Posted on 06/06/2010 7:28:41 AM PDT by Zakeet
Three days into the month, and the Treasury has already redeemed $169 billion in debt, of which $137 billion in Bills. Run-rated (for Bills alone) this is about $5.5 trillion annually, or basically 63% of all marketable US debt. And somehow the Treasury is lowering the amount of new bond issuance beginning next week. We wonder just where Tim Geithner will get the much needed cash to plug not only the increasing daily deficit spending (today alone the US burned $21 billion net of debt transfers, gross the number was even worse), as well as to fund daily rolls once rates start eventually increasing. This is financial suicide, although the Treasury knows that all too well. It is now stuck in a corner and has no way out than to hope for the best.
Total US debt today was $13.06 trillion. Total debt on March 6, 2009 was $10.95 trillion. The government has spent $2.1 trillion dollars to create a bear market rally which has now fizzled, and to fund a fiscal stimulus that is now dancing its death rattle. GDP will now gradually roll over, the unemployment rate will once again start increasing, diffusion indices, manufacturing and all other economic output will begin declining, but not before the bill is in. It cost Americans $2.1 trillion in debt to generate a 14 months sugar high (for which all will promptly receive a much higher tax bill). Luckily, we will never pay this debt off, so perhaps "the joke is on them" after all.
More smoke and mirrors. If they were solvent, Immelt wouldn’t have gone begging to Obama, who had Congress:
A)Provide Government guarantee of their bonded debt until 2012 to maintain their credit rating.
B)Formulate recent financial reform legislation to “define” a bank as an entity that gets 86% or more of its revenue from finance related activities. GE comes in at 83%, I believe. How totally frickin’ convenient.
So I guess that means you have no source?
If they were solvent, Immelt wouldn’t have gone begging to Obama,
They can't be solvent and still beg for government handouts?
You want a source? Here ya go. Stansberry called the bankruptcy of GM, Fannie & Freddie, Lehman & others well before they happened. GE is treading water. Read on...
Why Big Companies Go Bankrupt by Porter Stansberry 11/2009
The government of the United States reflects its people. And over the last 35 years, we Americans have added more debt to our balance sheets – both public and private – than any society ever before in human history.
This is dangerous in many ways. And it’s not only our government that’s at risk of going bankrupt – as the Greenspan-Guidotti rule will prove. Many of our largest corporations also drank the debt “Kool-Aid.” Take, for example, General Electric (NYSE: GE).
I’ve been following the debt situation at this iconic manufacturer closely since the early 2000s. I wrote a series of essays about the soaring amounts of debt in America in 2002 and 2003 called Generation Debt. (You can find reprints of these essays on the Internet)
Long before most analysts worried about mortgages and corporate defaults, I was writing about the huge risks to our economy coming from homeowners and business owners who were taking on far too much debt. My top example of a U.S. corporation that was adding far too much debt to its balance sheet was GE.
“Since 1992, GE has been a net borrower. How could America’s best company be a net borrower for ten years? Well, look at what the company is doing to make money, and it’s easy to figure out. About 50% of the company’s total debt is in the form of short-term paper – the 90-day commercial paper market it can access thanks to an AAA rating by Moody’s. The company uses this debt, which carries a low interest rate, to finance credit cards, which carry a high interest rate. If you walk into J.C. Penney or Macy’s and take out a credit card, chances are pretty good that you’re on the hook to GE. In total, GE Capital has spent $43 billion on buying such receivables in the last three years alone. And here’s the scary part. Fifteen times since 1997, the company has sold a large batch of these securities (at a loss?) less than three weeks before the end of a quarter. That’s how the company is able to match its earnings forecasts so precisely. Meanwhile, GE’s debts have mounted. Today, its balance sheet stands precariously at four times debt to equity. Why take such risks? Because these debt-laden acquisitions accounted for 40% of GE’s revenue growth from 1985 to 2000, according to Merrill Lynch analyst Jeanne Terrile (who retired immediately after publishing her study of GE’s use of debt).” – Porter Stansberry, The Debt Generation, November 26, 2002
Since 2002, when I wrote that essay, General Electric has produced $140 billion in free cash flow – real profits. It has borrowed an additional $178 billion (not including unfunded pension liabilities). Thus, it has continued to be a net debtor. GE now owes its bondholders $435 billion. It has another $248 billion in current obligations. That is not a misprint: GE owes its creditors $683 billion.
Why would GE borrow so much money?
Like all of the companies we warned you about last year (Fannie, Freddie, Bear Stearns, Lehman, GM, etc.), GE’s asset base produces only average returns. Over the last 20 years, GE’s annual return on assets has averaged 5.7% and only exceeded 6% three times. For most of the period, an investor would have done better in Treasury bonds than in GE’s assets.
So how did GE report enormous returns on equity? For the last 20 years, GE’s average annual return on equity was more than 20%. Did it fudge the numbers? No, it simply used enormous amounts of leverage.
Today, GE owns net tangible assets of only $17 billion. Thus on a tangible basis, GE is currently leveraged by more than 30-to-1. That’s roughly the same leverage employed by Lehman, Bear Stearns, and Merrill Lynch. A 3.3% decline in the value of GE’s asset base would wipe out all of its tangible equity.
In GE, we see all of the signs of an unavoidable bankruptcy. It’s built a long history of net debt accumulation. It carries huge amounts of short-term debt. (Specifically, before the end of 2012, GE must repay or refinance $240 billion.) It has a tremendous pile of average to below-average assets, many purchased at inflated prices. GE’s long-term asset base grew $200 billion (or 30%) between 2003 and 2008. GE is now engaged in a desperate effort to sell assets: 145 different divestitures, totaling at least $100 billion.
Finally, there’s the “kiss of death.” We know GE’s funding costs on its debts are about to soar. It has lost its triple-A rating and will most likely continue to be downgraded. In fact, last year, the U.S. government had to guarantee $500 billion in GE’s debt. Without the guarantee, GE would have gone bankrupt already.
With the guarantee, GE only spent $4.3 billion on interest in the last quarter. So on an annualized basis, GE is now spending roughly $17 billion each year to service its $683 billion in debt. That’s an annualized interest rate of 2.4%. This is not sustainable. Sooner or later, GE is going to have to pay a market interest rate. The government guarantee expires in 2012.
Currently, the yield on high-yield corporate debt is around 10%. Egan Jones, the only reliable ratings agency, now rates GE two slots above “junk.” Even if we assume GE could still qualify as an investment-grade credit – which is a generous assumption – it would pay something like 8% on its debt in a free market. That would cost more than $41 billion a year. Last year, GE earned $45 billion before interest and taxes – in total. It spent $33 billion of these profits on capital expenditures and necessary investments – expenses required to keep the business going. That left it with about $12 billion in what we call “owner earnings.” That’s not nearly enough money to pay the interest on its debts – whether the government backs them or not.
Imagine if the interest on your mortgage consumed 91% of your pre-tax earnings. Could you possibly avoid bankruptcy? No way, right? But there’s a big difference between owing the bank a few hundred grand and owing folks more than $500 billion. Last year, even though GE couldn’t actually afford its debts and required a government bailout, it spent $12.4 billion on dividends for common-stock holders. That’s 20% more than it spent on dividends in 2006! (GE finally cut its dividend by 70% in February 2009. It will be eliminated soon, I promise. Its creditors will finally wake up and demand it.)
The history of voting in this country since the 1930’s tells us that the only way to save the Constitution is for the socialists to finally run out of other people’s money. There is no other way to get the voting public to understand that the freebies aren’t really free.
We need to go “back to the constitution’s Federal role” at an organized, larger and louder force or we will lose the Republic. I hope the Tea Party and organized patriots are ready to rock and roll immediately because the NWO leglislation is waiting in the wings and will be pushed immediately!
Looks like $133 billion worth.
(Specifically, before the end of 2012, GE must repay or refinance $240 billion.)
I guess it's a good thing they have $124 billion in cash.
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Net recievables jumped by more than 10x during the worst recession since the Great Depression? Methinks there is something wrong with that balance sheet. Looking at the trends, I might believe $35.98 billion in recievables. But that strips $323.88 billion from that sheet, making GE one of those companies in deep kimchee.
Tell me if I am wrong. I haven’t looked up their numbers myself, but it isn’t likely they multiplied their business by one order of magnitude in the climate of 2009.
Never mind. I figured it out. They sold all of their long-term assets in order to maintain a positive cash flow. Ate the seed corn, as it were. I’d short GE, if I was one to dabble in that market.
I think they reclassified accounts receivable as loans receivable. Don't ask me why.
I don't think so.
Here's a different source. Maybe this one is clearer?
And.... an incoming tide raises all boats.
You will be provided with a wage increase so you’ll have 96 of the $100 needed for the bread.
Your mortgage holder who has already been overcompensated and is sitting on the windfall will be the one taking the coming hit.
Much clearer, thanks.
Y'know, I may be adjusting my tinfoil hat a little too tightly, but you may have a point. I've wondered for a while now WHERE these bills were written, and BY WHOM? Thousands of pages 'overnight' are impossible; they must have been already written by someone. Who? Why can't even FOX news tell us?
There's a good rule that dismisses most conspiracy theories right out of the box: "Don't ascribe to cunning what can adequately be explained by incompetence." Unfortunately, multi-thousand-page documents don't smack of the stunning incompetence shown by Obama and the rest of his administration. So, is it all a ruse, or just even more boneheaded than we presently realize?
It is not a conspiracy theory if they have already done it. Who wrote the bailout leglislation passed in the dark of night - WITH NO ONE READING IT. The same with the leftist “stimulus” package.
The new world order leglislation is ready and waiting for the proper moment of despiration. Rinos know the plan and they support it.
In short we are screwed...
If we make it through to the end of the year, I’ll be surprised...But it will be short lived...
What’s funny...It’s going to be a hoot to watch the expressions of a majority of people in this country when the rug does get pulled out from underneath us all...
The Republicans who are going to make great strides in November had better have a plan ready to fire off before it happens though...
I have plenty of microwavable popcorn, and a bicycle generator to run it when the time comes, so I can sit back in comfort to watch the show...
Got the book, "Surviving the Economic Collapse", and have been recommending it to others. It's nice to find out he's a FReeper.
Laundering money printed by the Fed is a better term. Essentially, what the Fed is doing is loaning big banks large sums of money at zero percent interest. The banks in turn buy T-bills with 3% return. Is it any wonder that banks are not lending money? They're getting a 3% return with little or no short term risk. I'd take those odds......
If they’ll loan me money at 0%, I’ll take 2% interest - they can save a percent...
If you're talking about borrowing at the discount window, borrowings are currently about $1.017 billion.
The banks in turn buy T-bills with 3% return.
T-bills mature in one year or less. One year bills currently yield 0.341%. The current discount rate is 0.75%.
They're getting a 3% return with little or no short term risk.
You're only off by about 89%. You don't think borrowing at 0.75% and lending at 0.341% is a money maker, do you?
To get 2%, you’d have to buy 5 year T-Notes. And you can’t borrow from the Fed at 0%. Sorry.
Excuse me, I meant Treasuries, not T-bills.
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