The U.S. Is In Much Worse Shape Than Europe

The United States should be ashamed. While many experts criticize the Europeans for not pulling together politically, U.S. indebtedness is far greater and more dangerous to the world economy.  - Jack Mintz, Palmer chair, School of Public Policy, University of Calgary (article link below)

This will be a bit of a rant day for me.  The markets and the news flow has down-shifted to low-gear ahead of the Labor Day Weekend.  I was playing tennis with friend this past weekend who is a long-time financial "adviser" for Lincoln Financial.  Of course before we started he wanted to discuss how everything was looking good for the economy and the markets.  I was like, "huh, what data are you looking at?"  He pointed to the S&P 500 earnings.  I quickly shot that down by explaining that if you used 1980 GAAP accounting standards on today's earnings, the S&P 500 earnings would be at least cut in half, especially now that financials represent about 15% of the S&P 500 index my market cap weight and we know all the fraudulent accounting games being played by the big banks and insurance companies to generate earnings.  That deflated him a bit. Then I pointed out several other factoids about our system of which he is aware but - like most everyone else - chooses to ignore.  The bottom line is that 99% of all financial advisers get paid well to sell fairy tales and most Americans with any kind of investment portfolio left after 2008 have been set up for a complete wipe-out once the focus on the problems in Europe shift to the bigger problems in this country.

I've been making the argument for at least a year now that the United States is in much worse shape financially and structurally than is Europe.  The highly visible insolvency problems of several EU-member countries are being used as a "deflection" device by Wall Street and politicians to help cover-up the much larger insolvency problem in this country.

To be sure, if any one of the countries in the EU on the verge of collapse actually collapses, it will trigger widespread financial destruction globally - although primarily in the U.S., Europe and the U.K.  But this is because of the well-hidden, off-balance-sheet OTC derivatives exposure of the Too Big To Fail U.S. banks and their Anglo-European counterparts (primarily JP Morgan, Citibank, Morgan Stanley, Goldman, Bank of America, Deutsche Bank, HSBC, Barclays, Soc Gen).   In fact, I've maintained all along that the primary goal of QE/LTRO (Fed/ECB/BOE) has been to keep the big banks, and their parent Central Banks, from collapsing.  Secondarily the purpose of this money printing has been to create the funding which finances the respective Governments.  The "save the economy and create jobs" mantra - pimped especially hard in the U.S. - is nothing more than a smoke-screen grabbed on to by the politicians for political expedience.

What amazes the most is the way that much bigger leverage/insolvency issues in the United States get swept under the rug while everyone points a finger at Greece, Spain or Italy.  But for those who bother to dig under the surface, both California and Illinois present equally as catastrophic fiscal conditions as their EU counterparts.  In fact, California measured as an individual financial/economic "system" is bigger than Greece, Italy and Spain combined.  While the Fed creates credit availability to keep big European banks solvent, the Federal Government in this country (i.e. all the Taxpayers collectively) quietly provides funding to keep the States of California and Illinois from collapsing.

If you look at the United States' finanical situation on a macro level:

[Larry] Kotlikoff’s calculations show that U.S. unfunded liabilities total US$222-trillion, the highest of all major OECD countries (12% of the time value of U.S. GDP) once accounting for monetary public debt, Social Security deficits and public-health-care unfunded liabilities. One can quibble with some of the calculations, but no one can doubt that the U.S. is in serious fiscal trouble, more so than any other developed economy.

The reference is to Boston University's Larry Kotlikoff, here's the article LINK  As the article goes on to explain, the U.S. - and really the whole world - has been operating under a catastrophic Ponzi scheme system, in which debt is used to pay off debt, and  now money is printed up by Central Banks to pay off maturing debt and create even more new debt.  It's going on all over the developed world, but its at its most extreme in the United States.  And Kotlikoff's numbers only reflect the insolvency of the U.S. Government.  That problem is more than doubled if you include the underfunding of State and private pension plans plus the massive real estate and credit card/student loan debt in this country.

What the article fails to address is that the seeds of our Ponzi-fueled destruction were sewn by the Bretton Woods Agreement and the shift from a global economic system based on the gold standard to one based on "faith."  Now, you can argue all you want about the validity of faith-based religion, and none of us will ever live long enough to know if "One" exists or not.  But we know for a fact that throughout the last 5,000 years of history faith-based currency systems end in catastrophic failure and world war.

And in the U.S., all the signals that our fiat, faith-based Governmental system - which rests on a nothing but a "full faith and credit" currency system - is in the latter stages of a catastrophic collapse:  widespread corruption by business and political leaders, full enabling  of this corruption by the Government, imperialism, extreme economic decay (see Detroit, Cleveland, et al), totalitarian "creep," and the extreme devaluation of the currency.  Wash, rinse, repeat:  "Those who cannot remember the past are condemned to repeat it" - George Santayana, Spanish philosopher.

The golden truth is that once the election is over in the U.S., I fully expect that the global infatuation with the daily vicissitudes in Europe will shift to the catastrophic debt bubble in the U.S.  Especially since I fully expect that Congress will loosen up the laws and kick the "fiscal cliff" down the road some more. And this will be fully financed by the Fed with "open-ended" QE in the form of large-scale mortgage and Treasury bond purchases.  At that point I expect that our Asian financiers (China, Japan) will come realize that, while Europe is at least having conversations and making an attempt at solving its financial predicament, the U.S. is whistling in the dark as it heads down the path of collapse.

You need to move a large portion of your investment wealth into physical gold and silver, or you will be swept under the tide of George Santayana's prescient warning...