Effor.com

Timothy Geithner is either really stupid or he’s simply lying to buy time.  I left work early today and I heard this quote from Rush Limbaugh on the way home (I used to listen to him regularly, but his shtick is getting old – how long can he blame everything on the Democrats and Clinton?  Bush had power for 8 years, and borrowed as much money as ALL previous presidents combined – I didn’t hear Rush bitching about spending then.)  so I had to look it up.

Rush is right on this one – here’s a quote from a Bloomberg news story: “It will be helpful if Geithner can show us some arithmetic,” he said.

“He” is Yu Yongding, a senior researcher at the government-backed Chinese Academy of Social Sciences and a former central bank adviser. “The Chinese public is worried about the safety of its foreign- exchange reserves,” Yu said in an e-mail.

Yup, that would sure be “helpful”.  I’m still trying to figure out how we (the US) can borrow as much as we collect in taxes this year and next year and still Geithner can state “No one is going to be more concerned about future deficits than we are”. I’d like to see the math on that.

To put it bluntly, Geithner is either really, really dumb, or he’s simply lying. I think he’s lying.

According to a Reuters story about the visit A major goal of Geithner’s maiden visit to China as Treasury chief is to allay concerns that Washington’s bulging budget deficit and ultra-loose monetary policy will fan inflation, undermining both the dollar and U.S. bonds.

That sounds good – I too would like to be reassured that my savings aren’t going to be worthless because of the incredible amount of money being printed.  But guess what?  Words mean nothing – it’s what they actually do that counts.  And what the Obama administration is doing is driving the final nails into the coffin that is the US economy.  Bush dug the hole, and Obama is pushing us into it.

The really sad part of Geithner’s statements is that even the Chinese know that he’s lying.  According to the same Reuters story when Geithner said “Chinese assets are very safe,” it  drew loud laughter from his student audience, reflecting skepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

Towards the end of the Bloomberg story, it says “I will, of course, make it clear that we are committed to a strong dollar, that we are committed to bringing our fiscal deficits down over the medium term to a sustainable place, to a sustainable level,” Geithner said in the briefing May 27. “We believe in a strong dollar. A strong dollar is in the U.S. interest.”

That’s pure bullshit and I think Geithner knows it.  He can’t really be that stupid.  No deficit is “sustainable” over the long run – every year simply puts you further and further behind.  At some point you must pay the debt off.  And in order to pay ANY debt off you must have a surplus.  That’s simply not in the cards for the US.  Medicare and Social Security are soon to run huge deficits – and where will we get the money to pay that?

gk

Share on Facebook

Today’s Daily Reckoning had a good piece (as usual) from Bill Bonner.  He had an imaginary conversation with Tim Geithner about how to handle the debt bubble.  I wish I would have thought of that, but I’m not known for being original.    Here’s part of the conversation where Tim calls up Bill and asks for Bill’s advice:

“We need to recognize, first, that this is not just a regular recession. So you can forget the usual recession remedies – a few points off the Fed funds rate…a little counter-cyclical fiscal spending. This is much more serious.

“What we have here is a depression. It’s a depression because it requires a fundamental restructuring of the international financial model. You know how it worked during the Bubble Epoch; Asians made things…Americans bought them. Asians made money; Americans spent it. Asians saved; Americans borrowed. And now the Asians have money; and Americans have debts. Not really very complicated, is it?

“Well, these programs of trying to bailout businesses…and the banks…and the economy…you can see how they are all a waste of money. All of these efforts are trying to revive the old model. They’re trying to free up credit so that Americans can buy more! Now, we don’t really have to explain why that won’t work, do we? More debt won’t do Americans any good; more IOUs from Americans won’t do China any good.

“Instead, the model has to be taken apart and reconstructed. China needs to sell more to people with money – its own people, mainly. Americans need to pay down their debts before they can take up serious consumption again.”

“But wait, Bill,” Mr. Geithner interrupted. “Won’t that cause serious disruptions? When Americans save, in order to reduce their debts, they take away the single primary source of demand for the world economy. If they don’t begin buying soon, businesses all over the world will go broke. That’s why I’ve spent so much money trying to bail out the banks. Americans have no money. So the only way they can spend is if the banks provide credit. So, we have to save the banks first…then they’ll begin lending…and then the economy can begin growing again.”

“Uh…no. That’s not how it works. Even if you make all the banks solvent, whom are they going to lend to? Who’s going to borrow? Americans have too much debt already. Right now, if they get any money, they’re holding onto it…and using it to pay down their debts. They’re not going to start spending just because a bank offers them a loan.

Good stuff!  One thing that Bill left out is the power of savings.  Americans don’t have any savings to speak of, that’s why our government needs to borrow from China and Japan.  When the government ran up huge debts during the Depression and WWII, American citizens were the people who provided that money.  They provided it from savings, and we don’t have the money to do that today.

So when we purchase something made in China (or Germany) we have to effectively borrow that money in order to buy it.  That’s what a trade deficit does over time.  Wealth is extracted from the country with the deficit, and it flows into the country with the surplus.  It’s not rocket science.

Note – I am NOT suggesting that we pass protectionist measures to combat the trade deficit.  The fix to that is to simply live within our means and only purchase what we can afford.  That means paying as you go.  No new debt.  Pay down the old debt and save actual money.  When the debt is gone, people can once again buy more things – as long as they pay for it.

Robert Heinlein wasn’t the first to say it, but he said TANSTAAFL in a way that I remember it.  “There Ain’t No Such Thing As A Free Lunch”.  He’s right, and we’re finding that out in the US now.

I’m currently re-reading volume one of The Story of Civilization. “Our Oriental Heritage” and it’s amazing how many times throughout history that government (and people) think they can rewrite the laws of nature.  Supply and demand is one of those laws, and no amount of wishful thinking and no amount of new regulations is going to change it.  The countries that have tried it in the past are gone.

I fear we’re following rapidly down that well trodden path.  I wish that weren’t the case, but idiots keep voting for bread and circuses.  Unless that changes, we’re going downhill.

gk

Share on Facebook

There’s a decent article on CNN.com this evening asking about Geithner’s plan, and if it would work.  It raised some some excellent points.

What we do know is that the Obama administration is offering extremely favorable terms to the potential investors. The government, as The New York Times reported this morning, would lend private investors nearly 95 percent of the money for an investment. (Here’s an irony: at the very moment we are trying to deleverage the economy, the government is now using the principle of leverage to revive it). Moreover, if the investment goes bad, the private investor is only on the hook for the small portion it put in originally – not for the full amount of the purchase. Yes, the government will share in profits, but if the toxic assets go up sharply in value – as the government hopes – the private investor could make piles and piles of money.

So if I put up 5 bucks, the government will give me $95 so I can buy something that’s only worth – ummm – crap….  No one knows what this junk is worth – that’s why it’s called toxic!

Anyway, suppose it’s worth $50.  Of course the government will pay $100 for it, and when it’s eventually sold at market value, the taxpayers lose $45.  And I think that’s an optimistic estimate.

The story continues….

Two questions immediately arise. The first is that raised by Paul Krugman, the Nobel-prize winning economist who has been slamming this plan unmercifully because he believes that Geithner has way too rosy a view of the underlying value of the assets. He thinks that investors, realizing that these assets aren’t really worth very much, won’t want to invest at the prices that the banks will insist on and the whole plan will ultimately fail. Instead, argues Krugman, the nation will waste incredibly valuable time on a flawed plan, allowing the economy to deteriorate still further, while instead we should be moving swiftly toward a government takeover of the banks, which he believes would stabilize the economy. We shall see who is right – Geithner or Krugman.

I think they’re both wrong.  Geithner’s plan won’t work – but not for the reason Krugman gives.  The plan will fail because you can’t pay down debt by going deeper into debt.

Of course if Bernanke really gets that printing press rolling, we can inflate the debt away.  The only problem is that the country will also be destroyed.

Read just a bit of history.  See what always happens when a country debases the currency.  Throughout history, the answer is the same – the government of that country fails.  Anarchy followed by dictatorship is the usual pattern after that.

gk

Share on Facebook

We’ve all seen how it means a financial company is doomed to disappear when they need to announce that they’ve got “plenty of liquidity”.  Something very similar seems to happen when a President feels the need to express “full confidence” in one of his cabinet members.

Today Obama said Geithner is doing an “outstanding job” according to an AP report.

How anyone thought that a guy who helped crash the financial system would be the guy to fix it is beyond me.  And to be in charge of the IRS but not know how to pay your taxes isn’t the best part of a resume either.

It’s just a matter of time until Geithner’s gone.  I give him less than 3 months.

gk

Share on Facebook

They’ll never learn….  Saw this on CNN and it torqued me off.

Share on Facebook

Saw this article and had to get a link to it here.  It says – much better than I could – what I’ve been trying to say about President Obama’s spending.

Here’s a snip to give you the flavor of the article.

With all due respect Mr. President, Tim Geithner and Ben Bernanke are offering the same policies as President Bush and Secretary Paulson. Those policies are to bail out banks regardless of cost to taxpayers. Mr. President, it’s hard enough to overlook Geithner’s tax indiscretions. Mr. President, it is harder still. if not impossible, to ignore the fact that neither Geithner nor Bernanke saw this coming. Yet amazingly they are both cock sure of the solution. Even more amazing is the fact that solution changes every day.

With all due respect Mr. President, it is impossible to spend one’s way out of a problem, when the problem is reckless spending.

I haven’t previous read anything from Mike “Mish” Shedlock, but I’ll have to check out more of his site later.  If the rest of it is anything like this post, it would be a great addition to my blogroll.  Good stuff!

gk

Share on Facebook

Geithner introduced the new FSP today.  He says it stands for “Financial Stability Plan”.  I think it’s more like “Fucking Stupid Politicians”, because that’s much more accurate.

All of the quotes below are straight from the U.S. Treasury press release, available from their website here.

After the obligatory suck up to the boss, and look how bad the previous guys sucked statements, Geithner says The causes of the crisis are many and complex. They accumulated over time, and will take time to resolve.

Duh….

But he goes on to say something that actually makes sense, something that I’ve been ranting about since these problems surfaced almost 2 years ago.  Governments and central banks around the world pursued policies that, with the benefit of hindsight, caused a huge global boom in credit, pushing up housing prices and financial markets to levels that defied gravity.

I put that in bold, because everyone needs to see it and not gloss over the role of government in causing these problems.  Government caused the mess – why do we think they can fix it?

Geithner’s next line is:  Investors and banks took risks they did not understand. Individuals, businesses, and governments borrowed beyond their means.

Another “duh” moment.  Warren Buffett (among others) has been saying this since at least 2003 – why does Geithner think it’s worth repeating?  Why do people think this guy has the answers?  Do not forget, as President of the Federal Reserve bank of New York, Geithner played a major role in setting the exact same easy credit policies that he criticized in the preceding paragraph! And now he’s pursuing the same policy even more aggressively than ever before!

He’s evidently an idiot.  Who doesn’t know how to pay his taxes.  And he thinks we are so dumb that we already forgot the sentence he just uttered about easy credit.  (We’re at war with Eurasia.  We’ve always been at war with Eurasia.)

This next quote could’ve come directly from Atlas Shrugged – it sounds like something Mr. Thompson or Wesley Mouch might say.  If you don’t know who these people are, read Atlas Shrugged.  But here’s what Wikipedia says about Mouch “he becomes the most powerful Looter, and the country’s economic dictator, thereby illustrating Rand’s belief that a government-run economy places too much power in the hands of incompetent bureaucrats who would never have positions of similar influence in a private sector business.”

Now read the following statement from Geithner:  We believe that access to public support is a privilege, not a right. When our government provides support to banks, it is not for the benefit of banks, it is for the businesses and families who depend on banks… and for the benefit of the country. Government support must come with strong conditions to protect the tax payer and with transparency that allows the American people to see the impact of those investments.

There’s so much here I don’t know where to start.  So I wont. I’ll leave it as an exercise of the reader to parse that statement to see how many stupid things one man can say in just 3 sentences.  But I’ll give you a start.  Notice he says “access to public support is a privilege” and not simply “public support is a privilege”.

Since this was a prepared statement – even delayed a few days to allow the other bailout bill to pass the Senate – I have to assume that every word in the statement was gone over with a fine-toothed comb.  “Access” was intentionally left in there.

In other words, only those who we deem fit may apply.  The rest of you private sector capitalists can politely go screw yourselves.  That way Geithner avoids having to spell out what criteria will be used when dispensing our money to his buddies.  And that’s just a few words into that paragraph.  Go ahead and compare his statement with anything the Looters say in Atlas Shrugged.

Let me know if you think Geithner is the right man for the job after understanding what he just said in these few sentences.  And since he’s evidently woefully incompetent, what does that say about Obama’s decision to appoint him?

I fear this administration is going downhill in a hurry.  Unfortunately, they’re taking all of us with them.

gk

Share on Facebook

A trillion here, a trillion there, pretty soon you’re talking real money….

I just read a Yahoo news story (taken from Reuters I think) which outlines the new bank bailout presented today by U.S. Treasury chief Tim Geithner.  In case you didn’t notice, the stock market didn’t take kindly to it, dropping almost 400 points today.   You’d think they’d learn – stocks also tanked back when the original bailout plan was passed in October 08.  Obviously, doing the same thing again isn’t going to work.

The story is short on details and – while I’m perfectly capable of doing simple math – I don’t see how they came up with the $2 trillion number.  I’ll investigate more later, but here’s part of the story.

A centerpiece of the renamed “Financial Stability Plan” is a proposal to set up a public-private investment fund, in partnership with the Federal Deposit Insurance Corp, a bank watchdog, and the Federal Reserve, the U.S. central bank.

Seeded with public money, it would leverage up to $500 billion — and possibly as much as $1 trillion — so that toxic assets can be purged from a weakened banking system.

Geithner told an invited audience at the U.S. Treasury that $50 billion in federal rescue funds will be used to try to stem home foreclosures and soften the crushing impact of the deep housing crisis now afflicting the entire economy.

The plan would also expand a Fed program aimed at expanding credit card, student, auto and small business lending.

The facility will grow from its current $200-billion limit to up to $1 trillion, thanks to a jump in Treasury funding to $100 billion from $20 billion. The lending program would be extended to cover a range of mortgage-related assets.

The Senate also passed a massive $838 billion stimulus package today – you can “stimulate” a lot of  “massive packages” for $838 trillion!  (I know it’s lame, but someone had to say it because we’re all getting screwed.)

Buy gold and silver.

More to come when I find more details.

gk

Share on Facebook