A collapsing U.S. bond market will spell disaster for the pension funds, mutual funds, and insurance companies that hold bonds by the billions. Of greater concern to me, when the bond market ruptures, millions of retirees on fixed income could find themselves destitute.
At this point the U.S. government must borrow some $5 billion per day just to keep its head above water. And most holders of Uncle Sam's debt – foreign powers – are openly speaking out that they are getting closer and closer to cutting our government off or severely reducing its limit.
The desperate money printing now underway at the Fed is unprecedented in its scope – an attempt to reinflate the deflating credit bubble, which is driving rightly-skittish foreign financiers to make increasingly significant moves to evacuate their holdings out of the U.S. dollar.
The biggest candidates for dollar-dumping are the nominally-communist Chinese, who already hold some $2 trillion in U.S. debt.
The "core" of the Obama "financial recovery" plan is to goose the already-reluctant Chinese to escalate their exposure to U.S. bonds which finance Congressional stimulus pork-barrel spending, subsidize failed unionized industries, and soon, bail out many insolvent state governments.
The New York Times notes "In the last two months, President Wen Jiabo and other Chinese officials have expressed nervousness about their country's huge exposure to America's financial well-being."
Nobu Su, head of Taiwan's TMT Group (which ships commodities to China), told the London Telegraph that Beijing is trying to extricate itself from its vulnerability to the dollar. He notes of major Chinese purchases of hard commodities around the globe: "China has woken up. The West is a black hole with all this money being printed." Jim Lennon, the head of commodities at Macquarie bank, added: "They [the Chinese] are definitely buying metals to diversify out of U.S. Treasuries and dollar holdings."
Make no mistake – the Chinese (among others) are scouring the globe right now – snapping up copper, oil, gold, silver and anything else tangible they can get their hands on to position themselves outside of a U.S. dollar hanging by a thread.
Financially, the U.S. is on a Road With No Turns
Chinese worries about the debasement of the dollar are quite VALID. The U.S. money supply expanded by a jaw dropping 271% in the opening weeks of 2009. Then in mid-March the Fed announced plans to expand the money supply by another 50-60%! Unfortunately, these inflationary policies come on the heels of a staggering 990% annual money supply expansion in the last four months of '08 – as reported by the St. Louis Federal Reserve Board office.
Financial Sense analyst Brian Pretti just produced a remarkably well-documented report demonstrating why the Fed has had no option but to begin directly funding U.S. government debt (nearly $2 trillion worth of new IOUs will be issued in 2009 alone) through the creation of printing press money because of flagging demand from China, Japan, and private investors.
We are witness to the end of a 38-year experiment – in which global currencies linked to the dollar (and with no gold backing anywhere) are reaching the final inevitable stages of all fiat money. When the Weimar Republic, and more recently, Zimbabwe, began to monetize their debt, the countries plunged into hyperinflation.
In short, the United States is attempting to print its way out of debt. And that means the value of the dollars you hold is destined to go down significantly.
The Richmond, Virginia-based Brinks Security corporation reports record silver and gold deliveries to private U.S. citizens. Tony Klancic of the Chicago-based Lind-Waldock commodities brokerage says he is inundated by calls from individual investors to obtain delivery of physical gold bullion. Scott Thomas, CEO of the American Precious Metals Exchange, says of physical gold and silver sales: "We're having some of our strongest months ever... the bottom line is our numbers are probably double what they were last year, and last year was very busy."
The Wall Street Journal recently noted, "Investors are flocking to gold coins. At the U.S. Mint, a total of 147,500 American Eagle gold bullion coins were sold in the first two months of this year, a surge of 176% from the same period last year."
Peter Monk, Chairman of Barrick Gold Corporation (the world's largest gold producer), recently indicated he has received a significant number of calls from wealthy investors seeking to buy large amounts of physical bullion. Getting physical gold has become so difficult that Wachovia Securities is no longer purchasing physical precious metals for its clients – opting instead for selling paper "shares" in exchange-traded funds.
Last year the Perth Mint had to stop accepting orders for physical gold and silver – the Gold Anti-Trust Action Committee notes that the Perth Mint is working seven-days a week, 24-hours a days just to catch up on back orders. Perth Mint treasurer and manager Nigel Moffatt told Bloomberg, "We're seeing a continuing, but heavy bias toward investors out of the U.S." And The Financial Times reported in February that retail investors in France have become net buyers of gold for the first time in 25 years. Such examples are almost endless!
Even before Obama was sworn in, unfunded federal liabilities had blown past half-a-million dollars per U.S. family of four. Federal finances are in such shambles David Walker, Comptroller of the Currency, resigned in disgust at the tail-end of the Bush administration.
Worse is what's happened since Walker resigned. As Rep. Ron Paul recently wrote, 'the trillions of dollars created to bail out banks in just the past six months have added the equivalent of a whole new federal establishment to Uncle Sam’s bloated obligations'.
Obama’s new spending obligations stagger the imagination, amounting to...
More spending than the socialistic New Deal...
More spending than the entire Iraq War...
More spending than the 1980s savings and loan bailout...
More spending than the Korean War...
COMBINED!
A new report by the Congressional Budget Office shows rising unemployment and falling tax revenue will likely force the Social Security "Trust Fund" into annual deficits as soon as 2010 – a full decade before the Comptroller General's office had been warning it would happen.
Recently Bloomberg tabulated the continuously-growing U.S. government takeover of the private-sector (in the form of loans, guarantees and other commitments). So far, taxpayers have been saddled with an ADDITIONAL $12.8 trillion in unpayable debt.
These federal bailouts now amount to 90.14% of America's annual gross domestic product – nearly our entire output for a year! Imagine that, for every $1.00 you make, brand new federal bailouts now have a claim to more than 90% of your hard-earned money.
What's especially infuriating to me is that the Federal Reserve refuses to disclose to the public who has been on the receiving end of all its bailout dough, or exactly what's now on its ballooning balance sheet. The Fed's own Inspector General in recent Congressional testimony admitted after much waffling and obfuscating that she 'cannot account for trillions of dollars in off-balance-sheet transactions and has absolutely no idea how much the secretive central bank is losing on its "investments."'
As scandalous as the massive corporate bailouts are, they pale in comparison to those that will be required for Social Security and Medicare.
A recent editorial in Barron's states flatly – "Medicare, Medicaid, pensions, indeed the full freight of the federal government constitutes a Ponzi scheme in plain sight. Income is recycled to pay benefits; no new wealth is created."
How ironic that the feds locked up Bernie Madoff and threw away the key (and rightly so) over his Ponzi swindle, when the U.S. government itself is the operator and tireless defender of the most gigantic Ponzi scheme ever, with you and me and millions of Americans holding the bag!
U.S. public and private debt now amounts to nearly four times the gross domestic product. In the midst of the Great Depression, total debt topped out at three times GDP. That suggests the current financial crisis could be even more severe in magnitude and length.
No wonder Standard & Poor's quietly reported that Treasury bonds are poised to lose their AAA-rating because of the way Washington is indulging in emergency cash creation and massive spending programs.
MarketWatch recently reported another disturbing and telling warning sign: The cost to buy insurance against U.S. sovereign debt has surged by a factor of seven as compared to a year ago and is 60% higher than at the end of 2008.
