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Friday, May 8, 2015

Veneer of US Growth & Normalcy Has Worn Paper Thin...Reality Plainly Visible Through the Fraud

The veneer of US growth and normalcy has worn paper thin...all dependent on an outrageous, obvious off-shore treasury buying scheme through a handful of locations.  No other party but the Federal Reserve has the means, motive, and opportunity to carry this out.  This fraud is responsible for all US economic "growth" since '07, maintaining the dollars "value", and maintaining the nearly "free" cost of funding US debt.  But the scheme's very success may be it's demise as even non-PhD types are able to easily identify and highlight what has become a ludicrous fraud.


FIRST, A LITTLE BACKGROUND LEADING TO THE FRAUD


In 2007 the entirely predictable fuel of consumer debt ran out as the 25-54yr old US population (and likewise for advanced economies globally) peaked and began declining while the 55+ and 65+ populations skyrocketed.  The indebted younger segment didn't have the size, the income, the savings, or credit worthiness to buy up the older generations assets.  The older set (along with large banks) with little money but significant assets found the value of those assets falling precipitously.  To allow banks and older asset holders to enjoy their move into liquidation mode, the Fed stepped in to artificially raise asset prices via QE and at least 20 different acronyms.  This is when the Fed and federal government took over with the clear intent to maintain asset values.  The nation since is economically unrecognizable.


So, as the fuel of consumerist credit excess was exhausted, the engines flamed out.  We began a government debt binge attempting to postpone and substitute whom would be left holding the inevitable crash.  But we as passengers were told to trust the information provided by our government, Wall St., and the media...information which proclaimed green shoots, recovery, and America was still on track for a "better" destination. 


However, opening ones eyes and parsing the data shows the ground is fast approaching and the crafts nose is down but the landing gear aren't...a very bad outcome is imminent.  The strange and un-market like movements of "markets" highlights the difficulty of maintaining fraudulent valuations vs. increasingly negative economic reality.  The options rapidly approaching are either a crash of epic proportions and implications or an equally negative outcome of some statist market takeover or market holiday where prices are essentially politically set.


Let's Go To the Charts to Walk Through the Grisly Details

The first chart simply shows the inverse of the baby boom...the 25-54yr old population and employment bust that followed the baby boomers exit.  As the 25-54yr/old segment peaked in '07...the US (and global) economy stuttered and began it's fall, solely combatted by new federal debt (and interest rate rigging).  But the Fed must have known this fall will take a decade or more to play out so the strategy of emergency monetization actions was either desperation or willful economic destruction of future generations.  How could a smaller set absent jobs and savings ever pay off the massive debts incurred to maintain the needy, larger, unfunded older set???

Population Source; OECD, Main Economic Indicators; Federal Debt Source, Dept. of Treasury
The impacts of the employment peak and fall in the 25-54yr old segment is evident in falling oil consumption and falling mortgage debt since '07 (below).
Population Source; OECD, Main Economic Indicators; Oil Source; IEA; Mortgage Debt Source; Federal Reserve System; Federal Debt Source, Dept. of Treasury

And below is a simple representation of how effective the new federal debt was in creating economic growth.  GDP minus federal debt tells us something went terribly wrong from '07 forward!!!

Below is annual GDP minus annual Federal debt growth...

So, if economic growth since 2007 is just the growth of debt...perhaps we better check the debt creation engine...and globally it's slowing.
SOURCE: Haver Analytics; national sources; World economic outlook, IMF; BIS, McKenzie Global Institute analysis
But the one segment of debt growth (below) really rising since '07 is the global government debt.
SOURCE: Haver Analytics; national sources; World economic outlook, IMF; BIS, McKenzie Global Institute analysis
So, if new government debt is responsible for all new US GDP "growth"...let's check the appetite for US Treasury debt.  Below, the Public vs. Intra-Government categories of Treasury holders and their rising holdings since 2008.  Clearly, nearly all increases in Treasury debt holdings are taking place among the Public debt holders.


Source; Treasury (TIC), Federal Reserve
The Public holders of debt include the Domestic Public, Federal Reserve, and Foreign holders (below).

Source; Treasury (TIC), Federal Reserve
The four categories are Intra-Government (primarily using social security surplus funds to buy special non-marketable securities(GAS or Government Account Series)), Domestic Public (US pensions, banks, insurers, retail buyers), Federal Reserve, and Foreign Holders typically recycling excess dollar trade surplus'.  I've combined the Fed and Foreign Held...the logic for this should become obvious.


From '00-->'07, Intra-Government purchasing (with social security surplus dollars) funded the largest portion of the growth in US debt closely followed by the Fed / Foreign bid.  Domestic sources comparatively took a pass on US debt.  But an equally important part of the story is duration...the Fed focused on short bills and notes while the longer duration, higher yielding notes and bonds were shared among foreign and domestic buyers.

From '08-->'11 the Intra-Government purchasing slowed as the 25-54yr old population segment began declining and their employment (and SS revenues slowed even faster while SS payouts ramped with the retiring baby boomers).  The Fed / Foreign purchasing takes over while a good amount of safe haven domestic buying takes place.  Again, duration is important as beginning in October 2011 the Fed radically changed the duration of it's holdings via Operation Twist.  The Fed sold all bills and short notes and used those proceeds to buy longer notes and bonds.  Domestics focused nearly solely on short duration while foreign continued buying across the curve.

However, since '12, almost all Treasury debt buying has fallen to the Fed / Foreign held category.  Intra-Gov and Domestic sources of Treasury debt purchasing are negligible.  The Fed's QE programs bought nearly all longer duration notes and bonds up to the Fed's ownership limits.  Only via utilizing Belgium and other foreign locations was the Fed capable of buying all issuance in the longer durations without changing it's own rules.

An overview of purchasing during the 3 periods.  The collapse of the SS surplus and the US's inability to purchase it's own debt is clear...but also clear is the US's inability to slow the growth of debt.

So, it should be abundantly clear the system needs more credit (debt) to maintain "growth" but that the only buyer of the debt left is "foreign holders" as the Fed has ceased it's active QE (the Fed is still buying but only to maintain the current size of the balance sheet).

So who among "foreigners" is buying?  Not China or the BRICS.  They have been net sellers since July of 2011.  Likewise, "all other foreigners" including OPEC slowed purchases dramatically since July 2011 despite record dollar surplus'.
Source; Treasury (TIC), Federal Reserve
The significance of July '11 was the failed US debt ceiling debate when Democrats and Republicans agreed no austerity or cutbacks were politically viable and no serious tax increases allowable.


So who among "foreigners" is buying???  The chart below shows six nations are carrying the weight of maintaining US Treasury yields at multi decade lows.  It's Japan plus the "BLICS" nations (Belgium, Luxembourg, Ireland, Cayman Islands, and Switzerland).  Japan is running record trade and budget deficits while the BLICS (the antithesis of the "BRICS"), have no dollar trade surplus or budget surplus' in need of dollar recycling.  So the BLICS massive purchases, on par with the Fed since July '11, of record low yielding US Treasury debt is more than dubious.  It's preposterous.  It points to a 3rd party purchasing with a political rather than profit motive.  Again, the Federal Reserve is the only one with means, motive, and opportunity to buy this debt through offshore, untraceable intermediaries.

Source; Treasury (TIC), Federal Reserve
What I've highlighted is that the only remaining source of US Treasury debt purchasing (and the only source of US GDP growth) laughably comes down to Japan, and the BLICS.  The belief in this handful of buyers is the last straw between the US public realizing what the majority of the rest of the world already knows...the US is a Ponzi with the Fed digitally counterfeiting all money to buy perhaps all net new Treasury debt since July '11.  The wild movements of the bond markets Wednesday, May 7th were simply more proof that any attempt at "market activity" within bonds could and would be over-ridden by actors entirely not concerned with a profit / loss motive...folks with infinite buying capabilities. 


The FRAUD is front and center and now it's too obvious and too odious to go much further...expect something to go very wrong very soon.



16 comments:

  1. Excellent analysis clearly presented. Thanks for sharing.

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  2. The fraud is both simple and complex. It originates in the UK. The Bank of England was 'backed' by a handful of rich families. Assets of 1.2 million pounds were pledged and immediately 'lent' to the government. The assets of course never moved. The government got a bank of England account with 1,200,000 carefully written in it and the bank got a 6% interest bearing bond. The bond was used as collateral for loans any persons of note wished to borrow. Thus currency did not exist until borrowed into existence. The Bank just created accounts and issued notes with various amounts written on them.

    The basic fraud being that currency does not exist until borrowed into existence. This means we are all now slaved to this financial system. Interest payments on this currency leads to an exponentially growing debt or a collapse in available currency. Chris points out, very clearly, who is taking on debt to maintain the financial system.

    What a brilliant con. A few wealthy families pledged some assets in return for their nominal value returned to them every dozen years. The government get a loan. We spend 300 years borrowing our currency into existence at interest.

    Vote or don't vote. Until the problem I have outlined above is addressed, we will be slaves. An entire human race enslaved to a financial system set up to benefit the wealthy and the government's. Ultimately, governments and the wealthy also become slaves too.

    Two problems need to be addressed.
    1) people don't like looking stupid. Accepting being a slave, a willing one, is easier than being seen as stupid. People aren't stupid. Very few people are emotionally strong enough to question what everybody 'knows' to be true.
    2) accepting a new financial system

    We will get a new financial system when this one crashes. I expect it will start exactly like the original one, described above, started. The IMF with SDR's 'backed' with a few thousand tonnes of gold can initialize a 'new' financial system. So, no change. Just a reset.

    Or, we the people grow up and take responsibility for ourselves and our loved ones.

    If you choose the first option I will assume you enjoy being a slave and I will take every opportunity to enrich myself at your expense. I suggest you choose the second option and prevent me and others from financially raping you and your children. Please choose to be my equal and not my slaves.

    Sorry for attempting to expose you to reality. It is a shock. I was in shock for three months and have spent thousands of hours trying to prove myself wrong. Chris, quite simply points out the obvious. I am not wrong.

    Perhaps I am overly sensitive to being a slave. This is the way it is. It has been this way for centuries if not longer. I am as happy to lead as to follow. Providing I approve of both the path and the destination. I do not approve of our global governance or where it is headed. (More of the same but worse.)

    Anyway, whatever. I will be fine. I expect to be disappointed in the human race but I hope to be surprised. A little more humanity is required and much less racing.

    Question everything, always.

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    1. I agree with everything you say except your implication that "no change, just a reset" is such a bad option. Not that i'm suggesting it's a good one, but history shows that a reset means at least another 4 generations can take the fractional reserve ride down the proverbial toilet themselves. It's pretty good in the beginning but gets progressively worse. Then rinse and repeat again. I'm not sure why most people would want to take the road less traveled, especially since there are so many ways to game the "banker's" system.

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  3. Good article... even I get it When the purchases by Belgium were reported, oh I don't recall what time of year that was, I said to myself, this is going to set off real alarms. Nothing happened.

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  4. Belgium is just a clearing house for private transfers. How do you know if oligarchs from Russia & China aren't doing illegal money transfers? Does anyone have a paper trail?

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    1. Not even the Treasury knows who holds the paper...the TIC report makes this clear.

      Direct from TIC page -

      The data in this table include foreign holdings of U.S. Treasury marketable and non-marketable bills, bonds, and notes reported monthly under the Treasury International Capital (TIC) reporting system. The data are collected primarily from U.S.-based custodians. Since U.S. securities held in overseas custody accounts may not be attributed to the actual owners, the data may not provide a precise accounting of individual country ownership of Treasury securities (see TIC FAQ #7 at: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticfaq1.aspx).

      What is clear is that China was the primary buyer recycling 50% of it's annual trade surplus into Treasury's from '00 till '11...and then suddenly stopped and reversed. The other large dollar surplus nations did likewise. The shift from Treasury purchasing to recycling the excess dollars to gold is also obvious.

      Also noteworthy is that most the excess dollars in foreign nations are swapped for Yuan or Rubles and the dollars end up with the central banks...the idea oligarchs or the like have dollar surplus' of hundreds of billions and they want to utilize these to get record low yields...well, it doesn't make a lot of sense.

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    2. The financial system doesn't make sense, financially. It is simply a very effect means of control.

      The legal system is another means of control.

      The few who are organised, attempt to, control the many who aren't. This is not possible, so we get illusions instead. Illusions of wealth, power and justice. Illusions of a recovery. Illusions of better times to come. Illusions of our own self importance. Our ability to suspend our disbelief is awesome.

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  5. Almost every point in this article is incorrect.

    Baby Boomers
    An aging population will definitely have long-term implications on productivity and GDP. However, the retirement of baby boomers had no effect on the financial crisis. Assets do not just disappear when someone dies or retires. Baby Boomers assets will be given to someone having exactly no effect on the nation’s purchasing power. In a world without debt this cycle could continue forever.
    Unfortunately, well intentioned financial deregulation significantly increased the profitability and decreased banks risks association with MBSs. In essence banks were able to give loans regardless of credit quality and turn around and sell that loan to another institution almost immediately eliminating his firm’s risk. The advent of MBS along with quasi government entities like FNMA spurred the growth in mortgage debt in the U.S. 380% from 1998 to 2008 to over $14.5 billion. Private savings in 2008 totaled just $2.5 billion. Our largest banks were not in any better shape with firms like Lehman having $1 in assets for every $31 in liabilities before collapsing.
    Our overheated economy resulted in a scenario where individuals and financial institutions alike had $1 dollar for every 5 or $10 they owed and the entire financial system was at a stand-still. In order to prevent a total economic collapse, the treasury started buying the worthless MBSs from the banks to infuse cash into the system and prevent a great depression like run on the banks. (TARP actually returned a small profit). In order for an economy to recover private leverage ratios have to decrease allowing firms to get back on solid footing and regain the public’s trust. This deleveraging process significantly decreases the money supply (think $1 dollar got you a $10 dollar loan before now it only gets you a $2 dollar loan). In order keep the economy afloat while the private sector is regrouping the government increases spending and the supply of money to compensate.
    GDP – Growth in Debt
    Growth of public debt is not included in GDP so subtracting it from GDP tells you nothing. We don’t inject all that $ into the economy. Billions are put into SS Medicare funds, a significant portion pays interest on debt, some is used to establish a trust that will fund projects overtime etc. Total government spending is the figure you should be using. Federal government spending has decreased the last three years and decline 7.5% last quarter.
    Buyers of Treasury Bonds
    Japan’s national debt has negative yields that combined with the recent rise in the dollar as compared to the yen make treasuries look pretty good. China is clearly purchasing treasuries discretely through those euro countries to maintain their exchange rate while still pretending they have ended currency manipulation.
    LAST AND MOST IMPORTANT
    The fed is not increasing national debt or printing money through Quantitative easing. The treasury prints money and this is completely separate from the fed. Each time the fed purchases treasuries through QE it inserts $1 dollar of liquid assets into the economy and takes out $1 of less liquid assets. The first point here is that purchasing your own debt is the equivalent of paying off that debt in the sense that you are paying interest to yourself. Uninformed pundits constantly refer to the fed as printing money and predict terrible devaluation of the currency and super high inflation resulting from an increased supply of money. However, this increase in the supply of money happens when banks are aggressively lending, As an example the fed buys $100 of treasuries and the bank immediately loans $1,000 to the public exponentially increasing the supply of money. Our private sector is still in the process of deleveraging and therefore is not lending this $ as aggressively and not increasing the money supply. The fed is closely monitoring lending activity and can sell treasuries back to the banks when inflation becomes a threat.

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    1. Well, that's what makes a debate...two sides. Thanks for your thoughts.
      Chris

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    2. So Michael, are you anticipating a deflationary depression?

      Reducing government spending is deflationary.
      De-leveraging is deflationary.

      Where is the opposing inflationary force, if you aren't expecting deflation?

      I agree that boomers can give away their financial assets but currently only central banks can afford to buy them at 100 cents on the dollar. Selling below 100 cents is deflationary for financial asset prices.

      Sorry to question you quite so aggressively but your comment indicates that all is well but you never mention deflation just that inflation is contained. My own position is that the forces involved in the tug of war between inflation and deflation increase exponentially. Any small loss of control by the central bank leads to extreme volatility that quickly overcomes the central banks ability to manipulate these immense opposing forces. Loss of confidence in the central banks ability to control the financial system may lead to a loss of confidence in currency, otherwise known as hyperinflation. I expect the central bank would prefer deflation and a convenient scapegoat. Perhaps Greece or Europe or Russia or Syria or Ukraine or terrorists or Opec?

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  6. One problem. There is no accounting entry on the FRB's balance sheet and the money to buy the bonds via Belgium had to come from somewhere. It doesn't matter is if is created money, even created money is real and ended up in the US Treasury in exchange for it bonds.

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  7. But then again, the FRB could just not record their debit when they sent the credit which is the recipients debit. It is their wire system after all. They could probably keep it secret among two or three people.

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    1. No way to prove anything...but...

      http://en.wikipedia.org/wiki/Central_bank_liquidity_swap

      Central bank liquidity swap is a type of currency swap used by a country's central bank to provide liquidity of its currency to another country's central bank.[1][2]

      In the United States the Federal Reserve operates swap lines under the authority of Section 14 of the Federal Reserve Act and in compliance with authorizations, policies, and procedures established by the FOMC.

      On December 12, 2007, the Federal Open Market Committee (FOMC) announced that it had authorized temporary reciprocal currency arrangements (central bank liquidity swap lines) with the European Central Bank and the Swiss National Bank to help provide liquidity in U.S. dollars to overseas markets

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    2. The FOMC authorized these liquidity swap lines through October 30, 2009.

      By November 2011, swap agreements were extended until February 2013, at lower interest rates. As of April 2009, swap lines were authorized with the following institutions: the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, Norges Bank, the Monetary Authority of Singapore, Sveriges Riksbank, and the Swiss National Bank. The FOMC authorized these liquidity swap lines through October 30, 2009.

      In October 2013, the Federal Reserve and these central banks announced that their liquidity swap arrangements would be converted to standing arrangements that will remain in place until further notice. Since their initial establishment in 2009, the Federal Reserve has not drawn on any of the foreign-currency liquidity swap lines. (but I don't think the same can be said of the ECB, BOJ, SNB, and nearly all the others on the list above).

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    3. That sounds like the likely source of the money.

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  8. http://research.stlouisfed.org/fred2/graph/?id=EXCSRESNS

    QE can be seen here. Also, why did the FED begin paying 0.25% interest on excess reserves in 2008? Never happened before.

    There are two interest rates to watch from the FED. The fed funds rate and the interest paid on excess reserves. Both levers will come into play at some point.

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