BRIM

Swimming in the Adriatic in August & September, we polished a few of BRIM’s principals that we live / work with / follow:


• Make a decision
• Choose a location!
• Find clean and transparent water (business environment)
• Look forward! Dive!
• Try new depths, unreachable when swimming alone
• Count on your strength.
• TRUST your partner.. when diving deeper
• Use your partner’s helping hand
• Apply your partner’s skills
• Look above your head .. The Sky is Not the Limit, when swimming under Stars

950 hits in September on Randolph Buss’ interview for the One Radio Network, USA. Hear a fascinating perspective of the EU financial crisis and the role Germany will or will not play moving forward. What are the German people thinking about bailing out the EU? How does Germany view the U.S.’s financial future? Trade and currency wars world wide and where is Mr. Buss investing now? These and more questions were replied to. Randolph is invited to discuss financial markets trends by the One Radio Network, USA again in October. After his travels & conferences.

An amazing request from a friend – an Investment Professional and speaker came from New York City. He asked Randolph to co-author a book on Investments. Randolph gladly confirmed his interest. A meeting in New York City will be scheduled for the second week of November.

Back to business.

165$ million USD Letter of Intent from our New York City Capital Partner- an Investment Corporation was arranged by Buss & Roth Investment Management on September 29, 2011 for the Flood-Control System Project in Ukraine. When approved by Government of Ukraine, the shovel ready project will be structured and funded by our Capital partners. This is a result of our more than a year struggle to bring positive change in the Western Investors decisions regarding Ukraine. Thanks to Ludmila for her pursuance and smart application of people skills, we did not get into trouble while trying to establish our presence in the Ukraine.

Projects from Ukraine, Ireland, UK, USA, Romania, Bulgaria, Canada, Lithuania, Switzerland are on BRIM’s Roundtable this month. We are on the Edge of Success. Together with our treasured partners and clients.

Meet & Greet meetings with partners in …. New York, South Carolina and Illinois by Christopher Buss in our North American domain. We stick to the personal touch along with using the latest Hi Tech communication tools in the business.

Next BRIM Board meeting at our Winter Residence in Omis, Croatia. What could be better than the Mountains that you have already climbed? Only the Mountains that you still aim to climb! This will be the subject of BRIM October updates

Good trades! Good weather! Good winds!
Buss & Roth Investment Management team

Omega-3 Fisheries Inc.

For the last several months, Buss & Roth has worked closely with Omega-3 Fisheries Inc.of Saskatoon, Saskatchewan, Canada, to finance and establish its new integrated approach for enhanced production and productivity and the delivery of high quality food in a safe secure manner to consumers in North America. The project begins with a new age fully re-circulating aquaculture fish farm, capable of producing 70,000 lbs of fresh fish on a weekly basis throughout the year. The concept of the company is to use totally green energy sources, and to produce fish at far greater efficiencies and lower costs than industry standards currently being deployed throughout the world. And this is only the beginning.

The principles of Omega-3 Fisheries will be expanding their values throughout the value chain and through integration across disciplines. Omega-3 Fisheries intends to expand their creativity and provide cross disciplinary integration involving; fish production of multiple species; greenhouse vegetable production; fully organic qualified food production; green energy through organic roots while maintaining cost advantages over traditional supplies; and the complete integration of farmer involvement directly into the supply chain to final consumer product.

Saskatchewan, will establish itself as the headquarters and prototype for this cross disciplinary and integrated thinking, with replication being established in key markets around the world.

BRIM received a “Letter of Intent” to work on establishing these other operations, and the first should be within the boundaries of Croatia. We will work together, in bringing these standards, technologies and ideas to the establishment of an Omega-3 Fisheries operation to Croatia.

August Report – 2011

We have recently closed on two projects – 25m and 10m. Both are likely to expand in the future as these are INITIAL investments.

At Buss & Roth, increasingly, we are crossing the continents and borders, connecting with new potential clients, searching for high potential projects. We call it “Bridging the Divide” and as of September 2011, we met personally or online with people from 56 countries all over the globe. Turning the Golden Globe to our internal logo.

In August 2011, potential clients and projects came from: Nicaragua (Canadian corporation), Singapore, Iraq (UAE based company), United Arab Emirates, Croatia, Ecuadore (Canadian corporation), Switzerland, Turkey, United States of America and of cource Canada. Of course, not all are clients – many potential clients are very naïve about lending today. The lending environment is once again turning to less risk, higher quality projects.

Absolutely impossible to get to any kind of agreement with potential associates/ project owners from India, Russia, Ukraine, Kazakhstan, Venezuela – most of these clients offer very little in terms of stability and quality. Ideas are great…. But execution and quality documentation is a must.

Likewise, we have added a new Director for North America - we wish him well in his new position.

And finally, for winter, we have a new residence in southern Croatia on the Mediterranean coast. We will work from there and escape the bitter cold of northern Europe while overlooking the ocean from the terrace.

We strive to build long-term partnerships with our clients, partners, associates.

Does anybody actually believe anything that the economists tell us these days ?

Not only did the majority of all German, US, and UK economists get it wrong back in 2007 when the economies of the world were overheating and all were living in La-La land on stock market valuations, house valuations, and what not, not many of those economists ever issued a mea culpa after the Great Meltdown of 2008. We are still in that meltdown, by the way.

Once again, the International Monetary Fund (IMF) chief Strauss-Kahn expects 2010 global growth faster than 3% forecast; Growth in advanced economies expected to be "sluggish"; Strauss-Kahn sees emerging nations tightening policies sooner :
- Asia should raise domestic demand and trade ;
- Governments should shift stimulus focus toward jobs ;
- The return of risk appetite poses market bubble concerns ;
- Does not see double-dip global recession (of course not) ;
- Reiterates that premature stimulus exit (ie. raising interest rates) risks double-dip.
- he is not seeing Asian asset bubble; Inflation in China is subdued
- Capital flows to Asia pose risks of reversal
- Biggest risk for Asia is slowdown in developed economies
- the chinese Yuan must trade freely to be considered an international currency

In my daily work, I deal with alot of people and alot of companies.

Time and again, I am confronted with companies and people in Germany or the US or wherever that say they are in business. My question in retrospect is : "In the business of what?"

Wasting my time, wasting my resources, talking shop? What about actually doing something productive? In my dealings with China and India, about after thirty seconds of talking, my counterpart says something like, "OK, so how do we do business? What do you want?... here is what I want..." This does not mean that doing business with Asians is easy - there are cultural issues in ways of doing business and understanding. But the point is : one sees they are hungry to get something moving, to get to the point, to try and be productive and make some money.

Voila - that is business. Not exchanging formal emails for 3 weeks and "setting up a meeting" to talk.

What has happened to the passion, the deal-making, the vision, the hunger with business-people in Europe? It's like everybody is on valium. "Business, ja, good idea. What ?, huh ?"

I fear that growth of 3% in Germany or US or wherever else is a fallacy. In fact, last quarter, the Germany economy contracted 5%. So in fact, the economists are telling us that we will have a net 8% growth. Dreamers.

The point is this : for growth to happen, it requires credit from institutions, risk-takers, people with a healthy attitude toward risk and plenty of hard work. Plenty. It also requires understanding the new economy of the internet, of knowledge based work, of new marketing concepts, etc. Most people I interview for jobs can just about boot up their PCs - when I ask for relatively simple tasks like doing some mathematical spreadsheets in Excel, or some outline of business ideas, I get a blank stare.

Growth at net 8% - I simply don't see that. We have become "soft". We hold our hands out to government and cry aloud "Forgive me, for I have sinned - I have twiddled away my savings and made unintelligent decisions. I have little real-world skills and now I don't know what to do. May I have some money, for I am entitled to it"

This is the core of the problem. Only when citizens will stand up and take control over their decisions and their lives, will we have real growth. In the meantime, all those who have done this, will simply pay for those who have not. This is not a recipe for growth ; but it is a recipe for stagnation and dependency upon the State.

Randolph Buss
Economic Research | Wealth Management | Project Finance

Hedge fund managers have been called plenty of names.

Now, they can add another: local banker.

When Rentech, a clean energy business in Los Angeles, was rejected by its long-time banker last year, it asked a hedge fund for money instead.

“You have to take what’s available at the time,” said D. Hunt Ramsbottom, chief executive of Rentech, which has since borrowed $100 million in this unconventional way.

With traditional lenders still avoiding risky borrowers in the wake of the financial crisis, hedge funds and other opportunistic investors are stepping into the void. They are going after midsize businesses that cannot easily raise money in the bond markets like their bigger brethren.

The support is critical in a recovery characterized by high unemployment and anemic growth. These middle-market companies, which generate $6 trillion in revenue a year and employ 32 million people in the United States, are borrowing billions of dollars from the hedge funds for product development, strategic acquisitions and even day-to-day operations like payroll and utilities.

But the lending force also poses a significant risk to the companies and the broader economy, given the unregulated nature of this shadow banking system.

These lenders of last resort typically charge interest rates that are several percentage points higher than banks. Loaded up with high-cost loans, borrowers could find themselves falling deeper into debt or worse, into bankruptcy.

Over the last year, Rentech has borrowed from a group of funds, led by Highbridge Capital Management and Goldman Sachs , at an interest rate of 12.5 percent.

“On the one hand, the cost of money is more expensive than what some businesses might be used to,” Mr. Ramsbottom said. “On the other, if the money is not available, the cost is infinite.”

The lending activity is also stoking fears that speculative activities — like those that contributed to the crisis — are shifting from banks to loosely regulated firms that play by their own rules. While policy makers are moving to increase capital and other standards for banks to prevent another disaster, hedge funds and the like are not subject to the same oversight.

If firms load up on debt and the market goes into a tailspin again, the shadow banking system could implode and threaten the entire economy.

“These institutions are essentially servicing a part of the market where banks are not lending,” said Debarshi Nandy, a professor at York University’s business school in Toronto. “The million-dollar question is, Are we benefiting?”

Hedge funds offered a crucial lifeline for Rentech. The company is hoping to build a facility about 60 miles east of Los Angeles to transform yard clippings into fuel, enough for 75,000 cars. If it works, the project would represent Rentech’s first commercial success in its nearly 30-year history.

Unprofitable for decades, Rentech is a risky proposition for a traditional lender. While large corporations with healthy balance sheets can easily tap into the bond markets or borrow from banks, their smaller counterparts with shakier credit have fewer options.

Middle-market companies, with revenue of $25 million to $1 billion, do not typically sell bonds. And their main financing sources, specialty lenders like CIT Group and regional banks, have not fully recovered. Last year, debt securities focused on this segment stood at $12 billion, down from $35 billion in 2005, according Standard & Poor’s Leveraged Commentary and Data.

Hedge funds and other investors are flush with capital. Last year, Highbridge, which is owned by JPMorgan Chase started a $1.6 billion fund that lends money to midsize companies. The private equity firm Blackstone Group started a $3 billion fund. Even FrontPoint, the firm hobbled by an insider trading investigation, has raised $1 billion for a lending fund and plans to double the size, according to a person with knowledge of the matter.

The concern is that hedge funds are looking for quick payoffs rather than long-term opportunities — and will bolt if there is trouble. A previous wave of money managers that jumped into lending after the collapse of Lehman Brothers [LEHMQ 0.054 0.001 (+1.89%) ] in 2008 saw their loans sour. The firms, mainly smaller, fringe players, have since disappeared.

“The new funds rushing into direct lending now will learn the hard way that it is easy to make what appear to be sound loans as the economy is improving, but it becomes brutal to either collect the loans or foreclose when the downturn comes,” said Max Holmes, the founder of Plainfield Asset Management, whose lending-focused fund, once as large as $5 billion, is winding down.

Unlike their predecessors, players today say they are operating like community bankers, focusing on multiyear deals backed by significant collateral and capital. They are also locking up investors’ money for years rather than quarters. This can alleviate some short-term pressures.

“The people who last are those with a relationship-oriented business, not those who view it as a trade,” said Rob Ladd of D. E. Shaw, which manages $1.7 billion in lending strategies.

Stephen J. Czech of FrontPoint spent weeks researching Emerald Performance Materials. He scoured the chemical manufacturer’s financials, visited several facilities, and met with executives — all of which gave him the confidence to lend the company money.

Emerald used the loan to buy a European rival. “All types of financing were considered,” said Candace Wagner, Emerald’s president, but the company preferred the “flexibility and certainty” of FrontPoint.

Some who borrowed from hedge funds have not been so satisfied. Hedge funds have been lumped with payday lenders that charge usury rates. Plainfield has been accused of predatory lending in civil suits, and local and federal authorities have looked into the firm’s practices. Plainfield said it won or settled all of the suits and investigators closed their inquiries without taking action.

The creditors of Radnor Holdings, a disposable-cup company that defaulted on a roughly $100 million loan, claimed Tennenbaum Capital Partners charged excessively high rates as a takeover tactic, a strategy referred to as “loan to own.” After a protracted legal battle, the fund took control of Radnor in 2006, renaming it WinCup.

Another worry is that funds will trade on nonpublic information they receive as lenders. A March study in The Journal of Financial Economics found a spike in investors betting against the shares of companies that took hedge fund loans. Businesses that borrow from banks did not experience the same activity, according to the authors, including Professor Nandy.

For Mr. Ramsbottom of Rentech, the benefits outweighed the risks. While the company could end up losing the profitable fertilizer plant it put up as collateral on the loan, Rentech can continue to pursue the clean energy venture.

“An entrepreneur will pay whatever,” he said, “to keep his business alive.”

Wheat futures are up more than 75% over the past year and continued higher Friday on concerns that a perfect storm may be brewing.

Specifically, a drought in Europe and flooding in the U.S. are crushing this year's crop sending supply expectations considerably lower.

”It’s making for bullish conditions in the grain market,” says strategic investor Dennis Gartman.

“The hard red winter wheat crop may not be made at all. Also we may not get corn into the ground in time. And we’re not getting the spring wheat crop planted in time. It’s a perfect storm,” he says.

When asked if concerns about slowing global growth would change his outlook, Gartman effectively says, no. ”Even if we have a slowdown in growth – that would weigh more heavily upon copper, steel and energy. But it won’t weigh upon what what people need every day - which is food. And wheat is still the dominant feed crop of the world.”

Of course that leads to the obvious – what’s the trade?

Gartman tells us companies like Panera [PNRA 118.59 0.10 (+0.08%) ] may find it harder to make money due to higher input costs. And he says on the other side of the coin, fertilizer companies such as CF Industries [CF 147.07 -1.03 (-0.7%) ] should benefit. “You need fertilizer for the corn crop.”

Or if you want to play grains directly he suggests looking at two ETFs, DBA [DBA 32.47 0.21 (+0.65%) ] or RJA [RJA 10.60 -0.03 (-0.28%) ]. “They provide a reasonable facsimile of a long position in all the grains.”

2010 offered up a very good performance with respect to the GMR portfolios and various GMR Trader picks. I know exceedingly well that it is often difficult to maintain a steady hand and not to sell early and therefore miss profits or wait to sell too late, and capture losses. Believe me, I know—but I learned over 10 yrs. :-) The current group of GMR Traders is a diverse group and therefore likely diverse risk appetites. Hence every recommendation may not be applicable.

Therefore I will label two types, maybe three : Bluish Chips (long term value, less volatile). Reddish Chips (value, but likely quite volatile). I made most of my money on Red Chips. Because from all the research I do I don't mind to ride out volatile bouts in the markets for even months at a time, maybe a year. In fact, the old adage is : to make a fortune you must pile into a sector and ride it out. To keep a fortune one must diversify.

AT THIS POINT I am still into fortune making for myself. For this document I will provide
both Blue and Red chips.

Admittedly right now, things look very tenuous in the markets. It is nigh impossible to get a “good” reading where the markets are going. Everything just seems a big mess—really. I have been struggling to “read” the minutiae of indicators. And so have all the “market experts” - As Moulder, in the X-Files, “I want to Believe” we are going higher, but my intuition tells me we may be in for a 5-10% consolidation. Majority 90% of stocks are now over their 200 dma which is quite unprecedented. On top, there are jitters all over the Emerging Markets. There is no real safe rock to hide under, if indeed a correction is coming. I will take it as an entry point. Brent Oil is over $100 while WTIC is like 87$. A large divergence and likely not sustainable. They will consolidate and merge …. But at what level ? And Wikileaks came out that Saudi Arabia has been overestimating their oil reserves by massively 40%. If this is true, get ready. And meanwhile Bernanke at the Fed states we are still in a “fragile” economy with low inflation expectations… yet commodities remain elevated in price. In summary, nobody knows anything about where the markets are headed short term. But longer term I remain a “commodity guy” - because it is the only sector which is truly needed for food,
energy, heating, driving, etc.

Copper has done extremely well since mid 2010. Time for consolidation ? The odds favour it. Which means junior-ish equities like XXXXXXXX tend to react in fits and pangs. Just a thought. We are sort of at the higher end of the trend channel thus I color my remarks to the downside for copper until evidence to the contrary. Low side is 4.2000 I will take every pullback as a buying opportunity on the copper stocks. By the way, I ALWAYS take the view “I know nothing” and simply watch the charts—with all the “noise” of politics, central banks, riots, uprisings, bombs, expert blurbs, etc. it becomes impossible to know the shortest of market directions—but that is not our goal. Our goal is longer term profitability.

A lot more technical charts, stock recommendations, graphics follow for subscribers. HERE
--> Remember we made 112.000 $ in 2010 not by "trading" but by constant research and not panicking.

Getting Market Perspective

In case one has not noticed, the “risk appetite” is back on in the markets. This means that inflows into the commodity sector are increasing and having a positive effect on prices. Obviously. But the “theme” of this blurb is that of continued growth. In the amazing video (below) we see that humanity, despite possible

Spiegel Article

Russian Prime Minister Vladimir Putin would like to see much closer cooperation between the European Union and Russia.

Russian Prime Minister Vladimir Putin would like to see a free trade agreement between the European Union and Russia. In a Thursday editorial for a German newspaper, he describes his vision of "a unified continental market with a capacity worth trillions of euros."

No more tariffs. No more visas. Vastly more economic cooperation between Russia and the European Union. That's the vision presented by Russian Prime Minister Vladimir Putin in an editorial contribution to the German daily Süddeutsche Zeitung on Thursday.

"We propose the creation of a harmonious economic community stretching from Lisbon to Vladivostok," Putin writes. "In the future, we could even consider a free trade zone or even more advanced forms of economic integration. The result would be a unified continental market with a capacity worth trillions of euros."

The proposal comes as Putin travels to Germany on Thursday for a two-day visit, including a Friday meeting with German Chancellor Angela Merkel. On Wednesday, Russia and the EU reached an important agreement on the elimination of tariffs on raw materials such as wood. The deal was an important prerequisite for the EU dropping its opposition to Russian membership in the World Trade Organization. Moscow is hoping to become a member in 2011.

Putin, though, as his Thursday proposal makes clear, envisions more. "The current state of cooperation between Russia and the EU is not consistent with the challenges that we face," he writes. "To transform the situation, we need to take advantage of the advantages which already exist and the possibilities for progress in the EU and Russia."

A 'New Wave of Industrialization'

In addition to the establishment of closer economic ties between the EU and Russia, Putin also envisions close cooperation on industrial policy. "In my view, we need to address the question as to how we can trigger a new wave of industrialization across the European continent." In particular, Putin mentions ship, automobile and airplane construction, space technology, pharmaceuticals and medical technology and nuclear energy.

Putin also proposes much closer collaboration when it comes to energy. "In recent years, cooperation on energy issues between Russia and the EU has attracted much attention and, to be honest, has been much too politicized." He would like to see European and Russian firms working together "from exploration and exploitation of energy resources all the way to the delivery to consumers."

The offer is a sharp about-face from just five years ago when Gazprom first opened itself up to outside investment. But the vision is likely to take a hit this week. One of the topics on the agenda for the meeting between Putin and Merkel is the German energy giant E.on's intention to sell its 3.5 percent stake in Gazprom in order to concentrate on Asian and South American markets. E.on is the largest foreign stakeholder in the Russian natural gas company.

'Fifty Years into the Future'

Putin also proposed much closer cooperation when it comes to research and high-tech projects. "European science and education must secure its leadership position," he wrote. "That is affordable through a close partnership." An important step to achieving that partnership, he continues, is eliminating the visa requirement for travel between Russia and EU member states.

"The renewed principles of our cooperation could be anchored in the partnership agreement between the EU and Russia, an accord which is currently under negotiation. We should approach this treaty from a strategic perspective. We should try to think 20, 30, even 50 years into the future."

We were asked to present our experiences at the Ukraine Economic Forum in Berlin and Ludmila was presenting our latest project at the Crimean Modernization conference in Alushta, Crimea.

I am not one to be politically correct - never was - and as I talked, their jaws dropped open wider and wider. I presented the case that Ukraine, as a country, is facing enormous challenges economically. I stated that their intelligence and engineering expertise are not in question - what is in question is their extremely serious lack of business skills.

Again, the conference trotted out the ukranian entrepreneuers asking for money for their projects. Money ? Projects ? You've got to be kidding. If these so-called "entrepreneurs" had even a pittance of economic sense, they would PREPARE their projects to western standards ; this includes legal paperwork, solid business plan, pro forma financial statements, financial projections, Yield on Investment and Exit Strategy .... all prepared in English. I might as well have been speaking Swahili to them - they look at me strangely and they scream and waving their arms and gesticulating ... "Da, da, Money, I need money". They just "dont get it".

After the "bombshell" of my speech, I was approached by a hoard of participants asking me for help. But most interesting, I was approached by the Ukranian Embassy. They have invited me for a consultation at their office.

...It really is almost too much sometimes ...more soon .... but it looks like we shall receive a massive land package for our crimean resort project.

Bernanke Tells the Truth: The United States is on the Brink of Financial Disaster

Excerpts from Speech : Annual Meeting of the Rhode Island Public Expenditure Council in Providence, Rhode Island.

For all of us who know how to read political speeches, this speech is extremely close to admitting the US financial situation is out of control. The Fed, with this speech, has done a tremendous CYA job (cover your ass), to tell that the onus is now on Congress to cut spending and raise taxes. Monetary Policy of the Fed is only "one tool" - it cannot be the only tool. In essence, Bernanke is throwing down the gauntlet and saying - I warned you all.

"Let me return to the issue of longer-term fiscal sustainability. As I have discussed, projections by the CBO (Congressional Budget Office) and others show future budget deficits and debts rising indefinitely, and at increasing rates. To be sure, projections are to some degree only hypothetical exercises. Almost by definition, unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit. Herbert Stein, a wise economist, once said, "If something cannot go on forever, it will stop." One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people plenty of time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis."

"The recent deep recession and the subsequent slow recovery have created severe budgetary pressures not only for many households and businesses, but for governments as well. Indeed, in the United States, governments at all levels are grappling not only with the near-term effects of economic weakness, but also with the longer-run pressures that will be generated by the need to provide health care and retirement security to an aging population. There is no way around it--meeting these challenges will require policymakers and the public to make some very difficult decisions and to accept some sacrifices. But history makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability."

"Although state and local governments face significant fiscal challenges, my primary focus today will be the federal budget situation and its economic implications.

The budgetary position of the federal government has deteriorated substantially during the past two fiscal years, with the budget deficit averaging 9-1/2 percent of national income during that time. For comparison, the deficit averaged 2 percent of national income for the fiscal years 2005 to 2007, prior to the onset of the recession and financial crisis. The recent deterioration was largely the result of a sharp decline in tax revenues brought about by the recession and the subsequent slow recovery, as well as by increases in federal spending needed to alleviate the recession and stabilize the financial system. As a result of these deficits, the accumulated federal debt measured relative to national income has increased to a level not seen since the aftermath of World War II."

"For now, the budget deficit has stabilized and, so long as the economy and financial markets continue to recover, it should narrow relative to national income over the next few years. Economic conditions provide little scope for reducing deficits significantly further over the next year or two; indeed, premature fiscal tightening could put the recovery at risk. Over the medium- and long-term, however, the story is quite different. If current policy settings are maintained, and under reasonable assumptions about economic growth, the federal budget will be on an unsustainable path in coming years, with the ratio of federal debt held by the public to national income rising at an increasing pace.2 Moreover, as the national debt grows, so will the associated interest payments, which in turn will lead to further increases in projected deficits. Expectations of large and increasing deficits in the future could inhibit current household and business spending--for example, by reducing confidence in the longer-term prospects for the economy or by increasing uncertainty about future tax burdens and government spending--and thus restrain the recovery. Concerns about the government's long-run fiscal position may also constrain the flexibility of fiscal policy to respond to current economic conditions."

"Our fiscal challenges are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors. Two of the most important driving forces are the aging of the U.S. population, the pace of which will intensify over the next couple of decades as the baby-boom generation retires, and rapidly rising health-care costs. As the health-care needs of the aging population increase, federal health-care programs are on track to be by far the biggest single source of fiscal imbalances over the longer term. Indeed, the Congressional Budget Office (CBO) projects that the ratio of federal spending for health-care programs (principally Medicare and Medicaid) to national income will double over the next 25 years, and continue to rise significantly further after that...he aging of the U.S. population will also strain Social Security, as the number of workers paying taxes into the system rises more slowly than the number of people receiving benefits. This year, there are about five individuals between the ages of 20 and 64 for each person aged 65 and older. By 2030, when most of the baby boomers will have retired, this ratio is projected to decline to around 3, and it may subsequently fall yet further as life expectancies continue to increase. Overall, the projected fiscal pressures associated with Social Security are considerably smaller than the pressures associated with federal health programs, but they still present a significant challenge to policymakers. "

"The same underlying trends affecting federal finances will also put substantial pressures on state and local budgets, as organizations like yours have helped to highlight. In Rhode Island, as in other states, the retirement of state employees, together with continuing increases in health-care costs, will cause public pension and retiree health-care obligations to become increasingly difficult to meet. Estimates of unfunded pension liabilities for the states as whole span a wide range, but some researchers put the figure as high as $2 trillion at the end of 2009.5 Estimates of states' liabilities for retiree health benefits are even more uncertain because of the difficulty of projecting medical costs decades into the future. However, one recent estimate suggests that state governments have a collective liability of almost $600 billion for retiree health benefits. These health benefits have usually been handled on a pay-as-you-go basis and therefore could impose a substantial fiscal burden in coming years as large numbers of state workers retire."

"It may be scant comfort, but the United States is not alone in facing fiscal challenges. The global recession has dealt a blow to the fiscal positions of most other advanced economies, and, as in the United States, their expenditures for public health care and pensions are expected to rise substantially in the coming decades as their populations age. Indeed, the population of the United States overall is younger than those of a number of European countries as well as Japan."

"Failing to address our unsustainable fiscal situation exposes our country to serious economic costs and risks. In the short run, as I have noted, concerns and uncertainty about exploding future deficits could make households, businesses, and investors more cautious about spending, capital investment, and hiring. In the longer term, a rising level of government debt relative to national income is likely to put upward pressure on interest rates and thus inhibit capital formation, productivity, and economic growth. Larger government deficits increase our reliance on foreign lenders, all else being equal, implying that the share of U.S. national income devoted to paying interest to foreign investors will increase over time. Income paid to foreign investors is not available for domestic consumption or investment. And an increasingly large cost of servicing a growing national debt means that the adjustments, when they come, could be sharp and disruptive. For example, large tax increases that might be imposed to cover the rising interest on the debt would slow potential growth by reducing incentives to work, save, hire, and invest."

"It would be difficult to identify a specific threshold at which federal debt begins to pose more substantial costs and risks to the nation's economy. Perhaps no bright line exists; the costs and risks may grow more or less continuously as the federal debt rises. What we do know, however, is that the threat to our economy is real and growing, which should be sufficient reason for fiscal policymakers to put in place a credible plan for bringing deficits down to sustainable levels over the medium term."