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Never before in modern history has the U.S. government faced a greater fiscal disaster!
And never before has it failed so miserably to confront it!
This past weekend, instead of putting new proposals on the table, Congress’ Super Committee — our nation’s last hope for a solution — has shot down the last of its trial balloons.
Instead of burning the midnight oil to come up with an 11th hour deal, they’ve gone home.
Instead of doing something — ANYTHING — to help narrow our nation’s massive deficit gap, they have effectively GIVEN UP!
And yet the big players on Wall Street don’t seem to care. From their willingness to buy U.S. stocks and bonds in recent weeks, most seem to think all of this is “OK.”
So first, let me tell you what my message is to them — and to anyone who has failed to prepare for the consequences. Then, I’ll get back to you and give you some specific instructions on what to do.
My Message to Wall Street …
For many months, you’ve seen other countries suffer massive economic, political, and social CHAOS due to very similar debt problems.
You’ve seen global investors dumping their government bonds.
You’ve seen their governments take Draconian steps to stop the selling, but to no avail.
You’ve seen riots on their streets.
And just in the last few weeks, you’ve seen the contagion spread rapidly from Greece to Italy, Spain, and now, even France.
What makes you think the United States is immune to the same contagion?
Do you assume the U.S. federal deficit is somehow less of a problem? If so, you’re terribly misinformed.
The American government’s yearly red ink is close to 10.9 percent of GDP and will be even worse in a double-dip recession.
In contrast, Greece, the first victim of the contagion, has a federal deficit that’s currently just 6.7 percent of GDP. And if the recent deal to relieve some of its debt burden takes effect, the reduction in interest will cut Greece’s deficit down to 5.4 percent of GDP, less than HALF the size of America’s.
Or perhaps you’re thinking that the total, accumulated government debt burden in the U.S. is somehow smaller. Also not true …
As I documented in “The True Cause of America’s Troubles,” total U.S. government debt outstanding (including U.S. government agencies) is 118.3 percent of GDP.
In contrast, Spain, the most recent victim of the contagion, has a government debt burden representing only 60.2 percent of GDP — about half as bad as America’s.
Or maybe you subscribe to the belief that the U.S. will never catch the contagion simply because America is not a PIIGS country. Hogwash!
That’s exactly what Italian officials said about Italy. “We’re the eighth biggest economy in the world,” they raved. “We’re larger and more industrialized than Canada and Australia,” they ranted. “There’s no way we’ll wind up like Greece,” they concluded.
But now look what’s happened: Italy’s bond market crash is so severe, its borrowing costs have surged to 7 percent, the same tipping point that drove Greece to the brink of default.
That’s also very similar to what French officials were claiming up until just a few days ago. “France has the fifth largest economy in the world,” they raved. “France has done a great job managing its debts,” they ranted. “We’re not PIIGS! We’ll never catch the contagion!”
Oh yeah? Then look at this:
As Mike Larson showed you Friday in “Europe credit markets imploding! Why it matters to YOU,” France’s borrowing costs have suddenly surged to nearly two full percentage points above Germany’s, more than TRIPLE the worst level of the 2009 debt crisis.
And as I documented here one week ago, the cost of insuring French debt against future default is now higher than it was for Greece when its sovereign debt crisis first burst onto the scene in 2008. (See “The Next Two Victims of the Debt Contagion.”)
Still think the United States is special and immune? Hah!
Just take a look at modern history …
In years past, global investors have rushed to DUMP U.S. bonds, driving borrowing costs to astronomical, unsustainable levels.
And in one particular case (February 1980) — a time when our deficits weren’t nearly as bad as they are today — they virtually shut down the bond market, making it almost impossible for the U.S. Treasury to borrow money — at ANY cost.
Or maybe you’re among those who believe the automatic, across-the-board cuts in U.S. federal spending — the back-up plan in case Congress fails to act — will do the trick. Not even close!
First, because the automatic cuts are too small — less than $1 trillion, which is a small drop compared to the vast sea of red ink.
Second, because they’re not really cuts like Greece’s or Italy’s. They are merely slowdowns in projected increases.
And most important, because Congress’ failure to act sends the message to the world that our leaders are polarized, our government is paralyzed, and our finances are out of control.
Do you truly think the three largest credit ratings agencies are going to simply ignore Congress’ failure? I think that’s a pipedream!
The rating agencies have flatly stated that their next likely step is to downgrade the U.S. government. That’s the specific, unambiguous definition of their “negative outlook” for the United States.
But we’re not the only ones pointing this out.
Even Merrill Lynch agrees that a downgrade is imminent: “The credit rating agencies,” writes Merrill, “have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the Super Committee crashes.”
What? You say you don’t give a damn how bad the U.S. deficit gets … or how far the U.S. debt rating is downgraded.
Just remember what happened this summer — when just ONE major rating agency downgraded the U.S. by one small notch!
The Dow plunged 635 points in a single day and 2,000 points in two weeks. America’s economic activity sank. Global credit markets went haywire.
That’s my message to Wall Street.
Now, Back to You …
First, if you still own medium-term notes or long-term bonds of ANY kind, get rid of them now. Nearly all of Europe’s “highest-quality” bonds are already sinking. So are America’s lower-quality bonds! It’s only a matter of time — possibly a very SHORT time — before U.S. Treasury bonds also begin to fall.
Reluctant to give up decent yields? Beware! All of your interest accumulated over several years — and more — can be wiped out by the losses in principal that come with a bond market crash.
Second, dump your most vulnerable stocks, especially those that do not pay dividends and merit the lowest ratings. (For the latest evaluations on your stocks, go to www.weisswatchdog.com, sign in, add them to your Watchlist, and check the rating.)
Third, put most of the proceeds into cash. You can find our list of the safest banks at www.weissratings.com. Or you can also consider money market funds that invest exclusively in shortest-term U.S. Treasury bills. (Unlike bonds or notes, these are NOT vulnerable to contagion.)
Fourth, to help hedge your cash against a decline in paper currencies, be sure to hold core positions in gold — either gold bullion coins or gold ETFs (like GLD).
And above all, stand by for our next alerts!
Good luck and God bless!
Martin
{ 21 comments… read them below or add one }
With all of the insider trading that they’ve been doing and with all of the bribes that they’ve been taking from the very industries that would be affected by substantial cuts, they probably are buying put options on any and every instrument that they can possibly get.
ITs time to back RON PAUL for President in 2012 one man will and can make America a better place its time.
Buy all the gold&silver you can its the real money factor.Mr Weiss is spot on. hell is comming to United States in dedt defaults
Not yet….There is a big sell off headed this way and the downtrend in PM’s has not reversed. Just hold on a bit longer for lower prices and THEN buy in. You can always go to my facebook page and watch for these alerts and even follow me on Twitter @MasterMesmer where I chat back and forth with floor traders.
Spot on. PAUL for president! He’s the only guy who will face the bankers and their master the FED and take them down!
do you believe that Paul can control the Congress or Senate just by becoming president ? If he does become president then i would suggest that he hire Cheney as his chief of staff.
MICHAEL..Ron Paul wont have to control congree or the senate thing will so bad the people will .A $15 Trillion Federal Debt is abig wake-up call.
You seem to put the blame on politicians.These politicians were elected by voters who aren’t qualified to be selecting govt leaders.They are doing the will of the voters who elected them.That is our main problem.Govt is too large and too powerful to be in the control of voters,who have no knowledge of economics or care about the long term and vote their short term greed.I don’t know of any way out of this mess.Look at the support Ron Paul has in this country.He has been the only politician consistently right on what needs to be done and gets less than 2% of the support of voters.So,the only question is whether the country continues a slow decline or something causes a crash.
I think we are in deep trouble now. Congress as you say has gotten way to big and out of control
Your correct JRJ in large part, our politicians reflect the society that voted for them dsyfunctional. And when these dysfunctional politicians are in office they make dysfunctional laws and assume dysfunctional logic that in turn makes society dysfunctional. We can blame the politicians and that is a fact and they should be blamed, but what makes it fair is that the consequences of their actions and including our actions of voting on them will still be felt and for a long time. So next time if there is a next time we will remember what was done or wasn’t done and never allow it to happen again.
For anything to change within the political system, you the 99 percent will have to financially support the candidate for office. Since the 99 percent do not fund the major part of the needed finance for each candidate then you will have to accept that each candidate will bow down to big contributors. It is not the 99 percent that actually elect the candidates, it is the 1 percent. The 99 percent every now and then buck the trend but unfortunately, the 1 percent elect the rest. Then they send in their lobbyists to remind the candidates who financed them and that if they want to be re-elected then they know whose rear end to kiss. Sorry 99 percent, it is not yours. In order to change all of this the 99 percent must stage a full blown constitutional revolution. The Occupy Wall Streeters have it right and luckily they are not at the point that the citizens of France were at when they had their revolution. Heads literally rolled. Start supporting changes that President Obama wanted where many of his initiatives were stopped at each road by the side of “NO”, the Republicans and the Tea Partyers. I would love to have Universal Health Care!!!!! For myself, I would like to see President Obama leave office as a one term president. Why ? Because the US does not recognize that partisan politics of the Republicans are murdering our dreams. Many of us are being led by our collective noses by the likes of Limbaugh, Beck and Fox analysts. We are hollywoodized and love to hear information about our celebrities more than what is happening with our elected representatives. Due to this partisan divide, it will take decades for much of the 99 percent to realize a decent wage and the possible American dream. This is why so many University graduates are walking the streets with Occupy Wall Street. Corporate America is not so loyal to the American ideal as the 99 percent. Corporate America sends jobs overseas for profit while the Chinese sends its educated overseas to oversee projects. Corporate America hires educated individuals from overseas instead of hiring the educated from America. The Chinese does not do this, they just send their best over to America to get educated and then bring them back home to a good job. Where is Corporate America’s effort ? They got what they demanded from the government, less taxation but they still move jobs to Mexico. Who is to blame ? Actually it is the 99 percent. The 99 percent want to keep up with the Joneses and therefore want cheap products. This clashes with the Corporate mentality which says that “we will provide what you want at the price you want it at” but we need you to ask for less wages so that our costs comes down. The government taxes your more and you cannot move ahead. The military budget increases for your protection while fighting an offshore war where is squanders billions of dollars without responsibility. Imagine if you were a business and the IRA came calling. You would have to produce every piece of documents to prove you did not cheat the government. Well, the military does not have to do such documentation. The rot is throughout and unfortunately, i do agree with Mr Weiss, the government credit cards are at the limits and money will become harder to print.
We ran the governmemt without the Fed & the IRS UNTIL 1913 the dollar has loss 96% of its value take big government out give let the people save and spend there income.and things will boom.. We can not be the peace keepers of the world.
Is my money/cash sef in the big Canadian banks. If not where do I put it?
Martin
I don’t understand, since we can turn on the money printing machines and flood the world with our currency and have other countries to foot the bill, why should we bother?
Why can’t we devaluate the USD ,let say 1000 times, then we could wipe out all our debts.
Martin, I first learned of you and your insurance company ratings back in the 1980′s. You did a fantastic job using micro-economic data in your analysis of those companies. Some of the companies that you gave the lowest ratings did, in fact, fail. Mutual Benefit of NJ and Executive Life of CA come to mind. You have shown that you have a handle on microeconomics.
However, your record of prediction in macroeconomics has been pretty poor. I have been observing yours, and others, recommendations for years. I would have to give you a D if I were a ratings company for investment advisers.
You consistently commit composition fallacies when you apply micro-economic models to macroeconomics. There, I believe, is the source of your error. The perfect example is in a recent post where you showed how the ratings agencies consistently lag behind the market in “rating” the bonds of the PIIGS’ sovereign debt. The lesson is that the ratings agencies are mostly irrelevant. The market — i.e., the wisdom of the crowd — has already made up its mind without the ratings agencies information!
The 30-year trend, and that includes the last four years, has been to rate US treasuries ever higher!
Now it is possible that if you and other advisers like you keep screaming that the sky is falling that you will spook the herd and get a temporary stampede out of US treasuries. But just as before, when the herd tires and realizes that there is nowhere else to put their money, they will again realize that the RELATIVE risk of treasuries is the lowest and they will return.
We have substantial macroeconomic problems in the US, but it is not because of monetary policy or even the fiscal policy as you perceive it. The fiscal problems are easily demonstrated from the macro-economist’s national accounting IDENTITY EQUATION.
The debt problem can ONLY be solved by increasing private investment and/or reducing our trade deficit. Both problems (insufficient investment and the trade deficit) are mitigated with appropriate changes in TAX POLICY. Your view that Congress can just legislate a cut in spending to reduce the budget deficit is from the mind of a micro-economist. The macro-economist will note that said cut in spending will throw us into a recession and the drop in tax receipts will keep the deficit high — thus, no solution to the debt/deficit problem.
T
Martin, I simply don’t think there will be ANY further downgrade by ratings agency. Super Committee or not, I don’t think there will even be an “automatic debt reduction plan” starting in 2013. By then, there will be a new president (or Pres. Obama with a “new mandate”). By then, the global economy (not only US!) will have slumped even further, and all eyes will be turned away from the US/Europe. Who cares about debt? Not the Keynesians….. and Ben Bernanke will find an excuse and way to go ahead and print, p r i t, PRINT…!!!! This time I believe NOBODY will allow the collapse you seem to predict. Not the ECB, the Fed, or Chinese Central Bank.
Thank you for all your analysis, great as always. Cash is king on a crisis, I am aware. What about allocating that in “harder” assets, not just gold or other precious minerals? Anything that has a cash return and keep its real value (not just the Dollar equivalency) within time, like real estate -some or most of the times-, stocks from companies in the real economy -actually producing something ?
Now, even if we do not like it, and it comes with a high ticket price to an important group of the population, the way out of the debt is precisely creating more of it, by tons, so it is worth nothing, while the economy adjusts to new levels (“inflation” or “reflation” as they call it now!). The group affected by it can be compensated by the society -with some subsidies (that I don’t generally like)- that will cost less to the society than keeping paying real price for the debt or letting them go without a compensation.,
Warren Buffet from a recent interview on CNBC.
“I could end the deficit in 5 minutes,” he told CNBC. “You just pass a
law that says that anytime there is a deficit of more than 3% of GDP,
all sitting members of Congress are ineligible for re-election. The
26th amendment (granting the right to vote for 18 year-olds) took only
3 months & 8 days to be ratified! Why? Simple! The people demanded
it. That was in 1971…before computers, e-mail, cell phones, etc. Of
the 27 amendments to the Constitution, seven (7) took 1 year or less
to become the law of the land…all because of public pressure.”
Warren Buffet is asking each addressee to forward this email to a
minimum of twenty people on their address list; in turn ask each of
those to do likewise. In three days, most people in The United States
of America will have the message. This is one idea that really should
be passed around.
Congressional Reform Act of 2011
1.No Tenure / No Pension. A Congressman collects a salary while in
office and receives no pay when they are out of office.
2.Congress (past, present & future) participates in Social Security.
All funds in the Congressional retirement fund move to the Social
Security system immediately. All future funds flow into the Social
Security system, and Congress participates with the American people.
It may not be used for any other purpose.
3.Congress can purchase their own retirement plan, just as all Americans do.
4.Congress will no longer vote themselves a pay raise. Congressiona
pay will rise by the lower of CPI or 3%.
5.Congress loses their current health care system and participates in
the same health care system as the American people.
6.Congress must equally abide by all laws they impose on the American people.
7.All contracts with past and present Congressmen are void effective
1/1/12. The American people did not make this contract with
Congressmen. Congressmen made all these contracts for themselves.
Serving in Congress is an honor, not a career. The Founding Fathers
envisioned citizen legislators, so ours should serve their term(s),
then go home and back to work.
.
Maybe it is time.
THIS IS HOW YOU FIX CONGRESS. .
I AGREE WITH MICHEAL………we have a major problem in this country its called career politicians just look at TED KENNEDY………. and people need to be elected not put in OFFICE as OBAMA WAS IN ILLINOIS AS A SENATOR BY TED KENNEDY , ANOTHER PROBLEM WE HAVE IN THIS COUNTRY IS the UNEDUCATED VOTERS ESPECIALLY THE YOUNG IN H/S AND COLLEGE AND THEY ARE FORCE FED THE LIBERAL BULLSHIT BY THEIR TEACHERS AND PROFESSORS …….its makes no sense to me why we pay people for life after serving in office in congress the house or the presidency AMERICA is at a very critcal threshold in its history, it needs to get its house in order it needs to control its out of control spending but did we see that yesterday with the SUPER COMMITTEE of course not all the hype we had this summer was just alot of hot gas , IF I WAS IN CHARGE OF CREATING THE SUPER COMMITTEE…….. it would have been sooooooooooo much easier to agree to a deficit cutting budget if the group were made out of conservative liberals and liberal conservatives than the people that were assembled out of the most liberal of the liberals and the most conservative of he conservatives .
Massive sell-off in US equities very likely tomorrow!
Headlines will claim that investors were spooked by US Federal Reserve ordered stress tests (should be crash tests) with fear that banks will have to raise billions in additional capital (DUH!).
Martin Weiss told us this ages ago!
looks like Frances has been censored by Weiss…..will miss the truth