Excerpts from my most recent letter to PNC, the ongoing saga between a client and a bank that continually mismanages my funds. Sadly, the links associated with some of the quotes in this letter disappeared, so my apologies to those who provided excellent analysis and whose notes I cribbed (sometimes verbatim) for my letter. (All of the quotes and apostrophes disappeared in the cut and paste, as well. Sorry for any typos.)
I realize that PNC sees me only as a beneficiary and thus does not see it fit to answer hard questions or address my concerns. As such, I am asking that both my trustees demand that PNC address these concerns. I will not be satisfied with a "we believe that the markets will recover" scenario proposed by E. William Stone, the man who plagiarizes the same phraseology and analysis from the folks who got it wrong in 1929, 1930, 1931, 1932, 1933, 1934 and 1935. If PNC claims recovery is around the corner, then show me the facts. Show me the info in the spreadsheets used to concoct such fantasies. My fears of economic collapse have so far proven correct and based upon facts. E. William Stone should be fired and left on a cardboard box on the corner. Of course, if he bases his investment strategy on his own words, then it won't be too long before he's standing in line at the soup kitchen with the rest of PNC's Private Wealth Management clients.
In December, the Bank of International Settlements released a comprehensive study of the global economy, the conclusion of which was that the unwinding of the global economy is past the point of no return. Let me rephrase that. The BIS - the bank of the world's central bankers - concludes that the global economy can never recover. Surely the professional bankers and investment advisors working for a major bank like PNC are aware of this, are they not? After all, I run a little bookstore and coffeehouse in Nicaragua and I know the main details of this report, so naturally I assume that professional bankers are aware of this report, too, and thus I will not bore you by rehashing all of the details of the study. I'll just mention one other key point.
The BIS analysis showed that in 2009, the G-20 nation states increased their government debt by 30 percent (plus or minus a percent, as there are some rounding errors when dealing with trillion dollar figures) in an effort to provide global synthetic recovery, a fancy combination of adjectives meaning fake. The proposed G-20 budgets for FY 2011 reveal that these governments plan to increase their total debt by 40 percent the next fiscal year.
Right now the BIS is holding a secret summit in Australia, having invited representatives of 24 central banks and monetary authorities to discuss the unwinding of the global economy and exit strategies. No doubt Greece, Spain, Portugal, Ireland and Iceland are competing with the US for the coveted title of Most Bankrupt Country on the Planet. While the US is by the far the largest debtor, when looking at external debt as a percentage of GDP, Ireland (1,267% - $567,805 per capita), Switzerland (422.7% - $176.045 per capita), the United Kingdom (408.3 % - $148,702 per capita), the Netherlands (365% - $146,703 per capita), Belgium (320.2% - $119,681 per capita), Denmark (298% - $110,442 per capita), and Austria (252.6% - $101,387 per capita) lead the way. I won't bother listing the rest of the top 20, as the World Bank and IMF believe external debt sustainability should not be more than 250 percent of a country's revenue or 150 percent of exports, so I have listed only those countries that risk default according to the IMF and World Bank. Given how much they write off to countries like Nicaragua that have never paid off their debts and have no hopes of ever paying off their debts, their formulas and credit ratings need to be tweaked a little bit. It's no wonder why these impending defaults of the G-20 are inevitable.
Economics is not a hard science, but a social science. That means you need to take into account human factors, such as the average person in Ireland saying, "I do apologize, but I am not going to turn over 100 percent of my pay for the next fifteen years to pay the debts owed to our foreign creditors and you are a fool to think otherwise." Of course, they will not be so polite. And you should definitely worry about the Swiss because they will yodel a resounding, "No!" If the tax collector comes a knockin', the pistols will be a rockin' because the entire population is armed. People all over the world are revolting, hence the need for all governments to create a big, messy war that will kill off their populations because that is what war is usually about - population control. Osama bin Goldstein is sure to make an appearance for the grave soon to rile up support for more war and martial law. This is how the elite plan to solve the economic collapse. That and maybe a man-made pandemic.
With all this Doom and Gloom, I havent even had time to mention the speculative real estate bubble in China. Jim Chanos, hedge fund manager famous for his short sales, warns that the next bubble to pop is China's real estate market. The Chinese government has admitted that the surplus liquidity has also created a bubble in the Hong Kong stock market and a production bubble in the steel industry, all of which is likely to collapse. The Chinese are slowly raising interest rates to gradually deflate the bubbles. China does not have a way to short the market, so they theoretically can deflate the bubble at a slower pace than a country like Dubai, but it's still a bubble.
The G-20 does not have this option. The BIS worries that the G-20 has made a de facto pact to increase government spending and allow a climate of low interest rates and easy money to allow business and industry to expand their spending to the point that government spending is 30 percent of the G-20 GDP, and 40 percent the year after. The BIS expects personal consumption to contract by an average of 3.5 percent a year over the next several years. Global tax revenues peaked in 2006 and thus the contraction must be made up by increasing the debt-finance spending of governments in order to continue kiting the national budgets until someone finally says "Game Over." As a novice, I admit that it took me a little while to figure this out. I spent a lot of time looking up definitions in search engines and reading banking reports at the expense of well-written fiction, but as paid financial professionals, none of this should be news to the folks at PNC. I sure hope that you sent E. William Stone to Australia so he could allay the fears of the BIS with his magical formulas.
So the global economy is up the proverbial creek, but given the xenophobic fears that have prevented PNC from diversifying portfolios for their clients, let's stick to something you should understand and focus on: the US economy.
Gosh, what to say? If the United States government nationalized every penny of private wealth accumulated by US citizens since the founding of the nation 235 years ago, the government would still remain bankrupt. These are all public numbers and with the use of a simple Excel spreadsheet, fairly easy to calculate. I wasn't the greatest math student, but even I can crunch numbers like this, even without the benefit of a team of researchers to assemble the data. (To be fair, I didn't, but I easily accessed the data the the economists used for the basis of this number, and had I felt the desire to input 235 years of annual data into the spreadsheet, I, too, could have come up with the same numbers they did when hitting the total key and in less time than it would have taken for one of E. William Stone's prodigies to run out of the office and return with a Starbuck's latte.)
As of September 2009, Americas' private net worth was $53.4 trillion dollars according to those esteemed folks at the Federal Reserve Bank. I would guesstimate it to be a tad higher given the trillions of dollars siphoned from the DoD (which could not account for $3.3 trillion dollars as of September 10, 2001) and all the money hidden in the Caymans, but I'll just go with Fed's numbers, which are likely inflated anyway and include the over-valuation of housing.
What the Fed didn't say (because they are a bunch of inbred idiots) is that America's debt and unfunded liabilities exceeds $120,000,000,000,000 (yes, that's $120 trillion, up from $75 trillion five years ago), which is 225% of the combined net worth of all US citizens.
While brainless politicians and Federal Reserve employees are not outwardly concerned by these numbers, the BIS is gravely concerned. Even if the US government finalized its plans to turn every American into a a slave for the machine, it would still have a deficit of $66,600,000,000,000.00, which does not include compound interest. That means every American - man, woman, child, including the sick, elderly, disabled, bankrupt and incarcerated citizens - would still be on the hook for $214,286 to pay off the debt, or roughly 500 percent of the current GDP. If the government does not seize all private wealth and you include compound interest, then every American citizen is on the hook for just a tad under $400,000 to get the Treasury into the black. Mind you, the US has already privatized a lot of the nation's resources and has prohibited development of national lands as collateral for foreign debt holders, so it's not like we can have a giant yard sale and give away even more resources to foreign corporations.
I'll stop for a moment and give you a chance to comprehend these numbers. If you dare refute them, please show me your sources. If you cannot refute these claims (other than repeating, PNC believes that recovery is around the corner like a zombie), I will assume that you agree with these numbers, plus or minus a couple of thousand dollars. Of course, if you agree with the numbers I have just presented to you (cribbed from the highly intelligent, well-respected economist John Williams and well-researched authors because I dont have time to come up with all these numbers on my own), then you have no choice to agree with my analysis and fears that the US is on the verge of an economic collapse.
According to the US Treasury, $2 trillion worth of debt will mature in the next twelve months. Thanks to investment managers like the ones employed by PNC, Americans don't have the cash to keep buying these worthless bonds. Presently more than 45 percent of US federal debt is external, meaning that in the next twelve months the US must come up with $880 billion to settle foreign debts.
Where will this money come from? Our gold reserves are estimated to be around $300 billion at today's prices, though the folks at Fort Knox have refused an audit. It's possible that all of that gold (if it exists) was leased to banks and no one is sure who owns it anymore. It's kind of like CDOs. Then there is the strategic oil reserve, estimated to be worth $60 billion. The US also has foreign currency reserves, estimated to be around $135 billion, though that value could be less given the recent spike in the strength of the dollar.
Of course, you obviously realize that this $2 trillion is merely maturing short-term debt and does not include the $1.6 trillion in additional deficit spending, which also does not cover the cost of wars in Iraq or Afghanistan or Iran or Pakistan or Columbia or Yemen or Sudan, nor does it include a bailout for California or any state that is afflicted by a natural disaster such as a hurricane, earthquake or volcanic eruption.
So where does this leave the United States? Even if we sold all of our assets and nationalized savings accounts ($600 billion annually), that still leaves the Treasury $3 trillion short.
As financial professionals, you are obviously aware of the Greenspan-Guidotti rule published in a 1999 paper in which the two economists state: To avoid default, countries should maintain hard currency reserves equal to at least 100% of their short-term debt maturities. Now I know the folks at PNC have a hard time understanding this concept, hence your support for worthless bonds and T-bills and the like, but think about it. The US owes $900 billion plus or minus in external debt and has a mere $500 billion in assets. And this is without the $1.6 trillion deficit factored in. So already the US is a horrible credit risk. Add the OMB deficit and the virtual assurance that April Federal tax receipts will be far lower than projected and that puts our funding needs at $3.5 trillion or more over the next twelve months. This is about a third of the annual GDP.
These numbers are huge! Lets just focus on the $1.6 trillion deficit for a moment, as it is a smaller number and easier to digest.
The current projected US budget deficit of $1.6 trillion means that the US government is overspending its projected revenue (which, lets face it, is grossly exaggerated because millions of people cannot afford to pay their tax bills or will refuse to pay their tax bills this coming year) by $4.38 billion per day. (I won't type out the formulas because it is simple math - divide the deficit by 365 days.) However, the US is already in arrears, having spent in excess of $296.7 billion in the first two months of the 2010 fiscal year, or $4.9 billion per day. These numbers do not include the funds necessary to bail out the bankrupt FDIC, which expects 2010 to be the worst year for bank failures. I am sure you are aware that the FDIC has bailed out and closed 16 banks this year, but I digress. Who needs to talk about those piddly numbers when there is something bigger brewing? As a banker, I am sure that you are aware of the GAAP accounting method. The GAAP accounting method requires that corporations report all future liabilities and off balance sheet transactions to give a clearer picture of a companys financial health (best as I can tell - I am a bookstore owner and not a finance professional). You are also aware that the bankrupt US uses the cash accounting method, which is why when they talk of deficits, unfunded future liabilities like Social Security and Medicare are not included. Best as I can tell under the cash accounting system, the only liabilities mentioned are principal and interest and not future liabilities of any sort.
Deferring to John Williams again, if the US used GAAP accounting methods, the nations fiscal year 2009 deficit was roughly $9,000,000,000,000.00 ($9 trillion), or $24,700,000,000.00 ($24.7 billion) per day.
I know you are used to big numbers like this (well, until your clients portfolios evaporated faster than an ice cube in the desert), but to give a more realistic picture to my two sisters reading this email, in less than a year, the US government and Federal Reserve Bank (which is private) managed to spend 17 percent of America's private wealth accumulated over 235 years. Since you are a private wealth management group, I thought you would appreciate this factoid.
Every single government entitlement program in the United States is bankrupt. This includes Social Security ($17,500,000,000,000.00 underfunded; $17.5 trillion); Medicare Part A ($36,700,000,000,000.00 underfunded; $36.7 trillion); Medicare Part B ($37,000,000,000,000.00 underfunded; $37 trillion); Medicare Part D ($15,600,000,000,000 underfunded; $15.6 trillion), Government and military pensions ($2,000,000,000,000 underfunded; $2 trillion), Food Stamps (current underfunding difficult to measure because the number of recipients is exploding - one in ten Americans relies on Food Stamps; hundreds of billions underfunded versus original projections, minimum); and the list goes on. The above underfunding amounts are NET of projected tax receipts over the next 50 years, which also include climate revenues of $79 billion starting in 2012 revenues that will likely disappear since global warming has been debunked as a scam to create a $2 trillion carbon derivatives market (set up by Ken Lay with a derivative structure designed by the woman who engineered the infamous Credit Default Swaps), but I digress. The current recession has invalidated virtually all long-term budget and tax receipt assumptions, meaning that the true underfunded amounts are now greater than current, already mind-boggling estimates.
With numbers like this, how can any sane, rational person believe that the US can ever recover? The BIS doesn't believe in global recovery. E. William Stone is either a paid lackey for the PPT or uses a Magic Eight Ball to come up with his analysis. My dog, I cannot believe the man is still employed. I cannot believe that you folks at PNC would rather your clients lose money than face up to reality.
What is reality?
Reality is that the banking system you believe in is collapsing. Reality is that Goldman Sachs executives and employees are lining up to get concealed weapons permits because they know that when the excrement hits the fan, bankers and other Wall Street thugs will be the first targets of a population that has lost everything. Reality is that the IRS just put in a huge order for shotguns for their criminal investigation division. Reality is that banks have done nothing to earn the interest on money they have created out of thin air and the credit they extend is not theirs to extend. The credit belongs to the people of the United States and any benefit in fees and interest derived therein belongs to the People of the United States. The current banking system is unconstitutional, privately based monetary system that enriches private bankers and gives them power and the People of the United States have woken up to this fact, hence the fears of the newly armed Goldman Sachs executives and IRS personnel.
No bankrupt nation in history has ever defended or preserved the freedoms of its citizens. In fact, it is the exact opposite: in desperation, bankrupt government have routinely plundered their citizens wealth and imposed totalitarian controls. What will make things different for the United States, the largest debtor nation in all of recorded civilization?
This summer something will happen and it will be the beginning of civil war in the United States. It might be the collapse of California. I am sure you are aware that the California controller said the state would run out of money by April 1st unless $1.3 billion of spending cuts are activated immediately. California's revenue projections for the coming fiscal year have not reflected the decline in the California, US and global economy, assuming that like E. William Stone contends, everything is just peachy. California will be on the infamous IOU system by September. Speaking of state deficits, I am sure that you are aware that the City Controller of Harrisburg, Pennsylvania, suggested the city should skip a $2.2 million debt service payment and consider bankruptcy. Not surprising given the poor fiscal health of the state. As I recall, Philadelphia was closing all of its public libraries because of the poor economy. And of course you are aware that tax revenues to the state of Pennsylvania are way down. But don't feel like I am only picking on Pennsylvania. Ohio state income tax collection is off by $97.7 million. Nevada's revenue shortfall is $881 million and growing. The state of Arizona is facing at least a $2.6 billion shortfall. Indiana state revenue is $74.8 million off forecast and it is not even April 15th. Both Kentucky and Hawaii project a $1.2 billion shortfall over the next two years. Wisconsin projects a $500 million shortfall. The state of Florida is looking at a $3 billion shortfall. The Governor of Oklahoma has weighed in and said there will be some very difficult decisions in the near future. The state of New Hampshire has a shortfall that they tried to plug using some creative accounting techniques (using money earmarked for other purposes), but that fell through. Now we have record snowfall and freezing temperatures shutting down commerce in the East. I am so, so very glad that I am not in bonds. Can you refresh my memory and tell me which ignorant jerk laughed at me when I suggested that I wanted out of municipal bonds because the states were going bankrupt? Is that loser still working for PNC? Given the state of out portfolios, I can only assume the answer is yes.
Does PNC refute these numbers? If so, then I would like to see E. William Stone and his group of magicians show me a realistic economic model to the contrary. If PNC and its overpaid thieves crackheads analysts cannot refute these numbers, then I can only assume that PNC agrees with these numbers and thus is in agreement that this qualifies as extraordinary, unseen (by idiots) economic circumstances. And if PNC agrees with me, then E. William Stone and every person who suggests that recovery is possible should be fired on the spot. What do you know that the BIS doesn't?
Wow, rereading this I realized that I failed to mention the outstanding $3.5 trillion in commercial real estate and the $1.5 quadrillion derivates nightmare, but I won't bother you with that, as I am sure you and the gang will be working overtime to prove to me that recovery is just around the corner. Whatever you do, please do not insult me be mentioning unemployment numbers because even my cats know that they are mere projections and do not include those who have exhausted unemployment benefits or sole proprietors and family business operations. Real unemployment is close to 20 percent right now. There are record foreclosures, bankruptcies and credit card defaults with no recovery in sight according to Fitch Ratings. There has been no job creation except as a bureaucrat for the federal government. The majority of states do not have adequate unemployment insurance programs and everyone but E. William Stone and his Johns over at the Fed knows that 2010 will see more job losses than 2009. Banks have cut yet another $1 billion from small business lending programs. Inflation adjusted wages have increased 20% in 20 years (1% annually, still better than my ROI with PNC's advice), yet housing costs are up 56%, health care costs are up 155%, and higher education between 150 and 300 percent, depending on the school.
Unlike PNC, I want to protect my dwindling assets by cutting my losses while I still can, before I am left with two trusts left with Zimbabwe-style dollars.