Obama to Raise Debt Ceiling by About Two TRILLION.

[The Duchess of Zeon]

all this talk of hyperinflation is scaring the shit out of me. What are the chances that the U.S. will get through this without turning into something out of Mad Max?

After watching that video, my fears for the future have officially turned from "will I get a job by august" to "will I starve to death in a ditch somewhere after society collapses."

Hyperinflation != Mad Max, seriously. And a 15k Big Mac wouldn't even be a particularly bad case of hyperinflation, all things said.

[GrandMasterTerwynn]

all this talk of hyperinflation is scaring the shit out of me. What are the chances that the U.S. will get through this without turning into something out of Mad Max?

After watching that video, my fears for the future have officially turned from "will I get a job by august" to "will I starve to death in a ditch somewhere after society collapses."

Uh, no. Society won't collapse. Society didn't collapse in 1920s Germany, not even when inflation was so ridiculously bad that a pound of bread cost on the order of three billion deutschmarks. Society in Zimbabwe (such that it is,) hasn't collapsed into a Mad Max-style post-apocalyptic anarchy; in spite of the fact that the Zimbabwean currency has hyperinflated into uselessness, being entirely surpassed by the US Dollar for all financial transactions.

[J]

On the positive side, if the value of the US Dollar tanks, this debt won't be worth shit, and at this rate, the value of the US Dollar will in fact tank. When a Big Mac costs 15,000 USD, we'll have nicely erased our debt...

Uh..the US is an import nation and quite dependent on things such as oh...oil. If the USD craters it will make oil hideously expensive and you're going to have some problems. Remember the gasoline shortages in the Atlanta area and several other places last fall? Imagine the same occuring in most parts of the nation. Bit of a problem there.

all this talk of hyperinflation is scaring the shit out of me. What are the chances that the U.S. will get through this without turning into something out of Mad Max?

Well there's only two paths I can think of which lead to Mad Max and one of them is a nuclear war. The other is a complete credit, monetary system, government, and shipping/transportation collapse. Possible, but not too likely. In short, if credit & money were to be frozen then gas stations would be run dry after a few days since the fuel in their storage tanks is paid for with credit. No fuel and trucking falls apart, so your supermarket shelves soon go empty, and then you have chaos. However if the government is still functional they can make the fuel & food flow after a while so it never gets to Mad Max, it's only if the government isn't around to take action that we decend into the world of the Road Warrior.

[Big Orange]

America has a absurd distribution of wealth and as Coyote says, the Anglo-American multinational corporations have painted themselves into a corner through their Neoliberal business strategy (with the private sector's stagnant/declining wages compounded by exporting many manufacturing and administrative units to Asia, while hiring imported cheap foreign labour). But this economic mismanagement by vindictive plutocrats ruining the consumers and employees that made the said plutocrats rich in the first place and addiction to funny money is not enough to plunge the whole of the massive United States of America into a big civil war, that's silly.

Sure we're a few square meals from disaster and New Orleans' citizens were at each other's throats after being cut off for only a few days, but hypothetical civil fighting in America would likely be localized much like the Chechnya conflict in Russia, plus America has still vast resources and is not truly over populated, unlike the United Kingdom (which will have to drift more into the EU and get economically reformed along Nordic lines to prevent civil/political implosion). US economic decline is not necessarily terminal in the very long run and the Republican Party is getting sidelined, an annoyingly slow and painful process as it is.

And some moderately good news:

Citigroup to repay $20bn government rescue fund

Citigroup, one of the world's largest banks, said today it had agreed with the US Government to issue $20 billion (£12.3 billion) of new shares and debt to repay the American taxpayer for bailing it out during the financial crisis.

The US Government loaned Citigroup $45 billion over the course of the financial crisis under its rescue scheme known as the "Troubled Asset Relief Programme" (TARP). However, Citigroup only has to repay $20 billion because the Government converted half the debt into a 34 per cent stake in Citigroup.

Vikram Pandit, chief executive of Citigroup, said: "The TARP programme was designed to provide assistance until banks were in a position to repay it prudently. We are pleased to be able to repay the US government's securities and to terminate the loss-sharing agreement.

“We owe the American taxpayers a debt of gratitude and recognise our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need."

Citigroup will immediately issue at least $17 billion and up to $19.55 billion of ordinary shares and $3.5 billion of "tangible equity units" of which some would be classed as equity and some as debt. It will then use $20 billion of the proceeds to repay taxpayers.

The US Treasury will sell up to $5 billion of its holding in Citigroup alongside the new shares and the remainder of its holding over the next six to twelve months.

Citigroup staff will be also handed $1.7 billion worth of new shares instead of cash bonuses.

These moves would generate a total pre-tax loss of $10.1 billion but would save $2.2 billion in annual interest and amortisation charges.

The bank said that the effect of the share issue and TARP repayment would be to dilute its Tier 1 ratio, a key measure of solvency, from 12.8 per cent to 11 per cent. It said it may issue a further $3 billion of trust preferred securities in the first quarter of next year.

TimesOnline

[Darth Wong]

They're only repaying the money because it came with strings attached, and they want to continue fucking around, laughing at regulators, and paying obscene bonuses to their executives while screwing customers over with monstrously elevated fees.

The biggest problem here is the fact that the Republicans would have gone apeshit if tougher regulations were applied to the financial industry as a whole, instead of just the banks that took TARP money. So limits on executive pay and other behaviour were tied to TARP. Pay back TARP, and it's financial Tequila Time again.

[aerius]

They're only repaying the money because it came with strings attached, and they want to continue fucking around, laughing at regulators, and paying obscene bonuses to their executives while screwing customers over with monstrously elevated fees.

And they can only pay it back because the US government has given them all the money they need via backdoor payouts using AIG, GMAC, and other parties as the conduit to launder the funds. If it weren't for those behind the scenes bailouts Citigroup shares would be trading at about 1% of what it is now and they'd be unable to issue new equity. Of course this assumes they weren't shut down by the FDIC, which should've happened ages ago.

[Big Orange]

President Obama holds a session with the chairmans and CEOs of the largest banks in America, but worringly encourages them to lend more:

Obama Presses Biggest Banks to Lend More


WASHINGTON — President Obama pressured the heads of the nation’s biggest banks on Monday to take “extraordinary” steps to revive lending for small businesses and homeowners, prompting assurances from some financial institutions that they would do more even as they continued to shed their supplicant status in Washington.

Meeting with top executives from 12 financial institutions, Mr. Obama sent a clear message that the industry had a responsibility to help nurse the economy back to health and do more to create jobs in return for the huge federal bailout last year that kept Wall Street and the banking system afloat.

But Mr. Obama also confronted the limits of his power to jawbone the industry as banking companies continued to repay government money received in the bailout. Citigroup and Wells Fargo, two of the biggest, announced on Monday that they were doing precisely that.

If the banks came hat in hand to Washington a year ago to assure their survival, they returned on Monday in a much stronger position to deal with the government. As they scurry to repay the government and escape its influence over their operations, they have been fighting elements of legislation to regulate their industry more tightly.

At the same time, the banks are seeking to restore executive pay to high levels and asserting that the government’s demand that they hold bigger financial buffers against possible losses makes it hard for them to issue more loans.

During the hourlong meeting in the Roosevelt Room of the White House, Mr. Obama prodded the executives to stop fighting the regulation legislation intended to deal with the problems that led to the financial crisis, White House officials said.

“I made very clear that I have no intention of letting their lobbyists thwart reforms necessary to protect the American people,” Mr. Obama said in remarks after the meeting. “If they wish to fight common sense consumer protections, that’s a fight I’m more than willing to have.”

The heads of three of the biggest companies — Goldman Sachs, Morgan Stanley and Citigroup — did not even make it to the White House meeting in person. They had waited until Monday morning to travel on commercial flights to Washington and then were held up by fog.

By contrast, James E. Rohr, PNC Financial’s chief executive, drove his own car on Sunday evening to Washington from Pittsburgh, stopping at a Wendy’s for a sandwich en route. Other chief executives made sure they would arrive on time: Jamie Dimon of JPMorgan Chase flew into Washington on one of the bank’s private jets, while Kenneth D. Chenault of American Express took Amtrak.

Executives at the meeting said that Mr. Obama had told the missing three that he understood that their flight had been canceled. But he directed strong words at the industry afterward.

“America’s banks received extraordinary assistance from American taxpayers to rebuild their industry,” Mr. Obama said. “Now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.”

He added, “Ultimately in this country we rise and fall together; banks and small businesses, consumers and large corporations.”

In the glare of the presidential spotlight, Bank of America used the occasion to say it would increase lending to small and mid-size businesses by $5 billion next year over what it lent to them in 2009. JPMorgan Chase announced a similar increase in early November and recently experienced an increase in new applications for loans.

Wells Fargo said in a statement on Monday that it expected to increase lending in 2010 as much as 25 percent, to more than $16 billion, for firms with $20 million or less in annual revenue.

The banking executives promised Mr. Obama that they would take second looks at loans they had denied over the last year. Richard K. Davis, the chief executive of US Bancorp, told reporters after the meeting that the executives were aware of the public perception that they were profiting with hefty bonuses at taxpayer expense, and that they realized they were “under a microscope” and needed to align themselves more closely with the needs of consumers.

But he cautioned that banks had a responsibility to carefully evaluate the qualifications of each client, lest there be a repeat of the bad lending practices that contributed to the financial crisis to begin with.

“We simply want to assure that we make qualified loans,” he said.

White House officials acknowledged that beyond the legislation on Capitol Hill, the administration’s leverage to prod the bankers, particularly on lending, was limited. But Robert Gibbs, the White House spokesman, said that Mr. Obama would keep up the public pressure. “I think that the bully pulpit can be a powerful thing,” he said.

In calling the bankers to the White House, Mr. Obama was seeking to capitalize on public anger over the continuation of big bonuses for Wall Street executives, coupled with the slow pace of renewed lending by institutions bailed out by taxpayers.

During Monday’s meeting, Mr. Obama did not repeat the language he used in an interview on “60 Minutes” on CBS Sunday night, in which he termed the bank executives “fat cats.” During the meeting, “he didn’t call us any names,” Mr. Davis said, adding that “we agree viscerally that more lending needs to be done.”

But with the unemployment rate at 10 percent, the White House needs to move the conversation from visceral to specific, administration officials said. Mr. Obama pressed the bankers to come up with possible solutions, according to administration officials and industry officials. In contrast to the lecturing tones of a similar meeting last March, several people in attendance Monday described this session as more constructive.

“There were no pitchforks, no fat cat bankers,” said Mr. Rohr of PNC.

Several of the chief executives, armed with statistics about initiatives to hire new bankers, replied that they were very focused on lending. Some, like Mr. Davis of US Bancorp, raised ideas like giving a second look to previously denied loans. Others proposed cutting the red tape on Small Business Administration loans.

Mr. Obama will meet next week with representatives of smaller banks, where he is expected to sound similar tones.

The New York Times

[J]

Errr...make that $300 billion...

Yahoo news

House Democrats plan short-term debt-limit hike: aides

WASHINGTON (Reuters) – House of Representatives Democratic leaders aim to pass a short-term extension of the U.S. debt limit to avoid a government default and give lawmakers more time to try to cut the record federal deficit, aides said on Tuesday.

Leaders are considering a hike of roughly $300 billion to the nation's $12.1 trillion deficit, though the final figure has not been nailed down, congressional aides said on condition of anonymity.

Lawmakers hope to pass the debt-limit increase this week, along with a jobs-creation package.

Democratic leaders had previously hoped to raise the limit by at least $1.8 trillion, enough to take care of the government's debt needs through the November 2010 congressional elections.

The smaller debt hike would cover government borrowing for about two months. That gives Democrats more time to resolve competing plans to get the budget under control, but forces them to revisit the issue again amid rising public concerns about the budget deficit.

(Reporting by Thomas Ferraro and Andy Sullivan; Editing by Doina

It appears that someone, possibly China or Japan, gave the US government a very stern behind the scenes talking-to. Something along the lines of "we're not buying $1.8 trillion of green toilet paper".

[Grif]

The biggest problem here is the fact that the Republicans would have gone apeshit if tougher regulations were applied to the financial industry as a whole, instead of just the banks that took TARP money. So limits on executive pay and other behaviour were tied to TARP. Pay back TARP, and it's financial Tequila Time again.

Would the US government be obliged to bail them out again should the same financial trouble hits them again? It would be a never-ending cycle, with the only winners being the bankers.

[KrauserKrauser]

So in two months the bomb goes off?

Sounds like the time to short the market.

I've also heard that short term bond rates are near zero which may lay even more creedence to a big ole correction in the near future.

[Swindle1984]

With each day that passes, I am more and more convinced that the people running our government are completely insane, or actively evil and conspiring to destroy the nation. Or some combination of the two.

Then again, never blame on malice that which is adequately explained by incompetence. And sufficiently advanced incompetence is indistinguishable from malice.

I give it twenty years, tops, before we have another Depression, possibly with a revolt or two thrown in.

[Darth Wong]

With each day that passes, I am more and more convinced that the people running our government are completely insane, or actively evil and conspiring to destroy the nation. Or some combination of the two.

Then again, never blame on malice that which is adequately explained by incompetence. And sufficiently advanced incompetence is indistinguishable from malice.

I give it twenty years, tops, before we have another Depression, possibly with a revolt or two thrown in.

Don't be silly. I may not agree with the strategy, but I think any clear-eyed person can see what they're trying to do. They think they're slowly weaning America off the teat, but by definition, that requires keeping America on the teat for now. Unfortunately, the one thing that could have improved this process (heavy regulation of the banks) would never have gotten past stiff right-wing resistance in the government and even their own party.

[J]

And some moderately good news:

Citigroup to repay $20bn government rescue fund

Citigroup, one of the world's largest banks, said today it had agreed with the US Government to issue $20 billion (£12.3 billion) of new shares and debt to repay the American taxpayer for bailing it out during the financial crisis.

Hah! If a bank is paying back TARP money it means it's found a better way to fleece the government and taxpayers.

Washington Post link
Excerpt:

Federal tax law lets companies reduce taxable income in a good year by the amount of losses in bad years. But the law limits the transfer of those benefits to new ownership as a way of preventing profitable companies from buying losers to avoid taxes. Under the law, the government's sale of its 34 percent stake in Citigroup, combined with the company's recent sales of stock to raise money, qualified as a change in ownership.

The IRS notice issued Friday saves Citigroup from the consequences by stipulating that the government's share sale does not count toward the definition of an ownership change. The company, which pushed for the ruling, did not return calls for comment.

At the end of the third quarter, Citigroup said that the value of its past losses was about $38 billion, allowing it to avoid taxes on its next $38 billion in profits. Under normal IRS rules, a change in control would sharply reduce the amount of profits that Citigroup could shelter from taxes in any given year, making it much more difficult for Citigroup to realize the entire benefit before the tax breaks expired.

A quick check of the corporate tax brackets puts the potential tax write-offs at $15 billion or so. Nice. The tax exemptions plus all the hidden bailouts they received via AIG & other conduits total to well over $20 billion. Citi is effectively paying back TARP with the government's own money. I wish I could do that with my credit card.

Back on topic, sort of, so there's about two months till the US hits its new debt target...wonderful. They should call it a debt target since it's a number they aim for instead of something that you know, limits them.

[Qwerty 42]

I'm looking at the U.S. budget for this past year, and I'm curious, and hoping more learned board members could answer this, but where would the country even begin to lower its debt?

[LaCroix]

They could cut the big pie that goes into the military, but they have wars to fight, and if spending goes down, soldiers would be laid off and arm manufacturers are getting in trouble, laying off people. Also, there are these two wars to fight...

They could stop funding big companies (tax benefits, subsidies) but then those would go kabloey - less tax income.

They could raise taxes, but the people don't want that...

Basically, they can just hang on for the ride.

[Darth Wong]

I'm looking at the U.S. budget for this past year, and I'm curious, and hoping more learned board members could answer this, but where would the country even begin to lower its debt?

Raise taxes. Military cost savings are not really feasible because George W. Bush committed the country to vast expenditures on military operations which can't be easily curtailed, and even downsizing the military (which is not possible anyway due to the various messes GWB got the country into) would reap only limited financial gains because it takes so long to clean up and close down operations and you still have to pay contractual benefits to existing and former service personnel, not to mention contractors. You could shut down a hugely expensive weapons program boondoggle and you would still end up paying huge amounts of money.

So, that leaves tax increases. Americans have to grow up, start acting like adults, and accept that sometimes you have to actually pay your bills. Unfortunately, since they seem to reject this principle on a personal level, it's doubtful that they would accept it on a national level. Many Americans seem to honestly think that tax increases would be a form of tyranny tantamount to Hitler's Holocaust or Stalin's purges. It's like taking the worst spoiled crybaby from kindergarten and populating a country with 300 million of him.

[J]

I'm looking at the U.S. budget for this past year, and I'm curious, and hoping more learned board members could answer this, but where would the country even begin to lower its debt?

Raise taxes.

No no no, you have it all backwards, taxes must be lowered not raised. By lowering taxes we get companies to hire more workers and people to spend more money, thus boosting the economy and increasing tax revenues. The minimum wage also needs to be eliminated to stop labour outsourcing, and all illegal immigrants should be immediately deported or summarily executed. Then we shall have jobs for everyone and the US will be great again.


Serious answer? Stop the bailouts, raise taxes, start an actual jobs program, complete reform of healthcare and social security.

[Surlethe]

You know, another way to deal with debt is to not add anything to it and sit on it for a century. If the economy grows at 2% annually and you start at a debt of 100% GDP, after 40 years you're down to 50% GDP, and after 100 years it's a perfectly manageable 15% of GDP.

[J]

You know, another way to deal with debt is to not add anything to it and sit on it for a century.

Sorry, we don't have the time to do that, so we'll just print up $15 trillion or so and call it even, yah? Actually with modern electronic financing we don't even have to print any bills, we'll just punch a few extra zeros into the computers and voila, done!

[Surlethe]

Why don't we have time to do that?

[J]

Surly-pooh, have you forgotten that the US has a 2 year election cycle? If we can't get it done before mid-terms next year, it can't be done at all. Also note that I'm not being entirely serious.

[Surlethe]

Yeah, I know dropping the deficit to zero is not politically realistic, because that would entail doing what Mike suggested: raising taxes and cutting spending. If we could drop the deficit to zero in the long term, then the debt becomes a non-issue.

PS- Inflating it away will happen anyway, since the inflation rate is about 3%. Just tack that onto the real growth to get the nominal growth, and your debt goes away even faster!

[Mr Bean]

Yeah, I know dropping the deficit to zero is not politically realistic, because that would entail doing what Mike suggested: raising taxes and cutting spending. If we could drop the deficit to zero in the long term, then the debt becomes a non-issue.

The interest payments on the debt are a non-trivial amount of dollars each year. The Debt remains an issue until we can start running surpluses to pay it down.

[J]

PS- Inflating it away will happen anyway, since the inflation rate is about 3%. Just tack that onto the real growth to get the nominal growth, and your debt goes away even faster!

Well the problem now is we have neither real growth, nominal growth, nor inflation unless we use Enron accounting standards. That's a bit of a problem, non?

[Sea Skimmer]

Raise taxes. Military cost savings are not really feasible because George W. Bush committed the country to vast expenditures on military operations which can't be easily curtailed, and even downsizing the military (which is not possible anyway due to the various messes GWB got the country into) would reap only limited financial gains because it takes so long to clean up and close down operations and you still have to pay contractual benefits to existing and former service personnel, not to mention contractors. You could shut down a hugely expensive weapons program boondoggle and you would still end up paying huge amounts of money.

Military spending shouldn’t be a problem, regardless of the US’s ability to cut it. FY2010 US military budget including war supplemental bills is still only going to be about 5% of the GDP which is the highest it’s been since 1992…. But before then the US spent as much as twice that in some peacetime years in the Cold War. Most years it was around 6-7%. It isn’t the military budget that’s gone out of control, its everything else. Hell it used to be fifty years ago that military spending was half of all government spending period. Now it’s more like 20%. People just always look at the military, which includes healthcare and housing for millions of Americans among its budget items, because they don’t want to face reality that everything costs duckets.

I do love BTW all the people who are absurdly opposed to universal healthcare, but basically worship military service… the most socialist thing the US government does. The reality disconnect is near insurmountable. But as long as China holds trillions in US debt, they have a vested interest in selling us more for as long as they possibly can. Anything else would be a disaster for everyone, more so them even since they depend so much on exports. So I don’t think we will see any serious change in US debt policy, not in this administration anyway.