Tuesday, August 28, 2012

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...


  1. "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."

    ...but look who their leader is:

    Dance of the Fiat Fairy


    1. Ex-Stock Broker: I Realized That Most Of What I Did Was Bad For Clients–So I Quit

      Once he realized that he was hurting clients by selling them stocks he didn't think they should buy, Brown abandoned being a "broker" and became a financial adviser at Fusion Analytics. In this new job, Brown says, his interests and his client interests are more closely aligned.

      Most people don't recognize that there's even a difference between a "stock broker" and a "financial advisor," but there is. And for clients, it's a critically important difference.


  2. (Quinn in Littleton)

    Great article Dave. All the blame does not lie with the advisers. The fact is that when you meet with a person that has been sold a basket of lies their entire adult life, they often look at you like you're from another planet when you attempt to speak some cold, hard truth to their nonsensical belief system. Even the people that get it have a hard time abandoning their "tried and true" philosophies on investing. Go tell a retiree that intermediate term U.S. government bonds present a grave risk to their financial well being and you will see what I mean first hand!

    I really think it's going to take drastic food price inflation to wake people up from their collective multi-decade keynesian coma. The good news is that when they finally do wake up, they will scramble like ants under a magnifying glass for the things that readers of this site already own. The day is near.

    1. Dave - wonderful, hard hitting piece.. I printed out and handed to my neighbor already.

      Quinn, Nice comment... really speaks the truth as many of us who try to educate our family, friends, and neighbors of the coming collapse, even if we are not financial advisers by day, know all too well.

      1Kg Lunar Dragon

  3. Everyone either wants to focus exclusively on public debt or on private debt, but the fact is that the real focus should be on total debt (approx. $53 trillion per the Fed's Z1). That is the amount of debt that must be serviced by the roughly $15 trillion U.S. economy (leaving aside the obvious problems with using GDP as a proxy for the economy). That simply isn't sustainable.

  4. The United States can not pay for it's debt without going into more debt. Seems fairly straight forward to me.



  6. Stilicho,

    How do you come up with $53 trillion. Kotlikoff alone, in the article, says the total PUBLIC debt of the FEDERAL government is 212 trillion alone (including unfunded liablities which is appropriate). Now add state, municipal and private debt and you get something far worse than 53 Trillion. Just Curious.

    I'd like to know the real figure of all the debt that the 15 trillion dollar economy needs to service.


  7. Rock and roll. I just finished reading Ralph T Foster's excellent book: Fiat Paper Money, The History and Evolution of our Currency. Check it out if you have not already read it. Absolutely scary what is going on. It has all happened so many times before. Definitely have not learned lessons from past. Will we ever learn? I am betting not this time and continue to move my savings into hard assets

  8. Romney is Considering Greg Mankiw, Glenn Hubbard, and Jamie Dimon
    If you would like to read about Mankiw's contribution to failed economics, start here.

    Jamie Dimon needs no introduction.

    I am not saying that these are worse picks than Obama's team of destruction: Rubin, Summers, Geithner, Bernanke... But they certainly are not better. Democrats and Republicans are more interested in perpetuating current economic dogma than in seeking out people who actually saw the crisis coming, can explain why it happened, and want to put policy in place to stop the next one.

    Plop plop, fizz fizz, oh what a relief it is!

  9. The concept of "leap of faith" was brought forth by a man named Søren Kierkegaard in the 1800s. This concept was never considered to be a "christian" doctrine. I realize you are an agnostic or perhaps an illogical atheist, but if you are going to choose to slam my God, you should at least know what you don't know. That is, blind faith had nothing to do with the man Jesus Christ. He was sent to save mankind, and was written about from the beginning. There was no guess work or leap of faith. He is mentioned in the first chapter of Genesis. But most ignorant people have no clue to such things. The first Adam, our forefather, was created on the third day of creation, which is quite simple to prove if you can read and care to know the truth. But why should I explain that to you? Do you think I owe it to you? Most people don't know anything but speculation. If you can at least think for yourself, then you should realize the Adam mentioned in Genesis 1 was created on the 6th day. And yes, that is referring to His Majesty, because we(mankind) have been in the 6th day all along. It started when Adam and Eve sinned. That is the entire point about keeping the ritualistic sabbath day, so that you would remember it is still to come. It is just a ritual done for remembrance.

    The point is, we aren't made in the image of God, never have been. We are made in the image of our natural father. Should that really surprise anyone? Do you think God is as corrupt as us? There was only one man made in that image and that was after he died and was raised. By the way....Adam means Man.

    Point being, it makes no difference if you are a christian or an atheist, if you don't have a clue about what you are talking about, and think that you do, you're just a blazing idiot to anyone that knows the truth. And I can tell you, most of us aren't going to step in and correct anyone because most are so far gone, they don't even know their believe is founded upon speculation. You get to choose your own destiny.

    Yea, and I just told you the meaning of life, that is, to be made into His Image. But that can never happen if you have no understanding or belief in the truth.

    One last thing, when God told Adam he would surely die this day, he was talking to mankind. So guess what, it shouldn't surprise any true believer where things are headed. But as for you, think what you want. Contrary to what you might think, it is not my responsibility to step in and correct you or anyone. In fact, I have already said to much. But I have never been interested in pearls anyway. Trample all you want, it is very late in the day and I need some rest.

  10. The Walls of Jericho of the banking system will one day soon fall for God is with the people and all the rioting kings gold and silver will be delivered up to the Lord. When those walls fall those inside shall try to call a force majeure but it will be to late for their destruction has come.

    Michael Vega

  11. Prince Harry Offered Partner Position at Goldman Sachs

    Dear Sir,

    It has come to our attention that you have been offered a role in a porn film for $10 million. We urge you to reject it.

    Princely Pay and Elite Status

    Goldman Sachs is prepared to pay you much better than porn, and as a partner, your position will be much more prestigious than the Duke of York's role as a representative for international trade and investment. We twist country treasurers and central bankers around our little fingers. Politicians are at our beck and call. We even pay a lower tax rate than your grandmother.

    As a royal, you'll regain your rightful status. We've managed to pervert capitalism and have even infiltrated our own regulators and government. If you join us, your elite status will be assured in perpetuity.


  12. Rudy Giuliani: Ron Paul is “dangerous”
    The former New York mayor's views haven't changed much on his 2008 rival

    He was flanked by husky bodymen who provided Giuliani & Associates business cards to all who requested them.
    So I approached Giuliani, bearing in mind an incident from Ron Paul’s “Rally for Liberty” on Sunday, at which a montage of Serious pundits and politicos trashing the Texas Congressman was shown on a projection screen. Rush Limbaugh, David Frum and Chris Wallace were all subject to prodigious boos (Jon Stewart was heartily cheered), but the loudest angry roar came in reaction to a December 2011 clip of Giuliani dismissing Paul as a “complete distraction.” I informed Giuliani that he was the most reviled villain at the rally, and he assumed that another clip was what provoked the response:
    “I imagine it was when I was criticizing him for basically blaming America for the September 11 attacks,” Giuliani told me. “I thought that was a rather ignorant statement by Ron Paul. And I find his domestic policies very similar to my own, but I find his view of foreign policy dangerous.” Here Giuliani harkened all the way back to a formative moment at a May 2007 GOP presidential primary debate, when he called on Paul to retract his comment that “blowback” resulting from U.S. foreign policy misadventures was a contributing cause of 9/11.
    During Paul’s Last Hurrah address on Sunday, he made a remark that I interpreted at the time as another indirect dig at Giuliani, as if some years-long narrative had come full circle: “Somebody rather nastily said on the internet,” Paul recalled, “they said, oh yeah, if those Paul People had been in charge, Osama bin Laden would still be alive. But you know what I think the answer is? So would the 3,000 people from 9/11 be alive! So would the 8,500 Americans who were killed in Iraq and Afghanistan — they would be alive as well!”


  13. Jim Willie: Morgan Stanley Faces IMMINENT FAILURE & RUIN, May See 1st Private Stock Account Thefts


    The insider conversation, often called chatter when it become deafening in tone, is that Morgan Stanley faces imminent failure and ruin. Almost two weeks ago, the Jackass provided a tip to Bill Murphy of GATA to post on his popular LeMetropole Cafe that Morgan Stanley fund managers and high ranking employees were preparing for the firm’s implosion. A subscriber to the Hat Trick Letter has a good friend whose father works as a fund manager and provided the story. It was not detailed, and bore no follow-up after my request. The older employees are selling all of their stock, some legacy stock from one or two decades ago. Many workers are making contingency plans for their next positions in another firm. When Lehman Brothers was killed, thousands of employees had to find new jobs, some without success. In the last week, the shock waves are being heard from internal Wall Street sources in an unequivocal manner. The implosion is in progress, like the collapse of several platforms and structural cables. The inside is caving in, and the ranking members recognize it, even talk about it openly. Much discussion swirls about a transition to antiquated software that is greatly disturbing the trading desks, causing tremendous problems at precisely the wrong time. A redux of the Knight disaster could be in progress.

    Some like Rick Wiles of TruNews report that MS is heading for the sacrificial altar. Such an event would imply an expected benefit hoped for and beseeched. My view is in parallel but more of a harmful implosion that cannot be prevented, one that the Wall Street titans will face grand challenges to control, one they will not be able to exploit in the hidden corners where they operate. MS is going to the slaughterhouse, not the altar. Its implosion will result from lost control, and the reversion to antiquated systems will only hasten their demise. Wall Street will wish to exploit the failure, like stealing funds, like destroying documents, like concealing derivative positions, like receiving government slush funds for slimy patch projects, their usual Modus Operandi. In criminal parlance, they will create a black hole into which things vanish. They will attempt to add to the confusion, which might itself backfire and deliver more lethal challenges to the entire USDollar & USTreasury complex. This time, the spotlights will shine more brightly to reveal the activity in the shadows and crevices.


  14. Your good post is the argument for demand in Gold.

    Here tho an example of what the people with cash are after, ie the financiers and analysts. And what they want is cash now - no big exploration, no big multi year ore body developments etc. So - Sell the product now for cash - that is what they want. And hence decisions with regards to Supply is going to suffer in the future. Companies trying to develop big projects are penalized.

    Agnico CEO on Kingworldnews makes the same point. During this price control the decisions are now made by analysts that future supply development isn't what they want - it's cash - (Always wonder than who the sheeple really are - a retail investor like me or those professionals who got spooked by the mean correction in price and particularly time, those analysts that effect future supply decisions.

    Here a perfect example of their thoughts and subsequently the shareprice hammering. I know most of you are not into South African gold miners particularly recently.

    But what is highlighted is what is demanded by the analysts, cash now and small projects...


    And I don't believe it's only SA Analysts...

  15. The take home point for me is .....(from the previous comment on analysts)

    When the institutional investor comes into this market, or the big money managers - (those that manage money for other people), they will focus on yields and thus producing assets with cashflow for big dividends. So not into physical and not into exploration etc. (Must add - you have said this already)

    And ontop of that as a result of the stress in the financial system there will be no financing for projects.

  16. MFG, Injustice, & Your Bank Account w J Koutoulas

    James Koutoulas "Bulldogs" Jon Corzine, Louis Freeh, the US Department of Justice, JP Morgan, and the Obama Administration. W.E. Pollock bulldogs the New York Times! If needed, James will take the BATTLE TO PROTECT YOUR SAVINGS (against a legal system aiding and abetting crime) to every state attorney general in the country. This interview was in response to a "sugar coated fluff piece" by The New York regarding a motion filed today by former FBI director Louis Freeh asking for "global settlement" at the expense of account holders. The New York times does nothing more than throw sand in the face of the American People in place of news. We discuss his perception regarding the Sentinel case as to how it might effect your savings.