Wednesday, January 30, 2013

There's Probably No Way Out For the US Economy

I say that because there is a way out it's just this crowd of spendthrifts haven't the courage to take it.  

Reading Martin Armstrong tonight and he brings up a good observation.  All the debt the US government has created pays interest.  So much that 70% of the current debt is the amount of interest already paid.  If the government created its own money there would be no interest to government.  Instead the FED orders the money the Treasury prints it, gives it to the FED who then sells the debt through their Primary Dealers (banks).  Who purchases the debt.  Well 40% of it is purchased by foreigners and foreign central banks in particular who for the most part “park” the money to be use in international settlements.  When these bonds come due the US government simply pays the interest owed to the foreigners and that money (US Dollars) leave the US.  The flow of capital leaves the country. 

With the interest rates near zero there is not too many foreign purchasers of our current debt creation so for now the FED is playing the role of purchaser of last resort. (Hey, the bonds get sold that’s all the politicians care about because they for sure don’t know what they are doing.)  But, foreigners are still one of the biggest holders of US debt.  There’s been no real beneficiary of all this deficit spending except exporting our capital to foreign bond holders. 
GDP numbers sucked today and the FED chairman indicates that rates will stay near zero as long as it takes.  To what?  ….. Meanwhile the Fed is injecting $85 billion per month into the markets mostly buying up bad real estate bets.  Now, I admit I’m just a lay person and not a big time financier but to me this is just insane. 

I look at Obama’s budget and right off can see that it surpasses smoke and mirrors and leaps right into the category of “pipe dream”  (as in what’ s in that pipe he’s smoking)  Ever since he took office they’ve been using a shade over 4% for an annual growth figure and project that well into 2022 each and every year.  I don’t buy the 2% that gets reported after the ‘shape shifting’ of numbers in mysterious ways.  So, now get this;  they show that tax revenue will be up 100% or so by 2020.  That means they count on the economy growing 100% and if it doesn’t guess what.  They just increase taxes by 100% (that’s the likely scenario if this thing doesn’t explode by 2020, which, I’m confident it will).  Already the additional burden on taxpayers from increases (I know what Obama said but have you looked at your check since the first of the year) in taxes, additional cost of Obama care alone will likely bring the nation to its knees.  Plenty of mid to small size businesses are going to be forced to lay off or cease business altogether and unemployment won’t improve and may begin to eek upward.  That adds to the GDP problem so the economy continues to slowly tank. 

Meanwhile with the FED pumping out billions of dollars per month into the market, they will go up.  But up in what?  Fiat dollars.  The values of the hard assets just remain the same its just the dollars are worth less throughout the world and the market just adjusts the price up without any real gain an perhaps an actual loss of value.  This give the media “green shoots” to tout about how well everything is going while the nation participates in this long slow suicidal debt creation.

So, because we will continue to create more massive deficits, increase taxes, less people will spend causing the GDP to go further down which causes more business failures and layoffs which take even more money out of the economy and the death spiral continues.  Especially if they keep idiots like Krugman around and worse if they keep listening to him.  Yeah, I know he’s got a Nobel prize but so does Obama.