Saturday, July 30, 2011

Seriously? Where Are The Spending Cuts?

“If we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills -- we do -- but because we didn’t have a AAA political system to match our AAA credit rating,” Obama said earlier yesterday at the White House.

IF, and that is a gargantuan if, we had the capacity to pay our bills Mr President...why do we need to borrow $2.5 TRILLION to do so?  Do you even listen to the drivel that drips from your lips?  

The stupidity of these clowns in Washington is beyond amusing. This country's debt has not "really" been "AAA" for a couple of years now. It "is" presently AAA, ONLY because the "government sanctioned" rating agencies rubber stamp US Treasuries as AAA. The "threat" of a down grade is all hot air...and part of a government led effort, stoked by the lapdog mainstream media, to scare Americans into contacting their respective congressmen and senators, demanding a resolution. Remember the great Armaggedon scare tactics used by then US Trerasury Secretary, John Paulson, to strong arm the Congress into passing the ILL ADVISED T.A.R.P. program?  No one in the country wanted their representative in Washington to pass that bill...recall it failed on its original vote...AND THEN THE STOCK MARKET CRASHED [how convenient] and scared all the spineless politicians in Washington to vote to pass the TARP bill.

To date we have had headlines "warning" of calamity if the debt ceiling isn't raised fueled by the blah
-blah from Capitol Hill. is ALL a ruse!  No country with 3% Long-Term interest rates gets a downgrade...the BOGUS rating agencys are "threatening" a downgrade at Washington's request to fan the flames of fear...  America does not have the capacity to pay it's bills UNLESS it borrows more money...the piggy bank is empty...but the ratings agencies will not downgrade the a downgrade would cause far more chaos than a default. [Think about money market funds that can ONLY hold AAA debt because of the by-laws]


America doesnt have a debt problem, as much as it has a spending problem. Finally, somebody in Washington is DEMANDING the spending problem in Washington be addressed...Because we spend far more than we take in...and raising taxes IS NOT THE ANSWER.

Judson Phillips, founder and chief executive of Tea Party Nation, had this to say about the current debt-ceiling debate:

Why is the Tea Party intransigent on the debt ceiling? Why is the Tea Party pushing congressional Republicans so hard that we have a crisis?

As the founder of Tea Party Nation, I feel confident in saying that the Tea Party understands what so many in Washington seem to have forgotten: We do not have a debt crisis. We have a spending crisis. There is only one way you get to a debt crisis — you spend too much money.

Average Americans understand that the federal government is bloated. The government funds too many wasteful programs. There are too many programs and spending bills that exist only to help get senators or representatives reelected.

The Tea Party movement understands that if we allow Congress to borrow more money or raise taxes, all we are doing is funding the endless expansion of government.

Americans are angry at the federal government and do not want their taxes raised. Nor do they want Congress to borrow more, considering how poorly lawmakers have managed the money we give them.

The Government Accountability Office released a report in March outlining billions of tax dollars that were being squandered in duplicative, wasteful programs or ones that had completely failed or were fraudulent. Republicans in Congress should have been having cage fights to see which representative could be first on the House floor to introduce the legislation to end that spending.

We are still waiting.

The GAO found in 2008 that more than 40 percent of the purchases made with government cards were improper, fraudulent or constituted embezzlement. These credit cards are being used to purchase Xboxes, lingerie and more.

Americans rightly think there is something wrong when our government has spent $2.6 million to teach Chinese prostitutes how to drink responsibly. Americans are tired of “bridges to nowhere,” ferries to nowhere, neon light museums, cowboy poetry readings and cow flatulence studies — all of which are being paid for with our tax dollars.

The left has accused the Tea Party of wanting America to default on its debt obligations. Nothing could be further from the truth. The Tea Party wants America to stop incurring debt obligations and to cut back on the wasteful spending already in place.

We in the Tea Party understand a basic concept that Washington has forgotten: When you are in a hole, quit digging. Every time we have approached the debt ceiling, we have been told the same thing: If we do not raise the debt limit, it will be the end of the world as we know it. A couple of years later, when we find ourselves facing the same crisis, we’re told the same thing.

At some point, this will end. America cannot keep borrowing money it does not have. There is a common fate for those who spend too much money. If you doubt that, visit a bankruptcy court sometime.

Tea Party Senator Rand Paul opposes the Boehner and Reid Debt Plans, and suggests that thePresident has manufactured this debt crisis by threatening default on the debt. 

In a discussion with Fox's Gretta Van Susteren, Paul told her (transcript of remarks):

VAN SUSTEREN: What can the president do to show to your satisfaction that he's leading on this issue?

SEN. RAND PAUL: Well, the first thing, if the president were true leader he would take default off the take. It shouldn't even be considered. It is really an obligation, a constitutional obligation to pay for your debt, to pay the interest on your debt.

VAN SUSTEREN: How do you take that off?

SEN. RAND PAUL: It is interesting that we actually do. We bring in $200 billion a month in tax revenue. Our interest payment is 20 billion. We have more than enough that comes every month in tax revenue to pay the interest on our debt. We can't pay for everything. We can pay for Social Security. He should quit scaring seniors. And we can pay for our soldiers' salaries. And we can pay for another $70 billion or $80 billion worth of government.

But he could take default off the table then this wouldn't be such a crisis situation. He's manufactured a crisis, and if we don't have an arrangement by August 2nd, and there is a dip in the stock market, the blame lies squarely on his shoulders for allowing this crisis to happen and actually encouraging this crisis.

What will happen if we don't "truly" cut spending?  Inflation or rising taxes will be the result, probably both!  If government spending isn't "truly" cut, we can look forward to years of economic stagnation and a new class of citizens called the Permanently Unemployed.

The spending cuts in both the House and Senate plans are a mirage.  They pay little more than lip-service to cutting spending by the US Government. 

Michael Tanner, a senior fellow at the Cato Institute, suggests the spending cuts in both the Boehner and Reid Debt Plans are hardly austere, and actual federal spending will continue to rise as Rand Paul pointed out in his interview above:

"It is clear we must enter an age of austerity," House minority leader Nancy Pelosi mourned as she endorsed Harry Reid's proposal for raising the debt ceiling. Austerity? Really?

The Reid plan would theoretically cut spending by $2.7 trillion over ten years. Even if that were true, it would still allow our national debt to increase by some $10 trillion over the next decade. But, of course, the $2.7 trillion figure is mostly fiction. About $1 trillion of the savings would come from the eventual end of the wars in Iraq and Afghanistan, savings that were going to occur anyway. Senator Reid might just as well have added another $1 trillion in savings by not invading Pakistan.

Another $400 billion comes not from cuts but from assuming reduced interest payments. And, of course, there are $40 billion in unspecified "program-integrity savings," meaning the "waste, fraud, and abuse" that is the last refuge of every phony budget cutter. The plan rejects any changes to Medicare and Social Security, despite the fact that the unfunded liabilities from those two programs could run as high as $110 trillion. But those liabilities generally fall outside the ten-year budget window, so Reid — unlike our children and grandchildren — doesn't have to worry about them.

That leaves about $1.2 trillion in discretionary and defense spending reductions over the next ten years. Let's put that in perspective. This year the federal government will spend $3.8 trillion. Our deficit is roughly $1.6 trillion. Our national debt exceeds $14.3 trillion, not counting unfunded entitlement liabilities. We are talking about raising the debt ceiling to $16.9 trillion. This month alone the federal government will borrow $134 billion. Reid's cuts would average roughly $120 billion per year.

This is austerity?

Of course, the House Republican plan as announced by Speaker John Boehner is only marginally more austere.

Boehner proposes a two-stage increase in the debt ceiling, with each stage accompanied by spending cuts. The first $1 trillion debt increase would be accompanied by $1.2 trillion in spending cuts over ten years, pretty much the same as Senator Reid's plan. The big difference is that instead of Sen. Reid's phony Iraq and Afghanistan savings, the speaker's plan would appoint a commission — now there's an exciting new idea — to propose $1.8 trillion in savings from entitlement programs. To be fair, Senator Reid would also appoint a commission — because that's what Washington does — to recommend additional deficit reductions, presumably including entitlement changes. The difference is that the Boehner commission has teeth. If Congress rejects its recommendations, the president doesn't get a second $1.6 trillion hike in the debt ceiling.

But $1.8 trillion in entitlement savings over ten years is still too small to encompass real structural reforms of the type envisioned by Rep. Paul Ryan and others. It is much more likely to simply be more tweaking around the edges, perhaps raising the eligibility age or changing the way the cost-of-living formula is calculated. True, changes such as these will have a real impact out beyond the ten-year budget window, but they fall far short of what is necessary to deal with the shortfalls to come.

Making matters worse, both Reid and Boehner are using the time-honored Washington dodge of "baseline budgeting," meaning that the proposed cuts are not actual reductions in spending from year to year, but cuts from projected future increases. Thus, under both the Reid and Boehner plans, actual federal spending will continue to rise.

With the clock running out, we are now down to fifth- or sixth-best options. But let's not pretend that this is austerity.

July 30, 2011
While our incompetent and corrupt mainstream media has been proclaiming there are major differences between the two bills proposed by House Speaker John Boehner and Senate Majority Leader Harry Reid, NIA believes John Boehner might as well be a Democrat and Harry Reid could easily pass himself off as a Republican. There are absolutely no meaningful fundamental differences between Boehner's plan that was approved by the House of Representatives yesterday evening, before being killed by the Senate two short hours later, and Reid's bill, which was just rejected by the House today in a pre-emptive vote before the Senate even had a chance to vote on it.

Both bills are estimated to reduce the U.S. budget deficit by approximately $900 billion over the next 10 years. Of the $900 billion only about $750 billion are actual discretionary spending cuts with the rest being an expected reduction in interest payments on the national debt as a result of either bill passing. When you have an unstable fiat currency that is rapidly losing its purchasing power and could collapse at any time, it is impossible to accurately project what our budget deficits will be 5 or 6 years from now, let alone 9 or 10 years from today. As far as the next two fiscal years are concerned, both proposed bills from Boehner and Reid are estimated to only cut spending by a total of about $70 billion in fiscal years 2012 and 2013 combined.

The budget that former President Bush submitted to Congress in early-2007, projected the deficit to decline in each of the following four fiscal years. Not only did the deficit not decline the next four years in a row, but it nearly tripled in 2008 and from there more than tripled in 2009. Shockingly, Bush's budget actually projected a $61 billion surplus in fiscal year 2012, but instead we will have a budget deficit of $1.1 trillion based on President Obama's latest budget, which takes into account unrealistic GDP growth next year of 4.86%.

U.S. GDP growth for the first quarter of 2011 was just revised down yesterday by 81% from 1.91% to 0.36%. The advance estimate of second quarter GDP growth came in at 1.28%, well below the consensus estimate of 1.8%. NIA is going to really go out on a limb and predict that second quarter GDP growth will soon be revised downward as well. If this is the highest GDP growth the U.S. could muster after the Federal Reserve's $600 billion in QE2 money printing, this should prove once and for all that monetary inflation does not create real economic growth and employment.

The U.S. Treasury as of Thursday night had $51.6 billion in cash, with its cash position declining by $15.2 billion during the previous 24 hours. It expects to bring in $172.4 billion from August 3rd through August 31st in tax receipts, but is scheduled to pay out $306.7 billion during this time period for an estimated deficit of $134.3 billion. The U.S. is scheduled to make its next interest payment on the national debt on August 15th and it will equal approximately $30 billion. Over the last 9 months the U.S. has spent a total of $385.9 billion on interest payments on the national debt, which means it is on track to spend a record $514.5 billion this year on interest payments alone. Just a tiny 30 basis point increase in the interest rate on the national debt would totally wipe out the deficit reductions proposed by both Boehner and Reid.

The U.S. Treasury has been able to pay its bills in recent weeks by using many different accounting gimmicks. However, come Tuesday, there will be no more accounting tricks left to play and the U.S. won't be able to meet all of its obligations. Without a raise in the debt ceiling, the U.S. government will have to prioritize who it pays using the tax receipts coming in, which will probably include the $30 billion interest payment on the national debt (to avoid a default), $49.2 billion in Social Security payments, $50 billion in Medicare/Medicaid payments, $31.7 billion in defense payments, and $12.8 billion in unemployment benefits. With $23 billion of the $49.2 billion in Social Security payments due to be paid on August 3rd and $59 billion in t-bills due on August 4th, the U.S. Treasury's remaining cash balance could dissipate very quickly.

The 10-year bond yield reached a new 2011 low yesterday of 2.785%, its lowest level since November 30th of last year. It is approaching its record low of 2.08% from December of 2008 during the middle of the financial crisis. With threats of a U.S. debt default making headlines across the world, investors are once again rushing into U.S. bonds as a safe haven. It is almost as if the whole world has gone insane. The world is fearful of the U.S. government defaulting on its debt and not being able to pay off maturing bonds, so as a safe haven let's just all rush into the very asset that will soon be worthless due to either an honest default or default by inflation. The U.S. dollar bubble is the largest and longest running bubble in world history and U.S. bonds are currently mispriced big time.

U.S. dollar-denominated bonds should be the last asset in the world to benefit from fears of a U.S. debt default. One positive sign that NIA members are having success at spreading our message to the world is that gold reached a new all time high yesterday, rising $15 to $1,631 per ounce, with silver rising $0.31 to $40.10 per ounce. Thanks to the efforts of NIA members who worked tirelessly to spread the word about NIA's economic documentaries including 'Meltup', 'The Dollar Bubble', and 'Hyperinflation Nation', a larger percentage of the global population than ever before is educated about the global currency crisis that is ahead.

During the financial crisis of late-2008/early-2009, gold and silver prices declined along with all other assets. Today, NIA estimates that half of the world's investors seeking a safe haven are buying dollar-denominated assets like U.S. Treasuries and the other half are seeking safety in precious metals. By mid-2012, investors will most likely no longer look at U.S. bonds and other dollar-denominated assets as a safe haven. During future times of uncertainty, NIA believes that precious metals will receive nearly 100% of safe haven buying, just like the U.S. dollar received 100% of safe haven buying in late-2008/early-2009.

Once the debt ceiling is inevitably raised, the U.S. Treasury will have a lot of catching up to do in order to get its house in order, and we will likely see the largest amount of debt ever sold by the U.S. government in a single month. With QE2 having finished at the end of June, the U.S. will be relying on foreigners in these upcoming record Treasury auctions. In our opinion, we are likely going to see interest rates rise at an unprecedented rate that will shock the world.
by Peter Coy
If Washington is deadlocked now, how will it deal with the much bigger debt problems that lurk in the decades to come?

There is a comforting story about the debt ceiling that goes like this: Back in the 1990s, the U.S. was shrinking its national debt at a rapid pace. Serious people actually worried about dislocations from having too little government debt. If it hadn't been for two wars, the tax cuts of 2001 and 2003, the housing meltdown, and the subsequent financial crisis and recession, the nation's finances would be in fine condition today. And the only obstacle to getting there again, this narrative goes, is political dysfunction in Washington. If the Republicans and Democrats would just split their differences on spending and taxes and raise the debt ceiling, we could all get back to our real lives. Problem solved.

Except it's not that way at all. For all our obsessing about it, the national debt is a singularly bad way of measuring the nation's financial condition. It includes only a small portion of the nation's total liabilities. And it's focused on the past. An honest assessment of the country's projected revenue and expenses over the next generation would show a reality different from the apocalyptic visions conjured by both Democrats and Republicans during the debt-ceiling debate. It would be much worse.

That's why the posturing about whether and how Congress should increase the debt ceiling by Aug. 2 has been a hollow exercise. Failure to increase the borrowing limit would harm American prestige and the global financial system. But that's nothing compared with the real threats to the U.S.'s long-term economic health, which will begin to strike with full force toward the end of this decade: Sharply rising per-capita health-care spending, coupled with the graying of the populace; a generation of workers turning into an outsize generation of beneficiaries. Hoover Institution Senior Fellow Michael J. Boskin, who was President George H.W. Bush's chief economic adviser, says: "The word 'unsustainable' doesn't convey the problem enough, in my opinion."

Even the $4 trillion "grand bargain" on debt reduction hammered out by President Barack Obama and House Speaker John Boehner (R-Ohio) -- a deal that collapsed nearly as quickly as it came together -- would not have gotten the U.S. where it needs to be. A June analysis by the Congressional Budget Office concluded that keeping the U.S.'s ratio of debt to gross domestic product at current levels until the year 2085 (to avoid scaring off investors) would require spending cuts, tax hikes, or a combination of both equal to 8.3 percent of GDP each year for the next 75 years, vs. the most likely (i.e. "alternative") scenario. That translates to $15 trillion over the next decade -- or more than three times what Obama and Boehner were considering.

You start to see why, absent signs of a serious commitment to deficit reduction, the rating services are warning they may downgrade the federal government's triple-A rating even if Congress does meet the Aug. 2 deadline. Fortunately, our debt hole is escapable. But digging out requires that leaders of both parties come to terms with just how deep it is.

As per Harvey Organ:


The front delivery month of August saw a massive 12,124 contracts of open interest and this is the amount of gold standing for August representing 1.212 million oz of gold.

Thus to start the August month we officially have only 2.027 million oz of registered gold but I will bet that most of it is encumbered.  (registered = dealer gold) [encumbered = unavailable to those dealers short Gold that need to make deliveries.]

Expect massive cash settlements as the comex does not have anywhere close to this [1.212 million oz of gold] in unencumbered gold.


The front August options exercised month saw an OI fall slightly from 319 to 312.  This represents the number of silver ounces standing (1.56 million oz) which is very large for a non delivery month.  It is almost 30% of the total of July's silver oz standing. registered silver fell to an all time low of 26.729 million oz of silver inventory.

Our CRIMEX/Banking Cartel has some serious supply issues in Gold as we head into August.  August, on average, sees Gold move sideways with a downard bias to open the month, but quickly bottoms and launches higher thru September and into October.  The rise in July this summer has caught many by surprise.  The rise we may see into late Summer/early Fall, though expected, may shock even the diehard Gold Bulls. 

Silver will tag along for the ride in Gold's shadow, with the usual CRIMEX induced volatility.  However, keep a very close eye on the 40 level of the Gold to Silver Ratio.  As the ratio falls below 40, expect Silver's advance to accelerate relative to Gold as we move into late summer.  It would not be unexpected to see Silver at new ALL-Time highs near Labor Day.

No comments:

Post a Comment