Defaulting in Plain Sight 22 comments
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It's finally occurred to me what is happening.
The United States has committed sovereign default at least twice in the past 100 years; once in 1933 when Comrade Roosevelt seized gold from private hands and revalued it, and again in 1971 when Nixon ended convertibility. Neither of these events were presented at the time as defaults. Neither of them is taught academically as a default, yet that is exactly what they were.
Both events represented a significant devaluation of paper fiat "currency-thingies". Both events represent a sovereign government, the United States federal government, breaking its word and revaluing its currency (downward, of course) for its own benefit.
We are doing it again, right now, in plain sight. The visible effects of this default will play out over the next few years, or perhaps all-at-once, but play out they shall. And we are all so distracted by the idiotic inflation / deflation debate that we can't see it. Other than default, how else can you characterize $24 trillion in Fed and U.S. Treasury economic backstopping? Remember, this is in the U.S. alone. Had this backstopping, equivalent to 1.5 times U.S. GDP, not been set in place, the economy of the world would have collapsed.
Question: is this $24 trillion in new currency, $24 trillion in new debt, or something else? Is it a promise? Does it exist only in our minds, perhaps only in our hopes? Is it a lie, or is it true? Remember, had it not been done (so they say), we'd be riding bicycles and cooking rats over burning automobiles. So does it exist, or doesn't it?
Remember, too, that all it has done is stem the hemorrhaging. The balance sheets of the major banks, and of goodness knows how many smaller banks, are shredded. It's pretty well established that banks are insolvent, right now. The only reason they're still open is because the government "regulators" have allowed them to lie about their balance sheets. They've done this for political reasons, not economic ones.
It's already been pointed out that Western banking "authorities" are doing exactly what they told those silly Asians not to do just a few years ago: hide the truth and hope to muddle through. This time it's the Western authorities who are doing it, and they are doing so in an internationally cooperative manner; they're all in the same condition.
Governments have clearly demonstrated their willingness to use their legal monopoly, via the courts, to pick winners and losers. They are perfectly willing to do whatever it takes to maintain this monopoly.
So, I wish to revisit the $24 trillion. Do any of you honestly believe they wouldn't print it if they had to? Are we reduced to merely arguing whether or not it will be necessary? In my opinion an argument can be made that they've already printed it, merely by suggesting they would do so if they had to. By their admission, it was urgently necessary for them to announce its possible creation; again, does it exist or doesn't it?
If it exists, the currency has been debased; if it doesn't, then break out the bicycles. Mass realization of this fact has been stalled by a massive misinformation campaign and massive vested interest in the status quo. Which financial players (bankers, economists, accountants, politicians, central banks, etc) are willing to go to bat for reality?
The answer is the same as to the question of who is willing to step outside the two-party political paradigm: almost no one. They all earn their living from the (old) system. They can be counted on to continue supporting the lie.
So the people of the world wait patiently for reality to assert itself. I have to ask, though, a very important question: If $24 trillion is only sufficient to slow the crash, how much will be needed to start a "recovery" where jobs are created? The $24 trillion constitutes default. The system failed and could only be rescued, and even then only partially, by a $24 trillion promise against $800 billion currency in circulation. Oh, look, it's our old friend the 30:1 leverage ratio again.
Am I the only one who sees this for what it is? We HAVE defaulted. Math doesn't lie. Where is the money going to come from to pay off all this debt? Bernanke's computer mouse.
Meanwhile, blinded by B school conflation of money and credit, we sit around arguing about inflation or deflation.
Disclosure: Long PMs and various dollar shorts, hedged by a substantial cash position.
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www.bloomberg.com/apps...
I apologize for the error. I cannot explain how $23.8 Trillion got subbed. The article needs to be corrected to include the correct number, $12.8 Trillion, and the point made about leverage is no longer mathematically correct. I stand by my assertion that we have defaulted, the difference only being one of degree.
This scheme has already failed. The borrowing, bailing, and guaranteeing is but an act of desperation, attempting to revive the scheme, but sections of the pyramid are not nourished and are dying. Although the players that provide funding are patiently waiting, pure faith is the only thing keeping the house of cards together.
Although on a smaller scale, I have seen this movie before. Once the handwriting on the wall is clear enough, faith disappears. The end is sudden. It's like finding out about Santa Claus. Once you know, you know. And you can never go back to where you were before the moment of enlightenment.
On Sep 23 12:54 PM SW Richmond wrote:
> Thanks Steve, it appears I have grabbed the wrong number, $23.8 Trillion,
> when I intended to use $12.8 Trillion. I've checked my documentation
> for $23.8 Trillion and have found it nowhere. The independent documentation
> for the $12.8 Trillion is here:
> www.bloomberg.com/apps...;sid=armOzfkwtCA4
>
>
> I apologize for the error. I cannot explain how $23.8 Trillion got
> subbed. The article needs to be corrected to include the correct
> number, $12.8 Trillion, and the point made about leverage is no longer
> mathematically correct. I stand by my assertion that we have defaulted,
> the difference only being one of degree.
The government's credit means nothing if it is not collecting tax revenues. People forget that "the government" is not a revenue producer--it only extracts revenue from other people. And there is your catalyst. When the IRS/GAO finally admit how low the tax collections are, and the politicians cannot raise taxes any higher, then that is when it all crashes.
This could take quite a while. Ponzis always last longer than they should. Madoff lasted how long in plain sight?
www.zerohedge.com/arti...
Apt description of where we are.
Those fiat "currency-thingies"... they're overdue for a run.
On Sep 24 01:12 AM cd wrote:
> I wonder why SW Richmond would hold a substantial cash position?
Thomas
Tell me Stocknerd, why will things get better soon? Is it because unemployment is improvingr or just increasing at a decreasing rate? Is it because business and personal balance sheets are getting stronger and banks will feel confident lending money again or is it because you think we the people can raise $5 to 10 trillion by raising taxes a few bucks on everyone making $100,000 plus?
And last, what does the tax misery others are being subjected to in other countries have anything to do with citizens in the US?
I'd love top share your enthusiasm about things gettig better soon but you haven't shared anything substantial other than your hope.
On Sep 24 09:06 AM stocknerd wrote:
> Another end of the world scenario. Wrong. First of all the econmy
> will not linger in purgatory forever, believe it or not, it will
> get better. Plus we can always, OMG, raise taxes. The whinning Americans
> and their High tax bill---they need to look to other countries to
> see what heavy taxes feels like. I guess we can always cut money
> for the military, the police forces and maybe cut some tax breaks
> for the farmers and taxes from interest you pay on your house, plus
> the insane child deduction tax. ALL End of the World scenarios are
> silly and wrong.
On Sep 24 08:03 AM SW Richmond wrote:
> Because I've been expecting a hyperinflationary depression. First
> a prolonged deflationary sag to strip you of your job and make you
> sell anything of value to survive, then a hyperinflation to make
> everything you need cost dozens of times more that previously. The
> cash position is to defend the gold position through the deflationary
> period; that is, the cash is to allow me to avoid being forced to
> liquidate my gold.
(1) That nearly 13T dollars quoted above co-mingles things with different maturities and different characteristics--risk guarnatees to FDIC, Social Security, debt guarantees and plain old debt.
Imagine someone in their mid-twenties with a life indurance policy, a perfectly managable mortgage for a condo and a car payment. Add up the liabilities and then get all exercised because the total liability is five times his income--well, that would be ridiculous, and that's what's going on here.
(2) The U.S. economy is a 14 T economy, and the total debt is approaching 100% of income. Not good, but there are quite a number of industrialized countries that have that level of debt. Go to the CIA factbook web site; you'll find that U.S. indebtedness in about par for the OECD countries.
While it is possible to get exercised about this, I suggest that this is more a politicial program than it is anything else. This level of indebtedness did not dramatically change since the Bush administration: on the contrary, it increased dramatically when tax cuts and the broadening of Medicare benefits were enacted.
Will there be inflation? Someday, but hyperinflation isn't likely. Will there be tax increases and reduced spend to bring the deficit more in line? Probably. This is a tempest in a teapot, folks.
Your strawman comparison breaks down. You don't state whether your young man already has cash flow needs that amount to more than his income. It's not just about debt-to-income, but rather, is he borrowing to stay afloat? Those payments become a problem if the rest of his lifestyle is profligate. His answer is to borrow more, telling his lender "it's a temporary setback". Debt-to-GDP is only one measure, and a poor one at that. You also fail to mention that, without the borrowing and spending, GDP (and tax receipts) would be falling even faster than it is, so we are borrowing and spending in an effort to maintain tax receipts. In other words, we are incurring interest expense in an effort to maintain tax receipts...to pay interest.
Also, if you could show me where the fiscal restraint you're looking for will come from, I'd certainly appreciate it. And no, we're not going to save money by nationalizing health care.
I have enough cash to lose my job and still survive for an extended period, without withdrawing any IRA assets. The survival period becomes much longer if I withdraw IRA funds to survive. I am not margined and would not try to time this. There are irrational men with political motives on the other side of this equation, working for Wall Street banks, and damned near anything is possible. Inflationary consensus is forming, making this a perfect time for the Fed to withdraw liquidity, crash the markets, force money into Treasuries, and punish dollar shorts. I'm expecting next leg down, but I don't have my finger on the button, someone else does.
A new reality will soon emerge that will equate essential commodities with the paper wrapped about them. And it's not a pretty picture for the paper. Richmond is right. Keep a little paper to pay your taxes etc. but store your wealth in something more substantial.
If the government told you that a small amount of arsenic was nutritional and you where forced to eat it and everyone else was eating it, that would not make arsenic nutritional.
Again reality is a an absolute.
Small amount of arsenic will not kill you right away but it will kill you eventually.
Paper money will not rob you of everything right away but it will rob you of everything you worked for eventually.
Both statements are absolutes of reality.
Put another way if you lived in a condo and loved your home, but an architect showed you the math behind why your build will collapse but could not tell you when because of random load distributions, and it collapses in 10 years not right away. Was the architect wrong? No, you could have moved let other stay and felt jealous that they enjoyed the build for 10 years. But the end result was an absolute the people left in the build when it did collapse died.
I am not saying that paper money will collapse in 10 years, what I am saying is I do not know when it will collapse, and you could try and time it but does it makes sense to put your self at risk?
No
Thus gold and silver may go down priced in paper money but it will NEVER go to Zero.