S&P on the Kill List: U.S. Government Seeking Vengeance for S&P Downgrade of U.S. Credit.

S&P On the Kill List By Douglas French Thanks to Douglas French and The Daily Reckoning

“Paybacks are a bitch,” as they say.What was Standard & Poor’s thinking back in August 2011, when the ratings agency took the Red, White, and Blue’s AAA rating away? A rating the most powerful government in the history of the world had held for 70 years. S&P downgraded long-term US debt to AA-plus. That score ranks lower than over a dozen governments, including Liechtenstein’s, and is level with Guernsey’s and France’s.McGraw-Hill Companies (S&P’s owner) may be a big corporation, but you don’t kick sand in Uncle Sam’s face like that and get away with it. Now the government, in the person of Attorney General Eric Holder, is kicking back. The US government is accusing the ratings agency of committing fraud by inflating the ratings of mortgage investments, which, of course, created the financial crisis.S&P, along with its competitors Fitch and Moody’s, famously rated the mortgage security goulash that Wall Street concocted AAA, thus allowing everyone everywhere to participate in America’s housing boom. And why not? According to computer models, housing prices never go down. Pension funds as far away as Reykjavik and Heerlan were gobbling up what Wall Street was serving because all three ratings agencies provided their stamp of approval. According to the government’s suit, S&P “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors.” Yep, in the minds of the government’s gumshoes, the clairvoyants at S&P knew these securities stunk to high heaven. They knew, or should have known, that the housing market was ready to crash any moment, but they were greedy capitalists who, while they were making a buck, created and carried out a diabolical plan to bring the financial world to its knees. Yeah sure, that’s what happened. S&P should be ashamed for maintaining that it ratings “were objective, independent, uninfluenced by any conflicts of interest,” the suit said. The suit centers around 40 collateralized debt obligations (CDOs) created from 2004-2007. The firm was paid $13 million for rating these securities. Giving these securities the highest rating must have been fraud, because everyone knew by that time that the market was toast. Right? After all, in 2004, the nation’s deposit insurer and bank regulator, the Federal Deposit Insurance Corporation (FDIC), published a paper on housing that concluded: “It is unlikely that home prices are poised to plunge nationwide, even when mortgage rates rise.” This is because “housing markets by nature are local, and significant price declines historically have been observed only in markets experiencing serious economic distress.” Plus, housing markets have “characteristics not inherent in other assets that temper speculative tendencies and generally mitigate against price collapse.” In conclusion, “it is highly unlikely that home prices would decline simultaneously and uniformly in different cities as a result of some shift, such as a rise in interest rates.” Whoops. Where’s the lawsuit against the FDIC?

REVENUE BREAKDOWN – Obama’s Spending Spree

by Stephen Wellman
September 5, 2009

 

This is for the week of August 31, 2009. As an American, do you know where your DEBT is? If not, then click HERE …

The most common mistake people make when they give up their power is to believe they have none … And with that I offer the next link about our current government. What sort of government is running America now? HERE are some clues …

US TREASURY DAILY STATEMENT

We are now coming into the final stretch for FY 2009. This is the last month in the fiscal year. In October FY 2010 will start. As you may know FY 2009 was a transitional year where part of FY 2009 was on the Bush tab, from October to January 20^th was Bush, but from then on it was all Obama. We now 25 calendar days left in FY 2009 as of today, September 5^th.

The total Presidential campaign promises made by Obama is 516. Out of that 516 he has kept a total of 41. Go HERE if you want to see the list and look at the promises he has kept and the ones he has not kept. According to my calculations Obama was telling the truth 8% of the time during his campaign for President while “misrepresenting” or “distorting” the truth 92% of the time. This proves that politicians are experts at only one thing … “getting elected”! If they tell us what we want to hear then they will get elected.

Okay onto the report … This week has been HUGE for spending and US DEBT. I have a feeling each week we get closer to the end of FY 2009 we will see more and more spending.

August 28, 2009 – The US Treasury’s annual cash flow is short $160.9BIL USD today! No worries, like Mises say, “No nation need fear not having enough money.”

So on that note the US Treasury issued another $180BIL USD of “non-marketable” securities known as Government Account Series. They crossed the $41TRIL mark.

August 31, 2009 – The US PUBLIC DEBT took a turn for the worse and jumped up another $95BIL USD in one day, closing at $11.755TRIL USD.

Interesting that the gross US PUBLIC DEBT is now at $11.812TRIL USD, but certain parts of the PUBLIC DEBT is exempt from the Statutory Debt Limit. Here is one of those line items entitled “Federal Financing Bank” (FFB). What is that you may ask? Well, HERE it is. My first thought when I saw this link was, “Who needs the US FED then?” Why use a “middleman” for loans? The FFB is open for business and is already making loans.

Look whose loans they guarantee like the FDIC … National Credit Unions Administration which is the credit union version of the FDIC. So there is $18.6BIL USD worth of US government guaranteed loans at the National Credit Union Administration. Looks as if there are guaranteed loans for the Postal Service as well, close to $6BIL USD worth.

HERE is the latest financials for August 2009 …

Also look at the long list of guaranteed loans out to US Utility companies and look at the interest rates and maturities listed. On average the rates on these loans run from 2.5% to 4.5%, but the maturity dates on these loans run out to year 2043.

FFB August 2009

Program July 31, 2009 June 30, 2009 10/01/09-7/31/09 10/01/08- 7/31/09

Agency Debt

U.S. Postal Service $5,916.7 $6,367.1 -$450.4 -$1,283.3

Nat’l Credit Union Adm. $18,559.1 $18,563.3 -$4.2 $17,449.9

September 1, 2009 – Holy Cow, some $14.5BIL USD spent on Medicare today! That’s a lot! Just look at the list of other entitlement spending today, its huge!

It is very rare that I see the line item “Supplemental Security Income Benefits” but here it is today to the tune of $2.4BIL USD. The total for FY 2009 is nearly $30BIL.

Those line items listed with (EFT) are the Trust Funds that the Government Account Series securities refer to. Not all but quite a number of them and to have them all appear on one day as line items is rare.

Look there Unemployment Benefits, another $818MIL USD spent today.

September 2, 2009 – Well the big number today is at the Defense Vendors, worth just over $2BIL USD, usually this line item, runs at $1.5BIL per day, so I notice when it is higher, rarely is it ever lower.

There is more for Unemployment Benefits, another $673MIL USD today.

Looks like more US taxpayer funds are going to shore up the FDIC, every day now, some $99MIL today! Banks are failing every week.

September 3, 2009 – WOW … huge for Social Security benefits. The US Treasury spent $22.2BIL USD in one day for the disabled and retirees.

If you add in Medicare and Medicaid the total for all three line items is $25.12BIL USD! In gold terms the US Treasury could have bought over 25.1million ounces. Now as of Friday, September 4^th the total COMEX gold ounce dealer and customer inventory sat at 9.17 million ounces, so what the US Treasury spent on Social Security and Medicare on Thursday alone could have bought all the gold at the COMEX 2.7 times over. Maybe the US Treasury should ask Social Security recipients if they would prefer gold over their paper checks.

See those numbers on the far right? Those numbers are the total for FY 2009 up to September 3^rd. Let’s add those up and see where we are with the major entitlements. I get a total of $1.223TRIL USD … That’s “T” for TRILLION! The Obama Economic team and the CBO are thinking healthcare will cost $1TRIL. I think that is a low ball number. Remember, this is the US government, since when have they ever been right about costs? They always “lowball” number so that they can sell their agendas to the public. I worked for 20 years in Public Works construction projects and none of these government projects ever came in on time and under budget. They were always extended due to “unforeseen” changes … So if they cannot estimate a $20MIL Public Works Project then what makes them think they can estimate a $1TRIL project accurately, especially one tied to the whims of “sick people” … HA … I’ll bet you thought I was talking about hospital patients, nah, I meant the US Congress!

Alright let’s take a look at where we stand with the two mystery line items entitled “Other” and “Unclassified”. Here they are and it look like they are growing …

The total for FY 2009 now sits at $2.169TRIL USD. Now let me remind newcomers here that there is an “Other” detail, showing a breakdown of costs, but I have never been able to get the two totals to add up for one single day. Here it is for September 3^rd …

Totals	539	1138	110,934

Now look up at the “Total Other Withdrawals”. According to today’s withdrawals for the day the US Treasury spent $1.938BIL but the breakdown detail only shows $539MIL USD spent, where’s the missing $1.399BIL? For the month the total is $23.978BIL USD but the detail breakdown only reports a total of $1.138BIL, where’s the missing $22.840BIL? Then the yearly total is reported at $1.652TRIL while the detail breakdown only reports $110.934BIL USD, so where’s the missing $1.541TRIL? Is this the best “accounting” we can get out of the US Treasury? Don’t we deserve better since we have to pay for it?

Then look at “Unclassified” … $517BIL, over a half a trillion, of spending that there is absolutely “no detailed breakdown” for. Treasury doesn’t even bother to pretend on this one! I still have not heard back from my Senator Daniel Akaka(D:HI) on this issue. Whatever it is we spent $1.4BIL on it today …

Now let’s look at the US DEBT for September 3^rd. The US Treasury reports the following US DEBT “issues” …

Today, September 3^rd the US Treasury issued $88.8BIL of Regular Series, “marketable”, Treasury Bills, with maturities of one year or less. Total Treasury Bills issued for FY 2009 as of September 3^rd is $4.831TRIL USD.

Now let’s look at the “unmarketable” Government Account Series securities the US Treasury issued today …

There it is $196BIL USD worth of “unmarketable” IOUs going into various Public Trust Funds, like the Social Security Trust Fund. Look at the total for FY 2009 so far, $42.1TRIL. How can we as citizens who depend on these funds when we retire be sure all our contributions have been accounted for? Do you or have you been keeping track of all your contributions you have paid into Social Security and Medicare over your entire life? I admit I have no clue what I have paid in. I have worked for maybe twenty different employers my entire life and I don’t know where any of those funds went. I assume my employer turned them in otherwise I would have heard about it when I filed my 1040. What if the US Treasury cannot repay that IOU? Then what? We can’t even “market” them because like derivatives there is no market. The answer to those concerns is that the US Treasury will pay those IOUs at the rate they deem as payable at the time. They could be absolutely worthless or only worth a dime on the dollar. There is no way to really know, because the maturities lie in the future.

I have been wondering if there are any other countries with similar problems regarding tax revenues. I decided to look up the Swiss National Bank to find out.

LINE ITEM REVIEW

LABOR DEPT PROGRAMS

This line item can be found on the US TREASURY DAILY STATEMENT every day. Here it is for September 3^rd … Look, for FY 2009 Treasury spent $12.6BIL.

HERE is the Department Of Labor (DOL) website. It’s a very busy home page. Shock of shocks the DOL is hiring! Notice the sideboard with all the labor related data like Unemployment, etc.

As you can see there are numerous sub=departments and services the DOL offers. I will mention one which is the Pension Benefit Guaranty Corporation (PBGC) and HERE is their website. Let’s go look at some of the US corporations that US Taxpayers are having to pay off their under funded pensions. HERE is the list. Scroll down the right side.

I found one … TWA (Trans World Airline). For the youngsters here it used to be an airline that went out of business in 2001 via a merger, but prior to that TWA filed bankruptcy in 1992 and again in 1995 and TWA finally merged with American Airlines in 2001, but under the deal American Airlines wanted to socialize the debt and pension burden, so it ended up at the PBGC.

US Taxpayers are paying for some 29,444 TWA ground employees and some 2,753 TWA pilots, with a maximum monthly benefit payment, for age 65, of $3,392USD. HERE are the PBGC maximum monthly payment tables for various years; since the PBGC took over the TWA pensions in 2001 you have to scroll down to 2001. If you look at 2009 the maximum has gone up to $4,500USD for the age 65 group, that is a 33% increase since 2001 or just over 4% per year. So you can see even though we never see any TWA flights leaving LAX we still pay for them!

The PBGC is not without scandals. Former Director, Charles Millard took the fifth in May this year to avoid answering Senate questions about his conflict of interest with Wall Street investment banks like JP Morgan, Goldman Sachs and BlackRock. HERE is the info on the Senate hearing. The controversy was that he allowed these banks to advise him on shifting PBGC portfolio investments out of low risk Treasuries and into high risk stocks and real estate right before the 2008 market crash. Due to this poor advice the PBGC portfolio lost nearly 25% of its value.

HERE is a further more detailed dichotomy of the PBGC scandal …

• Average investment return of global stocks over the past decade, as of February: -29%
• Average investment return of government bonds over the same period: +80%
• Value of funds under Millard’s management: $64 billion
• Value of funds Millard’s overhaul proposed to shift from bonds to stocks and real estate, in a move that effectively outsourced their management to Wall Street investment banks: $25.6 billion, or 55% of the nearly $50 billion portfolio.
• 2008 return on PBGC’s stock market investments reported before September 30, 2008: -23%.
• PBGC’s portfolio losses since September 30, a period during which the S&P 500 index has fallen 24%: Unknown.
• Number of calls Millard placed to BlackRock Capital during the months leading up to the announcement of the fund: 45
• Number of calls Millard placed to J.P. Morgan during those months: 95
• And to Goldman Sachs: 45
• Value of fees awarded to the aforementioned three investment banks by the fund, estimated over 10 years: $100 million
• Value of one “investment partnership” awarded to Goldman Sachs: $700 million
• Number of emails dated prior to the award of aforementioned partnership documenting the efforts of a senior Goldman Sachs official to assist Millard in his search for employment: 29.

In their letter to the OIG urging them to pursue a criminal investigation of Millard, the four senators provided a sad coda to Millard’s job hunt:

After the Goldman Sachs executive confirms on November 12, 2008 that several executives are interested in meeting Mr. Millard, he responds “Ur grt. Tx. Will send info soon.” Mr. Millard later e-mails several executives at another investment firm about their interest in him. He did not hear back for a period of weeks due to one of the executives’ illness, until the Goldman Sachs executive e-mailed him, “[The Executive] said he really likes you and if times were better he would have hired you already… He definitely likes you — is just not in a rush due to the terrible markets. Hope that helps.”

Once again Wall Street proves that their ethics have no place in government. I think we need a Constitutional Amendment separating “Banks and State”, like “Church and State”.

SWISS BANKS

Now I have long considered Swiss banks as the base of Switzerland’s economy and I consider the Swiss the consummate bankers of the World otherwise the BIS would not be there. In the 1970s the Swiss Franc was considered as good as gold, well that reputation has been tarnished since then, mainly due to the Swiss banks like UBS falling into the same traps as US Banks and European banks in terms of risk assessment. Multi-national governments are now after Swiss banks to report hidden assets in an effort to repatriate tax revenues due. I say it is a futile effort since tax revenues in the USA are as low as to almost be immaterial in terms of restoring fiscal sanity to the US Treasury.

But a review of Swiss banking data at the SNB(Swiss Central Bank)shows some catastrophic revenue depletion and what is more catastrophic is the huge drop in taxes that Swiss banks pay to the Swiss government, which translates to a big drop in Swiss tax revenues coming from banks.

This report was published June 2009 and is quite lengthy but I am within pages 140 and 150, where it shows ALL SWISS BANKS and foreign branches. HERE is some of the data:

All info is quoted in Swiss Francs and compares FY2007 to FY2008 (annual basis).

- GROSS PROFIT (pg 141/17) – Down from $24.2BIL to $8.6BIL (65% drop)

- TAXES ALL SWISS (pg 142/23 – Down from $3.4BIL to $595MIL (83% drop)

- TAXES FOREIGN BRANCHES (pg 150/23) – Down from $93.1MIL to $19.8MIL (78% drop)

SWISS EXTERNAL DEBT (Q1/2009) =$1.448TRIL CHF

That’s an increase of $60BIL CHF, nearly 5% from Q4/2008

Per capita it’s around $180,000CHF per Swiss citizen

That’s 4.16 times more than USA external debt per capita.

SWISS INTERNAL DEBT (2009B) = $222BIL CHF

Per capita that is around $32,000CHF per Swiss citizen

This data is under H1 and R4a at the SNB link HERE.

So it makes sense that if Swiss bank revenues are showing a 65% drop in gross profit then taxes would also drop and these are taxes the Swiss government can no longer depend upon, especially when tax revenues to the Swiss government from Swiss banks have dropped on average over 80% from FY 2007 to FY2008. What must tax revenues be like in 2009 since the UBS issues did not take effect until this year?

In terms of DEBT, both INTERNAL and EXTERNAL Switzerland today looks nothing like the banking giant it was in the 1970s. Then you have to ask how can such a small country with such a small population accumulate that much debt? Well, it’s not about government being fiscally responsible. The external debt is abysmal and reflects poorly on trade balances. What happened?

That’s one aspect of mounting pressures on the Swiss government which would lead to downward pressure on the Swiss Franc at some point. Like any other government they must decide whether to cut services to the Swiss citizens or increase debt loads to cover the tax revenue gap.

The issues are the same globally … DEBT RULES. What are the per capita DEBT numbers for both PUBLIC and EXTERNAL DEBT in Switzerland and how do they stack up against the USA and Australia. In terms of lesser of evils the CIA handbook reports that the USA is by far the worst debtor with Switzerland ranking at higher debt levels than Australia per capita.

Where have I seen this chart before?

A 140% increase since 2008. Below are the tables showing the dollar amount and the percent increases in the monetary base of the SNB. It starts in 2008 and ends in July 2009 where I indicate “2009/07”. It really took off at the beginning of the third quarter 2008.

2009/07

SWISS ASSETS

If Switzerland sold off all its “assets” listed above valued at $214BIL CHF then per capita each Swiss citizen would receive $27,792CHF. That’s not enough to even pay off the internal debt at $32,000CHF per capita much less the external debt. This means that Switzerland is bankrupt based on SNB assets and liabilities. The lost tax revenues from the Swiss banks are causing much more strain on the Swiss government. This is similar to America and its collapsing tax revenues.

SWISS GOLD RESERVES (IN MIL SWISS FRANCS AND USD)

The latest data HERE shows the SNB listed with 1145 tonnes of gold roughly valued around $842USD per ounce. So here we have the austere and conservative Swiss Central Bank using a valuation of $842USD per ounce and the US FED using an antiquated $42.22 USD per ounce. Could it be that the US FED remains steadfast because a revaluation of US gold reserves based on Swiss values will show clearly how much debasement the US Dollar has suffered at the hands of the Gang Of 535 and the US FED? HERE is a copy of the current US gold reserves as reported on July 31, 2009.

SWISS DEMOGRAPHICS

Populations and rank:

USA = 307mil ranked #3

AUSTRALIA = 21.9mil ranked #53

SWITZERLAND = 7.7mil ranked #94

So there are more people in Los Angeles metro than all of Switzerland.

Land mass by country and rank:

USA = 9.6mil sq km ranked #4

AUSTRALIA = 7.7mil sq km ranked #6

SWITZERLAND = 41.2thousand sq km ranked #133

Switzerland is a little bigger than the state of Maryland.

In terms of population density Switzerland is the clear winner, ranked #65. The USA is ranked #177 and Australia is ranked #232, one of the least densely populated countries in the World.

Obviously Switzerland has a much smaller land mass and a very small population compared to the USA and Australia.

What’s up with Switzerland? Why all this debt for such a small population?

The research I posted here is purely fundamental and as we know in the global markets, especially the FX, fundamentals are not the sole criteria to base trades on. If they were then US DEBT would be rated junk! But then you need to talk to the S&P and MOODYS about that issue.

GEITHNER STAND-UP

Well, the Chinese students are bound to be howling in the aisles over at the Beijing Improv with Geithner’s latest “stand-up” act … HERE is some:

“Geithner urges G20 to consider leverage restraints …” HA!!

Has anyone seen the US TREASURY DAILY STATEMENT … what a perfect model of “restraint”!

Here is some more…

“The U.S. Treasury chief said the global economy has been pulled back “from the edge of abyss” in the past year and was showing early signs of resuming growth …”

What a comedian …Rodney Dangerfield is rolling over in his grave! I suppose next he’ll start talking about a STRONG DOLLAR POLICY!

Ahhhh … look…

“We have moved exceptionally early in the United States to put out broad proposals and detailed legislative language on comprehensive reforms to create a system that provides much stronger consumer protection and the prospect of a much more stable and less vulnerable financial system,”

Oh my God … stop it … I can’t take any more!! HA!! Okay dude, you got us … As soon as you’re done at the US Treasury you got a job waiting for you at Saturday Night Live, Lorne Michaels loves your skits!

Oh … no not more…

“These are global markets and our reforms here will not be effective…unless they’re complemented by sufficiently ambitious efforts by the rest of the other major economies.”

You mean like CHINA canceling derivatives? HA!!

What, they were too complex to understand? Whew …

So that’s what the globalization punch line was!!! Dazzle us all with complex fraud! Ahhhh!! Okay … we get it!! My Sweet Lord, what incredible … H-U-B-R-I-S??? Hey, it’s an EMPIRE thing!

“Every nation, whether rich or poor, powerful or feeble, can at any hour once again adopt the gold standard”-Ludwig Von Mises

“GOVERNMENT IS ONLY AS HONEST AS ITS MONEY” – ME

Government Debt – Analysis of Developed & Emerging Countries

Government Debt

Neville Bennett

This “Greater Depression” is a profound turning point in history. Recently, I analyzed how it had tipped the balance in global GDP away from the West to the emerging world (NBR June19). That change arises partly from differential economic growth rates. Obviously more is involved, and my focus now is on public debt and demography.

In essence, ever since the Asian Crisis, emerging countries have cleaned up their balance sheets and now have significant savings. But the developed world is encumbered with an ageing population, and unsustainable commitments in health and pensions. These prevent the paying down of public debt, which has been overblown by the need to bailout banks and fund costly stimulus packages. Japan and the UK are illustrative cases, but there may be lessons for New Zealand in this issue, as credit ratings come under pressure.

Global Public Debt

Governments have possibly stabilized the financial sector but there must be doubt about the remedy: massive public debt. According to the IMF, by next year, the gross public debt of the 10 richest countries will have risen from 78% of GDP in 2007, to 106%. It is an increase of $9 trillion in three years. New Zealand has made a modest contribution to this. Its public debt in May 2007 was NZ$28.8 bn, rising by a quarter to NZ$36.6 bn in May 2009.

There is worse to come. Weak economic growth and revenue, plus increased expenditure point to large budget deficits. The IMF believes public debt will be 111% of this groups GDP in 2014, but in a worst case scenario it may reach 150%. (See chart.)

This is the highest peacetime borrowing on record. The world economy will struggle for a decade at least with the weight of this albatross around its neck. It is the result of the paradox that crash caused by too much debt has been remedied by government bailouts to keep economies completely falling off the cliff. Most economists agree with this pump-priming in principle, but they may thereafter disagree on some aspects (for example: too much to banks) and the timing the necessary return to sounder fiscal management.

To be sure, governments have been ably to service this debt quite cheaply. Their reserve banks have driven down rates in order to stimulate the economy, and markets rates have been low as investors have flocked to find safety in government-backed securities. Nevertheless, yields are rising in response to new issuances and the cost of debt servicing is increasing net debt appreciably.

Will governments try to pay off the debt at the cost of lower economic growth? Or will try to inflate the debt away? Inflation can reduce the real cost of debt, and is attractive to governments as it is more politically acceptable than tax increases. But the cost is much higher than many politicians think.

The cost of high inflation is horrendous. Investors will buy debt only if they can make a real return. This requires an interest rate well above the CPI. If inflation is running at 10% p.a., medium term interest rates have to be higher, say 12%-16%. In the process, unless a lot of debt is paid off, the remainder will grow in line with interest rates. It is like a dog chasing its tail. The debt reduces when the dog is exhausted and can chew its tail. Meanwhile, high interest rates have slayed the economy. Only hyper-inflation destroys debt but it also destroys the middle class.

Recent History

Public debt always rises after recessions because Keynes’s policy of pump-priming is universally accepted. Some countries default. But the richer countries rely on fast growth. More recently some very fiscally responsible states like Canada, Sweden, Ireland and New Zealand have restrained public debt.

Although New Zealand will triple its bond issuance from about NZ$5 bn p.a. in 2008-9, to NZ$ 15 bn. in 2013-15,

It will keep public debt at a reasonable proportion of GDP. It is forecasting gross public debt as a proportion of GDP at 41.1% this year, rising the 45% in 2012-13 and 49% in 2014-15.

This is clearly responsible, but it does rest on projections on increases in GDP which may be optimistic. I am apprehensive that interest rates may rise to attract foreign investors, and that will be a drag on economic growth. Moreover, if NZ yields are attractive, the NZ dollar is likely to soar above fair value, hurting exports and our important tourist and student markets.

Rebound?

A rebound is difficult. Exports may be sluggish, particularly as households are rebuilding their balance sheets, with a marked reluctance to buy big-ticket items. The richer countries may follow a version of Japan’s past, where it is very difficult to stimulate the domestic economy when asset prices are falling. The Japanese Government has pump-primed until it is gasping. The country is still in deflation, but its gross debt-ratio has tripled from 65% of GDP in 1990 to 170% now.

Other Fiscal costs

The problem of repaying the cost of the bailout is dwarfed by the cost of an ageing population. According to the IMF, the present cost of the bailouts is only one tenth of the financial cost of ageing. If this problem is not addressed, demographic pressures will send the debt of the big rich economies to around 200% of GDP by 2030.

The world has regarded emerging country debt as the most in risk of default. This is an anachronism. The emerging members of G20 had a debt-GDP ratio of 38% in 2007 and it is falling to perhaps 35% this year.

The rich countries need to be careful to avoid tightening policy too soon for fear of snuffing out economic growth. But they may need to take other action to free up fiscal elbow-room. Pensions are an obvious problem, and raising the retirement age seems imperative as many superannuation schemes are unfunded. S&P have made it clear that the UK either raises taxes or cuts pensions and health spending if it is to avoid a credit downgrade. This is problematic as funding civil service pensions alone can amount to 85% of GDP.

REVENUE BREAKDOWN – Obama’s Spending Spree

REVENUE BREAKDOWN – Obama’s Spending Spree

By Stephen Wellman
June 5, 2009

 

This will cover spending and tax revenues for the week starting June 1, 2009. It was a busy week for the US TREASURY and one of the highlights was Tim Geithner’s meeting in China. Laughing students aside, he had a tough act to sell! Yet he kept to the same script the US FED and US TREASURY have been saying for decades now their mantra of STRONG DOLLAR … STRONG DOLLAR. Its their mantra but not their practice.

BLS WAGES

BLS data for wages that was released on June 4th to NO FANFARE … The FANFARE that moved the DOW that day was for the small dip in unemployment claims. Meanwhile if you read the hidden details, like I do, you see that there has been some massive hour cuts for American workers for the Q1 2009. That reflects perfectly with my collapse scenario for the US PAYROLL WITHHOLDING TAX REVENUES. If workers work less hours then there will be less tax revenues. Even here in Hawaii Governor Lingle is making State employees take mandatory three day furloughs(no pay) every month in order to cut costs.

What stuck out was this report on the MANUFACTURING SECTOR:

Manufacturing

Productivity decreased at a 2.7 percent annual rate in the manufacturing sector during the first quarter of 2009, reflecting a 21.7 percent decrease in output and a 19.5 percent decrease in hours (tables A and 3). These were the largest-ever declines in the output and hours series, which begin with data for the second quarter of 1987. Over the last four quarters, manufacturing productivity fell 3.2 percent, the largest four-quarter decline in the series (tables A and 3). This contrasts with the 3.7 percent average annual increase from 2000 to 2007. In the durable goods manufacturing subsector, output declined 31.0 percent and hours fell 23.0 percent, yielding a productivity decline of 10.4 percent. In nondurable goods industries, productivity rose 1.9 percent as the decline in output of 11.6 percent was less than the 13.2 percent decline in hours.

Hourly compensation in manufacturing grew 13.4 percent during the first quarter of 2009, reflecting a 15.8 percent rise in durable goods industries and a 10.1 percent rise in the nondurable goods industries (seasonally-adjusted annual rates). Real hourly compensation, which takes into account changes in consumer prices, increased 16.1 percent for all manufacturing workers. Unit labor costs rose 16.6 percent in manufacturing during the first quarter of 2009, after increasing 17.1 percent in the fourth quarter of 2008. Over the last four quarters total manufacturing unit labor costs increased 12.0 percent, the largest increase in the series.

These moves represent the BIGGEST moves since 1987. So things are falling off a cliff for America’s manufacturing base. I have also reviewed this same info for the State Of California and it is confirmed. The biggest drops in payroll for California are Construction and Manufacturing. The reports don’t really say why, but I imagine it is due to closing doors or moving out! Interesting the two sectors which show the least decline in employment are mining and healthcare. Healthcare in California is stable.

So productivity decreases while wage costs increase. Hummmmm??? NEXT!

US TREASURY DAIIY STATEMENT

Well on June 3rd, 2009, the US TREASURY spent $22.332BIL USD on Social Security benefits in 24 hours. That put our SPEND RATE up to 6.00. The US TREASURY only took in $7.559BIL USD in tax revenues on June 3rd and out of that $7.449BIL was from US PAYROLL TAX REVENUES. How much tax did the US corporations pay? $52mil. Those rich people with their Estate taxes only paid in $3mil USD that day.

Here is the LINK to the US TREASURY DAILY STATEMENT for June 3, 2009.

So how much have we spent on Social Security for FY 2009 so far? Around $385.7BIL USD and how much on TARP? Around $321.4BIL USD … not much difference. But on UNCLASSIFIED we have spent way over what we spend on Social Security at $413.6BIL USD. Between OTHER and UNCLASSIFED we have spent a combined total of $1.777TRIL USD and the media is dead silent. There’s so much money in the system on a daily basis the US TREASURY can’t even line item it!

TRUST FUND IOUS IN LAYMAN’S TERMS

There has been much talk about how the US TREASURY “borrows” from the Social Security Trust Fund. If only that were the only Trust Fund they hand IOUs to!

On every US TREASURY DAILY STATEMENT is a term called GOVERNMENT ACCOUNT SERIES. First TABLE III-B refers you back to TABLE III-A where there is a breakdown of both “marketable”(bills, notes and bonds) and “nonmarketable”(intergovernment debt). As anyone with eyes can plainly see the vast majority of “debt” is in the “Government Account Series” line item in the “non-marketable” section of both TABLES III-A and III-B. Just think of that BIG number as the UNFUNDED LIABILITY number for US CONgress to borrow from the Social Security and Medicare Trust Funds and many other trust funds you probably have never heard of. This is the magic hocus-pocus of IOUs that are suppose to be repaid in our lifetime.

So this stuff is “ON-BUDGET” and “OFF-BUDGET”. The “OFF-BUDGET” debt did not start until 1937 during the Great Depression, under FDR, but it has steadily grown since then just like everything that BIG GOVERNMENT does. Once again both DEMS and REPS have been guilty of growing the gross DEBT; both are experts at fiscal irresponsibility.

Back to the Government Account Series. These are non-marketable securities, implicit debt, guaranteed by the US government. They are mainly TRUST FUNDS. This chart of TRUST FUNDS is from the Financial Management Service, a bureau of the US TREASURY. I think it is important to get a perspective on just how widespread this addiction to SPEND has become. It has infested all manners of solvent entities and turned them into IOU ridden wards of the state.

The following TABLE FD-3 is only reported monthly, so March 2009 is the last data point.

Here is the LINK to the website that publishes these tables. Click on “Federal Debt”.

You can see that the US government owes these Trust Funds a total of trillions.

I found this statement from the FMS … “Government account series (FD-2)—Certain trust fund statutes require the Secretary of the Treasury to apply monies held by these funds toward the issuance of nonmarketable special securities. These securities are sold directly by Treasury to a specific Government agency, trust fund, or account. Their rate is based on an average of market yields on outstanding Treasury obligations, and they may be redeemed at the option of the holder. Roughly 80 percent of these are issued to five holders: the Federal Old-Age and Survivors Insurance Trust Fund; the civil service retirement and disability fund; the Federal Hospital Insurance Trust Fund; the military retirement fund; and the Unemployment Trust Fund.”

The BIG FIVE!!

I’ll bet they are “special”! I just hope we never find out just how “special” they really are!

There are also “marketable bonds” as per Table III-B of the US TREASURY DAILY STATEMENT. Every BOND issued by companies or governments has a “Redemption Value” upon maturity whereby the company, or in this case the government, pays to redeem it.

So in the end should the US TREASURY count these securities or “IOUs” when they borrow from a multitude of Trust Funds? The idea is that these “IOUs” will be made good when they are due or “mature”. So in theory as these IOUs mature the government must print money to pay them if there are no tax revenues to cover them. I personally am not counting on getting any checks from Social Security by time I retire. I also doubt I am going to have Medicare, but instead some Third World version of UNIVERSAL HEALTHCARE that is tantamount to a Medicare default.

Just because all this is listed on the US TREASURY DAILY STATEMENT don’t get the idea that all these numbers add up and make sense … THEY DON’T! Try to add up the OTHER total with the breakdown that is listed for OTHER, it never adds up.

This is the stuff that the GAO has been complaining about for decades now and is the main reason that David Walker(former GAO Chief)quit.

So next time when you hear someone compare the US government to ENRON, you’ll know why. More to the point you’ll know where ENRON got all their ideas from! Yet the S&P gives out their AAA rating … AAA is virtually worthless in my opinion, but then again I am not CHINA or the millions of people out there sitting in cash on the sidelines using Treasuries or FDIC accounts. By the way the US government even borrows from a trust fund entitled “Deposit Insurance Fund”. Hummmmmm??? I wonder if that is related to the FDIC.

All this info is available to the public so feel free to do your own research. When was the last time any of this was discussed in the SITUATION ROOM or on SQUAWK BOX or on OPRAH? Nobody wants to know the real truth and even after going on 60 MINUTES, David Walker walked away completely convinced that the US CONgress is just that … a CON!

None of this data supports a STRONG DOLLAR POLICY. Strangely enough it all comes from the same entity that Tim Geithner heads, the US TREASURY.

Gold is the only durable hedge against this enormous monetary fraud of the irredeemable currency Ponzi scheme.

GOVERNMENT IS ONLY AS HONEST AS ITS MONEY …