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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
May 6, 2009
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Scaling New Heights Of Government Debt:

Climbing budget deficits worldwide are in many places close to becoming exponential, with the US as a classic example. Government debts climb to the extent of the budget deficit. Once government debts have climbed high enough and then start to accelerate from there, a point is getting close at which lenders to these governments balk at lending more and where debt auctions fail. That is the point approaching now. Recently in both Britain and Germany, a debt auction fell short of 100 percent "clearance".

Once a debt auction fails, that government's credit rating is torn to shreds and interest rates soar as the increased risk of a debt default moves into the pricing of government debt paper. Bond markets get slaughtered. If a government can see this coming, it sends its debt paper over to its tame central bank which "buys" the paper with new money created out of thin air. The currency market reacts and sells the currency.

The US Countdown To Breakdown:

In the background lies this: A baseline forecast, using the benchmarks of recent past crises, suggests that US federal debt will rise by $US 8.5 TRILLION over the next three years. The foremost factor is the collapse in tax revenues that inevitably accompanies a deep recession.

At present, the assorted US "stimulus" packages are moving through the US financial system and they will crest between mid June and late July. After that, they will start ebbing away. Here lies the problem. With that ebb, the artificial foundation under the US economy ends and economic reality returns.

On its current policy direction, the only "counter" for the Obama government is to hugely increase its "stimulus" programs. At some point in that sequence, the US Treasury breaks under the loads of debt.

The Unsustainable Numbers:

The US federal budget is $US 3.55 TRILLION with a built in budget deficit of $US 1.75 TRILLION. This is a budget in which 49.3 percent of proposed spending is being borrowed! Measured against the US GDP which is nominally around $US 14.3 TRILLION, the US budget deficit comes in at 12.25 percent. It leans against a private and civil economy which contracted at an annualised rate of 6.3 percent in the fourth quarter of 2008. On the plain face of it, this is unsustainable. The US is marching into a classic historical debt trap where government debts expand faster than the civil economy is growing. It is worse in this case because government debts are accelerating while the US civil economy is contracting.

It is this gap - expanding deficits, contracting economy – which ensures a US financial and economic breakdown. As things presently stand, all past US fiscal insanities are being wildly exceeded today by an historic attempt to bail out the entire US financial system. The basic economic case is in principle simple. The value of the collateral (real estate etc.) has, in many cases, dived below the height of loans issued against that collateral. The difference is immense losses. These losses exceed the capital of the US banking and broader lending system. This leaves the entire system insolvent.

The Big US Bailout:

Federal government loans, spending or guarantees to rescue the financial system now total more than $US 12.8 TRILLION since the international credit crisis began in August 2007, according to data compiled by Bloomberg as of March 31. That includes the $US 2 TRILLION on the Fed's balance sheet. This amounts to lending, spending or guaranteeing 89.5 percent of current nominal US GDP! That, on the face of it, should make it obvious that the US has entered into the land of the economically absurd.

Ó 2009 – The Privateer

(reproduced with permission)


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