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Treasuries Sham Can’t Be Explained By ‘Voodoo Economics’

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It seems another mainstream media foot soldier has decided to take pot-shots at my theory as to how the U.S. government has been able to delay the implosion of its fraudulent Treasuries market. It appears that the MSM decided that “Round One” didn’t work out too well.

Once again I was forced to observe my name being spelled incorrectly throughout another insulting rant.  I note this because there are four variations on the spelling of “Nielson”. However this writer selected the same incorrect variation as did Joe Weisenthal when he launched his own attack on my work.

This strongly suggests that my new attacker, John Carney, Senior Editor of CNBC, never even read my original piece (where my name is naturally spelled correctly); but rather chose to attempt his own rebuttal after merely reading Mr. Weisenthal’s attack. This in turn is suggestive of a sloppy and arrogant mind. Let’s see if these traits are exhibited in Mr. Carney’s attempt at analysis.

Fortunately he summarizes his two arguments at the end of his attack, otherwise it would have been very difficult to decipher precisely what Mr. Carney was trying to say in his own effort at explaining how the Treasuries market Ponzi-scheme can continue to be funded. It’s all about “the contraction of other safe sources” and/or “the expansion of demand created by deficit spending”, he says.

I’ll deal with the second argument first, since this is a variation of the same nonsense which Mr. Weisenthal was attempting to peddle in our last episode, and it won’t take long to dispatch it to the trash-can. This is straight out of the Keynesian version of Economics 101. While there are numerous objections to Keynes’ simplistic economic analysis, only one flaw will be necessary to highlight the defects in Mr. Carney’s reasoning.

According to Keynes/Carney, “deficits are good” because with all this extra money sloshing around in the economy, everyone is rich – with lots of money to buy things, including infinite amounts of U.S. Treasuries. And for the near-century in which we have been forced to listen to the drivel of Keynes and his latter-day disciples, we have yet to hear one of these charlatans acknowledge a basic Truth: that we must pay interest on all these deficits.

Here is how this minor detail impacts Mr. Carney’s attempt at explaining the Treasuries market Ponzi-scheme. Every year that these Deadbeat Debtors rack-up more deficits (and add to total debt), the percentage of every revenue-dollar consumed in paying interest increases, and the percentage left over to buy things (like U.S. Treasuries) decreases.

So using the dynamics of Mr. Carney’s own argument, Treasuries prices should have been at their highest when the U.S. government (and other debtors) began the plunge into insolvency many decades ago (and the maximum amount of capital would have been available for reinvestment in Treasuries), and they should be at their lowest today – when the interest payments on these mountainous debts are consuming the largest percentage of every revenue-dollar. Thus this argument doesn’t support his own position, it supports mine; by providing yet another reason why Treasuries prices should be at their lowest level in history today rather than the highest.

 

This leads nicely into Mr. Carney’s second argument, that the whole world is running to the “safety” of U.S. Treasuries. It appears that he has never heard of Laurence Kotlikoff, a Professor of Economics at Boston University, and former economic advisor to Ronald Reagan. Professor Kotlikoff has publicly noted (on many occasions) that if the U.S. government were forced to account for its debts and liabilities using the same procedures required by law for all U.S. corporations that the U.S.’s real accumulation of debts/liabilities totals well in excess of $200 trillion – not the $15 trillion fantasy-number it peddles to the masses.

So let’s put aside the fact that the U.S. is the least-solvent major economy in the world today. Let’s put aside that (once again) this implies that U.S. Treasuries should be fetching the lowest prices in history – not the highest – as lenders need to be compensated for this increased level of risk with higher yields (not lower ones). Mr. Carney wasn’t sure I would be able to understand his elevated logic, so he dumbed it down for me with an analogy about potato-farming. The least I can do is to spend a few minutes addressing that effort.

Carney writes:

Let’s think about the market for potatoes. Imagine that a blight had wiped out potato crops everywhere – except for Idaho, which actually produces a bumper crop. Now Idaho is a very important supplier of potatoes. Someone like Nielsen [sic], looking just at the supply of Idaho potatoes, might be shocked if the price of potatoes rose while Idaho churned out more and more spuds. But if he would look at the world-wide supply of potatoes, the mystery would be solved.

So, according to Mr. Carney, despite the fact that the U.S. is pumping out more than three times as many “potatoes” as any other time in history, the world is forced to buy all those U.S. “potatoes” (no matter what sort of crazy prices it charges) because there aren’t any other “potatoes” to buy. Does this analogy bear any resemblance to the real world?

In short, no. While once again one could write several pages poking holes in all of the defects of this analogy, a two-pronged reply should suffice. Let’s start by turning the clock back a few years to just before the Crash of ’08, when the “record deficit” which the U.S. government was trying to finance was a mere $400+ billion.

Even then, the loyal apologists of the U.S. government in the mainstream media felt it necessary to “explain” (again and again) how the U.S. government could manage to fund even that level of debt. Here is what we were told: the U.S. Treasuries market had turned into a big money-laundering game.

With the U.S. dollar (back then) being the world’s undisputed “reserve currency”, all of the impressive trade surpluses being generated by the world’s developing economies resulted in them accumulating vast hoards of U.S. dollars – and thus they needed a way to “recycle” all those dollars. Supposedly buying U.S. Treasuries was the best way to do this.

Now flash ahead to mid-way through 2012. Today we see a much different world. By my count, China has now completed somewhere close to $2 trillion in bilateral “currency swaps” with its various trading partners; part of its inexorable march toward replacing the U.S. dollar with the renminbi as the world’s new reserve currency.

More recent moves to ‘internationalize’ its debt markets and currency (to an even greater degree) are even more unequivocal signals of this. All these $trillions in currency-swaps involve permanently excluding the U.S. dollar from a larger and larger percentage of global trade, permanently reducing the (USD) “surpluses” which need to be recycled, and thus permanently reducing demand for U.S. Treasuries.

But what of Mr. Carney’s argument that there simply are no other “potatoes” in the world, so other nations are forced to buy U.S. “potatoes”? This is simply and unequivocally untrue. What is being implied is that merely because U.S. Treasuries  are (erroneously) deemed to be “safer” than European debt that this means that this other bond supply simply no longer exists for buyers.

Wrong. European governments are able to sell their bonds (and fund their deficits), or obviously they all would have all already defaulted like Greece. They are simply forced to offer lenders higher yields in order to entice them into taking on higher levels of risk, another basic economic dynamic which (mysteriously) does not exist in the U.S.’s own debt market.

In fact with all the West’s Deadbeat Debtors having much larger deficits, they are all selling more bonds than ever before. Thus rather than the phony analogy of Mr. Carney of a world with a potato famine and one “bumper crop”, we have an entire world reporting “bumper crops”…but only one potato-farmer in the entire world has not had the price of his potatoes affected by this massive potato-glut.

Instead of Mr. Carney’s explanations “solving” the mystery of how the U.S. Treasuries market Ponzi-scheme has avoided implosion; properly interpreted they only amplify the question marks. Rather than an entire world running “toward” U.S. debt, we have an entire world flooded with this worthless paper; while nervous holders wonder how they will dump all these bonds as the world moves toward a new reserve currency.

As the U.S. Treasuries market Ponzi-scheme teeters ever more precariously, we see any/all attempts to “explain” this sham looking equally shaky and unreliable. One has to wonder how many more of these “explanations” the Treasuries market is capable of withstanding?

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Jeff Nielson
...
written by Jeff Nielson, July 16, 2012
...with the smartest people money can buy, working for you and who are creative enough, you can buy a lot of extra time before the whole thing collapses,


True Dale. But the point here is they ALREADY "bought a lot of extra time" - and now that "bought time" has expired. All Western economies are shrinking rapidly. The only thing HIDING this is lying about inflation, since every percentage-point the government understates inflation is DIRECTLY added to GDP.

So we have economies with rapidly declining revenue bases and exponentially increasing debts (i.e. obligations). That is LITERALLY the definition of a Ponzi-scheme. And being a VERY old, VERY unstable Ponzi-scheme it is now about to totally COLLAPSE.
ultarnerd
...
written by Dale Trynor, July 16, 2012
Something Ive read, again and again, is that money is simply printed out of thin air to buy the bonds and treasuries with the only Keynesian rule is that money can only be borrowed into existence, or at lest appear that way.Yes banks have been borrowing money at zero percent interests and then buying treasuries to gain a few percent interests and you cant lose.Yes the banks have to borrow it so it dont look so obvious and they get something to do the dog and pony show, keep money looking like its borrowed. I wish someone would give me a million dollars to buy treasuries at zero interests, because no mater how worthless the dollar goes I still get the extra interests. Be clever enough to take some of the gains to buy gold or silver.But yes I would never consider buying them with my own money, unless to avoid taxes and then use as collateral to borrow the money to buy the same gold and silver.
Remember if you can print unlimited amounts of money, with the smartest people money can buy, working for you and who are creative enough, you can buy a lot of extra time before the whole thing collapses,
Jeff Nielson
...
written by Jeff Nielson, July 14, 2012
Good article today by former Secretary of Labor, Robert Reich:

http://www.sfgate.com/opinion/reich/article/Wall-Street-sleaze-keeps-growing-3705814.php

This Libor scam could be just what was needed to undo the monster Wall St. Bankster fraud, and finally get enough people to pay attention to whats been happening. Maybe, just maybe they will get angry enough to topple them.
Sic semper tyrannous


Thanks for the link Bobbbny!

Being Canadian, I tend to make the (rather large) mistake of cofusing Robert Reich with Robert Rubin. Much like confusing Robin Hood with Prince John - lol!! However this time I understood who you meant.

For me, it was really important to see people like William Black (and here Robert Reich) speaking out against the Wall Street culture of crime. First of all it provided people like myself with credible sources to reference when we write our own exposes on this corruption.

Secondly (and equally important), having these reputable people making stronger and stronger accusations against these criminals themselves provides LEGAL PROTECTION for people like myself to echo their accusations, because it's known as "Fair Comment." smilies/smiley.gif
bobbbny
...
written by robert berg, July 14, 2012
Good article today by former Secretary of Labor, Robert Reich:

http://www.sfgate.com/opinion/reich/article/Wall-Street-sleaze-keeps-growing-3705814.php

This Libor scam could be just what was needed to undo the monster Wall St. Bankster fraud, and finally get enough people to pay attention to whats been happening. Maybe, just maybe they will get angry enough to topple them.
Sic semper tyrannous.
Jeff Nielson
...
written by Jeff Nielson, July 13, 2012
Jeff: your response to this graduate of the Goebbels-Alinsky Institute of Disinformation is excellent. What the Keynesians disingenuously omit from any rebuttal is that the amount of money that is "sloshing around" is already in the amount (by my reckoning), of $50 trillion, or close to the combined world GDP. This printing has caused squat in benefits to the productive portion of the private sector, serving only to prop up sovereign/corporatist/banking cartel balance sheets, purposely avoiding assistance to the real economy. So more of the same would do what exactly?


Yes, Apberusdisvet, I look to engage these people in debate whenever given the opportunity. Because whether they are disingenuous or actually believe in the Kool-aid they are dispensing; it can't possibly withstand scrutiny/debate.

And the whole reason WHY the banking cabal (and the Oligarchs behind them) do NOT ever want such discussions to take place is because then the masses can all SEE that all this "Keynesian economics" was NEVER anything but a sham to induce people and NATIONS to willingly submit to debt-slavery...by duping them into believing they are "better off" loaded down with debt.

Utter Orwellian insanity!!
apberusdisvet
...
written by Andy Bergeron, July 13, 2012
Jeff: your response to this graduate of the Goebbels-Alinsky Institute of Disinformation is excellent. What the Keynesians disingenuously omit from any rebuttal is that the amount of money that is "sloshing around" is already in the amount (by my reckoning), of $50 trillion, or close to the combined world GDP. This printing has caused squat in benefits to the productive portion of the private sector, serving only to prop up sovereign/corporatist/banking cartel balance sheets, purposely avoiding assistance to the real economy. So more of the same would do what exactly?
Jeff Nielson
...
written by Jeff Nielson, July 12, 2012
Congratulations Jeff, your commentary seems to be affecting our masters and they have taken note of you! Keep up the good work!


Yes Samix, I can't recall too many "Senior Editors" previously taking the time to engage me in debate... smilies/wink.gif
samix
...
written by sameer, July 12, 2012
Congratulations Jeff, your commentary seems to be affecting our masters and they have taken note of you! Keep up the good work!

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