let the banking system fail = all fiat money is worthless....money market funds cleaned out....pensions cleaned out.....money in the bank cleaned out
basically everybody starts at zero old people with savings for their retirement will have nothing
basically a madoff ponzi scheme for the entire country and global economy at large
we go to complete chaos and bartering society on the near term till we set up a new one
you want that?
i'm kinda torn personally since I don't really have much "wealth" anyway
@)
I believe to truley have change in this country, where it is not just a democrat/republican argument, unfortunately that has to happen. For a guy like Ron Paul to have a shot, I believe something on the lines of what you are describing needs to happen. I think it is gonna happen anyway, one day in the future. Obama is just gonna excelerate it. They want to try to re inflate the bubble our economy was in. It's just gonna blow up in his face.
well regardless of what we want
on the near term the fact is we are all part of a ponzi scheme economy and our standard of living is dependent on it surviving
if the government just stood back and didn't do TARP, insure MM funds, have FDIC and all that stuff
our global economy woulda failed by now
its all about faith
our economy and banking system isn't backed by anything tangible
other than maintaining the faith in paper money to continue to be the transfer mechanism for goods and services in the economy
my parents who have been fiscal conservatives throughout their lives and nearing retirement would be cleaned out and left with nothing along with many other americans
on the near term the fact is we are all part of a ponzi scheme economy and our standard of living is dependent on it surviving
if the government just stood back and didn't do TARP, insure MM funds, have FDIC and all that stuff
our global economy woulda failed by now
its all about faith
our economy and banking system isn't backed by anything tangible
other than maintaining the faith in paper money to continue to be the transfer mechanism for goods and services in the economy
my parents who have been fiscal conservatives throughout their lives and nearing retirement would be cleaned out and left with nothing along with many other americans
It would have failed by now? Yet, we did the first TARP and it is still gonna fail. That proves the point that no matter what they do, it's gonna fail. I don't care how much money you throw at the problem, it is gonna fail one way or the other. We need to go back to sound money. Like you have said before Tiz, all fiat currencies fail in time. I think our time has come.
I don't have an extravagent lifestyle. I live below my means. I'm in the process of getting most of my finances out of the dollar. I truly expect it to collapse. I am investing heavily in commodities, shit that has real value. When the madness begins I will be ready.
i'm talking the entire banking system
there are no more banks, you can't go to an ATM to get money there is none, CC cards no longer work, everything goes caput!!!
government stops operating there is nothing left.....
lehman started off a domino affect that spread to AIG and woulda continued to ripple through the system
the entire derivative time bomb would have exploded bringing the entire economy crumbling down with it
they needed those events to push congress to the TARP deal
obviously there will be many more bank failures....and i'm guessing the banking system could be pretty much nationalized by the end....
but at this point its all about faith....making sure people aren't freaking out and shoving their fiat and gold under their matress instead of leaving it in banks and money market funds
if say 30% of americans tomorrow were like fuck this shit.....i don't trust the government guarantees...i'm withdrawing all my money the system would fail....and the money they took out would be worthless too
there are no more banks, you can't go to an ATM to get money there is none, CC cards no longer work, everything goes caput!!!
government stops operating there is nothing left.....
lehman started off a domino affect that spread to AIG and woulda continued to ripple through the system
the entire derivative time bomb would have exploded bringing the entire economy crumbling down with it
they needed those events to push congress to the TARP deal
obviously there will be many more bank failures....and i'm guessing the banking system could be pretty much nationalized by the end....
but at this point its all about faith....making sure people aren't freaking out and shoving their fiat and gold under their matress instead of leaving it in banks and money market funds
if say 30% of americans tomorrow were like fuck this shit.....i don't trust the government guarantees...i'm withdrawing all my money the system would fail....and the money they took out would be worthless too
nah its just delaying this likely inevitable step
i'm pretty sure they'll save the system like they did in the 30s
what's important is changing shit on the other side of this doom and gloom and getting back to sound money, fiscal responsibility, and free markets
------------------------------
Nationalize the Banks! We're all Swedes Now
By Matthew Richardson and Nouriel Roubini
Sunday, February 15, 2009; Page B03
The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is nationalization.
As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically too late.
The subprime mortgage mess alone does not force our hand; the $1.2 trillion it involves is just the beginning of the problem. Another $7 trillion -- including commercial real estate loans, consumer credit-card debt and high-yield bonds and leveraged loans -- is at risk of losing much of its value. Then there are trillions more in high-grade corporate bonds and loans and jumbo prime mortgages, whose worth will also drop precipitously as the recession deepens and more firms and households default on their loans and mortgages.
Last year we predicted that losses by U.S. financial institutions would hit $1 trillion and possibly go as high as $2 trillion. We were accused of exaggerating. But since then, write-downs by U.S. banks have passed the $1 trillion mark, and now institutions such as the International Monetary Fund and Goldman Sachs predict losses of more than $2 trillion.
But if you think that $2 trillion is high, consider our latest estimates at RGE Monitor, the financial Web site we run: They suggest that total losses on loans made by U.S. banks and the fall in the market value of the assets they are holding will reach about $3.6 trillion. The U.S. banking sector is exposed to half of that figure, or $1.8 trillion. Even with the original federal bailout funds from last fall, the capital backing the banks' assets was only $1.4 trillion, leaving the U.S. banking system about $400 billion in the hole.
Two important parts of Geithner's plan are 1) "stress testing" banks by poring over their books to separate viable institutions from bankrupt ones and 2) establishing an investment fund with private and public money to purchase bad assets. These are necessary steps toward a healthy financial sector.
But unfortunately, the plan won't solve our financial woes, because it assumes that the system is solvent. If implemented fairly for current taxpayers (i.e., no more freebies in the form of underpriced equity, preferred shares, loan guarantees or insurance on assets), it will just confirm how bad things really are.
Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and allow lending finally to resume. Of course, the economy would still stink, but the death spiral we are in would stop.
Nationalization -- call it "receivership" if that sounds more palatable -- won't be easy, but here is a set of principles for the government to go by:
First -- and this is by far the toughest step -- determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it must determine which are solvent and which aren't in one fell swoop to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.
Second, immediately nationalize insolvent institutions. The equity-holders will be wiped out, and long-term debt-holders will have claims only after the depositors and other short-term creditors are paid off.
Third, once an institution is taken over, separate its assets into good and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner's plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.
The proceeds from both these bad and good assets would first go to depositors and then to debt-holders, with some possible sharing with the government to cover administrative costs. If the depositors are paid off in full, then the government actually breaks even.
Fourth, merge all the remaining bad assets into one enterprise. The assets could be held to maturity or eventually sold off with the gains and risks accruing to the taxpayers.
The eventual outcome would be a healthy financial system with many new banks capitalized by good assets. Insolvent, too-big-to-fail banks would be broken up into smaller pieces less likely to threaten the whole financial system. Regulatory reforms also would be instituted to reduce the chances of costly future crises.
Nationalizing banks is not without precedent. In 1992, the Swedish government took over its insolvent banks, cleaned them up and reprivatized them. Obviously, the Swedish banking system was much smaller than the U.S. system. Moreover, some of the current U.S. financial institutions are much larger and more complex, making analysis difficult. And today's global capital markets make gaming the system easier than in 1992. But we believe that, if applied correctly, the Swedish solution will work here.
Sweden's restructuring agency was not an out-of-control bureaucracy; it delegated all the details of the clean-up to private bankers and managers hired by the government. The process was remarkably smooth.
Basically, we're all Swedes now. We have used all our bullets, and the boogeyman is still coming. Let's pull out the bazooka and be done with it.
Matthew Richardson and Nouriel Roubini, professors at New York University's Stern School of Business, both contributed to the upcoming book "Restoring Financial Stability: How to Repair a Failed System."
i'm pretty sure they'll save the system like they did in the 30s
what's important is changing shit on the other side of this doom and gloom and getting back to sound money, fiscal responsibility, and free markets
------------------------------
Nationalize the Banks! We're all Swedes Now
By Matthew Richardson and Nouriel Roubini
Sunday, February 15, 2009; Page B03
The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is nationalization.
As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically too late.
The subprime mortgage mess alone does not force our hand; the $1.2 trillion it involves is just the beginning of the problem. Another $7 trillion -- including commercial real estate loans, consumer credit-card debt and high-yield bonds and leveraged loans -- is at risk of losing much of its value. Then there are trillions more in high-grade corporate bonds and loans and jumbo prime mortgages, whose worth will also drop precipitously as the recession deepens and more firms and households default on their loans and mortgages.
Last year we predicted that losses by U.S. financial institutions would hit $1 trillion and possibly go as high as $2 trillion. We were accused of exaggerating. But since then, write-downs by U.S. banks have passed the $1 trillion mark, and now institutions such as the International Monetary Fund and Goldman Sachs predict losses of more than $2 trillion.
But if you think that $2 trillion is high, consider our latest estimates at RGE Monitor, the financial Web site we run: They suggest that total losses on loans made by U.S. banks and the fall in the market value of the assets they are holding will reach about $3.6 trillion. The U.S. banking sector is exposed to half of that figure, or $1.8 trillion. Even with the original federal bailout funds from last fall, the capital backing the banks' assets was only $1.4 trillion, leaving the U.S. banking system about $400 billion in the hole.
Two important parts of Geithner's plan are 1) "stress testing" banks by poring over their books to separate viable institutions from bankrupt ones and 2) establishing an investment fund with private and public money to purchase bad assets. These are necessary steps toward a healthy financial sector.
But unfortunately, the plan won't solve our financial woes, because it assumes that the system is solvent. If implemented fairly for current taxpayers (i.e., no more freebies in the form of underpriced equity, preferred shares, loan guarantees or insurance on assets), it will just confirm how bad things really are.
Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and allow lending finally to resume. Of course, the economy would still stink, but the death spiral we are in would stop.
Nationalization -- call it "receivership" if that sounds more palatable -- won't be easy, but here is a set of principles for the government to go by:
First -- and this is by far the toughest step -- determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it must determine which are solvent and which aren't in one fell swoop to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.
Second, immediately nationalize insolvent institutions. The equity-holders will be wiped out, and long-term debt-holders will have claims only after the depositors and other short-term creditors are paid off.
Third, once an institution is taken over, separate its assets into good and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner's plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.
The proceeds from both these bad and good assets would first go to depositors and then to debt-holders, with some possible sharing with the government to cover administrative costs. If the depositors are paid off in full, then the government actually breaks even.
Fourth, merge all the remaining bad assets into one enterprise. The assets could be held to maturity or eventually sold off with the gains and risks accruing to the taxpayers.
The eventual outcome would be a healthy financial system with many new banks capitalized by good assets. Insolvent, too-big-to-fail banks would be broken up into smaller pieces less likely to threaten the whole financial system. Regulatory reforms also would be instituted to reduce the chances of costly future crises.
Nationalizing banks is not without precedent. In 1992, the Swedish government took over its insolvent banks, cleaned them up and reprivatized them. Obviously, the Swedish banking system was much smaller than the U.S. system. Moreover, some of the current U.S. financial institutions are much larger and more complex, making analysis difficult. And today's global capital markets make gaming the system easier than in 1992. But we believe that, if applied correctly, the Swedish solution will work here.
Sweden's restructuring agency was not an out-of-control bureaucracy; it delegated all the details of the clean-up to private bankers and managers hired by the government. The process was remarkably smooth.
Basically, we're all Swedes now. We have used all our bullets, and the boogeyman is still coming. Let's pull out the bazooka and be done with it.
Matthew Richardson and Nouriel Roubini, professors at New York University's Stern School of Business, both contributed to the upcoming book "Restoring Financial Stability: How to Repair a Failed System."
The Next Bubble to Pop! (2/5)
--------------------------------------------------------------------------------
"These days, I am more concerned with the return OF my capital, not the return ON my capital." - attributed to Mark Twain or Will Rogers
--------------------------------------------------------------------------------
by Jake, the Champion of the Constitution
(libertarian)
Sunday, December 7, 2008
I am sure everyone out there who follows the financial crisis has noted or read about the flocking of the masses to the dubious "security" of US Treasury and Agency government debt. As a wanna-be Austrian economist, I have a theory to share with you, let me know what you think. Before starting, my assumption is that you already understand ecopolitical manipulation of world financial markets (just turn on CNBC for a few minutes to get a rough idea) and the inherent unsoundness of paper fiat currency. If not, please try reading some of my other articles. The theory of course is not really my own, I built on the back of the sources I linked, which I have taken to be reliable.
My theory is the next "bubble" to collapse will be the US Dollar. A flight from Treasuries by non-FED parties will immediately precede or occur simultaneously with this collapse.
First I want to show you the general situation on government debt. As "Trader Dan" Norcini shows in his charts and commentary here:
Foreign central banks already dumped $120 billion, or ~10% of the totals of American Agency debt, since July which certainly looks like a bell curve about to crash to earth. Who is crazy enough to buy Freddie and Fannie debt besides the FED? (Whom on Friday bought another $5 billion per Bloomberg.)
3-month Treasury yields have plummeted from 5% in July 2007 to (gasp!) 0.02% right now! The 1-month yield is 0.01% and 1-year 0.61%. This is fairly ridiculous. I fail to understand why any investor worth their salt would not just get cash (the physical paper bills, not the electronic kind) and either hold it or buy assets.
10-year Treasury yields have plummeted from 4% in early November to 2.7% as I write. A suddent and steep drop to be sure, and to maintain purchasing power, a buyer is assuming inflation will remain below 2.7% for the next 10 years. Pure madness, in my humble opinion, even at 4-5%.
Next a comment from across the pond from the December Euromoney magazine.
The US Treasury market, the foundation of government bond and corporate bond markets worldwide, is suffering a crisis of confidence at the worst possible moment. Investors in Treasuries are the lenders enabling the US government bailout of the country's broken financial institutions... For now, treasury yields are at record lows across the term structure as investors with cash to invest conclude they can trust no one else with their money. But investors must wonder at what point the expanded supply of government debt and its use will make the borrower inherently less creditworthy. [Polite talk for a downgrade of the pristine AAA Treasury debt rating, brought to you by the same corrupt-or-incompetent financial firms that rated mortgage securities as AAA in the very recent past.]
Following the collapse of Lehman Brothers in September, fails to deliver among the 17 primary dealers in the US Treasury market have rocketed to more than $2 Trillion over a period of weeks and still lie above $1.3 trillion. Brokers/dealers have stopped delivering bonds. Holders of US Treasuries are now scared to lend into the repo market in case their bonds are not returned, and potential buyers sit on the sidelines fearful of handing over their money to a counterparty that at best might not deliver a bond on time, and at worst might go under.
Counterparty risk, you say? I wonder if those idiots are aware that cheap physical Gold and Silver bars are the only assets that are real Money and hold no counterparty risk? Oh wait, the COMEX market is also under heavy assault right now. Try my article "The End for the Dollar and all Fiat Currencies - A Money Matrix Addendum"
And here is response of the rascal known as the Mogambu Guru on the failed deliveries in Euromoney report:
"One of the most frustrating things in the world is winning your speculative bet but being cheated out of the money because the creep on the other side of your bet won't pay off, like when I charmingly bet my wife a thousand bucks after the honeymoon was over that our marriage wouldn't last another six months, and she laughed and said, "I'll take that bet, because if you think I am going to let you off that easy, you don't know squat about revenge, you Creepy Little Weirdo Bastard From Hell (CLWBFH)!"
Now, after 30 years of marriage, she is still hounding me to pay her the thousand bucks I owe her, and all the other thousands I owe her when I pressed the bet, even though I always have to tell her that I don't (pause) have (pause) any (pause) money. So you see, I am somewhat of an expert on "fails to deliver"! Hahaha!
The worse news, from the standpoint of a whole cornucopia of governments and taxing authorities that have sprung into being over the last 40 years, is that these kinds of "fails to deliver" things are losses, and losses are deductible against taxable gains, and even against some income sometimes, which means there are no taxes to be paid, potentially, on trillions of dollars of losses!
And not only that, but as far as federal income tax is concerned, losses that exceed taxable gains can be carried forward indefinitely until they are finally written off either by netting against all future taxable gains (again, paying no taxes on the gains!) and/or $3,000 a year of ordinary income, further reducing tax revenue.
So you can see the government's interest in preventing deflation, and why they are doing the desperate, doomed crap that they are doing."
The Guru is off-the-wall as usual, but the Euromoney article is dead-on as it wonders what investors will do when they lose confidence in the US government, the dollar and Treasury market. Truly, analysts in the investing world have been brain-farting about this cataclysmic event for years. Saudi Arabia is angry about the price of oil, but what does China think?
As the UK's Telegraph reports on December 4, the chairman of China's largest sovereign wealth fund has said he "does not have the courage" to plough money into Wall Street financials. Next up will be the Treasuries!
"Right now we do not have the courage to invest in financial institutions because we do not know what problems they may have," Jiwei Lou said at the Clinton Global Initiative conference in Hong Kong... "China can save only herself because the scale of China is still rather small," he said.
...He added that the panicky pace of rule changes by Western regulators also gave him cause for concern. "The policies of the developed nations on these financial institutions are not clear. Until they are clear, I don't dare to invest in them. What if they go bust? I will lose everything," he said."
I live in Shanghai, and it seems the professionals I work with here are already aware (via their state media) that China is going to stop purchasing US debt, US anything, even if it is still perceived as a double-edged sword. Many had thought that in the event of a massive US slowdown in consumption, China would crank up the volume on its factories and glut the market with goods. Not happening. There are plant closures and layoffs all over the place, tens of millions will be jobless. In my humble opinion, this was perhaps the last straw that could have significantly postponed the collapse of the dollar.
Jim Willie reports in his article "Zombie Banks and Gold Trigger" that:
"The US Treasury Bond credit default swap used to trade at a cost of only 1 or 2 basis points. That means the cost was 0.01% or 0.02%, translated to be $1000 or $2000 per $10 million of US T-Bonds. Nowadays, the CDSwap cost has risen to almost 50 basis points, far higher than government debt for Germany, England, and France. Investors are taking out protection for the unthinkable, a US Treasury default. The risk premiums for such protection have nearly doubled from levels seen two months ago after the collapse of Lehman Brothers. Contrast the US T-Bond insurance cost with some of the member states. CDS data on some states: Michigan at 192 basis points, California at 165 bpts, Nevada at 164 bpts, New Jersey at 150 bpts, Ohio at 104 bpts. Foreign nation Slovakia has sovereign bond insurance cost at 150 bpts, by comparison.
Many dismiss the threat of a US Treasury default, but they do so in blind faith. [Anyone recall Nixon closing the gold window in '71, or FDR devaluing the dollar against gold during the Great Depression? - Jake] They ignore confirmation signals, such as the in the 30-year US Treasury swap spread. It has been negative for a few weeks. Some call this development inconceivable, illogical, impossible. Yet it is the reality. The swap contract exchanges a floating rate for a fixed rate, and pays a price to do so. Imagine paying a small fixed amount to render an adjustable ARM mortgage loan with a fixed rate, a similar concept. Some experienced analysts have interpreted this as meaning that investors are somehow reckoning that they are more likely to be redeemed on their US T-Bond investments by a private counter-party than by the government itself!
There are more indicators out there. Mark Lundeen shows in his chart "US Treasury's Long Bond / Barron's Best Grade 1952-2008" that the ratio of top corporate bonds are now twice as high as US 30-year Treasuries, setting record levels. Mr. Lundeen writes a very technical column which I do not fully understand, but he sounds quite befuddled as well. This is perhaps because he still acts like a Keynesian, where the plotlines on his computer screen will dictate to him which way the market will head next. I think the truth is that economics is a far more cause/effect event-based science, and right now most of the shots are being called by world governments and central banking cartels in severe distress. Watching the graphs will tell the story of the coming months AFTER the critical events occur.
If you haven't fallen asleep or left to cower in your basement corner yet, I recommend the www.deepcaster.com newsletter as an alternate view on this cartel business, which can also be accessed with a free two-week trial at www.lemetropolecafe.com. I have one last point to make.
Who pays the Treasury investors their interest? The typical answer is "well, the government, stupid." However the true answer is the American economy, which consists of little people called taxpayers. (And corporations, although their tax really comes from the consumer, most of whom are Americans.) We the People pay the interest to all Treasury holders, even to the FED for the supply of fiat paper money they create out of thin air. Well here is some rough news, in November the Labor Department reported that 533,000 jobs were destroyed. The Labor Department also reported they made mistakes in their September and October reports, increasing job losses by 199,000. The October figure was revised to 320,000 from the previous estimate of 240,000. (cough cough election fixing! cough cough) So who is going to pay our creditors? Perhaps we can sell back all the excess goods made in China to the Saudis, or relabel and send back to China!
Therefore, the government and FED will likely create more money and debase the dollar to pay China, Saudi Arabia, etc. This is classic Austrian inflation and robs everyone who held dollars previously of their purchasing power, as surely as if a thief stole bills from your wallet. Seniors living on fixed incomes will be hit hardest, savers are left out for the wolves, but even those working and living from paycheck-to-paycheck will not be unaffected. Purchasing power of wages will lag along before wage increases (hopefully!) occur.
For those interested, Chris Puplava goes into further depth on how the government reporting is all prettied up for public consumption anyways in "Lies, Damned Lies, and Statistics Unemployment Worse Than Reported." I also tried to round out my theory more here "On Gold and Market Manipulation"
Why all this pain you ask? In short, the world is confused because it no longer understands the true nature of money, as I seek to explain and elaborate in my Money Matrix series. And, regardless of whether my theory is correct or not:
The Federal Reserve must be abolished.
The FED's keepers, that irresponsible dualopoly in Congress and the POTUS, must be replaced and the Republic restored. Our government has violated the Constitution with wild abandon, so the compact our Founding Fathers made is effectively dead unless We the People decide we want it restored. The surrogate power delegated to them by us will evaporate the day we rise up together and claim it back.
The American people must once again have Honest Money, defined as Gold and Silver in the Constitution.
--------------------------------------------------------------------------------
"These days, I am more concerned with the return OF my capital, not the return ON my capital." - attributed to Mark Twain or Will Rogers
--------------------------------------------------------------------------------
by Jake, the Champion of the Constitution
(libertarian)
Sunday, December 7, 2008
I am sure everyone out there who follows the financial crisis has noted or read about the flocking of the masses to the dubious "security" of US Treasury and Agency government debt. As a wanna-be Austrian economist, I have a theory to share with you, let me know what you think. Before starting, my assumption is that you already understand ecopolitical manipulation of world financial markets (just turn on CNBC for a few minutes to get a rough idea) and the inherent unsoundness of paper fiat currency. If not, please try reading some of my other articles. The theory of course is not really my own, I built on the back of the sources I linked, which I have taken to be reliable.
My theory is the next "bubble" to collapse will be the US Dollar. A flight from Treasuries by non-FED parties will immediately precede or occur simultaneously with this collapse.
First I want to show you the general situation on government debt. As "Trader Dan" Norcini shows in his charts and commentary here:
Foreign central banks already dumped $120 billion, or ~10% of the totals of American Agency debt, since July which certainly looks like a bell curve about to crash to earth. Who is crazy enough to buy Freddie and Fannie debt besides the FED? (Whom on Friday bought another $5 billion per Bloomberg.)
3-month Treasury yields have plummeted from 5% in July 2007 to (gasp!) 0.02% right now! The 1-month yield is 0.01% and 1-year 0.61%. This is fairly ridiculous. I fail to understand why any investor worth their salt would not just get cash (the physical paper bills, not the electronic kind) and either hold it or buy assets.
10-year Treasury yields have plummeted from 4% in early November to 2.7% as I write. A suddent and steep drop to be sure, and to maintain purchasing power, a buyer is assuming inflation will remain below 2.7% for the next 10 years. Pure madness, in my humble opinion, even at 4-5%.
Next a comment from across the pond from the December Euromoney magazine.
The US Treasury market, the foundation of government bond and corporate bond markets worldwide, is suffering a crisis of confidence at the worst possible moment. Investors in Treasuries are the lenders enabling the US government bailout of the country's broken financial institutions... For now, treasury yields are at record lows across the term structure as investors with cash to invest conclude they can trust no one else with their money. But investors must wonder at what point the expanded supply of government debt and its use will make the borrower inherently less creditworthy. [Polite talk for a downgrade of the pristine AAA Treasury debt rating, brought to you by the same corrupt-or-incompetent financial firms that rated mortgage securities as AAA in the very recent past.]
Following the collapse of Lehman Brothers in September, fails to deliver among the 17 primary dealers in the US Treasury market have rocketed to more than $2 Trillion over a period of weeks and still lie above $1.3 trillion. Brokers/dealers have stopped delivering bonds. Holders of US Treasuries are now scared to lend into the repo market in case their bonds are not returned, and potential buyers sit on the sidelines fearful of handing over their money to a counterparty that at best might not deliver a bond on time, and at worst might go under.
Counterparty risk, you say? I wonder if those idiots are aware that cheap physical Gold and Silver bars are the only assets that are real Money and hold no counterparty risk? Oh wait, the COMEX market is also under heavy assault right now. Try my article "The End for the Dollar and all Fiat Currencies - A Money Matrix Addendum"
And here is response of the rascal known as the Mogambu Guru on the failed deliveries in Euromoney report:
"One of the most frustrating things in the world is winning your speculative bet but being cheated out of the money because the creep on the other side of your bet won't pay off, like when I charmingly bet my wife a thousand bucks after the honeymoon was over that our marriage wouldn't last another six months, and she laughed and said, "I'll take that bet, because if you think I am going to let you off that easy, you don't know squat about revenge, you Creepy Little Weirdo Bastard From Hell (CLWBFH)!"
Now, after 30 years of marriage, she is still hounding me to pay her the thousand bucks I owe her, and all the other thousands I owe her when I pressed the bet, even though I always have to tell her that I don't (pause) have (pause) any (pause) money. So you see, I am somewhat of an expert on "fails to deliver"! Hahaha!
The worse news, from the standpoint of a whole cornucopia of governments and taxing authorities that have sprung into being over the last 40 years, is that these kinds of "fails to deliver" things are losses, and losses are deductible against taxable gains, and even against some income sometimes, which means there are no taxes to be paid, potentially, on trillions of dollars of losses!
And not only that, but as far as federal income tax is concerned, losses that exceed taxable gains can be carried forward indefinitely until they are finally written off either by netting against all future taxable gains (again, paying no taxes on the gains!) and/or $3,000 a year of ordinary income, further reducing tax revenue.
So you can see the government's interest in preventing deflation, and why they are doing the desperate, doomed crap that they are doing."
The Guru is off-the-wall as usual, but the Euromoney article is dead-on as it wonders what investors will do when they lose confidence in the US government, the dollar and Treasury market. Truly, analysts in the investing world have been brain-farting about this cataclysmic event for years. Saudi Arabia is angry about the price of oil, but what does China think?
As the UK's Telegraph reports on December 4, the chairman of China's largest sovereign wealth fund has said he "does not have the courage" to plough money into Wall Street financials. Next up will be the Treasuries!
"Right now we do not have the courage to invest in financial institutions because we do not know what problems they may have," Jiwei Lou said at the Clinton Global Initiative conference in Hong Kong... "China can save only herself because the scale of China is still rather small," he said.
...He added that the panicky pace of rule changes by Western regulators also gave him cause for concern. "The policies of the developed nations on these financial institutions are not clear. Until they are clear, I don't dare to invest in them. What if they go bust? I will lose everything," he said."
I live in Shanghai, and it seems the professionals I work with here are already aware (via their state media) that China is going to stop purchasing US debt, US anything, even if it is still perceived as a double-edged sword. Many had thought that in the event of a massive US slowdown in consumption, China would crank up the volume on its factories and glut the market with goods. Not happening. There are plant closures and layoffs all over the place, tens of millions will be jobless. In my humble opinion, this was perhaps the last straw that could have significantly postponed the collapse of the dollar.
Jim Willie reports in his article "Zombie Banks and Gold Trigger" that:
"The US Treasury Bond credit default swap used to trade at a cost of only 1 or 2 basis points. That means the cost was 0.01% or 0.02%, translated to be $1000 or $2000 per $10 million of US T-Bonds. Nowadays, the CDSwap cost has risen to almost 50 basis points, far higher than government debt for Germany, England, and France. Investors are taking out protection for the unthinkable, a US Treasury default. The risk premiums for such protection have nearly doubled from levels seen two months ago after the collapse of Lehman Brothers. Contrast the US T-Bond insurance cost with some of the member states. CDS data on some states: Michigan at 192 basis points, California at 165 bpts, Nevada at 164 bpts, New Jersey at 150 bpts, Ohio at 104 bpts. Foreign nation Slovakia has sovereign bond insurance cost at 150 bpts, by comparison.
Many dismiss the threat of a US Treasury default, but they do so in blind faith. [Anyone recall Nixon closing the gold window in '71, or FDR devaluing the dollar against gold during the Great Depression? - Jake] They ignore confirmation signals, such as the in the 30-year US Treasury swap spread. It has been negative for a few weeks. Some call this development inconceivable, illogical, impossible. Yet it is the reality. The swap contract exchanges a floating rate for a fixed rate, and pays a price to do so. Imagine paying a small fixed amount to render an adjustable ARM mortgage loan with a fixed rate, a similar concept. Some experienced analysts have interpreted this as meaning that investors are somehow reckoning that they are more likely to be redeemed on their US T-Bond investments by a private counter-party than by the government itself!
There are more indicators out there. Mark Lundeen shows in his chart "US Treasury's Long Bond / Barron's Best Grade 1952-2008" that the ratio of top corporate bonds are now twice as high as US 30-year Treasuries, setting record levels. Mr. Lundeen writes a very technical column which I do not fully understand, but he sounds quite befuddled as well. This is perhaps because he still acts like a Keynesian, where the plotlines on his computer screen will dictate to him which way the market will head next. I think the truth is that economics is a far more cause/effect event-based science, and right now most of the shots are being called by world governments and central banking cartels in severe distress. Watching the graphs will tell the story of the coming months AFTER the critical events occur.
If you haven't fallen asleep or left to cower in your basement corner yet, I recommend the www.deepcaster.com newsletter as an alternate view on this cartel business, which can also be accessed with a free two-week trial at www.lemetropolecafe.com. I have one last point to make.
Who pays the Treasury investors their interest? The typical answer is "well, the government, stupid." However the true answer is the American economy, which consists of little people called taxpayers. (And corporations, although their tax really comes from the consumer, most of whom are Americans.) We the People pay the interest to all Treasury holders, even to the FED for the supply of fiat paper money they create out of thin air. Well here is some rough news, in November the Labor Department reported that 533,000 jobs were destroyed. The Labor Department also reported they made mistakes in their September and October reports, increasing job losses by 199,000. The October figure was revised to 320,000 from the previous estimate of 240,000. (cough cough election fixing! cough cough) So who is going to pay our creditors? Perhaps we can sell back all the excess goods made in China to the Saudis, or relabel and send back to China!
Therefore, the government and FED will likely create more money and debase the dollar to pay China, Saudi Arabia, etc. This is classic Austrian inflation and robs everyone who held dollars previously of their purchasing power, as surely as if a thief stole bills from your wallet. Seniors living on fixed incomes will be hit hardest, savers are left out for the wolves, but even those working and living from paycheck-to-paycheck will not be unaffected. Purchasing power of wages will lag along before wage increases (hopefully!) occur.
For those interested, Chris Puplava goes into further depth on how the government reporting is all prettied up for public consumption anyways in "Lies, Damned Lies, and Statistics Unemployment Worse Than Reported." I also tried to round out my theory more here "On Gold and Market Manipulation"
Why all this pain you ask? In short, the world is confused because it no longer understands the true nature of money, as I seek to explain and elaborate in my Money Matrix series. And, regardless of whether my theory is correct or not:
The Federal Reserve must be abolished.
The FED's keepers, that irresponsible dualopoly in Congress and the POTUS, must be replaced and the Republic restored. Our government has violated the Constitution with wild abandon, so the compact our Founding Fathers made is effectively dead unless We the People decide we want it restored. The surrogate power delegated to them by us will evaporate the day we rise up together and claim it back.
The American people must once again have Honest Money, defined as Gold and Silver in the Constitution.
