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The Wealth Wagon Looses its Wheels

February 19, 2010

Maxing-Out on Monetary Mayhem


For an encore to my post- Prepare for an Apocalyptic Anarchy ending Wall Street’s Toxic Capitalism I wanted to pass on this video clip from Max Keiser. If you are not familiar with Max, he is an ex-Wall Street guy who has a great, comically sarcastic viewpoint of today’s global economic chaos.

His show On The Edge with Max is hosted in Iran’s Press Tv and The Keiser Report broadcast on Russia Today affords Max a platform and audience for his unbridled and transparent, speak all, “say it as it is” that would not be allowed in US main-stream media.

He is very well informed and holds back nothing regarding calling out the culprits responsible for much of the economic and monetary pain foisted upon the world’s masses. He, along with co-host Stacy Herbert the political analyst for the shows, discuss newsworthy economy related hot-topics circulating the globe. Max then follows in his comical bent exposing the underlying mechanisms and individuals who perpetrate and profit from the economic disorder.

This week’s Keiser Report with co-host Stacy Herbert, reports on the scandals of rising debt ceilings and insolvent governments, and look at investing for a global debt bomb explosion. Keiser also speaks to former assistant Treasury Secretary Paul Craig Roberts about failed US debt auctions and the plunge protection team. Note: 5 minutes into the clip is the commentary portion about my recent post from Paul Farrell’s article about Wall Street’s toxic capitalism and the potential outcome.

Can’t Grease This Squeaky Wheel

The whole idea of economic collapse is a tough pill to swallow. Yet, more and more well informed individuals like Paul Farrell,  Mark Faber editor of the Gloom-Doom and Boom Report and Barton Biggs who runs Traxis Partners, a multi-billion dollar hedge fund based in New York City and speaking publicly about just such a possibility.

With what appears to be off-the-record knowledge, they are suggesting and even prudently preparing for a worst case scenario in the US. They along with others who envision an economic calamity that would necessitate the ability to self-support their lives for a period of time following some sort of societal collapse brought on by a failing economic order. The possibility of such an event and the actual process leading up to its arrival may in fact have already begun in Europe. There is a lot of evidence not merely opinionated speculation, those sovereign nations like Portugal, Italy, Ireland, Greece and Spain referred to as the PIIGS, are financially bankrupt. For now, all the focus is upon Greece. Not much about Greece’s economy has been covered in the US media, unlike abroad, allot is coming to light about Greece’ dire, bankrupt condition. As recently as last November, Goldman Sachs sent their money master-manipulators back to Greece offering a bookkeeping scheme (derivative swaps) which would have enabled Greece to hide (defer debt) from bond investors masking their true financial condition by removing long-term, unfunded health care obligations from their countries balance sheet. See this NY Times article.

Goldman’s Secret Grease

However is nothing new, as early as 2001 this accounting magic was being done. That deal, again, with the help of Goldman, was hidden from public view since it was treated as a currency trade rather than a loan, helping Athens to meet the European Union’s deficit rules while continuing to spend beyond its means. Actually, Greece’ 13% deficit is far over the euro-zone’s 3% limit and it has faced high costs, almost an inability to secure the fresh borrowing it needs in 2010. Sound familiar? The bottom line in Greece’s situation requires of the country some very stringent belt-tightening mandates from other EU member nations for a guarantee to Greece’s investors that repayment of its $300 billion bond obligations will be forthcoming. Those draconian measures include: increasing taxes, freezing public sector hiring and raising the retirement age — are enough to meet its target of slashing the deficit from 12.7 percent of its gross domestic product to 8.7 percent by the end of this year. Good luck; that is a tall order in a short order!

No wonder the Germans want no part of that deal; knowing Greece cannot possibly repay because of what would have to happen within the country in order for repayment. The protests and public response to such measures are already taking a toll. The measures are already causing problems on the ground according to this February 11, 2010 Wall Street Journal, Europe article. A portion of which is quoted below.

Greek civil servants, the people hit most directly by the cuts, went on strike Wednesday. Schools, courts and public offices closed. State hospitals operated with a skeleton staff and rail services were cut. Greece’s two main carriers, Olympic Airlines and Aegean Airlines SA, canceled flights into and out of the country as air-traffic controllers joined the walkout. Several thousand public-sector workers marched on the Greek Parliament, chanting slogans and carrying banners that read: “Not one cut in wages or pensions will go to paying for this crisis.”

Elias Zografos, a 55-year-old high-school physics instructor, estimates that teachers who now earn about €1,200 ($1,653) a month would see at least €70 shaved off their monthly salaries.

“The public sector is being hit hardest, and especially the poorer classes,” he said. “This crisis is just a game for foreign bankers. But it’s not a game. It’s our lives they are playing with.”

Just imagine that happening in the USA! Well you don’t have to look too far for the emerging evidence. Take a look at California’s books and you have a vivid glimpse at a looming, not just state level problem, but a national one. In California their budget gap (as a % of the total budget) is 22%. That equates to a $22.2 billion shortfall of revenue that must be borrowed if deficit, (spending) reductions do not occur. Keep in mind, California is certainly not alone in this regard. The US has 43 other states in similar financial distress.

The Gaming Wheel Squeaks and Wobbles

Go figure! Deception is the art and game for today’s economic and monetary paradigm enabling those which play the game and control the rules to temporarily “succeed”.  I mention only Greece because in many ways, the USA is virtually a carbon copy. Huge and growing budget deficits, unfunded future liabilities like Social Security, Medicaid etc. and similar issues being exasperated by lower tax revenues generated by the stalled economy. In technical terms, Greece’ bail-out guarantee deal mandated by the EU Ministers in Brussels is actually not allowed according the EU charter through the process of loan guarantees.

Bend the rules because Greece and other countries in the EU like it are TBTF, too big to fail. One last comment and comparison. How does America’s balance sheet compare to Greece? Let’s take a look and put this whole situation into perspective with this chart courtesy of the WSJ. It shows from 1999 to 2010 various government’s debt as a percentage of gross domestic product. Notice the blue upper bars representing the 4% Credit-default swaps spreads indicating the bets that Greece will default are the highest of any country. Why? Because their books are now opened completely to the public for scrutiny.

This year, the U.S. budget deficit will be on the order of 11 percent of gross domestic product, GDP. Greece’s deficit is forecast to be bigger, but not much, at 13 percent. So, what gives? What is the potential problem? True, the USA has carried a deficit for virtually every year since its inception in 1776, but at some point the ability to pay back debt obligations must be reckoned with. What currently separates us greatly from Greece and the others is America’s ability to still fund these deficits through the sale of US Treasury Bonds to investors and just as importantly, the US Dollar’s status a the worlds reserve currency. So far, this has precluded the US from the dreaded and fatalistic consequences which occur when a country can no longer sell its bonds easily because of a downgraded risk rating caused by the real possibility of an eminent default. 2010 looks to be the year of bringing out into the open for questioning, all sovereign nations economic condition. I wonder which countries squeaky wheel shall be silenced with more grease-money or will lose a wheel and crash. In the end, I guess you really can’t put lipstick on “PIIGS”.

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