Good Credit by Good Faith!?

Thursday, February 26th
2215 hrs...

I've gotten quite a few emails (some of you whom I know
and some who I don't) blaming me for excessively ranting.
Once again, I'm trying to wake up people to the reality
that is. Ignoring it (just like some people ignore their
credit card bills) and not worrying about it or raising
voices against it is the reason why we are in this miss.
Here's a site you should visit :

www.right.org/welcome

All things considered, academically, I would not pass
for a rookie economist, and in that sense, have no real
proscenium to stand upon and talk Economics. All this is
simply a wake up call to many that might not get a chance
to fully realize the gravity of our current situation.

---

Creating a budget whether for a home, commmunity organization,
city, state nation is a complicated thing. The more complex
the internal interactions, the greater the variation. You
couple that with the slew of higher numbers of assumptions
you need to make and things can start to get out of hand
very quickly.

Here are some things about the new Federal budget:

- In 2009, GDP will grow by 1.2%
- Unemployment rate will be 8.1%
- Will end subsidies to people lending for student loans

Deficit of 1.75 Trillion is around 12% of GDP. That's about
an increase of 20% in National Debt. Here's a question for
our collective national fiscal conscience : How have we,
as a nation, become so presumptious to assume that we can
actually borrow more? How do we know that foreigners will
keep on with our profligate ways instead of worrying about
their own economies?

We've shown a pattern here : deficit spending, spending on
houses thanks to a slew of fraudulent practices along the
entire line, leveraging the spending on homes through
equity lines of credit..the damn truth is that it runs
right through to the Federal Government. Hell, Hillary
Clinton went to China and told them to keep buying our
paper!!

Have you ever sat back and wondered why it may be the
case that many US corporations are in the bail out lines?
Have you thought about why US corporate bond sales are
not going well?

The Fed gave low interest rates. Low interest rates gave
us cheap loans. Cheap loans made people lie abut their
income. Income that was real was hidden by Liar Loans.
Liar loans were repackaged and sold with good Credit
ratings. Credit rating agencies were in cahoots with
banks that repackaged the loans made possible by the
laxity of regulators. The regulators now sit in Washington
DC and blame the banks etc,. while promoting their own
grandstanding. The grandstanding play now is shown
all over the world as the resolution of Washington to
fix things. Things like this are not easily fixed...

Private capital is the real life-blood this economy
and it has now fled from our capital markets. The deceit
and corruption that went on while our regulators slept
has been recognized. Our government cannot fix the
economy by releasing another variant of the alphabet
soup, plans about plans, backstopping banks by
converting preferred debt into common stocks so that
they can pass the so-called "stress test".

I'm of the opinion that there is a greater probability
now that we are entering into a depression that will
be far worse than the one that the world witnessed
in the 1930s. I HOPE I AM WRONG!

Here's a scary scenario (50K feet) : Foreign investors
are wary of a lot of US domiciled debt so its very
likely that much of corporate debt will have to have
riders attached to them about being backed by the
"good faith" of the US government. The government
will start to run greater deficits (because of some
assinine assumption - look above!) and very soon
the yields required to sell debt of all varieties
will sky rocket. Higher yields required to sell
bonds combined with deteriorating quality in the
economy will act as a noose around companies that are
leveraged. At least 15% of the companies in the
SP500 will go bust. There will be widespread job
losses, unemployment goes hard through the 10-12%
number....

.....bleak picture.