Wednesday, September 29, 2010

Gold will touch $1500 / ounce in the next 17 months----By Shan Saeed

Gold will touch $1500 per ounce in the next 17 months.....How? 9 SOLID REASONS FOR UPSURGE IN THIS PRECIOUS METAL.....READ BEFORE YOU MISS THE BULL TRAIN OF GOLD----BY SHAN SAEED

I have polished my commodities skills after meeting with JIM ROGERS who is the commodities guru of the global markets. I have devised strategies and reasons for Gold investors to benefit from my knowledge and expertise. Gold is a great asset for people who are rich and who want to stay rich. Gold can protect your wealth in times of uncertainity. WHY Gold prices will touch $1500/ ounce in the comming years.

I have outlined 9 bullish arguments for gold.

1. Global fiscal and monetary reflation – The world’s major economies have taken on extensive amounts of debt to keep their economies afloat. The struggles of Greece and other nations in Western Europe haven’t gone away. The U.S. has spent hundreds of billions of dollars in stimulus money and is still losing jobs. Household debt to GDP ratio is 122%. It will require $5 to $6 tillion to bring it down to 100% of GDP...

2. Global imbalances – The dollar has benefited from the troubles in other countries in its role as a relative safe haven. “Relative” is the key word – roughly $10 trillion is expected to be added to the U.S. federal debt burden through 2019 and the U.S. trade imbalances are huge. These trends stand to weigh on the dollar and support gold’s safe haven status over the longer term. Quantitative easing will further debase the US dollar which might lead to crisis and lowers the confidence level in US dollar. Fear is a depreciating asset which might hurt the US dollar in the short as well in the long run...

3. Global foreign exchange reserves are “excessive” – Global foreign exchange reserves have expanded exponentially in just the past few years, reaching $8.97 trillion in July 2010. Meanwhile, the gold reserve ratio has dropped significantly since 1980.

4.Central bank attitudes to gold – Under the current central bank selling agreement, only the International Monetary Fund has been a seller of gold. Latin American countries, who were net sellers of gold up until 2002, are now buying gold again. India purchased 200 metric tons from the IMF in the fourth quarter of 2009, setting a floor under gold just above $1,000. China has increased its gold reserves from 395 metric tons in 2001 to 1,054 metric tons as of the end of the first quarter—a 166 percent increase in less than a decade. Central banks from China, Japan, Russia, India, South America and Middle East would be the main players in the gold purchase going forward....

5. Gold is not in a bubble – Gold’s run has been slow and steady. As I mentioned last week in one of the TV interviews, we’re not seeing large price spikes that are typical with bubbles. The gold chart and trends illustrate just how different gold’s current bull run has been from previous ones. A key difference today is that we’re seeing greater affluence in the developing world, where people have traditionally turned to gold to store their wealth.

6. Mine supply is flat – World mine production is about 2,500 metric tons—roughly 25 percent higher than it was in 1990—but net mine supply is less than it was 20 years ago. Dehedging, increased scrap supply, lower grade discoveries and higher replacement costs will continue to constrain supply. We’re already seeing this affect the marketplace. During the second quarter of 2010, gold demand rose 36 percent year over year, while supply was up just 17 percent.

7. Investment demand - Investment demand in the second quarter of 2010 more than doubled compared to the same period in 2009, and accounted for more than half of total global demand. Investors bought the most gold since the first quarter of 2009, at the depths of the Great Recession. Chinese government has advised her people in Shaghai daily on 10th September, 2009 to increase investment in Gold and silver by 15% in their portfolio....Shanghai Gold exchaange is the busiest place on earth at the moment

8. Commodity price cycle – Commodity price cycles tend to last multiple decades. Going back to 1800, the shortest gold cycle is 10 years and shortest copper cycle is 14 years. The current bull cycle began in 2001. Gold price in 2001 was $ 257/ounce..did you lose or make money? Analyze your investment strategy for the long run...Get insurance of your wealth and buy Gold

9. Geopolitical environment – Historically, gold has performed well in times of strategic geo-political and financial turmoil. Gold hit an all-time high (inflation adjusted) in 1980 amid the Iran hostage crisis and the Soviet invasion of Afghanistan. Today’s geopolitical climate is also volatile given the ongoing wars in Iraq and Afghanistan and the pursuit of nuclear arms by Iran and North Korea. Sovereign Debt crisis looms in my developed countries which is scaring investors globally.....

This research piece is not an investment advice. Please execute your own due diligence before making an investment in commodities.

Monday, September 13, 2010


Experts Warn US, Developed World Face Significant Risk of ‘Double-Dip’ Recession...

So the billion dollar question is ? Is the global economy out of the woods?

According to my analysis, we are heading for sub-par growth.....You can bet

Two years after near-meltdown, with the U.S. looking sluggish, equity markets groggy and Europeans fighting a debt crisis, experts gathered in Italy offered a generally gloomy outlook — especially for the United States and much of the industrialized world.

The doomsayers were led by New York University economist Nouriel Roubini, who warned in booming tones that "there is a significant risk of a double-dip recession in the United States" as well as in Japan and many European countries.

Some of the assembled experts and leaders at the annual Ambrosetti Forum in Cernobbio, Italy, on the shores of Lake Como were somewhat more upbeat: economist Edwin Truman, a senior fellow of the Peterson Institute for International Economics, predicted that "the most likely global outlook is subpar growth."

But most appeared to agree on a sobering array of basic problems standing in the way of true recovery: However, recovery figures are questionable

• Many of the growth drivers in place since the collapse of Lehman Brothers are winding up or have ended, including not only the massive stimulus spending but tax breaks, schemes such as the "cash for clunkers" program and — for some countries like Russia — high commodity prices.

• The stimulus deemed necessary to jump-start moribund economies soon causes deficits and debt, upsetting the markets enough to spur austerity -- which undermines growth. USA need to cut taxes and continue spending.....

• Most of the world's growth stems from a developing world led by China -- which is so dependent on exports that it needs the West to continue to buy, and so will suffer if recovery in the rich world proves short-lived.

• Europe continues to lose competitiveness partly because of the euro, which — for all the fretting over its dip earlier this year at the height of the Greek debt crisis — remains high in purchasing price parity terms versus the U.S. dollar. Sovereign debt risk remains high...Portugal, Spain and Italy are presenting gloomy pictures of their balance sheet to the global economy......

• The sector that is widely seen as the spark of the global recession — U.S. real estate — has not recovered, with house-buying flat and the mortgage market, with its related financial instruments, essentially still in ruins. Real estate will recover by Q-3, 2011

• The jobs picture is not improving and in parts of the developed world — such as Spain, with some 20 percent unemployment — it is disastrous. France is following the footstep of Spain with unemployment rate of 12%

The warnings come amid mixed news on indicators. The European Central Bank raised its growth projections Thursday and its president, Jean-Claude Trichet, said recession might be in the cards."

But the bank said the situation remained uncertain and that it would keep measures to supply banks with additional credit in place until the end of the year.

The U.S. unemployment rate rose in August for the first time in four months as hiring by private employers proved insufficient to keep pace with a large increase in the number of people looking for work. The Labor Department said Friday that companies did add a net total 67,000 new jobs last month, down from July's upwardly revised total of 107,000.

But more than a half-million Americans resumed their job searches, which drove up the jobless rate to 9.6 percent from 9.5 percent in July — a figure above the rate in Britain and Germany. USA unemployment figure will touch 10.3% by Q-4, 2010

"I see a very weak labor market," said Roubini, who gained celebrity for predicting the global collapse of 2008 when others were still celebrating the boom times. He noted noting unemployment is close to 10 percent and almost 17 percent when including discouraged workers or partially employed ones.

He puts the chance of recession at 40 percent or more — a position he has staked in recent weeks — and said even weak growth would still feel like a recession.

"The U.S. has to create 150,000 every month in the private sector just to stabilize the rate and prevent it from rising," he said. "We'd have to create 300,000 jobs every month for the next three years just to bring back the level of employment to before this recession started," Roubini said.
"Nobody ... believes the U.S. is going to create any time any amount of jobs like that. I believe that to create 10.8 million jobs in the next 3-years is quite ambitious task.

And even that wouldn't be enough when taking into account the young people entering the labor market.

Harvard University historian Niall Ferguson noted that since 2001 the United States has seen its debt-to-GDP ratio double to 66 percent and that it may well be headed toward the danger zone of 100 percent. Household debt to GDP ratio is 122%

"This is a completely unsustainable fiscal policy," said Ferguson. "Pretty soon the U.S. will be spending more on debt service than national security. ... That's a tipping point for any global power."

Americans "just have to go down in their living standards" after years in which their living standards soared in part based on foreign credit which is no longer there," said University of Munich economics professor Hans-Werner Sinn. Jacob Frenkel, Chairman of JP Morgan Chase International, urged the United States to rein in entitlements as part of a "political deal" that recognizes reality.

Who will share the good news with us. I think , its very simple "emerging economies have high potential growth."

According to ROUBINI that comes with a caveat: Roubini warned that world growth leader China was too dependent on exports to the struggling West and predicted that within a year its economic growth will be overtaken by India, a huge nation much more reliant on its domestic market for development.

The leading Chinese delegate to the forum, Cheng Siwei, seemed to agree with the criticism. "We must change our investment pattern from investment driven to relying more on domestic consumption. Chinese trade surplus is down in August 2010 and domestic comsumption is getting strong. Which is the key in this scenario.

What about Greece, whose near-default four months ago rattled the nerves of investors around the globe?

"Greece will not make it. The world can either subsidize Athens indefinitely, force a degree of austerity that actually risks "civil war," or — the least bad option — encourage Greece to restore its drachma currency despite the domestic banking collapse that could well result. Devalue the currency, get out of Euro and restructure the loans. Greece government fudged the figures in order to get the EURO club membership....

Another crisis is looming in the bond spreads — the difference between the cost of borrowing for troubled countries such as Greece and solid ones such as Germany — have swiftly returned to the startling levels that preceded the Greek bailout in May.

High productivity is the main driver for the USA economy along with confidence among consumers. "U.S. productivity increase has been significant." In the second recent quarter, productivity dropped 1.8 percent.

But higher productivity, while good for companies' bottom lines, is also a reflection of the stagnant labor market and the shrinkage of payrolls as firms hope to produce as much as before with fewer and more productive staff.

In perhaps an illustration of that psychology, several hundred business leaders at the forum were asked for their projections on their own companies' prospects. Voting electronically, some 70 percent predicted a rise in turnover by the end of 2010 and almost half predicted a rise in their firms' investment.

But less than a third saw a chance for new hiring; almost half saw no change — and about a quarter predicted even more reductions. President Obama needs to build confidence in the economy which is the driver for growth.....

Disclaimer: This is just a research piece and should not be taken as investment advice..Please execute your own due diligence and research before making an investment globally.

Saturday, September 11, 2010

Silver is the real currency-----shared by Shan Saeed

Its like a train coming at you and you are not going to stop it by standing in its way....Commodities BULL run will continue...I have coined COGS....i.e. Copper, Oil, Gold and Silver.....Lets talk about Silver. The caveat is very simple.Its industrial utilization is much higher than Gold......

The interesting thing about silver is the metal is starting to trade a lot like "real money" in the past month. Since much of silver is consumed in industry, it often trades like an industrial metal... like copper or zinc. Investors and traders usually buy and sell it based on their expectations of global economic growth. Most people don't know this, but silver traded almost in lockstep with both oil and the S&P 500 this year.

In the past few months however, silver has soared, while the stock market and oil have languished. The S&P is barely up in the past two months, while silver has climbed 9% to reach its highest level since March 2008. Silver will touch $23/ ounce in 2010. Gold is near an all-time (non-inflation adjusted) high. What's going on here?

My guess is that silver has again become chiefly viewed as a "hard money" safe haven, like gold. Despite the lull of bad news regarding U.S. deficits and a euro meltdown, these problems are still gurgling under the surface of the markets... and seasoned investors are accumulating more gold and more silver in anticipation of a potential crisis.

This is also driving the extraordinary move in junior gold and silver stocks. In a primary bull market for gold and silver, these stocks absolutely skyrocket. It's not uncommon to see these companies rise 100% in a month... or 1,000% in a year. As per guru's and master speculator Doug Casey says, "you only need one" of these little moonshots to make an investment fortune.

For example, had an investor placed $25,000 into Phase 1 recommendation ATAC Resources when Matt Badiali recommended it in October 2009, he would now be sitting on a position worth more than $190,000.

Whats happening to the US DOLLAR? I will share the inside story with you...China and Russia have formed strategic alliance and developed that partnership to counter Dollar.

China and Russia are planning to start trading in each other's currencies as the world's second-biggest energy consumer and the largest energy supplier seek to diminish the dollar's role in global trade.

China may start trading its currency against the ruble within weeks, three bankers with knowledge of the matter as per Bloomberg, and sent out a document last week allowing lenders to apply for ruble trading licenses, one of them said. Russia's Micex Stock Exchange is making preparations to trade the ruble against the yuan in an initiative that has the backing of the country's central bank.

"Given the risk to the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency. It makes strategic sense for two large economies to exclude a third, overly dominant economy from their trading equation."

In the wake of the global financial crisis, which forced the U.S. economy into recession some people call it depression, both China and Russia have called for the dollar's role in the financial system to be diluted. Volatility in major currencies is putting the global recovery at risk. Russia, is the holder of the world's third-largest foreign-currency reserves, reduce its holdings of dollar.

Yuan-Ringgit Trading

The yuan slid 0.06 percent to 6.7953 per dollar paring its gains since the central bank ended a two-year dollar peg on June 19 to 0.4 percent. Russia's ruble weakened 0.3 percent to 30.9225 per dollar and has fallen 2.1 percent versus the greenback so far this year. Yuan and rubble would depreciate and wont appreciate as per US aspiration.....

The euro gained 0.2 percent to 1.2712 per dollar and jumped 2.5 percent against the U.S. currency last year.

The People's Bank of China started yuan trading against the Malaysian ringgit between banks on Aug. 19. Very few people know about it. Yuan, capital controls would be removed in 3-years time and It already allows trading of the renminbi versus the dollar, the Hong Kong dollar, Japanese yen and the euro on its interbank market and China's Foreign Exchange Trading Center provides daily reference rates for these currencies. The yuan is a non-deliverable currency that is managed by the central bank to prevent volatility.

'Fully Convertible'

The ruble is a "fully convertible" currency and some Chinese banks have already been allowed to open ruble trading accounts. The opening of cross-currency trade between the yuan and the ruble is more important for China. They are gradually allowing more currency operations with yuan.

China overtook Germany as Russia's second-largest trading partner in the first six months of the year, helped by exports of Russian commodities such as aluminum, nickel and oil and gas. Trade between China and Russia jumped 50 percent to $30.7 billion in the first seven months of this year, compared with the same period in 2009,

Sources: China's Ministry of Commerce said in a statement on Aug. 21.

The world's fastest-growing economy is seeking to eliminate the need to convert yuan holdings in to dollars before converting in to rubles to pay for Russian commodities.

Dollar Elimination

"China wants to reduce the volatility in its access to primary goods. They want to reduce their dependence on the dollar in trade transactions.

HSBC Bank (China) Co. and Bank of Communications Co. completed the first yuan-ringgit transactions, according to the Foreign Exchange Trading Center, which is affiliated with the central bank. The central bank was investigating the possibility of offering new currency pairs on the interbank market, including ruble, won and ringgit. "Gradually the dollar is being eliminated from the foreign-trade settlement flows. People are beginning to trade Asian currencies without intermediation via the dollar."

This research report is not an investment advice to the investors..Please execute your own due diligence and discount this research report by using your judgment call.

Sunday, September 5, 2010


Strategic Value Investment Advisory Services
By Shan Saeed
MBA 2009 Uni. of Chicago, Booth School of Business, USA

The global economy is passing through the worst of all depression of the modern times since 1930’s. As we navigate through turbulent times, the financial market would remain volatile and uncertain for the next 2- years. You bet. The US is bankrupt. because he had reached the total of a thousand of gold per day to wage war, which caused an army to be maintained by contributions from your people, from China’s lending to the trade deficit, in order not to be afflicted by heavy exactions, and let prices not to go up. Deflation is a more dangerous than inflation. US is trying to fight for its survival. Its facing twin deficit. Negative effective interest rates [interest rate – inflation] and huge budget deficit. Confidence level is abysmally low and private sector credit is down in the American economy. Bush tax cut plan if not extended will place the economy in doldrums. Deleveraging in US consumer\s will put a drag on the economic for the next 6 years as it requires $ 5 trillion to reduce household debts.
FED should, stop printing money, and rise interest rates, let the US suffer from pains, FED should have to consider not only present difficulties but also future, like hectic fever, that in its beginning it is easy to cure, like Japan, he suffered from decades sluggish economic growth and still slogging away, but he had developed a fundamentally different economic system, a new and superior form of capitalism.
Japanese economic style was the insulation of major companies from short-term financial pressures. Even housing bubble as a burst event, in the coming future, Japan has the ability to build machine bubble, robot bubble... The printing presses have little effect in this situation as the total liabilities in dollars (public and private debt, explicit and implicit guarantees, and other credit instruments such as derivatives) vastly exceed available currency with which to service them. Unfunded liabilities amount t $51 trillion. Print and all your debt service costs rise [ $ 1.52 trillion printed since Aug 2007], don't print and the amount and velocity of money slows further and faster. Either one leads to deflationary pressure as demand evaporates. This is the conundrum that the Fed finds itself in. 'Helicopter' Ben must be starting to realize that his last ditch solution won't work; pushing on strings never does.
Debt that cannot be serviced leads at one point to the reneging on that promise to pay. Any reserves in the system are rapidly consumed due to excessive leverage and the failure of the issuers results. The US Gov (or any other institution) does not have the financial nor political capacity to make everyone whole, leading to a structural collapse. FED will continue to follow the Quantitative Easing strategy for the next 2 years with zero interest rates till 2011.
These economies would be the main driver of the global economies. Asia would be leading the way. There's a transition now from the US to Asia in the financial world and the economic world. The largest creditor nations in the world are now in Asia: China, Korea, Indonesia, Vietnam, Malaysia, Hong Kong, Japan, Singapore, you know who the largest debtor nations in the world are. Emerging economies would be second inline including Chile, Poland, India, Venezuela and Brazil. US economy would be third in rating…Europe’s economy would be one-third of the global economy. This is a huge paradigm shift in the financial and global landscape of the world.

Investors are looking for areas in order to growth and protect their wealth as we move through treacherous times in the global financial markets. We strongly believe that sound and value investment advisory with constant engagement strategy can provide a much needed strategic competitive advantage to our clients to secure their wealth and to meet their financial requirements profitably.
The big question for all investors is how to sustain profitability and growth their wealth in these arduous times? We have all the answers for our valued investors to guide them strategically to help them in meeting success in the financial markets. Remember, all markets are not risk-free. Our valued investors have to decide the choice of investment as per their risk appetite and investment time-frame with definite exit strategy in place. We list few areas of growth and continuous sustain profitability.
1. Commodities Market
This market provides solid risk-return to the investors who have long term perspectives with growth corridors. Investors can buy Gold, Silver, Copper and Oil…We call it COGS…The return on investment on these commodities ranges from 20 to 30% annually. Why Gold and Silver have appreciated for the last 10 years. Reasons
- Dollar has got bearish outlook as FED continues to print money and create another asset bubble for the economy…
- Negative interest rates.
- Central Bank buying Gold and Silver since these are REAL ASSETS
- Major players like China, Russia and Japan are buying like crazy…Gold and Silver
- Gold and Silver are hedge against uncertain, risky, turbulent times and unpredictable behavior of the governments.
- Sovereign Debt risk is very high. This makes strategic value investment in Gold and Silver more attractive and rational....

As population is growing, supply-demand is a changing dynamics and weather patterns are giving policy makers a new dimension to analyze the growing importance of agriculture commodities. Global Food shortage will become a reality very soon. Please get your food security and investment in place before you are out-smarted and out-executed by your peers and competitors. We strongly recommend our valued investors to take positions in WHEAT, COTTON, RICE, COFFEE, SUGAR AND CORN…
Chinese are buying all from the market….Will they leave something you? This is a big question…Be proactive and outsmart others…..

2. Currency Market
If you trace history, Pound Sterling was the major reserve currency 70 years back. Fiscal and structural mismatch and financial imbalance led to its downfall providing Dollar to take the lead.. Dollar is facing Hugh trade imbalance, budget deficit and abysmally low confidence level among investors. Chinese have started buying Japanese bonds and have clearly indicted to the US government Confidence in US is waning…..So what’s the best currency to invest at this point…
a) We recommend Canadian and Australian dollar since there are commodities currencies with strong and sustainable growth of commodities going forward.
b) Defensive currencies will continue to flourish including Japanese Yen and Swiss franc because of historical smooth and stable economies
c) Underdog currency includes Chinese Yuan, Swedish Krone and Indonesian Rupiah

3. Technology / Telecom Market
Innovation is happening at lightening pace. Firms are continuous to outsmart and out execute their rivals. We suggest the following companies to invest
a) Apple
b) Google
c) Baidu
d) Research in Motion
e) Cisco
f) IBM
g) Lenevo
h) Dell / HP
i) Intel
j) AMD
4. EQUITY MARKET----Lifelong Value Company’s
These companies would continue to grow since utility and value of these firms services will add to the consumer’s living standards. These companies will remain sustainable in profitability.
a) Johnson and Johnson
b) P&G
c) Nestle
d) Coke
e) Pepsi
f) Nike
g) Addidas
h) Unilever
i) Wrigley Chewing Gum
j) GSK
Energy markets with strong focus on Natural Gas, Oil, Renewable Energy and Green Technology will make you profitable going forward.

This is again a huge area of growth for our valued investors who want to place their investment in real estate markets of US, Asia Pacific, South America and Europe can take strategic position for long term.
USA:- California, Florida and Chicago provide a good opportunity
Europe:- Spain and UK provide an opportunity
South America:- Brazil, Chile, Argentina
Asia Pacific: Vietnam, Singapore, China, Korea, Thailand, Malaysia and Indonesia

Disclaimer: This research should not be treated as investment advice or recommendation of any form..Please use your own judgment, business intelligence on research report and discount rate before making any short or long term investment decisions..

Wednesday, September 1, 2010

America's Top Military Chief: DEBT IS THE MAIN THREAT TO USA Security-----Shared by Shan Saeed


In February 2009, the head of U.S. intelligence - Dennis Blair - said that the global financial crisis was the largest threat to America's national security. All of America's intelligence agencies apparently agreed.

The same month, the chairman of the Joint Chiefs of Staff - Admiral Mullen - also agreed. Now, Mullen is focusing on a specific economic threat. Specifically, Mullen is focusing on the debt: The NATIONAL DEBT is the single biggest threat to national security, according to Adm. Mike Mullen, chairman of the Joint Chiefs of Staff. Tax payers will be paying around $600 billion in interest on the national debt by 2012, the chairman told students and local leaders in Detroit.

“That’s one year’s worth of defense budget,” he said, adding that the Pentagon needs to cut back on spending. But at least war is good for the economy, right? At least spending on defense will help the economy recover and climb out of this pit of debt, no? Actually, NO

Nobel-prize winning economist Joseph Stiglitz has said that war can be very bad for the economy. For example, in 2003, Stiglitz wrote:

War is widely thought to be linked to economic good times. The second world war is often said to have brought the world out of depression, and war has since enhanced its reputation as a spur to economic growth. Some even suggest that capitalism needs wars, that without them, recession would always lurk on the horizon.

Today, we know that this is nonsense. The 1990s boom showed that peace is economically far better than war. The Gulf war of 1991 demonstrated that wars can actually be bad for an economy.
Stiglitz has said that this decade's Iraq war has been very bad for the economy. See this, this and this.

And as the New Republic noted last year:

Conservative Harvard economist Robert Barro has argued that increased military spending during WWII actually depressed other parts of the economy.

Also from the right, Robert Higgs has done good work showing that military spending wasn't the primary source of the recovery and that GDP growth during WWII has been "greatly exaggerated."

And from the left, Larry Summers and Brad Delong argued back in 1988 that "five-sixths of the decline in output relative to the trend that occurred during the Depression had been made up before 1942."

As I noted in January:

All of the spending on unnecessary wars adds up.

The U.S. is adding trillions to its debt burden to finance its multiple wars in Iraq, Afghanistan, Yemen, etc.

Two top American economists - Carmen Reinhart and Kenneth Rogoff - show that the more indebted a country is, with a government debt/GDP ratio of 0.9, and external debt/GDP of 0.6 being critical thresholds, the more GDP growth drops materially.

Specifically, Reinhart and Rogoff write:

The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies...
Indeed, it should be obvious to anyone who looks at the issue that deficits do matter.

A PhD economist from MIT told me:

War always causes recession. Well, if it is a very short war, then it may stimulate the economy in the short-run. But if there is not a quick victory and it drags on, then wars always put the nation waging war into a recession and hurt its economy.
You know about America's unemployment problem. You may have even heard that the U.S. may very well have suffered a permanent destruction of jobs.

But did you know that the defense employment sector is booming?

As I pointed out in August, public sector spending - and mainly defense spending - has accounted for virtually all of the new job creation in the past 10 years:
The U.S. has largely been financing job creation for ten years. Specifically, as the chief economist for BusinessWeek, Michael Mandel, points out, public spending has accounted for virtually all new job creation in the past 10 years:

Private sector job growth was almost non-existent over the past ten years. Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.

It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.

But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support.Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.

Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back.

Indeed, Robert Reich lamented this month:

America’s biggest — and only major — jobs program is the U.S. military.
Back to my January essay:
Raw Story argues that the U.S. is building a largely military economy:

The use of the military-industrial complex as a quick, if dubious, way of jump-starting the economy is nothing new, but what is amazing is the divergence between the military economy and the civilian economy. In the past nine years, non-industrial production in the US has declined by some 19 percent. It took about four years for manufacturing to return to levels seen before the 2001 recession -- and all those gains were wiped out in the current recession.

By contrast, military manufacturing is now 123 percent greater than it was in 2000 -- it has more than doubled while the rest of the manufacturing sector has been shrinking...

It's important to note the trajectory -- the military economy is nearly three times as large, proportionally to the rest of the economy, as it was at the beginning of the Bush administration. And it is the only manufacturing sector showing any growth. Extrapolate that trend, and what do you get?

The change in leadership in Washington does not appear to be abating that trend.
So most of the job creation has been by the public sector. But because the job creation has been financed with loans from China and private banks, trillions in unnecessary interest charges have been incurred by the U.S.And this shows military versus non-military durable goods shipments. So we're running up our debt (which will eventually decrease economic growth), but the only jobs we're creating are military and other public sector jobs.

PhD economist Dean Baker points out that America's massive military spending on unnecessary and unpopular wars lowers economic growth and increases unemployment:

Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.
A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.

Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight [recognized as the most consistently accurate forecasting company in the world] to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low...

The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.
The Political Economy Research Institute at the University of Massachusetts, Amherst has also shown that non-military spending creates more jobs than military spending.

So we're running up our debt - which will eventually decrease economic growth - and creating many fewer jobs than if we spent the money on non-military purposes. Moreover, it is ironic that America's huge military spending is what made us an empire ... but our huge military is what is bankrupting us ... thus destroying our status as an empire.

Even Admiral Mullen seems to agree:


The Pentagon needs to cut back on spending.

“We’re going to have to do that if it’s going to survive at all,” Mullen said, “and do it in a way that is predictable.”

Indeed, Mullen said:

For industry and adequate defense funding to survive ... the two must work together. Otherwise, he added, “this wave of debt” will carry over from year to year, and eventually, the defense budget will be cut just to facilitate the debt.
Secretary of Defense Robert Gates agrees as well. As David Ignatius wrote in the Washington Post in May: After a decade of war and financial crisis, America has run up debts that pose a national security problem, not just an economic one.


One of the strongest voices arguing for fiscal responsibility as a national security issue has been Defense Secretary Bob Gates. He gave a landmark speech in Kansas on May 8, invoking President Dwight Eisenhower's warnings about the dangers of an imbalanced military-industrial state.

"Eisenhower was wary of seeing his beloved republic turn into a muscle-bound, garrison state -- militarily strong, but economically stagnant and strategically insolvent," Gates said. He warned that America was in a "parlous fiscal condition" and that the "gusher" of military spending that followed Sept. 11, 2001, must be capped. "We can't have a strong military if we have a weak economy," Gates told reporters who covered the Kansas speech.

On Thursday the defense secretary reiterated his pitch that Congress must stop shoveling money at the military, telling Pentagon reporters: "The defense budget process should no longer be characterized by 'business as usual' within this building -- or outside of it."

According to IMF

Monetary Fund Warns G-7 on Debt Levels in Advance Economies.

The world’s most developed economies, which have been racking up spending since the mid-1960s, face record levels of debt as a result of the 2008-9 financial crisis and have little room for maneuver, the International Monetary Fund warned on Wednesday.
Despite the stark warning and the prospect that the wealthiest nations face years of belt-tightening, the fund also said that the risk of default by heavily indebted European countries like Greece, Ireland and Portugal had been significantly overestimated.
In three new research papers, the fund’s economists offered stern admonitions while cautioning against an overreaction.
That mix of messages was reflected in one paper on the long-term trends in the public finances of the Group of 7 economies.
The authors, Carlo Cottarelli, director of fiscal affairs, and Andrea Schaechter, a senior economist, concluded that public debt had served for decades as “the ultimate shock absorber — rising in bad times but not declining much in good times.”
As their populations age, rich countries will face more financial pressure, the authors concluded. Yet they also warned against an excessively rapid response.
“There should be fiscal adjustment, but it cannot be too abrupt,” they wrote. “There should be a downsizing of government, but without preventing it from playing a key role in the provision of basic services, and in particular in maintaining a level playing field by giving equal opportunities to all individuals regardless of their conditions at birth.”
The two authors continued: “The current environment of low interest rates, which has so far kept debt service payments under control in G-7 economies despite surging deficits and debt levels, provides a window of opportunity to set the adjustment process in motion.”
A second I.M.F. paper, by Jonathan D. Ostry, deputy director of research, found that countries differed in how much room they had before reaching unsustainable levels of public debt.
Countries like Australia, Denmark, South Korea, New Zealand and Norway can borrow more, while several countries in Southern Europe, along with Japan, have little space and need to adopt fiscal retrenchment that departs markedly from their historical practices, Mr. Ostry found.


A “worrisome conclusion” is that market fears about negative economic shocks could by themselves “trigger an increase in interest rates that would drive a formerly sustainable country into a situation of unsustainability,” according to Mr. Ostry and his co-authors, Atish R. Ghosh, Jun I. Kim and Mahvash S. Qureshi.
Of the three papers, the least dire concluded that defaults were “unnecessary, undesirable and unlikely.”
That paper, written by Mr. Cottarelli with Lorenzo Forni, Jan Gottschalk and Paolo Mauro, found that countries would not benefit from defaulting because structural deficits, not interest payments, were their main problem. Historically, countries have defaulted not as a strategy to get out of their debts, but while they were in the midst of a refinancing crisis, they found.

Disclaimer: This is just a research piece and not an investment insight paper for clients. Please execute your own due diligence before any investment globally..