Look. The bailout and subsequent US bond ratings cut is the GOAL, I wish more understood.....

galileoreloaded

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Sat Sep-27-08 08:43 PM
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Look. The bailout and subsequent US bond ratings cut is the GOAL, I wish more understood.....

this.

The "bailout" is a tool to make a huge payment towards our collective credit card. I keep saying this over and over, and I don't think I have done a good job explaining this.

This is why the politicians are ignoring the American people on this, they know it won't work, but they have to do it, or the credit card gets revoked.

People holding US treasuries stand to make out big time on a US ratings cut. BIG TIME. Who holds Treasuries and our debt? Japan is number one, followed by China, and then down the list to petrodollar nations like the Saudi's.

Now, I won't go into arbitrage and a bunch of heady gobbledygook, but suffice to say, anyone holding Treasuries today picks up a tidy profit, FROM US, for when the bailout is approved, the bond ratings will be cut. An unfortunate by-product is the dilution, or the devaluing of the US Dollar, and the passage of this plan guarantees a depression as much as no action guarantees a depression. We will be paying the current bondholders off with premium buybacks, and at the same time, INCREASING our borrowing, because of increased interest. They get a couple hundred billion in premium immediately, and we PAY for 3 times over by increased interest ON THE SAME DEBT. For the next 20-40 years. If new debt costs 18-20%, it is still cheaper to keep the cheap debt at 4% on the books, by paying off the cheap bondholder not to redeem. 12-13% is always cheaper than 18-20%.

When bond ratings are cut, the interest rate demanded by creditors increases, as the borrower is a riskier bet. The baseline shifts up, and those holding cheap debt, say 3.5% 20 year US Bonds, have the ability to command premiums for the older, cheaper debt. By all accounts, using the late 70's as an example, what would be the effect of 18% (conservatively) interest rates for this country be???
A deflationary depression, coupled with double digit inflation, $250 oil, and here is the kicker, business credit drys up anyway, as the cost of it skyrockets, making expansion almost impossible but for the largest multinational corporations.

What so many fail to realize is the accumulations of long term debt by foreign countries is different than short term "liquidity" in the sense that we can still borrow from the Europeans and others short term, albeit at higher interest rates. The money is there, it just costs more. Banks can't make money when their supply costs more, so they hesitate to lend "down". Ask yourself, when you get a mortgage today, the bank "buys" the money at 2%, the government rate, but then "sells" it to you at 6.5% in a mortgage. 4.5% gross profit, because they have a monopoly on the "window", or the source.

The FED is so polluted by crap, they MUST get the stuff off their books,as they are having serious credibility issues, past that, they have so much cash out there, they need new bonds issued to recapitalize. We all saw the Reuters article about $187 billion in lending a day. Guys, that's 1.0 Trillion a week, but it's FED money, not ours. They need to make it ours. NOW. That is the hurry, to clean up the FED, pay off the Asians (partially), recapitalize the banks (that make up the FED) and the best part is, our leaders seem more than happy to accept the argument, because THEY don't get but 50% of the picture, or they are in on it.

At the end of the day, this is austerity, plain and simple. The people here that say "you don't want a great depression" are correct, but they are stupidly advocating their own extremely shortsighted, "I watch CNBC for an hour and I am an expert" self interest, over the long term future of the country, and themselves. Beyond that, a straight deflationary depression is BETTER if you have retirement funds, providing you quit buying into the corporate BS of "don't lock in your losses". I love that one, designed by brokers, for brokers. Sell your fund and GET OUT. Take the penalty. Cash is king, and if you think you will be out of work for any length of time, you won't pay the taxes anyway, providing a few safeguards are in place.

We all lose, bailout or not, but the difference is, by not doing it, we have the ability to look at our grandchildren and not have them despise us for our greedy, selfish behavior that my generation, the Boomers, are becoming increasingly known for. Anyway, I hope I have demonstrated that there is much more to this than meets the eye, and the Goldilocks "OMG, write the check" crowd have been duped by 50% information.