Guest Post: A Termite-Riddled House: Treasury Bonds

Tyler Durden's picture

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Hall 9000's picture

"The future will be better tomorrow."

Dan Quayle

BobWatNorCal's picture

Actually, I kinda like that!

Getagrip's picture

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

zhandax's picture

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

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.

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.

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.

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.

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


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.

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.

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.

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.

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.

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.

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.

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.

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.

Spitzer's picture

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


Johnny Bravo's picture

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

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.

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.

The Navigator's picture

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

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!


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.

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?

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

Spitzer's picture


Then buy treasuries....

Thats what your doing right ???


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.

Maniac Researcher's picture

Alex Jones has been on repeat for years.

-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

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.

iDealMeat's picture

remove the computers and volume plumments 75+ %.

crash, crash, as in seriously chaotic crash.. 


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.

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)?

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.

DirtySouth's picture

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

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.

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.

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.

THE 4th Quadrant's picture

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

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.


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.

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.

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...

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.