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The Next Global Meltdown Is Baked In: Connecting The Dots Between Oil, Debt, Interest Rates And Risk

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The bottom line is the Fed can only keep the machine duct-taped together by suppressing the market's pricing of risk.

One of the Grand Narratives of our era is the substitution of debt for income: as earned income and disposable income have stagnated for 40 years, the gap between the rising cost of living and stagnant household income has been filled by borrowed money.

Money has been borrowed to replace income everywhere: consumers have borrowed money to buy things they otherwise couldn't afford, students have borrowed over $1 trillion to attend college, governments have borrowed money to fund wars and social spending, corporations have borrowed money to buy back their own shares, pushing stock prices higher.

There's one little problem with debt: interest must be paid on debt. Let's focus for a second on the difference between cash income and borrowing money. Cash doesn't cost money to maintain; debt does. In a functioning economy (as opposed to the dysfunctional mess we have now), cash would earn income from interest paid by borrowers.

If cash income is saved, the cash can buy stuff without debt or interest payments. That is a powerful advantage over debt.

How powerful is the advantage of cash over debt? It's literally life-changing. Take a look at your credit card statements, which now include an estimate of interest you will pay and how long it will take to pay off the balance at a given monthly payment.

Those making minimal payments will end up paying 100% or more of the balance due in interest.
The phenomenally high accrued costs of interest is true of mortgages, student loans, auto loans, corporate debt and government debt: eventually, current spending is crimped as more and more net income is devoted to paying interest.

There are two words for what happens when real income declines and interest payments rise: impoverishment and insolvency. This dynamic is scale-invariant, meaning it works the same for individuals, households, enterprises and governments.

Let's connect the rising cost of oil to debt. As we all know, oil matters because it's the foundation of our economy, and the cost of oil is built into virtually every sector in some way. For example, look at how the the cost of food rises and declines in lockstep with the cost of oil:

Despite the substitution of cheaper natural gas for oil, we use a lot of oil.

While the recent increase of 3+ million barrels a day in domestic production is welcome on many fronts (more jobs, more money kept at home, reduced dependence on foreign suppliers, etc.), the U.S. still needs to import crude oil.

U.S. Imports by Country of Origin (U.S. Energy Information Administration)

The rising cost of oil acts as an economy-wide tax. Everything that uses oil in its production or transport rises in price without offering consumers any more value than it did at much lower prices.

Look at the impact on food prices as oil rose from $20/barrel in 2002 to $140/barrel in 2008. While government statisticians adjust the consumer price index (CPI) based on hedonics (as the quality of things goes up, the price is adjusted accordingly) and substitution (people buy chicken instead of steak, etc.), the reality is, as one heckler put it, "We don't eat iPads:" that is, all the stuff that is hedonically adjusted (tech goodies, etc.) is non-essential.

The Status Quo has compensated for the relentless rise in the systemic oil "tax" by making debt cheaper to service. The Federal Reserve's zero-interest rate policy (ZIRP) has two purposes:

1. Channel immense sums of free money to the too big to fail banks by relieving them of the onerous requirement of paying interest on deposits while giving them unlimited access to nearly-free money they can lend out at huge spreads. (This is crony-capitalism writ large. The winners were picked by the Fed and the rest of us are the losers. Yea for the godlike Fed, our modern-day Mammon.)

2. To keep consumption alive as income declined and the oil tax eroded household disposable income, the Fed made borrowing cheaper.

Unfortunately for the godlike deities residing in the Fed, zero-interest rates trigger malinvestments, which are inherently risky. When unqualified borrowers borrow a ton of money--for example, a student with no assets or income, or a poor credit risk household assumes an FHA mortgage, or a corporation sells junk-rated bonds-- the risk of default is intrinsically higher than debt taken on by qualified borrowers.

This poses a systemic problem for the Fed: The Fed needs to enable more borrowing by the uncreditworthy to keep consumption growing and bank profits flowing, yet the inevitable result of such credit expansion is a massive expansion of systemic risk.

The more debt that is taken on by marginal borrowers--where marginal is defined as unable to weather any shock or decline to their financial position or income--the more risk piles up in the system.

The analogy is a forest where the deadwood is never allowed to burn: The Yellowstone Analogy and The Crisis of Neoliberal Capitalism (May 18, 2009). The net result of rising systemic risk is a massive conflagration that burns off off the accumulated risk and bad debt.

Such a fire sweeping through the mountains of risky debt piled up in the American financial system would bring down the entire Status Quo. So what's a godlike Federal Reserve to do when it can no longer lower interest rates?

Answer: it suppresses visible risk by manipulating the stock market to reflect complacency.
"Old" VIX Plunges To Record Low (Zero Hedge)

Does a record low measure of risk reflect the systemic risk of default and a decline in consumption, or is it merely a reflection of the herd's boundless faith in the godlike powers of the Fed to suppress risk even as Fed policies pile risk ever higher?

The bottom line is the Fed can only keep the machine duct-taped together by suppressing the market's pricing of risk. Suppressing the market's ability to price risk is throwing common-sense fiscal caution to the winds; when risk arises from its drugged slumber despite the Fed's best efforts to eliminate it, we will all reap what the Fed has sown.

 

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Tue, 07/01/2014 - 09:13 | 4913390 AdvancingTime
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We  are all interconnected for better or worse. A bad apple can spoil the whole basket. Welcome to the world our leaders have designed or allowed to form. Whether by design or merely as a byproduct of globalization we have weaved a web of financial transactions that circle the globe. Over the last several years as money was printed by the central Banks it was not contained in the countries where in was printed. This money flowed across borders influencing and distorting markets and prices across the world. Some people have been calling for a "world currency" for years. the saying "one should never let a good crisis go to waste" means that a meltdown with high levels of fear would present a perfect opportunity and catalyst to advance this agenda down the field. Remember many people with agendas have a lot to gain when a major shift in the currency markets takes place. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/02/contagion-may-lead-to-new-world-c...

Tue, 07/01/2014 - 09:25 | 4913421 Fuh Querada
Fuh Querada's picture

Fuck off, You are a virus.

Tue, 07/01/2014 - 10:01 | 4913544 thamnosma
thamnosma's picture

His post didn't contain anything awful, so is his link contaminated?  The jerk is actually attempting to spread a virus to ZH readers?

Tue, 07/01/2014 - 10:11 | 4913585 Fuh Querada
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The issue is that this jerk has been pimping his insipid blog on just about every ZH thread for months.

Tue, 07/01/2014 - 10:17 | 4913614 CrazyCooter
CrazyCooter's picture

So ... buy paying cash for almost all of my household purchases, reducing what little debt I have left to zero, purchasing older (non-GM) vehicles, and generally living a basic but content life, I am fighting the Fed?

That implies that when the Fed finally blows up, I can claim, with a bit of tongue in my cheek, that I won.

Regards,

Cooter

Tue, 07/01/2014 - 11:20 | 4913844 Pool Shark
Pool Shark's picture

 

 

When it all blows up, those without debt will be the winners. Assuming we're not living in 'Mad Max' land, your accumulated precious metals and cash will buy the world's assets at fire-sale prices...

 

 

Tue, 07/01/2014 - 12:13 | 4914079 Professorlocknload
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When it all blows up, it will be the dollar (cash?) that does the blowing. But I agree on the gold and silver part,,,and anything else "real," including productive Real Estate.

Tue, 07/01/2014 - 12:26 | 4914119 Flakmeister
Flakmeister's picture

The blowing up will be the bonds, not the cash...

Alot of debt will go to money heaven taking with it a lot of dollars...

Tue, 07/01/2014 - 12:25 | 4914116 Flakmeister
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No... the ones that can repudiate their debt or pay back in devalued currency will be the winner...

History lessson: Who was the biggest winner? 

a) bought a house in 1969 with a 30 year fixed

b) paid cash for same house in 1969

Tue, 07/01/2014 - 14:25 | 4914566 Upton
Upton's picture

I am going with [A]   14,000 dollar house at 30 year 4%.

20% down leaves 11,000 for a SP500  index fund 1969 to 1999, you make out real good.

But that is all rear view mirror stuff.

Tue, 07/01/2014 - 14:41 | 4914603 Flakmeister
Flakmeister's picture

True re: rear mirror, but everybody now is calling for the dollar to be devalued once again..

Maybe they are wrong, but I don't see how (at least over the life of a 30 year)....

Tue, 07/01/2014 - 19:15 | 4915646 Monty Burns
Monty Burns's picture

the ones that can repudiate their debt or pay back in devalued currency will be the winner...

I agree. It's become almost religious doctrine to say that those with no debt will win. Not a logical position if the debt is denominated in a decimated currency.

Tue, 07/01/2014 - 10:00 | 4913541 cornflakesdisease
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The dollar will collapse as soon as we run out of zeros.

Tue, 07/01/2014 - 11:23 | 4913859 Kirk2NCC1701
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NOTHING NEW or original in that blogspot, that we don't know on ZH.  Pure thread-jacking.

Tue, 07/01/2014 - 09:14 | 4913393 Kina
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Yet all the games the US plays in the Middle East and Ukraine now only help to elevate the price of energy. And may break it completely if things turn to wild fire.

Tue, 07/01/2014 - 09:15 | 4913398 Flakmeister
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What do you think the price of gasoline would be if the US was no longer able to exchange USD for oil?

Why do you think oil has been cheap compared to its real value...

Tue, 07/01/2014 - 09:22 | 4913413 Headbanger
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And why do you think the Federal Reserve is pulling back on stupidly futile stimulus efforts so they can help prop up the U.S. dollar now instead?

It's also why gold is being manipulated downward.

Tue, 07/01/2014 - 09:34 | 4913452 Flakmeister
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Since oil and gold were freely traded in the early 80's, it would appear that gold has been deflating against oil...

From historical data going back to 1950, the highest price that you could argue for gold is ~$1410 or about 6% higher than it currently is...

BTW, prop up the dollar relative to what exactly?

http://pricedingold.com/charts/Crude-1950.pdf

Tue, 07/01/2014 - 09:47 | 4913497 Headbanger
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Relative to other currencies (or metals) which could replace the dollar as the global means of exchange and store of value.

The U.S. is a global political, economic and military power only as long as the U.S. dollar remains the global currency because that has enabled us to borrow from the world to fund U.S. dominance.

The Federal Reserve is painfully aware of this dilemma and is now pulling back on futile stimulus efforts which have only benefited the wealthy while severely undermining the U.S. ability to continue funding itself.

I also suspect the numerous wars of late have been started by the U.S. government as an excuse to exert its military might while it can to maintain global political and thus financial dominance.

Tue, 07/01/2014 - 09:53 | 4913518 tarsubil
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"The U.S. is a global political, economic and military power only as long as the U.S. dollar remains the global currency..."

I think you have that backwards. It is the threat of force which allows the dollar to remain as the global currency. That is why we've waged war for the last 100 years. The dollar will pop when the US military is no longer the top threat to the world.

Tue, 07/01/2014 - 10:20 | 4913551 Headbanger
Headbanger's picture

"It is the threat of force which allows the dollar to remain as the global currency."

"The dollar will pop when the US military is no longer the top threat to the world."

 

Duh.

And who are the fucking idiots who up-arrowed that stupidly mutually exclusive comment??

As Ted Knight would say:

http://www.youtube.com/watch?v=angi1vwUkQc

Tue, 07/01/2014 - 15:24 | 4914799 GooseShtepping Moron
GooseShtepping Moron's picture

Headbanger, I just wanted to say you are right in your general assessment. The Fed has pivoted from supporting the stock market to supporting the dollar. This is our (so far rather unconvincing) response to the coordinated efforts by China and Russia to permanently weaken the position of the US petro-dollar system.

The technical definition of 'dilemma' is not merely a difficult decision (which is how the term is used colloquially) but a decision between two or more options, each of which is unacceptable. The Fed is really in a dilemma now with monetary policy. A strengthening dollar is highly deflationary and will eventually destroy the financial system, but continuing QE is geopolitically impossible when Russia holds the oil cards and China is the global manufacturing hub. Ultimately only one decision is possible: the financial sector will be left in the lurch, and the dollar will strengthen. National survival will not be sacrificed for the exigencies of a banking system which has no raison d'être in a deflationary world.

This is reality reasserting itself. It took longer (and is taking longer) than any of us expected, but in the end it must happen this way and no other way. The petro-dollar will be destoryed. There will be a brief period of dizzying inflation followed by systemic seizure and deflation.

Paradoxically, my advice would be that if you're lucky enough to own some PMs, sell a little on the spikes. Begin pocketing those soon-to-be very valuable dollars. Don't panic during the inflation, and hang on to a goodly amount of cash. The non-petro dollar will be the last thing standing in a bankrupted, post-imperial America.

Tue, 07/01/2014 - 13:41 | 4914425 TVP
TVP's picture

That's not difficult for our enemies to accomplish.

China just has to stop manufacturing military supplies for us.  Then we're finished, because we moved all the factories over there.  No munitions = no military might.

Game over.  

Tue, 07/01/2014 - 10:21 | 4913579 Flakmeister
Flakmeister's picture
The Chinese Yuan is basically pegged to the dollar and they are importing more oil than the US, i.e. they are also screwed... Are you suggesting the Euro (i.e. the DM) will prevail? The GBP or Yen?? The US is not "borrowing from the world", it is borrowing against its ability to service its debt obligation. And in case you did not notice, the amount of QE has also more or less tracked the recent budget deficits. And that tapering coincided with with the deficit being cut by ~$500 billion.... There will never again be a metal-based  international settlement of accounts... That bus left the station a long time ago. And if/when it does become feasible, the world will likely not need much international trade...   Don't get me wrong, the US is fucked and at some point there will be a repudition of some fraction of the debt, but I predict that the USD will be the last fiat standing, provided there are not too many large dark waterfowl on the horizon...
Tue, 07/01/2014 - 10:34 | 4913656 CrazyCooter
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Interesting sub thread/comments (flak/hb/etc) ... 

I am not a finance professional, but started reading ZH back in 2008. One of the central issues to "figure out" is what greases international trade when the dollar rolls over? Jim Rickards kind of cast it as four options (1) SDRs, (2) multiple floating reserve currences (3) gold (4) chaos.

I think that sums it up nicely and I haven't really seen a clear cut fifth option.

Mind me asking you folks up thread which is your horse (so to speak)?

I don't think the financial elite in the world will let chaos set it, although it may be a tool to get the SDR adopted. In absense of that, we will see multiple floating exchange rates and all the hell that ocmes with it (e.g. currency risk in trade deals that take 90 days to clear develiery).

Or, if this is genuinely a "west-vs-east" style show down, the east hordes gold and then walks away from the table. That is what it really looks like is happening to me.

Thanks in advance for your comments ... :-)

Regards,

Cooter

 

Tue, 07/01/2014 - 10:47 | 4913710 Spastica Rex
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Chaos is always my horse.

Heat dissipates.

Tue, 07/01/2014 - 11:04 | 4913769 TeethVillage88s
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V Guerrilla Economist is in a Video with W Security Manager/Analyst maybe on Hagman & Hagman.

Supposedly London is working with Europe to set up a Silver Metals Clearing House as a Future without the Dollar. I'm not sure if he said a Precious Metals Clearing House or if it will focus on Silver. Apparently London no longer has much Gold.

Yeah, I heard that Jim Rickards show where he was talking about SDRs from IMF/WB.

Tue, 07/01/2014 - 11:33 | 4913900 Flakmeister
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It could very well be a basket of currencies, with the USD being an important component. The is is probably the best case scenario...

Another alternative not considered by Rickards is to back a currency with energy production...

I truly believe that the East will be left holding the gold bag, much like the Japanese and US real estate in the '80s... The eastern gold will allow them to weather their local problems, i.e. the Rupee being ethereal and the devaluing of the Yuan when the Chinese RE bubble pops. I only see nominal gains in gold, but in all fairness, it will weather any currency storm.

Why would anyone tie their currency to a metal when they are running trade imbalances driven by commodities?? This is shooting yourself in the foot. It ain't gonna happen.

Chaos is a distinct possibility, but that truly is the end game, i.e. the collapse of the modern industrial civilization and the return to a subsistence level agrarian society. The powers that be will do all that they can to avoid that...

All paths are fraught with peril...

Tue, 07/01/2014 - 11:41 | 4913933 CrazyCooter
CrazyCooter's picture

Curious opinion regarding gold. I know the financial elite hate it and I suspect that is why the "west" nations have purged it from the system (my thesis); no gold standard if no gold. And if only a few countries have all the gold, it isn't good for trading unless you want to spend a lot of it (i.e. if the gold distribution is siginficantly imbalanced a gold standard system can't get off the ground sort of like you can't run a poker game if only a few players have all the chips).

Well, isn't a currency implicitly backed by the exports of a given nation anyway? ZH did a really good write up on ag currency here:

http://www.zerohedge.com/news/2012-11-24/goodbye-petrodollar-hello-agri-...

I printed that big food chart and put it on my wall. My thesis is is this the order countries go down if international trade really breaks down for any period of time (i.e. who starves first because they import all their food).

I suppose if there was a hard link established, but ag is only as good as all that oil the goes into producing it, which is the sub-thead on down a little bit. :-)

Regards,

Cooter

Tue, 07/01/2014 - 11:56 | 4914015 Flakmeister
Flakmeister's picture

Yes, at some level it boils down to food and water...

Yet another reason why the US will be a player for years to come....

Tue, 07/01/2014 - 12:09 | 4914068 centerline
centerline's picture

Except that everything internally is propped by financial systems that are predicated on perpetual growth.

I dont disagree with you Flak.  The US is in a solid position for food and water among other critical resources.

Rather, I am adding to the picture that despite our resource richness, we are on course for something profoundly nasty internally.  Clearly explains the militarization of police, loads of weapons/ammo, drones, etc.

Tue, 07/01/2014 - 12:28 | 4914125 Flakmeister
Flakmeister's picture

No real argument from me...

But all those apply to just about everyone else as well....

Tue, 07/01/2014 - 14:47 | 4914614 DanDaley
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Yes, and that profound internal nastiness you mention, all tied up with food, water, and other resources, might go something like this:

 

As in chess, when you are materially ahead, it is to your advantage to simplify the game, get the extraneous pieces off the board to make it easier to checkmate your opponent.

 

So the question is this: To whose advantage is it at this point in the game to simplify things on the chessboard, (get rid of useless eaters, say, through some nefarious means), to use their material advantage to simplify and thus come out ahead? This is what I look for to play out. Lots of possibilities.

Tue, 07/01/2014 - 11:59 | 4914034 DaddyO
DaddyO's picture

I think its important to note that the USD has about 200 Trillion in notional value floating around the world.

It will be very difficult for another currency to displace this from a reserve stand point. I have ruled out economic collapse in the near term, say 1-3 years.

A more likely scenario will be escalations of tensions and the outbreak of WWIII and the rise of the NWO and its militarized force.

Then we may see a unified currency and its being forced on the vanquished.

DaddyO

Tue, 07/01/2014 - 12:04 | 4914054 _disengage_
_disengage_'s picture

Freegold does not tie gold to any currency. It would be a great objective metric by which all currencies could be measured. As long as we use ratios and baskets with subjective currency on both sides, there is room for manipulation.

Tue, 07/01/2014 - 12:29 | 4914128 Flakmeister
Flakmeister's picture

???

That is exactly what is happening now...

Tue, 07/01/2014 - 12:39 | 4914171 centerline
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Reality is that there is no good answer.  No utopia regarding currencies because all of them (even gold) are predicated on faith at some level.  And all of them are still subject to the "who" in terms of regulation.  It is the "who" that is the problem.  And when we remove the current "who", another equally bad "who" will eventually (if not immediately) develop.  Is just in our DNA.

So, economic systems, reserve currencies, etc. come and go on regular cycles as a result.  They become a mirror of the world at a particular time.  Is why the field of economics as currently preached is so laughable.  Is like using the image in your rear view mirror to drive forward.

Tue, 07/01/2014 - 12:29 | 4914130 Professorlocknload
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My take on the Fed's preferred treatment of the dollar is, it would devalue it in a heartbeat against any and all currencies, if it could. Problem is, fear of financial collapse is putting international support under it at this juncture.

Best horse in the glue factory and such.

The day will again come when some Treasury apparatchik will gleefully declare 'It's our dollar and your problem.'

Hard to think the Fed doesn't know that he who benefits most from devaluation is he who creates it.

Tue, 07/01/2014 - 13:45 | 4914443 TVP
TVP's picture

Considering the fact that central banks are now hoarding Yuan as if they were yesterday's Dollars, I'd say options 3) and 4) look pretty unlikely.  

 

One thing we can know without doubt: the new currencies will be backed by gold, whether that's the SDR by itself, or the SDR along with Yuan, Ruble, and Rembini.  

 

Don't forget - the BRICS nations have just funded a new bank, to compete with the IMF and World Bank, to the tune of $100 billion USD.  

 

Obviously, they don't intent for all those dollars to remain as such.  

Tue, 07/01/2014 - 10:58 | 4913741 TeethVillage88s
TeethVillage88s's picture

Swiss Franc Maybe?

Heard Europe is siding with China and 104 other countries to get out of the Dollar. You probably know about the Rumor. First our dollar collapses, then hyperinflation, then the new world powers that hate the USA force us to either devalue, take a second international currency at devalued level, or adopt a world currency based on precious metals or a basket of goods.

I don't know could be just Fear Mongering. But US has Exponential Debt and no political will to fix anything.

Obviously Monetary policy doesn't work. Obviously many nations are losing Labor participation Rates (Jobs).

But Janet Yellen & Our (All Hail) Bankers seem to be in an International Cartel. US Bankers can just say well it is over we are moving out.

Funny about Charles Hugh Smith saying with debt "we have to find new money somewhere". Well bankers always make new money. They just don't give it to our Federal Government to Pay Off Debts. But get this. The States & Federal Government give the Banking Charter to each of these Banks!!!!

"...The B.I.S. acts as a clearinghouse for transactions among national central banks and also as a setting where central bankers can discuss monetary policy and other issues like financial stability or bank regulation.

Its board includes Janet L. Yellen, chairwoman of the United States Federal Reserve; Mario Draghi, president of the European Central Bank; and the heads of central banks from Japan, China, India and many other countries..."

Tue, 07/01/2014 - 11:49 | 4913969 CrazyCooter
CrazyCooter's picture

I am kind of expecting the US government, at some point, to lock down cash and treasuries. Literally take a CUSIP inventory of "known" partners/holders and invalidate everything else. This would be a huge write off, but it would disproportionately hit the shadow economy.

Same will happen with cash. All they have to do is say everything that isn't the new 100 bill is toilet paper. Want new 100s? Just come trade it in withing a narrow timeframe.

Voila - massive float shrink as much cash and debt in the system goes *poof* and some nice tax revenue opportunities as semi-legitimate cash visibily comes back into the system.

Regardless of what they *do*, I can assure you they have some kind of plan, even at that stage of the game, to keep their system intact particularly if the threat is external rather than internal strategy.

Regards,

Cooter

Tue, 07/01/2014 - 12:31 | 4914138 centerline
centerline's picture

A shift to an electronic currency (or near complete shift).  Is the old "green money, red money" thing.  What is hard to tell are the unitended consequences.

Have to say that trying to predict all of this is bitch.  What I always try to remind myself of is that the math does not add up no matter what is done with currencies.

There are millions, possibly billions, whose future depends on a virtual ponzi scheme.  Perpetual growth is the problem.  And long before we grind up against resource constraints in a way that really causes maximum pain, we hit the wall in terms of economic systems and social complexity - with the cascading effects of such.  That is where we are now.  Trying to buy time by papering over reality.  When this fails, chaos is coming.

 

Tue, 07/01/2014 - 17:22 | 4915216 TeethVillage88s
TeethVillage88s's picture

“The individual is handicapped by coming face to face with a conspiracy so monstrous that he cannot believe it exists”
- J. Edgar Hoover, long time Director of the FBI

Well I can't say In understand the technical stuff or even CUSIP, Committee on Uniform Securities Identification Procedures, 9 digit code must allow tracking and surveillance on Bonds & Financial Instruments.

Yeah, Congress & the Fed can't really be so stupid as the act. They have a plan to keep bankers getting rich even after the currency collapse. It is a cartel. And they have a Known Preference for Foreigners and Undocumented Workers.

Tue, 07/01/2014 - 09:44 | 4913488 magpie
magpie's picture

Care to discuss the real value of oil compared to the real value of other energy sources ?

Tue, 07/01/2014 - 10:14 | 4913595 Flakmeister
Flakmeister's picture

This is from an old OilDrum discussion (Nate Hagens):

This has been argued and debated often on TOD, mainly in response to some of my own quotes in media about 1 barrel equating to 25,000 hours of human labour (12.5 years at 40 hours per week). Ultimately the answer to this question depends highly on assumptions - but we can arrive at a good approximation. 1 barrel equates to 6.1 Gigajoules (5.8 million BTUs). Depending on the 'job', humans use roughly 100-700 Kilocalories per hour (Computer work requires an estimated 119.3 Kcals/hr). 1 kilocalorie (Kcal) = 4,184 joules. So 1 barrel of oil has 6.1 billion/4,184 = 1,454,459 kcals. Using a range of 100-700 kcals per human hour of work then results in a range 2078 and 14544 hours per barrel of oil. At 2000 hours per year (40*50), this is would then be 1.0-7.25 years per barrel. This was discussed in the comment thread here.

However, we aren't robots - we need to eat, sleep, breathe (we exhale energy), maintain, etc. So a wide boundary analysis would require other calories not devoted to doing work - thereby increasing the disparity between human work and a barrel of oil - there is a good discussion of human thermal efficiency here.

Lastly, there is the quality issue. Though one could expend enough calories to chop down a tree or carry a cord of firewood by hand, there are many activities which would be physically impossible for humans to directly accomplish -e.g there wouldn't be room for the required number of humans to stand behind a semi-truck and push it down the highway at 100 kph. Or fly a jet, etc.

The average american uses 60+ barrels of oil equivalent(oil, gas and coal) per year (360 billion joules), which implies a fossil fuel 'slave' subsidy of around 60-450 'human years' per person. Depending on assumptions another way to look at it is to take a midpoint of 10,000 hours per barrel. At $20 per hour average payroll compensation, that is $200,000 per barrel, not even quality adjusted....

Tue, 07/01/2014 - 10:40 | 4913675 CrazyCooter
CrazyCooter's picture

For those of you whose eyes glaze over when you see math, Nate's point is articulated naratively here:

http://www.energytrendsinsider.com/2014/05/09/how-fossil-fuels-subsidize...

It is a very important concept to grasp, so take the time to do so...

Regards,

Cooter

Tue, 07/01/2014 - 12:36 | 4914143 Flakmeister
Flakmeister's picture

Robert Rapier is no dummy, in fact, his "prediction" at TOD of 10 years down the road was closest to reality...

Tue, 07/01/2014 - 14:36 | 4914587 CrazyCooter
CrazyCooter's picture

Which prediction? TOD was around a while ...

Regards,

Cooter

Tue, 07/01/2014 - 14:43 | 4914607 Flakmeister
Flakmeister's picture

Juat about how peak oil was going to play out...

RR got the last laugh over those who were predicting an imminent fast decline....

He also took the simplistic application of Hubbert linearization to task...

Tue, 07/01/2014 - 12:49 | 4914218 centerline
centerline's picture

Is why oil might as well be revered as "magic."  It is what allowed this particular cycle of history to realize population growth to the degree that has occurred.  Social complexity off the charts.  Food production/distribution on scales never dreamed of.  etc.

At some point though, math dictates that a limit will be reached.  I wager that all the attempts to avoid inevitable consequences are resulting in multiple limits being reached (without failure as would expected), thus ensuring maximum consequences when it is no longer possible to avoid reality.

Tue, 07/01/2014 - 13:47 | 4914453 TVP
TVP's picture

Excellent point - that's why they continue to prop this thing up for so long.

 

It's not because they're delaying the inevitable.

 

It's because they're attempting to make the invetable UNBEARABLE for the average person, so that they will BEG on their KNEES for TYRANNY.

Tue, 07/01/2014 - 14:01 | 4914498 Flakmeister
Flakmeister's picture

Put the tinfoil hat down....

Tue, 07/01/2014 - 13:27 | 4914350 Meat Hammer
Meat Hammer's picture

What do you think the price of gasoline would be if the US was no longer able to exchange USD for oil?

How about one silver coin about the size of an American quarter?

Tue, 07/01/2014 - 13:42 | 4914430 Flakmeister
Flakmeister's picture

You would be woefully wrong..

For shits and giggles, you do realize the gold silver ratio was fixed by fiat in those days? And that if one converted the price of a gallon of gas in in gold in 1965 to the current prices one would get $9.50 a gallon...

A back of the envelope calculation suggests that if the US had to live off its own production that the price would be roughly $11.50 a gallon....

Tue, 07/01/2014 - 09:16 | 4913399 Sudden Debt
Sudden Debt's picture

you think oil will skyrocket every time the US loses a game? BETTER GO LONG ON OIL THAN!!!

Tue, 07/01/2014 - 09:23 | 4913415 TabakLover
TabakLover's picture

The Fed wants the US playng on July 4th weekend.  WC parties boost comsumption.  Early red card for Belgium.

Tue, 07/01/2014 - 09:29 | 4913436 Sudden Debt
Sudden Debt's picture

5 important points for you my friend:

http://youtu.be/9oH4ONOgFQc

 

Tue, 07/01/2014 - 09:14 | 4913394 Flakmeister
Flakmeister's picture

Shits gets real when the marginal cost of a new barrel of oil exceeds the price that the economy can support...

And we are very close...

Tue, 07/01/2014 - 09:34 | 4913454 Eyeroller
Eyeroller's picture

... and the sheeple are not worried in the least.

What kind of alternative VIX universe do we live in with the present Ukraine and Iraq situations?

Unfortunately, it's going to take nothing short of a Martian invasion to wake the sheeple up from their complacency.  I used to think that an ISIS attack on US soil would be enough, but I would expect even that to be spun as 'good news' by the MSM with respect to 'it could have been much worse'.

Tue, 07/01/2014 - 09:43 | 4913482 Flakmeister
Flakmeister's picture

Re: The sheeple, why worry about something that you 

a) don't understand,

b) can do next to nothing about....

Tue, 07/01/2014 - 10:07 | 4913567 thamnosma
thamnosma's picture

Just wait until they tap into that ocean of abiotic oil.  Our problems will be solved.

Tue, 07/01/2014 - 10:15 | 4913599 Flakmeister
Flakmeister's picture

Troll....

Tue, 07/01/2014 - 09:14 | 4913395 Sudden Debt
Sudden Debt's picture

The fall of the American Empire will be remembered as that day when the US didn't even got to make it in the semi finales in the WK 2014....

Tue, 07/01/2014 - 09:24 | 4913416 Flakmeister
Flakmeister's picture

Why don't you run along and have some moules frites at Chez Leon followed by a Jupiler in La Grande Place...

US in an upset, 1-0....

Tue, 07/01/2014 - 23:05 | 4916440 Flakmeister
Flakmeister's picture

A fine match.... Extra-time was outstanding entertainment!

And, alas, the better team won...

Tue, 07/01/2014 - 09:24 | 4913419 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Or Kim Lardassian no longer has a reality show.

Tue, 07/01/2014 - 09:19 | 4913404 MeMongo
MeMongo's picture

Inconceivable!

Tue, 07/01/2014 - 09:28 | 4913431 madcows
madcows's picture

I do not think you know the meaning of that word.

Tue, 07/01/2014 - 09:20 | 4913407 LawsofPhysics
LawsofPhysics's picture

The Fed lost control a long time ago.  There is no market for true price discovery, hasn't been for quite a while.

Do you know your local farmers? you better.

Tue, 07/01/2014 - 10:47 | 4913704 CrazyCooter
CrazyCooter's picture

It's funny, when I first moved up here, I stocked all kinds of stuff for emergencies. Then I had the idea I should eat my stock and rotate in new stuffs. I quickly realized my plan sucked!

Fast forward a few years ...

Ain't much farming up here, but I do go shore fishing (boats are too expensive) as often as I can until the season shuts down. I got me a VacMaster VP210 and a big ass freezer this spring and I buy rice by the 20 lb bag. I can turn a whole chicken and some veggies into bags of frozen enchalada mix, frozen curry, and frozen broth.

And I look forward to eating every bit of it!

Regards,

Cooter

Tue, 07/01/2014 - 09:20 | 4913408 yrbmegr
yrbmegr's picture

We are reaching the point of rapidly diminishing returns on financialization of the global economy.  There are no good investments, only bad ones.  To keep people buying the bad investments, the cost of risk must be distributed, and therefore hidden, so nobody can tell the difference between a good investment and a bad one.  What to do when there are no more bad investments?  Hire people.

Tue, 07/01/2014 - 09:20 | 4913410 oklaboy
oklaboy's picture

hummmm...that same 1905 dime buys the exact same amount of gas today that it did in 1905. Might be something to this, do you hear that Janet?

Tue, 07/01/2014 - 09:26 | 4913424 Flakmeister
Flakmeister's picture

Not even close....

What you don't realize is that the US was getting bent over when their gas was 0.25 a gallon with crude at $2.50 a barrel..

Compute the crackspread....

Tue, 07/01/2014 - 09:20 | 4913411 TabakLover
TabakLover's picture

Solar is 1/33rd of Hydro!  Never would have believed that.  Damn.

Tue, 07/01/2014 - 09:40 | 4913473 DOT
DOT's picture

Not for long !

All measurements will be hedonically adjusted to allow  for the weather.

For the sake of fairness, of course.

Tue, 07/01/2014 - 10:09 | 4913576 SmittyinLA
SmittyinLA's picture

Solar is a beard for Chinese coal, its not a separate energy source but more a energy transfer device like a battery, a very inefficient and expensive battery.

Tue, 07/01/2014 - 13:43 | 4914440 Flakmeister
Flakmeister's picture

And you have no idea what you are talking about....

Energy payback for PV solar can be as low as 6 months...

Tue, 07/01/2014 - 09:24 | 4913412 TheRideNeverEnds
TheRideNeverEnds's picture

The only thing that is going to melt down is the USD and as it does (continues to do so at this point) the S&P is going to go towards infinity.  I have been saying it for years.  The "market" declining substantially on a nominal basis at this pont is not possible.  Dollar going to zero and mass hysteria is baked in though. 

Tue, 07/01/2014 - 09:24 | 4913418 youngman
youngman's picture

Its all about the interest rate now..that is the final game....when they lose control of that...its over...what event will cause the rates to go up is anyones guess....but there will be one....and then the dominos fall..fast I think

Tue, 07/01/2014 - 09:26 | 4913423 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

All I gotta ask is ..You got booze or Drugs?

Tue, 07/01/2014 - 09:28 | 4913432 NEKO
NEKO's picture

Gallows, coming to a neighborhood near you.

Tue, 07/01/2014 - 09:29 | 4913437 LawsofPhysics
LawsofPhysics's picture

Optimist.

Tue, 07/01/2014 - 09:35 | 4913459 Dr. Engali
Dr. Engali's picture

It's highly doubtful. When the shit hits the fan the golden hordes will be coming after you and me.

Tue, 07/01/2014 - 09:30 | 4913441 Yen Cross
Yen Cross's picture

     None of this debt is ever going to be repaid. Look at the housing bailouts, bank bailouts, student debt bailouts, 'Free Shit Army' bailouts, subprime autoloan bailouts. I have no debt, and when this fucking shit shack of a country burns, I'll be buying assets at pennies on the dollar.

   I just saw yesterday Oracle did a $10 billion bond offer. What a fucking joke!

  http://seekingalpha.com/article/2294335-oracle-corporation-will-finance-...

Tue, 07/01/2014 - 15:59 | 4913689 rwe2late
rwe2late's picture

 Apparently, you and the TBTF financial mafia intend to benefit by the same scheme,

namely to revel above others in ill-founded financial wealth and assets

thanks to the contrived financial machinations of economic collapse.

One can only hope riding on their coat-tails will give you the same no-less-deserved reward.

 

http://www.globalresearch.ca/buying-up-the-planet-out-of-control-central...

 

Tue, 07/01/2014 - 09:32 | 4913446 DOT
DOT's picture

The model must be correct.

If the data does not fit the model the data will be adjusted.

Those who disparage or question the model are criminals.

You are not allowed to review the methodology.

The model must be correct.

Praise be to the model!

 

 

Tue, 07/01/2014 - 09:32 | 4913449 Vuke
Vuke's picture

Forget about the interest.  Who is going to pay back the principle?

Tue, 07/01/2014 - 09:41 | 4913461 El Hosel
El Hosel's picture

Record setting daily market highs for government stocks, record setting daily recalls for government motors.... Wake me up when we break a record for recalled politicians.

BREAKING NEWS ...."Best day for DOW in two weeks" stocks gap higher on poor auto sales,  escalating violence, poverty and war around the globe.

Tue, 07/01/2014 - 11:06 | 4913779 zaphod42
zaphod42's picture

Barking mad!  Our "leaders" are all barking mad!!!

Craig

Tue, 07/01/2014 - 09:37 | 4913466 Dr. Engali
Dr. Engali's picture

The bankers don't care about the principal as long as the debt continues to roll over, however if the note is ever called it will be us the tax payer who pays it.

Tue, 07/01/2014 - 09:43 | 4913487 Flakmeister
Flakmeister's picture

"The night they raided Minsky's"....

Tue, 07/01/2014 - 09:38 | 4913469 Eyeroller
Eyeroller's picture

Our grandchildren, and their children, and their children, ...

Tue, 07/01/2014 - 09:35 | 4913455 moneybots
moneybots's picture

"The bottom line is the Fed can only keep the machine duct-taped together by suppressing the market's pricing of risk."

 

Then the FED has the gall to tell the market that it is wrong.

Tue, 07/01/2014 - 09:39 | 4913471 whidbey-2
whidbey-2's picture

Patience.  The Fed will raise rates enough thru the repo market to scare itself and It will not get around raising rates.  You are looking at it baby.  Bleed.

Tue, 07/01/2014 - 09:43 | 4913481 moneybots
moneybots's picture

"There are two words for what happens when real income declines and interest payments rise: impoverishment and insolvency."

 

Sounds deflationary.

Tue, 07/01/2014 - 10:10 | 4913582 Bastiat
Bastiat's picture

Yes, as priced in real money.

Tue, 07/01/2014 - 09:44 | 4913486 Atomizer
Atomizer's picture

The last one to the lifeboat is a rotten egg.

Tue, 07/01/2014 - 12:30 | 4913531 Citxmech
Citxmech's picture

Speaking of lifeboats - it is an unnerving experience to essentially try and build your own lifeboat while the ship is in the process of sinking.

Tue, 07/01/2014 - 13:25 | 4914343 scrappy
scrappy's picture
How to Build a Lifeboat http://www.theautomaticearth.com/how-to-build-a-lifeboat http://ready4itall.org/the-free-preppers-library/   This primer is a great education resource to educate folks from the Automatic Earth   http://www.theautomaticearth.com/the-world-according-to-the-automatic-ea...   Off topic a bit but in the McGiver spirit....   I like this DIY AC   http://graywolfsurvival.com/3467/diy-portable-camping-pvc-pipe-evap-air-... Cooter, care to give a hint as to where you are, sounds like we are in proximity. I like your practical good sense.
Tue, 07/01/2014 - 09:55 | 4913525 Ivan Nokabolokov
Ivan Nokabolokov's picture

Convert death valley (noone goes there)  into a gigantic solar farm. Problem sorted. Why has this not been done before. All that solar energy going to waste. Tsk tsk.

Tue, 07/01/2014 - 09:58 | 4913535 darrenstory
darrenstory's picture

Known for a long time (maybe 10 years or so); that VIX was the most recent and visible manipulated broad-market index. Nicely pointed out in the article. 

Tue, 07/01/2014 - 09:59 | 4913539 Yen Cross
Yen Cross's picture

 

      USD         Chain Store Sales (WoW)     1.0%           2.0%    
       USD         Redbook (YoY)      3.1%           3.3%      
       USD         Redbook (MoM)     -1.7%           -1.7%
       USD         Manufacturing PMI     57.3     57.5     57.5        

   Dow up .50%

   RUT up .1.00%       LMFAO> priceless...

Tue, 07/01/2014 - 10:10 | 4913578 sunny
sunny's picture
The Next Global Meltdown Is Baked In: Connecting The Dots Between Oil, Debt, Interest Rates And Risk

I agree totally.  Any number of folks have said the same thing.  A global crash is coming.  Any decade now.  Threats like this are utterly meaningless without a meaningful hint of timing.

So much farting into the wind to change the weather.

Tue, 07/01/2014 - 10:16 | 4913597 Kirk2NCC1701
Kirk2NCC1701's picture

Reminds me of a Jimmy Buffet tune:  They're getting drunk and we're screwed.

Let's just move to another planet, like Gliese 832c, and start over.  And make a mess there too.  Happily stars and planets are far apart, to keep the disease of humanity earth-bound.  "None to beam up." -Jesus.

Tue, 07/01/2014 - 10:26 | 4913635 i_fly_me
i_fly_me's picture

 

Excerpted from "Fight Of The Century - Keynes vs Hayek Round II

(http://econstories.tv/fight-of-the-century/)

HAYEK
The economy’s not a car, there’s no engine to stall
no expert can fix it, there’s no “it” at all.
The economy’s us, we don’t need a mechanic
Put away the wrenches, the economy’s organic

KEYNES
so what would you do to help those unemployed?
this is the question you seem to avoid
when we’re in a mess, would you just have us wait?
Doing nothing until markets equilibrate?

HAYEK
I don’t want to do nothing, there’s plenty to do
The question I ponder is who plans for whom?
Do I plan for myself or leave it to you?
I want plans by the many, not by the few.

Let’s not repeat what created our troubles
I want real growth not a series of bubbles
Stop bailing out loser, let prices work
If we don’t try to steer them they won’t go berserk

KEYNES
Come on, Are you kidding? Don’t Wall Street’s gyrations
Challenge your world view of self-regulation?
Even you must admit that the lesson we’ve learned
Is more oversight’s needed or else we’ll get burned

HAYEK
Oversight? The government’s long been in bed
With those Wall Street execs and the firms that they’ve bled
Capitalism’s about profit and loss
you bail out the losers there’s no end to the cost

the lesson I’ve learned? It’s how little we know,
the world is complex, not some circular flow
the economy’s not a class you can master in college
to think otherwise is the pretense of knowledge

KEYNES
You get on your high horse and you’re off to the races
I look at the world on a case by case basis
When people are suffering I roll up my sleeves
And do what I can to cure our disease

The future’s uncertain, our outlooks are frail
Thats why free markets are so prone to fail
In a volatile world we need more discretion
So state intervention can counter depression

HAYEK
People aren’t chessmen you move on a board
at your whim–their dreams and desires ignored
With political incentives, discretion’s a joke
Those dials you’re twisting… just mirrors and smoke

We need stable rules and real market prices
so prosperity emerges and cuts short the crisis
give us a chance so we can discover
the most valuable ways to serve one another

 

Tue, 07/01/2014 - 11:21 | 4913808 TeethVillage88s
TeethVillage88s's picture

If I can prove that we have exponential spending in the US Economy, then the question is why is the velocity of money declining and GDP is Flat at best (When you consider much activity adds no value to Official GDP Numbers). This is what we would like to hear from leadership. The federal reserve's mission is to keep banking secure. The Treasury overseas protection of the currency and banking system. Why do they never mention that Capital Formation & CapEx (Capital Expenditures) Spending is very low, wages are low, and job participation is low. It seems that Globalism means less investment in the USA and in the US Labor Force. Globalism seems like a hyper form of the Capitalism that doesn't care about the expenses that increase and inflate for households, seeming to game the narrative of "Official Inflation being low".

In fact today everything seems to be politicized and protected by politics as all take sides where their own money and career can be advanced. Name one subject that is not political. So if we are spending exponentially, but no jobs are created this is like the 1920s. If we are pumping money to the big bankers and no jobs are created and compensation is falling, then we are being give only lip service and political speeches. So we want our leaders to tell us who is gaming the system, but we are tired of being told we are lazy, stupid, or uneducated. The people in manufacturing, technology, information services can fill STEM jobs as we have a US Glut of Skilled Workers and computer workers. Fact.

Another fact is that you have to have some insight to understand US Statistics. Certainly their are classes of people doing well and consuming goods as the data seems to show for last quarter.

-Monetary Policy failed since it only serves Bankers (big ones)
-Fiscal Policy failed since it was just expanding the usual spending programs and budgets.
-Now we are screwed with No Representation in Congress and Exponential Growth of Debt.

Fed Money Data updated from Jan 2014

M1 Money Stock, 2014-06-16: $2.83 Trillions of Dollars (Exponential Growth, but doesn't include Dollars overseas)
M2 Money Stock, 2014-06-16: $11.32 Trillions of Dollars
MZM Money Stock, 2014-06-16: $12.54 Trillions of Dollars (Money with zero Maturity)

http://research.stlouisfed.org/fred2/series/M1
http://research.stlouisfed.org/fred2/series/M2
http://research.stlouisfed.org/fred2/series/MZM

Looks like 1981 was the Money Velocity high, note manufacturing plunged 1979.

http://research.stlouisfed.org/fred2/series/M1V (Top was 2007 Q4 at 10.7, now down to 6.3)
http://research.stlouisfed.org/fred2/series/M2V (Top was 1997 Q3 at 2.2, now down to 1.5)
http://research.stlouisfed.org/fred2/series/MZMV (Top was 1981 Q1 at 3.5, now down to 1.4)
http://research.stlouisfed.org/fred2/series/Mult (Top was January 1987 at 3.1, now down to .7)

http://research.stlouisfed.org/fred2/series/MANEMP (Employees: Manufacturing 12.1 M Persons)

M1V M1 Velocity of M1 (6.305 Ratio)
M2V M2 Velocity of M2 (1.540 Ratio)
MZMV MZM Velocity of MZM (1.386 Ratio)
MULT M1 M1 Money Multiplier (0.705 Ratio)

Perhaps the bigger problems are all the Statistics for the USA that are now growing exponentially. Usually this is all measures of Debt and Financial Instruments. But foreign owned US Assets is Dramatic.

Exponential Growth:

Total US Debt 2014 = $59.4 Trillion, but in 2009 it was $50 Trillion. However doesn't include federal bonds held within the government & doesn't include future obligations, federal multi-year programs or trust liabilities.

John Williams and others who look at Total US Debt under GAAP accounting rules (including future liabilities) state the total debt is $220 Trillion. In fact Mr. Williams states that federal deficit spending is $6.8 Trillion per year when you add in liabilities for health care, pensions, and trust funds as you have employees & retirees to consider.

Total US Debt
http://research.stlouisfed.org/fred2/series/TCMDO ($59.398 T Exponential Growth, All Sectors; Credit Market Instruments; Liability, Level)

Foreign Owned Assets
Here is a look at Exponential Growth (2004-2008) of Foreign Owned Assets in the USA from the Department of Commerce.
http://www.bea.gov/newsreleases/international/intinv/iip_glance.htm ($26 Trillion foreign compared to $22 for US) (This is very interesting as Big Banks are growing strongly, but the number of total us banks is dramatically decreasing, like someone is gaming the system, Commercial Banks in the U.S. - FRED - St. Louis Fed)

Consumer Credit
http://research.stlouisfed.org/fred2/series/HCCSDODNS $3.148 Trillion Households and Nonprofit Organizations; Consumer Credit; Liability, Level

Total Federal Debt
http://research.stlouisfed.org/fred2/series/GFDEBTN (Total Federal Debt $17.6 TN)

Transfer Payments
http://research.stlouisfed.org/fred2/series/TRP6001A027NBEA (SNAP Payments, data no longer updated 1-1-2012)

http://research.stlouisfed.org/fred2/series/W014RU1Q027NBEA (Federal government current expenditures: Current transfer payments
$554.0 Billions of Dollars, data no longer updated 2012:Q4)

Student Loans
http://research.stlouisfed.org/fred2/series/FGCCSAQ027S $770 B Federal government; consumer credit, student loans; asset, Level

DOD, Social Security, Medicare & Medic AID Exponential Growth
2013 Total Medicare/Medicaid = $1.1 Trillion (HHS Total = $980, but offset by other funds)
1999 Total Medicare/Medicaid = $390 Billion
2013 Total Social Security Admin = $870 Billion (offset by $56 B funds, and payments this year surged $50-90 Billion, clearly is $1 Trillion)
1999 Total Social Security Admin =$421 Billion
2013 Total DOD = $609.4 Billion
1998 Total DOD = $257.9 Billion

Pension Benefit Guaranty Corporation
1999 PBGC = $1.23 Billion,
2000 PBGC = $1.35 Billion,
2001 PBGC = $1.37 Billion.
2010 PBGC = $5.59 B,
2011 PBGC = $5.89 B,
2012 PBGC = $5.86 B,
2013 PBGC = $5.89 B, There is a continual need to supplement Pensions.
2010 PBGC's deficit increased 4.5 percent to $23 billion (Liabilities beyond assets)

http://research.stlouisfed.org/fred2/series/USNUM (number of US Banks Shrinking as if By Design By Big Banks and the US Federal Reserve) Apparently ZIRP hurts loans and profits by smaller banks.

Notes:
- Social Security total of $2.7 trillion (assets of the combined OASDI Trust Funds in 2011)
- Social Security requires (Over the 75-year period) additional revenue equivalent to $8.6 trillion to pay all scheduled benefits
- Total Medicare spending is projected to increase from $523 billion in 2010 to $932 billion by 2020
- Medicare enrollment From 2010 to 2030 is projected to increase from 47 million to 79 million,
- Medicare ratio of workers to enrollees is expected to decrease from 3.7 to 2.4.[60]

Tue, 07/01/2014 - 14:43 | 4914606 messymerry
messymerry's picture

I agree with you completely. The State's* cost of daily operations is rising exponentially, and they are pulling every trick in the book to hide the fact that revenues are flat at best. How can this possibly go on much longer.  I will eat my hat if we make it through 2016 intact, and you guys can hold me to it. 

* When I refer to the State, I am including Federal, State, Local, ISDs, various Authorities, and all other sycophants and hangers on that are allowed to levy taxes on the citizens.  I exclude corporations because taxing corporations is an insult and should never have started in the first place.  Corporations are just tax laundering services...

Tue, 07/01/2014 - 11:22 | 4913853 El Vaquero
El Vaquero's picture

 

There's one little problem with debt: interest must be paid on debt. Let's focus for a second on the difference between cash income and borrowing money. Cash doesn't cost money to maintain; debt does. In a functioning economy (as opposed to the dysfunctional mess we have now), cash would earn income from interest paid by borrowers.

If cash income is saved, the cash can buy stuff without debt or interest payments. That is a powerful advantage over debt.

Sorry Charles, but cash is not safe.  Everytime somebody gets some seigniorage income, the value of that cash goes down, and people are getting that seigniorage on a daily basis, and I'm guessing those people aren't you. 

Tue, 07/01/2014 - 11:27 | 4913878 Herdee
Herdee's picture

So,what does a record S&P500 and low volatility mean for 40 square miles of run down industrial wasteland around Detroit?Nothing quite frankly but cut the water and sewage off to the poorest members of society.Nothing matters to a bizarro world of sickening politicians in corrupt old Washington except to send another 500 million over to moderate Sunni extremists.(if you pass the moderate test)

Tue, 07/01/2014 - 11:40 | 4913932 Jim Shoesesta
Jim Shoesesta's picture

I is sure glad I been listening about all these global meltdowns since 2009!   Just watch a chart for cripes sakes. 

Tue, 07/01/2014 - 11:55 | 4914013 malek
malek's picture

 suppressing the market's pricing of risk

I'd go further and say "suppress the market's ability to effectively price anything."
Which is exactly as intended, and could've been seen from the start: in the end ZIRP means the the time-value of money becomes zero. In other words from a flow point of view, money is officially worthless since ZIRP. Just the realization is taking place in extreme slow-motion only.

Tue, 07/01/2014 - 11:57 | 4914021 the grateful un...
the grateful unemployed's picture

what happens when a company buys it own stock, and the value of that stock goes down? well i suppose the FED comes in with more QE, and its time to BTFD. and what happens when the company controls all of its own float? why they go private, i suppose, without NYSE oversight they are effectively deregulated, and they can do as they please. and what happens when they no longer have a way to generate earnings by increasing market value of the company through buybacks. why you take your company public again! rinse repeat

Tue, 07/01/2014 - 12:13 | 4914060 kenezen
kenezen's picture

I hate to be a politician in a debate about money however, the two are incredibly intertwined. The current Federal Government now resembles far more like a dictatorial institution and the creation of debt is endemic to this group. 

In foreign relations the world press begins to discern the President's actions favorable to Saudi Arabia and Qatar as being apparent, Unfortunately for our citizens that aligns us with ISIS. The President proves that theory when he determines to send $5,000,000,000 to Moderate Sunni Wahhabi fighters to fight Syria. (THERE are no "Moderate" Sunni Wahhabi Terrorists!!)

He forgets that Syria is fighting ISIS but, he still even after having the last 5,000,000,000 in arms and cash siphoned off to ISIS want to do it again.    Syria, Mr. President, is now our Ally!   Sunni Wahhabi crazies are in Syria killing non-Sunni Muslims and enacting strict Sharia law making women slaves but, our President delays aircraft promised to iraq and basically seems  to cheer on ISIS and continues to be myopically fixed on Syria.

Next, the President says he will establish Immigration policy away from the Congress. So far he's managed to achieve his singular purpose: Flood the country with as many illegals as possible booking them in and releasing them in the country only now in far larger numbers. Of course he says they will be at some point sent back. What he doesn't say is for each of these kids up to seven adults will be allowed to join them. Millions of kids X 7 adults.We have a changed society!!!

This upsets me not only from the standpoint of changing a voting group statistic but one of personal anger. I'm white but, i grew up in my young years in a Black community from 3-to-10 years. I was never so well treated by others. My old community is suffering. The kids can't get a job. Black minorities have over well 28% real unemployment in the inner cities. Obama is killing them!

This President doesn't care! he's egotistical and far too concerned with changing society and perhaps staying in power!  HE REMINDS ME OF CHAVEZ.   

Tue, 07/01/2014 - 13:03 | 4914274 khaproperty
khaproperty's picture

That´s what I say.

But "neoliberal" in US means something like neosocialism in EU, Germany.

So the Democratic Party in US is like a socialist party in Germany.

 

Liberal for us means more than libertaer but similar. Neoliberal for us is a modern way in liberalism.

Tue, 07/01/2014 - 14:51 | 4914654 ilovemilken
ilovemilken's picture

Not disagreeing w/Tyler here but this will not happen before the DOW reaches 20,000. 

Tue, 07/01/2014 - 15:13 | 4914756 i_fly_me
i_fly_me's picture

So ... not before Christmas then?  Got it.

Tue, 07/01/2014 - 19:07 | 4915603 Magooo
Magooo's picture

HIGH PRICED OIL DESTROYS GROWTH

According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.  http://www.iea.org/textbase/npsum/high_oil04sum.pdf

 

And $100+ oil's impact on growth????

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