Advanced life forms on other planets are reportedly rolling on the ground laughing at the willfully delusional condition of humanity today. In a state of complete denial as to the meaning and root causes of the rapid decline in civilization now underway, both are ignored and perpetuated.
Foremost among the symptoms of the collective insanity is the inverse relationship between T-Bonds/ US dollars and gold/silver.
T-Bonds, or more broadly, all securities issued by the United States Treasury,(treasuries) are the units of value that enable the issuance of dollars from the U.S. Federal Reserve. If nobody bought treasuries, the fed could not issue any money. Inflation would be theoretically over.
More importantly, the “stimulus” plan organized by Barack Obama would not be possible, because the money just wouldn’t be there. The declining interest in treasuries is apparent in the diminishing prices and increasing yields.
Well so he pulled it off. $819 billion greenbacks are about to come whimpering into existence….somehow. I’ve been looking at the charts of monetary supply, U.S. debt, T-Bond yield, and planned T-bill auctions. Of particularly suspicious character is the announcement anticipating the expectation that bond prices will drop further, and yields will increase more, to attract investors. Alongside that little fragrant tidbit is the absolutely rancid one that says the U.S. Federal Reserve is going to be a big buyer of long term bonds.
So let me see if I have this straight. The Fed prints money based on the sales of United States Treasury bills, which the U.S. Treasury sells to investors so it can write checks to the Fed so the Fed can print money. If the Fed is the buyer of T-bills, then isn’t that like kiting a check to yourself from your own account at a different bank? Is this how the debt/money supply thingy works?
If I did that, at some point I would get a visit from a gentleman wearing a uniform who would be determined to stop such behavior by depriving me of my liberty. I think it’s called “fraud”. The trigger for that would be when the bank cashing the check realized that the signature on the back of the check was the same as the one on the front. Bernie Madoff was recently deprived of his liberty for just such an offence, with minor variations.
Now I imagine if I was as highly organized a criminal organization as the United States government/banking cartel that I would employ a vast empire of minions, all of whom would be tasked with generating scads of complicated and contradictory data, so that the sharper tacks in the crowd wouldn’t be able to call “Bulls**t” on my little ponzi enterprise. And obviously, since this criminal organization also happens to be the government, this ruse would have the veil of respectability afforded by official sanction. I would call these data avalanches “statistics”. I would feed them to a perception management apparatus, and call that “media”. The statistics could then be rendered meaningful in “headlines”
The headlines are disconcerting today, even if the bullish markets are to be expected on the day when another $819 billion are going to join the impressive-sounding yet increasingly worthless $12 trillion out there. If yields are increased and prices dropped to entice buying, isn’t that sort of like a kick back to a broker for pushing a worthless stock on his clientele? His clientele wouldn’t buy it unless he did, and the stock issuer bribes him so he gets it for cheaper than his clientele.
I’m assuming the justification for the “stimulus” package is to create employment so people can become eligible for more credit so they can buy more stuff that they already have but would buy more new of if it was doable with free money. Since the banks default and get rewarded with free government money, and the government is the bank, so its ponzi scheme never gets raided by the SEC, the lesson here for the public is, the bigger the debt you default on, the more money you’ll be given to keep you afloat, so that everybody thinks everything is just fine.
Our government not only conducts itself in a criminal manner, we now export a criminal education to future generations by virtue of our actions.
Meanwhile, the prices of gold and silver are ruthlessly manipulated (or “managed” as the perpetuators of the ongoing crime consider it), because the biggest signal to purchasers of U.S. debt that the dollar was no longer viable would be runaway monetary metals prices. That relationship should now be crystal clear to even the most uneducated and disconnected observer of currency and precious metals markets.
If (when) gold bolts to $1500, all holders of U.S. treasuries will be looking to exit those and head for gold and silver, as that event would either coincide with, preclude, or closely follow, a complete abandonment of global U.S. dollar support.
This is what has the aliens laughing so uproariously.
They see the dominant economic force has trapped its neighbors into supporting its currency, for it they don’t, their own reserve holdings of such currency, which they have used to foolishly replace their historic reserves of gold and silver, will collapse in value, dragging their own net worth downward along with it.
A Catch-22 of the first order. The embodiment of SNAFU. A global tragic-comedy starring everyone. A gigantic galactic farce.
The increasing gold price, and the corresponding increasing silver price are evidence that that inverse relationship will soon be reversed. The magnitude of the upward pressure on gold and silver is directly proportional to the negative sentiment towards U.S. debt instruments. U.S. interest rates are at zero because nobody wants U.S. money. Its purchasing power is universally discounted.
Being right about this is bittersweet. For it portends the next leg of the financial meltdown will swallow national economies and impoverish the world. An apocalypse of sorts, it will force the world back into the realistic conduct of its financial affairs, and survivors of the era will shudder to think about the nation who financed its ascendance with the wealth of its neighbors. It will be the advent of truly intelligent life on earth.
Until then, the aliens just keep laughing.
Friday, January 30, 2009
James West is the editor of MidasLetter.com, a subscriber-based financial newsletter that alerts readers to opportunities and threats to their financial well-being. A subscription is US$499 for one year. Visit www.MidasLetter.com to learn more.