin of safety to ensure that their depositors’ funds are safe.

Strong banks have ample capital and are able to withstand crises.

Weak banks with low levels of capital collapse. And that’s precisely what happened in 2008.

Most banks across the west had very low levels of capital. They had spent years making appallingly stupid ‘no money down’ loans with 0% teaser interest rates to borrowers with pitiful credit.

When that bubble burst, the banks lost billions of dollars. And it turned out that most of the banks at the time had razor thin levels of capital.

If you’re wondering why, the answer is quite simple: the less capital a bank maintains, the more money it can invest… so poorly capitalized banks tend to make more money.

Lehman Brothers was quite profitable.

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

Former Treasury Secretary says banks may be riskier now than in the 2008 crisis

September 17, 2016

larry-summers

Former Treasury Secretary says banks may be riskier now than in the 2008 crisis

“Sir. SIR! This your bag,” the TSA agent barked at me last week, more as a statement than a question.

“It is.”

“Are you carrying any liquids?”

I knew immediately; I had forgotten about the bottle of water that I had shoved in my briefcase before checking out of my hotel.

They opened my bag and confiscated the water bottle immediately with an extra harrumph to make sure I knew that I had wasted their time.

Yeah, I get it. I broke the rule. But it’s such a ridiculous rule to begin with.

Are we really supposed to pretend that Miami International Airport is any safer because there’s a brand new, unopened Dasani bottle in the TSA wastebin?

You may recall how Istanbul’s Ataturk Airport was attacked on June 28th by men armed with automatic weapons and explosives.

Ataturk was already one of the most security-conscious airports in the world– you actually have to go through a security checkpoint just to enter the building, followed by a second security checkpoint on your way to the gate.

And yet, despite all of this extra security, 41 people were killed and hundreds more wounded in an attack that shows just how ineffective airport security really is.

Airport security isn’t real security. It’s merely the illusion of security– a bunch of busybodies in uniforms enforcing pointless rules to make people believe that they’re safer.

Candidly, our financial system has borrowed the same principle. There’s no real safety in our financial system– merely the illusion of safety.

Leading up to the 2008 financial crisis, most people thought the banks were safe.

After all, we’ve been told our entire lives that the banks are rock solid. What could go wrong?

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

Police seize over 5,000 ounces of silver from man’s home

September 10, 2016

silver-coins

Police seize over 5,000 ounces of silver from man’s home

Last week in the Australian state of Queensland, federal police confiscated a whopping 5,465 ounces of silver (worth roughly $106,000) from a man’s home.

This was part of a larger series of police raids instigated by the Australian Tax Office against individuals suspected of tax evasion.

Two obvious lessons come to mind which bear repeating:

1) As we discussed yesterday, only an idiot commits tax fraud or tax evasion. This goes without saying.

There are far too many completely legitimate ways to reduce or even eliminate what you owe… which means there’s absolutely zero reason to take any chances by wilfully breaking the law.

I know this doesn’t apply to the vast majority of people reading this, but if you are one of the handful of people out there who has been noncompliant with taxes, definitely consider your options to get it fixed.

They will find out eventually.

It’ll be a much better outcome that you step forward and admit a mistake than wait for the inevitable federal agents to kick down your door in the middle of the night.

2) Don’t keep the majority of your assets at home

I’m sure that at least some of the people who were subject to the Australian Tax Authority’s raids probably did commit tax evasion.

But there are probably many who didn’t… people who just happened to end up on the agency’s list through some honest misunderstanding.

Nevertheless, they still had federal police raiding their homes, confiscating anything that looked valuable, including cash and precious metals.

This could happen to anyone. Any of us could end up by mistake on the wrong side of some government agency’s list. It happens to innocent people every single day.

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

US recession data shows it’s a very short road to capital controls

recession-capital-controls

US recession data shows it’s a very short road to capital controls

“Prosperity is like a Jenga tower. Take one piece out and the whole thing can fall.”

That’s a direct quote from John Williams, the President of the San Francisco Federal Reserve Bank in a speech he gave a few weeks ago.

He could have just as easily been talking about propaganda. The Fed, the White House, Wall Street, the media have a vested interest in peddling a certain narrative about the economy.

The narrative goes something like this: “Everything’s awesome. Stop asking questions”.

But if you look at their own data, the numbers tell a different story.

My team and I were recently studying US manufacturing indices, something that has traditionally been a strong indicator of recession.

This is data collected by the Federal Reserve; they survey manufacturing businesses and ask if factory orders are growing, shrinking, or relatively unchanged.

You’d think that based on this “everything is awesome” narrative that all the numbers would be growing.

And yet, much of the data show that manufacturing is shrinking. Or to be even more clear, that the US is in a manufacturing recession.

In Texas, for example, just 4% of businesses report that they are growing. 38% are shrinking.

The Philadelphia Fed’s Manufacturing Index has been in recession since September of last year.

The San Francisco Fed’s Total Factor Productivity is also reporting negative growth.

The New York Fed’s Empire State Manufacturing Index was at minus 16.6 for February. In fact, the last time the index was below -15 was in October 2008, ten months into the Great Recession.

The numbers are all pretty clear: there’s an obvious industrial and manufacturing downturn.

But that shouldn’t matter because Fox News, CNN, CNBC, and the White House tell us that consumer spending drives the US economy; industrial production is irrelevant.

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

BREAKING: US government releases its 2015 financial statements

February 26, 2016

BREAKING: US government releases its 2015 financial statements

Hot off the presses, the US government just published its audited financial statements this morning, signed and sealed by Treasury Secretary Jack Lew.

These reports are intended provide an accurate accounting of government finances, just like any big corporation would do.

And once again, the US government’s financial condition has declined significantly from the previous year.

For 2015, the government reports $3.2 trillion in total assets.

This includes everything from financial assets like bank balances to physical assets like tanks, bullets, aircraft carriers, and the federal highway system.

Curiously, the single biggest line item amongst these listed assets is the $1.2 trillion in student loans that are owed to the government by the young people of America.

This is pretty extraordinary when you think about it.

37% of the government’s total reported assets are student loans, which is now considered one of the most precarious bubbles in finance.

$1.2 trillion is similar to the size of the subprime mortgage market back in 2008. And delinquency rates are rising, now at 11.5% according to Federal Reserve data.

Plus, it’s simply astonishing that so much of the federal government’s asset base is tantamount to indentured servitude as young people pay off expensive university degrees that barely land them jobs making coffee at Starbucks.

On the other side of the equation are a reported $21.5 trillion in liabilities, giving the government an official net worth of negative $18.2 trillion.

This is down from last year’s negative $17.7 trillion and $16.9 trillion the year prior. It just keeps getting worse.

But there’s one thing that’s even more incredible about all of this.

You see, each year these financial statements are audited by the government’s in-house agency known as the Government Accountability Office (GAO).

All big companies do this. They publish financial statements, which are then reviewed by an independent audit firm.

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

What’s the last dollar they can print before financial crisis?

January 11, 2016

Money-printing-inflation

What’s the last dollar they can print before financial crisis?

In the field of mathematics, chaos theory studies the behavior of systems that are highly sensitive to initial conditions.

The idea in chaos is that, like life itself, where you start today has tremendous influence on what happens next.

In chaos, even very tiny changes to initial conditions can lead to wildly divergent outcomes further down the line.

Again, think about life: how different would your outcome be if you’d been born in the next town over? Or to different parents?

The film ‘Jurassic Park’, adapted from Michael Crighton’s novel, brought chaos theory into the popular realm.

A wealthy scientist, John Hammond (played by Richard Attenborough), uses DNA derived from fossilized mosquitoes to recreate dinosaurs on a remote island.

But once brought back to life, won’t they breed?

No, says Hammond. Because all the dinosaurs on the island are engineered to be female, by way of chromosome control.

Dr. Ian Malcolm, a chaos expert played by Jeff Goldblum, has been brought along to assess the project. His assessment is skeptical to the point of hostility:

“[T]he kind of control you’re attempting is not possible. If there’s one thing the history of evolution has taught us, it’s that life will not be contained. Life breaks free. It expands to new territories. It crashes through barriers. Painfully, maybe even… dangerously…

“I’m simply saying that life… finds a way.”

Life -nature- does indeed find a way, and Malcolm barely survives into the inevitable sequel.

Jurassic Park is, of course, a work of fiction.

That central banks that exist today, on the other hand, are fact.

And it is fact that for several years they have been attempting to artificially manipulate the market.

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

China is trying to centrally plan its way out of a black hole

China is trying to centrally plan its way out of a black hole

It’s here in southwestern China’s postcard-perfect Yunnan province that the mighty Mekong River rises.

From its source in a nearby mountain range, the river proceeds south, cutting its way across Southeast Asia’s fertile lands through Burma, Laos, Thailand, Vietnam, and Cambodia.

The Mekong is hugely important; its waters irrigate million of acres of land and provide untold quantities of fish, both of which support tens of millions of people in the region.

So it’s a major concern that China appears to be unilaterally diverting the Mekong to support its own needs.

We’ve discussed China’s worrisome drought several times in the past.

It would not be the slightest overstatement to say that China’s water situation is rapidly approaching crisis levels.

Even China’s Agriculture Ministry is sounding the alarm bells.

The numbers they’re reporting show that China already has to import more water than the United States imports oil.

And this is creating major problems for their food security– for without staggering food imports, China cannot feed itself.

If you add up all the acres of farmland that it takes to grow the amount of food China must now import each year, the total area is larger than the entire state of California.

And this problem is only getting bigger.

Here in Yunnan, the scenic countryside stretches to the horizon with beautiful farms and vast walnut groves, benefiting from the province’s gentle climate.

Yunnan is actually one of the biggest walnut producing regions in China, which itself is the largest walnut producer in the world.

But this won’t last. It can’t. They simply don’t have enough water.

That’s actually the reason I’m here– walnuts.

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