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Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else

Tyler Durden's picture





 

As everyone is engrossed by assorted groundless Christmas (and other ongoing bear market) rallies, and oblivious to the debt monsters hiding in both the closet and under the bed, Zero Hedge has decided it is about time to present the ugliest truth faced by our 'intellectual superiors' and their Wall Street henchman who succeeded in pulling off Goal #1 for 2009 - the biggest ever bonus season (forget record bonuses in 2010... in fact, scratch any bonuses next year if what is likely to transpire in the upcoming 12 months does in fact occur).

If someone asks you what happened in 2009, the answer is simple - two things. There was a huge credit and liquidity crunch, and then there was Quantitative Easing. The last is the Fed's equivalent of band-aiding a zombied and ponzied corpse, better known as the US economy. It worked for a while, but now the zombie is about to go back into critical, followed by comatose, and lastly, undead (and 401(k)-depleting) condition.

In 2009, total supply of all USD denominated fixed income, net of maturities, declined by $300 billion from $2.05 trillion to $1.75 trillion. This makes sense: the abovementioned crunches stopped the flow of credit from January until well into April, and generally firms were unwilling to demonstrate to the market how clothless they are by hitting the capital markets until well into Q2 if not Q3. What happened was a move so drastic by the Fed, that into November, the worst of the worst High Yield names were freely upsizing dividend recap deals (see CCU) - the very same greed and stupidity that brought us here. Luckily, so far securitization and CDOs have not made a dramatic entrance. They likely will, at which point it will be time to buy a one-way ticket for either our southern or northern neighbor, both of which, in the supremest of ironies, transact in a currency that will survive long after the dollar is dead and buried.

Back to the math... And here is the kicker. Accounting for securities purchased by the Fed, which effectively made the market in the Treasury, the agency and MBS arenas, but also served to "drain duration" from the broader US$ fixed income market, the stunning result is that net issuance in 2009 was only $200 billion. Take a second to digest that.

And while you are lamenting the death of private debt markets, here is precisely what the Fed, the Treasury, and all bank CEOs are doing all their best to keep hidden until they are safely on their private jets heading toward warmer climes: in 2010, the total estimated net issuance across all US$ denominated fixed income classes is expected to increase by 27%, from $1.75 trillion to $2.22 trillion. The culprit: Treasury issuance to keep funding an impossible budget. And, yes, we use the term impossible in its most technical sense. As everyone who has taken First Grade math knows, there is no way that the ludicrous deficit spending the US has embarked on makes any sense at all... none. But the administration can sure pretend it does, until everything falls apart and blaming everyone else for its fiscal imprudence is no longer an option.

Out of the $2.22 trillion in expected 2010 issuance, $200 billion will be absorbed by the Fed while QE continues through March. Then the US is on its own: $2.06 trillion will have to find non-Fed originating  demand. To sum up: $200 billion in 2009; $2.1 trillion in 2010. Good luck.

As we pointed, the number one reason why 2010 is set to be a truly "interesting" year is a result of the upcoming explosion in US Treasury issuance. Fiscal 2010 gross coupon issuance is expected to hit $2.55 trillion, a $700 billion increase from 2009, which in turn was  $1.1 trillion increase from 2008. For those of you needing a primer on the exponential function, click here. But wait, there is a light in the tunnel: in 2011, gross issuance is expected to decline... to $1.9 trillion.

And while things are hair-raising in "gross" country (not Bill...at least not yet), they are not much better in netville either. Net of maturities, 2010 coupon issuance will be about $1.8 trillion, a 45% increase from the $1.3 trillion in FY 2009 (and the paltry $255 billion in 2008).

Now everyone knows that the average maturity of the UST curve has become a big problem for Tim Geithner: nearly 40% of all marketable debt matures within a year (a percentage that has kept on growing). In fact, the Treasury provided guidance in its November 2009 refunding, in which it stated that it intends "to focus on increasing the average maturity" of its debt after relying heavily on Bill issuance in H2. Once again, we wish Tim the best of luck.

Why our generous best intentions to the US Treasury? Because unless the US consumer decides to forgo the purchase of the 4th sequential Kindle and buy some Treasuries (and not just any: 30 Year Bonds or bust), the presumption that the Bond printer will have the option of finding vast foreign appetite for its spewage is a very myopic one. We already know that China is a major question mark, and will aggressively be looking at pumping capital into its own economy instead of that of Uncle Sam's - at some point the return on investment in its own middle class will surpass that of funding the rapidly disappearing US middle class. That tipping point could be as soon as 2010.

As for Japan - the country has plunged into its nth consecutive deflationary period. Whether or not the finance minister announces yet another affair with the Quantitative Easing whore on any given day, depends merely on what side of the bed he wakes up on. The country will have its hands full monetizing its own sovereign issuance, let alone ours.

Lastly, the UK - well, with the country set to have zero bankers left in a few months, we don't think the traditionally third largest purchaser of US debt will be doing much purchasing any time soon.

None of this is merely speculation: October TIC data confirmed these preliminary observations. It will only become more pronounced in upcoming months.

How about that great globalization dynamo: emerging markets? Alas, they have their hands full with issuing their own record amounts of both sovereign and corporate debt as well: in 2009 gross EM debt issuance reached an astounding $217 billion, $29 billion higher than the previous record in 2007. Gross EM issuance was particularly high in the last quarter at $73 billion, with October breaking the record for the largest ever monthly gross issuance of emerging market global bonds at $38 billion (January is traditionally the busiest month of the year.) With $81 billion, 2009 was notably a record year for sovereign bonds, while gross issuance of corporate bonds amounted to $136 billion, the second highest level after that of 2007 with $155 billion.

Bottom line: everyone has major problems at home, and is more focused on the supply than the demand side of the equation.

What options does this leave for the administration? Very few, and all of them are ugly. As we stated earlier on, the options for the Fed are threefold:

  1. Announce a new iteration of Quantitative Easing. This will be met with major disapproval across all voting classes (at least those whose residential zip codes do not start with 10xxx or 068xx), creating major headaches for Obama and the democrats which are already struggling with collapsing polls.
  2. Prepare for a major increase in interest rates. While on the surface this would be very welcome for a Fed that keeps hinting that deflation is the biggest concern for the economy, Bernanke's complete lack of preparation from a monetary standpoint (we are surprised the Fed's $200 million reverse repos have not made the late night comedy circuit yet) to a forced interest rate increase, would likely result in runaway inflation almost overnight. The result would be a huge blow to a still deteriorating economy.
  3. Engineer a stock market collapse. Recently investors have, rightfully, realized there is no more risk in equities, not because the assets backing the stockholder equity are actually creating greater cash flow (as we demonstrated recently, that is not the case), but simply because taxpayers have involuntarily become safekeepers for the entire stock market, due to Bernanke's forced intervention in bond and equity markets. Yet the President's Working Group is fully aware that when the time comes to hitting the "reverse" button, it will do so. Will the resultant rush into safe assets be sufficient to generate the needed endogenous demand for Treasuries is unknown. It will likely be correlated to the size of the equity market drop.

If the Fed decides on option three, we fully believe a 30% drop (or greater) in equities is very probable as the new supply/demand regime in fixed income becomes apparent. We hope mainstream media takes the ideas presented here and processes them for broader consumption as indeed the Fed is caught in a very fragile dilemma, and the sooner its hand is pushed, the less disastrous the final outcome for investors. Then again, as Eric Sprott has been pointing out for quite some time, it could very well be that the US economy has become merely one huge Ponzi, and as such, its expansion or reduction on the margin is uncontrollable. We very well may have passed into the stage where blind growth is the only alternative to a complete collapse. We hope that is not the case.

Merry Christmas and Happy Holidays to all readers.

 


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Fri, 12/25/2009 - 18:48 | Link to Comment bugs_
bugs_'s picture

Well done.  Would it not make more sense

to mandate a percentage of IRA and 401k

be invested in treasuries for safety?  What

is a good estimate for the total of individual

ira, roth ira, sep ira, 403(b), and 401(k)

accounts?  Perhaps they'd only need to

mandate 5% to acheive the 2.2b.  Next

year they could kick it up to 12% to keep

the ponzi going.

 

Once they begin - people will have an

even bigger incentive to pull the accounts

so they will have to substantially raise the

penalties for doing so.  Expect it and

prepare.

Fri, 12/25/2009 - 19:11 | Link to Comment Rusty_Shackleford
Rusty_Shackleford's picture

 

Review Argentina's approach to said problem...

 

 

                                     ...game over, man.

Sat, 12/26/2009 - 07:57 | Link to Comment Hephasteus
Hephasteus's picture

I guess it's time to extract the lessons from it all. There is not working compounding interest money system. It all ends like this. But it works like a champ and makes a few people rich in the mean time. Now it's time to let it go or for them to try to stick us to a we'ere always broke but interest is low there's no fixed income for everyone just a few but people take all their money out of the banks and buy gold which doesn't get inflated but doesn't earn interest. But since our banks won't pay interest for the rest of eternity why not.

Tue, 12/29/2009 - 12:40 | Link to Comment arkady
arkady's picture

I do not understand some of the technical jargon in the article, but get the gist. 

My two main questions are and if anyone can field them, I will be grateful.

 

What is happening to Treasuries in 2010?  Bond market has always been a big mystery to me, but I am unclear as to the significance of the charts for 2010/2011.

 

If the Fed chooses scenario 2 and raises rates.  How will that result in runaway inflation exactly?  Other than speed up the already collapsing real estate market it will also usher in defaults for all equity lines, credit cards, etc.  This sounds more like significant deflation...

Mon, 01/04/2010 - 20:58 | Link to Comment FLETCH
FLETCH's picture

waterfalls of liquidity as everyone dumps their bonds and the Fed is out of ammo to absorb. money supply goes nuts, consumers buy out of fear

 

 

Tue, 01/26/2010 - 00:36 | Link to Comment Anonymous
Fri, 12/25/2009 - 20:01 | Link to Comment deadhead
deadhead's picture

Both Obama and Geithner some time ago were spewing words about the USA consumer needing to save more.  All I could think of was that they are setting the stage to drive consumer money into Treasuries.  It could end up being like the war bond approach to WW2 all over again.

I have a personal alert for Messrs. Geithner and Bernanke:  I came across two US Savings bonds for one of my kids that he received when he was born 19 yrs ago and have decided to cash them in for next semester's money needs.  It's going to end up being around $150 bucks and I do hope that it won't hurt the country too badly.  Please don't blame me if this redemption is the final straw on that poor camel's back.

Sun, 12/27/2009 - 21:40 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

You, my dear deadhead, will be the straw that breaks the camel's back. At least we will know who to blame for the resulting crash. Time to go underground before the angry hoards of undead are unleashed by the main stream media to string you up from your front porch. :>)

Fri, 12/25/2009 - 22:08 | Link to Comment wackyquacker
wackyquacker's picture

ding ding ding ding ding ding ding ding!

Sat, 12/26/2009 - 16:36 | Link to Comment Anonymous
Sun, 12/27/2009 - 00:47 | Link to Comment Rusty Shorts
Rusty Shorts's picture

CALIGULA !!!

Mon, 12/28/2009 - 11:44 | Link to Comment curbyourrisk
curbyourrisk's picture

That is plan B.  A very viable alternative.  It will be doen, and it will be done to protect the people, and for the good of the people.

 

Sit people.....Good people...

Fri, 12/25/2009 - 18:50 | Link to Comment Cursive
Cursive's picture

Elevenfold, huh?  Interesting that you referenced the Sprott Hypothesis.  QE I is to sunset in March 2010, but we may have a shadow QE going on, via QuEasyGate.

Fri, 12/25/2009 - 19:09 | Link to Comment Zina
Zina's picture

Yeah, QE I is to sunset in March 2010, but the "Household Sector" (freemansory? extraterrestrials?) will continue to buy all issued debt. There is no way the US Government can default on its debt. Everything is gonna be alright. No woman no cry.

Ronaldo!

Fri, 12/25/2009 - 19:35 | Link to Comment Zina
Zina's picture

By the way, I have a suggestion for the tea party crowd: abolish ALL the taxes and substitute it by the Household Sector (aka the printing presses).

So the US may fund all its wars in the Middle East AND have a completely free healthcare system without collecting any taxes! The great Household Sector can easily fill all the budget needs.

Why nobody thought of this before?

Ronaldo!

Sat, 12/26/2009 - 11:26 | Link to Comment Andrei Vyshinsky
Andrei Vyshinsky's picture

"...but the "Household Sector" (freemansory? extraterrestrials?)..."

You forgot antinomians, and what's more you know better. Shame. :-)

Fri, 12/25/2009 - 19:01 | Link to Comment MsCreant
MsCreant's picture

Option three. We are all socialists now. The government will own the collapsed stock market too via bailouts.

Sat, 12/26/2009 - 00:00 | Link to Comment Bob
Bob's picture

The dumbest socialists in history, then.  By far. 

Sat, 12/26/2009 - 00:45 | Link to Comment Seer
Seer's picture

Who else is left, but the government, to buy a failed system?

Sat, 12/26/2009 - 19:25 | Link to Comment Anonymous
Wed, 02/02/2011 - 13:19 | Link to Comment web dizajn
web dizajn's picture

who else but a socialist government, to buy a failed system? izrada web stranica

Fri, 12/25/2009 - 19:05 | Link to Comment SayTabserb
SayTabserb's picture

So, they've actually done it, at last. Congress, the Oval Office, the Fed - they've gone over the Event Horizon. You have to be right, Tyler. No way around it. You can feel it. 2009 was the one year they could get away with it. I read a post on HuffPo not so long ago where Dean Baker, arguing for more govt spending as the answer, complained about "deficit idiocy." You know, taking the deficit seriously. Krugman today talked about "fiscal scolds." The idea being: after all, as a percentage of GDP (that magical phrase used as an elixir to excuse the natl debt, however humongous), is not so great. But: they forget about its ABSOLUTE size, and this (ahem) also matters. Because we need foreign help (and the "Household!" too) to deal with it, and it's so frigging huge, there just isn't enough dough in those other, teensy GDPs to spare. I think the Blithe Keynesians may have forgotten that little nugget. One question: if they melt the market down, will they ligquefy enough? Or will they still have to use Phantoms?

Fri, 12/25/2009 - 23:56 | Link to Comment Bob
Bob's picture

That was interesting:

Our colleague Rob Arnott, who always does terrific research, wrote in his recent report that "at all levels, federal, state, local and GSEs, the total public debt is now at 141% of GDP. That puts the United States in some elite company--only Japan, Lebanon and Zimbabwe are higher. That's only the start. Add household debt (highest in the world at 99% of GDP) and corporate debt (highest in the world at 317% of GDP, not even counting off-balance-sheet swaps and derivatives) and our total debt is 557% of GDP. Less than three years ago our total indebtedness crossed 500% of GDP for the first time."

Sat, 12/26/2009 - 13:14 | Link to Comment Anonymous
Sat, 12/26/2009 - 18:11 | Link to Comment Anonymous
Fri, 12/25/2009 - 19:19 | Link to Comment waterdog
waterdog's picture

What could they do to engineer a stock market crash and not be choosing option #2?

Didn't blind growth get us here?

 

Fri, 12/25/2009 - 19:24 | Link to Comment Rusty_Shackleford
Rusty_Shackleford's picture

 

Riddle me this Z-men (and ladies):

When calulating an individual person's financial risk and viability, we look at his debt to income level (DTI), but when talking about a country we always look at debt to GDP.

However, is this valid?

Every dollar said government borrows and spends makes the GDP go up.

This is akin to looking at an individual person and counting everything he has purchased with his credit cards as "income".

 

 

(Also, the GDP is not the Government's income.  It is ours.

As soon as the government starts creating something of value and selling it at a profit, it can count it as it's income.)

 

Fri, 12/25/2009 - 19:57 | Link to Comment Shameful
Shameful's picture

I like where you are going with that but consider this angle, that we are their property.  Why can the government enslave us via the draft, because we are their property.  Why can the government take our property and earnings without our permission, because we are their property.  Why can the government pursue our income and property across the globe, be cause we are their property.  Slavery still exists in the US.  They got rid of private slavery and kept only public slavery.  Every American is a slave to the Federal Government.  They are free to take our fortunes and indeed our lives at their pleasure.  The only thing holding them back is the armed segment of the population, after all it's harder to rob an armed man.

Fri, 12/25/2009 - 21:38 | Link to Comment skippy
skippy's picture

Shameful, with all due respect, the arms you speak of give a false sense of security.

Firstly the thief must be with in range DC/WS can be a long way, away and does your ammo have the ability to penetrate their armor. 

Secondly, in a war between facts and the *truth* the frame is cognitive not material, have you ever tried putting a hole in a thought with a bullet. Your enemy's are many, can your clip dispatch them all before the need to reload arrives?

Lastly, if any one actually uses violence *especially with ballistics* you will only further their grip of power over you and yours as it will be used to enact stronger reaction on their part. My thought is to de-legitimize their power by not participating in the voting process, take the mandate away or as voices of the people they must have sufficient backing to lay claim to such and with out the backing will be naked for all to see.

Fri, 12/25/2009 - 22:40 | Link to Comment Mad Max
Mad Max's picture

How did that work for Chinese students in 1989?  Hungarian uprising?  Prague spring?  Palestinians today?

Nonviolent resistance works, sometimes, when the oppressor isn't all that evil and isn't all that interested.  Gandhi succeeded because the British Empire was spent.  MLK because the US culture was changing and he was in the right place and time.

Now how do I emigrate to Norway?

Fri, 12/25/2009 - 23:47 | Link to Comment Anonymous
Sat, 12/26/2009 - 00:28 | Link to Comment Bob
Bob's picture

A simple work stoppage is all it would take in America, I think.  No need to  march, demonstrate, etc..  A uniquely convenient revolution.  Efficient, too. 

Hell, you could fully man your post in that revolution from home.  Sleep very late and dvr the media coverage if you like. 

Too bad there are too many cowards, scabs, sycophants and stooges to give even that "uprising" any traction. 

Sat, 12/26/2009 - 05:08 | Link to Comment Eternal Student
Eternal Student's picture

Heck, keep working. Just stop spending.

But it seems to me that we're heading that way right now, in both areas.

Sat, 12/26/2009 - 20:24 | Link to Comment DosZap
DosZap's picture

ES,

Brother, the majority of us have already been doing this,(at least those who are smart).

No one has a clue what to do, because as you know, their NEW programs are going to affect us in way's undreamt of.

Easily have stopped me from spending on a new vehicle, or any major appliances , needs thus far, since the new Admin.

But, again, this too is/has been pre planned, IMHO.

"Never fail to take advantage of a Crisis".

(Or create one).

Sun, 12/27/2009 - 22:04 | Link to Comment Neo-zero
Neo-zero's picture

I've hear an idea floated a few place's recently about jacking your exemptions to the max and depriving them of the free loan on your money.  Starve the beast!!!

Mon, 12/28/2009 - 21:08 | Link to Comment Anonymous
Sat, 12/26/2009 - 00:31 | Link to Comment Anonymous
Sat, 12/26/2009 - 08:54 | Link to Comment narlah
narlah's picture

There is a ultimate weapon of choice - we stop supporting the system. It's called "Faith based system" for a reason. The moment 'fate' is gone - the system is down too.

Sat, 12/26/2009 - 12:40 | Link to Comment Anonymous
Sat, 12/26/2009 - 19:39 | Link to Comment Rick64
Rick64's picture

Have to disagree, It will work everytime if enough people are behind it and willing to suffer for it. Ghandi succeeded because the british companies weren't making any money thus having an impact on britian, MLK didn't change things by himself their were several people,groups, and organizations. He tried to make the demonstrations non-violent and unite the people. Right place at the right time? Tell that to the people that were murdered and prosecuted.

Sat, 12/26/2009 - 19:53 | Link to Comment Seer
Seer's picture

It will work everytime if enough people are behind it and willing to suffer for it.

And that's how it HAS been working: enough people have supported this system as they suffer from it...

While the British were effectively run out of India, I've got to wonder, looking at their caste system, whether it really has turned out all that well.

But yes, it's about the people preceding governments.

Sat, 12/26/2009 - 02:29 | Link to Comment Shameful
Shameful's picture

You mistake that I would have any intentions of fighting any kind of armed conflict.  I have zero interest in that.  My statement is simply that by the fact that a person is armed that makes a looter think twice before robbing him.  While you are correct that the Overlords are Quite safe in Mordor on the Potomac (DC) however the Orcs (IRS, EPA, etc) are less likely to unleash their full depravity when there is a chance a slave might take a shot at them.  Ultimately the gov would of course win a crushing victory over any armed resistance, no doubt.  All it would take would be to shut of water/power/food in a city for a week and the masses will gladly accept the shackles once more. Much less the use of the wonderful tech toys they have developed to murder and suppress populations.  Full agreement that armed resistance is futile, I merely think that by being armed we mitigate some of the depravity, or at least slow it down.  Think Fleet in Being doctrine.

As to not voting, they don't care.  They don't care about you not playing the game because if you don't so what?  The only way to "win" is to leave.  Deprive the beast of your labor, and your productivity.  No to be a fatalist, but the oligarchs won.  At least here in America, it's all over but the crying.  Well unless the sheep wake up, but they have their CNN, MSNBC, and Faux News to tell them it's all Red/Blue teams fault.

Sat, 12/26/2009 - 11:15 | Link to Comment Bob
Bob's picture

IIRC, we already have had the lowest voting rate of any Western country for at least a generation, by far. 

I agree, the overlords couldn't care less.  In fact, it even serves their purposes, leaving only the most naive to continue fanatically rooting for the virtually indistinguishable candidates of this wonderful two party "democracy" to provide empty play-by-play analysis material for the media to trumpet.  It's like professional sports--you only need two teams to produce the Superbowl, and most people have no particular attachment to the teams on the field by the final game, but most of the population is nonetheless raptly tuned in on the Big Game day. 

Sat, 12/26/2009 - 16:05 | Link to Comment Anonymous
Mon, 12/28/2009 - 12:46 | Link to Comment Ripped Chunk
Ripped Chunk's picture

Good advice indeed!  The IRS hates barter. The old "valuation" issue.

If its ok for the banks to fuck with valuations I think its ok for us to do so as well.

Sun, 12/27/2009 - 16:00 | Link to Comment ConfederateH
ConfederateH's picture

Not voting simply makes it that much easier for them to steal the election.  All roads lead to secession and civil war.  The federal government is far too big to be manageable, far too bloated to be rescuable and far too poorly run to be worth the effort.

The states will be forced to secesseed one by one as the federal government implodes.  Look at the break up of the USSR for tips.

Fri, 01/01/2010 - 12:18 | Link to Comment Anonymous
Sat, 12/26/2009 - 00:13 | Link to Comment Bob
Bob's picture

Can't argue against your premise altogether, but the financial slavery argument seems to give short shrift to the private sector slavery most people know oh so well.     

Sat, 12/26/2009 - 14:02 | Link to Comment zero-my-hero
zero-my-hero's picture

You are right, we are slaves to the government. I recently received a jury summons. I'm expected to be on call for an entire month to be available for jury duty. How am I to plan anything at work for that month? I like the idea of trial by a jury of one's peers, but the fact is it is not voluntary and feels like slavery. Why not make it voluntary? I'm sure there are many people who could use the money, or are retired and have the time and interest. I'll happily volunteer when I'm retired. Now I have to have a significant disruption to my work and scramble for child care (my current childcare coverage and the courts schedule do not overlap by just 30 minutes). Say what you will, it feels like slavery.

Sat, 12/26/2009 - 16:46 | Link to Comment mojine
mojine's picture

And that's ALL YOU GET for registering to vote: Jury duty!

Sat, 12/26/2009 - 19:56 | Link to Comment Seer
Seer's picture

You should be able to get out of it by being able to demonstrate finaincial hardship, that or being an un-fit jurror (tell them that you're an anrchist!).

Mon, 12/28/2009 - 12:50 | Link to Comment Ripped Chunk
Ripped Chunk's picture

I go for the unfit or "clearly biased from the get go" strategy every time I am called. 

Around here, they usually plea it out in the hallway 10 minutes before the trial or the state drops the case due to incompetance. 

Sat, 12/26/2009 - 22:17 | Link to Comment Anonymous
Fri, 12/25/2009 - 20:34 | Link to Comment Mark Beck
Mark Beck's picture

I guess it depends on what you mean by valid. If you are the Treasury, and you want to confuse the majority of legislators as to the capacity of our debt, then Debt to GDP makes perfect sense.

As a measure to finance our massive debt, the number is essentially meaningless. Especially, in an environment of massive Government stimulus, skewing GDP. What is key for the US, is to somehow fund our debt without QE in FY2010.

With tax revenues falling, and the huge debt funding requirements for FY2010, the key question is; does the world have the investment capacity and inclination, to buy US debt in the amounts needed, in an environment of world debt de-leveraging?

----------

The FED will see how it goes for a few months into CY2010, with some built in Treasury buy slack from the Big Banks (Primary dealers) reserves. Once the options to prime the pump have been exhausted, and especially if yields start to rise alarmingly, the FED will have to step in with another Treasury buy program to increase volume or control yields.

However, this FED QE2 will be viewed from outside the US as deliberate debasement of the USD, to pay for uncontrolled Government expenditures, like war. This QE2 could severely backfire on the FED, if smaller holders (nations) of USD start to abandon the currency at the expense of larger holders like China, for example.

Anyway that's my best guess.

Mark Beck

Sat, 12/26/2009 - 05:35 | Link to Comment Pondmaster
Pondmaster's picture

Perhaps they will not unload so much MBS on the nations money markets as they will unload treasueries. Who needs to pillage 401ks and Roths when you can force feed trillions in treasuries on an unsuspecting MM . QE indeed. What a wondrous scam .  

Sat, 12/26/2009 - 14:36 | Link to Comment Anonymous
Sat, 12/26/2009 - 15:43 | Link to Comment Rick64
Rick64's picture

Very Good Point Rusty S.

Sat, 12/26/2009 - 15:41 | Link to Comment Rick64
Rick64's picture

Thats a good point.

Sat, 12/26/2009 - 20:12 | Link to Comment sgt_doom
sgt_doom's picture

You nailed it perfectly, Mr. Rusty!

And when doing a detailed analysis of the GDP over the past 10 years, one finds, upon subtracting said debt, that the economy is shrinking.

Not really shocking to anyone paying attention.....

Sat, 12/26/2009 - 20:33 | Link to Comment Crime of the Century
Crime of the Century's picture

Every dollar said government borrows and spends makes the GDP go up.

 

Until it doesn't. Have you read Fekete's essay "The Marginal Productivity of Debt"?

http://www.financialsense.com/editorials/fekete/2009/0330.html

Sun, 12/27/2009 - 10:34 | Link to Comment Chumly
Chumly's picture

The alarm was sounded loooooooooooonnnnggg ago regarding the dangers of MPD, especially when it goes negative.  The seeds of this danger were planted way long ago (When was that Third Seal Opened?).  The exponential growth factors of debt going forward will be remarkable and has the potential to make any coming year a "pinnacle" in the history of economics.  Two trillion to eight trillion in eight years; eight trillion to twelve trillion in 1 year. 

What will shrink at a faster rate?  The imploding $ Gazillions of fiat derivatives or $ Trillions of "GDP?"  Whatever it is, it will be nuclear.

Mon, 01/04/2010 - 21:11 | Link to Comment FLETCH
FLETCH's picture

no riddle because there's no earnings to even talk about the debt service capability.

gov't is ~40% of GDP so that needs to be taken out.

but wait, there's more!  The earnings growth of the remaining 60% is negative and the total value is approaching negative.

so the real problemo is not debt;  its EARNINGS in the USA needed to service the debt.  it's like talking about buying a car without any fuel supply.

We'll know we're getting somewhere when politicians/leaders stop destroying the earnings power of our great country under the guise of false economic bullshit and bogus paper returns.  

 

From an accounting viewpoint, this is what is reflected in the ponzi paper scheme that has no underlying support.

Fri, 12/25/2009 - 19:28 | Link to Comment Anonymous
Fri, 12/25/2009 - 19:42 | Link to Comment ozziindaus
ozziindaus's picture

There are other obvious options of course. 

  1. Create another false flag attack and go to war. Issue T-bonds and disguise them as WWII style war bonds.
  2. Reinvigorate industry (unlikely since corporate America has already invested elsewhere with little payback)
  3. Tell us that we are only minding USD's and the Treasury wants them back (the Big CONfiscation 2.0)
  4. Rapidly raise taxes under the argument that

  • the US is still amongst the lowest taxed nations
  • you are polluting this world with your CO2
  • 30 million citizens need to see doctors for their broken nails too you know
  • we will fall into bankruptcy if we don't (this one can be recycled a couple more times)
Apart from 3., these are all possibilities.

Fri, 12/25/2009 - 20:02 | Link to Comment Shameful
Shameful's picture

We don't even need another false flag, look at the posturing about Iran.  Its possible that then when the next economic leg kicks off Israel will jump Iran and drag us in.  Gives them cover for hard economic times and allows the MSM to once again go into heavy war propaganda.  Not saying this will happen only to show that we can be at war quite quickly and most people are asleep enough to accept the MSM reason for it.

Hell would boost Obama's poll numbers to.  A lot of Rednecks will probably like him for going after "dem dam Arabs!".  And of course the left would forgive him for going to Israel's aid.

Fri, 12/25/2009 - 21:02 | Link to Comment knukles
knukles's picture

No, no, no

The Left will not forgive defense of Israel, they shall cheer its downfall.  The administration is clearly another group's friend. 

Fri, 12/25/2009 - 21:12 | Link to Comment Shameful
Shameful's picture

Pardon?  Both the Blue and Red team love Israel...I cannot believe the Blue team has gone off the script for any reason.  The chances of of the Blue team not rushing to their aid is about the same as them not helping Wallstreet meet bonus...infinitely approaching 0.

Can you point to any evidence of the Blue team looking to bail on Israel?  And I mean real evidence not idle talk by Zbigniew Brzezinski.

Sat, 12/26/2009 - 10:16 | Link to Comment Anonymous
Sat, 12/26/2009 - 19:02 | Link to Comment Anonymous
Sat, 12/26/2009 - 20:28 | Link to Comment Anonymous
Sun, 12/27/2009 - 08:45 | Link to Comment Anonymous
Sat, 12/26/2009 - 20:42 | Link to Comment Crime of the Century
Crime of the Century's picture

Have you read lefty darling Congressman Grayson's bio?

Sat, 12/26/2009 - 10:51 | Link to Comment Bob
Bob's picture

The Blue-Red (or is it Red-Blue?) team will support the same policies, one way or another.  We've propped up Israel for the past 65 years, providing them with the region's most effective military by a long shot (and they do have those nukes if they find themselves in a real tight pinch.)  The US would only need to provide continuing background support and Israel would suffer on the altar of "world opinion."  But how many people like them anyway . . . and do the Israelis really care?

BTW, "The Left" is not irrevocably committed to the putative Blue Team.  Barry O will prove to be a "Transformative President" in more ways than one. 

Fri, 12/25/2009 - 21:55 | Link to Comment skippy
skippy's picture

http://en.wikipedia.org/wiki/Rahm_Emanuel

Obama's chief of staff choice favors compulsory universal service". ... "Obama chief of staff Rahm Emanuel is no pal of ours, Israel's foes say". ...

But whilst were at it see:

http://en.wikipedia.org/wiki/King_David_Hotel_bombing

The King David Hotel bombing was an attack carried out by the militant Zionist group Irgun,[1][2] on the King David Hotel in Jerusalem.[3] The hotel was the site of the central offices of the British Mandatory authorities of Palestine, the Secretariat of the Government of Palestine and Headquarters of the British Forces in Palestine and Transjordan.[citation needed] The attack, carried out on 22 July 1946, was the deadliest directed against the British during the Mandate era (1920-1948).

Disguised as Arabs, Irgunists planted a bomb in the basement of the main building of the hotel, under the wing which housed the Mandate Secretariat and part of the British military headquarters. Telephoned warnings were sent to the switchboard by the hotel's main lobby, the Palestine Post newspaper, and the French consulate. The Secretariat or military headquarters, which had separate switchboards, were not notified.[4][5] No evacuation was carried out.[4] The ensuing explosion caused the collapse of the western half of the southern wing of the hotel. 91 people were killed and 46 were injured, with some of the deaths and injuries occurring in the road outside the hotel and in adjacent buildings.[4] Controversy has arisen over the timing and adequacy of these warnings and the reasons why the hotel was not evacuated.[5]

 

Skippy...disguised as Arabs...lol...ya gotta love the irony...terroist/enamy combatant argument ROFL! Truth imitates art eh!

 

 

 

Sat, 12/26/2009 - 19:57 | Link to Comment sgt_doom
sgt_doom's picture

Dood (knukles), you aren't making any sense!

Who is "the Left" you speak of?  Most people now identifying themselves as "the Left" are really either lackeys of the neocons and neolibs at best, or simply near-beer Republicans!

The Obama administration is strictly AIPAC territory -- or are you completely ignorant of its makeup?

I would hate to label any administration pro-Zionist, but if one examines Obama's appointments quite closely.....

Fri, 12/25/2009 - 21:15 | Link to Comment Anonymous
Fri, 12/25/2009 - 19:43 | Link to Comment TJW
TJW's picture

Krugman blathers on and on about federal debt as a percentage of US GDP, as if we'll soon have a balanced budget and continue on our merry way by simply servicing the debt. What will probably prove to be far more critical in the near future is our need for further increasing our debt as a percentage of the income (for individuals), profits (for any interested corporations), and GDPs of our creditors. With individual Americans' incomes greatly reduced, Japan's and the UK's economies in the toilet, and China starting to seriously balk at continuing to fund our spending binge, service on the debt ten or 15 years from now is of far less concern than our desperate need to fund the government during the next half-decade or so. If our major creditors make a major pullback in forking over money, we'll be sunk long before Krugman's long-term time scale becomes relevant.

Sat, 12/26/2009 - 19:59 | Link to Comment sgt_doom
sgt_doom's picture

Thanks for that comment about Krugman.  He knows as much about real economics as Big Bird knows about quantum physics!

Why is it that the Nobel Prize for economics appears to be reserved for only the idiots?

Sat, 12/26/2009 - 23:18 | Link to Comment Anonymous
Fri, 12/25/2009 - 19:44 | Link to Comment Anonymous
Fri, 12/25/2009 - 19:54 | Link to Comment deadhead
deadhead's picture

Definitely one of the best ZH pieces and an excellent piece of work. 

Thank you very much for this article.

 

Sat, 12/26/2009 - 13:46 | Link to Comment Eternal Student
Eternal Student's picture

Ditto. And thank God for ZH. Without it, we wouldn't be getting a lot of important information.

Fri, 12/25/2009 - 19:57 | Link to Comment msorense
msorense's picture

You forgot Option 4: Secret purchases via the "Household Sector".  After all, what's another $2T?  In 5 years, $2T will be pocket change.

Fri, 12/25/2009 - 21:24 | Link to Comment Anonymous
Sat, 12/26/2009 - 17:57 | Link to Comment Andrei Vyshinsky
Andrei Vyshinsky's picture

Now that's just silly. Everyone knows at this point that at the top of this thread, Zina came as close as humanly possible to identifying these miscreants. Her guess: "freemansory? extraterrestrials?" But even she was holding out. When you know darn well that antinomians are part and parcel of it and won't come clean, it's your character that needs examined.

Fri, 12/25/2009 - 19:58 | Link to Comment buzzsaw99
buzzsaw99's picture

subsidised stock market, check

subsidised bond market, check

subsidised war spending, check

subsidised mortgages for deadbeats, check

increase entitlements, check

bailouts, check

derivatives plays to manage risk, check

criminal gubbermint, check

nope, no problems.

Fri, 12/25/2009 - 20:07 | Link to Comment Shameful
Shameful's picture

Glad to see this article! Can't wait to see how this shit storm plays out.  Want to see the "household" bit officially revealed to be the fed so bad I can taste it.  I wonder if after Uncle Ben has slain the dollar if he will resume teaching?  I would see his course listings "Dollar Destruction 101"  "Zimbabwe Economics 311" "Wiemar for You and Me 416"  "Care and Maintenance of a Printing Press 102".  Think of all this man could impart to the young!!!

Fri, 12/25/2009 - 20:27 | Link to Comment MsCreant
MsCreant's picture

Oh I think the debt he has imparted to my child is quite enough, thanks. Maybe he could just sing "I did it my way" on the way out. Sorta like the scene in Dr. Stangelove where the bomber is riding the bomb down, cowboy style...

Fri, 12/25/2009 - 23:48 | Link to Comment MsCreant
MsCreant's picture

The three of us got junked. Guess a Bernankeite went through here. Dunno. I feel so Junk Chic.

Sat, 12/26/2009 - 00:36 | Link to Comment Bob
Bob's picture

The joke was funny as hell, MsCreant.  Take a look: somebody's definitely on a "Junking" spree today.  Whatever. 

Sat, 12/26/2009 - 02:35 | Link to Comment Shameful
Shameful's picture

Well hell I'd love to see a response as to why I got junked...I mean Zimbabwe Ben was a professor and he won't be Fed Chairman forever.  I was just thinking of his next career move.  I mean sure he can have his memoirs "Uncle Ben's Fun Buxs: How I Killed the Dollar" but how long could that take to write?

And if I'm wrong and Uncle Ben will save us please explain to me how!  I would sleep far better if I could be told a believable tale about how QE and unlimited debt and infinite moral hazard is good.  But please only serious stories.  I've read to many that involve magic, unicorns, and superman to explain why QE is good, I'm looking at you Krugman!

Sat, 12/26/2009 - 08:03 | Link to Comment Hephasteus
Hephasteus's picture

That's how you know if something is....

A. Junk

B. Really good.

Don't worry we'll mentally play with your junk if your hubby doesn't mind. LOL

Sat, 12/26/2009 - 12:12 | Link to Comment Bob
Bob's picture

C.  You've pissed off somebody who is making it "personal" via the junk feature.  Just the vicissitudes of cyberlife. 

Edit: Damn, he/she's a little slow this morning (looks like about a 30 minute lag.)  I'm gonna get the jump on this by junking myself first just for the hell of it.  Looking forward to the new ZH format rollout . . .

Sat, 12/26/2009 - 13:26 | Link to Comment Eric W
Eric W's picture

You've just modelled the global economy! It's a race to junk!

I'm going to junk this reply to see if I can catch up, but I'll be nice and junk yours too, as the leader of the parade.

Sat, 12/26/2009 - 13:30 | Link to Comment MsCreant
MsCreant's picture

I flunked your junk!! Actually a good observation.

Sat, 12/26/2009 - 14:26 | Link to Comment Eric W
Eric W's picture

Continuing the thought: we've heard about how harmful trade barriers were in the 30s, I wonder if there's something somehow similar happening now, only it's in government debt financing. The race to junk trying to accomplish something similar to what the trade barriers were trying to do previously?

Maybe a case of history rhyming?

I have a hard time visualizing the end game... I have to keep reminding myself that *they* can't be simply stupid, so there must be a method to the madness.

Sat, 12/26/2009 - 17:24 | Link to Comment Bob
Bob's picture

I regret that I only have one vote to cast for each of you (as a site feature limitation), but consider yourself junked more than mere numbers can convey.  I'd junk you more if I could. 

I try to stay away from univariate final analyses of systems that, by virtue of the heavy human component,  are no more possible to reliably model than the weather, but the parallel you suggest captures my sense of the meta-game we're in.  For whatever reason, history does have a weird way of rhyming and government debt financing does now seem to be tracking an old line.

Yeah, it's the end game that's troubling.  If only we could either (1) Keep the world's throat beneath our boot or (2) Depend upon godly goodwill among other men, it would not be so painful to imagine it.  But, one man's "sanity" being another man's "madness", it's hard to picture an end game to this that leads to much good from our perspective.  It's a shame.  We "coulda been [more than] contenda's." 

 

Sat, 12/26/2009 - 17:50 | Link to Comment MsCreant
MsCreant's picture

So could all fiats end up equal? (In reference to the endgame concept). They are equal in one sense (worthless paper we socially assign value to), but I mean could all nations end up having currencies that are worth the same (very little or zip), thus you convert everyone to one currency because it does not matter any more?

Is this how a jubilee could happen?

Sat, 12/26/2009 - 18:19 | Link to Comment Bob
Bob's picture

I would argue that, in theory, there is no reason why fiat equality could not happen.  That would require amazing international cooperation, though (or an infinitely unlikely roll of the dice.) 

Re a universal currency . . . setting greed, corruption, market inefficiencies and human error aside, the problem seems to be just how much weight would be given to the prevailing status quo.  Would the revaluation ratios be set at today's exchange rates?  That discussion would essentially be the world that didn't know better at Bretton Woods (or have any real choice in the matter) going back to do it all over again . . . knowing what they know now. 

I don't see any cooperative worldwide jubilee coming any day soon.  Not to the world I know. 

Sat, 12/26/2009 - 20:03 | Link to Comment Eric W
Eric W's picture

If indeed "bad money drives out good" then fiat equality wouldn't require amazing international cooperation, it would rather be self defense... if the most powerful (not the strongest, mind you) currency(ies) is(are) racing to junk.

I think universal currency is part of the end game, mostly as a further consolidation of power. Interestingly, I get the feeling that Russia and China are trying to step outside of this game, and are busy with their own alternate games, quite mindful of the games elsewhere.

The worldwide jubilee is an interesting idea. Think how well it would be received. What if you offered it in conjunction with a move to a global currency and world government? Here's the shotgun wedding approach: "We will forgive all your debt, but you have to give up all your ownership." Kind of a Paulsonesque bait and switch move. Suddenly a jubilee doesn't sound so impossible, right?

BTW, thanks for all your junk votes Ms, Bob. I wonder if the model is actually working, as I was tied with Bob at 3 when I last checked: the race to mega-junk!

Sat, 12/26/2009 - 22:09 | Link to Comment Bob
Bob's picture

I was thinking that it's possible for a race even to the near-bottom to maintain either the current equilibrium or some other level, including simple parity, but I agree, ain't happening.  No way does it end in a massive tie among the entire field. 

This is what I think dams the prospects of a global currency as well.  The most powerful will not move in tandem either competitively or cooperatively.  We might get to the bottom first, but I think we'll then find ourselves the only ones with their dicks in their hands when the lights come on.   

Russia and China are definitely playing their own games, which seems sensible to me.  I wouldn't disregard the Indians either.  Barring a miracle (from our perspective) this seems just the calm before the storm to me.   

But just more junk from Bob, perhaps.  Thanks for your votes!

Sun, 12/27/2009 - 01:48 | Link to Comment merehuman
merehuman's picture

having passed the math test the junker feels his  strenght of mind and is now self ecouraged to be wiser than all. Hahaha this will end badly! I knew i shouldnt have smoked that shit, ..{

Sat, 12/26/2009 - 13:29 | Link to Comment MsCreant
MsCreant's picture

Bob,

You have a junker stalker, this is no lie. We got your 6 and your flank. Advance with caution.

:-)

Sat, 12/26/2009 - 17:47 | Link to Comment Bob
Bob's picture

Best laugh I've had in days

Sat, 12/26/2009 - 20:51 | Link to Comment Crime of the Century
Crime of the Century's picture

When you want to break it off with MsCreant, you have to say:

"I junk thee, I junk thee, I junk thee"

Then you throw fiats on her shoes...

Fri, 12/25/2009 - 20:32 | Link to Comment Anonymous
Sun, 12/27/2009 - 15:09 | Link to Comment MsCreant
MsCreant's picture

We are going to need a lot of Charmin when TSHTF.

Fri, 12/25/2009 - 20:12 | Link to Comment Anonymous
Mon, 01/04/2010 - 21:16 | Link to Comment FLETCH
FLETCH's picture

liquidity would explode as bond selloff panic happens

same panickers would start spending dollars in anticipation of inflation spiral would start

fed not in position currently to deal with this EXCEPT to pretend they are in front of it by raising rates

 

 

Fri, 12/25/2009 - 20:14 | Link to Comment Anonymous
Fri, 12/25/2009 - 20:20 | Link to Comment ozziindaus
ozziindaus's picture

OK so the gist is whether the US is solvent. So what if it defaults on it's debt, issues a new currency (not reserve of course) and steps down as a global superpower. I would bet that if this was to happen tomorrow, most people would look back in a few years and say it was the best thing that ever happened. Very much like a strategic foreclosure. 

Fri, 12/25/2009 - 20:28 | Link to Comment MsCreant
MsCreant's picture

Then why don't we do it? Hmm?

Fri, 12/25/2009 - 20:49 | Link to Comment ozziindaus
ozziindaus's picture

Who knows? Could be in the works as we speak.

Big bonus and missing FED trillions=embezzlement

nonsensical legislation=distraction

foreign bank account prying=balance on the embezzlement above

gold price rise=convertabiltiy

....I don't know, I'm just making it up. 

Fri, 12/25/2009 - 20:59 | Link to Comment MsCreant
MsCreant's picture

Cool. That wasn't aimed at you, more the royal we. I have watched a relative go bankrupt. First they denied. Then they ran things up, using card one to pay card two. Everything they did made it worse, not better. Lying. Low bidding jobs to win the contract and get the cashflow, even though it made debt worse. Grabbing money finally from the paid off house (which he lost).

Admiting the truth is so healthy and they won't do it because there will be prosecutions. So they will drag us all down to hell.

Fri, 12/25/2009 - 21:20 | Link to Comment ozziindaus
ozziindaus's picture

I hear ya. i have a buddy with $1.5M in property. Owes about $1.2M on them. Lost his job 6 months ago but will not let go of any property. Our discussions have turned to debates and now arguments. The best idea he had was to recently list one of his properties in SC. What a relief, only to tell me he had the bright idea of rolling it into another property in Mi as a 1031 exchange to avoid capital gains tax.......it was back to arguing. 

Fri, 12/25/2009 - 20:25 | Link to Comment Tethys
Tethys's picture

Sadly, I think that if the mainstream media does pick up on this, their 'processing' will involve deflecting blame from their masters onto more strategic (and most likely innocent) targets.

I guess I don't have much faith in human nature.

Sat, 12/26/2009 - 00:55 | Link to Comment Seer
Seer's picture

Didn't they already try this with the label "sub-prime?"

Eventually lies leak out...

Sat, 12/26/2009 - 08:40 | Link to Comment Hephasteus
Hephasteus's picture

That's how it works. All our energy is fungible in a monolithic universe. They take all our good thoughts and good energy and give them to our celebrities and take all our bad thoughts and bad energies and disperse them to whoever can carry them.

I was being drilled with energy the other day "they" were all over my ear chakras trying to break through on crown chakra and I literally had to "push" them away. "They" hit me at 4 am. That's the time period when I have dreams involving the worst fucking group in the universe. I refused to be asleep at 4am for weeks. I've just now been asleep at 4 am 2 nights in a row without getting any bullshit or manipulative dreams during that time period. So either they are not approaching me or scared I'll ident them too easily.

Make no mistake they will put this guilt and blame on anyone stupid enough or defensless enough to carry it and they will try to fake the appearance that all is forgiven and faith has returned when people are nailing them to wall and "DEMANDING" a change. As we convert to polylithic conciousness it will be much harder to subvert and distort the expression of self that makes the manipulation work.

Sat, 12/26/2009 - 11:32 | Link to Comment Bob
Bob's picture

Congrats on your victory over the nocturnal attacks, man!  (I suppose you've already made the connection with HAARP on this one.)  Please let us know if they resume . . . or if "they" shift to a new tactic ( /humor.)

Sun, 12/27/2009 - 01:55 | Link to Comment merehuman
merehuman's picture

Crap! here i thought i had it bad having to get up and give dogfood to the rat under the house so he quits chewing on the shower units. At 3:00 AM?  I caught the rest (11 in 8 days) with peanutbutter, but this one old boy is smart. I would like to send him to Goldmans for Christmas

Sun, 12/27/2009 - 15:14 | Link to Comment MsCreant
MsCreant's picture

This is a doable plan. But I might call PETA on you. What did that rat ever do to you to deserve being sent to Goldmans? Animal cruelty dude.

Wed, 12/30/2009 - 19:24 | Link to Comment Bob
Bob's picture

True, real rats should not be forced to slum with the human kind.

Fri, 12/25/2009 - 20:27 | Link to Comment Anonymous
Fri, 12/25/2009 - 20:35 | Link to Comment TheInterest
TheInterest's picture

Do us a favor.  Look up neo-Chartalism.

The government can never, ever, run out of money.

There is no deficit, there is no debt.  What's there is only meant to take your eye off what is really going on.

Without using politics, explain using math and money that is just a token (not backed by anything), why the federal debt matters.

 

Sat, 12/26/2009 - 00:44 | Link to Comment KevinB
KevinB's picture

This is the most weirdly surreal post I've read here.

Sat, 12/26/2009 - 00:58 | Link to Comment Seer
Seer's picture

Because history proves that it does:

This Time is Different: A Panoramic View of Eight Centuries of
Financial Crises

http://www.puaf.umd.edu/news/This_Time_Is_Different_04_16_2008%20REISSUE...

Sat, 12/26/2009 - 08:40 | Link to Comment Anonymous
Sat, 12/26/2009 - 08:55 | Link to Comment Anubis
Sat, 12/26/2009 - 01:21 | Link to Comment Anonymouse
Anonymouse's picture

It does matter, especially in a fiat system.

1) It is not a closed system.  Foreigners are not beholden to the government and cannot then be forced to use its currency.  If they lose faith in the dollar, the value of the dollar will decline (and cost of goods will rise at least in dollar terms).

2) While citizens may be forced to use the dollar, they still can lose faith in its inherent value (or lack thereof), and demand higher prices for what is an ever-weakening currency.

If this were not the case, how could Weimar or Zimbabwe have ever had hyper-inflation?

Sat, 12/26/2009 - 20:05 | Link to Comment Seer
Seer's picture

Foreigners are not beholden to the government and cannot then be forced to use its currency.

Except, in cases where certain goods and services have to be cleared using a particular currency (like oil being traded in USD).

Mon, 12/28/2009 - 12:27 | Link to Comment Anonymouse
Anonymouse's picture

True, but that is an exception and also is based on trust in that currency as evidenced by current consideration of new global monetary standard as well as new standard for oil trading.

Sun, 12/27/2009 - 11:10 | Link to Comment Anonymous
Fri, 12/25/2009 - 20:35 | Link to Comment Anonymous
Fri, 12/25/2009 - 20:50 | Link to Comment max2205
max2205's picture

TD. What's the 30 90 1yr rollover total. Total debt under two years must = 75% plus of total treasry s. Risk is on the short duration as the 1 yr moves to 1-2%. A crush to bond bulls.

Fri, 12/25/2009 - 20:52 | Link to Comment Anonymous
Sun, 12/27/2009 - 11:40 | Link to Comment Chumly
Chumly's picture

Ah, but the future is here...not in a linear sense but in greater dimensions outside our narrow linear views.  The puzzle has been created and cut, just waiting for the pieces to come together.  In the end, the picture will be: "A days wages for a loaf of bread."

Fri, 12/25/2009 - 21:10 | Link to Comment no cnbc cretin
no cnbc cretin's picture

Just based on your headline, yes we'll need to brace, big time. Truth is, the problem is so big, all the printing presses in the world can't print our way out of this mess. See: http://www.siliconvalleywatcher.com/mt/archives/2008/10/the_size_of_der.php

Also, every 80 years or so, Depressions occur, which we our in. They just happen, like a pressure valve. This time though, we our screwed. Why, because during the last Great Depression, this country was not in debt, nor it's people. We weren't involved in two bogus wars, we can't pay for. Peak oil was not an issue, and host of other issues. When all combined, it means the end of the American empire. Those who say otherwise, are simply in denial, etc. The only way out of this mess, is a complete collapse, another war will just pour more gas on the fire. What happens after that, we'll see.

2010, will go one of two ways. The beginning of the end, as life as we know it, in the not so great country called the US, or the current admin (and I voted for O) will just continue to kick the can down the road, until they can pass it onto another. Saying that, people need to know that Presidents do not control this country. Who does: Besides corporations, lobbyists, central banksters, the DOD, the Pentagon/CIA, mostly the DOD, the Pentagon/CIA though.

Like someone said, on the Web. "I'm not sure I like what is happening in this country, but it's history in the making, and I'm glad I have chance to see it. Ugly or not!"

 

 

 

Sat, 12/26/2009 - 00:47 | Link to Comment Anonymous
Sat, 12/26/2009 - 02:21 | Link to Comment Rusty_Shackleford
Rusty_Shackleford's picture

Good points.  Just some more food for thought regarding differences between 1930's USA and now:

Consider the Attributes of America in the 1930s :

A largely agrarian and self-sufficient society. (Now, just 1% of the population operating farms and ranches feed the other 99%.)

Not heavily dependent on computing and communications, technology, grid power, and petroleum-based fuels.

Shorter chains of supply. Most food was grown within 100 miles of where people lived.

A very small underclass that was dependent on charity or public welfare.

Lower property tax rates and lower (or nonexistent) license fees, vehicle registration fees, et cetera.

The majority of workers lived near their work.

Most displaced workers were willing to accept lower-paying jobs--even doing hard physical labor.

The entire nation was economically self-sufficient and could carry on without many imports.

Far greater self-sufficiency at the household level (domestic water wells, windmills, wood burning stoves, home vegetable gardens, home canning, and so forth)

A much lower level of indebtedness (public and private). At the outset of the Depression most families had cash savings. (We are now a nation of debtors.)

A sound currency, still backed by specie. (Although FDR's administration seized most privately-held gold in 1933, the currency was at least still fully redeemable in silver coinage until 1964.)

Lower percentage of corporate employment--so there were less risk of huge layoffs that would devastate communities

A significantly more moral society that still had compunctions and a prevalently law-abiding attitude.

 

A simpler, less extravagant lifestyle, with tastes in cooking and entertainment that did not require large outlays of cash.

Most families owned only one car (with proportionately lower registration and insurance costs), and they lived in smaller homes that were less expensive to heat.

 

h/t to JWR and survivalblog

Sat, 12/26/2009 - 12:42 | Link to Comment Anonymous
Fri, 12/25/2009 - 21:21 | Link to Comment Sancho Ponzi
Sancho Ponzi's picture

Great post, Tyler.

Option 1 is less likely to bring out the pitchforks.

Option 2 is out of the question due to the impact on home sales.

Option 3 is more likely to bring out the pitchforks.

QE2 on deck.

Added: I think the Administration will try and push domestic purchases, but even if every working person purchased $10k of treasuries in 2010 (good luck with that,) you'd still fall short by over half a trillion. 

Fri, 12/25/2009 - 22:16 | Link to Comment wackyquacker
wackyquacker's picture

indeed

vast majority have no idea what QE is or the ramifications

vast majority know exactly what a lower monthly 401k/ira value means

ding ding ding ding ding- yes, first a PSA campaign to push domestic purchases, followed by a confiscation, er mandatory purchase program (on the heels of an engineered downdraft)

Sat, 12/26/2009 - 00:02 | Link to Comment Bob
Bob's picture

A nice, albeit crazy compromise that would be.  The President finally goes full bore "Greatest Communicator" via the MSM, emphasizing unusual times make unusual demands of exceptional people who must collectively assert their wonderous ability to overcome all challenges in a massive orgy of Patriotic sacrifice.  For America.  Investing in America.  Gotta luv it. 

Sat, 12/26/2009 - 02:20 | Link to Comment Cyan Lite
Cyan Lite's picture

Once the "healthcare reform" bill takes place, all pitchforks will be put up.  That and another season of American Idol kicking off in the fall will keep the sheeple in their stupor.

I can hear Rahm saying it now, "Works like a charm every time..."

Sat, 12/26/2009 - 10:11 | Link to Comment Zippyin Annapolis
Zippyin Annapolis's picture

The government program already exists to push crappy Treasuries to the peeps--it is the PPIP program that was supposed to recycle bad paper from banks. Since there was none available due to phony accounting, "stress tests" and quantitative easing, the PPIP dealers went out and bought "bad debt" on the open market, thereby bidding up all bad debt prices.

Those involved in this program are some of the largest asset managers

• AllianceBernstein LP of New York and its subadvisers, Greenfield Partners LLC of South Norwalk, Conn., and Rialto Capital Management LLC of New York.

• Angelo Gordon & Co. of New York in partnership with GE Capital Real Estate of Norwalk, Conn.

• BlackRock Inc. of New York.

• Invesco Ltd. of Atlanta.

• Marathon Asset Management LP of New York.

• Oaktree Capital Management LP of Los Angeles and Wellington Management

 

Here is the play: If the Treasury and Fed substantially discount the Treasuries to allow a dealer mark up and a guaranteed "retail margin" voila--you have a robust marketing machine syndicating and pushing crap onto the peeps--why get .02% in a CD, bank account when the government can give you, say 1.5% with some gloss of a guarantee?

 

 

Sat, 12/26/2009 - 20:07 | Link to Comment sgt_doom
sgt_doom's picture

Blackrock and Invesco, two of the four primary investors in the Climate Exchange, PLC (holding company which owns all those other climate exchanges involved in cap-and-trade) --- what a coincidency....

Sat, 12/26/2009 - 10:10 | Link to Comment Zippyin Annapolis
Zippyin Annapolis's picture

And if PPIP gets expanded in this way--PIMCO will jump at the chance--

Fri, 12/25/2009 - 21:31 | Link to Comment Quantitative Wh...
Quantitative Wheezing's picture

Doesn't it make sense that all the new capital added to US bank balance sheets in 2009 will be forced (by backdoor Fed mandate?) into supporting the treasury market?  Wasn't the previous peak in treasuries on US bank balance sheets at over 40%?

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