The Most Dangerous Man in the World

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When it comes to spending or saving, it's always a contentious debate.

But the risks are rarely as high as they are now for the U.S. and most major industrial nations. Such fundamental economic decisions will move a country forward (or backward) for decades, not months, and can't be undone quickly.

So let's choose the "winner" and "loser" of this debate carefully.

Yahoo's Daily Ticker host Henry Blodget pronounced last week that Nobel Prize winning economist Dr. Paul Krugman "won" the vicious argument fought between those who want to increase government spending as a means of rebuilding our economy, and those who want to cut spending and reduce deficits as a means of restoring confidence (and rebuilding our economy).

Really?

The United States has gone from being the world's biggest creditor to the biggest debtor nation in human history. The net present value of our current obligations – money we already owe ourselves – is $222 trillion, and that's up $11 trillion last year alone. Total public debt outstanding is nearly $17 trillion. Our nation has spent trillions more than it's made for years.

We've spent so much money at this point that we cannot pay it back…ever. The United States is permanently indebted to our trading partners both literally and figuratively. Not only do they own broad swathes of our debt, but their growth puts yet more downward pressure on our employment and wages.

Private investment is down and companies from the smallest to the very largest are hoarding capital because they fear the negative correlation between rising government debt and business cycles.

Income is being stripped from the American public and being diverted to corporations. According to The New York Times, the share of national income going to corporations is the highest in 63 years, while the share going to individuals is the lowest in 50 years.

paul krugman

Meanwhile, top line growth is slowing and bottom line expectations are being lowered still further to laughable levels almost without exception.

Millions of Americans are still treading water as prices rise faster than their income. I see graphic differences in the costs of everything from medicine to insurance to entertainment, especially when I've been out of the U.S. for a while and return. Inflation is not the benign influence the Fed maintains.

Low Interest Rates = High Risk Behavior

The Fed's artificially low interest rate policies have diverted money into higher risk assets that have, in turn, pushed the stock markets to new all-time highs.

Employment is now firmly below 8%, but so many people have given up looking for work that the statistics are hopelessly cooked. When you add the disenfranchised and underemployed back into the numbers, the true state of the union is between 14-17% unemployment.

This isn't limited to the United States, either.

Join the conversation. Click here to jump to comments…

About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. Tim Kyle | April 30, 2013

    Excellent article. How anyone can say that piling on more debt can be good really has lost the plot, especially when there is no possibility of the debt ever being paid back. This is all going to get very messy indeed.

  2. Edward | April 30, 2013

    Did you read the comments after the 2 yahoos where done with their assessment?

  3. Will Harden | April 30, 2013

    Churchill said that the idea that a nation to tax its way into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

  4. Will Harden | April 30, 2013

    We need a President like Teddy Roseveldt in 1900 who was the first trust-buster. We need one that will come on like Churchill in 1940 when the UK faced Hitler when he said,"I have nothing to offer you but blood, toil tears and sweat." Our present debt crisis, is more dangerous in that it can be temporarily swept under the rug to a worse result later. Prehaps we need a clone of Maggie Thatcher.

    • DD | April 30, 2013

      Churchill sold the British Empire out to the USA. He also lied to the people to save his political career and he is a known liar and drunk.

      Churchill is NOT a hero to many, but a traitor to England instead and we certainly DO NOT need a clone of Maggie Thatcher who was sucking Reagan's you know what!

      Most wars are to the benefit of the wealthy elite for they profit at the people’s expense.
      Suggested reading: The Creature from Jekyll Island by G. Edward Griffin.

    • George Jeffers | April 30, 2013

      This will all end badly with the country deeply divided. When one pulls future earnings forward, he sets himself up for austerity in the future. That requires either budget cuts or inflation. Either option is austerity. All we can do is take care of ourselves.

      • Char | May 12, 2013

        I agree this will end badly but many Americans have yet to see bad times they buy things that they do not need many will be crying when its over and total collapse happens. Much greed in America in fact in France too I read 82.00 for 4 ice cream cones . I am not a fan of capitalism it just does not work when prices inflate people want more money its wrong . Example a friend car broke down 750.00 to get it fixed labor was over 100.00 it just goes on and on. Wake me up when this is over ! . There is no way to pay 17 trillion t back ever fantasy world for many Americans.

        • Char | May 13, 2013

          I wanted to make a correction to my response above it should read labor for car repair was 100.00 a hour part was 75.00 do you see what I mean? It seems that auto labor is out of hand the mechanic picks his price and people follow by the nose so sad.

    • Stefan | May 4, 2013

      Don't worry, you might get a Hillary Clinton or a Paul Ryan, each working for the same bosses from different, seemingly oppositional quadrants… They've got all their bases covered to ensure the implementation of NWO!

  5. Roger Dapson | April 30, 2013

    I appreciate your ability to place current events in historical perspective. Obviously, you are the exception rather than the rule. Socialism's objective is to destroy the successful model.

  6. Brad Ellis | April 30, 2013

    Keith,

    Not till the middle did you finally note that Krugman is right, as you note, for now. Are you aware he has said that same thing? Austerity later, but not right now.

    Note also that I am old enough to remember when Clinton balanced the budget, right after many many folks said our budget could never be balanced. Unfortunately, most positions would be right at some points in time but not other times.

    And we apparently based this austerity desire on Rogoff's work which we now know omitted some important data points. Let's see, Carter left a deficit of about 35B in his last year and Reagan's was about 10 times as much.

    I know you live in Japan. I spent easily 3 years there cumulatively from 1970-1983 and even was on he board of a firm there, long before Boone Pickens. Some parallels to the US, but not that many. I also lived in Australia, one area Rogoff's study conveniently left out.

    Things are never as good-or as bad-as they seem.

    Brad

  7. IrateNate | April 30, 2013

    "Unemployment is now firmly below 8%."

    OK, now tell me another bedtime story…

  8. Edouard d'Orange | April 30, 2013

    Thanks, Mr. FitzGerald, exactly my thinking with our current situation. Nice reference to Cicero.

  9. Patrick Hickey | April 30, 2013

    Dear Mr. Fitz-Gerald,
    Though I enjoy your commentary very much, you make sure you put the onus on those of us who are weakest and most vulnerable. You never mention making major cuts in the military, because the advantaged class investors prefer to scapegoat the elderly, preferring to see us ending up without adequate resources to provide sufficient food and shelter.
    The real failure is with the choke-hold embrace of corporate/governance. Remember, those of us on Social Security dutifully and without choice paid into the fund during our working lives. Meanwhile, the real Wall Street culprits, among others have been bailed out and gotten away for it scot-free!
    Your insights are valuable, but you do not step out of the box because you sense that most of your readers probably wouldn't like to hear other powerful perspectives. For instance, what passes for food is actually manufactured, chemically adulterated, as well as salt, sugar, and refined carbohydrate laden.
    This diet is already accurately referred to as the S.A.D. (Standard American Diet), and, though it may sustain longevity, those "golden years" will be years of expensive suffering from chronic, degenerative diseases such as heart-disease, cancer, dementia, etc. No doubt the corporate/medical/pharmaceutic industry loves this transfer of wealth via Medicare/Medicaid.
    Right now I'm 71, and I eat what is known as the "Paleo" diet. Along with that I exercise by riding my mountain bike or, living in Sedona, Az, I also climb the "little red mountains" surrounding town.
    For me, the greatest wealth is my health which is so good that I have no need to even visit a doctor, though I'm glad to have Medicare in case a bus runs over my toe, or something. The other factor of wealth has to do with really enjoying how I spend my time, which doesn't require driving an expensive Italian sports car, or living in a hilltop mansion. In fact I love living in Sedona so much that I can do without the lavish Tahitian cruses.
    I'd like to see corporate welfare cut way down, like hitting the wasteful and mostly unnecessary pharmaceutical "industries", or subsidies to big agriculture, and so on.
    I agree with you that a crash is inevitable in this corporate/government. Excessive greed is really a symptom of mental instability, like that of a demented five-year-old. When it does fall, people like me, who already know how to build egalitarian and collaborative relationships will prepared — like good boy or girl scouts!

    • Melia Sese | April 30, 2013

      Aside from your diet advice (part of which I may actually follow), you are correct in your assessment of Mr Fitz-Gerald and the neo-liberal macroeconomic prescriptions he makes. People like this do not understand how the system actually works and are always at loss to explain why things never turn out like they expect. We heard this same nonsense in the 1980s when deficits were being run up then and they still probably don't know why the sky didn't fall in then.

      The reason is the same that it won't happen now – a sovereign currency-issuing government can never be insolvent in its own currency. These people love to harp on how much "purchasing power" has been lost but fail to mention how much higher wages are today, compared with any year from the past they want to use: 1920, 1950, 1980, etc.

      Why don't they understand that we don't live under a gold standard or fixed exchange (e.g. Bretton Woods) system any more? Another thing they fail to explain is why Japan has a debt-to-GDP ratio of around 200% but a lower unemployment rate than ours, and yet, despite all this "borrowing" their 10-year bond rate is also lower than ours. Yet all of this can be understood with the principles of MMT that describe the basic framework of a fiat monetary system – which nearly all major economies operate under. Is it pure igonorance or willful blindness, or something else: a blind devotion to maintaining the current system that rewards the corporations and those who hold most of their assets – assets that only exist due to government deficits.

    • donald larson | May 1, 2013

      Patrick,

      Couldn't agree more with your comments. The Creators of the Corporate Welfare State were Richard Nixon, Ronald Reagan; and Bushes I & II. The Rich Corporates have been picking the Carcass of the American Eagle clean for over 40 years. Greenspan and, "Bernie," have been major contributors with their in their efforts at CONTROLLING, or MANAGING the Economy by suppressing Interest Rates, and Printing Billions – – if not Trillions – – of Dollars. So much for Free Market Capitalism today. There is NOT a kernel of Truth in the Assumption.

      Consider: the $100 Billion in Corporate Welfare Subsidies, yearly; tax advantages and loopholes have further enhanced the Privileged Class; not to mention the Bush Tax Cut for the Rich back in 2002-03. TARP was the ultimate Socialistic Corporate Raid on the Treasury. The GOP hasn't supported a tax increase in 25 years; yet, they started three Wars; and, haven't paid for a one of them!

      Here's a novel idea: "Let's continue stealing from the Poor and the Middle Class; in an attempt to right the wrongs; of the Nation's Financial Problems." Millionaires and Billionaires are collecting Social Security; even though they espouse their hatred of the System; 70% of Agriculture Subsidies go to Rich, "City," Farmers."

      Closing comment: How did the wealthiest and leading creditor Nation; become the poorest and leading Debtor Nation – – all within a period of 35 years? If the Poor are always going to be with us (and, their numbers are growing); and, the Middle Class has been hollowed out, in part by off-shoring 20 Million Jobs during the past 35 years; and, having suffed through the pangs of four Major Recessions under the GOP (1987, 1991, 2001, and 2008); resulting in the loss of millions of additional jobs; and, by any Standard, the U.S. Government is Broke! after having the Treasury Raided by Rich Corporate Types with immense power; the QUESTION OF THE DAY IS: WHERE IS THE MONEY? WHO HAS THE MONEY? IT SIMPLY IS NOT ROCKET SCIENCE ANY MORE! It is pure Greed, and Crony Capitalism; enhanced by propaganda, manipulation, and carefully crafted lies. Witness then, the Rise of a Corporate Oligarchy; whose founders and, "perps" have taken their Model on the International Road – – especially to Western Europe.

  10. Joe Severa | April 30, 2013

    Dr. Paul Krugman is a born socialist loser, as smart as he thinks he is, that's how dumb I find him & his fans who don't know any better.

    Henry Blodget is a failed stock analyst who lost face years ago, but his progressive buddies can't live w/o him, tsk-tsk!

    NEXT!

  11. Former Tank Company Commander | April 30, 2013

    The Fed has hinted that they may raise interest rates sometime late next year or early 2015. It will be quite interesting to see what happens then. Additionally, the administration has tried twice and failed but again this year is trying to remove the tax exempt status for municipal bonds. Combine this with the damage already done by the excessive regulations, taxes, etc. and the danger may overwhelm what little is left.

  12. Melia Sese | April 30, 2013

    Please provide for us an example of where massive cuts in government spending – in the fiat currency era – ever produced anything but a severe recession or even a depression.

  13. James Root | April 30, 2013

    The Cicero quote is not quite accurate. See http://www.truthorfiction.com/rumors/c/cicero-plan.htm#.UX_ZLKKG2GM

  14. H. Craig Bradley | April 30, 2013

    POGO's WISDOM

    I remember well when the District Ranger in Rifle, Colorado in 1982 ( James Mangan) told his staff at work that " Pogo has it right: I've met the enemy and the enemy is US". How true back then and just as applicable in the here and now, as well.

    We seem to want to blame the boogy-man ( terrorists), Jewish Bankers, Dr. Paul (Krugman), , politicans, The FED, the Trilateral Commission, the Freemasons, etc. for our problems, economic or financial. We should instead look in the mirror for the real problem, or perhaps our family tree. That's where it really began and that's where it will finish.

    Poor choices by a democracy are cumulative (multi-generational) and at some point can not be fixed without a major system reset. That's exactly the direction where trends and events just happen to be headed. Some call it decline, others call it conspiracies. Call it what you will.

  15. Rick Wilson | April 30, 2013

    The real proof in the pudding is that we are seeing the competition rise…….once China establishes itself along with Russia, India, and others with their own currency (debasing the fiat U.S. dollar), we will begin a FAST sinking into the toilet. It will be cause for fleeing the U.S. stock market, the crashing of municipalities in American, the demanding of repayment of our international debt by those who would now hold the power to enforce accountability, the slashing of federal aid to the elderly, and the final true exposure to the sheep American population that our currency is worthless and that we have been lied to about true unemployment in America. We rent our houses, lease our cars, save nothing. America can never, EVER, pay just the interest on our federal debt.

    • DD | April 30, 2013

      This country needs to get over the fact that there is a strong possibility it will not be the world reserve currency (wrc) in the next few years. There have been many wrc's before the US and there will be many after! The world WILL NOT fall apart because of it, so let’s stop with the fear mongering – it's oh so tiresome!

  16. Robert in Canada | April 30, 2013

    In democratic countries politicians try be 'popular' with the majority of voters.

    Unfortunately, the majority of voters are either un-informed or mis-informed about how things really work.

    When you ask them where money comes from to pay for health care, fire trucks, good roads, clean water, etc. their answer is "The Government".

    Most people reading this newsletter know that answer is ridiculous. We know the money comes from the free enterprise system generating personal and business income that is taxed by the government.

    But there many people on the left, in the media, and in our schools who lie about this and make others believe the lies. So politicians have to try to be popular with people who vote for whoever tells them the nicest sounding lies.

  17. Larry Silverstein | April 30, 2013

    Shalom,

    Steven Spielberg did 911 & Boston!

    You are ALL Pavlovian dogs!

    You all react to the media & refuse to think outside the box!

    THE NEW AMERICAN CENTURY

    "A stunning film. It should be seen as widely as possible, in cinemas, bars, clubs, at meetings and, of course, through the internet. I'm sure the film will continue to be a source of debate and political education for many years. Maybe until the war criminals have been brought to trial." – Ken Loach

    "In the White House, they weren't thinking of 9/11 as an attack, but as a gift!" – Robert Steele, former CIA agent

    While Massimo Mazzucco’s first political documentary, GLOBAL DECEIT (2006), focused on the long list of inconsistencies in the official version of the 9/11 attacks, THE NEW AMERICAN CENTURY explores the historical, philosophical and economic background that suggests a matrix for such events that is much closer to home than the so-called "Islamic terrorism".

    The film provides solid evidence for the true reasons behind the Afghanistan and Iraq wars, whose unfolding is described in chilling detail in a document called "Project for the New American Century", published in the year 2,000, that seems to have served as the actual blueprint for such dramatic events.

  18. dourdan | April 30, 2013

    Back in the summer of 1989 when I was 30 I met guy at a bar in Dupont Circle who highly resembled Vladimir Lenin. He told me that our system was going to fail miserably. Well I didn't believe him that lovely evening, but I guess he was right——well maybe.

  19. H. Craig Bradley | April 30, 2013

    YOU HAVE THE RIGHT TO REMAIN STUPID

    Sorry, it does not work that visibly. For example, England sent troops to the Suez Canal to Aid Egypt. Our president at the time, General Dwight Eisenhower, was quite a bit smarter and more capable than most of the Presidents since then, be they Democrat or Republican. President Eisenhower said we would not respond with our own troops. Instead he used the economic power we had: gold and money.

    England's treasury was depleted and in debt after the end of WWII. In contrast, the United States at the time had more gold than any other country on earth but little national debt. So, President Eisenhower called the British P.M. and said: " Remove your troops from the Suez or we will start selling British Bonds ". The British were "over a barrel" as they say. British troops were promptly removed and America avoided another ill-advised foreign military adventure.

    Today, the tables are turned and America is in the position that Great Britian was in back in the fifties. We have gold, but no longer own most of it any more. Other countries have some gold too. Whats more, we are the ones in the hold with too much national debt. So, President Obama is the one who will pick-up the phone and remove troops or not send any to begin with. Our Presidents do what they are told. We elect stooges who have no backbone or capability except to do the bidding of the International Banking Cartel. We are stupid.

  20. James | April 30, 2013

    You write excellent articles, Keith, that enlighten us and make us a little wiser understanding our economic worlds, domestically and globally. So too, does Dr. Paul Krugman. I look forward to reading his articles, and I gain much better understanding and insight after reading his articles in my local newspapers. He follows the economic doctrines promoted by the late Dr. Paul A. Samuelson of MIT, whose introductuctory economic text, Economics – An Introductory Analysis, served as the standard text for all us students majoring in business and economics in the 1950s' and later.

    Theories and economic doctrines work in right environments. What's glaringly missing today that's missing in our U.S. and global financial systems is governance. Is there a sense of justice and integrity prevailing in our financial systems? Do wrong doers go to jail and serve time for improprieties they commit so that the same mistakes will not be repeated? Many smart people are around to do the work with a new mindset. The current crop have failed miserably, but are allowed to remain in the system to continue making mischief.

    Shah Gilani of Money Report does an excellent job in his "Wall Street Incite and Indictments" articles exposing these deficiencies. Until other writers like you and Dr. Krugman join Shah Gilani in addressing and correcting this issue, economies in our country and the rest of the world are in deep trouble. All fixes will be temporary and shortlived!

    Our financial systems are bottlenecks impeding economic progress. Bring back justice and integrity to our financial systems to make our economies work right. This is what the high powers in governments should be doing to ensure long term benefits.

    One thing is certain: our global financial systems are in need of a major overhaul. To me it is not the system itself. It is the people running the systems. They should be held accountable.

  21. H. Craig Bradley | April 30, 2013

    AMERICA DESERVES WHATEVER IS IN STORE

    U.S. BANKERS and the anonymous private bankers who own the FED are the ruling Elite (or Oligarchy) and as such, are accountable to no one. They call the shots and our elected stooges follow their orders. The people are "outside the loop", entirely. Any new system or "major overhaul" is more likely to be designed for their benefit or needs, not the American people or any other outsider(s).

    Another words, get used to whatever "they" decide is best and make the best of your lot as a debt slave or serf. That's what Americans (sovereign princes) have been reduced to. The sad thing is most voters don't know and could care less- they have become clueless, irresponsible nobodies infatuated with themselves in the bigger New World Order.

  22. Melia Sese | April 30, 2013

    Looks like no one could provide the example … likely because there is not one. But we see continued calls for austerity (by whatever name you want to give it) by those who perhaps don't care how much higher the unemployment rate rises. Most of those contributing fall into the same old gold-standard/Austrian school nonsense and have little conception of how things actually work … The fundamental principles of a fiat monetary system are:

    – The central bank sets the short-term interest rate based on its policy aspirations.
    – Government spending capacity is independent of taxation revenue. The non-government sector cannot pay taxes until the government has spent.
    – Government spending capacity is independent of borrowing with the latter best thought of as coming after spending.
    – Government spending provides the net financial assets (bank reserves) which ultimately represent the funds used by the non-government agents to purchase the debt.
    – Budget deficits put downward pressure on interest rates contrary to the myths that appear in macroeconomic textbooks about “crowding out.”

    In the midst of the nonsensical intergenerational (aging population) debate (which is being used by conservatives around the world as a political tool to justify moving to budget surpluses), the notion arises that governments will not be able to honor their liabilities to pensions, health, etc., unless drastic action is taken. The misconception that “public saving” is required to fund future public expenditure is often rehearsed in the financial media.

    First, running budget surpluses does not create national savings. There is no meaning that can be applied to a sovereign government “saving its own currency.” It is one of those nutty mainstream macroeconomics ideas that appear to be intuitive but have no application to a fiat currency system.

    At the heart of all this nonsense is the false analogy neo-liberals draw between private household budgets and the government budget. Households, the users of the currency, must finance their spending prior to the fact. However, government, as the issuer of the currency, must spend first (credit private bank accounts) before it can subsequently tax (debit private accounts). Government spending is the source of the funds the private sector requires to pay its taxes and to net save and is not inherently revenue constrained.

  23. Curtis Edmark | April 30, 2013

    Excellent point made, that low interest rates have caused investors to jump back into the stock market, producing artificial returns. Many of them are seniors who cannot afford to lose what they have.

  24. Pete Waard | May 1, 2013

    When the big crash happens, and it will, the money grubber conservatives will be voted out of favor and the lefties will take over, for better or worse. Just make sure that part of your investment portfolio is ca$h in a safe deposit box or personal safe. When the deflation hits, ca$h is king.

  25. Richard Patterson | May 4, 2013

    Before any country can afford its goverment it must first have a work force first making and selling something to the world at a large enough profit to pay the tax for the expence of its goverment or it is BROKE
    before any goverment can DO,give, pay wages, or any thing to any one ( IE: Goverment wages, retirement, days off, sick leave and health ins.) it must first tax it from workers that make what is sold to the world or barrow it
    Goverment's do not have, make, or create free money to give, it must first tax it from some one who dose
    the money a govement worker has to pay his taxes must first be earned by some one out
    of goverment

  26. Bigmike | May 9, 2013

    After years of watching the global economy and trying to apply some common sense I now conclude that we have to eliminate the federal tax base in it's entirety. In reality we are not a unified country, nation, but are a conglomerate of 50 individual states, so in this regard the citizens should only be required to pay state and sales taxes that would then combined to support our federal government. Each year the feds would submit a budget to the senate commission that would be voted on and approved prior to any actual funds being relinquished to fund the federal budget. This would put the power back into the hands of the people and each state with their elected officials. The IRS would be abolished and any/all tax levies would be carried out by the state in which the individual or company resides. Each state would set it's own tax base, which would give citizens rights to choose where they reside based on social and economical factors. The federal reserve and central banks would also be stripped of their power to manipulate the economy and the right to print currency. The US mint would then function simply as the producer of currency, both paper and coin ordered and approved by each state and be backed with precious metals. This would rapidly stabilize our currency on the global market.

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