Sunday, May 31, 2009

The Big Collapse Could Be Very Near

The Federal Reserve appears to be increasingly nervous about the long term bond market. This is serious. How panicked are they? After leaking a story on Friday, they are back at it on Sunday.

The Federal Reserve leaked to CNBC's Steve Liesman on Friday that they weren't targeting long rates. Why such a leak? Probably because the Fed did not want to appear impotent in controlling the long rate. So they put out the word through Liesman that they weren't targetting the long rate. Can you imagine what would happen to the markets if it sensed long rates were beyond the control of the Fed?

The Fed can of course print money to buy up every Treasury bond in existence, but the inflationary ramifications would be Zimbabwe like, and crush the dollar on international currency markets. Are we near the phase where all hell breaks loose? I have never even answered, maybe, to this question before. It's always been, "no." Now it's maybe.

What really has me spooked is another article out this afternoon (on a Sunday) that Drudge has even picked up. It's a Reuters story by Alister Bull. The headline: Federal Reserve puzzled by yield curve steepening.

Translation, the Fed doesn't know what is going on, but they are really scared.

Here's more from Bull:

The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession.

But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.

Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government
bonds and a healthy demand for credit? If so, there might be less need for the
Fed to expand the money supply by buying more U.S. Treasuries.

Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases.

Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities...

An obvious culprit for the move in bond yields is the country's record fiscal deficit, which will generate a massive amount of new government issuance.

The U.S. Treasury must sell a record net $2 trillion in new debt in 2009 to fund a $1.8 trillion projected fiscal deficit, resulting from falling tax revenues, an economic stimulus package and sundry bank bailouts.

It's the Chinese, and any other Treasury bond buyer who follows the markets, that have pulled away, to varying degrees from buying Treasury long securities. No one wants to be the last one holding bonds, where the new debt about to be issued is in the trillions.

Bull continues with the part of the message the Fed really wanted to get out:
With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related plan to snap up mortgage-related debt seems unlikely.

"I'm in wait-and-see mode," said one Fed official who spoke on the condition of anonymity. "We laid out the asset purchase plan and we're following it. That is going to have some affect on various interest rates, but together with a hundred other things. So I don't think we should be chasing a long-term interest rate," the official said.
It's the same message as Friday. The Fed does not want to spook the world into thinking that it can't push long term rates down, so it says it is not trying. But if rates continue to climb, a panic out of Treasury securities is a very likely scenario. And Bernanke has only one play to force long rates back down, buy every long bond in sight, which of course is highly inflationary and puts upward pressure on rates. How's that for a dilemma?

The end of the current financial system, as we know it, maybe iminent. If you would have asked me even two weeks ago if collapse was imminent, I would have said it was highly unlikely, now I am saying it is possible. Bernanke may be able to patch things up short-term, if he is lucky, but long term the U.S. financial structure is in serious trouble. There is just too much Treasury debt that needs to be raised. An international panic out of Treasury securities, even a slow controlled panic, means the Fed will be the major buyer. This will ultimately mean record inflation.

And keep this in mind, we have never seen a collapse of a currency like the dollar. Even the hyperinflation during Germany's Wiemar Period can not serve as an example. Since the dollar is the reserve currency of most of the world, a panic out of the dollar means more dollars will return to the U.S. shores than any country has ever experienced.

Other countries have had collapsed currencies, but never in the history of world of finance has so much currency been held outside a country of issue that could come flying back, almost on a moments notice. If the panic out of the dollar starts, even if Bernanke stops printing money (unlikely), all the dollars flying back into the U.S. could cause a huge price inflation all on its own.


  1. You have not completed the chain of logic of returning dollars causing a burst of domestic inflation. Would this come about from speculators moving into commodities to rid themselves of devaluing dollars, as occurred in petroleum last summer? The demand side of domestic price inflation is not there this time, as wages are stagnant or non-existent (for the unemployed).

    i can support this, but i dont wanna
    piss of my source, as he speaks on the
    condition of anonymity,,
    after all, the the farmer is totally reliant on the pig,
    as income, and a food source,
    this of course, puts pig in a position to
    dictate any whims,,
    problem is, the farmer also has chickens, veggies,
    2 currencies, a piggy bank, and makes everything,
    and yes! we may be getting a dinner invite,
    sooner than later,,
    pigs are quite tasty!

  3. Finally, some people are getting on board the train. For months, most economists have kept pointing fingers at doubters to a recovery as lunatics or conspiracy theorists, etc. It's NOT rocket science. When you survive by selling your debt to foreign buyers and they QUIT buying it, you're sunk, PERIOD! The writing has been on the wall for almost 2+ years. If more people in high places would have listened to people the likes of Peter Schiff, or Ron Paul, MAYBE we could have stemmed what is coming. You are more than allowed to use the word "maybe". But, you probably should have sucked it up and gone ahead and said an emphatic "YES!" Get your wheelbarrows ready, unless of course you're like the people in the know that already have plans to exit the country soon. I just wish more REAL journalists and reporters would tell the TRUTH of what is going on instead of banding together and WISHING for a miracle. We're beyond miracles now.
    - ConspiracyForTruth

  4. Most of the money supply isn't printed by government but created through credit extended by private banks. In fact, the size of the derivatives market is much larger than the combined values of all other assets, including power currencies, precious metals, stocks, bonds, and fixed assets.

  5. Peter Schiff and Ron Paul still assume that there's a manufacturing base that can save the country, but that base was hollowed out by big business years ago through outsourcing.

  6. If the banks refrain from unleashing the money that the Fed has given them, and foreign governments refrain from dumping the dollar as reserve currency, then we could see our way out of this without hyperinflation.

    If . . . .

  7. this is the biggest robbery of the century going on right now, under everyone's twitching noses..

    it's by design. the transfer of wealth to the banks and the wealthy oligarchs is quickening and it won't be much longer before everyone loses all of what they own and we all becme serfs.

    we're really getting cornholed and nobody realizes it. this is not just because of GOP spending spree economics under the last turd we just got rid of, it's been hastening under everyone since Ronald Raygun and now we're seeing the cash drawer being cleaned out at the end of the armed robbery.

    this is going to end very very badly.

  8. the dollar is going to crash...
    US will default when they cannot payback china's prior bond investments...
    then you will see CHINA SHIPS in the pacific ocean ..approaching the US to collect their UNPAID DEBT....

  9. the dollar is going to crash...
    US will default when they cannot payback china's prior bond investments...
    then you will see CHINA SHIPS in the pacific ocean ..approaching the US to collect their UNPAID DEBT....

  10. Concerning the money printing...., how much money can they print every day? I have heard the have two money printing machines, printing $25,000.000.00 each every day. So how long does it take to print 1 Trillion? Am i wrong with the number of 54.8 years? Please tell me! Thx, Gerry

  11. May I suggest that the US Government and its evil twin the Fed have run American finances as though they never expected that they would have to deal with this very scenario. I now doubt that the survival of the dollar was ever intended. Measures taken so far only make sense if the destruction of the dollar was always the plan.

  12. "The U.S. Treasury must sell a record net $2 trillion in new debt in 2009 to fund a $1.8 trillion projected fiscal deficit"

    They could always stop spending money we don't have...

    Maybe this self-imposed and infectious crisis will trample future spending and (hopefully) refocus our attention on productivity and stability.

  13. Blogspotter- concerning the money printing, the FED no longer has to print physical money. Due to the wide-scale acceptance of electronic transactions, the fed need only create electronic money in bank computers. The creation rate is unlimited.

  14. okay so the economy completely shat... apart from that though everything's fine...cheers have a nice day

  15. Are you serious?

    The DOW, NASDAQ and S&P500 don't look anything like "big collapse".

    IMHO the economy is recovering. Slowly, but it is.

  16. Guess what, this is not a "financial crisis" (like they trumpet), this is a Globalization crisis...

  17. Gerry wrote:how much money can they print every day? I have heard the have two money printing machines, printing $25,000.000.00 each every day. So how long does it take to print 1 Trillion? Am i wrong with the number of 54.8 years?

    If only they were limited as to how much money that they could physically print then our problems would not be that bad. The problem is that banks create money with a few keystrokes on their computers. Large Wall St firms have giant stock purchase programs that stop the markets from plunging by buying billions of dollars of stocks across the board using keystrokes as money. When they run out of money, they simply add a few zeros to their purchase accounts. Hopefully, if the market turns positive, they can unload some of these purchases. At the beginning of the year, Citigroup's earnings had an extra trillion dollars in securities that it couldn't account for. If it wasn't for these large firms buying gold with computer keystrokes and selling it at a loss, gold would be at $5,000 an ounce.

    The ruling elite will bring about the depression, but turmoil and unrest will get so far out of control that things will not be brought back into a neatly wrapped package for them. The world economy will not recover from the ruling elites’ manipulation of the economic systems the way they have planned.

    Part of the plan involved manipulating the world share markets, first downward, to plunder as much wealth as possible from naïve investors who believe in the system, followed by wild gyrations to confuse everyone and allow for more plunder from gullible investors. Eventually, the ruling elite will intentionally crash the markets to steal further wealth at the expense of the ignorant investors.

  19. The DOW, NASDAQ and S&P500 don't look anything like "big collapse".-----

    The DOW and other Wall Street Casino operations look like they're recovering because a large portion of that banker bailout money went to propping up Wall Street to lure the suckers back to the craps table.

    The Fed can't keep printing money, then loaning it to the owners, We the People, then buy back the same money buy purchasing Treasury certificates.

    The greed, corruption and outright lunacy has taken over the Fed, Wall Street and our bought and sold Congress.

    The Fed can't or won't account for nearly NINE TRILLION DOLLARS it "loaned" out to its buddies.

    Where in the hell is that money at and who got it?

    It's gone, but it sure as hell didn't disappear.

    My guess is that it was used to pay off the derivatives market bets which are somewhere in the neighborhood of 500 TRILLION.

    There isn't that much money in the entire solar system, let alone in the Treasury Department.

  20. Ron Paul was right. He predicted this entire fiasco.

    Every republican who didn't vote for Ron Paul was wrong, mislead or ignorant.

    I am loving it. I get to walk around saying "I told you so".

    Also because I had advance warning, I wasn't in the stock market when it fell, and I will be out of the bond market by the time inflation hits.

    Eat it suckers

    If you lost money in the last downfall you deserved it.

  21. The real problem lies with the nature of the Federal Reserve itself... The FED being nothing more than a private bank printing money out of thin air and charging interest on that money from its inception back in 1913. Eventually the burden from the interest and the debt as a result crushes the nation. People are left in poverty and perpetual slavery due to debt as a result. This is by design, people! The criminals who created this system were first outed years ago by real patriots such as Eustace Mullins, and Ezra Pound. Now we have modern patriots such as Darryl Bradford Smith, and Muhammed Rafiq trying to get the message out to people to wake up! Criminality is so rampant that they are ready now to pull the plug on the entire ponzi scheme and put the world into a super Depression. People will die as a result, and the world will enter a new dark age unlike anything seen in world history!

    People may take that last paragraph as nothing more than paranoia, but if they just do some real research into all of the people, and the details listed, then they will come to no other conclusion than it is all fact!

    Look also at their set doctrine for our future based on their most evil Protocols of the Learned Elders of Zion. That document was always put down as being a fraud, but the control mechanisms, and the actual movement to their enslavement is going on almost to the letter as laid out in that writing!

    There is no doubt that there will always be critics who say that the economy will recover, but it will NOT recover without people flushing out the perpetrators of this crime, and standing up against them.

    Freedom is not free, but comes at a price. I hate to say that the price now is a true revolution and the need to take back our planet from these criminals.

  22. Don't believe any of the BS about Ron Paul. He knows who the criminals are, and could have stood up against them years ago, but the guy refuses to name names, but rather stays on the sidelines against the criminals.

  23. Below assumes a constant mix of bills. They can print $1T a second with one billion dollar denominated bills...

    (With Obama's face on them...)


    Gerry wrote:how much money can they print every day? I have heard the have two money printing machines, printing $25,000.000.00 each every day. So how long does it take to print 1 Trillion? Am i wrong with the number of 54.8 years?

  24. Before accepting this author's description of Eustace Mullins as a "real patriot", I suggest careful review of the following report concerning Mullins' background:

  25. i Love the the pig farmer post.

    We are seeing a great rebirth the world is evening out. This is a Great thing for Earth.

    All the people You think stole money, that money will soon be worthless so that kind of gives You a good feeling. We will devalue the dollar and the yen will be the peg currency. A day’s labor will be the same or close to same all over the world whether it’s Vietnam or Mexico or Russia or China or France or America. After we devalue the dollar we all start from the same point. I do agree America has a bit of a head start but bottom line we are all in this together. The devaluing of the dollar is the bottom from there we will have currency we can start to grow from true there is not going to be money to do all the things we want but that will come in time after we start growing again. I agree it is going to get scary but we have things we never had in the 30’s. The Cell Phone and the Internet Powerful Powerful tool. Here’s To The Future!

  26. Will USA start a world war as a way out of this mess ?

  27. We, Americans, do not have any national debt. The corporation of the United States of America has all the debt. The moment we, Americans, are born and our parents fill out a birth certificate, this birth certificate represents each individual's security, bond, stock. Each stock is recorded at the Security Exchange Commission and the quarterly dividends are sent out. But to who or what? First, these securities are worth millions per American if not a billion per American. The dividends are in the hundred thousands. If we, Americans, do not claim of right through a notice of understanding and intent then, we do not receive our rightful dividends. The who that receives them now is China. How did the United States of America get stimulus money? By selling our securities to China. Why is China concerned, perhaps they think the collateral, this being each of us and our stock-working for them, is too high priced and too risky to get gun-wielding Americans who have been really scammed will be difficult to collect from. Americans, if you think my information is false, find verifiable and irrefutable evidence that I am wrong. You can be free from this grand scam. File you claim of right and this will set you free. No one can cut your tongue out for trying.

  28. BLU-82 so right are you!

  29. its pretty obvious most of you have no training in economics.

  30. SUPPORT THE SPOOKS!!! War now prosperity later. The pig was right - about the chicken hawks.

  31. financial warfare has been waged against all national soverignties, the us being the preeminent soverignty, not a national crises, much worse a civilizational crises. horrifying thought the current administration in wdc is much worse then bushes!

  32. SG says to "eat it, suckers..." if you get hurt. Sounds like he must be one of the bankers. Also an in-your-face "I told you so" type. Even if not a banker, with friends like SG no enemies are needed.

  33. It is important to realize that these economic events are not the result of incompetence but are intentional, deliberate, and for a purpose. The purpose is the destruction of our nation and its people and the transfer of wealth from one group to another.

  34. Run to the hills. Run for your lives I suppose. I'd only argue that the Fed isn't scared and knows exactly what is going on, and that is just an extention of the World Bank/Bank of England. Learn about Bilderberg and what's they're now saying about this. Oh, and buy my gold and silver. Thanks,

  35. Okay, folks. The Obama Administration sent Geithner over to China to assure them that we, the American people, will be shaken down good to pay off the banksters' and politicians' debt.

    The socialists in Congress should have allowed the banksters and the car companies to fail but they instead chose to pludner us against our wishes in poll after poll. They are citizens of the globe and they will put us in chains in order to protect this monstrosity.

    So, I say their government should be given the opportunty to go bankrupt and reorganize into something that resembles the constitution. The American people put these folks in prison for future socialists to remember next time they decide to crash our economy and steal our wealth.

  36. Greed. Greed. Greed. It's always been the greatest of the seven deadly sins. Pigs get fat, hog's get slaughtered.

  37. Time to go long bonds. Period. End.

  38. Doesn't anyone see this for what it is? This is nothing more than government creating a crisis to eliminate currency as we know it. Once values are all reset and assigned to your id number. There will be no privacy. You will only be able to "buy or sell" if you have your "mark" of identification. No tax cheats! No stealing! Ultimate wealth redistribution! Some brave new world, huh? It shouldn't be long for a man to stand in Jerusalem and say in the temple they will build, "I am god."

  39. only a moron would go long bonds

  40. I am a student of and subscriber to The Dines Letter. Everything that is happening today was described in 'The Invisible Crash'- published 1985. Those of us who acted in the advice we paid for, are somewhat prepared for the coming crash. Saved any Gold in hand?

  41. If there is a stampede out of the US Treasury bond heaven help the US. The bonds will be returned to the US and sold. At first he US Dollars raised will be converted into other currencies and repatriated. Then exchange controls (don't bet they will not be imposed) will mean that US dollars raised will be used to buy just about anything that can be exported, likely causing food shortages in the US as well as shortages of just about everything else.

    Will the government do anything about it or will they just keep printing dollars to redeem all those bonds?

    The problems with the Wiemar German hyper-inflation came about because the Germans negotiated to pay reparations in Deutche Marks. The British, French and Russians returned the money to Germany to buy what ever they could with it. The German economy could not absorb the rapidly expanding money supply. The rest is history.

  42. To find a solution, we have to identify the root cause of the problems we are in, which is usury and credit. Usury is the charging of interest on money. Credit is the creation of money out of nothing.

    The charging of interest is the way to slavery. This is because people may be hoarding money for a rainy day. When more people do this simultaneously, money is removed from circulation, weakening the economy. When this happens, even more people will start hoarding money, because they expect times getting worse. This is the beginning of an economic crisis. Many people will lose their income, and if they do not have money, they must borrow money against interest for unavoidable expenses such as food. As a result, the situation becomes even worse.

    Credit and interest on money make it possible for an economy to grow above potential during a boom phase. In the boom phase investors add leverage using credit which further intensifies the boom, creating shortages of materials and labour resulting in rising prices. Interest on money entices banks to lend money to leveraged investors during the boom phase. Credit makes it possible to create money out of thin air, which further enables the banks to fuel the boom. When the cycle turns into bust, investors start to deleverage, which further intensifies the bust, creating surplusses of materials and labour resulting in falling prices. What most economists do not see, is that credit and interest on money are the root causes of economic booms and busts.

    It is possible to achieve a much greater prosperity, with maximum capital growth without inflation, large debts, economic crises, unproductive government intervention and the unproductive part of the financial sector. Natural selection will ultimately determine the most efficient economic system, despite the political power structures that still exist at this moment. The investigation of alternatives and dissemination of knowledge will accelerate this process, but the ultimate outcome will not change. The most efficient monetary system is based on money with a hoarding fee combined with banning of credit and the charging of interest on money.

    The theory is described here:

    This is not a joke because famous economists and scientists did see this too:

    Also there is a conversion plan to the new system and a plan to build a sustainable future using this system:

    I hope you like it. You do not have to agree with all of it to find it interesting.

    Bart klein Ikink

  43. The world economy is fine. Don't question your elected officials.The stock market will go back up. Your house can make you rich. Buy now pay later. There are no conspiracies. Ignore the weather, global warming is a fact. Believe all experts since you are ignorant. Only troublemakers ask questions. Always side with the majority. Your local supermarket will always have plenty of food at low prices. Famine and epidemics are a thing of the past. It can't happen here. Go back to sleep...

  44. Many have their hopes on the false promise that Obama will save the economy by deficit spending. He will not. He is doing everything wrong. The excessive deficits and financing of those will destroy the bond market. It is inevitable. What will happen then? Just sit tight and you will soon see. Some are waking up and many are afraid -but nobody in a position to make a difference will act. The Repubs think they will be able to gain a majority but there will be no pieces left for them to pick up. Their credibility was destroyed by the Bush legacy.

  45. As one other poster already mentioned, there are two sides to every trade. You can't just turn in your dollars. You have to turbn them in to something else. Do you have any ideas for an alternative to the dollar that will do any better?? If not, then neither will those dollar hodlers, and therefore, they will continue to hold. The US may indeed be in crisis, but do you see any other countries, commodities, etc. where you would rather have your investment dollars?? THAT is the only salient question in my mind!

  46. It is true what Anonymous is saying, this crisis is delibaretely put on us to enslave us. They created the crisis, no-one is making the right choises at the top and the general public do not seem to care/know because it is not "breaking news" by the mainstrain media. They put some people for the television screen debatting each other abouth the problems but they never come with the right solution. In the end both parties will have suffient money to live for their own. How's that for greed.

    And what is the next step to "solve" the problem. Lets get a global goverment, globar currency, one nation. That would be great because the current system is failing. Well im not buying this shit.

  47. The egalitarians are creaming there pants in anticipation of in which "a day’s labor will be the same or close to same all over the world". Problem is everyone is equally poor save the rich elite, what kind of jackass would want to have lower standard of living for there childern.

    Hoho, if you thought America was bad wait until China crashes its military boot on soft skull. At least this crash will kill idealism and the cancer that liberalism and egalitarians.

  48. Don't know what the problem is we in Malaysia are experiencing high growth and high employment. Our only problem appears to be inflation, take an example a local desser called cendol cost $ 1.20 in local currency about a month ago and currently cost $ 1.80 in local currency, thats inflation in Malaysia. However the job market is good with 2 jobs for every 1 worker and we have to import in foreign labour to take up jobs that we Malaysians deem too dirty or dangerous to do. So why complain so much, the GLOBAL economy is good thanks to China which is buying Malaysians stuff. Thank you China !

  49. The powers won't listen anymore unless a wave of people do something. I mean tax revolt - don't file. Don't vote and give mandates to these approved candidates. I mean several million march on District of Criminals demanding a bankruptcy restructuring of this government.
    Then we see to what degree we've lost our nation when the thugs turn our military and police on the people.
    So we either succeed and win some real change or we lose and recognise what already is.

  50. Here is who did it
    And this is the way out

  51. The simplest explanation (usually the right one) is that the fed is doing what it can, but the odds are slim that it will end up well. Bernanke has no idea how this will end- who could? I thought he was going to cry today. I say deflation now, high inflation later.

  52. INTERSTING - some fear too much and some too few money - floating around and into their pockets and out of them - instead of fearing, that the opposite of money - the asset, be it food, clear water, health, normal living children, and so much more, vanishes - not remembring - that all that existed a long time before money showed up ...... so what you fear is not what you really must fear: I belive you still exist out of what is given to you from the local part of the planet around you: and what you fear is that the artificially created dreams created by money might disappear: that of course is true. THEY DO.

  53. Shit has already hit the fan..get out of California NOW!