As Russia steadily slashes its military spending and announces cuts will continue for the next five years through 2022, the US is going in the other direction and shoveling ever more fantastic sums of money into the military and parasite defense corporations. (Around half of Pentagon budget now goes to contractors.) Ironically the might of the most powerful empire the world has ever seen now rests on the goodwill, generosity (and ignorance) of those held down or threatened by it. russia-insider.com click here
The US trade deficit was $559.9 billion in 2011, $540.4 billion in 2012, 474.86 billion in 2013 During fiscal year 2013 the U.S. Treasury paid 415 billion dollars in interest payments to finance the already-existing debt. Annual interest payments for individuals, households, businesses, and all levels of US government are likely to reach $3 trillion out of an estimated $17.4 trillion annual GDP. The United States has the world's seventh-highest per capita GDP GDP can be contrasted with GNI gross national income also known as GNP. The U.S. GNP gross national product is the value of output produced by American-owned firms, regardless of where the firms are located. These differences mean that GNP is a more accurate measure of a country's income than its production.
Biggest Credit Bubble in History Runs Out Of Time
It blew the loan out the back door as a special dividend which it owners pocketed with gusto April 24, 2014 It has been a feeding frenzy for junk debt. Yield-desperate investors, driven to near insanity by the Fed’s strenuous interest-rate repression, are holding their noses and closing their eyes, and they’re bending down deep into the barrel and scrape up even the crappiest and riskiest paper just to get that little extra yield. Last year, highly leveraged companies issued $1.1 trillion in junk-rated loans. It’s a white-hot market. Leveraged-loan mutual funds dolled up in conservative-sounding names and nice charts to seduce retail investors gorge on these loans. They saw 95 weeks in a row of inflows, week after week, without fail, adding over $70 billion to their heft, as Bloomberg reported, and only the sky seemed to be the limit. But suddenly, that endless flow of money reversed. “It’s going to be a disaster on the way out,” Mirko Mikelic, who helps manage $7 billion in assets at ClearArc Capital, told Bloomberg. “On the way in, there’s insatiable demand....” Simplest way to strip cash Private equity firms have been ruthlessly taking advantage of that “insatiable demand.” And they have a special self-serving trick up their sleeve: Their junk-rated overleveraged portfolio companies issue new loans, but instead of using the funds for expansion projects or other productive uses, they hand them out through the back door as special dividends. It’s one of the simplest ways PE firms use to strip cash out of their portfolio companies. It loads even more debt on the already highly leveraged portfolio company without adding productive capacity. And those who end up holding this debt for example, the mutual fund in your portfolio have a good chance of losing it all. “It’s kind of like an epidemic,” explained Martin Fridson, a money manager at Lehmann, Livian, Fridson Advisors LLC, in an interview with Bloomberg.
“Once an investment banker sees that, he’s going to go to his clients and say, ‘Here’s a window of opportunity, you can take a dividend and get away with it.’”And they’ve been getting away with it. Default rates on junk debt hovered at 1.7% in the first quarter, a near record low. But that’s always the case when liquidity sloshes through the system and years of interest rate repression turns yield investors into brain-dead zombies, always willing to replace troubled debt with new money. But the historical average is 4.5%, and when things tighten up, as they did during the financial crisis, default rates jump into the double digits [read.... Biggest Credit Bubble in History Flashes Warning: ‘Seek Cover’]. They’re all doing it. Junk-rated mobile-phone insurer Asurion finagled a $1.7 billion loan in March. But instead of doing something productive with the funds to generate cash flow to service the loan, it blew the money out the back door as a special dividend which it owners PE firms Madison Dearborn Partners, Providence Equity Partners, and Welsh Carson, Anderson & Stowe pocketed with gusto. BMC software BMC software borrowed $750 million via one of the riskiest forms of debt, payment-in-kind (PIK) notes, where, if push comes to shove, BMC can chose to pay interest not with cash but with more of the same debt. The amount it owes gets larger, as its chances of survival shrivel. Instead of defaulting, the company will simply hand the lender more paper that’s increasingly worthless. BMC promptly forwarded the $750 million to its owners, a group of PE firms let by Bain Capital that had acquired BMC only seven months earlier. Time is of the essence. Platinum Equity, which had acquired Volvo’s rental car division, waited only a week after closing the deal before sucking $262 million out that the company had obtained by issuing PIK debt. So far this year, these already overleveraged companies have issued nearly $21 billion in junk-rated debt for the purpose of paying special dividends to the PE firms that own them the most since the bubble of 2007, before it all blew up spectacularly. Of that, $3.5 billion were these reeking PIK notes. When a default occurs, the PE firms have the cash, and the lenders get stuck with largely worthless paper. That’s what invariably happens when the Fed’s interest rate repression pushes investors out toward the thin end of the risk branch. During normal times, no sane lender would go along with this without demanding a confiscatory yield. The door would be closed to these sorts of glaring wealth-transfer shenanigans. But these are not normal times. This is the greatest credit bubble in history. Most insatiable buyers leveraged-loan mutual funds Among the most insatiable buyers of this stuff: leveraged-loan mutual funds, and by extension, retail investors. But now, they’re getting cold feet, apparently, and for the first time, after 95 weeks in a row of inflows, they yanked money out, Bloomberg reported. Not a panic just yet, but the flow has reversed. In the week ended April 16, they drained $276 million out of these mutual funds. And these funds are starting to bleed. The LS&P/LSTA Leveraged Loan 100 Index, which sports a 5-year annual return of 10.5%, dipped into the red for April and might book its first monthly loss since the taper-tantrum turmoil last summer. Mutual funds that hold leveraged loans are fearsome products. They entice investors with a little extra yield, but still less than an FDIC insured one-year CD used to pay in the pre-crisis days. That’s how far the Fed has pushed it. But these loans are even less liquid than corporate bonds. Unlike bonds or stocks, they’re not regulated. They’re traded the old-fashioned cumbersome way, via email or even the phone, involving complex paperwork that may take weeks to complete. It’s not easy to transfer a loan. And when belatedly spooked investors start selling these mutual funds, fund managers are forced to dump loans into a market where liquidity just evaporates without notice. Prices plunge on the sales that do go through and those who get out first, bleed the least. Yet, former Fed Chairman Ben Bernanke doesn’t regret any of the Fed’s actions, he said, except not explaining them to the people. They “really don’t understand why we did what we did,” he said. But there are a few people who do understand. Read.... Fed’s Wealth Effect: Richest 200 Moguls Made $13.9 Billion Today This article on TestosteronePit.com with links click here
Copyright © 2011-2014, Wolf Richter. All rights reserved.
If a country becomes increasingly in debt, and spends large amounts of income servicing this debt this will be reflected in a decreased GNI but not a decreased GDP. Similarly, if a country sells off its resources to entities outside their country this will also be reflected over time in decreased GNI, but not decreased GDP. GDP is more attractive for politicians in countries with increasing national debt and decreasing assets. The United States GNP for 2013 was 16.188 Trillion US dollars David M. Walker, Comptroller General of the US and head of the Government Accountability Office, in his December 17, 2007, report to the US Congress on the financial statements of the US government noted that "the federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2007." The US government cannot pass an audit. The GAO report states accrued liabilities of the federal government "totaled approximately $53 trillion as of September 30, 2007". The estimated net worth of all Americans including all business is about $47 trillion, reducing and increasing as property and company value reduces and increases.
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As Jews we march with the Palestinians and raise their flag!
His Majesty King Abdullah — The American Magazine November 1947
Norman Finkelstein, Professor Marc Saperstein and Middle East Journal
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