a lot's been said about how Washington's bailing out banks and rich friends while thousands lose their homes and unemployment hits a 50-yr high. i know these are critical issues, and many have weighed in.
but at every juncture and interview i've come to, i've yet to see someone really take the bull by the horns, and ask: "Where is the money coming from?"
take a look at this little table i found, which pits the current US national debt with the world's biggest GDPs:
the deficit is part of the US$3.5 tn that both Bush has spent, and Obama is planning to spend this year, with another US$5.7 tn planned for the next 2 years. many will argue that deficits are relative, and a 12% deficit in a megapower like the States is nothing to worry about.
but...
look at what that 12% signifies: that deficit alone comes in at
number 9 among the largest world GDPs. what does this mean?
Government loans, spending and guarantees to rescue the country’s banks have reached more than US$11.7 trillion. we expect more to come, as the banks continue hiding their losses off-balance sheet.
if the other 7 countries start to feel the pinch, and stop buying US bonds to finance that deficit - which is growing - the US and her partners will have to start printing money to finance that debt. if its not already.
oops! too late: Alistair Darling, the UK Chancellor of the Exchequer
announced last Friday that it's going to print 150 BILLION pounds to finance its own bailout plans. that means:
a) count the UK out of the top 7 possible financiers, and
b) the Pound Sterling will now start a
controlled descent, affecting the rest of Europe who were hoping to stabilise the EU.
* * *
already, average maturity of U.S. debt has fallen to 49 months, and Treasury may now have to refinance almost half its US$6 trillion of debt by the end of 2009.
how far will it go before the US discovers no one can afford to buy its bonds/ finance its debt anymore, and announces it will need to print money?
NEVER spend good money to chase bad money - that's Banking 101. you can understand the bankers not getting it - they dug this hole. why is Obama doing
exactly the same thing?
time to get me some lily-white (GOP) ass...
to be fair, Obama's initial bailout package was watered down THREE TIMES before it was approved - removing what could have been some critical and very effective tax-related measures - because he's tried so hard to appease the Republicans, and start "uniting" a country in times of deep crisis. what do the Republicans do?
they shoved it up their arse and farted it right back at the President, then started accusing him of being a dreamer.
the Republicans lost to a BLACK man.. that's gonna take some getting over.
the President would do well to get over this "i'm a nice guy peacemaker" phase quickly and start shoving it back up their arses, and force them to chew, because
his window of opportunity is closing rapidly.and if his plans keep stalling and failing again and again, history will remember him for his failures or success. not how hard the Republicans fought him every step of the way even tho he could just get it passed without them with a Democrat-controlled Congress.
screw bi-partisanship; get the stuff moving, and let them come crawling back to you when it starts reaping dividends. do NOT keep watering down your packages Mr President, because you've got only one last chance with the next one.
why is the window closing?
3 Caveats to the Caravan
1. the US Govt is bankrupt. and the fun's just begun.
with the latest payout to AIG the US government has now given more than US$180 billion in taxpayer funds to cover US$440 bn in credit swap assets AIG had
before the crisis.
except uhmm. err... that money's not supposed to go to the swaps.
"what? of course not - it's supposed to help banks so it doesn't have to foreclose homeowners losing their homes and life-savings, right?!"
wrong. its going to AIG to save
European and other US banks, through the biggest back door ever.
from
Gretchen Morgenson, March 8th 2009:
"Its biggest customers, European banks and United States investment banks, bought the swaps to insure against defaults on a variety of debt holdings.""Because of the way A.I.G. wrote its swaps, and because the company had a double-A credit rating at the time, it did not have to put up collateral to assure its customers that it would be able to pay on the insurance if necessary. Collateral would be required only if A.I.G.’s credit rating were cut or if the debt underlying the swaps declined." "Both of these “unthinkable” events occurred in 2008. Suddenly, A.I.G. had to cough up collateral it didn’t have."
* * *
so in effect, the US was not only the world's self-appointed policeman, it's now become the de-facto Central Bank as well. suddenly its hole got a WHOLE lot deeper. which is probably why it's so scared to admit it. or let the whole world collapse.
one would think Senate and Wshington should be scrambling to at least identify the perpetrators, before figuring out what needs /can be done, right?
nnnope. from the
Wall Street Journal, March 6th 2009:
In a Senate hearing, Federal Reserve Vice Chairman Donald Kohn delivered the news to lawmakers that Chairman Ben Bernanke has largely failed to give so far — the Fed probably isn’t going to give up the names of American International Group Inc. counterparties.
“My judgment would be that giving the names would undermine the stability of the company,” Kohn said in a contentious Senate hearing.Kohn said sharing the names of AIG’s counterparties would create uncertainty in the financial markets and confidentiality agreements that are included in the derivatives and credit-default swap contracts that brought down AIG.It didn’t go well.“People want to know what you’ve done with this money,” Sen. Richard Shelby, R-Ala. said.“Public confidence in what we’re doing is at stake, it’s their money that is being poured into these institutions,” Senate Banking Chairman Christopher Dodd, D-Conn., told Kohn. “That kind of an answer undermines that very significantly.”
Run, Mr Vice-Chairman, run - they're taking off their shoes!!* * *
in plain English,
Bernanke lied. so while these dweebs continue playing the PR for foreign banks, unemployment in the US has risen to 14.8% by the broader U-6 measure (officially 8.1% last February), and counting.
the economy has already lost 4.4 MILLION jobs since Dec 2007; someone tell them that the financial sector is
already in uncertainty.
we've said it all through last year, and we'll say it again - until the Accounting Board reverses its decision and banks are
forced to reveal their off-balance sheet items and handle them, this thing will end in disaster. if it hasn't already.
who let the dogs out?
are you scared yet? don't be. because it gets better.
the total US$1.75 trillion in deficit DOES NOT INCLUDE this year's military spending in Iraq, Afghanistan. and under cash accounting,
makes no provision whatsoever for future Social Security and Medicare benefits in the year in which those benefits accrue i.e... 2009.
in other words, there's no money to pay for your Pension cheques and medical treatments if you get sick. the US Govt is bankrupt.
Mr Obama has already said he intends to cut down on unnecessary military spending, and anticipates saving at least US$70
billion a year by not paying 250 bucks for a screwdriver.
the problem is, 70 billion
sounds really big, until you put it against 1.75 TRILLION, and it's just 4%. not even enough to cover inflation, much less cost of servicing the debt.
and if you include Medicare, Social Security and bringing extra bullets, tanks and Coca-Cola in the Middle East... and whilst they're pulling troops out of Iraq, they're sending more to Afghanistan, aren't they?
and the Centre for Retirement Rresearch estimates that "between October 9, 2007, and October 9, 2008,
equity assets in retirement plans dropped by about $4 trillion in value". remember how health care was a big part of Obama's campaign? and what will happen when the dogs come in?
and try not to get sick.
it gets worse
i came across this heartwarming story about how a bunch of regular shopkeepers banded together and fought a landowner, until i read the last line:
A tenants' mutiny at Grand Central Market was resolved last week after a group of merchants who had withheld their February rents came to an agreement with the landlord and paid up.As part of the resolution with landlord The Yellin Company, rents will be lowered and advertising fees charged to the tenants will be eliminated. Adele Yellin, president of the Yellin Company, said that the move will lower costs for the 40 merchants.
"We do understand the pressure that our tenants are under in these times and we've taken steps to reduce their rent by eliminating the advertising budget," Yellin said.The situation had been bubbling for months, and began to come to a head in late January. That is when Ralph Leech, an attorney representing some of the Grand Central Market tenants, sent a letter to the Yellin Company citing the deteriorating economy and asking for a 30% reduction in rents and a discontinuation of the monthly publicity charge that pays for advertising the market.The crisis quickly escalated, as most of the tenants withheld the rents that were due Feb. 1. That led the Yellin Company to send notices to those who had not paid, threatening eviction.Last week, both sides said they had reached a tentative agreement that should alleviate some of the financial woes."The businesses are very slow. People are using lines of credit to pay rent. It's a bad situation, but hopefully we'll survive. We just need help," said Robina Sookasya, owner of Kabab and More, a Mediterranean food vendor.* * *
note the close: "people are using
LINES OF CREDIT to pay rent".
this means shopkeepers are now having to borrow money to pay rent, with zero savings and business is bad. but how long will it stay bad, and what will happen when you run out of credit?
individual bankruptcies will rise. so now you've got a double whammy:
the Government's broke bailing out foreign banks and fighting wars overseas, the people are broke and inflation's increasing because the Washington printed money to pay the fat cats.
jobs are declining and now the bank owns my house AND my shop, and retail property sector will follow residential downhill and add to the slump.
who's gonna sell the goods? - shiiiit boy, who gonna
buy the goods?
2. the madness goes globalmeanwhile economies across the world are grinding to a halt, so Australia starts increasing production after 2 years of draught. thus bringing down world prices, forcing the ECB to announce it will release EUR1.5 billion in subsidies to European farmers to stay alive.
the price of milk goes down 35% in the US, most farms are just covering overheads now as unemployment increase. and as the ECB subsidies bite, the USD goes up, making US exports even more expensive.
and what will happen to the world's poorer countries who
have no money to subsidise their farmers, and won't print any? many will go under. so much for fiscal responsibility.
e SBM: i bet a month's salary that by the end of 2Q09, the US will re-institute dairy farm subsidies, thus depressing world markets further.the foolishness to spend is repeated in broad sectors: China's Central Bank Governor Zhou Xiaochuan pledged
"forceful policies" and almost 4 trillion Yuan (US$585 billion) to drive demand and restore confidence.
it's also been forcing factories to stay open, despite continuous losses, leading China's
manufacturing index to rise for a third straight month in February, while demand falls globally. so who's gonna buy these goods?
"doesn't matter Comrade, we have to protect jobs!"
Chinese banks also lent out a record 1.62 trillion yuan (US$237 billion) in January and more than 800 billion yuan last month, before evidence came back that it wasn't being invested into assets - people used it to short the stock-market, as it pays more in a declining economy.
Malaysia itself, along with every other economy in Southeast Asia bar Singapore, is treating it as a credit crisis instead of an export crisis, so is spending money like the US as well. big brother do... sigh.. great.
where will the money go? you tell me - i can bet you tho, that it's not going to buy Malaysian exports!
3. and to wrap it up, a nice little conspiracy theory.. ! :)
in the early 90's Peru and Argentina pissed off a major part of their creditors by announcing independent debt review, a polite way of saying they're gonna default on their debt, then restructure the payments.
it's harsh to suggest Washington would do the same, but really, if you were Obama, and you were faced with absolute bankruptcy within the first 100 days of your Presidency, would you discount any possibility of saving both public votes, and any money you can spend instead on your citizens?
Michael Mandel makes a compelling argument to look at recent bailout arrangements from a manufactured insolvency perspective, rather than public rescue:
he argues that since half the liabilities of the major banks such as Citi, JP Morgan & Co. are owned by foreign govts and central banks through bonds worth up to US$1.5 trillion, Washington is purposely keeping its equity stake in the banks to below 40% to buy time, in order to avoid having to make a mandatory offer, and make good on full bond repayments to foreign govts - which would severely affect both public opinion and future international relations.
by stalling Washington wants to protect remaining US depositors while slowly guiding the banks to Chapter 11, like Lehman Brothers.
Bankruptcy Protection laws will then allow receivership to wipe out the common and preferred shareholders, conserve the deposits and sell the good assets to new investors, and then restructure the remaining operations of the bank to maximize recovery to the bond holders and other creditors.
in other words, the bondholders will get paid last.
if true, then it would have almost certainly been a problem/strategy he inherited from Bush W., but given the circumstances, not something he can choose to change, however much he might like to, isn't it.
the question now is, how far do the foreign bondholders believe this is a possibility.
and if they do, how long before they shut down that window, and trigger an all out currency war as they seek to dump the bonds before they become useless.
Read His Lips?
some will remember Bush Sr.'s infamous "Read My Lips" quote, when he promised not to raise taxes during elections during elections, then promptly did when became President.
Rightsoup argues that 7 election promises MrObama has already broken, within a month of taking office:
1. Make government open and transparent.
2. Make it “impossible” for Congressmen to slip in pork barrel projects.
3. Meetings where laws are written will be more open to the public. (Even Congressional Republicans shut out.)
4. No more secrecy.
5. Public will have 5 days to look at a bill.
6. You’ll know what’s in it.
7. We will put every pork barrel project online.
which makes the Republican's bumper sticker look strangely prophetic.
which is a shame, because he got off to a great start.
the
moment he beat McCain he got together a team of 40 who tracked all of Bush W's decisions in his last days in office, pre-planned legal counter measures and immediately used them when he got to the White House, reversing many what would've been damaging Executive Decisions Bush W. passed with Veto power.
he announced a slew of bi-partisan appointments, keeping some of Bush's advisers and appointing his own to work with them.
then some of his smaller appointments and decisions stalled on tax and domestic help issues. and he blinked. and the Republicans, sensing blood, went all out.
they intimidated moderate Republicans who were planning to work with him to back out, appointed a black man to head the GOP so no one can make race an issue anymore, and set about blocking every, single one of his policies without question or review.
ambitious plans stalled, and his 3rd choice Treasury Secretary belatedly revealed an almost
exact copy of the plan under Bush W - he even echoed almost the same words Hank Paulson had said in 2007: "we have to send a message to the markets that we are serious, and this plan is large enough to show that".
predictably, it didn't. the Dow continues its slide to 5,000.
so....what's the President doing anything to right the ship and bring in the right people? well...
instead of taking this opportunity to Change and turn the table upside down, he's appointed 3 new Assistant Treasury Secretaries last Friday, incl David Cohen and Kim Wallace. who are they - thought leaders? change managers? troubleshooters extraordinaire?
oh, no. David was just the chief legal counsel for ALL the major investment banks on Wall Street for the last 8 years - the same ones who got us into this mess - and Kim was the Chief Political Advisor for the now bankrupt Lehman Brothers. and a major campaign contributor to both the Obama and Clinton campaigns in 2008.
speaking of which, he might already be regretting appointing Hillary Clinton as State, as she takes a different tack to both him and Vice President Biden and uses the Gulf States to antagonise Iran.
and if Israel decides to take advantage of a lame duck president stuck at home, will the President then stand up and be counted, or stay back to steady the ship?
both scenarios are threats to his legacy, if any can even be envisioned this early.
a black man really did get stuck with the worse job in the world; the question now is not whether he can avoid this altogether, but how well he can manage the troublemakers to stay away for as long as possible as much as possible, while he tries to save the rest of the world, and find 65 trillion dollars (he's saving the whole world now, remember?) by summer.
dogs are scratching at the door. global, systemic collapse, anyone?
it's been 9 years since Mike snatched my bags and gave me the moniker "The Skinny Brown Man", and it's stuck ever since, whether by chance or design. i think maybe that's where it started.
and after a LOT of thought and many a shrunken balls and sphincter, decided to try say some things and help what would've been a lot more hostile crowd form a more complete picture of the world, and in truth there was a lot more anger than fear.
but lately... i guess this was also supposed to be where i could clear my head, you know? but sometimes if you don't blog and try sleep over things because you don't want to write when you're angry...
