FedUpUSA

Archive for February 21st, 2011

As Business Insider reports:

After the GOP-led house passed its bill in the early hours of Saturday morning, the spending debate moves to the Democrat-controlled Senate, which will pass a totally different bill that the House would never approve. But, as WaPo notes, the Senate is on break all next week, which means there will be just four working days to hammer out an agreement.

Good.

Let’s have it.  Shut it down.

And keep it shut down until you come to an actual primary surplus budget proposal.

One way to do this would be to leave government shut down for about 180 days, and then not make good on any deferred expenses.

Note folks: This means a cut in the size of government by half.

Yes, half.

This is not “drastic”, as others have claimed.  The government has in fact doubled in expenditure in just ten year’s time.  We could not afford it when we did it, and we still can’t.  There’s no way to make it affordable either.

Freezing the expansion of discretionary programs will not do the job.  Nor will holding entitlements and defense out from the ax.  This is a function of mathematics, not politics.

I said 50% and I meant it.  And we had better do it now, because even that would not balance the budget.  Let’s note that you can’t just balance the budget, you must actually run a primary surplus in order to start whittling down the debt.

This means you need to both raise revenues and cut spending in half.

Extreme? 

No.

It’s just reality, and if we don’t do it now we’re simply going further into the hole and making the size of the necessary cuts larger. 

In 2000 we had to cut about 10% or so.  In 2007, 30% (which I wrote to Congress about.)  Now its half, and if we keep going the only viable option will be to reduce to zero all entitlement spending as interest expense will ramp severely and the rest of the budget will become insignificant to overall progress due to interest expense.

It doesn’t matter if the Demoncrats or Rethuglicans like this or not – these are the facts.

The Market-Ticker

Saturday, the House of Representatives passed legislation with more than $60 billion of budget cuts.  It is the proverbial “drop in the bucket” when compared to the $14.1 trillion (and counting) outstanding federal debt.  Soon, this ever increasing national debt will eclipse the Gross Domestic Product (GDP.)   That means America will owe more than all the goods and services it produces in one year.  When you owe more than you make, isn’t that a sign you need to change course?  The new Speaker of the House, John Boehner, said this just after the budget cut vote, “We will not stop here in our efforts to cut spending, not when we’re broke and Washington’s spending binge is making it harder to create jobs.” I think it is ironic Congress wants to cut $60 billion today and then turn around and consider raising the debt ceiling $1 trillion tomorrow.  This is crazy, but that is exactly what’s going to happen because if we don’t, Treasury Secretary Tim Geithner says it could cause, “catastrophic damage to the economy.”  

I don’t think most people grasp just how serious America’s budget problem really is. When Mr. Boehner says, “we’re broke,” he’s not kidding.  America is broke. The only reason this has gotten so out of control is the U.S. dollar is the world’s reserve currency, and the government can just print money whenever it needs funds.  Right now, the Fed is creating $75 billion a month to help finance government operations.  This is met with a shrug, like it is no big deal.  But, it is a big deal, and it comes with a significant downside—inflation.  Sure, there is deflation in housing, but everything else is going up in price.       

It is not just the federal government that’s swimming in red ink, but more than 40 states in the union are also tens of billions of dollars underwater in deficits, pensions and health-care obligations.  The union protests in Wisconsin are just the tip of the iceberg.  Contrary to what left wing commentator Rachael Maddow says, the $137 million deficit problem in Wisconsin was not caused by Governor Walker’s tax-cut bills approved in January.  Here’s how The Wisconsin Journal Sentinel summed up the false story, “There is fierce debate over the approach Walker took to address the short-term budget deficit. But there should be no debate on whether or not there is a shortfall. While not historically large, the shortfall in the current budget needed to be addressed in some fashion.” (Click here to read the entire Sentinel story.)

I was a guest on the nationwide radio show Coast to Coast AM last week.  I was there to talk about the protests in Wisconsin and elsewhere.  I said this was only the beginning because many states were billions of dollars in the hole.  The states cannot print money, so unions will have to take cuts to pay and benefits.  I got some very foul and angry emails from listeners.  One wrote, “. . . F*** YOU!  Unions are the only reason we had good wages and decent places to work in the USA.  It’s greed by companies that have destroyed this country.” Another anonymous email said, “. . . You don’t have any idea of what is going on.  Now you think the Gov’t workers should get screwed.  You subservient dick.” I wrote back and said, “. . . What you are angry about is something we all face.  The nation is broke, and we are headed for a crash.  In the end, we are all screwed, government workers are just first.”  But that really is not correct.  I should have said, “It is now the government workers turn to feel the pain the rest of America has been feeling.”  These emails are examples of how Americans will just not accept that we are out of money.  The sovereign debt problem is here today staring us all in the face.

State and city budgets are so deep in red ink that former L.A Mayor Richard Riordan said recently, “Throughout the country, 90 percent of cities and states are going to go bankrupt within the next five years, many of them sooner.”  (Click here to read and hear Mayor Riordan for yourself.) Things have gotten so bad that investors are starting to shun municipal bonds.  (This is the state version of printing money.)   Sales are way off, and one reason may be that Congress has been quietly talking about letting states go bankrupt.  Here’s how the New York Times reported the story last month, “Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.”  (Click here to read the complete NYT story.)

On one end of the spectrum, I see, at the very least, high inflation.  On the other end of the spectrum of possibilities is the financial collapse of the United States.  Economist John Williams of Shadowstats.com has been talking about this possibility since I first met him in 2008.  He says hyper-inflation leading to collapse is a definite possibility. Williams is not the only one who thinks there is a potential breakdown coming.  Dmitry Orlov, author of the new book “Reinventing Collapse,”witnessed firsthand the Soviet meltdown in the early 1990’s.  Orlov says, “Something similar is happening here where we have people in all branches of government, both political parties trying to prop up the financial industry, which has become completely irrelevant to most people in the United States, who don’t have savings and are not creditworthy. They’re basically trying to use up people’s savings and use up people’s retirement to prop up this set of institutions that only help the very rich people, and these very rich people are only rich on paper, they are “long paper,” all of them. What they own is pieces of paper with letters and numbers on them, which will turn out to be worthless. So this is all just basically musical chairs, and something very similar was happening in the Soviet Union, and something like that is happening here.” (Click here to read and hear Mr. Orlov for yourself.)

Just the fact that collapse is a possibility should be sobering to anyone.  Americans are fooling themselves if they think we can get back to the way things were before using borrowed and printed money.

USAWatchdog.com

Two outstanding personalities of the United States, Nomi Prins and Bill Black, spoke at “Info-Schall” critically about the issues of our time. The following is the recording of our live interview from Wednesday.

Lars Schall

In three acts, we spoke with journalist and author Nomi Prins and former financial regulator and current economics professor Bill Black on the Great Crsis – divided into:

- How did we get here?
- Where do we stand now?
- Where are we going?

In relation to the first question, we started with the recently released report by the Financial Crisis Inquiry Commission, which concluded: “The financial crisis could have been prevented” (see: http://www.fcic.gov/) and the fact that there’s no jail time for the culprits of the financial crisis.i

Other topics we’ve discussed were:

- the close relationship of Wall Street and Washington;

- the rising commodity and food prices, and the connection of it to turmoil in the Middle East;
- forecasts for the U.S. dollar and the U.S. Economy;
- developments in the precious metal markets and the policy of central banks in this segment

Regarding the latter point, Nomi Prins expressed that the U.S. gold reserves should be audited, and recommended that Germany should withdraw its gold reserves from New York City.

Unfortunately, Bill Black had to leave us for an interview on MSNBC after the first half of our “Info-Schall“ show. We want to present this interview here as well as a complement to our interview:

“Madoff scam puts blame on big banks“ / The Dylan Ratigan Show on MSNBC

Visit msnbc.com for breaking news, world news, and news about the economy

On our guests:

Nomi Prins is from the U.S. state of New York. She worked after her studies of mathematics for Chase Manhattan, Bear Stearns and as a managing director at Goldman Sachs. Since ten years now she is a popular, highly respected journalist who has written three books, including the highly recommended, “It Takes a Pillage: Behind The Bailout, Bonuses, and Back Room Deals from Washington to Wall Street.” Her website is: http://www.nomiprins.com/. Nomi Prins lives in Los Angeles, California.

William K. Black is a professor of economics and law at the University of Missouri at Kansas City. He is the author of “The Best Way to Rob a Bank Is to Own One,” which deals with the Saving & Loan crisis of the 1980s in the United States and his role as a tough regulator. Black developed the concept of “control fraud” – fraud, in which the CEO or a head of state uses the company or the state as a “weapon.” Control frauds cause greater financial losses than all different forms of property crime combined and kill thousands. His academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network Page and at New Economic Perspectives.
Source: InfokriegerNews

Hats off to Iceland for a second time for telling the IMF, the UK, and Netherlands to “Go to Hell” over the most recent Icesave proposal, better thought of as Ice Torture.

Please consider Iceland’s President Vetoes Icesave Deal

For the second time, Iceland’s president vetoed a bid by the island nation’s Parliament to repay the U.K. and the Netherlands more than $5 billion lost by depositors in Iceland’s epic 2008 banking collapse—sending the matter to a referendum by a deeply skeptical public and complicating the country’s application to join the European Union.

The dispute over Icesave—the online arm of a failed Iceland bank that took deposits from British and Dutch savers—has percolated for more than two years, reflecting the Icelandic people’s dissatisfaction with paying the price for what is almost universally regarded as the hubris of a few bankers.

A first attempt at a repayment deal in 2009 faced stiff opposition in the Icelandic parliament. A modified bill passed later that year, but President Ólafur Ragnar Grímsson vetoed it in early 2010, triggering a referendum, which failed.

The new deal carries substantially better terms—Iceland has until 2046 to repay, at an interest rate of about 3%—but Mr. Grímsson said in a statement issued Sunday that the Icesave issue is so weighty and so contested that it wasn’t up to Parliament to decide.

“There is support for the view that the people should once again, as before, act together with the Althingi as the legislator in this matter,” Mr. Grímsson said, using the local name for Iceland’s thousand-year-old Parliament.

The presidential veto is rare. It has now been used just three times since Iceland’s independence from Denmark in 1944. The Icelandic president approves nearly all bills passed by Parliament; under the constitution, he may only approve or call a referendum.

If history is a guide, the deal once again faces nearly certain defeat. In the first plebiscite, 93.2% of voters, or 134,392, rejected the bill. Just 2,599 picked “yes,” badly trailing even the 6,744 who left their ballots blank.
The British and the Dutch governments stepped in in 2008 to compensate depositors in their countries who had placed money with Icesave, since Iceland’s tiny deposit-insurance program was woefully short of cash. The two nations soon demanded their money back—about £2.35 billion ($3.8 billion) for the U.K. and €1.32 billion ($1.8 billion) for the Netherlands.

The total amounts to about half a year’s economic output.

Iceland repayment talks collapse

The BBC Reports Iceland repayment talks collapse

Talks on how Iceland will repay more than 3.8bn euros (£3.3bn) of debt it owes to the UK and the Netherlands have broken down without agreement.

The collapse of the Iceland-based Icesave online bank in October 2008 hit savers in both countries.

The UK and Dutch governments are seeking repayments from Iceland after they compensated savers themselves.

However, the three governments have been unable to agree on revised payment terms after a week of negotiations.

“We had hoped to be able to reach a consensual resolution of this issue on improved terms, but this has not yet been possible,” said Iceland’s finance minister Steingrimur Sigfusson.

In a statement, the UK and Dutch governments said they were “very disappointed that despite all the efforts over the past year and a half, Iceland is still unable to accept our best offer on the Icesave loan”.

Iceland plans to hold a referendum on the Icesave repayment on 6 March, but the government is hopeful it can reach a different deal ahead of that.

Opinion polls suggest that a majority of Icelandic voters would reject the repayment plan.

The dispute has delayed International Monetary Fund help for Iceland, which Reykjavik needs to shore up its stricken economy.

The country’s parliament voted for a referendum on the Icesave bill after President Olaf Ragnar Grimsson vetoed the repayment to the UK and the Netherlands.

Opponents say the repayment plan forces Icelandic taxpayers to pay for bankers’ mistakes.

The dispute has also overshadowed Iceland’s application to join the EU, which was submitted in July.

Iceland’s economic crisis persuaded many of its politicians that it would be better off inside the 27-nation bloc.

Arrogance of UK, Netherlands

Note the arrogance of the UK and Netherlands issuing a statement “Iceland is still unable to accept our best offer on the Icesave loan”. It is up to Iceland to make its best offer not for the UK and Ducth governments to make demands of 100% repayment.

Why should Iceland crucify its taxpayers with a “loan” when the correct procedure is a massive haircut.

Iceland should immediately counter with its “best offer” of one cent on the dollar. That will set the tone for reasonable expectations.

Somehow the Icelandic Parliament does not get it. Fortunately the president does.

Commending Iceland’s President

I commend the decision of the president to send this to the people to vote. Moreover I encourage Icelandic voters to vote the same way they did last time.

Here’s the deal. When you make stupid investments, don’t expect to be bailed out. There is no reason the people of Iceland should have to pay for the stupidity of others.

If the UK and Dutch governments were dumb enough to guarantee those deposits, then the UK and Dutch governments should pay the price, not Icelandic citizens.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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