Saturday, January 08, 2011

US Dollar Collapse: Mess continued: Geithner Urges Debt Limit Increase, Warns of Default Risk if No Action tnr.v, grc.to, auy, sgc.v, ngq.to, ktn.v, rvm.to, mgn, asm.v, epz.v, fvi.to, bva.v, bvg.v, laq.v, mxr.to, slw, cgp.v, btt.v, gbn.v, abn.v, ura.v,

  

  Mess continued - Now Paul Volcker is gone. We guess, that nobody will be taking Inflation seriously any more. Volcker Rule to separate banks, depositors and bankers trading on margin with depositors money for their bonuses was diluted and republican congress now does not left any hope. Go Federal Express, sorry Federal Reserve, when Goldman Sachs will make its IPO?

  We have called it The End of Money before:

"We have the very strong complications with FED engaged in QE in a situation, when Federal Reserve is as federal as Federal Express. In absence of Gold - as the base for the monetary system - with it's external disciple, we have a traders paradise, when Enron is auditing itself. Arthur Anderson has not saved the shareholders of Enron and collapsed with it's client - today in our monetary system nobody even pretends to be sane any more."


  The recent history aberration happened in August 1971 when for the first time in known history of the mankind for the last 5000 years the money became a pure FIAT and seized to be backed by the Gold. US Dollar was cut lose from its royal bloodline of gold credibility and from that moment nothing was the guarantee of its value apart from the credibility of the government. So now for the last 40 years everybody decides for themselves how strong is their belief in self constrained politicians - gold and silver seems to be in doubt. The situation is getting more complicated, when you realise that the dollar has nothing to do with the US elected President and its government and issued by the privately held by banks FED - Federal Reserve, which is as Federal as Federal Express. Another interesting thing will be that every dollar issued is debt effectively to FED in the end and now total debt of U.S. Corp. is close to 100% of GDP.

   It is not the charity by all means and interest rates will go up on the record amount of debt, move will be gradual in order not to break subjects' backs and keep them running the treadmill.
  Gold and Silver breaks the circle, you are taking your wealth out of base for monetary multiplication and protect yourself from inflation tax, but you need to have the capital to step up to the plate.

  Inflation as a function of monetary expansion, which gold is indicating and raising debt is fueling on, will strike most at those who are constantly in need: who spends on food and energy most of their income. It is the hidden tax on poor and middle class - rising energy and food prices will cut disproportionally into their  tight budgets.
  Oil keeps servitude going day in and day out, stop the pump and everything stops, bring the Oil price to 150 dollars and you have 2008 all over again. Now we are already close to 100 dollars and we are still in the housing free fall state.

  Electric Cars break servitude to the Oil gang and stop the "opium trade" - you and your community can brake the circle and charge from the grid, local sources of Solar and Wind etc. It is much more than pure Electric feel, it is the matter of survival.
  After Oil reach 150 dollars the questions about range and battery cost will be irrelevant, you will be just happy to drive.
  Peak Oil, admitted now by U.S. Energy Secretary Steven Chu means that the half is already gone and we still need oil to move to post carbon society - it is not about money any more, but about integrity of the society as we know it.


"All those QE exercises, which we have discussed above, will unleash a very powerful force of Inflation all around the world. The new most powerful trend in 21st century will be the Energy or lack of it to drive the world and its population forward. All recent progress is based on relatively cheap energy available to us for the last one hundred years. The chart above is from the latest groundbreaking revelations of International Energy Agency - it shows to us that we do not have that luxury any more. Cheap oil is gone - according to the IEA - and "Crude Oil: fields yet to be found - is the politically correct way of saying Oil Shortage. We have now Population Growth multiplied by Peak Oil and Inflation, which will push all prices higher."


Bloomberg:


Treasury Secretary Timothy F. Geithner said lawmakers must raise the federal borrowing limit in the first quarter of 2011 or risk a default on U.S. debt and a loss of access to global credit markets.

A failure to act would cause “catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009,” Geithner said in a letter to Speaker of the House John Boehner, Senate Majority Leader Harry Reid and all other members of Congress. Lawmakers should act before a default becomes “imminent” because damage from even a short-term disruption “would last for decades.”

The Treasury estimates the debt limit could be reached as early as March 31, and “most likely” between that date and May 16. The limit stands at $14.29 trillion, leaving about $335 billion of “headroom,” Geithner’s letter said.

Boehner, a Republican from Ohio, said in a statement Congress needs to pair a debt-limit increase with spending cuts and changes to a “broken” budget process. He said the country can’t afford default or to “recklessly” keep borrowing.

“The American people will not stand for such an increase unless it is accompanied by meaningful action by the President and Congress to cut spending and end the job-killing spending binge in Washington,” Boehner said.

Geithner said that even with the kinds of spending cuts under discussion, like reverting to spending levels from fiscal year 2008, “the need to increase the debt limit would be delayed by no more than two weeks.”


The Treasury chief also said his department’s toolkit of emergency measures, such as tapping some government retirement funds and suspending some types of intergovernmental lending, would delay a debt ceiling breach “by several weeks.” At that point, he said, “no remaining legal and prudent measures” would be available and the U.S. would start to default.

Obama administration officials said they want to separate the debt limit from other fiscal-policy concerns. In a briefing with reporters today, a Treasury official predicted Congress would act to avert a crisis.

The debt limit should be resolved without being tied to long-term fiscal issues including spending and taxes, the Treasury official told reporters. Lawmakers will probably agree to raise the limit because of the consequences of the idea that the U.S. could default, the official said.

Federal Deficit

The U.S. had a $1.3 trillion budget deficit in fiscal year 2010, which ended Sept. 30. President Barack Obama’s debt- reduction panel failed last month to agree on recommendations for ways to reduce the annual deficit to about $400 billion in 2015.

Lawmakers are likely to wait “until the last minute” to pull back from the brink, said Stephen Stanley, chief economist at Pierpont Securities LLC. He predicted the House would seek to win concessions from the Senate and the White House by using the debt ceiling as leverage.

“Usually, the debt limit hike is more of a rhetorical than substantive debate, a painful vote that has to be done but nothing more than an opportunity to score political points,” Stanley said in an e-mail to Bloomberg. “This time, obtaining passage will be more complicated because it will be tied to substantive budget policy.”

The White House declined to respond directly to Boehner’s statement and pointed to comments by spokesman Robert Gibbs today on MSNBC’s “The Daily Rundown.”

‘Adult Conversation’

Last year, Boehner said the government is “going to have an adult conversation around the debt ceiling,” Gibbs said on the program, according to a transcript. “We’re going to have to -- because Republicans and I think the speaker understands, he’s got responsibilities.”

Gibbs wouldn’t rule out linking a debt-ceiling vote to restrictions on spending, saying the conversation “is going to start before and end well after the debt-ceiling vote about how we get our fiscal house in order.”

House Budget Committee Chairman Paul Ryan said a short-term debt ceiling increase may be part of the GOP strategy to force spending control. Regarding Obama, he said it’s “his choice” if he were to refuse to sign a bill that contained a debt-limit increase, creating the risk of default. He said lawmakers and the administration can negotiate how long any debt ceiling increase might last.

Spending Controls

“Do I want to see this nation default? No,” Ryan said at a National Press Club event today. “I want to see that we get substantial spending cuts and spending controls in exchange for raising the debt ceiling.”

Ryan said he would not support a “naked” debt limit increase. “Nobody likes brinksmanship, but what we really don’t like is runaway spending that’s threatening this country,” he said.

Geithner’s letter tackles Republican “misconceptions” that the debt ceiling is tied to spending cuts, said Stan Collender, a former congressional budget aide and now managing director of Qorvis Communications in Washington. “The Treasury Secretary is saying in this letter that, when it comes to the debt ceiling, the GOP is wearing no clothes,” he said.

To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net;

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