The American Decline: Infrastructure

By Sean M. Kennedy

The following is Part III in a three-part series documenting 'The American Decline'. You can read Part I here and Part II here.

Last year, the American Society of Civil Engineers (ASCE) gave our nation's infrastructure a cumulative grade of "D".

"Bridges collapsing, highways cracking, levees breeching, state power grids failing ... our roads, ports, dams, water systems, highways, power plants, airports, etc., are all in desperate need of new investment," the ASCE report said. "Our infrastructure has been badly neglected and has been allowed to deteriorate for far too long."

The findings were nothing new. In fact, they just highlighted a continuing pattern of disrepair and neglect.

The ASCE had previously given US infrastructure a "D" grade in 2005 as well. Getting the same grade again in 2009 just indicated a total lack of national commitment to improving these problems.

Infrastructure refers to the basic facilities and capital equipment that a society, country, state or community needs to function. These are things like power stations, utilities, roads, airports, railways, and sewers.

How important is infrastructure? Well, a report from Credit Suisse called infrastructure "the backbone of the world economy."

However, the US has an aging, crumbling infrastructure that is not prepared for the 21st Century. It is yet another economic albatross around our nation's neck. The decay is costing us heavily right now, and it will cost us even more in the future.

According to the ASCE, America's crumbling infrastructure is sapping our economy and our way of life.

The ASCE estimates that government and the private sector need to invest $2.2 trillion from 2009 through 2013 - roughly three times the size of the $787 billion stimulus package passed by Congress in February of 2009.

It should be noted that tax cuts amounted to $288 billion of the so-called "Recovery Act", and that $233 billion went toward food stamps and unemployment for those hit most hard by the Great Recession.

The remaining $275 billion went to economic stimulus, and that spending wasn't nearly enough to addresses all of the assorted problems with our nation's infrastructure. In fact, it barely scratched the surface.

The current state of our nation's infrastructure is simply unacceptable for a 21st Century, first-world, industrialized nation and it's a sign of decline.

Failing infrastructure is not the mark of a world leader; it's the mark of a country in decay. It not only lessens our competitiveness with other developed nations, but even developing ones. This cannot be ignored and it cannot be overlooked.

Without question, our nation's failing infrastructure needs to be addressed and rebuilt. The 2005 levee failures in New Orleans following Hurricane Katrina and the 2007 Minneapolis bridge collapse are symptoms of our broken and decaying infrastructure.

After that tragic bridge collapse (which killed 13 people and injured 145), more than 73,000 US bridges were rated structurally deficient by the Federal Highway Administration and another 80,000 were rated functionally obsolete.

The problem is that the US is already running massive annual budget deficits and is burdened by a cumbersome national debt exceeding $13 trillion. Our politicians have squandered our national wealth and the opportunities to address these problems for many years. This decay didn't just happen overnight.

It's worth remembering that Hurricane Katrina swept away New Orleans and much of the Gulf Coast region five years ago, and the federal government still hasn't rebuilt the region or replaced New Orleans' failed levees.

If the US doesn't have the money (or the will) to rebuild the Gulf region, what happens when the "Big One" strikes LA or San Francisco?

Additional spending on the necessary repairs and improvements to our national infrastructure will certainly incur additional debt. However, it is an investment in our country and an investment in our future. It is tangible, and all Americans would benefit from it each and every day.

These investments are long overdue, and if they are not made immediately our economic problems are guaranteed to worsen.

Yet, these investments won't be made because maintaining tax cuts and slashing spending are politically in vogue at the moment.

However, repairing, rebuilding and modernizing our national infrastructure would also create jobs, increase demand, and circulate money back into the US economy and tax base.

Whatever the cost, the price of not investing is even higher.

If we're not motivated or inspired by the long term economic impact of failing to make the necessary investments needed to correct these shortcomings, and prepare for the century we're already living in, then maybe the human cost will spur us.

When it comes to infrastructure, real, actual human lives are on the line. Just ask the citizens of Minneapolis and New Orleans.

Here's a look at the American Society of Civil Engineer's 2009 report card on America's infrastructure; it's simply awful.

Roads; D-
One-third of the nation's major roads are in poor or mediocre condition.

Drinking water: D-
Leaking pipes waste 7 billion gallons of clean drinking water every day, and many aging facilities are near the end of their useful life.

Waste Water: D-
Billions of gallons of untreated waste water are discharged into the nation's waterways each year.

Levees: D-
More than 85% are locally owned and the reliability of many is unknown, though increased development near levees has increased the number of lives at risk.

Inland waterways: D-
Of the 275 locks in use, 30 were built in the 1800s, another 92 are more than 60 years old.

Aviation: D

Dams: D

Hazardous waste: D

Schools: D

Mass Transit: D

Energy infrastructure: D+
This was the only sector to show improvements since the last ASCE report card in 2005.

Solid waste: C+
The highest grade on the list, due to recycling efforts.

What all of this clearly indicates is that our nation has fallen behind in the world and continues to decline.

The lack of infrastructure maintenance and modernization was seen most recently in San Bruno, CA, where an entire neighborhood was wiped out after a half-century-old gas line ruptured and exploded. The blast destroyed 38 homes and killed seven people.

State and local governments around the US are expected to spend roughly $150 billion a year on infrastructure during the coming decade. Meanwhile, Congress has yet to approve nearly $500 billion in proposed infrastructure spending over the next six years. That amounts to just over $83 billion per year, a paltry sum by modern US standards.

Even the Chinese suggested this amount should be doubled in preference to quantitative easing since it would provide more jobs.

While the US is underfunding its crumbling infrastructure, other nations are not.

According to The Journal of Commerce, infrastructure spending in Asia (not including Japan) could total roughly $1.4 trillion in the next two years, with China committing $585 billion or more. India is also projected to spend more than $500 billion by 2015.

That kind of government investment will only spur even greater private investment, as those nations are continually seen as the rising economic giants of the 21st Century.

The 20th Century was called the 'American Century'. Absent adequate, effective and dedicated infrastructure spending that keeps up with the times, the same will not be said of the US in the 21st Century.

The American Decline: Health & Healthcare

By Sean M. Kennedy

The following is Part II in a three-part series documenting 'The American Decline'. You can read Part I here and Part III here.

As Teddy Roosevelt so famously noted, "No country can be strong if its people are sick and poor."

Americans are indeed a sick and unhealthy bunch. Poor? Well, that's another story for another time.

At present, one-third of American adults are obese. And another third are overweight. Yet, researchers at Harvard University are predicting that the worst is yet to come. If current trends continue, they say, the obesity rate in the US could reach at least 42 percent by mid-century.

As it stands, obesity has already reached epidemic proportions in the US, and it is taking a staggering toll on the nation's health and its healthcare system. It is also driving a variety of other diseases.

According to the American Diabetes Association (ADA), nearly 24 million American children and adults now have diabetes, and another 57 million Americans are at high risk of developing the disease. Doctors across the nation call the scourge a modern American epidemic.

Diabetes is a particularly nasty disease. Two out of every three people with diabetes will die from heart disease or stroke, both largely preventable diseases. And 90 percent of diabetes cases are Type II, which is also largely preventable with lifestyle changes.

Since 1987, the death rate from diabetes has increased by 45%. And the total annual diabetes-related costs may exceed $218 billion, according to the ADA.

Americans are afflicting themselves with a variety of preventable lifestyle diseases, and the average American's life span is shorter than it ought to be. However, according to a new report, a lack of access to proper healthcare seems to be the reason.

Researchers at Columbia University report that the US is now 49th in life expectancy, putting it lower than a dozen other developed nations.

While some might assume that things like smoking, obesity, traffic accidents and a high murder rate are the reason, they are not to blame. Instead, the Columbia researchers say the culprit seems to be poor healthcare.

The researchers compared the United States to Australia, Austria, Belgium, Britain, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden and Switzerland, all of which provide universal health insurance. On the other hand, the US, where 15 percent of the population lacks health insurance, just passed healthcare reform in March.

The Columbia team noted that the US has been dropping in life expectancy tables for decades.

“In 1950, the United States was fifth among the leading industrialized nations with respect to female life expectancy at birth, surpassed only by Sweden, Norway, Australia, and the Netherlands,” they wrote. At last count, the United States was 46th in female life expectancy; 49th for both sexes.

As recently as 1999, the US was ranked 24th in life expectancy by the World Health Organization. So we are moving in the wrong direction very quickly.

Apparently, this is not a problem that money can solve. In fact, the US is plowing trillions into healthcare and getting very little in return.

The US commits a staggering $2.5 Trillion annually to healthcare spending. Yet, we have worse outcomes than many third-world nations. We spend more than any other nation in total dollars, per capita, and as a percentage of GDP. And yet we still have terrible results. That's neither wise nor efficient. In fact, it can only be described as an utter failure.

Despite that absolutely massive amount of spending, health outcomes in the US are simply awful.

Whoever says, “You get what you pay for,” clearly hasn’t seen America's deplorable healthcare statistics.

The findings are not unique, and they are not new either.

In 2000, the World Health Organization ranked the US 37th of 191 countries for "overall health system performance," 72nd for "level of health," and first for "health expenditures per capita."

Sadly, American adults aren't the only ones with a shortened life expectancy. Even American babies have shorter life spans than babies in other nations.

In 2009, the National Center for Health Statistics ranked the US 30th in global infant mortality rates, behind most European countries, Canada, Australia, New Zealand, Hong Kong, Singapore, Japan, and Israel.

And out of 20 “rich countries” measured by UNICEF, the US ranks 19th in “child well-being”.

How many more statistics do we need, from different groups and agencies, to conclude that the American healthcare system is a mess? If it were a patient, it would be listed in critical condition and on life support.

Once again, this isn’t due to a lack of money.

In June, the Commonwealth Fund, which researches and advocates for healthcare reform, reported that Americans spend twice as much on healthcare as residents of other developed countries — $7,290 per person — but get lower quality and less efficiency.

Despite all of these facts, last year, many people were screaming that our healthcare was just fine and should just be left alone. In the end, we ended up with a 2,000 page monstrosity for a healthcare bill, written by the pharmaceutical and insurance industries.

It was just further proof that corporations own and run America, serving their own narrow interests. They have bought and paid for our elected officials. Unlike the rest of America, corporations are certainly getting what they paid for.

Yet, we don't even do the simple things right in the US.

Despite its advanced technologies, the US suffers from alarming rates of medical errors and poor results, even though it spends absolutely massive sums on healthcare.

The US has an ass-backwards system that relies on drugs and surgery instead of wellness and prevention. The US now ranks last out of 19 countries in deaths that could have been prevented with timely and effective medical care.

Americans simply lack access and preventative care. And when they do get care, the results are often disastrous.

According to new findings from the Inspector General’s office of the Department of Health and Human Services, medical mistakes kill 15,000 Medicare patients a month, which equates to 180,000 Medicare deaths per year.

Equally disturbing, two million Americans enter the hospital for what should be routine surgery each year, only to be afflicted by hospital-acquired infections. And those hospital infections are the 4th leading cause of death in the United States. In fact, hospital acquired infections kill as many people in the US annually as AIDS, breast cancer, and auto accidents combined.

Are you feeling outraged and ripped off yet?

Prescription painkillers have now surpassed heroin and cocaine as the leading cause of fatal overdoses.

According to the American Journal of Preventive Medicine, accidental — or unintentional — poisoning from prescription opioids, sedatives and tranquilizers is now the second leading cause of unintentional injury death in the US.

Among people 35 to 54 years old, unintentional poisoning has surpassed motor vehicle crashes as the leading cause of unintentional injury death.

And according to Johns Hopkins Medical School, medical errors and prescription drugs together may actually be the leading cause of death.

In other words, our primary forms of healthcare appear to be the biggest killers of Americans. Imagine that.

We don't spend our money wisely to prevent disease in the first place. We spend most of it after people are already in crisis and at the end-stage of their lives.

In 2008, Medicare paid $50 billion just for doctor and hospital bills during the last two months of patients’ lives — that’s more than the budget of the Department of Homeland Security or the Department of Education.

While care goes down, costs just keep going up.

Last year, in the midst of a historic recession, the nation’s five largest health insurers increased their profits by 56%, to over $12 billion. Of greatest concern is that insurance premiums are growing at four times the rate of wages.

This litany of problems only provides further evidence that our nation is in rapid decline. It’s both sad and disturbing. We are spiraling downward at a breakneck pace. This is backed by facts, by evidence and by research.

There is a pervasive lie passed around that the US has the greatest healthcare system in the world. That is clearly untrue. It could be more accurately described as an inefficient mess, a disaster, and a complete failure to our citizenry. But many people love to delude themselves behind the mantra that the US is No. 1.

Sadly, the US' healthcare rankings are shameful, embarrassing and perhaps irrevocable. There are many forces aligned who like this messy disaster of a system just the way it is.

The larger aspects of our mammoth healthcare bill will kick in by 2014. Along the way, we should find out about many of the hidden clauses and language that were inserted by the pharmaceutical and insurance industries, which were designed to benefit only them.

Meanwhile, the Republicans will seek to repeal the bill and return us to the failing system we already had. In the end, the people can't win.

The road to hell is paved with good intentions, bad intentions, special interests and politicians.

Enjoy the ride, America.

Bank Failures Reach Highest Level Since 1992

With two additional bank closures Friday, a total of 143 US banks have now failed this year, exceeding the 140 banks that failed in 2009. There will be more to come since there are still two months to go in this calendar year.

Since the creation of the FDIC in 1933, there have been only 12 years in which 100 banks have failed in a single year. And it has now happened in back-to-back years.

It's a good bet that that there are still many more failures to come; by the end of the second quarter, the number of lenders on the FDIC's "problem" banks list had climbed to 829, the highest since 1992. It was also nearly double the number that were on the list a year earlier.

What this means is that more than 10 percent of US banks are now on the problem list. Bank failures over the past two years have 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. As a result of the massive number of failures since that time, banks have not only become fewer, but also bigger as a result of consolidation.

The 143 bank failures this year amount to the highest total since 1992, at the height of the savings and loan crisis.

For comparison's sake, twenty-five banks failed in 2008 and only three succumbed in 2007.

The growing number of bank failures have sapped billions of dollars out of the FDIC's deposit insurance fund. It fell into the red last year, and its deficit stood at $15.2 billion as of June 30.

The deposit insurance fund has lost about $21 billion so far this year, compared with $36 billion in 2009.

Due to the pace of home foreclosures and commercial property losses, bank troubles will continue into the foreseeable future.

The vacancy rate at malls and in office buildings has spiked across the country. The number of delinquencies and defaults are straining the capacity of many community and regional lenders to survive.

According to CoreLogic, more than 11 million homeowners across the country are underwater. It's estimated that number could double in the next year, which means nearly half of all American mortgage holders will owe more on their homes than those homes are currently worth.

That would spell disaster for the banking system. And the FDIC would be quite challenged to cover all the losses.

Many US banks are severely under-capitalized, hence the reason they are failing.

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 await for the housing market to recover. That could take many years.

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

As the commercial real estate market continues to falter and more loans go bad, the losses at banks will become overwhelming.

And, as always, US taxpayers will end up footing the bill for all these failures.

Midterm Election Post-script

It's quite clear that President Obama totally understated and downplayed the dire condition of the US economy since coming into office. It's the nature of a president to be optimistic and to encourage a despondent nation.

However, Obama never should have predicted that unemployment wouldn't rise above 8%. That was quite foolish, and he's now paying for it.

Obama should have seen the economic writing on the wall and gotten rid of all those econo-clowns that were feeding him such bad information — before most of them decided to leave on their own.

Hell, a savvy politician — even one who knows nothing about economics — would have given the public the worst-case scenarios in order to diminish unrealistic expectations. But raising hopes — even false hopes — has been the hallmark of Obama the candidate and Obama the President.

Obama might have gotten away with an unemployment rate near 10% had he been telling the people to expect something considerably higher from the beginning. The U-6 unemployment reading for October (which includes both the unemployed and part-time workers seeking full-time employment) was 17.1%.

Obama should have been honest and forthright with the public, telling the nation to expect the worst because things aren't going to change for the better any time soon.

Exit polls found that nearly nine in ten voters believe the economy is in bad shape. The same percentage said they feel pessimistic about America's economic future. That's practically unanimous.

Regardless of where — or how — this mess started, the public clearly holds Obama accountable for not fixing it. That's simple and unrealistic, but the public always gives the president too much credit and too much blame.

Americans were not going to be mollified by health care reform that doesn't kick in until 2014 and financial reform that isn't slowing down foreclosures or making borrowing money easier for small businesses.

So, the GOP now controls the House, and yet nothing will change. Americans will only grow more depressed, distressed, angry and cynical.

Don't believe in any politician, and you'll never be let down.

Meet the new bosses; same as the old bosses.

The American Decline: Education

By Sean M. Kennedy

The following is Part 1 in a three-part series documenting 'The American Decline'. You can read Part II here and Part III here.

If you're not aware of how bad the high school dropout problem is, there is good reason. For many years, states, school districts and administrators tried to hide the depth of the dropout problem, which might be better classified as a crisis.

According to the Bill & Melinda Gates Foundation, nationally about 1 in 3 high school students quits school. Among black and Hispanic students, the rate is closer to 50%.

Yes, it's that bad.

School officials in most states obscured the problem for decades with lax accounting. Some states wouldn't even submit graduation data. In fact, many couldn't even agree on what exactly constituted a dropout. If a kid merely promised to get his or her GED, they weren't counted as dropouts.

But the majority of analysts and lawmakers now admit that the dropout rate has remained steady at approximately 30%, despite two decades of intense educational reform.

In 2001, Jay Greene, a senior fellow at the Manhattan Institute, published a study which found that the national graduation rate is anywhere from 64% to 71%. Most researchers say this rate has remained fairly steady since the 1970s, despite increased attention and a vigorous educational-reform movement.

According to the National Center for Education Statistics, kids from the lowest income quarter are more than six times as likely to drop out of high school as kids from the highest.

In essence, the dropout problem is creating a permanent underclass.

Some blame the dropout problem on a lack of funding. However, according to the Manhattan Institute, spending per pupil has doubled since the '70s, and the problem still hasn't improved.

Incredibly, nearly half the states allow kids to drop out at the age of 16 without parental consent. That makes it pretty easy for a troubled, unmotivated, or bored kid to just walk away.

Interestingly, the Gates Foundation funded a report which found that 88% of dropouts said they had passing grades in high school. Asked to name the reasons they had left school, more respondents named boredom than struggles with course work.

Whatever the reasons are, the dropout problem is an issue for more than just the dropouts themselves; it creates huge social problems and leaves America less competitive in a global economy.

Kids who drop out of school are typically relegated to a lifetime of unskilled, low-paying jobs. As a result, they are more likely to be poor. And a 2002 Northeastern University study found that nearly half of all dropouts ages 16 to 24 were unemployed.

Dropouts are also more likely to be incarcerated; an estimated 67% of prison inmates nationwide are high school dropouts.

And dropouts are more likely to raise future dropouts, creating a generational problem of failure and often hopelessness.

The US is the only industrialized nation in the world where children are now less likely to receive a high school diploma than their parents were, according to a 2008 report by the Education Trust.

At the same time, two-thirds of new jobs in the U.S. require at minimum a college degree.

This education gap affects the US economy in that many companies feel compelled to move overseas, or simply outsource additional jobs to foreign nations.

The problem isn't just that dropouts are more likely to be unemployed; they are often unemployable, typically lacking even the most basic skills.

No matter how you slice it, US students are falling behind globally, and that does not bode well for our nation's future prospects.

Money alone will not solve the crisis. In fact, the US ranked 5th in cumulative K-12 education spending per student in 2006. Only Luxembourg, Switzerland, Norway, and Iceland outspend the US.

From 1971 to 2006, there was a 123% increase in per-pupil spending in the US. Yet, there was a 0% change in the academic performance of 17-year-olds in a national test for reading.

It seems fair to say that a lack of money isn't the issue.

Despite all that spending, the US still trails most other rich nations in science and math scores.

Consider the following:

• US students ranked 21st in science literacy out of 30 developed countries in 2006

• US students ranked 25th in math literacy out of 30 developed countries in 2006

• In 2009, 69% of eighth-graders scored below proficient in reading

• In 2009, 68% of eighth-graders scored below proficient in math

Some point to larger class sizes as part of the problem. However, we currently have the smallest elementary class sizes in 45 years. In 2007, the US student-to-teacher ratio was 16:1, compared with 22:1 in 1970.

And yet our kids — even the more affluent, suburban ones — perform worse than kids in comparable nations.

The failures in education and graduation affect the nation as a whole. It ultimately leads to higher unemployment, higher incarceration levels, higher poverty rates, and less global competitiveness.

Far too many young Americans are unprepared for the modern American workforce, in which the best jobs — sometimes the only jobs — are high skill jobs.

Taken as a whole, all of this is just further evidence of the American decline.

Fears of Quantitative Easing Affect Already Weakened Dollar

The US dollar is once again facing downward pressure, part of a much longer trend.

The dollar began a descent in 2002, and has ultimately declined by one-third since then, measured against a basket of six other currencies. From its high in summer 2001, the dollar had actually dropped 38% by the end of 2009.

Even worse, over the 25-year period since 1985, the dollar has lost more than half of its value. And if it wasn't the world's reserve currency, it would have declined even further.

What this means is that, in global terms, the purchasing power of U.S. consumers has declined dramatically.

A combination of ultralow interest rates, deficit spending by the government, and a large expansion in the money supply has had a very negative influence on the strength of the dollar.

So-called "quantitative easing" has an inflationary effect by increasing the money supply without a commensurate increase in the amount of goods and services in the economy. This is ultimately negative for the dollar.

It is widely anticipated that the Federal Reserve will announce the initiation of another round of quantitative easing at next week's policy meetings, on November 2 and 3.

Just the fear that the Fed will once again be printing as much as a trillion dollars – the very definition of inflation – has inflamed concerns about the value of the eroding dollar. The last round of easing sparked a worldwide flight to other currencies.

The IMF says that dollars currently account for about 62 percent of the total currency reserve at central banks -- the lowest on record. Clearly, those banks have lost faith in the dollar.

The declining dollar has a huge effect on investments that are re-paid in dollars. Investors and central banks are being paid back with a currency that has been continually losing value over time. That hurts confidence, and confidence in a currency is everything.

If it continues to decline, the dollar's status as the world's reserve currency would be put at risk. If the US ever lost this privilege, it would result in dramatically higher interest rates, as well as more-expensive oil and other imported goods.

A combination of savings, spending, interest rates, inflation, money supply, economic growth, government policies and trade balances can all affect the dollar's value.

The dollar index, which measures the dollar against a group of six other currencies, fell to 77.25 on Thursday. That's not so far off from its record low of 71.99, set in March of 2008.

Since September 20, the day before the last Fed meeting, the dollar index has dropped 5%, hitting its lowest level this year in the process.

The Fed knows that the dollar is facing heavy headwinds, so it will most likely take an incremental approach, starting with something in the $100 million range. That will give it leeway to conduct further rounds of easing as it sees fit in coming months.

Yet, it would hardly be surprising if the Fed ultimately prints $1 trillion, or more, in the next few months.

That money will be recycled into even more US Treasuries and, perhaps, mortgage securities, with the hopes of pushing historically low interest rates even lower.

However, any additional easing, above and beyond the $1.7 trillion already pumped into the banking system over the past two years, will be greeted inhospitably by bondholders and anyone that holds dollars.

After all, the yield on the 10-year Treasury was just 2.66% yesterday. Yes, it's well above the inflation rate, but it is historically paltry nonetheless.

Meanwhile, yields on 2-year notes stand at just 0.36%, barely above the record low set on October 12 (0.33%).

Only the fear of even lower returns elsewhere would compel any investor to lock up their money for years at a time at that those meager rates.

Right now, there is a lot of fear and uncertainty in the markets. While next week's Fed meeting may end at least some of the uncertainty, it will likely end up raising the fear level.

Quantitative Easing and the Declining Dollar

The US dollar is the world’s reserve currency, so most international trade is conducted in dollars. Since WII, the dollar has reigned supreme. Gold and oil are also bought and sold in dollars. Therefore, confidence in the US dollar is critical.

Fluctuations in the US dollar influence the price of gold and oil, and even US stocks. In other words, when the dollar falls, the price of gold and oil goes up. This is due to the diminished purchasing power of the dollar.

And as confidence in the dollar declines, interest in the safety of gold increases. The precious metal is historically viewed as a store of wealth.

The US government and Federal Reserve — like other governments and central banks — typically don't like gold's competition with the dollar.

Gold can't be printed at will, and it can't be loaned into existence. Gold doesn't generate interest, therefore it isn't a fundamental part of the banking system. And since it isn't a form of currency that can be exchanged for goods or services, it isn't a fundamental part of the US economy either.

However, the federal government is quietly championing the dollar's decline since it reduces the value of its debts. In essence, the US can pay back fixed costs (debts) more cheaply with devalued dollars.

Additionally, President Obama has pledged to double US exports by 2015. The only way that can happen is by devaluing the dollar relative to other currencies, making US goods cheaper overseas.

Yet, the US is not alone in this goal. All export-dependent nations (China, Germany, Japan, etc.) want to hold their currencies down in order to increase exports. Essentially, the entire developed world wants to devalue their currencies because this makes exports more affordable and competitive in world markets.

Call it a race to the bottom. As Treasury Secretary Tim Geithner has noted, no country — including the US — can devalue its way to progress and prosperity.

What's at risk is protectionism, tariffs and outright trade wars.

Meanwhile, the Federal Reserve has virtually assured that it will soon begin another round of "quantitative easing," or an intended money-creating stimulus for the sputtering US economy.

In essence, the Fed will be printing hundreds of billions more dollars out of thin air. In return, it will purchase even more long term government bonds.

This is on top of the $1.7 trillion the Fed already pumped into the banking system over the past two years, which should scare the hell out bond investors.

However, the banks already have plenty of money to lend. They just lack qualified or interested borrowers. Nearly one-third of US consumers, or some 70 million people, are considered sub-prime and cannot qualify for a home loan. They're considered to be too much of a credit risk for lenders.

As this point, it's reasonable to ask why lenders weren't this risk-averse during the past decade? But I digress.

Additionally, millions more Americans either have no jobs or no confidence in keeping their jobs. And they have no confidence in the overall economy either. These are not prospective borrowers.

Meanwhile, US corporations are sitting on more than $1 trillion in cash. Count them out as potential borrowers as well.

The Fed can make more money available at very low rates, but it can't force people to borrow what they don't want or need.

More quantitative easing will put even further downward pressure on the dollar, the sum total of which will be increasing without a commensurate increase in the amount of goods and services in the US economy. That's what ultimately leads to price inflation.

Most of that freshly printed money will eventually find its way into the stock market, inflating the market's value regardless of corporate earnings. That's exactly what happened when the Fed undertook its last round of money-printing.

The market seems to have already priced-in the pending rush of Fed money; the Dow recently broke the 11,000 mark once again. When you consider the historically low rates of return for Treasuries, it's easy to see where all that money is instead flowing.

Quantitative easing will also devalue the dollar, which will just encourage other nations to devalue their own currencies so they don't lose export shares to the US.

The process of money creation will lead us down a very dark road in so many ways.

Inflation and an even greater devaluation of the dollar are two obvious consequences. Yet, those may be the objectives of the Federal Reserve, which actually seeks inflation as part of its mission.

Additionally, there is an increased risk of trade wars, tariffs and protectionism — which won't be good for anyone.

The eyes of the world will be on the next Federal Open Market Committee meeting, which take place on November 2nd and 3rd. Other governments and central banks will be watching with particularly keen interest.

Many other economies have a lot riding on the Fed's decision. Some have their currencies pegged to the dollar. Many nations, through their central banks, own enormous amounts of US debt, which could be negatively affected by more money printing.

In simple terms, holders of US Treasuries could suffer significant losses if the dollar continues to weaken. Obviously, that won't go over well — especially if it's seen as having been intentionally orchestrated.

Owners of gold and other commodities traded in US dollars will also have a particular interest. Further declines for the dollar would mean further increases for dollar-denominated commodities.

In part, the Fed hopes to push down long term interest rates even further. Savers will continue to suffer the consequences of low interest rates — at least in the short term.

However, in the long term, the massive and continually mounting US debt will likely lead to much higher rates. That's especially true if the dollar continues its long descent. Nobody wants to buy a falling currency, or debt denominated in that currency.

Markets rely on confidence, and if the Fed does anything to rattle that confidence, there will be a series of uncomfortable, if not unintended, consequences.

FBI Investigating Banking Industry; Justice May Be Served

Despite the banking industry's best attempts to portray 'Foreclosuregate' as a simple matter of clerical errors, most people just aren't buying it. What's most worrisome for the banking industry is that the FBI and all 50 state attorney's general aren't buying that line of bullshit either.

The AP reports that the FBI has begun the initial phase of an investigation into whether the banking industry broke criminal laws.

The Bureau won't have to look far. It is well-established that the Big Banks committed gross fraud at every step of the way: in the loan documentation process, the mortgage-writing process, the mortgage-transfer process, the title-transfer process, and in the foreclosure process.

What the FBI will be looking for, in particular, is criminal intent. Here's a projection that they will find it in spades.

The criminal proceedings aside, the banks have years of legal battles, and absolutely massive legal bills, ahead of them. The civil proceedings alone will be overwhelming. The banks are hoping for quick rulings that lead to quick resolutions, but undoubtedly there will be numerous trials, and they will be lengthy.

Filing false documents simply doesn't go over well with most judges.

Banks, such as the former GMAC and Bank of America, say they have fixed the problems in the foreclosure process. Authorities in most states are highly skeptical, and have said so publicly. There are tens of thousands, perhaps hundreds of thousands, of bad documents. It will likely take extensive time to correct all of them. Bank of America alone has to re-file documents for more than 100,000 foreclosure cases.

But that's the least of the banks' worries. If there was criminal intent, and not just negligence, fixing the documents will be the easy part. Doing hard time will be the hard part.

Officials from the Federal Housing Administration have found clear disparities in how five major lenders have been responding to distressed homeowners after a four-month review of their practices, according to the AP.

At a minimum, the government has the power to fine lenders not complying with FHA guidelines.

And now the federal government is getting involved on multiple levels. Housing and Urban Development Secretary Shaun Donovan, Treasury Secretary Timothy Geithner and other officials met to discuss the issue on Wednesday.

Even the White House has said federal agencies are investigating the allegations of flawed foreclosure documents.

This story is huge and, as much as the banks clearly wish it would, it is not going away any time soon.

The gang of clowns that comprise the House and Senate have scheduled hearings for next month, but that will be nothing more than a dog and pony show and an opportunity for grandstanding.

What the banks truly fear is the FBI and the state attorney's general, who are not led around on a leash by the banking industry.

And what the banks also fear are the enormous losses they have already suffered, but have yet to figure onto their balance sheets. And if they are forced to repurchase tens, even hundreds, of billions in bad (read, fraudulent) mortgage-backed securities, that could be a death blow.

Bank credit has also declined substantially, meaning that banks are making less money from lending these days.

When you combine these factors, the Big Banks may not only be on the verge of bankruptcy, they may already be insolvent.

Since all of the banks' counter-parties — the ones who bought all those toxic "assets" — know this, they will not line up in orderly fashion to be reimbursed. There will be a mad scramble to get whatever money they can, while there is still money to be had. When the music stops, lots of these players will be left without chairs.

The banking industry is used to getting away with all of its high crimes, usually with nothing more than a fine. And even when paying those numerous fines, they are typically allowed to do so without an admission of guilt.

However, the Big Banks' way of doing business — in fact their very existence — is now finally, thankfully, at stake.

May justice be served.

Bank of America Facing Crisis

Bank of America is in big Trouble. Yes, Trouble with a capital "T".

You see, Bank of America now owns Countrywide Financial, the scandalous lender that gave out countless home mortgages to people who never could have been reasonably expected to repay those loans.

Bank of America bought the crippled lender at the height of the financial crisis in 2008, when Countrywide was on its knees and ready to go belly up.

Countrywide never worried about the capacity of a borrower to repay a loan since it was just an originator. The lender soon sold those loans, many of which ended up being packaged in residential mortgage-backed securities. They believed they were off the hook when those loans eventually, inevitably, went bad.

Not so much.

The investors in those securities are now demanding that Bank of America repurchase tens of billions worth of mortgages. And these aren't the demands of mom and pop investors in some class-action lawsuit either.

No, the investors demanding repayment include lending giants Fannie Mae and Freddie Mac, as well as the New York Fed, which is seeking to force B of A to buy back a whopping $47 billion in bad mortgages.

Naturally, Bank of America shares tumbled today as reality set in. B of A is in very deep shit.

Investors are demanding the repurchase of loans that were originated “in violation of underwriting guidelines.” Giant bond holders, such as Pimco and BlackRock, are among those also seeking repayment.

B of A never imagined this nightmare when it acquired Countrywide, some say at the insistence of the New York Fed, then headed by Treasury Secretary Tim Geithner.

B of A, the nation's largest bank, is now facing tens of billions in losses. The question is, could it be enough to tank the bank?

As I've noted in my last couple of posts, the level of fraud perpetuated was deep, widespread and included: the loan documentation process, the mortgage-writing process, the mortgage-transfer process, the title-transfer process, and the foreclosure process.

The level of fraud is simply stunning. There is no better way of putting it. And there is no way for the banks to reasonably or credibly play down this fraud, or write it off as a matter of "simple clerical errors."

Just by misstating a borrower's income or debt levels, a bank leaves itself vulnerable to having to repurchase mortgages when the loans go bad. As is widely known, those sorts of manipulations were rampant and widespread.

Simply put, Bank of America is facing a crisis. Even before the specter of having to repurchase at least $47 billion in bad mortgages was made public, the banking giant had already announced a third quarter loss of $7.3 billion, a rather grim figure.

The nation's biggest banks have a strangle-hold on the US economy. It is not inconceivable that B of A will need yet another government intervention because it is "too big to fail". As of last year, Bank of America’s assets were 16.4 percent of GDP.

In total, the three largest US banks (B of A, JPMorgan Chase and Citigroup) comprise 44 percent of the US economy. That is not safe for our economy or for the taxpayers, who may be on the hook should another unpopular bailout proposal be presented to the American people.

This is a remarkable story and it warrants our attention. The fallout could be as devastating as it is fascinating.

One thing's for sure; this is only the beginning.

Foreclosure-gate: a Historic Mess

With each passing day, we get new perspective on the size and magnitude of the mortgage/foreclosure scandal. We now know that this scandal goes beyond mere foreclosure fraud and is, in fact, a mortgage-transfer fraud of epic proportions.

The banks have been trying to cover up their massive mortgage fraud by circumventing foreclosure laws, thereby creating a entirely new level of fraud. And it's all finally coming to light.

On Wednesday, officials in all 50 states unveiled a joint investigation into mortgage companies’ conduct during foreclosure proceedings.

That was a timely decision. The very next day, RealtyTrac announced that U.S. foreclosure filings rose 3% in September from August levels, when 25% more homes were repossessed than the same month the previous year.

The foreclosure freeze and the concurrent investigations will have huge implications.

A drag on the foreclosure process “could delay any recovery in the housing market that might be on the horizon,” said analysts at FBR Capital Markets in a note that same day.

The markets know just how bad this could be for the banks; it has the potential to level them. That's why bank stocks tumbled this week.

The cost of default protection against U.S. bank debt also jumped this week on worries that financial institutions could be on the hook for losses as a result of the nationwide investigation. Bank of America’s spreads are now at their widest levels since July 2009.

This scandal involves more than just technical errors, or simply forgetting to cross the t's and dot the i's.

The examples of mortgage fraud are widespread and include wrong signatures, missing documents, falsifying documents, and false use of notary publics. The improprieties cast doubt on the entire foreclosure process. They reveal a systemic disregard not just for process and procedure, but for the law itself.

Yet, the banks are saying they simply didn't read the fine print — which they themselves wrote. And they're trying to foreclose on homes they don't even legally own. In many cases, they can't even provide proof of ownership.

There are cases of banks changing the locks on foreclosed homes while the inhabitants are still inside. However, it is illegal for a bank to enter a property unless they have retaken it at a foreclosure sale, which can be months or years after a foreclosure suit is filed. And the banks are certainly prohibited from entering a home when it is occupied.

What's worse, banks have been caught changing the locks on homes for which they don't even hold a mortgage.

The entire process is a mess. Basic property rights dictate that banks should not be attempting to repossess homes they don't even own. After all, the US is guided by the rule of law.

If lenders didn't foreclose properly, buyers could find themselves without clean title, opening a Pandora's box of risks. If title and ownership are in question, buyers could become reluctant to purchase foreclosed properties. Just the fear of such an outcome could be devastating to the already crippled real estate market.

Confidence has been lost. And in times of great uncertainty, confidence is the only thing that matters. If large numbers of homebuyers lose faith in the system of property ownership, title, and transfer, home sales will move from slow to stop. Prices follow sales volume, and if sales dry up significantly — especially in markets dominated by distressed sales — prices will collapse.

Unless the housing market is allowed to go through an uncomfortable, yet orderly, process of foreclosure and cleansing, all of the distressed properties cannot be cleared and a sustainable floor in prices cannot be found. Only through repossession, through the efficient reallocation of bank-owned properties back into the market, can housing truly heal.

Perhaps the biggest concern is the health of the Big Banks. If they are ultimately revealed as insolvent, it will wreak havoc on what's left of America and its economy. Yet, this might actually be a good thing in the long run because it would finally break the Big Banks and end their grip on our government.

It will be quite fascinating to watch the process unravel. The upcoming mid-term elections and the rise of the Tea Party are all about the bailouts, the hatred of the banks, and the fear of creeping socialism.

Another bank bailout would be political suicide for any politician that supported it. The public would never stand for it. Yet, so many Republicans have now backed themselves into a corner by opposing bailouts for political reasons.

However, in the fall of 2008, we were all warned that not bailing out the Big Banks would be economic and national suicide. We may still get to find out after all.

The fallout from this scandal could be historic and watching it all play out will be nothing short of intriguing.

We can only hope that all those politicians who carry water for the banks will be excoriated for not calling on them to follow and uphold the law. And if the banks won't, then the lawmakers are supposed to.

This is a great opportunity to see them all for what they are; liars, cheats, thieves, political partners and opportunistic bedfellows.

They are all in league with each other.

Massive Banking Crisis Starting To Unfold

With Bank of America halting foreclosure proceedings in all 50 states, it's just a matter of time before the remaining Big Banks follow suit — whether they want to or not. Given the level of fraud committed, the government will surely force them to. As it stands, GMAC and JP Morgan Chase have also decided to at least delay additional foreclosures.

The repercussions of this will be extraordinary. Such a moratorium will slow any attempts to clear the backlog of foreclosed properties across the nation, and it will cut off the flow of mortgage payments that the banks heavily rely on. These payments are the banks bread and butter.

Already, millions of people have stopped paying their loans and are living for free as they wait to be foreclosed upon. Many are demanding to see the paperwork trail, knowing that the banks can't prove ownership of their homes. They don't have the titles. No one knows where they are.

And the looming lawsuits will be disabling to the banks. Even if they win most of the cases, the legal costs, the time in court, and the further bad publicity will be highly damaging.

All of this is putting massive strain on the banking system, which could potentially collapse without a government intervention. How unpopular would that be?

If the Republicans take control of the House in November, they will fight like hell to prevent such an intervention. Their constituency would revolt in open rebellion. Another bailout could potentially spark a revolution by an increasingly seething American public.

“Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue,” said Christopher Whalen, managing director at Institutional Risk Analytics.

The foreclosure process will take some time to unwind. The shadow inventory has been growing rapidly. According to Morgan Stanley, 8 million foreclosure-bound homes have yet to hit the market.

According to Whalen, “We are less than one-quarter of the way through the foreclosure process."

UBS Investment Bank managing director Thomas Zimmerman cites statistics that predict there could be 11.5 million foreclosures over the next few years.

These are very bad signs of what's to come, and how long this nightmare could play out.

If the biggest US banks were forced to recognize their actual losses, and the true value of the residential and commercial properties on their books, they would be insolvent.

We have a massive banking crisis on our hands, folks, and things are about to get very ugly.

Prospectors Piling Onto Gold's Bandwagon, But Fundamentals Remain Strong

There are plenty of analysts who believe that gold prices will continue to rise, and some (such as Jim Sinclair and Chintan Karnani) see the possibility of $1,450-$1,600 early next year.

Many people view gold as a store of value. Central banks cannot print it out of thin air. And it cannot be devalued at will by governments to pay off their debts more cheaply, as a currency can.

However, other people are jumping on the gold bandwagon as a means of making money. And there are reasonable concerns about the rapid influx of retail investors into the gold market. The sudden increase of these gold prospectors has helped to drive up prices.

These investors are not buying gold as a hedge, or as an insurance policy to protect them from exposure to dollars or other fiat currencies. Rather, they are buying gold with the hope of eventually cashing out and taking their profits in the form of even more dollars.

They are the last to invest in any bull market and the first to exit. And right now, these investors have started buying gold all over the world. Mutual funds and ETFs have also increased their allocation of gold.

Given that, a significant correction from gold's highs could be imminent. But at some point thereafter, gold should continue its ascent because of the instability of fiat currencies and the size of sovereign debts.

The possibility of a currency collapse is a very scary, yet quite realistic, prospect. All fiat currencies are under great duress. Sovereign debts are massive and unsustainable. Gold's continuing rise is a sign of the instability in the dollar, of global stock markets, and in the bond markets.

Central banks don't like gold because they can't print it at will, and they can't control it. They had previously been dumping gold on world markets in an effort to keep prices suppressed. However, they've recently changed course.

Over the past 12 months, the IMF and central banks have reportedly sold the smallest amount of gold since an agreement to cap gold sales was put in place in 1999.

As Europe continues to reel from its sovereign-debt crisis, central banks there and elsewhere have stopped selling gold. Instead, they're now buying.

Central banks account for about 20% of above-ground gold in the world, and fewer sales mean gold supplies are likely to continue to lag demand, boosting prices in the long term.

And that's what's important to those who own gold due their legitimate concerns about unstable fiat currencies and unsustainable sovereign debts.

Prepare for Higher Oil and Gas Prices

John Hofmeister, the former president of Shell Oil and now CEO of the public-policy group Citizens for Affordable Energy, has some rather stark projections for the price of oil and gasoline. If he's correct, the outcome will adversely affect drivers, home-heating oil users, and American consumers in general.

Hofmeister says that future US energy production will be hampered by the offshore drilling moratorium that will effectively be in place until at least the middle of 2012. The oil industry veteran says that new rules won't even be in effect until the end of 2011.

Due to the moratorium, Hofmeister says Gulf oil production will be reduced by up to 1 million barrels a day. Imported oil now accounts for 67% of usage, but will rise to 75% by 2012. As a result, Hofmeister predicts that by 2012 crude oil will be up to $125, and gasoline will be between $4-$5 at the pump. And from there, he sees things getting even worse.

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

The US is currently the world's third-biggest oil producer, but its seemingly unquenchable appetite for oil also makes it the world's largest oil importer, by far. The US imports almost two barrels of crude for every one it extracts.

With consumption at roughly 21 million barrels per day, the US uses more oil than any other nation and equals the consumption of the next five largest national consumers combined (China, Japan, Germany, Russia and India).

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 the decline rate for oil production appears to have increased to about 7% annually. However, 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.

Perhaps Bodino hasn't seen the IEA data about the decline rate for oil production. Somehow, he envisions a 1% growth in global supply and 2% growth in demand. Based upon those projections, Bodino envisions $90-$100 oil in 2012.

Kevin Kerr, editor of Kerr Commodities Watch, thinks that may optimistic. For now, Kerr says he expects oil prices to range trade a bit longer and, "Then I expect a sharp move above the $90 level and a range of $90-$110 for some time, baring any unforeseen problems in the Middle East or other choke points.”

However, according to Kerr, within two years, 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, that will result in higher prices for all of us, perhaps much higher.

Job Creation is a Function of the Private Sector, Not the Government

The woeful state of the US economy (particularly unemployment) will have a huge impact on November's mid-term election. Elections are won and lost over the state of the economy. Remember the famous 1992 Clinton campaign slogan, "It's the economy, stupid?"

However, the nation's dire unemployment problem has spurred a strange political response from the GOP, which is blaming it all on President Obama. After the $787 billion stimulus program, the Republicans are asking, Where are all the jobs?

That because Christina Romer, head of the White House Council of Economic Advisors, claimed that the stimulus would keep unemployment at 8%.

Swing and a strike.

But it is very curious that the GOP is calling on — even expecting — the government to create jobs. It flies in the face of their core belief that government is the problem and should get out of the way. Republicans have always espoused the notion that job creation is best left to the private sector. And rightfully so.

After all, with more than two million civilian employees, the Federal Government, excluding the Postal Service, is the nation's largest employer, according to the Bureau of Labor Statistics.

That surely isn't something the Republicans endorse. No one should. It's a drain on the private sector, meaning the productive economy.

The hard truth is that there's little Washington can do to spur the creation of permanent jobs.

Aside from additional stimulus spending for our nation's crumbling infrastructure (an option Republicans strongly oppose), which would create temporary construction jobs, the government can only affect the unemployment problem by hiring even more federal employees to its already bloated roster.

Hiring more federal employees clearly isn't the solution. The federal government could also increase its purchase of goods and services, but it is already running unsustainable deficits. And once again, that is supposed to be the function of the private sector in a capitalist economy.

The great American job-creation machine always has been, and will continue to be, a private enterprise. As it should be. The Republicans surely know this. It has always been their mantra.

Ultimately, what creates jobs? Profits. The government does not create jobs. And neither does the Fed. Profitable companies create jobs and expand their capacity to hire more workers when they are optimistic about the outlook for profits.

But, right now, employers are not feeling particularly optimistic. And that is why private sector hiring is occurring at a glacial pace.

Another unfortunate reality is that job creation has been slowing for decades.

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 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.

So, we are in the midst of a rather ugly trend.

Nearly 15 million Americans are presently unemployed. According to economist John Williams, when part-time workers who want full-time work are added to the number of unemployed, the under-employment rate reaches 22%. Millions of those jobs are never coming back. They are outmoded and have been permanently outsourced.

Sadly, we are years — perhaps a decade or more — away from what was previously perceived as normal or acceptable unemployment.

The government may view a 5% unemployment rate as "full employment," but short of hiring 15 million Americans in an FDR-like Works Progress Administration program, there is not much the government can do about the unemployment problem.

However, Republicans have spent the last 75 years criticizing, discrediting, and trying to dismantle FDR's New Deal. Yet, what they won't admit is that they have no plan of their own, no alternative.

There is nothing they can do about unemployment either — other than blame it on Obama.

Like Rats Fleeing a Sinking Ship

The President's Closest Economic Advisors are Abandoning Him As Economic Problems Continue To Mount

When a ship is going down, even the rats know to bail out before it sinks.

First it was Budget Director Peter Orzag, in June. Then it was Christina Romer, head of the White House Council of Economic Advisors, in August. And now Larry Summers, director of the National Economic Council, has announced he is leaving the Obama Administration.

Orzag is already gone. Romer will leave on September 3. And Summers will exit by the end of the year.

Their departures leave a huge vacuum in the Obama administration's economic policy team — just before the midterm election and as hopes of a recovery are fading fast.

You have to wonder if Treasury Secretary Tim Geithner will be next.

Recently, Orzag and Romer both publicly advocated plans that conflict with the White House's.

In a New York Times' column, Orzag called for all of the Bush-era tax cuts to be extended for two years, including rates for the wealthiest taxpayers, which the administration wants to phase-out for deficit reduction. Orzag also said all of the tax cuts should be allowed to expire in two years for the sake of the nation’s budget.

In her last major address for the administration, Romer said that the government should “spend more and tax less” in helping the economy.

Yet, the White House knows that more stimulus is political suicide with a $1.5 trillion deficit this fiscal year. Even though our nation's infrastructure is in shambles, stimulus has suddenly become a four-letter word.

The President's advisors have seen the writing is on the wall; the economy is not coming back any time soon. And when (or if) it does, it will look very different than it did in the past. Our nation's problems are structural and systemic. They are not going away and they will be very difficult to grapple with.

The national debt is $13.5 trillion, and counting. The fiscal 2011 deficit is projected to be $1.4 trillion. Meanwhile, tax revenues are plummeting due to unemployment and pay cuts. That means the deficit and debt problems will only worsen. As it stands, total public and private debt exceeds that of the Great Depression.

Social Security took in less than it paid out this year. Yet, the Baby Boomers begin retiring in mass in little more than a year, a tidal wave that won't crest for nearly two decades.

Medicare is projected to be insolvent by 2017.

The fastest growing US demographic is people over 85, an unproductive populous. They all require or receive Social Security and Medicare.

Manufacturing amounts to just 12 percent of GDP. Meanwhile, exports also contribute just 12 percent to GDP. Imports, which vastly exceed exports, result in diminished GDP. And the growing trade deficit (nearly $43 billion in July) results in both jobs and dollars flowing out of the US.

Two-thirds of the oil used by US is imported. Oil is a finite resource and global demand is outstripping supply. This does not bode well for an economy that is completely and entirely reliant on oil to function, much less grow. This reliance also negatively affects the trade deficit and results in billions of dollars leaving the US each and every month.

One out of every seven homes in the US was either delinquent or in foreclosure in the first quarter. It seems that the problem is getting worse; more Americans lost their homes to foreclosure in August than any other month on record, according to RealtyTrac. Bank repossessions were 25 percent higher than the previous August and 2 percent higher than the previous record, just set in May.

And the shadow inventory is growing. According to Morgan Stanley, 8 million foreclosure-bound homes have yet to hit the market. It will take years to work off all this excess.

Unemployment remains stubbornly near 10 percent, as nearly 15 million Americans are still unemployed. Job creation was actually negative in the last decade, and millions of those jobs are never coming back. They were outmoded, outdated and outsourced.

Both housing and employment are years away from returning to 2007 levels — perhaps more than a decade.

It doesn't matter which party wins the upcoming midterm election. It matters not who controls the White House or either branch of Congress. It's like rearranging the deck chairs on the Titanic.

Orzag, Romer and Summers have all seen the writing on the wall, and they know it spells misfortune. They've decided to get out now, before the ship goes down.

One In Seven Americans Now Living In Poverty

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 share of people living in poverty rose to 14.3 percent in 2009 from 13.2 percent in 2008, the highest level since 1994.

The rampant unemployment associated with the Great Recession was largely responsible for the development, as the ranks of the poverty stricken grew by four million last year. And there is every indication that the trend is continuing this year.

At its pre-recession peak, in the second quarter of 2007, the net worth of American households stood at $65.8 trillion. As of the second quarter of this year, it was $53.5 trillion, a 19 percent drop.

According to the Census report, three million American families were only kept above the poverty line by unemployment insurance.

But even those with jobs are regressing. Median family incomes were 5 percent lower in 2009 than in 1999. The median US household income in 2009 was just $49,777. That's less than a thousand bucks per week.

"This is the first time in memory that an entire decade has produced essentially no economic growth for the typical American household," says Harvard economist Lawrence Katz.

For a family trying to pay for housing, medical insurance, food and utilities in a large metropolitan area, that sum won'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.

In 2009, the poverty threshold for a four-person family, including two kids, was about $22,000. That's a very loose definition of poverty. Imagine living in a large city, especially on the coasts, and trying to support four people on $22 grand. Good luck.

To cope with falling incomes and joblessness, many people have been sharing homes with family and friends. The Census study found an 11.6 percent increase in the number of multifamily households over the last two years.

The one in seven Americans living in poverty conflates with the nearly one in seven also on food stamps.

The number of Americans receiving food stamps had grown by more than two million just by the midpoint of this year, reaching 41.3 million people. And it is still rising.

Taken as a whole, all of this data points to the hardships now faced by millions of American families. Any reasonable person would only expect the ranks of the poverty stricken to continue increasing this year and into the foreseeable future.

The Great Recession is taking a brutal toll on our nation and it is changing the lives of millions of Americans for the worse. An entire generation may grow up with diminished hopes and expectations for the future.

"Clearly, the Census is setting the income level for their poverty measurement extremely low, and if you increase that measure by just a small increment, to $25,000 for a family of four, you are now looking at nearly 100 million Americans in poverty." - David DeGraw, AmpedStatus Report

Americans' Retirement Savings Look Bleak

In the midst of the Great Recession, the financial positions of millions of Americans have become unstable, to say the least. And the problems aren't just related to high unemployment and falling home prices.

Decades of stagnant wages and lives lived on credit have created long term consequences for vast numbers of people.

As has been the case for most of the past decade, the retirement savings of the typical American isn't healthy or adequate.

According to the nonpartisan Employee Benefit Research Institute (EBRI), nearly half of baby boomers born between 1948 and 1954 — and now between the ages of 56 and 62 — are at risk of not having enough money in retirement to pay for basic expenditures

According to a survey by EBRI this year, 43% of workers said they have less than $10,000 in savings. More disturbing, 27% of workers said they had less than $1,000 saved.

Many of these workers may have to rely solely on Social Security in their retirement years, or perhaps not retire at all. As it stands, 35% of Americans over 65 rely almost totally on Social Security alone, says Dallas Salisbury, President of the EBRI and the Alliance for Investor Education.

Many Americans put their retirement hopes in their homes, which were expected to continually appreciate until their retirement years. The plan for most was to then sell the home and live off the proceeds. Declining home values have made such plans seem less feasible, and retirees still need somewhere to live.

All of this points to a very humble, if not outright difficult, retirement for millions of Americans.

Social Security was never meant to be the sole means of retirement income. Rather, it was meant to be just one leg of a three legged support system also consisting of savings and a pension. Yet, the latter are quite rare these days as most companies have stopped offering defined-benefit programs.

The sad reality is that millions of Americans will be relying on rather meager income in their retirement years. At present, the average monthly benefit for the 53 million Social Security beneficiaries is just $1,066. That may go down if benefits are reduced by Congress. Either way, it won't go far.

And with a consumer-driven economy, this lack of funds will ultimately depress the nation's GDP. But that's another concern.

The lack of savings is not just some new phenomena driven by the recession either.

A 2002 USA Today/Gallup Poll also found that more than one-third of adults had no money saved in any type of retirement account. And half of all households had not saved a penny in the previous year. That was at the height of the go-go years.

Prior to the recession, the median amount held in the retirement accounts of Americans was just $2,000, according to the Bureau of Labor Statistics. It would hardly be surprising if that amount has since decreased.

No matter how you view it, the data just isn't comforting. And the latest research is equally grim.

The Center for Retirement Research at Boston College recently calculated what the average person between the ages of 32 and 64 have saved so far for retirement.

It found that Americans are $6.6 trillion short of what they need for retirement. That works out to an average of $90,000 per potential retiree.

Unfortunately, they called their estimate conservative. The center assumed a three percent rate of return on investments and it also assumed there won't be any changes to Social Security benefits. At present, neither of those seem like reasonable scenarios.

Furthermore, the center didn't include what the average retiree spends on health care. The researchers assumed that future retirees would spend every penny they had on retirement, leaving nothing for their heirs.

While that may be a concern for some children and grandchildren, the primary concern for millions of Americans is whether or not they'll have enough just to meet their basic, everyday needs in what were supposed to be their retirement years.

Falling Incomes & Prices Stoke Delation Fears

The Commerce Department reports that incomes fell in 49 of the country's 52 biggest metropolitan areas last year. The only areas that saw incomes rise were Washington, DC, San Antonio, Texas and Virginia Beach, Va. All three cities have a strong presence by the federal government or the military.

The decline in wages is a worrisome development. It coincides with a drop in prices; the Consumer Price Index has fallen three months in a row.

Both data points stoke fears of deflation.

Excluding oil, prices are climbing at a very slow 1.2 percent pace, much slower than the Federal Reserve would like. The Fed likes to keep interest rates below the inflation rate. But with the Federal Funds rate near zero, there is little wiggle room should prices continue to fall.

While falling prices might not seem like such a bad thing to the average consumer, falling wages are another thing altogether. Falling wages make debt repayment all the more difficult. And considering the size of consumer debt in America right now ($13.5 trillion), that would be a very bad thing.

The Labor Department announced that business productivity declined nearly one percent in the second quarter, and yet labor costs hardly rose. It was the first time that productivity declined in a year-and-a-half. The bad news for workers is that they are working more and barely being compensated for it.

After all the trillions the Fed has pumped into the economy and banking system over the past two years, the greater concern should be price inflation. But that is nowhere in sight.

To fend off signs of deflation, the Fed may continue to print money, and lots of it. And it will continue buying Treasuries as well — lots of them. Through its purchases of more government debt, the Fed hopes to keep money from draining out of the financial system.

But after lowering rates to nearly zero, pumping money into the Big Banks, and buying enough mortgage-backed bonds to drop the mortgage rate to record-low levels, the question is, What more can the Fed do?

Even if money is cheap and readily available, no one can force people to borrow. People with huge debts, falling wages, no jobs, or the fear of losing their jobs, will not be persuaded to borrow.

And therein lies the problem: our entire economy is based on borrowing and lending for economic growth to occur. Money is created through borrowing. Without borrowing, there is less money and no growth. Absent growth there are no jobs. And without jobs there is no recovery.

The fear of so many economists is that the US might follow Japan's path into a "lost decade" of our own.

And that is a disturbing and worrisome possibility at the moment.

Tony Robbins Issues Stock Market Warning

The US economy has suffered a real estate collapse, a banking crisis that led to a near systemic collapse on a global scale, a resulting credit crisis, the worst economic downturn since the Great Depression, and a lasting global recession.

Yet, despite continual declines in US gross domestic product and consumer spending, the stock market seems almost immune.

In fact, the Dow Jones remains above 10,000. How can this be? Consumers are deleveraging and the flow of credit has slowed. One in five Americans is unemployed or underemployed. It makes no sense.

For starters, banks have significantly reduced lending since 2008 (down about 18%, year-over-year, in 2009). Much of the money not lent ended up in the stock market, and the returns were pretty good for Wall St. — for a while.

Simply put, lots of new money was flowing into the stock market and pushing up the average.

But, for the most part, the stock market is driven by a herd mentality, not fundamentals. Over the past year-and-a-half, investors bid up the stock market in a delirious frenzy, hoping to recoup previous losses, or get rich from buying when the market was perceived to be low.

However, many US corporations have been making money by cutting costs and laying off workers, not by increasing revenues.

In reality, Wall Street is a pretty poor barometer of the economy’s performance since it is simply a bet on the future performances of a select group of companies listed on a few stock exchanges. And for the last decade, it has been a bad bet.

Over the past 10 years, stock returns are negative 5.4%. Adjusted for inflation, $1 invested in stocks in March 2000 is now worth just 60 cents.

Today the Nasdaq trades at less than half the peak it reached a decade ago.

The market has been nothing short of schizophrenic in the past year. Since last September, the Dow Jones has been up or down by 100 points a third of the time.

By some estimates, "high frequency trading" is responsible for close to 70% of all volume in US markets. 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.

The markets are manipulated, and unfortunately there will be a lot of losers because of this.

Fortunately, some investors have caught on to this scam.

According to the Investment Company Institute, investors withdrew a whopping $33.12 billion from domestic stock market mutual funds in first seven months of 2010.

Many people see a crash coming in the next few months, among them noted life coach Tony Robbins.

Why is that significant? Because Robbins has built his career and reputation by being positive and optimistic. He's the guy that tells people they can achieve happiness and success, as long as they have the will and believe in themselves. He is not known for being dour or pessimistic.

Robins has become a millionaire by coaching other millionaires. He has friends in high places, and apparently some of them have recently given him an urgent warning.

And now Robbins has issued his own warning about the stock market and what lies ahead for the US. It's not good. You can see part one here and part two here.

As Robbins suggests, reach your own conclusions and make your own choices.

One way or another, the reality of the market is evident and by virtue of the facts alone, we've all been warned.

Military Spending Must Be Slashed to Save America

In a previous article, I discussed the fact that two-thirds of the federal budget is comprised by Social Security, Medicare/Medicaid, payments to veterans, and interest on the debt.

That leaves Congress little wiggle room in trying to address continual budget deficits and the burgeoning national debt.

Aside from interest payments (which cannot, and will not, be avoided), the other items are social contracts, or promises that have been made to the American people.

It is conceivable, if not likely, that the retirement age will be raised from 66 to accommodate longer current life spans, and that the Social Security earnings cap may be lifted as well.

However, Social Security payments are recirculated back into the U.S. economy and increase domestic consumption. They boost consumer spending and overall GDP. Without question, these payments are massive and — due to the extraordinary size of the Baby Boom generation (76 million strong) — they are growing.

Yet, neither Social Security or Medicare/Medicaid is the single largest budget item or expenditure. Rather, that distinction would go to defense and Homeland Security. Taken together, the two add up to $706.4 billion in the fiscal 2010 budget.

Officially, spending on veteran’s medical care and pensions is classified as an entitlement expenditure, as opposed to part of the defense budget. If these items were included, the defense budget would be even more massive.

According to an analysis of the 2011 Federal Budget by the War Resister's League (an annual project), when the cost of two concurrent wars, veterans benefits, and the interest on the debt created by military spending are added to the current military budget, overall defense spending equals 48 percent of the total Federal Budget.

That's truly stunning.

Despite the fact that the Cold War ended two decades ago, the U.S. still spends more on its military budget than all of the other nations of the world — combined.

The U.S. is presently maintaining its global military empire at an untenable expense. More than a third (500,000) of its 1.4 million active duty military personnel are deployed on over 700 bases in more than 150 countries and territories — including 37 European nations.

In fact, more six decades after the end of WWII, the U.S. still has more than 50,000 troops in Germany and 30,000 in Japan.

This is bloating the budget and it cannot continue much longer.

In June, Federal Reserve Chairman Ben Bernanke told a House committee, "The federal budget appears to be on an unsustainable path."

No kidding.

The national debt has eclipsed $13 trillion dollars, and is approaching 90 percent of the GDP. The size of our debt is creating a major drag on our economy. This is critical because by some accounts a 1 percent increase in GDP can create almost a million jobs.

With that in mind, White House budget planners are working to trim five percent from federal spending by 2012. However, they'll have to cut an equal amount in successive years to really make a difference.

And since two-thirds of federal spending is mandatory, defense (which is discretionary) is the area that will need to be trimmed most aggressively.

The nation's deficit and debt issues have gotten the attention of none other than Admiral Mike Mullen, chairman of the Joint Chiefs of Staff.

"I think the biggest threat we have to our national security is our debt," the Admiral warned in June.

That's powerful. And imagine; it came from a military man, of all people.

However, it's not a new line of thinking. Dwight Eisenhower famously warned that a strong economy is essential to a strong defense.

During a recent Washington speech, Mullen noted that within two years just the annual interest on the debt will be close to $600 billion.

Since that would approach the size of the defense budget, it is simply unsustainable.

As noted, at more than $700 billion a year, defense is the biggest part of the federal budget. It's worth repeating that the United States is now spending as much on defense as the rest of the world combined.

According to Harvard professor and historian Niall Ferguson, empires — such as the former Soviet Union and the Roman empire — can collapse quite quickly and the tipping point is often when the cost of servicing an empire’s debt is larger than the cost of its defense budget.

At the 2010 Aspen Ideas Festival in July, Ferguson provided a stark warning about the increasing prospect of the American “empire” suddenly collapsing due to the country’s rising debt level. Most ominously, Ferguson warned that this could happen "within the next two years."

Defense spending is driving our rather dangerous deficits and debt. And, unlike Social Security payments, that money is not recirculated to consumers and into the economy at large.

Remarkably, defense spending has doubled over the last ten years, according to Ashton Carter, the Defense Department's undersecretary for acquisitions.

The Military-Industrial Complex is massive and incredibly powerful. It is geared toward self-preservation and will battle for its survival. It will fight to maintain all the money flowing its way through the federal pipeline, as well as to maintain all of its power, its deep resources and its sprawling reach.

However difficult the fight may be, the Defense Department will have to learn to live, and fight wars, with less. America's national security depends on it.

Just ask Admiral Mike Mullen.