Papering over Paying the Piper

October 12th, 2012 → 5:46 pm @ // No Comments

Monetizing the National Debt by rendering it insignificant through inflation

America can never pay back its debt.

Unimaginable trillions of dollars have been loaned into existence,
created out of thin air to prop up the banks and the economy.
America’s national debt currently stands at 100% or more of GDP, with
roughly half of that debt held by foreigners. The days of exporting debt
are over, now it’s time to default on it…one way or another.

Perhaps Vice-President Dick Cheney was right when he said that
deficits don’t matter. In a world where, at least for the moment, the
debtor can literally print its own money, maybe it just really doesn’t
matter…or does it? The public, the corporate lap-dog media, even the
complicit spenders in Washington all harrumph in agreement that the
National Debt is a terrible burden to place on our children, or if not
ours, then some future generation of children. In essence, they all
agree that the debt is to be passed on to successor generations of
children who will inherit the debt burden and grow up to shoulder their
portion of the load as taxpayers.

Let this be the official formal invitation for everyone who still
believes that the debt problem can be kicked further down the road to
is now, not upon future generations, but upon this one.

In the very near future, the severe consequences of building the
American empire on a bubble of debt may end all discussion of anything
but daily necessity. Those consequences are already past the point of
just beginning to show. ”The economy is in shambles,” is a phrase often
heard these days, but it is in reality far worse than that. If it were only
that the economy was broken, it could be fixed. It might have been if
America still had an economy. America’s economy has been gone for a
while. Globalization treaties and unfair regulation of domestic-based
private enterprise have drawn the bulk of U.S. manufacturing away to
more cost-effective off-shore locales. Much of the “smart money” has
already left town, as many of those who see the handwriting on the wall
and have had the wherewithal to do so have left the U.S., following
opportunity elsewhere around the globe.

The U.S., as the world’s largest market, is now primarily a consumer
society which has been enabled to buy the world’s goods and services
based more and more on cheap Fed-driven consumer credit, and Fed financed
debit systems of outright dependency programs like Welfare,
Food Stamps, and even Social Security. The sheer numbers of
government-supported unfortunates who have already been
devastated and forced to seek aid, such as the nearly 50 million
households now receiving food stamps, is stark evidence that the
financial collapse is fully in progress.

Precisely because the economy is on life-support, the
Unemployment figures continue to soar. Without the sleight-of-hand
parlor trick of just not counting the unemployed, the real
unemployment figures are much higher than the “official” reports, with
some estimates as high as 25%.

The bleak outlook for the U.S. economy has led some to quit trying
to make anything happen for themselves and become the burden of
others. Most egregious are the cases of “players” of the system, such as
welfare baby-mamas, who see more children as a way to increase their
monthly food stamps and government “paycheck,” and fraudulent SSDI
“mental” disability recipients, who in reality are often no more than
substance dependant addicts or alcoholics who have learned that to
claim mental illness is the fastest way to get a regular “disability” check.
Walmart, for example, is full of stuff fresh off the fleets of freighters,
primarily from China, that government-dole-dependant “Nut Check”
recipients buy with their SSDI money on a monthly basis. Walmart
stores are awash with government check moneyed shoppers around the
first of every month.

There are many more signs that the crisis is well underway, such as
in the still critically ill real estate market. Real estate values have
continued to plummet despite “Fannie Mae” and “Freddie Mac,” the
bailed-out mortgage issuing branches of the government offering record
low interest rates for fixed long-term mortgages. The greatest
percentage of mortgages is supplied by these two government agencies.
In conjunction with commercial banks and aggregate mortgage lenders
the government bundled these low-cost loans as investments and sold
the “toxic” mortgage paper as complex securities to retirement hedge
funds and investment managers. Millions of American savers, especially
those who were expecting to retire on their mortgage-backed securities
invested pensions got wiped out.

More home foreclosures are on the horizon as multitudes of buyers
who found enticingly easy financing for homes, which they either never
could, or can no longer afford, go underwater. No matter how cheaply
they bought, millions of homeowners will be foreclosed on in the next
few years. This cycle can clearly be seen to have begun with the crash
of 2008.

Drastically falling real estate prices, combined with foreclosurecaused
loss of property tax, and unemployment, underemployment, or
financial calamity, leading to inability to pay property taxes, have all
combined. The effect has been to strangle property tax base supported
municipalities and cause county or even state governments to be
stretched to the breaking point. State and Local government which
receive from the federal government financial emergency funding will
only be adding to the National debt
The Too Big To Fail Banks which created the entire debacle, spinning
up new instruments of fractional lending fraud, all got bailed out to the
tune of $16.1 trillion. That is, as long as they were playing for the team,
which may not have been the case, for example, with un-bailed out
Lehman Brothers which, it appears, was no longer invited to the party.
For those banks and companies around the world that were invited,
the Fed printing presses went into overdrive. It obviously wasn’t
enough money though, because the need to repeat the process has
been disclosed. At first it was what was just called Quantitative Easing
or, simply QE. That was before it was fully revealed that subsequent
rounds of QE would require enumeration to distinguish them. Now we
have had QE 2 and what some have called QE “Lite”, wherein the
central bank theoretically reinvested the proceeds of its maturing
holdings of mortgage-backed securities by pumping the funds into
Treasury bonds, and all the while, we await the inevitable bonus round
of money-printing of QE3.

QE3 has actually already begun, but it is not being called QE3. The
January 2012 report from the Fed describes its goal to devalue the
dollar by 33% over the next 20 years. Direct devaluation, even at a slow
pace of 1.5% to 2% per year, has the same effect as flooding the
monetary supply, and thereby inflating the currency. Added to this is
the increasing clamor from banks for negative yield debt instruments,
and for liquidity-providing Fixed Rate Notes. It has become a politics-asusual
shell game to hide the truth that there are only two options.
The first option is for the triumvirate of the Federal Reserve, the US
Treasury, and the mega-banks to do nothing. If this course is followed,
the liquidity crisis will continue to build to the point of revealing
national insolvency. The central banks will systematically begin to fold
en masse, at which point the world economy degenerates into a
deflationary depression.

The second and only real option is to keep printing in one form or
another all the way up to the point of hyper-inflationary boil-over.
Again, this can take the form of actually printing the cash for Bernanke’s
helicopter-drop economy, or forced through devaluation of the Dollar,
or in the creation of new Treasury products such as negative yield bonds
which would force bond purchasers to actually have to pay in order to
put their money into Treasury “securities.”

While we have witnessed stunning denials from Fed Officials that
sustained rounds of monetization would be implemented, we have the
equally stunning demands from the banker controlled Treasury
Borrowing Advisory Committee of the Securities Industry and Financial
Markets Association (also known by some as the Big Banking Supercommittee
That Runs The Whole World), which released a letter
intended to direct the Secretary of the Treasury calling for the issuance
of distracting, but nevertheless equally inflationary negative yield T-bills.
The cycle has been clearly demonstrated. When merely paying the
interest, or the “service” of the debt, is more than the combined
individual income tax revenues of all US taxpayers, and the size of the
debt is beyond the liberal limits already allowed by law, then the
presses are fired up again and more money is “created” to borrow from
in order to pay off the interest on what has already been borrowed.

The bank cartel mouthpieces will again threaten financial ground zero if
the debt ceiling is not raised…again. Lawmakers already afraid of
getting plastered by the shut-down-the-government tar brush will gladly
vote to hike the debt ceiling up to the stratosphere if need be…or even
higher… if need be.

The U.S. Congress and the Federal Reserve along with all western
central banks and governments appear to be un-deterred by the fact
that a debt crisis cannot be solved with borrowing, bailouts and
currency creation. Like trying to keep a home heated with only an open
gasoline fire, the more you feed the flames, the bigger the risk of
conflagration becomes. With only an “accelerant”, which is useful only
to get the real coals burning, but no long term plan for fuel, the risk is in
burning down the house before anyone gets warm. The problem is not
a liquidity crisis, the problem is a solvency crisis.

The next domino is the steady devaluation of the paper-backed
paper through inflation invoked by the hyperbolic cash injections.
The net result is of course the clandestine default on the debt
through debasement. Add to this the aggravating factors of
announcements of plans for protracted currency devaluation, and the
TBTF banker-demanded issuance of negative-yield Treasury debt
instruments, and what results is the recipe for a hidden default
accomplished with neither any visible fireworks nor audible
pyrotechnical blast.

It could be like a lighter-than-air, noble gas-filled birthday balloon
preserved for too long as a keepsake of a good time had by all. The
balloon slowly sinks, until one day it is found to be drooping under its
own weight, and following a painfully slow fizzle, finally losing its

On the other hand, the default could yet be devastating, like the
instantaneous destruction of a pin popping a balloon. This is especially
true if it becomes evident that the Dollar is worth more dead, than alive.
A series of runs against the Dollar by U.S. debt holders hoping to recoup
at least part of their losses may trigger a slew of Credit Default Swap
events, as the temptation may become irresistible to just burn down the
house and collect the insurance.

Myriad “experts” have made fear-placating and nervousnessabating
statements touting economic recovery. Based upon cheery
employment figures (which are really fictitious, manipulated figures),
and the Housing Statistics (which do not represent unseasonal weather
affects, or take into account the glut of un-bought, government owned
REO or Real Estate Owned properties), and the deceptively un-eventful
Euro-scene (if the fact that Athens is undergoing a “stealth” default is
ignored), the pundits proclaim that the crisis was all just a harmless
nightmare. They give soothing assurances that it is safe to go back to
sleep and let the scary images fade into the memory hole. They coddle
any doubts with firm guarantees about the “full faith and credit” that
has it all backed up.

In absence of a catastrophic event, the monetization will continue
and all debt may be technically repaid, and it will prove catastrophic for
the US Dollar in its position as the world’s reserve currency. All
investors (foreign governments included) who have loaned to the U.S.
will be paid off, but with Dollars that are so depreciated that being
repaid is the financial equivalent of being on the receiving end of a
Bronx cheer.

In the twisted world of intertwined economies and centralized
international banking, what the lender calls debt is understood by the
borrower as money. The default of a borrower creates a cascade effect
as the loaned funds were likewise created through borrowing, until the
default rises to the top of the debt pile where it is off-loaded onto the
backs of the taxpayers. The central banks and the sphere of
corporations that thrive around them enjoy private gain until it
ultimately leads to public debt.

The monetary system, as we know it, is in the end stage of a
terminal disease and its days are numbered. The great cascade default
on impossible-to-repay national debts has already begun, and has
triggered payment of credit default swaps as financially interdependent
nations are unable even to service the interest payments of their
sovereign debt. The increase of the respective money supplies by the
western central banks will finally cease as a point of diminished returns
is reached and no amount of added “loans” as denominated in the
sputtering paper fiat currencies will be of any further value.
The game has changed. There are new players to contend with.
The western empire is in the slow-motion process of losing control of
the ball, and upcoming matches will be played on the other team’s
playing field.

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