Markets Are About To Implode AGAIN As Government No Longer Can Delay The Inevitable Catastrophe

Overdose: The Next Financial Crisis

Will next president always accumulate debt more than previous ones combined to prevent the collapse of ponzi scheme?

Economic Implosion Inevitable: Tax Rates Are Now PERMANENT! Any Deficit Reduction Will Have To Come From Spending Cuts. The Expiration of A Payroll Tax Cut Is Just The Beginning As The Fiscal Deal Will Increases Debt By $4 Trillion Over 10 Years!


2013 Taxes Are In Effect! If You Are Making Between $50,000 And $200,000 A Year, You Will See Your Biweekly Check Cut By $68 Or More



from Bloomberg:

The budget deal passed by the U.S. Senate today would raise taxes on 77.1 percent of U.S. households, mostly because of the expiration of a payroll tax cut, according to preliminary estimates from the nonpartisan Tax Policy Center in Washington.

More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635, the policy center said. A 2 percent payroll tax cut, enacted during the economic slowdown, is being allowed to expire as of yesterday.

The heaviest new burdens in 2013, compared with 2012, would fall on top earners, who would face higher rates on income, capital gains, dividends and estates. The top 1 percent of taxpayers, or those with incomes over $506,210, would pay an average of $73,633 more in taxes.

Much of that burden is concentrated at the very top of the income scale.

The top 0.1 percent of taxpayers, those with incomes over about $2.7 million, would pay an average of $443,910 more, reducing their after-tax incomes by 8.4 percent. They would pay 26 percent of the additional taxes imposed by the legislation.

Among households with incomes between $500,000 and $1 million, taxes would go up by an average of $14,812….

Despite Cliff Deal: ‘Nothing Really Has Been Fixed’



Tax Rates Are Now PERMANENT!



Yesterday, the American government voted to extend almost all of the Bush Tax Cuts permanently.

Not temporarily, as a stimulus measure.


Ever since the Bush Tax Cuts were first enacted in 2001–temporarily, as a stimulus measure–one goal of the Republican party has been to “make the Bush Tax Cuts permanent.”

For most of the last decade, this goal has seemed like an extremist view: Making the Bush Tax Cuts permanent would drastically reduce the federal government’s revenue. It would also increase inequality and balloon the national debt and deficit–so how could we possibly justify doing that?




Get Prepared For The Spending Cuts, Market Rally Won’t Last More Than 24/48 Hours



Investor relief is understandable, given weeks of uncertainty and what appeared to be some heated debate at times between lawmakers. But that relief will be temporary, say strategists who harp on the U.S. borrowing limit and longer-term budget cuts that still must be tackled.

“No doubt the market will use early month, New Year and the fact we avoided ‘an even worse’ event to take the market higher, but I doubt it will last more than 24/48 hours.  The market is long and too long, we look for correction as debt ceiling talks gets going,” says Saxo Bank’s chief economist, Steen Jakobsen, in emailed comments….


In a disgraceful show of political expediency, Congress put its own political self-interest ahead of the national interest. They “saved” us from a contrived crisis of their own making, only to condem us to a far more horrific fate when the real crisis arrives. This one will come not because we went over the fiscal cliff, but because we avoided doing so. Going over the fiscal cliff merely represented a small downpayment on the solution. By failing to make it, the ultimate price we will inevitably pay will be that much higher.


Peter Schiff: Congress Sells America Down the River to Avoid the Fiscal Cliff


Cliff Resolved – Deficit Set To Explode

In a stunning turn of events the Republican controlled House of Representatives passed the Senate’s bill to raise taxes with no cuts to spending.


General William Boykin, Retired, says US economy about to collapse, food shortages, martial law

Retired Army General and Former Deputy Director of the CIA.

Roubini: The Longer-Term Picture Is Bleaker And The Next Crisis Could Be Just Two Months Away.

The next crisis according to Roubini could be just two months away, with spending cuts set to kick in at about the same time that the U.S. hits the debt ceiling. This is going to begin another “messy” debate between Democrats and Republicans.

“The longer-term picture is bleaker still. The reality is that America is yet to wake up to the full extent of its fiscal nightmare. Even the typical Republican voter is not – being on average older and poorer than a Democrat voter – in favour of gutting the welfare state. Tea Party extremists are more noise than signal. That is why the plans of Mitt Romney and Paul Ryan, the Republicans’ losing presidential ticket, postponed all the tough spending cuts on Social Security and Medicare by a decade.

Neither Democrats nor Republicans recognize that maintaining a basic welfare state, which is right and necessary in our age of globalization, rapid technological change and demographic pressure, implies higher taxes for the middle class as well as for the rich. A deal that extends unsustainable tax cuts for 98 per cent of Americans is therefore a pyrrhic victory for Mr Obama.

In short, the “mini deal” on the fiscal cliff dodged all the important questions. By not including spending cuts in the deal, the Democrats have emboldened Republicans who are determined to slash taxes but lack a plan to pay for it. It is again up to Washington’s policy makers to fix the problem before the market does it for them. Tuesday’s deal suggests this will not happen with any ease.”

Read the entire piece at the Financial Times >


Bloomberg Businessweek’s Cover Brilliantly Illustrates How Wall Street Sees Congress


It’s no secret that Wall Street doesn’t understand, or have much respect, for the way things are being handled in Washington.

That’s the topic of Bloomberg Businessweek’s lead story this week, and the cover of the magazine is definitely brutal — screaming, diapered babies all over Congress.

Bloomberg Businessweek:

Bloomberg Businessweek Cover Congress Babies



Pimco’s Gross: Govt Financing Schemes Such as QE ‘End Badly’


Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said investors should be alert to the longer-term inflationary risks of stimulus programs such as quantitative easing.

“Ultimately government financing schemes such as today’s QE’s or England’s early 1700s South Seas Bubble end badly,” Gross wrote in his monthly investment outlook released on the Newport Beach, California-based company’s website.



Money for Nothin’ Writing Checks for Free

William H. Gross

…What Governor Bernanke may have been referring to with his “essentially free” comment was the fact that the Fed and other central banks such as the Bank of England (BOE) actually rebate the interest they earn on the Treasuries and Gilts that they buy. They give the interest back to the government, and in so doing, the Treasury issues debt for free. Theoretically it’s the profits of the Fed that are returned to the Treasury, but the profitsare the interest on the $2.5 trillion worth of Treasuries and mortgages that they have purchased from the market. The current annual remit amounts to nearly $100 billion, an amount that permits the Treasury to reduce its deficit by a like amount. When the Fed buys $1 trillion worth of Treasuries and mortgages annually, as it is now doing, it effectively is financing 80% of the deficit for free.
The BOE and other central banks work in a similar fashion. British Chancellor of the Exchequer (equivalent to our Treasury Secretary) George Osborne wrote a letter to Mervyn King, Governor of the BOE (equivalent to our Fed Chairman) in November. “Transferring the net income from the APF [Asset Purchase Facility – Britain’s QE] will allow the Government to manage its cash more efficiently, and should lead to debt interest savings to central government in the short-term.” Savings indeed! The Exchequer issues gilts, the BOE’s QE program buys them and then remits the interest back to the Exchequer. As shown in Chart 1, the world’s six largest central banks have collectively issued six trillion dollars’ worth of checks since the beginning of 2009 in order to stem private sector delevering. Treasury credit is being backed with central bank credit with the interest then remitted to its issuer. Should interest rates rise and losses accrue to the Fed’s portfolio, they record it as an accounting liability owed to the Treasury, which need never be paid back. This is about as good as it can get folks. Money for nothing. Debt for free.

Investors and ordinary citizens might wonder then, why the fuss over the fiscal cliff and the increasing amount of debt/GDP that current deficits portend? Why the austerity push in the U.K., and why the possibly exaggerated concern by U.S. Republicans over spending and entitlements? If a country can issue debt, have its central bank buy it, and then return the interest, what’s to worry?
 Alfred E. Neuman for President (or House Speaker!).Well ultimately government financing schemes such as today’s QE’s or England’s early 1700s South Sea Bubble end badly. At the time Sir Isaac Newton was asked about the apparent success of the government’s plan and he responded by saying that “I can calculate the movement of the stars but not the madness of men.” The madness he referred to was the rather blatant acceptance by government and its citizen investors, that they had discovered the key to perpetual prosperity: “essentially costless” debt financing. The plan’s originator, Scotsman John Law, could not have conceived of helicopters like Ben Bernanke did 300 years later, but the concept was the same: writing checks for free.
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The headwinds

It is important for people to recognize that as the size of government grows, eventually, the use of money by government starts to crowd out private spending, particularly job-creating entrepreneurship. I know this because a professor told me so a long time ago. I also know this because I am seeing it happen among many small businesses right now.

As we heard during election season, small business is the backbone of job growth in America. When government uses a large percentage of the nation’s capital — anything in excess of a low 20s percentage, small business is stifled. That is very stagflationary and can lead to an non-virtuous downward economic spiral.

Already the headwind of inflation is coming from the ground up. This inflation is clearly compressing margins at many companies that produce consumer-finished goods. Because those companies have already wrung out the easiest efficiencies for maintaining margins, they have little left to do to maintain profit margins, which will ultimately impact their share prices.

There are two inflationary forces at work. The first, we have essentially covered, is monetary inflation. The second is scarcity-driven inflation (quibble with me about definitions if you must).

Many inputs are becoming more scarce, and prices have been drifting up for a decade now. That trend is not going to stop. Due to under investment in new supplies of materials, recycling and alternatives, scarcity-driven inflationary pressure really is in my mind the darkest of potential black swans. The Pentagon agrees, as a recent report cited scarcity for necessities as a very likely potential cause of future wars (the not-too-distant future)



Expect Higher Food Prices in 2013

A USDA economist says Americans will be paying more at the grocery store in 2013.

“Inflation’s going to pick up in 2013 over what we have seen in 2012. So we are looking ahead at a year of above normal food price inflation,” says economist Ricky Volpe of USDA’s Economic Research Service.
Volpe says to expect food price inflation of 3% to 4% in 2013. He says the drought affecting two-thirds of the nation is partly to blame.


Doug Casey on what lies ahead in 2013

Doug: I think the most important thing to bear in mind is that we are approaching the absolute peak of the bond bubble, which has gotten vastly bigger than I ever imagined it could. Interest rates in the developed economies around the world are two percent, one percent, or even negative. This is fueling a bond bubble of truly catastrophic proportions. When it bursts, it will be an order of magnitude worse than the tech stock-market crash of 2001 or the real-estate bubble that burst in 2008.

When this one goes, it won’t just wipe out the people who thought they were being prudent savers. Because it’s a financial market, it will also hit stocks and real estate again, at least in Europe and the US. Here in Uruguay and places like Argentina, real estate is largely a pure cash market. But in the so-called more developed economies, real estate still floats on a sea of debt.

It amazes me that people in the US are elated because the real-estate market is supposed to be up 4.3%, as of the latest figures. Well, of course it is; you can borrow money for effectively zero, given where interest rates and inflation are.

L: Is that a sign of the bulging piles of money banks have been sitting starting to leak out into the economy?

Doug: Looks that way. And when interest rates start rising steeply, as they’ll have to do once inflation sets in, rising to double digits as they were in the 1980s, it will crush real estate further and deeper than we’ve seen so far. It will do so all around the world, but the US will be hardest hit, I think.

There’s no question in my mind: the bond bubble is by far the largest distortion we’re facing in the economy today. Bonds are incredibly dangerous, insanely risky speculations today. They’re reward-free risk. Bond owners are facing huge default risk, huge interest rate risk, and huge inflation risk. But nobody seems to see it or talk about it.

L: I understand. But honestly, Doug, you’ve been saying that for a while. What makes you think this will be the year the bond balloon finds the pin it’s been searching for?

Doug: You’re right – that particular bubble should have found its pin two or three years ago. I admit I thought it’d pop last year. It’s like watching a clown over-inflate a balloon; the longer he inflates it, the more you wince, because you know it’s going to blow up in his face. And the longer it takes, the closer the inevitable comes to being imminent – and the bigger the explosion becomes.


Why The 2013 ‘Debt Ceiling’ Debacle Will Be Worse Than 2011

Having passed the ‘easy-do-nothing’ bill that created a 5% uplift in US equities, D.C. have left the most difficult set of issues for last: entitlement reform, which Republicans have said they will insist upon in return for raising the debt limit, and tax reform, which the President has said he will insist on in return for entitlement reform. The upshot is that reaching an agreement on the next debt limit increase could be at least as difficult as the last increase in August 2011. As Goldman notes, over the next two months, policymakers will have to focus on three issues: (1) how to raise the debt limit, which will begin to constrain Treasury borrowing by early March; (2) whether to reform entitlement programs and/or the tax code to reduce spending or increase revenues by a similar amount as the increase in the debt limit; and (3) how to address the spending cuts scheduled to take effect under the “sequester,” which was delayed to March 1. The next debate on the debt limit will be the fifth “showdown” on fiscal policy in the last two years. However, one new twist to this now familiar routine may come from the rating agencies, which look likely to be more active in 2013 than they have been since 2011.


Via Goldman Sachs,

We had previously estimated that fiscal policy at the federal, state, and local level would weigh on growth by 1.6pp on a Q4/Q4 basis in 2013; we believe the final package will be similar at around 1.5pp drag on growth. As before, we expect the effects to be weighted toward first half of the year, as shown in Exhibit 1.


One aspect of the fiscal cliff remains somewhat uncertain. The spending cuts under “sequestration” that were slated to begin January 1 2013 have been delayed until March 1 as part of the compromise just passed. Lawmakers are apt to attempt to delay sequester implementation further, probably once again taking a piecemeal approach and enacting a temporary delay of a few quarters or a year.

Although we continue to think Congress will delay the sequester at least once more, it does seem likely that it will eventually take effect, or at least that policies targeting some of the same areas of the budget (i.e., defense and domestic appropriations) will be implemented instead.

Raising the debt limit will be the more significant policy challenge over the next couple of months. Congress last raised the debt limit in August 2011. The Treasury formally reached the debt limit of $16.394 trillion on December 31, 2012 and is now operating under “extraordinary measures” (accounting strategies used to minimize Treasury securities held in government accounts). While the timing is always hard to predict, at this point it appears that the Treasury will exhaust its financing capacity by March 1, when it must make a number of large monthly payments, particularly related to Social Security and Medicare. Congress will need to raise the debt limit by that point if it has not already. While a failure to raise the debt limit should not have implications for the Treasury’s ability to make interest payments or to redeem existing securities, it could lead to a sharp reduction in spending, including fiscal transfers to individuals, payments to contractors, and payment of tax refunds which tend to be fairly heavy during this period.

Unfortunately, the upcoming increase may be more difficult to enact than the increase in 2011. Few spending cuts had been enacted before the previous increase, which left lawmakers with several areas of the budget from which to pull potential savings. Congress eventually settled on $2.1 trillion in spending cuts, essentially all coming from a reduction in spending appropriated by Congress (about $900bn from caps on “discretionary” spending, and $1.2 trillion from “sequestration”). While hardly non-controversial, these cuts did not affect specific programs but instead capped overall spending, thus reducing political opposition. The fiscal agreement Congress just passed increases revenues by about $600bn over 10 years (compared with a full extension of expiring income tax cuts), and while this second round of savings was much more controversial than the first, a majority of the public supported the tax increase, which was targeted on high incomes.


Everything Is Going To Come Down To March 1

Here’s a day you have to circle in your calendar: March 1, 2013.

Make sure you pre-block off all of your other social engagements, because you’re going to want to be around a computer and a TV.

First, that’s the day that the “sequestration” (mandatory spending cuts) go into effect.

But beyond that, it looks like that will also be the day that the debt ceiling hits, according to Goldman’s Alec Philips:

While the timing is always hard to predict, at this point it appears that the Treasury will exhaust its financing capacity by March 1, when it must make a number of large monthly payments, particularly related to Social Security and Medicare. Congress will need to raise the debt limit by that point if it has not already. While a failure to raise the debt limit should not have implications for the Treasury’s ability to make interest payments or to redeem existing securities, it could lead to a sharp reduction in spending, including fiscal transfers to individuals, payments to contractors, and payment of tax refunds which tend to be fairly heavy during this period.

The clock is ticking. Oh, and Goldman thinks this debt ceiling fight will be worse than the last one >


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