Results 1 to 8 of 8

Thread: Geithner's "Default" Fraud

  1. #1
    Banned Eric Stoner's Avatar
    Joined
    Oct 2006
    Location
    NYC
    Posts
    5,150
    Thanks
    1,261
    Thanked 1,430 Times in 888 Posts

    Default Geithner's "Default" Fraud

    Tim Geithner is full of shit and he knows it. This nonsense that the Government will default on exisiting debt unless the debt limit is raised is ridiculous. Nothing of the sort is going to happen. What WILL happen is that by around August 2 or so, after interest is paid on existing debt, there will be a shortfal for other spending AND no additional borrowing will be able to take place. In short, there are plenty of Federal revenues now and in the future to pay interest on EXISTING debt.

    In their negotiations, Boehner and the Republicans are taking the sensible position that there be budget cuts for every dollar of increase in the debt limit.
    What Obama wants, and will NEVER get , is a $ Two TRILLION increase in the debt limit now so he can safely get by the 2012 election without having to make any hard ( read politically unpopular ; anathema to his base ) budget choices.

    Down the road there IS a real default possibiility looming. Without budget cuts and spending restraint, the percentage of the budget going to debt service will grow larger and larger to the point where there won't be money for much of anything else AND like Greece we won't be able to borrow any more. Greece has become the Blanche Dubois of Europe and is dependent on the "kindness of strangers " i.e. the EU. The Greek 'bailout" is effectively charity and not really a loan that anyone seriously expects it to pay back. In return the EU has effectively taken over the Greek budget taking it away from the Greek government. At some point one's "bankers" get to do that. Would anyone like a Chinese committee to replace our Congress's Senate Budget and House Ways and Means Committees ?

    As Melonie and others have pointed out in other threads, the Obama solution is a pathetic farce. Even if we confiscated 100% of all the income made by everyone making more than $250,000 per year it would amount to less than half of the current budget. Even if we gutted the defense budget it wouldn't put more than a minor dent in the current deficit or overall debt.
    Last edited by Eric Stoner; 06-03-2011 at 08:27 AM.

  2. #2
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Geithner's "Default" Fraud

    yup, it appears that the debt limit increase has run into some stiff resistance !!! If so, once TurboTax Tim has borrowed and spent all of the money available to him via the 'sacking' of federal retirement funds, around August 2nd the US gov't will actually face a situation where some elements of federal spending cannot be continued ( based on actual federal tax revenues received plus zero ability to borrow and spend additional money beyond those federal tax revenues). It should be extremely entertaining to see which segments of federal spending get paid with 'IOU's' !

  3. #3
    Banned Eric Stoner's Avatar
    Joined
    Oct 2006
    Location
    NYC
    Posts
    5,150
    Thanks
    1,261
    Thanked 1,430 Times in 888 Posts

    Default Re: Geithner's "Default" Fraud

    Quote Originally Posted by Melonie View Post
    yup, it appears that the debt limit increase has run into some stiff resistance !!! If so, once TurboTax Tim has borrowed and spent all of the money available to him via the 'sacking' of federal retirement funds, around August 2nd the US gov't will actually face a situation where some elements of federal spending cannot be continued ( based on actual federal tax revenues received plus zero ability to borrow and spend additional money beyond those federal tax revenues). It should be extremely entertaining to see which segments of federal spending get paid with 'IOU's' !
    Geithner's looting of Federal retirement and pension funds is one of a myriad of un and under-reported stories about what Obamanomics REALLY means and its actual effects. Not that the lamestream media is in the tank for Obama.

    Like California, Geithner will have little choice but to issue Federal "IOU's" starting around August 2.

  4. #4
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Geithner's "Default" Fraud

    ^^^ well, he does have another choice ... to print up brand new US dollars instead of issuing 'IOU's. Of course, every foreign holder of US dollar denominated investments would probably 'run for the exits' once news of this blatant 'inflation' of the US money supply got around.

  5. #5
    God/dess Zofia's Avatar
    Joined
    Apr 2002
    Location
    Durham, North Carolina
    Posts
    2,417
    Thanks
    2,964
    Thanked 2,370 Times in 934 Posts

    Default Re: Geithner's "Default" Fraud

    I like to give credit where credit is due. Eric is right on this issue.

    I think what Geithner is really saying is he will default if he doesn't get his way. He reminds me of my daughter when she was about three throwing a temper tantrum.

    Eric is right, there are plenty of tax revenues to cover interest and even the small amount of debt issues coming due. The problem is well down the road. However, the debt ceiling does need to be raised and federal spending does need to be reduced. Thus, however inadvertently, little Timmy is doing the GOP's work. Obama is just too inexperienced to notice and Geithner's too dumb.

    Z

  6. The Following User Says Thank You to Zofia For This Useful Post:


  7. #6
    Banned Eric Stoner's Avatar
    Joined
    Oct 2006
    Location
    NYC
    Posts
    5,150
    Thanks
    1,261
    Thanked 1,430 Times in 888 Posts

    Default Re: Geithner's "Default" Fraud

    Quote Originally Posted by Zofia View Post
    I like to give credit where credit is due. Eric is right on this issue.

    I think what Geithner is really saying is he will default if he doesn't get his way. He reminds me of my daughter when she was about three throwing a temper tantrum.

    Eric is right, there are plenty of tax revenues to cover interest and even the small amount of debt issues coming due. The problem is well down the road. However, the debt ceiling does need to be raised and federal spending does need to be reduced. Thus, however inadvertently, little Timmy is doing the GOP's work. Obama is just too inexperienced to notice and Geithner's too dumb.

    Z
    That is one of the most annoying things about this whole situation. Everyone knows that Obama knows next to nothing about business and economics but Geithner was head of the N.Y. Fed and as Treasury Secretary is paid to know about this stuff.

  8. #7
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Geithner's "Default" Fraud

    the 'gold foil hat' crowd will tell you that Tim Geithner knows EXACTLY what he is doing ... trying to stave off a 'run for the exits' by China / Arab oil shieks / Belgian dentists for as long as possible, while stocking up on green ink and paper rectangles !!! Obviously Tim G and the Bernank are joined at the hip in terms of economic theory ...

    from a professional investor's BBS ...

    (snip)"The Bernank has come to realize he forgot to connect fiat currency effects with consumer behavior...
    - Tue, Jun 7, 2011 - 08:48 AM

    it is very possible The Bernank is staring at a disaster he created with the flying helicopter machine ... remember he studied monetary policy during the great depression when the industrial revolution was in the upward sloping S curve of economic growth and fiat monetary policy had a much greater impact on the industrial supply sector than its impact on the demand sector but today BERNANK is trying to apply a monetary policy of an old era to this non-industrial based economy...

    Here is the skinny...
    1. OLD THEORY-BERNANK saw that FED monetary easing would induce industrial sector to retool (in a reasonable amount of time after excess inventory sell-offs) and spark a new round of economic growth, in turn boosting consumer demand.
    2. NEW THEORY-BERNANK now has the evidence that in this economic era QE programs are not being used by banks to create commercial loans, and he has to be asking himself why this happened...

    2-A. BERNANK now is staring at results of the QE programs and realizes the QE funds stopped flowing beyond the top level or first round of financial entities...these financial entities are no longer commercial banks but rather have morphed into primarily trading companies trading on their own account in all types of asset markets, such as commodities, derivatives, SWAPS, and other creations of price disrupting chaos. These trading firms used the excess liquidy from the QE programs to speculate on commonidy prices...there is no other place for these traders to put the QE funds to work,no housing market, unemployment, falling demand, etc...

    2-B BERNANKS GRAND REALIZATION...he sees that as traders using the QE funding (otherwise meant to spark main street) had the reverse effect.

    2-B-1. BERNANK has made the connection between QEs impact on commodity price escalation and falling demand - yes - as commodity prices rise (caused by QE) in fact consumer demand is falling (or at least not rising) which with all the QE stimulus was meant to increase GDP - but GDP in 2011 taking out inflation is actually negative.

    2-B-2. BERNANK now knows that his depression theory policy used today but meant for an older period, no longer works today because QE that in the past boosted industrial action and subsequent hiring today is having a reverse effect - today QE only boosts asset and commodity specultion and price escalation but in this form of economic activity there is no labor demand, unemployment remains high and demand falls off due to commodity price increases.

    2-B-C. BARNANK is staring at a disaster - if he pulls or stops further QE...no more speculation and commodity prices start to fall - if he recharges QE round 3 the disaster only worsens. (snip)

  9. #8
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Geithner's "Default" Fraud

    ^^^ but the reality of the situation is that there is a third option ... which the 'gold foil hat' crowd will tell you is the true goal of Tim Geithner and Ben Bernanke ...


    from

    (snip)"As published in a recent working paper on the IMF website, Financial Repression is what the US and the rest of the advanced economies used to pay down enormous government debts the last time around, with a reduction in the government debt to GDP ratio of roughly 70% between 1945 and 1980. Financial Repression offers a third way out - as it allows governments to pay down huge debt burdens without either 1) default or 2) hyperinflation. If you are a senior government official of a nation that has a huge "sovereign debt" problem - like the United States and almost all of Europe, and you want to stay in power - this proven method is a topic of keen interest.

    To understand this miraculous debt cure for governments, you need to understand the source of the funding. As we will explore in this article, the essence of Financial Repression is using a combination of inflation and government control of interest rates in an environment of capital controls to confiscate the value of the savings of the world's savers. Rephrased in less academic terms - the government deliberately destroys the value of money over time, and uses regulations to force a negative rate of return onto investors in inflation-adjusted terms, so that the real wealth of savers shrinks by an average of 3-4% per year (in the postwar historical example), and it uses an assortment of carrots and sticks to make sure investors have no choice but to accept having the purchasing power of their investments shrink each year.

    What the IMF-distributed paper really constitutes is a Sheep Shearing Instruction Manual. The "way out" for governments is effectively to put the world's savers and investors in pens, hold them down, and shear them over and over again, year after year. Uninformed and helpless victims is what makes Financial Repression work, and it worked very well indeed for 35 years. On the other hand, if you understand what is truly going on, then you do have the ability to turn this to your substantial personal financial advantage. With a genuinely out of the box approach to long-term investment, the more heavy handed the repression - the more reliable the wealth compounding for those who reject flock thinking.(snip)

    (snip)The phrase "Financial Repression" was first coined by Shaw and McKinnon in works published in 1973, and it described the dominant financial model used by the world's advanced economies between 1945 and around 1980. While academic works have continued to be published over the years, the phrase fell into obscurity as financial systems liberalized on a global basis, and former comprehensive sets of national financial controls receded into history.

    However, since the financial crisis hit hard in 2008, there has been a resurgence of interest in how governments have paid down massive debt burdens in the past(snip)

    (snip)The advanced Western economies of the world emerged from the desperate struggle for survival that was World War II, with a total stated debt burden relative to their economies that was roughly equal to that seen today. The governments didn't default on those staggering debts, nor did they resort to hyperinflation, but they did nonetheless drop their debt burdens relative to GDP by about 70% over the next three decades - and the very deliberate, calculated use of Financial Repression was how it was done.


    The Mechanics Of Financial Repression

    The specifics of financial repression took somewhat different forms in each of the advanced economies, but they shared four characteristics: 1) inflation; 2) governmental control of interest rates to guarantee negative real rates of return; 3) compulsory funding of government debt by financial institutions; and 4) capital controls.

    1) Inflation. First and foremost, a government that owes too much money destroys the value of those debts through destroying the value of the national currency itself. It doesn't get any more traditional than that from a long-term, historical perspective. Without inflation, Financial Repression just doesn't work. Historically, the rate does not have to be high so long as the government is patient, but the higher the rate of inflation, the more effective financial repression is at quickly reducing a nation's debt problem.

    For example, per the Reinhart and Sbrancia paper, the US and UK used the combination of inflation and Financial Repression to reduce their debts by an average of 3-4% of GDP per year, while Australia and Italy used higher inflation rates in combination with Financial Repression to more swiftly drop their outstanding debt by about 5% per year in GDP terms. As the crisis is much worse this time around, a substantially higher rate of inflation than that experienced in the 1945 to 1980 period is going to be necessary.

    2) Negative Real Interest Rates. In a theoretical world, some would say that governments can't inflate away debts because the free market would demand interest rates that compensate them for the higher rate of inflation. Sadly, this theoretical world has little to do with the past or present real world.

    In the past (and all too likely in the future), there were formal government regulations that determined the maximum interest rates that could be paid. As an example, Regulation Q was used in the United States to prevent the payment of interest on checking accounts, and to put a cap on the payment of interest on savings accounts.

    Regulation Q is long gone, but government control of short term interest rates has been near absolute over the last decade in the United States. As described in detail in my article "Cheating Investors As Official Government Policy", the Federal Reserve has been openly using its powers to massively manipulate interest rates in the US, keeping costs low for the government while cheating tens of millions of investors.

    So long as the Federal Reserve keeps control, there is no need for explicit interest rate controls. However, should the Fed begin to lose control, there is a strong possibility that interest rate controls will return to the US financial landscape, with similar regulatory controls being re-imposed in other nations.

    3) Involuntary Funding. With this popular component of Financial Repression, the government establishes reserve or "quality" requirements for financial institutions that make holding substantial amounts of government debt mandatory - or at least establish overwhelming incentives for financial institutions such as banks, savings and loans, credit unions and insurance companies to do so. Of course, this is publicly phrased as "mandating financial safety", instead of the more accurate description of mandating the making of investments at below market interest rates to help overextended governments recover from financial difficulties.

    This involuntary funding is sometimes described as a hidden tax on financial institutions, but let me suggest that this perspective misses the important part for you and me. Because all financial institutions operating within a country are required to effectively subsidize this liquidation of government debt by accepting less than the rate of inflation on interest rates, the gross revenues of all financial institutions are depressed, and therefore less money can be offered to depositors and policyholders. Because financial institutions make their money not on gross revenues, but on the spread between what they pay out and take in, then arguably, financial institution profits are not necessarily reduced, rather the guaranteed annual loss in purchasing power is passed straight through to depositors and policyholders, i.e. you and me.

    As an example, if a fair inflation-adjusted return were 8%, and the spread kept by the financial institution was 2%, then we as investors would get 6%. If financial institutions, through involuntary funding, are uniformly forced to accept a 3% return on the government debt that must constitute a big portion of their portfolios, then they still keep 2%, but only pass through 1%. So the financial institution keeps 2% either way, and we as savers are the ones who ultimately pay this "hidden tax" in full, by getting a repressed 1% instead of a fair market 6% return.

    4) Capital Controls. In addition to ongoing inflation that destroys the value of everyone's savings and thereby the value of the government's debts, while simultaneously making sure that interest rate levels lock in inflation-adjusted investor losses on a reliable basis, there is another necessary ingredient to Financial Repression: participation must be mandatory. Or as Reinhart and Sbrancia phrase it in their description / recipe for Financial Repression, it requires the "creation and maintenance of a captive domestic audience" (underline mine).

    The government has to make sure that it has controls in place that will keep the savers in place while the purchasing power of their savings is systematically and deliberately destroyed. This can take the form of explicit capital and exchange controls, but there are numerous other, more subtle methods that can be used to essentially achieve the same results, particularly when used in combination. This can be achieved through a combined structure of tax and regulatory incentives for institutions and individuals to keep their investments "domestic" and in the proper categories for manipulation, as well as punitive tax and regulatory treatment of those attempting to escape the repression. A carrot and stick approach in other words, to make sure behavior is controlled.


    A Sheep Shearing Instruction Manual

    Only a tiny fraction of 1% of the world's population will ever read the original paper on the IMF website, or detailed analyses thereof. This is dry and boring stuff when compared to dancing or singing with the stars! Of course, there are many millions of investors who do read daily or weekly about what is going on in the financial world - but they and the journalists and bloggers who inform them usually just follow the ever changing surface of the markets. Again, the academic papers involved are so dry, boring and fundamental as to seem to have little relevance for the practical matter of what actions to take today or this month.

    That said, let me suggest that few things are more important for your financial future than understanding and taking to heart Financial Repression. Because understanding Financial Repression means pulling the curtain aside and looking into the inner core of financial reality. It means understanding that much of what you have read and been taught about investment markets and long term investments over the last several decades has effectively been a sham.

    Investor returns are not - and arguably never have been - fully about people compounding wealth in free markets, with the collective wisdom of the markets guaranteeing returns that are based upon rational assessments of the risk. Rather, investments, investment markets, investor returns and investor behavior have always been matters of governmental policy; what has varied over the years has been the form of government policy and how overt the control is.

    To fully understand Financial Repression, you need to understand that the Reinhart and Sbrancia paper is effectively a sheep shearing manual. You and I, along with the rest of the savers and investors of the world are the sheep, and the goal of Financial Repression is to shear as much savings from us as the governments can, year after year, without triggering excessive unrest, and while keeping us producing the resources that can be politically redistributed.

    The governments of the world are in trouble, and they would prefer to avoid overt global defaults, hyperinflation, or comprehensive austerity coupled with massive tax hikes. Each of those routes is highly unpopular, and could lead to political turmoil that would remove the decision makers and the special interests who support them from power. A more overt "managed economy" sounds much more attractive if you are in power, particularly since it has worked before over a period of decades, with an almost boring lack of political turmoil.

    To get out of trouble, the governments have to wipe out most of the value of their debts, without raising taxes to the degree needed to pay the debts off at fair value. In other words, they need to cheat the investors. There is nothing accidental going on here, all that is in question are the particulars of the strategies for cheating the investors, meaning the collective savers of the world. Again, the time-honored and traditional form that governments who incur too much debt use in cheating the investors is to devalue the currency. Create enough inflation, and tax collections will rise with inflation but the debts won't, and the savers of the world will be paid back in full with currency that is worth much less than what was lent to the governments in the first place.

    Except that there is the technicality that in theory, interest rates will rise above the rate of inflation, so that the value of savings is not eroded. From the governmental perspective, this is demonstrably a rather absurd theory. The core point of the Reinhart and Sbrancia paper is that the advanced economies of the world quite effectively squeezed an average of 3-4% annually of the value of government debt out of investor real net worth for a period of 35 years, using a wide assortment of overt and less overt controls over interest rates and investor behavior. Today the mechanism is different in that the central banks are using massive monetary creation in combination with their regulatory powers over major banks to control interest rates. However, the bottom line is that interest rates are absurdly low compared to the inflation and default risks, and this is because of near complete government control.(snip)

    (snip)So we're getting sheared, we've got no choice about it, the government explicitly plans to keep on shearing us for every remaining year of our lives, and wherever we go in the meadow, we still get sheared. This leads to the more savvy of us sheep trying to escape the meadow, and again, this is anticipated in the Financial Repression structure right from the beginning, with the construction of capital control fences. Many of the controls on savings leaving the country have been loosened since 1980. However, these controls have been returning since 2008, and are just likely to grow stronger as the return to full-on Financial Repression likely grows more overt.(snip)

Similar Threads

  1. "Extras Girls" aka "The Finishers"- The REAL Breakdown
    By kikiwiki in forum Stripping (was Stripping General)
    Replies: 60
    Last Post: 11-05-2017, 01:12 PM
  2. "Hun," "Baby," "Darlin'" and other endearing terms
    By Chicagoeditor in forum Customer Conversation
    Replies: 74
    Last Post: 10-29-2013, 04:02 PM
  3. Replies: 6
    Last Post: 01-24-2012, 05:34 PM
  4. The GM "Comeback" Fraud
    By Eric Stoner in forum Dollar Den
    Replies: 43
    Last Post: 06-08-2011, 11:58 AM
  5. Is The "Religious Right" a FRAUD ?
    By Eric Stoner in forum Member Boards
    Replies: 0
    Last Post: 02-08-2008, 10:47 AM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •