Thread: The strongest economy in the world

Nice and thorough answer Bugs Thanks.

But the US is claimed to be technically Bankrupt because if you where to Honour your debt in real buying power value similar to the value of the Greenback at the time the loans where given, you can not do it, you have to print as you say, you think the loan givers will be happy to receive payment in what then after printing will have a very significant reduced value.

It would be like you borrowed me money to by a car, when I choose to pay you back I have made sure that by that time you can only buy a packet of cigarettes for the same money, don't you think you would feel cheated ?

This is the inherent risk involved in taking on debt or offering credit. Both sides have to take the risk of inflation or delation of the currency the loan is valued in, into consideration. Even though the US can print more money they still can not ignore this risk, because there are consequences to printing money. At the same time countried that are currently buying US debt have to consider that there is a chance that inflation could significantly effect the value of their repayment.

Right now Eastern Europe and most of the Western European banking world are awash in scenerios similar to your car example - in reverse. Eastern European folks and companies took out loans in Euros or the like. Now the value of Eastern European curriecies have fallen against the Euro. So the price to repay those loans have skyrocketed. It's all part of the risk in the debt/credit relationship.[/quote]

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Good clear explanation followed a simple and clear example. Congratulations.
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Regarding a question you posted earlier, viz. Also I asked this on another thread and got no response, but I guess it's worth another try.

Does anyone know what "Federal Reserve and intergovernmental holdings" actually are?

Federal Reserve holdings refers mainly to the deposits that all member banks are required to maintain with the Fed. There are also very substantial amounts that the Fed holds as a result of other required deposits and it's normal operations like open market sales/purchases. The Fed is required by law to invest these vast sums only in U.S. gov't bonds.
Interagov't holdings refers to amounts that are held by the various U.S. departments and agencies e.g. Social Security Trust Fund. These sums are also vast and are required by law to be invested in U.S. gov't bonds.
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Thanks Panda you explain it very well, cant green Bugs and You

It makes sense (for USA at least) to borrow as much as they can while the going is good before they start flooding the world with a gross oversupply of $US paper money, thus causing a rapid devaluation of the $US. The lenders (like China) will get paid back exactly what they are owed plus agreed interest in $USs which will then buy a lot less in real goods and services. Its like borrowing $100 in the value of tradable goods and only having to pay back $50. The lenders will take the loss.
China has good reason to be worried.

Its just too funny. Rearrange the deckchairs on the Titanic. That'll work.

A.I. fcuking G

This morning CNN.com reported brazenly that AIG caved in to pressure and decided to cut back on outrageous bonuses slated for “the smartest and brightest”. I was happy to see that AIG is acting reasonably and that the main stream media is reporting that information.

Further investigation reveals that AIG is determined to pay $163 million in bonuses, for THIS FUCKEN QUARTER… After paying gazzillion dollars in previous bonuses. That upon “furious” reaction from our tax-evading secretary of treasury they agreed to curb some of the future payouts by up to 30%.

Now, I drank the “Free Market Capitalism” kool-aid as much as the next guy. Thanks to decades of being bombarded by the myth that we live in the best system devised by man kind, and that everything else is pure evil, I am sold on “Free Market Capitalism”. But this just put me over the edge. This is the last damn straw.



To start with, AIG, over the past few years perpetrated the largest financial scam in the history of man kind. Self-proclaimed libertarians and republicans, who rely on Limbaugh as the sole source of their news, are still living under the notion that we are witnessing a financial crisis caused by non-deserving minorities buying homes that they cannot afford in neighborhoods they do not belong to.

The rest of us, non ditto-heads, know by now that the crux of this financial tsunami has been AIG underwriting $100s of billions worth of Credit Default Swaps without collateral, reserves or any risk controls. In other words, AIG’s “brightest and smartest”, committed a Madoff style ponzi scheme, at a much much larger scale than Madoff, over a much shorter period of time.

Madoff for his deeds is laying in prison while AIG’s criminals are getting paid $163 Million in quarterly bonuses, on top of what they got paid last quarter, on top of what they got paid the previous quarter, and the prior quarters.

In case I am not making myself clear. Let me re-iterate. These criminals at AIG committed acts of massive fraud against our nation during War time. They committed acts of treason, for which they deserve to be prosecuted and executed.

Another interesting tidbit explains why the government is not allowing AIG to fail. Turns out their counter parties are investment banks, the likes of Goldman Sachs. By letting them fail, Goldman Sachs would be in deep shit. We cannot allow that to happen in a Free Market society. But it gets better. Turns out that the Republican Administration and the Republican congress took time from their busy schedule during war time and inserted a little known clause in the Bankruptcy act of 2005. In that law, aimed at making it harder for poor people to declare Bankruptcy, they managed to change the law of the land so that CDS counter parties have the highest level of payout in case of a company failure.

What foresight? Who would’ve fucken thought about this all the way back in 2005? Whom other than Hank Paulson and the Dick Cheney? So back in 2005, Shortly after joining the administration to replace O'Neil as secretary of treasury, Hank Paulson was instrumental in passing a little known clause, to give CDS counterparties highest priority in recouping money in case of a company failure. The new law is so absurd, it states that the counter parties, e.g. Goldman Sachs, get their pay out BEFORE a receivership or bankruptcy judge gets to step in. i.e. They are not only the first in the line, they have a line on their own, that not even the presiding judge has access to.

O'Neil of course was kicked out of the Administration because he said that the Administration was manufacturing evidence to invade Iraq, claiming that Iraq was trying to obtain WMD material even though the CIA was adamant that no such evidence existed. Any how, when O'Neil was kicked out and Hank Paulson was chosen, he, much like any red blooded American, refused to answer the call of duty and serve. That’s because he would’ve had to divest of his Goldman Sachs equity and, god forbid, pay capital gains taxes on it. Seems tax evasion is a common theme amongst administration officials of both parties.

It seems the Administration thought Hank Paulson was so essential to running the treasury. After all, he was the man lobbying for years to remove leverage limits on investment banks, to not regulate credit default swaps and to exempt investment banks from Naked Short Selling rules. With a resume like that why wouldn’t you want him in the cabinet. So the administration did the only logical thing and created a special exemption for him, he was exempt from paying capital gains taxes on his gains from selling Goldman Sachs stocks. What a spiffy setup. How can I get one of those exemptions?

If you think that exemption sounds familiar that’s because it was not the only one. Turns out the Rumsfeld had his own exemption going so that he did not have to put his portfolio in a blind trust. Cheney of course, was still collecting payments from war profiteer Halliburton, the same company that benefited handsomely from Cheney’s manufactured war against Iraq and then decided to pick up and move to Dubai to evade US income taxes.



But I digress. So between 2003 and 2006, the Administration and the rubber stamp Congress approved enough new laws and changed enough existing laws to pretty much guarantee the ensuing Financial tsunami. All what was required was for a bunch of traitors to step up to the plate and rape America. That was the job of AIG’s “smartest and brightest”. They busily started underwriting Credit Default Swap contracts that they could not serve and sold them by the hundreds of billions to companies like Goldman Sachs and banks like Deutsche Bank and France's Societe Generale.

Now, these credit default swaps are very similar to options. They have nothing to do with the underlying equity. Which is why blaming the sub-prime borrowers for this mess is so misleading (and in the case of Limbaugh is pure lies because he knows better). The CDS are similar to me buying a put option on the S&P 500 from a market maker on the Chicago Board of Options Exchange. The market maker is going to use risk management and hedging to make sure they do not lose in that transaction. They would short a corresponding amount of shares, or they would put aside reserves or buy a put from another market maker or what ever to manage their risk. If the S&P 500 does tank, like it did over the last year, my option would go up in price and the market maker would owe me lots of money. Now, let us say that the market maker did not employ good risk management and could not pay me. What would happen? I am either shit out of luck, I say “tough” and move on. After all, it is all paper money, I put down a small premium up front, but other than that I am not losing any of my real money.

Or I could sue the Market maker and take him into court, possible bankruptcy, and try to recover some of my money.

The CDS that AIG wrote (wrote is in-the-know lingo for sold an option) were similar in concept. They sold $100s of billions worth of those CDS without employing any risk management. Basically, perpetrating the largest financial scam in history. But it is not the end of the world. It is all paper money after all, so let them just default, and Goldman Sachs paper profits would just get wiped out, why do we care?

Well, because Paulson and the Congress gave the counter parties unalienable rights in 2005. Meaning that they would take every penny that AIG has access to, before a bankruptcy judge gets involved. This means that AIG’s hundreds of millions of insurance policies, for things that like life insurance, small business insurance, fire insurance, flood insurance, health care, you name it. All those insurance policies that the world’s largest insurer issued over the last few decades. They would all be insolvent and worthless all of the sudden. Because Goldman Sachs would take all of AIG’s assets and none of its liabilities, thanks to the 2005 law that the ex Goldman Sachs CEO put in there… nifty isn’t it?

But it gets better. The other banks, like Deutsche Bank are obligated to keep a certain percent of their liabilities as cash assets on hand. That’s the whole premise for our Fractional Reserve Banking System. The bank can lend out each $1 of deposit up to 9 times, but it has to hold on to that $1 of deposit. Well, dumb ass banks like Deutsche Bank and Societe Generale decided that they did not have to keep that $1 since they have purchased Credit Default Swaps from AIG. In other words, they used the CDS as “virtual deposits” on their balance sheets in lieu of actual deposits.

If AIG suddenly fails then all these banks would become immediately insolvent. Sending shockwaves through Europe and potentially bankrupting Europe and causing riots, or worse, in young democracies in Easter Europe.



These people at AIG, that schemed all of this, have been getting paid billions of dollars in bonuses over the last 4 years for their effort in selling those CDS. Today they will be paid $163 million in bonuses for this quarter ALONE…

In justifying the bonus payout to the “brightest and smartest”, the company CEO said the bonuses are essential to recruit and retain the smartest, and at the same time he said that he himself is not going to take any bonus. Which begs the question, if bonuses are required to get the smart people onboard, and he is not taking any bonus, what does that make him? a dipshit? and if he is indeed a dipshit, then would he be the proper person to decide which smart people to retain and how much to pay them? If on the other hand he is not a dipshit, but a smart person agreeing to work for “appropriate pay”, like for example the President of the United States of America, cannot he find other people like him to work at AIG? people that are capable of losing $62 BILLION A QUARTER without getting paid millions in quarterly bonuses?

I am no Einstein, but I am pretty fucken sure that I can run AIG into the ground as well as any of the “smartest and brightest” people they have on board, and I am willing to do it for no more than the President Of the United States of America earns in pay, not a penny more.



You want to solve the Financial Disaster that we are witnessing? The same Financial Disaster that every one of my “libertarian” friends are blaming on poor Latino and Black people getting subprime loans. I have a solution that would solve the problem over night.

Gather up AIG’s smartest and brightest. Cut their dicks off (sorry for being a chauvinist), shove them in their mouths, shackle them and parade them naked in down town D.C. Promise the same destiny to any executive that was involved in the decisions made over the 2004-2007 period and who refuses to pay back their bonuses and/or refuses to invalidate any CDS contracts they wrote at the time.

I guarantee you the problem would be solved over night.

Looking back at things, it was clearly a mistake that Bush hanged Saddam after invading Iraq. He should’ve instead made him our secretary of treasury. Then we would’ve seen how much would these “smartest and brightest” request in bonuses.



p.s. With all due respect, if President Obama allows this payout to go through then the only change he would’ve brought in is to bring a coward to the White House. President Bush may have made the wrong decision every single time, but at least he’s got balls of brass. For better or worse, he was the decider. If some similar shenanigan was going on, that would’ve threatened the livelihood of Halliburton of Exxon Mobile, he wouldn’t have let any law or reason stand in his way. Bush would’ve moved heaven and earth to stop those payments if he did not agree with them. Sadly… I do not think President Obama is capable of the same.

source

Everyday Americans are not happy right now it seems and for good reason.

The strongest economy in the world is on its knees (much quicker than I thought). Thanks to the ape who ruled for eight years. To keep the Americans happy and keep his presidency he made it very easy, without thinking of the consequences, for everyday Americans to get loans.

It might take half a decade (if right policies are adopted) to bring things back to normal. Otherwise ...... gawd bless America!

^ Macha, great to see you. I miss you and your posts here.

Below is a 10 minute interview with Gerald Celente on March 13, 2009:

Note: I do NOT like the title of the cover. But this interview with Gerald Celente is on the radio, so whoever recorded decided to put their own bent on it. Nonetheless, it's worth a listen. Food rationing, rising crime and violence, etc.,

Peter Schiff on March 12, 2009.

He claims we're in the early stages of this economic downturn. He noted the foreign nations propping up the dollar (as our knowledgable posters here have noted). He advocating the Austrian economic approach. He says Credit Cards are a bad thing right now, and that people still need to save, and not go deeper into the debt.

Perhaps Schiff was ignored until recently because he's an advocate of Austrian economics? In a time when America was borrowing and spending and borrowing and spending.

Originally Posted by Muadib

If AIG's board & 'C' level personnel are not held accountable for their actions, there is something seriously wrong with the system... Complicity to a crime makes you an accessory in the eyes of the law...

Totally agree. People from AIG should be going to jail. I did a lot of digging after I recently saw Ben Bernanke say recently that the AIG situation had made him more angry than any other part of this whole credit crisis. The more you read into what AIG actually did the more unbelievable it becomes.
That long post i pasted just up there covers most of it ^^^^^^. But not all of it. Some alledge that the amount of CDS's they wrote total 2.7 trillion U$D and that number is backed by real assets that equal a big fat zero dollars.

As Peter Schiff said in one of his earlier interviews, -- the US financial system is just one big Ponzi scheme.

Old AIG CEO Hank Greenberg has been railing at his old firm's mgmt for months.
Still, $163 mil -- it's money for comp to salesmen innit? Are the CEO and upper mgmt getting any of it? AIG is global, so how much does this cash come to per worker?
I heard that retired US public workers are making more on their pensions than when they were working: CA police chief $200G a year, a train conductor $100 and some odd grand. And who pays for that? All of it from the taxpayer as a company who would elsewise pay half is not in the equation. See Kavuto on FOX news.

Will the Fed buy US Treasuries bills? Can someone with knowledge on this explain it to me. Thanks.

Will the Fed go long?

The Fed won't cut short-term rates at its next meeting, but look for long-term rates to drop if the central bank announces plans to buy Treasurys.


By Chris Isidore, CNNMoney.com senior writer
Last Updated: March 16, 2009
NEW YORK (CNNMoney.com) -- The Chinese are getting nervous about buying U.S. Treasurys. Does that mean it's time for the Federal Reserve to start buying long-term notes?

The answer could come as soon as Wednesday, when the U.S. central bank concludes a two-day meeting. The Fed has said in its last couple of statements that it was prepared to buy long-term Treasurys as a way to try to further help the economy. But so far, it hasn't given any details about how much it would buy, or when it would start doing so.

The meeting comes in the wake of Friday's comments from Chinese Premier Wen Jiabao, who expressed concern that the more than $700 billion in Treasury debt his country holds is at risk of seeing its value fall due to rising budget deficits here.

"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets," said Wen at his annual news conference on Friday. "To speak truthfully, I do indeed have some worries."

Link: Will the Fed go long? - Mar. 16, 2009

Originally Posted by Milkman

Will the Fed buy US Treasuries bills?

Yep, they just printed $1 Trillion yesterday to do so. (Told you so ) Get your money outta greenbacks, Honey.
Where's Spin and BKK Andrew when you need 'em?

Originally Posted by Jet Gorgon

Originally Posted by Milkman

Will the Fed buy US Treasuries bills?

Yep, they just printed $1 Trillion yesterday to do so. (Told you so ) Get your money outta greenbacks, Honey.
Where's Spin and BKK Andrew when you need 'em?

I agree, Jet. The US Dollar is going to take a beating today on Friday, March 20, 2009.

Below is an article by John Kenneth Galbraih that is only a preview of the entire article. It's worth the browse. Galbraith notes even if the Stimulus creates some government jobs unemployment and low/no lending by banks many continue for years:

No Return to Normal

President Obama has predicted that the stimulus package will revive the economy by next year. Recent upticks in housing starts and stock prices give some hope to that view. There are many other reasons, however, to fear that in this economic crisis, the worst is yet to come.

In the cover story of the upcoming March/April issue of the Washington Monthly, economist James K. Galbraith makes the case for a much darker picture of what's in store. He begins by questioning an assumption held by nearly all modern economists, including those around Obama: that economies are naturally self-stabilizing, and therefore that economic slumps can be righted with relatively modest, short-term nudges from government. That idea fits the experience of every post-War recession. But what if the current crisis is less like those downturns and more like the Great Depression, when the economy famously failed to return to normal? In that case, the actions that official Washington has taken are bound to be woefully inadequate to the challenge.

If Galbraith is right, tens of millions more Americans will be out of work in a year or two or five, even if the stimulus creates all the jobs the president expects. Banks will not resume significant lending for years, no matter how much money the Treasury pours into them. And the economy will not recover for many years to come, until the balance sheets of average American households are rebuilt.

Based on these conclusions, Galbraith lays out an agenda that establishment Washington can hardly bring itself to contemplate, but had better start thinking about--from creating millions of government jobs for the unemployed to increasing entitlement spending.

A sneak preview of Galbraith's article, "No Return to Normal," is available here.

Link: No Return to Normal - James K. Galbraith

^ They're gonna start printing more money.

Here are 3 segments of the same interview by Jim Rogers on March 3, 2009.

This is VERY GOOD. The UK is discussed very heavily. (I put this here, because I couldn't find UK economy thread in Issues main page.) But the US is also discussed a lot. A lot of history is discussed in how it relates to the problems of today.

Part 1:


Part 2:


Part 3: