There is nothing new in the video above to anyone who reads Zero Hedge or any other impartial news source, but if it takes a documentary to reach the masses who don’t read, it’s better late than never since this mess is still ongoing. There has been no recovery, only a cover up.

The Yen hit a 15-year high against the dollar yesterday. Since Japan’s economy is heavily reliant on exports, a stronger Japanese currency curbs the profits of large Japanese companies. Also yesterday, existing U.S. homes fell more than 27% in July, the largest one-month drop on record, California is To Issue IOUs For the Second Year In A Row, the second time in as many years (going all the way back to the Great Depression), U6 unemployment is around 17% and all of the western sovereign nations are bankrupt already with no way to pay for their future liabilities, let alone pay down their debt. All this before we have even started sliding down the back of Hubberts peak after the bumpy plateau we have been on since 2005.

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

http://www.bloomberg.com/news/2010-08-11/u-s-is-bankrupt-and-we-don-t-even-know-commentary-by-laurence-kotlikoff.html

Via ZeroHedge

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final total catastrophe of the currency involved.” -Ludwig von Mises

Left unaddressed during the past 3 years in most of the debates between economists has been the problem of energy. The reason is simple: post-war economists don’t do energy, except as an ever-expanding resource that the credit system and technology makes available. For the post-war economist, the supply curve of energy–save for brief lags–is always coming back into rough equilibrium with the economy.

Only an economist could wonder in their leisure now, whether energy played a significant role in our current crisis. Indeed the public remarks of Ben Bernanke on the matter of energy, during the 2005-2010 period, were at least as clueless as his embarrassing commentary on the historic bubble in housing and credit. As the nation’s chief economist, Bernanke saw no problem with credit, with derivatives, with the fast inflation in housing prices, or with energy prices. And as an American economist, he was not alone.

As state’s see their budgets collapse and start a new round of layoffs, we should consider the fact that house price inflation masked the lack of wage growth in the United States. And now that house prices continue their descent for a 5th year, American workers are more fully exposed to the decade-long march higher in energy costs. They can experience this individually through energy prices, or more generally through the overall energy cost to the economy.

http://www.theoildrum.com/node/6705

JUST BEFORE THE First World War in 1913, the German mark, the British shilling, the French franc, and the Italian lira were all worth about the same, and four or five of any were worth about a dollar.

Ten years later in 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the Weimar Republic was all but reduced to a barter economy. Expensive cigars, artworks and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal, and a bottle of paraffin for a silk shirt. In desperation, the Bavarian Prime Minister submitted a Bill to the Reichsrat proposing that gluttony be made a penal offence his exact definition of a glutton being ‘one who habitually devotes himself to the pleasures of the table to such a degree that he might arouse discontent in view of the distressful condition of the population’.

Since its first publication in 1975, When Money Dies has become the classic history of these bizarre and frightening times. Weaving elegant analysis with a wealth of eyewitness accounts by ordinary people struggling to survive, it deals above all with the human side of inflation: why governments resort to it, the dismal, corruptive pestilence it visits on their citizens, the agonies of recovery, and the dark, long-term legacy. And at a time of acute economic strain, it provides an urgent warning against the addictive dangers of printing money — shorthand for deficit financing — as a soft option for governments faced with growing unrest and unemployment.

http://www.amazon.co.uk/When-Money-Dies-Nightmare-Hyper-Inflation/dp/1906964440

It is interesting to note the three reasons why it kept going for as long as it did – one, the authorities knew that balancing the books would lead to an increase in unemployment, two, printing was politically the easy solution, and three, (much like in Argentina in 1989) the authorities in large had an interest in keeping the inflationary scheme going, as it erodes it’s debt and the value of it’s liabilities.

I found out about this book after reading this pretty good article.

The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years.

“The worm is turning,” said David Bloom, currency chief at HSBC. “We’re in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we’re moving into a new phase because we’re hearing alarm bells of a US double dip.”

http://www.telegraph.co.uk/finance/currency/7893238/Feds-volte-face-sends-the-dollar-tumbling.html

Get that? The most powerful central bank in the world says the US will not recover for 5-6 years. If we are not within the start of a deep oil supply crunch by that time I will be extremely surprised, which means there will be no recovery in 5 or 6 years time either. Extrapolate that out further as you wish, taking into consideration the already record debt levels.

The US workforce has shrunk by a 1m over the past two months as discouraged jobless give up the hunt. Retail sales have fallen for the past two months. New homes sales crashed to 300,000 in May after tax credits ran out, the lowest since records began in 1963. Mortgage applications have fallen by 42pc to 13-year low since April. Paul Dales at Capital Economics said the “shadow inventory” of unsold properties has risen to 7.8m. “The double dip in housing has begun,” he said.

Nearly everyone will admit that continuing oil shortages and that high (above $100 a barrel) oil prices would be devastating to the prospects for economic recovery and that persisting very high (say above $200 a barrel) oil prices would send the U.S. and many other economies into a deep, long-lasting depression. The problem is that few are willing to consider seriously the accumulating evidence that increasing oil prices and eventually oil shortages within the next few years are as inevitable as the sunrise. Most of us have no thoughts about the issue other than the current price of a gallon of gas. Among those who appreciate that the world’s petroleum resources are finite, few understand the proximity of the crisis.

So where do we stand in mid-July 2010? While, the U.S. and OECD economies may not be doing so well, the global demand for oil has recovered nicely. After taking a two-year 3 percent dip in obeisance to the economic downturn, global oil consumption is now reported to be back in the vicinity of its 2008 high of 86.6 million barrels a day (b/d) for 2010. While U.S. demand is down a million barrels a day or so, demand from China and India are up more than enough to offset what is called “weak” US and European consumption. The International Energy Agency (IEA) tells us that it currently expects world demand to increase by 1.3 million b/d next year to a new annual high of 87.8 million b/d.

As nobody who carefully watches global oil production expects it to increase in coming years, we are left with “total productive capacity” which is currently estimated by the IEA to be 89.7 million b/d. This is about 3 million b/d above what we are currently using – maybe. Most of this spare capacity is supposed to be in Saudi Arabia; a land of eternal optimism where oil reserves never go down no matter how much is pumped up and sold. Many are skeptical that all of this “spare capacity” is really ready-to-go, reasonable quality, sustainable, production capacity. If not we are in worse shape than we believe.

Article from retired CIA analyst, Tom Whipple continued here.

Oil prices began to march upward in 2004, a pattern that would last for almost 4 years, slowly breaking all previous records. Even in the wake of the hardest Economic recession of the last 30 years, oil prices are today about four times what they where a decade ago. These continuing high prices have lent credibility to those who for many years have warned about impeding difficulties in continuing the growth in world oil production that has existed for the past two decades. Notable among those giving warning are Colin Campbell and Jean Laherrére [1], Richard Duncan and Walter Youngquist [2] or Kenneth Deffeyes [3] for their oil production forecasts and Ali Bakhtiari [4] for his price predictions.

The constraints to oil production growth have today been acknowledge by most, even by the Industry itself [5], as show by Figure 1. Also notable have been the implicit warnings issued by the IEA, that despite publishing production scenarios that each year match demand, have been vocal in other contexts explaining how unlikely the scenarios are to happen. It’s Chief-Economist, Fatih Birol [6], has been particularly outspoken in this regard.

Peak Oil, as it was named by Colin Campbell, is a pretty palpable reality at this stage, but for Europe reality is bit more intricate. Only one of its states is a net oil exporter, with most meeting their needs fully with imports. International oil trade peaked in 2005 and has entered a permanent decline; moreover, this decline will likely accelerate during the next decade, by 2020 taking away between 1/3 or 1/4 of the volume of oil available in the market in 2005. This has been the main reason behind the high price environment of the past 6 years.

Continued…

Because I am kind of a geek sometimes, I thought it would be fun to have a look at some data from China and run a few numbers after I read this article.

If China keeps growing at 7.5% they will need double the oil they use now, in 9.3 years. Even assuming nobody else has any growth there is no way in hell they will be able to find an extra 9 million barrels a day (around 18mb/d total or about twice what Saudi Arabia, the biggest producer produces per day). If we take it a little further out, to the next doubling time in just over 18 years time, when my son reaches his 18th birthday, China will be needing 36 MILLION barrels every day.

There is no way there will be enough Oil to go around pretty soon, when it is being consumed at 86.4 mb/d at the moment and world wide oil discoveries have been less than annual production, since 1980.

Interview with Dr. Paul Craig Roberts, former Assistant Secretary US Treasury, Associate Editor Wall Street Journal, Professor of Political Economy Center for Strategic and International Studies Georgetown University Washington DC.

Question:  Dr. Roberts,  the United States is regarded as the most successful state in the world today. What is responsible for American success?

Dr. Roberts:  Propaganda. If truth be known, the US is a failed state. More about that later. The US owes its image of success to: (1) the vast lands and mineral resources that the US “liberated” with violence from the native inhabitants, (2) Europe’s, especially Great Britain’s, self-destruction in World War I and World War II, and (3) the economic destruction of Russia and most of Asia by communism or socialism.

After World War II, the US took the reserve currency role from Great Britain. This made the US dollar the world money and permitted the US to pay its import bills in its own currency. World War II’s destruction of the other industrialized countries left the US as the only country capable of supplying products to world markets. This historical happenstance created among Americans the impression that they were a favored people. Today the militarist neoconservatives speak of the United States as “the indispensable nation.”  In other words, Americans are above all others, except, of course, Israelis.

To American eyes a vague “terrorist threat,” a creation of their own government, is sufficient justification for naked aggression against Muslim peoples and for an agenda of world hegemony.

This hubristic attitude explains why among most Americans there is no remorse over the one million Iraqis killed and the four million Iraqis displaced by a US invasion and occupation that were based entirely on lies and deception. It explains why there is no remorse among most Americans for the countless numbers of Afghans who have been cavalierly murdered by the US military, or for the Pakistani civilians murdered by US drones and “soldiers” sitting in front of video screens. It explains why there is no outrage among Americans when the Israelis bomb Lebanese civilians and Gaza civilians.  No one in the world will believe that Israel’s latest act of barbarity, the murderous attack on the international aid flotilla to Gaza, was not cleared with Israel’s American enabler.

Excellent interview continued at the progressive mind here….

For Spain it has been a horrible week. The central bank seized CajaSur and imposed draconian write-down rules on banks to restore confidence. The Spanish Socialist and Workers Party (PSOE) of Jose Luis Zapatero then rammed a 5pc cut in public wages through the Cortes by a single vote, shattering consensus. The government cannot hope to pass a budget. Its own trade union base is planning a general strike.

The sub-text of Fitch’s 32-page report shows Mr Zapatero’s self-immolation to be futile in any case. The agency has not downgraded Spain for lack of austerity. Its implicit conclusion is that the policy of 1930s wage cuts – or “internal devaluations” – being imposed on southern Europe’s humiliated states as a quid pro quo for the EU shield is itself part of the problem. Ultra-austerity will bleed the economy, shrivel tax revenues and fail to close deficit anyway. “Fitch believes the risk that economic growth will fall short of the government’s projections,” it said.

El Pais spoke of a “perverse spiral” in its editorial. “The Fitch note drives home the apparently unsolvable contradiction in which the Spanish economy finds itself. To maintain debt solvency Spain must squeeze public spending: yet this policy undermines the chances of recovery which itself causes further loss of confidence.”

Spain’s unemployment was already 20.5pc even before this latest dose of shock therapy. There are 4.6m people without work. Dole payments alone account for half the budget deficit.

By Ambrose Evans-Pritchard from the telegraph…

The New York University professor, Nassim Taleb, who made his name predicting the credit crunch, has told investors to dump equities and government bonds and buy ‘hard assets’.

He has poured scorn on the economic recovery, claiming that the global economy is in worse shape than it was during the subprime crisis and warns that the US could yet lurch into a Greek-style meltdown.

In an interview with Bloomberg TV, Taleb said the fragility in the banking system that he spotted in 2007 is still there and the bail-out of the financial sector has encouraged bankers to continue their ‘casino’ operations by increasing moral hazard.

“Look at all of the money they made with our backing- it is like they spat in our faces,” he said.

His main concern is that the transferal of debt from the private to the public sector has seen the risks within the financial system increase and ‘take a much more vicious form.’

Continued….

keeping interest rates lower than inflation and letting the currency take the strain is another way to reduce the real value of debt.

Stealthily robbing savers by eroding the purchasing power of money is less likely to cause riots in the streets than spending cuts, because inflation tends to hit older people hardest while unemployment hits the young.

“The great Irish dramatist George Bernard Shaw said: ‘You have to choose between trusting the natural stability of gold or the natural stability and intelligence of members of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.’ I have to say, I’m with Bernard Shaw on this.”

The beginning of a U.S. currency crisis and hyperinflation.

From Zero hedge:

First the fun stuff: gold hit an all time record today. To those who have had the foresight to realize that in the currency devaluation race to the bottom, the only winners will be non-dilutable precious metals (and not industrial gimmickry and bets on China’s excess capacity like copper…well, maybe with the reverse alchemy exception of lead), we salute you. In fact, so does the market: the S&P is now down 8% year to date when expressed in ounces of gold. Because while central banks can monetize, sterilize (whatever that means), and dilutize that last remnant of the dying Keynesian religion, the FRN and its equivalents around the world, gold is untouchable, and increases in value with each desparate attempt to save a failed economic system.

Yet the bandwagon is once again getting heavy: the EUR is getting killed after hours, approaching $1.25 and is about to break the E-mini critical 117 yen support once again. Should central bank buyers not materialize, hello gravity. Which would also mean freefall for the ES. The bailout plan is now null and void, and in need of a bailout plan itself.

It’s been a long time coming, from the fringe to the center. Long overdue, but nevertheless a welcome sight and sound to hear peak oil being discussed on mainstream TV (CNBC). Meanwhile in other news, stock markets dropped as much as up to 9% today (!!!).

Chart from Evil Speculator: