Euro is toast, in any case

See this: What Country is Next in the Coming Pan-European Sovereign Debt Crisis?

Deja vu all over again

A very good short article on The Daily Reckoning today. Quotes:

“…as a global power, America presents unsettling parallels with the disintegration of Rome – a decline of moral values, a loss of political civility, an overextended military, an inability to control national borders, and a growth of fiscal irresponsibility by the central government. Do these sound familiar?

Finally, there is what Murphy calls the “complexity parallel”: Mighty powers like America and Rome grow so big and sprawling that they become impossible to manage. In comparing the two, he writes, one should “think less about the ability of a superpower to influence everything on earth, and more about how everything on earth affects a superpower.”

A superpower that is financially reliant on others can be vulnerable to foreign influence. The British Empire learned this in 1956, when Britain and France were contesting control of the Suez Canal with Egypt. The Soviet Union was threatening to intervene on Egypt’s side, turning the regional dispute into a global showdown between Moscow and Washington. The Eisenhower administration wanted to avoid that, and the United States also happened to control the bulk of Britain’s foreign debt. President Eisenhower demanded that the British and French withdraw. When they refused, the United States quietly threatened to sell off a significant amount of its holdings in the British pound, which would have effectively destroyed Britain’s currency. The British and French backed down and withdrew from Suez within weeks.

The US dollar has never come under a direct foreign attack (though its vulnerability is growing). A direct foreign attack would result in a dramatic move away from the dollar. That would lead to a significant decline in its value, as well as higher interest rates. This is often referred to by economists as a “hard landing.” In lay terms, it’s more like a crash landing. Still, Americans have become intimately acquainted with the shocks of financial instability. Americans of a certain age still vividly recall the depths of the Depression in the 1930s and the chaos of inflation and long gasoline lines during the oil shock of the 1970s. We will also remember the financial collapse that began in 2008, and we pray for nothing worse. Some of our smartest financial thinkers are praying right along with us. “I do think that piling up more and more and more external debt and having the rest of the world own more and more of the United States may create real political instability down the line,” investor Warren Buffett has said, “and increases the possibility that demagogues [will] come along and do some very foolish things.” Read all

the U.S. has become a third world banana republic

Written by Washington’s Blog (January 27, 2010)
This version availed at Global Research

The big news today is Obama’s proposed “spending freeze”. Fiscal liberals say this cuts spending at the exact time that we most need to increase it. See this and this.
Fiscal conservatives say this doesn’t go nearly far enough. See this, this, and this.
But I think there’s a bigger issue that deserves some inquiry: is America being turned into a third world country?

As I wrote last June:

When the International Monetary Fund or World Bank offer to lend money to a struggling third-world country (or “emerging market”), they demand “austerity
measures“.

As Wikipedia describes it:

In economics, austerity is when a national government reduces its spending in order to pay back creditors. Austerity is usually required when a government’s fiscal deficit spending is felt to be unsustainable.

Development projects, welfare programs and other social spending are common areas of spending for cuts. In many countries, austerity measures have been associated with short-term standard of living declines until economic conditions improved once fiscal balance was achieved (such as in the United Kingdom under Margaret Thatcher, Canada under Jean Chrétien, and Spain under González).

Private banks, or institutions like the International Monetary Fund (IMF), may require that a country pursues an ‘austerity policy’ if it wants to re-finance loans that are about to come due. The government may be asked to stop issuing subsidies or to otherwise reduce public spending. When the IMF requires such a policy, the terms are known as ‘IMF conditionalities’.

Wikipedia goes on to point out:

Austerity programs are frequently controversial, as they impact the poorest segments of the population and often lead to a wider separation between the rich and poor. In many situations, austerity programs are imposed on countries that were previously under dictatorial regimes, leading to criticism that populations are forced to repay the debts of their oppressors.

What Does This Have to Do With the First World?
Since the IMF and World Bank lend to third world countries, you may reasonably assume that this has nothing to do with “first world” countries like the US and UK.
But England’s economy is in dire straight, and rumors have abounded that the UK might have to rely on a loan from the IMF.
And as former U.S. Comptroller General David Walker said:

People seem to think the [American] government has money. The government doesn’t have any money.

Indeed, the IMF has already performed a complete audit of the whole US financial system, something which they have only previously done to broke third world nations.

Al Martin – former contributor to the Presidential Council of Economic Advisors and retired naval intelligence officer – observed in an April 2005 newsletter that the ratio of total U.S. debt to gross domestic product (GDP) rose from 78 percent in 2000 to 308 percent in April 2005. The International Monetary Fund considers a nation-state with a total debt-to-GDP ratio of 200 percent or more to be a “de-constructed Third World nation-state.”
Martin explained:

What “de-constructed” actually means is that a political regime in that country, or series of political regimes, have, through a long period of fraud, abuse, graft, corruption and mismanagement, effectively collapsed the economy of that country.

What Does It Mean?
Some have asked questions like, “Is the goal to force the US into the same kinds of IMF austerity programs that have caused riots in so many other nations?” Some predicted years ago that the “international bankers” would bring down the American economy.I used to think, frankly, that such kinds of talk were crazy-talk. I’m not so sure anymore.

Catherine Austin Fitts – former managing director of a Wall Street investment bank and Assistant Secretary of the Department of Housing and Urban Development (HUD) under President George Bush Sr. – calls what is happening to the economy “a criminal leveraged buyout of America,” something she defines as “buying a country for cheap with its own money and then jacking up the rents and fees to steal the rest.” She also calls it the “American Tapeworm” model, explaining:

[T]he American Tapeworm model is to simply finance the federal deficit through warfare, currency exports, Treasury and federal credit borrowing and cutbacks in domestic “discretionary” spending …. This will then place local municipalities and local leadership in a highly vulnerable position – one that will allow them to be persuaded with bogus but high-minded sounding arguments to further cut resources. Then, to “preserve bond ratings and the rights of creditors,” our leaders can he persuaded to sell our water, natural resources and infrastructure assets at significant discounts of their true value to global investors …. This will be described as a plan to “save America” by recapitalizing it on a sound financial footing. In fact, this process will simply shift more capital continuously from America to other continents and from the lower and middle classes to elites.

Writer Mike Whitney wrote in CounterPunch in April 2005:

[T]he towering [U.S.] national debt coupled with the staggering trade deficits
have put the nation on a precipice and a seismic shift in the fortunes of middle-class Americans is looking more likely all the time… The country has been intentionally plundered and will eventually wind up in the hands of its creditors This same Ponzi scheme has been carried out repeatedly by the IMF and World Bank throughout the world Bankruptcy is a fairly straightforward way of delivering valuable public assets and resources to collaborative industries, and of annihilating national sovereignty. After a nation is successfully driven to destitution, public policy decisions are made by creditors and not by representatives of the people …. The catastrophe that middle class Americans face is what these elites breezily refer to as “shock therapy”; a sudden jolt, followed by fundamental changes to the system. In the near future we can expect tax reform, fiscal discipline, deregulation, free capital flows, lowered tariffs, reduced public services, and privatization.

And given that experts on third world banana republics from the IMF and the Federal Reserve have said the U.S. has become a third world banana republic (and see this and this), maybe the process of turning first world into the third world is already complete.

Euro is imploding

By Daily Crux Editor Justin Brill:

The Euro declined by the largest amount in nearly a month this morning, falling as much as 1.1% against the yen. The usual suspect was the cause: Worries of a debt blowup in Greece.

Bloomberg reports: The yield on the benchmark Greek two-year note jumped 16 basis points to 3.72 percent, the highest level in almost a year. Rating downgrades sparked a rout in Greece’s bonds in December as the budget deficit headed for 12.7 percent of gross domestic product, more than four times the European Union limit. Read full article…

More on the euro: The euro is doomed
Greek default risk explodes to all-time high
Doug Casey: “Absolutely convinced the euro is going to fall apart”
UK, Germany, France at Greater Default Risk Than Top Companies

US deficit greater than -1.4 trillions

Looking at this vertical drop, soon someone will have either to change unit of measurement or get a shovel and start digging.
The day of reckoning should be near, since no one wants nor is capable to bailout the Fed. Interesting times ahead.

More: “…Very simply, the US government is bankrupt. They can either default or lay the burden on future generations. The immediate answer is for government to cut spending on such trivialities, such as Medicaid, Medicare and Social Security. Allow the citizens to live in penury and poverty. These are the people who helped build America into what it is and they are to be cast aside as the Fed rescues its owners, the bankers, who deliberately caused the problem in the first place.

The deficit for fiscal 2010 should be close to $2 trillion, up from $1.4 trillion in 2009. The projection for the next ten years is at least $10 trillion. That means an increase of 150% to be serviced by 60% increase in tax revenue in a world where current receipts are off 30%. Even in better times recently tax revenues only increased by 12% during the biggest real estate and stock booms ever…” Read all here

IMF: Every Developed Country Is On The Kamikaze US Debt Path

from: The Business Insider by Vincent Fernando

Here’s the good news – U.S. debt levels will be perfectly normal relative to other developed countries over the next few years, according to the International Monetary Fund.

Here’s the bad news – It’s because every advanced nation is piling on debt like there’s no tomorrow.

Thus massive government debt is the new normal for the G20 nations. For the U.S. dollar, this is actually great news relative to other major G20 currencies. Meanwhile, developing nations will continue reducing debt to GDP, which is even better news for theirs.

The Economist: The IMF forecasts that gross government debt among advanced economies will continue to rise until 2014, reaching 114% of GDP, compared to just 35% for developing nations.

Join the conversation about this story »

Chart via The Economist

More:

• Desperate Greek Minister Tries Instilling Confidence On CNBC, Doesn’t Get Interrupted By News Of A Governor And Prostitute
• It’s Spreading: The Greek Flu Comes To Austria
• Greek Finance Minister Comes Out Swinging, Hints At Similarities With US Debt Situation
• Moody’s Downgrades Greece, As Civil Servants Union Threatens To Go On Strike To Protest Budget Cuts
• Half Of State Unemployment Programs Are Broke
• Bankers fear sovereign risk in 2010
• Europe’s debt mountain crushes the euro

Red alert: "Japanese might be dumping U.S. treasuries"

The Japanese rumor takes a Bloomberg stage.
I would say that is smoke so there may be fire.

U.S. Treasuries’ Biggest Overseas Buyer May Sell
By David Wilson

Dec. 4 (Bloomberg) — Speculation that the Japanese government plans to sell $100 billion of U.S. Treasury debt to pay for domestic spending may impede the Obama administration’s borrowing plans.

Japan has been this year’s biggest buyer of Treasuries, which means it has done more to help finance the widening U.S. budget deficit than any other country. Its holdings have risen by $125.5 billion, according to data compiled by the Treasury. The comparable figure for China, which surpassed Japan last year as the largest international investor in the securities, is $71.5 billion — 43 percent lower.

The CHART OF THE DAY shows this year’s total holdings of the two countries in the top panel and tracks the gap between them in the bottom panel.

Japan will inform the U.S. about the possible $100 billion sale, according to a Market News International report yesterday that cited “rumors” from unnamed sources.

“There’s absolutely no such proposal right now,” Chief Cabinet Secretary Hirofumi Hirano told reporters today in Tokyo. “That kind of talk often surfaces at this season.”

More…

Reality is in the process of taking command

Don’t miss the latest International Forecaster’s article, published Dec. 2, 2009. Excerpts:

“…As a result of all this the only way the players can keep the game going is by inflating via quantitative easing and monetization. They know the game will soon end and the dumb sheep will be shorn again. The monetary collapse is on the way. If you read our last issue you know that the elitists expect to devalue the dollar officially by the end of 2010. It could take longer, but it is going to happen. The suspension of the Fed by Congress is on the way as is another war – a war extensive and powerful enough to destroy more than half of humanity. The system as we now know it is in the final state of collapse.

…The elitists get away with it because the public and our leadership do not understand what they do. They may well be catching on though, as 75% of Americans want the Fed audited and investigated. That has send cold shivers up the backs of our resident Illuminists.

The last time Congress wouldn’t heel to these destroyers Mr. Paulson told them that is fine, we will just let the system destruct. Our bought off Congress heeled and succumbed to their masters.

In the final analysis the game is in the process of ending. The game of bookkeeping entries is over. Reality is in the process of taking command. Zero loans from the Fed to their owners in the form of money made up out of thin air, then turned into interest bearing deposits is ludicrous on its face. How can any educated person believe in such chicanery? We give the banks money and then pay them for holding it for them. We call that free money – a gift – that no one else in the nation gets, except for these anointed banks. No jobs are created, less money is loaned and the malefactors are rewarded. What kind of a system is this? Few say anything for these elitist control the media as well and are shamed into silence even newsletter writers.

America’s military force is become less and less as a factor. The world markets are simply reflecting the reality of the monetary and fiscal problems. No military in the world can defeat this reality. You cannot conquer bankruptcy. America can never pay its debt. The powers behind government blinked and their bluff have been called. The problem is there will be no winners. Every person on this planet will be a loser. 2010 will signal the beginning of the end for the world financial system. The US and world economy will begin spiraling out of control. First by official devaluation and default, and by an implosion into violence. There won’t be money to keep the system afloat. …”
Read all

Imminent Bankruptcy of the US

From Porter Stansberry in the S&A Digest:

It’s one of those numbers that’s so unbelievable you have to actually think about it for a while… Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that’s not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That’s an amount equal to nearly 30% of our entire GDP. And we’re the world’s biggest economy. Where will the money come from?

…When governments go bankrupt it’s called “a default.” Currency speculators figured out how to accurately predict when a country would default. Two well-known economists – Alan Greenspan and Pablo Guidotti – published the secret formula in a 1999 academic paper. That’s why the formula is called the Greenspan-Guidotti rule. The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world’s largest money management firm, PIMCO, explains the rule this way: “The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support.”

The principle behind the rule is simple. If you can’t pay off all of your foreign debts in the next 12 months, you’re a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.

So how does America rank on the Greenspan-Guidotti scale? It’s a guaranteed default. The U.S. holds gold, oil, and foreign currency in reserve. The U.S. has 8,133.5 metric tonnes of gold (it is the world’s largest holder). That’s 16,267,000 pounds. At current dollar values, it’s worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that’s roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether… that’s around $500 billion of reserves. Our short-term foreign debts are far bigger.

According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we’ve been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months – an amount far larger than our reserves.

Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.

So… where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we’re still going to come up nearly $3 trillion short. That’s an annual funding requirement equal to roughly 40% of GDP. Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or the Russian central bank, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.

So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.

One thing they’re not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None own even 1% of their total reserves in gold.

I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry’s Investment Advisory, which we published last Friday. Coincidentally, the New York Times repeated our warnings – nearly word for word – in its paper today. (They didn’t mention Greenspan-Guidotti, however… It’s a real secret of international speculators.)

Crux Note: The S&A Digest comes free with a subscription to Porter Stansberry’s Investment Advisory. Porter says his latest issue is the most important he’s ever written. If you don’t act right now to protect yourself from the dollar, he thinks the odds are very high you’ll be wiped out over the next 12 months. To learn more, click here. Source

More: Dollar Set To Surprise
The dollar ($) is set to surprise the few remaining speculators that think it can’t happen by falling further straight away, possibly taking it down to test all time lows at 71. Here, we are talking about the possibility of a more disorderly decline …

More: Peter Schiff: Wealth Shifting Out of US and the Dollar

More: Goldman Staff Packing Pistols to Defend Against Peasants

More: Madmen, Gamblers, Alcoholics, the US Dollar and Gold

More: Zombie Capitalism: Bernanke “Marching Ignorantly Forward”

More: Inflating Away the Debt? Not Really.

More: Budget Deficit Blowback

World debt bubble is increasing spectacularly

From the latest article by Bill Bonner. Excerpt:

“…this freak show cannot go on forever. The US has $2 trillion worth of short-term bills that must be refinanced in the next 12 months. It must also refinance about $1 trillion more of notes and bonds. That’s without adding any additional debt! So put a deficit of $1.5 trillion on top of that and you have $4.5 trillion of financing for the US alone.

But the US is not the only one fishing in this pond. Japan’s national debt already measures 200% of its GDP and is increasing rapidly. So far, Japan’s deficits have been financed internally. The Japanese saved 20% of their household incomes in 1980. But the Japanese are aging. When they retire, people cease saving and begin drawing on savings to cover living expenses. At the current pace, the household savings rate should fall to zero in 5 years. Then, who will buy Japan’s bonds? Who will cover Japan’s deficits? The same people who are supposed to cover America’s deficits?

Taken all together, the world’s governments will need $1 trillion per month, in financing, over the next 12 months, according to an estimate in the Financial Times. Who has that kind of money? Total US savings are only $700 billion. Even the Chinese, if they put their entire cash pile to it, could only fund the deficits for about 67 days’ worth. Warren Buffett? Less than 48 hours.

There is also the problem of paying the interest on rising debt loads. Thanks to the forgetfulness or credulity of the world’s lenders, borrowers now benefit from exceptionally low rates – just like the ‘teaser’ rates once accorded to sub-prime lenders. But the tease will come to an end soon. Even the Obama Administration forecasts interest payments to rise from $200 billion at present to $700 billion by 2019. This assumes interest rates only regress to ‘normal.’ ” Read all here