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Deutsche Bank Warns U.S. Drifting Into Debt Crisis (Podcast)

May 03, 2018 11:45 AM ET43 Comments
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SA For FAs


  • Deutsche Bank warns in a research report that the U.S. is on a path toward a debt crisis.
  • Whereas past deficits were mainly based on the business cycle – deficits rose when tax receipts were down – today deficits are reaching new highs despite robust revenue.
  • And whereas other counties with huge deficits, such as Japan and China, are simultaneously accumulating foreign assets, the U.S. is accumulating foreign debt.
  • Thus, Deutsche Bank questions whether the U.S. economy bears the same lethal combination that has marked emerging market counties going through debt crises.
  • Given this unpleasant trajectory, we need clarity as to what precise options we have, and what level of pain they imply.

Deutsche Bank warns in a research report that the U.S. is on a path toward a debt crisis. Whereas past deficits were mainly based on the business cycle – deficits rose when tax receipts were down – today deficits are reaching new highs despite robust revenue. And whereas other counties with huge deficits are simultaneously accumulating foreign assets, the U.S. is accumulating foreign debt. In this brief podcast (2:43), we consider the imperative for clarity as to what options we have, and the level of pain they imply.

This article was written by

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GIL WEINREICH - Author of "The Mentor," a unique parable for financial advisors and those who aspire to become one. I have worked in the FA arena since 1997, and during that time, the New York State Society of CPAs twice awarded its prestigious Excellence in Financial Journalism award to me for a monthly column I wrote on business ethics. Previously, I reported on international news for Voice of America (where I was awarded a newsroom writing award) and prior to that worked as an editorial assistant at U.S. News and World Report. I live with my wife and children amidst the verdant and vibrant hills and dales of Jerusalem.

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Comments (43)

Deutsche Bank should be warning investors about Deutsche Bank...
Ploutz57 profile picture
Hardly anybody talks about our $125 trillion in unfunded liabilities! I'm all for the Feds using reasonable deficit spending during recessions. The problem is they never pay down fiscal debt when times are good!
We all dream of lavish retirements. Sadly, they're underfunded.
Choosh profile picture
DB is using a recognized concern and amping it up to drive down their costs at the next few treasury auctions. They are insanely well paid to "talk their book", think used car salesmen.
Lakeaffect profile picture
Of course they pick at the US economy. Europeans hate it that the US has suddenly become the high ROIC economy as a result of the new tax law. This will draw incremental investment away from Europe and toward the US.

Next step should be for US to follow Europe's lead and implement a Value Added Tax designed to reduce the deficit while at the same time making imported goods more expensive.
When the US is in trillions of dollars in debt. The baby bommers retire and the need for
social security and medical expenses is a bigger part of the debt. The tax revanue is
being cut in order to help corpurations and the wealthy on the expense of the poor and middle class. The treasury need to issue more bonds, but there is not unlimited demand.
Is this a surprise that the US is in debt crisis?
So many ways you can go with this one.

When will it matter? 10 year 2.92 this a.m.

Massive increase in deficits and we have 2.5% growth....down from 3 + %

The dotard heading toward an autocratic gubment.

The dotard LOVES debt...and walking away from it.

Could that possibly happen with US Debt?

Or some other plan to draw a line through our obligations under a totalitarian regime.

Stay tuned. It won't be anything if not exciting/dramatic.
Gold has no value.Because it has no intrinsic value.The 6 trilllion dollars of gold out there can
be compared to bitcoin and its hundred of cousins
Precious metals are man's way of limiting debt. Ancient man could have used any scarce resource but he chose precious metals in most instances. It would seem that from the beginning man realized that debt is a necessary evil that needed to be controlled. Our "modern" societies have thrown that decision out the window and we are paying the price for that hubris now. Bitcoin, the same as gold, not a chance. I suggest that anyone who believes that take off their VR goggles and have a look at the real world. It is a great place if you want to really enjoy life. It is not a perfect place but it gives you the opportunity to interact with real people and see what helping others can do for them and for yourself. We all need to do more of that. Have a great day. :)
If next week, the SPX will breach the resistance line, tilting sharply down, from
the top, by mid year 2018, after moving higher, the SPX will experience a down draft, that will get worse and worse.
The US government is out-of-control and has been for 40 years. The WSJ's "Daily Shot" recently ran a chart showing that in 2018, Americans will pay more in taxes than they will pay for food, clothing and housing. The government is beggaring the country.

Why? Poor governance, the culture of victimization, vote buying, misplaced benevolence.

Poor governance: We are essentially ruled by unelected bureaucrats who are given almost unlimited rule writing and spending authority by a lazy Congress.

We spend almost $50 billion in foreign aid to 96% of all countries to buy peace. Sure, that is only .19% of GDP, but it is money.

In the midst of paying for the Viet Nam War, LBJ coaxed Congress into paying for his Great Society Programs. The Medicare commission told him that Medicare would be unsustainable due to Boomer demographics. He pushed the program thru Congress anyway. A prime example of vote buying. How many times has that happened? Plenty.

In the mid 1960's, Sen. DP Moynihan became very concerned that only 75% of African American families were headed by men and wrote a report warning about the consequences. Today, that number is 30%. Great Society Programs blew up the black family and paid people to have babies outside of wedlock, thus creating generations of entitled, fatherless children. We are now paying for it.

Twenty years later, Pres. Bush signed NAFTA, a globalist dream, that fulfilled Ross Perot's warning that jobs would woosh off shore. People forget that NAFTA was signed following at least a decade of very aggressive labor settlements that made unionized manufacturing expensive. NAFTA was the solution. I won't even mention the selling of technology to China.

Americans are a generous, and generally kindly, society. So in NY state, as a SA commentator recently revealed, illegal immigrants are paid $2,500 a month if they are custodial parents plus a raft of other benefits. This is misplaced benevolence.These people are not paying taxes aside from sales taxes. Yet I could detail the stories of American families who have paid millions in taxes and have severely disabled loved ones who cannot get SSDI benefits, because of the whim of a bureaucrat.

Bring in the top five consulting firms and tell them to find ways to cut spending by 30% over 10 years. Government insiders and Congress will never do it.

Mr. Obama pushed thru the ACA on the heels of the worst downturn since the Great Depression when millions of Americans were out of work, lost their homes, or couldn't get jobs right out of school. Business uncertainty was rampant. Among the stimulus expenditures were payments to LA County to remove tattoos from ex-convicts and a $1million payment to a Wisconsin School System for anti-smoking education. Apparently, it costs $1million to utter two words: "Don't smoke." More nonsense.
If you want to live to enjoy your retirement, and live to enjoy the fruits of your investments:

Don't smoke. . Don't eat junk. . Eat real food, direct from a real farmer (a local one if possible). . Drink mainly pure water.

A real farmer loves what he does, loves birds, bees, bugs, nature, biological diversity, and doesn't use poisonous, toxic chemicals.

A real farmer loves his livestock and doesn't keep huge animal populations in little buildings their whole lives.

A real farmer values quality over quantity.

Yes, there are many real farmers who make a living this way.
Yes, more human labor is required on real farms.
Yes, real farmer food costs more than industrial farmer food, about two to three times as much and it is worth every penny.

But if you value your health, and the health and well being of your family / community / country /planet, more than you value cheap food, you will value real farmers.

You can find about about real farmers at the nearest farmer's market.


Junk = Anything that:

1) comes from a box, bag, can, jar, tub, blister-pack, etc. that can sit on a shelf or in a cooler-case for weeks or months, with added chemical ingredients IN LITTLE PRINT that your Grandma didn't use, and that your Grandma wouldn't understand.

2) comes from a restaurant that got it from 1)

Invest in entities that promote and support real farming.
Don't forget all the $trillions we've wasted on silly wars. That should top anyone's list of stupidity. All the rest is a drop in the bucket in comparison.
Nice summary of how we got into this mess. Politicians don't even talk about the national debt anymore, because they know it cannot be fixed by anyone.
Spend less than you make, invest your savings, be careful who you vote for, become wealthy!
I get a kick out of DB downgrading stocks when their own has gone
from 40 to.13.60.....
Doesn't mean that everyone working there is crap, right?

Nobody implied that, yet !
Yup- here we go again .... screw the bondholder ...
It's about time don't you think ? Bond holders have been on the gravy train for 35 years. No wonder foreigners scoop up all the bonds they can, when our #1 priority as a country is good bond returns.
Tell that to people who bought general motors bonds, detroit bonds, puerto rico bonds. You get a meagerly 2-3% for supposed safety and then some judge gives you a giant haircut. Bondholders beware!!! Liabilities outweigh assets. Meredith Whitney was far off on timing. More defaults are on the horizon
Yes, credit quality is lacking. I had those GM bonds. Now I own the UST 2.25 of 46. I hope someday they won't be a good investment. No sign yet that any one agrees with me.
Here we go again, arguing about a potential crisis that will only be solved by a drastically lower dollar or trade restrictions. The Fed can set rates at 2% and buy all the bonds anyone wants to sell. Some crisis.
The only real concern is for bond holders, as we hear over and over.
Peter Palms profile picture
Comments (7003) |Following
This would make the next collapse of the dollar the fourth one. Insolvency actually is inherent in the system itself a system called fractional reserve banking.
Short term fiat currencies contain the inevitable risk of containing no collateral and their ability to repay becomes more inevitable the longer they last and this one has lasted 103 years the first three didn't make it past the first 5 year Congressional renewal vote.

If gold backed total global debt 100 percent, it would be valued at $33,900 per ounce because the total amount of gold exhumed in the history of the world is approximately 183,600 tonnes, or 5.9 billion ounces. If we take that figure and multiply it by the closing price on June 16, $1,181 per ounce, we find that the value of all gold comes within a nugget's throw of $7 trillion.

This is an unfathomably large amount, to be sure, yet it pales in comparison to total global debt. The world now sits beneath a mountain of debt worth an astonishing $200 trillion. That's greater than twice the global GDP, which is currently $75 trillion.
If gold backed total global debt 100 percent, it would be valued at $33,900 per ounce. So Gold’s price, upon which the settlement of these debts ultimately relies is vastly understated compared to the debt that held against a fiat currency that contains no gold or any other real money. Including derivatives that would increase the price per ounce by another 6 times that amount because the global derivatives market is another $1.2 quadrillion, almost 90% is owned by the U.S. This figure is greater than the entire world’s G D P, 20 times the G D P to be exact, and should not be taken lightly. Why? Simply because of the fact that it is highly unregulated. It is so unregulated that the Congress has declared it illegal to regulate it.

Most of exhumed gold isn't ever traded. It is a safeguard against loss through inflation. Most of the naked gold shorts issued are never transacted and just expire on expiration date. This manipulation does enable the price to continue to be fixed by the government through the federal reserve system, which is not a government agency
Buyandhold 2012 profile picture
Sort of ironic.

The performance of Deutsche Bank over the past 5 years has been dreadful. Someone should warn the people who run Deutsche Bank that their stock has been tanking for the past 5 years.

But I do agree that the national debt in the United States of over 21 trillion is not good. At the rate that it is going up, it will be 42 trillion in 10 years.

Just the way cities and states have always been required to balance their budgets, the United States should always have been required to balance its budget. No national debt at all should have been the goal. Zero national debt.

An economic catastrophe will occur when the national debt reaches a certain amount. A don't know exactly what that amount is. Maybe 50 trillion.

The way that the United States spends money, you would think that the politicians in Washington think that money grows on trees.

They were obviously not brought up by my mother who lived through the Great Depression. She used to always tell me never to spend the principal.
NeoContrarian profile picture
The catastrophe could be triggered by interest rates.

For example, 6% annually on 21 trillion squeezes the lemon until the pips squeak.

I think deficits should be allowed only in a WWII-type scenario (certainly not Viet Nam, Iraq, Afghanistan, Syria, etc) or other genuine national emergency, and should require a 3/4-majority Congressional approval. Or a 3/4 national referendum. Or both.
Having a deficit is perfectly fine...

The United States doesn't retire, same way a company never retires...So having debt is perfectly reasonable compared to an individual person and why almost every major company has some. Also taking out debt when rates are low is actually pretty smart in some cases.

Obviously their is a limit with the debt, i think...But it's not showing up in the strong US dollar, so who knows maybe money does grow on tree's...Or in the printer....

If you think the debt is so bad you should be shorting the US dollar, a trade that is hurting a lot of people right now on the wrong side...The dollar has been doing great...
mkemac profile picture
Yeah after sell off. Too little too late
DB has super close relationship with China. U know the agenda
NeoContrarian profile picture
"Deutsche Bank Warns U.S. ..."

Oh the irony!
mkemac profile picture
RichardRare profile picture
mkemac turned Caps Lock on. Never fixed
Spekulatius profile picture
DB also payed $35 B Dollar that they didn’t owe.
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