Negative 2.9

 "Real gross domestic product...decreased at an annual rate of 2.9 percent in the first quarter of 2014 according to the 'third' [the first estimate was a 0.1% growth and the second estimate was a 1% contraction] estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2013, real GDP increased 2.6 percent."  CNBC put a positive spin on the news: "The U.S. economy contracted at a much steeper pace than previously estimated in the first quarter, but there are indications that growth has since rebounded strongly." Hopefully, that pans out. The dismal growth had been largely blamed on the weather. The weather almost certainly did have some impact of the the economy (I know that in Atlanta the city was shut down for several days), but CNBC points out that "while the economy's woes have been largely blamed on an unusually cold winter, the magnitude of the revisions suggest other factors at play beyond the weather". It is also interesting that this was the largest difference between the 2nd and 3rd estimate since 1976.

The economist John Williams posits that the GDP number put out by the BEA are significantly off due to the massive underestimation of inflation. John Williams provides an alternative measure of inflation and GDP numbers that uses the methodology that the government used before they made all of the changes in the 1990s to make inflation appear lower. Using these numbers inflation is around 8% and the GDP has been bottom bouncing after the sharp downturn in the 2008 recession.

The Federal Reserve has continued to taper, down from 85 billion a month to 35 billion a month. The market expects the Fed to end QE by the end of the year. The market also believes that the economy is picking up and is gradually getting better. Although QE might not end if the economy continues to contract. It is interesting that the economy started to contract when the Fed started to taper at the beginning of the year. To put the "end" of QE into perspective, you need to put the latest rounds of QE into the broader context of all of the QE programs: the Fed launched and ended QE 1, QE 2, and operation twist(?) while QE 3&4 are in the process of being "ended". Considering all the QE programs as one large program, QE has not ended since 2008.  It is also better to think of QE as monetizing the debt as opposed to the euphemism QE. (What has happened to the debt that the Fed stopped buying?  Maybe the ECB is picking up the slack for the Fed. The Fed did help bail out Europe.) Speaking of Europe, the ECB has launched NIRP or negative interest rate policy and is expected to launch QE in the not-too-distant-future.

Taper

The Federal Reserve--the central economic planning committee--announced that it will begin tapering its QE program, which has been in place since the financial crisis, by 10 billion per month. The Fed will do this by reducing its purchases of treasuries by 5 billion per month to 40 billion per month and reducing its purchases of mortgage backed securities by 5 billion per month to 35 billion per month. The Fed also announced that it would keep the federal funds rate, interest rates, at or near zero for longer than they had originally planned. This offsets some of the effect of the 10 per month reduction in asset purchases. Chairman Bernanke was careful to characterize this reduction in asset purchases as not tightening monetary policy and noting that it was still highly accommodative. He said that further reductions or increases in QE was possible: “asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases”. 

The markets did not have the same reaction to the Fed's tapering decision that it had to the Fed's hint earlier this year that tapering might happen: the stock market was up on the news and gold and silver prices were down. The general consensus among the majority of the market participants is that tapering is a positive development. They believe that the Fed's move signals an improving economy and that a return to normal monetary policy is just around the corner: in the words of Bernanke, there is light at the end of the tunnel.

 According to Marc Faber:

'The Fed will never end QE for good,... They will continue because these programs, once they're introduced, usually keep on going.'
'The economic recovery, or so-called recovery, by June of next year, will be in the fifth year of the recovery,' Faber said. 'So at some stage the economy will weaken again, and at that point, the Fed will argue, 'Well, we haven't done enough, we have to do more.''
'The Federal Reserve—all of them—could be sitting on a barrel of dynamite, and then pouring gasoline on top of it, and then light a cigar with matches, throw the match into the gasoline, and then not notice that there is any danger,' Faber said. 'That is the state of mind of the professors at the Fed, who never worked a single [day] in business.'
And while Faber actually believes that a reduction in QE could happen, he wouldn't view it as a true tapering, as he says it will be a largely meaningless, one-time move that will eventually be reversed as the economy worsens.
'They may do some cosmetic adjustments, but in my view, within a few years, the asset purchases will be substantially higher than they are today,' Faber said.

According to Jim Rogers:

At the moment they are buying a trillion dollars a year – that’s a trillion with a “T” – of assets. Eventually we will see that they stop that if they do or slow it down.

What will probably happen is that they will slow it down at first to see what happens, and if things aren’t too bad at first – and they probably won’t be too bad at first – well what is likely to happen is they will slow it down, things will drop, and then they will rally and the Federal Reserve will say “Hey, this is not so bad, we can do it.” And they’ll cut some more. Things will drop again and then rally, because it will take a while for people to really believe how bad it can get, or will get. And so eventually they will try to cut [QE], it will finally cause the collapse...

Peter Schiff said in September:

We also must understand that even if the Fed were to deliver a small reduction in bond purchases, such a move would change nothing. The Fed would still be continuously adding to its enormous balance sheet while presenting no credible plans to actually withdraw the liquidity. As I have pointed out many times, it simply can't do so without pushing the economy back into recession. Although this would be the right thing to do, you can rest assured that it won't happen.

We should also recall where this all began. When QE1 was first launched Bernanke talked about an exit strategy. At the time I maintained the Fed had no exit strategy. But now questions about an exit strategy have been replaced by much more delicate taper talk. But easing up on the accelerator without ever hitting the brakes will not stop the car or turn it around.

Following this playbook, the Fed will likely maintain the pretense that tapering is a near term possibility and that it has a credible plan on the shelf to bring an end to QE.

The mainstream view that the economy is improving is most certainly incorrect. Much of the economic data such as the unemployment numbers, inflation, and GDP are determined by questionable and subjective methodologies and in the case of the unemployment numbers, manipulated. The inflation number that is used to adjust the GDP number is most likely lower than the real inflation leading to an overestimation of economic growth. Additionally, politicians are incapable of slowing the rate of growth of the national debt. This lack of ability to make any meaningful reforms is evident by looking at the latest budget deal where the republicans caved on the budget and actually eliminated parts of the sequester that cut spending with the hopes of future, insignificant cuts that won't materialize, as evident by examining the history of such deals.

The markets now believe that the economy is improving and are expecting the Fed to continue to reduce QE. When the Fed is forced to increase QE the market participants will possibly realize that the Fed can not exit its QE program. Overall, the Fed's decision to start tapering has moved the date up that the economic crisis will happen.

No Exit

Ben Bernanke surprised the markets and most economist at its September meeting by deciding not to taper back its 85 billion a month bond/mortgage backed security buying program. It was believed by most economist that the Fed would began tapering because at its June meeting Bernanke had hinted that the Fed would begin tapering later this year. This belief had caused stocks to go slightly down, gold and silver prices to drop dramatically, and bond yields to spike. While most economist were fooled into believing the Fed narrative that the economy was getting better and that it was time for the Fed to start ending its QE ( monetizing the debt), Peter Schiff was saying at the time that the Fed could not taper or if it did that it would have to reverse course and expand its QE program. From what I have read it is impossible for the Fed to voluntarily exit its bond/MBS purchases as the markets are addicted to Fed stimulus, and this stimulus is the only thing keeping the economy from collapsing. Eventually the markets will realize that the Fed is trapped and that it is impossible for it slowly end its QE program: “The Fed has checked into a monetary Roach Motel. Getting out will be infinitely harder than getting in. In fact it will be likely impossible to get out without tipping the country back into recession”. When the markets realize this, the real economic crisis will happen. This will be a currency/debt crisis where you will be lucky to have half of your savings left.

Obama just told the world that America is unable to pay its bills unless it is able to borrow more money. He also told the world that America won't even try to pay its creditors by cutting spending or raising taxes: “President Barack Obama challenged the U.S. Congress on Friday to approve an increase in the U.S. debt ceiling or else the United States will be unable to pay its bills and then, 'We're deadbeats.'”. This sends a profound message to the world.

America has had a massive trick played on it as it fails to realize that our free-market economic system has been switched out with centrally-planned economic system. Watch this four minute card trick starting at 4:48 to see this illustrated. The Fed is the card trick that distracts us from the fact that our economic system has been changed.

Who Are You Going To Listen Too?

I think these videos are very instructive. Who are you going to listen to when it comes to figuring out what the economic environment is going to be like and planning for your future? The experts and the mainstream opinion or people with a proven track record of accurately forecasting economic events? The economic crisis in 2008 was completely predictable; but the mainstream analysts and experts did not see 2008 coming. Instead the experts laughed at the people that were telling them what was coming. Why does this matter to you? Today most of the experts are still telling us that the worst of the economic crisis is over and still deriding those that are "too negative" and are "doom and gloomers" who are forecasting that a much bigger global economic crisis is headed our way. What happened to those that were telling the truth?

Here is Peter Schiff getting laughed at while telling everybody that there was a big economic recession coming around 2008.

 Here is the current chairman of the Federal Reserve stating during 2005-2007 that the economy was doing well and that there was no recession headed our way. A prominent central banker fessed up when caught in an open lie by reporters said this: “When it becomes serious, you have to lie".

Here is Peter Schiff talking a much bigger economic crisis coming.

 Who are you going to listen to?

A Federal Europe By The Back Door

Here is clip in honor of the late Margaret Thatcher who warned against the Euro.

And here is a clip of Nigel Farage speaking the truth about the European Union and discussing the recent wealth confiscation of the people of Cyprus. (This is a portent of what will happen in the next economic crisis here and around the world.)

The current economic crisis in the EU was predicted by some of the finance ministers of the various European nations that signed up for the Euro. They had wanted to create a political and economic union that would have created a united states of Europe. They couldn't get the political union by consent of the European people, so they settled for an unsustainable economic union that would force the political union on the people of Europe through an economic crisis:

  "On 1 January 1999, with the introduction of the an important part of national sovereignty, to wit monetary sovereignty, was passed over to a European institution...The introduction of a common currency is not primarily an economic, but rather a sovereign and thus eminently political act...political union must be our lodestar from now on: it is the logical follow-on from Economic and Monetary Union,” then German foreign minister Joschka Fischer told European Union lawmakers just days after the introduction of the euro in 1999.
Fischer was not alone, with many of the founding members of the euro zone making it clear that the single currency was significant as a stepping stone to political union.

"The single currency is the greatest abandonment of sovereignty since the foundation of the European Community...it is a decision of an essentially political nature. We need this United Europe...we must never forget that the euro is an instrument for this project” said Felipe Gonzalez, then Spanish prime minister. Even those who opposed the idea and refused to join agreed that the euro had little to do with economics.

"A single currency is about the politics of Europe. It is about a Federal Europe by the back door,” John Major, the former U.K. prime minister, said two years before the euro was born and six months before being routed at the polls by Tony Blair.

Historian Niall Ferguson wrote in this weekend’s Sunday Times that the euro’s founding fathers were well aware that the introduction of the euro would lead us to a crisis very like this one. [Emphasis is mine.]

Vladimir Bukovsky states that the European union is the new Soviet Union:

The European Union is template for the coming world government that will be forced upon the people of the world in the coming economic crisis.

QE-4 And The Monetizing of Practically All New Debt

The Federal Reserve made the expected announcement of QE-4  today less than three months after QE-3 was announced. QE-4 is an extension of a previous program called Operation Twist:

Under the "Operation Twist" program that will expire at the end of the month, the Fed was buying $45 billion in longer-term Treasuries with proceeds from the sale of short-term debt. The new round of government bond-buying it announced on Wednesday will be funded by essentially creating new money, further expanding the Fed's $2.8 trillion balance sheet.   

This 45 billion dollars a month purchases of treasuries is in addition to the 40 billion a month purchases of mortgage backed securities for a total of 85 billion dollars being printed each month. This figure is not set in stone and could grow or shrink in the coming months according to Bernanke. The stimulative effects of QE are lessening with each new round. The markets went up massively after the announcement of QE-1, less after QE-2, even less after QE-3, and negatively for QE-4.

Zero Hedge points out the startling fact that the Federal Reserve will be monetizing practically all net new debt:

Three months ago, as part of our ongoing explanation of what happens next to the Fed's balance sheet (which is now established as official canon in advance of the December 12th FOMC, when Bernanke will effectively announce QE4 consisting of $40 billion in MBS and $45 billion in unsterilized TSY purchases as we predicted the day QE3 was announced), we said that "the Fed will continue increasing its 10 Yr equivalents by roughly 12% (of the total market) per year, for at least the next 3 years, at which point it will own 60% of the entire Treasury market. It means that the Fed will monetize all gross long-term issuance every year for the next 3 years." Most looked at the bold sentence without it registering just what it means. Perhaps, now that the "serious" media has finally taken on the topic of applying a calculator to the one driver of all marginal risk demand, it will register a little better. 

In a Bloomberg story titled, appropriately enough "Treasury Scarcity to Grow as Fed Buys 90% of New Bonds" we read that "the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co." Actually that's incorrect and it is more like 100%. What is however 100% correct is what the bolded means in plain language: it is now accepted that the Fed will outright monetize all gross US issuance. Let us repeat this sentence for those who just had flashbacks to Adam Fergusson's "When money dies." The Fed is now monetizing practically all net new debt.  

Other central banks of the world have stated their intentions to print money on a massive scale. According Zero Hedge the incoming head of the Bank of England is signaling that he wants to print a lot more money:

Sure enough it was only a matter of time before Carney showed his true colors, and we were not at all surprised to read last night that the central banker, largely misperceived modestly hawkish, has done not only a full U-turn but is already suggesting the BOE not only resume QE but hit the pedal to the medal to an extent not even seen at the Fed, by pushing for NGDP targeting. Which is nothing but a fancy term for infinite monetary easing.

The most-likely-next prime minister of Japan, Abe, has said that he wants the Bank of Japan to implement unlimited monetary easing:

Abe, who heads the largest opposition party, also said he would appoint as the central bank's next governor someone who agrees with his proposed annual inflation target of 2 to 3 percent. BOJ Gov. Masaaki Shirakawa's term of office is set to expire next April.

"We would carry out necessary public investment and have the BOJ purchase construction bonds to forcibly put money in the market," [...] We would take fiscal policy steps as well as monetary policy measures to overcome deflation at an early time." [...]

Forcing the BOJ to buy government bonds has been long considered taboo because the move caused hyperinflation and devastated Japan's economy immediately after the end of World War II.[...]

Prime Minister Yoshihiko Noda has criticized Abe for threatening to undermine the BOJ's independence, telling a news conference after Friday's Lower House dissolution, "If a government sets specific monetary policy measures and goals . . . there could be problems in terms of the central bank's independence."

Last week, Abe said the BOJ should fall in line with an annual inflation goal of 2 to 3 percent that the LDP would set if it wins the Dec. 16 election and forms the next government. The bank's current target rate is 1 percent.

The BOJ should provide unlimited liquidity to achieve a 2 to 3 percent inflation target if the LDP is returned to office next month, and its governor should be held accountable if the bank misses the goal and he is unable to adequately explain the failure, according to Abe.

An LDP government would urge the BOJ to implement "unlimited monetary easing, he said Thursday, stressing the bank's recent expansion of its asset purchase program is not sufficient to boost the economy and end deflation. [bolded is my doing]

According to Kyle Bass Abe is going to detonate a bomb on the economy:

Japan is about to "detonate" a "debt bomb" and will be forced to massively devalue its currency, Kyle Bass says.

During an interview with University of Virginia business school professor: Ken Eades, Kyle Bass argues that Japan is already in a crisis, and that the possible election of Shinzo Abe next month will set off a chain of events that will result in a devaluation of the Yen and treasury yields skyrocketing. "In the next 12 to 18 months, I think you're going to see a move in their rates. Basically Japan is entering its final 'checkmate' phase of the chess game."

 As mentioned in a previous post on QE-3, the European Central Bank which was given the go-ahead by the German High Court to print unlimited amounts of money.

The central banks of the world are coordinating a massive money printing program on a global scale that will almost certainty lead to massive inflation and wealth destruction. A research report that is based on a cyclical view of economic events by Seymour Pierce, a London based investment bank, makes the case that the global economy is headed for a currency crisis and a wave of massive inflation:

Excessive monetary stimulus and low interest rates create financial bubbles. Central banks are creating the ultimate bubble in money itself, as they fight the downward leg in this Long Wave cycle. This is the biggest debt bubble in history. Each time deflationary forces re-assert themselves, offsetting inflationary forces (monetary stimulus in some form) have to be correspondingly more aggressive to keep systemic failure at bay. The avoidance of a typical deflationary resolution of this Long Wave is incubating a coming wave of inflation. This will not be the conventional “demand pull” inflation understood by most economists. The end game is an inflationary/currency crisis, dislocation across credit and derivative markets, and the transition to a new monetary system , with a new reserve currency replacing the dollar. [...]

Unlike earlier cycles, we are in a world of UNLIMITED CREDIT CREATION. Central banks will not permit a debt deflation under any circumstances, which would likely bring on systemic failure at this point in any case. Keeping the bubble inflated is still taking trillion dollar deficits, but has recently been supplemented by open-ended money printing (QE), not just in the US, But by other central banks in the developed world. Apart from brief pauses, this process will continue.

This is creating the ultimate financial bubble, in MONEY itself, as every time deflationary forces re-assert themselves, the offsetting inflationary forces (monetary stimulus) have to be more aggressive. This is not sustainable and is incubating a coming wave of inflation, which will eventually explode in currency crises.

The report is about 75 pages long, but it is worth skimming through. It makes the interesting point that the U.S dollar is in the process of loosing its status as the world's reserve currency. It points out what this new reserve currency will be:

When inflation leads to more serious currency crises, we will see a “reset” and the transition to a new monetary system. High level “insiders”, such as the heads of the People’s Bank of China and the World Bank have signaled likely elements of the new system. The dollar will be replaced as the reserve currency with a currency basket based on an expanded version of the IMF’s Special Drawing Right (SDR). The SDR is a reserve asset held by central banks which currently consists of the US dollar, Euro,Yen and Pound. In the new system, it is likely to be expanded to include the Yuan and possibly other BRICS currencies, and have some indirect backing by gold (at a much higher price).

This would be bad for America. I have read that the U.S dollar status as the world's reserve currency is one of the reason that the government has been able to service its debt at historically low cost. If the dollar looses its place this could increase the cost of servicing the debt to an unsustainable level. Even if the dollar maintains its status, if interest rates go back to their historic levels the cost of servicing the debt will increase dramatically. This fact will greatly reduce the Fed's ability to tighten monetary policy by raising interest rates when the time comes.

In conclusion, with the announcements of new rounds QE being announced closer and closer together, the fact that QE-3 and QE-4 are open-ended, and the lessening stimulative effect each new round is having coupled with the announcements by the central banks of the world of their intentions to print massive amounts of money, it seems as if the end of the tracks for the global economy is not that far  ahead. Economic events are accelerating at a very rapid pace. Whenever individual nations has enacted and carried out economic policies, monetizing debt, that are currently being or soon to be carried out by the central banks of the world, economic depression and massive inflation have followed. I can't predict the future, but from everything I have read it seems as if something big in the global economy is going to happen fairly soon.

Uncharted Terrority

QE-3 to infinity, creating money out of thin air, was announced on the thirteenth of this month:

The Federal Reserve announced plans to unleash more stimulus Thursday, in its third attempt at a controversial program to rev up the U.S. economy.

The policy, known as quantitative easing and often abbreviated as QE3, entails buying $40 billion in mortgage-backed securities each month. The end date remains up in the air, as the Fed will re-evaluate the strength of the economy in coming months.[...]

Meanwhile, the Fed will continue its existing policy known as Operation Twist. Together the two programs will add $85 billion in long-term bonds to the Fed's balance sheet each month.

  QE-3 is "open-ended". It will continue until the unemployment rate drops to an unspecified number. (It is interesting that one of the driving forces of hyperinflation in the Weimar Republic was the desire to prevent massive unemployment.) The Federal Reserve is now buying around 74 percent of all new debt issued by the Treasury Department.

Ron Paul's stance of QE-3:

To me, it is so astounding that it does not collapse the markets. [Bernanke] said, ‘We are in very big trouble. We are going to do something unprecedented and we believe it will not hurt the dollar.’ [...] It means that we are weakening the dollar. We are trying to liquidate our debt through inflation.[...] I think the country should have panicked over what the Fed is saying that we have lost control and the only thing we have left is massively creating new money out of thin air, which has not worked before, and is not going to work this time.

According the Dallas Fed President:

The Federal Reserve's decision to jolt the economy a third time with monetary stimulus measures won't help the country much but could stoke inflationary pressures down the road, said Dallas Fed President Richard Fisher, a noted inflation hawk.[...]

Such a policy tool — known as quantitative easing but dubbed by many as merely printing money out of thin air — follows two similar rounds in the past that have flooded the economy with trillions of dollars with the hope of encouraging investing and hiring.[...]

It will come as no surprise to those who know me that I did not argue in favor of additional monetary accommodation during our meetings last week. I have repeatedly made it clear, in internal FOMC deliberations and in public speeches, that I believe that with each program we undertake to venture further in that direction, we are sailing deeper into uncharted waters,' Fisher told the Harvard Club recently, according to prepared remarks of his speech.

Despite all the models and resources at the Fed's disposal, uncertainty is a very difficult factor to plug into assumptions when forecasting the economy.

'The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course,' Fisher said.

'And nobody—in fact, no central bank anywhere on the planet—has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank—not, at least, the Federal Reserve—has ever been on this cruise before.'

The Federal Reserve adheres to a dual mandate to keep prices stable and unemployment rates optimal.

The Fed sets monetary policy by targeting inflation rates to 2 percent, but many market experts say the latest stimulus policy reflects the Fed's desire to prioritize the unemployment portion of its mandate way above keeping inflation rates in check.

In other words, the Fed is so willing to keep its foot on the gas pedal and risk seeing inflation rates rise above target levels in order to see unemployment rates fall that the country is steaming ahead deeper into unfamiliar waters.

'Not only will they tolerate higher inflation, not only will they wish for higher inflation, but they actually may target higher inflation,' Mohamed El-Erian, CEO of Pimco, manager of the world’s largest bond fund, told CNBC.

Central banks elsewhere have rolled out similar measures, flooding the world with inflation-fueling liquidity.

'This is true for all central banks — the (European Central Bank), the Fed, the Bank of Japan, the Bank of England. We are so deep into unfamiliar territory, so deep into experimental mode, that we don’t know what the consequences will be,' El-Erian said.

'Whoever comes afterward will have to clean up the mess.'

On the point that  "central banks elsewhere have rolled out similar measures, flooding the world with inflation-fueling liquidity.",  Germany's Constitutional Court opened up the flood gates in Europe that will unleash unlimited money printing:

Germany's Constitutional Court gave a green light on Wednesday [September 12th] for the country to ratify Europe's new bailout fund, boosting hopes that the single currency bloc is finally putting in place the tools to resolve its three-year old debt crisis.

But the strings it attached to its endorsement of the ESM and a separate European pact on budget rules were less onerous than many had feared.

European Central Bank (ECB) President Mario Draghi announced plans last week to buy 'unlimited' amounts of government bonds issued by stricken euro states like Spain and Italy in order to reduce their borrowing costs.

That plan fuelled optimism in the markets, but it was contingent on the ESM coming into force. Following Wednesday's ruling, German Finance Minister Wolfgang Schaeuble said he expected the rescue fund to be operational within weeks.

 Also Japan has decided to act by printing more money, something they have been doing for a very long time, in response to QE-3:

The Bank of Japan announced Wednesday that it would expand its asset purchase program by 10 trillion yen in an effort to stimulate its economy as global demand slows.
The announcement comes less than a week after the U.S. Federal Reserve announced its latest stimulus plan, and two weeks after the European Central Bank revealed its new bond-buying program.

Apparently this is not enough, "The Bank of Japan is ready to expand monetary stimulus again even after this month's action and may ponder new steps if necessary, board member Takehiro Sato said, warning of global uncertainties that could push the economy into recession".

Printing money devalues the currency of the nation that engages in such actions, and that in turn gives it an unfair economic advantage against other nations. This forces other nations to intervene and devalue their currency. It is a global race to the bottom.

What does all of this mean? This is very spooky stuff. The global economy is based on debt. Nations have been spending money that does not exist, and paying for this with creating money out of thin air for some time now. It is very much like a con artist that gets a loan and pays for that loan with another loan and so on. The game is rapidly approaching the end. The very next step for the Federal Reserve and just about every other central bank in the world is 100%, straight-up, Weimar Republic, Zimbabwe type money printing. This means that massive world-wide inflation, or some economic disturbance, is possibly not that far off. As the Dallas Fed President said central banks "are sailing deeper in uncharted waters". Now is the time to educate yourself and to prepare to avoid finding yourself in the situation found below. 

As noted in the book When Money Dies:

In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finder than honor, clothing more essential than democracy, food more needed than freedom.

2022

 Europe is in trouble and America is not far behind:

Senator Tom Coburn (R-OK) believes that unless the U.S. gets its fiscal house in order, the financial and economic repercussions will be severe.
“How long do you think before the United States has a financial meltdown?” the Daily Caller’s Nicholas Ballasy asks.
“Two to five years,” Sen. Coburn responds without hesitating.
“Think about what will happen to us. We have $16 trillion worth of debt right now and we’re paying less than 2 percent on that debt  — that’s 4 percentage points less than our historical average for our debt,” he said, adding that he is confident interest rates will “come back up.”
“In 2022, less than 10 years from now, unless we make major changes that everybody’s saying they know has to be made but none of the politicians have the courage to make, the entire federal budget will be made of only three things: interest, Medicare and Social Security, nothing else,” he added.
[...]

“There has not yet been a republic that did not murder itself. We are in the midst of committing murder to our republic,” he added.

Update On The Direction America's Economy Is Headed

America's and the global economy is fast approaching a very transformative event. Here is a webpage with some good links that has some updates to show where America and the world is headed. I am done doing long posts on this topic. At this point, you either realize where the global economy is headed or you won't get it until events slap you and your family in the face. Now is the time to slowly prepare yourselves mentally and financially.

EU Update

Bad news out of the EU has been driving global worries over another financial crisis and this has been a contributing factor behind the volatility in the stock market the past couple of weeks. What happens in the EU will affect the U.S. and global economy to a great extent. A note of interest is that the U.S. is already bailing out the EU. It appears as if the great EU political project is falling apart. This is not the case according to a lot of market analyst:

'The default position is more integration, which is why commentary, especially that coming out of the US, is very focused on euro break-up is biased towards thinking about the downside scenario, and is not really thinking about the upside scenario,' he told CNBC.com. 'The upside scenario I think is one that's more consistent with the history of European projects.'[...]

'When people ask us 'is Greece going to leave the euro?' our immediate pushback is that Greece doesn't have the agency. It's not really Greece's choice – it's Germany's choice and it's France's choice,' Rahman said. [...]

However, he too said that stepping forwards towards integration, not backwards, is the far more likely scenario.

'Of course, it didn't happen in an orderly way, and now possibly it's coming in a disorderly way, because now everyone's realizing that you can't have a currency and a single market and communalized trade policy without also having more political cohesion and more fiscal union,' Techau said.
'Maybe, in the end, ironically, Helmut Kohl will be vindicated because the answer to the crisis is either disruption, or another bold step towards integration,'[...]

The most noise seems to be coming from commentators who believe in disintegration, but those who really understand the inner workings of the EU say the opposite: economically it does not make sense, technically it is exceptionally difficult and politically it is nearly unthinkable.

One of the legacy of this global financial crisis will be a more economically united globe. This economic crisis is going to force some politicians and nations to do things that they otherwise would not do: like integrate further into international governing bodies.

European leaders are being pushed into closer fiscal union sooner than they had anticipated by volatile markets concerned over a dearth of ideas on how to solve the sovereign debt crisis in the euro zone, analysts and investors told CNBC.[...]

'If you believe the United States of Europe is stronger than the individual nations, it's simply a step that the politicians have been working towards, but now they're being pushed into it rather than managing the process,' Neil Dwane, chief investment officer for Europe at RCM told CNBC.

Over the weekend, German chancellor Angela Merkel seemed to soften her position on the issuance of so-called euro bonds, but she stressed they were not on the table for now.

'I think [Merkel] is just realizing that politicians are pushed by markets into solutions that politicians don't feel comfortable with yet,' Frank Engels, co-head of European Economics Research and Asset Allocation Strategy at Barclays Capital explained.
His comments reflected those made by Paul Donovan, deputy head of Global Economics to CNBC last week, who warned that markets would push European leaders towards "extreme action" and he called for the appointment of a European statesman to oversee closer fiscal union within the euro zone.[...]

'There is a sense that you have to move eventually towards a common fiscal union, a very coordinated policy approach on economic and fiscal policies, but not now, not yet because you need to lay the foundations in terms of political and legal infrastructure first and then later on move, that is the message [Merkel] wants to provide to markets,' Engels said.

It appears that the EU has lost, to some extent, "its power of decision over the direction that it is going". This economic crisis is the result of a government managed economies. The main instrument that the governments use to manage the economies of the world is through central banking and international governing bodies like the IMF/World Bank (both founded by a Fabian Socialist and a communist). The IMF/World Bank is helping to keep the socialist's dream of global socialism from falling apart in the case of the EU by continuing to bailout the failed nations that should be allowed to default. (A look into the history of central banking and the IMF/World Bank is illuminating.) These government institutions are helping to create an economic crisis that will push the world into a global-socialist-communist-governance. Well that sounds stupid doesn't it? The financial analysts take on the events happening in the EU point to the fact that the EU is being pushed by economic events into a tighter political/fiscal union. What has been the overall effect of the global economic crisis, larger and more united government(s) that are/is taking over economic functions once carried out by the private sector. The direction that the the world is a more in is that of a more united globe, economy and politically. I could state it in a more intelligent manner but that would take a lot more time and room.

Financial Collapse 2020-2035

Here is some more information to help you to better see that the "most predictable economic crisis we've had" is headed our way: it is obvious to those that care to look. Here is some more good new about our economic situation from the Congressional Budget Office, CBO. It paints a very bleak picture where America is headed towards a Greek-like crisis between 2020-2035.

As negotiators look to gimmicks and changing assumptions to reach a deal on raising the debt ceiling, a new report by congressional budgeters out Wednesday is offering a grim outlook and ugly alternatives for dealing with increasing debt. The report by the Congressional Budget Office says that the debt will eat up the government’s spending ability, and offers two scenarios -- both potential trajectories -- that they say by 2035 will push the debt either to most of the annual gross domestic product or to nearly twice the economic power of the U.S. Already, the CBO says, the debt has spiraled out of control in just three years. 'At the end of 2008, that debt equaled 40 percent of the nation's annual economic output (a little above the 40-year average of 37 percent). Since then, the figure has shot upward: By the end of this year, the Congressional Budget Office (CBO) projects, federal debt will reach roughly 70 percent of gross domestic product (GDP) -- the highest percentage since shortly after World War II,' reads the report.

This increase in debt is staggering and can't be maintained. The August 2 deadline to raise the nation's debt ceiling is fast approaching and it looks like some sort of a deal has been reached between republicans and democrats on raising the debt limit in exchange for spending cuts. But these are very unlikely to be real spending cuts. They will probably be like the phony cuts to this years budget that started out as 100 billion and turned into 60 billions that ended up being a couple of million dollars. If real cuts can't be made at the present, then how will it be any easier or possible to make them at a latter date when it will be a more difficult proposition?

The fact is that America has reached the point that other countries of past and present have reached in this stage of their economic collapse that results from deficit spending-- made possible by central banks-- to fund an over bloated welfare state. The leaders knew/know that they must cut spending but that this will lead to social unrest and lost of social cohesion--check out Greece-- and that such cuts are politically impossible to make-- look at recent attacks on the proposed cuts to medicare. So the leaders create more debt in the attempt to delay the day of reckoning to buy time to come up with a better solution to the economic problems. This "better solution" never materializes and economic collapse is always the end result. This time the collapse is not an individual nation or region of the world but the entire globe. When the nations of the world find themselves in this state of collapse, they will be forced to put aside political and cultural differences while they come together for a short time as the result of the interconnectedness of the economies of the world to form international alliances, agreements and governing bodies as a means to salvage the situation. Look at the relationship between Germany and Greece. Germany is bailing out Greece against the will of its people again because they failed to live up to its austerity measures. Germany is doing this because of the risk of the financial contagion--German banks are invested in Greek debt-- affecting Germany. It is only a matter of time before Greece and then the EU collapses to be followed by America around 2020-2035.

What can you do to prepare yourself for this economic crisis so that you can thrive? Live life but prepare yourself mentally for a very bad economy, know basic survival psychology, stay out of debt, get out of debt, increase your line of available credit, have a couple months of extra food, own some precious metals, invest in commodities and assets with intrinsic value, read the Bible, and know that agriculture is going to be the next big thing according to a prominent investor. Or do what the majority of people throughout history do in situations like these which is to be unawares which leads them falling on their face and being raped. sometimes literally. "In hyperinflation[ or economic collapse], a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honor, clothing more essential than democracy, food more need than freedom." Quoted form Adam Fergusson's book "When Money Dies". Inflation and economic depression is always the end result when central banks control a nations money supply. To see this clearly read "The Creature From Jekyll Island".

Does America Need Another Ronald Reagan Or Republican Leadership?

America is in massive debt and entity after entity are going bankrupt: the post office lost 2.2 billion dollars in the 2nd quarter of 2011 and might need a bailout; Social Security and Medicare will be out of money by 2036 " If you're 54 or older and plan to live the average American life expectancy of 77.9 years, then you're in good shape. But if you're planning to live past the year 2036, don't count on Social Security. And if you're relying on Medicare, don't even think about the math."; "legendary investor Jim Rogers thinks U.S. bonds will be worthless,

I will be shorting US bonds, Rogers told a conference in Edinburgh. 'I would probably be doing it today if I weren't here,' he said. Bonds in the US have been in a bull market for 30 years, Rogers said. In my view that's coming to an end...the bond bull market is coming to an end. If any of you have bonds I would urge you to go home and sell them. If any of you are bond portfolio managers I would get another job,' he said. Addressing one bond portfolio manager among conference delegates, Rogers said: If I were you I would think about becoming a farmer. You buy land and learn how to farm. In my view it’s going to be a spectacular way to make money,' he said, adding: This is where the great fortunes are going to be made in the future.[...] Longer term the US dollar is going to be a total disaster, Rogers said, urging investors to think about getting out of US dollars before it’s too late.

over in the EU Portugal has requested a bailout and Greece has not been living up to the terms of its bailout that demanded that Greece make tough budget cuts; it looks like the GOP will not be making big cuts to the 2012 budget. This little bit of economic news is just the tip of the iceberg. The world is broke and bankrupt and facing an imminent economic crisis. So does America need another Ronald Regan or Republican President? According to this view of history the answer is no.

"Why American History Is Not What They Say: An Introduction To Revisionism" is a short book from the Mises Institute. Starting on page 177 is a brief overview of Ronald Reagan. It paints a rather different picture of the standard on that portrays him as an advocate of limited government,

Like most Republican politicians since the early 1930s, Reagan always portrayed himself throughout his political career as a champion of limited government, individual rights, and free enterprise—the classical liberal values which, of course, he absurdly described as 'conservative.' But, like almost all Republican politicians since the early 1930s, he seemed to forget all about these values once he got into office and assumed the reins of power. Consider, as a case in point, Reagan’s eight years (1966-
1974) as governor of California. As Murray Rothbard noted in 1980, 'Despite his bravado about having stopped the growth of state government, the actual story is that the California budget grew by 122 percent during his eight years as governor, not much of an improvement on the growth rate of 130 percent during the preceding two terms of free-spending liberal Pat Brown. The state bureaucracy increased during Reagan’s administration from 158,000 to 192,000, a rise of nearly 22 percent—hardly squaring with Reagan’s boast of having “stopped the bureaucracy cold.'[...]According to Rothbard, Reagan 'created seventy-three new state government councils and commissions, with a total budget, in his last year alone, of $12 million. Included was the California Energy Commission, which put the state hip-deep into the energy business' and created a regulatory climate under which a three-year review process was required before any new power plant could be constructed in the state.[...] As James Ostrowski noted in 2002, 'Over the last one hundred years, of the five presidents who presided over the largest domestic spending increases, four were Republicans. Include regulations and foreign policy, as well as budgets approved by a Republican Congress, and a picture begins to emerge of the Republican Party as a reliable engine of government growth.'

The whole section is about seven pages. I know it was the democrats that was the reason for the increase in the national deficit during Reagan's Presidency, but I don't have any good arguments against the points made against Reagan by this short book. But the fact is that Republicans are just as bad when it comes to increasing the size of government and the national debt: look at Hoover, Nixon, Reagan, Bush 43. And it was Bush 41 who started talking about this new world order.

The point of the post is that the world is bankrupt and this massive global economic ponzi scheme is about to end and no Republican President or Congress is able or willing to stop the of massive tsunami of debt that is about to hit the world. Given the history of the leadership of Republican Presidents, America doesn't need one at the crucial time.

S&P Downgrades U.S. Outlook To Negative

"Standard & Poor's on Monday downgraded the outlook for the United States to negative, saying it believes there's a risk U.S. policymakers may not reach agreement on how to address the country's long-term fiscal pressures. " Or you can read the statement straight from S&P. Note this downgrade happened in 1996, but now America faces a much grimmer situation. This is one more warning from a reputable source: military leaders, congressmen, hedge fund managers, the Secretary of The Treasury, the CBO, and others of where America is headed. (I would have posted some of what the statement said but the copy and paste feature is not working properly.)

One third of all U.S. wages come from the government. An unprecedented amount of American's are dependent on government money to meet their most basic needs. The majority, 40%, of American's don't pay federal income tax. Food, shelter, and other basic physiological needs, the very base of Maslow's hierachy of human needs, are more addictive than any drug out there: if you don't get these needs you die. The vast number of Americans are not going to easily give up these basic necessities. This is exactly what will be required for meaningful economic reform to take place. If this reform takes place, social cohesion will be lost. America has been headed down this path for a long time. A cultural revolution will have to occur before America can reverse course.

Read the sobering statement about the economic reality that America faces. The next couple of years is going to an important inflection point that determines whether America's and the world's economy is going to survive or crash in the coming decades. (I am already convinced of which outcome this will be. All you have to do is look at American culture.) Get educated about economics and stayed informed by keeping abreast of economic news so that you can come to your OWN conclusion--you must know what you believe. A good easy book to read is "Economics In One Lesson". Invest your money wisely, pay down your debts, brush up on survival psychology--not that things are going to get to the point where society will completely collapse-- by knowing terms like analysis paralysis, inattentional blindness, the 10-80-10 rule and other terms as your life stands to be turned upside down; get a couple month's worth of food supply; and be weary of people that promise a magic solution to your economic problems. Or the easy thing to do is to just ignore everything and continue with your life.

Budget Battle, 38 Billion In Cuts, And America's Future

The Democrats and Republicans agreed to make the "largest cuts in history" to the budget. The actual cuts were around 2 billion,

Of the $38 and a half billion dollars in cuts, $12 billion in cuts from three previous stopgap continuing resolutions. In other words, old money. Twelve billion dollars of the 38 and a half came from old CRs, three stopgaps. Ten billion came from the previous continuing resolution. Now, we talked about this yesterday. It had been said that $10 billion of it was from a previous CR. We couldn't find any documentation. We did overnight. And the number of real cuts in this continuing resolution that was agreed to on Friday night was $2 billion.

Mark Levin's take: "It is an historic scam".

Inflation is actually around 10%, "Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter." It came from CNBC.

In light of the inability to cut government spending and to get its debt under control, here is an article to give you a heads up to what is coming.

Some more news in Egypt and the rise of Islam as the dominate political force there.

Some News

Some news to keep abreast of the changes occurring in the world. Portugal is seeking a bailout from the European Union after its Parliament rejected austerity measures,

Portugal's prime minister said Wednesday his country has asked for financing assistance from the European Union due to its high debts and difficulty raising money on international markets.[...]Portugal becomes the third financially troubled eurozone country after Greece and Ireland to request assistance from Europe's bailout fund and the International Monetary Fund.[...] Such an announcement had long been expected as Portugal, one of the 17-nation eurozone's smallest and weakest economies, struggled to finance its economy. Following a rejection of additional austerity measures by its parliament last month, Portugal has seen its borrowing costs rise to unsustainably high levels.

It looks like another EU country has fallen. Instead of making very painful budget cuts, Portugal has decided to receive a bailout. This will no doubt require that Portugal cede some of its sovereignty to the larger international governing body as happened in the case of Ireland and Greece. This bit of news needs to be put into the larger context of the EU debt sovereign debt crisis and Dominique Strauss-Kahn's recent speech to understand what how this piece fits into the still nebulous large puzzle that is being put together. Every time period is one of change so this transformation is nothing new.

The IMF managing director has made some comments on the direction that the global economy is headed,

In a speech entitled “Global Challenges, Global Solutions”[...] Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), called for a new approach to economic policymaking in the wake of the recent global crisis. He singled out three areas for improvement: a new approach to macroeconomic and financial sector policies, a new approach to social cohesion, and a new approach to cooperation and multilateralism.[...]Middle East, noting that it is going through an 'historic transformation' as 'citizens are seeking greater freedom, and a fairer distribution of economic opportunities and resources'.[...]'In designing a new macroeconomic framework for a new world', he stated, 'the pendulum will swing—at least a little—from the market to the state, and from the relatively simple to the relatively more complex'.[...]Mr. Strauss-Kahn called for policymakers to pay more attention to inequality and social cohesion. 'The lethal cocktail of prolonged high unemployment and high inequality can strain social cohesion and political stability, which in turn affects macroeconomic stability.' He suggested that inequality, which was a factor in the Middle East, might also have been among the root causes of the global crisis, and that sustainable global growth is associated with more equal income distribution.[...]Mr. Strauss-Kahn stressed the virtues of enhanced cooperation and multilateralism in the post-crisis world, noting that 'the great challenges of today all require a collective solution'. [ All emphasis is mine.]

I disagree with some of what is stated in this speech, most notably that in the new global economic framework the state will have a larger role, but my disagreement does not negate the realities of the world that we live in nor does it mean that this should not happen. The lost of social cohesion due to high unemployment, inflation, and overall bad economy will pose a very real threat to global stability, the Middle East and Europe are a prime example. This unequal distribution of wealth, "inequality", being spoken of sounds like the main theme of "The Communist Manifesto". This problem begs the question: who or what entity will solve this inequality? Government or the private sector? Well the pendulum is swinging a new direction. The challenges that the world faces will require "collective solution". If the nations of the world, the collective, are all socialist, then what will that solution be?

Americans took a pay cut because of inflation, "You may not have noticed it when you opened up your paycheck last month, but you just took a pay cut. Wages in America are flattening as inflation surges, therefore real income growth is actually negative, according to the latest data from the Labor Department. " If I had to make a guess I would say that real inflation will peak around thirty percent.

And El Baradei of Egypt has decided to challenge Israel's right to exist and promise to declare war on them. There is nothing like a peaceful uprising of the youth in the name of democracy.

Some interesting and exciting news.

Update On The Economy

(Warning, this post might make you sad and this article contains what might be considered hyperbole.) QE 3 is looking more like a possibility. (Remember that QE stands for quantitative easing and is basically the creation of new money and pumping it into the economy in hopes of giving it a boost or to keep it going.)This means that the government will continue to just print, or digitize money. This will lead to further inflationary pressures down the road. As you may know food, energy, and commodity prices are up in part due to QE 2. Food and commodities are traded in U.S. dollars and when the value of the dollar is reduced because of the creation of more dollars this tends to drive up those prices. Food prices are up in part because of bad weather that has impacted crop yields and because the developing economies of the world are getting wealthier and are demanding more meat products. Energy prices are up due to the unrest in the Middle East, which was caused in part by higher food prices which was due in part because of QE 2. So you can't blame the current spike in inflation solely on the Federal Reserve actions. Back to what QE 3 will mean, the continuation of printing money by our government is starting to look similar to the path of trying to inflate its way out of debt and economic malaise that the Wiemar Republic took, but America is different and is able to avoid basic laws of economics unlike past civilizations or nations that have been unable to do so. This is not a big deal and while it might be easy to make a comparison between Wiemar and America there are differences that make a simple analogy between the two not completely accurate. The Mises Institute does an opinion piece on the possibility of QE 3:

Austrian School economists have often explained the business cycle using the metaphor of liquor or drugs. The expansion of paper money and credit gives a sense of exuberance, an economic high that leads to excessive risk taking and balloons of production. But it can't be sustained. There is a morning after.[...]

Then there is the problem of price increases more generally. The producer price index for February has generated terrifying results, though you probably haven't heard about them. Predictions were for a 0.6 percent increase but the reality was 1.6 percent, which points to double digits on an annualized basis.

And that just the beginning. Food prices rose the most since November 1974. Prices of raw materials rose by 3.4 percent in February from the previous month. Intermediate prices climbed 2.0 percent, with diesel fuel up a monthly 12.6 percent in February[...]

History is littered with monetary mangers who believed they were in total control — until the disaster hit. It is hubris of the first order to believe oneself master of the universe — but hubris is endemic in Washington.

QE3 is playing with fire. Or with a third dose of meth. Or another bottle of Jack. Choose your metaphor. It is a bad and deeply dangerous policy, all built on the insane view that if you stimulate a zombie enough with fiat money, it will start to live and breath on its own.

Reducing this even more, consider this: If you drink enough, does your body start to generate its own liquor?

The Fed and the government have hooked the American economy on a wicked drug. Our job is to drive the dealers from their seats of power.

If the Federal Reserve is not able to detect the exact moment to pull the liquidity back in, inflation and possibly hyperinflation will be the outcome. This has not been done successfully by any central bank that has embarked on the path of inflating its way out of debt, I can't back that up any fact as I just heard that from my opinionated economics teacher who said inflation is coming so this fact should be taken lightly.

Some real spending cuts are actually being enacted by Congress, about six billion. That is a lot of money that will make a big impact on the debt,

The national debt jumped by $72 billion on Tuesday even as the Republican-led U.S. House of Representatives passed a continuing resolution to fund the government for just three weeks that will cut $6 billion from government spending.

If Congress were to cut $6 billion every three weeks for the next 36 weeks, it would manage to save between now and late November as much money as the Treasury added to the nation’s net debt during just the business hours of Tuesday, March 15.

At the close of business on Monday, according to the Treasury Department’s Bureau of the Public Debt, the total national debt stood at $14.166 trillion ($14,166,030,787,779.80). At the close of business Tuesday, the debt stood at $14.237 trillion ($14,237,952,276,898.69), an increase of $71.9 billion ($71,921,489,118.89).

Since the beginning of fiscal year 2011--which began on Oct. 1, 2010--the national debt has climbed from $13.5616 trillion ($13,561,623,030,891.79) to $14.2379 trillion ($14,237,952,276,898.69) an increase of $676.3 billion ($676,329,246,006.90).

Congress would need to cut spending by $6 billion every three weeks for approximately the next six and a half years (338 weeks) just to equal the $676.3 billion the debt has increased thus far this fiscal year.

At least some progress is being made. We just have to give the Republicans more time and a chance to make some real cuts, like reforming entitlement programs, that I am positive they will make. It now looks like Obama's proposed budget will actually add 9.5 trillion to the deficit instead of 7.2 trillion, just off by two trillion. This means that real cuts need to be made and not some phony, weak six billion.

Government money or welfare make up about a third of U.S. wages,

Government payouts—including Social Security, Medicare and unemployment insurance—make up more than a third of total wages and salaries of the U.S. population, a record figure that will only increase if action isn’t taken before the majority of Baby Boomers enter retirement. Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.

'The U.S. economy has become alarmingly dependent on government stimulus,' said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients. 'Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits.'

The economist gives the country two stark choices. In order to get welfare back to its pre-recession ratio of 26 percent of pay, 'either wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion,' she said.

According to this guy, America's economy has reached an important milestone.

We are borrowing more than $5 billion per day. That’s $35 billion per week to run our government, totaling more than $1.5 trillion in borrowed money just to run it this year.

Harvard’s great economic historian, Niall Ferguson, noted that the decline of a country can be marked when it pays its moneylenders more than its army. His classic case comes from the French monarchy of the 1780s that failed to make interest payments on their debt, causing the financial collapse that triggered the revolution. Recently, Carmen Reinhard and Kenneth Rogoff wrote a brilliant book titled 'This Time is Different, Eight Centuries of Financial Folly.' Their vast study revealed that most government officials always believe they are unique and different, causing them to make the same mistakes that crippled past nations and empires.

Admiral Mike Mullen did state that America's debt is the biggest threat to its national security so maybe Ferguson is on to something. I think America can pull through and overcome this financial crisis, even if it doesn't look like it at the moment. We are different from other nations of the past and have overcome similar level of debt after WW II, although under different conditions.

And a nice opinion piece that is full of emotive language and hyperbole,

A devastating debt crisis is coming; simple mathematics predict it. It is no longer a matter of if, but when. The time for hysterics, hyperbole, and finger-pointing is over. The time for political games, grand-standing, and partisan shenanigans is long past. This is no longer about Democrat, Republican, liberal, conservative, or progressive issues. This affects all of us. The looming danger crosses all party and ideological lines and jeopardizes all Americans, present and future generations. We're staring down a massive debt tsunami that threatens the US with a fiscal Armageddon the likes of which we've never seen.

I am sure that I am just looking at the sensational news that is hyping the economic situation up. There are several investors that have an optimistic outlook on the economy and the stock market has done very well the past two years even if it is a bubble, about to burst, that is being inflated by the actions of the Fed. I think the Rubicon is just in front of the world's economy and it is about to cross the Rubicon with a new economic system being on the other side. That sounds crazy so it must be inaccurate. Maybe the Republicans are just getting a slow start and they will make something happen in the next few years.

Update On The Looming Financial Crisis.

(This is a short, happy post that is not well done.) The Republicans have failed to live up to their promise of tackling our "unsustainable" budget. It is politically impossible to make meaningful cuts without promoting massive social unrest ,look at the protest in Wisconsin, and threatening the social cohesion of our nation--the words "social unrest" come from a Congressional Budget Office's report and recently alluded to by our Treasury Secretary in his statement below. This is from the HotAir blog(they both link to the real news story),

The House rejected a measure cutting an additional $22 billion from the Republican spending bill, as conservatives ran into a wall of opposition from the GOP establishment over the depth of reductions to federal funding.

The amendment backed by the conservative Republican Study Committee failed, 147-281, but not before putting the GOP spending divide under a spotlight on the House floor. Authored by RSC chairman Rep. Jim Jordan (R-Ohio), the proposal would have dramatically reshaped an appropriations bill that already slashes federal spending by $61 billion over the next seven months…

Ace has a nice post and video that goes well with the disappointment that those that put their faith in the Republican party's promises to make some serious reforms. The Republicans have failed to make even their small 100 billion cut that even if enacted would have been ineffectual in solving the nation's looming budget crises and instead cut 60 billion from projected spending increases, not actual spending cuts. They have been dishonest in selling their proposed budget cuts and could not even vote to pass them. As Ace states "The GOP is dead to me". And even these modest cuts will likely be reduce after the Senate gets through with it. The point that I am trying to make is that no political party is willingly or able to make the necessary budget cuts and reforms to entitlement programs that are necessary to avoid the looming budget crisis. The status quo of our Nation's financial situation is simply not sustainable and there is no party that is doing anything about this fact. Who said that things are unsustainable?

The Treasury Secretary recently stated before a Senate hearing that the proposed budget is unsustainable because the interest on the debt will eventually rise to 844 billion dollars. This is the reason Admiral Mike Mullen recently stated that national debt is the biggest threat to our national security, a warning repeated by Hilliary Clinton. Tim Geithner also states that the proposed budget does not make the necessary cuts because it is politically impossible.

"'Forty cents of every dollar we spend we borrow, and in 20 years from now, all the money we have in revenue is going to go to pay the debt -- Social Security, Medicare and Medicaid. Nothing left for the national defense, homeland security, etcetera,' said Sen. Lindsey Graham, R-S.C., who appeared with Durbin. 'We are spending money that we do not have. Even the Social Security payments, we do not have. We're borrowing that from the Treasury,' said Sen. Richard Lugar, R-Ind., who was on CNN with Sen. Charles Schumer, D-N.Y."

The point of this short post is to show that there is a very real financial crisis that is knocking on the door. The sources that state this are not simply talk show host opinion, but rather this is coming from our elected officials, Treasury Secretary, the leader of our military, and the Congressional Budge Office. Seismic , titanic, and very painful cuts need to be made in entitlement programs that are simply politically impossible to make without affecting the "social cohesion" of the Nation and won't be made until the crisis is already upon us. Either way, if the necessary reforms are made or things continue as they are, a very serious financial crisis is headed our way. With this level of debt, America and the world has lost its ability to absorb shocks to the system such as natural disasters, economic shocks, wars, or a possible negative turn of events in the Middle East. With the ability to absorb the financial cost of such shocks, they will have a more pronounced effect on America and the world. Are you mentally and financially prepared for this? Or is your head still in the sand or you have your hopes misplaced with the Republicans and the Tea Party?

QE 2, Inflation, Unrest In Egypt, And Inflation Is Under Reported In America.

(I don't have time to do a well written post.) There is major unrest going on in Egypt. I don't know all of the causes and won't try to explain all of them and I won't try to predict what will come out of the unrest in that region of the world. I will focus on how gut-level economics, the recent expansion of the money supply by the Federal Reserve known as QE 2, and the resulting inflation are contributing to unrest in Egypt. The unrest in the Middle East in driven in part by the world-wide inflationary policies carried out the various governments of the world and shows what the end result of such policies are.

According to this article from Big Government dot com, the recent Quantitative Easing or digitizing/printing of money to help pay for the Nation's debt has contributed to unrest in Egypt.

Chairman of the Federal Reserve Ben Bernanke launched a second round of Quantitative Easing (QE2) in October, following over a year of growth in the economy at a robust rate of over 3%. Most analysts pooh-poohed QE2 as an insufficient economic stimulus to create enough inflation to reduce unemployment. I warned that QE2 was like pouring inflationary lighter fluid on the world and then lighting a match. With food inflation now running at 15% in poor countries, the Middle East is just the first area to burn, but fire is smoldering in much of the world and other fires will break out soon.

QE2 is a program by the U.S. Federal Reserve to inject $600 billion of U.S. dollars in the financial system by repurchasing an equivalent amount of U.S. Government bonds. Once the money is paid to the former bondholder, they deposit the cash in banks. Banks take deposit dollars and leverage them by 6 to 10 times creating $3.6 to $6 trillion in credit. Given that the Gross Domestic Product of the U.S. economy is only about $14 trillion annually, it would impossible to immediately purchase 25-40% of the entire economy. Consequently, the reality of Quantitative Easing is that the money will be invested in the stock and commodity markets. The theory is that the financial assets rise on the huge inflows of QE cash, investors will feel wealthier and go to the malls and the car dealerships to 'shop till they drop'.

The problem with theory is that QE2 money quickly drove up commodity food prices around the world. This price rise is barely noticeable to Americans who only spend 10% of their personal income on food for three meals a day; but the impact of food inflation is devastating the over half the world that spends approximately 50% of personal income on food for two meals a day. The 15% QE2 induced commodity food price increase has reduced the amount of food poor people can purchase by almost 1/3.

The riots and revolutionary activity burning down Tunisia, Yemen, and Egypt are about gut-level economics. Do you think Americans would riot and throwing out our government if we were forced to cut back to eating 1 1/3 meals a day? Once riots start people in cities hoard food to survive and becomes dangerous for farmers to transport food. This is exacerbates food shortages and drives prices even higher.

Unemployment was modestly declining and inflation was flat before the Fed’s August announcement of the new stimulus, as shown above. That trend remains in place as QE2 has not significantly reduced unemployment. The only success of QE2 in U.S. is a 20% in the stock market the last six months.

When the Credit Crisis hit in 2008, the Middle East country of Dubai was the first financially leveraged nation to suffer a debt crash. Since that time; Greece, Iceland, Ireland, Spain and others are also suffering a similar fate. QE2 leveraging of worldwide commodity food prices has sent the Middle East into flames. With the price of a barrel of oil hitting $100 dollars and food prices accelerating, those flames will spread.

So it appears that inflation that was exacerbated by the recent fed action are contributing to global unrest. Corn ethanol has also driven up the price of food.

Inflation here in America as measured by the government is about 1.5 % over the past 12 months, this number excludes the cost of energy and food. But according to "Dr. Doom"/Marc Faber it is actually around 5%.

'I guarantee you … the annual cost of living increases are more than 5 percent, and the Bureau of Labor Statistics is lying,' Faber told CNBC at the Russia Forum in Moscow.

'Mr Bernanke is a liar; inflation is much higher than what they publish. I would imagine for most households it’s between five and eight percent per annum in the United States and in Western European countries maybe a little bit lower but also around four and five percent per annum,' he said.

In addtion, Faber said high food prices, which have sparked political unrest in Egypt, would next cause turmoil in Pakistan.

'You may not have the problem in Saudi Arabia and the Emirates because there the governments can heavily subsidize food if they want to, but I’m particularly worried that what has happened in Egypt will happen in Pakistan,' he said.

Asked whether Pakistan would indeed see an Egypt-style uprising, he said: 'I think that will be the case.'

'I think Egypt is a reminder to people that politics and social events and geopolitics have a meaningful impact on asset markets,' Faber said, adding that what the world was currently witnessing was 'a wake up call where the US outperforms emerging markets for a while.'

'That doesn’t mean that the US goes up. It just may go down less than the others,' he said.

Turning to the global economic recovery, Faber said the West was bottoming out and recovering, which meant the global economy looked 'OK' for the next six months.

But 'we’re all doomed in the long run,' he said.

'We have to realize it’s an artificial recovery driven by ultra-expansionary, monetary policies and also ultra-expansionary fiscal policies.

In other words, the deficits of governments are huge and that will lead down the road to renewed problems,' he said.

This social unrest in Egypt is the result of a world-wide inflationary policy. The poorer nations are feeling the effects now, later it will be the wealthier nations.