FedUpUSA

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.

Jordan to Bernanke 2 2013 by

The Market-Ticker

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

$31,300,000,000,000

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

The stupid, it burns!

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.

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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.

Oh do come on….

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.

Two problems:

• 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.

Bullshit.

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?