The US’s “EU Style” Negotiations Will Without a Doubt Take Us Over the Cliff

Ever since the EU Crisis began in earnest in January 2010, EU leaders have maintained the following strategy:

1)   Engage in endless meetings/ discussions, none of which resolve anything.

2)   Announce that the situation is resolved.

3)   Wait for the world to realize nothing has been fixed.

4)   Repeat.

The prime example is Greece. There have been no less than 30 “Greece is saved” press releases/ announcements, accompanied by market rallies only to discover that Greece is not saved and in fact is worsening by the week.

We’ve now had two formal Greece bailouts. We’re currently working on a third/ debt buyback program, the stated goal of which is to get Greece’s Debt to GDP ratio to 120% by 2020.

Again, the goal for the current proposal is to get Greece to the point at which it will still be totally broke in eight years. It’s amazing no one laughs out loud at EU meetings.

Actually they did… the below came from a recent Q&A session with Jean-Claude Juncker, current Prime Minister of Luxembourg.

Question: Is the goal still to get Greece’s debt to 120%?

Juncker: The fact is that the target of 120% will remain, but the target as far as the time frame is concerned has been postponed to 2022.

[Laughter in the room]

Juncker: That was not a joke!

            Source: ZeroHedge

The reality is that no politician wants to implement actual solutions (total default, wipe out of all bad debt, and massive economic structural changes) because all of them are 100% politically toxic.

Meanwhile Greek unemployment worsens while its GDP continues to collapse. Indeed, from peak to today, Greek GDP has fallen nearly 20%. This collapse is equal to that of Argentina in 2001, when it had a full-scale systemic implosion.

Again, this is the country that political leaders and financial luminaries claim has been “saved” dozens of times.

US leaders see that this strategy has worked for EU leaders (those who went along with it are still in office, those who didn’t have been kicked out). And so they are now adopting a similar strategy with discussions on the fiscal cliff.

President Obama is out campaigning the notion that we need to increase taxes on those who earn more than $250K per year.  According to the Congressional Budget Office, Obama’s current proposal would raise an additional $83 billion in taxes per year.

The US budget deficit is over $1 trillion. It has been ever since Obama took office. So his proposal would not even cover one month of deficit spending. And this is supposed to represent a “solution.”

Mathematically, the only way to cut the Federal deficit would be to either raise an additional $1.2 trillion in taxes (politically impossible, no one would go for it) or cut Federal Spending by $1.2 trillion (again, politically impossible).

Indeed, the US’s fiscal problems are so great that tackling them would require truly impossible measures. For instance, consider that the top 1% of income earners (the very folks Obama is targeting) paid $318 billion in income taxes according to the most recent data.

So, even if we doubled their taxes, we’d only raise enough money to cover about six months of the US deficit.

So, in order for us to close the deficit in the US, we’d have to both double the taxes paid by the top 1% AND cut spending by $600 BILLION. Now imagine trying to get the American people to go along with this.

My point with all of this is that the US budget talks are really just an American version of the various EU crisis talks we’ve seen over the last two years: a lot of discussion over phony “solutions” all of which fail to address the try size of the problem.

As a result, we’re likely going to experience something very similar to the debt ceiling talks in July-August 2011: a lot of talks which fail to go anywhere followed by a market collapse.

If you’re an individual investor (not a day trader) looking for the means of profiting from all of this… particularly the US going over the fiscal cliff… then you NEED to check out  my Private Wealth Advisory newsletter.

Indeed, 74 out of our last 88 trades have made money for Private Wealth Advisory subscribers. That’s an incredible 84% success rate on our investments.

And we’re not getting complacent by any means. In fact, I’m about to alert Private Wealth Advisory subscribers to several trades that will all produce HUGE profits when the we go over the fiscal cliff in the coming weeks.

You’ll find out what they are the minute you subscribe to Private Wealth Advisory. You’ll also gain immediate access to my Protect Your Family, Protect Your Savings, and Protect Your Portfolio Special Reports outlining how to prepare these areas of your life for the coming Great Crisis.

These reports outline:

1) how to prepare for bank holidays
2) which banks to avoid
3) how much bullion to own
4) how much cash is needed to get through systemic crises
5) how much food to stockpile, what kind to get, and where to get it

And more…

To take out an annual subscription to Private Wealth Advisory  now… start profiting from the market’s gyrations (again we’ve made money on 74 out of 88 trades in the last 18 months)… and gain access to all my Special Reports…

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Best Regards,

Graham Summers

 

 

Two Economic Developments Every Investor Needs to Be Aware Of

Last week I outlined the reason why we are very likely going over the fiscal cliff: there are little if any political incentives for the GOP or Dems to fix the problem; the best option politically is to let us go over the cliff and then offer targeted tax breaks in late 2013 early 2014 as part of their 2014 Congressional campaigns.

With that in mind, corporations are now rushing out special dividends to shareholders in an effort to beat the coming tax hikes on dividends.

Between Nov. 1 and Dec. 5, 349 companies moved up their dividends or paid special dividends, according to Silverblatt. That is higher than the 314 irregular dividends paid last year in all of November and December. Silverblatt expects the pace of early dividends to pick up if Washington keeps dawdling.

Many companies go beyond moving up ordinary payments. They are declaring special, one-time dividends to take advantage of the lower tax rate while it lasts.

http://www.lasvegassun.com/news/2012/dec/10/us-wall-street-week-ahead/

This is a serious red flag for the US economy’s future: all of the capital being paid out to shareholders will not be going into corporate expansions or hiring. This, when taken along with the recent rush of capital into savings accounts ($150 billion was shifted into savings accounts following Obama’s re-election), indicates that big money is either going into hibernation or being paid out to shareholders.

In simple terms: none of these funds will be used to grow the US economy or create jobs. Which means the US economy will be taking an even sharper nose-dive than expected in 2013.

On the other side of the pond, the EU as a whole is in recession. However, recent data coming from Germany indicates things are going to be getting significantly worse.

Month over month, German industrial production fell 2.6% in October. It fell 1.3% the month before. This contraction has resulted in the Bundesbank lowering its 2013 GDP growth projection to just 0.4%.

The entire EU bailout process has been based on the notion that Germany will write the check to fund various bailouts/ interventions. If Germany enters a recession then politically it will be much harder for German politicians to push for additional aid to the rest of the EU.

Remember, Chancellor Angela Merkel is up for re-election next year. So she will be turning her attention increasingly towards her campaign. And running on the idea of more bailouts when the German economy is contracting is political suicide.

Thus, we have something of a capital freeze occurring in the US at the very same time that the primary pillar of EU stability (Germany) will very likely begin to pull back from providing additional aid (case in point, Greece is still waiting on receiving proposed aid from six months ago).

All of these items point towards what will be a particularly ugly 2013.

If you’re an individual investor (not a day trader) looking for the means of profiting from all of this… particularly the US going over the fiscal cliff… then you NEED to check out  my Private Wealth Advisory newsletter.

Indeed, 74 out of our last 88 trades have made money for Private Wealth Advisory subscribers. That’s an incredible 84% success rate on our investments.

And we’re not getting complacent by any means. In fact, I’m about to alert Private Wealth Advisory subscribers to several trades that will all produce HUGE profits when the we go over the fiscal cliff in the coming weeks.

You’ll find out what they are the minute you subscribe to Private Wealth Advisory. You’ll also gain immediate access to my Protect Your Family, Protect Your Savings, and Protect Your Portfolio Special Reports outlining how to prepare these areas of your life for the coming Great Crisis.

These reports outline:

1) how to prepare for bank holidays
2) which banks to avoid
3) how much bullion to own
4) how much cash is needed to get through systemic crises
5) how much food to stockpile, what kind to get, and where to get it

And more…

To take out an annual subscription to Private Wealth Advisory  now… start profiting from the market’s gyrations (again we’ve made money on 74 out of 88 trades in the last 18 months)… and gain access to all my Special Reports…

Click Here Now!!!

Best Regards,

Graham Summers