Courtesy of Money and Markets (fee based financial service), here is a good video that details how the Geithner PPIP (public private investment plan) really works.
Part I of the Geither PPIP video primer:
Part II of the Geithner PPIP primer:
The department of the treasury has the foreign bond holder information updated through January. There is a disturbing negative trend in the numbers, as shown below. I first wrote about the risks of decreasing purchases from foreign bond holders last month, and now it is apparent that those risks have materialized.
What is a highly indebted nation to do when faced with the difficult task of managing over $11 trillion in “reported” debt, while at the same time finding new foreign buyers for an expected $2 trillion yearly deficit? The answer has been discussed at length in the news over the last week, but you may have missed it. Craig Steiner (Common Sense American Conservatism blog) correctly predicted the answer when he said “the Federal Reserve will borrow the money they can borrow… and print the rest”
The current $11 trillion dollar national debt was financed by selling bonds. But as that debt burden grows to unsustainable levels, investors get nervous about the sanity of additional purchases. When that happens, the alternative is to MONETIZE THE DEBT. AllExperts.com sums up monetization of debt as follows:
the government can “monetize its debt” by borrowing from the US Federal Reserve system, which is nominally under private control but is really just another part of the government. In this case, the government sells its bonds to the Federal Reserve, which creates new bank deposits out of thin air and uses them to pay for the bonds. This process creates new money and expands the money supply: hence it is called “monetizing” the government’s debt.
For a clue to how debt monetization ends, look to Germany after World War I. Left with a deteriorating economy, and a huge repatriation bill, their defense was to simply print more and more money. The German Mark ratio to the U.S. dollar was 4 to 1 near the end of the war. It was 8 to 1 in 1919, 250 to 1 in 1921, and 2000 to 1 in 1923. (Source: Encyclopedia Britanica) The situation got even worse, with newspapers selling for $100 billion marks!
Bloomberg today reported on the U.S. quest to begin monetizing debt. It’s somewhat subtle and very toned down in the Bloomberg write-up, but we are in fact navigating down a very dangerous road!
Federal Reserve Chairman Ben Bernanke said the central bank is trying to counter “widening credit spreads” that are blunting efforts to pump cash into the economy after the Fed cut the main interest rate almost to zero.
This week’s Fed decision to buy $1.15 trillion of Treasuries and housing debt is “intended to improve conditions in private credit markets,” Bernanke said today in a speech in Phoenix…
Policy makers said on March 18 the central bank will try to end the worst financial crisis in seven decades by buying as much as $300 billion of long-term Treasuries and more than doubling mortgage-debt purchases to $1.45 trillion..
Be sure to check out the foreign debt holder summary below, and take notice the negative trend, which likely caused Uncle Ben to begin monetizing.
Ian Brenner – the “edicated intellectual entrepreneuer” – was at Town Hall Seattle tonight to kick off the start of another book tour. His latest book is called The Fat Tail: The Power of Political Knowledge For Strategic Investing. Ian spoke about the book for 40 minutes and then took audience questions for the next 20. He even managed to crack a few good jokes while speaking, and then interrupted our laughter with a remark like “I really didn’t think you would laugh at that one”. The fat tail is not an investing book, but it just may be the most important book worth reading for all CEO’s of multi-national companies. And for those lucky enough not to be CEO’s of multi-nationals, it’s an insightful book that just may help you understand how the political risks in the world can affect the markets.
The Fat Tail: The Power of Political Knowledge for Strategic Investing by Ian Bremmer
Other great books by Ian Bremmer are:
Click here for the up to date Town Hall Seattle calendar.
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The “Great Depression” is the talk of the town, and there are no shortage of books on the topic. In fact, great depression books are making their way up the ranks on the Amazon top selling charts. Here are a few.
A Bubble That Broke The World is one of the newest on the list, released in June 2008, and written by Garet Garrett. It is a short read with chapters on the anatomy of the bubble, saving Europe, rescuing Germany, the gold invention and book of the debts. It was originally published in 1932, but was republished last year due to strong interest and demand. From Amazon, “This book presents a cosmology of a mass delusion which affects the mentality of the world. This takes place following World War I where the Federal Reserve System, for the first time, allowed flexible currency.”
The Panic of 1907 was written by Robert Bruner and published in 1907, as a 100 year dedication to the book’s subject. From Publishers Weekly, “The chronicle follows one speculator’s attempt to corner the copper market, which leads to panic, the failure of banks and trusts and the impending bankruptcy of New York City.” (Geldpress comment: AIG is now failing because of one man’s stupid attempt to insure reckless lending and borrowing in the mortgage market).
The Forgotten Man was written by Amity Shales and last published in 2008. It’s now available in paperbook for less than $10, and worth a dedicated spot on everyone’s bookshelf. As of today, it’s Amazon sales rank is 79! From the booklist review on Amazon,
…a prominent conservative economics journalist, considers why a decade of government intervention ameliorated but never tamed it. With vitality uncommon for an economics history, Shlaes chronicles the projects of Herbert Hoover and Franklin Roosevelt as well as these projects’ effect on those who paid for them. Reminding readers that the reputedly do-nothing Hoover pulled hard on the fiscal levers (raising tariffs, increasing government spending), Shlaes nevertheless emphasizes that his enthusiasm for intervention paled against the ebullient FDR’s glee in experimentation.
Here is a quotation that is working its way around the world, on the Internet, in and in mass e-mail distributions.
Owners of capital will stimulate the working class to buy more and more expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will take the road which will eventually lead to communism.
The quote above is often being cited to Karl Marx, in his book Das Kapital from 1867. At first read, it looks eerily similar to the writings of Karl Marx. And it certainly strikes an incredible similarity to the world financial crisis that continues to unfold and consume its share of the worlds news. But upon further research, it has been determined that the words above were not fram Karl Marx.
Regardless of who wrote the above words, there is no doubt that much of it rings true, and the final thoughts on “leading to communism” are not beyond the realm of possibilities. And who better to advise you on communism than the master himself, Karl Marx. For a glimpse of what may be to come, check out the following.
Marx’s Das Kapital: A Biography (Books That Changed the World) by Francis Wheen
Bloomberg reported today that president Obama has a goal of cutting the nations deficit in half to $533 billion within 4 years.
President Barack Obama plans to increase taxes on the wealthy and cut spending for the war in Iraq as part of a plan to slash the U.S. budget deficit to $533 billion by the end of his first term, according to an administration official.
Obama wants to reduce the deficit because he’s concerned that over time, federal borrowing will make it harder for the economy to grow and create jobs, said the official, speaking on the condition of anonymity.
The deficit Obama inherited on taking office last month was $1.3 trillion. The administration is scheduled to hold a so- called fiscal-responsibility summit at the White House tomorrow, with about 130 people invited, including about 50 members of the House and Senate from both parties.
Geldpress comment: Any talk of REDUCING the DEFICIT is STUPID. Talks of “reducing deficits” implies that the speaker has no concept of the fundamental difference between debt and deficit. Did we really elect a new president that doesn’t even understand the difference between deficits and debts?!?!?! Here you go, Obama. A deficit implies an annual shortfall in revenue that does not cover the annual spending. You should really know this one given that you are on track to set 4 new records (one for the next 4 years) on deficit spending for this country. The debt is the cumulative total of all past deficits and surplus (not since 1957 have we had one!). Further, the goal of “cutting the deficit” is no more admirable than a serial killers goal to kill half the people he killed last year! You want an honorable goal, Obama-san? How about a goal of producing a REAL BALANCED BUDGET, and a goal that includes REDUCING the NATIONAL DEBT. And when we talk about reducing the national debt, we are talking about the REAL NATIONAL DEBT – PUBLIC + INTRAGOVERNMENTAL.
Is Obama the only economic illiterate? No sir. Check out this video of congressman Pete Stark from California who actually says that “The larger the national debt, the richer we are”. He then goes on to tell his interviewer that he should go to a real school for even questioning the rationale of increasing the debt. When pressed further, he tells the interviewer to “get the fuck out of here”. Pete Stark is the epitome of everything wrong in this country – stupid people in government.
Getting Wealthier – The new secretary of state Hilary Clinton apparently took a cue from Pete Stark and his comment of “getting wealthier through larger debts”. With Obama busy handing out trillions of borrowed money to corrumpt financial institutions and irresponsible mortgage borrowers, Clinton was in China begging them to buy more treasuries to fund the increased debt.
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Rick Santelli is one of the only regular commentators on CNBC that understands what is REALLY going on with this economy. Herb Greenberg was once on that list, but he unfortunately left CNBC a while back to pursue other interests. And then there was one.
Back to Rick. Here is the rant that was heard around the world today on CNBC, and Rick is dead on right about this one.
Rick does not play favoritism with his criticisms. Here is an older video showing Santelli blasting the CHIEF IDIOT of CNBC, Jim Cramer. Thanks to Don Harrold for putting this piece together. In the video, Santelli blasts Cramer for his blatant stupidity of calling a bull market the entire way down.
Criticalmas also gives an excellent summary of Cramer’s stupidity in this post.
There’s a great economic truth summary from iStockanalyst, with excerpts below:
The entire last two decades of so-called “Economic Growth” has been fueled by one fraud after another, starting with the Internet Bubble.
This fraud has been systematic and the mainstream media has been both an implicit and explicit enabler of these frauds, instead of doing its job, which is to root them out. The looks on the faces of the other CNBC “anchors” was one of abject fear – perhaps parts of ”The Fourth Estate” is coming to realize that when the pitchforks and torches come out – and they certainly will if we hold the course we’re on – they might have some trouble explaining why they shouldn’t be near the head of the list of those being “sought”?
Back to the Santelli Tea Party. It may have just been a metaphor, but his talk of a TEA PARTY has gotten the world riled up. People have had enough of the socialism of losses from STUPID CEO BANKERS. The world is now putting pressure on Rick Santelli to come through and organize a massive tea party in Chicago this summer. Perhaps we can have a “Cramer Roast” in Grant Park to celebrate. Thanks to ticker-forum for the picture below. Stay tuned, but make mine a jasmine pearl oolong tea, please.
Dubai was once thought to be an economic miracle. Dubai is the most populous city of the United Arab Emirates. Dubai is home to massive construction projects such as The World Islands, The Palm Islands, the indoor ski park Ski Dubai, and the Burj-Al-Arab hotel. According to Wikipedia, Dubai’s revenue comes from tourism, real estate and financial services. With the global economic crisis comes a triple wammy of a defeat to Dubai from those three suffering revenue sources.
From this recent New York Times article:
Sofia, a 34-year-old Frenchwoman, moved here a year ago to take a job in advertising, so confident about Dubai’s fast-growing economy that she bought an apartment for almost $300,000 with a 15-year mortgage. Now, like many of the foreign workers who make up 90 percent of the population here, she has been laid off and faces the prospect of being forced to leave this Persian Gulf city — or worse.
Some things are clear: real estate prices, which rose dramatically during Dubai’s six-year boom, have dropped 30 percent or more over the past two or three months in some parts of the city. Last week, Moody’s Investor’s Service announced that it might downgrade its ratings on six of Dubai’s most prominent state-owned companies, citing a deterioration in the economic outlook. So many used luxury cars are for sale , they are sometimes sold for 40 percent less than the asking price two months ago, car dealers say. Dubai’s roads, usually thick with traffic at this time of year, are now mostly clear.
And from the thisismoney.co.uk article:
Is Dubai poised to become the Iceland of the Middle East? The news dripping out of the most populous city of the United Arab Emirates has been bad for months and worse is coming.
All of the factors that have so blighted Western economies are high on the Dubai checklist: rapid growth on the back of a property boom – tick, rampant lending to speculative borrowers – tick, takeovers built on debt – tick, blind optimism that the good times would never end – tick.
From the Financial Times:
Dubai’s recent surging population growth will reverse over the next two years as the troubled, but important, real estate and construction sectors cause the number of immigrants to slow and many expatriates to leave…
Over half of Dubai’s population is employed in the the real estate and construction industries, which are suffering from oversupply and a dearth of financing. Property prices fell 8 per cent in the fourth quarter…
Dubai’s entire population of approximately 1.2 million is almost exclusively expatriates (90%). With property values plummeting, and expatriates leaving en masse, Dubai will soon learn the hard lesson of leverage. Leverage is great on the way up, but it can cripple and destroy an economy overnight on the way down. Iceland has already learned this painful lesson, and Dubai is next in line.
The CNBC House of Cards 2 hour documentary is airing all week. Set up your TIVO to record one of them, and watch it at your leisure for an informative and highly entertaining view of stupidity in action. Or, check this link to watch some of the segments directly on the CNBC website.
Here’s what looks like a CNBC produced 8 minute trailer of House of Cards on youtube.
From the department of treasury website, here are the top 15 foreign holders of United States debt.
George Bush managed to nearly double the national debt of the United States from just 8 years in office, from $5.7 trillion when he took office to $10.6 trillion when he left. Obama may have inherited this nightmare of debt implosion, but he has no intention of steering the ship back on course. Obama’s mission is to socialize the losses of every failing industry in the United States, and he could easily double the national debt again in half the time it took George Bush to do so. With so many new debt sales on the line, its important to keep track of who currently owns our debt, and who has the continued capacity to do so in the future…
China - From the list above, they are the number one holder of United States debt. For years, their economy was unstoppable. Yet from this recent Wall Street Journal article,
China recorded a fiscal deficit of 111.01 billion yuan ($16.23 billion) for 2008, as government spending surged in the final month of last year when Beijing ramped up its stimulus measures to boost the flagging economy.
And for Kiplinger’s view of China…
China is staggering under the near simultaneous collapse of overseas demand for its exports and of its domestic property market. Large numbers of factories are shutting their doors, and those that remain are scaling back orders…As China’s exports decline, it will have fewer dollars to recycle. Inevitably, that will push U.S. interest rates up.
Japan – Their economy continues to weaken, and from this Bloomberg article, investors are not eager to dump money on U.S. treasuries.
Forty percent of Japanese investors said there is a risk that the U.S. government will default on its debt, a survey published by Barclays Capital showed. Almost 34 percent of the 66 respondents in the poll sent to Japanese institutional investors from Jan. 26 to Jan. 28 said there is a “significant” or “slight” risk that the U.S. will lose its AAA sovereign debt rating this year. Twenty-two percent said they were concerned about the credit risk of German government bonds.
United Kingdom -The U.K. financial Services Authority attempts to sugar coat it by saying “weighted to the downside and, while the effects of fiscal stimulus and monetary easing remain unclear, the recession may be deeper and more prolonged than expected.” (From International Herald Tribune) But it sounds like their capacity to buy U.S. debt has diminished!
Carribean Banking Centers – Give me a break! They stopped buying in November, and now they are just rolling it over to buy time!
Oil Exporters – $40 oil is not good for short term thinking economies who to quickly came to DEPEND on $150 oil. Read this Herald Tribune article, and ask yourself if they have the capacity to buy more U.S. debt.
The combined economic growth of the six Gulf Arab oil-exporting countries is expected to fall to 3.5 percent this year from 6.8 percent in 2008, according to the International Monetary Fund.
Masood Ahmed, director of the IMF’s Middle East and Central Asia department, said Sunday in Dubai that the countries – Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain – were expected as a whole to post a fiscal deficit representing 3.1 percent of gross domestic product, compared with a surplus of 22.8 percent of GDP in 2008.
Shall I go on…?
It’s becoming very clear that the department of the treasury will have an insanely difficult time selling as much new debt that’s being offered, especially at record low interest rates… Let’s not even talk about what kind of impact this will have on mortgage rates and housing prices!
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