David P. Goldman: Gold gives you extremely important signals
Submitted by cpowell on Sun, 2013-02-17 22:00. Section: Daily Dispatches
5p ET Sunday, February 17, 2013
Dear Friend of GATA and Gold:
In an interview with financial writer Lars Schall, market analyst David P. Goldman joins those who lately have noted that gold mine production is of little consequence to the gold price because at any particular moment 25 or 30 times amount of gold produced annually is hoarded and available for trade. "So a change in desire to hold gold as an investment," Goldman says, "is a much more important determinant of the gold price than changes in current mining supply or changes in current consumption of jewelry or industrial applications." That’s why, Goldman adds, the gold price is the crucial indicator of inflationary expectations — and why, GATA might add, it is so much the target of central bank manipulation. Goldman’s interview is headlined "Gold Gives You Extremely Important Signals" and it’s posted at Schall’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
“Gold Gives You Extremely Important Signals”
Februar 17th, 2013 9 Comments
David P. Goldman / Spengler, “the world’s most brilliant intelligence service,” discusses in this exclusive interview some of his thoughts on various aspects related to gold. Inter alia, he explains why he supports a commodity price rule for monetary policy that is connected to the yellow metal.
By Lars Schall
David P. Goldman, in our view one of the most outstanding and relevant essayists of this time and age, has been in the past the global head of the fixed income research department at Bank of America (2002-2005) and global head of credit strategy at Credit Suisse (1998-2002). In addition, he worked in senior positions at Bear Stearns, Cantor Fitzgerald, and Asteri Capital. Today he runs the consulting service Macrostrategy.
During the 1980s, he served Norman A. Bailey, then Director of Plans of the National Security Council of the United States. From 1994 to 2001, Goldman was a columnist of Forbes magazine.
At Asia Times Online he regularly publishes since 2000 his “Spengler” essays (named after Oswald Spengler, the German historian and philosopher). An overall index of those columns can be found here.
“Ask anyone in the intelligence business to name the world’s most brilliant intelligence service, and we’ll all give the same answer: Spengler. David P. Goldman’s ‘Spengler’ columns provide more insight than the CIA, MI6, and the Mossad combined.” — Herbert E. Meyer, Special Assistant to the CIA Director and as Vice Chairman of the CIA’s National Intelligence Council, Reagan Administration.
In addition, Goldman writes for the monthly magazine First Things essays that also address a wide range of topics – from Jewish theology and economics to literature, mathematics, and foreign policy. Moreover, he is a columnist at PJ Media, while at Tablet he contributes music reviews. Goldman is the author of the book “How Civilizations Die (and why Islam is Dying, Too)”, published by Regnery Press. A collection of his essays, “It’s Not the End of the World – It’s Just the End of You,” was published by Van Praag Press.
He has spoken at many important business conferences, such as the annual meetings of the World Bank. His chapter on market failure in the “Bloomberg Book of Master Market Economists” (2006) is one of the examination scripts for the Certified Financial Analyst exam. He received a B.A. from Columbia University and entered a doctoral program at the London School of Economics. At the City University of New York he studied music theory. He taught music appreciation at Queens College of New York. At Mannes College of Music he taught music theory. He currently serves there on the Board of Governors. He also sits on the Board of Directors of the America-Israel Cultural Foundation and is a Fellow of the Jewish Institute for National Security Affairs. David P. Goldman lives in New York City, U.S.A.
Lars Schall: Mr. Goldman, what are your thoughts in general on the re-emergence of gold in international finance?
David P. Goldman: Gold is essentially a political issue. As long as you have positive real interest rates on relatively safe debt either of governments or private issuers, there is in my opinion no real reason to hold gold at all except as an emergency fallback. Gold is costly to store, you have to put it in a vault, you have to hire guards, and it’s inconvenient to transfer (if you want to pay somebody in gold you have to physically load it on some means of conveyance). As long as the governments of major countries can be trusted to manage their public debt in a sound way there is really no particular reason to hold gold. That’s of course a very big caveat, because governments can’t be trusted to manage their finances properly, and the reason that the gold price has risen from a few hundred dollars to nearly 2000 dollars an ounce over the last ten years is because of the markets’ lack of confidence in the debt management of major governments.
L.S.: But then also private banks are now interested in gold these days as a more or less zero-risk asset.
D.P.G.: Yes, but I consider that a marginal development at this point. One of the most important issues in the banking industry right now is the availability of sound collateral. The value of very high quality government securities is that you can use them to borrow against it at very low interest rates very flexibly. So the financing value of high quality government securities is an extremely important component of their desirability as an asset. There is now a global shortage of high quality collateral, and the reason is that government debt of many major countries has become compromised by extremely poor economic and financial management. So because there is a shortage of high quality collateral, banks are experimenting with gold as an asset because you can borrow against gold collateral at extremely low interest rates. So it’s beginning to filter into the banking system because of this collateral shortage.
This not just driven by the market, but it’s also driven in part by the regulators. You may be aware that the Bank for International Settlements’ supervisory committees have insisted that banks maintain a much higher degree of liquidity, in other words that a larger portion of their portfolio than in the past should be invested in highly liquid assets. That is from a supervisory standpoint a very reasonable suggestion. Remember that one of the big problems the banks had in 2008 was that they had levered enormous amounts of supposedly high quality assets, which turned out to be completely illiquid in the event of the crisis such as collateralized mortgage obligations with Triple A rating. As you are aware, the rating agencies are being sued by the government of the United States for billions of dollars for allegedly falsifying such ratings.
So with the demand from the regulators that banks maintain essentially a higher liquidity profile, it is physically difficult for them to do so because of the lack of high quality collateral. That’s why banks at the margin are interested in gold. And again, emphasizing the point that to the extent that governments mismanage their finances and the quality and the liquidity of government debt is compromised, gold will be seen as an important alternative. However, I think we are a very long way from a proper restoration of gold in the monetary system.
L.S.: China is buying gold big time.
D.P.G.: Yes, China is buying gold, but from a very low base. China has $ 3 trillion of foreign exchange reserves. If China were buying gold seriously, the gold price wouldn’t be at $ 1.600 / 1.700 an ounce, it would be at $ 5000 an ounce. As far as I can determine – remember it’s a state secret, the Chinese do not tell you what they own – and infer from partial data, the Chinese are buying everything – they are buying raw materials, they are buying technology, they are buying machine factories in Germany (last year, Chinese direct investment in Germany was three times the level of German direct investment in China, which is quite a difference from the past, and there had be some very high-profile acquisitions). From the Chinese standpoint, yes they want to increase their gold reserves, but they also want to increase their portfolio of technologies, they want to increase their access to raw materials, they want to do many different things. Their interest goes far beyond the monetary.
They have been very modest net-sellers of US treasury securities, I think they were down a bit less than $ 200 billion in holding US treasury securities last year, if I remember the numbers correctly. It’s a small but significant amount. I don’t see China engaging in a massive gold buying campaign. Instead I see it as a steady increase, but from an extremely low base. A couple of years ago Chinas gold reserves were only 2 or 3 percent of their total reserves, which is extremely small. So it makes sense for them to increase from that little base.
There is another reason for the US dollar to remain an important reserve instrument for some time, and that is Japan. Here is where the politics come in: there has been a great deal of discussion, and I am sure that you are aware of it, about the possible development of an Asian reserve currency, which would perhaps involve a gold anchor. I think that’s idle speculation for a very simple reason: the Asians don’t get along with each other politically. The Japanese and the Chinese are at odds with each other, and as we have just seen today (referring to the Russian fighter incursion into Japanese airspace on February 7) the Japanese and the Russians are at odds with each other as well. If you look at the major economic powers outside of the United States – China, Japan, India, Russia, and after that you have to go to places such as Brazil, which really don’t count for much –, there is no possibility for any significant agreement among them, let alone a monetary agreement.
The Japanese according to reports that we have seen over the last months are expected to increase their reserve holdings of US treasuries by between $ 400 and $ 500 billion per year, as they intervene in the market to weaken the yen. Now, there are other ways to weaken the yen, and so the buying of that much US treasuries suggests to me that the Japanese still consider themselves pretty much as part of the American sphere in a monetary as well as in a military sense. Japans Prime Minister Abe has called for an alliance between the United States, Japan and India to contain China. This is a very popular theme among some American strategists as well – you read about it everywhere. So the idea that Japan would shift its reserve position – which is huge – away from the United States and towards some kind of Asian bloc is politically impossible. It’s completely unforeseeable in the existing constellation of world forces. That’s why I say that the emergence of gold as a reserve instrument or actually a gold standard of any kind is extremely unlikely for the foreseeable future – the politics simply aren’t there.
L.S.: However, you support a commodity price rule for monetary policy connected to gold.
D.P.G.: Yes, sure.
L.S.: Could you explain the concept behind that and why you support it, please?
D.P.G.: This is an idea that was advanced by Robert Mundell, but actually it goes all the way back to David Ricardo’s idea of the gold standard. Robert Mundell, of course, is the father of the euro and the father of supply-side economics, he’s a Nobel Prize winner, and he has been the most prominent economist advancing this idea; he has talked about it for roughly the last thirty to forty years. The idea is pretty simple: to create some kind of objective market-based rule which would limit the ability of central banks to create money and to debase their currencies, or on the other hand to act as a break against deflation. In other words: to use market observations of auction prices that reflect expectations of the overall price level in order to correct central bank errors.
There has been an enormous amount of debate for centuries now about what the criterias should be for central bank money creation and how important that is. Mundell’s argument is that the quantity of money is much less important than the way the market responds to central bank increases in high-powered money or in bank reserves and how that affects expectations of the price levels. So central banks should listen much more to the market.
And gold among all the commodities probably gives you the purest signal about future price expectations. There is a very simple reason for that: the amount of gold in stockpiles is many times – 25 to 30 times – annual consumption. So a change in desire to hold gold as an investment is a much more important determinant of the gold price than changes in current mining supply or changes in current consumption of jewelry or industrial applications. If you use copper or platinum or bauxite or other commodities, the stockpiles are extremely low relative to current use. And you also might have a technological change or an economic slump or a big increase of demand which would drastically affect the prices. So it’s much more difficult to interpret price signals from industrial commodities as an indication of expectations about the future price level. Gold gives you much better information. So it certainly has pride of place among all commodities as an indicator of expectations about the price level and as a guide to central bank activity.
That idea of a commodity-based standard which is to create confidence in the market place and to correct for central bank errors is the core of Mundell’s concept. I think it is an extremely good idea and I firmly believe monetary management in general would have done much better if we would have followed Mundell’s view and not the guess work of central bankers.
Certainly errors committed by the Federal Reserve in monetary policy contributed to the development of the financial bubble during the 2000s. During 2003, as you recall, the Federal Reserve eased because they were afraid of deflation – there was a big drop in the bond yield and they saw it as a deflationary signal. At the time my department at Bank of America produced a large body of research, arguing that this was not a deflationary signal, that the Federal Reserve was in error, and the Federal Reserve’s ease was mistaken. Therefore, I can think of a number of instances where the Federal Reserve would have been much better off to watch the gold price rather than bond yields or consumer price indexes or other things that they were watching.
L.S.: Do you consider it worthwhile to follow the gold market?
D.P.G.: Oh, absolutely! Gold gives you extremely important signals. The question that financial analysts should ask is not simply what the market expects, but what is the range of possibilities that the market expects and what probabilities are assigned. In other words, expectations should not be thought of as a point in the future – I think that the stock market is going up by 7.38 percent next year, that’s my expectation. Instead the expectation should be thought as a probability distribution. For example, if you are going off to rob a bank, you have a very screwed distribution – on the one hand you come away with 50.000 euros, on the other hand you get shot dead. If you invest in government bonds there you got a much narrower distribution.
So the willingness of the market to pay for hedges against extreme outcomes – and gold at this point is a hedge against extreme outcomes – is a very important indication of the market’s thinking. One interesting comparison is between gold and inflation tracking securities, like TIPS (Treasury Inflation-Protected Securities) in the United States. There is a very close relationship in the last five years between the gold price and inflation trackers as I have pointed out numerous times in the past in my research for clients. Both of them are hedges against extreme outcome. Right now when you buy into an inflation tracker in the United States, or in fact any of the better quality countries, you have a negative interest rate – that is, you invest a hundred euros at principle, and if nothing unexpected happens in ten years you get 99 euros back. Why would you accept a negative yield? Because if you have other extreme inflation or extreme deflation, TIPS will outperform other bonds and probably other stocks as well. So the fact that gold and TIPS track each other extremely closely is an indication that both of these instruments are hedges against extreme outcomes.
So the gold market is an extremely important signal, but it needs to interpreted carefully. Gold is not a good forecaster of inflation in any reasonable time horizon, say five to ten year time horizon. At this point gold is not a hedge against inflation, but a hedge against a very big change in unexpected inflation, a very big inflation surprise. So again, the gold market is extremely important analytically. I personally own gold as a hedge against extreme outcomes. It’s not really a great deal in my portfolio, but I have a substantial amount of gold as insurance.
L.S.: So I would guess that you don’t think the gold price is a bubble?
D.P.G.: No, absolutely not. The proof that gold is not a bubble is that gold and TIPS track each other so well. If that were true, one would have to say that TIPS is in a bubble, but that would make no sense. I’ve never heard anyone say the TIPS market is a bubble.
L.S.: Since you were once Bank of America’s global head of bond research: is the bond market mispriced?
D.P.G.: I think the Spanish bond market is mispriced. I wouldn’t own Spanish bonds at these levels because I think the Spanish government is covering up the real extent of their banking problems. I think the European Community made a decision to let the Spanish underestimate substantially how severe the problems are, because they want to dampen the perspective of the crisis. But as far as the United States is concerned, I think as long as growth is in the 1 to 2 percent range and you have a very substantial increase in government debt and the prospect of serious increase in inflation due to the American budget problems, the bond market is not necessarily in a bubble at all.
I like to look at American bond yields broken down to two components: TIPS, that is the inflation protected yield, versus the ordinary coupon yield. The difference between the TIPS yields and ordinary coupon treasury yields is typically called “break-even inflation”. The difference between those two yields is the inflation rate that will be required for TIPS and coupons to produce the same total returns. And in the last few weeks as bond yields have gone up, in fact TIPS yields have gone down, they have become more negative, which shows that people are willing to pay more for protection against an extreme outcome, but break-even inflation has gone up, it has gone up more.
So the fact that TIPS have such an enormous support, because yields have gone even more negative, tells me that bonds are still an important portfolio hedge against certain kinds of extreme outcomes. I also see a lot of international demand for US treasuries, particularly by the Japanese. So I don’t think we are going to see huge moves in bond yields. I do think that a large part of the credit market is much too optimistic. I think that the Federal Reserve’s purchases of mortgage backed securities have distorted the market, and so I think the price of risk in the credit market is much too low, I think there is some mispricing there.
L.S.: One final question: usually, debt crises end ultimately in a write-down of the debt. Do you think that we will see in the next few years an international summit where exactly this will happen because it needs to happen?
D.P.G.: Well, the write-down of government debt – that’s conceivable more in some of the European countries, but it is very unlikely. The reason why I think it is unlikely is because if you look at the amount of private wealth available in most European countries compared to government debt, private wealth vastly exceeds government debt. What governments do when they are in trouble to pay back their debt, as in Argentina, is to expropriate private wealth. So what I believe will happen in the extreme case well before you have any default on government debt, say in places like Italy or Spain, you will have some substantial wealth taxes.
In the case of the United States, we will add a lot of inflation. Inflation is a partial default on government debt. For example, let’s say that I lend you a hundred euros for a month, and a month later you come back and give me a hundred dollars. So I say: Well, Lars, what’s that – I gave you a hundred euros and you give me a hundred dollars? And you say: Look, a hundred is a hundred, take it or leave it. This is what governments do to bond holders when they devalue their currencies. A dollar worth euro 1.35 is not the same thing as a dollar worth euro 1.70. But if the United States were to continue a reckless fiscal policy and it lead to the devaluation of the dollar, then in effect you’ll be giving bond holders a different devalued debt repayment. The typical way governments default on their debt is through inflation. And I think that’s a very significant probability, that’s exactly why TIPS are considered so valuable and why people accept negative interest rates, because people are afraid that the government will do precisely that. But a global rescheduling of debt, I just don’t see it as very likely at all.
L.S.: Thank you very much for taking your time, Mr. Goldman!
Statistics: Posted by DIGGER DAN — Mon Feb 18, 2013 3:54 pm
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What is the second half of 2012 going to bring? Are things going to get even worse than they are right now? Unfortunately, that appears more likely with each passing day. I will admit that I am extremely concerned about the second half of 2012. Historically, a financial crisis is much more likely to begin in the fall than during any other season of the year. Just think about it. The stock market crash of 1929 happened in the fall. “Black Monday” happened on October 19th, 1987. The financial crisis of 2008 started in the fall. There just seems to be something about the fall that brings out the worst in the financial markets. But of course there is not a stock market crash every year. So are there specific reasons why we should be extremely concerned about what is coming this year? Yes, there are. The ingredients for a “perfect storm” are slowly coming together, and in the months ahead we could very well see the next wave of the economic collapse strike. Sadly, we have never even come close to recovering from the last recession, and this next crisis might end up being even more painful than the last one.
The following are 17 reasons to be extremely concerned about the second half of 2012….
#1 Historical Trends
A recent IMF research paper by Luc Laeven and Fabián Valencia showed that a banking crisis is far more likely to start in September than in any other month. The following chart is from their report….
So what will this September bring?
#2 JP Morgan
Do you remember back in May when JP Morgan announced that it would be taking a 2 billion dollar trading loss on some derivatives trades gone bad? Well, the New York Times is now reporting that the real figure could reach 9 billion dollars, but nobody really knows for sure. At some point is JP Morgan going to need a bailout? If so, what is that going to do to the U.S. financial system?
Last week, Moody’s downgraded the credit ratings of 15 major global banks. As a result, a number of them have been required to post billions of dollars in additional collateral against derivatives exposures….
Citigroup’s two-notch long-term rating downgrade from A3 to Baa2 could have led to US$500m in additional liquidity and funding demands due to derivative triggers and exchange margin requirements, according to the bank’s 10Q regulatory filing at the end of the first quarter.
Morgan Stanley – which Moody’s downgraded from A2 to Baa1 – said a two-notch downgrade from both Moody’s and Standard and Poor’s could spur an additional US$6.8bn of collateral requirements in its latest 10Q. The bank did not break down its potential collateral calls under a scenario where only Moody’s downgraded the bank below the Single A threshold.
Royal Bank of Scotland estimated it may have to post £9bn of collateral as a result of the one-notch Moody’s downgrade to Baa1 in a statement on June 21, but did not detail how much of this additional requirement was driven by margin for swaps exposures.
The worldwide derivatives market is starting to show some cracks, and at some point this is going to become a major disaster.
#4 LEAP/E2020 Warning
LEAP/E2020 has issued a red alert for the global financial system for this fall. They are warning that the “second half of 2012″ will represent a “major inflection point” for the global economic system….
The shock of the autumn 2008 will seem like a small summer storm compared to what will affect planet in several months.
In fact LEAP/E2020 has never seen the chronological convergence of such a series of explosive and so fundamental factors (economy, finances, geopolitical…) since 2006, the start of its work on the global systemic crisis. Logically, in our modest attempt to regularly publish a “crisis weather forecast”, we must therefore give our readers a “Red Alert” because the upcoming events which are readying themselves to shake the world system next September/ October belong to this category.
#5 Increasing Pessimism
One recent survey of corporate executives found that only 20 percent of them expect the global economy to improve over the next 12 months and 48 percent of them expect the global economy to get worse over the next 12 months.
The Spanish financial system is basically a total nightmare at this point. Moody’s recently downgraded Spanish debt to one level above junk status, and earlier this week Moody’s downgraded the credit ratings of 28 major Spanish banks.
According to CNBC, Spain’s short-term borrowing costs are now about three times higher than they were just one month ago….
Spain’s short-term borrowing costs nearly tripled at auction on Tuesday, underlining the country’s precarious finances as it struggles against recession and juggles with a debt crisis among its newly downgraded banks.
The yield paid on a 3-month bill was 2.362 percent, up from just 0.846 percent a month ago. For six-month paper, it leapt to 3.237 percent from 1.737 percent in May.
Needless to say, this is very, very bad news.
The situation in Italy continues to deteriorate and many analysts believe that it could be one of the next dominoes to fall. The following is from a recent Businessweek article….
The euro zone’s third-biggest economy is seen as the next domino at risk of toppling after the European Union’s June 9 deal to lend Spain $125 billion in bank bailout funds. Yields on Italy’s 10-year government bonds reached 6.2 percent on June 13, up from just 4.8 percent in March. By pushing up Italy’s borrowing costs out of fear of default, investors are making a default more likely.
A recent Fortune article detailed some of the economic fundamentals that have so many economists deeply concerned about the Italian economy right now….
The main glaring risk threats that could propel Italy down the path to become Europe’s next domino is the size of country’s outstanding debt (at €1.9 trillion or 120% of GDP); the mountain of debt it has to roll over in the next 12 months (nearly €400 billion); and the market’s cracking credibility around Prime Minister Mario Monti’s ability to reduce the country’s fiscal footprint and spur growth.
Further, fear around Italy’s creditworthiness, which has recently been expressed by near cycle highs in sovereign CDS spreads and government yields on the 10-year bond, follow some rather glaring negative fundamentals over recent quarters and years: declining GDP over the last three consecutive quarters; a rising unemployment rate (especially among its youth); deterioration in labor market competitiveness; and increased competition for export goods to its key trading partners.
I have written extensively about the financial nightmare that is unfolding in Greece. Unemployment has soared past the 20 percent mark, youth unemployment is above 50 percent, the Greek economy has contracted by close to 25 percent over the past four years and now Greek politicians are saying that a third bailout package may be necessary.
The tiny island nation of Cyprus has become the fifth member of the eurozone to formally request a bailout. This is yet another sign that the eurozone is rapidly falling apart.
German Chancellor Angela Merkel continues to promote an austerity path for Europe and she continues to maintain her very firm position against any kind of eurozone debt sharing….
Merkel, speaking to a conference in Berlin today as Spain announced it would formally seek aid for its banks, dismissed “euro bonds, euro bills and European deposit insurance with joint liability and much more” as “economically wrong and counterproductive,” saying that they ran against the German constitution.
“It’s not a bold prediction to say that in Brussels most eyes — all eyes — will be on Germany yet again,” Merkel said. “I say quite openly: when I think of the summit on Thursday I’m concerned that once again the discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures.”
In fact, Merkel says that there will be no eurobonds “as long as I live“. This means that there will be no “quick fix” for the problems that are unfolding in Europe.
#11 Bank Runs
Every single day, hundreds of billions of dollars is being pulled out of banks in southern Europe. Much of that money is being transferred to banks in northern Europe.
Financial advisers and private bankers whose clients have accounts too large to be covered by a Europe-wide guarantee on deposits up to 100,000 euros ($125,000), are reporting a “bank run by wire transfer” that has picked up during May.
Much of this money has headed north to banks in London, Frankfurt and Geneva, financial advisers say.
“It’s been an ongoing process but it certainly picked up pace a couple of weeks ago We believe there is a continuous 2-3 year bank run by wire transfer,” said Lorne Baring, managing director at B Capital, a Geneva-based pan European wealth management firm.
How long can these bank runs continue before banking systems start to collapse?
#12 Preparations For The Collapse Of The Eurozone
As I have written about previously, the smart money has already written off southern Europe. All over the continent major financial institutions are preparing for the worst. For example, just check out what Visa Europe is doing….
Visa Europe is holding weekly meetings to discuss scenarios in the event the euro zone collapses, joining other companies that are preparing for a potential breakup of the currency bloc.
Chief Commercial Officer Steve Perry said Tuesday that management at the U.K.-based credit-card company meets weekly to explore various possible outcomes, including a total collapse of the euro zone.
#13 Global Lending Is Slowing Down
All over the globe the flow of credit is beginning to freeze up. In fact, the Bank for International Settlements says that worldwide lending is contracting at the fastest pace since the financial crisis of 2008.
#14 Sophisticated Cyber Attacks On Banks
It is being reported that “very sophisticated” hackers have successfully raided dozens of banks in Europe. So far, it is being estimated that they have stolen 60 million euros….
Sixty million euro has been stolen from bank accounts in a massive cyber bank raid after fraudsters raided dozens of financial institutions around the world.
According to a joint report by software security firm McAfee and Guardian Analytics, more than 60 firms have suffered from what it has called an “insider level of understanding”.
What happens someday if we wake up and all the money in the banks is gone?
#15 U.S. Municipal Bankruptcies
All over the United States there are cities and towns on the verge of financial disaster. This week Stockton, California became the largest U.S. city to ever declare bankruptcy, but the reality is that this is only just the beginning of the municipal debt crisis….
Stockton, California, said it will file for bankruptcy after talks with bondholders and labor unions failed, making the agricultural center the biggest U.S. city to seek court protection from creditors.
“The city is fiscally insolvent and must seek Chapter 9 bankruptcy protection,” Stockton said in a statement released yesterday after its council voted 6-1 to adopt a spending plan for operating under bankruptcy protection.
#16 The Obamacare Decision
The U.S. economy is already a complete and total mess, and now the Obamacare decision is going to throw a huge wet blanket on it. All over America, small business owners are saying that they are going to have to let some workers go because they cannot afford to keep them all under Obamacare. It would be hard to imagine a more job killing law than Obamacare, and now that the Supreme Court decision has finally been announced we are going to see many businesses making some really hard decisions.
#17 The U.S. Election
It is being reported that Barack Obama is putting together an army of “thousands of lawyers” to deal with any disputes that arise over voting procedures or results. It certainly looks like this upcoming election is going to be extremely close, and there is the potential that we could end up facing another Bush v. Gore scenario where the fate of the presidency is determined in court. This campaign season is likely to be exceptionally nasty, and I fear what may happen if there is not a decisive winner on election day. The possibility of significant civil unrest is certainly there.
We definitely live in “interesting” times.
Personally, I am deeply concerned about the September, October, November time frame.
The other day, Joe Biden delivered a speech in which he made the following statement….
“It’s A Depression For Millions And Millions Of Americans”
And what Biden said was right for once. Millions of Americans are out of work right now and millions of Americans have fallen out of the middle class in recent years. If you have lost everything, it does feel like you are living through a depression.
When people lose everything, they tend to get desperate. And desperate people do desperate things – especially when they are angry.
A whole host of recent opinion polls have shown that anger and frustration in the United States are rising to unprecedented levels. The ingredients are certainly there for an explosion. Someone just needs to come along and light the fuse. We truly do live in frightening times.
Let us hope for the best, but let us also prepare for the worst.
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