Thursday, November 26, 2009

Unsustainable

The following chart shows the growth in the number of government employed workers from 1935 to present day.


In order to pay for a government worker the money has to be taxed from the private sector workers.

Today there are 4.8 private sector workers for every government worker.

Imagine that you live on a street with six houses. Five of the houses are private sector employees and the sixth house is a government employee. Every two weeks the government employee stops by every house and collects money for their pay. On top of this, the five houses have to pay taxes on the infrastructure for their streets (roads, government vehicles, etc.)

Wouldn't you be very concerned with what that government worker was doing every week and how much he was paid? Is he earning that money? We'll get back to that in a second.

In 2008, according to data from the Commerce Department’s Bureau of Economic Analysis, the 1.9 million civilian employees of the federal government earned an average salary of $79,197. The average private employee, by contrast, earned just $49,935. The difference between them came to more than $29,000 - a differential that has more than doubled since 2000.

Hold on, it gets better.

Taking account of total compensation - wages plus benefits - and the disparity is even more striking. In 2008, total federal civilian compensation averaged $119,982 - more than twice the $59,908 in wages and benefits earned by the average private-sector employee.

Anyone with a simple understanding of mathematics can understand that this situation is unsustainable.

But why are Americans not in an uproar over having to pay for these workers?

It is because they are not paying. Their payments are being put on the credit card for future generations, plus interest.

Obama has estimated a $9 trillion deficit over the next ten years. Over half of this deficit, $4.8 trillion, will just be the interest payments to support the current debt.

Think of it as putting $100,000 on your credit card every year. Each year the interest payments get higher and higher until you get to the point that you are borrowing money just to pay the interest.

Even in this scenario you have to find a bank that is willing to lend you the money. The same thing goes for Obama. His bank is the savings of the hard working foreign countries around the world.

The will have to provide 100% of the money they work hard and save every year to cover Obama's spending and the cost of our government workers.

As you know by now, most of these countries have decided privately and in some cases publicly that they do not wish to participate.

State and local budgets are in crisis mode right now because they cannot bring in enough tax revenue to cover their expenses. The same thing will happen to the Federal government once their debt financing source is cut off.

Then our fate will be solely in the hands of Ben Bernanke the President of our Federal Reserve. He has stated and shown that he has every intention of monetizing the debt. This scenario has happened countless times throughout history and is repeating itself again today.

The next crisis will come from our currency, and it will be worse than anyone can imagine. Please watch the well put together video below for a summary on where we find ourselves today:

Sunday, November 22, 2009

Giving Thanks

Happy Thanksgiving everyone. I have a busy week ahead of me so I wanted to take some time now to make sure I give thanks this year.

First of all, I want to give thanks to Dr. Ron Paul, who after thirty years of dedication is as close as we've ever come to putting a chink in the Federal Reserve's armor. His bill would allow the American public to view the Federal Reserve's balance sheet looking back 6 to 12 months.

Of course, the Fed is currently doing everything in their power to stop it from going through, claiming it will severely impact their ability to destroy the lives of the middle class.

However, there is a glimmer of hope. If the Fed does not have full freedom to destroy our country 100%, maybe only 80%, then perhaps I can continue to live in this country and be a part of the rebuilding process after we face judgment day. (Coming soon sports fans)

For that I give thanks.

On a similar note I give thanks to John Paulson, who at this point may be regarded as the greatest hedge fund manager in the world. I wrote an entire column dedicated to Paulson months ago, and I explained how he came into prominence through his early understanding (and shorting) of the financial markets before they collapsed.

This week he announced he is opening a 100% Gold focused fund and is contributing $250 million of his own money when it opens. Paulson is standing on a mountain top, ringing a bell, to announce what is in store for the American dollar.

I also give thanks to Central Banks for turning a 180 on their 100% recycling/purchase programs back into American assets. They also are currently loading up their balance sheet with gold. While this will cause the United States economy to collapse in the short term, it is the best thing for our country in the long term.

If they stop buying our debt, it puts a limit on how much damage Obama can inflict on the American people with his never ending debt binge.

This story will come to an end sooner than most people think. Think of two trains leaving the station and going in opposite directions. On one train are the foreign Central Banks running from US debt, and the other is Obama sending us deeper into the abyss.

It may end as soon as next year when foreigners completely stop attending our bond sales. The only purchaser will be Mr. Bernanke and his printing press. This of course will lead to the complete collapse in value of our currency, but as I mentioned before, once they have completely destroyed everything that America once was we can begin to rebuild.

For the foreign nations coming to their senses, I give thanks.

I also give thanks to be able to watch one more financial bubble that may be as ludicrous as the dot.com bubble and the real estate bubble combined.

That is the bubble currently located in the bond market. As of this morning if you want to lend your money to the Federal government for six months you get a return of .13%. If you want to lend your money to the Federal government for a year you get a return of .26%. Let me help you understand what that means.

Imagine you have $1 million and you are ready to retire. You decide that you want to play it "safe" as most people are and put your money in short term government debt. So you decide to get "aggressive" and invest the money in 12 month bonds because the returns are DOUBLE what you get for a six month return. (.26% vs. .13%)

So you invest all your $1 million and anxiously wait for the check to come in the mail for your yearly retirement income. Do you know how much the check would be?

$2,600.

Yep, that's how much you would have to live on every year.

And not only that, but your money is being held by the American government, which remember is currently 100% bankrupt and insolvent.

And not only that, but they have essentially announced week after week that they plan on doing every thing in their power to crush the value of the currency. To crush the value of your $1 million.

THIS IS THE INVESTMENT THAT EVERYONE IS IN RIGHT NOW!

For that I give thanks, it is amazing to watch the madness of crowds.

As I've mentioned over the past few years, 2009 would be the year that the public first began to move to gold, the currency should begin to really break down during 2010, and we will most likely face a currency crisis by 2011.

This will coincide with the year that people understand the crisis we face with oil supply. The word of the year during 2011 may be rationing. Whether it be filling up your gas tank or going to the hospital to get your Obamacare.

Until then, many people I know are taking steps today to protect themselves.

And for that, I give thanks.