VIDEO - Fundamental & Technical Analysis of the S&P 500's Daily & Weekly Charts:

http://www.viddler.com/explore/zigzagman/videos/25/

Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

This video is viewed best in Full-Screen Mode...Click the four arrows in the bottom right corner...Press the Escape key on your keyboard to exit back to Normal Mode...

Happy Trading this week...
zigzagman

Are We Going the Way of Rome?...

http://stockmarketchartanalyst.blogspot.com/2010/06/are-we-going-way-of-rome.html

By Lawrence W. Reed

There's an old story worth retelling about a band of wild hogs which lived along a river in a secluded area of Georgia. These hogs were a stubborn, ornery, independent bunch. They had survived floods, fires, freezes, droughts, hunters, dogs, and everything else. No one thought they could ever be captured.

One day a stranger came into town not far from where the hogs lived and went into the general store. He asked the storekeeper, "Where can I find the hogs? I want to capture them." The storekeeper laughed at such a claim but pointed in the general direction. The stranger left with his one-horse wagon, an ax, and a few sacks of corn.

Two months later he returned, went back to the store, and asked for help to bring the hogs out. He said he had them all penned up in the woods. People were amazed and came from miles around to hear him tell the story of how he did it.

"The first thing I did," the stranger said, "was to clear a small area of the woods with my ax. Then I put some corn in the center of the clearing. At first, none of the hogs would take the corn. Then after a few days, some of the young ones would come out, snatch some corn, and then scamper back into the underbrush. Then the older ones began taking the corn, probably figuring that if they didn't get it, some of the other ones would. Soon they were all eating the corn. They stopped grubbing for acorns and roots on their own.

"About that time, I started building a fence around the clearing, a little higher each day. At the right moment, I built a trap door and sprung it. Naturally, they squealed and hollered when they knew I had them, but I can pen any animal on the face of the earth if I can first get him to depend on me for a free handout!"

The moral to that story happens to be the connecting link between the course of ancient Rome and the path which America has been taking for much of the last century.

Roman civilization began many centuries ago. In those early days, Roman society was basically agricultural, made up of small farmers and shepherds. By the second century bc, large-scale businesses made their appearance. Italy became urbanized. Immigration soared as people from many lands were attracted by the vibrant growth and great opportunities the Roman economy offered. This growing prosperity was made possible by a general climate of free enterprise, limited government, and respect for private property. Merchants and entrepreneurs were admired and emulated. Commerce and trade flourished and large investments were commonplace.

It is certainly true that slavery existed within Rome's sphere of influence. That's deplorable from any standpoint, of course. But to be fair to the Romans, it must be said that slavery was far more common and far more brutal in the rest of the world in those days.

Remarkable Achievements:

Historians still talk today about the remarkable achievements Rome made in sanitation, transportation, the arts, public parks, banking, architecture, education, and administration. The city even had mass production of some consumer items and a stock market. With low taxes and low tariffs, free trade and private property, Rome became the center of the world's wealth.

At one time, the political and military power of Rome dominated Europe and the Mediterranean. Roman roads facilitated speed of travel and communication to a degree that would not be surpassed until the development of the railroad, the steamship, and the telegraph in the 19th century. Roman law and justice enabled the traveler to journey throughout the empire with a considerable degree of safety. "The benefits of the Pax Romana [the peace of Rome]", says Arther Ferrill in "The Fall of the Roman Empire," "included the development of one of man's most impressive codes of law and an administrative system that met the needs of men of varied languages, ethnic backgrounds and cultural traditions. The poet Virgil was not far wrong in claiming that his nation ruled the world in peace and justice."

All this disappeared, however, by the fifth century ad, and when it was gone, Europe was plunged into darkness and despair, slavery and poverty. In the space of 700 years, explains Max Shapiro in his book, "The Penniless Billionaires," "the Appian Way, where Roman legions had frequently paraded in celebration of victory, was clogged with rubble and weeds. Wild dogs roamed through the ruins of the Forum, in search of food. And the 60,000 souls who inhabited the desolate place which had once been called the Eternal City now referred to it as `the great cow pasture.'"

Why did Rome decline and fall? The record is abundantly clear on this point. Rome fell because of a fundamental change in ideas on the part of the Roman people-ideas that relate primarily to personal responsibility and the source of personal income. In the early days of greatness, to a considerable degree, each Roman regarded himself as the chief source of income. Each individual looked to himself-what he could acquire voluntarily in the marketplace-as the source of his livelihood. Rome's decline began when large numbers of citizens discovered another source of income: the political process or, the state.

When Romans abandoned self-responsibility and self-reliance and began to vote themselves benefits, to use government to rob Peter to pay Paul, to put their hands into other people's pockets, and to envy and covet the productive and their wealth, they set into motion Kershner's First Law: "When a self-governing people confer upon their government the power to take from some and give to others, the process will not stop until the last bone of the last taxpayer is picked bare."

The legalized plunder of the Roman welfare state was undoubtedly sanctioned by people who wished to do good. As Henry David Thoreau once said, "If I knew for certain that a man was coming to my house to do me good, I would run for my life." Another person coined the phrase, "The road to hell is paved with good intentions." Nothing but evil can come from a society bent upon coercion, the confiscation of property, and the degradation of the productive.

Early in the process, a politician named Clodius ran for the office of tribune on a "free wheat for the masses" platform and won. Candidates for office began spending huge sums to win public favor and then plundered the population afterwards to pay their campaign debts.

When Julius Caesar came to power in 48 bc, he found 320,000 persons on government grain relief. Temporarily slowing the welfare state bandwagon, he ordered the welfare rolls cut to 200,000. Within a half-century, the rolls were back up to well over 300,000.

Government Bread:

A real landmark in the course of events came in the year 274 ad. Emperor Aurelian, wishing to provide cradle-to-grave care for the citizenry, declared the right to relief to be hereditary. Those whose parents received government benefits were entitled as a matter of right to benefits as well. Aurelian gave welfare recipients government-baked bread (instead of the old practice of giving them wheat and letting them bake their own bread) and added free salt, pork, and olive oil. Not surprisingly, the ranks of the unproductive grew fatter, and the ranks of the productive grew thinner.

Surely, many Romans opposed the welfare state and held fast to the old virtues of work, thrift, and self-reliance. Just as surely, some of these sturdy people gave in and began to feed at the public trough in the belief that if they didn't get it, somebody else would. That attitude only hastened the slide into bankruptcy.

The central government also assumed the responsibility of providing the people with entertainment. Elaborate circuses and gladiator duels were staged to keep the people happy. The equivalent of a hundred million dollars per year in the city of Rome alone is one modern historian's estimate of what was poured out on the games. These days, many Americans think that by virtue of being artists they are entitled to grants from the federal government at other people's expense. If handouts for the arts constitute a legitimate function of government, by what possible rationale can just about any other handout be resisted?

In Rome, the emperors were buying support with the people's money. After all, government can give only what it first takes. The emperors, in dishing out all these goodies, were in a position to manipulate public opinion. As Alexander Hamilton observed, "Control of a man's subsistence is control of a man's will."

By the second century ad, many cities had spent themselves deeply into debt. Beginning with the emperor Hadrian, municipalities which got themselves into financial difficulties lost their independence as the central government placed them under the authority of imperial curators. Local authority was increasingly replaced by the power of the central government.

Taxes & Regulations:

Civil wars and conflict of all sorts increased as faction fought against faction to seize control of the huge state apparatus and all its public loot. Of 27 emperors or would-be emperors between 180 and 285 ad, all but two met violent deaths.

High taxes and burdensome regulations were the order of the day. Business enterprise was called upon to support the growing body of public parasites.

By the time of Emperor Antoninus Pius, who ruled from 138 to 161 ad, the Roman bureaucracy was as all-embracing as that of modern times. The historian Trever wrote that by the third century, "the relentless system of taxation, requisition, and compulsory labor was administered by an army of military bureaucrats . . . . Everywhere were the ubiquitous personal agents of the emperors to spy out any remotest case of attempted strikes or evasion of taxes."

Another writer, W. G. Hardy, said several years ago that in later Rome, "what the soldiers or the barbarians spared, the emperors took in taxes." The crushing cost of the military, the top-heavy bureaucracy, and the public programs taxed the middle class out of existence.

Clearly, the state gradually became the prime source of income for an increasing number of Romans. The high taxes needed to finance this drove business into bankruptcy and then nationalization. Whole sectors of the economy came under government domination in this manner. The first industry in Rome to be taken over was transportation-shipping in particular. Interestingly, the first industry in America to suffer comprehensive control was also transportation-specifically, railroads.

Emperor Nero may have been the original architect of urban renewal legislation. In the 10th year of his reign (64 ad), a great fire left more than half of Rome in ashes. It was rumored then, and many historians now believe, that Nero had ordered the conflagration to be lighted to clear the ground for a rebuilding of the city.

Nero is said by Gaius Suetonius in "De Vitae Caesarum" to have once rubbed his hands together and declared, "Let us tax and tax again! Let us see to it that no one owns anything!" That reminds this author of Harry Hopkins' famous allusion to the welfare state during the Roosevelt years: "tax and tax, spend and spend, elect and elect."

In 91 ad, the government became deeply involved in the business of agriculture. Emperor Domitian, to reduce the production and raise the price of wine, ordered the destruction of half the provincial vineyards.

As the old virtue of self-reliance gave way to political redistribution of income, priests, teachers, and intellectuals extolled the virtues of the almighty emperor, the provider of all things. The interests of the individual were considered a distant second to the interests of the emperor and his legions. A spiritual vacuum ensued, which was filled partly by the rise of cults and partly by worship of the emperor. The latter reached its zenith under Emperor Diocletian in 285 ad. No one could approach him without prostrating himself on the ground and kissing the hem of his garment. Formerly, the proud, free citizens of Rome had refused to render such servile adoration to any of their magistrates and rulers.

Natural Disasters:

The Roman Empire, amid this sickening spectacle of moral decay, fell victim to an unfortunate series of natural disasters and plagues. Earthquakes, volcanoes, and harsh storms caused great damage. By 200 ad at least one-fourth of the population of the whole empire, both civilian and military, had perished by a plague brought from the East. A later one, from 252 to 267, was nearly as bad. A morally righteous and strong people might have recovered and rebuilt, but these disasters only reinforced the growing despair of a desperate people. The fabric of Roman society was rotting away under the influence of government paternalism, bureaucracy, and spiritual malaise.

Cheapened Money:

Rome also suffered from the bane of all welfare states-inflation. The massive demands on the government to spend for everything created pressures for the multiplication of money. The Roman coin, the denarius, was cheapened and debased by one emperor after another to help pay for the expensive programs. Once almost pure silver, the denarius by 268 ad was little more than a piece of junk containing only .02 percent silver. American dimes, quarters, and half dollars, incidentally, contained 90 percent silver as recently as 1964; today, they contain no silver at all.

Flooding the economy with all this new and cheapened money had predictable results: prices skyrocketed; savings were eroded, and the people became angry and frustrated. Businessmen were often blamed for the rising prices even as government continued its spendthrift ways.

The easy money policies produced periodic crises in the economy. The panic of 86 ad and a severe economic contraction of a few years later are examples. The government responded by imposing penalties for trading in gold, especially for exporting it, much as Franklin Roosevelt did in 1933.

Demanding relief from economic disorder, the people of Rome cried out for a strongman. He arrived in the person of Diocletian who, in the year 301, imposed his famous "Edict of 301." This law established a system of comprehensive wage and price controls, to be enforced by a penalty of death. The chaos that followed inspired the contemporary historian Lactantius to write in 314: "After the many oppressions which he put into practice had brought a general dearth upon the empire, he then set himself to regulate the prices of all vendible things. There was much bloodshed upon very slight and trifling accounts, and the people brought provisions no more to market, since they could not get a reasonable price for them; and this increased the dearth so much that at last after many had died by it, the law itself was laid aside."

From Welfarism to Despotism:

Diocletian also ordered that all offices, trades, and professions, in so far as possible, were to be made hereditary. Young men were forced to carry on in the trade of their fathers. There was no escape from this regimentation. The welfare state had become a despotism.

This tyrant left his mark on history in other ways, too. It was during his reign that fully half the men of the Empire were on the government payroll. Not only did he impose across-the-board wage and price controls in relative peacetime, but he also resigned from office, in the year 305. Nearly 17 centuries later, Richard Nixon would become the first American president to impose peacetime wage and price controls and also our first chief executive to resign from office.

All this robbery and tyranny by the state was a reflection of the breakdown of moral law in Roman society. The people had lost all respect for the sanctity of private property. This author is reminded of the New York City blackout of 1977, when all it took was for the lights to go out for hundreds to go on a looting spree.

The Christians were the last to resist the tyranny of the Roman welfare state. Until 313 ad, they had been persecuted because of their faith and their unwillingness to worship the emperor. Under Diocletian, Christians were cast into dungeons, thrown to the wild beasts in the amphitheater, and put to early death by every other mode of torture that ingenious cruelty could devise. In this year, Emperor Constantine granted them toleration in exchange for their acquiescence to his authority.

Constantine himself professed Christianity but his personal morality belied his word. Within three years of his announced conversion, he put a nephew to death, drowned his wife in a bath, and murdered his son.

Meanwhile, Constantine showered the Church with land, gifts, and patronage at taxpayer expense. Thus corrupted, the Church lost its old simplicity and high moral standards. It, too, had jumped aboard the gravy train.

In the year 380, a sadly perverted Christianity became the official state religion under Emperor Theodosius. Rome's decline was like a falling rock from this point on.

Foreign Policy:

In another arena, the foreign policy of Rome in the third, fourth, and fifth centuries had become one of weakness and appeasement. Politicians, too busy buying votes at home with pie-in-the-sky programs, ignored the Empire's defense. Barbarian "converts," whose loyalty was still suspect, were even permitted to hold important posts in the Roman military establishment.

In 410, Alaric the Goth and his primitive Germanic tribesmen assaulted the city and sacked its treasures. For three days, Rome was plundered. Palaces and temples were stripped and Roman citizens were raped and killed by the thousands. The once-proud Roman army, which had always repelled the barbarians before, now wilted in the face of opposition. Why risk life and limb to defend a corrupt and decaying society?

The end came rather anti-climactically in 476, when the German chieftain Odoacer pushed aside the last Roman emperor, Romulus Augustulus, and installed himself as the new authority.

Some might say that Rome fell because of the attack by these foreigners. Such a claim overlooks what the Romans had done to themselves. When the Vandals, Goths, Huns, and others reached Rome, many citizens actually welcomed them in the belief that anything was better than their own tax collectors and regulators. It is more accurate to say that Rome committed suicide. Like the wild hogs, Romans first lost their freedom, and then they lost their lives.

History does seem to have an uncanny knack of repeating itself now and then. America, by elevating government power at the expense of individual responsibility, has made some of the same mistakes that Rome made centuries ago. In a famous statement, philosopher George Santayana warned that those who ignore history are condemned to repeat it.

No one reading this, however, should despair for the future. The growing intrusiveness of government in America is not inevitable; it is not something beyond the control of the American people. It is, rather, the consequence of faulty ideas, which can change if only this message is carried forth by those who cherish liberty. Indeed, there are very promising indications that the intellectual battles these days are being won-often decisively won-by the friends of freedom and limited government, not by those who foolishly seek to put government in the driver's seat.

Most people who cherish freedom oppose the welfare state for moral, philosophical, spiritual, and economic reasons. We would do well to add another reason: the lessons of history!

As we work to restore and preserve those ideas and institutions which made our nation both free and great,

let's keep these words in mind:

The penalty men pay for indifference to public affairs is to be ruled by evil men. -Plato

All that is necessary for evil to triumph is for good men to do nothing. -Edmund Burke

The hottest places in Hell are reserved for those who-in a period of moral crisis-maintain neutrality. -Dante

http://www.citizensforaconstitutionalrepublic.com/reed9-1-01.html

SEC Launches 'Circuit Breaker' Rules For Stocks:

http://www.sec.gov/news/press/2010/2010-80.htm

by The Associated Press - June 10, 2010

Federal regulators have put in place new rules aimed at preventing a repeat of last month's harrowing "flash crash" in the stock market.

Members of the Securities and Exchange Commission on Thursday approved the rules, which call for U.S. stock exchanges to briefly halt trading of some stocks that have big swings.

The exchanges will start putting the trading breaks into effect as early as Friday for six months.

The plan for the "circuit breakers" was worked out by the SEC and the major exchanges following the May 6 market plunge that saw the Dow Jones industrials lose nearly 1,000 points in less than a half-hour.

"Under the proposed rules, which are subject to Commission approval following the completion of the comment period, trading in a stock would pause across U.S. equity markets for a five-minute period in the event that the stock experiences a 10 percent change in price over the preceding five minutes. The pause would give the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion. Initially, these new rules would be in effect on a pilot basis through Dec. 10, 2010."

Volcker: Reconsidering Basic Tenets of Financial Theory:

http://stockmarketchartanalyst.blogspot.com/2010/06/volcker-reconsidering-basic-tenets-of.html

Today’s must read media piece comes from former Fed Chair Paul Volcker, in the NY Review of Books:

“Some five years ago, at a conference of the Stanford Institute for Economic Policy Research, I lamented that “the growing imbalances, disequilibria, risks” were giving rise to “circumstances as dangerous and intractable” as any I could recall—intractable not just because of the combination of complicated issues, but because there seemed to be “so little willingness or capacity to do much about it.”

That is merely the intro. It takes a few paragraphs for Paul to work up a good head of steam — the man who broke the back of inflation isn’t holding back:

“Has the contribution of the modern world of finance to economic growth become so critical as to support remuneration to its participants beyond any earlier experience and expectations? Does the past profitability of and the value added by the financial industry really now justify profits amounting to as much as 35 to 40 percent of all profits by all US corporations? Can the truly enormous rise in the use of derivatives, complicated options, and highly structured financial instruments really have made a parallel contribution to economic efficiency? If so, does analysis of economic growth and productivity over the past decade or so indicate visible acceleration of growth or benefits flowing down to the average American worker who even before the crisis had enjoyed no increase in real income?

There was one great growth industry. Private debt relative to GDP nearly tripled in thirty years. Credit default swaps, invented little more than a decade ago, soared at their peak to a $60 trillion market, exceeding by a large multiple the amount of the underlying credits potentially hedged against default. Add to those specifics the opacity that accompanied the enormous complexity of such transactions.

The nature and depth of the financial crisis is forcing us to reconsider some of the basic tenets of financial theory. To my way of thinking, that is both necessary and promising in pointing toward useful reform.”

Nice to see Paul is not giving up his fight to get the financial sector back on a leash...



http://www.ritholtz.com/blog/2010/06/volcker-2/

Source:

‘The Time We Have Is Growing Short' by Paul Volcker
NY Review of Books, June 24, 2010
http://www.nybooks.com/articles/archives/2010/jun/24/time-we-have-growing-short/

My God, Is There A Rule Of Law? by Karl Denninger:

http://stockmarketchartanalyst.blogspot.com/2010/06/my-god-is-there-rule-of-law-by-karl.html

Posted at 08:37 - Monday, June 7. 2010

It may not be here in the US, but this could be a start! ( http://tinyurl.com/38quko9 )
(Warning: In German!)

Interestingly enough, Der Spiegel, which usually has an English version of most articles, doesn't have one of this entry I can find. I was therefore forced to Google Translate it - take a read. ( http://tinyurl.com/2crovme )

The keys to this are the allegation that the "greek bailout" is unlawful under the Lisbon Treaty (no really?)

The government has responded (big surprise - NOT!) that if an injunction issues the result would be a self-fulfilling default and cites that "EU countries could be vulnerable."

No, really? I thought that was what you called it when you didn't have the money to pay your bills!

That of course isn't the point of the complaint. The complaint rests (properly, in my opinion) on the premise that the so-called "boom" in many parts of Europe was financed with German capital, which was effectively appropriated under false pretenses.

Gee, where have we seen this before? Banksters lying and cheating (cough-liar loans-cough!) and trading in derivatives without any money behind them (cough-AIG-cough!) and when the smoke clears suddenly the national governments are told "hand over hundreds of billions right now or the puppy dies!"

Uh huh...

G20 governments are increasingly coming to the realization that "borrow and spend" doesn't - and can't - work in the intermediate and longer term. Despite the bleating of Geithner at the G20 meeting he got nowhere trying to jawbone people into more Keynesian-style games.

We blew $4 trillion in the United States over the last two years and change and got nothing for it, and as a consequence we are stuck with the debt and haven't solved the problem. $4 trillion, of course, is about 30% of GDP, and this "support" has amounted to roughly 11% of GDP over the last three years.

We can either recognize that this won't work (just as it didn't in 2003 - all it did was create asset bubbles) and stop it, taking the pain we tried to defer (and added to) or we can take the risk of a complete detonation in the weeks and months ahead. Europe and the rest of the G20 appear to have woken up and decided that the Keynes-cum-idiocy is in fact idiocy, irrespective of the foolhardy and even criminally-insane bleating by Geithner and the Obama Administration.

The game, my friends, is afoot...

http://market-ticker.org/archives/2379-My-God,-Is-There-A-Rule-Of-Law.html

VIDEO - Fundamental & Technical Analysis of the S&P 500's Daily & Weekly Charts:

http://www.viddler.com/explore/zigzagman/videos/24/

Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

This video is viewed best in Full-Screen Mode...Click the four arrows in the bottom right corner...Press the Escape key on your keyboard to exit back to Normal Mode...

Happy Trading this week...
zigzagman

Why U.S. Debt Matters to You:

http://money.cnn.com/2010/06/03/news/economy/U.S._debt_impact/index.htm

By Jeanne Sahadi, Senior Writer June 3, 2010: 11:38 AM ET

NEW YORK (CNNMoney.com) -- Letting U.S. debt grow unabated is often framed as an unforgivable burden to heap on one's grandchildren.

But there are plenty of reasons today's parents might be concerned for themselves and their kids.

If Congress doesn't craft a plan to address long-term fiscal shortfalls after the economy recovers, potential problems could arise sooner rather than later, debt experts say.

Slower economic growth: After examining data from dozens of countries over the past two centuries, economists Carmen Reinhart and Kenneth Rogoff found a connection between high debt and reduced economic growth. Specifically, they found that when a nation's gross debt reaches 90% of its economy, it often loses about one percentage point of growth a year.

U.S. gross debt -- currently $13 trillion -- will hit the 90% threshold this year. Gross debt includes money owed to those who hold U.S. bonds and money owed to government trust funds such as Social Security.

Reinhart has said the relationship between high debt and low growth is "self-feeding." Low growth ravishes government revenue and increases the need to borrow. More borrowing builds debt. Higher debt increases pressure to tighten fiscal policies in order to reduce the risk that investors lose confidence in the country. But tighter policies can slow economic growth.

One percentage point lower growth may not seem huge. But it's equal to roughly a third of the average annual GDP forecast over the next decade.

And slower growth can reduce the number of jobs created, which in turn can hold down household incomes.

High interest payments: Interest rates are still very low and may continue to be as the debt crisis in Europe makes the United States a more attractive safe haven for investors.

That means the government can borrow on the cheap right now. But rates will rise as the world economy recovers. By 2020, annual interest owed on U.S. debt will approach $1 trillion, or roughly 21% of projected federal revenue for that year, according to Congressional Budget Office estimates.

Interest rates may rise further than expected if credit rating agencies or investors start to doubt U.S. resolve to rein in the growth in debt. And that would jack up the cost of borrowing for businesses and consumers.

Ironically, some debt experts would almost prefer that rates rise so there will be more urgency to deal with the debt situation. It might hurt, but not as much as if rates stay very low for a long time -- planting the seeds for the next credit bubble and bust when U.S. debt levels are that much higher.

Less government support: The more debt the government accrues, the more it will pay in interest and the less it will have to spend on the basic services Americans expect from their government.

Spending for everything from education to infrastructure and defense could be compromised. And, many argue, not being able to make strategic investments in these areas can weaken the country competitively.

Also, the government will be hamstrung in responding to emergencies such as natural or man-made disasters, terrorist attacks or future economic downturns.

Inflation: There don't appear to be any official signs of inflation brewing today. But throughout U.S. history, high levels of debt have usually brought high rates of inflation, Reinhart and Rogoff found.

Some economists -- including Kansas City Federal Reserve Bank President Thomas Hoenig -- have said they are concerned about what could happen if the United States faces a debt crisis. In such a case, the Federal Reserve may cave to political pressure to let inflation rise, which reduces the real value of the country's debt but also devalues people's savings and income.

Harsh choices: No one can say when or even if a debt crisis will occur. But lawmakers will tempt fate if they wait too long to address the imbalances on the U.S. balance sheet, fiscal experts say.

Fiscal experts believe it's entirely possible that, absent action, the United States would experience a debt crisis within the next 10 to 20 years.

"Most believe it would happen much sooner than 20 years," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. Many believe it could happen within the next five to 10 years, she said.

And waiting too long would force lawmakers to make much more draconian and abrupt changes than they would otherwise.

Experts are increasingly convinced that Congress won't act until a true crisis is on the U.S. doorstep -- for two reasons. The first is the sharp partisan divide. The second is that no politician likes to run on promises to implement difficult and unpopular measures.

So until there's sufficient public support for debt reduction, don't expect to see much political will for it.

"Like the proverbial frog that fails to jump out of the soup pot as the temperature slowly rises, Americans seem terrifyingly unwilling to act until the pain of debt can no longer be ignored," Syracuse University professor Len Burman wrote in a recent essay. "As the frog learns in its final moments, by then, it's too late."

Put Patients and Doctors Back in Control of Healthcare:

http://www.thedailybell.com/1095/Ron-Paul-Put-Patients-and-Doctors-Back-in-Control-of-Healthcare.html

by Dr. Ron Paul - The Daily Bell - Wednesday, June 02, 2010



Most everyone agrees that health care in the United States has major problems, the biggest problems relating to skyrocketing costs.

No one doubts the system is in need of reform. However, too many in Washington see tighter government controls as the solution. In fact, the problems are rooted in past government controls that created more problems than they solved.

Ironically, laws and policies in the 1970's promoting Health Maintenance Organizations (HMOs) resulted from desperate attempts to control spiraling costs. However, instead of promoting an efficient health care system, HMOs took far too much control away from patients and physicians and gave it to the insurers. This excessive reliance on third-party payers instead removed incentives for insured patients to economize on health care costs, and allowed the problem to snowball. Furthermore, the third-party payer system created a two-tier health care system where people whose employers could afford to offer "Cadillac" plans have access to top quality health care, while others face financial obstacles in obtaining quality health care.

For these and other reasons, I introduced the Private Option Health Care Act last week. This bill places individuals back in control of health care by replacing the recently passed tax-spend-and-regulate health care law with reforms designed to restore a free market health care system.

First, the bill would provide all Americans with a tax credit for 100 percent of health care expenses. This tax credit is fully refundable against both income and payroll taxes. It would also allow individuals to roll over unused amounts in cafeteria plans and Flexible Savings Accounts (FSAs). Next, it would provide a tax credit for premiums for high-deductible insurance policies connected with a Health Savings Account (HSAs) and allow seniors to use funds in HSAs to pay for medigap policies. In addition, it would repeal the 7.5 percent threshold for the deduction of medical expenses, and thus would make all medical expenses tax deductible.

This bill would also create a competitive market in health insurance by exercising Congress's Constitutional authority under the Commerce Clause to allow individuals to purchase health insurance across state lines. Ending these state-imposed bans would create a competitive national marketplace in health insurance.

The Private Option Health Care Act would also ensure that people harmed during medical treatment receive fair compensation while simultaneously reducing the burden of costly malpractice litigation on the health care system. The bill achieves this by providing a tax credit for negative outcomes insurance purchased before medical treatment. This type of insurance would provide compensation for any negative outcomes without having to go through lengthy litigation or giving huge sums to trial lawyers.

Finally, the Private Option Health Care Act would lower the prices of prescription drugs by reducing barriers to the importation of Food and Drug Administration (FDA)-approved pharmaceuticals. Under my bill, anyone wishing to import a drug simply submits an application to the FDA, which then must approve it unless it is either not approved for use in the United States or is adulterated or misbranded.

The Private Option Health Care Act allows Congress to correct the mistake it made last month by replacing the new health care law with health care measures that give control to individuals, instead of the federal government and corporations. Our health is too vital to allow for the typical results of government interference and "fixes".

VIDEO - Fundamental & Technical Analysis of the S&P 500's Daily & Weekly Charts:

http://www.viddler.com/explore/zigzagman/videos/23/

Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

This video is viewed best in Full-Screen Mode...Click the four arrows in the bottom right corner...Press the Escape key on your keyboard to exit back to Normal Mode...

Happy Trading this week...
zigzagman

Slouching Toward Despotism:

http://jessescrossroadscafe.blogspot.com/2010/05/guest-post-slouching-towards-despotism.html

by Keith Hazelton May 27, 2010

Benjamin Franklin, when asked at the conclusion of the Constitutional Convention in 1787 what that assembly had created, purportedly responded, “A republic, if you can keep it,” which seems likely given his remarks to Convention members on that September day immediately prior to their vote on the proposed Constitution in its original form.

Often, but on far more occasions in the last three years, we are reminded of a portion of those remarks. Dr. Franklin, given his age (81) and health, asked to have his commentary read to delegates preceding what he hoped would be a unanimous vote in favor of a nonetheless flawed agreement.

“In these sentiments, Sir, I agree to this Constitution with all its faults, if they are such; because I think a general Government necessary for us, and there is no form of Government but what may be a blessing to the people if well administered, and believe farther that this is likely to be well administered for a course of years, (but) can only end in Despotism, as other forms have done before it, when the people shall become so corrupted as to need despotic Government, being incapable of any other.”

And the question we keep pondering is, “Are we there yet?” Are we merely slouching toward despotism, or have we arrived? Are we already so corrupt so as to need despotic government, what with Vampire Squids and corporate/union-bought elections and Congressional bystanders and regulatory capture and Systemically Important Too Big To Fail and Gulf of Mexico oil well disasters?

(Despotism, by the way, describes a form of government by which a single entity rules with absolute and unlimited power, and may be expressed by an individual as an autocracy or through a group as an oligarchy according to Wikipedia, the world's leading source of made-up information, which is good enough for us.)

In previous posts we have observed the growing and discernible disconnect between several types of government-reported economic data such as Retail Sales and actual state sales tax collections, and the Employment Situation and withholding tax collections. Others also have made solid cases for these disconnects between statistical theory and economic reality and it occurs to me that, far from being isolated or random events, they are evidence of much more disconcerting forces at work.

Fudging on unemployment numbers or "rounding up" retail sales reports may seem like minor infractions, and many of these government data reports have been manipulated for years, maybe half a century, but they represent a pattern of conscious, calculated design of "don't worry, be happy, the government's in charge, nothing to see here, so move along."

The Bureau of Labor Statistics (BLS), for example, estimates who is working and who is not, but conveniently excludes millions of people from its composition of the unemployment rate who are not working but neither deeming them “unemployed” because they are “marginally attached” to the workforce or are “discouraged” by a lack of job prospects and no longer are looking for employment (2.3 million as of March 2010 plus another 3.4 million “persons who currently want a job,” who also aren’t counted as unemployed).

Side note: You are well aware, of course, the Social Security Administration probably could tell us monthly almost exactly how many people really are working, not working, working part time, self-employed, and so on based on its receipts of tax withholdings from employers. It is beyond the pale to imagine SSA could not furnish a version of the monthly Employment Situation that would be far more reliable by orders of magnitude than the guesses of the BLS.

As to why government statistical agencies may be reporting "happy" numbers, well, you know the answer to that...government statistics are lying's fifth circle of hell, just a shade better than Campaign Promises.

How about the major changes to the Producer Price Index and the Consumer Price Index which were made in the 1980s and 1990s to greatly reduce reported inflation numbers as a means of containing the cost of living adjustments (COLAs) for Social Security recipients, as John Williams at ShadowStats extensively has reported for years?

Or the March 2010 Monthly Treasury Statement, which understated the true government deficit last month by including a $117 billion collection described as “proprietary receipts from the public” by the Treasury, likely TARP repayments but not defined as such. Or the December 2009 Monthly Treasury Statement in which $45 billion extracted from the nation’s banks as a 13-quarter advance FDIC premium also was shown as a “negative outlay” which creates a significant understatement of the true FY2010 deficit picture (so far, $162 billion this fiscal year, which will understate our true deficit by about 10 percent).

Or the “New” General Motors wasting millions of (tax) dollars for print and television ads to promote a fictitious narrative that it has “repaid” government loans of $8.1 billion (to the U.S and Canada) “plus interest” five years early when in fact SIGTARP, the Special Inspector General of the Troubled Asset Relief Plan Neil Barofsky, told Congress and Fox News that GM did no such thing, that the loan “repayment” did not come the old fashioned way from sales and earnings but from a "cash advance" on another TARP facility which both governments will count as additions to their already significant equity positions. Nothing in those ads mentions the many tens of billions of taxpayer dollars borrowed from China which flowed into General Motors and Chrysler pre-bankruptcy which never will be repaid.

And now the New GM wants to create another automobile financing company, or buy back its former GMAC/Ally unit which itself has received nearly $20 billion of government Too Big To Fail largesse, so it may become even more profitable by returning to sub-prime auto and everything-else lending and have a happy IPO later this year, because as everyone knows, including the New GM's management, there's precious little profit in building cars no one wants and few can afford. "As a dog returns to its vomit, so a fool repeats his folly," (Proverbs 26:11) as Jesse's Cafe Americain recently observed.

How about the seeming inability to legislate any significant financial reform in the wake of the worst economic crisis in 80 years, a crisis which, mind you, needed fewer than eight years to erupt once the last shred of restraint – Glass-Steagall – was forcibly removed at the end of 1999 by those who, coincidentally (paging Messrs. Rubin and Summers), have profited so handsomely from its demise.

The Banking Act of 1933 – Glass-Steagall – was a wonder of simplicity in a simpler era. It set forth in a mere 37 pages of text the safeguards necessary to separate commercial banking from everything else and to ably prevent for 66 years – two full generations – any meaningful implosion of the nation’s financial system. Any search for cause and effect of The Great Recession must begin here. The useless financial reform act – the Dodd act – weighs in at a lobbyist-induced 1,500+ pages, and will do nothing to prevent another financial crisis, nothing to dismantle Too Big Too Fail, nothing to contain derivatives, nothing to audit the Federal Reserve and nothing to curtail abuses in consumer financial practices.

Yet where are the criminal investigations? Where is the FBI? Where are the Congressional inquiries and panels and special prosecutors? Where are the indictments? Where are the perp walks and the jail sentences? Where is the justice, Mr. Holder and your 50 friends among the states? Aside from two former Bears Stearns hedge fund managers in 2007, and a pretend hedge fund manager - Mr. Madoff - in 2009, a weak SEC civil show-case against Goldman Sachs in 2010 and the mostly voluntary, golden-parachute-enabled "retirements" of a handful of TBTF C-level executives, a number of which, John-Thain-like, merely have revolved around the door a couple of times and landed at another lucrative looting opportunity, nothing has happened. Nothing, nada, zero, zip, dick. Nothing. It's breathtaking in its design and execution.

We now are reliably told the TARP program will cost less than $100 billion when all is said and done. Huh? What about the $2 trillion-plus of added government debt which itself adds tens of billions to the annual interest servicing burden, or the $1.5 trillion-plus willed into existence by the Federal Reserve? Who are they kidding?

Or a Health Care Act which, in 2,500 pages manages to spend about another trillion dollars or so and leaves no health insurance company behind, effectively criminalizing, albeit with monetary penalties far less than the cost of individually paid health insurance plans, anyone not otherwise exempted who fails to purchase health care coverage.

It seems to us, after thinking about this topic for some time now, that we have arrived. We have arrived at that point in our civilization in which our government deems it acceptable to obfuscate about things both small and large on the basis that, Jack-Nicholson/Colonel-Jessup-like, we (the rest of us who aren’t lodged in the political/oligarchical castes) “can’t handle the truth.”

And most of the time it would appear they are right, that we – the rest of us – can’t be bothered with such discrepancies and inconsistencies, falsehoods and half-truths. We're too busy trying to keep the house, make the mortgage and auto loan and credit card and student loan payments. We're too focused on our own financial survival to be concerned with what goes on at a national leadership and direction level. And doesn't it just seem a little too convenient for those who wish to plunder the wealth of the nation to keep the other 90 percent of us so strapped with indebtedness and an outdated personal moral conviction that debts should be repaid regardless of their potential to physically and mentally harm one's well being or, heaven forbid, harm one's all-important credit score, when walking away from debt has been an accepted business practice for centuries?

It only seems to matter on those rare occasions when things blow up, and the average, non-voting, non-taxpaying citizen awakens from his or her media-induced stupor to ponder that when the curtain is drawn away, it reveals only humans and not wizards, or that the outgoing tide reveals who has been swimming naked or when the emperor is shown to be undressed. But interest in such matters wanes quickly, and the thirst for change recedes silently into renewed acceptance of the status quo, as we now discover.

Soon, no doubt, when markets resume their upward trajectory and the Dow returns to and surpasses 14,250 (probably by this summer) and oh-don't-worry-about-those-6.5-million-log-term-unemployed-because-they're-just-lazy, much of this unpleasantness of the last three years will be forgotten by those more interested in only good news and Dancing With the Stars and American Idol, and the continued warnings of the Cassandras will be deemed evidence that these are, once again, merely the musings of disaffected social misfits or bad-news-opportunists who deep down must hate America (right up until the point at which the next crisis erupts, and erupt it will).

In fact, our short attention spans are relied upon by the political class of both parties and by the oligarchical class which controls it, as magnificent wealth transfer schemes blossom anew (talk about green shoots...) and the all-so-brief period which has elapsed between the “days away from financial Armageddon” of September 2008 and the "all clear, business as usual" of May 2010 insures, like the watered-down, useless "financial reform" legislation written by financial industry lobbyists which certainly will pass soon, that the laudable goal of making safe our financial system and returning it to the status of handmaiden to legitimate capital-producing and jobs-creating enterprise, will be discarded in exchange for the pretense of life as we knew it, circa 2006.

Only this time, effectively having destroyed the middle class of Boomers, Gen X-ers, Gen Y-ers, Millennials and Echo Boomers, and having bought the complicit silence of the of a near-majority (47% of Americans paid no income tax whatsoever in 2008) in exchange for bread and circuses, and having largely destroyed the previous primary mechanism by which wealth has been stolen and transferred (credit creation and personal indebtedness), the masters of the universe will have to find a new scam, which, at this writing, appears to be sovereign government debt, currencies and commodities, because turning back the calendar to 2006 alone will never recreate the consumer spending/debt orgy of 1982-2006.

In fact we think the oligarchs realize this, and they are redoubling their efforts to pillage as much as possible before the real collapse occurs, even as its seeds already have been sown in this crisis which now appears, by design and deception, to be ending. That collapse draws nigh, and Roubini and Taleb and Ritholtz and Panzer and Jesse and Tyler and Mish and Yves and Charles Hugh Smith and Joe Bageant and many, many others already see it, yet all are being dismissed - again - as those nattering nabobs of negativism who, broken-clock-being-right-twice-a-day-like, were merely “lucky” in guessing about the immediate past crisis as former Fed Chairman Alan Greenspan suggested in a recent television interview.

Tell us Greece is not the "sub-prime" of early 2007; that the US$150 billion "cure" to be soon applied by the EU and IMF is only can-kicking but will allow one and all to congratulate themselves on "containing" an isolated problem and to quickly return to the never-ending cocktail party, that is until the next Greece Fire which spreads to one after another country, including, ultimately, the possibility of the conflagration reaching bond markets in the U.S.

Or that a mere US$1 trillion of bailout/rescue/currency support recently proposed by the Eurozone and the IMF to "shock and awe" financial markets dominated by the recently rescued TBTFs who busily apace bet against the very governments which saved them (except now in Germany), is not merely another stealth rescue of these giant financial institutions which, having been caught with a bit too much Club Med sovereign debt on their books while their own prop traders work hard to destroy its value, now cry out - again - that the risk of their insolvency - again - threatens the global financial and economic systems.

Or that the battling machines of high-frequency trading, which briefly wiped out and then restored a trillion dollars worth of fictitious (paper) wealth in fewer than 15 minutes mid-afternoon May 6th in a dry-run rehearsal of things to come, won't now become even more emboldened and empowered to manipulate financial markets in any manner necessary to insure continued quarters of perfectly profitable trading days.

(May 6th should have been a non-event. We were expressly warned by the Manhattan Assistant US Attorney in a July 2009 court filing, in which it was alleged that a former Goldman Sachs quant trading programmer stole Goldman's "secret proprietary trading code," that "there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways." Well, duh. Doesn't it just seem like someone took this code, or a similar one, out for a test drive earlier this month?)

Soon, perhaps if not already, the wealth transfer will be complete, and a newly impoverished, former middle class will wake up from their recliners to find not only is Dancing With the Stars over, but also is their former debt-fueled way of life as the economy staggers, unemployment escalates, more good jobs are exported and living standards rapidly erode. (Irony alert: Their former U.S. employers, who effectively have downsized and off-shored their way to record profits, will find they have destroyed their own customer base - the former middle class - who no longer can afford their products.)

When 40 million people are receiving food stamps at one end of the economic spectrum (and probably another 20 million eligible according to the Department of Agriculture), and the bulk of financial and real assets have been concentrated into the top 10 percent of the other end of the economic spectrum, nothing good can come of it. So the well-off cohort will remain well-off and will conspire to direct through their agents in government only enough resources to buy the complicity and silence of the bottom 40 percent, like tax breaks, food stamps, health care subsidies and so on, and the soon-to-be-former middle class will be ground into yet lower levels of the economic ladder, such, that when the looting has concluded, we will see a top 10 percent and a bottom 90 percent, much as feudalistic Europe in the centuries of the Dark Ages.

(We strongly recommend two books on the subject, both of which in far more detail and eloquence lay out the symptoms, causes and effects of our slouch toward despotism: Survival +, by Charles Hugh Smith at Of Two Minds, and Deer Hunting With Jesus: Dispatches From America's Class War, by Joe Bageant at Joe Bageant (and whose recent post about the American Hologram Lost on the Fearless Plain also is required reading).

“All lies and jest… Still a man hears what he wants to hear and disregards the rest,” so said Paul Simon, which rings so true more than four decades later. We hear what we want to hear, and, apparently, what we want to hear is that all is back to normal, that all is good, that the wizards have everything under control, and that nothing bad can ever happen again.

So, are we there yet? Have we not already abdicated our responsibilities as citizens and tacitly embraced the despotism of which Franklin predicted 222 years ago, having become so corrupted (contaminated) as to require the despotic government of an oligarchy dedicated to insuring the truth never gets in the way of a good narrative, an enormous disparate accumulation of wealth and a firm grip on the levers of power to ensure the preservation of that wealth?

A few Tea Party primary victories and incumbent "mandatory retirements" aside, nothing will change in Washington as long as the strings of campaign cash and lobbyist perks are being pulled elsewhere. The "outs" who soon will replace some of the "ins" promptly will forget about their mandates from the voters the day they move into their new D.C. offices and townhomes and realize from moment one their only responsibility is to their own rational self-interest of being re-elected in 2012 and 2014 and 2016. Et tu, Barack?

And if Benjamin Franklin is not prescient enough for you, how about the Teacher, in Ecclesiastes, Chapter 1, v.13-18, from about 2,300 years ago:

What a heavy burden God has laid on men! I have seen all the things that are done under the sun; all of them are meaningless, a chasing after the wind. What is twisted cannot be straightened; what is lacking cannot be counted. I thought to myself, "Look, I have grown and increased in wisdom more than anyone who has ruled over Jerusalem before me; I have experienced much of wisdom and knowledge." Then I applied myself to the understanding of wisdom, and also of madness and folly, but I learned that this, too, is a chasing after the wind. For with much wisdom comes much sorrow; the more knowledge, the more grief.

Indeed, with wisdom comes sorrow, and from more knowledge, more grief. Would, sometimes, that we could empty so much of it from the mush of our remaining gray matter and then we wouldn't have to pretend it's all good, when, in fact, it’s anything but good, as soon, perhaps in a matter of a few short years, we shall see.

We first wrote the following paragraphs in June 2006, long before sub-prime lending, a bursted housing bubble, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, CitiGroup, Bank of America, JPMorgan Chase, Goldman Sachs, GM, Chrysler, the Federal Reserve, the Treasury Department and The Great Recession began to dominate our lives, when Franklin’s predictions and our inexorable slouch toward despotism first appeared on our radar screen:
The transition from unitary executive to dictator – conservative, benevolent or otherwise – will not happen in the waning months of the current administration, so uniquely manifested by America's First Triumvirate of George Bush, Dick Cheney and, until recently, Karl Rove, but succeeding chief executives may choose overtly to expand further the envelope-pushing and Constitution-trampling of the 43rd President and his neo-conservative command-and-control cabal as the American oligarchy, and the nation, slouches slowly toward despotism.

As such, we will one day awake from our debt-financed, pleasure-induced stupors to find one person or group firmly in charge, answering to no one, especially not Congress, and in complete grasp of the military, the intelligence agencies, the treasury, the Federal Reserve and the financial and judicial systems. It will happen – it is happening – an inch at a time, until the day comes when not only will we, the fun-loving, celebrity-worshipping, civic-duty-abhoring citizens of America, so embrace the notion of despotism, we will think it entirely our own idea.

Are we there yet?...

(Keith Hazelton is an Adjunct Professor of Finance at Oklahoma City University's Meinders School of Business and an Economic Adviser to the Oklahoma Bankers Association. His opinions are his own.)

25 Questions To Ask Anyone Who Is Delusional Enough To Believe That This Economic Recovery Is Real:

http://www.blacklistednews.com/?news_id=8878

If you listen to the mainstream media long enough, you just might be tempted to believe that the United States has emerged from the recession and is now in the middle of a full-fledged economic recovery.

In fact, according to Obama administration officials, the great American economic machine has roared back to life, stronger and more vibrant than ever before. But is that really the case? Of course not. You would have to be delusional to believe that. What did happen was that all of the stimulus packages and government spending and new debt that Obama and the U.S. Congress pumped into the economy bought us a little bit of time. But they have also made our long-term economic problems far worse. The reality is that the U.S. cannot keep supporting an economy on an ocean of red ink forever. At some point the charade is going to come crashing down.

And GDP is not a really good measure of the economic health of a nation. For example, if you would have looked at the growth of GDP in the Weimar republic in the early 1930s, you may have been tempted to think that the German economy was really thriving. German citizens were spending increasingly massive amounts of money. But of course that money was becoming increasingly worthless at the same time as hyperinflation spiralled out of control.

Well, today the purchasing power of our dollar is rapidly eroding as the price of food and other necessities continues to increase. So just because Americans are spending a little bit more money than before really doesn't mean much of anything. As you will see below, there are a whole bunch of other signs that the U.S. economy is in very, very serious trouble.

Any "recovery" that the U.S. economy is experiencing is illusory and will be quite temporary. The entire financial system of the United States is falling apart, and the powers that be can try to patch it up and prop it up for a while, but in the end this thing is going to come crashing down.

But as obvious as that may seem to most of us, there are still quite a few people out there that are absolutely convinced that the U.S. economy will fully recover and will soon be stronger than ever.

So the following are 25 questions to ask anyone who is delusional enough to believe that this economic recovery is real....

#1) In what universe is an economy with 39.68 million Americans on food stamps considered to be a healthy, recovering economy? In fact, the U.S. Department of Agriculture forecasts that enrollment in the food stamp program will exceed 43 million Americans in 2011. Is a rapidly increasing number of Americans on food stamps a good sign or a bad sign for the economy?

#2) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March. This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005. So can you please explain again how the U.S. real estate market is getting better?

#3) The Mortgage Bankers Association just announced that more than 10 percent of U.S. homeowners with a mortgage had missed at least one payment in the January-March period. That was a record high and up from 9.1 percent a year ago. Do you think that is an indication that the U.S. housing market is recovering?

#4) How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together?

#5) With the U.S. Congress planning to quadruple oil taxes, what do you think that is going to do to the price of gasoline in the United States and how do you think that will affect the U.S. economy?

#6) Do you think that it is a good sign that Arnold Schwarzenegger, the governor of the state of California, says that "terrible cuts" are urgently needed in order to avoid a complete financial disaster in his state?

#7) But it just isn't California that is in trouble. Dozens of U.S. states are in such bad financial shape that they are getting ready for their biggest budget cuts in decades. What do you think all of those budget cuts will do to the economy?

#8) In March, the U.S. trade deficit widened to its highest level since December 2008. Month after month after month we buy much more from the rest of the world than they buy from us. Wealth is draining out of the United States at an unprecedented rate. So is the fact that the gigantic U.S. trade deficit is actually getting bigger a good sign or a bad sign for the U.S. economy?

#9) Considering the fact that the U.S. government is projected to have a 1.6 trillion dollar deficit in 2010, and considering the fact that if you went out and spent one dollar every single second it would take you more than 31,000 years to spend a trillion dollars, how can anyone in their right mind claim that the U.S. economy is getting healthier when we are getting into so much debt?

#10) The U.S. Treasury Department recently announced that the U.S. government suffered a wider-than-expected budget deficit of 82.69 billion dollars in April. So is the fact that the red ink of the U.S. government is actually worse than projected a good sign or a bad sign?

#11) According to one new report, the U.S. national debt will reach 100 percent of GDP by the year 2015. So is that a sign of economic recovery or of economic disaster?

#12) Monstrous amounts of oil continue to gush freely into the Gulf of Mexico, and analysts are already projecting that the seafood and tourism industries along the Gulf coast will be devastated for decades by this unprecedented environmental disaster. In light of those facts, how in the world can anyone project that the U.S. economy will soon be stronger than ever?

#13) The FDIC's list of problem banks recently hit a 17-year high. Do you think that an increasing number of small banks failing is a good sign or a bad sign for the U.S. economy?

#14) The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke. So what do you think will happen if a significant number of small banks do start failing?

#15) Existing home sales in the United States jumped 7.6 percent in April. That is the good news. The bad news is that this increase only happened because the deadline to take advantage of the temporary home buyer tax credit (government bribe) was looming. So now that there is no more tax credit for home buyers, what will that do to home sales?

#16) Both Fannie Mae and Freddie Mac recently told the U.S. government that they are going to need even more bailout money. So what does it say about the U.S. economy when the two "pillars" of the U.S. mortgage industry are government-backed financial black holes that the U.S. government has to relentlessly pour money into?

#17) 43 percent of Americans have less than $10,000 saved for retirement. Tens of millions of Americans find themselves just one lawsuit, one really bad traffic accident or one very serious illness away from financial ruin. With so many Americans living on the edge, how can you say that the economy is healthy?

#18) The mayor of Detroit says that the real unemployment rate in his city is somewhere around 50 percent. So can the U.S. really be experiencing an economic recovery when so many are still unemployed in one of America's biggest cities?

#19) Gallup's measure of underemployment hit 20.0% on March 15th. That was up from 19.7% two weeks earlier and 19.5% at the start of the year. Do you think that is a good trend or a bad trend?

#20) One new poll shows that 76 percent of Americans believe that the U.S. economy is still in a recession. So are the vast majority of Americans just stupid or could we still actually be in a recession?

#21) The bottom 40 percent of those living in the United States now collectively own less than 1 percent of the nation’s wealth. So is Barack Obama's mantra that "what is good for Wall Street is good for Main Street" actually true?

#22) Richard Russell, the famous author of the Dow Theory Letters, says that Americans should sell anything they can sell in order to get liquid because of the economic trouble that is coming. Do you think that Richard Russell is delusional or could he possibly have a point?

#23) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010. In fact, that was almost twice the level of a year earlier. Does that look like a good trend to you?

#24) In March, the price of fresh and dried vegetables in the United States soared 49.3% - the most in 16 years. Is it a sign of a healthy economy when food prices are increasing so dramatically?

#25) 1.41 million Americans filed for personal bankruptcy in 2009 - a 32 percent increase over 2008. Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005. So shouldn't we at least wait until the number of Americans filing for bankruptcy is not setting new all-time records before we even dare whisper the words "economic recovery"?

"Warning: Crash Dead Ahead. Sell. Get Liquid. Now"...

http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25

MarketWatch: by Paul B. Farrell May 25, 2010

ARROYO GRANDE, Calif. (MarketWatch) -- "This game's in the refrigerator! The door's closed, the lights are out, the eggs are cooling, the butter's getting hard and the Jell-O is jiggling ..."

That was legendary Lakers' radio announcer Chick Hearn's signature way of calling a game early, telling fans the home team won ... you can head for the exits before the final buzzer. Chick wrote the book with popular sports phrases like "slam dunk," "air ball," "charity stripe," and a "bunny hop in the pea patch" for a traveling violation.

Niall Ferguson: Investing amid uncertaintyEconomic historian and author of The Ascent of Money: A Financial History of the World, Niall Ferguson gives his predictions on gold prices, emerging markets and the Swiss franc. Ferguson also tells Dow Jones Veronica Dagher where he's investing his money amid the uncertainty.

Chick's our inspiration today: Last March I wrote "6 reasons I'm calling a bottom and a new bull." Today it's time for a new call. We've had a good year. Net gains over 50% in 2009. But now: "Game over, head for the exits." Bears beating bulls.

No, no, "it's a buying opportunity," says another legend, hedge fund manager, Barton Biggs. Buying opportunity? For who? Remember, Biggs isn't advising Joe Lunchbox about what to do with his little 401(k). Biggs' customers are mega-millionaires in his $1.5 billion Traxis Partners Fund. Main Street investors like Joe are prey in his casino.

Read on, you decide: As you stare from high up in the nose-bleed bleachers watching the game, staring at a Dow that not long ago was above 11,000 and heading for 12,000. Now the Dow's sitting on the bench, ready for the showers, weak after a couple air balls around 10,000. No more timeouts. "This game's in the refrigerator."

How bad is your bookie's point spread in this game? A blowout? Will the Dow drop below 9,000 again? Now that it's broken technical supports, will it drop below 6,470, where the last bull rally started in early 2009? Can you handle the nerve-racking volatility generated by Wall Street's high-frequency traders playing the game at warp-speed with algorithms making thousands of micro-bets in milliseconds, betting billions daily?

So who should you listen to? Barton and I arrived at Morgan Stanley about the same time. He stayed decades longer, became one of the world's leading strategists, advising the kind of high-rollers who also bet at private tables in a Vegas casino.

You remember Biggs: In his book "Wealth, War & Wisdom" he advises his high rollers to prepare for a "breakdown of the civilized infrastructure." Buy a farm: "Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson." Biggs is not advising small investors on what to do with their 401(k)s.

If you're gambling at Wall Street's casino, folks, the odds-makers are betting against Biggs. It's "game over."

Main Street lost 20% last decade ... yet like sheep keep going back.

Yes, if you're channeling Chick, here's your "mixed metaphor" cue card: "This game's in the refrigerator ... Wall Street won (proof, Goldman's $100-million-profit trading days and Blankfein's $68 million bonus) ... Main Street's headed for another losing streak ... Congress' lights are out ... the refrigerator door's closing on financial reforms ... the lobbyists are laying some rotten eggs, poisoning capitalism ... the Tea Party-of-No-No ideologies are hardening ... the bull's Jell-O is jiggling to a flat line ... and this market's going into hibernation, with the bears ... run, don't walk, to the exits, folks."

But will Main Street exit? Will we ever learn? No. The Wall Street casino makes mega-billions for insiders like Blankfein and the Goldman Conspiracy. Yet "The Casino" is still below the 2000 record of 11,722. So after accounting for inflation, Wall Street lost over 20% of Main Street's 401(k) retirement money between 2000 and 2010. Yes, Wall Street's a big loser the past decade. Their advice is self-serving. Period.

Given their miserable track record, only a fool would bet with Wall Street. Betting odds are Wall Street will lose another 20% in the next decade from 2010-2020. Yes, today's market is a "buying opportunity," but only for Wall Street casino insiders like Biggs, Blankfein and even low-level staffers inside "The Casino." But not for our 95 million Main Street investors, there's more pain ahead, this market's dropping.

Correction? New crash imminent, worse than 2008
More proof: Earlier economist Gary Shilling said price-to-earnings ratios are at a "nosebleed 22.5 level." The Dow was around 11,000. Money manager Jeremy Grantham recently said the market's overvalued 40%. That could mean a collapse to 6,600. Last week in Reuters' "Markets Could Be Derailed Again," George Soros echoed a "game over" warning with a "stark warning ... that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis."

Now Dow Theory's Richard Russell is warning the public of an imminent crash:

"Sell ... get liquid ... by the end of this year they won't recognize the country."

A bigger meltdown than the credit crisis? Yes, Bush's team drove America into a ditch. But now Obama and his money men, Summers, Geithner, Bernanke, are digging the hole deeper. Soros says we have not learned "the lessons that markets are inherently unstable." As a result, "the success in bailing out the system on the previous occasion led to a super-bubble." Now "we are facing a yet larger bubble." Worse than 2008?

Yes, the game may be "in the refrigerator," the lights will go out, but as Soros hints, the electricity may get turned off too. Get it? This may not be a correction. Not even a bear. What's coming could be worse than the 2000 dot-com crash and the 2008 meltdown combined, a "Super-Bubble" says Soros. And the biggest reason, Nouriel Roubini and Stephen Mihm tell Newsweek, is that "the president's half-measures won't fix our failed financial system" because he refuses to "bust up the too-big-to-fail banks."

Yes, Congress will pass something. But unfortunately, as reported on MSNBC, Senator Dodd, the reform bill's sponsor, is a turncoat, working overtime with Wall Street lobbyists "to weaken financial reform," leave us vulnerable to a new, bigger crash in the near future. And Wall Street lobbyists are spending hundreds of millions to kill reform.

'White Swans:' 2000 and 2008 crashes were predictable, next one too.

Recently Roubini was interviewed by Charlie Rose in BusinessWeek. His message confirms the worst. Roubini was questioned about his new book, "Crisis Economics." Rose began by asking, "what have we learned from these crises of capitalism?" Roubini could easily have said, "nothing, we learned nothing." His actual reply:

"The first lesson is that crises are not 'black swan' events ... they're not just random outcomes. They are the result of a buildup of financial and policy vulnerability and mistakes -- excessive risk-taking, leverage, debt, and so on." They are 'White Swans' "because these events are predictable. But generation after generation, we seem to forget the past. When there's a bubble, there's euphoria. There's irrational exuberance. Consumers can use their homes like ATM machines. Governments and policy makers are happy because they get reelected. Wall Street makes billions of dollars of profits. Everybody's delusional."

Sound familiar? Yes indeed, in "This Time Is Different: Eight Centuries of Financial Folly," economists Carmen Reinhart and Kenneth Rogoff pinpoint the key signal that will blow the whistle and call the game: The "90% ratio of government debt to GDP is a tipping point in economic growth." For 800 years "you increase it over and beyond a high threshold, and boom!"

Warning, fans, the numbers on the game-clock are flashing wildly. America's ratio is now 92%, thanks to Obama's $1.7 trillion budget, future deficits, exploding debt. Soon, Ka-Booom! Another great nation bites the dust. Depression follows. Goodbye retirement.

Warning: 800 years of history are calling 'game over'
But can't we change destiny? Or are Dodd, Congress, Obama, Wall Street, the Party of No-No and 300 million Americans all just playing their parts in a historical script well-known to historians like Reinhart and Rogoff, Kevin Phillips, Niall Ferguson and others? The message of "This Time Is Different" is very simple:

"We have been here before. No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities from past experience from other countries and from history. ... no country, irrespective of its global importance, appears to be immune to it. The fading memories of borrowers and lenders, policy makers and academics, and the public at large do not seem to improve over time, so the policy lessons on how to 'avoid' the next blow-up are at best limited."

So please listen closely: All the TARP bailouts, stimulus debt and Fed loans won't work. Neither will a new conservative government. This is not a basketball game. We are not channeling Chick Hearn, calling this game before the final buzzer. While we prefer the illusion that "this time really is different," eight centuries of history suggest otherwise:

"The lesson of history, then, is that even as institutions and policy makers improve there will always be a temptation to stretch the limits. ... If there is one common theme to the vast range of crises ... it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. ... Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang -- confidence collapses, lenders disappear and a crisis hits. ... Highly leveraged economies ... seldom survive forever ... history does point to warnings signs that policy makers can look to access risk -- if only they do not become too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries, 'This time is different'."

No, "this time" it's never different. Get it? In the end, it doesn't matter what happens to the Dodd-Obama financial reforms. The endgame's never a Black Swan, it's a very White Swan well known to historians -- guaranteed, inevitable and inescapable. This time is never different.

The clock's flashing. Huge point spread. Think bear, think crash, think end of capitalism, think Great Depression II ...

This is no buying opportunity, this game's in the refrigerator, call it...

US Employment May Be Hammered By Euro Plunge:

By Daniel R. Amerman, CFA May 24, 2010

http://news.goldseek.com/GoldSeek/1274726687.php

Overview

Still deep in recession / depression, it is possible and perhaps even likely that the US economy will be dealt a sledgehammer blow over the coming months. The full price for the European crisis might be paid in American jobs, with four categories of job losses imperiling the US economy and threatening the standards of living for millions of people. If you are employed in the US, UK, Canada, or Australia (among other nations), don’t pity the continental Europeans, because it may be a European that ends up taking your job.

The next stage of the sovereign debt crisis has arrived, and we are seeing how the differential recognition of national problems can rapidly redistribute the real wealth of nations as well as individuals. In this article we’ll discuss how some Europeans will be forced (kicking and screaming) into a state of “Accidental Virtue”, and how this may protect them from the worst of the damage that will occur in nations with stronger currencies.

Sharp Currency Changes & Market Share

Not everyone in Europe is upset about the fall of the euro. As Daimler Chief Executive Officer Dieter Zetsche stated in a Bloomberg interview, “Because of massive growth in markets like the US and China... The fall of the euro is a benefit."

According to Airbus Chief Operating Officer John Leahy, each ten cent drop in the euro adds 1 billion euros to operating profits at Airbus.

The relationship that turns a plunge in the euro from disaster into an occasion to pop the champagne, comes down to each company's cost and revenue structure. If most of your costs are in euros that are falling in value, but a big chunk of your revenues are in dollars that are rising in value, then a rapidly falling euro will redistribute wealth to you on a pleasantly rapid basis.

There is a particular benefit that goes to companies where a large portion of their expense structure is paying their employees. It just got significantly cheaper to pay European workers to make products relative to US workers – and the differential could grow with further euro troubles. This relationship of the competitive advantage dramatically shifting to Europe applies to all nations where the euro is suddenly much weaker compared to their own currency, including such countries as the UK, Canada and Australia.

While the financial media focuses on the effects on near-term corporate profits, let me suggest that the much more important fallout from a fundamental change in the valuation of the euro is market share, employment, and national economies. In the very short-term, yes, a plunging euro means companies that employ European workers are going to gain a powerful profit advantage. When we move to the medium and long term however, (assuming the euro stays down compared to the dollar), then the companies can gain something even more important from an economic perspective -- increased market share.

Companies that employ European workers, generally speaking, have just gained a 13% advantage over US companies this year. This means they can lower their prices by 13%, relative to companies employing American workers, and grab great big chunks of market share. Indeed, they can lower prices by 8% in dollar terms, and have the dual advantage of both grabbing a bigger share of the market, and having each dollar in that market of sales be more profitable than it was before the euro fell. (For ease of illustration, these examples assume 100% of costs are labor. If 50% of cost were labor, then the advantages would be 6.5% and 4%, roughly speaking.)

As the crisis in the euro continues to develop, some are calling for parity between the dollar and euro by next spring. (That and worse could happen a whole lot faster than that, of course.) This would be about a 30% plunge in the value of the euro compared to where it started in January. Thus, companies that employ European workers gain a extraordinary advantage over companies that employ US workers (and Canadian, Australian and UK workers, if their currencies move with the US dollar rather than the euro). An advantage that would of course lead to increased profits for those companies, but much more importantly, could lead to dramatic changes in market share – with sales rising fast at companies that employ European workers, while sales plummet at companies that employ US workers.

You may have wondered about my using the somewhat awkward phrasing of talking about companies that employ European workers, and companies that employ the American workers, rather than the shorthand of European companies and American companies. The distinction is far from minor, and understanding the difference is essential. Indeed, if you want to understand the makeup of the world economy over the next several years, if this situation persists with a very weak euro and strong dollar, it is this distinction between the location of companies versus the location of their workers that will be one of the most important influences on the national economies of both the United States and Europe.

A Powerful Blow To A Reeling Economy

A nation’s workforce taking on a 13% cost disadvantage would be painful for a healthy economy – but manageable. That’s the normal course with currencies over time, there are significant fluctuations. A potential 30% differential is a different story, however, and could fundamentally change economies and countries – but doesn’t by itself destroy a healthy economy. A more accurate assessment might be that a 30% differential could severely stress a healthy economy.

Unfortunately, the US economy is anything but healthy.

The US economy is currently in the worst shape that it has been since the 1930s. The economy has been shrinking for at least two years, and if we accept official government statistics and then adjust them for the different measurement methodology we use compared to the 1970s and before -- then some current estimates for the real rate of US unemployment range between 17% and 22%. For what holds it down to the official total of about 10% is simply that when people are unemployed for too long the government decides they are no longer part of the labor force. So technically, the “long-term discouraged” are no longer unemployed, they merely cease to exist for the statistics that are reported by the government to the media.

The economy is reeling, employment has not been growing, and unemployment claims were rising again even before the euro's plummet began. Yet, the so-called recovery remains a prediction of many economists and government officials, almost all of whom would've assured you two or three years ago that the current situation was impossible.

The US economy was already knocked down to the floor and in the worst shape in more than 70 years, even before it received the current kick to the stomach. Currencies are not weight-lifting competitions, being strongest is not necessarily the best, and ironically, a strong dollar can potentially pummel US employment in four distinct ways.

One. Companies that employ US workers just likely lost substantial international market share to companies that employ European workers, not only in Europe but around the rest of the globe. It may take six months or a year before the full damage occurs and makes it through official reporting channels, but the effects are already likely beginning to occur today in terms of contracts and purchases that are still being negotiated – or are being suddenly renegotiated. This substantial loss in market share of course translates to large numbers of US jobs being lost.

Two. Companies that employ US workers to make products for the domestic US market are likely to lose substantial market share to cheaper European imports over the coming year. With globalized trade, a major change in the competitiveness of your workforce necessarily can hit your domestic market every bit as hard as international markets. Again, this substantial loss in market share translates to large numbers of US jobs being lost.

Three. The strong dollar leading to decreased competitiveness for US workers (through no fault of their own) means that “job flight” is likely to return with a vengeance. Companies that employ American workers, whether they are US companies or foreign-owned companies, are not going to passively accept a major, perhaps even bankruptcy-inducing loss in market share. Naturally, they are going to aggressively do everything they can to try to protect their market share in markets around the world. That will likely mean a rapid shift in jobs inside of multinational corporations, as plants and offices employing US workers are closed down, with the jobs shifted to new or existing subsidiaries and suppliers abroad, particularly in Europe. If the euro plunges further versus the dollar, this migration of jobs within companies could happen fast and hard, dealing a third blow to American workers.

Four. All of this is taking place in the midst of a global financial and economic crisis that means economies outside of Asia are in many cases shrinking rather than growing. When the sales “pie” to be split is shrinking – so is employment. If American workers are being underbid by European workers for shares of a shrinking pie, this is a devastating one-two combination for total US employment. This also creates a feedback loop as falling US employment lowers US sales, which leads to further job losses. US workers then attempt to secure employment at lower wage levels, which would usually put a floor under the fall.

However, in this case, an artificially high dollar means that wages must fall further than would otherwise be needed, to overcome the cost advantage enjoyed by Europeans. This means that the jobs aren’t created, or that they are at such low wages that discretionary spending is near non-existent. Each of which then leads to lower sales, which lead to further job losses. Effectively, the currency driven decline in the price of employing Europeans at least partially jams the self-correcting mechanism within the US labor market that would usually kick in.

Thus we have a recipe for national economic disaster. Indeed, with a further plunge in the euro from today’s levels, there is potential for real US unemployment to reach levels last seen in the 1930s, unless aggressive action is taken by the US government to bring down the value of the dollar.

The Perils Of Differential Problem Recognition

What makes this situation quite ironic is that the reason the dollar has soared versus the euro is not because the US economy is fundamentally sounder, but rather that Europe has been forced to recognize its problems, while the US continues to refuse to deal with its own equally powerful economic problems. The dollar is soaring because Europe has a “sovereign debt” crisis (which is just the current catch phrase for saying governments have made more promises than they can pay for). But when it comes to unfunded government promises – the US has no equal, with approximately $100 trillion in unfunded obligations for Social security, Medicare and pensions.

So even while the dollar “wins” versus the euro in the headlines, what is going on is a fundamental weakening of the US economy, which brings forward the day when the US experiences problems that are every bit as severe as the problems in the eurozone.

Another way of looking at this is differential problem recognition. For a long time now – because these pressures have been building for a very long time – the US and Europe have both had fundamental economic and demographic problems coming at them like a freight train, which the markets have by and large ignored. Now the markets are recognizing the problems in Europe, while ignoring similar and equally massive problems in the United States. While the headlines may sound very negative for Europe – and Europe is indeed in crisis mode – it's worth noting that a couple of the side effects are that European investors can now command a higher return on their investments, all else being equal, because the prices of those investments have fallen even while European competitiveness has increased on a global basis. So lower prices for better economic performance relative to what would otherwise be the case with a higher value on the euro. Economic growth may still be negative, but less negative than would otherwise be the case.

On the other hand, the US dollar status as a reserve currency means that US investments become relatively more expensive for US and global investors to buy even as economic prospects for the US economy grow steadily worse. This translates to higher prices for lower fundamental economic strength. Which then operates to increase the differential between current prices and future value, and therefore increases the size and pain associated with the eventual convergence between market prices and economic fundamentals.

Crisis Economics & Accidental Virtue

Stefan Hofrichter, chief economist at Allianz Global Investors RCM unit, made a statement with wide-ranging implications when he said, “My concern is that the (falling euro) benefits will at most compensate for the headwind stemming from fiscal tightening, a more restrictive Chinese monetary policy and weakening growth momentum.”

His point, of course, is that a greater market share– in a market that has been shrunk by the economic chaos accompanying the global financial crisis – may work out to be about the equivalent of breaking even for some European companies. If this works out to be true for Allianz, it means that they will likely be doing much better than many other companies in the world.

A falling euro is not all sunshine for European workers and consumers. Everything Europeans import from abroad just became substantially more expensive. This includes the oil from Saudi Arabia and the natural gas from Russia, as well is the other raw materials that must be imported from around the world. European manufacturers with cost structures that are heavily tilted to the acquisition of raw materials may be badly hurt, with accompanying job losses.

Indeed for the more efficient economic producers in Europe, the main side effect of the fall in the value of the euro may be to be pushed into a reluctant state of what I will call “Accidental Virtue”. By the time all is said and done, there's a good chance that consumption will fall across European countries and that the standard of day-to-day living may fall for many or most Europeans. Every finished product imported from the US and Asia just grew more expensive. Even as every raw material and commodity imported from the rest of the world grew more expensive. This drop in consumption lowers the standard of living, even while jobs associated with exports grow rapidly.

This could lead many of the citizens of Europe to become more like the citizens of China and Japan, as they become much more competitive producers of real goods and services, even while their consumption of foreign goods and materials drops. In at least some nations, this may lead to the Accidental Virtue of being a nation of savers with strong jobs but lowered consumption. The word “Accidental” is important, because those involved may be quite reluctant, indeed they are likely to be dragged to this state of virtue kicking and screaming – but once they are there, they may be substantially better positioned for the coming decades than those in the US.

They will need every bit of “virtue” – and the jobs which come from that “virtue” – that they can get, because we have to remember that the fall of the euro is not the problem, but a symptom. The problem is the fundamental economic and societal crisis of a continent that has entered into promises with its own population that it will be unable to honor. The breaking of these promises, which must occur in substance, even if not in legal form (meaning inflation), will be painful – and that price will be very real. There will be turmoil, popular government safety nets will not have the funding that has been promised, and investment markets will be devastated. As always in times of major economic and monetary crisis, the workers will likely find a way to adapt (so long as the jobs are there), but the heaviest pain is likely to fall on the retirees.

While reduced consumption in combination with austerity programs and broken pensioner promises is not likely to be politically popular, even with a relatively stronger global economic position, it is nonetheless an enviable state compared to the alternatives.

What will hurt even more is if you have just as many or more government promises to be broken, but instead of having a resurging real economy – your real economy is imploding. This may be the fate that awaits the US, particularly if it continues to ignore this emergency and does not take the urgent action required.

Do keep in mind that this article is an extrapolation of current events in the news, and not a prophecy of unavoidable doom. If the US were to go a step further than Europe in recognizing its problems, and deal with its real issues, then it would be the US real economy that would be at the competitive advantage. The short-term turmoil would appear catastrophic to markets, politicians and the banking system – but you have to keep in mind that markets and banks aren’t what determines standards of livings for a nation as a whole. It’s the real economy that does that, and a strategy that attempts to mask real pain with short term manipulations – which has the result of increasing the damage to the real economy of workers, jobs and production – goes directly against the national interest.

When it comes to the “sovereign debt” crisis, the earlier a nation steps forward to accept what is inevitably coming – the better the real economy of that nation performs relative to how it otherwise would have, and the less the long term damage from the breaking of promises.

Euro Collapse Could Be Catastrophic For US & World

In order to explore the vital issues covered in this article, an assumption had to be made that the euro would be deeply wounded, but that it wouldn’t collapse. That is, whether we’re talking about the current 13% drop in the value of the euro versus the dollar, or the potential for a 20%, 30% or 40% total decline, these all assume that the euro and European Monetary Union remain intact and functional. It is these assumptions that lead to our hypothetical future state of “Accidental Virtue” in Europe with a reduced average standard of living for employed families, but with greater employment levels.

In the real world we have no such assurance. The situation is grave, a monetary union among sovereign nations with different objectives and situations is inherently fragile, and a collapse in the euro remains a strong possibility. While there will be winners, and lucrative windfall profits will be realized in the event of a monetary collapse (as covered in my article linked below), for the average citizen, living through a monetary collapse has always been – and will be – a nightmare scenario.

http://danielamerman.com/articles/Windfall.htm

Savings are wiped out across the continent. Pension plans become meaningless. During the peak of monetary crisis it is difficult for an economy to function at all, and unemployment becomes massive. These times of monetary crisis also can bring radical political change in a very short period of time that the average person would have said was impossible just two or three years beforehand. It is this political change that makes the process so unstable and unpredictable, as parties previously on the fringe may end up taking control. Politics and even culture can become quite pliable during crisis, and the characteristics of the Europe that would emerge on the other side of crisis can almost be considered a roll of the dice.

As this article has demonstrated, this is not just a European problem. And what needs to be clearly understood is that in a globalized world, if the euro collapses then the problems described in this article become much larger, much faster. The European market for US exports collapses – taking the associated US jobs with it. Meanwhile, the cost advantages of using highly educated and trained European workers over their American counterparts just grew much greater than that which we’ve been discussing.

This means that unless trade barriers are erected, US workers will be at a terrible disadvantage, and likely face a declining standard of living. However if political pressure leads to rapid erection of trade barriers, then the US inability to pay for its own standard of living unless it has cheap foreign imports, immediately comes to the fore. The US could face a 28% decline in discretionary income, as well as a series of rapid exogenous inflationary supply shocks, as covered in two videos / articles in my “Crisis & Globalization” series:

http://danielamerman.com/Video/PSL.htm

http://danielamerman.com/Video/Shock.htm

The Sharp And Unfair Redistribution Of Wealth

The first step in dealing with any problem is to accept that it is real, and that wishing, hoping and ignoring won’t make it go away.

Impossible promises get broken by definition. One way or another. If the real economic resources are not there to cover the retirement standard of living than had been promised to an entire nation, then the average retiree is going to have a lower standard of living than what was promised. No amount of legislation can overcome that simple reality.

If the retirement plan for a nation is to invest with the assumption that we already know the future, and it is one of never-ending economic growth -- but that growth does not occur -- then the investment implications are grim for the average retirement investor who has been following conventional financial planning techniques.

But here's the key, as we are seeing with Europe: bad news has an uneven distribution. Not everyone is affected equally, far from it. What economic crisis does is rapidly redistribute wealth. The unfortunate likelihood is that tens of millions of people who have lived good responsible lives, are going to see their lifestyles crushed, through no fault of their own. Other tens of millions of people will experience substantial but manageable declines in their standard of living. There will be another group, and the Europeans are particularly well-positioned at this time, where they will more or less break even.

There will be a smaller group that will position themselves so that the rapid redistribution of wealth will radically increase their net worth. These individuals will be found in every nation, but their numbers will be relatively few.

To position yourself to have a fighting chance of keeping what you’ve built, and maybe even increasing it substantially – there is simply no substitute for understanding how wealth is rapidly redistributed by economic crisis. If you don't understand how the redistributions work and you keep the same investments and strategies that everyone else has, then you will just be impoverished along with everyone else. To protect your financial capital, to protect what you have for you and your family, the very best step you can take is to build your intellectual capital.

Seek to acquire an uncommon education in the redistribution of wealth during crisis...