Watchman Newsletter

U.S. national debt: dancing on the brink of a world crisis

Ria Novosti (Link) - Barak Ravid (July 14, 2011)

Budget and debt problems are once again racking America. Barack Obama has failed to persuade the Republican majority in Congress to raise the national debt ceiling. That much is nothing new, and similar attempts will be unlikely to succeed in the future. Since July 10, the White House has been holding daily consultations on raising the ceiling. The current ceiling of $14.3 trillion must be raised by several hundred billion, or the Department of the Treasury will run out of money by August 2.

Looming crisis

The Americans raise their debt ceiling on a regular basis. Since 1993, they have come close to defaulting 16 times. In 1995, the government even shut down for a week. In the past, the world perceived these exercises as a matter of course, whereas now the unwritten rule of the U.S. budget is increasingly becoming a sore subject.

The times have changed, and the national debt and deficit have become too astronomical to be treated as an American eccentricity, especially considering the U.S.-bred financial crisis of 2008 and the backdrop of failing finances in Greece, Ireland, and Portugal (likely to be followed by Spain and Italy) and the patently pre-crisis condition of the Euro.

Dollar in full retreat, NZD storms 30-year peak

Reuters (Link) - Wayne Cole (July 13, 2011)

The U.S. dollar was on the run in Asia on Thursday after a ratings warning from Moody’s and a hint of further policy easing from the Federal Reserve unleashed a wave of panic selling, much to the relief of the hard-pressed euro.

The New Zealand dollar was a stand out performer, soaring to 30-year highs after data showed the economy grew far faster than expected in the first quarter.

The kiwi flew to $0.8491, a rise of 3.7 percent in just two sessions, as the upbeat news revived the chance of a rate hike before year-end.

That stood in stark contrast to the United States, where Fed Chairman Ben Bernanke had canvassed the idea of further quantitative easing should the economy stall.

Alan Greenspan: It’s the Gen-Xers Fault They’re Out of Work

Fox Business (Link) - Elizabeth MacDonald (July 13, 2011)

Former Federal Reserve chairman Alan Greenspan said in a recent interview that the U.S. is suffering from an unproductive youth movement in the labor force, and that companies don’t want to hire these young folk. Greenspan also said that U.S. companies would be better off hiring immigrants.

I yield the floor to FOX Business Director of News Ray Hennessey:

Apparently the problem with the American jobs picture is the American worker.

At least that’s what Alan Greenspan thinks.

We are, he says, too young, dumb and unproductive as a workforce. The Baby Boomers were better, finding ways to do more with less, but they are retiring in droves. As they hit the links, their ranks of replacements don’t measure up.

Drought Spreads Pain From Florida to Arizona

The New York Times (Link) - Kim Severson & Kirk Johnson (July 11, 2011)

The heat and the drought are so bad in this southwest corner of Georgia that hogs can barely eat. Corn, a lucrative crop with a notorious thirst, is burning up in fields. Cotton plants are too weak to punch through soil so dry it might as well be pavement.

Farmers with the money and equipment to irrigate are running wells dry in the unseasonably early and particularly brutal national drought that some say could rival the Dust Bowl days.

“It’s horrible so far,” said Mike Newberry, a Georgia farmer who is trying grow cotton, corn and peanuts on a thousand acres. “There is no description for what we’ve been through since we started planting corn in March.”

The pain has spread across 14 states, from Florida, where severe water restrictions are in place, to Arizona, where ranchers could be forced to sell off entire herds of cattle because they simply cannot feed them.

Number One? 20 Not So Good Categories That The United States Leads The World In

Economic Collapse Blog (Link) (July 5, 2011)

Is the United States “number one?” Many Americans take deep pride in their nation and the truth is that the U.S. has a lot going for it. The United States has the largest economy in the world. The United States also has the most powerful military on the entire planet. The United States has produced most of the greatest movies that the world has ever seen. But the United States is also number one in a lot of categories that are not go great. If we ever want to turn this country around, we need to be very honest with ourselves. We need to take a long, hard look in the mirror and realize that it is not a good thing that we are number one in divorce, drug addiction, debt, obesity, car thefts, murders and total crimes. We have become a slothful, greedy, decadent nation that is exhibiting signs of advanced decay. Until we understand just how bad our problems really are, we won’t be able to come up with the solutions that we need.

A lot of people that write articles like this have a deep hatred for America. But that is not the case with me. I love the United States. I love the American people. America is like an aging, bloated rock star that has become addicted to a dozen different drugs. America is a shadow of its former self and it desperately needs to wake up before it plunges into oblivion.

If you do not believe that America is in bad shape, just read the list below. The following are 20 not so good categories that the United States leads the world in....

Economic WMD? US fears OPEC’s next move after shocking display of disunity among cartel members

Al Arabia News (Link) - Mary E. Stonaker (June 30, 2011)

Three weeks after OPEC’s shocking display of disunity over oil pricing, mainly an argument between long-time foes Saudi Arabia and Iran, the daily basket price has increased to $103.59 per barrel on 28 June, up from $101.56 the previous day. This is still significantly lower than recent peaks of S113.59 on 14 June and 120.91 on 28 April. US fears sparked a significant drop in oil demand in the US, alleviating some, but not all, upward pressure on oil prices.

Recent announcements of US emergency stockpile sales and resumed drilling in the Gulf of Mexico echo this line of attempting to lower prices as well as reduce dependency on foreign sources. However, recent reports of storage space disappearing quickly and surplus supplies also contributed to US President Obama’s announcement.

If overfilled, underground storage in the US – currently holding around 727 million barrels – will leak oil into the soil surrounding it, which will eventually lead to an environmental disaster. While announcements to release stockpiled oil nicely coincide with OPEC’s disagreement, talks to this end were taking place well before this month.

Austerity Riots - A Glimpse Of America’s Future?

The American Dream (Link) - Michael (June 29, 2011)

Are the austerity protests and riots happening in Greece right now a glimpse of America’s future? The truth is that both nations are absolutely drowning in debt. It is just that the “day of reckoning” has already arrived for Greece but it has not arrived for the United States yet. Yes, there are some important differences between the situation in Greece and the situation in the U.S., but there are also some important similarities. Budget cuts and other austerity measures are being promoted by the political leaders of both countries. Greek citizens have reacted very negatively to the economic austerity programs that have been implemented in that nation. As budget cuts on the federal, state and local levels in the United States start to really become painful, will we eventually see the same kind of austerity riots in this country that we are currently seeing in Greece?

There is a price to pay for living way, way beyond your means for decades. The citizens of Greece are now feeling that economic pain. In the United States, the pain of austerity is not being felt that severely yet.

So exactly what are austerity measures? Well, in Greece they include tax increases, budget cuts and “privatization measures.” The Greek government is swamped under an unpayable debt load and without international assistance the Greek government will default.

But all of that “international assistance” comes with strings. The EU and the IMF are insisting on the implementation of very strict austerity measures, and the Greek people are not thrilled about this.

The Divided States of Europe

Stratfor Global Intelligence (Link) - Marko Papic (June 28, 2011)

Europe continues to be engulfed by economic crisis. The global focus returns to Athens on June 28 as Greek parliamentarians debate austerity measures imposed on them by eurozone partners. If the Greeks vote down these measures, Athens will not receive its second bailout, which could create an even worse crisis in Europe and the world.

It is important to understand that the crisis is not fundamentally about Greece or even about the indebtedness of the entire currency bloc. After all, Greece represents only 2.5 percent of the eurozone’s gross domestic product (GDP), and the bloc’s fiscal numbers are not that bad when looked at in the aggregate. Its overall deficit and debt figures are in a better shape than those of the United States — the U.S. budget deficit stood at 10.6 percent of GDP in 2010, compared to 6.4 percent for the European Union — yet the focus continues to be on Europe.

That is because the real crisis is the more fundamental question of how the European continent is to be ruled in the 21st century. Europe has emerged from its subservience during the Cold War, when it was the geopolitical chessboard for the Soviet Union and the United States. It won its independence by default as the superpowers retreated: Russia withdrawing to its Soviet sphere of influence and the United States switching its focus to the Middle East after 9/11. Since the 1990s, Europe has dabbled with institutional reform but has left the fundamental question of political integration off the table, even as it integrated economically. This is ultimately the source of the current sovereign debt crisis, the lack of political oversight over economic integration gone wrong.

Towards a sovereign union

Press Europ (Link) - Andrzej Talaga (June 27, 2011)

On June 2 in Aachen, Jean-Claude Trichet, the President of the European Central Bank, announced that the EU should only have one finance minister. At the same time, he also called for the transformation of the EU into an unprecedented confederation of states with a common budgetary policy — a vision that amounts to a severe blow to national sovereignty.

A “super-finance” ministry, with the power to veto certain public spending decisions and to control the budgetary policies and competitiveness of Europe’s member states, as well as an EU financial sector that is fully compliant with European rules: this would amount to establishing a system for the control of national budgets, at least for those countries that have adopted the euro. According to Trichet’s proposal, those states would then become semi-independent, perhaps to the point where they only retained territorial autonomy. Nowhere in any dictionary of politics has such a state been defined.

However, these proposals are not exactly new. In response to the Greek crisis, the plan is to make aid to the Athens government contingent upon strict supervision of the country’s finances by the supranational troika of experts from the European Commission, the ECB, and the IMF.

This is something that has never been seen before in the EU. Certainly, Ireland and Portugal have been obliged to rein in their public spending, but it has yet to fall under external control. On the other hand, Greece, which has come under pressure for the mishandling of its financial affairs, is being forced to handover control of its budgetary policy to foreigners: yet another step in the loss of sovereignty which began when it joined the euro and relinquished control of its monetary policy.

China, Russia sign revised currency agreement

China Daily (Link) (June 23, 2011)

The People’s Bank of China, the country’s central bank, said on Thursday that it has signed a revised bilateral currency settlement agreement with the Central Bank of the Russian Federation.

According to the revised agreement, individuals and corporations from both countries will be able to conduct settlements and payments using the yuan, the ruble and freely convertible currencies, the central bank said in a statement on its website.

In addition to border trade, ordinary trade may also be settled in both countries’ official currencies, following the revision of the agreement.

The move will help promote bilateral financial cooperation, trade and investment, the statement said.

Analysts said the move will be of great significance in reducing reliance on the U.S. dollar in bilateral trade, lowering exchange rate risks and promoting the internationalization of the yuan. †

Federal Reserve cuts its US economic growth forecast

BBC News (Link) (June 22, 2011)

The Federal Reserve has cut its growth forecast for the US economy in the face of the impact of higher energy prices.

It now estimates that the US economy will expand between 2.7% and 2.9% this year, down from its April forecast of 3.1% to 3.3%.

The US central bank also warned that unemployment would remain stubbornly high throughout 2011.

Fed chairman Ben Bernanke said higher prices had hit consumer spending, but that they should start to fall.

Yet he further cautioned that weakness in the financial sector, and the continuing slump in the housing market, could also be holding back the economy - problems he said “may be stronger and more persistent than we thought.”

Your Well-Paid, Middle-Class Job Is in Danger

Market Watch (Link) - Ruth Mantell (June 16, 2011)

The job market is changing, and it’s not just manufacturing jobs that are disappearing. Even some highly-paid workers may find themselves needing to re-tool their skills in the years ahead.

The ongoing movement of jobs to countries where labor is cheaper, plus the development of new technologies, may mean fewer opportunities for some well-paid positions in the U.S. over the next decade, said Larry Katz, an economist at Harvard University.

“Employment growth has stopped, or even declined, among many middle- class jobs that are high wage” and don’t require a college degree, Katz said.

“A lot of traditional middle-class, upper-middle-class jobs have been disappearing. If you look at general managers and middle-management jobs, those are ones that have been in decline and will decline further,” he said.

Where Is the Church in the Meltdown?

Olive Tree Ministries (Link) - Todd Strandberg (June 15, 2011)

There are growing indications that the U.S. economy is headed back towards negative growth. The recovery that economists claim we’ve been having over the past several months has been mild at best. The unemployment rate went from a high of over 10 percent to just under 9 percent. We still have 16 million Americans out of work, and nearly 25 percent of the workforce is underemployed.

Several key financial indicators are pointing to a slowdown. Here are a few:

The coming global financial crisis

MSN Money (Link) - Jim Jubak (June 13, 2011)

Politics virtually guarantee that the global economy won’t go into crisis in 2011. Politics make it extremely unlikely that the global economy will slow down as much as the market seems to fear. Politics, in fact, put a safety net under the global economy this year.

And politics also virtually guarantee another, deeper crisis in 2012 or 2013. I’d bet 2013.

How come? You see, just about every politician in the world is trying to kick an economic problem down the road into 2012 or 2013. I think they’ll succeed in postponing the day of reckoning in 2011 using a combination of funny accounting, additional spending and subsidies. But the price for that postponement will be that problems will be bigger and harder to truly solve in 2012 or 2013 than they are now. And that will raise the odds that the global economy will face another serious crisis -- just five years or so after the last one.

This kick-it-down-the-road effort is most obvious in the eurozone, where the effort to put together a new rescue package for Greece really comes down to putting off a Greek default from 2012 to 2013 or 2014.

But the effect is also visible in the United States, where I think the most likely result of negotiations in the U.S. to raise the debt ceiling will be to kick the problem into the 2012 election campaign, with a “solution” postponed to 2013. You can also see it in China, where the leadership that takes over in 2012 and 2013 from President Hu Jintao will be extremely reluctant to rock the boat until it’s firmly in power.

Roubini: ‘Perfect Storm’ May Rock World Economy by 2013

Money News (Link) (June 12, 2011)

A “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini said.

There’s a one-in-three chance the factors will combine to stunt growth from 2013, Roubini, who predicted the global financial crisis, said in a June 11 interview in Singapore. Other possible outcomes are “anemic but OK” global growth or an “optimistic” scenario in which the expansion improves.

“There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”

Elevated U.S. unemployment, a surge in oil and food prices, rising interest rates in Asia and trade disruption from Japan’s record earthquake threaten to sap the world economy. Stocks worldwide have lost more than $3.3 trillion since the beginning of May, and Roubini said financial markets by the middle of next year could start worrying about a convergence of risks in 2013.

‘New system of European governance’ demands deeper austerity

EU Observer (Link) - Leigh Phillips (June 9, 2011)

The European taskmaster has cracked the whip. However much austerity has been imposed by EU member states, it is simply not enough.

That is the overriding message from the European Commission that runs through its recommendations for each of the 27 member states in the new, post-crisis system of radically centralised oversight and correction of national economic policies by the EU known as the ‘European Semester’.

“We are now implementing the new system of European governance,” commission chief Jose Manuel Barroso said in the European Parliament in Strasbourg, heralding the unveiling of 27 detailed - or ‘granular’, to use the adjective EU officials use - national prescriptions, telling member states what they are getting right and wrong with their fiscal policies and what they must do to ‘fix’ their economies.

It goes further than fresh call for austerity: it is a recipe for much deeper liberalisation of the European economy than has yet been seen.

China warns U.S. debt-default idea is “playing with fire”

Yahoo! Finance (Link) - Emily Kaiser (June 8, 2011)

Republican lawmakers are “playing with fire” by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China’s central bank said on Wednesday.

The idea of a technical default -- essentially delaying interest payments for a few days -- has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday.

But any form of default could destabilize the global economy and sour already tense relations with big U.S. creditors such as China, government officials and investors warn.

Li Daokui, an adviser to the People’s Bank of China, said a default could undermine the U.S. dollar, and Beijing needed to dissuade Washington from pursuing this course of action.

“I think there is a risk that the U.S. debt default may happen,” Li told reporters on the sidelines of a forum in Beijing. “The result will be very serious and I really hope that they would stop playing with fire.”

Coal Regs Would Kill Jobs, Boost Energy Bills

US News & World Report (Link) - Paul Bedard (June 8, 2011)

Two new EPA pollution regulations will slam the coal industry so hard that hundreds of thousands of jobs will be lost, and electric rates will skyrocket 11 percent to over 23 percent, according to a new study based on government data.

Overall, the rules aimed at making the air cleaner could cost the coal-fired power plant industry $180 billion, warns a trade group.

“Many of these severe impacts would hit families living in states already facing serious economic challenges,” said Steve Miller, president of the American Coalition for Clean Coal Electricity. “Because of these impacts, EPA should make major changes to the proposed regulations before they are finalized,” he said.

The EPA, however, tells Whispers that the hit the industry will suffer is worth the health benefits. “EPA has taken a number of sensible steps to protect public health, while also working with industry and other stakeholders to ensure that these important Clean Air Act standards—such as the first ever national Mercury and Air Toxics Standards for coal-fired power plants—are reasonable, common-sense, and achievable,” said spokesman Brendan Gilfillan. [Read Rep. Darrell Issa: Obama’s Bad Policy, Harmful Regulations Add to Gas Prices.]

Germany fears ‘full-blown bankruptcy’ in eurozone

EU Observer (Link) - Andrew Willis (June 8, 2011)

German finance minister Wolfgang Schaeuble believes Greek bankruptcy is imminent, according to a leaked letter, and argues that restructuring of the country’s debt is necessary.

“We are standing before the real risk of the first full-blown bankruptcy inside the eurozone,” Schaeuble said in a letter addressed to European Central Bank president Jean-Claude Trichet and leaked to the German press.

In the starkest language yet by a European official, the German minister called for additional aid to be made available to Greece, adding that private banks should participate in the cost of the Greek rescue.

EU officials and member states are understood to be currently working on a second bail-out agreement for Greece, in addition to the €110 billion pledged last year, with estimates suggesting the new aid package could total €60 billion.

Half of Last Month’s New Jobs Came from a Single Employer — McDonald’s

The Weekly Standard (Link) - Mark Hemingway (June 3, 2011)

According to the unemployment data released this morning, the economy added only 54,000 jobs, pushing the unemployment rate up to 9.1 percent. However, this report from MarketWatch suggests the data is much worse than that:

McDonald’s ran a big hiring day on April 19 — after the Labor Department’s April survey for the payrolls report was conducted — in which 62,000 jobs were added. That’s not a net number, of course, and seasonal adjustment will reduce the Hamburglar impact on payrolls. (In simpler terms — restaurants always staff up for the summer; the Labor Department makes allowance for this effect.) Morgan Stanley estimates McDonald’s hiring will boost the overall number by 25,000 to 30,000. The Labor Department won’t detail an exact McDonald’s figure — they won’t identify any company they survey — but there will be data in the report to give a rough estimate.

If Morgan Stanley is correct, about half of last month’s job growth came from the venerable fast-food chain. That is hardly the sign of a healthy economy. †

China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills

CNS News (Link) - Terence P. Jeffrey (June 3, 2011)

China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.

Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report linked here.

Until October, the Chinese were generally making up for their decreasing holdings in Treasury bills by increasing their holdings of longer-term U.S. Treasury securities. Thus, until October, China’s overall holdings of U.S. debt continued to increase.

Where does California put 33,000 released inmates?

CNN (Link) - Opinion - Ruben Navarrette Jr. (May 26, 2011)

Hasn’t California suffered enough?

Apparently not, according to the U.S. Supreme Court. In the name of reducing prison overcrowding and preserving a “standard of decency,” the high court this week handed down a decision that could set the stage for something indecent: the release of tens of thousands of prisoners back into society.

Just when Californians thought they had seen it all and endured it all. The Golden State has withstood drought, mudslides, fires and earthquakes. It has a massive budget deficit, about $9.6 billion, that only looks manageable by comparison with what it was just a few months ago, $25.4 billion, before the state tallied up tax revenue from high-income Californians. The state has an unemployment rate that is higher than the national average at 11.7 percent, and it has one of the highest rates of mortgage foreclosures per capita in the country.

What’s next? How about “Get Out of Jail Free” cards for 33,000 inmates in the state prison system? It could happen.

U.S. dollar could ‘collapse’: UN

Canada.com (Link) - Reuters - Patrick Worsnip (May 25, 2011)

The United Nations warned on Wednesday of a possible crisis of confidence in, and even a “collapse” of, the U.S. dollar if its value against other currencies continued to decline.

In a mid-year review of the world economy, the UN economic division said such a development, stemming from the falling value of foreign dollar holdings, would imperil the global financial system.

The report, an update of the UN “World Economic Situation and Prospects 2011” report first issued in December, noted that the dollar exchange rate against a basket of other key currencies had reached its lowest level since the 1970s.

This trend, it said, had recently been driven in part by interest rate differentials between the United States and other major economies and growing concern about the sustainability of the U.S. public debt, half of which is held by foreigners.

“As a result, further (expected) losses of the book value of the vast foreign reserve holdings could trigger a crisis of confidence in the reserve currency, which would put the entire global financial system at risk,” it said.

A New Global Financial System

The Trumpet (Link) - Robert Morley (May 24, 2011)

The European Union is set to issue a very special bond this week. It is special because it is practically unprecedented. Just twice before has the EU borrowed money with the promise that all member nations would be responsible for paying it back.

If the Eurobonds become a permanent part of the European Union, the implications are global. A United European bond market could save the eurozone’s struggling economies.

But that is not the biggest implication. For the first time, the U.S. treasury market will have a real and potentially lethal competitor, and the world will finally have a true alternative to the dollar for reserve currency.

According to the Financial Times, the first bond auction in January led to “overwhelming demand” for the paper from investors around the world. The second issuance in March was equally successful, as investors in Asia and the Middle East snapped up the bonds. The success of the Eurobond sales contrasts sharply with the rising cost of raising money in most European countries.

Germany’s Klaus Regling, the head of the EU facility selling the Eurobonds, said investors saw the bonds as a “new way to diversify” their assets.

Europe’s Financial Crisis—a World Changer!

The Trumpet (Link) - Brad Macdonald (May 12, 2011)

It is easy to overlook the financial crisis rocking Europe. To let it be eclipsed by other seemingly more pressing crises, such as the devastating weather striking the United States, the food crisis and the rocketing price of oil, the quake and nuclear crisis in Japan, or the violent and transformative uprisings that have swept through North Africa and the Middle East.

This would be a mistake.

Ultimately, Europe’s financial crisis will revolutionize Europe—and even the world!

It was almost exactly 12 months ago that Greece—laden with debt, its economy seizing—accepted a €110 billion bailout from the European Union. Led by EU heavyweight Germany, Greece’s European counterparts hoped the bailout would help Athens pay its bills, kick-start the economy and restore investor confidence in Greece. Most importantly, Europe’s leaders hoped to prevent the crisis from spreading to other heavily indebted eurozone economies. Within months, those hopes were dashed. Since May 2010, both Ireland and Portugal have been given bailouts, while other countries, including Spain, remain precarious.

On May 6, it became obvious that Europe’s financial crisis was nearing boiling point, again.

$2 Trillion Mile Marker on Road to Perdition

USA Watchdog (Link) - Greg Hunter (May 6, 2011)

This week, Treasury Secretary Tim Geithner proposed raising the debt ceiling by $2 trillion. I thought, this should be big news! After all, a trillion is a thousand billion. This adds up to 2 thousand billion over the next 2 years!! The mainstream media greeted this story with a great big yawn. I do not get that because the Republicans and Democrats fought for weeks to only cut the budget a measly $38 billion. The press was non-stop, and Congress was only an hour away from shutting down the government. Even the $38 billion cut was a big fat lie according to CBS News. The story said in mid-April, “Well, thanks to the Congressional Budget Office and some great reporting by the Washington Post, it turns out the government won’t be cutting $38 billion in one year after all. No, the real cuts will be more like $352 million! You heard me right, $352 million, NOT $38 billion. The rest? Mostly smoke, mirrors and accounting gimmicks.” (Click here for the entire CBS News story.)

Both parties want to cut roughly $4 trillion out of the budget over the next 10 to 12 years. Can someone please explain how that is accomplished by tacking on another $2 trillion to the national tab? I do not get the math and neither does Bill Gross, the head of the biggest bond fund in the world. He said in early January, “We have a deficit in the $1 trillion plus arena, which means we must borrow at least a trillion dollars additional a year in order to fund the deficit. And, so, the debt ceiling currently at $14.3 trillion, which is 95% of GDP, has to go up by another trillion or so every 12 months.” (Click here to read my original post on the debt ceiling.) Not long after Gross made this statement, he sold most, if not all, of his U.S Treasuries. What do you know? He was right on the money. The proposal from the Treasury is a $2 trillion increase in the debt ceiling to cover most of the next 2 years.

Everything’s OK with Economy, Go Back to Sleep

USA Watchdog (Link) - Greg Hunter (April 27, 2011)

It appears economist Paul Krugman thinks the budget and the economy are not in that bad of shape because he thinks the dire warnings are overdone. In his latest Op-Ed piece this week, he said, “When I listen to current discussions of the federal budget, the message I hear sounds like this: We’re in crisis! We must take drastic action immediately! And we must keep taxes low, if not actually cut them further! You have to wonder: If things are that serious, shouldn’t we be raising taxes, not cutting them?” (Click here for the complete Op-Ed post from the New York Times.)

Yes, that’s right, Mr. Krugman wants to raise taxes just as inflation in food and gasoline are heating up. It is hard to understand why a Nobel Prize winner in economics wants to raise taxes in the middle of the worst economy since the Great Depression. He doesn’t just want to raise taxes on the wealthy, but on the middle class as well. He goes on to say the plan he backs, “...also calls for a rise in the Social Security cap, significantly raising taxes on around 6 percent of workers. And, by rescinding many of the Bush tax cuts, not just those affecting top incomes, it would modestly raise taxes even on middle-income families. . . .And the proposal achieves this without dismantling the legacy of the New Deal, which gave us Social Security, and the Great Society, which gave us Medicare and Medicaid.” So, in Krugman’s eyes, we should continue going broke over the funding of Medicare and Medicaid?

IMF bombshell: Age of America nears end

Market Watch (Link) - Brett Arends (April 25, 2011)

The International Monetary Fund has just dropped a bombshell, and nobody noticed.

For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China. And it’s a lot closer than you may think.

According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now. Put that in your calendar.

It provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.

World Bank president: ‘One shock away from crisis’

BBC News (Link) (April 17, 2011)

The president of the World Bank has warned that the world is “one shock away from a full-blown crisis.”

Robert Zoellick cited rising food prices as the main threat to poor nations who risk “losing a generation.”

He was speaking in Washington at the end of the spring meetings of the World Bank and International Monetary Fund.

Meanwhile, G20 finance chiefs, who also met in Washington, pledged financial support to help new governments in the Middle East and North Africa.

Mr Zoellick said such support was vital.

G20 agrees guidelines to measure economic imbalances

BBC News (Link) - Barak Ravid (April 15, 2011)

Finance ministers and central bankers from the G20 have agreed a set of “indicative guidelines” to measure potential risks to the global economy posed by national economic policies.

All members of the G20 will be monitored under the new system.

In addition, members who account for more than 5% of total G20 economic output will be subject to a deeper, second-stage analysis of imbalances.

They include the US, China, Japan, Germany and France.

This is to “reflect the greater potential for spillover effects from larger economies,”  the group said.

The G20 did not formally name the countries this would apply to but French Finance Minister Christine Lagarde said that France would be one of seven in total to face higher scrutiny.

The group was meeting in Washington, ahead of the spring meetings of the World Bank and the International Monetary Fund (IMF).

The G20 accounts for 85% of global output and is now the main forum for trying to reform the world’s financial system.