Our Government: A Business Without Assets? two notes

Sales of U.S. Assets

At the end of the post Our Government: A Business Without Assets? I asked, “What next? Will we soon see ads for giant auctions on the lawn of 1600 Pennsylvania Avenue?”

Apparently the answer is yes. That’s the implications of Ana Campoy’s article in the Wall Street Journal on February 26th, titled “Worries Balloon Over Helium:  Experts Say U.S. Is Mishandling Selloff of World’s Largest Stockpile of the Gas” (page A5).

This article says the largest stockpile of helium on earth is located in the Texas Panhandle. We supply one-third of the global demand for helium. Helium is used in high tech products, and as a result, demand for it has skyrocketed. The problem is that the U.S. is selling off all of its helium from its supply depot in Texas.

Concerned parties, which include a government advisory agency, are asking that all of our helium not be sold off by the target date of 2015. They also believe helium should be sold at market rate instead of the exact price Congress set for it in 1996. Congress has been asked to consider the matter, but is pondering the issue of whether it should consider it.

The government has been selling off other useful rare metals too, but China has stolen its market in those.

The reason Congress is so anxious to sell off its whole supply of helium at a price lower than the market price is that the Bureau of Land Management went into the hole to the tune of $1.3 billion to acquire and process helium. In 1996 Congress made a decision to sell all of our helium to repay that debt.

Yes, if we don’t pay attention to government assets, this is what can happen, especially when our government’s debt and deficit are rising.

Sovereign debt crisis

We think of the U.S. government as a lender of foreign aid to others. But we are among the biggest recipients of foreign aid from other countries. This aid comes in the form of purchases of Treasury investment products. These purchases can be used by the Treasury in lieu of printing money.

The problem is:  Treasuries may not remain desirable investments for other countries. If the U.S. government’s debt becomes so high that its sovereign debt credit ratings go down, demand for Treasuries will fall. This is threatening to happen. If it does, we’re looking at higher taxes, and possibly, inflation. The upside is that Treasuries, which are more risky at that point, will pay higher interest rates to any buyer willing to take a chance on them.

In Our Government: A Business Without Assets? postscript I discussed sovereign debt crises due to off-the-balance-sheet debts of governments in the PIIGS countries. This issue is front and center in Europe right now.

The Fed is also said to be concerned about Greece. Why? Because Goldman Sachs, J.P Morgan, and other large financial companies in the U.S. have been providing “foreign aid” to Greece and the PIIGS countries. These financial companies made deals with the governments of Greece and Italy involving derivatives called “currency swaps” and “credit-default swaps.” These deals may have enabled these countries to seem prosperous enough to enter the European Union, when in fact, they were seriously in debt.

The Fed has the authority to examine U.S. financial institutions to see if their pursuit of profits in any way acts to destabilize any countries or companies. But our own country’s off-balance-sheet debts are threatening to destabilize this country. Perhaps the Fed should look closer to home!

Copyright © 2010 Nancy K. Humphreys


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