Wednesday, November 16, 2011


I European Debt Crisis: Deathficitswas 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.” (Click here to read the complete Armstrong post.)  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. . .”  (Click here to read the complete WSJ story.)  
I wonder what data these economists are looking at.  According to the latest data from, foreclosures hit a new 7 month high.   The report last week said, “The October foreclosure numbers continue to show strong signs that foreclosure activity is coming out of the rain delay we’ve been in for the past year as lenders corrected foreclosure paperwork and processing problems,” said James Saccacio, chief executive officer of RealtyTrac.”  (Click here for the complete report from  Another recent report says, “10 .4 million families are sliding towards failure and foreclosure.”  Still another says, “Half of US Mortgages Are Effectively Underwater.”  A record number of Americans (45.8 million) are on food stamps.  The true unemployment is 22.9%, if it were calculated the way BLS did it in 1994 or earlier.  The odds are “1 in 4 that the U.S. will experience a recession in the next 12 months.”  Really?  It looks to me that many Americans are experiencing a depression right now with no end in sight.
Tax receipts are plunging while government spending is soaring, and that is causing the U.S. annual deficit to explode.  According to the government, the 2011 budget deficit came in at nearly $1.3 trillion, but the true deficit, according to economist John Williams of, was much higher.  In his latest report, Williams says, “. . . the 2011 GAAP-based U.S. deficit likely fell in the $5-trillion to $7-trillion range, a circumstance that is beyond control and appears to be uncontainable in the current political circumstance.  With the economy in ongoing crisis, with no prospect of a turnaround in the foreseeable future, the implications for the federal budget deficit, U.S. Treasury funding needs and prospective banking-system stability, in the year and years ahead, are horrendous.  The current, relatively happy forecasts for each of those areas are based on assumptions of solid economic growth going forward.  That growth simply will not be forthcoming.”
 If you think the European debt crisis is a bigger problem than the U.S. has, then think again.  Williams goes on to say, “The sovereign solvency crisis in the United States easily could move to the center of global financial-market attention in the weeks ahead, depending on how the federal deficit reduction negotiations evolve.   The systemic solvency crisis that continues to unfold in the U.S. is of a relative magnitude that eclipses the rolling financial crises in the euro area.”  (Click here to go to the home page.)
The European sovereign debt crisis will probably be the one that blows first.  Who knows how much central banks will print to try to stop the fall, but when this finally blows up, one will surely take down the other.  Then, we will see if the “death-ficits” term really sticks.

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