By GERALD P. O'DRISCOLL JR.

August 22, 2008; Page A15

Will the U.S. Treasury repudiate its obligations to its creditors, be they citizens or investors around the world? Most observers would answer "no" without hesitation. But Congress, with the complicity of the White House and the Fed, has arguably embarked on a stealth repudiation.

In his famous treatise, "The Wealth of Nations," Adam Smith noted there had never been a "single instance" of sovereign debts having been repaid once "accumulated to a certain degree." We may have reached Smith's threshold.

The bond markets are certainly not protecting creditors from the risk of what Smith called "pretended payment" through inflation. Nor did they do so until far into the great inflation of the 1970s. Not until late 1977 and into 1978 did the bond market fully incorporate the reality of the debased dollar, by demanding higher long-term interest rates.

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A film about debt

Another inconvenient truth
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Aug 14th 2008 | NEW YORK

From The Economist print edition

AMERICA’S infamous debt clock, near New York’s Times Square, was switched off in 2000 after the national burden started to fall thanks to several years of Clinton-era budget restraint. However, it was reactivated two years later as the politically motivated urge to splurge once again took over. The debt has since swollen to $9.5 trillion, with the value of unfunded public promises (if you include entitlements such as Social Security and Medicare) nudging $53 trillion—or $175,000 for every American—and rising. On current trends, these will amount to some 240% of GDP by 2040, up from a just-about-manageable 65% today.

David Walker, who until recently ran the Government Accountability Office, has made it his mission to get the nation to acknowledge and treat this “fiscal cancer”. His efforts form the core of a new documentary, “I.O.U.S.A.”, out on August 21st. The message is simple enough: America’s financial condition is a lot worse than advertised, and dumping it on future generations would be not only economically reckless but also immoral.

The biggest deficit of all, the film contends, is in leadership: politicians continue to duck hard choices. It hints at dark consequences. As America has become more reliant on foreign lenders, it warns, so it has become more vulnerable to “financial warfare”, of the sort America itself threatened to wage on Britain, a big debtor, during the Suez crisis. Warren Buffett, America’s investor-in-chief, pops up to warn of potential political instability.

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Ellen Brown, August 8th, 2008

Last week, Congress passed a housing bill that gave the Treasury Department a blank check to inject billions of U.S. taxpayer dollars into mortgage giants Fannie Mae and Freddie Mac, snatching them from insolvency. To accommodate this blank check, Congress obligingly raised its debt ceiling by $800 billion. Ouch! That’s nearly a trillion dollars. Why was it necessary to incur this potentially crippling public debt to bail out two completely private, for-profit behemoths, which have run themselves into bankruptcy with their own risky investment schemes? Policymakers said it was essential to maintain the country’s creditworthiness with foreign lenders, which today hold about one-fifth of Fannie and Freddie securities. According to a July 21 report by Heather Timmons in The New York Times:

One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States.1

Ten percent of American mortgages are now owned by foreigners? Doesn’t that defeat the whole purpose of Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Mortgage Corporation)? They were supposedly set up to fund “the American dream” – home ownership by Americans. Today, American homes are owned by anonymous pools of private investors, many of whom are foreign governments and foreign central banks. How did we manage to give away the farm? And why are we bowing to the interests of foreign investors to the point of driving our own government into bankruptcy? The federal debt is already nearly ten trillion dollars, more than the government can ever possibly repay with taxes.

According to analysts, the bailout of the two mortgage giants is necessary “because America’s relations with a host of countries are intricately tied to Fannie and Freddie,” and because we need to assure “Americans’ future ability to gain access to credit. If foreign companies and governments abandon United States investments, home, auto and credit card loans will be much more difficult to come by.”

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If you wondered who the Fannie bail out was for, wonder no longer…

Published b yMorgan

at August 5, 2008 in Economy, Mortgage Musings and Mortgage News/Insight. Tags: No Tags.

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I’ve said numerous times that the main reason for bailing out the mortgage giants Fannie Mae and Freddie Mac was not for the US homeowner but for the Chinese who have bought a huge portion of our mortgage backed debt. By letting the GSEs go under the US government would have defaulted on a huge promise to its number one pimp partner who has helped fuel this massive expansion in credit and debt.

Bloomberg now has an article confirming that there were high-level talks between the US Treasury Secretary Hank Paulson, Fannie Mae CEO Mudd and Asian investors who hold a bulk of this debt. When you think of the homeowner bail out, remember, $300 billion was earmarked for American citizens. The rest of the near $2 trillion will go to securing our partners cash flow in to our country.

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Related
America the Broke is the biggest debtor in the world, carrying more than 1/4 of the total world debt, a debt that it has no means to pay

By tmartin • August 5, 2008

In his latest essay Dr. Ron Paul accurately diagnoses the government’s money dilemma and prescribes a painful but effective cure. We the people are in agreement, but our decadent politicians and bankers have decided to prolong the “easy credit” bonanza for as long as they possibly can. Are they oblivious to the risk of total financial collapse and the potentially devastating consequences?

Washington’s Intervention Addiction

by Ron Paul

One problem with politicians is that when problems they create come to a head, they typically feel this irresistible urge to DO something, rather than to UN-do something, or to simply back off to avoid exacerbating the situation. Too often, that which they end up doing has very little connection to the cause of the crisis, but plays well in the press and superficially makes everyone feel better. Bills that are rushed through Congress under duress are never studied enough, providing too tempting an opportunity to quietly slip in unrelated provisions that erode freedoms in ways that would never pass as a stand-alone bill. We famously saw this with the PATRIOT Act, but Washington learned nothing from that.

The current housing crisis and the corresponding big government fix are another prime example. First of all, the so-called solution will actually make the problem worse. The problem stems from easy credit and a rush to flood the housing and mortgage markets with money. Relaxed or non-existent lending standards led many into mortgages and houses they could not afford. As more foreclosures hit, the lending institutions will continue collapsing like dominoes under the weight of all the bad paper they underwrote. Some are reacting and reintroducing lending standards. Thus the number of buyers in the market for homes is beginning to shrink back to its natural size, and hyper-inflated prices are falling back down to earth. In these ways, the market is trying to correct itself in the wake of the mistakes government intervention encouraged them to make through easy credit. However, this correction is causing pain, especially to Wall Street investors and those who bought homes at the top of the market bubble, never expecting it to crash, always assuming they would easily be able to refinance.

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SFGate

Concern grows over a fiscal crisis for U.S.

Carolyn Lochhead, Chronicle Washington Bureau

Thursday, July 17, 2008

(07-17) 04:00 PDT Washington - -- As the Bush administration proposes backstopping mortgage giants Fannie Mae and Freddie Mac with a $300 billion line of credit and Congress contemplates another economic stimulus, the question is who will bail out the government?

"People seem to think the government has money," said former U.S. Comptroller General David Walker. "The government doesn't have any money."

A rare consensus has developed across the political spectrum that the government's own fiscal affairs are precarious, with an astonishing $53 trillion in long-term liabilities, according to the Government Accountability Office.

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Related
Are "Dark Pools" Destined to be the Capital Markets' Next Black Hole?

By Damian Reece

Last Updated: 12:34am BST 11/07/2008

So far we have escaped a US-style sub-prime meltdown. We may never see anything so bad, but it's going to be a close call. House prices are falling at a faster rate than the late 1980s-early 1990s slump. House prices generally relate to highly-geared assets (mortgages on homes). As prices fall at rates not seen since the 1930s, equity is vanishing with a rising tide of negative equity the result.

As long as people stay employed and can carry on servicing their debt, they can sit tight and wait for prices to recover to restore their equity. But with more people losing their jobs and the cost of servicing the huge debt pile already taken out, such as credit cards and other unsecured credit, mortgage arrears and repossessions will rise.

Optimists point out that although repossessions have started to rise, they're still way below the levels endured at the height of the last recession. But that's because we're still only at the beginning of this recession.

Over the next 18 months banks are going to face a rising tide of bad debts, arrears and repossessions. The worst hit will be those lenders who have focused on high loan-to-value lending, the buy-to-let market and the self-certification mortgage market where borrowers became their own credit controllers. Another source of worse-than-usual bad debts will come from the large loan books that some high street lenders bought from specialist rivals in a bid to bulk up in the boom.

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The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants

By Moe Bedard on July 4th, 2008

***

"Never has there been a time in our history where our freedom has bee over shadowed by our burdens of debt and war, as it is now. The time has come to unite in the streets of America as people, families and communities who must stick together, stand tall and keep fighting for what the fathers of our country did over 200 years ago.''

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Related
What do Fleck, Fortis, RBS and Barclays Have in Common? What they have in common is all have recently predicted a massive unraveling of the US financial 'system' within a few weeks. It is not as if this prediction or being on the verge of a meltdown is something new. The financial system has come apart several times in the past year but the Fed has always stepped in with something that has caused the markets to calm down (on the surface) and stocks to rally. Bonds, however, have never responded quite in the manner of stock market participants.


Sun, June 29, 2008

Oil prices have nowhere to go but up

By ERIC MARGOLIS

PARIS -- The French and the rest of Europe are up in arms over soaring gas and food prices. Truckers, taxi drivers, farmers and fishermen across the continent are blocking roads and raising hell.

Gas and diesel cost 2.5 to three times more here than in North America, where prices are still a bargain compared with the rest of the developed world.

Frightened politicians from Baltimore to Bangkok are pretending they can do something about high energy and food prices, or desperately are seeking scapegoats. Evil speculators or Arabs are the current favourite.

So who is responsible for oil rising from $40 per barrel to over $140? The principal villain is the once mighty U.S. dollar.

Most of oil's price surge has been caused by the U.S. dollar's steady loss of value caused by Washington's bungled foreign policy and orgy of debt. Increased demand from India, China and other Asian nations, where gas prices are kept below world prices by government subsidies, has played an important but secondary role.

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link

Related
'There is no sign of a bottom'

47 min

Paul Grignon's 47-minute animated presentation of "Money as Debt" tells in very simple and effective graphic terms what money is and how it is being created. It is an entertaining way to get the message out. The Cowichan Citizens Coalition and its "Duncan Initiative" received high praise from those who previewed it. I recommend it as a painless but hard-hitting educational tool and encourage the widest distribution and use by all groups concerned with the present unsustainable monetary system in Canada and the United States.