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  • Foreign Governments Dump US Debt At Record Pace

    I have been traveling the last few days, so I will reprint two of the more interesting articles I ran across in the last week. We’ll start with an article from CNN which confirms that numerous foreign governments are unloading US Treasury debt at a record pace.

    This includes China, the largest holder of our debt, which became a huge seller of Treasuries last year. We will also look at some of the reasons why foreign central banks are dumping Treasuries, many like never before.

    We will finish today with a new report from the Economist Intelligence Unit which has a list of the nine largest risks facing the world today, and how likely each of them is to happen. It is an interesting report, although I would have a few other risks to add to the list.

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  • U.S. Debt To Hit $20 Trillion, Poverty Remains Rampant

    As long-time clients and readers are well aware, the explosion in our national debt has been one of my continuing themes over the last 30+ years, under both Republican and Democrat presidents. So today’s discussion is not a political issue, and it should worry us all.

    By the time President Obama leaves office in January 2017, the US national debt is projected to have almost doubled during his eight years in office. Put differently, Obama will have added as much to the national debt as all presidents before him combined. That is simply staggering!

    Throughout history, no major nation that has accumulated debt of more than 100% of Gross Domestic Product has ever paid it back. Instead, they have defaulted. So will we at some point if we don’t reverse course, which seems very unlikely.  As such, the question is when will the US default and what will trigger it?

    Saddest of all is the fact that, despite almost doubling the national debt over the last seven years, with much of the spending on social programs, the poverty rate in the US is near an all-time high; ditto for those living on food stamps. You would think that doubling the national debt and increasing entitlements should have dramatically lowered poverty and those living on food stamps. It didn’t.

    Over the last decade, we’ve also seen an explosion in the number of Americans who receive disability benefits. Unfortunately, Congress has watered-down the requirements to receive disability payments to the point that many able-bodied Americans are no longer working.

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  • Upcoming Debt Ceiling Fight Could Get Really Ugly

    Today we will focus initially on the upcoming battle over whether to increase the US debt ceiling. The government reached the current statutory debt limit of $18.1 trillion back in March. Since then, the Treasury has been paying the nation's bills by using so-called "extraordinary measures." But the Treasury warned recently that such funding will be exhausted by November 5, and that means another debt ceiling battle will play out between now and then.

    While we've seen this movie before and know how it will ultimately end, the political battle in the coming weeks could get really ugly, especially now that House Speaker John Boehner has announced that he is stepping down soon. With a lack of leadership in the House, this year's debt limit circus could be especially unsettling for the stock and bond markets.

    Next, we turn to the question of whether a recession is likely just ahead. While the economy grew by a better than expected 3.9% in the 2Q, more and more forecasters are downgrading their outlook for the second half of this year. The number expecting a recession in the months ahead rose sharply in a survey by Bloomberg at the beginning of this month. The good news is that about 85% of economists surveyed do not expect a recession to begin this year.

    As usual these days, there's a lot to think about - so let's get started.

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  • The National Debt Is Over $18 Trillion, Not $13 Trillion

    In June, the non-partisan Congressional Budget Office (CBO) released its annual “Long-Term Budget Outlook” which concluded yet again that the trajectory of US federal debt is “unsustainable” and will lead to an unprecedented debt crisis in the years ahead.

    After running $1+ trillion annual budget deficits in fiscal years 2009-2012, the deficits have come down significantly in the last few years, to $483 billion in FY2014, down from $1.3 trillion in 2011. However, the CBO warns in its latest report that the debt will start to ratchet significantly higher in a few more years if major changes are not made soon.

    The CBO estimates that “debt held by the public” will rise to 78% of Gross Domestic Product by 2025 and 103% of GDP by 2040 – assuming its long-term assumptions hold true. Several of those assumptions are dubious in my opinion. The CBO admits as much and offers an alternative fiscal scenario which shows the debt rising to over 100% of GDP much sooner.

    The problem I have always had with the CBO’s debt numbers is that they only consider the debt held by the public, which is currently apprx. $13.1 trillion. The CBO does not include the additional apprx. $5.2 trillion of so-called “intra-governmental debt” which is owed by various governmental agencies including Social Security.

    If we add the intra-governmental debt, then our national debt leaps to apprx. $18.3 trillion today, which is actually larger than our GDP of $17.7 trillion at the end of 2014. So our real debt-to-GDP ratio is already above 100%! That’s what we will talk about today. All Americans should understand what follows.

    Finally, it is widely agreed that the latest nuclear agreement with Iran is a victory for the Iranians and a dangerous setback for the West, thanks to President Obama. While I don’t have space to address it today, be sure to read the first link in SPECIAL ARTICLES below which points out 16 reasons why this was a very bad deal.

    This is just another example that illustrates how our president does not have America’s best interest at heart.

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  • Our $1.3 Trillion Government-Assisted Student Loan Crisis

    I have been wanting to address our exploding student loan crisis for over a year now, but the topic didn’t seem to fit into the normal themes I tackle. Yet in fact, it does: It represents just one more financial/debt crisis facing our country that will surely impact the economy and the investment markets at some point.

    Student loan debt in the US topped $1 trillion in 2012 and by most estimates is over $1.3 trillion today. There are several reasons why student loan debt has skyrocketed – the disappointing economy, stagnant wages and the fact that more young adults have been staying in college longer rather than accepting low-paying or part-time jobs. Add to that the fact that college tuition has gone up significantly every year.

    What many Americans don’t know is that the federal government has largely taken over the student loan program since the current occupant of the White House has been in office. In so doing, the standards for qualifying for student loans have dropped significantly. As a result, even more people are getting student loans and becoming more dependent on the government – by design.

    But before we get into that lively discussion, let’s take a look at last Friday’s GDP report which reduced 1Q economic growth from modestly higher in the initial report at the end of April to decidedly negative (-0.7%) in the latest revision. We will also look at the latest controversy over whether the government’s estimates of 1Q GDP in recent years have been understated.

    Because the second estimate of 1Q GDP was decidedly negative, that has forecasters swiftly downgrading their estimates for 2Q GDP growth. We will round-out today’s economic discussion with a question I raised last month: Could the US economy already be moving into a new recession? While I doubt it, we should at least think about it. Let’s get started.

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  • Problems The Media Ignored In The April Jobs Report

    Today we’ll start with a look at last Friday’s unemployment report for April. If you read the mainstream media accounts, it was fantastic – the official unemployment rate fell to 5.4%, the lowest level since 2007. But as usual, if we dig into the internals of the report, we find that the results were much less than desired.

    One of those findings was the fact that the percentage of adult women in the workforce has fallen to the lowest level in 27 years, but you had to look deep into the report to discover that data. The reasons for this phenomenon are not entirely clear, but I will offer some suggestions, in what is a rapidly growing debate.

    Following that discussion, we take a look at the exploding growth in “margin debt” on the New York Stock Exchange. In March, margin debt soared to a new record high of $476.3 billion. Some analysts believe this is a major problem for the equity markets, while others think it’s a positive development. But what we do know is that margin debt peaks at major market tops. With the major market indexes at or near their all-time highs, the next few weeks should be very interesting!

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  • US Economy Mired in a Sea of Contradictions

    Consumer confidence has plunged over the last month, due in large part to the government shutdown and fear that the US might default on its debt – because of the ineptitude of our leaders in Washington. Normally, when consumer confidence plunges, we would expect a significant slowdown in consumer spending, which accounts for 70% of GDP.

    Yet according to the latest Gallup poll, consumers plan to spend even more this coming holiday season than in the past two years. This would seem to be a major contradiction. However, what this tells me that most Americans have figured out that there was never really a threat that the government would default on its debt, as I opined recently. That’s the good news.

    The bad news is that the delayed September unemployment report was yet another disappointment, even though the headline unemployment rate inched down to 7.2%. New jobs created in September were well below expectations. More importantly, the Census Bureau reported last week that there are now more Americans on welfare than those who have full-time jobs. That is very disturbing.

    Finally, I presume you noticed that our national debt skyrocketed by a record $328 billion in one day following the lifting of the debt ceiling earlier this month. The Treasury had to replenish all those “extraordinary measures” it used to fund the government  since we hit the previous debt ceiling back in May. Our national debt is on-track to nearly double under Obama.

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  • Consumer Confidence Plunging – Recession Ahead?

    The stalemate in Washington continues, the government remains in partial shutdown and the debt ceiling looms on Thursday. A bipartisan deal to fund the government until January 15 and raise the debt limit until early February is working its way through the Senate and could be voted on later today or tomorrow. It is unlikely that the Senate bill would pass in the House, which is reportedly working on yet another bill (see link below) that is unlikely to pass in the Senate.

    The mindless gridlock continues and the Treasury Department warns that it will run out of “extraordinary measures” by the end of this week and the statutory debt ceiling will be eclipsed on Thursday or Friday. While this will technically be a “default,” the Treasury will continue to collect enough revenue each day to pay the interest on all of our outstanding debt. Still, things are likely to get increasingly crazy in the next few days.

    As a result of all the hype and anguish over the shutdown and the debt ceiling, consumer confidence has plunged since the beginning of this month. The confidence index, as measured by Gallup, has declined by the most since September 2008 when Lehman Brothers went bankrupt at the height of the financial crisis. And it continues to fall. This raises fears that consumer spending will drop significantly and a recession could unfold just ahead.

    Following that discussion, we’ll look at some interesting facts surrounding our national debt which now stands at a mind-boggling $16.965 trillion. Since our national debt is Issue #1 on the minds of most Americans, the discussion below should be very timely.

    Finally, today’s E-Letter will print longer than usual because we have lots of charts and graphs.

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  • The U.S. Can’t Default On Its Debt… Right?

    The Treasury Secretary has warned that his agency will exhaust the “extraordinary measures” it has used to fund the government on October 17. On the Sunday talk shows, he warned of “catastrophic consequences” if Congress doesn’t raise the statutory debt ceiling by then. So, over the next nine days, you’ll be hearing ominous forecasts of what will happen if the US defaults on its nearly $17 trillion national debt, or even some of it. Sound familiar?

    Late last week, President Obama warned that he would not negotiate on the debt ceiling until Congress passes a “clean” continuing resolution to get the government funded and fully open again. Most Republicans are hanging onto their demand that the Obamacare mandate for individuals be delayed a year. If both sides hold out, increasing the debt ceiling could be tough.

    Somehow, these debt ceiling fights seem to get resolved at the very last minute, but the uncertainty can be brutal for the markets. In 2011, stocks lost around 19% of their value as this game of chicken played out. Some expect the current debt ceiling fight will be even more harrowing since Obama doesn’t have to worry about re-election.

    We’ll talk about all of this and more as we go along. Let’s begin by looking at the latest economic reports, or lack thereof, as was the case with last Friday’s unemployment report that was furloughed by the Obama administration, supposedly due to the government shutdown.

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  • U.S. Debt Crisis End-Game Looms in 3-5 Years

    Today, the national debt has mushroomed to almost $16.5 trillion. It has exploded by over 60% just since President Obama took office, when it was at $10 trillion. At the end of 2012, our national debt exceeded 100% of GDP (104%) for the first time since WWII. By the end of Obama’s second term, our national debt will top $20 trillion at the rate it’s growing.

    We all know that at some point, this massive Ponzi scheme will come to an end. The only reason it has gotten to this point is because the US dollar is the world’s “reserve currency” which enables our government to print as much money as it wants. This will end only when foreign buyers of our debt decide to turn off the spigots. The only question is when.

    Last week, one of the most respected research groups in the world predicted that the US likely has only 3-5 years before the wheels fall off and the world is thrust into a major financial crisis, possibly even a depression.

    We’ll talk about all of these things as we go along today. But before we go there, let’s take a brief look at the economy before tomorrow’s advance (first) estimate of 4Q GDP.

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  • Gun Control & How To Play Upcoming Debt Battles

    As you probably know, the Republican leadership in the House decided last Friday to cave in to Obama on the debt ceiling issue (ie – no spending cuts). This week, they hope to pass a temporary extension of the debt ceiling until April 15, during which time they hope the Senate will adopt a new federal budget for the first time in almost four years.

    If somehow the Senate passes a new budget, and the House approves it, then it’s possible that all three upcoming debt battles could go away. I would NOT count on that! I don’t think Senate Majority Leader Harry Reid will spearhead a drive to pass a new budget and if not, all three debt battles could still play out.

    If I am right, then a lot of market turmoil still lies ahead over the next few months. Near the end of last week’s E-Letter, I alluded to an investment strategy that could position many of you to take advantage of the debt battles we will likely face just ahead. I’ll get specific today.

    However, before we get to that discussion of how to potentially take advantage of the upcoming debt battles, I have some commentary on President Obama’s sweeping gun control initiatives that he announced last week, in the wake of the Sandy Hook Elementary School massacre on December 14. While we expected that Obama would seize upon the Sandy Hook tragedy to put forth new gun control laws, we did not know that they would be the most wide-sweeping regulations in more than a generation.

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  • Obama Claims We Don’t Have A Spending Problem

    Most of the forecasters I subscribe to expect economic growth to average only 1-2% in the first half of 2013. Most believe that 4Q GDP fell sharply from the 3.1% rate in the 3Q of last year, largely due to fears about the fiscal cliff. They also expect growth to improve modestly in the second half of this year to 2% or slightly higher. That’s not too optimistic.

    One reason is that the end of the payroll tax holiday on December 31 means that workers’ pay went down by 2% on January 1, thus adding more headwinds to the economy this year. A person earning $50,000 a year before taxes, for example, will pay an additional $1,000 or more to the government this year.

    Add to that the fact that we are sure to have another nasty debt ceiling battle next month, which will once again be unsettling to consumers who drive the economy. We all remember the fiasco in the summer of 2011 when the Dow plunged over 2,000 points. For these reasons and others, at least the first half of 2013 could be very dicey.

    Actually there are three debt battles – the so called “trifecta” – that lie ahead. In addition to the debt ceiling battle, there is also the sequester/automatic spending cuts on March 1 and the “continuing resolution” to fund the government in the absence of a formal budget passed by Congress. That happens in late March. We will look at all three of these upcoming battles below.

    Today we’ll also touch on the pork-laden fiscal cliff bill that passed on New Year’s Day. And we will ponder the question of whether the US has a “spending problem” or a “taxing problem.” Let’s start with this last one first.

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  • ...`Til Debt (Limit) Do Us Part

    Last week I discussed the “fiscal cliff” and the political battle that entails. If lawmakers can’t come together for a solution before the end of the year, the economy is almost certainly headed for a recession or worse in 2013 and beyond.

    But there’s a potentially even bigger battle coming up in the next couple of months. We will hit the debt ceiling/limit just ahead. We all saw what a political nightmare that was in the summer of 2011 when Democrats, Republicans and President Obama were deadlocked and the US credit rating was downgraded for the first time ever.

    Well, get ready for the next battle once the fiscal cliff is dealt with (assuming it is). That’s what we’ll discuss today. What’s most interesting this time around is that the Obama administration is pushing for Congress to repeal the debt ceiling limit altogether. Just get rid of it once and for all, they argue.

    Most conservatives will be outraged when they learn that Obama wants to abolish the debt ceiling, and I might agree. On the other hand, Congress has repeatedly raised the debt ceiling for decades, no matter which party was in power, so it might finally be time to seriously discuss some other alternative.

    Following that discussion, we’ll look at the latest budget deficit numbers for fiscal year 2012 that the CBO released last week. For the fourth consecutive year, the budget deficit topped $1 trillion. The national debt is now a staggering $16.2 trillion.

    HAPPY THANKSGIVING!

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  • Understanding How “Debt Deleveraging” Works

    Today we delve into the complicated topic of "debt deleveraging." For many years, I have warned that our massive explosion in federal debt (up 50% just since Obama took office) would one day stifle economic growth. Obviously economic growth is currently stifled, what with the weakest post-recession recovery in decades. But the question remains as to whether our massive national debt and trillion-dollar budget deficits are the main reason for the disappointing recovery.

    Consumers continue to deleverage – that is, paying down debt instead of spending more – because they fear for their jobs and the likelihood that we may be headed for another recession next year. This whole concept of deleveraging is foreign to many Americans – what is it?; how long will it continue?; and what does it mean for the economy, etc.? With the help of a very good article in U.S. News & World Report, I hope to answer those questions for you today.

    But first we take a quick look at the latest economic reports. Let's get started.

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  • Will America Be Greece in Four Years?

    The US national debt topped $16 trillion last week, and it was almost as if no one paid attention. At the rate we are going, the national debt will top $20 trillion just four years from now in 2016. Despite four years of trillion-dollar budget deficits, the US economy remains stagnant with sub-2% growth in GDP – the worst post-recession recovery since the Great Depression.

    You would think that our leaders in both parties would figure out that trillion-dollar deficits are NOT the answer, and that they are the problem. This is not really a political issue, because both parties in Washington have been guilty of spending us into oblivion. The difference is, now we're talking about trillions, not billions.

    Last week, I read a great article in Forbes on what to do about the economy. I wish I had written it myself. But since I didn’t, I have reprinted it for you today. The author really tackles what it will take to turn our economy around. Not surprisingly, the author's suggested solution does not in any way look like President Obama's economic policies.

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