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Guest Post: A Termite-Riddled House: Treasury Bonds

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Submitted by Gonzalo Lira

A Termite-Riddled House: Treasury Bonds

When termites eat your house, you don’t notice a thing. You don’t hear a thing, you don’t see a thing—you’re house stands there, silent and staid, while you and your family happily go about your days, without a care in the world—
—until your house crashes on top of your head.
Right now, we are at a stage where Treasury bonds are as weakened as a termite-riddled house. They look fine: Nice glossy coat of paint, pretty shingles, bright clear windows, sturdy-looking plankings on the open-aired porch.
But Treasuries are well on their way to a complete collapse. Why? Because of the way they have been mishandled and mistreated by the Federal Reserve Board, and the U.S. Treasury. Whether by incompetence or by design, U.S. Treasury bonds have become the New & Improved Toxic Asset. The question is no longer if they will collapse—it’s when.
Let me explain why.

First of all, what exactly were Toxic Assets—does anybody remember? I do: They were bonds made out of bundles of dodgy real estate deals. They didn’t seem dodgy at the time. What’s that old expression, “safe as houses”? At the time they were made, those bonds seemed safe as houses. Now we call them “Toxic Assets”—because now, we know better. But back then—before they collapsed—they were called “Mortgage Backed Securites”, or “Commercial Mortgage Backed Securites”, or else “Collateralized Debt Obligations”.
Essentially, all these sophisticated-sounding terms were to emphasize that the bonds were secured loans—the houses and commercial real estate were supposed to back up these debts. If the payments failed, the properties could be confiscated and auctioned off. So the bonds would be repaid. So the bonds were safe—safe as houses. Or so it was thought.
Of course, we saw how that show ended.
For those who missed those exciting episodes, a recap: Sub-prime mortgages began to default first, as the economy slowed down. This in theory should not have affected Mortgage Backed Securities based on those sub-prime loans. But the real estate which had been purchased with sub-primes weren’t worth what they had been purchased for—they were worth much less. So the bonds backed by the sub-prime loans began to explode.
Soon after the sub-primes, alt-A loans and prime loans, and finally commercial real estate—their prices all began to collapse, and so the bonds manufactured out of these loans also began to explode.
All those banks holding all those “safe as houses” MBS’s and CMBS’s and assorted CDO’s all of a sudden found that those bits of paper were not safe as houses. They were so un-safe in fact, that the banks damned near went broke—they would have, too, if it hadn’t been for the Fed and the Treasury, who bailed them out: The Treasury with TARP (cash), the Fed with “liquidity windows” (more cash).
But even that didn’t work—so we got “extend & pretend”, whereby the accounting rules were suspended in order to create the illusion of solvency among the TBTF (Too Big To Fail) banks. (My discussion of that is here.) That’s how bad the Toxic Assets were.
The reason these debts became “toxic” was that it became obvious in 2007–’08 that those bonds would never be repaid. They couldn’t be repaid: The properties which backstopped the value of the bonds had fallen irretrievably in price—or more properly, the real estate bubble which had goosed the valuation of those properties to absurd, Tulipmania levels had finally burst.
So even if the real estate was foreclosed and sold at auction, the holders of these now-Toxic Assets would only receive a fraction of the nominal price of the bonds. What had once been worth 100 was now worth 80, 60, 40, and in some cases, Cop Snacks.
I’ve never liked the term “asset”, when discussing bonds. They’re not “assets”—they’re debt. They’re a loan. And a loan only has value so long as it’s being repaid. If the debtor defaults—or tries to pay back the loan with something of less valuable than what was originally lent out—then this “asset” becomes a loss.
So to prevent these catastrophic losses, Backstop Benny—Ben Bernanke, Chairman of the Federal Reserve—essentially did the ol’ switcheroo on the Toxic Assets: In order to save the banks whose balance sheets depended so heavily on these now-dead turds, the Fed purchased the Toxic Assets at their nominal price. Then the banks—the so-called Too Big To Fail banks—took that cash and purchased U.S. Treasury bonds.
I have yet to find a better chart than this one here, that describes so succinctly how the Fed expanded its balance sheet to bail out the banks. (Hat tip Ashley Huston at Alex Lowe designed the chart, based on reporting by Phil Izzo—extra-special kudos to them both.)
Meanwhile, the U.S. Treasury, in its attempts to finance bailouts, stimulus, health care, Social Security, and endless pointless wars, went into further debt—to the tune of $1.4 trillion dollars, roughly 10% of U.S. gross domestic product, for both 2009 and 2010.
Or to put it another way—a very scary way—in both 2009 and what’s projected for 2010, the Federal government has issued $1 of Treasury debt for every $1 of tax receipts. Between the actual budget deficit, plus Social Security liabilities, the U.S. Federal government is in the hole for about $13.5 trillion—or roughly 100% of GDP: That is what the Federal government owes. And if 2011 continues to be the same (as is almost certainly to be the case), then another $1.5 trillion or so (give or take a couple of hundred billion dollars) will be added to that tab.
All told, the United States will have a fiscal-debt-to-GDP ratio of 100% this year, and 110% next year—if not higher, depending on the tax receipts in 2011. A lot of wishful thinking is going on for 2012, but the way the numbers are playing out, another trillion dollars’ worth of debt is very likely in the offing—which would put the total fiscal-debt-to-GDP ration to 120%.
(Funny: That number—120%—reminds me of something . . . what was it? Oh! Right! Greece! This past spring, Europe had a medium-sized meltdown when Greece—roughly 2% of the EU as measured by GDP—revealed it was running a 120% fiscal-debt-to-GDP ratio. The Europeans and the IMF finally caved and bailed out Greece. Ah, the Greeks! But I digress, sorry—after all, the United States is not Greece. The United States has absolutely nothing in common with Greece—not at all! First of all, buddy, and for your freakin’ information, the United States is roughly 45 times the size of Greece, and . . . oh . . . wait a sec . . . )
Let 2012 take care of 2012—right now, September 2010, we have 100% fiscal-debt-to-GDP, in an environment of falling tax receipts and more strains on the various social safety nets. Right now, we have debt matching tax receipts dollar-for dollar. Right now, the interest on the outstanding debt, for 2010 according to government projections, is $375 billion—in other words, 25¢ of every dollar of tax receipts goes to pay interest. Right now, with recent economic numbers, the likelihood of a turn-around are unlikely—so because of the inevitable political pressure come the winter, more “stimulus” is likely in the offing.
Meaning more Treasury bonds, floating out into the market.
But who is buying all this new Federal government debt? Why, that’s very simple: The Federal Reserve.
The reason that the Federal government could go into the aforementioned massive spending spree was precisely because of the Federal Reserve’s bail-out: The Fed created money out of thin air (as is their power), in order to buy Toxic Assets from the Too Big To Fail banks. The banks, in turn, took this cash and bought Treasuries—which financed the Federal government’s deficit.
This is what I call Stealth Monetization: Unlike in some banana republics, which dispense with the niceties and simply turn on the printing presses whenever they need more money to spend, the U.S. Federal government and the U.S. Federal Reserve got creative, and used the TBTF banks to essentially hide the monetization of the fiscal debt in plain sight.
Many people complain that the bail-out money the TBTF banks received was never lent out—oh, but they’re wrong: The money was lent out. It was lent out to the Federal government. 
After all, what did the TBTF banks do, with all that cash they got from the Federal Reserve for unloading all those Toxic Assets? Why, they went and bought themselves boatloads of Treasury bonds.
It’s been the Federal government that has been “mopping up excess liquidity”—mopping it up and spending it on stimulus that doesn’t work, wars that can’t be won, dodgy dinosaur-projects that aren’t going to do squat to improve people’s health. That’s why the TBTF haven’t been lending money to businesses and “getting the economy back on track”—they’ve been too busy lending to the Federal government.
Clever people call Treasuries “assets”—but like I’ve said, I’m just stupid: I just call it debt. When I look at all this Federal government debt—unprecedented amounts of fiscal debt—I can’t help but notice that it is all unsecured—because it is unsecured. At least Toxic Assets had something backing them up, even if they were worth much less than advertised. Treasury bonds, on the other hand, are based only—solely—on the “full faith and credit” of the United States Federal government.
Y’Know: The one in Washington. The same U.S. Federal government that is running 100% debt-to-GDP ratios this year, 110% next year, and likely 120% the year after that—if not more.
Mm-hmm . . .
What happens when a debtor becomes so over-extended that he cannot possibly pay back his loans? Naturally: They default—or they try to wriggle their way out of the debt, by giving you something less valuable than what you are owed.
It is not controversial to say—and indeed, it is widely discussed—that the U.S. Treasury has only two options: Default on Treasury bonds, or debase the currency by way of inflation, so that the nominal value of Treasuries is stable, but their real value decays by inflationary attrition.
Default is politically unacceptable—apart from pissing off foreign Treasury holders, it would cause havoc in America if the Federal government woke up one day, clapped its hands like a schoolmarm, and announced to the world, “Okay Treasury holders! Time for a haircut!” Default ain’t gonna happen.
So that leaves “controlled” or “induced” inflation—the only method for the Federal government to get out from underneath this debt.
Backstop Benny is doing his damnedest to bring about precisely this scenario: He is trying to print the economy out of this Global Depression. With QE, the recently anounced QE-lite, and the likely-to-be-coming-soon QE2, Bernanke is going to pump more and more money into the system—“Print ’til you puke!!” seems to be his motto.
Bernanke is being egged on by everyone, from Paul Krugman to the Republicans to Larry Summers and Tim Geitner—everybody wants him to print more: Either because they want more fiscal spending (Krugman, et al.), or because they want asset prices to be pumped up again to unnatural highs (Wall Street and their Washington lackeys).
And Benny is obliging. The way Bernanke is doing this printing is by buying Treasuries. The Federal Reserve buys Treasuries and squirts some more dollars into the system—just as he propped up the prices of Toxic Assets by buying them up, when there was the need.
Yields of Treasuries are at absurd lows, there is a veritable T-bond rally every single day that equities drop even just a bit—in other words, Treasuries are in a bubble. Why? Because the market knows that Bernanke and the Fed will backstop Treasuries—
—backstop them right off the cliff.
The more the Fed prints, the more it encourages the Federal government to “stimulate”—id est, go further into debt in an attempt to grow the economy out of this Depression by way of fiscal spending. But as I said, right now, 25¢ of every dollar of tax receipts goes to pay interest on the fiscal debt. How long before 50¢ of every dollar goes to pay interest? 100¢ of every dollar? Is that when the fiscal debt finally becomes insurmountable?
Or will there be a Moment of Clarity in the markets? Will there come a day when the bond markets collectively realize that Treasuries will never ever be repaid—cannot be repaid? And when that day comes, when that Moment of Clarity falls on the markets, will it spark a panic?
In two previous posts, I essentially said “yes”: “Yes” to a collective Moment of Clarity, “yes” to a panic in Treasuries. I further argued that such a panic would lead—inexorably—to a flight to safety in actual, physical commodities, which would then result in a massive hyperinflation that would kill the dollar dead. Part I is here, Part II is here.
What is most important is, I do not know when such a Moment of Clarity will occur—but I have no doubt that it will occur. Inevitably, unavoidably: Treasury bonds are bound to collapse, triggering the sequence of events that I have described.
Plenty of people disagree with me. Actually, most people disagree with me.
Weirdly, plenty of people told me in no uncertain terms that, not only would there never be a panic in Treasuries—these people claimed that there couldn’t be such a panic. A couple of these people claimed (I swear to God) that it was systemically impossible for there to be a panic in Treasuries—“Because the government can just print its way out of a panic!”
Uh-huh. So no hyperinflation after a Treasury bond collapse, ’cause the government can—y’know—print all the money needed to shore up Treasuries and avoid hyperinflation. Okay.
The people who defended this insane argument are under the spell of MMT—Modern Monetary Theory. It’s currently the most fashionable dismissal of the importance of Treasury over-extension. People in this camp effectively say, “Treasury debt doesn’t matter!”, and explain how government debt is basically a numbers game.
According to this theory—which is just a modern-day retelling of the chartalist myth—all money is basically government chits, which are moved around within a game-board, said game-board being owned and controlled by the government. According to MMT, governments which issue their own currency may go into as much debt as they wish, certain and confident that nothing bad will happen because the government controls the currency. In other words, macroeconomically speaking, MMT claims that it’s a government’s world—we only live in it.
My objection to this, in snooty eccy terminology: I think that these MMT macro-economic theorists are purveyors of an interesting new meta-neo-Keynesianist world-view. It seems they are employing a closed-system, zero-sum proto-monetarist model. This model—though compelling—does present certain structural issues and disappointing limitations, vis-à-vis the uses of a reserve currency, which might make the theory less than apropos, were it to face a real-world scenario. Or not.
My objection to this, in just plain ol’ regular words? I think this MMT theory is full of shit, propagated by fucking idiots.
MMT is just a clever way to justify insurmountable levels of fiscal debt—it’s a rationalization of this insurmountable debt, using a veneer of economic terminology to cloak the purveyors’ political ideology of spend!-spend!-spend!-your way out of a recession or depression: In other words, Keynesianism-redux. Keynesianism on steroids—Keynesianism gone fucking in-sane.
(I’m going to write a detailed take-down of these MMT fools in a couple of weeks. But for now, let me limit myself to just a couple of paragraphs.)
These irresponsible peddlers of MMT claptrap—because that’s what they are, irresponsible buffoons for peddling such irresponsible, arrogant bullshit—simply do not understand what money is: It is a medium of exchange. The government—which controls this medium of exchange, especially in a fiat currency—is supposed to be the honest broker between economic participants who use this medium of exchange for their transactions.
A government issues the medium (the currency), and the government can debase it at will, for whatever reasons it deems worthy. But if the medium—the currency—is debased to a tipping point, then the economic participants will no longer believe in the currency’s worth. They will therefore run from the currency, and turn elsewhere to fulfill the need that money satisfies, which is: To store wealth, and to act as a medium of exchange.
If the dollar and Treasury bonds are pushed hard enough—that is, debased hard enough—there will come a point where people will lose trust in them both, and not want them. It’s one thing if a currency organically inflates by way of ordinary demand on consumables and expansion of credit—that’s just normal fiat currency wear-and-tear. It’s quite another if economic parties realize that a government is deliberately trying to debase the currency, in order to get out from under insurmountable debt.
If people no longer trust dollars as a medium of exchange and Treasuries as stores of value, where will they go? They will leave both and go to something else—commodities, as I have argued. And when that day comes, people will do anything to get out of the dollar and Treasuries, and into something that is stable in terms of value storage and medium of exchange.
MMT doesn’t see this—it just sees spread-sheets and board-games. This story here, which giddily, girlishly describes Federal Reserve drones “printing money”—and how wonderful and magical that process is—is pretty indicative of the fundamental detachment from reality of this world-view.
It’s why MMT fails at describing both reality, and predicting the future. It’s why—among other reasons, which I will discuss more fully in another post—MMT is a big ol’ steaming crock of shit.
MMT is one theory as to why nothing bad will happen to Treasuries.
The other theory—much more sensible, and backed up with empirical evidence—is what I’d call the Japan Is Us theory of Treasury bond stability. It’s the only truly serious challenge to the argument of Treasury bond collapse which I am arguing. Therefore, it’s a challenge that must be met.
On the blogosphere, Michael “Mish” Shedlock is probably the smartest proponent of the Japan Is Us theory.
I have a lot of respect for Mish—he was one of the very few serious commentators who argued that the U.S. economy was going to experience deflation. He argued that position literally years before it caught on. People now—in 3Q of 2010—are wising up to deflation. Because of Mish’s insights, I was on to deflation as of 3Q of 2008—and was fortunately able to plan accordingly.
Mish also thinks I’m full of it, for claiming that there’ll be a Treasury bond collapse, commodity spike and then hyperinflation.
His rationale is, we are experiencing deflation (which I agree). This deflation has been brought about by destruction of credit (check again), brought by the bursting of the housing bubble and the concomitant reduction in mortgages and loans (check once again).
Mish further argues that, like Japan, the U.S. Federal government will spend-spend-spend on all sort of needless projects, but that the deflation is much stronger. Therefore, no matter how much the U.S. spends, there is no way to escape from a Japan-style Lost Decade (or two) of stagnant growth and systemic deflation.
This is where we part company.
Mish is convinced that through these deflationary years/decades, Treasuries will continue to be the only safe store of value. From a recent post, here’s a representative quote:

I do think corporate bonds, especially most junk is playing for the greater fool. regards to treasuries, there is going to be an exit problem for sure, but that could be years away. In Japan, yields stayed low for a decade. Why can't it happen here?

Yields certainly might stay low for an extended period. Whether or not they do remains to be seen.  

(The underlining is mine.)
Mish thinks that there’ll never be a Moment of Clarity, regarding Treasuries. He admits that there might be an “exit problem” in Treasuries, but vaguely posits that that might be “years away”. In the meantime, he thinks that Treasury yields will remain low, prices high (or go even higher), as companies and banks basically “keep money under the mattresses”.
Mish has a good case in arguing for the Japan Is Us theory—but he is wrong, on two fronts.
First, Mish doesn’t realize that Federal Governments’s deficit spending is rapidly approaching its limit. Because unlike Japan in 1990, when its deflationary death-spiral began, the U.S. Federal government started this depression already with a massive deficit. The eight years of Bush 43, to be precise, were all borrow-and-spend years: In those eight years, the fiscal deficit had already goosed the economy.
That’s why the massive stimuls Obama implemented hasn’t really helped—the economy is already hung-over from the Bush stimulus years.
Besides—and so obvious that it shouldn’t even be up for debate—yearly fiscal deficits of 10% of GDP per year are simply unsustainable. I don’t care what argument you make, deficits of this ever-increasing size will lead to a collapse in the economy. Certainly a blow-up in Treasuries—the instrument of this deficit—long before.
Mish further fails to realize that the Federal Reserve has abandoned both of its mandates—to fight inflation and to maintain full employment—in favor of its new mantra: Maintaining aggregate asset price levels. Whatever it takes. This means essentially inflating asset price levels back to pre-Depression levels.
Everything the Fed has been doing since September 2008 has been in the service of this goal. The MBS buys, the alphabet-soup of liquidity windows, QE, now QE-lite, QE2 soon to come—the Fed is hell-bent on maintaining the bubble it created between 1987 and 2007.
Since September 2008, the way the Fed achieved this goal was by effectively nationalizing private debt, and turning it into public debt—one look at the Fed balance sheet is enough to convince any skeptic. This means that all the bad debt accumulated during the last two-and-a-half decades have been effectively turned into Treasuries.
So Treasuries are getting squeezed and pulled two ways: By the U.S. Federal government, and by the U.S. Federal Reserve. Because of the massive fiscal debt of the Federal government, Treasury bonds will not be repaid, at least not in real terms. And because of the Federal Reserve’s constant goosing of their prices in order to both maintain low interest rates and prop up asset prices, Treasury bond prices have left planet earth altogether, and are in the realm of Bubble-land.
In a couple of private e-mails, Mish objected to—and dismissed—my Treasury-run/commodity-moonshot/hyperinflation scenario altogether. According to him, I was arguing for a Shazaam! moment: When all of a sudden—for no reason whatsoever—people would collectively panic and—Shazaam!—they would exit Treasuries en masse.
Mish is actually right—that’s what I’m saying. I pompously call it a “Moment of Clarity”, Mish more cuttingly calls it a Shazaam! moment.
But that is, in essence, what I am arguing: Because in a termite-riddled house, no one can predict when the house will collapse—but we all know deep in our bones that it will collapse. So the second you hear a creak in the plankings, what do you do? You run for the exits.
I have no idea when that Shazaam moment will happen: Tomorrow, next month, next year. But it will occur—because everybody knows that Treasury debt cannot be repaid. So it’s not a question of if—the damage has been done, and is irreparable. It’s now just a question of when.
I hope I have explained why.


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Tue, 08/31/2010 - 22:23 | 556762 Hall 9000
Hall 9000's picture

"The future will be better tomorrow."

Dan Quayle

Tue, 08/31/2010 - 23:02 | 556831 BobWatNorCal
BobWatNorCal's picture

Actually, I kinda like that!

Tue, 08/31/2010 - 23:08 | 556841 Getagrip
Getagrip's picture

Tomorrow never comes. I know because a bar in Key West beer-tomorrow..

Wed, 09/01/2010 - 07:12 | 557152 zhandax
zhandax's picture

If its the one painted on the side of the building its been there since at least '82 or '83.

Wed, 09/01/2010 - 08:36 | 557247 blindfaith
blindfaith's picture

actually, it WAS on Stock Island.  Bulldozed a few years ago in the great real estate boom.  Empty lot now and a warning to those who couldn't get enough urban sprall in paradise.

GDP?  How can the Gross DOMESTIC product be domestic if it includes semi chips ( and other goods like air planes) made in China by "American" companies using foreign (Chinese) workers and sold overseas.  Not a damn red cent is made in the USA, and not a damn red cent LEAVES China. ( and even our Military electronics are now made in China, is this government on crack or something?). the way folks, Kiss "Green" good-by and electric cars and cheap hand held battery devices...the Chinese (our communist friends that we gave our intellectual property, manufacturing, and jobs to) are cutting off by half to 75% (drum roll please) rare earth metals exports to the USA.  So, soon we will all be buying 'radio-wagons' filled with car batteries, to pull behind us as we merrily type away on our lap-tops and drive home in our 18 mpg cars.

Blindfaith, we got plenty of that don't we.  The Chinese won the game, and we better learn how to say 'yes sir' in Chinese soon.

Wed, 09/01/2010 - 10:46 | 557539 hbjork1
hbjork1's picture


There are other sources of rare earths.  The Chinese will be able to continuing processing cheaply but only with stolen IP.  Just as computer IP has been stolen for years (and resold in the US), the processing secrets (chemicals and methods) belong to the inventor until they are stolen. 

And Good Luck to anyone who thinks they would be able to get evidence to prove anything in court.  

But there are other sources than China for the raw materials once the infrastructure is established.

That of course will have a cost and the price will be higher because the workers won't be at the same pay level.

Wed, 09/01/2010 - 12:42 | 557837 Imminent Crucible
Imminent Crucible's picture

The mere fact that China has placed a 73% export ban on rare earths does not mean that we'll have to give up our flexible TFTs and PV dreams.  It just means that U.S. corporations will have to make arrangements to have all rare-earth based products manufactured in China.  Isn't that what Foxconn is for?


As smart as he is, Shedlock has made a fatal error, I think.  He bases his projections on a conflation of the U.S. with Japan.  But he fails to discount the fact that Japan is not, and never will be, confronted with the Triffin Paradox:  He that issues the world's reserve currency is King, until he blows up.

Tue, 08/31/2010 - 23:15 | 556854 Alexandre Stavisky
Alexandre Stavisky's picture

Why did God give us agility,

If not to evade responsibility?,

thought, pensive, pensive, tireless Ben

as he gave his weighty press, another spin,

under slops of ink, and silken papers

Ben feared he'd got the vapours.

No! instead, some primal termite knocked on wood

And tasted it, and found it good

And that is why your dollar's pay

fell through the parlour floor today.

But before he mops up and absconds

He'll do all again to the world's bonds.

Wed, 09/01/2010 - 00:24 | 556948 Hall 9000
Hall 9000's picture


"I’m telling you, things are getting out of hand. Or maybe I’m discovering that things were never in my hands." Weblog, August 2, 2003


Wed, 09/01/2010 - 01:08 | 556995 merehuman
merehuman's picture

Very nice.

Wed, 09/01/2010 - 08:40 | 557256 poopyjim
poopyjim's picture

Beautiful. I love it.

Wed, 09/01/2010 - 00:14 | 556938 iDealMeat
iDealMeat's picture

potato(+e) to that..

Wed, 09/01/2010 - 00:17 | 556939 tictawk
tictawk's picture

A collapse in the bond market means HIGHER borrowing rates which will just accelerate the collapse / contraction of the debt based US economy. It would crush borrowers and force more defaults because the debt service costs would be too high.  The economy would become a cash and carry economy.  How can hyperinflation exist when the DEBT represents a BLACK HOLE i.e. debt is NOT THE SAME AS LIQUID CASH. Author is correct in calling bonds a DEBT and not an ASSET.  CASH is an asset and our economy exists because money supply consists of ASSET/DEBT ratio of 1:50.  I just don't see how the Fed can monetize it all. 

Japan did not collapse because they had massive credit surpluses in 1990.  They were a creditor nation with huge trade surpluses to fall back on.

Deficits under Bush averaged 300 billion annually till 2006 when a Democrap congresss came into power and then the deficts skyrocketed to 1.5 trillion annually.

Wed, 09/01/2010 - 00:26 | 556951 Johnny Bravo
Johnny Bravo's picture

He was doing more than 300B.

And you seem to neglect to mention that there was a surplus before he was elected.

Wed, 09/01/2010 - 01:10 | 556997 ConfederateH
ConfederateH's picture

So Johnny Bravo is too much of a coward to show up on any gold related threads when the gold prices are rising, but simply cannot miss any chance to make a dig at Bush, just like Obama constantly does.  Face it Johnny, you have a man-crush on the president.

Wed, 09/01/2010 - 02:25 | 557042 Johnny Bravo
Johnny Bravo's picture

Maybe you didn't see me post in the gold thread like seventy times today?

I don't care about the president.  I was just pointing out that this fellow is obviously lying.

Wed, 09/01/2010 - 08:47 | 557270 Ricky Bobby
Ricky Bobby's picture

Shouldn't you be in class Johnny? Please don't waste your time here, but I understand you need the 8.00 an hour from Acorn.

Wed, 09/01/2010 - 05:03 | 557107 i.knoknot
i.knoknot's picture

mr bravo,

you might be interested in this one. sounds like there is no real sense in finger-pointing on this issue:

KD likes math. i like KD.

Wed, 09/01/2010 - 08:14 | 557213 Jerome Lester H...
Jerome Lester Horwitz's picture

You should be OK with the deficits under Bush since you seem to have no problem with Obama's deficits.

Wed, 09/01/2010 - 11:07 | 557594 fearsomepirate
fearsomepirate's picture

You don't understand.  Bush deficits were bad.  So bad that the only way to fix the damage they caused was by running quadruple-sized deficits under Obama.

Sat, 09/04/2010 - 00:54 | 563425 i.knoknot
i.knoknot's picture

that's pretty presumptuous...

perhaps he's just trying to break the system, and had a good start with W's help.

Wed, 09/01/2010 - 02:27 | 557044 Spitzer
Spitzer's picture

the dollar is backed by the full faith and CREDIT of the US govt.


Wed, 09/01/2010 - 03:11 | 557077 Johnny Bravo
Johnny Bravo's picture

Don't forget the military.  That's the most important thing it's backed by.

Wed, 09/01/2010 - 08:48 | 557271 Ricky Bobby
Ricky Bobby's picture

Shouldn't you be in class Johnny? Please don't waste your time here, but I understand you need the 8.00 an hour from Acorn.

Wed, 09/01/2010 - 12:08 | 557744 Hephasteus
Hephasteus's picture

You need to shut up about that. You see we are in the same situation we were in when vets came home from vietnam. The more people like you clamor on about the dumb animals that back up the currency the more likley you are to set of a massive backlash.

Fighting a fucked up war and coming home to cold callousness and verbal abuse slid the cheese off a lot of crackers. If you thought the 60's was bloody and abusive. You're just going to have to trust me. It can be taken up several notches with the wrong words and the wrong attitudes.

And try to keep such sentiments on the internet. Pretending the military is your dog on your leash is all fine and good but if you whip 'em out like they got your back to the wrong person in the real world you could find out they don't fight for you and you don't control them.

And ya. Go to class.

Wed, 09/01/2010 - 18:55 | 558553 The Navigator
The Navigator's picture

Which is backed by the US Tax Payer, MOST importantly.

Wed, 09/01/2010 - 06:07 | 557112 wintermute
wintermute's picture

There is a paradox here: how can cash be an asset when Treasuries are debt?

A Federal Reserve note is a zero-coupon government bond. Treasuries are a coupon-paying government bond. The reason Treasuries are still in favour as they are interest-bearing dollars.

The paradox is solved when we understand that "cash" is a superset of dollars, foreign exhange and gold. Because they are a store of value and fungible into goods and services.

The author is right, a collapse in confidence in Treasuries is a collapse in confidence in the dollar bringing on hyperinflation.

Cash is always an asset. But it does not always have to include dollars as a subset!


Wed, 09/01/2010 - 07:08 | 557151 TheWord
TheWord's picture

Actually, I've come to realize that Gonzalo is incorrect.  His primary argument is that bonds will collapse first, then the $US.

There is no way that Ben will ever let that happen.  Ben will buy up 100% of US debt before he lets a single nickel default.  Sure, we can have any number of players begin abandoning the US Treasury market, however the Fed is the net beneath that market.  It's not going anywhere, so long as Ben has a fully fueled, powered-up chopper ready to fly.

The USD will burn up before Ben lets the Treasury market fail.

Wed, 09/01/2010 - 07:27 | 557161 zhandax
zhandax's picture

Bonzai Bennie may be the best poker player at the table then, cause none of the rest of the world's ponzis seem to want to let him get the edge on them in the currency debasement game.  What comes out the wormhole when every country on the planet tries to debase their currency at the same time (and in coordinated tandem?)  My guess: this is when the shit rises to the top and the biggest pile sinks first.  Guess who owns that?

Tue, 08/31/2010 - 22:26 | 556772 demsco
demsco's picture

So what? This is nothing new, but, outside of tangible assets, if treasuries fail everything fails. I suspect we are a ways off unless interest rates go up sharply in the near future. Even if they do the day of reckoning is still a ways off. I am not foolish enough to say that it will never happen, just pointing out that we are a ways off from default or a major crash unless rates or inflation takes off. That is all.


Oh, gold bitchez

Wed, 09/01/2010 - 02:33 | 557050 Spitzer
Spitzer's picture


Then buy treasuries....

Thats what your doing right ???


Tue, 08/31/2010 - 22:30 | 556779 plocequ1
plocequ1's picture

So when does this whole Charade end? Im hearing very scary shit from Alex Jones. It looks like the NWO hates shorts and humanity. Its no longer a Stock Market thing. Its personal.

Wed, 09/01/2010 - 01:44 | 557027 Maniac Researcher
Maniac Researcher's picture

Alex Jones has been on repeat for years.

Tue, 08/31/2010 - 22:32 | 556783 -1Delta
-1Delta's picture

off topic

ES1056.25 ... all bc AUD beats on GDP when CAD missed this am...  fuck computers and this market... 15k contracts move the overnights 6 points- are you kidding me... and did the ES GAP 3 points after the  200K 5 min till close bullshit... WTF

apologizes for venting... but this is stupid- humans are needed

Tue, 08/31/2010 - 22:44 | 556797 plocequ1
plocequ1's picture

Relax 1 Delta ..Rally on . ES Futes up 9.79.  The " Shazam" moment could happen next year. That gives you plenty of time to Risk on. Have faith in Uncle Ben.

Wed, 09/01/2010 - 00:40 | 556968 iDealMeat
iDealMeat's picture

remove the computers and volume plumments 75+ %.

crash, crash, as in seriously chaotic crash.. 


Tue, 08/31/2010 - 22:35 | 556786 Quinvarius
Quinvarius's picture

I think the Fed will sit on the bid until Hell freezes over.  The dollar will lose all purchasing power long before the Fed lets rates go up on Treasuries.

Tue, 08/31/2010 - 22:46 | 556789 LePetomane
LePetomane's picture

The government is caught serving two masters.  On the one hand, it desperately wants asset reinflation to take place in order to fill budget shortfalls.  On the other hand, an inflationary environment will bondholders and increases carrying cost and, therefore, default risk.


Question is: how badly do Democrats need to buy votes (ie unemployment)?

Tue, 08/31/2010 - 23:41 | 556889 Ragnar D
Ragnar D's picture

Vote-buying dependency programs have been their model for 80+ years.  They put the plan on steroids 40-50 years ago and you can look to any urban slum of One Party Rule to see the results.  The last 2 years it's been on crack.

Tue, 08/31/2010 - 22:44 | 556809 DirtySouth
DirtySouth's picture

Your assumption would make for a great novel or movie.  You should really stick to what you know.

Tue, 08/31/2010 - 22:48 | 556813 Mad Mad Woman
Mad Mad Woman's picture

Hey, I agree with you.  At some point it will all come tumbling down. Ben won't be able to keep his finger in the dike forever. It HAS to come tumbling down.

MsCreant was saying the same thing, at some point it will all collapse.

I wish it would all crash now. I'm getting tired of waiting for it. Let's get it over with and then we can start anew. By then the angry masses will have swept away Ben, Timmy and Larry and the banksters.

Wed, 09/01/2010 - 00:41 | 556973 Kali
Kali's picture

Yes, Mad, Mad, Woman.  I am tired too.  I have fatigue fatigue.  That's what happens after compassion fatigue?  Plus I am getting old.  If it happens now, I might be able to survive it.  If it happens in another 10-20 years, I am toast, too old, too tired, too weak to want to survive it (?).  The stress of waiting for the bad to happen can be worse than the bad happening.  And it's gonna happen.

On another note, was refreshing to meet a young couple (30's) this week who understood what is happening and have started becoming self sufficient.  Still working their "day jobs", but getting their farm together, planning for a dour future.  They have two kids, lucky kids, such smart parents.  They are big fans of Mish too.

Wed, 09/01/2010 - 03:55 | 557091 lost in the usa
lost in the usa's picture

Obama or McCaine it still would crash some day, so my mantrasis that we are lucky to have Obama in office to speed things up so we can rebuild, The longer it went on ot got propped back up the more we would spend waiting it out and reducing our capital, let it go fast and have something to rebuild with.

There is always a blessing in disguise or at least for us non religous folks a better way of looking at things.

Tue, 08/31/2010 - 22:49 | 556814 THE 4th Quadrant
THE 4th Quadrant's picture

3o year has the highest concentration of termites per board foot.

Tue, 08/31/2010 - 22:51 | 556817 Fred Hayek
Fred Hayek's picture

I prefer Benny and the Debts to Backstop Benny.

And, quinvarious, I think you're right.  This is essentially what the Fed did in the late 40's.  Despite high inflation, the Fed kept treasury rates low.  This is their goal.


Tue, 08/31/2010 - 22:58 | 556823 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Everything done Barrack and Ben are for your own good. If you do not understand that their actions are only motivated by love and concern for your well being, you have not been watching enough television. Go home, go to sleep, there is nothing for any of us to worry about.

Tue, 08/31/2010 - 22:59 | 556824 Mactheknife
Mactheknife's picture

Nailed it Gonzalo. Nice work. IMO, I think they are good for at least another year or as long as the interest payments remain reasonably safe.

Tue, 08/31/2010 - 22:59 | 556825 Shameful
Shameful's picture

Well said.  I think most people deny the clear outcome of the massive debt, insane deficits, and crumbling economy because it's "to real".  That it can't happen because "This is America!".  In many ways we live in a make believe world.  Hell the US economy is make believe.  From South Africa to Indonesia everyone has to have faith in the US and the Dollar or the system doesn't work.  Sooner or later that faith will be eroded and someone will shout "FIRE!" and there will be a run away from Dollar denominated debt.

Having said that hope to be wrong.  Would be nice if the world would let us get away with grotesque borrowing and spending forever.  But I have an idea that the world will eventually want to get paid back...

Wed, 09/01/2010 - 00:43 | 556977 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

I think the "psychology of the saver" is something that the bankers understand much better than the savers or even the average zero-hedgers do. 


We want so badly to believe that the culture of our upbringing cannot be rotten at its core in some terrible way and so we will go to great lengths and sacrifices to maintain the illusion that things are ok.  The bankers know this.  


Sell your US dollars and buy Gold?  Really?  My heart was racing the day I bought some bullion coins a few years ago.  It wasn't even a huge amount of money, but just the realization that I was taking action in the face of a truth I could no longer deny was pretty intense.  Most people never get this far.  And I've hardly done anything to prepare.


The Obamas and Bernankes of the world will gently hold our hands and speak soothing words for a while longer.  Then when we suddenly decide to run away from them, we will notice their grip on us is much tighter than we had previously realized.

Wed, 09/01/2010 - 01:40 | 557026 i-dog
i-dog's picture


Wed, 09/01/2010 - 04:17 | 557098 amusedobserver
amusedobserver's picture

You described my feelings nearly exactly.  Have known the truth "mentally" for some time but couldn't bring myself to actually act on it until recently.

Wed, 09/01/2010 - 07:35 | 557169 Roger Knights
Roger Knights's picture

"We want so badly to believe that the culture of our upbringing cannot be rotten at its core in some terrible way and so we will go to great lengths and sacrifices to maintain the illusion that things are ok."


You've put "denial" in a nutshell.

Wed, 09/01/2010 - 07:52 | 557189 Jendrzejczyk
Jendrzejczyk's picture

That moment of giving up your old reality for a new one is very disconcerting. You wonder if you are now officially crazy, or if everyone else is.

It doesn't help your feeling of sanity when Ichabod Crane is standing in the coin shop next to you, buying $2000 worth of silver rounds to bury in his back yard.

Wed, 09/01/2010 - 15:29 | 558217 lost in the usa
lost in the usa's picture

That's what I was trying to say about Obama in office, it helps galvanize the people who were not paying attention, we were going down the socialized path anyways, but this gets a little fear in the normal guy or girl.

Reagan talked great but still had the gov at 3x the size when he left office, at some point no matter how great you talk or grow if the gov is growing faster you are doomed rather have it out in the open so all can see.

Tue, 08/31/2010 - 23:00 | 556827 Species8472
Species8472's picture

So, how about this: I have a barn, well maybe it's just a really big shed, anyway, it can hold a lot of stuff. What if I were to buy and store stuff. Like tons of something, like copper! Might be much easier to manage than gold. There is probably other stuff that can be stored too, if we just think about it. How about Chromium or Molybdenum? Metal has a long shelf life compared to soy beans or corn.

And, if civilization doesn't end, that stuff will be useful and should be a store of value.

Wed, 09/01/2010 - 01:12 | 557000 traderjoe
traderjoe's picture

Bullets/ammo have increased in value over the past few years. Would be much easier to store and accumulate then copper. With a more readily available market in sour times and good. Don't know if your post was serious or not...

Wed, 09/01/2010 - 09:34 | 557367 Species8472
Species8472's picture

Serious or not? A little of both. Lots of people here in the country side have room (barns) to store lots of stuff. If hyperinflation were to occure, the average person would not have access to commodities and would not buy them, but they could, and would  by other things, usfull things.

Having been around during the inflation of the 70s-80s I can tell you some people did buy more stuff than they needed, storing it because they new the price would be higher when they did need it. I used to buy motor oil by the case and get 4 or 5 oil filters at a time. People did the same with most anything that could be safely stored. Paper towels, toilet paper, even lumber for future projects. Light bulbs, car tires, etc. I think behavior like that will be the real driver of hyperinflation.

So, what will be valuable on the other side? If civilization as we know it collapses into anarchy, yeah, guns amo and beer, with some gold and silver. But I don't think that will happen. So what else to store, farm land, and put a multi family house on the corner?

I suppose, since I am close to Canada I should now open an account in Canadian dollars in a Canadian bank?

Wed, 09/01/2010 - 09:29 | 557358 fiftybagger
fiftybagger's picture

Buy nickels, they are worth .3 cents more than a nickel...



Tue, 08/31/2010 - 23:03 | 556834 G. Marx
G. Marx's picture

So far I find this to be the best of the three articles.

Wed, 09/01/2010 - 02:17 | 557038 drwells
drwells's picture

Yep. Great stuff. And I'm glad to see a sensible debate between this viewpoint and Mish's (with whom I agree on nearly everything else).

"[A]s Jordan Roy-Byrne notes in a post at Minyanville, "Hyperinflation Is Fiscal, Not Monetary Phenomenon,"  "too many analysts believe there has to be some economic demand or some consumption to stimulate inflation or hyperinflation."

I disagree with the views put forth by John Mauldin, Mike Shedlock, and now Jim Rickards, who all focus on velocity and/or bank lending as important causes of hyperinflation.

The reality is that hyperinflation is first and foremost set in motion and driven by a deteriorating fiscal situation. In fact, significant economic weakness and deflation is a precursor to hyperinflation. Too many analysts believe that there has to be some economic demand or some consumption to stimulate inflation or hyperinflation. Printing money to try to stimulate your economy or excessive credit growth is what leads to inflation. Printing money because you're broke and can’t service your debts is what leads to hyperinflation."

Even Hussman, who I don't think of as your typical doom and gloomer, is talking about a dollar collapse:

"The Fed's purchase of Treasury securities and creation of base money is occurring in an environment where fiscal deficits are already out of control, while two-thirds of the Fed's balance sheet already represents Fannie and Freddie Mac securities that need to be bailed out by the Treasury. This makes it enormously difficult to reverse the Fed's transactions ... It is instead effectively printing new money to finance ongoing spending for fiscal deficits and the bailout of the GSEs. At the same time, the fact that it is operating in a weak economy and a near-term deflationary environment means that nominal interest rates are being pressed down at the same time that long-term inflationary prospects are escalating."

"As Milton Friedman has noted, the burden of government is not measured by how much it taxes, but by how much it spends . The impact is particularly severe when growth in entitlements is high and growth in productivity is low. This is why inflation exploded after the late 60's, and why it came down after the early 1980's. This is why the Germans suffered hyperinflation after World War I when its government decided to keep paying workers who had gone on strike. Always and everywhere, rapid inflation is produced by excessive creation of government liabilities without a corresponding increase in the amount of goods produced by the economy."

Tue, 08/31/2010 - 23:04 | 556837 mark mchugh
mark mchugh's picture

You dick!

You're articles great and right on, but you totally wasted the termite analogy.  And for that I say, "You, dick!"

The house is our financial system and the problems is "termites".  Millions of greedy little parasites consuming for the own gratification.  Banksters, HF traders, Hedge funds.  The government, the Treasury, and the Fed keep trying to support the system with more food for the termites.  I guess they think at some point, they'll get full and stop eating the house (news flash - they won't).

You've got to kill the termites first.  New drapes won't help, nor will a fresh coat of paint (i.e. Financial "reform").  Every action we take is pointless because we won't get rid of the termites that are literally devouring our Nation's wealth.

That's a much better use of the termite analogy.  One that I had hoped to use in an upcoming article of my own, but now I can't because the termite analogy has already been played.


P.S. Good stuff

P.P.S. Dick

Wed, 09/01/2010 - 10:39 | 557521 Gonzalo Lira
Gonzalo Lira's picture

Actually, it was a metaphor, not an analogy. 





Wed, 09/01/2010 - 12:19 | 557778 mark mchugh
mark mchugh's picture

WHATever  (dick)

Wed, 09/01/2010 - 10:45 | 557537 Citxmech
Citxmech's picture

...or it's too late and you just need a new house.

Wed, 09/01/2010 - 12:40 | 557830 RockyRacoon
RockyRacoon's picture

Burn the old one to the ground.  Problem being that the underground hive will merely migrate over to your new house.  There is no way to rid ourselves of the underground source of the problem: greed, avarice, and callousness.  These driving forces will always be with us.

Tue, 08/31/2010 - 23:04 | 556838 rawsienna
rawsienna's picture

just another bitter person losing money being short Treasuries. Rates may back up a bit but with inflation at zero and Fed on hold forever if you are getting what you deserve for being short.

Wed, 09/01/2010 - 00:07 | 556925 woolly mammoth
woolly mammoth's picture

My method of shorting treasuries has been to buy gold and silver. I'm not bitter.

Tue, 08/31/2010 - 23:14 | 556851 Obiwan
Obiwan's picture

Good Clarity Gonzola.

The fly in Mishe's Japan-Is-Us soup is the US debt gone parabolic. The minnions in DC think nothing of destroying our Nation with debt. It's really the only course of action they can think of and it serves the purposes of thier masters alright.

The end game must be default in some form, and hence the flight to tangibles as you suggest.

Best to 'get tangible' sooner rather than later...

Wed, 09/01/2010 - 00:07 | 556906 Hansel
Hansel's picture

The question is, will joe sixpack who doesn't read economics blogs ever recognize any change between monetizing debt and not monetizing debt?  If Gonzalo is saying people shazam! and then commodity prices spike, perhaps J6P can remain oblivious.  I think rising commodity prices will force people to question money.  The people who originally invested in toxic assets, and who were made whole by the Fed, won't go back to investing in the same toxic assets.  There will be some % of flow into other assets, one being commodities.  As more people shazam!, more money will flow to commodities.  It will not happen all in one day; it will crescendo... imo.

Wed, 09/01/2010 - 11:18 | 557622 fearsomepirate
fearsomepirate's picture

Rising commodity means rising prices on consumer goods.  J6P will eventually figure out that if he holds on to his paycheck for more than about two days, it'll be worth a fraction of what it was when it was cut.

Wed, 09/01/2010 - 12:43 | 557838 RockyRacoon
RockyRacoon's picture

How the media handle the situation will be all important here.  The populace could be spooked by large font drama, or lulled by below-the-fold or B section bland notices.

Wed, 09/01/2010 - 02:45 | 557061 Spitzer
Spitzer's picture

Shelby Moore kicked Mish's ass on Gordon Gekkos blog.

Just out right kicked his deflationist ass.

Wed, 09/01/2010 - 09:23 | 557337 I am a Man I am...
I am a Man I am Forty's picture

It took these people a while to understand what Mish was saying about deflation.  They'll get it eventually.

People all arriving at a "moment of clarity" all at once is a weak argument in my opinion.

Tue, 08/31/2010 - 23:15 | 556853 tony bonn
tony bonn's picture

even though there wasn't one single new insight in this editorial, it still rates a 5+....we live in times when it takes bravery and courage to tell the truth....we heard the truth tonight especially in the following snippets which i will cherish along with "tight as frog ass"

"My objection to this, in just plain ol’ regular words? I think this MMT theory is full of shit, propagated by fucking idiots." i can't improve this except to say that many of the fucktards purvey the emporer's new clothes as they suck up to the murderous crockefellers...

"What had once been worth 100 was now worth 80, 60, 40, and in some cases, Cop Snacks."


Tue, 08/31/2010 - 23:19 | 556855 AUD
AUD's picture

I think the problem with the likes of Mish & also Steve Keen is that they see the USD as the standard of measure of value.

"At least Toxic Assets had something backing them up, even if they were worth much less than advertised."

I take Jim Willie with several grains of salt, but he has often talked about bond counterfeit, i.e. these 'toxic assets' never had collateral of any kind, they were a product of reckless monetary policy by governments allowing the big banks to issue vast quantities of worthless paper into a rising market.

Tue, 08/31/2010 - 23:22 | 556861 Lux Fiat
Lux Fiat's picture

Because in a termite-riddled house, no one can predict when the house will collapse—but we all know deep in our bones that it will collapse.

Wish it were so, because if everyone knew, then they would vote for real change, and not for folks who are going to continue rearranging deck chairs.  Sadly, there are a lot of folks who should know better, but are in denial.  A controlled, planned default is better than one that sneaks up on you.  Just look at Argentina, Greece in the not so distant future, etc.

Which gets me to a minor(?) Ms. Manners beef.  G. Lira been one of the best writers in terms of putting the financial and monetary predicament in very clear, understandable language.  I have his site bookmarked, and have forwarded links to several of his articles to a number of folks I know who need to hear it.  The Hyperinflation I and II articles were excellent reads and written in an audience-neutral format.  His passion on the subject comes through loud and clear in this one, understandably.  It's more than enough to make any cognizant American see red.  However, I will not forward it a number of folks who I would love to share it with, as the language in places will likely/sadly cause them to tune out the message.  Either that or I will edit/butcher it beforehand.

Folks are by and large preaching to the choir at ZH.  The word needs to get out to a much broader audience, in a manner than will convey the needed info, but without causing the old-fashioned types (who by and large vote) to tune out.

Wed, 09/01/2010 - 08:42 | 557260 Gonzalo Lira
Gonzalo Lira's picture

First of all, thank you very much for booksiting my blog, and thank you even more for thinking highly enough of my work to pass it along to people you think my benefit from my foolish ramblings. 


Also, I am not trying to suck up to readers in order to make more advertising money because—as you can see—I don't advertise on my blog. I do it for my own satisfaction, and hopefully to help others see the world a bit more clearly—such as you. 


That being said, about my language: Yes, you are right. Often it is salty, but I use profanity because sometimes, I just need to make clear my outrage. As a writer, especially discussing macroeconomic issues, I sometimes find myself rebelling against the bloodless language that the acolytes of the discipline tend to use. 


This stuff is serious! It's about people's lives! So sometimes, instead of putting ALL CAPS or italisizing or underlining, I find that a good old fashioned swear will make the reader sit up and take notice. 


I know it's ugly—but the thing is, these macroecon issues we are all discussing here are so ugly, that sometimes, polite language just won't do. 


That said, if you feel so moved as to forward my posts, just put asterisks where you deem necessary, I don't mind. 


All the best, and once again, thank you. 



Tue, 08/31/2010 - 23:28 | 556867 RingToneDeaf
RingToneDeaf's picture

How many ways can one say we are so screwed? I like the termite analogy. The house could stand or family, a business, a nation or an age of man.

How does the society die? By greed and corruption, arrogance and I say by turning away from the natural laws of God.

The number of children not living with either parent is exploding. The family is getting killed.

Wed, 09/01/2010 - 00:48 | 556982 Kali
Kali's picture

Reminds me of a story my sister told me.  She was working in Africa.  One day, she saw a man, stuffing his face with all the food the family had while his many starving to death children watched.  She asked him why he didn't feed his children.  He said he could always have more children.

We are the children of the the greedy, corrupt and arrogant.  They don't care.  They think they can always have more children.

Wed, 09/01/2010 - 14:49 | 558099 faustian bargain
faustian bargain's picture

I had to read that twice. Incredible.

Tue, 08/31/2010 - 23:32 | 556873 jg
jg's picture

Mish is right on lots of stuff, as are Rosenberg and Prechter.

But, they are wrong on this.

I look forward to installment four, Gonzalo.

Wed, 09/01/2010 - 00:30 | 556958 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

Seconded.  We are very fortunate to have such shoulders to stand on. 


Rock on Gonzalo...

Tue, 08/31/2010 - 23:34 | 556877 Obiwan
Obiwan's picture

The balance we all just enjoyed for the last 60 years will be overwhelmed with chaos.

Just count on that, it's unavoidable now, and do what you can to create stability and peace for your family.

Tue, 08/31/2010 - 23:37 | 556879 greyghost
greyghost's picture

more half witted nonsense...federal reserve notes are not issued by the u.s. treasury....only "united states notes" can be printed by the u.s. treasury or the united states goverment. we have the worst of all world with private money by the federal reserve. as the newly appointed sec. of the u.s. treasury my first act would be to declare all soc.sec. payments by computor to each and every citizen checking accounts. than declare that monies so issued are legal tender "united states notes".....even though everything is nothing more than x's and o's. next would be payments for medicare services done in the same from the computors at the treasury dept. to the provider of services. much money has been spent into circulation. well now lets up the circulation about buying aircraft carriers and all the aircraft for one.....lets not forget the pay for all the service personel to man the carrier. are we there yet?....maybe i will than start paying off the bonds and notes of the treasury dept.....are we there yet? spend spend spend into much is not enough, how much is toooo much. hell someone on zerohedge said that you could program a computor to manage carried far enough could you eliminate taxes...could you give pensioners on soc. sec. a raise based on real life inflation? just a thought or two....long live "united states notes"

Wed, 09/01/2010 - 00:40 | 556969 UncleFester
UncleFester's picture

I have got to get some of whatever you are smokin'.

Wed, 09/01/2010 - 01:17 | 557007 greyghost
greyghost's picture

when you get your head out of the smoke screen.......see how abe paid for the civil war...seeing how there wasn't enough gold and silver in the treasury...just because it wasn't in your college text book....doesn't mean it didn't happen or doesn't exist. why only six months after passage of the federal reserve act did the congress "HAVE" to pass an income tax act...why why why. maybe jackass, because they had to stop paying the bills of the "united states" with the monies coined and printed by the "united states" for the people of the "united states of america". how about bringing something to the table and less moronic chatter

Wed, 09/01/2010 - 12:29 | 557804 weinerdog43
weinerdog43's picture

Punctuation.  Learn it.  Live it.

Wed, 09/01/2010 - 20:28 | 558652 The Rock
The Rock's picture

who gives a flying fuck!  the message is still the same... read it...

Thu, 09/02/2010 - 17:11 | 560587 akak
akak's picture

Punctuation.  Learn it.  Live it.




I will never understand why ... these grammatically ignorant posters ... think that an ellipsis ... you know, those three little dots ... can stand in for commas, periods, colons, and every other proper punctuation mark ... ... ... ...


Wed, 09/01/2010 - 21:11 | 558687 UncleFester
UncleFester's picture

1) I'm well aware of "honest" Abe, the greenback and the US Notes.

2) You'll never be Secretary of the Treasury.

3) If you were, you would never be allowed (by the rest of the sychophants in DC) to issue US Notes to replace the FRN.

4) Replacing one fiat (US Notes) for another (FRN) does nothing for the real economy and, therefore, the US citizen.

5) Creating ones and zeros to pay off US liabilities, replace taxes, to give every pensioner a I really have to inform you that you cannot "print" your way into prosperity?  Really?

6) Yes, Congress passed the income tax to pay the bankers' interest on the debt they incurred to get the US out of bankruptcy.

7) Your critiques of the International Bankers are encouraging and your passion is compelling, but your solutions are the only moronic chatter in this discourse.

8) I take it back, please do not pass me whatever you are smoking.

Wed, 09/01/2010 - 07:48 | 557186 Treeplanter
Treeplanter's picture

Back when John Kennedy was insisting the US gov't bypass the Fed in printing money, my Dad showed me a "silver certificate" and a Fed Reserve Note, and explained how one was real money and one was a bankers' scam. Pretty smart for a West Texas cowboy and Kraut killer.  After our mother died we found the old sarge's box of real money: silver dollar coins, Indian head pennies and a silver certificate.  

Wed, 09/01/2010 - 12:50 | 557857 RockyRacoon
RockyRacoon's picture

The silver certificate "died" in 1968, unfortunately.  That was the last time it was redeemable for a silver dollar.  Now all you get is a FRN.  Rats.

But your old Dad had the right idea.  Carry on!

Wed, 09/01/2010 - 14:55 | 558114 faustian bargain
faustian bargain's picture

Taxes are only there to prevent the people from catching on, that the Fed pays for everything already.

Tue, 08/31/2010 - 23:46 | 556894 DarkMath
DarkMath's picture


That's an aweful lot of text explaining what we all already know. I'm more interest in WHEN the house will collapse. Is it this year, next year, 2015, 2020, when is the most important thing.

Wed, 09/01/2010 - 00:04 | 556920 Hansel
Hansel's picture

Nobody knows and you'll just have to keep watching the bond market to know when it's happening.

Wed, 09/01/2010 - 01:48 | 557030 i-dog
i-dog's picture

It's a boxing match between TPTB trying to destroy the middle class (from whence competition could arise) and wrest absolute control against those few with means and determination who are fighting them. Who knows how many rounds it will go? A lucky punch here, a kick in the groin there ... it could go on for years, or weeks........

PS. IMO, it has already been going on for hundreds of years, but now is the endgame.

Wed, 09/01/2010 - 02:57 | 557067 Spitzer
Spitzer's picture

so you are in 100% gold and 0% treasuries ?

Tue, 08/31/2010 - 23:52 | 556899 DavosSherman
DavosSherman's picture

I'm in effn awe!

Tue, 08/31/2010 - 23:54 | 556902 Turd Ferguson
Turd Ferguson's picture

First of all, anyone who reads this and doesn't think the theory that Gonzalo lays out is not only plausible but likely is a complete and utter buffoon. We are at the end of The Great Keynesian Experiment and we all need to prepare accordingly.

Second, the following link was posted on Yahoo tonight. Definitely not your normal Y! koolaid...

Wed, 09/01/2010 - 00:28 | 556953 Johnny Bravo
Johnny Bravo's picture

The sky is always falling in your world, isn't it?

And yet, there the sky stays - above us all...

Wed, 09/01/2010 - 00:54 | 556986 zaknick
zaknick's picture

According to your logic you're the only éminence grise on this site, eh?  The facts and logic that form the consensus of opinion on this blog and far beyond are just figments of our imaginations? We're all wrong and you're the only one smart enough to assess the situation correctly?

Troll or moron?

Get over yourself. 



Wed, 09/01/2010 - 02:22 | 557039 Maniac Researcher
Maniac Researcher's picture

...maybe you get this kind of attention because you're so easy to poke.  "Get over yourself" has been consistently used as code for "I'm not used to dealing with dissenting opinions and don't have a civil way to debate them." Of course that doesn't apply across the board, but it is a general trend. I don't know Bravo - and I personally don't care what his deal is, but I have noticed that there is a near constant millenarian fever pitch, here. And behold, the sky has not fallen. Either that or we all have internet service from our collective bunkers..

Preparation for disaster is one thing. We all have our individual strategies. I wouldn't be a long time reader if I didn't think there were a few good minds that have some ideas on how to protect oneself from a financial conflageration.

Hoping for a collapse to come is quite different. Not that it matters to anyone here - but I happen to think that hoping for the suffering of millions of people (which would occur in a collapse event) in one breath and then trying to catalyze some kind of populist anger in the next is a bit schizo.

Yes - I, too want people to get their heads out of the sand and see things for what they really are - but reasonable advice is a lot more palatable to the average joe (if that indeed is the goal) than simply stating that "the end is near."

Wed, 09/01/2010 - 02:31 | 557046 Johnny Bravo
Johnny Bravo's picture

I agree.  I don't get what's up with all these people and their bunker scenarios and what not.

Like every other post is about how the world is going to end tomorrow, gold will be 5 million, the dollar will be worth toilet paper.

And if you disagree, people refute your arguments by calling you names!

Wow.  That sure convinces people!

Sure, I'm well aware of the structural problems that face America.  But that doesn't mean that we're going to be eating out of garbage cans and running out of oil, and running from armed bands of Chinese supersoldiers.

The funny thing is that the people that believe all these things think that because they found others that agree with them that their opinions are correct.

I wonder how many of them went short when this site told them about the "black swan event" coming in April of 2009?

I mean really...  there's reality, and then there's paranoid hysteria.
The site does a good job at exposing the negative aspects of reality, and it's a good source when taking things in context with other sources.

Some of the posters here are just weirdos though.  They keep telling me I'll need a bunker tomorrow, and yet the sun still comes up everyday.

Wed, 09/01/2010 - 02:42 | 557059 Maniac Researcher
Maniac Researcher's picture

Damn! And here I have spent the last few years learning Zhongwen to be able to speak to those supersoldiers...oh well.

In all seriousness, though, I do like your quote "there's reality, and then there's paranoid hysteria" In a real disaster, the best thing to do is remain calm and think rationally.

Wed, 09/01/2010 - 03:13 | 557078 Johnny Bravo
Johnny Bravo's picture

Thanks.  Although, agreeing with what I say can kind of get you hated around here.  LOL.

Wed, 09/01/2010 - 03:59 | 557092 Maniac Researcher
Maniac Researcher's picture

I think I'm already hated around here. I've pissed off the right-wingers AND the extreme right-wingers. egads.

Wed, 09/01/2010 - 07:37 | 557171 MichaelG
MichaelG's picture

Fair enough: the sky hasn't fallen, and I couldn't afford a bunker (nor any gold), even if I believed those were my only options.  But what about those structural problems?

Johnny - do you think the US can afford to pay its debts?  If not, what are the options?  You mention upthread that the military is the most important thing backing the dollar.  So, if the US defaults (in either a soft or a hard way), will it be the military that sorts things out?  (i.e. Is there going to be another giant war?)

I agree many folk here tend to the hyperbolic - I think the format of short posts certainly lends itself to that, though.  It's then easy to caricature what are mostly worried people!  What I haven't seen from the (few!) more optimistic posters around here is any alternative suggestion of how, for one, to fix the debt problem.  (Global 'Forgiveness' Summit?  I dunno - you tell me!)

You may not want to get into 'ifs', 'buts' and doomsday or other scenarios, but I'm wondering if 'all looks ok to me at the moment' is sufficient, either.  (And the future is made of 'ifs'.)  Things looked pretty good in late '07 when subprime was contained...  Anyway, I would genuinely be interested in hearing some solid reasons for long-term optimism for our current system.

Wed, 09/01/2010 - 13:00 | 557879 RockyRacoon
RockyRacoon's picture

You won't get answers to real questions from JB.  He's too busy tooting his own horn.

Read on if you doubt.

Thu, 09/02/2010 - 01:31 | 559085 MichaelG
MichaelG's picture

Aye, you're not wrong, Rocky (as a general point, not limited to this discussion!). Oh well, my hopes weren't high (as a general point...).

Thu, 09/02/2010 - 15:32 | 560344 RockyRacoon
RockyRacoon's picture

...and you laid out a nice array of such piercing topics for him. 

Too bad he bailed on ya.

Maybe another day.

Thu, 09/02/2010 - 18:20 | 560737 MichaelG
MichaelG's picture

Meh. I could care (vastly) more. A few solid reasons for optimism from any quarter wouldn't go amiss, though. (Preferred emphasis on 'solid'; likely emphasis on 'few', or in actuality 'none-to-few'; later revised down to 'none-to-you're-having-an-effing-larf'.)

Wed, 09/01/2010 - 02:39 | 557057 Johnny Bravo
Johnny Bravo's picture

Maybe you didn't notice zaknick, but the opinions on this blog are the minority opinions when compared to the opinions of the rest of society, including other financial news sites.

I think that it's funny that you say that your arguments are right because they're the "consensus" and yet the thing that attracts people here is that it is so obviously away from the opinions of every other site.

When I see "facts and logic" instead of conspiracy theories that "might" happen if this, and when this, and after that, maybe I'll take them seriously.

Not all of the articles are bad, but the posters are always like "Oh my god, there's going to be a meteor, right after the Israeli war, right after the currency collapse, right after H1N1 kills us all, and the dollar falls to zero."

It's just fucking boring.  Also, nothing that is ever predicted comes true.

S&P to 450?  Yeah right.
Gold to 54000?  Yeah right.

Not to mention all the other things I mentioned.

I've never seen people so attracted to a groupthink mentality in the name of being "different" from the mainstream.

Hasn't it hit you yet?  NOTHING THAT IS PREDICTED HERE HAPPENS.  In fact, the probability of a lot of these things happening is SO close to zero that it's laughable!

Treasury bonds will collapse?  Yeah, maybe when our country doesn't need them anymore.  Not until then though.

And yet, you keep telling me that I'm crazy for not thinking that the world will end tomorrow.

Wed, 09/01/2010 - 12:30 | 557806 fearsomepirate
fearsomepirate's picture

What exactly do we need USTs for?  USTs aren't capital investments.  They don't generate their own return by going into capital investments that increase satisfaction of consumer needs, thus generating a profit.  The money is simply squandered on failing social programs and the military.  The return you get is from the government finding someone else to loan it money, someone it can confiscate money from, or a central banker with a printing press.

What need, exactly, do any of those three things fulfill?

Wed, 09/01/2010 - 01:33 | 557020 homersimpson
homersimpson's picture

He's a moron. Too dumb to be a troll.

Wed, 09/01/2010 - 02:31 | 557047 Johnny Bravo
Johnny Bravo's picture

Wow.  What a convincing way to add something to the discussion.

Wed, 09/01/2010 - 08:08 | 557209 Turd Ferguson
Turd Ferguson's picture

Whatever there, kiddo. I suppose if I was young and just starting out I would want to believe that the world is all sunshine and lollipops, too.

Wed, 09/01/2010 - 08:50 | 557273 Ricky Bobby
Ricky Bobby's picture

Shouldn't you be in class Johnny? Please don't waste your time here, but I understand you need the 8.00 an hour from Acorn.

Tue, 08/31/2010 - 23:57 | 556905 bankonzhongguo
bankonzhongguo's picture

Personally, the day China does not buy Treasuries is D-Day to the New World.  China can divest all they want, but at some point enough 40+ year old bureaucrats at PBOC and MINFIN, guys with no remeberance of the Cultural Revolution and its political risks - guys that embrace a strong China are going to decide for political sake that US paper is not backed by American machines, brains or bombs.  Maybe its the old fashioned commerical banker in me that looks for value in the labor and education of people to find the capacity to service debt, as well as a banker's service to a community at large.  To all those hovering over their Bloomberg Terminals - you don't have value - you just take the skim over other peoples' idle net worth.  All those pensioners, survivors of the First Great Depression, and the WW2 are choking on your greed.  All those bytes are fleeting.  The prices for food, clothing and shelter will rise in America, while everthing else turns to dust becasue we don't make anything anymore - except unrepayable debt and its inevitable uncertainty. 

Wed, 09/01/2010 - 00:14 | 556934 CitizenPete
CitizenPete's picture

The U.S. makes weapons and technology, and unfortunately I beleive we will see conscription and a new target country (Iran?, N. Korea?, Venezuela?) before this final economic era finally plays out.  I hope the American Republic and Constitution will stand more securely than the central steel cores of the twin WTC towers (both designed for multiple plane strikes).

No where to run...

Wed, 09/01/2010 - 00:44 | 556978 UncleFester
UncleFester's picture

Newsflash Pete....

The American Republic went down long before the Towers, and the Constitution has shit-stains on it dating back to 1913, maybe even before.

Wed, 09/01/2010 - 11:39 | 557693 CitizenPete
CitizenPete's picture

No Newsflash to me dear Uncle, but't done they aren't done yet.

Wed, 09/01/2010 - 21:02 | 558694 UncleFester
UncleFester's picture

Alive and well in the hearts and minds of a few of us, Pete.  Please have a lot of pups and teach them well. 

Tue, 08/31/2010 - 23:58 | 556907 septicshock
septicshock's picture

Gold is starting it's massive bull run... They already prepped people for 1300 as the next line of defense and next year it will 1500. After that, I doubt if there will be anymore lines in the sand they cam draw. The fed has one good printing left in them. After that, any further monetization will lead to a run on treasuries and the dollar.

Until then, the dollar is the only game in town vs other fiat currencies.

Lastly, the dollar is backed by something... It's backed by the united states military.

Wed, 09/01/2010 - 01:44 | 557028 The Professor
The Professor's picture

The military runs on oil paid for with the same hollow IOUs that buy treasuries.

Wed, 09/01/2010 - 12:31 | 557810 fearsomepirate
fearsomepirate's picture

No, no, the military runs on magical unicorn rainbow farts.

Wed, 09/01/2010 - 08:06 | 557203 Treeplanter
Treeplanter's picture

Nobody knows what gold will do, but we can't resist speculating.  The shortage of metal at Comex and the London bullion exchange seems to be having an effect.  Arabs and Asians are buying more.  Some big funds seem to be buying.  But I suspect JPM and GS will continue to smack down prices.  How much can they blow on protecting the greenback and the illusion?  I guess Uncle is backing the play now more than ever.  Gold and silver went up overnight.   I cashed out my miners after noon when the selling ramped up even while the metals were rising (but mostly going sideways).  Now I wouldn't mind if the cartel created a dip in front of the Jobs report.  Cause I think this leg has more to run before it falls back.  But I still haven't made a nickel from wishful thinking.

Tue, 08/31/2010 - 23:58 | 556909 Derp2012
Derp2012's picture

If there was a panic out of bonds, it might be an opportunity for strong hands to buy out the weak hands for pennies on the dollar.  There is no stronger hand in dollar terms than Ben's minions.

Better yet, if the treasury bought the bonds back at fire-sale prices, they could simply tear them up, improving their debt-to-gdp ratio in the process.  They could even book it as a profit in true TBTF fashion!  

Problem solved, back to spending!


Wed, 09/01/2010 - 12:33 | 557816 fearsomepirate
fearsomepirate's picture

What money, exactly, would the Treasury use to buy back bonds?

Wed, 09/01/2010 - 00:04 | 556917 palmereldritch
palmereldritch's picture

Termites could explain Building 7

Wed, 09/01/2010 - 01:30 | 557017 thermroc
thermroc's picture


Wed, 09/01/2010 - 00:06 | 556921 CitizenPete
CitizenPete's picture

Jello, mini vodkas, and lot's of 7.62x39. Stock up all you can fit in your house, trailer, tent, car, whatever.

Wed, 09/01/2010 - 00:30 | 556957 Johnny Bravo
Johnny Bravo's picture

Why jello?

Wed, 09/01/2010 - 01:46 | 557029 StychoKiller
StychoKiller's picture

'Cause, there's ALWAYS room for Jello!

Wed, 09/01/2010 - 02:41 | 557058 Johnny Bravo
Johnny Bravo's picture

It just seemed like it was odd when in conjunction with the other things.

Ammo, yeah, maybe... vodka... okay... but jello?  LOL

Wed, 09/01/2010 - 05:13 | 557108 i.knoknot
i.knoknot's picture

how you gonna make those jello-shooters without the jello?

(maybe they're talking pectin for canning)


Wed, 09/01/2010 - 08:07 | 557205 Treeplanter
Treeplanter's picture

Jello is always relevant.  Loosen up, Johnny.

Wed, 09/01/2010 - 08:51 | 557276 Ricky Bobby
Ricky Bobby's picture

Shouldn't you be in class Johnny? Please don't waste your time here, but I understand you need the 8.00 an hour from Acorn.

Wed, 09/01/2010 - 00:11 | 556931 Calmyourself
Calmyourself's picture

Shazaam or "moment of clarity" will not happen because at this point all the people who could have that moment are completely and totally dependant upon that status quo remaining.  It is like 100 people all with their fingers in a dam within sight of one another knowing that if anyone removes that finger they all die horrible deaths.  Their families know this and feed them and take care of them so the finger never moves and the status quo remains.  The neglected portion of this entire premise is the psychological ramifications of possessing this knowledge ( treasury collapse) and the individual group think and adherence to normative values that keeps those fingers in the dam and will for years and years.  This will only happen when enough governmetns agree beforehand on the contingecny plans and the new form of controls they will implement. In other words we have years and years of this to go before shazaam happens..

Wed, 09/01/2010 - 00:47 | 556980 palmereldritch
palmereldritch's picture

Those fingers are in a dam?  

Wed, 09/01/2010 - 06:04 | 557127 saulysw
saulysw's picture

No, in a dyke.

Look it up in google images. Might want to turn safesearch on first if kids are around.

Wed, 09/01/2010 - 01:25 | 557013 traderjoe
traderjoe's picture

In the classic game theory Prisoners Dilemma, the prisoners will independently confess to attempt to lower their sentence, even though the theoretic best place is for both to not confess. Similarly, as bond investors Shazam, they will individually sell their bonds (see Greece) in order to salvage something, anything. Hoping that they might get out early enough to avoid the pain. In a crisis, people will act individually to save their own hides... 

Wed, 09/01/2010 - 09:15 | 557310 drheywood
drheywood's picture

Maybe so, but will they keep their fingers in the dam? That's the question.

Wed, 09/01/2010 - 11:38 | 557689 A Proud Canadian
A Proud Canadian's picture

There was a Shazzam moment in Mar 2000 when the Nasdaq bubble popped....don't recall a Black Swan....just became time to get out and everyone headed for the exits.

Wed, 09/01/2010 - 00:13 | 556936 three chord sloth
three chord sloth's picture

I see those MMT guys all over the internet. Their comments always start the same way:

"LOL. Your problem is you don't understand money or debt..."

Then they go on to tell us all how fiat currency regimes can't collapse if a nation controls its own currency. Someone always points out the obvious; they have often collapsed in the past and still do to this day. After that the MMT guy keeps typing, but the words don't make much sense.


Wed, 09/01/2010 - 00:29 | 556955 Wilderman
Wilderman's picture

Don't you mean they have all collapsed in the past?  US dollar is the only one still standing to the best of my knowledge.

Wed, 09/01/2010 - 00:38 | 556965 palmereldritch
palmereldritch's picture

^ (Acme of Empire moment) ... aaand cut

Wed, 09/01/2010 - 08:39 | 557250 Treeplanter
Treeplanter's picture

We need a historian to fill us in.  I'm curious about the history of the British pound and the Canadian $.

Wed, 09/01/2010 - 12:38 | 557826 fearsomepirate
fearsomepirate's picture

The pound hit a major milestone toward collapse back in 1997:

The Bank of Canada is one of the least activist of the central banks of the developed world.

Wed, 09/01/2010 - 01:30 | 557018 traderjoe
traderjoe's picture

I have a hard time with the MMT arguments as well. They also seem to believe that SS is NOT a Ponzi scheme, and that anyone who thinks benefits should be cut to gain sustainability is a member of the "Cat Food Commission" (seniors will be eating cat food to survive. 

1. The MMT'ers are technically correct about the inability to default in a perfect MMT world (credit issued without interest), but we live in an operationally constrained world (credit is issued through debt, including an interest rate). 

2. MMT'ers NEVER discuss the central planning aspect of their money creation.

3. MMT'ers NEVER discuss that the FIRST person to get newly issued credit benefits more than the rest of society. 

It's all a fantasy tried to justify ever more spending...

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