Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
Stock Market Parabolic Collapse - Sowing the Seeds of the Next Depression - 30th July 14
How to Profit from the Russia Ukraine Conflict - 30th July 14
Greenspan: U.S. Economy Running Out of Buffer; Stock Market to See Significant Correction - 30th July 14
Rogue States And Loony Tunes - 30th July 14
Anne Elk’s Theory On Brontosauruses - 30th July 14
Our Totalitarian Future - Totalitarianism NOW! - 30th July 14
Stocks Bear Market Formation Revealed - 30th July 14
We Just Found “The Future” - 30th July 14
What the “Steak Bandit” Says About Asset Values - 30th July 14
Designer War By Default - Seven Types of Elite Madness - 30th July 14
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

U.S. Government Debt Goes From Frying Pan to Fire

Interest-Rates / US Debt Jun 17, 2012 - 01:44 AM GMT

By: Andy_Sutton

Interest-Rates

Best Financial Markets Analysis ArticleThis morning, the Treasury Department almost gleefully and proudly announced that foreign holdings of US Debt had hit a record high during the month of April and that bond heavyweight China had upped its holdings after trimming for two straight months. This dovetails nicely with a story that was published earlier this week about the federal reserve and its own holdings of US Debt, which have increased over 450% in the past three years. And no, that is not a typo. The federal reserve now holds over $1.6 Trillion in USGovt debt. Obviously the establishment is thrilled with these developments because it helps maintain the status quo of the dollar standard era. However, there are some serious ramifications that few are paying attention to and are getting almost zero coverage from traditional media outlets. From the AP this morning:


“China boosted its holdings 0.1 percent to $1.15 trillion in April. That followed a 1 percent drop in March and a 0.9 percent decline in February. March's figures were revised down from the government's initial estimate a month ago that China had boosted its holdings in March.

Japan, the second-largest buyer of Treasury debt, trimmed its holdings 0.9 percent to $1.07 trillion. Brazil, the third-largest buyer of Treasury debt, boosted its holdings 5.3 percent to $246.7 billion.”

The US Government and its catastrophic fiscal morass are now viewed by the world as a ‘safe haven’? This would easily qualify for a comedy shtick if it weren’t so serious.

Where is the ‘Eurozone Effect’ in USGovt Debt?

The headlines have been filled with story after story about how the major rating agencies (S&P, Moody’s and Fitch in particular) have been literally wrecking EU nations for their inability to get a handle on their fiscal affairs. This has created a self-reinforcing cycle. Agencies cut the ratings, which prompts bond investors to demand higher yields, which makes it even less likely that the nations will be able to meet payment obligations, which leads to further downgrades and so forth. Wash, rinse, repeat. Not only have the nations themselves been hit, but their banks have been hit as well – and deservedly so. In truth, the entire Eurozone, save for Germany, should be rated below investment-grade; and quite a few of them should be rated as junk.

Which brings us to America. The inability of our government to do much of anything without further borrowing is now well documented. Uncle Sam borrows nearly 50 cents of every dollar spent, and despite massive stimulus via heavy deficit spending, the USEconomy is dead in the water. There is a huge paradigm shift going on in the labor market right now. Jobs are available, but for the most part they’re of the variety of which two (or more) are needed to create a manageable situation for a family. Families are back on the credit card and this writer must wonder how much of that debt accumulation is out of necessity rather than a need for largesse. There is a bubble in student loan debt and both Social Security and Medicare are in serious trouble. Last August S&P, citing these and other factors, dropped the government’s rating a single notch. Generally when ratings go down, yields go up. Quite the opposite has happened in our case. Yields are now at all-time lows.

The False Paradigm Continues

First, this continues and even reinforces the notion that America is somehow immune from the laws of economics (and common sense for that matter). Somehow we can borrow and spend as much money as we want without fear of negative repercussions. In fact, not only won’t we be punished, we’ll be rewarded by having to pay lower interest rates. Does it make any sense though that the average credit card rate for individuals is somewhere in the mid 13% range and the average American’s finances – as bad as they are – are still several orders of magnitude better than that of the US Govt, which is treated to the lowest rates in history?

Make no mistake about it; the bubble blowing up in USTreasuries is the mother of all bubbles to date, eclipsed only by the even larger bubble being blown up in OTC derivatives, which almost NOBODY is talking about. In plain English, this will not end well – enjoy it while it lasts.

Why Save?

Secondly, the near-zero interest rates being paid by banks and other savings vehicles are so low that it actually discourages people from saving when they need to be doing it most. I had the severe displeasure of scanning rates on money market funds for a client the other day and found that the average of the handful of money market funds I looked at was .06%. That is six cents a year for every hundred dollars invested. Incredible. And when you figure that veritable fortune is taxed? Well, what’s the point of even saving? Unfortunately, many people are taking that attitude. If we’re not going to be compensated, why bother? A quick look at the savings averages for people nearing retirement is downright scary. Granted, this has been going on an awful long time. People appear to be under the false notion that the government is going to take care of them and that their Social Security (which is anything but) will carry them through. Many are now finding out the hard way that this simply isn’t the case.

We are Europe

Thirdly, the persistently poor economy, which by several authentic non-GDP based metrics has now been in recession for nearly 6 years, has created and entire class of people who are dependent on the government for either all or nearly all of their sustenance. Social Security Disability claims are at an all-time high. Food stamp subscriptions are at an all-time high, as are energy assistance, and Medicaid use. We are Europe, plain and simple. While our politicians and Mr. Geithner sit here and lecture the Europeans on fiscal responsibility, we’ve got our very own Titanic that is listing from a huge gash in its side caused by the overriding welfare mentality and a complete lack of leadership over the past half century. Much like many of the Eurozone nation-states, we have lost our own sense of personal responsibility. Somebody else will take care of it. Someone else will pay for it. Someone else will clean up our mess.

As the money flies out of Greek banks and the Eurozone in general so fast that it can barely be counted, there aren’t a lot of viable places to stash it. One must wonder where it is all going. Global stock markets have been in a correction over the past month or so. Commodities are stagnant as financial agents attack prices at every turn in a vain attempt to contain the effects of all the monetary inflation going on around the globe. USTreasuries have been one parking place, but really, given the fundamentals of America’s finances, stashing your capital in USTreasuries is the equivalent of jumping from the frying pan directly into the fire.

This is where the final component of the false paradigm comes into play: the complete lack of moral hazard. The bailout mentality, like the welfare mentality, is firmly in place. We taught banks and hedge funds back in 2008 (and even before) that the USTaxpayer is always willing, able, and ready to back up any losses experienced as a result of poor risk management, gambling, and outright irresponsible behavior. We’ve taught people that they can behave irresponsibly and buy homes they have no hope of ever affording and while millions have lost those homes, millions more have been bailed out.

The real question becomes who is going to do the bailing out when the USTreasury and OTC Derivative bubbles burst? There isn’t enough capital in America to cover the Treasury mess and there isn’t enough capital in the universe to cover the OTC casino gambling of financial agents around the globe.

Got gold?

By Andy Sutton


http://www.my2centsonline.com

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit www.suttonfinance.net

Andy Sutton Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014