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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francis_sawyer's picture

I look at it this way... People aren't so much STUPID as they are HIGHLY MALLEABLE...


Before the 'Information Age', it was easy to fleece people because they were uninformed... With the advent of INSTANT communication... lies, stories, & propaganda have to be deployed as a way to FAKE people into believing that it's all fair out there & they're not just a bunch of human pinata's hanging there for the elite to swing at...

Well ~ maybe they ARE stupid after all...

CPL's picture

I want pie now after reading that.

Sudden Debt's picture

It may not be today and it may not be tomorrow but soon enough and hence my caution before the storm.

so.... not this weekend either?

If I used these kind of warnings to my kids, my house would be on fire, my daughter would be pregnant at age 11 and my son in prison at age 15 :)

MrSteve's picture

S.D. makes a solid point: alarming alarmists screaming no exit are pointless and incidently, no threat or counter force to the existence of a bubble or bubbles.

There are measures of value in the world that endure when paper grows ever worthless- a pound of copper today is equal to the paper cost of a loaf of real bread (~$3.50). Most gold and silver is mined as a byproduct of copper mining, so there is an energy, cost and mineralization ratio driving new metal production for a base price case. The 16:1 silver gold ratio is a silly USA historical artifact. Every English monarch clipped the gold coinage ratio when they assumed the throne, it made their money "go farther". Gold is gold and silver is silver, have some of each for a rainy day or maybe for seven lean years.

Gold-EagledotCom has editorials showing US debt to alleged gold holdings that puts the debt to gold at $61K per ounce implying a fractional revaluation (at 10%) that Oz's Yellow Brick Road is paved with Au Oz. =$6,100, some four times today's gold price. If accurate, this means cash is worth 25% of what you think it is. More likely, a meaningful revaluation would take the dollar down to 10% so the USA would get real bang for buckling the currency's value. Your accounts would then be valued at 1/10th their current balance. Social Security would pay off at $200 per month and bread would cost 35 cents a loaf.

Without some gold to anchor your future cash value, you are just another hurricane victim waiting for FEMA to issue you a tent in February. Good luck if that's your plan.

Every inflation has ended in a sudden and tragic deflation. History. No exception. No exit. Plan for real and hold real value, your family is counting on you. Don't be a screaming alarmist.


youngman's picture

"and the governments on the Continent who cannot bear, for political reasons, to do what should be done and that is to cut expenditures."

This is the exact problem......soooooo..they will print until the paper money craters.......and I think that will be when China and Russia have enough gold to back up their paper....

Seasmoke's picture

There are no corners in a bubble

madcows's picture

Look, it's all pretty simple.  There is far too much national debt than can ever be paid.  This is nothing more than a debt bubble collapse.  All the irresponsible countries borrowed far more than they can ever repay, and now the debt holders are going to get a haircut. 

What's unknown is the level of contagion.  The debt collapse will extend far beyond the government bond holders.  All the poor saps that are getting some government subsidy will be hit when the governments can't pay anymore.  So, they'll probably go belly up, too, which will impact all their debt holders.... and on down the line. 

It's going to continue to be ugly for many years.  Here's hoping the world fucks the banks and lives within its means in the future.

forwardho's picture

All the poor saps that are getting some government subsidy will be hit when the governments can't pay anymore.

There are 47 million being fed by said govt, Their going "belly up" is going to impact much more than their debt holders.

Add on SS and medicare/aid.

Ugly, is a very optimistic description,

vamoose1's picture

    well  put...... 72  hours  after  those  food  stamp debit  cards   go  glitch  you  can  shoot  a   howitzer  through  every   stripped   supermarket  in  america

mayhem_korner's picture



It's not just countries that have borrowed more than they can ever repay...  Lotsa undisciplined people as well.  Sovereign debt and private debt are both slow-motion train wrecks.  And it's not a given that devaluation of the dollar will make all of those private debts disintegate via inflation.

madcows's picture

The FED's efforts to inflate away the debt in order to solve the problem is having just the opposite effect.  By creating inflation (14% by my calcs) they are hurting the majority of Americans.  Those citizens aren't getting raises or at least raises that keep up with inflation (because that would require growth, not just money printing), so they must cut or borrow in order to make ends meet.  That means they are spending less and going further in to debt.  Thus, they are a negative on the overall GDP, not a positive... That's Negative GDP.  Fucking Berstankee is worsening the problem, not making it better.  Those private debts are getting worse, just like the Federal debt.  This all ends badly.

Now, if Ben(Dover)-The-Financial-Terrorist actually wanted to inflate the debt away, he would give the money to the people, not the government or the banks.  What good is it in the hands of the banks?  So they have more to lend?  People are already up to their chins in debt.  Just making the debt cheaper doesn't help much.  They still can't pay the bills.  By giving it to the banks it's not going in to circulation.

Antifederalist's picture

Well said.   McHugh had the same suggestion.  Rebate 5 years taxes, require it be used to pay off debt.

pvbflorida's picture

So madcows if the entire world inflates prices then they do not change competitive forces that drive markets to the best values. When that happens wages will rise in concert since there would be no fear by businesses pricing themselves out of marketshare by squeezing margins. Then with the efforts of central banks also acting in concert keeping interests low to inflation they increase dispoable income which puts the brakes on nonperforming loans. It's the long game. Do you really think they are going to put the money directly in the hands of Americans? Really? Americans have displayed the ability of getting easy money and then spending it like crackheads. 

madcows's picture

So, sending up prices via printing will work in your estimation?  How about this.  Shit costs a lot more, people and businesses can't afford it, so they keep cutting and keep cutting until noone has a job and all the companies are gone.  I think you have it wrong.  Just b/c they drive up the costs doesn't mean people can demand raises and spend money.  People get raises when their companies are growing.  The easy money game is over.  The only way out is for the debt to be cleared.  Inflating won't work.  But, Uncle ben is a banker.  His clients are bankers and governments.  He's not going to let that happen.  My arguement is that in order for Benny to inflate away the debt, the money needs to be in circulation, thus too much money chasing to few goods... all we have is monetary debasement, no circulation. 

pvbflorida's picture

Thanks for replying madcows I appreciate your opinion. My point was that if we were sending up prices by ourselves this would not work. Timmy was going to Europe every 2 months to evaluate the progress of the concerted efforts of all the countries involved. So as long as everyone inflates in a way that it relative to their existing debt then the existing debt would be devalued proportionately. I think Benny and the ECB are putting the money in to circulation. The paper is being bought by the Fed at a significant percentage. Other countries are doing the same. Everyone involved realizes that the bondholders will be taking a haircut but it's better than a beheading. Increased pricing will bring about wage pressures for every country if they maintain everyones agreed upon share. Increased wages will pay for more expensive goods and services. They will also reduce the number of non performing loans. Like I said before I am not rooting for the strategy just trying to understand it.

Dr. Engali's picture

"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"


Gold does not "rally" the dollar falls against gold....fixed that for you. 

madcows's picture

Gold is typically a hedge against inflation.  People buy it expecting that it will go up in value as the dollar depreciates.  Do you think it will also go up when the dollar explodes?  I think we're in a top for PM's and the stock market due to FED printing, and those assests will fall in value when the economic collapse comes.

Angry White Dude's picture

we are nowhere near a top. Read up on Germany's market pre-Hitler.

pvbflorida's picture

I think the plan is to avoid the sudden reconciliation of excess debt. Stealing wealth, not income, at a rate that governments can get away with. Death taxes and such. Continue to rachet up the debt to force wage pressures globally and thereby dilute the buying power of wealth that was earned at a greater cost. Basically a redistribution over time. I don't like it but I think that is what they are doing. 

francis_sawyer's picture

Naw ~ they're just STEALING... No need to make it complicated...

busted by the bailout's picture

It remains, as always, just over the horizon.

SmallerGovNow2's picture

damn CB r's keep moving the fucking horizon....

Contra_Man's picture

Or we could FIND $$$$ 15 Trillion in new taxable assets found abroad... and BOOM... all done... crisis averted.... onwards ho! 

Easy Peasy Stealie Winsie.

Nid's picture

War is the only answer....sorry.

Contra_Man's picture

War is just the Plutocrat's economic growth stimulus plan in disguise.

G_T_A_44's picture

"The worry then is how does it all end?"

Very simple:

In no particular order-

1. $600+ TT Global OTC Derivitive  Apocalypse

2. Global Bond Mkt Implosion

3. Global Currency Cris/Wars

4. Cannabalization


Global Hyperinflationary Depression


The End~

THX 1178's picture

It always ends with dessert, doesn't it?

Nid's picture

The Debt is too large to be repaid, it's too large to be written off by the creditors without bankrupting them...someone's going to have to say "uncle"....I doubt any white flage will be waived.

pvbflorida's picture

I don't think so. If the velocity of money exceeded that of debt and if the seizure of wealth came as people die you could effectively get debt under control. It's the long game but it is one that I think is being deployed.

otto skorzeny's picture

so  "dorothy lying in the poppy fields" is another way of saying that we are bankrupting the US by spending hundreds of billions on the military to protect the CIA's poppy fields in afghanistan while "the wicked witch in the castle" is the eventual monetary crisis because of our overspending-I get it

Contra_Man's picture

"Around, around, around she goes.... where she stops, nobody knows?" As if,... C'mon!

joego1's picture

Tips indexed to price food. Backed by the full blah blah blah...

Spastica Rex's picture

FTA: we are restrained by the boundaries of the planet


Flakmeister's picture

A lot of people ascribe to the Buzz Lightyear view point...

To Infinity and Beyond....

Spastica Rex's picture

Yes - Lance Armstrong wasn't "restrained" by any limits, and look what he accomplished!

Just Do It!


JR's picture

It is true that money’s worth as a medium of exchange is based, in the end, on “faith and belief and nothing more.”

My mother, retired publisher of a national trade magazine who is now partially dependent upon her self-employment retirement savings, was extremely chagrined when Ron Paul told Alex Jones earlier this month that while he disagreed with Ben Bernanke, he thought Bernanke's intentions were “good.” My mother is just one of millions who are victims of Ben Bernanke’s central planning, daily watching the accrued purchasing power of their stored labor stolen and disseminated as Ben inflates and monetizes away government’s political mismanagement.

They already have lost faith in their “currency.”

As the disintegration of the economy progressed in the Great Depression and FDR seized private gold holdings and then fixed the price of gold to remove any remaining impediments to limitless currency and credit expansion, Sen. Carter Glass warned Roosevelt, to no avail, in early 1933:

“It’s dishonor, sir. This great government, strong in gold, is breaking its promises to pay gold to widows and orphans to whom it has sold government bonds with a pledge to pay gold coin of the present standard of value. It is breaking a promise to redeem its paper money in gold coin of the present standard of value. It’s dishonor, sir.”

If Congress issued debt-free and interest-free money, says Sheldon Emry, “money issued in such a way would derive its value in exchange from the fact that it had come from the highest legal source in the nation and would be declared legal to pay all public and private debts.”

Declared Emry in 2001: “Issued by a sovereign nation, not in danger of collapse, it would need no gold or silver or other so-called ‘precious’ metals to back it. As history shows, the stability and the responsibility of the government issuing it is the deciding factor in the acceptance of that government’s currency—gold, silver, or iron buried in some hold in the ground.

“Proof is America’s currency today. Our gold and silver are practically gone, but our currency is accepted. But if the government was about to collapse, our currency would be worthless.”

Emry points out that Germany used debt-free and interest-free money “from 1935 and on, accounting for its startling rise from the depression to a world power in 5 years.

“Germany financed its entire government and war operation from 1935 to 1945 without gold and without debt, and it took the whole capitalist and communist world to destroy the German power over Europe and bring Europe back under the heel of the bankers.

busted by the bailout's picture

"It’s dishonor, sir."

Yes, but the only thing that matters now is maintaining the status quo.  Honor, respect, fairness, justice, and honesty have become irrelevant.

falak pema's picture

Mark Grant has opened his eyes, stopped quoting Shakespeare to Eurobash in his slanted rants, and now realises WE (I love the collectivist knee jerk) have put OURSLEVES in this huge collective mess.

So who is this WE pray? Is it the man in the street? The "we the people" type. The Syntagma scarecrow sacrificed to save Banksta margins and CB hopium, now coming to every local station according to same Mark Grant?

Weeee? we? We did this?

We didn't do this but we will suffer this bigtime!

Thank you for changing your macro tune from singing those "filthy piigs" to "we the guilty", but no thank you to assuming us all collectively guilty of this betrayal of civilization by the "happy few" in power, as representatives of we the people.  

Spastica Rex's picture

"We" are bees and this is the hive we made.

falak pema's picture

so who's your queen? As busy bees we all work for queenie! 

Spastica Rex's picture

Bees, at all social levels,  work through their programming, not for any abstraction like "the queen wills it." I have developed a dim view of humanity over the years.

On a bright note - as individuals we can do whatever we want.

Be a psychotic bee and flee! (I'm trying to sound like you.)

falak pema's picture

you're convincing, onomatopoeia and alliterate; purple prose and iterate; I think I'll let you say it from now on, can we now speed date? I don't know what I ate but it makes me horribly gay-ted!  

Flee Fly Flo flum I smell the blood of an englishman! 

Words say it better than deeds in terms of writing when tipsy turvy; I'll wait till I'm sober to edit it or to walk it off.  

We can't all photocreate like WB7 or we would all be hooked on bosomy blossoms of geisha fantasy world. Now thats the type of queen bee I'd like; for tea and sympathy.  The guy who made that iconic movie 'The empire of the senses' just died.


Spastica Rex's picture

You always make me smile. Thanks.

RockyRacoon's picture

I think he's channeling ole Slewie the Pie-rat.