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Three Horrifying Facts About the US Debt “Situation”
Since too
often financial articles consist of some stooge blathering on and on with
opinions instead of facts, I thought today we’d simply focus on some FACTS
about our current financial system which few if any want to acknowledge.
#1: The US Fed is now the second largest
owner of US Treasuries.
That’s
right, this week we overtook Japan, leaving China as the only country with
greater ownership of US Debt. And we’re printing
money to buy it. Setting aside the fact that this is abject lunacy, this policy
is trashing our currency which has fallen 13% since June… as in four months
ago. Want an explanation for why stocks, commodities, and Gold are exploding
higher? Here it is.
#2: “There are only about $550 billion of Treasuries outstanding
with a remaining maturity of greater than 10 years.”
This
horrifying fact comes courtesy of Morgan Stanley analyst David Greenlaw. And it
confirms what I’ve been saying since the end of 2009, that the US has entered a
debt spiral: a time in which fewer and fewer investors are willing to lend to
us for any long period of time… at the exact same time that we must roll over
trillions in old debt and issue an additional $100-150 billion in NEW debt per
month in order to finance our massive deficit.
And only
$550 billion of the debt we’ve got to roll over has a maturity greater than 10
years!?!?
So we’re talking about TRILLIONS of old
debt coming due in the next decade. The below chart depicting the debt coming
due between 2009 and 2039 comes courtesy of the US Treasury itself. In plain
terms, we’ve got some much debt that needs to be rolled over that you can’t
even fit it on one page and still read it.
#3: The US will Default on its Debt
… either
that or experience hyperinflation. There is simply no other option. We can
NEVER pay off our debts. To do so would require every US family to pay $31,000
a year for 75 years.
Bear in
mind, I’m completely ignoring the debt we took on with the nationalization of
Fannie and Freddie, AIG, and the slew of other garbage we nationalized or
shifted onto the Fed’s balance sheet. And yet we’re STILL talking about every
US family making $31,000 in debt payments per year for 75 years to pay off our
national debt.
Obviously
that ain’t going to happen.
So default
is in the cards. Either that or hyperinflation (which occurs when investors
flee a currency). Either of these will be massively US Dollar negative and
horrible for the quality of life in the US. But they’re our only options, so
get ready.
Good
Investing!
Graham
Summers
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The question has been raised as to whether the Federal Reserve can, or can’t, create money out of thin air. I view things a bit differently concerning this, Since- The US government changed the way inflation is calculated via hedonistic adjustments (i.e. removing steak and replacing it with hamburger, then removing hamburger and replacing it with chicken, then removing food and energy from the CPI) turning the inflation yardstick into a bungee cord, The US calculates employment NOT by how many are working but by a birth death model, The government economists stated that we were not in a recession-until it was so obvious that we were in one and they finally admitted it after they couldn’t hide the fact any longer, How can we be so sure, so absolutely positive, that the Fed ISN’T or CAN’T print money out of thin air? Honesty and trustworthiness are missing from the US Government, to claim “they could never do that” or “it isn‘t legal for them to do that” tends to ignore that rules and laws can be suspended in times of emergency, especially a financial emergency (remember reading about gold clauses were part of legal contracts, until they were declared unenforceable back in 1933?)
Don't you mean 'Shalom - dollars from nowhere'
the ignorance here is amazing. the fed swaps bank reserves for treasuries in a QE. $1 of bank reserves for $1 of treasury. ok. bank had $1 of treasury before, and bank has $1 of bank reserves after. Great. nothing changed. bank has $1. did before, does now. Some knucklehead here said "the bank can spend this new money on whatever they want". Hey, knucklehead, the bank could have spent that $1 on whatever-the-fuck it wanted to the day before the QE, and it can still spend that $1 on whatever-the-fuck it wants to the day after the QE.
There is no net change in the net financial assets of the private sector from QE. If banks do not LEND these new bank reserves out into the real economy via fractional reserve lending, then NOTHING HAPPENS. WTF is so hard to understand about this? Credit is contracting. You clowns are staring at the tachometer (money supply) but it is the speedometer that you should be watching. And the speedometer shows we are s-l-o-w-i-n-g because credit is contracting.
But because you guys are all caught in your ZH, gold conspiracy, bull shit you aren't willing or able to see how the system works. And it is for that reason that I can not help you.
Chemba, I have no idea who is correct here, but perhaps you can tell me what the purpose of this exhange of treasuries for bank reserves is if no money is created. I see that if the banks used those newly created reserves to lend, yes that would create money through the fractional reserve mechanism. However, if the reserves are not used to lend, what is the point in exchanging a $ of treasuries for a $ of reserves? I agree that I'm clueless here. Also, how is it that the Fed is buying the banks' toxic assets?
When your think of a bank debt, think of two things. The debt owed to the bank, and the money lent by the bank. The money lent by the bank is already in the system. It was used to buy a house from someone else, or a TV, or whatever.
Normally, the money lent eventually finds it way back to the bank, to repay the debt. Debt disappears, money disappears. Only the interest has been created.
However, if the debt goes bad, the debt disappears (default) but the money is left in the system.
What the Fed is doing, is replacing the banks bad debts with base money. Or put another way, it is replacing the banks' credit money already in the system, with base money (FRNs).
This money can no longer leave the system. It is now "real" paper money. It will be printed eventually, when whoever has the digital version of it decides to get it from an ATM. It does not matter that the bank doesn't lend it. That's a red herring.
It is highly highly inflationary. Hyper-inflationary. The Fed knows this, but if they don't do it, the system will crash. So they can have deflation crash now, or hyper-inflation crash later. They have chosen hyper-inflation crash later.
The Fed is betting that they can choke the banks later with a higher Discount Rate (causing a recession) after they have re-inflated real estate prices all before the price of food and energy skyrocket to hyper inflationary levels.
good luck, Benny.
folks are going to need much more food and energy long before they're going to need an equivalent dollar amount in houses (and cars).
HYPER-BIFLATION BITCHEZ!!
Let's not forget that the FED is owned by it's member banks. The largest banks having the biggest ownership interest. The idea that the FED is the "zombie" bank is not too far off the mark. It has become the place to dump toxic loans for it's member/owners. As the second largest owner of US debt, they (the FED's members/owners) can now control the government with a better grip.
"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."
- Napoleon Bonaparte, 1815
The difference here is that the bank formerly owned something that paid interest. Even though it is a small amount of interest they could claim that they were "invested." Now that they have cash they must deploy it. Even if they don't lend it out, they will do something else like buy corporate debt or whatever. The net result is that that cash will eventually find its way into the real economy.
You are correct that we have credit contraction, but you're leaving out the most important aspect of this. QE is allowing the banks to avoid recognizing the huge losses on their balance sheets, transferring the losses to the taxpayer.
QE has nothing to do with "extend and pretend". different issue all-together
JESUS, CHEMBA. ITS PRETTY SIMPLE. YOU'RE THE SMARTEST GUY IN THE ROOM HERE. SHORT GOLD AT THESE INCREDIBLE LEVELS AND BE THE GENIUS OF THE CENTURY.
ah, i just have one more question: IF QUANTITATIVE EASING DOES NOT DO ANYTHING (because the banks are NOT LENDING), THENWHY DOES THE FED KEEP DOING IT?
ANSWER THAT ONE, GENIUS.
Chemba - the "ZH gold conspiracy" as you put it is based on the following idea... When governments incur debt they can't possibly pay back, they will either default or try to inflate their way out of that debt by printing money via the Fed (i.e. issuing money in excess of bank reserves)... either is bullish for non-fiat stores of value (e.g. gold). If you think the U.S. government will be able to pay its debts over the next few decades, then I suggest you sell all the gold you can and the folks at ZH will be the bid.
JESUS, CHEMBA. ITS PRETTY SIMPLE. YOU'RE THE SMARTEST GUY IN THE ROOM HERE. SHORT GOLD AT THESE INCREDIBLE LEVELS AND BE THE GENIUS OF THE CENTURY.
ah, i just have one more question: IF QUANTITATIVE EASING DOES NOT DO ANYTHING (because the banks are NOT LENDING), THEN WHY DOES THE FED KEEP DOING IT?
ANSWER THAT ONE, GENIUS.
Sure it does. QE is helping facilitate extend and pretend. You are correct on the technical aspects of how QE works but you have to integrate it into the bigger picture.
there comes a day when real debts must be serviced with real cash. if you cannot understand this, then i cannot help you.
LOL! I can not contain myself at this comment. Because that is the holy grail of a deflationist, who believes that demand for cash dollars will soar as debts need be extinguished due to insufficient cash flows for servicing. So, since this is your belief, you are triple long the UUP and triple short the GLD in order to cover the margin, right?
you're playing semantics. The damage is still done no matter what you call it.
http://www.chrismartenson.com/crashcourse/chapter-8-fed-money-creation
You sound like Mako. Define "bank reserves". Does the Fed say "here are 3 bank reserves for you". No, they are FRNs, because the Fed's liabilities are FRNs. If you are arguing that they don't physically print it, you are nitpicking. You are wrong that they don't exist if they aren't lent. A bank trades in its treasuries for FRNs, and can then buy whatever it wants.
If only they were actually printing money, that would add some value to the economy via paper, ink and labor.
Probably not since they would have to import it from China.
and we'd have something to burn when we can no longer afford fuel
There was some mention the other day about creating a "bad bank" to soak up some sort of toxic crap and a lot of people were nodding their heads in agreement. It occurred to me, since I'm not an economist - though I do play one on the intertubes - that we already have a big bad bank, and the Federal Reserve is it.
All of our debts is yours.
Thanks, Ben, and Alan Greenspan, the criminal who now says "fear is standing in the way of recovery."
Well, he's right, and the fear is that the banksters are stealing from us, and the Fed and the congress and the president is protecting them. We're all afraid that the country is going straight to hell with all the "assistance" you've been providing since 1913.
FU, all of you. I ain't payin' nuttin' no mo.
As far as Fear goes, we aint seen nuttin yet.
Precisely.
Unfortunately, unlike the old days, where we would be commiserating over the unseemly transfer of middle class wealth to prop up banker bonuses in some bar or underground meeting room while plotting revolution, we are here, online, venting into cyberspace.
Don't get me wrong, this site is uber cathartic, but when do things get bad enough for all of us to actually start doing something (myself included)?
Righteous, I agree. I got tired of perma venting and have actually started to do something.
1. Started an emergency food/water supply in my basement. Got 90 days worth now, building it each month.
2. Joined the Libertarian party and send in a monthly contribution. No, they aren't currently electable, but when the crisis hits and everyone abandons the Republicans and Democrats I want a good alternative ready to go so that hopefully we won't get a home grown Hugo Chavez elected here.
3. Trying to delever and restructure remaining debt to long term fixed so that it goes away during the coming hyperinflation/currency collapse.
4. Looking at guns next - to secure #1 above.
What are you gonna do?
Fair question.
Our government needs a wholesale restructuring, but unfortunately I just don't see it happening. A few ideas/changes that would help fix things, imo:
1. Gross financial negligence need to be made a felony, punishable by jail time, not fines (with minimums). Otherwise the bonus and be-gone incentive structure of wall st. will always lead us back here. Practice in the finance industry should require a license, similar to law, which can be revoked in the event of transgression or inappropriate behavior.
2. Budgeting approval authority should be extracted from Congress to an independent branch of the government. Either that or a balanced budget amendment needs to be passed, which includes the ability to go into deficit spending with a 2/3 vote (maybe 3/4) in times of emergency. The Fed is certainly mucking things up, but the real problem is the combination of the Fed with irresponsible fiscal policy. The Fed's mandate should be tightened. There are definite advantages to fiat and fractional reserve systems that should not be abandoned lightly if the pitfalls can be contained.
3. Offshore and arctic drilling should be opened up, with the stipulation that 25% of the earnings generated from such endeavors will go directly into a fund for upgrading our electrical infrastructure and developing renewable energy technologies.
4. Social security retirement age should be stepped up several years over the next two decades.
5. The government should offer substantial corporate tax breaks for companies that hire domestically. With $1.5T+ sitting on corporate balance sheets, not generating any tax revenue, this is a win-win. I would go so far as to say that such tax breaks should include a amounts per year that extend for 2-3 years per hired employee.
6. Defense budget needs to be cut by 10%-20% at least. Ditto for other byzantine branches of the U.S. gov't that exist essentially to inefficiently funnel money into preferred channels.
7. Health insurance should a gov't endeavor. This one is tricky, but the purpose of private enterprise is to drive innovation through competition... I just don't see how one "innovates" an actuarial table. Those who want to spend their own money to pay for health services should be free to do so.
8. Fannie/Freddie need to be dismantled, and housing left to find its own equilibrium - is renting that abhorrent?
9. Corporate spending on lobbying needs to be cut off at the knees. Also, the right to free speech should be clarified as not extending to anonymous speech.
10. Taxes on the rich need to be raised at the $500K and $1MM+ levels. Short term gains should be taxed at 50% to help bring markets in line with their intended function (directing capital to productive endeavors, not speculation).
Unfortunately, the chances any of the above coming to pass is about nil, nevermind all of it,.
Not sure what I can do about it... to be honest, maybe that makes me part of the problem.
I take exception with 2, 4, 5, 7, and 10. Everything else seems like a good idea. My dislikes stem from too much government involvement.
2-I am good with a 75 percent temporary over-ride, but thats it. End the fed-it is a criminal organization.
4-phase social security out over ten years. It is insolvent and was always a scam. It is also unconstitutional for the federal government to levy a tax that funds a program outside of it's scope.
5-the government should be in no position to influence businesses with tax breaks. It will eventually attempt to wield this power to criminally control the free market.
7-the same logic for health insurance. You want an inefficient, cost ineffective dinosaur, let the government have it. Sounds good, ends bad.
10-flat tax. exempt the first 40k then phase in gradually to a full 15 percent up to 75k or 100k. It is still a progressive unconstitutional tax-to make it constitutional: exempt the first 30k of everyone's income and 15 percent thereafter. Your proposal to allow gov't to "soak the rich" only opens the door for the gov't to soak everyone and enrich itself (moral hazard).
Read "Starship Troopers" by R. Heinlein, then come up with some ideas on increasing Accountability/Responsibility. More discipline is in order, especially for those that advocate having Govt take something from Peter to GIVE to Paul.
"9. Corporate spending on lobbying needs to be cut off at the knees. Also, the right to free speech should be clarified as not extending to anonymous speech."
By those standards then I guess this blog should be shut down. And is your first name Rampage or Righteous? I definitely agree with you on one thing though . . . you are part of the problem.
Actually, most of the recommendations would never be considered from the left. Not that I subscribe to any such inane labels.
Once again, you prove it's easier to dismiss by name calling than retort with thoughtful counterpoints.
It's a shame that such a valuable site doesn't not have more independent thinkers.
Ok, here ya go, no name calling...:)
Just foods for thought on some points....
2. How about 95%, for ALL, EVERY SINGLE ONE IN THE COUNTRY, laws?
4. this one is bad for the young and up and coming workers, no jobs to start in to get experience (my local fast food joints are filled with workers who should be retired, but have to work cuz SS not enough, prop taxes up, assumed plan of living off the house equity is, well, not so much anymore). The young need to EXPERIENCE working, and develop a work ethic (and learn what it is they DO NOT want to do the rest of their lives, hence, innovation).
7. Since i am more into alertenative/natural health, my bias here is to have proper nutrition, supplements, lifestyle/behavioral info HONESTLY brought to the forefront (ie, bye-bye GMO, fast-food is a sometimes food (apologises to cookie monster the PC), gardens on every landscape, etc. And, when its time to go, let us learn to not fear death, and go, I would despize leaving my wife and kids a huge financial debt just cuz I was afraid.
9. Corporate speech curtailed, yes. Corporations should lose their "human being" designation because they fail ONE TEST...death. Real humans have a finite existance, as currently defined, corporations are immortal, therefore, not human and not entitled to individual human rights designated as humans. Otherwise, you believe in free speech for all (including anonymouses), or you dont believe in it at all (paraphrase of Noam Chomsky).
10. If for an unassailable short term period of time (1-3 years, all goes to deficit reduction or something useful), ok, MAYBE (I say this as someone earning above median, but below 6 figures). The rich/savers/producers DO create the jobs, at the end of the day, so it can't be a long-term thing, otherwise (as I myself have done), they will withdraw their savings/capital, and not play anymore...bad for all.
Just wondering if you have read Heinlein's "For Us, The Living"? Some interesting ideas in there regarding a compromise solution betwixt the socialist and anarcho-capitalist/libertarian world views...his early thoughts at working this dynamic out.
Cheers...:)
Just being honest. Feel free to actually make counterpoints rather than slinging ad hominem attacks.
It is a challenging issue for sure, but I don't believe anonymity and free speech are necessarily linked, particularly in the corporate sense (perhaps it is worth considering bifurcating the standard). Not to say that anonymity should be banned, but it is not a cut and dry issue, imo. For the record there is nothing I would post online that I would shrink from being attributed to me directly.
When you get your guns, learn how to shoot. Handguns are not as easily used (with accuracy) as they appear in the movies. And, in an emergency there are many other things to think about. The handling, aiming and firing of the weapon should be second nature if you have targets to consider. Requires quite a bit of practice to get reasonably good with them.
Then you have to hope you are not confronted with modern automatic larger caliber weaponry.
Cheers!
+1.
www.suarezinternational.com
www.gunsite.com
www.frontsight.com
+10
I ain't payin' nuttin' no mo.
does that include your mortage? cuz thats probably a good idea. at least get a couple months behind.
Updated FTSE weekly chart :
http://stockmarket618.wordpress.com
I choose Hyperinflation to get through this coming hurricane. One ounce of Gold should pay off my mortgage. ; )
Better get some 1/4 oz coins because they will say " We dont have change for your 1oz Gold Eagle sir"
That's what you use silver for.
OK...let's look at this...
#1: The US Fed is now the second largest owner of US Treasuries.
#3: The US will Default on its Debt
Now....wasn't this their plan all along????? Own all the debt...then default on themselves (or selectively default on the debt you do own). Job well done and no one gets hurt. The Fed wins by losing and the game goes on and on and on and on......
it certainally sounds like a plan. but wait, maybe there's more: China is currently the largest holder of US debt, but they are caught up in a terrible cycle: they must maintain their 8-10% annual growth in order to keep the peace because of population growth. China is severely in trouble, and it is only a matter of time before things go bad there. Thus they must loan the US the money to buy their products in order to keep their own growth (which they need to keep the country from collapsing into civil chaos and rebellion). Everything else until these more basic contradictions are solved is simply a holding action.
Resend
Sounds like earth has become overpopulated. What we need is nuclear war.
I wonder how our stock of neutron bombs is holding up. Today they could be delivered with drones.
Correct. It's not a bug, it's a feature.
Like those 8 nipples you got Rocky? sorry couldn't resist... CB
Damn straight. You're just jealous.
Ever heard of redundant systems?
Say the US does default on the treasuries held by the Fed. The Fed could bail itself out by just saying it will print the money up to replace the money lost and give it to themselves.
They could. It would do them no good if we decided not to use it.
Got junk silver?