 | | The Daily Reckoning | Monday, August 22, 2011 |
- Gold gallops another $40 an ounce as stocks continue to wobble,
- The "State of the States" – a closer look at the slow, decaying empire,
- Plus, Bill Bonner on the movements of markets and heavens and plenty more...
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Who gives a damn about America's credit rating?
I'm SICK of hearing about Keynesian vs. Austrian, fiat currency vs. Gold, US credit ratings and other BORING economic theories you have ZERO control over.
"WHO CARES!?"
Truth is, if you want to make money in the markets, none of that stuff even matters!
Let me prove it to you by showing you.
|  | | | | When the Lights Go Out | | Examining the Real Life Effects of a Prolonged Economic Downturn | | |  | | Joel Bowman | Reporting from Buenos Aires, Argentina...
Look at gold go! Another $35 rally today takes the precious metal up over $1,890 per ounce. Run, Midas. Run!
Stocks, meanwhile, are busy doing quite a bit of not all that much. After getting hammered in the backstretch last week, the Dow made a brief showing above 11,000 in early morning trading today, before surrendering a hefty chunk of those gains. As of this writing, the blue chip index is back well below 10,900 points.
After last week's drubbing, we were left with the distinct feeling that few traders wanted to be caught holding the Dow into and over the weekend. It was only a few weeks ago, after all, that S&P ratings dropped the downgrade bomb after trading had closed Friday afternoon, sending stocks spiraling the following Monday. Nothing worse than getting back in the office to begin the workweek only to see your trading screen bleeding red from top to bottom.
The ratings downgrade wasn't really surprising, of course...at least not as surprising as investors' apparent shock that the financial integrity of world's largest debtor was not all rainbows, unicorns and funny money dropped from helicopters.
Looking back (again), Addison Wiggin called it pretty well in advance in his "Hellish Financial Crisis" presentation. (Check it out here if you have not done so already.) In it, he examines the financial "State of The States" and the kind of "Third World America" already popping up in various parts of the country in response to severe and widespread budgetary constraints and state and local governments' uncomfortable collisions with fiscal reality.
Addison noted a few examples of the unfolding crises in Friday's issue of The 5-Minute Forecast:
As August drags on, the dire straits of state and local governments are making themselves known in ways both sublime and ridiculous...
Just as they needed it most, California tax revenue came in $539 billion below the most recent forecasts – about a 10% shortfall.
"Every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year," state controller John Chiang told the paper. Result in California's case: A cut to education spending that could trim the school year by up to seven days in some districts. And there's more. Continued Addison...
Fitch downgraded New Jersey's credit rating yesterday. It was AA. Now it's AA-. That's three steps below AAA. The outlook, however, was revised from negative to stable.
The problem, according to Fitch? Not enough money to make good on all the pension and health care promises made to retired state workers. And even if there were enough money... there wouldn't be enough left over for other priorities like property tax relief, schools, and public works.
As a recent study discovered fully funding state and local pensions in New Jersey would require taxing every household an extra $2,475 every year for the next 30 years.
That's enough to put New Jersey #1 on The Pension List – one of three measures we used to assess the economic health of all 50 states. [Where does your state stand, and which states are best prepared to weather an economic storm? Check out the answers in Addison's special report: American Oases. Access here.] As federal "stimulus" funding dries up, many states and municipalities are finding it tough – nay, impossible – to make good on the unrealistic promises they leveraged to help various politicos win seats in their respective elections. But it's not just lavish payouts and union-fought concessions that are being cut. We're also talking about the end of some pretty basic services here...things a good many people believe the government "has a duty" to provide for them. Things like road maintenance, police services and assorted other "public works"...
But here's a newsflash: the government has no money other than that which it takes from you...and that's already been spent.
Now that the "Summer of Recovery" has been exposed as the empty, misguided fraud it was...now that foreclosures have again begun to tick upwards (as home prices continue to sink)...now that weekly jobless claims are back above that "magic" 400,000 figure...now the thumbscrews are really beginning to tighten.
Continued Addison, highlighting a few more examples of decaying Empire...
- Rockford, Ill. – where unemployment runs 11.6% – is saving a little money by yanking streetlights out of the ground. The city hopes to shave $500,000 off a $2.7 million annual streetlight bill...by removing 2,400 lights.
- The state of Illinois announced this week it will no longer pony up for funerals of the indigent. In years gone by, the state budgeted $13 million a year to bury some 12,000 people on public assistance. But this year's budget was only $1.9 million, and that money ran out on Monday. More than 600 funeral homes have been notified they can no longer count on the state to pick up the bill.
- Starting Monday [today], police in Detroit will no longer answer calls from automatic burglar alarm calls unless the alarm company verifies there's a problem.
That last point might sound a bit rough, especially in a city like Detroit, not exactly known for its carefree, crime-free lifestyle. But is it really that surprising? Compare it to what's already going on in Oakland, California, for instance, where the police chief recently informed citizens that they would no longer respond to various crime calls. Here are a just few things the cops won't show up for there anymore...
- Burglary...
- Theft...
- Failure to register as a sex offender...
- Passing fake checks...
- Embezzlement...
- Extortion...
- And vandalism...
These observations, it must be said, are not reported here to scare you as much as they are to help prepare you. "You shouldn't feel helpless," writes Addison. "Along with a vivid description of the problem, we lay out a five-part solution set in our latest Apogee Advisory presentation." Readers are invited to check it out here.
Of course, there will be those for whom the "stay and fight" strategy is simply not a prudent option. They're looking to "get outta Dodge" while they still can. For Fellow Reckoners of this persuasion, we offer the following essay, penned by guest columnist, Simon Black. Please enjoy...
| | | | | America 2012...Wall Street in Ashes...Main Street in Ruins... |
Here's SIX ways to protect yourself and profit from the biggest lies DC, Wall Street, the Fed and your banker are telling today...
Click Here To Find Out How.
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| | The Daily Reckoning Presents | | You're Gonna Need MORE Than Gold... | | |  | | Simon Black | Everyday more and more people are waking up to the idea that they MUST own gold if they want to protect their assets from an out of control government. Owning gold is a great first step, but as history tells us, responsible people can and should do more before it's too late...
History paints a bleak picture of the decline of Rome. Once warring consuls Antony, Lepidus, and Octavian were finished duking it out with each other in 31 BC, any semblance of the original Roman republic was gone forever.
Successive emperors of Rome included men like Tiberius, a paranoid deviant with a lust for executions. He spent the last decade of his reign completely detached from Rome, living in Capri.
Following Tiberius was Caligula, infamous for his moral depravity and insanity. According to Roman historians Suetonius and Cassius Dio, Tiberius would send his legions on pointless marches and turned his palace into a bordello of such repute that it inspired the 1979 porno film named for him.
Caligula was followed by Claudius, a stammering, slobbering, confused man as described by his contemporaries. Then there was Nero, who not only managed to burn down his city but was also the first emperor to debase the value of Rome's currency.
You know the rest of the story – Romans watched their leadership and country get worse and worse.
All along the way, there were two types of people: the first group were folks that figured, "This has GOT to be the bottom, it can only get better from here." Their patriotism was rewarded with reduced civil liberties, higher taxes, insane despots, and a polluted currency.
The other group consisted of people who looked at the warning signs and thought, "I have to get out of here." They followed their instincts and moved on to other places where they could build their lives, survive, and prosper.
You're reading this because you probably fall into the latter category. You're aware of the problems. You can feel your civil liberties and economic opportunities slowly slipping away, all while the crop of national leadership grows more depraved with every election cycle.
You want to do something about it. You want to take steps to protect yourself, your family, and your livelihood. Perhaps you've already started by investing in precious metals. Gold is a great hedge against inflation, political turmoil, and default – things I call "sovereign risk."
You see, some of the world's largest governments are going broke, and these politicians will take any steps necessary in order to maintain the status quo: they will lie, they will steal, they will declare wars, they will bankrupt their people with hyperinflation...whatever it takes.
This is the greatest risk we face today. Buying gold is a great start, but there is MUCH more that you can do.
I'm an advocate of what I call planting 'multiple flags.' At its core, planting multiple flags means that you are diversifying your sovereign risk around the globe so that no single government has total control over your livelihood. Let me explain.
Let's say you are from the US. If you live, work, bank, invest, register your business, own your property, store your gold, etc. within the US, and one little thing goes wrong, all of those assets and interests are at substantial risk. Any judge or bureaucrat could make them all disappear with a few mouse clicks.
It needn't even be anything big. Maybe some three-letter agency suspects you of wrongdoing. Maybe your neighbor wants to sue you. Maybe they outlaw gold ownership (again). There are infinite possibilities, and infinite risks.
When you plant multiple flags, you diversify those assets around the globe. Store your gold in Switzerland. Open a bank account in Hong Kong. Register your company in Singapore. Establish an emergency 'backup' residency in Chile.
You can plant flags with just about any interest in your life – where you go to get high quality, cost effective medical care, where you set up your web servers for an online business, where you establish an international brokerage account, etc.
This approach is NOT just for the super rich. In fact, I've helped all kinds of people to plant their own flags, young and old, rich and poor.
Taking some simple steps to protect yourself will give you extraordinary peace of mind. You'll know that, without doubt, you have some savings socked away that NOBODY can touch. You'll know that you have a solid emergency backup plan. You'll know that everything you've worked for won't vanish in an instant.
I've made it my profession to know these tactics...and I've set up my own life in this way. I have official residency in one country, bank in another, have multiple citizenships in others, set up my company in another, etc.
A few months ago, I held a comprehensive, hands-on workshop; about 350 attendees spent 3-days learning from a diverse cadre of speakers – bankers, residency experts, gold dealers, corporate specialists, from places like Switzerland, New Zealand, Brazil, Singapore, the Philippines, Uruguay, Estonia, and more.
Because the event sold out so quickly within just 24-hours of the announcement, we hired the most professional Hollywood film crew we could find to record the event and put together a video series.
We're now offering a 12-disc DVD kit of the event, complete with a comprehensive 200+ page workbook containing the personal contact information of every single expert who spoke at the workshop. This kit contains information and solutions you simply cannot find anywhere else at any price.
You owe it to yourself and your family to heed the warning signs. The alarm bells are ringing, and only you can choose to listen. Click here to learn more.
Regards,
Simon Black,
for The Daily Reckoning
| | | |
Judgment, pestilence and bloodshed – are they headed for the USA?
An extremely controversial "R-rated" documentary seeks to answer these urgent, historic questions.
Don't wait – watch it now.
| | | | | | Bill Bonner | | Debt Woes in a Cosmic Bear Market | | |  | | Bill Bonner | Reckoning from Poitou, France...
Ursa Major in the sky Time to sell stocks is nigh
Last night was bright and clear in France. We could see the Milky Way stretched out against the dark background.
And there was the bear...Ursa Major.
Last week, stocks got hammered...mauled...beaten up...
Market veterans said they had never seen the buy/sell ratio more lopsided towards selling.
But why?
In the past couple of weeks we've seen zombies rising up and markets crashing down. Not the way we usually like it. But interesting...no?
In the weekend news comes word that the Social Security Disability program is almost broke – thanks to so many claims.
And California's official joblessness figure is at 12%.
Want more bad news? What's wrong with you, dear reader? Do you get a thrill from the suffering of others?
Of course not! You just want to know what's going on. Besides, you suspected for years that the 'prosperity' so many people were enjoying was a fraud. Now, you find out that you were right. People didn't really have the money to buy all those McMansions and luxury 4x4s... They were living on credit. And now that credit has become the darkest kind of debt...
..dense, heavy matter...and becoming heavier. Like a dwarf star...or an imploded sun...
Why is it getting heavier? Because, as the economy gets crushed under the weight of so much debt, it becomes harder and harder for people to earn the money to pay back their loans.
That's why debt is always deflationary. When people have to pay debt, they withdraw money from the economy. They save rather than spend. Result = fewer sales, fewer jobs, falling prices...and an all-around feeling of gloom and doom.
Which, of course, is accompanied by falling asset prices. We've already seen the housing market fall. It's down about a third nationwide, and still going down.
Now, we're watching the stock market go down too.
On Friday, the Dow fell 172 points...after a big whack on Thursday. It will be interesting to see what happens this week. We thought Mr. Bear – Ursa Major – would want stock prices to get up again, after he knocked them down 2 weeks ago. We thought he'd like to see more people come into the stock market theater...before he set fire to it.
Maybe not. Maybe he's going to work already. Or maybe he'll lay off for a while.
But if we were you, dear reader, we wouldn't hang around the stock market at all. Until this Great Correction is over, it's not going to be a very rewarding place to be...
And more thoughts...
Stock market portfolios are getting squeezed. So are retirement incomes. The 10-year note briefly yielded less than 2% last week. And you know what that means. A lot of pensions aren't providing the money people had hoped for. The Wall Street Journal:
Many older people are finding themselves in a position they never expected to be in at retirement age: still working or in need of a job.
And the laundry list of reasons just keeps growing. Already battered nest eggs took another beating this month with the market's wild swings. With interest rates essentially at zero since 2008, income from Treasurys and certificates of deposit is pretty paltry. And the Federal Reserve recently said it would likely keep rates "exceptionally low" through mid-2013. On top of that, housing prices are still in the doldrums, leaving homeowners with much less equity to tap.
More than three in five US workers in their 50s and 60s plan on working past 65 – and 47% of that group say they'll do so because they'll need the money or health benefits, according to a 2011 study from the nonprofit Transamerica Center for Retirement Studies.
But in this tight labor market, working into your golden years isn't easy. And you'll have to make your age and years on the job come across as assets, not liabilities. In addition, with the current market upheaval, you'll need a financial plan that puts your savings on the fast track and takes into account how Social Security and Medicare benefits could be affected. *** What's going on? Maybe this will be a period like the '30s. There was a market break in '29. Then, a bounce that made people think the worst was over. But then came another long, miserable slide....with stocks losing half their value.
If we follow the '30s pattern, we'll see the Dow hit a low around 6,000...but it will take years to reach.
We'll also see unemployment get worse...we'll see more bankruptcies...and more people on food stamps. And we'll wait until 2035 before the Dow gets back to 12,000.
So relax. Take it easy. No need for panic.
Our advice... Sell. Buy gold. Be happy. Watch the stars.
*** How goes the empire? Badly. It's turning into a zombie.
Vladimir Putin says the whole US economy has become a "parasite." Which is true. Measured by the trade deficit, it takes about $600 billion more than it makes. Measured by the US federal government deficit, the level of parasitism is even higher. The deficit broke the $1 trillion barrier at the end of June.
Where does the US get all this money to spend? That's what being a zombie is all about – you take resources and finished products from productive sectors. Oil from the Arabs, gadgets from the Orientals, caviar and Audis from the Occidentals. And what do you give them in return? Pieces of paper! I.O.U.s.
Meanwhile, the US military has been zombified too. It is no longer interested in protecting America. It is interested in feeding itself:
American pundits decry the onset of sharp defense cuts, but the Pentagon can't even account for $1 trillion in its own spending. Isn't it time to rein in the beast?
By Stephen Glain, August 16, 2011
In its scramble to avoid another legislative gang war over the nation's debt ceiling, Washington is preparing to shake down the Defense Department in the name of deficit reduction. While budget cutters preoccupy themselves with line-item expenditures, they overlook the Pentagon's biggest cost center: empire. The burden of global hegemony, the commitment to project force across every strategic waterway, air corridor, and land bridge, has exhausted the US military and will be even harder to sustain as budget cuts force strategists and logisticians to do more with less. A national discussion about the logic of maintaining huge forward bases, to say nothing of their financial and human costs, is long overdue.
American relations with the world, and increasingly America's security policy at home, have become thoroughly and all but irreparably militarized. The culprits are not the nation's military leaders, though they can be aggressive and cunning interagency operators, but civilian elites who have seen to it that the nation is engaged in a self-perpetuating cycle of low-grade conflict. They have been hiding in plain sight, hyping threats and exaggerating the capabilities and resources of adversaries. They have convinced a plurality of citizens that their best guarantee of security is not peace but war, and they did so with the help of a supine or complicit Congress. Since the collapse of the Soviet Union, US presidents have ordered troops into battle 22 times, compared with 14 times during the Cold War. Not once did they appeal to lawmakers for a declaration of war.
In ancient times, empires exacted tribute from their dependencies. In the age of American hegemony, just the opposite is the case. In return for the global commons, the United States bankrolls a geopolitical welfare state that allows some of its largest beneficiaries to neglect their basic responsibilities as sovereign states and allies...
The price of this deception is vast. If the Pentagon were a corporation, it would be the largest in the world as well as the most sloppily run. Its procurement budget, at a staggering $107 billion in 2010, expands even as the number of deployable warplanes, combat ships, and troops diminishes. To entice lawmakers into approving costly weapons programs, the Pentagon dangles the prospect of jobs in the states and districts of key lawmakers, a costly way of manufacturing but an astute political maneuver. Waste, inefficiency, and political patronage, no stranger to military- legislative affairs, get more lavish by the year. In April 2008, the Government Accountability Office found that 95 major Pentagon projects exceeded their original budgets by a total of nearly $300 billion. A year later, it concluded that nothing had changed. In 2009, lawmakers larded the Pentagon's annual budget proposal with nearly $5 billion in programs and weapons it did not request. With arms factories scattered like feeding troughs nationwide, America has become the equivalent of a company town with the Pentagon as primary employer. The making of war, or at least the preparation for it, has become a money center, a business line – a racket, as Marine general and Medal of Honor recipient Smedley Butler put it nearly a century ago. And here's another view of the zombie pentagon:
Has our bloated security budget made us safer?
We've spent nearly $8 trillion on counterterrorism since 9/11. It's time to assess the results
By Chris Hellman
The killing of Osama Bin Laden did not put cuts in national security spending on the table, but the debt-ceiling debate finally did. And mild as those projected cuts might have been, last week newly minted Secretary of Defense Leon Panetta was already digging in his heels and decrying the modest potential cost-cutting plans as a "doomsday mechanism" for the military. Pentagon allies on Capitol Hill were similarly raising the alarm as they moved forward with this year's even larger military budget.
None of this should surprise you. As with all addictions, once you're hooked on massive military spending, it's hard to think realistically or ask the obvious questions. So, at a moment when discussion about cutting military spending is actually on the rise for the first time in years, let me offer some little known basics about the spending spree this country has been on since September 11, 2001, and raise just a few simple questions about what all that money has actually bought Americans.
Consider this my contribution to a future 12-step program for national security sobriety.
Let's start with the three basic post-9/11 numbers that Washington's addicts need to know:
1. $5.9 trillion: That's the sum of taxpayer dollars that's gone into the Pentagon's annual "base budget," from 2000 to today. Note that the base budget includes nuclear weapons activities, even though they are overseen by the Department of Energy, but – and this is crucial – not the cost of our wars in Iraq and Afghanistan. Nonetheless, even without those war costs, the Pentagon budget managed to grow from $302.9 billion in 2000, to $545.1 billion in 2011. That's a dollar increase of $242.2 billion or an 80 percent jump ($163.6 billion and 44 percent if you adjust for inflation). It's enough to make your head swim, and we're barely started.
2. $1.36 trillion: That's the total cost of the Iraq and Afghan wars by this September 30th, the end of the current fiscal year, including all moneys spent for those wars by the Pentagon, the State Department, the US Agency for International Development, and other federal agencies. Of this, $869 billion will have been for Iraq, $487.6 billion for Afghanistan.
Add up our first two key national security spending numbers and you're already at $7.2 trillion since the September 11th attacks. And even that staggering figure doesn't catch the full extent of Washington spending in these years. So onward to our third number:
3. $636 billion: Most people usually ignore this part of the national security budget and we seldom see any figures for it, but it's the amount, adjusted for inflation, that the US government has spent so far on "homeland security." This isn't an easy figure to arrive at because homeland-security funding flows through literally dozens of federal agencies and not just the Department of Homeland Security (DHS). A mere $16 billion was requested for homeland security in 2001. For 2012, the figure is $71.6 billion, only $37 billion of which will go through DHS. A substantial part, $18.1 billion, will be funneled through – don't be surprised – the Department of Defense, while other agencies like the Department of Health and Human Services ($4.6 billion) and the Department of Justice ($4.1 billion) pick up the slack.
Add those three figures together and you're at the edge of $8 trillion in national security spending for the last decade-plus and perhaps wondering where the nearest group for compulsive-spending addiction meets....
Are we safer?
An April 2010 Heritage Foundation report, "30 Terrorist Plots Foiled: How the System Worked," looked at known incidents where terrorist attacks were actually thwarted and so provides some guidance. The Heritage experts wrote, "Since September 11, 2001, at least 30 planned terrorist attacks have been foiled, all but two of them prevented by law enforcement. The two notable exceptions are the passengers and flight attendants who subdued the 'shoe bomber' in 2001 and the 'underwear bomber' on Christmas Day in 2009."
In other words, in the vast majority of cases, the plots we know about were broken up by "law enforcement" or civilians, in no way aided by the $7.2 trillion that was invested in the military – or in many cases even the $636 billion that went into homeland security. And while most of those cases involved federal authorities, at least three were stopped by local law enforcement action.
In truth, given the current lack of assessment tools, it's virtually impossible for outsiders – and probably insiders as well – to evaluate the effectiveness of this country's many security-related programs. And this stymies our ability to properly determine the allocation of federal resources on the basis of program efficiency and the relative levels of the threats addressed.
So here's one final question that just about no one asks:
Could we be less safe?
It's possible that all that funding, especially the moneys that have gone into our various wars and conflicts, our secret drone campaigns and "black sites," our various forays into Pakistan, Libya, Yemen, Somalia, and other places may actually have made us less safe. Certainly, they have exacerbated existing tensions and created new ones, eroded our standing in some of the most volatile regions of the world, resulted in the deaths of hundreds of thousands and the misery of many more, and made Iraq and Afghanistan, among other places, potential recruiting and training grounds for future generations of insurgents and terrorists. Does anything remain of the international goodwill toward our country that was the one positive legacy of the infamous attacks of September 11, 2001? Unlikely.
Chris Hellman is a Senior Research Analyst at the National Priorities Project (NPP). More: Chris Hellman Regards,
Bill Bonner
for The Daily Reckoning
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Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com
| | |  |  |  | Stocks and Gold Point to a Hellish Outcome
We keep an eye on stocks and gold. Stocks measure the value of America's businesses. Gold measures the value of America's – and the world's – money. What are these measures telling us? That we're on the road to Hell! Of the two measures, gold is harder to figure out.
Armageddon Can Wait
Zombies Born of Government Spending | China: Where Money Is Treated Best
I am sure that Mr. Pento is right because every country on the Face Of The Planet (FOTP) is desperately creating more and more money, and the money will eventually find its way to the place where it is treated best and/or has the best prospects, which is, in this case, Bob. Oops! I meant "China."
Buying Gold on the Price Inflation Guarantee
Awaiting the "Zero Hour" of Available Credit | Gold Price Fast Approaching its Inflation-Adjusted High
On Friday morning I wrote about gold extensively, eh? Well, guess what? I'm going to spend a few minutes doing the same today, because, don't look now, but the gold price is at $1,881!!! In the "mother of all flights to safety" gold continues to wind its way toward $2,000...
Gold Sets Record Highs With Every Tick Higher
Gold Rallies to $1,800 Again! | |
| | The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. | |
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