Hotel Lawyers ask: How do we pay for this? And what happens next?

We
are all in a panic to get this "crisis" over. It can't happen too soon.
We are resolved to pay "whatever it takes" to do it, but up to this
point, our leaders have not given us any detail to show us what they
are thinking or whether any of it will work. But with people beginning
to look at the German mark as the replacement for the dollar, we have
to wonder a bit about our direction.

Is our bailout money going to be well spent?

At
the President's first press conference, President Obama was confronted
by a question purporting to quote the administration's internal
assessment that they know at least 30% of what they try won't work. We
hope "only" 30% of our trillions are wasted. When Congress and
government bureaucracies administer things, that may be an optimistic
assessment. .

But here are a few observations that are worth
considering as we pay "whatever it takes" to solve this crisis with
"government assistance."

Some important numbers on the coming deficits

In
2008, the U.S. deficit was $459 billion. This was financed by the sale
of U.S. Treasury bonds, more than $200 billion of which were purchased
by foreigners, the largest of which was the government of China.

To
finance our bailout, it now looks like the U.S. deficit will rise to an
estimated $2.7 – 4.2 trillion of debt over the next two years.

But with foreign investment only running at a rate of $200 billion, who will pay for the extra $1.2 – 3.7 trillion?

It
currently appears that domestic investors are unable to bridge the gap,
and it appears that the Chinese are concerned about their current level
of investment, much less taking on a lot more.

Yu Yongding,
former adviser to the People's Bank of China, recently demanded
guarantees for the value of China's $682bn of Treasury securities.

And what is a purchase of U.S. Debt going to be worth?

China
worries about the dollar's value against other currencies, particularly
the yuan. With US interest rates so low, the dollar's value may slide.

China
is also worried about the value of its current U.S. Treasuries. With
the proposed U.S. borrowing needs and monetary policy, if T-bond yields
rose only 5% (from 1.72% on the 5-year note to 6.72%,) the value of
China's T-bonds would drop by 17.5% or $119 billion.

Limits on foreign appetite for U.S. debt?

Foreign
buyers have absorbed a little over 43% or $200 billon of the recent
$459 billion deficit, but $200 billion is only a modest contribution
against deficits of $1.2 to $3.7 trillion for 2009 and 2010. Where does
this money come from? The amount required is close to 3 times the
previous record raised from both domestic and foreign investors, and
our biggest investors are screaming in pain at current investment
levels.

By the way, we also have to bail out the banks, but that is another story.

A legacy in the making?

I
hope there is. I also think that government intervention is important,
but we cannot look blindly to it as our salvation. Right now, it
appears our administration has no plan, and is worried about telling us
about it. That does not solve glacial freeze ups.

Even when the
plan is announced, it will take time for it to be implemented and to
see some effects, if any. I hope the black box is opened soon.

This is Jim Butler, author of www.HotelLawBlog.com
and hotel lawyer, signing off. We've done more than $50 billion of
hotel transactions and more than 100 hotel mixed-used deals in the last
5 years alone. Who's your hotel lawyer?

________________________

Our Perspective.
We represent developers, owners and lenders. We have helped our clients
as business and legal advisors on more than $50 billion of hotel
transactions, involving more than 1,000 properties all over the world.
For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.

Jim
Butler is one of the top hospitality attorneys in the world. GOOGLE
"hotel lawyer" or "hotel mixed-use" or "condo hotel lawyer" and you
will see why.

Jim devotes 100% of his practice to hospitality,
representing hotel owners, developers and lenders. Jim leads JMBM's
Global Hospitality Group® — a team of 50 seasoned professionals with
more than $50 billion of hotel transactional experience, involving more
than 1,000 properties located around the globe. In the last 5 years
alone, Jim and his team have assisted clients with more than 100 hotel
mixed-use projects — frequently integrated with energizing lifestyle
elements.

Jim and his team are more than "just" great hotel
lawyers. They are also hospitality consultants and business advisors.
They are deal makers. They can help find the right operator or capital
provider. They know who to call and how to reach them.

Contact him at jbutler@jmbm.com or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.