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Archive for the ‘Timothy Geithner’ Category

We now know exactly how much Turbo Timmy had to pilfer, er, “borrow” from various things (like government worker retirement accounts) in order to not run out of money while the debt ceiling was frozen, and it’s not a pretty picture.

The August 1st DTS

The magic number is $14,293,975

Now the August 2nd DTS:

The magic number there is $14,532,332

That’s $238.357 billion.

Remember, May 16th was the “official” day the debt ceiling was hit.  So Turbo has been running roughly $100 billion in the hole a month.

That sounds like about $1.2 trillion, but in fact it’s worse.  Why?  Because June is a heavy deposit (tax payment) month due to estimated taxes.  How big of a deal is this?  Pretty big – June saw receipts of $108.372 billion, while July saw just $54.069 billion – about half.

Oh, the debt limit increase deal added $400 billion immediately.  After taking care of the theft, er, “borrowing” that had previously occurred there is now just $162 billion remaining.

Anyone care to bet on whether Congress will get its act together before two more months run?  At current “burn” rates, and considering that September is also a estimated tax deposit month, that $162 billion should just about get us through September – and that’s all.

You have to wonder.

Two and a half years ago, with our country on the edge of a second Great Depression, we met with the president in the White House to discuss whether to move in those first months of his administration to legislate fundamental reform of the financial system—or wait until we had put the crisis behind us.

The president made two key decisions. First, he chose to move forward, knowing that the forces of opposition to reform would grow stronger as the memory of the crisis receded. And second, he asked us to write draft legislation rather than propose broad principles. The president did not want the new rules to end up being written by those who brought us to the edge of catastrophic financial failure.

Really?

So…. he asked you to help write it, yes?  And what did you do while at FRBNY [Federal Reserve Bank of New York]?

Besides cheating on your taxes, that is.

Well, it appears you sat there and allowed the playing of derivatives by firms who had no money, yet promised to pay.  They couldn’t, of course, and when that became apparent the entire world blew up.

But that wasn’t bad enough – oh no, you then had to rescue them.  And rescue you did – in fact, that was the gist of everything wasn’t it?

See, it wasn’t about the money per-se – it was about the lies.  Lies that still continue to this day.

Like, for instance, the lies that enabled the market to bottom in 2009.  Remember Kanjorski and his little committee meeting?  Either allow the banks to mark to whatever they think they can defend, whether it’s real or not, or we’ll force it with legislation.

Yeah, I remember that.

Then of course there’s the derivatives.  They’re still traded over the counter.  The so-called “clearing houses” do nothing to prove nightly margin, nor to prevent chain risk.  And yet those two things are the key items in how we found ourselves on the wrong side of that mess.  To be blunt, Brooksley was right (along with other few who said you, and the entire bankster business, were certifiably insane) and yet I haven’t heard an apology from you in that regard, nor one from Greenspan.  Why not?

Of course you continue to pat yourself on the back for things that are, well, not real.  Averting a second Great Depression?  More like covering one up that’s still going on.  After all, when you deficit spend 12% of GDP, well, GDP is 12% higher than it would otherwise be – plus the knock-on effects.  I don’t call that “avoidance”, I call it a scam because there is no credible plan available to stop that deficit spending.

But stop it will.  At roughly six times present GDP growth it will end soon too, and in a rather dramatic fashion.  We still can change to some extent exactly how it happens, but that optionality will not exist for long, and the Congress seems to be ignoring you these days Turbo – with good cause.

After all, it was Hanky Panky who promised us tanks in the streets just a couple of years ago, and then of course we got more of the same from you and Obama if we didn’t “help the banks.”  But the so-called recovery you claim is happening isn’t reflected in the employment numbers, nor in those for food stamps.  We have fixed nothing with trade balance, particularly with China, since both you and Obama have spent your time knob-jobbing the Communists instead of protecting American jobs and imposing sanity on a mercantilist regime.

As for Fannie and Freddie, you’d done nothing.  Those firms debt never had a guarantee – it’s right on the front of the page.  But you never met a billionaire you wouldn’t perform an obscene act upon, have you Turbo, and neither has your boss.

That’s ok Turbo.  This isn’t under your control nor Obama’s.  It’s under the control of immutable mathematical facts, and when they come to the fore, as they are over in Europe and soon will be here, the time for you to act in a reasonable and sound manner will have expired.

We’ll all be in much worse economic shape for it, but the good news is that you won’t be able to escape responsibility, nor will your boss.

This far into the term, you own it Timmy.

Bon appetit.

The government borrows about 40 cents of every dollar it spends at present.  This means two things:

• There is more than enough money coming in to pay the debt and interest that matures. Therefore, a default would be an intentional act by Tim Geithner, much as it is when you decide not to pay your mortgage (despite having the money to do so.)  Selective default is a choice, but it is a freely-entered into choice. What Geithner is doing is threatening an intentional, strategic default if he doesn’t get his (and Obama’s) way.
• If the government does not get its debt increase it must immediately balance the budget. This is good, not bad, in the intermediate and longer term.

The problem is that this situation also exposes the truth, which nobody wants to face in Congress: Whether you raise taxes or cut spending the economic impact is the same – 12% of GDP disappears.

Greenspan was also pessimistic about the U.S. deficit talks, saying he didn’t think Congress would reach an agreement on raising the debt ceiling by the Aug 2 deadline.

“We’re going to get up to Aug 2 and I think on that night, we are not going to have the issue solved,” he said.

If that happens, he said, the U.S. would have to continue paying debt holders or risk major damage in global financial markets. As a result, “we will default on everything else.”

Chris Whalen says “No Downside” to Not Raising the Debt Ceiling

The U.S. Congress has a little less than two months to raise the $14.3 trillion debt ceiling or possibly default on its debt. Treasury Secretary Timothy Geithner says not allowing the Treasury to raise the debt limit would be “catastrophic” for the economy.

Geithner is crying wolf according to Chris Whalen, a banking industry analyst and co-founder of Institutional Risk Analytics. Whalen argues Congress should vote against raising the debt ceiling unless they agree to major spending cuts. “Congress has the right to say ‘no’ and the people of the United States have a right to say ‘no’ we don’t want to issue more debt,” he tells Aaron Task in the accompanying clip.

Whalen first made his thoughts known about the debt ceiling in a Reuters opinion piece Why Congress should vote no on raising the debt ceiling published in April.

“My view is that Congress should vote down any debt ceiling measure unless President Obama agrees to sign the balanced budget amendment. Even if Secretary Geithner has to run the US government on cash, like the good people of Iceland and Ireland today, it will be a good thing for America’s political debate to default — at least for a few weeks. Then people will know that the once unthinkable is very possible.”

At the time, Whalen’s comments were viewed as radical, and some say still are. However, in recent weeks, he seems to be gaining more support from some of Wall Street’s heavy hitters. For example, in a recent interview with the Wall Street Journal hedge fund billionaire Stanley Druckenmiller echoed some of Whalen’s rhetoric.

No one knows what will happen if the Congress does not raise the debt limit or if there’s even a good chance of it happening, but Whalen is holding out hope: “If we don’t have consequences in politics then we end up with what we’ve seen in the last 30 years, which is a permanent political class.”What If the U.S. Treasury Defaults?

The WSJ article referenced above is What If the U.S. Treasury Defaults?

One of the world’s most successful money managers, the lanky, sandy-haired Mr. Druckenmiller is so concerned about the government’s ability to pay for its future obligations that he’s willing to accept a temporary delay in the interest payments he’s owed on his U.S. Treasury bonds—if the result is a Washington deal to restrain runaway entitlement costs.

“I think technical default would be horrible,” he says from the 24th floor of his midtown Manhattan office, “but I don’t think it’s going to be the end of the world. It’s not going to be catastrophic. What’s going to be catastrophic is if we don’t solve the real problem,” meaning Washington’s spending addiction.

Widely credited with orchestrating Mr. Soros’s successful shorting of the British pound in 1992, Mr. Druckenmiller also built his own fund, Duquesne Capital, into a $12 billion titan. He announced plans last year to close the fund and now reports, “I have no clients.” He is still managing his own money, which Forbes magazine recently estimated at $2.5 billion.

Whatever the correct figure is, it would be significantly larger if Mr. Druckenmiller hadn’t given away so much of his wealth. The online magazine Slate reported last year that Mr. Druckenmiller and his wife gave away more money in 2009—over $700 million—than anyone else in the country. Over the last two decades, he has been the largest benefactor of the Harlem Children’s Zone, a community service organization featured in the movie, “Waiting for ‘Superman.’”

In a May 2 letter to House Speaker John Boehner, Mr. Geithner warned of “a catastrophic economic impact” and said, “Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover.”

In a Monday speech at the New York Economic Club, Mr. Boehner fired back, saying that “It’s true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.”

So the moment couldn’t be better to consult Mr. Druckenmiller, who almost never gives interviews but is willing to speak up now because he thinks that fears about using the debt-limit as a bargaining chip for spending cuts are overblown—and misunderstand the bond market. “The Treasury borrowing committee letter speaks about catastrophic financial crises, comparing it to Fannie and Freddie. That’s not what we’re talking about here,” he says.

He contemplates the possibilities for bond investors if a drawn-out negotiation in Washington creates a short-term problem in servicing the debt but ultimately reduces spending:

“Here are your two options: piece of paper number one—let’s just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don’t know, six days, eight days, 15 days, but I know I’m going to get it. There’s not a doubt in my mind that it’s not going to pay, but it’s going to be delayed. But in exchange for that, let’s suppose I know I’m going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured,” he says.

The Upside and Downside

To suggest there is “No Downside” is a bit inaccurate. A better way of phrasing the setup is there is “no NET downside” to not increasing the ceiling without significant budget cuts.

The downside is a temporary default. Interest rates may go up if that happens. Some parties maybe harmed in the process. Thus, the downside is a temporary delay in payments and the small mess that might entail.

The upside is a potential permanent reduction in US spending. From my perspective, that is a massive upside potential, for a bit of short-term downside.

Risk of Greek-Style “Solution”

It should be crystal clear that Congress and the administration need to do something about budget deficits before the market imposes a “Greek-Style” solution on the US.

I mentioned that possibility in my recent Yahoo Finance video appearance: Debt Ceiling Discussion on Daily Ticker with Mish, Aaron Task, Henry Blodget: Will the Bond Market Eventually Force Congressional Hands?

How You Can Help

Please pick up the phone, call your Congressional representatives, and insist on “Major” budget reductions now “Not in the Future”, before agreeing to hike the debt ceiling.

Here is the Online Directory for the 112th Congress

It is time Congress call Geithner’s and the President’s bluff.

The way to make that happen is to insist your representatives recognize something must be done NOW, not 10-years from now about the budget crisis.

Mike “Mish” Shedlock
Global Economic Analysis

Amazing coming from this nozzle….

WASHINGTON (MarketWatch) — Treasury Secretary Timothy Geithner on Monday urged global regulators to cooperate and develop common standards to ensure banks trading in the derivatives market have sufficient collateral, or margin, to weather future economic crises.

That’s simple:

• All derivatives must be exchange-traded.  NOT “clearinghoused”, exchange-traded, so that they are double-blinded and the buyers and sellers have no idea who the other party is.

• All derivatives must be margined nightly against cash just like every other exchange-traded product.

End of problem.  Trade ‘em all you want, but:

• You can’t screw people.

• You can’t claim to have a risk covered when the counterparty cannot pay.

That’s all that needs to be done, it’s what I’ve advocated for years and it is the only solution that will actually work and cannot be gamed.

The Market-Ticker

This guy doesn’t know when to quit:

NEW YORK (AP) — Treasury Secretary Timothy Geithner said Tuesday that if Republicans insist on passage of their budget plan as a condition for approving an increase in the nation’s borrowing limit, they will be responsible for the consequences.

Speaking to a New York audience, Geithner said that Republicans would bear responsibility for the first debt default in the nation’s history if they insist they will not vote for an increase in the $14.3 billion borrowing limit unless they win approval of a House Republican budget plan.

Your administration has known full-well what the debt limit has been for a very long time.  So has CONgress.  Both bodies were well aware that raising the limit is discretionary.

You seem to believe that playing the “Armageddon” card is something that can be done with impunity, mostly because your predecessor Hanky-Panky Paulson did so and Bernanke was a party to that.

The fact of the matter is that you seem to think that there’s no limit to the nation’s credit card.  You’re wrong.

Yes, I know, the bond market hasn’t cared (yet) about all this idiocy.  Then again it didn’t care over in Greece either, right up until it did.  Same with Iceland, Ireland and Portugal.

In fact, it seems to work the same way with most personal bankruptcies too.  People think they can push things a bit further, a bit more, they get another credit card, they play the balance-transfer rollover game, they feel the pressure and make some sort of maneuver and then breathe easier.

All this works for a little while, right up until it doesn’t in dramatic fashion.  And then, once again, we hear “nobody could have seen it coming.”

Well Timmy, lots of people saw this coming.  I did.  Hundreds of others who write on economics did.  The only people who “couldn’t see it coming” are those who are so arrogant as to think they can play Global Thermonuclear Financial Armageddon whenever their social spending and military adventure bonanza is threatened and who have their heads firmly buried up the bankster’s asses.

Let’s cut the crap: That’s exactly what this has been.

The jackbooted games are completely out of control.  The Federal Government has doubled in size since 2000.  Have we gotten twice as much service from the government?  No, we’ve gotten serviced instead.  And 2000 was a bad time in that regard as the government was dramatically overblown and overbloated at that point in time.

That was the last time I ran a mid-sized business and had to deal with that crap.  I will never do it again, so long as that “mass” is amassed against me.  And it will forever be, until the government shrinks.

The Feral Government is like a vampire that has gotten to weigh 500lbs.  It loves to suck the blood out of the nation and consume it.  Government employees like the TSA folks think that virtually rape-searching people with X-rays is “cool” and “for our safety” – including sticking their hands down a baby’s diaper.  What sort of sick bastard engages in that sort of act?  The fact is that it was never about safety – it’s entirely about shielding airlines from the risk of failing to secure their own aircraft and terminal facilities. We can’t have certain “favored” businesses risk failure when they blow it; rather, we have to make sure the boot of the government presses ever further on the people’s necks.

The vampire needs to be put on a severe diet.  Yeah, it will scream and holler, like every fat man does when told that he can’t gorge at McDonalds’ any more.  But just like the 400lb man that needs two seatbelt extensions if the government doesn’t cut this crap out the nation is going to have a heart attack and die.

I say chain the 500lb vapire to its chair and cut its rations by 50%.  When it screams, and it will, wear earmuffs and slam the door shut.  In short, Geithner, here’s my response to your threats: Pound sand.

We’re well-beyond the time where we should be neutering the government, not enabling it.  Emasculating the Federal Government with a nice, sharp knife, feeding its former pair of testes to the closest shark would do more to help this nation’s economy than anything else that could be undertaken.

Ronald Reagan used to talk about “rugged individualism.”  He was right in that regard, although he sure didn’t believe it when it came to certain personal choices.  He thought it was great if you wanted to drink a beer (boosts the economy) but smoking a doobie was good for 10 years in the slammer.  Like most statists he was a hypocrite when it came to that true “rugged individualism” and to add to his hypocrisy the “deal” he made on cutting taxes and slashing the size of government had no verification on the second half – which didn’t happen.  Instead he sat back, patted himself on the head and then watched the vampiric Feral Government pack on another 50lbs.

Well, Timmy, it’s time to go cold turkey.  You have enough tax revenue to avoid a default.  You can pay principal and interest, easily, with the tax money that comes in.  You then get to choose – do you send Granny her check (after you blew her contributions over the last 30 years in a puerile display of idiocy) or do you continue to fund the magical oil “reserves” that we “defend” with our $750 billion a year in defense expenditures rather than having a cogent and defensible energy policy?

Choices, choices.  They’re tough.

But default, in the legal sense, is in fact a choice, as the government’s income does exceed it’s actual lawfully mandated debt service.

Remember Timmy, Social Security and Medicare are not “obligations” – they’re entitlements.  Your very agency has argued this, successfully I might add, in court.  The Federal Reserve does not count those “obligations” as actual debts as a consequence.

In short Turbo, your “Armageddon Card” is frayed around the edges and doesn’t work any more.  Multiple attempts at a balanced Federal Budget have been circumvented and fraudulently avoided.  It is time to pull the rug out from under this game and throw the board on the floor; balancing the budget by refusing to raise the debt ceiling is the right way to do it, and now is the time.

The Market-Ticker