Best of the Week
Most Popular
1.Gold Price Crash Through Key Support, Crude Oil in Freefall - Clive_Maund
2.Marc Faber Warns Japan's Bond-Buying Program is a Ponzi Scheme - Bloomberg
3.Silver Price and Powerful Forces - DeviantInvestor
4.Stocks Bear Market Catastrophe as Stocks Flash Crash to New All Time Highs - Nadeem_Walayat
5.Marc Faber Warns Not to Hold Any Gold in the U.S. - GoldCore
6.U.S. Housing Market San Francisco at Critical Mass - Harry_Dent
7.Global Scramble For Silver - Coins “Hard To Get,” “Premiums Likely To Jump” - GoldCore
8.Major World Stock Market Indices Analysis: SPY, QQQ, DAX, FTSE, CAC, HSI - Michael_Noonan
9.Japan's kaput?! - Axel_Merk
10.Tesco Empire Strikes Back, £5 off £40 Discount Voucher Spend Explained, Exclusions Warning! - Nadeem_Walayat
Last 5 days
Crude Oil and Stock Market Setting The Stage For The Next Recession - 23rd Nov 14
This Publicly-Owned Bank Is Outperforming Wall Street - 23rd Nov 14
Who’s Ready For $30 Crude Oil Price? - 23rd Nov 14
Strategic, Methodological and Developmental Importance of Knowledge Consumption - 23rd Nov 14
Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - 23rd Nov 14
Gold Price 2015 - 22nd Nov 14
Stock Market Medium Term Top? - 22nd Nov 14
Is the Gold And Silver Golden Rule Broken? - 22nd Nov 14
Malaysia's Subsidy and Budget Deficit Conundrum - 22nd Nov 14
Investors Hated Gold at Precisely the Wrong Time: What About Now? - 22nd Nov 14
Gold and GLD ETF Selloff - 22nd Nov 14
Currency Wars, the Ruble and Keynes - 21st Nov 14
Stock Market Investor Sentiment in The Balance - 21st Nov 14
Two Biotech Stocks Set to Double on One Powerful Catalyst - 21st Nov 14
Swiss Gold Poll Likely Tighter Than Polls Suggest - 21st Nov 14
Gold's Volatility and Other Things to Watch - 21st Nov 14
Australia Stock Market and AUD Dollar Analysis (ASX200 and AUDUSD) - 21st Nov 14
New Algae Research May Have Uncovered an “Energy Forest” Under the Sea - 21st Nov 14
The Cultural and Political Consequences of Fiat Money - 20th Nov 14
United States Social Crisis - No One Told You When to Run, You Missed the Starting Gun! - 20th Nov 14
Euro-Zone Tooth Fairy Economics, Spain Needs to leave the Euro - 20th Nov 14
Ebola Threat Remains a Risk - New Deaths in Nebraska and New York - 20th Nov 14
Stock Market and the Jaws of Life or Death? - 20th Nov 14
Putin’s World: Why Russia’s Showdown with the West Will Worsen - 20th Nov 14
Making Money While The World Burns - 20th Nov 14
Why This "Quiet Zone" Is Now Tech Stocks Biggest Profit Sector - 20th Nov 14
My Favorite Stock McDonalds Just Got Kicked Off My “Buy” List - 19th Nov 14
European Economies in Perpetual State of Shock, What's Scarier Than Deflation? - 19th Nov 14
Breakfast with a Lord of War and Nuclear Weapons - 19th Nov 14
The U.S. Economy’s Ebb and Flow - 19th Nov 14
What You Need to Know Before Investing in Alibaba - 19th Nov 14
Forget About Crude Oil Price Testing 2009 Low - 19th Nov 14
What Blows Up First? Part 5: Shale Oil Junk Bonds - 19th Nov 14
Bitcoin Price Did We Just See an Important Slump? - 18th Nov 14
How to Profit From Oversold Crude Oil Price - 18th Nov 14
Stock Valuations Outrunning Profits Growth - And the Band Played On - 18th Nov 14
ECB Buy Gold Bullion? Japan's Monetary Policy Dubbed "Ponzi Scheme" - 18th Nov 14
Gold, Silver, Crude and S&P Ending Wedge Patterns - 18th Nov 14
How High Could USD/JPY Go? - 18th Nov 14
On Obama and the Nature of Failed Presidencies - 18th Nov 14
Globalism Free Trade Immigration Connection - 18th Nov 14
An Epiphany From Hell - Buy Gold and Silver - 18th Nov 14
Too Difficult to Get a U.S. Home Loan - 18th Nov 14
Has the Gold Bear Trap Been Set - 18th Nov 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold Report 2015

Is the U.S. Becoming a Banana Republic

Politics / US Politics Mar 05, 2013 - 02:40 PM GMT

By: Michael_Pento

Politics

It is sad to say there are just two reasons why the U.S. is not yet a banana republic.  The first reason is that the US dollar has not yet lost its world’s reserve currency status, which is helping to keep interest rates at record low levels.  If the dollar, yen and euro were not involved in a currency war, the dollar’s intrinsic decline would become much more evident, causing domestic inflation to soar, and our bond market to immediately collapse. 


However, the perpetual erosion of fiat currencies will eventually cause investors to eschew the sovereign debt issued by the over-indebted nations of America, Japan and Europe—even if the dollar’s decline does not manifest itself against the euro and the yen.

The other reason why we have not been declared a banana republic is because America is not located between the Tropics of Cancer and Capricorn. 

The Definition of a banana republic is a nation that suffers from chronic inflation, high unemployment and low growth; primarily due to massive government debt and deficits that are purchased by its central bank. There is no doubt that the U.S. has suffered from structurally high unemployment, stubbornly high aggregate price levels, and low growth for the past five years, which is the direct result of our debt-saturated economy. 

So let’s just assume there exists a country located 15 degrees north of the equator that had amassed $7.5 trillion of new debt in the last 5 years alone.  This nation also has nearly $17 trillion in issued debt outstanding, a debt to GDP ratio above 106%, and has clearly shown it is incapable of preventing that ratio from rising. 

The central bank of this tropical land artificially pegged interest rates at 0% for over 4 years, has pledged to keep them there for at least three more years, owns $1.8 trillion of government debt and has pledged to buy $1 trillion more during 2013.   Let’s not forget that $1 trillion worth of central bank buying just happens to coincide perfectly with the projected annual deficits of $1 trillion for the foreseeable future.  What adjective would you use to describe this country?  Of course, any objective observer would designate it a bona fide banana republic! 

This is the reality of the economic backdrop of the U.S.  But, as mentioned previously, the legacy effects of having the world’s reserve currency postpones the most pernicious effects of such economic fundamentals that exist in our country.  Nevertheless, even though the Japanese and European economies also suffer from debt and stagflation, this isn’t enough to purge the U.S. economy from its insolvency; nor will it save our bond market from that inevitable historic rise in yields.

The problem is now even the mere normalization of bond yields would send interest payments on our unprecedented amount of debt soaring.  This could force the Fed to step up its dollar creation far in excess of what the BOJ or ECB would dare to create in order to stem that rise; and this could be the catalyst to send the dollar and bond market crashing even further. 

While some love to speak about the return of “King Dollar,” the truth is any nation that seeks to remain viable through the life support provided by its central bank purchases of sovereign debt should be designated a banana republic--regardless of its geographic location.  That is why the U.S. is headed down the road to serfdom…or fruitdom as it is in this case. 

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.
       

© 2013 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