Saturday, December 20, 2008

US Passes Debt Milestone

19 December 2008

The news of the past week has been the Bernard Madoff Ponzi scheme - with Mr. Madoff having vaporized $50 billion of his investors' money. Dishonest and tragic, this is the sort of story that emerges in a widespread financial crunch, such as we are presently seeing.

However, make no secret of it, the next Ponzi scheme to emerge is unfolding in full public view.

The US government has no intention of repaying its debts - its bonds are worthless.

Or, to be more clear, the bonds will be repaid in US dollars that are of little or no value.

How much larger is the scale of the calculated US government default?

I've taken this piece from Agora Financial's "5 Minute Forecast." I'm reproducing this in whole, as the archives are somewhat challenging to track.

The combined debt and obligations of the US government now surpass the net worth of its citizens. That, of course, might be a redeemable situation.... But contemplate the direction the US government is now following, adding $1 to $2 trillion dollars per year to the figure.

The US has dug a hole so deep, there is now no way out - apart from an Argentina-style debt default.

Bernard Madoff - take heed. This is how you truly do it on a grand scale. From the 5 Minute Forecast:

"Which is greater? The U.S. government’s mountain of debt or the entire net worth of all U.S. citizens?

"For the first time in our history, it’s the former.

"As of the end of September, the U.S. government held '$56.4 trillion in debts, liabilities and unfunded promises for Medicare and Social Security,' said research published this week by the Peter G. Peterson Foundation. The number comes directly from the Treasury release we harped on Wednesday.

"And our collective net worth? $56.5 trillion, as calculated by the Fed at the end of September as well.

“'Given more recent developments, it’s clear that America now owes more than its citizens are worth,' said PGP Foundation president and protagonist of I.O.U.S.A. David Walker. 'Passing this shocking milestone highlights the need for President-elect Obama and the next Congress not only to turn the economy around and boost consumer confidence, but to put a process in place that will lead to tough choices getting made to strengthen the government’s financial condition once the economy begins growing again.'"

Thanks to Agora Financial for this piece of news....

Monday, December 15, 2008

The Bailout Bubble

15 December 2008

I am mostly on vacation from the internet at present while I spend my actual end-of-year report-writing interlude and holidays in southern Arizona.

However, I think something needs to be said about what appears to be the next emerging international financial bubble - which I would like to refer to as "the bailout bubble."

The 1990s equity bubble appeared to have been the largest in US history - until it was dwarfed by the unprecedented housing (and debt) bubble.

Now the present bailouts (of any and every corporate entity which has wandered into trouble through imprudent behaviour) are dwarfing the size and scope of the housing bubble.

I am certain that the bailout bubble will have extensive ramifications as well, though they are certainly less obvious than those of the general stock and housing bubbles which came before.

To be honest, I am really watching only two aspects of the bailout bubble, and that is the emerging areas of strength tied to this particular bubble.

These are the bull markets in precious metals and in commodities.

These two bull markets have two distinct drivers.

The precious metal bull market is driven by continued money creation - which of course can now be seen to be going exponential as central banks and governments everywhere print money to stave off a global financial deep freeze.

The commodities bull market has an entirely different driver - which is the entry of the Asian and Middle Eastern economies into the international free market. Obviously the commodities bull is on hold for now, as every sector of the globe is reeling from the aftermath of the housing and debt bubble. The IMF has - quite prematurely in my view - called an end to the commodities bull market. This call is correct for now, but the commodities bull remains in its early stages, and has much further to go, after finding its present bottom and taking sufficient time to shake out momentum and sector rotation players.

The precious metal - and specifically the gold - bull markets are obviously still looking pretty lively. Gold mining costs are now falling rapidly while the gold price holds steady. So look to the gold mining and the infrastructure sectors to be next year's leaders.

And... doubt the IMF - or anyone else - who opines that the commodities bull has had its run. Sorry - this bull is much closer to its beginning than to its end!

More later when I get a moment!!!

Wednesday, December 03, 2008

I'm a Part of the 62% Majority

3 December 2008

It is no secret to followers of my blog that I do not attempt to fit neatly into anyone's political pigeonholes. I hope always to provoke, and perhaps sometimes to shock, my readers, but only with well-reasoned argumentation....

Several months ago, I figured out that I am not a conservative, but a post-liberal. My fiscal and international security views are conservative, but my social views are quite liberal and inclusive. From this standpoint, I adhere to the positions of none of the leading political parties of Canada (though perhaps some day, the Liberal Party of Canada, whom I regard as the most workable of the established Canadian political parties, may evolve to the "Post-Liberal Party of Canada...").

In the interim, I have come to despise Stephen Harper, primarily for his betrayal of small Canadian investors through the destruction of the oil/gas income trust tax exemption. I will not reiterate my critical analysis here, as I have previously posted at length on the issue.

I also feel that Mr. Harper entirely lacks vision for the economic future of the country. Despite the current global fiscal crisis, we are entering into an age of rebirth of commodity production - led by Asian growth. Canada's mining and mineral sector - and its resource sector more broadly - stands to lead the world into the new millennium. Canada has more registered mining companies than the remainder of the world combined, and this fact seems not yet to have come to Mr. Harper's attention, as he has scrambled to throw financial aid at the successful business sectors of the past, rather than to those which will lead Canada into the future.

Through research on the subject, I discovered that Mark Carney, the well-educated but regressively-minded Governor of the Bank of Canada, was the primary instigator of the sabotage of the primarily small Canadian investor-owned income trust system. The narrow-minded Finance Minister, Jim Flaherty, was easily led by the nose on this initiative, and I have already called for Mr. Flaherty's resignation....

In any case, I was absolutely delighted recently to discover that the three remaining political parties, who represent the clear majority of Canadian opinion, have banded together to turf Mr. Harper out of office. This is certainly a testament to the extent to which Mr. Harper is NOT a team player. He has managed to alienate entirely every element of the opposition in the house and the senate!

Sign the 62% majority petition here!

And, for a clear overview of the background issues, view my wife Susan's blog entry here.

Here is my last word on the subject: Good riddance to you, Mr. Harper.... Get thee gone, and do not again darken Canada's doorstep! And please, take Mr. Flaherty with you - as soon as possible!