Monday, February 14, 2011

Wishful Thinking Behind 2012 Budget Proposal

Obama Unveils $3.73 Trillion Budget for 2012- AP
President Barack Obama is sending Congress a $3.73 trillion spending blueprint that pledges $1.1 trillion in deficit savings over the next decade through spending cuts and tax increases.

$1.1 TRILLION in deficit savings over the next decade... Sounds impressive, until you do the math. The financial headlines are already claiming that this budget plan "curbs the deficit".

Pure bull shit...

A decade is 10 years. To claim that this years budget plan will save $1.1 TRILLION over ten years time is absurd, but it makes great headlines. Simple math tells us that $1.1 TRILLION spread over 10 years amounts to ONLY a $110 BILLION deficit savings per year. LOL! The treasury sold $72 Billion of debt JUST LAST WEEK!

Read that again: The treasury sold $72 BILLION of debt JUST LAST WEEK!

$110 BILLION of deficit savings in one year is CHUMP CHANGE. Never mind that Treasury / IRS revenue last fiscal year was (only) $2.16 Trillion, and the Congressional Budge Office is projecting a record spending deficit of $1.5 Trillion this fiscal year. This annual savings in the deficit would disappear faster than a local bank on a Friday afternoon. IN FACT, this deficit savings would not even have covered the $185 BILLION net interest expense on US debt that was just paid in 2010. Worse yet, the net interest expense on US debt is projected to TRIPLE to $554 BILLION by 2015.

Geithner Quietly Tells Obama Debt Expense to Increase to Record
By Daniel Kruger and Liz Capo McCormick
Barack Obama may lose the advantage of low borrowing costs as the U.S. Treasury Department says what it pays to service the national debt is poised to triple amid record budget deficits.

Interest expense will rise to 3.1 percent of gross domestic product by 2016, from 1.3 percent in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015, according to page 23 of a 24-page presentation made to a 13-member committee of bond dealers and investors that meet quarterly with Treasury officials.

While some of the lowest borrowing costs on record have helped the economy recover from its worst financial crisis since the Great Depression, bond yields are now rising as growth resumes. Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration’s adjusted 2011 budget.

“It’s a slow train wreck coming and we all know it’s going to happen,” said Bret Barker, an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about $115 billion in assets. “It’s just a question of whether we want to deal with it. There are huge structural changes that have to go on with this economy.”

The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008, according to the Treasury Department. Debt-service costs will climb to 82 percent of the $757 billion shortfall projected for 2016 from about 12 percent in last year’s deficit, according to the budget projections.

Geeze Timmy, like this is a secret. The cost of US debt is going to be a far worse problem than that of Portugal, and that is all the financial press was interested in reporting on last week. Of course Portugal faces their debt crisis "today", but tomorrow comes sooner than we think when the cost of our debt comes due.

President Obama's budget is painfully inadequate when it comes to addressing the US deficit. I wouldn't even qualify it as wishful thinking in terms of deficit reduction, not at the rate this country continues to add to it's debt irrespective of the increasing costs to service that debt. When you are issuing $72 BILLION of debt in a week, a $110 Billion "annual" cut in spending almost seems disingenuous.

If the President, the US Treasury, and the US Federal Reserve were serious about deficit reduction, and balancing the nation's books, they would seriously consider ending the true global financial farce that they are behind: The suppression of the price of Gold and Silver. It is this now 40 year suppression of the Precious Metals, Constitutional money, that is at the root of this global financial crisis.

Since President Nixon took the US off of the "gold standard" completely in 1971, the value of the US Dollar has fallen by 95%. This was achieved primarily via the gradual decent in interest rates from their peak in October 1981 as the cost of money fell encouraging ever greater deficit spending by not only the US Government, but by business and consumers as well.

Cheap money over the past 40 years fueled spending that gave rise to the the illusion of America as this mammoth global growth machine. This in turn supported the US Dollar despite falling interest rates. The fact that the US Dollar became the de facto world reserve currency also supported the US Dollar as all trade in Oil and commodities were globally settled in US Dollars. The Dollar was cheap to borrow, and everybody wanted as many of them as they could afford.

It was believed at the time Nixon closed the Gold Window that the full faith and credit of the US Treasury, with an independent Fed as guardian of the currency, would force the Dollar to act as though it were still externally constrained, as in the case of a gold standard. As Greenspan said, the Dollar works as long as it acts as though it were on a gold standard.

Unfortunately, today the Dollar no longer acts as if it were on a Gold standard. Interest rate swap derivatives at JP Morgan, and the purchase of US Treasury debt through the back doors of the "primary dealers" in the treasury market have seen to the US Dollar's demise.

Many could point to the US Dollar Index and claim that the Dollar is not as bad off as it may appear. But in a period of Global Competitive Currency Devaluations, the Dollar is being measured in the US Dollar Index against a basket of other currencies that are also constantly falling in value. How can the measure of a falling US Dollar be accurate, if it is measured against other falling currencies? It can't be. To accurately measure the value of the US Dollar it must be measured against Gold.

The $Gold Chart is the ONLY True Comparison of Dollar Value

The only true reference point of value for the Dollar at this time is a comparison to Gold. Thus, the $Gold chart is that only true comparison of Dollar Value as it is viewed in a ratio to relative constant value Gold once Global Competitive Currency Devaluations are ongoing.

The US government could immediately square the US debt, if they would allow a revaluation in the price of Gold to a level that is equal to the nation's outstanding marketable debt. This would entail a MAJOR revaluation in the price of Gold, and though highly unlikely to occur, it would certainly back our debt with substantially more than "the good faith and credit" of the US Government that is now being called into question by our nation's creditors.

Consider that the amount of marketable U.S. government debt outstanding has risen to $8.96 TRILLION. IF the US Treasury still holds 280 MILLION ounces of Gold in it's reserves, Gold would have to be revalued to $32,000 an ounce to make that debt have full value to those that hold it. Clearly, at today's $1365 Gold price, the US Dollar is not working as a store of value for those holding our debt.

Once again, as Alan Greenspan said, the Dollar works as long as it acts as though it were on a gold standard.

Bernanke's Free Ride Is Over
By: Gary North
Ben Bernanke took over as Chairman of the Board of Governors of the Federal Reserve System on February 1, 2006. On February 9, 2011, his free ride ended. On that day, Paul Ryan's House Budget Committee grilled him.

Bernanke has yet to appear before Ron Paul's Subcommittee on Monetary Policy. Whether Bernanke will ever agree to testify before that subcommittee remains an open question. If the House does not compel him to show up, he may be able to escape stiff cross-examining. If the House refuses to compel him to testify, then the House once again has capitulated on a bipartisan basis. We shall see.

Bernanke is not used to tough questions.
Some of the questioning wound up on YouTube within hours.

You may not perceive the extraordinary nature of all this. You can be sure that he perceives it. For almost a century, representatives of the Federal Reserve have been dealt with deferentially by Congress. In theory, the Federal Reserve answers to Congress. In fact, Congress asks few questions.

The sign of the FED's operational autonomy is the absence of any independent audit by any agency of the United States government. This includes any audit of the gold that the FED legally has stored for the government since 1933. The last audit of the gold in Fort Knox was in 1953. There has never been an independent audit of the gold inside the vault of the New York Federal Reserve Bank (privately owned) at 33 Liberty Street, New York City.

Stiff the Fed
By David Bond
This leaves us with the Federal Reserve Bank, this mysterious beast in our midst, to whom for no reason known to God we are paying interest. Our interest payments to this weird ghost will in a few years' time consume all of our “discretionary” federal budget, and we won't have paid down a farthing.

Why cannot this nation, like so many millions of U.S. homeowners, simply walk away from the mess this cabal of greedy Fed banksters created? Hand 'em back the keys, and keep our pledges to Canada, Brazil, China, Japan and our own savers at the same time. The interest saved by stiffing the Fed would retire our foreign debt in short order. Besides, it's time Timothy Geithner and Helicopter Benjamin Bernanke got real jobs – like maybe in a Chinese coal mine.

This morning Gold and Silver would appear to be offering a vote of "no confidence" in the Presidents budget proposal. Silver broke higher after successfully testing the swing high support at 29.78 for a third day in a row. Gold is once again attempting to break through pivotal resistance at $1365. Expect our bullion banksters at the CRIMEX to make every effort to thwart the impending breakouts in the Precious Metals. The US Dollar is broken and that TRUTH rests with the Precious Metals.

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