FedUpUSA

Archive for May 12th, 2010

Here Is Why the Fed Cannot Simply Continue to Inflate Its Way Out of Every Financial Crisis That It Creates

The return on each new dollar of US debt is plummeting to new lows according to figures from the Federal Reserve.

The chart below is from the essay, Not Just Another Greek Tragedy by Cornerstone.

I have been watching this chart for the past ten years, as part of the dynamic of the sustainability of the bond and the dollar as the limiting factor on the Fed’s ability to expand the money supply.

The ability to expand debt is contingent on the ability to service debt. If the cost of the debt rises over the net income of the country’s capital investment, or even gets close to it, the currency issuing entity is trapped in a debt spiral to default without a radical reform.

In other words, if each new dollar of debt costs ten percent in interest, largely paid to external entities, and it generates less than ten cents in domestic product, it is a difficult task to grow your way out of that debt without a default or dramatic restructuring.

So we are not quite there yet. But we are getting rather close on an historic basis. Without the implicit subsidy of the dollar as the world’s reserve currency it would be much closer.

As it is now, this chart indicates that stagflation at least, rather than a hyperinflation, is in the cards for the US. But the trend is not promising, and the lack of meaningful reform is devastating.

A ‘soft default’ through inflation is the choice of those countries that have the latitude to inflate their currencies. Greece, being part of the European Monetary Union, did not. The US is not so constrained, especially since it owns the world’s reserve currency.

The economy is out of balance, heavily weighted to a service sector, especially the financial sector which creates no new wealth, but merely transforms and transfers it. With stagnation in the median wage, and an historic imbalance in income distribution skewed to the top few percent, with the banks levying de facto taxation and inefficiency on the economy as a function of that income transfer, there should be little wonder that the growth of real GDP is sluggish in relation to new debt.

Or as Joe Klein so colorfully phrased it, the elite have been strip-mining the middle class in America for the past thirty years.

Along with the ‘efficient market hypothesis,’ trickle-down economics is also a fallacy. This is why the stimulus program being conducted by the Federal Reserve, in an egregious expansion of its authority to conduct monetary policy, in subsidies and transfer payments to Wall Street is not working to stimulate the real economy. It merely inflates the bonuses of the few, and extends the unsustainable.

So obviously one might say, “The Banks must be restrained, and the financial system reform, and the economy brought back into balance, before there can be any sustained recovery.

Is It Tin Or Is It Real? Deutsch Marks?

Posted by Karl Denninger

I would firmly place rumors of an imminent re-emergence of the Mark in the “Tin foil hat” bin.

But then I read this:

BRUSSELS — Europe announced radical plans on Wednesday to pre-vet member states’ budgets from next year, drawing decidedly mixed reactions from euro giants Germany and France.

The idea forms part of a post-recession drive towards pan-European ‘economic governance,’ aimed at reining in runaway state debts threatening the region’s financial stability and wider economic recovery.

Uh, without sovereignty over the budget you do not have a sovereign nation.  Period, end of discussion, full-stop.

German Chancellor Angela Merkel meanwhile said that budgets are “not secret anyway,” pointing out that Brussels “can already today form an opinion about what governments put forward during budgetary debates.”

Allowing the commission to comment earlier is, “I believe, not a bad thing,” she added.

Her deputy, Foreign Minister Guido Westerwelle, had earlier stressed that the “right” to set budgets fell to “national parliaments,” representing the “nucleus of state sovereignty.”

No kidding.

That’s the beginning and end of national sovereignty, when you get down to it.  Without the power of the purse you have no powers at all.  Everything depends on the ability to cut checks and raise taxes; indeed, your entire premise as a sovereign economically - the premise on which you can borrow money – rests there.

I still rate the odds of the persistent rumors as somewhere around slim and none, but if such a thing was to happen…. well, let’s just say that the only safe stock market in the world would be the DAX.

And by the way, as has been noted by myself and others on the forum:

If Nations are to be Nations, and not subservient to banks, they better do it now.  This would be the correct time, place and manner to make clear to banks that they exist at the pleasure of nations, not the other way around.

Record Deficit For An April

Posted by Karl Denninger

You have to love it….

U.S. posts record $82.69 billion deficit in April, 19th straight month of budget shortfalls – Reuters

Nonsense.

Here’s the REAL table of numbers from Treasury itself, including the theft from the FICA and Medicare accounts: (click for the larger copy)

If I did accounting like this I’d go to prison.

$82 billion my butt.  The real number is $175.6 billion, more than double the reported amount, and the cumulative year-to-date (calendar years) is $637.4 billion, or a run rate (annualized) of $1.912 trillion.

If you’re wondering why the “stock market” has been generally supported (even though it’s not up much from the first of the year) this is the reason – the government is spending roughly 13% of GDP beyond what it collects in taxes!

Oh, and April is “tax month” too, which means that those who owe have to settle up in April.  Of course those who get refunds…..

Don’t believe the reported numbers – as horrific as they are – for a second. 

They’re more than twice as bad as are being reported.

Presenting Western District Of North Carolina Case 10-cv-200

Submitted by Tyler Durden

All we can hope for is for this to get to trial. And any case which in its brief says: “As American citizens, the Plaintiffs allege the financial and banking system imposed on them by the Federal Reserve Banking sytem is a violation of their Constitutional and Human Rights. That the banking system practiced by the New York Federal Reserve Bank, owned and controlled by the Defendant Wall Street Banks, is the most sinful and evil PONZI scheme man is capable of devising” deserves a hearing.The ratings for C-Span will blow the Superbowl away. A 30 second ad slot will cost exponentially more as the case progresses adversely for the Federal Reserve, and the dollar gets increasingly devalued.

Allran v NY Fed Reserve

Allran v New York Federal Reserve