Tuesday, March 28, 2023

Kotlikoff: America in Worse Financial Shape than Russia or China – Peter Diekmeyer

by Peter Diekmeyer, Sprott Money:

America’s 2017 fiscal gap will come in near $6 trillion, nine times higher than the $666 billion deficitannounced by the US Department of the Treasury last week, says Laurence Kotlikoff, an economics professor at Boston University.

“Our country is broke,” says Kotlikoff, who estimates total US government debts at more than $200 trillion, when unfunded liabilities are included. “We are in worse shape than Russia, China or any developed nation.”

Worse, says Kotlikoff, who has testified before Congress, government officials are well-aware that many of America’s debts and accruing liabilities are being written off the books.

However, for the most part, they are keeping their mouths shut.

A two-tier reporting system

The upshot is a de facto “two-tier” financial reporting system, in which politicians and insiders have access to key data buried in footnotes about unfunded liabilities, which indicate that there are huge problems in the economy.

The public, on the other hand, in slews of Presidential and Congressional Speeches and publications, is led to believe that while things are tough, overall everything is OK.

According to Kotlikoff, a long-time activist for fiscal rectitude, the problem stems in large part from the fact that the US government has been spending almost all of Americans’ approximately $795 billion in social security payroll taxes to pay current bills, rather than investing them to fund retirees’ benefits.

The upshot is that on a net basis, the US government has no money to pay all the benefits that have been promised. Politicians know that defaults will occur, they just haven’t figured out how to finesse this.

Fiscal gap accounting: telling Americans how much government has borrowed

Kotlikoff, unlike most, has a solution. He believes that the US government should adopt what he calls “fiscal gap accounting”, which involves putting all future receipts and expenditures on its books.

The idea is that if Americans knew about all the money that their politicians were borrowing and spending, they would be able to make better decisions as to the usefulness of those policies.

They would also be able to better protect themselves.

If the US government produced a financial statement that listed the $200 trillion in unfunded liabilities that Kotlikoff says it owes, workers might make different decisions about how much they will save for retirement.

Sadly, current de facto US government practice – inspired by Keynesian thinkers such as Paul Krugman – is for governments to spend, tax, borrow and print as much money as possible, in an effort to keep the economy perpetually running at full steam.

The idea is to leave future generations to deal with the problems.

The Clinton coverup

Kotlikoff and many others have been trying to change this.

More than 1200 of the country’s top economists have endorsed a bipartisan bill that requires the Congressional Budget Office to do both fiscal gap and generational accounting on an ongoing basis.

David Howden, a professor of economics and academic vice-president of the Ludwig von Mises Institute of Canada, describes economic theory as crystal clear as to how to measure government liabilities, namely using the infinite-horizon fiscal gap. He says that Kotlikoff’s reasoning is “pretty sound.”

In fact, the methodology has been tried before, by George Bush the Elder, who included fiscal gap accounting in some of his budgeting.

However, the Clinton Administration killed the practice and scored huge political points in the process.

Even today, decades later, few people realized that the only reason that the Clintons were able to balance their budgets was by not recording all of the US government’s debts.

Republicans weren’t stupid, though.

When they saw that there was no political penalty to be paid for cooking the books, they jumped on the bandwagon, a policy that the Trump Administration continues to this day.

Information asymmetry: keeping Americans uninformed

There are few pleasant takeaways from all this. True, some alternate fiscal gap accounting calculations suggest that things may not be as bad as Kotlikoff says.

Read More @ SprottMoney.com

Tesla Suspends Bitcoin Payments Over “Concerns About Environmental Impact”


from ZeroHedge:

After announcing plans to accept payment for Tesla’s cars in bitcoin back in February, Tesla CEO Elon Musk has just announced via tweet that the company will suspend bitcoin payments over concerns about the environment.

As perhaps the biggest booster of bitcoin in corporate America, Tesla announced during its Q1 earnings report released last month that it made a $272 million profit selling some of the bitcoin it had purchased on the company’s balance sheet. Earlier this week, Musk joked about the possibility that the firm might accept Doge for payment.

Personal Income and Spending in July Badly Miss Economist’s Estimates

by Mish Shedlock, Mish Talk:

The personal income and spending report for July shows more unexpected weakness.

The BEA’s Personal Income and Outlays report for July 2022 was weaker than expected on both the spending and income side. The saving grace from a GDP standpoint was a reported month-over-month inflation rate of -0.1 percent.

Tanking Housing Market a Red Flag for the Broader Economy

by Peter Schiff, Schiff Gold:

It’s getting harder and harder to deny recession reality. Even as the Biden administration tries to spin itself out of that reality with a propaganda campaign, many in the mainstream seem to be waking up.

On Monday (July 25), Reuters reported that the tanking housing market is a red warning flag signaling a recession.

The air is hissing out of the housing bubble faster and faster every day. Pending sales plunged in June and the inventory of homes on the market jumped as mortgage rates continue to rapidly rise.

Blockchain: The Greatest Paradigm Shift Of Our Generation

from The Dollar Vigilante:

Jeff Berwick at World Blockchain Forum, London closing speech, topics include: being an early Bitcoin adopter, the early days of the internet, Bitcoin still in its early days, one of the most important points in human history, getting the power back to the people, Bitcoin is self regulating, the most important thing for freedom this century.

The Pension Crisis Gets A Catchy Name: “Silver Tsunami”


by John Rubino, Dollar Collapse:

Pensions really are in crisis, but the story is so full of large numbers, obscure projections, and dry terms like “unfunded liabilities” that not many people are paying attention.

The same is true for a lot of other big trends out there, which is why those sounding the alarm eventually settle on pithy/scary (if not always accurate) terms to get people’s attention. Global warming, for instance, or nuclear winter.

Now the pension crisis may have found its hook:

Time to Get Defensive If You’re in the Stock Market


by Mike Gleason, Money Metals:

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up we’ll welcome back our good friend David Morgan of the The Morgan Report. David has some interesting things to say about the dollar, shares his research on the inverse correlation between stocks and metals and gives us his thoughts on when he expects to see gold and silver finally breakout. Don’t miss another wonderful interview with the Silver Guru, David Morgan, coming up after this week’s market update.

As trading for the third quarter winds down today, investors should prepare to face some new headwinds in the fourth quarter.

Beginning in October, the Federal Reserve will engage in so-called Quantitative Tightening. The Fed will allow some of its bond holdings to leave its balance sheet as they mature.

It may not sound too dramatic. But over the next year hundreds of billions of dollars will effectively be pulled out of the financial system. That could have dramatic consequences.

Nobody knows for sure what level of stimulus withdrawal will finally cause the stock market to break down from its long uptrend. But there’s no doubt that Fed stimulus has been a big contributor to its rise since 2009. Take away the punch bowl and the party can’t be expected to last much longer.

The S&P 500 index did close Thursday at yet another slight new record high. So in spite of the coming threats of Quantitative Tightening and a likely rate hike in December, stock market investors are as complacent as ever.

They will eventually pay a price for their complacency. Bull market gains that take years to accumulate can be wiped out in a fraction of that time during a stock market crash.

Major crashes tend to occur every few years. The last one was the financial crisis of 2008. Before that we had the tech wreck of 2002. In 1998, long-term capital management triggered a mini crash that nearly got out of hand. And of course in October 1987, the market crashed seemingly in an instant, without warning or reason.

It’s prudent to get defensive in your investments, even if you’re too early. Better to miss out on a few more points of upside in an overextended market than to be caught unprepared and undiversified when it finally takes a big plunge.

Plus, when you diversify into alternative assets such as physical precious metals, you aren’t just sitting on the sidelines. You are invested in markets that have tremendous upside potential in their own right, regardless of which direction the stock market heads. On that note, be sure to stick around for my interview with David Morgan coming up shortly as he will shed some light on what happens to metals when we get those corrections in the equity markets.

Over the past three weeks, metals markets have pulled back. Gold prices currently check in at $1,285 per ounce, down 1.0{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} for the week. Silver shows a weekly drop of 1.2{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to bring spot prices to $16.84. Platinum is down 1.7{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to trade at $921, while palladium is up 1.4{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to $938 an ounce as of this Friday morning recording.

Yes, this week the per ounce price of palladium surpassed platinum for the first time in 16 years. Congratulations to Money Metals writer and regular podcast guest David Smith, who predicted palladium would return to a 1:1 ratio with platinum way back when palladium was trading at about half the price of its sister metal.

It remains to be seen if platinum will return to a 1:1 ratio with gold and eventually get back to a more historically normal premium. Platinum prices have traded at a discount to gold for going on three years now. That’s very abnormal and David Morgan will have some comments on that as well in my interview with him this week.

We can’t rule out the possibility that platinum may be down for the count, never to return to its glory days. But it’s probably still too early to bet against several decades of cyclical history.

Silver bugs might argue that even if platinum prices recover to historic norms, silver has superior upside potential and has more utility as money. They have a point. Silver is a money metal while platinum and palladium are niche industrial metals used mostly in the automotive industry.

We have always urged precious metals investors to first acquire a foundational position in gold and silverbullion before venturing into platinum or more speculative metals such as rhodium. There’s a time and a place in life for speculation, whether in metals or in stocks. But there’s never a good time to completely abandon a long-term diversified investment strategy in favor of chasing a hot market.

Regardless of what October and the rest of the fourth quarter bring, don’t let market movements tempt you out, or scare you out, of your core positions.

Read More @ MoneyMetals.com