Barton Biggs: Head for the Hills!

[Reinaul Profile]

Why China's Rumored IMF Gold Purchase, If True, Would Be of Huge Significance

The Underground Investor
Fri, 26 Feb 2010 11:09 EST

A yet to be verified story from Rough & Polished, a Moscow based website, reported that China had "confirmed its decision to acquire 191.3 tons of gold auctioned by the International Monetary Fund." Of course, until official confirmation comes from China, no one will really know if this story is true or not. However, if true, here's why this story would be hugely significant to the gold market.

One, such a purchase would give more validity to the theory that China, with a vested interest in the price of gold today, is willing to intercede and support gold prices whenever they are being attacked by the US Federal Reserve and Bank of England through their manipulation of fraudulent gold futures markets in London and New York.

Two, it would further support exposing the gold futures markets in London and New York as nothing more than a gold fractional reserve playground that allows the western banking cartel to manipulate gold prices. The last available Commitment of Traders reports indicated that the Commercials were short 663.83 metric tonnes of gold. This position is supposed to be fully deliverable by the Commercials should the offsetting longs ask for delivery. Even though the Commercials very likely hold some of the offsetting longs through spread positions, that short position still represents a ton (no pun intended) of gold - gold, that according to COMEX regulations, must be available for physical delivery. However, if an incredibly large tonnage of physical (not paper) gold were really available for purchase on the COMEX, why would China feel an urgency to take delivery of a mere 191.3 tonnes of gold now through the IMF? Could it be because India "scooped" them the last time the IMF made a gold sale and China does not wish to be left twisting in the wind again with very little physical gold available for delivery in the global futures markets? If the China IMF gold story were true, the above would be plausible reasons for China acting now rather than later.

Remember, last week in my article "IMF Gold Sales v. the Alchemy of Gold Futures", I stated,

"If you were India, China or the United Arab Emirates and you wanted to buy 200 tonnes of gold at the price established in futures markets, but you knew that there was no possible situation whereby 200 tonnes of gold would ever be delivered to you via the futures markets, what would you do? Would you buy 200 tonnes of gold in the futures markets only to know that you would suffer a default of this delivery and likely be forced to pay a much higher price in the future or would you try to arrange to buy 200 tonnes of gold NOW from the IMF or another Central Bank? Of course, you would choose the latter tactic."

If it turns out that this story is true, then apparently the Chinese government agrees with me. Also remember that China, as the world's largest producer of gold, is likely to keep the vast majority of its future gold production in house. Thus if China is still turning to the outside market to buy its gold to buttress its gold reserves in addition to its internal production, then this story is very bullish for the long-term future of gold.

Three, if this story is later confirmed to be true, only an inside Chinese source could have leaked this story. No inside source would have leaked this story unless the deal had already been sealed as such information pre-sale would be very detrimental to China as it would lead to a higher purchase price. If this story is true, this again, lends credence to the theories that China now serves as a very important counter to the gold price suppression schemes of the western banking cartel. Remember, as recently as five years ago, the western banking cartel essentially faced ZERO opposition to its price suppression schemes in gold and silver. Thus, the emergence of a powerful opposition force would be a huge development to the gold market.

Finally, if this story were confirmed, then this event would likely allow gold as well as mining stocks to form a bottom in preparation for a move higher. Though the agents of the western banking cartel always like to paint gold supporters as a fringe lunatic movement that perpetually believe gold is heading to $10,000 an ounce tomorrow, this is the furthest possible representation of reality. I have always found supporters of gold to be among the most well informed people in the world in regard to understanding how stock market and futures manipulation schemes operate versus those that remain blind to this reality.

To dispel the notion that gold supporters never recognize and play the downside of rapid downward corrections in precious metal, on February 22nd, more than 10 hours before New York markets opened, I sent an alert to my subscribers in which I stated,

"Even if gold futures rise as high as $30 a day in Asia today [gold futures were up $9 an ounce at the time in Asia], a selloff in London and New York today or tomorrow [February 22& 23, 2010], given the action in gold futures and gold stocks last week, would still not surprise me one bit. Of course, if this happens, and I think it is likely to happen, then we could see some more weakness in gold stocks to begin this week before they resume their rise."

And this is exactly what has happened thus far. Though we are not yet out of the woods in terms of this current gold and silver correction, the China story, if confirmed, could be the trigger to put in the bottom for this current correction.

Of course, if this story later turns out to be unfounded, then it may trigger a continued temporary, albeit likely brief, further slide in gold prices. In conclusion, though on the surface China's yet to be confirmed purchase of gold from the IMF seems to be just a passing note unworthy of attention, if it turns out to be true, we may very well look back at this event as marking a crucial turning point in the gold market.

http://www.sott.net/articles/show/20371 ... gnificance

[Reinaul Profile]

The Whole Western World is in Crisis: Bring in the Vulture Capitalists aka IMF

CrossTalks Peter Lavelle asks his guests where the Eurozone is going. Greece lied to get into Eurozone and Brussels knew this. As Greece goes, so does the Euro and the EU? The end of the global financial crisis is far from over.

[youtube]ZEIYGMW-Sow&feature=player_embedded#[/youtube]

[Reinaul Profile]

This is one of the biggest Wall Street frauds ever...

Porter Stansberry
The Daily Crux
Thu, 25 Feb 2010 01:19 EST

One of the best lessons I've learned over my career as an investment analyst is the myth of excellent management or "great execution" is really just that - a myth.

When I see companies in troubled industries reporting quarter after quarter of great results, while all of their peers are getting killed, I know a fraud is going on. I remember in the early 2000s, WorldCom kept reporting profits when all of the other long-distance carriers were getting killed. I knew it couldn't last. And it didn't. WorldCom's accounting was revealed to be a fraud - the company was counting its network access costs as capital expenses. Once the real numbers came out, the company collapsed in what was the largest bankruptcy in American history at that point.

About three years ago, I saw Goldman Sachs reporting quarter after quarter of unbelievable results when all of the other investment banks were hurting. I spent a lot of time looking at its numbers - which didn't make any sense. It reminded me of Enron. It kept reporting bigger and bigger profits, but lost more money every year in cash. And its debt balances kept growing.

I wrote a lot about this in The Digest, but I never officially recommended shorting Goldman in my newsletter because I literally couldn't figure out how Goldman Sachs was doing it. I couldn't find the smoking gun... but I knew a giant fraud would be discovered there, eventually.

In October 2008, I figured out part of the big secret: Goldman had insured all of its subprime exposure via AIG. This allowed it to book huge profits on its subprime investments long before they were actually paid off because the bonds were insured. Of course, it was all a sham - AIG didn't have nearly enough money to pay off any of the insurance. (See the October issue of PSIA for more details.) A source close to the company even told me how big the exposure to AIG really was - $20 billion. That's roughly 100% of the profit Goldman claimed in 2006 and 2007, at the height of the credit bubble. Goldman completely denied my report and claimed it had zero exposure to AIG.

As was subsequently revealed in the spring of 2009, my report was right on the money. Goldman had roughly $20 billion in exposure to AIG and received roughly $14 billion of money the federal government used to bail out AIG.

But I completely missed one big part of the story... And once this fact becomes common knowledge, it will probably mean jail time for several leading Goldman executives and the end of the firm. What did I miss? The entire Goldman-AIG relationship was a complete sham. Let me explain...

Goldman eventually admitted it had insured roughly $20 billion worth of subprime CDOs with AIG and had major exposure to the firm. But the New York Federal Reserve and Goldman Sachs never revealed this critical fact: Goldman didn't merely buy insurance on a bunch of random subprime CDOs. It actually bought insurance on special CDOs it had put together and sold to its own clients. In other words, Goldman knew more about these CDOs than anyone else. Goldman bought insurance on these CDOs because it knew they'd collapse.

This is tantamount to building a house, planting a bomb in it, selling it to an unsuspecting buyer, and buying $20 billion worth of life insurance on the homeowner - who you know is going to die!

These facts all came to light because of research done by the office of Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform. These new documents will certainly lead to a full investigation of the Goldman-AIG dealings and the subsequent $180 billion bailout led by the New York Federal Reserve. My bet? Heads will roll. If you own Goldman Sachs, you'd better sell.

http://www.sott.net/articles/show/20377 ... auds-ever-

[Reinaul Profile]

A Titanic Budget in an Ocean of Icebergs: Will the USS Budget Go Down?


Jo Comerford
TomDispatch
Sun, 28 Feb 2010 17:00 EST

An Introduction by Tom Engelhardt:

If there were a prize for worst headline of the week, even the month, it would surely go to a February 23rd piece in the New York Times headlined online: "Gates Calls European Mood a Danger to Peace." The bellicose "mood," so undermining of global peace that our secretary of defense had to go after it, was (according to Brian Knowlton of the Times) the "public and political opposition to the military" spreading across Europe. Who wouldn't react similarly in the face of such an unnerving phenomenon? After all, should it grow stronger, peace on Earth will surely prove a chimera.

European publics are now, it seems, so totally peaceable that, while the thousandth American died "in and around Afghanistan" in Operation Enduring Freedom last week to next to no notice here, they continued to exhibit extraordinary "weakness." After all, this was also the week in which -- speak of the devil -- the Dutch coalition government collapsed over a dispute about the public's desire to get Dutch troops out of Afghanistan. What an example of that anti-peace bogeyman run riot! No wonder Gates was warning that the perception of weakness could lead hostile powers (unnamed) to a "temptation to miscalculate and aggression."

Fortunately, one country is still willing to sink its money (and lives) into the armed enhancement of peace globally: the United States. As Jo Comerford of the National Priorities Project points out, the latest federal budget opens the American public to yet more pain, while shielding the military and the rest of the national security establishment from the same. Fortunately, that "antiwar mood" seems not to have jumped the wide Atlantic, which means, for the time being, peace is safe in America.

A Titanic Budget in an Ocean of Icebergs
Will the USS Budget Go Down?
By Jo Comerford

Send up a flare! The 2011 federal budget has sprung some leaks in the midst of a storm. Not sure there's enough money for life rafts! Forget women and children first!

Buffeted by economic hard times, the 2,585-page, $3.8 trillion document is already taking on water, though this won't be obvious to you if you're reading the mainstream media. Let's start with the absolute basics: 59% of the budget's spending is dedicated to mandatory programs like Medicaid, Medicare, Unemployment Insurance, Social Security, and now Pell Grants; 34% is to be spent on "discretionary programs," including education, transportation, housing, and the military; 7% will be used to service the national debt.

A serious look at this budget document reveals some "leaks" -- two in actual spending practices and two in the basic assumptions that undergird the budget itself. Ship-shape as it may look on the surface, this is a budget perilously close to an iceberg, and it's not clear whether the captain of the ship will heed the obvious warning signs.

Whose Security Is This Anyway?

In his State of the Union Address, given several days before the 2011 budget was released, President Obama announced a three-year freeze on "non-security discretionary spending." This was meant as a gesture toward paying down the looming national debt, but it should also be considered an early warning sign for leak number one. After all, the president exempted all national-security-related spending from the cutting process. Practically speaking, according to the National Priorities Project (NPP), national security spending makes up about 67% of that discretionary 34% slice of the budget. In 2011, that will include an as-yet-untouchable $737 billion for the Pentagon alone.

Within the context of the total budget, then, so-called non-security discretionary spending represents a mere 11% of proposed 2011 spending. In other words, Obama's present plans to chip away at the debt involve leaving 89% of the budget untouched. Only the $370 billion going to myriad domestic social programs will be on the chopping block.

What's in that $370 billion? Well, for starters, programs that focus on the environment, energy, and science. In the 2011 budget, these categories combined are projected to receive $79 billion or 6% of total domestic discretionary spending. Though each of these areas could actually use a significant boost in funds, that's obviously not in the cards -- and this will translate into less money at the state level. New York, for example, is projected to receive $247 million in home energy assistance for low-income folks, down more than $230 million from 2010. These funds mean an energy safety net for our communities, and also warmth and jobs in a cold winter, which looks like "security" to most of us, no matter what our captain says.

Asking for disproportionate cuts and efficiencies in programs in only 11% percent of the overall budget might perhaps be slightly easier to stomach if military spending wasn't allowed relatively free rein in 2011 (and thereafter). The NPP estimates, in fact, that aggregated increases in military spending over the next decade will exceed $500 billion, drowning twice-over the projected $250 billion in non-security discretionary savings from the president's cuts over the same time period. Consider this visible unwillingness to control military-related spending leak two in our budgetary Titanic.

By now, danger flags should be going up in profusion because the second leak is so familiar, so George W. Bush. With each new bit of information, in fact, it sounds more and more like the same old song, the last guy's tune. It's clear that, as soon as the stimulus bump wears off later this year, we're in danger of falling back into exactly the same more-money-for-the-military, less-federal-aid-to-the-states rut we've been in for years, despite strong statements from both President Obama and Defense Secretary Robert Gates decrying Pentagon waste.

And speaking of waste, the Department of Defense is currently carrying weapons-program cost overruns for 96 of its major weapons programs totaling $295 billion, which alone are guaranteed to wipe out any proposed savings from President Obama's non-security discretionary freeze, with $45 billion to spare. That's only to be expected, since neither the Pentagon nor any of the armed services have ever been able to pass a proper audit. Ever.

If they had, what would have become of the C-17, the Air Force's giant cargo plane? With a price tag now approaching $330 million per plane and a total program cost of well over $65 billion, the C-17, produced by weapons-maker Boeing, has miraculously evaded every attempt to squash it. In fact, Congress even included $2.5 billion in the 2010 budget for ten C-17s that the Pentagon hadn't requested.

Keep in mind that $2.5 billion is a lot of money, especially when cuts to domestic spending are threatened. It could, for instance, provide an estimated 141,681 children and adults with health care for one year and pay the salaries of 6,138 public safety officers, 4,649 music and art teachers, and 4,568 elementary school teachers for that same year. Having done that, it could still fund 22,610 scholarships for university students, provide 46,130 students the maximum Pell Grant of $5,550 for the college of their choice, allow for the building of 1,877 affordable housing units, and provide 382,879 homes with renewable electricity -- again for that same year -- and enough money would be left over to carve out 29,630 free Head Start places for kids. That's for ten giant transport planes that the military isn't even asking for.

Domestic-spending freeze proponents demand that our $13 trillion national debt, accumulated over seven decades, be turned back starting now. Critics of Obama's freeze remind us that, while the C-17 flourishes, cutting into that domestic 11% is like trying to get blood from a stone. They argue that what we need in recessionary times is an infusion of strategic domestic spending. They tend to cite Mark Zandi, chief economist for Moody's Economy.com, who has noted that, for every dollar in stimulus aid directed toward the states, $1.40 returns to the economy, while every dollar invested in infrastructure spending yields $1.60.

Freeze critics are acutely aware that, by December 31, 2010, most of the American Recovery and Reinvestment Act (ARRA), that Obama stimulus package, will expire and states will face a remarkably bleak future. By then, they will also have spent the bulk of their education-relief funds, even as they grapple with a projected 48-state 2011 budget gap of $180 billion. Last year, despite the infusion of stimulus money, the same 48 states were already experiencing significant budget gaps and so cut a cumulative $194 billion or 28% of their total 2010 budgets.

Having already imposed deep program cuts, governors in almost every state will have to make even more excruciating choices before July 1st, the beginning of their next fiscal year. In Massachusetts, officials are considering eliminating funding for a program providing housing vouchers to homeless families. California is facing $1.5 billion in reductions to kindergarten through 12th grade education and community college funding, while New York State may have to reduce payments to health-care providers by $400 million.

On the eve of the annual gathering of governors in Washington D.C., Ray Scheppach, executive director of the National Governors Association, told a Washington Post columnist that he anticipates states needing to do far more than just institute program cuts, layoffs, and benefit cuts. Governors will have to permanently sell off assets like roads and office buildings, or implement a host of other previously "off-limits" changes.

Afloat in an Ever Harsher World

Having looked at two obvious leaks in the upper hull of our budgetary ship of state, it's time to move deep underwater and examine the weak spots in two of the basic assumptions that undergird the new budget. The first deals with an issue on everyone's mind: unemployment.

The 2011 budget numbers are based on a crucial projection: just where the unemployment rate will be in 2012. Revenues available at the federal and state levels will depend, in part, on how many people go back to work and once again begin paying taxes on their wages. For the pending and projected federal budgets to have a shot at panning out, unemployment must decline, as the budget predicts it will, from the present official rate of 9.7% to 8.5% by 2012. That doesn't sound like much of a drop, especially when Americans are in job pain. But there's a strong likelihood that even this goal is unattainable.

In reality, the U.S. needs to generate an estimated 1.5 million new jobs each year simply to keep pace with the arrival of newcomers on the job market. That's before we talk about knocking down the present staggering unemployment rate. In this case, however, one set of budget projections (that three-year domestic spending freeze) might work against the other (that modest decline in unemployment). Fewer federal stimulus dollars will be available to offset onrushing shortfall disasters at the state budgetary level, which means a potential drop in jobs. And, thanks to that domestic freeze, more pain is in the offing, with fewer services available, for those out of work. Even if the new Senate jobs bill makes it to the president's desk, it's unlikely to go far enough to make a real difference. All of this means that an 8.5% unemployment rate in two years is, at best, an optimistic projection.

Even if that figure were hit, however, Americans still wouldn't be celebrating, in budgetary terms or otherwise. At 8.5%, we're only back to an unemployment rate not seen in more than a quarter of a century, and keep in mind that a one-dimensional unemployment figure can't begin to capture the complexity of what the Bureau of Labor Statistics describes as "alternate measures of labor underutilization." In other words, it doesn't count everyone who is underemployed, employed only part-time, or discouraged and so considered out of the job market. At 16.5% as of January 2010, this measure tells a very different story.

Nor does that 8.5% figure capture the disproportionately terrible employment situation faced by young people or people of color who are distinctly over-represented on the unemployment rolls. And if you happen to live in certain metropolitan areas, 50% of you can kiss your chances of a quick recovery goodbye. According to the projections of a U.S. Conference of Mayors study titled "U.S. Metro Economics," Dayton, Ohio, is not expected to see a significant employment bounce until 2015; Hartford, Connecticut, not until 2018, and Detroit, Michigan, not until after 2039.

As Atlantic magazine Deputy Managing Editor Don Peck noted recently, it will be a long time before we dig ourselves out of this current job crisis. "We are living through a slow motion catastrophe," he writes, "one that could stain our culture and weaken our nation for many, many years to come."

That projected 8.5% figure and all the projected freezes and cuts that go with it, don't begin to address this reality. Think of that as leak three.

Then, consider this little tidbit from the 2011 budget, hardly noted or discussed in the news, even though it has the potential to punch a hole in the budgetary hull: the document projects a zero percent cost of living adjustment (COLA) for Food Stamps through 2019.

To understand just what this means, it's necessary to step back for a moment. According to the U.S. Department of Agriculture (USDA), food stamp usage is remarkably widespread and growing. Thirty-six million Americans, including one out of every four children, are currently on Food Stamps. An estimated monthly Food Stamp benefit for a family of four is $321 (approximately 89 cents per person per meal), which already falls significantly short of what the USDA considers a "thrifty" family's grocery receipts, estimated at roughly $513 per month.

If the COLA for food stamps is frozen over the next eight years, NPP analysts project a 19% erosion in the buying power of those stamps due to inflation. This means that, by the end of 2019, a similar family of four, eating at exactly the same level, would be paying $611 a month for its food, or $100 more, while still receiving that same $321.

In other words, if the 2011 budget and its projections proceed as planned, a great many Americans will be hungrier and still jobless in a harsher, meaner world, while what budgetary savings are achieved on the backs of the poorest Americans will be gobbled up by wars, weapons, and other "security" needs. Ordinary Americans will largely be left in a sink or swim world and the waters will be very, very cold.

Tell the radio operator. It's none too soon. Start sending out the signals. SOS... SOS... SOS...

http://www.sott.net/articles/show/20384 ... t-Go-Down-

[Disorganizer81 Profile]

According to The HitchHikers Guide to the Galaxy, what the Bible is trying to say is this: Don't Panic.

WWJD?








to answer. Jesus would PANIC!

[Reinaul Profile]

Greece Now, U.K. Next as Scots Ready for Pound Plunge (Update2)

by Rodney Jefferson

March 1 (Bloomberg) -- While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.

Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Sterling slid to a 10- month low versus the U.S. currency today.

“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”

Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.

Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”

U.K. fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than 30 billion pounds ($45 billion), said in January they are buying companies that do the bulk of their business abroad.

‘Very Dire’

“When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for 560 million pounds. “I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”

The U.K.’s budget deficit is roughly the same as Greece’s, both exceeding 12 percent of economic output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.

Concern that Greece won’t be able to cut its deficit helped send the euro 5.6 percent lower against the dollar this year. The euro today strengthened to a three-month high against the pound, trading above 90 pence.

British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record 225.1 billion pounds from the 220 billion pounds announced in April. Moody’s Investors Service said in December the U.K. may “test the Aaa boundaries.”

Hung Parliament

Brown must call an election by June and some polls signal that no party will emerge with a clear majority.

The pound fell below $1.50 today for the first time since May last year, taking this year’s decline to 8 percent. A YouGov Plc poll published yesterday showed Brown’s Labour Party only two percentage points behind the opposition Conservatives, the narrowest margin for more than two years.

A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 percent from a previous estimate of 0.1 percent.

“There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the U.K.”

UBS Report

The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the U.K. cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a Feb. 24 report.

Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.

The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said. Policy maker Adam Posen said Feb. 24 the central bank may expand the 200 billion-pound asset-purchase plan should the economic recovery prove weaker than expected.

“If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”

Selling Bonds

Bathgate said he sold conventional U.K. government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.

The firm also has reduced holdings in corporate bonds because of the potential “knock-on impact” from a decline in government securities.

The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03 percent last week. The yield on Greek 10-year bonds fell 6 points to 6.39 percent. German bunds, the region’s benchmark debt, declined 18 points to 3.10 percent.

Turcan Connell, whose clients typically have at least 5 million pounds to invest, was founded in 1998 and oversees about 1 billion pounds in total. Bathgate is responsible for allocating money to different funds, and half is currently in stocks portfolios with 30 percent in hedge funds and other so- called alternative investments.

[Reinaul Profile]

The 2009 Financial Report Of The U.S. Government Is Out - America's Economic Goose Is Cooked


The 2009 Financial Report Of The U.S. Government has finally been released, and the news is not good. It basically confirms much of what we already know - that the United States government is a complete financial mess. The U.S. government budget deficit for 2009 was a record-setting 1.417 trillion dollars. The total liabilities of the U.S. government rose from 12.178 trillion dollars at the end of 2008 to 14.123 trillion dollars by the end of 2009. At their present rates of growth, the interest on the national debt and spending on entitlement programs will gobble up almost every single dollar of federal revenue by the end of the decade. Throughout the report, the word "unsustainable" is repeatedly used. The authors of the report understand that the U.S. government simply cannot keep spending and borrowing like it has been recently. But if the U.S. government slows down this reckless spending even a little bit it could literally plunge the U.S. economy into a deflationary depression. In fact, even with all of the "bailouts" and "stimulus packages" there are many who would argue that we are already in a depression. In any event, the authors of the report make it clear that the United States government is facing a financial crisis of unprecedented magnitude.

Just consider the following chart below. This chart comes straight out of the 2009 Financial
Report Of The U.S. Government, and it shows how explosively federal deficits have grown in
recent years....



The reality is that deficits of three or four hundred billion dollars per year were catastrophic enough.

But a deficit of 1.4 trillion?

That is national financial suicide.

In fact, the chart below from the White House Office of Management and Budget shows just how dire the financial position of the U.S. government has become. The government has dramatically increased spending at a time when government revenues are actually falling....



But this was supposed to be a time when the federal government would be running surpluses to prepare for the massive growth in entitlement spending that everyone knew would come when the Baby Boomers retire.

But that is not happening.

Instead we are already running record-setting deficits.

So what is causing these deficits?

Rampant, out of control spending. Just check out this chart of federal net outlays....



What would happen to your own personal finances if your household spending kept increasing like that?

But things are not going to get any better any time soon.

As interest on the national debt piles up and as spending on Social Security and Medicare explodes it will be extremely difficult to control the U.S. federal budget deficit.

The report projects that the rapidly growing interest costs on the national debt together with spending on major entitlement programs will absorb approximately 92 cents of every dollar of federal revenue by 2019.

That is before anything is spent on defense, education, homeland security, job creation or anything else.

In particular, the growth of interest on the national debt promises to absolutely crush U.S. government finances if something is not done. Just consider the following chart pulled right out of the report....



Take a moment and let the implications of that chart sink in.

Are you prepared to saddle future generations with interest payments that gobble up 30 percent of GDP?

But wait, there's more.

According to the report, the present value of projected scheduled benefits exceeds earmarked revenues for social insurance programs such as Social Security and Medicare by about $46 trillion over the next 75 years.

So either the U.S. government is going to have to radically cut back Social Security and Medicare benefits or they will have to come up with tens of trillions of extra dollars from somewhere.

And remember, the 46 trillion dollar figure is just the "present value" of those future payments.

Because of inflation, the actual value of those future payments will be far, far, far greater.

In a section about Social Security and Medicare, the authors of the report freely admitted that "it is apparent that these programs are on a fiscally unsustainable path".

Well, can't we just "grow" our way out of these problems?

Hardly.

The truth is that the U.S. economy is caught in an economic death spiral.

Sometimes words just cannot express how bad things have gotten.

Sometimes it takes charts.

The following chart shows changes in our national income since 1950....



This next chart shows changes in our exports of goods and services since about 1930....



Are you starting to get the picture?

America's economic goose is cooked.

We are drowning in a sea of debt at the same time our once mighty economic machine is sputtering to a stop.

Meanwhile, the financial powers that be are not about to let a good crisis go to waste. Just like during the Great Depression, the sharks are using hard times as an excuse to gobble up the smaller, weaker fish. In fact, there are persistent whispers that the financial elite see this current economic crisis as the perfect opportunity to consolidate the U.S. banking industry.

In any event, it does not look like things are going to get back to "normal" for most of us any time soon.

Lastly, one interesting tidbit in the 2009 Financial Report Of The U.S. Government can be found in footnote 2 on page vii of the report. In that footnote it tells us why the financial results for the Federal Reserve are not included in the report....

The Federal Reserve is an independent organization and not considered a part of the Federal reporting entity. As such, their financial results are not consolidated into the Government’s financial statements.

http://theeconomiccollapseblog.com/arch ... -is-cooked

[Reinaul Profile]

Greek Protests Mount as Parliament Passes Budget Cuts

March 5 (Bloomberg) -- Striking Greek workers shut down transport and tried to storm parliament as lawmakers passed 4.8 billion euros ($6.5 billion) in budget cuts, including wage reductions, needed to trim the region’s biggest budget deficit.

Police with riot shields fired tear gas as demonstrators wearing biker helmets and ski masks pelted them with stones outside parliament in Athens where lawmakers approved the measures. Finance Minister George Papaconstantinou told parliament the cuts will show European Union allies and investors that Greece is making good on its deficit pledges.

“We didn’t create this crisis but now we have to pay for it,” said Manthos Adamakis, who was protesting with other catering workers outside the five-star Grande Bretagne Hotel on Syntagma Square in downtown Athens.

Tram, rail, subway and bus services shut in Athens and other cities as employees rallied against cuts to bonuses and holiday payments. A walk out by air-traffic controllers forced the cancellation of all 58 flights to and from Athens International Airport between midday and 4 p.m. and the rescheduling of another 135, according to a spokeswoman.

Europe’s Turn

Papaconstantinou said European allies should now act to pledge aid should Greece need help financing its growing debt. “Obviously, the EU must undertake responsibility, which it hasn’t done yet,” he told lawmakers.

EU nations are working on a contingency rescue plan for Greece to be funded by European governments, according to two people briefed yesterday in Berlin by an EU official.

Yannis Panagopoulos, the head of GSEE, Greece’ largest union, received first aid after being attacked by protesters at the rally outside parliament. Manolis Glezos, an 87-year-old World War II resistance fighter famous for pulling down the Nazi Swastika flag from the Acropolis in 1941, was also hospitalized after being affected by tear gas during the scuffles.

Groups of youths caused damage to shops, ministries and bank branches during the protests, the Attica Police, the city’s police force, said in a statement on its Web site. Five people were arrested for involvement in the violence and seven police officers were injured, it said.

GSEE and civil servants’ union ADEDY called a 24-hour general strike for March 11. ADEDY has already held two 24-hour strikes this year after the government backtracked on pledges to grant civil servants a wage increase.

EU Praise

Yesterday, the PAME union, aligned to the Communist Party of Greece, took over the Finance Ministry building and the General Accounting Office.

EU officials have praised the budget package announced this week and Greek bonds gained. German Chancellor Angela Merkel, who is due to meet Prime Minister George Papandreou in Berlin later today, told reporters in Munich that the Greek measures are a “courageous step” that’s already yielding results.

“Opinion polls show that a very large majority of Greeks understand that this in the interest of the country,” European Central Bank President Jean-Claude Trichet said today in an interview with Belgium’s RTBF radio. “It’s normal that there are demonstrations when decisions are taken. What counts is the main interest of the country.”

Still, most Greeks oppose the plan to cut wages and increase value-added tax, according to the first opinion poll published since the austerity moves were announced on March 3.

Wage Cuts

Seventy-two percent of 530 people surveyed by Public Issue for Skai Television said they disagreed with a drop in bonus- vacation payments, while 68 percent opposed a value-added tax increase. Sixty-two percent said Greece will see social unrest in the next year, according to the poll broadcast yesterday.

The additional budget cuts aim to save 1.7 billion euros through a 30 percent reduction to three bonus-salary payments to civil servants, a 7 percent overall decrease in wages at wider public-sector companies and a pension freeze. The reductions are accompanied by an increase to 21 percent from 19 percent in the main VAT tax as well as in alcohol and tobacco duties.

Teachers are also striking, closing some schools, and workers at the Public Power Corp SA, the country’s biggest electricity company and controlled by the state, also called a 24-hour strike today.

http://www.bloomberg.com/apps/news?pid= ... 4gms&pos=9

[Reinaul Profile]

Is the US economic recovery real?

Paul Craig Roberts
VDare
Tue, 02 Mar 2010 20:15 EST

Happy news! The government has come up with a 5.9 percent GDP growth rate in the fourth quarter of 2009. The recession is over.

Or is it? Statistician John Williams has informed us that 69 percent of this growth, or 4.1 percentage points, is the result of inventory accumulation. That leaves a 1.8 percent growth rate, and the 1.8 percent is likely due to the underestimate of inflation and other statistical problems.

The Federal Reserve's own monetary evidence contradicts the recovery assurances from Fed chairman Ben Bernanke. The Federal Reserve continues to pour massive reserves into the banks. The monetary base, which consists of currency in circulation and bank reserves (the basis for new loans), has surged from $850 billion in 2009 to $2.2 trillion on February 24.

Despite this potential for massive new money creation, the broadest measure of money growth is still contracting. The banks are too impaired and so are consumers for the banks to create new money by making loans.

The economy, in other words, is going nowhere.

As I have emphasized for years, an economy that moves its high productivity, high value-added jobs offshore is going nowhere but down. Except for the super-rich, there has been no growth in people's incomes for a decade. To substitute for the missing income growth, consumers took on more debt. The growth in consumer debt kept the economy going. However, most consumers have now reached their maximum debt load, and millions went beyond their limit, resulting in foreclosures and lost homes.

There are no jobs to which people can be called back to work. The jobs have been given to the Chinese and Indians.

The economy is set for a "double-dip," that is, renewed decline. This, of course, means larger federal, state, and local budget deficits. The U.S. federal deficit is now so large that it can no longer be financed by the trade surpluses of China, Japan, and OPEC.

Currently the deficit is being financed by deterioration in the Federal Reserve's balance sheet. The Fed is creating new reserves for the banks (thus the surge in the monetary base) in exchange for the bank's toxic financial instruments. The banks are using the reserves to purchase Treasury debt instead of making new loans. This makes money for the banks, but does not grow the economy or create jobs for the millions of unemployed.

According to reports, recent auctions of Treasury debt have not gone well. China, America's biggest creditor, has reduced its participation and is even selling some of its existing holdings. Whenever all of a new Treasury debt offering is not taken, the Federal Reserve buys the remainder. This results in debt monetization. The Fed pays for the bonds by creating new checking accounts for the Treasury, in other words, by printing money.

On February 24, Fed chairman Ben Bernanke told Congress that the U.S. faced a serious debt crisis and that the Fed was not going to print money in order to pay the government's bills. In fact, Bernanke would have no choice but to print money.

Bernanke's warning to Congress is his way of adding Federal Reserve pressure to that of Wall Street and former Treasury Secretary Paulson for Congress to balance the budget by gutting Social Security and Medicare. In case you haven't noticed, no one in Washington or New York talks about cutting trillion dollar wars or trillion dollar handouts to rich bankers. They only talk about taking things away from little people. It is not the Bush/Cheney, Obama, neocon wars that are in the cross hairs; it is Social Security and Medicare.

Other Obama economic officials, such as White House economist Larry Summers, a former Treasury secretary, have called for a middle class tax increase. The problem with this "solution" is that a good part of the middle class is now jobless and homeless.

Money will have to be found somewhere if the Fed is to avoid printing it. During the Clinton administration a Treasury official proposed a 15 percent capital levy on all private pensions to make up for their tax deferral status. This idea didn't fly, but today a desperate government, which has wasted $3 trillion invading countries that pose no danger to the U.S. and wasted more trillions of dollars combatting a crisis brought on by the government's failure to regulate the financial sector, is likely to steal people's pensions as well as to gut Social Security and Medicare.

The reason is that the dollar's role as reserve currency is at stake. If the Federal Reserve has to monetize the federal deficit, the world will turn its back on a rapidly depreciating dollar. The minute the dollar loses the reserve currency role, the U.S. can no longer pay its bills in its own currency, and its days as a superpower come to a sudden end. Wars can't be financed, and Washington's pursuit of world hegemony will hit a brick wall.

The power-mad denizens of DC will do anything to further the expansion of their world empire.

http://www.sott.net/articles/show/20409 ... very-real-

[Reinaul Profile]

All Money In The United States Comes Into Existence As Debt – So What Will Happen Now That Bank Lending In The U.S. Is Contracting At The Fastest Rate In History?

Most Americans who closely follow economics understand that all money in the United States comes into existence as debt. Either the Federal Reserve creates it when the U.S. government borrows money, or private banks create it when they use fractional reserve banking to make loans to customers. If lending increases, it is going to create new money and increase the money supply. But if lending declines, it is going to take money out of the system and will decrease the money supply. So why is this important? It is important because without sufficient lending, the U.S. economy will seize up and grind to a standstill. Unfortunately, we have created an economic system that is fueled by credit, and without enough credit businesses can't expand or hire more workers, individuals can't buy homes and cars and there will not be any hope that the U.S. economy will function at previous levels.

If you will remember, this is what happened at the beginning of the Great Depression. The big banks severely tightened credit and it created a deflationary depression.

Unfortunately, the same thing is happening again. In 2009 U.S. banks posted their sharpest decline in lending since 1942. In 2010 so far, bank lending in the U.S. has contracted at the fastest rate in recorded history. A "credit freeze" has struck the entire banking industry. One indication of just how bad the credit freeze has gotten is to look at a graph of the M1 Money Multiplier. It is now at the lowest point it has been in decades. Why? Because banks are simply not lending money....




But didn't Bush and Obama insist that if we got cash into the hands of the bankers that they would lend it out and help all of us "Main Street" folks out?

It didn't work out that way, did it?

Instead, the banks (especially the big banks) are reducing their lending, hoarding cash and shrinking the money supply.

If this continues, we may very well experience a 1930s-style deflationary depression, at least for a while.

Already we are seeing the effects of tighter credit hitting the economy....

*Federal regulators on Friday shuttered banks in Florida, Illinois, Maryland and Utah, boosting to 26 the number of bank failures in the United States so far in 2010. The closing of numerous banks on Friday is almost becoming a weekly ritual now.

*The FDIC is planning to open a massive satellite office near Chicago that will house up to 500 temporary staffers and contractors to manage receiverships and liquidate assets from what they are expecting will be a gigantic wave of failed Midwest banks over the next few years.

*The U.S. Postal Service, facing a $238 billion budget deficit by 2020, is being urged to consider cutting delivery to as few as three days a week. As money continues to get tighter, we should expect even more government services to be cut. In fact, some local governments around the U.S. are considering bulldozing whole neighborhoods just so they don't have to spend money on providing those neighborhoods with essential services.

So will the U.S. government come to the rescue?

Well, some would argue that the unprecedented spending by the U.S. government over the past several years is the only reason why the U.S. economy has not already plunged into a full-blown depression.

But of course all of this government debt is only going to make our long-term problems even worse.

The Congressional Budget Office is projecting that Barack Obama's proposed budget plan would add more than $9.7 trillion to the U.S. national debt over the next decade.

That is not good news.

Especially if the Federal Reserve refuses to keep "monetizing" all of this debt.

During a recent hearing, Federal Reserve Chairman Ben Bernanke warned Congress that the Federal Reserve does not plan to continue to "print money" to help Congress finance the exploding U.S. national debt.

So if the Federal Reserve will not finance this gigantic pile of U.S. debt, who will?

Already China and some other major foreign powers have reduced their holdings of U.S. Treasuries.

So who is going to borrow the trillions upon trillions that the U.S. government is going to have to borrow?

Perhaps the U.S. government will decide to stop spending so much and will start cutting back and will start being more fiscally responsible.

But don't count on it.

You see, if the U.S. government does not keep borrowing insane amounts of money to pump up the U.S. economy the whole thing could come down like a house of cards.

Of course it is all going to come down like a house of cards eventually anyway.

There are several ways that all of this could play out (deflationary depression, hyperinflationary implosion, societal collapse, etc.), but all of them are bad.

The truth is that an economic collapse is coming whether you or I like it or not. We had all better get ready while we still can.

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