I am so cynical that even a slight improvement is good news. The annualized rate of increase of the national debt has dropped from 14.1% in my last calculation to 12.9% now. The average quarterly increase is 3.07% (based on the timeframe of 6/30/09 to 3/31/11). Using these number, I arrive at the following projections:
9/30/11 15160
9/30/12 17115
9/30/13 19323
9/30/14 21816
9/30/15 24630
9/30/16 27807
9/30/17 31394
9/30/18 35444
9/30/19 40017
9/30/20 45179
9/30/21 51007
So yea, the system won't collapse until 2021, one year later than in my previous projection!
Update: 6/19/2012. This is model D-3, and is still too pessimistic.
Friday, April 1, 2011
Saturday, March 26, 2011
How money is created
For background watch this video: Money as Debt. I am expounding on some ideas raised by it.
Anyone can create money, with the assistance of a bank. The act of signing a loan document creates money. Now the bank has a new asset, the note receivable, and a new liability, the demand deposit. The bank will quickly sell the note for cash but this just changes one asset class into another one. The total amount of money in existence has increased by the amount of the loan. With credit cards, the debtor is literally creating money every time the card is used.
When you write (draw) a check on this newly created money, you are creating an asset to the banks; however, this does not in itself create money (unless there is overdraft protection). The recipient deposits it in his bank. Now his bank has a new asset, the check, and a new liability, the increase in the recipient's bank account. They will "sell" the check to a clearing house. Now the clearing house has the asset, the check, and will credit the recipient's bank account. They will then "sell" the check back to the originating bank. The originating bank then "sells" it back to the drawer by debiting his account. Once a check has cleared, it is no longer an asset.
So once this model is understood some more discussion points emerge.
1. What happens if a check is made out to Cash and circulates as money for a while, say one month, before being deposited. In this situation, you are creating sort of your own private money out of then air. Furthermore, this private money exists in the "shadow" economy, outside the formal banking system. Imagine a club where people do this and write a number of $100 bills all post-dated for one month which they use to trade amongst themselves. And then at the end of the month, the holder of the note then would redeem it, or possibly reissue a new check in perpetuity. Now if people actually tried to do this they would be committing the crime of "check kiting". The banks who run everything hate this type of behavior. Yes there are valid concerns about fraud, but they are probably more worried about the competition. I think this is the main reason why banks are concerned about third-party endorsements - not because they are worried about whether the check will clear but because they don't want people using endorsed checks as private money.
But big corporations do this all the time. It is called "commercial paper" and since it is negotiable, it can be used as cash. In the 1800s, bank would print their own bank notes as money. They can no longer do this since the Federal Reserve has a monopoly, but commercial paper is a form of money. Some banks also issue commercial paper; however, the minimum denomination is usually at least $100,000.
2. Since anyone can create money, why not create an unlimited amount? The only constraint seems to be interest, which is necessary to pay for bank operations. What would happen if there were no banking costs? The Bank of North Dakota is a state-owned bank. Although I'm sure it is self-supporting, what would happen if its operating costs were just paid by the state? Could it create its own "commercial paper" at 0% interest in $100 denominations in whatever amount it wanted which would function literally as cash? I think it could but I'm sure there is some law against doing that.
3. This model of money creation, which our whole economy is based upon, has a fatal flaw. Although money is created out of thin air, no money is created to pay back the interest. It is mathematically impossible for all loans in existence to be paid back with interest. A certain amount of defaults and bankruptcies are necessary for the system to work.
4. Money is destroyed by people when they default on their loans. The process of money destruction is much more painful than the process of money creation. When money is created, the bank doesn't make any money except for the loan origination fee. When the loan defaults, the bank loses the entire amount of the loan - it is a bad debt expense. And since banks are so thinly capitalized, it doesn't take many of these defaults to totally wipe out their capital.
5. Right now we are in the process of money destruction, which is actually very healthy for the economy in the long run. Private money is being destroyed at an enormous rate. The Federal Reserve is creating money, but as long as the private money is being destroyed faster than the Federal Reserve creates new money, then there is no danger of hyperinflation. However, at some point in the next few years, the destruction will slow down, and then there is a huge danger of hyperinflation.
6. The flip side of this is although anyone can create money, it is idiotic to do so. Why would banks ever issue unsecured loans when default is so painful to them? And the borrower literally becomes a debt slave. Having a negative net worth is a lot worse than being poor. And this process of money creation is also destructive to the economy as a whole because it makes it unstable. And the more debt money that is created the more unstable the system becomes because the risk of default increases over time.
Anyways, enough rambling for now.
Anyone can create money, with the assistance of a bank. The act of signing a loan document creates money. Now the bank has a new asset, the note receivable, and a new liability, the demand deposit. The bank will quickly sell the note for cash but this just changes one asset class into another one. The total amount of money in existence has increased by the amount of the loan. With credit cards, the debtor is literally creating money every time the card is used.
When you write (draw) a check on this newly created money, you are creating an asset to the banks; however, this does not in itself create money (unless there is overdraft protection). The recipient deposits it in his bank. Now his bank has a new asset, the check, and a new liability, the increase in the recipient's bank account. They will "sell" the check to a clearing house. Now the clearing house has the asset, the check, and will credit the recipient's bank account. They will then "sell" the check back to the originating bank. The originating bank then "sells" it back to the drawer by debiting his account. Once a check has cleared, it is no longer an asset.
So once this model is understood some more discussion points emerge.
1. What happens if a check is made out to Cash and circulates as money for a while, say one month, before being deposited. In this situation, you are creating sort of your own private money out of then air. Furthermore, this private money exists in the "shadow" economy, outside the formal banking system. Imagine a club where people do this and write a number of $100 bills all post-dated for one month which they use to trade amongst themselves. And then at the end of the month, the holder of the note then would redeem it, or possibly reissue a new check in perpetuity. Now if people actually tried to do this they would be committing the crime of "check kiting". The banks who run everything hate this type of behavior. Yes there are valid concerns about fraud, but they are probably more worried about the competition. I think this is the main reason why banks are concerned about third-party endorsements - not because they are worried about whether the check will clear but because they don't want people using endorsed checks as private money.
But big corporations do this all the time. It is called "commercial paper" and since it is negotiable, it can be used as cash. In the 1800s, bank would print their own bank notes as money. They can no longer do this since the Federal Reserve has a monopoly, but commercial paper is a form of money. Some banks also issue commercial paper; however, the minimum denomination is usually at least $100,000.
2. Since anyone can create money, why not create an unlimited amount? The only constraint seems to be interest, which is necessary to pay for bank operations. What would happen if there were no banking costs? The Bank of North Dakota is a state-owned bank. Although I'm sure it is self-supporting, what would happen if its operating costs were just paid by the state? Could it create its own "commercial paper" at 0% interest in $100 denominations in whatever amount it wanted which would function literally as cash? I think it could but I'm sure there is some law against doing that.
3. This model of money creation, which our whole economy is based upon, has a fatal flaw. Although money is created out of thin air, no money is created to pay back the interest. It is mathematically impossible for all loans in existence to be paid back with interest. A certain amount of defaults and bankruptcies are necessary for the system to work.
4. Money is destroyed by people when they default on their loans. The process of money destruction is much more painful than the process of money creation. When money is created, the bank doesn't make any money except for the loan origination fee. When the loan defaults, the bank loses the entire amount of the loan - it is a bad debt expense. And since banks are so thinly capitalized, it doesn't take many of these defaults to totally wipe out their capital.
5. Right now we are in the process of money destruction, which is actually very healthy for the economy in the long run. Private money is being destroyed at an enormous rate. The Federal Reserve is creating money, but as long as the private money is being destroyed faster than the Federal Reserve creates new money, then there is no danger of hyperinflation. However, at some point in the next few years, the destruction will slow down, and then there is a huge danger of hyperinflation.
6. The flip side of this is although anyone can create money, it is idiotic to do so. Why would banks ever issue unsecured loans when default is so painful to them? And the borrower literally becomes a debt slave. Having a negative net worth is a lot worse than being poor. And this process of money creation is also destructive to the economy as a whole because it makes it unstable. And the more debt money that is created the more unstable the system becomes because the risk of default increases over time.
Anyways, enough rambling for now.
Sunday, March 20, 2011
The US is in worse shape than Japan
Japan has a total national debt (excluding local gov. debt) of 668 trillion yen. It has revenues of 92 trillion yen and annual interest of 21.5 trillion, with an annual deficit of 22.7 trillion. (Source: http://www.mof.go.jp/english/budget/e20101224b.pdf). Assuming an exchange rate of 80 yen/$ this is the equivalent of a national debt of $8.3 trillion, with an annual deficit of $284 billion, almost all of which is interest.
The US has a total national debt of $14.2 trillion, with an annual deficit of $1.48 trillion, of which $214 billion is interest.
The US's national debt is 1.7 times that of Japan (granted the population of the US is more than double of that of Japan). The US's annual deficit is more than 5 times that of Japan.
So while Japan's national debt is larger than that of the US on a per capita or GDP basis, its debt is growing slowly. Another way of putting this is while the US is not in as bad as shape as Japan yet, on an annual basis it is in much worse shape and at some point soon will be in worse financial shape overall. When this will occur is the subject of another future post.
The US has a total national debt of $14.2 trillion, with an annual deficit of $1.48 trillion, of which $214 billion is interest.
The US's national debt is 1.7 times that of Japan (granted the population of the US is more than double of that of Japan). The US's annual deficit is more than 5 times that of Japan.
So while Japan's national debt is larger than that of the US on a per capita or GDP basis, its debt is growing slowly. Another way of putting this is while the US is not in as bad as shape as Japan yet, on an annual basis it is in much worse shape and at some point soon will be in worse financial shape overall. When this will occur is the subject of another future post.
Friday, March 11, 2011
Is this the end of Japan?
http://theeconomiccollapseblog.com/archives/has-the-tsunami-in-japan-destroyed-the-japanese-economy
The tsunami has caused trillions of dollars in damage, and the Japanese are already enormously in debt, which they are able to maintain only because the interest rates are extremely low. Could the tsunami be the event that completely pushes Japan over the edge? Ironically, this may make the dollar seem like a safe haven.
The tsunami has caused trillions of dollars in damage, and the Japanese are already enormously in debt, which they are able to maintain only because the interest rates are extremely low. Could the tsunami be the event that completely pushes Japan over the edge? Ironically, this may make the dollar seem like a safe haven.
Thursday, March 10, 2011
Oil prices up 13% in one month
From: http://www.economagic.com/em-cgi/data.exe/var/west-texas-crude-long
On 2/1/11 the price was $89.58. On 3/1/11 the price was $101.07. That's an increase of 12.8% in one month. Sounds like hyperinflation to me.
On 2/1/11 the price was $89.58. On 3/1/11 the price was $101.07. That's an increase of 12.8% in one month. Sounds like hyperinflation to me.
Tuesday, March 8, 2011
Treasury cash
Here is something else to look at: http://www.fms.treas.gov/dts/index.html
On Jan 31 2011, the Treasury had 349,138 million in cash
On Mar 1 2011, they had 156,975 million in cash.
So they spent $192 billion in slightly over a month.
On Jan 31 2011, the Treasury had 349,138 million in cash
On Mar 1 2011, they had 156,975 million in cash.
So they spent $192 billion in slightly over a month.
British Constitution Group
See http://www.thebcgroup.org.uk/
I just thought this was interesting:
"As a direct consequence of the betrayal of the British people by the collective political establishment, and others, the British Constitution Group is calling for Lawful Rebellion, as is our right under article 61 Magna Carta 1215."
I just thought this was interesting:
"As a direct consequence of the betrayal of the British people by the collective political establishment, and others, the British Constitution Group is calling for Lawful Rebellion, as is our right under article 61 Magna Carta 1215."
Monday, March 7, 2011
Monetary base expansion and inflation
Here is something to keep an eye on: http://research.stlouisfed.org/fred2/series/BASE . The monetary base is exploding.
2008-01-02 847.948
2008-09-10 874.796
2008-12-31 1690.796
2009-12-30 1994.399
2010-12-29 1982.741
2011-02-23 2275.053
Monetary base is basically made up of 3 components: currency in circulation, demand deposits, and reserves at the central bank. If you define inflation as expansion of the money supply, then this is as pure as it gets. The alternative definition of inflation is the price you pay at the store, i.e. the consumer price index, CPI. To make this clear, I will call the first "money supply inflation" and the second "consumer price inflation". There is a correlation between the two although it may be a delayed reaction. Anyways it is the first that I am concerned about.
Thus far, the money supply has inflated an average of 7% per month! CPI is increasing only about 1.5% per year. Anyways, this is worth keeping an eye on to see if it keeps rapidly increasing.
2008-01-02 847.948
2008-09-10 874.796
2008-12-31 1690.796
2009-12-30 1994.399
2010-12-29 1982.741
2011-02-23 2275.053
Monetary base is basically made up of 3 components: currency in circulation, demand deposits, and reserves at the central bank. If you define inflation as expansion of the money supply, then this is as pure as it gets. The alternative definition of inflation is the price you pay at the store, i.e. the consumer price index, CPI. To make this clear, I will call the first "money supply inflation" and the second "consumer price inflation". There is a correlation between the two although it may be a delayed reaction. Anyways it is the first that I am concerned about.
Thus far, the money supply has inflated an average of 7% per month! CPI is increasing only about 1.5% per year. Anyways, this is worth keeping an eye on to see if it keeps rapidly increasing.
Saturday, March 5, 2011
UK squatter horror story
See http://www.dailymail.co.uk/news/article-1363157/Squatters-Inc-As-professional-agencies-MARKET-vacant-family-homes-break-beware-going-holiday.html
Excerpt:
Excerpt:
It would be difficult to imagine a more cynical and co-ordinated assault on the property owning class, a campaign spearheaded by the wretched Advisory Service for Squatters.
.. in January ... 36-year-old Mr Hamilton-Brown bought the £1 million property with the intention of turning it into a home for his wife Rebecca and their two daughters, aged four and two. He is still waiting to get back in.
‘It breaks my heart to walk past the house with the kids and be asked by our oldest “When can we move in?” and “Why can’t we go inside and have a look?” explained a weary, quietly furious Mr Hamilton-Brown.
About a dozen squatters from France, Spain, Poland and England forced a window in the early hours to get in. There were no witnesses, so he couldn’t call the police because it was a civil matter. His only option was to go to court.
Mr Hamilton-Brown was not eligible for Legal Aid, so he represented himself to save money. The squatters, on the other hand, did have a solicitor. Because they were EU citizens and unemployed, they qualified for free legal advice.
‘It’s just wrong,’ said Mr Hamilton-Brown.
Saturday, February 19, 2011
Crisis in 2020?
From http://www.zerohedge.com/article/guest-post-beyond-false-dawn-global-crisis-2020-2022
It seems clear to me that four Grand Cycles will intersect around 2020-2022:
1. Peak oil, or the depletion cycle/end-game of the global economy's complete dependence on inexpensive, readily available petroleum/fossil fuels.
2. The cycle of credit expansion and contraction (approximately 60-70 years), which is now beginning the transition from unsustainable credit expansion (bubble) to renunciation of debt (credit collapse) and global depression.
3. The generational cycle (4 generations or approximately 80 years) of American history which leads to nation-changing social, political and economic upheaval. (The American Revolution: 1781 +80 years = Civil War, 1861 +80 years = 1941, World War II + 80 years = 2021)
4. The 100+ year cycle of price inflation and stagnation of wages' purchasing-power which began around 1901 is now reaching the final stage of widespread turmoil, shortages, famine, war, conflict and crisis.
2. The cycle of credit expansion and contraction (approximately 60-70 years), which is now beginning the transition from unsustainable credit expansion (bubble) to renunciation of debt (credit collapse) and global depression.
3. The generational cycle (4 generations or approximately 80 years) of American history which leads to nation-changing social, political and economic upheaval. (The American Revolution: 1781 +80 years = Civil War, 1861 +80 years = 1941, World War II + 80 years = 2021)
4. The 100+ year cycle of price inflation and stagnation of wages' purchasing-power which began around 1901 is now reaching the final stage of widespread turmoil, shortages, famine, war, conflict and crisis.
Wednesday, January 26, 2011
2012 Deficit to be $1.1 trillion
Now the CBO is projecting that the 2012 deficit will be $1.1 trillion but the 2013 deficit will be much lower (only $700 billion). So we will still spend like drunken sailors until Sept. 30, 2012, but starting Oct. 1, 2012 we will try to sober up.
Just a few months ago I commented that the CBO had projected that starting October 1, 2011 the spending would start to be reined in. Looks like they need another year. Lord, give me chastity but not yet! Any guesses as to whether when the 2012 date approaches they will extend it again?
Just a few months ago I commented that the CBO had projected that starting October 1, 2011 the spending would start to be reined in. Looks like they need another year. Lord, give me chastity but not yet! Any guesses as to whether when the 2012 date approaches they will extend it again?
Sunday, January 23, 2011
New projection - slightly better
I did a previous projection showing that the National Debt will increase an average of 14.5% per year. My latest calculations shows that the average rate of increase has slowed slightly from 3.44% per quarter to 3.36% per quarter (based on the time frame of 3/31/2009 to 12/31/2010). The annual increase will slow to 14.1%. Under this calculation, we arrived at the following projections:
9/30/2011 15474
9/30/2012 17656
9/30/2013 20146
9/30/2014 22986
9/30/2015 26227
9/30/2016 29925
9/30/2017 34145
9/30/2018 38959
9/30/2019 44452
9/30/2020 50720
If the government's projections about revenues are correct, and if my theory about 10 times revenue being the breaking point is correct, then the system should be able to stumble along until 2020, when revenues are projected at 4710 with debt at 50720. This is 3 years later than my previous scenario.
Update 6/19/2012: This is model D-2 and it is also too pessimistic.
9/30/2011 15474
9/30/2012 17656
9/30/2013 20146
9/30/2014 22986
9/30/2015 26227
9/30/2016 29925
9/30/2017 34145
9/30/2018 38959
9/30/2019 44452
9/30/2020 50720
If the government's projections about revenues are correct, and if my theory about 10 times revenue being the breaking point is correct, then the system should be able to stumble along until 2020, when revenues are projected at 4710 with debt at 50720. This is 3 years later than my previous scenario.
Update 6/19/2012: This is model D-2 and it is also too pessimistic.
Saturday, December 18, 2010
$16 trillion at the end of 2011
As we have said before, and pro forma for the Obama tax deal, we expect total debt issuance in 2011 to accelerate once again, and to hit just under $2 trillion, putting total US debt at the end of next year at around $16 trillion.
--http://www.zerohedge.com/article/us-end-2010-139-trillion-debt-total-debt-incurred-great-financial-crash-44-trillion
Yea, that's my prediction too. I think there will be a huge Euro and Yen crisis in 2012 with the dollar being seen as a safe haven, and then the dollar will collapse and hyperinflate about 2017.
Friday, December 17, 2010
Mary's Bar
Mary is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed drunks and alcoholics and consequently they can no longer afford to patronise her establishment. To solve this problem she comes up with a new marketing plan that allows her customers to drink now but pay later. She keeps track of the drinks consumed in a ledger thereby granting loans to her customers.
Word quickly gets around about Mary’s 'drink now and pay later' marketing strategy and as a result increasing numbers of customers flood into her bar. Soon she has the largest sales volume of any bar in Dublin.
By providing her customers with drinks without asking for immediate payment, Mary gets no resistance at all when at regular intervals she substantially increases her prices for wine and beer and also for her gastronomic table which is of wide renown.
Mary's sales volumes increase massively. A young and dynamic manager at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed drunks and alcoholics as collateral and through Mary's success he believes that he''ll be promoted to vice president of the bank.
At the bank's corporate headquarters expert traders work out a way to make huge commissions and transform these customer loans into Drinkbonds, Alkibonds and Sickbonds. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed drunks and alcoholics.
Nevertheless the bond prices continuously climb and these securities soon become the hottest selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers and diners which by now are becoming enormous. He therefore informs Mary that they must pay up or be banned from the establishment.
Mary then demands payment from her drunk and alcoholic patrons but being unemployed alcoholics she quickly finds that they cannot meet their drinking debts. As the suddenly very unhappy and disconsolate Mary cannot fulfil her loan obligations, she is sadly forced into bankruptcy and the bar closes with eleven employees losing their jobs.
Overnight Drinkbonds, Alcibonds and Sickbonds drop in price by 99%. These collapsed bond asset values destroy the bank's liquidity and prevent it from issuing new loans, thus freezing all credit and economic activity not only in Dublin but throughout Ireland.
The suppliers of Mary’s bar had granted her generous payment terms and had invested their firms' pension funds in the various Drinkbond securities. They find that they are now faced with having to write off her bad debts and with losing over 99% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had existed for three generations and her beer supplier is taken over by a competitor who immediately closes the local brewery and lays off 150 workers.
Fortunately however the bank, the brokerage houses and their respective executives are saved and bailed out by a multi billion euro no strings attached cash injection from their friends and cronies in government. The funds required for this bailout are obtained by high new taxes levied on employed middle class non drinkers who have never been to Mary’s bar and who have never even heard of it.
--From: http://www.telegraph.co.uk/finance/economics/8207710/European-Central-Bank-arms-itself-for-Spanish-crisis.html
Word quickly gets around about Mary’s 'drink now and pay later' marketing strategy and as a result increasing numbers of customers flood into her bar. Soon she has the largest sales volume of any bar in Dublin.
By providing her customers with drinks without asking for immediate payment, Mary gets no resistance at all when at regular intervals she substantially increases her prices for wine and beer and also for her gastronomic table which is of wide renown.
Mary's sales volumes increase massively. A young and dynamic manager at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed drunks and alcoholics as collateral and through Mary's success he believes that he''ll be promoted to vice president of the bank.
At the bank's corporate headquarters expert traders work out a way to make huge commissions and transform these customer loans into Drinkbonds, Alkibonds and Sickbonds. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed drunks and alcoholics.
Nevertheless the bond prices continuously climb and these securities soon become the hottest selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers and diners which by now are becoming enormous. He therefore informs Mary that they must pay up or be banned from the establishment.
Mary then demands payment from her drunk and alcoholic patrons but being unemployed alcoholics she quickly finds that they cannot meet their drinking debts. As the suddenly very unhappy and disconsolate Mary cannot fulfil her loan obligations, she is sadly forced into bankruptcy and the bar closes with eleven employees losing their jobs.
Overnight Drinkbonds, Alcibonds and Sickbonds drop in price by 99%. These collapsed bond asset values destroy the bank's liquidity and prevent it from issuing new loans, thus freezing all credit and economic activity not only in Dublin but throughout Ireland.
The suppliers of Mary’s bar had granted her generous payment terms and had invested their firms' pension funds in the various Drinkbond securities. They find that they are now faced with having to write off her bad debts and with losing over 99% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had existed for three generations and her beer supplier is taken over by a competitor who immediately closes the local brewery and lays off 150 workers.
Fortunately however the bank, the brokerage houses and their respective executives are saved and bailed out by a multi billion euro no strings attached cash injection from their friends and cronies in government. The funds required for this bailout are obtained by high new taxes levied on employed middle class non drinkers who have never been to Mary’s bar and who have never even heard of it.
--From: http://www.telegraph.co.uk/finance/economics/8207710/European-Central-Bank-arms-itself-for-Spanish-crisis.html
Tuesday, December 14, 2010
Confidence In U.S. Treasuries Is Dying
Confidence is U.S. Treasuries is dying, and if confidence in U.S. government debt completely collapses at some point we could literally be looking at financial Armageddon. Why is that so? Well, when the world totally loses faith in U.S. Treasuries, interest rates on U.S. Treasuries will have to keep going up until enough investors are found to buy them. But much higher interest rates will mean much higher interest on the national debt and thus much higher federal budget deficits. That will erode confidence in U.S. Treasuries even further. In the end, a vicious cycle of eroding confidence and higher interest rates could ultimately lead to hyperinflation as the U.S. government and the Federal Reserve flood the system with endless amounts of paper money to try to keep the system solvent.
--http://theeconomiccollapseblog.com/archives/10-signs-that-confidence-in-u-s-treasuries-is-dying-and-that-financial-armageddon-may-be-approaching
Sunday, December 12, 2010
China's army of graduates is struggling
But the supply of those trained in accounting, finance and computer programming now seems limitless, and their value has plunged. Between 2003 and 2009, the average starting salary for migrant laborers grew by nearly 80 percent; during the same period, starting pay for college graduates stayed the same, although their wages actually decreased if inflation is taken into account.
Chinese sociologists have come up with a new term for educated young people who move in search of work like Ms. Liu: the ant tribe. It is a reference to their immense numbers — at least 100,000 in Beijing alone — and to the fact that they often settle into crowded neighborhoods, toiling for wages that would give even low-paid factory workers pause.
--http://www.msnbc.msn.com/id/40626200/ns/world_news-the_new_york_times/
Thursday, December 2, 2010
The debt went up $400 billion in only 2 months
On 9/29/2010, the total national debt was $13,466 bn. On 11/30/2010, the total was $13,861 bn. Ok, that isn't $400 billion, it is only $395 bn, and it is one day more than 2 months, but still this is shocking. It isn't a stretch to think that the deficit might be $2 trillion this fiscal year. If the GOP-controlled house doesn't like that then the alternatively is to shut down the government, which would be a good thing if it could happen.
Monday, November 29, 2010
California will default
See "California will default on its debt" and "This is the Horrifying Budget Report".
When? Probably 2012
When? Probably 2012
The average trigger for default is 22%
In an article about the Irish bailout is the following paragraph:
Hmm. What is the current ratio of interest to revenue in the US? 8.5% (188/2213). When will the US ratio exceed 22%? Maybe 2022. According to the official projections, the ratio will be 20.7% in 2020 (912/4400), assuming a 4.1% interest rate on 91-day t-bills. If interest rates exceed this then the 22% will be reached much sooner.
There is bitterness over the EU-IMF loan rate of 5.8pc, which may be too high to allow Ireland to claw its way out of a debt trap. Interest payments will reach a quarter of total revenues by 2014. Moody's says the average trigger for default in recent history worldwide has been 22pc. "The interest bill is enormous. The whole process lacks feasibility," said Stephen Lewis, from Monument Securities.
Hmm. What is the current ratio of interest to revenue in the US? 8.5% (188/2213). When will the US ratio exceed 22%? Maybe 2022. According to the official projections, the ratio will be 20.7% in 2020 (912/4400), assuming a 4.1% interest rate on 91-day t-bills. If interest rates exceed this then the 22% will be reached much sooner.
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