Friday, January 15, 2010
The world has a lot of things to worry about at the moment. Unless you were born without mirror neurons, you cannot help being stricken by the horrific images emanating from Haiti, a country which has been in full collapse mode for eons. The US will likely play a big and expensive role bringing aid and equipment to deal with the devastation of a 7.0 magnitude quake. Let us hope that the nation of France ponies up the largest aid package as it was France that imposed onerous reparations on the country after the successful slave rebellion which began just after the French Revolution. These reparations, initially 150 million francs were imposed on former slaves to pay back the loss of lands and slaves of the wealthy French Planters and it took the former French slave colony almost a century to pay back these huge sums, a burden not unlike what was imposed upon post WWI Germany. The US has also occupied Haiti from time to time in attempts to restore order to a country which has been pretty disordered for a long time.
Meanwhile back at the ranch Phil Angelides investigating the financial collapse had his hands full with tongue lashings from the Likes of Lloyd Blankfein of GS because Phil dared to suggest that Goldman Sachs created the type of garbage securities that brought down the world's financial system while secretly running counter bets against their own garbage. Replied god's own worker Lloyd: They were grownups. They should have known better. Lloyd wasn't worried by a little insolent twerp like Phil Angelides, lately of the Callifornia Treasurer's Office. I mean, how much money did Phil make ? He obviously was not doing god's work like Lloyd was with his blood funnel as CEO of Goldman Sachs. Goldman is AAA rated and what is Callifornia's debt rating? Just a few notches above junk bond status. I am not a bond expert but I'll bet that the big municipal bond funds are prohibited from owning munis with a junk bond rating. Speaking again of rating agencies, Fitch, an international rating agency has put out the word three days ago that the debt of the United States may lose its AAA status if Barak and Ben and the rest of the Keynesian katzenjammer kids don't start acting like adults and cutting spending or raising taxes. State and Federal debt will be hitting 94% of US GDP this year. Just 3 years ago in the glory years of the bushwacker it was a mere 57%. This is a very big deal. Why did I have to read about it in a British paper, the Telegraph? Likewise little has been made in the mainstream US media about this debt which is has an average maturity of only 4 years as compared to 7 years in Eurosville and 10 years in the insolvent sovereign island of god save the queen. Something like 40% will have to be refinanced over the next 18 months which will be a problem if China and the Saudis and Japan don't buy these new treasuries. China in fact has already cut way back on its purchases. It's just released trading surplus with the US fell about 35% in 2009 from $296 billion to $196 billion . China has been spending it's surplus building infrastructure:highways, dams,buildings, railroads,cars, ports and canals. It has also been spending 14% more on oil and purchasing a stunning 80% more iron ore last year. It seems that for some reason the Chinese think that spending these dollars now as fast as they can is a better bet than buying more Fannie Mae and Freddy Mac and Ben Bernanke toilet paper, and who can blame them. The Saudis have also cut way back and are mimicking the Chinese throwing up infrastructure and Refineries and chemical plants. As for the Japanese, well they are not doing so good either. They are starting their third lost decade running unimaginable budget deficits which have been largely funded by their own citizens who now are old and wont be buying any more Japanese bonds. They'll be selling them to buy rice cakes and sushi. Japan could be the big story this year or next. The only sizable country now running bigger budget deficits than Japan is, you guessed it: the good ole US of A. Look at the stunning graph listed above of annual budget deficits in percentage terms. You will see Japan running immense deficits, never less than 35%, and their total debt is approaching 240% of GDP. Now that Japan's export driven economy has hit the wall, it is hard to imagine any way to get cheap financing for Japan's deficits. It remains to be seen if there will be buyers for low interest long duration US debt either. The big buyer of US debt lately has been the Fed. That's right: we are conjuring money out of thin air to buy our own debt. If you can wrap your mind around this, you're a better man than me. The Fed also of course loans money at zero interest to those fine banks that we all love, so that they can buy treasuries yielding 4%. That way these banks don't have to go out and loan money to the public and take the risk that the public will not pay them back. With the money that these banks get for free they can take some of the interest earned and pay out nice fat bonuses to themselves. I'm not making this up. It seems to me that the Fed could just as well loan this money at zero interest to Joe Q Sixpak and let him buy treasuries, or to the Guvnah of Callifornia and bingo! Callifornia is saved along with the treasury auction. What could be simpler? Instead, because the banks own the Fed and the government, they get the free money while the rest of us stand in line at the unemployment office, hide our cars from the repo man and hope that the knock at the door isn't the sheriff serving papers. And now that Barak Ofaker's popularity is going down the toilet because even Joe Pickemuptruck has figured out the basics of this Ponzi casino game, the Pres is pretending to hate the bankers who own him and the legislature lock stock and barrel. The big question is how long can this goofy charade last? So to summarize, we have two countries. One is building roads, power plants. railroads and factories with money they have on hand and the other is invading oil producing countries and bombing turbans with toy planes remotely controlled in Langley Virginia using toy money. Which of these two countries has the best chance to succeed?