The U.S. food chain goes from the tapped out, debt laden consumer to the tapped out, debt laden Federal Reserve and U.S. Treasury. All of their balance sheets are bleeding, but only one can pretend that it's solvent. Another coat hanger wire fix is being rolled out to save the world from the unraveling of the previous bubbles’ spray paint fix - more cheap credit, and even some free cash to wash it down. I must admit a certain admiration for the accomplishment of the Federal Reserve in particular. They have elevated themselves to the status of deus ex machina, so much so that few would ever dare question their solvency.
I doubt that our Treasury or our Federal Reserve has any real money (other than hard foreign reserves, and a few billion in gold). They only have mountains of the highest rated debt. The evidence that they are indeed insolvent is growing: auctioning money, accepting anything as collateral and pretending foreign infusions are something more than our loaning them money, to loan back to us. It’s a sham, but as long as there’s no run on the bank, it works. Not unlike GM’s (GM) floating a massive loss while reporting quarterly profit, we have a history of pretending that our debts will be consumed by our growth; someday, somehow.
Although we pay some attention to the red ink usually flowing from our annual budget deficits, who even knows about the 65 trillion ton gorilla of our unfunded mandates? Social Security, Medicare and Medicaid represent a galactic IOU of $170,000 per citizen, dwarfing the 9 trillion dollar Federal Debt and its attendant $33,000 per citizen IOU. Maybe illegals wouldn’t be in such a hurry to gain citizenship if that print weren’t so fine. Then again, maybe that’s why we “can’t control” the borders.
Isn’t our situation proof that we are atop a debt-driven beast that is so bereft of organic growth that it had to invent a new group of “qualified buyers” in a desperate effort to support its voracious appetite? Our economy is dependent upon compounding debt to grow, or as is the present case, simply to avoid imploding. Now we’re backed into a corner where the government will have to underwrite, one way or another, all that bad debt in order to avoid a protracted deflation by convincing everyone that: 1) it can afford it; and 2), it can pay it off with future growth. It can’t but who cares?
We’re here because our Federal Reserve and Treasury rose so far above the din of ordinary banking that we outgrew the need to worry about solvency. We evolved to this higher plane of economic consciousness because the public is so easily mesmerized in to believing our government is solvent, and is so willing to suspend disbelief about the fiscal viability of our social net. Like the bread and circuses of Rome, we’re content to ignore growing deficits as long as we get the loose and cheap credit to buy more stuff today.
It should be painfully obvious, with the growing size and frequency of financial bubbles, that we’re merely postponing the reality that we are overdrawn; keeping our cost of foreign capital low with smoke and mirrors. If we were a business, subject to audit, our bonds would be reduced to junk and the game would be over. My fear is that the bubbles are acts of desperation to avoid a reality check by a soon-to-be disenfranchised public. A public who will ultimately learn they’re going to get far less than they planned and/or paid for, and have indentured themselves and their legacy to a lifetime of higher taxes. I hope I’m wrong, and we can click our heels together to get back to Kansas, but I then I remember how great Rome was.
Related Articles
|
Top Rated Comment Streams:
-
1.Hedged In662
- 2.
-
3.Smarty_Pants417
-
4.axelrod608312
-
5.cos1000277
- Free E-Newsletters
- About Seeking Alpha
- About Us
- Contact Us
- What's New
- Readers Feedback
- Advertise With Us
- Contributors
- Contribute an Article
- Feature Your Book
- Our Contributors
- Anonymous Contributions
- Dispute an Article?
- Legal
- Terms of Use
- Privacy
- Copyright
This article has 1 comment:
-
Duff
-
11 Comments
Jan 28 02:00 PMExcellant piece....