David Stockman Says US Has "Run Out Of Runway" On Debt, Compares The Treasury Market To A "Roach Hotel", Endorses A Tobin Tax 

Submitted by Tyler Durden on 05/18/2011 14:54 -0400

David Stockman has become every major news organization's (and CNBC) go to critic when it comes to bashing each stupid idea currently preoccupying the DC C-grade soap opera artists. Obviously, at the current time this would mean the budget deficit and the debt ceiling. On both those issues, Stockman's position is well-known. Today, when asked by Bloomberg's Tom Keene to compare the current deficit with that of Reagan's, Stockman spares no praise: "The essential distinction is that we had a clean balance sheet then - $1 trillion of national debt. Today we have $14 trillion in national debt.  We have used up all the runway, so to speak. We have piled our national balance sheet with so much debt that the government is at the very edge of a huge solvency crisis that isn't going to be addressed unless both parties dramatically change their position, and I see no sign of it.  So we're going to have a gong show." Stockman also opines on the Monetary Roach Hotel that the US debt has become: "We have not had a two-way bond market.  We have had a rigged market that has been dominated by not just the Fed, but all the central banks.  Today over half of the $9 trillion in publicly-held debt is in central bank vaults. I call it the 'Monetary Roach Hotel.'" Lastly, on a proposal endorsed by Zero Hedge back in the summer of 2009, namely the introduction of a Tobin tax for Wall Street's high-frequency casino: "Wall Street needs to have a transaction tax.  I know they won't like it. A tax on every trade, a small amount, would go a long way to putting money in the coffers." As usual: absolutely spot on recommendations, which have little to no chance of occurring before the final bond crash finally takes away the multiple-use heroin needle from both DC and Wall Street.

April FOMC Minutes: Fed To Raise Rates Before Selling Assets, Q1 Economic Weakness Blamed On Weather, Inflation "Transitory" 

Submitted by Tyler Durden on 05/18/2011 14:05 -0400

Key highlights: "Participants viewed the weakness in first-quarter economic growth as likely to be largely transitory, influenced by unusually severe weather, increases in energy and other commodity prices, and lower-than-expected defense spending. As a result, they saw  economic growth picking up later this year....Recent increases in consumer food and energy prices, together with the small uptick in core consumer price inflation, led the staff to raise its near-term projection for consumer price inflation. However, inflation was expected to recede over the medium term, as food and energy prices were anticipated to decelerate...Nearly all participants indicated that the first step toward normalization should be ceasing to reinvest payments of principal on agency securities and, simultaneously or soon after, ceasing to reinvest principal payments on Treasury securities....A few members remained uncertain about the benefits of the asset purchase program but, with the program nearly completed, judged that making changes to the program at this time was not appropriate...The participants who favored earlier sales also generally indicated a preference for relatively rapid sales, with some suggesting that agency securities in the SOMA be reduced to zero over as little as one or two years. Such an approach was viewed as allowing for a faster return to a normal policy environment, potentially reducing any upside risks to inflation stemming from outsized reserve balances, and more quickly eliminating any effects of SOMA holdings of agency securities on the allocation of credit."

Guest Post: Austerity And Critical Mass 

Submitted by Tyler Durden on 05/18/2011 13:51 -0400

Some say that QE3 won’t happen. The U.S. is done with stimulus and force-feeding liquidity and inflation down the world’s throat. Okay, it’s austerity then. How much austerity does anyone think we’re going to have here in America? What is the critical mass and when will we reach it? How much inflation can our creditors handle before they reach their critical mass and have to allow rates to rise? Paradoxically enough, the real question has become ‘can we afford austerity’? I believe the answer is ‘not anymore’. Due to relatively recent events, austerity has become a mathematical impossibility. 

 

 

 

 

In The News Today

May 18, 2011, at 9:51 am
by Jim Sinclair

 

 

 

"We do not have to become heroes overnight. Just one step at a time, meeting each thing that comes up, seeing it is not as dreadful as it appeared, discovering we have the strength to stare it down." –Eleanor Roosevelt-





Jim Sinclair’s Commentary

QE to infinity as there is no other alternative that can practically be adopted without bringing on the Greater Depression, total dollar destruction and gold at $17,500.


"Gang of Six" budget talks founder in Senate By Richard Cowan and Andy Sullivan
WASHINGTON | Tue May 17, 2011 8:22pm EDT
WASHINGTON (Reuters) – Deficit-reduction talks among a high-profile group of senators foundered on Tuesday in a bleak sign for other lawmakers trying to hammer out a deal to tackle the country’s budget woes.
Republican Tom Coburn, one of the Senate’s leading fiscal conservatives, told reporters he was dropping out of the bipartisan "Gang of Six" after months of meetings.
"We can’t bridge the gap between what actually needs to happen and what people will allow to happen," Coburn said.
A source familiar with the talks said Coburn had pushed for deep and immediate cuts to Medicare, the healthcare program for the elderly, which were rejected by other members of the group. Coburn’s proposal was described as more dramatic than a plan that passed the Republican-controlled House of Representatives last month.
Richard Durbin, the second-ranking Democrat in the Democratic-led Senate, told reporters the five remaining senators in the bipartisan group would meet on Wednesday and "I hope we can finish this and present it (recommendations) to the Senate."
While he said Coburn had made a "valuable contribution" to the group, "I am not reaching out to him" for further discussions, Durbin added.
More…





Jim Sinclair’s Commentary

QE to Infinity is guaranteed when the senior representatives of the people are for sale.


Senate blocks bill repealing $2B in oil tax breaks Tue May 17, 2011 6:52 pm
WASHINGTON — The Senate blocked a bill Tuesday that would repeal about $2 billion a year in tax breaks for the five biggest oil companies, a Democratic response to $4-a-gallon gasoline that might fare better when Congress and the White House negotiate a deal later this year to increase the government’s ability to borrow.
The bill was defeated on a procedural vote. But Democrats hope to build their case to include the measure in a deficit-reduction package being negotiated by key lawmakers and the Obama administration. Lawmakers from both parties are demanding deficit reduction as part of deal to increase the government’s ability to borrow and avoid an unprecedented default on U.S. Treasury bonds.
"This bill says that even the most rich and powerful among us must do their fair share to help us reduce the deficit," said Sen. Robert Menendez, D-N.J., the bill’s sponsor. "Their high-priced lobbyists cannot stop us from doing what is fair and what is right."
Republicans and some Democrats opposed the tax increase, saying it would hurt domestic drilling while doing nothing to reduce gas prices. The vote was 52-48 in favor of the measure, short of the 60 votes needed to advance it. Three Democrats _ Mary Landrieu of Louisiana, Ben Nelson of Nebraska and Mark Begich of Alaska _ joined with nearly all Republicans in opposing the measure. Two Republicans, Olympia Snowe and Susan Collins of Maine, voted for it.
White House spokesman Jay Carney blamed Senate Republican leaders, saying they were more interested in protecting tax breaks for profitable oil companies than finding more responsible ways to spend that money. Nonetheless, he said the vote was an important step toward repealing "these unwarranted subsidies" and said the administration would continue to pursue the matter.
More…





Jim Sinclair’s Commentary

Oh my, here we come. Confidence in retirement is going to crater.
At a time when the government has invaded retirement accounts of Federal employees, a Federal retirement programs look as if it will not function.
This is why QE will have to go on to infinity. There is no other option.


USPS warns of default on retiree benefits May 18, 2011
By Jared Serbu
Federal News Radio
The U.S. Postal Service will begin to default on its financial obligations just over four months from now unless Congress takes action to relieve it of its obligation to pre-fund retiree health care accounts, its leader told lawmakers Tuesday.
USPS expects to post a net loss of $8.3 billion for this fiscal year, nearly as much as it lost last year. And with its $15 billion debt limit due to be reached this year, more borrowing is not an option, Postmaster General Pat Donahoe said in testimony before a subcommittee of the Senate Homeland Security and Government Affairs committee.
"Despite our aggressive cost cutting and revenue generating efforts, we are in serious financial predicaments today," he said. "As things stand, we do not have the cash to make the $5.5 billion prepayment for future retiree health benefits due on September 30. And we may be forced to default on other payments. This could extend to operational expenses."
USPS contends the prepayment for future retirees is a financial obligation that none of its competitors, nor any government agency, has to live with. The requirement came along with a 2006 postal reform bill that was passed when mail volume was at its peak.
Officials say the payments were also based on what was then a much larger employee base. USPS has cut its workforce by 113,000 since then. Donahoe said in written testimony to the subcommittee on federal financial management that not only can USPS not afford the future retiree health bill this year, but that without Congressional action, it’s inevitable that the organization will eventually default on payments to employees and suppliers as well.
More…