The Chinese Have Stopped Laughing (Michael Pento)

Euro Pacific Capital
Friday, July 29, 2011

By: Michael Pento       

 

The economy continues to prove that it didn’t need a stalemate between democrats and republicans over whether or not we should expand our credit limit in order to poop the bed. Gross Domestic Product climbed a paltry 1.3% in the second quarter of this year following a severely downgraded Q1 print of just 0.4%. Growth in the first quarter was revised down from a 1.9% prior estimate. Also today, the Institute for Supply Management-Chicago Inc. said its business barometer fell to 58.8 in July, from 61.1 in the prior month. And the Thomson Reuters/University of Michigan final index of consumer sentiment fell to 63.7 this month, which was the weakest since March 2009, from 71.5 in June.

 

Where are all those shills who assured us last year that 2011 would display a “V” shaped recovery in jobs and the economy? I know, I heard some of them today saying that the second half of this year is going to be great! Their reasoning was the same as it always is. Earnings are going to be wonderful because half of S&P 500 companies' earnings are in foreign currencies. Then, thanks to our crumbling currency, those foreign earnings translate into a ton of U.S. dollars—those dollars don’t buy you very much, but who cares as long as we are able to say we beat Wall St. expectations.

 

The poor, lonely Tea Party is vilified as being inhuman and behaving as insane children for not allowing the country to bankrupt itself as quickly as possible—even by members of their own party (read here what John McCain had to say for yourself). I guess the philosophy of McCain and his friends is that we should raise the debt ceiling to infinity and beyond and just pay our creditors back with more printed money. After all, the National Debt has grown from $400 billion in 1971 to $14.4 trillion today, so what’s a few more trillion between now and 2013? The dollar has lost 98% of its purchasing power in the last 40 years, so why not keep on defaulting on our debt through inflation and destroy the last few vestiges of the middle class. Sounds like a plan to me. It’s just business as usual. They urge us to keep up the spirit of cooperation and goodwill that has served to render this country insolvent.

 

The only problem is that the Chinese have stopped laughing at Geithner’s so called “strong dollar policy” and are now allowing the Renminbi to rise against the greenback (up nearly 6% in the last year). If we continue down this road much longer the only buyer of U.S. debt will be the Fed. That’s the real down grade to come. Not from the credit rating agencies, but from our foreign creditors. Once we have a failed Treasury auction, it will engender a vicious cycle. Debt service expense will soar, which causes out of control deficits. The Fed will be forced to purchase more of the debt and inflation rates become intractable, thus destroying GDP growth. Runaway debt, interest rates and inflation is what the Tea Party is trying so hard to avoid and it is a cause worth fighting for!

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

With ample time until the debt ceiling is breached, House delays debt ceiling vote to rename a Post Office

Los Angeles Times
By Nichael A. Memoli and
Kathleen Hennessey
July 28, 2011

House leaders have delayed a scheduled vote on the debt ceiling plan offered by House Speaker John A. Boehner, a possible acknowledgement that Republicans lacked the votes to ensure passage.

The postponement was announced just minutes before the planned 6 p.m. vote. The House instead moved to consider a far less controversial measure -- to rename a post office in Peoria, Ill.

Republicans had been working throughout the day Thursday to lock down support for their plan to raise the nation's debt ceiling, even as Senate Democrats vowed to swiftly kill it if passed.

"We're not there yet; we don't have the votes yet. But today is the day," Boehner had told members at a morning meeting, according to a GOP source who was not authorized to publicly discuss the private conversation.

Aides to House Majority Leader Eric Cantor insisted that a vote could still take place Thursday. A spokesman for Senate Majority Leader Harry Reid posted on Twitter that the body was "ready to defeat the Boehner plan whenever House Republicans can get their act together."

Lawmakers are working to meet the Aug. 2 deadline for extending the nation's borrowing capacity, or administration officials warn of a chain reaction of potentially disastrous economic consequences.

Boehner's bill would raise the debt limit in two stages -- one that could cover borrowing through the end of the year and another to cover 2012. The first increase is paired with $915 billion in spending cuts over 10 years. The second would be contingent on passage of a larger deficit-reduction package crafted by a new congressional committee.

Rather than promising passage of a balanced-budget amendment -- a top priority for conservatives -- the bill only ensures a vote in both chambers. Such a vote would be largely symbolic. The GOP-preferred version of the amendment is widely rejected by Democrats and would fall well short of the two-thirds vote needed to pass.

Michele Bachmann Will Be Quized at The National Press Club (email your questions kids)

Star Tribune
By Paul Walsh
July 28, 2011

Minnesota Rep. Michele Bachmann speaks Thursday before the National Press Club in Washington, D.C.

The Republican presidential candidate, whose standing in Iowa caucus polls has surged in recent weeks, will make her remarks starting at noon CDT, and questions from news media members will follow.

Also, questions from anyone can be submitted all morning and during the live event by sending them to @QNPCLunch on Twitter. Or questions can be e-mailed to president@press.org before 10 a.m. E-mails should have BACHMANN in the subject field.

Bachmann's appearance, which can be viewed live on www.press.org/ as the White House and Congress grapple over raising the federal government's debt ceiling. The congresswoman has questioned the urgency of the White House's Aug. 2 deadline and pushed a plan she says could avoid default without raising the legal borrowing limit.

Credibility of the nation’s ability to pay its bills will be tarnished (Michael Pento)

Euro Pacific Capital
Tuesday, July 26, 2011

By: Michael Pento

 

The U.S. economy may suffer an abrupt blow of austerity come August 2^nd. Indeed, that is what we truly need to bring lasting prosperity to this great country. But even if the republicans and democrats find a way to hold hands in the next few days, it won’t mean clear sailing is in store. A credit rating downgrade seems unavoidable at this juncture because a grand deal to cut over $4 trillion in spending is impossible to achieve by the deadline.

 

Therefore, whether it is a small deal or no deal, the credibility of the nation’s ability to pay its bills will be tarnished.

 

So no matter what happens after the deadline passes the economy will still be mired in trillions of dollars in debt that has to be serviced and rolled over. And since higher interest rates are virtually guaranteed to manifest because of inexorable debt issuance and inflation, the solvency of the U.S. is sadly, just ephemeral.

 

An increased cost of borrowing won’t help our comatose housing market either. But even before that inevitable increase occurs, data on New Home sales released today showed a declined for a second month in a row. Purchases dropped 1% to a 312,000 annual pace, which is a three-month low. And while the S&P/Case-Shiller index rose 1.1% and 1.0% for the 10 and 20 city index respectively, the YOY decline in home prices was still 3.6% and 4.5% for the 10 and 20 city index.

 

Mr. Case of the famous Case-Shiller Home Price Index explained the reason for weak sales data was the fact that household formation is negative. I’ve said over and over again that the cheerleaders and shills were wrong when saying the increasing U.S. population would solve our real estate problem. That’s because Population growth doesn’t equate to household formation. You need a job, savings and access to credit to afford a house.

 

I think most markets are far too complacent about the prospect of higher interest rates and the damage they will wrought. The Gold market has it correct and investors shouldn’t take solace in quiescent bond prices. The two biggest mistakes in the history of global financial markets are that the U.S. dollar will always be the world’s reserve currency and that U.S. sovereign debt is the ultimate safe haven.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Mr. "I reject the word compromise" Boehner's budget reduces debt on our grandchildrens' back by a pathetic $850 billion over 10 years

Yes grandchildren, the same man who rejects the word compromise, yet voted yes to an Iraq Shock and Awe (while voting yes to make the Bush tax cuts permanent), will not let his buddies to pay for Shock and Awe (a.k.a. pass it along to the grandchildren), is tightly bound to his lobbyist friends, votes yes to bail out banks via TARP,  and then drafts a budget that removes $850 billion (6% of our current deficit) off your back over 10 years. This is the same Mr. "reject compromise" that grew up in a family of 12 children (including sisters) with one bathroom.

Grandpa remains party agnostic. Take Harry Reid's budget for example...smoke and mirrors and he too does not care about what debt ultimately ends up on the backs of our grandchildren. Grandpa's bottom line (no pun intended): you can wrap a box full of dog poo in Red State paper or Blue State paper and it does not change the gooey mess in the box let alone the stench.

The Hill
By Erik Wasson
7/26/11

The Congressional Budget Office has told House Speaker John Boehner (R-Ohio) that his debt ceiling fallback plan will reduce the deficit by about $850 billion over ten years.

House GOP rank-and-file have been waiting eagerly for the score since they are worried the bill would not measure up to claims made about it by House leadership. Leadership on Monday said the bill would reduce discretionary spending by $1.2 trillion over ten years.

The CBO revealed the score in a Tuesday letter to the speaker.

The score is against the latest CBO baseline as adjusted to reflect the 2011 spending cuts deal between Congress and the White House that cut $38 billion in budget authority. Those 2011 cuts have ripple effects over the budget window.

The CBO has also determined that taking that earlier deal into account, the spending levels in the Boehner plan is a $1.1 trillion cut in the deficit.

Most of the effects of the Boehner plan come from caps it imposes on discretionary spending. Next year the cap is $1.043 trillion, a $6 billion drop from current levels.

Actual federal spending outlays in the ten-year period would be reduced by $710 billion relative to that March baseline, CBO says, if the discretionary spending caps in the Boehner plan are instituted.

Overall, savings in discretionary spending is cut $695 billion, mandatory spending is cut by $20 billion, and the savings in interest equals $135 billion.

CBO also looked at other more minor provisions in the Boehner bill. One would provide extra funding for Pell Grants to students and this costs $17 billion, while another would limit other student loans saving over $30 billion.

The Boehner plan is a two-step process whereby the debt ceiling would be raised before Aug. 2 and then again next year.

The CBO score reflects part one of the process, which grants President Obama the right to request a $900 billion increase in the debt ceiling, slightly more than the amount CBO says the Boehner plan cuts from combined deficits compared to the March baseline.

Boehner this spring said Congress would only raise the debt ceiling if spending cuts exceed the amount by which the debt ceiling is raised.

CBO does not assign a score to the second phase of the Boehner plan which would require a joint committee to come up with a plan to cut $1.8 trillion from the deficit by Nov. 23.