This pressure comes in addition to the recent Rasmussen Reports survey that shows 42 percent of Americans think he’s done a “poor job” in handling the credit crisis and bailouts versus only 20 percent who found Geithner’s performance “good” or “excellent.”

According to The Business Insider, “they’re discussing it on CNBC, as a serious question, which is exactly what the Congressmen hoped.”

Visit The Business Insider for more coverage of how Geithner’s resignation is on the table.

Timothy Geithner on the Chopping Block originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

…that our children are going to spit on our graves!

First, Americans made a colossal mistake in the ’90s and the ’00s. They partied…they spent…they borrowed…running up huge debts in the private sector. Most kids could forget about inheriting anything from their parents; the geezers spent it years ago.

The boomer generation also made a mess of the biggest success story in world history – the United States of America. In the ’60s and ’70s – when boomers matured and began to take over – the US was still on top of the world. It had a positive trade balance…huge savings…massive investments abroad…and the strongest companies in the world.

They ruined it. The financial industry took over…replacing manufacturing. Instead of making things we could sell at a profit, Wall Street sold debt – mostly to us! In government, imperial ambitions pushed aside the restraints and good sense of the old republic. Overseas, military bases were set up in 120 countries. We now have unwinnable, trillion-dollar wars that could go on forever. At home, the sheep look to the government to solve every problem. Thirty-five million Americans – almost as many as the entire population of Spain – depend on the feds’ food stamp program for their daily bread.

At least, most Americans are making amends in their private lives. The old days, when the US was “the world’s mouth,” are over. We can no longer be counted on to buy up every gadget and gizmo produced in the world. We’re rediscovering the old virtues of thrift and savings. Frugality is back in style. If this continues, the Baby Boom generation may not leave the next generation with much net wealth, but at least it will not leave behind huge net debts.

But over in the public sector, the debt toll mounts up. The boomers want the government – which means, the next generation – to pay for their health care…their unemployment insurance…their bailouts and their handouts. The deficit for this year is expected to be about $1.5 trillion. Next year, it will be about the same. The feds say it is too early to pull back on their stimulus efforts. Housing credits and unemployment benefits have just been extended. A trillion-dollar overhaul of the healthcare system is in the works. Even assuming a real recovery – don’t hold your breath – the deficits are supposed to run $1 trillion per year for the next 10 years. More likely, as we reported in this space a few weeks ago, the deficits will be $2 trillion per year. By the time today’s 30-year-old gets a family…a house…and a mortgage, he will also have his share of a $20 trillion dollar deficit – not to mention the “off budget” obligations of the US government, a total of more than $100 trillion!

But wait…aren’t these spending efforts paying off? Isn’t the stimulus helping the US economy get back to into the pink? Don’t all these federal spending programs create a safer, more prosperous world?

Ah…tell that to the kids! “We were just trying to get the economy back on its feet…so you could find a job in a thriving economy,” we might say.

Take any two young people, 16-24 years old. Odds are, one of them will be unemployed. Joblessness among the young has hit 53% – a post WWII high.

Seven million jobs have been lost in the last 24 months. Employers are still cutting payrolls. And when business picks up…what kind of jobs are they going to offer? Will the next generation compete with the Chinese for low-cost production? Are they going to compete with the Europeans for high-cost/high quality production? Are they going to develop more mortgaged-backed securities? Or are they going to put on waiters’ aprons and take orders from clients who no longer dine out?

Good jobs will be hard to come by. Because the ‘growth’ of the bubble period – 2001-2007 – was a fraud. Instead of building up capital assets and creating more jobs, people borrowed money …and then squandered it. And now, the recovery is a fraud too. Now, the government pumps up the economy with cheap credit…borrows trillions…and wastes the money on pointless ‘stimulus’ programs.

And day after day, the debt builds up. Soon, it will be too big to handle. And then, these same young people – who can’t get a foot onto the lowest rung of the employment ladder – will be asked to shoulder this huge burden of debt left to them by their parents. You can imagine their reaction…

…they will spit on our graves!

Spitting on the Boomers’ Financial Legacy originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

“Record numbers late on US loans,” says a headline in The Financial Times.

The story is easy to understand. People without jobs can’t make mortgage payments. So, payments are late on 1 of every 6 FHA mortgages. Mortgage defaults are at a 3-decade high. Of all mortgages, nearly one homeowner in 10 is running late in his payments.

As predicted in this space, problems in the housing finance sector are now shifting from sub-prime to prime mortgages. The subprime borrower had few resources. He washed up as soon as the crisis began. But now the prime borrower, who lost his job and is running out of options, is sinking too.

What’s the smart money doing?

The Dow is now up more than 50% from its March low…and has regained more than 50% of what it lost. Are the insiders taking advantage of this dip to get bigger stakes in their own companies? No… They’re selling 18 times as many shares as they’re buying. Go figure.

The insiders know that their businesses are not really in good shape. They’ve been able to maintain profit margins by cutting staff. But sales are down. And they don’t see where additional sales will come from.

Meanwhile, investors have been hallucinating about a real recovery. They’ve bid up the price of shares as though they expected a stunning period of growth. Generally, earnings have held steady…but stock prices have gone up.

This has brought a 10-point increase in the P/E ratio, to greater than 27.

What would justify such an ambitious P/E? Only growth. Where might growth come from? We don’t know. David Rosenberg says stocks are priced as if investors expected profits to double next year. But it usually takes profits 5 years to double. And then, only when they have a reason to double – such as higher sales and lower costs.

Don’t count on it, dear reader.

Real Recovery Hallucinations originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

A survey showed that only 1 in 10 workers say his income is going up. This is the lowest reading since 1946.

Meanwhile, the news two days ago was that homebuilding took a dive in October. Work began on 11% fewer houses than the month before. On multi-family dwellings, the figures were worse – down 35%.

Why would homebuilding go down when the economy is supposedly gathering strength? Well, builders were wondering what would happen when they finished the houses. The new house tax credit was due to expire; they weren’t sure the politicians would be witless enough to renew it.

They need not have worried. Give the politicos a chance to do something stupid and they will come through every time. Since the end of October, Congress passed and President Obama signed an extension of the housing credit. Until next April, at least, first time buyers will get an $8,000 credit.

You’d think that would have revived animal spirits a bit in the residential construction industry. But today’s news tells us that mortgage applications are falling – even with lower interest rates.

How come interest rates are falling? Well, here again, we see the heavy hand of the feds. The “quantitative easing” has come to a halt…that is, the Fed is no longer buying US Treasury debt (it doesn’t need to). But its buying of mortgage backed securities continues. That program will last until March of next year.

Still…housing is not cooperating.

This news hasn’t had much impact on Wall Street. All that can be said is that investors have seemed to hesitate for the last couple of days.

Stocks fell softly yesterday, with the Dow down only 11 points. Oil stayed at $79. Gold rose to $1,141. And the euro remained at $1.49.

Investors must still believe in what The Washington Post calls a “lukewarm recovery.” It is like finding a body on the street. You feel for a pulse and discover that it has not quite reached room temperature. It is tepid… Not quite alive. Not quite dead.

Too close to the quick to bury…too close to the grave to boogaloo.

Housing Spurns the Fed’s Advances originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Now China’s wallet is performing a similar role in economic policy. Few tools help keep a slumping superpower and its sometimes needy requests at bay better than control over the purse strings.

Debt as Far as the Eye can See originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

“If we keep on adding to the debt, even in the midst of this recovery, at some point, people could lose confidence in the U.S. economy,” President Obama told reporters in China yesterday. His administration is offering no solutions to this coming crisis (quite the contrary, as you’ll read below), but we’re a bit taken aback nevertheless… can’t remember the last time any president offered this stern a warning over our debts. He even went as far as to say that this lack of confidence could lead to a “double-dip recession.” Gasp!

“Now the tables are turned,” our currency man Bill Jenkins wrote to his readers yesterday. “And the president’s trip to Beijing has proven it.

“The American president will make his scout’s pledge to take our debt seriously and not to spend too much more. He will also reiterate that we believe in a strong dollar policy. The Chinese president will smile and nod and promise to continue buying our debt. He allows us to save a little face and does not reprimand us publicly for our self-indulgence.

“They will pretend to believe us, and in gratitude, we (ignoring the beads of sweat accumulating on our brow) will not force any of the other issues.

“First, America wants China’s help with a laundry list of adversarial relations from North Korea to Iran. Second, we (and the rest of the world) would like a renminbi that floats, instead of being pegged to the dollar. Third, we want to pontificate on the issues of human rights, of which Tibet is the universal poster child. Fourth and last (but NOT least), we would like the Chinese to continue purchasing American Treasuries (our debt).

“I am certain President Obama will get us the last of the requests. He will pay for that by caving on the first three.”

Tables Turn on the US Fiscal Agenda originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Yet, according to Ryan Grim at HuffPost, “far from a broad cross-section, the ‘prominent economists’ lobbying on behalf of the Watt bill are in fact deeply involved with the Federal Reserve. Seven of the eight are either currently on the Fed’s payroll or have been in the past.” He goes on to write that “the connections that the seven economists lobbying Congress have to the Fed are not incidental and four of them maintain current positions.”

It makes perfect sense. If the Treasury and Wall Street can have unrestricted and unpunished back channel relationships… why can’t the Congress?

See the full coverage in The Huffington Post’s article on how the economists opposing a Fed audit have undisclosed ties to the Federal Reserve.

Economists Against the Fed Audit Have Been on its Payroll originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

In actuality, that’s not how the tax cookie crumbles. Mint has put together a graphic showing that 5 percent of taxpayers are paying about 60.6 percent of all taxes. And, as lopsided as that already sounds, the tax situation is likely to get even worse as the nation continues to bury itself in debt.

This coverage of the US tax revenue pie got on our radar via Zero Hedge, and the full graphic is available in a Mint article on who is really paying taxes.

Over 60 Percent of Income Taxes are Paid by 5 Percent of Taxpayers originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

‘We didn’t ask you to stock up all those dollars,’ as Obama might have put it. ‘It’s not our fault if the dollar goes down and you lose money.’

Perhaps Mr. Obama should have quoted the immortal words of a former US Secretary of the Treasury, John Connolly. “It may be our dollar, but it’s your problem.”

Over at USA Today, the editors are more concerned about human rights. The paper must imagine itself back in the days of Woodrow Wilson or George W. Bush, when the US nobly embarked on a mission to raise all of mankind out of sin and error. In effect, Mr. Obama said that all people have ‘universal rights,’ including the right to a free press. China figured this was just the sort of opinion that its people didn’t need to hear. So, it killed the story in its own press. The American president might as well have been talking to himself.

China is today’s big story. Throughout the world’s media there is much buzz and blather about the “romance”…the “historic relationship”…between the two titans. Some reporters see love. Some see jealousy. Some see rivalry.

Here at The Daily Reckoning we are suckers for romance. Give us some “a cigarette that bears a lipstick’s traces…an airline ticket to romantic places…” and we are moonstruck. But we don’t see much romance in the US and China hook up. What we see is the sort of things that delight psychologists and bore everyone else – perversion, co-dependency, and enabling.

On the surface, the two giants bicker over money like any other couple. The US accuses China of being a tightwad…holding its currency down and saving too much. China accuses the US of being a spendthrift, destroying its own purchasing power by wanton and reckless expenditures.

“US president’s currency call breaks with script,” says a headline in The Financial Times today. US economists think China should raise the value of the yuan. This would immediately lower the value, domestically, of the trillion(s?) worth of US-dollar assets China holds as reserves. It would also make Chinese products less competitive on the world market.

Mr. Obama wasn’t supposed to say anything about it on his trip. It would be like bringing up your husband’s drinking problem on your wedding anniversary; it would spoil the occasion.

Apparently, Obama couldn’t help himself. Or maybe he just thought the folks back home would like to hear him give the Chinese a piece of his mind.

But how does the American president know what price to put on the yuan? A sinking dollar is good for the goose over in the US. Why isn’t it okay for the gander in the Middle Kingdom?

A strong yuan would help the world economy “rebalance,” say economists who think they know what they are talking about. In a nutshell, the Chinese produce too much; Americans consume too much. A higher yuan would come down on the high side of the scale – giving the Chinese more purchasing power (thus increasing consumption in the Peoples’ Republic)…and making Chinese exports more expensive (thus decreasing consumption across the Pacific). With a stronger yuan, the Anglo-Saxon economies would be able to produce and sell more things to the Chinese…thus tilting the US economy more towards capital formation and production.

Chinese authorities are no dopes. They know they have a “floating” population of some 150,000 million people who are looking for work. They know that if they don’t find some way to keep these people occupied they are likely to cause trouble. Trouble is the thing China’s leaders most don’t want.

“You think you’ve got trouble,” Premier Hu Jintao might have replied to Mr. Obama. “Did you know that there are something like 200 million Chinese who still get by on as little as a dollar a day? Let’s face facts. You’re sitting there in Washington, comfortably talking about how much free health care and unemployment benefits to give the American people. We don’t have the time…or the money for those kinds of things. Too many Chinese people. They don’t earn enough to afford the kind of cradle-to-grave bribes you give your people. We have to keep them working; there’s no other way.

“Besides, we don’t quite see why we should pay for your mistakes. It wasn’t our economy that blew up. It wasn’t our financial industry that sold houses to people who couldn’t afford them. It wasn’t our consumers who spent more than they had and went too deeply into debt.

“It’s the debtor who’s supposed to pay, not the lender. We’re the lender!”

Behind all the superficial arguing, accusing and kvetching, however, is a sick relationship. It has give and take. But the US is all take. China is all give. And now, on both sides, public authorities make the same mistake. In the US, they try desperately to prod Americans to take more…to continue doing what they were doing wrong. They offer incentives of every sort to lure consumers to consume even more. And their solution to the debt overhang is to hang on even more debt.

In China, meanwhile, the authorities desperately prod their people to give more…to produce more. Or, at least to build more plant and equipment with which to turn out more goods.

In the US, consumer spending is about 70% of the economy. In China, fixed capital formation is estimated to have made up 70% of China’s growth in 2008 and as much as 90% in the first half of this year.

Is this a formula for a happy marriage? Over the last two years, this co-dependent relationship has broken down. Paul Krugman wrote in The New York Times that we’ve seen “the greatest collapse in world trade in history.”

But neither side has learned a thing. The taker now proposes to take more. The giver now proposes to give more.

They don’t need counseling. They need a divorce.

The Great US-China Romance originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Throughout history, no empire has managed to rule forever. Instead, empires rise to power, they prosper and spread their influence. Thereafter, they over-extend themselves and then break down in some fashion. In fact, all the glorious empires of history had one thing in common – a spectacular collapse.

Now, there can be no doubt that America ruled the economic world for the better part of the previous century. However, this powerful nation has now entered a terminal decline. The recent credit crisis and the failure of some of the largest American financial corporations is compelling evidence that the world’s largest economy is well past its prime.

Today, America finds itself heavily in debt and to make matters worse, its demographics are also worsening. Unfortunately, the American leaders are attempting to postpone the day of reckoning by taking on even more debt! It is noteworthy that over the past year alone, America’s federal debt increased by approximately US$2.1 trillion and its projected budget deficit over the next decade is now slated to be almost US$9 trillion! If this does not shock you, then consider the chart below which shows the total obligations of the US government.

As you can see, over the past six years, American unfunded obligations increased by almost 50% from US$79 trillion to US$114.7 trillion! Alarmingly, over the same period, American government revenue rose by only 12%! Now, you do not have to be a genius to realize that no entity can continue to increase its liabilities by more than four times the rate of its revenue. If this spending frenzy continues, commonsense dictates that at some point in the future, the solvency of the American government will come into question. When that happens, foreign capital will flee America, interest-rates will skyrocket and we will witness an epic currency crisis.

Furthermore, it is worth noting that apart from the American government, the Federal Deposit Insurance Corporation (FDIC) is also in serious trouble. In an ironic twist of fate, the FDIC’s Deposit Insurance Fund has spent so much money covering bank failures over the past three months that it has completely run out of money! This implies that there is no capital available now to insure bank deposits held at American banks.

Given the horrendous deficits and ugly debt obligations, the American government is now left with the following options:

a. Raise taxes (not sufficient to meet obligations)
b. Cut back on spending (highly unlikely)
c. Default (unimaginable)
d. Print money (only viable option)

Remember, America is the largest debtor nation the world has ever seen and the only way it can repay its obligations is through a process known as quantitative easing (euphemism for printing money). In fact, this stealth confiscation of savings is already well underway. A recent report published by the Federal Reserve revealed that the American central bank purchased half of the newly issued US Treasuries in the second quarter of this year. Needless to say, the Federal Reserve financed these purchases by creating dollars out of thin air – a short-term fix but a long-term disaster.

Let us put it bluntly; the days of American hegemony are drawing to a close and within the next two decades, China will become the world’s most dominant economy.

If you are sceptical about our claim, you may want to note that twenty years ago, China’s economy was worth only US$342 billion and as of last year, its GDP had grown to US$4.4 trillion; representing an annual growth rate of 13.6%. Now, if China succeeds in growing its economy by roughly 8% per annum over the next two decades, its GDP will grow to US$20.5 trillion by 2029. At that point, China may well replace America as the world’s largest economy.

It is worth keeping in mind that whereas American households are up to their eyeballs in debt, their Chinese counterparts have a savings rate of almost 40%! Furthermore, at a time when America and other nations in the West are struggling to stay afloat, China’s foreign exchange reserves have surged to US$2.3 trillion!

Now, we are aware that many commentators are criticising China for the sheer size of the stimulus unleashed by its leaders. In our view, this ridicule is baseless because instead of spending printed or borrowed money, at least the Chinese are spending their savings.

In any event, the stimulus applied by the Chinese policymakers seems to be working. Over the past seven months, money-supply growth in China has risen by 26% and loans have surged by 32%. In turn, this inflationary orgy is creating a residential construction boom. All this economic activity is in stark contrast to America, where despite all the policy-actions, private-sector credit is contracting.

Look. The Chinese economy is roaring along…and you can be pretty certain that the country’s rapid growth will cause domestic consumption to explode. Already, roughly 900,000 cars are sold each month in China and by the end of this year, the Asian powerhouse will replace America as the world’s largest market for automobiles. Interestingly, similar trends of rising consumption can be observed in various household items such as refrigerators, motorbikes, mobile phones and so forth.

So it seems to us that in this low-growth world, investors would do well to take a good hard look at high-growth opportunities like China.

Regards,

Puru Saxena,
for The Daily Reckoning

Debts… They Grow Up So Fast! originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.