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Republicans Pushing To Count GSE Debt Toward Statutory Debt Limit May Be Surprised To Find Real Debt-To-GDP Ratio Is 130%, And That Greece Is Amateur Hour
A new proposal by House Republicans, lead by Rep. Scott Garrett (R., N.J.), is seeking to address changes to Fannie and Freddie accounting, along the lines of what has been previously proposed by Zero Hedge, and to not only include the GSE's losses as part of the Federal budget, but to also count the debt from the two mortgage zombies toward the nation's total statutory debt limit. As we stated previously, it is only semantics at this point which distinguish the GSE obligations from other Treasury obligations. Yet it is not just us, but the administration's very own Peter Orzsag who was pushing for consolidated GSE accounting two years ago. Yet with GSE debt most recently at $6.3 trillion, or about half of the existing Treasury debt, this would mean total US debt would not only explode by 50% overnight, but the recently increased debt ceiling would be immediately breached and America would find itself in technical default (where it really is right now for all technical purposes).
Dow Jones has more:
A memo written by Garrett's office, which was released Monday, states that "now that the federal government has explicitly backed the operations of the GSEs, there should no longer be a distinction between their debt ... and the debt issued by the Department of the Treasury."
The proposed legislation highlights the current uncertainty surrounding the two firms, which have been under government control since September 2008. Federal officials were expected to provide some guidance as to their future plans for Fannie Mae and Freddie Mac in the fiscal 2011 budget released earlier this month, but that information wasn't included.
The Office of Management and Budget, which compiles the White House's annual budget request, did acknowledge in the budget the different ways the government currently accounts for the two firms. The Congressional Budget Office accounts for the two firms "on budget," treating them like any other federal agency. OMB, meanwhile, treats them "off budget," considering them to be private companies.
As we observed some time ago, "It would seem a little presumptuous that an amount representing more
than half of the total US sovereign debt is conveniently swept under
the rug." Luckily, there are people like Garrett to remind Obama and his henchmen that not every person in America is a zombified purchasing cretin with 10 credit cards and a limitless Centurion in the mail, who couldn't care less about America's sovereign default until 3 days after the fact. Oh, and Garrett's action also means that should his proposal be enacted (slim chance, with such WallStreet-based enablers as Summers and, ironically, Orzsag, the ultimate decision makers), then the US Debt/GDP just shot up from under 90% to over 130%. Which it really is currently, for all intents and purposes. Except, of course, for the saving grace of the dictionary entry for what "full faith and credit" of a bankrupt country really means. Pop quiz: what is the full faith and credit of a bankrupt entity?
And just in case you were confused, and have yet to recognzie the idiocy of the OMB, and the ruling class in general, here is a paper written in 2002, in which authors Joseph Stiglitz (a Nobel winner no less), and Jonathan and Peter Orzsag, whose opinions rotate by 180 degrees more often than a magnetic needle above true north, claim the following OMB-referential piece of unparalleled garbage:
Interestingly, however, the Office of Management and Budget tested Fannie Mae’s and Freddie Mac’s capital adequacy in the early 1990s by subjecting their business activities to a ten-year stress test that simulated the financial and economic conditions of the Great Depression. The test showed that if a Depression lasted ten years, given 1990 levels of capital, both Fannie Mae and Freddie Mac had sufficient capital to survive. This result led OMB to conclude that in the event of a severe nationwide economic downturn, the probability of either Fannie Mae or Freddie Mac defaulting would be “close to zero.” This implies that if Fannie Mae and Freddie Mac hold sufficient capital to withstand the riskbased capital scenario, they would likely fare well under any conceivable economic environment.
Ah, the OMB, which less than 10 years ago said the probability of a GSE default was close to zero. With such lunatics in charge of making the decision of whether the GSEs should or should not be considered Treasury debt, can we please just fast forward 10 years to the post nuclear war holocaust already. The constant barrage of daily bullshit is really getting tiring.
h/t Adam
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Lets just mark everything to market ... as Obama proposed today by the taxing of unrealized profits ... You have to give it to these guys that a group of gentlemen (read thugs) from Chicago could warp us into the Matrix with so little resistance from the gentlemen (read idiots) in the Media who could be getting multiple Pulitzer prizes for exposing this hypocrisy. Maybe ZD will get next Pulitzer?
The markets have this all priced in...
by this I assume you mean, '6 or 1/2 doz gazillion bazillion, what's the diff' ???
The only thing 'priced-in' this market is goofapalooza.
Real life is getting funnier than The Soup.
You seriously can't make this stuff up. I laughed through the entire article. Then again I am drinking some Maudite from Unibroue and that's reasonably heavy.
The entire concept of fantasy numbers in official reports...budgets, projections, stress tests...likewise to risk analyses in the private sector...typically total rubbish that's not exposed until the "Black Swan" events (to steal a hip term). Total comedy that anyone has ever bought in on such things :)
The above post & comments on this debt issue are most valid. Now folks, will everyone please acknowledge that the financial "models" built by the FED economists, minions, gurus, & camp followers are all flawed? One can never model the reality of fear, greed, complacency, corruption, manipulation, panic et al. It's a fractal world folks and fractals do not fit into linear models. They never have, & they never will.
The time & treasure spent building these models, would be better spent teaching children in undeveloped countries basic math skills for everyday living. The equation for financial models is: Models = Rubbish squared ( M=R2).
They are not "flawed"--they give exactly the result decreed by our plutocratic rulers on the street of Walls!
The.debt.will.never.be.repaid.
Can just hear it... "Huh, you mean if add $6 trillion, our debt is more than GDP?...but we've now guaranteed these so they've gotta go on the books....whattaya mean they can't?" Sometimes you just can't make this shit up. The blind leading the blind and we're critical of others, Greece or anyone else. Pot calling the kettle black bigtime.
Lets just pay off every mortgage in American and get on with it
It was practically yesterday the dollar was below par with the EURO !! Remember when USD $1.00 : Euro $.96 was a ripp off for America. Hello, that wasnt too long ago. The US economy was chuggin along just fine. More than fine: GREAT
The cost of oil has plenty to do with it. The fall of the dollar over the last 10 years was a direct offset to the price of a barrel of oil by foreghn currencies standards.
Touche, Tyler!!
Joseph - I can't understand why anyone would purchase a credit default swap on U.S. Treasury debt cause we can print dollars - Stiglitz.
What a clown!! You would think that a Nobel Prize winner would recognize a relatively easy SAT work like "repudiation"!
I can recall Peter Drucker addressing our partner's meeting about 25 years ago and asking the rhetorical question; what happens when the World's largest debtor has the World's most powerful military?
To be answered in the fullness of time.
An oligarchy is a form of government where most or all political power effectively rests with a small segment of the society. Oligarchies, often found in Latin America, are generally controlled by a few powerful families whose children are raised and groomed to be heirs of the power of the oligarchy. It is rarely, if ever, to the betterment of those governed. You won't find a strong middle class; an oligarchy is usually characterized by a very small upper or elite class and a very vast lower class. They govern in secrecy. –The American Oligarchy
Orszag’ 91 Selected to Direct Obama’s Budget Office | The Daily Princetonian | November 26th, 2008
Peter Orszag ’91 has been named director of the Office of Management and Budget (OMB) in the Obama administration, President-elect Barack Obama announced Tuesday.
Orszag, who resigned as director of the Congressional Budget Office (CBO) on the same day, will be a key member of the president-elect’s economic team, advising the president on a variety of issues including federal spending programs and managing the federal budget. His job, Obama said at a press conference, will be to eliminate “those programs we don’t need and insisting that those we do need operate in a cost-effective way.”
Orszag noted that he loved and will miss the time he spent in his former position in his final entry in the director’s blog of the CBO.
“CBO is unique because it combines rigor, relevance, and range,” he wrote. “Rigor reflects the intellectual integrity of what CBO does. Relevance speaks to the importance of what it does. And range reflects the wide array of topics upon which CBO has something important to say — from national security to labor markets to natural resources, health care, immigration, and the list goes on and on and on.”
An economics major at the University, Orszag spent his free time working at local technical firms. He was the assistant to the president of Crittex, Inc., working on a patenting for a new technique for nuclear fuel reprocessing, and was also an editorial consultant for The American Prospect, a left-leaning political, cultural and policy magazine.
As a senior at Princeton, Orszag wrote a thesis titled “Congressional Oversight of the Federal Reserve: Empirical and Theoretical Perspectives” and won a Marshall Scholarship to study international economics at the London School of Economics (LSE), where he went on to earn his master’s and Ph.D. in economics.
Tiger days
Paul Starr, a professor in the sociology department since 1985, called Orszag “one of the best students I’ve ever taught at Princeton.”
“I have stayed in touch with him. I admire him a tremendous amount,” Starr added.
Former Federal Reserve vice chairman and economics professor Alan Blinder ’67 said he knew Orszag as a student and has “watched with pride his meteoric rise.”
“He was more or less a model student, really,” Blinder noted.
Blinder hired Orszag as a junior economist, analogous to a research assistant, for the Council of Economic Advisers under the Clinton administration while Orszag was a graduate student at the LSE.
“I brought him on staff and pretty soon everyone wanted [Orszag] to work for them because he was so good,” Blinder said.
“He did everything well, quickly, intelligently and with good judgment,” Blinder said. “A fraction of their work time was very self-directed, [which] ... requires people that have a lot of initiative and judgment, and Peter was certainly one of those.”
The Orszag family has three brothers: J. Michael ’89, Peter ’91 and Jonathan ’95. Their father, Steven GS ’66, was the F.E. Hamrick Professor of Engineering at Princeton until 1998, when he joined the Yale faculty.
Jonathan also worked at Clinton’s NEC from 1997 to 1999, is now a senior managing director at Compass Lexecon, an economic consulting firm in Washington, D.C. He said in an interview that Peter is a good fit for the job.
“Peter’s always excelled at what he’s done,” Jonathan said, adding that his brother “always succeeded under pressure, which is very helpful … for succeeding in the policy [and] political environment that he has been in as director for the Congressional Budget Office and he will be in as the director of the Office of Management and Budget.”
From Congress to the White House
Upon winning the Marshall Scholarship, Orszag told The Daily Princetonian in a Dec. 14, 1990 article that he wished to enter government service as a policymaker after earning his doctorate.
Orszag’s mother Reba, the president of Cambridge Hydrodynamics, a research and consulting firm in Princeton, said in an interview that Orszag has always shown an interest in public finance. “I think he just always had a concern for ... what taxes supported,” she said. Reba Orszag was also former president of the Center for Jewish Life board of directors.
Starr explained that Orszag’s appointment to the OMB will be crucial for health policy.
“He has a very strong interest in that area and he believes it is the central long-term budget issue,” Starr said. “He has, more than anybody else in recent years ... been sounding the alarm about the long term growth in healthcare costs.”
Blinder said he expected Orszag’s appointment.
“Having been the choice of the Democrats to head the CBO, he seemed like me — and to many others — the heir apparent to head the OMB,” Blinder explained. “I think he did a good job at the Congressional Budget Office, and he’ll do a similarly good job at the OMB.”
“We’re just extremely proud and excited and honored to have a son who’s the member of the cabinet in a very exciting administration,” Reba Orszag said. “I think that they’ll be a force, and, hopefully, they’ll be able to allow a very fine recovery — a robust recovery.”
“He’s extraordinarily young to be where he is now,” Blinder said. “To me he looked like a young man who was going places.”
http://www.dailyprincetonian.com/2008/11/26/22255/
Holy shit, its a long way to the bottom when I want to post. I guess thats a good sign for the site. Anyway what the article does show is that Stiglitz & Orzsag are both clueless.
An economics professor of Orzsag commenting that "more than anybody else, he (Orzsag) was always sounding the alarm at the increasing cost of health care..."
Oh, gag me with a spoon. What rot and rubbish. Another leftist without a clue, lacking the wherewithal to buy a single freaking vowel.
There is no "mark to market" any more. There are no losses at these GSE's. They are all just fine. Move along.
*magnetic north
Currently the governement receives roughly 2.2 trillon in annual revenue. If they were required to recognize GSE debt - what increase would they get to recognize in the form of annual revenues from the GSE's to service this debt. Trying to get a handle on the actual burden...
Orzsag is an idiot. He just want it realized so he can have his austerity commisions put in charge.
The guy actually believes if he can save a few trillion monetary dollars (to be stolen away anyways) by killing or seriously destroying the lives of hundreds of millions of Americans (through medicare, social security, etc, etc cuts).....that people will call him a hero.
This is the part where someone dances with a devil, thinking they can outsmart them. In the end though, used again.
That somehow that is our problem, and if we just cut social spending to zero, we can solve our fiscal problems, and all will be well.
No the system will crush the affordability of everything until it becomes 'unsustainable'. So while Orszag thinks he's going to unleash hell just to get over the hump, he'll just be delivering hill while the hump keeps moving away from us and getting bigger, neccesitating bigger cuts, until all cuts have been made, nothing else can be cut, and fiscally we're still screwed. (because social spending was never the problem, the unsustainable nature of how social spending has become should be seen through the lens of the byproduct of our screwed up system)
But of course Orzsag is an idiot who believes that statistical models are science and irrefutable. Thus he lets them determine his behavior. He's a big proponent of everything that 'deathcare' was signified by. He thinks, like the Grand Poopa Squid Mr. LB that he's doing 'god's work' by cutting budget expenditures for a greater good, the payment of the fraudulent monetary debt foisted upon us all. To him, he can solve the problem. But he's also a behavioralist, which means he'll stoke your behavior (see scare you) into doing what he wants.
He just wants more firepower for his budget cutting comission that will focus on cutting the needs of the people, while completely forgetting about the expenditures which only exacerbate our problems...see military spending...(obviously not all)...and all the while completely oblivious that his actions aren't leading the way out, but covering the monetary tracks for those that screwed us. But hey, once he's done, they'll be free to screw us again. Of course it's just one 24-7 screw job rather than a once a month visit to the diseased hooker we've been frequenting.
He thinks he can get more power for his commissions by scaring people that we're like Greece....so it's austerity now.
What an idiot. When did a nerd become so effen stupid? Seriously this guy is as dumb as a doorknob.
This guy isn't a leftist, this guy is a facist. BIG DIFFERENCE.
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