The European debt crisis is gradually spreading to Spain, and some experts say it will hit Italy soon enough. But both nations are in better financial shape than the United States, according to former U.S. Comptroller General David Walker, now head of the Comeback America Initiative.
“Italy and Spain have a higher rating for fiscal responsibility and sustainability under the new Comeback America index than the U.S.,” he tells CNBC. “The question is when are the markets going to come after us.”
With U.S. government debt totaling about 100 percent of GDP and growing $4 billion a day, Washington must implement a combination of spending cuts and tax revenue increases, Walker says.
"We're not going to grow our way out of this problem," he says.
Spending cuts need to be increased, Walker says. “Republicans were talking too low a number for cuts, but too quick,” he says. “We need more budget cuts but over a longer period of time.”
As for taxes, “We’ll have to broaden the tax base and significantly lower the rates — 51 percent of Americans don't have any income taxes,” Walker says.
Former Federal Reserve Vice Chairman Alan Blinder also is concerned about slashing spending too quickly.
“Suppose the federal government actually does reduce its expenditures by 40 percent overnight,” he writes in The Wall Street Journal.
“That's an enormous fiscal contraction for any economy to withstand.”
Friday, May 27, 2011
Celente Predicts Gold Standard Won't Save US Economy
Sometimes controversial trends analyzer Gerald Celente is forecasting that a return to the gold standard will not be enough to save the US economy from collapsing.
Celente is the publisher of Trends Journal and a consultant and adviser to many of America's top corporations. Celente has no ax to grind and calls himself a political atheist. An author, Celente appears regularly on many of the mainstream media's most watched news programs. He is prolific with his predictions on emerging trends concerning global finances and major historic turning points.
Celente is the publisher of Trends Journal and a consultant and adviser to many of America's top corporations. Celente has no ax to grind and calls himself a political atheist. An author, Celente appears regularly on many of the mainstream media's most watched news programs. He is prolific with his predictions on emerging trends concerning global finances and major historic turning points.
Recently he was asked his opinion on the idea of the US returning to the gold standard.
Although a solid core of gold bugs have advocated the US return to the gold standard for decades, many economists thought the idea radical and unworkable in the changing world economy. Now, however, more people and states are seriously considering the idea to stabilize the dollar and forestall a future currency crisis such as that experienced by the German Republic during the 1920s.
Recently, the state of Utah passed a law authorizing the minting of state gold and silver currency as a hedge against inflation and the weakening dollar.
People such as Steve Forbes have jumped on the gold bandwagon. Mr. Forbes said, "A return to the gold standard by the United States within the next five years now seems likely, since that move would help the nation solve a variety of economic, fiscal and monetary ills."
But Celente disagrees that returning to the gold standard will save the US economy. When asked if gold is a panacea for America's financial woes, Celente responded: "No, because the business of America is war…as opposed to the business of China is business. The United States has drained the Treasury before our eyes."
So what would a return to the gold standard accomplish? Can it save the US? Celente believes that "It will give other nations a more stable world reserve currency to deal with, because they don't want to get stuck with a lot of worthless paper."
And that's about it. Gold won't erase the debt, nor change the policies of the federal government. The Federal Reserve private banking system will find new ways to implement monetary policy and do an end run around the gold obstacle, so in the long run, he thinks, the pattern will remain basically unchanged and the trajectory is towards further economic deterioration.
Bleak prospects from one of America's most insightful trends guru.
Although a solid core of gold bugs have advocated the US return to the gold standard for decades, many economists thought the idea radical and unworkable in the changing world economy. Now, however, more people and states are seriously considering the idea to stabilize the dollar and forestall a future currency crisis such as that experienced by the German Republic during the 1920s.
Recently, the state of Utah passed a law authorizing the minting of state gold and silver currency as a hedge against inflation and the weakening dollar.
People such as Steve Forbes have jumped on the gold bandwagon. Mr. Forbes said, "A return to the gold standard by the United States within the next five years now seems likely, since that move would help the nation solve a variety of economic, fiscal and monetary ills."
But Celente disagrees that returning to the gold standard will save the US economy. When asked if gold is a panacea for America's financial woes, Celente responded: "No, because the business of America is war…as opposed to the business of China is business. The United States has drained the Treasury before our eyes."
So what would a return to the gold standard accomplish? Can it save the US? Celente believes that "It will give other nations a more stable world reserve currency to deal with, because they don't want to get stuck with a lot of worthless paper."
And that's about it. Gold won't erase the debt, nor change the policies of the federal government. The Federal Reserve private banking system will find new ways to implement monetary policy and do an end run around the gold obstacle, so in the long run, he thinks, the pattern will remain basically unchanged and the trajectory is towards further economic deterioration.
Bleak prospects from one of America's most insightful trends guru.
U.S. at Risk of Default as Cost to Insure U.S. “Ponzi Scheme” Against Default Rises Sharply
by Mark Obyrne ~ GoldCore Limited ~ GoldSeek.com
Gold and silver are lower today with profit taking, Chinese bond buying and increased risk appetite being cited for the price falls. Gold is marginally lower in all currencies and is 0.2% lower in U.S. dollar terms despite the dollar coming under selling pressure again this morning. Risky assets have recovered somewhat from recent losses with Asian and European equities and commodities receiving a bid.
Cross Currency Rates
Reports of China buying Eurozone government debt may have led to a rise in the euro and equities. However, the scale of sovereign debt risk internationally is such that even significant and ongoing Chinese buying would be unlikely to contain the crisis.
Sovereign debt risks in Europe and internationally continue to threaten the increasingly fragile economic recovery.
While most of the focus has been on Greece and Eurozone sovereign debt issues, the not insignificant risk posed by a U.S. sovereign debt crisis increases by the day. The risk of a US default continues to rise which can be seen in the sharply increased cost to insure U.S. sovereign debt.
Risk of a U.S. default can be seen in the credit default swap (CDS) market. 1 year U.S. CDS has risen from 23 to 37 or by 60% in the last six trading days (see chart below). According to this measure, the U.S. is now more likely to default than Slovenia and Indonesia in the next year.
Cross Currency Rates
Reports of China buying Eurozone government debt may have led to a rise in the euro and equities. However, the scale of sovereign debt risk internationally is such that even significant and ongoing Chinese buying would be unlikely to contain the crisis.
Sovereign debt risks in Europe and internationally continue to threaten the increasingly fragile economic recovery.
While most of the focus has been on Greece and Eurozone sovereign debt issues, the not insignificant risk posed by a U.S. sovereign debt crisis increases by the day. The risk of a US default continues to rise which can be seen in the sharply increased cost to insure U.S. sovereign debt.
Risk of a U.S. default can be seen in the credit default swap (CDS) market. 1 year U.S. CDS has risen from 23 to 37 or by 60% in the last six trading days (see chart below). According to this measure, the U.S. is now more likely to default than Slovenia and Indonesia in the next year.
US CDS 1 Year – 3 Month Duration – US (brown), Japan (Yellow), UK (Purple)
In the more liquid 5 year U.S. CDS, the cost to insure has risen by some 50% in the last week. The U.S. is considered more likely to default in 5 years time than South Africa, Malaysia, Panama, Brazil and Colombia.
Credit default swaps on U.S. debt saw a flutter of activity in the past week with investors placing 135 trades in U.S. CDS in the week ended May 20, far above previous weeks, when in some cases only one contract trade was seen.
In the more liquid 5 year U.S. CDS, the cost to insure has risen by some 50% in the last week. The U.S. is considered more likely to default in 5 years time than South Africa, Malaysia, Panama, Brazil and Colombia.
Credit default swaps on U.S. debt saw a flutter of activity in the past week with investors placing 135 trades in U.S. CDS in the week ended May 20, far above previous weeks, when in some cases only one contract trade was seen.
This compares to 360 CDS trades in the week on Spain's sovereign debt, 191 on Greece, 142 on Portugal and 136 on Italy.
Volumes in U.S. CDS have been ticking up, though at about $4 billion they remain significantly lower than the $9 trillion in outstanding U.S. Treasuries.
The squabbling between Democrats and Republicans last week as the U.S. debt ceiling of $14.3 trillion was being reached did not help sentiment towards U.S. debt.
The squabbling between Democrats and Republicans last week as the U.S. debt ceiling of $14.3 trillion was being reached did not help sentiment towards U.S. debt.
Gold Bullion in US Dollars – 30 Days (Tick)
Nor did former Soros’ partner Stanley Druckenmiller, the billionaire former-hedge fund manager and legendary investor, comment in theWall Street Journal that the Federal Reserve’s bond purchases are a fraud and a “Ponzi scheme”.
Nor did former Soros’ partner Stanley Druckenmiller, the billionaire former-hedge fund manager and legendary investor, comment in the
He advocated a U.S. default or a technical default, saying “"technical default would be horrible, but I don't think it's going to be the end of the world. It's not going to be catastrophic."
Credit default swaps are far from a perfect way to establish credit worthiness and risk of default of countries. However, it is arguable that quantitative easing and governments internationally, including the US, electronically creating money in order to buy huge tranches of newly created government debt has significantly distorted the government debt markets. Thus, record low yields are artificial and are not a good way of measuring fiscal and monetary risk.
The market manipulation that is QE1, QE2 (and possibly QE3, QE4 etc.) has completely distorted the free market in U.S. government debt and indeed all capital markets. It has led to artificially low interest rates in the US and internationally.
It has been successful in the short term in keeping yields low but short term panaceas have a habit of becoming long term illnesses.
While a US default would not be “catastrophic” it would likely lead to a very sharp fall in the U.S. dollar, (especially versus the hard currency,collateral and monetary asset that is gold), sharp fall in U.S. bonds and sharply higher interest rates.
This has the potential to create another systemic crisis involving sovereign nations and banks globally and could lead to a deep recession, a Depression and in a worst case scenario - hyperinflation
Credit default swaps are far from a perfect way to establish credit worthiness and risk of default of countries. However, it is arguable that quantitative easing and governments internationally, including the US, electronically creating money in order to buy huge tranches of newly created government debt has significantly distorted the government debt markets. Thus, record low yields are artificial and are not a good way of measuring fiscal and monetary risk.
The market manipulation that is QE1, QE2 (and possibly QE3, QE4 etc.) has completely distorted the free market in U.S. government debt and indeed all capital markets. It has led to artificially low interest rates in the US and internationally.
It has been successful in the short term in keeping yields low but short term panaceas have a habit of becoming long term illnesses.
While a US default would not be “catastrophic” it would likely lead to a very sharp fall in the U.S. dollar, (especially versus the hard currency,
This has the potential to create another systemic crisis involving sovereign nations and banks globally and could lead to a deep recession, a Depression and in a worst case scenario - hyperinflation
McAlvany Weekly Commentary
Debt, Derivatives and Dominoes
Posted on 25 May 2011.
A Look At This Weeks Show:- Why is gold at new highs in the British Pound and the Euro?
- If the dominoes of Greek and Portuguese debt defaults fall, it won’t sink the Euro ship. But if Spain goes next…lookout.
- The “Battle of Frankfurt vs. Wall Street”: Who wins, who loses and how is Goldman Sachs involved?
- If the dominoes of Greek and Portuguese debt defaults fall, it won’t sink the Euro ship. But if Spain goes next…lookout.
- The “Battle of Frankfurt vs. Wall Street”: Who wins, who loses and how is Goldman Sachs involved?
Is The Dollar Headed For A Bounce?
When the Fed closes the door on its latest stimulus, will that lift pressure on the battered dollar and jumpstart a sustained recovery for the greenback?
Well, probably not.
The Fed initiated its $600 billionbond-buying program, known as QE2, in November as a way to stimulate the economy while keeping interest rates low and spurring more lending and spending.
The Fed haters, of which there are many, saw it slightly differently. They worried QE2 would keep long-term interest rates too low for too long and further weaken the already puny dollar.
Now, the end of QE2 might lift some of the downward pressure on the dollar. But probably not enough to spark a swift appreciation.
The upside of a down dollar
"With QE2 ending, maybe that downward pressure subsides a little bit," said John Derrick, director of research for U.S. Global Investors San Antonio. "But the Fed really isn't reversing course."
GDP growth remains lackluster, and unemployment rates are still at elevated levels. As a result, the Fed shows no signs of tightening monetary policy and hiking interest rates.
"They are still being relatively accommodating and that continues to put pressure on the dollar," Derrick said.
And in a broad sense, when the U.S. economy is not hitting on all cylinders, that means a weaker dollar, Derrick said.
"The economy hasn't really picked up, bank lending hasn't picked up, and I don't really see data that suggests otherwise," he said.
Plus, it's difficult to tease out just how much of an impact QE2 had on the dollar, since the months following the program's implementation have been a tad ... rocky.
Will Goldman kill the dollar?
The Arab spring remade the Middle East and North Africa. Japan was hit by a killer earthquake and tsunami. And there are renewed fears aboutsovereign debt problems in Europe.
All that unrest lends support to the dollar, as investors seek out traditional safe-haven currencies, contributing to a trend that has left the dollar little changed since the start of QE2.
In November, the dollar index, which measures the U.S. currency against a basket of other international currencies, stood at 77.3. On Wednesday it closed at 75.9. That's not much of a drop.
And while the dollar is little changed since the start of QE2, so is the broader economy, something Derrick said will keep pressure on the Fed to do something -- maybe QE3.
"Things just haven't been better," he said "If you have 1.5% or 2% GDP growth, that puts a lot of pressure on the Fed to do something." 
Name of the game is commodity trend-line break: POT, MOS, WLT, CLF
HCPG Blog We’re seeing a ton of patterns like the following. It’s a great pattern for commodities coming off the bottom. You don’t get the exact bottom but often a nice meaty move. Here are a few that have already triggered (and have been in our newsletter — strategy was swing long into the break) and a few that have not broken yet for your trading pleasure: Happy to have the commodities back for a trade (also note the Ag theme –we like Potash and Mosaic $POT $MOS)
Marc Faber Says Prepare for War, Inflation…What About Pestilence?
Famed doomsayer Marc Faber did not disappoint at the Ira Sohn investing conference Wednesday.
In a wide-ranging presentation filled with shots at Ben Bernanke and the Fed commissioners, Faber predicted the Fed will continue to print money.
That means cash and bonds should not be considered safe assets.
He also ominously predicted escalating tension with China and in the Middle East: “You have to prepare for the next war, and, in war commodities go ballistic.”
He urged investors to diversify assets and hold everything from precious metals and commodities to real estate and equities.
And if they hold gold, it might be good to spread their holdings all over the world — Australia, Switzerland, Singapore, Beijing.
“You have to prepare yourself. Diversify.”
In a wide-ranging presentation filled with shots at Ben Bernanke and the Fed commissioners, Faber predicted the Fed will continue to print money.
That means cash and bonds should not be considered safe assets.
He also ominously predicted escalating tension with China and in the Middle East: “You have to prepare for the next war, and, in war commodities go ballistic.”
He urged investors to diversify assets and hold everything from precious metals and commodities to real estate and equities.
And if they hold gold, it might be good to spread their holdings all over the world — Australia, Switzerland, Singapore, Beijing.
“You have to prepare yourself. Diversify.”
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