What will desperate governments take? Everything.
www.bloomberg.com/news/2010-11-25/hungary-follows-....html http://chum.ly/n/4a4220
Tuesday, November 30, 2010
Monday, November 29, 2010
Post from greshambouma at CHUM.LY
How this Whole Government Bankruptcy Thing Sneaks up on us
With a number of governments in Europe in debt crisis, it begs the question as to how governments could possibly end up bankrupting entire countries without the citizens seeing it coming and stopping it. It seems inconceivable that one day national debt is just fine, then some news item changes everything and the nation in question is on the verge of bankruptcy.
Let�s look at what happens. When governments begin to borrow more than they lend, wonderful things happen in the economy. If the borrowing comes from outside the economy, money is spent that does not compete with borrowing/spending in the private sector. GDP goes up since it simply measures economic activity. Everyone is prospering on the borrowed growth. Tax receipts go up and government and its programs grow. The more government borrows, taxes and spends, the more it produces not only a large public sector, but a sector of the private economy that is entirely reliant on government spending. Without sustained government spending this part of the private sector will simply disappear, but citizens are not aware of the dependency of the entire economy on their government�s ability to borrow more money and spend it.
Citizens are not aware of the dependency because the government�s own reporting constantly understates the magnitude of the borrowing and deficit spending. The press is implicated as well since it cooperates in the reporting methods used to hide the magnitude of the spending and borrowing problem. Deficit spending is frequently compared to total GDP, which is a very large and meaningless number. This makes the deficit appear smaller in comparison. If deficit spending were compared with total government tax revenue it would appear alarmingly large. For instance last year the US federal government spent 68% more than it brought in as tax revenue, but its spending deficit compared to GDP was only roughly 10%. It is all a wonderful system in the short run with everyone feeling very wealthy and comfortable with a large and growing government presence. The trouble is suddenly overwhelming, however, when the government in question can no longer find an outside source of borrowing. Not only does the borrowed money disappear as a source of funding, but GDP and tax revenue shrink as well forcing an even larger contraction in government spending. So the end result is governments, once they begin to borrow, they can�t quit without causing economic hardship, so they don�t until they are bankrupt. Only then does the magnitude of the problem begin to be evident to the public as cut feeds contraction, forcing more cuts and hardship.
In short, government borrowing fuels growth, which fuels tax revenue, which justifies greater borrowing, which fuels growth and tax revenue, which justifies greater borrowing, etc. This happens until practical restraints force government cutbacks which spur contraction, which spur cuts, which feed more contraction etc. But in order to avoid the second half, our governments is printing rather than cutting, which sacrifices the currency in order to maintain spending in the short term. http://chum.ly/n/49fd3a
With a number of governments in Europe in debt crisis, it begs the question as to how governments could possibly end up bankrupting entire countries without the citizens seeing it coming and stopping it. It seems inconceivable that one day national debt is just fine, then some news item changes everything and the nation in question is on the verge of bankruptcy.
Let�s look at what happens. When governments begin to borrow more than they lend, wonderful things happen in the economy. If the borrowing comes from outside the economy, money is spent that does not compete with borrowing/spending in the private sector. GDP goes up since it simply measures economic activity. Everyone is prospering on the borrowed growth. Tax receipts go up and government and its programs grow. The more government borrows, taxes and spends, the more it produces not only a large public sector, but a sector of the private economy that is entirely reliant on government spending. Without sustained government spending this part of the private sector will simply disappear, but citizens are not aware of the dependency of the entire economy on their government�s ability to borrow more money and spend it.
Citizens are not aware of the dependency because the government�s own reporting constantly understates the magnitude of the borrowing and deficit spending. The press is implicated as well since it cooperates in the reporting methods used to hide the magnitude of the spending and borrowing problem. Deficit spending is frequently compared to total GDP, which is a very large and meaningless number. This makes the deficit appear smaller in comparison. If deficit spending were compared with total government tax revenue it would appear alarmingly large. For instance last year the US federal government spent 68% more than it brought in as tax revenue, but its spending deficit compared to GDP was only roughly 10%. It is all a wonderful system in the short run with everyone feeling very wealthy and comfortable with a large and growing government presence. The trouble is suddenly overwhelming, however, when the government in question can no longer find an outside source of borrowing. Not only does the borrowed money disappear as a source of funding, but GDP and tax revenue shrink as well forcing an even larger contraction in government spending. So the end result is governments, once they begin to borrow, they can�t quit without causing economic hardship, so they don�t until they are bankrupt. Only then does the magnitude of the problem begin to be evident to the public as cut feeds contraction, forcing more cuts and hardship.
In short, government borrowing fuels growth, which fuels tax revenue, which justifies greater borrowing, which fuels growth and tax revenue, which justifies greater borrowing, etc. This happens until practical restraints force government cutbacks which spur contraction, which spur cuts, which feed more contraction etc. But in order to avoid the second half, our governments is printing rather than cutting, which sacrifices the currency in order to maintain spending in the short term. http://chum.ly/n/49fd3a
Saturday, November 27, 2010
Post from greshambouma at CHUM.LY
The problem with inflation is that it does not show up uniformly over all classes of goods. As it shows up in one category or another, the government, that in the first place created the inflation, calls it "capital gains" and taxes it. http://chum.ly/n/4988bb
Friday, November 26, 2010
China, Russia quit dollar
This would be a big nail in the dollar's coffin.
www.chinadaily.com.cn/china/2010-11/24/content_115...7.htm http://chum.ly/n/493774
www.chinadaily.com.cn/china/2010-11/24/content_115...7.htm http://chum.ly/n/493774
Friday, November 19, 2010
Post from greshambouma at CHUM.LY
Quantitative Easing
The Quantitative Easing (QE) program that the Fed is engaged in is something every American should understand. Quantitative Easing is a fancy name for creating money with some keystrokes and using it to buy your own debt. It robs anyone that holds dollar denominated debt or cash. It is really a form of taxation that is levied on anyone that holds our debt or cash. That is why other countries that hold our debt have been protesting so loudly. The Fed is taxing the world through QE to finance our run-away government spending. If we continue this program, instead or facing the serious economic hardship of draconian spending cuts, we will instead destroy our own unit of exchange. The implications of destroying the dollar are staggering, even if it occurs at a modest pace. We are a nation drunk on debt and are opting for the blood poisoning instead of the DTs/withdrawal symptoms. http://chum.ly/n/4733f3
The Quantitative Easing (QE) program that the Fed is engaged in is something every American should understand. Quantitative Easing is a fancy name for creating money with some keystrokes and using it to buy your own debt. It robs anyone that holds dollar denominated debt or cash. It is really a form of taxation that is levied on anyone that holds our debt or cash. That is why other countries that hold our debt have been protesting so loudly. The Fed is taxing the world through QE to finance our run-away government spending. If we continue this program, instead or facing the serious economic hardship of draconian spending cuts, we will instead destroy our own unit of exchange. The implications of destroying the dollar are staggering, even if it occurs at a modest pace. We are a nation drunk on debt and are opting for the blood poisoning instead of the DTs/withdrawal symptoms. http://chum.ly/n/4733f3
Post from greshambouma at CHUM.LY
The federal government can’t tax us enough to maintain the size and scope of our current system, so it must instead borrow and print. Over the next several quarters it plans on financing almost all of our deficit spending with the printing approach (800 Billion in total QE). When that is over, will China continue to finance our profligacy? And if so at what interest rate? If interest rates go to even 5%, which is very low considering what the Fed is doing, interest on 14 Trillion would be around 700 Billion annually. With tax revenue around 2.1 Trillion, just the interest on our debt would take over 30% of annual federal tax receipts. If someone sees an easy way out of this, I would love to be enlightened. Until then I won’t join the rest of America in this la-la land where you don’t even add 2+2 anymore; where there are no moral hazards; where the god of government can’t fall on its face; where 42 Million people continue to happily cash in their food stamps; where unemployment payments are extended into eternity; where everyone and everything depends on a corrupt maze of bureaucracies; where Soros, the big mover and shaker behind the left, stands to make billions again from the destruction of yet another currency… http://chum.ly/n/4733f2
Wednesday, November 17, 2010
EconomicPolicyJournal.com: How Finished Goods Prices Are Up 4.3% Over Last 12 Months; Gasoline Prices are up 9.8% in October, and the BLS Reports Declining Inflation
www.economicpolicyjournal.com/2010/11/finished-goo....html
More government "Enron" style reporting. I doubt if there is anything that affects inflation in the long run more than energy prices. Inflation in commodities has already picked up, and with QE II will probably only accelerate from here. http://chum.ly/n/4613cb
More government "Enron" style reporting. I doubt if there is anything that affects inflation in the long run more than energy prices. Inflation in commodities has already picked up, and with QE II will probably only accelerate from here. http://chum.ly/n/4613cb
Thursday, November 11, 2010
This quote probably sums up well our foreign creditors attitude toward our plans to create money out of thin air and use it to buy our own debt
"Though it is likely for the current loose monetary policy to postpone the occurrence of difficulties, yet in the long run, it will be proven to be a practice resembling drinking poison to quench [your] thirst." Chinese rating agency Dagong Global, discussing Bernanke's QE2 plans. http://chum.ly/n/43da0d
Sunday, November 7, 2010
Doubts grow over wisdom of Ben Bernanke 'super-put' - Telegraph
www.telegraph.co.uk/finance/economics/8111153/Doub....html
America may ignore its own Fed but the rest of the world is trying to figure out how to protect itself from our irresponsible action. The author is a very well read and highly regarded journalist. Wake up America. http://chum.ly/n/42d369
America may ignore its own Fed but the rest of the world is trying to figure out how to protect itself from our irresponsible action. The author is a very well read and highly regarded journalist. Wake up America. http://chum.ly/n/42d369
Saturday, November 6, 2010
Post from greshambouma at CHUM.LY
The end of a trend known as "tax, borrow and spend"… We probably are in the blow-off phase. But with the announcement of another round of Quantitative Easing (print money and buy your own debt) by the Federal Reserve, it looks to me like we are entering a new phase. Let’s call it "tax, print and spend". Maybe there will still be borrowing, but you have to wonder if there will be any willing lenders after the next several quarters during which we finance most of our deficit spending by printing money out of thin air and lending it to ourselves. Socialism matures into bankruptcy, and that is where we find ourselves today. When countries run out of the ability to borrow, they usually have two options available. They can turn to austerity measures and cut government dramatically, or they can crank up the printing presses and continue to spend, but destroy their currency by doing so. Cuts in spending result in painful economic adjustments as the country goes through withdrawal symptoms of debt dependency. On the other hand, turning to the "printing presses", or in our case the computer keyboard, as a source of financing, creates run-away inflation at some point. It avoids the hard decisions of budget cuts but is ultimately much more destructive. http://chum.ly/n/4291a0
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