California Offers “Build American Bonds” to Unknowns. Their Credit Rating was Just Slashed.

Abstract: California continues to grovel in the political alleyways like a diseased hooker in need of a quick fix with a frantic clarion call for money from anywhere and everywhere. The social and moral composition of California has been dissipated into a sickening puddle of tears, debt and drugs while their skill and reputation for handling finances are the basis for some of the funniest jokes in the universe. Besotted and mired in a drug infested financial inferno with hoards of swarming illegal aliens milking every possible benefit they have hit the very bottom of the Pit.  They now proffer “Build American Bonds” to some unknown investors probably looking for a sweetheart deal. They must continue to probe for co-suckers to partner with them as their noisy public misery surges on, punctuating the atmosphere with a cavalier style resembling Zimbabwe. They glubber forth so they can borrow even more money at even more exorbitant interest rates knowing that they have no way of paying back the loans and all the while shouting out the mandate that  they have no plans to cut spending—the financial disease that initiated this mess. They are busted along many dimensional lines. Only a fiscal earthquake can jolt these lunatics back into financial reality and that will be a general default. That disaster will happen soon because the number of suckers on this planet is fortunately limited and our currency is threatened with massive inflation.

The End of California

We all know that the duly elected Assembly and their wonderful governor ‘agreed’ on a ‘path forward’ to ‘compromise on the budget.[1]’ California[2]descends into oblivion.[3] is finished as a society in moral, social and economic terms.[4][5][6][7]  Polluted with drug-crazed Marxian puppets parading as those who ‘represent the people,’ the Sacramento Legislature cannot seem to find ways to arrest their psychotic spending sprees that will sink the state in massive debt for decades. We know that the Golden State has had some nasty encounters with financial reality in past years, but now they face The Abyss and what is their plan? Beg for money from somewhere else—any where!!

“Nov. 3 (Bloomberg) -- California is responding to investor demand for more of the state’s Build America Bonds by offering about $750 million today after a so-called reverse inquiry that is more common for corporate issues than for municipals”[8]-- California Answers Call for $750 Million in Build America Bonds By Jeremy R. Cooke and Andrew Frye November 3, 2009

But, what and who support this reverse inquiry?? People like Soros or Buffett looking for another sweetheart deal? “Despite all of its credit and supply issues, there’s at least one buyer” with a “sizeable” appetite.  Neither California nor Citigroup, in brief statements yesterday, identified the investor or investors who asked the state to create a new issue of its taxable debt.

“Reverse inquiry is much more common in taxables,” Fabian said in an interview. “It doesn’t happen a lot in munis.”

Is this like dithering with a hooker for a special price?

“Taxable bonds due in April 2039 with a 7.55 percent taxable coupon interest rate traded to customers at prices to yield about 7.2 percent yesterday, Municipal Securities Rulemaking Board trade data show.”-- California Answers Call

This was precipitated, we learn from the ‘experts,’ like Paul Krugman[9] of the Walter Duranty Papers, [10] who advised  us that the constitutional limits to taxation in California are the root problem to their debt and deficits and we need to raise taxes![11]

Wasn’t this predictable?? Higher taxes will bring us prosperity. But, when did this leftist puppet ever suggest anything other than more taxes and bigger government for any problem? Never.

So, the grubby quest for more funds morphs into a sickening spectacle of tears and threats and howls that match many of the elements of the Divine Comedy[12]. We have passed the first two cantos [first was the drug/political culture and the second canto was the uncontrolled social spending] in this epic and, now having passed Purgatorio, we enter the Inferno. We have to acknowledge that Paradiso is lost forever in a social swamp infested with sloth, sodomy and drug addiction. This dismal failure was predictable and is actually a desirable outcome for the elitists of the Left.[13] But, not to suggest that they have no designs on the wealth of others, as the rest of us are their targets, we must study this nonsense in some detail:

Now, let us do some thinking here. Some idiot wants to put out 750 million dollars for some bonds in a state with a lowered credit rating that mature in 2039—a mere 30 years at 7.2% and taxable to boot?? Who can this be and since Citi[14] was fixed up by TARP we wonder if there is an end-run play here and the ‘inquirer’ is attached to or cohabitating with the federal government. Here is the phony co-signer theory advanced by someone. 

Previous pleas:

“California is not asking for cash, like the tens of billions given to AIG, General Motors or Morgan Stanley. (MS) Instead, the state with the worst credit rating in the nation is asking that Washington act as a sort of co-signer on the state's borrowing, to be backed up with money from the Troubled Asset Relief Program.”[15]-- Judy Lin [Emphasis is mine in all quotes. All quotes in this blog reference the Judy Lin article unless stated otherwise.]

This is like “sort of “selling your little sister into slavery so you can keep your sick mother fixed up with the latest in designer drugs and living in the trendy new  green ambience financed with some expensive carbon cap receipts and weekly trips to Mexicali. 

And an echo from L. A.:

“"We are not asking for a bailout," said state Assembly Speaker Karen Bass, a Los Angeles Democrat.”We're asking for the federal government to step in where commercial banks can't this year because of the crisis within the financial industry.””—quote from Assembly Speaker Karen Bass

Now, you have a commercial loan or one that is disguised to look like one.

“"I think if the federal government can go to the aid of major financial institutions, particularly when state and local governments face short-term liquidity issues, I think helping them out is very relevant," Frank said.”-- Barney Frank [Backside Barney[16]]

Short-term?? Liquidity?

Here are the major problems with this:

[1] California is a dead beat and frantically scrounging for more and more loans and cannot avoid a default.

[2] 750 million is peanuts in their 15 billion dollar deficit—soon to balloon to 30 billions and beyond.  This cannot help much.  California will default anyway. 30 years is so far out that 750 million might not buy even one lid of grass in the not-s0-far future.

[3] California’s credit rating is poop grade now as of today just a few hours ago: “Moody's Investors Service downgraded California's general-obligation bonds to A2 from A1, the New York-based agency announced Friday.”[17]

[4] There is no hint that the union-dominated state Assembly, a maudlin parade of Marxian stooges, will cut spending especially on their phony ejukashon where 40% of tax revenues are destined to be spent.

[5] People are wildly fleeing the state as debt soars and the ‘fees’ increase in lieu of taxes and control by the Green Weenies[18][19][20][21][22][23][24][25][26][27][28] now known as EcoNazis because of their dictatorial and psychotic conduct and thus  becomes intolerable. Tax revenues will crash and, of course, they will have to raise more money. What they really want is to get their claws into property taxes.

[6] We generally don’t find suckers of this base cognitive level unless we look to the federal government. Something is phony here.

California will soon have matched Somalia’s social structure and Zimbabwe’s financial success. Evabody gonna get well from cheap grass and rich.

This is hopeless. Move out!

rycK [a 5^th generation Californian in exile]

Comments to: ryckki@gmail.com

The Bubble that will Burst Higher than all Previous Bubbles: Depression Looms as the Dollar Crashes.

Economics, formerly known as the queen of the social sciences[1], is now so complicated that few can understand the process. But, this cognitive barrier does not prevent political activists from distorting the destined outcome of some financial misadventure as they can readily identify and enlist enough lackeys and stooges to rally and assemble a noxious chorus[2] to sing the praises of such an action. Thus we can assemble a quorum to merrily sing the praises of our destruction. That is happening now as we print money with no end in sight. The ‘rich’ will pay for all this.

The current case of rising asset prices has been analyzed by Nouriel Roubini[3] , as is his custom, and his predictions are usually correct. In his article entitled “Mother of all carry trades faces an inevitable bust” we learn this:

“Since March there has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply, while government bond yields have gently increased but stayed low and stable.”-- Mother of all carry trades [Emphasis is mine in all quotes.]

Normally, the value of some asset is calculated from its intrinsic value[4] which involves a time element and some projection of the asset’s return in a given time span. We saw wealth evaporate in the housing bubble[5] recently where the intrinsic value was distorted by demand that was driven by explosive credit and government propaganda about ‘affordable’ housing.  Fortunately, we have the law of supply and demand that cannot readily be repealed by governments and that law controls prices and supply. Our current liquidity circus has stimulated demand for assets way beyond their intrinsic values and this will correct itself in a bubble[6] when demand collapses.

“But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.”-Mother of all carry trades

The carry trade[7], which is a return or a profit from just holding an asset, allows for big profits as the dollar loses value thus the intrinsic value of equities and such are temporarily distorted until a massive correction is forced by supply and demand as the carry trade becomes negative. The bubble then bursts. This is all driven by shorting the dollar and that increases the supply of dollars and accelerates the downward spiral.

“Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.”-- Mother of all carry trades

This is what happens when governments start to just print money. The investment and financial structure of the country is distorted and people find out how to make huge profits off of the money swimming around in every yard and sidewalk.

A reversal in dollar weakness would require that traders then cover their short positions and:

“But one day this bubble will burst, leading to the biggest co-ordinated[sic] asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated[sic] collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.”-- Mother of all carry trades

This one, in my view, is just another of several looming bubbles. The phony mortgage mess we had stimulated a false demand on housing and that collapsed as people could not pay their mortgage payments. The next bubble will be whatever our phony government attempts to pump up and that is now: jobs, green products, subsidized cars and other follies. This all stems from a belligerent attitude on finances by our elected officials. They seem to believe that if wealth is lost by homeowners who should never have been given loans to buy houses then we can just print money and ‘forgive’ these excesses with do damage to the economy and the ‘rich’ will take the haircut. The ‘rich’ don’t have that much wealth.

The total world gold supply is thought to be about 158,000 tonnes[8] we find and could be contained in a cube with dimensions of less than 20 meters to an edge. At 32,000 ounces per ton[9] we get about $5,308,800,000,000 valuation on the world’s supply at the current price of $1050 in US dollars. Thus 5.3 trillion dollars represents only ½ of our national debt of 12 trillion and is very small compared to our imputed debt from Social Security, Medicare and the 8 or so trillion dollars printed up by the Federal Reserve which might hit 100 trillion according to some estimates. Note also, that the world debt is much higher than this so it appears that gold is one of the few assets that can withstand an explosion in the money supply. Now, what does the supply and demand law tell us about the future price of gold in US dollars? Thus, there must soon be a rush to convert worthless dollars to tangible assets like gold or real estate or other physical goods.

But, our bubble may be off in time and the next big bust may be Japan. Their current debt to GDP ratio is currently 218% and will rise and our US debt is about 85% [=12/14] and rapidly rising. :

"The debt situation is irrecoverable," said Carl Weinberg from High Frequency Economics. "I don't see any orderly way out of this. They [Japan] will not be able to fund their deficit. There will be a fiscal shutdown, a pension haircut, and bank failures that will rock the world. It is criminally negligent that rating agencies are not blowing the whistle on this."[10]-- It is Japan we should be worrying about, not America. Japan is drifting helplessly towards a dramatic fiscal crisis. By Ambrose Evans-Pritchard Published: 5:33PM GMT 01 Nov 2009 

But, the hokum chuckers[11][12] in our government will just raise taxes and ‘soak the rich’ and continue on spending all the merry while. That is what parasites do: they feed off the host until it dies.

When this bubble bursts the debris and residue will litter the moon.  

rycK

Comments to: ryckki@gmail.com