Captain Obvious (S&P) vs. Captain Oblivious (Tim Geithner)
Monday, April 18, 2011 at 12:07PM Last week, President Obama driveled on about nothing of consequence in his budget speech. Yeah, he said he’d push to roll back tax cuts for the wealthy and close some off-shore corporate tax loopholes, but he’s said both (many times) before and neither happened, so in terms of revenue enhancement, it’s a non-starter.
Today, S&P – that beacon of toxic asset rating foresight (which has yet to be slapped with any monetary accountability for its collusive role in bringing down our economy) came to the astonishing conclusion that the United States has a debt problem, and tagged the country with a 'negative watch' label. The S&P report proceeded to highlight fiscal spending issues, related political debating, and our ridiculously high debt vs. GDP percentage, which is only a few points below 100, as points of main contention. It paid minor lip service to the ‘financial crisis’ as being a factor. It shied away from blaming ongoing and potentially further devastating fallout from the overleveraged mortgage-related assets still clogging the books of the Fed, housing agencies and financial firms. It ignored the fact that the banking system maintains the appearance of solvency only through federally supported accounting gimmickry and an exceedingly generous and ‘easy’ Federal Reserve keeping assets bid and rates low in the face of inflation it chooses to ignore.
Meanwhile, the media and Washington have been laser focused on $38 billion worth of budget cuts, a whopping 1 percent of the entire budget, which as slight as it is in the scheme of things, disproportionately chops public good buckets. Rather than the excruciating time sink and mind-numbing arguments, it might have been best to just lop 1% off the top of everything proportionately, but that would have been too easy, and not political enough. Maybe then we could have shifted focus to the real cause of our budget woes – which is that our economy continues to deteriorate and the people with the power to do something about it are lying about its very cause and thus its remedies.
The flashing fuchsia elephant at the core of our economic, and thus budget problems – remains the response to the financial homicide imparted by the big-banks and abetted by the Federal Reserve and the Treasury Department. There was a choice to be made in Washington in the fall of 2008 - smack Wall Street into place, do a good-ole free-market – you fail if you deserve to fail, we’ll protect consumer assets and that’s it maneuver - and deal with possibly intense, but definable fall-out for a short period. Or - lavish bailout upon guarantee upon subsidy upon asset purchase upon the lowest rates in our nation’s history on Wall Street, and wring the very possibility of a recovery out of the general economy from the get-go. Of course, the brilliant minds of our exceedingly-privileged, out-of-touch, economic leadership decided on the latter, and are acting their asses off to pretend that that decision, in itself, wasn’t the cause of the economic problems that followed, from Main Street anemia, to commodity inflation to international disdain and a weak currency that has no right to even have the purchasing capacity it still does.
And, yet Tim Geithner had the audacity of job-security to take his debt ceiling ‘plea’, on the Sunday Morning talk show circuit – really, we will be in crisis and other countries will think poorly of our ability to pay our debts if we don’t raise the ceiling and increase our debt. In truth, it is Tim Geithner’s ego on the line, while his boss, through staggering absence of mention, is fine with assuaging it. Federal Reserve Chairman, Ben Bernanke remained silent about the topic, not least because between the Fed and the Treasury department, more debt has been racked up and issued in the past two years than ever before. Of course, the debt cap will get raised, just as it got raised under Treasury Secretaries Paul O’Neil, John Snow and Hank Paulson.
When Geithner got elevated from the NY Federal Reserve head position of aiding Wall Street in its time of need to the Treasury Department, from where he could rubber stamp the entire bailout notion as being essential to our survival as a nation, the amount of Treasury Security debt outstanding was $5.7 trillion (in tradable securities, and $591 billion in nonmarketable ones.) In August 2008, just before the most powerful banks sucked the soul out of the country in every manner possible, Treasury debt outstanding was $4.9 trillion.
Today, outstanding Treasury debt stands at $9.1 trillion, an increase of $4.2 trillion since the big bailout began, most of which occurred under Geithner, though it started under Hank Paulson, who in 2007 and recently on Tim's behalf, has used all of Geithner's current arsenal of reasons to request a sizeable debt cap increase. All of it, allegedly to avoid a Depression and propel us to what has been deemed a slow recovery by none other than the Treasury Department, the White House and the Federal Reserve.
Geithner can (and will) keep pretending that this seismic debt increase was a requirement to fix our main economy, even though the actual fiscal stimulus package of the Obama administration accounts for only 18% of this increase, so the numbers just don’t fly. Indeed, they only make sense if you take into consideration other diversions, like the $1.37 trillion of Treasuries, about a trillion of which is in excess bank reserves, and the nearly $1 trillion of mortgage-related securities parked at the Fed, the $142 billion of mortgage-related assets at the Treasury deparment, and various remaining FDIC guaranteed bank debt hangover from the bailout period, and sundries like JPM Chase’s ongoing Fed backing for its Bear Stearns’s acquisition.
Meanwhile, our debt interest will be more than $430 billion this year, or more than ten times the amount being quibbled about by the elected partisan politicians that are debating it, as the value of our debt and debt-worthiness diminishes.
Anyone can make promises that at some time in the future, some of any budget will be more in check, or even that unicorns will overtake the oval office and do a better job running the economy, but the fact remains – misguided, larcenous policies created a boatload of debt to float a financial system that continues to suck us dry (near zero borrowing costs from non-zero lending through mortgage, personal loans, credit cars, or whatever), and until this fact is given even an iota of a percentage of the time that the smaller bantering is given, we will continue to sink further into a financial abyss of the Fed’s, Treasury department’s, bi-partisan Congress’ and executive leadership’s making, no matter who’s in charge. For now, there are those excess reserves at the Fed - just saying.
Budget, S&P, Tim Geithner, US Debt 
Reader Comments (21)
much more pain required before anyone cares
I know - how sad it is ....
Your fans will always appreciate your no-nonsense approach. Never cut them slack. We wouldn't expect anything less of you, Nomi. Stay golden. Thanx a million.
Thanks so much, Brien!
Nomi,
Another great piece (I got to here via ZeroHedge) - I always enjoy your articles and TV Interviews. I don't have to say 'Keep up the good work', I know you will - and thank you for doing so.
DavidC
I hope 100,000,000 people read this. It is a concise description of what ails us. I got here from zerohedge where I clicked on your name because I lked the content of the article so much I wanted to know more about who wrote it. Great work! Thanks.
Great post. I'm embarrassed to say that I'm just now stumbling on your writings (thank you ZeroHedge). If the average person understood just a fraction of what you wrote in this jam-packed piece, we might actually have a chance. Sadly, I don't see that happening, at least not until it's too late.
Oh well, it's off to the bookstore to pick up all your books.
Keep up the great work!
unsure, you have hit the nail on the head! Yes, it would help if our citizens understood one iota of what this fine article is talking about but they don't. But take heart. They can put on a condom in nothing flat.
Citizen stupidity is going to insure that we are a third world country in to time at all. That is what has created the $hit-mess that is south of our border. The politicians can tell them anything and they will buy it. The same thing is gradually happening in America.
I believe Geithner actually engineered TARP 1 behind the scenes for Paulson. We're in uncharted territory and the fed is walking a tightrope. I don't think we're going to get to the other side when all is said and done. The numbers are just too big and overwhelming. Bottom line, buy some gold, some silver and take some cash and convert it into other currencies like the canadian and Australian dollar, swedish krone, swiss franc and maybe just a tiny amount into the euro. Don't be 100% in the US dollar.
I can't say that I'm surprised where we're headed. Don't forget the $845 Billion Global Poverty Act that Obama and Biden pushed in the senate in 2008 (senate bill s.2433)
Some reading on where we're headed:
http://globaleconomicanalysis.blogspot.com/2011/04/deficit-reduction-are-higher-taxes-and.html
minor correction:
"Of course, the brilliant minds of our exceedingly-privileged, out-of-touch, economic leadership decided on the former,"
"former" s/b "latter"
why bother to do the right thing? in a nation of fools, the greatest fools lead.
It might be worth mentioning the defense budget in addition to the bank subsidies.
Assassin - thanks for the correction!
Rob - agreed, and that reminds me that Kim Kardashian is in the top ten list for the most twitter followers, take that thread up to the White House and well....
McMike - true, good point, the defense budget through the last decade, and of course the tax cuts and breaks, just in the past two and a half years,the banks really overshot the rest....
Keith - yes, meanwhile - silver and gold remain the alternative, not necessarily for the inflation hedge, but for the stupidity and recklessness hedge
Excellent article, but this sentence -- "It surprisingly (not) shied away from blaming ongoing and potentially further devastating fallout from the overleveraged mortgage related assets still clogging the books of the Fed, housing agencies and financial firms as the banking system maintains the appearance of solvency only through federally supported accounting gimmickry and an exceedingly generous and ‘easy’ Federal Reserve keeping assets bid and rates low in the face of inflation it chooses to ignore." -- needs some more editing, as it makes it unclear who the S&P report shied away from blaming, which prompts me to observe that anytime you write a sentence that convoluted, you're probably better off breaking it up into more than one sentence. See?
Nomi, help me out here, please. I finished reading Griftopia by Matt Taibbi, which led me to both his blog and zerohedge, which led me here. I've bought your books, and am now reading them in an attempt to understand. I try to tell my friends what is going on (of which, admittedly, I know very little about; it's still more than the vast majority of the electorate, though), but their eyes glaze over when the tecnical data comes out. It's hard for me to wrap my head around this, and I'd like to think that I'm an intelligent human being.
I've been doing more and more research, and it scares me, but I feel like there is very little I can really do. I looked into a position within the SEC, but with everything coming out in the news (especially all the brou-haha with Gary Aguirre), it seems like this would be a waste of time. I'm losing hope that any of our elected officials will do anything about it, despite the political slam dunk it would appear to be, and it's gotten to the point where I'm thinking that it may be easier to try and make money off all this and squirrel it away before the impending collapse (there are other issues with this, but whatever).
The situation appears to be hopeless. What can one person do, other than despair?
Josh - Thanks for that suggestion. my writing and self-editing aren't always in sync.
Chris - I've had conversations with Matt, who is such an excellent writer in terms of breaking everything down to understandable terms, and we've wound up scaring and depressing ourselves. The key is to keep digging and understanding and communicating - even to the glassy-eyed. It's much easier not to pay attention to any of this stuff, but it really does effect our lives, and just like you decided to delve beneath the surface one day, other people can, too. So, what any one person can do is learn and transmit. Worse (and probably realistic) case, nothing changes, but we're all a tad bit wiser. That said, in terms of making money from it all, the more you know, the more prudently you can invest, because as an individual, you will always be behind the eight-ball of international capital looking to do the same, and that's risky. For instance, zerohedge and others have advocated silver purchasing for a myriad of reasons, as have I, so it is one way to invest, but if you do, it's best to be more attentive as well. I personally believe that metals have both actual alternative paper value and a ton of speculative risk in them, and vigilance is important. If there comes a day when central banks and such decide there's not enough real or paper metals in the world to compensate for the flush of paper money on which the entire global economic system (and particularly the US) floats, it could be very painful for investments in them.
Thanks, Nomi. I will continue to dig, as has been my instinct. Like most people, I knew next to nothing about the topic up until recently, and basically took what came out of the mouths of the financial wizards as truth. I'm starting to realize that this approach is the (willfully) blind leading the (uneducated) blind. Scary, but one can't unsee what has been seen, so I guess I'll just try and see how far down this goes.
As for my investing comment, it was more of a slight stirring of cynicism...a "get mine while I can" impulse that seems somewhat easy; consider the fact that all of this information, by virtue of its dry, seemingly impenetrable nature, is pretty much out there in the open, with no attempt made to hide it. No one seems willing to figure out the language, so it's all just sitting there for those willing to overcome the steep learning curve. I have no real desire to make money off the backs of the taxpayers; we really need people who are willing to chase the crooks down and put them in jail, or at least change the rules so that this doesn't happen again. It's kinda why I looked at employment within one of these enforcement agencies, had the opportunity been available.
In any case, please keep up the good work, and thanks a million for all of the information on the site.
Listen, I fully understand, after many years in the volunteer political activism world, after being called numerous names and insulted beyond belief (and not to mention the tear gas, nights in jail after a protest march, ad infinitum), how people can be confused and bewildered by everything taking place, because essentially the super-rich have everything so rigged, even to the point many still believe America to be a democracy (read Ferdinand Lundberg's The Rich and Super-Rich, and Treason of the People) and a meritocracy.
Had we a real media, we would watch almost nightly panels made up of Nomi Prins, Matt Taibbi, Pam Martens, Damon Vrabel and Ellen Brown.
(Am I out of line here, Ms. Prins??? Or would that be a panel to your liking??)
But, should anyone require a brief primer on economic reality in America, please take a look below:
FORENSIC ECONOMICS 101
Private equity firms/leveraged buyout firms manage and oversee the bulk of the largest pension funds (superannuation funds) out there, including most union funds. They leverage these funds to destroy unions and future union employment, while structuring them with credit derivatives which profit themselves but end up destroying those funds.
With the destruction of those funds, which must either be bailed out or allowed to default, comes the further destruction of local governments as they are usually heavily invested (through their bond issues) in those pension funds. Thus allowing the super-rich to go in and pick up new assets at bargain basement values.
This would be considered the optimal asset stripping.
U.S. foreign aid (US taxpayer assisted) is well known to be directed to countries which will then purchase weapons systems from defense contractors, but what is less known is what the greater slice of that foreign aid goes to.
The bulk of it is managed and manipulated by American-based multinationals to build foreign factories, production facilities, R&D labs, worker training, etc., to which the multinationals then offshore American jobs to, and create new jobs at. Extreme examples of this were the two “free trade agreements” supported and passed during the Bush administration, lobbied on behalf of by former president, Bill Clinton (in the pay of the jobs offshoring industry), involving Jordan and Oman.
Foreign aid established factories in those two countries, which then imported the cheapest labor they could from Bangladesh and the Philippines, chiefly benefitting the American-based multinationals who exported those jobs to the factories, and the small number of wealthy and connected managers and owners in Jordan and Oman who managed those factories.
The co-opting of the conservation lobby (Nature Conservancy, League of Conservation Voters, Sierra Club, etc.) and the environmental lobby (those entities duped into supporting cap-and-trade) by Wall Street (corporate and individual land monopolists and oil/energy corporations).
For example, when a volunteer group works to set aside a tract of land for conservation purposes, etc., and they don’t continuously track the final result, they are unaware that some, or all, of the tract is eventually sold for pennies on the dollar to foreign corporations, either in a quid pro quo deal, or which is owned through circuitously laddered holding companies by an American-based multinational.
Also, various conservation groups will lobby on behalf of tax cuts and benefits for set aside lands, unaware they are working – for free – on behalf of those super-rich land monopolists.
The controlled, compromised and highly manipulated tax code which chiefly exists to benefit the one percent, the speculator class.
A traditionally popular example of this is the “Louis B. Mayer clause” dating back to 1954, where Mayer’s tax attorneys bribed the usual congressmen to insert a special clause in the tax section to allow Mayer to avoid paying taxes on his fortune when he retired. This clause specified that only the special pre-existing tax situation (i.e., exactly targeting only Mayer’s situation) existing prior to the date of that clause was allowed – the complete antithesis of all legal foundation, i.e., a law is normally passed to be in effect which affects everyone after the passage of said law!
A recent example is the “Blackstone Group clause” – essentially the Blackstone Group bought some congress critters to allow them to continue paying the same capital gains tax rate after they went public, when by law they should have begun paying the higher corporate tax rate. Some law professors (Davidoff comes readily to mind) would claim this was “deft tax law.”
No, it is simply absolute corruption.
“All money is hierarchically controlled as an asset to private sector institutions and elite capital holders who have the ability to call in their chips, i.e., your bank digits, where as it’s an interest-bearing debt to governments and the people.” --- Damon Vrabel
“A good investment is to own a senator, but a great investment is to own the US Treasury.” --- Anon
The truth is always hard to hear , but the only way the American people are going to wake up is to have people stand up and shed light on all of the unconstitutional acts that government strikes against us from power that is undelegated by the people. We now have a ceremonial congress so now is the time for persons like Nomi to let their voice be heard ,Keep up the good work
Nomi,
I love your work. You are a true warrior. I get confused on the details to a degree, but I'm sure I will always feel this way until the day the books are shown by all banking groups, especially the Fed and we can then see just how much debt we have facing us.
I am left wondering what would happen if a miracle happened and we were able to inspire politicians to change the laws that regulate Wall Street. If the US were to create a Bank of the US and eliminate interest on our currency creation. Or, if Congress actually took power from the Fed and made it operate for the good of the American people. If the common man were to rebell and the leaders forced to listen, could we truely create economic change without the world's elite conspiring together to bring whatever system was created down? If so much of our world's wealth is owned by a limited number of people, how can we ever create a system that they can not manipulate or destroy?
I'm not asking for details or specifics. I am just wondering if it is even possible in a realistic sense.
I attended a local Tea Party rally and a common theme was deregulation. It is amazing how effective our corporate media has been with indoctrination, even amongst non-mainstream Tea Party people. To me this movement is the closest thing to organized people our nation has in regards to some sort of alternative to the false l/r paradigm. They have been hijacked by the media and spin doctors to a large degree and I loave many of their views, but here is a percentage of the population that is at least openly rebelling and sharing some of my views like attacking the power of the Fed. But, what in the hell would I be fighting for? You get to make money off books and speaking, I have to put my job security at risk by attacking a system that is trenched from Wall Street to Blue Lodges from sea to shining sea. Enough facts are there to expose the money masters and their powerful minions. It takes time and effort and sources of knowledge to present the arguement. But, can we win?
Anyway, I get so frustrated at the apathy of mankind and then when apathy is broken, I have to deal with idiocy, ignorance and evil manipulations. It is a tough walk.
Off topic here...but in case you haven't been following, we are getting alot of nuclear fallout from Japan. Even the EPA released data showing Cesium in milk from VT and a higher concentration in RAIN WATER. How screwed is that? 'll spare what all my wife and I are doing to try to protect ourselves, but I figured I'd give you fair warning.
Please keep up the great work. If this information war is ever going to be won, it will be because of people like yourself who can articulate their point of view with reason and logic without letting emotions get in the way.
When the Unicorns (Presidential Commitee Office of Unicorns?) have "the House" I am sure they'll be smart enough to put N.Prins somewhere in the line-of-control of the Unicorns States of America Federal Reserve Bank. I can't wait - and jeepers you made me laugh with that unicorns comment.
(Not that what B.B. and T.G. are doing isn't "magic on crack.")
Glossy Eyed: I try to read all these "smart people" books and weblogs also, here's the problem(s) I have: Nomi Prins is too smart for me - Mizz Prins can handle all those %s and re-definitions and "technicals"; Matt Taibbi - almost my level - then he runs off with the "whodunnit" (by percent) and I find myself wondering if his brain doesn't weigh in at about 80lbs; then there is the "regular" press - even I am not that stupid, sheesh, "these aren't the $s you're looking for, go about your business." Keep trying, though, with much (much+) Prins/Taibbi and others (hahaha FCIC report was stolen from them) reading, a nearby "internet mo-sheen" to look up the hard words: I begin to see shapes forming in the cloud bank.
ChrisG: take the job at SEC (or any other place you can get a job). ".gov" work is still the best paid, most secure, benefit-fat "long" position you can hold. Don't worry about "saving the world for democracy" - leave that to the DOJ/CIA/FBI and "the poli-sci kids." Besides all of the above, I believe (especially of SEC) that the ".gov" jobs are nearly assured stepping stone positions on your way to the 10-figure salaries on wall street.
Mizz Prins (Nomi, if I may) - when you are the Unicorn appointed Magic Princess of Finance of the Whole New Unicorn World Order, remember us little people and buy your Unicorn Hay domestically.