Eek or Tiz

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Thread: Eek or Tiz

  1. #1 Eek or Tiz 
    RX Wizard fletchisrhsm's Avatar
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    I usually dont get too deep into economics on my blog outside of political macro stuff, but i was thinking last night and i came up with this. Before i posted it, i wanted to see what you guys thought? Any comments are welcome.


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    The Interest payment is the only debt payment required by the Constitution that must be accounted for in the budget each year to be paid.

    With that said, every President hopeful on the Republican side and President Obama have all released a budget or a proposed budget. Not one of them have a plan to balance the budget next year, neither will any one of them do so in four years either (with the exception of Ron Paul). So, there is no doubt, we will surly have continues mounting deficits that will probably be in the 1-2 Trillion mark annually regardless of who is in office (with the exception of Ron Paul). Notice a trend here?


    We have seen Obama’s appetite for destruction already in deficit spending; so let’s take a peek at the eventual Republican nominee’s (Mitt Romney) insanity.

    Mitt Romney wants to increase defense spending by putting 100k more troops on the ground and rebuild parts of the Navy and Air Force. He would not have left Iraq, appears to have an itch to scratch in Iran and will not leave Afghanistan until its won (the forever war). His budget has the wealthiest Americans (who pay the most income taxes) getting a significant tax cut on top of the existing tax cuts that are already in place.

    Romney has no plans to offset the lost revenue that will surly happen when these cuts take place, nor does he have any plans to make any significant cuts in existing outlays to recoup the ramped up defense spending. This defines logic. Mitt Romney’s plans are contrary to anything sane in regards to the federal government living within its means. He’s fiscal policy’s will be train-wreck like.

    That however, is not how Romney sees it. He thinks if he cuts taxes the gains in receipts will pay for his increase in spending. The problem with that is that the FED doesn’t think the economy is going to grow by all that much… and they control the money supply.






    The FED’s long term forecast is a relatively weak one going forward with long term GDP growth outlook being in the 2.3 to 2.6 percent ranges. The FED has also said it will not look to raise interest rates until 2014 at the earliest. Here you have the economy just barley keeping its head above water for the foreseeable future, the FED continuing its non-stop intravenous liquidity therapy into bank’s reserves creating a soon to be inflation tsunami all the while our elected representatives continue to show no regard for the situation.

    I want to take a look at two charts that really speak volumes for what is going on and what we will being seeing soon enough in our own backyards. Lets start at 2006, when the FED stopped tracking M3. As you can see below, when Shadowstats picked up the tab of tracking M3, the growth in money supply was steadily rising until early 2008. As the recession came, the Fed lowered interest rates to avoid the fire of deflation but banks weren’t loaning, so the money supply dropped with it.


    http://www.shadowstats.com/

    A curious situation started occurring by the middle of 2010. M3 started to rise and its rising still to this day. Interest rates this entire time have stayed basically at zero and as we’ve already heard from the FED, they will remain that way for years. This does not bode well for the dollar or anything equity wise going forward in my opinion. If the economy continues “its recovery” like so many in the media says it is, the eventual outcome will be a pretty substantial increase in inflation. This would by default, put relatively the majority of commodities into buy, buy and buy more mode.



    Equally alarming will be the federal governments penchant for debt. As we have seen, they will not live within their means, thus piling more debt on to the insurmountable existing amount. What happens when the FED has to raise interest rates? If we are seeing 450 Billion interest payments already (Intragovernmental and Public) imagine what will happen to those when interest rates go up? They could look something like this:



    Just for a little perspective. In 1988, the national Debt was 2.6 Trillion. The interest payment on that in the budget was 214 Billion.



    The interest payment in 2011 was 450 Billion, roughly double. The principal, as we know, was 14+ Trillion.

    The US government will not cut spending and we will continue to finance the welfare/warfare state. What happens in 10 years from now will be interesting thou. Can the FED really raise rates, without completely tanking the economy? And if they did, what would happen to the interest payment on the debt outstanding (besides sky rocketing into the trillion dollar mark). If the FED does not raise rates out of the fear of deflation, isn’t massive inflation the only alternative?

    George Carlin said it best:

    When you're born you get a ticket to the freak show. When you're born in America, you get a front row seat.

    Enjoy the Show!
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  2. #2  
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    http://money.cnn.com/2012/03/05/news...rest/index.htm

    Washington's $5 trillion interest bill
    By Jeanne Sahadi @CNNMoney March 5, 2012: 5:53 AM ET

    These interest cost estimates assume Congress extends several current policies, such as the Bush-era tax cuts. They also assume reduced spending on overseas contingency operations.
    NEW YORK (CNNMoney) -- Interest rates on U.S. bonds may be ridiculously low, but that doesn't mean the country's future interest payments on the national debt will be.
    Uncle Sam will shell out more than $5 trillion in interest payments over the next decade, according to the latest projections from the Congressional Budget Office.

    That's more than half of the projected $11 trillion increase in debt held by the public during that period. Those figures assume that a host of expensive policies such as the Bush-era tax cuts are extended.
    Over the decade, more than 14% of all revenue the government is projected to collect will be sucked up by interest payments.
    That's a lot of money that can't be used on the country's other priorities.
    Indeed, between 2013 and 2022, estimated interest costs will be:
    higher than Medicaid spending;
    equal to half of Social Security spending;
    close to what is spent on all of defense.
    And here's the thing -- the estimated interest costs assume a fairly steady and moderate increase in rates over the decade.
    The CBO assumes that the yield on the 10-year Treasury will rise from an estimated 2.3% this year to 5% by the end of the decade; and the yield on the 3-month T-bill will increase from 0.1% to 3.8% during the same time.
    Deficits to decrease but not for long
    If it turns out that rates rise one percentage point higher than CBO projects, that could add roughly $1 trillion to interest costs over the decade.
    On the bright side, CBO's rate forecasts are higher than what the markets expect, CBO Director Douglas Elmendorf told lawmakers in February.
    And, of course, rates could stay even lower than CBO projects if the United States remains a safe haven in the face of European debt crises or if the economy does better than expected.
    But given how quickly markets can turn, "I think a particular risk over the coming decade is that interest rates will rise further and more sharply than we have in the projection," Elmendorf said.

    However things turn out, a lot of the money paid in interest will go abroad, said Charles Konigsberg, president of the Federal Budget Group. That's because more than 40% of the country's public debt is owed to institutions and individuals outside the United States.
    Those trying to score political points may well express sheer horror at the money that will be going out the door. But voters might want to check that those politicians are putting their fiscal plans where their mouths are.
    So far there's a big disconnect.
    A recent analysis from the independent Committee for a Responsible Federal Budget estimates that three of the four GOP presidential candidates' economic plans would increase deficits and interest costs, some substantially.
    Newt Gingrich's economic plan could raise interest costs by $900 billion over the next decade; Rick Santorum's by $640 billion; and Mitt Romney's by $40 billion. But that number could rise substantially if he doesn't find enough measures to offset the costs of his latest tax cut proposals.
    President Obama's proposed budget will be analyzed by CBO later this month, and the Committee plans to do so sometime this spring.
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  3. #3  
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    we are getting close to the point where its game over in regards to the debt....the tipping point will come when the interest alone is so great people finally wake up and realize its completely unsustainable to even pay that....thats when gold will go parabolic....

    on a completely different side note, tiz might get a laugh out of this....i sold all my gold stocks in early 2012 i waited for tax reasons (i only have SVM and HL) i owned some for years and the stocks have been AWFUL relative to the bullion i bought....they werent going up and some were paying small divys....ive taken a different approach in 2012....im going after the high yield stuff...trying to buy up a lot of stuff when i get the divy id like to dip back into the gold stocks and even the ones i buy i will make sure they are paying a divy of at least 1% im done holding stocks on end watching them do nothing so here is what i have bought in the last month

    ARR (bought it today after a nice selloff and the ex divy date is early next week)
    ERF
    TWO
    BGCP (i really LOVE this stock take a look at the yield and what they do etc)
    PGH
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  4. #4  
    RX Wizard fletchisrhsm's Avatar
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    Thanks Husker, for the comments and the picks at the end
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  5. #5  
    the bear is back biatches!! printing cancel.... tiznow's Avatar
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    Really hard to say how this will at out long term other than it won't be pretty for the average joe in America ...

    In the end it's all one big ponzi scheme ... But because the US is the center of the ponzi scheme it will likely continue alot longer than many of us think ... The world needs us more then we need them ... China's economy and their billions they need to keep content goes poof if we go poof for instance ... They cant go it alone anytime soon maybe in 20-30 years but not now ...

    Most likely the US is tuck in a similar rut as Japan has been in since 1990

    Ours started in 2000

    I dont think a major inflationary monster will hit anytime soon either as the global exonomy still too fragile .. Europe heading for recession ... China is cutting back on their recent super heated growth rates and have been a big factor in the reflationary stuff going on the past few years ..
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  6. #6  
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    is that yield on Arr safe? lol
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  7. #7  
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    same question for TWO
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  8. #8  
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    http://fileintothetrough.blogspot.co...-or-is-it.html

    This fits here as well...

    Recently I saw an interview done with Kyle Bass, which was done in early November as a part of AmeriCatalyst 2011. The interview was over an hour in but if you start at the 46 minute mark, i assure you will be glad you did as it will lead you to the same conclusion that i came to and its one i want to address today. That is concerning the Keynesian debt system and interest payments on debt.



    Kyle Bass, who founded Hayman Capital in 2006, made a fortune betting against the sub-prime mortgage bond market. Yes, that same bond market that was at the forefront of the great meltdown in 2008-present. You can also find Bass’s surging rise to the top in Michael Lewis’s book 'Boomerang: The Meltdown Tour'.

    Towards the latter part of this interview Mr Bass says that if the FED raises the interest rates, for every 1% point moved higher it will “create an additional 140 billion in interest expenses”. That got me thinking.



    The FED is already on record saying they will not move interest rates until 2014 at the earliest, so the amount of liquidity in the system will only explode until then. That we know is a given.


    What isn’t a given is what happens when they do raise interest rates. Kyle Bass seems to think that the Keynesian end point is zero and that of course would lead to massive hyperinflation. I assume that to be somewhat true as well, although I think the FED will do something to intervene to prevent that from happening, because:


    A. they are too arrogant not too
    B. their sole responsibility is to control our money supply.


    So, even with unemployment news getting better the last few months, we are still (as we have said before) in the period of time of the worst, extended lack of job growth; then any point in modern Keynesian history. When you also factor is the FED isn’t going to raise rates for the next few years it hit me.


    What happens when the FED has to go the Volcker-esque route and raise rates to early 80’s height to stave off inflation, assuming zero isn’t the end game?


    Will we see a repeat of the “October massacre” of ’79 sometime in the future, where interest rates were raised dramatically? In 1979 inflation was running at 13%. After those interest rate hikes by Volcker over the next few years, inflation dropped to 3.2%.


    That however, was not the politically smart thing to do at the time but it was the prudent thing for the country going forward. It also brought on a recession and I can’t think of any politician let alone anyone from the FED willing to do so in this day in age outside of Ron Paul.
    “Strictly speaking, it probably is not “necessary” for the federal government to tax anyone directly; it could simply print the money it needs. However, that would be too bold a stroke, for it would then be obvious to all what kind of counterfeiting operation the government is running. The present system combining taxation and inflation is akin to watering the milk; too much water and the people catch on.” – Ron Paul
    It is also important to note, that interest rate hike also made the perfect organic soil for a vast economic expansion to blossom as well, go figure.


    If we know the interest payments are 450 Billion on the debt last year (combining both public and intra debt) and we have heard from Kyle Bass that for every point raised brings about an additional $140 billion in interest… and if we approached the prime rate today what Volcker’s prime rate topped out at 21.5 percent, what would our interest payment be?


    It would be a whopping 2.9 Trillion in additional interest payments…annually. On top of the 450 billion currently obligated by law to pay… annually. Thus the interest payment today, on the debt, at early 1980 levels; would be about as much as the entire federal budget is today. If that isn’t a sign of the times and further proof of us living beyond our means, I don’t know what else is. No wonder Bass thinks the end game is zero. No wonder he has over 20 million nickel coins and bars of gold in his drawer… hyperinflation here we come!
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  9. #9  
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    I swear I google the hell out of this and look all around the internet and I can never find a expert, definitive summary as to why if USA became as bad as the eurozone is about to become, would gold help us?

    Gold is produced primarily for accumulation, whereas other metals are produced for consumption. I don't understand how something like gold in truly terrible times wouldn't become something more than a collectors item, what REALLY is its value?

    If unemployment is 20%, stagflation is running rampant and I've got say, 200oz of gold. Why is the free world valuing that? I know this is kindof a stupid question but I swear I've looked everywhere and I just find the same basic areas that really don't answer the question I'm asking.
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  10. #10  
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    Since when gold is simply an "collection" item? Jewelry industry relies heavily on gold production and gold is popular hedge against inflation in the last 70 yrs. All you have to know is historical gold price, then come up with your own conclusion. And I think people confuse between currency collapse and economy collapse. The economy will be fine as long as there is a demand, worst case scenario, economy still running at 90% of its capacity. As far as how to protect your wealth against financial armageddon, there are plenty of ways......gold, large cap stocks, real estates, small savings, you'll be okay.

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  11. #11  
    the bear is back biatches!! printing cancel.... tiznow's Avatar
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    Gold from a sunken ship buys you today pretty much the same amount of whatever on a relative scale as it did back in the day .... Whatever fiat current was on the ship would be torn to shreds/collector's item at best




    Eventually US fiat will be worthless all fiat fails and all empires collapse ....... Might be 20 years might be 200 but it'll happen that is a certainty ... Gold will stand the test of time as it always does...

    Plus the people who are likely to take the lead as the west falls... as far as the big dog on top (Asians) love the shiny yellow barbaric relic lol


    Quote Originally Posted by PatsFan1283 View Post
    I swear I google the hell out of this and look all around the internet and I can never find a expert, definitive summary as to why if USA became as bad as the eurozone is about to become, would gold help us?

    Gold is produced primarily for accumulation, whereas other metals are produced for consumption. I don't understand how something like gold in truly terrible times wouldn't become something more than a collectors item, what REALLY is its value?

    If unemployment is 20%, stagflation is running rampant and I've got say, 200oz of gold. Why is the free world valuing that? I know this is kindof a stupid question but I swear I've looked everywhere and I just find the same basic areas that really don't answer the question I'm asking.
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  12. #12  
    the bear is back biatches!! printing cancel.... tiznow's Avatar
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    While the purchasing power of the dollar over the last two hundred years has declined dramatically due to manipulation and removal of the gold backing from currencies worldwide, the value of gold has proven to be very stable, with purchasing power that has remained the same or even improved. For example, in the 1920s, both a $20 bill and a $20 gold coin would buy a tailor-made suit. Today, that same gold coin (now worth over $1,600) will still buy a nice suit, but the $20 bill won’t even buy a decent tie.

    Gold value doesn’t rely on accounting tricks, the whims of the stock market, new business investment, or consumer spending. It is simply a precious asset that for more than 5,000 years, people throughout the world have used as a store of wealth. Physical possession of gold also offers immediate accessibility and liquidity for any emergency.

    http://www.birchgold.com/why-buy-physical-gold/

    -----

    FYI pre 1982 pennies worth 2.5x face for their metal content ..... Nickel worth a tad over face 1.08x

    http://www.coinflation.com/

    ---------

    Romans did similar thing with currency debasement over time...

    http://en.m.wikipedia.org/wiki/Roman_currency
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  13. #13  
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    Quote Originally Posted by HuskerFan1 View Post

    ARR (bought it today after a nice selloff and the ex divy date is early next week)
    ERF
    TWO
    BGCP (i really LOVE this stock take a look at the yield and what they do etc)
    PGH
    if you had to pick one would you buy TWO or ARR.
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  14. #14  
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    mickj i dont really have an opinion on one over the other. im trying to diversify into a bunch of different high yield stocks. you might also want to take a look at NLY its also paying a really hefty divy and they might be the best of the reits. i dont own it.

    i still think that BGCP is my favorite stock. im going to buy some more before its next ex-divy date.
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  15. #15  
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    ok,thanks
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