Economic Collapse: the breakdown

[seanD]

Long term:

The biggest long term threat -- and by long term, I mean within 1-2 ½ years – is hyperinflation. This is a result of QE (QE1, QE2, with undoubtedly QE3 on the way), as well as the government monetizing its debt by borrowing more and more from foreigners, the Federal Reserve, or both. QE is the Fed printing dollars out of thin air (not really printing, more like adding digital numbers to bank computers as it buys bonds back from banks or buys its troubled assets) in order to keep liquidity flowing and the market rallying and climbing, and the speculators gambling (basically like a casino creating its own cash out of thin air to give to gamblers to keep their casinos active). Monetizing the debt is the Fed creating money, loaning it to banks at 0% interest, and then the banks loaning it to the US government at a interest rate in exchange of bonds. The latter obviously creates a bigger debt hole, as well as ending up in a vicious circle when the Fed just ends up buying back these bonds from the banks at greater interest (though obviously win-win for the banks). The former creates inflation, because the global markets are flooded with too many dollars, thus the price in food and commodities (oil, agriculture, natural earth elements, etc) rise to meet this flood of dollars (since it's a global reserve currency), or the dollar becomes less valuable thus you need more of it to purchase with. Only problem is, the cash is in the hands of a wealthy few, not in the hands of the common man and woman of the lower, middle, and even somewhat upper classes (those that don’t own mega corporations or gamble and speculate in the markets, but are the hard workers and savers). Hyperinflation is impossible to control thus difficult to predict. The only sure thing is that it WILL happen if you keep creating and flooding the system with cheap liquidity. Once hyperinflation hits, it’s game over, and this will be the “day of reckoning” you often hear from the doomsayers, where you’re paying $20 per gallon gas, or $10 for a loaf of bread, thus paying your entire salary for barely enough food and necessities to get by, while your salary stays the same and unemployment is ever skyrocketing.

The federal debt. Whether the House imposes severe spending cuts or not (which seems unlikely) this will still not solve the federal debt crisis in the long term. They’re just going through the motions for lack of any other solution in face of an impossible situation, as well as immediately appease their creditors like China lest they begin dumping their US bonds. The battle in the House over spending cuts is kind of like the captain of the titanic and his financiers arguing over cutting wages of the crew so that they can purchase more life boats in the event of a disaster, while the titanic is already in the process of sinking. Not only will they likely end up with a mutiny of the crew, but is sort of pointless in the long run, and yet the House representatives can’t even agree on a spending bill in the first place. It’s simply mathematically impossible for America to get out of its 14 trillion debt hole (though most people delude themselves into dismissing this because to give up the illusion of hope is not an option for them), particularly since America no longer has an industrial base that can even begin to make up the revenue. Even if they cut spending to unheralded levels (Rand and Ron Paul are proposing anywhere between $500-1 tril), including massively reducing funding to the military industrial corporate machine (which will NEVER happen!), this will paradoxically hinder the flow of needed revenue in the long run on top of civil revolts in the process. It's a catch 22. Either America will have to impose severe austerity to temporarily appease their creditors, the likes of which will cause civil unrest, only to eventually still have to default on its exponential loans later on which will result in a deflationary depression, or the Fed will PO their creditors by continuing to print and borrow to cover it’s spending in the short term in order to put off facing the repercussions in the long term, which will result in hyperinflation.

Global derivative market. Here’s a good video breaking down how derivatives work in its most simplistic way here. Basically it comes down to one company, or in some cases, cities, states, even countries taking on the liability of losses of another with capital it doesn’t have. Imagine you insure someone’s vehicle with collateral you don’t have, so you get X to take on the liability of the insurance claim you made on the vehicle for a premium fee. X doesn’t have the collateral, so it gets Y to take on the liability for a fee. Y then gets Z, and on and on. Yet not only does X not know that Z is involved, but I don’t even know that Y or Z is involved. No one knows how big this market is because it’s under the table, but can only guess. The global derivative market in 2008 was half the size it is now, estimated anywhere between $600 trillion-1.5 quadrillion dollars, so imagine this web of corporations, economies, markets all interconnected with these investment liability vehicles that far exceed the GDP of the entire world many times over, and you can imagine a potential disaster of apocalyptic proportions.

Short term:

State debt. The immediate threat is the Municipal crisis – and by short term I mean by THIS YEAR. The US states are in trouble. About 40 some states are facing a serious fiscal crisis, meaning they are unable not only to fund state salaries and pensions, much less infrastructure, but unable to pay off the loans to their bond holders, which results in more and more flights from these investment vehicles which means less funds. Since cities and states can’t create money out of thin air like the federal government, and since it’s highly unlikely the federal government will bail them out, the only option is either default or impose massive spending cuts. Since I’m sure there isn’t a governor or mayor alive who what’s the legacy of being an official of a municipality that went bankrupt and defaulted, this leaves massive cuts as the only option. This will cause many more demonstrations, protests, and civil unrest probably the likes of which we see in the Middle East. It’s a vicious cycle, as such disruptions will then plummet public morale which will cause even greater economic issues.

Wild cards:

Bank failures. By wild card I mean things that can happen that make the long term problems happen quicker, and will probably come before the long term problems play out. The first issue is the problem with the banks. Though regional banks are failing literally by the hundreds, the mega banks have exclusive access to the cheap money flowing from the Fed (the ONLY thing keeping them sustained and in profit). Two of the top three banks in the world that are facing issues which could send them under are BofA (Bank of America) and JPM (JP Morgan Chase). I have a thread about the legal issues of the former here. The latter is also based on massive fraud and corruption but is much more speculatory in nature than the former since it is so far unsubstantiated (as a result, some just dismiss it as a conspiracy theory). However, the speculation is pretty strong, that JPM is suppressing the silver market with massive naked shorts. Some speculate they do this for the government, because by keeping silver from soaring, this prevents panic and a flight out of T-bonds (people seek commodities as a hedge instead of stocks and bonds when they think times are dire). This is more conspiratorial than I can accept personally. Others argue that they use the billions of 0% interest liquidity they get from the Fed to short the silver market in order to control the fluctuations. So when they go long, they lighten up on their shorts, which results in silver rising, thus profiting massively from flash-trades. Then they quickly reel it back lest it soars out of their control (though this might be speculatory, those who notice the fluctuations in the silver market consider it quite bizarre). This means that if silver shoots too high (a likely scenario in light of our waning economy), JPM will be unable to cover its shorts (like a gambler in over their head with losses he can’t cover with his borrowed money), which will obviously end up with serious repercussions, not just the fact JPM can’t cover what they owe, but public exposure of a crime that will no doubt end up as one of the biggest scandals since Madoff. If either of these two mega giants topple, it will once again take down the derivative market like a chain reaction (a la Lehman Bros 2008), only this time it will be worse because the derivative market is much larger, and I doubt the government will be able to sell to the public another bailout of such corrupt and hazardous institutions.

EU and the euro. Much like the banking scenario, if the EU and the euro collapse, everyone else goes down with it. Presently, things in the EU are in suspension mode, with about five nations on the verge of uncertainty – Greece, Ireland, Spain, Portugal, Italy. Though some of these nations are negotiating bailouts via the IMF, this will just create civil unrest in the short term due to imposed austerity, and will also affect things in the long term, as these nations are not only suspending their inevitable collapse while just mounting even more debt, but will be unable to ever dig itself out of this mounting debt hole, further adding stress of a euro collapse.

Middle East crisis and more wars. This affects both long and short term. Long term effect is on the US and its debt problem obviously since it needs to create more debt to fund the occupation of its military in these situations. Short term is its effect on oil. If oil shoots up, not only does it affect everyone on an individual level (who have to pay soaring gas prices) but like a chain reaction prices soar across the board (i.e. transporting companies need to charge more to export/import their goods, which results in stores raising prices to meet the profit loss, etc.)

There are a lot of side issues like the healthcare issue and carbon issue that put additional strain and uncertainty on the economy, but the above are the primary drivers towards a global collpase that are unavoidable and most of those you won't hear at all in the MSM.

[TimZim]

Long term:

The biggest long term threat -- and by long term, I mean within 1-2 ½ years – is hyperinflation.

If only there were a Jesus. Because I'd be on my knees, "Please, oh Lord, hear my prayers for hyperinflation on this your sacred and most holy land of the Americas."

Speak for yourself. Hyperinflation ( though I'd prefer just medium inflation) would be awesome for me. It's kind of like a biblical jubilee reset, to undo all the stupid things our cadre of crony capitalists have screwed up. Bring it!

[TimZim]

Long term:

The biggest long term threat -- and by long term, I mean within 1-2 ½ years – is hyperinflation.

If only there were a Jesus. Because I'd be on my knees, "Please, oh Lord, hear my prayers for hyperinflation on this your sacred and most holy land of the Americas."

Speak for yourself. Hyperinflation ( though I'd prefer just medium inflation) would be awesome for me. It's kind of like a biblical jubilee reset, to undo all the stupid things our cadre of crony capitalists have screwed up. Bring it!

[grmorton]

If only there were a Jesus. Because I'd be on my knees, "Please, oh Lord, hear my prayers for hyperinflation on this your sacred and most holy land of the Americas."

Speak for yourself. Hyperinflation ( though I'd prefer just medium inflation) would be awesome for me. It's kind of like a biblical jubilee reset, to undo all the stupid things our cadre of crony capitalists have screwed up. Bring it!

This of course, assumes that your salary hyper-inflates. Often what happens is that your salary doesn't go up at the same rate the inflation does. Businesses are squeezed both by rising cost of materials and the inability of their customers to pay the increases. Any salary increases you might get have to come out of the company margins. With margins squeezed, (less income, higher costs), companies are less able to give raises.

Secondly, it assumes that you won't have to support your retired-living-on-a-fixed-income parents. When the retired live off of bonds, the bond payments don't rise with the inflation. They are absolutely killed by hyperinflation, sinking deep into dog-food dinners and being forced into the homes of their children because they can no longer make it on their own as inflation eats away at their purchasing abilities.

Thirdly, this also assumes that you can get to work. I was preparing a post on how Quantitative Easing hurts the poor through commodity price rises. The main commodity I am looking at is energy, crude and gasoline. Everytime they start QE, they increase the cost of commodities. Everytime they try to stop, the commodity rise slows and reverses, a bit, but doesn't go back to the starting point. There are probably another 6 months or so of commodity rise due to QE2. See the pictures below


There are those who say that the QEs are causing food inflation and we are seeing the effect of that in the riots in the Islamic world. It is interesting that Mubarak fell just as Egypt became a net importer of oil and he had no more money to feed the poor there. But the riots there and in Libya cut the flow of oil. If this spreads to Saudi Arabia, you will have hyper inflation and no way to go to work cause gasoline might not even be available in the requisite quantities. Then you, like your parents on a fixed income will see the really nasty side of hyper-inflation

This admiinistration's spending is harming the poor and helping the rich

[grmorton]

FedBalanceANDoilprice.jpg

Gotta add a picture I just saw at Business insider. http://www.businessinsider.com/feder...-prices-2011-3

The Fed's balance sheet nicely mirrors the price of oil since 2009. Quantitative easing is putting you in debt and raising the cost of gasoline. Nice to have a government that actually cares for the working man.

[TimZim]

This of course, assumes that your salary hyper-inflates. Often what happens is that your salary doesn't go up at the same rate the inflation does. Businesses are squeezed both by rising cost of materials and the inability of their customers to pay the increases. Any salary increases you might get have to come out of the company margins. With margins squeezed, (less income, higher costs), companies are less able to give raises.

Yeah, I don't care. I'm not one who pays homage to corporate overlords. If the playing field is leveled, I like my chances. Success will be much more likely to be determined by hard work and talent. Bring it on!

[grmorton]

Yeah, I don't care. I'm not one who pays homage to corporate overlords. If the playing field is leveled, I like my chances. Success will be much more likely to be determined by hard work and talent. Bring it on!

You are out of your mind. I too don't pay homage to corporate overlords. I own a couple of consulting companies. My income is due to my talent and hard work. But, my clients, if they are squeezed, might think they can do without my services. I can't imagine any circumstances that your customers would be any different, no matter what you do. Clients without money don't hire anyone.

[TimZim]

You are out of your mind. I too don't pay homage to corporate overlords. I own a couple of consulting companies. My income is due to my talent and hard work. But, my clients, if they are squeezed, might think they can do without my services. I can't imagine any circumstances that your customers would be any different, no matter what you do. Clients without money don't hire anyone.

I am being hyperbolic. But my basic sentiments about our economy remain. We have a revolving door of cronies in congress, Wall Street, corporate boards, Banks, the SEC, etc. It seems fear keeps this propped up. One way or another, we have to swallow hard, brace for the uncertainty, and dismantle this dangerous system. I am confident we will come out better in the long run if we do.

As a doctor, I might make less, but I will always have patients. I'd even be happy to take payment with chickens for awhile.

[little_monkey]

Except for job creation, a new report shows signs that the recovery is on its way:

-- GDP is up 3.2% last quarter.

-- As demand grew late in 2010, consumers purchased more than the economy produced.

-- Real final sales—GDP minus inventory changes—surged ahead at a 7.1% annual rate in the last three months of the year. That was the best quarterly performance since 1984, and up substantially from the meagre 0.9% annualised growth in the third quarter.

-- America’s first manufacturing report of the year showed activity accelerating to the fastest level since 2004.

-- With over half of the companies in the S&P 500 having reported, profits in 2010 were up by 17% compared with 2009.

Link: http://www.economist.com/node/18070567

If you look at the graph (above link):

09-3rd quarter: 1.6%
09-4th quarter: 5.0%
10-1st quarter: 3.7%
10-2nd quarter: 1.7
10-3rd quarter: 2.6%
10-4th quarter: 3.2%

That's six quarters in a row of positive growth. But the last quarter is very significant, in that consumers purchased more than the economy produced. A lot of that hinges on perception, and Americans seem to have a very optimistic outlook.

As for inflation, we are crawling in the 1% - 2% (attached). Nothing to worry about.

[seanD]

Official stats are a boldface lie. Inflation is not at 1-2%, it's at around 6-8%, because official inflation numbers don't include energy and food, the two main necessities of our existence, thus the people paying up the arse for energy and food, and especially the people in the middle east I would guess will also tell you that the official inflation numbers are a sham. UE is not at 9%, in fact, even mainstream economists are aware that the drop from 9.6 to 9 last month with less than 40k jobs created was an anomaly, while other economists who are not afraid of truth recognize that it was a complete sham, basically by fudging the BLS stats. Not only that, but they use U3 stats. The U6 stats put the official number at around 18%, and since this doesn't include people working parttime or fulltime yet need or want fulltime work, puts the unofficial number at around 21-23%.

Of course the GDP is up because the system is being flooded with cheap money liquidity in the trillions form QE and QE2. Consumers are spending because: a) their a bunch of dupes who actually believe the MSM that we're in a recovery; b) they include those digging into their savings and/or even retirement or selling off equities to pay their necessities, and/or actually using credit once again; c) those who have stopped paying their mortgages, thus have extra cash on hand.

On top of the fact that we are indelibly financially screwed in the long term -- this is why all this is so ominous to me, because of the fact that the government is completely lying through their teeth, and sheeple like you are buying it hook line and sinker. Keep drinking that koolaide though, bro. You'll find out this year, most likely towards the second half if not earlier, that we ain't in no recovery, nor have we ever been. Though I would expect you'll most likely believe the official story that I'm expecting to start circulating that the evil Muslims in the mid east and their control over oil caused our economy to "double dip."

[seanD]

and since this doesn't include people working parttime or fulltime yet need or want fulltime work, puts the unofficial number at around 21-23%.

Meant to say temporary in the bold.

[seanD]

Long term:

The biggest long term threat -- and by long term, I mean within 1-2 ½ years – is hyperinflation. This is a result of QE (QE1, QE2, with undoubtedly QE3 on the way), as well as the government monetizing its debt by borrowing more and more from foreigners, the Federal Reserve, or both. QE is the Fed printing dollars out of thin air (not really printing, more like adding digital numbers to bank computers as it buys bonds back from banks or buys its troubled assets) in order to keep liquidity flowing and the market rallying and climbing, and the speculators gambling (basically like a casino creating its own cash out of thin air to give to gamblers to keep their casinos active). Monetizing the debt is the Fed creating money, loaning it to banks at 0% interest, and then the banks loaning it to the US government at a interest rate in exchange of bonds. The latter obviously creates a bigger debt hole, as well as ending up in a vicious circle when the Fed just ends up buying back these bonds from the banks at greater interest (though obviously win-win for the banks). The former creates inflation, because the global markets are flooded with too many dollars, thus the price in food and commodities (oil, agriculture, natural earth elements, etc) rise to meet this flood of dollars (since it's a global reserve currency), or the dollar becomes less valuable thus you need more of it to purchase with. Only problem is, the cash is in the hands of a wealthy few, not in the hands of the common man and woman of the lower, middle, and even somewhat upper classes (those that don’t own mega corporations or gamble and speculate in the markets, but are the hard workers and savers). Hyperinflation is impossible to control thus difficult to predict. The only sure thing is that it WILL happen if you keep creating and flooding the system with cheap liquidity. Once hyperinflation hits, it’s game over, and this will be the “day of reckoning” you often hear from the doomsayers, where you’re paying $20 per gallon gas, or $10 for a loaf of bread, thus paying your entire salary for barely enough food and necessities to get by, while your salary stays the same and unemployment is ever skyrocketing.

The federal debt. Whether the House imposes severe spending cuts or not (which seems unlikely) this will still not solve the federal debt crisis in the long term. They’re just going through the motions for lack of any other solution in face of an impossible situation, as well as immediately appease their creditors like China lest they begin dumping their US bonds. The battle in the House over spending cuts is kind of like the captain of the titanic and his financiers arguing over cutting wages of the crew so that they can purchase more life boats in the event of a disaster, while the titanic is already in the process of sinking. Not only will they likely end up with a mutiny of the crew, but is sort of pointless in the long run, and yet the House representatives can’t even agree on a spending bill in the first place. It’s simply mathematically impossible for America to get out of its 14 trillion debt hole (though most people delude themselves into dismissing this because to give up the illusion of hope is not an option for them), particularly since America no longer has an industrial base that can even begin to make up the revenue. Even if they cut spending to unheralded levels (Rand and Ron Paul are proposing anywhere between $500-1 tril), including massively reducing funding to the military industrial corporate machine (which will NEVER happen!), this will paradoxically hinder the flow of needed revenue in the long run on top of civil revolts in the process. It's a catch 22. Either America will have to impose severe austerity to temporarily appease their creditors, the likes of which will cause civil unrest, only to eventually still have to default on its exponential loans later on which will result in a deflationary depression, or the Fed will PO their creditors by continuing to print and borrow to cover it’s spending in the short term in order to put off facing the repercussions in the long term, which will result in hyperinflation.

Global derivative market. Here’s a good video breaking down how derivatives work in its most simplistic way here. Basically it comes down to one company, or in some cases, cities, states, even countries taking on the liability of losses of another with capital it doesn’t have. Imagine you insure someone’s vehicle with collateral you don’t have, so you get X to take on the liability of the insurance claim you made on the vehicle for a premium fee. X doesn’t have the collateral, so it gets Y to take on the liability for a fee. Y then gets Z, and on and on. Yet not only does X not know that Z is involved, but I don’t even know that Y or Z is involved. No one knows how big this market is because it’s under the table, but can only guess. The global derivative market in 2008 was half the size it is now, estimated anywhere between $600 trillion-1.5 quadrillion dollars, so imagine this web of corporations, economies, markets all interconnected with these investment liability vehicles that far exceed the GDP of the entire world many times over, and you can imagine a potential disaster of apocalyptic proportions.

Short term:

State debt. The immediate threat is the Municipal crisis – and by short term I mean by THIS YEAR. The US states are in trouble. About 40 some states are facing a serious fiscal crisis, meaning they are unable not only to fund state salaries and pensions, much less infrastructure, but unable to pay off the loans to their bond holders, which results in more and more flights from these investment vehicles which means less funds. Since cities and states can’t create money out of thin air like the federal government, and since it’s highly unlikely the federal government will bail them out, the only option is either default or impose massive spending cuts. Since I’m sure there isn’t a governor or mayor alive who what’s the legacy of being an official of a municipality that went bankrupt and defaulted, this leaves massive cuts as the only option. This will cause many more demonstrations, protests, and civil unrest probably the likes of which we see in the Middle East. It’s a vicious cycle, as such disruptions will then plummet public morale which will cause even greater economic issues.

Wild cards:

Bank failures. By wild card I mean things that can happen that make the long term problems happen quicker, and will probably come before the long term problems play out. The first issue is the problem with the banks. Though regional banks are failing literally by the hundreds, the mega banks have exclusive access to the cheap money flowing from the Fed (the ONLY thing keeping them sustained and in profit). Two of the top three banks in the world that are facing issues which could send them under are BofA (Bank of America) and JPM (JP Morgan Chase). I have a thread about the legal issues of the former here. The latter is also based on massive fraud and corruption but is much more speculatory in nature than the former since it is so far unsubstantiated (as a result, some just dismiss it as a conspiracy theory). However, the speculation is pretty strong, that JPM is suppressing the silver market with massive naked shorts. Some speculate they do this for the government, because by keeping silver from soaring, this prevents panic and a flight out of T-bonds (people seek commodities as a hedge instead of stocks and bonds when they think times are dire). This is more conspiratorial than I can accept personally. Others argue that they use the billions of 0% interest liquidity they get from the Fed to short the silver market in order to control the fluctuations. So when they go long, they lighten up on their shorts, which results in silver rising, thus profiting massively from flash-trades. Then they quickly reel it back lest it soars out of their control (though this might be speculatory, those who notice the fluctuations in the silver market consider it quite bizarre). This means that if silver shoots too high (a likely scenario in light of our waning economy), JPM will be unable to cover its shorts (like a gambler in over their head with losses he can’t cover with his borrowed money), which will obviously end up with serious repercussions, not just the fact JPM can’t cover what they owe, but public exposure of a crime that will no doubt end up as one of the biggest scandals since Madoff. If either of these two mega giants topple, it will once again take down the derivative market like a chain reaction (a la Lehman Bros 2008), only this time it will be worse because the derivative market is much larger, and I doubt the government will be able to sell to the public another bailout of such corrupt and hazardous institutions.

EU and the euro. Much like the banking scenario, if the EU and the euro collapse, everyone else goes down with it. Presently, things in the EU are in suspension mode, with about five nations on the verge of uncertainty – Greece, Ireland, Spain, Portugal, Italy. Though some of these nations are negotiating bailouts via the IMF, this will just create civil unrest in the short term due to imposed austerity, and will also affect things in the long term, as these nations are not only suspending their inevitable collapse while just mounting even more debt, but will be unable to ever dig itself out of this mounting debt hole, further adding stress of a euro collapse.

Middle East crisis and more wars. This affects both long and short term. Long term effect is on the US and its debt problem obviously since it needs to create more debt to fund the occupation of its military in these situations. Short term is its effect on oil. If oil shoots up, not only does it affect everyone on an individual level (who have to pay soaring gas prices) but like a chain reaction prices soar across the board (i.e. transporting companies need to charge more to export/import their goods, which results in stores raising prices to meet the profit loss, etc.)

There are a lot of side issues like the healthcare issue and carbon issue that put additional strain and uncertainty on the economy, but the above are the primary drivers towards a global collpase that are unavoidable and most of those you won't hear at all in the MSM.

Biggest bond fund dumps U.S. Treasuries

http://voices.washingtonpost.com/rig..._fund_dum.html

I should have mentioned this as one of the possible wildcards. Pimco, one of the US's biggest bond holders just dumped US bonds. This is something that most economists in the past were claiming is just paranoia and would never happen because of the fact that not only is the USD the world reserve currency (thus the deluded belief that it can never fail and is a sure thing), but that this could start a chain reaction with other investors dumping their US bonds, which would actually be economic suicide to their best interests. But it could be that the day will come that US bondholders just get so frustrated and see it as no other choice, or the lesser of evils. If this happens, this will rapidly accelerate inflation because instead of inflation being disturbed abroad (or diluted if you will), it will concentrate the flood of created dollars on our own US shores all at once.

[seanD]

Not only is our government fudging false UE and inflation stats, but here’s another example of how deceptive they can be.

"In 2010, the Fed sent almost all of its profit -- $79 billion -- to Treasury, a $32 billion increase from the amount transferred in 2009."

http://money.cnn.com/2011/03/22/news...ve_financials/

Let's celebrate! Sounds great doesn’t it? Until you read the whole article and actually understand what it means.

"The increase in income was driven primarily by $24 billion in interest earnings on federal agency and GSE mortgage backed security holdings.

Audited by Deloitte & Touche, the Fed's annual statement reveals the bank holds assets of $2.4 trillion.

Overall, the balance sheet reflects the massive amounts of bond and securitized mortgage products the Fed has snapped up in an effort to spur economic growth."

When the Fed initiates quantitative easing, they not only buy up US bonds (meaning that when banks get the news ahead of time that QE is about to be implemented, they buy up all the US bonds they can, since they know they can dump them unto the Fed for cheap cash), but they buy up toxic assets or debt as well, so that these financial institutions can clear their balance sheets and thus use their leverage to carry on their gambling activity. The Fed has 2.4 trillion in mortgage backed securities they bought from the banks, which means that at least two thirds of this is toxic crap, if not more so. So this would be like a corporation celebrating the fact they have 80 billion dollars in profits, while hiding a second balance sheet that has 2 trillion in debt. What do you think would happen to this corporation if investors discovered this? You see, the US government may be able to fool the typical lobotomized westerner who has no clue what’s going on and how all this works, but they can’t fool someone like say… the Chinese, one of the US's primary creditors, who know perfectly well how all this works. And that’s all that matters.

On another note, will Japan dump their 900 billion in US bond holdings to raise the necessary cash to rebuild their country? I'm guessing that they won't out of courtesy to their western ally. We'll have to wait and see, but this would definitely be extremely advantageous to them, not to mention the perfect excuse to rid themselves of the plague that is the sinking USD.

[seanD]

Feds holding back pension fund investments over debt woes

We always knew this was happening, only now they're actually making it public, and if I didn’t know any better, I’d swear Geithner is engaging in extortion...

"Treasury Secretary Timothy Geithner sent a letter to members of Congress on Monday informing them that the “debt issuance suspension period” will run through Aug. 2, when borrowing authority of the federal government will be exhausted.

The two funds will be repaid once Congress approves increasing the debt limit, Mr. Geithner said in the letter. He added that federal retirees and employees will be unaffected.

“I have written Congress on previous occasions regarding the importance of timely action to increase the debt limit in order to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens,” Mr. Geithner said in the letter. “I again urge Congress to act to increase the statutory debt limit as soon as possible.”

http://www.pionline.com/article/2011...YREG/110519936

Geithner strolls into the Congressional meeting. His cold eyes sweep across the room at each Republican Congressional representative. Boehner smiles and nods at him. Geithner returns it with a cold stare. Boehner's smile fades as he shifts uneasily in his chair.

Geithner: "I urge you to raise the debt ceiling. Otherwise there will be consequences I don't think you and I want to see."

Boehner looks around at his colleagues. They all exchange confident gazes.

Boehner: "I'm sorry, we can't do that. The long term consequences of that are too detrimental. We're working on a plan to cut spending. It's not going to be easy or pretty...

Geithner cuts him off.

Geithner: "Or effective. Nor do you have much time."

Boehner: "We know. We have constituents, donors, financiers who aren’t too happy with us right now, but… but we're working on it."

Geithner’s eyes narrow even more, leans in and glares at Boehner.

Geithner: "I'm withholding the Government Securities Investment and the Civil Service Retirement and Disability funds, until you and your colleagues decide to come to your senses and do what's right."

Boehner: "You can't do that. Those people worked hard for those funds. They were promised...

Geithner cuts him off again.

Geithner: “Raise the debt ceiling in a timely fashion. And we’ll just print the money and restore those funds. Every cent. Nobody loses. It’s simple.

Boehner: “That’s idiocy. You’re going to lead us into a dollar crisis that will pale in comparison to what we’re facing now. Those people out there will string us up”

Geithner gives Boehner another cold stare.

Geithner: "You got until August to do what's right. August.”

Geithner storms out of the room. Boehner looks at his colleagues. They all exchange uneasy glances.

[seanD]

So now you have Geithner AND Moody's (the same agency that rated those bogus mortgage securities triple-A) making the threats and turning up the heat....

http://www.reuters.com/article/2011/...edName=topNews


No doubt in my mind that they'll raise the debt ceiling, and that the Federal Reserve will initiate QE3, because Wallstreet owns Washington, and because hyperinflation WITH deflation is America's destiny. I just think it's an interesting political spectacle to watch, taking place right before the eyes of the world. Here's what I think will happen. The Dow will continue to plummet from now until August until panic sets in and the pressure on Congress to raise the ceiling is irresistible, and everyone equally begs the Fed to continue pumping those billions into the system.