This page has been archived and commenting is disabled.

Can A Sovereign Debt Crisis Happen Here? A Case Study Of The 1995 Debt Ceiling-Precipitated Government Shutdown

Tyler Durden's picture




 

Lately there has been a lot of chatter among the supposedly smarter-than-mainstream media that even should the debt ceiling not be raised, it would not mean the bankruptcy of America as interest payments would still be satisfied. While that technicality is absolutely true, it is even more absolutely irrelevant. What propagators of such theories forget is that lately there are just two exponential curve trendlines that are worth noting: that of the cumulative debt issuance, and of the US cumulative deficit (see chart below). Each month, the US issues around $50 billion more debt than is needed to just fund the deficit. This is debt that is on top of the debt that is needed to plug the different between revenues and expenditures. As Zero Hedge has pointed out repeatedly before, that ratio is already roughly 1 to 2, meaning for every dollar in revenue the US government issues more than one dollar of debt just to fund the deficit. And then some. As the chart below shows, in December alone the government issued $84.4 billion on top of the budget funding shortfall ($80 billion deficit and $164.4 billion in debt issuance)! So yes, while the Treasury can fund interest expense at record low interest levels, that is completely irrelevant. Unable to fund incremental expenses to the tune of hundreds of billions per month, the US government will shut down (a point when nobody will accept US government IOUs, not Social Security which passed the point of being self sustaining last year, and certainly not Medicare and Medicaid, and most certainly not private sector Defense Vendors) just like it did in 1995. Below, we present the key charts and the full report from a must read SocGen report on the sovereign debt crisis, titled Can It Happen Here? We urge all those who pretend to have an educated opinion on the US funding crisis to read this report before they open their mouths in public and once again validate their critics.

First, below is our chart showing the monthly and cumulative differential between debt issuance and fiscal deficit (starting in October 2006). In December, the cumulative divergence between the two reached an all time high of $1,819 billion.

And next, courtesy of Aneta Markowska and her economic team at Soc Gen, here are the charts (and some narrative) that everyone should be familiar with ahead of the March moot debates on raising the debt ceiling.

First, the chart below needs no introduction.

Instead of spouting essayistic platitudes on just how swell the world would react to a US debt ceiling breach, perhaps those so inclined to come off as edumacated on the topic could actually analyze what happened the last time the government shut down during a debt ceiling crisis. Luckily, SocGen has done so for everyone's benefit:

It is difficult to disentangle the full effect of the 1995-96 debt-ceiling crisis on bond yields since Fed expectations were also changing rapidly during that time. If there is any conclusion to be made, it is the market generally shrugged off the government shutdowns and instead focused on macro developments.

The government reached the debt ceiling in November, and Treasuries generally rallied over the next three months even as the situation in Washington continued to deteriorate. That said, the Fed was also easing monetary policy during this period, having lowered rates by 50bp to 5.25% between December 1995 and January 1996. Nonetheless, reviewing press reports from this period suggests that the market seemed to ignore the debate over the debt ceiling in the early stages, having assumed that politicians would never allow the US to go into default and that a resolution would be brought about quickly. The biggest move occurred in the final days of 1995 when the market was generally optimistic that a resolution would be achieved.

At the start of the New Year, the market realized that negotiations were falling apart with Treasury Secretary Rubin warning sending the 10-year yield 8bp higher. Around mid-February markets began to react negatively to any news related to the budget stand-off; that is until late March when the ceiling was lifted. Treasury yields increased about 80bps in less than a month during this period. However, Fed policy may have been a bigger factor behind this move as the economy started to improve and the market began pricing out any additional rate cuts. Rising equity prices also added to the upward pressure on bond yields.

The lessons that could be learned as we look to a potential stand-off this year is that bond markets generally cared less about developments in Washington and placed more emphasis on monetary policy and the macro environment. There was also a general sentiment that no politician really wants to drive the US into technical default. Treasury investors may also view the debt ceiling showdown in a positive light as it pushes the debate in the direction of fiscal reform.

Here is the brief summary (much more in the attached report) on whether a sovereign credit crisis can happen here:

Over the past year, Europe has been engulfed in a sovereign debt crisis which has led to the bailout of Greece and Ireland. The US fiscal situation has garnered a few headlines and has piqued some interest, but it has gathered no momentum. The main difference between the situation in Europe and the US is that the former is a near-term risk while the latter is a longer-term one. Although the US problem is in the distance, event risk is increasing and timelines could be compressed. Most notably, with Republicans taking over the House in  2011, there is an increased threat of a stand-off with respect to the raising of the debt ceiling, which could result in a government shutdown, similar to what happened in 1995.

US Treasuries remain a safe-haven asset despite growing fiscal concerns. US sovereign CDS spreads are among the lowest in the G10, and well below the likes of Ireland and Greece. US CDS spreads over the past year have reacted very little to the turmoil occurring in Europe, with US spreads cooling off from highs of around 60bp early in 2010 to about 40bp by the end of the year. In contrast, G10 Europe has seen spreads move higher.

The near-term risk of a negative credit event for the US is relatively low, but that is not to say that it may not happen. Current budget projections suggest that the US could face a high risk of a ratings downgrade in a few years, unless action is taken to reform government finances. This is a common feature among most mature economies. The US, like the weaker European countries, has the added risk of heavy reliance on foreigners to fund public sector deficits. Of course, the US benefits from a reserve currency and currency pegs which  maintain a steady bid for US assets, but the risk cannot be ruled out entirely. A significant decline in buying appetite could put the US on the spot much quicker than anticipated, as rising bond yields could bring the AAA rating Armageddon closer. In some ways, this could be a good thing as it should force policymakers to drop their bipartisan gloves in order to get things done.

All that said, the future trajectory of the US debt is unsustainable.

Yet above all, the next three charts are by far the most important in that they confirm three things we have been highlighting for a long time: i) US gross issuance will surge in the next several years; ii) so far the Fed is acquiring all the gross issuance by the Fed; this will end in June, opening up a massive hole that can not be filled by now traditional waning buying interest; iii) there has been a foreign strike for US treasury purchases which appears to be unending (look for this week's TIC data to confirm this decline in foreign interest in US Treasurys); iv) the propaganda's attempt to get retail out of bonds and into stocks will backfire, as much more demand for bonds is needed once the Fed departs the monetization scene. In other words, should ICI confirm a series of taxable debt outflows, it merely guarantees that QE 3 will be next up on the agenda as there will be no natural buyer of USTs left. However, for the Fed to get a carteblanche to monetize beyond the current QE sunset, there will have to be a sudden and dramatic capital markets shock as per the speech of Dallas Fed's Fisher last week. We expect a major orchestrated market crash in May or June to provide the Fed with the cover to continue monetizing the US deficit (i.e., treasury issuance). Either that or a sudden and dramatic deterioration in the economy. Look for Jan Hatzius to first of all Wall Street economists to flip his opinion from positive to negative as a first telegraphed sign that QE 3 will be up on the docket.

Below is SocGen's take on the "Achilles heel of the US fiscal situation" - external financing.

What would cause large shocks to the forward interest rate curve? One possibility is that foreign investors may reduce their appetite for Treasuries. Indeed, the heavy reliance on foreign funding is one of the key vulnerabilities facing the US government. This is also the main distinction between the US and Japan, and one that puts the US more in a European camp. Of course, the US has the advantage of a reserve currency and FX pegs are also a mitigating factor as they imply that foreign central banks have no choice but to continue buying US assets. These factors buy time, but they do not eliminate the risk altogether and a buyers’ strike is a risk that cannot be ignored. At the moment, bond investors have given the US government a benefit of doubt, but failure to address long-term fiscal challenges could ultimately trigger a loss of confidence and an outflow of capital from the Treasury market.

Currently, foreign investors hold 47% of Treasury debt outstanding, or about $4.2tn. Over the past four quarters foreigners have bought about 45% of new issuance, so their share remains constant for now. Households were big buyers in 2009-2010, but have reduced their purchases recently as the savings rate eased off its peak and as risk appetite has improved. Eventually, households and banks will have to buy even more, but for now there has been no deviation from the trends that prevailed in the past 10 years. Reliance on foreigners remains as high as ever.

Importantly, the risk does not lie with foreign central banks which are locked into Treasury buying by their exchange rate policies. The risk lies with private investors who have been significant buyers over the past year. Ironically, the US government has benefited from the European crisis which triggered a strong safe-haven bid in the Treasury market. By the same logic, a resolution of European sovereign problems could bring sovereign concerns into the US as capital outflows push Treasury yields higher. This is not a near-term concern, but one that we may have to consider at some point.

Of course, the Fed is the Treasury buyer of last resort, but the near-term outlook for the Fed could also prove problematic for Treasuries. The Fed has been soaking up most of the new issuance by the Treasury and private investors may demand a higher yield concession once the Fed exits its program in mid 2011.

Full must read presentation:

 


 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 01/16/2011 - 23:01 | 880809 mogul rider
mogul rider's picture

I kiss my precious every day. Unencumbered, rock solid, no levereage, and no derivative.

Just the way wealth was meant to be.

 

TBILLS, TURDS, and printing presses? What a f'in joke

Sun, 01/16/2011 - 23:02 | 880810 financeguru500
financeguru500's picture

I saw on Fox news the other day that they were hoping the debt ceiling doesn't get raised. Lets all hope that it does get raised because if not, well see the beginning of the end. The game has to continue because we are past the point of no return.

Sun, 01/16/2011 - 23:07 | 880815 Jasper M
Jasper M's picture

I'll take the under on that trade.

The consequences of a failure (?) to raise the debt ceiling will not be "the end" of anything I hold dear. Bring it on!

Sun, 01/16/2011 - 23:09 | 880819 Bubbles...bubbl...
Bubbles...bubbles everywhere's picture

There are only three things you can be certain in this world: death, taxes and that the debt ceiling will be raised.

Sun, 01/16/2011 - 23:26 | 880843 DoChenRollingBearing
DoChenRollingBearing's picture

As Bubbles says, it is certain 100% that after a brief period of political posturing, they will raise the debt ceiling.

Mon, 01/17/2011 - 00:24 | 880912 RockyRacoon
RockyRacoon's picture

Just who the hell are these "household" jokers any way?  Has that ever been explained?  Some rich (or stupid) sonsabitches fer sher.  Ain't none o' my neighboring households.

Mon, 01/17/2011 - 03:14 | 881062 anonnn
anonnn's picture

Seem to recall "housholds" was used to include sources not assignable to other categories...and said with a straight face.

Took it as a tell for out-of-control non-transparency. Also known as the bankster motto: "Trust me. I am your friend". 

Mon, 01/17/2011 - 05:33 | 881117 Sudden Debt
Sudden Debt's picture

Same here in Europe. I've never met anybody of met anybody who met anybody who met anybody who know somebody who had heard of somebody who took part in a inquiry about that.

 

I think the people who take part to those kind of inquiries are also kept in the FED's fault for safekeeping...

Mon, 01/17/2011 - 12:34 | 881817 RockyRacoon
RockyRacoon's picture

Yep.   And I didn't mean to rule out rich and stupid.

Those traits are not exclusionary.

Mon, 01/17/2011 - 01:29 | 880969 Lost My Shorts
Lost My Shorts's picture

Of course it will be raised; the alternative is drastic spending cuts which the political class (even Tea Party) does not really want to happen.  For example, picture Social Security checks being haircut (the payroll tax having just been cut by one-third), or our troops in Afghanistan told to abandon their heavier weapons and hitchhike home.

But I must be too dumb to get the main point of this article.  I don't see how not raising the debt limit entails default.  Of course, the US government could choose, when setting priorities, to not pay interest, or to extend maturing debt without bondholder consent, but they could also choose to give bond holders priority and tell the troops to hitchhike home.

This gap of which Tyler makes so much, between fiscal deficit and debt issuance -- what does it consist of?  Is it just rolling over maturing debt?  If so, the Treasury could continue to roll over maturing debt without breaching the debt ceiling, right?  Or does the gap consist of "off-budget" expenses?  And what are they?  Or is the money going to Julius Baer accounts in Switzerland?

I must admit, I am one of those fools who wish the debt limit would not be raised, or raised only very little (to give time to fly the troops home).  (See http://rationalfear.blogspot.com)  Reason:  if a crisis is inevitable, let's have it now, rather than kicking the can down the road to after the 2012 elections.  Let 2012 be a referendum on national priorities.  If the 2012 elections are held amid the last stand of illusion, the risks are greater.

Mon, 01/17/2011 - 10:50 | 881531 weinerdog43
weinerdog43's picture

If the debt ceiling does not get raised, I hope that Timmy and Barry decide that the 1st group that forfits a check will be Congress and all their aides.  Perhaps that will add some impetus to taking this seriously. 

Mon, 01/17/2011 - 04:22 | 881084 Motorhead
Motorhead's picture

Boy, ain't that the fucking truth.

Oh, and Bernanke said no way in hell he would bail out the munis and the states; which, of course, means, the he will bail out the munis and the states.

Sun, 01/16/2011 - 23:21 | 880833 Ras Bongo
Ras Bongo's picture

Bets are off:

Congress to approve increase in US debt ceiling to $15.1T or more before midnight ET 28 Feb 2011

the market predicts there is a 4.0chance that this event happens

http://www.intrade.com/

Sun, 01/16/2011 - 23:46 | 880862 vote_libertaria...
vote_libertarian_party's picture

The flaw in the question/bet is the date is too soon.  The debt ceiling is expected to be hit late March/early April.

 

These idiots in DC want maximum TV time for the voters so they'll ramp up the drama and not vote until 5 minutes before the bomb goes BOOM!

Sun, 01/16/2011 - 23:17 | 880829 Hephasteus
Hephasteus's picture

Being violent, mathematically retarded and full of shit is no way to run a world.

Sun, 01/16/2011 - 23:28 | 880847 Dr. Sandi
Dr. Sandi's picture

Hell, it's the ONLY way I've ever seen.

Sun, 01/16/2011 - 23:44 | 880859 DaveyJones
DaveyJones's picture

nice, both

Mon, 01/17/2011 - 00:10 | 880893 JW n FL
JW n FL's picture
by Hephasteus
on Sun, 01/16/2011 - 22:17
#880829

 

Being violent, mathematically retarded and full of shit is no way to run a world.

****************************************************************************

We are not violent, we are weak... if it does not include national security interests that are profitable... it dont get dun!

Which we are capitalists... kool! but our own long term interests should figure in some where...

But!

In this day and age... the short term Bonus mentality runs our country... thusly we all have a 1/4erly fucking life span...

"K" St. is run by the money... which in the majority of the cases is under the control of zombie corps... (a zombie corp to me means, no one has a real controling interest {singular person} and sheep own the stock).

so wall street owns "k" street who then pulls the strings within the beltway and all on a quarterly mind set.

Mon, 01/17/2011 - 05:35 | 881119 Sudden Debt
Sudden Debt's picture

We are not violent, we are weak

AND ANYBODY WHO DISAGREES WILL BE SHOT AND WATERBOARDED!!!

...

first waterboarded and then SHOT I MEAN!!

Mon, 01/17/2011 - 08:40 | 881176 whatz that smell
whatz that smell's picture

masterBlaster will take care of us. who run bartertown?

Mon, 01/17/2011 - 02:27 | 881029 Uncle Remus
Uncle Remus's picture

And yet, here we are.

Sun, 01/16/2011 - 23:17 | 880831 attst487
attst487's picture

In chart #3, didn't Estonia just recently join the EU? Watch how quickly they shift to the left of the chart.

Sun, 01/16/2011 - 23:25 | 880841 Beatscape
Beatscape's picture

The Chinese are ready to knock over the house of cards the US has created. He visits Wash DC on Wed.

President Hu Jintao emphasized:
"The current international currency system is the product of the past," he said, noting the primacy of the U.S. dollar as a reserve currency and its use in international trade and investment.

Mr. Hu reiterated China's belief that the crisis reflected "the absence of regulation in financial innovation" and the failure of international financial institutions "to fully reflect the changing status of developing countries in the world economy and finance." He called for an international financial system that is more "fair, just, inclusive and well-managed."

http://online.wsj.com/article/SB1000142405274870355160457608580380177609...

Sun, 01/16/2011 - 23:40 | 880854 Sean7k
Sean7k's picture

Yeah, because the Chinese believe in regulation, totalitarian regulation, the manipulation of markets through opaque accounting and financial reports and the use of slave labor in a country so polluted, their mishapen and handicapped children are hidden away from the site of all the world. The words: fair, just and inclusive are one huge pile of panda poop.

Sun, 01/16/2011 - 23:52 | 880870 DaveyJones
DaveyJones's picture

yes, we prefer to export our exploitation and import our totalitarian market controls  

Mon, 01/17/2011 - 00:00 | 880881 Sean7k
Sean7k's picture

Makes you proud to be an American

Mon, 01/17/2011 - 02:50 | 881043 Hook Line and S...
Hook Line and Sphincter's picture

Yes, proud.

Mr. Hu...

Flung Poo

(and had every right)

Mon, 01/17/2011 - 01:06 | 880955 Beatscape
Beatscape's picture

Never said I support the totalitarianism system of the Chinese.  Forced abortions?  Opaque laws?  Death sentences for minor offenses? No respect for intellectual property? No human rights?  No thanks.

Nonetheless, they do have probably the highest soveriegn positive wealth reserve in the world and are winning the economic wars. 

As the 2nd largest holder of US debt, they have us at a disadvantage economically and they could pull the rug out from the Fed's ponzi scheme whenerver they feel like.  Fortunately, this is not in their best interest since they like siphoning wealth away from the USA.

 

Mon, 01/17/2011 - 01:26 | 880976 Sean7k
Sean7k's picture

Lacking a market mechanism and price discovery, they build cities filled with empty buildings, poison their farm land and graduate engineers in numbers greater than the need of the global economy- each year. 

They have most of their debt denominated in dollars and US treasuries, most of the remainder in euro debt and japanese debt. In other words, they are holding the bag and if the house of cards falls, they are SOL. They are not siphoning wealth, they are siphoning debt- it is this important distinction that most people fail to understand. 

The Chinese have signed on for Mr Toads wild ride without realizing that it is being operated by international bankers with a sophistication they can only guess at.

Mon, 01/17/2011 - 01:27 | 880977 Double down
Double down's picture

How hard is it for the Fed to buy everything they sell and flood their fx reserves with electronic zero coupon bearer bonds?  Apparently the Chineese love those.

They cannot do shit by selling, it might even be welcomed as National-economic security is great cover for QE3. 

What power they have resides in their refusal to buy.

Mon, 01/17/2011 - 01:50 | 880995 Lost My Shorts
Lost My Shorts's picture

I agree with the skeptics on China -- everything they say is playing the game, and their position is weaker than you think.  They talk a lot of BS to soothe their local audience, just like our guys do.  Regarding all that debt, China's "wealth", it's a case of borrow two trillion and you own the bank.  They are going to ruin us by selling the debt back at 50 cents on the dollar?  Bring it on.

Much has been made of China trying to dump debt-wealth in favor of natural resources in other countries.  But how will they enforce ownership or contract rights (outside of close-by places like Burma or Vietnam)?  Eventually they would need a military like ours, and bankrupt themselves.

Their empty cities are less of a liability than you would think, because housing demand is huge.  Buyers just don't have the cash.  Even in a crash situation, all the housing built so far (assuming construction quality is not abysmal) would still be a productive social investment even if not a financial investment.  With a command economy and the ability to shoot bankers in the head, they can clean up financial crises more easily than us.  But the China story is less magical than its fans would believe.  However much bluster from their leaders, they need trade and cooperation from the rest of the world, and they need a lot of time to clean up their messes and develop to the next level economically.

Mon, 01/17/2011 - 02:30 | 881032 Uncle Remus
Uncle Remus's picture

The words: fair, just and inclusive are one huge pile of panda poop.

They also translate well.

Mon, 01/17/2011 - 03:56 | 881078 anonnn
anonnn's picture

Some causes of war:

Unfairness,

Unjustness,

Exclusion of others,

Bad-management...

Not so inscrutible, is it.

Sun, 01/16/2011 - 23:26 | 880842 Jerry Maguire
Jerry Maguire's picture

Of course it not only can happen here, it WILL happen here, and in the worst possible way - the politically connected will be favored and the rest of the populace will be ground to dust.

Unless, that is, the people take control of their own fate and amend what is supposed to be their constitution:

http://strikelawyer.wordpress.com/2011/01/15/amending-the-constitution-t...

http://strikelawyer.wordpress.com/2011/01/15/us-constitution-28th-amendm...

http://strikelawyer.wordpress.com/2011/01/15/28th-amendment-first-and-se...

http://strikelawyer.wordpress.com/2011/01/16/28th-amendment-section-3/

 

Sun, 01/16/2011 - 23:26 | 880845 Sean7k
Sean7k's picture

They will raise the debt ceiling after much handringing and proclamations of how much politicians think it's a bad idea. Just as this article would have us believe. Nothing but a bunch of lying, thieving, jack boot banking dicks that aren't happy unless they are transferring the wealth of every person in the world. 

I can't wait until it all collapses and the government and FED are exposed, because that would mean the people have finally been given an opportunity to tear this artifice of criminality to the ground. 

That's the dream...

Mon, 01/17/2011 - 01:53 | 881000 gwar5
gwar5's picture

I agree, time to hit the reset button and lighten the load.

Mon, 01/17/2011 - 00:04 | 880888 JW n FL
JW n FL's picture

Get short (Citi) Banks... get long PM's... cause not even JP morgue with its 125% monthly limit will slow this run up / run down.

Mon, 01/17/2011 - 00:09 | 880894 trav7777
trav7777's picture

so long as aggregate deflation continues, the gov't will be allowed to run deficits and the Fed will buy them

Mon, 01/17/2011 - 01:34 | 880978 Double down
Double down's picture

Are there any risks left that are not structural in nature?

Mon, 01/17/2011 - 08:18 | 881164 SmokyMountainDropout
SmokyMountainDropout's picture

Yes, the non-structural risk to be immediately concerned with is that the gubmint is now under the control of psychopaths.

 

http://news.goldseek.com/GoldSeek/1295226624.php

 

 

Mon, 01/17/2011 - 00:21 | 880909 adeptish
adeptish's picture

"We expect a major orchestrated market crash in May or June to provide the Fed with the cover to continue monetizing the US deficit (i.e., treasury issuance). Either that or a sudden and dramatic deterioration in the economy."

Wow

Mon, 01/17/2011 - 00:51 | 880939 Fred G Sanford
Fred G Sanford's picture

I think another incentive for TPTB to engineer a market crash would be PMs likely getting smashed also which would allow JPM to cover a lot of their short position.

Mon, 01/17/2011 - 00:24 | 880914 sayno2fat
sayno2fat's picture

Fed. goobermint shut down, bitchez!

Mon, 01/17/2011 - 00:25 | 880916 Al Gorerhythm
Al Gorerhythm's picture

The near term risk of a negative credit event in the US is low.

True dat. Especially if one holds PMs.

Mon, 01/17/2011 - 00:32 | 880925 tjfxh
tjfxh's picture

Of course, there is that thing called the 14th Amendment, section 4, which courts have interpreted as guaranteeing the public debt. Defaulting on the public debt is unconstitutional, so if they are consistent with precedent, SCOTUS would just order the Treasury to meet the obligations of the US.

Mon, 01/17/2011 - 00:40 | 880930 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Frpm Geo:

Tunisian Wikileaks Putsch: CIA Touts Mediterranean Tsunami of Coups; Libya, Egypt, Syria, Algeria, Jordan, Italy All Targeted; US-UK Want New Puppets to Play Against Iran, China, Russia; Obama Retainers Cass Sunstein, Samantha Power, Robert Malley, International Crisis Group Implicated in Destabilizations [Translate]

Webster G. Tarpley
TARPLEY.net
January 16, 2011

Washington DC, January 16, 2011 – The US intelligence community is now in a manic fit of gloating over this weekend’s successful overthrow of the Tunisian government of President Ben Ali. The State Department and the CIA, through media organs loyal to them, are mercilessly hyping the Tunisian putsch of the last few days as the prototype of a new second generation of color revolutions, postmodern coups, and US-inspired people power destabilizations. At Foggy Bottom and Langley, feverish plans are being made for a veritable Mediterranean tsunami designed to topple most existing governments in the Arab world, and well beyond. The imperialist planners now imagine that they can expect to overthrow or weaken the governments of Libya, Egypt, Syria, Jordan, Algeria, Yemen, and perhaps others, while the CIA’s ongoing efforts to remove Italian Prime Minister Berlusconi (because of his friendship with Putin and support for the Southstream pipeline) make this not just an Arab, but rather a pan-Mediterranean, orgy of destabilization.

Hunger revolution, not Jasmine revolution

Washington’s imperialist planners now believe that they have successfully refurbished their existing model of CIA color revolution or postmodern coup. This method of liquidating governments had been losing some of its prestige after the failure of the attempted plutocratic Cedars revolution in Lebanon, the rollback of the hated IMF-NATO Orange revolution in Ukraine, the ignominious collapse of June 2009 Twitter revolution in Iran, and the widespread discrediting of the US-backed Roses revolution in Georgia because of the warmongering and oppressive activities of fascist madman Saakashvili. The imperialist consensus is now that the Tunisian events prefigure a new version of people power coup specifically adapted to today’s reality, specifically that of a world economic depression, breakdown crisis, and disintegration of the globalized casino economy.

The Tunisian tumults are being described in the US press as the “Jasmine revolution,” but it is far more accurate to regard them as a variation on the classic hunger revolution. The Tunisian ferment was not primarily a matter of the middle class desire to speak out, vote, and blog. It started from the Wall Street depredations which are ravaging the entire planet: outrageously high prices for food and fuel caused by derivatives speculation, high levels of unemployment and underemployment, and general economic despair. The detonator was the tragic suicide of a vegetable vendor in Sidi Bouzid who was being harassed by the police. As Ben Ali fought to stay in power, he recognized what was causing the unrest by his gesture of lowering food prices. The Jordanian government for its part has lowered food prices there by about 5%.

Assange and Wikileaks, Key CIA Tools to Dupe Youth Bulge

The economic nature of the current unrest poses a real problem for the Washington imperialists, since the State Department line tends to define human rights exclusively in political and religious terms, and never as a matter of economic or social rights. Price controls, wages, jobless benefits, welfare payments, health care, housing, trade union rights, banking regulation, protective tariffs, and other tools of national economic self-defense have no place whatsoever in the Washington consensus mantra. Under these circumstances, what can be done to dupe the youth bulge of people under 30 who now represents the central demographic reality of most of the Arab world?

In this predicament, the CIA’s cyberspace predator drone Julian Assange and Wikileaks are providing an indispensable service to the imperialist cause. In Iceland in the autumn of 2009, Assange was deployed by his financier backers to hijack and disrupt a movement for national economic survival through debt moratorium, the rejection of interference by the International Monetary Fund, and re-launching the productive economy through an ambitious program of national infrastructure and the export of high technology capital goods, in particular in the field of geothermal energy. Assange was able to convince many in Iceland that these causes were not nearly radical enough, and that they needed to devote their energies instead to publishing a series of carefully pre-selected US government and other documents, all of which somehow targeted governments and political figures which London and Washington had some interest in embarrassing and weakening. In other words, Assange was able to dupe honest activists into going to work for the imperialist financiers. Assange has no program except “transparency,” which is a constant refrain of the US UK human rights mafia as it attempts to topple targeted governments across the developing sector in particular.

“Yes we can” or “Food prices are too damn high!”

Tunisia is perhaps the first case in which Assange and Wikileaks can make a credible claim to have detonated the coup. Most press accounts agree that certain State Department cables which were part of the recent Wikileaks document dumps and which focused on the sybaritic excess and lavish lifestyle of the Ben Ali clan played a key role in getting the Tunisian petit bourgeoisie into the streets. Thanks in part to Assange, Western television networks were thus able to show pictures of the Tunisian crowds holding up signs saying “Yes we can” rather than a more realistic and populist “Food prices are too damn high!”

Ben Ali had been in power for 23 years. In Egypt, President Mubarak has been in power for almost 30 years. The Assad clan in Syria have also been around for about three decades. In Libya, Colonel Gaddafi has been in power for almost 40 years. Hafez Assad was able to engineer a monarchical succession to his son when he died 10 years ago, and Mubarak and Gaddafi are trying to do the same thing today. Since the US does not want these dynasties, The obvious CIA tactic is to deploy assets like Twitter, Google, Facebook, Wikileaks, etc., to turn key members of the youth bulge into swarming mobs to bring down the gerontocratic regimes.

CIA Wants Aggressive New Puppets to Play Against Iran, China, Russia

All of these countries do of course require serious political as well as economic reform, but what the CIA is doing with the current crop of destabilizations has nothing to do with any positive changes in the countries involved. Those who doubt this should remember the horrendous economic and political record of the puppets installed in the wake of recent color revolutions – people like the IMF-NATO kleptocrat agents Yushchenko and Timoshenko in Ukraine, the mentally unstable warmongering dictator Saakashvili in Georgia, and so forth. Political forces that are foolish enough to accept the State Department’s idea of hope and change will soon find themselves under the yoke of new oppressors of this type. The danger is very great in Tunisia, since the forces which ousted Ben Ali have no visible leader and no visible mass political organization which could help them fight off foreign interference in the way that Hezbollah was able to do in checkmating the Lebanese Cedars putsch. In Tunis, the field is wide open for the CIA to install a candidate of its own choosing, preferably under the cover of “elections.” Twenty-three years of Ben Ali have unfortunately left Tunisia in a more atomized condition.

Why is official Washington so obsessed with the idea of overthrowing these governments? The answer has everything to do with Iran, China, and Russia. As regards Iran, the State Department policy is notoriously the attempt to assemble a united front of the entrenched Arab and Sunni regimes to be played against Shiite Iran and its various allies across the region. This had not been going well, as shown by the inability of the US to install its preferred puppet Allawi in Iraq, where the pro-Iranian Maliki seems likely to hold onto power for the foreseeable future. The US desperately wants a new generation of unstable “democratic” demagogues more willing to lead their countries against Iran than the current immobile regimes have proved to be. There is also the question of Chinese economic penetration. We can be confident that any new leaders installed by the US will include in their program a rupture of economic relations with China, including especially a cutoff of oil and raw material shipments, along the lines of what Twitter revolution honcho Mir-Hossein Mousavi was reliably reported to be preparing for Iran if he had seized power there in the summer of 2009 at the head of his “Death to Russia, death to China” rent-a-mob. In addition, US hostility against Russia is undiminished, despite the cosmetic effects of the recent ratification of START II. If for example a color revolution were to come to Syria, we could be sure that the Russian naval presence at the port Tartus, which so disturbs NATO planners, would be speedily terminated. If the new regimes demonstrate hostility against Iran, China, and Russia, we would soon find that internal human rights concerns would quickly disappear from the US agenda.

Key Destabilization Operatives of the Obama Regime

For those who are keeping score, it may be useful to pinpoint some of the destabilization operatives inside the current US regime. It is of course obvious that the current wave of subversion against the Arab countries was kicked off by Secretary of State Hillary Clinton in her much touted speech last week in Doha, Qatar last week, when she warned assembled Arab leaders to reform their economies ( according to IMF rules) and stamp out corruption, or else face ouster.

Given the critical role of Assange and Wikileaks in the current phase, White House regulations czar Cass Sunstein must also be counted among the top putschists. We should recall that on February 24, 2007 Sunstein contributed an article entitled “A Brave New Wikiworld” to the Washington Post, in which he crowed that “Wikileaks.org, founded by dissidents in China and other nations, plans to post secret government documents and to protect them from censorship with coded software.” This was in fact the big publicity breakthrough for Assange and the debut of Wikileaks in the US mainstream press — all thanks to current White House official Sunstein. May we not assume that Sunstein represents the White House contact man and controller for the Wikileaks operation?

Every Tree in the Arab Forest Might Fall

Another figure worthy of mention is Robert Malley, a well-known US left-cover operative who currently heads the Middle East and North Africa program at the International Crisis Group (ICG), an organization reputed to run on money coughed up by George Soros and tactics dreamed up from Zbigniew Brzezinski. Malley was controversial during the 2008 presidential campaign because of the anti-Israeli posturing he affects, the better to dupe the Arab leaders he targets. Malley told the Washington Post of January 16, 2011 that every tree in the Arab forest could now be about to fall: “We could go through the list of Arab leaders looking in the mirror right now and very few would not be on the list.” Arab governments would be well advised to keep an eye on ICG operatives in their countries.

Czar Cass Sunstein is now married to Samantha Power, who currently works in the White House National Security Council as Special Assistant to the President and Senior Director (boss) of the Office of Multilateral Affairs and Human Rights – the precise bureaucratic home of destabilization operations like the one in Tunisia. Power, like Malley, is a veteran of the US intelligence community’s “human rights” division, which is a past master of using legitimate beefs about repression to to replace old US clients with new puppets in a never-ending process of restless subversion. Both Malley and Power were forced to tender pro forma resignations during the Obama presidential campaign of 2008 – Malley for talking to Hamas, and Power for an obscene tirade against Hillary Clinton, who is now her bureaucratic rival.

Advice to Arab Governments, Political Forces, Trade Unions

The Arab world needs to learn a few fundamental lessons about the mechanics of CIA color revolutions, lest they replicate the tragic experience of Georgia, Ukraine, and so many others. In today’s impoverished world of economic depression, a reform program capable of defending national interests against the rapacious forces of financial globalization is the number one imperative.

Accordingly, Arab governments must immediately expel all officials of the International Monetary Fund, World Bank, and their subset of lending institutions. Arab countries which are currently under the yoke of IMF conditionalities (notably Egypt and Jordan among the Arabs, and Pakistan among the Moslem states) must unilaterally and immediately throw them off and reassert their national sovereignty. Every Arab state should unilaterally and immediately declare a debt moratorium in the form of an open-ended freeze on all payments of interest and principal of international financial debt in the Argentine manner, starting with sums allegedly owed to the IMF-World Bank. The assets of foreign multinational monopolistic firms, especially oil companies, should be seized as the situation requires. Basic food staples and fuels should be subjected to price controls, with draconian penalties for speculation, including by way of derivatives. Dirigist measures such as protective tariffs and food price subsidies can be quickly introduced. Food production needs to be promoted by production and import bounties, as well as by international barter deals. National grain stockpiles must be quickly constituted. Capital controls and exchange controls are likely to be needed to prevent speculative attacks on national currencies by foreign hedge funds acting with the ulterior political motives of overthrowing national governments. Most important, central banks must be nationalized and reconverted to a policy of 0% credit for domestic infrastructure, agriculture, housing, and physical commodity production, with special measures to enhance exports. Once these reforms have been implemented, it may be time to consider the economic integration of the Arab world as an economic development community in which the foreign exchange earnings of the oil-producing states can be put to work on the basis of mutual advantage for infrastructure and hard commodity capital investment across the entire Arab world.

The alternative is an endless series of destabilizations masterminded by foreigners, and, quite possibly, terminal chaos.

 

Mon, 01/17/2011 - 01:51 | 880996 gwar5
gwar5's picture

Don't think Tunisia was US imperialism, current management is not even capable. Tunisia has the hallmarks of a European style unrising with more determination and weapons. Ben Ali just put himself on the menu with the same greed and fiscal mismanagement going around the Eurozone.

What happens in the Mediterranean stays in the Med, but I'm hoping the Central Bankers in the West are watching.

 

 

 

 

Mon, 01/17/2011 - 02:52 | 881045 Richard Head
Richard Head's picture

Too long, didn't read.

Mon, 01/17/2011 - 08:46 | 881180 whatz that smell
whatz that smell's picture

paraphrase: "CIA Tools to Dupe Youth Bulge"

meaning?: noboby dupes the bulge!

Mon, 01/17/2011 - 01:23 | 880973 TheRedPillPlease
TheRedPillPlease's picture

"In the end, more than they wanted freedom, they wanted security. They wanted a comfortable life and they lost it all - security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility then Athens ceased to be free."

-Edward Gibbon The Decline and Fall of the Roman Empire 

Mon, 01/17/2011 - 02:34 | 881034 Uncle Remus
Uncle Remus's picture

freedom from responsibility

The freedom they really hate us for.

Mon, 01/17/2011 - 01:35 | 880982 saulysw
saulysw's picture

My guess : Limit raised to $16T. Then next time $20T. There might not be a "next time" after that....

Mon, 01/17/2011 - 08:34 | 881170 JW n FL
JW n FL's picture

your account has the same amount you put in to it...

it looks no different...

why do you care if they add ANOTHER 16 Trillion?

Now you give a fuck? at 16T??? Now when your money is being printed away? by 30%(ish) in 12 fucking calander months... now you give a fuck?

 

Mon, 01/17/2011 - 01:47 | 880992 CrashisOptimistic
CrashisOptimistic's picture

Is not the extra debt issuance explained by rolled over short term maturity vehicles?

Mon, 01/17/2011 - 03:35 | 881073 hooligan2009
hooligan2009's picture

Agreed, but the Governmnent has to finance coupons and maturities and increase issuance (previous deficits) by the amount of current (new) deficits. Remember the system works as long as no-one actually wants their money back (the Government never ever ever repays debt/deficits and can Ponzi/roundtrip them forever, since taxes increase forever)...NOT!

Mon, 01/17/2011 - 03:37 | 881074 hooligan2009
hooligan2009's picture

there are a few things about the government bonds ... no-one cares about the credit rating and an assumption that you can raise your own debt ceiling as a borrower is somewhat fatuous. I am going to max my credit card and raise my own limit? Ho Ho Ho

Mon, 01/17/2011 - 01:49 | 880993 the rookie cynic
the rookie cynic's picture

Printing for Jamie, Lloyd, Barney, and Barrack to continue unabated as far as the eye can see. Plus, Austan will pee himself Congress doesn't raise the debt ceiling. So we just gotta.

I don't know how long the Fed can "ease", but I think it's longer than most people think. Just look at Japan. It's been what, about 20 years now?

But who knows, maybe Gonzalo, Turk and Williams are on to something.

Mon, 01/17/2011 - 04:29 | 881085 ak_khanna
ak_khanna's picture

Last year we saw countries like Greece, Ireland facing bankruptcies due to increasing deteriorating financial position and increased borrowing costs. They had to be bailed out by the ECB and IMF.

These problems are likely to spread to bigger countries this year and the tipping point would be when one too big to bail out country defaults on its debts. This would start a chain of defaults which all the governments and central bankers in the world put together cannot reverse pushing the world economy on an extended path of slow or negative growth for years.

The prime reason for all these problems is the lack of political willpower to curb speculation in the stock, commodities and the currency markets, the brunt of which is borne by the majority of the world population.


http://www.marketoracle.co.uk/Article24581.html

Mon, 01/17/2011 - 06:59 | 881147 Dr. Sandi
Dr. Sandi's picture

You forgot to DO IT IN ALL CAPS WITH THE BOLD!!!

Mon, 01/17/2011 - 05:14 | 881114 HungrySeagull
HungrySeagull's picture

Not yet.

One has to go back to World War Two in order to see Gross Domestic Product numbers related to war spending that is far in excess of what we have done today. In those days the United States did whatever was necessary to prosecute a total war. That mean war bonds from the people, scrap metal drives, ABC Ration cards, no luxuries and other things were taken out of Society until the war was over.

 

All of those millions of servicemen coming home flush with combat pay and all demanding houses, appliances and cars right damn now and quickly really erased the problem the USA had with the debt spending to get the war going.

 

Here we are in a war, but not the way we could fight such a war. We continue to charge up spending and luxury items and all sorts of normal daily living as long as the food stamps and unemployment checks hold out.

 

When the music stops we might have to stop fighting wars and bring troops home and disband them to cut the costs before chopping into the Social security, education and medicare to boot.

 

China has plans for 100 years, 500 years and so on. We only plan for two year, 4 year and work on election plans constantly. What a waste. China has managed to buy everything they could buy in the world and keep it for themselves until the day comes that they are the only merchant in town that is open and selling at pricing that you cannot afford but must pay to keep your Population base happy in luxury.

 

In about 40 years or so, all of us old fucks will have died off, leaving a nation filled with young people to invent how they are going to get along on nothing. That friends is the true waste.

Mon, 01/17/2011 - 07:59 | 881158 Ned Zeppelin
Ned Zeppelin's picture

"We expect a major orchestrated market crash in May or June to provide the Fed with the cover to continue monetizing the US deficit (i.e., treasury issuance). Either that or a sudden and dramatic deterioration in the economy. Look for Jan Hatzius to first of all Wall Street economists to flip his opinion from positive to negative as a first telegraphed sign that QE 3 will be up on the docket."

Sensibly reasoned and we have signs to look for.  We need an event of some type to provide cover for further monetization. I think QE 3.0, etc. is a given until further notice, that is, until it is generally "noticed" that the Fed has begun to look like a enormous, bloated tick, engorged on Treasuries and shaky private issue MBSs. 

Mon, 01/17/2011 - 09:37 | 881288 Chappaquiddick
Chappaquiddick's picture

Look what happened the last time they withdrew QE - flash crash (definitely orchestrated. . .or castrated.... strange word, anyway) then market mayhem until Mr Ben said "OK Guy's I think they get the message.  Clearly they can see now that you can crash the economy, so have some more QE... you wonderful little banksters, you!"  And after a 38% decline, and right on cue we get the second great thrust move in 18 months.  So the script going forward is obvious.  Come May with QEII running out, big downward wobble, flash crash II, 38% decline, "More QE?  OK have another Trill."  Thrust III; and we're back in business.  

God bless America.  Now stand and pay homage to the Flag.

Mon, 01/17/2011 - 09:19 | 881237 XPolemic
XPolemic's picture

Ah yes, but this essentially misses the point that the USG already has (technically) defaulted on it's debt. The fact that the world's remaining superpower/reserve currency can simply print it's debts away essentially means that this is a default by dilution.

Owe 14T? Print 14T. Owe 150T? Print 150T! What does it matter? Until the rest of the world says 'Fuck it, we'll use Rubles', this situation can go on and on and on. It's like a game of Massively Multiplayer Chicken. China's economy (economic miracle) is hopelessly coupled to the US consumer, as is Japan's.

They could forgive the debt, and reset with everyone else, or they could pull the trigger on MAD currency armageddon, taking down the useless and unproductive financial sector, and reset, or .... who knows? All players are running their think tanks at full speed, assessing their next move, calculating benefits and fallout.

Perhaps what we need is a nice new proxy war in Indochina. Nothing like a good war to get the proles back in line and sort financial messes out.

Mon, 01/17/2011 - 09:52 | 881329 d_7878
d_7878's picture

Am I missing the point? Look at the stock market in 95/96

Mon, 01/17/2011 - 09:53 | 881337 overmedicatedun...
overmedicatedundersexed's picture

Japan's example of how to handle massive credit default of large banks is what Ben is looking at..don't let them fail..get stagnant economy for decades..but better than insolvent citi..so He thinks..me: let them fail, let the deficit not be hiked, it will be bad, but perhaps freedom is not "free" ..freedom is what corporate man fears the most..Ben and Obuma want control want us all who are not in the power elite to squirm and cry out for help..if you do not know this in your heart..you are no free man.

Mon, 01/17/2011 - 09:59 | 881356 apberusdisvet
apberusdisvet's picture

 

I have always maintained that the correction will begin on April 1, a very appropriate date.  The key may well be the Irish repudiation of lifetime involuntary servitude.

Mon, 01/17/2011 - 11:30 | 881635 Herman the German
Herman the German's picture

So what's the likelihood of a defaulted currency for the US, and essentially every other county before too long?

The more money the US pumps into it's lies to cover up this con, the slipperier the slope get's. Whether the shit hit's the fan in 5 weeks or 5 years, it's only a matter of time, not if. No paper or coin currency has every lasted. Had they not, we'd still be using Roman coins. I'm still a noobie when it comes to soaking up all this info about what's going on, but I get the just of it - we're fucked.

 

Gold Bitche'z

Mon, 01/17/2011 - 14:27 | 882131 Mark Beck
Mark Beck's picture

A few points on the report;

To have such insight and then use Debt to GDP as a metric. Interesting, given the alert on state solvency. The problem I have is in separating the health of the states from overall economic performance of the US government. How exactly are they separate? To me state debt can have a direct impact on real GDP (minus stimulus). The focus should be on the overall impact of debt on growth at both the state and federal level. That is why a state FED bailout is unworkable. It will only move debt around, at the cost of more debt, which will accelerate the loses.

----------

Funding debt going forward will not only depend on "External Financing" but the world capacity for foreign debt, with the appropriet offsets for trade. We can devalue currency to pay for debt, but this reduces the overall real worth capacity to reconcile the debt. There is no inherent real worth in monetization of debt. So why would there be any activity to purchase debt which will be debased other than to support trade.

----------

What does a government bond crisis look like? Its a slow to fast exponential effect in Treasury readjustment to match outlays with tax revenue. I think in the beginning there will be very little changes in Treasury (institutional) mechanisms. I call this the taking up slack period. Once this phase is completed Treasury will be forced to stop payments. This will be strategic at first, then it will go across the board. But, there will be no way to fill the gaps in missing revenue with tax policy. The FED is the only short term hope. However, in the end the existance of the FED, and its debasement, will hasten the decline in bond confidence.

Mark Beck

Mon, 01/17/2011 - 17:58 | 882645 sbenard
sbenard's picture

Go ahead and default. I don't care! The only true alternatived for individuals is to become self-reliant and government-independent.

But there is also an alternative to a debt ceiling increase. We can just spend ONLY what we take in! Bring on the showdown! That doesn't require a default.

But I reject the whole premise that the only we can prevent a default on EXISTING debt is to issue NEW, additional debt. The premise is false.

Do NOT follow this link or you will be banned from the site!