Backed Into A Corner Of Our Own Making

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,

It is neither pessimism nor optimism but a squaring up with the facts and, when done, it is the inescapable conclusion that we have backed ourselves into a corner of our own making and that to escape this dark and dangerous place will be a painful experience. The scheme rests upon various feet; Central Banks acting in collusion to lower yields and provide capital as an off-set to the government in America and the governments on the Continent who cannot bear, for political reasons, to do what should be done and that is to cut expenditures.

The United States and the European Union are spending far too much money on anything/everything which cannot be afforded by their economies and so the Central Banks print more and more and more money to accommodate their Masters. Inflation, the conclusion that would be expected in normal times, is not present because all of these Central Banks are operating in unison and so, with nowhere to invest money off-world, we are restrained by the boundaries of the planet and what is available to absorb the slosh of capital that has been created. With the Central Banks buying up around eighty percent of any new supply; what is left for the poor beggars defined as private investors and so the money is put to use, equities head higher, absolute yields fall, compression continues unabated in Fixed Income, Real Estate increases in price and it soon become obvious that it is not this sector or that sector but the entire planet that has been filled with a gigantic amount of hot air and newly minted little pieces of paper and that a bubble has been created which is not only world-wide and systemic but it is the likes of one we have never seen which is why it has gone rather unnoticed. It is rather like lying in the poppy fields of Oz on some warm afternoon in May and forgetting that the wicked witch still lurks in her castle and watch out for Toto because she means to get you both!
The worry then is how does it all end, what do you do in the meantime and how and what do you do when the bubble is pricked. The Central Banks will try to manage it but they will fail as the demon is now far larger than either spun rhetoric or their ability to contain the monster that they have created. The politicians, on both Continents, have fed the incubus by offering sustenance to the people that elect them far past what their pocketbooks can afford and so Uncle Ben and Super Mario turn on their magic machines which mystically morphs paper into a special affair that can be used to buy goods and services with all of it backed by nothing more than promises to pay and “full faith and credit” and other lofty sounding words that mask the fact that no government could afford to pay except in this “pay in kind” fashion and so the presses print, old debt is paid off with new debt, the size of the debt is hidden in musty drawers, most isn’t counted and six and twenty blackbirds have baked a meringue pie.
A meringue is really nothing but foam. And what is foam after all, but a big collection of bubbles? And what's a bubble? It's basically a very flimsy little latticework of proteins draped with water. We add sugar to this structure, which strengthens it; but things can, and will, go wrong. Perhaps very wrong.
So there is the definition of the problem. There is the crystallization of the dilemma. The entire world’s financial system encased in a bubble and nowhere to go, nowhere to hide and nowhere to be safe. Many argue for the value of gold when the prick comes but gold is just a currency replacement and while it will rally in response or perhaps rally with inflation if it comes it begs the question of valuation as it has no absolute value as defined by me before and so relative value without the payment of income is a major cause of concern.

Consequently unless the world’s financial system implodes, a thought expressed by some, gold may be a choice but not the best of choices.
Since off-world investments are not possible then we are bound by the choices that are available. This brings us around to TIPS or corporate bonds tied to inflation, staying very short in maturities, floating rate notes that rise with interest rates or any other types of investments that float off of CMT (Constant Maturity Treasuries) or any other asset class that will rise in yield and price as valuation decreases and as the effects of the slosh of money wears thin. Bonds such as step-ups may have additional worth now as a partial hedge and fortunes, once again, will be made and lost making the right bet. The big Kahuna will be the question of timing because we play the Great Game to win and not to be right. Preparation is the key now because history teaches us that small bubbles, much less our humongous one, will not last as political and economic forces unite to prick that which is so over-valued in one manner or another.
When the economies of Spain, Greece, Italy, Ireland, Portugal and France are in decline and yet their sovereign yields fall as supported by a conditional promise from the ECB then trouble is in the making. When America spends money like it is without end because the Fed hands out the byproducts of the forest as if it was an unlimited supply then the valuation of paper overtakes the use to which it is put. We are sitting with our little round plastic toys and blowing bubbles into the sky and when the turn comes, when the bubble is pricked, scant few will be able to run fast enough or get through the door quickly enough when the madding crowd is rushing in a collective push to get out of the burning theatre. It may not be today and it may not be tomorrow but soon enough and hence my caution before the storm.

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GetZeeGold's picture



Just get a bailout of course.

Badabing's picture

The only way to believe in the American dream is to be asleep.

George Carlin

trav777's picture

title is wrong.

We didn't make our biology an exponential growth mandate.

Skateboarder's picture

PIIGS is now F(ucking french) PIIGS?

Doña K's picture

<<<Gold is an option but not the only one.>>>>

The other one is silver. TIPS is just another paper promise, Do we still believe?

madcows's picture

I'd rather give my money to late night TV preacher than entrust it to the Government.  TIPS!  Ha!  Those are hedges against inflation where the Government is the one doing the inflation calcs at 1/8 of it's actual rate.

Fish Gone Bad's picture

Just downsize.  In the end, everyone dies, even those with a lot of money.  Get out of debt, go for a walk, and let the big fucking mess be someone else's problem.

Ruger556's picture

This is probably the best financial advice I have heard recently... I will probably buy some ammo too..

MrSteve's picture

TIPS are paid off according to US government statistics on inflation which is like buying into retirement at Wounded Knee, Pine Ridge, S.D.

No thank you!

YC2's picture

This article is pretty worthless.  Saying to prepare but offering no insight except that "gold is ok but not really" and then a bunch of debt products where the counterparty is contracted to pay off handsomly when they least can afford to (and wont) is not providing any insight.  Anyone who thinks TIPS are a good idea in a currency and debt crisis should ask the government of Argentina what the official inflation rate is there.  Im sure those inflation indexed corps will take their word for it...

Panafrican Funktron Robot's picture

In utilizing the lesson of one Mr. CogDis, regarding "we"-ness:

"we have backed ourselves into a corner of our own making"

I object to being included in the responsibility for this fucked up behavior.  The vast majority of what would be encompassed in "we", share this lack of responsibility for this fucked up behavior.  The blame, and responsibility for fixing, rests in a select few, very powerful individuals, who I should mention, as my dad puts it, "still put their pants on one leg at a time".  

upWising's picture

"No matter how cynical you become, it is never enough to keep up."

"Most likely, man learned to walk on two feet so that his hands would be free to masturbate."

–Lily Tomlin

BKbroiler's picture

Or a few more decades worth of bailouts.  Everybody waiting to use the backyard bunker when TSHTF should take a good look at Japan and learn that can-kicking can go on longer than anybody would have ever predicted.  Fighting the fed is a fool's errand, they will borrow more money and keep doing so until we pay $100 for a loaf of bread.  You can attempt to stop the tidal wave or you can surf that shit.


Rainman's picture

USA household incomes at mid-1990 levels. USA residential real estate at 2003 values. Japan residential real estate at 1983 levels. I see your point.

otto skorzeny's picture

the yen is not the world's reserve currency-it's just a bit player on the world's stage.

Panafrican Funktron Robot's picture

"it's just a bit player on the world's stage"

Disagree, the yen is one big fat fucking domino in all this.

Skateboarder's picture

Japan was only able to kick the can this long. because Etas Unis and the EU were able to hold down the Ponzi while they were falling. When there's no one left to back the Ponzi, the show ends and everyone goes home (or starving, in this case).

BKbroiler's picture

ok, fair point.  But the US operates on thinly veiled gunboat diplomacy.  The whole "trillion dollar coin" fiasco wasn't aimed at republicans, it was a reminder to the world that as long as we have the guns, things are worth what we say they are.  Treasury can print a trillion dollar coin, write "fuck you, pay me" on it and put a picture of Joe Pesci on it, and the world will have to accept it as legal tender if they value their own economy's stability.  I am not saying it's justifed, but that's the way it is.  It's good to be king.

hedgeless_horseman's picture



I agree with BK, and would add this...

Germany, like Japan, are post-war pawns. Their currencies are DESIGNED to be debased, as and when needed, to achieve synchronized diving with the pound and dollar. If Germany wasn't in the Euro, its prior experience with hyper-inflation would prevent it from debasing when instructed to do so (obviously not a problem with the Nips). Both countries go along as willing pawns simply because they have been re-created post-war as export nations totally reliant on weak currencies.


The PIIGS profligate spending has ALWAYS been there, like a fat store, and can be used by the brain when needed to feed the body.

francis_sawyer's picture

 "It's good to be king"


On a long enough timeline the survival rate for everyone drops to zero [that includes KINGS]


Edit: I get a JUNK for that... Tyler(s)... You're going to have to officially re-write the ZH Constitution to exclude KINGS from the "timeline/survival rate' paradigm because your readers don't agree with the fundamental tenent anymore...

BKbroiler's picture

Hey man.

Germany, like Japan, are post-war pawns


Yes, forbidding a nation to have an army has a way of affecting trade relations and limiting economic clout.  Japan took US econ theory, ran with it like a champ and reached saturation a decade before we did (80's vs 90's).  Germany had learned a few lessons  prior to WW2 that Japan didn't have on the books yet, so they played their hand much better, imho.  Germany was the clear winner in the Euro project, and I'm guessing Uncle Sam wanted it that way.

hedgeless_horseman's picture



Yes, forbidding a nation to have an army has a way of affecting trade relations and limiting economic clout.

Gunboat diplomacy is, indeed, much more difficult without any gunboats.

Fish Gone Bad's picture

It's about the money.  It's always about the money. 

FrankDrakman's picture

 Japan took US econ theory, ran with it like a champ

Huh? They took 18th century mercantilism, and tried to run with that. Closed doors to imports, resulting in huge trade imbalances, an appreciating yen, an immense property/stock bubble, and as usual, just as Sony chairman Morita was scribbling "The Japan That Can Say No", the bubble reached its height, and they've had twenty lost years ever since.

Not saying that we're doing any better right now (at least we're having babies), but they certainly weren't running the US playbook.

Ghordius's picture

yes, hedgeless. and no, hedgeless. the EUR is designed to achieve synchronized diving with the pound and dollar if needed

(plenty of evidence for that, by now - I still shudder to think how it would have gone with 17 currencies instead of one...)

and it's also designed for a couple of other things, including reacting to some SHTF scenarios - and one of the most horrifying is still a hyperinflationary bout of King Dollar or Prince Pound

(note that nobody foresees hyperinflation for Princess Euro - her balances, both financial and trade are positive)

and it has one "terminal" trick up it's sleeve: disintegration into 17 known and loved old, "reliable" currencies - again, if needed

before talking about Germany we should always remember the real history of the DM and the BuBa:

a great high-flying kite and a kid desperate to keep it down - with London and NY both speculating on it's flight


btw, BK, you are not supposed to utter this kind of truths. they kinda hurt, you know?

francis_sawyer's picture

Fine debate [& accurate on all parts]...

But mentally masturbating on these contrived things of the past isn't going to help anybody when the timeline eventually reaches ZERO [which was my 'King's' reference above]... It's all just a charade to buy time...

Understanding it, or evaluating it intellectually only serves one purpose... The NEXT gang of crooks [after the above referenced 'timeline' reaches ZERO], will probably xerox a couple copies of the old playbook and use it to dominate & fleece the next round of sheep...

Vooter's picture

"Treasury can print a trillion dollar coin, write "fuck you, pay me" on it and put a picture of Joe Pesci on it, and the world will have to accept it as legal tender if they value their own economy's stability."

Well, they can accept it, but that doesn't mean they have to use it, as Turkey and Iran's gold-for-gas swap has shown...

Bohm Squad's picture

Seems to me anyone crediting their account with a $1 trillion coin would want to use those proceeds as quickly as possible...!

Half_A_Billion_Hollow_Points's picture

that's why we will see the USS Ronald Reagan and the USS George Washington sinking to the bottom of the ocean

forwardho's picture

Only cause they were first in the race.


upWising's picture

Living in hyper-inflationary Nicaragua, where prices doubled in the blink of an eye, a thousand Córdobas became ten thousand,  then a hundred thousand, then a million, only to be "redenominated" as One New Córdoba, you get cynical real fast.   You realize it is all just a lot of coloured paper.

I joked that the box trucks on the streets were delivering "zeros" to local businesses so that everyone could keep up.  Warehouses somewhere were packed to the gills with "zeros," until they ran out, at which point a "currency reform" would be announced, old money would be stamped and punched and re-issued with the "old zeros" surgically removed and returned to the warehouses, only to begin again.

Long the ZEROs Industry.  It's a growth industry.  How high can we go?

Google "Hungary inflation" and you will see.  "The pengö" in its quintillion pengö incarnation was so worthless, people threw it on the street like a cigarette butt.

DR's picture

Yes, default in slow motion. Real negative yields for the forseeable future.

Now I understand why some people sleep with gold under their pillows.

bigdumbnugly's picture

Backed Into A Corner Of Our Own Making

The worry then is how does it all end, what do you do in the meantime and how and what do you do when the bubble is pricked.


they just print more corners?

LawsofPhysics's picture

Ha!  With the Fed, Primary Dealers, and all the 401k sheep (by force) supporting the "market".  It is indeed different this time.  Dollar dumping/repatriation is the only thing can now "pop" this bubble.  Congrats central planner, you saved the "market" and have destroyed trust and the currency -" Winning" -  Hedge accordingly and watch what now happens to the paper price of commodities versus the physical price (for delivery).

Commander Cody's picture

Exactly.  With the world's central banks and primary dealers all coordinated with one purpose and one purpose only: To inflate risk assets infinitely, this is an investment opportunity of a lifetime.  Everyone must go all-in and lever up because if you don't, you will be left ashore on the tiny little island with most ZeroHedgers with no means of escape.  Cannibalism comes to mind.  So, hop on and join the fun!

forwardho's picture

Son, your gonna drive me to drinkin!

Doña K's picture

Commander Cody, what is the name of your spaceship? How many space cadets are onboard?

Commander Cody's picture

To be precise, there are 7,060,258,054 space cadets currently on board.  This is according to the U.S. Census Bureau world population clock as of 17:15 UTC (EST+5) on January 17, 2013.

Joe Davola's picture

As one of the herded 401k sheep, I joke about the government forcing the money into treasuries, but wonder if:

1.  they need to - the fed will take them bonds and hold indefinitely, whereas people retire and start to demand actual cash to buy goods and such

2.  they want to - the current state of affairs with the stock market being the recipient of the fresh cabbage, provides a false idol to point at and proclaim 'all is well'

NotApplicable's picture

Do they really need to force the money anywhere, if the holding entities can use the captial at their own discretion, ala Dimon's Whale, with the worst case being Corzining it?

francis_sawyer's picture

Let's narrow this down, shall we?... The 'evil', of course, is the PAPER DEBT MONEY [because it 'PRINTS ITSELF', of course]...

mayhem_korner's picture



Slightly disagree.  The Paper Debt Money is the enabling instrument.  That the sheep believe it has value enables the evil to be carried out.  All debts will be reconciled, however.  Like gravity, time always wins out.

francis_sawyer's picture

I guess you missed the [/sarc]... OK ~ so PAPER DEBT MONEY is the 'enabling instrument'... [& then all that other shit follows in line]...

& that 'enabling instrument' is like some nano-machine that prints itself...


One bush [so many ways to beat around it]... A daily phenomenon on ZH & elsewhere...

vamoose1's picture

  mr  grant  is  unquestionably  brilliant  but  he  appears  to   diametrically   contradict  himself  in  his  comments  on  gold

francis_sawyer's picture

The only thing that I can COUNT ON anymore when I wake up in the morning is to be slathered with a full day of "contradicions"...

NotApplicable's picture

You'd think they'd invented more coherent looking facades by now, but NOOOOOO!

They made stupider people instead.