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I’m still shaking my head trying to make sense of this.
The source of all money in the
United States, the printing press itself, is going to issue debt? Does that
mean then, that the money it prints to represent the sales of U.S.
Treasuries, which is technically not a debt, but a debit, will differ from
the money it will distribute representative of (I assume) bonds it will issue
of its own?
Well, just when you thought the
extent of the doublespeak pervading modern economics had reached a peak! This
new issuance of paper, not only backed by nothing, but twice nothing, will
elbow its way into the already fetid air being pumped into the global
economic patient with a bad case of the bends.
The U.S., already bleeding from
one gaping wound, has determined that the best remedy will be to open a fresh
flow of blood. Clearly, just as a patient suffering from the delirium brought
on by extensive blood loss is never seen operating on himself, the scalpel
and stethoscope need to be taken away from the would-be surgeons reveling in
this dementia!
And we thought Obama’s newly
announced plan to spend large now and worry about the tab next Christmas was
good for gold. The Fed’s new gusher of perpetually value-hemorrhaging
USD is, I think, going to be the first recognized case of successful alchemy.
You know, its
interesting, but early last century, J.P. Morgan was leading a global
consortium of bankers angling to structure a $50 million loan to China., He
sent his partner Harry Davison in 1913 to tell Secretary of State William
Jennings Bryan that “the government might be called upon to utilize
both its military and naval forces to protect the interests of the
lenders”.
One week later, then-President
Woodrow Wilson denounced the loan as “obnoxious to the principles upon
which the government of our people rests”. He was referring to the
burden of payment and scrutiny the Chinese would be subjected to as part of
the loan’s terms, and felt the bankers were treating China like a
private market, ripe for exploitation.
Fortunately for the Chinese, the
withdrawn support of the administration and their cagey approach to
negotiation dimmed the enthusiasm of the bankers to follow through, and the
deal was ultimately abandoned.
But I wonder what essentially has
changed in the leadership of the United States when less than a century ago,
it was obnoxious to treat a foreign entity so usuriously, but now its okay to treat one’s own nation so? And if these
guys actually find takers for the debt, who will be their collection agency,
if they’re lending to the most powerful military nation on Earth?
For the Fed to be making such
statements on the eve of a new presidency would seem to underscore the disconnect between the office of the President of the
United States and the financial entities that govern its economy.
At a time when the rest of the
world is agitating for a multi-national body to oversee the globalized monetary
apparatus, it would seem that even if the United States were to accede to
these wishes, a separate delegation would need to convince the United States
Federal Reserve to come along, as they are clearly not represented by the
United States. They also wield more financial clout then the United States,
since they unilaterally decide how much fragrant USD to manufacture on a
daily basis, which accordingly dilutes the U.S. Dollar holdings of the
foreign reserves of its investors.
Marvin Goodfriend,
an economist at Carnegie Mellon University's Tepper
School of Business and a former senior staffer at the Federal Reserve Bank of
Richmond, said that issuing debt could put the Fed at odds with the Treasury
at a time when it is already issuing mountains of debt itself.
Its easy to see
how desperate the Fed has become in broaching such measures with congress.
With the balance sheet swollen to $2 TRILLION up from $900 billion since August , they’re obviously in need of some other
form of security other than T-Bills to shore up the illusion of solvency they
continue to perpetuate on the world.
Theoretically, the legal limits on
the amount the U.S. Treasury can borrow is going to curtail the amount of
money the Fed can put into circulation on that basis, but in the last decade,
it sure looks to me like the law has become a fluid rule book written on the
fly to describe what just happened, as opposed to moderating the environment
in which things happen.
What I can’t imagine is who
is going to buy this debt?
It seems to be the type of thing
only sovereign investors might be interested in, as way to “average
down” on their USD holdings to date. How long can this check-kiting
scheme go on before somebody stands up and says “enough”?
I remember in public school, we had
a unit in history called “The Search for Responsible Government”
that dealt with the evolution of European leadership in Upper Canada.
Obviously, not only is “The Search” still on, but it would appear
to have spread to the rest of the world.
James West
www.midasletter.com
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