Bernanke Inserts Gun In Mouth

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You are in high preparation mode. More than I am

Did you read this from the link?

We are anticipating at least a $1 trillion shortfall this year, and frankly, that's unreasonably "good"; the real shortfall is likely closer to $2 trillion.

So what happens if half of that $2 trillion is no longer "money" from foreigners - it is a circle-jerk from The Fed and Treasury? You can basically remove it, that's what.

Now look at that chart - you can't remove the "net interest" (about $250 billion), because that has to be paid. "Other spending", that is, other than defense, interest, and social programs, is about $700 billion. Defense is also about $700 billion.

If we find ourselves unable to sell debt to actual investors with actual money, and are circle-jerking ourselves; to balance this budget we would need to contract spending to roughly $1.0-1.5 trillion in total.

Since the interest payments are inviolate, that leaves us $1.25 trillion for everything else. Assume we can cut half of the defense budget, and we've got $800 billion left. Cutting "other spending" (that is, all other programs) by 50% would leave us with about $500 billion net-net for social programs - forcing a reduction of about sixty percent in Social Security, Medicare and Medicaid - all at once.

In short this would wind up costing us roughly a 50% across-the-board cut in every program within government on an immediate basis. That in turn would force further reductions in GDP, which would further shrink tax revenues.

You can see where this leads, I'm sure, and it's not pretty.

Ben Bernanke may think he can extricate The Fed from this outcome before it happens. But I must ask - exactly why would anyone believe that? He hasn't been able to extricate himself from anything he's tried thus far.

The danger here is that this really is "the last bullet in the gun." If it fails, our currency and political system would appear to many who read this to go down the toilet in a hyperinflationary detonation.

Not so fast grasshopper. See, if he fails, it won't be simply a United States phenomena. Quite to the contrary. That failure will in fact be global - Bernanke has guaranteed it by tying The Fed to every other major central bank in the world via his "unlimited swap lines." We may be a cheap $5 hooker in the bar, but of the hookers, we've got crabs and everyone else has AIDS!

The error in the hyperinflationist scenario is that without being able to couple price increases back into wages they are unsustainable - price increases instead collapse demand. If gasoline goes to $20/gallon you will buy less of it - a lot less - not because you want to, but because you simply don't have the money. This in turn destroys the gasoline retailer and oil company's operating cash flow, which in turn causes them to lay off more people. In a debt-laden economy the debt percentage (of GDP) continues to rise even as spending drops and a mad dash to try to redeem what debt can be repaid soaks up all available money.

The nightmare scenario that is staring us in the face, right here, right now isn't hyperinflation. It is in fact a collapse of monetary systems driving demand for dollars through the roof in a crescendo of attempted redemptions into collapsed ("no bid") asset prices - a demand that Ben will not be able to meet, as the collateral backing those dollars will have all been exchanged for toilet paper. Whether Bernanke holds all this trash on his balance sheet or manages to scam Treasury into exchanging it for T-bills, the result is the same - there is no collateral behind Bucky and as employment collapses no production to replace it with either.

The mad scramble will be on, and as it happens trade will be choked off by not a collapsing dollar but other currencies collapsing around the world.

Paradoxically, the DX, or dollar index, will skyrocket - not go through the floor - as this plays out.

Unfortunately this shuts down virtually all exports - at a time when we desperately need them, as we cannot borrow to consume any more. The economy collapses, along with government funding and our currency - but not through hyperinflation. The mad dash to redeem and sell anything and everything instead collapses pricing (that is, it becomes out-of-control deflation in an exponentially-increasing fashion) irrespective of Ben's attempt to halt it.

The "death spiral" ends in the destruction of our monetary base - not due to hyperinflation but due to the inability to borrow any more funds, the reduction of the currency's base to a giant circle jerk, asset fire sales in a mad liquidation dash and ultimately, the collapse of both the monetary and political systems in the United States as tax revenues collapse to very close to zero.

This is a national security emergency that quite literally can take down our government and way of life within months or even days, and I'm willing to bet that not one person in Congress understands the seriousness of the matter.

I UNDERSTOOD THIS AND I"M JUST A POSTER ON FREE REPUBLIC. I MADE THIS VERY POINT WHEN I CALLED SENATOR FEINSTEIN'S OFFICE ABOUT THE STIMULUS BILL. "WHAT IF NO ONE WANTS TO BUY OUR TREASURY BONDS?" I ASKED.

SILENCE WAS THE RESPONSE.

By refusing to confront the bankrupt nature of institutions under Bernanke's supervision and by choosing instead to continue to bail them out and take their trash onto his (our) balance sheet, Bernanke is risking something much worse than a Depression.

He is literally risking the end of America as a political and economic power.

I UNDERSTOOD THIS AND I"M JUST A POSTER ON FREE REPUBLIC. I MADE THIS VERY POINT WHEN I CALLED SENATOR FEINSTEIN'S OFFICE ABOUT THE STIMULUS BILL. "WHAT IF NO ONE WANTS TO BUY OUR TREASURY BONDS?" I ASKED. SILENCE WAS THE RESPONSE. By refusing to confront the bankrupt nature of institutions under Bernanke's supervision and by choosing instead to continue to bail them out and take their trash onto his (our) balance sheet, Bernanke is risking something much worse than a Depression. He is literally risking the end of America as a political and economic power.

Pretty darned scary if you ask me. If this situation goes critical, the average Joe is going to feel like a caveman.

Notice how it says $50 on each 1 ounce American Eagle gold coin? That is Bernanke's last option. After the hyper-inflation, go to a gold based and monetizes a NEW dollar at 50 new ones to the ounce of gold. Better hurry up and get some one ouncers!

I’m in tight with them, so you can go with me. We’ll have to learn PA Dutch, but that’s OK. As long as we work, they’ll take us.

You can’t go to ground, you’ve got to stay nimble and effective. Bad markets produce plenty of opportunities.

Sadly, we live in a world where producing is looked down upon and the guys importing ice to save the meat in your freezer get arrested for “overcharging”? Enjoy your rotten meat sheep.