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Sprott Surreality Check Part Two: Dead Government Walking
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Dimon is on Bloomberg TV right now (SIFMA conference)
'Wall Street is a peculiar term because everyone who invests, everyone who deals with a bank is part of Wall Street...Wall Street is us"
and on personal responsibility
"... some people cheat on their taxes and shame on them"
that comment sounds a might powerful...was he
trying to bitch slap little timmy geithner?
as for his first comment he can shove a pregnant
porcupine up his ass....
and some people cheat with our taxes and fuck on
them....
How is it that all the Citi retreads (krawcheck, Dimon etc) - who all happen to somehow be discpiles/linked (whether through business or politics) of Rubin toxicity - end up being taken seriously?
If guys like David Walker, a former comptroller general knew how 'unsustainable' financial situation was 2 years ago, then there's no way guys in the Fed, Treasury or elsewhere don't know this today.
http://www.youtube.com/watch?v=OS2fI2p9iVs
Then you should not be surprised at all why they are issuing TRILLIONS in Treasuries - especially for all the eager Prechterites. They know it's all - including the currency itself - headed down the shitter so they are getting all they can while the going is good.
I'm not, and it looks more and more like "Vandals looting Rome" story all over again.
+1000
Yes, the looting is reaching a truly frenzied pace!
"Hurry up, I hear that there's still some copper wiring left in Rhode Island!"
(Rahm overheard in the Oval Office.)
Dude,
You leave my little Rhody alone. Connecticut has much nicer copper wiring and more homes to boot. And Boston is just up the road a piece. Move along, nothing to steal here.
Interesting, but not surprising, that FDIC claims to be funded by the premiums of the insured banks. Yet FDIC is in the same boat as the SSTF.......sitting there with a fistful of government IOUs like everyone else. And the tsunami of depositor claims is just over the horizon.
That " full faith and credit " theme is getting awful shaky.
Just wait until the Social Security "Trust Fund" tries collecting on all those Teasuries it has in it's "lock-box".
Up until about 6 or 7 years ago, the Social Security web site had an actual picture of the filing cabinet that contained the Social Security Trust Fund. No shit.
I was doing some research one day on the web site and I clicked on a link claiming to be a picture of the trust fund in West Virginia. Yup, West Virginia. I couldn't resist because I knew the "surplus fund" was a bunch of IOUs.
Imagine my surprise when this picture came up of a 4 drawer legal size fire rated filing cabinet and a full page description of who, what, when and why. An honest to goodness armed guard had the top drawer open and was displaying some ornate Treasury bonds.
I saved the link and always showed it to people as a joke. One day it disappeared. The picture, the page, everything was gone. Those were the days when you knew your retirement was safe.
Wow, I guess I need to buy more gold and silver.
Basically a good summary and synthesis of the looming disaster that likely most ZH readers knew about. I'm not insulting this piece, just saying that it shouldn't be brand new "news" to those following everything.
Of course, the more respectable and prominent the sources making such statements, the more quickly things will unravel.
Agree, it was all rehash from www.24hgold.com which is the greatest goldbug site ever.
if sprott thinks that warning of this crisis since 2007 is great clairvoyance - i got news for him - i have been warning of this since the 1970s and not a g-d soul paid a lick of attention.....rodney dangerfield got more respect than me....
i am sure that there is someone out there besides me who read a gem of a book entitled america's coming bankruptcy by harvey w peterson.....
mene mene tekel upharsin - it's been there for all to see....
"i have been warning of this since the 1970s and not a g-d soul paid a lick of attention....."
Perhaps if you changed your name.
Wow, that was a bummer.
Genuine question: What is to keep the Fed from simply keeping toxic assets forever? What is the practical impacts of that?
Here's my thought: effectively write off all the MBS they have taken in, but maybe keeping it on the books with some value of appearance sake (seems like they'll have to do this anyway).
If/when inflation looks to kick in, simply confiscate some portion of the excess reserves they're holding, or raise capital reserve requirements significantly.
As you can tell, I'm not an expert on central banking. I guess what I want to know is, what's keeping the Fed from simply making the "toxic waste" go poof?
Umm...people losing confidence in the currency? It is a con(fidence) game after all. It has happened you know - only about hundreds of times in history.
The toxic waste can't just go poof. If the Fed holds it forever, that is itself a form of monetization aka currency devaluation. It's also in violation of federal law, but that doesn't seem to slow anyone down any more.
Put simply, bad money was created when those dubious mortgage loans were issued, and unless the property magically regains value equal to the loan amounts (tell me another fairy tale!) then either you recognize the loss somewhere or you play this complicated hide-and-devalue game that is going on.
The concept of laws that regulate human action no longer applies to certain members of society under the process of judicial exclusion. The rule of law no longer rules.
And a federal judge will soon rule that the Constitution is Unconstitutional. Probably a San Fransicko judge.
So do you think the stock markets will go down or what ?
What I do not understand is this maniacal insistence on the part of financial people, and generally speaking the "right wing" and "libertarian" crowd, to shut down social security. How about, the US government stops stealing social security money to bail out criminal bankers and prosecute crazy wars. The program is running into some trouble because of the recession, but it still mostly finances itself. One can fix it further by means testing and delay of full retirement age if needed.
As far as Medicare is concerned, how about we begin by banning marketing and advertising of prescription drugs, followed by lowering of drug prices by 30%, which is roughly the percentage of revenue that "big pharma" spends on advertising. You might also open medicare up to younger people. It is now a dump of sorts for old folks, who are the primary users of health care. For profit insurance companies get the more profitable younger crowd, while the taxpayer gets the essentially uninsurable end-of-life crowd.
Financiers need to get this through their (apparently) thick skulls. This crisis is a consequence of 30 years long, three pronged attack on labor. Three prongs were: union busting, cheap labor via globalization, and industrial automation without replacement industries. The first two were deliberate attacks, the third is a natural phenomenon of sorts. It was all executed by an alliance of business and government. This attack caused severe loss of income to labor, which was temporarily replaced by a private debt pyramid scheme, called financial deregulation. The deregulation gave private interests legal means to print counterfeit money in a form of credit. The steadily increasing injection of credit caused galloping inflation in selected segments of the economy, which was sold to the gullible public as wealth building. This galloping inflation cause a broad insolvency crisis for consumers, which boomeranged back to hit the counterfeiters themselves.
The way out is to: (1)radically downsize financial industry, possibly health insurance industry. These are mostly parasitic rent seekers as of this writing. We are talking forcing bankrupts to disappear. (2) flatten income distribution by hook or by crook. One can have many ideas here, it would be best to do it through market forces as much as possible (3) start scaling down the wars and military buildups quickly, before these armies start crashing down for economic reasons, (4) start redeveloping domestic industries, particularly energy industries, can't continue to import 70% of oil consumption with junk money.
The way out is NOT (NOT,NOT,NOT): to further undermine what is left of safety net for labor. This is crazy talk.
my 3 cents anyway.
The financial types, do not want to shut down SS, many have already contributed. They just acknowledge the fact that in 2010 we will reach parity in SS, every cent taken in will be sent out, pay as you go. Because of the aging population, there after (FY2011) we will need to draw on IOUs which are increasingly worthless.
Let me explain the best way I know how.
When you tax payroll on labor, it has real value, real worth. If you take this tax, this money, and exchange it with an IOU, or debt instrument, there is no guarantee it will maintain value. If for example you purchased gold with the tax money, something separate from your currency, that maintains relative worth, it is an asset and not a debt.
You cannot take true value, tax money on labor (asset), exchange it for debt (Treasury Bond, IOU), then spend the money through the general fund (financing government), and magically maintain the asset. You see, these kinds of money games only occur at the sovereign nation level where normal GAAP accounting rules are violated. Trying to say this is workable in a country with a fiat currency, controlled by a central private bank (FED), with massive amounts of debt is laughable. Most financial people understand this. We are not against retirees getting benefits, but we are obligated to advise our clients on expected future income streams.
Social Security was designed as an economic transfer program. A program financed by labor, for labor, a form of social insurance against pauperization in old age. At the time social security was introduced, most people died around the age of 65. This is no longer true today. Some years ago changing demographic was noted, and labor agreed to be taxed more than necessary to maintain the present day program and build up a surplus, to help pay benefits for some time to come. Full retirement age was raised for younger people (mine is 67 and change, not 65). We can indeed say today that this was a mistake. SS taxes should have been put on a sliding scale, only large enough to pay current costs with some margin for error. The SS trust fund invested in government bonds instead, which may very well become worthless.
Why will they become worthless? Because american business elected to bankrupt its own country. Politicians do not corrupt themselves. Those with money and power corrupt them. US business spent the last 30 years working relentlessly to corrupt the government at all levels for its own advantage, and as a result may have just destroyed one of the greatest countries on earth.
Taxes are too high said business leaders. Deficits do not matter, said learned economists employed at exulted "think tanks", we will grow out of them as long as we cut taxes. Lower my capital gains tax and the investment will explode. Do not regulate our finance, let the market work its magic. Let us employ 200 million chinese peasants working for food, we will replace lost jobs with the "new economy". When deficits exploded and industries melted away, great business leaders corrupted the government again to let them buy out newspapers and television stations, and cranked up the propaganda. Morning in America! When deficits grew larger still, the refurbished mass media said: it is all because of unions and unwed mothers with dependent children. Welfare reform will fix the moral fabric of America! By the way, how about a Game of Survivor, both in reality and on television. By the way, politicians, we are getting really good at this propaganda game. You do not listen to us, we can always launch a little one against you, you know. Otherwise known as a lobbying industry.
Show me a large industrial company in the US, and I will show you a cost plus military contractor. Couple days before 9/11 2001 one Mr Rumsfeld said he could not find 2.3 Trillion green ones in military accounting. Show me a large "bank" and I will show you an accounting scam so outrageous that any government schemer looks like a piker. An entirely fraudulent scheme of circular insurance, wrapped in an aura of quantum physics remote genius, the sole purpose of which is to cook the books and lever up (read: issue counterfeit currency in a form of credit, claiming third party insurance as an asset). I could go on, but what is the point.
You may be wearing a paper bag on your head but beneath you conceal a brain that shows prescient thought. Yes you are more than correct on all points and I concur.
The only small error you made was stating it was a 30 year long 3 pronged attack on Labor. May I suggest you consider it is exactly 38 years ago that a President signed over to the FED and its distributors the right to print without restraint From that small moment in time a seed was planted that was to grow virally until choked out all. A reserve currency must be above degradation and never a plaything for a select few.
May I be so bold as to suggest the very first thing, so desperately needed, would be to take the Keys to the Printing machine away from some and hand it back to the people upon who's toil, sweat and industry its existence depends
"Closing Social Security to new entrants ..." How the hell would they do that?
As with all great ponzi schemes, new entrants are the only thing keeping the ship afloat.
Visualize closing the benefit portion of SS while expanding the tax portion to all earned income, not just the first $100k (or so) it is now. Then visualize the political fallout - oh wait, the young generation is too dumb, thanks to TV and our public school disastersystem, to realize how they're being screwed.
I am part of that gen and best believe we aren't going to take getting saddled with all your debts once the rest wake up. They're going to have to nuke the dollar or else face a flight of the productive from the US, politicians out on their asses, or worse. Anyone who reasonably expects this debt to be paid off by the people who are not reaping the benefits of it are certifiably insane. And I trust that's most of the American public.
I'm part of Gen X and have a lot of friends in Gen Y. You, me, and three others below 40 who care about this stuff must be the exception. I am regularly amazed at the ignorance of political and economic events I find among people in those generations who have college degrees, even graduate and professional degrees, and white collar jobs.
I work with a lot of people from around the British Commonwealth and expatration is almost the norm among educated young people in the Commonwealth - though those from Canada and NZ at least have something to go back to (no such luck for UK and SA expats, in my opinion). But the US makes it far harder to be an expat in various ways, including taxation on worldwide income regardless of where you live (and the very nasty TD Form 90-22.1 requirement) and frankly I don't think the US education "system" prepares people all that well for coping outside their original environment. Not to mention no one else has quite the same system of law or accounting and Commonwealth-type professional credentials are generally more portable than comparable US credentials. Just my 2 pieces of lightly copper plated zinc, of course.
Tru Dat!
I'm Gen-X, and I manage an IT group that consists of a few boomers, Gen-X, and Gen-Y. Most of the folks in our profession havn't a clue about the goings on politically and economically outside of the blurbs they catch on the MSM outlets. They think they're 'informed' by what they caught on 'Kramer's show.' I believe this is a general and very common side effect caused by the vast complexity put in place across the board by the financial institutions and government in general. People are sheeple, especially when confronted with something complex that they don't understand but 'fear' looking stupid by questioning it.
In my staff meetings, I to bring up macro economic issues that are impacting our industry, and try to get them 'thinking' about the big picture. I don't understand half of the stuff that is discussed here in any great detail, but it doesn't take too much focus to realize the whole friggin system is borked up and on a path to disaster. I've found I've developed a team that is trending towards massive degrees of skepticism towards the two party system, and while they come from vastly different social tendencies (liberal vs. conservative), they're united in disliking the Republi-bankers and Demo-bankers.
Nuking SS participation, changing the Medicare rules, flattening spending on military spending, nationalizing the banks that are/have been TARP recipients, undoing the crazy pension plans for all governmental employees - all need to be game for discussion to see if there IS a way out.
Getting people to wake up and 'turn off ostrich mode' is a hard thing to do...
This commentary states facts largely known by the investment community. If I were an investor at Sprott I would rather have my manager discuss how to invest (survive) should this collapse come to fruition. Stating why you were right last year (yet your one year numbers are meginally better than average) is not very helpful to me.
Sprott is well known for his belief that gold and resources are the way to go. This is no secret to his investors.
To paraphrase Willie S., "What's in a name? That which we call a default by any other name (devaluation) would smell as bitter."
It's not a surprise to anyone, other than the truly brain dead, that the US is heading towards default. And it's not really a mystery as to which form it fill take: devaluation.
So we all know the score. Since financial assets, including equities, MBS and Ts will appreciate in proportion to $USD devaluation, these assets classes no longer provide any meaningful measurement of economic health.
At this point, it's really just a waiting game till the SHTF. Actually, it's a good time to continue making preparations for the upcoming social chaos.
At a macro level, someone really had to hate us pretty badly to treat us this poorly. What did we ever do to them? Or do stupid victims, like our typical US citizens, deserve their fate because they are so pitifully stupid? What goes through the minds of psychopaths who enjoy torturing others just because they can? Will there be justice or will they get away with their crimes against humanity?
I'm not the most expert here, but how would MBS and Treasuries appreciate in proportion to devaluation of the USD? They are fixed denomination assets. I assume that the official inflation rate will continue to be cooked so that TIPS don't keep up with reality either.
Notice that dude wants to come for the Social Security, but nary a mention of the elephant at the table. We need to shut down our military spending. Shutting down social security while continuing to dump massive corn into cold war bric-a-brac in the service of an ossified and imperial foreign policy is not going to get us anywhere we want to be. Better to find a way to live that doesn't run afoul of Dwight D. Eisenhower's "Cross of Iron" speech.
Here's the money shot scene from that speech:
This has been the way of life forged by 8 years of fear and force.
What can the world, or any nation in it, hope for if no turning is found on this dread road?
The worst to be feared and the best to be expected can be simply stated.
The worst is atomic war.
The best would be this: a life of perpetual fear and tension; a burden of arms draining the wealth and the labor of all peoples; a wasting of strength that defies the American system or the Soviet system or any system to achieve true abundance and happiness for the peoples of this earth.
Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.
This world in arms in not spending money alone.
It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.
The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities.
It is two electric power plants, each serving a town of 60,000 population.
It is two fine, fully equipped hospitals.
It is some 50 miles of concrete highway.
We pay for a single fighter with a half million bushels of wheat.
We pay for a single destroyer with new homes that could have housed more than 8,000 people.
This, I repeat, is the best way of life to be found on the road the world has been taking.
This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.
These plain and cruel truths define the peril and point the hope that come with this spring of 1953.
This is one of those times in the affairs of nations when the gravest choices must be made, if there is to be a turning toward a just and lasting peace.
It is a moment that calls upon the governments of the world to speak their intentions with simplicity and with honest.
It calls upon them to answer the questions that stirs the hearts of all sane men: is there no other way the world may live?
It's not the cost. It's the graft. You realize it costs the US government 400 dollars. not 4 dollars 400 dollars a gallon to supply gas to afghanistan. Now that's a margin.
Shut down military spending to save Socialist Security? WTF? No matter your disagreements with the country's foreign policy, has it ever crossed your mind that military spending is actually a legitimate function of government? Is your belief that grandma having enough money for her Vegas trip is also a legitimate function? The problem is socialism, dumbass.
This is neoliberal nonsense. Read L Randall Wray, Understanding Modern Money for a reality check on how national accounts actually work. Bill Mitchell's blog entitled Stock-flow consistent macro models (http://bilbo.economicoutlook.net/blog/?p=4870) summarizes the principles.
The neoliberal myth is religion not economics. It is perpetrated so that the elite can retain control of the system, as much for non-productive rent-seeking as for profit from production. In this model people who work for a living are the marks.
From Garet Garett's: The People's Pottage: Ex America,
" No government can acquire power and put it forth by law and edict. It must have the means. A tyrant may issue laws and edicts, but if he lacks the means to enforce them they
have no fury. In the ancient case, means might be the
direct command of labor, food, and materials. So the
pyramids were built. In the modern case, means will
be money. That is why every government in the secret recesses of its nature favors inflation. Inflation provides the means. Under pretense of making money cheap for the
people, the government creates money for itself. When
it goes into debt for what it calls the public welfare it
first fills its own purse and then, as it spends the
money, it extends its authority over the lives and
liberties of the people. It suborns them. Their consent
is bought. It is bought with the proceeds of inflation."
There are two aspects of inflation, economic (short term) and political (long term).
"In the arsenal of (totalitarian) revolution the perfect weapon is inflation."
Sweet. A little tast of the Garet Garett.
Pound for pound one of the top thinkers of he 20th century.
Do yourself a favor everybody, and read him.
A large dose of inflation is the only cure. It will be somewhere in the teens. We may be in a deflationary environment but you can be certain that since inflation is the only way out they'll keep the presses churning. There is no option because inflation fixes everything for the people that got us here. If you're a saver, watch out.
"If you're a saver, watch out."
Unless your savings are shiney and yellow.
inflation fixes nothing. you're a sociopathic
asshole...
Good article, but I'm sick of articles restating what we already know and have heard a hundred times. The only question we want to know the answer to is ... when does TSHTF? When????? No other question matters. Everyone (including our hapless foreign creditors) have figured this out. We can't grow our way out. There is no more cheap oil to fund a new capital formation phase. We are cooked. The whole world knows it. So when??? At this point, I would appreciate a poorly reasoned educated guess because I am sick of everyone telling me it is going to happen. We all F****** know that already!
Here's my guess: 12/21/2012. Why not? They Mayans thought it was an important date.
Why do you want to know?
Tomorrow.
In the absence of any more information it is perfectly reasonable to assume that each day is equivalent. With that assumption the probability that the S has not H TF a given date at a time t in the future is p=exp(-t/tbar)/tbar (known as a Poisson distribution) with a mean time to the event tbar. The important point, if you look, is that independent of the value of tbar the most likely day for this to happen is tomorrow. Buckle up.
I gave the equation for the probability that the event occurs on day t, which best illustrates my point, rather than the probability that it had not occured by day t (as written). Sorry but I am in bed with swine flu and not thinking straight.
Who is advising Obama??? Obama had the opportunity to issue a strong message to the world in slashing costs in the FY2010 budget. But, he did no slashing what so ever, and switched gears to the health bill initiative. So while Obama is helping me keep a Doctor I already have, the currency becomes worthless.
Its been said before, the current administrations actions, are just rearranging the deck chairs on the sinking Titanic.
It would appear that Obama is a puppet and Manchurian Candidate of the banksters and other financial elites. All that slick PR in his campaign was just that. It will get more entertaining as his populist, union, quasi-socialist base increasingly comes into active conflict with his bankster handlers. Have you noticed how much "riot control" equipment is being bought up by police departments lately?
This is essentialy correct with an addendum that we really have just one party with the bankers allowing the political fun and games to swing like a pendulum between Ds & Rs because it serves as a good distraction.
In actuality, it's all bullshit.
As Deep Throat said "follow the money."
The only difference being it was a little more about parties back then...just a little.
As Deep Throat said "follow the money."
Really? I thought I heard her say "How would you like it if you had balls in your ears?"
[answer] I guess I could hear myself coming!
Sorry. 70's porn flashback.
In the meantime, the democrats in congress are increasing discretionary spending by 12.1% in next year's budget.
This is so www.24hgold.com. Go 100% gold ? why not?
Just before the Reign of Terror in France, the aristocracy became incredibly arrogant, stealing everything in sight and starving the people. Then the people promptly removed the heads of state...literally. :)
It's fair to say something similar could happen in the U.S.
And yet the French Revolution didn't turn out all that well for the common people either. No desire for a repeat of that ugly spectacle. Could we just hire some aliens (not the south of the border kind) to permanently kidnap all the banksters and their puppets in DC instead?
Who is advising Obama ?
I am !
heh heh, sorry couldn't resist that.
Anyways, quit your grousing, President Obama is focusing on more important issues like men NOT doing their share of housework.
Unemployment, deficit budgets, Afghanistan/Iraq, Dollar etc etc, c'mon how does all these minor issues compare to men not doing their fair share of housework.