Thread: The strongest economy in the world

There are a few shoes that are next to drop. One of them will be Credit Cards - defaults and the banks that issue the CC companies the money. Or use to lend it, that is.

Troubled financials with a big credit card business should expect more losses as the economy continues to tank.


As unemployment continues to climb, many fears that credit card losses for banks will follow.

NEW YORK (CNNMoney.com) -- Major banks have been hit hard by bad mortgages. Now, fears are growing that troubled financial institutions are going to have another consumer headache to deal with: credit card defaults.
There have been no shortage of warnings about the business as the economy continues to sputter.

Just last month, Bank of America CEO Ken Lewis warned lawmakers at a high-profile Congressional hearing on the government's $700 billion rescue plan that he had no doubts 2009 would be an "awful year" for the credit card industry.
Unfortunately for Lewis and his peers, the nation's leading banks dominate the credit card landscape.

Link & Entire: Banks' future woes in one word: plastic - Mar. 10, 2009

Here's the good side. Bargains:

For sale: Cubicles, slightly used For retailers of used office furniture, stock is rising as businesses cut back, close down

By Lauren R. Harrison |Tribune Reporter March 10, 2009 Alongside the unemployment rate and other statistics confirming a recession, there's another unofficial indicator rising fast: Call it the used cubicle index.

Mounds of used office furniture are piling up as businesses close down or cut back.

At one Chicago office furniture retailer, the scene looks like a graveyard of downsized and defunct companies. Rightsize Facility Performance has 700 used chairs, 150 secondhand conference tables and scores of pre-owned file cabinets and cubicles for sale.

"Last year we had access to 30,000 to 40,000 office cubicles across the country," said Mason Awtry, Rightsize's president. "We're estimating that by the summer we'll have access to 250,000 cubicles across the country."

Link: For sale: Cubicles, slightly used -- chicagotribune.com

Addendum to post #1051

The Fitch Index records Credit Card delinquences. Another index to follow.

Credit card delinquencies hit index record

For the second month in a row, a record number of U.S. consumers were late on their payments, according to Fitch.

By Catherine Clifford, CNNMoney.com staff writer
Last Updated: March 10 Find personalized rates:

NEW YORK (CNNMoney.com) -- Cash-strapped American consumers are not paying credit card bills on time, sending delinquency rates to their second straight record high in a report compiled by a credit rating agency.

Fitch's Prime Credit Card Delinquency Index measures credit card debt more than 60 days late through January, and it surged to a record 4.04% in the most recent month, trumping the 3.75% record set in the previous month.

During the last three months, the index has climbed 23%, putting the index 30% above historical averages. Fitch started the Prime Credit Card Index in 1991.

"Record credit card delinquencies are just the latest sign that U.S. consumers are under considerable levels of stress," said Fitch managing director Michael Dean in a written statement.

Record delinquency rates are a harbinger of record default rates, according to the report.

"The latest numbers point to even higher default rates and worsening consumer credit quality measures in the coming months," said Dean.

When a payment is 180 days late or within 60 days of a bankruptcy filing, credit card companies consider a debt a "chargeoff," indicating that the payment is uncollectable.

Link & Entire: Credit card delinquency index in 2nd straight record high - Mar. 10, 2009

Here is a brief summary of the current and future:

^ The guy in that video said:

"The runaway inflation already underway here in the US"

Thats total poop! Sure inflation could very well be on the cards in the future, but right now? nooooo.

This says a lot. It really does.

GE stripped of triple A rating

By Justin Baer in New York
March 12 2009

General Electric lost one of its triple A credit grades on Thursday, ending months of speculation that the deteriorating prospects of its finance arm would cost the conglomerate the pristine debt ratings it had safeguarded for more than half a century.
Standard & Poor’s, which first assigned GE a triple A in 1956, dropped the company and its lending division, GE Capital, one notch to double A plus. It also assigned the new ratings a “stable” outlook

Link: FT.com / Companies - GE stripped of triple A rating

Ironically, inflation is just what USA needs to pull it out of its spiralling debt.
Inflation devalues paper money against real goods and services. And since all USAs international debt is in $USs, a devalued $US would mean less production of export commodities required to repay debt as those export commodities would be worth more in numerical $US value. Apart from defaulting on its international debt, inflation and the subsequent devaluation of its currency is the only way out for USA.

Originally Posted by Bugs

Originally Posted by Panda

Ironically, inflation is just what USA needs to pull it out of its spiralling debt.
Inflation devalues paper money against real goods and services. And since all USAs international debt is in $USs, a devalued $US would mean less production of export commodities required to repay debt as those export commodities would be worth more in numerical $US value. Apart from defaulting on its international debt, inflation and the subsequent devaluation of its currency is the only way out for USA.

This assumes that we someday actually want to repay all our debt. As long as the rest of the world is willing to buy our dollar denominated debt certificates why should we want to pay off what we owe?

We'll just continue to pile on the debt, and the rest of the world will continue to prop up our currency because they don't want the value of the debt they already own to go down.

What about this for starters- it is never clever to live only on borrowed money in the end it will catch up with you, and to borrow while you very well know that you cant honour your debt would if it was you in persona doing it amount to fraud, does it get right when it is a whole Country doing it ?

Originally Posted by larvidchr

Originally Posted by Bugs

Originally Posted by Panda

Ironically, inflation is just what USA needs to pull it out of its spiralling debt.
Inflation devalues paper money against real goods and services. And since all USAs international debt is in $USs, a devalued $US would mean less production of export commodities required to repay debt as those export commodities would be worth more in numerical $US value. Apart from defaulting on its international debt, inflation and the subsequent devaluation of its currency is the only way out for USA.

This assumes that we someday actually want to repay all our debt. As long as the rest of the world is willing to buy our dollar denominated debt certificates why should we want to pay off what we owe?

We'll just continue to pile on the debt, and the rest of the world will continue to prop up our currency because they don't want the value of the debt they already own to go down.

What about this for starters- it is never clever to live only on borrowed money in the end it will catch up with you, and to borrow while you very well know that you cant honour your debt would if it was you in persona doing it amount to fraud, does it get right when it is a whole Country doing it ?

Firstly we aren't living only or borrowed money - granted we are borrowing a huge chunk of change each year but we don't borrow all of it.

Secondly there is no doubt that the US can honour our debt - all of it (or at least the vast majority of it) is issued in US dollars. So all we have to do to honour it is to print more US dollars. In theory we could pay off the entire debt any day we wanted to (Ok so it would probably take more than a day to print that much cash).

This is not to say that I agree with how the US has been doing things. I don't think we should be running up the debt in the way that we have over the past 20 years or so. IMHO the last time (outside of right now) that deficit spending really made much since was probably the early '80's. With the amount of debt we have already built up I feel it would be detrimental to the average Americans lifestyle to do much about it quickly or right now (I think we are at a point in time right now where deficit spending may be required to help get the US economy around turned around).

So I am actaully in favor of eventually paying down the debt. And I don't have a problem with allowing some of it to be eaten away be inflation. But I am not in favor of nor to I wish for the levels of hyper-inflation to take place that would be necessary for a significant dent to be made in the debt.

Yet another point is that it is not necessarily a bad idea to continually carry some level of debt - be it an individual, company, or a country. Many times the benifits that can be gained from borrowing can easily offset the cost of carrying said debt. So I don't know that I would be in favor of or if the goal should be to eventually paying off all of the debt - however unlikely that may seem right now.

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 ?

Originally Posted by Bugs

This assumes that we someday actually want to repay all our debt. As long as the rest of the world is willing to buy our dollar denominated debt certificates why should we want to pay off what we owe?

We'll just continue to pile on the debt, and the rest of the world will continue to prop up our currency because they don't want the value of the debt they already own to go down.

Exactly, its like the shopkeeper giving credit to an unemployable guy because he buys stuff from the shop.

The unique position USA is in is that it can create the worlds default trading currency at will. The $US partially replaced gold as the international measure of wealth post WW2 and completely replaced gold in the Nixon era. Such is the reason investors, individuals and whole governments, are converting their paper wealth into $USs and forcing up the tradable value of the $US at the moment.
If such a system continues the USA can never run out of money as it can simply borrow and print more as required. Currently, the relatitively high tradable value of the $US is being backed not so much by the wealth and production of the United States, (as is generally the case with other countries), but by investment in $USs and US debt by other countries.

However, just because thats been the world status quo for the past couple of generations doesnt mean it will continue forever.
The boom years for USA of living on credit from the rest of the world could well end abruptly if (and when) the rest of world decides its not in their interests to keep lending USA money and more importantly, to keep using the $US as the worlds default trading currency.

The $US hegemony, the tradable value of the $US, and the US debt are intrinsically linked in this international financial experiment of the past few decades. It is a system that can not continue unless the rest of the world agrees to continue subsidizing USA debt for the privilege of using $USs as the worlds default trading currency.

Right now we are in uncharted financial waters. Everyone is just hoping that things will go back the way they were a couple of years ago. But nobody knows how to get us back there, least of all the worlds so called financial experts who got us all into this mess in the first place. Its been a good ride using the $US to replace gold as the worlds measure of wealth and it seemed like a good idea at the time back when it was initiated and the USA was a major nett exporter backing their currency with a surplus of tradable goods. But those days are over now and we are stuck with a financial system that no longer fits the times.

The only real solution is for the whole world to select a new form of trading currency backed by productivity rather than the current debt based $US. That has to come sooner or later. But in the meantime, most countries are fearful of such a change because it would mean a drastic reduction in the tradable value of $USs held in reserve. The USA is a bit like the failed banks we see around us at the moment. They are unviable in their present form but big brother keeps propping them up because everyone is scared of the consequences of letting them fail.

Thanks Panda you explain it very well, cant green Bugs and You

Originally Posted by larvidchr

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.

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.

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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