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Old 09-17-2008, 08:28 PM   #1
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Is the US bankrupt?

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As Washington bails out one financial institution after another, investors have begun to doubt the long-term credit-worthiness of the US itself.

The cost of insuring against default on 10-year US Treasuries jumped to an all-time high of 30 basis points yesterday, as measured by the credit default swaps (CDS) on the derivatives markets. Germany is at 13, and France is 20.

"This is historically significant because we have never seen anything like it before," Daniel Pfaender, sovereign credit strategist at Dresdner Kleinwort.

"What we don't know yet is whether this a liquidity issue or whether it reflects the credibility of the US financial system."

The Federal Deposit Insurance Corporation FDIC has already exhausted half its capital cleaning up after the collapse of IndyMac. It may need half a trillion dollars of fresh money to cope with the 120-odd lenders on its sick list.

Charles Dumas from Lombard Street Research said America's dependency on foreign money would carry a high price. "The ultimate test will be whether this seriously jeopardizes the reserve currency role of the US dollar. China finances the US government. So as long as the Chinese are willing to accept an annual loss of 15pc on their holdings of US bonds in real yuan terms, this can go on, but the decision lies in Beijing. What is clear is that it will take the US decades to pay this off," he said.
Global credit system suffers cardiac arrest on US crash - Telegraph



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NEW YORK (Reuters) - Pressure is building on the pristine "AAA" rating of the United States after a federal bailout of American International Group Inc, the chairman of Standard & Poor's sovereign ratings committee said on Wednesday.

The $85 billion bailout of AIG on Tuesday by the U.S. Federal Reserve "has weakened the fiscal profile of the United States," S&P's John Chambers told Reuters in an interview.

"Lack of a pro-active stance could have resulted in further financial stress and put pressure on the U.S. triple-A rating," Chambers said. "There's no God-given gift of a 'AAA' rating, and the U.S. has to earn it like everyone else."
S&P says pressure building on U.S. AAA rating | Reuters



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Video
Monday, August 04, 2008

The ranking Republican on the House Budget Committee said the U.S. government is headed toward bankruptcy if it stays on its current fiscal course.

“We know that for a fact,” Rep. Paul Ryan (R-Wis.)
CNSNews.com - U.S. Headed Toward Bankruptcy, Says Top Budget Committee Republican


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The global credit system almost grinds to a halt as yields on US Treasury bills reach zero for the first time since the Great Depression, writes Ambrose Evans-Pritchard

Albert Edwards, global strategist at Société Générale, said Washington's serial bail-outs are the inevitable result of the credit bubble of preceding years. "This was all baked in the cake long ago. What we have seen so far is just a dress rehearsal for the deep recession that is coming. America is going to be losing 500,000 jobs a months. That is when we will see interest rates go to zero. The deficit will be covered with printed money as it was in Japan. The endgame will be helicopters full of cash dropped by Ben Bernanke," he said.
Global credit system suffers cardiac arrest on US crash - Telegraph



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WASHINGTON -- The Congressional Budget Office said the U.S. budget deficit for fiscal 2008 -- $407 billion -- will be more than double the deficit for 2007, hit by the wars and a weak economy, and predicted it is likely to rise further in fiscal 2009.

The fiscal 2008 budget deficit will rise to 2.9% of gross domestic product this year, according to the agency, up from 1.2% of GDP in 2007. The fiscal 2007 deficit was $161 billion.

Since March, the CBO has increased its estimate of the fiscal 2008 deficit by $51 billion. The agency's report said the increase came as a result of supplemental spending for wars in Iraq and Afghanistan, as well as additional funding for deposit insurance and unemployment payments.

The CBO in March estimated a $207 billion deficit for fiscal 2009, less than half the estimate in its report Tuesday. The report said updated baseline numbers assumed more supplemental spending for Iraq and Afghanistan, as well as higher inflation and lower economic growth over the long haul.

WASHINGTON (AFP) — The US current account deficit widened to 183.1 billion dollars in the second quarter of 2008
Budget Deficit Likely Doubled for Fiscal '08 - WSJ.com
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Old 09-17-2008, 08:31 PM   #2
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Heard tonight on NBC News that the Federal Reserve may have to print more money in order to pay for these bailouts.




Next thing we know, it'll be the Weimar Republic all over again & we'll be using the stuff for wallpaper.
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Old 09-17-2008, 08:33 PM   #3
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I think I'm correct in saying that gold had its biggest daily gain EVER today.
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Old 09-17-2008, 09:14 PM   #4
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as a mortgage lender-the tea leaves do not look good for uncle sam.
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Old 09-17-2008, 09:45 PM   #5
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I wonder if I should transfer some of my money into Canada, since I'm also a resident there now.
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Old 09-17-2008, 09:58 PM   #6
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my thought is evenually it will become global.

<>
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Old 09-17-2008, 10:01 PM   #7
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my thought is evenually it will become global.

<>

Already is.

Look at the oil price plummet over the last few months - demand destruction.

Look at the UK banking situation, and the property market crashes in Spain, Ireland, Denmark, Iceland.

There will be further bank mergers or failures in ALL the countries I have mentioned, no question.

Looking further afield, the Russian stock market had to suspend trading yesterday.

I am not an expert on Canada, but they appear to be in the 'least-worst' position of the major Western economies, as far as I can tell, apart from Germany perhaps.
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Old 09-17-2008, 10:10 PM   #8
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Thus far the Australian economy is holding up - however the current administration is talking about 'severe belt tightening' in the nexy few years. On the positive side the massive amount of trade between Aust and China/India means there should be an increase in employment across all sectors. weird.
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Old 09-17-2008, 10:12 PM   #9
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I'm disappointed no one has made a "morally bankrupt" comment yet.

(I know, not much to joke about with this whole financial situation, but hey, it's better than crying. At least for now.)
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Old 09-17-2008, 10:17 PM   #10
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I am not an expert on Canada, but they appear to be in the 'least-worst' position of the major Western economies, as far as I can tell, apart from Germany perhaps.
Well, from a cursory glance, Canada some major assets going for them. They've been running on a surplus for years now, in contrast to the U.S., and their banking system has long been concentrated into five stable and highly risk averse large banks, with virtually no independent investment firms, thus more likely to be more solvent like Bank of America and J.P. Morgan Chase, instead of bankrupt like Bear Stearns and Lehman Brothers. Plus, unlike most all of the modern Western economies, they also have substantial natural resources like you'd expect from a petro state.

The major downside, as always, is being the small country with 1/10th the national population of the U.S., and, thus, has an economy that is highly interdependent and largely rises and falls with the U.S. economy. Still, I've read that, in spite of all the turmoil of the Great Depression, it's interesting to note that not a single Canadian bank failed during that time, and only two small regional banks failed in the 1980s, the only since 1923.
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Old 09-17-2008, 10:23 PM   #11
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Thus far the Australian economy is holding up - however the current administration is talking about 'severe belt tightening' in the nexy few years. On the positive side the massive amount of trade between Aust and China/India means there should be an increase in employment across all sectors. weird.
I was just gonna say, after mentioning Canada, Australia is not in that bad of a position, relatively. Howard for all his faults seems to have had some sense of prudent fiscal management, and there's the trade links you already mentioned. Plus natural resources. Plus a decent transport system. The latter will become increasingly important.

On the other hand, youse have the 'bling bling' culture common to most Western countries in recent years (i.e., overspending on useless rubbish, to be blunt) and related big consumer indebtedness, plus, clearly, a property bubble.

I've been saying all along, the US, Spain, the UK and Ireland are the countries, in the West at least, that will feel the current recession most severely. They have the worst combinations of high government and/or private sector indebtedness, asset prices bubbles, limited natural resources, and poorly developed public transport - perhaps not so bad in the European countries I mentioned, but certainly in the US.

The US has high government debt AND high private debt AND poor public transport (Well DONE, Georgie Boy, you won the Trifecta again!!), on the other hand they have strong military and a elitist ruling class with, apparently, no sense of morality or ethics whatsoever, so they have 'hard' power, but no longer any 'soft' power, as the neo-cons have spent all their 'political capital'.
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Old 09-17-2008, 10:26 PM   #12
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I think I'm correct in saying that gold had its biggest daily gain EVER today.
Most of the commodities rallied big today. Just earlier in the week, there was concern about counterparty risk in futures contracts and the commodities sank. So I really don't know what to think. The dollar is still well above the lows earlier in the year.
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Old 09-17-2008, 10:33 PM   #13
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Most of the commodities rallied big today. Just earlier in the week, there was concern about counterparty risk in futures contracts and the commodities sank. So I really don't know what to think. The dollar is still well above the lows earlier in the year.
As regards gold, there are several factors at play here, I reckon.

Russian investors went into gold big time with the temporary closure of the stock market there.

Some of the hedge funds - those that still have money left - went for the old short-the-banks/long-gold routine in a big way.

Smaller investors, meaning in the deposit account holding sense rather than shareholders, took their money out of the banks and into gold.

I also think some big specuvestor was making a play.

And traditionally I think August / September are good months for gold. The up-turn just happened a bit later this year.
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Old 09-17-2008, 10:43 PM   #14
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I wonder if I should transfer some of my money into Canada, since I'm also a resident there now.

I was going to say that would be a good idea

but looking at the exchange rates

you would have lost about 7-8 % since Jan 08
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Old 09-17-2008, 10:55 PM   #15
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FDIC article:

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Federal bank insurance fund dwindling

WASHINGTON – Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.

The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.
http://news.yahoo.com/story//ap/2008...eposits_safety
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