“Free” Social Benefits: The Cheese at the Center of the Trap – Wall Street Underground

By Nick Guarino | March 31, 2010

At first blush, all these welfare state benefits appear wonderful. Like money from heaven. Who could say no?

Who could be upset with saving a baby’s life, using the miracles of modern medicine? Making sure our grandmothers have the best health care, convalescent housing, and endless entertainment in their retirement years?

Socialism is seductive. For a while, every day seems like Christmas. You can spend more than you make. Consume more than you produce. Give out more in benefits than you ever paid for in taxes.

Pretty soon people forget they are getting much more in “benefits” than they paid in. They come to expect these benefits as their right.

And that is just the direct government handouts. Never mind the indirect subsidies I pointed out to you earlier. Roads. Water systems. Electricity. Sewage systems. Phones.

Even the damn weather systems — the rings of satellites that give us global communication, TV and internet — are almost COMPLETELY government subsidized.

So much mortgage and consumer debt was issued the past ten years, many people with modest jobs lived in modern-day marble palaces. With a swimming pool. Two-car garages filled with SUVs, jet skies, motorcycles, 4x4s. All the toys.

Every two years, they could buy a new car of their choice. The sky was the limit. They didn’t need to save money. They could get it all on credit. In fact the equity in their home was their own personal ATM machine. That was the new paradigm.

Same with businesses. They, too, seemed to defy the laws of economics and physics. They got something for nothing.

They could build magnificent shopping centers, and stock them with billions of dollars of Chinese (slave-labor-made) inventory. All these shopping centers were government subsidized. All financed by our banker buddies, with municipal bonds that will never be paid back.

Even corporations were on the global welfare system. They became no more efficient or productive. Yet the masses bought their new shares of stock, by the trillions.

So stock prices soared to the moon, as stock market ownership through retirement funds became the “investment” of choice. Even though the companies made no more profits.

This gave public companies trillions of leveraged dollars to play with. And play they did. Corporate pay shot through the roof. Never mind the perks like jets and yachts.

This great windfall was unearned. Nothing real backed it up. It was all a bubble. But with accounting black magic all this borrowed money — all these newly issued shares of stock (in reality, debt) that soared in price –- could be made to look like profits.

That is why corporations bought (and buy) other dead-broke corporations at such sky-high prices. They could make their own losses appear like profits.

Remember again the key thing. This huge orgy was built on the biggest debt creation in history. Debt that cannot be sustained. Debt that will bury the masses for generations to come. They will be strapped with low-paying jobs and taxes that strangle them for the next 100 years.

Junk bonds are debt of the most risky businesses. That is why their debt is rated as junk. Of all debt it has the greatest chance of never being paid.

Yet junk bonds give a yield that is not much higher than the yield of the sovereign debt of the U.S. government — the safest, highest-rated debt in the world…debt that for sure, without a doubt, will be paid in full. Insanity!

How can this be? The answer is simple and sad. Again our banker buddies have convinced the stupid money to go for high yield. So millions of people are taking on the vastly greater risk of junk bonds -– for just slightly higher potential reward. In reality they are buying the debt obligations of dead-broke monster corporations.

I repeat my often-stated refrain to you. In a debt wipeout the debt obligations of other are WORTHLESS. So get out of debt! Don’t invest in it not a penny of it. Because it is not a asset. It will be your undoing.

There is one exception to this: U.S. government debt. That may puzzle you. So let me tell you why you can lay in your bed at night, sure of two things.

One the U.S. government will pay its debt. Two the yield will plunge, in my opinion. Making the zero coupon bonds I recommend to you soar in value.

The reason is simple. The American people will be worked and taxed to death (literally), to make sure our government’s debt is paid. IT WILL NOT BE MONETIZED OR INFLATED AWAY!

Americans will give up their homes. Their cars. Their “benefits.” All to pay back this debt.

It will be UGLY! You’re already seeing this begin, with the record number of people losing their houses.

In the old system (that is coming to a end) endless debt meant the politicians didn’t have to worry. They could finance their great social experiments. They could hand out their endless mass giveaways to get votes. All financed by long-term government debt.

Now government debt is financing losses at banks, instead of government giveaways. That change will turn the world upside down. It is a new world order and not a very nice one. In fact it will usher in another dark age.

So you are clear here, we are at the “party’s over, penniless-debt-slaves” stage of the game now. Isn’t this clear? People are losing their homes, businesses and jobs. At rates never seen before.

You want a growth industry? Try flop houses, homeless shelters, prisons and food pantries. This will last for decades.

Remember that the mindless debt orgy didn’t last just five or ten years. It lasted three generations. Six decades. A hell of a lot of chickens are coming home to roost.

That has changed the world. And not in the way our clueless leaders promised either. Billions of people have been born, who know no better. They expect all these privileges -– the things people used to work, struggle and die for — as their right. And all for free.

To their minds, it all comes with their birth certificate. Life, liberty, pursuit of happiness -– plus education, health care, a home, a car, retirement.

They don’t realize everything around them is so cheap, because it’s so heavily subsidized on massive debt and slave labor.

The good times are now over. I know the politicians and Wall Street promise you otherwise. They say the green shoots party has started again. They want people to go out and borrow even more money. To stimulate the economy.

My friends, that is crazy. The WORST thing you could do is to go into MORE debt. It’s like telling a junkie trying to go cold turkey to take more heroin, so he will not feel so bad. The very solution they propose — spend more on credit — is the heart of the problem to begin with.

The depression is the price we pay for the debt addiction. Nothing can stop it. Kicking and screaming all the way, we will pay off all this senseless debt.

Individual personal debt has soared to levels unimaginable just 10 years ago. It far surpasses the ability of people to pay it back. And that debt keeps going higher.

This is why bankruptcies and foreclosures keep setting record highs. Along with poverty and homelessness. You know what I mean if you have ever been caught on the loan-shark/credit-card-debt- from-hell treadmill.

Corporations are no better. Don’t let their lying balance sheets fool you. They are broke, getting broker by the day. Which is why they can’t bring new stock issues to market. Why they can’t write their corporate bonds. Why they can’t do their IPOs to raise cash like they used to.

The suckers are out of money and credit. The ball of yarn has finally unraveled.

The bankers financed this endless credit orgy. They also are broke, losing more each quarter. Why do you think they needed trillions in bailouts -– and still can’t show real profits?

They use criminal schemes to disguise their vast debt. That’s what derivatives do. They let bankers hide debt and risk — and package it as an asset! Even though they know that debt will never be paid.

Government aids and abets them in this fraud. Why? Because the bankers aid and abet government. They give government the credit it needs , to try and buy off the masses. They were all in bed together, in the great debt lie.

Wall Street convinced over 100 million Americans to chase yield. To buy into the “high-yield, debt-based assets” b.s. They are clueless about the crap they really bought. This stuff gets more worthless by the day. Same with the “assets” that supposedly guarantee the debt. They also are dropping like a rock.

Just ask anyone who is unfortunate enough to hold mortgage paper. After the foreclosure and the final liquidation of the hahahahaha asset, they find they have lost their ass. The mortgage debt they bought as a “high-yielding investment” is only yielding huge losses.

These people did not buy high yield. They bought themselves their very own personal wipeout.

All so Wall Street and the bankers could roll the dice in the derivatives casino, rule the world, and pay themselves billions in bonuses each year.

You know what? All their gamesmanship -– all the phony-baloney accounting, their “pretending it’s a recovery” nonsense — doesn’t matter.

Because even with all their manipulations, the bankers’ incredibly sleazy instruments are still blowing up in their faces. The day comes when the gig is up. The Ponzi scheme is over. That day has come. We are at Judgment Day.

Every week we get more proof of this. One day retail sales drops further. A few days later, new home sales shock economists by falling again. Then consumer confidence crashes to new all-time lows. Unemployment, that was supposedly getting better, suddenly soars.

The bad reports never end. Of course not. It’s a depression. A deflation. Prices are dropping. Economic activity is slowing down. B.S. spin from government can’t change that.

And now for the coup de gras. Governments themselves — the source Perrier for borrowed money — the original unlimited charge cards — are going broke. En masse.

This is true in Greece (where the rioting on the street has already begun) in England. In Spain. In Portugal and Italy. It’s even true in that miracle of modern communism, China. (They do a good job hiding it.) It is spreading around the world.

Banks in these countries have lost tens of trillions of dollars or more. And that’s just for starters. The World Bank says the dead-broke banks have only gotten rid of or dealt with 25% of their bad paper. i.e. the worst is yet to come.

The past two years, governments have taken trillions of these losses off the bankers’ balance sheets. They have moved those losses over to the governments -– to the taxpayers. That is what the bailouts do.

But the losses are too great. Government cannot cover the bankers’ butts any longer. Which is why the “too big to fail” banks will be allowed to fail.

Most people know government is choking on the debt from its vast giveaway programs. This is getting worse. Millions more people are showing up at the welfare windows. These programs have reached the breaking point. Which puts government under even more pressure to come up with even more money. Money it does not have.

And most people do not know (unless they are Insiders) an even more frightening fact: government is also choking on the debt it has taken over from the dead-broke bankers. Its partners in the biggest financial crime ever committed.

So now the world’s biggest private AND public entities are wiping out. Nothing can stop the carnage that is about to spread around the globe.

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