Archive for the ‘Treasury Bonds’ Category
Everybody is talking about the cuts in government spending with the $85 billion in forced spending cuts in military and social programs. $85 billion amounts to little more than a 2% cut in $3.8 trillion (or $3,800 billion) in federal spending per year. Didn’t most working Americans just suffer a 2% pay cut with the expiration of the Social Security tax holiday? How many times have we heard that thousands of government jobs will be lost to sequestration? The so-called Great Recession destroyed at least 8 million private sector jobs, and if you count the underemployed and discouraged workers, it’s easily 23 million.
Why are government employees being considered as some sort of sacred cow? What many are feeling was summed up with a recent comment on the USAWatchdog.com site from “Chuck O.” He wrote, “I’ve retired after 44 years working. Throughout the entire period, I lived through no fewer than 10 lay-offs and cut-backs. I have yet to see any appreciable lay-off or cut-back in the federal work force (EVER). I feel it is about time “they” should take a “hit.” How about a 20% cut back on ALL salaries? “They” need to share in the austerity. We all should have the same insurance benefits, too. “Their” retirement program and health insurance is way out of line; cut it back. A 20% cut would be way better than NO PAY at all. 20 % could really help lower the debt. I’m really getting KILLED by this money printing. In the 12 years I’ve been retired, my dollars have lost more than 30 % of their purchasing power. Obama’s crew hasn’t a clue. My wife and I have BOTH had to go back to work at 70 years old.”
With foreigners increasingly shunning Treasuries and the dollar, the only way to keep all those government jobs is to raise taxes on the private sector or print money. The Republicans caved on tax increases at the beginning of the year, so that option is closed. Now, we are left with the Federal Reserve’s “open-ended” money printing operation that creates $85 billion a month out of thin air. A little more than half of that amount ($45 billion) goes to buy Treasury bonds to finance the federal government. The rest ($40 billion) goes to the continued banker bailout that buys their sour (and I think fraudulent) mortgage debt. The money printing is what’s causing Chuck O’s “30%” loss in purchasing power for his retirement dollars. As the money printing continues, the buck will buy less and less.
Why doesn’t the President divert just 2 months of the $40 billion the Fed creates every month to continue the banker bailouts to stop most of the $85 billion of spending cuts? In case you haven’t noticed, the bankers are a sacred cow. The big banks have gobbled up trillions in bailouts already, and there is no end in sight. After all, the Fed action is “open-ended.” The banks are the reason why the U.S is in financial trouble, and the continuing banker bailout is why the economy will never get better. The only reason why the economy has not collapsed is the Fed can print money to buy sour debt that no one else would touch.
Because of all this money printing, the rest of the world is in the process of shunning the dollar and the U.S. Treasury. It looks like gold, or some other gold-backed currency, will facilitate global trade in the not-so-distant future. Jim Willie of GoldenJackass.com says when the world stops using the dollar, it’s game over. In a recent post, Mr. Willie wrote, “The gold trade finance concept ushers in a new alternative system long sought in order to create a more viable equitable sustainable financial structure. The banking system should serve trade, not the reverse. Hence the UST Bond will slowly vanish from the global banking system, and the US Dollar will lose its global reserve status. The end result is an unavoidable slide by the United States into the Third World.” (Click here for the complete GoldenJackass.com post.)
You want to see what an “unavoidable slide by the United States into the Third World” looks like? Behold the bankrupt city of Detroit that recently became a ward of the State of Michigan. Detroit’s bond debt alone is a whopping $14 billion. I doubt it’s worth pennies on the dollar, if that much. You are not hearing much about this in the mainstream media (MSM). Maybe it’s because this is what socialism looks like when you finally run out of other people’s money. In a recent post on the FinancialSurvivalNetwork.com, Kerry Lutz wrote, “The city’s day-to-day operations are in total meltdown. Many police calls go unanswered. Large sections of the city are dark at night because thieves have stolen the streetlights’ copper wiring for scrap. Public education is a euphemism for warehousing and babysitting the criminal youth of tomorrow. Packs of wild dogs are found throughout the city. In many areas, garbage collection is a luxury that can no longer be afforded, and street cleaning is non-existent.” (Click here for the complete FSN post.)
Do you really think Detroit can turn things around without big cuts and sacrifice? They keep telling us about how the cuts will hurt and they need to be done in a “smart way.” I’ll bet Detroit would have liked to have tackled their financial problems in a “smart way” and made all of those “smart cuts.” Every time I hear the “smart cut” argument, I think, okay, give me $85 billion in “smart cuts” this year and every year for the next 10 years. I also keep hearing that we need to fix our financial problems long term and not now during this “fragile recovery.” Haven’t the powers been telling us this for years? You can see how well it has worked.
Remember, what is going on with the $600 billion in new taxes and $1.2 trillion in spending cuts (total of $1.8 trillion) is less than half of what the bi-partisan Simpson-Bowles debt commission came up with in 2010. The Simpson-Bowles plan was around a $4 trillion combination over the next 10 years, and even that only slowed the growth of our debt. Everyone keeps asking about the pain caused by the spending cuts. They are asking the wrong question. Everyone should be asking: What happens if the U.S. doesn’t cut spending? I think the answer is Detroit.
Greg Hunter – USA Watchdog
It looks like Congress is finally getting worried — as they should be — about “monetary policy.”
Specifically, they appear to be rather concerned as to whether The Fed can “unwind” its “extraordinary measures” without utterly destructive side effects.
The real problem, unfortunately, is that The Fed has enabled Congress to deficit spend without limit and without the market signals that would ordinarily constrain such behavior. Now, with a trillion dollars a year plus worth of deficits, the government has spent the last five years without the pushback of market signals that would otherwise have constrained its actions.
This in turn has added six trillion to the debt of the United States, all of which has done exactly nothing to actually permanently advance the economy, but the market’s warning that this was and would be ineffective was lost because of these intentional distortions.
Now Congress has a problem — The Fed has prevented the market from doing its job, Congress has pretended that there are no consequences to these actions, and what’s worse both parties and the Administration have become drunk on the ability to pull this crap on a repetitive basis.
So now what? Now Congress wants an explanation? Good luck — what you’re likely to get is what you’ve gotten thus far — half-answers and worse, half-truths or outright lies, such as when Bernanke said “The Federal Reserve will not monetize the debt.” while it was doing exactly that.
Does Congress have the balls to stomp on this little man’s neck and put a stop to his acts, knowing that doing do will mean a forced end to deficit spending?
Worse, should the blended interest rate on government debt rise to a mere 5%, a level that is consistent with short-term interest rates not long ago,the interest expense alone would be over $800 billion — or roughly 1/5th of the total US Budget and more than a third of all tax receipts.
How you gonna get out of this box, folks?
This is exactly what I’ve been warning about in this column since 2007.
Just because the biosphere is going to be toast at some point within the next 100 years doesn’t mean we can’t have some serious fun now. There’s certainly no dearth of hilarious news to go around. When I was called for jury duty last year, I told the lawyers and court officials that I was a writer. They asked me whether I wrote fiction. No, I said, I never write fiction and rarely read it. I told them Real Life is always better than fiction. Having seen a lot of things, they could only agree.
What you’re about to read is not fiction. This is really happening. We don’t make this stuff up. I’ll quote fromBloomberg’s Treasury Scarcity to Grow as Fed Buys 90% of New Bonds.
Even as U.S government debt swells to more than $16 trillion, Treasuries and other dollar fixed- income securities will be in short supply next year as the Federal Reserve soaks up almost all the net new bonds.
The government will reduce net sales by $250 billion from the $1.2 trillion of bills, notes and bonds issued in fiscal 2012 ended Sept. 30, a survey of 18 primary dealers found. At the same time, the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets [T-bills] according to JPMorgan Chase & Co…
The Fed has pumped money into the financial system by purchasing more than $2.3 trillion of Treasuries and mortgage- related securities in three rounds of policy called quantitative easing. The latest program announced Sept. 13 involves buying $40 billion a month in mortgage securities, and has no end date or fixed total amount.
A “number” of Fed officials said the central bank may need to expand its purchases next year, according to the minutes of the Federal Open Market Committee’s Oct. 23-24 meeting. Bond traders predict policy makers will announce at their Dec. 11-12 meeting that they will make new Treasury purchases next year of about $42.9 billion a month, according to the average estimate of primary dealers surveyed by Bloomberg News.
Surely there is a level of absurdity at which serious commentary is no longer required. Not only have we reached that level, but I believe we have moved well beyond it. The Federal Government borrows money. To cover that new debt, the Central Bank prints up some crisp new bills in large denominations and purchases the debt. What could be easier? And to make the deal even sweeter, so-called primary dealers (financial institutions, aka. the big banks) make a boatload of money acting as middlemen in those purchases. How sweet it is!
But there must be—harrumph! harrumph!— some Very Serious Purpose behind this transparent scam. And indeed there is. In fact, there are several Very Serious Purposes.
Even after U.S. public borrowings outstanding grew from less than $9 trillion in 2007 as the U.S. raised cash to pay for spending programs designed to pull the economy out of the worst financial crisis since the Great Depression, rising demand coupled with a drop in net supply means bonds will be scarce.
“The shrinking amount of bonds in the market is lowering rates and not just benefiting the Treasury, but providing lower rates for private-sector decision-makers as well,” Zach Pandl, a senior interest-rate strategist in Minneapolic at Columbia Management Investment Advisers LLC, which oversees $340 billion, said in a Nov. 30 telephone interview.
“The Fed is not creating this scarcity to help out the Treasury, it’s primarily to get the economy going.”
[Bond] buyers range from central banks to financial institutions stocking up on high-quality assets to meet the Dodd-Frank financial-overhaul law and global regulations set by the Bank for International Settlements.
They’re helping the Fed and the Obama administration keep borrowing costs at all-time lows for everyone from consumers to Walt Disney Co…
U.S. 10-year yields fell seven basis points, or 0.07 percentage point, last week to 1.62 percent in New York, according to Bloomberg Bond Trader prices. The benchmark 1.625 percent note maturing in November 2022 rose 22/32, or $6.88 per $1,000 face amount, to 100 3/32.
Programs to pay for the bailout of the financial system, an extension of unemployment benefits and to bolster housing helped cause the size of the U.S. taxable debt market to swell 27 percent since 2007 to$31.3 trillion, according to Nomura Holdings Inc. The figures exclude money-market securities such as commercial paper…
Although I put it in the red font, I want to make sure you get the joke. The total size of the U.S. taxable debt market, excluding money-market securities is
And in case you missed it, Walt Disney, which has lost money for 18 consecutive quarters, is doing its bit in America’s Heroic War on Solvency.
Walt Disney sold a record amount of debt last week at the lowest interest cost it’s ever paid. The company issued $3 billion of bonds on Nov. 27 in a four-part offering with coupons ranging from 0.45 percent on three-year debt to 3.7 percent for 30-year securities.
The issue was the biggest in the 89-year history of the Burbank, California-based company.
Anything else I might say would be superflous. Real life is always better than fiction.
Well, OK. There are rare exceptions. I’ll let Jim Abrahams and the Zucker brothers take it from here.
By the way, is there anyone on board who knows how to fly a plane?
Dave Cohen – Decline of Empire
Investors are plowing cash into new U.S. Treasuries at a record pace, making economic growth rather than budget austerity a key issue as President Barack Obama andMitt Romney face off in November’s presidential election.
Bidders offered $3.16 for each dollar of the $1.075 trillion of notes and bondsauctioned by the Treasury Department this year as yields reached all-time lows, above the previous high of $3.04 in all of 2011, according to data compiled by Bloomberg. The so-called bid-to-cover ratio was 2.26 from 1998 to 2001 when the nation ran budget surpluses.
I love this sort of misdirection.
First, investors are “plowing cash into Treasuries” because they are convinced that they will at least get their money back, and further, they believe that a positive real rate of return can be had.
The latter means deflation will win. The former means that investors believe they will lose money in anything else.
Now maybe you can construe that as “bullish” on Treasuries, but that’s a bit of a stretch.
Actually, it’s more than a stretch — it’s really bad, especially when a distorted market sends bad signals into the market and people listen to that in making policy decisions. Japan has bricked themselves inside a building of their own design; if rates go up ever the nation’s government will be immediately bankrupted. We’re not far from the same position; run our figures with a 5% average coupon across the curve and you find that we have a $750 billion annual interest cost, or 20% of the federal budget or more than three times what it is today.
That would make interest expense greater than we spent on any of Defense, Social Security or Medicare and Medicaid last year! Needless to say that won’t happen without bankrupting the Federal Government — yet that sort of average coupon was normal just a few years ago.
This sort of market distortion is not good, it’s ruinously bad. And as we have seen repeatedly over in Europe, rates have a habit of going from “heh, this is really nice” to “screw you” in extraordinarily violent moves, often with little or no effective warning.
Discussion (registration required to post)
A “paralyzed” Federal Reserve Bank, in its “final days,” held hostage by Wall Street “robots” trading in markets that are “artificially medicated” are just a few of the bleak observations shared by David Stockman, former Republican U.S. Congressman and director of the Office of Management and Budget. He is also a founding partner of Heartland Industrial Partners and the author of The Triumph of Politics: Why Reagan’s Revolution Failed and the soon-to-be released The Great Deformation: How Crony Capitalism Corrupts Free Markets and Democracy. The Gold Report caught up with Stockman for this exclusive interview at the recent Recovery Reality Check conference.
The Gold Report: David, you have talked and written about the effect of government-funded, debt-fueled spending on the stock market. What will be the real impact of quantitative easing?
David Stockman: We are in the last innings of a very bad ball game. We are coping with the crash of a 30-year–long debt super-cycle and the aftermath of an unsustainable bubble.
Quantitative easing is making it worse by facilitating more public-sector borrowing and preventing debt liquidation in the private sector—both erroneous steps in my view. The federal government is not getting its financial house in order. We are on the edge of a crisis in the bond markets. It has already happened in Europe and will be coming to our neighborhood soon.
TGR: What should the role of the Federal Reserve be?
DS: To get out of the way and not act like it is the central monetary planner of a $15 trillion economy. It cannot and should not be done.
The Fed is destroying the capital market by pegging and manipulating the price of money and debt capital. Interest rates signal nothing anymore because they are zero. The yield curve signals nothing anymore because it is totally manipulated by the Fed. The very idea of “Operation Twist” is an abomination.
Capital markets are at the heart of capitalism and they are not working. Savers are being crushed when we desperately need savings. The federal government is borrowing when it is broke. Wall Street is arbitraging the Fed’s monetary policy by borrowing overnight money at 10 basis points and investing it in 10-year treasuries at a yield of 200 basis points, capturing the profit and laughing all the way to the bank. The Fed has become a captive of the traders and robots on Wall Street.
TGR: If we are in the final innings of a debt super-cycle, what is the catalyst that will end the game?
DS: I think the likely catalyst is a breakdown of the U.S. government bond market. It is the heart of the fixed income market and, therefore, the world’s financial market.
Because of Fed management and interest-rate pegging, the market is artificially medicated. All of the rates and spreads are unreal. The yield curve is not market driven. Supply and demand for savings and investment, future inflation risk discounts by investors—none of these free market forces matter. The price of money is dictated by the Fed, and Wall Street merely attempts to front-run its next move.
As long as the hedge fund traders and fast-money boys believe the Fed can keep everything pegged, we may limp along. The minute they lose confidence, they will unwind their trades.
On the margin, nobody owns the Treasury bond; you rent it. Trillions of treasury paper is funded on repo: You buy $100 million (M) in Treasuries and immediately put them up as collateral for overnight borrowings of $98M. Traders can capture the spread as long as the price of the bond is stable or rising, as it has been for the last year or two. If the bond drops 2%, the spread has been wiped out.
If that happens, the massive repo structures—that is, debt owned by still more debt—will start to unwind and create a panic in the Treasury market. People will realize the emperor is naked.
TGR: Is that what happened in 2008?
DS: In 2008 it was the repo market for mortgage-back securities, credit default obligations and such. In 2008 we had a dry run of what happens when a class of assets owned on overnight money goes into a tailspin. There is a thunderous collapse.
Since then, the repo trade has remained in the Treasury and other high-grade markets because subprime and low-quality mortgage-backed securities are dead.
TGR: Walk us through a hypothetical. What happens when the fast-money traders lose confidence in the Fed’s ability to keep the spread?
DS: They are forced to start selling in order to liquidate their carry trades because repo lenders get nervous and want their cash back. However, when the crisis comes, there will be insufficient private bids—the market will gap down hard unless the central banks buy on an emergency basis: the Fed, the European Central Bank (ECB), the people’s printing press of China and all the rest of them.
The question is: Will the central banks be able to do that now, given that they have already expanded their balance sheets? The Fed balance sheet was $900 billion (B) when Lehman crashed in September 2008. It took 93 years to build it to that level from when the Fed opened for business in November 1914. Bernanke then added another $900B in seven weeks and then he took it to $2.4 trillion in an orgy of money printing during the initial 13 weeks after Lehman. Today it is nearly $3 trillion. Can it triple again? I do not think so. Worldwide it’s the same story: the top eight central banks had $5 trillion of footings shortly before the crisis; they have $15 trillion today. Overwhelmingly, this fantastic expansion of central bank footings has been used to buy or discount sovereign debt. This was the mother of all monetizations.
TGR: Following that path, what happens if there are no buyers? Do the governments go into default?
DS: The U.S. Treasury needs to be in the market for $20B in new issuances every week. When the day comes when there are all offers and no bids, the music will stop. Instead of being able to easily pawn off more borrowing on the markets—say 90 basis points for a 5-year note as at present—they may have to pay hundreds of basis points more. All of a sudden the politicians will run around with their hair on fire, asking, what happened to all the free money?
TGR: What do the politicians have to do next?
DS: They are going to have to eat 30 years worth of lies and by the time they are done eating, there will be a lot of mayhem.
TGR: Will the mayhem stretch into the private sector?
DS: It will be everywhere. Once the bond market starts unraveling, all the other risk assets will start selling off like mad, too.
TGR: Does every sector collapse?
DS: If the bond market goes into a dislocation, it will spread like a contagion to all of the other asset markets. There will be a massive selloff.
I think everything in the world is overvalued—stocks, bonds, commodities, currencies. Too much money printing and debt expansion drove the prices of all asset classes to artificial, non-economic levels. The danger to the world is not classic inflation or deflation of goods and services; it’s a drastic downward re-pricing of inflated financial assets.
TGR: Is there any way to unravel this without this massive dislocation?
DS: I do not think so. When you are so far out on the end of a limb, how do you walk it back?
The Fed is now at the end of a $3 trillion limb. It has been taken hostage by the markets the Federal Open Market Committee was trying to placate. People in the trading desks and hedge funds have been trained to front run the Fed. If they think the Fed’s next buy will be in the belly of the curve, they buy the belly of the curve. But how does the Fed ever unwind its current lunatic balance sheet? If the smart traders conclude the Fed’s next move will be to sell mortgage-backed securities, they will sell like mad in advance; soon there would be mayhem as all the boys and girls on Wall Street piled on. So the Fed is frozen; it is petrified by fear that if it begins contracting its balance sheet it will unleash the demons.
TGR: Was there some type of tipping that allowed certain banks to front run the Fed?
DS: There are two kinds of front-running. First is market-based front-running. You try to figure out what the Fed is doing by reading its smoke signals and looking at how it slices and dices its meeting statements. People invest or speculate against the Fed’s next incremental move.
Second, there is illicit front-running, where you have a friend who works for the Federal Reserve Board who tells you what happened in its meetings. This is obviously illegal.
But frankly, there is also just plain crony capitalism that is not that different in character and it’s what Wall Street does every day. Bill Dudley, who runs the New York Fed, was formerly chief economist for Goldman Sachs and he pretends to solicit an opinion about financial conditions from the current Goldman economist, who then pretends to opine as to what the economy and Fed might do next for the benefit of Goldman’s traders, and possibly its clients. So then it links in the ECB, Bank of Canada, etc. Is there any monetary post in the world not run by Goldman Sachs?
The point is, this is not the free market at work. This is central bank money printers and their Wall Street cronies perverting what used to be a capitalist market.
TGR: Does this unwinding of the Fed and the bond markets put the banking system back in peril, like in 2008?
DS: Not necessarily. That is one of the great myths that I address in my book. The banking system, especially the mainstream banking system, was not in peril at all. The toxic securitized mortgage assets were not in the Main Street banks and savings and loans; these institutions owned mostly prime quality whole loans and could have bled down the modest bad debt they did have over time from enhanced loan loss reserves. So the run on money was not at the retail teller window; it was in the canyons of Wall Street. The run was on wholesale money—that is, on repo and on unsecured commercial paper that had been issued in the hundreds of billions by financial institutions loaded down with securitized toxic garbage, including a lot of in-process inventory, on the asset side of their balance sheets.
The run was on investment banks that were really hedge funds in financial drag. The Goldmans and Morgan Stanleys did not really need trillion-dollar balance sheets to do mergers and acquisitions. Mergers and acquisitions do not require capital; they require a good Rolodex. They also did not need all that capital for the other part of investment banking—the underwriting business. Regulated stocks and bonds get underwritten through rigged cartels—they almost never under-price and really don’t need much capital. Their trillion dollar balance sheets, therefore, were just massive trading operations—whether they called it customer accommodation or proprietary is a distinction without a difference—which were funded on 30 to 1 leverage. Much of the debt was unstable hot money from the wholesale and repo market and that was the rub—the source of the panic.
Bernanke thought this was a retail run à la the 1930s. It was not; it was a wholesale money run in the canyons of Wall Street and it should have been allowed to burn out.
TGR: Let’s get back to our ballgame. What is to keep the U.S. population from saying, please Fed save us again?
DS: This time, I think the people will blame the Fed for lying. When the next crisis comes, I can see torches and pitch forks moving in the direction of the Eccles building where the Fed has its offices.
TGR: Let’s talk about timing. On Dec. 31, the tax cuts expire, defense cuts go into place and we hit the debt ceiling.
DS: That will be a clarifying moment; never before have three such powerful vectors come together at the same time— fiscal triple witching.
First, the debt ceiling will expire around election time, so the government will face another shutdown and it will be politically brutal to assemble a majority in a lame duck session to raise it by the trillions that will be needed. Second, the whole set of tax cuts and credits that have been enacted over the last 10 years total up to $400–500B annually will expire on Dec. 31, so they will hit the economy like a ton of bricks if not extended. Third, you have the sequester on defense spending that was put in last summer as a fallback, which cannot be changed without a majority vote in Congress.
It is a push-pull situation: If you defer the sequester, you need more debt ceiling. If you extend the tax expirations, you need a debt ceiling increase of $100B a month.
TGR: What will Congress do?
DS: Congress will extend the whole thing for 60 or 90 days to give the new president, if he hasn’t demanded a recount yet, an opportunity to come up with a plan.
To get the votes to extend the debt ceiling, the Democrats will insist on keeping the income and payroll tax cuts for the 99% and the Republicans will want to keep the capital gains rate at 15% so the Wall Street speculators will not be inconvenienced. It is utter madness.
TGR: It is like chasing your tail. How does it stop?
DS: I do not know how a functioning democracy in the ordinary course can deal with this. Maybe someone from Goldman Sachs can come and put in a fix, just like in Greece and Italy. The situation is really that pathetic.
TGR: Greece has come up with some creative ways to bring down its sovereign debt without actually defaulting.
DS: The Greek debt restructuring was a farce. More than $100B was held by the European bailout fund, the ECB or the International Monetary Fund. They got 100 cents on the dollar simply by issuing more debt to Greece. For private debt, I believe the net write-down was $30B after all the gimmicks, including the front-end payment. The rest was simply refinanced. The Greeks are still debt slaves, and will be until they tell Brussels to take a hike.
TGR: Going back to the triple-witching hour at year-end, if the debt ceiling is raised again, when do we start to see government layoffs and limitations on services?
DS: Defense purchases and non-defense purchases will be hit with brutal force by the sequester. As we go into 2013, there will be a shocking hit to the reported GDP numbers as discretionary government spending shrinks. People keep forgetting that most government spending is transfer payments, but it is only purchases of labor and goods that go directly into the GDP calculations, and it is these accounts that will get smacked by the sequester of discretionary defense and non-defense budgets.
TGR: I would think to unemployment numbers as well.
DS: They will go up.
Just take one example. According to the Bureau of Labor Statistics monthly report, there are 650,000 or so jobs in the U.S. Postal Service alone. That is 650,000 people who pretend to work at jobs that have more or less been made obsolete and redundant by the Internet and who are paid through borrowings from Uncle Sam because the post office is broke. Yet, the courageous ladies and gentlemen on Capitol Hill cannot even bring themselves to vote to discontinue Saturday mail delivery; they voted to study it! That is a measure of the loss of capacity to rationally cognate about our fiscal circumstance.
TGR: In the midst of this volatility, how can normal people preserve, much less expand their wealth?
DS: The only thing you can do is to stay out of harm’s way and try to preserve what you can in cash. All of the markets are rigged or impaired. A 4% yield on blue chip stocks is not worth it, because when the thing falls apart, your 4% will be gone in an hour.
TGR: But if the government keeps printing money, cash will not be worth as much, either, right?
DS: No, I do not think we will have hyperinflation. I think the financial system will break down before it can even get started. Then the economy will go into paralysis until we find the courage, focus and resolution to do something about it. Instead of hyperinflation or deflation there will be a major financial dislocation, which means painful re-pricing of financial assets.
How painful will the re-pricing be? I think the public already knows that it will be really terrible. A poll I saw the other day indicated that 25% of people on the verge of retirement think they are in such bad financial shape that they will have to work until age 80. Now, the average life expectancy is 78. People’s financial circumstances are so bad that they think they will be working two years after they are dead!
TGR: Finally, what is your investment model?
DS: My investing model is ABCD: Anything Bernanke Cannot Destroy: flashlight batteries, canned beans, bottled water, gold, a cabin in the mountains.
TGR: Thank you very much.
David Stockman is a former U.S. politician and businessman, serving as a Republican U.S. Representative from the state of Michigan 1977–1981 and as the director of the Office of Management and Budget under President Ronald Reagan 1981–1985. He is the author of The Triumph of Politics: Why Reagan’s Revolution Failed and the soon-to-be released The Great Deformation: How Crony Capitalism Corrupts Free Markets and Democracy.
Stockman was the keynote speaker at last weekend’s Casey Research Recovery Reality Check Summit. This event featured legendary contrarian investor Doug Casey, high-end natural resource broker Rick Rule, New York Times bestselling author John Mauldin and 28 other financial luminaries. Over the three-day summit, they provided investors with asset-protection action plans and actionable investment advice. And even if you were unable to attend, you can still hear every recorded presentation in the Summit Audio Collection. Learn more here.
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From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.
Italian anti-mafia prosecutors said they seized a record $6 trillion of allegedly fake U.S. Treasury bonds, an amount that’s almost half of the U.S.’s public debt.
The U.S. embassy in Rome has examined the securities dated 1934, which had a nominal value of $1 billion apiece, they said in the statement. Officials for the embassy didn’t have an immediate comment.
- There wasn’t anywhere near $6 trillion in bonds available dated in 1934.
- Any bonds dated from 1934 would have long-since matured (30 years was the longest maturity period in US history) which makes the claim even more farcical.
But it gets better.
The individuals involved were planning to buy plutonium from Nigerian sources, according to phone conversations monitored by the police.
Plutonium is not naturally-occurring. It is only produced by nuclear activity in a reactor — specifically, by the bombardment of U-238 (naturally occurring) with neutrons (not naturally-occurring in the quantity required.)
Nigeria has dabbled with joining the nuclear club for power production but does not have the infrastructure to have produced what these people were allegedly going to buy, and certainly not in the quantity implied by the amount of bogus “bonds” involved.
There is an interesting tie in this story however, if you look at my previous posting on possible fraud within HSBC:
The financial fraud uncovered by the Italian prosecutors in Potenza includes two checks issued through HSBC Holdings Plc (HSBA)in London for 205,000 pounds ($325,000), checks that weren’t backed by available funds, the prosecutors said.
Hmmmm…. now that is interesting.
Could we have some truth here please?