Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
Silver's Time Is Coming - 17th Oct 18
Stock Market Volatility Breeds Contempt - 17th Oct 18
Gold 7-Year Bear Market Phase Is Over - 17th Oct 18
Gold - A Golden Escape - 17th Oct 18
Tec Stocks Sector Set For A Rebound? - 16th Oct 18
Real Estate Transactions are Becoming Seamless with Blockchain-Powered Data Sets - 16th Oct 18
Important Elements of a Viral Landing Page - 16th Oct 18
Stephen Leeb Predicts 3-Digit Silver and 5 Digit Gold?! - 16th Oct 18
BREXIT, Italy’s Deficit, The EU Summit And Fomcs Minutes In Focus - 16th Oct 18
Is this the Start of a Bear Market for Stocks? - 16th Oct 18
Chinese Economic Prospects Amid US Trade Wars - 16th Oct 18
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18
Fed is Doing More Than Just Raising Rates - 14th Oct 18
Stock Markets Last Cheap Sector - Gold - 14th Oct 18
Next Points for Crude Oil Bears - 13th Oct 18
Stock Market Crash: Time to Buy Stocks? - 12th Oct 18
Sheffield Best Secondary School Clusters for 2018-19 Place Applications - 12th Oct 18
Trump’s Tariffs Echo US Trade Policy That Led to the Great Depression - 12th Oct 18
US Dollar Engulfing Bearish Pattern Warns Of Dollar Weakness - 12th Oct 18
Stock Market Storm Crash, Dow Plunges to Trend Forecast! - 12th Oct 18
SP500 Stock Market Sell Off Well Forecast by President Trump - 11th Oct 18
USD and US Tr. Yields Retreat, GBP Gains on Brexit-deal Report - 11th Oct 18
Loss Of Yield Curve "Shock Absorber" Could Mean A Rough Ride Ahead For Markets & Housing - 11th Oct 18
Just How Bearish is the Stock Market’s Breadth? - 11th Oct 18
Here’s Why Gold Stocks, Gold, and Silver Are Great Buys Now - 10th Oct 18
Russian Ruble Technical Chart Analysis and Forecast - 10th Oct 18
Society Trends To Keep in Mind in the USA - 10th Oct 18
[eBook] How to Identify Turning Points in the Market - 10th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

Madoff’s Ponzi Scheme Looks Like a Joke Compared to U.S. Treasury Bonds

Interest-Rates / US Bonds Sep 23, 2013 - 07:12 AM GMT

By: Profit_Confidential

Interest-Rates

Michael Lombardi writes: The “Bernie” Madoff name became famous while the stock market was falling during the credit and financial crisis. He was responsible for running one of the biggest Ponzi schemes in U.S. history—if I recall correctly, it was a $65.0-billion scheme. But as the scam got bigger, Madoff couldn’t go on. He was caught, prosecuted, and sentenced to more than 100 years in jail.


What did we learn from the Madoff ordeal? At the very least, we learned Ponzi schemes eventually become impossible to hide, no matter how smart and cunning the perpetrator.

Wednesday of this week, we learned that the Federal Reserve’s Ponzi scheme of printing paper money and giving it to the government via the purchase of U.S. Treasuries will go on.

While the Fed says it wants to keep the “stimulus” going until the economy gets better, as I have written in these pages many times, the Fed cannot stop printing because if it did stop, three things would happen: 1) the stock market would collapse; 2) housing prices would fall; and 3) the government would have no real buyer for its debt (especially in light of China and Japan pulling back on buying U.S. Treasuries).

Madoff’s $65.0-billion Ponzi scheme is nothing when I look at the U.S. national debt figures. While it looks like we are beyond the point of no return, our national debt level would have to double from $17.0 trillion to $34.0 trillion before our debt-to-gross domestic product (GDP) ratio matches that of Japan. (And don’t for a moment think that’s not going to happen!)

In 2011, only two years ago, we heard Congress debate whether they should increase our national debt limit or not. The theater of a government shutdown was on for a while; it drove key stock indices lower and bond yields higher. Now we’re at square one again. Secretary of the Treasury Jack Lew sent a letter requesting an increase in our national debt limit by October, or the U.S. economy would face a risk of default.

The bottom line, dear reader, is that the U.S. government is broke. To keep the government afloat from now until Congress passes a new national debt limit, the government has stopped investing into the pensions of federal government workers.

I don’t for a second doubt that Congress won’t raise the national debt limit—it will; it has done just that 78 times since 1960. Why would this time be any different?

The chart below shows how the national debt of the U.S. economy has skyrocketed since 1966.



What has happened so far—the massive printing of paper money—is just one part of the puzzle. The Ponzi scheme is complex and has many moving parts. The government’s failure to clamp down on spending is the main problem.

In the 11 months of the fiscal 2013 year, the U.S. government has incurred a budget deficit of $755 billon, according to the Bureau of Fiscal Services. (So much for those estimates that said the U.S. government budget deficit would be below $700 billion this year!)

The Congressional Budget Office (CBO) expects the U.S. government to continue posting budget deficits until 2015, when it says the annual budget deficit will equal two percent of the gross domestic product of the U.S. economy. (Source: Congressional Budget Office, September 17, 2013.) I don’t buy that prediction for a moment. Interest costs on the national debt alone could be a huge problem going forward.

For the government’s fiscal year ending this September 30, the U.S. government expects to have incurred $414 billion in interest payments alone. Assuming a national debt of $16.7 trillion, this equates to an interest rate of about 2.5%. But interest rates are rising!

And the more the national debt increases, the higher the interest payment. Think what will happen once interest rates in the U.S. economy start to climb higher, and when creditors start asking for higher returns due to our massive amount of national debt. Even if our national debt doesn’t change and interest rates go back to normal (it’s going to happen), the interest payments on the national debt would rise to over $900 billion a year!

Bring Social Security liabilities into the picture, and the future looks even more gruesome. According to the Pew Research Center, every day 10,000 Americans reach retirement age. (Source: Pew Research Center, December 29, 2010.) With the financial crisis having placed pressure on retirement savings, retirees are now relying on Social Security more than ever.

Right now we are seeing the government hoping investors will keep re-investing in U.S. bonds while the Fed picks up the slack. But what happens when they say, “We want our money back?” It will make Madoff’s Ponzi scheme look like a joke.

Source -http://www.profitconfidential.com/debt-crisis/madoffs-ponzi-scheme-looks-like-a-joke-compared-to-this/

Michael Lombardi, MBA for Profit Confidential

http://www.profitconfidential.com

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

© 2013 Copyright Profit Confidential - 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.


© 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

6 Critical Money Making Rules