Category Archives: Financial Scandals

$1 Trillion Platinum Coin: Yes, It Really Originated In A ‘Simpsons’ Episode | Jan 13, 2013

Sunday mornings represent prime time for political dicussions. Let’s limit ours to silly policy, platinum and The Simpsons. 

First off, let’s get this out of the way: The $1 trillion platinum coin will not happen. “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” says a Treasury spokesman.

Now, speculation and chatter swirled for weeks about the possibility, and more importantly, the fiscal feasibility, behind the trillion-dollar coin. Some very smart folks—right down to a former U.S. mint chief—suggested the Treasury could take advantage of a loophole, mint a $1 trillion platinum coin and ship it to the Federal Reserve. In theory it would then allow the U.S. to keep paying its bills, even though the country surpassed its $16.4 trillion debt limit. Another solution: Perhaps the government can issue IOU’s that we redeem at our local Wells Fargo or Bank of America.

Treasury, Fed Oppose Using Platinum Coin to Avoid Debt Ceiling

The coin thing sounded great, though, right? Well, it sounded a bit far-fetched…even more so when you consider that fiscal theorem originated in Los Angeles, not Washington D.C. It is, in fact, ripped right from the halcyon days of the late 1990s—when Butterfinger BB’s still existed, and The Simpsons was in its ninth season. In that stretch of episodes, there was one called The Trouble With Trillions, an amusing romp that alluded to Stark Trek and included Fidel Castro.

The Trouble with Trillions
Johnson sends Homer on a secret mission. They reveal that in 1945, President Harry Truman printed a one trillion-dollar bill (with his photo on it) to help reconstruct post-war Europe.

Here’s a succinct episode synopsis from Ed Yardeni, a widely followed economist, that my colleague, Chris Helman, unsurfaced for us from a Yardeni client note:

In 1945, President Harry Truman secretly printed a one-trillion-dollar bill with his photo on it. He did so to help pay for the post-war reconstruction of Europe. He entrusted Montgomery Burns with the mission of transporting the large denomination to the Europeans. However, the money never arrived, and the FBI suspects Burns kept the money. That’s the premise of an episode of The Simpsons, first aired on April 5, 1998 titled, “The Trouble with Trillions.” Homer Simpson is caught cheating on his taxes and is turned into an informant by the FBI. Along the way, the bill is stolen by Fidel Castro.

I looked for the episode on YouTube. Alas, Fox and News Corp. keep a tight lid on copyright content. I found only this, the bit in which Castro makes off with the $1 trillion bill:

That Yardeni included it in his daily market musings reflects how ridiculous the whole thing became. A discussion over an idea dreamt up more than a decade earlier as a Simpsons plot device.


US ‘seriously’ considering $1 trillion coin to pay off debt

A legal loophole means the US Treasury is able to mint a platinum coin and assign any value to it. Photo: Peter Macdiarmid/Getty Images

The US is “seriously” considering creating a $1 trillion platinum coin to write down part of its debt to stop the world’s largest economy defaulting as early as next month, according to financial analyst Cullen Roche.

A ‘Double Eagle’ gold twenty dollar coin is displayed at Goldsmith’s Hall in London. Nearly half a million of these coins were originally minted in the middle of the Great Depression in the US. Only 13 are known today after the rest were melted down before they ever left the US Mint, sacrificed as part of a strategy to stabilise the American economy. In 2002 a Double Eagle sold at auction for $7.6 million.

Telegraph | Jan 7, 2013

By Rebecca Clancy

Speaking to the BBC’s Today programme, Mr Roche, founder of Orcam Financial Group and blogger at Pragmatic Capitalism, said the idea was being taken “somewhat seriously” in Washington.

“I know it’s been spoken about at the White House and a number of prominent people, including congressman, are talking about it,” he said.

In theory the US Treasury would mint the coin and deposit it into its own account at the Federal Reserve, which would allow the government to write down or cancel $1 trillion of its $16.4 trillion debt pile.

The Treasury began shuffling funds in order to pay government bills after the country hit its $16 trillion debt limit on December 31. However, the Treasury’s accounting maneouvres will last only until around the end of February as the latest fiscal cliff deal gives US politicians two months to raise the debt limit before the country defaults.

The idea, which was raised last year, has been floated by several financial analysts in the States over recent days as Congress and the government approach the key fiscal vote.

Mr Roche said the idea was an “accounting gimmick”, but noted it was just “one really silly idea [being used] to fight another silly idea”.

“The idea of the US willingly defaulting on debt is beyond crazy,” he said.

“We started kicking the idea around a year ago and it was really a joke and the fact it’s become something sort of serious, well it’s a sad state of affairs that it’s become so dysfunctional in Congress that this is something we’re having to resort to.”

Writing in his New York Times blog, economist Paul Krugman, said that while he did not expect the Treasury to go ahead with this “gimmick”, there could be a case for it.

“This is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand,” he said.

Mr Roche also did not expect the Treasury to go ahead and mint a $1trillion coin, but said President Obama could use it as threat.

“I don’t think it’s something that will end up being used but I think that if it comes down to it we could potentially see the President use this as something where he says, ‘look if you’re going to threaten to default on debt then I’m going to threaten to use the coin loophole’.”

There are limits on how much paper money the US can circulate and rules that govern coinage on gold, silver, and copper.

But, the Treasury has broad discretion on coins made from platinum, and in theory, it is allowed to mint a platinum coin and assign any value to it.

However, it is worth noting that this was intended to issue commemorative coins and not as a fiscal measure, Mr Krugman said.

Billionaires boost wealth to $US 1.9 trillion

NBR staff | Jan 3, 2013

The world’s billionaires added $US241 billion to their collective net worth during 2012, according to the Bloomberg Billionaires Index, a daily ranking of the world’s 100 wealthiest individuals.

The index’s aggregate net worth was at $US1.9 trillion at the market close on December 31, with retail and telecommunications fortunes surging about 20% on average during the year.

Of the 100 people who appeared on the final ranking of 2012, only 16 registered a net loss for the 12-month period.

Amancio Ortega, the Spaniard who founded the Zara clothing chain, was the year’s biggest gainer. His fortune increased $US22.2 billion to $US57.5 billion, according to the index, as shares of his company Inditex rose 66.7%.

Billionaires Worth $1.9 Trillion Seek Advantage in 2013

Carlos Slim, the telecommunications magnate who controls Mexico’s America Movil, maintained his title as the world’s richest person for the entire year. His net worth rose $US13.4 billion – or 21.6% – through December 31, making him the second-biggest gainer by dollars.

Microsoft co-founder Bill Gates ranks second on the list, trailing Mr Slim by $US12.5 billion. He added $US7 billion to his net worth.

Warren Buffett, 82, lost his title as the world’s third- richest man to Mr Ortega on August 6 but gained $US5.1 billion during the year, even after donating 22.3 million Berkshire Class B shares in July to charity.

Brazilian commodities trader Eike Batista was the year’s biggest loser by dollars, falling $US10.1 billion and selling a 5.63% stake in his EBX Group in March to Abu Dhabi’s Mubadala Development Co.

Oracle founder Larry Ellison, eighth, rose $US6.4 billion in 2012 as the shares jumped 31.7%.

The Bloomberg Billionaires Index measures the world’s wealthiest people based on market and economic changes and Bloomberg News reporting. Each net worth figure is updated every business day at 5:30 p.m. in New York. The valuations are listed in US dollars.

What did I get for 16 trillion of debt? That’s the real question.

The Truth Clinic: What did I get for 16 trillion of debt? That’s the real question. | Jan 2, 2013

By James Breedlove

dollar-150x150The fiscal cliff deadline specter has dominated the media spotlight as Washington’s divided politicians dicker over higher taxes and spending cuts while simultaneously trying to convince a confused and disgruntled constituency that opponents on the other side are holding up the cliff saving life line.

The Congressional Budget Office (CBO) estimates that if no agreement is reached the US would enter a recession in 2013 with gross domestic product (GDP) shrinking by about half a percent for the year. Unemployment would rise from current levels of just under 8 percent to a little over 9 percent, and the economy would create about 2.5 million fewer jobs than previously predicted. With a few exceptions, all government agencies would be cut between 8 and 10 percent. An average household earning $50,000 per year would pay approximately $2,000 more in taxes in 2013.

I felt myself getting a bit anxious and panicky with January 1, 2013 just hours away after hearing President Obama warn that a failure to act would be a “politically self-inflicted wound to our economy” that we can ill afford.

While having my morning coffee it suddenly occurred to me that I might be running scared with the herd; the vision of a spooked bison stampede came to mind as the animals galloped full speed toward a real cliff and toppled over unable to stop because of the crushing force of the animals at the rear.

How does an issue of this magnitude (Trillions) and importance to the country (potential recession) get bogged down in petty politics or any other special interest priority? The so called experts drone on about out of control spending, unfair taxes, an unregulated Federal reserve and a do-nothing congress.

Fine, but I’m a simple person. I worked hard. Went to college on the G.I. bill. Pursued a career that permitted me to raise a family and live a modest middle class life. Did not mind paying taxes. Now when I should be able to enjoy the fruits of my labor in retirement it feels like my middle class is being sucked away by forces with strange names like fiscal cliff, inflation, and debt default.

More importantly since the current cliff fiasco is directly connected to the 16 Trillion dollars of debt that America has accumulated I wondered how has the 16 Trillion dollars of debt benefitted me? It seems that as a taxpayer I am somehow currently responsible for $142,000 of debt that nobody asked me did I want.

Perhaps understanding how this massive financial obligation came into being might shed some light on why the fiscal cliff has become so terrifying.

Unlike the constitutions of most states, the United States Constitution does not require the Congress to pass a balanced budget, one in which the projected government income from taxes, fees, and other revenues equals proposed expenditures. Except for a short period during the presidency of Andrew Jackson the United States federal government has always been in debt.

However, there was one key difference in monetary control between those early days and now. From the ratification of the Constitution in 1789 until 1971, the gold standard was the main constraint on Federal spending and thus, the main control on the US national debt. It took the United States almost 200 years to create the first 1 trillion dollars in non-gold backed paper currency. And the government managed its finances, had budget surpluses and only occasional glitches. But due to rampant deficit spending it only took 41 years to create the next next15 trillion. There are two major players in this game of extraordinary deficit spending; each benefitting from what amounts to an endless supply of money.

First, the Federal Reserve, as the central bank of the US Government, can print money that is exchanged for US debt. The Federal reserve trades newly printed US dollars for Treasury Bills (US bonds) floated by the government. As holders of the debt the Fed can collect the interest on bonds that they purchased with dollars that they simply printed. While they pay profits to the government they are guaranteed a dividend for being the Fed. Nice work if you can get it.

Second, the Congress is a willing co-conspirator in this burgeoning US National Debt crisis, even though they lament otherwise. Congress passed the bill creating the Fed in 1913. Congress sets the debt ceiling ever higher and higher. Congress approves all the spending bills. Finally, it is Congress that has refused to pass a budget since April 2009 – opting instead to use the emergency mode of operating by funding government in stop gap months instead of on a fiscal year. More spending can be kept out of public view using the emergency mode.

The fiscal cliff is not some unexpected crisis that suddenly showed up in Washington. Washington has been building this cliff for years by embracing a patchwork philosophy of minimally addressing fiscal problems with short term solutions and stealth bookkeeping that made future spending look lower than actual. Kicking the can down the road eventually lead to the recent bailouts and the infamous sequester which introduced America to the bipartisan super committee; the group of seasoned congressmen whose primary mission was to find budget cuts that would offset the debt ceiling increase authorized under duress in 2011.

Yet that super committee failed to super anything, shackled by allegiance to party dogma, and disbanded leaving the draconian sequester hatchet looming over an already shell shocked public.

Now the day of reckoning is at hand and it appears that the spineless congress of the past will remain spineless as they find it now difficult to even kick the can.

What have I and millions of Americans gotten for 16 Trillion of debt? A dollar that is now worth 7 cents compared to its worth in 1980 and continuing to decrease in value as the Fed prints more fiat dollars to support increasing national debt. That is why my middle class life style is slipping away.

Senate ‘cliff’ deal pushes national debt to $20 trillion by 2017

Update: The House has passed the Senate “fiscal cliff” bill. | Jan 1, 2013

obamaThe “fiscal cliff” deficit-reduction deal approved by the White House and Senate will leave taxpayers with a national debt of almost $20 trillion by the end of 2016.

The increase to the debt was downplayed in the White House’s “victory” statement, which claimed that “together with a strengthening economy these [fiscal cliff] steps will bring down the deficit as a share of the economy over the next five years.”

His statement claimed credit for reducing the 10-year deficit by $2.3 trillion.

A March 2012 “baseline” report by the Congressional Budget Office, which assumed that the Bush tax cuts would expire and that deep cuts in military and domestic spending would be preserved, predicted the debt would rise by $2.9 trillion from 2013 to 2022 because of annual deficit spending.

The cliff deal passed by the Senate would increase the 10-year baseline deficit of $2.9 trillion by $4 trillion, says the CBO in a report released Tuesday. That’s a nearly $7 trillion increase in debt by 2022.

The deal would increase the deficits during Obama’s second term by $1.7 trillion, in addition to the $1.7 trillion deficit already projected by the CBO, creating a four-year deficit of $3.4 trillion.

That $3.4 trillion in new debt by 2017 would increase the current federal debt from $16.4 trillion to almost $20 trillion in January 2017.

That’s an debt increase of almost $10 trillion during Obama’s two terms. The higher deficits would be primarily due to the extension of lower tax rates, known as the Bush-era rates, for individuals making under $400,000 and couples making under $450,000.

Because of the federal government’s huge debt, Wall Street analysts say Obama’s $4 trillion target he set in 2011 “grand bargain” talks should have been a minimal goal.

Interest rates are now at historical low levels because the U.S. and European economies are stalled.

But Wall Street analysts say interest-rates could spike if world economies improve or if they worry that U.S. politicians and taxpayers are unable or unwilling to pay the interest payments.

If interest rates reach five percent, taxpayers’ annual interest-costs would reach $1 trillion per year, or one third of the federal government’ 2012 tax revenues.

That annual cost would force Congress to imposed painful spending cuts or new taxes that would cripple future growth.

Obama’s claim of a $2.3 trillion fiscal cliff trim was achieved by adding $620 billion in new fiscal cliff taxes to the GOP-imposed 2011 and 2012 spending cuts worth $1.7 trillion.

If fully implemented, the $2.3 trillion trim leaves the expected 10-year deficit at roughly $7 trillion. That amounts to roughly $25,000 for every one of the nation’s working-age population of roughly 240 million.

When added to the current debt of $16.4 trillion, the per-worker debt would rise to roughly $80,000 per person by 2017.

Obama’s claimed $2.3 reduction in the 10-year debt is small largely because he GOP opposes his push to grow the size and reach of the federal government.

For example, during the fiscal cliff talks, Obama has pushed to preserve costly spending programs, including subsidies to universities and to wind-energy programs. Overall, the deal includes $15 billion in new spending on Obama’s favored programs.

The Jan. 1 deal even canceled a portion of planned “sequestration” spending-cut, set in 2011. The cancellation eliminated $24 billion in planned spending cuts, leaving only $485 billion in spending cuts throughout 2013.

For Spaniards, Having a Job No Longer Guarantees a Paycheck

Working but Waiting: The Times’s Suzanne Daley reports on struggling Spanish workers who have avoided losing their jobs but often face weeks or months without paychecks. | Dec 16, 2012


VALENCIA, Spain — Over the past two years, Ana María Molina Cuevas, 36, has worked five shifts a week in a ceramics factory on the outskirts of this city, hand-rolling paint onto tiles. But at the end of the month, she often went unpaid.

 Still, she kept showing up, trying to keep her frustration under control. If she quit, she reasoned, she might never get her money. And besides, where was she going to find another job? Last month, she was down to about $130 in her bank account with a mortgage payment due.

“On the days you get paid,” she said at home with her disabled husband and young daughter, “it is like the sun has risen three times. It is a day of joy.”

Mrs. Molina, who is owed about $13,000 by the factory, is hardly alone. Being paid for the work you do is no longer something that can be counted on in Spain, as this country struggles through its fourth year of an economic crisis.

With the regional and municipal governments deeply in debt, even workers like bus drivers and health care attendants, dependent on government financing for their salaries, are not always paid.

But few workers in this situation believe they have any choice but to stick it out, and none wanted to name their employers, to protect both the companies and their jobs. They try to manage their lives with occasional checks and partial payments on random dates — never sure whether they will get what they are owed in the end. Spain’s unemployment rate is the highest in the euro zone at more than 25 percent, and despite the government’s labor reforms, the rate has continued to rise month after month.

“Before the crisis, a worker might let one month go by, and then move on to another job,” said José Francisco Perez, a lawyer who represents unpaid workers in the Valencia area. “Now that just isn’t an option. People now have nowhere to go, and they are scared. They are afraid even to complain.”

No one is keeping track of workers like Mrs. Molina. But one indication of their number can be seen in the courts, which have become jammed with people trying to get back pay from a government insurance fund, aimed at giving workers something when a company does not pay them.

In Valencia, Spain’s third-largest city, the unemployment rate is 28.1 percent and the courts are so overwhelmed that processing claims, which used to take three to six months, now takes three to four years.

Since the start of the crisis in 2008, the insurance fund has paid nearly a million workers nationally back pay or severance. In 2007, it paid 70,000 workers. It is on track to pay more than 250,000 this year, and experts say the figures would be much higher if not for the logjam in the courts.

Often the unpaid workers, like Mrs. Molina, whose company is now in bankruptcy proceedings, hope their labor will keep a struggling operation afloat over the long run. Unemployment benefits last only two years, they point out, and they wonder what they would do after that. But in the meantime, they cannot even claim unemployment benefits. And no amount of budgeting can cover no payment at all.

Beatriz Morales García, 31, said she could not remember the last time she went shopping for herself. A few years ago, she and her husband, Daniel Chiva, 34, thought that they had settled into a comfortable life, he as a bus driver and she as a therapist in a rehabilitation center for people with mental disabilities. His job is financed by the City of Valencia, and hers by the regional government of Valencia.

They never expected any big money. But it seemed reasonable to expect a reliable salary, to take on a mortgage and think about children. In the past year, however, both of them have had trouble being paid. She is owed 6,000 euros, nearly $8,000. They have cut back on everything they can think of. They have given up their landline and their Internet connection. They no long park their car in a garage or pay for extra health insurance coverage. Mr. Chiva even forgoes the coffee he used to drink in a cafe before his night shifts. Still, the anxiety is constant.

“There are nights when we cannot sleep,” he said. “Moments when you talk out loud to yourself in the street. It has been terrible, terrible.”

Mrs. Morales said it was particularly hard to watch other mothers in the park with their children while she must leave her own toddler to go to work, unsure she will ever get paid.

“We are working eight hours, and we’re suffering more than people who are not working,” she said.

The couple’s pay has been so irregular that they are having a hard time even keeping track of how much they are owed, because small payments show up sporadically in their account.

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Census: U.S. Poverty Rate Spikes, Nearly 50 Million Americans Struggling to Survive

More than 16 percent of the population, are struggling to survive. 20 percent of American children continue to live in poverty.

CBS | Nov 15, 2012

WASHINGTON (CBSDC/AP) – As President Barack Obama is set to begin his second term, new statistics on America’s poverty rate indicate that nearly 50 million Americans, more than 16 percent of the population, are struggling to survive.

New figures released by the Census Bureau this week found a spike in poverty numbers last year, going from 49 million in 2010 to 49.7 million last year. The numbers may come as a surprise to Congress, which estimated in September that the poverty rate would drop to 46.2 million. One of the most startling findings showed that almost 20 percent of American children continue to live in poverty.

The Associated Press reports that the new figures are based on an updated formula devised by the Census Bureau to help give the government a better understanding for how to use safety-net programs.

The numbers found that Hispanics and people living in urban areas had a higher chance of struggling to make it financially. Poverty among full-time and part-time workers also saw a jump from its 2010 numbers.

Based on the formula implemented by the Census Bureau, California tops the list as the sate most likely to bring about poverty. The top five is rounded out by the District of Columbia, Arizona, Florida and Georgia.

“We’re seeing a very slow recovery, with increases in poverty among workers due to more new jobs which are low-wage,” Timothy Smeeding, a University of Wisconsin-Madison economist who specializes in poverty, told The Associated Press. “As a whole, the safety net is holding many people up, while California is struggling more because it’s relatively harder there to qualify for food stamps and other benefits.”

Adults in the age groups of 18 to 64 and 65 and older saw spikes in their poverty rates. Hispanics and Asians saw greater spikes than white people, according to the statistics. Black people saw a slight decrease in poverty, but still have a rate of 25.7 percent.