Thread: Bob Chapman: US Is Facing Day Of Reckoning Over Defecit

The US Is Facing A Day Of Reckoning Over The Defecit

An excerpt from Bob Chapman's weekly publication.

July 30 2011: A week left to find a solution to the debt problem, downgrading warnings for the US, arguing over cuts, Americans no longer capable of paying off their debt, a game of chicken is being run in Washington over the deficit, European banking system also under great pressure, jobless recovery from the recession, a fiscal doomstay machine.

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As we write on Wednesday, 7/27/11, there is still no debt limit for the US Treasury and the protagonists are still playing politics. That leaves a week to find a solution by August 2nd.

The first House passed a $16.7 trillion cut, cap and balance bill calls for a cut in the fiscal September 1st budget for 2012 and a balanced budget amendment that goes into effect in five years. Why five years, so they can amend it in a couple of years? This is truly political theater. This has little to do with the budget and everything to do with political powers. Worse yet, unless it meets the President’s approval, he will veto the bill.

Rating agencies such as Moody’s have warned of downgrading US sovereign debt, or at best being put on a negative watch list. We believe this is just another part of the play, or part of Wall Street and banking efforts to get extending legislation passed.

The media is solidly behind the Democrats for an increase in the debt limit and little or no cuts in spending. Mainstream media has even taken sides blaming the problem on the Republicans. Usually such positions are more subtle, but not this time.

We see little attempt by Congress to really cut spending. All they are really interested in is spending more money. Congress knows if proper cuts are made it will be very negative for the economy. From their viewpoint and from the viewpoint of their handlers there has to be little or no cuts and an increase to $16.7 trillion to take the economy past the next election in a year from November. A Republican plan to cut $9 trillion over ten years has been rejected out of hand. The consideration now is for $2.4 trillion. Obviously government cannot function unless we continue as we have been building more debt and Americans will just have to be patient until the whole debt edifice collapses. This kind of forced prosperity always has ended badly. Just look at history, it is all there for you to see. The same mistakes over and over again. America’s Keynesianism is certainly the antithesis of sound money. That is what the basis to the problem is. The corporatist fascist model. The model that has been foisted upon us since 1935.

If the public, and Congress for that matter, understand the concept of sound money we wouldn’t be in the dilemma we are in today. Today money saved for the future is ravaged, so there is little saving and hyper-extended consumption. The problem created is inflation bordering on hyperinflation. Thus, the seed money needed to grow the economy is spent and lost to investment. If we look at what inflation is doing we know money is not worth saving.

The dollar has lost some 98% of its value and from our viewpoint Americans are no longer capable of paying off their debt, which goes higher daily. Thus far they have been able to service that debt. There will come a time when they will not be able too, and then what happens? You need rising GDP and prosperity to service debt and that is not happening. $4.3 trillion in debt has been created over the past 2-1/2 years to create an average growth of 3%. That has turned government and the Fed into money machines. Something they cannot do indefinitely. The flipside is we are already into double-digit inflation.

We have seen as a result of having no backing on the US dollar it has been a fiat currency for 40 years, and the result has been the dollar has fallen precipitously in value. Gold backing stability is non-existent and government and the Fed have been free to create money and credit as they please.

Those in financial power know this game cannot go on indefinitely and that is why they create wars as a diversion or as a cover, for a failing financial and economic system. Besides, war is very profitable for the Illuminists, especially when you are financing both sides.

The Fed’s answer to the problems they deliberately created has been to supply endless supplies of money and credit. Thus, between 2008 and July 2010, they injected $16.1 trillion into world banking sectors. $7.75 trillion went to just four US banks, who happen to own the Fed. The remainder went to foreign financial institutions. The US big hitters were Bank of America, Morgan Stanley, Citigroup and Merrill Lynch. The result is that these banks are still broke and allowed among others to carry two sets of books. The other recipients were Barclays UK $868 billion; Bear Stearns $853 billion; Goldman Sachs $814 billion; Royal Bank of Scotland $541 and $181 billion, or a total of $722 billion; Credit Suisse of Switzerland $262 billion; Lehman Bros. $183 billion and BNP Paribas of France $175 billion. This was all done in secret and the Fed was forced to reveal these transactions under the Dodd-Frank bank legislation. After these revelations it is not surprising that current real inflation is 10.6%. We expect it to be 14% by the end of the year. Next year QE2 and stimulus 2 will provide us with 25% to 30% inflation.

Here we have a government and Federal Reserve with no contingency plans if there were to be a default. They are using a method of keeping the economy going, that has proven to be a failure over and over again. Worse yet, they know what they are doing will fail. Just read the 1988 Bernanke-Boskin white paper on the subject. If Asia, particularly China and Japan continue to buy no, or only a little US debt, the bottom is sure to fallout of the US debt market. The Fed is currently buying about 80% of Treasury and Agency debt; does one really think they can monetize Asia’s $3 trillion Treasury holdings? This also means that Asia doesn’t know what to do with their dollar foreign exchange. They have no contingency plans either. One of the dirty little secrets is that many other nations cannot hold sovereign bonds rated less than AAA. If the US has its credit rating lowered their holdings will have to be sold. We ask, to whom? Could it be the Fed? If it is that will quickly bring on hyperinflation.

We see that the escapades of the Treasury and the Fed have brought ire from the Chinese, who are telling them stop your foolishness with the debt limit immediately. In the Chinese Dagong the credit rating of the US has already been lowered to A+ from AA eight months ago. Light pressure will continue from China until the US gets its act together.

The US rating agencies have been under great pressure by the White House to keep their mouths shut and stop their warnings regarding US government credit worthiness. That was accompanied by a plea to them to not say anything about credit. The administration is scared, especially after government credit was put on negative watch.

A game of chicken is being run in Washington by two groups of politicians run and owned by the same group of people behind the scenes. They all want enabling debt extension with a small touch of austerity. They want a deal that has the legs to keep the economy going until after the next election. The most important thing they want is a reduction in Social Security and Medicare, so those funds can be used to reduce debt and fund the military industrial complex. They also want starvation and the inability to buy drugs by the elderly to hasten their demise. That means less Social Security and Medicare spending. In two years we will also have the Obamacare death panels, where massive elimination will be put into motion. There is nothing the Illuminists despise worse than useless eaters. There is ample evidence that these elitists, by their own words, want to reduce world population by 60% to 90%, dependent on which of these persons you listen too. Last week Ted Turner opted for 90% on CNN. That is what the fight regarding debt extension is all about. The only forthright and honest person in Congress to call it the way it is, is Ron Paul. He says the bill sanctions the status quo and that it is impossible to balance the budget without cutting military, Medicare and Social Security spending and that is impossible. The debt limit will be raised, but we fervently hope without Social Security and Medicare cuts. You have to understand your adversaries. These people in Congress are almost all paid whores and the people who control them with money are insane. If you can grasp that you can understand what really this is all about. Watch carefully which members won’t allow military cuts and which want to cut SS and Medicare and then you will have identified the enemy.

One more view from Europe. We are probably near the end of the first wave of European problems. Still hanging in the balance is the 2nd bailout program for Greece. The EU approval is yet to come and the Germans are furious with the deal, Merkel and the CDU, Christian Democratic Union. If approved this will be Greece’s last bailout. Next comes bankruptcy. Greece is a tiny part of the EU, but it could be the catalyst that brings down the euro. It would be precedent setting and deeply affect the future of the other five nations in financial trouble. The outcome for Greece unless they have perpetual bailouts, is default. It could be months away, but could be 1-1/2 years away, but default is sure to come. Can you imagine the idiots in the ruling party of Greece took licenses away from taxi drivers and have had 10,000 of them striking for more than a week and each day they demonstrate brings more chaos to the country.

As a result of what is going on bond losses by the banks as a result of default could take some of them into insolvency. If all six nations defaulted the loss would be $2.5 trillion. Then there are the derivatives as well. Of that Greek debt is about $500 billion. Such an occurrence could take down the European banking system, which would lead to the default of England and the US.

The Great Recession destroyed all kinds of jobs, but the not-so-great recovery has so far replaced the lowest-paying jobs at a much faster pace than higher-paying ones, according to a new analysis of Census Bureau data.

Workers navigating the current labor market are facing a "significant good jobs deficit," said the National Employment Law Project, the worker advocacy group that crunched the Census numbers.

Low-wage occupations saw job growth of 3.2 percent from the beginning of 2010 to the beginning of 2011, while mid-wage jobs only grew by 1.2 percent, according to NELP. During the same time period, higher-wage jobs fell by 1.2 percent. In other words, there are more new jobs for retail salespeople, office clerks, cashiers and food prep workers than for machinists, managers, nurses and accountants.

To make matters worse, low-paying jobs pay even less than they used to, according to the report.

The skewed job growth comes after unbalanced job losses during the Great Recession.

"Of the net employment losses between the first quarter of 2008 and the first quarter of 2010," NELP said in its report, "fully 60 percent were in mid-wage occupations, 21.3 percent were in lower-wage occupations and 18.7 percent were in higher-wage occupations."

The analysis confirms of one of the "new rules" workers have faced since the onset of the recession: Don't expect to make more money at your next job.
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Pittsburgh's Bob Poropatich has been working 44 hours a week at a coffee shop and a grocery store since he lost his job as a manager for a major clothing retailer in 2008.
"Together both jobs pay me not even close to a third of what I made when I had just one job," Poropatich told HuffPost. "My salary used to be close to $70,000 and with an annual bonus. It's not a fortune, but it's a nice middle class salary. And now I don't know if I even make $15,000 a year."

Poropatich keeps a sense of humor even though he's found his experience frustrating, particularly when his former boss came to the coffee shop for a latte. "I live in the city of bridges so I'd have my choice of about 20 or 30," he said. "But I couldn't jump -- I can't swim!"

Although NELP's report stresses that it's too early to tell how the recovery will shake out, it also warned that the good jobs deficit is a legacy of longstanding inadequate mid-wage job growth that started before the recession began. NELP also said that the economy is still short 11 million jobs since the start of the Great Recession.

The new data update a similar report NELP did in February analyzing job losses and gains across industries. NELP did its new breakdown by putting data for 366 occupations into three groups ranked according to wages, tracking changes from 2008. Workers in the lowest-earning occupations earn between $7.51 and $13.52 per hour, while workers in the highest-ranking jobs earn between $20.67 and $53.32 per hour.

"Growing wage inequality in the United States is a phenomenon that's three decades in the making, and which the recession only exacerbated," said Annette Bernhardt, the report's author. "We need to pay attention to these striking patterns of slow and unbalanced growth as we seek ways to restore America’s economy and create the good jobs America’s workers need and deserve."

Orders for U.S. durable goods unexpectedly dropped in June, raising the risk that a slowdown in business investment will weigh on the world’s largest economy in the second half of the year.

Bookings for goods meant to last at least three years fell 2.1 percent after a 1.9 percent gain the prior month that was smaller than last reported, the Commerce Department said today in Washington. Demand for business equipment, including machinery and computers, also dropped.

Manufacturers face a slowdown in consumer spending just as they are poised to rebound from the parts shortages caused by Japan’s earthquake, indicating production may keep cooling. Companies are also cutting back on hiring, which may further temper household demand.

“The momentum in capital spending has slowed,â€

Part 1 of 2 - The EU is in Huge Trouble and the USA are Next (July 12-2011) - Bob Chapman http://www.youtube.com/watch?v=zlyx-eRzjaA&NR=1

Part 2 of 2 - The EU is in Huge Trouble and the USA are Next (July 12-2011) - Bob Chapman http://www.youtube.com/watch?v=RdgPQ783 ... re=related