Best of the Week
Most Popular
1.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
2.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
3.Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - Nadeem_Walayat
4.Scotland Independence Result NO Win 55% to Yes on 45% - Nadeem_Walayat
5.US Dollar Forecast to Go Much Higher - David_Petch
6.Russian Union Of Engineers Accuses Ukraine Airforce In MH17 Crash - Raul_I_Meijer
7.The Emergence of the US Petro-Dollar - Gary_Dorsch
8.Don't Miss This Gold Buying Opportunity - Brien Lundinr
9.Silver Price: A Collapse and a Rally - DeviantInvesto
10.Silver Buyers Keep Stacking And Demand Higher Despite Falling Prices - 18th Sept 14 - GoldCore
Last 5 days
Hedge Funds Surpass 2007 Leverage; New Era of 'Permanent Investigations' Confirms Imminent Reversal - 23rd Sept 14
Home Healthcare Cuts Threaten 500,000 Jobs and Female-Owned Businesses - 23rd Sept 14
Silver, Gold, Debt and Taxes - 23rd Sept 14
A Post-Petrodollar Play for Triple-Digit Gains - 23rd Sept 14
Regime Uncertainty Weighs on U.S. Economic Growth - 23rd Sept 14
Bread, Circuses and Bombs - Decline of The American Empire - 23rd Sept 14
Has The Gold Price Drop Run Its Course? - 23rd Sept 14
Stocks Rally Following Janet Yellen's Conference and Scotland's Historic Referendum Result - 23rd Sept 14
Why Isn’t U.S. Housing Market A Bubble? - 23rd Sept 14
The Macro View and the Stock Market - 23rd Sept 14
Gold, the Fed and the Looming Stock Market Correction Q&A - 23rd Sept 14
Can Gold Act as a Safe Haven Again? - 23rd Sept 14
Tesco Super Market Giant Fast Disappearing Down a Financial Black Hole - 22nd Sept 14
Where China and Japan Are Investing Billions - 22nd Sept 14
Scotland YES 71% - Global Youth Intifada Moves On - 22nd Sept 14
U.S. Dollar: The Last Hurrah? - 22nd Sept 14
China Moves To Dominate Gold Market With Physical Exchange - 22nd Sept 14
One Giant Cluster Ponzi - 22nd Sept 14
The Millenial Cult Of Global Warming - 22nd Sept 14
Dubai Residential is NOT a Property Bubble But the Party’s Over - 22nd Sept 14
Stock Market Topping Process Update - 22nd Sept 14
Indian Stock Market BSE SENSEX The Encore Rally - 21st Sept 14
ISIS Fear-Mongering Ahead of Another US False Flag? - 21st Sept 14
Ecology Politics And Haeckel's Tree Of Meaning - 21st Sept 14
ASX200 Stock Market Index Set For New Highs - 21st Sept 14
Scottish Referendum Not Avoiding The Future - 21st Sept 14
Five Lessons Learned from the Scottish Referendum - 21st Sept 14
The Problem With UKIP And Other I I P's - 21st Sept 14
Stocks Bull Market Resumes - 20th Sept 14
Gold And Silver - Current Price Is The Story - 20th Sept 14
Can the U.S. Economy Withstand Another Housing Market Breakdown? - 20th Sept 14
Nervous Investors Will Hate the Money You Make With This Strategy - 20th Sept 14
Cheap Gold Stocks Upleg Intact - 20th Sept 14
Monetary Policy Killing The System - 20th Sept 14
Scotland and the Spirit of Our Time - 20th Sept 14
Bitcoin Price Charts In-Depth Analysis - 19th Sept 14
Alibaba is Focused, Will Use Money in Emerging Areas - 19th Sept 14
Bird's Eye View of the Gold Stocks - 19th Sept 14
Scotland Independence Result NO Win 55% to Yes on 45% - 18th Sept 14
Silver Price: A Collapse and a Rally - 18th Sept 14
Here's Why Trendlines are Your New Trading Best Friend - 18th Sept 14
Silver Buyers Keep Stacking And Demand Higher Despite Falling Prices - 18th Sept 14
The "Hidden" Billions in the Alibaba IPO - 18th Sept 14
Russian Union Of Engineers Accuses Ukraine Airforce In MH17 Crash - 18th Sept 14
Monetary Policy Weighs on Gold and Silver - 18th Sept 14
Global Currencies Analysis...The World According to Chartology - 18th Sept 14
Gold Price Hammered by Strong U.S. Dollar - 18th Sept 14
Is Citigroup the Dumbest Bank Ever? - 18th Sept 14
Scotland Must Vote Yes! For All Of Us - 18th Sept 14
Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - 18th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

You've never seen this before and may never again

Dysfunctional Washington Leans on Fed’s Money Printing Press

Politics / US Debt Dec 26, 2012 - 11:20 AM GMT

By: Michael_Pento

Politics

It should now be clear to all Americans that our government is completely incapable of voluntarily reducing our fundamental problem of excess debt. The inability of Washington D.C. to address spending, even under the duress of a legal obligation to do so, is flagrantly obvious.


The sequestration, which is supposed to reduce our debt by $2.4 trillion over the next 10 years, is not the result of a curse brought to earth by an asteroid. It is a self-imposed act of congress to finally address our nation’s habit of raising the debt ceiling with as much concern as a thief cares about getting a credit line increase on a stolen Visa Card. Isn’t it ironic then that those same individuals who agreed on the sequestration a year ago are now doing back flips in order to undo their insufficient and feeble attempt at austerity.

The real issue here is the out of control spending on behalf of our elected leaders; and it can be proved. The deficit for November 2013 was $172 billion, which was up an incredible 25% from the level of last year. But, the reason for this significant increase in debt was not a lack of revenue. Government receipts were up $10 billion while outlays jumped by $44 billion. The truth is that the fiscal 2013 budget deficit is already up significantly from last year and it has nothing at all to do with a lack of revenue. Washington accepts the increased revenue with alacrity and uses it as a means to spend more instead of slowing down the rate of debt accumulation.

In addition, even if our leaders are indeed able to reduce the deficit by $2.4 trillion in the next decade, most of that proposed savings will be wiped out by increased debt service payments that are not currently incorporated into the rosy projections of the White House. Our “omniscient” leaders in D.C. predict that interest rates on the ten-year note will be just 5.3% by the year 2022. But if they are wrong on their base line projections; that is, if interest rates rise by just one point higher than predicted, $1.5 trillion of those proposed savings would be completely wiped away. That’s because the average amount of outstanding publicly traded debt will be around $15 trillion over the course of the next decade (it is currently $11.6 trillion). A one hundred basis point increase in the average interest rate paid would erase 62.5% of those hoped for savings.

However, the Fed will be buying more than $1 trillion worth of the anticipated trillion dollar deficits each year for the foreseeable future. That means by the year 2016 the Fed’s balance sheet will be have increased by nearly 100% and the amount of publicly traded debt will have soared by 200% since the start of the Great Recession in 2007. Therefore, it is highly likely that the average interest rate paid on government debt will be far higher than the 4.4% projected by the administration at the end of 2015, and the 5.3% going out a decade. After all, the surging supply of Treasury debt that is being monetized by the Fed should ensure inflation and interest rates rise well above their historical averages. That means the Ten-year note should rise well above its average rate of 7% going back 40 years. And that also means that deficits and debt will be significantly higher than anyone in D.C. expects. Given the above data, it is fairly certain that the U.S. government will be increasingly relying on the Federal Reserve to maintain the illusion of solvency in the future.
Indeed, most of the developed world finds itself in a similar situation. Central banks in Japan, Europe and the United States have expressed their goal to aggressively seek a higher level of inflation. They operate within insolvent governments that need to have their central banks purchase most if not all of their debt. Given the fact that these governments are racing towards both bankruptcy and hyperinflation, it would be foolish to store your wealth in Yen, Euros or Dollars.

Physical gold and PM equities have suffered greatly of late due to the threat of American austerity. There have also been liquidations from a major hedge fund that owns a tremendous exposure to precious metals. However, these temporary factors are almost behind us and have offered investors a wonderful opportunity to acquire exposure to gold equities at incredibly low prices, especially in light of the incredibly-dangerous macroeconomic environment.

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.
       

© 2012 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014