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The Greatest Shell Game Ever Continues As The Whole World Is Now Insolvent; Updated Thoughts From Chris Martenson On The Upcoming US Funding Crisis

Tyler Durden's picture


Submitted by Chris Martenson

The Shell Game Continues…

Monday, April 5, 2010

Executive Summary

  • Record-breaking Treasury auctions continue to go off without a hitch, thanks to massive foreign participation.
  • However, the amounts reported to be bought in the auction results do not match the Custody Account or TIC report amounts.
  • The Fed is allegedly all done buying MBS and Treasury paper.  This cuts off an important source of liquidity for the Treasury, commodity, and stock markets.  
  • How will these markets respond to a liquidity drought?

The end of March is upon us.  I need to take a moment to re-analyze the data to see what might happen now that the stimulus money has worn off, and, more importantly, now that the Federal Reserve's massive Mortgage Backed Security (MBS) purchase program is over.

This is important for a variety of reasons.  The first is that the enormous flood of liquidity that the Federal Reserve injected into the financial system has found its way into the Treasury market, supporting government borrowing and also lowering interest rates for the housing market.  How will the Treasury market respond once the liquidity spigot is turned off? 

The second is that this flood of liquidity has supported all sorts of other asset markets along the way, including the stock and commodity markets.  What will happen to these when the flood stops?  Will the base economy have recovered enough that the financial markets can operate on their own?  Will stocks falter after an amazing run?  Or will the whole thing shudder to a halt for a double-dip recession?

Back in August of 2009, I wrote that the Federal Reserve was basically just directly monetizing US government debt by buying recent Treasury issuances as well as Mortgage Backed Securities (MBS).

Here's the conclusion from that report: 

The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt.  This is not a sign of strength and reveals a pattern of trading temporary relief for future difficulties.

This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency.  The difference is in the complexity of the game being played, not the substance of the actions themselves.

When the full scope of this program is more widely recognized, ever more pressure will fall upon the dollar, as more and more private investors shun the dollar and all dollar-denominated instruments as stores of value and wealth. This will further burden the efforts of the various central banks around the world, as they endeavor to meet the vast borrowing desires of the US government.

My surprise at all of this has been twofold.  The shell game has continued this long without the bond market calling the bluff, and I am baffled by the extent to which the other world central banks have both enabled and participated in this game.

Part of the explanation behind this unwavering support for the dollar and US deficit spending by other central banks lays in the fact that other Western and Eastern governments are equally insolvent.  It's possible that they feel they really have no choice but to play along, because the alternative would be to inflict a vicious and deeply unpopular austerity program on their own country, while everybody else is partying on thin-air money.  Who's going to be the first to do that?  Nobody, that's who. 

The Size of the Problem (or is it Predicament?)

Let's begin by noting the massive growth in the Treasury auctions over the past few years.  Where once we required a few hundred billion per year of new, incremental borrowing to fund the fiscal gaps, we are now borrowing more than a trillion each year.  Where the total size of all auctions (including roll-overs) was a couple of trillion each year, it is now approaching ten trillion.

The way I prefer to track this is at the source.  The media does an especially poor job of communicating accurate government deficit figures.  They simply relate the cash deficit, which is how the government reports it.  However, the true borrowing needs due to the deficit are best, and most easily, tracked by simply noting the increase in the "debt held by the public" portion of the federal debt.  Why the press misses out on this year after year is beyond me.

We know that in 2009, the incremental borrowing needs of the federal government (give or take a few billion, due to timing) must have been equal to the reported growth in the "debt held by the public" portion of the federal debt.

That figure for 2009 was $1,491 billion (or $1.49 trillion):

Recall that the total federal debt consists of the two components in the table above; 'debt held by the public' and 'intragovernmental holdings.'  The former represents the size of all outstanding Treasury debt, and the latter represents money that the government has borrowed from itself but owes to various retirees and entitlement beneficiaries.

When the value of 'intragovernmental holdings' rises, it means that cash was borrowed from the entitlement programs and used to fund government operations.  If it rises, as we see above in 2009, then more money is coming in than going out.  If it is stagnant, then money coming into the programs is being equaled by money leaving.  If, heaven forbid, it falls, that means that the programs are now cash-flow negative to government coffers and more money is being paid out than is being taken in, which is our current situation here in 2010 (see next table below).

At any rate, for our purposes, we need to try and figure out where a record-shattering $1.49 trillion in fresh Treasury issuances went in 2009.  Who bought them?  How much went to foreign buyers, and can we expect them to buy more? 

And so far in 2010, we see that we are on track for another ~$1.5 trillion round of fresh borrowing:


Taken together, this means that in only two short years, 2009 and 2010, as much new Treasury debt will be auctioned off to the public as was outstanding in 1995.  Since government borrowing never gets paid down, at least in modern history, it means that the last two years have seen as much borrowing as happened over the period in which electricity was strung to every house, the highways were built, and our population tripled.  What can we point to that was created over the last two years to rival those accomplishments?  

Even more interestingly, we note something quite extraordinary in that table above:  Through the middle of March, the intragovernmental holdings have not increased, which indicates that expenditures are equal to revenues for the entitlement programs.  This has not happened for decades.  It means that from a cash-flow standpoint, the US government has lost an important source of liquid operating cash.  This is an enormous inflection point in the data series.  Instead of providing cash to government operations, the entitlement programs are now on the verge of draining cash.  The importance of this shift cannot be overstated.

Which brings us to the most important question of them all, which concerns the continued ability of the US and various other world governments to fund their deficits.  It is my contention that too few people are thinking about the possibility that the US government could face a funding crisis at some point, which means that it's a clear and present danger.

US Treasury Auction Results

Let's look at the Treasury auction data since 2009 to see what it can tell us.  To begin with, an auction may do a couple of things.  It may sell brand-new debt to raise new cash, it may "roll over" past debt that is maturing, or both.  So where 2009 saw $1.49 trillion in new debt sold, the total volume of the Treasury auctions was far larger, when we add up all the roll-over activity. 

Here's the data for the total activity 2009 and some of 2010: 

(Note:  This data excludes TIPS and cash management bills, so these numbers are actually smaller than the complete total.)

The table above tells us that while $1.49 trillion in new debt was issued in 2009, more than $8.5 trillion in total activity took place.  That's how much cash had to flow through the Treasury auction market for it to function. 

This illustrates why a failed Treasury auction will be avoided at all costs.  Any interruption to the trillions and trillions of dollars flowing through the Treasury market each year would cause an immediate and enormous train wreck that would ripple through the entire world's financial system (and trigger an avalanche comprised of hundreds of trillions of dollars of interest-rate derivatives).  A failed auction is simply not an option for the Fed or the Treasury Dept.

In 2010, more than $1.5 trillion in total activity had already occurred by March 10th.  Once we mentally add in this year's likely borrowing, we might expect a grand total of some $10 trillion in total activity to take place by the end of the year.  In 2003, the total activity of this market was only some $3.4 trillion.  If you plot out the growth in activity, it looks like an exponential chart. 

With government deficits in the trillions stretching as far as the eye can see, and with an ever-increasing reliance on short-term debt, this trend is set to increase going forward.

Where It All Went

So now we know that nearly $1.5 trillion of new Treasury debt went out the door in 2009, along with another $371 billion in 2010.  But where did it all go?  Who bought it?  Can we count on them to keep buying?

Here the data is not as clean and clear as I would like.  There is quite a bit that is difficult to determine, based on the way that that data is collected and reported.  While it may not be the intent of the data gatherers to hide anything, that is the result.

In terms of the disposition of the $1,491 billion in Treasury bonds bought in 2009, here's what we do know:

  • The Fed bought $300 billion of them, all long-dated securities.
  • According to the TIC report, foreigners bought $617.6 billion.
  • The rest, 'the plug factor,' was assigned to "households" by the Federal Reserve, accounting for more than $530 billion.

There are many who have questioned whether "households" were in any position to park more than 100% of their entire personal savings into Treasury instruments, but even the Fed tells us that this is a plug category, meaning anything not identified as going to itself or foreigners is assigned to this category.  The Fed has no idea how many Treasuries "households" bought in 2009; it only knows how many are not otherwise officially accounted for and that it should assign the difference to "households."

The truth is, we have no idea where that half-trillion in Treasuries went.  My best guess would be that they mainly went to large banks (probably even the primary dealers themselves) to a large degree, especially those that sold MBS to the Fed.  In keeping with the "shell game" concept, the only entities out there with a half-trillion lying around in 2009 probably got it from the Fed.

An asterisk in this story of where those Treasuries went concerns the difference between what the Treasury reports that foreigners bought (in the TIC report) and what the Fed says foreigners accumulated in the Custody Account.  Unfortunately, these two reports overlap to a large degree, but not completely.  This is a critical bit of investigation to perform, because it is so important that foreigners continue to buy US Treasury debt.  In 2009, the Custody Account holdings of Treasuries increased by $572 billion, while the TIC report said foreigners bought $617.6 billion, and we are unable to account for the whopping $45 billion difference between the two numbers. 

The Custody Account

I described the Custody Account in some detail back in August of 2009 in The Shell Game, so I won't rehash how it operates here, except to say that it is basically a gigantic brokerage account held by the Fed on behalf of foreign central banks.

In order to understand foreign buying habits when it comes to Treasuries, we need to peer into both the TIC and the Custody Account.  When we did this last August, here is what we found for the Custody Account:

The story in August of 2009 was one of rapid, uninterrupted growth in the Custody Account, seemingly without any concern or regard for the financial crisis happening then.

Today we find that during 2010, the Custody Account has not grown very robustly:

I am immediately drawn to the fact that the foreign Custody Account has been, well, a little flat lately (as marked at the end by the blue line at the top right).  However, it's also been a little flat at other times, which I have marked with dark horizontal lines, so perhaps this is a relatively normal occurrence.  Overall, perhaps we should be most impressed with the >250% growth over the past seven years(!).

Think of this $3 trillion debt as the portion of US government debt that is owed to a foreign credit-card firm.  Someday that's going to have to be paid back, and, no, it doesn't bode well for the future prosperity of the US.

Here's the Custody Account in table form, which reveals that 2010 is shaping up to be the weakest year in a long time:

I'm sorry, but a 5% growth in the Custody Account just isn't going to cut it for a country with a multi-trillion-dollar borrowing habit.  So far, the Custody Account has only increased by a paltry $26.5 billion in 2010.  That's a real cause for concern, and it makes me wonder about the recent upward volatility in Treasury yields.

Now, the Custody Account consists of both Treasuries and Agency debt.  Teasing this apart into its components, we find that total Treasury accumulation into the Custody Account has been a quite anemic $24.6 billion in 2010, which is more or less the same amount that was accumulated during a single week back in 2008 and 2009. 

Let's compare this $24.6 billion to the $371 billion of new Treasury debt sold in 2010 - it's only 7% of the total.   But we are told, week after week, that foreigners (via the "indirect bid") have bought on the order of 40% of each auction, or nearly $150 billion.  What gives?

Like here in this recent auction, where 39% of a single auction totaling $16.6 billion went to the indirect bidders:

What we are seeing here is a very large (and growing) disconnect, between the proportion of Treasuries that are said to be bought by foreigners in the Treasury auction result announcements, and what's showing up in their official TIC and Custody Accounts. 

I am increasingly concerned that this gap reflects a growing accumulation of Treasury issues by entities funded for this purpose by the Fed's magic thin-air checkbook.  If so, then the danger would be the response of the market and the reaction of various countries when that becomes common knowledge.

For now, it is clear that 40% of US Treasury auctions are not being bought by foreigners, at least if the TIC and Custody Account reports are to be believed.

Perhaps the growth in the Custody Account will resume and my concerns will amount to nothing, but the first quarter of 2010 is shaping up to be somewhat of a gigantic disappointment in that department.  Unfortunately, the TIC report is lagged by a couple of months, so we won't have the March numbers for comparison until the middle of June.  My guess is that the TIC report will also show weakness in the foreign accumulation of Treasury debt, but we'll also be taking a look then, just to be sure.

The concern here is that the Custody Account is reflecting early signs of waning foreign interest in US debt.  If (or when) we finally reach the point of saturation in this story, everything will change rather dramatically.

From Zero Hedge, we have this nice summary of the debt auctions coming up for next week:

The Treasury just announced the auction schedule for next week: a total of $165 Billion in gross issuance of which $74 Billion in coupons, and $8 billion in a 10 Year TIPS reopening. 

  • $28 billion in 3 Month Bills, Auction date April 5
  • $29 billion in 6 Month Bills, Auction date April 5
  • $26 billion in 52 Week Bills, Auction date April 6
  • $40 billion in 3 Year Bonds, Auction date April 6
  • $21 billion in 9 Year 10 Month (reopening), Auction date April 7
  • $13 billion in 29 Year 10 Month (reopening), Auction date April 8
  • $8 billion in 9 Year 9 Month TIPS (Reopening), Auction date April 5

The fact of the matter is, the US government is now conducting weekly Treasury auctions that are as large as quarterly auctions were just a few years ago.  Exponential increase, anyone?  $165 billion in a single week is an enormous pile to unload.

What I Am Always Looking Out For

Long-time readers know that I am constantly on the lookout for a specific pair of market signals above all others, because its arrival will signal that a new game has begun.  That pair comprises a simultaneously falling US dollar index and rising Treasury interest rates (signaling falling Treasury bond prices).

In essence, this pair will signal to me that some major player, perhaps China, has decided to sell its Treasuries and take its money home, thereby driving down the dollar.  This is critical to me, because it will mean that the US will have begun its long date with funding difficulties.  Either interest rates will have to rise dramatically to attract new lenders (thereby killing the nascent recovery of the housing market and our entire credit-fueled economy), or the Fed will have to begin monetizing at an even faster rate than before.

In short, we'll be facing a period of profound austerity, raging inflation brought about by currency devaluation, or both.  In truth, I cannot imagine any possible way for the US to pay off its current official debts in current dollars, so I feel this outcome is merely a matter of time. However, it could be a long time, and we must also be prepared for that.

In the past week, there was a bit of excitement over in the Treasury market because there were two days of hard selling in a row.  This led to Treasury yields spiking and possibly breaking out over a two-year trend line:

The Treasury market immediately settled down right after these two days of selling, but something significant had clearly happened.  During this period, the dollar also rose quite handily, so my "signal pair" was not in play and I did not issue an alert, nor did I become overly concerned.  However, I did sit up and take notice and am following bond market signals with just a bit more focus these days.

A rapid rise in long-term interest rates here would be just about the last thing the Fed would want, as that would put pressure on stocks and commodities, and harm the housing recovery, such as it is.  So I doubt that the rate rise was planned or welcomed.

I am keeping a very close eye on the Treasury market right now and will alert you if anything breaks suddenly or crosses the threshold to actionable news.

One Possible Scenario

Although I am not convinced that I have access to good data, it would seem that China is in a serious bubble.  Or, rather, a series of bubbles, including real estate in several metropolitan locations and manufacturing overcapacity.  Several recent commentators have been adding up the facts as we know them, and it seems plausible to suspect that China is deep into bubble territory.

China also happens to hold $890 billion of US Treasuries (as of January 2010), as well as some amount of MBS stashed in the Fed's Custody Account (I don't have access to the necessary detail to say how much), so we'd be close if we estimated that China held $1 trillion of official US debt.

One scenario that I think has a chance of upsetting things would be for China to experience a bubble-bursting crisis, the mitigation of which would necessitate a need for liquid cash.  By this, I mean an event (or set of events) that would essentially force China to begin unloading their Treasury holdings. 

Under this scenario, we'd see immediate selling pressure in the Treasury market, leading to lower prices and higher yields.  I think this event would be sufficient to rip the cover off the Treasury market and expose the extent to which the market has been supported by central banks more than legitimate market players and expectations.

So another thing I am keeping an eye out for is any sign that China is experiencing a bubble-bursting event.  Here I track the Chinese stock market, the Baltic Dry Index (as a crude measure of export activity), and the news.


With a stagnant Custody Account reading and underwhelming TIC reports, it seems unlikely that that foreigners are going to be able to digest the volume of Treasury auctions that are coming up this year.  We've already seen a nice breakout on yields.  With everything I know about Fed policy at this point, I can assure you that a sudden jump in rates on the long end was not in the Fed's plans for last week.

My concern is that the mysterious indirect and direct buyers that have been showing up at Treasury auctions lately may be none other than the Fed itself or its proxies, hidden by some slight shell game or another.

There simply seems to be no other explanation, given the perilous state of the global economy.  Where is all this capital coming from, if not central banks?  From earnings?  From exports?  From legitimate economic savings?  From private individuals (during a major stock bull run)?  None of these explanations matches the volume of borrowing that we are seeing in the US Treasury market, let alone worldwide. 

The simplest explanation is that central banks are somehow providing the necessary liquidity to support the various governmental bond auctions that are happening around the world.  The US story does not add up and provides enough of a smoking gun to suggest that there are (at the very least) non-transparent buyers for the massive, record-breaking Treasury issuances we've been seeing lately.

If, or when, these deceptions are revealed, I predict that we will experience a pretty significant market dislocation that will take the form of a chaotic bond market, with yields that rapidly gyrate higher, currency perturbations that will shake markets, and an extended banking holiday, with capital controls imposed until a nightmarish derivative mess is unsorted.

Of course, these are just my hunches at this point.  Something is very much 'not right' in this story, but over the years I have learned that strange market conditions can last longer than you think possible and that things always seem to unfold more slowly than you might initially suspect.

So I am prepared for two possible scenarios:  1) a sudden change in the markets, and the alternative, 2) no change at all for ten years or more.  The first requires active financial and physical planning, while the second requires developing the right sort of mental patience.  It is a tricky psychological balancing act, to be ready for anything and nothing at the same time.  I imagine that being on patrol in Baghdad during hostilities was sort of like this, where nothing happened for 99% of the time, but then IEDs made the other 1% of the time very, very interesting.

What will happen next?  Nobody knows.  My advice remains the same as always:  Stay tuned to the world's markets and happenings for clues about what's unfolding, but make the necessary preparations to increase your resilience to whatever might happen next. 

The current market environment , where everyone is seemingly convinced that a recovery is now all but assured, is both encouraging and concerning.  Encouraging because that's most likely true.  Concerning because sharp breaks almost always happen during periods of complacency, when everybody seems to be looking the other way.  In short, when everyone is complacent, I get concerned, and when people get concerned, I try to remain calm. 

For now, there's a level of complacency about Treasury auctions that I find very disturbing.  There's really no way to make the story add up properly - I mean, how could it, with $1.5 trillion in new borrowing for two years in a row during economic weakness? - yet almost nobody seems to be concerned about the implications of that line of thinking. 

That is exactly the territory where great fortunes are made and lost.  At the very least, my wish is for you to preserve what you have and to be able to maintain an even keel and positive outlook, no matter what the future brings. 

For myself, this means putting in 25 fruit and nut trees on my property (accomplished this past weekend), followed by expanding the garden and installing solar and energy efficiency improvements.  We shall see if these turn out to be good uses for my capital and time.  For now, they provide me with the psychological sense of forward movement and improvement, both of which are very important to me right now and worth every penny to me all on their own.

Your faithful information scout,
Chris Martenson


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Thu, 04/08/2010 - 12:18 | 291631 Cookie
Cookie's picture


Thu, 04/08/2010 - 13:59 | 291779 filletandrelease
filletandrelease's picture

Too long.  Didn't read.

Thu, 04/08/2010 - 14:37 | 291808 Cognitive Dissonance
Cognitive Dissonance's picture

Sir or Madam,

Let's say I were to tell you that you have a very serious disease but it is treatable and the prognosis is reasonable. But only if you were to take this 30 page memo of instructions to read and carefully follow. Would you read and follow it?

9.9 out of 10 people would immediately say "yes" they will. Of those 9.9, how many do you think would actually read it cover to cover until they understood it? 6 or 7? And of those who read it, how many do you think would actually throughly follow the instructions? 2 or 3?

We have just determined the number of people who value their lives to a high degree. The real question is, would you read and follow the memo. You just answered my question.

Considering Chris Martenson is one of the easiest and most comprehensible reads on this planet, I can't fault Chris for the ignorance nor the ongoing Ponzi. But I can and will blame you. Because the only reason the Ponzi continues is because people remain willfully ignorant and by extension powerless.


Thu, 04/08/2010 - 14:39 | 291844 Cursive
Cursive's picture

Here, here.  But if we still must try to communicate to the lazy, this quote pretty much sums it up:

Taken together, this means that in only two short years, 2009 and 2010, as much new Treasury debt will be auctioned off to the public as was outstanding in 1995.  Since government borrowing never gets paid down, at least in modern history, it means that the last two years have seen as much borrowing as happened over the period in which electricity was strung to every house, the highways were built, and our population tripled.  What can we point to that was created over the last two years to rival those accomplishments?  

Thu, 04/08/2010 - 15:31 | 291955 Absinthe Minded
Absinthe Minded's picture

"What can we point to that was created over the last two years to rival those accomplishments?"

A big screen in every living room and Facebook, what more could you as for? /sarcasm off



Thu, 04/08/2010 - 20:21 | 292370 Crime of the Century
Crime of the Century's picture

JP Morgan's Interest Rate Swap Book?

Thu, 04/08/2010 - 15:01 | 291886 filletandrelease
filletandrelease's picture

you guilted me into reading it.  very good piece. 

Thu, 04/08/2010 - 18:09 | 292190 FrankIvy
FrankIvy's picture

I think you're bluffing.

Thu, 04/08/2010 - 21:26 | 292442 spinone
spinone's picture

Chris Martenson is the guy I respect most - he has a great thing called the 'Crash Course' on his website  Its in video format so I think you can handle it - har har.

Fri, 04/09/2010 - 00:23 | 292626 RockyRacoon
RockyRacoon's picture

That's a good thing.  Rest assured, there will be a pop quiz!

The fuse is burning. 

If, or when, these deceptions are revealed, I predict that we will experience a pretty significant market dislocation that will take the form of a chaotic bond market, with yields that rapidly gyrate higher, currency perturbations that will shake markets, and an extended banking holiday, with capital controls imposed until a nightmarish derivative mess is unsorted.

If anyone doubted the wisdom of a few precious metals purchases, now is the time to reconsider.

Fri, 04/09/2010 - 14:16 | 293553 WaterWings
WaterWings's picture

PMs are inexplicably cheap and available! Why tell everyone you know to buy them? Why waste your breath and increase the price! The problem with "I told you so!" is that no one is ever grateful - in fact, they will feel justified in hating you. And they will know where to come to get them by force if necessary.

Greedy? Selfish? Dumb bastards don't want to hear the damn truth. Fuck 'em.

Thu, 04/08/2010 - 15:07 | 291902 Eally Ucked
Eally Ucked's picture

You have to understand that 9 of 10 people reading it and having any opinion about it are dependend on income coming from financial wizardry. You can't expect them to change anything because their livelihood depends on it! Just play it as long as you can.

Our lives depend now on that shit, we cannot work anymore, that's the TRUTH!

We can not expect people living of the system to undermine it, they know it's just smokes and mirrors game but if it ends what's left?

Thu, 04/08/2010 - 15:28 | 291950 Cognitive Dissonance
Cognitive Dissonance's picture

Sorry but I don't buy into the idea that my life or life style is dependent upon the continuation of the Ponzi. This assumes things are going well now and that I'm living well under the present conditions. It's a faulty premise to assume. 

Besides, I'm simply asking for the wholesale thieving, corruption and extortion to end. The system can be changed over time. The Ponzi ends now.

Thu, 04/08/2010 - 18:00 | 292178 DaveyJones
DaveyJones's picture

That's pretty selfish of you, asking to end wholesale thieving, corruption and extortion. Next you'll be demanding the rule of law.   

Thu, 04/08/2010 - 18:43 | 292231 Cognitive Dissonance
Cognitive Dissonance's picture


I know. Shame on me. My bad. :>(

For my penance, I shall disable my mouse for two hours and clean my keyboard.

Thu, 04/08/2010 - 21:40 | 292456 velobabe
velobabe's picture

that is what i have been advising as well. walk away from your keyboard, CD†

get some of that finger grease off those keys, it will thank you in the end.

psst, fight club on robo's page.

Thu, 04/08/2010 - 21:43 | 292460 Howard_Beale
Howard_Beale's picture

Two hours? CD. There is a new keyboard blob goo ($3) that you push into the keyboad and it gets out the junk. But first start with the can of air and swoosh the junk onto something else that collects dust well (TV's are good for that). Then blob goo in, blob goo out--5 minutes tops. 

Fri, 04/09/2010 - 00:30 | 292631 RockyRacoon
RockyRacoon's picture

Hang on there, CD.  Just toss it in the dishwasher:

Or, you could just start your spring garden with it:

Thu, 04/08/2010 - 17:57 | 292172 Close 2 the Edge
Close 2 the Edge's picture

When I was younger and just out of college a colleague went around and made a bet with several of us concerning how many of our coworkers had read an actual literary work in the past year.  Understand everyone who worked there had, at a minimum, a bachelor’s degree.  Only about 5% of what we term the “educated” had bothered to read a book...


I doubt it has gotten much better.

Thu, 04/08/2010 - 17:57 | 292173 stardust669
stardust669's picture

Three cheers CD! Its like selling your car for gas money if you look for answers and fall away on a good word.

Thu, 04/08/2010 - 21:27 | 292441 Howard_Beale
Howard_Beale's picture


I read the whole thing when Chris put it up the other day. And he is the easiest and most comprehensive writer of monetization of the debt, Treasury issues, amongst of host of other subjects he tackles will brilliance and just the facts.

Your reply was calm and succinct as to what is wrong with the morons who can't be bored to read very important information. Furthermore, we seem to be getting a plethora of idiots around here lately and rather than letting them get by with comments as ignorant as too long to read (as Miles has advised me to do for my health and sanity--and I respect Miles beyond measure) I am thrilled you are doing the job of referee, judge, jury, et. al. Keep it up CD.

I appreciate your taking the load off of my hot headed responses because you actually have the ability to make a point brilliantly without directly calling the asshole a fucking lazy ass, shit for brains, waste of space on the planet.

Thu, 04/08/2010 - 21:56 | 292474 Cognitive Dissonance
Cognitive Dissonance's picture


You were doing great until the 3rd paragraph. :>) I suggest you keep you're responses down to 2 paragraphs from now on.

Regarding the "others" I try to not shout too much because the point can usually be made much better with some dry insults. But I agree, the inmates are taking over the asylum. The reason is simple. Tyler stopped letting anons post, so now the anons are registering and are back. If you click on the ID of some of these, you will find they have been around 3 weeks or less.

Another thing I've noticed over the past month are a lot of IDs and avatars that have suddenly reappeared after being away for many weeks/months. You click on the ID and then click on track and you'll see some of them registered 25-30-35 weeks ago and had very little activity until the past month or less. Now they are back with a vengeance and many of them are unpleasant.

Something is going on here Howard and I suspect it ain't good.

Thu, 04/08/2010 - 22:27 | 292512 velobabe
velobabe's picture

what are you suggesting?

bob dylan: something is happening here and we don't know what it is, do you mr. jones?

Thu, 04/08/2010 - 22:51 | 292544 Mr Creosote
Mr Creosote's picture

Are you thinking of Buffalo Springfield?

Thu, 04/08/2010 - 22:56 | 292547 velobabe
velobabe's picture

no bob

i remember you mr creosote

Fri, 04/09/2010 - 01:20 | 292683 jeff montanye
jeff montanye's picture

"ballad of a thin man" not "for what it's worth"  (both tricky: titles not in the lyrics)

Thu, 04/08/2010 - 23:25 | 292582 Isleman75
Isleman75's picture

One of the greatest Dylan songs of all time...

Thu, 04/08/2010 - 22:31 | 292522 neophyte
neophyte's picture



I have lurked here for about a year now and have followed a few regulars very closely. I do not nearly have the knowledge and insight of the issues as most have. I have wanted to chime in often. Alas, if only I had your penmanship! KITGW. I enjoy your posts.

Fri, 04/09/2010 - 00:34 | 292637 RockyRacoon
RockyRacoon's picture

Technically speaking, CD, that was 4 paragraphs.

Just joshin' -- type away (after you get that keyboard cleaned).


Thu, 04/08/2010 - 22:36 | 292526 merehuman
merehuman's picture

long read was worthwhile to me even tho i barely understand the fine points.

Thank you for the presentation. Well done.

Thu, 04/08/2010 - 14:55 | 291871 VegasBD
VegasBD's picture

You should. Martenson is the guy that did the crash course presentation.

If you havent gone thru that, catch up.

Stop only reading headlines.

Thu, 04/08/2010 - 17:39 | 292151 boiow
boiow's picture

if you have watched the crash course anything chris writes is compulsory reading. imho.

in $1000 bills stacked, how high is 1 trillion dollars.?  (answer below).

Thu, 04/08/2010 - 17:41 | 292155 boiow
boiow's picture

answer.  67.9 miles high. i will remember that forever.

Thu, 04/08/2010 - 15:02 | 291889 Rick64
Rick64's picture

Why did you even bother posting a comment? A dissenting view we can tolerate and even appreciate, but your comment = nothing but an indictment of your intelligence. If you want entertainment go watch t.v.. You are the epitomy of what is wrong with a large segment of our society. I know the kool-aid tastes good but its not healthy.

Thu, 04/08/2010 - 15:03 | 291891 The Merchant of...
The Merchant of Venice's picture


Thu, 04/08/2010 - 15:33 | 291959 boricuadigm-shift
boricuadigm-shift's picture

It is worth every second and minute of it.  This guy is spot on.  Very objective and removed from any sensationalism.  His line of thought is impecable when it has to do with the the US bond market.  He is accurately sounding the alarm that there is something fishy with the indirect bidders.  If there is a brokerage account (Custody Acct.) for foreign central banks to hold treasuries, why in hell now, the indirect bidders are labeled as foreigners.  Based on the FED, 40% of the auctions have been sold to indirect bidders which supposedly are foreigners.  It doesn't add up.

"I described the Custody Account in some detail back in August of 2009 in The Shell Game, so I won't rehash how it operates here, except to say that it is basically a gigantic brokerage account held by the Fed on behalf of foreign central banks."

Thu, 04/08/2010 - 15:52 | 291995 Cognitive Dissonance
Cognitive Dissonance's picture

And of course, Chris's worry of horrendous problems around the corner still assumes the published numbers are correctly represented and/or reported, numbers produced by a government and Fed well known for statistical manipulation, fudging and out right fabrication. 

As far as I'm concerned, there remains no credibility in this (or any) department. The only reason others believe the numbers is because desperate men do desperate things and desperate men love other desperate men for company. Once everyone is in the sinking boat and far enough away from shore to preclude rescue, all differences of opinion evaporate away when you either bail together or drown together. Or both. Misery loves company and thieves bail together.

Thu, 04/08/2010 - 12:20 | 291635 chumbawamba
chumbawamba's picture


Thu, 04/08/2010 - 12:46 | 291688 DoChenRollingBearing
DoChenRollingBearing's picture

A couple of days after I buy gold, I always seem to get hungry and want to buy more.


Thu, 04/08/2010 - 13:41 | 291757 Hulk
Hulk's picture

Gold deficiency....

Thu, 04/08/2010 - 19:24 | 292295 THE DORK OF CORK
THE DORK OF CORK's picture

Bought  a digital callipers today and started to measure the dimensions of my coin collection - noticed how shit looking Krugerrands were when compared to philharmonics or maples.

Everything is to spec unless Larry implemented a gold coin to tungsten scheme , my Pamp suisse 10oz seemed fine.

First and only time I have seen all my gold bitches together - I almost got a hard on.

Thu, 04/08/2010 - 19:39 | 292330 ZerOhead
ZerOhead's picture


Thu, 04/08/2010 - 20:21 | 292369 wake the roach
wake the roach's picture


Fri, 04/09/2010 - 00:53 | 292660 Goldfinger
Goldfinger's picture

You called?

Thu, 04/08/2010 - 21:31 | 292448 spinone
spinone's picture

I love my silver maples.  Silver gets me crazy, gold not so much.

Thu, 04/08/2010 - 17:19 | 292132 ExistentialSkeptic
ExistentialSkeptic's picture

Sometimes taking gold out and looking at it, or holding it helps the addiction. Very relaxing. 

But I start feeling guilty about every electronic $FRN I "own" that isn't in physical already -- not out of greed for forgone future profit, but for what can be "saved" by turning fiat debt into real wealth.  Like the end of Schindler's List -- "I could have saved one more!"

Fri, 04/09/2010 - 00:39 | 292646 RockyRacoon
RockyRacoon's picture

Oh, you mean like ole Scrooge McDuck.  Like this:

Fri, 04/09/2010 - 01:33 | 292690 jeff montanye
jeff montanye's picture

i remember as a boy always wondering why scrooge had so much gold and so few bills, the latter of which were "real money" to me (1950's).  now we know.

Thu, 04/08/2010 - 14:10 | 291800 free_as_in_beer
free_as_in_beer's picture

who are you?

Thu, 04/08/2010 - 14:47 | 291857 dumpster
dumpster's picture

ditto who are you lol , mr beer can

feeling frisky.. a wonderful addition to the discourse .

who is any body. 

who what where and why ...




Thu, 04/08/2010 - 12:25 | 291643 MAGICWIZARD


Thu, 04/08/2010 - 12:45 | 291680 DoChenRollingBearing
DoChenRollingBearing's picture

TBT may best be bought when O/P's signal (higher rates, lower US$).

I have been holding TBT (I am not good at short term trading) for awhile now.

Thu, 04/08/2010 - 12:28 | 291649 economicmorphine
economicmorphine's picture

"My concern is that the mysterious indirect and direct buyers that have been showing up at Treasury auctions lately may be none other than the Fed itself or its proxies, hidden by some slight shell game or another."


Thu, 04/08/2010 - 14:10 | 291797 Assetman
Assetman's picture


When this last round of 10 year auctions went so well, I kept asking myself "who in the world is buying this stuff in the face of higher yields"?

The answer is that we don't really know.  But we do know that the AGGRGATE holdings of our 2 largest creditors (China and Japan) are around $800 billion each.  Yet, we raised $1.4 trillion this year-- and will likely do over $1 trillion in 2010?

It simply seems that the capacity of foreign buying cannot be there to meet the increased needs of new Treasury issuance.  But then we get a "great" bond auction.  If the Fed is (again) playing another shell game with Treasuries, one would suspect that the Fed's balance sheet would see futher evidence of expansion.

Or perhaps the Fed has created another "off balance sheet" entity, but hasn't got around to informing the general public.

Perhaps its too early to jump to conclusions here, as the crisis in Europe may be having an affect on capital flight.  It sure seems very suspicious to me, though.

Fri, 04/09/2010 - 00:41 | 292639 Tethys
Tethys's picture

One might suspect that the Fed's balance sheet would see further evidence of expansion - unless one considered that the Fed's balance sheet data is published, well, by the Fed, and the Fed cannot be audited.

And regarding the crisis in Europe - suspicion does indeed come to mind.  Particularly if you agree with Mr. Martenson:

Long-time readers know that I am constantly on the lookout for a specific pair of market signals above all others, because its arrival will signal that a new game has begun.  That pair comprises a simultaneously falling US dollar index and rising Treasury interest rates (signaling falling Treasury bond prices).


and believe that maybe the Fed does too - enough perhaps to 'work a little magic' (with the help of GS, Fitch, & friends) to crap all over the Euro and drive up the USD index.  Looks like Greece drew the short straw.  Maybe because GS doesn't like their taste for calamari.  If that is not enough, there are plenty of PIIGS to slaughter. Treasury interest rates must go up eventually, but it will not happen with a declining dollar. And quite a nice side benefit: look at all the new European customers looking to 'flee to safety'. Never waste a good crisis.

Besides, there will be plenty of time later to return to God's work: dropping the $ like a bad transmission after everyone is aboard.



Thu, 04/08/2010 - 15:15 | 291926 The Merchant of...
The Merchant of Venice's picture


Fed buys it.  Fed then swaps currency with other central banks.  Then magic(RON PAUL SMASH!).  Then the dollars to counter party central banks push them out based on demand.  Then the dollars flow around the world.  Then they come back to the United States.  Then Great Recession turns into Great Depression 2.

Thu, 04/08/2010 - 12:28 | 291650 Magua
Magua's picture

Awesome read. Please ring the bell for the rest of us when the band stops playing.

Thu, 04/08/2010 - 14:10 | 291798 Hansel
Hansel's picture

Nice avatar.  Maybe my favorite movie of all time.

Thu, 04/08/2010 - 13:29 | 291653 hedgeless_horseman
hedgeless_horseman's picture

Remember in June the $134 billion in U.S. Treasuries found by the Italian border police in the briefcase of two vanishing Japanese?  And later they either got really lucky, or this is a common occurrence, and caught another pair that I believe also "escaped" from the Italians:

I keep trying to tie those events in with my thoughts, which are similar to Chris' outlined here from his article:

The simplest explanation is that central banks are somehow providing the necessary liquidity to support the various governmental bond auctions that are happening around the world.  The US story does not add up and provides enough of a smoking gun to suggest that there are (at the very least) non-transparent buyers for the massive, record-breaking Treasury issuances we've been seeing lately.

Can anyone put the pieces together so that these "counterfeit" treasury stories fit with the Central Banker shenanigans?  My hunch is that there is a connection, but my tinfoil hat is at the cleaners.

Thu, 04/08/2010 - 14:13 | 291805 i.knoknot
i.knoknot's picture

that story fell off the map just about as quickly as the canadian mint gold "lost in the slag"... and the dubai insolvency.

oh yeah, and after centuries of barbaric practices, america has real healthcare now. happened recently. all a blur.


nothing to see here. just moving along with my bread - from circus to circus

Thu, 04/08/2010 - 15:09 | 291910 Ragnarok
Ragnarok's picture

Ya, but there have already been 600,000 ipad apps downloaded.  So there.

Fri, 04/09/2010 - 00:45 | 292650 RockyRacoon
RockyRacoon's picture

The bread is food stamps and the circus is American Idol.

Same shit, different century.

Thu, 04/08/2010 - 15:49 | 291993 Zé Cacetudo
Zé Cacetudo's picture

Once is happenstance.

Twice is coincidence.

Three times is enemy action.

Thu, 04/08/2010 - 18:26 | 292205 Mesquite
Mesquite's picture

Time to read 'Animal Farm' again..

Funny how the 'Facts' change after a few months..

Course the original link was taken down, natch..


Thu, 04/08/2010 - 18:47 | 292238 FEDbuster
FEDbuster's picture

and "1984".

Thu, 04/08/2010 - 18:48 | 292241 DosZap
DosZap's picture

The Italian Bearer Bonds were (proven Fakes), dated 1934, or close, and had a picture of the Space shuttle Endeavor on them..LOL


Thu, 04/08/2010 - 18:51 | 292245 Cui Bono
Cui Bono's picture

I don't have an explaination of either the 134 or 100 billion-  my av. is one of the tbills... there are pictures of the first group of guys passports online if you want them.  There were two extra guys involved that were detained at some point that only made one or two ripples even on the web.   To me the bottom line is there is no point to faking 500 million and 1 billion bills anymore than a $7 bill would fly.  Scary.  Though CM's piece gives me shivers- its gonna be bad! CB


edit- no they were not proven to be fake- they date long after 1934 and there is a HK or Taipei report of BB siging off on a 1 billion one in ~2006.   I grabbed pictures of all of them if you want to try and decide for yourself....

Thu, 04/08/2010 - 21:58 | 292469 hedgeless_horseman
hedgeless_horseman's picture

"Detained."  Nice.  One-quarter-of-a-trillion dollars in T-Bills gets you detained for a few hours.  One-quarter of an ounce of crack gets you detained for a few decades. 

The European fine for smuggling undeclared securities is a percentage of the value.  I wonder if Italy and Switzerland collected the percentage, or just seized the entire amount.................Done wondering.

Fri, 04/09/2010 - 01:44 | 292701 jeff montanye
jeff montanye's picture

i also like "who disappeared".  little story there i imagine.

Thu, 04/08/2010 - 12:32 | 291657 DaveyJones
DaveyJones's picture

I first found this site through Martenson. He does good honest work.  

Fri, 04/09/2010 - 00:46 | 292652 Tethys
Tethys's picture

Agreed - his site started me on my econ-awakening.  A process still very much in progress, and helped greatly by ZH.  Nice to see his work highlighted here again.


Thu, 04/08/2010 - 12:34 | 291659 SilverIsKing
SilverIsKing's picture

Can we establish a particular day in the next month as Silver Short Squeeze Day?

With JPM short Silver to such a large extent, perhaps we can all agree that on a particular date, we all buy a bunch of silver to force them to cover.

Maybe it's called the Silver Buying Blitz.

Just a thought.

Thu, 04/08/2010 - 15:35 | 291962 Kitler
Kitler's picture

Every day should be a silver short squeeze day. Just keep buying!

Physical that is!

Thu, 04/08/2010 - 23:04 | 292558 merehuman
merehuman's picture

I bought 10 more oz. gave away 2 on the way home. Better if we all have some. I try to give one coin per day to surprise a perfect stranger.

one meal per day and a dry place to sleep is all most of us truly NEED. I still eat more than once and have a warm and friendly home with no worries at all.

Many dont have it this good.I dont know how to make it better except to share what i have.

I wish more folks would assume the attitude of creating a strong community.

What good is it to be one rich guy in a sea of poverty? No i am not rich in money and such, but have more silver than i need.

I guess the hobo life is not for everyone. Just yet!

For a little while the gold and silver had me. I got rid of the gold, traded for silver and now am getting rid of some silver. I like being close to broke, on the edge of survival with the bare minimum. Its been good for the spiritual learning curve. And That is what life is REALLY about.

Thu, 04/08/2010 - 15:45 | 291984 Absinthe Minded
Absinthe Minded's picture

Just bought a bunch at 15.97, I know technically it's still cheap but I'm sure once the King World flap dies down JPM will beat the price back down. That's when we do the buy.

Thu, 04/08/2010 - 17:37 | 292147 velobabe
velobabe's picture

now i see my first buying of precious metals i get screwed. i get screwed every time i turn around. 500 quan. 1 oz. silver eagle $21.93 + had to pay $373.90 city tax. these come in a tray?

Thu, 04/08/2010 - 17:50 | 292165 boiow
boiow's picture

ask yourself the same question in a few months you might not feel so bad.  in the uk we have to pay 17.5%

VAT on all physical silver delivered. so a lot of people get theirs from the channel islands by post. but noone heard that from me.

Thu, 04/08/2010 - 19:46 | 292340 Brindle702
Thu, 04/08/2010 - 20:26 | 292373 Hulk
Hulk's picture

No tax velobabe, if you purchase over $1000

not sure about your city tax though

Can you provide more detail???

Thu, 04/08/2010 - 21:42 | 292459 Absinthe Minded
Absinthe Minded's picture

Great state of NH, no sales tax, no income tax. Shhhhh don't tell the Gubmint, they'll find some way to pork us. I'm hoping we'll get another dip, I've got a bonus coming and it's burning a hole in my pocket. As Chumba would say "GOLD BITCHES" and silver too. I don't know if we will see it dip again, as Mom would say, " the world's going to Hell in a hand bag!"

Thu, 04/08/2010 - 21:43 | 292461 velobabe
velobabe's picture

purchased $20,000. worth of gold/silver

$1000.00 city tax. i live in the city, got to pay the man.


Fri, 04/09/2010 - 00:52 | 292659 RockyRacoon
RockyRacoon's picture

You bought from a retail outlet.  Buy from individuals.  I just bought $2K in junk silver from a nice old retired couple.  Nice deal, great people.  And I got 2 new friends from the deal who will refer their friends in the quite large retirement community where they live.  Life's good.

Fri, 04/09/2010 - 13:21 | 293466 velobabe
velobabe's picture

thanks for the suggestion. now that i know a little might start exploring. but the dealer did give me some advice to keep them in their original plastic cover therefore stay more valuable. is this valid. ok deep into this thread maybe pick it up later when i see you again rocky.

Fri, 04/09/2010 - 02:07 | 292714 Burnbright
Burnbright's picture

Would you have to pay city tax if you bought from apmex or gainsville? Cause I live in california and get it delivered with no taxes.

Although when my sister bought from a bullion dealer in Santa Rosa she had to pay sales tax which was a WTF moment for me. ITS FREAKING MONEY. How can you tax trading legal tender!?

Thu, 04/08/2010 - 18:54 | 292254 DosZap
DosZap's picture

Until they are FORCED to have dollar for dollar to cover all the buy in's, in PHYSICAL storage, they should not be allowed to even BE in the business.

ETF's are a scam, and no different than JPM(most of them).

IF your not prepared to HOLD IT, then you should not be able to SCREW Up the real market pricing.

Pisses me off on all NON custodial sellers........if I can't get physical delivery ON DEMAND, then you have no business PLAYING it.

Spott has the right deal.................and it's in Canada.

Thu, 04/08/2010 - 23:07 | 292561 merehuman
merehuman's picture

I paid for 18.06 spot +1.50 at the local shop.

Where are you getting it so cheap?LOL

Somebody didnt update or what?

Fri, 04/09/2010 - 00:55 | 292661 RockyRacoon
RockyRacoon's picture

If she bought Eagles she paid the right mark up.  The mint just had a banner month last reported.  Silver Eagles are flying off the shelf!

Thu, 04/08/2010 - 23:07 | 292562 merehuman
merehuman's picture

I paid for 18.06 spot +1.50 at the local shop.

Where are you getting it so cheap?LOL

Somebody didnt update or what?

Thu, 04/08/2010 - 12:42 | 291660 Leo Kolivakis
Leo Kolivakis's picture

Anyone here read the latest OECD release:

Recent high-frequency indicators point to a continued recovery of the world economy, albeit at variable speeds across countries and regions.

All is good, Canada will lead the G7 economies in 2010. (yeah right!)

Thu, 04/08/2010 - 13:27 | 291732 BobPaulson
BobPaulson's picture

Canada can do fine as a commodity economy until the buyers go belly up. Right now the export market is so HUGELY weighted to US sales, I can't see how Canada can survive a US finance crisis. I live right in the middle of this all-is-well thinking Western Canada and without US demand, it gets ugly very very fast.

Thu, 04/08/2010 - 14:48 | 291860 ThreeTrees
ThreeTrees's picture

Same here.  The economy hardly missed a beat here (Alberta).  Maybe....uh, China will start buying more of our oil if the US tanks again?

Thu, 04/08/2010 - 15:14 | 291924 Ragnarok
Ragnarok's picture

All my friends back in Calgary still spend money like it's 2007, I keep telling them to pay off debt and get lean because when the US double dips its all over. 


Correct me if I'm wrong, but is Alberta the only "have" province left, or are BC and Ontario back on board?

Thu, 04/08/2010 - 18:56 | 292257 DosZap
DosZap's picture

Canada has it's own cross to bear............

Their just a TAD behind us.

The Real Estate bubble is about to play hell with our Northern Friends.

Thu, 04/08/2010 - 12:36 | 291662 cognitis
cognitis's picture

As Fed's terminating QE should deflate US economy, why would anyone want gold?

Thu, 04/08/2010 - 12:43 | 291673 lookma
lookma's picture

I dunno, maybe because they are intelligent enough to recognize your puerile strawman.

One reason for owning gold is because it provides a safe haven in the face of a currency crisis.  I wonder if increasing treasury yields and widespread deflationary forces are a good thing for the currency of the largest debtor nation in the world?

Thu, 04/08/2010 - 13:30 | 291738 cognitis
cognitis's picture


Consult a childrens' dictionary for "deflation": deflation or decrease in US money supply necessarily increases the value of the dollar in goods including gold. disce priusquam dicere

Thu, 04/08/2010 - 14:01 | 291781 lookma
lookma's picture

OMG I've been thwarted by citation to a dictionary!  And not just any dictionary, but a magical one that doesn't exist anywhere else but wherever you claim to have read it.

Clearly a US soverign debt crisis is bullish for the dollar and good reason to sell all one's gold.


Inflation/deflation linguista = a strawmaning troll.  Explaining to people why they own gold and further why that is wrong is such a better route than confronting their actual reasons.  Here's a hint = hyperinflation and crushing deflation go together.  Its what happens when a fiat/credit system can't create inflation.


Thu, 04/08/2010 - 14:56 | 291873 CookieMonster
CookieMonster's picture

Reggie Middleton is right again - stagflation!

Thu, 04/08/2010 - 14:01 | 291783 SilverIsKing
SilverIsKing's picture

So in a deflationary environment, where is all the money going to come from that our government spends?

Hint: It's good for gold prices.

Thu, 04/08/2010 - 14:09 | 291794 kennard
kennard's picture

Deflation is just a precursor.

Of course, you knew that.

Thu, 04/08/2010 - 14:15 | 291807 Hansel
Hansel's picture

You're right.  In deflation, money becomes more valuable.  Gold is money, and has been leveraged/supressed by 100 to 1.  US dollars are just paper/digital bits.

Thu, 04/08/2010 - 14:43 | 291853 tmosley
tmosley's picture

Cite one time in the history of the universe that that has happened.

Thu, 04/08/2010 - 21:11 | 292424 Oracle of Kypseli
Oracle of Kypseli's picture


What's wrong with the idea that if you were to have 30% of investment money in gold and 70% in cash?

When deflation is in, you buy good stuff at distress prices. food prices will not be cheap though.

When high or hyper-inflation hits, the 30% of gold will overshoot enough to more than compensate with the loss of buying power of your cash.


does'nt this sound like a good hedge to you?

Fri, 04/09/2010 - 10:07 | 293061 RockyRacoon
RockyRacoon's picture

Gold is going up in price – BULLISH! This is a broad-based rally.

Wait, maybe gold is going down – BULLISH! That means economic fears are dissipating.

Actually the gold price seems to be consolidating and moving sideways – BULLISH! A sell off or rally would mean things are overheating.

Thu, 04/08/2010 - 14:52 | 291868 dumpster
dumpster's picture

cognitis .. why dont you want gold is the question

1) no dough

2) nothing to protect

3) missed the run from 300

4) still wondering if the job will continue

5) and you believe the fed is termination QE

   a) and the buying of government debt continues , by who .

       1) the same folks who with noses getting bigger say they will ease the puch .

       2) hint the fed will print into infinity . thats what they do . thats their political friendly advice ,, if the fed wants to keep trucking

Thu, 04/08/2010 - 23:10 | 292566 merehuman
merehuman's picture

cognitis not

Thu, 04/08/2010 - 12:36 | 291663 RobotTrader
RobotTrader's picture

Meanwhile Pier 1 and Maguire Properties rocket to new, 52-week highs....



Thu, 04/08/2010 - 12:48 | 291668 hedgeless_horseman
hedgeless_horseman's picture

Pier 1?  Topiary, bitches!!!!!!!!!!!


Thu, 04/08/2010 - 13:02 | 291697 Leo Kolivakis
Leo Kolivakis's picture


The Dow keeps shrugging off the bad news:

Liquidity tsunami is too overwhelming. $2 trillion in hedge funds all levered up to the max to make their performance fees. Where were you yesterday? Chinese solars took off, and I like the follow-through and pick up in volume.

Thu, 04/08/2010 - 14:03 | 291787 WineSorbet
WineSorbet's picture

Leo seems to be the only one who is getting it right.  When he becomes bearish, that's the market top.

Thu, 04/08/2010 - 12:38 | 291666 hamurobby
hamurobby's picture

Hm, starting to maybe see what has been suspected all along. Thing is, will anyone really care if it becomes obvious? Nothing seems real, yet confidence seems to be holding for now.

Thu, 04/08/2010 - 12:41 | 291671 trillion_dollar...
trillion_dollar_deficit's picture

Funding crisis? How could that possibly happen? Oh wait...

Thu, 04/08/2010 - 13:34 | 291748 Joe Davola
Joe Davola's picture

As part of the half that does pay taxes I look at the amount and wonder how there could be a funding crisis.

Thu, 04/08/2010 - 12:44 | 291678 Ludic Fallacy
Ludic Fallacy's picture

It would make sense to me that through the Federal Reserve discount window, the big broker/dealers could be getting the funding to purchase (and hold) treasuries to get risk-free return.  Perhaps even they are cycling these assets (the treasuries themselves?) to fund the bond auctions.  All speculation, of course, but it's plausible to me.

Thu, 04/08/2010 - 20:56 | 292407 JW n FL
JW n FL's picture

I think the term you are looking or grasping for is... "Purchaser of Last Resort." 0% Fed Window ='s ? whatever the take down's difference is.


You are on the right track.

Thu, 04/08/2010 - 12:46 | 291685 Old School
Old School's picture

I continue to be impressed by Chris Martenson. Always calm, always logical, and plenty of good insight. His advice is worth considering.

Thu, 04/08/2010 - 12:57 | 291694 Eally Ucked
Eally Ucked's picture

N.America including Canada and Europe finally facing reality and reality is very ugly. Just look at components of GDP for Canada (latest data):

Services 72.5 % and Goods Producing 27.5%!!!!!!!!!

Now in goods producing industries natural resources are 15% and construction is 21%, agriculture 7.3% and utilities 9% the rest is manufacturing.

Now tell me why CDN$ is so strong currency? Probably because natural resources, ha, ha!

In services main item are financials at about 29%, the rest is moving Chinese products around, massage parlors, entertainment and of course Big Government!

Situation is similar in US and Europe with slight differences. So it looks to me that we are playing, vacationing, selling and building houses, governments spending and Chinese delivering goods for us to have better time, meanwhile we burn oil like crazies moving Chinese stuff around N.America.

We need more financial wizards to fix our situation and continue on playing!

Thu, 04/08/2010 - 15:22 | 291939 The Merchant of...
The Merchant of Venice's picture

CDN is the least smelling of the lot of shit.

Great post.

Thu, 04/08/2010 - 12:59 | 291695 Alexandra Hamilton
Alexandra Hamilton's picture

The simplest explanation is that central banks are somehow providing the necessary liquidity to support the various governmental bond auctions that are happening around the world.

That would be the BIS then. On the other hand, do we know what the WB (World Bank) is doing with its money?

Thu, 04/08/2010 - 12:59 | 291696 TooBearish
TooBearish's picture

Where were the FED proxies for the near failed auctions at the end of March?  Why didn't they show up for those auctions or was the dealer community impaired buy Repo 105 games to get down balance sheet for Q end and THEY forgot to bid...o bother - I'm sure todays 30yr will be bid thru the market like yesterdays 10s....nothing to see here, move along....

Thu, 04/08/2010 - 14:14 | 291806 Assetman
Assetman's picture

I think the Fed went from Plan A (reying on primary dealers) to Plan B (something else, maybe BIS cooordinated movements among central banks).

It sure does seem strange, though, doesn't it?

Thu, 04/08/2010 - 22:40 | 292532 Chumly
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I have suspected Plan B for awhile, as we are in the desparate phases of the hidden crisis underlying the one seen.   Now, to me, the mystery lies behind Door C - I can only imagine it is a more sinister plan for us to be saved by "them" from their orchestrated disaster.

Thu, 04/08/2010 - 13:02 | 291699 Stu
Stu's picture

how can UK afford to keep buying so many Treasuries ?

Thu, 04/08/2010 - 14:28 | 291828 msorense
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Simple.  We buy theirs and they buy ours.  That's the shell game in a nutshell!

Thu, 04/08/2010 - 13:06 | 291702 sweet ebony diamond
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i think ben stated that there will be no u.s. default.

Fri, 04/09/2010 - 16:34 | 293595 WaterWings
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War before default.

Thu, 04/08/2010 - 13:11 | 291706 texpat
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So I am prepared for two possible scenarios:  1) a sudden change in the markets, and the alternative, 2) no change at all for ten years or more.

Glad to see Chris going out on a limb!

Thu, 04/08/2010 - 21:00 | 292413 JW n FL
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Steers and Queers aside...


No change going forward... until such time that Corporate America starts hiring thusly encouraging the sheep to buy into Wall Street again... The Fed printing its way out... but just incase, buy ammo, food and if you can afford it... some precious metals... but Ammo and Food first... in bulk. Buying bank stocks as well is a great long... if you have the money to play with after the other bases are covered and recovered only to be covered once more for good measure..


Tell Bush we all said hello and good luck!

Thu, 04/08/2010 - 13:12 | 291709 starfish
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I wonder what kind of leverage the primary dealers are able to use when buying treasuries.  If Lehman was 50x and buying junk, maybe dealers with access to discount window funds are able to leverage 100x or 500x.  So I have $1, treasuries are 'risk free', let me leverage my .25% $1 a trillion to one.  Funding crisis solved.

Thu, 04/08/2010 - 13:20 | 291723 sweet ebony diamond
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i think you are overboard here - extra-terrestrials are not lending these days

Thu, 04/08/2010 - 13:23 | 291726 starfish
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i suppose that depends on your definition of extra terrestrials...

Thu, 04/08/2010 - 13:16 | 291715 exportbank
exportbank's picture

So here we are living in a FIAT Fractional world.

Gold is FIAT & fractional (ask for physical delivery)

Paper is FIAT & fractional 

Stocks are FIAT & fractional (ask for a physical Share Certificate)

Bonds are FIAT & fractional (ask for the bond)

Balance Sheets are fractional & fictional

Thu, 04/08/2010 - 14:35 | 291718 hedgeless_horseman
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Chrysler is Fiat.

U.S. Surgeon General is missing the "i"

(but it is not her fault as FDA regulations do not require warnings about inflation).

Thu, 04/08/2010 - 15:12 | 291916 CookieMonster
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UHMMMM - to hell with vegetables - *ME LOVE COOKIE DOUGH*!!!!!!!!!!!!!!!!!!!!!

Thu, 04/08/2010 - 13:18 | 291720 Rick64
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Is it almost time for the new monetary system to be introduced? NWO. I think it will be a little longer but the seeds are being planted.

Thu, 04/08/2010 - 13:29 | 291736 starfish
starfish's picture


FDA approved Verichips.

Sure, verichip linked accounts, national ID, the coming of the 12th Imam... what next...

Thu, 04/08/2010 - 13:19 | 291722 Jason T
Jason T's picture

Audit this parasitic institution already!!!!!!  

Thu, 04/08/2010 - 13:22 | 291725 BorisTheBlade
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One scenario that I think has a chance of upsetting things would be for China to experience a bubble-bursting crisis, the mitigation of which would necessitate a need for liquid cash.  By this, I mean an event (or set of events) that would essentially force China to begin unloading their Treasury holdings.

Yes, yes, yes and once again yes. But what starts in China won't stop in China, bubble-bursting event can trigger serious correction in the commodities, so it won't only be China who will be in need of cash, but also oil-producing countries.

Thu, 04/08/2010 - 13:50 | 291771 Adam Selene
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If you're right about that, what a great opportunity for us to buy some of the gold they'll be dumping.  A silver lining, so to speak.  Bring it on, bring it on.

Thu, 04/08/2010 - 15:08 | 291906 steve from virginia
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China doesn't need dollars, it has plenty now.

It needs yuan and it can print/distribute as needed (or cramdown asset side of finance institution balance sheets which is the same thing). Command economies are good for some problems.



Thu, 04/08/2010 - 15:42 | 291969 BorisTheBlade
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“The foreign exchange reserves are mainly invested in bonds issued by governments and government agencies of the developed and developing countries with high credit ratings, assets issued by companies and international organisations, funds and so on,” Yi said.

So, it's not cash. And in case of the crisis they will need ... yes, cash. They can print RMB, but the oil trade is not settled in RMB, so they will need dollars and for that they might start dumping treasuries.

Thu, 04/08/2010 - 13:27 | 291733 Magua
Magua's picture

Exactly Star. Buy treasuries at a 3.9% yield on the ten, and borrow at Libor. If the dealers or others are doing that, the game only comes apart if the Fed raises short rates.

So why would the Fed raise the short term rate if it closes out a major buyer and ends up costing the government more to borrow?  Despite being hinted at by Hoenig it doesn't make sense, other than to do something minor, like 50 bips, and maybe threaten more. But they cannot face a large increase in short rates, imo. The Fed/Treasury has got itself into a box of immense proportions.

Thu, 04/08/2010 - 13:32 | 291742 Shameful
Shameful's picture

If the whole world is insolvent then it's totally the path to war.  Need to distract the people "Everyone!  Things were great until ______________ (Nation X) screwed us!  Lets get them...oh and here is some austerity for you.  Now buy some war bonds"

Thu, 04/08/2010 - 19:04 | 292270 Cui Bono
Cui Bono's picture

Shame, I think you are on the right track and want to see what everyone thinks of a possible partial explanationi-  If China is using their $FRNs to pick up SLV and GLD when JPM beats it down (which I believe is happening but don't have an offhand source)- once they have cycled enough money into 'metals'  if they demand delivery it seems, aaaah, unlikely, that they will infact be delivered.  This sequence would or should be enough to take down the paper pm's and perhaps the rest of the system.  Could the pm beatdowns be intentional to sucker the paper dollars into paper pms with the intention of collapsing the debts away (rather than inflating them away)? 

AND- this gives us a bad guy to point to and say- look what they did do us....

Too many friggin' moving parts in this shit! CB

Thu, 04/08/2010 - 21:09 | 292423 Shameful
Shameful's picture

Well I'm not sure about default away.  If there is collusion my guess is that it is to keep the Chinese buying bonds or at least not pull the trigger on bonds now.  We can't use the PM market to default.  Really our debt is so huge the Chinese part is just the visible prominent part of the iceberg.  We have a 100 trillion looking us in the eye coming at us, and the amount China has is puny in comparison.  My guess is the PM market is to keep a handle on perceived inflation, which means if/when it blows up it will be followed by a currancy scare, and ultimately currency collapse.

Now as to a war, yes.  I expect that my generation will see a war with China.  When we stiff them they will be pissed and they have a huge excess male population and massive overcapacity in steel and concrete.  They will claim and seize Taiwan o provoke us, as warmongers we will respond as we always do.  And if you listened carefully right around hte start of the Sotero administration Tiny Tim started the drum against China.  I was confused why he and Greenspan were blaming China but that plan has come into focus.  China is to be our bogeyman in the coming years.  At the very least there will be a cold war and proxy wars in the 3rd world.

A war will be very convenient for both regimes.  They can raise the banner of nationalism to sqeeze the people more as they spill their blood.

Thu, 04/08/2010 - 23:07 | 292560 DoChenRollingBearing
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Shameful, what a good post, as usual for you.

I agree that our debts to China are small compared to our total debts.  It is the amount that we owe that is more important than a fraction of that to whomever.


Re war w/ China.  Um, we managed to avoid war with the USSR for decades, and they were essentially our big enemy, could have destroyed us (as we would have destroyed them).  But, that did not happen.  Why?  Because adults were in charge and the stakes were VERY HIGH.

My guess is that reasonably minded (ie sane) leadership in our 2 countries will not drag us into a high stakes and very dangerous war with China.  China may kick up a fuss re Taiwan at some point if they are pissed-off at us enough, but we would probably let Taiwan go...

Yes, China has some 100,000,000 more men in roughly the 20 - 45 year old segment that may not get wives, so a war-adventure may be seen as necessary by Beijing.  It is not Taiwan that seems to be in the most trouble, I would worry more if I were the President of RUSSIA with the prospect of losing Siberia.  LOTS of Chinese have moved into those zones near the Rus - China border zones in their far east.

Singapore does look better for you (vs. HK) if war with China is a bother...

Fri, 04/09/2010 - 00:33 | 292635 Shameful
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Yes, but the USA was solvent then.  Also China has an overcapacity problem they can't hide it, and young men who can't fit into society because they cannot have families will cause social problems.  They need new frontiers.  Now if we do not face them directly I will assure you those new frontiers are in Africa.  Chinese are moving into Africa now and that trend will continue.  If we allow it then in the coming century they will dominate Africa to extract it's resource wealth.

Taiwan is in my mind a lost cause.  I looked at Taiwan as a place to go but quickly realized that the geopolitical situation was too bleak.  Taiwan is a sore spot for the CP in China.  Now nothing is done because it's not worth it, to much bad press and problems.  However if America repudiates their debt, China will be forced to do something.  The CP must save face among the people, and the media will spin that America robbed China of it's labor, investment, and savings.  There will be stories on the TV about old women who lost it all in the default.  If they fail to act visibly they will have a revolt.  So they will take Taiwan, with force if necessary.  They will do this as a direct attack on American military dominance, their way of showing they are not afraid of America.  Now at this point the USA can allow it or not.  If USA allows it then that is the signal the baton is passed, if the USA fights then WW3.  Likely it will be allowed with much bluster then we will fight a proxy war with then in Africa as long as we are able.

Siberia is interesting.  Now I think it's not as big a deal as the analysts think, why because Russia is dieing.  That's just the fact.  Their birth/death ratio is abysmal.  Also they have a problem with Muslims and that will only grow because of demographics.  China is their ally at the moment and the necessity of the situation will keep that to be true till after the USA disintegrates.  After that I cannot speculate much because no more USA and Team America World Police then the geopolitical situation gets murky.  Also I will note that Russia has no other real allies in the region or with any power.  EU distrusts them and the Baltic nations are terrified of them.  That Stans are basket cases for the most part, Ukraine is always in the air.  Look at Russia, they need an ally an China is an ally of convenience.  Energy and manufacturing, and two second tier weapon manufactures.

Singapore is at the top of the list, though hear decent things about Hong Kong.  A lot of it will depend on where I can find work.  Go where the money takes me and pay attention to the storm.  If I'm in Hong Kong or Shanghai and I hear the war drums I'm likely off again, at least on a "vacation".

Fri, 04/09/2010 - 01:27 | 292689 DoChenRollingBearing
DoChenRollingBearing's picture

OK, to keep it short because it's soon bedtime for the Rolling Bearing...

Taiwan we will let go if the ChiComs (oh does that date me!) want it bad enough.  OK.

Russia deserves what it gets with their sh!tty attitude to its natural white-bread ally (the USA), but if they hate us, well adios amigos.

Re Singapore vs. Hong Kong.  Well my knowledge is very low other than my visit to HK (and Beijing) on business (bearings!) years ago.  First, my wife and I went to Japan as tourists, but because we were buying Japanese bearings I met with NSK (their biggest brg. mfr.), I met with them partly to write off the trip as a business expense.  Later in HK I met with another supplier to our Peruvian bearing import co.  Hong Kong then was a lively and interesting place.  Almost as close to pure capitalism (freedom to do what you wanted) as I had seen (remember, I am not an expert).

My take:

Singapore is kind of tyrannical, but only if you are a troublemaker.  They have lots of ethnics (inc. westerners) there, so probably socially calm.  They solicit productive people & companies, so you might fit in well.  It is hot and muggy all year round I read (but that's OK with me).

Hong Kong is (was) a lively place, also real open to western style folks.  Still, it is right next to the rest of China, and it eventually will BE part of China.  HK may be a WORSE place than Singapore if TSHTF...

Go forth and check out these places!  But, if you have the time and funds, check out Peru (maybe also Brazil, Panama, etc.) if you have some Spanish under your belt.

Disclosure: my wife and in-laws are great Peruvians!  Your mileage may vary!  But, at least for now, Peru is a good alternative to the USA, in its own way.

Further disclosure: For now, I have decided to FIGHT rather than leave the Elements That Be (ETB).  Things will really have to be in the sh!tter for me to leave for Peru.

9mm and 7.62x39.  My newest friends.  I am an original American at heart..., wherever freedom is numero uno is my kind of place.  For now I will be in a 'Mogambo style bunker'.  If things get MUCH worse, OK, I will post from Peru!

Fri, 04/09/2010 - 01:03 | 292668 Tethys
Tethys's picture

Sad, but rings true on so many levels.  And don't forget the added benefit that proxy wars (the only feasible wars possible for superpowers thanks to mutually assured nuclear destruction ... hmmm, *begins to hatch conspiracy theory regarding recent nuclear reduction treaties*) are a great way to get young, fighting age men and women out of the country during a crisis and subsequent enforced austerity.

Thu, 04/08/2010 - 20:32 | 292272 Cui Bono
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