Posted: Feb 22 2011 By: Jim Sinclair Post Edited: February 22, 2011 at 1:33 am
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USAWatchdog.com
Courtesy of Greg Hunter’s USAWatchdog.com
Dear CIGAs,
Saturday, the House of Representatives passed legislation with more than $60 billion of budget cuts. It is the proverbial “drop in the bucket” when compared to the $14.1 trillion (and counting) outstanding federal debt. Soon, this ever increasing national debt will eclipse the Gross Domestic Product (GDP.) That means America will owe more than all the goods and services it produces in one year. When you owe more than you make, isn’t that a sign you need to change course? The new Speaker of the House, John Boehner, said this just after the budget cut vote, “We will not stop here in our efforts to cut spending, not when we’re broke and Washington’s spending binge is making it harder to create jobs.” I think it is ironic Congress wants to cut $60 billion today and then turn around and consider raising the debt ceiling $1 trillion tomorrow. This is crazy, but that is exactly what’s going to happen because if we don’t, Treasury Secretary Tim Geithner says it could cause, “catastrophic damage to the economy.”
I don’t think most people grasp just how serious America’s budget problem really is. When Mr. Boehner says, “we’re broke,” he’s not kidding. America is broke. The only reason this has gotten so out of control is the U.S. dollar is the world’s reserve currency, and the government can just print money whenever it needs funds. Right now, the Fed is creating $75 billion a month to help finance government operations. This is met with a shrug, like it is no big deal. But, it is a big deal, and it comes with a significant downside—inflation. Sure, there is deflation in housing, but everything else is going up in price.
It is not just the federal government that’s swimming in red ink, but more than 40 states in the union are also tens of billions of dollars underwater in deficits, pensions and health-care obligations. The union protests in Wisconsin are just the tip of the iceberg. Contrary to what left wing commentator Rachael Maddow says, the $137 million deficit problem in Wisconsin was not caused by Governor Walker’s tax-cut bills approved in January. Here’s how The Wisconsin Journal Sentinel summed up the false story, “There is fierce debate over the approach Walker took to address the short-term budget deficit. But there should be no debate on whether or not there is a shortfall. While not historically large, the shortfall in the current budget needed to be addressed in some fashion.”
(Click here to read the entire Sentinel story.)
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Jim Sinclair’s Commentary
QE to infinity or Time Square will be filled with unemployed people seeking new leadership in Washington.
Federal, state and local debt hits post-WWII levels By Steven Mufson
Washington Post Staff Writer
Sunday, February 20, 2011; 11:33 PM
The daunting tower of national, state and local debt in the United States will reach a level this year unmatched just after World War II and already exceeds the size of the entire economy, according to government estimates.
But any similarity between 1946 and now ends there. The U.S. debt levels tumbled in the years after World War II, but today they are still climbing and even deep cuts in spending won’t completely change that for several years.
As President Obama and Republicans squabble over whose programs to cut and which taxes to raise, slow growth and a rising tide of interest payments – largely beyond their control – are making the job of fixing the budget much harder than in the past. Statehouses and governors face similar challenges.
After World War II, the federal debt – including debt purchased by the Social Security Trust Fund – hit nearly 122 percent of gross domestic product. State and municipal debt back then was minimal. By the time Dwight Eisenhower was elected president six years later, the federal government’s debt had dipped to about three-fourths of GDP.
The key factor in the rapid drop in government debt, said Harvard University economist Kenneth Rogoff, was fast economic growth. Spurred by a young labor force, world-leading manufacturers, high personal savings rates, a pent-up demand for consumer goods after years of war and the Depression, and a bout of inflation, the economy grew 57 percent in six years. Thanks to sharp postwar cuts in defense outlays, federal government spending also tumbled for a couple of years.
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Submitted by Tyler Durden on 02/22/2011 17:13 -0500
The silver price has bounced 27% since January 28, a huge advance for a measly 16 trading days. It's already soared past its 2010 high and was selling for less than $16 this time last year, a double in 12 months. So, is it pricy? Or should we ignore the run-up and keep buying? I've read a few articles that say we should expect silver to drop to the $25 level, and one pinpointed $22. Others, of course, see bullish tea leaves for the near term and believe it's headed higher. Of those that assert silver will decline, most believe it will be temporary, though one writer claims the bull market in precious metals is over (I think he's a holdout from the gold-is-a-bubble camp). These authors could be right about a near-term decline, but I'm less concerned with what the price does this month or even the next few months, and more focused on where it's likely headed over the next few years. Caution: the chart ahead may cause excitement. While there are lots of reasons to be bullish on silver, what everyone really wants to know is how high the price can go. Here's one hint, based strictly on historical price performance.
Submitted by Tyler Durden on 02/22/2011 15:02 -0500
Mohamed El-Erian made one of his regular media appearances today (in addition to his almost daily Op-Ed, released earlier) appearing on Bloomberg Surveillance with Tom Keene and talking the developments in the Maghreb. While the full highlights are presented below, there are two items of note. El-Erian once again hits on what we believe will be the keyword of 2011:
stagflation. To wit: "we have to appreciate that in the west, what is happening in Egypt and North Africa results in stagflation in the short term. So higher inflation and lower growth because of higher oil prices that take away purchasing power and transfer wealth somewhere else; because of higher geopolitical risk, which tends to diminish animal spirit and therefore impact investment; and let's not forget that the Middle East is a market, particularly for European exports. So from an economic perspective, it is important for the west to understand that these are stagflationary winds that have been added to the global economy." It is important, but not necessary: as long as the manipulated, liquidity glutted market continues to misrepresent the true state of the economy, nobody will care until it is too late. And speaking of "too late", validating our sarcastic observations over the past several weeks that the dollar is no longer the "flight to safety" currency (that would be the PM complex, and the swiss franc if anything), is the Pimco CIO's suddenly very dour outlook on the weakening US Dollar: "It is a warning shot to America that we cannot simply assume flight to quality, flight to safety. That people are starting to worry about the fiscal situation in the U.S., worrying about the level of debt and what they're hearing about states and municipalities.
I would take this as a warning shot that we cannot assume that we will maintain the standing of the reserve currency as we have in the past." That's a given - the question however remains, which fiat currency, if any, is willing and ready to step in and replace the USD? With all eyes continuing to be look at the CNY, how long before China finally takes the plunge to find out just who is the real reserve currency in the world?
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