Addison Wiggin

It was a good effort…but “federal debt held by the public would double under the President’s budget,” says the Congressional Budget Office (CBO).

While we were exploring gold storage, junior miners and asset protection in Zurich, the CBO did some heavy lifting on the budget proposal advanced by Mr. Obama on Wednesday.

Even as the president promises to raise taxes, protect consumers and cut spending, the CBO shows the federal portion of the national debt held by the public growing from $10.4 trillion (69% of GDP) at the end of 2011 to $20.8 trillion (87% of GDP) at the end of 2021…adding $9.5 trillion to the nation’s debt in nine years.

“Even if the president could persuade Congress to enact all of his proposed tax increases,” Alan Reynolds from the Cato Institute adds, “in addition to surtaxes already included in [the health care reform bill], the CBO finds we would still face endless budget deficits averaging 4.8% of GDP…”

What kind of solution, we humbly ask, is that?

“We are in a financial no-man’s land,” muses our friend Doug Casey, surveying the landscape. “‘Investing’ is problematic because of a deteriorating economy, unpredictable and increasing regulation, rising interest rates and wildly fluctuating prices.

“Nothing is cheap in today’s investment world. Because of the trillions of currency units that governments all over the world have created – and are continuing to create – financial assets are grossly overpriced. Stocks, bonds, property, commodities and cash are no bargains.

“Meanwhile, real wages are slipping rapidly among those who are working, and a large portion of the population is unemployed or underemployed.

“The next chapter in this sad drama will include a rapid rise in consumer prices. Raw commodities are the first things to move in an inflationary boom, largely because they’re essential to everything.

“Retail prices are generally the last to move,” Doug sums up, citing a couple of themes we’ve been keeping our eyes on, “partly because the labor market will remain soft and keep that component down, and partly because retailers cut their margins to retain customers and market share.”

Retail may, indeed, be moving now. This morning, the Bureau of Labor Statistics (BLS) announced the consumer price index rose 0.5% last month.

The “core” rate that strips out food and energy – the one the Federal Reserve watches to determine whether we have any “inflation” – was a tame at 0.1%. But look these annualized rates of change:

What Doesn't Factor Into Core CPI

The first column of numbers is for the six months ended last September. The second column is for the most recent six months.

Over the last 12 months, the CPI has risen 2.7%, according to the BLS. John Williams at Shadow Government Statistics, who crunches the numbers the way the government did during the Carter presidency, comes up with a slightly higher figure of 10.2%.

“It’s Atlas Shrugged time,” Doug Casey chimes back in…and by that he doesn’t mean tonight’s release of the movie based on the novel.

“Few large fortunes have been made by investing. Most are made by creating, building and running a business. But running an active business is increasingly problematical.

“Sure, there will be plenty of people out there to hire – but in today’s litigious and regulated environment, an employee is a large potential liability as much as a current asset.

“Business itself is seen as a convenient milk cow by bankrupt governments – and it’s much easier to tap small business than taxpayers at large. Unless it’s a special situation, I’d be inclined to sell a business, take the money, and run.” Atlas Shrugged, indeed.

Addison Wiggin
for The Daily Reckoning

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • kenn

    What do you think about the Japan thing where the global economy is concerned. I just saw a video from collaspnet.com

    They think it’s all over by July. sounded somewhat convincing…

    Might make for an interesting article either way.

  • http://www.coveringdelta.com DK Delta

    As I have been saying, the more immediate threat on the horizon is another deflationary-type event, and now Jim Grant of Grant’s Interest Rate Observer concurs:

    “Grant Expects Deflation”

    http://coveringdelta.wordpress.com/2011/04/17/jim-grant-expects-a-deflationary-buying-opportunity/

  • ABC

    Employment already running high. That would be adding fuel to the already fuming dry wood, if deflation is created.
    What about servicing of interest on the huge debt? Default right away? Stability still exists? I think that would cause a sudden expected stroke, paralysing and then immediate social-economic demise. In the wake of injecting deflationary measure, countless big havocs creep in would be the result. The current economic scale does not equal but overwhelmingly exceeding that of yesterday. Simply and impossibly to be driven by a sudden call of liquidity downsize.

  • HamMan

    Right now it is still off..offline. When a thousand flowers bloom, when a thousand printers cranking… and let’s muse over if inflation hooks on and pegs to the ubiquitous printers across the globe and overtly declares a ultimate online marriage… Interesing!!! We would have online realtime price flirting. We would see our daily bread bargaining with the printers to have its value displayed in the LCD scoreboard every second like the flicking bourses’ digital board. On the other hand, the ensuing deflation will also wreak through the entire social-economic system.

    Either, deflation or inflation cannot fix the big big problem. We need a third channel or a new innovation to handle the century’s bug. The,the biggest error of mankind is to shackle oneself to a pendulum-ding-dong-bell-affair. Fickle-minded, when it swings to left then it thinks right side is better and so forth, or just to display a safe job. For a thousand year the pendulum swings left and right without achieving a significant stride in life and remains in silent solitude infinitely. In such way all human creation, ingenuity.. go down the drain without leaving any debris.

  • http://www.coveringdelta.com DK Delta

    @ABC

    You are assuming that the Fed can prevent another rush for liquidity; that it can prevent a panic. 2008 proved that it can’t.

    When I say deflation, I don’t mean that we are going to have a long period of nominal GDP contraction and falling prices, but I do believe that another sharp contraction is in the making. I also believe that this is what PIMCO and Grant and expecting, which is why they are positioning themselves to be “liquid” in the near-term. They foresee an event that will collapse prices, and they want to be ready to step in and buy when that happens.

    Nothing moves up forever. We are overdue for a correction, and given the fact that this economy is the weakest that I have ever seen it in terms of sustainable growth trajectories, I think that a contraction will overshoot the mark. In addition, I believe bank balance sheets are far more exposed to a domino of debt write-downs than other people realize.

  • Scott Walker hiding in a tunnel under Madison

    “Nothing is cheap in today’s investment world. Because of the trillions of currency units that governments all over the world have created – and are continuing to create – financial assets are grossly overpriced. Stocks, bonds, property, commodities and cash are no bargains.

    “Meanwhile, real wages are slipping rapidly among those who are working, and a large portion of the population is unemployed or underemployed.

    “The next chapter in this sad drama will include a rapid rise in consumer prices. ”

    How can you have rising prices and falling wages at the same time?

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