Why US Interest Rates Can Never Rise (In 1 Chilling CBO Chart)

Our rulers purchase “relative calm” and political support by distributing F S to the FSA.

Most of the wealth being transferred is NOT going to the FSA, it’s going into bank accounts of TPTB people.

The means of doing all this is DESTROYING every aspect of the complex economy that spontaneously formed from 1850 to the post-WWII period.

The people effecting this insanity are metaphorically burning down the factory in order to steal the vending machine money in the employee cafeteria.

When the FSA handouts end, we obviously expect many of those folks will sit down and die, and others will try to cut out the middle-man and take their FS direct.

2021 +/- 1 year for the low.

John,
Mine is an unpopular view, but I believe that mass optimism (or mass pessimism) comes first, and then “events” and “people” are filled in.

By this, I mean that people are collectively, INSANELY optimistic (and have been for so many years we don’t remember what pessimism even looks like, even at the 2009 low) and so people who PROMISE and PROMOTE expansionary policies are advanced and their expansionary policies meet with success and above all:

**** They are credited with leading and CONTROL, when in fact they are simply giving the mob what the mob wanted.*****

When people are subconsciously predisposed to optimism they embrace vast increases in credit creation and translate it into bull markets in stocks, junk bonds, etc.

THIS is why the Fed’s policies have appeared to “WORK.”

When the tide turns, and this unprecedented breadth and depth of mass optimism naturally inverts, NOTHING the Fed does will appear to work.

In fact, EVERYTHING that now “appeared to save the day” will be reinterpreted, and the New New conclusion will be that the Bernanke/Yellen Fed sowed the seeds of the catastrophe that is already baked into the cake.

Wait and watch. I think this is the correct way to understand the times in which we live.

I think these past 40 years, plus the next 10 or so, are apt to be seen (in hindsight) as the most important inflection point in human history since at least the evolution of the nation-state or the Industrial Revolution, which occurred over longer periods of time.

The collective stupidity, hubris and complacency of our times simply cannot be understood outside this context.

In reality, most people recognize that our spending and debt is unsustainable. What they believe, however, is that we can just print money to cover the bills, since that’s what the U.S. has done up until now (with no repercussion). There is no understanding of petrodollars, no understanding of reserve currency, even among otherwise intelligent people. They just believe this will go on forever, or that the debt will never need to be repaid.

I’ve stated endlessly (to little avail) that the central problem is a misunderstanding of money in a FIAT environment.

There are two ways to increase the money supply.
1. print banknotes.
2. expand credit, which when borrowed becomes “money.”

Zimbabwe and the Wiemar Republic are examples of banknote-printing inflation. You print the banknotes, they exist physically and that doesn’t change. The only possible outcomes are A) stop printing, and prices stabilize, and B) keep printing, which dilutes each unit’s purchasing power and prices rise…rise…rise…until the banknote value detonates (wheelbarrows of banknotes to buy bread, or single banknotes with millions, billions or zillions on the face.)

What we have experienced, instead, has been 82 years of compound credit creation, with a moon-shot mania lasting at least the last 19 years, if not all the way back to 1965.

Credit has to be borrowed into monetary existence, and the form it then takes is a BOND.

The BOND (note, bill, whatever) then trades in a market, which establishes its capital value (and thus its implied interest rate.)

The value of the bond (or the OCEAN of them now in existence) is not like a number printed on the face of a banknote. The value can rise (which occurred from 1982 to 2012) and interest rates then fall the whole time. The value can also fall, however.

Falling capital value of bonds is wealth destruction, because each of those IOU’s is counted as someone’s wealth.

When you have an OCEAN of bonds already in existence, a condition that only occurred BECAUSE their interest rates were falling for 30 straight years, even the tiniest perturbation in the capital value of the NEXT BOND ISSUED ripples throughout the value of all the other bonds in the ocean.

Take IBM for example:

Today’s price is about $190/share and IBM has about a $190 billion market cap. This means that there are about a billion shares outstanding.

If everyone goes on vacation leaving only TWO traders, and one has a single IBM share and wants to sell it, and the other is willing to buy it at $189, and they agree and trade, NO MONEY MOVES IN OR OUT OF THE MARKET!

Do you see that? There is NO NET CHANGE in money.

All owners of IBM shares, every one of them on vacation somewhere, just LOST A BILLION DOLLARS.

Money didn’t change. Wealth fell a Billion Dollars.

There are many trillions of dollars in dollar-denominated bonds in existence. A small rise in interest rates causes the underlying capital value of EVERY DIME OF THAT DEBT to fall, and it can happen if the Fed monetizes a tiny amount of net debt, or it can happen spontaneously as the herd reaches a consensus that those IOU’s aren’t worth today what we thought they were yesterday.

An avalanche begins with a single snowflake.

The broad money supply of dollars is like the biggest snowmass on the biggest, steepest mountain in the galaxy. All it will take is a snowflake at the right time, and the avalanche of collapsing bond values will become a feedback loop crushing EVERYTHING, the Fed the US Treasury, Congress, the FSA, the International Bank of Settlements, the Rothschilds, the Berkshire Hathaways, etc., in its path.

There is no path ahead that allows all the existing IOU’s to stay fixed on the mountain while ever more snow (debt) is piled on top of them.

The Fed’s “success” these past 5 years has only added to the mass of the avalanche.

@ overthecliff,

I don’t think it will be TEOTWAWKI.

People are resourceful, and hopefully will find work-arounds to prevent a full-scale Cultural Revolution or Rwandan/Cambodian slaughter/starvation/etc.

I worry for my kids and grandkid(s), too. I have to count on their intelligence, their common sense, and the strength of their spirits to let them bend (rather than break) as the storm passes through.

Honestly, every one of us today is here because our ancestors survived famines, plagues, wars, political repression, poor sanitation and a host of other tools of the Grim Reaper.

We can too.

@bb,

Perhaps you’re right. I haven’t a crystal ball.

I only suggest that people “doing the wrong thing” is not new. Priests were selling indulgences prior to Martin Luther’s little diatribe, and was that moral in the eyes of the Lord? Methinks not. Social sickness is something that comes and goes, and ours today is historic.

I do concur with you that the stage is set for some real fireworks. The constant barrage of Zombie Apocalypse fiction could be an unconscious foreshadowing of life imitating art.