Permadeficit on the Potomac

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machinehead's picture
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Permadeficit on the Potomac

From an NYT article about Pretzeldent Barack Dubya O'Bummer's $3.83 trillion budget:

Annual deficits through fiscal year 2020 would not drop below 3.9 percent of gross domestic product under the administration’s projections. And by the end of the decade, projections show the annual deficit ticking upwards again, to 4.2 percent of G.D.P. in 2020, as growing health costs and an increasingly older population force up spending for Medicare and Medicaid benefits.

http://www.nytimes.com/2010/02/02/us/politics/02budget.html?hp

Punchline: we're in permadeficit. And that's just on a cash basis; never mind the multitrillion deficits under proper GAAP accounting. This year, the cold steel jaws of the leghold entitlement traps set by Franklin Deficit Roosevelt and Lyndon Barack Johnson have snapped shut on Uncle Sam's bony ankle. Now he must choose between gnawing his leg off to escape, or slowly starving.

It's made plain in the article why the budget can't and won't be balanced:

Medicare, Medicaid and Social Security — the so-called entitlement programs that are the largest and fastest-growing part of the budget — would be exempted, along with defense and veterans programs.

'Defense' alone amounts to over 5% of GDP. Most countries with peaceful neighbors can defend their borders with military expenditures of 1% of GDP; that's probably what the U.S. actually spends on this function. The rest goes to running an unaffordable global empire.

Sadly, all Democratic and Republican presidential candidates are vetted by the Council on Foreign Relations for their fealty to the crushingly costly U.S.-led global empire. Fiat currency is a system of war finance. Now that the U.S. empire has developed a megalomaniacal jones for power, its Achilles-heel economic Ponzi scheme is entering the terminal phase of exponential runaway.

Mark my words: sovereign downgrades and defaults are going to be the major theme of this decade. It ain't just Greece. Dreams come due, comrades. Don't expect real-vaue repayment from insolvent debtors who can print their own scrip. Treasurys are certificates of guaranteed confiscation. Whereas gold, guns and grub don't depend on 'honor among thieves' for their value.

 

 

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Re: Permadeficit on the Potomac

Whereas gold, guns and grub don't depend on 'honor among thieves' for their value.

+1

I lost all respect for Soros last week when he said gold is in a bubble. I think someones head is in a bubble.

 

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Re: Permadeficit on the Potomac

What's amazing to me is that he's already included the "Cap and Trade" #'s to his intake of funds.  Didn't know that had been approved in CONgress.  What do they know that we don't????  Hmmmmm....us CT believers seem to be more on the money on a daily basis.  

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Re: Permadeficit on the Potomac

I lost all respect for Soros last week when he said gold is in a bubble. I think someones head is in a bubble.

Davos I agree....Like Jim Rogers said in that one meeting he was in....asked how many owned Gold & very few ever had. I don't see how it can be a bubble unless it is owned & sought after by many.

Gold maybe on a high but the market is on a sugar high IMHO.

Mark my words: sovereign downgrades and defaults are going to be the major theme of this decade. It ain't just Greece.

Imagine a lot of the world going down piece by piece. China has it's own real estate bubble that goes POP! They all start looking back at the USA as stability for the world...and we know for a fact we are BROKE... Scary!

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Re: Permadeficit on the Potomac
Davos wrote:

Whereas gold, guns and grub don't depend on 'honor among thieves' for their value.

+1

I lost all respect for Soros last week when he said gold is in a bubble. I think someones head is in a bubble.

Here's what Soros is quoted as saying at Davos:

"When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment," he told the World Economic Forum in Switzerland, according to the Telegraph. "The ultimate asset bubble is gold."

http://weblogs.baltimoresun.com/business/hancock/blog/2010/01/soros_gold...

These words are subject to ambiguous interpretation. 'Ultimate' means 'final' or 'last.' If bubble conditions 'are developing at the moment,' then his next sentence could possibly be restated as, 'The final asset bubble will be gold.'

In any case, from a contrarian point of view, you want 'experts' to be trashing gold. Amid the hail of contemptuous brickbats, gold launched more than twenty dollars today.

More, please, kind sirs! Please don't throw us into that golden briar patch, where poor King Midas starved to death. Ain't nothin' to eat there. Please, please, don't crucify us on that lonely cross of gold! Don't take away our hard-earned FRNs and replace them with that useless shiny metal, oh no no no! Not after I've accepted Benny Bubbles as my personal savior. His FRNs endureth forever; Fed without end, Amen.

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Re: Permadeficit on the Potomac
machinehead wrote:
Davos wrote:

Whereas gold, guns and grub don't depend on 'honor among thieves' for their value.

+1

I lost all respect for Soros last week when he said gold is in a bubble. I think someones head is in a bubble.

Here's what Soros is quoted as saying at Davos:

"When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment," he told the World Economic Forum in Switzerland, according to the Telegraph. "The ultimate asset bubble is gold."

http://weblogs.baltimoresun.com/business/hancock/blog/2010/01/soros_gold...

These words are subject to ambiguous interpretation. 'Ultimate' means 'final' or 'last.' If bubble conditions 'are developing at the moment,' then his next sentence could possibly be restated as, 'The final asset bubble will be gold.'

In any case, from a contrarian point of view, you want 'experts' to be trashing gold. Amid the hail of contemptuous brickbats, gold launched more than twenty dollars today.

More, please, kind sirs! Please don't throw us into that golden briar patch, where poor King Midas starved to death. Ain't nothin' to eat there. Please, please, don't crucify us on that lonely cross of gold! Don't take away our hard-earned FRNs and replace them with that useless shiny metal, oh no no no! Not after I've accepted Benny Bubbles as my personal savior. His FRNs endureth forever; Fed without end, Amen.

+1 !!!!!! I'm so glad I took the 401k/IRA hit.

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Re: Permadeficit on the Potomac

if the endgame be gold, guns, beans and bullets (and a lot of making do with less knowhow) and worthless trashuries

how's it play out?

i'm expecting fits of reflation/inflation/stagflation/bullshitation

interspersed with absolute despair of deflation/debts/writeoff/revolts/revolutions

i've been 100% gold/silver/shares/bullion coins since early 2001 with bouts of index puts and shorts

but now i'm only 20% bullion coins, 20% gold/silver stocks and lots of cash......waiting

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Re: Permadeficit on the Potomac

Davos,

Excuse me for jumping in way over my head...I try to keep up with you guys.....not easy for a housewife with a marketing background!

I'm always looking for clues on what you brainiacs are really doing with your money....I understood the "took the hit with 401/IRA, we are in the process of doing that now even though my CPA is screaming that we are too young and paranoid...but I'm concerned about this BIG Annuity that I invested in with 125k 6 months BEFORE seeing CC for the first time....can I cash that in?  I've tried to find answers on the web but can't.  Reluctant to ask our CPA who is buddies with my Dad and both are swallowing blue pills, golf and scotch every day.

They both suspect our insanity already. If you can help, advice from stangers (here) at this point seem to make most sense...

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Re: Permadeficit on the Potomac

@Romans 12-2 I can't and would not give financial advice. I could be 100% wrong a lot can happen. But ALL my money went to paying down as much debt as we could and a huge chunk went into PMs and we stocked up on food and the rest. I was able to close all our 401ks and IRAs and we sold real estate that I subdivided just at peak. Thank God it went to closing.

I have faith in G*d, Gold, Guns and as MachineHead says GRUB. Add gardens to the g's.

Call your CPA would be my only advice. Find out what you can do or what you are stuck with. ZeroHedge had a piece on the 2 trillion dollar heist that I imagine will be going down to help Bernake ease the QE.

PS Thanks MachineHead. I look up to you like I look up to CM. You'r smart!!

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Re: Permadeficit on the Potomac

All good advice and makes me feel betterSmileanyway.  Already pretty set on guns,gold,grub....guess if we are not really planning on anything that used to look like retirement - then who cares about stupid annuity anyhow. 

But where you got me is paying down our debt....still have a 250 mortgage.  Why should we pay this down/off?

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Re: Permadeficit on the Potomac
specie wrote:

i'm expecting fits of reflation/inflation/stagflation/bullshitation

Hey, I've enriched my vocabulary!:)  Good laugh, specie.

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Re: Permadeficit on the Potomac
Romans12.2 wrote:

But where you got me is paying down our debt....still have a 250 mortgage.  Why should we pay this down/off?

I don't know if YOU should. I'm just saying what we did.Wink

We downsized, went from a 4k sq foot home in a sub division to a mountain retreat that is 1800 sq foot. My thoughts are: We are going into GDII. The only chance of avoidance is some miracle battery, some miracle new energy or a war or disease so horrific that there is a massive population reduction and thus no more stresses on resources.

Since I don't see any miracles and all I see now are small "resource grab wars" I'm pretty confident GDII is still well situated on the horizon that we are heading for.

Face it, the banksters' derivatives blew up the economy. There was and is a lot of fallout from that. The economy itself was a sham, in 2008 for instance, people spent 9 billion borrowed dollars to drink 4 dollar coffees at Starbucks. That is a sham economy. A fake wealth.

I don't think we are going to be seeing that.

Therefore I expect a lot more fallout, a lot more job losses and a lot of systemic risk.

Personally I want to be able to get by on almost nothing. Especially if the currency goes to heck in a handbasket - and I myself think it will. I suspect CM and MH and others are right in that the bond market is the next bubble. One thing I would not want is debt that is not fixed.

Hope that helps, best of luck.

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Re: Permadeficit on the Potomac

good advice...you are so right.  My neighbors are still buying those $4.00 lattes in my small town...idiots all.

We are looking at a 20acre very rural wooded site with a stream, has old hunting cabin with no bathroom.  Hard to imagine leaving my full prepped 4 acre home in small town....but we are 40 miles outside of Detroit!  Our only fear is that we stock our property up North, only to wait to long to Bug out.  We can't leave now...business is good.

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Re: Permadeficit on the Potomac

Davos,

Thanks for the zerohedge link.  Between the SEC ruling on MMFs and the talk of such controls on our IRAs/401Ks, I am pulling the plug on my IRA.  I have been agonizing over this for almost a year.  I calld Fidelity last week to get the partriculars on withdrawals and this week I am searching for local banks fo open the accounts to transfer my funds to.

It really is saddening and angering to me that I am having to consider such actions when I feel that the government is willfully causing our destruction.  At least I am glad that I have found this and several sites over the past 18 months that have opened my eyes to reality.

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Re: Permadeficit on the Potomac
MarkM wrote:

Davos,

Thanks for the zerohedge link.  Between the SEC ruling on MMFs and the talk of such controls on our IRAs/401Ks, I am pulling the plug on my IRA.  I have been agonizing over this for almost a year.  I calld Fidelity last week to get the partriculars on withdrawals and this week I am searching for local banks fo open the accounts to transfer my funds to.

It really is saddening and angering to me that I am having to consider such actions when I feel that the government is willfully causing our destruction.  At least I am glad that I have found this and several sites over the past 18 months that have opened my eyes to reality.

It hurt to pay the taxes, I was somewhat lucky to spread it out over years Dec/Jan but I have no regrets, something is better than nothing. I myself don't trust banks. There are some good bullion volts. Best.

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Re: Permadeficit on the Potomac

Davos wrote:

"...I can't and would not give financial advice. I could be 100% wrong a lot can happen. But ALL my money went to paying down as much debt as we could and a huge chunk went into PMs and we stocked up on food and the rest. I was able to close all our 401ks and IRAs..."

Well said, you don't have to give "advice" as recent history has shown that your actions were smart.  As far as cashing out the 401ks and IRAs we may all be following your lead as it looks like they will soon be raiding the mother lode; retirement accounts.

Another thing that is worth considering is the likelihood that the currency will continue dropping in value.  It may be that by decoupling from the dollar (e.g. - PMs and other currencies) the principal on existing "dollar loans" will effectively be reduced in real value.  I guess it depends on the interest rate of open loans versus the rate of dollar devaluation.

Another fantastic article machinehead!  Please keep them coming,

Larry 

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Re: Permadeficit on the Potomac
Davos wrote:

I suspect CM and MH and others are right in that the bond market is the next bubble.

Last night I read that another commentator I respect, Michael Belkin, thinks bonds are in a bubble. When the president announces 'four percent forever' (that is, permadeficits equaling 4% of GDP), lenders are going to want protection against the rising risks of inflation and default.

How bad could it get? Dr. John Hussman forecasts that, thanks to the Fed's recently doubled balance sheet, the price level will double during this decade. By the Rule of 72, this amounts to about 7% annual inflation, on average. So if the real interest rate is held at zero, rates need to rise to a nominal 7%. If the traditional 2 to 3% real rate of interest is re-established, then the nominal interest rate could reach 10%.

Consider the implications. The president projects federal debt of $18 trillion a decade from now. At the current 4% yield, that would mean annual interest of $720 billion, about double what we're paying now. But at 10%, annual interest would be $1.8 trillion -- nearly half of this year's budget.

Obviously, Usgov cannot possibly devote half its budget to payng interest. Equally obviously, it will simply print the money to pay the interest, by having the Benny Bubbles Fed buy new Treasurys with thin-air currency, in order to pay the interest on the old ones.

All of this rhymes with Dr. Martenson's 'tidal wave in a stadium' scenario. Namely, it's not a linear process. The rise in interest rates starts slowly, then feeds on itself. From a technical analysis point of view, upside resistance is at 20%, a peak which has been touched three times previously in U.S. history. If 20% is exceeded, terminal hyperinflation lies ahead within days or weeks, to be followed by a currency replacement.

My best guess of a time frame for these events is 2013-2014, after a big surge of deficit-financed election spending in 2012 to elect another corpgov populist impersonator, such as the Massachusetts Marlboro man. What can Brown do for you? Mwa ha ha ha ... Mistuh Pretzeldent ... ah need me a JOB!

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Re: Permadeficit on the Potomac

Another fantastic article machinehead!  Please keep them coming,

 

+1 & 2013/14 you're more "optimistic than I Cool

PS Thought this was substantive 

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Re: Permadeficit on the Potomac

hi romans

 

we must be nearly neighbors - i am in commerce twp.  Yes. tough question.  too near a deadly city like detroit.  but how far up north does a person need to go?

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Re: Permadeficit on the Potomac
specie wrote:

we must be nearly neighbors - i am in commerce twp.  Yes. tough question.  too near a deadly city like detroit.  but how far up north does a person need to go?

On the other hand, it seems like Detroit and it's surrounding communities are seeing an exodus of people as they go elsewhere for better prospects.  If most of the wealth goes away, it stands that most of the criminal types who are able to migrate will follow the wealth to other states in search of better pickings.  In such a case it might turn out that living 140 miles away from Washington DC (where a lot of new gov't and defense jobs are migrating to) will be more dangerous than living 40 miles away from Detroit.  Just a thought.  Perhaps the thing to be particularly concerned about is the state government's future inability to fund some very basic services (roads, schools, utilities, etc.); in Michigan's case that seems a very likely scenario, and may have a bigger impact on the average household in your area than crime or civil unrest.  I guess it all depends on how bad you realistically think the local situation will get, and whether we continue to see a slow collapse or instead experience a fast collapse.

- Nickbert

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Re: Permadeficit on the Potomac

specie - Wow we are in Milford

First we were thinking Tawas...then I read "Patriots" and decided that the U P might not be far enough.

My husband who is a good prepper thinks I've gone off the deep end though...

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Re: Permadeficit on the Potomac

couple of things about the UP

first is the choke point at the bridge - really hard to find an alternative

second is the snow/growing season

i'm thinking north of M-55 but south of M-32

 

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Re: Permadeficit on the Potomac

Yes you are right the bridge makes me nervous also...my husband cannot see the bridge closing.

He on his way up tomorrow to look at some property and and a little snowmachining. 

Also the bugs are horrific and sometimes 20ft of snow, small growing season...but I can't help think that all those things will deter others from following?  I guess it just depends like on how bad things go down....i

Yes Alpena especially looked good to us only downside was prices for acreage were alot higher downstate...we can't decide what makes more sense- acreage far away or more cash PMs...I feel like time is slipping away

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Re: Permadeficit on the Potomac
Romans12.2 wrote:

Yes you are right the bridge makes me nervous also...my husband cannot see the bridge closing.

He on his way up tomorrow to look at some property and and a little snowmachining. 

Also the bugs are horrific and sometimes 20ft of snow, small growing season...but I can't help think that all those things will deter others from following?  I guess it just depends like on how bad things go down....i

Yes Alpena especially looked good to us only downside was prices for acreage were alot higher downstate...we can't decide what makes more sense- acreage far away or more cash PMs...I feel like time is slipping away

Plus trolls are unwanted.  You will find your property looted while you are gone.  And in a SHTF scenario, it will be open season on you because you're an outsider.  Also, not a good idea to look at property in the winter.  You don't know what you're buying.  Many areas have salt water underground (even being close to bodies of fresh water), other areas have topsoil scraped off by locals, other areas are all sand with just scrubby jack pine and other waste plants like poplar growing on them, others are swampy or have very high water table, etc., etc.  The realtors won't tell you these things.  And if you're looking at the 20 acre parcel I think you're looking at (hint ... it's about 20 miles outside of Marquette), I wouldn't buy it ... bad joo joo.

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