No, Thanks: Why Russia is Wary of Borrowing  Abroad

Russia’s $525-billion foreign debt is dwarfed by $7.5 trillion in Britain, $5 trillion in France, $4.8 trillion in Germany and a whopping $21 trillion in the US.

This tell-tale ratio was not lost on IMF Managing Director Christine Lagarde who, when speaking at the recent St. Petersburg International Economic Forum, described Russia’s foreign debt as “considerably small” and said that it should borrow more.

It is like the CEO of a tobacco company chastising a light smoker for not smoking enough!
 debt
  
Sovereign ManSovereign Man wrote the following post Mon, 14 May 2018 11:21:54 -0400
Breaking down America’s worst long-term challenges: #1- Debt.
On October 22, 1981, the national debt in the United States crossed the $1 trillion threshold for the first time in history. It took nearly two centuries to reach that unfortunate milestone. And over that time the country had been through a revolution, civil war, two world wars, the Great Depression, the nuclear arms race… plus dozens of other wars, financial panics, and economic crises. Today, the national debt stands at more than $21 trillion– a milestone hit roughly two months ago. This means that the government added $20 trillion to the national debt in the 37 years between October 22, 1981 and March 15, 2018. That’s an average of […]
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 debt
  
We have debt-driven consumers, debt-driven companies and debt-driven governments. When the debt party crashes, it is going to be ugly.

Sovereign ManSovereign Man wrote the following post Fri, 04 May 2018 04:50:39 -0400
Capitalism has new rules. And they’re seriously messed up.
It was just a month and a half ago that Tesla approved an eye-popping long-term pay package, worth as much as $50 BILLION to founder and CEO Elon Musk. And on Wednesday afternoon, Tesla held its first corporate earnings call since then. You’d think that Elon would have been gracious and professional, anxious to demonstrate that the shareholders’ trust in him has been well-placed. Instead the call was filled with contempt and disrespect, with Elon outright refusing to answer questions that he deemed ‘boring’. Bear in mind, Tesla’s financial results were gruesome; the company burned through yet another $1.1 billion in cash last quarter. That’s 70% worse than in the […]
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 debt
  
Labour theory of value anyone?
  
Sovereign ManSovereign Man wrote the following post Mon, 02 Apr 2018 11:28:59 -0400
Elon Musk announces Tesla’s bankruptcy via Twitter
Nearly 4,000 years ago in the mid 18th century BC, the King of Babylon passed away, leaving the throne to his 18-year old son Hammurabi. Hammurabi was smart enough to know that his kingship would be incredibly short if he didn’t do something quickly to assert his power. So as his first order of business, Hammurabi made a bold proclamation that won him incredible support from his people: he forgave ALL citizens’ debt that was owed to the government… including high-ranking government officials. This proved to be enormously popular. Ancient Babylon had a highly advanced system of credit, and the average Babylonian was heavily indebted. Interest rates were regulated by […]
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 debt
  
Maybe Supreme Leader Trump should have tweeted that the USA was bankrupt yesterday, too.
  
Sovereign ManSovereign Man wrote the following post Mon, 19 Mar 2018 11:40:44 -0400
At $21 TRILLION, the national debt is growing 36% faster than the US economy
Well, it happened again. On Friday afternoon, the national debt of the United States hit another major milestone, soaring past $21 trillion for the first time ever. Clearly that is an enormous number… it’s actually larger than the size of the entire US economy, which is pretty incredible. But what’s always been the more important story about America’s pile of debt is how rapidly it’s growing. For example, in the span of a SINGLE DAY, from Thursday to Friday, the national debt grew by $73 BILLION. In a day. To put that number in context, $73 billion is larger than the size of most major companies like General Motors, Ford, […]
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 debt
  
Here you go - The Real Owner of the U.S. Debt Will Surprise You

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The U.S. national debt is owned by Social Security, the Fed, and foreign investors. Here are all the major owners.
  
Interest on the debt could become the single largest item in the budget.

Welcome to the third world. It was about time the American elites found a way around having to tolerate America the country, given what they've been doing with America the continent.

(Which "America" in "American elites" is left ambiguous on purpose. They don't really have any affiliation.)
  
Social Security was already a Ponzi scheme. When you add into the mix that it has to invest any surplus in an organization which would be considered bankrupt if it had to play by normal business rules, I don't know what to call it.
  
Rising interest rates will be devastating to the US economy for one big reason

The single most dramatic effect of today's rising rates is the interest we will pay on our national debt.

Let's engage in some grammar school math. Take the CBO estimate of debt held by the public of $16.5 trillion in 2020. A 5 percent average interest rate on that amount comes to annual debt service of $825 billion, an unfathomable amount. (In 2017, interest on the debt held by the public was $458.5 billion, itself a scary number.)

Here's the danger:

According to the CBO, individual income taxes produced $1.6 trillion in revenue in fiscal 2017.

    Under this 2020 scenario, one-half of all personal income taxes will go to servicing the national debt.
    Annual debt service in 2020 will exceed our newly increased defense budget of $700 billion in FY 2018.
    Annual debt service would equal our Social Security obligations.
 debt
  
Sovereign ManSovereign Man wrote the following post Wed, 28 Feb 2018 09:45:43 -0500
Total student debt in America now exceeds cost of Iraq War
Total student debt in America now exceeds cost of Iraq War

We’ve all seen the headlines: the cost of university education in the United States has become completely debilitating. And student debt keeps rising to record high levels.

It’s almost commonplace now for a 22-year old to graduate from university with $50,000+ in student debt.

According to data from the Federal Reserve, the total amount of student debt in the United States is now $1.5 trillion.

That’s more than the estimated $1.3 trillion in direct costs that the government spent fighting the War in Iraq.

What’s probably even more bizarre is that the US government actually owns about 70% of those student loans– a total of $1.06 trillion.

I discovered this over the weekend when I was reviewing the federal government’s recently published financial statements for fiscal year 2017.

Student loans actually constitute the #1 asset of the US federal government, comprising about 30% of its balance sheet.

In other words, young people of America owe more money to the federal government than the value of every tank, every bullet, every aircraft carrier, every acre of land in the national parks.

That’s a pretty sad statement to make.

And remember that student debt in America is a very special kind of debt: it chases you around forever.

Thanks to a piece of legislation signed into law by Bill Clinton in 1998, student debt is almost impossible to ‘discharge’.

So unlike just about every other type of debt like a home mortgage or medical debt, student debt is extremely difficult to wipe away through bankruptcy procedures.

It’s more a form of indentured servitude than it is debt. There’s no escape.

To me, this really calls into question the long-term value of a university education.

Now, there’s a lot of data on this topic, and it’s all over the board.

A 2016 study in the United Kingdom by the Institute of Fiscal Studies, for example, showed that median salaries for graduates at several dozen universities were lower than non-university graduates.

On the other hand, researchers from the Federal Reserve Bank of New York have argued that university graduates will earn, on average, $1 million more over their lifetimes than people who do not graduate from university.

This is what they call the ‘wage premium’ of a university degree.

But even their own data shows that this wage premium is falling.

Another study from the UK’s Warwick University in 2012 calculated that a university graduate’s wage premium had fallen 22% in a decade.

Factoring in the steep cost (and stress) of student loans, university is not an obvious choice anymore.

More importantly, student debt can really limit a young person’s options.

When you’re staring down the barrel of $50,000 owed to the federal government, you don’t have the luxury to take a year off, travel the world, and learn a foreign language.

Or to NOT take a job and start a business.

Or to take a lower paying job where you’ll learn more.

You’re relegated to the first available option that pays down the most debt.

And that certainly has a long-term impact.

I also feel like all of these studies are flawed; they’re not really making an apples-to-apples comparison.

Students attend university because they’re making an investment in themselves… in their education.

So rather than simply comparing the wages of university graduates to non-graduates, it would make more sense to compare graduate salaries to the earnings of other people who made ‘non-university investments’ in their education.

I’ll give you an example.

One of my closest friends is Matt Smith. I’ve known him for over 10 years, and, in addition to being a great friend, he’s also a brilliant businessman who has become phenomenally successful many times over.

But Matt didn’t learn how to start, build, and run a successful business by indebting himself at university.

He briefly attended college, but dropped out.

Instead of spending his 20s in a university classroom, Matt focused all of his resources and energy to find talented entrepreneurs that he could work for… and learn from.

He moved around a lot, going wherever he had to go and taking whatever shit job was necessary, sleeping on the floor if he had to, in order to learn from successful people.

When he first started out, he knew absolutely nothing about business.

But over time as he watched, listened, and practiced, Matt developed the skills and experience that have been so integral in his own success.

It’s a simple premise when you think about it– if you want to be successful, learn from successful people.

It’s not to say that a university education is a waste of time and money (though an electrical engineering degree is probably a better investment than majoring in ‘18th century lesbian studies’).

The point is that going to university and racking up $50,000 in debt solely for the sake of obtaining a piece of paper is bad idea.

Any investment– especially the one you make in yourself and your education– requires careful thought and planning.

That’s precisely what Matt did.

He didn’t attend university. But his deliberate plan to build up his business skills was clearly an investment in his education… and one that paid off handsomely.

PS-

As a final point, I’d like to mention that Matt is one of my co-instructors at the annual entrepreneurship workshop that we hold in Europe each summer.

This is a FREE event that our educational foundation been sponsoring for nine years: five days of life-changing, intensive mentorship from successful entrepreneurs.

It’s a significant investment of our own time and money in the businesses and financial education of our attendees… and it’s one of the highlights of my year.

But with only ~50 slots available, the selection rate is highly competitive.

The application deadline is coming up soon; so if you’re interested, you can learn more at www.sovereignacademy.org.

Source
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Sovereign ManSovereign Man wrote the following post Tue, 27 Feb 2018 09:47:02 -0500
Treasury Department reports $1.2 TRILLION loss in 2017
Treasury Department reports $1.2 TRILLION loss in 2017

Earlier this month, the United States government released its annual financial report for the year 2017.

This is something the government does every year, similar to how large companies like Apple, or Warren Buffett’s Berkshire Hathaway, publish their own annual reports.

Unlike Berkshire and Apple, though, whose financial reports typically show strong, positive results, the US government’s financial statements are a complete horror show.

Right at the beginning of the report, the government explains that it’s “net loss” for the year was an unbelievable $1.2 TRILLION.

Read that number again.

$1.2 trillion. That’s simply staggering.

It’s larger than the size of the entire Australian economy… and constitutes a loss of more than $2.2 million per minute.

This is not a conspiracy theory or irrational fantasy.

This is the Treasury Secretary of the United States of America publicly announcing that the federal government lost $1.2 trillion on page ‘i’ of its annual financial report.

What’s even more alarming is that 2017 was a great year.

There was no war. No recession. No epic financial crisis.

In his introductory letter, in fact, the Treasury Secretary proudly stated that “[t]he country enjoyed a pick-up in [economic] growth in 2017. Unemployment is at its lowest level since February 2001, consumer and business confidence are at two-decade highs, and inflation is low and stable.”

In short, everything was awesome in 2017.

Even the government’s overall revenue was a record high $3.3 trillion for the year.

Yet despite all that good news… despite all those positive developments and record revenue… they STILL managed to lose $1.2 trillion.

If the government loses $1.2 trillion in a GOOD year, how much do you think they’ll lose in a BAD year? How much will they lose when they actually do have a recession to fight? Or another war. Or a major banking crisis?

More importantly, how long can something so unsustainable possibly last?

But the fun doesn’t stop here.

Further in the report, the government reviews its own assets and liabilities… effectively calculating its “net worth”.

It’s just like how an individual might calculate his/her own net worth– you add up the value of your assets, like your home, car, and bank account balances. Then subtract liabilities like mortgage and credit card debt.

The end result is your net worth. And hopefully it’s positive.

The government’s is hopelessly negative: MINUS $20.4 trillion. (See page 55 of the report.)

And that’s worse than its result from the previous year’s MINUS $19.3 trillion– meaning that the government’s net worth decreased by about 6% year over year.

To be clear, a net worth of negative $20.4 trillion means that the government added up the values of ALL of its assets. Every tank. Every aircraft carrier. Every acre of land. Every penny in the bank.

And then subtracted its enormous liabilities, like the national debt.

The difference is negative $20.4 trillion, i.e. the government has far MORE liabilities than it has assets.

If the government were a business, it would have gone bankrupt long, long ago.

On top of that, though, the government separately calculated its long-term liabilities from Social Security and Medicare.

As we frequently discuss, both Social Security and Medicare are running out of money.

And according to the government’s own calculations (on page 58), the “total present value of future expenditures in excess of future revenue” for Social Security and Medicare is MINUS $49 TRILLION.

Essentially this means that the two largest and most important pension and healthcare programs in the United States are insolvent by nearly $50 trillion.

Altogether, the government is in the red by almost $70 trillion.

It’s remarkable that this is not front page news.

There has not been a single utterance from mainstream media about the pitiful, dangerously unsustainable finances of the federal government.

I’m certainly not suggesting that the sky is falling, or that there’s some imminent disaster that will strike tomorrow morning.

But any rational person needs only look to the pages of history to find dozens of examples of once dominant powers who were crippled by their excessive debts.

It may take several years to feel the full impact. But it would be utterly foolish to believe that this time is different.

Source
 debt
  
Sovereign ManSovereign Man wrote the following post Mon, 12 Feb 2018 11:05:10 -0500
This may be the beginning of the Great Financial Reckoning
This may be the beginning of the Great Financial Reckoning

Less than two weeks ago, the United States Department of Treasury very quietly released its own internal projections for the federal government’s budget deficits over the next several years.

And the numbers are pretty gruesome.

In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year.

Then nearly $1.1 trillion next fiscal year.

And up to $1.3 trillion the year after that.

This means that the national debt will exceed $25 trillion by September 30, 2020.

Remember, this isn’t some wild conspiracy theory. These are official government projections published by the United States Department of Treasury.

This story alone is monumental– not only does the US owe, by far, the greatest amount of debt ever accumulated by a single nation in human history, but $25 trillion is larger than the debts of every other nation in the world combined.

But there are other themes at work here that are even more important.

For example– how is it remotely possible that the federal government can burn through $1 trillion?

Everything is supposedly totally awesome in the United States. The economy is strong, unemployment is low, tax revenue is at record levels.

It’s not like they had to fight a major two front war, save the financial system from an epic crisis, or battle a severe economic depression.

It’s just been business as usual. Nothing really out of the ordinary.

And yet they’re still losing trillions of dollars.

This is pretty scary when you think about it. What’s going to happen to the US federal deficit when there actually IS a financial crisis or major recession?

And none of those possibilities are factored into their projections.

The largest problem of all, though, is that the federal government is going to have a much more difficult time borrowing the money.

For the past several years, the government has always been able to rely on the usual suspects to loan them money and buy up all the debt, namely– the Federal Reserve, the Chinese, and the Japanese.

Those three alone have loaned trillions of dollars to the US government since the end of the financial crisis.

The Federal Reserve in particular, through its “Quantitative Easing” programs, was on an all-out binge, buying up every long-dated Treasury Bond it could find, like some sort of junkie debt addict.

And both Chinese and Japanese holdings of US government debt now exceed $1 trillion each, more than double what they were before the 2008 crisis.

But now each of those three lenders is out of the game.

The Federal Reserve has formally ended its Quantitative Easing program. In other words, the Fed has said it will no longer conjure money out of thin air to buy US government debt.

The Chinese government said point blank last month that they were ‘rethinking’ their position on US government debt.

And the Japanese have their own problems at home to deal with; they need to scrap together every penny they can find to dump into their own economy.

Official data from the US Treasury Department illustrates this point– both China and Japan have slightly reduced their holdings of US government debt since last summer.

Bottom line, all three of the US government’s biggest lenders are no longer buyers of US debt.

There’s a pretty obvious conclusion here: interest rates have to rise.

It’s a simple issue of supply and demand. The supply of debt is rising. Demand is falling.

This means that the ‘price’ of debt will decrease, ergo interest rates will rise.

(Think about it like this– with so much supply and lower demand for its debt, the US government will have to pay higher interest rates in order to attract new lenders.)

Make no mistake: higher interest rates will have an enormous impact on just about EVERYTHING.

Many major asset prices tend to fall when interest rates rise.

Rising rates mean that it costs more money for companies to borrow, reducing their leverage and overall profitability. So stock prices typically fall.

It’s also important to note that, over the last several years when interest rates were basically ZERO, companies borrowed vast sums of money at almost no cost to buy back their own stock.

They were essentially using record low interest rates to artificially inflate their share prices.

Those days are rapidly coming to an end.

Property prices also tend to do poorly when interest rates rise.

Here’s a simplistic example: if you can afford the monthly mortgage payment to buy a $500,000 house when interest rates are 3%, that same monthly payment will only buy a $250,000 house when rates rise to 6%.

Rising rates mean that people won’t be able to borrow as much money to buy a home, and this typically causes property prices to fall.

Of course, higher interest rates also mean that the US government will take a major hit.

Remember that the federal government already has to borrow money just to pay interest on the money they’ve already borrowed.

So as interest rates go up, they’ll be paying even more each year in interest payments… which means they’ll have to borrow even more money to make those payments, which means they’ll be paying even more in interest payments, which means they’ll have to borrow even more, etc. etc.

It’s a pretty nasty cycle.

Finally, the broader US economy will likely take a hit with rising interest rates.

As we’ve discussed many times before, the US economy is based on consumption, not production, and it depends heavily on cheap money (i.e. lower interest rates), and cheap oil, in order to keep growing.

We’re already seeing the end of both of those, at least for now.

Both oil prices and interest rates have more than doubled from their lows, and it stands to reason that, at a minimum, interest rates will keep climbing.

So this may very well be the start of the great financial reckoning.

Source
 debt
  
And with USA being so big - the rest of the world will be affected.
  
I've got a post on the "we owe it to ourselves" B.S. that some people like to say rolling around in my head. Maybe at some point I'll write it down.
  
Senate reaches budget deal to clean out your wallet | Libertarian Party

“The ‘bipartisan deal’ means that the politicians get what they want,” Sarwark said. “We, as taxpayers, will pay an extra $400 billion according to the Washington Post. More precisely, because nearly all this extra spending will be funded by borrowing more money, our children, grandchildren, and great-grandchildren will pay. In individual terms, this means that every man, woman, and child in the United States will have $1,238 added to their federal tab. When we combine that with the GOP tax cut of $1.5 trillion, which was not accompanied by reduced spending, our additional federal credit charge adds up to $5,880 per person.”

What was the definition of "bipartisan" I gave just the other day?
  
I've assumed for decades that I would not be able to depend on Social Security when I got older. My eligibility isn't that far off and I haven't changed that assumption.

Sovereign ManSovereign Man wrote the following post Mon, 05 Feb 2018 10:33:43 -0500
This tiny corner of Rhode Island shows us the future of Social Security
This tiny corner of Rhode Island shows us the future of Social Security

The United States Court of Appeals for the First Circuit gave us an interesting glimpse of the future last week when it ruled on an obscure case involving government pension obligations.

Ever since the mid-1990s, police officers and fire fighters in the town of Cranston, Rhode Island had been promised state pension benefits upon retirement.

But, facing critical budget shortfalls over the last several years that the Rhode Island government called “fiscal peril,” the state legislature voted to unilaterally reduce public employees’ pension benefits.

Even more, these cuts were retroactive, i.e. they didn’t just apply to new employees.

The changes were applied across the board; workers who had spent their entire careers being promised certain retirement benefits ended up having their pensions cut as well.

Even the court acknowledged that these changes “substantially reduced the value of public employee pensions provided by the Rhode Island system.”

So, naturally, a number of municipal employee unions sued.

And the case of Cranston’s police and fire fighter unions made it all the way to federal court.

The unions’ argument was that the government of Rhode Island was contractually bound to pay benefits– these benefits had been enshrined in long-standing state legislation, and they should be enforced just like any other contract.

The state government disagreed.

In their view, the legislature should be able to change laws, even retroactively, whenever it suits them.

Last week the First Circuit Court issued a final ruling and sided with the state of Rhode Island: the government has no obligation to honor its promises.

News like this will never make major headlines.

But here at Sovereign Man our team pays very close attention to these obscure court cases because they often set very dangerous precedents.

This one certainly does. Because Social Security is in even WORSE condition that the State of Rhode Island’s perilous pension system.

We talk about this a lot in our regular conversations.

According to the Board of Trustees for Social Security (which includes the US Treasury Secretary, the US Secretary for Health & Human Services, and the US Secretary of Labor), the Social Security trust funds “become depleted and unable to pay scheduled benefits in full on a timely basis in 2034.”

Once again– that’s the Treasury Secretary of the United States saying that Social Security will run out of money in 16 years.

You’d think this would be shouted from the rooftops, especially given how long it takes to save for retirement.

Yet instead the news is ignored or flat-out rejected by people who simply want to believe either that it’s not a problem, or that the government has some magical solution.

The First Circuit just showed us what the solution is: cutting benefits.

And now the government has legal precedent to do so.

They can retroactively slash whatever benefit they want in their sole discretion regardless of what legislation exists, or what promises have been made in the past.

Let’s be smart about this: the clock is ticking. Sixteen years may seem like a lifetime away, but with respect to retirement, it’s nothing.

Securing a comfortable retirement takes decades of careful planning, and a lot of folks are going to have to catch up.

Fortunately there are a lot of options available, but you’re going to have to take deliberate action.

For example, you could set up a more robust structure to help you put away even more money for retirement and invest in safer, more lucrative assets that are outside the mainstream.

A number of our readers, for example, are safely earning double-digit returns in secured, asset-backed lending deals with their properly structured IRA and 401(k) vehicles.

Here are a couple of options to consider.

This problem is completely solvable. But you’re going to have to solve it for yourself. You can’t rely on the government to fix it.

The First Circuit Court affirmed last week without a doubt that government promises aren’t worth the paper they’re printed on.

Source
 debt
  
I was listening to a podcast this morning and an interesting observation was made. Debt, equity, and government promises in some ways boil down to the same thing -- Paying for something now in exchange for the hoping to get something (hopefully more) back in the future.
Debt = I give you money now expecting to get that money back plus interest in the future
Equity = I give you money for ownership shares now expecting that I will get a higher price for them (and maybe dividends) in the future
Government promises = I pay you taxes now expecting that I will get valuable government services in the future
  
I sent this article to a friend in the financial services business and she thought it was a scary precedent. I told her:
Unfortunately, after decades of underfunding public pensions (which would probably be criminal, if a private entity did it), the choices in a lot of places are going to be either cut benefits before bankruptcy or cut benefits after bankruptcy.
  
Sovereign ManSovereign Man wrote the following post Wed, 31 Jan 2018 11:35:10 -0500
“We choose debt. . .”
“We choose debt. . .”

I’ve long held a working theory that US voters are completely predictable in Presidential elections.

The idea is that Americans almost invariably tend to swing wildly every few election cycles, voting for the candidate who is as close to the opposite of the current guy as possible.

Let’s go back a few decades to, say, Jimmy Carter.

In 1976, the country was sick and tired of the corruption, scandal, and disgrace of Richard Nixon’s administration (which at that point had been inherited by Gerald Ford).

Jimmy Carter was pretty much the opposite of Richard Nixon– a youthful outsider versus an aging crony.

After four years of economic disaster, Americans swung in the opposite direction from Carter, choosing an older, polished conservative in Ronald Reagan who represented strength and stability.

That trend lasted for twelve years– two terms with Reagan, and one term with his successor George HW Bush, after which the country swung in the other direction again– to Bill Clinton.

Clinton was another young, energetic liberal, pretty much the opposite of the elderly, curmudgeonly Bush.

After eight year of Clinton and his personal scandals, the country swung again to George W. Bush, a God-fearing, fundamental conservative who wouldn’t cheat on his wife. He represented Clinton’s opposite.

And after eight years of war and economic turmoil, the country swung once again to Bush’s opposite– a youthful, charismatic, black outsider.

Eight years later, the 2016 election was won by a man who is as far from Barack Obama as it gets.

Now, however you feel about the current guy, it’s safe to say that the country is probably going to wildly swing in the opposite direction in either 2020 or 2024.

Last night the world got a sneak peak at what that might look like– Congressman Joe Kennedy III, the 37-year old grandnephew of John F. Kennedy.

The young Congressman clearly represents Trump’s opposite and seems to embody so many of the gargantuan social movements that are coming to a head– the Dreamers, #metoo, BlackLivesMatter, etc.

Now, I typically hate talking about something as trite as politics and elections; elections merely change the players. It’s the game that’s rotten.

But in the Congressman’s rebuttal last night after the State of the Union address, he said something that I found quite alarming, almost inconceivable.

He lamented that the government has turned America into a “zero-sum game” where benefits received by one group must come at the expense of another– fund health insurance by cutting funding for education; build new highways by slashing teachers’ pensions.

He cited a number of examples, and then told his audience, “We choose both!”

Given the thunderous applause at that remark, everyone seemed to agree that the wealthiest, most prosperous nation in the world should never have to make a single tough financial decision.

Americans should have everything they want. And somehow, the money to pay for it all will just magically appear.

I found this astonishingly naive. He should have said, “We choose debt!” Because that’s the only way they’ll be able to pay for any of it.

Bear in mind the US government is already nearly $21 trillion in the hole and spending hundreds of billions of dollars each year just to pay interest on the debt.

In Fiscal Year 2017, in fact, the Treasury Department reports that interest payments on the debt hit a new high of $458,542,287,311.80.

That’s about 15% of federal government tax revenue… just to pay interest.

On top of that, the government spent another $2.15 trillion on Social Security and Medicare, and $720+ billion on defense spending.

So– just between interest, Social Security, Medicare, and Defense, they spent $3.3 trillion.

Total tax revenue was only $3 trillion to begin with.

So before they paid for ANYTHING else… National Parks, Homeland Security, infrastructure, foreign aid, or even paid the electric bill at the White House, they were hundreds of billions of dollars in the hole.

On top of that, the federal government has entire trust funds that are completely insolvent.

Both the Federal Highway Fund and the Disability Insurance fund, for example, have been bailed out within the last two years.

And there are several more, from the Pension Benefit Guarantee Corporation to Social Security itself.

This amounts to literally tens of trillions of dollars in liabilities; according to the Treasury Department’s own estimates from Fiscal Year 2016, its long-term liabilities amount to $46.7 trillion.

I find it simply extraordinary how few people in power seem to have a grasp on the magnitude of these long-term challenges.

Instead, the solution is to give everything to everyone without ever having to make a single responsible financial decision.

It’s total lunacy, a new form of American socialism that will be the final nail in the fiscal coffin.

And if history is any indicator, it’s coming… possibly as early as 2020.

Source
 debt
  
I predict that Kamala Harrison will have a good shot at the presidency if she can be loud enough to be heard over the cacaphony.

...but yes, massive debt and carrying on as if it is no problem seems to be our modus operandi here in the U.S.
  
Yes, But at What Cost?

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The status quo delights in celebrating gains, but the costs required to generate those gains are ignored for one simple reason: the costs exceed the gains by a wide margin. As long as the costs can be hidden, diluted, minimized and rationalized, then phantom gains can be presented as real.
 debt
  
Meet the new debt ceiling: $20.493 trillion
(Same as the old debt ceiling + half a trillion)

The federal government is bumping up against a new borrowing limit, one that was imposed at the end of Friday.

The debt ceiling was suspended for about three months in September, which allowed the federal government to borrow as much money as it needed during that period. The government borrowed more than $500 billion in the last few months when the ceiling was suspended.

But after Friday, the debt ceiling took effect once more. The new limit is $20.493 trillion, which a government website said on Monday was the total amount of accrued debt as of Friday.

Now, the total national debt will sit at or around $20.493 trillion until Congress agrees to increase or suspend the ceiling again.
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U.S. Treasury expects to borrow $275 billion in fourth quarter

The U.S. Treasury said on Monday it expects to borrow much less in the last three months of the year than previously announced as it approaches a statutory limit on federal debt.

Well, golly, they only intend to put every man, woman and child in the USA in debt by an additional $843 this quarter and $1570 next quarter. But, it must be OK since it is less that they had planned!


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Sovereign ManSovereign Man wrote the following post Mon, 30 Oct 2017 11:02:22 -0400
The US government quietly added $200+ billion to the debt this month alone.
The US government quietly added $200+ billion to the debt this month alone.

There’s been something happening this month that very few people have noticed.

It’s been lost beneath all the other headline-dominating news, from the Las Vegas shooting to Harvey Weinstein to the Mueller investigation.

But very quietly behind the scenes there’s been an extremely rapid uptick in the US national debt.

In the month of October alone, the US national debt has soared by nearly a quarter of a trillion dollars.

This is pretty astonishing given that October is supposed to be a ‘good’ month for the US Treasury Department; the tax extension deadline means that October is usually quite strong for federal tax receipts.

And it has been– taxpayers have written checks totaling $190 billion to Uncle Sam so far this month.

Yet despite being flush with tax revenue, the US government still managed to pile almost a quarter of a trillion dollars more on top of its already enormous mountain of debt.

It’s always surprising to me how a story this monumental never receives any coverage.

The government of the largest, most important economy in the world is completely, woefully bankrupt. And its rate of decline is accelerating.

You’d think this would be on the front page of every major newspaper in the world.

But it’s not. It’s shrugged off as par for the course, as if accumulating historic levels of debt is somehow consequence-free.

And this complacency is what I find the MOST bizarre.

Consider the following: the US government spends nearly the ENTIRETY of its tax revenue simply on Social Security, Medicare, and Interest on the Debt.

Throw in national defense spending and the budget deficit is already hundreds of billions of dollars.

And that’s before they pay for anything else within the federal government: The Internal Revenue Service. National Parks. Highways. The guys who graze your genitals with the backs of their hands at the airport.

Congress could literally cut almost everything we think of as ‘government’ and they’d still lose hundreds of billions of dollars each year.

Oh, and raising taxes doesn’t solve this problem.

Over the past eight decades since the end of World War II, tax rates in the United States have been all over the board.

The highest marginal tax rate on individual income has been as high as 92% (in 1952-1953) and as low as 28% (1988-1990).

The corporate tax rate has gyrated between 53% and 34%. Capital gains rates have been as high as 35% and as low as 15%.

Yet throughout it all, overall tax revenue as a percentage of GDP has barely budged.

This is how governments measure tax revenue– as a percentage of the overall economy. It’s like measuring how big a slice of the economic pie ends up in the government’s pocket.

And that figure has barely budged for decades.

The US government’s tax revenue as a percentage of GDP is almost invariably around 17%, i.e. roughly 17% of all US economic value is paid to the federal government as tax revenue.

It doesn’t matter how high (or low) tax rates are set. Tax REVENUE stays the same.

So even if they jack up tax rates back to 90%, IT STILL DOESN’T SOLVE THE PROBLEM.

This is a cost problem; the government simply spends too much money on programs it cannot afford.

The only realistic way out is for the US government to eventually capitulate… and default.

This could mean selectively defaulting on holders of US debt (for example– the Chinese, Japanese, Federal Reserve, Social Security Trust Funds, etc.); one day Uncle Sam simply stops paying.

Or it could mean defaulting on promises made to citizens, like providing a strong national defense, maintaining a stable currency, or paying out Social Security benefits as advertised.

Each of these scenarios has its own particular consequences, ranging from steep inflation to a full-blown global financial crisis.

Bottom line, there is no rosy scenario here.

That’s not to say that any of this is going to happen tomorrow. Far from it. These consequences are years in the making.

But it’s imperative to start doing something about it now.

Social Security is a great example.

As we’ve discussed before, the program is already running out of money.

The Social Security Board of Trustees (which includes the US Treasury Secretary), estimates that its key trust funds will be depleted in 2034, at which point the program will be fully dependent on government tax revenue to pay monthly benefits.

Now, 2034 isn’t exactly around the corner.

But if this debt trajectory continues on its current path, by 2034 the US government will have to spend the bulk of its tax revenue paying interest.

With the Social Security Trust Fund depleted and government tax revenue consumed by interest payments, it’s hard to imagine anyone receiving their full benefits.

This isn’t a problem you want to wait 17 years to acknowledge.

If Social Security ever does dry up, you won’t be able to conjure a monthly pension out of thin air.

That’s why the time to start creating your Plan B is now: it takes time to build up retirement savings.

And even if some miracle were to occur– the national debt declines, Social Security is recapitalized, etc.– you won’t be worse off having an independent source of wealth that doesn’t depend on the government.

Source
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10 Myths About Government Debt
by Learn Liberty on YouTube

Myth 1 is that the government owes “only” $20 trillion. (In reality, it’s much more.) But luckily, Myth 10 is that there’s no way to fix this problem…
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Sovereign ManSovereign Man wrote the following post Wed, 11 Oct 2017 10:13:21 -0400
This is the craziest mortgage scheme I’ve ever seen
This is the craziest mortgage scheme I’ve ever seen

The Great Financial Crisis happened because Wall Street was financing homes for people who couldn’t afford them.

Leading up to the GFC, there was a voracious appetite from investors for “AAA”-rated mortgage debt. So lenders would make lots of loans to subprime borrowers and sell them to Wall Street. Wall Street would pool them together and one of the major ratings agencies (like Moody’s or Standard & Poor’s) would stamp the steaming pile of garbage with AAA.

AAA by Moody’s definition means the investment “should survive the equivalent of the U.S. Great Depression.” In other words, it’s rock solid.

The reasoning was that one subprime mortgage was risky. But if you bundled thousands together, you get AAA… Because they couldn’t all go bad at once. And, hey, you can’t lose money in real estate.

The rating agencies weren’t as dumb as they appeared, though… Investigations following the crisis showed lots of incriminating emails, like this one from a Standard & Poor’s exec:
“Lord help our fucking scam . . . this has to be the stupidest place I have worked at.”

Like everyone else, they played along because they wanted to make money.

To generate enough mortgages to meet demand, lenders would do anything…

–    Sell a house for no money down

–    Offer a teaser rate (which temporarily reduces monthly payments, then jumps to market rates)

–    And even offer to pay part of your mortgage for a couple months (most small lenders could sell a loan to Wall Street in a month or two, erasing their liability. If the origination payment was more than cash out of pocket, they still came out ahead).

They called the worst of the subprime loans “NINJAs” as in “No income, No job, No assets.”

When they couldn’t actually write enough mortgages to meet demand, Wall Street got creative. They started bundling together bundles of mortgages, something called a CDO-Squared. Then they created synthetic CDOs, which were just derivatives of subprime mortgages and even other CDOs (essentially a
way for people to gamble on the mortgage market without actual mortgages).

As we all know, it ended in disaster… because the people who took out the mortgages they couldn’t afford to buy overpriced homes stopped paying. And the CDOs, CDOs-squared and synthetic CDOs (which had been spread around the world) went bust.

Remember, it all started with selling people homes they couldn’t afford. Which brings me to today…

There’s a record high $1.4 trillion of student debt in the US. And millennials are struggling to pay off those balances.

The National Association of Realtors polled 2,000 millennials between the ages of 22-35 about student debt and homeownership… Only 20% of those surveyed owned a home… Of the 8 in 10 that didn’t own, 83% of them said student debt was the reason. And 84% said they’d have to delay a home purchase for years (seven years being the median response).

And that’s all bad for the home-selling business. Once again, the lenders are getting creative…

Miami-based homebuilder, Lennar Homes, recently announced it would pay a big chunk of a student loan for any borrower buying a home from them.

Through its subsidiary Eagle Home Mortgage, the company will make a payment to a buyer’s student loans of as much as 3% of the purchase price, up to $13,000.

Debt has become such a keystone of our society, that the only way we can afford something is to swap one type of debt they can’t afford with another type of debt.

A recent study by the Pew Charitable Trust showed 41% of US households have less than $2,000 in savings – a full one-third have zero savings (including 1 in 10 families with over $100,000 in income). Another study showed 70% of Americans have less than $1,000 in savings.

The point is, America is broke… A single, surprise expense like a flat tire or a doctor’s visit would wipe most people out.

And it’s only getting worse.

Back in August, I calculated the average household account at Bank of America (which has $592 billion in consumer deposits from 46 million households)… It’s only $12,870 per household… And that includes savings, investments, retirement… EVERYTHING.

Also keep in mind, that’s the average… So accountholders with huge balances skew the numbers higher.

It’s no wonder Americans have $1.021 trillion in credit card debt – the most in history.

Auto loans are also at a record high $1.2 trillion.

And let’s not forget the US government, which is in the hole more than $20 trillion. The US’ debt is now 104% of GDP… And total debt has grown 48% since 2010.

The liability side of the balance sheet keeps expanding. Meanwhile assets and productivity aren’t keeping up.

But people continue buying homes, cars, TVs and college educations by taking on more and more debt… And now, by swapping one type of debt for another.

Wealth is built on savings and production. Not on playing tricks with paper and going deeper into debt.

I can’t tell when this house of cards falls. But rest assured, it will come tumbling down.

Will you be ready when it does?

Source
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Sovereign ManSovereign Man wrote the following post Fri, 06 Oct 2017 10:37:29 -0400
The US government lost nearly $1 trillion in FY2017. Again
The US government lost nearly $1 trillion in FY2017. Again

There was a time, centuries ago, that France was the dominant superpower in the world.

They had it all. Overseas colonies. An enormous military. Social welfare programs like public hospitals and beautiful monuments.

Most of it was financed by debt.

France, like most superpowers before (and after), felt entitled to overspend as much as they wanted.

And their debts started to grow. And grow.

By the eve of the French revolution in 1788, the national debt of France was so large that the government had to spend 50% of tax revenue just to pay interest to its lenders.

Yet despite being in such dire financial straits the French government was still unable to cut spending.

All of France’s generous social welfare programs, plus its expansive military, were all considered untouchable.

So the spending continued. In 1788, in fact, the French government overspent its tax revenue by 20%, increasing the debt even more.

Unsurprisingly revolution came the very next year.

There are presently a handful of countries in the world today in similar financial condition– places like Greece, which are so bankrupt they cannot even afford to pay for basic public services.

But the country that has the most unsustainable public finances, by far, is the United States.

The US government’s ‘Fiscal Year’ runs from October 1st through September 30th. So FY2017 just ended last Friday.

During that period, according to the Department of Treasury’s financial statements, the US government took in $2.95 trillion in federal tax deposits.

And on top of that, the government generated additional revenue through fees and ‘investments’, including $62 billion in interest received on student loans, and $16 billion from Department of Justice programs like Civil Asset Forfeiture (where they simply steal property from private citizens).

So in total, government revenue exceeded $3 trillion.

That sounds like an enormous amount of money. And it is. That’s more than the combined GDPs of the poorest 130 countries in the world.

But the US government managed to spend WAY more than that– the budget for the last fiscal year was $4.1 trillion.

So to make up the shortfall they added $671 billion to the national debt– and this number would have been even larger had it not been for the debt ceiling fiasco.

Plus they whittled down their cash balance by $194 billion.

So in total, the federal government’s cash deficit was $865 billion for the last fiscal year.

And, again, that number would have been even worse if not for the debt ceiling that legally froze the national debt in place.

That’s astounding.

Just like in 2016 (where the cash deficit was $1 trillion), this past fiscal year saw no major recession. No full-scale war. No financial crisis or bank bailout.

It was just another year… business as usual.

And yet they still managed to overspend by nearly $1 trillion, with costs exceeding revenue by more than 20% (just like the French in 1788).

What’s going to happen to these numbers when there actually is a major war to fund? Or major recession? Banking crisis?

More importantly, they’ve been overspending like this for decades without any regard for the long-term consequences.

That’s why the national debt exceeds $20 trillion today. And including its pension shortfalls, the government estimates its total ‘net worth’ to be NEGATIVE $65 trillion.

Thousands of people are joining the ranks of Social Security and Medicare recipients each day, pushing up the costs of those programs even more.

Yet their Boards of Trustees warn that both Social Security and Medicare are quickly running out of money, raising the specter of a major bailout.

Plus there’s trillions of dollars more in needed spending to maintain the nation’s infrastructure. The list of long-term expenses goes on and on.

The obvious truth is that none of this is sustainable.

From the Roman Empire to the French in 1788, history tells us that the world’s dominant superpower almost invariably spends itself into decline, ignoring the consequences along the way.

It would be foolish to presume that this time will end up any different… especially given that there’s zero sign of any changes to the trajectory.

Congress has already put forward a new spending bill for this Fiscal Year– another 4+ trillion, not including any emergency spending that might arise (like hurricane relief, for example).

So we’re already looking at another nearly $1 trillion loss for the coming fiscal year, especially given that there’s almost no growth to tax revenue.

Don’t take this the wrong way– the sky is definitely not falling. The world isn’t coming to an end. And the US isn’t going to descend into financial chaos tomorrow morning.

But at a certain point, a rational person has to take note of such obvious and overwhelming data, and take some basic steps to reduce your exposure to the consequences.

For example, if your country is objectively insolvent, it probably doesn’t make sense to keep 100% of your assets and savings within its jurisdiction…

… especially if your government has a proud history of Civil Asset Forfeiture, AND you happen to be living in the most litigious society that has ever existed in the history of the world.

It’s easy (and incredibly cost effective) to move a portion of your savings to a safe, stable jurisdiction overseas that’s out of harm’s way.

Or to hold physical gold and silver in a safety deposit box overseas. Or even cryptocurrency as an alternative.

This isn’t some crazy idea for tin-foil hat-wearing doomsayers.

Rational, reasonable, normal have a Plan B.

And in light of the circumstances and all the data, it would be truly bizarre to NOT have one.

Source
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Our Amazing Debt (Cosmos Parody)
by ReasonTV on YouTube

The math behind the National Debt is so complex that Reason TV decided to lean on "Cosmos" to explain it.
 debt