Thursday, March 11, 2010
We Can't Afford It!
What do the images below have in common?
Well, let's see...crowds of people, lots of signs, a little polizei dust-up...what are you getting at? Let me 'splain it to you. The first image is of California students protesting the dramatic cuts in programs coupled with large increases in tuition. The second and third images are out of Greece over the last few days. The Greeks are not happy because of the "austerity" measures being imposed by their government...which is broke. Greek debt is running over 14% of their GDP...the United States is at 12% and rising very fast.
In all things there is a tipping point where suddenly things change dramatically...center cannot hold, the bottom falls out etc. It happened in Argentina from 1999-2002, it is unfolding before our very eyes in Greece and we are on track to do the same here. Take a look at the following graph from Casey Research:
Can you say "trend line?" This past February, we broke the record! We're talking about layering on another $1.6 TRILLION in debt before the end of the year. And what are our "leaders" arguing about? A new, unfunded, Federally mandated entitlement program. The Wall Street Journal is reporting that U.S. household net worth rose by 1.3% in the last quarter, and that's a good thing. What's not a good thing is how it happened: foreclosures and defaults as strapped families shed debt in a very unpleasant way. Yet even as we de-lever on the home front, the Feds are slathering on a 22.7% increased debt burden, meaning we netted out up 3.4% with no end in sight.
I have heard this mantra from several friends over the past few weeks, on both sides: "we need adult leadership!" Someone that understands that just because there are more checks in the check book does not mean there is any money in the bank. The day is not far off that the collective buyers of our government debt (China, Japan, Arab states) don't show up for the Fed auctions. Then the Fed can start printing money even faster:
This little baby is a 10 BILLION Mark note...in 1923 it bought you 3 eggs in Weimar. Folks say it couldn't happen here! Really? Take a look at the following graph:
That's Weimar trying to sell T-Bills to keep their economy alive. Look familiar? The spending has to stop folks...period.