THE Most Important Chart of the CENTURY (for the USA)

[CrackSmokeRepublican]

Saturday, March 20, 2010

THE Most Important Chart of the CENTURY

The latest U.S. Treasury Z1 Flow of Funds report was released on March 11, 2010, bringing the data current through the end of 2009. What follows is the most important chart of your lifetime. It relegates almost all modern economists and economic theory to the dustbin of history. Any economic theory, formula, or relationship that does not consider this non-linear relationship of DEBT and phase transition is destined to fail.

It explains the "jobless" recoveries of the past and how each recent economic cycle produces higher money figures, yet lower employment. It explains why we are seeing debt driven events that circle the globe. It explains the psychological uneasiness that underpins this point in history, the elephant in the room that nobody sees or can describe.

http://4.bp.blogspot.com/_pCDyiFUv9XU/S ... 282%29.jpg

This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation's output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.

The data for the diminishing productivity of debt chart comes from the U.S. Treasury's latest Z1 data, the complete report is posted below:

http://www.scribd.com/doc/28677991/z1

On page two of that report is the following table showing the Growth of Non Financial Debt:

http://1.bp.blogspot.com/_pCDyiFUv9XU/S ... l+DEBT.jpg

I included Financial debt onto the end of the table, that data comes from page 14 of the Z1 report.

This table makes clear what is happening. Business, household, and financial debt is trying to cleanse itself, to bring the level of debt back within the ability of incomes to support it. Our governments, armed with people who cannot explain the common sense behind debt saturation, are attempting to compensate by producing prolific amounts of Governmental debt.

They feel they must do this because if they do not, then debt and money – since debt backs our money – would both decrease and that would cause the economy to slow. But by adding money, and debt, they have created a sovereign issue where our nation's income cannot possibly service our nation's debt. In just the month of February, for example, our nation took in $107 billion, but spent $328 billion, a $221 billion shortfall. That one month shortfall exceeds all the combined shortfalls of the entire Nixon Administration – one month.

This is like an individual earning $5,000 but spending $15,000 a month. Would you lend your money to such an individual?

Last year we spent just under $400 billion on interest on our current debt, plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, and Quantitative Easing. That's $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

Modern monetary theory does not understand, nor does it correctly describe the debt backed money world in which we live. Velocity, for example, slows as debt saturation occurs. This is only common sense, and yet the formulas do not account for the bad math of debt, nor its non linear function. Velocity is blamed partially on the psychology of "consumers." What nonsense. It is as mechanical as the engine in your car, it was designed that way. Once people, businesses, and governments become saturated with debt, new money/ debt when introduced can only be used to service prior existing debt.

Thus money creation at the saturation point stops adding to productive efforts and becomes a roll-over affair with only the financial services industry profiting via interest and fees. In other words, money goes out and circles right back around to the banks instead of rippling through a healthy non saturated economy. If you cannot follow that most simple logic, then going to Harvard will not help you.

Below is a chart of the Gross Federal Debt, it is now $12.6 Trillion dollars and headed straight up, a classic parabolic rise:



Below is a chart of the Gross Federal Debt expressed in year-over-year change in billions of dollars. The same phase transition of debt saturation is clear as a bell.



Below is a chart of Federal Net Outlays, parabolic and again headed straight up:



Clearly this is not sustainable and that means that change to our monetary system is rapidly approaching. No, it will not be left to your children or your grandchildren. It is an immediate problem and fortunately there is an immediate solution. That solution is called "Freedom's Vision." It can be found at SwarmUSA.com.

That chart of diminishing returns is the window to understanding why humankind is trapped in a central banker debt backed money box. No money for NASA manned space flight – NASA's total budget a puny $18 billion in comparison to the $1.9 Trillion that went to service the bankers last year. One half the schools closing in Kansas City, states whose debts and budget deficits seem insurmountable all pale in comparison to how much money went to service the use of our own money system.

It doesn't have to be like that, in fact it's a ridiculous notion that the people of the United States, or any country, should pay private individuals for the use of their money system. Ridiculous!

It's difficult to see this from inside the box, so let's look at what happened to Iceland to illustrate. The central banks of the world created financial engineered products and brought them to the banks of Iceland. These products created a boom in the amount of credit. Prices of everything rose, and the people of Iceland then had no choice but to go along for the bubble ride. Then with incomes no longer able to service the bubble debt, the bubble collapsed.

To "save the day," the IMF and central bankers around the world rushed in to "rescue" the people, banks, and government of Iceland. They did this by offering loans... documents that create money simply by signing a contract of debt servitude. That contract demanded ownership of Iceland's infrastructure such as their geothermal electrical generating plants. It also demanded the future productivity of the people of Iceland in that they should work and pay high taxes for decades to pay back this "debt." Debt that they did not create or agree to service in the first place!

There were some wise people who saw through this central banker game and started a movement. They DEMANDED that the President of Iceland put the debt servitude to a vote and the people wisely said, "Central Bankers Pound Sand!"

Thus they now control their own destiny, their future productive efforts still belong to them.

It's easy to see from the outside looking in, but it's not so easy to see that it's EXACTLY the same thing occurring in the United States and no one is rising up to stop it. No one, that is, except the movement of people at SwarmUSA.com.

To all the naysayers who think the people do not have the power to make the change, I say take a look at history and how humankind has overcome its obstacles to progress with each new step. Mankind is now teetering between the brink and the dawn of a new renaissance. A new renaissance is coming because mankind is about to free itself from the chains of needless debt that are holding humanity back.

Posted byNathan A. Martin at10:28 AM

http://economicedge.blogspot.com/2010/0 ... ntury.html

[Christopher Marlowe]

Awesome post.

Modern monetary theory does not understand, nor does it correctly describe the debt backed money world in which we live. Velocity, for example, slows as debt saturation occurs. This is only common sense, and yet the formulas do not account for the bad math of debt, nor its non linear function. Velocity is blamed partially on the psychology of "consumers." What nonsense. It is as mechanical as the engine in your car, it was designed that way. Once people, businesses, and governments become saturated with debt, new money/ debt when introduced can only be used to service prior existing debt.

Hmm.  MV = PQ;  At debt saturation, V trends towards zero. So despite doubling the M last year, our economy is said to be in Deflation.

My question is: what event kicks off that final phase where the economy goes from deflation to hyper-inflation?  

Currently all of the money being spent on "bailing out the economy" is going to the banks.  If the government were to start building a high speed rail system (along BNI, NSC, UNP) would dollars spent into the "real economy" cause V to increase?

[CrackSmokeRepublican]

Awesome post.

Hmm.  MV = PQ;  At debt saturation, V trends towards zero. So despite doubling the M last year, our economy is said to be in Deflation.

My question is: what event kicks off that final phase where the economy goes from deflation to hyper-inflation?  

Currently all of the money being spent on "bailing out the economy" is going to the banks.  If the government were to start building a high speed rail system (along BNI, NSC, UNP) would dollars spent into the "real economy" cause V to increase?

Yeah C.M., that's the key question. It kind of follows the "Crackup Boom".... I think if the US had to pay foreign debts in anything but dollars, they would face Hyperinflation. Since the US has a fairly strong military that can "strong arm" any other country, this hasn't been a major worry.  Yet...

This is kind of dated now but Steve Keen has a pretty decent description:
http://cdn.debtdeflation.com/podcast/debtwatch07.mp3

Some models as well:
http://www.debtdeflation.com/blogs/models/
http://www.debtdeflation.com/blogs/lectures/

Keen's debate with Marc Farber (provides more background on the problem you described above):
http://cij.inspiriting.com/?p=655

Published in March 5th, 2007
Posted by Steve Keen in Uncategorized

As an economist, I do something very unusual: I treat money seriously.

Though this may be hard for those who have not done an economics degree to believe, economists have it schooled into them that "money doesn't matter"–that it is just a "veil over barter", there to make it easier to swap commodities than it would be if you actually had to find someone who had what you wanted, and wanted to sell what you wanted to buy.

The argument that persuades them goes something like this: "what would happen if you simultaneously doubled all prices and all incomes? Nothing!" In other words, if consumers are rational (now there's a much abused word, but I digress), they shouldn't care about the absolute prices of goods, just their relative prices. So doubling all prices and doubling a consumer's income shouldn't cause her to do anything different (but of course, changing relative prices would alter behaviour).

Bollocks. Double all prices and my income, and I'd be much better off because my mortgage payments would take less of my income (even if interest rates were also doubled). That's because I'm in debt–I have a mortgage. And you can't simply double interest rates to reach the same outcome as doubling prices, because debt repayment dynamics make the whole thing "nonlinear": include debt seriously in your analysis of consumption, and the "veil over barter" vision of money collapses. But this "inconvenient truth" is omitted from economics–not because economists are deliberately hiding it, but because they have deluded themselves about the nature of money.

I take it into account, and as a result I get a very different picture of how the economy operates than do conventional ("neoclassical") economists.

[Christopher Marlowe]

Thanks for those, CrackSmoke.

I couldn't use that viewer for the simulations because I'm on a mac, but I did listen to the Steve Keen audio. He gives a decent overview, but I'm still feeling vacant on that particular deflation to hyperinflation moment.

Some random thoughts:
Japan apparently has been going through this same cycle, but has remained in deflation as far as I know. I read that Japan tried to restart their economy by infrastructure projects. Although they remained in deflation, now they have a lot of high speed trains.  

I don't know if the US situation is comparable to Zimbabwe or Wiemar Germany; neither of those currencies were global reserve currencies the way the US dollar is.

If the US continues to purchase its own debt, that would seem to be less harmful than selling bonds at interest because the latter situation creates more of a debt spiral.

The Banks currently must keep the housing prices overvalued because allowing them onto the market and realizing the loss would cause all banks to become insolvent.  I believe that the banks are keeping foreclosures off the market in areas that have not yet collapsed.  

It is difficult to get a read on inflation/deflation using manipulated government statistics.  

In a way that is similar to the flood of money into short term treasuries as the stock market crashed in 2008, resolving the dollar problem right now would benefit from the flow of money away from the Euro. Of course, that would mean the US treasury taking over the fed, and all fifty states establishing state banks like N.Dakota. And that aint gonna happen.

[mobes]

Essentially, what it is saying, is that the more debt that is incurred, the less productive the economy becomes. Seems like a whole bunch of useless jobs are going to be out there. Would you like a job? LOL

[CrackSmokeRepublican]

I couldn't use that viewer for the simulations because I'm on a mac, but I did listen to the Steve Keen audio. He gives a decent overview, but I'm still feeling vacant on that particular deflation to hyperinflation moment.

It seems a lot of big name "investors" are divided as well. Does Hyperinflation follow a collapse of the debt based system? Does it happen at the same time?
A lot of people are making huge bets on this right now. Paul Tudor his Hedge Fund for example and Gold investing. H.F. Billionaire Paulson and Gold/Bonds.

Dr. Kurt Richebacher is the touchstone on hyperinflationary-collapse (CrackupBoom) for a lot of Gold Bugs.
 He did in-depth investigations of Argentina's hyperinflation in 2001-2002.

 On the opposite side is Robert Prechter who sees a deflationary collapse based on the K-Wave first with possible hyperinflation later. Investors are going into two camps -- Inflation Boom (stocks rise, employment picks up, Oil becomes hyper-scarce in Peak Oil but assets are inflated away) or Deflation-Kondratieff Wave collapse (Prechter) :

Dr. Kurt Richebacher was pretty observant:
http://www.financialsense.com/editorial ... /0422.html

In earlier studies published by the International Monetary Fund about asset bubbles in general, and Japan's bubble economy in particular, the authors repeatedly asked why policymakers failed to recognize the rising prices in the asset markets as asset inflation. Their general answer was that the absence of conventional inflation in consumer and producer prices confused most people, traditionally accustomed to taking rises in the CPI as the decisive token for inflation.

It seems to us that today this very same confusion is blinding policymakers and citizens in the United States and other bubble economies, like England and Australia, to the unmistakable circumstance of existing rampant housing bubbles in their countries.

Thinking about inflation, it is necessary to separate its cause and its effects or symptoms. There is always one and the same cause, and that is credit creation in excess of current saving leading to demand growth in excess of output. But this common cause may produce an extremely different pattern of effects in the economy and its financial system. This pattern of effects is entirely contingent upon the use of the credit excess - whether it primarily finances consumption, investment, imports or asset purchases.

A credit expansion in the United States of close to $10 trillion - in relation to nominal GDP growth of barely $2 trillion over the last four years since 2000 - definitely represents more than the usual dose of inflationary credit excess. This is really hyperinflation in terms of credit creation.

In other words, there is tremendous inflationary pressure at work, but it has impacted the economy and the price system very unevenly. The credit deluge has three obvious main outlets: imports, housing and the carry trade in bonds. On the other hand, the absence of strong consumer price inflation is taken as evidence that inflationary pressures are generally absent. Everybody feels comfortable with this (mis)judgment.

Regards,

Kurt Richebacher

[CrackSmokeRepublican]

Richebacher spoke about the bubble in Bonds... interesting to come across this right about now...

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Mon, Mar 22 2010 at 7:57 am  |  0 Comments
Bank Of America: Why This Bond Market Measure Could Be The Canary In The Coalmine

The Pragmatic Capitalist

Over the course of the last year we have witnessed one of the greatest mean reversions in the history of markets.  And it hasn't been unique to the equity markets.  In fact, many of the moves in other markets have been even more remarkable than the oft cited 70% rally in equities.  As prices have surged we have seen a remarkable calm come across the market as investors reach for risk no matter the news (this has become particularly apparent in recent weeks).  Some view this as a sign of optimism taking hold as the recovery expands.  Others view it as a sign of investor complacency as the underlying problems from the credit crisis remain unsolved.

In a recent note, Harley Bassman of Bank of America/Merrill Lynch referred to the many positives, but was quick to note the "canary in the coalmine" – the MOVE index.  As Mr. Bassman described, the MOVE index is the bond market's equivalent of the VIX.  He refers to it as the "best gamma volatility index".   Bassman says the recent collapse in the index is "worrisome".   The index has fallen 80% from its post-Lehman highs. Bassman notes the tendency for the index to trade between 80 and 120 with 80 representing extreme complacency and 120 representing extreme fear.  Moves to extremes, however, are fairly rare.  As can be seen, moves below 80 preceded the 91 recession, the Nasdaq Bubble and the recent credit crisis.   The most recent reading of 76 once again implies an extremely high level of complacency:

MOVE



Bassman elaborates on the outlook based on this indicator and why it represents such an accurate reading of investor complacency:

"But returning to our main point, a reading below 80 tends to presage a market problem. The reason for this signal is fairly obvious. To have an "event", the market must be unprepared. A simple measure of the market's preparedness is the willingness of investors to buy "risk insurance". Since Implied Volatility is the cost of insurance, the MOVE is just such a measure. The lower this Index, the less demand there is for risk protection.

There are two observations that one can make from this chart. The first is that the lower the MOVE at the bottom of the cycle, the higher it leaps at the top of the cycle. Unfortunately, the other fact is that the MOVE can remain at a low level for quite awhile before the "event" occurs."

The key of course, is not only understanding that complacency is very high, but also understanding that complacency can remain high for extended periods.  Perhaps most important, is understanding the trigger for a change in trend.  I would argue that several risks are now lining up at the market's front door that could easily derail the recovery.

The most obvious risk is government complacency.  Yesterday's healthcare vote (while an admiral social advancement) is a glaring sign of the government's backwards priorities.  This tax now and spend later policy is exactly the kind of inefficient government spending that contributed to Japan's prolonged balance sheet recession and destroyed aggregate demand each time it was making a comeback.  I would argue that Richard Koo's prescription of "spend, spend, spend" is off the table on the back of this trillion dollar healthcare plan.  A second stimulus package is nearly impossible to pass now.  With government stimulus ending over the course of 2010 the likelihood of further housing weakness and private sector weakness only increases.

The other great risk is China who is suffering from rising inflation and potential economic instability.  Rate hikes and the Central Bank's attempt to thread the needle will create an enormous amount of uncertainty.  The recovery in China is no guarantee.  Let's hope to high heaven that Congress does not follow-thru with Krugman's ridiculous tariff recommendation.  That would almost certainly topple the recovery.

The risks are out there and markets are largely ignoring them.  The timing of such moves is never predictable, but as Bassman says:

"This warning may be early, but don't say you were shocked later this year. "

http://www.themarketguardian.com/2010/0 ... -coalmine/

[CrackSmokeRepublican]

The interview with John Mauldin on this page is pretty good. Asset Inflation by Credit Collapse followed by a very slow Velocity of Money (today)...

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Market Seer John Mauldin Says the Stock Market Could Lose 40% From Here

Son of Texas and financial seer, John Mauldin, believes the stock market could shed 40% in the near future (SPX). John is the president of Millennium Wave Advisors, LLC, a Dallas, Texas based investment advisor, with $600 million in assets under management. John worries that the velocity of money, an indicator of how many times a dollar is reused in the economy, is collapsing. This ratio, which is defined by the GDP divided by the money supply, bottomed at 1.15 in 1946. It peaked at a breathtaking 2.2 times in 1997, near the top of the Dotcom bubble. The ratio has been retreating ever since, has recently accelerated down to the 100 year mean, but still has much farther to fall to get to the bottom of the 100 year range. The collapse of velocity signals the end of a 50 year super cycle in lending. For you and I, this means lower economic growth for perhaps another decade. It is partly the result of banks getting generous funding from the Treasury, and then sitting on it. The bucks simply stop there. It suggests that no matter how much money the government pumps into the economy, it might as well be pushing on a wet noodle. The gold bugs have got it all wrong, simply focusing on money supply growth and expecting hyperinflation. A lot of money can sit and go nowhere. The inflation will come back with a vengeance when the economy revives and banks finally resume lending. With so much new money being created in the last two years, the chances of the Fed being able to head this off are close to nil. Similarly, the bond vigilantes may have to wait a couple of years for their big move down in the 30 year Treasury bond (TBT). When the bond markets call "times up," the US will be forced to embark on some highly deflationary spending cuts. If this happens during a recession, it could be a disaster. John thinks there will be a substantial slowdown in growth in Q3 and Q4. With anticipated federal tax increases of 2% of GDP in 2011 added to a further 1% in state tax hikes, the recovery will be strangled in its crib. That's when the risk of a double dip recession explodes. Over 3-4 years higher taxes could add up to a burdensome 9% drag on GDP. John says that emerging markets (EEM) will decouple from the US and keep powering up, as this is where the real economic growth is (EEM). He has been a gold bull since 2002 (GLD), when it was below $300/ounce, and isn't backing off from that position, but prefers to own it against Euros at this point. He thinks the entire premise for the existence of the European currency (XEU) is questionable, and sees it eventually moving to parity against the dollar. John doesn't manage money directly himself, but outsources assets with market timers employing a number of different models. One firm he has particular success with is CMG in Philadelphia (CMGTX). He really only selects individual stocks in the biotech area, which he thinks have the potential to develop into a bubble, and has a variety of small cap and microcap holdings. John has an incredibly diverse past, which includes a degree from Rice University, a stint at divinity school, and time spent running a check printing company which led him into newsletters. Today, his two letters, Outside the Box and Thoughts From the Frontline, go out on the Internet to 1.5 million readers a week. John is the publisher of three investment books, The Millennium Wave, Just One Thing, and Bulls Eye Investing. To learn more about John's many activities in the markets, please visit his website at http://johnmauldin.com/  . To catch my entire insightful interview with John Mauldin on Hedge Fund Radio, please click on the "PLAY" arrow above.

http://www.madhedgefundtrader.biz/John_Mauldin.html

[CrackSmokeRepublican]

Interesting argument below. Even some of the brightest folks are divided on the outcomes...with this much debt, manipulation, Jew Money dumping, Hedge Funds, algorithms and overwhelming Global "artifice" it is difficult for a general consensus to be formed on anything.

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Jim Grant Takes On David Rosenberg And The Bond Bulls, Warns The Fed Chairman: "Watch Your Back Ben Bernanke, Cycles Turn"
Tyler Durden's picture

Submitted by Tyler Durden on 04/03/2010 13:25 -0500


In one of the most erudite, intelligent, and insightful conversations on the Bond bull/bear debate, David Rosenberg and Jim Grant go all out at each other, trading blows in this "Great Debate" which is a must see by all. As we pointed out yesterday, Grant is very bearish on bonds, and in a self-made prospectus has decided to downgrade the US, since the rating agencies, which have long been thoroughly incompetent, corrupt and afraid to disturb the status quo, will not do so until it is too late. Jim's point is simple: you can't resolve massive debt with more debt, and says Treasuries, which he calls "certificates of confiscation" are a surefire way to lose one's money. He points to the record supply of US Treasuries, makes fun of the SEC (who doesn't), and in a stunning move, cautions the Fed Chairman, whose ongoing dollar debasement, was once considered treason by the US. His conclusion: "watch your back, Ben Bernanke. Cycles turn" could not have come at a more opportune time. As a contrarian, Rosenberg discusses the McKinsey report looking at sovereign debt, and the Reinhart and Rogoff studies on debt default and highlights that there is a major disconnect between theoretical applications of sovereign default models and practice: in essence the US is still deleveraging as private debt is decreasing and public debt is surging but to a slower degree. In essence, David claims, the second largest monthly debt issuance in March of $333 billion is merely a side effect of ongoing deleveraging, which is a leading and/or coincident indicator of deflation: an environment in which the long bond thrives (Japan is a good reference point).

Agree or disagree, the fact that two of the smartest economists in the world can present very persuasive cases for either side indicates precisely the conundrum we are in, and is precisely why the Fed will pretend it is operating in the shadow of a so-called Goldilocks economy, even as it prints record trillions of new debt until one or the other is proven wrong. If, as many expect, Grant ends up being correct, than Bernanke will have gambled and lost the future of the United States.

Some of the more persuasive arguments by both include a refutation by Grant that the US economy now is in any way comparable to that of Japan, for a variety of reasons, namely the underlying domestic "dynamism." Rosenberg disagrees and presents the trend pricing for JGBs which, even with record ongoing debt/GDP and deficits, has seen a contraction in JGB yields by 70 bps, even after a round of downgrades.

For traders, the recent move wider in bonds, as well as the first time ever observation of negative swap spreads is likely a warning signal that the 10 Y may finally be breaking out of the 3.20% - 3.80% range where it has been stuck for the past year. If yesterday's post NFP move is any indication, we will likely see a 4.00%+ print in the next week, after which the next resistance level is in the mid 4's.

Our personal take is that the key factor that is least discussed by pundits, is the demographic shift in both Japan and the US, with both populations aging, and a record number of Americans entering retirement age over the next 5 years (and discovering that Social Security is bankrupt). To believe that this cohort will invest in equities is about as stupid as saying that IT is the current GARP sector of choice. What is the alternative? Corporate bonds may be reaching an adverse inflection point as both foreigners and Primary Dealers begin to pull out - is the slowest money, mutual funds, about to follow? Will the next big move be a derisking exemplified by a shift into Treasury funds and an increase of the Household purchases? Unlikely - we have seen that the savings rate has just dropped to its lowest level since 2008 of 3.1%. Consumers are once again running out of investable cash, and instead are loading up on one-day fad trinkets like Kindles. On the other hand Primary Dealers, which usually are a harbinger of things to come, have increased their capital allocations to bonds dramatically over the past several months. Or will the shift be a derisking one? Also unlikely, due to the primary demographic observation highlighted above, and also with the majority of the population having sat out the bear market rally (intuitively aware that it is based on one-time, non-recurring fiscal and monetary stimuli), which is logical: just the richest decile of the population tends to benefit from blistering bear market rallies. To be sure, Uncle Sam is waiting on the other side with the IRS taxman to take his share. Also, domestic equity mutual funds have seen a substantial $3.5 billion outflow in 2010: why should that suddenly change?

In short - confusion prevails. We anticipate many more such very intelligent debates will take place in the future before we finally see a breakout either over resistance as inflation wins out (and cause massive losses to the Fed's SOMA portfolio at a $1 billion DV01), or below support, as the Rosenberg thesis of deflation finds the greatest number of followers. In either case, an accelerating move to either direction will be widely destabilizing and should finally break the trance that stocks have been in for the past year.

http://www.zerohedge.com/article/jim-gr ... ben-bernan

Video of Debate:
http://www.grantspub.com/about/jim.cfm

[Christopher Marlowe]

Hey Cracksmoke, I have a couple of questions.
We know that at the end of 2008 investors bid down 3 month treasury debt into negative territory.
We also know that the US Treasury has bought its own debt through 3rd parties in the past.

1) Why doesn't the US continue to buy its own debt, especially long term debt?
2) Why doesn't the US buy its own debt at NEGATIVE interest?

If the treasury bought debt at negative interest, that would reduce the debt. Decreasing the debt would make the dollars more valuable.  

The greater harm to holders of treasury holders at this point is the loss of the dollar as a reserve currency. The destruction of the dollar seems likely if we continue to pay down trillions of dollars of debt by selling treasuries at interest.

[CrackSmokeRepublican]

Hey Cracksmoke, I have a couple of questions.
We know that at the end of 2008 investors bid down 3 month treasury debt into negative territory.
We also know that the US Treasury has bought its own debt through 3rd parties in the past.

1) Why doesn't the US continue to buy its own debt, especially long term debt?
2) Why doesn't the US buy its own debt at NEGATIVE interest?

If the treasury bought debt at negative interest, that would reduce the debt. Decreasing the debt would make the dollars more valuable.  

The greater harm to holders of treasury holders at this point is the loss of the dollar as a reserve currency. The destruction of the dollar seems likely if we continue to pay down trillions of dollars of debt by selling treasuries at interest.

Great questions C.M.

I'm of the opinion that US Treasury's primary concern is "who get's the money first before it's value is destroyed"...or... before it is circulated widely...

There has been a lot of evidence that the US Treasury and the Fed have secret accounts in the Caribbean -Caymans to basically appear shadow "buyers" for US debt. They are likely also nowadays working out of the Middle-East and Asia as well.  It appears that the Fed is trying to quickly create money and then  rapidly inject it into NY-London Banks (G.S.-J.P.) and Wall Street before it is destroyed via deflation. I compare it the Sparc SuperComputers on Wallstreet pre-trading the average investor... who ever gets the money first and the better trade first wins in the numbers game, but the entire economy still loses because it is tied to the "debt" creation system. As soon as the real issued debt enters the real economy, you might see inflation spike rapidly, I think this is what freaked out the Bond market about the HealthCare bill -- it is real government money entering the real economy instead of the Jew Casino Global trade systems. The US government would actually need to shut down the Massive platform trade systems that let "packaged debt instruments" get traded to have any hope of rectifying the Jew'd economy at this point no matter what interest rate they set. Some group of greedy Jews somewhere, whether in bonds, in derivatives, currencies, commodities or in other debt instruments,  are going to attack like Soros on Cocaine with the British pound -- they will worm their way into some control from any 4 corners of the world -- maybe camped in China or London or the Caymans. Only, if the US States would begin issuing their own currencies like N.D. there could be hope yet to repudiate these Jew Wars and Scams and basically bury the Fed along with J.P/G.S. and Wallstreet idiots with their Trillions of War/Govt. dollars. Seriously, B-52ing trillions of US dollars over Wallstreet and the Fed would send the right message that the American people are not messing around.

[CrackSmokeRepublican]

ZioDenniger actually is doing a pretty good job of tracking the Criminal Jew Money machinery:

The Fed Admits To Breaking The Law

Now how long will it be before something is done about it?

    April 1 (Bloomberg) -- After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.

    In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns's takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.

The problem is this: The Fed is not authorized to BUY anything other than those securities that have the full faith and credit of The United States.

In addition Ben Bernanke has repeatedly claimed that these deals would not cost anyone money.  But the current value looks differently:

    Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed.

    Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed's weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn't be made because of outstanding derivatives trades.

In other words, they have lost more than half of their value.

This was and remains a blatantly unlawful activity.

The Fed has effectively usurped Article 1 Section 7 of The Constituion which reads in part:

    All bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.

The Fed effectively appropriated taxpayer funds without authorization of Congress.  At the time these facilities were put in place neither TARP or any other Congressional authorization existed for them to do so, and to date no bill has been put through Congress authorizing the expenditure of taxpayer funds, either through putting them at risk or via outright expense, for this purpose.

Nor does it stop with a "mere" Constitutional violation - The Federal Reserve Act's Sections 13 and 14 do not permit Fed asset purchases except, once again, for items carrying "full faith and credit" guarantees.  Credit-default swaps and trash mortgages most certainly do not meet these qualifications.

I know I've harped on this for more than two years, but here we have a raw admission of exactly what was done - and there is simply no way to construe any of it in a light that conforms with either The Constitution or black-letter statutory law.

What's worse is that Tim Geithner, head of the NY Fed at the time, was very much involved in this - that is, he in effect personally, along with Ben Bernanke, usurped the power of the United States House.

The Fed has spent two years trying to hide this from the public and Congress.  It has fought off both Congressional demands for disclosure and multiple FOIA lawsuits, the latter of which has resulted in a series of adverse rulings (and, it appears, was ultimately going to force disclosure anyway.)

These actions are unacceptable but promising "never to do that again" is insufficient.  In a Representative Republic where the rule of law is supposed to be paramount - that is, where we do not crown Kings and relegate everyone else to the status of knaves, unlawful actions such as this demand that strong and unmistakable sanction also be applied to all wrongdoers in addition to protection against future abuse.

In this case this means that both Geithner and Bernanke must go - for starters.

Amending The Federal Reserve Act of 1913 (as Chris Dodd has proposed to prevent future lending bailouts) is not sufficient in that The Fed did not lend in this case, it purchased, and by buying what we now know were trash loans it violated the black letter of existing law.

There is only one effective remedy for an institution that has proved that it will not abide the law: it must be stripped of all authority that has been in the past and can be in the future abused.

This means that The Fed, if we are to keep it at all, must be relegated to a body that only practices and provides monetary policy - nothing more or less - and that all monetary operations must be performed openly, transparently, and within those constraints.

We cannot have a republic where an unelected body is left free to violate The Constitution with wild abandon and those acts are then allowed to stand.

One final thought: If the individuals responsible for this blatant black-letter violation of the law do not face meaningful sanction for these acts, and neither does The Fed as an institution, can you fine folks over at The Executive, Judiciary and Legislative branches of our government please explain to us ordinary Americans why we should obey any of the laws of this land when you will not enforce the laws that already exist?

http://market-ticker.org/

[CrackSmokeRepublican]

On a side note. When the Nazi's came to power in 1933, they basically began repudiating Jewish held debt on principle. Arresting, imprisoning and then confiscating the wealth of of Jews is what cleared a lot of debt for the Germans before WWII started.

Denationalizing the people that you owe can indirectly clear a debt because they can no longer legally challenge with claims on future earnings. Most older Jews probably really fear this more than anything else from the American Goyim at this point. They fear American "Goyim" basically denationalizing them and erasing their future claims on Goy earnings like the Nazis did. It's kind of a "Jubilee" via Jackboots and bad attitudes towards the debt holders.  I don't necessarily think this is "just" but you can see how it could put a stop to the current practice of inter-generational debt-bondage roulette and roll-over that is in practice today for circulating money and bonds.

[abduLMaria]

On a side note. When the Nazi's came to power in 1933, they basically began repudiating Jewish held debt on principle. Arresting, imprisoning and then confiscating the wealth of of Jews is what cleared a lot of debt for the Germans before WWII started.

that's exactly what i think the US gov. should do to the bankers.

obviously Obama was put in place to make sure that option would NOT be pursued.

[CrackSmokeRepublican]

On a side note. When the Nazi's came to power in 1933, they basically began repudiating Jewish held debt on principle. Arresting, imprisoning and then confiscating the wealth of of Jews is what cleared a lot of debt for the Germans before WWII started.

that's exactly what i think the US gov. should do to the bankers.

obviously Obama was put in place to make sure that option would NOT be pursued.

Yeah, I do too. Kind of "null and void" their claims.

This is a pretty good page on the Inflation, Deflation, Stagflation debates:

http://home.comcast.net/~lcmgroupe/2010 ... y_Wall.htm

This chart is pretty accurate in IMHO... the Bankruptcy and Defaults applies to Banks primarily...

ROADMAP

With $492 Trillion outstanding in the notional value of global Interest Rate Swaps it is reasonable to conclude that, since one party on either side of these counterparty trades WILL GET HURT when rates rise, there is going to be a lot of hurting in a total global economy of only $45 Trillion.

All indications are that by 2012 the global economy is going to run headlong into a funding wall.

Markets always anticipate events at least 6 months in advance. This wall is so huge I doubt the market will wait. It will likely begin adjusting 12- 14 months ahead!

All bets are off if we get another sovereign or possible American State government surprise. This would move our Maturity Wall even 'closer in'.

Caveat Emptor

[CrackSmokeRepublican]

This is another good link showing the Creation and Destruction at ContraryInvestor:

So let's get back to the Fed and what has happened over the past 18 months in the post Lehman environment in terms of very approximate apples to apples money printing and money destruction.  In the post Lehman period the asset backed securities markets have witnessed contraction of approximately ($955 billion), a good chunk of which is M2 going to "money heaven" (never to be heard from again).  Over the post Lehman period to date total bank loans and leases outstanding have contracted by roughly ($725) billion.   Starting to make sense now?  Of course it is.  The contraction in the banking and ABS markets totals ($1.68 trillion) while the Fed has printed up well over $1 trillion, and the money supply growth (M2) for the total post Lehman period is up $640 billion, only $70 billion of which occurred over the last twelve months.  The Fed has offset the debt destruction.

And this is where we come full circle back to the March Madness question.  For all the printing the Fed has done, over the past year the acceleration in M2 money supply has been negligible at best.  Credit cycles are built on M2 growth.  So the question becomes, if they stop printing as they have promised to do in March, will the money supply magically start growing again or at best even stay flat in the months and quarters ahead?  That could only happen under one scenario, and that scenario is that bank loans and leases stop contracting immediately AND losses in the asset backed securities markets literally stop right now.  In plain English, that means that we can have no more residential foreclosures, no more commercial real estate foreclosures, no more credit card losses and all home equity lines are now money good.  Moreover, to get the money supply moving again, banks need to restart the lending process at a rate in excess of net credit defaults in earnest beginning this week.  Just how likely is that to happen?  Despite the greatest Fed sponsored monetary expansion in history, M2 is barely breathing in terms of growth and on a six-month rate of change basis we've rarely been to levels we now see.

http://www.gold-eagle.com/gold_digest_08/ci040110.html