Alan von Altendorf

The Fear Bubble: Treasuries and Gold

Remember when it was a patriotic duty to buy war bonds? Then Series E Savings Bonds? Now it's 10-year Treasurys dead certain to lose money. The church of gold, if you want to sling mud at liberty, doesn't have to give its name and home address to the government, doesn't have to stand in line at the post office or whichever FDIC-makebelieveinsure... bank is still standing next month. Around the world, central banks and private banks know that gold is money. We trade sovereign notes, claims on future tax revenue, because there's a legal embargo against gold-clause banking. But the long view of history suggests that paper money regimes come and go.

Understanding Government Debt: The Treasury's Indispensable Role

Vital role of the Treasury?? Destroyer of value...

Dec. 15 (Bloomberg) - The world economy has “suffered a cardiac arrest”... The U.S. stock market has plummeted, wiping out $7.6 trillion of investor wealth... Other markets have also fared badly, with the MSCI World Index of stocks in 23 developed countries down 47 percent... "We’re facing a once-in-a-century problem,” says Harvard University professor and former IMF chief economist Kenneth Rogoff. “The global scale and magnitude of it is much greater than those we’ve seen before. We’re going to face a deep downturn... The challenge now is to contain it to a couple of years and not a decade.”

Dec. 15 (Bloomberg) - Manufacturing in New York contracted in December at the fastest pace on record as orders and shipments remained weak. The Federal Reserve Bank of New York’s general economic index fell to minus 25.8, the lowest level since records began in 2001, from minus 25.4 in November, the bank said today. Factories are scaling back production as consumers retrench in the face of a weaker job market and a recession that began a year ago. A deepening global credit crisis has hit overseas trading partners, undermining foreign demand for U.S. goods.

Understanding Government Debt: The Treasury's Indispensable Role

Psst, S.C.C -- Of course Mr. Hummel is right, govt never has to pay off its debt, they can do whatever they please. Confiscation, conscription, wage and price controls, rationing, prohibition, forfeiture, nationalization, wars of choice, wars by proxy, bank holidays, parades, fireside chats.

Understanding Government Debt: The Treasury's Indispensable Role

Ahem. "Private" firms who exist solely and exclusively as contractors to DoD and NASA are government agencies, period. It's folly to pretend that mercenaries like Blackwater guarding State Dept officials in Iraq aren't really soldiers, or that KBR drivers and quartermasters aren't really working for the US Army.

The proper guage of public employment-benefit is simple. Government expenditure (fed + state + local) as a percent of GDP equals total drag on the economy. When it tiptoes over 50% the game is up.

Your remarks about "excess" money that private investors merrily hand back to the Treasury are amusing or horrible, depending on one's capacity for gallows humour. Commercial paper, IPOs, LCs are dead, munis unsaleable, Tier 3 buried in mystery, piling up on the Fed's fantasy balance sheet, and gold headed for the moon.

Understanding Government Debt: The Treasury's Indispensable Role

P.S. - This sucker is going down -- fast.
www.bloomberg.com/apps...

Understanding Government Debt: The Treasury's Indispensable Role

Anyone care to remember where the "greenback" came from? Gold clause contracts couldn't be paid off by the US Treasury, not even with wartime taxes, forefeitures, IOUs and requisitions. The Civil War greenback was no different than a worthless Continental dollar, until the Supreme Court held that greenbacks were legal tender for public debt (screwing the gold dollar lenders). FDR pulled the same trick in 1933, Nixon in 72.

I had a brief corrspendence with Milton Friedman in the late 1980s, when the Total US Debt (federal, state, local govt and private sector) as a percent of GDP exceed the high water mark of Worl War II. Friedman assured me that arithmetic ratios didn't matter, rather the rate of change on a log scale was the thing to watch. In the past six months, the rate of change has been flashing red. Cutting rates to zero and openly buying their own debt extinguishes whatever warning system we once had.

Mr Hummel was a career government worker. He's on the winning side, and proud of it, I suppose. NPR reported today that the only people now qualifying for home mortgages are teachers, cops and firefighters, the public servants who can't be fired, won't lose their jobs.

One last remark, for the record. It didn't have to be this way:

"The Fabians advanced the view [in 1889] that Socialism could be made to grow gradually out of existing institutions of society by a process of evolutionary development. Agreeing with Marx that the historical forces of economic growth were inevitably 'socializing' one part after another of the lives of men. they held that there was no need to overthrow the existing State, but only to capture it and transform it into an instrument of welfare." (G.D.H. Cole, British Working Class Politics, 1941)

It's change you actually *do* believe in.