Prepare For
United States of America
Economic Crash 2018
By
Søren Nielsen 2018
By
Søren Nielsen 2018
- The fall of the Soviet Union.
- The collapse of the Japanese stock Market.
- The rise of the Muslim Terrorism.
- The dot-com bust in 2000.
- And the financial meltdown of 2008.
America will see a sixth right in the very heart of America. The following is a direct message about what going on...and how you can protect yourself.
Around 35 years ago, assembled a group of analysts, including the former head of BBC, and an Oxford scholar to research, expose, and even predict massive worlds shift.
In 1987, they predicted that the Soviet Union would collapse and a few years later, that`s exactly what happened.
In 1989, they was mocked for predicting that The Japanese stock market would crash.
They wrote:
"The long running bull market in Tokyo, may be nearing an end".
Months later, the Japanese stock market crashed. It has never recovered.
In 1993, they predicted the rise of Muslim Terrorism, writing:
"Especially troubling for many in the west will be the rise of Islam. This could be the biggest threat to the world peace in the next two decades. The bomb at the New york`s World Trade Center is just a small taste of what`s to come."
Eight years later, in the September 11 attacks, they hit the World Trade Center again.
In 2000, they sent out a note warning that a "day of reckoning", was at hand for the dot-com boom. That very day the NASDAQ began a two year, 77 % decline.
And recently we predicted the crash of the housing bubble in 2008. Along with lender "Fannie Mae" and "Freddie Mac".
Under normal accounting rules, fully owned companies would be consolidated into the books of their owners, but the large size of Fannie and Freddie has made the U.S. government reluctant to incorporate Freddie and Fannie into its own books.
When Freddie Mac and Fannie Mae required bail-outs, White House Budget Director Jim Nussle, on September 12, 2008, initially indicated their budget plans would not incorporate the GSE debt into the budget because of the temporary nature of the conservator intervention.
As the intervention has dragged out, pundits have started to further question this accounting treatment, noting that changes in August 2012 "makes them even more permanent wards of the state and turns the government's preferred stock into a permanent, perpetual kind of security".
The government controls the Public Company Accounting Oversight Board, which would normally criticize inconsistent accounting practices, but it does not oversee its own government's accounting practices or the standards set by the Federal Accounting Standards Advisory Board.
The on- or off-balance sheet obligations of those two independent GSEs was just over $5 trillion at the time the conservatorship was put in place, consisting mainly of mortgage payment guarantees and agency bonds.
The confusing independent but government-controlled status of the GSEs has resulted in investors of the legacy common shares and preferred shares launching various activist campaigns in 2014.
Unfunded obligations excluded.
The U.S. government is obligated under current law to make mandatory payments for programs such as Medicare, Medicaid and Social Security.
The Government Accountability Office (GAO) projects that payouts for these programs will significantly exceed tax revenues over the next 75 years.
The Medicare Part A (hospital insurance) payouts already exceed program tax revenues, and social security payouts exceeded payroll taxes in fiscal 2010.
These deficits require funding from other tax sources or borrowing. The present value of these deficits or unfunded obligations is an estimated $45.8 trillion. This is the amount that would have had to be set aside in 2009 in order to pay for the unfunded obligations which, under current law, will have to be raised by the government in the future.
Approximately $7.7 trillion relates to Social Security, while $38.2 trillion relates to Medicare and Medicaid. In other words, health care programs will require nearly five times more funding than Social Security. Adding this to the national debt and other federal obligations would bring total obligations to nearly $62 trillion.
However, these unfunded obligations are not counted in the national debt, as shown in monthly Treasury reports of the national debt.
Measuring debt burden.
GDP is a measure of the total size and output of the economy. One measure of the debt burden is its size relative to GDP, called the "debt-to-GDP ratio." Mathematically, this is the debt divided by the GDP amount.
The Congressional Budget Office includes historical budget and debt tables along with its annual "Budget and Economic Outlook." Debt held by the public as a percentage of GDP rose from 34.7% GDP in 2000 to 40.5% in 2008 and 67.7% in 2011.
Mathematically, the ratio can decrease even while debt grows if the rate of increase in GDP (which also takes account of inflation) is higher than the rate of increase of debt. Conversely, the debt to GDP ratio can increase even while debt is being reduced, if the decline in GDP is sufficient.
According to the CIA World Factbook, during 2015, the U.S. debt to GDP ratio of 73.6% was the 39th highest in the world. This was measured using "debt held by the public."
However, $1 trillion in additional borrowing since the end of FY 2015 has raised the ratio to 76.2% as of April 2016. Also, this number excludes state and local debt.
According to the OECD, general government gross debt (federal, state, and local) in the United States in the fourth quarter of 2015 was $22.5 trillion (125% of GDP); subtracting out $5.25 trillion for intergovernmental federal debt to count only federal "debt held by the public" gives 96% of GDP.
The ratio is higher if the total national debt is used, by adding the "intragovernmental debt" to the "debt held by the public"
For example, on April 29, 2016, debt held by the public was approximately $13.84 trillion or about 76% of GDP. Intra-governmental holdings stood at $5.35 trillion, giving a combined total public debt of $19.19 trillion. U.S. GDP for the previous 12 months was approximately $18.15 trillion, for a total debt to GDP ratio of approximately 106%.
Calculating the annual change in debt.
Conceptually, an annual deficit (or surplus) should represent the change in the national debt, with a deficit adding to the national debt and a surplus reducing it.
However, there is complexity in the budgetary computations that can make the deficit figure commonly reported in the media (the "total deficit") considerably different from the annual increase in the debt.
The major categories of differences are the treatment of the Social Security program, Treasury borrowing, and supplemental appropriations outside the budget process.
Social Security payroll taxes and benefit payments, along with the net balance of the U.S. Postal Service, are considered "off-budget", while most other expenditure and receipt categories are considered "on-budget".
The total federal deficit is the sum of the on-budget deficit (or surplus) and the off-budget deficit (or surplus). Since 1960, the federal government has run on-budget deficits except for 1999 and 2000, and total federal deficits except in 1969 and 1998–2001.
For example, in January 2009 the CBO reported that for fiscal year 2008 (2008) the "on-budget deficit" was $638 billion, offset by an "off-budget surplus" (mainly due to Social Security revenue in excess of payouts) of $183 billion, for a "total deficit" of $455 billion.
This latter figure is the one commonly reported in the media. However, an additional $313 billion was required for "the Treasury actions aimed at stabilizing the financial markets," an unusually high amount due to the Subprime mortgage crisis. This meant that the "debt held by the public" increased by $768 billion ($455B + $313B = $768B).
The "off-budget surplus" was borrowed and spent (as is typically the case), increasing the "intra-governmental debt" by $183 billion. So the total increase in the "National debt" in 2008 was $768B +$183B = $951 billion.
The Treasury Department reported an increase in the National Debt of $1,017 billion for 2008.
The $66 billion difference is likely due to "supplemental appropriations" for the War on Terror, some of which were outside the budget process entirely until President Obama began including most of them in his 2010 budget.
In other words, spending the "off budget" Social Security surplus adds to the total national debt (by increasing the intragovernmental debt) while the "off-budget" surplus reduces the "total" deficit reported in the media.
Certain spending called "supplemental appropriations" is outside the budget process entirely but adds to the national debt.
Funding for the Iraq and Afghanistan wars was accounted for this way prior to the Obama administration.
Certain stimulus measures and earmarks were also outside the budget process. The federal government publishes the total debt owed (public and intragovernmental holdings) monthly.
Foreign holdings.
As of September 2014, foreigners owned $6.06 trillion of U.S. debt, or approximately 47% of the debt held by the public of $12.8 trillion and 34% of the total debt of $17.8 trillion. As of 2018, the largest holders were China, Japan, Ireland, and Brazil.
The share held by foreign governments has grown over time, rising from 13% of the public debt in 1988 to 25% in 2007.
As of September 2014 the largest single holder of U.S. government debt was China, with 21% of all foreign-held U.S. Treasury securities (10% of total U.S. public debt).
China's holdings of government debt, as a percentage of all foreign-held government debt are up significantly since 2000 (when China held just 6 percent of all foreign-held U.S. Treasury securities).
This exposure to potential financial or political risk should foreign banks stop buying Treasury securities or start selling them heavily was addressed in a June 2008 report issued by the Bank of International Settlements, which stated,
"Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely."
On May 20, 2007, Kuwait discontinued pegging its currency exclusively to the dollar, preferring to use the dollar in a basket of currencies. Syria made a similar announcement on June 4, 2007.
In September 2009 China, India and Russia said they were interested in buying International Monetary Fund gold to diversify their dollar-denominated securities.
However, in July 2010 China's State Administration of Foreign Exchange "ruled out the option of dumping its vast holdings of US Treasury securities" and said gold "cannot become a main channel for investing our foreign exchange reserves" because the market for gold is too small and prices are too volatile.
According to Paul Krugman,
"It's true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar's worth of foreign claims on America is matched by 89 cents' worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that's already deep in hock to the Chinese, you've been misinformed. Nor are we heading rapidly in that direction."
Nonetheless, the country's net investment position (including both debt to and debt owed by other countries) is a debt of more than $7 trillion and has recently been rising very rapidly.
Forecasting
CBO ten-year outlook 2018-2028
The CBO estimated the impact of Trump's tax cuts and separate spending legislation over the 2018-2028 period in their annual "Budget & Economic Outlook", released in April 2018:
Under normal accounting rules, fully owned companies would be consolidated into the books of their owners, but the large size of Fannie and Freddie has made the U.S. government reluctant to incorporate Freddie and Fannie into its own books.
When Freddie Mac and Fannie Mae required bail-outs, White House Budget Director Jim Nussle, on September 12, 2008, initially indicated their budget plans would not incorporate the GSE debt into the budget because of the temporary nature of the conservator intervention.
As the intervention has dragged out, pundits have started to further question this accounting treatment, noting that changes in August 2012 "makes them even more permanent wards of the state and turns the government's preferred stock into a permanent, perpetual kind of security".
The government controls the Public Company Accounting Oversight Board, which would normally criticize inconsistent accounting practices, but it does not oversee its own government's accounting practices or the standards set by the Federal Accounting Standards Advisory Board.
The on- or off-balance sheet obligations of those two independent GSEs was just over $5 trillion at the time the conservatorship was put in place, consisting mainly of mortgage payment guarantees and agency bonds.
The confusing independent but government-controlled status of the GSEs has resulted in investors of the legacy common shares and preferred shares launching various activist campaigns in 2014.
Unfunded obligations excluded.
The U.S. government is obligated under current law to make mandatory payments for programs such as Medicare, Medicaid and Social Security.
The Government Accountability Office (GAO) projects that payouts for these programs will significantly exceed tax revenues over the next 75 years.
The Medicare Part A (hospital insurance) payouts already exceed program tax revenues, and social security payouts exceeded payroll taxes in fiscal 2010.
These deficits require funding from other tax sources or borrowing. The present value of these deficits or unfunded obligations is an estimated $45.8 trillion. This is the amount that would have had to be set aside in 2009 in order to pay for the unfunded obligations which, under current law, will have to be raised by the government in the future.
Approximately $7.7 trillion relates to Social Security, while $38.2 trillion relates to Medicare and Medicaid. In other words, health care programs will require nearly five times more funding than Social Security. Adding this to the national debt and other federal obligations would bring total obligations to nearly $62 trillion.
However, these unfunded obligations are not counted in the national debt, as shown in monthly Treasury reports of the national debt.
Measuring debt burden.
GDP is a measure of the total size and output of the economy. One measure of the debt burden is its size relative to GDP, called the "debt-to-GDP ratio." Mathematically, this is the debt divided by the GDP amount.
The Congressional Budget Office includes historical budget and debt tables along with its annual "Budget and Economic Outlook." Debt held by the public as a percentage of GDP rose from 34.7% GDP in 2000 to 40.5% in 2008 and 67.7% in 2011.
Mathematically, the ratio can decrease even while debt grows if the rate of increase in GDP (which also takes account of inflation) is higher than the rate of increase of debt. Conversely, the debt to GDP ratio can increase even while debt is being reduced, if the decline in GDP is sufficient.
According to the CIA World Factbook, during 2015, the U.S. debt to GDP ratio of 73.6% was the 39th highest in the world. This was measured using "debt held by the public."
However, $1 trillion in additional borrowing since the end of FY 2015 has raised the ratio to 76.2% as of April 2016. Also, this number excludes state and local debt.
According to the OECD, general government gross debt (federal, state, and local) in the United States in the fourth quarter of 2015 was $22.5 trillion (125% of GDP); subtracting out $5.25 trillion for intergovernmental federal debt to count only federal "debt held by the public" gives 96% of GDP.
The ratio is higher if the total national debt is used, by adding the "intragovernmental debt" to the "debt held by the public"
For example, on April 29, 2016, debt held by the public was approximately $13.84 trillion or about 76% of GDP. Intra-governmental holdings stood at $5.35 trillion, giving a combined total public debt of $19.19 trillion. U.S. GDP for the previous 12 months was approximately $18.15 trillion, for a total debt to GDP ratio of approximately 106%.
Calculating the annual change in debt.
Conceptually, an annual deficit (or surplus) should represent the change in the national debt, with a deficit adding to the national debt and a surplus reducing it.
However, there is complexity in the budgetary computations that can make the deficit figure commonly reported in the media (the "total deficit") considerably different from the annual increase in the debt.
The major categories of differences are the treatment of the Social Security program, Treasury borrowing, and supplemental appropriations outside the budget process.
Social Security payroll taxes and benefit payments, along with the net balance of the U.S. Postal Service, are considered "off-budget", while most other expenditure and receipt categories are considered "on-budget".
The total federal deficit is the sum of the on-budget deficit (or surplus) and the off-budget deficit (or surplus). Since 1960, the federal government has run on-budget deficits except for 1999 and 2000, and total federal deficits except in 1969 and 1998–2001.
For example, in January 2009 the CBO reported that for fiscal year 2008 (2008) the "on-budget deficit" was $638 billion, offset by an "off-budget surplus" (mainly due to Social Security revenue in excess of payouts) of $183 billion, for a "total deficit" of $455 billion.
This latter figure is the one commonly reported in the media. However, an additional $313 billion was required for "the Treasury actions aimed at stabilizing the financial markets," an unusually high amount due to the Subprime mortgage crisis. This meant that the "debt held by the public" increased by $768 billion ($455B + $313B = $768B).
The "off-budget surplus" was borrowed and spent (as is typically the case), increasing the "intra-governmental debt" by $183 billion. So the total increase in the "National debt" in 2008 was $768B +$183B = $951 billion.
The Treasury Department reported an increase in the National Debt of $1,017 billion for 2008.
The $66 billion difference is likely due to "supplemental appropriations" for the War on Terror, some of which were outside the budget process entirely until President Obama began including most of them in his 2010 budget.
In other words, spending the "off budget" Social Security surplus adds to the total national debt (by increasing the intragovernmental debt) while the "off-budget" surplus reduces the "total" deficit reported in the media.
Certain spending called "supplemental appropriations" is outside the budget process entirely but adds to the national debt.
Funding for the Iraq and Afghanistan wars was accounted for this way prior to the Obama administration.
Certain stimulus measures and earmarks were also outside the budget process. The federal government publishes the total debt owed (public and intragovernmental holdings) monthly.
Foreign holdings.
As of September 2014, foreigners owned $6.06 trillion of U.S. debt, or approximately 47% of the debt held by the public of $12.8 trillion and 34% of the total debt of $17.8 trillion. As of 2018, the largest holders were China, Japan, Ireland, and Brazil.
The share held by foreign governments has grown over time, rising from 13% of the public debt in 1988 to 25% in 2007.
As of September 2014 the largest single holder of U.S. government debt was China, with 21% of all foreign-held U.S. Treasury securities (10% of total U.S. public debt).
China's holdings of government debt, as a percentage of all foreign-held government debt are up significantly since 2000 (when China held just 6 percent of all foreign-held U.S. Treasury securities).
This exposure to potential financial or political risk should foreign banks stop buying Treasury securities or start selling them heavily was addressed in a June 2008 report issued by the Bank of International Settlements, which stated,
"Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely."
On May 20, 2007, Kuwait discontinued pegging its currency exclusively to the dollar, preferring to use the dollar in a basket of currencies. Syria made a similar announcement on June 4, 2007.
In September 2009 China, India and Russia said they were interested in buying International Monetary Fund gold to diversify their dollar-denominated securities.
However, in July 2010 China's State Administration of Foreign Exchange "ruled out the option of dumping its vast holdings of US Treasury securities" and said gold "cannot become a main channel for investing our foreign exchange reserves" because the market for gold is too small and prices are too volatile.
According to Paul Krugman,
"It's true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar's worth of foreign claims on America is matched by 89 cents' worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that's already deep in hock to the Chinese, you've been misinformed. Nor are we heading rapidly in that direction."
Nonetheless, the country's net investment position (including both debt to and debt owed by other countries) is a debt of more than $7 trillion and has recently been rising very rapidly.
Forecasting
CBO ten-year outlook 2018-2028
The CBO estimated the impact of Trump's tax cuts and separate spending legislation over the 2018-2028 period in their annual "Budget & Economic Outlook", released in April 2018:
- The budget deficit in fiscal 2018 (which runs from October 1, 2017 to September 30, 2018, the first year budgeted by President Trump) is forecast to be $804 billion, an increase of $139 billion (21%) from the $665 billion in 2017 and up $242 billion (39%) over the previous baseline forecast (June 2017) of $580 billion for 2018. The June 2017 forecast was essentially the budget trajectory inherited from President Obama; it was prepared prior to the Tax Act and other spending increases under President Trump.
- For the 2018-2027 period, CBO projects the sum of the annual deficits (i.e., debt increase) to be $11.7 trillion, an increase of $1.6 trillion (16%) over the previous baseline (June 2017) forecast of $10.1 trillion.
- The $1.6 trillion debt increase includes three main elements: 1) $1.7 trillion less in revenues due to the tax cuts; 2) $1.0 trillion more in spending; and 3) Partially offsetting incremental revenue of $1.1 trillion due to higher economic growth than previously forecast.
- Debt held by the public is expected to rise from 78% of GDP ($16 trillion) at the end of 2018 to 96% GDP ($29 trillion) by 2028. That would be the highest level since the end of World War Two.
- CBO estimated under an alternative scenario (in which policies in place as of April 2018 are maintained beyond scheduled initiation or expiration) that deficits would be considerably higher, rising by $13.7 trillion over the 2018-2027 period, an increase of $3.6 trillion over the June 2017 baseline forecast. Maintaining current policies for example would include extending the individual Trump tax cuts past their scheduled expiration in 2025, among other changes.
- The debt increase of $1.6 trillion represents approximately $12,700 per household (assuming 126.2 million households in 2017), while the $3.6 trillion represents $28,500 per household.
International debt comparisons
Gross debt as percentage of GDP
Entity 2007 2010 2011 2017/2018
Asia 1 (2017+)2 37% 40% 41% 80%
Austria 62% 78% 72% 78%
Bulgaria 17% 16% 16% 25%
Czech Republic 28% 38% 41% 35%
European Union 59% 80% 83% 82%
Finland 35% 48% 49% 61%
France 64% 82% 86% 97%
Germany 65% 82% 81% 64%
Greece 104% 123% 165% 179%
Italy 112% 119% 120% 132%
Japan 167% 197% 204% 236%
Netherlands 52% 77% 65% 57%
Poland 51% 55% 56% 51%
Romania 13% 31% 33% 35%
Russia 9% 12% 10% 19%
Spain 42% 68% 68% 98%
Sweden 40% 39% 38% 41%
United Kingdom 47% 80% 86% 88%
United States 62% 92% 102% 108%
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