US House Democrat minority leader Hakeem Jeffries crows over passage of more of the same old, same old bloated spending by continuing resolution

Looking forward to a Moody's downgrade, if they've got the guts. Congress certainly doesn't.

 

Senate sends funding bill to Biden’s desk, averting a government shutdown :

WASHINGTON — The Senate passed a stopgap funding bill Wednesday night, punting the GOP’s spending fight and the threat of a government shutdown until after the holidays.

The bipartisan vote was 87-11, with 10 Republicans and one Democrat — Sen. Michael Bennet of Colorado — voting against the bill. ...

The short-term bill, known as a continuing resolution, or CR, cleared the House on Tuesday on a lopsided 336-95 vote, with all but two of the no votes coming from Republicans. The funding bill next heads to President Joe Biden’s desk for his expected signature. ...

“No spending cuts, no right-wing extreme policy changes, no government shutdown, no votes tomorrow, Happy Thanksgiving,” he said. “That is a type of report that, when you are able to give it, means morale is very high.”

Ahead of another government funding deadline November 17th, Moody's lowers its US government ratings outlook

 

Moody’s Investors Service on Friday lowered its ratings outlook on the United States’ government to negative from stable, pointing to rising risks to the nation’s fiscal strength.

More.

Moody's missed not only Signature Bank's problems, but Silicon Valley Bank's as well

On Wednesday March 8, Moody’s still had an A3 rating on SVB Financial, owner of the now defunct Silicon Valley Bank, as it was already collapsing for all to see. Four notches into investment grade – a very respectable rating!

More.

The fools at Moody's have just cut their outlook for American banking to negative, but don't take it too seriously

The story is here.

As recently as the end of January, Moody's had rated Signature Bank, the bank which failed spectacularly over the weekend, investment grade.

Moody's completely missed the problems with Signature.

Their sweeping warnings in the wake of this miss should be taken with a truckload of salt. They're just trying to save face.

 

Euro Group creditors made a bundle off Greece's problems in 2014: 13 billion EUR

Moody's on Greece indicated today that the debt/GDP burden was already 177% before Syriza was even elected in 2015, but one man's debt burden is another man's opportunity.

Seen here:

'We assess Greece’s Fiscal Strength as `low’, because of the country’s high debt burden, which stood at around 177% of GDP at the end of 2014, one of the highest debt burdens in the universe of Moody’s-rated countries. Moreover, the potential to meaningfully improve the debt trend over the next 3-5 years is highly uncertain given that the large-scale reforms that could spur growth are currently hampered by ongoing political uncertainty.'

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Eurostat shows Greek GDP in current euros was just shy of 179.1 billion in 2014, down 26% from the 2008 peak. Greece is in a long, severe depression. Central government debt rose to 324 billion EUR at the end of 2014 and actually dropped to 313 billion EUR in the first quarter of 2015. Syriza was elected to power on January 25, 2015.

Those awful conditions developed under years of austerity government, after years of profligacy,  which Syriza promised to end. Now that Syriza has been forced to double down on austerity, expect conditions in Greece to worsen dramatically without debt forgiveness or a generational period of grace from repayment obligations. 

Little discussed in that regard, however, is the fact that in 2014 Greece is said to have paid an interest rate on its debts of 4% nominal and 2.6% effective.  This is happening in a world where the ECB has just decided to keep the headline lending rate at the record low level of 0.05%.

Whatever else may be said, Euro Group creditors by comparison are making a killing off Greece's predicament: almost 13 billion EUR in debt service revenues in 2014 alone.

If Europe is serious about keeping Greece in the Group, maybe it could start by stopping the profiteering.

Nothing Else Is Working, So The US Federal Reserve Should Be QEing Gold Instead Of Treasuries

So said Christopher T. Mahoney, a former Vice Chairman at Moody's, for Project-Syndicate last June, here, just not in so many words:

It may be that when rates are at the zero bound and the banking system is broken, the appropriate policy instrument may not be to buy bonds from banks, since buying them doesn’t seem to affect the price level. Bernanke was certainly correct that the Fed could create inflation by dropping money on citizens from helicopters, but that would be a rather blunt instrument.

It seems to me that the Fed needs to buy something besides Treasury and agency bonds. The obvious alternative to Treasuries would be foreign government bonds, or gold. Since the former would constitute a “currency war”, that would seem to leave gold.

I have no doubt that if the Fed were to announce that it will buy gold until it has achieved 2% inflation and 6.5% unemployment, it would get there. It would disrupt the gold market (and enrich some of the wrong people) but that is a small price to pay. No foreign government could object to the Fed buying gold; it’s been doing it for 100 years.

But I said it more or less three times a year ago this month, here, here and especially here:

The United States at present is in the throes of a deflationary collapse of monetarist making, not of dollar currency but of credit money, and it is the principal reason for the collapse of GDP. One of the largest sources of the "currency" of credit money in recent years has been mortgages, which are now effectively unacceptable as collateral because of the rot permeating the system in the form of defaults and underwaters.

Federal Reserve policy has actually been removing such collateral from circulation, along with US Treasuries, by placing it on its balance sheet. But since there is nothing "real" behind the dollars the Fed replaces this collateral with, there is no corresponding expansion of credit in size to match the former vigor of the process.

So perhaps the Fed should QE gold instead of MBS and Treasuries to provide something real behind the money created which would give that money a surer basis in collateral.

Central banks around the world have been buying gold in quantities not seen in 30 years in order to fill the collateral gap. The Fed should join them.

Scholar Who Sniffed Out The Libor Scandal Now Smells Manipulation In $20 Trillion Gold Market

Bloomberg reports here:

Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behavior and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper. “The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” they say in the report, which hasn’t yet been submitted for publication. “It is likely that co-operation between participants may be occurring.” ... Abrantes-Metz advises the European Union and the International Organization of Securities Commissions on financial benchmarks. Her 2008 paper “Libor Manipulation?” helped uncover the rigging of the London interbank offered rate, which has led financial firms including Barclays Plc (BARC) and UBS AG to be fined about $6 billion in total. She is a paid expert witness to lawyers, providing economic analysis for litigation. [Albert] Metz heads credit policy research at ratings company Moody’s.

Total Public Debt Outstanding Stuck At $16.738 Trillion For Over Two Months

The normal explanation for this would be that redemptions of Treasury securities are running at precise equilibrium with issues, which might imply there has been a big shift away from note and bond purchases by the public since the end of May when Ben Bernanke first floated the possibility of a tapering of Fed purchases in the secondary market. Bond outflows in June of nearly $62 billion dramatically reversed a trend (albeit declining) of purchases in 2013 through May.

Theoretically total public debt outstanding occasionally goes down in the rare cases when redemptions exceed issuances, but the maintenance of a consistent level equilibrium is indicative of a deliberate policy, that is, a policy not to exceed the debt limit of $16.7 trillion. This is effected by recourse to extraordinary measures on the part of the US Treasury Dept.

Tax revenues are also running higher in 2013, helping remove pressure from the situation as is the sequester which is curbing outlays. Revenue has also increased from the GSEs, in excess of $59 billion according to Reuters, here. The Associated Press has reported here for July 18th that the current fiscal year deficit is projected to come in over $300 billion less than last year when all is said and done.

Now you know why Congress felt it could take the traditional August recess without doing anything about the debt ceiling. They'll just let Jack Lew sweat it out.

Moody's Warns Lack Of Deficit Reduction Could Affect AAA Rating Negatively

As reported by Reuters, here:

"On the other hand, lack of further deficit reduction measures could affect the rating negatively," Moody's said.

Moody's placed the U.S. credit rating on a negative outlook August 3, 2011 when the Congress and the White House wrestled over a relatively routine measure of raising the debt ceiling to the point where the United States was on the brink of default before hammering out a deal.

That political impasse and near financial calamity prompted rival rating agency Standard & Poor's to take the unprecedented move of cutting the U.S. credit rating to AA-plus from AAA.

Moody's Downgrades 7 Portuguese Banks Which Just Passed EU 'Stress' Tests

The laughs never stop.

Story here.

ObamaCare Will Increase Deficits By Over $500 Billion in First Decade

Sorry. Just correcting the lies.

The article was posted here:

March 25, 2010

Bond Markets Reflect the True Cost of Obamacare

By Michael Barone

Not many people noticed amid the Democrats' struggle to jam their health care bill through the House, but in recent weeks U.S. Treasury bonds have lost their status as the world's safest investment.

The numbers are pretty clear. In February, Bloomberg News reports, Berkshire Hathaway sold two-year bonds with an interest rate lower than that on two-year Treasuries. A company run by a 79-year-old investor is a better credit risk, the markets are telling us, than the U.S. government.

Buffett's firm isn't the only one. Procter & Gamble, Johnson & Johnson and Lowe's have been borrowing money at cheaper rates than Uncle Sam.

Democrats wary of voting for the health care bill may have been soothed by the Congressional Budget Office's report that it would reduce federal deficits over the next 10 years. But bond buyers know that the Democrats gamed the CBO system to get a good score.

The realities, as former CBO Director Douglas Holtz-Eakin pointed out in The New York Times, are different. The real cost is disguised by the fact that the bill includes 10 years of revenue but only six years of spending. It includes $70 billion in premiums for long-term care that will have to be paid out later. It excludes $114 billion in discretionary spending needed to run the program. It includes nearly half a trillion dollars in unrealistic Medicare savings.

Holtz-Eakins's bottom line: The bill will not lower deficits, but will raise them by $562 billion over 10 years. Treasury will have to borrow that money -- and probably pay much higher interest than it's paying now.

Moreover, once the bill is fully in effect, the Cato Institute's Alan Reynolds points out, its expenses are likely to grow at least 7 percent a year -- significantly faster than revenues. At that rate, spending doubles every 10 years.

No wonder that Moody's declared last week that the Treasury is "substantially" closer to losing its AAA bond rating.

It's not only the federal government that is heading toward insolvency. State governments will have to spend more under the health care bill -- $735 million in Tennessee alone, according to Democratic Gov. Phil Bredesen.

And state governments are already facing a huge problem called pensions. The Pew Charitable Trusts estimates that state government pensions are underfunded by $450 billion. My American Enterprise Institute colleague Andrew Biggs argues in The Wall Street Journal that the real figure is over $3 trillion.

The reason: State governments set aside cash to invest in pensions, but they typically assume that their investments will rise 8 percent a year indefinitely. They haven't been getting such high returns and are not likely to do so in the future. But they are under legal obligations, which courts won't allow them to escape, to pay the pensions. Retirees get paid off before bondholders, which means that states are going to have to pay more interest when they borrow.

Back in the 1990s, Clinton adviser James Carville said that if he was reincarnated he would like to come back as the bond market -- "because you can intimidate everybody." Governments, like all organizations, need to borrow routinely. But investors won't lend unless they think they will be paid back. And they will demand higher interest rates as their loans become riskier.

On Sunday, 219 House Democrats, soothed by their leaders' gaming of the CBO scoring process, voted in reckless disregard of what the bond market has been telling them. Some may share Speaker Nancy Pelosi's optimism that the government's looming fiscal disaster can be avoided by imposing a value-added tax -- in effect, a national sales tax.

But, as we know from the experience of high-tax Western Europe and relatively low-tax America over the last three decades, higher taxes tend to retard economic growth. Lower economic growth means less revenue for government than in CBO projections. Less revenue means more borrowing -- and at some point lenders are going to call a halt.

Barack Obama's project of transforming the United States into something like Western Europe is, according to the CBO, raising the national debt burden on the economy to World War II levels. I see train wrecks ahead -- as the bond market forces huge spending cuts or tax increases first on states and then on the federal government. It will make what happened in the House Sunday look pretty.

Depression Caliber Statistics

From Ambrose Evans-Pritchard at The UK Telegraph:

The broad U6 category of unemployment rose to 17.3pc. . . .

Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's Economy.com expects another 2.4m homes to go this year. . . .

The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of "option ARM" contracts due to reset violently upwards this year and next. . . .

David Rosenberg from Gluskin Sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time. The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus). This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War. . . .

For the record, manufacturing capacity use at 67.2pc, and "auto-buying intentions" are the lowest ever. . . .

The Fed's own Monetary Multiplier crashed to an all-time low of 0.809 in mid-December. Commercial paper has shrunk by $280bn ($175bn) since October. Bank credit has been racing down a hair-raising black run since June. It has dropped from $10.844 trillion to $9.013 trillion since November 25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money is contracting at over 5pc. . . .

To read the whole thing, go here.