Forget Taper, U.S. Debt Ceiling & Shut Down

Reading time: 1,563 words, 5 pages, 4 to 6 minutes.

You can ignore the ‘Taper Talk’. You can forget about the U.S. Debt Ceiling and you can laugh at the U.S. government “Shut-Down” because there barely is one. This is just political theatre and an ass media circus. Proof? Does anyone you know talk about it? Is anyone you know affected by it? Didn’t think so. So, why all the noise from craven politicians and the ass media?

Simple. It’s a distraction. They’re desperately trying to divert our attention from a monumental problem that neither the politicians nor the ass media are talking about; the bond bubble has burst and its subsequent fallout has begun.

Many pundits proclaim that the bond bubble is the largest bubble in history. Actually, the derivatives bubble at more than one quadrillion dollars far surpasses the bond bubble. The bulk of these derivatives are ‘interest rate swaps’ that are now melting down.

Interest rate swaps are highly liquid financial instruments whereby two parties exchange interest rate cash flows among fixed rates, floating rates and possibly different currencies for the purpose of hedging or speculation. Since these are Over the Counter (OTC) they are unregulated private deals so the size of these derivatives is a mystery but the general consensus is these “shadow derivatives” are in the neighbourhood of $400 trillion or more. By way of comparison the global GDP is about $70 trillion so interest rate swaps are about six times the size of the entire global economy. That’s big! And it’s really big when it melts down.

Jim Willie of Golden Jackass explains what’s happening on Greg Hunter’s podcast.

You can listen to excitable Jim on the lengthy video or read my summary below.

Jim says the bond bubble has broken but the news is deliberately suppressed to avoid panic and to buy time for the banksters to extricate themselves as much as they can before the system collapses. President Obama recently summoned the Bankster CEO’s to a secret meeting. We were told it had to do with the impending government shut-down and debt ceiling.

Jim Willie says this is bullshit. The President doesn’t need to meet the banksters to arrange a line of credit. It was the panicking banksters who called the meeting. Interest rates have almost doubled; climbing from 1.65% to 2.95% or 130 points in only four months. The enormous losses on these gargantuan interest rate swaps are hitting not only the banksters but a multitude of financial institutions.

On September 5 & 6, the ten year rates climbed to within a whisker of 3% which would have triggered ‘sell stops’ and panic. This is particularly worrisome because there are fewer foreign suckers willing to buy U.S. debt (bonds) leaving no one but the U.S. to print and buy its own IOU’s. Furthermore, bonds are so highly leveraged that a small panic would quickly turn into a rout. We’re told the Fed is buying $85 billion a month. That’s also bullshit. Willie says it’s several hundred billion.

Fed Chairman Ben Bernanke’s talk of tapering (slowing down) Quantitative Easing (QE) caused a panic in the debt-addicted markets. More important, it illustrated that the only response to rising interest rates is more QE. As I’ve stated previously, they cannot end QE money counterfeiting. The whole financial world is trying to flee through the exits as fast as possible without crashing the system while the U.S. Fed is shovelling the money out as fast as it can. Enormous losses on these interest rate swap derivatives explains why the banks are so short of capital despite endless years of QE.

This has all the earmarks of another black swan – an unexpected event with major repercussions. Even if the banksters can continue their remarkable ability skating on thinning ice while catching falling knives, how long can they do this? If nothing else, it proves what I’ve been saying for years; the system cannot be fixed as it is broken beyond repair. We are past the point-of-no-return.

Willie had a few more revelations about how precariously we are balanced on a knife edge. J.P. Morgan’s ‘London Whale’ losses, supposedly caused by a rogue bond trader, are also bullshit. Are we really to believe that with all the previous bail-outs, bail-ins and bailings in general that this is the only thing in a leveraged world that went bad? Willie says they were actually interest rate swap losses. They blamed the UK (think Europe) to scare money out of the Euro and Euro-bonds and into the U.S. dollar and U.S. treasury bonds. Desperate times call for desperate lies.

He also provides another perspective on American International Group (AIG) one of the world’s largest insurance conglomerates. During the Great Financial Crisis, the Amerikan government effectively nationalized AIG. Why do that? Because once AIG was under the government’s roof, they could cover and delay these derivative losses.

There are two alternatives regarding QE:

1)Taper QE – interest rates rise, loans dry up, enormous derivatives losses, banks implode, economy collapses.

2)Continue QE – drown from rising costs, the world hedges against the U.S. dollar, pricing increases for food, metals, everything and more unrest in the Middle East. Drowning is slower so that’s the preferred method.

Keep your eyes in U.S. interest rates. The banksters are buying bonds hand over fist to keep rates below that dreaded 3% level. They’ve temporarily driven rates down to 2.65% but that’s ‘resistance level’ that could act as an upside spring-board. If rates exceed 3%, the world will bend over and kiss its collective ass good-bye.

The problems besetting the world’s largest economy are endless and only add to Amerika’s woes. In Counterpunch, Mike Whitney lists them as “political dysfunction (government shutdown), droopy home sales, plunging confidence, chronic high unemployment, rising levels of extreme poverty, unprecedented public dependence of food stamps, weak personal consumption, stagnant wages, falling middle class incomes, or gaping inequality.”

From Casey Research, 2013 Summit, October 9, 2013:
“We are the change, says investment advisor and former Assistant Secretary for Housing/Federal Housing Commissioner Catherine Austin Fitts. She says what’s been going on in the US financial system in the last 20 years is nothing but a financial coup d’etat.

“When she discovered what was really happening behind the scenes in Washington and on Wall Street, in 1997 she asked the head of one of the country’s biggest pension funds what could be done about it.

“He said, ‘It’s too late, they’ve given up on the country, and now they’re working on getting all the money out.'” Within the next four years, $4 trillion went missing…”

The money being extracted from Amerika has only accelerated since then. As Satyajit Das said, they can’t stop the collapse. He might have added they were orchestrating it. Nobody can stop the collapse. Once Amerika implodes, the rest of the world, to one degree or another, will follow.

All you can do is save yourself and your loved ones from the worst of it. I’ve covered this in previous articles: get out of debt, unplug from the banking matrix, take ownership of your equities as per Jim Sinclair’s GOTS (below), stockpile essentials and buy gold & silver while they’re still on sale. Cyprus was the first bail-in. Poland confiscated pensions and Russia is now ‘borrowing’ theirs. Our turn will come.

Here is Jim Sinclair’s Get Out of The System (GOTS) checklist from his September 5 Commentary for those who want to preserve their wealth:

Your equities are held in certificate form.
2. You have no Federal income tax favored retirement funds.
3. You have no CDs and investments in bonds.
4. You have modest money deposited among selected BRICs countries.
5. You store your own precious metals.
6. You have no mortgage obligations.
7. You keep cash on hand for 6 months expenses.
8. You have no consumer debt at all.
9. You have a small hobby farm for protein and veggies outside of where you are living with no mortgage debt, set up green.
10. You have a gas, diesel or electric car with high fuel mileage for the farm.
11. You have a generator with large fuel capacity for the farm.

“Note the reference to all retirement accounts. Those accounts are going to be targeted and your hard earned assets will be replaced with a special issue of sovereign paper that will have no real value whatsoever. Whilst the penalty and taxes may seem onerous they will seem insignificant after the nationalization occurs. Quite simply there is no time left and I advise that you must act now to secure what you have.”

Oh, as for the U.S. government shut-down and the debt ceiling? The shut-down is a joke (parks and memorials) and the debt ceiling has been raised dozens of times before. It will be raised again. And again. Right after bringing it to the scary edge. Again. Meanwhile, it’s a great opportunity for political theatre and a media circus and for most people to bury their heads in the sand. Are you one of them?

Don’t worry; we’ll make it through the year. However, given the spreading economic cracks and financial shakiness we’ve seen so far, next year will be very interesting and should convince even the most die-hard optimists we are well and truly on the road to perdition.

Are you prepared yet?

Remember the mantra:

We cannot borrow our way out of debt.

We cannot spend our way to prosperity.

We cannot pretend our way out of trouble.

October 13, 2013

UPDATE Oct 14: much talk about U.S. default. Waste of breath. Here’s a perspective as per The New York Sun “The troubles we’ve been going through, in other words, are not the forerunner of default. They are the consequences of default.” You see, the U.S has already defaulted at least twice. In 1971, President Nixon closed the gold window ending the Bretton Woods agreement and forcing the world onto rapidly depreciating fiat currencies at a time the value of the dollar was 265th of an ounce of gold. And, George W. Bush did it after 2001 allowing the dollar to devalue further and swing wildly between 1,300th and 1,800th an ounce of gold.

Oh, you’ll never hear the authorities call it a default. Worthless fiat currencies can briefly hide a multitude of sins in this self-deluded world but they cannot avoid consequences. What else could it be but a default when we watch money turn into ass-wipe.

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About gerold

I have a bit of financial experience having invested in stocks in the 1960s & 70s, commodities in the 80s & commercial real estate in the 90s (I sold in 2005.) I'm back in stocks. I am appalled at our rapidly deteriorating global condition so I've written articles for family, friends & colleagues since 2007; warning them and doing my best to explain what's happening, what we can expect in the future and what you can do to prepare and mitigate the worst of the economic, social, political and nuclear fallout. As a public service in 2010 I decided to create a blog accessible to a larger number of people because I believe that knowledge not shared is wasted.
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7 Responses to Forget Taper, U.S. Debt Ceiling & Shut Down

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  6. hemen parekh says:

    The Debt Trap

    In the next 24 hours , expect American Congress to raise the Debt-Ceiling , once again

    As it has raised it 71 times in the past 40 years

    Other alternatives before the American Congress are :

     Raise taxes ( to increase State income )

     Reduce Expenses ( eg: ObamaCare )

     Print more money ( and fuel inflation )

    But these are all , very unpopular measures with the American public . And no politician likes to be unpopular

    So , the easy way out is :

    Borrow more – let each American grandchild worry about repaying to the rest of the World , a measly sum of $ 52,000 !

    We will not be around when the bubble bursts !

    Tomorrow will , somehow take care of itself !

    With annual revenue of $ 2.4 trillion and expenses of $ 3.5 trillion , how else can America make ends meet ?

    No one in America seems to be asking :

    • Are we living beyond our means ?

    • How long can we sustain this high living standard on borrowed money ?

    I hope , we in India do not fall into such a Debt-Trap

    Fortunately ( ! ) , rich Indians have stashed away Rs 28 – 35 lakh crores ( $ 462 – 572 billion ) in foreign banks ( as per Global Financial Integrity – GFI )

    Offer them , a “ No Questions Asked “ , Voluntary Disclosure Scheme ( VDS ) to invest in tax-free Infrastructure Bonds

    Then , we will not need to borrow from IMF to raise the standard of living of 400 million poor Indians , earning less than $ 1.2 per day

    • hemen parekh ( 16 Oct 2013 )


    • gerold says:

      You’ve made some excellent points. Thank you.

      And, you’re right about “No one in America seems to be asking :

      • Are we living beyond our means ?

      • How long can we sustain this high living standard on borrowed money ?”

      The answer is Yes to both.

      – Gerold

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