The news out of Europe could not be more frightening:
Its debts are mounting as it bails out its most endangered states.
Its banks are stretched to the breaking point as they struggle to prepare for the default of member states they have loaned billions to.
Its most indebted nations are instituting severe austerity measures that take billions of euros out of the Union’s economy.
And now, Europe’s economy is stalling. Official data released this week confirms that GDP growth has plunged to its lowest rate in two years — a factor which can only choke off much of the tax revenues needed to pay back all those debts!
Just look at Greece. The country managed to get a $156 billion bailout in 2010, in part by promising to shrink its budget deficit.
But its deficit has instead surged by a third in just the first six months of this year alone. The culprit: Plunging tax revenue due to a deepening recession.
Then there’s Portugal. The country got its own $111 bailout. But the harsh austerity measures it required are leaving the economy in terrible shape, too.
The country’s own finance minister is projecting that GDP will shrink 2.3 percent in 2011 and 1.7 percent in 2012. Result: Tax revenue there will likely fall well short of expectations.
Germany is the largest economy in Europe — the growth engine of the European Monetary Union.
But Germany’s economy has hit the proverbial wall. Its GDP rose only 0.1 percent in April, May and June — a mere one-fifth as much as expected. Now, with its economy stalling, tax revenues can only plunge.
The trend is clear and could not be more disturbing: The sovereign debt crisis that at first struck only the PIIGS countries is now a contagion, threatening to crush the entire European Monetary Union.
Think That’s Serious?
Take a Look at the United States!
Take a Look at the United States!
Our debts are mounting as Washington continues to spend money like there’s no tomorrow.
Our banks are stretched to the breaking point as they struggle to survive massive loan defaults.
Our most indebted states are instituting severe austerity measures that take billions of dollars out of the U.S. economy.
And now, America’s economy is stalling — a factor which can only choke out the tax revenues that are its lifeblood.
President Obama’s budget proposal from earlier this year assumed GDP growth of 2.7 percent in 2011. Then supposedly, GDP growth will accelerate to 3.6 percent in 2012 and 4.4 percent in 2013.
Now, though, it’s clear that the U.S. economy is slowing precipitously. We’re tumbling into a second recession already, just over two years after we technically emerged from the last one! And THAT will gut tax revenues just like the first great recession did!
Fact: In 2007, federal government revenue grew by 6.7 percent. But it then shrunk 1.7 percent in both 2008 and 2009. It wasn’t just federal revenue that imploded — and that continues to implode.
Reliable estimates suggest U.S. states are facing a cumulative funding gap between revenue and expenses of $527 billion from 2008 through 2013.
In October 2009, the Economic Cycle Research Institute’s weekly leading index was growing at a whopping 27.8 percent rate. But now that growth rate has contracted massively — down to an anemic 1.7 percent in early August. That’s just a hair from negative territory and it signals a sharp deceleration in the U.S. economy.
That’s not the only warning sign flashing red either. New home sales fell 1 percent in June after declining 0.6 percent a month earlier.
The S&P/Case-Shiller index of home prices also pointed to weakness, with prices down 4.5 percent from a year earlier. That was the biggest decline in 18 months.
Meanwhile, the ISM manufacturing index plunged to 50.9 in July from 55.3 in June, missing economists’ forecasts by a country mile. That was also the worst reading in two years.
Personal spending fell 0.2 percent in June, the first decline in almost two years. Incomes gained just 0.1 percent, the worst reading since last September. To top it all off, durable goods orders dropped 2.1 percent in June against expectations for a 0.3 percent rise.
Overall, GDP grew just 0.4 percent in the first quarter of this year, and 1.3 percent in the second quarter. How in holy heck are we going to get to 2.7 percent growth for the year, much less almost 4 percent the year after? Answer: We’re not! Not by a long shot!
One Massive Step Closer
to Financial Doomsday
to Financial Doomsday
So as we’ve seen so far in this series both Europe and the U.S. have followed the recipe for disaster that every failed economy in history has …
Our governments are spending all the tax revenues they receive …
They are borrowing every penny they can from citizens …
They are borrowing every penny they can from foreign investors …
Plus here in the States, our Fed has created trillions of dollars out of thin air to fight this crisis — and as a result, Washington just reported that wholesale price inflation is now raging at the annual rate of more than 7 percent …
And now with the cost of servicing their debt soaring into the stratosphere, their economies are slowing — a fact that can only cause tax revenues to shrink and debt to pile up faster!
If history teaches us anything, it’s that all of these steps are leading us inextricably to a monumental event that now threatens to trigger the ultimate financial doomsday — and plunge vast numbers of U.S. families into the nightmare of poverty, homelessness and hunger.
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