Recycling

Moody's opines that debt to economic production for the global economy will be 80% up from 63% before governments borrowed money to spend. Sovereign debt will be $15.3 trillion, or over "100 times the inflation adjusted spending of the Marshall Plan."

Presume a tax rate of 10% of economic production, a guess, then the quantum of government borrowing is expected to be 8 times economic production (80/8). Presume an interest rate of 5%, then governments will have debt service of 4% (5% of 80)of economic production or 40% (4/10) of tax revenues.

Increasing cash flow requires growth of economic production, and that is lacking in developed economies.

Economic production in the past year has been banks bailed out without replacing managements, bad assets being shifted to government balance sheets, and an artificial increase in equity prices that make marking collateral to market bearable for US financial institutions.

Economic production has been a mirage of revalued clunkers and one time tax incentives for borrowers to buy houses today that will be worth less tomorrow, especially in California.

In the real world the FDIC is operating at negative net worth of $8 billion and expects another 500 of its flock of banks to fail in the next year. The expected cost to FDIC is $100 billion, half of which has been accounted for and the other half is to be supplied by bailed out banks pre paying 3 years worth of premiums into the FDIC fund ($45 billion).

This is before the commercial real estate market (CRE) is considered. In 2007 commercial real estate assets in the system were valued at $4.5 trillion with $3 trillion of loans outstanding. Presently CRE is conveniently valued at $3 trillion with $3 trillion of loans. Asset values have been adjusted by 30% despite residential real estate prices having declined by double.

The bell tolls in the first half of 2010 with CRE loans maturing (5-7 year maturities) and variable rate payments adjusting upward. Refinancing and extending were this years option. Next year bank, government, balance sheets may be on the hook for another $500 billion.

Goldman Sachs has been downgraded by the analyst tha advised buying it in the spring. A leading regional securities firm calculates that if all banks in the mortgage system pay 5% of expected loan origination income to Fannie Mae and Freddie Mac then the value of those companies is precisely Nada.

Indian Industrial production figures indicated growth while excise tax collections decline. One of those numbers is wrong. No bonus for the right guess.

The Reserve Bank has started to restrict credit because asset prices (equities) have increased by 65%, and chastised banks in the system for not banking. The RBI had lowered borrowing rates by 4.5%, banks lowered lending rates by 2.5%, but instead of making loans invested the money in Indian government bonds.

An Indian real estate developer in a joint venture with a Dubai compnay that tried to issue shares to the public in the spring of 2008 is back asking for half as much money at 30% lower prices to pay off their bankers.

The developer has been busy in the meantime fending off over 150 criminal and civil suits, and fighting with his father and sister over necessary financial disclosures that the latter refuse to make despite being shareholders in the over 100 family firms that are tangentially and spatially involved in the share offering.

The failure to disclose has restricted the offering to Indian residents and specifically prohibited the offering in the US. The largest lender to the group companies, in varied forms, is the Government of India.

The US budget deficit is expected to be $1.5 trillion. The Chinese hold $2.25 trillion.

The President now admits that $750 billion may have been too little to solve a $2.5 trillion valuation problem, and the prospect for a "double dip" exists if Congress is not prudent with spending.

The over under on the Treasury Secretary keeping his job is 6 months