It's Started - "Terrible" Treasury Auction Exposes hole in Obama Economic Plan

from The Heritage Foundation

The U.S. Treasury auction of long-term bonds on Thursday was “terrible”, in the words of one Wall Street economist, with the rate on the 30 year bond jumping from 4.1 to 4.3 percent. This is just the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

The economic news is not all bad. We are seeing signs the rate of contraction is abating quickly, promising a bottom to the recession sometime this summer as many forecasters have expected. But therein lies another piece of the interest rate puzzle, and the trouble ahead.

There are two critical consequences to the economy stabilizing. The first is that the massive liquidity injected into credit markets by the Federal Reserve and central banks around the world transforms from economic medicine to inflationary heroin. Central banks are going to face a difficult task of extracting the excess liquidity before inflation soars and without causing another recession. Doubt about the fight against soaring inflation means higher inflation premiums in interest rates.

The second dangerous consequence is that President Obama is on course to double the national debt in just four years. After years of complaining about annual deficits of $300 billion or $400 billion and their effects on interest rates, liberal commentators are suddenly silent now that the deficit is heading toward $2 trillion under a liberal administration. But now the vaunted “crowding out” effect from government borrowing is almost a certainty, as are the resulting higher interest rates.

Healing financial markets and a stabilizing economy generally translate into higher interest rates for long-term, high-quality bonds like 30-year Treasuries. The effect of the projected massive government borrowing, however, is to drive interest rates as much as a full percentage point higher yet. This will mean higher interest rates for consumer loans, mortgage loans, business loans, etc. Instead of a 6.5 percent mortgage rate, home buyers will face a 7.5 percent rate. The debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

The release of the bank stress tests the same day and the expectation that credit markets would be quickly tapped by the banks to make up any capital deficiencies are certainly extenuating circumstances as we interpret the spike in Treasury rates. Even so, the Treasury auction signals real trouble ahead.
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Obama Owns This Financial Tsunami

There may be many parties responsible for our Economic Earthquake, but Obama will own the Financial Tsunami.

If you listen to Obama, the economic earthquake is over. All of this after Obama continually terrorized the American public with threats that if he wasn't allowed to immediately take extreme measures that the entire economy would collapse. Now, Obama is on his 'feel good' campaign to convince the American public that "He" has now put us onto the path of economic recovery.

But let's not start the economic recovery party just yet, there's someone at America's front door. It's the "Financial Tsunami." You know, the guy that sometimes shows up after being triggered by an economic earthquake. A financial tsunami that was triggered by staggeringly destructive economic decision making.

Hey, wait a minute! Obama only sounded the alarm bells about an economic earthquake. There was no mention about a Financial Tsunami. What gives?

Well, some might describe that as an "inconvenient truth." If Obama had mentioned that his actions taken after the economic earthquake might precipitate a financial Tsunami, he may not have been able to convince the American people to go along with the drastic measures that he and congress insisted had to be implemented in order for our economy to recover from the '100 year' economic earthquake.

But what about all the Economic Earthquake Experts that Obama has on his team? Shouldn't the experts have known this Tsunami would happen, and shouldn't they have warned us about its imminent arrival? Yes and yes.

The fact that these so-called economic earthquake experts failed to educate the American public about the possibility of a pending financial Tsunami can only be explained in two ways:

One - They're either stupid and aren't the experts they proclaim to be, or
Two - they intentionally misled the public in order to further their agenda

It may come as a surprise, but the following New York Times article actually indicates that the worst part of our economic situation may not be over with. It's also an indication that the "inconvenient truths" may be starting to surface in the Maimed Stream Media and that the consequences for the measures taken by Obama and Congress might have made things worse, especially for the long term.

Obama continues to spoon feed the American public his verbal opium. Obama and his staff are on a mission to ensure that the euphoria he created while campaigning for President continues. He knows it's the only way he can keep the American public at bay. He offered them his Messianic vision of hope and change, that had no substance, and brainwashed them into believing that they needed it.

The majority of Americans who voted for Obama still hang on his every word. However, regardless of his status of self-proclaimed Messiah, there will actually be a day of reckoning for even him.

Right now, Obama continues to stand on his Messianic stage. His supporters face him, jaws dropped, drooling uncontrollably. All the while, a financial Tsunami is racing up from behind them. Obama has chosen not to warn the unsuspecting masses.
Rees

Worries Rise on the Size of U.S. Debt
The nation’s debt clock is ticking faster than ever — and Wall Street is getting worried.
from The New York Time
By Graham Bowley and Jack Healy

As the Obama administration racks up an unprecedented spending bill for bank bailouts, Detroit rescues, health care overhauls and stimulus plans, the bond market is starting to push up the cost of trillions of dollars in borrowing for the government.

Already, in the first six months of this fiscal year, the federal deficit is running at $956.8 billion, or nearly one seventh of gross domestic product — levels not seen since World War II, according to Wrightson ICAP, a research firm.

The rising tab has prompted warnings from the Treasury that the Congressionally mandated debt ceiling of $12.1 trillion will most likely be breached in the second half of this year.

Last week, the Treasury Borrowing Advisory Committee, a group of industry officials that advises the Treasury on its financing needs, warned about the consequences of higher deficits at a time when tax revenues were “collapsing” by 14 percent in the first half of the fiscal year.

“Given the outlook for the economy, the cost of restoring a smoothly functioning financial system and the pending entitlement obligations to retiring baby boomers,” a report from the committee said, “the fiscal outlook is one of rapidly increasing debt in the years ahead.”

While the real long-term interest rate will not rise immediately, the committee concluded, “such a fiscal path could force real rates notably higher at some point in the future.”

The trouble is that government borrowing risks crowding out private investment, driving up interest rates and potentially slowing a recovery still trying to take hold. That is why the Federal Reserve announced an extraordinary policy this year to buy back existing long-term debt — $300 billion over six months — to drive down yields. The strategy worked for a while, but now the impact of that decision appears to be wearing off as long-term interest rates tick up again.

Then there is the concern that the interest the government must pay on its debt obligations may become unsustainable or weigh on future generations. The Congressional Budget Office expects interest payments to more than quadruple in the next decade as Washington borrows and spends, to $806 billion by 2019 from $172 billion next year.

“You’re just paying more and more interest and having to borrow more and more money to pay the interest,” said Charles S. Konigsberg, chief budget counsel for the Concord Coalition, which advocates lower deficits. “It diverts a tremendous amount of resources, of taxpayer dollars.”

One worry, however, is that there are fewer eager lenders to buy all that American debt. Most of the world is in recession, and other nations have rising borrowing needs as well. As other nations’ surpluses turn to deficits, America will face competition in global financial markets for its borrowing needs. For the moment, the United States is actually benefiting from a flight to quality into Treasuries brought on by the global financial crisis, which helped reduce rates to record lows this winter. But the influx will not continue forever.

China has lent immense sums to the United States — about two-thirds of its central bank’s $1.95 trillion in foreign reserves is believed to be in United States securities — but it has begun to voice concerns about America’s financial health.

To calm nerves and fill the deficit hole, the government is getting creative. The Treasury is ramping up its auction calendar, holding more frequent sales of government debt and selling the debt in expanded amounts. It is now holding sales of its 30-year bond each month, up from four times annually.

It is also resuscitating previously discontinued bonds, such as the seven-year note and the three-year note, to try to mop up any available money all along the yield curve. There is even talk of issuing billions of dollars of a new 50-year bond, though the idea has not won official approval.

On a second front, the Treasury and the Federal Reserve are trying to bolster the mechanics of the market — to make sure every auction goes smoothly. With such enormous sums involved, every extra basis point on the interest rate the government pays could mean extra billions of dollars for the taxpayer. Earlier this year, when demand was hesitant at a Treasury auction and when a British bond auction went poorly, investors grew nervous that the government might struggle to sell its mountain of debt.
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Our Border Guards can't wear surgical masks??? They're too intimidating???

Drinking With Bob really knows how make a point.

Our Border Guards can't wear surgical masks??? The masks are too intimidating???

Crisis Management For Dummies: The Obama Way

From: Temple CPA

Now, let me get this straight. Several hundred people get the flu in Mexico and 150 Mexican nationals die, now lowered to seven. A few Americans get the flu, 91 people at last count, but no one dies. A Mexican toddler did die in Houston, but had undisclosed other "underlying health issues."

Even before this number reportedly died, US Pravda, otherwise known as CNN, NBC, CBS, MSNBC, etc., hyped the "flu pandemic" story up to astronomical levels. Here we go again! The sky is falling, the sky is falling! BE SCARED! TERROR, TERROR! CRISIS! BE AFRAID! ...

Does anyone buy this line anymore? We have a pandemic alright, a "fear pandemic."

Are you aware that tens of thousands of U.S. citizens die each year from influenza? Excuse me a minute while I change my surgical particle mask and guzzle some more Tamiflu.

What happened to the Hope and Change and "the end of the politics of fear?" If we keep having so many crises, there's really no point in living. I feel like I'm cast in a never-ending soap opera, and I might as well end it all now.

But, is there possibly another motive behind all of this chicanery? As a result of each "crisis" immediate action had to be taken. After 9-11 we received the Patriot Act that allows warrantless government surveillance of not only foreigners but American citizens as well. Who needs the 4th Amendment anyway? We also received the Department of Homeland Security, another federal police force. DHS ignores millions of illegals and terrorists openly operating in the U.S. while labeling veterans and conservatives as "terrorists" or "right wing extremists." Exactly when did being right become extreme anyway?

Later, we had the "credit crisis" and we got TARP, or is that TRAP? As a result, the Federal Reserve, a private corporation which is as federal as Federal Express, leaves U.S. taxpayers on the hook for TRILLIONS of dollars without having to explain where the money went. That number is now over 12.8 TRILLION DOLLARS. The Federal Reserve has great power over the value of our money and the direction of our economy and yet does not have to disclose its operations to the American people. In fact, the Federal Reserve apparently doesn't have to answer to Congress, the President or anyone. There is currently pending in Congress H.B. 1207 calling for an audit of the Federal Reserve, something that has never occurred since its inception in 1913. The bill currently has 100 co-sponsors and may very well pass. I'm certain the foreign banker owners don't want this to happen. Cockroaches do tend to flee when the light switch is turned on!

Recently, the "stimulus" bill, another whopping $787 billion, passed because of the dire emergency. One thousand pages of eye-popping pork that not one congressman even read. The bill had to be passed right away or we would fall off the edge of the earth, even though "The One" didn't sign the legislation until 4 days after returning from his vacation.

Then, there was the uproar over the AIG bonuses. The public was instructed to focus on $165 million in bonuses to camouflage the 10s of billions that were shipped to foreign banks. Remember, they're the Fed, they transfer the money and you pay the amount back the amount lent, with interest of course. Move along there's nothing to see here.

Does anyone else see a pattern here? Everytime there is a "crisis" more of our rights are confiscated and we get the short end of the stick.

Maybe it's time that "we the people" start issuing terrorist alerts, with a focus on the domestic variety.

Apparently, we're supposed to be frightened out of our minds because of the flu and the media is now preparing the public for the potential of mandatory flu innoculations. TIME magazine is also soothing the public for this possibility. While discussing the mandatory flu vaccination debacle during President Ford's administration, the TIME article does have an interesting quote by Howard Markel, director of the Center for the History of Medicine at the University of Michigan. Markel states, "the political climate in the U.S. is much less combustible today than in the post-Watergate era, when Ford faced a skeptical public. Even so, he says, citizens still need to trust that the government is working for the greater good." What planet is this guy from?

Now, the federal government has chosen Baxter International to develop a vaccine for the swine flu. Never heard of Baxter? Why this is the same company that gave the world HIV infected treatments in the 1980s and more recently sent live avian flu in vaccinations to 18 European countries. I feel safer already.

So what are we supposed to ignore while focusing on this latest "crisis?" Does the government not want you to focus on the dismal quarterly economic data? The continued rising unemployment? This week's vote on the preposterous $3.5 trillion budget? Forget about the concerns over the unbridled Federal Reserve?

Oh, I forgot. I'm not supposed to think. I'm supposed to be terrified.

Can I have another sip of that Kool-Aid?

Drew

Another Slippery Slope - Why don't we just get it over with and let Obama control everything? This is like dieing from paper cuts!

According to Obama, all the actions he has taken are now starting to take effect and the situation is slowly starting to improve. If this is the case, why do they need these additional powers?

This is financial terrorism.

Rees

Obama Seeks Expanded Power to Seize Firms

Goal Is to Limit Risk to Broader Economy

By Binyamin Appelbaum and David Cho

Washington Post Staff Writers

Tuesday, March 24, 2009; A01

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

The government at present has the authority to seize only banks.

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president's Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

The administration plans to send legislation to Capitol Hill this week. Sources cautioned that the details, including the Treasury's role, are still in flux.

Treasury Secretary Timothy F. Geithner is set to argue for the new powers at a hearing today on Capitol Hill about the furor over bonuses paid to executives at American International Group, which the government has propped up with about $180 billion in federal aid. Administration officials have said that the proposed authority would have allowed them to seize AIG last fall and wind down its operations at less cost to taxpayers.

The administration's proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed's other responsibilities, particularly its control over monetary policy.

The government also would assume the authority to seize such firms if they totter toward failure.

Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG's most troubled unit.
The Treasury secretary could act only after consulting with the president and getting a recommendation from two-thirds of the Federal Reserve Board, according to the plan.

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Terence Corcoran: Is this the end of America? A Canadian Perspective

U.S. law-making is riddled with slapdash, incompetence and gamesmanship

By Terence Corcoran

from The National Post

Helicopter Ben Bernanke’s Federal Reserve is dropping trillions of fresh paper dollars on the world economy, the President of the United States is cracking jokes on late night comedy shows, his energy minister is threatening a trade war over carbon emissions, his treasury secretary is dithering over a banking reform program amid rising concerns over his competence and a monumentally dysfunctional U.S. Congress is launching another public jihad against corporations and bankers.

As an aghast world — from China to Chicago and Chihuahua — watches, the circus-like U.S. political system seems to be declining into near chaos. Through it all, stock and financial markets are paralyzed. The more the policy regime does, the worse the outlook gets. The multi-ringed spectacle raises a disturbing question in many minds: Is this the end of America?

Probably not. The U.S. economy has pulled out of self-destructive political spirals in the past, spurred on by its business class and corporate leaders, the profit-making and market-creating people who rose above the political turmoil to once again lift the world out of financial crisis. It’s happened many times before, except for once, when it took 20 years to rise out of the Great Depression.

Past success, however, is no guarantee of future recovery, especially now when there are daily disasters and new indicators of political breakdown. All developments are not disasters in themselves. The AIG bonus firestorm is a diversion from real issues , but it puts the ghastly political classes who make U.S. law on display for what they are: ageing self-serving demagogues who have spent decades warping the U.S. political system for their own ends. We see the system up close, law-making that is riddled with slapdash, incompetence and gamesmanship.

One test of whether we are witnessing the end of America is how many more times Americans put up with congressional show trials of individual business people and their employees, slandering and vilifying them for their actions and motives. And for how long will they tolerate a President who berates business and corporations as dens of crime and malfeasance? If the majority of Americans come to accept the caricatures of business as true, then America is closer to the end of its life as a global leader, as a champion of markets and individualism.

But America is at risk in other ways, especially in the technical business of setting and executing policy. The presidency of Barack Obama has set out on a course that has no precedent in U.S. history. Franklin D. Roosevelt, whose New Deal transformed the U.S. economy during the Great Depression, pushed America off on a sharply different political and ideological course. The Obama administration is different in many ways, not least in its supreme self-confidence in its methods and objectives.

Reform of health care, environmental policy, education, energy, banking, regulation — every nook and cranny of the U.S. economy has been put on alert for major change. Expansion of government spending, plunging the U.S. into unprecedented deficits, is without parallel. In economic policy, through regulation and control of energy output, financial services and monetary expansion, the U.S. government has embarked on a fundamental reshaping of America. It is designed, in short, to bring on the end of America.

The spillover effect of all this on the rest of the world promises to be dramatically disruptive. The greatest global risk is in monetary and currency policy. Below is a chart that graphically demonstrates the sharp deviation in monetary policy from past norms. Under the chairmanship of Ben Bernanke, the Federal Reserve is in the midst of a giant economic experiment, flooding the world with U.S. dollars, hoping that flood will stimulate economic activity.

The total monetary base, already at astronomical levels, is now expected to take another big hit with the new Fed policy of buying up U.S. longer-term treasury bills in a bid to drive down long-term interest rates.

Mr. Bernanke is sometimes known as “Helicopter Ben” because he once in an academic paper referred to the use of “helicopters” full of money to rescue an economy from deflation. In comments Wednesday to explain the Fed’s new policy of buying $300-billion in U.S. treasury bills, Mr. Bernanke noted that the Fed is now more worried about inflation being too low than about it getting too high in the future.

For the rest of the world, however, the worry is that America is at risk of becoming the fountainhead of a new inflationary outburst. The U.S. dollar is now in decline, gold is moving sharply higher, and new global currency turmoil is on the horizon.

It may not happen. A paper just published by the Federal Reserve Bank of St. Louis, source of the chart above, says that the Fed will have to be prepared to absorb all the excess money it has poured into the U.S. economy. It will be a technical and political challenge unlike any central bank has ever undertaken. The future of America is at stake.

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Locked Out of Refinancing

As Rates Dip, Some Find They Don't Qualify

Action by the Federal Reserve is driving mortgage rates to historic lows, but many borrowers will be left out.
(By Robert F. Bukaty -- Associated Press)

By Dina ElBoghdady and Renae Merle
Washington Post Staff Writers
Saturday, March 21, 2009;

The Federal Reserve's huge gesture this week to keep already-low mortgage rates down seems to be working.

The average rate on a 30-year, fixed-rate mortgage was 5.15 percent when the Fed announced its plans midweek, slipped to 4.94 on Thursday then rose to 5 percent yesterday and chances are it will stay around there through year's end, according to HSH Associates, a mortgage research firm.

But not everybody will be able to get a break, especially people who do not have a lot of equity in their homes -- one of the biggest problems facing owners now as housing values drop. Even though the Obama administration recently rolled out a program to help such borrowers, many will be left out because they cannot meet the plan's minimum requirements.
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