Top Stories To Watch In 2011: Growing Risk of Eurozone Contagion

Aside from the housing and state budget crises, the other big story to monitor in 2011 is the fallout from the evolving sovereign debt crisis on the other side of the Atlantic.

Citigroup has warned of a fresh wave of bank failures in Europe. These banks are heavily invested in the bonds of nations that may be unable to pay them back, which puts those banks at risk.

Professor Willem Buiter, Citigroup's chief economist, said the risk of contagion is growing in the eurozone.

"The market is not going to wait until March for the EU authorities to get their act together. We could have several sovereign states and banks going under. They are being far too casual," Buiter said.

That is a chilling prediction and it frames the magnitude of this debt crisis. Any sovereign failures would have massive reverberations around the world. And any large bank failures would be felt across Europe, and even in the US, since the banking systems are so interconnected.

Mark Schofield, Citigroup’s global head of interest rate strategy, said Portugal would need an EU rescue soon and that it was "highly likely that Spain will go the same way."

Moody's said it might downgrade Portugal's A1 rating by one or two notches on growth worries, but said the country’s solvency was “not in question”.

"Restructuring of some sovereign debt is inevitable. There is a chance that Spain could still make it, but the debt trajectory looks unsustainable if a broader EU-wide solution isn't found," Schofield said.

A bailout of Portugal's relatively tiny economy (49th) would be manageable, but would be very damaging to market confidence. And confidence means everything in global markets.

However, Spain has the world's 13th largest economy. If it needs a bailout, such a move would result in significant ripple effects reverberating through world markets. After Greece and Ireland, investors will be left asking, Who's next?

There is only so much money to go around. The bailouts cannot continue indefinitely, and the rich countries of the north cannot continue to carry the weaker nations in the south and on the periphery.

Earlier this year, German Chancellor Angela Merkel declared that this is the biggest financial crisis that Europe has faced in more than a half-century.

"The current crisis facing the euro is the biggest test Europe has faced for decades, even since the Treaty of Rome was signed in 1957," Merkel stated.

Watch this story over the coming months; it has the potential — even likelihood — of being one of the biggest stories of the year.

Health Care Costs Consume Nearly 18% of US Economy

According to Medicare/Medicaid Services annual report, health care costs grew to 17.6% of the US economy in 2009, or more than $1 out of every $6 spent in America. That's a new record, and it's also the greatest share of GDP dedicated to healthcare by any nation in the world.

Despite the fact that GDP declined 1.7% in 2009, health care spending continued to increase anyway.

In 2009, industrialized nations spent an average of 8.9% of GDP for healthcare expenditures, according to the OECD. Yet, in the US, it approached 18%.

This figure is beyond inefficient and is simply unsustainable. All of this spending takes money away from other vital sectors of the economy.

Americans spent $2.5 trillion on health care in 2009—or $8,086 per person—a 4% increase from 2008. That is more money spent per person than any other country in the world, by far.

The 4% growth in 2009 was down from 4.7% in 2008, the second slowest rate of growth in the history of the National Health Expenditure Accounts (NHEA) going back to 1960.

The recession led to slower growth in private health insurance expenditures and out-of-pocket spending by consumers, and to a reduction in capital investments.

However, health spending as a share of the nation's GDP increased by 1.0 percentage point, up from 16.6% in 2008, the largest one-year increase in the history of the NHEA.

One in seven Americans did not have health coverage in 2009, and Texas has the highest percentage of uninsured residents amongst all states (26%).

The one in seven figure is the same as the number of people officially listed as living in poverty in 2009, as well as the number of people receiving food stamps last year. So there is likely overlap here; there may be many of the same people in all three groups.

The good news in the report is that private health insurance premiums grew 1.3 percent in 2009, a deceleration from 3.5 percent growth in 2008 and the slowest rate of growth in the history of the NHEA.

From 1999-2009, health insurance premiums for families rose 131%, while the general rate of inflation increased 28% over the same period.

While Americans widely believe that our health system is the best in the world, the evidence says otherwise.

Life expectancy is an excellent measure of a nation's health. Yet, last year researchers at Columbia University report that the US is now 49th in life expectancy, putting it lower than a dozen other developed nations. We're even lower than many third world nations. And the US has been dropping in life expectancy tables for decades.

Infant mortality is good measure of a nation's health care system. In 2009, the National Center for Health Statistics ranked the US 30th in global infant mortality rates, behind most European countries, Canada, Australia, New Zealand, Hong Kong, Singapore, Japan, and Israel.

And out of 20 “rich countries” measured by UNICEF, the US ranks 19th in “child well-being”.

If it's not bad enough that the US has a failing health care system, it is also an inefficient system that just so happens to be the world's most costly.

Last June, the Commonwealth Fund, which researches and advocates for healthcare reform, reported that Americans spend twice as much on healthcare as residents of other developed countries, but get lower quality and less efficiency.

These problems are not new. They have existed for many years.

In 2000, the World Health Organization ranked the US 37th of 191 countries for "overall health system performance," 72nd for "level of health," and first for "health expenditures per capita."

When it comes to health care, Americans do not get what they pay for.

Ultimately, these costs are yet another albatross hanging on the necks of the US and its citizens. There are no signs that the spiraling costs of health care will slow down, much less regress.

The US is on the threshold of becoming the first-ever mass-geriatric society. For the first time in history, people 85 and older are the fastest growing segment of the population. Over the next 25-30 years, the number of people over the age of 65 will double to more than 70 million, or 20% of the population.

People that age use a disproportionate amount of health care. However, Medicare cannot sustain such a large population of people using such an enormous amount of health care. The system simply cannot sustain such massive expenditures.

The US is the fattest country in history. Fully two-thirds of Americans are overweight or obese. The nation is plagued by lifestyle diseases, such as heart disease, Type II diabetes, high blood pressure and high cholesterol.

Put all of this together and you have an aging, overweight, diseased nation and a health care system unable to cope with all of it.

Sooner than later, the cost of ill health, brought on by poor lifestyle choices, will overwhelm the nation's economy, which cannot sustain such a disproportionate amount of its spending on healthcare.

Mass Supreme Court Ruling On Foreclosures May Have National Implications

We now have more evidence that many bank foreclosures are fraudulent and often made on homes that banks don't even own.

Last week, the Massachusetts Supreme Judicial Court affirmed a 2009 ruling that invalidated foreclosure proceedings involving two houses in which the lenders did not hold clear titles to the properties.

“We agree with the judge that the plaintiffs . . . failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,’’ Justice Ralph Gants wrote in the decision.

This ruling is a major development and it will likely have national implications. Case law is all about precedent, and that precedent has now been set.

In Massachusetts — at least — lenders will now have to prove they own mortgages before beginning foreclosure proceedings.

Imagine that. A reasonable person would have suspected that this was mandatory all along.

The ruling puts in question the ownership of hundreds, possibly thousands, of foreclosed properties in Massachusetts. Lawyers say previously foreclosed homes will revert back to the homeowners who lost them, at least temporarily.

If banks cannot show clear title, and that the foreclosure process was done according to the law, it means that a property was improperly taken. In those cases, banks would have to return homes to former owners.

The already clogged foreclosure pipeline could be overwhelmed as foreclosure proceedings are painstakingly reconstructed and reattempted.

Because of the way that millions of home loans were sliced and diced—before being bundled into bonds that were sold to investors during the housing boom—there are often lengthy and wildly confusing paper trails that obscure ownership.

There is no way to overstate the implications this will have on the foreclosure industry and the banks/lenders behind it. For the banks, this ruling is an utter disaster.

The additional problem for the banks is that the ruling will likely unleash a wave of lawsuits from the buyers of bank-owned properties. Those folks will want evidence of clear title, which will be hard to come by in numerous cases.

What's more, there will also be lawsuits from the holders of mortgage-backed securities who have already taken huge losses that are soon to become even worse. Many of them are huge, institutional investors with deep pockets and teams of lawyers.

The securities in question were fraudulently constituted. The banks didn't even own the mortgages in many of the securities they sold.

What is particularly stunning is that it was the banks, not the homeowners, who filed this case in the first place. This decision is certainly not the one that the banks were expecting.

The court said that its ruling applies to all foreclosures in Massachusetts — no matter when they took place — because laws governing proper foreclosure procedures have remained constant over time.

“All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities,’’ Justice Gants wrote in the decision.

The reverberations from this decision have only just begun. They will be felt far and wide, and they will be historic.

However, since the banks are the masters of those in Congress and the White House, there is always the possibility that all of this will somehow be smoothed over by our lapdog government.

After all, America has long since become an oligarchy.

Congressional Millionaires Get Government Healthcare Paid For By Taxpayers

In the last Congress, more than half of all members (261) were millionaires. About 1 in 5 of had average calculated wealth of at least $10 million in 2009. And eight of the 261 were in the $100 million-plus range.

However, only about 1 percent of the overall US population qualify as millionaires.

The median wealth of a representative was $765,010, while that of a senator was almost $2.38 million.

And, even during a deep recession, the collective personal wealth of congressional members increased by more than 16 percent between 2008 and 2009.

In contrast, U.S. median household income dropped 3 percent to $50,221 between 2008 and 2009, the second straight decline, according to the Census Bureau.

These findings were detailed in a report by the Center for Responsive Politics back in November.

The study also indicated that a significant portion of Congress owned shares of major players in the health-care and financial-services sectors, which were the subject of major reform legislation during the period.

Meanwhile, this body of millionaires, who all get government-sponsored health care — which many of them vigorously oppose — have decided that their first act in the new term will be to vote to repeal the health care reform that gives affordable care to 32 million Americans.

According to the Office of Personnel Management, the federal government pays 69 percent of the health care premiums for members of Congress.

This isn't an argument in favor of the health care law, which is riddled with problems; the bill is 2,400 pages long and was written by/with the insurance and pharmaceutical industries.

But it is quite ironic that politicians who have derided the health care law as 'socialist', or 'fascist', or any number of derogatory names, see this system as perfectly acceptable for themselves.

So, government-sponsored health care is good enough for the millionaires in Congress, but not for anyone else. Got that?

With this in mind, Senator Charles Schumer (D-NY) is calling on his colleagues to give up their government-sponsored health care.

"It was a central value to us when we passed health care, and a central value to the American people, that members of Congress should get the same health care as everyone else. It seems unfair that house Republicans want to deprive middle-class Americans of the same health care as members of Congress but to keep it for themselves."

While this may be viewed as grandstanding by Schumer, the simple fact is... he's right.

US Defense Secretary Is A Master Illusionist

Defense Secretary Robert Gates seemed to perform the impossible today when he announced $100 billion in defense spending cuts, while also unveiling a plan to grow military spending.

How's that for amazing?

The money the armed forces save from their budgets by canceling projects can be plowed back into their budgets for other programs. Gates found $100 billion in savings over five years, but allowed the Pentagon to keep that money.

Cory Shockey, who served on the National Security Council under President George W. Bush, sees Gates as somewhat of a magician.

"My sense is that he's actually pulled off one of the great Houdini acts of our time. Everybody's talking about this $100 billion cut in the budget. But what Gates has actually done is moved $100 billion from his existing budget, to his existing budget," says Shockey.

The Military-Industrial Complex is dedicated to its own self-preservation. There are numerous people in government, even elected officials, who will fight to no end for its survival — even if it means sinking the federal budget, and America itself.

Case in point; just days ago, Senator Lindsay Graham (R- South Carolina) said he wants American officials to consider establishing permanent military bases in Afghanistan.

Apparently, Sen. Graham hasn't seen the federal budget, the deficit, or the $14 trillion national debt.

Believing that the US can continue to spend more on its military than every other nation in the world — combined! — is plainly delusional.

The combination of defense spending and Homeland Security amounts to the single largest expenditure in the federal budget.

To truly save this nation from financial ruin, that simply cannot continue.

Anyone who is serious, and sincere, about reducing the deficit and the debt, must admit this.

And they must also take steps to thwart people in government like Robert Gates and Lindsay Graham.

The Military-Industrial Complex must be broken in order to save America.

Texas Is In Trouble, With A Capital 'T'

According to the Center on Budget and Policy Priorities, 39 states have projected budget gaps for the 2012 fiscal year.

With its projected $28 billion deficit, California has gotten most of the attention nationally. Illinois, New York and New Jersey have also received plenty of press.

However, another state — one that hasn't gotten nearly as much attention — also faces an enormous and troubling debt.

Texas has long prided itself on its low-tax, business-friendly model. And its governor, Rick Perry, has boasted that this has led to a more robust economy and sounder finances than other states.

However, the Texas budget deficit may have now spiked to level as high as $25 billion. The actual figure will be announced this month.

The state budgets in two-year cycles. It's next budget will be around $95 billion. So, a $25 billion deficit is just massive.

Texas is among seven states with no personal income tax, and raising taxes is not an option for its Republican, anti-tax, governor. Falling sales taxes account for about 65 percent of revenue.

The Texas constitution requires a balanced budget, so the state faces scaling back already lean budgets for education, healthcare and public safety, all of which previously underwent cuts in 2003.

Education accounts for 55 percent of state spending. Healthcare accounts for 25 percent of spending. And public safety accounts for roughly 10 percent.

Further cuts would be devastating. At present, 26 percent of Texans are uninsured – a higher percentage than in any other state. The estimated average salary of public school teachers ranks 39th among states, with state and local expenditures per pupil in public schools ranking 44th.

There simply isn't much lower to go in each of these categories.

The Lone Star State is in big trouble.

Texas appears poised for a fiscal meltdown, and that has the potential to rock the bond markets in 2011.

State Budget Crises: A Storm On The Horizon

Back in August, the Independent Report featured a story about the tattered balance sheets of the states. Even then, it was quite obvious that trouble was brewing.

However, the dire condition of state budgets across the nation is something the mainstream media has largely ignored — until now. The problem has reached such catastrophic proportions that it can no longer be ignored.

In fact, 60 Minutes recently featured a story highlighting the unfolding crisis.

Meredith Whitney, one of the most respected financial analysts on Wall Street, warned 60 Minutes about the next financial meltdown — in state and local governments.

Whitney, who made her reputation by warning that the big banks were in big trouble long before the 2008 collapse, was blunt.

"It has tentacles as wide as anything I've seen. I think, next to housing, this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy," she told 60 Minutes.

New Jersey Governor Chris Christie concurs.

"It's not like you can avoid it forever, 'cause it's here now," said Christie. "And we all know it's here. And the federal government doesn't have the money to paper over it anymore, either, for the states. The day of reckoning has arrived. That's it. And it's gonna arrive everywhere. Timing will vary a little bit, depending upon which state you're in, but it's comin'."

Nationwide, state and local governments are now sitting on a mountain of debt that has reached an all-time high of 22 percent of U.S. GDP.

Historically, municipal bonds have been viewed as the safest of investments. However, many analysts are now openly talking about the possibility of a municipal bond market crash in 2011.

If such an event does occur, things such as roads, sewer systems, water systems, etc., would no longer be repaired, much less constructed. State and local governments would have to raise taxes significantly. Even then, it's likely that many would still be unable to meet their funding needs.

New Jersey faces a $10 billion deficit.

California faces a $19 billion budget deficit next year and its credit rating approaches junk status. It now spends more money on public employee pensions than it does on the state university system.

And Illinois spends twice much as it collects in taxes and is unable to pay its bills. The state currently owes about $5 billion and has no credible solution to its problems. State Comptroller Dan Hynes calls Illinois "a deadbeat state".

Nationwide, the generous retirement and health care packages given to public employee unions are now grossly underfunded. Two prominent university professors have calculated that the combined unfunded pension liability for all 50 U.S. states is approximately 3.2 trillion dollars.

According to Whitney, no one really knows how deep the holes are. She and her staff spent two years and thousands of man hours trying to analyze the financial condition of the 15 largest states. She wanted to find out if they would be able to pay back the money they've borrowed and what kind of risk they pose to the $3 trillion municipal bond market, where state and local governments go to finance their schools, highways, and other projects.

"The lack of transparency with the state disclosure is the worst I have ever seen," Whitney says. "Ultimately we have to use what's publicly available data and a lot of it is as old as June 2008. So that's before the financial collapse in the fall of 2008."

The deficit problems of the states have become the problems of local governments, which depend on their state for a third of their revenues. Whitney is convinced that some cities and counties will be unable to meet their obligations to municipal bond holders who financed their debt.

"There's not a doubt in my mind that you will see a spate of municipal bond defaults," Whitney predicted. "You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults."

That's a frightening prospect. Since huge numbers of municipal bonds are held by big banks, even a few defaults could affect the entire financial market.

According to Whitney, there's a gathering storm on the horizon.

"It'll be something to worry about within the next 12 months," she warns.

This spring, the $160 billion in federal stimulus money that has helped states and local governments limp through the great recession will run out. The states will need additional help and will almost certainly ask for another bailout.

However, right now, bailouts are political dynamite in Washington. That's because the federal government is also broke and facing a national debt that has now reached $14 trillion.

These problems have been mounting for many years and now the moment of reckoning has finally arrived.

We're in for some rather ugly political battles, and even worse outcomes. A total economic collapse is quite likely, if not inevitable.