A budget has been passed in the House of Representatives by the Republicans that cut $5.3 trillion over the next 10 years. Can it pass the Senate where the Democrats are in control? Probably not, and that means we are back to the fight of spending reductions by Republicans and tax increases by the Democrats. It’s election year politics at its finest. The budget proposed by President Obama was unanimously defeated in the House. The Supreme Court heard the case of Obama Care this week. It will not be decided until summer, but conservative judges picked apart the individual mandate where Americans who do not purchase healthcare insurance are taxed or fined for not doing it. The Wall Street Journal is reporting the Federal Reserve bought a whopping 61% of our nation’s debt last year.
I was a guest on the nationwide radio show Coast to Coast Am last week, and a listener commented that, at one point, “it sounded like” I said “death-ficits” when talking about the European debt crisis. The commenter chalked it up to a possible “Freudian slip?” Maybe it was, but it is certainly a good way to describe what is going on today in Europe and in the U.S. as well. Just about every financial problem the world is facing right now has something to do with too much debt. It seems everyone is running huge budget deficits. There is too much mortgage debt, too much local debt, too much state debt and too much national debt in just about every country on the planet. The debt is so large in many countries in Europe a sovereign default in just one of them could cause another financial meltdown, bigger than what the world experienced in 2008.
The “death-ficits” term sums up the dire situation pretty well, and I think renowned economist Martin Armstrong would agree. In a post last week, Armstrong said, “The Eurozone is severely destabilizing the global debt situation as Italy is now the world’s third largest bond issuer and one of the original six founders of the modern European project that created the Euro. . . . in the end game, the bankers exist based upon the confidence of the people in their sound management of their deposits. Bankers are finding it increasingly difficult to maintain that CONFIDENCE after the Greek haircut and now Italy is the THIRD LARGEST debt in the world that is TOO BIG to be bailed out even at a 50% off sale.” Armstrong is predicting money will leave European banks and the Eurozone. I don’t see any way the world can avoid another crash and credit freeze. I hope I am wrong.
But, not everyone sees the dark clouds I see. In a Wall Street Journal poll last week, most economists were downright optimistic. The WSJ story said, “The 52 economists surveyed in November . . . put 1-in-4 odds that the U.S. will experience a recession in the next 12 months, down from a 1-in-3 chance they were seeing just two months ago, when concerns were at their highest level since the recent recession ended in June 2009. The economy has shown resilience since the summer, with numbers on consumer spending. . .”