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U.S. Debt Totals $133 Trillion, China Prime Beneficiary of Fed Money Printing

Interest-Rates / US Debt Dec 21, 2009 - 12:21 PM GMT

By: Larry_Edelson

Interest-Rates

Best Financial Markets Analysis ArticleLast week I suggested you to take some hefty profits off the table: Specifically, up to a 91.69% gain on the ProShares Ultra Real Estate ETF (URE), recommended in my June 29 column. That’s almost double your money if you acted on it, in a tad under six months. Not bad!

What’s more, it comes on top of six other recommendations I issued in this column — and closed out — since April, five of them with gains as high as 68.31%, and just one loser!


And, as I showed you last week, the open positions are still roaring, with gains of as much as 58.51% as I pen this issue on the iShares FTSE/Xinhua China 25 (FXI), which I recommended in my March 16 column.

Now, if you’re like me, I hope you’re enjoying your profitable year and relishing in spending quality time with loved ones as we pass through the holidays. Because, as important as money is, it pales in comparison to family. Period.

So over the next few weeks, don’t worry about the markets. Don’t worry about your investments. Don’t worry about profit opportunities.

The next two weeks of market action are likely to be rather quiet and certainly light on volume. Plus, all the markets and profit opportunities will still be there come the turn of the new year.

And via my Monday columns, I’ll keep you posted on all the developments. For today, however, I would like to give you two uncommon thoughts regarding 2010 that I think you should keep foremost in your mind for the coming new year …

A. No matter what, the Federal Reserve will continue to print endless amounts of fiat money.

That should be abundantly clear by last week’s Federal Open Market Committee (FOMC) decision that it will keep "interest rates low for an extended period of time."

But it should also be clear to you that our Federal Reserve — and other central banks around the world — will NOT shut down or even slow down the printing presses one iota, for two simple reasons …

Since the end of the gold standard, central banks have been free to print as much money as they want.
Since the end of the gold standard, central banks have been free to print as much money as they want.

1. The towering and patently unpayable mountains of debt in the U.S., unprecedented in size and scope, with the only way to surmount them being to default on them on the sly.

Keep in mind that ever since the gold standard was abolished, central bankers have been free to print as much fiat money as they want, whenever they want, wherever they want, and for as long as they want.

There is nothing that can stop them. Not even a collapse in the bond markets, where central bankers, via a mirage, create money largely by issuing IOUs in cahoots with the Treasury. And then buying those IOUs in the open market by pushing an electronic button on their computers.

It’s a shell game. A default on the country’s debts on the sly by promising to pay those debts back no matter what, but with far cheaper dollars.

And default on the sly is what our government must and will do because those debts are patently unpayable and start coming due in 2010.

Consider the following …

arrow Did you grab your profits?In the last year, the U.S. federal deficit has exploded 350% higher from $454.8 billion in fiscal 2008 to $1.6 TRILLION in fiscal 2009. Our total national debt: Now $12.1 trillion.

arrow Did you grab your profits?In the last year, our debts to foreign countries, chiefly Japan and China, have exploded to 3.5 TRILLION dollars, a 25% increase.

Meanwhile, our contingent national debt — the money our government owes its citizens by way of Social Security, Medicare, Medicaid, Veterans’ benefits, and government pensions — now stands at $106.5 TRILLION!

That’s not just some interesting figure for the Guinness Book of World Records. It’s real debts owed to the citizens of the United States of America, and Washington has hardly one penny to pay them.

All told, we now have …

arrow Did you grab your profits?The U.S. Federal deficit at $1.6 trillion

arrow Did you grab your profits?The officially recognized national debt at $12.1 trillion

arrow Did you grab your profits?$3.5 trillion owed to foreign investors

arrow Did you grab your profits?Unfunded national obligations of $106.5 trillion

arrow Did you grab your profits?  Another $9 trillion in cumulative deficits over the next 10 years

arrow Did you grab your profits?  At least another trillion dollars needed for health care reform!

Grand total: $133.7 TRILLION IN DEBT!

Even if the government could somehow pay off that debt at the rate of, say, $100 MILLION PER DAY, EVERY DAY STARTING RIGHT NOW, IT WOULD TAKE 3,663 YEARS BEFORE THE TOTAL GOVERNMENT DEBTS AND OBLIGATIONS ARE PAID OFF.

Even if Washington were to pay off $1 BILLION per day, it would still take about 366 years before they’re paid off.

Billions of dollars will be spent on 'green” technologies in 2010.
The U.S. government debt is patently unpayable, but there are ways to get around it.

Patently unpayable? You bet they are. Outright default likely? No, because our government does not have to default to pay those debts off. ALL THEY HAVE TO DO IS KEEP THE SHELL GAME GOING AND PRINT ENOUGH FIAT MONEY OVER TIME TO PAY OFF ITS CREDITORS.

And voila! There’s no debt default. But the creditors — you, me and everyone else who’s owed money — get screwed. We get paid back alright, BUT WITH DOLLARS WORTH A FRACTION OF WHAT THEY WERE WHEN THE DEBTS WERE INCURRED.

Doesn’t matter how you look at it, it’s a debt default on the sly, and it’s going to begin hitting in 2010. Moreover …

2. Our foreign creditors are already on to Washington’s shell game and shenanigans.

It’s one thing when you pull the wool over a few people’s eyes, like Bernie Madoff did. But it’s another when the entire world wakes up and realizes the Emperor has no clothes.

The comparison may sound harsh, but nevertheless, it’s accurate. While Madoff fleeced some of the richest of the rich in a giant Ponzi scheme, Washington is attempting to fleece almost the entire world.

It won’t work. Many of our creditors are too savvy to fall for Washington and our central bank’s shenanigans.

That’s why the Fed will be forced to continue printing money in 2010, and why it will not be able to exit its policies of supporting the U.S. economy and financial markets.

On the one hand, our foreign creditors know what’s going on. But they cannot stop lending us the money we need for fear of a global meltdown.

Instead, countries such as Japan and China will continue to help buy our debt.

On the other hand, they will actively seek refuge in assets that outperform anything denominated in dollars.

Suffice it to say that the above is why, in just the past 12 months, the U.S. dollar’s status as the world’s reserve currency has not only come into question, our largest creditors are actively seeking to replace it.

Which leads me to one other big force I think you should keep in mind for 2010 …

B. The Fed’s money-printing will benefit China more than it will benefit the U.S.

So China will defy the pundits yet again in 2010. First of all, and like it or not, China is still the manufacturer to the world. And that’s not going to change anytime soon.

Not when you have a billion people who are willing to work for 25 cents a day.

Secondly, China is soaking up most of the Fed’s money-printing, via purchasing large amounts of it through our bond markets.

Yes, that does mean that they do still recycle a good portion of it back into the U.S.

But it also means that China’s influence over us is growing almost daily …

That China is now receiving hundreds of billions in interest payments from us …

And that whatever liquidity China provides the U.S. actually ends up benefitting China and other countries more than it does us because of the "dollar-carry" trade. In other words, savvy investors of many sizes and shapes simply borrow cheap money here and invest it in China.

And there is no denying the financial strength now inherent in China’s economy …

arrow Did you grab your profits?Beijing now has $2.37 TRILLION in cash in its kitty

arrow Did you grab your profits?At least $585 billion being spent on infrastructure, with a good portion of the stimulus due to hit the economy in 2010

arrow Did you grab your profits?Retail sales still robust, growing at an annual rate of 15.3%

arrow Did you grab your profits?Disposable income still rising, up 9.8% in 2009

arrow Did you grab your profits?Fixed-asset investment growth up 32.1%

arrow Did you grab your profits?Property sales up 53%

arrow Did you grab your profits?Investment in real-estate development, up 17.8% through November

arrow Did you grab your profits?Auto sales up an incredible 76%, to more than 13 million vehicles produced AND sold in 2009

Beijing is committed to not letting anything derail the economy’s growth. And to the pundits out there who claim China will end up like the former Soviet Union and collapse in 2010, I say you’re going to be dead wrong, yet again!

China is nothing like the former Soviet Union. Unlike the Soviet Union, Beijing’s leaders are well aware that change is coming to their country, and they are well aware of the influence of long-term cycles.

So, unlike the Soviet Union, China’s leaders are "going with the flow" of the changes to their economy and civilization rather than fighting it.

It’s evident in all their policy decisions from privatizing property rights, to easing up on censorship, to cutting deals with Western companies to secure not only natural resources, but also intellectual resources and more.

But perhaps the biggest factor of all in China’s continued growth and outperformance in 2010 will be our own Federal Reserve: For all the money it will print, for all the debt it will issue, China will be the main beneficiary. Why and how?

Because what the Fed doesn’t realize is that its efforts are indirectly subsidizing not just the U.S. economy, but also that of our biggest creditor — China.

It means China will eventually soak up most of the newly minted dollars, recycling them into its own economy. No, that doesn’t mean China will stop purchasing our debt.

It doesn’t have to. The Chinese economy is generating enough GDP to buy our debt to stash it into its reserves and hedge those reserves by securing natural resources, thus overall liquefying its entire economy.

China is in a "heads I win, tails you lose" position. And not just with the U.S. but with virtually the entire world. So I expect China’s stock market to vastly outperform the U.S. markets yet again in 2010.

So keep the above two uncommon thoughts in mind over the next two weeks. Mull them over. Debate them. Feel free to challenge them or ask me questions on my blog at … http://blogs.uncommonwisdomdaily.com/real-wealth.

And for my full 2010 forecasts, be sure not to miss my December Real Wealth Report issue, which was published last Friday.

Best wishes,

Larry

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


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Comments

karolina lopez
05 Mar 10, 11:45
we debt chine

we should earn more money and pay some certian amount of money where we work like every month or week that is what i think


gerald williams
23 Jun 10, 21:09
copper and rare earths

Larry, you were the first to my knowledge to say that we will have a new monetary system for world trade, i.e., reserve currency. I have since read that China - other countries as well, but mainly China - wants initially a basket of strong currencies. But then for later: China wants a copper backed reserve currency. (Gold and silver are too scarce.) I know that you monitor copper prices as part of your economic outlook. China has rare earths and is stock piling copper. Do you think the ultimate reserve currency will be backed by a commodity? Thanks for your time, a Real Wealth Subscriber.


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