Guest Article - Watch the GOP

Republicans signal capitulation on national debt ceiling and Fannie/Freddie privatization.
By Lee Bellinger, Publisher

"GOP Sellout Alert! New developments in the economy and in Washington strongly suggest that America’s biggest export will continue to be debt instruments against a backdrop of economic decline. It is paper bugs – not gold bugs – who should be lying awake with worry at night. GOP Reverses Course and Moves to Bail Out States

I already reported that Speaker-elect John Boehner (R-OH) hadn’t even measured the curtains for his new office before signaling that his incoming GOP House majority intends to lock in all the new spending undertaken by the Obama Administration.

Even as Boehner affirmed that Republicans would increase the national debt ceiling (a “bump” in the national credit limit to fund a shocking 43-cent debt gap for every single federal dollar currently being spent – including for Obamacare and many other new boondoggles), many Republican pundits have stated confidently that the new Congress would stop bailouts to bankrupt states. Wrong!

In fact, some conservative pundits are urging Congress to pass laws making it less difficult for states to declare bankruptcy (essentially so they can rescue taxpayers from contracts awarding things like platinum-plated union benefits that are sinking the states).

Top GOP Leader Signals New Taxpayer Bailout of States. Enter Congressman John Mica (R-FL) to the rescue of overpaid, under-worked government employees! The incoming chairman of the House Transportation Committee, Mica is a powerful backer of continuing the Obama Administration’s backdoor bailout of bankrupt state governments.

This state debt nationalization scam is officially known as Build America Bonds (BABs). Its insidious effect is to enable financially reckless states to borrow even more from bond markets rather than be forced to address their bloated budgets.

Insolvent states such as California are enabled to pawn off their reckless decisions on American taxpayers through new markets created by these federally-backed bonds (taxpayers are on the hook for 35% of the lifetime interest payments). BABs implicit guarantee from Uncle Sam enables state governments to build their $2.8 trillion debt pyramid even higher – in concert with another $2 trillion in unfunded worker pension and health-care liabilities.

In December, Mica told The Wall Street Journal that “I can almost guarantee” that the program for subsidized bonds will be funded next year. So the federally-guaranteed muni bond market is set to expand, big time.

Of course, when it comes to future state government financial difficulties, many Republicans are likely to support back-door bailouts because the GOP has captured huge numbers of seats and majority control of many state legislatures (as well as governorships).

Bottom line: There will be massive pressure for the GOP to help their newly-won states avoid the messy accountability of bankruptcy, no matter the cost. This has massive implications for hard money investments since this new debt will ultimately need to be monetized through new money printing.
GOP Already Balking at Privatizing Fannie Mae/Freddie Mac

The incoming chairman of the House Financial Subcommittee, Rep. Scott Garrett (R-NJ), has spent the last year bashing outgoing chairman Barney Frank (D-MA) for sinking the housing market by letting Fannie Mae and Freddie Mac help bankrupt the U.S. banking system. But now he’s going to be chairman. Long gone is talk of re-privatizing Fannie Mae and Freddie Mac, as proposed by Rep. Jeb Hensarling (R-TX)!

Instead, incoming Chairman Garrett has already turned on the mood lights and cued up the tap-dance music, leading off in classic Washington double-speak last month: “You have to recognize what the impact would be on the fragile housing market as it stands now.”

That’s Right, Housing Markets Are Sinking Again. Despite all the federal intervention to spur more house construction in a saturated housing market, the National Association of Realtors note that a whopping 30% of all sales are distressed or are in foreclosure. This against a new Wells Fargo finding that housing prices will drop at least another 8% across the board in 2011…”demand is dead in the water,” notes Wells Fargo analyst Sam Bullard.

Moody’s chief economist Mark Zandi estimated in December that for every dollar decline in home value, consumer spending drops as well. So these numbers have huge implications, especially given that the newest Case-Shiller data show that all 20 major cities posted month-over-month declines in October, part of a larger ominous trend in personal wealth destruction.

With so little potential for surging new tax revenues, again note carefully the scary implications of the fact that for every single federal dollar now spent, 43-cents is pure debt. And this is just current spending – not yet reflecting insolvent cities and states, the coming pension fund shortfalls, and tens of millions of baby boomers about to swamp Social Security and Medicare.

The Republicans are simply not up for the job of getting Washington spending and bailouts under control. It’s full speed ahead toward economic ruin. Plan accordingly."