Jan 12 2010

Welcome to the Ponzi Economy

(10 am. – promoted by ek hornbeck)

  You’ve heard the term Ponzi Scheme. Well now I want to introduce you to the term Ponzi Economy.

 Here’s the problem that the U.S. Fed’s “exit” poses in simple English: Our fiscal 2009 deficit totaled nearly 12% of GDP and required over $1.5 trillion of new debt to finance it. The Chinese bought a little ($100 billion) of that, other sovereign wealth funds bought some more, but as shown in Chart 2, foreign investors as a group bought only 20% of the total – perhaps $300 billion or so. The balance over the past 12 months was substantially purchased by the Federal Reserve. Of course they purchased more 30-year Agency mortgages than Treasuries, but PIMCO and others sold them those mortgages and bought – you guessed it – Treasuries with the proceeds. The conclusion of this fairytale is that the government got to run up a 1.5 trillion dollar deficit, didn’t have to sell much of it to private investors, and lived happily ever – ever – well, not ever after, but certainly in 2009.  Now, however, the Fed tells us that they’re “fed up,” or that they think the economy is strong enough for them to gracefully “exit,” or that they’re confident that private investors are capable of absorbing the balance. Not likely.

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 This is a ponzi scheme, folks, but on a massive scale. Printing money to fund budget deficits of 12% of GDP is the traditional method of creating a currency crisis.

“The 1st panacea of a mismanaged nation is inflation of the currency; the 2nd is war. Both bring a temporary prosperity; a permanent ruin.”

~Ernest Hemingway

In essence, the Fed bought 80% of new government debt in 2009.

Even CNBC has figured this one out. When even these clowns figure it out we should all be scared.

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 Simply put, the rest of the world is running out of ability to finance our endless budget deficits, and the Fed is stepping in at an increasing rate with freshly printed money.

  If the Fed stops then the private market cannot absorb all this new debt and rates will skyrocket. If the Fed continues then we have a currency crisis.

 Pick your poison.

10 comments

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    • gjohnsit on January 12, 2010 at 21:04
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    • Edger on January 12, 2010 at 21:28
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    No bailout can stop the sinking, July 31, 2009

    excerpted from Empire of Illusion, by Chris Hedges

        “Bankrupt corporate capitalism is on its way to bankrupting the socialism that is trying to save it,” he added. “That is the end stage. If they no longer have socialism to save them, then we are into feudalism. We are into private police, gated communities, and serfs with a 21st-century nomenclature.”

       The United States will not be able to raise another $3- or $4-trillion, especially with our commitments now totalling more than $12-trillion, to fix the mess.

       It was not long ago that such profligate government spending was unthinkable. There was an $800-billion limit placed on the Federal Reserve. The economic stimulus and the bailouts will not bring back our casino capitalism. And as the meltdown shows no signs of abating, and the bailouts show no sign of working, the recklessness and desperation of our capitalist overlords have increased.

       The cost to the working and middle class is becoming unsustainable. The Fed reported that households lost $5.1-trillion, or 9 per cent, of their wealth in the last three months of 2008, the most ever in a single quarter in the 57-year history of record-keeping by the central bank. For the full year, household wealth dropped $11.1-trillion, or about 18 per cent.

       These figures did not record the decline of investments in the stock market, which has probably erased trillions more in the country’s collective net worth.

       The bullet to our head, inevitable if we do not radically alter course, will be sudden. We have been borrowing at the rate of more than $2-billion a day over the last 10 years, and at some point it has to stop. The moment China, the oil-rich states, and other international investors stop buying U.S. Treasury Bonds, the dollar will become junk.

       Inflation will rocket upward. We will become Weimar Germany. A furious and sustained backlash by a betrayed and angry populace, one unprepared intellectually and psychologically for collapse, will sweep aside the Democrats and most of the Republicans.

       A cabal of proto-fascist misfits, from Christian demagogues to simpletons like Sarah Palin to loudmouth talk-show hosts, whom we naïvely dismiss as buffoons, will find a following with promises of revenge and moral renewal. The elites, the ones with their Harvard Business School degrees and expensive vocabularies, will retreat into their sheltered enclaves of privilege and comfort. We will be left bereft, abandoned outside the gates, and at the mercy of the security state.

    One more warning on Obama and the Dems. Don’t say we didn’t tell you.

    by John Pilger, May 31, 2008

     The objects of these uncontrollable passions are as one in their support for America’s true deity, its corporate oligarchs. Despite claiming that his campaign wealth comes from small individual donors, Obama is backed by the biggest Wall Street firms: Goldman Sachs, UBS AG, Lehman Brothers, J P Morgan Chase, Citigroup, Morgan Stanley and Credit Suisse, as well as the huge hedge fund Citadel Investment Group. “Seven of the Obama campaign’s top 14 donors,” wrote the investigator Pam Martens, “consisted of officers and employees of the same Wall Street firms charged time and again with looting the public and newly implicated in originating and/or bundling fraudulently made mortgages.”

    • Inky99 on January 13, 2010 at 02:11
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    Glad you posted this, because a LOT more people will read it, but I posted this a couple three days ago in my “read this. just read this” essay:

    https://www.docudharma.com/diar…

    (it’s in the 2nd part of it).

    But yeah.   I remember when the Fed started buying this stuff up and I remember thinking “whoa, wait a minute.  Isn’t this a BIG DEAL?”

    Hell yeah it’s a big deal.

    I’m no economist, but it seemed like if I were to run up all my credit cards to the max, then just issue myself my own credit card.   A snake eating its tail.

    Got nowhere to go but bad.

  4. everyone keeps saying we avoided?

    We didn’t avoid it, we just postponed the inevitable with 18 months of dumb taxpayer money to give the smart private money a chance to unwind their portfoolios. (hmm. ‘portfoolios’ – I think I’ll keep that typo).

    The real fun begins this June, when the Fed finally pulls the plug on this scam.

    We ain’t seen nothing yet, folks.

    • RUKind on January 14, 2010 at 07:35
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    It’ll be $100 each for those. Onions are only a $50 special today.

    I’ve been pushing the gated community, private police, feudal “island” community concept for a couple of years now. It’s already well underway. With the recent Bush 2008 looting, the two unwinnable, unendable wars and the upcoming consumer credit and commercial real estate collapses, I don’t see too bright a future.

    I think the Second American Revolution will have more in common with the French. Start your oligarch lists now. In old Asian times, their entire genetic lines would be removed.

    “Ask not what your oligarchy is doing to you; ask what you can do to them; and then split!” Anon.

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