Wall Street Analyst finds out 'Fed' is manipulating markets

[Col. Flagg]

I'm much more worried about a future riot in Omaha or Lincoln that disrupts the I-80 corridor...or an extreme weather event (basketball sized hailstorm) than all the other stuff (currency issues, etc)

Jason, are you familiar with the hailstorm prophesied in the Book of Revelation which is supposed to destroy the crops of the earth as a last days' plague? Each hailstone is said to be the weight of a talent. Well, a talent = about 65 lbs. A basketball-sized hailstone could come close to that.

yeppers....I had that in mind. Destroy a whole lot more than just crops.....

I know, that's the thing... will the Lord confine the hailstones to just crops or will it be a global land hailstorm? I can't imagine the Lord sending a hailstorm with 65 lb. hailstones raining down on everything... heck, no one would be safe.

[Jason]

I know, that's the thing... will the Lord confine the hailstones to just crops or will it be a global land hailstorm? I can't imagine the Lord sending a hailstorm with 65 lb. hailstones raining down on everything... heck, no one would be safe.

I reckon the conference center would be pretty safe....might have a few water leaks...

[Jason]

Jason....buy that gold

lol had to tease you on that one

keep up the good posts

LOL Tease away!!!

What probably should have been a follow up to these posts is at the tail end of my comments on this thread -

http://www.ldsfreedomforum.com/viewtopi ... 9&start=30

Zero Hedge does a nice job of pulling together the data on the roll-over issues going forward and ultimately stating -

Using inflation to reduce debt impacts in an environment characterized by short maturities is difficult if not impossible. (Rising interest rates ensnare each roll-over and raise the debt service required of the Treasury)

bold mine

I have yet to see any of the pro gold inflationary or even hyperinflation proponents address this issue....and we are facing the shortest maturities in history at the highest amounts in history! The stunning thing is it appears gamed to me....which if taken in light of prior gaming by the Gov, Fed, SEC, etc etc....looks like they really intend to pull the rug out from under our feet!

Basis points are damaging right now. A 1 or 2% bump in interest rates would kill us let alone a 5 or 6% jump.

[gruden]

I'm much more worried about a future riot in Omaha or Lincoln that disrupts the I-80 corridor...or an extreme weather event (basketball sized hailstorm) than all the other stuff (currency issues, etc)

Or simply because a major trucking firm goes bankrupt and the movement of food becomes much slower (stuff rots on the farm waiting to be picked up).

I read D&C 29 the other day which mentioned the hail storm. Not sure where that fits into the scheme of things. Right now I'm more concerned about a severe, protracted winter which will damage crops, which is already started to happen. If winter stays late, all kinds of crops in the mid-south will be lost.

[gruden]

Zero Hedge does a nice job of pulling together the data on the roll-over issues going forward and ultimately stating -

Using inflation to reduce debt impacts in an environment characterized by short maturities is difficult if not impossible. (Rising interest rates ensnare each roll-over and raise the debt service required of the Treasury)

bold mine

I have yet to see any of the pro gold inflationary or even hyperinflation proponents address this issue....and we are facing the shortest maturities in history at the highest amounts in history! The stunning thing is it appears gamed to me....which if taken in light of prior gaming by the Gov, Fed, SEC, etc etc....looks like they really intend to pull the rug out from under our feet!

Basis points are damaging right now. A 1 or 2% bump in interest rates would kill us let alone a 5 or 6% jump.

This is interesting, and I don't completely understand it. Do you have a link or a more complete explanation of this? What timeframe are we looking at before these rollovers really get going?

[Jason]

I'm much more worried about a future riot in Omaha or Lincoln that disrupts the I-80 corridor...or an extreme weather event (basketball sized hailstorm) than all the other stuff (currency issues, etc)

Or simply because a major trucking firm goes bankrupt and the movement of food becomes much slower (stuff rots on the farm waiting to be picked up).

I read D&C 29 the other day which mentioned the hail storm. Not sure where that fits into the scheme of things. Right now I'm more concerned about a severe, protracted winter which will damage crops, which is already started to happen. If winter stays late, all kinds of crops in the mid-south will be lost.

Well may as well get ready....we know from prophecy that we'll eventually need to make our own stuff and grow our own food.

[Jason]

Zero Hedge does a nice job of pulling together the data on the roll-over issues going forward and ultimately stating -

Using inflation to reduce debt impacts in an environment characterized by short maturities is difficult if not impossible. (Rising interest rates ensnare each roll-over and raise the debt service required of the Treasury)

bold mine

I have yet to see any of the pro gold inflationary or even hyperinflation proponents address this issue....and we are facing the shortest maturities in history at the highest amounts in history! The stunning thing is it appears gamed to me....which if taken in light of prior gaming by the Gov, Fed, SEC, etc etc....looks like they really intend to pull the rug out from under our feet!

Basis points are damaging right now. A 1 or 2% bump in interest rates would kill us let alone a 5 or 6% jump.

This is interesting, and I don't completely understand it. Do you have a link or a more complete explanation of this? What timeframe are we looking at before these rollovers really get going?

Thanks for the heads up message - I did miss your post.

Analysis by Zero Hedge -
http://www.zerohedge.com/sites/default/ ... chv1i1.pdf

Excerpt from the link posted above -

Further, it becomes apparent that the current maturity profile is such that even extensive inflation will likely be ineffective in mitigating the impact of the debt analyzed.

While the ramifications of quantitative easing or Treasury collateral reverse repo operations may escape even learned financial professionals, unique visual presentation (or may we go so far as to say "art"?) often has the potential to crystallize complex issues in the public psyche. We attempt this dangerous feat in this paper and media connected thereto.

As of end of month December 2009, amount of marketable debt maturing in:
o 0-30 days: $432.0 billion
o 31-60 days: $382.3 billion
o 61-90 days: $307.0 billion
o Total maturing in under 90 days: $1,121.3 billion

Using inflation to reduce debt impacts in an environment characterized by short maturities is difficult if not impossible. (Rising interest rates ensnare each roll-over and raise the debt service required of the Treasury)

bold mine

Animated version -
http://www.zerohedge.com/etch/v1i1

More writing and discussion here -
http://www.zerohedge.com/article/sprott ... naccounted

and short blipits here -
http://market-ticker.org/archives/1841- ... tions.html

and here -
http://www.zerohedge.com/article/brace- ... ld-or-else

and here -
http://www.zerohedge.com/article/you-fa ... y-auctions

and here -
http://www.zerohedge.com/article/are-he ... -purchases

and the article that started my interest in this -
http://www.zerohedge.com/article/us-lun ... -risk-2012

Excerpt from link above -

"we note that average maturities of new debt issuances rated by Moody’s – which we use as an indicator of general trends -- fell from 7.2 years to 4.7 years globally over the last five years. This is the shortest average maturity for new debt at any given point during the 30 years of bank funding history covered by our analysis. As a related matter, we estimate that banks that we rate will face maturing debt of about $10 trillion between now and the end of 2015, $7 trillion of which will occur by the end of 2012."

Let's do the math: the US Gov't needs to roll about $6 trillion (and increasing) every year, Commercial Real Estate has a $3 trillion refi cliff around 2014 and the banking system has a $7 trillion roll maturity by 2012. In other words at or about 2012, or at the time Barack Obama is sure to be enjoying record approval ratings (high or low, your choice) courtesy of 30% unemployment, the American economy will be straddled with not just the ongoing burden of issuing about $2 trillion in debt each year to finance what can only be characterized as a budget concocted by the most hard-core, raving lunatics in the Federal Insane Asylum Reserve, but will have to deal with roughly $15 trillion of rolling maturities.

see if debt (specifically money as debt - money created by debt) is the pit...which I think it is....because it virtually guarantees the transfer of ownership all assets to the one doing the lending (creating) due to the lack of money created for interest costs (inherently deflationary or net detractor from the economy i.e. sucks more out than it puts in )....and now we have a situation where the Federal Reserve is actually buying the debt with printed money....well currently a portion - but soon to be all.....where does that leave us?

The Federal Reserve quickly gains ownership of all outstanding debt (due to rollover - previous buyers of debt are bought out by the new issues....which will happen in just a couple short years). hmmm I don't know...still thinking this one through...

Recent action -
http://www.zerohedge.com/article/foreig ... to+zero%29

and description -
http://www.zerohedge.com/article/ultima ... us-deficit

http://www.zerohedge.com/article/fed-en ... treasuries

[Col. Flagg]

Satan's house is the 'Fed' building in Washington, DC. It doesn't get more corrupt than what the 'Fed' does, so if they're planning to continue buying up a ton of debt with money printed out of thin air, you can be rest assured the end result for us won't be good. Remember what Jefferson said: "If the American people ever allow private banks (like the 'Fed' is) to control the value of their currency, first by inflation and then by deflation, the banks and corporations that grow up around them will deprive the people of all their property until their children wake up homeless on the continent their Fathers conquered".

[Jason]

Satan's house is the 'Fed' building in Washington, DC. It doesn't get more corrupt than what the 'Fed' does, so if they're planning to continue buying up a ton of debt with money printed out of thin air, you can be rest assured the end result for us won't be good. Remember what Jefferson said: "If the American people ever allow private banks (like the 'Fed' is) to control the value of their currency, first by inflation and then by deflation, the banks and corporations that grow up around them will deprive the people of all their property until their children wake up homeless on the continent their Fathers conquered".

bold mine

That's what it appears to me....flood the market with credit until no one can stomach any more debt....then sit back and watch the defaults (flow of assets back to the creator of the debt).

I don't believe they intend to really bail anyone out as the sums would be much larger....10's of trillions vs just a couple trillion. Must be the boiling frog analogy....they add just enough to the pot that the water doesn't boil at once. It is a tricky tightrope since revolution could ignite and foil all their plans. The reality is if the people rose up en masse they would shortly toss the bankers on their ear and write-off the debt (since the only thing backing it is the people's own possessions and labor). They need to keep people appeased and confused for the most part (unemployment checks, stimulus money, bailouts, politics, inflation/hyperinflation, gold/silver, global warming/cooling, wars & rumors of wars, etc) while they let the water heat up. Also need to gear the military up to quickly put down any riots. Of course they are doing (have done) all that. Bet they don't pull it off though!

Yeah homeless will take on a whole new meaning this year and next!

[Jason]

There is another aspect though - people unwilling/refusing (or incapable) to borrow....that pretty much puts the kabosh on the inflationary aspect. You have to hyperinflate assets to get them in a position where they can obtain leverage again....which is a long shot at best (egg vs chicken). Once assets begin the deflationary spiral...how do you suddenly change the equation when the end receiver is already over leveraged.

[BackBlast]

Using inflation to reduce debt impacts in an environment characterized by short maturities is difficult if not impossible. (Rising interest rates ensnare each roll-over and raise the debt service required of the Treasury)

bold mine

I have yet to see any of the pro gold inflationary or even hyperinflation proponents address this issue....and we are facing the shortest maturities in history at the highest amounts in history! The stunning thing is it appears gamed to me....which if taken in light of prior gaming by the Gov, Fed, SEC, etc etc....looks like they really intend to pull the rug out from under our feet!

Basis points are damaging right now. A 1 or 2% bump in interest rates would kill us let alone a 5 or 6% jump.

I see you like to read the market ticker and zero hedge, both places I like to read as well though I usually only take the time to regularly read market ticker.

What frustrates me to no end is the deflationist's insistence that there is no allowed mechanism to change the treasury's funding mechanism.

Yes, short term roll over is bad, it's moving your mortgage to your credit card. And yes, wholesale change is required once the "word is out" that we've effectively defaulted. The power of the printing press is very much in the hands of government, and at a fiat decree they could cease the issuance of treasuries and commence funding by the press. Simply put, stop "borrowing" the money and start printing it. This wouldn't show up as increased wages for anyone (at least not immediately), but simply dramatically higher import costs for anything imported. This would likely put us in a rather short lived death spiral.

This line of logic is ignored for the most part on ticker forums, it's apparently not worth bothering with since it just "can't happen", yet KD has consistently been wrong over time with respect to where the actual limits of government stupidity/power. Over the years he's been blogging, he has held positions that they just CANNOT do X. And 6 months to a year later they are doing it and it's normal and the world didn't halt (well, not immediately) like he kinda sorta said it would. I agreed with him in principle, but the lines of "WILL NOT EVER DO THIS" are not so clearly defined.

Yes, hyperinflation is death for our nation. Removing the sale of treasuries is ADMITING bankrupcy, but it would keep us "running" just a little longer, and when we reach the end of the credit line - do you really think we'll stop spending? Can we manage that with the momentum of every social program built up in the federal government? Does congress have the balls to stand up to the entitlement system and say, we're broke? Every move by the government this decade has been to feed this monster and delay the inevitable paying of the piper. Raw printing of the deficit would delay it just a little longer, and somehow they will resist and WON'T do it? Sooner or later we do have to square the books and face reality. The deflationist stance is that we will declare bankruptcy before we print, that we will never leave or abandon the present treasury funding complex. I find that a mighty strong act of faith in the willingness of Congress to face the consequences of decades of reckless spending with no abatement.

Perhaps that's, in fact, the grand plan. To declare full out bankruptcy when we have something convenient to blame it on. But I see no way anyone can unequivocally state that the treasury complex is beyond disbanding in favor of the press. They may not make disbandment official, but they could very well cap rates and buy anything in excess themselves (like some claim they are now, in fact, doing). The problem with this avenue is you risk needing to buy open market treasuries and a lot of people choose to sell their inventory (SOLD TO YOU!). That could well turn into 10+ trillion fresh dollars overnight..

With it said that I think inflation/hyperinflation is likely inevitable, anyone who ignores the powerful deflationary forces now in effect is foolish. You can't go all in with either financial play with full confidence. A full out play is just lunacy. Prophetic council, get out of debt, prepare every needful thing, is the safest play. With excess savings, I would stay in cash and a few forms of physical commodities (gold/silver/guns/ammo/nails/bicycles/car parts...) to hedge both directions. At present I heavily favor CASH as much as 8...10 to 1 from an investment/preservation perspective. Interest on savings is gravy, but take essentially NO MARKET BASED RISK and may even suggest a healthy % in physical bills in a secure location that is not a safe deposit box. I would also not use extra income to pay down secured debt in favor of building my cash pile, with "flexibility" in resources being key. (my investing advice and liability is worth exactly what you paid for it, zero)

I've found that during our "deflation" the supply side tends to disappear right along with the demand, the fire sales and deals have not been as hoped. I was a big deflationist, but I'm just not seeing the big bonanza of commodities on the open market I was hoping for. Maybe April will start to change that trend with the big deflationary wave we're going to hit. I will have a large pile of cash by then, but will be hard pressed to part with any of it I think.

[reese]

OK I need some help here, Jason... anybody..... I think I have a pretty good understanding of what life would look like during inflation/hyperinflation. What would life look like during deflation? Is it a depression? You keep saying that there will be less and less cash to go around. Is that because more jobs will be lost, more wages cut? If I am still getting a normal paycheck how would deflation affect me? How does it affect the price of goods, or the availability of goods? Tell me what life will look like...please.

[Jason]

OK I need some help here, Jason... anybody..... I think I have a pretty good understanding of what life would look like during inflation/hyperinflation. What would life look like during deflation? Is it a depression? You keep saying that there will be less and less cash to go around. Is that because more jobs will be lost, more wages cut? If I am still getting a normal paycheck how would deflation affect me? How does it affect the price of goods, or the availability of goods? Tell me what life will look like...please.

OK...

Your assets drop in value reducing your ability to leverage them for cash (shut down the home ATM machine)

Mobility is hampered as you can't sell your house for what you owe to move to a better economic location

Falling prices that you can't take advantage of because of falling wages (job loss) and unbearable debt service

If it gets to the point of the great depression - the farmer burns wheat in his stove to stay warm because he doesn't have cash to buy coal, the coal miner quits mining and hunts as he doesn't have cash to purchase food, some barter and trade but its a very inefficient mechanism to conduct economic trade.

The normal paycheck is a factor of timing...odds are it won't stay that way. Basically though just look around...we've been in a deflationary environment for over a year now. A lot of government stimulus and plenty of social safety nets (now utilizing borrowed dollars) to slow the decline....but we are still declining. The state and local governments are now letting employees go and cutting back spending....and they are the last ones to do that and only because they are literally forced to.

California is a good example - they are trying to sell their office buildings into a flooded commercial real estate market for $650 million of short term cash that would fund current unemployment claims for less than a month.

I can't find the US article but here's one on Canada -
http://www.reuters.com/article/idUSN1945813720090819

[BackBlast]

OK I need some help here, Jason... anybody..... I think I have a pretty good understanding of what life would look like during inflation/hyperinflation. What would life look like during deflation? Is it a depression? You keep saying that there will be less and less cash to go around. Is that because more jobs will be lost, more wages cut? If I am still getting a normal paycheck how would deflation affect me? How does it affect the price of goods, or the availability of goods? Tell me what life will look like...please.

The general problems during deflation are the shrinking pay checks and the job losses. Otherwise, life will be good if you have a stable paycheck and not a lot of liabilities. Stuff will cost less, and the price trends will be down (imagine shrinking utility bills, shrinking food bills, gas bills, etc). Which encourages savings and staying out of debt as future dollars will be worth more than current dollars. That's the general deflation picture, if you were prudent and conservative you can expect to come out very well. If you were extravagant and have a large debt burden you will suffer.

Unfortunately, availability of goods will trend down as well. We have way overbuilt capacity, and once the owners can't afford to run that capacity products disappear quite quickly. In our Just-In-Time style delivery system, there are no large stocks of good to be liquidated on the market and thus as companies die due to the past's over production the products will simply very quickly and quietly disappear. At least, this is what I'm observing.

Sitting on large piles of cash, in theory, you should be able to buy up stuff on the cheap. Housing, cars, boats, ATVs, industrial machinery, etc... In practice, I haven't really seen it yet...

[Jason]

Using inflation to reduce debt impacts in an environment characterized by short maturities is difficult if not impossible. (Rising interest rates ensnare each roll-over and raise the debt service required of the Treasury)

bold mine

I have yet to see any of the pro gold inflationary or even hyperinflation proponents address this issue....and we are facing the shortest maturities in history at the highest amounts in history! The stunning thing is it appears gamed to me....which if taken in light of prior gaming by the Gov, Fed, SEC, etc etc....looks like they really intend to pull the rug out from under our feet!

Basis points are damaging right now. A 1 or 2% bump in interest rates would kill us let alone a 5 or 6% jump.

I see you like to read the market ticker and zero hedge, both places I like to read as well though I usually only take the time to regularly read market ticker.

What frustrates me to no end is the deflationist's insistence that there is no allowed mechanism to change the treasury's funding mechanism.

Yes, short term roll over is bad, it's moving your mortgage to your credit card. And yes, wholesale change is required once the "word is out" that we've effectively defaulted. The power of the printing press is very much in the hands of government, and at a fiat decree they could cease the issuance of treasuries and commence funding by the press. Simply put, stop "borrowing" the money and start printing it. This wouldn't show up as increased wages for anyone (at least not immediately), but simply dramatically higher import costs for anything imported. This would likely put us in a rather short lived death spiral.

This line of logic is ignored for the most part on ticker forums, it's apparently not worth bothering with since it just "can't happen", yet KD has consistently been wrong over time with respect to where the actual limits of government stupidity/power. Over the years he's been blogging, he has held positions that they just CANNOT do X. And 6 months to a year later they are doing it and it's normal and the world didn't halt (well, not immediately) like he kinda sorta said it would. I agreed with him in principle, but the lines of "WILL NOT EVER DO THIS" are not so clearly defined.

Yes, hyperinflation is death for our nation. Removing the sale of treasuries is ADMITING bankrupcy, but it would keep us "running" just a little longer, and when we reach the end of the credit line - do you really think we'll stop spending? Can we manage that with the momentum of every social program built up in the federal government? Does congress have the balls to stand up to the entitlement system and say, we're broke? Every move by the government this decade has been to feed this monster and delay the inevitable paying of the piper. Raw printing of the deficit would delay it just a little longer, and somehow they will resist and WON'T do it? Sooner or later we do have to square the books and face reality. The deflationist stance is that we will declare bankruptcy before we print, that we will never leave or abandon the present treasury funding complex. I find that a mighty strong act of faith in the willingness of Congress to face the consequences of decades of reckless spending with no abatement.

Perhaps that's, in fact, the grand plan. To declare full out bankruptcy when we have something convenient to blame it on. But I see no way anyone can unequivocally state that the treasury complex is beyond disbanding in favor of the press. They may not make disbandment official, but they could very well cap rates and buy anything in excess themselves (like some claim they are now, in fact, doing). The problem with this avenue is you risk needing to buy open market treasuries and a lot of people choose to sell their inventory (SOLD TO YOU!). That could well turn into 10+ trillion fresh dollars overnight..

With it said that I think inflation/hyperinflation is likely inevitable, anyone who ignores the powerful deflationary forces now in effect is foolish. You can't go all in with either financial play with full confidence. A full out play is just lunacy. Prophetic council, get out of debt, prepare every needful thing, is the safest play. With excess savings, I would stay in cash and a few forms of physical commodities (gold/silver/guns/ammo/nails/bicycles/car parts...) to hedge both directions. At present I heavily favor CASH as much as 8...10 to 1 from an investment/preservation perspective. Interest on savings is gravy, but take essentially NO MARKET BASED RISK and may even suggest a healthy % in physical bills in a secure location that is not a safe deposit box. I would also not use extra income to pay down secured debt in favor of building my cash pile, with "flexibility" in resources being key. (my investing advice and liability is worth exactly what you paid for it, zero)

I've found that during our "deflation" the supply side tends to disappear right along with the demand, the fire sales and deals have not been as hoped. I was a big deflationist, but I'm just not seeing the big bonanza of commodities on the open market I was hoping for. Maybe April will start to change that trend with the big deflationary wave we're going to hit. I will have a large pile of cash by then, but will be hard pressed to part with any of it I think.

I'm by no means putting KD on a pedestal. Some things I think he is right and appears to have a fairly good understanding of the game at hand....on others it appears more like PressTV with ranting about Mary Jane and whatever else he can go off about. I do follow KD and Zero Hedge....but also a ton of others....see blog links on right hand column for more detail -
http://yophat.blogspot.com/

Your analysis excludes the conspiracy....which we wouldn't be in the spot we are in today if the conspiracy didn't exist. IMO the analysis of the inflation/deflation debate must be framed within the constraints of understanding that a conspiracy exists to overthrow the freedoms of the citizens, to enslave them (take ownership of all their assets), and incorporate them in a one world government.

Perhaps the reason the printing option is ignored is it would immediately undermine the value of the debt that has taken decades to build.

This "crisis" is be utilized to its full potential. While state power has been in steady decline for decades....there have been rapid advances in the past year. People now joke about selling California to China.....something a few short years ago would be a cause for going to war.

Deflation is the optimum tool for the final transfer of wealth (assets). That said, it must be used with slow and steady pressure....one quick slice would alert the populace to the dangers at hand and spur a revolution. Hence the metering out of stimulus money, unemployment borrowing, etc until we find ourselves as boiled frogs.

All of this has been orchestrated and reinforced by decisions in government by those who control government - globalization (allowing China and other third world countries to maintain currency pegs), leverage multipliers (Greenspan's Sweep program, ultra low interest rates & SEC's allowance of securitizations, derivatives, etc), and legislative (Homeland Security, health care program, bailouts, wars, etc).

I agree 100% with your CASH position!!! The bonanza will come....but guessing timing...is easier said than done! Remember though....they've already practiced this exercise.

For 2009, we guess that U.S. households will save about $75 billion for investment purposes. This amount compares to needing $105 billion in 2008 and $198 billion in 2007 for principal payments. In spite of the appearance of improvement on this measure, our current analysis indicates that U.S. households will exit 2009 in worse shape than they entered 2009.

In our March Press, we wrote: “We now expect that we will discover many similarities to 1931 as we progress through 2009.” We have already found one important one. The Federal Reserve is discovering growing resistance to new debt: i.e., declining demand for new debt at any price.

This increasingly obvious fact is a central aspect of 1931. No matter what the Federal Reserve did in 1931, they could not generate new debt flow. The economy continued to wither.

...

In 2009, we have already recorded further economic deterioration caused directly by Obama administration choices. Our analysis of Obama administration’s policies indicates that they will not work and will continue to worsen the economy. Read our comments on pages 5 and 6.

Chairman Bernanke will most likely have the honor of proving that his research is wrong. He might end up showing us how inflation and economic depression can combine to impoverish a once vibrant, wealthy country. He might show us how too much debt leads to deflation. Whatever he shows us, our analysis indicates that it will not be fun for America.

...

This chart is interesting. It shows strong economic times are co-incident with Private Income in excess of 79% of total income during the last 40 years. It also shows poor economies are co-incident with Private Income below 78% of income.

In the 2nd Qtr, 2009, we will decline to 75% for the first time in the 62 year history. With Obama administration policies driving it below 75% in late 2009, we can be certain the Obama administration is bringing us change. Sadly, it appears that it is the wrong type of change!

The Obama administration/Democratic Congress is driving private income to new lows as a percent of income. Soon, households will expand their dependency on new debt flow to include a dependency on government distributed income. We suspect that government supported income growth will create as many problems as government enhanced debt flow has already created.

...

This section is philosophical. It starts a discussion about socialism and capitalism. It provides an interesting data point in determining the balance of socialism and capitalism in America.

“Socialism” is defined on http://www.dictionary.com as “a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.” Under Marx, “socialism” is the precursor to true collective ownership. Economically, collective ownership is a proven failure.

Under the Bush administration, “socialism” formally immigrated into the U.S. with collective ownership of a significant portion of the financial system. We have heard the excuses for government participation in the financial system, but the rationalizations do not change the facts.

The facts are simple: the U.S. Treasury and the Federal Reserve took physical control and effective ownership of substantial portions of the financial system during late 2008. The Treasury took control and ownership of Freddie Mac and Fannie Mae. The Federal Reserve took control of AIG. The Treasury invested in “perpetual preferred” equity with attached diluting warrants of a large swath of U.S. banks. The Treasury is now making investments in insurance companies and auto companies. It is what it is. It meets the definition of socialism.

Based on the above definition of socialism, George Bush brought socialism to the U.S and Barack Obama is extending the concept. Many blame Franklin Roosevelt for the largest increase in government control of the economy. The chart below surprisingly shows that Herbert Hoover was actually responsible for the biggest governmental increase in the economy.

****Side note: Chart also shows that Carter was the most fiscally responsible president (out of the list) - relating to survey in other thread****

The following chart shows the level of cash government expenditures as a percent of GDP. If America is turning more socialist, it will show an increase in government control of the GDP.

The green bars show what has happened since the election of the Democratic Congress in 2006. We are in the midst of the single biggest increase in government control of the economy since Truman or Hoover.

It is interesting there were few government deficits until government expenditures approached 30% of the economy. As governmental expenditures exceeded 30%, deficits expanded. When Clinton returned governmental expenditures to 30%, a balanced budget re-appeared.

Everything chronicled in our Consumer Crunch, Crush, and Press is directly related to falling household liquidity. With household liquidity at all time lows in early 2008; it stabilized. It increased in late 2008 and stopped increasing again in 2009.

Household liquidity is a key economic variable. If liquidity begins to decline again during late 2009/early 2010, it will signal a worsening economy. It would also signal that the Federal Reserve’s use of the mortgage market to generate money is effectively finished as a predictable macro-economic control lever.

In March, we wrote: “With the effective government takeover of the banking system, we suspect that liquidity will probably fall no further. We expect to move toward the next step in the economic process.”

In our view, the next step is the transition from a government-supported market economy to a government-supported economy. In such an economy, we can assume that the government will provide liquidity to the economy as it is needed. Effectively, the economy will operate forever on deficient liquidity, but it will not run out of necessary liquidity.

In March, we wrote: “…we did not yet realize that our new President would also include state and local governments in the transfer payment process. Not only are households broke, but the state and local governments supported by taxes and fees on broken households are also broke!”

We suggested that California, Florida and New York were potentially bankrupt. We also suggested that the Governors of these states would very much like the right to print money.

We have heard the Governor of California say that, unlike the U.S., he cannot print money to solve California’s problems! We also understand that the Governor of New York is not sharing the stimulus transfers with local governments and the Governor of Florida is running for Senator. It seems nobody wants responsibility for this mess.

We think Gov. Schwarzenegger has it wrong. Printing money never solves problems. In fact, printing money creates more problems as it causes perverse economic rewards. Only those that benefit from government payments benefit from destruction of the currency.

We also wrote: “In our opinion, the Obama administration has made one economic mistake after another. A simple analysis of the stimulus package shows that it will not work.”

We love the pie charts tracking how much of the Obama stimulus money has been distributed and how much has actually been spent. It is sad that America has been reduced to waiting for a tidal wave of government cash to save it. Government debt levels are rising at an unsustainable pace.

The cash flow statements do not lie. The path that our leadership has chosen will fail. Tax levels have reached economic resistance levels. Declining private income demonstrates that the economy is not functioning well. The “green shoots” of Bernanke’s “recovering” economy are only the growth of Roubini’s government “yellow weeds” taking over the economy.

The Obama administration is creating income dependency to complement the debt dependency created by the Federal Reserve. Income-constrained, debt-overloaded households cannot support future investment. Without household investment, U.S. households will become poorer.

http://www.piscataquaresearch.com/track ... ts_151.pdf
bold is my statement

No one takes the position that it is anticipated and planned - i.e. intentional.....for obvious reasons (would not be believed as it would upset 90% of the BS - belief systems).

In October, we wrote: “the cash flow model suggests “the road not taken” is still open.” The cash flow model says that 1932 arrives in 2010. It also implies the Fed leaves the Depression path in 2010 to blaze a worse path. By the end of 2010, “the road not taken” will probably close.

Though we are optimistic that our economic math will prove analytically superior in 2010, we are saddened. The socialist debt flow model used by Republicans and Democrats to manipulate the economy since the 1990s appears to be disintegrating. Our advice: pay down your debts as fast as you can!

http://www.piscataquaresearch.com/track ... ts_153.pdf
bold underline mine

[reese]

Thank you Jason and Backblast. So pretty much if we have followed the counsel of the Prophet and are out of debt, saved up food/commodities, and set some money aside in savings then it won't hurt nearly as much as it could otherwise.

I have another question. Knowing what we know through revelation, that our economy will collapse completely with chaos following it, if someone were to reach a point of having a reasonable amount of money set aside would it be better to direct extra funds toward food and commodities rather than just saving a lot of money? Not that I have that problem It seems like there will come a point when cash will not be of any value as well, and we will be completely dependant upon the Lord and our own abilities/previous preparations to survive.

[SwissMrs&Pitchfire]

I'm sorry I haven't been reading this thread!

BackBlast,
Everybody including Denniger and absolutely MiSh believes that eventually the U.S. Govt. will do exactly as you say and repudiate the debt by sending over the Trillion dollar bills hot off the press so to speak or just cease honoring and redeeming them. But that is the nuclear option and a "Game Over" scenario. Most of what we focus on therefore is what will occur until then.

Deflation generally means lower prices to a point, and inflation generally means higher prices, but neither is necessarily true. Debt changes that dramatically as prices during deflation cannot shrink so far as to cease to service the debts of yesterdays inflationary period. There is SO much more debt now than ever before. The game just isn't going to play out in the same OLD textbook fashion.

[Jason]

Thank you Jason and Backblast. So pretty much if we have followed the counsel of the Prophet and are out of debt, saved up food/commodities, and set some money aside in savings then it won't hurt nearly as much as it could otherwise.

I have another question. Knowing what we know through revelation, that our economy will collapse completely with chaos following it, if someone were to reach a point of having a reasonable amount of money set aside would it be better to direct extra funds toward food and commodities rather than just saving a lot of money? Not that I have that problem It seems like there will come a point when cash will not be of any value as well, and we will be completely dependant upon the Lord and our own abilities/previous preparations to survive.

That's where I recommend tools vs gold/silver. IMO obtaining massive piles of metal is ultimately a goal of selfishness. Tools that produce things people will need should produce a profit while also benefiting society. That said....there is certainly a timing element to the purchases. Hold cash until there's blood in the streets then acquire tools.

Agree with you...food is a pretty safe bet from all angles!

[SwissMrs&Pitchfire]

would it be better to direct extra funds toward food and commodities rather than just saving a lot of money?

I would say absolutely to anything with a long shelf life like wheat sealed in cans. That gives you at least 25 years to see a ROI. Cash will be king though, too many people need it to pay the bills, too much debt. Everybody is already starting to sell there formerly precious commodities like firearms and cars and boats etc... to pay the bills. That will only increase exponentially. Wheat will save lives when it comes to that, cash will save budgets and buy a lot.

The gamble is: How soon the apocalyptic crash? If soon, then cash would be worthless. Cash will be king until that moment though.

[SwissMrs&Pitchfire]

Far too much risk in pm's for me to recommend them. Confiscation, forced devaluing? Bubble? I don't want myself or anyone I give advice to to see

"the wrong side of '80!"

au75-pres.gif

http://www.kitco.com/scripts/hist_chart ... graphs.plx

[reese]

I want to take this conversation to a future level. I think we all agree that this whole mess is part of 'The plan' and that the powers that be have created it so they could provide the solution. Do you think the solution will be 'The mark of the Beast' scenerio?

I have read a talk circulating around here by Cleon Skousen. He seems to think that when the mark of the beast is set into motion, America will have been destroyed/cleansed and the remnant will be busy building New Jerusalem, and will not be involved with the mark of the beast. I don't know, what do you guys think.

Jason I agree with you in that this is probably 'the pit' that they have dug and will fall into themselves. Do you think that they underestimate the response of the people and that will be their downfall?

[BackBlast]

I have yet to see any of the pro gold inflationary or even hyperinflation proponents address this issue....and we are facing the shortest maturities in history at the highest amounts in history! The stunning thing is it appears gamed to me....which if taken in light of prior gaming by the Gov, Fed, SEC, etc etc....looks like they really intend to pull the rug out from under our feet!

What frustrates me to no end is the deflationist's insistence that there is no allowed mechanism to change the treasury's funding mechanism.
...
Perhaps that's, in fact, the grand plan. To declare full out bankruptcy when we have something convenient to blame it on...

I'm by no means putting KD on a pedestal. Some things I think he is right and appears to have a fairly good understanding of the game at hand....on others it appears more like PressTV with ranting about Mary Jane and whatever else he can go off about. I do follow KD and Zero Hedge....but also a ton of others....see blog links on right hand column for more detail -
http://yophat.blogspot.com/

Your analysis excludes the conspiracy....which we wouldn't be in the spot we are in today if the conspiracy didn't exist. IMO the analysis of the inflation/deflation debate must be framed within the constraints of understanding that a conspiracy exists to overthrow the freedoms of the citizens, to enslave them (take ownership of all their assets), and incorporate them in a one world government.

I don't think I completely excluded "the conspiracy". I'm aware there are many evil men and designs in the world. I'm aware they have plans, and they may or may not come to fruition.

I just believe that the government, as the debtor of last resort, will eventually reach for the inflation button to save themselves. The government IS creating money, and more or less giving it to the well connected or their "buddies". It does not overpower the deflationary forces currently in process, but effectively hastens the transfer of wealth deflation causes while slowing it down a little bit.

Perhaps the reason the printing option is ignored is it would immediately undermine the value of the debt that has taken decades to build.

Oh, I agree that RIGHT NOW the timing isn't right. They will mess with the slosh and other mechanisms as short term moves, but these are smaller moves in the deflation trend which will continue for a while yet. I'm pretty sure they can keep the game going, even with short term treasuries, for at least 2, maybe 3 years. So I see the general deflation trend for at least that long. The problem comes at the end of the game, when it can't be played anymore. Now you run into some problems...

If the government ceases to fund the entitlement programs, we will literally have riots and disorder. When people don't eat, they riot. It's that simple. When the government can't FUND itself anymore, tax receipts are down and further taxation yields little net improvement (you can only get so much blood out before you kill the host), deflation should have run it's course pretty thoroughly. At that point, you can default on the debt... Or crank up the press and last a few more years. I guess in the eyes of our enemies that own treasuries, either move is very similar. I think printing is more palpable for them though, at least they can get SOMETHING rather than nothing. Either way, we end up at the same point eventually, the thugs and the food monopoly for order and control as trade grinds to a halt.

This "crisis" is be utilized to its full potential. While state power has been in steady decline for decades....there have been rapid advances in the past year. People now joke about selling California to China.....something a few short years ago would be a cause for going to war.

Deflation is the optimum tool for the final transfer of wealth (assets). That said, it must be used with slow and steady pressure....one quick slice would alert the populace to the dangers at hand and spur a revolution. Hence the metering out of stimulus money, unemployment borrowing, etc until we find ourselves as boiled frogs.

You may well be correct, that the most effective method is the long slow deflationary grind and allowing the "favored few" to get the freshly printed dollars they need to buy up everything. It's some fairly sound logic. I just can't see them not reaching for the inflation button since the debtor of last resort is the government itself. Of course, maybe the financial death of the US government is desirable..

I agree 100% with your CASH position!!! The bonanza will come....but guessing timing...is easier said than done! Remember though....they've already practiced this exercise.

Well, I didn't advocate 100% cash exactly. I said AFTER you have prepared "every needful thing" and paid down all non-secured debt, I like savings in 90+% cash with a few commodities on hand. I hope you're right about the bonanza, but if not I'll still be okay.

[Jason]

OK I need some help here, Jason... anybody..... I think I have a pretty good understanding of what life would look like during inflation/hyperinflation. What would life look like during deflation? Is it a depression? You keep saying that there will be less and less cash to go around. Is that because more jobs will be lost, more wages cut? If I am still getting a normal paycheck how would deflation affect me? How does it affect the price of goods, or the availability of goods? Tell me what life will look like...please.

OK...

Your assets drop in value reducing your ability to leverage them for cash (shut down the home ATM machine)

Mobility is hampered as you can't sell your house for what you owe to move to a better economic location

Falling prices that you can't take advantage of because of falling wages (job loss) and unbearable debt service

If it gets to the point of the great depression - the farmer burns wheat in his stove to stay warm because he doesn't have cash to buy coal, the coal miner quits mining and hunts as he doesn't have cash to purchase food, some barter and trade but its a very inefficient mechanism to conduct economic trade.

The normal paycheck is a factor of timing...odds are it won't stay that way. Basically though just look around...we've been in a deflationary environment for over a year now. A lot of government stimulus and plenty of social safety nets (now utilizing borrowed dollars) to slow the decline....but we are still declining. The state and local governments are now letting employees go and cutting back spending....and they are the last ones to do that and only because they are literally forced to.

California is a good example - they are trying to sell their office buildings into a flooded commercial real estate market for $650 million of short term cash that would fund current unemployment claims for less than a month.

I can't find the US article but here's one on Canada -
http://www.reuters.com/article/idUSN1945813720090819

Example Dubai -

Jan. 11 (Bloomberg) -- Dubai’s housing rout sent prices down 52 percent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice. Until now.

The successful foreclosures by London-based Barclays may open the floodgates in Dubai’s property market, which went from the world’s best in 2008 to the worst after credit dried up and speculators who had fueled price increases left the market, according to Deutsche Bank AG. Moody’s estimated in September that 12 percent of the 27,000 residential mortgages in the sheikdom would default within 12 to 18 months.

Banks and developers until now have avoided the process of reclaiming homes through the courts, barred by tradition and an arcane legal process that few understood. The Barclays and Tamweel cases may change that, because they show that a 2008 mortgage law -- setting out rules for default, foreclosure and repossession -- is working.

http://www.bloomberg.com/apps/news?pid= ... jdM&pos=10#

The Research Analyst at CB Richard Ellis, Mohammed Faheem, said that the average rates of privately managed buildings in the free zones have dropped from the Dh.240-380 per sq ft range, to Dh.92-180 per sq ft during the first quarter of this year, thereby indicating a 52 to 61 percent drop.

http://www.estatesdubai.com/2009/05/dub ... icant.html

Analysis of US rail traffic -
http://www.calculatedriskblog.com/2010/ ... ce-at.html

[BackBlast]

I'm sorry I haven't been reading this thread!

BackBlast,
Everybody including Denniger and absolutely MiSh believes that eventually the U.S. Govt. will do exactly as you say and repudiate the debt by sending over the Trillion dollar bills hot off the press so to speak or just cease honoring and redeeming them. But that is the nuclear option and a "Game Over" scenario. Most of what we focus on therefore is what will occur until then.

That's not what I've seen from KD. Admittedly, I don't read everything he spits out, but whenever someone suggests this in the forums they are rejected out of hand and KD refuses to even say why it can't happen.

Or, at least, they were. Maybe he has changed his tune, that would be nice. I don't like it when he chooses to ignore things that can actually happen. I'm not as familiar with Mish.. He seemed almost a gold bull from what I read.

Regardless, it appears most here are thinking along the same general lines. I think we've already crossed the event horizon which makes the "Game Over" scenario an eventuality rather than a choice.

Most appear to think inflation -> buy gold. I think the "window of opportunity" presented by gold is going to be very narrow if it comes at all. Now is probably not a good buy in time, maybe at the bottom of the deflation period...

Better to have stuff that is useful when general trade is halted. My commodities of choice are nails and 22LR... The difficulty is they are bulky and heavy. I wouldn't mind some nice industrial equipment, but I have no where reliable to put it after it's moth balled.

[Jason]

I want to take this conversation to a future level. I think we all agree that this whole mess is part of 'The plan' and that the powers that be have created it so they could provide the solution. Do you think the solution will be 'The mark of the Beast' scenerio?

I have read a talk circulating around here by Cleon Skousen. He seems to think that when the mark of the beast is set into motion, America will have been destroyed/cleansed and the remnant will be busy building New Jerusalem, and will not be involved with the mark of the beast. I don't know, what do you guys think.

Jason I agree with you in that this is probably 'the pit' that they have dug and will fall into themselves. Do you think that they underestimate the response of the people and that will be their downfall?

Well its a tightrope crossing.....take people's assets and enslave them without them getting too pissed about it! Easier said than done. That said, they've done pretty well thus far.

What I think will bite them on the arse is evil....or selfishness. If two selfish men set out to rob a bank they are only aligned so long as they have a common interest. Once the bank is successfully robbed...then what happens? They were willing to take the risk of robbing the bank to get the money...what stops them from trying to knock each other off to get all the money? Secret combinations only protect the wicked from the righteous (punishment/judgment)....there is no protection against themselves....thus when the greater part of the people choose wickedness....say adios to society!

The whole idea of getting everyone chipped....is the utilization of technology to control the people or break the cycle that occurred several times in the BOM. I don't think they can pull that off. I think it will decay into chaos and riots as selfishness rules the day and control goes out the window.