We’re the Last To Know…
by Budd Schroeder at American Daughter
Our country faces economic disaster, but our mainstream media don’t seem to have a clue. For the specifics, you have to read the foreign press. In this case, the facts and figures are all spelled out in a lesser known Italian publication covering Asian news. Asians have stopped investing in the United States, and this article explains the reason:
This year, US public debt could reach end game
by Maurizio d’Orlando
….now even US Federal Reserve Chairman Ben S Bernanke is warning the US Congress about the danger. In a statement before the House Financial Services Committee… he said that the US public debt might no longer be sustainable very soon…. Bernanke says the United States is likely to face a debt crisis like the one in Greece sooner than later, “not something that is 10 years away”.
In 2008, the size of the debt was such that it was quite clear that it was not sustainable. Now we have a timeframe to measure the likelihood of insolvency for the US public debt, and it is this year….
By the end of 2010, the US Treasury will have to refinance US$ 2 trillion in short-term debt, plus additional deficit spending for this year, estimated to be around US$ 1.5 trillion (US$ 1.6 trillion today two months after the original article was published). Together, the US Treasury will need to borrow US$ 3.5 trillion (US$ 3.6 according to this writer) in just one year.
In 1999, two well-known economists—Alan Greenspan and Pablo Guidotti—published a formula in an academic paper. Kept secret for a long time, it is designed to predict with precision when a country’s public debt will lead it to be insolvent. Called the Greenspan-Guidotti rule, it says that to avoid a default, countries should maintain hard currency reserves equal to at least 100 per cent of their short-term foreign debt maturities.
According to the author, the United States holds 8,133.5 metric tonnes of gold (the world’s largest holder). At November 2009 dollar values, that is about U$ 300 billion. The US strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that is roughly US$ 58 billion worth of oil. According to the IMF, the US has US$ 136 billion in foreign currency reserves. Altogether, that is some US$ 500 billion in reserves (US$ 455.5 billion according to AsiaNews).
Foreigners hold 44 per cent of US$ two trillion short-term US debt; that is US$ 880 billion. Total domestic savings in the United States are only around US$ 600 billion annually. If the United States needs to sell US$ 3.5 trillion (or US$ 3.6 trillion) in Treasury bills, and all domestic savings combined are put into US Treasury debt, the United States will still fall short by nearly US$ 3 trillion. Where is the rest of the money going to come from?
Not China, nor India or any other Asian countries….
The article goes on to provide details of the redirection of Asian investing. Finally:
Whenever US insolvency becomes self-evident, no one dare say they did not know. The Greenspan who came up with the aforementioned formula is the same Alan Greenspan who chaired the Federal Reserve for 18 years and allowed speculative. i.e. “structured” finance to expand (based on poorly tested mathematical algorithms).
This is the same Greenspan who in 1977 wrote a prophetic PhD dissertation (which was removed from his university at his request in 1987, when he became Fed chairman) on how financial bubbles develop in real estate and then burst. Not only was Greenspan aware of it, but so were US top financial circles. In other periods of history, this could lead to accusations of “treason”, but today our sense of personal and collective responsibility is more faded and faint than before….
To put this in an easy-to-understand visual, here’s a graph of gold versus US treasuries from Daily Wealth — The Most Important Chart in the World Right Now:
Note that Congress knew, based on Bernanke’s testimony, that our country faced bankruptcy before they passed the expensive health care bill. And the complicit media kept this information from the public, so as not to diminish the chances for passing the so-called “health care reform.”
Note also that having exhausted the traditional sources of revenue, Congress will most likely consider confiscating the citizenry’s retirement plans, IRAs, and 401Ks next.
The Daily Crux — The bankruptcy of the United States is now certain
The Daily Crux — This chart is the easiest way to track the coming U.S. bankruptcy