Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
The Dow Gold Ratio - 11th Dec 17
Evidence of a Stock Market Top Mounting - 10th Dec 17
Bitcoin Doesn’t Exist – Forks and Mad Max - 10th Dec 17
Bitcoin Doesn’t Exist – Putting the Banks Out of Business - 9th Dec 17
China’s Struggle for Market Economy Status - 9th Dec 17
Is Gold Really Strong? - 9th Dec 17
Bitcoin Parabolic Mania - 8th Dec 17
SPX Make a 61.8% Retracement - 8th Dec 17
Gold, Stocks and Bonds - The 3 Amigos Update - 8th Dec 17
Gold Stocks Break, Gold to Follow - 8th Dec 17
4 Charts That Show How Trump Tax Cuts Will Trigger A Recession - 8th Dec 17
Precious Metals Breaking Down! 3 Amigos to Abort? 4 Horsemen to Ride? - 7th Dec 17
Bitcoin Just Smashed Through $12k… Wait, $13k… Now $14k… This Is Getting Ridiculous! - 7th Dec 17
Stock Market Tops Look Like This - 7th Dec 17
Crude Oil, Oil Stocks and Invalidation of Breakouts - 7th Dec 17
Bitcoin Doesn’t Exist – 2 - 7th Dec 17
British Pound Sterling Volatility In Crucial Week of Brexit Talk - 6th Dec 17
Day Trading vs Swing Trading: Which One is the Better Strategy? - 6th Dec 17
Crude Oil and Negative Divergences - 6th Dec 17
EU Bailins Coming – 114 Italian Banks Have NP Loans Exceeding Tangible Assets - 6th Dec 17
Bitcoin Doesn’t Exist - 5th Dec 17
Advantages of Car Insurance to Protect a Vehicle - 5th Dec 17
How High Will Gold Go? - 5th Dec 17
The Loonie Takes Flight -- BUT a "Labor Miracle" is NOT the Reason Why - 5th Dec 17
The True Meaning of Bitcoin's 'Success' - 5th Dec 17
Gerald Celente: Middle East Wild Cards Could Bring Down Markets, Drive Up Gold - 5th Dec 17
Silver’s Positive Fundamentals Due To Strong Demand In Key Growth Industries - 4th Dec 17
Stock Market Positive Expectations, But Will S&P 500 Continue Higher? - 4th Dec 17
Bitcoin Achieved What The Gold Market Never Could & Never Will? - 4th Dec 17
Stock Market Top Distribution Starting - 4th Dec 17
Understanding Real Time Forex Trading - 4th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

The Ticking Trillion Dollar Debt Bomb

Politics / US Debt Jan 18, 2013 - 08:41 AM GMT

By: Graham_Summers

Politics

Since the EU Crisis went into overdrive in 2010, EU politicians have largely resorted to political posturing rather than implementing any actual financial solutions to the EU’s debt and banking crisis.

To clarify that statement, we view a “real solution” as one that A) cleared bad debts from the system, B) brought debt levels down to manageable levels, and C) got the troubled country’s economy back on track.


By way of example, real solutions would involve outright debt defaults, bank failures, and very likely one or more countries leaving the Euro. However, no major EU leader ever seriously promotes any of these ideas because doing so would akin to committing political suicide as the rest of the political class would blame them for what followed.

As a result, EU politicians continue to kick the can down the road with half-measures such as austerity measures in exchange for bailouts. The end result is that nothing is ever solved as those in charge of the decisions that matter have no incentives to actually do anything beneficial for their countries’ economies. See Greece whose economy has completely imploded to the point that children are being admitted to hospitals every week for malnutrition… and it will still have a Debt to GDP of 120% in 2022!

It is now obvious that US politicians have seen this work well for their European counterparts (nothing gets fixed, not tough choices have to be made and almost no one gets kicked out of office), and are now adopting this strategy on this side of the pond.

Consider the fiscal cliff issue, which our political leaders discussed endlessly for over a month, only to then pass a “deal” which both raised taxes AND failed to cut the deficit or debt.

Again, nothing solved, but plenty of posturing and blame.

Expect more of this. Today, the top story for the US is gun control even though we will officially breach the debt ceiling in roughly one month’s time. The last time we did this the US lost one of its AAA ratings from a credit agency and the markets imploded wiping out over a trillion dollars in household wealth in a matter of days.

This time around, things will be far worse if nothing is solved. If the US loses another AAA rating, then the financial markets could face systemic risk. The reason for this is that US Treasuries are one of the senior most forms of collateral used by the banks to backstop the $600+ trillion derivatives market.

As any trader who trades on margin can tell you, when the value of your collateral is called into question, those on the other side of the trade come looking for you to put up more capital on your trades. This can result in assets being sold en masse (similar to what happened after Lehman failed) and things can get very ugly very fast.

Another consequence of the US losing another AAA rating would be a potential spike in interest rates as a result of us having a lower credit rating. A 100 basis point move higher in interest rates means the US paying another $100+ billion in interest payments on its debt. The US is slated to pay some $300+ billion in interest payments in 2013. This amount could explode higher if interest rates rose.

We already have a Debt to GDP ratio of over 100%. Our deficit to GDP is nearly 10%. These are Greece type levels. And while the US has several advantages Greece does not (it produces the reserve currency of the world and is also the largest economy), the bond markets can be very unforgiving of fiscal profligacy.

But US politicians don’t care. They know that the US economy is a disaster and will be getting worse. The issue for them is not fixing this, but shifting the blame for what’s coming onto the other party.

Bottomline: the US debt situation is not going to be brought under control. We’ll either breach the debt ceiling or pass some hurried bill to raise it. Neither of these will help our credit rating or our fiscal issues.

Buckle up, 2013 is going to be an “interesting” year.

If you’re an individual investor (not a day trader) looking for the means of profiting from all of this… particularly the US going over the fiscal cliff… then you NEED to check out  my Private Wealth Advisory newsletter.

Click Here Now!!!

Graham Sumers

Chief Market Strategist

Good Investing!

http://gainspainscapital.com

PS. If you’re getting worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.

I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

© 2013 Copyright Graham Summers - 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.

Graham Summers Archive

© 2005-2018 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

Catching a Falling Financial Knife