Shell Games Of The Rich, Wealthy & Affluent

I just cant believe all of the green shoots hype that I am hearing and witnessing. Its everywhere. In the print media, television, and worst of all from our elected officials.

I have vowed to throw every edition of BusineesWeek in the garbage.

tradersutra.blogspot.com/2009/08/more-clueless-talk-from-businessweek.html

But I had to just peruse the table of contents for my own amusement. I wasn't disappointed. Completely ludicrous as usual. They should just change Businessweek to "Momentum Weekly", or "Green Shoots Hype", or even "The Shell Game Continuation weekly Monitor".

Talking about Shell Games, I was in lower lower Manhattan a few days ago, and I saw some rather shady people ripping other people off. It was the typical shell game of pick where the ball is. We see these shadowy people with their tables and shells and think they are lowlifes just sucking the blood out of good citizens. Because they were wearing baggy jeans and head their caps on sideways only perpetuated the belief that they were criminals.

So what am I coming to? What is the punchline? Well the biggest shell game is not in Alphabet City my friends, but in Washington DC, and at the Federal Reserve. The guys wearing Zegna Suits, Hermes ties, and Ferragamo shoes are currently pulling the biggest scam in the history of all shell games. But the simple fact that they look good doing it is lost on the ones who look just like them. You see, people who wear baggy jeans don't judge the ones who do sidewalk shell games. So to the ones who work in Wall Street don't judge the Ponzy Scheme that is currently happening.

It all business as usual. The fossilization of the status quo. We have two sides of the equation. Obama who has fossilized Wall Street, and the GOP/Right that has fossilized everything else including the Health Care debate.

But the current shell game of monetizing debt is simply mind boggling. Its the biggest wealth transfer in the history of mankind.

We all know that credit is being frozen for millions of Americans, the Fed has to plug the gap somehow. There is negative demand for US assets so far in 2009. This is a fact! Check the dollar wiseguy! The demand for treasuries is lukewarm at best. The secondary mortgage market is still not in great shape as their is so much bad agency debt floating around in the US and abroad. The Fed is in a position where they need to finance this train wreck we call the economy.

How to do it?

Very simply, Bernanke, Geithner, and the Hermes Bunch start to dust off the Jenko's and Kangol's to convene the shell game of the century.

What the Federal Reserve has been effectively doing is monetizing US Government debt by cleverly enabling foreign central banks to swap out their crap worthless agency securities in exchange for newly issued Treasury Debt. This is one of the ways the Government has been creating artificial demand for US Treasuries. This is how you keep the peace. The other way of creating a bubble Treasury Market is by enabling Wall Street institutions to create Interest Rate Swaps that use Treasuries as hedges.

More swaps means more hedges means more Treasuries.

tradersutra.blogspot.com/2009/09/superbly-written-articles-on-interest.html

The shell game that is being played by Bernanke obscures the fact that money is just being printed out thin air and then used to buy US Government debt. What happens to then the crap worthless agency securities? They go into other ponzy scheme investment vehicles like Maidon Lane LLC.

tradersutra.blogspot.com/2009/07/maidon-lane-llc-ulimate-siv-ponzy.html

/tradersutra.blogspot.com/2009/08/frb-balance-sheet-and-credit-crisis-2.html

The actions of the Hermes bunch would make the Alphabet City Street Hustler blush. These "cats" are something. The Fed is so openly and overtly playing this game of replacing private debt with public credit.

One must understand that our economy much like capitalism is a ponzy scheme system. I am not a socialist or worse a communist, just a realist. Meaning that the system only works when credit is expanding. Credit expansion in the time of credit contraction only works if the wool is being pulled over the ones at the lower end of the totem pole. Even a slight regression in the expansion like the one we had last September triggers massive panics and earthquakes. Bottom line, what ever happens to the patient doesn't matter in the grand scheme. Credit contraction is inconsistent with our type of capitalism and economy. This is why we see cash for clunkers. Without consumption and expansion, the system destroys wealth at the top first.

What fuels the expansion in our system then? Very easy - MORE DEBT or NEW DEBT! So what we have at this moment is private credit has collapsed, and it has to be propped up with public debt. This is the scheme as we know it. The attempt and intent here is to keep debt growing fast enough tp prevent the system from completely freezing. Watch the money ICE AGE to find out what happens when there is no monetary expansion of debt.

Give the Fed credit, they are quite honest about what they are doing. Just go to their website, its all there.

As Non-Financial Commercial Paper and Consumer credit has floundered, we see an exponential rise in Domestic Non-Financial Debt to take up the slack.

But, we all here that demand for US Treasuries is not that great. The dollar is weak, yields are low historically but still problematic. So the question is: Who is lending us the money to finance the borrowing?

From 1990 to 2007 foreigners bought aggressively more US assets. But over the last year or so this has clearly reversed itself.



Also from the start of 2009, private investors sold $365B worth of US Assets, while foreign central banks purchased $50B. Add it all up, and we have $315B leaving the country, that and the credit contraction that is going on is making the Fed and Treasury do what ever is necessary to keep the ponzy scheme going. Its House Of Cards time.

Normally this is disastrous for a country that is looking at $9 Trillion Budget deficit 10 years out. How do you find buyers for US Assets when the dollar is toast?

Well...Sell Treasury Debt to the ones who are actually buying, namely foreign central banks. So far this year some 40% of all government auctions are going in this route.

But something is not adding up here. If 40% of all borrowing is going to foreign central banks and they have only bought in $50B in US Assets this year, where is the cheese? Where is the Beef?

There is a big gap here in what Foreigners are holding and what they are actually buying.

Here is where the actual shell game is established.

1-The US Government has an enormous amount of Treasuries to sell

2-Foreign central banks have close to worthless pile of Agency bonds in their vaults

3-These central banks need to keep these crap securities under wraps as not to scare the debt markets.

4-The US Government is not permitted to buy its own debt at auctions for obvious reasons. The Treasury and Fed cant keep sitting their buying all of the Treasury paper.

So what happens is Foreign central banks sell their agency bonds to the Federal Reserve, who then prints money out of thin air to buy those agency bonds, then the foreign central banks use the money that was previously printed to buy US Treasuries.

Yes...There you have it.

BTW..This is precisely what Zimbabwe has done previously. What happened there was the Zimbabwe Dollar just ceased to be a unit of currency. The only difference is the complexity of the scam being played.