Posted tagged ‘Treasury’

Ministry of Plenty 100% Sure It Will Control Inflation

December 7, 2010

Bernanke Is 100% Sure

From ZeroHedge.com:

I don’t know about you, but I’m not 100% sure about anything. The older I get, the less sure I am about everything. I question things that I was sure were true when I was 25 years old. I’m not sure I’ll wake up in the morning. I’m not sure I’ll survive my commute to work. That is why I was flabbergasted last night as I watched Scott Pelley interview Ben Bernanke on 60 Minutes.

As a side note, boy this show has gone downhill. In the old days of real journalism, Mike Wallace would have scorched Ben Bernanke, pointing out his phenomenal ability to be wrong or clueless on every financial issue the country has faced in the last 10 years. Today, Pelley underhands softball questions to Bernanke and never challenges him. It was a pathetic display of journalism.

Below is the dialogue that made me almost fall off my chair:

Pelley: Is keeping inflation in check less of a priority for the Federal Reserve now?
Bernanke: No, absolutely not. What we’re trying to do is achieve a balance. We’ve been very, very clear that we will not allow inflation to rise above two percent or less.
Pelley: Can you act quickly enough to prevent inflation from getting out of control?
Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Pelley: You have what degree of confidence in your ability to control this?
Bernanke: One hundred percent.

The hubris in this statement is breathtaking. The U.S. economy is a complex interaction of thousands of variables and is intertwined with the policies and actions of hundreds of other countries throughout the world. No one has a handle on the worldwide economy and no model can predict anything with any amount of accuracy. And still, this pompous professor from Princeton who has never worked a day in his life in the real world is 100% SURE that HE knows what will happen and when it will happen. I’m sure his track record of predictions and analysis will give you comfort in this statement:

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – 7/1/2005

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” – 2/15/2006

March 28th, 2007 – Ben Bernanke: “At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,”

May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.”

June 20th, 2007 – Bernanke: (the subprime fallout) “will not affect the economy overall.”

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CIT Files Bankruptcy

November 1, 2009

mushroom_cloudThis has been a long time coming. CIT became a bank-holding company in December 2008 in order to qualify for a bailout from the Treasury taxpayers.  And what about the $2.3 billion of bailout money CIT received? You weren’t really expecting to ever see that again, were you?

Asian markets are in a tailspin after this announcement. I expect tomorrow will be another blood bath on Wall Street. 

This filing is significant not only because it is the fifth largest US bankruptcy ever, but also because CIT was a major source of financing for small and mid-size businesses. The pain from this collapse is going to spread all up and down Main Street.

Nov. 1 (Bloomberg) — CIT Group Inc., a 101-year-old commercial lender, filed for bankruptcy to cut $10 billion in debt after the credit crunch dried up its funding and a U.S. bailout and debt exchange offer failed.

CIT listed $71 billion in assets and $64.9 billion in debt in a Chapter 11 filing in U.S. Bankruptcy Court in Manhattan. The U.S. Treasury Department said the government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to CIT.

The bankruptcy “will allow CIT to continue to provide funding to our small business and middle-market customers,” said Chief Executive Officer Jeffrey Peek in a statement.

CIT, which filed the fifth-largest bankruptcy by assets, said it plans to exit quickly due to support from bondholders, who voted in favor of a so-called prepackaged plan. None of CIT’s operating subsidiaries, including Utah-based CIT Bank, were included in the filing, and operations will proceed as normal, CIT said in a statement.

CIT has $1 billion from investor Carl Icahn to fund operations while it reorganizes. The credit line, to be drawn on until Dec. 31, will be a so-called debtor-in-possession loan. It also expanded its $3 billion credit facility by another $4.5 billion on Oct. 28.

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The Great Recession is Over!

October 29, 2009

celebrationThird quarter GDP is up 3.5%!

The media and the federal government today are reporting the Great Recession is over(maybe, sort of).

Never mind that the bulk of that growth came from Cash for Clunkers (which cost taxpayers $24,000 per vehicle). Never mind that the numbers of jobs “saved or created” by Obama’s stimulus was overstated by the White House. The recession is over!

More house buying credits for everyone! Even four-year olds! Go for it – the IRS doesn’t require you to prove you actually bought a house (shhhh).

And hey, while we’re at it – how about “free” health insurance for everybody! Read all about it here – only 1990 pages long!

So come on, people – let’s celebrate! The good times are rolling again!

Debtor’s Revolt!

September 9, 2009

I am free, no matter what rules surround me.  If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them.  I am free because I know that I alone am morally responsible for everything I do. 

~Robert A. Heinlein, The Moon is a Harsh Mistress

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Human history begins with man’s act of disobedience which is at the very same time the beginning of his freedom and development of his reason. 

~Erich Fromm, Psychoanalysis and Religion

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As long as the world shall last there will be wrongs, and if no man objected and no man rebelled, those wrongs would last forever. 

~Clarence Darrow

Uh-Oh. China Growing More Wary of US Dollar, Buying Gold

September 7, 2009

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As reported at Telegraph.co.uk:

China alarmed by US money printing
The US Federal Reserve’s policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”.

“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

China’s reserves are more than – $2 trillion, the world’s largest.

“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added.

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In other troubling news, Bloomberg reports that the “UN Says New Currency Is Needed to Fix Broken ‘Confidence Game’

Sept. 7 (Bloomberg) — The dollar’s role in international trade should be reduced by establishing a new currency to protect emerging markets from the “confidence game” of financial speculation, the United Nations said.

UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.

China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world’s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund’s special drawing rights, or SDRs, may add stability.

Update: Bloomberg just reported that Gold futures climed to $1000 an ounce for the first time in more than six months.

Time may be running out even faster than anyone anticipated.

Profit From TARP? Not So Much

September 7, 2009

Reporter Matt Taibbi sees through the smoke and mirrors surrounding the supposed “profit” taxpayers have made from the Treasury’s TARP program.

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It was inevitable that the same people who pushed through the multi-trillion-dollar bailout of Wall Street would come out later on and tell us what a great idea theirs turned out to be, in retrospect and under the light of evidentiary examination. And we’re getting that now, with a pair of reports, the above one in the New York Times and another in the Financial Times, telling us the bailout is working because the government has made some money on TARP. They came to this conclusion by quoting Fed officials, who apparently calculated how much interest the Fed earned on TARP investments above what it would have earned on T-bills. The amount so far, according to these worthy gentlemen: $14 billion.

This is sort of like calculating the returns on a mutual fund by only counting the stocks in the fund that have gone up. Forgetting for a moment that TARP is only slightly relevant in the entire bailout scheme — more on that in a moment — the TARP calculations are a joke, apparently leaving out huge future losses from AIG and Citigroup and others in the red. Since only a small portion of the debt has been put down by the best borrowers, and since the borrowers in the worst shape haven’t retired their obligations yet, it’s crazy to make any conclusions about TARP, pure sophistry. Moreover, a think tank set up to analyze TARP, Ethisphere, calculated in June that TARP was still $148 billion down overall, a debt of over $1200 per American. To start talking about what a success TARP is now is beyond meaningless.

…it speaks to a level of intellectual desperation and magical-thinking unusual even for a banker in the subprime/MBS era

Read the rest…

Bailout Tracker Update

September 7, 2009

pile-o-moneySo how much has the government’s intervention in the financial crisis costing us? According to CNN’s Bailout Tracker, the total amount committed to date is $11 Trillion, with $2.8 Trillion invested so far.

The list of recipients includes AIG, auto suppliers, automotive financing, Bear Stearns, Citigroup, Fannie Mae, Freddie Mac, Bank of America and numerous programs run by the Fed, Treasury and the federal government itself. The total cost to the FDIC alone is $35.5 Billion. See all the gory details here.

Failed Bank List Grows to Eighty-One

August 22, 2009

001-0820064521-Bank-CollapseThis week four more banks joined the FDIC failed bank list, including the second largest of the year – Guaranty Bank of Austin, Texas.

The others are ebank Atlanta, Georgia, CapitalSouth Bank, Birmingham, Alabama and First Coweta, Newnan, Georgia.

While Ben Bernanke may believe recovery is just around the corner, there are still some rather large red flags on the horizon.

McClatchy reports the following:

Delinquency and foreclosure rates for U.S. mortgages continued to rise in the second quarter, with loans to the most qualified borrowers going bust at an unnerving clip, especially in hard-hit states such as Florida and California.The numbers reported Thursday by the Mortgage Bankers Association show clearly that rising job losses are worsening the nation’s housing troubles and threaten the Obama administration’s efforts to keep owners from losing their homes.

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The Orlando Business Journal also reported Friday that as of June 30th, “Nationwide, a total of $3.4 trillion worth of property values was in risk of defaulting.”  That’s right – $3.4 Trillion worth of loans at risk of default.

Guaranty Financial Group was crippled not by engaging in overly risky practices but because it bought highly rated, straightforward structured mortgage-backed securities. It lent to home builders. Both of these things were what it specialized in, it’s “core compenentcy,” as it’s CEO puts it. They didn’t buy subprime loans, and didn’t buy much of the super-toxic 2006 and 2007 loans. They thought they would be safe. And they were wrong.

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Did we all get it wrong? Calculated Risk has charts of US mortgages by type and loans that are seriously delinquent or in foreclosure by type. The disturbing thing about the second chart is that it clearly shows the crisis has expanded to the Prime loan market in great numbers.

With so many loans defaulting, the list of problem banks remains large. Banking analyst Meredith Whitney predicts more than 300 banks will fall soon. See Calculated Risk for an unofficial list of problem banks.

Where does all this leave the FDIC? Once again, Calculated Risk provides some very informative charts pertaining to estimated losses to the FDIC. And Karl Denninger lays it all out in The Market Ticker – “about 75% of the FDIC’s “insurance fund” has been depleted over the last year.” So is the FDIC broke? Karl think so.

I believe the FDIC is broke and knows it; that under the law they should have seized these three banks (and many dozens more, including some really big ones) some time ago, but doing so will force them to tap the Treasury “emergency” credit line. They’re well-aware that this could instill quite a bit of panic in the public (never mind Congress!); as such they, along with OTS and OCC are conspiring to (once again) hide the truth and pray for an economic recovery before they are forced to act as the law demanded months or even years ago!

A new quarterly report from the FDIC is due out soon. Perhaps that will shed more light on the situation. Or not. Stay tuned.

Reuters: U.S. jobless claims unexpectedly rise

August 20, 2009

Unexpectedly? I guess it might be unexpected if you aren’t completely connected to reality. Anyeay, here’s what Reuters reported:

Initial claims for state unemployment insurance benefits rose 15,000 to a seasonally adjusted 576,000 in the week ended August 15 from 561,000 the prior week, the Labor Department said. Analysts polled by Reuters had forecast new claims slipping to 550,000 last week from a previously reported 558,000.

The number of people collecting long-term unemployment benefits edged up 2,000 to 6.24 million in the week ended August 8, the latest week for which the data is available. However, the four-week moving average declined 2,500 to 6.27 million.

Wonder how many of the 2,500 decline are people who have exhausted their benefits but are still unemployed. Considering that we’ve wiped out all the jobs created in the 21st century, you can’t help but wonder.

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HotAir’s Ed Morrissey sums it up nicely:

Obama has a big problem.  The stimulus package has utterly failed to prevent unemployment from getting above the target line of 8%.  After some initial optimism about the economy, employers are once again shedding jobs and reducing costs, particularly as they see Obama’s expansive — and expensive — legislative agenda work through Congress.  At the time when Obama says, “Trust me to run health care,” voters are realizing that he couldn’t get the economy right while mortgaging the Treasury.  Maybe Obama should focus on fixing what he’s already broken before breaking something else.

Read the rest…

US Deficit Over $1 Trillion for the First Time Ever

July 13, 2009

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AP WASHINGTON – Nine months into the fiscal year, the federal deficit has topped $1 trillion for the first time.

The imbalance is intensifying fears about higher interest rates and inflation, and already pressuring the value of the dollar. There’s also concern about trying to reverse the deficit — by reducing government spending or raising taxes — in the midst of a harsh recession.

The Treasury Department said Monday that the deficit in June totaled $94.3 billion, pushing the total since the budget year started in October to nearly $1.1 trillion.

The deficit has been propelled by the huge sum the government has spent to combat the recession and financial crisis, combined with a sharp decline in tax revenues. Paying for wars in Iraq and Afghanistan also is a major factor.

The country’s soaring deficits are making Chinese and other foreign buyers of U.S. debt nervous, which could make them reluctant lenders down the road. It could force the Treasury Department to pay higher interest rates to make U.S. debt attractive longer-term.

“These are mind boggling numbers,” said Sung Won Sohn, an economist at the Smith School of Business at California State University. “Our foreign investors from China and elsewhere are starting to have concerns about not only the value of the dollar but how safe their investments will be in the long run.”

Government spending is on the rise to address the worst financial crisis since the Great Depression and an unemployment rate that has climbed to 9.5 percent.

Congress already approved a $700 billion financial bailout and a $787 billion economic stimulus package to try and jump-start a recovery, and there is growing talk among some Obama administration officials that a second round of stimulus may be necessary.

This has many Republicans and deficit hawks worried that the U.S. could be setting itself up for more financial pain down the road if interest rates and inflation surge. They also are raising alarms about additional spending the administration is proposing, including its plan to reform health care.

President Barack Obama and other administration officials, including Treasury Secretary Timothy Geithner, have said the U.S. is committed to bringing down the deficits once the country has emerged from the current recession and financial crisis.

As if a deficit of more than $1 Trillion wasn’t bad enough, “Debt Day” (the point in the fiscal year when government spending exceeds revenue) was less than three months ago. Zero to -1 Trillion in less than three months.

How much deeper in debt can we go? A lot deeper if the federal government insists on going through with Cap & Trade, Universal Health Care, and maybe – just maybe – another round of stimulus.

Shhh – you can almost hear the Chinese from here…Spend, baby, spend!