Whew! It's been awhile since I posted. Let's catch up on things....
Greece
So Greece elected a new government and the Germans are being cajoled into relieving some of the pressure on the Greece gov't to repay debt.
Losers!
Doesn't matter who is in charge in Greece. Greece is GONE. I have said this before and I will say it again: GREECE CANNOT RECOVER. Greece refuses to reform its taxation system and refuses to work to balance its budget. These things MUST happen. Oh and by the way, Greece MUST default. There is NO OTHER OPTION. All of the bailouts and any relief they encompass only serve to delay the inevitable. Greece is going broke. All that is happening now is the EU is blindly kicking the can down the road. Greece MUST and WILL officially default. It is absolutely inevitable. The sooner they do it, the sooner they can recover. It is VERY difficult to get statistics about the Greece budget but recently they bought a new missile frigate from France. WHY? The French love it of course, but why would this money be wasted? If you HAVE to buy a warship, there are plenty of obsolete but still serviceable warships being sold by every first world navy for a fraction of the price of the new warship. But even then, this is just an example of the blindness of the Greek government. Recently, as part of the reform of Greece taxation, the EU demanded the Greeks accept German accountants and technocrats to investigate and report on reforms. The Germans could not believe the level of corruption, mismanagement, nepotism, and so on that they found. They recommended dozens of sensible reforms. The Greeks had them arrested for espionage. There is just too much money to be made by the leaders of Greece for them to allow the tax system to work correctly. Greece is FUCKED. They are not even trying to balance their budget. Without balancing the budget there is no hope of paying off the 150 billion dollars of debt they have accrued. And yet they still want the bailout funds and to stay in the Euro. This is the most insulting and egregious affront to the world by any government since the Russians did whatever they do every week. Insane.
Here is what needs to happen. Greece defaults and says, "sorry we won't be paying back that debt." They leave the Euro. THEN THEY BALANCE THE BUDGET. They have to -- no one will give them a nickel for awhile. The economy will collapse. Perhaps they reform the taxation system even a little. And then -- they NO LONGER HAVE TO MAKE PAYMENTS! It's almost like getting free money. Instead of paying interest and principal, they have that money for servicing the country. Will there be pain?
There will be pain like you can't believe. Skyrocketing unemployment. Starving elderly. Suicides. Hopelessness. PAIN.
But it will pass. Once the shock is over, the government can re-structure within its means. They should slash defense spending such that only soldiers get paid. There would be few, if any ships in the navy that leave the pier. No tanks or maintenance. Soldiers would remain on duty because they need an army and these people would not be in the unemployment lines, but they would be relegated to walking instead of driving in trucks and so on. The air force would be slashed. And so on. There would be lots of public employees laid off. The government would have to focus on the essentials - trash collection, water works, insuring communcations and electricity, courts and jails, road repair. Nothing else matters.
But on the plus side, there would growth again. It would take five years to recover. We've seen this over and over in Latin America. Then once growth starts and they manage the budget, then they can re-apply to be in the Euro again. Perhaps they can even take on debt at reasonable levels. But without going broke there is no way they can grow.
Greece needs to go broke.
Europe
Europe is an awesome example of where the US would be if the Confederacy won the Civil War because Europe is a confederacy. In the American Confederacy, states had more power than the central government. Essentially, each state was like a country, just as Europe is. The government has little power to tax, manage the currency, manage budgets, control environmental damage and so on. Sound familiar? It's Europe. In Europe each country is refusing to give up its sovereignty. Until it does so it can never achieve the greatness of the United States. A strong Federal government is necessary to co-ordinate resources, budgets, and impose its will to impact the greater good. The EU is going to eventually collapse or suffer decades of infighting, band-aids and slow growth until they recognize this. The individual countries/states MUST NOT be allowed to run deficits at a minimum. There must be a capital (presumably its Brussels which is hilarious since Belgium is constantly on the brink of civil war) and a strong European leader. Then they can grow like crazy. Currently the main b beneficiary of a weak Europe is Russia -- and they know it. On a small scale, the current problems show the Germans were right during WW2. On a large scale, the Russians win this war again, on a much larger scale than they did in May, 1945.
Syria
HAHAHA. The Arab Spring turns out to be confusing and messy. Syria was always going to be the tough nut. The Russian proxy state and the last Russian base outside of Russia insured this would be true. The emerging Russian powerhouse is not going to let Syria slip away easily and the US cannot aid Syrian opposition openly without directly opposing Russia. Also, there is no co-ordinated opposition in Syria. Alot of the rebels are Al Qaeda and the US certainly can't help THEM. So it's a tough situation. Israel is totally alarmed because they face serious issues in Egypt for the first time since the Camp David Accords. I have thought for a long time that the answer was always Turkey. The US still has some influence in Turkey (though there is a growing resentment against the US there) and Turkey can and has confronted Syria as a result of the shooting down of a Turkish jet by the jittery Syrians. I thought for sure that this would be the entre Turkey needed to land a solid blow on Syria (on behalf of the Americans) without confronting the Russians. But that brouhaha seems to have settled down. I still have hope this will happen but who knows? Assad is finished but I predict we will see Russian combat troops in action there before this is over. And don't think for a minute that when Assad falls, the rebels will not forget the part the Russians played in this affair. When the Russians leave Syria they will be looking for another foothold in the middle east and they will be making lots of mischief there.
Book Recommendations
I just read a great book called "Why Nations Fail". An extra-ordinary compilation and study of successful and failed nations throughout history it offers a new explanation for why nations rise and fall. It needs to be book ended with Jared Diamond's "Collapse" which is itself a brilliant discourse on the steps all nations follow to their death. Diamond takes into account the devastating impact of religion and how it helped every major empire to fail while James Robinson's "Why Nations Fail" never mentions religion once. In effect, Robinson says that for nations to succeed there must be a strong central government that is controlled by voters; that innovation is allowed by protecting patents; that contracts and patent rights are enforced; that labor has the right to move freely to jobs and careers and that monopolies are punished. In addition there needs to be a concept that no man is above the law and laws need to be generally fair. The problem is that the elite in any society do everything they can to stay in power by weakening the power of labor, citizenry, laws and business. When this happens there is no incentive for original creation and no profit. It benefits a few at the expense of the many, and eventually there is either collapse or violence, inevitably poverty. This should be read by anyone who wants to see how rich people are undermining the US ability to succeed.
Showing posts with label default. Show all posts
Showing posts with label default. Show all posts
Wednesday, July 11, 2012
Saturday, March 17, 2012
Greece, Europe, the US and Options for Dealing with Debts
I don't care who you are, a Republican or a Democrat, an American or a European. There is a limited number of things that anyone can do about debt, deficit and growth. Right now Greece is the sacrificial lamb for German and French bankers as they try to save their skins, but they are doing Greece no favors and Greece is its own worst enemy and always has been.
Here are the FACTS:
There are only 5 ways to lower or eliminate the deficit:
1) Cut spending.
2) Raise taxes.
3) Grow the economy.
4) Induce inflation.
5) Default selectively or totally on the debt forcing a balanced budget.
Also remember that DEBT and DEFICIT are 2 different things. The deficit is the difference between what we take in for taxes and what we spend, running in the US right now about 1.2 trillion per year. The debt is all those deficits added up, year after year. The debt is about 15 trillion dollars right now, and it's the INTEREST on that debt that really hurts us. Right now, it's probably the number 2 biggest item behind Defense spending, and it grows every year, meaning less money for highways, tanks, airports, customs inspectors, FBI, etc, etc,
Chart 1: US Budget Line Items for 2012
Interest on the debt is about 400 billion dollars and is included in "All Other Government Spending". This number goes up alot every year. Ask yourself...what could the US do with an additional 400 billion dollars every year?
Option 1: Cut Spending
This is the ONLY option of the Republicans. They somehow think that by cutting spending they are going to make the economy grow. Here's a reality check for you -- DO YOU SEE ANY GROWTH AT ALL IN GREECE??? Do you even FORESEE any growth in Greece in the near future? The devil is in the details. Cutting spending would be like throttling down the engine on your car. You would go slower. Sometimes you stall. This is the problem with cutting spending. Every dollar you cut means fewer jobs. If we cut our 1 trillion dollar deficit next year, for example, it would probably mean the loss of something like 10 million jobs. Does anyone REALLY think the Republicans would ever do this? If we lost 10 million jobs it would make the Great Depression look like a small divot. They are LYING when they say they will cut spending. Especially if they go to war with Iran. You can see this in Greece today. One of the goals of "austerity" is to drive the Greeks towards a balanced budget. We see the results on the news every night -- high unemployment; lost pensions; rising fees; riots. And the US could pay all of Greece's debts and hardly even notice it -- what do you think would happen if WE had to suddenly balance the budget??? It would be the end of the world as we know it. Drug addicts often die when they quit cold turkey.
Option 2: Raising Taxes
Raising taxes is the Democrat's plan. At least they always seem to get the reputation for this. -- in Keynesian terms, raising taxes is the same thing as "destroying money". When you destroy money, it slows the economy. The current economy is going so slowly now that if we slow it anymore it will go backwards, ie, recession. That means lost jobs. That's why the Democrats only want to raise taxes on the rich. They have money and don't spend it. It impacts the economy less.And don't believe the hype about taxing the rich "kills the job creators". About 75 percent of the jobs in the US are created by companies with 50 employees or less. Those companies are started and run, by and large, by POOR PEOPLE. And if the rich were creating soooo many jobs, why was job creation under George W. Bush the worst since the depression? (You can look these facts up on Wikipedia under "Jobs created during U.S. presidential terms. And don't give me any shit about using Wikipedia as a source).
3. Growing the Economy
Growing the economy allows you to generate more revenues on the existing tax structure. It was this, more than anything else, that helped Clinton balance the budget in the 90s. The government was taking in tax receipts hand over fist. This is the double edged sword of the recession -- not only do you have to pay more in welfare and foodstamps, but you are getting LESS in tax revenues. Ouch.
But growing the economy is hard to do. How do you "grow the economy"? You'd have to have another major change like the internet boom, or remove SOX rules for entrepreneurs...or create another major bubble in housing. Note that this is what the Japanese tried and failed at...they had NEGATIVE interest rates for awhile (that is, if you took a loan, they paid YOU money instead of you paying interest) and it still didn't work. Growth really worked for the US after WW2 but we don't have the Manufacturing economy we once did. This is the reason the Fed pumps money into the economy...the hope is that by making money available, people will spend and spending will lift the economy, the same way priming your lawnmower with gasoline gets it to start faster. Right now it's not really working so well.
4. Inflation
Induce Inflation -- inflation makes old debt cheap. This is why George W. Bush brought Ben Bernanke onto the Fed in the first place. Bernanke is a big fan of inflation and Bush was running huge deficits. Bush's plan was to inflate as much of the debt away as possible. This would have had two benefits -- it would make the debt less valuable (and dangerous) and it would screw the Chinese to whom Bush was secretly selling the US to the tune of 3 trillion dollars. Until Bernanke became Chairman, inflation in the US was miniscule less than 1 percent during the entire Clinton administration...during the entire Bush years, it ran at 3 - 5 percent, which is huge for the US and contrary to the goals of the Fed since the 1980s. Each percentage point of inflation "destroyed" billions in dollar value. It was like getting "free" money from the Chinese and the Arabs. On the other hand, when you are the world's reserve currency and people look to you for stability, why would you piss off your creditors that way?
Now we are suffering from the possibility of Deflation, which is even worse. Deflation means a dead economy...prices keep dropping but no one buys anything because they think it will be cheaper next week. Note that the Fed has dumped trillions of fake dollars into the economy and yet inflation is still low. This is a really bad sign. (Note, oil prices don't count here, there are other factors). Look at Housing -- prices are at 1990s levels (according to "Chart of the Day" ) and interest rates are at the lowest levels they have ever been -- AND NO ONE IS BUYING!!!! (Actually lots of people are buying, people with cash. Now is the time when people with cash and nerves of steel get rich beyond their wildest dreams).
Chart One: Holders of US Debt
Holder Amt ($T) Percent
5. Default
Default - when the government defaults it says it will not honor its debts. The problem with this is that 75 percent of all US debt is owned by Americans and American institutions such as 401K, pension plans, banks and corps, individuals and governmental departments. So defaulting REALLY screws up Americans. Selectively defaulting -- for example, saying we just won't pay back the Chinese, is an ACT OF WAR. There would be serious repercussions for doing that. The Chinese have been selling off US debt for just this eventuality. They were holding as much as 3 trillion in 2008 but latest reports indicate they have much less than 2 trillion now. And look who else as stopped buying US debt -- Japan. They were the number 4 purchaser of US debt. Now they buy Chinese debt. ARE ALARM BELLS RINGING ANYWHERE? Note that in October 2007 a catastrophe occurred in the US little noticed by anyone. This was the first time in US history that no foreign governments purchased ANY US debt. The world was sending George Bush a signal to cut the debt. He didn't listen. There's another thing that is EXTREMELY interesting to note -- in 2000, when George W. Bush was elected, England was the number one or two holder of US debt, holding about 500 billion dollars in debt. By the time Bush left office, England had sold off all but 50 billion dollars of US debt. They had so little confidence in the Bush Administration that they sold off all our debt. That speaks volumes. The question comes, then, what does England think of the Obama Administration? In the years since Obama was elected, England is back to holding about 430 Billion dollars. They put their money where their mouth is.
In any event, once you default, it means you MUST balance your budget because no one will loan you money anymore or if they do, it will be at extremely high rates (look at Greece -- they had 5 year rates as high as 162 percent). So defaulting is a drastic step that cleans your slate and prepares you for the future, but it also puts the country into steep, steep decline, a great depression and lots of misery. No highways, no school funding, cut down military, no OSHA, no food inspectors, no parks, no rails, no airports, etc, etc. You would only do that as a last resort. You can actually see this happening in slow motion in Greece today -- that's why they are rioting, although their riots are pointless...you can't make it rain blood. You have to suck it up and prepare for tough times and a better future.
In actuality, it's a shame what the EU is doing to Greece, and all for a few French and German bankers. Greece NEEDS to default. Greece NEEDS to leave the EU for awhile. They are small enough that they don't matter and once the initial pain is accepted, they can grow again, and if they fix their miserable and corrupt books and tax system, they can rejoin the EU in 10 years or so. What's happening to Greece now is a travesty and only means they will be revisiting default again with 5 years at the most. Let the poor bastards default and get it over with.
So those are the basics.
So what WILL happen in the US? Ideally, spending WILL be brought under control...next year's budget is supposed to show a 900 billion dollar deficit...really bad, but still better than last year's budget deficit at 1.5 trillion. If the economy picks up steam (and it won't), the extra revenue from that growth will help. If we tax the rich a little more (and we won't), that will help too. But we will be seeing AT LEAST 500 billion dollar deficits for the forseeable future.Doesn't matter who is elected.
What does it mean?
It's the end of American supremacy. Syria is a case in point. America no longer has the financial muscle to accomplish great tasks. China, India and Russia can brush us aside. We are still enormously powerful, but we are no longer a "super power". We just think we are, but that's because the real super powers, the ones with real money, let us think that way. It's to their advantage. For now.
What will happen in the near term?
"By raising the price of gasoline we can cause the Obama re-election campaign to fail"
- anonymous oil industry executive, "Energy Industry News", July 2011
The US economy is growing slowly, but it will collapse in the June time frame. The stock market will collapse and S&P earnings are already projecting losses for the June report. The rapid rise in the price of gas is attributable to many things, not least is that oil companies want Obama to lose the election in the fall, but it is irrelevant -- the rise in the price of gas is the single biggest cause of recession and collapse of the economy. Gasoline has more power than the government to create or destroy money because it acts faster than the government can. The only tool the government has to counter it is to force higher MPG or encourage non-oil energy, and that is very slow and subject to the laws of and limits of physics.
Be prepared. You want to start moving your money out of ETFs, mutuals and the stock market into cash funds, US bond funds and gold. Bond funds will drop in yields but the money is safe. Gold is probably going to rise...a huge symbol of US power deterioration is that India and China have decided to go around the US and buy Iranian oil and pay...IN GOLD. By doing this they not only weaken the US further, they give Iran hard currency (gold), and show they don't care about the US or Iran's atom bomb...and it puts 20 billion dollars of pressure on Gold prices. But gold is volatile. Bonds are not. If we do attack Iran -- gold will be untouchable.
What SHOULD we do?
We should do all of (1 - 4) above but not default. There is no political will to make it happen but we have to cut spending faster than we are; we have to raise taxes, probably on everyone, not just the rich; we have to invest in something that might promise amazing growth, like space travel, fast rail or water infrastructure, and we have to let natural inflation do its job. We would have to bite the bullet and accept that the US is going to be weak for about 10 years. We have to cut entitlements and pensions and put limits on imports to foster manufacturing here. We would have to force savings and punish credit card purchasing. We have to eliminate college loans and create really cheap mortgage rates, like 1.5 percent, to induce house buying and refinance. If we forced every homeowner in America to refi at 2 percent for 30 years, not only would the recession be over but we would be back in boom times. This is of course, just opinion.
That's the report for today. Bet you are sorry you asked.
Here are the FACTS:
There are only 5 ways to lower or eliminate the deficit:
1) Cut spending.
2) Raise taxes.
3) Grow the economy.
4) Induce inflation.
5) Default selectively or totally on the debt forcing a balanced budget.
Also remember that DEBT and DEFICIT are 2 different things. The deficit is the difference between what we take in for taxes and what we spend, running in the US right now about 1.2 trillion per year. The debt is all those deficits added up, year after year. The debt is about 15 trillion dollars right now, and it's the INTEREST on that debt that really hurts us. Right now, it's probably the number 2 biggest item behind Defense spending, and it grows every year, meaning less money for highways, tanks, airports, customs inspectors, FBI, etc, etc,
Chart 1: US Budget Line Items for 2012
Interest on the debt is about 400 billion dollars and is included in "All Other Government Spending". This number goes up alot every year. Ask yourself...what could the US do with an additional 400 billion dollars every year?
Option 1: Cut Spending
This is the ONLY option of the Republicans. They somehow think that by cutting spending they are going to make the economy grow. Here's a reality check for you -- DO YOU SEE ANY GROWTH AT ALL IN GREECE??? Do you even FORESEE any growth in Greece in the near future? The devil is in the details. Cutting spending would be like throttling down the engine on your car. You would go slower. Sometimes you stall. This is the problem with cutting spending. Every dollar you cut means fewer jobs. If we cut our 1 trillion dollar deficit next year, for example, it would probably mean the loss of something like 10 million jobs. Does anyone REALLY think the Republicans would ever do this? If we lost 10 million jobs it would make the Great Depression look like a small divot. They are LYING when they say they will cut spending. Especially if they go to war with Iran. You can see this in Greece today. One of the goals of "austerity" is to drive the Greeks towards a balanced budget. We see the results on the news every night -- high unemployment; lost pensions; rising fees; riots. And the US could pay all of Greece's debts and hardly even notice it -- what do you think would happen if WE had to suddenly balance the budget??? It would be the end of the world as we know it. Drug addicts often die when they quit cold turkey.
Option 2: Raising Taxes
Raising taxes is the Democrat's plan. At least they always seem to get the reputation for this. -- in Keynesian terms, raising taxes is the same thing as "destroying money". When you destroy money, it slows the economy. The current economy is going so slowly now that if we slow it anymore it will go backwards, ie, recession. That means lost jobs. That's why the Democrats only want to raise taxes on the rich. They have money and don't spend it. It impacts the economy less.And don't believe the hype about taxing the rich "kills the job creators". About 75 percent of the jobs in the US are created by companies with 50 employees or less. Those companies are started and run, by and large, by POOR PEOPLE. And if the rich were creating soooo many jobs, why was job creation under George W. Bush the worst since the depression? (You can look these facts up on Wikipedia under "Jobs created during U.S. presidential terms. And don't give me any shit about using Wikipedia as a source).
3. Growing the Economy
Growing the economy allows you to generate more revenues on the existing tax structure. It was this, more than anything else, that helped Clinton balance the budget in the 90s. The government was taking in tax receipts hand over fist. This is the double edged sword of the recession -- not only do you have to pay more in welfare and foodstamps, but you are getting LESS in tax revenues. Ouch.
But growing the economy is hard to do. How do you "grow the economy"? You'd have to have another major change like the internet boom, or remove SOX rules for entrepreneurs...or create another major bubble in housing. Note that this is what the Japanese tried and failed at...they had NEGATIVE interest rates for awhile (that is, if you took a loan, they paid YOU money instead of you paying interest) and it still didn't work. Growth really worked for the US after WW2 but we don't have the Manufacturing economy we once did. This is the reason the Fed pumps money into the economy...the hope is that by making money available, people will spend and spending will lift the economy, the same way priming your lawnmower with gasoline gets it to start faster. Right now it's not really working so well.
4. Inflation
Induce Inflation -- inflation makes old debt cheap. This is why George W. Bush brought Ben Bernanke onto the Fed in the first place. Bernanke is a big fan of inflation and Bush was running huge deficits. Bush's plan was to inflate as much of the debt away as possible. This would have had two benefits -- it would make the debt less valuable (and dangerous) and it would screw the Chinese to whom Bush was secretly selling the US to the tune of 3 trillion dollars. Until Bernanke became Chairman, inflation in the US was miniscule less than 1 percent during the entire Clinton administration...during the entire Bush years, it ran at 3 - 5 percent, which is huge for the US and contrary to the goals of the Fed since the 1980s. Each percentage point of inflation "destroyed" billions in dollar value. It was like getting "free" money from the Chinese and the Arabs. On the other hand, when you are the world's reserve currency and people look to you for stability, why would you piss off your creditors that way?
Now we are suffering from the possibility of Deflation, which is even worse. Deflation means a dead economy...prices keep dropping but no one buys anything because they think it will be cheaper next week. Note that the Fed has dumped trillions of fake dollars into the economy and yet inflation is still low. This is a really bad sign. (Note, oil prices don't count here, there are other factors). Look at Housing -- prices are at 1990s levels (according to "Chart of the Day" ) and interest rates are at the lowest levels they have ever been -- AND NO ONE IS BUYING!!!! (Actually lots of people are buying, people with cash. Now is the time when people with cash and nerves of steel get rich beyond their wildest dreams).
Chart One: Holders of US Debt
Holder Amt ($T) Percent
FRS 6.328 46
China 1.132 8.3
Citizens 1.107 8.1
Japan 1.038 7.6
US Pension Funds .8423 6.2
US Mutual Funds .6535 4.8
US State/Local Gov .4844 3.6
UK .4294 3.2
US Banks .2824 2.1
US Insurance Co .2501 1.9
All other funds 1.000 7.4
China 1.132 8.3
Citizens 1.107 8.1
Japan 1.038 7.6
US Pension Funds .8423 6.2
US Mutual Funds .6535 4.8
US State/Local Gov .4844 3.6
UK .4294 3.2
US Banks .2824 2.1
US Insurance Co .2501 1.9
All other funds 1.000 7.4
All US Held by Percent: 74%
Foreign Held: 26%
Foreign Held: 26%
Source: http://finance.yahoo.com/news/biggest-holders-of-us-gov-t-debt.html
5. Default
Default - when the government defaults it says it will not honor its debts. The problem with this is that 75 percent of all US debt is owned by Americans and American institutions such as 401K, pension plans, banks and corps, individuals and governmental departments. So defaulting REALLY screws up Americans. Selectively defaulting -- for example, saying we just won't pay back the Chinese, is an ACT OF WAR. There would be serious repercussions for doing that. The Chinese have been selling off US debt for just this eventuality. They were holding as much as 3 trillion in 2008 but latest reports indicate they have much less than 2 trillion now. And look who else as stopped buying US debt -- Japan. They were the number 4 purchaser of US debt. Now they buy Chinese debt. ARE ALARM BELLS RINGING ANYWHERE? Note that in October 2007 a catastrophe occurred in the US little noticed by anyone. This was the first time in US history that no foreign governments purchased ANY US debt. The world was sending George Bush a signal to cut the debt. He didn't listen. There's another thing that is EXTREMELY interesting to note -- in 2000, when George W. Bush was elected, England was the number one or two holder of US debt, holding about 500 billion dollars in debt. By the time Bush left office, England had sold off all but 50 billion dollars of US debt. They had so little confidence in the Bush Administration that they sold off all our debt. That speaks volumes. The question comes, then, what does England think of the Obama Administration? In the years since Obama was elected, England is back to holding about 430 Billion dollars. They put their money where their mouth is.
In any event, once you default, it means you MUST balance your budget because no one will loan you money anymore or if they do, it will be at extremely high rates (look at Greece -- they had 5 year rates as high as 162 percent). So defaulting is a drastic step that cleans your slate and prepares you for the future, but it also puts the country into steep, steep decline, a great depression and lots of misery. No highways, no school funding, cut down military, no OSHA, no food inspectors, no parks, no rails, no airports, etc, etc. You would only do that as a last resort. You can actually see this happening in slow motion in Greece today -- that's why they are rioting, although their riots are pointless...you can't make it rain blood. You have to suck it up and prepare for tough times and a better future.
In actuality, it's a shame what the EU is doing to Greece, and all for a few French and German bankers. Greece NEEDS to default. Greece NEEDS to leave the EU for awhile. They are small enough that they don't matter and once the initial pain is accepted, they can grow again, and if they fix their miserable and corrupt books and tax system, they can rejoin the EU in 10 years or so. What's happening to Greece now is a travesty and only means they will be revisiting default again with 5 years at the most. Let the poor bastards default and get it over with.
So those are the basics.
So what WILL happen in the US? Ideally, spending WILL be brought under control...next year's budget is supposed to show a 900 billion dollar deficit...really bad, but still better than last year's budget deficit at 1.5 trillion. If the economy picks up steam (and it won't), the extra revenue from that growth will help. If we tax the rich a little more (and we won't), that will help too. But we will be seeing AT LEAST 500 billion dollar deficits for the forseeable future.Doesn't matter who is elected.
What does it mean?
It's the end of American supremacy. Syria is a case in point. America no longer has the financial muscle to accomplish great tasks. China, India and Russia can brush us aside. We are still enormously powerful, but we are no longer a "super power". We just think we are, but that's because the real super powers, the ones with real money, let us think that way. It's to their advantage. For now.
What will happen in the near term?
"By raising the price of gasoline we can cause the Obama re-election campaign to fail"
- anonymous oil industry executive, "Energy Industry News", July 2011
The US economy is growing slowly, but it will collapse in the June time frame. The stock market will collapse and S&P earnings are already projecting losses for the June report. The rapid rise in the price of gas is attributable to many things, not least is that oil companies want Obama to lose the election in the fall, but it is irrelevant -- the rise in the price of gas is the single biggest cause of recession and collapse of the economy. Gasoline has more power than the government to create or destroy money because it acts faster than the government can. The only tool the government has to counter it is to force higher MPG or encourage non-oil energy, and that is very slow and subject to the laws of and limits of physics.
Be prepared. You want to start moving your money out of ETFs, mutuals and the stock market into cash funds, US bond funds and gold. Bond funds will drop in yields but the money is safe. Gold is probably going to rise...a huge symbol of US power deterioration is that India and China have decided to go around the US and buy Iranian oil and pay...IN GOLD. By doing this they not only weaken the US further, they give Iran hard currency (gold), and show they don't care about the US or Iran's atom bomb...and it puts 20 billion dollars of pressure on Gold prices. But gold is volatile. Bonds are not. If we do attack Iran -- gold will be untouchable.
What SHOULD we do?
We should do all of (1 - 4) above but not default. There is no political will to make it happen but we have to cut spending faster than we are; we have to raise taxes, probably on everyone, not just the rich; we have to invest in something that might promise amazing growth, like space travel, fast rail or water infrastructure, and we have to let natural inflation do its job. We would have to bite the bullet and accept that the US is going to be weak for about 10 years. We have to cut entitlements and pensions and put limits on imports to foster manufacturing here. We would have to force savings and punish credit card purchasing. We have to eliminate college loans and create really cheap mortgage rates, like 1.5 percent, to induce house buying and refinance. If we forced every homeowner in America to refi at 2 percent for 30 years, not only would the recession be over but we would be back in boom times. This is of course, just opinion.
That's the report for today. Bet you are sorry you asked.
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