How I Cut $672 Billion From the Federal Budget

It always sickens me when corrupt politicians say we can't cut the federal budget. They say we have to keep spending our way into bankruptcy to save the economy. Here are 8 simple way to cut $672 billion from the federal budget:

1. End the Wars in Afghanistan and Iraq--Cost savings $160 billion

2. Reduce Defense Department budget by $100 billion. In 2010 we spent $530 billion on Defense. And before people say I am weak on defense let me remind you that the majority of the US defense spending goes to private contractors, bureaucratic expenses, and soldier salaries (+medical, educational programs, day care,etc). I am all for purchasing next generation weapons and keeping the military strong. I just don't like squandering money on a giant bureaucracy, corrupt military contractors (Halliburton, etc), and maintaining a global military empire.

3. Close the Department of Housing and Urban Development--savings $48 billion. It is a complete waste of taxpayer money and completely unconstitutional. More importantly, it has failed in its mission of restoring urban cities. In fact it has made urban cities worse. You can thank the communist liberals for this department.

4. Close Department of Education--savings $47 billion. Federal government has no right to meddle in education or provide student loans. Since the Federalization of education the quality of education has consistently fallen. Our children have been reduced to the level of brain dead zombies who simply repeat government propaganda.

5. Close Department of Commerce--savings $14 billion. Talk about a complete waste of money. The only good this department does is assemble some useful statistics about the economy. I would transfer the statistics people to the Treasury department.

6. Close Department of Labor--savings of $13.3 billion. Another useless government agency.

7. Eliminate Corporate Welfare-- According to the CATO Institute, the US government hands out over $90 billion dollars a year to corporations through direct subsides, tax credits, and other schemes. This is egregious considering corporations never had it so good. They are making record profits while the American economy is trapped in a depression. These companies do not need any more taxpayer funded giveaways.

8. Reduce Government Fraud and Redundancy--The Government Accountability Office has identified approx $200 billion in government waste, fraud, and incorrect payments. If we simply implemented the GAO's recommendations we could save at least $200 billion. This should be easily accepted by both sides of the political spectrum because the GAO is independent and non-partisan. See here for more info. And here

Total Savings: $672 Billion

While $672 billion is a significant amount of money, it is only a portion of what we need to cut in order to balance the budget and restore America's dire financial outlook. 

Black Swan Insights


Why You Should Want A US Debt Default

With all the talk about what a disaster it would be if the US defaults, lets take a look at the benefits. I for one pray that the US defaults because it would force a government shutdown. Here's why:

No More IRS--The most nefarious and feared government agency would no longer be able to harass, extort, and steal your money. No more audits. The income tax is oppressive to the middle class, preventing them from accumulating wealth, while at the same time multinational corporations like GE and Google don't even pay taxes. Would ordinary citizen really miss the IRS and its threats?

No More Foreign Wars--Without money the troops would have to come home. This would save the US trillions of dollars over the next few years. Our troops would no longer have to fight and die for pointless wars in far away lands. The only losers would be the military industrial complex, which would lose hundreds of billions in military contracts---poor them.

No More Government Waste and Fraud---We hear the outrageous stories--how the government spent hundreds of thousands of dollars of taxpayer money researching shrimp on treadmills, jello wrestling in Antarctica, and other egregious frauds. If the US government was forced to shutdown, funding for such fraud and waste would end, saving taxpayers billions. Furthermore, the government would be unable to squander another $100-200 billion identified by the Government Accountability Office as wasteful and redundant (e.g. 15 federal agencies regulate food safety when only 1 is necessary). See here for full article

No More Illegal Government Gun Smuggling Operations--The ATF, through its Fast and Furious Operation has been caught selling guns to Mexican drug cartels and other members of organized crime units. Lets be very clear here--your government has sold weapons to criminals who killed US border patrol agent Brian Terry and thousands others along the US/Mexico border. Do we really want to give the ATF the funds necessary to continue these illegal operations? A government shutdown would stop it. This is just one example of what illegal acts your government is conducting. Does anyone remember Iran Contra? It never ends. I am not even going to mention ATF operations such as WACO and Ruby Ridge (e.g. you government executing American citizens with impunity).

No More Cruel Government Funded Health Experiments--From 1946-1948 the US government funded a health experiment which purposely infected 700 Guatemalans with the venereal disease syphilis. During the 1950s and into the 1960s the CIA through an operation codenamed MK Ultra went around forcibly drugging Americans with LSD and other narcotics in a failed effort to produce a mind control substance. At least one person died as a result of this operation. These are just a few examples of what your government is up to.

No More Government Luxuries For Obama--With the American economy in a perpetual depression, sky-high unemployment, and rising inflation it is unbelievable that Barry Obama gets to jet around like an imperial dictator. The President gets to fly around in Air Force One (which costs billions per year in maintenance and repairs) , dine in luxury (with the very best china), and travel around the world with an entourage ranging from 200-400 bodyguards--all at taxpayer expense. Even his dopey wife Michele gets to bleed the taxpayer to fund her vacations to Spain and the African continent when she has not even been elected to an official office. And to top it all off-Obama gets paid a salary to live like a King. Such actions when millions of Americans go hungry is evil plain and simple. Perhaps if the government shutdown, Barry Sotero Obama would be forced to cut back on his extravagant lifestyle and lower himself to live like the average American for a while.

I don't know about you, but I welcome a US default and a complete government shutdown. And guess what--life would still go on. True the dollar would fall, but most readers of this blog already own gold so who cares. The main point being that there would be no Armageddon scenario, just a little more economic and political freedom for the average American. Does this sound all that bad?  

Black Swan Insights


$1700 Gold By Year End Says MF Global

With the Euro in full-blown collapse, money market funds in trouble and a feeble dollar--the only asset people can trust is gold. MF Global in a research note predicts $1700 dollar gold by December 2011  Dow Jones reports:

Gold is likely to reach a new record high and trade up to $1,700 a troy ounce in 2H, MF Global says in a report. The house expects the yellow metal to trade between $1,650/oz and $1,700/oz in the remainder of the year, and forecasts a 2011 average of $1,551/oz. Gold's current high is $1,576.52/oz, reached on May 2; spot gold is at $1,552.90/oz, down $1.50 from its close in New York. Gold will likely push higher later this year on stronger physical demand from China and India, the house says, while concerns over inflation will boost its safe-haven appeal. "Expectations of more People's Bank Of China purchases to increase China's gold holdings as a means to diversify reserves is another bullish argument supportive of fundamentals," it says, noting that a 1.0%-2.0% increase in mine supply will be offset by better physical demand.

Notice how gold was up during today's sell-off--along with the dollar. As the meltdown in Europe continues, gold will be the primary beneficiary.


And if you think MF Global is too bullish on gold try this on for size. Standard Chartered in a research report said gold could reach $4,869 by 2020 during a super-bull market scenario. This will likely prove a conservative target if the Bernank has it his way.
Black Swan Insights 


Chinese Gobble Up Cheap Uranium Shares--Buyout Offer For Bannerman Resources

Big news in the uranium market. The Chinese company Hanlong Mining Investment Pty Ltd, a subsidiary of Chinese conglomerate Sichuan Hanlong Group, made an unsolicited offer to buy 100% Bannerman Resources for A$0.612. For new readers, Black Swan Insights bought a basket of uranium shares 4 days after the Fukushima incident in Japan. We bought Bannerman at $0.38. The thesis was that the market was mispricing uranium shares based on the fundamental outlook for uranium. It is good to finally see our thesis be proven correct. The Chinese see the value and are trying to buy as much cheap uranium as the market will allow.

The company's board has not agreed to the terms of the acquisition because of the conditions required by Hanlong offer. The main problem was Hanlong's insistence on a 3-month exclusivity period. Management rightly rejected this. The major point is that the Chinese have put Bannerman in play. Management said in the PR that they plan to explore other options (e.g sell to someone else at a higher price). However, the significance of this announcement is that it proves that uranium deposits have significant strategic value to smart investors. This should be supportive of other uranium stocks.

The only major concern we have at this point is incompetent management. Will management do the right thing and sell the company, or will they follow the disastrous Yahoo policy of rejecting an offer and watching the stock decline dramatically? In the case of Bannerman, it is difficult to say. Management has not shown itself to be very shareholder friendly at all. The egregious amount of dilution has destroyed value for shareholders. The market has acted accordingly by sending the shares to new lows (before the Chinese offer). Furthermore, the company has failed to find a strategic partner (e.g. off-take/financing agreement) to help finance its Etango project. If they had been able to accomplish this, they would not be in the position of having to defend themselves from this low-ball acquisition from the Chinese.

One positive indication is that management did not flatly reject the idea of selling the company. Let's be very clear--the company should be sold at this point, but at a higher price in our opinion. Bannerman owns 80% of its Etango project and has 118 million pounds of uranium in the measured and indicated category (80% of the 148 million pounds for the total project). The Chinese offer is for A$0.612 a share. Bannerman has 275 million shares fully diluted (according to the May 2011 presentation), meaning the total value is only A$168 million or around $179 million. This equates to a value of only $1.51 per pound of M & I; I uranium in the ground. Totally unacceptable and significantly below fair value. The company should be able to get at least $2-3 dollar per pound, which implies a higher price of around A$0.81-A$1.22.

At this point, we are still holding our position in Bannerman, expecting more interest from other parties.

Black Swan Insights


The Future Doesn't Need You

In April 2000, Bill Joy, co-founder of Sun Microsystems, wrote a fascinating yet disturbing article in about the future of technological advancement and the dangers posed by robotics, AI, and genetic engineering. The general thesis of his article was that technology is advancing at such a rapid rate that it would (or could) eventually render humans obsolete. He predicted that by 2030 robot mental power will surpass the human brain. At this point, robots would likely be trusted with making many of the critical decisions  in society. In essence, the world would be planned and controlled by machines without human involvement. Bill Joy warned:

 If the machines are permitted to make all their own decisions, we can't make any conjectures as to the results, because it is impossible to guess how such machines might behave. We only point out that the fate of the human race would be at the mercy of the machines. It might be argued that the human race would never be foolish enough to hand over all the power to the machines. But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines' decisions. As society and the problems that face it become more and more complex and machines become more and more intelligent, people will let machines make more of their decisions for them, simply because machine-made decisions will bring better results than man-made ones. Eventually, a stage may be reached at which the decisions necessary to keep the system running will be so complex that human beings will be incapable of making them intelligently. At that stage the machines will be in effective control. People won't be able to just turn the machines off, because they will be so dependent on them that turning them off would amount to suicide.
My question is: Have we already reached the point where machines can do the majority of tasks which used to be done by humans? I think the answer is increasingly yes. This would explain why the unemployment rate has remained egregiously high, despite a recovery in corporate earnings. The general consensus from economists is that corporations were forced to cut labor during the recession, which means that when the economy recovers and demand rebounds, corporations would be forced to rehire many of these unemployed workers. However, this thesis has not panned out. Despite being 3 years into an "economic recovery," the unemployment rate has remained stubbornly high with the official unemployment rate at 8.3%. The real number, referred to as U6, even when adjusted for seasonality is at a shocking 15.2%. Obviously, corporations have not had to hire new workers despite record S&P 500 earnings. Why?

Simply stated, during the Great Recession corporations realized that they could replace many workers with advanced technology which can automate complex human functions. The examples are all around us. Airlines used to have people check in passengers and issue boarding passes. Now, airlines have been able to completely replace people with electronic kiosks. If you walk into a Fresh and Easy market you notice that there are no more checkers; it has all been automated. I remember seeing a TV program about Campbell Soup that profiled the company's adaption of technology to increased productivity. The company bragged how they were able to run a soup manufacturing plant with 8 employees. In the past , this factory would have required 40-50 employees, but now they are no longer necessary. And the only reason there are still 8 employees is because the machines still require human support and maintenance. You can easily see a future where these machines make their own decisions and humans are reduced to only a minor support role.  These are just a few examples, but they illustrate the point that as machines advance, humans are becoming more and more redundant. The most troubling aspect of this technological shift is that these jobs will never come back despite improving economic conditions.

What all of this means is that as technology progresses, more and more people will become redundant and permanently unemployed. This is not only an issue for blue-collar workers who are  involved in manufacturing. As machines become more intelligent, they will likely replace many white-collar positions as well. We can clearly see this happening in the investment industry. It used to be a market made up of people--yes they were often irrational, greedy, and fearful--but they were human. Today, 70% of all trading is done by autonomous robots who make their own trading decisions with little or no human supervision. In essence, we have turned over the fate of the capital markets to high-frequency trading bots. Proponents will, of course, manufacture reasons why this is good for society. They claim that HFT reduces costs and increases liquidity since machines are faster and more efficient than people. All great arguments, but what are the consequences of having robots control financial markets?

We saw a terrifying example on May 6, 2010, when US markets suffered a flash crash. For no reason, the stock market fell 600 points in 5 minutes, only to partially recover minutes later. HFT bots were largely responsible for this bizarre market crash. While markets did rebound, what if they had not done so and instead had dropped another 30-40% in a matter of minutes? A fall of this magnitude could have easily cause a massive disruptions in the credit markets and precipitated a severe economic recession. All this because a few HFT bots went beserk?. With regards to the financial markets, we have now given machines complete control and voluntarily reduced humans to a subservient role..

I fear that we have reached the point where the US unemployment rate will never go down, despite a growing economy. The 2008 recession required companies to increase productivity and slash costs dramatically. They did. Now corporations can achieve higher profits with fewer people than they needed 5 years ago. This dynamic, along with outsourcing, means the US unemployment has moved into a new paradigm, which is unlikely to change anytime soon. Millions of Americans had better get used to the troubling reality: The future doesn't need you.
Black Swan Insights


It Begins: Italian, Spanish CDS Surge--Get Ready for More European Turmoil

The EU's ponzi scheme is running on tough times. Every time they bailout one country, another country seems to default, requiring more cash to kick the insolvent can down the road. With a second bailout for Portugal already guaranteed, the last thing the socialists in Brussels need is a collapse in Spain and more importantly Italy. It seems the market was not to happy about what Trichet said at today's news conference. Even though the ECB pretty much waived the white flag of surrender and dropped all measures of credibility regarding collateral requirements, the market was disappointed. And you would be too if you owned PIIG debt. What these unfortunate EU banks want is nothing short of a complete guarantee by the ECB that it will print money to support Portuguese, Spanish, and Italian bond markets. After all, this is PONZI 101.

Below is a chart of Spanish 5yr CDS, which is currently in the lift-off phase of 294bps. One important note: we generally consider anything above 400 bps as an early sign of an imminent EU bailout and gutting of the debtor country's sovereignty. So the Spanish people better get ready to bend over and take some hardcore austerity from the EU elite.

Below is Italian 5yr CDS, where concerns seem to be increasing with rumours circling of trouble with Italian banks. 5 Yr CDS for the basket case also known as Italy has surged from 171 bps on 6/30 to 218 bps today. Still low by most PIIG standards, but the trajectory is going in the wrong direction. When it comes to the EU debt crisis, an Italian default would an armageddon moment for the entire EU project. The only solution would be outright ECB monetization of all PIIGS debt forever. No wonder gold is making new highs in Euros.

Black Swan Insights


Mourning the 4th of July

From the US Code of Laws: (a) The flag should never be displayed with the union down, except as a signal of dire distress in instances of extreme danger to life or property.

Considering the dire state of our country, I find it particularly appropriate to display the flag upside down on this 4th of July.

Americans have lost their country. We have a tyrannical elite who run this country for their own benefit. We have a Imperial President who starts wars without Congressional support, claiming that it is okay because dropping bombs and killing people constitutes a "kinetic military action," not war. Doublespeak at its very best. Does Congress care? No, they have been bought and paid for by so many special interests that their only concern is how they are going to spend their bribes.

The US economy has been outsourced by design. We are left with a service based economy where minimum wage is the norm. Unemployment is above 9% with the real number closer to 15%. Not that the government cares, but how are you supposed to have jobs when everything has been outsourced to China?But as long as the corporations are making record profits, who cares about average Americans who are struggling to survive?

The Federal Reserve is printing money and debasing the dollar, in order to bailout the banks and finance government spending. Inflation is rising, yet the government confidently claims inflation does not exist. The media of course, parrots the party line. Just remember, when you are out celebrating the 4th of July that your cookout will cost 12% more than last year. Your government is stealing your money day by day through inflation, and yet no one, except a very small minority protest.

Meanwhile, the government has completely ignored the Constitution, gradually eating away at our remaining freedoms. Do the American people care? Not really, after all most of them can't list the Bill of Rights anyway, thanks to our government-run educational/brainwashing system. Going to airports now mean being sexually groped by thuggish TSA agents. Naturally, the American people show little reaction. Their pathetic lives are consumed by video games, TV and other forms of distracting entertainment. As long as the cable still work,s the American sheep remain in their slumber. They are even willing to allow their children to be groped by the government. After all, those 1-year old kids in diapers could be potential terrorists, so the TSA claims.

Despite tough times and a declining standard of living, many Americans are more than willing to go out and celebrate the 4th of July by drinking themselves silly with cheap beer and chanting USA, USA. They proudly display their American flags on their lawns and flag poles without realizing that their precious flag was probably made in China by a 12-year old slave. The myth of America, promoted by the media, still lulls many Americans into a false reality where they still believe they live in a free country. I suppose, that believing a false myth is better than facing the harsh realities of our current state.

Since I became aware of the truth, I rarely celebrate the 4th of July. It would seem like an insult to the founding fathers of this country who risked their lives to ensure American independence. We have strayed so far from the Constitution and Bill of Rights that America--as the founding fathers would knew it--no longer exists. Instead, during this 4th of July I find myself reading biographies of the founding fathers, trying to understand what happened to the American dream they envisioned.

I further realize that at this moment I am likely committing a thought crime because I am speaking against the government and in support of the Constitution. According to our government this means that I could be a domestic terrorist. Imagine that!

I now consider leaving the US to escape burdensome taxation and the oppressive shackles of a technologically advanced police state. Who would of thought 200 years ago that people would be leaving the US to pursue freedom and opportunity? People ask me what I am "doing" for the 4th. I am mourning the loss of the USA.