The Hangover That Follows Borrowing like Drunken Sailors
The United States is facing a financial debt crisis of epic portions. I want all my readers to know how significant this crisis is and how it will impact them financially.
A government is supposed to operate like a business, with a budget to follow, where revenue (taxes) is to cover expenses (government spending) and hopefully there will be something left over (a surplus). But, unlike a business that has to either get capital from shareholders or borrow money, the government has an added advantage of basically being able to print money when it needs it.
The United States as we know it is bankrupt. It has been bankrupt for
years.
Many state governments are bankrupt as well. In essence, we are not living on borrowed money alone; we are living on borrowed time. It's like a long-term hangover (from spending, not drinking) that never goes away.
Years of government mismanagement have gotten the country to the point where its citizens are being negatively impacted. About 30 million Americans are getting food stamps. One in five American children is living below the poverty line. Millions of Americans are unemployed. Many college and university students are graduating without the hope of getting a job. The oil crisis in the Gulf of Mexico is having an additional negative financial impact on America.
Our government's answer to the financial crisis was -- instead of helping the small businesses that employ 60% to 70% of Americas -- to make government bigger. The U.S. government is the country's biggest employer. The way I see it, the government now has an interest (direct or indirect) in the insurance and automotive businesses, in the banking and mortgage businesses, in the health-care business. And it continues to be in the war business big-time.
Millions of Americans are employed by the government. My question is: what happens when our government can no longer pay these employees? What happens when it can no longer print the money?
There is no coincidence about the price of gold having risen fourfold since 2003. The market is giving us a message very clearly, and this is what I believe that message is: The viability of the U.S. currency is of great concern. I would not be surprised to see a devaluation of the U.S. dollar against other world currencies in my lifetime, simply because we have accumulated too much debt to have our dollar maintain its status as the reserve currency of the world.
I want all my readers to think about how their investments, their assets and their debts would be affected if the value of the U.S. dollar plummets against other world currencies. Remember, currency devaluation often results in sharp inflation, and maybe that is something else the rising price of gold has been telling us.
Michael's Personal Notes:
Poor Arnold Schwarzenegger. You have to wonder if he should have stuck to making movies in California as opposed to getting into politics.
The recession has placed the State of California into near bankruptcy. Despite drastic spending cuts, California will face a $19.0-billion deficit this year and a whopping $37.0-billion deficit next year.
Cries are coming from state officials for a federal bailout. The argument goes: if the U.S. government bailed out AIG, General Motors, Fannie Mae, Freddie Mac and gave countless loans to "too big to fail" banks, why should California be declined money? After all, if California went bankrupt, there would be tremors throughout the U.S. economy.
Unfortunately, 48 states face budget shortfalls this year. If the U.S. government helps out California, 47 other states will say, "Why did you leave me out?" The financial crisis as we know it is far from
over. The part two of the double-dip recession that I have often written about is not that far off.
Where the Market Stands:
The Dow Jones Industrial Average starts this morning slightly positive for 2010. As I write this issue, most American stock index futures are pointing to a strong positive opening this morning. China announced yesterday that it would relax its fixing of the yuan to the dollar. This news sent most major world stock markets rallying this morning.
My opinion about the stock market remains unchanged: the market rally in stocks that began March 2009 remains intact.
What He Said:
"As investors, we need to take a serious look at our investment portfolios and ask, 'How will my investments be affected by an American grown recession?' You should take what precautionary steps you can right now to protect yourself from a recession in 2007. Maybe you need to cut your own spending or maybe you need to sell some stocks that will take a beating during a recession. You know what tidying up you need to do. Don't procrastinate...get to it now. And please remember: recessions can happen quickly, stock markets don't go up during recessions, and the longer the boom before the recession, the longer the recession. Just based on my last point, we have plenty to worry about in 2007." Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.
A government is supposed to operate like a business, with a budget to follow, where revenue (taxes) is to cover expenses (government spending) and hopefully there will be something left over (a surplus). But, unlike a business that has to either get capital from shareholders or borrow money, the government has an added advantage of basically being able to print money when it needs it.
The United States as we know it is bankrupt. It has been bankrupt for
years.
Many state governments are bankrupt as well. In essence, we are not living on borrowed money alone; we are living on borrowed time. It's like a long-term hangover (from spending, not drinking) that never goes away.
Years of government mismanagement have gotten the country to the point where its citizens are being negatively impacted. About 30 million Americans are getting food stamps. One in five American children is living below the poverty line. Millions of Americans are unemployed. Many college and university students are graduating without the hope of getting a job. The oil crisis in the Gulf of Mexico is having an additional negative financial impact on America.
Our government's answer to the financial crisis was -- instead of helping the small businesses that employ 60% to 70% of Americas -- to make government bigger. The U.S. government is the country's biggest employer. The way I see it, the government now has an interest (direct or indirect) in the insurance and automotive businesses, in the banking and mortgage businesses, in the health-care business. And it continues to be in the war business big-time.
Millions of Americans are employed by the government. My question is: what happens when our government can no longer pay these employees? What happens when it can no longer print the money?
There is no coincidence about the price of gold having risen fourfold since 2003. The market is giving us a message very clearly, and this is what I believe that message is: The viability of the U.S. currency is of great concern. I would not be surprised to see a devaluation of the U.S. dollar against other world currencies in my lifetime, simply because we have accumulated too much debt to have our dollar maintain its status as the reserve currency of the world.
I want all my readers to think about how their investments, their assets and their debts would be affected if the value of the U.S. dollar plummets against other world currencies. Remember, currency devaluation often results in sharp inflation, and maybe that is something else the rising price of gold has been telling us.
Michael's Personal Notes:
Poor Arnold Schwarzenegger. You have to wonder if he should have stuck to making movies in California as opposed to getting into politics.
The recession has placed the State of California into near bankruptcy. Despite drastic spending cuts, California will face a $19.0-billion deficit this year and a whopping $37.0-billion deficit next year.
Cries are coming from state officials for a federal bailout. The argument goes: if the U.S. government bailed out AIG, General Motors, Fannie Mae, Freddie Mac and gave countless loans to "too big to fail" banks, why should California be declined money? After all, if California went bankrupt, there would be tremors throughout the U.S. economy.
Unfortunately, 48 states face budget shortfalls this year. If the U.S. government helps out California, 47 other states will say, "Why did you leave me out?" The financial crisis as we know it is far from
over. The part two of the double-dip recession that I have often written about is not that far off.
Where the Market Stands:
The Dow Jones Industrial Average starts this morning slightly positive for 2010. As I write this issue, most American stock index futures are pointing to a strong positive opening this morning. China announced yesterday that it would relax its fixing of the yuan to the dollar. This news sent most major world stock markets rallying this morning.
My opinion about the stock market remains unchanged: the market rally in stocks that began March 2009 remains intact.
What He Said:
"As investors, we need to take a serious look at our investment portfolios and ask, 'How will my investments be affected by an American grown recession?' You should take what precautionary steps you can right now to protect yourself from a recession in 2007. Maybe you need to cut your own spending or maybe you need to sell some stocks that will take a beating during a recession. You know what tidying up you need to do. Don't procrastinate...get to it now. And please remember: recessions can happen quickly, stock markets don't go up during recessions, and the longer the boom before the recession, the longer the recession. Just based on my last point, we have plenty to worry about in 2007." Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.
