Great Depression Online Archive Issue:

Do You See What's Coming?

Great Depression Online
Long Beach, CA
February 15, 2011

Inside This Issue You Will Discover…

*** Trade Deficit Increases
*** Smashing Through the Federal Debt Ceiling
*** Do You See What’s Coming?
*** And More

Trade Deficit Increases

When an individual spends more money than they make, they eventually go broke.  Countries are no different.  That’s why the balance of trade is an important economic measurement.  When a country has a trade surplus they are becoming wealthier.  When they have a trade deficit they are becoming poorer.

The Commerce Department reported last Friday that the U.S. trade deficit increased 5.9 percent in December to $40.6 billion.  What this means is, the U.S. collectively spent over $1.3 billion more per day than they made on a global basis for the entire month.  The difference, of course, was made up with debt: corporate debt, government debt, and private debt.

Taking a closer look at the numbers we see that on the positive side of the trade ledger U.S. exports of goods and services increased $163 billion, a 1.8 percent gain.  But on the negative side of the ledger U.S. imports increased to $203.5 billion, a 2.6 percent increase.  The difference amounts to a big fat minus $40.6 billion for the U.S. economy.

~~~~~~How To Prepare?~~~~~~

The shocking 1990 collapse of the Japanese Market.  The extraordinary U.S. economic boom of the ‘90s and early 2000s.  The devastating global recession that began in 2008.  These impacted everyone’s lives, investments, and fortunes.  The signs of their arrival were visible years and years in advance.  And yet…Almost No One Predicted Them.

The mainstream media didn’t.  The top economists didn’t.  The great financial advisers didn’t.  But One Man Did.

What’s coming Next?  When will it happen?  What should you do to Prepare for it?

Click Here for the Answers 

~~~~~~~~~~~~~~~~~~~~~~~~~

But that’s not all.  With the release of the trade numbers for December, we can look at where the chips fell for the entire 2010 year…

Day after day, month after month, for the whole year, the U.S. spent more money than it made.  When it was all said and done, the U.S. trade deficit closed out the year at $497.8 billion…a 32.8 percent jump and the biggest annual percentage gain since 2000.  That amounts to sending $1.3 billion per day overseas, every day, for the entire year.  As you can see, the final counts are not good.  Rather, they are bad.

Still, if you think the trade deficit is bad.  That’s nothing.  The Government’s budget deficit dwarfs it by a factor of three…

Smashing Through the Federal Debt Ceiling

The United States fiscal deficit for 2010 topped $1.55 trillion.  This amounts to 10.64 percent of GDP.  The projected deficit for 2011 won’t be much better.

What’s more, in 2011, for the first time ever, when you sum up the U.S.’ accumulated deficits, they will amount to 100 percent of GDP.  That’s a national debt over $15 trillion.  Yet, before the government can go that deep into debt, Congress will have to raise the debt ceiling. 

Around the New Year the National Debt eclipsed $14 trillion.  Just seven months earlier, the $13 trillion marker was passed.  So, in no time at all, the $14.294 statutory debt ceiling set by Congress will be smashed through.  From what we gather this could happen as early as the first week in April.  In the meantime, this is shaping up to be a heated political scuffle.

On January 6, 2011, in letter to Congress, Treasury Secretary Tim Geithner warned “…failure to raise the limit would precipitate a default by the United States…” that “…would have catastrophic economic consequences that would last for decades….”  Federal Reserve Chairman Ben Bernanke recently told Congress not to use the debt limit as a “bargaining chip.”

Ironically, back in 2006, when President Obama was a Senator, he voted against the Bush administration’s request to raise the debt limit, stating “the fact we are here today to debate raising America’s debt limit is a sign of leadership failure.”

Do You See What’s Coming?

Here we agree with the President.  Repeatedly raising the debt limit is a leadership failure.  It’s also a failure of all levels of government.  And it’s a failure of the voters who keep electing officials who promise the most handouts.

Eventually, though, it won’t matter if Congress keeps raising the debt limit.  Eventually markets will make borrowing so expensive that servicing existing debt – as it resets higher – will be too expensive for the economy to pay.

Currently, interest rates are at historic lows and the economy’s growth potential is weak.  As debt increases, and the economy stagnates, lenders will begin to ask for higher yields in return for loaning money to a higher credit risk. 

At some point a tipping point will be passed, where higher debt levels result in higher interest rates, which cause even higher debt levels as debt payments increase.  This perpetuates further interest rate increases and, thus, increased borrowing, until finally the country goes broke and default occurs.

Regrettably, this may already be happening.  Since early November 2010, 10-Year Treasury yields are up nearly 50 percent.  In other words, it costs the government 50-percent more to take out a 10-year loan than it did just three months ago.  Soon interest payments alone will consume the entire budget…

“Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration’s adjusted 2011 budget.

“The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008, according to the Treasury Department,” reported Bloomberg. “Debt-service costs will climb to 82 percent of the $757 billion shortfall projected for 2016 from about 12 percent in last year’s deficit, according to the budget projections.”

Do you see what’s coming?  Before long the entire budget deficit will represent the amount owed just to service existing debt.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  The U.S. Government’s on the brink of disaster.  It seems things could spin out of orbit at a moment’s notice.  Now, more than ever, you need to know what’s coming next and how to prepare for it.

Find out here

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