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T-Minus Two Months Until The $500 Billion Rolling Debt Ticking Timebomb Goes Off

Tyler Durden's picture





 

Ever since the famous Stanley Druckenmiller Op Ed published in early May, which called for an outright default of the US, saying it would not be
the end of the world, and in fact the US would emerge stronger as a
result of finally taking the first steps to getting its fiscal house in
order, there has been a visible shift regarding the US debt ceiling discussion, with republicans (so far) digging in and refusing to budge on the issue. After all, on the surface Druckenmiller is absolutely correct: with interest rates near record lows for the past 3 years, interest payments would be manageable for a long time even if general rates were to surge due to the Treasury's fixing of low cash coupons over the past 3-4 years, amounting to about 20-30% of all annual tax receipts. There is however one very big problem with this argument, one which we pointed out back in April 2010 when we said that "What people don't realize is that...unless the UST can roll its debt not on a monthly
but now weekly basis in greater and greater amounts, the interest rate
doesn't matter.
All it takes is one semi-failed auction and it's game over as hundreds of billions in bills become payable." Enter the always forgotten maturing debt argument. And as a just released presentation by the Bipartisan Policy Center titled "Debt Limit Analysis" reminds us, aside from the actual deficit funding math, which is that in August there is a $134.3 billion cash shortfall that has to be funded with debt, there is a far greater risk. Or, put numerically, 467.4 billion far greater risks. This is the amount of debt that matures through August 31, and has to be rolled over or the US is bankrupt... in every sense of the word. Once again, America's politicians and media get broadsided by the definition of gross versus net. Because, in reality, the inability to issue more debt post August 3 means a halt to all new debt issuance. Which, unfortunately because it means Geithner's scaremongering is actually correct, would imply the end for the debt ponzi.

Below is the maturity schedule in August from the BPC:

And their commentary, which recaps what we said 14 months ago:

  • Treasury must “roll over” almost $500 b in debt that matures during August 2011
    • New debt is issued and the proceeds are used to repay the maturing debt plus interest due
    • Treasury will require market access throughout August to avoid defaulting on maturing debt
  • About $380 b in short-term T-Bills maturing, plus $90 b in long-term securities
    • Quarterly refunding auction on August 15

And that's not it. On a Net basis, there is in addition another $134.3 billion in deficit that must be satisfied somehow. Alas, after August 3rd it will become impossible to plunder savings accounts going forward which means a game over in the kick the can down the road game:

Breaking down the spending side:

The BPC's observations on what happens on August 4 absent a deal are rather spot on:

  • If the debt ceiling is not raised by August 2, all three ratings agencies will put the United States on watch for a downgrade, at a minimum. Fitch (6/8/11):
    • “If the debt ceiling is not raised by the [X Date] and timely and full payment of its obligations, including Treasuries, is not secure, the U.S. sovereign rating will be placed on Rating Watch Negative.”
  • An actual downgrade would cause major losses among holders
  • Even without downgrade, it is likely that rates would increase, perhaps significantly
    • Less likely, but possible, that Treasury would lose market access during such an unprecedented event and default

As a reminder we are now 32 days away from D-Day, and about 60 days from the need to fund half a trillion, all of it with new gross debt issuance.

To date, there has been no progress in D.C. at all. Will there be progress in the next 4 weeks? They better, or as demonstrated, the extend and pretend game, contrary to the well-meaning intentions of the likes of Drucknemiller, is about to come to a very violent end.

Full presentation link.

Debt Ceiling Analysis

 


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Fri, 07/01/2011 - 15:40 | Link to Comment svc101
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So, basically, today's market rally is a pump and dump scheme?

Fri, 07/01/2011 - 15:55 | Link to Comment Greeny
Greeny's picture

Why ask? Nobody knows. You have to trade what you see and not what you hear or think should be logical. WE only know 2 things for certain, - Markets going to fluctuate and Options going to expire. That's all you need to know to make a profit, learn and make money. Yes, I like physical as well, but not at these levels.. Was buying silver by bricks in $14 area 4-5 year ago.. Still holding. Sold nothing. For now I prefer to buy CSCO shares instead.

Fri, 07/01/2011 - 21:04 | Link to Comment SmittyinLA
SmittyinLA's picture

more like pump dump & dupe, when people exit the market where do they go?  

Into fiat dollars that brown and decay faster than banannas but unlike banannas they can be reconstituted at will by the powers that be.

Dollar value is totally fungible-up or down.

At any point in time the powers that be can cut off the credit orgy and foreclose on everybody and our courts and Sheriff's will gleefully enforce those property rights to maintain their incomes.

My guess is the biggest cash crunch in the history of the world will occur about the same time as the biggest fire sale in the history of the world and "they" get to choose when to pull the lever.

Fri, 07/01/2011 - 15:47 | Link to Comment the not so migh...
the not so mighty maximiza's picture

I better get a credit limit increase on my maxed out credit card or I might go broke.

Fri, 07/01/2011 - 15:49 | Link to Comment dwilso39
dwilso39's picture

What's the over/under before we see the first $1 million dollar note in circulation? - Anyboby?

Fri, 07/01/2011 - 16:13 | Link to Comment Pool Shark
Pool Shark's picture

Won't happen.

Makes drug dealing and underground economies too easy to conduct. That's why the feds phased-out the larger ($500, $1K, $5K, $10k, $100K) denominations in 1969.

When the great inflation comes, the feds will more easily be able to spot the survivalists and those attempting to live "off-grid" by the wheelbarrows of $100 FRN's they'll be toting around...

 

Fri, 07/01/2011 - 16:31 | Link to Comment dwilso39
dwilso39's picture

Okay; But can I atleast have a $100 Trillion Factional-Reserve-Credit in my account?

Fri, 07/01/2011 - 16:17 | Link to Comment AmCockerSpaniel
AmCockerSpaniel's picture

Never. It's not the way large amounts of money is moved any more.

Fri, 07/01/2011 - 17:03 | Link to Comment dwilso39
dwilso39's picture

But in Hyper-inflaction, $1,000,000.00 is not a lot of money, ne?

Fri, 07/01/2011 - 15:50 | Link to Comment metastar
metastar's picture

Is it time to load up on TBT?

Fri, 07/01/2011 - 15:54 | Link to Comment newworldorder
newworldorder's picture

The debt numbers are scary. They will however be refinanced for the simple reason that not financing them brings down the world wide debt system.

Most of us on this site have noticed that no matter what the problems have been during the last 3 years, (large or small,) they have been papered over.

Think, USA in 2008, Middle East, Iceland, Ireland, Greece, Spain, etc., look at the containment action and who was involved.

The tag teams of FED/Treasury, Other sovereign central banks, and the largest 20+ world TBTF banks have stepped in to save the day and kick the can as far down the road as possible.

Unless and untill the financial powers are swamped by worldwide financial events the worldwide debt ponzi will continue. Most world citizens do not know this is going on and even if they did, they do not care as long as their particular gravy train keeps dishing out the gravy.

There is no going back to a sound financial system voluntarily. There is too much worldwide debt and financial interconnectivity. The bridges have been blown a long time ago.

In the old French foreign legion cliche. Its "march or die."

Fri, 07/01/2011 - 17:25 | Link to Comment JW n FL
JW n FL's picture

http://www.youtube.com/watch?v=VtVbUmcQSuk&feature=

 

Brother, Can You Spare A Trillion?: Government Gone Wild!

Fri, 07/01/2011 - 16:08 | Link to Comment mendigo
mendigo's picture

you guys are hyper-ventilating over nothing

we are the bank, the world revolves around us

as needed we will issue ourselves more credit - we will wait to watch our friend in china and europe squirm... as if they have any choice

"moral hazard" - give me a break. what asshole came-up with that one (in reference to our financial system even)?

 

Fri, 07/01/2011 - 16:22 | Link to Comment Praetorian Guard
Praetorian Guard's picture

You mean the world revolves around a morally and economically bankrupt society? We have no manufacturing, high unemployment, circus and bread to keep the hordes at bay... at what point does the world still need "us"?

Fri, 07/01/2011 - 16:23 | Link to Comment mendigo
mendigo's picture

sadly for all, they are holding a lot of our paper

In God we trust, the Fed... not so much

Fri, 07/01/2011 - 16:35 | Link to Comment newworldorder
newworldorder's picture

RE: Praetorian Guard

Your name implies that you know the answer to your own question.

They need "us" as long as we are the biggest and best military enforcer that money and friendship can buy. We ensure that relative stability exists and the oil flows. Take away the US Military and we become just another "money changer."

Fri, 07/01/2011 - 16:58 | Link to Comment dwilso39
dwilso39's picture

Ding! Ding! Ding! - we have a winner.

Since fait-money is debt; and a debt is only as good and your ability to collect it; then he who has the biggest gun has the money. 

Fri, 07/01/2011 - 16:54 | Link to Comment mendigo
mendigo's picture

in the end, lead beats gold

but let's not go there, yet

the point is, we all want this game to continue - friendly-like

Fri, 07/01/2011 - 17:10 | Link to Comment dwilso39
dwilso39's picture

Unforthnaltely, we have central-bankers that act like two year-olds: will take there ball when they don't get thier way.

In this case, they start wars when they don't get thier way; so YES, it already has gone there.  Not in America, yet...

Fri, 07/01/2011 - 17:36 | Link to Comment mendigo
mendigo's picture

well really I think we can a standoff based on mutually assured financial destruction

the need for security will be more of an internal matter - when people are hungry..., when we have to confiscate your gold

Fri, 07/01/2011 - 20:06 | Link to Comment ebworthen
ebworthen's picture

Like I said, start the war NOW and take care of China while we still can.

Fri, 07/01/2011 - 22:56 | Link to Comment Jendrzejczyk
Jendrzejczyk's picture

If we're having trouble in Iraq and Afghanistan now, how bad could a war with China get?

Sat, 07/02/2011 - 01:07 | Link to Comment ebworthen
ebworthen's picture

Regional conflicts with boots on the ground.

War with China will be cruise missles, ICBM's, nukes.

Knock them out now or they will knock us out later, just say'in.

Fri, 07/01/2011 - 16:22 | Link to Comment cafn8ed
cafn8ed's picture

As I recall, it was the downgrade of Mortgage-Backed Securities that caused the crisis in 2008, as large institutional investors are prohibited from carrying other-than AAA-rated securities in their portfolios.  What happens when Treasury Bills are downgraded?

Fri, 07/01/2011 - 16:34 | Link to Comment mendigo
mendigo's picture

we'll make an exception in this case

interesting point though

Fri, 07/01/2011 - 16:27 | Link to Comment dexter_morgan
dexter_morgan's picture

"it means Geithner's scaremongering is actually correct, would imply the end for the debt ponzi."

Then, do it because the sooner we end the debt ponzi the better off we will all be going forward.

 

Fri, 07/01/2011 - 16:28 | Link to Comment Broomer
Broomer's picture

If USA decides to monetize debt by printing, who has the power to authorize it?

Fri, 07/01/2011 - 16:38 | Link to Comment dwilso39
dwilso39's picture

The "Fed".  Which doesn't come under any government agency - they are the capo-de-capo; the shah-of-shah's.  They don't need no stinking permission; permission if for peasants

Fri, 07/01/2011 - 16:24 | Link to Comment Missiondweller
Missiondweller's picture

This makes me glad I bought all those gold coins recently even with gold being down today.

 

I'll sleep better at night and maybe even btfd.

Fri, 07/01/2011 - 16:40 | Link to Comment dwilso39
dwilso39's picture

Well I for one am LONG the Zim-Dollar

Fri, 07/01/2011 - 16:31 | Link to Comment bill1102inf
bill1102inf's picture

They will have to balance the budget. Period.  Eliminate the TSA etc.  VA Benefits will be the first to be PAID.  Cut SS by half, we DON'T have it. We NEED much higher interest rates, lower property values (i dont care if all the old people are unable to retire, too bad, so sad).

Fri, 07/01/2011 - 16:35 | Link to Comment Thadius T. Crunk
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It's a good thing I don't rely on government checks.

Fri, 07/01/2011 - 16:47 | Link to Comment Central Bankster
Central Bankster's picture

http://www.youtube.com/watch?v=z3vmiXZJ0uo

 

Starting at about 30 seconds... Keeping in mind these people are just "down on their luck", nothing systemic about it at all.

Fri, 07/01/2011 - 16:47 | Link to Comment gwar5
gwar5's picture

Default? The US is already in default.

The Fed is confiscating it's way out of their mess by printing money that steals our savings and the UST values held by the Chinese and others. Even drug addled Lindsay Lohan has figured it out and is now officially smarter than Chuck Schumer and Paul Krugman, combined. 

We need our own new monetary system so we can pay back the Federal Resereve in U.S. Karma Dollars, after we kick them to the curb. 

Fri, 07/01/2011 - 16:52 | Link to Comment ATG
ATG's picture

.

Fri, 07/01/2011 - 17:04 | Link to Comment honestann
honestann's picture

DEFAULT.

DEFAULT.

DEFAULT.

Shut down the federal government of the USSA.

Shut down the federal reserve bankster scam.

The experiment in central government and central banks is an absolute, complete, total, abysmal failure.  Shut them down, and arrest all:

predators DBA government
predators DBA corporations
predators DBA central banks

Fri, 07/01/2011 - 17:53 | Link to Comment lesterbegood
lesterbegood's picture

+1776

Fri, 07/01/2011 - 18:54 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

@ honestann,

I hear you and like the idea.  But, it ain't gonna happen...  WHO will do what you ask?

It is up to EACH OF US to defend ourselves.  Buy gold.  Food & water,  Guns & ammo.  Get out of debt.

Fri, 07/01/2011 - 22:37 | Link to Comment honestann
honestann's picture

Just ideas for people to think about.

I wish I could follow your excellent advice, but I've been 98% ~ 100% in physical gold and other goodies for years, and never borrowed a penny.

I guess people always think I advocate default because I'm deep in debt like almost everyone else.  Nope.  Just hate fiat, fake, fraud, fiction, fantasy, fractional-reserve debt criminality.

PS:  Anyone got any good .9999 silver bullets to sell?  Seems like a way to diversify to me.

Fri, 07/01/2011 - 17:03 | Link to Comment bob_dabolina
bob_dabolina's picture

I don't know if it was stated in the comments but how fucked up is it that unemployment benefits are paying more than active military duty pay?

Fri, 07/01/2011 - 17:12 | Link to Comment sbenard
sbenard's picture

JUST SAY NO to a debt ceiling increase! They can still issue replacement debt under the existing debt ceiling. They just can't increase it from today's levels! Time for some form of prioritization to save the nation from a debt debacle!

Thanks again, Tyler, for being the lone voice in the wilderness to raise the alert level on what may soon be the greatest economic calamity of our era!

Fri, 07/01/2011 - 17:11 | Link to Comment DavidDavid
DavidDavid's picture

Why does Tyler waste his time writing about U.S. default and failed bond auctions?  There's no way in hell it's going to happen.  Ever.  Wake up people!  The U.S. has a printing press.  The Fed will simply buy the bonds if nobody wants them.  "Experts" have been talking about U.S. default for years.  It will never happen.  Interest rates are at an all-time low.  Investors are not the least bit worried about default.  More "doom & gloom" that will never happen.  Just like gold going to $10,000.  It will NEVER happen.  The U.S. will simply print its way out of this mess.  Just like they always do.

Fri, 07/01/2011 - 17:13 | Link to Comment Central Bankster
Central Bankster's picture

So the government will just print its way out of it- no risk of default, but gold won't go up when they print money?  WTF are you smoking?  Do you understand anything about finance/economics?

Fri, 07/01/2011 - 17:24 | Link to Comment dwilso39
dwilso39's picture

That's what I'm taking about: the Zimbabwe Solution.  Print till it hurts.

I hope you are joking about the government "printing" their way out of the problem?

Fri, 07/01/2011 - 17:51 | Link to Comment mendigo
mendigo's picture

excessive printing would guarantee $10,000 gold and coffee for that matter

the trick will be to regulate the printing so you don't see it - I could not have imagined $4 gas, $40K pick-up truck or $400k 3 bdrm house in my lifetime 

Fri, 07/01/2011 - 18:57 | Link to Comment topcallingtroll
topcallingtroll's picture

Nooooh!  Not coffee!!

Sat, 07/02/2011 - 03:06 | Link to Comment Double down
Double down's picture

That medicine kills the patient

Fri, 07/01/2011 - 17:19 | Link to Comment sschu
sschu's picture

The Fed and PDs will do what they want once the politicians get done, they can make too much money by "cooperating".

This may not be the time, but soon the theater and political brinkmanship will end.  History has shown that sides with intractable disagreements eventually stalemate and then face the consequences of their unwillingness to solve the problem when it was possible.  Munich 1938/Poland, slavery in the 1850s, and King George are examples of such.

Is this the time?  Not sure.  But the Repubs are facing an angry base, especially after caving earlier in the year.  The base will abandon them if the prove to be spineless again.  Bam is not a serious person and he is just posturing for reelection plus the Demos understand the traction to be gained by coercing the Repubs to back down.  Bam recognizes, as do the Repubs, an opportunity to win the election in the next 60 days.

The political stars may not yet be aligned, but soon enough they will be.  Events will spin out of control and any hope for a rational political solution will be gone.  Then the problem will be punted to the people and all he** will break loose.

sschu     

Fri, 07/01/2011 - 17:29 | Link to Comment GtownSLV
GtownSLV's picture

I could wash myself clean of that experience for $75T but not a penny less!

Fri, 07/01/2011 - 17:58 | Link to Comment Atomizer
Atomizer's picture

I agree

Obama could conceivably declare default unconstitutional and pay debts unilaterally. Very dramatic

 

 

Fri, 07/01/2011 - 18:10 | Link to Comment Texas Ginslinger
Texas Ginslinger's picture

From Kansas City, MO Fed chief Hoenig's speech yesterday in Des Moines, IA.

He retires soon.  Gracefully stepping off a sinking ship...because he understands..

 

“…Having seen the effects of financial crisis after financial crisis as short-term policies beget short-term policies, we should know that an ever-present short-run focus, even if well intentioned, is the road to ruin…”

 

http://www.kansascityfed.org/publicat/speeches/Hoenig-DesMoinesRotary-06-30-11.pdf

 

 

Fri, 07/01/2011 - 18:20 | Link to Comment Sparrowhawk
Sparrowhawk's picture

I can't believe this has been going on so long right in front of our faces.

Fri, 07/01/2011 - 18:45 | Link to Comment rsnoble
rsnoble's picture

Probably just end up like Greece.  Everyone worry worry worry till the last minute, sell our asses out and kick the can down the road another 10 years.  I could be wrong but I see the assholes just taking advantage of a bad situation.  As usual.

Fri, 07/01/2011 - 18:47 | Link to Comment rsnoble
rsnoble's picture

I know one thing for sure, if the US defaults then Citibank can take the 4k credit card of mine and stick it up their motherfucking asshole.  You fucking watch......the US defaults and all these satanic fucking banks that got all our goddamn money will be going tent to fucking tent trying to collect.  I  hate this fucking planet.

Fri, 07/01/2011 - 18:56 | Link to Comment topcallingtroll
topcallingtroll's picture

and tyler durden with a bullet in his brain gets to watch everything crash down.

Sat, 07/02/2011 - 06:50 | Link to Comment OldPhart
OldPhart's picture

What the, honestly, fuck are you waiting for?  Run your credit card to the max and then tell Citi to fuck off.

What will it hurt, you're credit rating...given by the same companies that rate Greece, US, European debt?

Fucking Citi... (OH, I've had more than a few "adult beverages" so my language is a little saltier than normal) ... I received a bill a few days ago from Citi for over $1800.  My debt trap credit card maximum credit line was $500 ... I owed less than $300 on it.  (I never even applied for a credit card until I was 45).

 

When those bastards hiked their rate to 30% I told them to kiss my ass.  Can you say "Unsecured Credit"?  Good, I knew you could.

There's not a god damned thing they can do except keep piling on interest and late fee charges so that the ultimate write off will be devastating.  In the meantime, I get a statement once a year showing the increasing balance I 'should' worry about.

 

Up until I was 45 I never used credit, never had a credit card, and functioned fine without them...except when some of the car rental places didn't like to accept debit cards.

 

If you have a credit card, great.  Run the bitch to it's MAX and tear the thing up.  Go get another one and run it up.

 

The quicker we kill these mutherf&%ker banks the better.  Take active measures that enhance your personal well-being. 

 

Use the cards to buy gold and silver, then toss the cards away.  Ignore the pleas for  payment.  What can they do, really, besides ding an already meaningless credit score?

Fri, 07/01/2011 - 18:48 | Link to Comment Nimnum
Nimnum's picture

This stuff always gets posted then never happens. I'm skeptical about debt too but getting killed in the market. They always find a way around this. Don't waste your time in the market thinking they won't make the debt ceiling cause they will get it done and since wall street climbs a wall of stupid get ready for market to blast off untill the final final deadline then lift off into the stratusphere.

Fri, 07/01/2011 - 18:55 | Link to Comment topcallingtroll
topcallingtroll's picture

while scary, the issue appears a bit overblown.  The socialists know the tea party is in charge now.  There is no ambiguity.

The socialists have realized that tea party republicans don't really care if the government crashes.  We win even bigger with no debt limit increase, and a completely crashed treasury market that would make greece look like a cake walk.  This is our chance to end big government forever, and the socialists know it.

Sure it will cut my income in half.  I don't care.  I vote my conscience not my pocketbook.

The socialists know they are in a weak position.  They will essentially agree to anything, even a temporary debt increase which they previously opposed.  We don't have to worry about the socialists miscalculating tea party resolve on this issue.  The socialists will find a way to extend the budget on tea party terms.  I doubt there will even be any last minute brinkmanship by the socialists.  They will capitulate several days early to all of the tea party demands. 

Risk is so on right now.  And unlike others.  I mention my trades and my positions in real time.  My spec portfolio is all stock right now with my last purchase of VDE at 105.54 ish more or less.  I am too lazy to average my two trades.  I will likely sell in a couple of days because this move will not likely last.  and will mention when I close it out in real time.

Fri, 07/01/2011 - 19:08 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

top, I am glad I took the trouble to read all the comments.  Nicely argued re the tea party Rs maybe winning this one.

The R base will be lost if they do not stand up to the Socialists.

It is good to see that some here at ZH see that there is more than a dime's worth of difference between Ds and Rs.  14 cents maybe!

Re selling, I will likely be selling equity in the next two weeks as well.

Fri, 07/01/2011 - 19:09 | Link to Comment topcallingtroll
topcallingtroll's picture

I think that might be a fair idea.  We may get a brief correction in general equities.  I just can't see oil continuing to trade higher for long, but general equities maybe.

Selling equities in a couple of weeks then buying back right when it looks like there won't be a deal might be a good trade.

 

The problem is that if the socialists miscalculate, and think they are calling the tea party bluff, then there will be shut down.  I just don't think the socialists are that stupid.  But my finger is always hovering right over the sell button.

Sat, 07/02/2011 - 06:33 | Link to Comment OldPhart
OldPhart's picture

I'm of the opinion that the "dime's worth of difference between Ds and Rs" is merely the gap between heads and tails.

In our two party system, Janus is God.

And he's, literally, a two faced cock sucking bitch with the infinite dick of a greater God forced down his/her throat. 

 

It's all OK though, he/she is kinky that way.

Fri, 07/01/2011 - 19:06 | Link to Comment Rodent Freikorps
Rodent Freikorps's picture

Crash it. Burn it. Piss on its ashes.

The state governments can easily step into the vacuum, and choose to form a new union, or not.

Fri, 07/01/2011 - 19:09 | Link to Comment topcallingtroll
topcallingtroll's picture

don't forget to salt the ground either before or after you piss on it.  We want to make sure it never comes back in its previous form.

Fri, 07/01/2011 - 20:12 | Link to Comment Rodent Freikorps
Rodent Freikorps's picture

I'm thinking the old Carthage treatment is called for here.

 

Fri, 07/01/2011 - 22:01 | Link to Comment sschu
sschu's picture

They will capitulate several days early to all of the tea party demands. 

I agree, the Tea Party holds the cards as they are willing to take the government down.  Herein lies the risk, what will the demands be and how will they be spun by the media etal? 

The Tea Party needs a real victory, one that is quantifiable.  Anything else and the base will abandon them. 

What does this victory look like?

sschu 

Fri, 07/01/2011 - 18:56 | Link to Comment rsnoble
rsnoble's picture

The tea party is a goddamn joke.  Nothing more than a bunch of big business mouthpieces trying to make it look like they want to do the "right thing".  Since when is the right thing involve sucking off exon mobile and choking on chevrons cock and licking bush's asshole raw the right thing?

So your alternative is to vote dem and just get your ass taxed to death.

We need a TNT party.

Fri, 07/01/2011 - 19:18 | Link to Comment bob_dabolina
bob_dabolina's picture

I'm a libertarian and would consider my political affiliation to be closest to the teaparty. 

-I don't condone, nor subscribe, to a plethora of George Bush's policies to include, but not limited to; the war in Iraq, the Patriot Act, TARP, and the support/enabling of the easy credit era. 

-I definitely don't suck the cock of Exxon Mobile or Chevron. They most certainly could pay more in taxes, but at the same time, domestic regulatory burden could be eased as to allow the drilling, exploration, refining, and transport of oil cheaper at a domestic level. It would also help create jobs. 

-What we need is a responsible government willing to make hard decisions, talk to us like adults, and willing to at least telegraph an ATTEMPT at honesty. I know asking for honesty from any government is a fools errand, but I would at least like for it to not be so blatant (insultingly so) and foolhardy.

Fri, 07/01/2011 - 19:58 | Link to Comment topcallingtroll
topcallingtroll's picture

The tea party formed in response to the rage against the bailouts.

Since half the population has an IQ in two digits, the politicians don't have to talk to use like adults.  They can promise pie in the sky to the retarded, and blame the people actually paying federal income taxes if things go bad.

 

People with two digit IQ's will fall for it.

Fri, 07/01/2011 - 22:35 | Link to Comment psychobilly
psychobilly's picture

The tea party formed in response to the rage against the bailouts.

 

And was then co-opted by a bunch of right-wing, socialist piglets clutching tightly to their little piece of govt cheese.  The "smaller government", end timer crowd that consistently supports an ever bigger, more intrusive and overbearing government.  For Israel and Jesus.  And the children.

If we don't allow government goons to rifle through grandma's diaper and stick their hands down our children's pants, the terrorists, who hate us for our freedoms, will win.

Sat, 07/02/2011 - 02:55 | Link to Comment Hacksaw
Hacksaw's picture

Speaking of retards I thought this guy's take on libertarians was interesting.

What’s worse, the American Right has no need of unpredictable talent like V.S. Naipaul, so they’ve driven his species into extinction as well, poisoning the intellectual eco-system forever, making it impossible for a new Naipaul to threaten them again. They’ve replaced the Naipauls with libertarians, the fake, predictable, genetically-modified version of reactionary intellectualism–so insanely corrupt and so profoundly retarded that, like a skunk spraying foul stupidity whenever threatened, libertarianism has successfully scared away anyone with brains and dignity from bothering them while they feed.

As for the tea party, the party is about over. Mom and dad got home from vacation and aren't  happy that there was a party going on while they were gone.

http://www.bloomberg.com/news/2011-06-29/new-jersey-s-christie-loses-sup...

 

 

Sat, 07/02/2011 - 09:45 | Link to Comment psychobilly
psychobilly's picture

Agreed.  The author is a retard.  But what do you expect from a stooge writing for some govermedia shitrag?

Fri, 07/01/2011 - 19:13 | Link to Comment topcallingtroll
topcallingtroll's picture

If you want to argue the intricacies of depletion allowances and the return on equity of large energy companies you might find that Obama sucks an even more profitable and more monopolistic cock, google. 

Profit margins are extreme in the web based services and manufacturing arena, much higher than in energy.  Maybe we should do something to limit the profits of google, but Obama won't say anything about them because they support him.

I agree with a tnt party.  However debt default will do the same thing and doesn't require a lot of effort rigging up explosives.

Fri, 07/01/2011 - 19:19 | Link to Comment mynhair
mynhair's picture

I'm changing.

Vote Obamao in 2012!

Burn, baby, burn!

Fri, 07/01/2011 - 19:20 | Link to Comment Rynak
Rynak's picture

You changed from voting for one idiot in an idiotic system, to voting for another idiot in an idiotic system.

It appears, not only obama is capable of change, that doesn't really change much.

Hmm, what's your stance on hope?

Fri, 07/01/2011 - 19:29 | Link to Comment mynhair
mynhair's picture

My hope for change has been realized.  On the Wif's next business trip, I'm applying for SNAP claiming she left me.

Fri, 07/01/2011 - 19:20 | Link to Comment kevinearick
kevinearick's picture

Distillation of Ivory Tower False Assumptions

On each floor of the Ivory Tower, you will find rooms, each with a homogeneous filter serving as a window to a small piece of the economic process. In each of these rooms, you will find the machine operators, sitting there pretty much doing nothing productive, watching lower level make-workers out in the field. Their only job is to correct the machine process if it is “errant,” if anything or anyone out there exists beyond prescribed limits, each having absolute power over that box, but no authority over its input. You go up the elevator to the top floor, where you find the line operator, with a panoramic view. In the patch of ivory towers, there is a much bigger ivory tower, the ivory tower of ivory towers, controlling all inputs.

The underlying assumption of the ivory tower economists is that the lifetime of any particular ivory tower is so short (disposable) that the planetary systems may be confidently exploited without renewal, so long as they shift production from artificial unit to artificial unit, in a rotation cropping scheme, and, because labor is so ignorant of economics, grounded, they can simply dispose of it at will during the rotation. Over time, the system operators become so confident of the system that they make copies of themselves. As the system becomes more and more efficient at eliminating “errors,” there is no reason to pass on error resolution to succeeding generations, until the operators can no longer recognize system errors, leaving only the individual at fault, for exponentially increasing individual errors.

So, I’m in this meeting and the manager’s manager says to me that this 10-yer-old operation has had 29 people in my position, all of them failing, because they really didn’t want to work, and there is currently a line of 50 people waiting to try. The question posed to me is … how bad do I want the job? He has absolutely no idea that he is assuming that the carry trade through the Australia/China lever cannot fail and that they will be gluing crap wood together to make junk wood products to send to Australia, or some similar junk destination, to make shoddy structures, forever increasing production exponentially.

Currency has no intrinsic value. On the global IC chip, it depends upon the ability to tax, which depends upon the ability to control, which is a self-reducing process, which may only be balanced on the accounting books by ponzi monetary acceleration. That is the extent of what they learned from Galileo. In their perpetual theory, it should work, because the mindless make-workers reproduce mindlessly, creating infinite demand for control / stationary housing. Just keep placing more and more make-workers in less and less space, at less and less per unit cost, at greater and greater price.

Take a look at the purchasing power of a typical make-worker over a period of a typical mortgage, and compare it to the price history over the same period of a typical home. As provided elsewhere, the typical make-worker cannot remotely afford the typical home, hence the exponential growth in financialization, leverage, assuming tomorrow will be exactly the same as today. Therein we find the true value of make-work, crowding out the real economy ON THE GLOBAL IC CHIP. Physics tells you that the centrally controlled majority is balanced by a highly decentralized minority with substantial wealth-generating skills, across a lever. If Caesar could somehow capture that minority labor pool in a perpetual battery, the “thinking” goes, the spending Nazis could indeed implement infinite monetization.

It is very easy to be stupid when you are sitting atop an ivory tower being paid extremely well to be stupid, and everyone around you is paid to tell you how intelligent you are, because you are in complete control of currency collection. It’s like high school, with an exponential increase in stupidity, willful ignorance. When you net it out, the taxpayers are paying their representatives to be stupid, for the right to complain how stupid they are, in a global soap opera, projected back onto screens in each of the operator rooms for positive feedback.

Distillation requires patience, swan anticipation, and reflex action, which all require an understanding of relativity. You do not learn to trim sail in a classroom listening to economists recount the statistical analysis of previous voyages. You may only learn to trim by trimming. Otherwise, pay a good navigator whatever is quoted.

Fri, 07/01/2011 - 19:24 | Link to Comment bob_dabolina
bob_dabolina's picture

tldr

Fri, 07/01/2011 - 21:56 | Link to Comment tip e. canoe
tip e. canoe's picture

swyl

Fri, 07/01/2011 - 20:10 | Link to Comment topcallingtroll
topcallingtroll's picture

This is why I believe Hayek to be right.

He says we don't need no stinkin ivory towers commanding the economy.  Let errors correct on an individual and company level.  If individuals and organizations are left to either self correct or fail, then systemic errors cannot build up.

Fri, 07/01/2011 - 22:01 | Link to Comment tip e. canoe
tip e. canoe's picture

how very borges of you kev.

"In my Father's Castle, there are many rooms.  And in one of those rooms behind a locked door sits the Mother, pulling levers."

and yes, you're right, shit is so high school.   time for graduation or just walk out for good?

 

Fri, 07/01/2011 - 19:30 | Link to Comment Nels
Nels's picture

Geithner's worst case will be avoided.  Rolling over debt will be handled exactly the same as new debt, the Fed will buy it.  If China starts selling off US Treasury debt, the Fed will buy it.

Anybody care to figure what inflation will be by the time the full $14T of debt is on the Fed's books?

Fri, 07/01/2011 - 19:39 | Link to Comment bob_dabolina
bob_dabolina's picture

Was the FED buying the debt from the UST directly?

Sat, 07/02/2011 - 05:20 | Link to Comment Absinthe Minded
Absinthe Minded's picture

Yes.

Mon, 07/04/2011 - 03:18 | Link to Comment mt paul
mt paul's picture

they weren't buying

dehydrated debt

from mountain house .....

Fri, 07/01/2011 - 19:47 | Link to Comment zorba THE GREEK
zorba THE GREEK's picture

 One long term solution would be to build giant fresh water

 aquaduct from Alaskan sound to mid western U.S. With

 our growing technology, and our vast amounts of farmable

 land, we could grow enough food for entire world.

 This is not a pipe dream (pardon the pun) A feasibility 

 report was done back in the early 1970s because of

 projected water shortages (which are now occurring) in     

 in western USA. The plan was rejected and instead The

 Alaskan Pipeline was built to benefit a few wealthy oil

 companies, even though a fleet of super oil tankers had

 already been build specifically for alaskan oil . This project 

 would create many new jobs and USA could substantually

 increase exports and provide much needed product .

 

 


Fri, 07/01/2011 - 19:59 | Link to Comment topcallingtroll
topcallingtroll's picture

It's doable.

Fri, 07/01/2011 - 19:54 | Link to Comment serf86
serf86's picture

I admire a lot of what is said here. I hate the way the bankers control our gov't. However, I do not understand why many of you hope for financial collapse.  We would be in a police state in a NY minute. How do we reorganize in new limited gov't under those circumstances?

We seem to be in a situation where the only way to change is to get worse. Maybe I am just a pessimist. I am preparing, but cannot imagine how this can turn out for the better for the vast, vast majority. 

 

Fri, 07/01/2011 - 20:00 | Link to Comment topcallingtroll
topcallingtroll's picture

gotta go... had fun...but I had to try to respond.

Yes financial collapse might result in a police state temporarily.  In the long run the less money the government has the less power it has, so a government that could not borrow money would ultimately reorganize on a more limited basis.  Yes it will hurt for a while. 

Cutting off leviathan's fuel seems to be the only way to stop him. Fear of collapse is what allows the socialists to continue to spend massively and continue to increase the power and size of government.  The socialists aren't willing to compromise, and by compromise I mean they agree to all of my demands.  No more deficit spending and a balanced budget amendment.  We don't need no stinkin exceptions for war or national emergency.  It just gives people an excuse to go to war.

Any other ideas?

Fri, 07/01/2011 - 20:07 | Link to Comment ebworthen
ebworthen's picture

Rome needed to burn for the Western civilization to rise again.

War with China is the only answer, they must be eliminated, nuclear hit that will cripple them for a millenia.

Then, we clean out the rat and python infested sewers of Amerika and stop selling out.

Only hope.

Otherwise, we will become third rate power and eventually a corpotocracy ruled by ADM and the PLA.

Fri, 07/01/2011 - 23:14 | Link to Comment psychobilly
psychobilly's picture

Rome needed to burn for the Western civilization to rise again.

Rome lived on through Constantinople for another thousand + years.   Sometimes you have to abandon a diseased limb. 

War with China is the only answer, they must be eliminated, nuclear 

Or perhaps you just need to get laid.  Personally, I'm willing to abandon for example the NE and the West Coast to the hordes, but I was really hoping that it would come about through collapse instead of via nuclear holocaust.

Sat, 07/02/2011 - 13:09 | Link to Comment ebworthen
ebworthen's picture

You're right, I just need to get laid.

China will probably have internal collapse, or we will, no nukes needed.

Fri, 07/01/2011 - 21:23 | Link to Comment steveo
steveo's picture

Collpase over a decade or so, or else have one big wipeout, re-installation of the constitution and the rule of law, perhaps even military control for a while, and in three years be back into NOT GROWTH, but a fn sustainable reality!!!!!!!!!!!

Fri, 07/01/2011 - 20:13 | Link to Comment bill1102inf
bill1102inf's picture

The US Treasury failed to make the SSI/Medicare payment.... IT HAS ALREADY DEFAULTED:

 

http://market-ticker.org/akcs-www?post=189249

Fri, 07/01/2011 - 20:17 | Link to Comment praxiteles
praxiteles's picture




  1. Congress
    will not be able to raise the debt ceiling.


  2. Obama will
    direct treasury to pay it’s bills anyway.


  3. Congressional
    Republicans will get mad as hell publically.  The tea party will get off the hook
    because they don’t have to agree to new taxes.


  4. Other republicans
    will also be secretly happy.


  5. Democrats
    will be happy because they don’t have to cut spending


  6. Everybody
    in congress will be secretly happy.

There will be some lame attempts by congress to show
that Obama is breaking the law much like Andy Jackson did with the Cherokee and
Seminole Indians in the face of the supreme court.  Nothing will happen except this time it’s the
American people who get moved.

Fri, 07/01/2011 - 20:37 | Link to Comment djsmps
djsmps's picture

I think you just nailed the most likely scenario. There will also be an anti-gravity stock market.

Fri, 07/01/2011 - 20:27 | Link to Comment nathan1234
nathan1234's picture

What debt ceiling!

With War Powers O(bnoxious) will kick the ceiling aside shortly.

Fri, 07/01/2011 - 20:35 | Link to Comment djsmps
djsmps's picture

And this suddenly becomes the cause celebre for some folks in Congress? Come on.

Fri, 07/01/2011 - 20:38 | Link to Comment TraderTimm
TraderTimm's picture

Just wanted to get this in here - for a few eyeballs, if you please.

I suggest we get into alternatives, especially ones that will take away the banks profit margins. (When it comes to 'interest' and transfer fees.) I've been making a few small videos to promote bitcoin. Take a look, if you would.

http://www.youtube.com/user/BitcoinAds

The world deserves a currency that is rid of central banks and free from political whims.

Fri, 07/01/2011 - 20:42 | Link to Comment 01022010
01022010's picture

shit i reposted, should've read all comments first

Fri, 07/01/2011 - 20:57 | Link to Comment mynhair
mynhair's picture

Part of Fl's Snap application:

List yourself and all those living in your home even if you are not applying for them. If you are not applying for a member, you do not have to give their SSN or citizenship status. If living in a nursing home or other institutional arrangement, list only self, spouse and dependents.
OPTIONAL INFORMATION – ETHNICITY: A = Hispanic or Latino; B = Not Hispanic or Latino RACE: You may choose one or more numbers: 1 – American Indian or Alaskan Native, 2 – Asian, 3 – Black or African American, 4 – Native Hawaiian, 5 – White
Section

Fri, 07/01/2011 - 20:57 | Link to Comment SmittyinLA
SmittyinLA's picture

I'd liquidate and go all cash if I didn't think the state was going to resort to nakid cash printing like Zimbabwe, I'm sure many folks have done just that, this is going to be the biggest fire sale in the history of the world and only the political cronies will have cash, I'd say even today the market and any "real good" is grossly undervalued as anything is in fiat dollars, but everybody going cash is going to get burned anyway.

Maybe its time to go all lead?

Fri, 07/01/2011 - 21:16 | Link to Comment Jack Napier
Jack Napier's picture

The debt ceiling will be raised. China will continue to loan enough to ensure the USD and the Euro both devalue consistently with each other. Whatever they don't cover, the Fed will. As I've said before, the can will be kicked until the shoe is worn. At some point a global currency will take over and a benevolent global dictator will demand RFID implants for your own safety and security. When the time comes all your wealth will be essentially worthless unless you prepared IN ADVANCE by stocking up on silver and other supplies that people will actually need to survive outside of the beast system.

Fri, 07/01/2011 - 23:05 | Link to Comment lawrence1
lawrence1's picture

Hype-inflation results from lack of confidence.  JS Sinclaire recently warned that money market withdrawals are increasing, and over a year ago money market managers were given discretion to stop withdrawals if they deemed there was a danger to the fund.  There are also new withdrawal limits being imposed on various types of accounts.  I think we are approaching a point where some even will trigger an avalanche loss of confidence... perhaps this is it.

Sat, 07/02/2011 - 01:42 | Link to Comment bob_dabolina
bob_dabolina's picture

Gold prediction-

Missives Institute:

http://missivesinstitute.blogspot.com/

Sat, 07/09/2011 - 03:12 | Link to Comment jomama
jomama's picture

seriously dude? you're posting this again?

Sat, 07/02/2011 - 02:10 | Link to Comment dalkrin
dalkrin's picture

No guarantee of the outcome; risks are risks!!

Listening to some Haydn, a bombastic symphony that serves well as I digest this dose of hard reality en route to the nation.

I am dependent on the NIH, as a peon-type worker at a non-profit medical research lab.

That makes me dependent on the Fed, with such luminaries as Timmeh, Benny, et al. at the helm.  Never been more relieved that I at least have put my foresight into an action plan!  Enjoy this summer folks, it may be another stormy autumn season.

Sat, 07/02/2011 - 03:20 | Link to Comment oldman
oldman's picture

Sorry Dudes,

It sounds like everyone had a really bad day in the markets----next week, if we get there, might be worse.

It has been all over for a while now----no one seems to believe this, so let's just pass the popcorn, please, and watch the rest of the film.

thanks to all and---------------good luck

Sat, 07/02/2011 - 04:00 | Link to Comment putbuyer
putbuyer's picture

What can I do?

Sat, 07/02/2011 - 04:11 | Link to Comment mkkby
mkkby's picture

Look folks, there's a simple reason why the repubs want forced austerity.  Any cut in gov spending is a direct subtraction from GDP.  That means O would run for a second term during another deep recession.  Obama is a weak negotiator, so he'll probably fall for some cuts and lose the election.

As for an actual default -- COME_OFF_IT.  The bankers won't even let fucking Greece default.  Do you think THE ELITES are going to take haircuts on a massively larger amount?  Ridiculous.  And with all the other laws broken or ignored, do you think the debt ceiling is going to get in their way?  They'll either ignore it with some declaration of emergency powers, or the fed will derivative repo the shit, so everything comes out rosy once again.

Watch out for real fireworks only after most of Euro goes Greece.

Sat, 07/02/2011 - 07:49 | Link to Comment anony
anony's picture

This site is given to scaremongering of its own with these endless apocalypse posts.

Of course,  you're right.

Now, what does the, "T" in T minus, stand for?

Sat, 07/02/2011 - 04:49 | Link to Comment Peter Pan
Peter Pan's picture

How does one factor in unfunded liabilities into the debt ceiling issue? At what point do the unfunded liabilities hit the proverbial fan?

Sat, 07/02/2011 - 05:34 | Link to Comment I am Jobe
I am Jobe's picture

Congress is whining and the President is on vacation. Nice work Congress. The King has chosen his slaves along with the folks except you are much closer to the epicenter of crap and no matter what the collapse is eminent and you are all going to live thru it. USA is not Greece or Iceland eh, FU Congress.

Sat, 07/02/2011 - 07:44 | Link to Comment Rodent Freikorps
Rodent Freikorps's picture

Good news.

The 6th U.S. Circuit of Appeals has just decided that NOT discriminating against white males is unconstitutional.

And they wonder why no one at all has any loyalty to this farce of a nation any longer.

http://www.chicagotribune.com/news/nationworld/sns-rt-us-affirmative-actitre7605g9-20110701,0,5622141.story?track=rss

 

Sat, 07/02/2011 - 12:33 | Link to Comment cosmictrainwreck
cosmictrainwreck's picture

fuckin' lawyers......

Sat, 07/02/2011 - 07:51 | Link to Comment Greyzone
Greyzone's picture

The entirety of the rolling debt can be covered by existing tax receipts for the entire fiscal year. But if we go that route, federal spending drops massively as those tax receipts are no longer available for other programs. In short, a failure to roll over the debt does not mean that the debt holders get screwed. They will still get paid. It means federal employees and everyone dependent on the federal system will be suddenly hurting hugely as massive layoffs and shutdowns of government programs would have to occur.

Stopping the debt ponzi does not mean the kind of "end of the world" that some people think. But it does largely mean the end of the federal system in everything but name. Likewise, Europe's social democracies are finding that their bills are now coming due. And likewise there, unless individual countries decide to actually fight, the bankers will get paid and everything else (retirement systems, healthcare, etc.) will get cut instead.

Austerity, on a level most of us cannot truly imagine, may be coming to a United States near you soon.

Sat, 07/02/2011 - 08:24 | Link to Comment Franken_Stein
Franken_Stein's picture

 

Pictures of Nicholas Rockefeller who is likely to succeed David Rockefeller after his death.

He's also probably the one who will take over to become the main driving force behind globalization and the erection of the New World Order.

 

"Therefore we should set our collective millionfold sights on him early on."

 

http://www.nicholasrockefeller.net/rand_dinner/nicholas-rockefeller.jpg

http://www.globalagora.com/images/elena.JPG

 

Sat, 07/02/2011 - 09:03 | Link to Comment Rodent Freikorps
Rodent Freikorps's picture

Good news:

TSA has decided to unionize under AFL-CIO.

Bwahahahaha.

Sat, 07/02/2011 - 12:11 | Link to Comment tequila shot
tequila shot's picture

oh yeah

Wed, 07/06/2011 - 02:49 | Link to Comment Anonymouse
Anonymouse's picture

Fed government spending went up by about $1T in emergency spending in 2008 and 2009 due to GFC.  (Actual) conservatives complained at the time, warning it would become part of the federal spending baseline and become permanent.

We were denouced as fear-mongers by Bush and Obama administrations and by both parties.

But now, where are we?

All that emergency spending is "impossible" to cut, and is not even in serious consideration in the debt ceiling negotiations.  Virtually everyone accepts it as a foregone conclusion.

What was predicted and denounced as crazy is exactly what has happened.

Or was that all a dream?

Tue, 08/02/2011 - 22:42 | Link to Comment Attila.Thehoon
Attila.Thehoon's picture

To Tyler Durden

Tyler, this type of manufactured crisis is likely to come up again so there's something I would like to bring to your attention that I think you will find useful.  I maintained throughout that a default was unlikely and when the $ 467.4 billion, OF DEBT ROLLOVERS, was brought up  I discounted it for a couple of reasons.

1.As the ultimate backstop, the Federal Reserve has $ 1.6 trillion of US Govt secutities on it's balance sheet. Despite their carefully worded statements that they cannot buy securities direct from the Treaury, that's smoke and mirrors, and weasel speak. The Fed can sell longer dated treasury maturies, that it currently holds, and use the proceeds to buy shorter dated t least as far as thetreasury issues coming up for rollover as long as they do it in the market place. Doing so does NOT increase the size of the Fed's balance sheet. They would merely shortening their duration risk. In the context that they would merely be sopping up the "debt rolllovers" that other buyers did not take up. They could do this for quite some time, as long as there were buyers for longer dated issues.

2. At least, as far as this years rollovers are concerned one would expect that most rollovers will be well subscribed.   The Treasury has a full profile of who holds these and would be aware of any substantive holders who might be reluctant to rollover. They should also have a good idea of the cover ratio, from

http://www.treasury.gov/re?source-center/data-chart-c?enter/quarterly-refunding/?Documents/Dealer%20Agenda%?20August%202011_7_15_Final?.pdf

Much of this current debt will be held by those that hold such debt structurally and rollover will be quasi automatic. I would expect slippage to be <10% and that should be comfortably covered by the usual oversubscription.

3. A related tool would be to use the mechanism at 1. above] to buy all, or surreptitiously indicate willingness to buy ALL of any particular upcoming rollover, giving the market the perception that "demand was very strong" which would likely drive those that were looking to continue their rollover into new debt issues. There's different iterations of this but there's little doubt their handmaidens at the Investment banks would play ball, and we would never know!

Hope this is useful when we confront this again
Cheers
Thehoon

Tue, 08/02/2011 - 22:49 | Link to Comment Attila.Thehoon
Attila.Thehoon's picture

Tyler,

Apols, re the post a few mins ago .. the 1st point should read

1.As the ultimate backstop, the Federal Reserve has $ 1.6 trillion of US Govt secutities on it's balance sheet. Despite their carefully worded statements that they cannot buy securities direct from the Treaury, that's smoke and mirrors, and weasel speak. The Fed can sell longer dated treasury maturites, that it currently holds, and use the proceeds to buy shorter dated treasury issues coming up for rollover as long as they do it in the market place. Doing so does NOT increase the size of the Fed's balance sheet. They would merely shortening their duration risk. In the context that they would merely be sopping up the "debt rolllovers" that other buyers did not take up. They could do this for quite some time, as long as there were buyers for longer dated issues.

Thu, 08/04/2011 - 21:30 | Link to Comment Attila.Thehoon
Attila.Thehoon's picture

To Tyler Durden

Tyler, this type of manufactured crisis is likely to come up again so there's something I would like to bring to your attention that I think you will find useful. I maintained throughout that a default was unlikely and when the $ 467.4 billion, OF DEBT ROLLOVERS, was brought up I discounted it for a couple of reasons.

1.As the ultimate backstop, the Federal Reserve has $ 1.6 trillion of US Govt secutities on it's balance sheet. Despite their carefully worded statements that they cannot buy securities direct from the Treaury, that's smoke and mirrors, and weasel speak. The Fed can sell longer dated treasury maturites, that it currently holds, and use the proceeds to buy shorter dated treasury issues coming up for rollover as long as they do it in the market place. Doing so does NOT increase the size of the Fed's balance sheet. They would merely shortening their duration risk. In the context that they would merely be sopping up the "debt rolllovers" that other buyers did not take up. They could do this for quite some time, as long as there were buyers for longer dated issues.

2. At least, as far as this years rollovers are concerned one would expect that most rollovers will be well subscribed. The Treasury has a full profile of who holds these and would be aware of any substantive holders who might be reluctant to rollover. They should also have a good idea of the cover ratio, from

http://www.treasury.gov/re?source-center/data-chart-c?enter/quarterly-refunding/?Documents/Dealer%20Agenda%?20August%202011_7_15_Final?.pdf

Much of this current debt will be held by those that hold such debt structurally and rollover will be quasi automatic. I would expect slippage to be <10% and that should be comfortably covered by the usual oversubscription.

3. A related tool would be to use the mechanism at 1. above] to buy all, or surreptitiously indicate willingness to buy ALL of any particular upcoming rollover, giving the market the perception that "demand was very strong" which would likely drive those that were looking to continue their rollover into new debt issues. There's different iterations of this but there's little doubt their handmaidens at the Investment banks would play ball, and we would never know!

Hope this is useful when we confront this again
Cheers
Thehoon

 

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