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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
February 11, 2010
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Fuelling The (Last) Lost Decade:

In fiscal 2000, the US government ran up new debt of $US 18 Billion. In fiscal 2009, they ran up new debt of $US 1885 Billion. In February 2000, the Treasury’s debt “limit” was $US 5.95 TRILLION. Mr Obama is about to raise it to $US 14.3 TRILLION. Over the past decade, the Treasury’s debt limit rose by 140 percent. Increase the current $US 14.3 TRILLION limit by 140 percent and you get $US 34.3 TRILLION. That looks ludicrous on the face of it, but it isn’t. On January 29, the US Commerce Department “surprised” the markets with the announcement of a 5.7 percent GDP growth number for the fourth quarter of 2009. This was the highest quarterly jump in US GDP for six years. The fact that it was almost wholly the result of the build-up of depleted inventories by US companies was duly noted, but the plain figure remained. Ominously, this HUGE jump in GDP growth had no effect on markets at all.

On the latest measure, annual nominal US GDP is about $US 14.5 TRILLION. The Treasury’s new debt limit is just under this figure. US funded Treasury debt as of February 2 stood at just over 85 percent of GDP. Let us say everything holds together for the next decade and by 2020, US Treasury funded debt has grown from 85 percent of GDP to, say 200 percent of GDP. There is a precedent - JAPAN - which has government debt which is more than 200 percent of GDP NOW and has already had TWO “lost decades”.

Sovereign Debt Is ALWAYS The End Of The Line:

The decade which ended last December 31 was the biggest borrowing and spending decade in global history. It saw three of the biggest credit crashes in global history too. There was the global stock market crashes at the beginning and the end of the decade. And in between there was the global real estate crash, the one which ushered in the Global Financial Crisis.

The global financial system did make it through the last decade, by the skin of its teeth, on the back of direct monetisation of government debt by central banks and a refusal to let the “collateral” which had underpinned the earlier credit booms be valued by anyone. By the end of the decade, banking systems everywhere had been nationalised in all but name. Valuations on almost every type of investment “asset” were either being artificially propped up by government guarantee or hidden from impolite eyes in bloated central bank “balance sheets”. Through all this, the question of “sovereign debt” was successfully kept out of public debate, at least until very late in 2009. With 2010 still just getting started, that is no longer the case, as a glance at the news of the past two weeks should have made very clear.
Since before the start of the GFC, The Privateer has warned that the LAST stage of the debt deflation which has swept the world would take place when GOVERNMENTS started to go broke. On their present trajectory, governments WILL start to go broke, in public, in the not too distant future. One thing is certain. This decade will not be successfully navigated using the methods of the previous one.

Recent Events:

The steady slide which began less than a month ago on global stock markets accelerated in the first week of February. Suddenly, on February 4, the deficit travails of the Club Med nations had become a threat to Europe and its “alternative” reserve currency, the Euro. Stock markets swooned and all manner of what are called “risk trades” were unwound as everyone “scurried” for safety. “Safety”, in this context, means getting out of debt which the holder is responsible for and moving to debt which the government is responsible for. Traditionally, that means US Dollars and Treasury debt.

So, as the US House of Reps was endorsing the Senate’s vote to tack $US 1.9 TRILLION on to the Treasury’s debt limit, the US Dollar soared and Treasury debt yields slumped (with prices moving in the opposite direction). Currencies whose recent strength had relied on the carry trade slumped. Commodities whose prices are set in US Dollars using paper substitutes on futures markets slumped. Stock markets whose governments cannot print the world’s reserve currency slumped. Even US stock markets slumped on February 4. But while the rest of the world continued to fall away on February 5, the US did not. Miraculously, while reporting the loss of 20,000 more jobs, the US Labor Department released a January unemployment number of 9.7 percent - down from 10.0 percent in December.

Ó 2009 – The Privateer

(reproduced with permission)


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