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We reported on California’s exploding debt problem back in 2008.  Since that time, the problem has gotten magnitudes worse, not only for California, but for numerous states in the nation.

The world can use Iceland and Greece as examples of what happens when government debts get out of hand.  Both countries have introduced painful and widespread austerity measures to bring their books in order, or more accurately, to get them through the next few days or few months.

Back to the states, we witnessed California avoiding the austerity measures in recent years by issuing IOU’s to vendors instead.  California is not alone in their budget woes, as reported by the NY Times recently.

California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay.

Eventually, those derivatives will come back home to roost, and the government outlays and liabilities will only increase.  The fraudulent government accounting schemes will be exposed to the masses, and probably sooner than most people think.  Much of the world was surprised over the last few years with the financial crisis and the partial unraveling of the largest bubble in world history.  Are we really going to act surprised when the rest of the cards come tumbling down?

Few people really understand the breadth of the financial sector bailout beyond the $700 billion TARP program, some of which has already been paid back.  Virtually everyone in government, the main stream news, and of course the financial sector is doing their best to sweep the entire bailout under the rug.

Dylan Ratigan is one of the few, if not only, main stream news reporters that attempts to tell the whole story – in all their the ugly and painful details.  Here is an MSNBC clip of Ratigan going off on what he calls the $23.7 trillion bailout.  Dylan is absolutely right that the TARP program is a mere drop in the bucket compared to the overall bailout.  But unfortunately, he does not go into enough details or even provide sources for the $23.7 trillion figure.

So where does the $23.7 trillion figure come from? SIGTARP, an oversight commission created at the same time as TARP, produced quarterly reports that present a much more detailed view of the financial sector handouts bailout program.  The July 2009 Sigtarp report contains the $23.7 trillion figure, as shown in the graphic below.

It’s called “Total potential support” because not all of the money has actually been spent.  Much of the potential costs are associated to government guarantees for financial system transactions, which according to the financial institutions, are backed by a pile of worthless paper “assets”.

Two additional SIGTARP quarterly reports have been released since the July report with the $23.7 trillion reference.  True to government form, there is not much consistency in the look and feel of these average 250 page reports.  The section which contained the $23.7 trillion figure – “TARP in context with other programs”- has been removed from subsequent reports.  It’s likely still possible to extract the new figure with a painstaking comb through of the report.  My hunch is that this was intentional.  SIGTARP and the government agencies that created it do not want the true cost of the financial bailout known, or at least not easily known.

Have you found the updated “Total Potential Support” numbers in either the October 2009 or January 2010 SIGTARP reports?  Add the page and section numbers in the comments below.

Also See:

• Total Bailout Cost Now $12.8 Trillion
• Is the FDIC Insurance Program Insolvent?
• Yearly Budget Deficit Tops $2 Trillion

Here is an entertaining rap music video portraying two notable economists, Hayek and Keynes, and their opinions on how to fix the economy.

Once again, CNN misses the mark in its reporting of government finance.  Their latest story  on the supposed $52 billion profit at the Federal Reserve is misguided and irresponsible.

The Federal Reserve banks made a $52 billion profit in 2009, reaping extra income on the government securities they bought in an effort to stabilize the financial system.

But where does this nonsense come from that CNN and every other main stream media outlet reports on?  Here is the link the Federal Reserve press release.  An excerpt follows:

The Federal Reserve Board on Tuesday announced preliminary UNAUDITED results indicating that the Reserve Banks provided for payments of approximately $46.1 billion of their estimated 2009 net income of $52.1 billion to the U.S. Treasury. This represents a $14.4 billion increase over the 2008 results ($31.7 billion of $35.5 billion of net income). The increase was primarily due to increased earnings on securities holdings during 2009…

he Federal Reserve Banks’ 2009 net earnings were derived primarily from $46.1 billion in earnings on securities acquired through open market operations (U.S. Treasury securities, government-sponsored enterprise (GSE) debt securities, and federal agency and GSE mortgage-backed securities), $5.5 billion in net earnings from consolidated limited liability companies (LLCs), which were created in response to the financial crisis, and $2.9 billion in earnings on loans extended to depository institutions, primary dealers, and others. The significant increase in earnings on securities was primarily due to increased securities holdings as a result of the Federal Reserve’s response to the severe economic downturn. Net earnings from currency swap arrangements, which have been established with 14 central banks, and investments denominated in foreign currencies totaled $2.6 billion. Additional net earnings of $1.5 billion were derived primarily from fees of $0.7 billion for the provision of priced services to depository institutions.

Of course the keyword in that Fed statement is in the first line – UNAUDITED.


Why unaudited?  Because nearly every aspect of the Fed’s actions are hidden from American taxpayers, congress and even the president.  Ron Paul is the cosponsor of the HR 1207 bill that threatens to open the Fed’s book to a REAL AUDIT, but until that bill passes, and an audit is performed there is NOTHING in the Fed statemnent that can be trusted, especially false claims of profit.

From the Daily Herald on the Fed’s secrecy:

Today, nearly $13 trillion in taxpayer dollars in bailouts and loans threaten every aspect of our lives. Our constitutional principles and freedoms are being assaulted at every turn. More bailouts, trillion-dollar “stimulus” plans, huge new debt burdens for our children, simply printing money to cover our failed policies and mask our dire economic situation – I could go on and on.

You and I both know President Obama is going to keep going and going unless the proper controls are put into place.

Just think about the magnitude of our spending: The massive, outrageous amount of dollars committed to the economic bailouts in recent months totals more than the New Deal, more than the entire Iraq debacle, more than the 1980s savings and loan mess, more than the Korean War … COMBINED.

The basic premise of examining any problem is determining root cause, which means starting with the Federal Reserve. However, the Federal Reserve is shrouded in secrecy. Their meetings and inner workings are off-limits to the public. And just recently, the Federal Reserve told Congress “NO WAY” when asked to account for $2 TRILLION in taxpayer-backed loans!

Also see:

• The United States Has Not Had A Balanced Budget Since 1957!
• Total Bailout Cost Now $12.8 Trillion

John Perkins, author of Confessions of an Economic Hit Man, just released his new book – Hoodwinked: An Economic Hit Man Reveals Why the World Financial Markets Imploded–and What We Need to Do to Remake Them.

The book is comprised of two main parts – a detailed look at the root of the problem in part I, and the solution as Mr. Perkins sees it in part II.  To find out more, or purchase your copy, just click on the book image below.

Hoodwinked: An Economic Hit Man Reveals Why the World Financial Markets Imploded–and What We Need to Do to Remake Them by John Perkins

Julian Robertson, founder of Tiger Management, has a bleak perspective on the enormous debt load of the United States.  CNBC recently interviewed him and summarized his take in this article, the excerpts of which are below.

The US is too dependent on Japan and China buying up the country’s debt and could face severe economic problems if that stops, Tiger Management founder and chairman Julian Robertson told CNBC.

Robertson said inflation is a big risk if foreign countries were to stop buying bonds.

“If the Chinese and Japanese stop buying our bonds, we could easily see [inflation] go to 15 to 20 percent,” he said.  “It’s not a question of the economy. It’s a question of who will lend us the money if they don’t. Imagine us getting ourselves in a situation where we’re totally dependent on those two countries. It’s crazy.”

China and Japan are still the largest foreign holders of U.S. debt.  Check out the latest report from the treasury department website to see the trends of their purchases and sales.  The image below is a subset of the data from the treasury website.

According to the Associated Press, Obama is rejecting a second economic stimulus.  They just published an article entitled Obama rejects 2nd stimulus:  Give Recovery Time.   Here is an excerpt below.

President Barack Obama on Saturday dismissed the idea that the United States might need a second stimulus to jolt the economy out of recession and urged Americans to be patient with his economic recovery plan.

The views from the AP article came from Obama’s weekly Internet address to the nation, the full transcript of which can be found here.   Here is an excerpt from that address:

Now, I realize that when we passed this Recovery Act, there were those who felt that doing nothing was somehow an answer.  Today, some of those same critics are already judging the effort a failure although they have yet to offer a plausible alternative.  Others believed that the recovery plan should have been even larger, and are already calling for a second recovery plan.

But, as I made clear at the time it was passed, the Recovery Act was not designed to work in four months – it was designed to work over two years.  We also knew that it would take some time for the money to get out the door, because we are committed to spending it in a way that is effective and transparent.  Crucially, this is a plan that will also accelerate greatly throughout the summer and the fall.  We must let it work the way it’s supposed to, with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity.

Obama stopped short of rejecting another stimulus, but with a national debt over $11.5 trillion, and a financial disaster bailout cost of $12.8 trillion, lets hope Obama has finally come to his senses and does actually reject any additional stimulus.

The IMF just published their updated World Economic Outlook Update.  2009 continues to show a negative growth rate of -1.4%, but the IMF is predicting a 2.5% growth in economic activity for 2010.  A few highlights are below, or check the full story at the link above.

• Russia has the lowest projected 2009 growth rate, at -7.5%.  Mexico is second worst with a projection of -7.3%.
• The United States is expected to decline by 2.6% in 2009, but expected to grow by .8% in 2010
• The “Euro Area” (German, Spain, Italy and France) is expected to decline in 2009 (-4.8%) and 2010 (-.3%)
• Oil prices expected to decline by 37.6% in 2009, but rise 23.1% in 2010

Jim Rogers, serial author of A Bull in China, Hot Commodities, and Adventure Capitalist, recently gave an entertaining interview with the Economic Times of India.   Rogers is known for a being a market bear and his investment themes usually center on rising commodities and falling dollars.  This interview was no different, and he remarked that the S&P could easily hit 50,000 and the Dow could hit 1,000,000 – but in terms of a useless currency he adds.

His humorous (not to him) advice to would be money managers is to do something real – “Become a farmer”.

If I am correct, the financial community is not going to be a great place to be in for the next 30 years. We have many periods in history when financial people were in charge, we had many periods when people who produced real goods were in charge — miners, farmers, etc.

The world, in my view, is changing and is shifting away from the financial types to producers of real goods, and this is going to last for several decades as it always has…

To read more on Jim Rogers view of the world, pick up his best book shown below.  Just click to buy.

Adventure Capitalist: The Ultimate Road Trip by Jim Rogers

John Bogle, the founder and retired CEO of The Vanguard Group, has just released a new book called Enough- True Measures of Money, Business and Life.   Mr. Bogle is one of the few people on Wall Street with any sense of ethics.  Watch the video below, and then click on and buy his new book.

Enough: True Measures of Money, Business, and Life by John C. Bogle