Tag Archives: debt culture

All that Glitters: Gold hits $1600 an Ounce as People Lose Faith in the Western Governments and Western Currencies

As the socialist democrats play chicken with the debt crisis in Washington DC and as the governments of Europe split on how to deal with their debt fiasco its becoming increasingly clear that our western governments have failed in dealing with the financial crisis. As much as the rest of the world is loath to admit it; our western financial mess will tank the world economy when we reach critical mass and sovereign debt begins to be defaulted on. In America, a two party system, it’s a fact that one of the two party’s is entirely dependent on providing ever more extravagant social programs and so if you take spending away from the socialist democrats they have no party left. Democrats have abandoned their principles years ago in favor of a strictly “bring home the bacon” world view and their politics of division means that they now view patriotism and any good feeling about this country as “republican propaganda.” Democrats maintain their supplicants by dividing the nation into controllable voting groups, convincing them that they are a persecuted minority; con their leaders into accepting Democrat legislative protection and then they harvest the vote while never actually solving the problems.

This works great until you have a problem, like the financial crisis, that actually needs a real solution. We need the spending spigot to be turned off, now, and for the foreseeable future. The socialist governments of Europe don’t have the money to pay for their lavish social benefits and are facing default on their ever increasing debt and here in America we’re doing our best to pretend that we don’t have a spending problem at all. The sane people, who remain, around the world, are looking at our government’s failure to solve the financial crisis and they’re turning increasingly to Gold because neither the Euro nor the Dollar seems to be worth much these days. As Western Governments are increasingly revealed as too weak to fix the financial woes of the world: it’s only natural that the world’s wealth will find its way into units of value that are not dependent on government to maintain that value. Hence we’re seeing Gold take off like a rocket, again, as faith in our politicians craters once again. Our elected representatives are unable to take unpopular but necessary actions for the good of the country but instead while away the hours figuring out how to fix the blame on the other party.

The Debt Crisis is like Marley’s Ghost, with chains clanking, and the unearthly groans of the utterly dammed, trying in vain to get our attention. At least Ebenezer Scrooge opened a dialog with the Ghost; he faced the apparition and worked the problem to the salvation of his soul. Our Ghost is, in fact, Franklin D. Roosevelt’s Ghost who now wears the crazy Marxist programs he forged in life; as he watches the nation he lead come apart at the seams because it’s no longer administering the social programs——- the social programs are governing us. As Marley and Scrooge sold their soles to the quest for profit; the Marxist Democrats have sold their soul to redistribution of wealth as a means of maintaining power and extending control over the people. As the Ghost of Roosevelt stands in the center of the Oval Office groaning and clanking its chains while the cancerous programs it spawned threatens to kill the United States: Obama sits in the oval office, oblivious to the cancerous spending, unwilling to compromise with evil capitalists, ghosts of presidents past, or anyone else, because he’s too engrossed on planning yet another vacation.

Sixteen Hundred Dollars for an Ounce of Gold! As the Congress abdicates is responsibility for love of the cowardly McConnel plan and as Obama lays the foundation for blaming the Republicans when the debt talks fail and as the hapless Germans stand alone in Europe for fiscal sanity gold is on a tare. As our governments continue to fail us look for more and more people and organization around the world to turn to gold for wealth preservation. Sixteen Hundred Bucks an ounce with no end in sight! For more on Gold consider this article from Bloomberg.com:
http://www.bloomberg.com/news/2011-07-18/gold-rallies-to-record-in-best-run-since-1980.html

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The Peoples Republic of California Chronicles: The Hassett Commentary on Abject Stupidity

 

 

 

Here’s an opinion article run by Bloomberg.com that’s worth reading on the failure of the California Government to meet its financial responsibilities.  The moral of the story is to keep the government small because once you start using it like a magic wand to “solve” everyone’s problems: not only do the problems not get solved, they get perpetuated; and you become the servant to the government rather than its master.

California’s Nightmare Will Kill Obamanomics: Kevin Hassett

Commentary by Kevin Hassett

July 6 (Bloomberg) — Last week, we discovered that the state of California will gladly pay you Tuesday for a hamburger today.

With California mired in a budget crisis, largely the result of a political impasse that makes spending cuts and tax increases impossible, Controller John Chiang said the state planned to issue $3.3 billion in IOU’s in July alone. Instead of cash, those who do business with California will get slips of paper.

The California morass has Democrats in Washington trembling. The reason is simple. If Obama’s health-care plan passes, then we may well end up paying for it with federal slips of paper worth less than California’s. Obama has bet everything on passing health care this year. The publicity surrounding the California debt fiasco almost assures his resounding defeat.

It takes years and years to make a mess as terrible as the California debacle, but the recipe is simple. All that you need is two political parties that are always willing to offer easy government solutions for every need of the voters, but never willing to make the tough decisions necessary to finance the government largess that results. Voters will occasionally change their allegiance from one party to the other, but the bacchanal will continue regardless of the names on the office doors.

California has engaged in an orgy of spending, but, compared with our federal government, its legislators should feel chaste. The California deficit this year is now north of $26 billion. The U.S. federal deficit will be, according to the latest numbers, almost 70 times larger.

Bleak Picture

The federal picture is so bleak because the Obama administration is the most fiscally irresponsible in the history of the U.S. I would imagine that he would be the intergalactic champion as well, if we could gather the data on deficits on other worlds. Obama has taken George W. Bush’s inattention to deficits and elevated it to an art form.

The Obama administration has no shame, and is willing to abandon reason altogether to achieve its short-term political goals. Ronald Reagan ran up big deficits in part because he believed that his tax cuts would produce economic growth, and ultimately pay for themselves. He may well have been excessively optimistic about the merits of tax cuts, but at least he had a story.

Obama has no story. Nobody believes that his unprecedented expansion of the welfare state will lead to enough economic growth. Nobody believes that it will pay for itself. Everyone understands that higher spending today begets higher spending tomorrow. That means that his economic strategy simply doesn’t add up.

Character Deficit

Back in the 1980s, Reagan’s own economist, Martin Feldstein, spoke up when he felt that the Reagan administration was pushing the deficit too far. Where are the economists with such character today? Apparently, the job description for economists has transformed from recommending policies that are defensible to defending whatever policies that the political hacks in the West Wing dream up.

As bad as the California legislature has been over the years, it has never entered a fiscal crisis like the one that we face today and then doubled down with a massive spending increase. In the end, when times got tough, patriotic and sensible Californians of both parties stood up and began acting like adults.

Maybe the same thing is starting to happen in our nation’s capital. The key players in Washington are Senator Evan Bayh and 15 Senate Democrats who joined him this year in forming a coalition of moderates. One thing that has distinguished moderate Democrats from the garden variety of the species is heightened concern about fiscal responsibility.

Off a Cliff

With the price tag of Obama-care likely to exceed $1 trillion, moderate Democrats face a simple choice. They can jump off the cliff with the president, or they can stay true to the principles that they have espoused throughout their careers.

There are reassuring signs that principle is winning. One of the most expensive components of the Obama plan is the so- called public-insurance option, which opponents fear would result in massive government subsidies. Senator Mary Landrieu said that she is “not open” to a public option that will compete with private insurance.

Many other Democratic Senators, including Ben Nelson, Blanche Lincoln, and Tom Carper, also oppose the public option. As the cost estimates increase and support wanes, the Senate Finance Committee is even going as far as to pursue its own health-care plan, meaning that the health-care end game is now in sight.

Tax Bite

Moderates might support Obama’s health-care objectives if the bill also included tax increases to cover the spending increases. But those tax increases would likely be unpopular, making it almost impossible to pass a bill.

Given the increasing public concern about deficits that heightened significantly last week because of the California crisis, there are only two possibilities left. Either the Obama plan will come crashing down or Senate Democrats will concoct some bill that has health in the title but costs almost nothing and does even less. With Al Franken arriving in the Senate and providing Democrats with a crucial 60th vote, the latter seems most likely.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)

The Economy Continues to Hang By a Thread: No True Rebound within Sight

 

 

 

People’s instincts have gotten a refresher course since the Sub-Prime crisis tanked the economy.  Americans have been doing an amazing thing; a thing we’ve spent decades neglecting and that is living within our means and saving our money. It’s like inventing the wheel because the more money you save, the more in control you feel, and the less likely you are to live your life as a frightened rabbit hopping from one paycheck to another.  We’ve rediscovered the idea that being in debt is bad news and that debt is not necessary to have a wonderful life. You don’t need as many toys as you might think and we’ve relearned that delayed gratification is strength beyond measure.  Our savings rate has gone from nothing, to warp speed, overnight, in such a way as to shock the economists, who see the savings rate as bad news because it means that people won’t be spending money like they did which further slows the economy. We the people have begun to see, and correct, the excesses and insanity of capitalism on steroids and a new ethic of rejecting debt has seized the hearts and minds of the American people—— But not the American Government.

Because we the people have rediscovered financial sanity and have returned to the wisdom of saving for a rainy day our government has become unhinged in an attempt to “make up” for our formerly crazed spending. If we will not spend like spoiled children to keep our unsustainable economic growth than our government will take up the burden of crazed spending, on a much larger scale, so “the economy can recover”. Such is the logic of big government out of control.

Spending us into receivership and destroying the dollar is for our own good in the mind of the government.  American deficit spending has been out of control for a long time and our insane monetary policy has created damage to our economy: and a depression is necessary to reset the system. When you’re sick and you need an operation to recover the operation is painful in the short run but long term it saves your life.  When the economy gets sick enough from unwise management it needs an operation of consequences, called a depression that while painful, is the means by which the economy gets well again.

The government is trying to protect us from the just consequences of its own mismanagement and deficit spending, the corruption of the nefarious Federal Reserve System, and the idea that everyone should be entitled to a home regardless of financial facts. When you spend more than you have you go broke: that is a just consequence and if you learn from it you harvest some wisdom!  If you treat money as if it’s just paper and you can print more whenever you wish it will become as valueless as you have been treating it.  If we get rid of the Central Bank, known as the Federal Reserve, who deliberately created the monetary disaster in the first place, then the pain of a depression will have been worth it. When you allow a criminal cartel to rule your monetary policy, and find that all the value of your money has been stolen; you only have yourselves to blame.  Our founding fathers warned us of the dangers of the central bank.

This crisis will not be over until we stop deficit spending, commit to small government that is not used to create “social Justice”, and return our personal finances to saving and living with our means. When the government gives a mortgage to someone who can’t afford it because they want to help a “minority” or practice “social justice” they do a foolish thing.  It’s not “compassionate” or “empathetic” or evidence of a “social conscience” to give someone who can’t afford a mortgage, a mortgage: it’s just foolish and it’s stupid.  Our government was never intended to redistribute wealth and design pie in the sky utopian societies that don’t work.

You are responsible for your lot in life not the government, your race, your gender or your brand of sneakers.  You are responsible for your life and when we forget this basic law of life we have a depression and everyone gets the message again.  We have equal opportunity in the United States not equality of outcome.

Our government, educational and media systems have perpetuated a division of the American people by race, class, sexual orientation, gender, just to name a few, that has been a disaster. Playing one group off against the other is an effective means of political control but its destroying the nation.  Big government and social justice spending are a mirage at best and at worst a sort of cultural cancer that will eventually destroy the body politic that contracts the deadly idea that big government is anything other than a death trip.

Here’s an article from Bloomberg that talks about how the people have vastly increased their savings rate and yet it’s cast as bad news! It foreshadows the big finally to the American economy by talking about how the Chinese are taking steps toward a new reserve currency and getting rid of our dollars. When our values get so out of whack that we consider drunken spenders returning to financial sobriety a bad thing because it shows a lack of faith in the economy than it shows you just how far we’ve fallen as a people. The people are wise to cut back on spending.  The government would be wise to follow the example of the people!

 

 

U.S. Stocks Drop as Savings Rate Hits 15-Year High, Oil Falls

 

By Elizabeth Stanton

 

June 26 (Bloomberg) — U.S. stocks fell as the highest American savings rate in 15 years spurred concern that spending will slow, while falling oil drove down energy producers. The dollar dropped after China’s central bank reiterated a call for a worldwide currency.

Exxon Mobil Corp. and Tesoro Corp. dropped as crude oil futures lost 1.5 percent to $69.19 a barrel. Eli Lilly & Co. helped lead declines by health-care companies as Senator Max Baucus said an industry overhaul may be affordable for Congress. The dollar slumped 0.7 percent against six trading partners as China sought to replace it as the global reserve currency.

The Standard & Poor’s 500 Index decreased 0.8 percent to 913.31 at 11:03 a.m. The Dow Jones Industrial Average fell 69.68 points, or 0.8 percent, to 8,402.72.

“The magnitude of that savings rate may have gotten some folks by surprise,” said Philip Orlando, who helps manage $409 billion as chief equity market strategist at Federated Investors Inc. in New York. Economic and earnings growth is “potentially not going to be as robust as some were thinking. That’s weighing on stocks.”

While the stock market has rebounded since March on optimism the deterioration in the global economy will slow, U.S. business activity is probably contracting for a fourth consecutive quarter, according to economists’ estimates. Further gains for the S&P 500, which advanced 36 percent in 3 1/2 months through yesterday, may depend on growth resuming. The benchmark index for U.S. equities has slipped 0.7 percent since June 19, giving it the first two-week retreat since March.

Diversifying Reserves

The Dollar Index fell 0.7 percent to 79.87. The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves, the world’s largest at more than $1.95 trillion. Chinese investors, the biggest foreign owners of U.S. Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets.

“There will be diversification among global central banks,” said Beat Siegenthaler, chief emerging markets strategist at TD Securities Ltd. in London. The comments from China “tend to remind traders of that, but there’s still a question about the time horizon.”

Energy companies in the S&P 500 declined 0.9 percent as a group, the most among 10 industries. Exxon slumped 1 percent to $69.21. Tesoro decreased 2.8 percent to $12.65. Crude oil dropped after the Commerce Department said the savings rate among Americans rose to a 15-year high.

‘Reality Check’

“The increase in the savings rate is a bit of a reality check,” said John Kilduff, senior vice president of energy at MF Global in New York. “The economy is very dependent on spending, so the savings rate is an indication that demand will be under pressure in the months ahead.”

Health-care companies in the S&P 500 slumped 0.8 percent as a group, the most among 10 industries.

Baucus, the chairman of the Senate Finance Committee, said the cost of health-care options being weighed by his panel can be cut to $1 trillion over 10 years and won’t add to the deficit, citing the Congressional Budget Office.

The non-partisan budget office last week delivered an informal cost estimate of $1.6 trillion for the legislation to overhaul the health-care system, sparking protests from both Republicans and Democrats and prompting Baucus to say his panel may delay consideration of a bill until next month.

Eli Lilly lost 3.3 percent to $34.16. King Pharmaceuticals Inc. dropped 3.4 percent to $9.50. Pfizer Inc. slumped 2 percent to $15.03.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.

Last Updated: June 26, 2009 11:10 EDT

 

 

The Money is beginning to Flow to Europe: How Chinese Money may make Europe Rise as we Fall

 

 

 

The United States of America assures China that we’re a good investment while allowing the nefarious Federal Reserve to rapidly debase our currency by printing more money; what’s wrong with this picture? The Europeans have reformed their protectionist trade barriers, to Beijing’s delight, and suddenly the Chinese are happy to invest in Europe.  Europe had such a bone headed structure that they didn’t attract a single dollar of Chinese money last year and now the Chinese have something they desperately want: an alternative to investing in the USA.  Even more to the point; as the Chinese find Europe to be an excellent alternative to the USA and as Europe reaps the rewards of all that Chinese money in their economy, the Americans may find the Middle Kingdoms river of endless cash has finally dried up. 

What will Congress do when they can’t get their next “cash fix”?  Granted that the nefarious Federal Reserve has already printed more than enough US Dollars to destroy our currency as key nations cut us off from the credit and investment fix but if China Likes what it finds in Europe than America could be in deep trouble.

If the Chinese and the Arabs find Europe a more productive and safer market they may face the prospect of having to do MASSIVE cuts in entitlements and a tacit admission that the Governments safety net is a cruel illusion when no one will loan us money. Our social saftynet programs like Social Security and Medicare could dry up overnight.  They may have to admit that everything the democrat party stands for in the way of “helping people” simply doesn’t work because the money is gone. Big government is corrupt government and the money for Social Security and Medicare is gone.  We cant afford them without destroying the economy and the end result would be the same.  No more entitlements.

 China has been worried about the security of their investments for some time now and they’ve had high ranking financial officials admit to “hating” the United States, and what we’re doing to the value of their investments, but we’re the only game in town.  China, Russia, Latin America, Iran and the European Community have openly admitted their belief that the world needs “new financial structures” and a new reserve currency that is in no way dependant on the United States or any other single nation.  Essentially the world has been calling for the replacement of the dollar and new non American financial leadership. The world wants a new reserve currency with new institutions and new regulatory structures and they’re tired of funding Washington’s profligate spending.  I don’t think any objective American Observer can disagree with them because it’s become clear that we are suffering from a political as much as an economic breakdown with no likely solutions on the horizon.  What world unity there is on the financial crisis exists as a planetary consensus that America can’t be allowed to run the show anymore and the Europeans with their transnational Euro have the most experience in implementing what the rest of the world wants:  A world reserve currency that no nation can dominate.

While the world turns to Europe, as China is doing, and as Europe discovers the advantages of Chinese and Arab money flowing their way: the one nation left out in the cold with a mountain of crippling debt, engulfed by a tsunami of hyper inflation, encumbered with a dying currency and political turmoil, will be the USA.  The Europeans seem to have better leadership, with Merkel in Germany for example, and they’re doing the right things while we’re doing everything wrong.  It will look obvious in retrospect but we can’t solve our debt problems by adding more debt and pretending it’s a solution. 

Like Detroit we can’t afford our entitlement programs any more than the former Big Three could afford their pensions, and retiree benefits.  Like Detroit the country can’t afford our unions anymore because they’re a death sentence to any industry that is afflicted by them.  The only sector that’s adding jobs, despite being heavily unionized, is government.  The Parasitical Unions have finally found the only kind of host it can co-exist with in government: because government, unlike business, is not expected to be efficient, make a profit, or even be reasonable.  Government unlike the Auto makers can print more money and raise taxes and that’s what they do so they don’t die as fast as a private sector venture. 

But things are getting better!  Aren’t they? 

I too saw a ghost of a smile on the face of Neil Cavuto last week as he reported the generally upward motion of stocks lately; but he also sounded a prudent note of caution.  Our problems are still with us and anything could upset the apple cart with catastrophic ramifications for the American economy.  We’re not out of the woods yet and the wisest and most sober analysts I can find assure us that the worst is yet to come. 

Here’s a little something I found on Bloomberg:

China’s Wealth Fund to Consider Investing in Europe (Update2)

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By Eugene Tang

April 18 (Bloomberg) — China’s $200 billion sovereign fund will consider investing in Europe in 2009, after avoiding the continent last year because of trade barriers, said China Investment Corp.’s Chairman Lou Jiwei.

“Europe has started to welcome investments” without attaching conditions, Lou said today at the Boao Forum in southern China’s Hainan province. “During the world financial crisis, sovereign wealth funds have become more appealing” and less frightening, he said. Beijing-based CIC, whose investments have included stakes in Blackstone Group LP and Morgan Stanley, didn’t invest “a single cent” in European companies or assets last year, because the continent had put up barriers to limit the activities of sovereign wealth funds, he said.

The agency was founded to provide better returns for China’s foreign-currency reserves, the world’s largest at $1.95 trillion. The fund last year earned $10 billion from its investments, representing a 5 percent return, Radio Television Hong Kong reported on Feb. 24, citing a source it didn’t identify.

“There was rising protectionism against China last year, and the European Union had the worst” limits, Lou said today. “They allowed us to invest in no more than 10 percent of a company’s stakes and required us to give up our voting power” in management, he said.

“We couldn’t accept that because investments should be based on market practices,” he said. “With the removal of these conditions, we will seriously consider making decisive and prudent investments overseas this year, including in Europe.”

He declined to specify the European industries or companies he’s looking at investing in.

To contact the reporter on this story: Eugene Tang at Boao on at eugenetang@bloomberg.net

Last Updated: April 18, 2009 06:30 EDT

Flimflam II: The Federal Reserve Plans Another Con Job!

 

Treasury Securities are simply the Federal Government getting a loan from whoever wants to give them money for a nominal return but guaranteed safety.  When the government borrows money from China or Saudi Arabia or Japan the IOU that we give them is a Treasury Security stating when we have to pay them back and how much interest we will pay at that time. You and I sign a promissory note when we borrow money stating when and with how much interest we agree to pay back the funds borrowed.  The big thing that recommends Treasuries to investors is that the money is backed by the government of the most dynamic economy on earth; the United States.  To get such security and a bit of interest people have been willing to buy Treasury Securities because the security, the absence of risk, is very attractive in a volatile and changing economic milieu. Treasuries equal the USA and that means safety for your money.

 

When the Obama Administration plans extravagant spending, for a stimulus that won’t work, they plan to borrow the money by issuing Treasury Securities, to countries like China, who are increasingly uneasy about financing any more American Debt.  It’s as if you owe the $5000 limit on your Visa card and economic conditions deteriorated and you needed to borrow more money so you call up Visa and say that you need your credit limit expanded to $10,000 and that would take care of the problem.  VISA is willing to go along with that because you’ve been a good customer in the past and they think you’re good for the money.  They like the idea of having you on the hook for $10,000 so they’re happy to make the increase and loan the money.  Three months go by and you call up VISA and say that you need your limit expanded to $30,000 and that would get you through the rough patch and guarantee that VISA gets paid and all is well.  VISA is not so enthusiastic this time but after meetings and endless forms and investigation they agree to increase your credit but they want a bit more interest and some security like a lien on your home.  (Or a claim on your children’s future economic viability)  Six months later you call up VISA and tell them that you need your credit limit raised to $300,000.00 in order to avoid default. This time VISA doesn’t want to make the loan because it’s no longer sure you’re good for the money.  You assure them that it’s either this massive increase in your credit and you ride the storm together or a default in which Visa loses all the money its loaned you to date.  VISA cuts you off and decides you’re no longer credit worthy and writes you off as a bad loan.  That’s the Real World for you and me but not for Uncle Sam.

 

The staggering sums of money involved in the international economic debacle is so huge that a default by the USA will send the entire planet into an economic depression, if not an economic Armageddon that no one wants to face.  Our creditors don’t like it but they’re hooked: either they continue to lend to us or everyone goes down the drain including them.  So they give us trillions more from their people and their recourses to finance Nancy Pelosi’s hundreds of millions in contraceptive planning and hundreds of millions more to prepare the American people for universal health care.  There’s the old saying that if you get 10,000 from the banker you can’t sleep nights but if you get $100,000 then the banker can’t sleep nights.  Our national creditors are already at that point and discussions are underway in Europe about how to revamp the world banking and economic systems to remove dependency on the United States of America.  Our creditors have had enough and are looking franticly for an exit strategy because the day is coming when Washington will offer Treasury’s and the world won’t buy them.  That will be a hard day in America.  It will introduce generations of suffering from our economic addiction to spending and delusions about us and our national needs.

 

Now the latest idea to come down the pike as in the article below from Bloomberg is to have the Federal Reserve System, which is neither a reserve, nor federal, (But a consortium of foreign banks that finance our government) to buy government debt along with China and Japan in the hopes of getting a better deal for the Treasury.  Specifically our creditors want more interest for buying our debt but the Fed will be bidding in competition trying to buy for less interest in the hope of shaping the market in favor of the Treasury Department. The Feds competition for our national debt instruments, Treasury Securities, will influence the auction in beneficial ways for the Treasury.  How do you think that makes our creditors feel? 

 

China is supposed to buy more and more American Debt but the Federal Reserve is interfering to force the debt to be bought at terms outrageously in favor of the debtor!  Even though nothing in American policy has merited anything other than more interest to cover the increasing risk of these once safe securities by trickery the terms have been artificially turned in favor of the debtor. Not only is America demanding more money but its introducing a gimmick, a false player on the field in order to get lower interest rates on more outrageous borrowing!  Its as if you called up VISA and said that you want your credit limit tripled and your interest rate cut to 2% or you default and let the bankruptcy judge pay them 3 cents on the dollar.  The Federal Reserve wants to jump into the Treasury Securities Field and shaft all the people who’ve been financing our orgy of spending by cheating them out of the greater interest they should get for our risky policies!  How much more is necessary before the world tells the United States of America what to do with those treasury securities?

 

The United State as we know it today can’t exist without massive amounts of our debt being bought by foreign governments.  This is what we’ve been reduced too and now we have the Fed trying a transparent con like this one!  Bernie Madoff would be proud of Ben Bernanke and even of Tim Geitner, the Treasury Secretary of the Obama Administration. 

 

We’ve got the wrong policy being administered by the wrong people, for the wrong reasons.  When our national economic life is indistinguishable from a ponzi scheme peddled to the unwary by a bunko artist, it’s time to face the music and take our medicine.  Like a Ponzi scheme the economic engine is largely out of anyone’s control now and its just a question of how much longer it can survive and what will be left of America in its aftermath.

 

Consider these clips from Bloomberg and read the whole story at the following URL: http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ0bwWpcnFaM&refer=home

 

 

Fed policy makers meeting tomorrow and the day after are exploring the purchase of longer-dated Treasury securities in an effort to push up their price and bring down their yield. Behind the potential move: a desire to reduce long-term borrowing costs at a time when the Fed can’t lower short-term interest rates any further because they are effectively at zero.

The risk is that central bankers will end up distorting the Treasury market, triggering wild swings in prices — and long-term interest rates — as investors react to what they say and do. “It sets forth a speculative dynamic that is very unstable,” says William Poole, former president of the Federal Reserve Bank of St. Louis and now a senior fellow at the Cato Institute in Washington.

The Treasury market has “some bubble characteristics,” Bill Gross, the manager of Newport Beach, California-based Pacific Investment Management Co.’s $132 billion Total Return Fund, said in December on Bloomberg Television. He echoed that sentiment last week.

“I will say, and I have said for the past three months, the governments are very overvalued,” Gross said in a Jan. 20 interview. Treasuries last year returned 14 percent, according to Merrill Lynch & Co.’s Treasury Master Index, their best performance since 1995.

Inflated Prices

Recent history shows the economic danger of inflating asset prices. After a stock-market bubble burst in 2000, the Fed slashed interest rates to as low as 1 percent and in the process helped inflate the housing market. The collapse of that bubble is what eventually helped drive the U.S. into the current recession, the worst in a generation.

Faced with the danger of a deflationary decline in output, prices and wages, the Fed is considering steps to revive the moribund economy. On the table besides bond purchases: firming up a pledge to keep short-term interest rates low for an extended period and adopting some type of inflation target to underscore the Fed’s determination to avoid deflation.

The central bank has been buying long-term Treasury debt off and on for years as part of its day-to-day management of reserves in the banking system. Yet it has always gone out of its way to avoid influencing prices. What it’s discussing now, says former Fed Governor Laurence Meyer, is deliberately trying to push long rates below where they otherwise might be.

 

Poole, who was then at the St. Louis Fed, was critical at the time of what he called the central bank’s “miscommunication.” He now sees the Fed making the same mistake with its latest suggestions that it might buy longer- dated securities.

“If they do it, it’s going to be disruptive to the market,” says Poole, who is a contributor to Bloomberg News. “If they don’t do it, it will impair the Fed’s credibility and erode the confidence the market has in the statements that the Fed makes.”

Meyer, now vice chairman of St. Louis-based Macroeconomic Advisers, says the Fed should, and probably will, go ahead with purchases as a way to lower borrowing costs. “The story is stop talking and start buying,” he says.

Still, he notes that not everyone at the Fed is enthusiastic about the idea. One concern: Foreign central banks and sovereign-wealth funds, which are big holders of Treasuries, might cool to buying many more if they believe prices are artificially high.

Undermine the Dollar

That may undermine the dollar. “There’s no guarantee that international investors would switch to other dollar- denominated debt if flushed from the Treasury market,” says Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. in New York, says foreign investors might also get spooked if they conclude that the Fed is monetizing the government’s debt — in effect, printing money — by buying Treasuries.

Bernanke himself, in his 2003 speech, said monetization of the debt risked faster inflation — something bond investors, foreign or domestic, wouldn’t like.

Some economists argue the Fed would help the economy more if it bought other types of debt. Even after their recent rise, 10-year Treasury yields are still well below the 4.02 percent level at the start of last year.

What’s Good for General Motors is Good for Philadelphia: Renegotiate Pensions and Unions and Debt, Oh My!

 

Michael Nutter, the Mayor of Philadelphia, says the city faces a billion dollar shortfall over the next five years, all but guaranteed to rise, due to declining revenues from the global economic meltdown. As a result the mayor has announced budget cuts in the hundreds of millions including the closing of libraries and fire stations in addition to closing recreational pools and laying off a couple hundred city workers.  He’s taking an axe to seasonal jobs and contract jobs as well as ordering pay cuts for non union workers above a certain income level.  Mayor Nutter has done well to deal with these hard decisions and the necessary cuts and for that he should be applauded but he’s only dealt with half the problem at this point.

It seems that Mayor Nutter and the big three automakers have much in common that have been contributing to a financial boondoggle that only now is coming into specific relief if not screaming for attention.  The heads of the Big Three Automakers know this problem only too well because it’s been driving them out of business for years and without relief it will destroy the American Auto Industry. The fact is that this silent killer has been killing Philadelphia and many big northeastern cities just as it killed the steel industry.  What is this killer of municipal governments and car industries alike?  Out of control union contracts, pension contracts, debt and image.  Over half the city’s budget is considered non discretionary spending!  What kinds of things are non discretionary? Pension Plans, Debt payments, Exorbitant Union Contracts and Politically Correct Social Service Spending. 

It’s well known that Union Contracts and Pension payments have been killing the car industry for a long time.  It’s well understood that they’re going to have to nullify escalating union wages that have bled the automakers white. It’s a certainty that a bankruptcy court will likely do that because there simply are no other choices.  The Big Three foolishly promised extravagant retirement pensions and benefits and now they simply can’t continue business unless they achieve significant relief from those promises.  Pension plans and retirement benefits have been bedeviling lots of industries and governmental units across the nation and in this Philadelphia is not alone.   Government does a terrible job of running pension plans and both municipal government and business want to transfer the risk to the employee or the federal government.   Perhaps the lesson for employers, public or private, is to transfer the risk and reward of pensions and retirement benefits to private system and to get out of pensions entirely.  We have a situation in this nation where the burden of retirement benefits and pensions are killing us.  A bankruptcy judge will deal with setting the auto industry back into financial solvency but who will do the same for government entities like Philadelphia who have the same problem?

Mayor Nutter: Please make sure that the Unions and Pensioners share in the cuts necessary to maintain solvency and sanity in the city’s budget.  Go to court if you have to but break these contracts and make no deals that fail to reflect the financial realities of today. These contracts were a great idea in their day but have become an unserviceable sacred cow: so please go to court in an effort to share the burden equally. It’s the right thing to do.

Retirees and Pensioners:  While the benefits you enjoy were promised in good faith they are unsustainable and will remain so for the foreseeable future.  In good times pensioners should share in the good times just as in bad times you should share in the pain.  It’s not acceptable to have retirees and pensioners taking this much of a city budget when fire stations are closing and when some say we’re in the worst economic event since the Great Depression.  I know it’s not fair but I think it’s just plain true.  You need to deal with this. It’s the right thing to do.

And now we come to all the social service programs, the social engineering programs and the welfare state programs that have swollen to such an alarming percentage of the city budget.  After school programs and additional education help in poor communities are a desirable thing but times have changed and so must our priorities.  A minority or poor child does not have a right to city funded recreational, educational programs that the city can’t, in good faith, afford. Period. 

Poor and Minority Kids that  want these programs should understand that it’s not the governments job to provide such programming and that any that are provided are DISCRESIONARY.  Let me put it another way:  the only programming the poor and minority communities of Philadelphia are entitled to is anything that the congress has mandated the city to do by law. Anything that is not a funded or unfunded mandate by the federal government should be reduced in an equal measure to the less than half of the budget that presently bears the entire burden of the Mayor’s budget cutting ax. 

The idea that there are “special” populations who are except from service cuts because their programs are based on a individuals race, gender, affection preference; even when the city is being body slammed by the beginnings of a potential depression, is absurd.  City’s have the right, and indeed the obligation, not to cut essential services like police or fire over welfare programming or even a Mummers Parade.  You don’t fund Parades or Ethnic Pride Centers when you’re facing an economic tsunami.  It’s not racist to cut or eliminate programs like this if events warrant and it’s preferable to cut such programs over reducing fire and police protection which are the city’s first and primary reasons for existence. 

While I applaud the Mayors grit in going after fire stations and non union employees and libraries it seems to me that the job of Mayor Nutter is only half done.  It’s time to demonstrate the kind of leadership it takes to take on the Unions, the Pensioners and the Poverty and Racial Advocates too.  What good is half a job?  What inspiration can come from a call for sacrifice sent to half the people?  When bad times come everyone should expect to sacrifice in like manor because the government that plays favorites (politics) has no moral authority to govern.  Such a government becomes just another corrupt player in the game and an obstacle to be overcome or outwitted by its own residents. Thank God, with the assent of Barak Obama to supreme power on earth we’re finally into post racial politics!  Now: if someone could get the memo to Mayor Nutter, than we could all experience the truth that what’s good for General Motors is Good for Philadelphia.

WHATS GOOD FOR GENERAL MOTORS IS GOOD FOR AMERICA!

 

It’s amazing to watch the financial antics in Washington DC and to realize how similar if not identical the plight of the Automakers is to that of the United States of America.  The classic slogan of the past seems to ring true today but in ways that would make our grandparents drop their heads in shame:  “What’s good for General Motors is good for America!”  This was once a slogan of pride in the innovation and industriousness of the “American Way” and of the soundness and independence of our people and our thinking. 

Today it’s a recognition of just how far we’ve fallen from our values and how radical the changes that would save both the USA and General Motors.  There was a time when people would know what had to happen and let it happen believing that we’ll rise from the ashes and regain our edge.  Perhaps that simple faith in “us” and our traditional values is what’s really absent from people today.

So what is it that’s so good for General Motors and the USA that will save us from the fate we arguably deserve and toward which we slide evermore each day?  What’s the answer?  What’s best for the Automakers and this nation? 

BANKRUPTCY

Bankruptcy, and a fundamental restructuring that emphasizes fundamentals over greed, identity politics and that recognizes the real threats of the world as it exists today. Consider the similarities in the plights of the United States of America and the hapless Automakers who are begging congress for your money and your children’s future right now as we speak:

 

Tell the Truth: both the USA and the Auto makers are flat busted broke.

There’s a myth that pervades Washington DC that deficit spending is not a real problem and that the government can ignore it at will.  Nothing could be farther from the truth for the Automakers, the Government or your family or mine.  It is a law of life that we all have to live within our means.  There are limits to borrowing and there are limits to spending and you need an emergency fund for rainy days.  Spending is out of control for the automakers and their labor contracts, the pension contracts the dealerships and a host of outmoded sacred cows that have made the industry non competitive with other car companies.  Washington DC has spent all the money in the social security trust fund, its bankrupted Medicare, it spends money for the pork barrel projects of members of congress and tax dollars have long been used to buy votes of various “victim” groups.  Couple this with the disastrous looting of American Wealth done by the Federal Reserve and you have insanity that’s indistinguishable in stupidity and breadth from the Automakers that Congressmen are busy condemning.

Tell the Truth: Labor costs are  making us uncompetitive in the Auto industry while the second highest corporate tax rates are outsourcing all our jobs!  

You can’t pay a big three autoworker $80/hour in compensation when one for Toyota gets $35/ hour and produces a better car.  You can’t do all the exorbitant pensions and Union goodies that have been added on over the years and expect to stay competitive with a company who has half your labor costs.  By the same token you can’t tell American companies that you’re going to tax them at the highest or second highest corporate tax rates in the world and not expect them to outsource their production to more tax friendly locations.  Most of the money the government gets is wasted anyway and corporations have a duty to their shareholders to operate in the most efficient way possible so as to maximize shareholder investment.  Corporations work for their Shareholders.  Government works for the people of the USA.  We’re in an age where government thinks that Corporations and the people work for them and that must change or the America we knew is dead.

Tell the Truth: Pension costs and entitlements are killing us and our financial viability long term.

It sure would be nice to live in a world where you work for one company all your life and get this amazing pension that keeps up with inflation and never dries up.  That’s not the world we live in or that we ever have lived in and it’s abundantly clear that pension funds not under a person’s individual control will either be looted by the government or eventually defaulted on by a company that can’t support such elaborate structures anymore.  Either the Automakers get out of the pension business or they are destined to be destroyed by their inability to sustain them.   Either the person retains control or a politician will steal the money to save baby polar bears and produce social justice programs that never solve the problem. Unions can’t solve and should not be involved in pensions, politics, or in half the stuff they have their fingers into.  Unions that don’t understand that as the company goes, so goes the union, are like cancer in the workforce: they destroy the company and the workers who they started out trying to protect.  The Government is in the same boat because soon the entire federal budget is projected to be spent on entitlements.  No military, no roads, nothing except Social Security and Medicare.  Something has to change.  Someone has to step up.  That’s us because you can’t outsource your retirement to a union or a government, and then pretend to be amazed when retirement comes and the money’s gone.  If you aren’t saving: you likely won’t retire, even if you’re an autoworker!

Tell the Truth: both the USA and Auto Makers are bound in a tangle of commitments that’s strangling us.

The Automakers have a crazy, costly and cumbersome relationship with dealers and such that are killing them.  Did I mention costly?  The dealership structure needs to be overhauled and they need standards and practices for the 21’st century.  The same could be said of the government who still has substantial military forces all over the world; including Europe, NATO, South Korea, the Middle East and so on, that costs us a fortune.  We need a government that is half the present size and that works smarter, not harder, and whose scope of operations has been limited to what is absolutely necessary.  All the middlemen, the bureaucrats, the unproductive, obsolete jobs that should have been cut long ago; but for an out of control union or a self perpetuating bureaucrat with political connections, need to go.  Unions need to be kicked out of government service and some kind of incentive system must take the place of perpetual 10% increases in spending each year to justify your existence as a department. The deficit teaches both the automakers and Washington the same lesson:  Tame your entanglements and bureaucrats or they will destroy you.

Tell the Truth: No one wants to invest in something that may crash the next day.

I’m not going to buy an American Car until they satisfy me on price, performance and longevity, and that they’ll be around to service their warrantees!  With what you have to spend on a new car today you better make sure your auto maker is going to last because it’s too much money to just throw away on a bankrupt company.  The viability and the good name of the company is critical to a buying decision and if the reputation of the car company is that they go to congress twice a year to stay alive than you can forget me as a customer!  If I want to invest in failure and stupidity I’ll by government bonds or AMTRAK stock!

The same holds true for government who’s flooding the world with dollars that will one day soon prove to be our death warrant.  We’ve seen what happens when people lose faith in a bank: it fails.  When people lose faith in all the dollars we’ve unleashed that we don’t have they lose faith in our currency and that will be a true disaster for the USA and the world.  Without massive reform in Washington why will anyone ultimately buy into the ability of our government to manage a financial crisis if it can’t manage the currency?

Both USA and Auto Makers want to borrow in the hope that things will change

Without getting rid of the union contracts, the dealership contracts, the pensions and the insane union: only a fool would invest in the big three American Automakers right now.  Money can’t solve what ails them, only truth, guts, restructuring and shooting lots of sacred cows can bring back our auto industry. 

Borrowing massive amounts of dollars from China and the Arabs won’t work forever.  Someday soon, in fact any day now, they’re going to figure out that we’re not good for all that debt and the party will be over.  The currency and the government will fall and we all start over and that’s nature’s way of restructuring something that’s become a menace to its own existence. In the very best case the government is “solving” our problems by destroying the futures of generations of Americans.  We should take our own medicine and not rely on our kids, grand kids, great grand kids, and their great grand kids to clean up our mess.  They deserve better than that and it’s our duty not to go down that road.

Both the USA and the Auto Makers need a complete break with the insanity of past management and a fundamental restructuring of the social compact:  The Real Deal is what we need.  We can’t have everything we want.  We must always remain competitive.  Lean and mean is better than fat and lethargic. Unions that destroy their companies need to be broken up.  Government is neither the lender nor the employer of last resort it is today, as is usually the case, the problem and not the solution.

Above all else both the government and the Automakers need to tell the truth, no matter how unpolliticaly correct it is and act on truth instead of ideology.  NEITHER THE GOVERNMENT NOR DETROIT CAN RUN AN EFFECTIVE PENSION PLAN.  NEITHER THE GOVERNMENT NOR DETROIT CAN BE ALL THINGS TO ALL PEOPLE.  NEITHER THE GOVERNMENT NOR DETROIT CAN HIDE FROM THE FACT THAT THEY ARE WASTEFULL, BLOATED, OVERSTAFFED, OVERPAID, INEFFICENT, LACKING IN INTEGRITY, AND HEADING FOR THE DUSTBIN OF HISTORY UNLESS THEY RADICALY DOWNSIZE, AND GET OUT OF THE WAY OF THE PEOPLE.

AND WE THE PEOPLE HAVE TO FACE THE TRUTH THAT GOVERNMENT WON’T SAVE US.  THEY SPENT OUR MEDICARE AND SOCIAL SECURITY ON SOCIAL PROGRAMS THAT FAILED.  WE MUST HAVE SMALLER GOVERNMENT AND WE NEED TO GET COMFORTABLE MANNAGING OUR OWN RISK BECAUSE THAT’S WHATS GOING TO HAPPEN WEATHER WE LIKE IT OR NOT. BIG GOVERNMENT MEANS BIG CORRUPTION AND THAT SYSTEM ALWAYS CRASHES SOONER OR LATER.  IT REALY IS THAT SIMPLE.

Ok, I’m calm now.  Do yourself a big favor and read an Op ed in the Wall Street Journal that I found on Drudge today by Mitt Romney.  He talks about the Auto workers and the article is great!  Here are some clips and the URL:

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

http://www.nytimes.com/2008/11/19/opinion/19romney.html?_r=2

EXCELLENT ARTICLE!