On February 2, 2013, Martin D. Weiss, PhD writes a MUST READ article on Money And Markets in which he visits three periods in the past: Eisenhower’s battle for the budget, Carter’s defeat at the hands of the bond vigilantes, and another major bond collapse in 1994.
Then he takes a hard look at where we stand:
After decades of borrowing piled onto more borrowing, we now have, by far, the largest debt bubble in the history of the world.
Compare, for example, where we are now with where we were in 1959, 1980, and 1994.
Back in 1959, even if Eisenhower had not balanced the budget, the federal deficit would have been about $10 billion.
But today, even if Mr. Obama and the House of Representatives can agree to a so-called “grand bargain,” the red ink in Washington won’t be just three or four times larger than it was in 1959. It won’t be just 10 or 15 times larger. It will be approximately ONE HUNDRED times larger!
Plus, back in 1959, the U.S. government had NO NET DEBTS WHATSOEVER TO FOREIGNERS. Quite to the contrary, foreign investors owed us a lot more money than we owed them!
Today, over 56 percent of our nation’s publicly traded debt is held by foreign governments, institutions, and individuals.
Or consider this: Back in 1959, Social Security was deep in the black, with $21.9 billion in reserves. Today, it’s deep in the red, on a collision course with chaos, with $6.5 trillion in unfunded obligations.
Back in 1959, try and guess what the government’s future obligations were to Medicare recipients!
Zero! There was zero in Medicare debts for the simple reason that Medicare didn’t even exist in 1959.
Today, between Medicare, Social Security, and other unfunded, government obligations, the net future obligation, based on the government’s own data, is $70 trillion, according to David Walker, former U.S. Comptroller of the Currency.
Or compare today’s situation with that of 1980 when bond markets collapsed so sharply, they forced Carter to drive the economy into recession.
At that time, the federal deficit was under $74 billion. Today it’s over $1.3 trillion. That’s 17.6 times larger in nominal terms. And even in proportion to our GDP, the deficit today is over three times larger!
Even if you compare today’s situation with 1994, when we had the worst calendar year decline in bonds, the situation is far more severe today: The deficit is 6.5 times larger in nominal terms and STILL about three times larger in proportion to GDP.
We have the biggest bond market bubble in history.
And here are the four key principles you must never forget about bubbles!
Principle #1. All bubbles burst.
Principle #2. The bigger they are, the harder they fall.
Principle #3. They can wreck tremendous damage on investors’ portfolios.
Principle #4. But for sophisticated investors, bubbles create enormous opportunities — and the bigger the bubble, the more money it can make you.
We have searched history and found absolutely no exceptions to these principles.
Moreover, we have a new kind of bond market danger that makes all prior dangers in the bond markets pale by comparison:
A Massive Ponzi Scheme by
the U.S. Treasury and the Fed
The U.S. Treasury Department, one agency of the government, issues its new bonds.
Then the Fed, which is effectively another arm of the same government, buys up to 80 percent of those bonds.
And with this cozy relationship, they created a total fantasy — the fantasy that has elevated bond prices to the stratosphere and pushed yields down to the floor.
And remember: All Ponzi schemes collapse.
Not-too-distant future
A perfect storm descends on the market for U.S. Treasuries from all sides. We have …
The biggest peacetime deficits in history — far bigger than 1959, 1989, or 1994.
A series of fiscal cliffs that paralyze the government — far worse than anyone has ever seen in Washington.The threat of selling by foreigners at the drop of the hat —something that was not a very big factor in prior collapses but now is.
The threat of ratings downgrades, also something that never existed in prior bond market collapses.
And the collapse of the Ponzi scheme orchestrated by the Treasury and the Fed — something that never existed in this form in past bond market collapses.
There is a solution. The Just Third Way Master Plan for America’s future is published at http://foreconomicjustice.org/?p=5797.
http://www.moneyandmarkets.com/bubble-bursting-now-51406
