Wednesday, November 10, 2010

America for Sale: The Greatest Liquidation Event Ever

We are living through one of the greatest transfers of wealth ever experienced. As Americans continue to live unsustainable lifestyles, the nation is selling off its strategic assets to pay the bills. Now the Federal Reserve has telegraphed the biggest liquidation event in world history. America is up for sale, and at knock-down, distressed-asset levels.

Last week Federal Reserve Chairman Ben Bernanke announced that the Fed would print up $600 billion—by fiat—to inject into the economy. The official purpose is to increase exports and stimulate the economy. But instead, he has opened the doors for a massive dollar flood.
He confirmed to the world that America can no longer pay its bills and that the dollar is no longer a safe store of wealth. The Fed is now officially engaging in debt monetization—cheating its creditors by printing money and making the dollar worth less.
He might as well have replaced Benjamin Franklin with Bernie Maddoff.
Dollars flooding back into America might sound like a good thing, but in reality it is the equivalent of the repo man coming to take away not only your F-150, but the leather couch, and all the copper pipes and wiring in your house too.
That may sound extreme, but ask yourself what a dollar bill really is.
A dollar bill is nothing but a fancy iou. It is a debt instrument; a promise to pay. And America has issued them to the point that they have—literally—gone out of style.
Foreign nations hold billions and billions—in actual fact, trillions—worth of fancy paper U.S. government ious (in the form of treasury bonds). And now, following the Federal Reserve’s recent announcement, they know that America has chosen to devalue the dollar rather than make the tough choices to get its house in order.
What does this mean for you? It means that inflation at some point is virtually guaranteed. It means that not only will the supply of dollars surge, due to the government printing presses, but trillions more dollars, which up until this point have been locked away in government vaults in China, Saudi Arabia, and elsewhere, will be released into the economy too.
It means that foreign sovereigns are about to go on a shopping spree in your backyard. Foreign nations understand that the best way to preserve their wealth is to spend their U.S. dollar hoards—to buy something, anything—before it is too late. And as this happens, the velocity of dollars zooming through the U.S. economy will suddenly accelerate, causing imbalances, supply shortages, and drastic plunges in the purchasing power of the dollar.
Surging commodity prices are already reflecting this reality. Pick any commodity: silver, oil, coffee, canola, cotton—you name it—it is surging in price. From this time last year, pork is up over 40 percent, oats have surged almost 70 percent, and coffee is higher by 24 percent.
But commodities are not the only thing foreigners are spending their piles of greenbacks on. Across the country, indebted cities and states are selling their best income-producing assets to plug budget holes.
In October, the state of California announced that it had sold floor space that was the equivalent of 2½ Empire State Buildings to plug budget shortfalls. The state will receive $2.3 billion from a group called California First llc. $1.9 billion will go to repay a tiny portion of the state’s debt. The rest will be spent for general administration.
But here is the kicker. The state will now rent back the buildings from the investors for the next 20 years! During that time, the state will pay $5.2 billion in rent, according to the Associated Press.
Worse: Guess where all those billions in future rent will go? California First llc sounds pretty American, doesn’t it? But it doesn’t take a lot of digging to find that it is just a front to make the deal more palatable to Californians. One of the biggest investors is Antarctic Capital Real Estate—an opaque international hedge fund. Who knows where that money will end up. Then, most of the rest will flow to investors in Texas and elsewhere.
The asset fire sale is becoming commonplace in America. And the prices are dirt cheap because the country is broke and there is so much for sale.
Consider the desperation of Chicago. To plug its spending holes, it sold the rights to all its parking meters—for 75 years!
Originally, the 36,000 meters were sold to a group of investors led by Morgan Stanley. This consortium, which went by the innocuous-sounding name of Chicago Parking Meters llc, happily forked over $1.15 billion for the opportunity to extort parking meter fees on Chicago residents.
Later, investigative journalist Matt Taibbi revealed that investors stood to gross about $5 billion over the life of the contract—for a cool $3.85 billion profit.
But that is the good part of the deal. Now, the new owners have changed the hours on the meters: Instead of allowing free parking before 9 .a.m and after 6 p.m., they collect between the hours of 8 a.m. and 9 p.m. When the city balked, as Taibbi revealed, the new owners told the city that it could alternatively pay the investors a shocking $608,000 over three years for their trouble. So if the city wanted to pay for the privilege of keeping the parking hours the same as they were before the deal, over the next 75 years the city would be forced to pay the investors $2.12 billion—far more than the investors originally paid for the meters in the first place.
If the city wants to close the streets for a festival, or roadwork, etc., it has to pay out even more compensation. The meter rates have gone up too—from 25 cents per hour to over $1 in some areas, and that is just the beginning. Take a guess at what meter rates will be in 70 years or so.
Chicago residents might also be surprised to find out who the new parking meter owners really are. When the deal first went through, Morgan Stanley’s investors were pretty benign-looking—either Americans or investors from nations with uncomplicated relationships with America, from places like Australia and Germany. Only 6 percent of the investors were from Abu Dhabi, for example.
But then, just two months after the deal was done, guess what happened? The ownership structure completely changed. Morgan Stanley sold its stake, and a bunch of other investors bailed to make way for new investors from Abu Dhabi, who now own 30 percent of the meters. Investors in another fund called Redoma sarl now also own 50.1 percent. And no one knows much of anything about Redoma except that it has an address in Luxembourg—a notorious tax shelter.
For the next 74 years, Chicago meter revenue will flow to enrich wealthy oil sheiks and who knows who else. Chicago’s budget problems, however, will remain.
Chicago signed away its streets for less than the proverbial bowl of soup.
Not that it is any consolation, but Chicago is far from alone. Parking meters have been sold in Miami, Pittsburgh, Los Angeles, and other cities. Toll roads in Indiana. The Chicago Skyway. A port complex in Virginia. A whole slew of infrastructure projects in California. Airports are being considered too. The Pennsylvania Turnpike was almost sold.
It is liquidation on a national scale.
Each day, more of our collective wealth, and that of our children, is transferred to the bank accounts of foreign governments—because America is so corrupt and morally bankrupt that it cannot get its spending under control. Consequently, America’s income-producing assets are being auctioned off at an alarming rate. And increasingly to foreigners.
Every politician in America should be forced to play Monopoly—and be able to win—before he takes office. That is a bit of advice from my father-in-law. And it is good advice.
There always comes a point in the game when the houses have been sold, and more and more properties have been mortgaged. Pretty soon, when people land on you, all you get is $10. From there it is a short trip to the poor house. 
Well there you have it.
America is broke. It has run up a massive trade deficit and its economy is in travail. Foreigners hold trillions of dollars worth of U.S. debt, and now that money is coming flooding back into America to purchase strategic infrastructure. Instead of biting the bullet and cutting back its big-spending ways, America has decided to cheat and print money to pay for its spending.
And it is all leading to the destruction of the dollar.