Global Currency Trends

[24KT]

U.S. Debt-to-GDP Ratio This Year to Surpass Greece’s 2009 “Danger” Level



By Michael Lombardi, MBA for Profit Confidential
Friday, March 15th, 2013

The U.S. Department of the Treasury reported that the U.S. government incurred a deficit of $204 billion for the month of February 2013. So far, we are into the first five months of the government’s fiscal year (started October 1, 2012), and the U.S. government fiscal deficit has already grown by $494 billion. (Source: U.S. Department of the Treasury, March 13, 2013.)

The U.S. government has been running a deficit of over $1.0 trillion in each of the past four years. For 2013, the Congressional Budget Office (CBO) expects the deficit to be $845 billion—which is less than a trillion-dollar budget. (Source: The Hill, February 5, 2013.)

(But if I pro-rate the $494 billion the government has already tagged on this year, a rate of $99.0 billion a month, I get another $1.0-trillion deficit year.)

Sadly, while many are taking “less” deficit as good news, our national debt is still growing. Remember: when the government doesn’t have money to spend, it must borrow. The budget deficit for this year is going to see the U.S. national debt increase to well above $17.0 trillion.

In February, the U.S. government paid interest of $16.8 billion on the debt it has borrowed through issuing bonds. Since the beginning of the fiscal year, it has incurred interest expenses of $168.4 billion.

I don’t think the mainstream realizes that the more the government adds to the national debt through budget deficits, the more interest payments it will have to make. This year it expects to pay almost half a trillion dollars in interest. This amount will rise as the national debt increases and interest rates increase. Eventually, the U.S. government will go into a downward spiral when interest payments become a major part of its monthly outlays.

With all this said, if the staggering municipal bankruptcies force states to look for bailouts from the U.S. government, then you, dear reader, be the judge of where the national debt will go. (And I haven’t even mentioned the trillion-dollar student loan crisis!)

It might sound crazy today as we witness the stock market move to new highs, but what I do see happening, as the U.S. national debt increases, is the possibility of austerity measures, similar to those implemented in the debt-infested eurozone. At the end of the day, whatever money the government borrows, the taxpayers are the ones on the hook for it.

With national debt currently standing at $16.7 trillion, each taxpayer in the U.S. owes more than $147,000. (Source: U.S. Debt Clock web site, last accessed March 14, 2013.) Imagine what happens when the national debt reaches $20.0 trillion!

Greece’s troubles started in 2009, when its national debt topped 113% of its gross domestic product (GDP). With U.S. GDP expected to be $15.0 trillion this year, and with our national debt at $17.0 trillion, the U.S.’s national debt will hit—you guessed it—113% of GDP in 2013.

Michael’s Personal Notes:

China’s Consumer Price Index (CPI), a measure of inflation, increased 3.2% in February from a year earlier. In January, inflation in the Chinese economy was running at two percent. (Source: Wall Street Journal, March 13, 2013.)

The governor of the Bank of China, Zhou Xiaochuan, said, “The central bank has been paying high attention to inflation and we will stabilize inflation expectations via monetary policies.” He added, “February CPI was slightly higher than expectations, suggesting that we need to keep vigilant on inflation.” (Source: “China Central Ban Warns on Inflation, Pledges Reform,” Reuters, March 13, 2013.)

Just like the Federal Reserve, the Bank of China has been using its easy monetary policy tactics to rev up the economy. In 2012, the Chinese economy grew at a rate of 7.8%—much slower than what it has done in past.

Inflation, while not visible now according to the official statistics, will eventually take a toll on the U.S. economy, courtesy of our loose monetary policy. Just look at how much paper money has been printed in the past four years and where our economy is today—three rounds of quantitative easing and a continued $85.0-billion-a-month printing program, plus all the stimulus packages.

In January of 2012, the M2 money supply (a measure of money in circulation), was $9.72 trillion. By January of 2013, it had increased to $10.44 trillion. (Source: Federal Reserve, March 7, 2013.)

Easy monetary policy builds up inflationary pressures—the longer these policies stay in place, the higher the inflation is going to be. Once the inflation strengthens here in the U.S., prices will increase significantly for already “fragile” consumers.

Let’s never forget: consumer spending in the U.S. economy makes up about 70% of gross domestic product (GDP). If inflation increases, the U.S. consumers will simply spend less, thus depressing economic growth.

Right now, the official inflation numbers say we don’t have inflation in the U.S.; but we do have bleak consumer spending, falling real incomes, stagnant consumer savings, and millions of Americans on food stamps. Imagine what will happen when inflation does hit!

Where the Market Stands; Where It’s Headed:

It’s actually ridiculous.

The government needs money to pay its bills, because it doesn’t have enough money coming in. The government issues T-bills to get the money it needs to cover its deficit, and the Federal Reserve prints paper money and gives it to the government as it buys the T-bills.

Through the creation of even more money, the Federal Reserve takes mortgage-backed securities off the books of big American banks; these same banks get real cash in return for their illiquid mortgage-backed securities. And what do the banks do with the newly printed cash? Well, I don’t see banks lending more to businesses and consumers. But I do see them starting to buy back their stock, pushing the stock market higher.

How can all this end nicely?

What He Said:

“Home-building in the U.S. will enter a quasi depression state in 2008 and the construction industry will make 2008 a record year for pink slips. I predict a major homebuilder will go bankrupt in 2008.” Michael Lombardi in Profit Confidential, January 10, 2008. WCI Communities, the largest U.S. luxury home builder at the time, filed for Chapter 11 protection on August 4, 2008.


http://www.profitconfidential.com/debt-crisis/u-s-debt-to-gdp-ratio-this-year-to-surpass-greeces-2009-danger-level/

[TheTruth90]

Go fuck yourself trying to peddle your gold shit. When shit hits the fan, gold will be useless. It will all be about having guns, farming, food, water, etc...

[24KT]

17 Signs That A Full-Blown Economic Depression Is Raging In Southern Europe – Is The U.S. Next?



When you get into too much debt, eventually really bad things start to happen.  This is a very painful lesson that southern Europe is learning right now, and it is a lesson that the United States will soon learn as well.  It simply is not possible to live way beyond your means forever.  You can do it for a while though, and politicians in the U.S. and in Europe keep trying to kick the can down the road and extend the party, but the truth is that debt is a very cruel master and at some point it inevitably catches up with you.  And when it catches up with you, the results can be absolutely devastating.  Greece, Italy, Spain and Portugal all tried to just slow down the rate at which their government debts were increasing, and look at what happened to their economies.  In each case, GDP is shrinking, unemployment is skyrocketing, credit is freezing up and manufacturing is declining.  And you know what?  None of those countries has even gotten close to a balanced budget yet.  They are all still going into even more debt.  Just imagine what would happen if they actually tried to only spend the money that they brought in?

I have always said that the next wave of the economic collapse would start in Europe and that is exactly what is happening.  So keep watching Europe.  What is happening to them will eventually happen to USA.

The following are 17 signs that a full-blown economic depression is raging in southern Europe...

#1 The Italian economy is in the midst of a horrifying "credit crunch" that is causing thousands of companies to go bankrupt...

Confindustria, the business federation, said 29% of Italian firms cannot meet "operational expenses" and are starved of liquidity. A "third phase of the credit crunch" is underway that matches the shocks in 2008-2009 and again in 2011.

In a research report the group said the economy was caught in a "vicious circle" where banks are too frightened to lend, driving more companies over the edge. A thousand are going bankrupt every day.

#2 During the 4th quarter of 2012, the unemployment rate in Greece was 26.4 percent.  That was 2.6 percent higher than the third quarter of 2012, and it was 5.7 percent higher than the fourth quarter of 2011.

#3 During the 4th quarter of 2012, the youth unemployment rate in Greece was 57.8 percent.

#4 The unemployment rate in Spain has reached 26 percent.

#5 In Spain there are 107 unemployed workers for every available job.

#6 The unemployment rate in Italy is now 11.7 percent.  That is the highest that it has been since Italy joined the euro.

#7 The youth unemployment rate in Italy has risen to a new all-time record high of 38.7 percent.

#8 Unemployment in the eurozone as a whole has reached a new all-time high of 11.9 percent.

#9 Italy's economy is starting to shrink at a frightening pace...

Data from Italy's national statistics institute ISTAT showed that the country's economy shrank by 0.9% in the fourth quarter of last year and gross domestic product was down a revised 2.8% year-on-year.

#10 The Greek economy is contracting even faster than the Italian economy is...

Greece also sank further into recession during the fourth quarter of 2012, with figures on Monday showing the economy contracted by 5.7% year-on-year.

#11 Overall, the Greek economy has contracted by more than 20 percent since 2008.

#12 Manufacturing activity is declining just about everywhere in Europe except for Germany...

Research group Markit said its index of activity in UK manufacturing – where 50 is the cut off between growth and decline – sank from 50.5 in January to 47.9 in February. It left Britain on the brink of a third recession in five years after the economy shrank by 0.3 per cent in the final quarter of 2012.

Chris Williamson, chief economist at Markit, said: ‘This represents a major setback to hopes that the UK economy can return to growth in the first quarter and avoid a triple-dip recession.’

The eurozone manufacturing index also read 47.9. Germany scored 50.3 but Spain hit 46.8, Italy 45.8 and France 43.9.

#13 The percentage of bad loans in Italian banks has risen to 12.2 percent.  Back in 2007, that number was sitting at just 4.5 percent.

#14 Bank deposits experienced significant declines all over Europe during the month of January.

#15 Private bond default rates are soaring all over southern Europe...

S&P said the default rate for Italian non-investment grade bonds jumped to 9.5pc last year from 5.7pc in 2012 as local banks shut off funding. It was even worse in Spain, doubling to 14.3pc.

The default rate in France rocketed from 0.8pc to 8.7%, the latest in a blizzard of bad news from the country as the delayed effects of tax rises, fiscal tightening, and the strong euro do their worst.

#16 Lars Feld, a key economic adviser to German Chancellor Angela Merkel, recently said the following...

"The sustainability of Italian public finances is in jeopardy. The euro crisis will therefore return shortly with a vengeance."

#17 Things have gotten so bad in Greece that the Greek government plans to sell off 28 state-owned buildings - including the main police headquarters in Athens.

One of the few politicians in Europe that actually understands what is happening in Europe is Nigel Farage.  A video of one of his recent rants is posted below.  Farage believes that "the Eurozone has been a complete economic disaster" and that the worst is yet to come...

Nigel Farage: Eurozone completely incompatible with nation-state democracy

Most people believe that the eurozone has been "saved", but that is not even close to the truth.

In fact, it becomes more likely that we will see the eurozone break up with each passing day.

So who would leave first?

Well, recently there have been rumblings among some German politicians that Greece should be the first to leave.  The following is from a recent Reuters article...

Greece remains the biggest risk for the euro zone despite a calming of its economic and political crisis and may still have to leave the common currency, a senior conservative ally of German Chancellor Angela Merkel said.

But there is also a chance that Germany could eventually be the first nation that decides to leave the euro.  In fact, a new political party is forming in Germany that is committed to getting Germany out of the euro.  The following is a brief excerpt from a recent article by Ambrose Evans-Pritchard...

A new party led by economists, jurists, and Christian Democrat rebels will kick off this week, calling for the break-up of monetary union before it can do any more damage.

"An end to this euro," is the first line on the webpage of Alternative für Deutschland (AfD). "The introduction of the euro has proved to be a fatal mistake, that threatens the welfare of us all. The old parties are used up. They stubbornly refuse to admit their mistakes."

They propose German withdrawal from EMU and return to the D-Mark, or a breakaway currency with the Dutch, Austrians, Finns, and like-minded nations. The French are not among them. The borders run along the ancient line of cleavage dividing Latins from Germanic tribes.

However this all plays out, the reality is that things are about to get much more interesting in Europe.

No debt bubble lasts forever.  The Europeans are finding that out right now, and the U.S.A. won't be too far behind.

But for the moment, most Americans assume that everything is going to be okay because the Dow keeps setting new all-time record highs.

Well, enjoy this little bubble of debt-fueled false prosperity while you can, because it won't last for long.

A massive wake up call is coming, and it will be exceedingly painful for those that are not ready for it.

[24KT]

Is the Canadian economy in trouble in 2013?

By Kevin Press

Canada’s economic recovery will lose steam in 2013 and its main stock index will end the year in negative territory. Those two predictions come from Sadiq Adatia, chief investment officer of Sun Life Global Investments. He and I spoke on Thursday.

“The Canadian economy is in trouble,” he told me, answering a question we posed in a blog post last June. “People are overly optimistic about the Canadian economy. I think it is going to have a tough time in 2013. And I think the Canadian stock market will actually be negative next year — somewhere in the 5% range.”

Adatia said housing, consumer debt and factors outside the country could all contribute to a tough year.

Activity in the residential housing sector is slowing, probably as a result of Ottawa’s move to tighten the country’s mortgage lending rules. Expect to see that push housing prices down in the first half of 2013. That’ll lead to rising unemployment in the construction trades.

“Canadians will feel a little bit worried,” said Adatia. “They’ll tighten their belts a little bit. Growth will slow because they won’t be spending.”

For many, debt will contribute to that worry. Statistics Canada reported Thursday that household credit market debt across the country reached 164.6% as a percentage of disposable income in Q3 — another record high. The only good news is that the increase over the previous quarter was smaller than the jump measured between Q1 and Q2.

Globally, the warning signs are clear. China’s slowdown — no matter how soft its landing proves to be — will hurt commodity prices. The eurozone will continue to make business leaders nervous in 2013. And of course Canada’s economy is significantly dependent on the strength of the U.S. recovery.

“Canadian and U.S. corporations have all cut back on their spending because of the fiscal cliff,” Adatia told me. “Q1 will be a tough quarter, even if you see a resolution … In the first half, I think you’ll see negative results in the Canadian economy and the Canadian stock market. There will be a bit of a bounce back in the second half.”

Three additional predictions:

Canada’s gross domestic product will grow between 1% and 2%. “We’ll be at the lower end of that — maybe 1% — in the first six months,” said Adatia. That number could improve in the second half.

The overnight rate will stay at 1%. A consensus had formed around an expected increase by the Bank of Canada in the second half of 2013. Adatia believes that’s off the table. “The U.S. has already said that they can’t raise rates until 2015,” he said. “[Bank of Canada governor Mark] Carney’s hands are tied. Canada can’t do anything until 2014.”

Neither inflation nor deflation will be factors in 2013. “I don’t think either will be a concern in the next couple of years,” Adatia told me. “As we get further out, then I think the U.S. is where we worry about inflation. Today’s problem is just to get growth going again.”

[24KT]

Greece should still leave the euro

Greece still remains the biggest risk for the euro and would be better off to leave the single currency, a close ally of German chancellor Angela Merkel’s has said.



Despite the eurozone’s economic and political crisis abating over the last six months, Alexander Dobrindt, the general secretary of the Christian Social Union (CSU) said Europe should continue working on an exit strategy for Greece.
“The greatest risk for the euro is still Greece,” he told German newspaper Die Welt am Sonntag.

Mr Dobrindt, whose political party, the CSU, is Bavaria’s sister party to Mrs Merkel’s Christian Democrats (CDU), urged the European Commission to prepare the legal ground work to allow a eurozone member to become bankrupt and exit the common currency.

Ahead of Germany’s elections in September, Mrs Merkel has tried to quell market turbulence about the eurozone. The CSU and the CDU are very close with the CSU is tipped to win Bavaria’s state election in the autumn.

Last year, Mr Dobrindt said Greece should start paying 50% of its pensions and state salaries in drachmas - the Greek currency before the euro - as part of a planned withdrawal from the euro zone.

“We have created a situation that gives Greece a chance to return to stability and restore competitiveness. But I still hold that, if Greece is not able or willing to restore stability, then there must be a way outside the euro zone,” he said.
However, Mr Dobrindt’s comments fly in the face of those made by the CSU chairman and Bavarian state premier, Horst Seehofer, who expressed solidarity with the Greeks, insisting the country was on the “right path”.

Mrs Merkel has also made clear that that despite being frustrated with the slow pace of Greek reforms, a “Grexit” risks being far more costly for Germany and Europe than pressing on with the bailout programme.