Tag Archives: debt

YGTBSM

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And these guys are serious.

Recall that Cyprus is as bankrupt as Greece.  In order to bail out Cyprus (we’ve been over the legitimacy of bailouts elsewhere), the European Central Bank, European Commission, and the IMF have demanded a one-time tax on deposits: 9.9% on deposits over €100,000 ($131,000) and 6.75% on smaller deposits.

Nothing underhanded about any of this, either.  Uh, uh.  Because depositors, including many of the 3,500 British soldiers stationed in Cyprus, are complicit in the incompetence of the banks’ management.  Yeah.  That’s it.  We’ll go with that.

Finance Minister Michalis Serris already has taken steps to block depositors from taking their money out ahead of the tax:

We have taken immediate measures so that electronic transfers cannot take effect before banks reopen on Tuesday [today is a holiday in Cyprus.]

Chump change was recovered by depositors over the weekend via Cyprus’ cash machines, but the machines’ money stocks were limited and not replenished as they ran out.  Willy Sutton couldn’t have done it better.

A planned weekend vote by the Cypriot Parliament to pass this thing, however, was been postponed until today amid…concerns…that the Parliament may have more integrity than Serris and block the “agreement” with the ECB, the EC, and the IMF.

This is supposed to raise €5.8 billion ($7.6 billion).  Think about this, though.  Are the interest rates or investment rates of return that the Cypriot banks are paying on those deposits more or less than those taxes?  You get three guesses, and the first two don’t count.  For how long will those depositors leave their remaining money in those banks?  Again, three guesses, and the first two don’t count.

This is what happens when the wrong folks are left in charge of OPM.

Update: Cyprus’ legislative vote has been delayed until Tuesday afternoon.

Update again: Today (Tuesday) the Greek Parliament rejected any “tax” on private deposits by a vote of 36 “No,” 19 abstentions, and 0 “Aye.”

Another Sequester Result

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Here’s another apocalyptic cut from the disastrous sequester:

The U.S. Department of Agriculture is considering buying 400,000 tons of sugar—enough for 142 billion Hershey’s Kisses—to stave off a wave of defaults by sugar processors that borrowed $862 million under a government price-support program.

The action aims to prop up tumbling US sugar prices, which have fallen 18% since the USDA made the nine-month operations-financing loans beginning in October.

As Defending Enterprise puts it, a bailout of a bailout.

Did I say sequester outcome?  Oh, wait….

 

h/t Spirit of Enterprise

Magical Thinking

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Well, that didn’t take long.  President Barack Obama already has failed his test.

The Progressives’ idea of a budget is out of the Senate Budget Committee, now, and on the Senate floor, where Senate Majority Leader Harry Reid (D, NV) will do his best to thrust it home with as little debate allowed as he can achieve.  Here’s the summary table (and scroll down a bit to this table; sorry you have to crane your neck); the whole thing can be viewed, in piecemeal form, on the Senate’s site:

Notice that.  Aside from continuing to gut Defense, overall spending continues apace, President Barack ObamaSenator Patty Murray (D, WA), the Budget Committee’s Chair, demands even more taxes from working Americans than he got in January, and our national debt explodes.

The Democrats want, with an absolutely straight face, to increase spending every year–$3.6 trillion in FY 2014, $4.05 trillion in FY 2016, and so on to $5.7 trillion in FY 2023, a 62% increase over the current level for FY 2013.

Reading the fine print in one of those piecemeal parts at the Senate site, we see that the Progressives want to create a(nother) $100 billion program aimed at generating new jobs, again by funding infrastructure work.  Of course, we know Obama already tried this, repeatedly, throughout his first term.  As he’s already confessed, “Shovel-ready was not as shovel-ready as we expected,” and as those earlier programs demonstrated, the jobs aren’t there at any time in his government programs.  This is magical thinking.

And it turns out Murray lied about those taxes, too, cynically understating them at “only” an additional $975 billion.  The Weekly Standard has this table, provided by a staffer for the Senate Budget Committee’s (Murray’s committee) minority membership:

Murray cynically understated Obama’s tax demands by fully one-third.  These $1.5 trillion in new taxes, combined with the $600 billion in new taxes Obama got at the start of the year, adds up to $2.1 trillion in new taxes being demanded in just these two and a half months.

Progressives just can’t stand to not raise taxes.  Their addiction to OPM is palpable.

And that debt.  The Progressives fully intend to explode it to $24 trillion by 2023, with annual interest payments running nearly to $800 billion.  This also assumes the market would be willing to buy such risky debt at those rates.  But then Obama denies, ostrich-like, that there’s any urgency to our debt fiasco.  This is more magical thinking.

All of this is predicated, too, on Obama’s/Murray’s pipedream of a GDP annual growth rate over the next 10 years of 4.2%-6.6% each year—rates we’ve never sustained in any 10 year period in our history.  With all of this taxing and spending taking money out of the private economy—the economy in which Americans actually live, work, and die—positing such rates is…wrong.

Matched with the $975 billion in claimed spending cuts, this isn’t even the balance about which he’s been yammering.  This is more…magical thinking.

This proposal is a disaster waiting to happen.

Out of Touch, or Doesn’t Care?

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President Barack Obama has said about our national debt, “What, me worry?”  Actually, that’s not quite what he told Republicans when he deigned visit their caucus earlier this week; what he actually said was that there was no

immediate crisis in terms of debt.

He’s also said he’s not interested in a balanced budget.

He had this exchange with Congressmen Kevin Brady (R, TX) and Dave Camp (R, MI, House Ways and Means Committee Chairman) at that same meeting with the Republican caucus:

Brady said that Camp  asked the president  to move now on Medicare means-testing and the new inflation calculation [to which Obama had already agreed earlier], among other measures.

According to Mr. Brady, Mr. Camp said, “Look, if we agree on baby steps on Medicare and Social Security, why wait, let’s take them now.  The president gracefully declined.”  Mr Camp confirmed the exchange.

In what fantasy world is he living?

Federal Government’s Current Policies

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…and our future.  David Greenlaw, James D Hamilton, Peter Hooper, and Frederic Mishkin, in an op-ed in last Friday’s Wall Street Journal had some thoughts.

Research we have recently presented at the US Monetary Policy Forum leads us to conclude that, as debt grows relative to GDP, rising interest rates could bring the debt-to-GDP ratio up to 176% in 25 years, and even higher under less favorable assumptions about unemployment and the current-account deficit.

They explain:

[C]ountries with gross debt above 80% of GDP and persistent current-account deficits—as is currently the case in the United States—face sharply increasing risk of escalating interest payments on their debt.  This means even higher budget deficits and debt levels and could lead to a fiscal crunch—a point where government bond rates shoot up and a funding crisis ensues.

And

Given the Federal Reserve’s greatly expanded balance sheet…more than $3 trillion today, there is an additional factor that could exacerbate inflation expectations—Fed remittances to the US Treasury.  If interest rates climb higher over the next few years, this could lead to substantial losses on the Fed’s holdings of Treasurys and mortgage-backed securities, losses that could approach several times the size of Fed capital.

Never mind that this bust of capital would violate the Fed’s own rules imposed on non-government banks.  And it would violate Dodd-Frank rules.

But President Barack Obama wants to keep borrowing and to keep inflating private lending—the housing market “recovery,” you see.

Which brings up another risk that Greenlaw, et al., didn’t mention—all that pushed-for private/commercial lending at today’s artificially low rates.  That’s generally long-term lending (those mortgages, and business lending for construction and plant expansion). But when interest rates rise, as they must, those private/commercial lenders will be forced to borrow at tomorrow’s rising interest rates while still locked into today’s low rates on the loans they’ve let.  Can you say, “S&L collapse?”

We really need adult leadership in the White House.