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Guest Post: There Will Never Be A Failed US Treasury Auction... Until There Is

Tyler Durden's picture


From Brian Rogers

There Will Never Be A Failed US Treasury Auction... Until There Is


"The antidote to hubris, to overweening pride, is irony, that capacity to discover and systematize ideas.  Or, as Emerson insisted, the development of consciousness, consciousness, consciousness." 

-Ralph Ellison

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

-Charles Mackay


Asymmetric Trades

One thing I've learned from my 14 years of working on Wall Street is that no matter how much you think you know, no matter how certain you are of something or how well you know how to "play the game," reality inevitably comes along and shows you just how ignorant you were, are and probably always will be.

It can be a very humbling business no matter who you are.  And if you're in it long enough and doing anything of any relevance whatsoever, you too will one day eat a big heaping helping of humble pie.

Just look at some of the modern investing "legends" or "masters of the universe" littering the side of the road with sub-index returns and below high-water mark funds.

But one thing to look for that can and often does lead to outsized returns is when everyone in the market is "certain" of something.  This is when risk/return profiles can get really interesting because the payoff starts to get asymmetric.  Kyle Bass talks about this kind of payoff in the trades he looks for.

Regardless if you agree or disagree with the thing that everyone is "certain" of, if you can spot an argument like this where nearly everyone has piled on to one side of the boat, you should do some homework because this is usually precisely the thing that can cause assets and even entire markets to make big moves.

A good example of this is the recent collapse of the US housing market and the associated collapse of mortgage-related securities.

"We've never had a decline in house prices on a nationwide basis."

As a former mortgage and CDO salesman at a TBTF (forgive me Father, for I have sinned), I had a front row seat to watch not only what was happening in the industry but also the overwhelmingly prevalent attitude that investors had about the asset class at the time.

The Bernank summed things up nicely in July, 2005 when he said, "We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though."

Now I love to give our monetary fiat ponzi central planner in chief as much grief as the next critical thinking monkey, but his statement above absolutely reflected the prevailing attitude of almost every major market participant at the time.  Yours truly included.

To be fair, not everyone shared this view.  I sat a few dozen feet away from Greg Lippmann in late 2005 and still kick myself for not grabbing one of the t-shirts he had printed up sitting in a box near his desk that said simply, "I'm short your house."

But aside from Greg and a few other out-of-consensus thinkers, nearly everyone and their brother agreed with the Bernank.  Strongly agreed.  And here was your asymmetric opportunity.  Everybody believing thast something simply cannot happen or will continue to happen in a particular way.  Has never happened, will not happen, will not change.  Next question.

Of course, if it does happen, things will got to hell in a handbasket, but don't you worry your pretty little head about that, it will not happen.  Everyone says so. 

This allowed nearly the entire financial world to be as calm as Hindu cows while watching underwriting standards for mortgages collapse to an almost  meaningless level.  Before the party ended, most of the major mortgage underwriters got comfortable with >100% LTV second liens by thinking of them as "bridge loans" meaning house prices were rising so surely and regularly, they believed the second lien would be paid off by the increase in the underlying property value when the owner flipped the place for a nice profit.  Uhh, yea. 

Authors note: for those curious, the answer is no, I did not predict the collapse of housing despite my place at the table.  Like most others around me, I had been drinking giant gulps of Kool-Aid.  I have since gone on a massive Kool-Aid 12-step program.  In fact, realizing how economically and politically naïve I was has been one of the critical turning points in my life.  Recognizing, acknowledging and dealing with my own cognitive dissonance has been nothing short of a journey towards personal enlightment.  I wonder if the Bernank could ever admit to something like this?  I highly doubt it, even though we'd all be better off if he did.  Personally, I think the Bernank's marquee spot in the Havenstein Museum of Failed Central Bankers is all but guaranteed at this point.  But I digress...

Regardless of your view on housing or knowledege of mortgage securities, if you had recognized that everyone was sitting on one side of the boat, you would have found the trade of the 00s.

Which brings me to the US Treasury market.

US Treasury Market Exceptionalism

Paul McCulley and Zoltan Pozsar presented a paper at the Banque of France on March 26 where they address "critical questions which are not currently being addressed by policymakers."  The FT reported on this a few days ago (link here).

Having worked with Paul McCulley for a few years in the early 00s, I can say without reservation that he is one of the smartest, nicest, funniest, most genuine people I have ever met.  Not just in the markets, but in life in general.  Despite the fact that I rarely agree with his economic views, Paul is, quite simply said, a great guy and true gentleman.

However, nice guy accolades aside, McCulley expresses a view in his paper that completely sums up the key assumption on which the entire global financial fiat ponzi system hinges.  Namely, the casual assumption that there will never be a failed US Treasury auction or even reason to fear rising US rates.

McCulley and Pozsar express the following view when attempting to dismiss hand-wringing over rising US Treasury rates or a failed US Treasury auction:

"Crowding out, overheating and rising interest rates are also not likely to be a problem as there is no competition for funds from the private sector. For evidence, look no further than the impact of government borrowing on long-term interest rates in the U.S. during the Great Depression, or more recently, Japan. A buyers’ strike is also unlikely, especially in the case of the U.S. This is because countries with mercantilist policies tied to the U.S. dollar are de facto piggybacking on the U.S.’s internal demand, and simply have no option but to continue to accumulate U.S. Treasuries to moderate the real appreciation of their exchange rates so as to hold their shares of U.S. demand."

I'm not going to go into a big discussion here about Modern Monetary Theory, the Great Depression or Japan.  For starters, that's not the theme of this article but more to the point, I have no clue what's going to happen next regarding interest rates in the US or any other country.  Despite what information may or may not be gleaned from previous events, we are absolutely in unchartered territory from an economic and geo-political perspective.  In other words, no one really knows what's going to happen next.

And that's exactly the point.  Neither I nor any other person on the face of the planet knows exactly what's going to happen to interest rates in the next 2 seconds, let alone 2 months or 2 years.  So much is happening and changing at such a rapid pace, thinking that anything will "never" or "always" happen strikes me as pure, unadulterated hubris.  The madness of crowds.

And yet, everything in modern finance hinges on the assumption that US rates will remain low and buyers plentiful enough to dilute and mask the Fed's own forced buying.  Essentially, the entire market is betting that the Fed will always and forever be able to manipulate Treasury rates and ensure successful Treasury auctions.  Jim Quinn talked about this in one of his latest posts, "You Ain't Seen Nothing Yet - Part 3" (link here).

TPTB are absolutely all-in on this concept.  It underlines the "confidence" the Bernank always talks about.  It ensures the current political-economy (credit to Martin Armstrong for that phrase) lives another day and our current crop of bought-and-paid-for politicians can keep feeding at the government trough. 

Sound a bit asymmetric?  You bet it does.

Will Atlas Shrug?

Think about that. 

Do you think the US will always and forever be able to pay for our over-bloated military-industrial complex and our wars of choice? 

Do you think the federal housing agencies will always and forever be able to subsidize the real estate industry with money losing, non-economic mortgage loans?

Do you think the government will always and forever be able to pay on the promises they've made regarding Social Security, Medicare and Medicade?

Do you think the government will always and forever be able to extend debt-enslaving, subsidized student loans to anyone with a pulse?

Do you think the fiat ponzi central planners at the Fed will always and forever be able to manipulate the Treasury curve to whatever levels the Oracles of Delphi decide?

If you answer yes to the above, ask yourself this: how would all of these things be affected if the average interest rate paid by the US was to rise to 5%?  At today's debt level of $15.6 trillion, the interest expense would be approximately $780 billion or about 35% of total government revenues.  Welcome to the United States of Greece.  Next stop, bankruptcy.

Housing will collapse as mortgage rates approach 8%.  Every aspect of federal, state and local government spending will have to be slashed.  Police, fire, schools, medical services, mail delivery, trash delivery, road maintenance and every other kind of social service will be cut dramatically as capital is diverted to pay interest on our debt.

And these sudden rate rises can happen brutally fast in our uber-connected global ponzi.  Just ask Italy.  4% rates and it was bunga bunga time.  Rates jump to 7% a few months later and suddenly the Vampire Squid has to send in one of their own to "save" the day.  You get the idea.

I think it's no exaggeration at all to say that keeping US rates low, ZIRP low, for the foreseeable future (ie, forever) is key to maintaining the semblance of stability in the current global fiat ponzi.  Nearly every major financial player on the planet is counting on this being an a priori piece of knowledge.

And there's your trade.  Everyone is betting on this one idea -  that the Fed will never lose control of interest rates and the US Treasury will never have a failed auction.  The same way nearly every major financial player on the planet was willing to bet that US real estate could never fall for an extended period of time. 

And we all know how that trade worked out.

Timing, please?

Of course, the big question for most Zero Hege readers is not if this will happen, but when. 

Who knows?  Not me.  Not Paul McCulley.  Not the Bernank.  Not Timmy G.  Not any financial pundit or TBTF economist.  No one knows.

These abnormal, asymmetric situations have a tendency to go on longer than anyone suspects. 

I recall hearing in 2009 that legendary hedge fund investor Julian Robertson was making a big bet on a Treasury steepener trade (essentially a bet that longer-term interest rates will rise more than short-term rates).  I completely agreed with him.  And at least in the short run, we have both been more or less wrong.  Again, this business can be humbling.

But eventually, just like the guys who bet against housing in 2005, 2006 and 2007, eventually I think Mr. Robertson will be proven right.  Big time right.

And TPTB, the Bernank, TBTF, market consensus and everyone long 30-year Treasuries, wrong.  Completely wrong.

There will never be a failed US Treasury auction.  Until there is.


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Sat, 04/07/2012 - 13:01 | 2324596 oogs66
oogs66's picture

the market gets complacent too often, too easily

Sat, 04/07/2012 - 13:08 | 2324616 phungus_mungus
phungus_mungus's picture

Eagerly awaiting the day we see a failed US Treasury auction... 

Sat, 04/07/2012 - 13:18 | 2324633 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

Bernanke is not perfect; he's yet to become the master that Greenspan was and is. Greenspan threw the economy forward in ways no one thought possible, aggressively creating booms in sector after sector: tech stocks, the financials, commodities, housing. Bernanke seems to be doing a decent job this year with the stock market, but clearly he can benefit from Greenspans wizardry. Another great mind is Melvin King who continuously pushes ahead with his quantitative easing program in spite of the dogma placed upon it. And lo and behold, the UK is seems to be recovering, with an olimpics to look forward to while the QE phobic eurozone goes down in flames.

Now that QE has done its job and got the stock market back on track, jobs will follow. Historically jobs always follow the stock market. Therefore I see no shortage of buyers for treasuries as the AAA rating will soon be restored and the deficit can be paid down.

Sat, 04/07/2012 - 13:19 | 2324634 Bay of Pigs
Bay of Pigs's picture


Sat, 04/07/2012 - 15:51 | 2324925 SamuelMaverick
SamuelMaverick's picture

I consider a Treasury auction where 60+% are purchased by the Fed to be a ' failed' auction.  Reality check, there are fewer and fewer actual buyers of US debt. The only question that needs to be answered is when does this all unravel ??   Yours, Maverick

Sat, 04/07/2012 - 16:11 | 2324954 steve from virginia
steve from virginia's picture

Peeps don't get it. We're all living in Disneyworld right now. It's all fake.

The loans that everyone whines about are just as fake as 'money' printed to ... do something with them!


Well, no money is actually printed but who cares?

Gimme a beer!

Sat, 04/07/2012 - 16:44 | 2324998 Straying from t...
Straying from the flock's picture

"This is America, it couldn't happen here."

This is the phrase that will be the nail in the coffin for our once great republic.  It is the normalcy bias that keeps us from standing up for ourselves.  Separate yourself from the herd.  Soon there will be a new paradigm and those not aware will be fodder for the masses.  People do many odd things when you take away their future.

Sat, 04/07/2012 - 18:42 | 2325160 The Alarmist
The Alarmist's picture

Screw that, I'm going to Disneyworld!

Sat, 04/07/2012 - 21:27 | 2325334 Michael
Michael's picture

I just thank God every day for the complete and total bankruptcy of the United States of America, given to us on a paper plate by our incompetent overlords. That should solve most of our problems, including the destruction of our overlords by their own works.

Sat, 04/07/2012 - 21:52 | 2325394 MinnesotaMD
MinnesotaMD's picture

I hope to God something humane replaces the broken USA. I'm not optimistic, but I pray some good comes of this national bloodletting.

Sun, 04/08/2012 - 03:48 | 2325758 The Alarmist
The Alarmist's picture

Nah, just look to the example of the former Soviet Union ... The most senior party members become the oligarchs. The only solace we might take is that the rank-and-file apparatchiks who went out of their way to make our lives a daily hell end up suffering in the gutter with the rest of us.

Sun, 04/08/2012 - 09:40 | 2326015 Lucius Corneliu...
Lucius Cornelius Sulla's picture

The vast majority of people would rather live in the delusions spoon fed to them by their overlords than acknowledge reality.

Sat, 04/07/2012 - 16:58 | 2325018 Calmyourself
Calmyourself's picture

Maxipsycho=MDB, right..

Sat, 04/07/2012 - 13:33 | 2324664 bank guy in Brussels
bank guy in Brussels's picture

Maxilopez, are you a colleague, student or replacement for 'Million Dollar Bonus'?

Sat, 04/07/2012 - 13:40 | 2324675 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

I regulate small businesses for the government. My interest in economics sometimes brings me to "economics" sites such as zero hedge. Though I find the sentiment here self-defeating. People should look to my example; I've worked hard to get a good college degree. Also I did extra curricular activities - it was through my campaigning for the president that I got my current job. Now there's talk of me going to europe to spend some time working in Brussels.

I'm living proof that hard work and dedication pays of even in these difficult economic times. Its not easy - yesterday I had to fine a group of children who thought they could just set up a lemonade stand on the sidewalk without any kind of license - what our country needs is better education.

Sat, 04/07/2012 - 13:43 | 2324680 Renfield
Renfield's picture

LOL I took your first comment seriously too. OK, I guess you can stay after all.

Sat, 04/07/2012 - 14:08 | 2324743 Troll Magnet
Troll Magnet's picture

troll or not, i don't want my tax dollars being wasted on that guy.  can i fire him/her and get my money back?

Sat, 04/07/2012 - 23:41 | 2325515 Real Money Wins
Real Money Wins's picture

MaxiLopez you are an extreme case of Normalcy Bias, quite frankly you wouldn't know the truth if it was a solid object and someone beat you half to death with it. But please go on living in Fantasy-land , but fair warning being a government regulator it might be advisable to go to Brussels and stay there. Because when the SHTF the angry masses will be looking to lynch people like you, and it's hard to evade 300 million angry people, who won 't care if you were directly or indirectly responsible for this mess or just a willing accomplice.

Sun, 04/08/2012 - 10:18 | 2326047 disabledvet
disabledvet's picture

wtf is a small business regulator doing going to Brussels? My truck doesn't have pontoons...

Sat, 04/07/2012 - 17:22 | 2325043 Lednbrass
Lednbrass's picture

Yeah, I didnt know what to make of the first post either and clicked red, second one was good for a chuckle.

Sat, 04/07/2012 - 13:51 | 2324702 SilverIsKing
SilverIsKing's picture

MLP, can we call you that for short?

You should definitely stick around these parts.  We need people like you here to set us provide a real education, or provide us with your one-of-a-kind sense of humor.

Now...what kind of license is it that those terrorist lemonade selling children needed to get?

Sat, 04/07/2012 - 13:53 | 2324709 barwar
barwar's picture

Ouch!  I just cut myself on your sharp wit.  Well played.

Sat, 04/07/2012 - 13:56 | 2324716 Babylonvi
Babylonvi's picture

The government regulating small business IS the problem, so by your own admission, your are complicit in holding back the economic recovery.  You must be familiar with the President's theories on small business as you campaigned for and now work for him(us), so could you please advise us as to how much redistribution it will take for the economy to recover.  Or how may more regulations(being churned out at over 2000 per month at last count) it will take to achieve economic recovery for "Main Street"?

Sat, 04/07/2012 - 14:03 | 2324736 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

Thats all just discredited libertarianism. EVERY economic recovery in history has been as a direct result of an increase in aggregate demand. Its just a matter of discovering how to stimulate it. And have you seen the performance of the stock market YTD? Talk about not seeing the wood from the trees. Other posters seem to have come around to my way of thinking. Why can't you? It's just basic logic.

As for your attack on my work - I suppose you'd like to live in a world where uneducated ferrel children can just run round setting up businesses just like that without any regard for social obligation or the rules?

Sat, 04/07/2012 - 14:22 | 2324779 Bay of Pigs
Bay of Pigs's picture

You should be a stand up comedian instead. You have some great material.

Sun, 04/08/2012 - 21:10 | 2326958 Bow Tie
Bow Tie's picture

yeah, just stand up and parrot the exact BS the establishment says, only knowingly. sadly they're so wrong it's pretty damn funny.

Sat, 04/07/2012 - 14:47 | 2324821 LowProfile
LowProfile's picture

Oh MAN...  Damn you're good!!!

What's really sad is that there are people who actually think this way!

Sat, 04/07/2012 - 16:46 | 2325000 Straying from t...
Straying from the flock's picture

It is sad.  The herd keeps moving along while the sheppard and the dog keep them in check.  The Fed and the banks are criminal and need to be lynched.  Black bag them all and send them to gitmo.  After a little waterboarding, lets see if uncle Ben wants to keep hitting Ctrl+P.

Sat, 04/07/2012 - 14:55 | 2324835 Darth..Putter
Darth..Putter's picture

You can tell when a system has already failed; when upholding apearances is more important than finding functionality, the system is in it's death throes.


The definition of "Small Business" is only one of problems we have.  The Koch Brothers run a "Small Business".

Sat, 04/07/2012 - 22:17 | 2325423 Michael
Michael's picture

The war on small business at the hands of the US government has be ongoing for decades. Make no mistake, the federal government hates small business and does everything they can to kill it.

Sat, 04/07/2012 - 15:36 | 2324905 SAT 800
SAT 800's picture

'EVERY economic recover in history has been as a direct result of an increase in aggregate demand."  Apparently you're the leader of a brand new school of economics that no one has ever heard of.

Sat, 04/07/2012 - 18:41 | 2325142 cranky-old-geezer
cranky-old-geezer's picture



Welcome to ZH MLP, two govt suckups (you and MDB) would be better than one, twice as much humor. 

And yes I'm glad you're protecting us from those dangerous (terrist?) kids and their libertarian free-market unregulated non-health-inspected non-fda-inspected non-osha-approved non-epa-approved non-anything-approved lemonade stand.  I'm sure they're a threat to the public health and public good.

Did anyone ever mention you folks have too much time on your hands if you're going after lemonade stands?

There's way more important things to spend your time on, like MF Global ripping off customers for a cool billion dollars.

Say what?  Not your department?  You're the lemonade stand regulator?

Sun, 04/08/2012 - 10:22 | 2326053 disabledvet
disabledvet's picture

it's...who was it? "Texas Gunslinger"? Gotta be the same guy..."the material has already run out." very odd this internet thing..."schtik don't work" for some reason. "Eventually (quite quickly actually) are"

Sat, 04/07/2012 - 14:08 | 2324741 prains
prains's picture


we eagerly await your departure

Sun, 04/08/2012 - 20:24 | 2326874 Bollixed
Bollixed's picture

Read his comments backwards in the mirror. They're fckin' hilarious.

Sat, 04/07/2012 - 14:13 | 2324758 qqqqtrader
qqqqtrader's picture

"I'm living proof that hard work and dedication and GOLD pays of even in these difficult economic times."

[inserted gold, sometimes that also pays]

Sat, 04/07/2012 - 14:20 | 2324776 Goldilocks
Goldilocks's picture


Sat, 04/07/2012 - 15:23 | 2324873 lotsoffun
lotsoffun's picture

very funny.  lots of fun.  you and barry know how to cook socks.


Sat, 04/07/2012 - 17:55 | 2325078 XitSam
XitSam's picture

+1 for "cook socks"

Sat, 04/07/2012 - 16:26 | 2324976 theprofromdover
theprofromdover's picture

Maxi- I don't know what Melvin King does for a living, but Mervyn King is not doing the job he is paid for. He know eactly how much trouble UK is in, and refuses to be blunt and direct about it. All nuance and subtlety, too bleedin polite is Merv.

If I can suggest anything to you, turn down the Brussels opportunity, it will cost you your humanity and your soul.

Sun, 04/08/2012 - 22:10 | 2327058 Dixie Frank
Dixie Frank's picture

You sir, are hilarious!


Mon, 04/09/2012 - 12:29 | 2328318 Dens
Dens's picture

theMAXILOPEZpsycho did you forget </sarc>  ?

Sat, 04/07/2012 - 15:25 | 2324877 lotsoffun
lotsoffun's picture

MDB was funny.  this guy is a complete idiot

Sat, 04/07/2012 - 15:31 | 2324890 Jena
Jena's picture

Agreed.  Even if he's exaggerating his position I think he is reflective of what some in Washington believe, and that's a problem for everyone who is trying to make a living -- especially those who are trying to run a small business.

Sun, 04/08/2012 - 22:12 | 2327066 Dixie Frank
Dixie Frank's picture

No way! Comic genius.

Sat, 04/07/2012 - 13:45 | 2324686 Koffieshop
Koffieshop's picture

You are right. The stock-market boom in Zimbabwe 2007 did wonders for the economy.

Sat, 04/07/2012 - 13:48 | 2324694 SHEEPFUKKER

Aren't all the treasury auctions a failure by definition if they have to borrown 1.5 trillion every year?

Sat, 04/07/2012 - 15:06 | 2324846 trembo slice
trembo slice's picture

and if the Federal Reserve has to step up to buy 61% of the treasuries?

Sat, 04/07/2012 - 15:11 | 2324857 GMadScientist
GMadScientist's picture

By suck-seed-ing at failing small, they've prevented themselves from failing very, very large...thus far.


Sat, 04/07/2012 - 15:32 | 2324892 SAT 800
SAT 800's picture

I would say so; but then I'm often accused of not being "normal"; and definetly not a "team Player".

Sun, 04/08/2012 - 01:45 | 2325653 StychoKiller
StychoKiller's picture

"Runs with scissors" FTW!

Sat, 04/07/2012 - 13:53 | 2324707 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture



do you live with MDB in the basement of his parents house?

Sat, 04/07/2012 - 14:09 | 2324746 chiswickcat
chiswickcat's picture

ha ha ha ha ha ha ha, oh, ha ha ha ha..... (wipes tears away) 

Sat, 04/07/2012 - 14:29 | 2324795 Crimedog
Crimedog's picture

Jesus H Christ.  Are you f'ing kidding me??

"Greenspan threw the economy forward in ways no one thought possible, aggressively creating booms in sector after sector: tech stocks, the financials, commodities, housing."


You forgot to mention the massive busts that followed the booms created by the "wizard" Greenspan.  No wonder you work for the government - all you do is drink Kool-Aid.


Sat, 04/07/2012 - 15:15 | 2324864 GMadScientist
GMadScientist's picture

I think he might be kidding you. LOL

Sat, 04/07/2012 - 15:12 | 2324858 dbomb12
dbomb12's picture

AH yes! "The wizards of smart" the only problem is in order to purchase goods and grow the economy there actually has to be a growth in SMALL business activity which is not nor anytime soon going to happen, especially with all the new taxes and regulations. if Obama-care passes which i have a feeling it will say goodbye to CAPITALISM as we know it.

Sat, 04/07/2012 - 16:24 | 2324975 YesWeKahn
YesWeKahn's picture

"Historically jobs always follow the stock market, Therefore I see no shortage of buyers for treasuries as the AAA rating will soon be restored and the deficit can be paid down."

What do you think of your IQ? Don't you see a logic issue with above statement?


Sat, 04/07/2012 - 18:51 | 2325176 exartizo
exartizo's picture

....not sure what planet you're on, or if your Lobotomy Scars have healed yet.

Sat, 04/07/2012 - 20:43 | 2325307 HyperinflatmyNutts
HyperinflatmyNutts's picture

Everyone junked this guys comments including me.  For I did see and I was the fool.  The begining of the article starts off   "Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."-Charles Mackay

Well, I can see we were all  just as guilty!  We need to slow down so we can see the punch coming next time.  

Sun, 04/08/2012 - 10:48 | 2326081 i-dog
i-dog's picture

Be happy that you caught it late rather than never. I even gave you an uptick for eventually waking up after sleeping in.

I actually enjoy reading the irate comments thrown at MDB's and MLP's IQ tests ... it's a schadenfreude thing! They're all performing seals responding to the stimuli, just as they've been trained by their Hegelian masters. Comprehension and critical thinking (including being able to spot obvious "tells") are totally alien to them.

Sun, 04/08/2012 - 15:13 | 2326469 smiler03
smiler03's picture

I don't think that they are anything more than internet comedians. They probably have a degree in English and work in McDonalds, and boy do they succeed in hijacking threads.

Remember the saying, "Please Don't Feed The Trolls". 

Sat, 04/07/2012 - 22:25 | 2325409 Michael
Michael's picture

MLP, A large stray asteroid hitting planet Earth usually does a pretty good job too.

Sun, 04/08/2012 - 09:07 | 2325967 CitizenZeus
CitizenZeus's picture

And then the writer of this comment came through the wormhole from the alternate dimension from which he was reporting.  Or was it simply the hallucinogenic LSD and cocaine-laced Kool-Aid he was drinking at the last Goldman Sachs strategy meeting?  Your new cocktail:  LSD, cocaine, and Kool-Aid-- the "Goldman Sachs Serenade". 

Sun, 04/08/2012 - 10:17 | 2326043 BeetleBailey
BeetleBailey's picture

Truly, you are psychotic.

It's Mervin, not Melvin, genius. Mervin has the mind of a jackass, by the way. Proof read your posts, pre-hitting the save button, otherwise, the ghost of Mark Twain will reach up and snatch you bald-headed - unless someone has already scalped you, Apache-like.

Timmy...that you? Barack? No..couldn't be, unless Billy Gates has developed a TelePromp-typer.

The question I have for you is how can one breathe whilst at the bottom of the Kool-Aid turd punch bowl, where you are now - and, send comments to boot! Are you the guinea pig for HP's new waterproof PC?

Sun, 04/08/2012 - 15:18 | 2326474 smiler03
smiler03's picture

Actually it's Mervyn.


If you're going to correct something then at least get it right. Hint: proofreading might be a good idea.

Sat, 04/07/2012 - 14:44 | 2324814 LowProfile
LowProfile's picture


But you will see something almost as good.  If you are prepared, that is.  

The Fed will simply print cash and buy up all those treasurys.  The price will be supported, equities will soar, but the price of those in real terms will plummet.  Dollars worldwide will rush to find a home in any tangible asset.  US notes will swamp the markets.

We will not get a failed US treasury auction, EVER.

We will instead get a FAILURE OF THE CURRENCY.

Sat, 04/07/2012 - 19:01 | 2325189 cranky-old-geezer
cranky-old-geezer's picture



Yes, correct.   Currency collapse will be the end of America as we know it, not treasury auction failure.

Any national government with their own currency and central bank can print enough currency to buy all the debt the government needs to sell.  But it debases the currency, robbing wealth from everyone using that currency.

Taken to its logical conclusion the government can keep selling debt right up to a currency collapse and even beyond.  But the people are left destitute.  Their paycheck might by a loaf of bread.

Sun, 04/08/2012 - 10:31 | 2326058 disabledvet
disabledvet's picture

well it was rather exciting when the dollar started to collapse against the yen. this was AFTER the Fukushima catastrophe! in short this is about SPENDING and ACCOUNTING. (There's no such thing as accountability in Government so we'll leave that be...forever.) Governments still ACCOUNT for money in order to provide feedback as to whether "the program is having its desired result." Social Security for example would ask "did you get you check?" If you answered "yes" then "the program is working." I really can't speak for any other Federal Program...which makes me look at government this way:
that girl is me btw..."waiting for my Social Security check." if i live that long of course...

Sat, 04/07/2012 - 15:19 | 2324869 whatsinaname
whatsinaname's picture

Will you be there in the psycho remake ?

Sat, 04/07/2012 - 15:36 | 2324901 Element
Element's picture

Brian, fully manipulated system ... In a world where printing is the answer to everything ... 5 percent will be uber manipulated ...

Sat, 04/07/2012 - 16:57 | 2325016 Jedi Longsabre
Jedi Longsabre's picture

Anyone else out there itching to buy some TBT? I've got enough Phyzz but I'm thinking about a paper play too.

Sat, 04/07/2012 - 13:30 | 2324652 BKbroiler
BKbroiler's picture

The antidote to hubris, to overweening pride, is irony

The world's only superpower has a bankrupt central bank.  That's irony enough for me.

Sat, 04/07/2012 - 15:30 | 2324886 SAT 800
SAT 800's picture

LOL. well, laughter is the best medicine; I know because the Reader's Digest told me so. Thanks for this mornings healthy chuckle.

Sat, 04/07/2012 - 15:41 | 2324914 SAT 800
SAT 800's picture

"The market" really doesn't exist. People do exist. People become enamoured with their latest "failure proof" scheme, and they resist any inconvenient facts that serve to question the continuing life of their profitable game. T he take home from this? J.P. Morgan on why he wasn't upset about the great crash of 1929, "I sold too soon".  Always, sell too soon. Always.

Sun, 04/08/2012 - 07:32 | 2325875 RECISION
RECISION's picture

In general, we believe what we want to believe.

Never let the facts get in the way.

Sat, 04/07/2012 - 20:27 | 2325203 SRSrocco
SRSrocco's picture


The Fed has to PROP-UP Treasuries, while it KNOCKS DOWN gold and silver.  THis has been the MO for several years now ever since the Financial system died in 2008.  Also, we all realize that TECHNICAL ANALYSIS for short term trading is dead when the markets are totally controlled by the FED and its MEMBER BANKS.

The price of silver in a TEN YEAR TREND is heading up right along with the MONEY SUPPLY

I discuss this and show a look at how silly it is to rely on Technical Analysis in my article at the link below:

Sat, 04/07/2012 - 13:03 | 2324604 TooBearish
TooBearish's picture

A Failed treasury auction is a very low probability event - there are too many built in backstops - move a long to a higher probability event like massive bank runs/failure in Europe...then here...

Sat, 04/07/2012 - 13:07 | 2324615 Lord Blankcheck
Lord Blankcheck's picture

The NDAA backstop?

Sat, 04/07/2012 - 13:39 | 2324665 Koffieshop
Koffieshop's picture

Low? As I understand it, it is impossible. The primary dealers WILL buy because:
a) They have an interest in keeping the ponzi going.
b) They will be able to flip the TBills back to the Fed if there is any chance of price collapse. The Treasury, the Fed and the primary dealers are basically having a mutually beneficial circle jerk that produces inflation.

And what is this talk about interest rate increase? As soon as rates would increase the circle jerk would need to intensify so much, it would make Mugabe blush.

It's debt expansion and ZIRP to the bitter end, I'm afraid.

Sat, 04/07/2012 - 14:16 | 2324764 rufusbird
rufusbird's picture

It will last as long as Mr Brian Sack is around.....uh what's that you say....when is he leaving?

Sat, 04/07/2012 - 14:51 | 2324829 LowProfile
LowProfile's picture


But you will see something you like better.  If you are prepared, that is.  

The Fed will simply print cash and buy up all those treasurys.  The price will be supported, equities will soar, but the price of those in real terms will plummet.  Dollars worldwide will rush to find a home in any tangible asset.  US notes will swamp the markets.

We will not get a failed US treasury auction, EVER.

We will instead get a FAILURE OF THE CURRENCY.

Sat, 04/07/2012 - 15:35 | 2324899 AustriAnnie
AustriAnnie's picture

Author assumes Fed does not see the threat of failed auction.

Is the Fed unaware of the threat?  Or, are they are aware of the threat and standing ready to print and purchase, while using MSM to downplay the likelihood, in hopes they can postpone or avoid it?   



Sat, 04/07/2012 - 21:48 | 2325389 LowProfile
LowProfile's picture

Pretty sure the Fed is aware of the real threat - A currency crisis.

Either they have a "plan in the drawer" (a claim by Rickards) e.g. recapitalize the system using gold (by announcing they will sell gold for $15k an ounce, and including it as an asset on the treasury's books, not saying that's what Rickards said they would do, just the only plan I can think of that will work), or they figure it doesn't matter... 

...Because the system is toast if they DON'T print, so they figure they MIGHT AS WELL TRY.


Sun, 04/08/2012 - 15:31 | 2326493 smiler03
smiler03's picture

My understanding of Economics is very poor, which is why I visit ZH.

There must be a name for this scenario:

The US launches a new curreny, called something like the "Duhlur" and print just 1 note. This Duhlur is equal to $16 trillion (Dollars). They pay off the debt with the note, scrap the Duhlur and revert to the old Dollar. Bingo, no debt.

Sat, 04/07/2012 - 15:18 | 2324866 GMadScientist
GMadScientist's picture

In short, you're saying, "because we can monetize". And we can, but we cannot do so indefinitely. Eventually, your currency is no longer welcome. Period.

No, being the world's reserve currency won't save you...unless your car burns linen or you ride a bike to work.

Sat, 04/07/2012 - 18:10 | 2325102 XitSam
XitSam's picture

I'm thinking (right now, tomorrow could be different) that they will take us up to the edge and then start a war, or price controls or capital controls. Shortages blamed on "bad actors", speculators.  "Patriotic Americans store their gold in Fort Knox. Don't help the enemy by hoarding gold!"

Sat, 04/07/2012 - 21:51 | 2325392 LowProfile
LowProfile's picture

IMO that won't fix it.

Plan is to destroy the dollar and introduce a one world currency (and global control).

But unless Asia, Russia and the ME are on board, IMO it will be a no-go.  Thus the current action in the ME with Egypt, Syria, Iran, etc. and the attempt to "ring-fence" China.

Frankly, I think they are out of their fuckin' minds.  The US military is damn near worn out, they try this shit and there will be a revolt among the ranks.

Sun, 04/08/2012 - 00:41 | 2325600 Koffieshop
Koffieshop's picture

I respectfully call bullshit on the idea that the Dollar's destruction is planned.

It's an effect of long-term policy that came with empire building and got into full swing after WW2.
- Overprint.
- Export inflation abroad.
- Use the free money for the military to enforce future inflation export.
The problem is that this machine can't stop without a crash. Nobody can turn it off even when it has lost it's usefulness. These 5 videos explain this quite well:

It's infinitely more likely that setting this chain of events in motion seemed like a good idea at the time to combat the USSR, not to destroy the USA. Anyone who thinks he can see 60 years into the future is kidding himself.

Sun, 04/08/2012 - 02:25 | 2325688 LowProfile
LowProfile's picture

Maybe it's by incompetence, and I always give more credibility to incompetence than intent.

But in this case?  I dunno.  I think SOME are working towards this, but not ALL.  But I put the odds 60/40 for on purpose.

Sun, 04/08/2012 - 10:40 | 2326073 disabledvet
disabledvet's picture

The issue of a potential "revolt in the ranks" I DEFINITELY agree with. "And the war is expanding" btw. Having said that there is a big meeting coming up in Washington vis a vis the IMF which will be about "the total annihilation of Europe." In my opinion "this would be a good time to START a discussion on the problems inherent in financial weapons of mass destruction." A "Washington Naval Conference" type thing only of finance. The fact of the matter is this crisis start with the collapse of National City Corporation of Ohio..."The Rockefeller's bank"...which was bought for pennies on the dollar i believe...with everyone there losing their jobs. This was no minor bank btw. The State of Ohio itself is "barely hanging in there" as a consequence. And interestingly people still see no CURRENT crisis. I frankly am surprised that we can't inflate our way out of it. It doesn't seem that complicated...."nothing a 20 percent interest rate for a major US state can't cure" i guess. Since we live in the world of "no good deed go unpunished" i've got my (betting) money on California. (He who has the money must pay the money...with interest!) What say all of you?

Sat, 04/07/2012 - 13:04 | 2324609 Common_Cents22
Common_Cents22's picture

That's the problem is timing, the market can stay irrational longer than you can stay solvent.   The trick is to get your trader psychology just ahead of the crowd.  Too far ahead and you lose, with the crowd is tough, and behind, you lose.   You must think like the crowd but just ahead of them.

Sat, 04/07/2012 - 14:33 | 2324802 Crimedog
Crimedog's picture

Timing is everything.  Ask Corzine.

Sat, 04/07/2012 - 13:05 | 2324611 The Alarmist
The Alarmist's picture

Why, yes, I do think they can keep the music playing forever ... Mr. Geithner has assured me they can!

Sat, 04/07/2012 - 14:18 | 2324768 rufusbird
rufusbird's picture

Not to mention, he has never been wrong ....right?

Sun, 04/08/2012 - 03:50 | 2325759 The Alarmist
The Alarmist's picture

No ... He uses a program called Turbo-Treasury Pro ....

Sat, 04/07/2012 - 13:14 | 2324614 slewie the pi rat
slewie the pi rat's picture

not sure that the housing bubble of 05 is analogous to the 30yr

I believe that TigerMAN was correct in his steepner trade and subsequently moved to curvecaps

Sat, 04/07/2012 - 13:10 | 2324619 Bay of Pigs
Bay of Pigs's picture

And gold and silver will remain manipulated and undervalued until they aren't.

Sat, 04/07/2012 - 16:18 | 2324968 wee-weed up
wee-weed up's picture

Yep... that's one they really need to lose control of!

Sat, 04/07/2012 - 21:03 | 2325332 UP Forester
UP Forester's picture

Failure to deliver on just an ounce.  That's all it will take.  Anything bigger is gravy.

Sat, 04/07/2012 - 13:13 | 2324622 Dicite justitiam
Dicite justitiam's picture

Good grief has it only been 3 years and change since the last liquidity event?  Regardless of these cancerous balance sheet issues, why not focus on the upcoming heart attack? 

Sure, you can't call the hour you're going to have a heart attack--and I hope you never have one--but your heart begins acting differently before you have one.  You may not know it, but the EKG shows it.

Emphasis on these static ratios takes the eye off the ball called failed settlements and liquidity seizure.  Heart attack or cancer, gotta think about both.

Sat, 04/07/2012 - 13:16 | 2324626 tony bonn
tony bonn's picture

"...reality inevitably comes along and shows you just how ignorant you were, are and probably always will be...."

yes - mistaking the benefits of random processes for superior intellect is quite humbling. eventually such folks get caught in a double down double dog dare you bet gone bad...these are your technical analysts - not fundamentalists...

follow the money to the bubble...

the party ends when the interest rate swaps go bad....the hang over will be ginormous....those instruments are weapons of mass destruction....

Sat, 04/07/2012 - 13:18 | 2324627 Paul451
Paul451's picture

You can get only steer the canoe so close to the waterfalls before you're going over, no matter how hard you paddle in reverse.


And, we arent in reverse; we're at full speed ahead!

Sat, 04/07/2012 - 15:18 | 2324867 dbomb12
dbomb12's picture

And not in a canoe, more like a Donzi 28 ZXO

Sat, 04/07/2012 - 13:16 | 2324630 cherry picker
cherry picker's picture

When the auction fails, so does the society it supports.

It is time to go back in history when the fathers decided to create a new country.  The evils they determined to rid themselves of are back, dressed in suit and tie and armed with diplomas.

Don't get me wrong, I am not against education, but what I see education doing on behalf of most of us is nothing more than high worded organized crime and the people who are members of this orchestra are led into believing they are playing God's tune.

That my friends is a lie which is self destructive.

Sat, 04/07/2012 - 13:21 | 2324636 Sophist Economicus
Sophist Economicus's picture

The FED can buy all the Treasuries it wants with 'somethimg called a printing press'.    If anyone thinks that the FAIR market interest rate of a 10 year bond is reflected in today's 2% to 3%, they are in lala land.    There are no more bond vigilantes.   That all got thrown out with the baby in the bath tub when the FED started expanding its balance sheet with US government stuff a few years ago.    SO, can interest rates stay low forever on US government bonds?   The answer is YES THEY CAN, and they WILL.    The Government no longer needs 'investors' to buy its bonds, it just has the FED print the money.   

One day the Dollar will spin out of control, there will be a reset, and the rules will change.    IF MARKETS determine interest rates (i.e., neither the government nor its hand-maiden, the FED, are allowed to interfere), interest rates will once again reflect true risk.  

Betting against the current Bond regime is suicide, IMHO.

Sat, 04/07/2012 - 13:29 | 2324649 Renfield
Renfield's picture

Sophist, you answered what I was trying to ask, just below you. (Not very well, but then I never pretended to be a sophisticated investor!)

I got more food for thought out of your comment than from the article posted.

Sun, 04/08/2012 - 10:14 | 2326039 francis_sawyer
francis_sawyer's picture

The game is to print the coupon (plus a little side salad) for as long as possible...

The side salad is used to 'paper manipulate' PM's & hard goods (while stockpiling physical inventory & securing delivery channels) so that the day the FAILED AUCTION/CURRENCY comes, they've already got warehouses full of everything needed to reboot commerce...

Pretty nifty gig (if you can get it)... Meanwhile, enjoy your Dancing with the Stars...

Sat, 04/07/2012 - 14:43 | 2324811 Crimedog
Crimedog's picture

And isn't this the only way to actually decrease the debt?  If the FED can keep bond rates low through printing, the FED can then slowly inflate away the debt over time.  Obviously, this would be assuming that inflation remains steady and does not spiral out of control, thus causing a panic in the market.  But, this seems to be the way.


The other alternative is massive cuts in government spending, which would slow economic activity and probably also result in nationwide rioting.  We can cut the budget where possible, but there is just no possible scenario where we would actualy be able to cut our way out of this debt.

Sat, 04/07/2012 - 17:25 | 2325042 Calmyourself
Calmyourself's picture

All of these types of articles have their base the "rule of law" the ROL is dead and buried we have a government composed of the rule of men.  Expecting failures of the type proposed would at its nexus require an ROL that no longer exists in sufficient quantity or quality to ensure this outcome.  Complete anarchy will be the rule prior to a collapse of the bond market the way the author suggests.

Sun, 04/08/2012 - 01:37 | 2325645 Non Passaran
Non Passaran's picture

Agree on the point that allowing a failed auction would be incredibly stupid from the Fed/Govt's POV.
The dollar will do fine as long as the US can force it upon the world. So far so "good".

Sat, 04/07/2012 - 14:35 | 2324642 Renfield
Renfield's picture

heh - what I like about this piece is the glimpse into what the - how you say? - 'major market participants' are thinking. I've often wondered aloud, 'What the hell are they THINKING?!' and this is it. It was nice to hear some honesty anyway.

Your questions are pretty much the same ones that most people who do any thinking whatsoever about our economy, begin with. These are questions that have been asked (to my knowledge) as far back as the turn of the century, when Bush made big spending a focus of the 'War on Terror'. (And anyone asinine enough to believe in a 'war on terror', will have no problem supporting a government 'war on evil' next I think.) That was when I started paying attention - some of the more experienced around here probably know of them being asked far earlier than that.

You sound like you're starting to think for yourself a bit, now. But I have to tell you, as someone with NO background in finance, the housing bubble, and the fact that it couldn't last, was bloody obvious to anyone who looked at a price chart and applied five minutes' worth of logic re: wages. Sounds to me like your problem was believing someone who was in a position of authority, telling you black was white. And if that describes the thinking of most 'major market participants', then maybe we shouldn't be so hard on the sheep for (not) thinking the same way as their betters.

Meanwhile, I don't know how you can discuss bonds and interest rates without also discussing how the Fed's increasing purchases of its own bonds. (Over 60% last year?)

How 'sterilized' are these purchases, really? Does that even matter? And if the Fed buys its own, what effect will that have on rates and how indicative are rates in that case? And, how does that party end? (And yes, it will. Let's start from that premise and discuss from there, not waste time on 'will it end or won't it?')

I'd prefer to see a rates article that discusses these more sophisticated questions, rather than just 'will it go on forever?' We already know and are comfortable with the FACT that it won't. And as to timing, I'm happy with 'soon' (as in, get my money out of USD right now), or 'not until after [Europe/Japan/China]' (in which case, I can expect the USD to go higher for awhile when those economies flounder badly enough).

Sat, 04/07/2012 - 13:26 | 2324643 l1b3rty
l1b3rty's picture

Havent there already been numerous failed Treasury auctions? The issue being propagandists tell us otherwise, and will on-and-on.

Sat, 04/07/2012 - 13:28 | 2324645 dcb
dcb's picture

there is one thing wrong about this.

If you have the power of the printing press you don't have to use the bond market at all if youdon't want to.

Sat, 04/07/2012 - 13:31 | 2324650 bank guy in Brussels
bank guy in Brussels's picture

When Paul Volcker was squashing US inflation by getting the Fed rates up to the stratosphere ...

1981 ... US 10-year Treasury note ... 15.84% yield ...

1981 ... US 30-year Treasury bond ... 15.25% yield ...

Now the US would explode at those rates.

Jim Sinclair long ago said, that when the US long bond has definitively topped in price (the low in yield), that is one of the final markers for the end of what we knew.

Sat, 04/07/2012 - 15:24 | 2324878 SAT 800
SAT 800's picture

Yes, this is a fairly basic observation, and one of the things he got right. I beieve this has already occured; but I am frequently wrong.

Sat, 04/07/2012 - 13:30 | 2324651 Gloomy
Gloomy's picture

I don't really think the timing will be very difficult. The Fed can pretty much control everything with one exception-inflation. As inflation starts to really ramp up real interest rates will become absurdely negative and at that point it will be game over for nominal interest rates. So just take your cues from inflation rates. I figure 5 dollar gas ought to really start the ball rolling.

Sat, 04/07/2012 - 13:33 | 2324659 Renfield
Renfield's picture

Gloomy, great point. I would like to see an article discussing this specifically.

Maybe the question we should be asking, rather than what rates can the US economy support, is what gas price can it support.

No more bond vigilantes. Gas vigilantes.

Sat, 04/07/2012 - 15:13 | 2324862 SAT 800
SAT 800's picture

I can't arrive at any estimate of the situation which doesn't show real interest rates as being negative right now. All the major Bond/Bill/Note investments pay less than the attrition of inflation. I have the feeling that we're sort of holding our breath hoping no really serious player decides to be the first to say, "enough"/ stop the music.

Sat, 04/07/2012 - 13:30 | 2324654 I am Jobe
I am Jobe's picture

Kick the can , nevermind no more cans to kick, how about coffins and fucking waffle irons? Go for it Geitner, u failed , look yourself in the mirror and tell that to the Sheeples, never mind u don;t have the fucking balls. Just like the US Army, pole smokers in the USSA.

Sat, 04/07/2012 - 13:33 | 2324661 skipjack
skipjack's picture

It's actually much simpler.  I look at two things; cost of gasoline(energy) and savings rate.  Gas is going up, and savings are going down among the 99%.  We are at or very near the collapse of the average person's ability to buy the necessities without drawing down savings.  Let energy go up more and income not follow, we're going to be back at January 2009 really fast.


Regardless of TPTB and their machinations, unless the 99% are earning enough to "consume" - food, fuel, pay for their houses, sick care, cars and education - there's no "there", there.  The 1% can't support the economy all on their own.  TPTB are ignoring this simple fact...for now.  Soon enough, they will be forced to remember it.



Sat, 04/07/2012 - 13:34 | 2324669 I am Jobe
I am Jobe's picture

Soon enought nothing will be sold. Now if the sheeples will not spend for a day period, no gas, no food spending etc , lets see how these fuckers will operate.

Sat, 04/07/2012 - 14:29 | 2324794 Marginal Call
Marginal Call's picture

It is the price of oil that drives everything.  For all of the fucktwattery of the Bush administration, they understood this well and weren't shy about it.


Chris Martenson get's it too, but his articles catch a rash of chit around here, because you know-green energy and stuff.


But the unified theory is simple:  US prints dollars to buy stuff from China, China takes dollars as long as they can buy oil with them.  China can buy oil with dollars as long as our military can control the oil producers in the middle east. 


Now, Russia, being the largest producer stirs to pot in Iran to get more dollars to convert to hard assets and stressing the US economy-while extracting revenge for the US and the Saudis flooding the market with oil in 86 and crashing the USSR. 



Sat, 04/07/2012 - 17:54 | 2325076 Trimmed Hedge
Trimmed Hedge's picture

"The 1% can't support the economy all on their own."


Sure they can. They've been doing so for millennia....

Sat, 04/07/2012 - 13:33 | 2324662 I am Jobe
I am Jobe's picture

Yeah u fucking Bendonkey

Worthless piece of shit degree from Ivy League.

Bernanke Warning on Jobs Vindicated by March Payrolls Report

Sat, 04/07/2012 - 13:34 | 2324668 tgatliff
tgatliff's picture

The key in my mind is to watch the price of energy.   Ultimately it is the price of energy that is restricting the hand of the FED at the moment.  If and when there is ever a failed auction, it will simply be because the FED is no longer able to dilute the currency because the economy is already in dire straits because energy prices are too high.

The author is wise to not try to predict when this event will occur.   Because the economy has allot further to fall, the FED has allot of options.  In my mind, we are at least 8 to 12 years before a failed auction occurs.  History seems to suggest that the public will finally force the hand of their elected leaders once the economy is in dire conditions, and that this will be the trigger needed.  

Sat, 04/07/2012 - 13:43 | 2324681 Seize Mars
Seize Mars's picture

This article is very thoughtfully written and I think correct on just about everything. I like the author's "coming to grips with reality" spiel, that he was a kool aid drinker but now isn't. That's cool.

Sat, 04/07/2012 - 15:09 | 2324853 SAT 800
SAT 800's picture

It's a very good article. I would just like to point out that in 2005, at the date of the infamous Bernanke Quote; one, like me, who did, could think of the Japanese Commerical Real Estate Market. I immediately thought of the people breathlessly telling me that one block of downtown Tokyo was "worth more" than Manhattan Island, at present valuation. I laughed at the person who told me this; but I remember it was a "real quotation"; in other words "real" insanity. Also, I remembered on the occasion of this quote, which astonished and appalled me, how many of my fellow citizens had lecutred me as to the on-going increase in real estate value; "they aren't making any-more realestate, but there are more people all the time"; I used to remonstrate with them that in China, at the time, there were a lot of people but real estate was worth nothing. It should be obvious that market prices are driven by financial factors and the result of a grossly increased population will be poorer people, not higher real estate prices. Human beings are predjudiced in favor of real estate, this I believe is left over from the days of Lords and Landed Estates, etc. Despite the fact that real wealth has depended on competitive industrial production for the last 300 years. I had my coming to grips with reality moment in 1979 when I read "profiting from the coming financial crisis" by Harry Browne. Charles Mckays classic, treating of the madness of crowds and their financial enthusiasms was also very useful. Norm Chomsky is very useful, as pointing out that most of what we believe is simply conditioned by the propaganda machinery of the state. Watching the over their heads real estate speculators "wake up" and feel the crushing weight of reality on their backs was very interesting.

Sat, 04/07/2012 - 13:44 | 2324684 evolutionx
evolutionx's picture


We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments.  Thus most of these assets are also worth-less.


Sat, 04/07/2012 - 13:57 | 2324697 Renfield
Renfield's picture
FFS. This article has nothing to do with gold. Bloody sick of some moron running into the middle of a thread, hollering GOLD!, and starting a 50-comment thread derail just to spam his own useless article.
Mr. Bun: No need to kick up a fuss, dear; I'll have your Spam. I love it! I'm having Spam, Spam, Spam, Spam, Spam, Spam, baked beans, Spam, Spam, Spam and Spam!
Waitress: Baked beans are off.
Mr. Bun: In that case, can I have Spam instead?
Waitress: You mean Spam, Spam, Spam, Spam, Spam, Spam, Spam, Spam, Spam, Spam, and Spam?
Mr. Bun: Yes!
Sat, 04/07/2012 - 13:51 | 2324698 nah
nah's picture

when life gives you skin and bones


make pink slime

Sat, 04/07/2012 - 13:51 | 2324703 trustee
trustee's picture


Sat, 04/07/2012 - 14:13 | 2324759 jack stephan
jack stephan's picture

I'm short your house.......hahahahaha. Made my morning.

No one would dare say anything.  It's Beirut rules.  Have you and the precious wife to grow wings while thrown out of a plane "facilitated." or "neutralized" or whatever new sickly, understated term used.

take care zh

Sat, 04/07/2012 - 14:16 | 2324763 Sudden Debt
Sudden Debt's picture

Hey Obama! About that 20 I loaned you for that happy meal last week.... I WANT IT BACK!!!

Sat, 04/07/2012 - 15:47 | 2324922 SAT 800
SAT 800's picture

This reminds me of a famous quote that "Bonds are instruments of Guaranteed Confistication". You're loaning money to the gunslinger at the poker table who has assistant gunslingers standing on either side of him, and you know that he gets to decide how much the "money" is worth when he pays it back. Not a very good idea.

Sat, 04/07/2012 - 15:49 | 2324923 SAT 800
SAT 800's picture

But Spanish Bonds are really cheap right now! (I couldn't resist, the Devil made me do it).

Sun, 04/08/2012 - 17:47 | 2326640 lotsoffun
lotsoffun's picture

ok - i'll pay you.  but can i please keep the toy?


Sat, 04/07/2012 - 14:17 | 2324767 infinity8
infinity8's picture

Lots of good articles today, thanks ZH! These are the ones I keep so that I will have clear words to 'splain to the people who now think I'm crazy what happened when everything goes to hell.

Sat, 04/07/2012 - 14:34 | 2324805 q99x2
q99x2's picture

Arrest all FED members. Throw them into jail.

Their supply line to buy the weapons to kill us with will be cut as soon as we get them behind bars. They are arming the DHS against us at this time.

Help somebody please hep me.

On a brighter note the weather in Venice is sunny. Skies are clear and the beach is warm at 77 degrees..

Sat, 04/07/2012 - 14:51 | 2324828 ouchtouch
ouchtouch's picture

I agree that food and energy prices will eventually do in the Fed's ability to keep printing money.  The exact mechanism or timing is difficult to predict.  There are massive deflationary forces lined up so I am not betting on a dollar crackup any time soon.

Sat, 04/07/2012 - 15:01 | 2324842 narnia
narnia's picture

This is a pretty good article with one major flaw:  assuming we won't just see a loss of confidence in the concept of a government promise.

Fact:  the US balance sheet is underwater 1000%+.  Fact: the people who control the guns & prisons also control the money supply, that's not a coincidence.  

Inevitable consequence:  the confidence of the US government is a perpetual odds bet on the Pass Line, with no intention of stopping until a 7 comes up.  There's no bet on the table that wins long term in this game. 

Sat, 04/07/2012 - 15:18 | 2324868 SAT 800
SAT 800's picture

comment on the Long Treasury Bond mentioned in the article. I recommended shorting the Long Bond on the CME here several months ago, at 144; it took a while, I had to roll over the March Contract to June, but it fell down a staircase recently and I took profit at 136, for $8,000/ contract. It's not necessary to hedge the Long/Short Bond; the Long Bond itself is unstable at it's recent highs and can be short naked by basic chart reading. Not right now, but when one sees a top formed. The bond market likes to reverse on spikes and loves to make double tops. In case anyone wants to investigate this.

Sat, 04/07/2012 - 15:22 | 2324871 suckerfishzilla
suckerfishzilla's picture

The US can pay its debt until the cows don't come home. 

Sat, 04/07/2012 - 15:51 | 2324928 SAT 800
SAT 800's picture

I'm pretty sure one problem Bernanke has is that he's about half as smart as he thinks he is. This quotation, of his, is really kind of shocking for its complete lack of insight.

Sun, 04/08/2012 - 17:39 | 2326628 lotsoffun
lotsoffun's picture

bernake is half as smart as he thinks he is.  and all of our making fun of him contributes to his arrogance and need to prove himself right.

i think we should all start being NICE to bennie b.  maybe he will do something smart then.

hey bennie.  come by my place.  i have some friends with really big assets that want to show you a good time.  i'll pour some drinks.  you can tell us how smart you are.  tell us about the great depression, and how you studied that.

see - reverse psychology.  be nice to bennie.  the fed is your friend.

i'll work on obama next.  buy him some cigarettes and a basketball.


Sun, 04/08/2012 - 17:45 | 2326637 lotsoffun
lotsoffun's picture

barry - let's be nice to barry.  maybe if we are nice to barry - he won't start bombing iran and besides the 3,000 american boys killed or wounded, we can save 300,000 iranians killed or wounded.

barry - i really think you are a great guy.  i'm all on your side.  i know, it must be a b.tch.  what with the whites say you're black and the blacks say you are white, guess you really don't know what you are.  i'll bet you're a real man though.  michelle knows real men, and she wouldn't have anything to do with two daughters by a pancake.  coconut maybe, but i know you're not a pancake or a coconut.  that romney guy doesn't stand a chance against you.  nobody smarter in the room, even if you are not a 'numbers' guy.  and that bit with the birth certificate, what does it matter?   according to diebold, you were elected fair and square.  so let's bygone be bygone and damn it - go hit that teleprompter hard this week.  there's an election to win, and i want you to have more flexibility to fold to the russians after the election.  and the chinese.  and the .....



Sat, 04/07/2012 - 16:03 | 2324945 LawsofPhysics
LawsofPhysics's picture

The article is pointless. There have been bid less auctions and bank runs already. the fed has been buying and the taxpayers have been fleeced. They continue to be fleeced and the congress if working with the perps to make sure that it is all good and legal. god people, pay attention.

Sat, 04/07/2012 - 16:14 | 2324964 meatball
meatball's picture

The only way to force the Fed to stop printing is for the US dollar to lose its reserve currency status. Americans aren't the only ones getting hurt by money printing and the resulting inflation. So hopefully, China or someone, whose currency is tied to USD, says, enough is enough, and decides to shake things up.

Sat, 04/07/2012 - 16:53 | 2325008 mendigo
mendigo's picture

Exactly - the ponzi is right now imploding but we cannot perceive it because we are standing on the singularity point. It will happen gradually because of the momentum and vested interests. The will be gradual erosion of value and quality of life. While its possible they could lose control, nobody who matters wants that to happen. Quality of life has definitely fallen in my 50 yearse - ipad not withstanding

Sat, 04/07/2012 - 16:54 | 2325011 eddiebe
eddiebe's picture

Here's one that the pundits probably never suspect these days: What if the Fed decides to raise interest rates dramatically as  policy of their own or their masters behest, for their own nefarious reasons ? In fact that is exactly what I think will happen exactly when most people think it unthinkable. Kind of like an exponential double whammy to stagger the system, take what is left to take and impose strict rules ( nominally to restore order for our own good ) and implement a new and of course better financial system, where a financial collapse can never happen again.

Sat, 04/07/2012 - 17:00 | 2325019 yogibear
yogibear's picture

Once the other countries decide the dollar has been devalued enough and no longer will accept it as the reserve currency is when Bernanke and the Fed loose their game. Until then expect them to remain arrogant. With baby-boomers retiring at 10,000/day and many downsizing, leaving high tax states, our youth being loaded down with enourmous school loan debt expect US debt to continue piling on. Opposite of what occurred the last 30 years with continued growth.

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