The Fed has spoken. And I nailed it.
I told you that, despite all the widely held expectations to the contrary, the Federal Reserve would not begin to taper its bond purchases under the Quantitative Easing campaign because, even though the economy is on sounder footing, Ben Bernanke is not about to risk the recovery by acting too soon. And that is exactly what the arbiters of American monetary policy announced yesterday when the Fed told the world, “No tapering just yet, folks.”
Bloomberg’s TV commentators said, “No one saw this coming” – though, clearly, some of us did. Stocks immediately raced more than 150 points higher. The dollar fell. Bond yields crashed. And commodities surged, an indication that oil, gold and all the agricultural commodities will move into a new growth phase as investors seek to protect their purchasing power by owning real assets instead of the dollar. Stocks in the emerging markets soared, too, just as I told my Profit Seeker readers to expect. In fact, we had stocks in that portfolio up as much as 12% in Thursday’s trading session in Asia.
Ultimately, though, all of that was just Wall Street reacting to the news of the moment, temporarily overlooking the much-bigger, longer-lived issue the Fed’s action highlights but that our country finds much too-painful to confront: America’s unsustainable lust for debt.
I told you that, despite all the widely held expectations to the contrary, the Federal Reserve would not begin to taper its bond purchases under the Quantitative Easing campaign because, even though the economy is on sounder footing, Ben Bernanke is not about to risk the recovery by acting too soon. And that is exactly what the arbiters of American monetary policy announced yesterday when the Fed told the world, “No tapering just yet, folks.”
Bloomberg’s TV commentators said, “No one saw this coming” – though, clearly, some of us did. Stocks immediately raced more than 150 points higher. The dollar fell. Bond yields crashed. And commodities surged, an indication that oil, gold and all the agricultural commodities will move into a new growth phase as investors seek to protect their purchasing power by owning real assets instead of the dollar. Stocks in the emerging markets soared, too, just as I told my Profit Seeker readers to expect. In fact, we had stocks in that portfolio up as much as 12% in Thursday’s trading session in Asia.
Ultimately, though, all of that was just Wall Street reacting to the news of the moment, temporarily overlooking the much-bigger, longer-lived issue the Fed’s action highlights but that our country finds much too-painful to confront: America’s unsustainable lust for debt.
America is bankrupt. Full stop.
The strength of the American dollar, all the world admiring the American way of life, the might of our military that makes us the bad-ass on the block, and the notion that all of that means America will be here, standing just as tall, 100 years from now … it’s all poppycock.
Empires collapse for one or both of two reasons: Overextended geographically or overextended financially.
Whether the Fed spends $85 billion a month buying our own debt, as it’s doing now … or whether it’s $75 billion, or even $1 billion, the fact remains the same: The Fed is spending. Tapering, when it happens, will just slow the pace of spending, but it will still add to America’s overall indebtedness.
And therein lies the fundamental flaw with our country today. We spend. We never, ever save.
America is a cesspool of debt in which bubbles financial instability that is fueled by a political system redesigned to reward corporations, lobbyists and politicians at the expense of the people. The sooner Americans accept the reality that this version of indebted, corrupt America is a turd, the sooner they will begin making the savvy decisions necessary to protect their wealth and their personal prosperity.
Few people accept the fact that America is a bankrupt nation; they still buy into the nostalgic and tattered belief that America is a financial powerhouse, the richest nation on the planet. But just because some children think Scooby Doo is real doesn’t magically make that so.
A few numbers to cement the point: D.C. has accumulated in our name roughly $17 trillion in debt. That’s huge. But it’s not the real debt. Throw in all the off-balance-sheet promises politicians have made in pursuing their re-election dreams – all the money due to retirees in the Social Security system and all the debts wrapped up in Medicare/Medicaid/prescription drug-plan liabilities – and you get to a number that exceeds $125 trillion.
Our tax revenues – basically America’s paycheck – are about $2.7 trillion annually. So, our debt-to-income ratio is 4,660%. Tell me: If you’re earning the median income in America of $52,100, and your household debts exceed $242.6 million (a debt-to-income ratio of 4,660%) are you bankrupt? Or is everything at home going swimmingly well?
We have accumulated mountain ranges of debt. Deep-sea trenches of debt. We have so much debt as a country that we will never, ever fully repay it. And that’s a problem. It speaks to the only character trait that truly matters for a country like America: trust.
Do I trust that the United States will make good on its obligations to me? Or do I face a risk that America must default at some point to repair this house of cards?
The personal pronoun in that last sentence might be a Chinese or a German investor buying U.S. bonds, or it could just as easily be an American reliant on Social Security to live in retirement. Doesn’t really matter – they’re all screwed in the end.
The strength of the American dollar, all the world admiring the American way of life, the might of our military that makes us the bad-ass on the block, and the notion that all of that means America will be here, standing just as tall, 100 years from now … it’s all poppycock.
Empires collapse for one or both of two reasons: Overextended geographically or overextended financially.
Whether the Fed spends $85 billion a month buying our own debt, as it’s doing now … or whether it’s $75 billion, or even $1 billion, the fact remains the same: The Fed is spending. Tapering, when it happens, will just slow the pace of spending, but it will still add to America’s overall indebtedness.
And therein lies the fundamental flaw with our country today. We spend. We never, ever save.
America is a cesspool of debt in which bubbles financial instability that is fueled by a political system redesigned to reward corporations, lobbyists and politicians at the expense of the people. The sooner Americans accept the reality that this version of indebted, corrupt America is a turd, the sooner they will begin making the savvy decisions necessary to protect their wealth and their personal prosperity.
Few people accept the fact that America is a bankrupt nation; they still buy into the nostalgic and tattered belief that America is a financial powerhouse, the richest nation on the planet. But just because some children think Scooby Doo is real doesn’t magically make that so.
A few numbers to cement the point: D.C. has accumulated in our name roughly $17 trillion in debt. That’s huge. But it’s not the real debt. Throw in all the off-balance-sheet promises politicians have made in pursuing their re-election dreams – all the money due to retirees in the Social Security system and all the debts wrapped up in Medicare/Medicaid/prescription drug-plan liabilities – and you get to a number that exceeds $125 trillion.
Our tax revenues – basically America’s paycheck – are about $2.7 trillion annually. So, our debt-to-income ratio is 4,660%. Tell me: If you’re earning the median income in America of $52,100, and your household debts exceed $242.6 million (a debt-to-income ratio of 4,660%) are you bankrupt? Or is everything at home going swimmingly well?
We have accumulated mountain ranges of debt. Deep-sea trenches of debt. We have so much debt as a country that we will never, ever fully repay it. And that’s a problem. It speaks to the only character trait that truly matters for a country like America: trust.
Do I trust that the United States will make good on its obligations to me? Or do I face a risk that America must default at some point to repair this house of cards?
The personal pronoun in that last sentence might be a Chinese or a German investor buying U.S. bonds, or it could just as easily be an American reliant on Social Security to live in retirement. Doesn’t really matter – they’re all screwed in the end.
A Daunting Future …
So what if I was right about the
Fed? It was an easy call; don’t know why so many missed it. But what the
Fed announced Wednesday does nothing to change the long-term trajectory
of America. It only highlights the likely and sad endgame rushing
toward us.
And it’s that endgame I worry about. Because it threatens to destroy your life and mine …
Debt is a bitch. Equity can vanish in an instant if you invest poorly. But debt only goes away as it’s repaid. Otherwise, it follows you around like a malevolent shadow.
For us, Americans, we face some grim prospects because of Congress’s disregard for the people who employee them. Our savings accounts will continually dwindle, and could even plunge to effectively worthless if trust in America collapses – and only a Pollyannaish fool would believe that’s not within the set of possible outcomes. The dollar might be the world’s reserve currency today, but the status quo is never static. My guess is that the euro, or a basket of currencies including the euro, the Chinese yuan, the Russian ruble, and maybe the dollar – replaces the greenback within 20 years, possibly much less.
Our taxes will soar. They have to. The cost of keeping the lights on in America rises by the second because of the cost of servicing all that debt we have rises by the second. Six cents of every tax dollar goes to pay our national debt. But 45 cents of every dollar is earmarked for Social Security and Medicare/Medicaid. Thus, more than half of our tax dollars go to programs where escalating costs are baked into the cake, and there is zero political will to change any of those systems.
Government payments to recipients of Social Security and other welfare programs – and all government services, in general – will decline. They have to, as well. America is living on borrowed money. When the lenders close their windows – and they absolutely will – life in the U.S. will degrade dramatically and rapidly. We will fall to where we rightly should already be. Our balloon popped long ago. It’s just that the government, using as much debt as it takes, is blowing air into the collapsing balloon faster than the air is rushing out. We are trying our best to keep up appearances when we should instead take stock of what we still have going for us, play to those strengths and allow the system to reset at a lower level. Painful in the short term, but far more healthful for America in the long run.
And, finally, it means the American standard of living must – and will – decline.
Rising taxes and reduced government handouts necessarily mean less money in American households.
What I paint is not a pretty picture. But it is a picture, nonetheless, of life in our country not too far ahead on the calendar. It’s coming. You can prepare. Or you can keep pretending that Scooby Doo is a real dog.
And it’s that endgame I worry about. Because it threatens to destroy your life and mine …
Debt is a bitch. Equity can vanish in an instant if you invest poorly. But debt only goes away as it’s repaid. Otherwise, it follows you around like a malevolent shadow.
For us, Americans, we face some grim prospects because of Congress’s disregard for the people who employee them. Our savings accounts will continually dwindle, and could even plunge to effectively worthless if trust in America collapses – and only a Pollyannaish fool would believe that’s not within the set of possible outcomes. The dollar might be the world’s reserve currency today, but the status quo is never static. My guess is that the euro, or a basket of currencies including the euro, the Chinese yuan, the Russian ruble, and maybe the dollar – replaces the greenback within 20 years, possibly much less.
Our taxes will soar. They have to. The cost of keeping the lights on in America rises by the second because of the cost of servicing all that debt we have rises by the second. Six cents of every tax dollar goes to pay our national debt. But 45 cents of every dollar is earmarked for Social Security and Medicare/Medicaid. Thus, more than half of our tax dollars go to programs where escalating costs are baked into the cake, and there is zero political will to change any of those systems.
Government payments to recipients of Social Security and other welfare programs – and all government services, in general – will decline. They have to, as well. America is living on borrowed money. When the lenders close their windows – and they absolutely will – life in the U.S. will degrade dramatically and rapidly. We will fall to where we rightly should already be. Our balloon popped long ago. It’s just that the government, using as much debt as it takes, is blowing air into the collapsing balloon faster than the air is rushing out. We are trying our best to keep up appearances when we should instead take stock of what we still have going for us, play to those strengths and allow the system to reset at a lower level. Painful in the short term, but far more healthful for America in the long run.
And, finally, it means the American standard of living must – and will – decline.
Rising taxes and reduced government handouts necessarily mean less money in American households.
What I paint is not a pretty picture. But it is a picture, nonetheless, of life in our country not too far ahead on the calendar. It’s coming. You can prepare. Or you can keep pretending that Scooby Doo is a real dog.
Until next time, stay Sovereign …
Jeff D. Opdyke
P.S. As the American deterioration continues apace, an overseas escape hatch does exist. To learn more, click here.Jeff D. Opdyke
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