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As Budget Deficit Hits Record High, Interest On US Public Debt Hits Record Low
What is wrong with this picture: the MTS just announced that the February budget deficit was $220.9 billion, after receipts of just $107.5 billion with vastly surpassed by outlays of $328.4 billion. This is a record. Yet the interest on the public debt was a mere $16.9 billion (page 13 of the MTS report). The reason for this is because as TreasuryDirect points out, in February the interest on public marketable debt (actual cash outlays), which as of Monday stood at $8.061 trillion, hit an all time low of 2.548%. How is it possible that unprecedented debt accumulation can result in ever declining interest rates, and Treasury auctions, such as today's 10 Year reopening, in which the Bid To Cover hit an all time high? One answer: The Federal Reserve, which through complete domination of the entire capital market courtesy of ZIRP and QE has now turned market logic upside down by 180 degrees. In a normal world, the more money you borrow, the greater the associated risk, and the greater the interest payments on this debt. Not in America though. So can we assume that the Fed can forever keep rates on debt at record low levels? No. Which begs the question: what happens when interest rates do finally start going up?
Here is the relevant page highlighting the deficit. In a word: the US collects enough money organically (via taxes) to cover less than a third of its outlays.
A look at the distribution of receipt components should lead to questions about the sanity of anyone who claims that the budget trajectory is sustainable - in a word, tax revenues are plunging. Of course, this has to be evaluated in parallel with the observation that tax refunds in January and February of 2010 have actually surpassed those of 2009 as Zero Hedge discussed previously, explaining why consumers have shown abnormal resilience so far in 2010.
So even as the income side of the Federal ledger has rarely if ever been quite as bad, the expenditure side has exploded, and not as a function of debt funding: the bulk of outlays have to do with entitlement programs which came in over $160 billion, and which still could not have been covered organically.
Here is where debt comes in. We know that recently the debt ceiling was raised to $14.3 trillion which is expected to be hit in less than a year. Observant readers will recall that the previous ceiling of $12.4 trillion was supposed to last the US until the end of March - well, not only was this number passed over a week ago, it is now, less than half way into March at $12.5 trillion, which would have broken the debt ceiling far in advance of expectations. This leads us to believe that the $14.3 trillion ceiling will likely have to be raised once again and at a very critical time for the administration: around mid-term election time.
Yet if one were looking just at the interest rate paid by the government on the marketable debt portion of the public debt (which was $8.06 trillion as of most recently), it would appear that America's economy was cranking on all cylinders. Of course, this is not the case, and the rate is merely an indication of the Fed's direct intervention in all possible markets.
The chart below shows the absolute level of the interest on marketable debt, and the MoM % change. In February the rate came in at a record low 2.548%, a 1.8% decline from the 2.595% in March.
To be sure, this is expected with the Fed running a Zero Interest Rate Policy, and QE adding direct purchases by the Fed.
Yet what is notable is that even with the effective Fed Funds rate at zero for over a year, the rate on marketable debt has bottomed out, and the spread from FF to the Interest Rate has held constant at about 2.5%.
The primary reason for this is the duration distribution of US debt. The short-term portion has already reaped the benefits of issuance at or near 0%, while the longer-dated side of the curve is keeping rates higher. If indeed the Treasury is serious about extending the average maturity on public debt from 4 to 6 years, the new baseline for this spread will eventually be at about 3%, where it was earlier in the decade.
Yet the logical next question is what happens when rates start going up? It was as recently as September 2007 that we had a interest rate on marketable debt of nearly 5%. The plunge to 2.5% took just over a year. Even the mere mention of actual tightening will spring rates right back to 5%. What does that mean for actual outlays. Well: if indeed we are correct that total debt will hit $14.3 trillion in less than a year, it means the marketable debt will be about $10 trillion, and the incremental 250 bps of interest will mean about $250 billion of additional interest outlays a year, or half a trillion annually. That comes to about $42 billion a month. In January this amount would have been double the net withheld income taxes.
It becomes obvious why the Fed simply can not allow rates to go up. It has nothing to do with excess liquidity, which of course is a major concern as America goes from one excess-liquidity bubble to another. The problem is that the surging budget, which will need ridiculous amounts of debt for funding, will truly explode if rates were to go up merely to 5%. What happens if rates hit 7.5%... or 10%? At that point it is game over. And that sad ending will occur once the Fed and the administration realize that all ongoing efforts to kick start a consumption driven economy will fail. In the meantime, the economy will slowly grind to a halt as the servicing of public debt takes over a greater and greater portion of all tax receipts, until all taxpayer money is used merely to cover the interest expense. At that point buying CDS on the US denominated in euros, dollars, gold, .556, watermelons, or what have you, will be completely pointless as the bankruptcy of the US will be entirely priced in.
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There is no competition among borrowers for access to capital, thus, rates can't go up.
NOBODY is borrowing except the USG...and I guess they are borrowing from the ONLY lender, the Fed. So, they get a real good rate
Yep: Indirect bidders at 100%, yet again! Yay! (Pay the man, Feddie!)
Amazing how every bond auction goes just *swimmingly*, especially since the numbers this year will be greater than the amount of available dollars this year across the whole planet.
$1T-$2T held by the Chinese, accumulated over decades? Bah! We can print that in eight months!
Still, everyone should see that this article merely reflects yet another example of how we will see this take form in a SUDDEN STOP. The Rubicon was miles ago, the point-of-no-return was long ago, and I'm amazed general discussions by "experts" still want to qualify their statements with "if things don't change..." or "if we continue on this path..." or "what could happen is...".
Gimme a break. The patient is dead, and we're merely waiting for one of the doctors in the room to grow a pair and call the time of death.
This is the grand deception, the illusion. Everyone has piled into one life boat and it's sinking. We are told through the propaganda machine that there are only two choices. We can declare it a hopeless cause and everyone tries to bail out at the same time. This means everyone gets extremely wet and many die, including some of those who hold the power. Not a good choice because we've been convinced that we must save the elite, that our lives depend upon the elite. If the big banks fail, the world ends.
Or we can declare things are getting better, thus allowing the elite to arrange for alternative transportation. Then they will come back and save us. Of course, all this really does is allow us to live a few more days in our denial, blessed with the false hope that survival is just a few oar strokes away. Without hope, we can't survive. This has been conditioned into us rats and now we believe it. This is why we ask Daddy if everything will be alright, knowing that Daddy is just telling us what we want to hear. Tell me a lie and I'll pretend it's the truth.
Of course there are many more choices available than the two outlined above. But the two above are the only two that are presented to the masses because they allow the elite to get away first, with all their and our luggage as well. And we have been conditioned for thousands of years to do as we are told. This is an old script brought up to date with the latest release, version 2010.3
well now the Fed has to deal with graffiti artists.
ny graffiti artist tags fed with "audit me" :
http://www.youtube.com/watch?v=zTtHOu3Jqyg
Thats the first good news I've seen in a long time.
seed of rebellion, shadow hero.
Man of the moment, sheep by day
what will happen when the interest rises?
If you have to ask , you cant afford it.
Laugh in peace.
BALLZ.
Excellent post on O-Team propaganda by Yves Smith on Naked Capitalism:
http://www.nakedcapitalism.com/2010/03/the-empire-continues-to-strike-ba...
Thats exactly right Mikla, the time for if's are over. I know of no country that can continue to buy our debt for this amount of interest. I bet even the ones bidding directly are doing so because the govt. guaranteed them money/backing. And the indirect is what's left which is done from overseas (Cayman island) front companies ran by the fed. This is to make sure that every bond sale doesn't fail. Imagine every other week being country A or B buying 10 to 15 billion dollars in US treasuries. Why don't they use that money and save it in their country and buy their own debt. It's because the majority of the debt being bought from the US is being bought by the US.
The patient is dead, and everybody knows it except the patient and he doesn't care because he's acting as if he's alive and still a viable country financially and hasn't figured out that they are broke. It's in the best interest for the rest of the world to make believe that the king is alive and has clothes on. Because when the hammer finally comes down the other countries want to have a system set up that will, believe it or not have the US cut out of it. In the US they complain about other countries not being more open in their financial dealings and business but look at what we have done for the past 3 years. We have been so Opaque that we might as well be a third world banana republic financially.
This is how the game continues: The FED is going to make the debt disappear!
Modern Economic Policy= Realizing Political Goals. If you're not getting what you want, change the rules. Forget prior commitments/contracts. All done in the name of "world improvement" but really for power.
Worrying about how Bondzilla will manifest itself is pointless as the rules will be changed, bet on it.
The gov't issues the chips, we play with them. If it's not working, more chips are issued, prior commitments ignored. There is no justice when the gov't controls the game. We all just need to get over it.
Wealth and commitments are a transient concept to the political class.
As someone pointed out to me before, the banks have a cost of capital of 0% (they can print money to buy assets) and if their money printing ever causes problems they can borrow from the Fed at under 1%.
Now if the banks are getting this nice little perk from the government, it's only normal that they would kickback the benefits to the government. At worse the Fed will just buy all the debt, so the risk of default on these bonds is zero.
Exactly right. The fed has created such an incredible glut of dollars that supply has swamped demand. It's like the interest rate on dirt, 0%. Now, the peasants would like to get their grubby little hand on some of that free money, but that's not the way our current form of capitalism works.
Tyler, Tyler, Tyler....interest rates WON'T go up because Ben Bernanke said they won't.
see how easy this is?
seriously, thanks for this piece. Mr. Minsky must be licking his chops.......
and, for the record, Bernanke is a smug academic who thinks he can manage his way out of several hundred years of economic and financial history. it is plainly obvious that his tactics to date have failed, both on a pre LEH basis and a post LEH basis.
DH... Bernanke knows there is no exit strategy but must 'pretend' that there is to buy time and avoid the end game from occuring before his friends have properly positioned themselves to maximize their financial gains from the pending collapse.
In the meantime... let's keep the party going!
Vintage AC/DC... Highway to Hell!
http://www.youtube.com/watch?v=aQIxn7s3ym8&feature=related
great vid! I love Angus.....my son has a very similar guitar that i got for him.....64 Gibson SG special with one original p 90 and a modified humbucker, which is a PAF (the PAF is worth more than i paid for the guitar!)..... a professional guitarist (in the grateful dead scene) has played it in concert (he helped my son pick it out) and always kids me how he wishes he had bought it instead.
no no we going to heaven
http://www.youtube.com/watch?v=su52hP-K4Vg
http://www.youtube.com/watch?v=ugxFcmZXDyc
or maybe a little www.youtube.com/watch?v=Xbt30UnzRWw
I'm so glad I started stocking up on disaster supplies.
I stocked up. never before opened quaker oats and cup o noodles both had flying insects come outa the freshly opened box. SURPRISE! Had a can of campbells noodle soup recently that smelled so bad ..tossed. FDA asleep like the rest of the mammoth government
Hello,
Please be sure to rotate out grains and flour products periodically. I'm unsure of the ingredients in "cup o noodles," however nearly all uncooked grain and flour products contain insect eggs. It's unavoidable and they will eventually hatch even in a sealed environment. Freezing your stored supplies will help slow the process, but your best bet is to rotate your supplies on a consistent - say six month - cycle. FIFO and all that. But really, in a flat-out survival situation, those bugs are solid edible protein and will not harm you.
As for the canned goods, it's for the reason you mention that one is best off buying small portions. While the risk is small that you will find a "bad can," relatively, it is a much smaller problem to be forced to discard one serving of ravioli versus a large can that you were counting on for 10 servings.
Just my $0.02, adjusted for inflation.
Uh,,, when rates go up, the deficit goes up?? Ding! Ding! Ding!
But wait,,,,if deficit goes up, then stocks go up, that's it!
One word: Dodonpa
Another (two): Kingda Ka
I was thinking in terms of acceleration force. It still has the highest launch acceleration at 2.7 G.
Q: what happens when interest rates do finally start going up?
A: Mr. Chinaman say you cannot pay debt, so time for debt / equity swap, we want Iowa, all your shipyards and national parks and drilling rights all over. So sorry.
Q. That's nice, Mr. Chinaman. I couldn't help but notice, though, that your debt is unsecured.
A. But . . . you promise, it says right here "Full Faith And Credit..."
Q. He, he he. . . yes, so it does. Heh, he he. So it does. How about that? Huh. You got us there. But . . . like I said, it seems to me you have a teeney, weeney . . .
A. What?
Q. Problem. Let me put this in terms you will understand: no tickee, no laundry? Comprende? SOL, no good, bad outcome, sorry, get lost. That type of thing.
A. Ohhh. . . .
That not so happy news. Ok no returns on any special product like poison fish, antifreeze toothpaste, formaldehyde pickles, lead paint toy and some very special surprise you find out about later, how you like that. Plus no more dollars only gold and that food you ate at Golden Noodle, it wasn't chicken.
Mr. Mexico: You say chinaman no want dollaros? I make you random junk, cheaper price cause I no need ocean shipping...
I'll take care of that phucking Mr. Chinaman in the congressional showers if he phucks with what I want.
Sincerely,
Rahm
Israel: Not so fast Rahm. How does China affect us? Now, about nuking Iran...
Rahm: But daddy....
Israel: Back to your office Rahm or they'll be no chicken soup for you!
Of course, the Chinese "losing face" in such a major way....will have to respond. As it turns out they have way too many single men and a half ass recovery, plus they have stocked up and have the mechanization to supply their military.
We on the other hand need said war to confuse the issue and get rid of "useless non consumers" . The poor and jobless will be quick to fill the ranks to do their "patriotic duty" while earning a dime not possible in the current job market.
The Elite who started this will be fine. To them this is nothing more than a harvest.
I need more 7.62 in that case.
China: Ok, we sell debt on open market. We take loss, no big deal. Crash bond prices, raise US interest Rates. U.S. borrowing costs skyrocket. Who finances your borrowing needs? Who has weeny up their ass now?
U.S.: On second thought...
Come and get it..
if they won't take California, then give them Texas ( they want to susceed from the Union anyway). What the heck you can't take ten cents out of China or any equipment you bring in to start a business...talk about have it your way. Which make me wonder about the "profits" these mulitnational (aka American) companies claim...just where do they spend those "profits"?
"Which begs the question: what happens when interest rates do finally start going up?"
The Fed and US go bankrupt.
i just hope i don't die before that shit hits the fan.....can you imagine what it will be like?
Sorry but I think you will wish you were dead. It will be worse than Auschwitz.
No. It will not be worse than Auschwitz.
Rates are not going up...never ever ever ever ever!
- The Market
Enjoy: http://www.nowandfutures.com/us_weimar.html
If you have not already done so, please speak with your HR department about filling out a new W-4 form. Take the new form and add an extra 2 allowances. If we all do this, the government intervention will end abruptly, the reset button will be pressed, and despite some short term drama, the economy will be on its way to getting back on track.
you can claim 9 without an explanation.
Most places that I have worked, you just put a "block" on the tax, and specify a predetermined amount to be withheld every check. It's easier than working with exemptions, and it stops the nonsense of jurisdictions revising the exemption schedule, so that you pay more in taxes than you owe, and sooner. Oh, they promise to issue you a refund at the end of the year, but....
http://www.sacbee.com/2009/10/31/2295363/states-tax-withholding-bump-up....
Also, I suggest you click on the California bond banner ad every time it is displayed.
i'll do it if i ever get a job.
out since April 2008. yikes!!
Aah. Were it only so simple. Where is it written that all we'll need is a long weekend?? Short-term drama?? Live near/in a city?? This will not/cannot end well.
Half of us collect a check from the feds now. Once it ends it will never be able to be restarted--which leaves half the populace desperate and angry and hungry in a week.
My money is on the two or three day crash accompanied by closures and a sort of universal default that chains from the trading desks on wall street to the ATM on the corner.
The universal margin call from the last volatility spike.
All paper will initially go to zero. Think about it. Everything financial gets closed: ATM's, banks, brokers, exchanges. All paper denominated in fiat currency becomes worthless. Money Heaven. A neutron bomb. Yesterday you were rich or comfortable--today you're a peasant with only what you have in your house.
With local variations on a theme this will play out worldwide. Instantly. They'll probably shut down the media. Here comes Homeland Security.
There is only one question. Will the people get bamboozled into more fiat/marxism/control--or will we take it back? Real money, sales tax, 19th century fed govt size and functions. The tea parties are a good sign but hungry people go for strong leaders. It don't look good.
Oh, and the reset may start at 90% unemployment and take decades. We believe the propaganda now--will we suddenly get less gullible?
Euclid
Keeping up with the Uncle: If my salary is $250,000/yr, then I should be spending more than $750,000/yr and borrowing the $500,000 difference. AAA credit rating here I come!
Wait a minute...honey, is that you?
Oh, I wouldn't worry about it. Something always turns up when you need it... I'm sure this time will be no different. Does anybody know who the favorite is to win American Idol?
American Idol or American Idle?
Degeneres ain't working for me. Bring back Paula.
For real. She adds nothing but that same old "Oprah, Uma, Uma, Oprah..." kind of humor. Funny for 3.26 seconds and that's it.
I think Cowell is going to bring Paula with him when he starts his new show next season. Should be interesting...
I think Paula's in rehab
Ever notice how Paula and Krugman have that
same blank stare?
Paula is an Austrian economist and that is the real reason she was dropped.
Bowersox is the real deal.
Crystal Bowersox got my vote last night.
"His name is Robert Paulson."
Oh whats math got to do, got to do with it,
What's math but intellectual masturbation,
What's math got to do, got to do with it,
Who needs to count,
When Bernanke can't be broken,
We all know what happens when rates go up. The question in my mind is: what is going to make them go up?
Thoughts?
The only thing that can make rates go up is the Fed. If they were to raise their short-term rates to 10%, the banks would start seeing risk in government bonds.
This is also why the Fed will never raise rates.
Rates will go up after all rats have taken their seats in the life boats.
exogenous event, like an oil supply shock?
When the gold price suppression scheme blows up.
Oprah.
Beyond credible debate, it's clear the Treasury cannot afford rising interest rates so who says the Fed can't continue this for decades.
"How is it possible that unprecedented debt accumulation can result in ever declining interest rates, and Treasury auctions, such as today's 10 Year reopening, in which the Bid To Cover hit an all time high? "
because there are many savers out there, but the only borrower is the government.
"We must start from the reverse side of the stimulus coin: the private sector is now spending far less than its aggregate income. Forecasts in the Organisation for Economic Co-operation and Development’s latest Economic Outlook imply that in six of its members (the Netherlands, Switzerland, Sweden, Japan, the UK and Ireland) the private sector will run a surplus of income over spending greater than 10 per cent of gross domestic product this year. Another 13 will have private surpluses between 5 per cent and 10 per cent of GDP. The latter includes the US, with 7.3 per cent. The eurozone private surplus will be 6.7 per cent of GDP and that of the OECD as a whole 7.4 per cent.
Moreover, the shift in the private sector balance between 2007 and 2010 is forecast to exceed 10 per cent of GDP in no fewer than eight OECD member countries (see chart). It is also forecast to exceed 5 per cent of GDP in another eight. In the US, it is forecast to be 9.6 per cent of GDP. In the eurozone, it is forecast at 5.5 per cent of GDP and in the OECD at 7.3 per cent. Depression threatened."
from a very good Martin Wolf comment
http://www.ft.com/cms/s/0/479d81ea-20b2-11df-9775-00144feab49a.html
where is the savings in the US - paying down debt is not saving nor is a trasfer payment savings. The entire premise is idiotic
no, you're idiotic. Paying down debt means that someone somewhere has to give up his savings or the debt goes to someone else. It's really that simple.
When someone pays down debt, the money just goes back and sits in the bank. there isn't anyone else to lend it to. As long as losses are not realized in our economy a lot of money can pile up in the banks and money markets. Expect this process to continue for quite awhile. It's all about extend and pretend.
actually no. it is all debt.
Actually the only thing simple is you.
There is so much wrong with that statement but try out QE for a start then work your way up to monitization. When your done come back and revisit the definition of savings and surplus. Private sector surplus with 20% unemployment and 100% increases in iron ore (coking coal, etc, copper, not to mention Al - while we await the ags). i'll leave aside the FASB accounting and embedded losses rotting away with the stench simply ignored. Wolf and Buiter are long past their expiration date.
Now if you'd like to argue that small point about higher savinhgs rate merely reflecting expectation of higher taxes from all the "savings" that are being generated via the printing press, that is a different discussion.
like I said idiotic
I saw some article (on ZH I think) a while back that said that the average maturity of all US government treasuries was around 5 yrs. I wonder if it has declined further, which would provide short-term tail winds, and category 5 hurricane winds in the intermediate to longer-term.
It's amazing to think that I've been right this whole time. As long as the fed is in control of the global reserve currency, america controls all the levers in the world economy. If rates go back up, we allow the euro socialists to crash and burn, creating another dollar squeeze, and shooting dollars and treasuries to the moon again. Another method is to pull a reverse repo that is just a little "too big" causing another collapse in equities, sending money piling back into treasuries and dollars, creating another dollar squeeze, further crashing interest rates.
Right now we are essentially refiing our entire national debt at 0-3.5%
Spot on!
I'm not much for conspiracy theories, but I do believe the government has many tools at its disposal to manufacture demand for treasuries in the event rates start to climb...giving Israel the green light on Iran comes to mind.
Exactly right!!
WWIII comes to mind.
False Flag if need be.
They won't let this sucker go down without a fight.
War! Huh Good God y'all
What is it good for?
Absolutely nothing
Say it again
nothing
Yes MBS and Treasury rates may indeed go negative once Agents from the First Directorate are deployed across the nation. Szen you veell be buyink our paper unt lykiing it, yes??
Now is the Fed printing money to pay the interest? I'm so confused!!
Oh... you meant interest paid on public debt - I thought you meant public interest in the public debt.
Rates aren't ever going up. Ford will give you 0% for five years on a vehicle. Rates are going lower, not higher.
I wonder if the Chinese are reading ZH and learning the truth.
A Russian economist predicts that the good 'ol USofA will be broken up into pieces, owned by different countries.
Which country will you live in?
Comrade!
The free one.
Actually, there is a correlation between interest rates and the price of gold, as Lawrence Summers discussed in his now famous (or maybe I should say "Infamous") Essay back in 2001, entitled:
"Gibson's Paradox Revisited"
For those that haven't yet read this essay, I strongly recommend it. Here's the link:
http://www.gold-eagle.com/editorials_01/howe082201.html
Although not specifically stated in that essay, the inference here is that if the price of gold is held in check (i.e. suppressed) then the government can "get away" with low interest rates.
Hmm. Let me reflect on the current position that Lawrence Summers occupies. Oh, yes, that's why the FED has been aggressively suppressing the price of gold in 2009 and 2010.
I'm confused.
One theory that I haven't heard mentioned yet is that the market is betting that the US will follow the Japanese pattern of 20 years of deflation, fitfull economic growth and increasing government debt. Based on this the amount of manipulation needed by the Fed is much reduced and more feasible.
Which makes sense as the US is following the Japanese model of denying the reality of the problem, which is too much debt, especially in real estate, preventing the felling of the vast dead trees of overindebted corporations to let new companies grow in to the spaces they occupied.
One thing I would bring up as tangentially relevant is Taleb's comments on survivorship bias in that many believe that the US will find a way out of this problem because it always has overcome every problem and crisis in the past. Which is what the people of Carthage thought, until after many centuries of success their city was burned and the ground salted. And its what the people of Rome though right up until the final sacking of the city and the collapse of the population from 1.5 million to 15,000.
Those who are betting that the US will find a solution and survive simply because it always has in the past are not basing their prediction on anything more substantial than hope.
Not to disagree, but you can not discount our war making ability. We can LITERALLY wipe any country off the face of the earth 24/7. Rome & Carthage could not.
Just sayin'
Its not purely a war matter, although losing at war is historically the end stage on most occasions. The Roman Empire fell, in large part, as a result of a declining economic base no longer allowing maintenance of sufficient military force to defend the Empire.
In addition, a historical trend of wealth concentration weakened the social bonds that had previously led the masses to rally to defend the Empire. Rome had been sacked many times in the past and suffered military catastrophes but it always rallied back as the people believed it was worth fighting and dying for. A big part of the success of the Roman Empire was the idea of Rome. An idea that being Roman meant a better life than not being Roman. Roads, public water, increased trade with uniform currency and contract law, public order, amphitheatres, etc. were the outward manifestation of that. Once Rome seemed to be only for the benefit of a super rich elite, they were less determined to defend the Roman way of life. A situation with obvious parallels today.
However, there are other examples from history of collapses of civilisations and Empires that had always overcome catastrophe in the past and thus were imbued with a belief that they always would overcome whatever faced them. The Mayan city states collapsing from the very summit of their power and complexity due to resource depletion (in their case aquifiers). They had been through countless droughts and bad crops and inter-city wars in the past and always emerged stronger. They no doubt felt they would find a way through right up until the collapse and probably for a time after. The ancient Egyptians had 6000 years of history to draw on with foreign rulers coming and going but Egyptian dynasties always eventually triumphing and Egyptian culture continuing. Alexander the Great and Caesar were no doubt seen as regimes that would eventually be overcome, and none would have predicted that a 6000 year old culture would be extinguished to a degree that only a few centuries later no-one would be able to read the writings their own ancestors had so painstakingly carved into all the great monuments.
The native American cultures had no doubt overcome all kinds of hardships and difficulties and would not have believed that after so many centuries of success a rag tag group of funnily dressed pink people on the verge of starvation meant their doom (primarily from disease and then white people claiming the now sparsely populated lands they used to live on and only then using war to maintain that claim).
The point is that no-one living in a society on the edge of destruction sees it coming. And the more successful a society has been the more fundamental is the belief among the people that whatever problems they face they will overcome and emerge stronger from it, after all they always have in the past or they wouldn't be there to think about it. But this is simply a case of survivorship bias, meaning if your society has already been destroyed you aren't there to believe it won't be destroyed. If it hasn't been destroyed yet, you do exist to think about. And unfortunately are likely to take your own existence as evidence that you must continue to exist.
The conclusion is that very few people right now can contemplate the utter destruction of the United States of America, except in a horror movie style scenario with nukes thrown everywhere. Most people think that if there isn't a nuclear war then the US will get through this temporary difficulty and emerge stronger. That the US will continue to reign as top superpower although China may get a bit closer over the next few decades, but they will eventually be seen off somehow, after all hasn't the US always triumphed over its rivals?
I don't hold with this view. I think that social forces are emerging that herald collapse. The weakening of social and cultural bonds and the increasing belief that being an American might not be the best of all possible alternatives makes the country vulnerable to stresses in a way it has not been before. Due to the existence of nukes I don't see the US being invaded any time, but I do see a gradual withdrawal of active participation by larger and larger percentages of the population who passively withdraw their support and simply concentrate on getting by as well as they can despite being forced to live under the US government. The fraying of social bonds and a rise in active forms of expression of disenchantment will lead to increasingly draconian responses by the government and thus increasing withdrawal by the majority and active attacks and crime by a minority, triggering a further round of responses by the government and so on until a point is reached at which the government can no longer maintain control over increasing large areas of the country due to a lack of legitimacy and lack of resources, with the resources issue being partly due to greater expenses needed for internal order keeping but also due to larger and larger numbers of people doing all they can to keep their resources hidden from a government they don't feel works for their own betterment, plus the Roman problem of so much wealth being in the hands of a tiny minority that have the political power to exclude themselves from much of the taxation needed to maintain the society they benefit from.
How long this descent continues is unpredictable. The point is that it is unstable and small events that previously wouldn't have threatened the society (such as a barbarian invasion, which happened countless times in Rome's past) suddenly have the potential to flip the nation into a drastically different state (such as in Russia in 1917, where yet another radical group similar to many that had been put down countless times over Russian history, suddenly managed to depose the monarchy and assume power)
Whether the US will go the route of the Western Roman Empire and disintegrate into lots of local governments or the Russian route with very strong central control is utterly unpredictable at this point.
Thanks. That was a very interesting and thoughtful reply.
Yours is a thoughtful post.
It will be lots of local governments, as general sentiment and all polls show the far left and far right are hopelessly disappointed with their federal government. There is no support for a strong central government, and unlike Russia, US States are sovereign with their own armies.
Except for the broad language of "other":
It's true that National Guard troops can be Federalized (i.e., "Title 10"), but that can only happen with the explicit approval of the State Governor. Until then, the US President is NOT in the chain of command, and can't tell National Guard troops to do ANYTHING.
The National Guard was created to defend the state against invasion by the Federal Army, for exactly the scenario we are seeing today.
Ask the guys at Yellowstone: you need a good forest fire now and then to clear the path of new growth. Worm-ridden Sequoias now block all the sunlight.
Those must be the ones with the Hummer stuck in their drive thru....
Uncle Sam is not the only borrower. Corporations borrowed $12 billion last week and are on track to do more this week. Hell, Citi is doing a $2 billion TRUPs deal and there was so much demand, they lowered the rate. My point is - there's demand for debt and not just treasuries. Let's bury that talking point eh?
uncle sam is the only net borrower and that's imporant. As mentioned above, the US private sector is running a surplus of ca. 7%
Would you buy Citi preferreds knowing what kind of mortgage crap they were still carrying (marked to whatever they want), that any HELOCS they have are worthless, that Fannie and Freddie and whoever else bought them can (and are) putback any suspicious mortgage, that the government might decide to wipe you out at any moment, and that they are dirtballs and lying whores?
Borrowing endlessly, according to Rep. Ron Paul, “is not the road to permanent prosperity. Real debt must be reduced.” And that’s what the Fed and the Congress are doing—they are paying off the debt by depreciating the value of the dollar. They know a country getting poorer and poorer cannot pay these bills with higher taxes.
So if the dollar loses 10% of its value, the national debt is reduced in real terms by 10%--as is the value of government payments owed to Social Security recipients.
Says Paul: “That’s why the Fed screams about a coming deflation, so it can continue the devaluation of the dollar unabated… The greater the debt, the greater the need to inflate the currency.”
The hitch? The process eventually undermines the capitalist structure of the economy, “making it difficult to produce wealth.”
When the destruction of monetary value becomes rampant is when the whole process comes to an end, it's when the economy’s pricing mechanism is destroyed and it's when the delicate balance between consumers and producers is destroyed. Inflation of prices and unemployment will abound.
“A central planning bureaucrat cannot be a substitute for the law of supply and demand.”
It is quite easy to see that even if the Fed is somehow able to continue to fool the market into accepting low rates, in 10 years the budget components comprised of interest expense and social security and medicare payments will exceed the entire current budget. In other words, interest, social security and medicare payments will easily exceed 20% of GDP by 2020. This leaves what ??? for the rest? No healthcare for the poor anymore under medicaid. No student loan support. No bridges and highways. No support for air traffic control. No federal support for public schools. Defense will still be there, but with just the basics, the federal budget will easily top 25% of GDP, and if even a skeletal discretionary budget remains, it will likely approach 30% of GDP.
This book was written from 1983 to 2007, not in the last year. There is no suspense about what's going to happen. The last year is just the climatic center point, when even the clueless finally figure out what's happended.
What remains now is just the epilogue.
"It becomes obvious why the Fed simply can not allow rates to go up. It has nothing to do with excess liquidity, which of course is a major concern as America goes from one excess-liquidity bubble to another. The problem is that the surging budget, which will need ridiculous amounts of debt for funding, will truly explode if rates were to go up merely to 5%."
Exactly.
Ghost: What do you know about the Treasury selling $25 bln notes/week for 8 weeks to replenish the Supplementary Financing Program Account? Is the Fed using the $200 bln to purchase the remaining MBS garbage, or has Timmy turned the SFP account into a Petty Cash/Rainy Day/Slush fund account?
I think the former, this guy has a good writeup on it, though he fucks up the relationship between buying MBS and settling MBS (the Fed is buying MBS today for delivery in Apr and May for example).
http://www.econbrowser.com/archives/2010/02/treasury_supple.html
This problem is intended to determine if you are a machine- or not sufficiently intelligent (or determined) to participate at Zero Hedge:
Wait -- 11 x (-)1 = (-)11?
-1 x 11 = -11, yes. But on ZH Captcha the answer I think would be 11 because you cannot use the – math element. Or so I think; anyway, I always get it wrong but am passed to ZH B grade level as a "human" on the follow-up multiplication, subtraction and/or addition for the mathematically challenged (on the basis I assume that no machine could be so simple).
Am I still in?
Ponzinomics FTW.. until the game ends
How does one keep claiming that the economy is recovering and in the same breathe say that we will have to keep rates low for six months?
How does the Media reconcile this conundrum?
The media's job is to convince the masses that everything's alright. It's not their role to seek the truth. The truth is nice when it's advantageous, but it's not the objective.
Just so we are all clear -
If rates don't go up it means the economy never recovered so taxes / revenue never recovered and T's are the only "safe" return...plus crazy big deficits.
If rates do go up it means that inflation has been acheived and the $8T in public debt is effectively reduced...but the $60 or $100T unfunded liabilities have doubled as they are inflation adjusted (even if the gov only recognizes half the true inflation, still hosed).
So, feel good cause we are damned if we do and damned if we don't. The only "winning" platform any politician can go forward w/ is pure denial.
Expect this thing to run to the surreal before America finally accepts reality.
5.56 dear friend. 7.62 will also treat you well.
Wow.
Not sure at all that I ever want it to resort to that.
You finally said it succinctly: the bond market is rigged, and interest rates have to remain ultra-low or else interest on the debt is unservicable. If interest rates rise it's game over. It seems like a giant new experiment in monetary policy, and, I'm not expert, but I think other nations at other times have tried to prop up their failing economies with easy money. Doesn't it always end the same way? People lose faith in the currency and the debt goes bad? It seems to me that you better own something other than US Dollars. At some point the other 6 billion people in the world are going to say, perhaps suddenly, you're money is no good here.
But at least we have Harry Reid (D-NEV, bankrupt) and Nancy Pelosi (D-CAL, bankrupt) and Barack Obama (D-ILL, bankrupt) to guide us through these tough economic times. Yep, the three most powerful politicians in the land today all hail from insolvent, bankrupt states. Awesome!
From an investor's standpoint isn't it most important to understand which fiat will fall first as a tip off to when the house of cards in the US collapses. It seems to me that the US will be the last man standing since it still maintains its global reserve currency status. If everyone is QEing then the fiats all stay afloat and when QEing starts to fail out of exhaustion the weakest fails first.
Any flaw in my logic?
I'd like to add that as the people's currency hyperinflates they start to sell off their property to barter for the staples of life. A more stable country can therefore effectively plunder the population of a fiat-stricken neighbor, and thereby perhaps last longer than they otherwise would. We don't want a situation where "rich" Chinese come in and offer peanuts for our wedding silver, we want to do it instead to them.
Don't forget republicans and their mindless ilk either. As big pieces of shit as the democrats.
Related to this subject, this is what I wrote a few weeks ago.
How fractional reserve banking destroys capitalism
In a free market economy, one comes to own capital in two ways: by originally appropriating and transforming natural resources into productive capital, or by transforming capital goods that one originally appropriates and selling them in return for capital goods. Over time, those individuals who are the most productive and most efficient for the market will come to own the largest amount of capital goods that they will exploit to their full efficiency. They will form the capitalist class.
Some of these capitalists, over very long periods of time, will come to recognize upcoming capitalists with the ability to produce a lot of capital goods. They will use the capital that they themselves have accumulated through their productive talents and lend it to these upcoming capitalists at interest, in the expectation that their productive ability will exceed the rate of interest and that their own capital will grow as a result of their accurate selection of rising capitalists. These individuals will form the banker class. Successful bankers will be selected based on their ability to select successful capitalists, and they will come to control the largest asset banks from which loans are available. Bad bankers will deplete their capital and exit the business.
This process no longer holds under fractional reserve banking. A fractional reserve bank does not need capital, but simply unlimited credit from which to make loans. This unlimited credit is ensured by a central bank, which is protected by a government-granted monopoly. Because a fractional reserve bank has unlimited credit, it does not need to first demonstrate an ability to earn, accumulate, safeguard and employ capital before earning the right to go into the banking business. A fractional reserve bank's economic power does not rely on any past achievements, but on the protection of government from bankruptcy.
Of course, before the transition to fractional reserve banking is made, it is safe to assume that all of the top banks are excellent capitalists. Once a fractional reserve system is in place, the same banks become fractional reserve banks, and for a time preserve their ability to select capitalists. It is only over the long run that the banks become corrupted and the process of renewing the banking class results in a class of bankers whose main quality is the ability to secure government protection instead of the ability to select capitalists. This becomes, in effect, the "bankster" class.
Things get worse the more political power this bankster class wields, as the unlimited credit granted by the central bank is reduced in interest cost. The banksters can now supply a demand for loans at ever-lower interest rates and drive out of the market all capitalists who attempt to become bankers from their own accumulated capital. This means that fewer upcoming capitalists will be selected for loans and that more incompetent borrowers will be selected. These incompetent borrowers will borrow from the banksters to purchase all capital assets in society, and attempt to earn enough returns to pay the rent to the banksters. Once their attempt inevitably fails, the bank will foreclose on the asset. In this way the banksters use their unlimited credit to purchase all capital in society and ruin it, driving the capitalist class into destitution by making the purchasing power of their savings worthless, and enticing the debtors to make financial decisions they cannot uphold.
Only in a recession that wipes out the entire bankster class and sends asset prices plummeting can the legitimate capitalist class be reconstituted. If the bankster class succeeds at obtaining a bailout that prevents their collapse, then they can use this bailout to complete their takeover of the entire economy and to throw the remaining capitalists into destitution.
The final outcome of this process is that all producers of capital are ruined and unable to direct the economy towards valuable production, and a class of politically connected counterfeiters owns all capital in society without the required competence to employ it to productive use. The result, over time, is economic ruin and the collapse of entire enterprises and corporations, mass unemployment, and poverty.
Would the ability to blow up the earth many times over and the will to do so have anything to do with it?
"Which begs the question: what happens when interest rates do finally start going up?"
The Fed continues printing money to pay the interest on the aggregate debt.
This is stable while credit destruction takes place, i.e a post-bubble period, like now. But eventually (due to compounding and persistently low tax receipts) an inflection point occurs. This is where the rate of printed money exceeds debt-based money-creation levels which would arise even in a bubble economy via fractional lending. Then hyper-inflation begins.
Everyone who has saved dollars (401ks, CDs, under mattresess) sees those savings destroyed - funding the huge money-vacuum of and out-of-control national debt.
The rate of interest, 2%, 5%, 10% only determines the duration of the time until hyper-inflation. Arguably, the 68% rise on the S&P is pricing in this scenario.
Yo Bear,
I think you got it - same as Chris Wood's POV last week.
This all boils down to the EU, Japan, US, etc. in self delusion. We have all overspent/overpromised/overleveraged and are soon to be poorer. But we and our politicians will deny this fact with ever greater massive debts until the crack springs and the facade collapses.
Just remember, politicians don't get re-elected for preventing something...only for "fixing" the reason we feel poorer. Thus, my dear ZH lunatics, strap yourselves in cause reason and logic will have no power over the further lies we'll tell ourselves to avoid the plain truth.
Most major economists agree that the Fed’s interest rate policy is exceptionally accommodating for the financial sector. And government economists and their supporters from Roubini to Krugman believe that this extra-easy money procedure is necessary to get the banks "back on their feet” and lending money again.
Even Bernanke admits he’s holding rates down primarily for the boyz; I mean, how can these people eat if they’ve no money? The interest rate policy is going along with the debt policy, i.e., using the debt purposely to allegedly keep the spending (recovery) going. GDP growth on the fourth quarter was government debt handed over to public programs that spent the money. It’s what Jefferson said:
This exactly marks the difference between Colonel Hamilton’s views and mine, that I would wish the debt paid tomorrow; he wishes it never to be paid, but always to be a thing wherewith to corrupt and manage the legislature. ~ 1792
To say that these negative interest levels are somehow approaching optimum rates is nonsense. This extreme which helps the government pay its debts and entitlements on cheap money later and gives the politicians everything they need to reward their constituents and build their projects is by all accounts not helping small businessmen get back on their feet and it is driving fixed income, seniors, savers, and previously safe money harbors into poverty territory.
Isn’t it time to recognize that central management of finances is selecting winners and losers? Even an elementary school student knows that the winners are the banks and the politicians, the losers are the recession-plagued people of the United States.
And one more point, when you take a man’s job and you increase his taxes and you force inflation to keep him from buying anything or doing anything, how is he going to pay for the people who aren’t doing anything and waiting for a government check?
"What happens wien the brown stuff hits the fan ?"
Download the documentary "Collapse" 2009. Interesting stuff to say the least. His premise is that peak oil will cause the collapse; I happen to think Japan will be the first donimo.
Oh come on, y'all, stop freaking out about the mushrooming debt and RELAX. Per Time Magazine, the problem isn't all that debt, the problem is all that WORRYING about all that debt.
http://www.time.com/time/magazine/article/0,9171,1969745,00.html
"...America isn't investing enough in its future. We are failing to mobilize resources to improve our health care and infrastructure and stay competitive in a global economy that is more clamorous than ever. Focusing on how much we owe won't help us meet our real challenges. America's problem isn't large clothing; it's a body politic that is sliding into dangerous habits. Obsessing about the debt is a distraction we can't afford..."
Don't worry, be happy.
Genius - let's not just quit worrying about it, lets stop paying it! Only small minds are constrained by a dictionary (think G. Bush) and only pessimists are worried about debts to be paid. Think optimistically and put those calculators away...you'll find someway to pay for everything for everybody. Why do I know this, because we have never imploded before...thus, it has happened 0% of the time so there is a 0% chance of happening. Seriously, this kind of thinking will defy all logic and math even as we are descending down from the cliffs edge.
Wow, it's not your cancer that's the problem it's your concern over it ... die happy
All we have to worry about is worry itself.
"Oooou-ooou-oou-ooou-oou-ooou-ooou-ooou-ooou-ooou... Don't worry, be happy now! Landlord say the rent is late, he may have to litagate....but there was snow so.......Don't worry beeeeeee happy.....look at me, I'm happy!!!....Time magizine, founded by scull and bones! The Fed also, so ignore the loans!.....Don't worry, be happy now. Put a smile on your face, you'll bring everybody down! Don't worry, be happy now!"
The only message for non-Americans is to stay away from anything american or anyone doing busines with Americans. Pure and simple.
Grüsse aus Deutschland
Werner
Yes !
Stay away from american businesses, american currency, american products.
Buy non-american, invest in your future.
Is there any such thing as "American" other CDS ? Maybe we will outosurce that to China as well..
So, in which city do you think do the bigest CDS-players in the world reside ?
And anyway, who (effectively) brought CDSs into the world ? So, regard it as an american "financial enigineering" invention and stay away from it . Even if outsourced !
In infected (biological) tissue, the still healthy cells increase their immune defense, and the infected cells are discharged as pus ! That way a body stays healthy.
Grüsse aus Deutschland
Werner
The Fed to be served Thursday, New York City
EMERGENCY ALERT - Historic Bailout Trial 3/11/10 with opening arguments by Bob Schulz of the We the People Foundation will commence tomorrow. All patriots are needed to attend to witness and document this case. The constitutionality of the robbery of the Treasury of the United States by the criminal Wall Street Bankers hangs in the balance. SPREAD THE WORD! Exclusive details and information on the case here: http://realityreport.blip.tv/file/3328111/ Alternate Youtube link: http://www.youtube.com/watch?v=8Ry6-1L2XxsIn Freedom,
Gary PS. In case you missed it here is the link to the last report: http://realityreport.blip.tv/file/3323708/
Yes, as Bob Schultz says, Americans have a right to a government that does not do whatever it wants to do, that does not bail out private entities such as AIG and Goldman with public funds, that does not purchase bad assets to get them off the balance sheets of private entities! This is inequality before the law.
As Schulz says, Americans’ rights do not depend upon the will or the whims of any Congressional majority. Our representatives are obligated to honor and respect the Constitution, and what the Congress and the Federal Reserve cartel are doing is unconstitutional. I agree with Schulz that these corporate entities, these friends of Congress on Wall Street, need to give the taxpayers back their money, including their ill-gotten gains while using taxpayer money IMO, and, again IMO, be barred from the U.S. Treasury and reduced to their former failure status and forced out of business.
30 years of bond market bubble... culminates in the greatest mass delusion in history - "Interest rates can't go up"
At what clear sign do I cash out my 401K and convert all my fiat dollars for tangible assets?
I have physical gold and silver. I have guns and ammo.
I want a place and time that I do not shoot strangers or neighbors while protecting my garden.
I want to belive in America. My America. The one in which financial gain is admired and failure is simply a lesson one learns before succeeding.
Not this America. The one where tax takers determine winners and losers based upon last elections highest donor.
Where is my America?
In my heart and soul alone?
Or is it here and now?
I think it is. I think we can fix it. I believe we can.
Does anyone else here think we can?
We can and we will. America is the people—there’s you and there’s me and there’re many more of us! That is the force that will restore America. :-)
I still hold out hope that America can avoid ruin.
Statism must be strangled, snuffed out.
Gubmint ain't the solution, it IS the problem.
Big spending pols must get the heave ho.
The election in the Fall is key.
I was reading a 10-12 page free International Forecaster report, published at Centre For Research on Globalisation
which had a substantial portion of the paper related to this topic and came across this. At first I laughed, then felt a bit of joy that SOME citizens actually have the balls to do the right thing.
Have at it. For all the shitty news that we constantly bitch about, this will make your evening: (try to look past the NWO comment. They've got it right on principle!)
Sounds like a bill that needs to be put before the Texas legislature.
Well, I dunno. It may be hard to prohibit federal employees from collecting census information beyond the number of adults in each home, even for “extremely concerned citizens.”
After all, according to the Kansas City Star, the bureaucrats running the 2010 census are going to charge taxpayers $15 billion—that’s $48 per person counted, compared with $16 in 2000 (about $20 adjusted for inflation) and about a penny in 1790. That’s a lotta inflated dough to pass up, particularly when the Census takers have been accused of simply making up a bit of the data.
Nathan Martin of Economic Edge says: In just one decade the cost to perform the census grew by exactly 200%! If only it were to grow 200% more, by 2020 it will cost $144 per person, but that’s not the way exponential growth works…if the exponential rate has not collapsed by then, which it is almost certain to do, then it will cost considerably more than even that wild number. Of course it’s okay, it’s a “stimulus” to the economy, never mind the drag that all the debt places on it. At this rate the only people employed by 2020 will be census workers, we’ll all make our living by counting one another.
But again, not to worry… deflation warrior Benny B. assures us there’s absolutely no price inflation.
Am I the only one who thinks this has the makings of a great comedy? Or perhaps it's just the wine...
I was actually laughing my ass off. Yeah, it's more than a tad bit extreme, actually it's quite so, but when I read it, it was comic relief for a lot of recent crap. I figured folks could use a good laugh. (Anything that brings up NWO gives me the creeps. I'm not sold).
Montanans are an interesting breed I am beginning to think. When DC v Heller went before SCOTUS, the Montana government filed a resolution stating that any interpretation of the 2nd amdendment that did not explicitly include an individual right to bear arms violated the 1889 Compact and threatened to make Montana's compact to enter the Union null and void.
Yes. They actually DID do that.
Montana was deep in the thick of the Sagebrush Rebellion.
But, I thought it would give folks a good chuckle.
BTW. They're having serious issues with Kalikooks that have emigrated from Kalifornika, particularly in Missoula and Bozman. Apparently it's a serious culture clash.
As a Calli native I have found Bozeman and Missoula to be awesome places...
Your Montana find was a +10 on the liberty scale—the 2010 versions of The Russians Are Coming, with this difference, the invaders aren’t Russians, they’re investment bankers, and they’re already here.
Jefferson said, "When the government fears the people there is liberty; when the people fear the government there is tyranny." Tyranny is being enslaved to fear. But there are some Montanans who apparently don’t intend to succumb to those who have taken power by their own means.
Perhaps these Montanans are just protecting their territory under Secretary of State John Quincy Adams’ Monroe Doctrine that thwarted the intentions of European monarchs to reestablish their colonies in the Western Hemisphere. The course Adams set was that “the American continents, by the free and independent condition which they have assumed and maintained, are henceforth not to be considered as subjects for future colonization by any European powers.”
Maybe Montanans just don’t like being subjects of Washington, DC, and Goldman Sachs.
A tragicomedy, yes! Ha-ha-ha-ha…sob. Thanks for the post! It was sobering.
What is the purpose of a debt ceiling that is continually raised?
Classic oxymoron, in effect
This, from Sean Brodrick: Market Oracle
How will it end? Only two scenarios are possible:
A must read is statistical analyst Jim Willie’s forecast published on Market Oracle as the first quarter of 2010 ends: Distress Signals on Financial Crisis Watch. It begins:
Review a scattering of distress signals, sit back and tell yourself that all is under control. It is only if you live in a Fantasy Land. Since September 2008, the fantasy has blossomed in full bloom. The list of distress signals is certain to grow, not reduce. Never in my lifetime have so many loud signals simultaneously been flashing…
For simplicity, and to make a point, ignore all events in Europe concerning sovereign debt. My theme all along is that not only has no remedy come for the USEconomy and US Banks and USGovt financial structure, but no remedy is even attempted. The name of the game is to create gigantic cash flows that the syndicate grabs from to its strategic position, as fraud continues with no semblance of prosecution. They control the USDept Treasury and the USCongress and the US Financial regulators. True movement toward remedy would liquidate Wall Street and much of the syndicate edifices that serve as fronts for the USGovt control tower… Meanwhile, back at the gold mine, the gold price has remained in an unusual extremely tight range. Its pattern resembles a coiled spring. A breakout seems obvious, but timing is not…
http://www.marketoracle.co.uk/Article17803.html
Do it mean that very soon the U.S. Treasury will be paying 50 billion dollars a month just on the interest on public debt?
Wow .. Now the U.S. government will know how the Brazilian government feels, using almost all the taxes it collects to pay interest!
Believe it or not ....proper logic will see its day....
Let's make this simple....
Let's say there is country A...
Taxes....50% + of all core small businesses/owners..ie sub S
Labor....40x that of the developing countries population
Medical..demands 25% of all income
Military...demands 20% of all resources
Education...only for the wealthy...upper 10%
% population working for govt. >50%
................
Country B
Taxes....15% Consumption tax ...no other taxes
Labor....Average worldwide wage
Medical...2% of the consumption tax....
Education...Internet based....FREE to the WILLING
1% of the consumption tax
Military...1% of the consumption tax
% govt. employees.....5% max
Seamless Defragmented Worldwide direct access securities exchange....no taxes....RETAIL constructed....transaction costs 20 cents per 100 units....
................................................
Government policy must move to that of Country B....
................................................
Why ?
Because it will take the majority of the new consumption tax construct to pay back old debts....albeit enabling the country to step ahead of the competition ....re-establishing the manufacturing base....
The country has to move to a competitive position....while proving to its old debt holders that the economy will improve with doubt...and indeed grow exponentially.....to the degree that even a 2 year old understands this....
.................................................
So where are the world's populists govts. going now....the easier route of kicking the can down the road...raising taxes....printing money....and making matters much much worse....for somebody else to clean up...after they are gone....
Expect to see a constant turnover of each party dominance in congress and the executive branch as they flounder for a solution and the voters get more and more frustrated. When the Fed intervenes in the market there is no market.