Hi ya Pearly A favorite synopsis from October 5, 2001
zealllc.com
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and another favorite..Are there concerns about mortgage delinquencies? --And some insurance companies for balance. ... from july 19 2002
gold-eagle.com
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The US Economy is in Big Trouble -
By: Totse.com/Rense.com
1. THE OVERALL ECONOMIC PICTURE
The Forerunner
Early Tuesday morning Oct. 29, 1929, the stock market opened as usual. The only difference on this particular day was that all the trading activity on the floor was to sell, not buy. Not only did the "crash" that followed affect multitudes of Americans, it affected people and economies all over the world. Thousand of people lost their jobs; their homes; and their life savings. The middle class was wiped out. By the end of the year, commodity markets lost an unbelievable sum of 40 billion dollars in equity. Four years later, at the depth of the depression, the national income fell by 50% and 5000 banks had closed their doors.
>From the very beginning, our founding fathers had always advocated that the federal government should not interfere with the free enterprise system. However, due to the suffering induced by the depression, the American people wanted relief and allowed the new President Roosevelt to take action with programs that had been considered illegal up to that time. The President boldly initiated his socialistic "New Deal", and for the first time in history, the U.S. government intervened in the affairs of private business with helps called "entitlements." The stage was set for the federal government to dominate American business, banking, commerce, and the economy as a whole.
Not only did this "New Deal" allow for more government control in private enterprise, it also was the beginning of the cancerous government debt that will eventually be financially perilous to our economy. This country saw a great depression in 1929. We are dangerously close to repeating history but with much more devastation.
The America that you and I grew up to know and appreciate is a thing of the past. The upcoming crash is going to make the crash of 1929 look like a mild recession in comparison. Your job, your company and your industry is much more dependent on other industries today than it was in 1929. If our government continues to spend more than it takes in, with 100 percent certainty, it will go broke. A time of rectification is certain, it's only a matter of when.
The Problem Defined
Our government has the ability to generate $1.2 Trillion in taxes. It spends $1.4 to $1.5 Trillion per year. The U.S. government is spending more money each year than it raises in taxes. How does it do that? It borrows the money to make up the difference. In 1992, it had to borrow about a quarter of all the money it spent. This amount borrowed is called the deficit. The government has been operating this way since the 1960's. The accumulation of yearly deficits is called the National Debt. By 1992, the National debt was estimated at over 4 Trillion dollars.
The government has given up on trying to pay back the national debt and is struggling to just keep up with the interest payments. Right now, interest payments is one of the top three expenditures in the National budget each year. In just a few years, it will be the largest expenditure. In 1980 the percentage of income tax used to pay the interest of the debt was about 30%. In 1992, just 12 years later, that had doubled to 60%. Experts project that within just a few years, the interest payments alone will absorb all of the taxes collected. At this point, there will be no money to run the country and America will be bankrupt.
Even if our budget was balanced, we would still be in trouble because we don't have the cash flow left over to pay the interest on our existing debt. This means we borrow to pay the interest which means the existing debt is compounding. It doesn't take an expert to realize the eventual results of that. If we continue to spend more than we take in, the U.S. government is heading for an eventual collapse.
In the beginning of our country, the only time it borrowed money was during time of war. This changed in the 1960's. When John F. Kennedy was inaugurated as President, federal revenues and spending was less than $100 Billion per year. The deficit was $3 Billion per year. After 1963 when Kennedy was assassinated, President Johnson made some drastic changes in this country's economic policies. Johnson declared war on poverty, war on Viet Nam and began borrowing money to achieve these goals at record rates.
By 1981, Federal spending had increased to $500 Billion. By the time Ronald Reagan left office, federal spending was up to about $1 Trillion per year. Federal debt, which was $914 Billion in 1981, had increased to 2.8 Trillion in 1989. By the end of the Bush presidency, the debt was 4.2 Trillion.
The total federal debt today is around $6 Trillion (including off budget debt which with unfunded retirement liabilities is another $2.5 Trillion). Consumer debt was $794 Billion in 1990. Business debt was $700 Billion. Only 2 percent of Americans own their home. Banks now hold nearly $2 Trillion in first mortgages. In addition, they hold $80 Billion in home equity loans. The average household debt is 84 % of their income. Both federal and state health care costs are escalating out of control. Medicare now costs $104 Billion. It is estimated that federally supported health care costs will be more than $1.3 Trillion by the year 2000.
America owes (on-budget) 4 Trillion dollars. It must borrow 1 Billion, 100 Million dollars every day in order to maintain the pretense of prosperity. For a number of years, the U.S. has not only been using up its capital -- that's all gone now -- but it has also been using up its borrowing power. When its borrowing power is all gone; when no one like Japan, Germany, etc., will be willing to invest into the American economy, then that will be the "breaking point" -- and the breaking point is upon us.
Missed Opportunity
No one officially attempted to examine the problem until President Ronald Reagan appointed a special group of American businessmen to do anindependent study of the trends in government spending. It was called "The President's Private Sector Summary on Cost Control." It was headed by businessman Jay Peter Grace and became widely known as the "Grace Commission." The Grace Commission was privately funded. They raised about $70 Million from public sources for the project. They enlisted 160 top executives and hired some 2000 employees. The Grace Commission found over $500 Billion of waste, and offered over 2000 recommendations on how this amount could be trimmed out of government spending on an annual basis without changing a single program. The government didn't have to cancel any of the "entitlements" that were strictly guarded by certain Senators (i.e. welfare, Medicare, or social security, etc.). All they had to do was go in with standard business practices and trim out the waste (over spending, double billing, etc.).
At the time, people didn't take the Grace Commission's analysis seriously. They were considered alarmists. But if you go back and look at the projections they made for 1986, 87, and 88, you will find that their projected figures were quite accurate.
The Grace Commission came to the conclusion that if the government didn't make some sort of substantial change in the direction of the economy and substantial reductions in the deficit, eventually the government will reach a point where they will be unable to fund themselves through taxes or borrowing.
The Commission also found that when the growth of U.S. debt is comparedwith other countries, it is higher and growing faster than any other industrialized country in the world. If the tracking record of the Grace Commission continues to be accurate, in just a few short years the country will be bankrupt.
The Warning
It was this startling revelation that prompted the co-chairman of the Grace Commission, Harry Figgie Jr. to co-author a book to alert the nations leaders as well as the citizens at large, to make needed changes. It became a New York Best Seller entitled Bankruptcy 1995 - The coming collapse of America and how to stop it.
Despite the warning, Congress continues its irresponsible trend of overspending, contributing to the dangerous growth rate of the National debt. The Graham - Rudman Act of 1985 made it mandatory that the U.S. government be able to live within its means by 1991. The Grace Commission tracked the discrepancies between the estimated budgets and actual spending. Despite the legal mandate, the discrepancies soared to new heights by 1991. According to the Grace Commission, the government had been using creative ways of circumventing the law.
Stopgap Measures
The government has become very creative in designing measures to postpone the inevitable. The only problem with that is that with each implementation of their creativity, the more extreme the final debacle will be.
One loophole Congress regularly uses is to apply for temporary budget extensions. These extensions were designed to be used only in emergency cases. It has now, however, become common practice. Another method of deception is to siphon off funds from the social security trust fund. This allows them to reduce the annual deficit numbers presented to the public. We've been paying into the Social Security fund for a long time, but it doesn't have a dime in it. The government takes the money out, spends it in the general budget, to give the appearance of lower deficit numbers, and substitutes an I.O.U. in the form of a zero coupon bond from the government.
Another method is to transfer budget over-runs or excess spending into the next fiscal year. It's the illusion of reduced spending without the pain of making cuts. A fourth method of deception is to shift projects off budget. One example is the Post Office. It's not on the balance sheets. Another example was the Persian Gulf war. The most scary example are entitlements. Many of the entitlements have been taken off the balance sheets. If you did this in business, you'd go to jail for fraud.
The appearance in politics is that the budget is being dealt with because it is talked about in every political campaign. The truth is that very few have been bold enough to confront or even address the issue of the impending financial crash.
The most recent desperate attempt to offset the results of the debt is to create a New Currency. Actually, the new currency has been printed for a long time. The government has just been waiting for the right time to implement it. The stated rationale for the new currency and the actual purpose are two different things.
The New Currency is promoted as an effort to find drug dealers, terrorists, and counterfeiters, and to preserve the stability of the dollar. However, the actual purpose is to drive out tens of billions of dollars out of the underground economy; track, audit, and tax, (or re-tax in some cases) billions of dollars of cash in hand; render worthless billions of dollars that will never be turned in thus creating a giant windfall for the U.S. Government; facilitate electronic tracking of money; and usher in U.S. foreign exchange controls. How the U.S. government intends to accomplish these exchange controls, and the ramifications thereof, can most certainly cause serious repercussions in foreign and domestic markets.
Addiction
The government isn't blind, they know what is happening, they just aren't willing to face the reality of the problem and they don't want to give up their spending. The government is not going to attempt to balance the budget because the cure is too tough to swallow. It's like smoker saying he wants to reduce his usage. What he is really saying is he wants to maintain the right to smoke. This is what Congress is doing. They say they want to balance the budget, but the fact is they don't want to pay the price of giving up their spending habits.
Other Problem Areas
America's debt is only the most visible element that can cause economic calamity. There are other facets of our economy that can equally bring the country to bankruptcy. Government regulations, declining industry, health care costs, litigation, and a reducing number in the working, tax paying population are just a few of the things, that in their own right, can weaken our economy beyond recovery possibilities. Indeed, our economy is in a very serious situation.
Government regulations, taxes, and fines are choking industry right out of business. This is causing a decline in industry and is going to bring our economy to its knees. More and more businesses are shutting their doors. Some are even leaving the country to get away from regulations, taxes and fines. Health care costs have grown to an alarming height and with the new health care package, it will grow even higher. Litigation in this country is at an all time high and is out of control. The declining tax base is another serious problem. We have less people working and more peopler eceiving benefits than ever before in the history of the United States. Last but not least, the trade deficit disparity is widening at alarming rates. This is another area contributing to our overburdened economy.
Lost Leverage
Just a decade and half ago we were the leading creditor nation. Today, we are the leading debtor nation. The economic peril that we are in right now is eroding our leverage on the world scene. Thirty percent of our debt is foreign held. Already our policies are increasingly dictated by the creditors of that debt. The U.S. dollar is the worst investment on the market. Who wants to invest in an economy when its own government isn't responsible enough to balance the budget?
The End Result
What is going to happen when the government can't pay its bills? There are several theories for what might happen.
1. The stock market could collapse bringing on another depression much more worse than in 1929. 2. A hyper-inflated economy.
A depression is the result of not enough money and productivity and growth comes to a standstill. Hyper-inflation, on the other hand is the result of too much money (induced by uncontrolled printing to pay off the creditors). Both situations would yield catastrophic results. There are good arguments for either scenario, however, more than likely, the temptation and pressure of the situation will cause the government to do what every other country has done when faced with this dilemma. They will start printing money to pay their bills and postpone the inevitable. This will start a vicious cycle of hyper-inflation. The more they print, the less it is worth and the less it is worth, the more they will print, etc. (Germany did this when they had taxed the people as much as they could.) They started printing money and within 3 years, the marc had devalued to 2.4 Trillion marcs per $.
Once you hyper-inflate the dollar, it doesn't matter how much you have in the bank, it will be worthless. Fifty years ago, Argentina was one of the richest nations in the world. They went into hyper-inflation that badly damaged their economy. Within a six month period the inflation rate was 500% per year. Before they got it stopped, it was 5000% per year.
When the government induces hyper-inflation by printing extra money, two things happen:
1. wages fall 2. savings and investments are wiped out.
A person could have $20,000 in the bank and within just a short period of time, it could be worth only $10,000 or 2,000. This is where the middle class gets wiped out. All investments (stocks, bonds, mutual funds, Keoghs, 401k's, everything), insurance companies, savings accounts, etc. go right down the tubes. The Government will have to default on their FDIC guarantee.
Jobs will fall like dominoes. Sooner or later, the majority of the work force will lose their job. You will not be able to depend on the government or large corporations for employment. There will be massive defaults and people will be losing their houses, their businesses, and everything they have owned.
A catastrophe such as this will lead to anarchy. There will be large riots like what we experienced in Los Angeles. A large segment of the population will be unemployed and out of work, and probably unemployable due to loss of industry. You will have the makings of major civil unrest.
If the police can't contain law and order when an unpopular verdict is passed (Rodney King trial), how are they going to keep the peace when the government has destroyed the economy? What happened in L.A. is possible in any large city across the country if they have the reason to do so. One of the reasons could be if they are unable to feed their family.
These are sobering times. We need to know what is coming and how to get out of harms way.
Summary (Debt)
The economic debacle we face will either be a depression or hyper-inflation. Either of which will have catastrophic results. If we are facing a depression, its going to be tough to find a buyer on Wall Street when the economy begins to collapse and everyone is selling. If we face a more probable hyper-inflation situation, the value of your investments and the dollar are going to go down the tubes. Savings accounts are going to be wiped out (be it in a bank or home in a shoe box).
When you look at all these indicators (the National Debt, Consumer Debt, Business Debt, the Trade Deficit, government regulations out of control, health care costs, declining industry, litigation, reduced work force, reduced tax base, etc.), it doesn't take a rocket scientist to realize we are facing immediate problems of astronomic proportion.
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