The End Of All Crossroads

Where the TAXI makes a stop, to ponder upon which road mayhap be true

Tag: US economy

Our Collapsing Economy and Currency

“Is the “fiscal cliff” real or just another hoax? The answer is that the fiscal cliff is real, but it is a result, not a cause. The hoax is the way the fiscal cliff is being used.”

-x-x-x-x-x-x-x-x-x-

December 1, 2012

The fiscal cliff is the result of the inability to close the federal budget deficit. The budget deficit cannot be closed because large numbers of US middle class jobs and the GDP and tax base associated with them have been moved offshore, thus reducing federal revenues. The fiscal cliff cannot be closed because of the unfunded liabilities of eleven years of US-initiated wars against a half dozen Muslim countries–wars that have benefitted only the profits of the military/security complex and the territorial ambitions of Israel. The budget deficit cannot be closed, because economic policy is focused only on saving banks that wrongful financial deregulation allowed to speculate, to merge, and to become too big to fail, thus requiring public subsidies that vastly dwarf the totality of US welfare spending.

The hoax is the propaganda that the fiscal cliff can be avoided by reneging on promised Social Security and Medicare benefits that people have paid for with the payroll tax and by cutting back all aspects of the social safety net from food stamps to unemployment benefits to Medicaid, to housing subsidies. The right-wing has been trying to get rid of the social safety net ever since Franklin D. Roosevelt constructed it, out of fear or compassion or both, during the Great Depression.

Washington’s response to the fiscal cliff is austerity: spending cuts and tax increases. The Republicans say they will vote for the Democrats’ tax increases if the Democrats vote for the Republican’s assault on the social safety net. What bipartisan compromise means is a double-barreled dose of austerity.

Ever since John Maynard Keynes, economists have understood that tax increases and spending cuts suppress, not stimulate, economic activity. This is especially the case in an economy such as the American one, which is driven by consumer spending. When spending declines, so does the economy. When the economy declines, the budget deficit rises.

This is especially the case when an economy is weak and already in decline. A declining economy means less sales, less employment, less tax revenues. This works against the effort to close the federal budget deficit with austerity measures. Instead of strengthening the economy, the austerity measures weaken it further. To cut unemployment benefits and food stamps when unemployment is high or rising would be to provoke social and political instability.

America: The Food Stamp Nation

Bread Lines of the Modern Era– The Great Recession
IF all EBT recipients shopped at only Walmart Super Centers for ALL their SNAP benefits, then this is how the Bread Line would look each month– 14,588 people.
There are 3051 Walmart Super Centers in USA and 44,510,598 participants in SNAP (2011), making the average SNAP line at each Walmart at 14,588 people.
The Modern Era’s Bread Lines are not visible because the business is handled discreetly through EBT Cards.
According to this Food Stamps report pg 16-17, Walmart receives half of all SNAP dollars in Oklahoma.
Walmart is the largest retailer in America.
Short Facts:
47% of Food Stamp participants are children.
78.6% of all SNAP participants are in metropolitan areas.
93.2% of all SNAP benefits go to US citizens.
Only 4% are self-employed.
(CLICK IMAGE FOR SOURCEPAGE)

Some economists, such as Robert Barro at Harvard University, claim that stimulative measures, the opposite of austerity, don’t work, because consumers anticipate the higher taxes that will be needed to cover the budget deficit and, therefore, reduce their spending and increase their saving in order to be able to pay the anticipated higher taxes.

In other words, the Keynesian effort to stimulate spending causes consumers to reduce their spending. I don’t know of any empirical evidence for this claim.

Regardless, the situation on the ground at the present time is that for the majority of people, incomes are stretched to the limit and beyond. Many cannot pay their bills, their mortgages, their car payments, their student loans. They are drowning in debt, and there is nothing that they can cut back in order to save money with which to pay higher taxes.

Many commentators are complaining that Congress will refuse to face the difficult issues and kick the can down the road, leaving the fiscal cliff looming. This would probably be the best outcome. As the fiscal cliff is a result, not a cause, to focus on the fiscal cliff is to focus on the symptoms rather than the disease.

The US economy has two serious diseases, and neither one is too much welfare spending.

One disease is the offshoring of US middle class jobs, both manufacturing jobs and professional service jobs such as engineering, research, design, and information technology, jobs that formerly were filled by US university graduates, but which today are sent abroad or are filled by foreigners brought in on H-1B work visas at two-thirds of the salary.

The other disease is the deregulation, especially the financial deregulation, that caused the ongoing financial crisis and created banks too big to fail, which has prevented capitalism from working and closing down insolvent corporations.

The Federal Reserve’s policy is focused on saving the banks, not on saving the economy. The Federal Reserve is purchasing not only new Treasury bonds issued to finance the more than one trillion dollar annual federal deficit but also the banks’ underwater financial instruments, taking them off the banks’ books and putting them on the Federal Reserve’s books.

Normally, debt monetization of this amount results in rising inflation, but the money that the Federal Reserve is creating in its attempt to manage the public debt and the banks’ private debt is hung up in the banking system as excess reserves and is not finding its way into the economy. The banks are too busted to lend, and consumers are too indebted to borrow.

"9

However, the debt monetization poses a second threat that is capable of biting the US economy and consumer living standards very hard. Foreign central banks, foreign investors in US stocks and financial instruments, and Americans themselves observing the Federal Reserve’s continuous monetization of US debt cannot avoid concern about the dollar’s value as the supply of ever more dollars continues to pour out of the Federal Reserve.

Already there is evidence of central banks and individuals moving out of dollars into gold and silver bullion and into other currencies of countries that are not hemorrhaging debt and money. According to John Williams of Shadowstats.com, the US dollar as a percentage of global holdings of reserve assets has declined from 36.6% in 2006 to 28.7% in 2012. Gold has increased from 10.5% to 12.8% and other foreign currencies except the euro increased from 38.4% to 44.4%.

Russia, China, Brazil, India, and South Africa intend to conduct trade among themselves in their own currencies without use of the dollar as reserve currency. The EU countries conduct their trade with one another in euros, and although not reported in the US media, Asian countries are discussing a new common currency for trade among themselves.

The world is abandoning the use of the dollar to settle international accounts, and the demand for dollars is falling as the Federal Reserve increases the supply of dollars.

This means that the price of the dollar is threatened.

Concern over the dollar means concern over dollar-denominated financial instruments such as stocks and bonds. The Chinese hold some $2 trillion in US financial instruments. The Japanese hold about $1 trillion in US Treasuries. The Saudis and the oil emirates also hold large quantities of US dollar financial instruments. At some point the move away from the dollar also means a move away from US financial instruments. The dumping of US stocks and bonds would destabilize US financial markets and wipe out the remainder of US wealth.

"Federal

As I have previously written, the Federal Reserve can create new money with which to purchase the dumped financial instruments, thus maintaining their prices. But the Federal Reserve cannot print gold or foreign currencies with which to buy up the dollars that foreigners are paid for their US stocks and bonds. When the dollars in turn are dumped, the exchange value of the dollar will collapse, and US inflation will explode.

The onset of hyperinflation can be as sudden as the collapse of a currency’s exchange value.

The real crisis facing the US is the impending collapse of the US dollar’s foreign exchange value. The US dollar’s value in relation to silver and gold has already collapsed. In the past ten years, gold’s price in US dollars has increased from $250 per ounce to $1,750 per ounce, an increase of $1,500. Silver’s price has risen from $4 per ounce to $34 per ounce. These price rises are not due to a sudden scarcity of gold and silver, but to a flight from the dollar into the two forms of historical money that cannot be created with the printing press.

The price of oil has risen from $20 a barrel ten years ago to as high as $120 per barrel earlier this year and currently $90 a barrel. This price rise has come about despite a weak world economy and without any supply restrictions other than those caused by the attempted US occupation of Iraq, the Western assault on Libya, and the self-harming Western sanctions on Iran, impacts most likely offset by the Saudis, still Washington’s faithful puppet, a country that pumps out its precious life fluid in order to save the West from its own mistakes. The moronic neoconservatives wish to overthrow the Saudi Arabian government, but what more faithful servant has Washington ever had than the Saudi royal house?

What can be done? For a number of years I have pointed out that the problem is the loss of US employment, consumer income, GDP, and tax base to offshoring. The solution is to reverse the outward flow of jobs and to bring them back to the US. This can be done, as Ralph Gomory has made clear, by taxing corporations according to where they add value to their product. If the value is added abroad, corporations would have a high tax rate. If they add value domestically with US labor, they would face a low tax rate. The difference in tax rates can be calculated to offset the benefit of the lower cost of foreign labor.

As all offshored production that is brought to the US to be marketed to Americans counts as imports, relocating the production in the US would decrease the trade deficit, thus strengthening belief in the dollar. The increase in US consumer incomes would raise tax revenues, thus lowering the budget deficit. It is a win-win solution.

The second part to the solution is to end the expensive unfunded wars that have ruined the federal budget for the past 11 years as well as future budgets due to the cost of veterans’ hospital care and benefits. According to ABC World News, “In the decade since the Sept. 11, 2001 terrorist attacks on the World Trade Center, 2,333,972 American military personnel have been deployed to Iraq, Afghanistan or both, as of Aug. 30, 2011 [more than a year ago].” These 2.3 million veterans have rights to various unfunded benefits including life-long health care. Already, according to ABC, 711,986 have used Veterans Administration health care between fiscal year 2002 and the third-quarter of fiscal year 2011. http://abcnews.go.com/Politics/us-veterans-numbers/story?id=14928136#1

The Republicans are determined to continue the gratuitous wars and to make the 99 percent pay for the neoconservatives’ Wars of Hegemony while protecting the 1 percent from tax increases.

The Democrats are little different.

No one in the White House and no more than one dozen members of the 535 member US Congress represents the American people. This is the reason that despite obvious remedies nothing can be done. America is going to crash big time.

And the rest of the world will be thankful. America along with Israel is the world’s most hated country. Don’t expect any foreign bailouts of the failed “superpower.”

 

SOURCE:
http://www.paulcraigroberts.org/2012/12/01/our-collapsing-economy-and-currency/

Advertisements

Doug Casey: The US Is Now the United (Police) State of America Doug Casey, Chairman

“”National security” essentially amounts to nothing more than government security, which amounts to cover for the individuals in the government. Nazi Germany and the USSR were national-security states. As I’ve tried to explain in the past, once a critical mass is reached, it’s impossible to reform a government. I believe we’ve reached that state in the US.”

-x-x-x-x-x-x-x-x-x-

https://i1.wp.com/1.bp.blogspot.com/_pV56sneYkHA/S7E63QukEXI/AAAAAAAACu0/4cVvpsJTRh8/s400/American+Tyranny.bmp

November 29, 2012 8:35pm GMT

Louis: Doug, after conversations like the one we had last week, we often get letters from angry readers who accuse you of hating America, disloyalty, and perhaps even treason. These people don’t know or understand what I do about you – that you love the idea that was America. It’s the United State it has become for which you have nothing but contempt. Perhaps we should try to explain this to them?

Doug: I doubt it would work; it’s a tough row to hoe, trying to explain things to people who are so set in their thinking that they truly and literally don’t want to hear anything that might threaten their notions. A person who feels threatened by ideas and who responds with emotion is acting irrationally. How can we have a discussion with someone whose emotion trumps their reason? How do we even begin to untangle the thinking of people who will gather this week to give thanks for the bounty produced by freedom and hard work – the famous puritan work ethic – by eating a turkey bought with food stamps?

But we can outline the ideas, for the record.

Louis: I’ll bring a copy if they ever do put you on trial for thoughtcrime – which is frighteningly close to being real these days and called treason to boot.

Doug: It’s not just close; it’s here. Just try telling an unapproved joke in a security line in an airport these days.

Louis: True enough. Where to begin?

Doug: At the beginning. America was founded as a confederation of independent countries – that’s what a state is. Or was, in our language. The original United States of America was a confederation of countries that banded together for protection against larger and more powerful countries they feared might be hostile. This is not a disputed interpretation of history, but as solid a fact as the study of history produces – and yet a largely neglected one.

Louis: We did cover this ground briefly in our conversations on the Civil War and the Constitution.

Doug: So we did… the short version being that the US Constitution was essentially a coup; the delegates to what we now call the Constitutional Convention were not empowered to replace the existing government – only to improve upon the Articles of Confederation between the then-independent states. The framers of the Constitution drafted it with the notion of a national government already in place, but calmed fears of loss of state sovereignty by calling the new government the “United States of America” – a verbal sleight of hand that worked for over half a century. Then the southern states decided to exercise what these words imply, their right to leave the union. While slavery was and is a wholesale criminal activity I object to in every way possible, the southern states did have the right to secede, both legally and ethically. But the question was settled by force, not reason, and the wrong side won.

Louis: Another coup?

Doug: More like an exposure of the first one for the whole world to see. But by then it was way too late. Despite this, the relative freedom of the US – because it was for many years far freer than other countries – made it possible for artists, engineers, inventors, and businesspeople to flourish and create a society more wealthy and powerful than any the world had ever seen. This is what I call the idea of America – the America That Was.

But the seeds of destruction were already sown at the very beginning – with the Alien and Sedition Acts being perhaps the first highly visible step in the wrong direction. Then came the forceful assertion of one national government, with states reduced to administrative regions via the War of Southern Secession, from 1861-’65. I’m no fan of state governments, incidentally, but at least they’re smaller and closer to their subjects than the federal government. Another major step in the wrong direction occurred with the Spanish-American War of 1898, where the US acquired an overseas empire by force. The next major step downhill was the creation of the Federal Reserve and the income tax, both in 1913, just in time for World War I. It took time for these things to make the system crash, because it was still a fairly free economy.

Louis: But crash it did in 1929…

Doug: Yes. And it led to the Great Depression of 1929-’46, which lasted so long entirely because of the unmitigated disaster of the New Deal (which we discussed recently). The New Deal injected socialist-fascist ideas into mainstream American thought like a poisonous acid, corrupting the heart of the idea of America that once made the place great. The process was completed with Lyndon Johnson’s Great Society, which really established the basis of the welfare-warfare state. It truly set the stage for the total ethical, economic, social, political, and even military disaster now unfolding before our eyes.

Still, the beating heart of the idea of America – which is to say both social and economic freedom – took time to corrupt. Like a strong man who doesn’t know he’s headed for a heart attack, American culture didn’t really peak until the 1950s. The bullet-finned 1959 Cadillac is a symbol of this peak, in my mind.

Louis: Then we had Johnson and his “guns and butter” policy – War in Vietnam and War on Poverty at the same time – followed by tricky Dick kicking the last leg out of under the stool by taking the dollar off an even theoretical gold standard.

Doug: Yes. Nixon was arguably even a worse president than Johnson, with the devaluation of the dollar in 1971 and his creation of the War on Drugs. Things have spiraled out of control since then. In The Casey Report, we’ve written reams about these last decades and how they led to and shaped what’s happening now. But I have to say, the focus has been largely financial.

Louis: Which is as it should be, in a publication designed to help investors navigate these turbulent times.

Doug: Yes, but the corruption goes way beyond that, beyond even the senseless wars and idiotic foreign policy we discussed last week. America, once the land of the brave and the home of the free, is well on its way to becoming a police state – worse than any we’ve seen in the past, including the Soviet Union and Nazi Germany.

Louis: How could it get worse than that?

Doug: Because Big Brother has better technology now, allowing possible manipulation and control of the population that Stalin and Hitler never dreamed of. And because the US used to be such a great place, a lot of people have been tricked into believing it’s the same as it was. But there’s no more resemblance between the America of old and the US of today than there was between the Rome of the Republic and the Rome of the later emperors. Furthermore, most Americans have conflated the government with society. They’re not only different things, but often antithetical.

Louis: I thought you said you’re an optimist!

Doug: I am. But that’s for the survivors who make it through the wringer the global economy – and every person on this planet – is about to go through. I keep telling you that the coming Greater Depression is going to be even worse than I think it is. You may think I’m joking, but I’m not. I do think that, primarily for reasons we discussed in our conversation on technology, what comes next will not only be even better than I imagine, it will be better than I can imagine… but first we have to go through the wringer. I see no way around it. I truly don’t.

Louis: Okay, I know you believe that. Can you substantiate the police-state claim?

Doug: Well, rather than give you anecdotal evidence – of which there are masses more each day – let me refer to a rather perceptive blog post by a George Washington law professor named Jonathan Turley, titled 10 Reasons Why the US Is No Longer the Land of the Free. I’m sure I don’t see everything the way the professor does, but the list struck me as quite accurate and very important for people to understand.

Louis: I’m sure I don’t want to hear this, but okay, shoot.

Doug: [Chuckles] Maybe you don’t, but I know you value the truth. These points underline something I’ve said for years: the Bill of Rights is a completely dead letter. It’s essentially meaningless and rarely even gets the benefit of lip service. Quoting it will result in derision, if not arrest as a dangerous radical.

Frankly, I didn’t think the civil liberties situation could get worse than it was under Cheney-Bush, but it has. Obama has repealed none of what they did – and added more. So, let’s go through the list. First:

Assassination of US citizens: “President Obama has claimed, as President George W. Bush did before him, the right to order the killing of any citizen considered a terrorist or an abettor of terrorism.”

Of course the very concept of terrorism is highly malleable, with over 100 definitions floating about – as we’ve discussed. But apart from that, it’s now accepted that the president and his minions have the right to kill almost anyone. This conceit will get completely out of control after the next real or imagined major terrorist incident.

Louis: This reminds me of the extraordinary powers given to government agents to battle the War On Some Drugs – like the RICO statutes – which have now been turned against ordinary citizens who have nothing to do with the drug trade.

Doug: Exactly. Once you give the state a power – for whatever good reason you imagine it needs it – it will use that power for whatever those in charge feel is in their interests. And those in charge are never saints.

Next:

Indefinite detention: “Under the law signed last month, terrorism suspects are to be held by the military; the president also has the authority to indefinitely detain citizens accused of terrorism.”

This was a precedent set by Guantánamo, where scores of the accused continue to rot without even a kangaroo-court trial.

Arbitrary justice: “The president now decides whether a person will receive a trial in the federal courts or in a military tribunal, a system that has been ridiculed around the world for lacking basic due process protections. Bush claimed this authority in 2001, and Obama has continued the practice.”

As the government becomes more powerful, it’s completely predictable that everything – including the justice system – will become ever more politicized. And government very rarely relinquishes a power it’s gained. I particularly like the Supreme Court ruling in April 2012 that allows anyone who’s arrested for anything – including littering or jaywalking – to be strip-searched.

Louis: Note to readers: you can’t hear Doug’s voice, but I assure you that his use of the word “like” is sarcastic.

Doug: Just so. Moving right along:

Warrantless searches: “The president may now order warrantless surveillance, including a new capability to force companies and organizations to turn over information on citizens’ finances, communications and associations. Bush acquired this sweeping power under the Patriot Act in 2001, and in 2011, Obama extended the power, including searches of everything from business documents to library records.”

Privacy is now a completely dead concept, from both a legal and a practical point of view. If you want to retain privacy, you now have no alternative to relocating outside the US.

Louis: Or any advanced Western country. I’ve read that there are more surveillance cameras per square mile in London than anywhere else.

Doug: I’ve heard that too. The opposite being true in rural Argentina is one of the things I like about it. Back to the list:

Secret evidence: “The government now routinely uses secret evidence to detain individuals and employs secret evidence in federal and military courts. It also forces the dismissal of cases against the United States by simply filing declarations that the cases would make the government reveal classified information that would harm national security…”

“National security” essentially amounts to nothing more than government security, which amounts to cover for the individuals in the government. Nazi Germany and the USSR were national-security states. As I’ve tried to explain in the past, once a critical mass is reached, it’s impossible to reform a government. I believe we’ve reached that state in the US.

War crimes: “The world clamored for prosecutions of those responsible for waterboarding terrorism suspects during the Bush administration, but the Obama administration said in 2009 that it would not allow CIA employees to be investigated or prosecuted for such actions. This gutted not just treaty obligations but the Nuremberg principles of international law.”

Torture by field operatives under the stress of combat is one thing; torture as official policy is something else again. But torture is now accepted in the US. Worse, there are far more serious war crimes than torture being committed in the name of the US that are going unpunished.

Louis: This is, after all, a far darker version of the same US government that deliberately infected black US citizens with syphilis just to see what would happen, and sent US citizens of Japanese descent to concentration camps during WWII.

Doug: Exactly. The next point is:

Secret court: “The government has increased its use of the secret Foreign Intelligence Surveillance Court, which has expanded its secret warrants to include individuals deemed to be aiding or abetting hostile foreign governments or organizations. In 2011, Obama renewed these powers, including allowing secret searches of individuals who are not part of an identifiable terrorist group.”

You no longer live in a free country when there’s zero privacy for citizens, but 100% secrecy for the government and those it employs.

Immunity from judicial review: “Like the Bush administration, the Obama administration has successfully pushed for immunity for companies that assist in warrantless surveillance of citizens, blocking the ability of citizens to challenge the violation of privacy.”

The government has outsourced some of its functions – not least the use of contractors in war zones. Increasingly, being associated with the government gives you a “get out of jail free” card. In the USSR they called this a “krisha” – a roof.

Continual monitoring of citizens: “The Obama administration has successfully defended its claim that it can use GPS devices to monitor every move of targeted citizens without securing any court order or review.”

Bad as this is, it’s just one example. There’s also the use of domestic drones, and hundreds of thousands of cameras that take pictures of everyone everywhere.

Extraordinary renditions: “The government now has the ability to transfer both citizens and noncitizens to another country under a system known as extraordinary rendition, which has been denounced as using other countries, such as Syria, Saudi Arabia, Egypt and Pakistan, to torture suspects.”

Yes, if someone is kidnapped, there’s plausible deniability if the torturing is done abroad by a third party. And they’re likely to have even fewer compunctions.

Louis: That’s a pretty depressing list, Doug.

Doug: And this is just the beginning. As I’ve said before, I don’t call the shots – just try to tell the truth as I see it. The point is that you couldn’t assemble a list like this even 15 years ago. But now it’s part of the firmament. Worse, it’s going to grow. As the economy turns down over the next few years, the people – acting like scared chimpanzees – will ask the government to “do something.” And it will. The trend is going hyperbolic.

Louis: I can’t argue… and I agree it is not likely to be stopped. So if this is a sure trend, are there investment implications?

Doug: This just goes to reinforce what I’ve been saying for some time. As great as a US citizen’s risk is in the marketplace these days, the greatest single risk to their wealth and health is the government. People simply must internationalize to diversify their political risk. I can’t stress that strongly enough.

Louis: Would you go so far as to say that being a taxpayer in the US now is like being a Jew in Germany in the mid-1930s?

Doug: That’s a good analogy. It’s costly and upsetting to uproot, but the risk if you don’t is unimaginably worse. And I would warn people in other countries to take the same precautions. All of these nation-states are dying dinosaurs that will cause a lot of damage as they thrash about in their death throes. No place is completely safe, but you improve your odds by not putting your eggs all in one basket.

Louis: Okay, I guess we’ve covered that plenty of times. Is there a “police-state play” – any investments one could make before the new Iron Curtain slams down? Handcuff manufacturers?

Doug: Nah – they have those plastic zip-binder things now; they’re so cheap that I doubt the manufacturer can even make big money in volume. But I do remember a speech I attended in the ’90s given by William Bennett, the ex-Drug Czar, who recommended investing in prisons. I excoriated him as a sociopath at that meeting – but he was right. However, that ship has sailed; it’s hard to believe the US can incarcerate more than the current 2.3 million people. Besides, I find it morally offensive to capitalize on what I consider to be criminal enterprises. No, for now the only absolutely crystal-clear imperative is as above: You’ve got to have a Plan B ready in case you need to get out of Dodge – and you need it pronto.

And to those who celebrate Thanksgiving, I urge you to remember that it was hard work and the freedom to profit from it that created the bounty the pilgrims celebrated. It was this enterprising spirit and the liberty to exercise it that was the heart of the idea of the America That Was – the idea that made America great. Those corrupt politicians who have been undermining these values for so long and the willfully ignorant ideologues who support them are responsible for turning this country into the United (Police) State of America. They should be criticized and opposed at every opportunity.

Louis: Okay, Doug. Thanks for another challenging but enlightening conversation.

Doug: My pleasure.

Goodbye Petrodollar, Hello Agri-Dollar?

Submitted by Tyler Durden on 11/24/2012 09:50 -0500

When it comes to firmly established, currency-for-commodity, self reinforcing systems in the past century of human history, nothing comes close to the petrodollar: it is safe to say that few things have shaped the face of the modern world and defined the reserve currency as much as the $2.3 trillion/year energy exports denominated exclusively in US dollars (although recent confirmations of previously inconceivable exclusions such as Turkey’s oil-for-gold trade with Iran are increasingly putting the petrodollar status quo under the microscope). But that is the past, and with rapid changes in modern technology and extraction efficiency, leading to such offshoots are renewable and shale, the days of the petrodollar “as defined” may be over. So what new trade regime may be the dominant one for the next several decades? According to some, for now mostly overheard whispering in the hallways, the primary commodity imbalance that will shape the face of global trade in the coming years is not that of energy, but that of food, driven by constantly rising food prices due to a fragmented supply-side unable to catch up with increasing demand, one in which China will play a dominant role but not due to its commodity extraction and/or processing supremacy, but the contrary: due to its soaring deficit for agricultural products, and in which such legacy trade deficit culprits as the US will suddenly enjoy a huge advantage in both trade and geopolitical terms. Coming soon: the agri-dollar.

But first, some perspectives from Karim Bitar on CEO of Genus, on what is sure to be the biggest marginal player of the agri-dollar revolution, China, whose attempt to redefine itself as a consumption-driven superpower will fail epically and very violently, unless it is able to find a way to feed its massive, rising middle class in a cheap and efficient manner. But before that even, take note of the following chart which takes all you know about global trade surplus and deficit when narrowed down to what may soon be that all important agricultural (hence food) category, and flips it around on its head.

Karim Bitar on China:

Structurally, China is at a huge disadvantage as it accounts for 20% of the world’s population, but only 7% of arable land. Compare that with Brazil which has the reverse of those ratios. What that does for a country like China is to incentivise the adoption of technification. Let’s look at their porcine market, which represents 50% of global production and consumption. In China, to slaughter roughly 600 mn pigs per year, which is about six times the demand in the US, they have a breeding herd of about 50 mn animals. In the US, the comparable number is only about 6 mn so there is a huge productivity lag.

Owing to its structural disadvantages, China is much more focused on increasing efficiency. For that, it needs to accelerate technification. So, we’re seeing a whole series of government incentives at a national level, a provincial level and a local level, focusing on the need to move toward integrated pork production because that’s a key way to optimise total economics, both in terms of pig production, slaughtering, processing and also actually taking the pork out into the marketplace.

The Chinese government is important as a customer to us because of its clarity of vision on food security. It has seen the Arab Spring, and it is cognisant of the strong socio-political implications of higher food prices. Pork prices could account for about 25% of the CPI, so it knows it can be a major issue. It’s because of all these pressures, that China is more focused on responding to the food challenge. It’s a sort of a burning platform there.

…Take milk production in China and India. China is basically trying to leapfrog and avoid small-scale farming by adopting a US model. In the US, you tend to have very large herds. Today about 30% of US milk production is from herds of 2,000 plus, and we expect that to reach 60% within the next five years. Today in China, there are already several hundred dairy herds of over 1,000. However in India, there’ll be less than 50. The average dairy herd size is closer to five, so it’s very fragmented. So the reality is that a place like China, because of government policies, subsidies and a much more demanding focused approach to becoming self-sufficient, has a much greater ability to respond to a supply challenge rapidly.

The problem for China, and to a lesser extent India, however one defines it, is that it will need increasingly more food, processed with ever greater efficiency for the current conservative regime to be able to preserve the status quo, all else equal. And for a suddenly very food trade deficit-vulnerable China, it means that the biggest winners may be Brazil, the US and Canada. Oh and Africa. The only question is how China will adapt in a new world in which it finds itself in an odd position: a competitive trade disadvantage, especially its primary nemesis: the USA.

So for those curious how a world may look like under the Agri-dollar, read on for some timely views from GS’ Hugo Scott-Gall.

Meaty problems, simmering solutions

What potential impacts could a further re-pricing of food have on the world? Why might food re-price? Because demand is set to rise faster than supply can respond. The forces pushing demand higher are well known, population growth, urbanisation and changing middle class size and tastes. In terms of economic evolution, the food price surge comes after the energy price surge, as industrialisation segues into consumption growth (high-income countries consume about 30% more calories than low income nations, but the difference in value is about eight times). Here, we are keenly interested in how the supply side can respond, both in terms of where and how solutions are found, and who is supplying them. We are drawn towards an analogy with the energy industry here: the energy industry has invested heavily in efficiency, and through innovation, clusters of excellence, and access to capital has created solutions, the most obvious of which are renewable energy and shale. The key question for us is, can and will something similar happen in food?

It’s hard to argue that the ingredients that sparked energy’s supply-side response are all present in the food supply chain. In food, there’s huge fragmentation, a lack of coordination, shortages of capital in support industries (infrastructure) and only pockets of isolated innovation. We suspect that the supply-side response may well remain uncoordinated and slower than in other industries. But things are changing. Those who disagree with Thomas Malthus will always back human ingenuity. As well as looking at where the innovators in the supply chain are (from page 10), and where there are sustainably high returns through IP (e.g., seeds, enzymes etc.), we need to think about the macro and micro economic impacts of higher food prices, and soberingly, the geo-political ones.

Slimming down

Could the demand destruction that higher energy prices have precipitated occur in food? There are some important differences between the two that make resolving food imbalances tougher. Food consumption is very fragmented and there is less scope for substitution.

Changing eating habits is much harder than changing the fuel burnt for power. And, ultimately, food spend is less discretionary that energy, i.e., the scope for efficient consumption is more limited and consumers will not (and cannot) voluntarily delay consumption, let alone structurally reduce it. This means that higher food prices, especially in economies where food is a greater portion of household spending, will lead to either lower consumption of discretionary items or a reduced ability to service debt (with consequent effects on asset prices). When oil prices spiked in the late 1970s, US consumers spent c.9% of their income on energy vs. an average of 7% over the previous decade. And yet, the total savings rate rose by c.2% as they overcompensated on spending cuts on other items. 2007-09 saw a similar phenomenon too. Even the most cursory browse through history shows that high food costs can act as a political tinderbox (so too high youth unemployment), and we believe there is a degree of overconfidence with regard to the economic impact of food prices in the West: food costs relative to incomes may look manageable, but when there is no buffer (i.e., a minimal savings rate) then there are problems. Food spend as a percentage of total household consumption expenditure is a relatively benign 14% in the US, versus c.20% for most major European nations and Japan. This rises to c.40% for China and 45% for India. Of course, as wages rise, the proportion of food within total consumption expenditure falls, but that is only after consumption hits a ceiling. Currently, India and China consume about 2,300 and 2,900 calories per capita per day, compared to a DM average of about 3,400. If the two countries eat like the West, then food production must rise by 12%. And if the rest of the world catches up to these levels then that number is north of 50%.

The scramble for Africa’s eggs

In terms of ownership of resources, food, like energy, can be broken into haves and have-nots. While there are countries that have been successful without resources, it is quite clear that inheriting advantages (in this case good soil, climate and water) makes life easier. But that, of course, is only half the battle; what is also required is organisation, capital, education and collaboration to make it happen. Take Africa. It has 60% of the world’s uncultivated land, enviable demographics and lots of water (though not evenly distributed). Basic infrastructure, consolidation of agricultural land and minimal use of fertilisers and crop protection could do wonders for agricultural output in the region. But that’s easier said than done. Several African economies also need better access to information, education, property rights and access to markets and capital. Put another way, it needs better institutions. If Africa does deliver over the coming decades, rising food prices will alter the economics of investing in the region. The next scramble for Africa should be about food (while it is about hard commodities now and in the late 19th century it was about empire size). Fertiliser consumption has a diminishing incremental impact on yields, but Africa (along with several developing economies elsewhere) is far from touching that ceiling. Currently, Africa accounts for just 3% of global agricultural trade, with South Africa and Côte d’Ivoire together accounting for a third of the entire continent’s exports. But if the world wants to feed itself then it needs Africa to emerge as an agricultural powerhouse.

Higher up the production curve is China, which has been industrialising its agriculture as it seeks to move towards self sufficiency. Power consumed by agricultural machinery has almost doubled over the last decade, while the number of tractors per household has tripled, driving per hectare output up by an average of more than 20% over the same period.

Even so, in just the last 10 years China has gone from surplus to deficit in several meat, vegetable and cereal categories. So a lot more needs to be done, and a shortage of water could also prove to be an impediment, especially in some of its remote areas.

The power of the pampas

With significant surpluses in soybeans, maize, meat and oilseeds, Brazil and Argentina have led the Latin American continent in terms of food trade. Current surpluses are 6x and 3x 2000 levels, versus only a 30% increase in the previous decade, and are rising. A key impediment to boosting exports is infrastructure. Food has to travel a long way just to reach the port, and then further still to reach other markets. Forty days is possibly acceptable for iron ore to reach China on a ship from Brazil, but that would prevent several perishable food items from being exported. And hence, solution providers in terms of durability, packaging, refrigeration and processing will be in demand. Also, while you could attribute a lot of the agricultural success of LatAm economies to good conditions, they have also benefitted from the adoption of agricultural innovation. For instance, more than a third of crops planted in the region are as seeds that are genetically modified, versus more than 45% in the US and about 12% in Asia. Genetically modified crops are not new. They provide solutions to some of the most frequent constraints on agricultural yields (resistance to environmental challenges including drought and more efficient absorption of soil nutrients, fertilisers and water) or add value by enhancing nutrient composition or the shelf life of the crop. And while the adoption of GM crops and seeds is far from wholehearted, particularly in Europe, it’s most certainly a key part of the solution in economies that are set to face a more severe food shortage.

The last mango in Paris?

Europe’s deficit/surplus makes for interesting reading. Seventeen of the 27 EU countries face a food trade deficit, and yet, the EU overall recorded a surplus (barely) in 2010 for only the second time in the last 50 years (see chart). Broken down further, the UK is the largest food importer, followed by Germany and Italy, while the Netherlands and France lead exports thanks to their very large processing industries. If Europe’s future is one of relative economic decline, then reduced purchasing power when bidding for scarce food resources is an unappetising prospect. Therefore, it needs all
the innovative solutions it can muster, or import substitution will have to increase. It’s important to note that being in overall surplus or deficit can mask variety at the category level, i.e., Europe is a net importer of beef, fruit & vegetables, and corn, while its exports are helped by alcohol and wine specifically. Japan, in particular, is very challenged. It is the only country in the preceding table to show a deficit in every single food category.

We conclude our trip around the world in North America. Large-scale production, access to markets, a home to innovation
and favourable regulation has meant that the US (and Canada) continues to dominate some of the key agricultural resources such as soybeans, corn, fodder, wheat and oilseeds. Put this self sufficiency together with the medium-term potential for energy self sufficiency and relatively good demographics (better than China), and a rosier prognosis for the US, versus the rest of the Western world and parts of Asia, begins to fall into place.

Agri-dollars on the rise

Before we conclude, we need to devote a few lines to the geo-political and macro economic consequences of higher food prices. It’s likely that countries will act increasingly strategically to secure food supply, and that protections (e.g., high export tariffs) may well rise. It is also likely that there are special bi-lateral deals to access stable and secure food supply.

This could obviously damage the integrity of the WTO-sponsored system. Another consequence might be the emergence of agri-dollars, in the same way that petro-dollars emerged in the 1970s. This may seem far fetched (the value of the world’s energy exports is US$2.3 tn compared to US$1.08 tn for agriculture) but it’s important to think through the consequences. The big exporters, especially those with the scope to grow their output, may well have sustainable surpluses that can be reinvested into their economies (or extracted by a narrow part of society). Similarly, the consequence of being a net importer will be an effective tax on consumption: disposable income in the US would jump if oil was US$25/bbl.

As we have said, we would expect the big gainers of a meaningful rise in food prices in real terms to be Brazil, the US and Canada, while Japan, South Korea and the UK would face challenges. The top chart is important: look how China’s surplus has turned to deficit. What will happen if the Chinese middle class swells as it is expected to? And that’s the rub; what we have been used to in terms of food’s importance is set to change. How food moves around the world is likely to change, and the flow of currency around the world will also likely be impacted.

 

SOURCE:
http://www.zerohedge.com/news/2012-11-24/goodbye-petrodollar-hello-agri-dollar

2012: The Tipping Point – The Results are in – The Bankers Lost

“There are only two possibilities left in the bankers’ end game. Either deflation’s growing momentum will pull today’s faltering economies into the ever-growing maw of a deflationary collapse or the continued printing of money to stave off such a collapse will end with the complete debasement of paper currencies in a hyperinflationary blowoff.”

SPOILER: I personally have my own thoughts about the ‘urging necessity of buying gold’. But that, I comment some other time.

soundtrack suggested:

-x-x-x-x-x-x-x-x-x-

Darryl Robert Schoon
Posted Nov 22, 2012
The bankers’ bet that sufficient credit can reverse an economic contraction is no longer on the table. This does not mean central bank credit will tighten. Just the opposite will happen. Monetary easing will continue until the very end. Central bankers are trapped. The end game is now underway.

It is highly unlikely the Mayan predictions of the end of the world referred to the bankers’ world of credit and debt. Nonetheless, with only one month remaining until December 21, 2012 – the end date of the Mayan 5,125 year Mesoamerican calendar – the concomitant end of the bankers’ 300 year ponzi-scheme of credit and debt should not be dismissed as mere coincidence.

The world has entered a paradigm shift of immense proportions; and the collapse of the bankers’ economic world is a part of that shift. The bankers’ credit fueled a 300-year global expansion which transformed the world. The bankers’ credit, however, has now become debt which increasingly cannot be repaid.

Economics is not rocket science although the arcane algorithms used by Wall Street banks to predict capital markets imply that intended conclusion. Modern economics, i.e. capitalism, is merely the current iteration of the supply and demand dynamic distorted by 300 years of credit and debt – a distortion that’s now about to end.

CAPITALISM FOR DUMMIES
Prior to capitalism, the underlying economic dynamic was supply and demand. However, in economies fueled by the bankers’ debt-based banknotes, the relationship between credit and debt becomes equally, if not more, important than supply and demand.

GOLD, MONEY AND CREDIT
After gold was removed from the global monetary system in 1971 and after initial inflationary concerns were addressed in 1980, embedded constraints on monetary and credit growth no longer existed. The attendant rise in debt is noteworthy – as will be the consequences.

(click for sourcepage)

What central bankers did not anticipate from the explosive growth of credit was the resultant levels of massive debt. Fixated on growth, central bankers miscalculated the inevitable effects of the unrestrained increase in monetary and credit aggregates on their heretofore successful ponzi-scheme of credit and debt.

Credit is the zygote of debt; and since debts constantly compound in capitalist economies, unless controlled, credit will inevitably lead to fatal levels of debt. This is not rocket science. This is common sense.

Prior to the 1980s, central bankers controlled credit growth with central bank credit. After the 1980s, however, the markets, not central bankers, controlled the growth of credit – and markets love credit.

After 1980, credit growth was similar to pouring sugar into petri-dishes where glucose conversion had been previously carefully observed and stabilized. Now, three decades later, the alcoholic fumes from the petri-dishes are obvious to all, even to the central bankers who realized too late what the investment bankers had done with their credit.

The subtext to all central bank maneuverings since 2008 has been the attempts of central bankers to avoid the now inevitable deflationary collapse in demand that will bring their 300-year economic fraud to an end.

In the first edition of my book, Time of the Vulture; How to Survive the Crisis and Profit in the Process (2007), I predicted a deflationary collapse was going to happen. Six years later, that predicted depression is about to make its appearance on the world stage; and, it will be an economic collapse, a depression so deep, that another completely new economic paradigm will take its place.

CAPITALISM FOR DUMMIES
EUPHORIC BUBBLES AND DEPRESSING DEPRESSIONS
Depression, an economically moribund state where credit can no longer induce growth

Depressions are caused when uncontrolled credit growth results in speculative bubbles and runaway markets, e.g. stocks, real estate, etc. When this happens, capitalism’s usual cycles of expansion and contraction are replaced by deflationary depressions where collapsing bubbles result in excessive levels of supply and crippling levels of defaulting debt.

RICHARD KOO’S BALANCE SHEET RECESSION, aka THE LAST WALTZ

Richard Koo, currently chief economist at Nomura Research Institute, has deservedly carved out a reputation analyzing the current economic malaise. Koo’s term for the downturn is a ‘balance sheet recession’; a term drawing attention to the fact that monetary solutions, i.e. lower interest rates, will not solve the problem; that the problem and solution are found, instead, in the balance sheets of affected nations.

A presentation Koo gave at a gathering of The Institute for New Economic Thinking showed that although Australia, the UK, the EU, the US and Japan have all significantly cut interest rates, the global economy still has not recovered.

 

Koo’s solution, the substitution of borrowing-based government spending to make up for the loss of private demand, is drawn from the considerable experience of Japan after the spectacular collapse of the Nikkei in 1990.

However, Richard Koo is wrong that Japan’s strategy will also work for the US, the UK, and the EU, etc. Japan’s remarkable record in holding a deflationary depression at bay for over 20 years is not just because of record levels of government borrowing (Japan’s ratio of public debt to GDP is now 204%, the highest among industrialized nations); but, more importantly, Japan’s struggle against deflation occurred as the largest surge of credit-driven consumer demand in history was in progress.

Japan’s struggle against deflation began when the US credit-driven 25-year consumer bubble was just getting underway. Japan’s now prolonged 22-year survival is as much the result of bubble-driven US and global demand which directly benefited Japan as it is due to the ability and tenacity of Japan to draw down and deplete its record levels of domestic savings.

Koo’s solution to survive today’s deflationary crisis will neither work for the US, the UK, or the EU in the future as it did for Japan in the past – and it won’t work for Japan in the future as well; for, today, there is no bubble of excessive global demand to prolong Japan’s now record survival.

The opposite is, in fact, true. Aggregate global demand today is falling and for the first time in decades, Japan’s exports are exceeded by its imports. Today, Japan, as well as the rest of the industrialized, i.e. over-indebted, world stands naked and exposed to deflation’s now imminent assault.

As 2012 ends, all major economic zones are drinking deeply at the well of Richard Koo’s solution, i.e. central bank-based government borrowing. But, in the end, Richard Koo’s proffered well water will be little different than the cyanide-laced kool-aid that Jim Jones offered his ill-fated followers in Jonestown in 1978.

DRINKING POISON TO QUENCH THIRST

Drinking poison to quench thirst is a Chinese saying that describes the eventual consequences of the continued monetary easing of central banks and historic levels of government spending; and, although continued government borrowing and spending may hold deflation at bay, as Koo maintains, it will only do so temporarily and at the potential cost of a someday fatal monetary debasement.

There are only two possibilities left in the bankers’ end game. Either deflation’s growing momentum will pull today’s faltering economies into the ever-growing maw of a deflationary collapse or the continued printing of money to stave off such a collapse will end with the complete debasement of paper currencies in a hyperinflationary blowoff.

I advanced the deflationary scenario in Time of the Vulture; and believe both scenarios are not mutually exclusive. It is indeed possible that a more extreme version of 1970s stagflation is coming; that, in the end game, a deflationary depression and a hyperinflationary crisis could occur simultaneously.

We are in uncharted territory; and, unlike most, I view the collapse of the current economic paradigm as a necessary and ultimately beneficial rite of passage, a prerequisite for the better and more highly evolved paradigm that will follow.

Richard Koo presented his ‘balance sheet recession’ findings at a gathering of the Institute for New Economic Thinking; and while there has been some discussion at the Institute about paradigm change, most of its ‘new economic thinking’ still focuses on the current paradigm, what ails it and what can be done to save it.

As 2012 began, there was still hope that the worst of the 2008/2009 downturn had been averted; that a slow but protracted recovery was underway. There is no such hope today. All central banks are printing money and easing credit; but are no longer doing so in the certainty that such actions will reverse what previous actions did not.

As 2012 ends, there is an underlying acceptance, a resignation that what is being done is being done in the abeyance of any real solution; and that although today’s actions may not be a viable answer, in the end such actions are better than no action at all.

Maybe so, maybe not.

SOURCE: http://www.321gold.com/editorials/schoon/schoon112212.html

 

 

Treasury Secretary Geithner: Lift Debt Limit to Infinity (astonishing)

“Geithner’s Treasury Department quietly warned at the end of October that the Treasury would reach current legal limit on the federal government’s debt by about the end of the year.”

 

By Elizabeth Harrington
November 19, 2012

 

(CNSNews.com) – Treasury Secretary Timothy Geithner said Friday that Congress should stop placing legal limits on the amount of money the government can borrow and effectively lift the debt limit to infinity.

On Bloomberg TV, “Political Capital” host Al Hunt asked Geithner if he believes “we ought to just eliminate the debt ceiling.”

“Oh, absolutely,” Geithner said.

 

One Trillion Dollars
$1,000,000,000,000
The 2011 US federal deficit was $1.412 Trillion – 41% more than you see here. If you spent $1 million a day since Jesus was born, you would have not spent $1 trillion by now… but ~$700 billion-same amount the banks got during bailout. (click for sourcepage)

“You do? Will you propose that?” Hunt asked.

“Well, this is something only Congress can solve,” Geithner said. “Congress put it on itself. We’ve had 100 years of experience with it, and I think only once–last summer–did people decide to use it to threaten default on the American credit for the first time in history as a tool for political advantage. And that’s not a tenable strategy.”

Hunt then asked: “Is now the time to eliminate it?”

“It would have been time a long time ago to eliminate it,” Geithner said. “The sooner the better.”

Geithner’s Treasury Department quietly warned at the end of October that the Treasury would reach current legal limit on the federal government’s debt by about the end of the year.

In August 2011, President Barack Obama and Congress agreed to lift the legal debt limit by another $2.4 trillion–allowing the government to borrow up to $16.394 trillion. However, as of the close of business on Thursday, the Treasury had only $154.3 billion of that $2.4 trillion in new borrowing authority left.

Senate Majority Leader Harry Reid (D-Nev.) said last week that the Senate stands ready to increase the debt limit by another $2.4 trillion. “If it has to be raised, we’ll raise it,” Reid said.

 

$16.394 Trillion – 2012 US Debt Ceiling
The US debt ceiling limit D-Day is estimated for September 14, 2012. US Debt has now surpassed the size of US economy in 2011– rated @ $15,064 Trillion. Statue of Liberty seems rather worried as United States national debt is soon to pass 20% of the entire world’s combined economy (GDP / Gross Domestic Product).
“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.” – Thomas Jefferson

 

SOURCE:CNSNews

http://cnsnews.com/news/article/treasury-secretary-geithner-lift-debt-limit-infinity

US Bank Run Imminent as FDIC Expanded Deposit Insurance Ends Dec 31st

“This irreducible math is going to prove an insurmountable obstacle to those who are recently retired, have long live genes or plan to retire in the next 10 years.”

InternationalLiberty

To Know More:

How does the banksystem work?

(Money as Debt – worth watching)

 

How much does US have in debt

(WARNING: extremelly graphic 😉

http://demonocracy.info

 

Tick-Tock-Tick-Tock

http://usdebtclock.org/

Click each image to access its source

-x-x-x-x-x-x-x-x-

With the media fixated on the fiscal cliff, no one seems to be noticing the fact that the FDIC’s expanded 100% coverage for insured deposits ends January 1st, 2013.

CNN

Submitted by SD Contributor AGXIIK:

 

As of January 2013 the FDIC stops offering 100% coverage for all insured deposits. That amounts to $1.6 trillion in deposits, 85-90% deposited with the TBTF mega banks. Once the insurance ramps back to $250,000 the FDIC risk amelioration offered to large depositors will cause them to flee from the insecurity of the much reduced FDIC coverage. This money will rotate immediately into short term Treasury securities. The treasury, in order to handle this flood of money, will immediately offer negative interest rates. This financing will resemble the .5% negative interest rate offered by the Swiss and Germans on the funds flooding to their banks from Spain, Greece and Italy.

 

This will be a bank run much larger than the Euro banks flight to safety.

 

I have noticed two disturbing matters that will most certainly come as a result of the Fed MBS program.

1. The funds from the Fed purchases will rotate to the Too Big To Fail Banks. This debt is already junk bond status due to the nature of the underwater mortgages and delinquencies, hence the reason for the new Fed goon Squad going after borrowers. This debt will be as bad or worse than the debt of Greece, Spain and Italy, rated CCC-

2. The banks receiving these funds will rotate the money immediately into short term treasury securities that will be priced at NIRP. the reason for that follows:

3. As of January 2013 the FDIC stops offering 100% coverage for all insured deposits. That amounts to $1.6 trillion in deposits, 85-90% deposited with the TBTF mega banks. Once the insurance ramps back to $250,000 the FDIC risk amelioration offered to large depositors will cause them to flee from the insecurity of the much reduced FDIC coverage. This money will rotate immediately into short term Treasury securities. The treasury, in order to handle this flood of money, will immediately offer negative interest rates. This financing will resemble the .5% negative interest rate offered by the Swiss and Germans on the funds flooding to their banks from Spain, Greece and Italy. This will be a bank run much larger that the Euro banks flight to safety.

4. The Social Security Trust fund must make at least 5-6% return to maintain its balance and provide income to the SS recipients. The TF is still guaranteed to go bankrupt by 2033, 21 years from now. The TF is required by law to invest in Treasury bonds. The actuarial problem now facing the TF is that they will be rolling old bonds yielding 5.6% into a yield pool averaging 1.4%, a 75% drop in income. This dramatic yield drop coupled with a 60% increase in SS recipients from 50 million to 91 million in the next 10 years will assure the TF will go bankrupt in about 10 years.

BloombergBusinessweek – Fiscal Time Bomb

This irreducible math is going to prove an insurmountable obstacle to those who are recently retired, have long live genes or plan to retire in the next 10 years. If the SS TF goes bankrupt then benefits will be cut by 25% . Inflation adjustments were never able to front run the lost in income. The inflation rate of 8% today and 15% tomorrow will destroy the senior investment pool. Another few unintended consequences of QE 3. Thanks Ben. May you rot in hell!

 

SOURCE: http://www.silverdoctors.com/us-bank-run-imminent-as-fdic-expanded-deposit-insurance-ends-dec-31st/