Don't forget the wine!
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We're Worrying About the Wrong Deficit
Wednesday, April 13, 2011
http://finance.yahoo.com/banking-bu...-budgeting&sec=topStories&pos=9&asset=&ccode=
Commentary: The danger of borrowing reckless from foreigners
WASHINGTON (MarketWatch) — Everyone's panicking about the deficit, demanding immediate action to bring it under control before it destroys the economy.
That's understandable, but they're worried about the wrong deficit.
Instead of obsessing over the federal government's deficit, they should be recoiling with horror at the nation's deficit with the rest of the world. It's the current account deficit that's the greater problem, because that's money that we owe to foreigners, not to each other.
If we ran a current account surplus, as Japan does, our level of public debt would be much easier to manage.
It's absolutely true that having too much debt can cripple the economy, especially if the amount needed to service the debt grows faster than the economy does. The 2008 financial panic shows what can happen when households foolishly take on more debt than they can handle to buy speculative assets.
The 2008 global recession was sparked by too much American debt, but it was debt from the private sector, not government, that was the problem.
Annual borrowing by the private sector — households, companies and banks — doubled from 2001 to 2007, rising from $1.9 trillion to $3.9 trillion. Government deficits also increased during that time, but by much less — from $100 billion to $428 billion.
And then the economy crashed. Households, banks and companies drastically reduced their borrowing, even as the federal government took on more. Despite the surge in government deficits to $1.7 trillion in 2010, total domestic borrowing (public plus private) slowed to just $650 billion in 2010 from more than $4 trillion in 2007, because the private sector paid off — or wrote off — more than $1 trillion worth of debt.
Whether it's $650 billion or $4 trillion, that's an awful lot of debt. But it's important to keep in mind that one person's liability is another person's asset, one person's debt-service payment is another's income. For the country as a whole, this debt has offsetting costs and benefits (as long as it's repaid, that is).
It's often said that the $14 trillion federal debt represents an awful curse on our children, but it's easy to forget that it also represents a tremendous blessing of wealth for this and coming generations.
For instance, workers and retirees have $2.6 trillion in Treasury bonds set aside for their benefit in the Social Security trust funds. Yes, taxpayers will have to pay to redeem those bonds, but the proceeds will go right back to the people who have paid extra taxes for the past 30 years to build up the trust fund. And those proceeds will be spent — for the most part — inside the United States, boosting aggregate demand.
Debt isn't all negative.
Unfortunately for us, the Chinese and other foreigners also have a tremendous amount of "our" wealth set aside for their benefit. As of the end of January, Chinese held $1.3 trillion in Treasury securities, and about $800 billion in other U.S. financial assets. All told, foreigners own about $11 trillion in U.S. financial assets, including $4.4 trillion in government securities. In addition, foreigners have invested more than $2 trillion directly in U.S. businesses.
How did foreigners come to own so much of America's wealth? By selling more stuff to us than we sell to them. Because we have a persistent trade deficit, every year they send us oil, cars and poorly made useless things, and we send them hundreds of billions of dollars, which they use to buy up pieces of America — Treasury bonds, equities, mortgage-backed securities, and controlling stakes in American companies.
Since 2001, our current account deficit has totaled $5.8 trillion. That's how much capital we've had to import from abroad to fuel our investment and consumption. It's the difference between how much we spend and how much we earn.
Running a current account deficit isn't necessarily a bad thing, just as taking on debt isn't necessarily a bad thing. It all depends on what you do with the money.
If it's invested productively, a current account deficit can help a country grow faster. In that case, the debt to foreigners can easily be repaid because the economic pie is bigger. But if the foreign capital is invested unwisely (think for instance, of the housing bubble), or used to support a consumption binge or reckless fiscal policy, a current account deficit won't help the economy grow.
In that case, paying off the debt becomes impossible, and selling assets becomes essential. You're well on the way to becoming a banana republic.
Wednesday, April 13, 2011
http://finance.yahoo.com/banking-bu...-budgeting&sec=topStories&pos=9&asset=&ccode=
Commentary: The danger of borrowing reckless from foreigners
WASHINGTON (MarketWatch) — Everyone's panicking about the deficit, demanding immediate action to bring it under control before it destroys the economy.
That's understandable, but they're worried about the wrong deficit.
Instead of obsessing over the federal government's deficit, they should be recoiling with horror at the nation's deficit with the rest of the world. It's the current account deficit that's the greater problem, because that's money that we owe to foreigners, not to each other.
If we ran a current account surplus, as Japan does, our level of public debt would be much easier to manage.
It's absolutely true that having too much debt can cripple the economy, especially if the amount needed to service the debt grows faster than the economy does. The 2008 financial panic shows what can happen when households foolishly take on more debt than they can handle to buy speculative assets.
The 2008 global recession was sparked by too much American debt, but it was debt from the private sector, not government, that was the problem.
Annual borrowing by the private sector — households, companies and banks — doubled from 2001 to 2007, rising from $1.9 trillion to $3.9 trillion. Government deficits also increased during that time, but by much less — from $100 billion to $428 billion.
And then the economy crashed. Households, banks and companies drastically reduced their borrowing, even as the federal government took on more. Despite the surge in government deficits to $1.7 trillion in 2010, total domestic borrowing (public plus private) slowed to just $650 billion in 2010 from more than $4 trillion in 2007, because the private sector paid off — or wrote off — more than $1 trillion worth of debt.
Whether it's $650 billion or $4 trillion, that's an awful lot of debt. But it's important to keep in mind that one person's liability is another person's asset, one person's debt-service payment is another's income. For the country as a whole, this debt has offsetting costs and benefits (as long as it's repaid, that is).
It's often said that the $14 trillion federal debt represents an awful curse on our children, but it's easy to forget that it also represents a tremendous blessing of wealth for this and coming generations.
For instance, workers and retirees have $2.6 trillion in Treasury bonds set aside for their benefit in the Social Security trust funds. Yes, taxpayers will have to pay to redeem those bonds, but the proceeds will go right back to the people who have paid extra taxes for the past 30 years to build up the trust fund. And those proceeds will be spent — for the most part — inside the United States, boosting aggregate demand.
Debt isn't all negative.
Unfortunately for us, the Chinese and other foreigners also have a tremendous amount of "our" wealth set aside for their benefit. As of the end of January, Chinese held $1.3 trillion in Treasury securities, and about $800 billion in other U.S. financial assets. All told, foreigners own about $11 trillion in U.S. financial assets, including $4.4 trillion in government securities. In addition, foreigners have invested more than $2 trillion directly in U.S. businesses.
How did foreigners come to own so much of America's wealth? By selling more stuff to us than we sell to them. Because we have a persistent trade deficit, every year they send us oil, cars and poorly made useless things, and we send them hundreds of billions of dollars, which they use to buy up pieces of America — Treasury bonds, equities, mortgage-backed securities, and controlling stakes in American companies.
Since 2001, our current account deficit has totaled $5.8 trillion. That's how much capital we've had to import from abroad to fuel our investment and consumption. It's the difference between how much we spend and how much we earn.
Running a current account deficit isn't necessarily a bad thing, just as taking on debt isn't necessarily a bad thing. It all depends on what you do with the money.
If it's invested productively, a current account deficit can help a country grow faster. In that case, the debt to foreigners can easily be repaid because the economic pie is bigger. But if the foreign capital is invested unwisely (think for instance, of the housing bubble), or used to support a consumption binge or reckless fiscal policy, a current account deficit won't help the economy grow.
In that case, paying off the debt becomes impossible, and selling assets becomes essential. You're well on the way to becoming a banana republic.
Approaching the Keynesian Endpoint unfortunately. Hard lessons ahead IMO.
Lest we forget the NYSE was just sold off to a German company. Firesale in the US Banana Republic A. Like scavengers picking the meat off a dead carcass.
Lest we forget the NYSE was just sold off to a German company. Firesale in the US Banana Republic A. Like scavengers picking the meat off a dead carcass.
M
Mountain
Paying off the debt at this point is impossible. I live in the mountains and no bananas around here so guess I'm screwed.
M
Mountain
Frikkin Chesapeake buys Bronco Drilling. Just about a perfect entry then bam! If I was holding a different month at that strike price would have been like a fantastic two day turn instead ho-hum. Sometimes you can't win when winning...lol!
I'll second the "Frikking Chesapeake." Pain in the ass they are.
M
Mountain
When they bought BRNC it removed the premium I had on those calls. I woke up and was like...cool...look at that nice pop...what is that...then quickly realized there was no long term potential gain and saw that the premium evaporated and exclaimed...&$@*...lol! Was also looking at PDS, PDC and UNT and I picked the wrong 'horse'. If I picked an earlier month for the expiration at that strike price would have been like a 1,000% gain in 2 days and instead I get like 20%.
It's ALWAYS something!
Lol damn. Nice percentages! Chesapeake's Campus in Oklahoma is incredible. It looks like a top tier university.
Funny video I found. It's a good dramatization of me trying to trade.
E*Trade Baby Turns Momo, Blows It All
Funny video I found. It's a good dramatization of me trying to trade.
E*Trade Baby Turns Momo, Blows It All
M
Mountain
LOL...classic! With options multiply that times 10...but Wall Street is all about derivatives now...eh? Frikkin Chesapeake messed with my Friday. I just gotta laugh it off.Funny video I found. It's a good dramatization of me trying to trade.
E*Trade Baby Turns Momo, Blows It All
I held 2 short contracts over the weekend, turned out to be a $1700 trade. It was just a matter of luck, I wasn't suspecting the S&P US credit rating outlook downgrade.
I don't blame them for the outlook downgrade, how many people could really say it was a suprise. Congess can barely agree to cut 4 trillion over 10 years when the deficit this year alone is almost 2 trillion.
All the experts say the US can't default on its debt since its all USD based debt. What they don't say is that if they inflate, which is what they are doing, everyone holding debt looses cause the dollars won't have any buying power.
I don't blame them for the outlook downgrade, how many people could really say it was a suprise. Congess can barely agree to cut 4 trillion over 10 years when the deficit this year alone is almost 2 trillion.
All the experts say the US can't default on its debt since its all USD based debt. What they don't say is that if they inflate, which is what they are doing, everyone holding debt looses cause the dollars won't have any buying power.
M
Mountain
From what I understand, and Gramps can correct me, is a way for the government to reduce the debt is to devalue the dollar. So they still pay what they owe but what their paying with is worth less, worthless actually...lol.
Nice trade Sam...my luck went the other way on the contracts I held. In the market ANYTHING can happen. I went conservative with that position playing it safe and went far out and that's what hurt me. If I had taken that exact same position for the April contracts, which just expired, instead I would have been sitting very pretty but was definitely a gamble with only 3 days for the stock to move above the strike price from where it was at.
Doing this burns bridges with the folks holding the debt because they won't be buying any more in the future for sure. Hell, the only one still buying out debt is the fed res. Before long, congress will be having to raise the debt ceiling every day.
Correct. We won't default on the debt. We are monetizing the debt. It's the last refuge of failed monteray systems. The charade works for a little while, but eventually the currency is destroyed. This is what is happening now. Once we lose reserve currency status (we already kind of are starting too as per George Soros and I agree with him) then the fireworks are going to really start.
As it stands now we have acquired so much debt under zero percent interest policy (ZIRP) that a return to normal monetary policy with normal interest rates is impossible IMO. We are still in denial about our insolvency, but the market will eventually make this known to all.
I think the tipping point is when oil starts trading in other currencies.
China and Russia are already trading without the USD, soon India and Brazil will follow and probably the French too. When everyone else starts to follow suit the USD will only be for americans. The inflation will be exponential because all of the dollars from all over the world will be flooding into the United States while the printing presses are running at full capacity.
China and Russia are already trading without the USD, soon India and Brazil will follow and probably the French too. When everyone else starts to follow suit the USD will only be for americans. The inflation will be exponential because all of the dollars from all over the world will be flooding into the United States while the printing presses are running at full capacity.
Market getting slaughtered today. Silver and Gold up nicely though.
Europe's insolvency is back on the front pages again. It's funny how it comes and goes as everyone tries to ignore the 800lb guerrilla in the room.
Europe's insolvency is back on the front pages again. It's funny how it comes and goes as everyone tries to ignore the 800lb guerrilla in the room.
I concur 100%. Trainwreck starting to happen.
I found a picture of Ben Bernanke right after S&P cut the debt outlook of the US from stable to negative today.
Too funny, what a tool he is. I bet he has a teleprompter in his contact lenses with a direct line from his overlord's secretary.
More fallout from Japan, Morgan Stanley in one of the largest Defaults ($3Bil !!) in Japan's history on their huge Tokyo building , they just handed back the keys .
Tokyo's location is just too risky
Morgan Stanley fund fails to repay debt on Tokyo property
http://news.yahoo.com/s/nm/20110415/bs_nm/us_morgan_stanley_real_estate
By Junko Fujita Junko Fujita – Fri Apr 15, 1:30 pm ET
TOKYO (Reuters) – A Morgan Stanley property fund failed to make $3.3 billion in debt payments by a deadline on Friday, handing over the keys to a central Tokyo office building to Blackstone (BX.N) and other investors, the largest repayment failure of its kind in Japan.
It marks the latest fallout from a series of highly leveraged investments by Morgan Stanley (MS.N), one of the most aggressive investors in worldwide property markets before the global financial crisis.
The $4.2 billion MSREF V real estate fund missed its April 15 deadline to repay 278 billion yen($3.3 billion) worth of debt packaged in commercial mortgage-backed securities on the 32-storey Shinagawa Grand Central Tower, a property which has seen its value plunge, two people involved in the transaction said.
They spoke on condition of anonymity due to the sensitive nature of the matter.
A Morgan Stanley spokeswoman in Tokyo declined to comment. A New York based spokesman for Blackstone, which holds the most junior portion of the debt and gains the right to market the building for seven months, was not immediately available for comment.
This is the largest repayment failure of debt packaged in CMBS in Japan, according to analysts and industry experts, bigger than the 112 billion yen that real estate investor K.K. daVinci Holdings failed to pay on the Pacific Century Place office building.
Tokyo's location is just too risky
Morgan Stanley fund fails to repay debt on Tokyo property
http://news.yahoo.com/s/nm/20110415/bs_nm/us_morgan_stanley_real_estate
By Junko Fujita Junko Fujita – Fri Apr 15, 1:30 pm ET
TOKYO (Reuters) – A Morgan Stanley property fund failed to make $3.3 billion in debt payments by a deadline on Friday, handing over the keys to a central Tokyo office building to Blackstone (BX.N) and other investors, the largest repayment failure of its kind in Japan.
It marks the latest fallout from a series of highly leveraged investments by Morgan Stanley (MS.N), one of the most aggressive investors in worldwide property markets before the global financial crisis.
The $4.2 billion MSREF V real estate fund missed its April 15 deadline to repay 278 billion yen($3.3 billion) worth of debt packaged in commercial mortgage-backed securities on the 32-storey Shinagawa Grand Central Tower, a property which has seen its value plunge, two people involved in the transaction said.
They spoke on condition of anonymity due to the sensitive nature of the matter.
A Morgan Stanley spokeswoman in Tokyo declined to comment. A New York based spokesman for Blackstone, which holds the most junior portion of the debt and gains the right to market the building for seven months, was not immediately available for comment.
This is the largest repayment failure of debt packaged in CMBS in Japan, according to analysts and industry experts, bigger than the 112 billion yen that real estate investor K.K. daVinci Holdings failed to pay on the Pacific Century Place office building.
