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.


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.