The McHale Report
The 5 Red Flags
These are the top items that you can watch. These indicators will let you know just how close we are to an economic meltdown.
- Debt/Loss of US currency as the World Reserve Currency
- Inflation/Soaring food, gas etc prices
- Printing money to monetize the debt
- Excess in Gov’t spending - Living beyond our means
- Job Growth/Unemployment
Consumer Price Index – CPI – (%)
The CPI is a measure of the average change in prices over time of goods and services purchased by households. The CPI list includes food, clothing, shelter, fuels, transportation fares, charges for doctors’ and dentists’services, drugs, and other goods and services that people buy for day-to-day living. Visit www.bls.gov for the entire report and list of items that are tracked and reported.
The Bureau of Labor Statistics report for December 2010 showed the CPI increased by .5%. This number does not take into account food, energy or fuels, etc., this number is seasonally adjusted. As you can see from the above numbers, the items that most people purchase on a weekly or daily basis are rising quickly but the over all number doesn't show that. You should watch the items that you use since the CPI number does not really tell you what is happening with prices that affect you.
Inflation
Inflation rate for February 2011 is 2.1%. Visit www.usinflationcalculator.com for more information.
Inflation is defined as a rise in the general level of prices for goods and services over a period of time. The inflation rate is based on the CPI, see above. High inflation may lead to shortages of goods and services since supply and demand will be affected. If food is too expensive for example you will start to buy less, so the manufacturer will start to make less and a shortage may occur.
Inflation also reflects the erosion in the purchasing power of money. As the price of an item rises, your dollar buys fewer of these items. High rates of inflation and hyperinflation can also be caused by an excessive growth of the money supply.
The Federal Reserve in 2010 started to monetize the debt, which means it started printing money to buy back our own treasury bonds. As of Sept 2010 there is now over $2T dollars in bank reserves (in 2008 this number was $873B) due to the bank bailouts and monetizing the debt. This $2T number shows how the money supply has been growing over the last few years. At some point this valve will start to affect the inflation rate.
Unemployment
National Average which includes people receiving benefits, part-time and marginal employees, the under employed and those that have stopped receiving benefits but are still unemployed. Current rate is 9.1% but actual rate with people who have stopped looking or are underemployed the rate is 16%.
Debt
While the debt calculator shows $14.8T for debt if you add up all the unfunded liabilities and debt in other accounts and the US owes approx. $135T. The debt is $135T which the $14.8 is but a small portion.
The Economy is Collapsing – Not!
The stock market fell 512 points on Monday, it went up 400+ on Tuesday and just closed today 526 point down. So, is there is a meltdown happening in the markets? Not yet, but they are behaving just like I predicted over a year ago. The DOW in the 12,000 area is not sustainable nor is it realistic. The real value of the DOW should be between 9,000 to 10,000, in this range it is strong and healthy. If it starts falling below 9,000 THEN there is a possible meltdown in the works or the markets will be in a bearish area.
I know you are going – what? People are losing thousands of dollars in their retirement accounts and other funds and I am telling you, don’t worry? As I suggested last year, a way to diversity your portfolio and survive the coming market meltdown (and there will be one), was to cash out all your accounts and store cash, silver and food at your home. The only good news from today is that the value of the dollar actually went up. It is in the 74.85 range and did not participate in the panic today.
Just remember, if the US is having problems, then the rest of the world’s economies and currencies are in bigger trouble than ours. It is a ripple effect and we are all tied together. The problems in Europe are causing some of the issues but if we had a healthy economy it wouldn't matter, but we don't. People are getting out of the market and are sitting on their money until they see things improving; they are not going to lose any more of their money. You shouldn’t lose any more of yours either.
It is too bad if you lost money today because I made money, trading. In the FOREX market, you can profit from a rise as well as a fall of any major currency. I am riding the market down and making just as much money as if it was going up.
What is the One Cent Solution?
The One Cent Solution is simple: If the government cuts one cent out of every dollar of its total spending each year for six years, we can:
- Balance the budget by 2019.
- Reduce federal spending by $7.5 trillion over 10 years.
- Reduce the debt $3.4 trillion over 10 years.
The One Cent Solution envisions that while all areas of federal spending should be considered, some programs may be too critical to cut deeply. In that case, other programs must be reduced more so that the total amount cut is equal to one cent for every dollar each year for six years.
For a simple example, let’s say the federal budget only had three programs funded, each with an annual budget of just $1.00.
- Program A is simply cut by one cent every year for six years. That means the annual budget for Program A is $0.99 in 2012, and then $0.98, $0.97, $0.96, $0.95 and finally $0.94.
- However, no cuts may be recommended for Program B. It is already lean.
- But then, Program C would have to be cut by two cents each year for six years so that the total federal budget is cut by one cent for every total dollar, for a balanced budget by 2019.
The One Cent Solution contains three key distinctive elements.
The Three Keys
1. A Plan that Works
The One Cent Solution gradually reduces total government spending (excluding interest payments) by making cuts equal to one cent of every dollar each year for six years. It also caps overall spending at 18% of GDP beginning in 2018 and beyond. This simple solution balances the budget by 2019, reduces federal spending by $7.5 trillion over 10 years and restores America’s financial future.
2. Legislative Strategy
The One Cent Solution supports the One Percent Spending Reduction Act of 2011, which entails four key provisions.
- Spending caps on total government spending (both discretionary and entitlement) equal to a one percent reduction in spending each year for six years.
- Congressional action to reform spending programs to meet the One Percent caps. In meeting the caps, Congress may cut some programs more than 1 percent and some less, as long as total government spending is reduced by 1 percent each year for six years;
- If Congress fails to enact the needed reforms, then mandatory, “across the board” spending cuts occur each year to bring spending reductions into line with the One Percent spending caps.
- Starting in the seventh year (2018) and thereafter, the bill caps overall spending at 18 percent of Gross Domestic Product (GDP) to ensure that it is line with expected future revenues. (Historically, federal revenues have averaged 18 percent of GDP.)
Learn more about current legislation.
3. Public Support
As citizens, we must own the problem. It’s just not right for us to pass on this debt to our children and grandchildren. Tough decisions are ahead. The key to balancing the budget and reducing the
national debt is you.
If we sign on 1 million citizens with representation from every congressional district, we can get Congress to focus on this solution and give them the political will to act. The One Cent Solution is a true American grassroots movement, started by citizens who believe good ideas can originate outside of Washington.
Through the One Cent Solution campaign, we are not only insisting upon action, we are providing a nonpartisan, simple, equitable way to get the job done.
Questions or Comments
Send questions or comments to karen@themchalereport.com