Geithner is looking for a break. After expanding the Debt, Geithner is probably starting to feel the heat. Let’s see if they can fix that debt ceiling, before his departure? Bloomberg reports;
Treasury Secretary Timothy F. Geithner has signaled to White House officials that he’s considering leaving the administration after PresidentBarack Obama reaches an agreement with Congress to raise the national debt limit, according to three people familiar with the matter.
Geithner hasn’t made a final decision and won’t do so until the debt ceiling issue has been resolved, according to one of the people. All spoke on condition of anonymity to talk about private discussions.
The Treasury secretary has said the U.S. risks defaulting on its obligations if Congress doesn’t raise the $14.3 trillion debt ceiling by Aug. 2. The administration and congressional Republicans are at an impasse in negotiations to raise the limit, which also is tied to efforts to cut the nation’s long- term deficit.
Moody’s Investors Service said on June 2 it expects to place the U.S. government’s Aaa credit rating under review for a possible downgrade if there’s no progress on the debt limit by mid-July. Fitch Ratings said June 21 it would place the U.S. on a negative rating watch if no action is taken by Aug. 2.
Guest Post; As America celebrates its 235th birthday this July, citizens are increasingly becoming aware of a new danger to the nation’s independence and sovereignty. It was identified as the number one threat to our national security by Chairman of the Joint Chiefs of Staff, Admiral Mike Mullen.
It is the skyrocketing $14.3 trillion national debt.
It is why in poll after poll a majority of Americans oppose raising the debt ceiling without significant spending cuts attached. They understand intuitively that once a nation’s debt gets so large that it couldn’t possibly be paid back if it had to be, that nation is effectively bankrupt.
That is the tipping point where default and restructuring of the debt becomes the only viable option, the only path to salvation. Sadly, the U.S. is rapidly approaching this position.
Could the debt ever be paid?
Currently, the U.S. is paying about 3 percent interest on the $14.3 trillion debt, or $430 billion of gross interest payments every year. If we had to repay everything over the next 30 years, principal and interest owed would amount to $908 billion out of revenue every year. That’s 41.7 percent of this year’s $2.174 trillion projected tax collections.
Is that affordable? Would repayment even be possible today? Perhaps just barely. The benchmark total debt service ratio for mortgage lenders is 40 percent. Anything above that, and a prospective borrower would not qualify for a loan. So even today, Uncle Sam would not qualify for a home mortgage.
What is clear is that by this analysis, over time repayment becomes increasingly improbable, if not impossible. By the government’s own numbers, the debt service ratio will continue to rise this decade. Even under the rosiest scenario, America will be broke within the next 10 years.
By 2021, when the debt rises to $26.346 trillion according to the Office of Management and Budget (OMB), that office projects interest rates will have returned to their historical norm of 5 percent. Then annual gross interest payments will be $1.317 trillion. If we attempted to begin repayment then, principal and interest owed would amount to $2.195 trillion, or 45.5 percent of theprojected $4.820 trillion in tax receipts projected for that year.
We passed the Greek Vote. Great news, but is the future all bright now? The Greek quick fix, is just a short term solution, so the country can survive and pay interest on it’s debt, for some months to come. The Greek mess, both Economics and Politics, is not solved at all. The total lack of growth, and the monstrous debt of Greece, will ultimately force the country to default on it’s debt. Expect some lucrative bargains in this autumn’s fire sale.
With the SPX reaching our short term target, 1305/1310, we expect a pause in this 4 day rally we have seen. As thetrader argued last week, Spx rally squeezes out the last bears? and Charts That Matter, we had reached good support levels in the markets, and “had” to bounce, especially with the Dumb Money Indicator showing a too pessimistic bias in the market.
Don’t forget though, Greece is not our biggest problem…..
The chart below shows OECD calculations of what it would take governments to reduce gross debt to 60% of GDP by 2026. This is around the level considered healthy and is also the ratio set by the widely ignored Maastricht agreement, which is meant to govern debt in the European Union. It is not pretty.
Graph; The Economist
Presented without comment, the last “hmmm report”.
“Why worry? There should be laughter after pain
There should be sunshine after rain
These things have always been the same
So why worry now?”
– DIRE STRAITS
No problems, or;
• High oil prices are NOT going to be a problem
• A Greek default impacting US banks too severely
• The European debt crisis derailing the US economic ‘recovery’
• The sustainability of Greek debt should the austerity program be voted through and carried out
Full must read report,
Greed is Go(o)d? It sure seems the increasingly polarized American Society believes so. With the wealth getting even more concentrated among very few, this will cause the US big problems in future. The Elite is getting a rather skewed perception of what a CEO should be paid, and what rights they have. They are no uberperson, they are just human.
If the “free-market” theories of Ayn Rand and Milton Friedman were correct, the United States of the last three decades should have experienced a golden age in which the lavish rewards flowing to the titans of industry would have transformed the society into a vibrant force for beneficial progress.
Direct Action for Single-PayerAfter all, it has been faith in “free-market economics” as a kind of secular religion that has driven U.S. government policies – from the emergence of Ronald Reagan through the neo-liberalism of Bill Clinton into the brave new world of House Republican budget chairman Paul Ryan.
By slashing income tax rates to historically low levels – and only slightly boosting them under President Clinton before dropping them again under George W. Bush – the U.S. government essentially incentivized greed or what Ayn Rand liked to call “the virtue of selfishness.”
Further, by encouraging global “free trade” and removing regulations like the New Deal’s Glass-Steagall separation of commercial and investment banks, the government also got out of the way of “progress,” even if that “progress” has had crushing results for many middle-class Americans.
True, not all the extreme concepts of author/philosopher Ayn Rand and economist Milton Friedman have been implemented – there are still programs like Social Security and Medicare to get rid of – but their “magic of the market” should be glowing by now.
We should be able to assess whether laissez-faire capitalism is superior to the mixed public-private economy that dominated much of the 20th Century.
The old notion was that a relatively affluent middle class would contribute to the creation of profitable businesses because average people could afford to buy consumer goods, own their own homes and take an annual vacation with the kids. That “middle-class system,” however, required intervention by the government as the representative of the everyman.
Beyond building a strong infrastructure for growth – highways, airports, schools, research programs, a safe banking system, a common defense, etc. – the government imposed a progressive tax structure that helped pay for these priorities and also discouraged the accumulation of massive wealth.
After all, the threat to a healthy democracy from concentrated wealth had been known to American leaders for generations.
A century ago, it was Republican President Theodore Roosevelt who advocated for a progressive income tax and an estate tax. In the 1930s, it was Democratic President Franklin Roosevelt, who dealt with the economic and societal carnage that under-regulated financial markets inflicted on the nation during the Great Depression.
With those hard lessons learned, the federal government acted on behalf of the common citizen to limit Wall Street’s freewheeling ways and to impose high tax rates on excessive wealth.
So, during Dwight Eisenhower’s presidency of the 1950s, the marginal tax rate on the top tranche of earnings for the richest Americans was about 90 percent. When Ronald Reagan took office in 1981, the top rate was still around 70 percent.
Greed was not simply frowned upon; it was discouraged.
Put differently, government policy was to maintain some degree of egalitarianism within the U.S. political-economic system. And to a remarkable degree, the strategy worked.
The American middle class became the envy of the world, with otherwise average folk earning enough money to support their families comfortably and enjoy some pleasures of life that historically had been reserved only for the rich.
Full article, How Greed Destroys America
We had that huge settlement at BOFA earlier this week. There is much more to come, according to Whalen. JPM is looking at some 50 billion USD, that will probably end up in court.
With a mountain of litigation claims against banks, today King World News interviewed the man Jim Rickards calls the best bank analyst in the country, Chris Whalen co-founder of Institutional Risk Analytics. When asked about JP Morgan’s exposure from litigation Whalen said, “The surviving 33 claims which are straight forward securities fraud claims, much like WorldCom, Enron and that sort of thing, those claims were settled at 50 cents on the dollar.
So today of the trillion dollars or so in class action claims that were filed right after the crisis started, there’s about $200 billion left that have survived motions to dismiss and other procedural efforts by the banks to knock this litigation out. JP Morgan has somewhere around $45 to $50 billion worth of current claims that look like they are going to go to trial.”
Continue reading on KingWorld,
Shilling gives the fourth article in the China Hard Landing story. The West believing China will Free Float the Yuan, are making a big mistake. The same logic applies to to China selling US Treasuries, that won’t happen. They bought it in the first place in order to get people employed, and they won’t be dumping Treasuries for that same reason.
From Bloomberg, In late 2007, the Chinese government was scrambling to control acapital-spending boom. The central bank was concerned about 11 percent growth in gross domestic product, far above its official target of 8 percent, and about money flooding in from exports and direct foreign investment.
By Nov. 1, the People’s Bank of China had raised its one- year lending rate five times and reserve requirements eight times to soak up excess liquidity.
That’s essentially what happened in 2008 and 2009, as the effects of China’s fiscal and monetary restraint coincided with the worldwide economic slump. The growth rate dropped to 6 percent, which in China constituted a major recession.
This time around, some signs of cooling are already apparent. Besides dampened housing demand, the HSBC Flash China Manufacturing Purchasing Managers Index in June fell to 50.1, its lowest level in 11 months. Passenger-vehicle sales grew 33 percent in 2010, when the government subsidized small-car purchases, but only 3 percent this April over a year earlier.
With the Greek vote now done, the oil reserves opened up and the equities market going higher during the last days, all is great. Let’s not forget about the US Debt problems though. August 4th coming up soon, and Obama needs to extend that parabolic chart…..Reuters reports;
The United States would immediately have its top-notch credit rating slashed to “selective default” if it misses a debt payment on August 4, Standard & Poor’s managing director John Chambers told Reuters.
Chambers, who is also the chairman of S&P’s sovereign ratings committee, told Reuters on Tuesday that U.S. Treasury bills maturing on August 4 would be rated ‘D’ if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply, he said.