What Is "Dysfunctional" Here?

Tyler Durden's picture




 

From Bill Buckler, author of The Privatter

What Is "Dysfunctional" Here?

In the eyes of those who run financial markets - not just in the US but all over the world - a “dysfunctional” government is one which puts any impediments whatsoever on unlimited credit creation. Given the $US hundreds of TRILLIONS of “derivatives” extant, any such “limits” or even the thought that there ARE any limits is dangerous in the extreme. These same “markets” get awfully nervous when there is any discussion about “limits” to the issuance of US Treasury debt because that same debt is the ONLY underpinning for the US Dollar which is in turn the ONLY underpinning for the global financial system.

To understand the ludicrous nature of what now passes for “fiscal management” in the US or anywhere else, consider an example. At present, China owns about $US 1.2 TRILLION “worth” of US Treasury debt paper. Imagine if you will the reaction from the Chinese government if Mr Obama ordered his Treasury to mint a platinum coin weighing (let’s be generous) 100 troy ounces with a denomination of $US 1.2 TRILLION. Having received this beautiful, bright and shiny new coin. Mr Obama then stuffs it in his briefcase, jumps aboard Air Force One and directs the pilot to head for Beijing. Upon landing, Mr Obama drives to the Great Hall of the People. He then requests and is of course granted a meeting with the Chinese Premier. Mr Obama then plunks his briefcase down on the Premier’s desk, extracts the coin, hands it to the Premier and declaims with a huge smile: “There you go - we’re even!” “I’m off to Tokyo now. I’ve got another one just like this one for them.”

Nobody could take this seriously, except an almost terminally dysfunctional government. Sadly, that’s the kind of thing that the markets are counting on and have been counting on for years.

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Sun, 01/06/2013 - 11:23 | 3126926 JeremyWS
JeremyWS's picture

We're all fucked.

Sun, 01/06/2013 - 11:29 | 3126935 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Propaganda aimed at US citizens at its best. No, Chinese are not that dumb. Time to pay the fiddler.

Sun, 01/06/2013 - 11:32 | 3126940 francis_sawyer
francis_sawyer's picture

PRATINUM!... We no need your stinkin' Pratinum!...

Sun, 01/06/2013 - 12:20 | 3127010 Landotfree
Landotfree's picture

I have no idea as to the point of that article.  There can be no limit placed on the creation of credit, as that can be done by contract.   The amount of the US credit system what we know as the federal reserve system must be allowed to expand as what would you service the prior credit with?   

A cap on the expansion of the system would collapse the system.

Sun, 01/06/2013 - 12:49 | 3127078 kill switch
kill switch's picture

A cap on the expansion of the system would collapse the system

 

Now that would be refreshing!!

 

The kill switch

Sun, 01/06/2013 - 13:27 | 3127148 toady
toady's picture

More people need to understand this simple idea.

We are completely debt free, and we have secured a debt free existence for our children. We will never need to purchase a new home or car or anything else on credit. We have become fanatical about it. If we can't pay outright the purchase is not made.

If 20 or 30% of the West could do this the financial-corporate complex would collapse.

Sun, 01/06/2013 - 13:33 | 3127157 yogy999
yogy999's picture

Bingo!

Sun, 01/06/2013 - 14:14 | 3127240 sunaJ
sunaJ's picture

When I first heard of the trillion dollar platinum coin meme, I thought it was a joke.  It is a joke, but it keeps coming back as something viable.  Since the assignment of dollar value is arbitrary, I say we should make it a 2oz coin (or 200oz), worth $2 trillion.  That way, the Chinese can figure out how they are going to pay us back $1 trillion that they owe us

 

If you cannot pay, China, we will happily accept more of your cheap goods as collateral.  It's a pleasure doing business.

Sun, 01/06/2013 - 16:51 | 3127626 RockyRacoon
RockyRacoon's picture

They will give us change in large iron coinage.  I hear they have a lot of that stockpiled.

Why not just save the wear and tear on the coin presses and exchange IOUs written on the back of the Constitution instead.  Give that Presidential auto-pen a good workout.

Sun, 01/06/2013 - 17:00 | 3127649 akak
akak's picture

I'd settle for one of those Yap Island giant stone "coins" --- and what a cool lawn ornament that would be!

Sun, 01/06/2013 - 17:37 | 3127724 RockyRacoon
Sun, 01/06/2013 - 20:12 | 3128157 boogerbently
boogerbently's picture

HEY,

It's worth a $Trillion if I SAY it's worth a $Trillion.

Sun, 01/06/2013 - 13:47 | 3127182 SafelyGraze
SafelyGraze's picture

"Nobody could take this seriously, except an almost terminally dysfunctional government."

on the other hand, everybody could take it seriously if the treasury issued 1 or 16 or 80 or 400 trillion in fiat coins for deposit at the fed, then drew on that "account" and remitted (electronically) them as "actual" "dollars"

hey look! the treasury is $600T in the black!

Sun, 01/06/2013 - 20:19 | 3128178 boogerbently
boogerbently's picture

Genius,

Want Geithners job?

Sun, 01/06/2013 - 11:32 | 3126941 GetZeeGold
GetZeeGold's picture

 

 

No, Chinese are not that dumb.

 

Well crap.....that takes a lot of options off the table.

Sun, 01/06/2013 - 11:51 | 3126965 DoChenRollingBearing
DoChenRollingBearing's picture

No, they are not.  The Chinese have a problem, what can they get with their depreciating dollar assets?  The answer of course is hard goods.  Gold.  Mines.  Ag land in LatAm and Africa.  Oil companies.

(Actually that is not a bad idea for each of us, buying gold...)

Complex societies with lots of debt and opaque undercurrents are almost exactly the definition of a fragile system.  N. N. Taleb writes in his new book Antifragile that you cannot predict the furture, but you can assess risks to most systems, whether fragile (bad), robust (OK) or antifragile (systems that get stronger under stress, best).

Explore with me some further ideas of his (or BTFB! and come exploring...):

http://tinyurl.com/9wclt2a

Sun, 01/06/2013 - 12:12 | 3127004 Bicycle Repairman
Bicycle Repairman's picture

Dollars cannot be left with legitimate nuclear powers.  The ramifications are too serious.  Once the dollars are in the hands of more 'pliable' regimes the process of devaluation can proceed in earnest.  Then the countries that get stiffed can discuss things with whoever bought items that are located in the stiffed countries.

Sun, 01/06/2013 - 12:14 | 3127006 Jam Akin
Jam Akin's picture

You are right DoChen.  The main interest of the Chinese leadership of course is to retain power.  They need to manage the revolution of rising expectations of their 900 million or so poorer citizens.  And they are executing their plan reasonably well.  Get as much real wealth/value as possible out of the USD hoard that they got for free by printing up Yuan while trying to reduce transaction costs/secure the benefits of a reserve currency position globally for that which they are printing up.  It is all very logical.  

Sun, 01/06/2013 - 14:14 | 3127244 Jam Akin
Jam Akin's picture

Incidentally, one thing they will be needing more of in China is silver.  Not widely known in the US but the authorities in China are planning a nationwide network of grid tied large scale PV generating plants in order to fill the capacity of local solar panel manufacturers who were subjected to much higher US import duties last year.

http://www.mercurynews.com/business/ci_21948288/trade-panel-upholds-u-s-...

 

Sun, 01/06/2013 - 12:23 | 3127023 Winston Churchill
Winston Churchill's picture

So dumb that they bought those UST's in the first place.

Fool me once....

I don't believe they even hold them anymore.Purely on paper maybe.

Either a secret deal with the FedRes or pledged as collateral with western banks

to buy barbarous relics.

Go.China.

Sun, 01/06/2013 - 14:29 | 3127281 B-rock
B-rock's picture

They bought them so they can sell them some day and blow up the US with a bond bomb.  $1.2T is pretty cheap for such an effective weapon.  The US walked right into the trap.

Sun, 01/06/2013 - 20:17 | 3128174 boogerbently
boogerbently's picture

Now you're getting close.

We have a history of making citizens pay for all political and corporate indiscretions.

We have a history of confiscating gold.

Keep the price of gold low enough and the reason for buying it high enough.

Confiscate gold, THEN let the price run up.

Then pay our debts with gold confiscated from the citizenry.

Sun, 01/06/2013 - 11:34 | 3126946 Clint Liquor
Clint Liquor's picture

Time to pay the fiddler.

Pay with what? Fiat created from thin air? The Platinum coin would be a better deal.

Sun, 01/06/2013 - 11:55 | 3126978 Silver Garbage Man
Silver Garbage Man's picture

The sad thing is that coin would have more intrinsic value than the treasuries .

Sun, 01/06/2013 - 12:10 | 3127002 cossack55
cossack55's picture

I'm pretty certain the USG will prove once again how dysfunctional it really is in the next 60 days.  One man's dysfunction is another man's bonus.

Sun, 01/06/2013 - 12:47 | 3127072 CH1
CH1's picture

that coin would have more intrinsic value than the treasuries

Yes, but for now there are still bigger suckers, who will take Treasuries for things like wheat and metal and cars.

If the Chinese have any sense, they are trading with the suckers right now.

Sun, 01/06/2013 - 11:47 | 3126963 smlbizman
smlbizman's picture

i hope the chinese read the hedge.....not that im enamored with the chinese...but gentleman and ladies what we have going now has got to be stopped...it is inhaling the entire planet,... so once we end this we can get back to a better sanity level...than we can fuck that up...

Sun, 01/06/2013 - 11:59 | 3126989 Antifederalist
Antifederalist's picture

What is this "we" white man.   Some of us own gold and silver.  teh, heh

Sun, 01/06/2013 - 12:07 | 3126996 TWSceptic
TWSceptic's picture

There's nothing anyone can do about it, the crash will happen. But fucked? No. Those who are aware can profit from all this. I honestly believe that there is no way to deal with this mess, it has already past a tipping point. Now it just has to get much worse. Only then people will come to their senses. It has been like that throughout human history, and since human behavior hasn't really changed, it will all happen again. Only this time it will be much more severe.

Sun, 01/06/2013 - 12:34 | 3127047 Eireann go Brach
Eireann go Brach's picture

After handing over the coin, Hopefully the Chinese president will grab a box of Wendy's chicken wings and beat the crap out of Obama with them!

Sun, 01/06/2013 - 13:46 | 3127179 slaughterer
slaughterer's picture

If the USA were creditworthy, this "$1T platinum coin" idea would be unnecessary.   When will Treasury prices respond to these signs of desperation?  The "full faith and credit" of the US Government, accepted by most buyers of Treasuries as an iron-clad guarantee, will not stir much more enuthusiasm for Treasury cram-down paper if politicians and pundits in the USA are attracted by the apparent "promise" of this market-mindless myth of the $1T platinum coin.  

Sun, 01/06/2013 - 14:28 | 3127278 slaughterer
slaughterer's picture

Countries that are able to defer the finanvcial day of reckoning far into the future are not constrained by reality.  Nor are the markets surrounding them.  (Zimbabwe lesson #1).  

Sun, 01/06/2013 - 14:45 | 3127315 ramacers
ramacers's picture

don't have to be - entirely. don't get mad, get ----. start honing the blade for the smug, elitetist political master classers. been done before, relatively sucessfully.

Sun, 01/06/2013 - 11:27 | 3126930 deepsouthdoug
deepsouthdoug's picture

Money for nothing and Air Force 1 is free!

Sun, 01/06/2013 - 11:34 | 3126948 GetZeeGold
GetZeeGold's picture

 

 

Better tone it down.....you'd look like a mack daddy hitching a ride on that thing in this economy.

Sun, 01/06/2013 - 11:59 | 3126987 Bill the Cat
Bill the Cat's picture

Pftwbt!

Sun, 01/06/2013 - 16:55 | 3127635 RockyRacoon
RockyRacoon's picture

My sentiments, exactly.

Sun, 01/06/2013 - 16:59 | 3127645 akak
akak's picture

Ack ack!

Sun, 01/06/2013 - 11:27 | 3126931 DeadFred
DeadFred's picture

Copper is cheaper but you should be gracious and put really nice engraving on the coin.

Sun, 01/06/2013 - 11:28 | 3126932 Bullwinkle Moose
Bullwinkle Moose's picture

Pretty much sums it up

Sun, 01/06/2013 - 11:29 | 3126936 williambanzai7
williambanzai7's picture

I believe the Japanese would prefer a tuna.

Sun, 01/06/2013 - 11:31 | 3126938 Bullwinkle Moose
Bullwinkle Moose's picture

One that glows in the dark?

Sun, 01/06/2013 - 14:02 | 3127219 Jam Akin
Jam Akin's picture

I've seen that on the news somewhere.  But do they have a big enough coola'?

Sun, 01/06/2013 - 11:35 | 3126949 nmewn
nmewn's picture

Keep the Change Wen!!!

Sun, 01/06/2013 - 11:42 | 3126953 lolmao500
lolmao500's picture

Well debt has been the only engine of economic grow since the 80s. Of course people are scared of it ending... they've known only debt for their entire life.

Sun, 01/06/2013 - 11:43 | 3126955 Bernank Sheeple
Bernank Sheeple's picture

The Chinese Primier, would say no thank you, please pay me in $100's. You can take that coin and shove it up your a**.  

Sun, 01/06/2013 - 11:46 | 3126961 Clint Liquor
Clint Liquor's picture

Where do think the 100's come from?

Sun, 01/06/2013 - 11:59 | 3126990 unrulian
unrulian's picture

if they could pay in 100's it would be bullish for the baltic

Sun, 01/06/2013 - 11:44 | 3126956 agent default
agent default's picture

The moment they announce this coin is about to be minted for real, expect 1000 dollar gallon gas at the pump, 400 dollars for a loaf of bread, etc, etc.  This coin would be an admission that the US has defaulted on its currency.

Sun, 01/06/2013 - 12:54 | 3126975 Antifederalist
Antifederalist's picture

You give the world too much credit (pun intended).  The sheeple won't get it.

I subscribe to the Privateer. (highly recommended, Bill Buckler is a genius).  If you follow thru with the rest of the logic outlined by Buckler, they will do it, swear to never do it again, and use it as a mechanism to eliminate the debt ceiling forever.  They have already floated the "no debt ceiling" idea and this will be the way that Oblama uses the system to force the Republicans into the no debt ceiling box.  Brilliant.

Interesting theory.  Watch, they will find a way to eliminate the debt ceiling.  It is annoying to them.

 

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