To the something-for-nothing personality, hope is like the high from dope, fed by main stream media to the functionally literate (those who can read and write) and the practically illiterate (those who are told what to think rather than taught how to think.)
The world is falling into what ultimately will be an inflationary depression. This will cause the death or near death of the world's principle reserve currencies: US Dollar, UK Pounds, Euros, Swiss Francs and Yen, and it is unfolding. Insolvency, both moral and fiscal is unfolding: debt spirals on many levels of the developed world will be resolved ultimately with the printing press, this year, next year and until the rest of the world abandons the current FIAT paper and the ultimate Crack-Up Booms unfold. Opportunities abound for the prepared investor, and in fact they are BIGGER than EVER.
When the broad masses who have bought the hope realize it is a lie, and their hope turns to fear, this QE-induced high will turn into a blind panic as the G7's safety nets FAIL; many markets will crash and others will soar and the most helpless will turn into angry mobs as they have no skills and their economies no longer produce blue collar jobs that create the middle classes - those jobs have been driven offshore by public serpents, crony capitalists, trade unions and banksters.
There are three quotes from some of the greatest economists in history which summarize the G7 global economy, currency and financial systems and the societies in which they reside. Two by Ludwig Von Mises and one by John Maynard Keynes and they are:
1. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. --Ludwig von Mises
Author's comment: G7 Central banks and governments are fully committed to restoring the expansion!!! Debt is exploding higher in government as income and revenue are in FREEFALL. It's no coincidence that the fed and UK central bank asset purchases are larger than the budget deficits. The Fed is purchasing toxic assets, MBS and agency debt and central banks are recycling the money back into another TOXIC asset: US treasuries.
Why you ask? Its because the dollar as the world's reserve currency is the FOUNDATION of the world monetary systems and is the one currency in the world where both the shorts and longs don't want it to change in value: the people storing wealth in it don't want it to go down and those printing it like toilet paper want to exchange it - basically, exchange nothing (fiat currency backed by nothing) for something (goods, services, etc.).
2. Ludwig von Mises describes the "Crack-up Boom" that marks the denouement of all great monetary inflations:
"This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.
"But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The Crack Up Boom appears. Everybody is anxious to swap their money against "real" goods, whether he needs them or not, no matter how much money he has to pay for them. Within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.... If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last."
This is a perfect description of what is unfolding today, people are building up their cash and new mini-bubbles are appearing globally as people exchange fire hoses of hot money for tangibles and assets; and a CRACK-UP BOOM looms, as we can see in asset prices around the world -- other than the fatally-inflated MALINVESTMENTS such as real estate.
3. "By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose." - John Maynard Keynes, 1920
Look no further than this illustration of the loss of purchasing power by misstated inflation courtesy of John Williams of www.shadowstats.com:
Wow, the dollar has lost 80% of its purchasing power since the printing press was unharnessed at Bretton Woods II in 1971. This is the government and banksters stealing the value out of people's money, as well as deficit spending and OUT-OF-CONTROL fractional banking without SAVINGS to back them. Counterfeiting/printing money out of THIN AIR! This is the cause of the "something-for-nothing" personality.
The FINAL move from sound money to fiat currency in 1971, when Nixon closed the gold window, set the G7 on the path to where we find ourselves today: On a one-way elevator DOWN since 1971. The middle classes have been CONSUMED by the Banksters and by public serpent debasement of their incomes and that in which they store their wealth - their cash. The middle class in America is just about gone, robbed of their pay and savings by the people in whom they have placed their trust: The government.
Investors will be crushed if not properly prepared; however, If properly prepared this is the greatest opportunity in history. VOLATILITY is set to soar "Up and down" as people scramble to price in and discover the REAL PURCHASING POWER of the Oceans of FAKE money which has been created in the last year. You must learn to fix your paper currencies and then find alternative investments which have the potential to thrive in UP and DOWN markets. This is what I do, contact me if you wish(www.traderview.com/portfolio_analysis_analysis.cfm).
Economies and markets afloat on a sea of trillions of Dollars, Euros, Swiss Francs, Yen and British Pounds in which price discovery is occurring right now! But one thing we do know it is, and that is LESS:
"Currencies don't float, they just SINK at different rates" - Clyde Harrison
At no time in my career have so many asset classes been this mispriced. Stocks and bonds are in the ether of overvaluations, and gold and silver are massively undervalued, to name but a few. As bubbles can be seen forming around the globe in selected asset classes. We are in a period which, when completed, will have seen the greatest transfer of wealth from those who hold their wealth in paper to those that don't.
An oscillation of inflation and deflation between asset classes is to be expected. Deflation in mal-investments created over the last five decades (stocks, bonds, real estate, ethanol and now green energy, paper investments etc.) and mispriced because of always cheaper credit (easy money forever), and inflation in asset classes (production of commodities, natural resources, oil and natural gas exploration and production, nuclear power and electrical generation, infrastructure, etc.) which were neglected during this period when capital should have been directed at them and wasn't.
The fingerprints of a Crack-up Boom can be seen GLOBALLY across many asset classes. As hot buckets of money RACE around the world seeking shelter from both the powerful central bank printing presses and the poor policies of the G7 public serpents, elites, crony capitalists and trade unions as they search for a place where capital can be preserved and thrive. All the while, these same predators use the unfolding crisis to take bigger slices of the shrinking G7 economic pies.
The wealth of the world has rotated (G7 are now major debtors and the emerging world economies are their creditors), and political power is doing so, as well, as can be seen by the G7 losing leadership and the G20 taking power. The welfare states of the developed world cannot avoid the final debacle (there is only a small constituency supporting the hard choices required to POSTPONE the unfolding debacle, they are also known as the people that work for a living rather than vote for one), and the emerging world is rising on the wings of Austrian Economics -- the same formula the US used to rise to prominence.
Nominally, after adjusting for consumer price inflation, there has been NO REAL GROWTH in stocks, income, bonds, employment or household net worth in over a decade (this GOVERNMENT measure understates true inflation by 1 to 4 % annually, sometimes more, see www.shadowstats.com.) In fact, it has been a DECADE-LONG debacle of inflation and theft of purchasing power by government and the banksters:
All the rallies in stocks and gains in bonds DISSAPPEAR! If you are in BUY and HOLD stocks and bonds you have LOST ¾ of your net worth since 2000, measured in purchasing power. BUY AND HOLD is dead until the printing press and RUNAWAY debt issuance is brought under control, so don't hold your breath. Look at this recent chart of household net worth and employment going back a decade (from the Washington Post):
Now think about it adjusted for purchasing power in gold as I did above for stocks and bonds. Ouch, it's another debacle from the banksters and Capitol Hill. That loss of purchasing power was a result of central bank printing presses and deficit spending, which are spiraling out of control in a manner NEVER SEEN BEFORE! The exception would be those previous to a currency extinction event, of which this is one!
The G7 economies, stock and bond markets are in WEAK, statistically-driven, cyclical bull markets and counter-trend rallies in an unfolding secular bear market. Most of the growth is government MISSTATEMENT of economic statistics, inventory adjustments and nominal, as opposed to real, growth. The 2009 rally in the S&P 500 is an illusion; the index was up about 23% and the loss in purchasing power as measured in gold was? 23% So, in real terms YOU MADE NOTHING. The rally in the S&P was actually reflecting a 23% loss in purchasing power of the currency in which the index was priced: US DOLLARS. It was repricing higher to reflect the lower purchasing power of the currency. OUCH....
The G7 economies will peak sometime in the next year and resume their descent ultimately into a hyperinflationary depression. Afloat on a sea of almost 12 trillion Dollars, Euros, Pounds, Yen, Swiss Francs, etc. which have been printed out of thin air -- also known as Quantitative Easing (to fool the public who don't understand that this term means money printing and whose money is being stolen while it sits in the bank,) or borrowed from unsuspecting future victims (foreign central banks, institutions, private investors, etc.) of the coming money printing debacle as "political correctness" defines most G7 government borrowing as risk free.
"When a well-packaged web of lies has been sold gradually to the masses over generations, the truth will seem utterly preposterous and its speaker a raving lunatic." - Donald James
Words of wisdom.
"The danger to America is not Barack Obama but a citizenry capable of entrusting a man like him with the presidency. It will be easier to limit and undo the follies of an Obama presidency than to restore the necessary common sense and good judgment to a depraved electorate willing to have such a man for their president. The problem is much deeper and far more serious than Mr. Obama, who is a mere symptom of what ails us. Blaming the prince of the fools should not blind anyone to the vast confederacy of fools that made him their prince. The republic can survive a Barack Obama, who is, after all, merely a fool. It is less likely to survive a multitude of fools such as those who made him their president." -- Author Unknown
I call this fool the something-for-nothing personality (see Tedbits Archiveswww.traderview.com/tedbits_newsletter.cfm). That is precisely where we are now: Total absurdity regarded as common sense. Our leaders are a reflection of the general public, trapped in a matrix of illusions and lies and unable to see reality. The G7 economic demise IS NOT a failure of CAPITALISM, it is a failure of 50 plus years of creeping SOCIALISM masquerading as capitalism and of the G7 schools who fail to teach the differences between them; to do so would bring about the demise of those in power at the hands of the public.
"Capitalism should not be condemned, since we haven't had capitalism." - Ron Paul
Capitalism is where a entrepreneur or small businessman identifies something that a broad group of people want to BUY, and delivers more of the desired goods or services for less money, thus gathering market share and killing the previous provider who failed to do so. This is called creative destruction and is the enemy of crony capitalists, big unions and the public serpents who SELL legislation to the dinosaurs and then legislate and mandate their success. It is a natural disinflation which is great unless it is short-circuited by public-sector predators and their special-interest supporters.
Capitalism has nothing to do with ponzi finance; ponzi finance is a function of fiat currency and credit financial systems where the government creates, prints and lends funds out of thin air, where the INSIDERS get the printed money/credit first, and then inflate asset values to create the illusion of growth. Look at today's 0% interest rates; banksters and connected organizations get the money virtually free (from the FED and their DEPOSITORS) and lend it to the public at 5 to 30% rates, or to the government. Capitalism was in effect before fiat currencies and will function after this version of them fall to theirEXTINCTION.
G7 economies are now defined as CENTRALLY planned, socialist corporatism, where central banks, elites, crony capitalists, public serpents and banksters conspire and legislate their way to riches and success at the expense of the publics they claim to serve. The public and small/medium size businesses are the prey to be bought and sold, their interests ignored by the PUBLIC SERPENTS who sell them to the aforementioned group of PREDATORS. Europe has suffered from this for decades, and it has crept into the US, but now it is unbridled as Chicago-trained politicians sell EVERYTHING in exchange for government FAVORS, now and in the future.
It is no different in healthcare, the military industrial complex, green energy or what have you. Isn't it interesting to see Bill Clinton and Al Gore now each worth over $100 million dollars since the end of their terms, when before being elected they were worth just a few million? Can you say "quid pro quo?"
"We haven't had true capitalism since 1913. We live in a corporate fascist state dominated by the military industrial complex, the financial banking complex and now the healthcare industry complex. It is fascinating that the health industry has spent $396 million in 2009 on lobbying and the financial industry $334 million while Congressmen debate the future of both industries. These industries surprisingly have received a windfall in the legislation that has been put forth by Congress. The system is so corrupt and rotting from within that elections will never result in necessary reform. Corporations are spending $3 billion per year to bribe (lobby) your elected officials. Whose interest do you think Congress is looking out for?"-- Richard Lamm, www.theburningplatform.com
Not yours, that's for sure. Just look at recent bank bailouts and stimulus packages. They have not one single line that is targeted at the private sector. According to www.recovery.gov (the official tracking site), the federal government has SPENT over $400,000 for every job created and sponsored, and many will have created NO LONG TERM employment. Take a look at this list of projects assembled by Senator Tom Colburn (www.traderview.com/tedbits/StimulusCheckup-Dec09.pdf ); this is really obscene reading for anyone who has respect for the value of the dollar. Now look at the recent comments of Michael Barone on the contrasts between PUBLIC and PRIVATE sectors:
"Recent Rasmussen poll that shows that 46 percent of government employees say the economy is getting better, while just 31 percent say it's getting worse. In contrast, 32 percent of those with private-sector jobs say the economy is getting better, while 49 percent say it is getting worse.
Nearly half, 44 percent, of government employees rate their personal finances as good or excellent. Only 33 percent of private-sector employees do.
It sounds like public- and private-sector employees are looking at different Americas. And they are.
Private-sector employment peaked at 115.8 million in December 2007, when the recession officially began. It was down to 108.5 million last November. That's a 6 percent decline.
Public-sector employment peaked at 22.6 million in August 2008. It fell a bit in 2009, then rebounded back to 22.5 million in November. That's less than a 1 percent decline.
This is not an accident -- it is the result of deliberate public policy. About one-third of the $787 million stimulus package passed in February 2009 was directed at state and local governments, which have been facing declining revenues and are, mostly, required to balance their budgets.
The policy aim, say Democrats, was to maintain public services and aid. The political aim, although Democrats don't say so, was to maintain public-sector jobs -- and the flow of union dues to the public-employee unions that represent almost 40 percent of public-sector workers.
Those unions in turn have contributed generously to Democrats. Service Employees International Union head Andy Stern, the most frequent non-government visitor to the Obama White House, has boasted that his union steered $60 million to Democrats in the 2008 cycle. The total union contribution to Democrats has been estimated at $400 million. In effect, some significant portion of the stimulus package can be regarded as taxpayer funding of the Democratic Party. Needless to say, no Republicans need apply.
One must concede that there is something to the argument that maintaining government spending levels helps people in need and provides essential public services. Something, but not everything."
And from The Privateer (www.the-privateer.com):
"After the "health care plan" comes what is now being called the "Jobs for Main Street" act, a bill which through the house in a 217-212 vote (Tedbits note: party line vote )in December. The republicans have lost no time in dubbing the bill "Stimulus Two". It is a $US 154 Billion dollar package, half of which is aimed at extending "lifeline programs" for the poor and unemployed until the end of June this year. The other half of the bill is pure job creation, most being aimed at retaining "public employees" on the job. "Jobs on Main Street?"
NO. Just as the original stimulus bill was a government support and expansion act, as reported by yours truly, so is this one! Main Street be damned, as anyone knows this is the ultimate result of SOCIALISM, and it equals MISERY SPREAD WIDELY. Stimulus is only for their cronies!
Public and UNION employees are paid an estimated 150% of the private sector, and their pensions equally generous. Of course public employees don't have a requirement that they produce more then they consume, and you can say the same for unions whose employers are dropping like flies under the uncompetitive labor rates that are MANDATED and protected by government laws and regulations. Cost benefit analysis has gone the way of the extinct DO DO bird, the assumption being that government and its solutions are worth any price and never to be questioned; so the MAIN STREAM media and the something-for-nothing personality don't.
The construction projects are MANDATED to overpaid union companies, job support for state and municipal employees (UNION), credit guarantees for the biggest banks and crony capitalists such as GE, AIG, Fannie Mae and Freddie Mac, General Motors, Chrysler (transferred from public ownership and secured bondholders) to the Government and Unions, GMAC (nationalized last week: government owns 50% plus). The 19 banks which are now TOO BIG TO FAIL (now GSE's, or government sponsored enterprises) enjoy record profits. Once inside the government safety net, the risks are sent to the public at large and the profits to the elites who DONATED (couldn't use the real word: BR**ED) to the public serpents. MORAL HAZARD WRIT LARGE.
"It is well enough that the people of the nation do not understand our banking and monetary system for, if they did, I believe there would be a revolution before tomorrow morning." - Henry Ford
NO ONE knows what money is, but before this crisis is over they WILL.MONEY is a mystery to those even at the top of society, finance and business. Most are never taught this, and if the broad public was to understand what has been done to them it would cause RIOTING in the streets. CREDIT IS NOT MONEY!
Money has five functions and if what you store your wealth in does not function in this manner you AREN'T holding money. Those functions are:
- Medium of exchange
- Store of value
- Standard of value
- Measure of value
- Moves purchasing power through time and space
An example of real versus fake money is a one dollar bill versus a silver dollar:
In 1960, dollars were backed and redeemable in silver (US CITIZENS) or gold (Foreign central banks which used them as reserves). In 1960 you could exchange the paper dollar or silver dollar for 5 gallons of gas. Today the silver dollar STILL buys 5 gallons of gas and the paper dollar buys less the ½ gallon. One is real money and the other is an illusion and only as good as the promises of the issuing government.
In today's world what masquerades as money is only a medium of exchange and an IOU. Whoever holds them has FAITH that it will be repaid; in other words, faith that the government which issues them will not print them to INFINITY. The only thing backing a fiat currency is the PRIVATE property of the citizens of the country which issued them, as it can be exchanged for either goods and services in the issuing country or, in the case of the DOLLAR, global finance and trade which have been conducted in dollars since Bretton woods mandated it as the world RESERVE currency in the mid 1940's. Tens of trillions of these IOU's, aka G7 currencies, are held by people around the world. If they ever decide to REPATRIATE them or think they will be printed infinitely, and someday they will, the CRACK-UP BOOM will commence.
This unfolding depression is the failure of FAKE, unsound IOU's (credit is not money) masquerading as sound money and of PONZI finance imploding upon itself as much of the debt has been used for CONSUMPTION, rather than used for investments which pay for themselves because they produce more than they consume. Consequently, more and more productive capacity goes to pay previous borrowing rather than investment in the future. The G7 has eaten its seed corn and spent future seed corn for generations and now the future is BLEAK.
The G7 has entered the final stages of their empires and their financial and monetary systems face their demise as all credit-based fiat currency systems have done before them. They always collapse into insolvency, without exception.
It is the battle of TITANS. The most powerful central bankers, public servants, banksters, elites and crony capitalists in the world versus Mother Nature and DARWIN in a battle to see what truth and fiction are.
Unfortunately for the former, Mother Nature is extremely hard to find and impossible to KILL, and Darwin identified Nature's order in the world. Compete or die, produce more than you consume; these are ideas which the something-for-nothing, G7 welfare states have forgotten and lost the ability to do. Like King Canute they CANNOT stop the tides from rolling over them and washing them into moral and fiscal bankruptcy throughout the developed world (see Tedbits: Something for Nothing special edition released December 23, 2009 at www.traderview.com/tedbits/tedbits-SomethingForNothing.pdf).
Incomes in the G7 are collapsing because they no longer produce more than they consume, and so wealth is manufactured through MISTATED inflation, credit creation and the printing press. This is the definition ofredistribution of wealth, and misery spread widely. In the G7 they don't create middle classes, they consume them by FAILING to provide the policies necessary for the creation of wealth and rising middle classes.
Take a look at this essay from the BOND KING Bill Gross of PIMCO:
(www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Midnight+Candles+Gross+November.htm) as he outlines the fork in the road that was taken shortly after Breton Woods II in 1971. When public servants and BANKSTERS morally and fiscally tore the final underpinnings of sound money and redeemability in GOLD, from the world's RESERVE currency; thus, allowing them to STEAL the purchasing power of people's money while it NOMINALLY sits in the bank. If you read between the lines you see that he is talking about his own demise, as the assets he talks about are the same as those he manages.
In the emerging world they are doing the opposite, providing the conditions necessary for huge emerging middle classes which will dwarf their competitors in the west in short order.
Just as trillions have been printed or borrowed to this point, trillions will be printed and borrowed in the future. Anything you hear from ANY G7 central bank or public serpent is HOT AIR; the quantitative easing can never end, because they have RUN OUT of lenders, except for "Indirect Bidders," aka central banks, defending their reserves and reinvesting currency sterilization from intervention to stop their currencies from rising against the dollar (competitive currency devaluation raceway.)
The G7 governments are in DEBT spirals, which are when new deficits exceed GDP growth by considerable amounts and government spending and payments on previous borrowings can only be met by printing money out of thin air, because revenues are unable to meet current and future obligations.
Of course, these are government projections so the reality will be MUCH WORSE. The IMF estimates OECD budget deficits to average over 8.5% of GDP. Just this week it was disclosed that US public sector pension funds are $2 Trillion underfunded. You can just add that to the $70 + trillion of obligations ALREADY held off the books. As I outlined in the last Tedbits (Dec 31, 2009,) the treasury uncapped the losses that Fannie Mae and Freddie Mac can incur, in a fabulous article By Dr. John Hussman of the Hussman Funds entitled "Tim Geithner meets Vladimir Lenin" of how criminality and the people working without regard to the constitution loose in the beltway is fully explored (http://www.hussmanfunds.com/wmc/wmc100104.htm.)
A lot of words have been spoken about the budget deficits and the debt-to-GDP ratios of the PIIG's: Portugal, Italy, Ireland and Greece, but If you take off the rose-colored glasses, the core of the G7: the US, the UK and Japan, are FAR WORSE.
Take a look at this chart showing revenues versus expenditures going back to 2000:
The gap we see between income and expenditures is echoed THROUGHOUT the G7, and if you include the states and municipalities the budget deficits are over $2 trillion in the US. If you did the accounting according to GAAP (generally accepted account principles), rather than POLITICALLY correct methods, the US budget deficit BALLOONS to almost $9 TRILLION, as this illustration from John Williams ofwww.shadowstats.com illustrates:
If you think this is isolated to the US think again, Nadeem Walayat of www.Marketoracle.co.uk has done fabulous work on the similar situation in the UK and you can reference it here:http://www.marketoracle.co.uk/Article7526.html. It plainly illustrates the catastrophic drop in the real value of sterling, and the current 500% debt-to-GDP ratio, while illustrating the straight line of inflation that has been BARELY interrupted by the global financial crisis.
As Bill Buckner of www.the-privateer.com said in his November missive (I urge you to subscribe, its fabulous global macro):
"For 50 years, not one Dollar of new debt created by the US government to fund activities it does not wish to tax for has been repaid. The debt has been "re-financed" with new debt being sold to retire the existing debt."
Recall the words of Treasury Secretary Timothy Geithn@r in September when he said the debt ceiling must be raised so America's bondholders can rest assured that they will be repaid. This was a public acknowledgement that America must borrow more to repay previous obligations as income and revenue are unable to. I was shocked when he said this aloud, publically, as it underscored the complete MORAL and FISCAL bankruptcy of the US. In December when a short term increase in the debt ceiling was passed, the US was within THREE days of default, when they passed it on New Years Eve they had to RUSH a treasury auction into the last week of 2009.
The G7 financial and banking systems, as well as governments on all levels (national, state and municipal) are mostly INSOLVENT, also known as BANKRUPT, and the only thing preventing the crash is the widespread belief that the respective G7 governments will not allow them to fail. That is a grand illusion.
Think of the United States, in the beginning of 2009 there were only a few GSE's (government sponsored enterprises) such as Fannie Mae, Freddie Mac, Ginny mae, Federal Housing administration and AIG Insurance. Now there are dozens of them as all the 19 big banks now operate under quasi-government guarantees, and those banks are now making most of their money from trading activities rather than traditional banking. Not to mention Government.....er, General Motors, Chrysler, GMAC (just recently the government's stake rose to over 50%) which are ALL POLITICALLY CONNECTED or OWNED and SINKING INTO DEEPER INSOLVENCY daily AND GUARANTEED BY THE FEDERAL GOVERNMENT (the public). The one saving grace for these people is, as Helicopter Ben says:
"The U.S. government has a technology called a printing press, which allows it to produce as many U.S. dollars as it wishes at essentially no cost." - Benjamin S. Bernanke Chairman, U.S. Federal Reserve
The toxic assets that were to be taken care of with tarp (Troubled Asset Relief Program) still reside on their balance sheets due to REGULATORY forbearance. In other words, they leaned on the accounting boards to let them carry the assets at full value rather than marked to market, and trillions of dollars in losses are yet to be realized. The Federal Reserve has lowered interest rates to almost ZERO to allow them to rebuild their balance sheets and absorb the losses, but rather than doing so they are paying themselves big bonuses. The biggest banks in the world have to roll over $7 trillion of borrowing in the next two years.
Ben Bernanke made a trip to the mountaintop, aka the WHITEHOUSE, just as Greenspan did when he sought reappointment as head of the Federal Reserve under Clinton. I promise you he made the commitments necessary (MONEY PRINTING) to extend his term, if he didn't, Larry Summers would now be in line for the job. Hi ho, hi ho, off to the printing press we will go....
In conclusion: ONE QUESTION, what is the only thing standing between sovereign bankruptcy and solvency in 2010? The printing press.Why do we know they will print the money? BERNANKE'S reappointment, and the simple fact that if someone points a gun at your head you are going to duck rather than take the bullet. Public serpents, central bankers, banksters, elites and crony capitalists have a printing press at their disposal and they will duck, just as you would, and they will use it and let YOU, the public and main street, take the bullets just as they have since 1971. Quantitative Easing (money printing) in one form or another can NEVER end! The G7 economies will collapse if they do.
They WILL TRY to DEBASE the G7 currencies, economies and outstanding liabilities until their debts have been inflated away. They will be able to do so until the public, bondholders and creditors WAKE UP and TRY to EXIT by exchanging their holdings for real things. at which point the Crack-up Booms appear. Once this rally in RISKY assets ends the next leg down will commence.
State's revenues are off, on average 11-12%, sales taxes are off 9% (that is hard to understand as retail sales are supposedly climbing!) and income taxes are off 12%. How can the economy be growing with these numbers? When government borrowing and spending are counted in the Gross Domestic Product, that is how.
They can never allow interest rates to climb to neutral; negative interest rates are here to stay. But this has been the case for DECADES, and has been why every time the fed raised rates over the last three decades. The level at which the economy faltered was always lower than the previous peak in interest rates, and every low was lower than the previous lows. Malinvestments are failing at ever-lower levels of interest rates because, in order to right the economy, easy money and leverage are always increased during every slowdown.
Unadjusted for seasonality and labor force participation, unemployment is still RISING at up to 600,000 a month.
Take a look at this chart of comparisons of unemployment in past recessions and where we are now:
Until employment and REAL incomes rise the depression will not even begin to end. The government statisticians and main stream media are MANUFACTURING GOOD NEWS to fool their something-for-nothing constituents and MAIN STREET and provide COVER for their ONGOING FAILURES in restoring the economy.Subtract government borrowing and spending and GDP fell last year at least 10%. This year will be NO BETTER. Eight out of ten dollars of government spending is wasted (it's a rat hole and you know who the rats are); don't you think that that the money being borrowed or printed would be safer and better invested in the PRIVATE sector?
Currencies, Bombs... er, Bonds and Banks are ALL Rotten to their Core.
This is the epicenter of the unfolding financial crisis and inflationary/deflationary depression. The developed world is BANKRUPT and the policies of INSOLVENCY are entrenched in its leaders and citizens in such a way as to make the final destination of financial system destruction UNAVOIDABLE. The "something for nothings" in the developed world are firmly in control of the electoral process and their constituencies continue to grow as the global financial crisis crushes their incomes and future prospects. Taxes are headed far higher, thus transferring capital from the private economies (where jobs and incomes are created and where production exceeds consumption) to the public sector which has no idea what cost-benefit analysis is and consumes much more than it produces.
Author's note on another subject: There is no sugar coating this; virtually every chart I look at (outside down bars on weekly and monthly charts) is set to CRASH -- stocks, many bonds, commodities, crude oil, grains and many industrial metals. They look like the 1st wave down in an impulse wave into the next down wave of the unfolding depression, they better turn on the money printing (re-flation trade) or it will be curtains sooner rather than later.
This unfolding maelstrom and crisis is nothing but an opportunity for absolute-return managers with the potential to make money in rising or falling markets and learning how to restore the functions of money. This is what I do and if you wish to learn more and get a free subscription to Tedbits www.traderview.com/tedbits_newsletter_subscribe.cfm
Today, money is a mystery to the common man who has never been taught what it is or what functions it must perform to preserve its wealth through time and space. To teach him would send the existing central bankers, public serpents, banksters, crony capitalists and elites to their demise at the hands of the public they have betrayed.
The only currencies/money currently in circulation are Gold and Silver. The rest of the world's currencies (US, Canadian and Aussie Dollars, British Pounds, Japanese Yen, Euro, Swiss Franc, etc.) are credit masquerading as money. CREDIT IS NOT MONEY. It is only a medium exchange and a system of wealth confiscation. Money in the G20 has no intrinsic value; it is only a promise to pay or an IOU. So, its value is determined by the issuer's ability to pay.
"Holding dollars today represents risk without reward." -- Joseph Stiglitz, Nobel Prize Winning Economist
AT THIS POINT NOT ONE ECONOMY IN THE DEVELOPED WORLD IS GROWING AFTER PROPERLY ADJUSTING FOR INFLATION, BUT THEIR DEBTS AND OBLIGATIONS ARE CLIMBING AT 10-20%. This is the definition of insolvency and bankruptcy. Ultimately their printed money will go to its intrinsic value...... NOTHING.....
"Currencies don't float; they just SINK at different rates" -- Clyde Harrison
An illustration of this is provided to us from Mike Hewitt at www.dollardaze.org:
The value will ALWAYS fall equal to the rate of currency debasement, deficit spending and to the issuer's ability to pay. In the advanced economies, the ability to pay is crashing by the day as their economies do not produce more than they consume and they NO LONGER have the ability to do so without critical restructuring. Furthermore, it would require the undoing of the tax regulations and mandates which have ROBBED these economies of their ability to create wealth, of incentives to produce and to service their promises to pay. This is something the powers that be will fight at any cost, otherwise they would have to support themselves.
As www.the-privateer.com says in this month's edition "a global economy based upon credit creation cannot survive unless it continually expands to maintain the ability to service existing debt." The idea that the quantitative easing can be removed is false; debt issuance is at record highs as well the requirement of rolling existing debt; debt is extremely deflationary and for the G7 and the advanced economies they must INFLATE or DIE.
"The current crisis is not only the bust that follows the housing boom; it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency." - George Soros, Investor and Author
The developed world is in debt spirals where debasement is ASSURED because it is the only means of repaying the unpayable and inextinguishable debts and obligations which have amassed since Bretton woods II. Inflate them away one way or another. Take a look at money and credit creation through Sept 2009 (remember, this is not money but IOU's, also known as promises to pay):
WOW, just look at that. That is one hell of a pile of IOU's, just like a plane that tries to fly straight up, money and credit creation are now going VERTICAL, when it stalls the only thing that will hold it up is printing new money to replace that which disappears off the lender's balance sheets.
"The U.S. government has a technology, called a printing press, which allows it to produce as many U.S. dollars as it wishes at essentially no cost." - Benjamin S. Bernanke Chairman, U.S. Federal Reserve
That will work for a while until the public wakes up, and we will be looking at hyperinflation and the Crack-up Boom, just like Zimbabwe, Argentina and soon Venezuela.
Now let's take a look at the amount of debt which needs to be created in the world over the next several years to support the global government's EXISTING commitments:
Incomes are COLLAPSING and the unfolding depression has been MASKED by accounting shenanigans. Forth quarter, year-over-year US treasury, state and municipal receipts are off approximately 10.9%, but the debts and new obligations are growing at almost double the rate of the collapse in receipts and they are mushrooming like a nuclear blast. All this as politicians and their special interests mandate benefits, bailouts and business to themselves through new legislation (health care, cap and trade green technology, bank bailouts, AIG, Fannie Mae and Freddie Mac, mushrooming support for Government Motors, and the 19 banks now known as too-big-to-fail, which actually means: government-sponsored enterprises, etc.) and send the bill to the public they claim to serve. Every day the debts and obligations grow and the existing currencies in circulation take on an equal amount of lost purchasing power.
Remember the quote from Von Mises from the last edition?
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. -- Ludwig von Mises
We may not know the ups and downs that the economies, markets and societies may travel before arriving at that destination, but we do know the final STOP: Systemic meltdowns as the insolvencies overwhelm the ability to pay. In the United States the destruction is deliberate as the big government PROGRESSIVES on both sides of the aisle work hard to create the final collapse of the economy which will allow them to bury the free republic which was handed to us by the founding fathers.
To understand what is being implemented you need only to study the playbooks of the Cloward-piven strategy (www.Cloward-piven.com or) or the teachings of Saul Alinsky. Look no further than the CZARS, (www.traderview.com/tedbits/Czars.pdf) who have been put into place by the powers that be on Capitol Hill. PROGRESSIVES are relentlessly expanding those on welfare or who are dependent on government for business, thus creating the biggest constituency for ACTION after the CRASH of the economy. Congress has REFUSED to supervise them in contradiction to their oaths to UPHOLD the constitution. Do web research on this, it is frightening and true.
They are in place to assume power when the collapse that the progressives, the President and Congress are crafting becomes REALITY. What do you think the value of the dollar will be when the economy collapses and the ability to pay PLUMMETS? Every time the beltway and European governments attack the private sectors (populous rhetoric, new taxes, mandates and new regulations) the further away becomes recovery in the G7 economies.
The new taxes from all levels of government are set to skyrocket; these economic nitwits don't understand that taxes grow with income generation, not the destruction of it. They REFUSE to cut spending hoping for the GOOD OLD DAYS of unlimited consumer confidence and a credit bubble. Extend and pretend and it will end badly, as pretend is something a child does, adults don't have the luxury of doing so. Just ask Hugo Chavez how well that tactic works. The G7 and developed world are nothing more than collapsing WELFARE STATES and banana republics, and what we are waiting for is the RECOGNITION of it.
"Fiscally, we are in uncharted territory." "No one can know the precise level of net debt...at which the United States will lose its reputation...but a few more years like this one and we will find out." - Warren Buffet, 2009
The Global experiment with increasingly UNSOUND money began in 1913 with the creation of the Federal Reserve, and was then inflamed with Bretton Woods I, and ultimately degraded at Bretton Woods II when all pretense of reserve-backed money was SEVERED. At that point, the pendulum of wealth creation through real things like production, manufacturing and adding value (thereby creating RISING profits and wages) began to swing in the other direction, where wealth was, and still is, created by inflating paper (asset-backed economies).
This de-industrialization combined with the introduction of UNSOUND money short circuited the virtuous rise of the middle classes and wealth creation in the developed world, also known as the G7. In its place, wealth creation became the province of INFLATION and credit creation (printing money in one form or another).
For the G7 middle classes it has been a downhill slide ever since, as it now takes TWO incomes to support a family, whereas it took one to do so at that time. The destruction of the family and civil society also began as REAL INCOMES began their collapse under MISSTATED inflation numbers and fiat currency and credit creation. To illustrate the decline, take a look at this chart of incomes that have been properly adjusted for REAL purchasing power from John Williams of www.shadowstats.com:
Notice how REAL earnings peaked during Bretton woods II. Remember the quote from the last edition:
"By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose." - John Maynard Keynes, 1920
The demise of the middle class began at that time. The policies of government switched from capitalism, wealth creation, sound money, savings and private property to equal opportunity and the growth of the middle classes.
The progressive majorities in congress (republicans and democrats who hold these beliefs) reordered the United States economy and legislative agendas with the policies of socialism, unsound money, redistribution of wealth through money printing and deficit spending (which is the same thing as currency and credit/borrowing as BOTH are IOU's), in addition to increasing regulations and taxes, crony capitalism and centrally-planned economies. At the hands of that era, thanks to the banksters, crony capitalists, public serpents and central banks, came the misallocation of capital from where it produced the most wealth to those who were the BEST CONNECTED and paid the most RENTS to those in power!
Most blue-collar, middle-class people owned their own homes, had savings accounts and rising wages, paid for most purchases and education with cash, only borrowed for mortgages or big ticket items such as cars and had very little debt. The federal debt in 1971 ($436 billion) was 3% of what it is today.
Now they incur that much NEW debt in 4 MONTHS and hand the BILL to future generations. As of this writing, each man, woman and child's share of the US debt is $347,000 dollars. My son was born in May 2009, at birth he had this amount of debt handed to him by WASHINGTON DC when they issued him his social security card, or should I say social insecurity card. On January 28th the progressives in congress passed a debt ceiling extension of $1.9 trillion dollars, a new $45,000 dollars of debt per person incurred between now and the next election. Obscene, corrupt and immoral.
Now these debts and promises of future benefits have grown to grotesque size and scope and are inculcated throughout the developed world. The private sectors and the blue-collar middle classes are DEBT, TAX and REGULATORY SLAVES to the banksters, crony capitalists, public serpents and government.
Captive victims are what I call them; of course I am one of them. Very few own their home free and clear and 25% are underwater, their savings accounts are preyed upon by the money and credit creators preying on the purchasing power of the currency while it sits in the bank (how do you get ahead when banks pay 2% and inflation is compounding at almost triple that), and financing education has become a lifelong drag on the earnings it is supposed to raise. The public has been impoverished and is desperate for CHANGE back to the policies which allow everyone to have RISING standards of living now and for future generations, but they won't find them in the capitols of theDEVELOPED/ADVANCED economies.
There are taxes on virtually EVERY activity in which humans engage. Their prospects for entrepreneurism and an expanding economy have been trampled by regulations, fees, permits, and mandates which basically prohibit their challenging the crony capitalists (in fact the regulators prey on the small entrepreneur and almost never challenge the entrenched crony capitalist) and their government partners. They pay usurious rates of interest of up to 40% on consumer credit (this was illegal for centuries) and when currency debasement is included they should be considered "confiscatory" tax rates. If they want to buy almost any big ticket item, the only way to do so is to enter the clutches of the banking and lending communities. The ability to get ahead and the notion of private property are GONE!!! Stolen from them by the people in whom they have placed their trust!
The developed world has been turned on its head and consumed by the policies of creating middles classes and accumulating wealth. As Keynes put it, they are "debauching" society and the virtues of saving, thrift, ingenuity, entrepreneurism, self restraint and the work ethic. The rewards for these behaviors have diminished YEAR after YEAR till we find ourselves where we are today: Punished for these activities with the rewards CONSUMED by the "something for nothing" people whose wages and savings are stolen by the banksters, elites and public serpents who exploit them.
In 1971 the economic policies of the G7 switched from creating wealth and producing more than you consume, generating the wealth and savings needed to fund capital investment and jobs to meet the future needs of a growing populous (the Austrian recipe for wealth creation) to consuming more than you produce and borrowing from the future to fund today's consumption. This and misallocation of capital to growth of government, as well as political determination of who is successful by PUBLIC SERPENT mandates and regulation, which insulated the crony capitalist from having to compete. In order to thrive, you must pay RENTS to the political classes rather than compete in the market place of consumers.
It is interesting to note that the emerging world has embraced Capitalism to save their socialist governments, and in the developed world Capitalists are embracing Socialism to save themselves. Socialism is misery spread widely as crony capitalists increasingly rely on government support and mandates to be successful; while Capitalism is providing more for less for consumers and, in a rational world, GROWS. Which approach do you think will yield the greatest results?
As to what the dollar will do versus foreign currencies? Commercials, also known as the banks and who are rarely on the wrong side of extreme markets, are as heavily short the dollar as anytime in the last 5 years, as illustrated by Postcards from Capetown:
Notice the last time the banks were this short halfway through 2008. The dollar continued to rally for almost 6 months, and in 2005 they nailed the top, which tells us a rally can occur for up to 6 months, or turn very soon. If the crash occurs sooner rather than later, the world will run into the dollar as they are conditioned to do so like "Pavlov's dogs." My bet is that the progressives in congress and the European capitols push the economies over the ledge INTENTIONALLY!
The World's largest banks are INSOLVENT and they are operating in a world of regulatory forbearance and accounting fictions. The 5 biggest banks in the United States control over 2/3rd of the nation's deposits and have written OVER THE COUNTER DERIVATIVES with nominal values of OVER 200 TRILLION DOLLARS (16 times the size of the US economy and 3 times the size of the WORLD economy); they are making markets in naked credit default swaps, interest rate swaps, toxic CDO's (collateralized debt obligations) and securitized debt of all types.
The 19 banks deemed too big to fail are now MUCH, MUCH more insolvent than when they were RESCUED by the US Government, ditto for the largest banks in the UK, Switzerland and the Euro Zone. They are now guaranteed by the public who assumes the risk, and the profits flow to the elites who have been rescued. If the public ever gets the idea they are not guaranteed by government they would fail in short order. As the Bank of England governor, Mervyn King, says too big to fail is impossible to regulate to safety, and he is right.
Their liabilities are endless and their assets and capital are a function of impossibly opaque and indecipherable accounting. The biggest banks in the world must ROLL over nearly $7 Trillion of debt in the next 2 years, and without the government guarantees which allowed them to issue debt during the crisis, their costs of borrowing is set to soar.
To understand why they are still standing you must understand two concepts which apply to every central bank in the world, which I will bring to you as quotes. One from the founder of the Rothschild's dynasty:
"Let me issue and control a nation's money supply, and I care not who makes its laws." -- Mayer Amschel Rothschild, Founder of Rothschild Banking Dynasty
The other is from Gary North:
"The Federal Reserve System is not about making money at the expense of the government. It is about using a government-granted monopoly over money to regulate the economy to the benefit of a handful of large banks. This has always been its primary function.
The banking system is a cartel. The Federal Reserve System is the cartel's protector and enforcer". - Gary North
One more thing they have agreed to for their monopoly on a nation's money is that the governments and public serpents that protect them will have as much funding as they require. It does not matter which nation you chose, the system is the same.
"The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government-a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF's staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we're running out of time." -- "The Quiet Coup" by Simon Johnson, former Chief Economist of the IMF (www.theatlantic.com/doc/print/200905/imf-advice)
I urge you to read the above-referenced article, "the quiet coup," it sheds light on the current state of affairs. Most of these big institutions are owned in one form or another by what are called the Illuminati, or multi-generational elites such as the Rockefeller's, Kennedy's, Rothschild's, Warburg's, House of Morgan, etc. which have created a multiplicity of holding structures to hide their dealings and holdings from the public. They control the money and they control the lawmakers, PERIOD.
During periods of asset deflation, such as we are in currently, they consolidate parts of the banking systems which they do not control. Look no further than JPMorgan Chase's sweet- heart deals to take over Bear Stearns and Washington Mutual for pennies on the dollar with the Federal Reserve taking the risk on the liability side of the transaction by guaranteeing them from further losses. This is what was done during the GREAT DEPRESSION and it is repeating NOW. Thomas Jefferson said in 1802:
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.."
And of course we are staring this right in the FACE. Take a look at the DETERIORATING FINANCIAL conditions of the nation's banks as the crisis has unfolded creating the opportunity for further consolidation of the United States banking system (2nd quarter 2006 through 3rd quarter 2009), courtesy of www.institutionalriskanalytics.com:
Wow, in June 2006 most of the nation's banks where the picture of HEALTH, and now just 3 short years later almost half have fallen to grades of C, D or F. This is illustrated in any developed/advanced economy in the WORLD. Thousands of banks and their ASSETS are poised to fail, teetering on bankruptcy and poised to be absorbed by the elite's financial systems' holding companies for PENNIES on the dollar, and those same institutions are the OWNERS of the Federal Reserve. Institutional risk management rates JPMorgan Chase as an F; how is it that they can absorb these bankrupt brethren? The answer is clear.
This is being repeated throughout Europe as weak banking institutions are passed to the cartels sponsored by the respective governments. Even though the cartels are MORE insolvent than those they absorb, they will never fail; this is set to continue as they are "too big to fail" which is a code word for controlled by untouchable elites who control the governments in the countries in which they OPERATE.
Up to 40% of the banks in the developed world are insolvent and bankrupt. Trillions of Dollars, Yen, Euros, Pounds and Swiss Francs will have to be printed in the next few years to underpin and unwind these financial behemoths that are not politically connected!
The bomb....er, bond markets are where the final blast will occur when the developed countries' currency and credit-creation systems FAIL and when people holding IOU's masquerading as money WAKE UP. They will not SURVIVE the decade, but my estimate for ultimate failure is 2012 to 2015. Hopelessly OVERPRICED IOU's, the bonds themselves are denominated in hopelessly OVERPRICED IOU's of the developed world's (welfare states) currencies: US Dollars, UK Pounds, Euros, Swiss Francs, etc.
Let's take a look at the mounds of bonds that reside in the United States the need to be serviced out of current INCOME:
WOW, this pile of PAPER has increased 130% since 2000, but the incomes to service it properly have not increased at all. This picture is echoed throughout the developed world. A recent Forbes article (thank you Dennis Gartman for this infowww.thegartmanletter.com) put the debt-to-GDP ratios (each nation's sovereign and bank's debt combined) of the developed world at: Iceland 1,200%, UK 1,000%, Ireland 850%, Switzerland 750%, Belgium 550%, France 475%, Netherlands 450%, Austria 425%, US 400%, Denmark 400%, Germany 400%, Sweden350%, Italy 300%, Greece 300%. These are the pictures of insolvency; is it any wonder the Euro is weak? The Pound? Switzerland? This does not include other categories of debt we see in the chart above, nor does it include unfunded liabilities such as public pension benefits which can be several hundred percent to the above figures; for example, it is $75 billion in the US or another 500% to the total and it is the same everywhere.
"The problem with socialism is that sooner or later you run out of other people's money." -- Margaret Thatcher
It does not matter which class of bonds you look at: Sovereigns, State, Municipal, Investment- grade Corporate, or Junk bonds. All are hopelessly overpriced and are clear illustrations of how much money in the world is chasing too few opportunities for yield in a LOW GROWTH world. Many of the issuers operate in technical bankruptcy but enjoy the ability to roll their obligations due to politically-correct credit ratings and regulatory mandates.
International hot fire hoses of money desperate for returns in a developed world where growth has ceased. Buying has become indiscriminate and the public DOES NOT understand the risks; they are and have been piling in and they are in imminent danger!
The parasites of BIG GOVERNMENT -- progressive public servants, crony capitalists and banksters have short circuited wealth creation and capitalism, and have substituted socialist corporatism. There will be very little increased economic activity to service the debts, and massive defaults loom to those that cannot be rescued by public serpents or print the money. The PARASITES have and are continuing to KILL the private sectors and DESTROY the conditions and incentives for the private sectors to produce. Go back to Cloward-piven and Saul Alinsky to see what our public serpents are implementing. So, wealth creation is now dead and substituted in its place is FIAT CURRENCY and credit creation. IN PLAIN WORDS: THEFT.
Let's take a look at monthly charts of sovereign bonds first, it is a picture of multi-decade bull markets and massive TOPS created over the last several years:
You can see a massive head-and-shoulders top (not active yet) with a breakdown of the most recent trend line off the June 2007 low. The longer-term trend channel is still intact. The Federal Reserve and its children at the primary treasury dealers can read charts as well, the latest rally is probably engineered by them and it will be interesting to see if they can get through resistance at the trend line and stay above it.
Now let's peek at Investment-grade and Junk bonds with illustrations from David Rosenberg and www.gluskinscheff.com:
Wow, yields back to levels BEFORE the world economy fell off a cliff; do you really think their ability to service their debts is anywhere near that level, and for that matter, 50 cents of every dollar the federal government now spends is borrowed. This is a picture of trillions and trillions of dollars, yen, pounds, euros, Swiss francs etc., desperately seeking yield in a developed world economy which IS NOT GROWING.
Overpaying for yield of any kind, a 2-year note pays less than 9/10th of 1 percent, that is 9 dollars a year for the privilege of lending them $1,000 dollars, a 6-month note yields about 75 cents on $1,000, for 5 years approximately $23.40 cents on $1,000 and the 10-year $36 a year on $1,000. Everything else, muni's, corporate and junk bonds are similarly mispriced and the downside is quite large; are you going to risk 20-30% if rates rise to make these meager amounts? Risk $300 dollars to make $20-$75 depending on the bond you buy... the risk reward is upside down. Absurd... reckless...
Interest rates on all maturities stand at record lows and sovereign debt is basically an interest-free loan to bankrupt G7 governments, who only roll existing obligations and borrow new money; they never retire their debt. A ponzi scheme of unheard of proportions, and in comparison, the Madoff affair was a rounding error. Recently, bond king Bill Gross of Pimco WITHDREW from the UK gilt market remarking that they are sitting on NITRO Glycerin. Forth quarter GDP in the UK came in at up 1/10th of one percent, and the bank of England bought virtually all of last year's budget deficit; what do you think the odds are of rolling the old debt and funding new deficits in the private sector in 2010?
I can't emphasize enough how purely toxic the Municipal bond market is. Hundreds of billions of dollars of deficits loom on the horizon, and the unfunded liabilities are maybe a trillion dollars or more. For example, Illinois has almost $90 billion of unpaid bills and unfunded pension liabilities. NO ABILITY TO PAY. This is only one state and it is a story nationwide. NEW TAXES and FEES loom as they will bury their economies even deeper.
Year over year 4th quarter 2008-2009 US treasury receipts at all levels of government have declined 10.9% or more, yet today it was reported that GDP rose 5.7%; how can that be? During the great depression there were a number of quarterly periods where the economy grew. Unfortunately now, as then, it grew because government deficit spending was counted as GDP. Government spending is NOT growth; it is misallocation of precious capital to unproductive uses, aka government expansion, and support of crony capitalist bailouts.
I will go no further, the point is made, caveat emptor, play with paper and you could get burned as it is a house on fire. Bonds are bombs, banks are broke and currencies are toilet paper. Remember, never in 1,000's of years of history have fiat currency and credit financial systems endured, they have ALWAYS fallen under hands of the men that control them. Looking at the current crew does not lend confidence that this time history will be proved wrong.
In conclusion: PAPER IS POISON, PAPER IS POISON! Keep this in mind. This is not a liquidity crisis; it is a solvency crisis, both moral and fiscal. Bankruptcy looms and that means people do not honor their promises. Or they will do as Adam Smith outlined in the Wealth of Nations -- they will use the soft default of the printing press as they have for hundreds of years. The "something for nothings" will drive us to this, locusts that will eat everything until there is nothing left (see Tedbits Archives for December 23rd, 2009).
Public serpents, crony capitalists, central and big banks are DOOMED, their demise is on the horizon. The idea that paper currencies printed limitlessly by governments can gain value against the true currencies of gold and silver except for short periods is absurd. When central banks and the hedge funds known as BIG banks try to kill the canary in the coal mine consider buying pullbacks.
The worm has turned, there are trillions of dollars, yen, Euros, Swiss Francs and UK pounds which are promises to pay by bankrupt borrowers, while gold and silver are timeless money and no one's liability. Exchange an empty promise for a reliable one. The indirect exchange can be seen in many BUBBLICIOUS markets, as investors try and flee paper assets which contain no value and provide little return for the risks involved. Huge bubbles in paper assets and real ones are quite easily seen.
This unfolding maelstrom and unfolding crisis is nothing but an opportunity, absolute-return managers with the potential to make money in rising or falling markets and learning how to restore the functions of money can add an important diversification. This is what I do; if you wish to learn more and get a free subscription to Tedbits, click here:www.traderview.com/portfolio_analysis_analysis.cfm
The Fed is trying to shrink its balance sheet and withdraw, it will FAIL. To do so will collapse the economy. The reconfirmation of Bernanke was made ONLY after the explicit agreement to print the money, on that you can rely. The partners in crime known as the Federal Reserve and US Government: Evil twins. It's also an election year. Spend, borrow, tax and print, then do it again. The Fed has trillions of dollars of toxic assets yet to absorb on the way to hyperinflation and the Crack-up Boom. So...
The "when hope turns to fear" moment may be at hand. YOU CANNOT IGNORE the message that was sent in many markets in January. OUTSIDE down bars, key reversals, Cambridge hooks, call them what you will but it is a powerful chorus of FIREs burning, in the economy and in the markets. As Dennis Gartman says, "attention must be paid". Many Grains, some industrial metals such as Dr Copper with a doctorate of economics. Stock indexes, you name it and it is UGLY, put on your stops if you are long.... I will pick up this story in the next edition of Tedbits, don't miss it!
The election of Scott Brown to Senator from Ted Kennedy's seat in Massachusetts is sweet irony that his seat stops socialized healthcare, god does work in strange ways. This cry from Main Street following the Virginia and New Jersey Governor's defeats and the Massachusetts Senate upset are falling on DEAF ears in the beltway. The site of the UNIONS carving out $60 billion of tax breaks for themselves and government workers before the health care bill was DELAYED was such naked corruption as to beggar belief, but I guess that describes the whole effort.
The st@te of the union address signals BIG trouble -- we saw a BLIND ideologue and Hitler-like populous POISON, blaming his opponents, calling out the Supreme Court and refusing to hear the message of NO MORE BIG CORRUPT government.
The obscenity of government running up NEW debts of $45,000 PER PERSON by next November, an inconceivable number to people who earn less than that. Did you get $45,000 dollars worth of government? I know I didn't. Don't you think the press should report that in language and terms we all understand? No wonder no one reads the main stream press. Somebody will pay; unfortunately it is you and me. I shudder for my family, your family and our children's futures; it is insane. Criminals are destroying our futures. Their special-interest supporters are accomplices to high crimes and misdemeanors and sociopaths all.
Thank you for reading Tedbits.
Theodore "Ty" Andros
www.traderview.com
Phone: 800-253-7689
Fax: 312-384-1198
