THE DOT - if this turns orange or red be alert

Wednesday, January 28, 2009

Even 2 tril. would not do the trick - just delay the inevitable

Update - IMF raised its estimate for bank losses to 2.2 tril. after we have already reached the 1.1 tril. - these guys have no clue or they deliberately underestimate for disinformation. Roubini is closer with 3.5 tril just for US banks but in any case the TARP funds will just be a brief smoother not a solution at all. Citibank just to fix the toxic part of its balamce cheat needs the entire 700 bil TARP.

They are still shy to get to the 1 tril but that does not matter as also Japan did multiple packages so will America and all the other countries who dare to print money. Lets be real the debt has already swollen to dimensions which never can be repaid. What helps for now is that the borrowing is almost for 0 interest which is pathetic which smart investor would except 0 interest for a distressed entity. All the mutual funds handling bonds run into the same insane situation equity funds run into in 2006/7 buying stocks against all common sense. What can a 450 bil aid program do to a 14 tril economy that's 3 % and half of it will vanish as tax checks will go into debt repayments. It smooths briefly the pain for some but it can not turn around the momentum of a cyclical contraction. Ironically most of that money will flow back into banks which overpaid their employees for 2 decades. Most of the profits and hence bonus payments were not for real as they paid out money on bubble values. Now where we return to real values and the banks are basically bankrupt the taxpayers have to pick up the bill. At the end if you look hard from birds perspective a Harvard MBA entitles you to steal big time money from taxpayers pool legally and even worse as taxpayers will not be able to cover it so at some point America will default and the people who borrowed money to America will pick up the bill around 50% within America and mostly the nest egg money from main street with there 401's.

Another potential crisis is about to awaken and be a dark cloud on top of the current problems as the baby boomer generation is nearing point of retirement which will basically bring many countries into default as they can not cover their health care and retirement claims - that is like a decade away which sounds like a lot of time but thats not true as they will be aware of those risks and try to save the day by consuming far more moderate - which they should do as nothing can be taken for granted anymore going forward. The problem is rather debt driven capitalism is a structure which has to default at some point and in history it always did and the only way out was war.

The 'bad bank' is not a good idea anymore as those so called toxic assets are unlimited in size initially it might take 3-4 tril. but at the end of the day it will be double digit trillions as more and more assets get toxic. Now the extend of mortgage related is easily close to 10 tril add the credit cards and car loans which are a different game as there is no tangible asset at the end of credit card debts only the hope that the owner gathers income and can repay. You see where I am heading too. We have had exactly that experience with Japan only that they were kind of isolated and the rest of the world could deal with it. Now there is no rest of the world as the problem is on a global scheme except China which runs into different problems on their own.
No white knights to bail out and lets keep in mind Japan dealt with it for 20 years now and lets see where they stand. Stocks almost at the lows due to their zero interest policy for 2 decades they have an artificial high currency which strangles their export driven economy even more and debt levels they likely might never be able to repay.

The dilemma is now that the rating agencies will undergo the same misbehaviour the used for mortgages and do not value government debt at equivalent appropriate levels. No country deserves a triple A at current state and even double A should be in question for some. Only this time no one will dare to criticize them for that miss evaluation.

Except


Stimulus Bill Near $900 Billion

WASHINGTON -- The U.S. economic stimulus package neared $900 billion in the Senate, as President Barack Obama wooed Republicans ahead of an expected House vote Wednesday.

The rare trip by a president to Capitol Hill revealed the urgency in Congress and the White House over a cure for the souring economy. More than 70,000 layoffs were announced this week and fresh data showed unemployment last month rose in all states.

The day was marked by Democratic deal-making. The Obama administration indicated it would agree to a $69 billion Senate proposal to shield tens of millions of middle-income Americans from the so-called alternative minimum tax, a priority of Iowa Sen. Charles Grassley, the top-ranking Republican on the Senate Finance Committee. The panel later folded the change into the Senate bill.

Who Gets What

[stimulus]

See how some of the major stimulus spending will be shared by the states.

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