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Tuesday, March 10, 2009

Where is the Leadership for change?

I am starting to think Obama is as bad as Bush, for the single fact his administration doesn't seem to be "attacking" the problems in the financial industry. For example, Treasury Secretary Geitner ONCE AGAIN delayed announcing details on Treasury overhauling the USA financial system.

Meanwhile, the administration is cranking out freshly minted cash through massive spending. US Treasury yields are slowly starting to rise as the US creditors are looking for better return on their funding the largest deficit in the history of the world.

But what choice does the administration have? The US corporations are so large, so entrenched in every aspect of world finance, they are "too big to fail". Question this as a fact? Just ask AIG who told the U.S. that failure may cripple manks, money funds. But the truth is that government money going to US companies are being funneled to foreign banks to keep them afloat.

But don't worry, the government may be digging itself into a world class hole, and US financial companies, but US companies are ok...right? Even good companies are facing unbelievable expenses as the credit market get a new wave of skeptisism sending cost of credit soaring.

Solution? The US Government instead of changing the rules and regulations around CDS or other financial dealings, it is "stepping up" and becoming the lender for everything. GE is now offering 8 billion dollar debt sale, with the government "Backing" the debt. So "private" money will be used to fund GE rolling over it's debt, but yet once again the US Government is on the hook for the debt if anything goes wrong. NOT that anything can go wrong.

What is wrong with this action? These actions will drive up the cost of US debt, and therefore EVERYONE's taxes, and a cut US Government services. How does US Government backing GE private debt result in this? Well, not just GE, but each time this happens, "smart money" buys the corporate debt instead of federal bonds, which has a higher % yield than treasury debt. This is "smart" since the debt is backed by the US government.....JUST like a federal bond. (different mechanism, in general same principle). So the government is creating a situation where corporate debt drains the dollars buying US government debt, which in turn forces the US government to raise interest rates to compete.

So whats the point of my rant today? Trying to "pussyfoot" around the heart of the problem solves nothing. It gaurantees a long, drawn out recession/depression. There is NO free lunch with debt. Someone has to pay. And in America, it has been decided that the people who manage to keep a job will be paying a heck of alot more for that privilage in the future, with fewer government services once the US debt interest rates hits 20%. (eventually) And those job wages will not only get hit with higher taxes, but their salaries will fall.

There is another solution. Bankrupt companies that are bankrupt. Sell the "good" pieces of the bankrupted businesses to companies that run their business well. Have the losses be taken by those who risked capital. Insure the publics personal funds in banks, even if that has to be done through debt spending.

Once the losses are recognized, bad businesses burned, the market bottom would be in and a turn around in the economy inevitable. This is the right, but harder path, which takes strong leadership. I have full faith the world leaders will take the (wrong) near term easier path. If you agree be prepared for 10+ year recession/depression, and plan accordingly. The result will be debt so opressing, we won't recognise the US in a decade from now.

Very funny video from The Daily Show bashing CNBC

The Daily show had a great second video Monday night, hopefully I can publish it tomorrow.

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