The US dollar and the biggest default in history.

The key to a super power is debt. america began creating its position after ww1 by supplying guns and materials to both sides on credit. there are some that argue that america only got involved in WW1 to assure that europe didn't completely destroy itself to the point where it couldnt repay its debt.

but unfortunantly for us china holds the debt edge also..

 

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April 22, 2008

SouthAmerica: Reply to Ivanovich the Bolshevik and to TraderZones

When I post information saying that the US government data is not worth the paper that they use to publish the information. Then you guys give me a hard time even after I give you in detail all the pieces that were missing on the information to make it more realistic.

Now I found another writer – Kevin Phillips - that arrived to the same conclusions and he has documented how he arrived to his adjusted figures and all you guys have to say is that you are tired of me repeating that information to death.

By the way, you guys can’t accuse Kevin Phillips of being a communist, a socialist, or even a liberal as you usually do when you don't agree with someone's point of view, since he is a Republican and a conservative.

Even though he is a conservative Republican the difference is that Kevin Phillips is not a fool like many Republicans who post their opinions on this forum.

His article includes two charts one about consumer inflation showing what happens to the consumer inflation figures from 1994 to 2008 one line represents the cooked figures that the US government publishes as the official inflation numbers that goes from 2.5 percent in 1994 and rise to the current 4 percent.

The second line represents the consumer inflation figures estimated based on the pre-1983 criteria before they started cooking the figures. Under the pre-1983 way of calculating consumer inflation the rate goes from 6 percent in 1994 to the current 12 percent.

The discrepancy between the real inflation rate of the US economy and the make believe rate that has been used on the economy over a long period of time result in major distortions in the foundations of the US economy. The implications of these distortions to the US economy have great economic consequences over a period of time.

The other interesting chart that he shows on his article it is the chart about the unemployment rate and he shows how the unemployment rate varies and it depends who is counted.

He shows how the US government plays with the figures to show the lower rate – but when we add the missing pieces the unemployment rate is around 12 percent.

In my opinion, the unemployment in the United States is even higher – it is closer to 15 percent rate.

I understand how people like you think – you are the enablers of scams such as Enron and WorldCom, and if someone had told you guys that the data had been cooked you guys would defend to death the results published by such corporations.

You are the people who buy Enron, WorldCom, and subprime crap and think that you are making a great investment.

By the way, you guys can’t connect the dots even to save you lives.


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Two-thousand two-hundred and fifty-three posts of "yawn".

 

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July 24, 2008

SouthAmerica: The bailout of Fannie Mae and Freddie Mac also can be seen as a bailout to keep foreign investors interested in investing in the United States at least for a little longer.

It is not only the US dollar that has been melting in the last 6 years – for example the US dollar lost half of its value against the euro during that period – but lately other foreign investments also are disappearing as its value melts down to nothing – such as Fannie and Freddie.

Last Friday I noticed the column on the FT about “Too Chinese to Fail” – according to the article the poor mainland Chinese investors are stuck with over $376bn of the agency long-term debt as of June 2007 and that represents less than 1/3 of the amount invested by foreign investors on this latest fiasco.

That means that the poor bastards (foreigners) are stuck with more than US$ 1.3 trillion dollars of Fannie and Freddie long-term debt as of June 2007.

Talking about being taken for a ride.

Now the US government had to intervene to keep these institutions from going bankrupt and going out of business and wiping out these foreign investors.

These days the Chinese government must be reevaluating alternative investments around the world since they have realized that they have been investing in a real money pit.

The Chinese must be stunned by the massive losses that their investments in US dollar has generated over the years – it is like investing in the Titanic then watch the big ship sink slowly.


******


“Too Chinese to fail”
Published: July 18, 2008
Financial Times - UK

Fannie Mae and Freddie Mac may not have many friends these days, but they should be able to count on a certain loyalty in Beijing. China is the biggest foreign holder of debt issued by the troubled enterprises and a relatively captive buyer of the paper.

US Treasury data shows that mainland Chinese investors owned $376bn of agency long-term debt at the end of June last year, almost one-third of total foreign holdings of the agencies.

Virtually all of this is probably held by an agency under the central bank which oversees the bulk of reserves. Extrapolating on the basis of China's growth in foreign assets, economist Brad Setser reckons the country now holds $500bn-$600bn worth of agency paper, or a 10th of the outstanding stock of agency debt.

Rather than sticking with straight debt, SAFE has been shovelling up the agencies' asset-backed securities – at the end of June last year, China held $206bn. That may well be harder to dump. Even in more normal times, commercial banks – the other natural buyers – often have balance sheet constraints. Pricing is also more sensitive to changes in market rates.

In future, switching into different instruments could also prove a struggle for China given the volumes involved. Replacing annual purchases of $150bn or so of agencies with alternatives is tough. Buying more Treasuries would impact yields, while moving into corporate bonds would ratchet up risk.

That is something which China, still smarting from big paper losses in Blackstone and Morgan Stanley, is presumably keen to avoid. These US investments were both, in a roundabout way, funded by foreign exchange reserves. None of this makes government-sponsored enterprise debt especially compelling, but it does make China's central bank a very attractive
buyer.

The People's Bank of China as America's lender of last resort? Now that really would give Messrs Paulson and Bernanke food for thought.

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May 23, 2009

SouthAmerica: You don’t need to be a rocket scientist to be able to figure out that the downgrade of the US government credit rating is coming sooner than most people realizes.

Right now the dollar is being hit by fears about a potential downgrade of the US government credit rating.

The US mainstream media still is in denial regarding the US government current and future financial positions and the devastating impact that the US government credit rating change will have in the US economy. And right now one can just imagine all the pressures that are coming from all sides on rating companies such as Standard & Poor's and Moody’s regarding the possible downgrade of the triple-A sovereign rating on the US.

Standard & Poor's is already making waves about Britain’s country credit downgrade, and yesterday, Moody's said that it was comfortable right now with its triple-A sovereign rating on the US, but the rating was not guaranteed forever.

If the mainstream media and the Standard & Poor's and Moody’s credit rating agencies in the US were using on their calculations a more realistic current figure for U.S. GDP of around $ 10 trillion dollars instead of the Fairy Tale figure published by the U.S. government of around $ 14 trillion dollars – then today the Standard & Poor's and Moody’s credit rating agencies would not be contemplating downgrading the triple-A sovereign rating on the US debt – they would instead be discussing if today the credit rating of the United States should be just a single "A" or even a lower rating.

The current Standard & Poor's and Moody’s triple-A sovereign rating on the US debt – it does not take in consideration the imploding real U.S. GDP and the exploding cumulative U.S. government outstanding debt that is underway – an imploding economy combined with exploding debt for many years to come is a bad combination for the long-term health of the U.S. economy.

As I mentioned above when you consider all the outside pressures and all the conflict of interests involved on this business, it will be almost impossible for credit agencies such Standard & Poor's and Moody’s to make a proper analysis and give the proper credit rating to a country such as the United States.

In the recent past these agencies did not do a proper job when rating securities because of major conflict of interest that resulted in a massive sub-prime scandal of global proportions - then why anyone with a minimum amount of common sense would expect that these agencies would act any different regarding the sovereign rating on the US debt?

The funny part is that eventually after the shit hits the fan and we have another massive meltdown supposedly intelligent people are going to come out and point their fingers to credit agencies such as Standard & Poor's and Moody’s and blame them for misleading the public with their worthless ratings - such as the current triple-A sovereign rating on the US debt.

We have been discussing this subject for many years on this forum.

By the way, when these agencies are forced to downgrade the sovereign rating on the US debt to a more realistic level then that action will be devastating to the US economy in many ways, and the interest on the increasing cumulative outstanding debt of the US government is going to explode out of sight.

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Credit ratings are based upon the debtor's ability to pay its debt on time. Since the U.S. Government can print U.S. Currency, it cannot default on its obligations. Therefore, no danger of losing its credit rating.

The devaluation of a currency as the result of creating currency has nothing to do with a credit rating.

 

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May 23, 2009

SouthAmerica: I don’t understand why most people can’t connect the dots and can’t see that we have an imploding US economy like never before – maybe during the Great Depression.

Let’s list just a few items:

1) A declining industrial base with an important industry such as the auto industry and its supply chain being destroyed almost over night.

2) It is not only the auto industry and its supply chain that will suffer the consequences of this massive economic mess – the auto industry is the major supplier of funds to the advertising industry that supports most of the professional sport leagues on this country such as the NFL and so on…

3) We also have an imploding insurance, investment banking, and the regular banking and financial system.

4) An imploding real estate industry that is in intensive care.

5) A health care industry that is in trouble and will confront a major crisis right ahead.

6) The newspaper industry is also imploding and what is left behind on that industry can’t afford to do a proper job and analysis of most information that is available today and in turn provide the public with insightful and intelligent analysis and real news.

7) Outsourcing is exporting millions of jobs from the US economy, and unemployment is going sky high in the US, with real unemployment being close to 20 percent when you adjust the US government figures and take in consideration the pieces that a hidden under the rug.

8) Government budgets of most states are also imploding as the economy inside of each state implodes in a downward spiral.

9) Exploding bankruptcy fillings in the US – personal and companies – is another sign of a system that is in deep trouble and an economic system that is imploding into a black hole.

These are just a few economic items that are feeding on each other on a downward spiral and are making matters worse for the entire US economy.

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May 23, 2009

SouthAmerica: Reply to PSPR

You said: “Credit ratings are based upon the debtor's ability to pay its debt on time. Since the U.S. Government can print U.S. Currency, it cannot default on its obligations. Therefore, no danger of losing its credit rating.”

Do you mean like they have been doing in Zimbabwe – they also have a printing press in Zimbabwe that works around the clock to print new currency by the ton and they also will be able to meet their obligations based on your theory, and Zimbabwe would be able to keep their good country credit rating.

By the way, in the early 1920’s Germany also used that printing money strategy that you mentioned and in no time instead of using the regular foreign exchange rate to trade their money they started trading their worthless currency under a new system: by the kg.

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Look, SA.

U have posting this stuff for ever.

We are in a business cycle. We will go very low this time. But rest assured, there is capital on the sidelines and when the acceleration of this downturn slows, that capital will come in.

Brazil will not rule the Americas anytime soon, so chill man.

The United State GDP will have to implode by a factor of 10 to match the GDP of Brazil.

I will gladly take the other side of that Black Swan.

 

With all the illegals in the US who really knows what the unemployment is.