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Guest Post: The True National Debt
Submitted by Jim Quinn of The Burning Platform
The True National Debt
When I read Paul Krugman and the other Keynesian boneheads saying that our debt is not a problem, they quote figures about our debt of $13.3 trillion versus our GDP of $14.6 trillion not being so bad. That is only 91% of GDP. They point to World War II when our national debt reached 120% of GDP. They say everything worked out after that.
Well lets analyze that comparison for just a second. In 1945, Europe, Russia and Asia lay in ruins. The devastation was epic. The United States stood alone as the only unscathed country in the world. America became the manufacturer to the world. We rebuilt Europe and Asia. Our GDP soared, as our National Debt declined from $269 billion in 1946 to $255 billion in 1951, remaining below $300 billion until 1963.
Today our reported National Debt is $13.362 TRILLION. This is the first big lie. There are two entities named Fannie Mae and Freddie Mac that happen to be 80% owned by the US government. Anyone who thinks these two companies can operate without the backing of the US Government are delusional. The US taxpayer is on the hook for these two disastrously run companies. Somehow, government accounting doesn’t require their debt to be considered the responsibility of the US taxpayer. This is a fraud, pure and simple. Their debt is our debt.
According to their latest 10Q filed in early August (links below), their debts are:
- Fannie Mae: $3.257 Trillion
- Freddie Mac: $2.345 Trillion
The true National Debt of the United States is $18.964 Trillion. Therefore, our debt as a percentage of GDP is really 130%. This is beyond the level reached during World War II. We are no longer the manufacturer to the world. We are the consumer to the world. The country adds $4 Billion per day to the National Debt. Our GDP is stagnanting with future growth no better than 2% being realistic.
Kenneth Rogoff and Carmen Reinhart, after analyzing data over 200 years throughout the world, have concluded that once debt reaches 90% of GDP, a tipping point is reached. Crisis and collapse will ensue.
After looking at data from 44 countries spanning 200 years, they’ve concluded that at ratios of debt to GDP up to 90%, there’s not much correlation between government debt and economic growth. Above 90%, however, median economic growth rates fall by one percentage point and average economic growth rates fall by about four percentage points. That makes the 90% level a kind of make-or-break point for countries that are hoping to grow their way out of debt. If the government debt load climbs above 90% of GDP, economic growth slows so much that growth is no longer a viable solution to reducing that debt. Above the 90% level, governments serious about reducing their debt load have to increasingly rely on “solutions” such as reducing wages and depreciating their currencies, which might over time increase global economic competitiveness enough to give a boost to national economic growth. In the short to medium term, however, these “solutions” inflict real pain on the citizens of the countries since they reduce standards of living.
The U.S. is well beyond the tipping point. By the time Obama exits Washington DC in 2012, the ratio will be 140% of GDP. That is if the currency collapse doesn’t happen first.
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Only until 2012. Congress has to renew the explicit backing by legislation. That was the only way the FRB could buy MBS.
"Congress has to renew the explicit backing by legislation."
Good point. Since we all know how rational and fiscally responsible Congress is they'll surelly cut the umbilical cord in 2012. I mean they'll cut them off right? They wouldn't even think of carrying an extra 5 Trillion in debt would they?
Are they planning to issue a budget by 2012? 3012?
Nah.. We'll be just fine.. <sarc>
Actually the US likely will be, just will no longer be a military superpower. The cost of all those bases and wars is a huge part of why there's so much debt. Also, a big part of why when the default does come, it will likely be taken as the "cost of doing business"
I just don't understand why the government is allowing Fannie & Freddie to continue hemorraghing like it is. Talk about a money pit.
That's because your not looking at the problem through a political lens, after which either i) there is no problem, ii) Subsidized housing is a right of every citizen (as long as it buys me votes)
True, it's viewed through the political lens. However, it is more than that: Mathematically, F&F cannot be unwound.
There is no mechanism by which insolvent banks, pension funds, and sovereigns worldwide can deleverage from such a collapse in the mortgage bond market. Nobody can leverage out of those positions. The capital does not exist on planet earth.
True, F&F will have increasing cashflow problems as accounting fraud and fair market valuations will be increasingly difficult to hide. But, it doesn't matter. The patient is already dead, and it doesn't matter how clever we all want to pretend to be in creating new accounting fictions.
These positions *cannot* be deleveraged without taking out sovereigns all over the world (which is imminent).
When the smoke clears, property will be valued in some new unit of currency, and it will be a bloody mess as to who owns the house. Like after a war, some "clear" (unencumbered) title will somehow be issued to some party under a legal framework that currently does not exist.
Hey Mikla, thanks for the avatar BTW.
Until the Fed is destroyed there can be no solution, that's not going to happen.
Take what assets you posses and find a simple place to exist.
It's unraveling will be a nightmare. A huge portion of the loans were weak from the get go in order to deliver to a specific voting demographic. They are gonna go nuts...
Well the banks are still marking this crap to almost full value waiting for housing to rebound to pre crisis levels. They still need to get the securitization market rolling again, or the derivative implosion will drag us back to the stone age.....
http://www.investopedia.com/ask/answers/07/securitization.asp
A typical example of securitization is a mortgage-backed security (MBS), which is a type of asset-backed security that is secured by a collection of mortgages. The process works as follows:
First, a regulated and authorized financial institution originates numerous mortgages, which are secured by claims against the various properties the mortgagors purchase. Then, all of the individual mortgages are bundled together into a mortgage pool, which is held in trust as the collateral for an MBS. The MBS can be issued by a third-party financial company, such a large investment banking firm, or by the same bank that originated the mortgages in the first place. Mortgage-backed securities are also issued by aggregators such as Fannie Mae or Freddie Mac.
Regardless, the result is the same: a new security is created, backed up by the claims against the mortgagors' assets. This security can be sold to participants in the secondary mortgage market. This market is extremely large, providing a significant amount of liquidity to the group of mortgages, which otherwise would have been quite illiquid on their own. (For a one-stop shop on subprime mortgages, the secondary market and the subprime meltdown, check out the Subprime Mortgages Feature.)
Furthermore, at the time the MBS is being created, the issuer will often choose to break the mortgage pool into a number of different parts, referred to as tranches. These tranches can be structured in virtually any way the issuer sees fit, allowing the issuer to tailor a single MBS for a variety of risk tolerances. Pension funds will typically invest in high-credit rated mortgage-backed securities, while hedge funds will seek higher returns by investing in those with low credit ratings.
I assume that in the interest of inflammation, these are gross liabilities, not net of any asset value?
Gross liabilities.
$5.7T of mortgages must be worth something even after a housing bubble burst. How about 50% ? Got to be half-way right...
But the toxic Ginnie mortgages and Sallie loans and Muni/State debt would add hundreds of billions of extra debt. Maybe $18T is reasonably estimated.
Because that's how Fascism works: Socialize the losses and privatize the profits.
Nassim Taleb recently 'updated'his opus:
'The Ten Principles for a Black-Swan-Robust Society'
2.No socialization of losses and privatisation of gains
'...In the U.S.A, in 2008, the banks took over the
government.It's surreal.'
Superlative comment, Amsterdammer.
I have long suspected (and no disrespect meant to the memory of Mr. Kellerman) that a strong causal factor in David Kellerman's suicide after he became acting CFO at Freddie Mac, was that in realizing a career ambition (he'd been a financial analyst and auditor there for quite some years), was that he finally had full access to their records and such.
When Mr. Kellerman finally saw the complete picture, he was truly shocked with the situation he had stepped into, having no fault and reaping no profits in the matter.
Also :
In an article on FinancialSense.com on September 9, Daniel Amerman maintains that the government’s takeover of Fannie Mae and Freddie Mac was not actually a bailout of the mortgage giants. It was a bailout of the financial derivatives industry, which was faced with a $1.4 trillion “event of default” that could have bankrupted Wall Street and much of the rest of the financial world. To explain the enormous risk involved, Amerman posits a scenario in which the mortgage giants are not bailed out by the government. When they default on the $5 trillion in bonds and mortgage-backed securities they own or guarantee, settlements are immediately triggered on $1.4 trillion in credit default swaps entered into by major financial firms, which have promised to make good on Fannie/Freddie defaulted bonds in return for very lucrative fee income and multi-million dollar bonuses. The value of the vulnerable bonds plummets by 70%, causing $1 trillion (70% of $1.4 trillion) to be due to the “protection buyers.” This is more money, however, than the already-strapped financial institutions have to spare. The CDS sellers are highly leveraged themselves, which means they depend on huge day-to-day lines of credit just to stay afloat. When their creditors see the trillion dollar hit coming, they pull their financing, leaving the strapped institutions with massive portfolios of illiquid assets. The dreaded cascade of cross-defaults begins, until nearly every major investment bank and commercial bank is unable to meet its obligations. This triggers another massive round of CDS events, going to $10 trillion, then $20 trillion. The financial centers become insolvent, the markets have to be shut down, and when they open months later, the stock market has been crushed. The federal government and the financiers pulling its strings naturally feel compelled to step in to prevent such a disaster, even though this rewards the profligate speculators at the expense of the Fannie/Freddie shareholders who will get wiped out.
Naw, Uncle Sam jumped on this grenade to CONTAIN it.
It's time to kick the banks out of the US treasury.
+ CDS Payoff.
When this thing goes, it will be fast and complete. Banking holidays, stock market closures. There will be no sorting it out. They will have to start over with some new currency/money. Just hoping I have enough food and water to make it through...
This is superficial.
I've tried in many instances to explain synthetic debt so I'll give it another crack. The CDS sellers did not hang onto the coupon. They securitized it.
This technique permitted net notional outstanding and credit to grow far in excess of what any real economy would have permitted. It also goosed the shit out of GDP.
There were derivatives based upon equity tranches of CDS payment streams. Nobody has any fucking clue where this paper trail runs, but these toxic shitpiles are out there all over the world, just waiting to implode if not liquified. CDSs are like bonds in reverse, except without the capital. They are ideal for synthesizing securitized debt instruments to maintain fee flow. They've been a license for Wall Street to print fucking money.
Only idiots like AIG were stupid enough to not net out. GS stands only in the middle of most of these things, having written the CDSs then tranched and sold off the payments, taking fees and a skim with them. These mfers even tranched up tranches. Pile a bunch of equity tranches into another CDO and call the supersenior of that CDO^2 AAA+.
This is what grew credit and how the banking titans got rich...by manufacturing demand for FRN product far beyond the organic demand, creating their own credit originations and skimming the flow of money across their derivatives desks.
When the music stopped, they all nearly died not because of real exposure but because too much of this shit was clogged up in their off-sheet SIVs. None of them had stopped the manufacturing of debt and they were on-hook for liquidity events as a result of having to service product in the middle stages of manufacture.
Think of it like this...a drug dealer buys a lot of raw material for meth on credit. His meth lab gets blown up or burns down. He's got a liquidity problem. That's literally what happened to Wall Street. The end market froze completely and they still owed for the raw materials in their SIVs.
"Nobody has any fucking clue where this paper trail runs..."
Well done, trav7777, you have a talent for repeated the droid-speak which is the OFFICIAL STORY.
Obviously, there are records of counterparties up the wazzoo, else wise how could payment be ascertained in the event of a "credit event"?
Nope, well something of what you said is correct, the official story still ain't the real story.
Goldman, JPMorgan and Morgan Stanley would have gone belly up, nothing would have saved them.
PERIOD.
So long term
Say over the next 20 years what will the lanscape be for us in the usa if they can't get the shadow banking system restarted? Can the credit creation it was providing be replaced? How hard is the fucking landing going to be if they can't get it moving again. The banks in europe are levered huge no ...
Wait a sec... are you saying that CDS's were re-packaged into more CDO's??
All right, beam me off this completely Stupid planet!
On target, Spalding_Smailes, right on target!!!
Without the bailout of those two, JPMorgan Chase, Goldman and Morgan Stanley would surely have gone belly up.
Always, those three win out......
It's much, much bigger than $1.4 trillion. If it was that small it would actually be managable.
The derivative problems are 250 X that amount.
EXACTLY, Ripped Chunk, exactly!
When the trail is tracked, it leads to debt issued as asset, and bought and issued as asset, etc., etc., etc., and then used to generate ABCP, which in turn......
Your comment is most cogent today, sir or madam!
@ mad max fem...not sure could be THEY HAVE NO CHOICE.
No they do not.
But you still have to call a spade a spade,no.
Does anyone ever sit back and notice how crazy the last 3 years have been. Fannie, AIG, GM, TALF, Cash for Clunkers, Swap Lines, Putting off Basel 2 because it cast a flashlight on the abyss, Cali IOU's, all the smoke and mirrors & I am suppose to sit back and think everything is a.ok.. ?
The game is over, but no, they try to keep a floor under everything till the next generation grows up and starts buying MBS's again, with some ivy league piece of shit pushing this worthless crap on the next fool to turn the corner.
"I am suppose to sit back and think everything is a.ok.. ?"
Negative, you, for one, appear to be in the know.
Instead, everyone should sit back and realize the fantasy financial interlocking of structured loans from the banksters to the private equity leveraged buyout "specialists" and the pension funds and the endless securitizations with the bait-and-switch routines of the hedge funds (you really think those returns a few years earlier were for real???), and Freddie Mac and Fannie Mae, ending up with those debt-financed billionaires and debt-financed trillionaires who masterminded this BS.
You forgot the lack of transparency for bank stress tests (here and in Europe), regarding the BIS recently, the Fed and plenty more. People with something to hide usually have a reason that is not good...
why would the currency collapse?
has everyone in our economy decided to stop working?
are businesses no longer accepting the USD for transactions?
are the masses refusing to pay taxes?
have the police and millitary personnel left their posts?
It would collapse because what goes on in the US, such as the various items you enumerate, is largely irrelevant to the fate of the dollar. The US has been surviving for decades by shipping dollar denominated debt overseas in return for real goods and services. It is now utterly dependent on the kindness of strangers to continue accepting this paper and never to contemplate dumping it.
If confidence is lost that the US will continue to meet its debt obligations, or that it will meet them with non-devalued paper, then it is game over for the dollar. That is the downside of owning the world's reserve currency.
that is too funny.
actually, the fact that Americans pay taxes is exactly why the currency has value. that we have a police (and a millitary) and a functioning judicial system, is one of the reasons people do pay taxes.
your claim that the USA "depends on the kindness of strangers" is simply wrong, and borne of ignorance as well as too much time spent reading blogs instead of modern monetary theory. the USA depends on nobody for funding other than its unlimited ability to credit bank accounts.
and the notion that the world is going to "lose confidence in the dollar", causing a collapse, is just more nonsense.
by the way, the first catalyst that all the hyperinflationists were looking for was "China dumping treasuries", which was supposed to cause interest rates to skyrocket and trigger the default. Well, guess what, China already started dumping treasuries, and treasury prices have skyrocketed ever since.
Ahhh, an MMT'er. I tread carefully over at nakedcapitalism, etc. since I want to be respectful to their turf. I can be a bit freer here.
MMT'er's have this glorious view of Treasury issued money, blah, blah, blah.
BUT WE DON"T HAVE TREASURY ISSUED MONEY. It's issued by the privately-owned Federal Reserve. And is "borrowed" by the UST. We live in a <voluntarily> constrained money-issuance paradigm.
So, yes, confidence can get lost in THIS system. Not the system you imagine it to be, or wish it was.
And I read that article about China/UST's too. It's an incomplete theory, that does not account for various market manipulations by the Fed, and also is a bit premature. Oh, sub-prime is contained?
The more you use that 'unlimited ability' the more confidence will be lost. Can't have it both ways. Bitchez.
Unlimited ability to credit bank accounts?
Yes indeedy. In that case, why doesn't Helicopter Ben just wire $1bn to every checking account in the country? Hell, if wealth can be created that easily, what's all this nonsense about an economic slowdown all about?
You, sir, are a prize loon.
Yes the first catalyst was bound to be China dumping USTs and they are. we have given them a perfect storm to sell into. They get to trade worthless paper for more cash that they can buy real things with. They profit and get out at the same time. Funny how that works for them.
Who then buys our debt? The only buyer will be the Fed after the hedgies leave the trade. Why would anyone have confidence in the dollar when the government is printing more dollars than states produce in actual goods in a single year?
Why would anyone hold a paper scrip that has to compete with an infinite number of other paper scrips? The government will try to buy everything with it's bullshit little pieces of paper. The denmination doesn't matter to them, they'll just add a zero or two or twelve until the people just say, screw that shit! I ain't taking worthless paper.
People like you fail to see that paper isn't money. Paper is merely an illusion that if believed by enough can function for a while but ultimately the charade is exposed and everyone sees the scam. We aren't there yet, but it's getting much much closer to that time as prived everyday by the new people here and elsewhere screaming that the dollar is already dead because it is.
A bankrupt nation cannot have a sound fiat currency. It's an impossibilty and the US is indeed bankrupt.
I'd say that is pretty much right... especially this part:
Yes...who is the biggest purchaser of US Treasuries right now? How much are those buyers paying to borrow the money to buy the US Treasuries? And who is paying the dividend on those Treasuries to those buyers. One fucking word: Ponzi!
20% or so have, with more to come.
Businesses outside of the US now rarely accept USD, and commodities producing countries are on the verge of abandoning it as well.
The masses can't pay their increasing tax burden because they are out of work, or thier significant other is out of work. They have been denied much needed raises, etc.
Not sure why police or military leaving their posts is an indicator of anything other than an underfunded military, which we certainly don't have. Lots of police are being laid off, though, as cities get closer to bankruptcy.
So yeah. . . currency collapse.
The police & military comment *I think* is the observation that in a currency collapse, why would the very people who put their life on the line continue to do so for (essentially) free?
If the USD becomes worthless, then Chemba thinks those professions would be the first to abandon ship.
Which I disagree with, most in those lines of work truly believe that they are keeping "us" safe from "them."
Even in RoboCop many police officers refused to strike in the face of conditions that would likely arise if we woke up in the US tomorrow to $50,000 gallon of gas and $25,000 loaf of bread.
Military projects that line the pockets of politicians and their friends, sure, they're funded.
Actual pay for soldiers, not so much. I'm constantly amazed how few people realize just how shitty military pay is, in general. It's gone up about 50% since I was in, and it still blows.
They've stuck to that line of work so long because, as you've pointed out, they see themselves as protecting "us". Well, news flash, the military is tired of getting screwed and the police in many areas are well on the way to defining "us" as "people wearing badges".
They would be the last to abandon ship, but they would, and it is a mistake to think they're not memorizing where the lifeboats are.
If you throw in most of the military contractors you get a pretty good cross-section of the entire country. And, with the pay scales being as skewed as you point out, look at where the average grunt fits into the picture. The pay sucks, the benefits are tolerable. In the long run I think there is no way most of these guys could draw down on a neighbor.
I don't share your optimism Rocky. . . if real chaos hits amrka, people will be "othered" into kill-able categories, as always. . . the "obese," the "boomers," the "lazy 99-weekers," - you catch my drift I'm sure.
arm & wage a kid that sees no future, you'll get deaths. . .
Kent State? it's really easy to imagine, sadly.
Kent State Massacre was in 1970. I was 22 years old in the Air Force at the time. There was no mention of it in the Stars and Stripes. Amazing. I was appalled at the incident and saw the military as the demon. So, no, all of them are not zombies.
hell, police state. scary. two uniform and one plain clothes man cops were about to draw their guns on me this morning in a hardware store parking lot. i saw a man walking around in a delirious state without his pants on. i was worried for him and than he approached my car. so i got a man to check him out and he and his wife certainly thought they should call the cops. he might have dementia or something. i go in and buy my hatchet come out see three police cars and bright lights on. i walk up to them, wanting to know if the man is ok. fuck all three of them have their hands on their guns yelling at me not to come closer and i am saying i just wanted to know about the man. big fing men, yelling "put down your axe lady" or we will shoot you. of course didn't really think much, never do about items i purchase in a hardware store, being considered weapons. i tossed it to the ground and said you really scared me yelling at me, i just bought this from the damn hardware store. all three come back with "you really scared us" the plains clothes man said he had a man come after him with an axe that wanted to harm him. i hardly look like i know how to operate an axe, let alone know how to kill them. it is ok now. i haven't been confronted by cops, really ever. made me shake a lot.
Currencies collapse when confidence is gone from the country, i.e. central bank or government. When the Fed monetizes debt that is dilutive to the dollar. Spending more money by issuing debt will dilute the dollar. One cannot print to prosperity without impacting the currency.
Whether people accept dollars or not is irrelevant, period. You can have, as Rome demonstrated, the strongest army in the world and the currency can still collapse. Americans ARE taxed heavily already. Income taxes, property taxes, sales taxes (on everything from groceries to your cell bill), FICA taxes, capital gains taxes, dividend taxes, insurance premium taxes, state income taxes, AMT, fees for transportation, licenses, water, sewer, public transportation, etc., etc. The average American keeps very little of their income after they pay taxes. There is a point when you cannot tax anymore and we are almost there. That means you cannot raise money if you are taxed to the max already making the "unlimited taxing ability of the US government" irrelevant.
A currency can collapse and we might see it soon if the Fed keeps monetizing the debt.
Whoever junked demsco's response is official "King Idiot" of this thread. It just doesn't get much more simple than the explaination above.
As ZH gets more popular, I think there are more gov/corporate shills that drive-by troll/junk.
Word. And wanna be squid.
(duplicate removed)
Just a random crazy thought...while Obama is playing golf and kicking it in a $20m house on Nantucket and our economy continues to show major warning signals of its decline almost daily with no word from the administration about what it plans to do (since announcing 'Recovery Summer'), do you think maybe he wants us to implode so he and his progressive friends can re-engineer America> I know it sounds paranoid, crazy and radical, but I can't figure out why they are doing nothing to put confidence back in the markets. I'd love to hear thoughts on this.
Yeah, you sound paranoid -- just NOT paranoid enough!
An actual pound of sterling has done well against the Pound Sterling over these last 400 years
Why do black holes suck in all matter at an increasing velocity?
By the time Obama exits Washington DC in 2012
What?!? Who's seriously not going to vote for Obama again in 2012? He's a shoe in! //for god's sake sarcasm OFF//
I certainly am not ready to write him off. He's a slick politician and the candidates the Republicans have been floating around out there seem like nothing more than a bunch of sacrificial lambs.
I guess TBTF banks aren't finished unloading their bad MBS to the FRB just yet. Maybe that's why Timmy said that Treasury wasn't going to do anything about Fannie & Freddie till next year.
To be totally truthful, let's add in the $60+ trillion of unfunded liabilities, and then take stock of the mess we (yeah, we voted for these characters) have made.
http://paul.kedrosky.com/archives/2010/07/unfunded_entitl.html
Great post, thanks. We are beyond the tipping point indeed...and we haven't even talked about SS and Medicare!
right, we also havent' talked about all bankrupt states to be soon bailouted by the gov (ok, only a few 100billion,that's peanuts), the CRE time bomb, the auto industry "aids" (not included as far as i know) etc.
Welcome in America !
The US won't make it that far. Sovereign counter-party risk ensures the dominoes will tip over the US once things start falling. If the EU doesn't take out the US, then California and Illinois will.
These simple truths are *so* simple. However, the scale is so unthinkable that humans just don't believe them. "But, this ponzi will be fine. They will think of something."
Blind faith in central planners makes no sense. Does anyone really think these godlike officials are that smart?
You humans are really weird.
One should "trust the central bank" - Quote from diapers-Mishkin...
Agree on the scale issue...
'You humans...' implicitly excludes yourself from the whole. Care to elaborate. If you're not part of the 'human' whole, then to what whole to you belong?
We hesitate to answer, as we are currently considering a run for political office.
Ah, Citizen Kang.
Best. Simpsons. Episode. EVAH!
BTW, has anyone seen the 2011 budget yet, due last April, Effective 1 Oct. HMMM,,,,,
If memory serves (and I recognize your brilliant sarcasm here, cossack55), that was the budget they decided not to bother with.....
Will we see another one?
Welcome to the post-budgetary US government. 'Budgets' are so...pedantic. Where's the creativity in that.
<do I really have to say /sarcasm off>
Not to be lazy, but I'd love to see a chart of ALL of the debt out there. Private, corporate, muni, government, mortgage, etc.
And don't forget the unfunded liabilities. Add in the muni debt to the national fed debt (which I think would be a more accurate figure for the discussion above), and I bet you get a much, much higher number.
It's simply physically not possible to pay off all of these debts. Let's just get the default ball rolling already...
One of the biggest risks to the world's financial health is the $1.2 quadrillion derivatives market. It's complex, it's unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost -- and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.
+10
That's over at shadowstats, and been there for quite some time.....
One should wonder that if the US would default on its debt, that if all states would remain joined.
Texas, California...
I don't know.
Private wealth in the U.S. is estimated at @ 60-70 Trillion. Some portion of this will be confiscated through a wealth tax which could be assessed annually. In addition, a VAT is almost a certainty as is the death tax on estates over 1M. Add in increased income and excise taxes and the problem is manageable from the perspective of the statists. Indeed, this is precisely the Obama plan to equalize outcomes in the name of fairness and grow the government. The reaction of political opponents like the Tea Party may slow the process but this country is inexorably heading toward European style socialism.
How much of that 60-70 private wealth assumption is underpinned by 2006 home values ....Hmmmmmmmm I wonder.
$20T
That might be the plan but you are forgetting a couple of small details:
1) 47% of the population is made up of zero liability voters. They not only pay no taxes, but actually drain the system with support payments. You can not, politically speaking, raise taxes on welfare recipients. So taxes can only be raised on those who currently pay taxes.
2) Money is liquid. Those who make money and pay taxes can easily move their funds to other countries. As an example I refer you to the earlier posting here in ZH about the yachts in Greece and how multi billionaires were reporting less than 40K Euros as income while owning multi million Euro yachts. Those who can not hide their income as efficiently, say a surgeon making 250K a year, can just retire early or cut back on his hours in order to reduce his liabilities. In that environment the GDP will accelerate its downward spiral as there is no incentive to make money just to have it confiscated.
3) Countries with confiscatory taxes have a vibrant black market. You can choose to take other form of undeclarable compensation in lieu of FRNs in order to limit your liability. If you have a critical skill, and the more critical your skill the higher the compensation, you can find other ways to be compensated without actually receiving FRNs. Instruments such as deferring income to out years or non-traditional compensation will become the norm. Yes there are exceptions, but in general people do not work harder for less income.
I see it as much more likelly that they will attempt to extend the ponzi by confiscating 401Ks in order to "secure them from the risks of Wall Street". This might give them a few extra months, but the confiscation of paper to back more paper can not stop a collapse.
About the only thing that could work would be using T-Bills backed by MBSs and Federal Lands. Kind of pawning your furniture and refinancing your hose to pay off your credit cards. The problem is that TPTB will not stop spending after re-financing our property. Nope, with a clean credit card they will speed up the spending spree. At some point you run out of things to sell. One way or the other bankruptcy will follow (Sovereign Default) either in the form of an orderly default or Hyperinflation and the collapse of the dollar. Either way, we are screwed.
"This might give them a few extra months, "
Or war. Those under a certain age would know exactly why their accounts are being looted.
Nah, the wealthiest people in the nation are socialists and some are in Congress.....Soros, Gates, Buffet, Pelosi, Kerry, Corzine....... They want the middle class to pay taxes out of income rather than having their wealth impaired. The caveat to that is they generally don't have IRAs, 401k's, pension plans, so they'll be glad to confiscate all tax advantaged plans to pad the Treasury.
Pelosi has lots of money?
Oh o.k., so I guess I would sleep with her.
I'd sleep with her if her daughter was included in the deal.
...gross...
Really? You wouldn't throw her a hump if nobody was lookin? Big ole bug eyes popping out of that cryptkeeper skull with a rubber mask stretched over it?
Just cover her in pineapple chunks first.
A must read link, and if these scumbag politicians even try to pass this crap, its time to get your gun folks and start head-hunting.
http://www.eutimes.net/2010/08/us-said-preparing-new-laws-to-seize-americans-retirement-accounts/
The existing home sale numbers today just blew through not only the current Congressionally voted upon Federal debt ceiling, it blew through the next increased debt ceiling, and next debt ceiling that will be done in the spring before Obama's reeelection year.
THe realists who have been estimating the actual losses from F&F have confirmation today... not that we needed it, but it is now publicly acknowledged and will be disseminated to the mass media market. Let the millions of AMericans stew for a week on the fact they have lost 36% of the opportunity to sell their home now as they did in May, and there will never be a return to the prices in May in their working lives...
Then things are going to get weird in the RRE market...
Also.... this day will be remembered as the day that CAlifornia and Nevada were widely understood to have gone bankrupt. The FIRE economy is gone... California is looking at deficits that could in the next ten year period exceed 100% of the state's GDP...
Also as mentioned above.. the United States Congress never passed a budget this year.... and with the confirmation that the FIRE economy is finished... there will not be a budget passed next fiscal year.... at which point the country is no longer a nation, but a tribal system with the government as the biggest clan.
That's when the daily existence will get weird.
“Their debt is our debt”.
Freddie and Fannie have come to the edge of the precipice several times, only to be saved by the representatives of the taxpayers. IOW, their troubles are our troubles. It’s true, we’re on the hook for every single penny and every criminal burglary they perform. Who else is going to pay? The banks?
I just remember two years ago the disaster that Freddie and Fannie were in--and we stepped right in to save them. Is it logical to believe that after pulling them back from the brink, they have reformed their ways and have become stewards of the housing economy?
You really only need one fact to realize who is on the hook for Fred and Fannie and that fact is, that they were excluded from the all-powerful financial reform legislation, “biggest ever in the history of the world!,” and why were they excluded? Because they are the biggest basket case that the taxpayers’ hold and somebody’s got to be the nation’s waste dump for toxins. So what’s wrong with Joe6Pak’s back yard?
It was their exclusion from finreg that convinced me of the extent of their problems.
Freddie and Fannie, with their busload of delinquents to feed, should be renamed Mr. and Mrs. America.
Hahahahahaha!! Our stupid government had the Fed pressure banks (well, not much arm-twisting...they were taken care of with the bailouts when the shit hit the fan) to lend to anyone who could fog a mirror, producing massive profits for the banks who then collateralized those loans and sold them off to investors, who also took a bath along with the defaulting borrowers when the housing market collapsed. Now, we live in a world in which retail investment is a dead end, 401k's are being looted just to keep one's head above water, the dollar is being systematically destroyed, jobs are evaporating, and the burden has been recycled onto the public at a time when they can barely scrape by. Assets of the banks; billions in taxpayer funded reserves and repossesed real estate. Assets of the taxpayers; not even a pot to piss in, and a pile of debt so astronomical as to be completely absurd. The fleecing of the global population is about eighty percent complete, at this point.
Tyler, As Denninger has pointed out, each and every prospectus from FNM and FRE explicitly state that the bonds they issue are not backed by the U.S. Gov't. Now, Geithner did publicly state that the U.S. would stand behind the GSEs, but it is far from clear that they have to.
prospectus = words = blah, blah, blah
It is extremely clear "that they have to" stand behind the GSEs, else the ponzi would've already blown up.
My guess is that like in the past, cities will blow-up first. That way, they can blame it all on the outbreak of war.
Steelhead, I don't think even P.T. Barnum could convince Americans that they aren’t on the hook for Freddie and Fannie. It’s just obvious. You know what? It’s like the U.S. having a nuclear waste dump in Nevada and at some point saying it’s not our affair, and letting it deteriorate and destroy the state and the western half of the United States. The politicians just aren’t going to do it and jeopardize their place at the trough, and they aren’t doing it.
I would like to ask, if Fred and Fan are going bankrupt, who else will step in and save them? Who does Denninger think is saving them and the bankers right now? Halliburton? It was only August 8 when mortgage finance giant Freddie Mac said he would need another $1.8 billion in aid from the taxpayers, according to Reuters, bringing his total request since he was made an aid of the state two years ago to more than $64 billion.
“Since the government takeover," says Reuters, "the two firms together have requested close to $150 billion from the government's unlimited credit line, scheduled to expire at the end of 2012.”
As for Geithner, as Emerson said, "The louder he talked of his honor (his tax records), the faster we counted our spoons (our tax dollars).”
Maybe they should start using binary numbers to represent the debt to confuse the public: 1010001110101110101... ... ...
Don't confuse Benny please. He is having a hard enough time with real numbers. LOL
Roman numerals, for poetic effect.
wait... the 13.3 T figure is debt backed by Tbills, while the F&F debt is backed by some assets with some cashflow. I am not saying the 5T debt is valued correctly, but when you claim the true govt debt is 18T arent you valuing the assets backing this debt at 0? or do I have it all wrong?
You have it correct,
pundits and bloggers alike have been sloppy with the shorthand and adding the total F&F debt to the national debt...
it's sloppy.
No one outside the F&F and regulators have the data available to put a range on expected real losses. Plenty of analysts are putting out guesswork though .
It's a bit muddier than that. F&F are under-capitalized (needing repeated visits to the Treasury), and cash-flow negative (ditto on trips to the Treasury).
Further, yes, F&F took the worst of the toxic MBS (it was the dumping ground to attempt to save the big banks). Many of those loans *are* worth zero (think unsecured second mortgage on a property underwater on the first mortgage).
Further, F&F historically sold "insurance" against homeowner default (e.g., liable for $300K on a $300K loan), and upon default, didn't have the cash to pay it out. So, LITERALLY, F&F are currently sending the mortgage holder the monthly check on behalf of the homeowner, at whatever interest rate the homeowner had when the house was purchased (so F&F can EASILY end up paying $600K on a nominal $300K insurance liability).
Finally, F&F are property owners. Ownership has costs (property taxes, HOA fees, other maintenance). Many condos have a MASSIVELY negative net value (because they represent a negative bond in liabilities, even if there were no mortgage).
So, yes, it is VERY easy to see F&F exposed FAR more than their nominal amount.
However, that's not my complaint: Their unwind will trigger pension defaults, bank defaults, sovereign defaults, etc., into the multi-quadrillion dollar derivatives market.
Nobody cares how big the first domino happens to be. F&F is plenty big enough to get the ball rolling (probably by an order or two), so their liability on the US Treasury can hardly be overstated.
$80 trillion - unfunded US obligations
$300 to $400 trillion worldwide in the form of various "derivative instruments"
That Lord Keynes must have been something. To be able to feed such a load of bullshit and quackery to so many bullshitters and quacks, and have it followed as the holy bullshit and untouchable quackery for so long, impressive. I mean he single handedly took Greshams law of money and made it applicable to moneterists and economists(?), where only the quackiest of the quacks can rise up in their profession and the less quacky may as well honk off. To have your bullshit believed and taught in the best colleges and universities for over 70 years without a shred of proof, to bad he didn't decide to become a rocket scientist or the UK may have been first in space, like before WW2.
Not to defend him, but ZH has posted several articles which suggest even Keynes would disagree with what is going on.
I think his name and theories have been bastardized and simplified by the politicians/pundits for their own benefit...buying votes.
Cogently and brilliantly said, traderjoe.
Far too many seek to comment on Keynes, and Marx, without having first read all their works.
Both these fellows would have been completely appalled and stupified at everything spewed forth in their names.
Definitely not Keynesian.
http://michael-hudson.com/2010/07/from-marx-to-goldman-sachs-the-fictions-of-fictitious-capital1/
I could quote Keynes on here for a week and not get dogpiled, but sometimes people still bear responsibility for what is one in their name if they enabled it in the first place. I think it'll be a while before people figure out what to do with him.
Yeah a guy who , in his magnum opus, discussed how burying jars of paper money underground and building pyramids would get an economy out of a recession would definitely disagree with what is going on today. Give me a break.
Is this the thing where governments are supposed to save in the good times, because that's just the right thing to do? Did he explain somewhere about how this was supposed to work in the real world?
Exactly...the inadequately educated putting labels on things they don't understand. The entire US political system is based on 'easy answers to complex questions'. While so many wank philosophic(!) they ignore the core problem with the markets, the Fed and the government...they're all hopelessly, and now even transparently, corrupt. No change to this problem, no solutions. What don't Americans understand about this...get the money out of your political system!!! Is that such a difficult bi-partisan issue for you all to agree on? And take your two parties out behind the woodshed, would you? Neither one is of any use anymore...both are on the take, both are self-serving, and both need to be brought to heel by a nationwide demand for them to a) change, or b) euthenize themselves. You need other parties...two choices does not a democracy make.
Blaming Keynes for what is done today 'in his name' is like blaming Jesus for all of the dense freaks manipulating your government and society.
I agree with the concept, but you can't just add the liabilities assuming that the assets are worthless. Even if you mark down the assets by, say 50% (these are qualifier loans, not subprime) then you should reduce by half the debt of Fannie and Freddie.
Problem is, the only thing that can keep the assets supported at such an inflated rate is to continue to destroy the currency in order to have cash to run through to the bondholders.
If those assets retain value then milk is going to be $20 per gallon, etc...
Soon Krugman will be hiding out in his yurt and living off his stash of Brazil nuts.
Acorns
pine nuts, bitchez.
this number omits the losses buried on the Fed's balance sheet.
It also overestimates Fandie losses
Let it burn. Let it all burn.
The quoted Annual Deficit is an accounting sham...Social Security collections are added to the General Fund, reducing the deficit, even though the money is OWED...There are NUMEROUS items held OFF BALANCE SHEET (i.e. Off Budget)...Oh...like BOTH Iraq and Afghanistan war costs...among select other things...making the ACTUAL Annual Deficit somewhere around THREE POINT FIVE TRILLION DOLLARS...
I published an Internet Paper last year stating our Annual Deficit in Light Years, as attempting to understand numbers was becoming impossible, due to their size...Light travels at 186,000 miles per second...Our closest star is the binary star system Alpha Centauri, which is 4.24 Light Years away...Our Annual Deficit, which continues to grow every year, will reach Alpha Centarui probably in 2011...Then where do we head?...Oh...Our National Debt if calculated honestly to include all promises such as Social Security and Medicare is close to TWO HUNDRED TRILLION DOLLARS...To Alpha Centauri and BACK a total of almost FIFTY ROUND TRIPS !!!...The latest report from BIS puts the Global Derivatives Notional Market at ...ready for this?...wrap your mind around this: ONE POINT TWO QUADRILLION DOLLARS...How many trips would you like to guess that is at the speed of light to Alpha Centauri?
Is it possible to just get a one way ticket to Alpha Centauri?
Maybe superman can just throw all the debt into the sun...
What about state and muni debt?
I'm glad to see you guys reading the 10Q but only pulling the debt numbers and nothing else to compute your GDP percentages is somewhat misleading. I have no trouble slamming the government for overspending but lets provide reliable numbers.
According to their latest 10Q filed in early August (links below), their debts are:
The true National Debt of the United States is $18.964 Trillion. Therefore, our debt as a percentage of GDP is really 130%.
I think most of the mortgages parked in Fannie or Freddie are registered in MERS and court's around the country have been ruling against foreclosures using MERS registrations for several reasons - a MERS registration is like a bearer bond and that's not legal in the United States.
Just two ideas to pay off the debt.
1) 5% printing for 10 years with frozen inflation adjustments in all contracts.
2) 100 pct tax on all Chinese imports for two decades.
2) is coming. Mark my words it's coming.
As a very important source of strength and security, cherish public credit. One method of preserving it is, to use it as sparingly as possible; avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it; avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts, which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burthen, which we ourselves ought to bear.
GEORGE WASHINGTON, Farewell Address
Most of the people in the U.S. probably have no idea who the Father of the Country was and couldn't care less about the values embodied in the Constitution. The parasites and the corporate fascists who facilitate the statists must be eliminated if we are to reclaim our sacred freedoms. The religion of Socialism has been imposed on us despite the First Amendment. As for the Second Amendment, I quote Washington again:
"Firearms are second only to the Constitution in importance; they are the peoples' liberty's teeth."
Notice how all the debt came under REPUBLICANS!
Hoo Hah! Those supply side tax cuts for the TOP1%...
Ah, standard FireDogLake troll. How amusing.
Here's an interesting exercise - plot the same chart but change the x-axis to "Congress controled by...".
Because, you know (or maybe you don't), it's actually CONgress that spends money under our form of government.
You can lead a horse with blinders on to water but you can't make it think.
Burn baby burn!!!
We're not supposed to talk about Fannie and Freddy.
So , Canada, Mexico and Central and South America didn't count? or Australia and New Zealand?
Fleas on an elephant's ass.
Canada, Mexico and Central and South America are only "Honorary Members" of the great American Continent. Australia and New Zealand are "Associate Members" of the American Continent.
that our debt is not a problem.
i thought it is NOT our debt. the great man in the video yesterday, said it's not our debt, we didn't sign a contract or on the dotted line. some times i think usage of OUR is subliminal conditioning.
Technically speaking, it isn't 'your' debt at all; it's debt generated by actioning the FAR-Q Protocol (where, competition is indeed a sin, we're too big to fail and something must give, so my predecessors voted it was you...in private, at Jekyll Island). However, 'we', at the Fed, buy all that debt on 'your' behalf and without your consent. This must happen so that the cogs of capitalism are free to keep turning and generate share dividends for wealthy owners, and of course executive profits for the people who will one day be hung in town centres by lynch mobs. But in the grander scheme of things, the use of the term "our" does have the added bonus of holding-off panic driven hyperinflation...at least until we've milked the cow to death.
Kind Regards
B. Bernanke
PS. Mary asks, how's that cake?
My immediate thoughts as well. The real number could easily be 50%-75% less depending on the valuing of the underlying collateral. To suggest that the mortgages they hold are worth ZERO is reckless but not surprising considering the mindnumblingly banal 'BUY GOLD AT 5000$! GUNS AND AMMO! CANNED FOODS! AHHHHHH!' rhetoric espoused here on a regular basis.
Hm, I am reading from other comments that the real number could just as easily (perhaps more easily) be even more, not less. But keep rearranging those deck chairs, somehow those darned things keep sliding around.
Finally, someone talks about this in a clear way.
what do people do who have too much debt they cannot pay? They file for bankruptcy, run away, try to reschedule the debt with the lender, or they sell their assets to pay the debt. The us can do none of these except possibly sell assets. What if the US sold its national parks to disney? What if it sold the original copy of the constitution to Warren Buffet? What if it sold Guam to the Japanese? Poof, the national debt would be gone in a flash. I would not discount the possiblity of an assets sale under an Obama administration. it could take people by surprise.
I've been making smart-assed comments along those lines for about 30 years now. It sounds like an honest, if controversial solution.
However, paying off our debts with things of actual value is not the way of our government.
While I would miss Mount Rushmore, there's a certain morality about selling it to settle our debts. But we don't do that kind of thing these days. And until we're willing to make that kind of sacrifice, we're not going to stop the destruction of our economy.
Unless, of course, we can create some kind of creative accounting where we lease out the national parks, but the U.S. Treasury holds the paper instead of GS. But even then, there would be a dark deal that creates some kind of subordinate paper which belongs to us, while GS gets the cash flow, and after governmental default, eventually ends up with title to the whole shootin' match.
Maybe the problem is simply that the biggest fuckin' batch of crooks ever to slither over the surface of the planet can't be trusted to come up with an honest solution to a nasty economic problem.
amen, sister.
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