Guest Post: The Dirty Secret of the Debt Ceiling Debate: Nobody Wants Treasuries

Submitted by Tyler Durden on 04/03/2011 13:19 -0400

On this side of the rainbow, “How much money should an uncreditworthy entity be allowed to borrow?” is a rhetorical question. In Washington DC, it’s a topic of much rhetoric. In fiscal year 2009 Congress borrowed 53.5 cents of every dollar they spent. In FY2010 they borrowed 48 cents of every dollar (*check your numbers, Santelli). So they’ve borrowed and spent 3.5 Trillion to produce 255 Billion in GDP growth (7% efficiency!), never even bothered to pass a budget for FY2011, and still haven’t managed to get a single bankster put in jail. Now these whores are lecturing us about “moral obligations.” They also swear they’re gonna straighten up and fly right this time. There is one little detail they forgot to mention – no one actually wants to lend them money. Welcome to the last resort. 

GOP To Propose $4 Trillion In Spending Cuts Over A Decade, While A Meager $30 Billion Threatens A Government Shutdown

Submitted by Tyler Durden on 04/03/2011 12:04 -0400

While the government wrangles over a whopping $30 billion in spending cuts for the 2011 budget (with fiscal 2011 already half way over), which threaten to shut down the government yet which we all know will be successfully addressed in the 11th hour, with a compromise of sorts confirming once again that both parties are incapable of dealing with the relentless climb in US government debt (and oh so eager to turn their back on campaign promises when faced with reality), which unfortunately is the only fuel driving the US economy, the GOP's Paul Ryan is expected to announce a whopper of a 2012 budget, one which trims a record $4 trillion in spending over the next 10 years. What this means is that the GOP is about do away with Obama's health care "revolution" and things are about to go back to the way they were. Not only that, but any hopes the Fed may have had that congressionally-mandated fiscal stimuli will take over the central bank's monetary boosts, can be put to rest, meaning that very soon the Chairman et al will be back to the drawing board debating just how much more cash needs to be injected in the economy next time around (as a rough guideline, we expect it will be about 75% of the next debt ceiling increase). And while we expect the current government shutdown crisis will be resolved within a few weeks on the back of promises of massive cuts over the next decade, which will never happen, the only thing to watch for is how big the debt ceiling increase will be when announced some time over the next 3-4 weeks. Everything else is smoke and mirrors. 

Guest Post: Chart Of The Week - Stocks Are Overvalued

Submitted by Tyler Durden on 04/03/2011 10:55 -0400

You won't hear anything about it from the mainstream financial media or the Federal Reserve, but this chart is screaming "stocks are extremely overvalued." Although the mainstream financial media is touting low price-earnings ratios and permanently rising profits as the backdrop for a permanently bullish stock market, this chart reveals that stocks are more overvalued now than they were just prior to the Great Crash of 1929. Only the bubble of the dot-com era reached a higher extreme.

 

 

Gene Arensberg: New 28-year low for the gold/silver ratio

 

Paul to examine mint's failure to coin enough gold and silver

 

Adrian Douglas: Deception and cover-up at the Fed

 

Urge Bloomberg News to challenge Fed next on gold market rigging

 

Meet The 171 Banks For Which The Margin Of Failure Is One Thousand Dollars

Submitted by Tyler Durden on 04/02/2011 21:53 -0400

At this point the majority of the population is transfixed by the biggest borrowers from the discount window. Yes, we know by now that the bulk of these were foreign banks, primarily Dexia and Depfa, but that is simply because only Bank Holding Companies, or depository institutions (and yes, last we checked Goldman deposit branches are still sorely missing), are allowed discount window access. Keep in mind that most banks were Investment Banks and not under the BHC umbrella until after the Lehman collapse. Which is why most banks only had access to the PDCF, which is how the Fed eliminated the loophole for emergency liquidity trickling down to everyone. The majority of US investment banks therefore accessed Fed rescue funding via the PDCF, of which JPMorgan and BofNY Mellon were intermediaries due to their position as the only two tri-party repo clearers and keymasters of the shadow banking mechanism. A quick glance at the PDCF confirms that all banks, pre their conversion to Bank Holdings Companies in the week following Lehman's failure, borrowed from the Fed, if not necessarily from the Discount Window (and yes, as Bob Ivry confirmed, Goldman did borrow directly from the Discount Window on at least five occasions post its "depository status" conversion despite Gary Cohn's perjury to the contrary even as Goldman repeatedly dipped in the PDCF both before and after Lehman's failure, even setting the precedent of first pledging defaulted bonds as collateral before any other solvent bank). Yet what we are more concerned by is not the mega borrowings: after all, it makes sense that if you need tens of billions you will go to the Fed. We are far more concerned by the banks for whom the marginal amount of cash was smallest. Below we present the 171 banks that had to access the Discount Window for the paltry sum of $1,000.00. That's right - these are the banks for whom the margin of failure is as low as one thousand dollars. Any readers who have cash deposited with these banks (many of whom have not yet been visited by the FDIC's Failure Friday phenomenon), are urged to immediately remove all funds and run, Forrest, run. 

How The Fed Sourced 83.4% Of Treasury Cash Needs Since The Start Of QE2

Submitted by Tyler Durden on 04/03/2011 16:29 -0400

It is no secret that since the start of QE2 in November, the US Treasury has issued a gross $890 billion in debt in the form of various Bond, Bill and TIPS. This is cash that the US received in exchange for promises to pay interest and principal at maturity on various series of bonds. At the same time, over the past 5 months, there was $291 billion in debt maturity paydowns, or cash leaving the Treasury and going to those who are lucky enough to receive principal on US debt at maturity. That leaves a net of $589 billion in debt that was issued between November 1 and March 31: money used to fund the ongoing operations of the United States. This is all perfectly public and well-known. After all, every single auction is loudly announced by CNBC at 1 pm Eastern on auction days, with a breakdown between Direct, Indirect and Primary Dealer takedowns. Note that the Fed does not feature in this list of primary issuance bidders as that would be illegal, and would be monetization beyond even any semantic argument that the Fed does not, in fact, monetize. What is less known is that the true action in US Treasurys occurs in the secondary market, or that dominated by the Federal Reserve. Here is where the daily POMO takes place, where as we have noted on many, many, many occasions Primary Dealers promptly flip bonds purchased during a primary auction right back to the Fed. This is where the real source of Treasury funding comes from. And what many may not be aware of is that since the start of QE2, the Federal Reserve has purchased $491 billion of Treasurys in the Open Market (and $556 billion since the start of QE Lite). This $491 billion in indirect monetizations ultimately ended up funding government cash needs. In other words out of $589 billion in net issuance, the Fed has been responsible for 83.4% of the money needed to fund government transfer payments (among many other uses of funds) and keep the US consumer "strong", not to mention funding US defense, education, healthcare and every other aspect of US day to day cash needs. QE2 is supposed to end in precisely three months. During that time the Fed will fund another $400 or so billion in US cash needs. What happens after, nobody knows.

Watch "Inside Job" - The Wall Street Horror Movie, For Free

Submitted by Tyler Durden on 04/02/2011 21:12 -0400

Courtesy of Open Culture, Inside Job, the scariest Wall Street "horror movie" ever produced can now be seen for free. Charles Ferguson's masterpiece is a must watch for anyone and everyone who has even a passing interest in the intersection of finance, economics, politics, corruption, crime, complacency and above all, the human inability to predict the future when the only driving force is pure greed. And as Open Culture notes, "Inside Job can be purchased on DVD at Amazon. We all love free, but let’s remember that good projects cost real money to develop, and they could use real financial support. So please consider buying a copy." We can only hope that more commentators ilke Ferguson will step up and present the criminal events leading to the greatest economic and market crash since the Great Depression. 

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