IF YOU’RE IN A HOLE, STOP DIGGING

Look, am I wrong in this?

No one is going to pay $259,000 to make good on all those IOU’s, right? Can we agree on that?

So at THIS moment, the complacent herd members are all standing around the field, chomping on their cud.

Complacent. Confident. As the Lego Movie tells us, “Everything is AWESOME!”

Right now, interest rates are near zero because the herd is peaceful, happy, hazy, almost like everyone’s already smoking the Best Weed Ever!

That weed is called, “30 years of getting away with cargo cult idiocy, but making it seem like it works.”

No one remembers what it was like before Uncle Sam and corporations all got busy borrowing and promising endless candy-crapping unicorns to everyone. No one remembers what it was like before home, car and university prices were driven into the ionosphere because of “Free Money” falling from Benanke-copters, right?

Now, when most of us are fully dependent (if we’re working) on all that swirling debt-money (because what job isn’t dependent, directly or indirectly, on Uncle Sugar?) it seems like our Masters of This Universe have repealed natural laws like Gravity.

Bull.

This is the greatest build-up in IOU’s in the history of Man. We have experienced a rise in the issuance of debt, fueled by rampant complacency and belief in the absurd, like a jet fighter plane (also bought with IOU’s) in a vertical climb.

We don’t know where the oxygen will decline to the level of flame-out, but we know that no jet plane ever imagined can achieve escape velocity.

When the flame out comes, the herd will go from relaxed complacency to full stampede in No Time. Given that the herd is now surrounded by cliffs, most will likely run right off this Happiness Plateau.

Interest rates must rise. They haven’t repealed the march of history.

When they rise, the capital value of all that underlying debt will evaporate, taking with it all of its contribution to the money supply and wealth perception. People will be poorer, their appetites for spending will crater, and a feedback loop will emerge identical to the one in the early 1930’s except the altitude of this hammer head stall is vastly higher than in 1929. There is vastly more paper (IOU) wealth that must be reconciled out of existence before the economic engines will re-light.

Everything will BE for sale. Supply up, (money supply) demand down….what happens?

My analogy:

Today, everyone THINKS the cupboard is overflowing with food (wealth.) They think so because THAT’s WHAT THEY’RE TOLD, all day long.

So everyone is sitting in the den watching Oprah or some other mindless drivel, popping Cheetoes and chips while guzzling some LINK-beer.

What happens when dinner time arrives, they go to the cupboard and discover it empty.

That’s what all these IOU’s promise. Everyone thinks, “I own some IBM and some GOOG.” They think, “Not to worry, the LINK card refill is next Monday.”

Is any of that actually a can of beans in the basement? No. It’s a PROMISE of a can of beans.

There are TOO MANY promises of cans of beans. There aren’t that many cans of beans in existence, and the Fed can not create more beans, only more PROMISES of beans.

In theory, the Fed could order the printing of more CLAIM TICKETS for beans (actual greenback cash) but do you have any idea how many thousand TONS of paper would be required to replace all those PROMISES of beans (which can evaporate with confidence loss) with CLAIMS on beans (which is what Zimbabwe and the Wiemar Republic are famous for)?

There seems to be NO path that does not lead through the most catastrophic debt-default deflationary depression in recorded history. All we don’t know is WHEN.

In order to replace the debt (promises to pay, whose capital value is inversely related to interest rates and possibly temporary contributors to inflation) with claims to pay (which once printed and distributed, are “sticky” and permanent contributors to inflation), i.e., $100 dollar bills:

$17.7 trillion in $100’s would weigh as much as 5 typical cruise ships (~385,000 tons).
$82.1 trillion in $100’s would weigh as much as 25 typical cruise ships (~1,785,000 tons).

If the Fed printed “trillion dollar banknotes” to “pay off any or all of the outstanding IOU’s, it would be asset stripping EVERYONE who currently owns federal debt (with spillover effects for all debt.)

Doing so would utterly DESTROY the borrowing ability of every government on the planet. Who would lend value (or sell jack shat) to a deadbeat who explicitly states that they’re going to stiff you? Who is standing in line to lend money to Christina Kirchner’s regime in Argentina now?

The Fed is painted into a corner, and the clock is ticking toward “Boom.” They got a 5 year reprieve (and counting) but just because Michael Jordan appeared to defy gravity with his leaps for the basket didn’t mean he actually did so.

Complacency has a lifespan. Whether dog years or not, it surely now resides in a nursing home.

bb, can central banks keep interest rates near zero forever?

Think about that….

FOREVER? 2015…2025…2080….2220…. on into the realm of science fiction?

Recency bias is killing us. We’ve just experienced:
1. 30 straight years of declining interest rates, all the way to zero.
2. Metastatic growth of debt enabled by #1.
3. The appearance of prosperity for half a lifetime during a period of unprecedented debt assumption.
4. Twice in less than 15 years stocks got halved in value, only to rally all the way back and more (in nominal terms), teaching people that stocks ALWAYS come back.

If this has not creates the greatest complacency and belief in the palpably absurd, I don’t know what has. We live in Cargo Cult Central!

Life is filled with paradoxes.

In a period of secular interest rate declines, creating vast amounts of new debt appears cost-free. Once a vast ocean of debt is already in existence, anything that causes interest rates to rise (including simply spontaneous loss of confidence) causes a capital loss throughout the existing debt structure.

If long term rates rise a percent or two, how much capital value disappears from 17 trillion in on-budget Treasuries? They trade in a market that is larger than the Fed and all its fellow central banks combined.

You pays your money and takes your chances. I do concur that eventually it will be essential to obtain real “stuff” (including gold, or silver, or beachfront property, whatever floats your boat) but I cannot say when that will be, or what at the time might make the most sense.

I wish we didn’t live in this world where the Income Tax made all wealth “socialized.” In Income Tax America, you aren’t allowed to keep any wealth private. Attempting to keep your wealth to yourself invites your neighbors’ representative, the IRS, to ruin your life.

Everyone wants scrutiny of everyone else’s STUFF, so they can reach in and grab some of it for themselves. This is the entire basis of the Income Tax system, and we’ve been stuck with this evil for 101 years.

All I want to do is put my excess productivity (my savings) where it won’t be stolen from me by tax collectors, central bank money debasers, and other forms of COMMON CRIMINAL.

Instead I’m stuck trying to figure this vast collective stupidity’s limits.

It’s maddening.

I suspect the 3rd time is the charm. The next time stocks get cut in half, they’ll rally briefly, then get cut in half again and again and again until people will be faced with break-even not after a 100% rally (like in 2002 and 2009) but a 1000% or 2000% rally like in 1932.

Bottoms form amidst capitulation. People have now been taught to NEVER capitulate, which is the most necessary of all precursors to a massive wealth collapse.

“We are truly in full retard now.”

Laughed hard on that one.

Given QE, I figure they’ve given up on “stop digging” and are attempting to tunnel through to the opposite side of the planet.

The DN (dominant narrative) is that QE was the Miraculous, Invincible Fed exhibiting its Shining Power.

To me, QE was an act of terror, direct debasement of the currency, and it only APPEARED to work because the HERD was still in “Full Complacency, Believe Anything” mode.

When the “full retard” optimism turns inevitably to just as “full retard” pessimism, All the Kings Horses and All the King’s Men (and the FOMC clowns) won’t be able to expand the credit supply One Bit.

We’ll know it when the final Act of this farce is on stage. It won’t look anything like now.

I think TE is right. The moment the credit hydrogen stops flowing into this Hindenburg is when the sparks fly, the gasbag begins to explode and the Airship US Economy goes into a flaming descent. (And that will happen sooner or later anyway, because it is the willingness to borrow and spend, not the Fed’s willingness to create credit from nowhere, that determines the size of the credit bubble.)

If someone offers you zero down, zero interest, are you going to run out, borrow and spend, knowing the payment burden is coming down the road? The only IDIOTS still willing to borrow and spend are: 1) higher ed students, 2) the imbeciles governing the USA.

The value of a college degree is already widely questioned, and university enrollments are likely to dive any day. While Congress appears willing to borrow and spend into oblivion, politically this is stoking RAGE among those who still pay taxes.

The FSA may outnumber us, but once the Taxpayer RAGE quotient hits the “Atlas Shrugged” pivot point, enough taxpayers may opt out of the system to crash it completely.

We already live in Orwell’s “Nineteen Eighty-Four.”
Coming Soon is Rand’s “Atlas Shrugged.”

They held this pig aloft long enough for all three of my sons to get sucked into buying houses at the current price point.

Should my expectations finally come to pass (19 years too early and counting) then anyone who recently ponied up the $$$ and went into housing on Big Margin (i.e, with a loan) is in among the worst possible situations.

I truly despise the PTB who have extended and pretended this toxic mirage this long.