Budget Buster: Pentagon Unable to Account for Trillions in Spending

They Don't Even Know How Much US Government Debt "We" Owe

How Much US Government Debt Do We Owe?

The United States military budget accounts for over 40% of the world’s annual military expenditures and, at around $700 billion per year, more than 20% of the federal budget. The Federal government wants to curb that spending as part of deficit reduction.

Last week’s deficit deal calls for up to $350 billion in cuts over the next decade on the departments of Defense, State, Homeland Security and Veterans Affairs, among others. And, if the debt “super-committee” fails to reach a deal on $1.2 trillion in budget cuts, it will automatically trigger an additional $500 billion in cuts over the next decade.

Cutting in a bureaucracy as large and convoluted as the Pentagon is no easy task, but Stephen Glain author of State vs. Defense: The Battle to Define America’s Empire says there are three issues at the heart of their spending problem.

Growing obligations: Much like other public sector groups, the Pentagon has growing liabilities coming from pension and medical insurance plans. It’s “very much a microcosm” of the problems facing the country, says Glain. The Pentagon’s liability for civilian employees is currently $60 billion and the “rate of growth is enormous,” says Glain. The figure was $15 billion a decade ago.

Accounting Problems: You think Enron’s accounting was troubled? The Pentagon has very little accountability when it comes to its books. Since first submitting financial accounts in 1991, the Pentagon “has been unable to account for trillions of dollars, well over almost $10 trillion by my own account,” says Glain. Conspiracy theorists suggest this is CIA money being laundered through the Pentagon, a claim Glain has some sympathy for.

Ending the Wars: Ending operations in Iraq and Afghanistan will instantly save the defense department $180 billion per year. According to Joseph Stiglitz the wars have cost the government $3 trillion and counting.

Gold Prices Spike as Recession Worries Spread

NEW YORK — Gold prices soared again Wednesday, closing in on $1,700 an ounce, as worries that governments won’t be able to grow their way out of debt caused a rush into the safe haven asset.

Gold for December delivery rose $21.80 to settle at $1,666.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,675.90 and as low as $1,654.40 while the spot gold price was a bit less enthusiastic adding only $3.50, according to Kitco’s gold index.

Most Recent Quotes from www.kitco.com

Silver prices closed up $1.66 to $41.75 an ounce.

The US Dollar index was down 0.69% at $74.02 while the euro was up 0.75% vs. the dollar.

Paul Krugman Throws In Towel, Says We’re Headed For Another Depression

For the last several months, Princeton professor Paul Krugman has become increasingly agitated about what he feels is a disastrous mistake in the making — a sudden global obsession with “austerity” that will lead to spending cuts in many nations in Europe and, possibly, the United States.Krugman believes that this is exactly the same mistake we made in 1937, when the country was beginning to emerge from the Great Depression. A sudden focus on austerity in 1937, it is widely believed, halted four years of strong growth and plunged the country back into recession, sending the unemployment rate soaring again.In Krugman’s view, the world should keep spending now, to offset the pain of the recession and high unemployment–and then start cutting back as soon as the economy is robustly healthy again.Those concerned about the world’s massive debt and deficits, however, have seized control of the public debate, and are scaring the world’s governments into cutting back.Which fate is worse? It depends on your time frame.Cutting back on spending now would almost certainly make the economy worse, at least for the short run. Not cutting back on spending later, meanwhile (and Congress has shown no ability to curtail spending), will almost certainly keep us on a road to hell in a handbasket.The White House’s own budget projections show the deficit improving as a percent of GDP to about -4% by 2013. After that, however, even the White House doesn’t think things will get much better. After a few years of bumping along at about -4%, the deficit will begin to soar at the end of the decade. And thanks to the ballooning costs of Medicare, Medicaid, and Social Security–along with inflating interest payments from all the debt we’re accumulating–the White House expects the deficit to soar to a staggering -62% of GDP by 2085.What Krugman and his foes agree on is that that’s no way to run a country. And it’s time we finally faced up to that.In the meantime, we’ll continue to fight about what to do in the near-term. And Krugman thinks he has lost that war and we’re headed for another Depression.

Vodpod videos no longer available.

Robert Prechter Says, “We Are On Schedule for a Very, Very Long Bear Market.”

MoneyBob NEW YORK (AP) — The Dow Jones industrials plunged below 10,000 Tuesday after traders dumped stocks on worries about the global economy and tensions between North and South Korea. The Dow fell about 190 points in late morning trading. It has fallen 1,346 points, or more than 12 percent, from its recent high of 11,205, reached April 26. The Dow and broader stock indexes all fell about 2 percent. Investors also exited the euro and commodities including oil and again sought safety in Treasury securities. Look out below!

Vodpod videos no longer available.

Inflation or deflation – or Both? Mish vs. Dr. Doom

Which is the greater threat, inflation or deflation?In Marc Faber and Michael “Mish” Shedlock, we found two market watchers ready (and able) to champion both sides of this great debate.Shedlock, an investment advisor with SitkaPacific Capital and author of the economics blog, MISH’S Global Economic Trend Analysis, made the case for deflation: Credit is contracting, despite Ben Bernanke’s best efforts to flood the financial system with liquidity.”The money supply is just sitting there as excess reserves on bank balance sheets,” Mish says. “Bernanke can print this money but unless it makes its way into the real economy we’re not going to see inflation.”In addition, he predicts “another leg down” in housing and commercial real estate, more consumer loan defaults, and notes state and local governments are (finally) cutting back on spending in the face of falling tax receipts and budget deficits. All these trends will contribute to the deflationary force of credit contraction, Mish declares.But Shedlock is missing one critical factor says Faber, publisher of the Gloom, Boom and Doom Report: “When the economy’s bad, governments pile up these fiscal deficits and they print money” to offset the deleveraging of the private sector, he says. “They’re going to print and print and print.”If the economy sours again and especially if deflationary forces take hold, we’ll have “even more stimulus packages and even more printing,” Faber says. “That will bankrupt western governments – not just in the U.S. but everywhere. “And by that, he means the dollar and other western currencies will collapse, leading to a bout of rising (if not hyper-) inflation around the globe, which will spur all manner of societal unrest and geopolitical strife. Now you know why they call him “Dr. Doom.”

Vodpod videos no longer available.

7 Good Reasons Why The Dollar Will Fall and Gold Rise

It’s time to provide some fundamental reasons as to why the dollar is in trouble long term and why the precious metals sector and the commodities sector stands to benefit from these dollar woes.

  1. The US has a massive current account deficit and it only seems to be getting bigger. Economists may play with the numbers by stating that one month is less than the other and so forth, but the trend is up. It now comes close to 6% of our total economic activity.
  2. The US needs to attract a whopping 1.8 billion dollars a day to compensate for the current account gap. This trend is simply unsustainable.
  3. While Government officials talk big about a strong dollar policy, they actually favour a weak dollar. This serves two purposes, it helps increase exports and it allows the government to pay its debt with lower valued dollars. As long as the Government continues to borrow at these mind boggling rates, it is going to unofficially favour a weak dollar.
  4. By inflating the money supply, the government is imposing a nefarious silent killer tax on the masses. The only way to hedge against this outright theft is to hedge yourself by getting into hard assets (precious metals, lumber, oil, etc).
  5. Our national debt is 12.4 trillion and increasing. However, this does not take into consideration all our unfunded liabilities such as Social Security and Medicare. If these are combined, the debt levels soar to well unimaginable levels.
  6. 44 states are facing budget shortfalls. California is leading the way as it is expected to spend 50% more than it will generate this year. Now that is a really scary thought. Since 2007 US states have collectively spent 300 billion more than they have generated. These deficits mean higher taxes and so far 33 states have raised taxes, but collections have plummeted to their worst levels in 46 years; you cannot squeeze water out of a rock. No jobs means no revenues but states are selling new bonds at record rates to raise funds. It’s a recipe for long term disaster.
  7. Eventually the Fed is going to have to raise rates to continue attracting the huge amounts of money it needs to function. Overseas investors are going to start demanding higher rates. Higher rates will kill this fragile economy. Precious metals thrive in a high interest rate environment. From a long term perspective the bull market in precious metals has only just begun.
About the author: Sol Palha

Gold

Gold

Closing Price for London AM Fix: 2000-2009
Date Gold AM Closing Price
29-Dec-00 $272.65
31-Dec-01 $276.50
31-Dec-02 $342.75
31-Dec-03 $417.25
30-Dec-04 $435.15
30-Dec-05 $513.00
29-Dec-06 $635.70
31-Dec-07 $836.50
31-Dec-08 $865.00
31-Dec-09 $1,104.00