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Distressed Nation: Each American Would Owe $700,000 To Eliminate Worsening Debt Situation

Distressed Nation: Each American Would Owe $700,000 To Eliminate Worsening Debt Situation

Truth In Accounting (TIA), a 501(c)(3) – focused on government financial information, published a new report that suggests the federal government’s overall financial conditions worsened by $4.5 trillion in 2018. The report also calculates the actual national debt on a per taxpayer basis.

With assets of $3.84 trillion, the federal government’s unfunded obligations and debt total $108.94 trillion, which contributed to a $105 trillion debt burden.

“Our elected officials have made repeated financial decisions that have left the federal government with a debt burden of $105 trillion, including unfunded Social Security and Medicare promises. That equates to a $696,000 burden for every federal taxpayer,” TIA states.

TIA rated the federal federal government with an “F” for its financial outlook and worsening fiscal situation that could trigger a crisis in the not too distant future.

TIA explains that while the $779 billion national deficit is troubling, it doesn’t reflect the true financial situation.

“The overall decline in Net Position presents a better picture of the government’s financial decline,” the report states.

“The federal government’s financial position continued to deteriorate – and much faster than indicated by the government’s own ‘bottom-line,’” TIA’s Director of Research, Bill Bergman, said.

TIA pulled data from the “Financial Report of the U.S. Government” for the fiscal year ending Sept. 2018.

TIA’s “bottom line” measures the government’s unfunded debt, jumped by $4 trillion in 2018, about 4 times faster than the budget deficit or net operating cost.

Interest expenses on the national debt have been one of the fastest growing expenses, “while the government’s estimate of the fiscal gap – the amount of spending cuts and/or tax increases necessary to keep the debt/Gross Domestic Product ratio from rising in the future – doubled,” TIA reports.

“Perhaps the most alarming feature of the government’s release of its annual financial report was the public reaction: deafening silence; zero coverage in the mainstream media,” Bergman added.

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

The Next Financial Crisis Won’t Be Caused by Fraud: This Time Will Be Different

The Next Financial Crisis Won’t Be Caused by Fraud: This Time Will Be Different

Extreme levels of debt and overvaluation characterize the entire global economy, and are not limited to any one nation or sector.

Financial crises come in two flavors: fraud and credit-valuation over-reach.

Fraud-based financial crises may differ in particulars, but they share many traits: perverse incentives are institutionalized; the perverse incentives reward figuring out how to evade oversight via fraud, embezzlement, masking risk, etc. which are soon commoditized; regulations are gutted by insider-funded lobbying; regulators fail to do their job in hopes of getting lucrative positions in the industry they’re supposed to be regulating; reports of systemic, commoditized fraud are ignored because everyone’s getting rich, and so on.

The resolution has to 1) eliminate the perverse incentives that fueled the crisis; 2) institutionalize oversight that actually functions to limit dangerous excesses and 3) all the malinvestment / bad debt must be liquidated and the losses taken / distributed.

Correspondent David E. recently sent me this insightful outline of how the Texas Savings & Loan financial crisis arose and was slowly and painfully resolved in the 1980s:

“The S&L crisis provides an excellent example of both how to make a problem worse and how to resolve it in the end. (note: I watched this play out in Texas; some of your readers may have a different perspective).1. Prior to the mid-1970s, S&Ls lived by the 3-6-3 rule – pay depositors 3%; make home loans at 6%; and be on the golf course at 3 o’clock. This cozy little world had been in place since the 1950s.2. Inflation in the 70s wrecked this calculation. The loans (long term home mortgages) still paid 6%, but the S&L’s were having to pay the depositors more – often more than the 6% they were making on the loans. Bankruptcy loomed.

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

China & Buying Gold – Why?

China & Buying Gold – Why? 

QUESTION: Mr. Armstrong; I believe you said at the WEC in 2017 that central banks will diversify and increase their gold reserves going into the currency crisis coming in 2021. China has continued to increase its gold reserves. You would please update on that development.

Thank you

PK

ANSWER: Central banks are in a very difficult position. The ECB has really put the entire world at risk. Draghi is now realizing that negative interest rates have seriously harmed the European economy and led to a major growing liquidity crisis in European banking. The euro is regarded as a time bomb for it is neither a national currency nor a stable unit of account. The failure to have consolidated the debts from the outset has simply left the euro vulnerable to separatist movements and sheer chaos.

This is what has been behind the strength in the dollar. Central banks outside Europe have been caught in this dollar vortex. They have been selling dollars and buying gold in an effort to stem the advance of the dollar. China also has a debt problem with many provinces and companies who borrowed in dollars. Here in 2019, there is $1.2 trillion in Chinese dollar borrowings that must be rolled over. There is a rising concern that this year there could be a major threat of a dollar funding crunch. The total debt issued in US dollars outside the USA approached $12 trillion at the end of 2018. That is about 50% of the US national debt. The forex risk is huge, no less the interest rate risk on top of that. The more crises we see in Europe, the greater the pressure on the dollar to rise regardless of the Fed trying to stop capital inflows by delaying raising rates.

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

We Have Seen This Happen Before The Last 3 Recessions – And Now It Is The Worst It Has Ever Been

We Have Seen This Happen Before The Last 3 Recessions – And Now It Is The Worst It Has Ever Been

Since the last financial crisis, we have witnessed the greatest corporate debt binge in U.S. history.  Corporate debt has more than doubled since then, and it is now sitting at a grand total of more than 9 trillion dollars.  Of course there have been other colossal corporate debt binges throughout our history, and they all ended badly.  In fact, the ratio of corporate debt to U.S. GDP rose above 40 percent prior to each of the last three recessions, but this time around we have found a way to top that.  According to Forbes, the ratio of nonfinancial corporate debt to U.S. GDP is now nearly 50 percent…

Since the last recession, nonfinancial corporate debt has ballooned to more than $9 trillion as of November 2018, which is nearly half of U.S. GDP. As you can see below, each recession going back to the mid-1980s coincided with elevated debt-to-GDP levels—most notably the 2007-2008 financial crisis, the 2000 dot-com bubble and the early ’90s slowdown.

You can see the chart they are talking about right here, and it clearly shows that each of the last three recessions coincided with the bursting of an enormous corporate debt bubble.

This time around the corporate debt bubble is larger than it has ever been before, and risky corporate debt has been growing faster than any other category

Through 2023, as much as $4.88 trillion of this debt is scheduled to mature. And because of higher rates, many companies are increasingly having difficulty making interest payments on their debt, which is growing faster than the U.S. economy, according to the Institute of International Finance (IIF).

On top of that, the very fastest-growing type of debt is riskier BBB-rated bonds—just one step up from “junk.” This is literally the junkiest corporate bond environment we’ve ever seen.

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

Turkey & the Real Risk of a Debt Crisis

Turkey & the Real Risk of a Debt Crisis 

The Treasury and Finance Ministry of Turkey announced that the country’s net external debt stock totaled $286.2 billion going into the end of the 3rd quarter of 2018. The country’s net external debt stock to its gross domestic product (GDP) ratio was 34.4% at the end of the third quarter of 2018. However, Turkey’s gross external debt stock amounted to $448.4 billion at the end of the 3rd quarter, bringing the debt/GDP ratio to 53.8% according to the official figures.

Interestingly, because of the fear of the Turkish lira, Turkish corporations have been often compelled to borrow in dollars. Therefore, the private sector’s share in the country’s gross external debt stock was 68.2% ($305.9 billion), while some $215.9 billion of this amount consisted of long-term debts with a maturity of more than one year. The Turkish public sector’s share of this debt was 30.6% in the country’s total foreign debt, which is about $21.4 billion in short-term (under one year) with $115.7 billion in the long-term (over one year). The banking sector’s (lenders and the central bank) external debt stock was $176.99 billion at the end of the 3rd quarter.

When we break this down further, 58.5% of the total gross external debt is denominated in U.S. dollars with only 32.3% denominated in euros. The amount denominated in Turkish lira among the external debt stock was a trifling 5.9%. This illustrates the crisis that will emerge with a change in the currency values.

Imminent Recession Risk “Doubled” – 3 Signals Sounding the Alarm

recession risk signals

Imminent Recession Risk “Doubled” – 3 Signals Sounding the Alarm

It’s been more than 10 years since the last economic recession. Since the U.S. economy generally operates in cycles, it looks like the time is drawing near for another.

In fact, late last year the Dow Jones took a dive, but that was likely just an appetizer for the course to come…

A recent piece from Bloomberg reported the risk of a recession has “more than doubled this year as leading economic indicators deteriorate, the yield curve inverts and monetary policy tightens,” referencing a note by Guggenheim Partners.

And, according to CIO Scott Minerd, it appears the next recession could last longer than the previous one (emphasis ours):

The next recession will not be as severe as the last one, but it could be more prolonged than usual because policymakers at home and abroad have limited tools to fight the downturn…

Guggenheim oversees $200 billion as an investment banking firm. They issued this dire warning along with major concerns about corporate debt, a severe stock market drop, and uncertainty about the Fed.

Debt, Yield Curve Inversion & QE Signaling Recession Risk

We’ve previously reported that U.S. National, corporate, and consumer debt are at all-time highs. This dangerous “debt trifecta” has even gotten the attention of several billionaires.

Rising national debt currently tops $22 trillion. Corporate debt topped $6 trillion at the end of 2018. And the “ATM” of consumer debt has hit $4 trillion. Americans are tapped out. Combined together, this signal alone should sound recession alarms.

But this is just one of multiple major warning signs…

The yield curve is dangerously close to inverting at only 16 basis points between 2- and 10-year treasuries. What’s even more troubling is yield curve inversion has preceded every major recession over the last 50 years.

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

China’s Debt Bomb Is Back: Beijing Injects Most Ever Credit For Month Of March

China’s Debt Bomb Is Back: Beijing Injects Most Ever Credit For Month Of March

One month ago, we asked if that was it for China’s “Shanghai Accord 2.0”? Turns out the answer was a resounding “no.

As we noted at the time, one month after the PBOC injected a gargantuan 4.64 trillion yuan ($685 billion) into the economy – more than the GDP of Saudi Arabia – in the month of January in the country’s broadest credit measure, the All-System Financing Aggregate a credit injection that was so massive it even prompted the fury of China’s prime minister Li Keqiang who lashed out at the central bank for its unprecedented debt generosity in a time when China was still pretending to be on a deleveraging path, in February the PBOC again surprised China-watchers, this time to the downside, when the Chinese central bank reported that aggregate financing increased by a paltry 703 billion yuan, roughly half the expected 1.3 trillion, the lowest print in the revised series history.

However, to assuage fears that China was turning off the credit taps just one month after the release of weak February TSF, PBOC governor Yi commented in his press conference during the NPC that (although February TSF data was weak) the data should be viewed in light of strong January data. He also noted that even combined Jan-Feb data could be distorted by the Chinese New Year, and one needed to wait for March data.

Well, we got just that overnight (as reported previously) and it was a monster: just after 4am ET, the S&P futures surged above 2,900 when the PBOC reported that in March, new yuan loans jumped by 1.69 trillion, far above 1.25 trillion estimate, while total social financing in March soared higher 2.86t yuan, the highest March increase on record; smashing the 1.85 trillion yuan estimate, and more than four times the February 703BN yuan increase.

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

Utopian Vision

Utopian Vision

There is nothing that a human mind can’t conceive. It can shoot for the stars or dive in the ocean which twinkles in the shadows of stars and ascend back with sparkling mind bearing uncanny ambition only to float contended.  

Today, we live in fear of losing wealth, we worry what economic consequences would do to our cash, we look through a microscope and scrutinize every word, every policy, every regulation or find something to put above ‘every’ and list out the glaring negatives with a slight trace of approval. If only one could notice the lens of the microscope, would then one could tell reel and real apart. 

Such is the case of negative interest rates. It is dealt differently by different flock of loaded individuals, generally in ways which would not only prevent losses but essentially gain cash. This flock stands on one side of the transaction contemplating means to win regardless of the loss that still deliberating other doomed flock endures. Well, this is how the world works. It is a Bernoulli trial. But there exists a splash of humble wit folks floating beneath the starry sky delighted by the victory of each one and beaten down none. 

Theory? Without thinking too much, negative rates indicate that the economy is unable to generate sufficient income to service its debt. Almost always, all roads leads us back to debt sustainability levels. In order for an economic system to reduce debt, it requires growth or inflation or currency devaluation. For an economic system to exercise one of the two (growth not included), capital transfer is to be facilitated. This capital movement in negative rates environment is from the savers to the borrowers. Your invested value, the money you gave to borrowers would have a value lower than the face value. Barbaric! Savers should be the winners not the borrowers!

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

The Ultimate Pivot: Saudi Betrayal of the Petrodollar

The Ultimate Pivot: Saudi Betrayal of the Petrodollar

Saudi Arabia has gone nuclear, threatening the petrodollar. Or has it?

The report from Zerohedge via Reuters that Saudi Arabia is angry with the U.S. for considering a bill exposing OPEC to U.S. antitrust law is a trial balloon.

The chances of the U.S. bill known as NOPEC coming into force are slim and Saudi Arabia would be unlikely to follow through, but the fact Riyadh is considering such a drastic step is a sign of the kingdom’s annoyance about potential U.S. legal challenges to OPEC.

If these things are so unlikely then why make the threat public? There are a number of reasons.

First, one must remember that the Saudis are hemorrhaging money. Their primary budget deficit in 2018 was around 7% of GDP. Since the 2014 crash in oil prices it has gone from almost zero sovereign debt to $180 billion in debt to finance its spending, or around 22% of GDP.

2019’s budget will be even bigger as it tries to deficit spend its way to growth. It’s needs for a higher oil price are built into their primary budget not their production costs, which are some of the lowest in the world.

Second, the Saudis finally opened up the books on Saudi-Aramco this week. And it revealed the giant is far more profitable than thought. It has is eye on acquiring stakes in some of the biggest oil and gas projects out there these past couple of years. It’s floating its first public bond to buy a stake in SABIC to get into the mid and downstream petroleum markets.

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

As the Madness Turns

As the Madness Turns

A Growing Gap

The first quarter of 2019 is over and done.  But before we say good riddance.  Some reflection is in order.  To this we offer two discrete metrics.  Gross domestic product and government debt.

US nominal GDP vs total federal debt (in millions of USD) – government debt has exceeded  total economic output for the first time in Q4 2012 and since then its relative growth trajectory has increased – and it seems the gap is set to widen further. [PT]

GDP for the quarter, as estimated by the March 29 update to the New York Fed’s GDP Nowcast, grew at an annualized rate of 1.3 percent.  For perspective, annualized GDP growth of 1.3 percent is akin to getting a 1.3 percent annual raise.  Ask any working stiff, and they’ll tell you… a 1.3 percent raise is effectively nothing.

By comparison, the U.S. budget deficit for fiscal year 2019 is estimated to hit roughly $1.1 trillion.  This amounts to an approximate 5 percent increase of the current $22.2 trillion national debt.  In other words, government debt is increasing about 3.85 times faster than nominal GDP, which is about $21 trillion.

These two metrics offer a rough perspective on the state of the economy.  Deficit spending is grossly outpacing economic growth.  Heavy treatments of fiscal stimulus are being applied.  Yet the economy’s practically running in place.  In short, the state of the economy is not well.

A case of restricted maneuverability…  [PT]

And as the economy slows and then slips into reverse later this year, and as Washington then applies more fiscal stimulus, these two metrics will move even further towards madness.  What’s more, the Fed is gearing up to promote this greater state of madness in any and every way possible…

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

New Canadian Bonds Are Backed By Junk Rated Retailers And Consumer Loans Charging 40% Interest

New Canadian Bonds Are Backed By Junk Rated Retailers And Consumer Loans Charging 40% Interest

In a unique twist on the excesses of the last credit bubble, Canada’s bond market is now issuing bonds backed by increasingly riskier assets, but that hasn’t stopped investors from jumping at the chance to buy them – because why would history ever repeat itself when central bankers are here to make sure there is no more risk, ever? 

According to Bloomberg, some popular recent deals have included debt backed by assets like mortgages on junk-rated Hudson’s Bay stores and consumer loans that charge interest rates of up to 40%. There is also new debt being backed by home-equity lines of credit, credit cards, and auto loans/leases. Non-banking mortgage lenders may also soon issue similar debt, according to the report. In fact, the only thing that differentiates the current Canadian bond issuance frenzy from what took place in the US in 2005-2006 is… well… we’ll get back to you on that.

These bonds in Canada are starting to hit the market as Canada’s own bond market inverts with the yield on the 10 year government bond trading below the Bank of Canada’s overnight rate. Consumer spending has been poor and inflation has been weak in the country, however its economy recorded its best monthly advance in growth in eight months in January, and has an unemployment rate of 5.8%, a four decade low, so all must be well…

Randall Malcolm, senior managing director of fixed income at Sun Life Investment Management said: “The flattening of the curve, in which you see the ten year bonds inside the overnight rate is prompting investors to hunt for yield.”

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

Preppers save for a rainy day: Why financial planning is crucial for surviving an economic downturn

Preppers save for a rainy day: Why financial planning is crucial for surviving an economic downturn

Image: Preppers save for a rainy day: Why financial planning is crucial for surviving an economic downturn

(Natural News) As a prepper, one of the first things that you need to learn is the importance of financial preparedness. Don’t wait until an economic collapse before you start settling your debts or saving money. (h/t to TimGamble.com)

The basics of financial preparedness

Personal, business, or government debt is bad. It will stress you out, and it makes you more vulnerable to economic downturns.

To become financially prepared, you must first eliminate consumer debt. This includes credit cards, car loans, payday loans, personal loan, and installment plans.

To clear your debts, you may need to make sacrifices, such as:

  • Putting off major purchases.
  • Avoiding impulse purchases (e.g. luxury items, etc).
  • Bringing your own lunch to school or work.
  • Having a major yard sale to raise some money.
  • Starting a second job.

Making these sacrifices may seem hard, but keep in mind that in the end, the benefits will be more than worth it. (Related: 7 obvious warning signs we are heading for an economic meltdown.)

Second, you need to have emergency savings. Start by holding yard sales or getting a second job. Put the money somewhere safe, such as an insured certificate of deposit(CD). A CD is a type of federally insured savings account with a fixed interest rate and fixed date of withdrawal or maturity date. CDs don’t usually have monthly fees and they are different from traditional savings accounts in several ways. Savings accounts let you deposit and withdraw funds rather freely.

However, with a CD you agree to leave your money in the bank for a set amount of time (know as the “term length”). If you do access the money in a CD, you will need to pay a penalty. Term lengths can range from several days to a decade. The standard range of options for CDs is between three months and five years.

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

Debt & the Point of No Return

Debt & the Point of No Return 

QUESTION: Mr. Armstrong; First I want to thank you for coming to Europe this year. It has been some time since your Berlin Conference. My question is simple. How can the ECB tell countries to reduce their debt when as you say nobody ever pays off the debt? Is this just fantasy or do they really believe what they are saying?

Looking forward to Rome.

WVM

ANSWER: The sheer demographics warn that more people will move into retirement, increasing expenditures at a faster pace than there are younger generations to compensate. This means that expenditures will rise and revenues will decline. Even if we were talking about governments that actually did pay off debt, they would still not be able to do so once we pass 2020.

Insofar as do they really believe their own nonsense? I am afraid they do. They have not yet reached the point where they will come to terms with the fact that this is a fictional world in which they dream of endless powers and they will prevail in the end. We have gone past the point of no return. We now require structural change and FAST!!!!!!!

The True Size Of The U.S. National Debt, Including Unfunded Liabilities, Is 222 Trillion Dollars

The True Size Of The U.S. National Debt, Including Unfunded Liabilities, Is 222 Trillion Dollars

The United States is on a path to financial ruin, and everyone can see what is happening, but nobody can seem to come up with a way to stop it.  According to the U.S. Treasury, the federal government is currently 22 trillion dollars in debt, and that represents the single largest debt in the history of the planet.  Over the past decade, we have been adding to that debt at a rate of about 1.1 trillion dollars a year, and we will add more than a trillion dollars to that total once again this year.  But when you add in our unfunded liabilities, our long-term financial outlook as a nation looks downright apocalyptic.  According to Boston University economics professor Laurence Kotlikoff, the U.S. is currently facing 200 trillion dollars in unfunded liabilities, and when you add that number to our 22 trillion dollar debt, you get a grand total of 222 trillion dollars.

Of course we are never going to pay back all of this debt.

The truth is that we are just going to keep accumulating more debt until the system completely and utterly collapses.

And even though the federal government is the biggest offender, there are also others to blame for the mess that we find ourselves in.  State and local governments are more than 3 trillion dollars in debt, corporate debt has more than doubled since the last financial crisis, and U.S. consumers are more than 13 trillion dollars in debt.

When you add it all together, the total amount of debt in our society is well above 300 percent of GDP, and it keeps rising with each passing year.

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

If Donald Trump is the King of Debt, these guys were the Kings of Inflation

If Donald Trump is the King of Debt, these guys were the Kings of Inflation

Maximilian Bern had saved up 100,000 German marks for what should have been a modest, but comfortable retirement.

But in 1923, he withdrew every last cent, and spent it all on one purchase: a subway ticket.

He rode around his city one last time before returning home, and locking himself in his home, where he died.

He didn’t kill himself. He starved to death… simply because he could no longer afford food. A single egg at the market would cost millions of marks, more than Maximilian Bern had saved over his entire life.

This was one of the most famous episodes of hyperinflation, certainly in modern history.

In the wake of World War One, Germany (known as the Weimar Republic) was completely broke.

The War to end all Wars had bankrupted them; and on top of losing the war, Germany was forced to make ‘reparation payments’ to the victors, including France, the UK, etc.

That took Germany’s overall war debt to impossible levels. So in a feeble attempt to keep the economy afloat and meet its war debt obligations, the German government printed massive amounts of paper money.

Prior to World War I, one US dollar was worth 4.2 German marks.

By 1923, a single US dollar was worth 4.2 TRILLION marks.

We’ve seen this in our own lifetime in places like Zimbabwe, and now Venezuela.

I remember the first time I went to Venezuela the official exchange rate was four bolivars to the US dollar—and the black market rate was eight to one.

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

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