Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT Ponzi Scheme FINAL WARNING To EXIT Before Tether Collapses Crypto Exchange Markets - 22nd Jun 21
Stock Market Correction Starting - 22nd Jun 21
This Green SuperFuel Could Change Everything For the $14 Trillion Shipping Industry - 22nd Jun 21
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Who Will TARP Bailout America?

Politics / Credit Crisis Bailouts May 19, 2009 - 06:12 PM GMT

By: Michael_Pento


Last week the nation’s number one trucking company, YRC Worldwide Inc., announced that it will seek $1 billion in TARP assistance to bailout the company’s pension plan.  Never mind the fact that the request is light years away from the original intention and approval given by congress to purchase toxic assets from banks’ balance sheets. The point is that the troubled company’s request of the government to cover its pension obligations should remind us of the bigger issue; who will bailout our country’s pension plan and can the USA TARP itself?

The question has particular saliency given the recent release of the Medicare and Social Security Trustees report. The report provided more sobering news about the long and short term insolvency of our nation’s retirement plans and revealed the problem of funding our nation’s entitlement programs is becoming much worse.

The Social Security trust fund will run out of assets four years earlier than previously forecast. It should be noted at this time that the continued belief in the existence of any government trust fund (including FDIC insurance) is tantamount to a belief in the tooth fairy, because the special-issue bonds will need to be redeemed just as would any ordinary Treasury obligation. Therefore the only date of importance is the date at which expenditures exceed revenues, which in the case of Social Security, has been moved up one year to 2016. The report also bumped up the amount needed over the next 75 years to fulfill its benefit obligations by $5.3 trillion.

Medicare, which is by far the bigger issue, is already in a cash flow negative situation. Medicare Part A turned cash-flow negative in 2008, as payments exceeded revenue by $21 billion. The trust fund is projected to run out in 2017, two years sooner than predicted just last year.How big is the entire problem you ask? According to the Trustee’s report, if you add together the unfunded liabilities from Medicare and Social Security, it comes to more than $100 trillion over the infinite horizon—talk about the mother of all bailouts. There is no doubt in my mind that if the government conducted a stress test on its own ability to remain solvent given the amount of entitlement program spending we face; they would receive a failing grade.

A study done by the Center on Budget and Policy Priorities shows that for 2/3 of Americans over age 65, Social Security provided half or more of retirement income. As for the remaining third, it provided 90% or more! That is why any proposed reductions in benefits will face an impenetrable line of defense from AARP and other lobbying groups which represent retirees—a voting bloc with increasing numbers and influence. When you factor in the wealth decline from the Dow Jones Industrial Average that has declined 42% from its October 2007 high, home prices that are off 31% from their high water mark set in 2006, and the decline in influence of most private pension plans, you understand that the reliance on entitlement programs is increasing substantially.

So back to the original question: Who will bail out the USA? Up until now it has been foreign Central Banks. For instance, the Chinese now have $1.9 trillion in currency reserves of which $740 billion are in US Treasuries. The notion that they will continue to provide the United States with an unlimited supply of Treasury demand is specious in nature. Premier Wen Jiabao has already expressed his concern over his country’s concentrated dollar position. Additionally, the Chinese have a waning trade surplus and their own stimulus program to fund. This means that they may not have the desire or the means to fund our ballooning debt.

Increasing taxes have been proposed by some to close the gap. In reality imposing new taxes or increasing existing tax rates does not necessarily equate to increased revenue. In fact, an increased tax burden imposed on this already fragile economy may prove to have the opposite effect on government income.

A partial solution is to grow the economy as much as possible. But the truth is that the antithesis of growth is what is being deployed. Higher taxes, inflation and debt are the antidotes to growth and will only exacerbate our funding issues.

That leaves the Federal Reserve in charge of bailing out the entire country. TARPer in Chief Banana Ben Bernanke--who has unlimited counterfeit funds to deploy--will be looked to once again to provide relief by leaving interest well below inflation and keeping the monetary base incredibly high. The worst fear of all is that he will be the buyer of last resort and purchase an ever increasing quantity of US Treasury debt. Any relief experienced by his prodigal efforts will be fleeting. Unfortunately, we will have to learn the hard way that inflation solves nothing and seeking a panacea through the printing press leads to perdition.

*Tired of paying fees while your account value plummets? Learn about our new performance-based pricing.

Be sure to listen in on my Mid-Week Reality Check

Michael Pento
Senior Market Strategist
Delta Global Advisors

With more than 16 years of industry experience, Michael Pento acts as senior market strategist for Delta Global Advisors and is a contributing writer for . He is a well-established specialist in the Austrian School of economic theory and a regular guest on CNBC and other national media outlets. Mr. Pento has worked on the floor of the N.Y.S.E. as well as serving as vice president of investments for GunnAllen Financial immediately prior to joining Delta Global.

© 2009 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

© 2005-2019 - 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