Wednesday, November 11, 2009

Being Bullish on White Rabbit Futures

Treasury Sec. Geithner is already in Asia ahead of President Obama and he told Japanese reporters today that a strong Dollar is essential. That would be great for Japanese exports, at least in theory. The currency market responded with 15 month lows for the Dollar. Gold and equities are up as well is everything else that can be traded on speculation. The flood of trillions of Dollars into the Wall Street banks to stave off their collapse at the end of the Bush Adm. is hyper inflating all world markets. They were supposed lend the money into the economy, but interest rates are low and trading the markets pays great. Goldman Sachs "earns" a hundred million a day inflating the markets.

When this bubble bursts it could very well plunge us into a global depression or worse. The thing that will burst this bubble will be, you guessed it, a strong Dollar. This ponzi scheme is being financed on margin with credit from the Wall Street banks. When the traders can’t make their margin calls, all that credit will default and start a cascade of failures. Why do you think the bankers want billions in "bonuses" now? If they stop passing out money, a side effect of this would be to drive up interest rates, that brings us to the massive debt.

The Federal Debt has zoomed past 12 trillion Dollars today, this does not include trillions more that are not counted in the general fund. The interest on this amount alone is close to 600 billion putting it in range of passing the official Pentagon expenditures as the single largest budget item. Add in the interest on all the other debt and it would easily be the largest.

Almost all of this debt was run up by Republican Presidents over the past 40 years. Most of it by Reagan and the two Bushes. Reagan holds the record by quadrupling the debt to four trillion by himself. Geo W. ran up the debt by the largest amount in dollars but a trillion won’t buy what it did in 1980. What Bush did is a bigger deal though since our net worth as a nation is approaching zero.

The big problem that Bush built into the debt crisis is that he borrowed almost all the money on 90 and 180 day notes. The debt needs to be resold constantly as it expires and more and more of it every day as the terms of older bonds ends. Reagan had done the same thing but Clinton had refinanced all of the debt with ten year bonds that are now all expiring. Clinton’s budget called for all the debt to be repaid by the end of President Gore’s second term.

The Fed has been holding down the interest for the past two years by buying bonds on the Treasury auctions but say they plan to stop doing this. Where does the Fed get all the money to buy bonds? The Treasury first sells special bonds and then gives the proceeds to the Fed who then "creates" more "money" on a ten to one margin. They really shouldn’t have followed that White Rabbit after eating those mushrooms.