Consider this doomsday scenario:
Catastrophic impacts felt by every American.
A broad range of government payments stopped, limited, or delayed, including military salaries, Social Security, and Medicare payments, interest on debt, unemployment benefits, and tax refunds.
Sharply higher interest rates and borrowing costs, declining home values, and reduced retirement savings for Americans.
In sum, a financial crisis more severe than the crisis from which we are only now starting to recover.
My words? Not a single one!
They are all taken directly from a widely distributed Treasury Department letter dated exactly one week ago.
The letter is addressed to Speaker of the House John Boehner.
The signer is Treasury Secretary Tim Geithner.
And his single purpose is absolutely clear:
To implore Congress to act urgently — to raise the nation’s debt limit and let the federal government continue borrowing to its heart’s content. As long as Congress can agree to that one piece of legislation, goes the appeal, the United States can avoid the doomsday scenario with no further ado.
However, his letter fails to address two facts of extreme relevance and significance …
Fact #1. Mr. Geithner is not the first Treasury Secretary in recent years to pull the doomsday card in order to persuade Congress to act urgently.
In November 2008, his predecessor used the same tactic but with the addition of some body language:
With Wall Street on the verge of a total meltdown, former Treasury Secretary Henry Paulson literally bent down on one knee and pleaded with House Speaker Nancy Pelosi not to blow up the financial system by withdrawing her party’s support for the largest bank bailout of all time.
What’s the connection between Paulson’s plea two and a half years ago and Geithner’s plea last week?
Mike Larson and I provided the answer a few weeks before Paulson’s plea to Pelosi — in our white paper to Congress on September 25, 2008.
In it …
We demonstrated precisely how and why government bailouts to end the private-sector debt crisis on Wall Street would inevitably lead to an even larger debt government crisis in Washington.
We later warned that even the most carefully crafted federal bailouts would backfire in other insidious ways as well — in the form of surging prices for food and energy, inflation, higher interest rates.
Further, we warned that, despite all those unintended consequences, we would still have no significant recovery from the housing bust where the debt crisis first blew up.
Now, here we are, some two years later — and each of these disasters is upon us:
We have a debt crisis in Washington of unprecedented dimensions.
We have one of the worst price surges in food and energy costs of our lifetime, spreading inflation and rising interest rates in most major economies of the world.
Yet the U.S. housing depression — where this entire crisis began — never ended. In fact, U.S. home values are now back down to within a hair of the deeply depressed nadir they reached in early 2009!
Fact #2. Also not mentioned in Mr. Geithner’s letter last week is the threatening future scenario that no act of Congress could ever prevent:
An avalanche of Treasury securities dumped on the market by foreign central banks and investors … a dramatic surge in interest rates … followed by a sovereign debt crisis that makes those of Greece and Ireland pale by comparison.
Why? Because Greece and Ireland are small enough to be rescued by Europe and the International Monetary Fund (IMF). But there’s no one on the planet rich enough to rescue the United States of America.
Indeed, the U.S. government now owes foreign governments and investors an unfathomable, unthinkable sum of $4.47 trillion, according to the latest tally of Major Foreign Holders of Treasury Securities.
It’s no secret that the U.S. government’s largest creditor is China, holding $1.15 trillion in U.S. Treasuries.
Nor should it come as a surprise that Japan, the UK, and OPEC nations also hold huge amounts — $890.3 billion, $295.5 billion, and $218.8 billion, respectively.
But what many people don’t realize is that the United States now owes very substantial sums to a total of 31 different sovereign nations, two confederations, and one territory.
Nor have most observers stopped to think what might happen in the event of political upheavals or policy shifts in those nations.
Egypt alone holds $14.9 billion in U.S. Treasuries, more than the total deficit of the United States of yesteryear.
Colombia has $20.1 billion … Italy, $24.3 billion … and Turkey, $34.3 billion. Even Ireland, which is still just a bailout away from bankruptcy, holds $42 billion in U.S. Treasuries.
With so much owed to so many different countries, this is NOT a situation that can be controlled by Tim Geithner, Ben Bernanke, or any official. It can easily become a free-for-all melee of selling that begets more selling.
The problem: Those foreign countries are our creditors. When they sell Treasuries, it’s the equivalent of your banker calling back your loans. And it means those loans America has been counting on to keep it afloat are withdrawn. The only replacement: Paper money from the Fed’s printing presses, driving our cost of living through the roof.
What’s the worst-case scenario? Similar to those described by Paulson and Geithner, except for one major difference: There’s no act of Congress that could stop it.
This great debt crisis is potentially the game-changer of our lifetime. You must not make another investment decision without exploring its full implications, raising serious questions about what it means for you, and getting practical answers that you can act upon promptly.
Join Mike Larson and me on Wednesday and we will do precisely that. We’ll be online with an emergency briefing plus Q&A session at noon Eastern Time (9 AM Pacific, 5 PM GMT).
That’s just a bit over 48 hours from now! If you’ve already secured your free registration, great! If not, click here. Just remember, tomorrow is your last day to do so.
Good luck and God bless!
Martin
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
{ 35 comments }
I really think that this whole thing started when the US gave our jobs away to other countries. At least then we had something to trade for the oil we bought from OPEC. Now we have little to trade other countries for their products except debt and paper money.
Joe, you said: The US “gave away our jobs” – are you thinking of the American government or the American PEOPLE themselves? As a non -American the facts are clear the way I see it: As long as THE PEOPLE choose to only buy at the absolute lowest price in the marked place – meaning Wal-Mart – which are only offering China goods – Well, then THE PEOPLE in their own selfishness and greed are killling (have already killed)
all American manufactoring jobs… Saving the country: Being a patriot, does not mean to wave the American flag – but to buy “made in America” to save your childrens jobs…
Right on, Joe….but there is more than just debt and paper money that we can trade and they are our natural resources and jobs!
What about the possible disruption in the food supply? Do you have any comment on that ?
Simple. Have a six month to a year’s supply of food put away and a garden in the ground every spring. Gardening is not as simple as sticking some seeds in the ground and watering them. Get experience and get prepared!
RIGHT NOW would be an excellent time to start your vegetable garden if you haven’t done so already.
What good is planting a vegetable garden if you are living in a highly populated area. If people become desperate they will take your vegetables at night or they will kill you for them. We are planting our fields this year in a remote, off the grid location because we know that America’s biggest collapse should be striking us before the end of the year.
That is an interesting premise to understand why the USA is a “devalued nation” trying to dig its own grave deeper by raising the debt ceiling even more: due to the increased standard of living of America with a corresponding increase in cost of living, the nation was forced to outsource jobs overseas (cheaper labor, cheaper products) and then import those same goods (that they themselves could have produced) at a cheaper cost than if made nationally. If so, the only way to maintain the wealth of nations is to provide a higher standard of living at the cheapest productive cost possible. Therefore, the fall of nations is due to rising salaries?
The fall of nations is due to run-away welfare programs, idiotic union demands (public and private), and government involvement , such as subsidies.
The Three M’s are bankrupting the country. The first is fear induced over spending on the military. We have over 700 bases overseas. We basically match what the rest of the world combined spends on defense. The Homeland Security is a joke. We only guard air travel. The other two M’s are medicare and medicaid. Both are being ripped off left and right by doctors right down to ambulance services. We cannot spend billions to keep someone breathing for an extra year when they are basically lifeless.
Consumerism requires that we consume. Consumption dictates that we dispose. Disposal usually implies waste. The US – and much od the World – economy is build on the need to waste!! And waste a lot. Trouble is, that model doesn’t work. Any system that works only while dumping most of its value right in the trash just can’t work.
We haven’t got the message yet. Until we all have to think about living within in a sustainable system AND CHANGING OUR LIVES SO THAT WE ACTUALLY DO IT then we are on the road to a massive implosion of every system we know.
We need more pain and more compassion. The sad thing is that change of that magnitude rarely comes about in a controlled manner. As you go about your daily life, just think how many people in the world manage with less energy than a single light bulb. Less energy in a DAY than it takes to make an espresso.
There are no free lunches. No ‘more for less’. The pressure is building to a fierce level. We are stuck in a run-away and seemingly uncontrollable situation. The reversal needs to be to trading consumption for REAL labor doing real, valuable jobs – focussed on reducing consumption.
If the American stock market is not the place to be where would you suggest that money should be invested. One of the problems with our country and others is the GREED and individualistic attitude we all have. I is the letter of the day we have been taught that we deserve what we have and not thinking about anyone else. When the whole thing blows up watch out it won’t be like 1929 when 94% of Americans lived on farms or in the outskirts of the city now it is completely opposite. Every one will be killing everyone to get what they think they deserve.
If most if not all of those countries holding US Treasury Securities were to begin dumping them, then wouldn’t that cause the value of those securities to plummet like a safe falling off a ten story building? Moreover, what countries would be capable of, or even interested in, buying them? If the US debt ceiling is raised, won’t that likely result in a continuation of that shell game where the Federal Reserve buys up more of our Treasuries? There would be little incentive for additional foreign investment in them regardless of higher interest rates as the US’ credit worthiness is virtually kaput.
It seems to me that countries like China who own so much of our debt already almost have to continue buying more to prop up the value of what they already owe. ie: if you owe the bank a thousand dollars, you need to be nice to the banker. If you owe the bank one million dollars, the banker needs to be nice to you!
The Social Security Trust Funds holds more than $4 trillion in US Treasury bonds. These could be sold to meet Social Security obligations as they have already been counted as part of the Federal debt, i.e., their sale is not affected by the debt ceiling. What I fear is that the Federal government will simply steal these from the SS Trust Fund and sell them to keep the Federal government going a while longer. The threat to stop Social Security payments if the government shuts down is nothing more than a threat. Medicare and other programs are in a very different position.
How many of the foreign goverments that hold US Treasury Securities receive contributions from the State Department? The give aways should be reviewed.
Nations fall when they owned by banks – foreign AND domestic.
I read a great book on economics lately. I wanted a better understanding of the word or should I say “the theories” of economics. It appears as though economic theory crosses philosophy or ideology. In short, it seams as though over time, prosperous countries employing capitalism or “free markets” (so it is called) have done what they can to help advance less fortunate countries while exploiting them somewhat. Staterun countries, socialist or communist, only appear to work if there is a black market or some way of obtaining goods not provided by the government. Our “free” system has become dependant on government because of inherent flaws ie: corruption (lobbying and such), greed, waste ……. so we try to regulate everything. The “not so free” systems try to regulate everything, goods and services, and puts up with some marketing (illegal to them). Obviously the best system would use the best traits of both theories and might work if corruption was elliminated.
There is an act of congress that can stop most, not all, creditors from selling our junk bonds.
It is called “Act of war”. We have used it few times for pure financial reasons.
It has double benefit for the ruling class in Wall St and Washington DC. 1- They can loot the invaded country. 2- They transfer even more money from the American public to the ruling class.
Watch for it happening!
We live in a world of 7 billiom people. With a gross world product (GWP) of roughly $45 trillion dollars, that leaves each “world citizen” with an allotment of about $6500 yearly. This places each of us “folks” OF THE PLANET JUST BELOW POVERTY LEVEL as contrived by the US gov’t fake stats.
How would this be working for you?
Paul Erlich of “Population Time-Bomb” fame in the seventies was just a bit off. He missed the mark by fifty years. It ain’t the lack of food that’s our problem. It’s a lack of understanding human nature.
We are a species plagued by power and greed at all levels. This occurs in our neighborhoods(community organizing, unions) at the tribal level and progresses to “world leaders” who spew b.s. that is eagerly comsumed by the masses on a daily basis.
We are not called upon to think and act, but rather to be spoon-fed (mass-media) and coddled (gov’t and entitlements.
“We have seen the enemy………and he is us..”
The central banks and the Council on Foreign Affairs which run this country could well stoke the fires of war by exciting the masses. The logic of the “Party Agnostic” is correct. Remember: There is no such a thing as “too rich” nor “too cynical”. And,—it costs nothing to be cynical even if you don’t have a penny. Just look around you!
We’ve been in this continuing debt cycle for a long time, the United States is a corporation owned by the British, after WW1 we we’re broke Roosefelt used Americans or rather U.S. citizens as collaterial for borrowing more fiat money from the privately owned Federal Reserve, also part of the bank of England ,we are a commoidty owned by the banks to pay by taxes , the IRS is their collection company privately owned company and inflation is a hidden tax……
Our Government works for the owners of the corporation and looks after their interest, Bank bail outs, Tarp and now the books are open to see most of the bail out money went to Foreign banks and friends ,our so called president is no more than the president of the United States Corporation the Federal Reserve holds most of our debt by Treasury securities, it’s all a shell game….please do your research on the real history of America when we became a Republic Nation then sold out and became Corporate owned by a Foreign country and our Debt to the Banksters that operate in a small Corportion 1 square mile called the “City of London” in England………
It’s a long and sad story when you find the real truth…………
At last count over 40 percent of US manufacturing jobs AND infrastructure have been exported, and the trend continues. The wealth generating performance of this value added supply chain is irreplaceable and continues to diminish. Without it’s renewal in robust good health no recovery is possible.
Very intelligent and well educated people engineered this crisis and the fake solutions being atteppted are merely expensive theatre. It is worth considering what the endgame might look like, what is the purpose of this very contrived diaster ?
It is also worth remembering that within the span of one generation ago private investment in precious metals was illegal. It could be so again very quickly.
Exit strategies of various kinds are just as important as intelligent and well informed investment.
lit·er·al·ly
–adverb
1.in the literal or strict sense: What does the word mean literally?
2.in a literal manner; word for word: to translate literally.
3.actually; without exaggeration or inaccuracy: The city was literally destroyed.
The old conudrum,”what if they declared a war and no one showed up” seems to actually apply to the current situation in the form of, “what if they held a governmen bond auction and no buyers at all showed up?” That is patently the status today, as the US Government (the Fed) buying its own debt instruments issued by itself (the Treasury) is patently phoney, akin to a society attempting to “make a living by taking in each other’s laundry”! We have reached the point on this planet in which it is impossible to ignore the fact that we are one closed system, with no place left to “hide” our malfeasence, and no other way to deceive except to push the problem down the timeline to our (naive) children and further generations…but at some point that, itself, will be impossible because no one will remain that naive (continue to believe in) EVER receiving “repayment” for any debt. What then, do we simply default on all debt? In such case, what could possibly be the form of “starting over”?
Martin – I just love it how Tiny Tim Geithner wrote in his letter to Boehner (and thus the House of Representatives) that “A broad range of government payments stopped, limited, or delayed, including military salaries Social Security, and Medicare payments…” I love how Timmy stirs up the fear factor by mentioning “military salaries.” Why not say “The Secretary of the Treasury and other government big wigs will have to go without a paycheck….even Barack Hussein Obama…will go without HIS paycheck.” Hey – that would be the best thing that ever happened to America. We don’t NEED these people. They have bankrupted us. They are spending us into extinction. Tiny Tim wants to swipe the Master Card through the reader one more time in order to allow our government to continue? What a travesty! CUT THE SPENDING YOU MORONS !!!
Whatever religion one is, most all have heard the story of when Moses went up the mountain the people melted all their jewelry and fasioned a calf out of gold and began to worship it. Although there are many implications for this story, the gold represented wealth as any jewelry allways has. There’s nothing intrinsicly wrong with wealth in and of itself, it’s the worship of it that appears to cause problems. We’ve all heard that the love of money is the root of all evil, maybe it should have been interpreted the love of money being “at” the root of all evil. My generation was essentially taught…. “get a good education so that you can get a good (paying) job”…… the implication being, so that you won’t suffer as much as those who have to work ……….so hard……… for little pay. Too bad that most of the jobs (left in the USA) that pay….. well require that you finagle, lie and cheat, for the boss man……. or in todays business environment, boss woman. Most business professionals (crooks) are super insulated by teams of minions who are essentially reading from scripts written by the corporate legal staff. Wonder why?
The idea that foreign countries will just dump US dollars because they are unhappy with the US debt situation is just plain stupid. All those countries have a vested interest in a strong dollar because their exports are based on a (relatively) weak local currency and a (relatively) strong dollar. If they dump their dollars they will either have to accept a reversal in their export situation (very damaging to their economies) or devalue their own currencies to keep their currencies competetive. The only way the US can fight this is if the dollar become just another currency competing for an advantage against an International Monetary Unit of fixed value.
Here’s the issue: is there a real alternative to the US dollar? The Euro? Not likely given the VERY serious financial problems of Portugal, Ireland, Greece and Spain, which may end up collapsing the Eurozone. The Chinese yuan? There are a lot of rumblings of Chinese banks being WAY over-leveraged, and that could collapse the value of the yuan if any of the big Chinese banks collapse. A new currency based on the bourse operated by the Persian Gulf oil-producing states? That’s even less likely given the political instability of the Persian Gulf in the last year or so.
In short, the whole world may have no choice but to return to asset-based currencies based on a combination of the value of gold, silver, platinum, palladium, copper and nickel (the most common metals used in coins and bullion blocks for monetary exchange).
Sorry Guys, but I reckon its too late for you Americans, and if we are not carefull us Aussies will be in deeper hot water as well. The real cause of the problem as I see it begins when a government sets out to continually mislead/deceive its people.
It is commonly accepted that politicians tell lies…We even expect that they will tell lies…we know they tell lie after lie..Look how much they spend on “spin doctors”…and we the people put up with this load of garbage… How dumb are we !!! The movement away from the Gold standard was the beginning of the end.
The problem wont be resolved until someone somewhere within the govts of the world actually stands up for the truth. Corrupt Govts are being ousted left right and centre…Not just the middle east, look what happened to the state govt in NSW recently….a peaceful revolution perhaps?. I dont see the situation in the USA staying peaceful for too long. When people cant afford to feed themselves, clothe themselves and support their loved ones with some degree of honor and self respect…they get angry. Very angry. Stay tuned for civil unrest in the USA, and a bunch of politicians that will create distractions ( assassinate Osama, create another war, fuel fears about terrorist attacks…blah blah blah) to keep the people under control.
The US govt is absolute crap, and so is the Australian govt. These clown couldn’t lie straight in bed.
This is what happens when you give the nations money creation power to a for profit banking cartel. Surprise, surprise – you end up with a TON of debt and all the politicians line up to save the banks from their own noose around their necks. To solve the problem the US should print dollar bills (not borrow Federal Reserve notes) for payment of debts, End the Fed, and repeal the 1864 Banking Act.
That will stabilize the economy short-term, then we’ll have to slash government spending like crazy and enact sane taxation laws. I prefer a repeal of the income tax and a national sales tax and tariffs. If that is impossible to do then I prefer a flat tax to give everyone some incentive to not vote Democrat ever again.
Ken Young wrote:
What I fear is that the Federal government will simply steal these ( US Treasury bonds) from the SsTrust Fund and sell them to keep the federal government going a while longer.
Ken:
The reason the US Treasury bonds are in the trust fund is due to the excess FICA dollars being loaned to the Treasury to pay for current government expenses. While actually lowering the deficits all these years, what remains in the trust fund is simply numbers, not dollars. Even the interest (which has also been loaned) is not dollars, for it was “paid” into the trust fund through debt, additional Treasury securities.
Don’t feel bad, though.
Treasury Secretary Geithner, apparently, is not informed of how the trust fund for federal employees is run. It is run eaxactly like the SS trust fund. There are simply nimbers in the federal employees’ trust funds, not a store of wealth. Instead of simply liquidating assets, as in a typival pension plan, in order to tap the trust fund, as long as we continue to run deficits, extra new cash must be raised by issuing more debt held by the public. The trust fund makes it no easier to pay benefits than if the trust fund did not exist!
When Geithner writes “On May 16th, I will declare a ‘debt issuance suspension period’ under the statute governing the Civil Service retirement and disability fund, permitting us to redeem existing Treasury securities held by that fund as investments.”
Redeeming those Treasury securities means issuing additional debt held by the piublic.
Those Treasury securities were issued in lieu of the principle (real dollars) and interest (debt, Treasury bonds) being lent to the Treasury to pay for current expenses, and lower the deficits.
I can provide reputable governmental citations to back my statements for all who are interested.
Don Levit
Well the incredibly Dour Chicken Littles have found another fulcrum to base their disaster theories upon. If they were not so frequently wrong, I might give them some credence. There will be a compromise. And given Obama’s history. it will be a one-sided.concession by the Wuss.
An “1984” Orwellian nightmare has been realized Freedom is an illusion.As our economy implodes, not by accident but by design. .They have enslaved our children’s children by our national debt. Like the blood thirsty greedy sharks they are they have bankrupted social security. How long do you think it will be before they start ravaging federal & private pension plans for $/ In a cashless society if a fabricated crisis was created to enact martial law, they have control over banking systems, they can erase out your bank account with only one keystroke
http://singularityhub.com/2011/05/06/children-of-guanajuato-mexico-in-biometric-d-base/.
The only thing holding it up at this moment is America has made those countries holding our debts dependent on us for their own economy. If they come collecting and crash us, they go with us. Hehe, we’re all in this together. There’s a reason that global economics was called the “Golden Straightjacket”.