I came across an interesting article this week that acknowledged that economists always think the future is bleak, and the past is always worse than they thought it would be. (So you shouldn't spend all your time listening to them.) However, this article stated that maybe we should read less about economics, and more about history.
"Historically, once a country uses the printing press to pay for its stated goals and ongoing obligations, there is not one instance in human history where those debts and obligations are ever being paid off. These actions always have resulted in the destruction of the currency. The unique aspect of today’s monetary inflation is that it is not limited to one country, but a host of countries are all inflating together."
Source: http://www.financialsense.com/fsu/editorials/degraaf/2009/0619.html
Monday, June 22, 2009
Wednesday, June 17, 2009
The Next Canary in the Coal Mine - California
The phrase "canary in a coal mine" is frequently used to refer to a person or thing which serves as an early warning of a coming crisis.
In 2007, the canary in the coal mine was the collapse of a Bear Stearns hedge fund with mortgage backed securities. It was largely ignored at the time as an isolated incident. By reading the opinions of some experts (and conspiracists alike), I now believe that the "canary in the coal mine for 2009" is the imminent bankruptcy of California.
Starting July 29, California won't have enough cash to pay its bills, state Controller John Chiang told the governor and legislative leaders today. The state will be in the red by $317.1 million that day, Chiang wrote them in a three-page letter. "Two days later, on July 31, our cash deficit increases to a negative $1.02 billion," he added.
Source: Chiang warns state leaders on cash crunch
Just like in 2007, this news is going largely ignored because it is commonly believed that the Fed will bail out California, as it is "too large to fail". It also comes off the heels of a GM bankruptcy and a bank TARP repayment. Unfortunately, what most people are ignoring is the fact that "if California were a separate country, it would rank among the ten largest economies in the world, with a GDP similar to that of Italy, and it would be 35th among the most populous countries." (Source: Wikipedia)
Everyone in the United States of America cannot fathom this great country going bankrupt... but I believe it's already happened. We've bailed out the banks, GM and soon it will be states. What is left?
And who will stand by to bail our government out?
I'm standing by my belief that "something bad is still coming" at the end of 2009, maybe early 2010. Possibly a deflation to hyperinflation trap that will reset the wealth food chain in a very big way. This is no time to be complacent with your investments!
See my previous post regarding Investing in Deflation vs. Inflation and place your bets.
In 2007, the canary in the coal mine was the collapse of a Bear Stearns hedge fund with mortgage backed securities. It was largely ignored at the time as an isolated incident. By reading the opinions of some experts (and conspiracists alike), I now believe that the "canary in the coal mine for 2009" is the imminent bankruptcy of California.
Starting July 29, California won't have enough cash to pay its bills, state Controller John Chiang told the governor and legislative leaders today. The state will be in the red by $317.1 million that day, Chiang wrote them in a three-page letter. "Two days later, on July 31, our cash deficit increases to a negative $1.02 billion," he added.
Source: Chiang warns state leaders on cash crunch
Just like in 2007, this news is going largely ignored because it is commonly believed that the Fed will bail out California, as it is "too large to fail". It also comes off the heels of a GM bankruptcy and a bank TARP repayment. Unfortunately, what most people are ignoring is the fact that "if California were a separate country, it would rank among the ten largest economies in the world, with a GDP similar to that of Italy, and it would be 35th among the most populous countries." (Source: Wikipedia)
Everyone in the United States of America cannot fathom this great country going bankrupt... but I believe it's already happened. We've bailed out the banks, GM and soon it will be states. What is left?
And who will stand by to bail our government out?
I'm standing by my belief that "something bad is still coming" at the end of 2009, maybe early 2010. Possibly a deflation to hyperinflation trap that will reset the wealth food chain in a very big way. This is no time to be complacent with your investments!
See my previous post regarding Investing in Deflation vs. Inflation and place your bets.
Tuesday, June 9, 2009
Barack Says We're Broke
Sorry for the lack of posts, but I've been working on another project recently.
According to the United States Congressional Budget Office, if Barack Obama would have changed nothing after coming into office, by 2019, the US debt obligation would have amounted to 42% of annual GDP. How much is 42% of annual GDP? Roughly 5,991.13 Billion dollars, this (shockingly) is in-line with historic norms. However, the CBO goes on to say that after the past 6 months of spending, and the inclusion of Barack Obama's proposed budget, by 2019 the US will need roughly 82% of GDP to service its debt load.
Just a quick reality check... doesn't a bank want a buyer to have a below 40% debt load in order to qualify for a mortgage?
The only reason we can get away with this is because of the US Dollar's position as the world reserve currency. However, China's talking about replacing the USD as the world reserve currency. Common sense says that something has to give.
Source: http://www.financialsense.com/fsu/editorials/cnc/2009/0605.html
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