From the Publisher's Desk
September 11th 2004
"The Constitution of most of our states (and of the United States) assert that all power is inherent in the people; that they may exercise it by themselves; that it is their right and duty to be at all times armed and that they are entitled to freedom of person, freedom of religion, freedom of property, and freedom of press."
- Thomas Jefferson
US debt highest since 1929, the great depression.
A block east of Times Square, the National Debt Clock is ticking: $19,000 per second, $1.1 million per minute, $66 million per hour. Perched above the Avenue of the Americas in midtown Manhattan, the green electronic billboard is tallying the second- by-second growth of
U.S. government debt -- and these days, it's running faster than ever.
Spending on Iraq will push the total deficit for the fiscal year ending on Sept. 30, 2004, to at least $525 billion, according to Goldman Sachs Group Inc. The $5.6 trillion cumulative surplus the CBO once predicted for the 10 years ending in 2011 has disappeared. In its place is a 10-year deficit that the nonpartisan CBO estimates could reach $1.4 trillion. The plunge into the red raises tough questions for Bush and Capitol Hill lawmakers: Can the U.S. government afford to pay $87 billion during the next year keeping troops in Iraq -- and spend $400 billion during the next decade overhauling Medicare to provide prescription drugs for the elderly?
Add to that the borrowing by banks and financial companies -- which typically take on debt to make loans -- and the total rises to $33 trillion. As a percentage of gross domestic product, the grand total of U.S. debt outstanding, now 294 percent, exceeds the previous record of 270 percent set during the Great Depression.
At commercial banks, bad credit card loans totaled 5.9 percent of all credit card debt in June, eclipsing the peak of 4.9 percent reached after the 1990-91 recession, Fed figures show. Delinquencies in the $6.9 trillion U.S. home mortgage market rose in the second quarter to
4.62 percent, up from 4.52 percent in the first quarter, according to the Mortgage Bankers Association of America.
And still, consumers keep borrowing: $8.2 billion in August alone, according to the Fed. US corporations are even worse.
David Littmann, chief economist at Comerica Bank in Detroit, says skyrocketing government, corporate and consumer debt could one day send the U.S. economy into a tailspin.
As U.S. debt swells, the Treasury will have to compete with the governments of Japan and Germany for investors. German Chancellor Gerhard Schroeder faces a projected 15.6 billion-euro ($18.3 billion) budget shortfall in 2004 and wants to pay for tax cuts by selling 29 billion euros of debt. By the end of 2004, the German government's net financial liabilities are likely to rise to 52.4 percent of the nation's nominal GDP -- double the level of a decade earlier, according to the Organization for Economic Cooperation and Development. In Japan, Prime Minister Junichiro Koizumi pledged to cap annual government bond sales at 30 trillion yen ($275 billion) and then broke his promise because of slumping tax revenue. Koizumi's government plans to sell 36.4 trillion yen of debt in the fiscal year ending on March 31, 2004. National debt accounted for 71.7 percent of GDP last year and will rise to 88.6 percent by 2004 -- a fivefold
increase in the past decade, the OECD forecasts. The Concord Coalition's Bixby says rising government debt in Europe and Japan will make it tougher for the U.S. government to finance its deficits without offering bond investors higher yields. "As other countries have their own debt problems, capital may stay in Europe and Japan," he says. "We may find that it is not as easy to attract foreign capital."
The US, Germany and Japan aren't the only ones in deep doo doo. The Philippines is likely to experience a Mexico/Argentina type financial crash, which is looming on the not so distant horizon. The Philippines is a basket case due to decades of corruption, cronyism, incompetence
and total stupidity on the part of the greedy elite and powers to be.
If and when a crash happens, which is more likely than not, Uncle sugar, the US, will bail the Philippines out just like it did with Mexico and Argentina. However this bailout will be far more painful for, and cause much deeper financial problems for the US taxpayer. The US is in far worse financial shape than it was when it bailed Mexico and Argentina out years back to the tune of tens of billions of dollars. By the way, not a single penny of capital has been repaid on that American taxpayer bailout money from either Mexico or Argentina!
Don't you just love how your government wastes your money?
What to do?
We're no Alan Greenspan, thank goodness, but history often repeats itself.
We'd be short of the US dollar and even the Euro. Holding Swiss Francs, even though they are no longer backed by gold, plus a reasonable amount of small gold coins won't hurt you. Have a six month supply of ready cash to live off in the event the worse case scenario happens, which is likely at some point in the future.
Having an escape insurance policy (a decent second passport,) is certainly a worthwhile investment in today's post 9/11 world. See breaking news above, regarding Bobby Fischer.
If you are of a speculative mindset, you might want to risk a small percentage of your investment capital betting that the Chinese RMB yuan will appreciate in value, as we believe it will over the next year or so. More on this in our next issue.
In closing, we're not alarmist. However we do believe it is better to PT, prepare thoroughly for the worse and work for the best, than to simply ignore the pending financial calamity rapidity descending upon us.
See you next issue.
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