Saturday, May 15, 2010

Stop Spending To "Secure America's Economic Future"

Obama pushes Wall Street reform with populism
(Reuters) - President Barack Obama on Saturday called for swift Senate action on a sweeping overhaul of Wall Street rules to "secure America's economic future" as a reform bill moves into the decisive stage next week.

With months to go before November's pivotal congressional elections, Obama pressed a populist theme of helping the "folks on Main Street" as he urged approval of tighter regulations to prevent a repeat of the 2008-2009 financial crisis.

Obama's Democrats and opposition Republicans are continuing to haggle over a slew of amendments, but the bill could come up for a vote in the U.S. Senate by the end of next week and is widely expected to pass.

"The reform bill being debated in the Senate will not solve every problem in our financial system -- no bill could," Obama said in his weekly radio and Internet address.

"But what this strong bill will do is important, and I urge the Senate to pass it as soon as possible, so we can secure America's economic future in the 21st century."

75 years of "financial reform" and regulations could not prevent the "near financial collapse" of 2008. How can "swift Senate action" today solve, fix, or prevent further financial catastrophe? It can't, and it won't.

If President Obama is "serious" about securing America's economic future and helping the "folks on Main Street", then it's high time he and all the other self interested political clowns in Washington get serious about the REAL threat to America: Her DEBT.

All the financial reform in the world, no matter the wizardry behind it, is not going to pay off America's DEBT. Financial reform is a smoke screen to deflect attention on the real threat to Americans on Main Street and the country's economic future. It is an obvious political ploy being used in an attempt to win back voters confidence going into the November mid-term elections.

America is suffocating under a mountain of DEBT that grows heavier to bear by the day. Americans know this to be fact. Main Street has cut up its credit cards and embarked on a journey of debt reconciliation.

It was a hard lesson learned. "Spending your way to prosperity" is a one way ticket to the poor house. By cutting spending and paying down debt, Main Street is focused on it's economic future, and doing something about it. Unfortunately, the Federal Government in Washington has failed to see the light.

Washington's answer to every problem is "spend more money". Washington's answer to paying it's debt is to roll the debt over, and pay it later. Printing money and pushing the obligation to repay debt further into the future is not going to "secure America's economic future". It is setting it up for destruction.

Don't believe a word of what the President, members of his administration, or this Congress tells you they are doing to "secure America's economic future" and help the "folks on Main Street". The speak half truths at best, and promote deception at every opportunity.

Without concrete efforts to cut spending and actual debt reduction America's economic future is certain to be bleak. New financial regulations are merely an attempt to find a new way to continue with "business as usual". The financial system is broken beyond repair. It is long past time to develop a new financial system.

Today's financial system is one colossal cluster of multiple generations of debt derivatives. Each generation designed to push the actual payment of the debt further into the future. This is how Greece hid it's debt obligations from the European Monetary Union so that it could qualify for induction. This is how states in America have hidden their annual budget deficits so that they could meet their state laws to have a balanced budget every year. And this is how the banks the taxpayers of America bailed out hide their losses year after year in an effort to show huge profits and earn their money managers obscene annual bonuses.

A world of exploding debt is about to bring a world of hurt upon us all, and no government sponsored financial regulations are going to stop, or slow it down. America, and the World, can not continue down this path of perpetual debt refinancing. Playing Kick The Can has it's limits, and those limits have now been met.

Despite what many might like to believe, America has never made any payments to reduce its debt. The US Government's debt today is the biggest bad loan in World history. We can't possibly pay it off. The government's tax base in "a good year" is ONLY $2.5 TRILLION. Total government debt is now close to $13 TRILLION and rapidly rising towards $14 TRILLION by year end 2010. It would take six years to pay off this debt if 100% of the tax base was directed towards debt reduction. And that assumes interest rates stay at current ridiculously low levels. If interest rates here rose the way have in Greece, the government would have a hard time just paying the interest on this debt.

These debt statistics are the TRUTH the President and his ill conceived administration wish to obscure. This is the creature best kept under the bed, or locked in the closet, and never talked about. Let's talk about "financial regulation" and the recovery that isn't instead. There is no recovery, and there never will be until the US Government admits it has a debt problem. And the first step to dealing with this debt problem isn't raising taxes, it's dealing with the governments addiction to spending. And since we live in "Bailout Nation", good luck with that...

Cash For Clunkers, $3 BILLION. The $300 million 'Cash for Appliances' program. The $6 BILLION Home Star Energy Retrofit Act , aka "cash for caulkers". Three government programs funded by money that doesn't exist. All three small, but prime, examples of a US Government spending addiction. We won't even stop to discuss the "off budget spending" used to fund the "War on Terror". Proposals to spend even more money that doesn't exist appear in the news daily:

NEW YORK ( May 13, 2010 -- President Obama and several members of Congress are drafting legislation for a new, $30 billion fund that would infuse community banks with capital specifically earmarked for small-business lending.

(ABC News) May 14, 2010 -- The Obama administration came out Thursday in support of emergency education funding legislation that would provide $23 billion to preserve teacher jobs in the face of massive impending layoffs across the country.

5/13/10 -- The Senate Appropriations Committee on Thursday moved forward a $59 billion spending bill, even as some panel members expressed skepticism about pouring more funds into the Afghanistan war.

More than half the money – $33.5 billion – would fund President Barack Obama's plan to increase U.S. troops by 30,000 in Afghanistan, as well as continuing military operations in Iraq. Much of the remainder would go toward foreign aid and assistance to Haiti and U.S. states hit by natural disasters.

Staring at you in red ink above is just $112 BILLION in spending proposals made in the space of 48 hours. Do you need any more proof that the US Government has a spending addiction? Our debt hangover will never be overcome unless this spending addiction is eradicated.

Presidents are elected to lead in time of trouble, not hide from the truth. It's long past time Mr. Obama quit blaming Mr. Bush for this nation's spending addiction, and actually do something about it. Shortly, there will be a spending proposal that will be the straw that breaks the bank, reveals the truth about government finances, and sends the US Government into default. This will have history making consequences, and blow today's economic recovery con to smithereens.

US faces inflation or default
By Nouriel Roubini, Project Syndicate
There are only two solutions to the sovereign debt crisis — raise taxes or cut spending — but the political gridlock may prevent either from happening.

Today there is a lot of talk about "de-leveraging", yet the data shows that de-leveraging has barely begun. Debt ratios in the corporate sector as well as households in the US have essentially stabilised at high levels.Image Credit: NIÑO JOSE HEREDIA/©Gulf NewsFinancial crises have occurred very often in history. They are caused by unsustainable bubbles that go bust, and from excessive risk-taking and debt-leveraging by the private sector during the bubble. Then in the wake of, and as part of the response to, the economic downturn, government debts and deficits grow to unsustainable levels that can lead to default or inflation if not corrected. The crisis we are going through now follows this pattern.

Today there is a lot of talk about "de-leveraging", yet the data shows that de-leveraging has barely begun. Debt ratios in the corporate sector as well as households in the US have essentially stabilised at high levels.

At the same time, we are seeing a massive "re-leveraging" of the public sector with budget deficits on the order of 10 per cent of GDP. The IMF and OECD are projecting that the stock of public debt in advanced economies is going to double and reach an average level of 100 per cent of GDP in the coming years.

This is all actually quite typical of what happens in a financial crisis. What explains this re-leveraging? First, "automatic stabilisers" (such as unemployment compensation) came into play during the recession. Second, countercyclical fiscal policies (such as tax cuts and spending increases) have been implemented by government to avoid depression because private demand is collapsing. Third, we have decided to socialise some of the private losses in the financial, corporate and housing sectors and put them on the balance sheet of the government.

GM wants more subprime buyers; will lender agree?
DETROIT (AP) -- If your credit isn't good, General Motors Co. still wants to sell you a car.

The problem is, it can't. At least not in big numbers. That's why the automaker wants more control over its lending again.

GM's top North American executive Mark Reuss, under pressure to quickly sell more cars and boost GM's value as it gets ready to sell stock to the public, said a shortage of subprime lending is holding back sales in the U.S.

So much for learning your lesson... Don't forget, the US Government owns GM.

"A government big enough to give you everything you want is a government big enough to take from you everything you have."
- Thomas Jefferson

The World's Fiat Currency System Risks Collapse
FORT LEE, N.J., May 10 /PRNewswire/ -- The National Inflation Association today released the following inflation update to its http://inflation.usmembers:

On February 12th, NIA released an article entitled, "Greece Distracting from Real Debt Crisis in U.S." in which we said, "We hope that Greece doesn't get bailed out, because a bailout would cause foreign investors to become more irresponsible than ever and create even greater moral hazards. Unfortunately, not only is it likely that Greece will get bailed out, it's possible our own Federal Reserve will get involved. The U.S. Federal Reserve has the ability to make loans to foreign central banks without disclosure to the U.S. public. European banks have already benefited $50 billion from the U.S.'s bailouts of AIG, so it's not out of the realm of possibility that the Federal Reserve will intervene due to eurozone countries being key U.S. trading partners."

NIA was right; late Sunday evening the Federal Reserve announced the re-establishment of U.S. dollar liquidity swap facilities with foreign central banks, as a part of the European Union (EU)'s nearly $1 trillion bailout plan. The Federal Open Market Committee has authorized swap lines through January 2011 with the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Swiss National Bank, and the Bank of Japan.

While the Federal Reserve may say these swap lines are necessary "to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers," NIA recognizes that this is nothing more than another transfer of wealth from the American middle class to bankers around the world through inflation. This program was originally enacted in 2008 when the Federal Reserve loaned $582.8 billion to foreign central banks without any disclosure of which central banks got the money.

NIA believes it is unconstitutional for the Federal Reserve to make loans to foreign central banks. Most likely, the Federal Reserve was pressured by Wall Street to re-establish the swap facilities because Bank of America, Citigroup, JP Morgan, Goldman Sachs and Morgan Stanley have about $2.5 trillion in exposure to Europe, and Wall Street doesn't want to see their bets go bad.

Not only will Americans now be exposed to the European debt crisis through the Federal Reserve's swap lines, but the U.S. will be giving money away to Europe through the IMF. The IMF is contributing up to 220 billion Euros as a part of the bailout, which equals $283.1 billion at the latest exchange rate. The U.S. represents approximately 20% of IMF funding, which means the bailout is costing U.S. taxpayers $56.7 billion, not including the potential losses from loans made by the Federal Reserve and the inflation it will create.

The moral hazards of the EU bailout are immeasurable. It sets a dangerous precedent that the ECB won't allow any eurozone nations to fail, just like the Federal Reserve won't allow any major financial institutions on Wall Street to fail. Eventually, if you don't allow the free market to punish countries and financial institutions that recklessly speculated and made poor financial decisions, the financial crisis we are preventing will turn into a currency crisis that the western world will never be able to recover from. Although NIA still believes the U.S. dollar will win its race to the bottom with the Euro, we are now at risk of a total collapse of the world's fiat currency system.

Europe Bailout The Worst $1 Trillion Ever Spent his excellent Gartman Letter, trading guru Dennis Gartman asked essentially, What is the propensity of the reserve banks of China and India to add euros to their reserve assets now? We have to think it is somewhat reduced from what it was only a short while ago... On the other hand, what is their propensity to own gold now? Almost certainly it is enhanced.

The numbers are showing it...

Gold is hitting highs in BOTH dollars and euros. In short, paper money really lost credibility over the weekend.

The euro is now a garbage currency. It deserves even less credibility than the U.S. dollar. But the U.S. dollar doesn't deserve a lot of credibility, either...

It's easy to sit in the States and see the problems over there. But the thing is, we have the same problems. We have too much government spending... and we have too many future promises we can't fulfill, like Social Security.

What makes our government's problems that much different than the countries of Europe? They're just ahead of us.

What we need is change... We need countries to commit to changing their ways.

You don't fix a drug addict by giving him more money. He'll go spend it on more drugs. Instead, you need to get him to rehab, to give him a fighting chance to change his ways.

You don't fix someone who's overspent on their credit cards and is living beyond his means by giving him more money. He'll simply get himself deeper in debt. Instead, you need to cut up the credit cards and force him to live lean for a while.

The International Forcaster
$5,000 invested in gold in 1913, the year the Federal Reserve Act was passed, is now worth $287,500.

We want to remind you that less than 1% of Americans own gold and silver or the shares, so we have some upside. Just remember be patient and stay long.

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