bernie madoff

In an unusual twist from the US’s largest creditor China is demanding the release of Bernie Madoff and want him appointed either as Federal Reserve Chairman or Treasury Secretary immediately. The Chinese demand this to be done because it is becoming increasingly concerned that the current US government is unaware on how to properly run a Ponzi Scheme properly. It seems Beijing is perplexed on how US administration officials and the US media does not seem to understand the difference between annual budget deficits, which is the annual funding gap, versus the reduction of total national debt.

Obviously I am kidding, but there is a chance that the Chinese or other foreign creditors might actually feel this way. Considering the administration started talking about debt reduction and fiscal restraint only to come out with a spending freeze, after they increased those same budgets the year before essentially locking in the budget increases, which will only reduce the annual budget deficit by $250B over 10 years. Notice I said annual budget deficit? That means we are still bleeding red as far as the eye can see and we are doing nothing to reduce the national debt problem we have, which is the largest the world has ever seen, throughout history.

While the administration is at least acknowledging the problem and doing more than Bush ever did they are still doing what politicians do, playing with the words. When regular people hear budget deficit reduction many think this is great, we are paying off our national debt! Wrong. What our wonderful leaders are doing is telling us that they are still going to have to borrow hundreds of billions or trillions a year, but they are reducing the amount of their shortfall on an annual basis. Basically, it means nothing because we are still spending way more than we have. The biggest expenditure that we have is on entitlement programs which everyone admits we cannot cut, but Obama did reduce funding to elderly and disabled housing subsidies which may actually give some credence to the “death panel” argument during the health care debate. I mean if you’re willing to throw grandma out of her home or nursing home than why not have death panels, I am just saying now.

Regardless, what we know is that there is no way any politician will do what is necessary to cut the annual deficit down for real, which means higher entitlement taxes, longer waiting periods for benefits or reduced benefits in general. Instead they will merely grandstand against each other while they slowly, or not so slowly is some projections are correct, destroy the entire country. I do not mean this to be partisan, most know I blame both parties for this mess and pray for a real third party to create some competition in politics, come on 2 parties is not a democracy it is a choice between dumb and dumber. Well, technically we actually live in a Republic anyhow so this basically shows us how limited our politicians are in their actually knowledge when they claim we have the greatest democracy in the world.

The bottom line is that we are adding to the national debt everyday and there is no way to stop it without serious action. The action I speak of will never be taken, not yet at least, but eventually they will happen, if we make it that far. The numbers are simply staggering when you think about it, $14T debt ceiling, $107T in unfunded liabilities and the numbers just get bigger and bigger. The entire US mutual fund industry is $15T so the government could confiscate every mutual fund asset in the US and we would barely payoff our debt, think about that for a minute. In a couple of years that $14T will be much bigger and a large reason that the debt ceiling will have to continually be increased, before the repeal the debt ceiling language that is, is to pay the interest on our debt. The crazy thing is we actually have to borrow money to pay the interest on our debt, talk about insolvency?

To steal a line from Dick and Jane; “Dick, I think were in a bit of a pickle” is completely appropriate right now. We are in the midst of the greatest debt bubble ever created and I have no idea how it will end, but I do know it will end and it will more than likely be very ugly. On an interesting, slightly off-topic, have you noticed the public-private lending facilities being set up with the TARP proceeds? I predicted that would happen a few months ago, I just wanted to say I told you so. Anyhow, there have been lots of interesting happenings lately in politics which I will be writing about very soon. I was incredibly sick for the past 5 days so I apologize for not humoring you with my tasteless jokes, or whatever you call them. In the meantime I am still very bearish, expecting unemployment to be particularly ugly and GDP, well we knew it would be huge, but 5.7%? Expect revisions down to 3%, but if you believe the 5.7% please contact me about fabulous leasing opportunities in Pakistan.

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