U.S. Treasury 2009 Financial Report Shows Dire Course

The Treasury Department recently issued the 2009 financial report of the United States government. … the annual report is untainted by creative accounting but also because its message is too important to ignore.

That message is that the sky is indeed falling…

…simple addition indicates that the total net position of the government is a whopping negative $57.4 trillion… if current policies are left unchecked U.S. government debt held by the public will increase from approximately 80 percent of GDP today to 700 percent in 2080.

The Fiscal Nightmare of the Welfare State

Bloggers post what they claim to be the scariest economic chart or the chart of the century. Indeed, many data sets are frightening, but none more so than the tables found here. This data shows incontrovertibly that modern government has failed. These countries are all insolvent and will eventually default.

All Western democracies are on death row. The unlimited welfare state is the cause. Some governments are delusional, believing they can continue on their present paths. Others cling irrationally to hopes of some miraculous reprieve. All are dead men walking.

Is Greece Just the Tip of the Iceberg?

Virtually every country in the EU spends more than it takes in and has made long-term fiscal promises to an aging work force that it can’t keep … Europe would have to have the equivalent of roughly $60 trillion in the bank today to fund its very general welfare benefits in the future. Of course, it doesn’t.

Today, Greece is only the tip of a very large iceberg.

America in the Red

America is digging itself into a deep fiscal hole. In 2009, the federal government spent $3.5 trillion, but took in only $2.1 trillion in revenue — thus spending $1.67 for every dollar it collected. The resulting $1.4 trillion deficit was equivalent to 10% of the nation’s economic output, the highest percentage since the end of World War II. America’s publicly held debt now totals $7.5 trillion, about 53% of gross domestic product — the highest it has been in more than 50 years.

These figures are alarming, but they pale in comparison to budget projections for the years ahead… By 2020, the United States would owe more than $20 trillion, the equivalent of about 85% of GDP. At that point, interest payments alone would consume about $900 billion a year — almost five times as much as they did in 2009.

The outlook grows even more bleak when we account for the ongoing retirement of the Baby Boomers and further increases in public spending on health care… The twin pressures of increased entitlement spending and slowing revenue growth mean that the debt will skyrocket — to roughly 200% of GDP in 2035, under one CBO scenario — unless there are dramatic cutbacks in all other government activities or an equally dramatic increase in taxes.

The euro crisis is a judgment on the great lie of ‘Europe’

We have still scarcely begun to wake up to the gravity of the crisis now upon us, not just for the eurozone but also for us here in Britain and for the entire global economy. The measures so far taken to prop up the collapsing euro, such as that famous “$1 trillion package”, are no more than gestures.

Greece was just the antipasto: Italy, Spain, Portugal and others are now hanging over an abyss of debt which scarcely all the money in Europe could fill – created by countries living way beyond their means, thanks not least to the euro’s low interest rates. The only possible consequence of the collapse of one of the world’s leading currencies, leaving Europe with no money to trade in, would be utter chaos…

…If the euro does disintegrate … the consequences would be incalculable … Without a currency, trade would collapse – leaving Britain, dependent on Europe for 50 per cent of its trade, just as seriously affected as everyone else. A system failure on this scale would make the 1930s pale into insignificance…

Dow Theorist Richard Russell: Sell Everything, You Won’t Recognize America By The End Of The Year

Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him…

… If the two Averages violate their May 7 lows, I see a major crash as the outcome. Pul – leeze, get out of stocks now, and I don’t give a damn whether you have paper losses or paper profits!

Is Europe heading for a meltdown?

The Bank of England Governor summed it up best: “Dealing with a banking crisis was difficult enough,” he said the other week, “but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there’s no backstop.” … Politicians temporarily “solved” the sub-prime crisis of 2007 and 2008 by nationalizing billions of pounds’ worth of bank debt. While this helped reinject a little confidence into markets, the real upshot was merely to transfer that debt on to public-sector balance sheets. This kind of card-shuffle trick … is not so different to the Ponzi scheme carried out by Bernard Madoff, except that unlike his hedge fund fraud, this one is being carried out in full public view.

No worries, mate — sleep well.

Of course, this is merely the opinion of the pessimists, who, if they predict calamity long enough will eventually prove right. The optimists say: no worry, the economy’s getting stronger, and once that bipartisan commission on deficit reduction reaches its conclusions we’ll just spend our way out of this crisis, just like we always have in the past…

Meanwhile, the U.S. Treasury is buying its own T-bills to artificially suppress interest rates; states are going bankrupt, issuing IOUs instead of tax refunds or civil service salaries; and are funding their public pension plans … by borrowing the money from their public pension plans. Sweet! Let’s pay off our credit card debt by putting it on our credit card!

I’m no economist, but it seems blindingly obvious that the current global economic climate is extraordinarily fragile, and seems poised for an cataclysmic meltdown. Even without a black swan — a hot war in the Middle East or Korea; a mass casualty terrorism attack here or abroad; a huge natural disaster or another financial meltdown like September 2008 — the whole house of cards is poised to collapse, catastrophically. The timing is unknown, but the inevitability clear. The players are hard-wired: the Ponzi scheme of being paid today with tomorrows dollars is a powerful drug, intoxicating to both those who deal and those strung out on its increasingly delusional indulgence. And the addicts will not lie down meekly when the dealer runs dry.

Beyond the obviousness of this impending crisis lies our stunning unpreparedness to face the chaos which most surely ensue. As David Warren writes,

Europeans, outside the Nazi-Fascist Axis, and North Americans were as utterly unprepared for the horsemen of the apocalypse riding their way in the 1930s, as we are today. In fact, they were materially less well-prepared, though spiritually perhaps rather sounder. Nevertheless, the spirit of denial, which includes the desire to focus on problems that aren’t real, to avoid staring at the real ones, was so alive in our predecessors that their naiveté has become our cliché.

But I think the tests we face from abroad may, this time around, be matched by the tests we face domestically. And for those I think we are even less prepared… we are living out lives in which the focus of our attention is constantly displaced from the here and now, towards any number of fidgeting external distractions, in a “virtual reality” that disappears in the first moment of a power failure. So that, when something happens in the here and now, transcending the technological order, and muting all sources of external entertainment, we are at a loss.

How or when this cataclysm will play out is pure speculation — a speculation in which I may indulge, time and grace permitting, in coming days. Our leaders have arrogantly boasted: “Never let a crisis go to waste.” While theirs is the opportunism of self-destructive power, we too should not waste the opportunity afforded us by this impending implosion to make the most of that which soon threatens to burst upon us in ways most frightening and unpredictable.

Now is the time to become grounded, to set aside frivolous things and focus on that which is permanent, unshakable, and sure. The time to do so surely is short.