You can't find a parking spot at malls, people are feeling really good about their 401K's. The financial media are acting like cheerleaders for the markets as the SPX makes new highs almost daily.
So how high will gas prices have to get before people notice something is wrong? How high will copper, meat, wheat, and other goods we use( $CCI, commodities index is at all-time highs)? How many banks will have to go under (a few go under almost every month)? How high will unemployment have to rise? How many cities will have to go bankrupt (23 cities are on the verge of bankruptcy)?
How much debt will we have to accumulate before people stop lending us money (buying our bonds)? Our government's deficits are out of control. Our national debt has doubled since 2005. We've borrowed more money in the last five years than we had in the entire history of our government until then. The first $1 trillion deficit came in 2008 – and the government explained it away as the consequence of the financial crisis. But we racked up another $1 trillion deficit in 2009 and yet another in 2010, to allegedly promote job growth and stop deflation etc. We're running almost a trillion a year in deficit spending and there is no end in sight.
Running all this debt would be so bad but we just can't raise enough money to pay it back. The government cannot increase tax revenues enough to cover our spending or repay our debts, EVER. Our annual deficits have become completely unlinked to taxes. Total federal income taxes and corporate taxes generate $1.1 trillion a year in revenue, and we still ran a $1.3 trillion federal deficit last year. So even if we increased tax revenues by 100%, we would still have fallen $200 million short!
So where is all the money going 1. Special-interest groups, particularly government unions are have completely hijacked government spending. We now spend $200 billion a year on federal pensions. 2. We're spending another $450 billion on welfare, what created most of the folks on welfare (Tech bubble, Housing Bubble, Financial Crisis, all thanks to our government, particularly the Federal reserve). 3.Our defense spending ($700 billion), exceeds total federal tax revenue and leaves nothing to pay the $200 billion in interest on our debt, nothing to pay for actual government services (like roads), and nothing to pay towards the inevitable Social Security/Medicare shortfall.
We're now also printing money to support the government's runaway spending, the Federal Reserve is now continuously buying government debt (Peter to pay Paul). This process was commonly called "monetizing the debt". The way they are doing it incredibly funny (not Ha Ha funny). They allow big banks, say like Goldman Sachs to borrow money from the Fed at ZERO, with that money Goldman buys Bonds and then for a handsome profit sells the FED the same bonds. WHAT?!?
Yes, this is happening, right here in America (where is the Media, probably checking to see what Charlie Sheen's doing). I know what you are thinking, surely this can't happen in an open democracy like the US. surely were talking about some third world country. Its crazy right?
Then you might ask, whats' the harm in printing more dollars, the fact of the matter is that its devaluing our currency (And it could have been worse for it not for the problems in Europe and Japan), leading to inflation in the price of everything you buy on a daily basis. Check your grocery bills, your heating bills, prices at the pump, college tuitions, healthcare, everything is up year over year.
Total debt outstanding in the U.S. currently exceeds $55 trillion. That's $681,165 in debt per U.S. family. There is simply no way to repay (or even maintain) debt this huge using the income of the average American family, which is slightly less than $50,000 per family per year. Interest alone on these debts (based on a 5% rate) would total $34,000 per family every year. Total debt in the U.S. economy is unsustainable and can't be financed without printing vast new sums of money.
Despite all the evidence that the U.S. economy carries far too much debt, both public and private debt issuance soared to new record levels in 2010. , Overall, more than $3 trillion in new corporate debt was issued last year – the second record year in a row.
And junk-bond issuance set a new, vastly higher record. In 2010, 509 speculative-grade corporate borrowers sold $287 billion worth of new debt. That compares to the previous record (2009) of $167 billion.
So what do you do to protect your self? Look I am no expert on the economy, I don't have a business degree, so I can't tell you what to do but I can tell you what I am doing and that is buying precious metals (on dips, right now we have had a decent correction and its a good time to buy), holding the metal is the best way to play this but you can buy the mining ETF's (GDX or GDXJ) or GLD(gold) or SLV(silver). There is a caveat to GLD and SLV though and I am not clear on this so do your own homework, there seems to be a dislocation between the amount of gold and silver they actually hold versus the amount of money people are putting into the trust. As we all know there are no crooks on wall street so these guys could like Enron actually hold nothing or fake numbers and we all know the SEC boys aren't the sharpest tools in the shed.
In any case, I would buy silver over gold as Silver has more uses than Gold and is in shorter supply and will rise greater in percentage terms over gold in the next few years. Another thing to do is to buy commodity related ETF's I own DBA(Ag), and MOO(Fertilizer) as well as the XLE(Petroleum) and URA (Uranium).
Since I began writing this blog even with a big correction in gold and silver the Blog portfolio is up 31% as of this am.
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