Former IMF chief warns of Great Depression II

Former IMF chief economist Simon Johnson warns: "We're running out of time ... to prevent a true depression."   

Johnson says unless we break Wall Street's "stranglehold" we will be unable prevent the Great Depression 2.

Meanwhile, 43% of U.S. workers say they have less than $10,000 in savings, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey.

Joseph Stiglitz calls Federal Reserve corrupt

One of the world's leading economists said that the very structure of the Federal Reserve system is so fraught with conflicts that it's "corrupt."

Nobel laureate Joseph Stiglitz, a former chief economist at the World Bank, said that if a country had applied for World Bank aid during his tenure, with a financial regulatory system similar to the Federal Reserve's -- in which regional Feds are partly governed by the very banks they're supposed to police -- it would have raised alarms.

To Stiglitz, the core issue is that regional Fed banks, such as the New York Fed, have clear conflicts of interest -- a result of the banks being partly governed by a board of directors that includes officers of the very banks they're supposed to be overseeing.

The New York Fed, which was led by current Treasury Secretary Timothy Geithner during the time leading Wall Street firms like Citigroup, JPMorgan Chase, AIG, and Goldman Sachs were given hundreds of billions of dollars in taxpayer bailouts, presently has on its board of directors Jamie Dimon, the head of JPMorgan Chase. He replaced former Citigroup chairman Sanford "Sandy" Weill.

"So, these are the guys who appointed the guy who bailed them out," Stiglitz said. "Is that a conflict of interest?" he asked rhetorically.

"The reason you talk about governance is because in a democracy you want people to have confidence," Stiglitz said. "This is a structure that will undermine confidence in a democracy."

[Excerpt of a Huffington Post article]

Bernanke delivers blunt warning on U.S. debt

With uncharacteristic bluntness, Federal Reserve Chairman Ben S. Bernanke warned Congress that the United States could soon face a debt crisis like the one in Greece, and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt.

"It's not something that is 10 years away. It affects the markets currently," he told the House Financial Services Committee.

Mr. Bernanke for the first time addressed concerns that the impasse in Congress over tough spending cuts and tax increases needed to bring down deficits will eventually force the Fed to accommodate deficits by printing money and buying Treasury bonds — effectively financing the deficit on behalf of Congress and spurring inflation in the process.

Some economists at the International Monetary Fund and elsewhere have advocated this approach, suggesting running moderate inflation rates of 4 percent to 6 percent as a partial solution to the U.S. debt problem. But the move runs the risk of damaging the dollar's reputation and spawning much higher inflation that would be debilitating to the U.S. economy and living standards.

[The Washington Times]

National Debt to increase over 6 Trillion Dollars in next 10 years

In its report released last week, the Congressional Budget Office (CBO) projected there will be $6.074 trillion in new national debt over the next 10 years if current laws governing taxing and spending are maintained.

In other words, the U.S. Treasury will need to borrow an additional $6 trillion between 2011 and 2020 to cover expected federal spending.

The CBO report adds: “With such a large increase in debt, plus an expected increase in interest rates as the economic recovery strengthens, interest payments on the debt are poised to skyrocket.”

“The government’s annual spending on net interest will more than triple between 2010 and 2020 in nominal terms, from $207 billion to $723 billion, and will more than double as a share of GDP, from 1.4 percent to 3.2 percent.”

For a refresher on how much a Trillion dollars is:

A trillion is a thousand billion dollars!

If you spent $1,000 per second, it would take almost 30 years to spend 1 trillion dollars!

Or if you spent a million dollars every day since Jesus was born, you still wouldn't have spent a Trillion!

One trillion $1 bills stacked one on top of the other would reach nearly 68,000 miles (about 109,400 kilometers) into the sky, or about a third of the way from the Earth to the moon.

U.S. to make cuts in Social Security, Medicare, and Education in 2010?

Several European countries --first Iceland, then Ireland, now Greece,etc. -- are mired in inescapable debt and bankrupt nations, the result of crashing banks, bank bailouts, and soaring unemployment. The U.S. and U.K. watch from a distance, knowing their turn is next.

Recently, Moody’s released their notorious “misery index” — the nations that are most sunken in debt and least able to pay it back, requiring that “special measures” be taken to prove to investors that these governments are able to repay their loans.

The biggest losers of the misery index were not surprises and included Iceland, Ireland, and Greece But ranking right behind bankrupt Iceland was the United States: the once-proud super-power.

The U.S. and the U.K. need not make immediate cuts like Greece, Ireland, Spain, but they must make immediate plans to make major cuts, explains Moody’s chief of rating nations’ credit, Pierre Cailleteau: “…this will be the year [2010] where both the U.S. government and the U.K. government will have to articulate a credible plan to address their problems of large debt.”

John Chambers of Standard & Poor’s was more blunt: "The U.S. government, like the U.K. government, … is going to need to draw down fiscal stimulus, pare expenditures [make cuts], raise revenues [taxes] and probably take a look at [cuts] in their entitlement programs" [Social Security, Medicare, and Education]

[From a commentary by Shamus Cooke]

Countries pulling the strings on a stronger or weaker Dollar

If China, Russia and OPEC sold their U.S. Dollar surpluses, they would inflict losses in these holdings on themselves in the process of undermining not just the U.S. but the global economy. Each could react in different ways:

1. O.P.E.C. oil producers are dependent on the States for the security of their sovereignty. The House of Saud dare not reject the Dollar oil price or they will lose the physical protection of the U.S. …However, this may be changing as we now hear the news of a new Gulf currency that may be used to price oil in. If this does happen, then a major nail will have been driven into the coffin of the $ as the global reserve currency.

2. Russia needs to maximize oil income to keep itself economically sound. So it will accept the Yuan from China but won’t reject the Dollar payments from other countries. It is diversifying reserves as far as it can without damaging the Dollar exchange rate and would love to jettison the Dollar, but for the sake of the value of its reserves and the stability of the world’s currency markets, including the Ruble market, it won’t. (As one Treasury Official said, the $ may be our currency, but it’s your problem.)

3. China is stuck with around $3 trillion in its reserves, firmly snared in the $ trap. It is unhappy with this and is diversifying as far as it can [including into gold]. Its unshakeable answer is to peg the Yuan to the Dollar and reap the benefits of sucking the manufacturing out of the States and selling it cheap goods. There will be no loosening of the ‘peg’ until the problem of China’s Dollar reserves are solved. It is therefore turning the disadvantage into an advantage that is bleeding the U.S. of its strength. By doing this, the advantage of a weakening Dollar to the States is neutralized.

[Excerpt from Gold Forecaster]

U.S. taxpayers' Christmas present: Congress raises debt ceiling to $12.4 trillion

The Senate voted today to raise the ceiling on the government debt to $12.4 trillion, a massive increase over the current limit and a political problem that President Barack Obama has promised to address “next year”.

This one vote raised the ceiling on government debt by $290 Billion.

The current measure was deemed needed as a result of the out-of-control budget deficit, which registered $1.4 trillion for the budget year that ended in September.

The current debt ceiling is $12.1 trillion and is set to be reached by Dec. 31.