How much money is there in the U.S.?

If you add up all the money that’s available in the U.S. for immediate exchange, you’ll find that numbers less than half of the national debt.

The U.S. government is fairly straightforward about the amount of printed money it creates. You can find monthly and annual reports on the U.S. Bureau of Engraving and Printing’s web site.

“During Fiscal Year (FY) 2011, the Bureau of Engraving and Printing produced approximately 23.5 million notes a day with a face value of approximately $453 million,” the bureau says.

That adds up to $5.4 billion a year. That’s a lot of cash. But if you’re really looking to figure out how much money there is in the U.S., you’ve got to look at more than just currency.

“I use what’s called True Money Supply, which is basically all currency that’s readily available for use and exchange – currency, coins, notes, checkable deposits, savings deposits and the like,” writer Chris Marchese recently told The Gold Report. “That’s been growing between 10% and 15% over the last three years.”

Formulated by Murray Rothbard, the True Money Supply (TMS) goes by lots of names including the Austrian Money Supply and the Rothbard Money Supply. In the words of the Ludwig von Mises Institute, TMS can be defined as “the amount of money in the economy that is available for immediate use in exchange.”

The Ludwig von Mises Institute currently calculates TMS at approximately $7.3 trillion. That’s an abstract number, and the scary part is it’s actually less than half the U.S. National Debt (which stands north of $15 trillion). The rapid expansion of the true money supply in the U.S. is startling:

When you hear people around the office arguing that gold is in a bubble, you might want to send them a link to the Ludwig von Mises Institute. It’s not gold that’s in a bubble, it’s currency.

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8 signs we’re headed for a bear market in stocks

Every day, it looks more and more like we’re headed for bear country. Here are 8 key signs that we’re a long way from an economic recovery.

Stocks are flirting with a 20 percent decline from market highs in April. A 20 percent decline is the generally-accepted definition of a bear market, and it looks more and more like we’re headed for the dreaded bear country. Here are 8 key signs that we’re a long way from a recovery:

1) The ECRI. There’s just one institution that can legitimately claim to have “never been wrong” at predicting a recession. That’s the Economic Cycle Research Institute (ECRI), and last Friday they sounded the warning bell. “Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession,” the company wrote on its Web site, “and there’s nothing that policy makers can do to head it off.”

If the ECRI is right this time, they’re predicting the official unemployment numbers could rise from 9 percent as high as 15 percent. That would put the “unofficial” unemployment numbers closer to 25 percent.

2) “Close to faltering.” Even Federal Reserve chairman Ben Bernanke acknowledged widespread weakness yesterday when he warned the U.S. economy is “close to faltering.”

“Recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead,” Bernanke told Congress. He hinted that the Fed is prepared to take more action if things worsen. The markets liked that, but it’s a clear indication that we’re far from out of the woods.

3) Manufacturing contraction. For the first time in two years, the Global Manufacturing PMI dipped below 50 – the cut-off line that differentiates growth from contraction. The measure hit 49.9 in August – a low we haven’t seen since June 2009. Things are even worse in Europe where the manufacturing index fell below 50 for the second month in a row.

4) Death to the Hang Seng? Hong Kong’s Hang Seng Index, which includes shares of many of China’s largest companies, sealed up its worst quarter in a decade when the market closed on Friday (per BusinessWeek). All told, the index shed 22 percent in three months. Hang Seng shares haven’t seen losses that steep since September 2001.

5) European contagion. Goldman Sachs slashed their forecasts for U.S. growth in the first quarter of 2012 to a paltry 0.5 percent. “The European crisis threatens U.S. economic growth via tighter financial conditions, reduced credit availability and weaker growth of U.S. exports to the region,” Goldman economist Andrew Tilton said (per the Financial Post). “This impact is likely to slow the U.S. economy to the edge of recession by early 2012.” Late last week, Goldman also published a report arguing that developed markets don’t just face a downturn but rather have a 40 percent chance of economic stagnation for the next five years.

6) Greek debt default looms. Yes, the EU’s frantically trying to find some way to stop Greece from defaulting on its debt, but the long-term picture for the country doesn’t look good. If they don’t get a bailout by November, Greece will have to start defaulting on pensions, salaries and bonds (per CBS). Even if they do get a bailout, it’s unclear how the government will be able to manage a debt load that stands at 150 percent of GDP. Recently, investors grew so pessimistic on three-year Greek bonds, the interest rates rose above 100 percent.

7) Class warfare. Doom and gloom newsletter writers have been talking for years about the coming civil unrest in the U.S. It’s something I’ve started realizing doesn’t just happen in other countries. Protests in Greece and Italy are so common they rarely make the international news. And now, Wall Street’s dealing with its own set of protestors. In a matter of weeks, Occupy Wall Street has spread from New York to Chicago, Los Angeles, Seattle and Boston. Now, several unions are getting in on the act, too (per CNN). High unemployment and a lack of opportunities leads to civil unrest – no matter where you live.

8) Down with bonds. Moody’s downgraded Italy’s government bonds yesterday from Aa2 to A2 (per the Financial Post). Funding’s getting harder and harder to get for the weakest European governments, and that means they’re going to be forced to slash their spending. That doesn’t bode well for consumer-driven economies abroad or at home.

Official government numbers may not show that we’re in a recession yet, but the signs are clear. In the words of ECRI co-founder Laksman Achuthan, “you haven’t seen anything yet.”

“A new recession isn’t simply a statistical event,” Achuthan writes. “It’s a vicious cycle that, once started, must run its course. Under certain circumstances, a drop in sales, for instance, lowers production, which results in declining employment and income, which in turn weakens sales further, all the while spreading like wildfire from industry to industry, region to region, and indicator to indicator. That’s what a recession is all about.”

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QE3 is coming soon to an economy near you

There’s too much at stake for the Fed not to act. And that’s got me convinced we’re going to see QE3 sooner rather than later. Here’s why.

With bad economic news piling up, it’s looking more and more like QE3 is just around the corner. Federal Reserve Chairman Ben Bernanke certainly left the door open after the annual Jackson Hole symposium late last month. “(We have a) range of tools that could be used to provide additional monetary stimulus,” Mr. Bernanke.

And the speculation is that an announcement of some sort will come as soon as Sept. 21 at the conclusion of the Federal Open Market Committee (FOMC) meeting. Rather than buying up even more short-term treasuries, though, analysts believe the Fed could announce plans to sell off short-term notes to buy longer-term bonds. The move’s been dubbed “Operation Twist” (per Bloomberg) because the ultimate goal would be twisting the yield curve, so that short-term rates rise while long-term rates fall. That would drive down interest rates on big-ticket items like cars and houses.

It’s not much in the way of stimulus, and some economists believe it may just be a delay tactic by the Fed to give the impression that they’re “doing something” before a full-blown, large-scale QE3 gets announced later in the year or early next year.

The danger, of course, is that the Fed could wait too long. By then, it may be “too little, too late.” And that’s exactly what the so-called Dr. Doom economist Nouriel Roubini has been arguing. Roubini believes that once the Fed finally moves to start a full-blown intervention (QE3), it will target ailing state and local governments. He just doesn’t think it’ll be enough to prevent another recession.

My gut’s telling me that the Fed could surprise a lot of people on Sept. 21 (including Mr. Roubini) by announcing aggressive new forms of monetary easing. The bad news has just gotten too bad to ignore without watching the U.S. slip back into another recession.

Friday’s jobs report led to another sell-off in the stock market when the government showed zero job growth in August. That goose-egg for job growth shows we’re flirting not with the prospect of slow growth but a shrinking economy that could edge toward double-digit unemployment again.

It’s hard to underestimate the impact jobs have on a consumer-oriented economy. Without jobs people don’t have income to burn. And turning around the job situation is like navigating a gigantic boat with a single oar.

Mr. Bernanke himself has said in the past that it would take a year of 5 percent economic growth in the U.S. to lower the unemployment rate by a single percentage point. Since we’re a long way from 5 percent economic growth, it’s hard to believe the president and congress isn’t putting pressure on the Fed to act. There’s too much at stake. And that’s got me convinced we’re going to see QE3 sooner rather than later.

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Stock market crash looming on horizon?

The 30 percent plunge in silver prices over the past two weeks could be an early warning signal that there’s something going wrong in the markets. I’d even go so far as to say it’s starting to look like 2008 out there.

The 30 percent plunge in silver prices over the past two weeks could be an early warning signal that there’s something going wrong in the markets. I’d even go so far as to say it’s starting to look like 2008 out there. That’s got a lot of investors moving into defensive positions, and that doesn’t bode well for stocks. Here are five signs that it might be time to lighten up your portfolio:

1) New margins on the CME. Changes in initial margin requirements for Comex silver futures have gotten most of the press. A series of recent hikes drove silver margins up 84 percent in just 8 days. What’s gotten slightly less press is the news that the CME Group didn’t limit their margin hikes to silver alone. Margin requirement for crude oil climbed from $6,750 to $8,438 on Tuesday, May 10. The United States Oil Fund LP ETF (NYSE:USO) is down 12 percent since the start of the month. “Increases in margin requirements have a history of triggering selling,” David Kotok, the Chief Investment Officer at Cumberland Advisors, writes at FinancialSense. Kotok noted that his fund is raising cash on the heels of the CME Group’s “game-changing” margin hikes.

2) Bullish on healthcare. It’s always a bad sign when investors start moving into healthcare stocks. Like utilities, the sector is one of few that consumers can’t cut back on when times get tight. Consider this: of the 10 S&P sectors, healthcare has performed the best this year. It’s up 14.9 percent, per Reuters. A lot of people with a lot of money apparently see signs that it’s time to get defensive.

3) The end of QE2. The Fed’s still doing its best to inject more money into the economy with QE2, but we all know that program’s due to end next month. When it does, the cash sloshing around in the stock markets could dry up quickly (just as it did at the end of QE1). Credit Suisse expects at least a 10 percent drop in equities at the end of QE2, according to Reuters. Value investor Jeremy Grantham’s calling for a 30 percent drop in stocks.

4) Weekly Leading Index. The Weekly Leading Index (WLI) from the ECRI (Economic Cycle Research Institute) is closely watched by professional traders thanks to its ability to forecast economic growth. In recent weeks, the WLI has flattened and slowly started edging downward – most recently from 6.6 percent to 6.4 percent. It’s an indication that economic growth is slowing. If regional manufacturing reports due out this week from New York and Philadelphia confirm the trend, the bears could again take the upper hand. And they just might as manufacturers suffer with higher input costs thanks to rampant energy inflation.

5) The debt ceiling debate. For all the drama surrounding the debt ceiling debate, I think Washington realizes they’re truly jeopardizing faith in the dollar. If the ceiling isn’t raised, it would be tantamount to a default on U.S. debt; something that even the most hard-line Tea Party member should realize isn’t a good thing. Even Speaker of the House, John Boehner (R-Ohio), has said as much: “They’ve pushed the date back, pushed the date back, pushed the date back. But it’s clear to me that at some point we’re going to have to raise the debt ceiling.” That should alleviate short-term fears of a bond default, and – coupled with the end of QE2 – move investors back into bonds and the dollar.

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What would happen in the event of a U.S. debt default in 2011?

Even toying with the idea that the U.S. could default on its debt obligations probably has foreign lenders looking for new places to park their surplus capital.

With the drama surrounding Friday’s near-shutdown of the federal government, it’s easy to forget there’s a bigger problem looming: the need to raise the federal government’s debt ceiling. As it stands, government debt is currently capped at $14.3 trillion, and we’ve rung up some $14.287 trillion in debt (and climbing), Reuters reports.

The Treasury estimates we could bump up against the debt ceiling as early as mid-May, although we may be able to extend D-Day as late as July 8. Hitting the debt ceiling sounds innocuous, but the implications are downright scary: if Congress doesn’t raise the ceiling, the U.S. would, in effect, default on some of its loans as there would be little other way to meet the government’s spending obligations.

The only alternative would be balancing the Federal budget overnight, and – according to NPR – that would require slashing spending by 40 percent, raising Federal tax receipts by 40 percent or some combination of the two (translation: it would be all but impossible without crumpling our economy).

If a debt default did happen, it would make the 2008 financial crisis look like child’s play. Treasury Secretary Timothy Geithner was on Capitol Hill last week trying to drive home that fact with Congress. Here are just a few of the problems he sees if the government fails to raise the debt ceiling:

  • Dramatic rises in borrowing costs for all Americans
  • Decreased payments to the military
  • Cuts in social security
  • A surge in unemployment
  • “Thousands, if not hundreds of thousands” of business failures

Defaulting on our government debt, Geithner added, would “call into question the willingness of the United States to meet its obligations” and this would “shake the … foundations of the entire global financial system.”

On top of Geithner’s concerns, we’d probably see more problems:

  • The death of the U.S. dollar’s status as the world’s reserve currency
  • A downgrade of U.S. sovereign debt
  • Hyperinflation
  • A stock market collapse
  • Decreased or complete cessation of payments for Medicaid, Medicare, Social Security, military pensions and other government programs
  • An IMF bailout of the U.S. government
  • Draconian spending cuts imposed by foreign lenders
  • Mass layoffs for state and federal employees
  • School closings and consolidations
  • Protests, demonstrations and widespread civil unrest

In the words of President Obama’s White House spokesman Jay Carney, “failing to raise the debt ceiling would be Armageddon-like.” No matter what your politics, it’s hard to argue with Carney.

Even toying with the idea that the U.S. could default on its debt obligations probably has foreign lenders looking for new places to park their surplus capital. Let’s just hope our Congressmen realizes that there are some issues that take precedence over political maneuvering. We elected them to protect our interests, and raising the debt ceiling is in the interest of everyone.

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What will happen when QE2 ends in June?

With QE2 scheduled to end in a mere three months, no one’s entirely sure how the dollar and the stock market will respond, but there’s lots of evidence that it won’t be good.

A darkening cloud seems to be forming over the financial markets. With QE2 scheduled to end in a mere three months, no one’s entirely sure how the dollar and the stock market will respond, but I’m willing to bet it won’t be good.

QE2 continues to inject an average of $4.4 billion dollars every business day into the U.S. economy, according to Chris Martenson at GoldSeek. That enormous chunk of change has been wending its way into stocks, commodities and bonds.

And now, a series of well-timed media appearances by Fed governors across the country appears to be signaling to the market that the party’s due to end. The Philly Fed’s Charles Plosser is calling for interest rate hikes, James Bullard of St. Louis suggests that strong U.S. economic data could let the Fed wrap up QE2 early and New York’s William C. Dudley sees no reason why the program should continue after it ends in June.

The sheer scale of QE2 should be an indication of how deep our boots have sunk into the muck. Since the start of the Great Recession in 2008, Martenson points out that the monetary base has grown by some 300 percent. And yet, the unemployment rate is still hovering at 9.2 percent – a level we haven’t seen for 28 years.

The Fed has artificially propped up the markets and Martenson argues there’s going to be a whole lot of misery when the music stops in June – particularly since the crisis in Japan leaves few buyers for U.S. treasuries moving forward.

“If the Fed terminates QE on schedule, then I think a tsunami metaphor is apt,” Martenson writes. “First, all of the liquidity will drain out of the bay, leaving countries, governments, and institutions to flop about in the mud. Then the Fed will panic and resume the liquidity flood, feeding the wave that will rush back in to destroy the lives and portfolios of those who positioned their wealth in harm’s way.”

Not everyone agrees, though. James Dailey, chief investment officer of TEAM Financial Managers, tells TheStreet that he’s confident the Fed will raise rates slowly – probably even too slowly, and that should keep upward price pressure on stocks, commodities and precious metals.

“Even if we see tightening, that is no reason to not own commodities,” he added. “Central banks will be behind the curve. You can get corrections based on it being overbought now but the fundamentals are intact. Unless there is a global recession or one or more central banks find religion and develop a Volckeresque appetite for monetary tightening, we see negative real yields.”

An informal survey of experts as CNNMoney found that all but one money manager thought the end of QE2 would have a negative effect on stocks. The economy’s expansion, they argue, should buoy stocks even without the flood of easy money entering the markets.

I’m not so sure. There isn’t a whole lot of data to draw from, but we do know that Japan’s quantitative easing experiments 10 years ago typically led to market sell-offs when they ended. The same thing happened here when QE1 was halted. CNNMoney’s own chart illustrates the market sell-off that eventually led to QE2:

The experts might be telling us to put more faith in the strength of the recovery, but I’m just not convinced the recovery is ready to stand on its own. All we’ve got to go on is past experience. And I’ll take that over the educated guesses of the experts. Expect me to be in cash in June, watching from the sidelines and hoping that QE3 is just around the corner.

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Is $200 a barrel oil in our future?

There’s an inherent danger if oil hits $200 a barrel. Namely, that economies can’t support the burden of high oil prices. Unfortunately, the stage looks eerily set for a replay of 2008.

The former chief economist at CIBC World Markets, Jeff Rubin, is renewing his calls for $200 a barrel oil. Rubin laid out his reasoning in a recent editorial (“Only A Recession Stands in the Way of $200 Oil”) at FinancialSense. Rubin first predicted skyward-bound oil prices on the back of strong global economic growth in 2008.

“Despite triggering the world’s deepest post-war recession and a rare, albeit temporary decline in global oil consumption, oil prices had already soared back to triple digit levels even before the Arab revolt,” Rubin writes. Now, he believes investor speculation could lead to another extreme run-up in oil prices.

There’s an inherent danger if that happens, though. Namely, that economies can’t support the burden of high oil prices. When oil hit $147 a barrel in the summer of 2008, it ground everything to a halt. Soaring transportation and energy costs forced consumers to hunker down and stop spending money.

Now, Rubin argues, the stage is set for the whole cycle to repeat. Political unrest in oil-rich countries coupled with oil price speculation will push prices up too fast, which, in turn, will lead to a global recession. “The only question,” he writes, “is will we see $200 per barrel oil first?”

Oil prices have risen 15 percent in two weeks as tensions rose in Libya, cutting oil output in the country in half.

That’s got some analysts worried about the cost of commodities like gasoline. “We could see gasoline between $4.00 and $5.00 a gallon by Memorial Day, maybe sooner,” David Kotok, Chief Investment Office of Cumberland Advisors, tells CBN.com.

U.S. Federal Reserve Chairman Ben Bernanke is far less concerned. “The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation,” he said during an appearance before the Senate Banking Committee this week.

Bernanke qualified his remarks by adding a disclaimer: “unless it is sustained.” And that’s where the real threat of $200 a barrel for oil lies. If the unrest in Libya devolves or – worse yet – spills into oil-rich Saudi Arabia, oil could climb catastrophically fast. Signs aren’t encouraging. Over the past two days, Saudi Arabia’s Tadawul stock index has fallen 11 percent as investors fear political turmoil in the region.

“Unrest in this region can have fatal consequences for the world,” JBC Energy tells The Telegraph. “The plunge on the Saudi stock exchange can be interpreted as a sign of waning trust.”

If things get any worse, $200 oil may make the headlines, but the effects should be where our focus lies. Soaring energy and consumer goods costs, more layoffs and more home foreclosures could plunge economies around the world back into a recession. That would be a nightmare for debt-addled governments – one that might take years to put behind us.

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U.S. deficit worse than Greece woes, Black Swan author says

The U.S. deficit is worse than the Greece debt crisis that prompted bailouts by the EU and IMF, and that means inflation – and possibly some black swans – are on the horizon.

The author of The Black Swan, Nassim Taleb, wasn’t pulling any punches at a conference in Russia last week. Taleb – whose book argues that that most people underestimate the frequency of rare, market-changing events – pointed out that the U.S. deficit is worse than the Greece debt crisis that prompted bailouts by the EU and IMF.

The U.S. is covering its deficit “partly by printing, partly by going to find the fool to buy the bonds. So really we have a very fragile situation in the United States, without, unlike Greece, having the IMF on top,” Taleb was quoted as saying by the Financial Post.

Taleb was joined at the Moscow conference by publisher Marc Faber and both were asked what they’d buy over the next 10 years if they could only make a single investment. Faber recommended gold, and Taleb recommended land. Taleb also mentioned commodities including food, energy and metals while cautioning that investors should avoid Treasuries and the U.S. dollar.

Taleb’s convinced that the U.S. deficit has grown too large and inflation’s looming over the horizon. The implication of that inflation is anyone’s guess, but I imagine it will hold a black swan or two.

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President Obama not immune from housing woes

The real estates bust has it’s tentacles wrapped around even President Obama’s abode with price estimates on the White House plunging $80 million since 2006.

White House Value Plunges

As I wrote earlier, even the Great Depression housing market wasn’t as bad as current market. Prices have fallen 26 percent from their peak in June of 2006. That’s good for 53 continuous months of decline!

And it’s not just Main Street that’s affected. According to Zillow.com‘s admittedly loose estimates, the White House itself has lost nearly 25 percent of its value since the real estate bubble burst. That’s a plunge of more than $80 million from $331.5 million to $251.6 million.

If prices keep falling, it’ll be difficult for President Obama to take out the home equity loans he might need to finance the bailout packages!

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Great Depression housing market wasn’t as bad as current market

The housing market has fallen for 53 months straight. That means we’re worse off than we were during the Great Depression, and the bad news is probably going to get worse – much worse – before it gets any better

During the Great Depression years between 1928 and 1933, home prices fell 25.9 percent. The modern housing market just passed that mark. Indeed, home prices have fallen 26 percent since their peak in June of 2006 through November of 2010 (the most recent numbers available).

The housing market has fallen for 4½ years straight (53 months), and the bad news is probably going to get worse – much worse – before it gets any better. That’s because a temporary moratorium on bank repossessions after the so-called “robo-signing” foreclosure scandal will likely get lifted soon. That act alone will pour a glut of more than 2.5 million houses onto the market.

RealtyTrac’s Rick Sharga tells CNBC those 2.5 million houses should have went on the market last year. Instead, they’ll be freed up in 2011 in addition any new houses that get completed this spring and summer. That means the 53-month trend of falling housing prices isn’t going to slow down anytime soon. That’s good news for home buyers and bad news for housing companies.

This could all dampen growth in the wider economy at large by decreasing home equity loans as more and more homeowners slip underwater and potentially walk away from their mortgages. The only light at the end of the tunnel? The fact that the Great Depression housing market started showing signs of improvement after five years. We’ll reach the five-year mark this June, and it’ll be interesting to see where we head from there. Judging by the numbers, though, we’re a long way from home free.

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