Monday, May 3, 2010

Federal, State and Local Debt/Deficits Keep on Growing Larger

"May 3 (Bloomberg) -- Construction spending in the U.S. unexpectedly increased in March, propelled by gains in state and local government projects." Here's the story link: Debt Makes You Free?

Rather than help States and Municipalities balance their spending budgets and reduce their outstanding debt, the Federal Govt gave local contruction spending a boost in March by giving States stimulus money to spend on construction projects. This is non-recurring, unsustainable economic activity and perhaps it will help incumbents - mainly Democrats - gain some traction with the voters.

I would like to point out for those who missed the press release Friday, the Lt. Governor of NY State announced that next year's NY State budget deficit would likely hit $15 billion, on top of this year's $9 billion deficit...Add in California's $20+ billion deficit and the red ink of some other big States like Illinois, Texas and New Jersey and the world wants Greece to cut back spending?

If you want to put the "lense" of truth on the above news, please read this commentary from James Turk. Here is a quote from his commentary that is directly from the BIS (Bank for International Settlements - the global Central Bank of Central banks) report entitled  "The future of public debt: prospects and implications:" 
First, fiscal problems confronting industrial economies are bigger than suggested by official debt figures…As frightening as it is to consider public debt increasing to more than 100% of GDP, an even greater danger arises from a rapidly ageing population. The related unfunded liabilities are large and growing...looming long-term fiscal imbalances pose significant risk to the prospects for future monetary stability...unstable debt dynamics could lead to higher inflation: direct debt monetisation, and the temptation to reduce the real value of government debt through higher inflation.
Here is the link to Turk's commentary - a must-read:  Gold Needed More Than Ever

There is no question that the recent move higher in gold, while the dollar has been moving higher, is directly related to a large flow of European money out of paper and into physical gold. Imagine what the price of gold will do when the world finally wakes up to the massive fiscal/monetary disaster brewing in the United States - a problem which by sheer size makes Europe's problems look somewhat insignificant. Please note, you can not go by Wall Street's reported Debt/GDP figures. The U.S. has a lot of hidden pockets of debt ($2.5 trillion in the Social Security trust) and massive debt guarantees that will eventually kick in ($6 trillion in guranteed FNM/FRE debt, not including FHA and FDIC debt problems).

As the BIS points out, the biggest risk is that Governments will start to address their debt repayment problems by printing money. This is how it's always been done throughout history. The ONLY way to protect your wealth here is to move as much as you can into physical gold and silver - not paper gold frauds like GLD and SLV.


  1. 6 Trillion--has a nice sound to it--we could do a TV show called the $6 Trillion man.

    Did anyone hear that 95% of mortgages initiated so far this year are held by the Gov't (the US Govt)? I heard it on a radio show late last week and while I know its high 95% seems too high.

  2. Hal I posted your comment - not sure where it is LOL.

    The 95% number you heard is a good number. 95% of all mortgages have been underwritten by GNMA, FNM, FRE, FHA so far this year. FHA has been the biggest.

  3. so that would also tell us the financial institutions are basically not lending?

    If they do not have mortgage business, and sans prop desks and marking up toxic assets--where is their income going to come from?

    I'd like to see their tax returns to see how much of reported income is not on tax returns.

    I glanced at AXP 10-k (all 242 pages of it) trying to find out why AXP stock price keeps moving up--I rec'd an e mail from them last week pushing a 1.3% savings account which kind of tells me they need cash.

    But their 10-k just rambles on and its hard to nail down anything specific. But 12 Bil of tangible net worth vs 3 bil of level 3 assets and 24 bil of level 2 assets raises eyebrows (if I read it correctly)

  4. I think your analysis is correct w/regard to AXP - if they are offering a savings rate that is well above competitive rates, they need cash badly.

  5. The way commodities held their own on Friday with the markets going down, to me is a tell tail sign that the Inflation Genni Ben has been trying to keep bottled up is about to be revealed in a big way.

    I try not to be a Tin Foil hat type, but unless you have been sleeping under a rock for the last 2 years, I would seriously consider stocking up on some goods and supplies in the next coming months.

  6. Last I saw the VIX was at 21.27, still dangerously high and inconsistent with a sustained rising market. While the spread on the 107 DIA May '10 call option had gone to 10 cents last I saw with the spread on the 115 DIA May '10 put put option widening out to 15, that still doesn't cancel out the fear shown in earlier spread patterns, to say nothing of the high, hovering VIX.

    Tray tables in upright position, deploying oxygen masks.

  7. I know a few people who have stocked up enough food for 6-12 months. Not a bad idea. When this thing blows, there will be supply disruptions until the market adjusts.

  8. I was just deating a friend of mine about this;
    If the government prints trillions to forstall mega deflation, is that not a form if inflation? In a sense it is, and I think the metals are saying that right now. I think staying in the CPI defined inflation/deflation box is a mistake.

    I have some pictures up of the vacation if you want to take a look.

  9. Deflation is what leads to hyperinflation, because the fear of deflation causes Central Banks to print like crazy. We are on the verge of that phenomenon now. The economy tanking.

  10. Dave,
    why is that so hard for people to understand?

  11. LOL. You got me. I think it's a blend of denial, ignorance and a desire to not know the truth, depeding on the individual. What cracks me up is the guys we meet to talk about my fund who have a couple mill in the bank - they just don't understand that once the dollar undergoes serious devaluation, their couple million will be worth pennies on the dollar.

    Think about a pre-64 silver dime (90% silver). If you take it to the grocery store, it's worth 10 cents. If you take it to a good coin dealer, he'll give you something like a $1.40 for it. That sums it all up...

    I will say that a few more people are finally understanding the situation. But not many.

  12. This Phys is a piece of shit...sellingbuying back gld


    Yup no insider deals going on in Congress nope none at all.

  14. Flee to the neverending supply and safety of the USD!

    Flee risky, rare assets such as Gold and Silver!

    As things get more 'interesting', I assume we will not only see DNA or fingerprints at the crime scene known as the CRIMEX, but the murder weapon and even the perps. B/c who really cares when the jig is up and everyone knows it?