No matter what Washington does at the 11th hour tonight, we end the year with one, absolutely indisputable, conclusion:
The mammoth U.S. debt monster is not going away. It’s continuing to grow. And in early 2013, it will return to haunt the White House, Congress and the Fed in a great, new debt ceiling debate!
Here are the hard facts:
1. The U.S. government and its agencies still owe $18.8 trillion just in interest-bearing debts!
2. American families still owe $13.1 trillion on their mortgages, with a huge chunk of those under water.
3. Other borrowers in the U.S. (corporations, local governments, and individuals) owe an additional $23.3 trillion.
These are, by far, the greatest debts in the history of the world. But it doesn’t end there …
4. The U.S. government has obligations of AT LEAST another $150 trillion to present and future recipients of Social Security, Medicare and other benefits.
5. U.S. banks are clinging to a giant mountain of $222 trillion in derivatives, also a form of debt.
Grand total of debts and other financial obligations: $427 trillion!
Meanwhile, the ONLY solution Washington seems to agree upon is that the Federal Reserve can continue to step on the gas, accelerating the most reckless money printing since Weimar Germany.
So you don’t need a Ph.D. in economics to understand that Washington is incapable of addressing this mammoth problem — that no matter what our leaders do, or fail to do, America’s massive debt crisis has reached a tipping point.
Most of our readers and friends now see this clearly. They see it in the news. And they feel it in their daily lives. Even many who scoffed at our warnings in the past, are now asking astute, thought-provoking and URGENT questions for 2013 …
The U.S. debt crisis is not new; we’ve had one ever since I can remember. When will it reach critical mass?
It already has, as you saw beginning more than four years ago, during the great debt crisis of 2008.
What’s most shocking to me is not the debt crisis itself — that was something we saw coming and about which we wrote very specifically.
No. What’s truly shocking is how quickly investors have forgotten the mammoth consequences:
The failure of the world’s largest brokerage firm (Merrill Lynch) …
The near collapse of the world’s largest mortgage companies (Fannie Mae and Freddie Mac) …
The bankruptcy of the world’s largest insurance company (AIG) …
And the nearly fatal waves of losses and withdrawals at the world’s largest banks (Bank of America, Citigroup, and many more).
The threat was so large and so obvious, the U.S. Treasury Secretary, the U.S. Congress, and even the president of the United States stood before the American people to warn about the very same crisis that we had warned about many months earlier — a Wall Street meltdown and a Great Depression.
It didn’t happen.
But that was due to one, and only one, factor: The greatest, wildest and riskiest government rescues of all times — trillions of dollars in bank bailouts, trillions more in government guarantees, plus still more trillions in money printed by the Fed to buy up assets no one else wanted.
And again, as we have consistently warned, all those Herculean efforts did not truly END the debt crisis; they merely shifted debt burdens from financial institutions to governments; from Wall Street to Washington.
In the grand scheme of things, no debts were liquidated. No new savings were created. No new capital was raised. The debts were merely transformed and transferred.
And they immediately popped up in the form of the federal deficits that have been as much as FIVE times larger than the record deficits prior to 2008; that have continued year after year with no end in sight.
This sudden EXPLOSION of government debt — along with the rapidly declining ability of the U.S. economy to support it — is why the debt monster is AGAIN raising its ugly head.
How do we know the debt crisis is truly blowing up?
Isn’t it obvious? Despite everything our leaders have tried to do …
The U.S. government is STILL driving the nation over the fiscal cliff!
The U.S. Treasury is STILL running out of money to finance its operations and facing a massive showdown over the U.S. debt ceiling.
And the United States is AGAIN vulnerable to history-smashing downgrades — this time not just by Standard & Poor’s but also by Moody’s and Fitch.
When will the debt crisis cease to be just a political battle? In other words, when will it turn into a flesh-and-blood disaster with a direct impact on our daily lives?
When the price of bonds begin to collapse in the marketplace, driving interest rates sharply higher.
In the past, we’ve typically seen the collapse show up first in other bond markets such as junk bonds or tax-free municipal bonds, and finally in U.S. Treasury bonds themselves.
And that’s precisely the pattern we’ve also witnessed in the last few weeks of 2012:
Just recently, we have witnessed a massive, unprecedented outflow of money from the municipal bond market (see chart above).
And this sudden selling has helped trigger an unusually sharp decline in municipal bond prices.
But the decline is not limited to municipal bonds.
Treasury-bond prices, which first suffered a sell-off last summer, are now beginning to sink again — another initial warning of further bond market declines ahead.
Here’s the key: When bond prices fall, interest rates automatically rise.
In fact, falling bond prices and rising interest rates are just two different ways of measuring the same thing: The fact that it’s getting harder and more expensive to borrow.
Therein lies the KEY to how all this impacts everyone: If it’s harder to borrow, it’s harder to buy and invest. And no one — not even the Fed — can easily prevent the obvious consequences:
Lower corporate profits.
An end to the recent rally in home sales and a renewed decline.
And even bigger deficits in Washington as Uncle Sam chokes on higher interest costs.
Will we ultimately wind up with hyperinflation and an ugly dictatorship much as Germany did after World War I?
I hope not, and I think there’s some solid basis for that hope.
In Germany after World War I, there were no large, liquid free markets for Germany’s debts. So the regime could make unilateral decisions with impunity and without interference from global financial markets.
Not anymore! Fortunately, even if major governments (such as Washington, Brussels and Tokyo) are dysfunctional or outright crazy, bond and other debt markets are not.
We continue to have open, liquid markets for government bonds, corporate bonds, mortgages and virtually every kind of debt.
As with any financial market, investors can sometimes get carried away by false hopes or fears and prices can get out of line with reality.
And our government is clearly pushing the envelope to an extreme. But ultimately, bond markets must reflect supply and demand.
Ultimately, history proves that they have the power to overrule and overwhelm politicians of all stripes and colors.
And fundamentally, these markets are democratic, reflecting the will of millions of investors.
The simple fact is that bond investors don’t have to wait for the next election to be heard. Nor do they have to pound their fist on the table of some faceless bureaucrat. All they have to do is call their broker or click on a mouse, issuing a simple four-letter order: SELL!
And much like we’ve seen in Greece, Spain and Italy in recent months, that mass selling has the power to force even the most stubborn governments to radically change course.
Sometimes, it seems this debt crisis leads down the path of hyperinflation. Sometimes, it seems to imply deflation. So which should we act on?
BOTH — an approach that is very possible, and potentially very profitable with the diversity of instruments and strategies now available to investors.
This is another reason why I think it’s so important that you register to join me at The World MoneyShow Orlando, January 30 – February 2, 2013, at the Gaylord Palms Resort & Convention Center!
The World MoneyShow has another stellar line-up of over 150 financial investing and trading experts who are joining me to share what they see as the best places offering profits in the coming months; projections on what to expect from the markets; what sectors will be offering the best opportunities for profit, and much more!
You cannot afford to miss this most important investor gathering in 2013! It will be your one-stop resource for the most comprehensive education, efficient research, and valuable advice that will lead you to a profit-packed 2013!
And while at the show, be sure to join me for my presentation …
12 Big-Name Stocks I Won’t Touch with a Ten-Foot Pole
Friday, February 1, 2013: 9:15 am – 10:15 am
Five years ago, while Wall Street issued strong buys on major stocks that soon crashed, the independent ratings we developed identified most of those same stocks as urgent sells.
And just months later, the stocks had plunged dramatically, including Ford (-80%), AMD (-84.5%), CBS (-88%), plus many more.
Now, I will again name the 12 most dangerous big stocks and show you how to invest safely in good times or bad.
Be sure to come get your free Weiss Ratings Report at
The MoneyShow/Weiss Ratings Center,
Thursday, January 31, 2013: 11:30 am – 7:15 pm
Friday, February 1, 2013: 10:15 am – 5:15 pm
Saturday, February 2, 2013: 9:15 am – 1:00 pm
Come to our major center in the Exhibition Hall for free independent and objective ratings reports on:
- Your stocks, ETFs, and mutual funds
- Your banks, S&Ls and credit unions
- Your life, health and property insurers, plus
- Major overseas banks and sovereign nations
Get a report sent instantly to your computer or mobile device on the investment, bank, insurer or country of your choice. Peruse our printed guides on every investment and institution imaginable. Or simply have our on-site representative give you a ratings report about the specific companies you own or do business with.
Remember: Weiss Ratings has been widely acclaimed as the world’s leading INDEPENDENT ratings provider:
The U.S. Government Accountability Office (GAO) found that the Weiss insurance company ratings beat those of major Wall Street ratings agencies by a factor of three to one.
Barron’s wrote that “Weiss is the leader in identifying vulnerable companies.”
And the Wall Street Journal reported that the Weiss stock ratings beat every single Wall Street firm AND even independent research firm they covered.
For your free registration, just click here.
God bless and Happy New Year!