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The Daily Reckoning Weekend Edition Saturday, April 24, 2010 Taipei, Taiwan - Baltimore, Maryland What Uncle Sam's Fantasyland numbers mean for your wallet, A decade of trillion dollar deficits: the best-case scenario, Plus, all of this week's reckonings, slung together and ready for your personal perusal... Joel Bowman, with a quick heads up for gold bugs, from Taipei, Taiwan... Before we dive into today's special guest editorial by our executive publisher, Addison Wiggin, here's a quick tidbit you might find of interest... As you may or may not remember, we recently conducted a free web-based interview with Nick Bruyer, CEO of First Federal Coins, and the heads of the two major grading agencies, PCGS and NGC. Now, if you're into coin collecting, you know these guys are the go-to men of the industry. And, right now, they're telling us that the collectable china coin market is the hottest market out there. Unfortunately for many people, they just don't know a lot about the whole coin-investing game. So, to help you better understand the immense investment opportunities in this market space, we're running a follow-up interview with Nick and the guys. As with the last time, it'll be completely free and available to all Agora Financial readers. BUT... before we air the interview, we want to know what YOU want to know... We've put together a quick survey - just five questions - that'll help us ensure the web-interview gets down to the details of what our readers really want to understand about investing in coins. Fill it out and we'll send you our complimentary "Beginner's Guide to Coin Collecting" report for your troubles, and you'll be able to put your name down for the "First Right of Refusal" coin list. Simple enough? Here's the survey link. It ought to take you no more than about 3 minutes, if that. And then, it's on today's essay from Mr. Wiggin... ----------------------------------------------------------- The Folly of Fantasyland By Addison Wiggin In the early days of making the film I.O.U.S.A., we made the decision to stick with Congressional Budget Office (CBO) numbers, but not because we inherently trust them. We enjoy parsing the shadow government statistics produced by John Williams (at shadowstats.com) as much as the next armchair economist. But the CBO numbers are theoretically conservative, and whether we like it or not, they are the numbers the market reacts to and the numbers legislators are meant to use when crafting new legislation. In those early days, in May 2006, the CBO projected Social Security would run out of cash by 2019. By the time we finished the film, the CBO estimate had been moved forward to 2017. Last year, in 2009, the government bean counters estimated the fund would be bankrupt by 2016... this year, because of the credit crisis and recession, the CBO says it's happening now, in 2010. The problem with running chronic deficits is when a real crisis develops, the government is left without the resources to address it. Unfortunately, the buck stops with your wallet, your paycheck, your retirement plans. Numbers From Fantasyland Mean Uncle Sam Wants You... for More Revenue The CBO just crunched the numbers from President Obama's proposed budget for fiscal 2011. Then it projected the resulting deficits for the rest of the decade. Allegedly, the deficit retreats under the $1 trillion mark by 2012. But then it shoots back above that level by 2018. And by 2020, we return to a federal deficit that's fully 90% of GDP. If that's not scary enough, consider the CBO's assumptions behind these numbers: Unemployment returns to 5% by 2015 and remains there the rest of the decade The consumer price index stays below 2% every year from 2011-2020 GDP grows at least 4% every year from 2011 onward. In other words, the budget assumes no more recessions the rest of the decade. (No energy shocks, either.) That's fantasyland. And if members of Congress don't know it, their staffs who study this sort of thing do. They're going to be scrounging around for more revenue. And after a while, there's only so much that can be squeezed out of "the rich." Which makes us worry about the income tax bill Congress will pass this year. You haven't heard about it? Can't blame you, with all the hoopla over health care. And with that out of the way, Congress now has its sights set on financial "reform" and climate change laws. But if the lowest- income Americans don't want to see a 50% tax increase come next year, Congress is going to have to do something this year. That's right. Remember, the two rounds of tax cuts passed in 2001 and 2003 expire next year if Congress does nothing. Yes, the president is committed to allowing the cuts to expire for households earning $250,000 a year or more. But they go away for everyone else unless Congress passes a new tax law. The lowest bracket of taxpayers would see its rates go up from 10% to 15% - an effective 50% increase. That's not gonna happen. So yes, there will be income tax legislation this year. But will it only hit households above the magic $250,000 threshold? Or will the scramble for revenue hit other people as well? And how soon? We don't know. But we know something's in the works. The acting chairman of the Ways and Means Committee told The Hill newspaper he hopes to take it up as soon as this month. Mainstream media are paying no attention. But we will... both here and in The 5 Min. Forecast. Last month, I addressed a group of students at the Towson University school of finance by invitation of my friend Tim Maurer who, in addition to being a best-selling co-author of Financial Crossroads, teaches a class on annuities and taxation and other things that CPAs are supposed to know. We discussed the issues raised in I.O.U.S.A. after they'd been assigned to watch it for the class. "What is so bad about a debt-to-GDP ratio in the 90% range?" one student asked. "We had greater ratios during and after World War II. And Japan has been running in excess of 130% of GDP for years? They seem to be doing fine." "You don't know this yet," we tried to explain, "but when you leave school with a mound of debt, try to find work in a struggling economy - you'll begin to understand. When you try to buy a home...when you want to get married...send future children to school. When you try to hang your shingle and attract clients for your wealth advisory business, you'll begin to see that productive debt is not a bad thing. But unproductive debt, debt for consumption purposes, limits your options." We used to be a nation of thrifty creditors. Now even our sharpest students look abroad and see no problem with collectivized risk and a mountain of unpaid liabilities. Regards, Addison Wiggin for The Daily Reckoning Joel's Note: In this month's edition of Addison Wiggin's Apogee Advisory, our executive publisher identifies the best ways to play our Daily Reckoning Trade of the Decade. There's still time to get yourself on the free "beta-test" list, where you'll receive the first three months of Addison's new service, full access to his research and the specific plays he outlines in the members only section. We are, however, trying to keep this "beta-test" list pretty small...so if you want in, please let us know sooner rather than later. Here's Joe with a few of the details. ----------------------------------------------------------- ALSO THIS WEEK in The Daily Reckoning... The "Goldman Sachs Phenomenon" By Eric Fry Laguna Beach, California Now that the American financial sector is safe and unsound once again, has the threat of serious economic crisis genuinely passed? And has the structure of American capitalism actually improved? Or did the Fed merely dress a sow in lingerie and call her a raving beauty? A Rock and a Hard Place: Understanding the US Debt Crisis By Puru Saxena Hong Kong, China The developed nations are over-extended, their debt levels are ballooning and their governments are creating copious amounts of money. Put simply, most industrialized nations are now caught between a rock and a hard place. After years of excesses, the developed world is slowly beginning to realize that you cannot continue to live beyond your means and spend your way to prosperity. A Free Market in Chains By Dan Amoss Jacobus, Pennsylvania If left to its own devices, a truly free market would have already corrected many of the imbalances of the late, great credit bubble. Instead, US policymakers at the Federal Reserve and the Treasury Department have been trying to re-inflate the credit bubble by pumping trillions of dollars of fresh credit and currency into the financial system. The Fed is still maintaining these Keynesian tactics, despite the increasing possibility that inflation and other adverse outcomes will result. Useless Investing Variables: We Are Our Own Worst Enemy By Chris Mayer Gaithersburg, Maryland Ken Heebner's CGM Focus Fund was the best US stock fund of the past decade. It rose 18% a year, beating its nearest rival by more than three percentage points. Yet according to research by Morningstar, the typical investor in the fund lost 11% annually! How can that happen? 10 Things You Don't Know (or were misinformed) About the GS Case By Barry Ritholtz New York, New York I have been watching with a mixture of awe and dismay some of the really bad analysis, sloppy reporting, and just unsupported commentary about the GS case. I put together this list based on what I know as a lawyer, a market observer, a quant and someone with contacts within the SEC. What I'm about to show you could be the deadliest surprise threat to your money and livelihood of the coming year. Download My Full Report Here. ----------------------------------------------------------- The Weekly Endnote: Finally today a reader, Herb, writes in with a comment on Greenspan's recent "70% right" defense. "That's like the kid who is brought home after wrecking the family car, 'But Dad, I got around all the hard turns and steep descents before I rolled it...'" Until next week... Cheers, Joel Bowman Managing Editor, The Daily Reckoning   The Daily Reckoning - Special Reports: The US Trade Deficit: Fort Sumter...And The U.S. Trade Deficit US Recession: By far the Weakest Recovery "THE GREAT AMERICAN RECOVERY RP-OFF" Brace yourself for what's about to go down as the BIGGEST FINANCIAL SWINDLE in world history.