The Independent Report

U.S. Wealth & Income Disparity Reach Alarming Proportions

2012-01-24T15:20:00.000-08:00

In America today, wealth and income inequality have reached levels not seen in generations — specifically, the years leading up to the Great Depression.

The current statistics are simply stunning.

The top 400 individuals now own more wealth than the bottom 150 million Americans and the top one percent earn more income than the bottom fifty percent.

This disparity has gotten the attention of an increasingly frustrated and struggling American public. In recent decades, things have gone from bad to worse.

Today, the top 1% of Americans controls 40% of the country’s wealth. Twenty-five years ago, the top 12% controlled 33% of the country’s wealth. Meanwhile, the poorer 50% now owns less than 2.5% of the nation's wealth.

The middle class has disappeared before our eyes.

This matters for reasons above and beyond fairness. In an economy that is 70 percent reliant on consumer spending, such massively unequal income and wealth levels don't bode well for growth, now or in the future.

It is abundantly clear that American consumers will not spend the nation out of its economic doldrums. Two-and-a-half years after the recession "officially" ended, unemployment remains stubbornly high and home values continue to sink.

However, the American middle class had already been in long-term decline, even before the Great Recession took hold. Worker's paychecks have been stagnant for decades.

Yes, that's decades.

According to Census figures, the $47,715 median annual income earned by a male, full-time, year-round worker in 2010 was less than the $49,065 a male earned in 1973, adjusted for inflation.

This means that median incomes have actually gone backward over the previous four decades. That's simply stunning.

Meanwhile, the Census reveals that during the same span, the top 5% of earners saw their earnings increase by over 40%.

The evidence is abundant: Over the past few decades, the richest Americans have managed to become continually richer, even as the vast majority have regressed.

According to the Washington Post, since the 1970s, median pay for executives at the nation’s largest companies more than quadrupled even after adjusting for inflation. Yet, during the same period, pay for non-supervisory workers has dropped more than 10 percent.

In 2010, the average American earned $26,487 — down over $2,000 in real terms from 2006. This figure includes females and part-time workers who may be looking for full-time positions.

The above income level amounts to roughly $500 per week. Think about that for a moment; that's the average American income.

There is still plenty of money in the U.S. economy. The problem is that most of it is going to a select few at the top.

Last year, a remarkable report from the AFL-CIO got widespread media attention.

The report found that in 2010, the CEOs of just 299 companies received a combined total of $3.4 billion in pay — enough to support 102,325 jobs paying the median wages for all workers.

Most troubling, perhaps, the report found that in 2010, CEO pay had grown to 343 times workers' median pay — by far the widest gap in the world. Back in 1980, CEO pay was 42 times the average blue collar worker's pay.

In just three decades, inequality has grown to extreme proportions. As Federal Reserve Chairman Ben Bernanke noted, the U.S. now has the biggest income disparity gap of any industrialized country in the world and this is "creating two societies."

In America today, the divide between the haves and have-nots has become enormous. The statistics seem fantastical.

The top one percent of American earners control 40 percent of the country's wealth. Most shockingly, the total net worth of the bottom 60 percent of Americans is less than that of the Forbes 400 richest Americans.

Obviously, wealth can be passed on generationally. There will always be some level of inequality. However, incomes are not inherited. Yet, even there, the level of inequality is astounding.

The top one percent saw their incomes rise by 275 percent between 1979 and 2007, according to the Congressional Budget Office. Meanwhile, the bottom fifth of earners only saw their incomes grow by 20 percent during that same period.

This stark divide worries most Americans.

A new survey finds that 66 percent of Americans see strong or very strong conflicts between the haves and have-nots, up sharply from the figure in 2009. This has become a contentious matter and will surely be a campaign issue this year.

The concerns aren't simply about the differences between the upper class and what's left of the middle class. The concerns are about how fast so many people have fallen into the lower classes and into poverty.

In 2010, poverty hit a new record in the U.S. The 46.2 million Americans below the poverty line was the highest number in the 52 years of reporting. The number of people in poverty rose for the fourth consecutive year, as the poverty rate climbed to 15.1% (the highest since 1993), up from 14.3% in 2009.

In December of 2007, there were 27.385 million food stamp recipients. However, according to the latest data, this had ballooned to 46.268 million. In L.A. County, alone, one million residents subsist on Food Stamps.

While the Great Recession and its lingering after-effects have had a particularly devastating effect on huge segments of American society, the upper class has carried on largely unaffected. Sales of luxury goods at high-end retail stores are booming.

From 2000 to 2010, median income in the U.S. declined 7% after adjusting for inflation, according to Census data. That marked the worst 10-year performance in records going back to 1967.

According to a Wall Street Journal survey of economists' forecasts, incomes won't return to year 2000 levels until 2021. That's a two-decade span. How will all of these millions of Americans hang on that long, even as all their expenses continue to rise?

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials.

The typical household now has at least two workers. That's because, at current income levels, two workers are a necessity in most households.

Keep in mind, the above income decline continued even after the recession was declared over. So, things have indeed gone from bad to worse. That's why most Americans are still asking, What recovery?

From the start of the recession in December 2007 to June 2011, incomes dropped 9.8 percent, apparently the largest in several decades, according to other Census Bureau data. The result has been a significant reduction in the American standard of living.

Ultimately, less disposable income is being redirected back into the economy, which hurts economic growth.

But while so many millions of Americans are struggling just to pay their mortgage, rent, food and prescription costs, the rich have carried on as if the recession never happened.

While the wealthiest Americans continue buying second and even third homes, plus high-end, luxury vehicles, millions of young Americans are contending with the fact they they will have a lower standard of living than their parents, a start contrast to most of the 20th Century, at least. For the majority of Americans, the American dream has slipped away.

A recent study by Dan Ariely, James B. Duke professor of behavioral economics, found that 20 percent of Americans rake in 84 percent of the nation’s wealth, while the bottom 40 percent only owns a low 0.1 percent. The study found that the U.S. has one of the worst levels of income inequality—not just in the West, but in the entire world. U.S. inequality is now comparable to that of China and some South American nations.

What a sad and disturbing development; instead of China becoming more like the U.S., we're instead becoming more like China.

America is no longer the "land of opportunity" it once was for previous generations.

A report from the Organization for Economic Co-Operation and Development (OECD) finds that America is 10th in social mobility between generations, dramatically lower than in nine other developed countries.

This means that America is now 10th in the world in the American dream.

It wasn't supposed to be like this. The current state of affairs seems so... un-American.

Fed Announces Record Profits for Second Time in Three Years

2012-01-18T10:03:00.000-08:00

The Federal Reserve paid the federal government $76.9 billion in 2011, the second highest amount in history. In 2010, the Fed paid the government an all-time record of $79.3 billion.

And in 2009, the Fed paid $52 billion to the government, which was, at the time, the highest earnings in the central bank's history.

Are you sensing a pattern here?

The central bank says it "earned" the money from investments made to bolster the U.S. economy. The Fed began buying Treasury bonds and mortgage-backed securities during the 2008 financial crisis and subsequent recession to try to lower long-term interest rates.

The Fed makes money from interest earned on its portfolio of securities. After covering its expenses, the Fed makes a payment of the remaining amount to the Treasury Department.

Well, that's the official story.

The reality is that the Fed has been legally granted the license to print money by the U.S. Congress. The Fed is able to conjure money out of nothing — in essence, out of thin air — to buy Treasuries.

This allows the government to fund its deficit spending, even when there aren't enough available buyers on the open market to meet the government's absolutely massive borrowing needs.

All the Fed's purchases have pushed the central bank's balance sheet to $2.9 trillion, more than three times the size of its balance sheet before the financial crisis struck in the fall of 2008.

This means that the money supply has increased by more than 300 percent in roughly three years. That should scare you because it is the textbook definition of inflation.

Such massive increases in the money supply, especially over such a brief period, raise the specter of rapidly rising price inflation. This is especially true if the central bank is unable to tighten, or mop up all that excess money, when the economy eventually recovers.

There are many who doubt that the Fed has sufficient tools to stabilize inflation over the longer term since the federal funds rate is already at zero. You could say that the Fed may be fighting a battle without any further ammunition.

Inflation is simply the increase of the money supply. When all of this money is brought into creation without a corresponding increase in goods and/or services, inflation ultimately results.

Our money is being devalued and, ultimately, that's all inflation really is.

The $2.9 trillion expansion of the Fed's balance sheet is only what it admits to publicly. The Fed is in the business of secrecy and operates in the most opaque manner.

Bloomberg recently reported that the Fed secretly loaned $7.7 billion in freshly created money to banks and financial institutions around the globe during the financial crisis. A sum that large is just mind-boggling.

The Fed's entire method of operation is a charade. It prints money backed by nothing, lends it out to global financial institutions and is able to legally profit from it. This is outrageous because the Fed is a cartel of privately owned banks and actually has shareholders.

Interest earned on the Fed's portfolio of securities should not qualify as earnings. It is nothing less than manipulation — a rigged game. What other industry has the extraordinary privilege of creating something out of nothing, at no cost, and is then able to then profit from it?

The legal ability to create money out of thin air amounts to larceny and counterfeiting on a massive scale. It should be viewed as a criminal activity by a criminal enterprise.

But the Fed was granted this extraordinary privilege by the U.S. Congress back in 1913. Since that time, particularly since the U.S. went off the gold standard in 1971, the value of the dollar has been steadily losing value.

The dollar declined 40% in the 25-year period from 1985 to 2010, and 80% since 1970.

That is the end result of unchecked, unfettered money-printing.

And that's the business of the Federal Reserve.

Trade Deficit Forces U.S. to Borrow Billions

2012-01-10T09:47:00.000-08:00

The U.S. is now confronted by a massive $15.23 trillion national debt. However, it is also facing another serious debt problem — its massive trade deficit.

In 2010, the total U.S. trade deficit was $497.9 billion, resulting from $1.8 trillion in exports minus $2.3 trillion in imports.

Countries with big, persistent trade deficits have to borrow to fund themselves. This is a reality that many deficit hawks aren't considering in their quests to shrink the U.S. budget.

Even if Washington somehow managed to balance its budget, the trade imbalance alone would continue sucking billions out of the U.S. each and every day.

The U.S. trade deficit surged to more than $50 billion in May of 2011, marking its largest gap since October 2008. And by October of last year, the latest month of available data, the U.S. trade deficit was still a whopping $43.5 billion.

A surge in exports was one of the lone bright spots in a string of negative economic indicators last year. Exports have been aided by a declining dollar.

The problem is that imports continue to exceed exports each and every month, resulting in an ever-expanding trade gap.

More than half of that deficit is with China.

The U.S. trade deficit with China swelled to a record $273.1 billion in 2010, from about $226.9 billion in 2009. The cumulative Jan-Oct 2011 deficit with China, of around $245.5 billion, was on track to top that.

China aside, one of the biggest drivers of the U.S. trade deficit is imported crude oil. Since oil is priced in dollars, the weakened dollar is punishing Americans every time they fill up their tanks. Simply put, the dollar is buying less these days.

In 2001, the U.S. Dollar Index traded around $120. Today, the U.S. Dollar Index is trading at $81, about 32 percent below the 2001 high. That's a serious decline in value.

Though a declining dollar makes U.S. exports cheaper overseas, our No. 1 import is oil, which is also priced in dollars. A weak dollar makes oil, and ultimately gasoline, more expensive, forcing the trade deficit further into the negative.

As long as the U.S. remains so reliant on foreign oil, the trade imbalance will remain a source of trouble, leading to billions of dollars flowing out of the country every day.

Moreover, as long as the trade deficit continues, the U.S. will also continue borrowing from abroad to pay the difference.

Since imports shrink the nation's gross domestic product, U.S. GDP will continue to face downward pressure. Every $1 billion of a larger deficit subtracts about 0.1 of a percentage point from the annualized growth rate.

This means that the trade gaps in May and June of last year, alone, likely reduced GDP by more than half-a-percent. As it is, the economy was already growing at an anemic pace through most of the year.

U.S. GDP expanded 1.8 percent in the third quarter of 2011, and just 1.3 percent in the second quarter.

The trade deficit just makes maters worse.

The flow of imports into the U.S. is also displacing American jobs. We're buying all these foreign goods instead of making them here at home.

The U.S., the world's No. 1 importer, has been able to run continual trade deficits for many years because it has been receiving an inflow of capital from surplus nations, such as China, Japan and Saudi Arabia. If these surplus nations ever hope to get repaid (i.e. to reverse those capital flows) then those trade imbalances must be reversed.

Every nation would love to be a net exporter. This simply isn't possible.

Countries cannot run surpluses forever, just as they cannot run deficits forever. Unless deficits and surpluses are ultimately reversed, debt eventually builds to unsustainable levels in the deficit countries — like the U.S. That time seems to have finally arrived.

Trade deficits are nothing new to U.S. In fact, the U.S. has run deficits in the trade of goods every year since 1976.

The U.S. has long since reached the point of unsustainability. No nation can continually buy more from abroad than it sells abroad. It's simple arithmetic. Where will the money for all the purchases come from?

The trade deficit has helped make the U.S. the world’s biggest debtor nation. Balancing the federal budget won't even begin to address the nation's trade deficit.

That will require less consumption, more saving and more production here at home, plus more consumption and less saving in places like China.

Those will be tough trends to reverse.

Peak Oil is Here: Supply Can't Match Demand

2011-12-30T13:55:00.000-08:00

America's heavy reliance on foreign oil puts it in a precarious position as a super-power. In 1970, the US was still the world’s oil largest producer, but its crude production then peaked at a level never since exceeded.

Some may be surprised to discover that the US is currently the world's third-biggest oil producer, after Russia and Saudi Arabia. But America's seemingly unquenchable appetite for oil also makes it the world's largest oil importer, by far.

Each day, the US imports roughly half the crude it uses.

Unfortunately, the US is only able to supply 48.6% of the oil it consumes, while importing 51.4% (or 9.67 million barrels per day), from oil-exporting nations.

With current consumption at roughly 19 million barrels per day (down from a whopping 21 million barrels per day prior to the recession), the US uses more oil than any other nation and equals the consumption of the next four largest national consumers combined (China, Japan, India and Russia).

However, demand for oil is increasing globally — particularly in developing nations — creating a growing competition for this finite commodity. In fact, global usage is outstripping new discoveries. For every four barrels of oil consumed, only one is discovered.

The International Energy Agency (IEA) notes that the decline rate for oil production appears to have increased to about 7% annually. That's a stunning revelation. To make matters worse, the IEA says that global demand should increase by 1.4%, or 1.2 million barrels per day, every year through 2015.

What is evident is that supply and demand are moving in the opposite directions, or, more accurately, the wrong directions. And what this tells us is that prices are going to rise.

“As excess supplies … shrink, oil prices should rise,” says Michael Bodino, head of energy research at Global Hunter Securities.

That seems self-evident.

In 2010, Bodino projected a 1% growth in global supply and 2% growth in demand. Based upon those projections, Bodino predicted $90-$100 oil in 2012. However, he was off by a year. In 2011, the price of oil once again shot above $100 per barrel.

Perhaps Mr. Bodino hadn't seen the stunning IEA data about the decline rate for oil production. Yet, other analysts appear to be well-aware of the data.

According to Kevin Kerr, editor of Kerr Commodities Watch, oil prices will climb significantly higher. By next year, Kerr thinks crude’s record high price of around $147 “may seem cheap.”

“The long-term prognosis for oil prices is much higher simply due to growing global demand,” says Kerr. “While the economic turndown has slowed usage, the growth in places like China and India are increasing demand rapidly [and] as the economies of the planet improve, so will demand for oil and gasoline.”

Absent the ability to rapidly increase supply, this will result in higher prices for all of us — perhaps much higher.

Such an increase seems highly unlikely though.

In 2009, Dr Fatih Birol, the chief economist at the respected IEA, said that most of the major oil fields in the world had passed their peak production and, consequently, the world is heading for a catastrophic energy crunch that could cripple a global economic recovery.

The first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves, found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly 7%.

This should have been front-page news the world over. But did you hear anything about it? Unless you are a keen observer of energy news, it's not likely.

In its landmark assessment of the world's major oil fields, the IEA concluded that global consumption of oil was "patently unsustainable", with expected demand far outstripping supply.

The rise in demand from China and India will create a huge supply gap that will radically alter prices, global trade and the entire global economy.

In a rather stunning development, in 2009 China surpassed the US as the world's biggest energy consumer. The tremendous growth of China's economy has been predicated on massive energy consumption, and passing the US reflects the Asian nation's rapid and enormous expansion.

With a population of 1.3 billion people, China outnumbers the US by one billion citizens. The need to provide energy for all of those people is transforming global energy markets and increasing the global demand for oil.

That, in turn, is affecting prices.

With 20 percent of the global population, China's enormous demand will continue to drives oil costs.

Given that oil is a finite resource, China's consumption and growing demand ultimately affects the US. There will be great competition for the world's remaining energy resources.

While US industrial activity has ebbed due to the recession and economic downturn, China has continued to experience annual double-digit growth rates.

In the early 1990s, China became a net oil importer for the first time as its demand finally outpaced domestic supplies. So, while China was previously a major exporter of both oil and coal, it is now heavily reliant on imports.

China is, and will long remain, one of the US's primary competitors for limited oil resources. However, in an ironic twist, America's robust appetite for Chinese exports helps the Asian giant pay for foreign oil.

China's growing energy consumption will affect the US (and the rest of the world) in manifold ways, not the least of which is economically.

Over the past century, the growth of the US economy into the global leader was predicated on energy availability and consumption. This new radical shift could put that position into play.

Whereas the US once took for granted its position as the dominant global player and energy / resource user, it can no longer do so. China is now competing with the US for vital resources, including oil. The competition will be fierce, and costly.

The US, with just five percent of the global population, currently uses 22 percent of the world's oil. But that is not a birthright. Our ability to obtain all that oil is what has made the US the world's political, economic and military leader.

Yet, the US is suddenly faced with a extraordinarily large rival that has very deep pockets, thanks to our continual purchases of cheap Chinese goods.

The US will have to increasingly rely on energy efficiency as the quest for energy resources becomes ever-more competitive.

Yet, while China plans to spend $738 billion on clean energy over the next decade, the US can't even pass an energy bill — even as Big Energy lobbyists continue to water it down.

Some Stunning Facts About the U.S. Economy

2011-12-20T00:01:00.000-08:00

• The federal government continually runs a massive budget deficit. The current deficit is equal to about 10% of the nation’s GDP, a dangerously high level.

• In Fiscal 2011, the U.S. government borrowed roughly 36 cents for every dollar spent.

• A Congressional "super committee" was assigned to make $1.2 trillion in budget cuts over 10 years. The total amount on the chopping block is equal to less than one year’s deficit. Despite this, the committee still failed to agree on cuts.

• Some 43% of federal expenditures go toward health and social security programs. This slice of the spending pie is expected to rise to 51% of total expenditures by 2016. Unless something happens that suddenly disrupts this upward spiral, these two parts of the fiscal budget will bankrupt the country.

• Meanwhile, the federal government spends a mere 3% on education. Though local governments fund most education services through property taxes, the federal government spends very little on young people compared to retired people. Why? Old people vote.

• The nation’s real unemployment rate, which includes idled workers who’ve given up looking for jobs, is 22.6%.

• According to RealtyTrac, there have been 8.9 million homes lost to foreclosure since 2007, the height of the credit crisis.

• There are approximately 48 million homes with a mortgage. This means that more than 18% of the nation’s homes have been lost to foreclosure since 2007.

• More than $10 trillion in home equity has been wiped out since the June 2006 peak.

• Nearly a quarter (22.1 percent) of all residential properties with a mortgage were in negative equity at the end of the third quarter of 2011.

• The poverty rate is more than 15%, and another 20% of the population is struggling on incomes near the poverty line.

• Some 18% of the nation’s GDP is spent on health care — twice as much as in other developed economies. Yet, all that health care spending hasn’t produced a healthier population. The United States actually fares worse than other developed countries in areas such as life expectancy, diabetes and cardiovascular disease.

• The top 1% of Americans control about one-fifth of the nation’s income and two-fifths of the wealth. The top 10% take in about half of all income and have accumulated 80% of the wealth.

• According to an AFL-CIO report, salaries for big U.S. company CEOs have jumped to 343 times the average pay for their own employees, up from 42 times in 1980.

• According to the Washington Post, since the 1970s, median pay for executives at the nation's largest companies more than quadrupled even after adjusting for inflation. Yet, during the same period, pay for non-supervisory workers has dropped more than 10 percent.

• In 2010, the average American earned $26,487 — down over $2,000 in real terms from 2006.

The U.S. government is highly dysfunctional and ineffective. Politicians don't work for ordinary citizens, but rather for the Corporatocracy that now controls the nation.

Meanwhile, the U.S. has increasingly become a land of tremendous inequality, with huge swaths of the nation having lost even the hope of the American dream.

The middle-class has been virtually lost and an entire generation of Americans do not, and will not, have the quality of life or economic freedom of their parents.

This is truly a sad state of affairs.

U.S. Facing Pension Crisis

2011-12-12T18:24:00.000-08:00

Millions of American workers are facing a stark reality; pension promises have been made that are not likely to be kept.

The U.S. is presently facing a pension-funding crisis. It’s estimated that only about 30-40% of pension plans are now fully funded, which means that many people will not get the retirement funds that they've been planning on and will find themselves cut short in their senior years. Most have no backup plan.

The Pew Center on the States, a nonpartisan research group, estimates that states are at least $1 trillion short of what it will take to keep their retirement promises to public workers.

However, that estimate was based on fiscal 2008 data; we are now in fiscal 2012.

Last year, two Chicago-area professors calculated the shortfall at $3 trillion. They weren't alone in their dire calculations.

A report from the National Center for Policy Analysis concurs. It also indicates that state and local pension funds are drastically underfunded to the tune of $3 trillion. That's simply stunning, and it's a horrible omen of what's to come.

The private sector has been eliminating defined-benefit pensions, sometimes in favor of 401(k) programs. But the private sector is also grappling with underfunded or collapsing pension programs.

A 2009 study found that America's 100 largest corporate pension plans were underfunded by $217 billion at the end of 2008. Given the state of the economy over the last three years, it's tough to imagine the situation has improved much, if at all.

And the Pension Benefit Guaranty Corporation says that the number of pensions at risk inside failing companies more than tripled during the recession.

As of 2008, just four states had fully funded pension programs. As a result, there are massive problems on the horizon.

The Illinois pension system, for instance, is at least 50 percent underfunded. Some analysts warn that this could push the state into insolvency if the economy doesn't pick up. The problem, according to Fitch Ratings, is that Illinois cannot grow its way out of the problem.

Illinois reports that it has $62.4 billion in unfunded pension liabilities. However, many experts place that liability tens of billions of dollars higher.

California's pension problems are simply breath-taking. The Golden State has an estimated $500 billion in unfunded pension obligations. That's a figure that could cripple the state for many years to come. Unless the state defaults, those are legal obligations that California must somehow pay. No one knows how that will happen.

In fact, under the law, all state and local pensions are non-negotiable. They are mandatory and will be funded at the expense of higher taxes or reduced services, such as healthcare, roads, or police and fire departments. By law, pension funding in some states will consume 25-30%, or more, of tax revenues.

However, if older pensions cannot be fixed, many legislators are determined to fix future pensions.

An initiative circulating for California's 2012 state ballot seeks to increase the minimum retirement age to 65 for public employees and teachers, and to 58 for sworn public safety officers.

Americans are increasingly living well into their 80s. Yet, many recipients of public pensions are retiring at ages ranging from 55 to 60. Police and firefighters often can retire starting even younger — at around age 50 — because of the physically demanding nature of some of those jobs.

Over the past two decades, eligible retirement ages have fallen for a variety of reasons, including contract agreements between states and government labor unions that lowered retirement ages in lieu of raising pay.

Three-quarters of U.S. public retirement systems in 2008 offered some kind of early-retirement option paying partial benefits, according to a 2009 Wisconsin Legislative Council study. Most commonly, the minimum age for those programs was 55, but 15 percent allowed government workers to retire even earlier, the review found. The study is widely regarded as the most comprehensive assessment of the issue.

Pension obligations may be the proverbial hump that breaks the camel's back. The states face huge battles with public employee unions and some may attempt to follow the lead of Indiana, which decertified its public employee unions.

How all of this plays out in courts across the nation will be both fascinating and impacting. Some very ugly fights will ensue. But for the states, those fights are worth engaging. There is no other choice; they can't get money from nothing.

New Report Details $7.7 TRILLION in Secret Fed Loans

2011-12-06T13:56:00.000-08:00

Ben Bernanke should be hoping and praying right now ☛

A new report from Bloomberg Markets Magazine reveals that the Federal Reserve made a stunning $7.7 trillion in loans to struggling financial institutions during the 2008 financial crisis.

While the $700 billion TARP (Troubled Assets Relief Program) remains highly controversial, what immediately stands out from this report is that the secret loan program was ELEVEN times larger than TARP, or, to put it another way, TARP plus $7 TRILLION.

Let that digest for a moment.

The Federal Reserve and the Big Banks fought for two years to keep this information secret. It was only after going to court and using the leverage of the Freedom of Information Act that Bloomberg was able to get to the bottom and discover the truth.

What they uncovered is simply staggering.

During the financial crisis — which spanned form 2007 to 2009 — the Fed carried out a whopping 21,000 secret transactions in which it doled out $7.77 trillion dollars to financial institutions around the globe. That amounted to more than half the value of everything produced in the U.S. that year.

Through its so-called "discount window," the Fed loaned enormous sums of money to banks at rates as low as 0.01 percent. This essentially amounted to free money, allowing the banks to make an estimated $13 billion in previously undisclosed profits.

These loans, an extraordinary privilege not afforded to non-financial institutions, allowed the banks to avoid selling assets to pay investors and depositors who were withdrawing their money out of fear of collapse. That allowed the banks to continue earning interest on these assets, which they otherwise would have needed to sell.

JPMorgan Chase, for instance, borrowed nearly twice its cash holdings. Clearly, that was not appropriate collateral.

The six biggest U.S. banks (JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) received $160 billion in TARP funds, then subsequently — and secretly — borrowed as much $460 billion from the Fed. That accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and financial services firms.

As a result of these secret Fed loans, the Big Six banks received a $4.8 billion subsidy, according to Bloomberg, or 23 percent of their combined net income during the time they were borrowing from the Fed.

When you're in the business of lending, it's difficult not to make a hefty profit on essentially free money.

Though Chairman Ben Bernanke said in April 2009 that the Fed was making loans only to "sound institutions," it is now known that Citigroup was near collapse. Citigroup hit its peak borrowing of $99.5 billion in January 2009.

Morgan Stanley borrowed $107 billion from the Fed in September 2008, while Bank of America's peak borrowing topped out at $91.4 billion in February 2009.

However, all of this borrowing was independent of the TARP funds allocated to these very same banks. Congress was allegedly kept in the dark about the previously unreported Fed loans, which raises the question of whether TARP would have ever been approved had Congress been informed.

As a result of these essentially free loans from the Fed, the biggest banks — the ones deemed "too big to fail" — had the means to grow even bigger, buying out other struggling financial institutions, as well as paying their employees huge sums in the form of bonuses.

For instance, Bank of America acquired Countrywide Financial and Merrill Lynch; Wells Fargo bought Wachovia; and JP Morgan Chase bought Washington Mutual and Bear Stearns. Each of these banks, already arguably too big, became substantially larger.

In September of 2006, the total assets of the six biggest U.S. banks totaled $6.8 trillion. Six year later, in September of 2011, their assets had jumped to $9.5 trillion — a 39 percent increase.

This has made these institutions too big and too powerful. They are not only too big to fail, but could even be too big to save. This not only jeopardizes the entire U.S. financial system, but also the entire economy. These banks are so powerful, so connected, and so well-armed with money and lobbyists that they've made themselves virtually impervious to regulation.

The Big Six banks spent $22.1 million on lobbying in 2006. By 2010, after the crisis and the bailouts, that sum had surged to $29.4 million — a 33 percent increase. Call it government for hire, or democracy to the highest bidder.

According to OpenSecrets.org, a research group that tracks money in U.S. politics, lobbying by the American Bankers Association, a trade organization, increased at about the same rate.

The Big Six have created a monopoly that is anti-competitive and anti-capitalistic. This is bad for the economy, the country as a whole, and democracy itself.

These banks have, in effect, been incentivized to take on tremendous risks, to in fact be quite reckless. This is the essence of "moral hazard." The Big Banks operate with the implicit guarantee of government — meaning taxpayer — support, should they enter another crisis.

That's just the problem; the next crisis is a matter of when, not if. And the U.S. is wholly unprepared for this certain eventuality.

There is one final outrage in all of this. Ask yourself this; where does the Federal Reserve get an amount of money equalling more than half of the entire U.S. economy?

It creates it out of thin air, that's how. It's like a magic trick.

What other corporation can create its product out of thin air, without any investment in the resources needed to create that product? One quick look at the Dow Industrials is illustrative. The answer is none — other than the central bank.

The Fed has granted a rather extraordinary and outrageous privilege to banks and other financial institutions by allowing them to profit on free money, instantly created by computer key strokes.

All of this money creation devalues the existing money supply (meaning the money in your pocket and bank account) because there isn't a concurrent increase in the number of goods and services in the economy.

This is the essence of inflation; the money supply is inflated in relation to goods and services, devaluing the value of all money. The price of goods increase and the citizens suffer as a consequence of something they had no say in, and didn't vote for.

Those very same citizens are still suffering from the outrageous risks that banks took in the last decade, and the taxpayers are on the hook for all these trillions of dollars in bailouts.

That is outrageous. That is unjust. That should never be tolerated.

'Problem Banks' Declining, Failures Still Climbing

2011-11-23T10:03:00.000-08:00

The FDIC says the number of U.S. banks in financial distress continues to decline.

At the end of the third quarter there were 844 “problem” institutions on the FDIC's list, down from the 865 at the end of the second quarter, and 888 at the end of the first quarter.

Though this decline is being heralded as good news, we must remember that at the end of the first quarter last year, the number of lenders on the FDIC's "problem banks list" had climbed to 775, which was the highest level since 1992.

This means there are still 69 more banks on this list than there were at the end of the Savings & Loan crisis. That provides some perspective on the magnitude of the current problem.

Martin Gruneberg, acting chief of the FDIC, said that a central concern for the agency is whether banks can generate income from a greater demand for loans, something that is still lacking.

Americans are still overwhelmingly in debt and are doing all they can to deleverage.

“The key issue is going to be can there be a pick up in economic activity and generate demand for loans, Gruenberg said.

Any rational observer knows that the global economy is getting worse, not better. The likelihood of increased economic activity and a higher demand for loans is slim or none, and that won't change for quite some time. We've entered a new economic reality where the limits to growth are finally being recognized.

One-quarter of homes with a mortgage are underwater. Unemployment remains troublingly high. Moreover, wages and incomes remain flat or depressed for the vast majority of Americans. This is not a recipe for increased economic activity or borrowing.

Last year, one-third of American consumers were considered sub-prime and couldn't even qualify for a home loan. When a third of your market is disqualified, that's obviously a very bad sign.

The problems in the European banking system could quickly and easily spill over into the U.S.

While Gruenberg said direct U.S. bank exposures to the European sovereign debt crisis is “relatively” limited, he added that a “key” risk for US institutions as well as for the global economy is the potential contagion effects that would result from a serious financial crisis in Europe.

As a result, Gruenberg said the FDIC is pressing banks to hike capital and improve their liquidity. He said that closer attention is being paid to “potential avenues of contagion” such as each institution’s derivatives exposure. However, he added that banks generally have much stronger levels of capital and liquidity than they did years before.

We can only hope.

Having 844 banks on a "problem" list is clearly an issue of great concern. It's certainly not the mark of stability.

More than 100 banks failed in each of the last two years; a total of 140 banks were shuttered in 2009 and 157 institutions failed in 2010. The trouble is not yet behind us.

A total of 90 U.S. banks have already failed this year. With six weeks to go before 2011 concludes, who really doubts that number won't reach 100 yet again?

Since the creation of the FDIC in 1933, there have been only 12 years in which 100 banks failed in a single year. The last two were among them. We made yet add to that total.

To provide some perspective, a mere three U.S. banks failed in 2007 and just 25 U.S. banks were closed in 2008, which was more than in the previous five years combined.

The banks on the "problem" list are considered the most likely to fail. However, their names are never made public for fear of creating a run on those banks.

Bank failures over the previous two years pushed the number of FDIC institutions to below 8,000 for the first time in the agency's 76-year history. Two decades ago, the FDIC insured more than 16,000 institutions nationwide.

While the number of banks considered at risk for failing may have declined, the problem can only be described as going from really, really bad to really bad.

Keep your eye on Europe's debt crisis and how that affects the banking system there. The fallout could be both catastrophic and contagious.

Gesundheit!

Oil: Supply and Demand Reach Tipping Point

2011-11-17T10:56:00.000-08:00

In March 2010, the Smith School of Enterprise and the Environment published a paper stating that the capacity to meet projected future oil demand is at a tipping point and that the development of alternative energy fuel resources needs to be accelerated in order to ensure energy security and reduce emissions.

The Status of Conventional Oil Reserves – Hype or Cause for Concern?, published in the journal Energy Policy, concludes that the age of cheap oil has now ended and demand will start to outstrip supply as we head towards the middle of the decade.

The report also suggests that the current oil reserve estimates should be downgraded from between 1150-1350 billion barrels to between 850-900 billion barrels, based on recent research.

Overcoming such potential oil shortages will be a vexing challenge.

The world is currently consuming more than 88 million barrels of oil daily, an annual total amounting to nearly 32 billion barrels. But with the developing world continually using ever greater quantities of oil, that amount will only grow in the coming years.

However, according to a research paper by Joyce Dargay of the University of Leeds and Dermot Gately of New York University, official forecasts by OPEC and the U.S. Department of Energy may be underestimating the future demand for oil by 30 million barrels a day.

If this is accurate, the next oil crisis is going to be life altering for all of us.

Dargay and Gately base their conclusion on the observation that the demand for oil no longer appears to respond to price. While price increases in the 1970s placed downward pressure on the worldwide demand for the fuel, the increased oil prices of the past decade had no such effect. Instead, worldwide demand for oil increased by 4% during that time.

Dargay and Gately project that per-capita oil demand will grow to 138 million barrels a day in 2030.

If that's accurate, the supply of oil won't even begin to keep up with increasing global demand.

Unfortunately, Peak Oil is upon us, and recent oil finds have been far too small to make an appreciable difference in overall supplies.

The International Energy Association (IEA) says that growth in worldwide oil demand is outstripping growth in new supplies by 1 million barrels a day per year.

According to the IEA, it’s getting harder to access and exploit conventional resources and, “The age of cheap energy is over.”

Oil companies are having to go into ever deeper waters, at ever-increasing expense, just to retrieve the finest oil. That's because the cheaper, easier to access, land-based oil supplies are clearly in decline.

For example, the once-mighty Cantarell field was the third-largest oil field in the world. Today, it is one of the chief reasons why Mexico's oil exports are shriveling. That poses a critical problem for the U.S. since Mexico is the number two exporter to our nation, following Canada.

This sort of decline is a prime reason why there is now such an interest in oil sands, which result in a heavier, lower-grade, harder-to-refine oil. Oil sands are also much more expensive to refine, resulting in higher prices for consumers.

Here's the reality; there's still plenty of oil left in the earth, just not cheap oil. Those days are over. Simple market forces are revealing that there is not enough oil to keep up with rising global demand and, as in any market, that means rising prices.

Eventually, and much sooner than most people realize, the margin of supply will shrink to the point that our lives, and our modern economy, will be irrevocably altered.

World Oil: The Clock is Ticking

2011-11-15T08:04:00.000-08:00

While many Americans may believe that the U.S. gets almost all of its crude oil from overseas, that is not the case. The U.S. produces about half of the roughly 19 million barrels of oil it uses each day. And our neighbors, Canada and Mexico, are our number one and number two sources, respectively.

Every day, Canada provides the U.S. with 1.9 million barrels of oil, while Mexico sends the U.S. 1.1 million barrels each day.

The troubling news with the latter is that Mexico's primary oil sources are expected to be depleted by 2019.

By contrast, Saudi Arabia is the number three exporter to the U.S., sending this nation just over 1 million barrels of oil each day.

For decades, our nation's thirst for oil seemed unquenchable. However, the recession and continuing economic hardship have dropped U.S. demand from 21 million barrels per day prior to the recession to the current level of 19 million barrels of oil each day, or 798 million gallons.

That amounts to 22.6% of all the oil used around the world each day. And experts predict that U.S. demand will only rise over the coming decades.

But we are not alone in our increasing demand for oil.

At present, the world is using 88.20 million barrels of oil per day. That demand has been continuously growing, along with the world's developing economies. And for the world's developed economies to continue growing — a must under the perpetual-growth paradigm — oil is a requisite.

However, average annual global crude oil production has been flat since 2005. That problem is projected to worsen over the next quarter-century.

The US Energy Information Administration (EIA) has some very bad news for all of us.

The EIA projects that while world oil demand will climb to 105 million barrels per day by 2030 (a significant increase from the current level of 88.20 million bpd), the anticipated increase in conventional oil production will be just 11.5 million bpd, meeting less than half of the growth in demand.

It's also critical to note that in years recent years the EIA has been continuously ratcheting down is projections for the amount of supply that will be available in the future.

Six years ago, the agency predicted that 120 million barrels a day would be available by 2030. But it has now cut that estimate to 105 million barrels a day.

How much lower will that estimate continue to go?

The International Energy Association (IEA) says that growth in worldwide oil demand is outstripping growth in new supplies by 1 million barrels a day per year. According to the IEA, it’s getting harder to access and exploit conventional resources and, “The age of cheap energy is over.”

China and India, each with populations of over 1 billion people, are home to two of the world's most rapidly developing economies. And as such, the demand for oil in those countries is also rising rapidly.

Due to the robust expansion of these economies, the combined energy use of China and India is expected to more than double by 2035, when they will account for 31% of global energy use.

China's oil consumption is projected to rise 119% by 2025. But even then, the Chinese will still be using only about half as much oil as the U.S. will be.

With worldwide oil usage anticipated to increase to 105 million barrels a day, up from 88 million barrels today, the question most experts ask is, where will all of that additional oil come from?

Many have supposed that Saudi Arabia's giant oil fields would account for much of the supply.

But according to Matthew Simmons, the author of "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," that is highly unlikely.

Simmons, who died last year, believed that Saudi Arabia, now producing around 9 million barrels a day, would soon begin to lose production capacity. According to his research, the Saudi oil fields have matured, leading to their inevitable decline.

As a result, Simmons concluded that worldwide oil production has peaked. Instead of increasing to the IEA's original projection of 120 million barrels a day by 2025, Simmons concluded that global production could in fact be half that rate — meaning less than what it is today.

This would be an absolutely staggering blow to the global economy. The price of oil would escalate exponentially and our way of life would be irrevocably altered.

Some have concluded that the U.S. must, in the effort to achieve oil independence, begin drilling in Alaska's Arctic National Wildlife Reserve. But unfortunately, experts have countered that such a tactic would result in 250-800 million barrels a year — the amount the U.S. currently consumes in just two to six weeks.

Obviously, that is not the answer.

Simmons asserted that the world needs to considerably reduce its consumption of transportation fuels to fend off a potential crisis, a contention other experts in the field support.

Since 70% of the world's oil is used as transportation fuel, new forms of fuel are required, as well as a reduction in the number of people and goods moved by cars and trucks.

The latter would radically alter our way of life. But it seems that such change is inevitable anyway. Why not do it on our own terms by initiating the planning and implementation immediately? Why wait for another oil shock?

Simmons called for an increase in the use of trains and ships to make shipping more efficient and to reduce worldwide oil consumption.

Obviously, the U.S. oil industry has a huge stake in seeing to it that American consumers do not decrease our gluttonous consumption of their product. But if Simmons was correct in his assertions, the clock is ticking on world oil supplies and the time to act is now.

Biodiesel, which is manufactured from vegetable oils, recycled cooking greases and oils, or animal fats, is one possibility.

Biodiesel can be used in any diesel engine, usually without any engine modifications, and is the safest of all fuels to use, handle, and store. It is also non-toxic, biodegradable and sulphur-free. Soybeans, one of the largest and most abundant U.S. crops, are one of the principle sources of biodiesel.

This fuel is already being used to power the busses and other municipal vehicles in numerous U.S. cities, such as St. Louis, Phoenix, Cincinnati, Portland, Oregon and Lexington, Kentucky.

The Department of Energy calls biodiesel the fastest growing alternative fuel in the nation, as its use has increased 5000% since 1999.

One way or the other, it's time to start exploring alternatives to crude oil for a variety of reasons: its limited, and perhaps dwindling, supply; various environmental factors; and the economic prospects that a new industry may provide, including jobs.

There are lots of good reasons to wean ourselves from our dependence on foreign oil, not the least of which is our national security. Oil imports have also created an enormous trade imbalance that is sucking billions of dollars out of the country each and every day.

So we shouldn't let U.S. oil companies stand in our way.

In fact, if they were wise, those companies would recognize the opportunities at hand and lead the way themselves.

Global Oil Demand Will Spike Over Next 24 Years

2011-11-08T08:11:00.000-08:00

According to the U.S. government, global oil consumption is likely grow by more than than 25 percent over the next quarter century.

In its annual international energy outlook, the US Energy Information Administration (EIA) said world oil demand is expected to climb to 112.2 million barrels per day in 2035, a 27 percent increase from the current level of 88.20 million bpd.

Here's the kicker: the anticipated increase in conventional oil production would meet less than half of this growth, at 11.5 million bpd.

That leaves a gap of 24 million barrels each day.

Where will all of the additional oil be found to meet this growing demand? As it stands, average annual global crude oil production has been flat since 2005. That does not bode well for the future.

The EIA said that most of the projected growth in liquid fuels "is in the transportation sector, where, in the absence of significant technological advances, liquids continue to provide much of the energy consumed.”

The EIA’s projections were based on current government policies and do not include any proposed or potential regulations, including the recently announced US fuel economy standards that would force automakers’ fleets to average 54.5 miles per gallon by 2025.

However, there would need to be a massive national initiative geared toward conservation to offset the rapidly escalating global demand for oil and oil-based fuels.

The EIA sees total global energy use increasing 53 percent over the next 24 years, led by developing nations such as China and India. Last year the agency predicted a 49% increase.

As it stands, developing nations already use slightly more energy than those in the developed world. And by 2035, they are expected to use double.

The agency predicts that fossil fuels will continue to be the dominant fuel choice in 2035, with renewables constituting just 14% to the world's overall energy consumption.

So much for any hopes of a green energy renaissance that might solve the world's energy predicament, or curb the rise in greenhouse gas emissions.

The EIA sees energy-related carbon dioxide emissions rising 43% by 2035. That's because oil (29%) and coal (27%) are expected to account for a total of 56 percent of global energy output by 2035.

The agency says that most future renewable energy supply will continue to come from wind and hydropower. Nuclear power is expected to go from about 5% of overall energy consumption in 2008 to about 7% in 2035.

It's hard to feel encouraged by anything in this report. It reveals a future of continually growing oil demand that is no way matched by supply. It reveals tremendous, and increasing, global competition for finite energy resources. It reveals an explosive rise in greenhouse gas emissions and a continued reliance on dirty fossil fuels.

One obvious conclusion can be derived from this report: energy prices are sure to climb, and this will negatively affect the global economy. The oil gap, in particular, will wreak havoc — particularly in the US, which is a heavily dependent oil economy.

Another very obvious conclusion is that the future will be very different from the present world we live in.

Decline in Boomer Spending Will Reverberate Through U.S. Economy

2011-10-07T16:46:00.000-07:00

For the past few decades, the U.S. economy has been driven by the spending habits and consumption of the Baby Boomer generation.

However, as this group nears retirement — a process that will play itself out over the next 18 years — their incomes, savings, investments, and consumption will all decline.

This trend will significantly alter our economy.

Demographic research shows that people overwhelmingly begin to spend more in their 30s and through their 40s.

According to the work of demographic trend expert and economic researcher Harry Dent, individuals typically hit their peak spending between the ages of 46 to 50.

Once a person reaches the age of 50, spending begins to fall. And after the age of 60, the decline in spending is significant, falling below that of young people in the 18-22 demographic.

Unfortunately, the U.S. — like most of the developed world — has a rapidly aging population that is well-past its peak spending years.

Obviously, retirees spend less money than working people. And due to the sheer size of the Boomer demographic — 76 million strong, or 25% of the US population — the impacts will be far-reaching.

As of 2008 — the latest data available — people aged 65 to 74 were spending 12.3% less than they did ten years earlier, in inflation-adjusted terms. Though this group typically spends less on clothes, cars, home furnishings and going out to eat, they also spent 75% more on health care and 131% more on health insurance.

This means that the health care industry is likely to be about the only “engine” for economic growth in the U.S. for the next two decades.

All we need to do is look at Japan to see what happens after the Boomers have passed their peak spending years. Japan's Baby Boomers reached peak spending in 1990, and it's been downhill ever since for Japanese stocks and real estate.

That's a bad sign for the U.S.

For roughly the past quarter century, Americans saved less and less with each passing year. The flipside of this savings decline, of course, was an epic spending boom. People saved less because they bought more — all too often on credit.

In fact, the savings rate even went negative in the last decade.

However, due to a combination of inflation, stagnant wages, high unemployment and sinking home values, those trends are now in reverse. Over-indebted Americans have pulled the plug on their formerly spendthrift ways.

Obviously, retirees aren't savers; they're spenders. Yet, as noted, they spend much less than during their prime earning years.

So the giant Boomer population will contribute a combination of less savings and less spending to the economy. Since savings are generally a requisite for local and national investment, the end result is a double-whammy.

As the baby boomers sell off their stocks and mutual funds to pay for retirement, it will likely affect both the demand for, and the prices of, those assets. Ultimately, the stock market may be headed for a prolonged downward trend.

If the economy continues to follow the decline in spending, we're in for another lean decade, as the next peak spending pickup is not scheduled until 2022. That's when the next "baby boomlet" should hit its peak spending stride.

The Baby Boomers drove the U.S. economy for the last few decades, but those days are essentially over.

The 25-year Boomer borrowing and spending binge is coming to an end. The hangover will be really bad.

The New Great Depression

2011-09-16T12:05:00.000-07:00

Economically speaking, the U.S. remains in the midst of a perfect storm.

The nation is plagued by a vicious cycle of slower growth, leading to lower tax revenues, followed by spending cuts, ultimately resulting in even slower growth.

The economy grew a meager 0.4 percent in the first quarter and just 1 percent in the second quarter. That amounted to an annual rate of just 0.85 percent in the first half of the year.

According to the National Bureau of Economic Research — which declares such things — the economy is not officially in a recession. But it couldn't be much closer.

And to huge swaths of this nation, the recession never really ended; it morphed into a depression.

Economic growth needs to be at least 2.5% to improve the nation's dismal unemployment situation. Anything lower doesn't even keep up with population growth.

There are numerous reasons for this economic breakdown.

Since their 2006 peak, home prices have now fallen further in percentage terms than they did during the Great Depression. And it took 19 years for prices to fully recover after the Depression. That's an ominous precedent.

As it stands, some 6.5 million homes have already been lost to foreclosure. In addition, another 2.16 million properties are presently in foreclosure, representing a combined $1.27 trillion of unpaid principal.

As if all of that wasn't bad enough, there are an additional 4.3 million homeowners who are now “seriously delinquent,” meaning they are more than three months behind in their payments. Many of those homeowners will soon enter the foreclosure pipeline.

All of these foreclosures are deflating home values and sales prices. That's bad for all homeowners.

By the end of last year, about 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater.

Due to the housing bust, millions of households have seen their equity wiped out. That's been a major factor in diminished consumer spending.

Additionally, after borrowing heavily for a decade, Americans are now grappling with mountains of debt. People are opting to pay with cash instead of credit and, rather than going even further into debt, are putting off purchases they can't afford.

Though the Fed has kept borrowing rates near zero for three years, there's very little it can do to stimulate demand for credit that no one wants.

Millions of Americans currently qualify for record low mortgage rates. It's just that most of them aren't interested in borrowing. No matter how low rates are, it's tough to make a monthly payment without a job. And millions more are unwilling to take on a mortgage when they're worried about losing the job they already have.

This leads us back to the other major factor crimping consumer spending; unemployment.

The government's most widely reported unemployment figure (U-3) currently stands at 9.1 percent. However, that number does not include people who have lost their unemployment benefits, or those who can only find part-time jobs even though they want full-time work.

Economist John Williams of ShadowStats.com (who provides detailed economic reports for U.S. businesses) puts the real unemployment rate at a whopping 22.8%. That's akin to the Great Depression.

With all of these factors in mind, it was little surprise that U.S. consumer confidence fell to 44.5 in August, the lowest level since April, 2009, more than two years ago.

However, when the Consumer Confidence Index fell to 47.7 in 2009, it was at its lowest level in more than a quarter century, and it is now even lower than that.

A reading above 90 indicates the economy is on solid footing; above 100 signals strong growth. Obviously, we are a long way from that.

Low confidence creates a downward spiral in which consumers don't spend and the economy continues to further weaken. Consumer spending accounts for 70 percent of U.S. economic activity, which is why consumer confidence is so critical. It is a bellwether of this nation's economy.

As long as consumers are unwilling or unable to spend enough to spur economic growth, there will not be enough demand to create new jobs. It's a vicious cycle that is very tough to break.

The lack of buying power isn't merely the result of the 14 million Americans who are currently unemployed. Many of those who currently have jobs are actually making less than workers did four decades ago.

According to the latest Census figures, the median annual income for a full-time, year-round, male worker in 2010 was $47,715. That was nearly three percent less, in inflation-adjusted dollars, than the $49,065 those workers earned in 1973.

This means that median male incomes have gone backward in the intervening decades, an absolutely stunning development.

All of these factors will keep the government hamstrung in its attempts to get the economy out of the doldrums. The $787 stimulus bill didn't work, and 37 percent of that was tax cuts (something Republicans love to ignore).

The payroll-tax cut hasn't worked either. Wage earners will take home roughly $1,000 in payroll tax breaks this year, but it hasn't made a difference in the overall economy. That's because households and small businesses tend to save a greater proportion than they spend when a tax break is only temporary.

People are naturally inclined to save for an emergency when it seems like one is lurking around every corner.

Ultimately, cutting income taxes even further will not solve our economic problems. The reality is that federal tax rates are already historically low, and it's still not stimulating the economy.

The top tax rate has varied over the decades, from an initial low of 7% from 1913-1915, to as high as 94% during WWII.

The top rate is presently 35%, established in the cuts initiated by President George W. Bush. Rates this low have not been seen in two decades.

For comparison, in 1932 the top rate was 63% and it didn't move lower until 1982, when it dropped to 50%. So, for five decades the top rate ranged from 50% to 94%, and job creation did not cease.

The suggestion that cutting taxes creates jobs is thoroughly discredited by historical facts.

According to the Wall St. Journal, Bill Clinton raised taxes and the economy created 23.1 million new jobs, an eight-year, post-war record.

On the other hand, George W. Bush cut taxes and the economy created just 3 million new jobs in eight years.

The U.S. economy experienced lengthy periods of robust growth in the 1940s, '50s and '60s, when top marginal rates exceeded 90%.

This is not an argument for higher rates, but a reality check for those whose answer to every economic problem is to simply cut taxes even further.

The Federal Reserve is now essentially out of bullets in its battle to get the economy moving again. Interest rates can't go any lower than zero, and the Fed has already flooded the financial system with over $2 trillion. Yet, the economy is just treading water and trying to stay afloat.

Without an economic resurgence, fueled by more jobs, leading to more workers paying taxes, the government's deficit and debt problems will not only persist, but will worsen.

According to the latest Census figures, about 48 million people ages 18 to 64 did not work even one week during 2010, up from 45 million in 2009.

It's understandable if your head is still spinning after reading this alarming fact.

This means that huge portion of the U.S. workforce is no longer productive, which is a death blow to any economy.

It's little surprise then that poverty hit new record in the U.S last year. The 46.2 million Americans living below the poverty line is the highest number in the 52 years of reporting.

It was not an isolated occurrence, but rather part of a disturbing trend. The number of people in poverty rose for the fourth consecutive year in 2010, as the poverty rate climbed to 15.1% — the highest since 1993 — up from 14.3% in 2009.

Sooner or later, the realization that we are in the midst of a long term depression will fully sink into the national conscience. Tens of millions of Americans already recognize this. Those who don't eventually will.

According to a CNN/Opinion Research Corporation poll conducted in June, nearly half of Americans (48%) think the U.S. is likely to slip into another Great Depression within the next 12 months.

That's not pessimism; it's realism.

Plastic-to-Oil Converter Exemplifies Energy Ingenuity

2011-09-08T13:56:00.000-07:00

Japanese inventor Akinori Ito sees plastic shopping bags as the “fuel of the future”. Since plastic bags are made from oil, Ito developed a machine that reverts them (and other plastics) back to their original form.

Ito is the CEO of Blest, a Japanese company that produces these intriguing machines in various sizes, with applications ranging from industrial purposes to simple home use.

At the industrial level, this is not a novel technology. However, at the consumer level, it is indeed a breakthrough.

The smallest version of the Blest Machine will fit on a countertop and currently costs $12,700. However, Ito hopes that through increased production the price will drop so that "anyone can buy” one.

This technology converts 1 kilogram (about 2 lbs.) of plastic into 1 liter (about a quart) of oil using just 1 kilowatt of power, at a cost of about 20 cents.

One liter of gas is essentially nine kilowatt-hours of energy — enough to drive a typical car eight miles, or run ten 100-watt bulbs for nine hours.

The conversion process reveals the fuel potential of plastic, which could become a coveted commodity and boost recycling efforts immensely. If plastics are viewed as a resource rather than waste, the results would be rather positive.

Non-biodegradable plastic waste is overflowing from dumps and landfills all around the world. And it's also polluting our oceans. Sadly, the global recycling rate for plastic is quite low.

For example, each year America uses 380 million plastic bags and only 7 percent of them are recycled. If we can convert an everyday waste product into a source of fuel, it would greatly decrease the amount of plastic piling up in landfills.

It's estimated that 7 percent of the world’s annual oil production is used to produce and manufacture plastic. So the idea is to utilize existing plastic waste, of which there is an abundance.

As noted, Ito's conversion system is made for households and could allow consumers some measure of energy independence. Producing fuel locally would greatly lower the carbon footprint that results from transporting petroleum from distant countries.

The Blest Machine can convert several types of plastic back into oil. This promising contraption is capable of processing polyethylene, polystyrene and polypropylene (numbers 2-4) but not PET bottles (number 1).

The result is a crude gas that can fuel things like generators or stoves. Further refining produces gasoline, kerosene and diesel, meaning it can also fuel autos.

Burning plastic trash typically creates both toxins and CO2. However, Ito's device uses an electric heater in place of a flame. So while the plastic melts, nothing is directly burned.

As a result, Ito says that no toxic substance is produced in the conversion. Though methane, ethane, propane and butane gasses are released in the process, the machine is equipped with an off-gas filter that disintegrates these gases into water and carbon.

The invention is a carbon-negative system and is therefore non-polluting. The self-contained process heats up the plastic to about eight hundred degrees Fahrenheit, traps the vapors and channels them through an intricate system of pipes and water chambers. These, in turn, cool the vapors and condense them back into crude oil.

No, the Blest Machines will not solve our energy problems. But they can be part of the solution. Yes, the fuel created does give off CO2 as part of the combustion process, like any other carbon-based fuel.

However, it encourages recycling, eliminates non-biodegradable plastic waste, and lessens our dependence of traditional oil.

Plastic is potential oil. Since it is derived from oil, converting plastic back to its original form reduces the need for further oil production.

Perhaps the best news is that Ito's invention uses less than one kilowatt-hour per batch of plastic. A power plant uses three kilowatt-hours to deliver one to the Blest Machine, but it's still a net six kilowatt-hours.

Domo arigato, Mr. Ito.

Unemployment Remains Bleak; Challenges Are Daunting

2011-09-04T11:04:00.000-07:00

The fact that the U.S. economy created zero jobs in August is an ominous sign for a nation that needs to create 125K each month just to keep up with population growth.

Though the unemployment rate held steady at 9.1 percent, more than 14 million Americans remain out of work and actively looking for jobs.

The economy has created less than 100,000 jobs for four straight months. As if that weren't enough, on Friday, the government also said job creation in June and July wasn’t as good as originally thought.

The government claims that the labor force participation rate — the percentage of people employed and those who are unemployed but seeking a job — is currently at 64 percent, up a tiny bit from July. That is very low by historical standards.

When the recession began in December of 2007, 66 percent of Americans were participating in the labor force.

However, if you compare the labor force participation rates with the employment population ratios (EPR) for 1973 and 2000 versus today, the current numbers don't really add up.

In a recent blog post, Vox Day put it this way:

Is it reasonable to believe that people are any less inherently willing to work in these difficult economic times than they were in the year 2000? I don't see any justification for it.

Given that the percentage of women participating in the labor force has methodically risen from 44.7% in 1973 to 59.2 in 2009, and that this increase has outpaced the exit of elderly men from the labor force since 1973, the current overall participation rate should be significantly higher than it was in 1973. But this is not the case, according to the BLS.

Dec 1973 Participation rate 61.2 EPR 58.2 U3 4.9
Jan 2000 Participation rate 67.3 EPR 64.7 U3 4.0
Jul 2011 Participation rate 63.9 EPR 58.1 U3 9.1

Now, if we simply compare the present number of reported employed to the present size of the civilian, non-imprisoned population, but calculate the labor force based on the 2000 participation rate, we get an unemployment rate that is 50 percent higher than the currently reported rate of 9.1%. Note that numbers given are in thousands as per the BLS.

239,671 Civilian non-imprisoned population x.673 participation rate equals

161,299 Labor Force minus
139,236 Employed
= 22,063 Unemployed

22,063 divided by 161,299 equals 0.13678

This means the current U3 unemployment rate according to the BLS metric should be 13.7%, not 9.1%. Note that this is higher than the "unemployment rates" reported in the first two years of the Great Depresion, 1930 (8.9%) and 1931 (13.0%). Please also note that the two historical "unemployment rates" are estimates made well after the fact as the BLS didn't track unemployment statistics until 1948. Finally, one also must take into account that the current rate would be considerably higher were it not for the 2,868,000 more people that are now employed by the federal government than were employed in 1940, much less before the New Deal of 1933. Including these extra 2.8 million government workers in the unemployed list, as one must do in order to make a reasonable comparison between 2011 and 1930-31, indicates a comparable "unemployment rate" of at least 15.5%.

It's important to remember that even if the economy simply kept up with population growth by adding 125,000 jobs each month (for a total of 1.5 million new jobs this year), it still wouldn't help the roughly 24 million Americans who are already unemployed or under-employed, meaning they can only find part-time work.

To provide some perspective of the hole we're in, consider this: the government said that 1.3 million jobs needed to be created every year from 2006-2016 just to keep up with the growing labor force.

Obviously, that isn't happening.

The stark reality is that there are 7 million fewer workers today than just four years ago and the number of unemployed Americans has roughly doubled, to more than 14 million.

What's most disturbing is that the government's most widely reported unemployment figure (U-3) does not include those who have lost their unemployment benefits, or those who have only part-time jobs but want full-time work.

Economist John Williams of ShadowStats.com (who provides detailed economic reports for U.S. businesses) puts the real unemployment rate at a whopping 22.8%. That's akin to the Great Depression.

The current state if affairs is nothing new; job creation has been in a long-term downturn.

Remarkably, job growth in the last decade was actually negative. While the number of new workers entering the workforce swelled during that period, just 1.7 million new jobs were generated.

According to the Bureau of Labor Statistics, just 1.1 million jobs were created last year. Remarkably, that was nearly as many as in the previous decade combined.

The troubles go back many, many years. In fact, job creation has been slowing for decades, and that's a very bad omen.

According to the Economic Cycle Research Institute, during periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased at about 3.5 percent a year. But during expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually.

And it's taking longer and longer to recover from each successive recession. The last time the jobless rate reached double digits, in the early 1980s, it took six years to bring it down to normal levels.

The historical precedents and current trends make it very difficult to feel optimistic about the future.

This nation's unemployment problem has truly negative consequences for our consumption-based economy, which is 70% reliant on consumer spending. Obviously, there is less consumption when fewer people are working, as there is less disposable income directed back into the economy. It also means lower tax receipts at both the state and federal levels.

If unemployment remains stubbornly high, wages will also remain stagnant. That will create a negative feedback loop of both lower both consumer spending and economic output.

American consumers remain totally strapped due to their heavy debt burdens. Consequently, we will not spend our way out of this malaise.

Our unemployment problem is huge and complex. Millions of lost jobs are never coming back. Consequently, millions of American workers need new skills and new training.

Consequently, the problem is much bigger than creating the 1.5 million jobs needed to keep up with annual population growth.

Even if the nation had started adding 2.15 million private-sector jobs per year beginning in January of 2010, it would have needed to maintain that pace for more than seven consecutive years (7.63 years), or until August 2017, just to eliminate the current jobs deficit.

It's now abundantly clear that this isn't going to happen.

The U.S. is faced with a grim new reality of lower economic growth, less consumption, higher unemployment, lower wages, lower government revenues and unwieldy debt levels at the government, corporate and consumer levels.

Our present economic state is quite bleak. Sadly, for most Americans the future is virtually certain to be less prosperous than the past.

These are hard times indeed. And they are poised to remain that way for the foreseeable future.

Food Stamp Use Rising With Poverty

2011-09-01T15:20:00.000-07:00

The times are tough now, just getting tougher
This old world is rough, it's just getting rougher
— Bruce Springsteen, 'Cover Me'

The Great Recession has left quite a scar on this nation. Rampant unemployment has led to rising poverty and homelessness, plus an increase in the number of Americans needing government assistance just to buy food.

Since 2007, the number of people in the Supplemental Nutritional Assistance Program (SNAP) has increased by 74 percent. SNAP is the new name for food stamps, though most people still refer to the program by its former name.

At present, some 46 million people in the United States use food stamps, roughly 15 percent of the population. To put it another way, that's more than one-in-six Americans.

That tally squares with the government's revelation that 44 million Americans were living in poverty last year.

Food retailers have taken notice.

Bill Simon, head of Wal-Mart's U.S. operations, told a conference call recently that the company had seen an increase in the number of shoppers relying on government assistance for food.

With so many people receiving assistance, the cost of the program doubled to $68 billion in 2010. That's a problem for a government as deeply indebted as ours, and one that has seen its safety net expenses spike at the same time its revenues have plummeted.

In fact, the cost of food stamps amounts to more than a third of what the government received in corporate income taxes last year.

Unemployment has had the duel effect of raising the number of Americans seeking assistance while simultaneously shrinking the tax base. It's been a real double whammy.

However, not everyone receiving food stamps is unemployed. In fact, many have jobs. The problem is that they are low-paying jobs.

About forty percent of food stamp recipients are in households in which at least one member of the family earns wages. That's a big change from two decades ago.

In 1989, a higher percentage of the program's recipients were on benefits than were working. However, as of 2009 a higher percentage of recipients had earned income.

A looming prospect for the government is that the cost of the program could grow even if the economy doesn't worsen. The government estimates that one in three eligible Americans are not presently in the program. That's a troubling reality.

The maximum amount a family of four can receive in food stamps is $668 a month. The benefits can only be used to buy food — though not hot food — and for plants and seeds to grow food.

Low wages and rising poverty are behind the large increase of Americans needing food assistance. While there may indeed be some fraud, the fact that wages have been stagnant for nearly four decades has manifested itself in some rather stark ways.

Six percent of the 72.9 million Americans paid by the hour received wages at or below the federal minimum wage of $7.25 an hour in 2010. That's up from 4.9 percent in 2009, and 3 percent in 2002, according to government data.

Due to their low incomes, minimum wage single parents are almost always eligible for food stamps. Assuming they work 40 hours every week of the year, a minimum wage worker earns about $15,000 annually. An $800 per month apartment would eat up nearly $10K of that income.

But it's not just minimum wage earners that often need food assistance. Even those who earn $10, $11 or $12 an hour typically face enormous challenges in supporting their families.

Based on a 40-hour work week, someone who earns $12 per hour would gross about $25,000 before taxes. That comes out to less than $500 per week, which obviously doesn't go far for a family of three or four.

The federal poverty level for a family of four this year is $22,350. However, it's probably fair to say that millions of families earning more than that amount are still living in poverty.

With an unemployment rate over 9 percent, many people are taking jobs for which they are grossly over-qualified, including people with advanced degrees. Workers are now competing for low wage jobs that keep them in poverty and on government assistance.

Take Wal_Mart, the nation's largest private employer, for example. It's sales associates and cashiers typically earn around $9 per hour. For a full-time worker, that amounts to $360 per week, or $18,720 annually.

The same types of wages would typically be expected for similar retail workers and fast-food employees. The U.S. is now primarily a service sector economy, highlighted by low-paying, unskilled jobs. Service sector jobs are also the kind that don't produce anything, other than cheap, fast food.

According to the Bureau of Labor Statistics, from 2008 through 2018, "The shift in the U.S. economy away from goods-producing in favor of service-providing is expected to continue. Service-providing industries are anticipated to generate approximately 14.5 million new wage and salary jobs."

That's not a good tend. The middle-class was not built on low-paying service sector jobs, but rather on well-paying manufacturing jobs with good benefits. As of last year, the service sector was responsible for $11.2 trillion of U.S. GDP.

The unvarnished reality is that the richest 1% of this nation own a third of the country's assets and the poorer 50% owns less than 2.5%.

As long as that remains true, the number of Americans receiving food stamps is only likely to grow.

Debt Crises are Engineered by Bankers

2011-08-24T14:24:00.000-07:00

Fiscal austerity has arrived in the Western world and the ramifications will be brutal.

Western governments are now coming face-to-face with the crippling effects of massive budget cuts; a shrinking GDP and a diminished ability to pay existing debts.

It's a pernicious cycle.

Most of the world is in a debt trap from which there is no escape. These governments are facing a death spiral. Continual budget deficits will bleed you to death. And the solution — austere budget cuts — will only hasten that death, as the following AP story illustrates:

Greece's finance minister said Monday that the crisis-afflicted economy will shrink more than expected this year, putting further pressure on the country's ambitious deficit-cutting effort.

Evangelos Venizelos said the ministry forecasts annual output to shrink between 4.5 percent to 5.3 percent this year.

Venizelos had previously admitted that the recession might be greater than last year's 4.5 percent, a whole percentage point worse than initially estimated.

"All the measures we are taking ... are aimed to stem the recession," Venizelos said.

"We must achieve our fiscal targets -- and this has become very difficult due to the deeper recession," Venizelos told a news conference.

"There is undoubtedly a vicious cycle. We have been obliged over the past two years, and in the coming three, to implement a gigantic fiscal adjustment ... which has a negative impact on the real economy. But these are the terms under which we receive our loans and rescue packages."

Chronic debt is the device that's being used to hold European governments hostage. Bankers eagerly assist governments in taking on more debt than they can ever possibly repay.

Consequently, the banks then seize an indebted nation's income, sucking it up through debt payments. The banks also force governments to surrender their sovereignty by selling their national assets — which the banks then buy at fire sale prices.

Bankers did this very thing in Greece, taking possession of all state assets. As a result, the bankers are now profiting from a crisis they helped create.

In the midst of a debt crisis, the bankers dictate the terms — and they are never favorable to the governments involved. In fact, the terms are usually crippling.

This is nothing less than a financial coup d'etat.

In reality, this isn't truly a debt crisis. It's a well-orchestrated plan.

FDIC Says 'Problem Banks' Declining; Total Still Dreadful

2011-08-23T14:51:00.000-07:00

Since the creation of the FDIC in 1933, there have been only 12 years in which 100 banks failed in a single year. The last two were among them.

Though bank failures easily eclipsed 100 in each of the last two years, the trouble is not yet behind us. With 68 so far in 2011, we are on pace for a third consecutive year of 100 closures.

A total of 140 banks were shuttered in 2009, and 157 institutions failed in 2010.

To provide some perspective, a mere three U.S. banks failed in 2007 and just 25 U.S. banks were closed in 2008, which was more than in the previous five years combined.

Looking at FDIC data can reveal the magnitude of the current problem, and just how much more fallout may be yet to come.

At the end of the first quarter last year, the number of lenders on the FDIC's "problem banks list" had climbed to 775, the highest level since 1992.

However, today we were told that 865 banks were on the "problem list" in the second quarter, which was actually an improvement from the first quarter, when 888 made this sorry list.

The decline was the first since the third quarter of 2006. Clearly, U.S. banking has been in a long pattern of instability and failure.

The report is being heralded as good news due to the decline in "problem" banks.

But consider the facts; there were 775 banks on the list in the first quarter of last year, the highest since 1992. That number has since increased by 90, and this is somehow being spun as a good thing?

The banks on the list are considered the most likely to fail. However, their names are never made public for fear of creating a run on those banks.

Bank failures over the previous two years pushed the number of FDIC institutions to below 8,000 for the first time in the agency's 76-year history. Two decades ago, the FDIC insured more than 16,000 institutions nationwide.

The problem is that many of these banks are already under-capitalized, which is the reason they are failing.

FDIC officials say the banking industry continues to struggle with flat growth in loans, which is how they make their money. Relatively few businesses or individuals are seeking loans in this environment, and fewer still even qualify.

The government changed accounting rules for banks during the financial crisis so that they no longer have to mark foreclosed properties to market values. Banks have been allowed to "extend and pretend," as they wait for the housing market to recover.

However, it is now evident that any recovery will take many years.

If the banks were compelled to mark these "assets" — which could be more accurately described as liabilities — to current market values, even more institutions would be revealed as bankrupt.

While the FDIC may view the decline in "problem banks" as good news and a step forward, the predicament has only been upgraded from "miserable" to "horrible."

The reality is that roughly 11.5 percent of all federally insured banks are now considered at risk for failing, and that is an absolutely overwhelming number.

Global Debt Crisis Reaching Moment of Truth

2011-08-09T12:30:00.000-07:00

As many readers are aware, for years I've been saying that the world is awash in unsustainable, and clearly un-repayable, debt.

Europe is battling through a very public, and very troubling, debt crisis. Japan has the largest debt of any developed nation and an economy that's been stagnant for two decades. Moreover, the U.S. has just suffered the first-ever debt-downgrade in its history.

Some economists and analysts already count Japan among the walking dead, as it seem to have entered the terminal phase of its debt crisis.

That said, the biggest risk at the moment is Europe. This recent article from the Wall St. Journal spells it out quite clearly:

AUGUST 6, 2011

The European Central Bank indicated it was open to purchasing the government bonds of Italy and Spain as a way to ease mounting market pressure on two of the euro-zone's largest economies.

For months, European leaders have been working in fits and starts to convince financial markets that they had the tools to help Spain if that country tumbled into a sovereign-debt crisis. But now, it is the larger Italy that appears at the center of the maelstrom, and there is no plan in place to help it.

The joint sovereign bailout fund created to rescue ailing member states is too small to lend Italy money to cover its bills. Endowing the fund with enough firepower would impose a huge burden on Germany, France and other stronger countries, and could well imperil their own credit ratings.

If Italy falls to the same fate as other failed peripheral economies, Spain will probably go too, setting off a chain reaction across the global financial markets, said Uri Dadush, a former senior World Bank economist and now director of the economics program at the Carnegie Endowment for International Peace.

If contagion spreads to Italy, "it would generate a financial earthquake," said Domenico Lombardi, a former representative for Italy to the IMF and now an economist at the Brookings Institution. The ramifications are so potentially large, "it would be close to impossible to manage that crisis," he said.

The world is now confronted by a mega-debt crisis and the cracks have turned into fissures. A series of fiscal earthquake faults are now at risk of triggering, or being triggered by, the others.

What first revealed itself as a Greek debt crisis has evolved into a global debt crisis. Greece was just the spark that lit the fuse.

Europe can mange the failures of the Greek, Irish and Portuguese economies, but it has no means for handling a Spanish or Italian default — much less all the bad debts of both nations. The reality is, both are too big to let fail, yet simultaneously too big to save.

The consequences of the still unfolding crisis in Greece alone, which is a relatively small economy, could even affect the U.S.

I've previously written about how interconnected and how fragile the global economy is, and how the debt crisis would continue to evolve. The ripple effects from the trouble in Europe, and even the U.S., will continue being felt far and wide around the globe.

Many of the world's leading economies have entered a debt trap, from which there is no escape.

The warnings have been loud, and they have been repeated regularly. We have now reached the 11th hour, the moment or truth, and are on the eve of a massive global financial storm.

Even the Director of National Intelligence has warned that economic instability is a major threat to the U.S. and wider world.

From the beginning, Greece mattered and it had implications for the rest of the world. The trouble in Athens served as a cautionary tale. Ignoring that crisis would be to the peril of the larger world.

This global debt drama has been years in the making and has been continually gathering steam. It has now reached a critical mass.

Political leaders and central bankers around the world decided that the cure for the crisis was to add more disease. But, as we're painfully learning, you cannot cure a debt crisis with even more debt.

For many years, the U.S. has been sitting on its own enormous debt bomb, and it has been steadily ticking away all along.

The European debt crisis should have been been, and remains, a warning to the U.S.

There is no reason to trust, or have faith in, our political establishment. Though the president did offer his "grand bargain" — $4 trillion in budget cuts, including Social Security and Medicare — in exchange for revamping the corporate and individual tax codes, he was rebuffed by the GOP.

Such a deal may have been enough to keep S&P from downgrading the U.S. credit-rating. But we are now left with an epic mess that could portend outright disaster for our nation and the broader world.

Perhaps it would only have slowed our decline: The U.S. manufacturing base has been decimated. Our trade deficit is absolutely gaping; it is shrinking our GDP and sucking more than $1 billion out of the country every single day. Rampant, and unyielding, unemployment has lead to a shrunken tax base. And a massive — and soon-to-be retiring — Baby Boomer population doesn't have enough younger workers to support it.

Get this; our government's unfunded obligations now total $62 trillion. Yes, that's a "T".

It's reasonable to ask; Will the government be able to pay future Social Security benefits?

For nearly a century, politicians let bankers run our country and loot its riches by inflating away our currency. As the fiscal and monetary troubles mounted, the politicians continually kicked the can down the road for future generations to deal with. We have finally run out of road.

Under normal circumstances, the politicians would just borrow more money to pave some new road.

Those days appear to be over. The U.S. may have at long last run out of lenders.

Following Herd, Fools Have Rushed to Stock Market Slaughter

2011-08-05T17:04:00.000-07:00

In a Manipulated Market, The Only Winners Are The Manipulators

Despite the fact that US gross domestic product and consumer spending have been limping along all year, the stock market still rode to an unfathomable rally. The market managed to soar to pre-recession highs even as the economy remained in a tailspin.

This dichotomy makes absolutely no sense whatsoever. Consumers are still de-leveraging and the flow of credit has slowed to a crawl.

The government's U-6 unemployment figure — the true jobless rate — now stands at a whopping 16.2%. Yet, the government admitted just two years ago that it had been systematically underestimating job losses for the previous three years. There is no reason to believe that anything has changed.

Additionally, one of the President's closest economic advisors, Austan Goolsbie, has noted that roughly 1% to 2% of our population's unemployed are simply unaccounted for on a monthly basis due to a variety of factors. And those who run out of unemployment benefits are no longer counted among the ranks of the unemployed.

However, according to the research of respected economist John Williams, more than one-in-five Americans (22.7%) is currently unemployed or underemployed.

The market hasn't even noticed.

After falling to 6,547 in March of 2009 (at the peak of the financial crisis), the Dow rapidly shot back above 10,000 in October of that year. None of the fundamentals had changed; the US was still reeling from the worst economic decline since the Great Depression.

Yet, that didn't make a bit of difference to the market. Wall St. seemed oblivious, overwhelmed by optimism and delusion.

In February of this year, as the economy was grappling with high unemployment, a decimated housing market, and oodles of other negative indicators, the Dow somehow managed to surpass 12,000. And it stayed there, virtually uninterrupted, until just this week.

A rational mind has to ask, How could this possibly happen?

It's the result of a herd mentality, not fundamentals. Investors were bidding up the stock market in a delirious frenzy, hoping to recoup previous losses. Many hoped to enrich themselves, buying at what was perceived as an opportune time. And when everyone else is buying, and seemingly making money, the herd will always follow.

Simply put, lots of new money was flowing into the stock market and pushing up the average, much of it the result of the Fed's quantitative easing program. This influx of funds clearly wasn't the result of any sort of recovery, which is now more evident than ever. Consequently, lots of people have gotten burned and still more will suffer the same fate.

The relatively strong earnings reports that previously lifted the markets were the result of cost-cutting and layoffs, not strong revenue growth. And that's been putting even more downward pressure on jobs and wages, resulting in weaker economic growth and lingering recessionary effects.

Ultimately, the merry-go-round will end up right back where it started.

Wall St. is a pretty poor barometer of the economy's health, since it is simply a bet on the future performance of a select group of companies listed on three major stock exchanges.

Additionally, the majority of the country doesn't have any direct investments in the stock market.

Unquestionably, the market does not reflect the personal finances of the masses or how they are faring in their day-to-day lives.

Yet, despite the litany of negative indicators, the fools continued to rush in — quite enthusiastically.

But the institutional investors, the real market movers, have already taken their profits and pulled the escape lever. The herd tried to follow, but obviously not all of them were able to squeeze through the emergency exit at the same time.

The fallout isn't over yet; not by a long shot. There will be a bloodbath.

By some estimates, "high frequency trading" is responsible for close to 70% of all volume in US markets. Wall St. computers can track hot stocks and immediately buy up all available shares, subsequently selling them at higher prices. Millions of shares can also be dumped in just milli-seconds.

Retail investors don't stand a chance. They are the mercy of the Wall St. market-makers.

The reality is that markets are manipulated. Sadly, a very heavy price has been, and will continue to be, paid because of this. Billions of dollars will be lost, yet again.

This Debt Deal 'Solution' is a Problem

2011-08-04T12:13:00.000-07:00

The debt deal agreed to by Congress allegedly "reduces" budget deficits by at least $2.1 trillion in the next 10 years.

However, the deficit for just this fiscal year alone is projected to be $1.5 trillion, or about 71% of the size of the cuts that will take place over the next decade. And the Congressional Budget Office (CBO) projects $7 trillion in deficits over the same period.

The math simply does not add up. Reducing $7 trillion in projected deficits by $2.1 million will still leave the nation with $4.9 trillion in deficits over the next decade.

Clearly, bigger cuts were needed and the U.S. credit rating will most surely take a hit as a result.

Just weeks ago, Standard & Poors warned there was a 50-50 chance it would downgrade U.S. debt. S&P said that $4 trillion in cuts was the minimum to avoid a ratings downgrade.

This deal didn't even come close.

Though Moody's kept the U.S.'s AAA rating in place for now, it assigned a negative outlook for U.S. debt. That's not a long term vote of confidence.

Remarkably, the debt deal does not raise any new revenues, which would have helped to offset these long term deficits.

Last year, federal spending amounted to nearly 24% of GDP. However, federal revenues fell to 14.8% of GDP, the lowest intake relative to GDP in 60 years. Without question, the U.S. has both a spending problem and a revenue problem.

When Obama realized that the GOP wouldn't budge on his proposal to raise taxes on corporations and the wealthy, he pursued an option he was sure Republicans would embrace.

Like the Bush Administration before it, the Obama Administration called for much needed tax reform, including the closure of numerous loopholes used by corporations and the super rich, meaning millionaires and billionaires.

However, despite their open disdain for the nation's byzantine tax code, the GOP balked at Obama's proposal.

So, instead of solving the revenue crisis by making Wall Street pay their fair share, ending the Bush-era tax cuts for the wealthy, and closing corporate loopholes that let Bank of America pay no income taxes for the past three years, Congress passed a bill that will increase the debt by at least $7 trillion over the next decade.

For what it's worth, a tax increase and additional revenues are little more than a year away. On December 31, 2012, the Bush-era income-tax breaks for the wealthiest Americans — those households earning over $250,000 a year — will expire.

The new revenues will help, but they are not a panacea.

Due to Congress' high stakes game of debt-default chicken, the cost of borrowing is virtually certain to rise. And since the debt will continue to rise by trillions of dollars despite the agreement, that will also put upward pressure on Washington's borrowing costs.

Due to historically low rates, the government is paying less to service its debt than during the 1980s, 1990s and most of the last decade.

According to the latest figures, interest on the debt will cost roughly $250 billion for fiscal 2011. That’s about 1.6% of American output, which is lower than at any point since the 1970s – except for 2003 through 2005, when it was closer to 1.4%.

Under Ronald Reagan, the first George Bush, and Bill Clinton, payments on federal debt often got above 3% of GDP. Under Bush the second, payments were about where they are now.

In other words, these remarkably low rates have allowed the government to engage in deficit spending at very affordable costs. That cannot go on forever, and it will change soon enough.

The cost of servicing our debt will eventually reach unmanageable proportions and keep the government from addressing domestic issues, such as infrastructure, research and development, and higher education — things that could keep America competitive in the 21st Century.

Higher interest rates would add to the deficit and cause a slowdown in economic activity. That would reduce revenues, which would also add to the deficit. Such an outcome would create a vicious cycle that would be difficult to escape.

This debt agreement can only be viewed as a lost opportunity. It will make $900 billion in immediate cuts and create a special panel of lawmakers to find an additional $1.5 trillion of deficit cuts through reforms of entitlement spending and the tax code.

However, the bipartisan Simpson/Bowles Commission already issued its recommendations just seven months ago, and they were largely ignored. Another commission is nothing more than a red herring allowing Congress to avoid making tough choices, as it has for decades.

Unfortunately, the U.S. finds itself in a predicament with no good options. The current spending and borrowing levels are unsustainable. However, budget cuts will create a drag on the economy and reduce the nation's GDP.

Private-sector GDP is roughly where it was in 1998. The economy has only grown because a substantial portion of GDP the last few years was the result of government debt.

Even before these cuts have been initiated, the economy has already been limping along for three consecutive quarters, in the midst of a so-called "recovery."

Barclays has cut its forecast for U.S. economic growth this year from 2.5% to 1.7%. That's a razor-thin expansion and would essentially constitute economic stagnation. GDP needs to be 2.5% just to keep up with the number of new workers entering the work force.

However, that kind of growth is not happening and the trends are negative. Fourth-quarter GDP was revised down to 2.3 percent from 3.1 percent. First-quarter GDP was revised down to just 0.4 percent from the previously reported 1.9 percent. And the initial second quarter GDP projection is just 1.3 percent.

This economy is on very wobbly legs. Consequently, you can expect the unemployment rate to rise. That will continue to increase government expenditures while reducing revenues. It's the same bad combination the nation has been dealing with for three years now.

This pathetic debt deal amounts to half measures at a time when the U.S. needed something more substantial and significant. Aggressive measures were needed, but Congress punted as usual.

Perhaps we're already too far down the hole, but the politicians didn't even meaningfully try. The sad reality is that there are no good solutions. In fact, there may be no solutions at all.

If it hasn't already reached the point of no return, America is on a short road to insolvency. Revenues have been far too low for far too long, and expenditures have been far too high for far too long. Two wars and a prescription drug bill were put on the government credit card. It's now time to pay up.

Though the looming spending cuts aren't nearly deep or broad enough, America will soon learn just how punitive they will feel.

We now know that the Great Recession was even worse than originally presumed.

The drop in GDP during the recession from the fourth quarter of 2007 to the second quarter of 2009 was 5.1%, worse than initially projected. That marks the deepest recession since World War II.

The unfortunate truth is that we are still in a very perilous position and the worst may not yet be behind us.

Comprehensive Debt Commission Report Still Being Ignored

2011-07-20T11:41:00.001-07:00

Despite being handed a comprehensive and impartial template just seven months ago, somehow Congress still can't agree on a plan to shrink the deficit.

Last December, the president's bipartisan debt commission (aka, The National Commission on Fiscal Responsibility and Reform) issued a detailed report titled, "The Moment of Truth."

The 10 Democrats and eight Republicans on the 18-member commission called for $2 trillion in spending cuts and $1 trillion in tax increases, plus recommended a series of long term deficit cutting measures that would cumulatively:

• Achieve nearly $4 trillion in deficit reduction through 2020, more than any effort in the nation’s history.

• Reduce the deficit to 2.3% of GDP by 2015 (2.4% excluding Social Security reform), exceeding President’s goal of primary balance (about 3% of GDP).

• Sharply reduce tax rates, abolish the AMT, and cut backdoor spending in the tax code.

• Cap revenue at 21% of GDP and get spending below 22% and eventually to 21%.

• Ensure lasting Social Security solvency, prevent the projected 22% cuts to come in 2037, reduce elderly poverty, and distribute the burden fairly.

• Stabilize debt by 2014 and reduce debt to 60% of GDP by 2023 and 40% by 2035.

In total, these measures would:

Cut hundreds of billions from discretionary spending each year over the next decade; institute comprehensive tax reform that would "sharply reduce rates, broaden the tax base, simplify the tax code and reduce the many 'tax expenditures' — another way of spending through the tax code"; contain Medicare costs through a variety of measures; cut agricultural subsidies; modernize the military and civil service retirement systems; and ensure the long term solvency of the Social Security System.

The plan calls for, "Holding spending in 2012 equal to or lower than spending in 2011, and returning spending to pre- crisis 2008 levels in real terms in 2013." Then "limiting future spending growth to half the projected inflation rate through 2020."

The report firmly states, "Every aspect of the discretionary budget must be scrutinized, no agency can be off limits, and no program that spends too much or achieves too little can be spared."

"One of the Commission’s guiding principles is that everything must be on the table," including both security and non-security spending, the report reads.

All security spending, which constitutes about two-thirds of the discretionary budget, would be on the table — including nuclear weapons, homeland security, veterans, and international affairs.

The remaining third of the discretionary budget, which is dedicated to non-security programs, would also be on the table — including education, housing, law enforcement, research, public health, culture, poverty reduction, and other programs.

The report is loaded with specifics for eliminating inefficient, unproductive spending and for consolidating duplicative federal programs. It also calls for the elimination of all federal earmarks.

Also recommended is the elimination of all income tax expenditures and a simplification of the tax code. Closing hundreds of loopholes would allow cuts in overall tax rates.

Eliminating most deductions "could reduce income tax rates to as low as 8%, 14%, and 23%," said the Commission.

Co-commissioner Erskine Bowles emphasizes that tax expenditures amount to a trillion dollars a year. That's substantial.

The corporate tax code would also be reformed, says the report, with the elimination of all tax expenditures and subsidies.

The Commission goes on to warn that, "Federal health care spending represents our single largest fiscal challenge over the long-run. As the baby boomers retire and overall health care costs continue to grow faster than the economy, federal health spending threatens to balloon."

With that reality in mind, the commission calls for numerous reforms to federal healthcare spending to slow the growth of costs and ensure long term fiscal survival.

In total, the commission's report is quite detailed and full of solutions to some very tough problems. There will be much pain, and it will be spread through much of our society. The Commission calls it "shared sacrifice."

The reality is that there are no painless solutions due to the depth of problems this nation faces.

The glaring fault in the report was the omission of a tax on the financial industry, as recommended by the IMF. Such a tax would have been a much needed source of additional revenues and may have acted as a brake on speculation.

Despite all the specifics, this plan has largely been ignored in Washington as the politicians fight, bicker and cling to their ideological convictions.

Currently, there is even discussion about additional blue-ribbon panels, with more suggestions to be overlooked. It's as if the politicians actually believe that some other commission will give them easy, pain-free solutions to the mess they and their forebears have gotten us into.

For example, the Reid-McConnell plan proposed in the Senate would cut a mere $1.5 trillion in spending over 10 years. That's the size of this year's deficit. The plan would also set up a new congressional panel to explore ways to reduce the debt.

That's just what we don't need; yet another debt commission to ignore - just like the last one.

Even if Deficit Deal is Reached, Long Term Projections For U.S. Look Stark

2011-07-15T15:23:00.000-07:00

Even if Congress and the White House reach a deal to raise the debt-ceiling and make large budget cuts, the long-term projections for the U.S. economy simply aren't good.

Unfortunately, whether you look at economic growth, tax revenues or unemployment, the future doesn't look bright.

The Congressional Budget Office (CBO) Website notes the following:

Federal debt will reach roughly 70 percent of gross domestic product (GDP)—the highest percentage since shortly after World War II. The sharp rise in debt stems partly from lower tax revenues and higher federal spending related to the recent severe recession. However, the growing debt also reflects an imbalance between spending and revenues that predated the recession.

Federal spending has increased not due to pork-barrel projects, but from supporting Americans who have been hit particularly hard by the Great Recession. The spending was for long-term unemployment benefits, food stamps (the SNAP program) and increased applications for disability insurance.

It's hardly a surprise; one-in-seven Americans were living below the poverty line in 2009. Consequently, one-in-seven Americans now receive food stamps.

While recession-related expenditures went up, tax revenues collapsed as unemployment soared. Even before the Great Recession, the government's balance sheet was already in tatters as a result of two rounds of tax cuts (2001 & 2003), two concurrent, unfunded wars and the unfunded Medicare prescription drug law.

It all added up to a very bad recipe.

According to the CBO, the national debt will be 70 percent of GDP by the end of this year and will reach 77 percent of GDP by 2021. In total, the CBO projects $7 trillion in deficits over the next 10 years.

Yes, despite the best intentions of some in Congress, deficits will continue for the next decade.

"To prevent debt from becoming unsupportable, the Congress will have to substantially restrain the growth of spending, raise revenues significantly above their historical share of GDP, or pursue some combination of the those two approaches,” CBO Director Douglas Elmendorf announced in January.

Simply put, the only meaningful, substantive solution includes cutting spending and raising taxes. There are no other choices. We are now way past that.

Even the most aggressive budget cutting plans still leave the nation with massive deficits over the next decade.

The House-GOP-passed budget would generate deficits for more than a decade into the future, according to the CBO, and add about $9 trillion to the current debt in 10 years.

Yet, that plan was viewed as too draconian by many in Congress (including some Republicans) and by most voters who were polled on the topic. Consider that for a moment; the most far-reaching plan would still result in massive additions to the deficit.

It's important to remember that the U.S. economy is now totally reliant on federal spending and reducing that spending, though vital, will inevitably shrink the economy.

The deficit plans now being discussed in Washington include raising the debt ceiling by $2.4 trillion. That would push the national debt to $16.7 trillion by next year. And, according to CBO projections, that ceiling will have to be continually raised over the next decade.

One of the primary challenges for the government is that high unemployment results in lower tax revenues. And unemployment will remain at high levels for years to come. Millions of jobs have been outsourced and are never coming back. And in a stagnant economy, businesses won't hire.

Economic growth of 2% isn't enough to even keep unemployment constant, much less reduce it. In other words, unemployment will go even higher if growth remains at 2%. As Fed Chairman Ben Bernanke told 60 Minutes, " It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting."

However, GDP expanded at just 1.9% in the first quarter. Projections for second quarter growth range from 1.6% (Macroeconomic Advisers) to 2% (Goldman Sachs).

When the economy grows, tax revenues also grow. But when the economy contracts during a recession, tax revenues also contract. And when the economy is stagnant, revenues remain stagnant. However, in the latter two cases, government expenditures typically increase because more people need government assistance of one form or another.

The primary problem for the U.S. has been, and remains, slow economic growth.

The U.S. economy has been slowing for several decades. Economic growth averaged 3.2 percent from 1965 through 2008. However, over the past 20 years, growth averaged just 2.5%.

That decline really isn't surprising.

Over the 20th Century, the U.S. went from a growth era in which it was a post-emerging market with a dominant manufacturing sector, to a mature post-industrial economy. The rate of growth would normally be expected to slow even without a crippling recession.

This pattern is expected to continue well into the future.

According to a recent McKinsey Global Institute study, the economy is likely to remain slow for decades to come.

McKinsey argues that the economy is likely to slow because as labor force participation drops—as more and more baby boomers retire and the number of new women entering the workforce slows—Americans who do work will have to support the increasingly large proportion of Americans who don’t.

Unless the unemployment problem improves, government revenues won't improve. And if government revenues don't improve, annual deficits will continue adding to the nation's already massive debt.

Here's a rather simple formula: No jobs = no spending = no growth = lower tax revenue = higher deficits = higher debt = higher tax rates & interest rates = no growth.

It's a vicious cycle, and the U.S. is caught squarely in the middle of it.

Where it stops, nobody knows.

Italy & Spain: Too Big to Save

2011-07-13T04:47:00.000-07:00

The European debt crisis has finally revealed itself to be about something much bigger than Greece... or Ireland or Portugal.

And the crisis is poised to become epically expensive.

Italy and Spain are the third- and fourth-largest economies in the eurozone, and they are now at the center of the crisis. Bailing them out would far exceed the European Union's rescue funds.

Paradoxically, both nations are too big to fail, yet too big to save. If either nation were to default, the impacts would be absolutely historic and would be felt worldwide.

Italy's debt equals 120 percent of its economic output and is the second biggest in the eurozone, after Greece.

That's the reason for concern.

Spain’s public debt equalled 63.6% of the country’s GDP at the end of the first quarter.

The European Stability and Growth Pact — an accord agreed to by all Eurozone member states — imposes a 60% limit on debt. But that hasn't stopped either nation from plowing itself further into indebtedness.

“Spain and Italy are nearly five times the size of Greece, Portugal and Ireland and carry nearly four times the volume of debt,” says Michael Darda, economist at MKM Partners in Stamford, Connecticut.

In other words, Italy and Spain are the real reasons to worry. Either nation has the potential to blow up the Eurozone and the euro itself.

This has started to worry investors and jack up interest rates on Italian and Spanish debt.

The yield – or interest rate – on Spanish 10-year bonds has hit 6.2 percent. Meanwhile, Italian 10-year bond yields recently eclipsed 6 percent for the first time since 1997. That's a clear warning signal.

According to analysts, the 6 percent rate will present serious challenges for Italy, but 7 percent bond yields would be unsustainable. Greece, Ireland and Portugal all sought international assistance after their 10-year yields rose past 7 percent.

It seems that Italy is now uncomfortably close to the danger zone.

Italy has more than 500 billion euros of bonds maturing in the next three years — about twice the 256 billion euros extended to Greece, Ireland and Portugal in their three-year aid programs. This provides some scale to the magnitude of Italy's debt burden.

Italy’s economy, which has been sluggish for the better part of a decade, is not growing fast enough to cover its massive debt load.

The International Monetary Fund expects Italy's economy to grow 1.3 percent in 2012, a significant increase from this year. Growth was 0.1 percent in the first quarter, a fraction of the 0.8 percent for the euro region.

The problem for all countries with high debt loads is that even as they impose strict austerity measures to shrink and eventually balance their budget deficits, they still have to contend with unyielding and expensive debt costs.

Both Moody's and S&P have issued warnings about Italy's ability to trim its debt. An economy of that size, facing problems of this magnitude, is nothing short of alarming.

Despite all of that, Spain is thought to be the bigger risk at the moment.

If a full-blown debt crisis breaks out in Italy or Spain, the euro union would face disintegration — a cataclysm far beyond anything it has grappled with to date.

Such a crisis would also create a domino effect of imploding banks.

Barclays Capital says European banks have total claims and potential exposures of 998.7 billion euros to Italy, more than six times the 162.4 billion euro exposure they have to Greece.

Think about that; Greece already has the whole world spooked, yet its debts are relatively tiny.

Italy, however, is a big fish. And so is Spain.

European banks have 774 billion euros of exposure to Spain and 534 billion euros of exposure to Ireland.

However, the problem is not just Europe's alone.

U.S. banks are more exposed to Italy than to any other euro zone country, to the tune of 269 billion euros, according to Barclays. American banks’ next biggest exposure is to Spain, with total claims estimated at 179 billion euros.

So, the problems in Italy and Spain will have far reaching consequences and will send shock waves through the global economy.

This is no longer a debt crisis involving lesser countries with small economies; the big fish are now in the fryer.

Latest Unemployment Data Reaffirms America's Dire Economic State

2011-07-08T18:22:00.000-07:00

The hits just keep on coming.

The U.S. was dealt yet another dose of bad economic news today when the Bureau of Labor Statistics announced that a mere 18,000 jobs were added to the American economy in June.

Despite the meager increase in jobs, the unemployment rate still rose to 9.2%. That's because the ranks of the newly unemployed exceeded those of the newly employed.

By now, we've all become accustomed to negative economic data, but this news took even Wall St. by surprise.

The "Street" had projected that between 90,000 and 140,000 jobs would be added in June, still a paltry sum.

But that wasn't the only bad news; the May employment numbers were also revised downward today; only 25,000 jobs were added to the U.S. economy in May — less than half of what was originally projected.

This sort of tepid job growth is really problematic.

Labor experts say a bare minimum of 125,000 jobs must be added each month simply to keep up with population growth. This means that 1.5 million jobs need to be created this year just to employ all of the new high school and college graduates, plus recent immigrants.

However, even if the U.S. were to achieve that kind of growth, it still would not address the roughly 24 million Americans who are already unemployed or under-employed, meaning they can only find part-time work.

To provide some perspective of the hole we're in, consider this: the government says that 1.3 million jobs needed to be created every year from 2006-2016 just to keep up with the growing labor force. Obviously, that hasn't happened.

In June, the labor force participation rate fell to a 27-year low of 64.1 percent, as more Americans gave up looking for work altogether. An individual has to run up against a wall at every turn to entirely give up looking for work. It's a sign of utter hopelessness.

Largely out of fear of losing their jobs, American workers have become so productive that companies are now doing more with less. That has eliminated any incentive for them to hire.

When so many people are out of work, there is also no incentive for employers to offer wage increases or high starting salaries. Many professionals are now working in jobs for which they are considerably over-qualified. Beggars can't be choosers

The stark reality is that there are 7 million fewer workers today than just four years ago. The number of unemployed Americans has roughly doubled, to more than 14 million.

What's most disturbing is that the government's unemployment figures don't include those who have lost their unemployment benefits, or those who have only part-time jobs but want full-time work.

Economist John Williams of ShadowStats.com (who provides detailed economic reports for U.S. businesses) puts the real unemployment rate at a whopping 22.7%. That's akin to the Great Depression.

The current state if affairs is nothing new; job creation has been in a long-term downturn.

Remarkably, job growth in the last decade was actually negative. While the number of new workers entering the workforce swelled during that period, just 1.7 million new jobs were created.

According to the Bureau of Labor Statistics, just 1.1 million jobs were created last year. That's nearly as many as in the previous decade combined.

The troubles go back many, many years. In fact, job creation has been slowing for decades, and that's a very bad omen.

According to the Economic Cycle Research Institute, during periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased at about 3.5 percent a year. But during expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually.

And it's taking longer and longer to recover from each successive recession. The last time the jobless rate reached double digits, in the early 1980s, it took six years to bring it down to normal levels.

The historical precedents and current trends make it very difficult to feel optimistic about the future.

The long-term projections for younger workers, in particular, do not look good. Many older workers are putting off retirement out of necessity, leaving fewer positions available for younger workers.

The employment statistics for the last three classes of college grads have been, and will continue to be, quite bleak.

All of this has negative consequences for our consumption-based economy, which is 70% reliant on consumer spending. Obviously, there is less consumption when fewer people are working, as there is less disposable income directed back into the economy. It also means lower tax receipts at both the state and federal levels.

If unemployment remains stubbornly high, wages will also remain stagnant. That would create a negative feedback loop of both lower both consumer spending and economic output.

American consumers are already strapped and heavily burdened by debt. Consequently, we will not spend our way out of this malaise.

Our unemployment problem is huge and complex. Millions of lost jobs are never coming back. Consequently, millions of American workers need new skills and new training.

However, the problem is much bigger than creating the 1.5 million jobs necessary to keep up with annual population growth.

Even if the nation had started adding 2.15 million private-sector jobs per year starting in January of 2010, it would have needed to maintain that pace for more than seven consecutive years (7.63 years), or until August 2017, just to eliminate the current jobs deficit.

It's abundantly clear that this isn't going to happen.

The U.S. is faced with a grim new reality of lower economic growth, less consumption, higher unemployment, lower wages, lower government revenues and unwieldy debt levels at the government, corporate and consumer levels.

Our present economic state is truly quite stark. Sadly, for most Americans the future is virtually certain to be less prosperous than the past.

These are hard times indeed. And they are poised to get even tougher.

Health Insurance Incentives May Improve Costs & Health

2011-07-05T12:40:00.000-07:00

The US health care problem is a fairly complex one with multiple challenges.

First, our healthcare system is highly advanced and technological. That makes makes it inherently expensive.

Second, health insurance is very costly and beyond the reach of the average American.

From 1999-2009, health insurance premiums for families rose 131%, while the general rate of inflation increased 28% over the same period.

As a result, one in seven Americans did not have health coverage in 2009.

However, those people don't go entirely without healthcare; they just don't pay for it much of the time. People with insurance end up subsidizing them through higher premium costs.

Third, the US is the fattest country in history. Fully two-thirds of Americans are overweight or obese. Consequently, the nation is plagued by lifestyle diseases, such as heart disease, strokes, Type II diabetes, high blood pressure and high cholesterol.

Though these diseases (and many cancers) are preventable through lifestyle changes, too many Americans are unwilling to undertake them.

According to the Centers for Disease Control and Prevention (CDC), 50 percent of a person’s health status is a result of personal behavior and choices.

Consequently, it seems self-evident that the incentive to maintain one's own health is both inherent and self-fulfilling. But somehow it isn't.

Insurance giant UnitedHealthcare, the nation's largest health insurance provider, decided to provide the incentive a few years ago.

United makes those who disregard their health pay more for insurance. And it rewards those with positive health profiles by charging them less.

It seems quite reasonable that overweight people, smokers, and those with high cholesterol and high blood pressure should pay more. It's both fair and practical that Americans take more responsibility for their own health.

Here's how the program works: Employers offer a high-deductible insurance plan through UnitedHealth, such as a policy that requires single workers to pay their first $2,500 in annual health costs before insurance kicks in; for families it's $5,000.

Workers who want to lower their annual deductible can volunteer to have blood tests and other evaluations once a year to see if they smoke and if they meet target goals for blood pressure, cholesterol and height/weight ratio.

For each of the four goals they meet, workers would qualify for a $500 credit as individuals or $1,000 as families toward the deductible. If they qualify for all four — and UnitedHealthcare estimates that few will initially meet all four — their annual deductible would fall to $500 for individuals or $1,000 for families.

The key is that the plan is voluntary. People can always choose to not participate and to pay more.

Those who don't meet the health standards can sign up for weight loss and other health management classes through United.

This program makes sense in the same way that a good-driver policy discount makes sense.

Some people may need help, guidance or education. But we all need to take responsibility for ourselves and for our health outcomes as well.

Ultimately, this type of policy only considers the things an individual personally controls.

Rewarding people to take care of themselves may seem counter-intuitive, yet this is the current state of affairs in America.

Free Trade Isn't Really Free; It's Been Very Costly to American Workers

2011-06-21T12:35:00.000-07:00

Free trade was sold to the American people as a tool that would open global markets to American goods and increase opportunities for American businesses and workers.

It hasn't quite turned out that way.

Because workers in developing nations make a fraction of what American workers earn, U.S. jobs have been outsourced by American companies seeking to reduce labor costs and increase profits.

The average wage in developed economies is about 10 times the average level in emerging economies. That's the inherent flaw in "free trade".

These developing nations are often absent the unions, environmental regulations and worker protections found in the US.

In short, the playing field is anything but level and American workers are on the wrong end of the field.

What Americans have come to realize — as they were warned of in advance by people such as Ross Perot — is that free trade is not free at all. In fact, it's been very costly to American workers.

Jobs in manufacturing, the kind that built the American middle-class, have been hit particularly hard. Largely due to outsourcing, the number of workers in manufacturing dropped by one-third over the past decade.

Manufacturing has declined from 14.2% of GDP in 2000 to just 11% of total output today. According to the Bureau of Economic Analysis, in 2009 U.S. GDP was $14.2 trillion. Manufacturing contributed just $1.5 trillion to the total.

One of the consequences of the contracting manufacturing base is that exports now represent just 12% of the economy. On the other hand, the U.S. has led the world in imports for decades. As a result, the U.S. has a massive trade deficit and is the world's biggest debtor nation.

The nation is faced with a real unemployment rate of 22.3 %. The official unemployment number does not include the millions who have stopped looking for work or are working part time. If you add these numbers together, the actual number of Americans without a real full-time job is close to 24 million.

The U.S. will never overcome its unemployment problem as long as American jobs are continually outsourced to developing nations. Sadly, the U.S. is hampered by the fact that it treats its workers much better those nations treat theirs. This amounts to a huge disadvantage for the U.S.

Domestic competition is waged on a more level playing field. In the U.S. we have worker's rights; a minimum wage; over-time; coffee, lunch and bathroom breaks; holidays and holiday pay; vacation time; medical leave; maternity leave; worker's compensation; unemployment insurance and whatever else I'm leaving out.

We even have a few private labor unions left.

Foreign workers in the developing countries where American jobs continue to be outsourced have none of the above. In short, it costs a lot less to employ foreign workers, and that makes profit margins much higher for the American corporations that employ them.

In many developing nations, worker safety, proper care and fair treatment are after thoughts — as are environmental regulations. These things cost U.S. employers a lot of money and make them even less competitive internationally.

With jobs so scare, American workers are often forced to take whatever they can get and are competing for lower paying jobs. Consequently, over the past six months, the purchasing power of the average American's paycheck has fallen at a 3.2% annual rate.

This will have unintended consequences for American companies. Americans need jobs and money to make the U.S. economy tick. However, these things are not nearly abundant enough; consumer spending declined in May.

This is a big problem for an economy that is 70% reliant on consumer spending.

So while outsourcing American jobs may have short-term benefits, it will likely have long-term negative consequences for the very businesses responsible for it.

The current system is short-sighted. But, beyond that, it is simply unsustainable.

Why the Greek Debt Crisis Matters

2011-06-17T10:38:00.000-07:00

The Greek debt problem may seem like a distant concern, but it could swiftly become an American problem. That's because American banks hold plenty of Greek debt.

U.S. banks had a total exposure of $41 billion to Greece by the end of 2010, according to the latest figures from the Bank for International Settlements.

If Greece defaults on its payments, U.S. banks risk losing tens of billions of dollars.

That risk is growing. On Monday, S&P said there is “a significantly higher likelihood of one or more defaults.”

Much of Greece’s precarious debt is held on the books of large European banks, which obviously puts them at risk. French banks, in particular, hold lots of that debt — to the tune of nearly $57 billion.

However, those French banks raise substantial amounts of money by selling debt to the ten largest U.S. money market funds, which has spread the risk across the Atlantic.

The problem with global markets being so interconnected is that financial risk follows the flow of capital. Consequently, U.S. banks are highly exposed to the stresses on European governments and banks.

A default by Greece could spark a chain reaction. The U.S. financial crisis in 2008 was ignited by a relatively small pool of subprime mortgages. A Greek default could cause wider defaults by subprime government borrowers like Portugal, Spain and Ireland.

Aside from the risk to French banks, a Greek default could also severely impair British and German banks, which hold copious amounts of Greek debt. The German banks alone have about $34 billion in exposure.

However, European banks are not the only ones at risk.

If American banks have to cover the bad bets of investors who insured themselves with credit default swaps — which are supposed to pay off if Greece defaults on its bonds — those Americans banks would also be in big trouble.

Such an outcome could overwhelm the U.S. financial system.

Yet, Greece is not the only concern for the U.S.

According to a recent report by the Bank for International Settlements, U.S. financial institutions have nearly $200 billion in direct and indirect exposure to the debt of Greece, Ireland, and Portugal.

The structural weaknesses in the U.S. financial system were never addressed after the 2008 crisis; they were just papered over. The banks are still too leveraged and hold too little capital in case of another emergency. In fact, there's a big fight going on over this very issue right now in Washington.

Since Wall Street and its allies spend $1.4 million a day and have about 3,000 lobbyists working for them, they will get what they want — as always.

The major concern is that the "too big to fail" banks have become even bigger since 2008. Bank of America bought Merrill Lynch and Countrywide; JP Morgan Chase bought Washington Mutual; and Wells Fargo bought Wachovia. You could now call them "too bigger to fail."

Most astonishingly, six megabanks collectively control assets amounting to more than 60 percent of the country's gross domestic product. These banks operate under the implicit, if not explicit, guarantee that the taxpayers will once again bail them out in the next crisis.

So, if you weren't sure how or why the European debt crisis affects the U.S. — and maybe even your bank — perhaps you're now seeing the big picture. And if you weren't paying attention before, perhaps you will be now.

It may not be long before we witness Financial Crisis 2.0.

OPEC Holds the Line, Saudis Break Rank, Prices Will Remain Elevated

2011-06-11T11:26:00.000-07:00

With oil prices hovering around $100 a barrel for the past few months, the resulting impacts are being felt throughout the global economy. Some OPEC members have even expressed concern that rising prices could hurt demand for their product.

Crude prices rose 25 percent from January to April, while US gas prices were up 28 percent in that period. Surveys show that Americans have already cut back on their driving in response.

Since OPEC supplies about 40 percent of the world's petroleum, it has the power to impact global oil prices.

Consequently, oil importing nations were hoping that OPEC members would decide to hike oil production quotas at their meeting in Vienna on Wednesday.

But it didn't turn out the way most had hoped and expected; divided OPEC ministers decided to leave production quotas where they are at present.

Higher oil prices lead to higher prices for food and all consumer goods, and they further constrain consumer spending. Higher oil costs result in less driving and traveling for motorists in the summer months. And higher oil prices also add the enormous US trade deficit, sending billions out of the country every month.

But in a bold step, Saudi Arabia decided to act unilaterally yesterday.

The world's biggest oil exporter reportedly plans to increase production from 9.3 million barrels per day to 10 million barrels, the highest level in 30 years.

This is a critical commitment because the fighting in Libya has taken 1.3 million barrels off the world market and the unrest in Yemen and Syria has subtracted an additional 300,000 barrels.

As a consequence, the Saudis need to raise output by 1.6 million barrels per day just to match former production levels. But even that won't balance global supply with a global demand of 89 million barrels per day.

Though any production increase will be welcomed, the Saudi decision will not solve the supply/demand problem.

OPEC says that world demand will exceed supply by 1.45 million barrels per day in the third quarter. However, the U.S. Energy Information Administration puts the shortfall at 1.81 million barrels per day.

That's significant enough to keep prices well over $100 a barrel. In fact, analysts now expect oil to average $130 a barrel for the rest of this year.

The tightness in global supplies is perhaps best illustrated by the following: among the 12 OPEC members, all but Saudi Arabia, Kuwait and the United Arab Emirates are said to be at capacity.

Is it any wonder, then, that they voted to maintain the status quo? Perhaps an increase wasn't even an option for most of them.

Under current OPEC production quotas — in effect since January of 2009 — 11 of its 12 members are allowed to produce 24.85 million barrels per day.

However, many of those members simply ignore their production quotas and pumped an average of 26.18 million barrels per day in April — more than 1.3 million above the set target, according to a Platts survey of OPEC, oil industry officials and analysts released in May.

That's a sign of a weak and divided cartel. Saudi Arabia's decision to act alone, and against the wishes of their fellow cartel members, only affirms this.

Interestingly, OPEC doesn't officially count the 1.3 million additional barrels that its members are pumping above the approved target.

Saudi Arabia, OPEC's biggest producer, doesn't follow production quotas and it is the only OPEC member that has any considerable spare capacity. But even that is the subject of much suspicion.

In his 2005 book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," oil analyst Matthew Simmons questioned Saudi Arabia's ability to raise production.

After much analysis, Simmons contended that Saudi Arabia may soon begin to lose production capacity. According to his research, the Saudi oil fields have matured, leading to their inevitable decline. As a result, Simmons concluded that worldwide oil production has already peaked and could in fact be less than it was in 2005.

WikiLeaks reinforced this contention just this year when it released secret US cables revealing that a senior Saudi government oil executive warned that the kingdom's crude oil reserves may have been overstated by as much as 300 billion barrels, or nearly 40%.

This indicates that Saudi Arabia does not have enough reserves to prevent oil prices from escalating.

Saudi Arabia's total production has been estimated to be as high as 12.5 million barrels per day.

However, the executive, a geologist and former head of exploration at the Saudi oil monopoly Aramco, told the US consul general in 2007 that Aramco could not reach a 12.5 million barrel-a-day capacity. The executive also noted that as early as 2012 global oil production would hit its peak.

Almost all of the new demand growth is coming from emerging countries, such as China and India.

Last year, global energy consumption rose at the fastest pace since 1973. That's a worrisome development considering OPEC's limitations.

China increased its energy consumption by 11.2 percent, moving ahead of the United States as the world's biggest energy consumer. China accounted for 20.3 percent of global demand compared with 19 percent for the U.S.

However, most of China's energy consumption was in the form of coal. The U.S. is still the world's leading consumer of oil, using 21 percent of the world's supply, double China's consumption.

Importantly, the top suppliers to the U.S. are Canada and Mexico. But since oil has a global market, and since the size of the pie seems to be fixed, any production constraints or demand spikes affect the U.S. as much as anyone else.

What is evident is that demand is continually rising and that all of the world's oil producers, including OPEC, may be unable to meet it. In the absence of a significant rise in production, oil prices will continue to increase, unsettling the global economy even further.

Unfortunately, higher prices are the new normal.

Government's Unfunded Obligations Reach $62 Trillion

2011-06-08T13:19:00.000-07:00

There's been a lot of focus given to the country’s $14.3 trillion debt, which has now reached the government's legal borrowing limit.

However, that amount is chicken scratch compared to what the government really owes.

The federal government's total unfunded obligations — the gap between spending commitments and revenue — has reached a record $61.6 trillion, or $534,000 per household.

These unfunded commitments include programs like Medicare and Social Security.

The federal debt only includes what the government owes to Treasury holders. It doesn't take into account what's owed to seniors, veterans and retired government employees.

This problem — this liability — is so big that it's hard to comprehend.

For perspective, $61.6 trillion represents more than one-third of the market value of all the goods and services produced in the United States.

It's also more than five times the amount that Americans have borrowed for ALL other debt, including mortgages and car loans.

The government has promised pension and health benefits worth more than $700,000 per retired civil servant. Yet, the government has no money set aside to pay for those benefits.

For example, military health care costs more than doubled in the past decade. They account for $52.5 billion in next year's proposed budget. Retired veteran's pay represents another $50 billion or so a year.

But the problem of unfunded obligations isn't just limited to civil servants and veterans.

The number of people on Medicare and Social Security is going to double in the next 10 years. The Baby Boomers — roughly a quarter of the US population — begin retiring next January and will swamp the Social Security and Medicare systems over the following two decades.

While Social Security collected $2.6 trillion more in revenues than it paid out in benefits over the past three decades, that surplus — the infamous Social Security "Trust Fund" — has already been spent by the government on other programs.

The Social Security trustees say this "Trust Fund" — which amounts to nothing more than IOUs, or government bonds — will be exhausted in 2036.

But remember, this money doesn't even exist. The government will have to make budget cuts, taking money from other programs, to come up with the $2.6 trillion (plus interest) to repay the American people the money it owes them.

The takeaway here is that the government has made promises it cannot possibly keep. It will never be able to come up with $62 trillion. Those monies do not even exist.

That's why they are referred to as "unfunded" obligations.

Remember, these unfunded obligations amount to $534,000 per household. So every American household could sell their home (if they even own one), plus all of their worldly possessions, and it still wouldn't cover the amount due.

The government's choices are to simply not pay the future medical and retirement costs of its senior citizens, or heavily tax its citizens to acquire the money needed to repay them for the previous debts it already owes them.

Either choice is a horrible one for the American people.

Government of the Corporations, By the Corporations. For the Corporations

2011-06-03T10:49:00.000-07:00

On Thursday we got word that the Manhattan District Attorney's office subpoenaed Goldman Sachs over its activities that led to the financial crisis.

Goldman marketed risky investments betting that the housing market would continue to climb just before the whole thing melted down. The bank simultaneously reaped billions of dollars from its own bets that the housing market would collapse.

Though many Americans are looking for justice to finally be served on Wall St., this subpoena is essentially a request for information from Goldman and does not necessarily mean the company will face any charges.

Since Goldman is part of the oligarchy that rules America, I'll wager that this investigation will go nowhere.

That doesn't mean that Goldman isn't as guilty as sin, because the facts indicate they're as dirty as hell.

In April, the Senate released a 639-page report showing that Goldman had steered investors toward mortgage securities it knew would likely fail.

The report found that Goldman marketed four sets of complex mortgage securities to banks and other investors. It also found that Goldman failed to tell the banks and investors that the securities were very risky, even as they secretly bet against the investors' positions and deceived them about its own positions. The report concluded this was part of Goldman's effort to shift risk from its balance sheet to those of investors'.

This is the smoking gun that reveals Goldman to be a criminal organization that should be put out of business. But that would require justice, which we no longer have in America. Goldman has bought our government and it now owns it.

It doesn't play by the rules; it makes them.

Last summer, Goldman agreed to pay $550 million to settle civil fraud charges by the SEC of misleading buyers of mortgage-related securities. It amounted to chump change for the multi-billion dollar investment bank. The fine was a mere slap on the wrist, making the government appear to be serious and committed.

However, it isn't. The investigation is nothing more than a charade.

Goldman acknowledged that its marketing materials for the deal in question omitted key information for buyers. But it refused to admit legal wrongdoing.

When you rule the world, you never have to admit wrongdoing. And when you make the rules, you're always right.

Goldman has paid off the regulators and the Congress. And it's convinced them all that if it were to face criminal charges, it would destroy the financial system and the economy. Goldman has the whole world believing it is too big to fail.

You can call it economic blackmail. You can also call it nonsense.

This kind of chicanery and fraud isn't unique to Goldman Sachs. It's pervasive on Wall St.

Does anybody remember Repo 105? It was the arcane mechanism by which Lehman Brothers hid its debt (leverage) from the world.

Using Repo 105, Lehman temporarily swapped assets (such as bonds) for cash. A Repo, or repurchasing agreement, is a way to borrow money. But an accounting rule allowed Lehman to book the transaction as a sale and reduce its reported borrowings, according to a report by the court-appointed Lehman bankruptcy examiner last year, a former federal prosecutor.

Wall St. gets away with these outrages (or criminality) because of ineptitude at best, or complicity at worst.

The government's most basic duty is the defense of its citizens, from both foreign and domestic forces. Fraud should be regarded as one of those forces.

A robber uses force to take what is not rightfully his. A fraudster uses stealth to take what is not rightfully his. The difference comes down to force versus stealth. However, the result is the same: the loss of property by its owner and the disordering of civil society.

In refusing to hold Wall St. to the letter of the law, and revealing a willingness to be bought, conned, manipulated, connived and controlled, our government has failed miserably to perform its basic function of defending its citizens.

That has undermined the Republic and further diminished the public's waning faith in our government.

The Land of the Free Has Become the Land of the Lost

2011-06-01T10:17:00.000-07:00

The America of this nation's forefathers is a relic of the past. It is long gone, though its legacy will remain a subject for history books. Its ghost will haunt us, yet provide a cautionary tale for future generations.

America is no longer the land of the free. It is now ruled by oligarchs and corporatists. And it is no longer governed by the rule of law. The rich, the powerful and the politically connected abide by their own, very different, set of laws.

The corporatocracy has taken hold of our government. We are now the United States of Corporate America.

The Supreme Court has even validated huge, powerful and influential corporations, ruling that they are the equivalent of individual citizens and thereby subject to all the same rights and privileges.

As absurd as this proposition is on its face, it is now affirmed as law.

The pharmaceutical industry wrote the Bush prescription drug law. Big Energy wrote the Cheney energy policy. Regulatory agencies are run by officials from the very industries they are supposed to regulate.

Officials from the Minerals Management Agency (MMA) were having drug-fueled sex parties with oil industry lobbyists before the BP spill predictably occurred. Good times.

The government regulators have been co-opted and now need their own regulators. The corporatists and oligarchs own them. The MMA, FDA and SEC are just some examples of failed regulators who have chosen to protect their corporate overlords rather than the public interest.

After Obama was elected, there was a public effort to draft author/journalist Michael Pollan as the next Agriculture Secretary. Pollan, an astute and learned man who knows all about the food and farming industries, said he would never take a job in which industry lobbyists would be in the same room as him writing laws.

The fact that such a state of affairs would preclude such a worthy candidate from serving in government tells you all you need to know about how corrupt and dysfunctional it is.

As of 2009, there were 185 former members of the House and Senate registered as Washington lobbyists. Congress simply serves as a gateway to the money and influence-peddling of lobbyists.

America is ruled by greedy Wall St. financiers, massive insurance companies, powerful real estate corporations, huge pharmaceutical companies, media conglomerates, Big Agribusiness and Big Energy companies.

These massively powerful and uber-wealthy special interests have turned our elected leaders into their servants.

However, most Americans remain apathetically unaware. They are asleep, ignoring serial injustices and outrages. This lax attitude only allows the downward spiral to continue.

There is little or no public outrage over the continual loss of our freedoms, or the usurpation of the rule of law.

There is no outrage over the power and reach of the Military-Industrial Complex, or of its Wall St. backers.

There is no outrage directed at the oligarchy that rules us and shirks our laws.

There is no outrage over the revolving door between Washington and Wall St.

There is no outrage over the cozy relationship between Washington and the private sector that it is supposed to regulate.

An FCC Chairwoman recently voted to approve the merger of Comcast and NBC/Universal, and subsequently took an executive position with that company. Somehow this was permissible. Only in a rotten, corrupt government would this be acceptable or legal.

The vote was a mere formality; all mergers and acquisitions are approved. No company is too big anymore. Competition no longer exists, and it doesn't even matter to our government. Big Business gets whatever it wants.

Small companies are the engines of innovation and job creation. But big companies buy them, exploit their ideas, ingenuity and inventions, then lay off their employees in the aftermath.

The public's trust has been destroyed. The people don't trust the media, politicians, government, bankers, corporations and most institutions in general.

Perhaps it's this lack of trust that has manifested itself in the form of apathy. It's too bad because that's what the corporatists and oligarchs count on, and how they corrupted and co-opted our government and its laws in the first place.

This country is broken in so many ways, yet we are never lacking for blind, jingoistic patriotism. Somehow America manages to maintain an over-abundance of self-esteem.

Too many Americans are intellectually lazy, incurious and brainwashed by propaganda. They don't know what they don't know, and they don't even care to find out. As long as they are fed a steady diet of trashy TV, celebrity gossip and televised sports, they're satisfied.

Where is the outrage at all of the injustice? It's nowhere to be found. This country has lost its soul. We're a pathetic bunch.

In a republic, you ultimately get the government you deserve.

2011-05-27T14:09:00.000-07:00

"How Long Can They Keep The Charade Going?"

My dear friend, Mike, sent me an e-mail yesterday in response to the latest post, "Dollar Declining Amid Mix Of Bad Long Term Trends & Uncontrollable Events."

He asked a very salient and, perhaps, rather obvious question about the timing of a dollar collapse.

I thought it was worthwhile to post Mike's question in full, along with my response.

As always, your responses are welcome in the comments section.

Sean,

Good stuff. Question; what sort of timetable do you THINK we are looking at in terms of an 'apocalyptic' event concerning the dollar and/or the economy? I am just curious because, truth be told, I am surprised we've made it this far. But with the media complicity, and corruption on all levels of the market and government, I wonder how long they can keep the charade going.

- Mike

Honestly, Mike, I have no idea. Like you, I am simply amazed that Atlas is still managing to hold up the world. This whole thing should have come tumbling down already.

The key is this; how much more debt will China buy, and how much longer will they buy it? The international trade system is so reliant on the dollar, and almost all trade debts are settled in dollars. But, really, what good are dollars to the Chinese? They don't use them in China.

As long as the Chinese continue exporting to the US, the only alternative they have is to start buying US assets, such as land, golf courses, resorts and huge commercial properties — the sort of thing that Japan was doing in the 19880s.

Actually, I'm surprised they haven't been doing more of this. Perhaps they feel, or have been told, that the US will prevent at least some of these actions.

This is what Chris Martenson reported this afternoon:

The first-quarter economic results for Japan were grim, revealing an annualized rate of contraction of -3.7% over the first three months. Note that the earthquake struck on March 11, so there really are only a couple of weeks of "earthquake impact" in that number.

The next quarter’s numbers will be even grimmer (that’s a prediction), and this will catapult the Japanese deficit and sovereign-debt readings into brand-new territory.

Japan has been a net exporter of goods and debt for decades. That is all changing now. The flow of funds will be going in reverse, and that will have huge implications for the US. Simply put, they will no longer be buying our debt. That's a game changer.

The US is now left with the oil exporting nations, who get paid in dollars and convert them into Treasuries. Aside from that, the only other alternative is to print. No one in their right mind would buy Treasuries at these pathetically low yields, combined with the fact that the US is so interminably in debt.

Many international observers now seem to recognize that the US has no choice but to print, and to thereby continue devaluing the dollar even further. It's a death spiral.

China's purchase of Portuguese, Australian and New Zealand debt will send a signal to other nations that they are losing confidence in the dollar, and in the reckless US fiscal policy in particular. Confidence is everything in markets. Any remaining Treasury debt buyers are sure to follow them to the exit.

As the Bibe says, "No one knows the day or the hour." However, I think there will be clear signs in advance. I don't know if there will a "boom" moment, or just a slow ride to the bottom, like a bowling ball steadily rolling down a flight of stairs.

One thing I do know is that we will be witnesses to an epic historical event.

- Sean

Dollar Declining Amid Mix Of Bad Long Term Trends & Uncontrollable Events

2011-05-26T08:09:00.000-07:00

Axel Merk, the manager of the Merk Funds, is very bearish on the dollar. The greenback has been declining in value and Merk sees the problem getting worse. The issue is the the structural deficit problems in the U.S.

So Merk is steering his currency-focused mutual funds away from the U.S. in favor of countries with greater fiscal discipline and a commitment to getting their budget affairs in order

“In the U.S., we’ve lost the will to engage in reform,” Merk told Market Watch. “We have not fixed the underlying structural issues. It may require our bond market to get derailed before policymakers engage in the reforms that Europe is making.”

Merk questions how much longer the dollar can keep its status as the world’s reserve currency.

“The U.S. dollar is no longer risk-free,” Merk said. “The balance sheet of the U.S. is deteriorating at a faster pace than other countries."

Merk is particularly bearish on the dollar because he foresees deeper and more serious economic struggles ahead for the U.S.

“The U.S. is trying to weaken the currency intentionally and get a recovery through that,” Merk said. “We’re going to keep the printing machine in full gear until and unless the bond market tells the Fed to change course, and at that stage it’s very late to change.”

Merk is not alone in his view that the dollar is no longer a good store of value. Hedge fund managers, currency traders and analysts around the world have taken the same view.

Bill Gross of PIMCo., the world's biggest bond fund, made global headlines when he dumped U.S. government-related holdings in February and began shorting them in March.

According to Gross, the reason was simple.

“There is really no way out of this [debt] trap and this conundrum at this point,” he said.

That seems to be the growing consensus.

Last month, the People's Bank of China announced that the country's excessive stockpile of US dollar reserves needed to be urgently diversified. China's foreign exchange reserves included more than 3 trillion in US dollars at the end of March.

Subsequently, the Xinhua news agency reported the following:

Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

This was a clear indication that China plans to "diversify" (read: liquidate) itself of $1 trillion in US holdings. It was bad news for the U.S. and the exact opposite of what it is seeking, whIch is buyers — not sellers — of its debt.

China didn't wait long to begin its diversification plan.

The Financial Times newspaper reported late Wednesday that China is interested in buying Portuguese bailout bonds when the European Financial Stability Facility starts auctioning the securities next month.

The New Zealand press also reported that the China Investment Corp., a huge sovereign wealth fund, may have set aside up to 1.5% (or 6 billion New Zealand dollars) of its foreign-exchange reserves to invest in New Zealand assets, including government bonds, companies and potentially dairy farms. The same report noted China is also thought to have allocated 2% of its reserves to invest in Australia.

This clearly indicates that China, a primary creditor of the U.S., intends to make good on its well-reported plan to buy fewer U.S. Treasurys.

Such moves will hurt the dollar and affirm the bearish sentiments of Axel Merk and others like him around the world.

The U.S. dollar has been in long term, or secular, decline. In fact, the dollar has recently been trading near it's all-time lows, established during the 2008 financial crash.

Low interest rates, concerns about inflation and the massive federal budget deficit are all to blame.

Investors can find higher interest rates abroad. The Federal Reserve is fighting like hell to maintain low rates to encourage capital investment, but it isn't helping the U.S. economy much at all. It's also hurting savers and discouraging new savings.

Inflation has built up a head of steam in the commodities sector and is affecting oil and food prices. Any consumer can affirm this. The culprit is the dollar's declining value. Simply put, it's purchasing power is falling.

And the U.S. budget problem is so bad that Standard & Poor's recently threatened to take away the U.S. government's coveted AAA rating status. That would be a first in our history.

All of these things are undermining the dollar and the solutions will produce their own ugly results.

Though the Fed has been remarkably effective in setting and controlling interest rates, a worried bond market may soon begin setting those rates for the U.S. Buyers may need heavy inducements to continue allowing the U.S. to pile up such interminable debt.

This is a tough position for the U.S. to be in, but one it will have little control over. After all, beggars can't be choosers.

Higher rates will affect businesses and consumers alike, thwarting investment and making things like mortgages, auto loans and credit card rates all spike.

The Fed actually wants, and is encouraging, inflation. The opposite is deflation — an economic contraction, or recession. No one wants that. The question is, when do events (inflation) spin out of control and beyond the Fed's reach?

The Fed's massive currency printing schemes, such as QEI and QE2, have undermined the value of the dollar, and the longer term outlook is especially ugly. The Fed has crossed the great divide and there's no going back. All that's left to do is print, print, print away!

The budget deficit is the prime example of how political problems can become fiscal and economic problems.

Congress is hopelessly divided and recently engaged in huge battles to cut just $38.5 billion from a $1.6 trillion deficit. It amounted to just 2.4% of the deficit. Now they just need to cut another $1.56 trillion to eliminate that deficit.

The battles over raising the federally mandated debt ceiling and the fiscal 2012 deficit will be epic, and they will be nasty. And they are sure to worry the bond markets and further undermine the dollar.

Cutting the budget will shrink the U.S. economy, which is totally dependent on federal spending at this point. Budget cuts may poll well, but when Congress actually gets down to brass tacks and begins hacking away, Americans will hate it. That's because their quality of life and standard of living will begin falling.

The problem for the U.S. is that so many of its problems are now beyond the control of the fiscal authorities in Congress and the monetary masters at the Fed. In some cases their hands are tied, while in others their control is simply slipping away.

The long term outlook for the U.S. dollar and Treasuries and interest rates and inflation just isn't good. The U.S. is facing a panoply of concerns that will have the effect of slamming the emergency brake on the economy.

There's no getting around it; there are some very tough times ahead, the likes of which most Americans have never seen.

EU Debt Crisis Growing; US Just Biding Time

2011-05-23T10:40:00.000-07:00

The EU debt crisis continues to evolve. In the process, it provides us with a stark reminder that, eventually, all debts must be recognized and reconciled.

The sad truth is that the European debt crisis is really a global debt crisis.

There have already been four European bailouts: Greece twice, Ireland and then Portugal just this month.

Germany, the EU's biggest economy, has had to pay the largest single share of these bailouts. That is raising the ire of German voters who are tired of bailing out their poorer, financially distressed, neighbors.

Germans see these nations as reckless and undisciplined.

Though Germany has been able to borrow at 3 percent and then lend at double that rate to its ailing neighbors, the concern is that these countries could default, leaving Germany in the lurch.

The trouble for Germany is that German banks have lent several hundred billion dollars to other Eurozone governments. A series of defaults could trigger a German banking crisis, which gives Germany plenty of motivation to continue bailing out its neighbors.

The other alternative would be to bailout the bankers, which would prove even less popular with German citizens.

The Germans are bound to the euro. Pulling out and going back to the Deutsche Mark would jeopardize their economy and could prove disastrous. Exports are the backbone of the German economy. Any new German mark would immediately rise in value, making German exports more expensive all around the world.

The Germans are stuck between the proverbial rock and a hard place. They have little choice but to keep the bailout money flowing.

Fears of a contagion exist because banks all over the world are inextricably linked. European banks all own the sovereign debt of their neighboring countries and one default could cause a chain reaction.

So far, the troubles have been isolated in the relatively smaller economies of Greece, Ireland and Portugal. The worry is that some of Europe's larger economies may eventually ask for help, such as Spain and Italy.

Last week, Standard & Poor’s Ratings Services lowered its outlook on Italy’s A-plus sovereign-credit rating from stable to negative. Meanwhile, Moody's had previously downgraded Spain in March.

Both Italy and Spain could be characterized as "too big to fail". Italy has the world's 11th biggest economy and Spain the 13th. Yet, the cost of insuring Italian and Spanish government debt against default just keeps climbing.

Citizens of all the fiscally challenged European nations hold a deep resentment over the austerity measures their leaders have enacted to reduce government deficits. Most of Europe is still facing a recession and protests have sprung up all over the continent.

The irony is that even as European governments have made difficult choices and enacted draconian budget cuts, they continue getting hammered by the bond markets.

Meanwhile, the US — which has a $1.6 trillion budget deficit for this fiscal year, and which has reached its $14.3 trillion self-imposed debt limit — has done almost nothing to get its fiscal house in order.

Yet, the US continues to borrow at the lowest possible rates on world markets, and anytime the European debt crisis particularly fares up (like right now) there is a flight to the perceived safety of US Treasuries.

The US offers investors next to nothing for the 'privilege' of parking their money in US government bonds.

The perception of the US as 'safe' is simply a knee-jerk reaction based on past history, when the US was more fiscally stable than other nations. Clearly, that is no longer the case.

When reality finally catches up to the US — in other words, when the rest of the world recognizes that our fiscal position is no better than anybody else's, and that our monetary position may even be worse — that will be a grand moment of reckoning.

When everyone else's house is also on fire, where do you go to seek shelter?

America's Revenue to Debt Problem

2011-05-20T11:38:00.000-07:00

The Congressional Budget Office projects total federal revenues for fiscal 2011 at $2.23 trillion.

Federal revenues for this fiscal year will be the lowest intake relative to GDP since 1951, at 14.8%. Yes, the US has a revenue problem in addition to its spending problem.

As a result, the national debt has ballooned to $14.3 trillion. This has raised the concern that the US can't afford, and won't be able to pay, its bills.

Much has been made of the US debt-to-GDP ratio, since the national debt now matches — or perhaps even exceeds — the size of the US economy.

However, the debt-to-GDP ratio is not really the concern. The issue is revenues vs. GDP.

The $2.23 trillion in federal revenues are dwarfed by the $14.3 trillion national debt. The US government does not pay its bills with the entire US economy. It pays them with federal revenues.

And as the US government has grown, the economy has grown with it. In fact, our economy is now totally reliant on federal spending.

The 78% increase in government debt since the second quarter of 2008 has created $4.1 trillion of fake growth. Needless to say, this is substantial in a $13.5 trillion economy.

Unless the unemployment problem improves, government revenues won't improve. And if government revenues don't improve, annual deficits will continue adding to the massive debt.

And that's the rub. There are absolutely no reasonable indications that unemployment will improve any time soon. There are 7 million fewer workers today than just four years ago. The number of unemployed Americans has roughly doubled.

Job growth in the last decade was negative. While the number of new workers entering the workforce swelled during that period, just 1.7 million new jobs were created.

Job creation is barely keeping up with all of the new workers entering the jobs market for the first time.

When Congress finally gets down to the difficult business of trimming the federal budget, the result won't just be a smaller government; it will also mean a smaller economy. That will result in a larger debt-to-GDP ratio, which will rattle the bond markets.

But the real issue for the US is its shrunken revenues. While raising taxes on millionaires and billionaires will help, it won't solve the problem. To do that, the US needs to grow its economy and create employment opportunities for the roughly 24 million Americans who are presently unemployed or under-employed.

As of now, no one has figured out how to do either. And it's reasonable to conclude that this won't change any time soon.

The Brakes Are On: US Economy Slowing

2011-05-18T13:46:00.000-07:00

US Gross Domestic Product slowed sharply in the first quarter of this year to a 1.8 percent annual rate.

Last year, GDP grew at 3.7 percent in the first quarter, 1.7 percent in the second quarter, 2.6 percent in the third quarter and 3.1 percent in the fourth quarter.

So, the economy will have to accelerate even faster than its best quarter last year to overcome the impact of the sluggish first quarter this year.

Nearly all of the federal stimulus money has already been spent. And with state governments tightening their belts — and even laying off employees — GDP will be further constricted.

A survey from the National Association for Business Economics predicts GDP will grow 2.8 percent this year — down from the group’s February prediction that it would grow 3.3 percent.

The panel of 41 economists surveyed said they “remain highly concerned” about the growing federal deficit and that growth in the first quarter was weaker than expected.

The economists said they expect oil to average $105 per barrel this year, up from $93 predicted in the last survey. They anticipate that this will negatively affect consumer spending.

Consumers are getting squeezed by rising prices for gas, groceries and other household items. Because producers are paying more for the raw materials they need to make and transport their products, retailers are in turn passing along these price increases to their customers.

Sales at Walmart stores in the US have fallen for two consecutive years. The culprit has been high unemployment, stagnant wages, and rising food and fuel prices.

Walmart is a bellwether of the US economy. When the store that has made “low prices” is mantra is hurting, it is a clear indication of just how much the US economy is hurting.

Walmart continues to see a paycheck cycle, in which people stock up around payday and then, as the money runs out, spend less as the month progresses. What this tells us is that Americans are living from paycheck to paycheck.

As of last year, 43 percent of workers said they had less than $10,000 savings, up from 39 percent in 2009, according to the Employee Benefit Research Institute’s annual Retirement Confidence Survey.

A stunning 27 percent of workers said they had less than $1,000 in savings, up from 20 percent in 2009.

After paying for basic necessities, most Americans simply have nothing left to save; wages have been stagnant since the 1970s.

This should come as little surprise since the median wage fell to $26,261 in 2009, meaning that half of all American workers made $505 a week or less.

The increased costs of oil aren’t going away, and oil prices affect food prices and everything else.

The International Energy Association (IEA) says that growth in worldwide oil demand is outstripping growth in new supplies by 1 million barrels a day per year. According to the IEA, it’s getting harder to access and exploit conventional resources and, “The age of cheap energy is over.”

Oil is a finite resource and the inability to match supply with demand will create a huge economic drag from now on. Continually rising prices will have profound impacts on the US and global economies going forward.

Slow economic growth results in lower tax revenues to the government, exacerbating an already dangerous fiscal problem.

While the Congressional Budget Office (CBO) rather optimistically foresees revenues increasing from $2.23 trillion this year to $3.65 trillion in 2015 (a $1.42 trillion increase), it also projects $4.8 trillion in new debt over the next five years.

And let me be clear; government projections are almost always too rosy. In other words, the debt total will likely be even worse.

Congress will continue battling over which budget cuts to make in order to raise the debt ceiling and pass the fiscal 2012 budget (which is due October 1). But one way or the other, and in one variety or another, budget cuts are coming. That, in turn, will further cut into GDP.

At this point, the US economy is totally reliant on government spending. It’s just an unfortunate truth.

Our economy is facing multiple headwinds, and most of them aren’t going away.

Though a declining dollar makes us exports cheaper overseas, our No. 1 import is oil, which is also priced in dollars. A weak dollar makes oil, and ultimately gasoline, more expensive, forcing the trade deficit further into the negative. Billions of dollars leave the US for other nations every month, and exports are not nearly enough make up for it.

The government’s revenue problem (and, yes, it does have one) will be lasting.

The US government is particularly vulnerable to a revenue collapse in a deep recession because it is disproportionately dependent on income and payroll taxes, which take a particularly big hit when unemployment is high.

When unemployment surged to 10 percent in 2009, government revenues plummeted. Meanwhile, safety net programs — such as unemployment benefits, Medicaid and food stamps — grew rapidly.

The combination led to huge, unprecedented and lingering deficits of more than $1 trillion. Those kinds of deficits remain on the horizon, as far as the eye can see.

Plunging taxes and surging benefits spending are part and parcel of a severe recession, and the US isn’t even technically in a recession anymore. Try telling that to tens of millions of Americans.

Should the US ‘double dip’ into a technical recession (two consecutive quarters of economic contraction), the impacts will be absolutely devastating.

Even if that doesn’t occur, we should remain prepared for a prolonged period of decline and despair.

Will US Government Be Able To Pay Future Social Security Benefits?

2011-05-13T13:20:00.000-07:00

“The Social Security trust fund doesn’t have cash. What it has is the government IOUs there, which are as good as gold. But the government has to go out into the marketplace and borrow the money. And so it increases the national debt.” - Erskine Bowles, co-chair of President Obama’s Debt Commission

With the US government so deeply indebted, all manner of deficit-reduction plans are being floated in Washington. Among them, cutting Social Security.

But here’s an important fact: Social Security has never contributed a penny to the national debt.

Social Security is a self-financed program, meaning it doesn’t rely on, or draw from, Congress' annual budget. In fact, Social Security is running an absolutely massive surplus.

Over the past three decades, Social Security collected more in revenues than it paid out in benefits. A lot more. Over that period, $2.6 trillion surplus funds were collected.

Yes, that's the infamous Social Security "Trust Fund".

While this might lead some to believe that this money has been safely locked away in government coffers for future needs, that would be wrong.

As a Congressional Research Service (CRS) report explained in 2000, “Contrary to popular belief, Social Security taxes are not deposited into the Social Security trust funds ... Along with many other forms of revenues, these Social Security taxes become part of the government’s operating cash pool, or what is more commonly referred to as the U.S. Treasury. In effect, once these taxes are received, they become indistinguishable from other monies the government takes in.”

Did you get that? There is no “Trust Fund” after all. If you are a current worker, your Social Security withholdings have already been spent by the government. All of them.

No, those funds didn’t go to current retirees, as most people have been led to believe. They were used to support general government spending for each annual budget.

Your money is gone. Seriously.

As the CRS noted, Social Security revenues are “accounted for separately through the issuance of federal securities to the Social Security trust funds … but the trust funds themselves do not receive or hold money. They are simply accounts.”

Meaning, they are empty accounts. They hold no money.

By the end of last year, those securities, or bonds (or IOUs, to be honest), amounted to $2.6 trillion.

The government is supposed to pay interest for holding your money, just as any bank would. That interest amounted to $117 billion last year and it is supposed to help pay for Social Security benefits.

As previously noted, Social Security is a self-financed program that doesn’t draw from the annual budget or contribute to the deficit.

To the contrary, as the CRS reported, Congress has continually diverted money from Social Security to fund other spending.

However, largely due to high unemployment and the aging of the population, last year Social Security collected nearly $640 billion in taxes, which was less than the $701 billion in benefits paid out. As a result, the system had a “negative net cash flow.”

Another deficit of $46 billion is projected for 2011.

The Social Security Administration estimates that more than 54 million Americans will receive $730 billion in benefits this year. Both numbers will continue to grow over the next two decades.

But so will the accruing interest on those alleged surplus funds, which is supposed to help finance the Social Security program.

However, according to the last Social Security trustees report, in about 14 years from now, the interest earned on the bonds (or IOUs) won’t be sufficient to cover the annual difference between benefits and tax revenues.

At that point, the $2.6 trillion in IOUs will need to be paid out to cover the benefits promised to future retirees. But, remember, that money is already long gone.

The Social Security trustees say the IOUs, or bonds, will be exhausted in 2036. If Congress doesn’t do something by then, benefits would need to be cut by 22 percent to keep the system in balance.

However, the hard truth is that those monies are gone. The bonds are unfunded.

Because the government didn’t save or invest those funds, they aren’t really assets; they’re liabilities.

As the Congressional Budget Office explained in a report to Congress, “The balances in the trust funds (in the form of government securities) are assets to the individual programs (such as Social Security) but liabilities to the rest of the government.”

“When an individual buys a government bond, he or she has established a financial claim against the government,” the CRS said. But “when the government issues a security to one of its own accounts, it hasn’t purchased anything or established a claim against some other person or entity. It is simply creating an IOU from one of its accounts to another.”

In essence, the government has promised to pay back all current workers — with interest — even though it has already spent all the money collected from them.

The IOUs represent the government’s promise to return that money, in the form of benefits, in the future. However, there is no guarantee it will have the means to repay that money.

The government will only be able to pay out future benefits through its current account — meaning its budget, or general fund.

“The general fund has been borrowing from Social Security and we’ve borrowed well over $2 trillion,” said Senate Budget Committee chairman Kent Conrad in February. “That money has got to be paid back. How’s it going to be paid back? It’s going to be paid back by the other general expenditures of the federal government having to be reduced to make way for the payments that we’re going to have to make on those bonds.”

“We’re going to see a dramatic impact on budgets,” said Conrad, because the rest of the federal government’s operations have been “enjoying in effect a subsidy from the Social Security trust fund of several hundred billion dollars a year.”

He concluded, “Instead of having several hundred billion dollars a year coming in from Social Security that we could send somewhere else, those days are over.”

The government’s free ride on the American worker’s Social Security benefits is coming to an end. This will force the government to enact some semblance of fiscal discipline.

But it’s quit evident that the government will not have the revenues to pay for many of the things it is currently budgeting.

The question is, which things?

The numbers just don’t add up. Not even for Social Security. Sixty years ago, there were sixteen workers for every one retiree. Today, there are just three workers for each retiree.

As the CBO reported, “Even with the securities held by the trust funds, and with a dedicated future stream of revenues, by 2039 those resources will be insufficient to pay the full benefits that will accrue under current law.”

Essentially, the US government has made future promises to its citizens that it cannot adequately fund. To do so would mean a crushing blow to its budget, the ability to fund its operations, and to pay its debts to all bond holders — including foreign governments.

Who will be left holding the bag? The American taxpayers?

Expect payroll taxes to be raised, at least for higher income earners.

Expect benefits to be cut, at least for higher income earners.

Expect the eligibility age for collecting benefits to be raised.

Expect the unexpected.

Osama bin Laden's Ultimate Goal: Bankrupt America

2011-05-04T13:39:00.000-07:00

Osama bin Laden knew what any student of history knows; all empires eventually fall due to their own excess and hubris.

Imperial Rome, the Spanish Empire, the British Empire and the Soviet Union all crumbled under the weight of their military over-reach.

The US appears to be next on this list of infamy, and bin Laden knew it all along.

More than three years after the September 11, 2001 terrorist attacks on the US, Bin laden released a videotape in which he staked out his ultimate goal; to bankrupt America.

"We are continuing this policy in bleeding America to the point of bankruptcy, Allah willing. And nothing is too great for Allah," bin Laden said.

The al Qaeda leader said his goal was to do to the US what had previously been done to the Soviet Union; slowly bleed it to death in a long, intractable military conflict in Afghanistan.

Though the Afghans were outgunned and out-spent by the Soviets, they used "guerrilla warfare and the war of attrition to fight tyrannical superpowers," bin Laden said.

This same strategy, which bin Laden referred to as the "bleed-until-bankruptcy plan," was being utilized to ultimately defeat the mighty US, he said.

At the time of the video's release, in November 2004, the US national debt was more than $7 trillion and the federal deficit was $413 billion.

"Every dollar of al Qaeda defeated a million dollars, by the permission of Allah, besides the loss of a huge number of jobs," said bin Laden. "As for the economic deficit, it has reached record astronomical numbers estimated to total more than a trillion dollars."

For all this expense, bin Laden said, America would "suffer human, economic and political losses without their achieving anything of note, other than some benefits for their private corporations."

Even bin Laden knew about the influence of America's Military-Industrial Complex. He was well aware of its political connections and power.

Driving the US further into debt showed "that al Qaeda has gained. But on the other hand it shows that the Bush administration has also gained, something that anyone who looks at the size of the contracts acquired by the shady Bush administration-linked mega-corporations, like Halliburton and its kind, will be convinced.

"And it all shows that the real loser is you," he said. "It is the American people and their economy."

The cagey al Qaeda leader displayed a keen foresight that now seems rather remarkable.

Of President Bush, Bin Laden said, "the darkness of black gold blurred his vision and insight, and he gave priority to private interests over the public interests of America.

"So the war went ahead, the death toll rose, the American economy bled, and Bush became embroiled in the swamps of Iraq that threaten his future," bin Laden said.

In the end, he was right.

Simultaneous engagement in two wars — Afghanistan and Iraq — has saddled the US with enormous debts. But that onerous debt burden only became crippling when, for the first time in US history, the government cut taxes as it went to war.

Both military adventures were financed through borrowing. As a result, the US debt soared from $6.4 trillion in March 2003 to $10 trillion in 2008 (before the financial crisis). At least a quarter of that increase is directly attributable to the war, according to Nobel economist Joseph Stiglitz.

Stiglitz estimates that the total cost of the Iraq war will exceed $3 trillion, a staggering sum. The war has already eclipsed the cost of the Vietnam conflict.

Remarkably, defense spending has doubled over the last ten years, according to Ashton Carter, the Defense Department's undersecretary for acquisitions.

The Afghan war, alone, costs more than $9 billion a month. This means that the government is spending more than $100 billion a year on an unfunded, unwinnable war. And money is being poured into the rebuilding of Afghanistan and Iraq, even as America crumbles.

According to the National Priorities Project, total defense/security/intelligence spending accounts for 66% of discretionary spending.

The stunning fact is that the US spends more on its military budget than all of the other nations on earth combined. Consider this; if the Pentagon were an independent country, it would be the 10th richest in the world.

The US has 500,000 military personnel, stationed on over 700 military bases, in more than 150 nations around the world. That is the definition of an empire.

More six decades after the end of WWII, the US still has more than 50,000 troops in Germany and 30,000 in Japan. More than a half century after the Korean conflict ended, the US still has 29,000 military personnel stationed in South Korea.

All of these advanced, wealthy nations are quite capable of defending themselves. Instead, we pay for their defense.

Japan has long been the the world's second biggest economy, until recently falling behind China. While Japan dedicates its revenues to domestic, economic and technical development, the US pays for its defense.

Germany is one of the world's biggest economies and exporters. It has been a unified nation for more than two decades and is no longer under threat from the Soviet Union, which no longer exists. Yet, we keep forces stationed in Germany, paying for their defense.

You might be stunned to discover that America now spends more, in real, inflation-adjusted terms, than at any point during the Cold War, Korean War, and Vietnam War.

The US faces no credible, conventional military threat. Yet, it continues to build up its military, in a race against no one, to counter a conventional threat that doesn't even exist. Countering terrorists doesn't warrant this kind of spending.

The US is a welfare state in as much as it supports the Military-Industrial Complex. In reality, we are truly a warfare state.

The Military-Industrial Complex has always needed a bogey man to justify its existence. First it was the Soviets and communism; now it is al Qaeda and Islamic fundamentalism.

The Soviet menace was never as dangerous as advertised. The free world didn't crumble when the communists took North Korea or Vietnam. Yet, the US fought two separate wars — costing over 100,000 American lives — due to the hysteria whipped up about the dangers if the communists prevailed.

The Military-Industrial Complex cried wolf, and America fell for it.

The same is true again today. Same story; different cast.

The US has been in Iraq for seven years and in Afghanistan for 10. Who knows when our military personnel will finally exit both nations? The US may even try to establish a permanent presence in both countries, with permanent military bases as anchors.

The US is an empire, and all empires are unsustainable in the long run. All of the wars, military engagements and bases around the world will eventually come to an end. It may be imposed on us, but it will all end sooner than later. Right now, it's being held afloat by borrowed money.

Dwight Eisenhower warned, “It has been coldly calculated by the Soviet leaders ... by their military threat to force upon America and the free world an unbearable security burden leading to economic disaster.”

The irony was that the opposite occurred. The Soviet military expansion and reach led to its own demise.

Osama bin Laden saw the same opportunity to destroy the United States.

Eisenhower argued that a strong American economy might well be its most valuable asset. He knew that a strong economy was essential to a strong defense.

Osama bin Laden clearly saw it the same way. So, as the US sails into insolvency, bin Laden may laugh last, even in death.

Surge of Unsettling News Foreshadows Crisis Ahead

2011-04-27T09:46:00.000-07:00

If you've been paying attention lately, you've surely noticed the steady flow of rather stunning developments portending great disruptions and dislocations for the US and global economies.

It's difficult to know where to begin.

Robert Zoellick, the president of the World Bank, has warned that the world is "one shock away from a full-blown crisis".

It doesn't require a whole lot of imagination to figure what any one of those shocks might be: high unemployment, rising global food prices, rising global oil prices, an unstable global banking system and/or unsustainable sovereign debts.

While much of the focus has been on the European sovereign debt crisis, the US has its own developing debt crisis which is finally getting the world's attention.

The IMF says the US budget deficit in 2011 is expected to hit 10.75 percent of national output, the highest among the developed nations.

Consequently, last week Standard and Poor's cut its ratings outlook on the US to negative from stable. It was a stunning development since it is the first time S&P has ever lowered its outlook for the US from "stable".

The rating agency effectively gave Washington a two-year deadline to enact meaningful change or face the consequences; an actual downgrade from its long term, top-notch AAA rating. As of now, the US remains one of 19 sovereign governments rated AAA by S&P, out of 127 rated countries.

A downgrade would push up interest rates on Treasurys, raising the cost of borrowing for a government that already can't afford its bills. It would also push up rates for businesses and consumers, creating a further drag on an already sluggish economy.

The US debt is just shy of the $14.294 trillion federally mandated cap. Congress is essentially damned whether it does, or does not, elect to raise that debt ceiling. The US has the ugly choice of sliding further into perilous, intractable debt, or defaulting and living through the ensuing chaos.

The writing has been on the wall for quite some time and the consequences of are already occurring.

Bill Gross, a founder of Pacific Investment Management Co., manager of the world's biggest bond fund, dumped US government-related holdings in February and began shorting them in March.

“There is really no way out of this [debt] trap and this conundrum at this point,” says Gross.

That seems to be the growing consensus.

Last week, the People's Bank of China announced that the country's excessive stockpile of US dollar reserves has to be urgently diversified. China's foreign exchange reserves included more than 3 trillion in US dollars at the end of March.

Subsequently, the Xinhua news agency reported the following:

Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

This indicates that China plans to "diversify" (read: liquidate) itself of $1 trillion in US holdings. Of course, this will occur over time. But it is bad news for the US nonetheless.

It is the exact opposite of what the US is seeking. It needs buyers, not sellers.

Then, at a time when the US didn't need any more bad news, the IMF just dropped a major bombshell: It forecast that China’s economy will surpass that of America in real terms in 2016 — just five years from now.

This is a positively stunning development. For most of the past century, China was an impoverished Third World nation. Then last year it vaulted past Japan to become the world's second biggest economy. In the process, it also became the world's biggest car market.

And now it is poised to surpass the US. When such an event unfolds, the US will lose its vaunted status as the world's reserve currency, and all of the privileges that come with that.

The key requisite for any economy to grow is energy — specifically oil — which is becoming increasingly difficult to recover. As a finite resource, the supply of oil is limited. However, the demand for oil is relentless and perhaps infinite.

However, the International Energy Agency (IEA) recently warned that, "The age of cheap energy is over."

Here's the kicker:

IEA analysts said the world needs another 50 million barrels of oil from new fields by 2035 in order to meet expected demand. Crude oil production from existing fields, meanwhile, is expected to decline from the 68-million-barrel-per-day mark in 2009 to just 16 million bpd by 2035.

Let's break this down:

Global oil production is expected to decline by nearly 77%. Yet — within just 24 years — the world must somehow find about 74% more oil than it is currently consuming, even though 77% of current supplies are expected to be exhausted.

Got that? Does that make any sense to you at all? Me neither. That's because it simply makes no sense whatsoever.

If you're feeling unnerved by this litany of sobering, downright scary news, you should be. It's ugly. It's freaky. And it's real.

What you do with all of this is up to you. But, by all means, you should do something well-planned because the unsustainable clearly cannot, and will not, continue.

US Taxes Among Lowest In World

2011-04-19T09:18:00.000-07:00

And They're Starving The Budget

According to a new report by the Organization for Economic Cooperation and Development (OECD), the burden on U.S. taxpayers is just about the lowest in the developed world.

The Paris-based group, which tracks the economies of 34 developed countries, found that though America's top rate is 35 percent, a typical married couple with two kids pays just 13.7 percent of total income in taxes, down from about 20 percent in 2000.

Meanwhile, the average rate among the 34 OECD nations for similar households was 26 percent.

The OECD has been compiling data on government taxes among member countries since 1965. All figures were for 2009.

However, many European countries also impose a Value Added Tax — a kind of sales tax on a wide variety of goods and services. Denmark's 25 percent VAT is the highest in Europe.

Though many Americans think their taxes are too high, federal revenues are now well below the 18 percent historical average.

Revenues plunged from their peak of $2.57 trillion in 2007 to reach $2.1 trillion, or 14.8 percent of economic output in 2009 — the lowest level since the 1950s — and taxes remain that low today, according to the Congressional Budget Office (CBO).

Those revenues are not sufficient to support a federal government that is waging two wars and funding the healthcare costs of the retired and disabled.

Including federal, state and local taxes, the total U.S. tax burden is 24 percent of GDP.

For comparison's sake, the total tax burden in Demark consumes some 48 percent of that country's GDP; Swedes pay 46 percent of GDP in taxes; in France, 42 percent goes to the tax man and Germans pay 37 percent. Canadians (31 percent), Japanese (28 percent) and Australians (27 percent) also have a higher tax burden than Americans.

The OECD says the total weight of taxes on the U.S. economy is at the lowest levels since the 1960s.

In fact, only two OECD countries devote a lower share of GDP to taxes than the United States — Chile (18.2 percent) and Mexico (17.5 percent).

This is worrisome since, as the OECD notes, the U.S. is the only major developed nation that has allowed tax levels to fall so low despite creating dangerous and potentially destabilizing deficits and debt burdens.

Just yesterday, Standard & Poor's cut its ratings outlook on the U.S. to negative from stable, effectively giving Washington a two-year deadline to enact meaningful change.

Phasing out the Bush tax cuts would bring revenues back in line with historical norms.

However, the CBO estimates that extending all the cuts set to expire at the end of 2012 — primarily the Bush-era tax cuts — will add another $4.6 trillion to the national debt in the next decade.

The House Republican budget would add to the problem by cutting taxes another $4.2 trillion over the next 10 years.

Conservative icon David Stockman, who was White House Budget Director for President Reagan, says the Republicans are "totally out to lunch."

“I think the biggest problem is revenues. It is simply unrealistic to say that raising revenue isn’t part of the solution. It’s a measure of how far off the deep end Republicans have gone with this religious catechism about taxes.”

Famous deficit hawk and fiscal conservative Pete Peterson concurs.

“Any viable plan must include both spending cuts and revenue increases,” he said.

That's a choice that lawmakers now have to make. The nation has a burgeoning crisis on its hands and any adherence to a strictly anti-tax doctrine will ultimately be self-defeating and ruinous.

45% of U.S. Households Paid No Federal Income Tax For 2010

2011-04-18T10:20:00.000-07:00

Happy Tax (Avoidance) Day!

Today is tax day for millions of Americans. However, for a nearly half of American households, this day means nothing at all.

That's because they won't be paying a dollar, or even a dime, to old Uncle Sam.

Due to an array of tax breaks, credits, write-offs and deductions, 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.

It's little wonder we have such a deficit problem.

Politicians have used the tax code to serve a wide array of special interests, including Americans at virtually all income levels. The wide variety of tax breaks are very popular and generate votes for incumbents, which makes changing the complex and cumbersome tax code very difficult.

Tens of millions of Americans get tax breaks for home mortgage interest, college tuition, having children, making charitable donations and for deducting state and local income taxes, plus sales taxes.

The vast majority who escape paying federal income taxes have low to medium incomes. However, these people still pay Social Security and Medicare taxes, plus property and retail taxes.

As of 2007, more than half of the federal government's tax revenue came from the top 10 percent of earners. And more than 44 percent came from the top 5 percent of earners.

However, the wealthy have access to more lucrative and numerous tax breaks. Though the top rate is 35 percent, millions of wealthy Americans pay far less.

According to 2007 IRS data (the latest year available), the 400 highest adjusted-gross-income households in the U.S. paid an average federal tax rate of just 17 percent, down from 26 percent in 1992.

According to the National Taxpayer Advocate, an independent watchdog group within the IRS, all of the tax credits, write-offs and deductions legislated into the tax code result in a loss of $1.1 trillion to the federal government each year. That's an average of about $8,000 per taxpayer.

Keep in mind, last year's federal deficit was $1.3 trillion.

As I've noted on this page many times before, the federal government doesn't just have a spending problem; it also has a revenue problem.

The wars in Iraq and Afghanistan were never funded. They're being fought with borrowed money. The same is true for the Medicare Prescription Drug Act.

Due to high unemployment and lower incomes and wages, tax revenues have fallen to 15% of GDP, down from the historical average of !8% of GDP. As a share of GDP, income tax revenues are at their lowest level since 1951, when Harry S. Truman was president.

The government must correct this and return to the historical average, plus cut spending, just to reign in the deficit and balance the budget.

Yet, even if this is done, it won't even begin to address the $14 trillion national debt.

But, hey, we've got to start somewhere.

Deficit Reduction Plans Will Not Solve Debt Crisis

2011-04-13T23:50:00.000-07:00

Gross federal debt is now about 100 percent of gross domestic product, the highest level since immediately after World War II.

The problem for the US is that our annual budget deficits, which add to that debt, show no signs of abetting for decades to come.

Economists typically agree that in order for a nation to remain on a stable fiscal footing, its deficit should not exceed 3 percent of gross domestic product (GDP).

However, according to the IMF, the US budget deficit for fiscal 2011 is expected to hit 10.75 percent of national output, the highest among the developed nations.

This seems to have finally spooked Washington.

Today, President Obama called for $4 trillion in deficit reductions over the next 12 years. To achieve those reductions, Obama said $2 trillion should come from spending, $1 trillion from overhauling the tax system to eliminate some tax breaks and loopholes, and the rest from lower interest payments on the national debt.

It is unclear, to me at least, how the president plans to lower interest payments, or how they can be controlled in any way as long as annual deficits continue.

The President's plan calls for $770 billion in cuts to domestic programs, $480 billion in savings from Medicare and Medicaid, $400 billion in cuts to military spending by 2023 and $360 billion in cuts to mandatory programs such as agricultural subsidies.

Though it is not counted in his $4 trillion deficit reduction plan, Obama also wants to allow the Bush-era tax cuts to expire for individuals making at least $200,000 a year and for couples making at least $250,000 annually. That group amounts to 2 percent of the US population.

Last week, House Republicans, led by Rep. Paul Ryan of Wisconsin, unveiled their own budget for the 2012 fiscal year and beyond. It would cut $6 trillion over 10 years, mostly from projected spending for Medicare and Medicaid. However, those savings would be offset by about $4 trillion in tax cuts. The result, according to the Congressional Budget Office, would be continued annual deficits until 2040.

So the more aggressive Republican plan still allows deficits to continue for the better part of the next three decades. Meanwhile, the national debt currently stands at more than $14 trillion.

The reality is that the only thing that either of these plans will do is slow down the rate at which debt is added.

The deficit is expected to top $1.5 trillion this year. It will be added to the already massive national debt. And that debt will just keep growing for decades to come, meaning that the interest payments on the debt will also continue to grow — even if interest rates somehow managed to stay as low as they are at present.

However, rates are sure to rise as foreign creditors become increasingly uneasy about the magnitude of the ever-increasing US debt. That debt has been growing for decades, regardless of which party has controlled the White House or Congress.

The US is now in a hole from which it cannot be extricated.

Even if Congress never approves another spending increase or tax cut, the government will not have sufficient revenue to cover all the bills that will be coming due.

Huge corporations, like GE and Bank of America, pay nothing in taxes and in fact receive payments from the Treasury. Millions of Americans remain unemployed and are not contributing to the tax base. Millions more have taken pay cuts and are contributing less than in the past.

Let there be no mistake; our government has a problem with both spending and revenue. Even worse, these may be predicaments for which there is no solution and no return.

The Afghan war, alone, costs more than $9 billion a month. This means that the government is spending more than $100 billion a year on an unwinnable war. Money is being poured into the rebuilding Iraq and Afghanistan even as America crumbles.

The US has no hope of ever paying off its debts and liabilities through any combination of spending cuts or tax hikes. Its only hope is a very dangerous one; to inflate away its debts.

However, inflating a currency devalues that currency. This will be a horrible reality for all Americans to grapple with. And it will eventually cause interest rates to soar, or drive foreign investors away from the Treasury market entirely.

Rising interest rates will slow growth and thwart capital investments. Simply put, it will become prohibitively expensive for both businesses and individuals to borrow money. That will cause further damage to an already fragile economy.

As these realities become more clear to the average American, it will make the 2012 election cycle particularly bitter and acrimonious. There will be much finger-pointing and lots of blame to go around. The political debate will be even more nasty than usual.

The US has entered a crisis stage and things are about to get very ugly and uncomfortable.

As Carmen Reinhart and Kenneth Rogoff have illustrated, once federal debt held by the public reaches 90 percent of gross domestic product, a critical insolvency threshold has been breached. And, as their work shows, debt ratios that high cause GDP growth rates to fall.

Slowing growth — or worse, a shrinking economy — only causes debt ratios to increase.

Unfortunately, the US is now approaching that point of no return, with a publicly held debt equaling 70 percent of GDP.

The debt held by the public is all the federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside the United States Government.

As we've seen, there is no political plan that will stop the inevitable growth of the US debt. Even the most draconian of plans will only slow annual budget deficits and the subsequent debt growth.

In the mean time, there will be much pain spread amongst the public. This will particularly affect the weakest and most vulnerable in our society, including the elderly, the poor, the disabled, the unemployed, the uneducated and the unskilled.

It will also affect everyone with savings, a pension or a 401k plan.

The vast majority of Americans have no experience with, and no paradigm for, the kind of difficulties we are headed for as a nation, or with the troubles that millions of them, their families, their friends and the neighbors will all be facing.

There are no political solutions ahead; only painful outcomes.

The Crunch Is On

2011-04-10T12:51:00.000-07:00

According to Census Bureau data, real median income has not grown for almost 14 years. In fact, median household income fell from over $52,000 in 1999 to $49,777 in 2010. It's considered the lost decade.

While incomes have been stagnant or falling, Americans' most valuable assets — their homes — have been plummeting.

Given the rise in food and fuel costs, which are now about 23% of the average person’s income, you get an idea how much the average American is struggling. Medical and tuition costs are also outstripping the general rate of inflation.

Most Americans are falling further behind, not getting ahead. The American dream is dead and over for huge swaths of our fellow countrymen.

According to a study commissioned by Wider Opportunities for Women, a nonprofit group, a single worker needs an income of $30,012 a year — or just above $14 an hour — to cover basic expenses and save for retirement and emergencies. That is close to three times the 2010 national poverty level of $10,830 for a single person, and nearly twice the federal minimum wage of $7.25 an hour.

The recession / economic downturn has pushed millions of Americans into poverty and it is leaving millions more hanging by a thread, with the potential for slipping over the precipice.

Despite recent unemployment data, which at first blush seems optimistic, according to the Bureau of Labor Statistics, 13.5 million people remain unemployed in the US. But that number doesn't accurately reflect the true number of unemployed Americans.

The unemployment rate is improving only because it doesn't count a lot of people — including those who have stopped looking for jobs and dropped out of the labor force. The employment-to-population ratio, which measures the share of the U.S. population that has a job, has hardly budged over the past year. And that means the percentage of people working in this country hasn't changed even though the unemployment rate has ticked down.

This is particularly bad news since our population is continually growing, having increased by 30 million people over the last decade. Meanwhile, job growth in that period was negative.

However, the economy needs to add about 150,000 jobs a month just to absorb the annual population increase and the entrance of new people into the workforce, such as college grads.

The government says that 1.3 million jobs needed to be created every year from 2006-2016 just to keep up with the growing labor force. Obviously, that isn't happening.

Yet, that sort of growth would only benefit new workers, not the already unemployed.

While 240,000 new jobs were created in the private sector (216,000 non-farm jobs) last month, that will be a tough pace to sustain. Yet, this kind of job growth must be maintained for the nation to dig itself out of the hole it's in.

Beginning last year, the US needed to add 2.15 million private-sector jobs per year and maintain that pace for more than 7 consecutive years (7.63 years), or until August 2017, just to eliminate the jobs deficit.

If you're doing the math, you know that's 179,000 new jobs each and every month. That's not likely to happen either.

Over the last decade, our GDP was driven by government spending. Obviously, that has to end. However, cutting government spending will mean lower GDP numbers in the short term, though it will allow our survival in the longer term.

The private sector is incapable of stepping in, as the government steps out, to maintain the already fragile economy. We will just muddle along, unable to grow our way out of this problem. Cutting government spending will be both a blessing and a curse.

There is a growing conversation about cutting entitlements, yet very little about defense and security spending, which account for the biggest chunks of federal spending. Huge defense corporations are hell-bent on maintaining wars and the federal-funds pipeline that feeds them.

Right now, the US is in the unprecedented position of fighting three concurrent wars. The Afghan war, alone, costs more than $9 billion a month.

Eisenhower warned us to be wary of the military-industrial complex. He was right. We're a nation constantly at war, spending trillions on defense, while we give millionaires, billionaires and corporations massive tax breaks.

While the nation fights these unwise, unfunded, unwinnable wars, there is passionate discussion of the need to cut Social Security benefits to save the republic.

Perhaps those arguing for such cuts should be reminded that there is a $2.5 trillion dollar Social Security surplus that is owed to the American people. And Social Security cannot legally add to the deficit; It is one of the few expenditures (like unemployment insurance) expressly paid for through worker's paychecks each and every week.

While Republicans and Democrats were patting themselves on the back for agreeing to $38.5 billion in budget cuts, the national debt jumped $54.1 billion in just the preceding eight days.

As politicians bicker and engage in absurd partisan battles, the Titanic is sinking. Many will be lost with it.

Even before all the massive and requisite budget cuts are initiated, millions of Americans are already sliding backwards. And there is no backstop to support them.

Financial Sector Compensation at Obscene Levels

2011-04-02T13:48:00.000-07:00

The issue of outsized CEO pay has gotten plenty of attention in recent years, and for good reason.

According to data compiled by the Institute for Policy Studies, the average American CEO earned 319 times the salary of the average U.S. worker in 2008.

It was an enormous increase from historical trends; in 1980, the ratio between CEO and worker pay was 42 times.

So, in the intervening three decades, things got really out of whack.

A report by the Economic Policy Institute looked at top CEO pay in 2007 and found that, "In 2007 a CEO earned more in one workday (there are 260 in a year) than the typical worker earned all year."

This isn't simply a matter of fairness, it's a matter of lost jobs — lots of them.

A reduction in the CEO pay multiple to the 1980 level would allow the average U.S. company to hire an additional 277 workers. This reduction, applied across the Wilshire 5000 index, would create nearly 1.4 million jobs, according to TheStreet.com.

In no other place is the scale of executive compensation more outrageous than on Wall St. and in the financial sector as a whole.

Bartlett Naylor of Public Citizen has just issued an eye-opening report titled, "A Modest Essay About Extraordinary Paychecks", which examines executive compensation on Wall St.

How out of line is executive pay on Wall St.? Well, consider the following:

In 2009, hedge fund manager David Tepper made President Obama’s annual salary every fourteen minutes.

President Obama earned $400,000 in 2009, or $200 an hour.

Tepper, the best paid hedge fund manager in 2009, made $4 billion. Assuming an eight-hour working day, and 2000 hours per year, that amounts to $2 million an hour.

To provide some perspective, per capita income in the U.S. was $46,436 in 2009. This works out to $23 an hour.

Millions and billions are both very large sums, but the difference between a million and a billion is profound: A million seconds is about 12 days, while a billion seconds is 30 years.

Tepper donated $55 million to Carnegie Mellon University, which, at first blush, seems exceedingly generous, until you discover that it was half a week’s paycheck for him.

According to Forbes, Oprah Winfrey was the best paid entertainment figure at $225 million, or $112,500 every hour.

But there is only one Oprah. There are lots of Wall St. bankers and other assorted financial overlords.

Thomas Montag, president of global banking at Bank of America, received $29 million, or $14,500 an hour. Yet, that was a mere pittance compared to Tepper.

Clearly, Wall St. is the place to be if money is your highest aspiration.

James Simons of Renaissance Capital led the list of best paid hedge fund managers in 2006 and 2008 with more than $1 billion in annual compensation. Yet, even after the financial crash, Simons is estimated to have earned $2.5 billion in 2009.

So the problem of excessive compensation is actually getting worse, despite the bad economy.

Notwithstanding his $2.5 billion in earnings, Simons was only third on the list of highest paid hedge fund managers in 2009.

Yes, there are even bigger fish in the Wall St. shark tank.

In 2010, hedge fund manager John Paulson exceeded David Tepper’s 2009 earnings of $4 billion by securing an estimated $5 billion in fees and profit share from his firm. That’s $2.5 million each hour. Or $42,000 a minute.

If you total the national economic output of the bottom 14 nations of the globe, you would still come a half billion dollars short of the $5 billion Paulson received in 2010.

That's right; one man out-earned the entire GDPs of 14 entire countries.

In 2010, Paulson also made about the same money as the revenues of Gannett, the company that employs 32,500 workers and produces 83 daily newspapers, including USAToday.

Mr. Naylor goes on to detail just how out of line hedge fund compensation is compared to executives in other industrialized nations, such as Japan, Germany and the UK.

As Naylor notes, hedge fund managers "place bets against other gamblers, and for every dollar they win, someone else loses."

That's because hedge fund managers are allowed to sell short, meaning they can profit when a security falls in value.

The simple truth is that hedge fund managers don't create anything tangible and they don't add to the economy. They simply move existing money around the Monopoly board, while skimming off the top for themselves.

How much is enough for Wall St. types? Clearly, the sky is the limit. Too much is never enough because neither exists in their world.

Vanguard founder John Bogle's book "Enough" attempts to measure what really counts in life.

The title, as Bogle explains, comes from a conversation between Kurt Vonnegut and novelist Joseph Heller, who are enjoying a party hosted by a billionaire hedge fund manager.

Vonnegut points out that their wealthy host had made more money in one day than Heller ever made from his novel Catch-22.

Heller responds: "Yes, but I have something he will never have: enough."

Tax Breaks Adding To Deficits & Debt

2011-03-28T10:03:00.000-07:00

Given its $1.5 trillion budget deficit, it's easy to argue that the federal government has a spending problem. But it's also true that the government has a revenue problem as well.

Due to high unemployment and lower incomes and wages, tax revenues have fallen to 15% of GDP, down from the historical average of !8% of GDP. As a share of GDP, income tax revenues are at their lowest level since 1951, when Harry S. Truman was president.

Federal tax revenues were much smaller in 2010 than in 2000, reports Pulitzer Prize winning writer David Cay Johnston. Total individual income tax receipts fell 30 percent in real terms. Since the population kept growing, income taxes per capita plummeted.

As Mr. Johnston notes, the historical data proves that, "Tax rate cuts did not pay for themselves, did not spur economic growth, did not increase jobs, and did not make America better off."

It was the combination of excess spending and irresponsible, unsupportable tax cuts that led to our growing deficits and potentially crippling debt.

Laura Tyson, an economist at the University of California, Berkeley, says a hodgepodge of tax loopholes — or "tax expenditures," as they're known — cost the Treasury more than a trillion dollars a year.

Even when the budgetary committees of the Congress are unwilling to increase spending, they are often willing to create a new tax credit. Congress is more inclined to approve a dollar of tax breaks than a dollar of direct federal spending, even though the effect on government coffers is the same.

For example, in December, Congress passed more than $800 billion worth of tax cuts in an effort to stimulate the economy. But spending that kind of money to achieve the same goal would have been virtually impossible.

Tax breaks can have unintended consequences, such as encouraging mal-investment or over-investment in a particular sector, such as housing for instance.

With our government so deeply in debt, it would be wise to end the multitude of tax breaks now.

In fact, the president's deficit commission recommended doing away with most tax breaks and creating a simpler system with lower rates.

The current system creates winners and losers. A simpler code, absent all the tax breaks and tax preferences for certain groups, would give taxpayers more confidence that everyone is paying a fair share.

The federal budget crisis is poised to worsen. Even if the government miraculously balanced its books and wiped out the deficit, it would still need trillions in additional revenues to begin shrinking the debt. It is time for the government to move to a multi-tiered tax system that eliminates all write-offs, credits and deductions.

According to the Congressional Joint Committee on Taxation, from 2010 to 2014, the cost of health care credits, mortgage interest and property tax write offs, plus deductions for retirement savings will be at least $2.5 trillion.

This essentially amounts to spending built directly into the tax code. However, the government can no longer afford the sum total of all the subsidies it has granted over the years.

The corporate tax system, in particular, is awash with abuses.

Although the top corporate tax rate in the United States is 35%, one of the highest in the world, companies have been increasingly using a complicated array of shelters, tax credits and subsidies to pay far less. Many big corporations actually pay very little, if anything at all.

For example, for the second consecutive year, Bank of America paid no federal taxes and actually reported a tax “benefit” of nearly $1 billion. And due to billions in accumulated losses, the mega bank will likely benefit from a reduced tax bill in future years as well.

Bank of America claims to have suffered a pre-tax loss of $5.4 billion in the U.S. in 2010. But an army of accountants and tax lawyers likely orchestrated that with a combination of smoke, mirrors and sleight of hand accounting.

Like other companies, Bank of America avoids paying taxes on profits they make in overseas operations by reinvesting these proceeds overseas, instead of bringing them back home. In essence, the tax code rewards behavior that is detrimental to the US.

Despite reporting US profits of $5.1 billion in 2010, and global profits of $14.2 billion, General Electric — the nation’s largest corporation — will pay no taxes for 2010. In fact, GE claimed a tax benefit of $3.2 billion.

How's that for self-enrichment?

Regulatory filings show that in the last five years, GE has accumulated $26 billion in American profits, and received a net tax benefit from the IRS of $4.1 billion.

It's not uncommon. The corporate share of the federal tax base has been shrinking for years.

The corporate share of federal tax receipts has dropped from 50% during World War II, to 30% in the 1950s, to 21% in 2001, to just 6.6% today. This amounts to nothing less than corporate welfare.

In 2004, Forbes magazine reported that one-third of America's largest and most profitable corporations paid zero taxes — or actually received credits — in at least one of the previous three years.

And, according to the Government Accountability office (the investigative arm of Congress), two out of three US corporations paid no taxes from 1998 through 2005. The study covered 1.3 million corporations of all sizes, with a collective $2.5 trillion in sales. It also included foreign corporations that do business in the US.

Corporations fiercely lobby for tax breaks and use every trick in the book to avoid paying taxes. GE’s giant tax department, for instance, includes former officials from the Treasury, the IRS and virtually all the tax-writing committees in Congress.

The present corporate tax system is wildly unfair, with some companies paying nothing, some paying 8% and others paying 35%.

To get a sense of just how inequitable the corporate tax system is, consider the tax rate paid by two of America's biggest companies: Wal-Mart paid 34 cents in taxes for every dollar of profit it made in the past three years. Meanwhile, General Electric paid just 3.6 cents on the dollar.

The tax code plays favorites, incentivizing and rewarding certain behaviors. It encourages mal-investment and the misallocation of money. In the end, tax breaks can make bad decisions seem like good ones.

For many companies, working the tax code is the key to higher profits. But American corporations are already doing quite well.

Of the 100 largest economies in the world, 53 are corporations; of those, 47 are U.S.-based.

No matter the rate, corporations will always complain about paying taxes, just as many individuals do. But while the statutory tax rate is 35%, the effective tax rate — the actual tax rate that companies pay after all the adjustments they make — is around 25% or so, says Roberton Williams of the Tax Policy Center in Washington.

If the government doesn't cut spending, simply the tax code, flatten rates and eliminate all deductions, credits and write offs, it will soon end up insolvent.

That will not be a good environment for any corporation or individual to do business.

While Farming Declines In US, Food Prices Soar

2011-03-23T16:30:00.000-07:00

This was once an agrarian nation, but there is now a less than 1 percent chance that you are a farmer.

In Thomas Jefferson's day, 9 out of 10 Americans cultivated the earth.

When Abraham Lincoln created the U.S. Department of Agriculture, half the country still farmed.

Under F.D.R., 1 in 5 Americans was still a farmer.

But now it's just 1 in 150, and closer to 1 in 500 for full-timers.

Farming is a dying profession. Only 6 percent of farmers are younger than 35, while 26 percent are over 65.

This is a dangerous development. Most Americans have lost touch with something that was traditionally considered fundamental and rudimentary from the dawn of humanity. And it all happened rather quickly, in the span of just a couple of generations.

Most of us think we can just roll on down to the store and pick up whatever necessities we may need. But what happens when there are supply disruptions and the store shelves run bare, as is happening in Japan at present?

Perhaps a more immediate concern is inflation. Between March 2007 and March 2008, global food prices increased an average of 43 percent, according to the International Monetary Fund.

And due to continually rising grain and fuel prices, global food prices are still increasing.

Last fall, the U.S. Agriculture Department forecast that food inflation — which was already rising at the time — would continue to “accelerate” through the first six months of this year. The USDA projected that food prices will rise 2% to 3% this year.

However, that may have been optimistic; wholesale food prices rose 3.9% last month, the most in 36 years.

At the same time, global prices for corn, wheat, soybeans, coffee and other commodities have risen sharply in the past year. That, in turn, has raised the price of animal feed, which has pushed up the cost of eggs, ground beef and milk.

More expensive food means that people have less money for discretionary spending, which is critical to grow the economy and create jobs. And it adds to growing concerns about wider inflation down the road.

Many economists expect food prices to keep rising through the end of the year. Consumer food prices will be about 5 percent higher this fall than at the same time last year, according to RBC Capital Markets.

In January, the UN’s Food and Agricultural Organization (FAO) warned of a possible “food price shock” if prices continued to rise.

According to the FAO, a basket tracking the wholesale cost of food commodities such as wheat, corn, rice, vegetable oils, and meats, has already topped the peak values of 2008, reaching 214.5 points (compared to 213.5 in June 2008).

As it stands, food prices are already at their the highest level since the U.N. began keeping track in 1990.

There are a number of forces driving the spike in global food prices. Floods in Australia, drought in Russia, and excessively hot weather in Latin America hurt harvests and are putting upward pressure on prices. Russia and Argentina have even halted grain exports.

Now, the worst drought in sixty years is threatening the wheat crop in China, the world's largest wheat producer. Viewing food crops as part of its national security, China has historically been neither a wheat importer or exporter. With 1.3 billion mouths to feed, the Chinese government protects its vital food assets and has avoided a reliance on other nations.

However, China may now need to import wheat, which will drive global prices even higher.

The implications for the US may not be as dire as in the developing world, where higher food prices have pushed more than 44 million people into extreme poverty since 2010.

However, rising food prices do negatively affect millions of Americans presently living on the edge. As it stands, 1 in 7 of our fellow citizens are now receiving food stamps.

Americans would be well-advised to take some measure of control over their own food security, and start growing food at home, in the backyard, or on rooftop gardens in cities. The once common vegetable garden is largely a thing of the past; it's time to bring it back en masse.

The average food in the US travels 1,500 miles to get to your plate. Due to rising fuel costs, that is not sustainable. Food production needs to become more localized. For both health and economic reasons, the local food movement must, and will, grow.

The global demand for food is growing along with the global population, which is expected to increase from the current seven billion to nine billion by 2050. World food production must increase by 70% between now and then to feed them all.

This will pit supply against demand, and it appears that supply will lose that battle.

As Jason Clay of the World Wildlife Fund recently put it, to feed all those mouths, "we will need to produce as much food in the next 40 years as we have in the last 8,000."

That should make your head spin.

Personal sustainability will be a buzz word of this century. Taking control of our own food security by learning to cultivate the earth again, as our ancestors once did, is vital.

Bleak Data Shows U.S. Housing Far From Recovery

2011-03-18T13:12:00.000-07:00

After a sharp January rise, construction of new US housing units plunged 22.5% in February, coming close to an all-time-low level set in March 1984.

While the January increase seemed like good news, it was due to an 87.4% surge in apartment starts — not single-family homes.

However, multi-family units subsequently dropped 46.1% in February.

Housing starts fell across all four regions of the country, with single-family housing starts hitting a record low in the Midwest.

The decline in housing starts is likely the start of a longer trend. Requests for permits to start new projects fell to a five-decade low.

Single-family homes — which make up roughly 80 percent of home construction — are the bellwether of the housing market and permit requests for single-family homes saw the biggest decline.

There are obvious reasons for these developments.

Due to the excess supply of existing homes, there's no need for new housing. Buyers are looking for cheaper foreclosures and short sales.

Slumping home prices have resulted in one of the best buyer's markets in memory, making this the wrong environment for builders to begin constructing new homes.

Even the good news comes with a caveat.

Data from the National Association of Realtors reveals that sales of previously owned homes climbed unexpectedly in January, to the highest level in eight months.

However, that increase was led by investors taking advantage of lower prices in distressed properties. Those investors are snatching up multiple properties, hoping to flip them for a profit. It's a decision they may come to regret.

Home sales remain slow and prices continue to fall. So it's little wonder that starts are down. The combination of all three factors points to just how far the market is from any sort of meaningful recovery.

Unemployment remains stubbornly high and housing inventories are excessively high. There were one million foreclosures in the US last year and an additional million are anticipated this year, which will push home prices down even further.

For all these reasons, potential buyers remain on the sidelines, cautiously watching and waiting.

A housing recovery will take many years and most people seem to recognize this. Consequently, the national sentiment is quite bad.

Case in point; the National Association of Home Builders said its index of industry sentiment for March improved slightly to 17.

While even a small improvement should be viewed as good news, any reading below 50 indicates negative sentiment about the housing market's future, and the index hasn't been above that level since April 2006.

Millions of construction jobs were among those lost in the recession. Yet, the latest housing data will likely result in even further layoffs.

That's a problem because housing cannot fully recover until the employment picture improves.

Further, housing cannot recover until prices stop falling and we have true price discovery in the market. That cannot happen until all of the so-called 'shadow inventory' enters the market and is liquidated.

The shadow inventory includes foreclosed properties that have yet to reach the market (some of which are being held back by banks futilely waiting for a recovery) and properties that will soon enter the foreclosure process.

The Census Bureau reports that 18.8 million homes are currently vacant. This indicates that banks may be holding onto a massive number of properties without listing them.

A recent report by Standard & Poor's says there were 1.7 million homes either owned by the bank or in some stage of foreclosure at the end of the third quarter of 2010. It would take 44 months, at the current rate of sales, to sell them off — a 25% increase from the beginning of 2010.

However, the foreclosure problem could get even worse. Morgan Stanley says that 8 million foreclosure-bound homes have yet to hit the market.

That's because banks are taking far longer to foreclose on homes than in the past. Last year there were nearly 2.9 million homes that received some kind of foreclosure notice, causing banks to struggle to keep up with the sheer volume.

Additionally, court delays and political pressure have constricted the flow of foreclosures onto the market to a trickle.

Simply put, there are millions more foreclosures to come, which will swamp the already depressed housing market.

According to Zillow, a Seattle-based real estate reporting company, 27% of US homeowners are now ‘underwater’ in their home, owing more than the home is worth.

Laurie Goodman, senior managing director at Amherst Securities, reports that 1 in 5 distressed homeowners in the US faces, or may face, foreclosure. She says 11.5 million home loans are non-performing or highly distressed at present.

And, in February, Bloomberg.com reported that some 15.7 million homeowners had negative equity. These people aren't just underwater; they have no skin in the game. That makes them quite likely, if not certain, to default.

There is no end in sight. The housing sector will remain depressed for years to come. We are in a long term buyer's market, which is great for younger, first-time buyers.

The downside is that many people will remain trapped in their homes, unable to sell due to negative equity. Many will default, while others will continue paying the mortgage on a home that may never be worth what they paid for it.

Budget Cutting A Highly Politicized Process

2011-03-16T14:17:00.000-07:00

The U.S. Congress is now confronting a $14 trillion national debt that just keeps growing. Congress is charged with, at a minimum, ceasing its deficit spending.

However, even if Congress manages to balance its budget and stops adding to the debt, such fiscal discipline will do nothing to to decrease the debt itself.

There's an old adage that goes like this: The best way to get out of a hole is to first stop digging.

Yet, that only keeps you from going deeper into the hole. It does not extricate you from that hole.

That's the problem the U.S. is now facing. Even if Congress stops its profligate deficit spending, its fiscal problems are already baked into the cake. There is no plan, and likely no possibility, of reducing the debt. But even worse, there seems to be no near-term plan to stop adding to it.

Due to the weak economy, tax revenues have dropped considerably. There are fewer people working and paying taxes, while more are collecting unemployment and food stamps. Meanwhile, the extension of the Bush tax cuts will only depress the revenue side of the ledger even further.

Our government doesn't just have a spending problem; it also has a revenue problem.

The extension of tax cuts and unemployment benefits, plus the 2 percent payroll (Social Security) tax cut this year, have added almost $400 billion to this year's deficit, according to the CBO.

In a bid to reign in the federal government's massive $1.5 trillion deficit, Republicans in Congress are promising a slew of tax cuts, including ending President Obama's high-speed rail program, gutting the Environmental Protection Agency (EPA), and even cutting $74 million from the FBI's budget.

But that's not all.

There are also planned cuts to rather small budget items, such as food assistance for poor mothers and their children; the Head Start pre-school program; the National Institutes of Health; teacher funding; and financial aid for college students.

However, eliminating these and other popular targets — like the National Endowment for the Arts ($161.3 million), the EPA ($10.3 billion), NASA ($18.4 billion), and even foreign aid ($36.7 billion) — is just tinkering at the margins and won't make any meaningful difference in our long term fiscal position.

Given that the federal budget is $3.7 trillion, one percent of that equals $37 million. What this means is that each of these budget expenditures amounts to less than one percent of the budget. In relative terms, it's just chicken scratch.

For blatantly political reasons, Republicans have left some very expensive sacred cows untouched, such as more than $5 billion spent every year on ethanol subsidies that neither help the environment nor save energy; $3.5 billion for an extra engine for the F-35 fighter jet that the Pentagon doesn't want; and $6.2 billion in tax credits for oil and gas companies flush in record profits.

In fact, earlier this month, 236 House Republicans and 13 Democrats voted down a motion to end taxpayer-funded subsidies for Big Oil. Ending those subsidies would have saved tens of billions of dollars over the next decade.

So much for fiscal responsibility.

As The Guardian reports, the three big US oil companies (ExxonMobil, Chevron and ConocoPhillips) together made nearly $60 billion after costs and taxes — a doubling of profits in 2010 compared with the previous year.

According to the CALPIRG, the government gives $19 billion in subsidies to the oil and gas industry.

How can anyone reasonably argue that these giant oil companies need taxpayer subsidies?

The truth is, all of the above programs have so far escaped cutbacks for political reasons.

Part of the F-35 engine is made in the district of House Majority Leader Eric Cantor (R-Va.) and another part in House Speaker John Boehner's district.

Despite this, Boehner promises, "You are going to see more spending cuts come out of this Congress than any Congress in the history of this country."

However, members of Congress don't typically vote against military spending for fear of being labelled soft on defense, or not supporting the troops, or not taking terrorism seriously.

For these reasons, defense spending has doubled over the last ten years, according to Ashton Carter, the Defense Department's undersecretary for acquisitions.

This must be reversed. Significant cuts must be made to the military, domestic security and intelligence budgets. In addition, war funding and nuclear weapons programs must also be curbed.

These items account for 66% of discretionary spending, according to the National Priorities Project. Major cuts cannot be avoided. To do so would be recklessly irresponsible and will prove ruinous to this nation.

The US spends more on its military budget than all of the other nations on earth combined. Clearly, there is plenty of fat to be cut.

For example, the Pentagon wastes $185 billion ordering obsolete military equipment, and $34 billion in Homeland Security contracts have been plagued with waste, abuse and mismanagement going back to 2001, according to CALPIRG.

The last farm bill passed by Congress cost $286 billion. It was filled with an array of loans, price supports, subsidized insurance, disaster aid and money-for-nothing handouts. According to TIME, the top 10% of subsidized farmers collect nearly three-quarters of the subsidies, for an average of almost $35,000 per year. The bottom 80% average just $700.

And, since the vast majority of the cash goes to five row crops—corn, soybeans, wheat, cotton and rice—more than 60% of our farmers receive no subsidies.

The program is a mess, filled with graft, cronyism and corruption. The Government Accountability Office report identified $1.1 billion of subsidies whose recipients were no longer breathing.

Yes, the farm lobby is powerful indeed.

The key is giving gutless politicians enough political cover to vote against the lobbyists and special interests that fund them. That cover may have already been granted.

Last fall, two disparate organizations, the National Taxpayer Union (NTU) and the U.S. Public Interest Research Group (PIRG), joined together to propose $600 billion in federal budget cuts over the next 5 years.

Though not typically aligned, the groups highlighted 31 specific examples of wasteful government spending they say can be eliminated.

In the report, Toward Common Ground: Bridging the Political Divide to Reduce Spending, the 31 examples fall into the categories of ending wasteful subsidies, improving contract and asset acquisition, improving program execution and government operations, ending wasteful or outdated military programs and systems, and aligning military spending with current needs.

Andrew Moylan, director of Government Affairs at the NTU, who co-wrote the report, says the contracting process should be reformed "so that we don’t order as many as 50 percent too many spare parts for defense purposes.”

The National Taxpayer’s Union’s goal from its outset has been “helping to protect every single American's right to keep what they've earned,” according to the group’s Web site.

U.S. PIRG, for its part, states that “tax and budgeting decisions are the most concrete way that government declares its public priorities and balances between competing values.”

Some of the cuts suggested in the report include:

• Eliminate the Overseas Private Investment Corporation, which subsidizes investment abroad. Savings by 2015: $154 million.

• Eliminate subsidies to big agribusiness. Savings by 2015: $35.4 billion.

• Eliminate refundable tax credits for ethanol. Savings by 2015: $22.6 billion.

• Eliminate ultradeepwater natural gas and petroleum research program. Savings by 2015: $158 million.

• Eliminate Department of Homeland Security contracts already identified as wasteful. Savings by 2015: $34.3 billion.

• End orders for obsolete spare parts and supplies for the Defense Logistics Agency, Army, Navy, and Air Force. Savings by 2015: $35.5 billion.

• Remove the ceiling on the collection of overpayments from the Supplemental Security Income program. Savings by 2015: $580 million.

• Better align Medicare payments to teaching hospitals with actual costs. Savings by 2015: $20.5 billion.

• Recalibrate Medicare reimbursement rates in high-cost regions. Savings by 2015: $11.7 billion.

• Return unallocated funds from the Troubled Asset Relief Program (TARP). Savings by 2015: $15 billion.

• Cancel F-35 Joint Strike Fighter and replace with more advanced, cheap and reliable alternatives. Savings by 2015: $22.5 billion.

• End spending for high risk satellites and replace them with lower-cost alternatives. Savings by 2015: $5 billion.

• Align nuclear arsenal with current needs and threats. Savings by 2015: $56.7 billion.

• Cancel the outdated, unreliable and unneeded Expeditionary Fighting Vehicle. Savings by 2015: $16.3 billion.

The bottom line is that cutting small programs for ideological reasons really won't affect the bottom line.

Yanking money from the most needy and vulnerable individuals in our society should only come as a last resort, after all the huge industries — protected by high-paid super lobbyists — have all their taxpayer-funded subsidies / corporate welfare ended once and for all.

Rising Poverty Affecting American Children & Families

2011-03-11T13:30:00.000-08:00

The Census Bureau reports that 44 million Americans were living below the poverty line in 2009, or one in seven people — a rather remarkable statistic.

The one-in-seven figure perfectly matches the one-in-seven Americans currently receiving food stamps.

In other words, those 44 million Americans living in poverty accounted for 14.3 percent of the population — the highest level since 1994 — up from 13.2 percent in 2008.

According to the Census report, three million additional American families were only kept above the poverty line by unemployment insurance.

The government's U-6 unemployment number reveals that 15.9 percent of workers were unemployed or under-employed in February. The U-6 figure includes part-time workers seeking full-time work, as well as those who have gotten discouraged and stopped looking, but still want to work.

However, according to the work of economist John Williams at Shadow Government Statistics ("Analysis behind and beyond government economic reporting"), the real U-6 number is actually 22.1 percent. But that figure is too dire, so the government chooses to under-report it.

The unemployment crisis has taken a brutal toll on millions of American families. Nearly 14 million people have lost their jobs, which has led to an increase in homeless families.

There were a million foreclosures in the US last year and another million are expected this year. As a result, millions of children are being affected.

On Sunday night, 60 MInutes profiled the growing problem of homelessness among American children. The report was rather stunning.

The government considers a family of four to be impoverished if they take in less than $22,000 a year. Based on that standard, and government projections of unemployment, it is estimated that the poverty rate for kids in this country will soon hit 25 percent. Those children would be the largest American generation to be raised in hard times since the Great Depression.

Nationwide, 14 million children were in poverty before the Great Recession. Now, the US Census tells us its 16 million — up two million in two years. That is the fastest fall for the middle class since the government started counting 51 years ago.

When you consider just how loose the government's definition of poverty is ($22K for a family if four?), it's not difficult to imagine that millions more Americans are actually living in poverty, but not counted. The government tries to cover up the problem so the ugly truth isn't so obvious.

But you can't gloss over the fact that about half of all Americans are being left behind, as you'll see in a moment.

Though the nation's rampant unemployment is a significant part of the problem, even those who still have their jobs are regressing.

At just $49,777, the median family income was 5 percent lower in 2009 than it was in 1999. You could call it the 'lost decade'. What this means is that the median income is now less than a thousand bucks per week.

For a family trying to pay for housing, medical insurance, food and utilities in a large metropolitan area, that sum doesn't go far. Last year, the average health insurance cost for a family of four was $13,375, according to the Kaiser Family Foundation and the Health Research & Educational Trust.

Consequently, millions of Americans can no longer meet their most basic needs. According to Medicare/Medicaid Services annual report, 1 in 7 Americans did not have health coverage in 2009. However, a report by the Kaiser Family Foundation says that three-quarters of the 50 million uninsured in US are actually employed.

It's part of an ongoing pattern that is now four decades in the making.

According to Lawrence R. Mishel and David M. Frankel (The State of Working America), in 1973 the median male weekly wage was $486. Corrected for inflation, that is $2,361 in 2009 dollars, or $122,795 annually.

However, in its report entitled "Usual Weekly Earnings of Wage and Salary Workers: Second Quarter 2009", the Bureau of Labor Statistics reported that the median male weekly wage is now $815, or $42,380 annually.

So, there's been a nearly two-thirds reduction in male wages since 1973. Cheap and easy credit had previously concealed the ramifications of this collapse in real wages. That reality can no longer be hidden.

The sad fact is that a substantial portion of Americans are quite poor, while millions more are only part of the middle class by the slimmest of margins.

According to an analysis of wage data by Pulitzer Prize Winner David Cay Johnston, 33% of US workers make less than $15,000 annually. Roughly half of American workers make less than $500 per week, which is less than $26,000 annually. And 76% make less than $50,000 annually.

This supports the contention that the middle class is vanishing.

Before reading on, stop and consider those numbers for a moment.

Half of Americans make less than $26,000 per year. Remember, our government's definition of poverty for a family of four is $22,000. Naturally, in most of those families, both parents are likely working. But it's easy to imagine that roughly half of our fellow citizens are struggling to meet their most basic needs every single day.

This does not support the notions of equality or equal opportunity generally associated with the US. Perhaps we imagine this sort of inequality taking place in other nations, but not here.

However, the 30-nation Organization for Economic Cooperation and Development (OECD) released a report on income distribution and poverty in October 2008. The report highlighted global gaps between rich and poor. Guess what great industrialized nation had the fourth highest inequality in incomes, followed by Mexico, Turkey and Portugal?

Disturbingly, it was the US.

The report stated, "Rich households in America have been leaving both middle and poorer income groups behind. This has happened in many countries, but nowhere has this trend been so stark as in the United States."

So the wealth has not been getting spread around, as some contend; it's been going in one direction — up.

Yet the problem has grown even worse since then.

According to Federal Reserve Chairman Ben Bernanke, the US has now the biggest income disparity gap of any industrialized country in the world and this is "creating two societies."

In 2009, the top 20 percent of American earners — those making more than $100,000 annually — received 49.4 percent of all income generated in the country, compared with the 3.4 percent earned by those below the poverty line, according to data from the U.S. Census Bureau.

More stunning, the top 1 percent of Americans is now taking home almost a quarter of all income. In 1976, it was less than 9 percent.

According to economist Edward N. Wolff of New York University (2010), the financial wealth (total net worth minus the value of one's home) of the top 1% of households accounts for 42.7% of all privately held wealth in the US.

Again, stop and consider that for a moment.

Though we're told that the recession ended in 2009, some things are still getting worse — income disparity, wealth disparity and child poverty among them. Millions of American families are bearing these burdens.

As the 60 Minutes report noted, in Seminole County, Florida, 1,000 school students have recently lost their homes. That's just one county, in one state.

"Our numbers go up every day. Between five and 15 new homeless students a day," said Beth Davalos, who runs the Seminole County programs for homeless kids.

"When I first started this program eight years ago, homelessness lasted maybe two, three months," said Davalos. "But now with it lasting three, six months, a year or two years, this is when children are developing who they are and their foundation is broken."

Like the kids who came out of the Great Depression, this generation is being shaped by homelessness and hunger.

And for millions of families, the American dream isn't just slipping away; it's already been snuffed out.

2011-03-10T23:59:00.000-08:00

US Trade Gap Surges In January; Will Hurt GDP

The U.S. trade deficit widened by an exceptionally large $6 billion in January, reaching $46.3 billion.

Imports jumped 5.2 percent, the most since March 1993, while exports grew 2.7 percent. The weaker dollar aided exports.

Higher oil imports played a big role in the trade gap; the U.S. imported 290.7 million barrels of crude oil in January.

That trend is sure to continue in February and March as crude prices spike in response to the Mideast crisis.

The surge in imports was not due to oil alone, but also to purchases of business equipment, industrial supplies and consumer goods.

A wider trade gap subtracts from gross domestic product growth. So, unless the gap reverses course sharply in February and March, trade will likely subtract from U.S. GDP growth this quarter.

That will be especially challenging for a nation still reeling from the after effects of the Great Recession.

The size of the trade gap is all the more amazing since exports, on both a nominal and price-adjusted basis, hit a record high in January.

'Prophets of Doom' Discuss Impacts of Peak Oil and Debt

2011-03-05T01:34:00.000-08:00

Michael Ruppert, Nathan Hagens and James Kunstler were all featured on the History Channel special, 'Prophets of Doom'.

History teaches us one thing; change is inevitable. This most ancient truth has been illustrated time and time again, as every great empire — no matter how powerful — eventually falls.

In every instance, wise men have predicted their empire's end, with their dire warnings unheeded.

Is it possible in modern times that this may be happening close to home? Could America be headed for catastrophe? There are men among us today who think that a collapse is not only possible, but that it has already begun.

Unlike Nostradamus, or other bygone prophets, they look not to crystal balls or the stars, but to actual evidence to reinforce their claims.

Michael Ruppert is an investigative journalist and the author of 'Confronting Collapse' and 'Crossing the Rubicon'. He is certain that our society is now disintegrating from within.

'We cannot — as a nation, as a planet or as a species — continue to live the way we have, under the assumptions that we have. Because if we do, we are committing suicide," says Ruppert.

Ruppert believes that our explosive population growth over the past two centuries is the result of one thing; fossil fuel.

"One of the first applications was to create an internal-combustion-powered tractor for the purpose of plowing because you could multiply the number of acres that could be plowed," Ruppert says. "And then it was discovered that you could make fertilizers out of ammonia, which is produced from natural gas. So it became possible to feed many more people as oil and natural gas began to be used more and more.

"It is solely the fact of hydro-carbon energy — specifically internal-combustion-powered engines, ammonium-based fertilizers made from natural gas and pesticides made from petroleum — that has allowed the human population to expand in just over a little over a 120, 130 years.

"In the starkest terms, the human population was fairly stable, at just under 1.5 to 2 billion people from the time of Christ until oil was discovered. There was a slight dip for the bubonic plague; a slight increase as the beginnings of the Industrial Revolution came along with steam and with coal. But it was not until the discovery and use of oil that human population skyrocketed.

"From a simple arithmetic standpoint, if you just look at the numbers, essentially 5 billion too many people are living on this planet today that are not sustainable by any other means.

"As human civilization undergoes this enormous, painful transition, everything that mankind has held sacred is on the table. It's a matter of life and death now."

The United States' population more than tripled in the 20th Century. It is projected to increase yet another 46% by the end of the end of the year 2050. With fossil fuels running out, Ruppert does not see how our infrastructure will keep pace.

"You know, I think food exemplifies our problem as much as anything else. We have boxed ourselves into a situation where we transport food over enormous distances; where we fail to return nutrients to the topsoil so that it will grow anything else without those chemicals. And if those chemicals that come from oil and natural gas go away, the food goes away. And if the food goes away, people starve. And that process is beginning all over the world, now.

"Our population is still growing, even as the resources needed to keep that population fed are going away. Our population should be diminishing also, but we're in a condition of overshoot. We're still expanding.

"There aren't enough resources on a finite planet, a closed sphere, to sustain infinite growth. We just can't do it."

Ruppert believes the America of the future will bear little resemblance to the nation we know now.

"The indicators that the United States of America is collapsing are all around us. The changes now are going to come much more rapidly; they're going to be much harder to take; and the choices that we make now are going to determine how we're able to deal with those challenges.

"The way of life that the world has come to know since the discovery of oil about 130, 140 years ago is all coming to an end.

"We're going to see things like governments, cities and towns going bankrupt, which is happening. School districts are cutting back to four-day weeks. Everywhere, major cities are doing police cutbacks and fire cutbacks. We're seeing major infrastructure failures; an explosion in San Bruno, California of a natural gas pipeline that was laid in 1948. And nobody had the money to repair the infrastructure. We're going to see major failures and calamities and disasters like that.

"The bridge failure in Minnesota a few years ago, not to mention 30 million unemployed. Collapsing home values all over the place. Foreclosures soaring. We are seeing all the signs of collapse throughout this country and they're becoming more obvious every day."

Ruppert is certain these troubles aren't temporary. Nor are they the ordinary products of an economic downturn. He is convinced they are symptoms of a coming collapse.

"Collapse has happened to every empire in human history," says Ruppert. "That seems to be, if you will, a natural law — that empires can grow to a certain place and then they implode."

Two thousand years ago, the Roman Empire was the most powerful on earth. The similarities between Rome then and America today are striking. And the story of what ultimately befell that nation is told in museums around the world.

"Like here in America today, Rome's armies were spread too thin, in too many foreign countries," says Ruppert. "Barbarian invasions — like terrorist attacks and cross-border incursions as we see in Mexico's drug wars — were constant. The government was corrupt, and the only way to get anything accomplished was through bribery or by increasing taxes.

"This is no different than the stranglehold lobbyists, banks and corporations have on our government today. America, like ancient Rome, has this blind faith that we are superior to the rest of the world and it's our destiny to reign supreme forever. It's not gonna happen.

"We are going to learn some hard lessons and adjust to some hard circumstances. But we do have choices. The American empire is going to fall, but we do not all have to fall with it."

America dominates the world today on a scale far greater than even Rome could have imagined. But history, as well as nature, prove that size itself is no guarantee of continued survival.

"The question of survival is very much like the Titanic," says Ruppert, "a huge ship that was believed to be unsinkable, that could go forever. On its maiden voyage, it sank.

"The Titanic is going to sink, and there are some people that will not believe it until they're under water.

"If I had to sum all the problems down to one word, it is "overpopulation," because there are 5 billion people on the planet today who did not exist at the dawn of the oil age, and they exist only because of oil and natural gas."

Michael Ruppert isn't the only one with dark visions of the future. Others also anticipate the fall of America.

Dr. Nathan Hagens has a PhD in natural resources. He is also an economist and a former investment banker.

Hagens, formerly a VP at Solomon Brothers and Lehman Brothers, was managing a hedge fund when he came to the conclusion our current economic system was unsupportable. So he resigned.

He sees a financial collapse on the horizon.

"The near-term hurdle is, we have to deal with our excessive errors we've made in our financial system," says Hagens. "We've lived beyond our means, and we've extended that living beyond our means by issuing more credit, and there's gonna be reckoning there. The financial system as we know it is completely untenable, and there are gonna be big changes.

"Our economic system is actually a giant global ponzi scheme. And the way that translates is, a lot of this debt and credit that has been built may someday never be paid off. How that unravels is gonna have big consequences for the average American.

"Capitalism is gonna have to be retooled, or it's gonna completely go by the wayside. What we have now has been a failure. The future is going to look very different from the past in one primary regard, in that the world economy will no longer continue to grow."

"In the 1700s, we basically hit the energy jackpot when we figured out how to use coal and then subsequently, in the 1800s, oil. And then, in the last century, natural gas. Now the question is, what's gonna replace fossil fuels?

"Every American right now has 200 to 300 energy slaves standing behind them doing work that we take for granted: the energy in the taxi that got me here today, the lights in this building, our food system. The average food travels 1,500 miles to get to our plate. And that all uses energy.

"All these things are subsidized by a one-time endowment of fossil energy that is so powerful that, for all human intents and purposes, it is indistinguishable from magic."

Hagens believes the current global depression is the beginning of an economic collapse that will intensify as natural resources run out and alternative energies fail to replace them in time.

"Technology is in a race with depletion, and depletion is winning. People need to recognize, okay, we live on a finite planet and we have virtually infinite wants and perceived needs. But those two trends are butting up against each other, and what are we gonna do about it?

"We've been so endowed with natural resources for 60, 70, 80 years; we have not really thought that this was a problem. There have been some recessions and even a Great Depression, but we've always reset from that.

"We build our institutions and our expectations assuming that this sort of subsidy will continue in the future. And now we've built a lifestyle that is no longer sustainable. We can live within our means, but only when we acknowledge that there are limits. And our economic system right now does not acknowledge that there are limits. The financial system as we know it is completely untenable, and there are gonna be big changes."

The idea that our economic system is completely failing is hard to believe, but Hagens points to America's mountainous debt as proof. The balance between that debt and our available resources is delicate. When it tips, the system collapses.

"We have built an entire industrial civilization on the assumption that there will be more every year," says Hagens. "We now know that resources are harder to find and, in order to keep the system going, we've flooded the American economy — as well as the world economy — with more and more credit.

"We've created a large debt overhang, and right now we're kind of in this Wile E. Coyote moment where we've fallen off the cliff and the government is supporting the feeling that things are okay.

"But in reality, right around the corner, there are some very different trajectories. Basic needs; food procurement, water. Just knowing that people are gonna get fed is gonna become more prominent in people's minds, just like it did in the Great Depression.

"The 1920s were this kind of go-go period where a lot of people were invested in the stock market. On Black Tuesday, the stock market lost 12%. And it lost 40% two months later. And, eventually, the stock market — from its highs in 1929, to its lows in the mid '30s — lost 90% of its value. In the Great Depression, around 35 million people lived in families where no one had a job — out of a population of 120 million.

"So during that decade, the average income of those people that worked declined 40%. So it was pretty desperate back then.

"The government is attempting the same things that it attempted in the '30s, by borrowing money and stimulating the economy. But the problem is, we can't continue to inject money from thin air into a system and continue to think that it's gonna hold together. You cannot solve a credit crisis by adding more credit. Period."

The American Economy rebounded from the Great Depression to become larger and more dynamic than ever before, reinforcing the theory of cyclical markets, in which booms are followed by busts and then ultimately a bigger boom. Hagens cautions this belief is more faith than fact.

"I believe the United States is insolvent and that some of these debts that we've incurred from the past are gonna come home, and we're gonna have to face the reality. The moment of bankruptcy comes when people want the money, when they want the claims to be paid off.

"America, unfortunately, is asleep with a lot of these issues and part of this is due to cognitive dissonance. Cognitive dissonance is when our brains don't want to acknowledge the gravity or seriousness of a situation.

"A good example is in Jared Diamond's book "Collapse", where he talked about a dam that was about to break and people three miles downstream were really afraid. And people two miles downstream were, like, really freaked out. But people living within a mile of the dam, they weren't concerned at all.

"If things are too frightening and too threatening, our brains tune it out because it would affect our behavior and it would be too painful to accept. So peak oil and peak credit and the depletion of cheap fossil fuels — and what that means for the end of growth — it's too overwhelming.

"The financial reckoning that's coming could include many different scenarios. It could be no more US currency, and that our US currency is replaced by something else. It may happen that you have $100,000 in your bank, and the next day, you wake up and you have 10,000 patriot dollars, or something like that.

"It's happened many times. People remember Weimar, Germany in the 1920s, where there was the end of a system of claims and the end of a currency, and there was something that would replace it.

"The average American knows that something is wrong. But the problem is that they don't really speak up and get really vocal about it, because they don't know what to do."

Hagens feels this unprecedented financial crisis is the greatest threat to America today.

While the United States has seen its share of hard times, the expectation has always been one of boundless growth. History, however, promises one day we will take a long step back.

"Sometime in the next decade, there's going to be a financial reckoning where we're going to have to dramatically tighten our belts — use less, consume less — because there will be less available," says Hagens.

"The United States right now uses twice the energy as the country of Ireland, per individual. Yet, on subjective well-being studies, they're just as happy as we are. We use 37 times the energy as the average person in the Philippines. Yet, they are just as happy as we are. So I'm sure that whatever comes, we will be able to adapt to it. It's just the six-month window of when it happens that I worry about.

"Here's a subtle point; we evolved to not address a situation until it stared us in the face. There's something in economics called a "discount rate", which is how much we value the present versus the future. A discount rate of one means we care only about this second.

"If you feed a goldfish... if you go out of town for four days and give it four days of food at once, it will eat until it explodes. A discount rate of zero is like a robot, where you would live for a million years and you care about today the exact same as you care about the year 2177.

"Humans have very steep discount rates. And what this means is that we, as a species, won't really address our problems until the problems are staring us in the face.

"You know, Peak Oil and climate change, and all these grand super-themes that we read about, these are like 10, 20, 30 years down the road. That has the mental weight of zero to the average person hearing about it. If there's no toilet paper at the grocery store today, and you heard that there's not gonna be any anywhere in the country, that's like, "Oh my God, stock up on toilet paper." So people need an environmental cue showing them that scarcity or change is going to happen."

Hagens believes people don't recognize change until it's staring them in the face. Hagens also believes great changes could be upon us sooner than we realize.

"Eventually, the currencies we have right now might go away and might be replaced by something," says Hagens. "It's not even my imagination. Our own treasury secretary last year mentioned a global currency.

"I am absolutely convinced that the imposition of a global currency will expedite the crash of everything much faster," adds Michael Ruppert.

"You know, it's helpful to remember that paper currencies are only about 150 years old. This has been a very short-term experiment," adds James Howard Kunstler, an investigative journalist and author.

Kunstler's specialty, since the 1970s, has been the oil industry. He has lived through an oil embargo enforced by foreign suppliers. Now he is convinced the planet will soon impose a greater one that will likely lead to the collapse of society as we know it.

"What I'm seeing in our culture these days is what I call a disease of too much magic. And I think it's perhaps a very fortunate thing that the human race is facing what I would call maybe a reset of its activity — not necessarily a collapse — but let's call it a reset.

"When I was a young reporter starting out in the early '70s, I covered the OPEC oil embargo of 1973, and it made a huge impression on me. You started to see lines form at the gas stations. People were unable to get to work.

"You know, I have this vivid memory of somehow I managed to get a full tank of gas, and I wanted to drive down to New York City to see a girl. And I drove down the New York state thruway and I was the only car on the thruway for about 150 miles. And it was like the day the earth stood still.

"It made a big impression on me to see how fragile the everyday world that we've gotten accustomed to really was. That was 40 years ago.

"I think that the energy crunch of the 21st Century is going to be much different, much harsher, have permanent repercussions that are gonna thunder through the lives of generations to come. We are heading into uncharted territory of civilization.

"I think the people of the United States a generation from now are gonna be astounded at how we squandered the wealth of the 20th Century.

"I think the people of the future are gonna look back on us in wonder and nausea at what we've done. They're gonna be left holding the bag — and it's gonna be a very empty bag."

History is a graveyard of fallen empires. And today there are those who say America is in danger of suffering the same fate. Among them, James Kunstler is convinced diminishing oil supplies will play a critical role in our downfall.

"Peak Oil is the moment in history when an individual oil field, or a region, or a nation produces the most oil it ever will. The US had its moment of Peak Oil in 1970 — that was 40 years ago — when we produced 10 million barrels a day. And we're down to 5 million barrels a day now.

"The problem is when the world hits Peak Oil. And that's where we're at now. We're on that bumpy slope down that's gonna get rougher and rougher.

"The oil story really starts around 1860 in the USA. We are the first nation that ramps up a multi-layered, comprehensive oil industry, and it's been normal for many generations of Americans now. So, it's hard for us to imagine us not having oil. But, in fact, Peak Oil happened in America in 1970.

"Forty years ago, America produced the most oil that it will ever produce in a given year — which was around 10 million barrels a day. And ever since then, it's been going down. America made up for its problem of Peak Oil — and of entering the arc of depletion — by importing oil from other countries.

"The problem for the world is that, once the world passes their production peak, we're not gonna be able to import oil from other solar systems. The assumption is that the downslope is a gentle downslope, that we're just sort of gliding into depletion. But I think that that really misrepresents the reality of the situation.

"The real story is going to be how the major complex systems of daily life begin to destabilize and mutually reinforce each other's instabilities and failures as we get into trouble with this Peak Oil problem."

We consume 20 million barrels of oil each day in the United States, most of which is imported. And every day, our demand for oil increases. Oil, however, is a finite resource. The US government is aware of the problem.

"The US Department of Energy hired a scientific consulting firm run by a guy named Robert Hirsch," says Kunstler. "The Hirsch Report was published in 2005. Hirsch reported that we were indeed facing a Peak Oil predicament that was gonna rock our world, that was going to change all the terms of everyday life in advanced societies and deprive us of many of the comforts, conveniences, amenities, and necessities that we had come to take for granted.

"The Hirsch Report was buried by the Department of Energy because they saw no way that the American public could deal with the idea that this way of life might be threatened.

"The Hirsch Report was really rather bad news. It was telling the USA that we were facing an imminent crisis. America didn't want to hear it. It was too painful."

The Hirsch Report projects that oil production worldwide will peak either in this decade, or almost certainly by 2030. The report also states that the economic, social, and political costs will be unprecedented.

"The Peak Oil story is not really about running out of oil," says Kunstler. "It's about what happens to all these complex systems that we depend on for everyday life. The way we produce our food — that's one system. And that mainly means industrial agriculture, where you're applying a lot of oil and gas by-products to huge factory farms and producing cheese doodles, and chicken, and Pepsi-Cola, or hogs, or whatever it is.

"That's how we do farming. That's how we feed ourselves in America. That's gonna be coming to an end — and probably fairly shortly. And it'll be a huge problem. You can't imagine anything more destabilizing to a culture than people going hungry.

"The way we make things, buy things, sell things, move them around — that's all gonna change. There's been really one model for the last 30 years or so, and that's national chain retail. Giant corporations moving massive amounts of stuff. The semi-trucks that are incessantly circulating around the interstate highways — they pick the stuff up in San Pedro, California, and they schlep it across the nation to Philadelphia.

"And that's how we do commerce in America. It's normal for people. You know, they love the Wal-Mart. It's become enshrined as an institution now, like apple pie and motherhood.

"There's a lot of fantasizing that's going on right now — a lot of wishing that's going on in America right now — that we're gonna run this stuff by other means. That we're gonna run all the cars, and that we're gonna run Walt Disney World, and the interstate highway system, and Wal-Mart, and the US Army, and suburbia on something other than oil. It's not gonna happen. We're gonna be very disappointed about that."

We will develop alternatives to fossil fuels, but many experts believe we may never develop replacements. Oil is simply more potent and costs less to produce than any other energy source — at least for the foreseeable future. We are not the first society in history to face the depletion of its most precious resource. We just have to hope we are the first to overcome it.

"Other cultures have gotten into trouble with their resources and with their political response to their own resource problems," notes Kunstler. "Look at what happened to Easter Island. They were a Polynesian culture on a remote island in the pacific. If you go there now, what you'll find is a treeless island populated with giant stone heads left behind by the Easter Islanders.

"But the island wasn't always barren. It used to be covered by trees. And the trees were, to the Easter Islanders, what oil is to us today — their primary resource. They used it for all the important daily needs of life and their population grew to, we estimate, about maybe 20,000 people at the height of this culture. And before you know it, there's not a whole lot of wood left.

"And their population starts to crash, and they get pretty desperate. There's a lot of evidence that they actually started getting into cannibalism in the final florid phase of this collapse. They started building all these immense stone monuments. You know, they may have been an attempt to appease the gods to allow them to get some kind of resource back.

"You know, I think you can state categorically that as a society becomes more fearful and desperate and economically stressed, that the delusional thinking increases. I think it's a kind of thing that the human brain does in a state of desperation."

A world without fossil fuels would be a dark, difficult place. There are some who believe that we may still be able to find solutions if we act quickly. Many, like Kunstler, know that the consequences for not finding alternatives will have repercussions for generations to come.

"I think the people of the future are gonna look back on us in wonder and nausea at what we've done. They're going to be inhabiting a planet whose resources have been largely depleted. And we're gonna be back to living off the true solar energy of the planet, you know, the stuff that comes in from the sunshine every day. They're gonna be left holding the bag — and it's gonna be a very empty bag.

"I think the future is gonna be difficult for America. I think it's going to be a surprisingly austere place: struggling to stay warm in the winter, struggling to feed themselves or have any kind of a really a gainful occupation, living among the detritus and the salvage of the industrial age and trying to make something of the pieces that are left.

"America's gonna have to contract and probably, to some extent, retreat back into our corner of the world — the Western Hemisphere — with lower expectations for being able to influence and moderate the behavior of other people in the world and a reduced ability to control the great issues of world economy and global politics.

"We're so psychologically invested in all of the mythology of what we became in the 20th Century, you know, the greatest power that the world has ever seen and the greatest economy that the world has ever seen. And it was quite a trip. And it was a lot of fun. And it was exciting and comfortable and convenient — sometimes joyous and thrilling. And now we're done with that. It's over."

James Kunstler is convinced nothing can prevent Peak Oil. But he and others are equally certain that the havoc it creates will be lessened if we can make changes now.

"For me, the most important thing is to stimulate and liberate local food production," says Michael Ruppert. "To do anything possible to help people grow food where they live."

But how do you grow your own local food if you're living in a high-rise apartment?

"It's happening all over the world right now," says Ruppert. "There are rooftop gardens. There are window box gardens. Vacant lots in major metropolitan areas are being converted to community-supported agriculture."

"I think we're facing multiple crises," says Nathan Hagens. "I still believe that they will manifest first in the financial and currency system, and that does have implications — depending on how governments respond — for international trade and availability of resources and our supply chain.

"There are some core assumptions of our economic system that have to be reexamined, and I think that's happening now. I think 2008, Lehman Brothers, we came this close to a total unraveling. And people at the highest levels are thinking about how to avoid that in the future and how to redesign our financial system — and maybe our economic system — so that it doesn't happen again.

"I think the biophysical crises of energy and water and other things like that are gonna first manifest in social crises."

Asked what he sees as the most pressing, concrete problems, Ruppert is quick to answer.

"One in seven Americans now is below the poverty line. One in eight families is on food stamps. Those number are increasing. Thirty, 40 million unemployed — depending upon who is counting the statistics. The people are hurting and they're hurting as a result of an economic collapse, which is exacerbated and compounded by resource shortages, Peak Oil, energy, freshwater, everything else.

"I see signs of a shift in human consciousness," Ruppert notes, optimistically. "I see signs — very clear signs — of a global awakening. Many, many millions of people understanding this. The moves to relocalize food production. To start growing food where people live. To relocalize your support groups close to where you live is really a worldwide movement."

"There are a number of real big game-changers out there, and they seem to be converging," says Kunstler. "The energy narrative is pretty clear. The banking problems we have right now; the shortage of capital; the failures of governance and rule of law in our financial system. You know, these are amazing problems that are going to come back and bite us very hard, and they're gonna bite us all at the same time like a pack of wolves.

"And there are three things that I would recommend that we can do. The first thing is that we can re-establish the rule of law in our banking and financial practice. The second thing I would propose is, we need to direct our dwindling resources into the task of rebuilding local economies. The third thing that I think we need to do is rebuild the conventional railroad system in the United States, and we should do that right away. And if we don't do it, I'm not sure that there will be anything that will physically allow the United States to hang together as a culture, a people, and a nation."

Hagens shares Ruppert's optimism about the future, albeit a very different future.

"We've mentioned the collapse of advanced industrial civilization several times, and my gut and my research of historical civilizations suggests our population will, in the end, be more resilient than some people give credit to. The average person needs to start thinking about a future where instead of more every year, there might be the same every year or less every year.

"I agree that we need to relocalize our food systems. We also need to relocalize the production of a lot of basic needs. In effect, we need to insource where we have been outsourcing because of efficiency and profits around the world. I think "Buy American" makes sense because the things that we need to make, that we need for our lives, should be made locally."

"I think a consensus is emerging that re-localization is a solution to many problems," says Ruppert, "in terms of food production, resource usage and anything else. Also, in terms of starting a local currency. Anything you can do to be sustainable close to where you live."

Modern life moves so quickly it's hard for us to stop and consider where it's going. There are, however, times in our history when we simply have no choice. These men are certain that time is now.

"Pretty clearly, we're not psychologically prepared for the changes that we face," says Kunstler. "We can't afford to be cry-babies anymore. We can't afford to sit around wringing our hands. We have a very big to-do list.

"We face an array of problems. They're all equally severe. The assumption that if we get one thing right, or one part of this right, that we're just going to keep on going ahead and being a hyper-complex society — I think — is erroneous. Personally, I don't think this is the end of the world or the end of the human race. I think it's the end of a certain phase of history. I think we need a timeout from technology."

"I think the American financial system is completely unsustainable at these levels," says Hagens. "We should all strive to be less wasteful. But our economic system is kind of based on waste."

"What we're finding out is that the way we're going to have to live is the way should have been living all along anyway," says Ruppert. "And, in a way, that's probably much more fulfilling from an emotional, and spiritual, and psychological [perspective], and the standpoint of human interaction. I think it's going to be much more rewarding. I don't see it as all suffering, by any means."

It's been said that a generation which ignores history has no past and no future. Now, it is up to us to decide. Will we sit by and watch — as they watched in Rome, as they watched in Mesopotamia, as they watched time and time again — as everything we've built, all we have achieved, disappears into the mist of history?

2011-02-26T10:03:00.000-08:00

4th Quarter GDP Revised Downward; Headwinds Persist In 2011

The federal government and state governments are already beginning to see the bitter side of budget cuts; reduced economic output.

The Commerce Department has revised fourth quarter GDP downward to 2.8 percent from the earlier estimate of 3.2 percent. The original consensus estimate was 3.6 percent growth, so the new number is considerably lower than initially anticipated.

That presents an ominous sign of what's ahead as the federal government tries to reign in its serial deficits that are now exceeding $1 trillion annually.

Faced with continuously steep budget shortfalls, state governments cut spending by 2.4 percent in the fourth quarter, which greatly exceeded the 0.9 percent first estimated.

As previously noted, I was quite dubious about initial consumer spending estimates that came in at 4.4 percent. The revised number was lowered to 4.1 percent. Yet, due to rising gas prices, more and more disposable income will be directed toward fueling up cars, leaving less money for other purchases.

If consumers can't maintain their fourth-quarter spending pace — which was still the highest since 2006 — the effects of federal and state cutbacks will be all the more severe.

Higher gas prices will affect every facet of the economy, from production, to agriculture, to shipping, to transportation, to hiring, and on and on.

The economy grew 2.8 percent in 2010, the highest in five years. Yet, that was a relatively weak pace. From 1965 to 2008, US economic growth averaged 3.2 percent.

The other side of the coin is that 2010 was a marked improvement from 2009, the year the US experienced its worst economic output since the Great Depression.

Consumer spending accounts for 70 percent of all US economic activity. However, if the unemployment problem doesn’t turn around — and there are no indications that it will — consumers will be unable to spend the country out of its doldrums.

Even if unemployment were virtually cut in half for all of 2011 — coming down to 5 percent — it would only lower the jobless rate by one percentage point.

The economy needs to add about 150,000 jobs a month just to absorb the annual population increase and the entrance of new people into the workforce, such as college grads.

That gives you some perspective on the kind of problem we're up against.

Moreover, newly created jobs tend to be lower-paying than those they've replaced.

Paul Ashworth, chief U.S. economist at Capital Economics in Toronto, says that many of the jobs being created don't match the pay, the hours, or the benefits of the 8.75 million positions that vanished in the recession.

These lower wages and salaries will limit consumer spending and economic growth.

That's why it's hard to imagine consumer spending being hearty enough to reignite the economy, or that economic growth will maintain a healthy pace.