Dear Reader,
When our great leader came into power on January 20, 2009, the government's many debts added up to $10.6 trillion.
This week, with his regime less than four years old, the Red Sea of debt has risen by 51%, broaching the latest debt ceiling of $16 trillion.
Maybe, just maybe, justifying the critics in their claims that some of the clowns in Cirque de Obama lack a certain restraint when it comes to using the national credit card.
Now, I could go on at great length about this lack of restraint, or the inevitable consequences that must follow as surely as cries of global warming follow every warm day, but the latest e-letter assembled by dear friend and La Estancia de Cafayate neighbor Susan "Kung Fu Girl" Fuji covers the territory very well.
And so, out of a combination of sloth and admiration for her article, I received permission to reprint her letter below. As you'll read, by bringing together a number of sources on the topic, Kung Fu Girl does a solid job of shedding light on just how much one trillion dollars is.
Getting a clear understanding of what a trillion dollars actually is – and sharing this information with your friends and family – is important, because by now it is abundantly clear that the administration firmly intends to follow Keynes straight into fiscal, then monetary, hell. If you were to listen to luminaries such as Nobel Prize winner Paul Krugman, government borrowing and spending even at the current torrid pace is trivial and not nearly enough.
Yet, for most people, the mention of a trillion dollars doesn't mean much at all… it's just another abstraction in a world of abstractions. Kind of like drone attacks.
But what, exactly, does over $5 trillion in fresh debt since the Obama show began actually mean? After all, some day it has to be paid off, right? (Of course, on top of this is another tens of trillions of dollars in unfunded government liabilities related to various social programs.)
And to shed light on that, here's Kung Fu Girl…
By Kung Fu Girl
One of the biggest promises I made to you when starting Kung Fu Finance was to tackle the job of demystifying finance for you, to the best of my ability.
For an industry that prides itself on words like "credit default swaps," "derivatives," "inverse yield curves," "gold-to-silver ratio," "diminishing returns," "ROI," "Capex," "P/E ratio," "beta" and more, that's no easy task!
Even the very numbers themselves are difficult to understand or imagine.
How does one envision a trillion dollars?
Let alone $16 trillion… the threshold that the US crossed just yesterday on our debt!
Yes, the US debt surpassed $16 trillion yesterday. It's not "official" quite yet as the 2-year bond auction that pushed us over the edge still needs to settle, but next week this will be all over the financial news.
Zero Hedge wrote a great article on this that I highly recommend you read – it's short, sweet and to the point, and Tyler points out that it took only 286 days for us to add another trillion to our debt (whereas it took 200 years for us to accumulate our very first trillion!).
At this rate of growth, our total US debt load will surpass (not including unfunded liabilities):
But hey, at this point, we're so used to hearing those numbers tossed around like fluff… "million," "billion," "trillion"…
Who can even grasp how much that is or what that really means to our economy?
My poor little brain certainly cannot get a handle on it… how much is $16 trillion anyway? Is it possible to ever pay off this debt?
These are the questions I've been asking myself for the past several years, and recently I found an outstanding video from Tony Robbins who has the exact same questions I do, and who actually answered them in a great little video in simple, easy-to-understand human terms!
(Imagine that!) 
I highly recommend you watch the video if you have the time (it's less than 20 minutes), but in case you are time constrained (like me!), I'll net it out for you below, because I found it very helpful in framing the problem that we are facing here in the US (and just how massive a problem it is).
How on earth do you envision a number like a billion or a trillion?
Well, you have to convert it to something we can relate to, like seconds.
How long ago was a million seconds?
(Kung Fu Girl, ever bad at estimating things like this, has no idea… maybe a month?)
What do YOU think?
Was it a day ago? A week ago? A year ago? 10 years ago?
1,000,000 seconds was 12 days ago.
How about a billion seconds?
(Kung Fu Girl, again clueless… maybe several years?)
A billion seconds was 32 years ago.
That was back in 1980, when Carter was president, The Empire Strikes Back was in the box office, and yours truly had big '80s hair and used way too much Aqua Net.
Just look at that comparison for a minute, a million vs. a billion… that's 12 days vs. 32 years, a huge difference.
But the number we hear thrown around by politicians today isn't a million or a billion… it's TRILLIONS.
And as I said above, our debt just passed $16 TRILLION yesterday!
So how long ago would a trillion seconds have been?
500 years? 1,000 years?
A trillion seconds was… just short of 32,000 years ago!
That's back in the day when man wasn't even known as MAN… we were homo sapiens, Neanderthals, to be exact!
The second from the right... Homo neanderthalensis.
I don't know about you, but that certainly helps put it into perspective for me.
32,000 years ago, a trillion seconds, was a very, very long time ago.
And, if you earned a million dollars every single day of your life and you started in the year of Jesus Christ's birth, making a million dollars every single day up to 2012, you would not even be close to earning a trillion dollars.
It would take you almost 1,000 years to earn a trillion dollars!
And that's just ONE trillion…
But our national debt just passed $16 trillion (and that's not counting the $117 trillion of unfunded liabilities like Medicare and Social Security!).
Tony's team built on the work of Iowahawk, updating all of the US budget numbers for 2012, to attempt to answer the question:
"Just how are we going to pay for all of this debt?"
Because in 2012 alone, President Obama and Congress plan to spend $3.79 trillion.
That is $10.4 billion a day that we have to live on, and we borrow more than $4 billion of that each day just to stay afloat (40%).
So, what should we do?
Well, Tony and Iowahawk suggest we start with two of the biggest and therefore "most evil" corporations in America, Exxon Mobil and Walmart, and take every single penny of their combined 2011 global profits. No one will have a problem with that, right, because these "evil corporations" should pay!
That number is $46.7 billion, which gets us from midnight on January 1, 2012 to 12:45 PM on January 5th.
That's ALL the global profits from two of the largest corporations in the world, and yet we've barely funded the government a few days.
Well, what about the other 498 companies on the Fortune 500… why don't we take all of their profits, too?
That gets us $567 billion, and to 12:15 AM on February 29th.
Unfortunately, that's nowhere near where we need to be, and is only a few weeks after the Super Bowl.
Speaking of the Super Bowl, and all of that awful corporate advertising, let's grab that too – all corporate advertising from 2011 gives us another $200 million and runs the country for another…
28 minutes.
Hmm.
Not even a dent.
Well, let's take ALL of the 46 years' worth of Super Bowl ads – that ought to be huge!
And it is… that's $5.2 billion, which brings us to…
12:15 PM on the same day, February 29th.
OK. Obviously we need to do more – these Fortune 500 corporations and their advertising are simply not doing the trick.
So, let's really do it. Let's soak those rich people.
We can start with athletes… everyone knows they are wildly overpaid anyway and add no value to the world (kidding…), so let's take all of the salaries of everyone in the NFL, NBA, NHL, MLB, the PGA Tour and NASCAR. Not their endorsements but their salaries, total $10.1 billion.
(Remember, it takes $10.4 billion to fund the country every day.)
That gets us to…
11:35 PM on the next day, March 1st.
Well, what about the really rich people?
Let's take 100% of every penny of everyone who makes above $250,000 per year.
According to the 2010 census, there are 2.35 million households that make more than $250K per year, and the total income from all of those households is $1.363 trillion.
Now we're talking!
So let's just eat them and take everything that everyone makes over $250,000 a year, and see where that gets us…
To 1 PM on July 10th.
Hmmm.
We've taxed the richest people and the richest corporations, and we're barely halfway through one year – we're going to have to start cutting spending somewhere.
But where to start?
Well, let's stop spending on the wars in Iraq and Afghanistan… I'm sure a lot of people would like to see that happen!
Let's stop spending on that tomorrow and bring everybody home, and that will save us $117 billion, which is enough to get us to 8 PM on July 21st.
Well, shoot… that's only 11 more days!
But who else can we tax who's living too well? We still need more money!
Well, Iowahawk says, screw you, Star Wars (yes, THAT Star Wars…) we're going to take every penny you've ever made from movies, toys, lunchboxes, the whole shebang!
$26.6 billion... not too shabby!
It took you 35 years to come up with $26.6 billion, so we will implement a retroactive tax and take it all, which will bring us to…
9:20 AM on July 24th.
And speaking of those fancy Hollywood people… we've already taken all of their money, but why don't we evict everyone in Beverly Hills!
We'll confiscate their homes and sell them all at market value and take all of their sales proceeds. That will bring us another $48 billion, which is enough to get us to…
July 29th.
Damn… we're still only in JULY.
This is still not working. What else can we do?
Michael Moore assures us there is plenty of money out there, all tied up with the rich…
Let's see…those well-known billionaires, Warren Buffett and Bill Gates, are worth $100 billion between them.
Maybe it's time for an "accidental fall down the stairs"…? The inheritance tax will then allow us to keep half of that, $50 billion, and that will bring us to…
7 PM on August 2nd.
But let's get serious, there are 398 more billionaires, according to the Forbes 400, with a combined total net worth of $1.4 trillion!
Let's just kill them all off and take 50% of their estate! That's another $700 billion, which brings us to:
2 AM on October 9th.
At least we've made it to autumn!
But forget this 50% stuff… heck, let's just take all of their money, plus that of the hundred or so other "almost billionaires," which buys us another 32 days, to:
12:30 AM on November 10th.
That's the start of the holiday season, so let's get our Grinch on… let's confiscate all of the proceeds from all of the expected holiday sales!
That's $469 billion, which brings us to:
12:55 PM on December 25th.
Merry Christmas! We're almost there…
And remember, this money is for America's poor, so let's get rid of all foreign aid, the dying-children aid, those things we're trying to make a difference with… let's keep it all for ourselves!
That will bring us another $53.3 billion and take us to…
3:55 PM on December 30th.
We STILL have a day and change to pay for.
So, in order to cover the remaining $13.8 billion, let's hit up every single man, woman and child in America (that's 311 million people) for $44 each, to pay up.
Finally, at 12:00 AM, January 1, 2013, we have made it.
Happy New Year.
But what happens next?
We've already taken all of the profits, all of the salaries, all of the assets and all of the revenues and holdings of the rich and of their corporations, and we've liquidated them.
We have destroyed all advertising revenue, professional sports, movie stars, etc… and we have scraped through for only ONE year.
We have killed off the golden goose… there are no more golden eggs. No more profits or revenues available to tax.
Meanwhile, President Obama and Congress are proposing to spend another $3.8 trillion in 2013.
How are we going to pay for that?
Well, grasshopper… I think you get the point.
Besides having a firmer grasp of the utter gargantuan-ness of these numbers, I hope you understand just how much we need to sacrifice to bring our debt under control… and how much the politicians are not talking about this, on either side, at least in any frame of reference that will actually make a difference.
Because despite the somewhat rosy revision of today's GDP report (hey, we can grow our way out of this, right? And avoid all of those tough decisions!), we have a real fiscal solvency problem on our hands.
This matters to you as an investor.
I dearly hope you're not investing in Treasury bonds (we talked about how to short those a few QnA's ago…), and I hope you can see that rampant inflation looms not far in the future (although we may see a brief deflation first, depending on Europe).
Unfortunately, our investment decisions can no longer be made based solely on market or asset fundamentals… we truly do live in a politicized economy.
On that note, I am off to the aptly-named Casey Conference next week ("Navigating the Politicized Economy"), and I hope to see you there! If you are not able to attend in person but still wish to hear the information, you can pre-order the Summit CDs at a discount here.
I hope this helped you understand these crazy numbers and our debt a little better… please let me know your opinion in the comments!
To your financial success,
— Kung Fu Girl
David again. I have mentioned Kung Fu Finance before, and Kung Fu Girl's regular missives. They are well worth adding to your already stuffed inbox. For more on Kung Fu Finance, and to sign up for her free e-letter, click here.
Also, if you are planning on attending the Cafayate Adventure event, November 5-10 at La Estancia de Cafayate, you'll get to meet Kung Fu Girl in person as she'll be a member of the faculty at our Casey Research conference being held in conjunction with the event. For more details on the event, drop Dave Norden a note at Dnorden@LaEst.com, and he'll get you all the info.
The Golfer's Dilemma
Now, I don't care whether you have ever been anywhere near a golf course – this is a very funny video of a comedy routine. But if you are a golfer, this is a classic. Click to watch The Golfer's Dilemma.
ID, Please
Harry Reid walks into Bank of America to cash a check. As he approaches the cashier, he says, "Good morning , could you please cash this check for me?"
Cashier: "It would be my pleasure, sir. Could you please show me your ID?"
"Truthfully, I did not bring my ID with me as I didn't think there was any need to. I am Harry Reid, Senate majority leader!"
Cashier: "Yes, sir, I am pretty sure you are who you say you are, but with all the regulations and monitoring of the banks because of imposters and forgers, etc., I must insist on seeing ID."
Reid: "Just ask anyone here at the bank who I am and they will tell you. Everybody knows who I am."
Cashier: "I am sorry, sir, but these are the bank rules and I must follow them."
Reid: "I am urging you, please to cash this check."
Cashier: "Look, sir, this is what we can do: One day Phil Mickelson came into the bank without ID. To prove he was Phil Mickelson, he pulled out his putting iron and made a beautiful shot across the bank into a cup. With that shot, we knew him to be Phil Mickelson and cashed his check.
"Another time, Roger Federer came in without ID. He pulled out his tennis racquet and made a fabulous shot where the tennis ball landed in my cup. With that spectacular shot, we knew him to be Roger Federer and cashed his check.
"So, sir, what can you do to prove that it is you, and only you, as the Senate majority leader?"
Reid stands there thinking and thinking, and finally says: "Honestly, there is nothing that comes to my mind. I can't think of a single thing I'm good at."
Cashier: "Will that be large or small notes, Mr. Reid?"
On the Topic of Exercise
These were sent to me by an English friend who has often made the remark, "Every time I feel like a little exercise, I lie down until the feeling passes."
My own father, who was thin all his life, was fond of saying, "Hey, if you never get in shape, you can't get out of shape."
Here are more from the same genre…
Walking can add minutes to your life. This enables you, at 85 years old, to spend an additional 5 months in a nursing home at $10,000 per month.
My grandpa started walking five miles a day when he was 60. Now he's 97 years old and we have no idea where the hell he is.
The advantage of exercising every day is so when you die, they'll say, "Well, he looks good, doesn't he."
If you are going to try cross-country skiing, start with a small country.
By Kevin Brekke
The latest Case-Shiller Index (CSI) numbers for June 2012 were released this week to much fanfare. It's been a while since we dissected the Index and thought it was time to take a closer look.
The headline numbers almost exclusively cited in the press are the 10-city and 20-city indexes. They represent exactly what their name implies; an index calculated from a composite of select cities.
Today, we will look at the 20-city CSI number and break it down into its constituent parts to get a more granular feel for the nation's individual property markets. I attempted to loosely sort the 20 cities into four geographic groups in the following four charts. Keep in mind that the indexes are chained at a value of 100 starting in January 2000, so the percentage changes are directly comparable across all cities. Here they are:
(Click on image to enlarge)
(Click on image to enlarge)
Very interesting to note that two shooting stars of the housing bubble — Las Vegas and Phoenix — have corrected to levels similar to three other housing markets that only experienced modest price increases.
(Click on image to enlarge)
(Click on image to enlarge)
The Midwest/Great Lakes region is struggling. Cleveland, Chicago and Minneapolis are barely above their 2000 levels. Detroit is the outlier of the index and may well become the first failed American city of its size.
Location, Location, Location… and Manipulation
With the release of the CSI came the cry about a year-on-year increase for the month of June, and the steep 6% increase in the index since March. And, indeed, both of those claims are true, as you can see in the next chart:
(Click on image to enlarge)
But the rapid upswing over the last few months can hardly be called a trend. It seems to resemble a Coney Island fun ride when compared to the clear up-and-down trends of the prior nine years.
What's missing from the gyrations of the Index is the setting against which this nascent "housing recovery" is playing out. The area of the above chart shown in the box is from November 2008 through June 2012, and is displayed in the next chart. Let's take a look and see what we can see.
(Click on image to enlarge)
Hmmm… not the picture of a free market.
There has been ample speculation about the fate of the US housing market. Talk of demographics, shadow inventory, delayed household formation, student loan debt and overall personal debt loads, among many others, have been cited as factors that will suppress house prices for years to come.
Clearly, however, massive and persistent government intervention has prevented an even greater catastrophe in the great reset in home prices – and a further cascade in mortgage loan defaults.
Studying the timing of many of the Fed's programs, one could easily speculate that the 140-level on the Index is a line in the sand that will be defended. How long this level can be supported is the big question.
With nearly all markets now dependent on government stimulus as the springboard for another rally, Fed watchers have taken note of the recent housing rebound. Will this show of strength convince the Fed to delay another QE deployment? Who knows. But recalling that the markets rallied 28% in the eight months following Bernanke's speech at the 2010 Jackson Hole meeting and subsequent QE2 announcement, all eyes and ears will be focused on the machinations soon to emanate from Wyoming.
Regardless of what the Fed does, a specter of uncertainty is likely to hang over US markets for some time. That's why it's wise to put some of your money to work abroad.
Our friends at International Man have assembled a globally diversified team of successful analysts and investors who can help you take advantage of the highest-potential, lowest-risk opportunities in the world.
The team includes Casey Research Chairman Doug Casey... Mauldin Economics Chairman John Mauldin... Investing Without Borders author Adrian Day... and the author of the above article, Kevin Brekke, who lives in Switzerland and specializes in global investment vehicles.
You'll find their insights and specific stock recommendations every month in World Money Analyst, a new global investment advisory from International Man. Right now, new subscribers can get in at a ridiculously low price.
With the Labor Day weekend upon us, I'm going to put away the tools early and see if I can't scratch up a golf game.
Speaking of Labor Day, there will be no Dispatch on Monday.
I'm looking forward to seeing many of you at our Summit, co-hosted by Sprott, Inc., on Navigating the Politicized Economy, which starts this upcoming Friday, September 7, at the beautiful Park Hyatt Aviara Resort in Carlsbad, California. Those of you unable to attend should check out the CD recordings, now available at a pre-order discount. Details here.
And with that, I'll sign off for the week by thanking you for reading and for being a Casey Research subscriber!
David Galland
Managing Director
Casey Research