Friday, May 27, 2011

"How Long Can They Keep The Charade Going?"

My dear friend, Mike, sent me an e-mail yesterday in response to the latest post, "Dollar Declining Amid Mix Of Bad Long Term Trends & Uncontrollable Events."

He asked a very salient and, perhaps, rather obvious question about the timing of a dollar collapse.

I thought it was worthwhile to post Mike's question in full, along with my response.

As always, your responses are welcome in the comments section.


Good stuff. Question; what sort of timetable do you THINK we are looking at in terms of an 'apocalyptic' event concerning the dollar and/or the economy? I am just curious because, truth be told, I am surprised we've made it this far. But with the media complicity, and corruption on all levels of the market and government, I wonder how long they can keep the charade going.

- Mike

Honestly, Mike, I have no idea. Like you, I am simply amazed that Atlas is still managing to hold up the world. This whole thing should have come tumbling down already.

The key is this; how much more debt will China buy, and how much longer will they buy it? The international trade system is so reliant on the dollar, and almost all trade debts are settled in dollars. But, really, what good are dollars to the Chinese? They don't use them in China.

As long as the Chinese continue exporting to the US, the only alternative they have is to start buying US assets, such as land, golf courses, resorts and huge commercial properties — the sort of thing that Japan was doing in the 1980s.

Actually, I'm surprised they haven't been doing more of this. Perhaps they feel, or have been told, that the US will prevent at least some of these actions.

This is what Chris Martenson reported this afternoon:

The first-quarter economic results for Japan were grim, revealing an annualized rate of contraction of -3.7% over the first three months. Note that the earthquake struck on March 11, so there really are only a couple of weeks of "earthquake impact" in that number.

The next quarter’s numbers will be even grimmer (that’s a prediction), and this will catapult the Japanese deficit and sovereign-debt readings into brand-new territory.

Japan has been a net exporter of goods and debt for decades. That is all changing now. The flow of funds will be going in reverse, and that will have huge implications for the US. Simply put, they will no longer be buying our debt. That's a game changer.

The US is now left with the oil exporting nations, who get paid in dollars and convert them into Treasuries. Aside from that, the only other alternative is to print. No one in their right mind would buy Treasuries at these pathetically low yields, combined with the fact that the US is so interminably in debt.

Many international observers now seem to recognize that the US has no choice but to print, and to thereby continue devaluing the dollar even further. It's a death spiral.

China's purchase of Portuguese, Australian and New Zealand debt will send a signal to other nations that they are losing confidence in the dollar, and in the reckless US fiscal policy in particular. Confidence is everything in markets. Any remaining Treasury debt buyers are sure to follow them to the exit.

As the Bibe says, "No one knows the day or the hour." However, I think there will be clear signs in advance. I don't know if there will a "boom" moment, or just a slow ride to the bottom, like a bowling ball steadily rolling down a flight of stairs.

One thing I do know is that we will be witnesses to an epic historical event.

- Sean

Thursday, May 26, 2011

Dollar Declining Amid Mix Of Bad Long Term Trends & Uncontrollable Events

Axel Merk, the manager of the Merk Funds, is very bearish on the dollar. The greenback has been declining in value and Merk sees the problem getting worse. The issue is the the structural deficit problems in the U.S.

So Merk is steering his currency-focused mutual funds away from the U.S. in favor of countries with greater fiscal discipline and a commitment to getting their budget affairs in order

“In the U.S., we’ve lost the will to engage in reform,” Merk told Market Watch. “We have not fixed the underlying structural issues. It may require our bond market to get derailed before policymakers engage in the reforms that Europe is making.”

Merk questions how much longer the dollar can keep its status as the world’s reserve currency.

“The U.S. dollar is no longer risk-free,” Merk said. “The balance sheet of the U.S. is deteriorating at a faster pace than other countries."

Merk is particularly bearish on the dollar because he foresees deeper and more serious economic struggles ahead for the U.S.

“The U.S. is trying to weaken the currency intentionally and get a recovery through that,” Merk said. “We’re going to keep the printing machine in full gear until and unless the bond market tells the Fed to change course, and at that stage it’s very late to change.”

Merk is not alone in his view that the dollar is no longer a good store of value. Hedge fund managers, currency traders and analysts around the world have taken the same view.

Bill Gross of PIMCo., the world's biggest bond fund, made global headlines when he dumped U.S. government-related holdings in February and began shorting them in March.

According to Gross, the reason was simple.

“There is really no way out of this [debt] trap and this conundrum at this point,” he said.

That seems to be the growing consensus.

Last month, the People's Bank of China announced that the country's excessive stockpile of US dollar reserves needed to be urgently diversified. China's foreign exchange reserves included more than 3 trillion in US dollars at the end of March.

Subsequently, the Xinhua news agency reported the following:

Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

This was a clear indication that China plans to "diversify" (read: liquidate) itself of $1 trillion in US holdings. It was bad news for the U.S. and the exact opposite of what it is seeking, whIch is buyers — not sellers — of its debt.

China didn't wait long to begin its diversification plan.

The Financial Times newspaper reported late Wednesday that China is interested in buying Portuguese bailout bonds when the European Financial Stability Facility starts auctioning the securities next month.

The New Zealand press also reported that the China Investment Corp., a huge sovereign wealth fund, may have set aside up to 1.5% (or 6 billion New Zealand dollars) of its foreign-exchange reserves to invest in New Zealand assets, including government bonds, companies and, potentially, dairy farms. The same report noted China is also thought to have allocated 2% of its reserves to invest in Australia.

This clearly indicates that China, a primary creditor of the U.S., intends to make good on its well-reported plan to buy fewer U.S. Treasurys.

Such moves will hurt the dollar and affirm the bearish sentiments of Axel Merk and others like him around the world.

The U.S. dollar has been in long term, or secular, decline. In fact, the dollar has recently been trading near it's all-time lows, established during the 2008 financial crash.

Low interest rates, concerns about inflation and the massive federal budget deficit are all to blame.

Investors can find higher interest rates abroad. The Federal Reserve is fighting like hell to maintain low rates to encourage capital investment, but it isn't helping the U.S. economy much at all. It's also hurting savers and discouraging new savings.

Inflation has built up a head of steam in the commodities sector and is affecting oil and food prices. Any consumer can affirm this. The culprit is the dollar's declining value. Simply put, it's purchasing power is falling.

And the U.S. budget problem is so bad that Standard & Poor's recently threatened to take away the U.S. government's coveted AAA rating status. That would be a first in our history.

All of these things are undermining the dollar and the solutions will produce their own ugly results.

Though the Fed has been remarkably effective in setting and controlling interest rates, a worried bond market may soon begin setting those rates for the U.S. Buyers may need heavy inducements to continue allowing the U.S. to pile up such interminable debt.

This is a tough position for the U.S. to be in, but one it will have little control over. After all, beggars can't be choosers.

Higher rates will affect businesses and consumers alike, thwarting investment and making things like mortgages, auto loans and credit card rates all spike.

The Fed actually wants, and is encouraging, inflation. The opposite is deflation — an economic contraction, or recession. No one wants that. The question is, when do events (inflation) spin out of control and beyond the Fed's reach?

The Fed's massive currency printing schemes, such as QEI and QE2, have undermined the value of the dollar, and the longer term outlook is especially ugly. The Fed has crossed the great divide and there's no going back. All that's left to do is print, print, print away!

The budget deficit is the prime example of how political problems can become fiscal and economic problems.

Congress is hopelessly divided and recently engaged in huge battles to cut just $38.5 billion from a $1.6 trillion deficit. It amounted to just 2.4% of the deficit. Now they just need to cut another $1.56 trillion to eliminate that deficit.

The battles over raising the federally mandated debt ceiling and the fiscal 2012 deficit will be epic, and they will be nasty. They are sure to worry the bond markets and further undermine the dollar.

Cutting the budget will shrink the U.S. economy, which is totally dependent on federal spending at this point. Budget cuts may poll well, but when Congress actually gets down to brass tacks and begins hacking away, Americans will hate it. That's because their quality of life and standard of living will begin falling.

The problem for the U.S. is that so many of its problems are now beyond the control of the fiscal authorities in Congress and the monetary masters at the Fed. In some cases their hands are tied, while in others their control is simply slipping away.

The long term outlook for the U.S. dollar and Treasuries and interest rates and inflation just isn't good. The U.S. is facing a panoply of concerns that will have the effect of slamming the emergency brake on our economy.

There's no getting around it; there are some very tough times ahead, the likes of which most Americans have never seen.

Monday, May 23, 2011

EU Debt Crisis Growing; US Just Biding Time

The EU debt crisis continues to evolve. In the process, it provides us with a stark reminder that, eventually, all debts must be recognized and reconciled.

The sad truth is that the European debt crisis is really a global debt crisis.

There have already been four European bailouts: Greece twice, Ireland and then Portugal just this month.

Germany, the EU's biggest economy, has had to pay the largest single share of these bailouts. That is raising the ire of German voters who are tired of bailing out their poorer, financially distressed, neighbors.

Germans see these nations as reckless and undisciplined.

Though Germany has been able to borrow at 3 percent and then lend at double that rate to its ailing neighbors, the concern is that these countries could default, leaving Germany in the lurch.

The trouble for Germany is that German banks have lent several hundred billion dollars to other Eurozone governments. A series of defaults could trigger a German banking crisis, which gives Germany plenty of motivation to continue bailing out its neighbors.

The other alternative would be to bailout the bankers, which would prove even less popular with German citizens.

The Germans are bound to the euro. Pulling out and going back to the Deutsche Mark would jeopardize their economy and could prove disastrous. Exports are the backbone of the German economy. Any new German mark would immediately rise in value, making German exports more expensive all around the world.

The Germans are stuck between the proverbial rock and a hard place. They have little choice but to keep the bailout money flowing.

Fears of a contagion exist because banks all over the world are inextricably linked. European banks all own the sovereign debt of their neighboring countries and one default could cause a chain reaction.

So far, the troubles have been isolated in the relatively smaller economies of Greece, Ireland and Portugal. The worry is that some of Europe's larger economies may eventually ask for help, such as Spain and Italy.

Last week, Standard & Poor’s Ratings Services lowered its outlook on Italy’s A-plus sovereign-credit rating from stable to negative. Meanwhile, Moody's had previously downgraded Spain in March.

Both Italy and Spain could be characterized as "too big to fail". Italy has the world's 11th biggest economy and Spain the 13th. Yet, the cost of insuring Italian and Spanish government debt against default just keeps climbing.

Citizens of all the fiscally challenged European nations hold a deep resentment over the austerity measures their leaders have enacted to reduce government deficits. Most of Europe is still facing a recession and protests have sprung up all over the continent.

The irony is that even as European governments have made difficult choices and enacted draconian budget cuts, they continue getting hammered by the bond markets.

Meanwhile, the US — which has a $1.6 trillion budget deficit for this fiscal year, and which has reached its $14.3 trillion self-imposed debt limit — has done almost nothing to get its fiscal house in order.

Yet, the US continues to borrow at the lowest possible rates on world markets, and anytime the European debt crisis particularly fares up (like right now) there is a flight to the perceived safety of US Treasuries.

The US offers investors next to nothing for the 'privilege' of parking their money in US government bonds.

The perception of the US as 'safe' is simply a knee-jerk reaction based on past history, when the US was more fiscally stable than other nations. Clearly, that is no longer the case.

When reality finally catches up to the US — in other words, when the rest of the world recognizes that our fiscal position is no better than anybody else's, and that our monetary position may even be worse — that will be a grand moment of reckoning.

When everyone else's house is also on fire, where do you seek shelter?

Friday, May 20, 2011

America's Revenue to Debt Problem

The Congressional Budget Office projects total federal revenues for fiscal 2011 at $2.23 trillion.

Federal revenues for this fiscal year will be the lowest intake relative to GDP since 1951, at 14.8%. Yes, the US has a revenue problem in addition to its spending problem.

As a result, the national debt has ballooned to $14.3 trillion. This has raised the concern that the US can't afford, and won't be able to pay, its bills.

Much has been made of the US debt-to-GDP ratio, since the national debt now matches — or perhaps even exceeds — the size of the US economy.

However, the debt-to-GDP ratio is not really the concern. The issue is revenues vs. GDP.

The $2.23 trillion in federal revenues are dwarfed by the $14.3 trillion national debt. The US government does not pay its bills with the entire US economy. It pays them with federal revenues.

And as the US government has grown, the economy has grown with it. In fact, our economy is now totally reliant on federal spending.

The 78% increase in government debt since the second quarter of 2008 has created $4.1 trillion of fake growth. Needless to say, this is substantial in a $13.5 trillion economy.

Unless the unemployment problem improves, government revenues won't improve. And if government revenues don't improve, annual deficits will continue adding to the massive debt.

And that's the rub. There are absolutely no reasonable indications that unemployment will improve any time soon. There are 7 million fewer workers today than just four years ago. The number of unemployed Americans has roughly doubled.

Job growth in the last decade was negative. While the number of new workers entering the workforce swelled during that period, just 1.7 million new jobs were created.

Job creation is barely keeping up with all of the new workers entering the jobs market for the first time.

When Congress finally gets down to the difficult business of trimming the federal budget, the result won't just be a smaller government; it will also mean a smaller economy. That will result in a larger debt-to-GDP ratio, which will rattle the bond markets.

But the real issue for the US is its shrunken revenues. While raising taxes on millionaires and billionaires will help, it won't solve the problem. To do that, the US needs to grow its economy and create employment opportunities for the roughly 24 million Americans who are presently unemployed or under-employed.

As of now, no one has figured out how to do either. And it's reasonable to conclude that this won't change any time soon.

Wednesday, May 18, 2011

The Brakes Are On: US Economy Slowing

US Gross Domestic Product slowed sharply in the first quarter of this year to a 1.8 percent annual rate.

Last year, GDP grew at 3.7 percent in the first quarter1.7 percent in the second quarter, 2.6 percent in the third quarter and 3.1 percent in the fourth quarter.

So, the economy will have to accelerate even faster than its best quarter last year to overcome the impact of the sluggish first quarter this year.

Nearly all of the federal stimulus money has already been spent. And with state governments tightening their belts — and even laying off employees — GDP will be further constricted.

A survey from the National Association for Business Economics predicts GDP will grow 2.8 percent this year — down from the group’s February prediction that it would grow 3.3 percent. 

The panel of 41 economists surveyed said they “remain highly concerned” about the growing federal deficit and that growth in the first quarter was weaker than expected.

The economists said they expect oil to average $105 per barrel this year, up from $93 predicted in the last survey. They anticipate that this will negatively affect consumer spending.

Consumers are getting squeezed by rising prices for gas, groceries and other household items. Because producers are paying more for the raw materials they need to make and transport their products, retailers are in turn passing along these price increases to their customers.

Sales at Walmart stores in the US have fallen for two consecutive years. The culprit has been high unemployment, stagnant wages, and rising food and fuel prices. 

Walmart is a bellwether of the US economy. When the store that has made “low prices” is mantra is hurting, it is a clear indication of just how much the US economy is hurting.

Walmart continues to see a paycheck cycle, in which people stock up around payday and then, as the money runs out, spend less as the month progresses. What this tells us is that Americans are living from paycheck to paycheck.

As of last year, 43 percent of workers said they had less than $10,000 savings, up from 39 percent in 2009, according to the Employee Benefit Research Institute’s annual Retirement Confidence Survey.

A stunning 27 percent of workers said they had less than $1,000 in savings, up from 20 percent in 2009.

After paying for basic necessities, most Americans simply have nothing left to save; wages have been stagnant since the 1970s.

This should come as little surprise since the median wage fell to $26,261 in 2009, meaning that half of all American workers made $505 a week or less. 

The increased costs of oil aren’t going away, and oil prices affect food prices and everything else. 

The International Energy Association (IEA) says that growth in worldwide oil demand is outstripping growth in new supplies by 1 million barrels a day per year. According to the IEA, it’s getting harder to access and exploit conventional resources and, “The age of cheap energy is over.”

Oil is a finite resource and the inability to match supply with demand will create a huge economic drag from now on. Continually rising prices will have profound impacts on the US and global economies going forward.

Slow economic growth results in lower tax revenues to the government, exacerbating an already dangerous fiscal problem.

While the Congressional Budget Office (CBO) rather optimistically foresees revenues increasing from $2.23 trillion this year to $3.65 trillion in 2015 (a $1.42 trillion increase), it also projects $4.8 trillion in new debt over the next five years. 

And let me be clear; government projections are almost always too rosy. In other words, the debt total will likely be even worse.

Congress will continue battling over which budget cuts to make in order to raise the debt ceiling and pass the fiscal 2012 budget (which is due October 1). But one way or the other, and in one variety or another, budget cuts are coming. That, in turn, will further cut into GDP. 

At this point, the US economy is totally reliant on government spending. It’s just an unfortunate truth. 

Our economy is facing multiple headwinds, and most of them aren’t going away. 

Though a declining dollar makes us exports cheaper overseas, our No. 1 import is oil, which is also priced in dollars. A weak dollar makes oil, and ultimately gasoline, more expensive, forcing the trade deficit further into the negative. Billions of dollars leave the US for other nations every month, and exports are not nearly enough make up for it.

The government’s revenue problem (and, yes, it does have one) will be lasting. 

The US government is particularly vulnerable to a revenue collapse in a deep recession because it is disproportionately dependent on income and payroll taxes, which take a particularly big hit when unemployment is high.

When unemployment surged to 10 percent in 2009, government revenues plummeted. Meanwhile, safety net programs — such as unemployment benefits, Medicaid and food stamps — grew rapidly. 

The combination led to huge, unprecedented and lingering deficits of more than $1 trillion. Those kinds of deficits remain on the horizon, as far as the eye can see.

Plunging taxes and surging benefits spending are part and parcel of a severe recession, and the US isn’t even technically in a recession anymore. Try telling that to tens of millions of Americans.

Should the US ‘double dip’ into a technical recession (two consecutive quarters of economic contraction), the impacts will be absolutely devastating.

Even if that doesn’t occur, we should remain prepared for a prolonged period of decline and despair.

Friday, May 13, 2011

Will US Government Be Able To Pay Future Social Security Benefits?

“The Social Security trust fund doesn’t have cash. What it has is the government IOUs there, which are as good as gold. But the government has to go out into the marketplace and borrow the money. And so it increases the national debt.” - Erskine Bowles, co-chair of President Obama’s Debt Commission

With the US government so deeply indebted, all manner of deficit-reduction plans are being floated in Washington. Among them, cutting Social Security.

But here’s an important fact: Social Security has never contributed a penny to the national debt.

Social Security is a self-financed program, meaning it doesn’t rely on, or draw from, Congress' annual budget. In fact, Social Security is running an absolutely massive surplus.

Over the past three decades, Social Security collected more in revenues than it paid out in benefits. A lot more. Over that period, $2.6 trillion surplus funds were collected.

Yes, that's the infamous Social Security "Trust Fund".

While this might lead some to believe that this money has been safely locked away in government coffers for future needs, that would be wrong.

As a Congressional Research Service (CRS) report explained in 2000, “Contrary to popular belief, Social Security taxes are not deposited into the Social Security trust funds ... Along with many other forms of revenues, these Social Security taxes become part of the government’s operating cash pool, or what is more commonly referred to as the U.S. Treasury. In effect, once these taxes are received, they become indistinguishable from other monies the government takes in.”

Did you get that? There is no “Trust Fund” after all. If you are a current worker, your Social Security withholdings have already been spent by the government. All of them.

No, those funds didn’t go to current retirees, as most people have been led to believe. They were used to support general government spending for each annual budget.

Your money is gone. Seriously.

As the CRS noted, Social Security revenues are “accounted for separately through the issuance of federal securities to the Social Security trust funds … but the trust funds themselves do not receive or hold money. They are simply accounts.”

Meaning, they are empty accounts. They hold no money.

By the end of last year, those securities, or bonds (or IOUs, to be honest), amounted to $2.6 trillion.

The government is supposed to pay interest for holding your money, just as any bank would. That interest amounted to $117 billion last year and it is supposed to help pay for Social Security benefits.

As previously noted, Social Security is a self-financed program that doesn’t draw from the annual budget or contribute to the deficit.

To the contrary, as the CRS reported, Congress has continually diverted money from Social Security to fund other spending.

However, largely due to high unemployment and the aging of the population, last year Social Security collected nearly $640 billion in taxes, which was less than the $701 billion in benefits paid out. As a result, the system had a “negative net cash flow.”

Another deficit of $46 billion is projected for 2011.

The Social Security Administration estimates that more than 54 million Americans will receive $730 billion in benefits this year. Both numbers will continue to grow over the next two decades.

But so will the accruing interest on those alleged surplus funds, which is supposed to help finance the Social Security program.

However, according to the last Social Security trustees report, in about 14 years from now, the interest earned on the bonds (or IOUs) won’t be sufficient to cover the annual difference between benefits and tax revenues.

At that point, the $2.6 trillion in IOUs will need to be paid out to cover the benefits promised to future retirees. But, remember, that money is already long gone.

The Social Security trustees say the IOUs, or bonds, will be exhausted in 2036. If Congress doesn’t do something by then, benefits would need to be cut by 22 percent to keep the system in balance.

However, the hard truth is that those monies are gone. The bonds are unfunded.

Because the government didn’t save or invest those funds, they aren’t really assets; they’re liabilities.

As the Congressional Budget Office explained in a report to Congress, “The balances in the trust funds (in the form of government securities) are assets to the individual programs (such as Social Security) but liabilities to the rest of the government.”

“When an individual buys a government bond, he or she has established a financial claim against the government,” the CRS said. But “when the government issues a security to one of its own accounts, it hasn’t purchased anything or established a claim against some other person or entity. It is simply creating an IOU from one of its accounts to another.”

In essence, the government has promised to pay back all current workers — with interest — even though it has already spent all the money collected from them.

The IOUs represent the government’s promise to return that money, in the form of benefits, in the future. However, there is no guarantee it will have the means to repay that money.

The government will only be able to pay out future benefits through its current account — meaning its budget, or general fund.

“The general fund has been borrowing from Social Security and we’ve borrowed well over $2 trillion,” said Senate Budget Committee chairman Kent Conrad in February. “That money has got to be paid back. How’s it going to be paid back? It’s going to be paid back by the other general expenditures of the federal government having to be reduced to make way for the payments that we’re going to have to make on those bonds.”

“We’re going to see a dramatic impact on budgets,” said Conrad, because the rest of the federal government’s operations have been “enjoying in effect a subsidy from the Social Security trust fund of several hundred billion dollars a year.”

He concluded, “Instead of having several hundred billion dollars a year coming in from Social Security that we could send somewhere else, those days are over.”

The government’s free ride on the American worker’s Social Security benefits is coming to an end. This will force the government to enact some semblance of fiscal discipline.

But it’s quit evident that the government will not have the revenues to pay for many of the things it is currently budgeting.

The question is, which things?

The numbers just don’t add up. Not even for Social Security. Sixty years ago, there were sixteen workers for every one retiree. Today, there are just three workers for each retiree.

As the CBO reported, “Even with the securities held by the trust funds, and with a dedicated future stream of revenues, by 2039 those resources will be insufficient to pay the full benefits that will accrue under current law.”

Essentially, the US government has made future promises to its citizens that it cannot adequately fund. To do so would mean a crushing blow to its budget, the ability to fund its operations, and to pay its debts to all bond holders — including foreign governments.

Who will be left holding the bag? The American taxpayers?

Expect payroll taxes to be raised, at least for higher income earners.

Expect benefits to be cut, at least for higher income earners.

Expect the eligibility age for collecting benefits to be raised.

Expect the unexpected.

Wednesday, May 04, 2011

Osama bin Laden's Ultimate Goal: Bankrupt America

Osama bin Laden knew what any student of history knows; all empires eventually fall due to their own excess and hubris.

Imperial Rome, the Spanish Empire, the British Empire and the Soviet Union all crumbled under the weight of their military over-reach.

The US appears to be next on this list of infamy, and bin Laden knew it all along.

More than three years after the September 11, 2001 terrorist attacks on the US, Bin laden released a videotape in which he staked out his ultimate goal; to bankrupt America.

"We are continuing this policy in bleeding America to the point of bankruptcy, Allah willing. And nothing is too great for Allah," bin Laden said.

The al Qaeda leader said his goal was to do to the US what had previously been done to the Soviet Union; slowly bleed it to death in a long, intractable military conflict in Afghanistan.

Though the Afghans were outgunned and out-spent by the Soviets, they used "guerrilla warfare and the war of attrition to fight tyrannical superpowers," bin Laden said.

This same strategy, which bin Laden referred to as the "bleed-until-bankruptcy plan," was being utilized to ultimately defeat the mighty US, he said.

At the time of the video's release, in November 2004, the US national debt was more than $7 trillion and the federal deficit was $413 billion.

"Every dollar of al Qaeda defeated a million dollars, by the permission of Allah, besides the loss of a huge number of jobs," said bin Laden. "As for the economic deficit, it has reached record astronomical numbers estimated to total more than a trillion dollars."

For all this expense, bin Laden said, America would "suffer human, economic and political losses without their achieving anything of note, other than some benefits for their private corporations."

Even bin Laden knew about the influence of America's Military-Industrial Complex. He was well aware of its political connections and power.

Driving the US further into debt showed "that al Qaeda has gained. But on the other hand it shows that the Bush administration has also gained, something that anyone who looks at the size of the contracts acquired by the shady Bush administration-linked mega-corporations, like Halliburton and its kind, will be convinced.

"And it all shows that the real loser is you," he said. "It is the American people and their economy."

The cagey al Qaeda leader displayed a keen foresight that now seems rather remarkable.

Of President Bush, Bin Laden said, "the darkness of black gold blurred his vision and insight, and he gave priority to private interests over the public interests of America.

"So the war went ahead, the death toll rose, the American economy bled, and Bush became embroiled in the swamps of Iraq that threaten his future," bin Laden said.

In the end, he was right.

Simultaneous engagement in two wars — Afghanistan and Iraq — has saddled the US with enormous debts. But that onerous debt burden only became crippling when, for the first time in US history, the government cut taxes as it went to war.

Both military adventures were financed through borrowing. As a result, the US debt soared from $6.4 trillion in March 2003 to $10 trillion in 2008 (before the financial crisis). At least a quarter of that increase is directly attributable to the war, according to Nobel economist Joseph Stiglitz.

Stiglitz estimates that the total cost of the Iraq war will exceed $3 trillion, a staggering sum. The war has already eclipsed the cost of the Vietnam conflict.

Remarkably, defense spending has doubled over the last ten years, according to Ashton Carter, the Defense Department's undersecretary for acquisitions.

The Afghan war, alone, costs more than $9 billion a month. This means that the government is spending more than $100 billion a year on an unfunded, unwinnable war. And money is being poured into the rebuilding of Afghanistan and Iraq, even as America crumbles.

According to the National Priorities Project, total defense/security/intelligence spending accounts for 66% of discretionary spending.

The stunning fact is that the US spends more on its military budget than all of the other nations on earth combined. Consider this; if the Pentagon were an independent country, it would be the 10th richest in the world.

The US has 500,000 military personnel, stationed on over 700 military bases, in more than 150 nations around the world. That is the definition of an empire.

More six decades after the end of WWII, the US still has more than 50,000 troops in Germany and 30,000 in Japan. More than a half century after the Korean conflict ended, the US still has 29,000 military personnel stationed in South Korea.

All of these advanced, wealthy nations are quite capable of defending themselves. Instead, we pay for their defense.

Japan has long been the the world's second biggest economy, until recently falling behind China. While Japan dedicates its revenues to domestic, economic and technical development, the US pays for its defense.

Germany is one of the world's biggest economies and exporters. It has been a unified nation for more than two decades and is no longer under threat from the Soviet Union, which no longer exists. Yet, we keep forces stationed in Germany, paying for their defense.

You might be stunned to discover that America now spends more, in real, inflation-adjusted terms, than at any point during the Cold War, Korean War, and Vietnam War.

The US faces no credible, conventional military threat. Yet, it continues to build up its military, in a race against no one, to counter a conventional threat that doesn't even exist. Countering terrorists doesn't warrant this kind of spending.

The US is a welfare state in as much as it supports the Military-Industrial Complex. In reality, we are truly a warfare state.

The Military-Industrial Complex has always needed a bogey man to justify its existence. First it was the Soviets and communism; now it is al Qaeda and Islamic fundamentalism.

The Soviet menace was never as dangerous as advertised. The free world didn't crumble when the communists took North Korea or Vietnam. Yet, the US fought two separate wars — costing over 100,000 American lives — due to the hysteria whipped up about the dangers if the communists prevailed.

The Military-Industrial Complex cried wolf, and America fell for it.

The same is true again today. Same story; different cast.

The US has been in Iraq for seven years and in Afghanistan for 10. Who knows when our military personnel will finally exit both nations? The US may even try to establish a permanent presence in both countries, with permanent military bases as anchors.

The US is an empire, and all empires are unsustainable in the long run. All of the wars, military engagements and bases around the world will eventually come to an end. It may be imposed on us, but it will all end sooner than later. Right now, it's being held afloat by borrowed money.

Dwight Eisenhower warned, “It has been coldly calculated by the Soviet leaders ... by their military threat to force upon America and the free world an unbearable security burden leading to economic disaster.”

The irony was that the opposite occurred. The Soviet military expansion and reach led to its own demise.

Osama bin Laden saw the same opportunity to destroy the United States.

Eisenhower argued that a strong American economy might well be its most valuable asset. He knew that a strong economy was essential to a strong defense.

Osama bin Laden clearly saw it the same way. So, as the US sails into insolvency, bin Laden may laugh last, even in death.