By Monty Pelerin, on February 25th, 2010 China increasing their sales of US Treasuries cannot be good news. Ambrose Evans-Pritchard writing in the Telegraph speculates that the sales are being used as a foreign policy tool to pressure the US. Whether or not that is the case, the US is vulnerable and dependent on China to finance its huge deficits. Any sign of China cutting back or threatening disposing of US reserves or Treasuries is not a helpful to our economy.There are serious foreign policy and defense considerations to being so beholden to another country. China’s reserves are in the neighborhood of $2.3 Trillion. The US needs them to continue to hold what they have got and to add to them by continuing to finance our profligate spending. It is not easy being Blanche du Bois, dependent on the kindness of strangers.
Part of Evans-Pritchard’s piece is below:
A front-page story in the state’s China Information News said the record $34bn sale of US bonds in December was a “commendable” move. The article was republished by the National Bureau of Statistics, giving it a stronger imprimatur.
It follows a piece last week in China Daily, the Politburo’s voice, citing an official from the Chinese Academy of Sciences praising the move to “slash” holdings of US debt. This was published on the same day that US President Barack Obama received the Dalai Lama at the White House, defying
Continue reading One of Our Banks is Uneasy
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By Monty Pelerin, on February 24th, 2010
In Jimmy Carter’s reign, the Wall Street Journal editorialized about “Ratcheting to Ruin.” The title derived from the fact that each cycle high in unemployment was higher than previous ones, and each cycle high in inflation was also. “Stagflation” was coined to describe what up until then was believed to be impossible in the Keynesian world. This period ushered in a new era in both politics and economics. Carter was replaced by Reagan, and Keynes was replaced by Friedman.
Thirty years later Keynes is back in vogue, Obama has ascended to the White House and times are again reminiscent of the Carter era. The economy is awful. Fear and dissatisfaction prevail. Politicians are held in contempt. There is one major difference – Carter did not face an “ides of March” event.
In Shakespeare’s Julius Caesar, a soothsayer warned Caesar to “beware the Ides of March.” The prescient warning did not help Caesar. As Obama approaches his March moment, no warning can change his fate.
Ben Bernanke promised to end Quantitative Easing (the printing of money to stimulate the economy and fund the deficits) by the end of March. Some believe his commitment was a “campaign promise” to ensure his Senate reconfirmation. Others believe it was a real commitment, necessary to maintain a stable dollar. Shortly, the world will find out.
Mr. Bernanke, quite unintentionally and through no fault of his own, will be Obama’s Brutus, regardless of his decision. To understand why, some numbers are necessary. Government needs funding this year
Continue reading Obama’s “Ides-of-March” Moment is Near
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By Monty Pelerin, on December 28th, 2009 Our ability to fund our deficits and fixed income needs ended last year. The Treasury market is perhaps the biggest bubble yet to burst. It is highly probable that this bubble reached its zenith and started to deflate 2009, propped up only by extensive and surreptitious quantitative easing.
It is nearly certain that it bursts in 2010. When it does, our economy stops functioning, at least in what most would consider a normal manner.
Zerohedge provides an excellent analysis of the situation (red emboldening added by me):
Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold… Or Else
Submitted by Tyler Durden on 12/25/2009 17:31 -0500
As everyone is engrossed by assorted groundless Christmas (and other ongoing bear market) rallies, and oblivious to the debt monsters hiding in both the closet and under the bed, Zero Hedge has decided it is about time to present the ugliest truth faced by our ‘intellectual superiors’ and their Wall Street henchman who succeeded in pulling off Goal #1 for 2009 – the biggest ever bonus season (forget record bonuses in 2010… in fact, scratch any bonuses next year if what is likely to transpire in the upcoming 12 months does in fact occur).
If someone asks you what happened in 2009, the answer is simple – two things. There was a huge credit and liquidity crunch, and then there was Quantitative Easing. The last is the Fed’s equivalent of band-aiding a zombied and ponzied corpse, better known as the
Continue reading Treasury Bubbles About To Burst
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By Monty Pelerin, on December 25th, 2009
What the Economy Needs
“… all Ponzi schemes eventually fail under their own weight. The US debt scheme is no different.” Sprott Asset Management
Belief in the economic recovery story is akin to belief in Santa Claus. Both make us feel better, but both are unlikely. We may have another quarter or two of government-driven GDP growth, but we will not have a recovery, at least not with the next several years. Government spending may be able to raise GDP, but the ability to continue spending is near an end.
The government has no money and diminishing possibilities for continued borrowing. The chart to the left shows rapid decreases in debt support from foreigners. Without foreign funding, the government will be unable to spend at anywhere near current levels. (Of course, the possibility of “printing” money might provide a short-term extension before the dollar collapsed and/or hyperinflation occurred.)
Sprott Asset Management issued a report entitled “Is It All Just a Ponzi Scheme?”( Sprott December.pdf). The report addressed the unsustainable financial situation:
We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury’s ability to attract outside capital. If our research proves anything, it’s that the regular buyers of US debt are no longer buying, and it amazes us that the US can successfully issue a record number Treasuries in this environment without the slightest hiccup in the market.
The chart to the right shows the decline
Continue reading Ponzi Scheme Unravels
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By Monty Pelerin, on December 23rd, 2009 The United States is now dependent on the rest of the world to finance its government deficits. As the sovereign version of Tennessee Williams’ Blanche du Bois in Streetcar Named Desire, we are truly “dependent on the kindness of strangers.” The government has no way to finance itself other than to borrow from strangers (or to print money and risk hyperinflation).
Unlike Blanche, who never harmed her benefactors, the US financial industry played our now-needed creditors as marks in their gigantic Ponzi scheme. All of this occurred with the implied if not explicit seal of approval of the US government. As a result, much of the world was victimized in the same manner as US investors and taxpayers. As a result, their economies are in the same financial and economic hole as the US. As expressed in Insecure Securities:
For years, hundreds of billions of new mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) generated from them were sold to the world to compensate for the lack of savings in the United States and to finance American housing investment. Now virtually the entire market for new issues of such securities – all but 3% of the original market volume – has vanished.
While the polite and quaint customs of international diplomacy has muted the criticism deserved by the US, it is clear there is a great deal of animosity. Slowly and deservedly some of this is starting to surface. China, India, Russia and other countries have admonished the US for
Continue reading Tennessee Williams Was Smarter than US
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Friedrich von Hayek
Friedrich von Hayek founded the Mont Pelerin Society.
“Monty Pelerin” is a pseudonym chosen by this blogger to convey general agreement with the philosophy, goals and spirit of the Mont Pelerin Society. No other connection exists between the blogger and the Society.
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