20 reasons Global Debt Time Bomb explodes soon
Commentary: Which trigger will ignite the Great Depression II?
By Paul B. Farrell, MarketWatchARROYO GRANDE, Calif. (MarketWatch) -- Retire? You can fuggetaboutit if the new Global Debt Time Bomb is detonated by any one of 20 made-in-America trigger mechanisms.
Yes, 20. And yes, any one can destroy your retirement because all 20 are inexorably linked, a house-of-cards, a circular firing squad destined to self-destruct, triggering the third great Wall Street meltdown of the 21st century, igniting the Great Depression II that George W. Bush, Ben Bernanke, Henry Paulson and now President Obama have simply delayed with their endless knee-jerk, debt-laden wars, stimulus bonanzas and bailouts.
Wow, what an epic Hollywood blockbuster this will make: You know the drama, can't miss the warnings. The financial press is flooding us with plot lines ... a Forbes cover story focuses on a 'Global Debt Bomb: How It Could Wreck Your Life' ... Leaders at the World Economic Forum on Swiss Mt. Davos fear another global meltdown will trigger mass rebellions ... The Economist calls the plot a 'Global Asset Bubble,' with cheap money fast driving up asset prices.
Forbes discovered the trigger mechanism in 'This Time Is Different: Eight Centuries of Financial Folly,' by economists Carmen Reinhart and Kenneth Rogoff: The '90% ratio of government debt to GDP is a tipping point in economic growth.' For 800 years 'you increase it over and beyond a high threshold, and boom!' Well guess what? 'The U.S. government-debt-to-GDP ratio is 84%.' Soon, Ka-Booom! Depression. Kiss your retirement goodbye.
But the financial press navigates in a fog. There's not just one, but many triggers, all linked in a lethal network. We've reported on it for years. Now you tell us: What triggers this firestorm?
1. Federal Budget Deficit Bomb. The Bush/Cheney wars pushed America deep into a debt hole. Federal debt limit was just raised almost 100% with Obama's 2010 budget, to $14.3 trillion vs. $7.8 trillion in 2005. The Congressional Budget Office predicts future deficits around 4% through 2020. Get it? America's debt at 84% of GDP will soon pass that toxic 90% trigger point.
3. Weakening U.S. Dollar as Foreign Reserve Currency Bomb. Fear China and other currencies will replace dollar as main foreign reserves. The dollar's fallen: The main index measuring dollar strength has gone from 120 at the Clinton-to-Bush handoff to below 80 today.
5. Global Real Estate Bomb. Dubai Tower, new 'world's tallest building' is empty. BusinessWeek warns that China's housing collapse could be worse than America's. Plus the U.S. commercial real estate bubble is now $1.7 trillion, a 'ticking time bomb' bloating 25% of bank balance sheets.
7. Social Security Bomb. We have no choice; eventually we must either cut benefits or raise taxes. Politicians hate both, so they'll do nothing. Delays worsen solutions. Without action, by 2035 Social Security and Medicare benefits will eat up the entire federal budget other than defense.
9. Health-care Insurance Bomb. Burden increasingly shifted to employees. Costs rising faster than inflation. Recent Obamacare plan would have cost $90 billion annually, paid to Big Pharma and insurers.
11. Underfunded Corporate Pensions Bomb. From $60 billion surplus in 2007 to $409 billion deficit in 2009. And a whopping 92% of the pension plans of companies are now underfunded. Defaults are guaranteed by taxpayers.
12. Consumer Debt Bomb. Americans are still living beyond their means. Even with a downturn, consumer debt rose from about $2.3 to $2.5 trillion. Fat Cat Bankers love it -- yes love making matters worse by gouging cardholders and mortgagees, blocking help in foreclosures and bankruptcies.
14. War and Military Defense Deficits. Costs of Iraq and Afghanistan wars -- $200+ billion annually, $3 trillion minimum, with massive long-term costs for veteran medical care, equipment renewal, recruitment.
16. Fed/Treasury Bailout Bombs. Tax credits, loans, cash and purchase of toxic assets from Wall Street banks estimated at $23.7 trillion as new debt was shifted from too-big-to-fail Fat-Cat banks to taxpayers.
17. Insatiable Washington Lobbyists Bombs. Paulson, Goldman, Geithner, Morgan and Wall Street banks, through their lobbyists and former employees working inside now have absolute power over government spending. Democracy and voters are now irrelevant in America's new corporate-socialism.
18. Shadow Banking: The Derivatives Bomb. Wall Street wants no regulation of this $670 trillion, high-risk, out-of-control casino that's highly leveraged versus the $50 trillion total GDP of all nations. We forget that derivatives almost destroyed global economies in 2008-09, finally will by 2012.
19. Dysfunctional Two-Party Political Bomb. Polarized partisanship increasing: Every day both parties show zero interest in cooperating for the public good. Instead they fight viciously, resisting everything and anything proposed by opponents. Only goal: Score political points, make the other side look bad.
Forbes. The Economist. Davos-World Economic Forum. Bloomberg BusinessWeek. All one voice, one loud, lonely chorus echoing that famous Beatles tune: 'Head in a cloud ... The fool on the hill, sees the sun going down ... a thousand voices talking perfectly loud. But nobody ever hears him, or the sound he appears to make ... And the eyes in his head, see the world spinning 'round ...ooh, round and round and round.'
Why? The optimist's brain filters out bad news. They know their dreams of prosperity will come true. Then, when they finally do see that the proverbial light at the end of the tunnel is an oncoming train, it's always too late.
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