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Deal to Default with Inflation Celebrated PDF Print E-mail
Sunday, 31 July 2011 16:00

Before we get into the proposed deal to increase the debt ceiling, a deal that has still not been actually voted on, let's begin with the latest quantitative easing 3 catalysts, unemployment, GDP, and July ISM manufacturing. 



Last month when the BLS released June's unemployment report, it was a real stunner for all those expecting the 2011 summer recovery to play out. U.S. payrolls, according to the highly fudged government report, only increased by 18,000 despite having 131,000 fantasy jobs created by the birth death model. Previous months were also revised downward, in fact May's horrible number of 54,000 jobs was revised to less than half. The work week also reported a drop, along with hourly earnings and manufacturing hours. The part time for economic reasons category remained around 8.5 million workers, this is people who want a full time job but cannot find one. Clearly these numbers did not support a 2011 summer recovery, however, they do support more bond buying from the FED.
Last Friday, GDP was largely ignored since Wall Street's main concern was the debt ceiling debate. However, for those that were paying attention to the actual economy, it was another stunner for conventional economists. Despite government calculations with a fatally flawed inflation rate, hedonics, and other techniques used to massage the data upward, U.S. GDP was a HUGE miss. U.S. GDP is now on the verge of a contraction with an annual rate of just 1.3%. Previous quarters were revised down as well, 2011 Q1 plunged from 1.9% to just 0.4%.FutureMoneyTrends.com believes Friday's numbers will eventually get revised down as the unemployed exhaust jobless benefits and market forces continue to try and restore sanity to the housing market.
July ISM Manufacturing Index
The Institute for Supply Management's manufacturing gauge in July dropped 4.4 points to 50.9%, well below expectation of 54.3% for all those calling for a summer recovery. This is the lowest ISM number in 2 years.
Massive Layoffs
The return of massive layoffs has been hitting the headlines a lot lately. HSBC announced this morning that they will layoff 30,000 workers. BlackBerry phones is cutting 2,000, Research in Motion plans to cut 10.5% of its work force, Cisco Systems is cutting 6,500, Lockheed Martin plans to cut 6,500, and of course Borders is closing all stores laying off thousands. Massive layoffs are always a bit deceiving since this is bad for Main Street, but not necessarily bad forWall Street as profits often increase as companies cut their workforces, especially in slow times.
FutureMoneyTrends.com is writing this before a single vote has been cast, so please keep this in mind. There is still hope that the deal made yesterday will FAIL in the house or senate and a true debate about cutting government can begin.
Important things to note about the debate thus far and deal that has been celebrated.
  • The media has literally reported the governments' talking points without ever questioning the numbers or default scenario.
  • There will be no default no matter what happens in the next 24 hours, the U.S. has more than enough income to pay our creditors, any actual default will be by choice.
  • There are ZERO spending cuts in the deal being voted on today, unless you actually think a cut in increases of spending is a cut in actual spending. For example, D.C. politicians say they want to increase spending by 9%, instead they only increase spending by 8%, therefore in their world that is a defined cut. Of course these cuts are very easy to make since they are cutting increases of spending that haven't been passed yet. It's kind of like the spending cuts we saw to avoid a government shutdown, the government cut spending from a budget that never was. So to put it simply, pick a higher number than you actually want, then when you spend what you want, you can call it a cut.
  • None of the proposed spending increase cuts will take place until AFTER the entire 2.4 trillion in the debt ceiling increase have been spent.
  • If passed, this will be the largest debt ceiling increase by far.

This new deal is clearly more of the same from Washington and anyone who cares to plan for their future should know that the U.S. will default with inflation. The debt ceiling increase will go up by as much as $2.4 trillion, borrowing that will once again be tapped out by early 2013. However, according to the president last night, 98% of the proposed spending increase cuts won't actually start until early 2013. Meanwhile by 2013, we will be $16.7 trillion in debt and congress will be debating to lift the debt ceiling to $20 trillion. Of course the cuts in the deal will also be completely dependent on a new congress and possibly president to enact.


The planned spending increase cuts also depend on an average interest rate of 2.5% and GDP growth over the next 3 years to be over 4%. Please note that our current annual rate for GDP is just a tad over 1% with ZERO driver for jobs and an economic recovery. In fact, the centrally planned government economy is now 100% dependent on an expansion of government spending, this is why FutureMoneyTrends.com is 100% confident that no cuts in 2013 will actually take place. The FED will continue a more permanent quantitative easing program for the bankrupt USA and inflation will result in massive price increases for commodities even as the economy slips into a restructuring decade that will eventually be called a depression.
Exponential Debt Ceiling Growth By The Numbers
August 2011 - 16.4 -16.7 trillion (proposed deal)
February 2010 - $14.294 trillion
December 2009 - $12.394 trillion
February 2009 - $12.104 trillion
October 2008 - $11.315 trillion
July 2008 - $10.615 trillion
September 2007 - $9.865 trillion
March 2006 - $8.965 trillion
November 2004 -$8.184 trillion
May 2003 - 7.384 trillion
June 2002 - $6.4 trillion
"The fact that we're here today to debate raising America's debt limit is a sign of leadership failure. Leadership means 'The buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America's debt limit."
2006 - Senator Barack Obama

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