Sunday, May 24, 2009

We're Broke!

Greetings good citizen,

Do you have a clue what or who to believe anymore? I think few will disagree with me when I posit that what passes for ‘information’ in the world is, to a large degree, very carefully, um, ‘couched’.

You’re only told part of the story, even when the report is on issues that don’t cast either the media (or our corporate overlords) in a particularly favorable light.

Which is to point out that even bad news is reported with a ‘positive spin’ or at the very least, wrapped in a degree of ‘deniability’.

It’s time for a little ‘thought experiment’…what do you think would happen if the President of the US came right out and admitted the US was ‘broke’?

Let us look into precisely this phenomenon before we venture once again into ‘money is meaningless’ land.

The source of tonight’s offering is the highly respected market analyst Jesse over at Jesse’s crossroads café.

Jesse's Café Américain

"What is crooked cannot be made straight, and what is lacking cannot be counted." Ecclesiastes

23 May 2009
Ladies and Gentlemen: the US Is Insolvent

"We are out of money." Barack Obama May 23, 2009

Obama openly says what anyone with common sense has known for quite some time: the US is broke, and will not be able to honor its financial and fiduciary obligations.

The question remains how the US restructures that debt and how big a haircut the debt holders will take.

20%? 30%? More like upwards of 50% at least in real terms.

And who are these debt holders?

Anyone who hold Treasury debt obligations and financial assets, from the Long Bond to the US Dollar, and assets guaranteed by the Federal Reserve and the Treasury.

Technically, the debt will be serviced and the interest paid according to the terms of the agreements, with devalued US dollars. [Understand these, are the same ‘US dollars’ you will be forced to make ends meet with…so the devaluation train doesn’t ‘stop’ with investors in US government debt…it extends to anyone who is paid US dollars!]

The process will continue until the debt is restructured and the dollar is replaced with a new dollar. This may take some years.

But we are now in the endgame. [Below are links to related commentary on the original document.]

The Incontrovertible Truth About Debt, Deleveraging, Devaluation and Recovery

Why the US Has Gone Broke: Chalmers Johnson

Marc Faber Sees Bankruptcy for the US

In 2009 the US Will Be Forced to Selectively Default and Devalue Its Debt

A Credit Bubble of Historic Proportion

Shhhhhh.... Here is a Secret Worth Remembering

Didn't you just know they would spill it over a long holiday weekend?

Don't be too concerned, there will be more spin and denials after this trial balloon has been floated, and life will go on.

"Oh, that's not what Obama meant. He means we have a problem but there are the means and the time to address and repair it before it becomes too great."

People have an enormous capacity for delusion bordering on selective amnesia. Go back and read the posts on this blog starting in September 2008. Then reflect on what has been said recently on Wall Street and you will see what we mean.

We are now in the endgame of an historic credit bubble that will result in a currency crisis of epic proportions.

[Jesse usually prints the ‘source’ article below his own commentary…so I am ‘assuming’ his ‘source’ was someone at ‘Drudge’.]


Sat May 23 2009 10:32:18 ET

In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: "We are out of money."

C-SPAN host Steve Scully broke from a meek Washington press corps with probing questions for the new president.

SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?

OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.

So we've got a short-term problem, which is we had to spend a lot of money to salvage our financial system, we had to deal with the auto companies, a huge recession which drains tax revenue at the same time it's putting more pressure on governments to provide unemployment insurance or make sure that food stamps are available for people who have been laid off.

So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don't reduce long-term health care inflation substantially, we can't get control of the deficit.

So, one option is just to do nothing. We say, well, it's too expensive for us to make some short-term investments in health care. We can't afford it. We've got this big deficit. Let's just keep the health care system that we've got now.

Along that trajectory, we will see health care cost as an overall share of our federal spending grow and grow and grow and grow until essentially it consumes everything"...

It’s hard to tell without examining the source article if it actually stops so abruptly…but what you see is what there was.

Without launching into another screed about the meaninglessness of money, this news sure kicks the ‘deflationista’s’ solidly in the crotch!

Deflation only exists when the value of currency drops slower than the value of assets.

In a case of peculiar timing, the dollar has recently resumed its long downward trend.

Worse, we must now ask ourselves if the ‘explanation’ for rising oil prices (in light of a global oil glut) isn’t physical evidence of our falling purchasing power?

Ironically, this will spark some serious repercussions for the ‘green shoots’ crowd. Calls for these people’s ‘heads on a platter’ will be deafening.

How can there be any ‘credible’ discussion of an economic recovery when our currency is falling off a cliff, ‘Zimbabwe style’?

Bizarrely (at least in the beginning) things will chug along as they always have. It will be the coming tsunami of rapidly rising commodity prices that will cause our now global supply lines to collapse.

Understand that our ‘creditors’ have a vested interest in ‘re-capturing’ as much value as they can from their rapidly declining dollar holdings.

They’ll still ship to us on credit…but at greatly inflated prices. Wide categories of consumer goods are no longer produced here; they will use this ‘leverage’ to recoup what they can.

Some of you may wonder why I keep insisting that ‘money is meaningless’ yet I decline to say money is worthless.

Money is an abject failure when it comes to ‘simplifying’ barter, a phenomenon we have witnessed repeated with the creation of the ‘cheaper there’…which is merely the product of currency manipulation and nothing more.

If a duck is a duck and a pig is a pig then a dollar must be a dollar! (Equal in value no matter where it is minted or what it is called!)

But today we have a Chinese yuan that can be had six for a dollar, while a single yuan buys four times what a dollar will! (Which is why the average Chinese worker doesn’t starve to death.)

Well good citizen, that shit is about to do a mad about face! No irony should be lost on the fact that US workers will ‘suddenly’ become competitive again and it will happen almost virtually overnight!

Not that this will do any of us any good.

The stooges that put us in this position will bleed money at an incredible rate as their overseas operations suddenly become ‘uncompetitive’.

And we will all learn an important lesson about the ‘value’ of money and the danger of letting the privileged few manipulate it to their own advantage.

Tens of millions of people lost their livelihoods and whole sector lost their productive capacity so a few could wax rich…

I’ll leave it to your imagination what should be done to the people responsible for such selfishness, selfishness that devastated the entire global economy.

Did I give the Obama administration 30 weeks? Yes I did…he had a chance to pull us back from the precipice…but he was beholden to a different agenda when he took the helm.

Well good citizen, there are only a couple of weeks remaining and things are going to get ‘mighty interesting’ soon.

If I’m not mistaken, week 30 falls either at the end of July or the beginning of August.

I predict things will be in ‘full swing’ by then.

Thanks for letting me inside your head,


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