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As The Fed Runs Out Of Low-Rate Options, The UST Is Likely Considering An Orchestrated Move Of Risky Asset Into Bills
A recent detailed analysis of the composition of US Federal debt has made us question just how much dry powder the Fed has left to manipulate interest rates. We ignore all tangential issues such as what the end of QE will mean on MBS, and by implication 10 Year, rates, and focus purely on the structural composition of the curve, which leads us to some very troubling observations. In summary: the Treasury is running out of time in which to orchestrate a massive rush away from risky assets into the sweet spot for UST interest rates: risk-free Bill holdings. In other words, a stock market crash is long-overdue if the Treasury does not want to face a major spike in rates and drop in Treasury demand in the immediate future.
First, and this is no surprise to anyone, the US is on collision course with an unmitigated funding disaster. As the chart below demonstrates, the US has been issuing roughly $147 billion a month for the past 17 months, in a period in which total US Federal debt has increased from $10 trillion to $12.6 trillion. With recently passed healthcare reform, look for the red line indicating total debt to go increasingly exponential.
Like we said, nothing surprising here as we spend ourselves into bankruptcy. The only reason why this has not escalated yet has been the Fed's ability to keep rates low on the short end, translating into modest low long-end rates as well, despite the curve being at record wides. The progression over time of average interest rates by Bills, Notes and Bonds, as presented by Treasury Direct, is shown below. This should also not come as much of a surprise, as it has been well known that the Fed's only prerogative in the past two years has been to buy every yielding security in sight to keep rates low.
Now where it gets quite interesting is an analysis of the composition of the total components of the debt, on a relative basis. The chart below demonstrates the amount of various pieces of debt by tenor as well as the inclusion of non-marketable debt and trust funds held by the Treasury.
Recreating the chart above, but focusing exclusively on Marketable debt, yields the following chart:
We wrote recently that while China may or may not be bailing on US debt, one thing that is certain is that it is not rolling, and in fact may well be selling, its Bill exposure, i.e., short-term Treasuries that mature within a year.
Indeed, the recent scramble away from Bills is confirmed by the prior two charts which indicate that the portion of Bills as percentage of total marketable debt has fallen from 30.1% in February 2009 to just 21.8% in February 2010. The reason for this is that the Fed had been previously posturing that it is attempting to push the average debt maturity from 4 to 6 years and over. In order to do this the Fed needs to issue less net Bills. And therein lies the rub.
As rates have fallen, the average interest on Bills has dropped from 1.4% in October to essentially zero over the past several months (0.2% to be precise). In effect, the Treasury gets the benefit of holding $1.7 trillion in debt which pays no interest. Yet as its rolls out of Bills, its ability to take the implicit benefit of the Fed's ZIRP disappears. As the Fed's monetary policy impacts most of the the interest rate on Bills, with Bonds and Notes much more a function of medium- and long-term inflation/deflation expectations (and with the yield curve at record levels, the expectations see some less than smooth sailing down the line), as the Treasury rolls down its Bill holdings, as it has been doing, the Fed's ability to influence rates is getting progressively less and less. Couple this with an ever increasing record amount of total US debt, and you have a recipe for disaster, or as we call it, the curve Black Swan.
In fact this can be seen in the chart below: a comparison of average blended interest rates, and overall (accrued) implied monthly interest, demonstrates that even as the blended interest rate has dropped to an all time low of 2.57%, the actual annualized cash out on marketable debt (excluding the Trust Fund shell game), has returned to levels last seen in December 2008, of about $204 billion per month. The last time the annualized interest was this high, the actual interest rate was 3.2%, or 60 bps higher! Furthermore, even as rates have been declining, actual interest expense has been increasing consistently since May of 200 (and all this even as the actual blended interest rate is at an inflection point: it will likely trough in the mid 2.5% range as the low hanging Bill fruit has been plucked away).
The reason for this: 1) rates on Bills can only go 0.2% lower before hitting zero, and 2) nobody wants Bills anymore. China certainly has been selling Bills, and US citizens, balking at money market rates, are definitely not going to lock their money into Bills which yield the same if not less. The Treasury's natural response - bringing back the SFP 56-Day Cash Management Bills back. Today, the Treasury auctioned off the 5th $25 billion SFP chunk, on its way to filling up the $200 billion CMB tank full. Yet this is merely a stop-gap measure, and it is responsible for the slight bump higher in February Bill holdings compared to January. Alas, the Treasury will need to generate wholesale interest for Bills in some way in the near future, or else it will drown itself in the vicious cycle combination of increasing interest payments pushing rates higher, etc. And what creates a scramble for Bills better than anything?
Why a massive market crash of course.
Are we predicting one will happen? Of course not; in this market what is expected to happen is that last thing that will happen. We merely point out the logic and what the empirical evidence is demonstrating. Either the Treasury will need to expand the SFP program to far beyond the $200 billion cap, or it will need to get rates on Notes and Bills even lower at a time when the broader market is already expecting a rise in Rates. And in the meantime, it will continue issuing roughly $150-200 billion in debt each and every month to fund in increasingly bankrupt government.
What we can predict with certainty, is that the Treasury is on an inevitable collision course with insolvency, courtesy of a government run amok. And absent a major shift in capital out of risky assets into risk-free equivalents, it is going to get increasingly more difficult to control the runaway beast of rabid and uncontrollable deficit spending.
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Excellent piece, Tyler. We need to send the fuckers to prison. This country is being run into the ground, coverups and corporate hand holding run rampant.
Geithner and Bernanke need to go to prison.
Obama is a one term loser - and that's change I can believe in. The ultimate irony is the passed health CARE bill will turn out to be the straw that breaks this country's back, resulting in health CHAOS.
Can't see a market crash.
To have one now would go on over the course of the next year and be fatal to the incumbent party, Wall Street, and everybody else.
If QE ends = spike in rates and funding crisis, then QE won't end.
Look, we were dead and on our way out in late 08-09, and QE revived the corpse. The economy, no, but the balance sheet imaginary stuff, yes. Emphatically, yes. These guys can't see real economics, they only understand balance sheet BS.
It's about the lesser of available evils. Stock market crash much better outcome than Treasury interest rates breaking from their mooring.
On the political front, I gotta believe Obama & Rahm are hoping the Republicans take one of the two houses. Makes it so much easier in 2012.
QE is the even lesser of the 3 evils.
They're going back to the well, like it or not.
There's room to print with the DXY at 82 and the Euro crashing.
They will indeed go back to the QE well, but not just yet.
Political justification is needed. Equities crash, Euro crisis, further housing meltdown could all be candidates.
Spike in Treasury rates is not a candidate -- it is the trigger to be avoided. Looks way too much like direct monetization, even if the end point is the same.
QE needs to be timed to the November elections. If you do it too soon the Morts will forget where it came from.
good point. Either way, crashing the stock market with so many public pensions tied to it ahead of mid-term elections.... Ahem, Rahm... Bad idea, capiche?...
No printing with oil over $80 and Goldman ready to reload tankers. Not an option at the moment.
I doubt the republicans wanted a crash going into 2008 either, but sometimes when the game's over its, over. Can't extend and pretend forever.
Sure you can. Japan's been doing it for over 20 years.
This stuff is just accounting entries.
It ain't gonna fix the economy but it will balance the sheets.
... and the Nikkei's been dead the whole time. In any case, Japan had a big pool of domestic savings to draw on, only starting to face monetization now. Does the FED's 'Household' category really reflect retiring baby boomers moving heavily into US debt?
Even if we assume that we'd follow the Japan model, that clearly doesn't preclude 30-40% downdrafts in the equity markets off of rally peaks. This is what Rosenberg means when he says the Japanese rallies have been for "renting" not "owning".
http://finance.yahoo.com/echarts?s=^N225#chart2:symbol=^n225;range=my;indicator=volume;charttype=ohlc;crosshair=on;ohlcvalues=1;logscale=on;source=undefined
You have to understand that they were able to do that only through confiscation of the Japanese people's considerable savings. We have no such savings here in the US. Hell, the savings rate in Japan is now turning negative. You can look for high/hyper inflation in their near future. Life won't be pretty on that island when that happens. They don't have enough space to grow food for that huge population of theirs.
Your totally correct. And japan have a massive demographic problem where they need more young workers but the only way to get more is to allow immigration into their country. Their running out of savings (due in part to they Yen carry trade and the zombie banks from the 1987 or 89 property collapse) and need more. The western form of banking is winding down and are having trouble finding money and trying to find a bubble to reinitiate to move the problem further down the road. We are finally down the road, and nobody likes the look of the final destination.
They have SOOOO painted themselves into a corner LOL
Beware cornered rats!
Read that as you may.
Beware cornered rats!
Read that as you may.
Crash risk assets (inc. non-USD currencies BTW) -> drive flight to quality ->
issue a bunch of debt -> announce new round of QE to save the world ->
rekindle animal spirits -> risk assets back in vogue
Wash. Rinse. Repeat.
And during each cycle weaken the other currencies -- USD is the worst currency except for all the others.
USD is de facto one world currency when it is all said and done.
US bank complex trumps Euro bank complex.
At least that is my uninformed speculation.
Gold will be higher and higher with each cycle. Eventually, everyone will see this and we'll have a bubble as everyone pours in. Problem is that as everyone pours into gold, they are pouring out of the dollar. The dollar will collapse at that point, before the gold bubble has a chance to pop. At that point, it will be cemented in place with the monetary premium made permanent.
At least, that's the way I see it. I'm very long physical gold and silver for that reason.
I could see that eventually. But I also think the USD and gold could be more similar than different for a while. More likely gold makes new all-time highs and progressively higher highs in other currencies first.
If the USD can crowd out other currencies to reach a new equilibrium (BW III?), then USD may not collapse w.r.t gold and commodities quite so soon.
Crashing the market is short term at this point I think. Everyone's had time to think about the impact this time around. Everyone is ready with the hard questions (debt meisters, pension funds, evil CDS speculators, etc). Once the paper wealth evaporates I think the reality of the "recovery" starts to hit. Tax revenues? What tax revenues? So the "sequential coordinated currency debasement" meme looks good, and I agree that gold ratchets higher while this is going on. Japan could tolerate a persistent deflation for the reasons pointed out by others (domestic savings, domestic ownership of sovereign debt load) plus the facts that there was a world they could export to in order to generate forex, and they weren't supporting a global empire. No such luck for U.S. / USD, and certainly not a entire global persistent deflation. Cannot be tolerated; no way.
The music stops when the looting stops, and the looting stops when the pickin's get slim.
That makes so much sense...
Especially the Wash. Rinse. Repeat...
CAP AND TRADE (bitches)!!!
I am nearly certain that they will try for cap and trade in the U.S.; having "rammed through" health care nationalsocialization, the dems are feeling their oats, and there's already a rumor that Warner (Virginia, Finance Committee) has indicated it's coming. Remember Carville bitching about the bond vigilantees? The dems are trying to prove that they're smarter than the financial markets. Cap and Trade, of course, is just another tax increase, whose purpose is to enrich Goldman and support the Treasury market. I think maybe the dems hoped the bond vigilantees would buy into their ability to make money from health care by denying treatment, and maybe the bond vigilantees ain't buying it.
$64,000 question. When?
Paul, 64K is sooooo '80's...It is now the 64 Trilliion Dollar Question.
We really need to prepare for the future and start using quadrillion. Prep your kids now.
And how many zero's is that, give or take a few dozen?
Don't forget the first Trillionaires!
They might not be US citizens, tho
You are correct. Zimbabwe already has lots of trillionaires.
When we are no longer capable of covertly funneling newly printed dollars where needed to be to stop the insolvency.
October, 2013
Health Care benefits don't kick in for a while, however increased taxes will kick in shortly and this was a smoke screen to justify higher taxes. Those taxes go to pay campaign backers including bankers (the same ones that own the fed and the biggest banks) interest on the national debt.
This is why the dollar strengthened, it should theoretically reduce the deficit short term. The end of the Bush tax cuts will also theoretically increase tax revenues, however what they don't understand is that it will impact behaviors and raise taxes to 50% of profits in some circumstances - this is not a good trade when you risk $1.00 for pennies in return and then your return is halved through the cartel. By buying votes by giving away $ from the treasury, eventually nobody becomes motivated to produce and there is no production to share between the poor, middle class, and wealthy.
Yep, now we just need the chinese to stop exporting to us and we get hyperinflation.
We are at a severe tipping point, I think, and I suspect very harsh economic pain. Massive U.S. austerity is the only thing that will save us. We must completely obliterate the budget, cut EVERYTHING by 80%, include all entitlements, or we are doomed. That means FIRING millions of public employees, and shrinking government drastically. It's the only thing we have left to save us. Hopefully pols get it right this summer/fall when they kick the incumbents out, but I doubt it.
Please don't kick me out (as a gov't employee) until I have more silver and food.
I like it. Does your name "Postal" imply:
A) Which division of the Gov. you work in?
or
B) What you will "go" when Bernanke finally destroys the USD?
or
C) All of the above?
As far as I remember the guy indicated earlier that he works for USPS.
Unfortunately, massive austerity will not save us unless we can offset the fiscal retrenchment with a compensating reduction in the current account deficit. See the following for explanation:
http://www.nakedcapitalism.com/2010/03/parenteau-on-fiscal-correctness-a...
http://www.nakedcapitalism.com/2010/03/parenteau-leading-piigs-to-slaugh...
interesting reference. thank you.
I think you are seriously overreacting. Take a look at debt:GDP, all is not lost (or anywhere near it yet). When dealing with big scary numbers make sure to always put them in context.
Whew...thanks for talking me back off the ledge. I guess second derivatives only work one way.
austerity cannot save us, it wouldn't be enough, and would further reduce tax revenue
The answer: eventually, at some point between now and infinity years from now. But it will be eventually - unless there is change in Washington, change we can believe in...
My free health care will get me infinite refills of Hopium.
Nice. I think that is the intermediate between heroin and opium. The trip is mellow, but the crash is nasty beyond imagining.
Alas, the Treasury will need to generate wholesale interest for Bills in some way in the near future,
They could also generate wholesale interest for bills by requiring their purchase in ALL pensions, IRAs etc. It would be for your own good of course.
The announcement will go something like this...
"...make no mistake, a comfortable and secure retirement for American seniors is vital to the social fabric of this great nation. To ensure this we can no longer rely on the promises of Wall Street, the snake oil of complex securities that no one understands or the volitility of the stock market. The debt of The United States of America is the most trusted and secure asset class the world has ever known. That is why, starting today, all ERISA governed accounts will be required to hold a minimum of..."
Kinda like unexplained ("you'll like it when you see how good it is") gov't healthcare?
Wanna see a real bank run? Let them try THAT shit.
Actually the SEC has recently been granted, or granted itself the power to disallow money market sales (to raise the cash to withdraw) when market conditions warrant. So make sure you actually hold cash in your account before that run. That's harder to do these days than you might think.
Rule #1 in a panic: if you're going to panic, panic first.
Probably true. I guess that's the gist of the gold in your basement argument.
Yeah, the money in those IRAs and 401K accounts will be too tempting. The scam will probably start as an offer to convert the private accounts to a guaranteed annuity with some multiplier (5X, 10X) to sweeten the deal. If they make the offer after a big dive in the markets, heck they might get one third of the accounts to switch. That's $1T-$2T, enough to kick the can down the road another year or two.
Audit the FED then End the FED! or vice versa, doesn't matter.
Shoot first, ask questions later. Yep, we may be getting to that point.
When ERISA changes are made forcing US citizens to own treasuries in our retirement accounts, that is the signal that all hell is about to break loose. Total collapse will not be far behind that.
To note, the gov't collected opinions up to last month regarding this very issue. We may be nearer than we think. I suspect it will happen on roughly December 21, 2012. Just a guess... :)
Well so far they tried the everybodies worse off then us approach (PIIGS). The anti-China campaign, bubble ect...
I wonder how 9/11 affected the bond market.
if post hoc ergo hoc, it sold off a bit less than 10% on the long end. rallied to higher highs fairly soon.
5 yr. UST gained quite a bit.
And not to mention the finance reform bill. They have to show who's in control. A market sell off will achieve both purpose. Isn't that fun!
The crash is moving along nicely. I think it is a logical assumption that the GSE's (AIG, C, BoA, GMAC) will liquidate their stock holdings and create the wave with the blessings of course of the Federal Reserves pet banks to trigger the crash. They will be prepositioned to profit from the panic and we will see the little guy crushed. This is what is needed to force everyone to accept and BEG for the government to seize their 401K's, IRA's, and retirement accounts and manage them with a massive 3% annual return to the retirees. In the mean time the large brokerages get to continue their computer games with the government turning a blind eye as they were able to assist the .gov in stealing $9 trillion in what should be safe and secure assets to bail out the government bond markets.
what if enough is lost in this next crash that there is nothing left to buy bills?
think I just saw a black cygnet hatching in the pond down the lane...
Great writeup and charts TD!
Yeah this is an awesome article. The last chart is terrifying. We're dead mates.
I wonder if BB ever thought a day like this would happen, let alone what is about to happen.
Just saw Ben coming back from Home Depot with another Printing Press in his trunk. Hmmm...
I said in a previous post that the Greece crisis was "used" or was advantageous to the Fed when rates started going up . This time around it doesn't seem to be working -and Greece/portugal may need to default quickly or pulling the plug on the PPT/ might be the only way left to get money into treasuries . You know just your every day 60%+ correction (at least that is what cnbc will call it ) nothing to worry about being the S&P is up 83% very quickly blah blah blah
1) The banks run the gubbermint.
2) The banks don't give a crap about anything but the banks.
3) Whatever is good for the banks is what will happen. That means they get unlimited money at 0% and buy longer maturities. This will never change.
Sorry, but the banks would and should have been buried in '09 if it wasn't for the "gubberment cheese" ...
My point exactly.
Very interesting writeup. It'll be interesting to see what happens when the manipulation is forced to eventually end. No matter how much the Fed tries to avoid it will have to face inevitably higher rates
The Macro View
http://themacroview.wordpress.com
And more on the financial reform (in your dreams / sorry for spam, i am just a bit pissed so should you... be a bit pissed) :
"
March 22, 2010 Insurers Show Clout In Advisor Standards Fight (Dow Jones) The most vocal opposition to the push to make financial advisors more responsible to clients hasn't come from Wall Street firms or giant banks, but a corner of the industry with a lot to lose: insurance companies.Citing concerns that new standards might crimp profits for insurance companies' brokerage and investment-product subsidiaries, trade groups have pushed the U.S. Congress to block a proposal requiring financial advisors to recommend clients buy the best possible products rather than ones simply deemed suitable for them based on factors including age and wealth.
In a recent letter to members, National Association of Insurance and Financial Advisors President Tom Currey called for extra study and opposed "one size fits all" regulation, language that closely mirrors that of a provision Sens. Tim Johnson (D-S.D.) and Mike Crapo (R-Idaho) managed to nudge into Sen. Chris Dodd's (D-Conn.) financial regulation bill.
"We have a real fight on our hands and we are running a marathon--not a sprint--to the finish," Currey said in the letter.
Insurance groups say the fiduciary standard of care is anathema to the way they run their businesses of providing "incidental" advice based on the products they sell, and that they shouldn't be lumped in with other financial advisors. "It's a different standard altogether than the investment advisors who mostly focus on advice," Currey says.
In many ways insurers seem like an odd voice to be shaping the market for financial advisors. Although about one in five financial advisors has ties to the insurance industry, they handle just 3% of the $8.3 trillion overseen by these professionals, according to Cerulli Associates, a research and consulting firm in Boston.
Insurance advisors focus largely on selling their own employer's investment offerings, such as mutual funds and annuities, while offering advice only on which of this limited list of options best fits clients' needs. Raising standards may eliminate this rudimentary service, leading "middle-class families to be priced out" of investment advice and financial services, Currey says.
While similar arrangements were once common throughout the financial services industry, banks and brokerage firms have moved away from them over the past decade because of arguments that selling inferior in-house investments ended up costing clients later in terms of lower investment returns.
As financial advisors' responsibilities changed, Wall Street firms' longstanding role of offering advice to businesses and wealthy families made them well-suited to become Main Street's financial mentor, too, brokerage analysts say.
By contrast, the insurance industry has continued to view financial advisors primarily as a sales force for its investment products. To wit, variable annuities, insurers' signature investment vehicle, rely almost entirely on the insurance industry's own advisors and others who take the same sales approach, working for commissions rather than continuing fees.
Although variable annuities have improved in recent years, their gimmicky features and hefty, hard-to-decipher fees have long made them a punching bag for many professional investors--and it's not clear that advisors who had to act solely in their clients' best interest would continue to use them.
Consumer advocates and industry analysts don't necessarily deny stricter standards for financial advisors might hurt insurance industry profits. The problem, they argue, is that most consumers don't understand the difference between financial advisors who dispense advice and insurance brokers who mainly sell products. As a result, few potential customers can tell which recommendations reflect their best possible interest and which are part of a sales pitch.
The government needs to close "a regulatory loophole that has led to substantial investor confusion and abuse," said Knut Rostad, founder of the Committee for the Fiduciary Standard.
Copyright (c) 2010, Dow Jones.
Well we get to see what Zimbabwe Ben is really made of. To see if he has the grit, the tenacity, the iron will to push 30 year yield down to virtually nothing. After all it's not like he could be "caught". If they drag him into congress just lie, if they ask for documents tell them to piss off. There are enough deflation hawks out there he could probably get away with an insane move like that for a while before the dollar ignited completely. Shit I'm sure some people out there will start calling us Japan and rush to jump in and buy thinking we are heading for total deflation when Zimbabwe Ben and the magic printing press are buy almost all the paper.
Hell nearly 0% on the 30 year would help out the housing market to, everyone love nearly free loans. Sure the banks get a little dinged, but they get can mark to myth the books up, and if we really want to get wacky just push the discount window rate into the negatives. Nothing is impossible here in the Twilight Zone.
the fed's control of the long bond is widely thought to be much less than its control of bills.
That's the perception but why? I know if I was Fed Chairman and not accountable and I had to get rates under control I would drive down the long bond to. What's to stop me? We live in a world of imperfect information and since there is no accountability or transparency with the Fed why not run the whole field? You only need to have enough skill to make it possible that it could be other investors going nuts on the long bond, again I would then talk about how we are turning into Japan while I bought up all the debt to buy time for more looting.
He can't go to QE2 without some psuedo legit rationale otherwise the vigilantes will run with it and kill the bond and take every commodity to the moon, crash the risk assets - wash and repeat...
Why even announce it? Is some one going to look at his books? Sure some people might suspect he is keeping it up, but most people are investing with other peoples money anyway. All they need to have is enough protection so they won't get sued. "Hey I thought Zimbabwe Ben was telling the truth, how was I supposed to know?"
Well NAR is certainly lobbying for it.
He could go QE2 tommorrow, but there is a smarter way to do it and still meet objectives.
Subsidizing the banking sector with zero percent short end and and 3.5% long end keeps the Fed and its cabal very happy. There there is a limit to what the Fed can do at the long end, but the vigilants have been keeps at bay... at a cost of about $2 trillion.
Resetting the bar on risk assets in favor of Treasuries should be the next logical step... but Bernanke appears to be blinded by ideology, not pragmatism. The Fed has hinted over the past 6 months that it has about $9 trillion in total balance sheet capacity. So there is room for more QE in an absolute sense. The issue is, the expansion of the Fed's balance sheet will be need to be used wisely.
I think the Fed can get the most mileage out of it's balance sheet by pumping up risk assets via reflaion-- then allow the air to be taken out so that global money flows freely into Treasuries. Unfortnately, gold will still need to be manipulated to keep the Ponzi going.
If Bernanke driving down the road I think he is-- this is intended to be a marathon-- not a sprint. The last thing we need to do is creating another $2 trillion on top of what we just did, because there are clearly diminishing returns. The Treasury will need further stick saves in the new issance market, and Eurotrash weakness will allow some flight to quality trade to help, if risk assets are flushed.
Perhaps, though, Ben is dertermined to print away-- as if heading for that terminal cliff (of sovereign default) at a higher speed will make us feel less pain. It won't... but there's no topping a mad man.
This is exactly what I thought would happen; if Bernanke has run out of bullets, look for the DOW to go south of 7,000:
http://themeanoldinvestor.blogspot.com/2009/12/outlook-for-2010.html
He uses bazooka fired RPGs and has a warehouse full in lower manhattan.
This also segways nicely into the problems in EUtopia.. why not have Ben print a few bazillion and forcefully bail out Greece and Portugal, with the additional benefit of scaring bond vigilantes ?? Oh this is so easy...
Congrats, you have a clue. Risk is dead.
That deals' probably already been struck. They'll implement it after everyone on the "friends and family list" gets the appropriate bets placed. Wait for PIMPCO to weigh in, like maybe tomorrow, or even better, Friday after the close.
See, I'm learning.
well rates can go negative. according to doug noland at prudentbear we need 2T of NEW credit to keep the economy growing. his point about the government finance bubble replacing the private credit bubble, sorta begs the question, can they bail themselves out? And real money, M1 is on the rise, while m2 and m3 are flat. If this is a problem imagine the Fed reciting their savings glut meme. but consumer credit took a strong jump also, are consumers using their credit cards to buy gold bullion?
meanwhile the Fed may have to finally face that run on the bank that never came, and print the cash in notational accounts. i think it would be neat if instead of a run on the banks there was just this long slow walk, until the fed had to monetize all the phony dollars they have printed.
"...are consumers using their credit cards to buy gold bullion?"
This one did.
I opted to decline to pay my credit cards, and used the money I would have put on the payment for PMs and other preparations.
I'll pay up when they offer to let me settle for 3 cents on the dollar or less.
I am in cash on the sidelines. Market makes no sense, valuations are at an all time high and it keeps going. No lo entiendo.
are you really? cause i really am in cash on the sidelines. both sidelines but different banks.
did you change your picture?
i went into cash when they said it was KING. since visiting ZH that doesn't seem to be the majority thinking.
I have a huge cash position, hedging my PMs. Actually, my (larger) cash position is standing guard over my PMs. It exists for that purpose, and for that purpose only. The PMs are absolutely positively what I am going to need on the other side of this. The cash ensures that I keep the PMs until then.
see i just found out what PM means, precious metals.
so now you hedge your PMs with guards.
come on sw just talk plain. i am serious. i want to learn. i have lost, and i am not kidding probably a million dollars in this racket. i still have some major bouquet cash left.
SWR i have always had my money outsourced and managed. until a friend said all they are doing is buying their buddies stocks. financials. so i am orphaned.
I expect the currency to blow up, but I expect first there will be a period, perhaps a protracted period, of deflation. In deflation, cash is king. A deep and persistent deflation will cost many people their jobs, or at least substantially diminish their incomes, forcing them to tap savings to stay alive (food, rent/mortgage, etc). The purpose of my cash position is to prevent my having to liquidate my PM position in order to eat. I believe with certainty that it is the PMs that I will ultimately need, and I need to be able to hang on to them through the deflationary bust. Thus, I say that my cash position is standing guard over my PMs.
This of course is just one man's theory.
... But the theory of one man who has been one of the most measured and reasonable voices on the two ZH sites for about 15 months now.
Velobabe i believe he means he is keeping enuf cash on hand so as not to do what i am having to do. Turning silver back into cash for day to day money. A ten ounce bar of silver in hand feel like a good days pay! I like the solidity of it. Knowing it has value on its own merits, rather than the government check which will bounce sooner or later.
you just made me cry
Cash is king, but gold is God.
Go with God.
Even a market crash will only support the Treasury market for a few months. The problem is structural. Only radical decreases in expenditures and radical increases in revenues can dent the problem. Greece.
Obviously, in a few months, they'll just make another market crash.
What could possibly go wrong?
+1
THE REAL RUSH behind healthcare-see
http://www.globalanalysis.net/news/277_new_collateral_for_revenue_antici...
Just remember folks, the people we're counting on to be able to thread this microneedle with a sledge hammer are...
1) Benron
2) Turbo Timmy
3) President Community Organizer's economic savants, most of whom are at least partly responsible for our being here in the first place.
What could possibly go wrong?
True!
And if the ship is to sink we have life boats enough for the tree of them, so that they can come back and save us later.
No worries§!
driving down USTs to zero basically guarantees a massive run on the banks.
with no yield, people will opt for physical cash.
a bird in hand is worth two in the bush.
Contrary to what seems to be the gist of this post, I have heard from people in a position to know that the average duration of Chinese holdings of UST bonds is now less than two years. And we know the average duration of all UST bonds is pretty short now; something like 50% due in 2-3 years? Relying on short-term financing is sort of Danger-101. I wish I was smart enough to know what the end-game is. The most fightening answer would be nobody cares.
I believe US debt, its composition and structure is a monetray problem.
Debt monetization is both an act but it is also, to an enormous extent an article of faith. "They can always print..."
Rationality imposes on us the "strategic obligation" to buying or hold something because it is the least worst in a bad bunch. I am certain people are working on overcoming this entrapment. We have learned just how innovative finance can be.
Furthermore, monetizing obligations with impunity is intolerable to those without such luxury. Those who feel such frustration are liable to make irrational political decisions. Understand that by controlling the unit of measure of value the US a priori owns all things that can be bought.
We legitimately laugh at Chavez. But we need to watch, because he represents the irrationality that if it spreads cannot be appropriated by dollar hegemony. We might be able to convince him and one or two other like him that they should transact in dollars because it is the least worst currency however, when the realization sinks in that the price paid for this financial rationality is economic subservience, political economy will take on a more marshal meaning.
The edges are fraying
The "end game" other than a temporary surge in demand for debt caused by a market crash, or less debt issuance caused by radical changes in tax and fiscal policy, is another round of Quantitative Easing. If interest rates go up much, doesn't the debt become unserviceable?
More massive QE is not an end game. It is just kicking the can down the road. But yes, higher interest rates will certainly quicken insolvency. I guess WAR is the usual end-game for insolvent military powers. Oh boy...
Couple of thoughts:
The role of China... you don't like our Yuan policy. We don't like Treasuries. Half-wits in Congress, please shut up already.
US Treasury holds how much Citi common? You would think that these and other... assets of such quality... would be unwound before the drain starts.
There's no reason for anyone to keep their money in a bank with no yield. I think Ben thinks the same way. That is why he has said that banks do not need to have a reserve at all. So even if banks dont have the customers money they can have the Fed's money, ie in effect the Taxpayers money- LOL
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