Need Money? Ask the U.S. Treasury for a Handout

Yesterday, US insurers got a bailout. And chances are, if you are running a company, you already know this. That if you can somehow convince or just even scare the US administration that your company will fail, the magnanimous US treasury will give you at least few billions to play with. The US treasury is now in the same mode of putting money in every firm and sector as were its (until now) highly revered financial institutions. The assumption of financial institutions was that the assets they were purchasing would never fail or go down in value and they could always sustain 30:1 leverage.

Now the same bug has somehow bitten the US treasury and Federal Reserve. And it does not surprise me at all if I look at who is at the helm of these institutions. They are putting money into every company that operates in US in the hope that they can sustain huge deficits with the blessings of idiots in China and other parts of the world who, instead of doing the welfare of their own countrymen, would rather prefer to invest in US treasury bonds and US Dollars so that a homeless person in the US can afford to buy a half million dollar house. And when he defaults on the very first mortgage payment, the Senate can reduce his first mortgage, second lien and third lien.

This is a great scheme run with the full blessings of the US government, robbing idiots around the world in broad daylight. In this case, the home builder got half a million dollars, the homeless person got the home, US banks got a reduced mortgage which would be compensated by so-called tax payers' dollars. But my claim is that these are not even tax payers' dollars. These are the dollars which are funded by buyers of US treasury bonds in China and other parts of the world. And ultimately they will be bearing huge losses of this great Ponzi scheme run by the US government.

The only companies in het US that are in any better shape are few technology companies. But given this new trend of free federal money, I'm sure they will be preparing themselves to stop working hard and rather start creating a new commodity market in Silica (as in Silicon, which actually is sand) and then invest billions in its ETF and derivatives of it. That will be a sure shot way to earn billions in the short-term as investors who don't even know what Silica is invest in it. And when the bubble bursts, go to the US government's dollar printing press and ask for a few billion more.

I'm sorry for being so critical and satirical here. But now, the folly of this whole process is just amusing to me. I can't stop wondering, what is prompting the world leaders to still take their cues for growth which are based on this US Ponzi system? What stops them from printing their own money and doing the direct welfare of their own countrymen? Why do governments around the world choose to focus on he tUS consumer rather than their own consumers if they are the ones who are ultimately providing financing to the US consumer? I think the answer lies in the fact that it's just a matter of time. But that gives the US a few more months, if not years, to keep borrowing at a near 2% rate for a 30 year US treasury bond.

In my opinion, the longer term US treasury bonds are a great shorting candidate now. Realistic yields are in the range of 5-5 1/2% for a 30 year bond, and they will get there very soon no matter what the Federal Reserve tries to do. Unfortunately, that's also the time the US administration has to fix its new policy of throwing money at every problem rather than trying to solve it with intelligence.

Disclosure: No position in US treasury bonds right now.

Comments

[Moon Kil Woong:]

Actually, Europe is already partially pantomining US overprinting and deficit spending with artificially low interest rates. Asia is trying to keep up with devaluation as well. If everyone devalues then it's like nothing happened.

As to why Asia supports the deficit, buys US treasuries, and supports US gluttony is simple. China has very little real demand besides food and basic needs like clothes since most all the wealth is concentrated in the .5% of the population that has everything. So much for communism. Such an out of balance economy can not drive decent consumption.

As for Japan, some yoield in US investment is better than no yield under their ongoing dallyance with quantitative easing that has been quantitatively easing their economy for a couple decades now. Why the US wants to go there is laughable. Personally, I believe in vicarious learning but the Fed and Treasury apparently can't learn without direct experience. And even then, they tend to fail.

After all, wasn't artificial and unsustsainably low interest rates the seeds of our current predicament? So why is their policy artificially lower and unsustainable interest rates to help us. Really? Already treasuries are so flooded with excess paper that that bubble is about to burst. Talk about a nightmare.

I really wish the Fed and Treasury would get some common sense into their heads before they ruin the the US which has been the greatest engine of growth and productivity the world has ever seen.

Who should we blame, I suppose Congress since they delegated rate setting and monetary controls to a bunch of self serving banks who don't know anything about economics (save a few like Volker). Fixing interest rates should not be in their purview. Clearly they can't handle it. Giving them the rights to determine systemic risk is laughable at best. They are the systemic risk.

May 16 02:02 AM

[johngonole:]

Imagine when all that foreign held debt is either no longer wanted or is converted into dollars. If dollars are no longer wanted they will all find their way back into the states. Then we will have hyperinflation. This is the inevitable end of the ponzi scheme.

As for the money being handed out to all the losers. I guess we will get what we pay for. Corporate welfare (the worst kind of economic facism) will do to our businesses what welfare has done to the poor. I agree with the author that its just become one big joke. Its disheartening.

Big government and Big financial conglomerates are wrecking this country. Not to mention are media is also very concentrated. Power has been become way to concentrated.

May 16 02:23 AM

[johngonole:]

I agree also that technology is where we are the strongest. Though most of the hardware is now being produced overseas. Still we probably have the best internet and software companies in the world. I look for this to continue for some time since American kids were first have computer and a computer in every household probably occured here first too. Eventually we won't be able to keep up because of our shear lack of size and population. Still right now we probably have the most technology geeks from young to old.

May 16 02:26 AM

[MarkitWacha:]

You're right.

There was evidence supporting your argument this week, when Brazil came out and said it wanted to have bilateral trade with China, and avoid the conversion of their currencies to the dollar.

To the point of your second comment, the software companies have been hiring foreign workers. If the incentive to immigrate is diminished, the supply of workers will be insufficient for sustained growth. The software engineering profession is highly dependent upon productivity gains from processor speed. With diminishing speed increases, and few major software engineering tool improvements on the horizon, the future is rather uncertain.

The work in software will come from businesses with increasing complexity. That would include biotech, for instance, because that is infinitely creative and complex. The problem is the initial costs and barriers to entry keep rising.


On May 16 02:26 AM johngonole wrote:

> I agree also that technology is where we are the strongest. Though
> most of the hardware is now being produced overseas. Still we probably
> have the best internet and software companies in the world. I look
> for this to continue for some time since American kids were first
> have computer and a computer in every household probably occured
> here first too. Eventually we won't be able to keep up because
> of our shear lack of size and population. Still right now we probably
> have the most technology geeks from young to old.

May 16 11:47 AM

[henarl:]

Actually the U.S. Treasury asked me for a hendout last month.

May 16 04:52 PM