U.S. SPENDING PROJECTIONS THRU 2055 AS REVENUE THEN WON’T EVEN COVER DEBT INTEREST COSTS

[Source Peterson Foundation]

WHAT IS DEBT? A HISTORY OF DEBT OVER THE PAST 5,000 YEARS!

GROSS DEBT, AS OF GDP, PER CAPITA STATISTICS FOR THE TOP 20 WORLD’S MOST IN DEBT COUNTRIES

[DATA SOURCE...]

5. John Paulson: Paulson & Co. $30 billion under management.

4. Bill Ackman: Pershing Square Capital Management oversees about $9 billion.

3. Mark Spitznagel: Universa Investments

2. David Einhorn: Greenlight Capital

1. Jim Chanos: Kynikos Associates

SOURCE: 5 hedge-fund managers to watch in 2012

Guest host Betty Liu of Bloomberg Television, Nouriel Roubini of New York University and Richard McGregor of the Financial Times on the China currency debate.

. . . .

“Nouriel Roubini says that the unemployment problems of America are not to be blamed on the trade or on China : …the unemployment rate is nine percent including discouraged workers and partially employed workers 16.5 percent including people in jail is 20 percent among young and minorities it is close to thirty percent , half of the unemployed are long term unemployed , but a very little fraction of this problem has to do with China and exchange rate it has to do with the policy that led to the house boom and the housing bust about the fact that we are not invested in productivity and long term economic growth , so blame it on the Chinese does not make sense , of course in a situation where you have high unemployment rates you have social and political malaise people blame globalization people blame trade people blame China but the fundamental problems of the US are much deeper much structured” [Via: nourielroubini.blogspot.com]

Cramer: The Market’s Fate Rests With AIG
Jim Cramer explores the two possible scenarios for AIG and the ramifications of both.

“Chronology of September 2008 liquidity crisis below:

“Chronology of September 2008 liquidity crisis below:

“Chronology of September 2008 liquidity crisis

On September 16, 2008, AIG suffered a liquidity crisis following the downgrade of its credit rating. Industry practice permits firms with the highest credit ratings to enter swaps without depositing collateral with their trading counter-parties. When its credit rating was downgraded, the company was required to post additional collateral with its trading counter-parties, and this led to an AIG liquidity crisis. AIG’s London unit sold credit protection in the form of credit default swaps (CDSs) on collateralized debt obligations (CDOs) that had by that time declined in value.

The United States Federal Reserve Bank announced the creation of a secured credit facility of up to US$85 billion, to prevent the company’s collapse by enabling AIG to meet its obligations to deliver additional collateral to its credit default swap trading partners. The credit facility provided a structure to loan as much as US$85 billion, secured by the stock in AIG-owned subsidiaries, in exchange for warrants for a 79.9% equity stake, and the right to suspend dividends to previously issued common and preferred stock.

AIG announced the same day that its board accepted the terms of the Federal Reserve Bank’s rescue package and secured credit facility. This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of Fannie Mae and Freddie Mac a week earlier. AIG’s share prices had fallen over 95% to just $1.25 by September 16, 2008, from a 52-week high of $70.13. The company reported over $13.2 billion in losses in the first six months of the year.

The AIG Financial Products division headed by Joseph Cassano, in London, had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA. Of those securities, $57.8 billion were structured debt securities backed by subprime loans. CNN named Cassano as one of the “Ten Most Wanted: Culprits” of the 2008 financial collapse in the United States.

As Lehman Brothers (the largest bankruptcy in U.S. history at that time) suffered a catastrophic decline in share price, investors began comparing the types of securities held by AIG and Lehman, and found that AIG had valued its Alt-A and sub-prime mortgage-backed securities at 1.7 to 2 times the values used by Lehman which weakened investors’ confidence in AIG.

On September 14, 2008, AIG announced it was considering selling its aircraft leasing division, International Lease Finance Corporation, to raise cash. The Federal Reserve hired Morgan Stanley to determine if there are systemic risks to a financial failure of AIG, and asked private entities to supply short-term bridge loans to the company. In the meantime, New York regulators allowed AIG to borrow $20 billion from its subsidiaries.

At the stock market’s opening on September 16, 2008, AIG’s stock dropped 60 percent. The Federal Reserve continued to meet that day with major Wall Street investment firms, hoping to broker a deal for a non-governmental $75 billion line of credit to the company. Rating agencies Moody’s and Standard and Poor downgraded AIG’s credit ratings on concerns over likely continuing losses on mortgage-backed securities. The credit rating downgrade forced the company to deliver collateral of over $10 billion to certain creditors and CDS counter-parties. The New York Times later reported that talks on Wall Street had broken down and AIG may file for bankruptcy protection on Wednesday, September 17.

Just before the bailout by the US Federal Reserve, AIG former CEO Maurice (Hank) Greenberg sent an impassioned letter to AIG CEO Robert B. Willumstad offering his assistance in any way possible, ccing the Board of Directors. His offer was rebuffed.”

Thanks to Wikipedia.org for this excellent historical review of the AIG story.

A note from the futurepredictions.com author:

Roubini: 50 / 50 Chance of Recession

Lost in the worry over Greek debt defaults, China Daily reports on a default story of more significance. Please consider Local governments run up huge debts, risk defaulting. Local governments had an overall debt of 10.7 trillion yuan ($1.65 trillion) by the end of 2010, said China’s top auditor on Monday in a report to the National People’s Congress. Source>>>>

Xia Bin, an academic adviser to the People’s Bank of China, warned that the U.S. currency would continue to weaken. “The U.S. dollar will be in the depreciation trend in the long term,” he said.

Source>>>> WSJ

It is true that we have a credit bubble in China. They also have a huge stimulus package. However, you have to put in in perspective compared to the United States. China has a debt load of 50% of GDP, and in the US it is 600% GDP. The Chinese use their credit to build things. They have built exports and infrastructure. The United States has used their credit for consumption.

The Federal Reserve maintains that there has been no inflation in the US. Their policies encourage consumption in the US, and it has created bubbles all over the world. Sometimes even if you are right, it can take 6 months to 3 years or longer for that prediction to come true. There is a high likelihood that China implodes at some point, and that will have an impact on the rest of the emerging world.