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Guest Post: Taking Away The Punchbowl

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

Taking Away the Punchbowl

Federal spending has risen by 40% since 2008 and the deficit has soared to over 40% of Federal spending. That's the punchbowl Wall Street fears might be taken away.

Whenever I unleash a tirade at home about how Federal spending has leaped 40% in three years and how the government is now borrowing 42% of its spending, my wife points out that nobody cares because the deficit doesn't impact them at all. This always stops the tirade in its tracks, because it's so obviously true.

As long as the Federal checks keep being issued and everyone gets their 17 "low-cost" meds paid by Medicare, the National Defense State gets unlimited billions to spy on the citizenry and indeed, the entire world, gasoline at $1,000 a gallon flows freely in Afghanistan and other distant corners of the Empire, and Wall Street writes itself billions in bonuses, then nobody cares about the deficit.

The only way anyone will feel the deficit is if their share of the Federal swag is trimmed to pay the interest on the ballooning debt. But the Federal Reserve has a solution to that eventuality: keep interest rates (and thus yields on new Federal debt) super-low.

At zero interest, $50 trillion in debt costs nothing. Heck, you and I could handle the interest payments on $50 trillion at zero interest. At 1%, the interest is "only" $500 billion a year--no big deal, as we can easily borrow another $500 billion a year, no problem. After all, the bond market hasn't barfed yet and we're already borrowing $1.65 trillion a year, plus hundreds of billions "off-balance sheet" in "supplemental appropriations."

(Of course the bond market has been "helped" by the Fed buying $600 billion new Federal debt over the past nine months, but there's no limit on that "help" either: there is literally no limit on the Fed's balance sheet, because $50 trillion in Federal debt is an "asset" that pays a yield. A nice, solid balance sheet, loaded with assets.)

As long as short-term interest rates remain near zero, the deficit spending game can run a long, long time. Here is the current yield on Treasury debt, courtesy of the U.S. Treasury: Daily Treasury Yield Curve Rates. The yield on one-year Treasuries is .18%. Given that "official" inflation (Consumer Price Index) is 3.2%, and unofficial (a.k.a. real-world) inflation is running much hotter, the investor/mark is losing 3% a year by investing in T-bills at .18% yield--or perhaps in real-world terms, 5% or more.

It's like a subprime "teaser rate" mortgage that never adjusts. Imagine having a $100,000 mortgage at .18% interest. The interest would only be $180 a year. On $1 trillion, it's only $1.8 billion--a trivial sum (at 10%, the interest is $100 billion, at 1%, it's $10 billion.)

As long as the Treasury can borrow money this cheaply, there is no visible limit to how much the Federal machine can borrow.

And Wall Street likes it that way--a lot. If you read between the lines of this story-- Moody's sounds alarm over U.S. debt limit and deficits, then you see what correspondent Kevin M. observed when he sent the link to me:

This underscores your point about the unholy alliance between Washington and Wall Street.

On the surface, one might expect Wall Street to be in opposition to federal borrowing because it crowds out investment in private offerings, like stocks. But clearly Wall Street has abandoned it's traditional view of business and the economy, and is now pinning it's hopes entirely on government liquidity.

This is truly scary. The force of interests pulling in opposing directions has always served to bring balance to the economy. That no longer exists, as if all of the forces are crowding on the same side of a sinking ship.

In effect, the income which should flow to savers and owners of surplus capital in an economy that isn't centrally managed (a.k.a. the People's Republic of America, complete with A Natural Security Apparatus, unaccountable Central Bank, kangaroo-court judicial system (just look at ForeclosureGate) and phony elections where the choice is always between hand-picked stooges of the Ruling Elite) is diverted to Wall Street and the "too big to fail" banks.

The one thing uniting the nation is dependence on the Federal punchbowl. But as I noted yesterday ( Can We Please Stop Pretending the GDP Is "Growing"?), there is a unique dynamic to this "recovery"--Federal deficit spending just keeps rising as the economy "recovers."

Many people have noted the parallels with Japan, which has managed decades of profligate Central State largesse by keeping the yield on its government debt near-zero, and relying on its citizenry to take both sides of the trade, that is, to be the owner of the debt and the recipients of government spending via pensions, etc. Put another way, the citizen who buys a bond is also the counterparty.

But Japan had a prodigious savings rate until recently, and securities laws which limited citizens' investment options that effectively channeled much of the nation's savings into government bonds. This dynamic has enabled Japan to balloon its sovereign debt to 225% of GDP.

But the U.S. savings rate is low. It is currently around 5%, up from minus 1% in the housing bubble era, but the official measure of "savings" included paying down debt. Ahem, that isn't savings. If I pay off my $5,000 credit card with $5,000 in cash, I do not have $5,000 in surplus capital, i.e. savings which I can tap. I have zero cash.

The reality is the U.S. doesn't generate enough surplus capital to support $2 trillion (remember to add in the supplemental appropriations and other off-balance sheet borrowing) in Federal debt each and every year until Doomsday.

The other reality is that nobody in their right mind wants to buy debt yielding 0.18% when inflation is 3.2% at best. It is not "attractive" because the buyer can only make money if rates drop further, boosting the value of the bond. At near-zero, there isn't much room for bonds to drop further.

Readers often write me to note that there is no interest due on money the Federal government might just print, rather than borrow via selling bonds. This is true. As I have detailed before in Is the Recovery "Self-Sustaining"? Here's a Test (March 22, 2011), the costs of alleviating the suffering caused by the recession (food stamps and extended unemployment) is about $100 billion a year--a modest 2.6% of the Federal budget of $3.8 trillion.

If the Treasury printed $100 billion and distributed it via food stamps and unemployment (or workfare, etc.) then the effects in a $14.5 trillion economy (that's actually shrinking minus Federal spending) would be modest.

But printing $2 trillion a year to prop up the Status Quo might have consequences. As I have noted here before, according to a study by adherents of the Austrian School of economics, hyperinflation has never occurred in economies in which State spending is funded by selling debt rather than printing money: Deflation vs. Inflation (An Austrian Analysis).

The reason is obvious: interest payments and the willingness of investors to buy more government debt act as governors on spending. If investors balk, and rates rise, then the deficit spending punchbowl gets drained or taken away.

There are no governors on printing money (or on the Fed's balance sheet, which in our system is the money-printing machine).

But alleviation of immediate suffering is only the excuse offered for runaway Federal deficit spending; the real reason why Federal spending has leaped from $2.7 trillion in 2008 to $3.8 trillion in 2011 is to prop up the Status Quo profiteering of cartel-crony capitalism and its partner, the Savior State.

As long as the Fed engineers a near-zero interest rate, the punchbowl can be refilled essentially forever. But if the Fed loses control of rates and they rise, then eventually-- say, when the interest costs $1 trillion a year instead of $400 billion--then the interest costs will crowd out other spending. Sacred cows of one type or another--every dollar of Federal spending is "essential," even though we somehow got by a few years ago with $1.1 trillion less--will be sacrificed.

Somehow I doubt Wall Street and the "too big to fail" banks will suffer much. Their partnership with Washington is just too strong. It's a marriage of more than convenience-- it's a marriage of money and power in virtually unlimited quantities.


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Fri, 06/03/2011 - 11:05 | 1336016 rajc
rajc's picture

We got a turd in the punch bowl I repeat we got a turd in the punch bowl

Fri, 06/03/2011 - 11:29 | 1336131 serotonindumptruck
serotonindumptruck's picture

'Bout time. Someone's been pissing in that punchbowl for years.

Fri, 06/03/2011 - 11:08 | 1336019 hedgeless_horseman
hedgeless_horseman's picture

06-03 11:07: Variable teaser rates unexpectedly lead to Hell

Fri, 06/03/2011 - 11:01 | 1336021 Alcoholic Nativ...
Alcoholic Native American's picture

We need massive Austerity now or our economy is DOOMED!

Fri, 06/03/2011 - 11:06 | 1336040 SheepDog-One
SheepDog-One's picture

Austerity=about half the country with no means to eat or buy anything at all! 

Fri, 06/03/2011 - 11:35 | 1336185 Alcoholic Nativ...
Alcoholic Native American's picture

lol, yea I know.  Just wanted to see the reaction.

Fri, 06/03/2011 - 12:11 | 1336329 TheTmfreak
TheTmfreak's picture

The only option (I think) they have is mitigate their risk by PERSONAL austerity. Some who are ACTUALLY much worse off than others, may not even have that option. But then again life sucks and everyone doesn't have an equal hand. Best they can come up with is an innovative solution to getting themselves out.

Fri, 06/03/2011 - 13:01 | 1336537 Beam Me Up Scotty
Beam Me Up Scotty's picture

You mean the half of the country with the $120/month satelite TV bill?  Or the ones with the $240/month cell bill?  Or the ones smoking a pack a day of smokes at $6/pack?  I know people who won't take advantage of employer sponsored health insurance because it costs them a couple hundred a month.  About 33% of the premium.  BUT, they have top of the line Dish Network at home.

How about the seniors--If your state has tribal gambling, take a look at who is pouring off the busses into those casinos.  Check out the wheel chairs and walkers.  Is gambling a right now too?

Most people can't figure out what wants and needs are.  Thats the problem.

Fri, 06/03/2011 - 15:04 | 1337078 A Nanny Moose
A Nanny Moose's picture

Check out the wheel chairs and walkers.


You mean Scooter Store scooters...Social Security pays, or it's free!

Fri, 06/03/2011 - 11:09 | 1336050 dark pools of soros
dark pools of soros's picture

that's because we don't have enough people like this lady.. she has the same bank account BEFORE the FED existed...  but screwed up putting in the gold as cash not realizing what was going to happen to money...


Fri, 06/03/2011 - 11:14 | 1336029 treemagnet
treemagnet's picture

We must be getting close - this article sounds like the "despair/hopelessness" stage.

Fri, 06/03/2011 - 11:33 | 1336170 FEDbuster
FEDbuster's picture

None of the players (banksters, the FED, government, Wall St.) will stop playing the game on their own, it's too profitable.  Outside forces (China, OPEC, Russia, etc..) will have to "just say no to the dollar", in other words "cut up our credit card".  No reserve currency status, game over.  Then we get WW3 or Mad Max at home. 

As bad as the current situation is, most people are still eating and driving around in their cars.  If gas and milk go to $10/gallon (income stays flat or goes down), then the domestic tranquillity will be threatened.  So the government's "kick the can" strategy will continue as long as they can use the military to back the dollar's reserve currency status.

Fri, 06/03/2011 - 12:31 | 1336409 flattrader
flattrader's picture

>>>this article sounds like the "despair/hopelessness" stage.<<<

Thankfully he got beyond the "we're ALL to blame" stage which is typical of desparate, ineffectual self-righteous assholes when they can't put their hands of the actual perps...just blame the victims

Fri, 06/03/2011 - 11:05 | 1336030 anarkst
anarkst's picture

It's the religion of, "something for nothing," taken to its extreme.

Fri, 06/03/2011 - 11:09 | 1336031 DeltaDawn
DeltaDawn's picture

I will feel less anxious after the collapse, when people will be responding in a more rational way like we Hennypennys are now. I don't care how hysterical they are, I will still get in a few told yous.

Fri, 06/03/2011 - 11:08 | 1336045 TorchFire
TorchFire's picture

Spike that bowl of toxic swill they are ladeling out to the revelers with a bottle of reality.  It seems that only those not attending the big party are able to see the facts. 


Fri, 06/03/2011 - 11:08 | 1336049 CrashisOptimistic
CrashisOptimistic's picture

This is what the post Peak world looks like in the early stages.

It won't be getting better.


Fri, 06/03/2011 - 11:31 | 1336160 DoChenRollingBearing
DoChenRollingBearing's picture

As ZH-er Gordon_Gekko said months ago (you know, when gold was between $1000 and $1200):


Physical gold only.

Fri, 06/03/2011 - 11:11 | 1336051 alien-IQ
alien-IQ's picture

Want to wake up Americans? Reinstate the draft.

When their very own sons and daughters face the very real possibility of being shipped of to who knows where to do who knows what and perhaps coming home in a pine box for no good reason...then, and only then, will John and Jane Doe finally muster up the courage to ask that long overdue question: What the fuck is going on here and WHY?

Until then...forget it. It's all somebody else's problem and it doesn't affect them...or so they've been told to believe.

Fri, 06/03/2011 - 11:24 | 1336115 optimator
optimator's picture

My service time benefitted me in more ways than there is space for here.  Bring back the draft, but no exemptions.  They don't care what John and Jane Doe think or do, but if it's Hymie and Bonny Goldstein they WILL care enough.

Fri, 06/03/2011 - 11:36 | 1336173 DoChenRollingBearing
DoChenRollingBearing's picture

"Bring back the draft, but no exemptions."

The uber-wealthy will find a way to keep THEIR precious children out of the Armed Forces.  Trust me on that one.

Fri, 06/03/2011 - 14:17 | 1336873 FEDbuster
FEDbuster's picture

Or they will pilot drones from the suburbs of Las Vegas (or maybe the Hamptons?).

Fri, 06/03/2011 - 11:25 | 1336127 Anaxagoras
Anaxagoras's picture

Unfortunately with unemployment/underemployment at 16% - at least, which doesn't include my favorite BLS plug number "persons who currently want a job," a record 6.8 million - more and more young people will continue to turn to the "all volunteer" military as an employer of only resort. No doubt the military is delighted with high unemployment, as the quality of recruits improves, and the likelihood of ever needing a draft seems remote.

Fri, 06/03/2011 - 11:33 | 1336150 NotApplicable
NotApplicable's picture

Yes, this too.

Which means that John and Jane Doe already watch their kids come home in a cardboard box, but instead of outrage, in many it merely reinforces the statist mindset, as otherwise the reality is too painful to bear.

Fri, 06/03/2011 - 11:29 | 1336134 NotApplicable
NotApplicable's picture

Charley Rangel has been peddling this line of BS for years. While the premise is true, the implementation (or reinstatement) of a draft is a trap meant to advance the totalitarian state. That he and you would use enslavement as a political tool is completely unethical.

I'm sure the rulers of world appreciate your service to their cause.

Fri, 06/03/2011 - 11:34 | 1336178 alien-IQ
alien-IQ's picture

You REALLY need to stop listening to Alex Jones.

Fri, 06/03/2011 - 11:49 | 1336247 NotApplicable
NotApplicable's picture

Well, I didn't spend six years in the USMC so that some politician (aided by the mandate created by some of their voting minions) could order my children off to their death.

BTW, that's a really poor try at character assassination. Next time you might want to at least tangentially reference my subject, so it doesn't look so obvious.

Fri, 06/03/2011 - 11:59 | 1336279 alien-IQ
alien-IQ's picture

You spent 6 years in the Marines serving corporations not "your country".

You jarheads will buy any line of bullshit as long as it's draped with the amerikan flag.

Fri, 06/03/2011 - 12:07 | 1336316 newworldorder
newworldorder's picture

That's a low blow brother.

While many can partially agree with your statement after a few experiences in the "school of hard knocks," patriotism was and for many still is the predominant reason people volunteer for military service.

It is a sad day indeed when love of country and service to the same is being now rightly called service to the empire.


Fri, 06/03/2011 - 12:41 | 1336444 TheTmfreak
TheTmfreak's picture

You bring up the problem with over-generalization.

I ALSO have spent 6 years in the USMC.  Everyone who joins and "serves" does so for different reasons. No questions asked some of the best people I've ever met joined. MANY and I do mean MANY are social parasites that skate by and get a paycheck and do minimal, shitty work.  My roommates "baby mama" is the definition of that enough. I call her a wellfare queen. Guess what, she is USMC too.

Back to the point, alot of them, love their country (not government, NEVER lump the two together) and are actually extremely good people. They take individual responsibility very seriously. These people (while in the same organization) should not be lumped with the same disregard with "serving the empire."

Fri, 06/03/2011 - 12:56 | 1336510 Libertarian777
Libertarian777's picture

TRUE patriotism is speaking out and doing what's best for the country even when the entire nation is against you. Ron Paul comes to mind. He's been sidelined for decades, even though he is only looking out for the people.

Going with the status quo is NOT patriotism. Just because the people glorify the military as 'service' doesn't mean its true.


Want to serve your country? go work in a homeless shelter, help educate children (and adults). That's patriotism. No glory, no 'honour' attached.

Fri, 06/03/2011 - 14:22 | 1336901 FEDbuster
FEDbuster's picture

The US military backed dollar (Federal Reserve Note) has enabled us to force other producing countries to hand over their goods and services for a handfull of worthless IOUs.  All those who have served have allowed the rest of us to benefit from the something for nothing economic model for the past forty years.

Fri, 06/03/2011 - 15:48 | 1337307 NidStyles
NidStyles's picture

Having another person judge you is like letting another person decide you fate. It's a violation of the NAP, and should be treated as such.


So much for you being a Libertarian. You sound more like a socialist than a Libertarian.

Fri, 06/03/2011 - 12:45 | 1336461 TheTmfreak
TheTmfreak's picture

Instead of furthering the debate you attempt direct (uncalled for) assassinationsand unproductive discussion. What is your need to automatically cast people as something you don't even know? As it looks to me you have a very single dimensional, flat view on this subject.

I am a "jarhead" and I don't buy any line of bullshit "draped in an American flag." Since this is the case, your argument is false and therefore bullshit.

Fri, 06/03/2011 - 13:30 | 1336652 viahj
viahj's picture

he/she is just a sign of the times of hyper-ideologues arguing (anonymously) using simple sound bites, headlines, dipolar lenses and stereotyping their contrarian opponent to the lowest common denominator all the while they like to use "nuance" to describe their side's behavior.

Fri, 06/03/2011 - 15:44 | 1337283 NidStyles
NidStyles's picture

Compared to you socialist leeches that merely want to suck on the same teet that feed's the MIC?

Fri, 06/03/2011 - 11:50 | 1336250 karzai_luver
karzai_luver's picture

By this date next year the Iraq and Afg "wars" will be seen for what they were.

A total waste.


You will not need to worry about a draft coming back once the lies and bullcrap hit the fan then.

Iraq is a disaster now and will be shown as foolish b.s. from your dear leaders OF BOTH THE CRIMINAL PARTY ELITES.



Fri, 06/03/2011 - 12:36 | 1336427 TheTmfreak
TheTmfreak's picture

Let me explain what you are actually stating.

"Let's fix the broken system using the system"

Do you see the problem with it? All day long we can spout out the "hey we can fix the system only if we do XYZ" solution but it will never be done because the system cannot be fixed BY the very same broken system.

Fri, 06/03/2011 - 11:13 | 1336053 SheepDog-One
SheepDog-One's picture

Its been planned all along, next up is the 'depopulation' stage done thru 'austerity' which means 40-50% of americans can no longer get any food or drugs for their ailments...and theyll also 'annuitize' 401K's and pensions. A pittance 'allowance' by the FED to barely live on IF youre complying with the NWO program and being a good little compliant debt slave. Its coming NEXT!

The Treasury Is Soliciting Your Feedback Regarding The Proposed Annuitization Of 401(k) | zero hedge

Fri, 06/03/2011 - 11:41 | 1336194 DoChenRollingBearing
DoChenRollingBearing's picture

+ $1530

Cash in anything that the government can seize.  I did in late 2008, paid my penalties and taxes, but now it is all mine.

Much of that money has gone into gold.

I did use some to buy bearings though.

Sat, 06/04/2011 - 01:18 | 1338791 StychoKiller
StychoKiller's picture

Roll on, DoChen, roll on! :>D

Fri, 06/03/2011 - 11:25 | 1336064 Mercury
Mercury's picture

Take away the Kool-Aid too. 


Whenever I unleash a tirade at home about how Federal spending has leaped 40% in three years and how the government is now borrowing 42% of its spending, my wife points out that nobody cares because the deficit doesn't impact them at all.

Maybe if you explain to your wife that the government in this regard is like a sugar-daddy - and when he stops feeding you candy one fine day you'll suddenly find yourself on the sidewalk with empty pockets and saggy tits.  That might drive the point home.

Fri, 06/03/2011 - 12:57 | 1336517 Cthonic
Cthonic's picture

Off topic, but they all aspire to (or secretly pray to heathen godz that) they'll look like Jane Fonda when they're 70, too.  How many men are newly discovering that their retirement accounts are being covertly eyed as future plastic surgeries slush funds by significant others not aging well.

Fri, 06/03/2011 - 11:12 | 1336065 JR
JR's picture

So where are the breadlines?

John Williams at ShadowStats puts the U-6 unemployment rate that includes “marginally attached workers” close to 23%.

Says Nate at Nathan’s Economic Edge today: “Those numbers are calculated closer to the way they were during the Great Depression, and today’s numbers rival those from that time. Of course, they didn’t have 43 million Americans on food stamps, they had breadlines.”

Fri, 06/03/2011 - 11:13 | 1336076 SheepDog-One
SheepDog-One's picture

Hi-tech breadlines today in the form of credit-card SNAP cards so the lady with 4 shopping carts full doesnt feel any 'shame' at checkout...but thats about to end.

Fri, 06/03/2011 - 11:20 | 1336095 alien-IQ
alien-IQ's picture

the real function of those programs is to hide the suffering and make the spin the "news" engages in more "plausible".

It's one gigantic pile of bullshit being served up as caviar.

Fri, 06/03/2011 - 11:23 | 1336122 JR
JR's picture

Hi-tech breadlines! You've coined an original!!!

Fri, 06/03/2011 - 11:35 | 1336162 kito
kito's picture

youre delusional if you think its about to end. the sheeple will always get to graze.

Fri, 06/03/2011 - 11:42 | 1336223 serotonindumptruck
serotonindumptruck's picture

Those "sheeple" will become wolves, and begin to kill and steal for their right to graze.

Fri, 06/03/2011 - 12:31 | 1336408 bbq on whitehou...
bbq on whitehouse lawn's picture

Snap cards are so people don't realize their numbers.

Imagine the empowerment of over half of the store filled with old coupon books, or bracelets or yellow shirts.

Might even give people a reason to ask questions or position for power.

Best to make them act and feel invisible.

Fri, 06/03/2011 - 11:34 | 1336175 NotApplicable
NotApplicable's picture

Today's breadlines form at 12:00 AM on the 1st of every month at every WalMart. The CEO has even commented about how it has a noticeable effect on sales.

There are also many foodbanks and other charities where I regulary see lines form before they open in the mornings.

Fri, 06/03/2011 - 11:13 | 1336070 rubearish10
rubearish10's picture

Excerpt: "As long as the Fed engineers a near-zero interest rate, the punchbowl can be refilled essentially forever. But if the Fed loses control of rates and they rise, then eventually-- say, when the interest costs $1 trillion a year instead of $400 billion--then the interest costs will crowd out other spending".

Always a great read TD. Still, I beg the question, "when or will rates rise"? Rising rates appears to be the only forceful solution (since there's no voluntary method given TPTB remain vigilant), so, how, who or what kind of event/condition is required to affect/cause higher rates?? We've had numerous so-called Black Swans and they've failed. There's no view from anyone as to what really makes rates rise from here as long as the "control apparatus" remains in place. Austerity? No. Growth? Not in the cards. SAD.

Fri, 06/03/2011 - 11:28 | 1336105 web bot
web bot's picture

Great comments.

Here's a scenario where interest rates rise.

A run begins on the US dollar or a debt downgrade, so the US needs to up interest rates to dead holders, er.. I mean debt holders. Otherwise, you see no market participants when the government needs to rollover its debt.

By the way, over 60% of all government debt rolls over within 36 months. Imagine the impact of increased interest rates to draw buyers and the impact this will have on the deficit in a matter of months.

You've identified the canary in the coal mine.

Fri, 06/03/2011 - 11:33 | 1336153 rubearish10
rubearish10's picture

Got it! Great stat on short maturity rolls etcc..

Issue, if this is the only event (I think it's a valid one, mind you), the odds are very low then. The idea of an actual US downgrade is valid but never happens in the current political structure. The USD run may further be unlikely until the market realizes Gold and other PM's are truly a viable currency alternative. There's a sniff of the latter with what's going on in Europe to some degree but when it comes to the USD, it will remains the safe haven for fear. Now, it's not that unusual to see Gold surge over a strong USD. That could happen. If it does, then perhaps rates will rise. Maybe??

Fri, 06/03/2011 - 11:51 | 1336252 web bot
web bot's picture

Well... Greenspan said this morning on CNBC that he fears if the debt ceiling issue is not raised, we can be looking at an event that will be priced into the market for the next 10 years. Web got predictions are talking about the destruction of the US$ this year, or early next year due to some calamity occurring in the derivatives market. Comex default? I don't know.

We are living in very uncertain times... almost surreal.

I'm convinced that we are in the middle of a depression but no one wants to acknowledge it.

<I'm not associated with the web bot people>

Fri, 06/03/2011 - 12:11 | 1336343 tired1
tired1's picture

I wish I had a more clear picture.

To me it seems that the Fed and its' PD's can go on for quite a while if, in fact, they are responsible for nearly all of bond purchases. The $'s purchasing power re PM's can fall and it may become an inconvertable currency but that game has been played before.

It seems to me that the end game of the Fed and IMF is to gain title to US sovereign assests and at some point instal a new cuurency (been done before too).

How does one track bond purchases and also track the actual posession of said bonds?

Fri, 06/03/2011 - 11:32 | 1336145 newworldorder
newworldorder's picture

You are asking logical questions expecting  a response based on economic fundamentals.

ZIRP is not a normal economic environment, but an environment that only the FED can initiate and maintain. There is no other central bank in the world that can do what the FED does, from an economic confidence perspective.

This situation can go on indefinitely and until US and or world citizens and other buyers of our debt lose confidence in the US financial system.

There is no incremental gain or loss of confidence. It is like an electrical switch, it either works or it does not work. For now and for the last 3 years whatever the FED does works. It will continue to work until it reaches a tipping point of failure.

Given the marriage of washington to wall street - how many would like to venture a guess as to how long it will continue to work.

Fri, 06/03/2011 - 11:38 | 1336179 rubearish10
rubearish10's picture

All true and well, the confidence question is for who? The bankers moving all the money around are not worried, the people on the other hand are..... Perhaps a revolution works but it fizzled in Wisco etc... Washington needs to be slaughtered. Ok, I'm now a bit edgy. Thanks.

Fri, 06/03/2011 - 12:21 | 1336366 tired1
tired1's picture

No solution from internal political forces as they have been bought off. Commodity prices will be the dose of reality. Most likely, to me, that a major war with China would result in enough capital detruction to deflect domestic backlash.

Fri, 06/03/2011 - 11:34 | 1336174 chinaguy
chinaguy's picture

bond vigilantes....

Fri, 06/03/2011 - 12:04 | 1336296 Thisson
Thisson's picture

I think the catalyst for rising US interest rates will be defaults in the eurozone.

Fri, 06/03/2011 - 11:14 | 1336082 Rainman
Rainman's picture

Subprimers don't get worried until the sheriff shows up at the front door. Uncle Sugar has become the king of the subprimers. He just needs to keep the ObamaChex rolling off the printer and the SNAP cards filled on time.

Fri, 06/03/2011 - 11:55 | 1336270 serotonindumptruck
serotonindumptruck's picture

"Subprimers don't get worried until the sheriff shows up at the front door."

This doesn't seem to be happening on a large scale. The Sheriff doesn't want the job of forcibly evicting the tenants and their families. Also, like Gerald Celente has emphasized so many times, "when people have nothing left to lose, they lose it". That might mean many county sheriffs and their deputies will be involved in firefights with the existing mortgage holders.

Fri, 06/03/2011 - 11:20 | 1336088 optimator
optimator's picture

You're explaining it incorrectly to your wife.  Tie in why grocery store prices are going higher and higher with less and less in the boxes!  That she'll understand.  Then explain where it  all ends at the grocery store.  Empty shelves.

Fri, 06/03/2011 - 11:27 | 1336135 AldoHux_IV
AldoHux_IV's picture

The partnership between wall st and washington will break and both parties will do down when this farce of a system finally collapses and they try to take away the last bits from the peasantry-- sooner or later American Idol, Dancing with the Stars, sex scandals of worthless politicos, and wars won't be enough to distract them.

Fri, 06/03/2011 - 11:50 | 1336248 newworldorder
newworldorder's picture

Eventually it will happen, but eventually can be a long time.

As much pain as those 20+% unemployed are experiencing, remember that there are 80% in this country who are employed.

To them and the dual income families where both partners are working the every day hardships are hardly noticeable.

For many only the loss of a job brings home economic pain. On that basis alone, we have a long time to go in this country until most people can truly understand the problems we face. This is what wall street and the political elite are counting on.

Fri, 06/03/2011 - 11:36 | 1336167 apberusdisvet
apberusdisvet's picture

The obvious, if not insidiously planned, is that more and more seniors and those on fixed incomes are not going to survive given the combination of low investment returns, higher prices for necessities and of course, the death panels which are now a looming reality under Obamacare.

Fri, 06/03/2011 - 12:05 | 1336307 Thisson
Thisson's picture

Candidly, this is a good result.  You can't run a society where people only work for 25 years and then retire for another 50 years.

Fri, 06/03/2011 - 12:41 | 1336450 pazmaker
pazmaker's picture

no...we must be slaves forever!

Fri, 06/03/2011 - 13:28 | 1336659 topcallingtroll
topcallingtroll's picture


Have the government take money from me. Make me work as a slave so they can give you my money so you can retire early

Fri, 06/03/2011 - 13:41 | 1336719 pazmaker
pazmaker's picture

well first off you don't me, but I'm still working and I also have paid way more in then I'll ever get out, but if you think I'm going to work till I drop just so the government can extract more of my earnings and feed this mosnter even more  then fuck you.


maybe it's time to change my avatar......

Fri, 06/03/2011 - 11:40 | 1336182 ebworthen
ebworthen's picture


"Wall Street has abandoned it's traditional view of business and the economy, and is now pinning it's hopes entirely on government liquidity."

Yes, they have abandoned free markets, capitalism, and the rule of law.

We now have several generations who never did an honest days work in their life in charge in Wall Street and Washington. 

Cohort after cohort of spoiled milk-lipped silver spoon aristocrats who haven't a thimble of understanding or compassion for the cab driver, the grunt, the maid, the teacher, the average person - but rather haughty contempt.

They infest places of power as a bad bowel movement tends to float to the top of the bowl.  Their collusion in Wall Street and Washington is leading to a spectacular collapse of the society, not just the economy. 


Fri, 06/03/2011 - 11:39 | 1336188 Maybe-Not
Maybe-Not's picture

They way I read this: This will go on for ever. Print money with no interest due. Buy treasurys. Repeat. What will break this cycle?

Fri, 06/03/2011 - 11:39 | 1336202 ebworthen
ebworthen's picture

When they make the majority of American households insolvent (well on our way) then demand the property, let children die without medical treatment, confiscate IRA's and 401K's, ramp up taxes, cut already taxed promises (SS, Medicare), and eviscerate individual rights.  We are at least halfway there.

Fri, 06/03/2011 - 11:56 | 1336282 newworldorder
newworldorder's picture

The US military guarantees the flow of world commerce, - especially the US Navy.

The FED guarantees a perpetual ZIRP environment which enables the payment of military retirement and benefits as well as the continued support of the industrial military complex. It also funds minimum subsistence payments to 43+ million poor in this country.

As long as these groups get their monthly sugar there will be no change.

Fri, 06/03/2011 - 13:22 | 1336620 ebworthen
ebworthen's picture

Yup, I agree with you.

The decline of Great Britain followed the decline of the Royal Navy.

This is why China and Russia are spending so much GDP on their Navy's.

Fri, 06/03/2011 - 11:40 | 1336206 straty01
straty01's picture

you do not need austerity, the elites have PLENTY of money, they want you to keep being a slave, the problem is simple:

Kill them all, take their money and re-distribute it to everyone, just the opposite of what is happening now

We are so so far beyond stupidity now this era in history will be looked at with dis-belief and shame

With so much information out there now surely the awareness levels are reaching a tipping point with the public, or have they gotten used to that elephant dick in their arse and the molasses in their heads?


Fri, 06/03/2011 - 12:01 | 1336287 InconvenientCou...
InconvenientCounterParty's picture

"Kill them all, take their money and re-distribute it to everyone, just the opposite of what is happening now"

how 'bout you try that on my property? I'll bet you a buck I'll be able to piss through the hole in your mellon.

Fri, 06/03/2011 - 13:27 | 1336633 topcallingtroll
topcallingtroll's picture

So you admit you are a bailed out wall street banker or senior bond holder?

That is who he is targeting, I believe.

Their wealth should have been redistributed in corporate bankruptcies. Now we are forced to do it the hard way.

Fri, 06/03/2011 - 13:42 | 1336751 General Decline
General Decline's picture

We are so so far beyond stupidity now this era in history will be looked at with dis-belief and shame


I have been saying this for some time during my "crazy conspiracy rants" to people who are somewhat willing to listen.  You know what I'm talking about.  When you are trying to explain the intricacies of the operation of the New World Order to someone and all you get in return are the eye rolls and the head shakes and that look like "you're a total nutbag".  I say to them that we are living in some of the most historic times in history right now, right now and most people don't have a clue what's happening.  It's like it's alomost too big to see to the average person.  Kind of like a fly that lands on an elephants back.  Does it really notice it is sitting on an elephant, or does the elephant's body extend too far out in every direction for him to realize it? 

If history were to write itself (and it won't), hundreds of years from now, people would look back on this period and just shake their head in disbelief of how we just gave our freedom and prosperity away.  We stood idly by enjoying our bread & circuses while we were raped by this group of criminals. This will be bigger than the Fall of Rome IMO.


Well said straty01.

Fri, 06/03/2011 - 11:41 | 1336212 NotApplicable
NotApplicable's picture


BTW, if anyone wants to read more on the captial destoying mechanism that is ZIRP, Professor Anatal Fekete has been writing on it for years.

Fri, 06/03/2011 - 11:58 | 1336277 InconvenientCou...
InconvenientCounterParty's picture

what empire has avoided a culture of entitlement?

In the U.S. it started with the first lilly white toes in the first boots on the ground on this continent.

"gee... look at all these trees and fish? Of course it must be divine intervention on my behalf..."

It's been some roll eh?

Fri, 06/03/2011 - 12:17 | 1336355 alagon
alagon's picture

Moving to Canada seems more tempting.

Fri, 06/03/2011 - 12:18 | 1336357 JR
JR's picture

As long as the Treasury can borrow money this cheaply, there is no visible limit to how much the Federal machine can borrow.  In effect, the income which should flow to savers and owners of surplus capital in an economy that isn't centrally managed …is diverted to Wall Street and the ‘too big to fail" banks.’Charles Hugh Smith

Only the destroyed know of their losses. Control of the media, like in Stalinist Russia, comes with centralized control. The Fed is morphing further into Stalinist procedures.

A Fed banking cartel that no longer needs to compete with markets because it can print out of thin air is knocking off savers and privately-produced money with impunity. The media raises no outcry; only the destroyed know of their losses.

It reminds me of those dark days in the U.S.S.R. when, say, three thousand State-induced deaths - which would have caused a scandal in the U.S.A. - never even made the newspapers.  The families of the supposed deceased only knew of their loss.

This is the media that today met incredibly distressing economic news with “soft patch” …”not your typical recovery”… and “just a bad month.”

Fri, 06/03/2011 - 12:26 | 1336398 hampsterwheel
hampsterwheel's picture

At this point I see every day "kick the can down the road" day as another day to get the house stocked, ammo loaded, being able to trade fiat for physical assets like gold, silver and gas... it isn't so much the end that I cannot see it is the next... will a new Madison or Jefferson rise up to rebuild what we tore down over the last 200 years - or will be slip into a world socialist/fascist new fiat system designed to control men/population growth under the guise that freedom and choice is to hard on the planet - I fear the latter will be our choice and in that case - I have not enough gold/silver/ammo or food to provide for my yet unborn Grandchildren ... a new dark age approaches -

Fri, 06/03/2011 - 12:31 | 1336421 Cvillian
Cvillian's picture

Great summation. Math does not lie but as some others point out, it seems like the Fed will continue to manipulate rates/cover up fiscal recklessness until someone shuts it down.

One can easily explain this conundrum to the public on a massive stage but it's not done. Why? Why is some group not being founded to buy 30 minutes on every major network to show this problem with graphs, etc to our attention-deficit public. They can raise money to promote the rapture but we can't raise money to do this?

I happened to catch NBC's nightly news yesterday and the opening segment about the economy reminded me that the problem is that we're too uneducated of a country to comprehend the problems facing us. The Mesirow lady was using a version of Buffet's "patient suffering cardiac arrest" metaphor to discuss the economy. "We're going to need years of rehab" was how she explained the no growth, debt laden struggle facing us, because that is something Americans can grasp - heart attacks, rehab, etc.

It was depressing. I then had a discussion later that night with my wife, who is wising up that there is absolutely no political answer to these problems (at least no one wants to give that person the time of day who might stand in the way of it) and we concluded to stop worrying about politics etc and to just try to be happy knowing what will befall us and our families eventually.  It certainly sounds like the guy perceived to be too "radical" or whatever (Ron Paul) is the only one that would try to fix this mess and not give a shit about the political fallout?



Fri, 06/03/2011 - 12:57 | 1336512 karzai_luver
karzai_luver's picture

perhaps someone should tell her and Buffy that these days one doesn't rehab after an

arrest for years.


You rewire the system and you recover in a few weeks/months.


Perhaps tht needs to take place now in order to get the victim out of bed and back on his feet.


Fri, 06/03/2011 - 17:30 | 1337645 Montgomery Burns
Montgomery Burns's picture

Better get Beyonce to dance suggestively in the background during the show just to make sure anyone pays attention.

Sat, 06/04/2011 - 01:40 | 1338810 saulysw
saulysw's picture

Regarding Ron Paul - as much as I love what he is trying to do, and the reasons he is trying to do it, I wonder what would happen if he actually succeeded. I think the shock to the system, the collapse of the financial status quo, would be catastrophic. I think it's too late now for his solutions. And the shitstorm would make him the object of everyones hate - as if he caused the consequences. I would not be surprised to see him assasinated by some nutjob.

Fri, 06/03/2011 - 13:09 | 1336547 cfosnock
cfosnock's picture

Help I have a dumb question. The author states that
“As I have noted here before, according to a study by adherents of the Austrian School of economics, hyperinflation has never occurred in economies in which State spending is funded by selling debt rather than printing money…if investors balk, and rates rise, then the deficit spending punchbowl gets drained or taken away.”
But if the debt is being bought by the Fed how does this rule out the hyperinflation debate? I mean isn’t the Fed buying bonds to keep down the rate? Can The Fed perpetually rollover the debt until hell freezes over? What are the practical reproductions if The Fed buys let’s say 100% of the next bond offering?

Fri, 06/03/2011 - 13:09 | 1336564 Cthonic
Cthonic's picture

The mandarin class and government contractors will continue to receive their government stipends, and the portion of the 'private economy' that serves them will continue to enjoy increasing purchasing power relative to other domestic wage slaves.

Fri, 06/03/2011 - 13:10 | 1336552 Clowns on Acid
Clowns on Acid's picture

Nobody cares until inflation (helped by worthless USD) starts to bite them in their feckless asses. But then it is too late.

The Fed and Treasury are filled with psuedo intellectuals, posing as "caring, feel your pain, patriots", when factually they are self loathing, left wing facsists bent on maintaining their position of "power" and income at ther expense of anybody else.

Hey...QE3 might work (10% probability?) to restore economic equilibrium, but if it doesn't they are still entrenched in power...and The Great Serfdom begins.


Fri, 06/03/2011 - 13:22 | 1336603 topcallingtroll
topcallingtroll's picture

Let us hope interest rates can stay low forever. That is our best shot at muddling through.

Fri, 06/03/2011 - 13:32 | 1336678 mendigo
mendigo's picture

The problem is the FED's failed attempts to prop up the status quo - hoping the badness will go away.

If/when QE is allowed to lapse we will go bankrupt and the markets will crash and the healing will begin (well... after a period of mayhem).

Fri, 06/03/2011 - 13:32 | 1336686 PulauHantu29
PulauHantu29's picture

From what I can see the zero interest on savings accounts is really hurting frugal Baby Boomers who have worked hard and saved their whole life.

I wonder what will happen?

Fri, 06/03/2011 - 13:45 | 1336737 Cthonic
Cthonic's picture

They will become increasingly desperate for yield and start chasing socially acceptable investments again.  Already see it happening.  Folks who swore off the stock market on New Year's Eve two and a half years ago after being eviscerated twice in a decade are now plunging back into a two year old cyclical bull.  Not saying that equities have no roll to play as an inflation hedge, but the timing couldn't appear to be worse.

Fri, 06/03/2011 - 15:28 | 1337200 connda
connda's picture

It's time for all Space Monkeys to start pissing in the punchbowl.

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