Bankruptcy In The U.S. Is Now Certain

February5,2010

The Silver Bear Cafe

By Porter Stansberry

It’s one of those numbers that’s so unbelievable you have to actually think about it for a while… Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that’s not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That’s an amount equal to nearly 30% of our entire GDP. And we’re the world’s biggest economy. Where will the money come from?

How did we end up with so much short-term debt? Like most entities that have far too much debt – whether subprime borrowers, GM, Fannie, or GE – the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then “rolling over” the loans when they come due. As they say on Wall Street, “a rolling debt collects no moss.” What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt… at ever shorter durations… at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that’s when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.

When governments go bankrupt it’s called “a default.” Currency speculators figured out how to accurately predict when a country would default. Two well-known economists – Alan Greenspan and Pablo Guidotti – published the secret formula in a 1999 academic paper. That’s why the formula is called the Greenspan-Guidotti rule. The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world’s largest money management firm, PIMCO, explains the rule this way: “The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support.”

The principle behind the rule is simple. If you can’t pay off all of your foreign debts in the next 12 months, you’re a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.

So how does America rank on the Greenspan-Guidotti scale? It’s a guaranteed default. The U.S. holds gold, oil, and foreign currency in reserve. The U.S. has 8,133.5 metric tonnes of gold (it is the world’s largest holder). That’s 16,267,000 pounds. At current dollar values, it’s worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that’s roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether… that’s around $500 billion of reserves. Our short-term foreign debts are far bigger.

According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we’ve been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months – an amount far larger than our reserves.

Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.

So… where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we’re still going to come up nearly $3 trillion short. That’s an annual funding requirement equal to roughly 40% of GDP. Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or the Russian central bank, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.

So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.

One thing they’re not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None own even 1% of their total reserves in gold.

I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry’s Investment Advisory, which we published last Friday. Coincidentally, the New York Times repeated our warnings – nearly word for word – in its paper today. (They didn’t mention Greenspan-Guidotti, however… It’s a real secret of international speculators.)

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Federal Reserve Makes $52 Billion Profit

January 13, 2010

BBC News

The sum allowed the central bank to pay a record $46.1bn to the US Treasury last year.

That was the largest amount ever paid by the central bank since its creation in 1914.

The record figure was largely thanks to its attempts to support the financial system throughout the ongoing financial crisis.

The Fed funds itself from its own operations and returns any profits to the Treasury department.

Taxpayer gains

The figures suggest that US taxpayers have, so far, gained money from the US government’s action in propping up the system.

Some of the profit has come from interest earned on government bonds and mortgage-related securities – including those of mortgage giants Fannie Mae and Freddie Mac.

The emergency lending programmes instituted by the central bank during the last year’s financial crisis helped swell the Fed’s balance sheet to more than $2tn.

They were designed to keep down interest rates and get banks lending to each other again, hoping to spark an economic recovery.

The Fed could also lose money on its holdings if it sells them at a time when they have fallen in value.

The Fed also earned money from its emergency loans to banks and other firms, such as the giant carmakers. It charged both interest and fees on these.

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UN Global Currency On The Way to Replace Dollar

January 4, 2010

Info Wars

By Paul Joseph Watson

A recent announcement by the United Nations that it will begin to mint gold and silver bullion coins bearing the UN logo has raised fears that a new global currency is being readied to replace the dollar, but the story is likely to be a hoax, muddying the waters of the very real move towards a global monetary system.

“The United Nations (UN) has licensed the minting of gold bullion coins bearing its logo to provide a “public option” world savings currency,” stated the original story.

The source of the story was attributed to both the Vancouver Examiner and Adfero Limited and it featured on the World Gold Council website, but the link to the article now gives a 404 error page. There is nothing on the UNCTAD website to verify the authenticity of the story.

Posters on the Ron Paul Forums dismissed the story as a hoax. “I posted this a while back, but there was no primary data source to back it up. Nothing on the UN’s site either, it’s more than likely a hoax” writes one.

Others have also questioned how the UN can afford to buy gold to mint its own coins, tying the development in with other suspicious circumstances surrounding alleged manipulation of gold prices.

“Where did the gold come from for the UN to start minting its own coins?” asks Gold Investing News. “For sure, the UN doesn’t have an official budget to buy tonnes of gold on the open market.”

“The story, which seems to have had little basis in fact and a lot of basis in speculation or imagination, has now been pulled from the site as it is not factual….The UN only issues commemorative coins.” writes BullionGoldCoins.com.

Posters on the Prison Planet Forum questioned the motives behind putting out a fake story about the move towards a world currency, suggesting unscrupulous people were “testing the water” on how the public would react to the announcement.

Just like the fake Amero coins hoax story which was put out by disgraced FBI informant Hal Turner, the UN gold story will still be parroted years from now by gullible people unaware of the fact that it’s a hoax. This in turn will allow debunkers to exploit the confusion and claim that the entire one world government agenda is a paranoid invention, when the process of its implementation is publicly announced on an almost daily basis.

The all too real move towards a global currency was unveiled at last year’s G8 summit in Italy, when Russian President Dmitry Medvedev displayed a coin to reporters a coin representing a “united future world currency”.

“We are discussing both the use of other national currencies, including the ruble, as a reserve currency, as well as supranational currencies,” the Russian leader said at a news conference.

This followed comments made by U.S. Treasury Secretary Timothy Geithner to the Council on Foreign Relations, in which he assured CFR globalists that the U.S. was “open” to the notion of a new global currency system to replace the dollar.

In addition, the scandal-ridden and highly secretive Bank For International Settlements, considered to be the world’s top central banking power hub, released a policy paper in 2006 that called for the end of national currencies in favor of a global model of currency formats.

The march towards a global currency is real, provable and openly documented. The UN gold hoax story has seemingly little purpose other than to poison the well with disinformation, thereby inadvertently detracting credibility from those who are warning of a global government takeover which manifests itself in a myriad of different ways at every major global summit, from the G8 to last month’s Copenhagen conference.
The REAL global currency coin, as unveiled by Russian President Medvedev at last year’s G8 summit in Italy. Click here for a larger image of the coin.

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WAMU Wants Fed to Turn Over Docs in Collapse Investigation

December 16, 2009

Reuters

By Tom Hals

The company wants to investigate discussions between JPMorgan & Chase Co, regulators, competitors and rating agencies it said led to the seizure of Washington Mutual, or WMI, according to a filing in bankruptcy court on Monday.

It said the alleged misconduct includes JPMorgan “disclosing confidential information, in violation of the confidentiality agreement, to government regulators, ratings agencies, media and investors in an effort to harm WMI by driving down WMI’s credit rating and stock price.”

Washington Mutual said it needs to determine if it has valuable claims against regulators and others that could be pursued on behalf of its creditors.

The company was the largest U.S. savings and loan when it was seized by the government in September 2008, at the height of the financial crisis, and sold for $1.9 billion to JPMorgan in what Washington Mutual has called a “fire sale.”

The company has been investigating possible claims against JPMorgan since the middle of 2009 and cited some of the documents provided by the bank to justify expanding its investigation.

It cites an internal JPMorgan email it said shows that a week before Washington Mutual was seized, the bank’s executives were contacted by the Federal Deposit Insurance Corp regarding their interest in Washington Mutual.

The request to expand its investigation also relies on information from a suit filed by American National Insurance Co, which is suing JPMorgan for its losses on its investments in Washington Mutual securities.

American National said in its suit that JPMorgan used former JPMorgan executives who went to work for Washington Mutual as part of a long-term plan to acquire the savings and loan.

JPMorgan declined to comment.

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Wall Street Paying Back Bailouts With Bailouts

December 16, 2009

Info Wars

By My Budget 360

In the last few weeks the corporatocracy has gone on a massive Madison Avenue public relations tour touting the great job banks are doing and how they are paying back the taxpayer for the generous gift of life.  Instead of working with small business or lowering credit card rates banks have taken it upon their shoulders to issue record breaking bonuses.  It is true that banks are paying back TARP handouts yet few are focusing on how the banks have made profits in the last 9 months since those dismal days of March.  There is also this convenient avoidance of fact that some $14 trillion in bailouts have been made to banks and Wall Street.  The TARP repayments amount to a few hundred billion, no small amount, but a fraction of the real cost to the American taxpayer.  The average American has benefitted very little from the corporatocracy handout to their banking colleagues.

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Congressman Calls for Post Office Bailout

November 20, 2009

CBS News

By Brian Montopoli

It’s been an ugly few years for the United States Postal Service.

The quasi-government agency announced this week that it lost $3.8 billion in the most recent fiscal year, which ended September 30th. It also delivered less mail – 26 billion fewer pieces less, a nearly 13 percent drop from the previous year. The bad news follows losses totaling $7.8 billion in 2007 and 2008.

The Postal Service, as it is quick to point out, is legally prohibited from taking tax dollars. But in order to stay afloat, the agency has been actively borrowing from the U.S. Treasury: At last count, according to Postal Service spokeswoman Yvonne Yoerger, it owes the government $10.2 billion.

Federal law dictates that the Postal Service can borrow up to $3 billion per year – but the debt cannot grow beyond $15 billion. That means that while the agency, which had revenues of $68.1 billion last year, could potentially borrow another $3 billion in 2010, it will soon no longer be able to legally borrow billions from the government.

Meanwhile, the Postal Service is estimating that without significant changes, it will lose another $7.8 billion in the coming year – and deliver another 11 billion fewer pieces of mail.

Which raises the question: Could the Postal Service be doomed?

“I don’t think the Postal Service is in danger of going away totally,” said Yoerger, the Postal Service spokeswoman. “But our current business model needs to be reviewed and revised to come up with a sustainable model so that we can get back to profitability while still continuing to meet our mission of serving all of the country with affordable, universal Postal Service.”

Yoerger told CBSNews.com that the Postal Service is seeking “flexibility to better manage our business.” Translation: We may technically be a government agency, but we’re also a business — and we want the government to get out of the way.

The agency cut $6 billion in expenses over the past year, eliminating 40,000 of its roughly 750,000 jobs and slashing overtime hours. But it says that isn’t enough. And it’s pushing for two major changes that it suggests could help get it back into the black in 2010.

The first is freedom from a government-mandated requirement that the agency pay more than $5 billion per year into a fund to cover its retired employees’ future health benefits over a ten-year period. The government allowed the agency to forgo $4 billion of that obligation this past year, but the requirement remains on the books.

The second goal, critics say, is a fundamental threat to the identity of the Postal Service: The end of Saturday mail delivery. The Postal Service has suggested cutting Saturday service could save 3.5 billion per year, though the Postal Regulatory Commission (PRC), which regulates the Postal Service, puts that figure at $2 billion.

The head of the PRC, Ruth Y. Goldway, urged “caution” about cutting Saturday service in Congressional testimony earlier this month. She said such a move could undermine “the vitality of the mail system” and the justification for its mail monopoly.

“From a market perspective, the Postal Service could lose its greatest strategic advantage – ubiquity,” she said. “Reducing service is detrimental to mail growth and to public perception of the value of the mail system.”

Illinois Democratic Rep. Danny Davis, a member of the Congressional subcommittee that oversees the Postal Service (and, until recently, its chairman), told CBSNews.com in an interview that the agency “is between a rock and a hard place.”

“It’s just not generating the money that you need in order to keep operating,” he said.

Davis said he was open to cutting Saturday service – perhaps on a rolling basis, so that certain communities would lack Saturday delivery once or twice a month – as well as loosening the health benefit requirements. He also backed a government bailout for the embattled agency if that’s what it takes to keep it afloat.

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Reid’s Health Plan Requires Monthly Abortion Fee

November 20, 2009

Republican Leader John Boehner

Just like the original 2,032-page, government-run health care plan from Speaker Nancy Pelosi’s (D-CA), Senate Majority Leader Harry Reid’s (D-NV) massive, 2,074-page bill would levy a new “abortion premium” fee on Americans in the government-run plan.

Beginning on line 7, p. 118, section 1303 under “Voluntary Choice of Coverage of Abortion Services” the Health and Human Services Secretary is given the authority to determine when abortion is allowed under the government-run health plan.  Leader Reid’s plan also requires that at least one insurance plan offered in the Exchange covers abortions (line 13, p. 120).

What is even more alarming is that a monthly abortion premium will be charged of all enrollees in the government-run health plan.  It’s right there beginning on line 11, page 122, section 1303, under “Actuarial Value of Optional Service Coverage.”  The premium will be paid into a U.S. Treasury account – and these federal funds will be used to pay for the abortion services.

Section 1303(a)(2)(C) describes the process in which the Health Benefits Commissioner is to assess the monthly premiums that will be used to pay for elective abortions under the government-run health plan and for those who are given an affordability credit to purchase insurance coverage that includes abortion through the Exchange.  The Commissioner must charge at a minimum $1 per enrollee per month.

A majority of Americans believe that health care plans should not be mandated to provide elective abortion coverage, and a majority of Americans do not believe government health care plans should include abortion coverage. Currently, federal appropriations bills include language known as the Hyde Amendment that prohibits the use of federal funds to pay for elective abortions under the Medicare and Medicaid programs, while another provision, known as the Smith Amendment, prohibits federal funding of abortion under the federal employees’ health benefits plan.

Leader Reid’s 2,074-page health care monstrosity is an affront to the American people and drastically moves away from current policy.  The National Right to Life Committee has called the Reid abortion language “completely unacceptable.” The American people deserve more from their government than being forced to pay for abortion.  The pro-life Stupak/Pitts amendment passed the House by a vote of 240 to 194, enjoying the overwhelming support of 176 Republicans and 64 Democrats.  The Stupak/Pitts Amendment codifies current law by prohibiting federal funding of elective abortions under any government-run plan or plans available under the Exchange.  The Reid plan ignores the will of a bipartisan majority of the House, and indeed the American people, by rejecting this bipartisan amendment.

Health care reform should not be used as an opportunity to use federal funds to pay for elective abortions. Health reform should be an opportunity to protect human life – not end it – and the American people agree.  House Republicans have offered a common-sense, responsible solution that would reduce health care costs and expand access while protecting the dignity of all human life. The Republican plan, available at HealthCare.GOP.gov, would codify the Hyde Amendment and prohibit all authorized and appropriated federal funds from being used to pay for abortion. And under the Republican plan, any health plan that includes abortion coverage may not receive federal funds.

UPDATED: Polls show an overwhelming majority of Americans reject government funding of abortion.
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This entry was posted on Thursday, November 19th, 2009 at 11:35 am and is filed under Health Care, Life Issues. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

448 Responses to “Sen. Reid’s Government-Run Health Plan Requires a Monthly Abortion Fee”
Lisa Says:
November 19th, 2009 at 11:44 am
Please stand with Sen. Coburn and make the whole bill be read before debate on it! I do not and will not pay for elective abortions. Thank you for standing strong for the Americans that are against the government taking over our health care system!

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Geithner Sees Dollar’s Reign Lasting a Long Time

October 28, 2009

RawStory

By AFP

US Treasury Secretary Timothy Geithner said Tuesday the dollar would keep its status as the world’s main reserve currency a “long time.”

Geithner, speaking to an investors conference in New York a day after the dollar hit a 14-month low against the euro, said: “The dollar will remain the principal reserve currency for a long time.”

The dollar has nosedived in recent months as investors turn away from the greenback, considered a safe haven amid economic uncertainty, amid a burgeoning recovery from a severe global slump.

The dollar’s status as the primary reserve currency has come under fire as it weakens, particularly from China, whose foreign exchange reserves surged to a global record of 2.27 trillion dollars at the end of September.

China has invested a large part of the reserves in US dollar assets, such as safe but low-yielding US Treasury bonds, but Beijing has tried to diversify its investments to improve its returns amid the global financial crisis.

Geithner said the US economy, which officially entered recession in December 2007, is in a “much stronger position than it was but it’s a mixed picture.”

He said that though businesses were finding it tough to get credit, “all broad measures of confidence are better” and the price of credit had dropped.

“We’ve achieved this initial sign of recovery much faster than expected and during past crises,” he added.

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U.S. Issues $7 Trillion Debt, Supply to Stabilize

September 23, 2009

Yahoo! News

By Burton Frierson

The U.S. government will have issued $7 trillion in bonds by the time the current fiscal year ends next week, but it expects the debt deluge to stabilize by mid 2010, a Treasury official said on Wednesday.

Though markets and the economy are improving, efforts to provide a firm foundation for recovery will require increases to the U.S. Treasury’s conventional bonds going forward, as well as debt securities that are indexed to inflation.

However, this expansion may take place in an environment where investors consider leaving the safe-haven Treasury market for riskier assets, and debt issuance is likely to level off mid next year, said Treasury Acting Assistant Secretary for Financial Markets Karthik Ramanathan.

“In fiscal year 2009, which ends next week, Treasury will have issued $7 trillion in gross issuance — that’s in a 12-month period,” Ramanathan told a financial markets conference in New York.

“This issuance was necessary to meet nearly $1.7 trillion in net marketable borrowing needs, nearly $1 trillion more than what we raised last year,” he added.

DEMAND TO WANE

The heavily-indebted U.S. government has seen tremendous demand for Treasury debt securities this year due to a flight-to-quality into the safe haven assets.

However, Ramanathan said some of this demand would begin to taper off and investors were likely to favor other sectors as the financial markets recovery continues.

“Rather than being discouraged by this move to more risky assets we should actually be encouraged,” he said. “It is the natural progression from the state we were in last year.”

The collapse of Lehman Brothers investment bank in September 2008 sparked the massive migration toward safe-haven assets, though the stock market has been in a remarkable rally since the spring.

Investors have also returned in numbers to the corporate debt market, which suffered during last year’s turmoil.

There is still a long way to go toward market and economic stabilization but good progress is taking place, Ramanathan said, adding that officials were no longer focused “on LIBOR/OIS spreads on a daily or hourly basis.”

“We still have a long way to go and…there are going to be bumps along the way, but at least we’re seeing the signs of traction,” he added.

The LIBOR/OIS spread is a market measure that reflects the difference between the cost of so-called risk-free borrowing, such as that done by the U.S. Treasury, and lending to the private sector, which is normally considered less safe.

LONGER MATURITIES?

When asked whether the Treasury would consider offering a longer maturity bond in the future, Ramanathan said, “We are content with our current suite of securities.”

The Treasury’s longest maturity is the 30-year bond.

However, issuance will increase in the near term, as has been the case all year.

“Going forward we expect to increase both nominal and inflation indexed coupon issuance incrementally and gradually over the next nine months to extend the average maturity of the debt,” he said.

Due to structural changes in the budget deficit, Ramanathan said he expected the average maturity of the debt to stabilize at six to seven years, exceeding historic averages of five years.

However, he said he expected coupon debt securities, or the bonds Treasury issues, to stabilize next summer and potentially go down toward the end of next year.

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