Below is the chart guaranteeing the downfall of the U.S. dollar as “world’s reserve currency,” likely MUCH sooner than most expect. The rate of debt increase has gone exponential, and my contention is it will shortly go parabolic, the result of EXPLODING deficits and – QE notwithstanding – rising interest rates. No currency has EVER survived parabolic debt growth without being MASSIVELY REVALUED or HYPERINFLATED – certainly not the world’s reserve currency – and the dollar will be no exception.
Frankly, the only thing supporting the dollar’s MASSIVELY overvalued status – and thus, above average American living standards – is the inertia of its universal usage, not much different than a bad marriage saddled with kids, a giant mortgage, and lack of professional mobility. Each day, the world’s nations play a dangerous game of musical chairs, not wanting to set off the panic that will ultimately yield a self-defeating currency crisis, but making sure they stay as close as possible to the nearest chair. Nearly ALL nations hold the majority of their reserves in the “world’s reserve currency,” each watching the real-time progression of this chart with a terrified eye…
The point of this RANT is to ask the question some of you know, but most don’t consider – who OWNS the debt?
Traditionally, U.S. Treasuries were held by global retail, institutional, and sovereign entities – roughly half were via public entities, and half private. Treasuries have always been the most liquid fixed income market, until recently considered the ultimate SAFE HAVEN due to implicit backing by the “full faith and credit” of the U.S. government (for whatever that’s worth).
BY FAR, the largest public holders were the Chinese and Japanese governments, but that dynamic is rapidly changing. Many sovereign governments have become net sellers – mostly fearing dollar devaluation – most ominously China. Some – including Russia – appear bent on bringing their net holdings to ZERO, yielding the need for new buyers, which sadly, no longer exist.
This is why the Federal Reserve purchased 61% of ALL 2011 TREASURY ISSUANCE, funded solely by PRINTED MONEY. This is the definition of “debt monetization,” or what the Fed euphemistically terms “Quantitative Easing.” In fact, the 61% figure is grossly misleading, as the more important figure is the 90% of issuance purchased on the long-end of the yield curve – i.e., the most speculative type.
According to the Fed’s other obfuscation – “Operation Twist” – it sells short-term Treasuries to buy longer term maturities, yielding the appearance of a cash neutral program. However, the Fed also operates in the short-term Treasury market via its daily “Open Market Operations” – administered by its New York branch – to adjust short-term interest rates. Given the Fed’s current policy target is keeping short-term rates at ZERO until “at least late 2014,” it is obviously monetizing ENORMOUS amounts of short-term bonds as well. Of course, official government statistics don’t refer to such purchases as “QE,” just as it ARBITRARILY refers to Fannie Mae and Freddie Mac’s cumulative $5+ trillion of debt as “off balance sheet.”
In other words, as we speak, the Fed is buying essentially ALL U.S. Treasury issuance with PRINTED MONEY!
Which brings me back to the initial chart, depicting a nation on the verge of parabolic – and likely hyperbolic – debt growth, at which point no amount of MONEY PRINTING, MARKET MANIPULATION, and PROPAGANDA can save it from certain FINANCIAL ARMAGEDDON. The $64,000 Question, of course, is when will this point be reached, which I anticipate in the next year. If you recall last summer’s U.S. debt ceiling crisis – yielding S&P’s downgrade of the U.S. credit rating – the debt ceiling was raised by $2.1 trillion, to the $16.4 trillion level we stand at today.
At the time, a “super committee” of 12 Congressman and Senators was formed to identify spending cuts (and/or tax increases) to offset the $2.1 trillion increase, which ultimately FAILED. IN fact, not only did it FAIL to agree on $2.1 trillion of spending cuts, it agreed on ZERO!
Thanks to the most coordinated strategy of MONEY PRINTING, MARKET MANIPULATION, and PROPAGANDA in global history – not to mention strong-arming ratings agencies like S&P…
…the U.S. government has managed to push this issue – and numerous others – to the back burner. In the meantime, national debt has surged from $14.2 trillion last summer to $15.7 trillion today, currently on track to breach the $16.4 trillion limit before the elections. You can bet “Tiny Tim” Geithner will pull a few accounting tricks – like “temporarily” commandeering pension funds – to push this date past the elections, but nevertheless, it will be a MAJOR campaign issue. And given that absolute debt levels are FAR HIGHER now, with the economy FAR WEAKER – essentially guaranteed to weaken further – it is difficult to believe a second, more lethal debt debacle will not ensue.
A year ago – before the Cartel VICIOUSLY attacked PMs hours after the Labor Day weekend – gold rose to an ALL-TIME HIGH of $1,920/oz, with silver near its own multi-decade high at $45/ounce. No matter how much MONEY PRINTING and MARKET MANIPULATION TPTB attempt demand for PHYSICAL gold and silver will continue to surge – particularly at today’s ridiculously suppressed levels – and ultimately, PMs will re-assert their traditional relationship to potentially hyperbolic debt ceiling growth.
Time is running out, so PROTECT YOURSELF, and do it NOW!