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XMFSinchiruna (26.52)

Real Fools Don't Eat Pork



February 11, 2010 – Comments (8)

Everybody is fixated on Europe's so-called PIGS, which is a most unfortunate acronym. Those quick to sling such derogatory acronyms at the southern European economies might first wish to take a close look at the state of affairs here at home. I know Fools know better, which is why they're placing southern Europe's debt woes into a proper context as just one unsavory slice of a toxic global debt pie called OTC derivatives.


Money Week has its eye on a future and much bigger debt crisis on the way.   Its headline earlier this week says, “Forget Greece – the real debt crisis is still to come.”  The story says, in part, “Sure, financial markets are fretting that within two years, Greecewill have racked up public borrowings equal to more than 120% of GDP.  But that’s nothing compared to the global picture.  Dylan Grice, at Société Générale, has crunched the numbers for the whole of the EU, the UK and the US. He’s found that the average total net liabilities – including unfunded pensions, social security and healthcare – of these countries’ governments emerged at a terrifying 400% of GDP.”  (Click here for the full story)   

Meanwhile, here in America, we have our own “PIGS”; only the U.S. has many more, and they are much fatter with debt.  According to the Center on Budget and Policy Priorities, a group that looks out for the poor, says, The worst recession since the 1930s has caused the steepest decline in state tax receipts on record.”  As a result, 48 states are facing shortfalls of nearly $200 billion in 2010.  A recent report goes on to say, “Total shortfalls for 2010 and 2011 are likely to exceed $350 billion.” (Click here for the full report)  Just California, New York and Illinois alone project a nearly $41 billion shortfall for 2010.   

According to a recent Business Week article, America has a big debt problem that Congress needs to address now.  It says, “The mire facing California, for example, makes Greece’s woes look somewhat manageable.  California, staring at a $20 billion budget gap over the next 17 months, accounts for about 13 percent of the U.S. economy.  Greece accounts for just 3 percent of the economy of countries that use the euro.” (Click here for the full story)

Yesterday, the President said, once again, that we must reduce our “soaring deficits.”  The President took questions from reporters at a White House briefing.  Not a single reporter asked about the probable bailouts of states facing severe budget shortfalls.   Also, there was not a single question about the government taking on all the liabilities of failed mortgage giants Fannie Mae and Freddie Mac.  The $400 billion in spending caps were lifted for the next 3 years, and that totals more than $6.2 trillion in liability on mortgage backed securities. (The Fed has bought at least $1.25 trillion in this debt.)  Fannie and Freddie aren’t just “pigs” but giant budget “hogs” that will scarf every spare dollar in sight.  And, can anyone tell me how we are going to reduce our deficit when the debt ceiling was just raised $1.9 trillion to $14.3 trillion?  This is another real oink-er!   

This is a re-blog from USAWatchdog, but I thought Fools might appreciate the links.


Oh, and you can't miss this piece from Spiegel:,1518,676634,00.html


Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit.  

"Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future," one insider recalled, adding that Mediterranean countries had snapped up such products. But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.


8 Comments – Post Your Own

#1) On February 11, 2010 at 10:17 AM, devoish (63.65) wrote:

The GS article is interesting in that GS seems to have the ability to persuade just about everyone in finance to cheat.

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#2) On February 11, 2010 at 10:48 AM, devoish (63.65) wrote:

As a result, 48 states are facing shortfalls of nearly $200 billion in 2010.  A recent report goes on to say, “Total shortfalls for 2010 and 2011 are likely to exceed $350 billion.”

Which begs the question; "How much did we just spend bailing out the financial indisutry and are they really more important than the States?"

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#3) On February 11, 2010 at 10:55 AM, whereaminow (< 20) wrote:

It's not a bailout of Greece, but a bailout of those who financed Greece's recklessness.  The people of Greece will see no benefit, and will only continue to be dragged down by their government spending.

They need to repudiate their national debt, and end the printing presses.  (As does the USA.)

Here is a story on the Death of the Euro.  This one talks about Greece's options and national sovereignity within the EU.

David in Qatar

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#4) On February 11, 2010 at 5:27 PM, dbjella (< 20) wrote:


 This one talks about Greece's options and national sovereignity within the EU.

That article was rough!

As long as we are still in a deflationary mode, do you believe Central Banks all over the world can get away with inflating policies that enable Gov't to continue spending until inflation takes hold at the money gets in the hands of the consumer?

I am just trying to understand the ramifications. 





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#5) On February 11, 2010 at 9:42 PM, Tastylunch (28.52) wrote:


California Ohio Illinois New York 


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#6) On February 12, 2010 at 6:11 AM, whereaminow (< 20) wrote:


That's why people don't like Gary North.  He's as blunt as it gets.

We won't stay in a deflationary mode.  You have to always remember that deflation is bad for governments and good for liberty.   Once you understand that, you will realize that governments will try every measure in the book to avoid deflation.  

Does the Fed still have enough ammo to reignite the boom without rampant inflation?  Because they certainly aren't going to allow prices to fall.  

David in Qatar

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#7) On February 12, 2010 at 9:25 AM, XMFSinchiruna (26.52) wrote:

From Barrons:

Required Skimming: Massive Commercial Real Estate Foreclosures Coming

Not to be high-handed about things, but the Congressional Oversight Panel watching the TARP investment has drafted a document it might be good to be acquainted with: “Commercial Real Estate Losses and the Risk to Financial Stability.”

The report, released yesterday, is about 200 pages, but the two-page executive summary lays out the essentials: About $1.4 trillion of commercial real estate loans are coming due between now and 2014, and half of them are under water.

That could put a $200 billion to $300 billion burden on small banks who lent money for local shopping malls and such. And there’s no easy way to predict how many foreclosures there will be.

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#8) On February 16, 2010 at 3:20 PM, Melaschasm (69.35) wrote:

There could be a bunch of foreclosures, or the banks might just extend the current loan, so they do not have to mark the value to the current market value.

If the government really believes this report is accurate, then I would be shocked if the Fed stops printing money.  One of the ways to avoid a commercial real estate crash is to generate enough inflation to increase property prices beyond the debt attached to the property. 

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