The Case: Why the US is on the brink of the greatest Depression of all time

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Posted by Wayne Allyn Root via Peter Grandich

on Thursday, 30 August 2012 09:30

"This time we are in such deep trouble. This time the results are going to be dramatically worse than 1929. In 1929 America was not $16 trillion in debt,  facing $100 trillion in unfunded liabilities,  over $360,000 in debt per citizen. In 1929, most states were not bankrupt, insolvent and dependent on federal government handouts to survive. One county owes over $108 billion in debt , the biggest part of it in unfunded government employee pensions. Today, 77,000 federal employees earn more than the governors of their states". The American Petroleum Institute reports that demand for oil in July was at the lowest level since 1995.

Why we are on the brink of the greatest

Depression of all time 


Everywhere from FoxNews.com to CNBC.com, I suddenly see commentators warning of pending doom, economic collapse, and a new Great Depression. Welcome to my club. Perhaps America's politicians and economists should have paid attention to an entrepreneur and small businessman that has been warning of economic collapse and a new Great Depression publicly for over two years. 

More importantly, none of the current commentaries mention the "why's" of this slow motion economic collapse...beyond the obvious -- mountains of deficit and debt. None of them mention the dysfunctional structure of the current U.S. economy and the massive changes in the work ethic and mindset of the average American. 

I am a successful small businessman and a patriot who loves America and always sees its greatness. I am also an optimistic, positive thinker who always sees the glass half full. 

But not this time. 

This time we are in such deep trouble, the only solution is a radical restructuring of the politicians, the economy, and the way we view personal responsibility versus government handouts. If those changes don't come then we are facing a long decline and the eventual end of America. 

This time the results are going to be dramatically worse than 1929. This time we are facing The Greatest Depression ever.

Why? Because The Great Depression had NONE of the structural, economic, and social problems, nor the massive obligations we are now facing. Read the facts:

In 1929 America was not $16 trillion in debt, plus facing over $100 trillion in unfunded liabilities. That’s over $360,000 in debt per citizen. 

In 1929, most of our states were not bankrupt, insolvent and dependent on federal government handouts to survive. One county (Cook County which includes Chicago, Illinois) now owes over $108 billion in debt (the biggest part of it in unfunded government employee pensions). 

In 1929, we did not have 21 million government employees with bloated salaries, obscene pensions, and free health care for life. Today 1 out of 5 federal employees earn over $100,000

Today, 77,000 federal employees earn more than the governors of their states

Staggering numbers of federal government employees retire at a young age with $100,000 pensions for life. 

Unfortunately on the state and local levels it’s even worse. There is now nearly $4 trillion in unfunded pension liabilities for state government employees. 

Protected by their unions and the politicians they elect, government employees are bankrupting America. In Illinois there are retired government employees making over $425,000 per year

No one could have imagined any of this in 1929. There is no possible way to pay these bills moving forward.

In 1929, Social Security, Medicare, and Medicaid didn’t exist. The federal government had no such obligations threatening to consume the entire federal budget within a few years. 

In 1929, there was no such thing as welfare, food stamps, aid to dependent children, or English as a second language programs. American’s didn’t consider it the responsibility of government to pay for breakfast and lunch for school students -- let alone for illegal immigrants at school.

Who could have imagined back in 1929 that one seventh of America's population would be on food stamps…and the federal government would ADVERTISE to encourage even more Americans to sign up for food stamps and welfare. 

Who could imagine back then that the federal government would team up with the President of Mexico to encourage Mexicans living illegally in America to sign up for food stamps

Who could have imagined back then that the president would offer not just welfare, but waivers to allow any state to opt out of requiring work to receive welfare? 

Back in 1929, who could have imagined 86 pregnant teenage girls all in one Memphis high school? 

In 1929 we had families, moral codes, and churches to prevent this kind of tragedy. Do you actually believe this is just one abnormal high school? There must be record numbers of pregnant teens all over America. They have figured out that the choice is to either work a drab, depressing job paying minimum wage, or pump out babies and have government pay your bills for decades to come. But where will the money come from? This will overwhelm the system with generations of massive debt. This is a nightmare.

In 1929, legal immigrants wanted only to work. My grandparents, who came to this country from Russia and Germany, received no government benefits. They worked day and night to provide for their family and become American citizens. It was sink or swim. My grandmother Anna Root never took a penny in welfare, even when my grandfather died and left her with no job, no money, and 7 young children. So back in 1929 immigrants cost us very little.

Today we have millions of illegal immigrants and their children collecting billions of dollars in entitlements from U.S. taxpayers. 

In one state (California) illegal aliens cost taxpayers over $10.5 billion annually just for education, health care and incarceration. Do you now understand why California is bankrupt and insolvent? This is spreading across the country. 

More dysfunction? Today new studies show that almost 20% of American children under age 18 are obese and therefore prone to suffer pre-diabetes, diabetes, or cardiovascular disease. 

Even worse, by 2020 experts predict that 52% of the adult population of America will have either pre-diabetes or diabetes. 

Do you understand the cost of diabetes? This alone will overwhelm and bankrupt America's health care system.

In 1929 we had no federal disability program. Today almost 11 million Americans are on disability. There are more citizens on the disabled rolls than the population of 39 of our 50 states. This is far worse than the welfare or unemployment rolls- which have time limits. Disability is forever. The ratio of able-bodied workers to disabled in 1967 was 41 to 1. As of June 2012 it is now 16 to 1. It is impossible to pay this bill long term.

But wait...it gets worse. Now soldiers are in on the act. Are you aware 45% of returning vets are claiming "disability" -- a number that dwarfs all prior records in the history of warfare. No nation can afford this. 

In 1929, we had an education system that was the envy of the world. Today our public schools are in shambles. We spend the most money in the world, and get among the worst results. The difference today? Teachers unions are in charge, instead of parents. Our students graduate with few skills, are qualified only for low paying manufacturing jobs that no longer exist -- they've been shipped to China and India. What will this workforce do for the rest of their lives? Live off the government dole? Who will pay for it?

In 1929 taxes were much lower. Forget the tax rates -- they were meaningless. In those days we had a cash economy, so most businesses paid little or no taxes. Sales and FICA taxes didn’t exist. Today the combined local, state, property, gas, sales, FICA and federal taxes are the highest burden in history. 


When income taxes started in 1913, the average American was untouched. Only the richest 350,000 Americans paid a 2% income tax. Today the average American works until April 12th just to pay his or her taxes. 

This stifles entrepreneurship and hinders the financial risk-taking necessary to create jobs and get out of a Great Depression.

New numbers just out for July back up my contention that disaster looms. Sales tax revenues plunged an alarming $539 million below expectations in California last month. The jobless rate rose in July in 9 out of 10 battleground states -- Iowa, Florida, Michigan, Nevada, New Hampshire, Pennsylvania, Virginia, Colorado and North Carolina all had higher unemployment (while Ohio held steady). They say bad news comes in threes. Well here's the worst news of all- the American Petroleum Institute reports that demand for oil in July was at the lowest level since 1995. These figures are alarming -- to say the least.

Do you get the picture? Our country is staring at the Greatest Depression ever. We face a  long slow decline towards the end of America -- unless we change paths and policy quickly.

The economy is crumbling. The situation is turning more hopeless by the hour. The more government gets involved, the worse it gets. Coincidence?

The solution is actually simple: dramatically cut the size, scope and power of government; cut spending; cut entitlements; cut taxes; cut government rules and regulations that smother, damage and destroy businesses, prevent startups, and kill jobs; reform Social Security, Medicare and Medicaid; reform public employee pensions; stop the wars (we can no longer afford to police the world); end or reform the Fed; end bailouts and stimulus (ask Japan about the failures of repeated stimulus); end the Democratic obsession with green energy and high speed rail (ask Spain about the waste in those two programs); encourage oil and energy exploration; encourage job creation by small business and the private sector; term limit politicians; institute school choice; and back the dollar with a gold standard. 

Or, like so many other great empires of history, America may never recover from this Greatest Depression of All Time.

US Unemployment_1910-1960

Wayne Allyn Root is a capitalist evangelist and serial entrepreneur. He is a former Libertarian vice presidential nominee. He now serves as chairman of the Libertarian National Campaign Committee. He is the best-selling author of "The Conscience of a Libertarian: Empowering the Citizen Revolution with God, Guns, Gold & Tax Cuts." For more, visit his website:www.ROOTforAmerica.com.



US dollar starts to breakdown as gold and silver surge ahead

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Posted by Arabian Money

on Monday, 27 August 2012 16:41

A head-and-shoulders pattern in the US dollar chart has broken down and it looks like a big fall is coming for the greenback (see chart below). The warning indicator is rising gold and silver prices, up three and nine per cent respectively last week, a trend that is likely to continue with some volatility.

In his latest commentary chartist Clive Maund said: ‘As we can see on the 8-month chart for the dollar index its drop last week has brought it down to a clearly defined important support level, with this sharp move towards a rising 200-day moving average creating a considerable degree of ‘compression’ that coupled with the support at the current level is likely to trigger a rebound. It looks like a head-and-shoulders top is forming in the dollar.

‘…so a likely scenario here is that we see a rebound short-term which takes the index back up towards the left shoulder high in the 83 area, and such a rebound would of course be the occasion for a reaction back in gold and silver, which should be jumped on as an opportunity to build positions further ahead of the major breakout. Here we should note that the dollar looks very weak so it might not make it as high as 83 before it turns tail and breaks down.’


Posted on 27 August 2012Categories: Banking & FinanceBond MarketsGold & SilverUS Dollar via ArabianMoney.net



China’s growth model is dead in the water!

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Posted by Jack Crooks - Black Swan Capital

on Saturday, 25 August 2012 07:41

Australian Dollar Danger!

SYDNEY, Aug 24 (Reuters) - …Fuelled by Chinese-led demand for its coal, iron ore and other resources, Australia's economy was one of the few in the developed world to sail through the global financial crisis without sliding into recession.

But questions over whether the decade-long bull run in commodities has ended have become louder in recent weeks as data shows China heading for the slowest pace of annual growth in more than a decade, driving down the prices of copper, iron ore and other raw materials.

We have been very bearish on the Australian dollar.  The reason is a simple one.  It is the belief that as China goes, so goes the Australian economy.  

The rationale is clear: the Australian mining sector is the driving force for GDP growth in Australia.  Continued prosperity in the mining sector is a direct function of demand for commodities from China.  We believe Chinese growth is falling fast, much faster than official statistics indicate.  If this is true, the Australian economy has peaked in this cycle and soon the Australian dollar will feel the pain of this deceleration in growth.  

From Professor Michael Pettis, finance professor at Peking University [our emphasis]:

China’s official GDP growth rate has fallen sharply – … Beijing announced that GDP growth for the second quarter of 2012 was a lower-than-expected 7.6% year on year, the lowest level since 2009 and well below the 8.1% generated in the first quarter. This implies of course that quarterly growth is substantially below 7.6%.  Industrial production was also much lower than expected, at 9.5% year on year. In fact China’s real GDP growth may have been even lower than the official numbers.  This is certainly what electricity consumption numbers, which have been flat, imply, and there have been rumors all year of businesses being advised by local governments to exaggerate their revenue growth numbers in order to provide a better picture of the economy.

Some analysts believe China’s growth was flat for the second quarter.  But China never lets its official numbers get in the way of a good story. As you can see in the chart below, exports are tumbling across all regions.  We expect this to continue.  Not only because of a deepening recession shaping up in the Eurozone – the largest customer for China – but because of a secular change in consumer demand globally. 

It has been about four years since the credit crunch crisis, and the US consumer is still deleveraging, i.e. paying down debt despite the fact the US government is creating more debt in a desperate attempt to maintain growth. 

Though we don’t have the number for European consumers, but given how badly their economies are performing, you can expect this pattern to be similar across Europe.  In fact, we suspect it could be worse as unemployment across the Eurozone is now at an all-time high and rising.   So, it is quite plausible to believe the trend in China’s GDP growth will continue to fall…

…especially when you consider that Chinese manufacturing is now shrinking based on the latest Purchasing Managers Index numbers (below 50 represents contraction).  Though US PMI is still expanding slightly, PMI numbers are falling for all three of the globes major growth and demand drivers:

China’s Model is flawed for the Shape of Global Economy

The reason a secular decline in global consumption is so dangerous for China is because its entire model is predicated on a sustained rise in external demand.  No longer can the world absorb China’s trade surplus. [According to Professor Pettis, China’s trade surplus by 2007 as a share of global GDP “had become the highest recorded in 100 years, perhaps ever, and the rest of world found it increasingly difficult to absorb it.]

China has made massive internal infrastructure investments over the years.  And this internal investment ramped up dramatically after crisis of 2008 in an effort to sustain growth.  Instead, it has created huge levels of excess production capacity across many of its key industries leading to a surge in debt and bad loans not yet realized. 

China's business conditions continue to deteriorate. Cement, coal and steel prices are still falling. Overcapacity is severe in most industries. Local governments pressure loss-making enterprises to continue production to sustain local GDP. Hence, commodity prices are falling below total costs. Soon the prices may fall below variable costs. 

There is another testing point ahead. If local governments want to sustain production levels, they have to arrange bank loans to support loss-making production. The central government has loosened up liquidity control. Bank lending conditions have been eased. Approvals for corporate bonds have been accelerated. It is possible that production levels would be sustained into the fourth quarter despite falling commodity prices. Of course, the financial system will suffer bad assets from propping up loss-making production.

Andy Xie, Caixin Online

The natural transition for China would be more dependence on internal consumer demand, since external demand it falling.  But it is not that simple. 

Keep in mind that massive internal investment is effectively a transfer of wealth from the household sector of the economy (China has lowest percentage of consumer demand relative to GDP than any country in history).  This is done by artificially lowering deposit rates, and forcing consumers to keep money inside the country.  This is a standard developing country model.  But it is extreme in China.  

The winners in such a system, known as financial repression, are the net borrowers.  In China this is local governments, state owned enterprises, and real estate developers.  The losers are consumers.  This should help explain why consumption penetration is so low.  

The reason this model is now becoming untenable is because external demand is not creating the wealth necessary to keep household income growth rising.  It is why we are seeing increasing levels of unrest throughout China.  But the powers-that-be, who have benefitted mightily from this growth model, have a vested interest to keep things as they are.  Just keep lowering interest rates and providing us more credit, we will keep building… 

But credit allocation to the already powerful players means income inequality is soaring in China.  Those with political power do well, those without it do badly. More from Andy Xie [our emphasis]:  

Addressing income inequality has become fashionable. There is speculation that the government will unleash a plan for improving income and wealth inequality. Unfortunately, the discussions so far are misleading at best and could incite social conflicts. Rapidly rising income inequality in China is not a result of market competition. It cannot be compared to what occurred in mature market economies at all. The rising inequality is due to asset bubbles and gray income. Both are due to rapidly rising money supply that has increased government's role in the economy and fueled asset bubbles.

The concentration of monetary resources in the state sector has led to surging gray income. It is the other important factor in income inequality. It translates monetary growth into inflation. The cost of inflation has been spread among the general population whose fruits from labor have been devalued against rising prices. One could argue that China's rising inequality is a policy result.

Speculative gains and gray income are a form of inflation tax on the people. They are sustained by rapid monetary growth. Hence, China's rising inequality is a policy choice, not a consequence of market competition.

The discussions over inequality are misconstrued as rich vs. poor, as in other countries. This is totally wrong. It should be about asset bubbles, excessive monetary growth, the excessively big government role in the economy and the resulting surging gray income. There is a widely circulated view that Chinese people hate the rich. This is totally wrong, too. It is not about who is rich, but about how one becomes rich. Chinese people suspect that most riches in China are ill gotten. Unfortunately, this view is true. With widespread excess capacity, few entrepreneurs can get rich through normal market competition.

Thus, attempts for real reform in the Chinese model will be met with strong resistance from the most powerful within the country. 

There are three likely outcomes here:

  • A hard landing as all this wasteful spending is finally marked to market as export growth continues to deteriorate. But another jolt of credit to the system will prolong this final outcome; and only make it worse.  So it is possible we see growth rebound slightly on more credit near-term.  
  • A lost decade situation similar to Japan’s bubble pop back in 1989. Growth and income fade’s together as policymakers and the powerful players refuse to unleash the household sector. 
  • A rebalancing and transition to more domestic-driven demand.  This would require freeing up interest rates, letting the currency rise, and opening the capital account to allow consumers to invest outside the country.  This would mean lower GDP growth for sure, but rising household income is more important to the average Chinese citizen.  They would be quite happy with that tradeoff, and it would insure rising social stability.  


If the US economy and European economy—China’s customers—do not recover soon, we expect a hard landing will be the path for the Chinese economy.  We are not optimistic that China will be able to overcome powerful internal interests in order to follow the best path, option #3.  

So, either way, we see China’s growth continuing to decelerate.  It’ current growth model is dead in the water and will have to change either the easy way or the hard way.  Therefore, this deceleration or crash in growth will hit the Australian economy hard.  It is why we continue to believe the Australian dollar is trading at an extraordinary premium to reality.  


Note: This article was originally sent to Jack and JR’s subscribers of the World Currency Trader which covers currency ETF and currency ETF Options trading ideas.  It is a publication of Weiss Research and edited by Jack and JR Crooks. If you would like more information on this publication you can contact Jack and JR at info@blackswantrading.com 





Fed Minutes & the US Dollar

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Posted by Jon Vialoux - EquityClock.com

on Thursday, 23 August 2012 16:44

"With the Fed’s suggestion of further monetary easing, commodities rallied, breaking firmly above the 200-day moving average, according to the CRB Commodity Index.   And while commodities rallied, the US Dollar Index plunged, coming close to achieving the target suggested by the short-term head-and-shoulders top of 81.   This bearish setup for the US Dollar was pointed out on this site at the beginning of the week, however, thoughts were that the move would play out over a matter of weeks rather than days.   With the US Dollar nearing that downside target, the long-term rising trend-line could soon be tested, potentially offering a hindrance to this commodity rally.   Despite the significant dollar decline over the past two sessions, equity markets have failed to move higher, hinting of equity market exhaustion at current overbought levels.   The US Dollar Index remains seasonally negative through September before stabilizing into October and November".

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.....for more of Jon Vailoux's analysis of the Markets go HERE


Equity Clock is a division of the Tech Talk Financial Network, a market analysis company that provides technical, fundamental and seasonality analysis on a daily basis via TimingTheMarkets.com and EquityClock.com.   Equity Clock’s mission is to identify periods of reoccurring strength among individual equities in the market using methodologies presented by some of the top analysts in the industry, including that of Don Vialoux, author of TimingTheMarkets.com.

Feel free to use any of the content or seasonality studies (charts, timelines, or otherwise) presented as long as a link-back to this site at EquityClock.com is provided.

For further information on indicators used in reports presented on this site, please visit our reference page.



Five Reasons Why The US Government Is Destroying The Dollar

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Posted by Daniel R. Ameran

on Thursday, 16 August 2012 08:28



The United States government has five interrelated motivations for destroying the value of the dollar:

1. Creating money out of thin air on a massive basis is all that stands between the current state of hidden depression, and overt depression with unemployment levels in excess of those seen in the US Great Depression of the 1930s.

2.  It is the most effective way to meet not just current crushing debt levels, but to deal with the rapidly approaching massive generational crisis of paying for Boomer retirement promises.

3. It creates a lucratively profitable $500 billion a year hidden tax for the benefit of the US government which is not understood by voters or debated in elections.

4.  It is the weapon of choice being used to wage currency war and reboot US economic growth; and

5. It is an essential component of political survival and enhanced power for incumbent politicians.

In this article we will take a holistic approach to how individual short term, medium and long term pressures all come together to leave the government with effectively no choice but to create a substantial rate of inflation that will steadily destroy the value of the dollar. 

If you have savings, if you rely on a pension, if you are a retiree or Boomer with retirement accounts - any one of these five fundamental motivations is by itself a grave peril to your future standard of living.  However, it is only when we put all five together and see how the motivations reinforce each other, that we can understand what the government has been and intends to continue doing, and then begin the search for personal solutions.

....read more HERE


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