Visualizing The Upcoming Treasury Funding Crisis
Summary: foreign purchasers are congregating exclusively around the front end of the Treasury curve, meaning that the primary net purchaser of dated bonds has been the Federal Reserve. As everyone knows by now, the Fed only has $10 billion left out of the $300 billion total allotted for Treasury QE. That should expire next week. The question then becomes will we see another major steepening leg in the UST curve as yields on long-dated paper finally catch up to the real supply-demand curve absent the Fed's manipulation of the equilibrium point. Or will we see an outright funding crisis as foreigners pull out entirely of all treasury purchases, not just Long-term USTs.
The time of unravelling may be upon us sooner than most think.
Translation: Other countries don't want to buy our crap. They don't want to buy American bonds and invest in America anymore. They think it is a losing proposition. When they do buy, they buy short term on the front end, the don't want anything to do with long term.
In fact, The Fed is the one buying up all the bonds. And if you are like me, you probably figured the Fed was the one selling the bonds! It doesn't matter. The Fed, the Treasury, it is all one government (OUR GOVERNMENT!) and one currency, and when the shit hits the fan nobody will care. We are financing our debt by having the Treasury selling bonds to the Fed. Next they will tell you to finance your new car by having your left hand promise to pay your right hand.
That was a stupid analogy. But so what. If you read this you should realize that we are alone in a dark corner of the web. I mean you no harm, but tough history is coming.
But just as The Incredible Ginzu: But Wait! There is MORE!
From Doug Ross:
Analysts: Government borrowing will lead to 'Armageddon', 'Collapse of our Capitalistic System', '$5000 per ounce' gold
Financial gurus Henry Blodget, Marc Faber, Peter Schiff and Julian Robertson represent a wide spectrum of political opinion but are unified in their assessment of Democrat spending policies. Unprecedented government borrowing -- in a climate hostile to small business -- is hastening the "collapse" of capitalism.
Henry Blodget: "...the economy is being sustained by one huge borrower that is taking on debt faster than it has anytime since World War 2: The government. Government spending and government lending is REPLACING private spending and lending. And if it wasn't, the economy would have collapsed... The government can't keep borrowing like this forever, though, or we'll become Argentina. So the hope is that consumers and businesses will start borrowing BEFORE the government has to get itself under control. The history of financial crises suggests that this transition is unlikely to be smooth."
Don't Cry For Me Argentina! Tough History Is Coming. WOO HOO!
Marc Faber: "The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society."
Hard to improve on that! Tough History is Coming. Dance a jig!
Senate candidate Peter Schiff: "The worst is not over... the Dow will fall another 90% from current levels when measured against gold... gold [will hit] $5000 per ounce in the next couple of years..."
Peter Schiff is like a God to me. I wish he was the President. He predicted this crisis. Now Peter Schiff says that "the Dow will fall another 90% from current levels when measured against gold". I wish he was a crackpot like me. From my general experience with that man, he generally knows WTF he is talking about. Given that, I would say that Tough History Is Coming.
Julian Robertson: "You're in for some real rough sledding... we are borrowing so much money that we can't possibly pay it back... unless the Chinese and Japanese buy our bonds... it's tragic that we've let ourselves be put in this position... it's almost Armageddon if the Chinese and Japanese don't buy our debt. I don't know where we could get the money. And-- maybe we-- end up printing it-- and-- taking-- a million dollar bill-- bill to the grocery... which you have to do now in Zimbabwe. But I think we've let ourselves get in-- in [a] terrible situation... we're totally dependent on the Chinese and Japanese."
The reality is that we already owe so much money. It is an incredible sum. We can't really afford to pay it back. And we are borrowing at a pace never seen before. It is laughable to think that debt will be repaid.
The World Currency and Argentina
Argentina was one of the top 10 wealthiest nations in 1900. I have seen reports that put them at 4 or 5, though I read that some time ago and can't find a link. By the end of the century in 2000 they were bankrupt. Today they are around 35-40 range. It was an astounding fall, especially for a country with great people, infrastructure, natural resources and the like. The most striking aspect is that Argentina didn't play a part in either World War. What an ideal location. You are a wealthy country and World Wars don't even mean a damn to you. But yet they went from the top to the bottom. The government took over, and it can happen here too.
One ace in our hole is that the world currency is the US Dollar. We can print as much of the world currency as we like. At some point, those stupid bastards will reject our currency. That appears to be happening now. When that happens for a substantive amount of time, we will fail to be the world currency.
The problem Argentina had is that they couldn't print dollars. That is the main asset that is keeping us afloat. Our government is running the printing press and printing dollars for anyone that wants them. Argentina tried printing Pesos or some such things, but their debt was held in dollars. Who cares about Pesos when you need dollars? The great thing about out debt is that it is in dollars. And we get to print the dollars.
At some point soon, I predict the other players will clue into this critical flaw. It really is just paper with some green and black printing on it. I don't know why they took it so seriously. It was fun while it lasted.
Tough History is Coming.
My first post on this blog was from Peggy Noonan, and I don't even care for her much. Seems like an uppity bitch ass to me, but she wrote this:
A Separate Peace
America is in trouble--and our elites are merely resigned.
That link was the first post on this blog.
That piece haunts me to this day.
Tough history is coming. Sphere: Related Content