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Guest Post: Here's The Setup For The Con Of The Decade

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

Here's the Setup for the Con of the Decade

The Con of the Decade, which I described last July, is being set up nicely.

I described The Con of the Decade last July (2010). The Con makes me a heretic in the cult religion of Hyperinflation.
I consider myself an agnostic about the destruction of the U.S. dollar and hyperinflation (basically the same thing), but my idea that hyperinflation is fundamantally a political process makes me a heretic. I skimmed a few of the dozens of comments posted on Rick's Picks and Zero Hedge after they posted one of my expositions on this dynamic, and didn't see even one comment in favor of this perspective.

The Con is being set up right now, and the outlines are clearly visible. The Con works like this:

1. The Financial Elites/Oligarchy raked in billions in private profit from the orgy of leverage, credit expansion, fraud, embezzlement and misrepresentation of risk that resulted in the Housing Bubble.

2. The losses were transferred to the public (Federal government, i.e. The central State) or its proxy, the Federal Reserve (i.e. the central bank), via bailouts, backstops, guarantees, the Fed's purchase of taxic assets, and an open window for the financiers to borrow billions at zero interest (ZIRP) for further speculations.

3. The Treasury now borrows $1.6 trillion every year, fully 11% of the nation's GDP, as the Central State has replaced private demand and credit expansion with its own borrowing and spending.

4. Non-U.S. central banks have largely ceased to support this unprecedented scale of borrowing, so the Federal Reserve now buys most of the Treasury's issuance of debt via QE2 (quantitative easing, the direct purchase of $600 billion in Treasury bonds).

5. Unlike Japan, the U.S. cannot self-fund its own government borrowing: while U.S. investors, banks and insurance companies do own a significant chunk of Treasuries, the U.S. savings rate (capital accumulation) is still abysmally low, around 4%, which is half the historical average savings rate.

This is the result of the Keynesian Cult's One Big Idea, which is to pull demand forward and encourage borrowing and spending now by any means necessary, and thus sacrifice capital formation/saving.

So the basic outline of the Con is that private losses from the financialization of the U.S. economy were shifted to the public. Now to keep the Status Quo and Financial Plutocracy from imploding, the public is on the hook for $1.6 trillion in additional borrowing every year until Doomsday (around 2021 or so).

Having secured the backing of the Central Bank and Central State, the Plutocracy's only problem now is that it needs a risk-free source of high-yield income. Yes, it has a trillion dollars or so sitting in bank reserves, collecting interest from the Federal Reserve; this is certainly risk-free, but the Fed's Zero Interest Rate Policy (ZIRP) keeps the rate of return absurdly low.

Here's where we see the Con taking shape. The ideal setup for risk-free returns is to own Treasurys that pay a high yield. The way to get higher interest rates is to first make the Treasury market supremely dependent on a central bank or single buyer: Done. That buyer is the Federal Reserve.

Next, have that buyer stop buying. Suddenly, interest rates start moving up. If you don't believe this is possible, or part of a larger project, then please explain why PIMCO sold all its Treasuries. Duh--because interest rates are set to rise, and not by a little bit or for a brief span, but by a lot and for years.

That means holders of long-term Treasuries (and other debt) will be cremated as rates rise. (Holders of TIPS will do OK, unless the government fraudulently sets the rate of inflation well below reality. Hmm, isn't that exactly what's it's already doing?)

Once long-term rates have leaped up, then start accumulating the high-yield bonds. Why would rates jump? Supply and demand: as the demand for low-yield Treasuries dries up, the supply keeps rising: every month, the Treasury has to auction tens of billions of dollars of bonds, or even hundreds of billions of dollars. There is no Plan B, the bonds must be sold, and if there are no buyers, then the yield has to rise.

Once rates have been engineered much higher, the Financial Oligarchy accumulates the high yielding bonds.

Here's where "austerity" comes in. Once rates are so high that they're choking the real economy, then voices arise demanding the Federal government stop borrowing and spending so much. Austerity (forced or otherwise) soon reduces the supply of bonds hitting the market and so rates decline, boosting the value of the high-yield debt.

To service the cost of all this Federal borrowing, taxes are raised on what's left of the productive members of society.

To add insult to injury, it will become "patriotic" to "buy bonds."

OK, let's check the setup:

1. Treasury market now dependent on one buyer: check.

2. That buyer stops buying, pushing rates higher: no QE3. Check.

3. "Austerity" is now seen as inevitable--but not just yet: check.

What the true believers of hyperinflation and the destruction of the dollar cannot accept is that debt is an asset to the owner of that debt. In focusing solely on the advantages of inflation to borrowers, they ignore the critical fact that inflation quickly destroys the value of the asset that debt represents to the owner. And debt is a primary asset to pension funds, insurance companies, banks, and indeed the entire financial sector.

So in claiming high inflation is guaranteed, adherents are claiming that the entire financial sector will accept being wiped out, just so Mr. and Mrs. Taxpayer won't have to pay interest on the ballooning government debt.

That's exactly backward: the entire point is for Mr. and Mrs. Taxpayer to pay high yields on Treasury debt, owned by the Financial sector's Oligarchs. The Con is to stripmine the public coffers, then impose higher rates and "austerity", buy the debt with the cash plundered from the public, and then sit back and enjoy risk-free returns as taxes are raised on the remaining tax donkeys. Inexpensive Bread and Circuses (SNAP food stamps and the political theater of the two parties staging a partisan "fight to the death") will keep the peasantry entertained and complicit.

As I concluded in the first foray into the Con:

In essence, the financial Elites would own the revenue stream of the Federal government and its taxpayers. Neat con, and the marks will never understand how "saving our financial system" led to their servitude to the very interests they bailed out.

The circle is now complete: in "saving our financial system," the public borrowed trillions and transferred the money to private Power Elites, who then buy the public debt with the money swindled out of the taxpayer. Then the taxpayers transfer more wealth every year to the Power Elites/Plutocracy in the form of interest on the Treasury debt. The Power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.

In effect, it's a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

This is the ultimate endgame of the financialization of the U.S. economy and the concentration of wealth and thus political power in the hands of those who skimmed the immense gains from that financialization.


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Fri, 04/15/2011 - 12:34 | 1172884 kengland
kengland's picture

That's why M&A should be big going forward. Scale will mean everything

Fri, 04/15/2011 - 11:47 | 1172645 Global Hunter
Global Hunter's picture

Sorry one further point, I don't think the actors in this play are as smart as we give them credit.  They are Keynesian progressive ideologues who were taught by other Keynesian progressive ideologues who were taught by...

Most of humanity is gripped by its reliance and belief in "science", "models" and "empirical evidence", they believe mankind by using science, models and empirical evidence can manipulate nature and control it.  

I respect your position and piece but I think its "triple down time", they just didn't quite get it right last time, just a tweak to the program here and we'll have utopia. 

Fri, 04/15/2011 - 11:49 | 1172657 kengland
kengland's picture

Largest holder of US debt is the Fed. Foreignholders are next. The public inst maintain a fraction of that. When rates rise as you describe there will be one facking global margin call against the declining value of the capital.

How can you say there will be a system left with higher rates when this scheme has been in effect since the 70's? Look at the yield curve going back that far and tell me the system will be in tact when rates rise in a global wage arb environment. I don't see it

Fri, 04/15/2011 - 11:49 | 1172658 famousamos
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I'd think there would need to be another event to convince the sheople that their money isn't safe in the markets and it needs to be moved into US treasuries for safety.

Fri, 04/15/2011 - 11:57 | 1172704 SheepDog-One
SheepDog-One's picture

How many 'sheeple' buy US Treasuries, or even know what one is? 1 out of 1 million maybe? Who the hell buys bonds?

Fri, 04/15/2011 - 12:13 | 1172762 slewie the pi-rat
slewie the pi-rat's picture

hi, 1!  prob more than 500 know what they are and/or own them is some way or another???  bond funds?  pass-thru of CD's?  not trying to start somethin, i have my good 501's on!  the sheeple are on the hook for the interest and principle, which may be "news" to the bleaters.  now get back to work & herd 'em off that cliff!

Fri, 04/15/2011 - 11:52 | 1172661 Boilermaker
Boilermaker's picture

Can anyone please explain the relentless ramping of the REITs in the last 3 trading day (including today, of course)?

Every one of them is being bid up as fast as possible.  IYR shows this very clearly, as well.

How in the hell can they just continue to do this daily?  Every bit of news is negative for the REIT sector.  Yet they just catapult it even higher.

The CRE bomb and this god-awful pump-and-dump garbage has to be part of the 'master plan' also.  This is RIDICULOUS!

Fri, 04/15/2011 - 12:23 | 1172833 slewie the pi-rat
slewie the pi-rat's picture

i'll take a stab at it, after my slewie caveatz that i don't know, and don't follow them, but have heard this "news" 3X now, on this site, ok?

have they been beaten down?  do they have positive cash flow?  are there indications that vacancies have bottomed and rents are increasing?  would REIT's benefit from a little interest-rate "bump" of .25%, next week?  do they have clear title to underlying assets, as opposed to the mers mess?

5 Q's, friend from purdue (lol!).  the more "yes" answers, you see, the more "reasons" for the ramp-up you are seeing.  maybe that shld end with this punctuation:  ?

Fri, 04/15/2011 - 13:14 | 1173026 Boilermaker
Boilermaker's picture

have they been beaten down? 

A:  Hell no.  The valuations are approaching triple digit P/E's already

do they have positive cash flow? 

A:  How does that offset massively upside down equity values on CRE properties?

would REIT's benefit from a little interest-rate "bump" of .25%, next week?

A:  That would actually be the WORST thing for the REITs

do they have clear title to underlying assets, as opposed to the mers mess?

A:  Huh?  I have no idea if they have the actual deeds locked away in an actual vault or figuratively so.  Even if they do, the properties themselves are still upside-down with any reasonable mark-to-market accounting.

Do you find CRE and REITs to be actually undervalued?  How many shares of SPG do you want with a 55 P/E or BXP at 85 P/E...?  Or, how about a 2% dividend?


Fri, 04/15/2011 - 16:28 | 1173850 slewie the pi-rat
slewie the pi-rat's picture

t.y. no, i'm not suggesting they are now undervalued, only that they may have been beginning in '08, even though "housing & jobs" went into the shitter.

the ramp-up may be overdone, many "assets" in this "bull" same-same, too, so maybe they will correct.  still, if you had $1 mil. in some "bond fund" for the last decade or so, would you not trade it, straight across, for yer pick of 5 of this litter?  slewie would!

these are still on the monopoly board, and they are not really bullshit compared to something like GM bonds, are they? 

30-year rates are already up.  the window is closing on the "costs" of the stuff caught in this shit-storm.  nominal prices are still low, but the cost of buying may have bottomed.

2%.  now.  try getting that @ a bank.  and this is dividend, not earnings. 

properties are bought and sold each and every day.  REIT managers/owners aren't damned dummies.  they can dress portfolios in a fuked market, and may have "% angles" due to info + cheapo financing which you and i cld only dream of. 

i admit the multiples are ridic.  what's the DJIA at, again?  smart investors have always seemed more ready to buy good management than some touted crapola, or ETFs.  if these REITs are making money and performing, given the lo prices and their cost(s) of capital, some folks may be saying:  "fuk your idea of safety;  i'm in!  these properties are real, not paper!"

slewie does not understand how a product w/ a 55 PE pays 2%, but maybe you do, and whatever you see is tingling yer spidey-senses.  i dunno a lot.  finally, if one thinks QE to infinity is possible, ergo more inflation, one may like these plays in the asset-based sense.  even tho they have not "re-flated" well b/c john & mary doe/6pak are fukin creamed, they do "collect rents" do they not?  think monopoly board rather than ETFs if you would, ok?  there's blood on the monopoly board streets and nobody's gone to jail in 20 rolls of the dice, and we may have some gutsy buyers, here, ok?

thank you for the quality of your questions & dialogue!  nice!

Fri, 04/15/2011 - 18:30 | 1174512 Boilermaker
Boilermaker's picture

You know, that could be it.  Or, golly, it could be relentless propped up by the Fed.

Which one do you think better explains a 3 trading day ramp job of 5%+?

Sat, 04/16/2011 - 05:29 | 1175486 slewie the pi-rat
slewie the pi-rat's picture

again, ???

i can't "prove" anything.  someone is ramping them.  it could be a carry trade of some kind, where FRNs can be scarfed for 1% and "invested" for 2%, and. hopefully the USD doesn't go straight up and the REITs go straight down. 

it is also poss to see a "hedge" where the Long is in REIT's and the short might be in WTI or the Vix, or the gold/silver ratio or some ETF on the philly index or whatever.  i have no clue, except to consider that perhaps some people like REITs for some reason,  possibly compared to other "investments"

the idea that there is a "reason" for what we see in prices is something you will get from MSM & MSNBC, not most analysts, who would rather broach some reasonable reasoning about market dynamics rather than the answer.

i recently had fun with a copper bear.  i couldn't argue with him!  copper had broken the trendline, was @ $4.38 and was probably heading south.  he cared; i didn't.  copper goes to $4.30 in a day or two.  good for him if he like to gamble with crimex or  LMMA copper or spot.  i could care less.  he was right. i knew he was making the stats call.  and, if he put on  the short he made money, at least for now. 

same with you.  don't you wish you'd bought these REITs a year ago?  others, seeing the trend, apparently did and still are buying.  maybe there is a short squeeze or a derivatives dog wagging this tail.  i don't know.  i don't care.  if these REITs could be considered "safer" than short-term T instruments, maybe gross and el-erian are grabbing them up, eh? but it's interesting to share views of markets and price trends. BTFD is one thing.  understanding why people are ramping REITs is a great question and again, thanks for the dance!

Fri, 04/15/2011 - 11:56 | 1172683 Übermensch
Übermensch's picture

This article is sooo 1970.

Fri, 04/15/2011 - 11:59 | 1172711 SheepDog-One
SheepDog-One's picture

ANY article today that is laying out an event timeline, I just round file it. 

Fri, 04/15/2011 - 11:56 | 1172685 nevadan
nevadan's picture

I don't really understand this part...when the people that OWE the debt can't pay, how is that an asset?

That is the point isn't it.  A parasite will thrive until it becomes large enough or reproduces enough that it overwhelms its host.  The author assumes that the drain won't eventually kill the system.  Hyperinflation is the process that results when the end comes.  If the big con is indeed the plan, it is a fine line that has to be walked or our masters will ruin themselves along with the rest of us. 

Fri, 04/15/2011 - 11:54 | 1172688 mayhem_korner
mayhem_korner's picture

Nice theory, but it will not pan out.  The loop doesn't close unless yields rise at least to the level of inflation, and that will overwhelm the scheme.  If we call that a 400 bps rise for yuks, that's another $580B annually in debt service nominally, plus $26B more just to finance that increment, never mind the crushing blow to the tax base that would only widen the deficit.

Despite all the conspiracy, markets will prevail as the nobler metal.  Rising yields will absolutely crush Benny and the bankster complex, which is why we are seeing the desperation tripwires come out in increasing frequency and decreasing effectiveness.

The Roman Empire's aristocracy thought it was untouchable, too, right before it's demise. 

Fri, 04/15/2011 - 18:14 | 1174464 Shell Game
Shell Game's picture

The Roman Empire's aristocracy thought it was untouchable, too, right before it's demise.

A subtle and excellent point.  I believe the elite have lost control, chaos is in charge.

Fri, 04/15/2011 - 11:57 | 1172702 Corduroy
Corduroy's picture

Sorry - while I understand the argument, I think it fundamentally ignores the reserve currency status that the USD currently enjoys. If the above were to happen as described then the USD would loose that staus and hyperinflation would result in any case.

Fri, 04/15/2011 - 12:00 | 1172705 humblepie
humblepie's picture

Another conspiracy theory to add to this: Rates will go up only after the main goal is achieved: China. Eurasia is becoming a real threat. So until the bubble pops and some real damage is inflicted in China, the Fed will keep pumping. Think back to Japan, when it too was supposed to overtake the US.

Fri, 04/15/2011 - 13:37 | 1173156 High Plains Drifter
High Plains Drifter's picture

Japan didn't want to go along with the world carbon tax. They didn't want foreigners coming into their country. They resisted change. They remember what we did to them in 1945 and will never forget. Their racial characteristics remain pretty well the same. They are smart and work hard. They wanted American troops out of their country. One might gather that the Japanese wanted nothing to do with the NWO. They might be correct. One thing is for certain. Their attitudes and beliefs were as above and probably much more. Then one day, Japan had a terrible earthquake and everything changed. Scratch the third largest economic power in the world. Imagine that.

Fri, 04/15/2011 - 12:00 | 1172718 nah
nah's picture

we are running out of money


send in the supergovernment

Fri, 04/15/2011 - 12:32 | 1172877 slewie the pi-rat
slewie the pi-rat's picture

please NWO & IMF!  please save the world from "economic" collapse!  only you have the fiat and military "cooperation" to save all the world's goobermint employees' "jobs" and keep the debt alive and enslave us for our own safety!  pullleeeease don't fail us now!

Fri, 04/15/2011 - 12:01 | 1172721 Piranhanoia
Piranhanoia's picture

W.C. Fields acted to open peoples eyes to the con in 1933 to the world. He was one of few that did by parodying the notions of the elite by stating;   "never smarten up a chump",  "never give a sucker an an even break" and "you can't cheat an honest man"  He warned us last time they tried to kill us.

Fri, 04/15/2011 - 12:41 | 1172911 slewie the pi-rat
slewie the pi-rat's picture

wow!  yest evening, when i got home w/ my bicycle from my errands, i started wondering what WC Fields would be putting out, these days.  true!

Fri, 04/15/2011 - 12:03 | 1172723 Shameful
Shameful's picture

lol austerity in the USA?  Come now, surely I was not the only one toe watch the anger of the puny cuts in WI or the laughably tiny cuts in the Fed budget.  Charles also leaves out how much of the GDP is gov spending and transfer payments.  Those stop then GDP drops, which would force more cuts, which would force down the GDP, which would force more cuts...

Please explain to me how the warfare/welfare state spending will be cut so the bankers get their piece. Show me the red establishment that will SLASH military spending.  Show me the blue establishment that will SLASH transfer payments.  And after finding those two magic leprechauns get me one to give me a big pot of got.

Don't get me wrong they will get their piece, but via them getting the printed cash from the Fed first, and at well below market rates.  It's amazingly easy to make money when one's cost of money is free.  Sure rates will probably go up, as the world is drown in Zimbabwe Ben's Fun Bux, but still a good deal if can get a source of Fun Bux at 0 cost.

Fri, 04/15/2011 - 12:08 | 1172743 SheepDog-One
SheepDog-One's picture

'Massive population reduction' is the component not included in all these economic thesis.

Fri, 04/15/2011 - 12:23 | 1172790 Shameful
Shameful's picture

Yeah but that's a later part.  They are warming that up now though a myriad of means, but the culling will be done later this decade and into 2020s-2030s.  Look at sperm counts of men in the Western world, falling off a cliff for decades.  Not unlike the plot from Children of Men (novel not movie).

Fri, 04/15/2011 - 12:29 | 1172862 centerline
centerline's picture

I posted below on a similar thesis.  The ultimate path is deflation - and it will be realized in a much more physical way.  Quite simply, there are too many people dependant on the system and promises made by the system.  That debt, which is an asset to these folks, was already extracted.  It was replaced with nice big IOU.  Whatever digitial "placeholder" currently exists is a mere illusion.  It is the scraps we are given to keep us alive.  As yield runs out at the top (soon), the bottom will be cut off.  That moment is getting closer and closer as waves of retirees come flooding in looking for SS, medicare, etc.

Fri, 04/15/2011 - 12:52 | 1172952 Shameful
Shameful's picture

They need to clear those IOUs painlessly for them, which will be currency debasement and ultimately a different currency system.  Now when the existing system breaks the people will scream for a tighter system, and they will get it, more then they could imagine.  After all the big boys will use their positions of power to preserve their fortunes into the next stage of the game.  All we can do at this point is try to tag along, system is dead on it's feet, only the mass man doesn't realize it.

Fri, 04/15/2011 - 12:08 | 1172761 Careless Whisper
Careless Whisper's picture

Brilliant, but just one piece of the puzzle. Could you add in the part about a few countries overthrown by the Agency, rebels forming a Central Bank, a prime minnister that likes sex with multiply 17 year olds, the gold in Fort Knox sold to finance secret arms deals, a big bank getting caught laundering $375 billion in Mexican drug money, troops guarding the poppy fields, the IMF conspiracy for a world central bank currency.....

Fri, 04/15/2011 - 14:59 | 1173526 WaterWings
WaterWings's picture

Well put.

One man's truth is another man's "conspiracy theory".

Fri, 04/15/2011 - 12:11 | 1172764 vast-dom
vast-dom's picture

if you want validation you got it -- i wholeheartedly agree with your above thesis Charles.

Fri, 04/15/2011 - 12:11 | 1172765 apberusdisvet
apberusdisvet's picture

Connect the dots:

Lybia is a test case to get us to abdicate our sovereignty and move on a UN command; there will be much more of the same.  UN = NWO (lite).  Hillary signs us up for UN small arms gun control worldwide.  The biggest obstacle to the elites is what to do about the 2nd Amendment in the US.  Its all about incrementalism; whether the marxists (unions/WH czars) or the fascists.

Please return to Obama's first days as President.  He signed an Executive Order giving Interpol in NYC the right to operate in the US without oversight, whether from Congress the FBI/CIA.  No audits permitted of Interpol activities.  WHY?

The author sets a hypothetical timeline 10 years off; the quadrillion derivative bubble cannot be sustained that long.

Fri, 04/15/2011 - 12:46 | 1172928 slewie the pi-rat
slewie the pi-rat's picture

disvet slewie sez +++

our writer of two minds doesn't have either of them wondering about what we see, does, he?

Fri, 04/15/2011 - 12:59 | 1172978 LawsofPhysics
LawsofPhysics's picture

"The biggest obstacle to the elites is what to do about the 2nd Amendment in the US.  Its all about incrementalism; whether the marxists (unions/WH czars) or the fascists."


Bingo!  When the second amendment is removed or modified to mean anything other than the right to bear arms against tyranny and put down a tyrannical government, then we can all start sweating.  My guess is TPTB would never even attempt this until the sheeple have been properly programed.  Basically, they need to have a welfare/warfare heavy state in order to insure anyone in the middle (with a functioning brain) is properly exterminated.  How many children, or adults for that matter even read the constitution or how many even know how to handle a firearm?

Fri, 04/15/2011 - 14:18 | 1173371 Sunshine n Lollipops
Sunshine n Lollipops's picture

No audits permitted of Interpol activities.  WHY?

Well, if yer gonna have a police state, ya can't do it without a secret police force, now can ya? Rounding up ZH troublemakers is best done on the QT.

Fri, 04/15/2011 - 12:09 | 1172766 spekulatn
spekulatn's picture

This is the ultimate endgame of the financialization of the U.S. economy and the concentration of wealth and thus political power in the hands of those who skimmed the immense gains from that financialization.


There should exist a digital version of the wanted poster.


Fri, 04/15/2011 - 12:10 | 1172770 Zymurguy
Zymurguy's picture

I think the additional aspect of the con is to absorb nearly all public real property and place it in the possession of the Central Govt. who along with the Fed and this maneuver you're laying out for us easily transforms our country into (what they hope to be) the most modern utopian Marxist regime in history.

Fri, 04/15/2011 - 21:48 | 1175015 GreenSideUp
GreenSideUp's picture

I'm glad I'm not the only one who thinks there's some nefarious plan for real estate.  Fast track to Agenda 21?

Fri, 04/15/2011 - 12:12 | 1172772 Kimo
Kimo's picture

"There is no Plan B, the bonds must be sold, and if there are no buyers, then the yield has to rise."

Plan B: QE3

Fri, 04/15/2011 - 12:16 | 1172801 SheepDog-One
SheepDog-One's picture

Upon announcement of QE3, gold and silver up 25%, dollar under 70.

Fri, 04/15/2011 - 16:39 | 1174008 slewie the pi-rat
slewie the pi-rat's picture

dollar index is only up against other fiat-scoes.  given that fact and the PPT's and their agents' market-making activies in the "markets" i'n not gonna say you're wrong, SD-1, but only that if they want to keep it @ 74.8 for the next 10 days, months, or years, why tf not?  peace.

Fri, 04/15/2011 - 12:11 | 1172777 catch edge ghost
catch edge ghost's picture

I'd agree with you except on #3. Americans don't do Austerity. Unless that's what we are going to call unprecedented wage and price fixing. Call it hyper-controlled inflation maybe. The Fed and its subsidiaries will attempt to track every single transaction in the system, in real time, down to the last $3 chicklet.

Co-locate with that Machine. bitchez?

Fri, 04/15/2011 - 12:28 | 1172857 dick cheneys ghost
dick cheneys ghost's picture

Correct me if I am wrong..........isnt Austerity already here?

Fri, 04/15/2011 - 13:00 | 1172972 catch edge ghost
catch edge ghost's picture

If you are referring to the recently announced budget cuts, the $38bn, the < 1%, the Tea Party Appeasement Act of 2011.. then sure.

But if that's the case, this Austerity business is easy and I don't know what all the fuss is about.

Fri, 04/15/2011 - 13:10 | 1173008 dick cheneys ghost
dick cheneys ghost's picture

Check austerity at the state level.........its already here.....the states in dire condition....massive layoffs now and will only get worse.....

Fri, 04/15/2011 - 15:44 | 1173724 Weaseldog
Weaseldog's picture

The budget cuts were just a cut to the increase in the budget. You didn't think the government was actually going to spend less did you?

Fri, 04/15/2011 - 16:23 | 1173939 catch edge ghost
catch edge ghost's picture

Nope. I didn't. As I see it, through Ben and Timmy's eyes, new money has to be created somehow, or we all die. So more spending, always and forever. Too much still isn't enough.

Fri, 04/15/2011 - 12:13 | 1172779 Jim B
Jim B's picture

Ummmm  You assume the Fed with stop monetizing and the government will quit spending... The Fed may stop, I don't think they will.  The politicians will not stop until a crisis occurs, and the crisis will be a dollar crisis!  

Fri, 04/15/2011 - 12:16 | 1172792 Jim B
Jim B's picture

PS.  You assume there is a plan, there is not, just irresponsibility!  Don't get me wrong, people will take advantage of this, but our leaders are truly irresponsible!

Fri, 04/15/2011 - 12:30 | 1172858 Calculated_Risk
Calculated_Risk's picture

Also forgot the three wars and global police force... as if we're going to pull out soon.

Fri, 04/15/2011 - 12:13 | 1172786 edmondantes
edmondantes's picture

The US government and most participants in its financial system are so highly leveraged that they cannot afford higher rates.  Most powerful participants are net debtors not creditors, leveraged 30/40/50 to 1.  Higher rates will result in generalised insolvency for these powerful actors.  Hence rates cannot be allowed to rise.  Hence QE1, 2 , 3 etc. This can work very well as long as the USD continues to be the global reserve currency.  The day this ceases to be the case the entire system goes: the Treasury market, the banking system, everything.  The US dollar is the faultline, not the Treasury market.

Fri, 04/15/2011 - 12:15 | 1172787 gasmiinder
gasmiinder's picture

Well I have bought into the "coming inflation" hypothesis myself for the last couple of years (and clearly some is here).  However, in the still of the night the little voice keeps asking:

"If you OWN the fed & the politicians, would you allow yourself to be forced to accept diluted dollars in repayment for 30 year fixed..........................."

I suspect the answer is no.  I suspect we are being conned.



Fri, 04/15/2011 - 12:29 | 1172853 Shameful
Shameful's picture

Broaden your mind.  If you could get unlimited $$$ for free (or swapping MtM dog feces for $$$) then do you need to clip coupons?  Or would you be better served buying real assets?  Personally I would be taking free money hand over fist and buying tangible things, the debt is a steering mechanism, real things are what matters.  After all the owners of real things will be better situated post crisis.

And if you think clipping coupons is better then pray tell how the US gets through this.  Austerity cannot happen do to the system that is built.  So unless we hit Fusion power really fast there is not enough momentum to carry us even limping along.

Fri, 04/15/2011 - 12:15 | 1172796 treemagnet
treemagnet's picture

I think thats more or less how it'll go down.  But don't forget to buy puts cause its going to be a hard landing for sure.

Fri, 04/15/2011 - 12:17 | 1172802 jkruffin
jkruffin's picture

How do you get a piece of this you ask?

Buy all the gold and silver you can hold onto.

When treasury rates top out (and they got a long way to go yet), and after gold has hit $3000+ and silver $150+ dump it all.

Then buy Treasuries yourself at the high end yields. Anyone can open a Treasury Direct account and be ready to pounce when the time comes.  Keep a monthly cash deposit going to your Treasury Direct account, and you will be able to buy when ready.

This is exactly what the PM's are doing, so why can't we?


Fri, 04/15/2011 - 12:51 | 1172949 slewie the pi-rat
slewie the pi-rat's picture

i will grant that, if this were to work, you would be king 0' the world, friend!

and god bless the "full faith and credit" of the slaves of amerika, too, eh?

Fri, 04/15/2011 - 14:16 | 1173367 stewie
stewie's picture

PM will tank as interest rates rise.  You'll be selling at the bottom, not the top.

Fri, 04/15/2011 - 15:35 | 1173677 LawsofPhysics
LawsofPhysics's picture

that isn't what happened in the 70's and 80's is it?  In the late 70's I know gold and silver kept right on climbing with interest rates.  

Fri, 04/15/2011 - 16:53 | 1174076 slewie the pi-rat
slewie the pi-rat's picture

up to a point, yes.  beyond that point, no. 

i missed both the bottom and the top in the Hunt v. Rockefeller silver-induced "gold" rush but ended up w/out my portfoilio of gold mine adr's (Am. Depository Rec'ts) and with a nice wad in 18% money market funds.  plus, my ex-wife even thought i was pretty cool for a short while, there, too! 

Fri, 04/15/2011 - 17:03 | 1174115 Geoff-UK
Geoff-UK's picture

Up to the point people actually believed the govt would stop inflating yes gold continued to rise, then reversed.


That won't happen this time.  The govt can't stop inflating.  "This has all happened before, and it will all happen again."

Fri, 04/15/2011 - 12:19 | 1172811 insatiablegenius
insatiablegenius's picture

Excellent, this is within the perfect spectrum of ideas that we should be bathing in. We only have two end results, hedging in both remains at a very low loss for us. We are preparing for a currency collapse and we are  evenly distributing wealth to sustain both events. Keeping your hedges even or near equal can be the premise towards successful gains in the future no matter the unit of exchange. We as investors seek not risk but reward for careful deliberation of future events and understanding that as humans mistakes are more than possible we carefully decide our future. I believe in precious metals but in any event where I may be incorrect I find a hedge to be a most admirable situation for my savings. We live for tomorrow to avoid today's sorrow.


Fri, 04/15/2011 - 12:21 | 1172813 Bullionaire
Bullionaire's picture

FOFOA, bitchez








Fri, 04/15/2011 - 12:25 | 1172831 Geoff-UK
Geoff-UK's picture

Destruction of the US Dollar is desired by many parties, not least of all: President Obama.  The re-configuring of the world's political and economic system for the benefit of the hyper-wealthy AND those socialists who want to run the world are two goals with the same outcome.  SDRs on the way, with gold/silver outlawed notionally (too difficult to actually go house to house searching).


CHS' little theory demands you believe that the USD will have any meaning 5 years from now.  There will be no austerity until the USD has exhaled its last breath.

Fri, 04/15/2011 - 12:59 | 1172971 slewie the pi-rat
slewie the pi-rat's picture

don't forget the new "ID/SDR" fiat cards or, even "economically" safer for you & yours, the biologically-embedded microchips!

Fri, 04/15/2011 - 13:10 | 1173005 SheepDog-One
SheepDog-One's picture

Yes and apparently Robo believes the food stamp and unemployment card sums will go up, thereby powering the new 'powerful unemployed consumer' driven market rally.

Fri, 04/15/2011 - 17:08 | 1174139 slewie the pi-rat
slewie the pi-rat's picture

sometimes i attempt to speak for the poor.  no shit.


LOL!  i think RT is freakin great too!  HahahahahahahahahahahahahahahahahahaHahahahahahahahahahahahahahahahahahaHahahahahahahahahahahahahahahahahahaHahahahahahahahahahahahahahahahahaha

Fri, 04/15/2011 - 12:23 | 1172832 centerline
centerline's picture

Seems reasonable to a point.  I think the con was not organized in a classical sense.  It was organic though.  Greed, power, etc. - and similar players, clubs and so forth chipping away at the system over time with only a general idea of where the math was going to lead.  Not to mention quite a few bit-players riding the coattails of the elite.

I think that ultimately the "con" worked out beyond the wildest dreams of all those who were involved.  The housing bubble was a fabulous success from thier point of view.  But, the downside is that apparently it worked so well they just may have killed the host class (probably have).  Now, in order to continue to game, the herd is going to have to be seriously trimmed down.  Inflation will be monetary.  Hyperinflation will be political.  Deflation will be flesh and blood.


Fri, 04/15/2011 - 12:26 | 1172844 Calculated_Risk
Calculated_Risk's picture

So in claiming high inflation is guaranteed, adherents are claiming that the entire financial sector will accept being wiped out, just so Mr. and Mrs. Taxpayer won't have to pay interest on the ballooning government debt.


No, they have already hedged with pms.

Sorry, this article is wrong in so many ways.

Fri, 04/15/2011 - 13:10 | 1173015 SheepDog-One
SheepDog-One's picture

Yes articles like these make broad sweeping generalizations based upon nothing. Smart people are already hedged with long term food stores, things like guns and ammo which are the only real useful commodities in a crack up of a nation, and PM's. He doesnt even mention that?

Fri, 04/15/2011 - 12:29 | 1172849 aerial view
aerial view's picture

Increasing rates in this enviroment could have extremely unpredictable consequences: it could permanently destroy the housing market, markedly decrease consumer spending, completely stop small business growth, further depress tax revenues, double unemployment and food stamp recipients, etc all leading to a very nasty, violent revolution where even the average joe says enough is enough and will take matters into his own hands after realizing it is our own govt leaders who are ultimately responsible.

Fri, 04/15/2011 - 12:31 | 1172864 The Count
The Count's picture some point the population will no longer put up with this nonsense and then watch out bbelow... yes, it will get ugly because the elite will not give up without a fight...



Fri, 04/15/2011 - 12:50 | 1172942 ElvisDog
ElvisDog's picture

In that context, I think Libya is a good example for what could happen here but on a larger scale - namely a corrupt but better armed elite being able to fend off the more numerous but poorly trained masses.

Fri, 04/15/2011 - 13:11 | 1173018 slewie the pi-rat
slewie the pi-rat's picture

many of the masses are quite highly trained, friend.  i got drafted in the 60's!  others were so young, dumb, and poor, they enlisted.  for decades.  centuries, really, but the decades man & women are still watching & waiting. 

why not get yerself a 2nd amendment firearm and some training if you are interested.  you will find " a well-ordered militia" all over the freakin place, and when the time is right, dancin in the streets.

here's martha & the "van-dellas" (vandals?) singin about it when motown was alive and really well and pumpin chrome and incredible ideas to the kids on the block.  the black kids and the the white kids, which really stared a few things, too!  like total national mobilization against vietnam, for example!   enjoy!  and don't point yer weapon at anyone till the "time is right" k?

YouTube - Martha and The Vandellas - Dancing in the Streets

Fri, 04/15/2011 - 15:40 | 1173704 LawsofPhysics
LawsofPhysics's picture

Yes!  This is the caveat of having to maintain a welfare/warfair state.  ARMY AMEDD Corp. 87-90.  Many have lived through worse and this time we really will be rebuilding a new republic.

Fri, 04/15/2011 - 17:46 | 1174336 slewie the pi-rat
slewie the pi-rat's picture

i don't mind welfare.  deToqueville said it was the essence of American Juice that our earlier Z's took care of what their neighbors really needed and didn't judge them harshly, even for faults and vices, perhaps, eh?  

i don't have a problem with the "state" taking part of this, where needs can be met more or less digitally, and with some "programs" even.  within reason.  i don't think the private citizen will ever forget where s/he came from and who is the neighbor, b/c we all are.

i would like to see it administered legally and easily thru a (gasp) negative income tax.  IRS digits, basically.  and let's get more fair tax structures, not just "pro-GE" and let offshore asshole BE offshore.  if we need "tariffs" let's just charge our good friends who don't like our fukin country and its workers, the companies, while we ensure that they will never mistake our nation and its polity and moronic processes of Liberty for their cat-box, ever again! 

the old ain't too shabby, friend;  even all my "new" ideas are decades, if not centuries, and in some cases, millenia, o-l-d. 

the republic we now enjoy is just fine in many, if not most ways.  then again, since it's been captured by the int'l banksters & their intel allies, things are kinda weird,here, too.  a few well-considered changes, perhaps?


Fri, 04/15/2011 - 12:38 | 1172891 hannah
hannah's picture

this idea is completely wrong...! it ia based on the premise that the usa will still be a viable/taxable entity which is bullshit.....i think this comes from the hope that we wont 'fall off the cliff' and go to mad max. we are in a debt spiral and we will not recover or 'do the right thing' because it is too late. there is more debt than the gov could ever buy. we cant print 4 quadrillion dollars.


i call bullshit.....there will be an event that will trigger a massive collapse which will take place over the course of several days and the market will fall to 300 and the electronic banking system worldwide will freeze up. from there it is either chaos (if you live in an american city with the leechfu%ks) or maybe a humane barter system in small communities...but we are toast and there isnt a way out.

Fri, 04/15/2011 - 12:42 | 1172919 High Plains Drifter
High Plains Drifter's picture

yes you are right. but trying to explain that to smith is like talking to a wall. they won't listen. they still think that the system will work if only some good people are put at the top to effect the necessary changes. they blame things on these puppets who have no real power and dismiss the power of the hidden hand, behind all of the events that are going on in this world. to him perhaps, HPD, would be a conspiratorial creature. i admit it. i am. that is one aspect of my character and the other one is that i am a hard core metal head. i cop to that charge as well..........

Fri, 04/15/2011 - 13:07 | 1172998 pazmaker
pazmaker's picture

This reply is to High PLains and Hannah,


In the scenario that you describe, most likely govenrment workers will not be able to be paid(governments bankrupt), if this is true, what do you think happens to local law enforcement?

Do they continue to exist?   and how do you think this would effect law and order? 

Truely seeking your opinions on this.  Local law enforcement have so much fire power compared to local citizens.

Fri, 04/15/2011 - 13:14 | 1173027 SheepDog-One
SheepDog-One's picture

Good points. Who knows what happens in a nations crack-up? Nothin good certainly.

Fri, 04/15/2011 - 13:26 | 1173092 hannah
hannah's picture

the gov police forces will do what they have always done in situations like this...they become one of the 'new power classes'and try and steal what they can from the local population. look at libya....those tribes are trying to grab as much real estate and power as they can in the vacuum....the local police forces will do what they did in new orleans which is grab grab grab.....

the only exception i think will be small communities....i think people will work together.

Fri, 04/15/2011 - 13:29 | 1173123 High Plains Drifter
High Plains Drifter's picture

even though the police chiefs are continually taken on all expense free junkets (paid for by you know who) to israel to get their minds right, i suggest, police will be a non factor when the shtf. after all, they are human beings with families. when it goes hot, they will go home. also, who really knows just how many of them do not like what is going on, but remain silent in order to keep their jobs. so in any gaming scenerio, perhaps, the local police may well come out in force against the populace but this won't last long. they will lose control quickly. it is also not necessarily a fact that they have more fire power than the populace. this is not the case in texas, that is for sure. of course they have their little armored car toys that the government has given them etc. but these can be taken out easily when the time comes. when war comes. when there is no law and what is necessary has to be done for survival etc. in any gaming scenerio, one must ask how long can this go on?  not sure. it can last for months. it can last for years. who really knows.  me be plain.

Fri, 04/15/2011 - 13:49 | 1173244 pazmaker
pazmaker's picture

Thanks for your thoughts.  I was just curious what others were thinking.

Fri, 04/15/2011 - 14:42 | 1173456 samsara
samsara's picture

I think you be right again HPD.  Especially about the 'Police'


Fri, 04/15/2011 - 13:38 | 1173174 Calmyourself
Calmyourself's picture

Loco law do not carry auto weapons.. What is this firepower you speak of surplus LAW's, Milans or.. Their little armored toys would be out matched quickly by sheer numebrs of disturbances..

Fri, 04/15/2011 - 13:50 | 1173237 pazmaker
pazmaker's picture

mostly all local law enforcement have tatical teams and yes they have automatic weapons, stun grenades, gas and gas mask.  At least I kow for a fact my local sheriff office has this.

Fri, 04/15/2011 - 15:59 | 1173827 Calmyourself
Calmyourself's picture

Let me know when they get .50's until then MP5's he

Fri, 04/15/2011 - 15:57 | 1173814 High Plains Drifter
High Plains Drifter's picture

earlier this year, chicago pd, got a shipment of full auto m 16's. farrakhan was commenting about how he wondered just who it was that they intended on using those on?  i ask the same question.


the armored cars might be useful in some takedown in a neighborhood of one individual, but if they try to deploy that in the city, it will be very vulnerable to molotov cocktails etc. now if people in a neighborhood decide to stick together, well that would be a major problem for them as well.  it all boils down to just how much pushing are they willing to do and just how many casualties are they willing to take and do they have the nerve to go to what intrinsically may be said to be , war, with the american people. i say they will refuse to do it because they want to go home walking and not in a body bag. i submit they will lose their nerve.


Fri, 04/15/2011 - 16:07 | 1173859 Calmyourself
Calmyourself's picture

FA 16's useful in a belt buckle fight or supressive fire otherwise not so much.. Armored vehicles scarey? You bet, but when your starving and your used to eating nachos while watching DWS and Idol and the world turns upside down not so much. I still think it will take years to get there and getting off the hyperdeflation/hyperinflation fence just yet is unwise, call me a heretic if you must..

Fri, 04/15/2011 - 18:09 | 1174448 zerozulu
zerozulu's picture

I know a few countries where government has no money to pay local police. In those places police have barriers on the roads and collect bribes from public on the gun point. They will shoot you for resistance. They work 24hours shift and are the richest people in the town.

Fri, 04/15/2011 - 12:53 | 1172957 ElvisDog
ElvisDog's picture

hannah, you are such a god-damned pollyanna. Everything is always sunshine and unicorns with you.

Fri, 04/15/2011 - 13:03 | 1172985 hannah
hannah's picture

my next door neighbor who just relocated from california (golden locust), bought his new home and 10mths later has had his gas disconnected for nonpayment. 4 foreclosures and some multiple foreclosures (foreclosed on same house 3 times)....the neighbors cars 'picked up' in the middle of the night by the repo man. half the people in my subdivision dont go to work any longer which is good in one respect, it is a 100mi round trip to town and the gas would kill them!

i just call it as i see it....but i did buy my pet unicorn a g17 and 1000rnds of 9x19...LOL!

Fri, 04/15/2011 - 13:27 | 1173095 slewie the pi-rat
slewie the pi-rat's picture

LOL, indeed paladin palindrome Z!!!  enjot the parties @ the rod & gun, too!  wheee!

Fri, 04/15/2011 - 13:42 | 1173184 Calmyourself
Calmyourself's picture

If your going to reliably penetrate you require 7.62x51

Fri, 04/15/2011 - 14:09 | 1173331 hannah
hannah's picture

no..!....7.62x39...comes in a can and last forever and is comrade!

Fri, 04/15/2011 - 14:11 | 1173346 X. Kurt OSis
X. Kurt OSis's picture

Good call.  I used to be really bullish on 308's.  Now I've got a 223 308 cross. 


The point?  When the shit hits the fan, NATO rounds are going to be lying around all over the place.  Load up on post-94 ban weapons that can chamber all of them!

Fri, 04/15/2011 - 15:59 | 1173828 High Plains Drifter
High Plains Drifter's picture

just shoot lower center mass. you will get their attention.......ha ha ha

Sat, 04/16/2011 - 05:49 | 1175496 slewie the pi-rat
slewie the pi-rat's picture

i think hannah's unicorn has a glock 9mm pistol.  a little more unicorn-friendly than the colt .45 but just as pushy, up close & personal. 

hannah & the unicorn.  nice!

Fri, 04/15/2011 - 12:38 | 1172893 citizen2084
citizen2084's picture

This is very interesting  outline.  I do disagree with the premise slightly because a) there is more at play than just the oligarchs b) I feel a big problem will be protecting the status quo today. 


How will the rest of the world play into the elites plans?


When (not if) yields go up it will expand the spending at a far higher rate than can be taxed to pay for it. How will that delta be resolved?  This the question that I do not think is answered in the post.  



Fri, 04/15/2011 - 12:36 | 1172895 Calmyourself
Calmyourself's picture

We are going to issue another 16T on top of the existing 14T and use those same dollars to buy oil until 2021.. ha, no the Arabs may wish to return to the 7th century and lop off some infidel heads but that does not mean they cannot do math..

Fri, 04/15/2011 - 13:15 | 1173030 SheepDog-One
SheepDog-One's picture

'That does not mean they cant do math'..LOL classic.

Fri, 04/15/2011 - 12:41 | 1172914 AlaricBalth
AlaricBalth's picture


A thought-provoking Bloomberg TV interview hosted by Tom Keene was posted this morning by Dr. Ed Yardeni concerning the current state of the economy. Dr. Ed Yardeni is the President and Chief Investment Strategist of Yardeni Research and I have followed his work and respected him since the early 80’s when he was Prudential-Bache’s chief economic forecaster. During the interview Mr. Keene surprises Dr. Yardeni with a question which is not to be uttered publicly by “ruling elite”. Dr. Yardeni seems a bit embarrassed by the question but makes a nice recovery.

The exchange occurs at 4:27 of the following link;

Yardeni: “The country has sort of bifurcated to the haves and have-nots and the haves are still spending money.”
Keene: “How do you short the have-nots?”
Yardeni: “That’s not a nice question.”

Fri, 04/15/2011 - 13:20 | 1173057 X. Kurt OSis
X. Kurt OSis's picture



That's easy!  Long XLF.

Fri, 04/15/2011 - 13:36 | 1173150 slewie the pi-rat
slewie the pi-rat's picture

okey-dokey, kids. watch MSM and buy ETFs. riiiight!!!

hope ya don't mind if those of lesser intelligence do neither!

Fri, 04/15/2011 - 13:59 | 1173300 X. Kurt OSis
X. Kurt OSis's picture

I don't follow but that's okay. 

You're the basis on this trade.  This is a trade recommendation for those non-basis holders looking to naked short you (and I for that matter).

Sat, 04/16/2011 - 05:53 | 1175498 slewie the pi-rat
slewie the pi-rat's picture

sorry, XK0, have-nots just do not fukin care about MSM "economic" ideas and ETFs.  really.  trust me.

Fri, 04/15/2011 - 12:42 | 1172915 6 String
6 String's picture

I think Charles arguments breaks down poorly:

1. Treasury market now dependent on one buyer: check.

While that might be true at the moment, it won't be when #2 initially transpires:

2. That buyer stops buying, pushing rates higher: no QE3. Check.

When QE ends June 30th, the markets will tank. A lot of that money will bid treasuries as it did between QE1 and QE2. Most 401ks, pensions, etc. have no where to go other than money market and bond debt because there is no PM choice whatsoever. As equities tank, the sheeple will run to their only choice.

For those astute that have choices, the money goes from equity to PM's, which is why Gold went up between QE1 and 2.

The problem is that the real economy will continue to detiorate. So while the Treasury gets a bid for awhile, it won't indefinately. As the economy deteriotes, Congress is in a jam. What will they do? Cut 1 trillion out of the budget immediately?

Of course they won't. Both Republicans and Democrats want to slowy phase in spending cuts. So after awhile, the Treasury WILL go bidless. When rates start to fly, chaos starts to ensue (down stock market, down economy, down tax revenues).

Righty-O. At this point, stocks are tanking, the real econony is tanking and the funding needs for the Govt. become even more hopeless than it is now.

This is how the Bernak is also playing it. He'll come in, to the rescue--of course--and have to implement QE3. There will be no other choice and Bernanke will be able to blame congress for everything and try to deflect all blame of the Federal Reserve despots.

In other words, if the events play out as Charles claims, all that it will mean is a total repeat of last summer.

This is why if they were going to really try to land this 747 through a paper cut, they would continue right on with QE3, only to bridge funding for government as they go for a really fast cut in entitlement, defense, and all governement spending immediately. Or put another way a 1 trillion dollars in cuts right away (which we know will never happen until it is forced upon them by market forces).

So know matter what we're fucking doomed. Shorting the market sometime between now and June 30th is the optimum bet...and as soon as another Jackson hole moment comes, cover, go very very long PM's.

And with a patient mindset, shorting treasuries is a no brainer over the longer term, 1 year or more. The CAGR will be fantastic.

Fri, 04/15/2011 - 12:41 | 1172922 redpill
redpill's picture

First the writer needs to stop with the "heretic in the cult of hyperinflation" garbage, as if he's the only one who writes a blog post that has a different take on the situation.  Lay out your theory but please cut the bullshit.  You know damn well you don't have the slightest clue what is going to happen and you're making your best guess like everyone else.

Second, the only way that inflation can be contained at this point would be a Volcker-esque rate hike, but such a move would utterly devastate the economy which is on QE-life support, explode the national debt interest, and quite possibly lead to civil unrest in some form.  Making such a move does not logically jive with how the Fed has behaved up until this point.  The Bernank is a true Keynesian devotee, and he will keep showering the market with USDs for as long as he can, to extend and pretend, stretch out the game into extra innings.  From his "student of the depression" perspective, time is on his side, and as long as he can keep printing, the better chance he has of the economy finally "coming back" as a result of his policies.

Fri, 04/15/2011 - 13:10 | 1173016 hannah
hannah's picture


Fri, 04/15/2011 - 12:43 | 1172925 scaleindependent
scaleindependent's picture

Good article. And why can't it happen HERE?

It is just the application of "Confessions of an Economic Hitman" to the domestic market.

Fri, 04/15/2011 - 12:44 | 1172932 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Con of the decade!?

More like the biggest con history has ever seen.

Fri, 04/15/2011 - 12:54 | 1172959 hannah
hannah's picture

kill double posts....getting database errors...?

Fri, 04/15/2011 - 12:56 | 1172960 Yossarian
Yossarian's picture

Interesting analysis but a few observations:

-Why does all analysis assume that the US operates in a bubble?  There are other interests in the world who may own $'s but do not own Treasuries- perhaps they may have some say in how those $'s are deployed?  

-The "elite" are not one group that acts as a block but an amorphous group from various cultures (some more represented than others) that postures amongst themselves.  They do not act at one time but it seems big moves trickle down from the top as the word spreads.

-What is the breakdown of the assets of the elite?  I'd guess that there is a strong component in property, land, and other real assets (cash flowing businesses) along with public equities and financial fixed income assets.  The initial stages of a hyperinfaltion (if that's what we get) would drive the value of the equities higher (we're seeing that) while raising fixed income yields.  I can see the elite continuing to move towards inflation hedges (as we're seeing) while rolling their cash flows into higher yielding fixed income, clipping coupons along the way which go to infaltion hedges....until a modern day Volker comes and gets ahead of inflation at which point the reverse happens and capital flows back into fixed income as well as defaulted real assets.    

-Money doesn't create any wealth- it is just the means by which we keep score.  Being high up on the information chain with respect to monetary/fiscal/geopolitical developments will allow them to stay one step ahead of the average guy.

-There is ficticious wealth in the system in the form of promises, which are expected, but cannot be delivered.  One way or another- either via in/de-flation the promises will be recalled and that process will hurt, but the elite will likely come through ahead (b/c we sheeple will allow it to be so).  -For instance, we will either see scaled back promised benefits OR increased anticipated taxes.  If the former one party will be forced to save more or be more discerning with their expenditures; if the latter, another party will have to pare back their budget accordingly.  One way or another, it will happen.
Fri, 04/15/2011 - 15:57 | 1172975 ebworthen
ebworthen's picture

"This is the result of the Keynesian Cult's One Big Idea, which is to pull demand forward and encourage borrowing and spending now by any means necessary, and thus sacrifice capital formation/saving."


And after sacrificing capital formation/saving, families must sacrifice their seniors and babes in arms.

Perverse it is.


Fri, 04/15/2011 - 13:09 | 1173003 arnoldsimage
arnoldsimage's picture

yea yea... i know it's off topic, but this is for our wonderful, compassionate ann coulter. here's looking at you, ann.

Fri, 04/15/2011 - 13:13 | 1173034 SheepDog-One
SheepDog-One's picture

Thats a MAN, baby!

Fri, 04/15/2011 - 13:12 | 1173012 mt paul
mt paul's picture

link of max keisier

throwing down 

on british TV...

Fri, 04/15/2011 - 13:12 | 1173025 Commander Cody
Commander Cody's picture

I am the Commander and I approve this message.

Fri, 04/15/2011 - 13:15 | 1173031 NO1HOME
NO1HOME's picture

OR "Rise Up"

Music for those who know:


Fri, 04/15/2011 - 13:17 | 1173052 Smokey1
Smokey1's picture

What a crock of bullshit. Desperately trying to be a prophet, get acclaim for such extraordinary insight. My five year old neice could concoct a more plausible scenario.

Fri, 04/15/2011 - 13:19 | 1173062 AldousHuxley
AldousHuxley's picture

The con man Madoff says Wall St. is a ponzi scheme.



Fri, 04/15/2011 - 13:32 | 1173127 Bastiat
Bastiat's picture

Just posted this on another thread but thought it worth repeating:

Was chatting with a Canadian mining finance buddy.  He's now in Switzerland pitching his company(s).   Told me the Swiss fund guys, and he's met with a good sample, are all very bullish on gold--most thinking $2K this year.  The gnomes gnowes gold; fade 'em at your peril.

For you folks this is a second hand anecdote off a blog board.  For me it's coming 1st hand from a guy I know and trust.  Do what you will with the cred-spread.  Just passing it on for those with ears to hear.

Fri, 04/15/2011 - 13:47 | 1173220 slewie the pi-rat
slewie the pi-rat's picture

you may be preachin to the choir a bit, here, B, but i don't mind a good song and hearin the good word, too, friend.  amen, brother B, amen!

Fri, 04/15/2011 - 13:32 | 1173128 medicalstudent
medicalstudent's picture

commodities have supply and demand.


dollar is a commodity.


hyperinflation is loss of dollar demand.



Fri, 04/15/2011 - 13:41 | 1173179 pitz
pitz's picture

It works...until the producers give up.  Which they mostly have, especially the US engineering workforce which is largely non-existent.  And the Indian H1-B's and Green Card people won't be sticking around if there's a hyperinflation, that's for sure.  They'll be on the first thing smoking back to Bombay.

Fri, 04/15/2011 - 13:41 | 1173180 medicalstudent
medicalstudent's picture

as rates rise, currency supply tanks... hard.


unemployment explodes.


social unrest unfolds.


i agree with your contingency if the social unrest does not destroy the country (and the dollar) and no new currency is introduced to monetize this unrest.


great article, man.

Fri, 04/15/2011 - 13:44 | 1173217 Muir
Muir's picture

To the many hundreds of Lemmings at ZH

Hundreds of posts, very actually posting about deflation as a possibility.


So, here's are easy to understand (for the many lemmings here) reasons why deflation is entirely possible


1. Because the top 1/10 of 1% of the upper class in the U.S. has already been bailed out.

2. Because the upper 1/10 of 1% may consider it in their best interest for  this to occur.

    (reason: because they already own the means of production via your scoffed at "stocks" and the raw materials (commodities))



Fri, 04/15/2011 - 13:51 | 1173257 sgt_doom
sgt_doom's picture

+1 quadrillion, big guy with bouncing you-know-whats.

Although, there is always the possibility of a replay with the situation which occurred in Hong Kong back in the late '90s, early '00s, when China took them over and relocated their production assets over to the mainland.

I believe it was both super-deflation and hyper-inflation, if I'm not mistaken?

Fri, 04/15/2011 - 17:43 | 1174306 Geoff-UK
Geoff-UK's picture

Fair enough.  But how will deflation occur with the govt spending like a drunken sailor with 15 minutes left on shore leave?


If need be they'd seize the Fed and hit the "print" button themselves.

Fri, 04/15/2011 - 14:06 | 1173259 iLoveMisesToPieces
iLoveMisesToPieces's picture

ALL economic collapses end in deflation as the debt backed by thin air is destroyed.  That doesn't mean your PMs are going to deflate.  In fact, their demand will sky rocket increasing their value while other assets prices deflate to their free market price.

Second, there is absolutely no way in hell rates are going to go up in any significant way.  I agree, the Fed will throw a head fake that will be nothing more than an opportunity to buy the small and very temporary dip. 

There are two roads to our impending collapse:

1) Take the government out of the market which will set the economy into a deflationary free fall.  Everything will grind to a halt and the entire country will be rioting in matter of weeks.

2) Continue to prop up the markets by exporting our inflation and printing dollars which will eventually lead to a collapse of the exact same magnitude and scale, it will just take longer to happen and will be much easier to blame on something/someone else.

If someone put a gun to your head and said you can die now or a year from now, must of us would take the year and hope the situation worked itself out somehow.

Fri, 04/15/2011 - 13:54 | 1173267 pcrs
pcrs's picture

still raging the deflation/inflation debate?

I think when the ones who are legally allowed to use force are key.

If they have more debt than Joe Sixpack, money will become cheaper and debt will be inflated away. If Joe Sixpack anticipates and goes into debt deeper than those who legally coerce him, the break goes on the money supply and money becomes more expensive..

Overall every decade in the last century was inflationary, it's such an effective way to steal from the slaves, I can not imagine they will give up their money printing monopoly..

Fri, 04/15/2011 - 14:04 | 1173312 iLoveMisesToPieces
iLoveMisesToPieces's picture

It isn't a debate at all.  I'm simply stating that after a hyperinflationary crack up boom which is what I see coming, there is then deflation as all the fiat assets are destroyed and prices of those things boosted by them drop. 

Fri, 04/15/2011 - 15:05 | 1173547 pcrs
pcrs's picture

I have never seen a deflation after hyperinflation. You get a new fiat ripoff currency, but never does the old one deflate. That would be great, you fish one of these 100 trillion $ bills from a forgotten cubbert and buy the whole economy with it.

You just get deflation in terms of gold and silver, which is what we already have since 2000.

Fri, 04/15/2011 - 13:56 | 1173278 gringo28
gringo28's picture

sorry, this is totally fucking stupid. your first mistake: assuming these people think rationally. they don't. second mistake: democraps will let a good 'ole populist witch hunt go to waster DURING AN ELECTION YEAR. third mistake: treasuries will not "free-fall"; China may not be a buyer today but China is a buyer at a price; that price doesn't have to be that much lower per se. Remember: a true sell-off in treasuries will screw China and hurt the US consumer who is in turn China's golden calf.

this is a classic case of ockham's razor. the most practical solution is to simply extend QE. that's it, done. at least the outcome is known and the resistance is measurable. China will only appreciate its currency when cost inputs force them to do so. That's the real game of chicken being played here.......

Fri, 04/15/2011 - 15:36 | 1173670 alexanderstollznow
alexanderstollznow's picture

"Remember: a true sell-off in treasuries will screw China"

i think you are forgetting an important point about the effect of price movement on the holders of bonds, are you not?  do you know what i am referring to?  does anyone on ZH?

Sat, 04/16/2011 - 06:16 | 1175507 slewie the pi-rat
slewie the pi-rat's picture

uhnhh...if ya hold to maturity ya get the rate you paid for, so what the fuk difference do price swings mean? 

i think our friend was thinking more of an ass-kicking than the bonds @ 130++ going to 120--.  130++ was "fear" + ZIRP;  and 120-- is, as you infer, no problemo, to china or anyone, really.  but a true sell-off implies what tyler is calling, too, and t-r-o-u-b-l-e for a nation which is gonna get hammered, fiscally hundreds & hundreds of $ Bn. per percentage increase, and katie, bar the door!  this is "full faith & credit" erosion.  can you say default?  people write cogently, frequently about "tipping points". 

our fiscal & monetary leadership sounds like donald & goofy having splinter & knothead over for a cup of tea! 

we're apparently, s'posed to spend another decade pretending that isn't so. 

the only "good" new is that china sounds like rocky & bullwinkle!

europe sounds like olive oyle, and popeye has lost his spinach.  again.

Fri, 04/15/2011 - 14:01 | 1173311 Troublehoff
Troublehoff's picture

Regardless of what happens to the USD - there is a world outside of the USA, in which you can guarantee PM's/commodities will have purchasing power - the whole plan discussed above also depends on the USD not losing its reserve currency status - that process is already in motion.


Nope - I'm not buying it - There is no imaculate plan - just greed, corruption, misguded ideology and incompetence..


when you understand that - you understand that very high (if not hyper) inflation is here until USD purchasing power forces the US public to live within its means


This to me is as clear as day.

Fri, 04/15/2011 - 15:11 | 1173574 pcrs
pcrs's picture

I would not call it incompetence if these people spend most of your income and there is nothing you can do about it. They are only incompetent if you believe they are doing their best to help you, but clumsily fail at it every time, accidentally increasing their power and stronghold of the economy. But if you believe that, maybe you are misguided.

Fri, 04/15/2011 - 15:44 | 1173692 Troublehoff
Troublehoff's picture

You'll notice that I did mention 'Greed'. I'm not saying we aren't being taken advantage of... just that there is no 'Grand Plan' more like special interests getting their own way at every turn. 


Oh, and there are a few genuinely well meaning socialists out there - useful idiots, I know 

Fri, 04/15/2011 - 16:38 | 1174013 pcrs
pcrs's picture

Not a plan as in people sitting down in a back room plotting it all out. More like lions going in for the kill in a pack. Naturally evolved subconcious planning for predation. They follow their feeling and are very succesful in it. 

Anyway, the more I look at it, the more I stand in awe of how well it works and how many it fools. I think the clumsiness is part of the act. Fascism it sneeks up on you.

Fri, 04/15/2011 - 19:50 | 1174739 Troublehoff
Troublehoff's picture

On that we agree.

Fri, 04/15/2011 - 14:13 | 1173345 Bastiat
Bastiat's picture

The story isn't the "setup of the con of the decade" but rather the unraveling of the FRN con of the last century. 

Fri, 04/15/2011 - 14:14 | 1173350 ak_khanna
ak_khanna's picture

The way Banksters are currently minting money.

They are driving the USD index down and pumping up everything else. This process will continue till there are no long positions left in the USD index and no short positions in any of the commoditie­­­s, stock or currencies other than the USD.

The operators are then likely to take the long position on the dollar and short position on everything else. They would then use their money power to move the markets in the direction which would get them the maximum profit while screwing all other traders / hedge funds / investors.

The stock, commodity and currency exchanges have been reduced to gambling dens whereby the more powerful traders with deep pockets move the markets to maximize their own profits at the expense of the remaining not so powerful players. The big boys have enormous money power to move the markets in the direction which results in maximum profits for themselves­­­. They effectivel­­­y use the media to lure the other players in the market to a position where they would incur maximum loss.

The markets will turn downwards only when the banksters have eliminated all the short positions and only they themselves have positioned themselves to profit when the market falls


When an unexpected world event catches the banksters with their pants down and the softwares they use to rig the markets go berserk beyond their control.

Fri, 04/15/2011 - 14:25 | 1173395 Sunshine n Lollipops
Sunshine n Lollipops's picture

So, to sum up: Carpetbagging will continue as usual.

That is all.

Oh, and don't be debt donkey.

Fri, 04/15/2011 - 14:29 | 1173397 Zero Govt
Zero Govt's picture

"In effect, it's a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better."

The only spanner in the works of this grisly plan by The Parasite Club would be if Joe Public woke up and dumped the parasites tool to bleed dry society, Government, into the toilet.  Government is the biggest corruption mechanism for all types of lazy and morally disgusting parasites to live off societies earnings.

Taxation of any type is robbery. End Govt and we end all this corruption (and gain our wealth and freedom back) in one beautiful knock-out right hook

Fri, 04/15/2011 - 14:27 | 1173406 the grateful un...
the grateful unemployed's picture

" a paranoid is a man with all the facts.."

there are other ways to look at this, one thing is that the creation of money has been completely privatized. Bernanke can only print the cash after the debt has been monetized. The crisis in 2008 came about when privately monetized debt began to overwhelm government efforts to control the money supply and interest rates. The stock market seems to appreciate the return to a more rational bias in money creation. 

Will the Fed allow monetization to get away from them, again? This is where Bernanke returns to his goal of an inflation targets economy. How does he keep the private economy from outprinting him? Those who want to abolish the Fed, hey you almost got your chance, but it's unlikely they'll let that happen again.While the economy remains stangnant it is safe for him to pursue ZIRP. Expect, a little raise, and a lot of jawboning ahead of the political elections.



Fri, 04/15/2011 - 14:30 | 1173414 scrappy
scrappy's picture

Charles is a prolific thinker and blogger, and I respect his work, but reagrding checlist item 2,  That buyer stops buying, pushing rates higher: no QE3. Check. I would say, and I am no expert, but Jim Rickards alludes to the balance sheet on present Fed US Treasury holdings, and says rolling it over could keep interest rates down as a kind of stealth QE, at least for a while...just a thought...


I also respect Rickards level headed strategic and tactical thinking as well

Fri, 04/15/2011 - 14:31 | 1173421 Kidrobot
Kidrobot's picture

Reminds me of an article I read in the Guardian a few years back.  Im sure this has been linked many times here on ZH.


Fri, 04/15/2011 - 14:43 | 1173462 UrbanBard
UrbanBard's picture

Didn’t Paul Volcker do this in the 70s? What makes the FED think that conditions are similar enough to repeat the scam?

America was a net creditor nation back then.

We didn’t have as many dollars and T-bills overseas.

We had a manufacturing base to create real wealth.

In the 70s:

The FED cut back on money creation so that interest rates rose to 16% and ultimately to 21%. This caused a deep recession which rung out excesses. But, The FED never stopped inflating the money supply, so we never had a complete correction. Nor did the government decline in size; The national debt and deficit just didn’t rise as fast under Reagan. Will the FED get it right? Is there enough dynamism in the economy for it to recover? Will we have permanent stagflation like Japan? Aren’t we already in a recession now? As soon as the FED stops QE2, then the stock market will tank.

Unemployment officially reached 16% and under employment was at 25% by the late 70s. We are already at 10% and 17% now. How much more can unemployment rise before there is a crisis point?

The CPI officially reached 16% in the late 70s, but these statistics were understated when they were really 25%. CORE CPI is officially running at around 2%, but that excludes energy and food. John Williams of Shadowstats says that real price inflation is just under 10%. By the end of the year, from what is already in the pipeline, we will see real price increases of 15 to 18% increases.


If the FED does what Charles says then we can see much higher prices  than that. How? If price increases rise high enough, then the holders of US debt overseas will turn them in for US goods. This would increase prices drastically in the US. If prices increase fast enough then this could throw us into a hyperinflation as people lose confidence in the dollar.


I can agree with Charles that this the FED’s intent; The question is whether they can pull it off. Do they have enough control over the economy?


From a personally selfish perspective, I hope Charles is right and the FED can kick this can down the road. A hyperinflation is a very frightening thing. I would do okay if America repeated Jimmy Carter’s administration. I would come out of a stagflation with my assets intact, since precious metals will do well because of the economic chaos produced by the FED. Stocks will be depressed because of high interest rate, so there will be a time to jump. Of course, a hyperinflation would produce even more fear and a higher return.


The problem with Charle’s position is that he must hold dollars during the next year while there is moderately high inflation. Even T-bills at high rates won’t be enough to overcome price increases. If a deflation comes then Charles can pick up stocks cheap. Sorry, Charles, I don’t trust the FED enough to bet with them.

Fri, 04/15/2011 - 14:44 | 1173475 scrappy
scrappy's picture

Charles is a prolific thinker and blogger, and I respect his work, but reagrding checlist item 2,  That buyer stops buying, pushing rates higher: no QE3. Check.


I would say, and I am no expert, but Jim Rickards alludes to the balance sheet on present Fed US Treasury holdings, and says rolling it over could keep interest rates down as a kind of stealth QE, at least for a while...just a thought...


I also respect Rickards level headed strategic and tactical thinking as well

Regarding the end of treasury buying by the Feds primary dealers, I believe it has to continue. Balancing budgets, austerity, are conjecture in this keynesian world of "growth demands" of the system itself. 



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