$8 TRILLION DEBT?

Last week I reminded you of my prediction this recession was starting last December, largely because the consumer, who was 71% of our gross domestic product, was tapped out. His credit card limit was maxxed, and his home equity line of credit was maxxed. I am still pulling for Ben Bernanke, but I have given up on Hank Paulson. He sold Congress a $700 billion bailout fund to buy troubled mortgage assets, and used half the money to bailout Wall Street and the banks, recently saying he was through—leave it to Obama. None of the money has gone to buying mortgages. And FDIC Chairwoman Sheila Bair has been begging for authority to do so. Meanwhile, it is rumored that Obama’s pick for Treasury, Timothy Geithner, wants to get rid of her, because she is not a “team player.”
In addition, Christopher Cox at the SEC has not restored the naked short selling rule or the “uptick” rule to Wall St.; and there is no more discussion of all the reasons why banks and investment houses should not be one and the same. I guess there is no need now, because all the former investment houses are now banks, or bank holding companies. This could not have happened except as a result of Congress under Clinton repealing the Glass-Steagall Act, which had been around since the depression. The investment houses, combined with Greenspan’s low 1% interest rate for 18 months following nine-eleven, were the origin of this whole debacle. Now, the investment houses are becoming our banks, and they want all our demand deposits, on which they usually don’t pay interest.
We raised the US debt limit from $10 trillion to $11.3 trillion to accommodate the bailout. But, since then, the government has loaned, invested or committed to over $7 trillion more, bringing the total to another $8 trillion just this year. That amount equals over half of our annual domestic production. If all that is expended, the total debt is going to be four times what it was just in 2000. According to The Bullion Buzz, a combination of spending on the New Deal, the Marshall Plan, Korea, Viet Nam, Iraq, NASA, the race to the moon, the S& L bailout, and even throwing in the Louisiana Purchase don’t total half of $8 trillion. Remember, a trillion is a million times a million. And the Detroit three auto manufacturers are still begging. As my old granddaddy used to say, “You can’t drink yourself sober, and you can’t spend yourself rich.”
Yet, surprisingly, our dollar has had a recent rally against all other currencies. Why? Because all the rest of the world were growing economies based on sales to the US for practically everything we need. Now, their economies are tanking because our purchases are way down, and they don’t have enough internal demand for their production. Thus, their currencies are experiencing depreciation. You might say they are at least temporarily in worse shape than we are. Still, Japan and China are lending us the money to stay in business. When they have to use their money to bolster their own internal economy, their purchases of our debt are going to suffer. When that finally happens, our dollar value will suffer, and gold and silver will rise in value. Inflation will be rampant.
According to the US Government General Accounting Office (the Comptroller) the TARP plan administrators have failed to figure out how to make sure financial firms receiving billions of dollars of Federal funds are complying with limits on executive compensation and dividend payments. Does that surprise you? Incidentally, did I ever mention that Section 202 of the bailout bill, as passed, raises the “biodiesel” tax credit from fifty cents to $1 per gallon and amends it to “liquid fuel”? This is the income tax credit given producers for mixing bio and petroleum fuels, which they are then free to sell abroad to other countries. The same credit which raised the price of corn sky high. What has that got to do with troubled mortgages? It just represents the enormous pork packed into this bill.
President Obama was elected by promising to bring us change. Let’s hope it is change for the better. So far it looks like more of the same Washington merry-go-round.

I TOLD YOU SO

This is a reprint of an article written last December, though it was not published until January 8. Today’s news reports that the National Bureau of Economic Research stated today that the economy reached a peak in December 2007, and has been declining since.

Now I am predicting the next six months will make the last three months look like good times, in spite of last week’s bear market rally. From last December---

It’s time to build up your cash. As I predicted earlier, foreign nationals are buying us out, lock stock and barrel. Because of the sub-prime mortgage debacle, Morgan-Stanley has sold a $5 billion stake to Chinese interests. Merrill Lynch, likewise, sold $6.2 billion equity to Singapore interests. Recently Citigroup sold a $7.5 billion interest to Middle Eastern country Abu Dhabi. These interests are selling us more in petroleum or consumer goods than we can export to them, and using the surplus of our own money to purchase our country.

We were the world’s leading producer country from the time of the Second World War to the middle 1960’s. Since then, we have become the world’s leading consumer, and it is the consumer spender who has kept our economy afloat, making up a staggering 71% of our gross domestic product. Too much of this spending has been done through plastic credit cards. For many years, the increase in home values enabled consumers to pay off staggering credit card balances through increasing their home equity debt. Now, because of the sub-prime mortgage crisis, decreasing home values largely block this method of rescue. As a result, credit card accounts which are 30 days behind has jumped 26% to $17.3 billion. Those 90 days behind have jumped 50% over one year ago. Actual defaults have risen 18% to almost $961 million, according to the SEC.

The Conference Board publishes the Consumer Confidence Index, and Leading Economic Indicators, in an effort to predict the future economy. Usually, 3 consecutive months in the negative indicates a coming recession. October and November were both negative. When the 6 months cumulative total goes below a -1%, this also indicates recession. The 6 months cumulative total for November was -1.2%. Unless Santa Claus spends himself crazy for December, the future looks grim.

Does any of this interest you, or are you more concerned about who wins “Dancing with the Stars, or who is victorious in the Super Bowl? Our forefathers established and left us the greatest country in world history. Most of us have children or grandchildren who must look to us for their legacy. Are we going to fail them? When in 2000, the US voted 46% of the eligible population, we ranked about 139th out of 171 countries. Australia voted closer to 95%.

If you don’t vote, you have no right to complain. But worse than that, you will have no place to look for economic rescue. We must return this country to its founding principles. Next year is a presidential election year. Casting an ignorant vote is as bad as not voting. You have plenty of time to do an in depth study of all the eligible candidates. I urge you to get busy.