Former Goldman Sachs CEO and current Secretary of the Treasury Henry Paulson is scheduled to appear before Chris Dodd's Senate Banking Committee this (Tuesday) morning at 9:30AM, according to this report running at the top of Bloomberg.com now:
Paulson Plan May Push National Debt to Post-World War II Levels. According to this story:
... He's asking lawmakers to lift the legal ceiling on the federal debt to a record $11.3 trillion from the current $10.6 trillion.
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The government reaching the requested debt limit would entail every man, woman and child in the U.S. owing more than $37,000 each. The median U.S. income last year was $50,233.
Just over two weeks ago, the U.S. government placed Fannie Mae and Freddie Mac--the two Government Sponsored Enterprises or "GSE's" responsible for financing no less than 80% of all mortgages in this country in 2008--into conservatorship. Essentially, it was a nationalization of the U.S. mortgage marketplace. At the time, an estimate from the Congressional Budget Office--as far as the cost to taxpayers was concerned--was widely quoted throughout the press at approximately $25 billion.
This number was publicized throughout the media; just about everywhere.
Reports throughout the financial press, just a couple of weeks later, now peg the actual cost of this deal at many, many (did I say: "many") hundreds of billions of dollars.
Now, we are supposed to believe that U.S. Treasury Secretary Paulson's proposed Wall Street bailout will cost the taxpayers about $700 billion?
Based upon the government's track record, as far as budget projections are concerned (especially when you add media spin to the equation), and some common sense number-crunching, we most certainly must be talking about many, many trillions of dollars, in fact, as far as this half-baked, "welfare-for-the-rich" scheme is concerned--one which will see the Treasury Secretary's previous employer of 32+ years become one of the prime benefactors of his proposed largesse.
Are all 535 our elected members of congress collectively suffering from short-term memory loss? Is the U.S. public comprised of 300,000,000-plus zombies mass-afflicted with amnesia? Is the MSM that asleep-at-the-wheel? Apparently, the answer is, "Yes," to all three questions.
A quick trip over to http://www.shadowstats.com will provide one with the government's nos. versus reality on a variety of matters. Whether it's the truth about inflation, gross domestic product, money supply or unemployment, I would strongly suggest a quick mosey on over there for a dose of reality about our real predicament, today; at least in terms of how "it" truly is, versus how the folks in D.C. would like us to incorrectly think matters are now.
The truth is, we're just getting started, as far as this horror show is concerned. The fallout from this mess is going to be much greater than the numbers we're hearing now; and it's going to have much more far-reaching implications throughout U.S. society and the world.
For instance, also from Bloomberg, last night...Dollar May Get `Crushed' as Traders Weigh Up Bailout (Update5).
"The downdraft on the dollar from the hit to the balance sheet of the U.S. government will dwarf the short-term gains from solving the banking crisis,'' said David Woo, London-based global head of foreign-exchange strategy at Barclays, the third- biggest currency trader, according to a 2008 survey by Euromoney Institutional Investor Plc."
"As we get to the other side of this, the dollar will get crushed,'' said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world's biggest currency hedge-fund firm, which manages about $15 billion."
"Investors may start to worry about the amount of debt the U.S. is taking on and its impact on the dollar,'' said Geoffrey Yu, a currency strategist in London at UBS AG, the second- largest foreign-exchange trader. ``The fact that they mentioned taxpayer money implies that they're going to issue debt. If there's going to be a huge new supply of Treasuries, this will be dollar negative. It's too much for the dollar to take.''
In short, Paulson's "bailout" is geared towards subsidizing Wall Street. It's going to cost much more than the government's projecting now. Even Paulson's hesitant to commit to the taxpayer funds he's requesting now as being anywhere near enough to cover the problem--and that's just as far as his investment firm buddies are concerned.
The overall problem is far greater, and far more pervasive than the small fraction of the matter on Wall Street, which Paulson's $700 billion will not even begin to adequately cover now.
The following are facts, widely available for verification with a simple search on Yahoo! or Google (or, just checkout NYU economist Nouriel Roubini's website, among many others for this info):
1.) For the next 18-24 months, at the very least, life as we know it in this country is going to get much worse than it is today. Virtually every article in the press about the mortgage crisis, today, indicates that roughly 10% of all homeowners in the U.S. are already delinquent on their mortgage payments.
2.) By the time everything's said and done, over the next 12-18 months, the average U.S. homeowner will lose a minimum of 30% equity in their property. Homeowners in metropolitan areas like L.A., Las Vegas and Miami, are already experiencing residential real estate devaluations in excess of 50%.
3.) Up to 35%-40% of U.S. homeowners will be upside-down (owing more to their mortgage company than their property's worth) in their homes. The public's discretionary spending is already coming to a grinding halt. As a result of this, many retailers will go out of business; many shopping malls will become shells of what they were just a year ago. What remains of major U.S. industries, such as the automotive sector, will require scores of billions of dollars in taxpayer infusions just to keep their doors open.
4.) Corporate bonds will be considered somewhat of a joke in the marketplace, especially for foreign investors. (See above.) With the increasingly negative perception of this country's creditworthiness being diminished even more on the world stage, foreign investment in government (federal, state, municipal) bonds will become more and more difficult, as well. Recent reports have indicated that basic municipal bond financings, scheduled for offering/closing in the past couple of weeks have been delayed until this week; and they're being delayed even more.
5.) As a result of #4, above, things like state and federal student loan funds, public education financing, basic infrastructure (highways, water authorities, etc.), and services (police, fire, etc.), will all suffer greatly.
6.) Municipal tax bases, as a result of all of the above, will shrink significantly, further straining revenues required to maintain basic services in towns and cities throughout America.
7.) Interest rates on U.S. Treasury Bills and similar federal financial instruments (much of the interest on all of this debt, just to float Paulson's scam, not to mention all of our other financing needs as a government), if they are adequately/miraculously sold to cover all of these federal bailout plans now, will necessitate the inclusion of significantly higher costs with their sale, since this will be dictated by our diminishing creditworthiness, as it's playing out before us, even now. (i.e.: the paper that we can sell to fund Paulson's plan, and other, ongoing basic government services, is going to cost us much more to move than it has in the past, creating even greater pressure on our economy.)
This is all part and parcel of what's frequently referred to as a deflationary spiral. And, it is that which will be playing out before us as we move forward with matters like Paulson's band-aid for his Wall Street buddies, later today.
$700 billion for Paulson? Hardly! There's already another $400 billion tacked onto this for the bailout of his Wall Street pal's money market funds.
We're just getting started. Any numbers you hear from anyone associated with the Bush administration these days...figure on multiplying those amounts X6 or X10 or X20, before everything's said in done. Because when it comes to financing goverment-sponsored projects for anything out of D.C., we all know that whatever they're telling us is nothing short of pathetic fiction.
As I was writing this, Billmon posted a tremendous diary which is now on the Rec List, and there are a few comments in it which I wanted to add relating to his words, all of which may be found here: "Things become more serious."
The price tag, we're now told (by the very same people who a year ago assured us the problem was limited to a few low-income deadbeats) is in the neighborhood of $700 billion, although I would suggest doubling that figure -- and then doubling it again -- if you want a more realistic estimate of what this fiasco ultimately will cost the taxpayers. And that doesn't include the indirect costs, such as higher interest rates on the rest of the national debt, higher cost-of-living adjustments for Social Security and other inflation-protected benefits, and the higher federal spending and lost revenues caused by the steep recession the US economy now appears to be heading into.
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All this would be bad enough, but the crisis could easily get much, much worse. Today's developments in the financial markets offered a preview (or at least a dress rehearsal) of how the next phase could play out.
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The dollar tanked, falling 2.5% against the euro and 2% against the yen (both tear-your-face-off daily moves, by FX market standards.) This suggests that currency traders and/or foreign investors have looked at the alternatives -- a staggeringly expensive bailout that balloons the US national debt on one hand, or a failed bailout leading to a 1932-style collapse of the US banking system on the other -- and have concluded that, either way, the creditworthiness of the US government (which means the inflation-fighting resolve of the Federal Reserve) is now in serious doubt.
So, when it comes to all things financial relating to D.C.'s projections concerning the maintenance of the status quo, if their lips are moving, they're lying.
That's about the only thing you can bank on in 2008.