While everyone is finger pointing at everything under the sun, trying to evade responsibility for causing the entire planet’s financial systems collapse, we can plainly see that there is a deeper and more distressing melt down underway: the end of the US control of world currency and world trade. Like all previous empires, ours is collecting debt relentlessly and thoughtlessly. And extending these roll-over debts into longer and longer bonds which is why we have opted for a zero-interest rate regime. Which means, we are committed to a very long depression.
Tracking all of this can quickly become tiresome because the news is quite relentless. Most US and European media prefer to focus on problems in Asia in the hopes, this will deflect minds from thinking about the West and how irresponsible and careless the West has become. For example, the Wall Street Journal has this article about too many Chinese college students: China Faces a Grad Glut After Boom at Colleges .
Many of them, it appears, are not very well trained. As if we can complain! Sheer numbers of them, of course, are overwhelming all systems. In the US, it is hardly much better. Students graduate from school only to discover, their degrees are worse than useless. They end up deep in debt, trying to pay of loans for things they never got to use in real life.
International competition has killed many college-based careers here in the US and this will worsen, not get better, in the next 20 years unless we suddenly get people in office who are believers in supporting government revenues via tariffs instead of taxing workers to death.
The notion that the Treasury Department could issue a 50-year bond surfaced in the bond market Tuesday, said David Ader, head of government bond strategy at RBS Greenwich Capital, though Ader says he doesn’t think Treasury will make such a move.
It always starts out as gossip or ‘I wonder…’ and then morphs into reality. We know from History, She is very clear about this, all empires that continue unprofitable wars even while going bankrupt, will never, ever stop spending on useless wars but rather, will create more and more debt instruments and extend these into the far future.
For example, the Spanish Empire did this. They basically mortgaged over 50 years of future tax revenues in order to fight the stubborn Dutch who happened to excel in a certain field: credit creation and debt instruments.
Like the US today, Spain slipped into debt to the very same entities they were fighting. See how wonderful the wheels of History turn? No one seems to learn anything.
The speculation comes ahead of Wednesday’s announcement of how much in debt the U.S. plans to issue next week and any further changes to its debt issuance calendar. Advisers to the Treasury, after last quarter’s meeting, said they considered 50-year bonds but opted not to recommend that option. The government has resumed selling 3-year and 7-year notes in recent months to help spread out its increasing financing needs. Instead of 50-year bonds, which would be the longest security ever issued by the U.S., the Treasury may prefer to sell 30-year bonds more often, said Ader.
Rolling it all into a cascading series of 30 year bonds won’t clear up our debt. Instead, this puts it off for maybe two years, if we are lucky. And imagine this: we paid off most of WWII and the hangovers of WWI debt in a mere 20 years! Then, went off the cliff and haven’t balanced any budgets since 1971.
Seemingly, nothing too horrible happened so we became accustomed to overspending. Both political parties solemnly swear, they will lay off. But don’t. I am rather angry with Ron Paul, for example, because he didn’t exit the GOP when Bush and his gang doubled our debts. Now, he complains about the Democrats doing the exact same thing. Someone has to take on the risk of resisting this force and a great way to do this is to loudly exit the two primary parties.
But then, Ross Perot, who tried to start a third party, joined the pirate party and lost all his loot. Boo hoo for him. I am very angry with everyone: they all tried various tricks and schemes while not fighting actively, against these major forces of destruction. Sometimes, one has to cut off one’s buddies and friends and take a stand. A hard, hard thing to do but it must be done.
I have done quite a few graphs about the US budget deficit. First, we have to remember, nearly all of these are not the real data for they leave in the extra SS taxes levied on the working classes which suck up about 40% of the budget deficit. So the deficits, starting with Reagan, are actually much, much worse than this graph shows.
Now, the part in the red: this is due to the END of the excess funding via Social Security extra taxes! The baby boomers retire and this extra money vanishes. So the debts are worse, much worse, thanks to this business. The government was utterly dishonest when the media and the politicians spooked everyone into supporting a near-doubling of taxes on the working class. This money was supposed to be saved so our government would not go deep in the red starting in 2010. Instead, it was used to cut taxes in the upper brackets with the Reagan tax cuts and onwards.
How can we run only $1 trillion in the red when we ran up nearly $1 trillion in red ink in just 6 months? My own calculations are, it will be closer to $2 trillion a year from now. The worst part is, the government debts are swamping global bond markets. They are losing value, I dare say, due to excess amounts hitting the markets at the same time. This is a bubble. Too much credit=bubbles. Since the US runs the global fiat currency, we can get away with ‘selling’ our bonds to ourselves even if we have no ‘money’.
“The short-term markets are in much better shape because the U.S. government has done a lot to help,” said Barr Segal, a managing director at Los Angeles-based TCW Group Inc., which holds $90 billion in fixed-income assets.
‘Fixed income assets’ are bonds, I am assuming.
- Fixed Income assets refer to assets that provide their owners with a fixed stream of income. Bonds are the most common example of a fixed income asset. Companies and government entities will issue bonds or IOUs to investors. These bonds typically pay a fixed rate of interest or coupon rate to investors for a fixed period of time, thus the name fixed income. At the end of the period, the investor receives his principal (the orginal amount of money paid for the bond)…Fixed income assets historically have had a much lower rate of return than stocks (equities).
In other words, coupon clippers. These people produce nothing. They just latch onto our government and suck it dry. These sorts of things are not productive if the government is wasting money on useless wars that bring in no loot or giving out reckless tax cuts while running continuous deficits.
Libor, calculated by the British Bankers’ Association, helps determine borrowing costs on about $360 trillion of financial agreements ranging from home mortgages to corporate bonds, according to the Bank for International Settlements in Basel, Switzerland.
What? There is $360 TRILLION in ‘financial agreements’? Um, this sounds a lot like the article is talking about the dreaded Derivatives Beast. Below is an article from 10/20/2008:
- As Libor measures the rates at which banks are prepared to lend to each other, it follows that it also determine the rate at which they are prepared to lend to their customers. It eventually goes on to set the rate of $360 trillion (£210 trillion) worth of financial products worldwide, ranging from mortgage rates to car loans.
So, last year, it was $360 trillion and still is, this year? Eh?
- For a long time, it looked as though private markets could step into the breach — recycling first petrodollars in the 1970s and latterly Asian dollars back into the global system. Floating exchange rates were volatile, but instruments such as markets in future exchange rates emerged to manage new risks.
- There might be serious ruptures, like the Latin American debt crisis in the 1980s or the Asian financial crisis in the 1990s, but basically governments could step away from global economic management. The markets would do the job.
- Now we know they cannot. The crises of trust and out-of-control speculation that wrecked Latin America and Asia have now attacked the system’s core in the US and Europe. The system proved unworkable. In good times, uncontrollable flows of private lending created massive asset price bubbles.
- In bad times, nearly US$3 trillion of loan losses have overwhelmed the capital of the Western banking system. Tsunamis of speculation in a US $360 trillion global financial derivatives market, allegedly hedging risk, mean that everything — currencies, interest rates, share and commodity prices — swings unstably, irrationally and incredibly quickly, beyond the capacity of actors in the real economy to react. The system is devouring itself.
How refreshing! The Asia Times tells the truth. This $360 trillion which is the ONLY number cited between September, 2008 and today, is really the Derivatives Beast, as I suspected.
- CHANGES UNVEILED FOR LIBOR
- The British Bankers’ Association (BBA) will broaden the survey used to set the London interbank offered rate (LIBOR) — an instrument underpinning at least $360 trillion of financial products — in its biggest overhaul in a decade, yielding to pressure from investors who said the measure was inaccurate.
- According to the Mortgage Bankers Association of America, 4 percent of mortgages are in delinquency in early 2005. With $9 trillion in outstanding U.S. mortgage debt, that places $360 billion at risk of foreclosure.
360 is a magic number. It is the Babylonian year. Note that the 2005 article is talking about much of the same things the other articles are talking about only it is talking about only one segment of this money making mess. Yet, the billions are the same queer number which happens to be the number of degrees in a circle, just for example.
- Prudential is one of the largest life insurance companies in the United States and is among the largest financial institutions in the world. Prudential has more than $360 billion in assets managed and administered as of December 31, 1999 and serves more than 30 million customers worldwide,
There are endless articles about this sort of sum. $360 trillion, billion or even million, is a popular number.
The difference between Libor and the expected average federal funds rate over the next three months — the Libor-OIS spread — surged to 3.64 percentage points the same day as the TED spread jumped. The gap averaged about 0.11 percentage point from the start of the decade to mid-2007. The spread narrowed to the least since Sept. 12 as Credit Suisse Group AG, Goldman Sachs Group Inc., Citigroup Inc. and JPMorgan Chase & Co. posted first-quarter results this month that beat analysts’ forecasts.
Improvement in Libor-OIS “is an indication that the money markets are healing,” said Thomas Girard, who helps oversee $115 billion in fixed income assets for New York Life Investment Management in New York. “It’s moving in the right direction.”…
The rate on 30-year fixed mortgages averages 1.92 percentage points more than what it costs the U.S. government to borrow for 10 years as measured by yields onTreasury notes. While that’s down from 3.07 percent on Dec. 19, which was the highest level since 1986, according to Bloomberg data, it’s still above the average of 1.75 percentage points in the decade before the credit crisis began….
The average rate on auto loans is 2.67 percentage points above one-month Libor. While that is more than the average of 1.84 percentage points over the past decade, it’s down from about 8 percent in December.
The spreads this last three months were huge! And it doesn’t surprise me to see that the biggest derivative banks made out like bandits during this time frame. A gift, a very expensive gift, a $360 billion gift from the US taxpayers.
Unless this capital is forthcoming, a clutch of countries will prove unable to roll over their debts at a bearable cost.
There is this $360 trillion dollar monster that is eagerly awaiting more feeding from the biggest central banks! Of course, the US will roll over our debts by making money out of thin air and then lending it to ourselves which will then allow us to borrow this borrowed money so we can buy stuff made in Asia.
Those that cannot print money to tide them through, either because they no longer have a national currency (Ireland, Club Med), or because they borrowed abroad (East Europe), run the biggest risk of default.
Our ability to steal from the world’s candy store with impunity will end very abruptly.
Traders already whisper that some governments are buying their own debt through proxies at bond auctions to keep up illusions–I presume, they are talking about the Geithner/Bernanke bids here— – not to be confused with transparent buying by central banks under quantitative easing. Which is also about Geithner and Bernanke simply churning out money, outright. This cannot continue for long….NO KIDDING! It looked easy for Western governments during the credit bubble, when China, Russia, emerging Asia, and petro-powers were accumulating $1.3 trillion a year in reserves, recycling this wealth back into US Treasuries and agency debt, or European bonds. The tap has been turned off. These countries have become net sellers. Central bank holdings have fallen by $248bn to $6.7 trillion over the last six months. The oil crash has forced both Russia and Venezuela to slash reserves by a third. China let slip last week that it would use more of its $40bn monthly surplus to shore up growth at home and invest in harder assets – perhaps mining companies.
So, $6.7 trillion in sovereign wealth has capitalized…$360 trillion in debts? Um….this isn’t nearly enough capital! The capital well never fed this system. It grew DESPITE the capital base. Like all the major international profit center banks ran up immense interest rate derivatives, like JP Morgan’s immense $90 trillion derivatives bets.
“Under the Goldilocks scenario the US Federal Reserve’s balance sheet will quickly adapt once economic activity begins to improve as the Fed reduces the money supply dramatically and curbs any major inflationary cycle,” Investec said.
Which would cause immense whiplash and would crash everything, instantly.
“Furthermore, under this scenario all other central banks will do the same. Inflation would be averted, and economic growth could continue.” Not while there is this $360 trillion degree overhang! The bank said the current high price of gold was driven by demand from investors putting their money into the classic safe-haven asset. Desperation in a screwy, criminal banking system. But it added: “Should investment flows into gold cease or turn negative, we believe that this drying up of investor demand will have repercussions for the gold price. “A return of risk appetite or improvements in other asset classes could result in an unwinding of investment buying and put considerable downward pressure on the gold price, particularly if global economic and financial conditions begin to show meaningful signs of improvement.”
Inflation is eagerly waiting in the wings, ready to take off. I noticed in the Mall today, many shoppers. Business is finally picking up again. But so are prices. Inflation is definitely right around the next corner, sitting in a kiosk, wearing dark glasses and rubbing her hands with glee.
In the stagflationary conditions of 1980, the gold price peaked at $875, the equivalent of $2,300 today. However the rise to 1980’s inflation levels was gradual; monetary policy in the 1970s was only moderately over-expansive and the US fiscal deficit was modest by current standards.
Including the Fed’s March 18 announcement of further monetary stimulus, monetary and fiscal policies in the US and globally are far more inflationary than in the 1970s.
Consequently, there’s a real threat that if inflation returns, it will do so violently. Smart investors are hedging against this possibility through gold.
Hedge fund tycoon John Paulson paid $1.28bn for 11.3pc of AngloGold Ashanti. That company is unprofitable at present gold price levels, but would hugely benefit from a price rise. Should other hedge funds turn to gold, its price could soar.
At current prices, annual gold output is worth only $104bn and the global gold stock only $5.12 trillion. Central bank gold reserves total $895bn, a fifth of currency in circulation. Even a quintupling in the gold price, to $5,000 per ounce, would raise the value of annual gold production only to $500bn and the global gold stock to $25tn, just 20pc above the world’s M1 money supply.
So, the other Sovereign Wealth system, gold, is $5 trillion? Add this to the roughly $7 trillion in OPEC/Asian sovereign wealth funds and it is around $12 trillion, still a microspot compared to $360 trillion. No one has ANY plans for getting rid of this $360 trillion magic number creation. It seems to have found a home that is very pleasing, a magic number that is also part of the pi system which is an infinite number that has no pattern…the ancient mystics that invented the number ‘zero’ loved thinking about pi.
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