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.

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

Wave of Debt Payments Facing U.S. Government

NY Times

WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.

But that happy situation, aided by ultralow interest rates, may not last much longer.

Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. Continue reading

Jim Rogers Says, Gold Will Hit $2,000 and USA Will Lose Status As The World’s Reserve Currency

Good Time To Buy Gold

Good Time To Buy Gold

Famed investor Jim Rogers is “quite sure gold will go over $2000 per ounce during this bull market.”Rogers’ confidence gold will continue to rally stems from a view the U.S. dollar is on its way to losing status as the world’s reserve currency.”Is it going to happen? Yes,” Rogers says. “I don’t like saying it [and] I’m extremely worried about it but we have to deal with the facts. America is not getting better [and] the dollar is going to be replaced just like pound sterling [was].”Rogers didn’t offer a timetable, and it’s likely gold would exceed $2000 per ounce if the dollar were to lose its reserve status.Still, “I wouldn’t buy gold today,” Rogers says. “I think I’ll make more money in other commodities, which are cheaper,” as discussed in more detail here.Among many others, Rogers is “worried about the fact the U.S. government is printing huge amounts, spending gigantic amounts of money it doesn’t have,” the investor and author says. “People are very worried [and] skeptical about paper money [and] looking for places to protect themselves. The best way is to buy real assets. [That] has always protected one during currency turmoil, and it will again.”

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Jim Rogers Says, Commodities Cycle Won’t Be Over for Years and Food Crisis Looms

Jim Rogers, famed investor and best-selling author, announced the start of a global commodities rally in 1999. It turned out to be a heck of call: Since then, commodities have dramatically outperformed stocks. Just this year, gold has hit record highs above $1000 per ounce, copper has nearly doubled and oil has rallied sharply off its March lows. So does Robers still believe in the commodity boom?You bet. “The story is not over, not for a while,” he tells Tech Ticker in this video clip. “I don’t see any reason it’s going to be over for a few years because no one is bringing new supply on stream.”The chairman of Rogers Holdings still owns gold though it’s not his favorite metal. “Gold is mystical to many people. I think I’ll make money in other commodities that are more useful.”Rogers is far more bullish on agricultural commodities. As he sees it, “most agricultural products are still depressed on a historic basis.”The lack of supply Rogers sees is especially concerning when it comes to agricultural products. “A catastrophe is looming,” he says. “The world is going to have a period when we cannot get food at any price in some parts of the world.”A potential food crisis transcends money, but Rogers warning may still prove to be another great investment lesson. As he told us in parting, “instead of getting an MBA, get yourself a farming degree. You’ll make a lot more money.”

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Gold Even At 1055 Still A Lousy Investment

The gold bugs are finally enjoying their moment in the sun. After 20 horrible years, in which gold dropped from $800 to $250 an ounce, the sometimes-precious metal is now roaring to all-time highs.Some folks, moreover, think this is only the beginning. Peter Schiff recently told Tech Ticker gold is headed to $5,000 an ounce.But that doesn’t mean it’s a great investment!In fact, says our guest Jon Najarian of OptionMonster, even with the run over the past five years, gold is still trading at about half it’s all-time peak after adjusting for inflation. Given that gold is supposed to protect you from inflation, this performance is abysmal.What’s more, gold has actually performed poorly this year relative to other more-boring metals–like copper and silver.Why?In part because those metals are actually used for something. China’s building houses again, which means they’re scarfing up all the copper in the world. But one thing is for certain: The higher gold prices go, the more people will be convinced it is a great investment. And the more people will fight each other out of the way to put it in their portfolios.

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Peter Schiff – U.S. Rally Is Doomed Gold Will Hit 5000

Unlike the “legitimate bull markets” of many foreign markets, Peter Schiff believes the U.S. is merely experiencing a “rally in a bear market,” and is lagging the rest of the world “for a reason.”The worst is not over, according to Euro Pacific Capital’s Schiff, who predicts the Dow will fall another 90% from current levels when measured against gold.A longtime dollar bear and gold bull, he foresees gold hitting $5000 per ounce “in the next couple of years,” and predicts the Dow and gold will trade on a one-to-one ratio vs. the current level of around 9.7-to-1.Schiff believes gold is currently “climbing a wall of worry” but will eventually become as hot as tech stocks in 1999 and start moving up $100 per day.Schiff’s forecast is based on his view the U.S. dollar is going to collapse under the weight of our massive deficit and reckless policies of the Obama administration, which he compares to the massive spending programs of the 1960s, which paved the way for gold’s ascent in the 1970s. “Obama is making the same mistakes as Bush, but he’s doing them on a grander scale,” says Schiff, who is running for U.S. Senate in Connecticut as a Republican.In addition to gold, Schiff remains bullish on Asia, most notably China. His firm recently launched the Euro Pacific Halter China fund, and Schiff believes “there’s a lot of value” in China and thinks the renminbi could “double or triple” when it’s depegged from the dollar.That will make Chinese assets more valuable when measured in dollars, he says.Schiff presciently called the bursting of the debt bubble and subsequent rout in financial assets, and his current forecasts may very well come to fruition. But Schiff’s confidence that the rest of the world (notably Asia) will prosper as the dollar loses its reserve status and America’s economy collapses seems dubious, at best.Then again, Schiff is nothing if not (supremely) confident.

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Peter Schiff says, The Economy Is Getting Worse Not Better

The Fed upgraded its view of the economy Wednesday, declaring: “Economic activity has picked up following its severe downturn.”But forget all the talk about recovery, V-shaped or otherwise. The economy is actually worse today vs. during the depths of the recession, according to Peter Schiff, president of Euro Pacific Capital and author of Crash Proof 2.0.”Ben Bernanke is keeping his record of perfection intact of never getting anything right. Once again he’s gotten it wrong,” Schiff says. “If the Fed really thought the economy was sound, why does he have it on life support? If he pulls the plug, our sick economy is going to die.”Although the Fed never said the economy is “sound”, Schiff is referring to the FOMC’s renewed pledge that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”Nothing that’s occurred in the past six months has changed Schiff’s view that America’s economy is headed for disaster. In fact, he’s even more convinced a true “currency crisis” awaits, and that China will soon stop enabling our reckless borrowing, the basis our “phony” economy. The coming collapse of the dollar and bursting of the Treasury bubble will have devastating consequences for ordinary Americans, and any investors based in dollars, he says.The economy today is “worse [because] we are much more deeply indebted than in March,” Schiff declares. “We’ve dug ourselves a deeper hole.”

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