Debt

The Psychology of Bond Investors

July 10th, 2011 3:07 am  |  by  |  Published in Debt, Economics, Federal Reserve, inflation, Money, national debt  |  Comments Off

by Michael Pento, Senior Economist at Euro Pacific Capital (www.europac.net)

Those who take issue with the outlook of Austrian economists in general, and Euro Pacific Capital in particular, have pointed to the persistence of low bond yields as proof that our philosophy does not hold water. We argue that as the United States takes on ever more debt and prints greater quantities of dollars, that buyers of our debt will demand higher rates of interest to compensate for greater risk.  In fact, our philosophy leads us to believe that rates would currently be spiking as Washington debates whether to raise the debt ceiling yet again or default on existing debt. Instead, rates are hitting close to multi-year lows. As a result, our critics have found a seemingly valid issue. However, we believe that there are strong market reasons that are holding rates low for now that do not invalidate our central thesis.

Looked at objectively, there are a litany of reasons why rates should be much higher than they are.  Official government data from the Labor Department has year over year consumer inflation rising at 3.4%. With the Ten year note offering a paltry 3.1%, negative real interest rates now extend out over a decade! At the same time, total non-financial debt as a percentage of GDP is at the highest level on record and in our view there are no credible projections that show the trend reversing anytime soon. In addition, with the end of quantitative easing, the Federal Reserve will apparently no longer be soaking up 75% of all new Treasury issuance. Given this, does it make sense that yields on Ten Year Treasuries are trading 60% lower than their 40-year average?  Forget the flowers, where have all the global bond vigilantes gone?

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Don’t be Fooled by Political Posturing

July 9th, 2011 8:58 pm  |  by  |  Published in Debt, Economics, national debt, Peter Schiff, Taxes  |  Comments Off

by Peter Schiff, CEO of Euro Pacific Capital, and host of The Peter Schiff Show, broadcasting live from WSTC Norwalk CT from 10am to noon Eastern time every weekday, and streaming at

As attention focuses intently on the negotiations to raise the debt ceiling, House Republicans have made a great show of drawing a line in the fiscal sand. They claim that they will not vote for any deal that includes tax increases to narrow the budget deficit. But we all know how the game works in Washington. With the 2012 elections looming the Republican bluster is merely a bargaining chip that they will quickly toss into the pot when they sense a political victory. In fact there are signs that such a compromise is already underway.

House Republicans already have the power to avoid tax hikes and force significant spending cuts. All they have to do is refuse to raise the debt ceiling under any circumstances. That’s it. At that point the only discussion would be where to find spending to cut.

But Republicans want to raise the debt ceiling just as much as Democrats, they just want to gain political advantage in the process. They have widely accepted the Democrat stalking horse that a failure to raise the ceiling will lead directly to economic Armageddon. No party wants to be held responsible for such an outcome. Even if the expected Armageddon does not come, the Republicans will be blamed for any problems that follow a no vote on the increase, regardless of the true cause. As a deal is in everyone’s political interest, I am convinced it will happen.

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Hard to Take a Bone from a Dog

June 18th, 2011 12:24 am  |  by  |  Published in congress, Debt, Economics, national debt  |  Comments Off

by John Browne, Senior Market Strategist at Euro Pacific Capital

Most people, provided they have a minimum of experience, know that taking a bone from a dog is a risky proposition. In terms of political power, few dogs are bigger than the American voting public. Taking away, or even threatening to take away, the major entitlements to which they have become accustomed could expose politicians to a mauling at election time. As the American leadership begins to grapple with very large issues of entitlement reform in “sacred” programs such as Medicare and Social Security, many may recoil from the task once the fangs begin flashing.

According to polls, 77% of Americans feel the U.S. Government must cut spending. But when it comes to specifics, the support melts away very fast. Until recently, the strongly Republican 26th District of upstate New York had elected only three Democrats since the Civil War. But in a special election held this month (to replace the resigned Republican Chris Lee) the district fell to the Democratic column for the fourth time in 150 years. Many have theorized that the political upset was based on fears that the budget plan put forward by House Budget Committee Chairman Paul Ryan would restrict entitlements, particularly Medicare.

If there is any truth to this, it shows how difficult the process may be for politicians who want to seriously trim the Federal budget. But any glance at the enormity of the problem should provide the necessary courage. This assumes, of course, that there is any courage at all left in Washington.

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Cap the Debt: How Congress Can Learn From Truman

June 13th, 2011 9:55 pm  |  by  |  Published in Big Government, congress, Debt, DownsizeDC.org, Economics, government spending, Liberty, national debt, Obama, War  |  Comments Off

Quote of the Day: “History clearly shows the government that stimulates the best, taxes, spends, and intrudes the least. In particular, the lesson from 1945-47 is that a sharp reduction in government spending frees up assets for productive use and leads to renewed growth.” – Economists Jason E. Taylor and Richard K. Vedder

On May 31, the House rejected President Obama’s request to raise the debt limit with no spending cuts. In addition to every Republican, 46% of Democrats opposed this bill.

* This demonstrates the power of polls, which shows even a substantial percentage of Democrats oppose raising the debt ceiling
* But it also demonstrate the power of your RELENTLESS PRESSURE on Congress

More and more Democrats realize the U.S. is on an unsustainable path and that reforms must be implemented NOW instead of putting them off any longer.

The vote was good news, but this is only the beginning of the fight. WE ARE HOLDING THE LINE . . .

NO increase on the debt ceiling.

Unless you tell your Representative and Senators where you stand, they may be tempted to cut a deal which will raise the debt limit while making only symbolic and marginal spending cuts.

Both Democrats and Republicans need to learn from history, particularly the Democratic Truman Administration. That’s why I sent this letter to Congress, from which you may borrow or copy . . . Read More »

After the Dollar: What Comes Next?

June 2nd, 2011 4:17 am  |  by  |  Published in Big Government, Debt, Economics, inflation, Money, national debt  |  7 Responses

by Peter Schiff

My readers are familiar with my forecast that the US dollar is in terminal decline. America is tragically bankrupt, unable to pay its lenders without printing the dollars to do so, and enmeshed in an economic depression. The clock is ticking until the dollar faces a crisis of confidence like every other bubble before it. The key difference between this collapse and, say, the bursting of the housing bubble is that the US dollar is the backbone of the global economy. Its conflagration will leave a vacuum that needs to be filled.

Mainstream commentators often discuss three main contenders for the role: the euro, the yen, or China’s RMB (known colloquially as the “yuan”). These other currencies, however, each suffer from a critical flaw that makes them unready to carry the reserve currency role in time for the dollar’s collapse. When it comes to fiat alternatives, it appears the world would be going out of the frying pan and into the fire.

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Rand Paul, Fearless Superstar of Liberty

May 27th, 2011 11:58 pm  |  by  |  Published in Big Government, Civil Liberties, Constitution, Debt, Election, government spending, Gun Control, Liberty, Maven Commentary, patriot act, Rand Paul  |  9 Responses

Rand Paul, not even 1 year in the U.S. Senate, is already creating a legacy for himself. And if you believe in the Constitution and the human liberty it protects then it looks good, very good. Paul has been steadfast and fearless when it comes to remaining true to his campaign promises. This is an anomaly in the float-with-the-current like a rotten log cesspool that is Washington DC circa 2011.

Paul has pushed for balancing the budget aggressively, stood up for consumer choice, and all the while doing everything in his power to cut government spending. Now, he’s revealing his diamond-tough huevos by going up against the whimsical idiot-savants of hypocrisy in his own party and the truth-bending emotionally-charged demagogues on the other side. His only allegiances are his promises and the U.S. Constitution. If enough of his peers in DC started doing the same our Founding Fathers might stop rolling over and over in their graves to salute the flag once again.

Listen here to Rand Paul discussing recent renewal vote on The PATRIOT Act with everyone’s favorite Neo-Conservative whipping boy, Sean Hannity (from Hannity’s radio show). Near the end Rand Paul reveals who he may vote for in the upcoming POTUS 2012 election and touches on his own potential aspirations for that same office.

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Why A Debt Ceiling Is Better Than A Balanced Budget Amendment

May 26th, 2011 10:59 pm  |  by  |  Published in Activism, Big Government, congress, Constitution, Debate, Debt, DownsizeDC.org, government spending, national debt  |  Comments Off

Quote of the Day: “I have always believed that government had a limited capacity to do good and a virtually infinite capacity to do harm…” — Neil Hamilton, Member of Parliament in the United Kingdom (Source: House of Commons debates, 8 February 1994)

Earlier this year, we thought we’d be willing to trade an increase in the debt ceiling for something of lasting value — like a balanced budget amendment. We now think that’s a strategic mistake.

The real strategic opportunity lies in the debt ceiling itself. As long as we maintain THAT, then nothing else needs to be done to balance the budget.

We’ve started a permanent new campaign to promote this idea called, “Cap the Debt.”

Here’s what I wrote in my first letter to Congress using this new campaign . . . Read More »

Bernanke Double Talk Creates Opportunity

May 13th, 2011 10:11 pm  |  by  |  Published in congress, Debt, Economics, Federal Reserve, national debt, Politics  |  Comments Off

by John Browne, Senior Market Strategist at Euro Pacific Capital

When Fed Chairmen speak, the public is supposed to listen; and, historically, they have. Yet, Chairman Bernanke’s remarks at his historic first press conference were met by a tidal wave of skepticism. Although many of the mainstream outlets, especially those lucky enough to be granted question slots, characterized his performance as “serious” and “masterful,” most rank-and-file Americans were left with a very different impression.

Any casual glance at the broad internet coverage of the event shows that the public is deeply skeptical of Mr. Bernanke and the actions he is taking. If that skepticism runs more than skin-deep, it could herald a fundamental change in American politics and a restoration of sound finance in America. Already politicians seem to be taking notice.

The struggle over raising the national debt ceiling has prompted many members of Congress to talk about a negotiated and practical plan to slash government spending. The early posturing has begun. While much of it is merely window dressing, as politicians continue to escalate their rhetoric, they will eventually be forced to actually do something to make good on their promises. Their mouths are writing checks that their budget proposals may have to cash.

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Celebrating a loss, Bin Laden’s victory in death

May 4th, 2011 12:27 am  |  by  |  Published in Blowback, Civil Liberties, Constitution, Debt, Foreign Policy, Liberty, Maven Commentary  |  Comments Off

Following Bin Laden’s death, the scenes of celebration in America were the equivalent of the losing team in the Super Bowl celebrating like they just won the game. As Radley Balko points out, Bin Laden has already won. And all the proof we need is recognizing that we are far less free and further in debt today than we were on September 10th, 2001. Balko writes:

In The Looming Tower, the Pulitzer-winning history of al-Qaeda and the road to 9/11, author Lawrence Wright lays out how Osama bin Laden’s motivation for the attacks that he planned in the 1990s, and then the September 11 attacks, was to draw the U.S. and the West into a prolonged war—an actual war in Afghanistan, and a broader global war with Islam.

Osama got both. And we gave him a prolonged war in Iraq to boot. By the end of Obama’s first term, we’ll probably top 6,000 dead U.S. troops in those two wars, along with hundreds of thousands of Iraqis and Afghans. The cost for both wars is also now well over $1 trillion.

We have also fundamentally altered who we are. A partial, off-the-top-of-my-head list of how we’ve changed since September 11 . . .

  • We’ve sent terrorist suspects to “black sites” to be detained without trial and tortured.
  • We’ve turned terrorist suspects over to other regimes, knowing that they’d be tortured.
  • In those cases when our government later learned it got the wrong guy, federal officials not only refused to apologize or compensate him, they went to court to argue he should be barred from using our courts to seek justice, and that the details of his abduction, torture, and detainment should be kept secret.
  • We’ve abducted and imprisoned dozens, perhaps hundreds of men in Guantanamo who turned out to have been innocent. Again, the government felt no obligation to do right by them.

Read the rest at Balko’s The Agitator

Bernanke Falls Flat

April 29th, 2011 11:21 pm  |  by  |  Published in Debt, Economics, Federal Reserve, gold, gold standard, inflation, Money, national debt, precious metals, silver  |  Comments Off

by John Browne, Senior Market Strategist at Euro Pacific Capital

Despite loud huzzahs from a variety of boosters who proclaimed that Chairman Bernanke spoke with gravitas and wisdom at the first ever Federal Reserve press conference, the wider investing public clearly saw the performance as unconvincing. During and immediately after the proceedings the prices of gold and silver rose strongly to new highs as the U.S. dollar plummeted. The affair seemed to solidify the understanding that Bernanke and his cohorts have no intention whatsoever to reverse the current trend of inflation and a weakening dollar.

With all the preliminaries swept away, it appears that the great dollar slide that we have long feared will not be interrupted. In the last year alone, the dollar has fallen 25 per cent against the Swiss Franc, (the gold standard of fiat currencies) – with one quarter of that decline coming since the beginning of April alone. Against gold itself (the gold standard of all forms of money), the decline has been even worse, 31 per cent so far this year, and 8 per cent this month.

Ominously, the dollar index (the broadest measure of dollar strength) is just a percentage point or two above the all time lows that it set before the financial panic of 2008 sent spooked investors into the apparent safety of America’s deep and liquid Treasury market. It appears that spell has now been fully broken.

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