Thursday, January 28, 2010

How to Quit Your Job Forever


Most people probably read this blog for posts like this. So it's time to post another one. If you remember nothing else from this blog, remember this:
Fed interest rates are free-market driven by profit motive, not "set" by benevolent dictators who claim they only want to help you.
I've written a ton about this, but it really is this simple:

When there is a long, long line of super-smart bank customers (not to be confused with bankers) who WANT to borrow (= invest in the economy, with leverage), then banks can charge high interest rates. Venture capital gets expensive for one reason: the market allows it to get expensive. Banks raise their retail interest rates because they have lots of borrowers competing to pay them, then the private Fed bank cartel follows by raising their wholesale rate to juice profits. The Fed is not "tightening to curb inflation, to help the good people of the world." That's just stupid.

When there is no line of super-smart bank customer who WANT to invest in the economy with leverage, interest rates plunge to 0%.

So people ask me all the time, when should I jump back in? The answer is simple: you should jump in when the smart people who make the economy hum jump in. When interest rates start a sustained climb, slowly marching higher, month after month, year after year, then there is customer-driven demand for risk taking.

As long as the Fed can't find anyone dumb enough (except the government) to WANT to buy their paper funny money, they have to market it at fire-sale interest rates. That means stocks are, or shortly will be, in free-fall. And anytime you hear the word "stimulus" that means "no smart customers" and only the government can be coerced into borrowing to pad bank profits.

Quitting your job forever is as simple as understanding this simple relationship:
Interest rates low, or worse, falling? Sell.
Interest rates high, or better, climbing? Buy.
I'm talking about sustained, macro trends, not politically motivated blips. Our current trend is clear, and it is firmly established.

28 comments:

  1. "Interest rates high, or better, climbing? Buy"

    Please, what is high?

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  2. Certainly not near-zero. There are a couple of key indicators:

    Perhaps the most important indicator is short term Treasury rates (the 3-Month is close to the Fed's maximum lending term of 30 to 60 days) LEADING the Fed rate higher. A sustained, rising 3-M T yield, relative to the Fed rate, indicates the government is having to pay a higher yield to attract lenders. By that, we can infer that money is no longer pouring into hiding, rather, finding opportunities in the economy.

    The Fed will soon follow by raising their rate to pump up their profits.

    Anytime the Fed wholesale rate for short term cash is actually higher than the 3M T, look out, banks can't do business. Think about it, when any business has to pay sustained higher wholesale prices than they can fetch in retail prices, they have a very serious problem. Their business model is shot.

    You can also evaluate rates in terms of historical context, here is the range:

    http://research.stlouisfed.org/fred2/series/TB3MS?cid=116

    You might say, hey, that's not the Fed rate, it's the 3-M T. But guess what, the two curves are utterly identical. The only difference is a slight delay in the time it takes the Fed to move their rate to match the 3M T to maximize their profits.

    The Fed rate curve is the same, just shifted a month or so to the right.

    ReplyDelete
  3. As long as taxes collected are lower and falling, house prices are falling, wages and employment are stagnant or falling any rise in short term rates is, in my view, chimerical and not to be trusted when making one's longer term investment decisions.

    ReplyDelete
  4. I agree, hettygreen.

    There is also the Fed's short term strategy of trying to raise rates to put the screws to, and suffocate their bank competition. The Fed bank cartel can print cash to help themselves during Fed-engineered depressions (not to be confused with macro inflation which they do not want or it would help their competition as well).

    In these two ways (first causing the depression then helping only themselves), the cartel has an insurmountable advantage over non-cartel banks. Which is, of course, the idea behind forming a cartel.

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  5. FDR if this is what you said and meant : 'The Fed bank cartel can print cash to help themselves during Fed-engineered depressions (not to be confused with macro inflation which they do not want or it would help their competition as well).

    In these two ways (first causing the depression then helping only themselves), the cartel has an insurmountable advantage over non-cartel banks. Which is, of course, the idea behind forming a cartel.'

    Then where does the question of GS or the FED becoming bankrupt arise? They can always print cash among themselves to survive? Why would the FED or GS not survive then?

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  6. FDR- Where can I find the best chart that overlays interest rates vs. SPX? I thought many of the past bull markets occurred during times of falling interest rates, not rising interest rates. Since interest rates can only rise from zero we should be on the cusp of a major bull market. I think in 1982 rates were 17%, as they fell a bull market ensued, no?

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  7. "Then where does the question of GS or the FED becoming bankrupt arise?"

    Because they are eternally and almost inconceivably incompetent. They can't stay afloat even with their world-beating advantage. History shows they consistently bankrupt both themselves and others.

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  8. "I thought many of the past bull markets occurred during times of falling interest rates, not rising interest rates. Since interest rates can only rise from zero we should be on the cusp of a major bull market. I think in 1982 rates were 17%, as they fell a bull market ensued, no?"

    Falling rates can still be extremely high in a historical context, which characterizes the 80s and 90s. 1980ish was the interest rate peak, and as such also the inflation rate peak.

    That 1980 peak kicked off a very long-cycle 5th of a 5th of a 5th of a 5th. 5ths are often large price movers, but extremely weak on raw fundamentals. Interestingly, it is 3rd waves (in this case, that was from 1939 to late-1960s) that lay the solid economic foundation that support unsustainable 5th wave feeding frenzies that eventually and spectacularly die.

    Essentially, the 1932-2000 bull market occurred during a period of great technological innovation that should have lowered all rices dramatically. But the Fed printed trillions on overdrive to skim and export any and all benefit from those productivity gains, leaving us with massively higher prices to show for it all.

    In the end game (now) the Fed left us an incurable bankrupt mess littered with twitching dead corpses. And that includes their own mega-leveraged walking dead bank full of inbred morons.

    I suppose you could call that a bull market. It was certainly a bull market in paper zeros, but it was a bear market as measured in wealth loss. Momma has to work to feed her family, each dollar buys 97% less stuff, etc.

    ReplyDelete
  9. """"Quitting your job forever is as simple as understanding this simple relationship:
    Interest rates low, or worse, falling? Sell.
    Interest rates high, or better, climbing? Buy.""""

    I suppose this works so long as only a few understand this. Is it possible to have no one working and everyone just gaming the system?

    Serious question from a simple mind.

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  10. Is it possible to have no one working and everyone just gaming the system? < = The DEFINITION of Wall Street.

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  11. FDR wrote: "The Fed bank cartel can print cash to help themselves during Fed-engineered depressions (not to be confused with macro inflation which they do not want or it would help their competition as well)."

    Um, and yet, you also wrote that the Fed can't print cash here:
    Can the Fed Print Currency?


    And in response to one of my comments here: Bank of America - Target for Destruction


    So in one instance, you say the Fed can print cash for their own purposes, which is exactly what I've been saying and to which you replied that they can't print cash.

    They can either print cash for their own purposes or they can't. Which is it?

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  12. "They can either print cash for their own purposes or they can't. Which is it?"

    The Fed can print cash for their own purposes. That's how they "buy" our bonds with counterfeit money. Don't confuse that with the ability to affect inflation, which is completely different.

    Even if the Fed could print cash and introduce it into the cash supply (which they cannot) that still wouldn't mean they could affect inflation. Because the cumulative actions of the commercial banks will always affect the cash supply more.

    To illustrate a totally different way:

    If I ask you to inflate the crystal chandelier supply, you might say, I can't, I don't know how to build a crystal chandelier. So we would conclude you have no ability to inflate the number of chandeliers in circulation.

    But, if you were crafty, you might pay companies who can build chandeliers an incentive for each chandelier they sell. Now, one could conclude that you found a way to inflate the supply.

    But the truth is, you still can't affect the supply unless there are retail customers who want to buy crystal chandeliers, who in turn create wholesale demand. No retail customers, and your scheme still falls flat.

    New scenario.

    Now, let's say that you can build 100 crystal chandeliers per month.

    You still can't inflate the supply.

    Why? Because there are 10,000 retail stores that sell 1,000 per month. Free market conditions dominate the number in supply.

    But over time, you might sell your 100 chandeliers to retailers really cheap, lowering the cost of their chandeliers, thus lowering the retail cost, thus inflating the macro supply. But even that strategy falls flat on its face whenever there are no customers who want to buy chandeliers. So you still can't inflate the supply, not at will.

    All that said, you can always deflate the crystal chandelier supply, because anyone can break glass.

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  13. FDR wrote: "The Fed can print cash for their own purposes. That's how they "buy" our bonds with counterfeit money. Don't confuse that with the ability to affect inflation, which is completely different."

    Okay, fair enough.

    However, this proves the truth of my other statement I made elsewhere, that the Fed cannot go bankrupt, because it is an entity that can print its own money for its own purposes. It's the only U.S. entity that can do that with the system as it's set up right now.

    Saying that the Fed is "bankrupt" is a meaningless statement in the face of the fact that it can print its own money for its own purposes. But the fact that it can do so has other implications as well, namely that the Fed bankers don't need to steal other people's money, don't need to crash the economy, or any of that: they can print cash whenever they want it, for whatever purpose they want.

    Therefore, if the Fed bankers are crashing the economy on purpose anyway, it can only be for the purposes of exercising their power, and not for the money (since they have effectively infinite amounts of that no matter what).

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  14. "However, this proves the truth of my other statement I made elsewhere, that the Fed cannot go bankrupt, because it is an entity that can print its own money for its own purposes. It's the only U.S. entity that can do that with the system as it's set up right now."

    Just because the Federal Reserve bank is permitted to sell a huge amount of counterfeit currency to a corrupt government, in exchange for The People's money, doesn't mean they can't go bankrupt.

    That's would be like saying anyone with a steady income can't go bankrupt. The Fed banks can lose way more money than you are giving them credit for. And they can't print anything without people who want to leverage themselves into the same Fed's depression.

    You've heard the mantra, "banks aren't lending." Translation: no one is stupid enough to be borrowing.

    People are smart, not stupid like Federal Reserve bankers. That's why Treasury rates are 0%. No one is dumb enough to risk their capital now, let alone risk it with leverage.

    I've pointed out before...

    Bankers, especially central bankers, are terrible investors, or they wouldn't need to steal for a living.

    ReplyDelete
  15. FDR wrote: "That's would be like saying anyone with a steady income can't go bankrupt. The Fed banks can lose way more money than you are giving them credit for. And they can't print anything without people who want to leverage themselves into the same Fed's depression."

    Yes, well, the person with the steady income can't increase his income at will, and that's why he can go bankrupt. The Fed can increase its "personal income" at will. That's what it means to be able to print your own currency for your own use. It's the same thing as counterfeiting, except that in the Fed's case it's legal.

    And the Fed can lose money how? To what?

    I've asked this question here before and have never gotten a meaningful answer: what are these expenses on the part of the Fed that you keep talking about that are so insanely high that the ability to print trillions of dollars isn't enough to keep up with them?

    I'm sorry, but "hookers and blow" isn't enough, even when you're talking about the highest quality of both. A mere few billion dollars would be enough to set up a small group of people with multiple lifetimes of both. The Fed can print orders of magnitude more than that if it wants to.

    The Fed can print enough currency for itself to buy a small country. But as it happens, there's no need for it to buy a small country, because it already owns a large one: the U.S.

    It's highly relevant that despite the fact that currency and money are not the same thing, they are interchangeable. The rate of exchange varies over time but the fact that they can be exchanged does not as long as the currency in question remains in use.

    You say that banks (including the Fed) can't print currency that the people aren't willing to borrow, and that's true with respect to currency printed for the purposes of loans. It is not true with respect to currency printed for direct use by the printing entity! The Fed is the only entity that can do the latter. For some reason, you seem to insist on ignoring that, and base all your arguments on the notion that any currency that is printed must be loaned.

    Any business or individual selling a good or service will accept currency in exchange for the good or service as long as the currency is still generally accepted. The business or individual doesn't care where the currency comes from, only that it exists and that it can be used for the purpose of later exchange for goods and services. Currency printed by the Fed for the Fed's own direct use most definitely qualifies.

    So it therefore follows that there is no expense that the Fed cannot pay for simply by printing fresh currency for its own use, as long as the currency itself remains in use.


    So tell me, please: in the face of the above, how can the Fed go bankrupt when it can print currency for itself at will?

    ReplyDelete
  16. Oh, and even if you insist that the only way to print money is via loans, the Fed can still print at will.

    All it takes is a collusive borrower. You do it like this:

    The borrower borrows currency from you (the Fed). You print the currency and give it to the borrower. The borrower in turn uses the currency to buy some kind of service from you. You get the currency back as a result.

    They then intentionally default on the loan.

    BAM! You now have the very currency that you wanted to print, and it's clean. And since you're the Fed, you're not constrained by any rules (any such rule is something you can get changed at will), so you don't have to worry about pesky things like the fractional reserve ratio.

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  17. "Yes, well, the person with the steady income can't increase his income at will, and that's why he can go bankrupt. The Fed can increase its "personal income" at will. That's what it means to be able to print your own currency for your own use."

    You are still missing the point. Just because the Fed "may" (as in, has legal permission to) print, doesn't mean mean they "can" (as in, are able to) print.

    To you first point, having a very large income only makes bankruptcy that much easier faster when using bad leverage. A 1 trillion dollar income allows you to dig a 10 trillion hole.

    More income = bigger bankruptcy.

    Worse still, the Fed's ability to print ends at the same time their leverage goes bad.

    That is why the Federal reserve can go bankrupt so much faster than a homeless person.

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  18. FDR wrote: "You are still missing the point. Just because the Fed "may" (as in, has legal permission to) print, doesn't mean mean they "can" (as in, are able to) print."

    Okay, then let me ask this: what prevents them from printing for their own use?

    I'm not talking about printing for the purposes of generating leverage via loans or investment mechanisms or any of that. I'm talking about directly printing for the purposes of direct expenditures, like on hookers and blow.


    "To you first point, having a very large income only makes bankruptcy that much easier faster when using bad leverage. A 1 trillion dollar income allows you to dig a 10 trillion hole."

    And if you're in a 10 trillion dollar hole and you have a printing press that can print dollars, you can print 10 trillion dollars to get out of that hole.

    What, you think the people that the Fed owes money to (and, frankly, I'm skeptical that they owe anyone anything) won't accept cold hard cash? That's what the Fed is offering, after all, when they print for their own uses. And why would anyone refuse to accept cold hard cash in dollars as long as the dollar is an in-use currency?

    The Fed owns the printing press. What in the world stops them for using it for any purpose they choose? Certainly not the U.S. government: they own that. So they don't have to worry about guys with guns coming to take away their toys.

    So again I ask: how can the Fed go bankrupt (which means, literally, out of cash) when the Fed fully controls the cash printing press?

    For what I say above to somehow not be true, I clearly must be missing something fundamental and something that you have not stated yet.

    Maybe my misconception would become clear if I state exactly how I think of it: the Fed has the ability to counterfeit currency, except that it's legal. An individual who counterfeits currency will, if he feels he won't get caught, use it to purchase goods and services. As I see it, the Fed can do exactly the same thing, with one caveat: they don't have to look over their shoulder to see if they're going to get "caught", because they have complete control over the police (the U.S. government). They can therefore engage in this behavior without any enforced negative consequences.

    This ability is especially useful in a deflationary period, because they're able to buy more and more stuff with the same amount of printed cash as time progresses. That is, of course, assuming that this mattered at all. For the Fed, it doesn't. If they need something that costs $X, they can just print X number of dollars and buy it. Simple as that.

    The only thing that could stop them, aside from guys with guns going after them (which as I stated before will never happen), is if for some reason everyone stopped using their currency. That is most certainly directly opposite your viewpoint. Your viewpoint is that their currency will become more valuable over time. The more valuable something is, the more coveted it is, and the stronger the pressure to keep it around. So from your point of view, it would follow that the dollar as a unit of currency is quite secure. And as long as that's the case (and as long as they retain control over the U.S. government), the Fed will never be in any danger. And as long as the Fed is not in any danger, they can, and will, print currency at will -- however much they need or want, they'll print.

    That means the Fed won't go bankrupt until it wants to go bankrupt.

    Now: the above looks like an airtight argument to me that the Fed is bankruptcy-proof. Where's the hole or holes in it? I don't see any at all. I've seen you make many assertions that the Fed can't do the above. I've never seen you say what could possibly stop them.

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  19. I'm enjoying the above discussion, in fact this is what got me hooked here - please continue, I think we are all being educated one way or another.

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  20. kcb wrote:

    "Now: the above looks like an airtight argument to me that the Fed is bankruptcy-proof. Where's the hole or holes in it? I don't see any at all. I've seen you make many assertions that the Fed can't do the above. I've never seen you say what could possibly stop them."

    I must be missing something here, because the answer is relatively simple. Since the Fed is really not "printing" anything at all, except for an accountng entry saying the US Treasury owes it more money,then naturally the people will realize that they are being buried in interest owed to the Fed. This process has already started, see Scott Brown victory in Massachusetts. Therefore, the reason is simple because it is political. Politicians would destroy the Fed if they understood that their jobs depended on it. The more general awareness there is about of out of control govt spending, or put another way, out of control Fed printing, the more pressure there is to stop it. The tide is already turning.

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  21. "The more general awareness there is about of out of control govt spending, or put another way, out of control Fed printing, the more pressure there is to stop it. The tide is already turning."

    This is an excellent point regarding evaporating political support for buying phony Fed cash to finance future (insane) deficits at interest, at the direct expense of Americans.

    But to the deflation point...

    The primary source of deflation, now, is not the Fed printing more/less to finance nutty deficit spending, it is the total collapse of 20:1 to 40:1 commercial bank leverage, layered on top of the reserves the Fed pumped for private profit, long ago.

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  22. Anonymous wrote: "I must be missing something here, because the answer is relatively simple. Since the Fed is really not "printing" anything at all, except for an accountng entry saying the US Treasury owes it more money,then naturally the people will realize that they are being buried in interest owed to the Fed."

    That would be true assuming the US Treasury were the only possible borrower from the Fed.

    But I don't believe that to be true. Please, someone, correct me if I'm wrong and cite your sources.

    Anyway, if I'm right and the Fed can have more than just the Treasury as a borrower, it follows that the Fed can give an unsecured loan to a collusive borrower who then pays the resulting printed cash back to the Fed under the auspices of payment for some sort of good or service, and then the borrower in question simply defaults on the loan. Now the Fed suddenly has in its possession a big wad of freshly-minted cash and a bookkeeping entry that says that the deadbeat collusive borrower owes it some money. Such a shame. Whatever is the poor Fed to do about such deadbeat borrowers?

    Now, for a normal bank (i.e., one that doesn't own the lawmaking apparatus of the country), this would be a big problem because bad loans (particularly unsecured ones) cut into the reserve against which they can lend. But the Fed needn't worry about it. For one thing, they own the police, so nobody's going to be coming to shut them down for having too much in the way of outstanding loans. For another, even if they didn't own the police, they still own the lawmakers, and would be able to get the fractional reserve ratio that they supposedly operate under changed.

    I'm sure there are plenty of much more nuanced and clever ways of achieving the above but the point is that it is achievable, and therefore the Fed really can print cash for its own use.

    And all of that is necessary only in the event that they're unable to directly print for their own purposes.

    Anonymous is right: the cash in question is just an accounting entry. But you know what? That's true of your bank balance as well. "Printing" these days really just means creation of accounting entries from thin air.

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  23. kcb wrote

    "That would be true assuming the US Treasury were the only possible borrower from the Fed."

    Well, of course, the US Treasury is not the only borrower from the Fed, the Fed's henchmen known as the primary dealers can also borrow. But the primary dealers can not counterfeit the cash without willing debt slaves. So it is not just a matter of having the accounting entry, it is a matter of lending 10X this amount into the economy. So yeah, there might be some cash out there, but there is nowhere near the amount of leverage that existed prior to 2008. And a primary dealer can default on a loan because that is exactly what happened to Lehman and Bear; ie they got margin calls and couldn't pay as rumors swirled and clients pulled funds. Can the Fed lend directly to say a hedge fund? If they could, either legally or illegally, what is the hedge fund buying? Are they buying massive amounts of Ipods to boost GDP? Are they buying clothes, cars? No.

    I am just trying to follow the logic here. The Fed can not affect the real economy with its counterfeiting machine broken. Sure, they can pump "liquidity" into the system to juice stocks, but eventually, the person or hedge fund has to sell those stocks to make a profit. And who wants to be the last one holding the bag? No one.

    We have a system set up where the only certain outcome is collapse. It is only a matter of how we get there.

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  24. "The Fed can not affect the real economy with its counterfeiting machine broken. Sure, they can pump "liquidity" into the system to juice stocks, but eventually, the person or hedge fund has to sell those stocks to make a profit. And who wants to be the last one holding the bag? No one."

    Yes, and I would argue that they never truly affect the real economy, even when their counterfeiting machine is functional.

    The Fed is like a puppet-master where the tension of the strings is conditional and the puppet is a living being.

    When the strings have tension, the puppet generally agrees with the movements dictated by the master, so the Fed appears to be in complete control of the puppet.

    When the strings go slack, the puppet decides to walk away. It becomes clear that control was always an illusion.

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  25. I do not dispute that the Fed's direct influence on inflation is minor relative to the total influence of the fractional reserve banks. I disputed that in the past, but since the amount of currency involved with the fractional reserve banks is hundreds of trillions while the Fed's impact is in the trillions, it's clear that the relative impact of the Fed's direct printing is quite trivial. I had not previously been aware of the amount of total currency outstanding.

    I dispute that the Fed can go bankrupt. That is why the fact that the Fed can directly (or indirectly) print currency for its own purposes is relevant. If they can print currency for their own use, then by definition they cannot go bankrupt.

    It appears you guys are attempting to argue about the former issue, when the issue I've been discussing is the latter.

    ReplyDelete
  26. Hi kcb,

    I am the anon who has been discussing the issue of the Fed with you, aside from fdr of course. My screen name is john_connor, and you will find me frequently on the ZH board. I enjoy your questions and comments, so I would like to carry on this conversation.

    Regarding the Fed's ability to go bankrupt, it is a bit puzzling to me too. I believe the Fed can go bankrupt if the Treasury was no longer a willing borrower, and the assets they currently hold, which is illegal, continnue to go sour, which they will. Now one might contend a couple things. First, that the Treasury not being a willing borrower only prevents them from direct monetization, and not indirect, say via MBS purchases. The problem with that argument, is that once the Fed becomes the MBS market, ie buys all the MBS out there, but at the same time can not manipulate people to borrow, then they will in the end just destroy themselves even faster, because the bad MBS on their books would just become an even bigger loss since they bought the whole market.

    Regarding the US's ability to be a willing borrower in perpetuity, I beleive you are already seeing the end of that notion as the current and projected budget deficits, as well as the political landscape, will prevent that from happening.

    So, in the end, I think the Fed can go bankrupt, but not in a traditonal sense as you are thinking. They will simply be rendered meaningless, an organization that exists in its own world but has no affect on anything, at least not in an "inflation creating" way. Perhaps a trigger to this would be if the following events: 1) The Treasury would no longer borrow, 2) the Fed goes nuts and buys the whole MBS curve, 3) the Fed's MBS losses then increase exponentially as there are no willing borrowers, 4) the Fed tries to increase "interest paid on excess reserves" (accompanied by a political stunt overnight fed funds rate increase), 5) the Treasury realizes the "interest paid on excess reserves", as well as the MBS losses, have now become a cash flow drain on the Treasury even using ponzi accounting, and 6) the Treasury cuts off the Fed realizing they are about to put enormous upward pressure on long bond rates. And 7) the Fed has its charter revoked andn they are well, essentially bankrupt.

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  27. Anonymous (john_connor) wrote: "I believe the Fed can go bankrupt if the Treasury was no longer a willing borrower, and the assets they currently hold, which is illegal, continnue to go sour, which they will."

    The problem with the argument about going bankrupt as a result of holding assets is that it makes no sense at all to say that. That's like saying that I can go bankrupt if the house that I own outright drops in value too much.

    Bankruptcy just means that you've run out of cash, because your cash outflow exceeded your cash inflow long enough to deplete your cash reserves.

    So the question that was asked earlier, which is "can the Fed print currency for its own use", is highly relevant to that. A Fed which can do that literally cannot run out of cash. If it needs more, it'll print more.

    Given the positive answer to the previous question, a natural followup question is "how can the Fed print cash for its own use?" And assuming it can't simply do so directly, that's where things like collusive borrowers and other schemes come into play.


    Anonymous also wrote: "Regarding the US's ability to be a willing borrower in perpetuity, I beleive you are already seeing the end of that notion as the current and projected budget deficits, as well as the political landscape, will prevent that from happening."

    The problem here is that tax revenues are falling as the U.S. economy gets worse over time. This isn't just some minor economic blip -- it's the result of the elimination of the production capability of the U.S. No economy can survive for long if the economy in question does not produce something, and the U.S. produces very little today. We have become a nation of pitchmen and lawyers. A nation of people whose very jobs require them to lie and manipulate.

    In the context of that situation, the U.S. government cannot stop borrowing money, because the only other thing it can do is declare itself bankrupt and refuse to pay its financial obligations. While the U.S. may have the military might to pull that off, the fact that nothing of consequence is made in the U.S. anymore means that doing so would be suicide.

    So while the political pressure may be quite high on the government to stop borrowing money, the practical situation leaves no other option on the table.

    That means the Fed is quite secure in its position as a lender to the U.S. government.

    ReplyDelete
  28. kcb wrote:

    "In the context of that situation, the U.S. government cannot stop borrowing money, because the only other thing it can do is declare itself bankrupt and refuse to pay its financial obligations. While the U.S. may have the military might to pull that off, the fact that nothing of consequence is made in the U.S. anymore means that doing so would be suicide.

    So while the political pressure may be quite high on the government to stop borrowing money, the practical situation leaves no other option on the table.

    That means the Fed is quite secure in its position as a lender to the U.S. government."

    I disagree. Aside from political pressure, long bond rates will eat us alive if we continue borrowing without a viable source of revenue moving forward.

    ReplyDelete

The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

 
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