Courtesy of Mish

Treasury secretary Tim Geithner, who arguably belongs in prison for his role in the AIG bailout coverup, is back in the news again.

Please consider Geithner Says U.S. Will ‘Never’ Lose Aaa Debt Rating.

Treasury Secretary Timothy F. Geithner said the U.S. is in no danger of losing its Aaa debt rating even though the Obama administration has predicted a $1.6 trillion budget deficit in 2010.

“Absolutely not,” Geithner said, when asked in an ABC News interview broadcast yesterday whether a downgrade is a concern. “That will never happen to this country.”

Geithner said investors around the world turn to U.S. Treasury securities and dollar-denominated assets whenever they are worried about global stability. That reflects “basic confidence” in the U.S. and its ability to bounce back from the global recession, he said.

Moody’s Investors Service Inc. last week said the U.S. government’s bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.

The U.S. plans to rein in the deficit once the labor market recovers, Geithner said.

Famous Last Words

Notice Geithner’s condition to rein in the deficit “once the labor market recovers”. The problem is meeting that clause. A labor market recovery might be a decade away or more depending on the meaning of “recovery”.

In response to Geithner’s pomp …

My friend “HB” says “File under famous last words”.

My friend “BC” says “Geithner serves stateless elites who can say this with full confidence that their wealth and privilege will remain intact no matter what happens to the real US or global economy and sovereign debt situation in the US and the world. The key for those of us not secure within the rentier Power Elite caste is to continue to make arrangements for escape plans to try to mitigate the worse effects of sovereign defaults, currency devaluations, capital controls, confiscation, etc.”

Meaning Of Never

I want to focus on the meaning of “never”. Is this the start of one of those what’s the meaning of ‘is’ kind of discussions we had with Clinton? I hope not.

Please note Moody’s rare display of courage to downgrade Enron from investment grade to junk on November 8, 2001.

On December 2, 2001 Eneron filed bankruptcy.

Notice how Moody’s displayed remarkable courage and foresight with a timely downgrade of Eneron from investment status to junk a full 3 weeks before Enron was delisted. Indeed the chart shows how much on the ball Moody’s was (and still is).

Game Is Rigged

Bear in mind that the big three rating agencies (Moody’s, Fitch, and the S&P) have government sponsorship, thus the game is rigged. Please see Time To Break Up The Credit Rating Cartel for details.

As long as the game is rigged (and it is very rigged), US debt will continue to be AAA rated until even pathetic Moody’s cannot take it anymore, or governments sponsorship of the big three ends.

Mike “Mish” Shedlock

Tyler Durden

Marc Faber discusses America’s unsustainable debt load in this interview with Margaret Brennan on Bloomberg TV. An amusing observation: the GDP growth from each $1 of new total debt has dropped from $0.25 to -$0.60. Also some much deserved Bernanke and Krugman bashing. Why it is so difficult to realize that the only way out of the crisis is to cut corporate and sovereign debt, we don’t understand. Ah yes, because for that to happen, equity values across virtually all of the US economy would be wiped out… And that would destroy the myth that there is any real equity value in America.

Full Faber interview.

via Gurufocus, h/t Mike

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Highchartpatterns

Very good digestive action by the market (as long as we stay in this range) and we haven’t made any trades. We’re still long and strong CENX TC FCX ANR MOS MEE BVN NUE XLE SMH SQM.

Why do we like this action? Take a look at the following charts and see how today we’re basing right under resistance. Sharp moves up would be sold but a base and stair-step higher would be much more effective in trapping the bears.

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Courtesy of Joe Weisenthal at Clusterstock/The Business Insider

Now, the ball is put back onto the banks because many have exposure to the
areas of Europe that are facing substantial fiscal problems right now. According
to the Wall Street Journal, U.K. banks have $193 billion of exposure to Ireland.
German banks have the same amount of exposure and an additional $240
billion to Spain. Many international bond mutual funds also have sizeable
exposure to sovereign debt of Portugal, Ireland, Greece and Spain as well.
Contagion risks are back. Stay defensive and expect to see heightened volatility.
In a nutshell, toxic assets have basically been swept under the rug in the hopes
that we will outgrow the problem. Leverage ratios across every level of society
are still reaching unprecedented levels as the public sector sacrifices the
sanctity of its balance sheet in its quest to stabilize the dubious financial
position of the household and banking sectors in many parts of the world.

Whatever bad assets have been resolved have almost entirely been placed on the
books of governments and central banks, which now have their own particular set
of risks, as we have witnessed very recently in places like Dubai, Mexico, and
Greece, not to mention at the state and local government level in the United
States. We simply have not seen a reduction in the percentage of properties with
mortgages that are “under water”, hence the FDIC has identified 7% of banking
sector assets ($850 billion) that are in “trouble”, so how can it possibly be that the
financial system is anywhere close to some stable equilibrium?
When accurately measured, including the shadow inventory from bank
foreclosures, there is still nearly two year’s worth of unsold housing inventory in
the United States, and commercial vacancy rates are poised to reach
unprecedented highs, and this excess supply is bound to unleash another round
of price deflation and debt defaults this year. The balance sheets of
governments are rapidly in decline across a broad continuum, and it is
particularly questionable as to whether Europe is in sound enough financial
shape to weather another banking-related storm.

The global economy is set to cool off. Not only is China and India warding off
inflation with credit tightening measures but most of the fiscal and monetary
stimulus thrust in the U.S.A. and Canada is behind us as well. And, the fiscal
tourniquet is about to be applied in many parts of Europe, especially the PIIGS
(referring to Portugal, Ireland, Italy, Greece and Spain — these countries account
for a nontrivial 37% of Eurozone GDP). Greece’s GDP has already contracted by
3.0% YoY, as of Q4, and is expected to contract 1.1% in 2010 and 0.3% in 2011
as a 13% deficit-to-GDP ratio is sliced from 13% to 3% (assuming this fiscal goal
can be achieved politically). Portugal has a 9.2% deficit-to-GDP ratio that is in
need of repair and Spain has a deficit ratio that is even worse, at 11.4% of GDP.

The bottom line is that even if the fiscally-challenged countries of Europe do not
end up defaulting, or leaving the Union, the reality is that they will have to take
draconian measures to meet their financial obligations. Devaluation was the
answer in the past in Greece but it cannot rely on that quick fix this time around
without leaving EMU and if it did, then that could make it even harder to service
its Euro-denominated debts — at least not without a restructuring. And, if
Greece did attempt at a debt restructuring, rest assured that Italy, Spain,
Portugal and Ireland would be next — we are talking about a combined $2 trillion
of potential sovereign debt restructuring that would more than triple the $600
billion direct cost of the Lehman bankruptcy.

This poses a hurdle over global growth prospects at a time when Asia will feel
the pinch from the credit-tightening moves in China and India. And heightened
risk premia will also exert a dampening global dynamic of their own in terms of
economic decision-making by businesses and households alike. The intense
sovereign risk concerns are not limited to Europe either. In the U.S.A. we saw
CDS spreads widen out to their highest levels since the equity markets were
coming off their lows last April. According to the FT, the Markit iTrax SivX index
of CDS on 15 western European sovereign credits rose above 100bps on Friday
for the first time ever.