The world says "how the hell are you going to pay for that?!"

Isn't it funny that the only people concerned about actually funding our pork-laden "stimulus" packages are those outside our borders. This, coming from recent statements from Obama declaring that "this is only the beginning" and further stating the current bill is only a down payment on the eventual downfall of this country.

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As the U.S. Congress looks for ways to expand President Barack Obama's $819 billion economic stimulus package, the rest of the world has an urgent message to convey: Tell us how you are going to pay for it without drowning the world in debt.

Few observers here at the World Economic Forum debate the need to restart America, the world's largest economy, with a package that could hit $1 trillion over two years. But the long-term danger of increased borrowing by the U.S. government, and its potential to drive up inflation and interest rates around the world, seems to be getting more attention in Switzerland than in Washington.

"The U.S. needs to show some proof they have a plan to get out of the fiscal problem," said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis of its own in 1994. "We, as developing countries, need to know we won't be crowded out of the capital markets, which is already happening."

Unlike other countries in a financial jam, Zedillo added, Washington has the option of simply printing more money, since the dollar is a reserve currency for the rest of the world. But over the long run that could force long-term interest rates higher and drive down the value of the dollar, undermining the unique benefits that come with the U.S. currency's special status.

Until now, most of the fears about surging government debt have focused on borrowing by European countries like Spain, Greece and especially Britain, which is in the midst of its own huge bank bailout. That recently pushed the pound to a 23-year low against the dollar, and prompted some Londoners to wonder whether their city was turning into "Reykjavik-on-Thames" - an allusion to Iceland's financial meltdown.

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Think we're on the road to recovery?

Think again.

The World Won't Buy Unlimited U.S. Debt

By Peter Schiff

Barack Obama has spoken often of sacrifice. And as recently as a week ago, he said that to stave off the deepening recession Americans should be prepared to face "trillion dollar deficits for years to come."

But apart from a stirring call for volunteerism in his inaugural address, the only specific sacrifices the president has outlined thus far include lower taxes, millions of federally funded jobs, expanded corporate bailouts, and direct stimulus checks to consumers. Could this be described as sacrificial?

What he might have said was that the nations funding the majority of America's public debt -- most notably the Chinese, Japanese and the Saudis -- need to be prepared to sacrifice. They have to fund America's annual trillion-dollar deficits for the foreseeable future. These creditor nations, who already own trillions of dollars of U.S. government debt, are the only entities capable of underwriting the spending that Mr. Obama envisions and that U.S. citizens demand.

These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones. To do otherwise would implode the market for U.S. Treasurys (sending U.S. interest rates much higher) and start a run on the dollar. (If foreign central banks become net sellers of Treasurys, the demand for dollars needed to buy them would plummet.)

In sum, our creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver.

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Whistleblower: NSA spied on everyone, targeted journalists

Former National Security Agency analyst Russell Tice, who helped expose the NSA's warrantless wiretapping in December 2005, has now come forward with even more startling allegations. Tice told MSNBC's Keith Olbermann on Wednesday that the programs that spied on Americans were not only much broader than previously acknowledged but specifically targeted journalists.

"The National Security Agency had access to all Americans' communications -- faxes, phone calls, and their computer communications," Tice claimed. "It didn't matter whether you were in Kansas, in the middle of the country, and you never made foreign communications at all. They monitored all communications."

Tice further explained that "even for the NSA it's impossible to literally collect all communications. ... What was done was sort of an ability to look at the metadata ... and ferret that information to determine what communications would ultimately be collected."

According to Tice, in addition to this "low-tech, dragnet" approach, the NSA also had the ability to hone in on specific groups, and that was the aspect he himself was involved with. However, even within the NSA there was a cover story meant to prevent people like Tice from realizing what they were doing.

"In one of the operations that I was in, we looked at organizations, just supposedly so that we would not target them," Tice told Olbermann. "What I was finding out, though, is that the collection on those organizations was 24/7 and 365 days a year -- and it made no sense. ... I started to investigate that. That's about the time when they came after me to fire me."

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My response to CNBC's "call to action"

In response to this article:

http://www.cnbc.com/id/28756488

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Bob,

I appreciate your efforts to get folks to contact their banks about the bailout. However, I have a couple comments on your opinion on the TARP.

The bailout money was never meant to be loaned out. Paulson used bait and switch tactics and fear mongering to get it passed through Congress, even going as far as to threaten martial law if the bill was not passed. Once he got the largess, it was off to the races for him. Do you think he was stupid enough to "overlook" the part about banks being required to account for it? Of course not. Do you think it was coincidence that he scrapped the part about helping homeowners in the last moment, unbeknownst to Congress? Of course not. Paulson knew exactly what he was doing. There were even reports that Paulson encouraged banks to buy smaller banks with the TARP money. In the end, this is just a perpetual power grab for the banks (who control the government), a grand opportunity for consolidation of bank power, thus increasing exponentially their power over all of us. Lets not forget that Paulson was a former CEO of Goldman Sachs. Just about every power player in the Treasury or Federal Reserve is a former Wall Street tycoon. Lets not be naive about this.

Lets say that the money was given to the banks and it was loaned out to consumers. What good would that do? This country is swimming in debt, the average person is scared to death right now because they are losing their job, their home, and they have a mountain of debt riding on their shoulders. How can the solution to this problem be MORE debt? How can any logical person come to that conclusion? Sure, 72% of the economy is based on consumer spending, but that is the PROBLEM that needs to be corrected! We cannot continuously spend our way to phony growth, it just isn't sustainable. We need to get back to manufacturing things, exporting things, which creates REAL wealth, not some phony wealth created from the stroke of a keyboard.

Another scenario: what if consumers don't want any more debt via mortgages, loans, and credit card debt? Do our powers that be ever think of that? People are waking up to the fact that the banks are no good; credit card companies are mere loan sharks in the purest form. Companies that charge 30% interest rates and still cannot survive need to fail and fail miserably. The citizens of this country are doing what they need to do: paying off their debts and saving their money. They cutting back on their purchases and taking care of their basic needs to repair THEIR balance sheets (without the help of a government bailout, mind you). This is what needs to happen in order for this country to heal, and it won't be easy. However, if the government thinks they can ride in on their white horse and pour endless amounts of money into a rabbit hole to prop up prices and failing institutions, we are in for a gauntlet of misery for decades to come.

A little logic goes a long way.

Geithner to be confirmed, proving once again that the Treasury Secretary is untouchable

Would you be hired as a police officer if you were caught with a meth lab? Would you be hired as a firefighter if you had past convictions as an arsonist? Would you be hired as a pilot if you had a history of crashing planes?

Of course not. These obvious statements of logic do not apply to the Federal government, however.

Don't you just love the political appointee system. Or is there a system at all? Apparently not, since it's been proven on several occasions that the backgrounds of appointees have no bearing at all on their confirmation, no matter how egregious. The peons are forced to resign, simply because their posts are too insignificant relative to the negative press on the administration (re: Bill Richardson). However, posts like Treasury Secretary will not be given up. Tim Geithner is likely to be confirmed as Treasury Secretary, despite failing to pay taxes in several years. I remind the casual visitor that this guy will be heading up the...wait for it...IRS. More than that, this guy is supposed to be a brainchild, a wizard, a financial genius, yet it is beyond the scope of his skillset to properly fill out his tax form, or pay up when the error was brought to his attention.

Dare us question the intentions of King Secretary, who has been instrumental in the looting of the American taxpayer with bank giveaways. According to our great media, "Geithner is likely to be confirmed because he was so instrumental in the process alongside Paulson." Fantastic, wouldn't that be a reason NOT to confirm him? Does Congress forget that the first 350 billion (along with trillions more that is not reported in our media) was a complete failure under Paulson and his brain trust Geithner? I guess so, because the guy will be confirmed no matter what, and the looting will continue.

The perpetual debt death spiral, at the expense of the innocent, will continue as planned.

"Sharing the pain" when you didn't create it in the first place

By Mish's Global Economic Trend Analysis

President Obama has called for sacrifice and sharing. I wholeheartedly agree.

However, before sharing the pain, and before working towards a solution, we must understand the problem. To date, many mistakes have been made because Congress, the Fed, and the previous administration did not attempt to understand the problem and the role everyone played in it.

Fed's Role

The Greenspan Fed slashed interest rates to 1% in 2002 fueling the biggest housing bubble in history.

Furthermore, Greenspan was the biggest cheerleader of derivatives and subprime lending on the planet. Fed Governor Ben Bernanke went along with Greenspan every step of the way. The serial bubble blowing tactics of the Fed that must be eliminated at all costs.

It should be clear now that the Fed does not know, and is guessing every step of the way what interest rates should be, and is also guessing what the solution to this mess is.

Congressional Role

Congress refused to rein in the GSEs and ignored repeated warnings by many to cutoff their lending. Fannie Mae and Freddie Mac were accidents waiting to happen.

It simply is not Government's job to promote housing in the first place. Promotion of housing caused prices to go up (until they crashed) and this is why Congress was always chasing its tail perpetually looking for affordable housing solutions. The very sponsorship of affordable housing programs guarantees that affordable housing will not exist.

In addition, Congress threw money at every problem, built bridges to nowhere, and wasting a trillion dollars on a war in Iraq fought on trumped up charges of weapons of mass destruction. All of those things cheapened the US dollar and kicked off a commodities bubble that has also crashed.

State Legislatures Role

State legislatures are also to blame. 44 states now have large budget deficits. California in particular is a basket case. States believed the housing party would last forever and failed to fund pension plans while squandering money on all kinds of irresponsible pet projects. Property taxes rose to and remain at unsustainable heights. States are now running out of money to fund all the projects and benefits they have promised.

My biggest fear right now is Congress will throw money at the states, without requiring them to make the sacrifices that need to be made. Spending must be cut, programs must be cut, benefits must be slashed, and pensions must be capped.

I ask that not one cent of Federal (taxpayer) money go to any state that does not make the necessary sacrifices. Part of that sacrifice must be a reduction in pay by the Governor and legislature of every state.

I commend Ohio Governor Ted Strickland for having the courage to ask for across the board union pay cuts. That is a start, but it is only a start.

Pension Plans

Pension plans are a particularly sore point for many citizens. Promises have been made to unions that cannot be kept. Such promises caused the bankruptcy of the city of Vallejo, California. Other cities are sure to follow.

Wages and pension benefits of all government employees needs to be brought inline with wages and benefits in the private sector. There is no other way out. Pension benefits must be capped for all new state and federal hires. Taxpayers should not have to bear the pain for funding massive benefits for government employees when they have no such opportunities for themselves.

Fractional Reserve Lending

Unquestionably bank greed came into play. Massive leverage and off the book SIVs by Citigroup and others certainly played a role. However, it is important to understand the Fed's role as an enabler.

The culprit in this case is fractional reserve lending. This fraudulent policy, sponsored by the Fed, allows more credit to be extended than there is base money supply. This was the enabler that allowed banks to lend and securitize over and over and over again, recording fake profits every step of the way.

Over time, asset bubble form such as the bubble in housing. To keep the bubble going, the Fed printed more and more money, and banks extend more and more credit. As with every credit bubble, there eventually there comes a day reckoning when what has been lent out, cannot possibly be paid back. That day of reckoning is now.

In simple terms the Fed is a sponsor of the world's biggest Ponzi scheme. The scheme has now blown sky high, as money to keep the bubble growing simply ran out. That is why 10 new Fed programs have failed to produce any results.

Unless and until fractional reserve lending is eliminated, these kinds of problems will reappear. I ask Congress to disallow fractional reserve lending. It cannot be done at once, but it can be phased in over time. It will be a painful process but banks must share in the pain for their role in the mess.

Role of the SEC

Many blame the rating agencies for the ridiculous AAA ratings on mortgage backed securities. The rating agencies deserve criticism, but one must take the problem back to the root source. It was SEC sponsorship of the rating agencies that actually created the problem.

The origin of the rating game mess dates back to 1975 with the establishment of the Nationally Recognized Statistical Rating Organization (NRSRO) by the SEC.

NRSRO turned upside down the model of who had to pay. Previously debt buyers would go to the ratings companies to know what they were buying. In the revised model, the issuers of debt had to pay to get it rated or they couldn't sell it. Not only that, but they have to be rated by one of the rating agencies approved by the SEC.

This led to shopping around to see who would give the debt the highest rating. In the new model, the rating agencies got paid by the quantity of the work they did rather than the quality of the work they did.

Now there are calls for regulation and oversight of the ratings agencies. However, the simple and correct solution to this problem is to eliminate government sponsorship of the rating agencies returning to the model where the rating agencies get paid by the quality of their work rather than the quantity of it. I guarantee this solution will work.

Why Banks Aren't Lending

Money was given to banks and many members of Congress are asking for banks to increase lending. I suggest that instead of attempting to force banks to lend, that Congress seek reasons why banks are not lending. Here is the answer.

1. Banks are still insolvent after all those capital injections. There is simply no capital to lend. Book values of banks, if credit were to realistically be marked to market is negative.

2. There is no reason to lend. What do we need more of? Cars? Pizza Huts? Houses? Nail Salons? Malls? Furniture? What? Nothing is what. There is no consumer demand because there are no jobs.

It is a serious, serious mistake to force banks to lend at this point. All it will do is increase bank writeoffs.

A Word About Jobs

In spite of what Krugman and other economists say, Government cannot really "create" any jobs per se. It can raise taxes and shift private sector jobs creation to government jobs (typically a malinvestment), and it can bring production and consumption forward for those jobs that are genuinely needed (filling potholes and repairing bridges), but once the potholes are filled and the bridges repaired, one has to ask the question, "What will we do for an encore?"

There is no free lunch. It is impossible to spend one's way out of a hole. It cannot be done and should not be tried. Japan proved it. So did FDR. Ultimately it was World War II and the destruction of much of the world's productive capacity that ended the great depression. The US was relatively untouched by the war, and could lead a worldwide recovery.

That said, there is a genuine need to repair infrastructure and that need must be done at the cheapest possible price.

I Urge Congress To Scrap Davis Bacon

When it comes to jobs creation, we need to get the most work done for the cheapest amount. The way to do that is to scrap the Davis-Bacon act. Economist Greg Mankiw writes:

"More public projects would pass a cost-benefit test if we repealed the Davis-Bacon Act. This law requires contractors on these public projects to pay "prevailing wages," which are typically union wages well in excess of what would occur in a free market. If the government paid market-determined wages for infrastructure projects, we could have both more infrastructure and less government debt. Without doubt, that legacy would benefit future generations."

Where's The Apology?

Now that the bubble has burst there has not been one peep from Bernanke for his role in the mess. Nor has there been an apology from Barney Frank or anyone in Congress for their role in this mess.

What about an apology from governors and state legislatures for their role in the mess. How about an apology from the SEC?

Instead we are told we must share the pain. Here is a synopsis of the plan to date.

Sharing The Pain Plan

Ordinary Taxpayers 100%
Banks 0%
Congress 0%
State Legislatures 0%
Bernanke 0%
Fed Governors 0%
Fannie Mae Bondholders 0%
Freddie Mac Bondholders 0%
FDIC executives 0%
SEC 0%

Is it any wonder the average person is up in arms over the bailouts. When does Congress share the pain? When do bank executives share the pain? When does Shelia Bair share the pain? When does Paulson share the Pain? When does Bernanke share the pain?

Bernanke, Barney Frank, and anyone else in Congress who supported Fannie and Freddie owe US taxpayers a huge apology. They should share in the pain.

Healing cannot begin until those responsible for the mess own up to their part in it. Instead, Congress is turning to Bernanke for answers when he failed to see the problem. If Bernanke could not see the problem, how can he possibly see the solution?

Bernanke failed to see this coming, denied it every step of the way, then threw 10 new programs at the credit crunch, all of which failed.

• I call for Congress to share the pain by cutting their own salaries.
• I call for Congress to not give one cent to the states unless they do the same.
• I call for a reduction in salaries at the FDIC, the SEC, and every Federal department.
• I call for a reduction in salaries at the Fed.
• I call for a reduction in salaries in state and local governments.
• I call for capping of pension plans everywhere in government.
• I call for Congress to revoke Davis-Bacon.
• I call for the end of SEC sponsorship of the rating agencies.
• I call for union concessions from the auto makers.
• I call for executives and all employees of banks and brokerages receiving money to share the pain.
• I call for an apology from all who contributed to this mess, including Bank and Brokerage executives.

Most of all, I call for the resignation of Fed Chairman Ben Bernanke, the abolishment of fractional reserve lending, and the end of the Fed itself, the latter to be phased out over an appropriate period of time.