When will our creditors come knocking

[nmap]

I believe the following speaks to your question:

LINK (Full text follows)

The article originated in 2005, and I have added my own comments in orange.

In addition, we have increasing income disparity. Per the WSJ ( LINK ):

The growing portion of pay that exceeds the maximum amount subject to payroll taxes has contributed to the weakening of the Social Security trust fund. In May, the government said the Social Security fund would be exhausted in 2037, four years earlier than was predicted in 2008.

And, too, there is longer life expectency. Long retirements increase costs.

LINK

Early retirement and longer lives have placed an enormous burden on the federal government's national retirement program, threatening the long-term solvency of Social Security. The upcoming retirement of 76 million baby boomers — those born from 1946 to 1964 — has made the issue of long retirements especially urgent. The first boomer turns 62 in 2008.

Also, there is the demographic 1-2 punch of the baby boomer generation followed by the baby bust generation.

LINK

Projections already showed that the ratio of workers paying retirees’ benefits would plunge from 16 to 1 to 2 to 1 when the last boomers retire decades in the decades to come.

Finally, there is a difference in our debt load.

(DEBT)

(GDP Numbers0

• Debt in 1983: $1.4 trillion | GDP in 1983: $3.5 trillion | Debt/GDP: 40%
• Debt now: $12.5 trillion | GDP now: $14.2 trillion | Debt/GDP: 88%

Hope that answers the question...



------------------------------

The Crisis Last Time: Social Security Reform
Retirement, Taxes, U.S. Politics, Saving, U.S. Economy

Paul C. Light, Nonresident Senior Fellow, Governance Studies

The New York Times
March 05, 2005 —
It is almost 22 years to the month since Representative Barber Conable Jr. strode to the floor of the House to defend a carefully constructed plan to save Social Security. Mr. Conable, a moderate New York Republican with whom I then worked, spoke with characteristic understatement. "This is not a work of art," he told a packed chamber. "But it is artful work."

He was right. The $168 billion package eased the program through a turbulent period, and 1983 marks the last time Congress cut Social Security benefits, raised taxes and lived to tell about it. Before drawing too much inspiration from this history, however, we should recognize that this rescue was anything but assured when Mr. Conable and the other members of the bipartisan National Commission on Social Security Reform began work under the leadership of Alan Greenspan in February 1982.

Then as now, a president was ready to invest his political capital in Social Security reform. Despite his best efforts to convince the public that Social Security was going broke, Ronald Reagan got exactly nowhere. In May 1981 his budget director, David Stockman, proposed a deep cut in the early-retirement benefit available at age 62; in July there was the suggested elimination of the $122-a-month minimum benefit for the poorest beneficiaries; and in September word leaked out that Mr. Reagan was considering a three-month freeze in the annual cost-of-living increase.

With his public approval sagging under opposition to all these proposals, Mr. Reagan did what any beleaguered president would do: he pulled his foot off the third rail of the political subway and proposed a bipartisan national commission to study the issue. Scheduled to report by January 1983, after the midterm elections, the 15-member commission would, with luck, give the president time to recover before the 1984 campaign.

Then as now, there was little agreement that the program was actually broken. Republicans used worst-case economic assumptions to paint the most draconian future imaginable - and then best-case assumptions to sell their solutions. Democrats, in turn, used their own projections to minimize the Social Security problem, and the worst-case numbers to illustrate the impact of any benefit cuts.

Then as now, there was intense conflict on how to fix the program. As expected, Republicans said the best way to rescue Social Security was to reduce benefits, while Democrats sought to give the program breathing room by raising taxes.

Finally, then as now, Republicans worried about how Social Security would affect the midterm elections. Their concern was justified. With Social Security as the centerpiece of their "It's not fair ... It's Republican" advertising campaign, Democrats added 26 seats to their already substantial majority in 1982.

So much for the parallels between then and now. The 1983 rescue was rooted in four conditions that do not currently prevail.

First, there was a real and pressing deadline for action in 1983 that simply does not exist today. Without action by March or April 1983, the Social Security trust fund would have started to run a slight deficit by midsummer. Social Security would not have literally gone bankrupt, but there would have been a slight disruption in check processing until the needed revenue dribbled in.

Comment: Now, the problem is the treasury itself. The pressing deadline does not exist unless and until the bond market asserts fiscal discipline or the dollar loses its status as a global reserve currency. The timing of either event remains indeterminate. Thus, we have a potential crisis but not an immediate problem.

Second, both sides in the 1983 debate eventually agreed on a single estimate of the size of the problem - a consensus that seems well out of reach today. "Everyone is entitled to their own opinions," Senator Daniel Patrick Moynihan told his fellow commissioners as they set the targets for compromise only days after the 1982 midterm elections. "But not to their own facts."

Comment: The current recession is ruining assumptions. People are choosing Social Security at 62 instead of later due to the job market. In addition, personal income is down, resulting in reduced revenue. However, assumptions about future recovery and the duration of high unemployment vary.

Third, negotiators had the political cover to form a consensus that would be hard to build in today's 24-hour news cycle. Although the commission is often credited for the 1983 Social Security rescue, the hard bargaining was done by a secret "gang of nine" that met irregularly during the first two weeks of January at the Foxhall Road home of James Baker, then the White House chief of staff. The members reached a final agreement one early afternoon in January 1983, then watched the Redskins defeat the Vikings in the N.F.L. playoffs as they waited for final approvals from the president and speaker of the House.

Comment: No matter how the current health care debate resolves itself, it seems unlikely that political cover for social security reform exists today. In addition, AARP appears to be a core constituency for the administration. This may inhibit downward modifications of payments.

Fourth, both sides agreed to mutual sacrifice, a concept that has yet to surface in the current conversation. Democrats accepted a six-month delay in the annual cost-of-living adjustment and the increase in the retirement age, while Republicans accepted a faster-than-planned rise in payroll taxes and a substantial tax increase on the self-employed. The two sides closed the deal by subjecting up to half of Social Security benefits to income taxes for higher-income beneficiaries, a provision that allowed Democrats to say Republicans had passed a tax increase and Republicans to say Democrats had agreed to a benefit cut.

Comment: Such an outcome seems unlikely in the existing political environment.

This agreement was rooted in a common willingness to solve the problem regardless of the political consequences. Republicans gave up their effort to reduce the public's dependency on Social Security, while Democrats gave up the one campaign issue that might have slowed Mr. Reagan's easy run to re-election in 1984.

It is hard to imagine how a similar package could emerge from today's highly polarized process. Yet, as the 1983 rescue showed, Congress and presidents can take action when they are forced into up-or-down votes on urgent problems. The key is deciding just how urgent a problem is.

Comment: If things were polarized in 2005, when the piece was written, how might the author describe the present?

[craigepo]

Nmap:

RE: your thumbnail concerning growing income disparity.

Having looked at your posted thumbnail, it is apparent that income disparity, specifically the difference between the bottom 20% and very-top bracket earners, is growing at an alarming rate. I noted that the graph began with the year 1967, approximately two years after LBJ and the Democrats won landslide victories, and began the programs under his "Great Society".

Question: Is it conceivable that the "Great Society" programs contributed significantly to this growing income disparity, or would one be engaging in the logical fallacy of "post hoc ergo procter hoc"(after this therefore because of this)?

[nmap]

Originally Posted by craigepo

Question: Is it conceivable that the "Great Society" programs contributed significantly to this growing income disparity, or would one be engaging in the logical fallacy of "post hoc ergo procter hoc"(after this therefore because of this)?

Quite possibly. As I look at a list of the programs HERE, I note several things.

1) More pervasive federal control
2) Greater spending
3) A variety of social safety-net programs

Let's look at spending first. We went from about $106 billion in 1962 to $157 billion in 1967. LINK

Taxes went up too - from $99 billion to $148 billion. This should be no surprise, because Medicare and Medicaid went into effect through the social security act of 1965. LINK

But what does this imply? I think we see a tendency to make labor more expensive from the employer's perspective. In addition, more federal control (environmental and civil rights legislation) increased the cost of doing business. Furthermore, social safety-nets tend to reduce the incentive for individuals to pursue employment, artificially increasing labor costs. Therefore, the employers reduced the low-value employee's pay to reflect the higher cost of retaining them.

Conversely, employees who produced greater value to the employer exceeded the marginal costs. In addition, the supply of high-value employees is limited. This higher value to employers tended to cause their pay to increase.

Another critical factor applies - and that's the effect of wealth. In contrast to the cost of running a business with employees, wealth can be invested in tax-favored instruments that generate a high income. Warren Buffet reflected on this when he commented that he paid 15% in income taxes (due to liquidation of long-term holdings) whereas his secretary paid 30% (income tax plus withholding). One might ask why one should hire low-value employees when an investment could produce more return with less paperwork.

It's also interesting to note that legislation from 1965 (Medicare) creates a problem that doesn't really show up until now - nearly half-a-century later.

I strongly suspect that the current tendency to send manufacturing offshore today is a direct consequence of the programs that began back then.

Example: Back around 1956, a young woman from small-town Texas graduated from high school. She boarded a bus and came to San Antonio. After a single interview, she was hired and went to work the following Monday.

Contrast this with today's lengthy hiring process. Employers are loathe to hire because of the risk (and cost) of removing a bad choice. Whatever the merits of various social legislation, there are costs - including the time and difficulty involved in finding a job.

These factors all put downward pressure on the wages of the least valuable employees.

So - yes, the economic distortions of the great society programs may well be partly responsible for the trend. By implication, other legislation that has passed in the intervening years will make matters worse.

[GratefulCitizen]

Originally Posted by nmap

But what does this imply? I think we see a tendency to make labor more expensive from the employer's perspective.

Gonna get worse.
Given time, unemployment isn't going to be the problem, inflation will be.

Plenty of work to support retired boomers.
Insufficient Xers to do the work.

The undersupply of labor will cause a wage/price spiral.
Social security and pension benefits will be anchored to some arbitrary index which doesn't reflect true inflation.

Only fix would be massive immigration.
That presents other problems.

These are the natural consequences of outsourcing breeding.
You reap what you sow.

[incarcerated]

http://online.wsj.com/article/SB1000...965443342.html

Cries of 'Hey, That's My Jet!' Don't Deter High-End Repo Men

Business Takes Off for Mr. Cage; Snatching a $15 Million Gulfstream
MARCH 20, 2010
By ROBERT FRANK
SANFORD, Fla.—Ken Cage is racing through a private aviation terminal near Orlando when his BlackBerry buzzes with bad news. The plane he is about to repossess is scheduled to take off for Mexico in three minutes.

Even worse, the Cessna's owner and pilot is on his way back from lunch—and he is rumored to be six-feet, six-inches tall.

"I'd rather not stick around to find out," Mr. Cage says.

Mr. Cage, 44, stands guard by the door as his partner Randy Craft walks onto the tarmac and approaches a shiny white turbo-prop. He quickly picks the lock on the door and ushers in the repo team's pilot, Dave Larson. The plane's propellers roar to life, and after clearance from the control tower, the $350,000 ride lifts off the runway and into the sky.

Mr. Cage and Mr. Craft climb back into their Ford pickup and tear out of the parking lot, just as the plane's owner pulls in.

"He's a minute late," says Mr. Cage, peering out the window. "Lucky for us."

Ken Cage isn't your typical repo man. Rather than snatch cars from an over-extended middle class, he takes back yachts, planes and other toys from the over-leveraged rich.

Business is thriving, even as the economy begins to improve. His company, Orlando-based International Recovery Group, repossessed more than 700 boats, planes, helicopters and other property last year valued at more than $100 million. Business, he says, is up six-fold from 2007.

He has reclaimed everything from $18 million Gulfstream jets and Bell helicopters to 110-foot Broward yachts, $500,000 recreational vehicles and even a racehorse. Before the financial crisis, most of the luxury items he pulled in were valued between $30,000 and $50,000. Today, they are valued at $200,000 to $300,000—meaning defaults are hitting people at a much higher income level.

The folly of the wealthy has been good news for an elite cadre of repo men. Nick Popovich, the self-proclaimed "Learjet Repo Man" and head of Indiana-based Sage-Popovich, and Michigan boat specialists like Harrison Marine report brisk business. Reality-TV producers have been knocking on their doors. Last year, says Mr. Cage, International Recovery's revenues soared to the eight figures, up from just a few hundred thousand when he and two partners bought the company in 2005.

Banks hire Mr. Cage to retrieve their collateral after a borrower has defaulted. Once he grabs the property, he cleans it up or makes needed repairs and sells it to a new buyer. He then gives the proceeds, minus his fees and expenses, back to the bank. While the standard commission for most repossessions is between 6% to 10% of the resale price, Mr. Cage has lowered his fee to as little as two percent as a way to beat back growing competition.

"They're very quick in their response time," says Steve De Amico, vice president in charge of lending at Illinois-based Allied First Bank, which hires Mr. Cage for recoveries. "It's also helpful to have one company that can get the property, restore it and sell it for us."

Mr. Cage can't name names. But he estimates that 70% of his targets made and lost their money from real estate—either as developers, Realtors or contractors. Most of his jobs are in Florida, Arizona, California, Nevada and other sun states where real estate was hit hardest.

The son of a Philadelphia-area trucking-company owner, Mr. Cage never planned to land in the rarefied repo ranks. He started out in the cash-management department of J.P. Morgan, then worked in the collections department at Chrysler Finance, where he hired repo companies to pick up cars.

Even though he never did the repos himself, he said the work became depressing.

"Here we were, taking minivans with child seats in the back, or going to someone's job to take their car," he says. "I had a tough time with that."

Separating flashy toys from their owners seemed to be much easier—especially from a logistical perspective. Unlike cars, which can be hard to find and take, yachts and planes are often traceable through Federal Aviation Administration or marine records. Mr. Cage relies on a vast a network of marine captains, tow-boat operators, jet-terminal crews, dock workers and aircraft pilots who feed him information.

With his Phillies cap, jeans, scruffy goatee and genial smile, the stout Mr. Cage is an unassuming presence. For muscle, he relies on his partner Mr. Craft, a tall, broad-chested former professional wrestler known as "Rockin' Randy."

Mr. Craft prides himself on being able to break into just about anything, whether boat, plane or RV. Not that planes or yachts are that hard to steal. Mr. Cage says most yacht owners keep their keys near the ignition and rarely lock the doors. Plane doors can often be easily picked.

"A jet is much easier to take than a car," he says. His company works with about 30 pilots, all of whom are experts at flying various kinds of aircraft.

Occasionally, the rich rear up to protect their prizes. Mr. Cage says that he and Mr. Craft have been hit by cars, threatened with shovels and chased on foot countless times. Recently, Mr. Cage says he was on a yacht assignment in Jacksonville, Fla., when the owner boarded another boat and zoomed after him, Bond-style. He soon gave up the chase, and Mr. Cage kept his craft.

Most repo targets never even know Mr. Cage is coming.

Early one morning at the Hontoon Marina just outside Orlando, Mr. Cage and Mr. Craft walk along the docks until they spot their prey—a 65-foot Sea Ray. Mr. Cage says they had been tipped off by a boat captain who saw the craft ease into the docks the night before without any running lights—a sign that the owner was trying to avoid notice.

Mr. Craft hops onto the boat, finding no one aboard. A telltale pair of socks and sneakers near the door suggests someone may be headed back soon.

After a quick check of the registration number, the team revs up the engine and backs away from the dock. As they motor down the river, Mr. Cage reclines in a plush leather chair and takes a moment to soak in the sun.

"Someday I'd like to get a boat," he says. "But I'd pay all cash."

[Defender968]

Another very clear sign that things are going to get worse...much worse IMO.

http://www.washingtontimes.com/news/...-of-gdp/print/

CBO report: Debt will rise to 90% of GDP


David M. Dickson

President Obama's fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation's economic output by 2020, the Congressional Budget Office reported Thursday.

In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president's budget would generate a combined $9.75 trillion in deficits over the next decade.

"An additional $1.2 trillion in debt dumped on [GDP] to our children makes a huge difference," said Brian Riedl, a budget analyst at the conservative Heritage Foundation. "That represents an additional debt of $10,000 per household above and beyond the federal debt they are already carrying."

The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it's headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO's deficit estimates.

That figure would equal 90 percent of the estimated gross domestic product in 2020, up from 40 percent at the end of fiscal 2008. By comparison, America's debt-to-GDP ratio peaked at 109 percent at the end of World War II, while the ratio for economically troubled Greece hit 115 percent last year.

"That level of debt is extremely problematic, particularly given the upward debt path beyond the 10-year budget window," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.

For countries with debt-to-GDP ratios "above 90 percent, median growth rates fall by 1 percent, and average growth falls considerably more," according to a recent research paper by economists Kenneth S. Rogoff of Harvard and Carmen M. Reinhart of the University of Maryland.

CBO projected the 2011 deficit will be $1.34 trillion, not much different from the administration's estimate of $1.27 trillion. However, CBO's estimate of the 2020 deficit at $1.25 trillion significantly exceeds the administration's $1 trillion estimate.

"The biggest part of the deficit difference is lower tax revenue due to the different economic assumptions," said James R. Horney, a federal-budget analyst at the liberal Center on Budget and Policy Priorities. "The administration assumes GDP and incomes will be higher, and that translates into higher revenues than CBO expects. Relatively small differences in economic assumptions can add up to big differences over 10 years."

While Ms. MacGuineas agreed that "economic forecasts have a large impact on budgetary projections," she cautioned that such differing assumptions, often called the "rosy scenario," could account for just $350 billion of the 10-year, $1.2 trillion difference between the White House and CBO.

The president has established a fiscal commission to propose actions to reach his goal of balancing the budget by 2015, except for net interest payments, which CBO projects to total $520 billion that year. The president's budget, however, will generate a $793 billion deficit in 2015, according to CBO.

"The proposed budget is woefully insufficient to achieve the president's goal or the important fiscal goal of stabilizing the debt at a reasonable level in the medium and long term," Ms. MacGuineas said.

The CBO and the administration expect the deficit for fiscal 2010, which ends Sept. 30, to approximate $1.5 trillion and exceed 10 percent of GDP, the first time that threshold will have been reached since World War II. Before last year's deficit reached an eye-popping 9.9 percent of GDP, the biggest postwar deficit was 6 percent of GDP in fiscal 1983.

In addition to the free-spending fiscal policy the U.S. government will pursue, monetary policy will remain loose in the near term, Federal Reserve Chairman Ben S. Bernanke told a congressional committee Thursday.

Citing still-fragile economic conditions and noting the low level of inflation, Mr. Bernanke told the House Financial Services Committee that the Fed would maintain historically low short-term interest rates for the time being.

Tightening would not begin until the "expansion matures," he said, though he did not provide a specific timetable for ratcheting up interest rates.

Indicative of the economy's ongoing fragility, especially in the labor market, was the fact that first-time claims for unemployment benefits were still a relatively high 442,000 last week, the Labor Department reported Thursday. The number was a decline of 14,000 over the previous week's seasonally adjusted number.

Economists disagree over the propriety of running a $1.5 trillion deficit this year as the economy shifts into recovery mode. But they generally agree that budget deficits should proceed along a consistent, downward path as the expansion matures. Most economists, therefore, fear the prospect of rising deficits in the latter part of this decade, long after steady economic growth has returned and unemployment has plunged.

In a worrisome development, CBO projects that federal budget deficits, after dropping sharply, then will begin to rise continuously from 4.1 percent of GDP in 2014 to 5.6 percent in 2020.

For the 2016-20 period, CBO estimates that deficits will average more than 5 percent of GDP, even while assuming the economy will be near full employment, with an average jobless rate of 5 percent during that same five-year period.

One economist concerned about unsustainable fiscal policy in the out years is OMB Director Peter R. Orszag.

"Deficits in the, let's say, 5 percent of GDP range would lead to rising debt-to-GDP ratios in a manner that would ultimately not be sustainable," Mr. Orszag acknowledged to reporters on March 20, 2009, two months after the administration entered office.

[nmap]

Are the green shoots we see legitimate, or otherwise?

This piece on TickerForum may be of interest. LINK

Summary: Deficit spending is going up, actual economic activity is going down, and the net result is a GDP number that appears to be holding its own. The piece suggests this will not end well.

[craigepo]

nmap---another question.

I have heard some economic "experts" stating that the Fed will have to raise interest rates soon, to ward off inflation. My understanding was that inflation is caused by money moving "too swiftly". My observations have been that there is no present problem of money moving "too swiftly" and in fact money isn't really moving at all.

So, am I wrong about the cause of inflation? And should we expect an interest rate increase?(coming from a guy who has one variable-rate loan)

[nmap]

Craigepo, I believe you've asked the $64 trillion question.

Right now, as I understand it, velocity is declining. People who have cash - banks, corporations, individuals - are holding onto it instead of spending or investing. Banks are willing to lend to solid debtors, but unwilling to lend to most others. So the cash sits, velocity is low, and we risk (and may be experiencing) deflation.

So, you're right about the cause of inflation.

Now, let's suppose that the economy improves. Everyone starts spending more. Banks lend more freely. Employment and confidence increases. Money will start moving again - and perhaps this change will be sudden. Were that to occur, we would have a substantially increased money supply coupled with a sudden jump in velocity - which means inflation would rapidly increase.

The model seems to be deflation followed by inflation. And, since deflation will be problematic for lots of people, it seems likely that the Federal Reserve will work hard to bring about some inflation. I have heard the phrase "Inflate or die", and I believe it applies.

Interest rates are not monolithic - and that's the key to your next question. The Federal Reserve can control short term rates easily, and does. They can, if they wish, hike rates quickly and easily. Some variable rate loans make reference to the prime rate, so they would be affected mostly by what the Federal Reserve (the Fed) chooses to do.

There is another factor - those are the longer rates. The 10 year treasury note and the 30 year treasury bond are the main ones. As I understand it, fixed rate mortgages tend to have rates that fluctuate with the 10-year paper. The Fed can control short term rates, but long term rates depend more on the inclination of buyers. If those buyers believe that the U.S. is debasing the dollar - a move that might ignite future inflation - they could easily choose not to buy the bonds. That drives up long term rates, and isn't good for the economy.

Why does the Fed speak of increasing rates? I believe they wish to reassure buyers that they will control inflation. Were they to say anything else, rates would go up and federal borrowing costs would increase with them. Inflation is good for debtors, and bad for creditors. We, as a nation, are debtors. So we speak soothing words to those we borrow from. The truth, however, is that we must either inflate, increase taxes (a lot) or cut spending (a lot). Inflation is more palatable.

10-Year T-note yield

30-year T-Bond yield

Each of the above is a weekly-basis chart, and the 30-year bond shows a head and shoulders pattern. This often suggests a move up. A number I see mentioned fairly often is 7%.

I suspect that the Fed will do its best to keep short term rates low. The economy is, in my opinion, not robust at this point. If the Fed increased rates, a second leg down would (IMO) be both likely and substantial.

However, without regard to the Fed, I expect long term rates to move up. We've had 30 years of downward interest rates. But if they go back up, this implies that the housing market will get hit again. It is also likely to reduce private economic activity - and to expand the federal deficit.

The moves in long term rates mean a lot. Since people tend to buy as much house as they can afford, a move up in rates implies downward pressure on the price of housing and other real estate. Higher bond yields help savers, and hurt debtors. And, if one can get 7% on T-bonds, there is less incentive to risk money in stocks - so we may see downward pressure on stocks.

I think that any individual or organization with debt is going to experience some challenges. Conversely, those with cash may see, sometime during the next decade or two, one of those great generational buying opportunities that lets a person make a fortune.

[frostfire]

Originally Posted by rdret1

There is more than one way to take over a country. For well developed countries, actual war is no longer an option. Now, you quietly buy the place.

It is worth noting the trend of the Chinese's purchasing real estate in the US. Some even pay in cash!

[nmap]

The substantial expansion of the IMF credit line suggests they're preparing for something unpleasant. The U.S. will be on the hook for $105 billion more dollars. Our spending continues to expand.

LINK

IMF Prepares For Global Cataclysm, Expands Backup Rescue Facility By Half A Trillion For "Contribution To Global Financial Stability"

And all the pundits thought that the IMF would be on the hook for just €10 billion... The IMF has just announced that it is expanding its New Arrangement to Borrow (NAB) multilateral facility from its existing $50 billion by a whopping $500 billion (SDR333.5 billion), to $550 billion. The current lending participant group of 26 entities will be increased by 13 new members all of whom will contribute token amount of capital to the NAB. The one country most on the hook in the new and revised NAB - the United States of America, will provide over $105 billion in total commitments, or 20% of the total facility. The US is currently on the hook for just $10 billion, meaning its participation in global bail outs just increased by $95 billion. And the bulk of these bailouts will certainly be located across the Atlantic. What is most troublesome is the massive expansion of the NAR. If the IMF believes that over half a trillion in short-term funding is needed imminently, is all hell about to break loose.

Never one to present a realistic picture Dominique (or is that Mrs, Pisani?) Strauss-Khan said: "The expansion and enlargement of the NAB borrowing arrangements provides a very strong multilateral foundation for the Fund’s efforts in crisis prevention and resolution, as an essential back-stop to the Fund’s quota resources. This will help ensure that the Fund has access to adequate resources to help members that are vulnerable to financial crises."

If memory serves us right, the Fund's current resources give it acces to about a third of a trillion, so as of today the IMF has recourse funding to just under a trillion. Something big must be coming.

Some more details on the NAB from the just released PR:

The NAB is a standing set of credit arrangements under which participants commit resources to IMF lending when these are needed to supplement quota resources. The expanded NAB will become operational when it receives formal acceptances from the required proportion of current and potential participants, which will require legislative backing in some cases.1

“The expansion of the NAB will make an important contribution to global financial stability, but it is not a substitute for a general increase in the Fund’s quota resources. The Fund is, and shall remain, a quota-based institution. It is important now that member countries rapidly take the necessary steps to make the increased resources available,” Mr. Strauss-Kahn underscored.

Background

The NAB is a credit arrangement between the IMF and a group of members and institutions to provide supplementary resources to the IMF when these are needed to forestall or cope with an impairment of the international monetary system. The NAB is supplementary to quota resources, which are made up of the quota subscriptions each country pays upon joining the Fund, broadly based on its relative size in the world economy. IMF members’ quotas currently total SDR 217.4 billion (about US$330 billion). Like quota allocations, the NAB is reviewed on a regular basis.

The recent unprecedented shock confronting the global economy has led to a sharp increase in the demand for IMF financing. To ensure that the IMF continues to have sufficient resources to meet demand, leaders of the G-20 agreed in April 2009 that immediate financing from members of US$250 billion would subsequently be folded into an expanded and more flexible NAB, increased by up to $500 billion. This call was endorsed by the IMFC. The G-20 leaders reaffirmed their commitment on September 25, 2009 to a tripling of the resources available to the IMF, from a pre-crisis level of about US$250 billion. At its meeting in October 2009, the IMFC welcomed the expected agreement to expand and enhance the NAB. Pending the entering into force of the expanded NAB, member countries have pledged more than $300 billion in immediate bilateral financing should the Fund require additional resources for lending.

We have a few questions:

1) Just where will central banks suddenly find access to over three hundred billion in SDRs (which is what this facility is based on)? Also, we are curious just how this SDR expansion will impact dollar levels. As the dollar is the primary component in the SDR basket (17%), banks will have to sell more dollars than other currencies on a pro rata basis to increase their SDR holdings. What will happen to the DXY when $85 billion new dollars flood the market via assorted CBs but mostly the FRBNY?

2) Who came up with the expansion factor? Why is Japan's allocation increasing by 18.7x, that of the US by 7.2x, while that of the Bundesbank only by 7.2x? We thought the IMF is more of a eurocentric bailout facility? Why does it fall upon the US taxpayers to disproprtionately bailout Greece?

3) What is the joke with having Greece join the group of new participants? The IMF sure has a sick sense of humor.

4) Curious how this comes the day before Greece is supposed to auction off some ultra-short term debt. If this facility is enacted, watch for sovereign credit curves to hit 60 degrees, with near-term risk disappearing, once again courtesy of Joe Sixpack. We hope you pay your taxes by the April 15 deadline.

5) Funny money will galore. At this point nobody will allow anyone or anything to fail.

Here is the full table of old and existing contributors. Congrats US - you are once again leading the charge in the world bailout.

[nmap]

Notice that Greek debt has, today, been downgraded to junk status. The markets are not happy.

LINK

For now, this helps the US, as many people buy treasuries as a safe haven.

Reflect, if you please, on this: LINK

Should the U.S. continue on it present path of debt accumulation, the outcome is likely to be painful. Perhaps transformational as well - but such change is rarely pleasant.

[GratefulCitizen]

The current administration seems hell-bent on a vicious cycle of self destruction.

Businesses are making profits, but they are doing that through productivity increases.
In the case of my company (UPS), they are making profit by squeezing more labor out of fewer workers/man-hours.

Government dollars compete with private dollars for capital.
Also, when money is given, either through direct transfer or tax credits, to potential laborers, it drives up the cost of labor.

The private sector is going through necessary contraction/correction.
Government spending must be scaled back to match.

Deficit spending drives up (or prevents lowering of) costs for businesses.
They're killing the goose which lays the golden egg.

[The Reaper]

Remember the denials during the campaign of being "tax and spend" liberals?

The proof is in the pudding.

I do not think this is what the American people want.

TR

[Ret10Echo]

Originally Posted by The Reaper

Remember the denials during the campaign of being "tax and spend" liberals?

The proof is in the pudding.

I do not think this is what the American people want.

TR

There is a little experiment about to get going in the State of Maryland.

The previous Govenor (Republican) has chosen to run against the now sitting Govenor (Democrat) who defeated him in the run-up-anti-Bush-wave to the presidential election.

The State Senate and House of Delegates has been controlled by the Democrats for years.

The State had a budget surplus in 2007 when the current Democrat was voted into office. The State now has a $1.5 Billion structural budget deficit.

This is a Blue state...but I think folks have about had it.

Those of us in the Red counties wait in eager anticipation....Polls have gone from a 6-point spread to a 3-point spread in just over a week with the incumbent losing ground.