7thriv

The Federal Reserve ramped up its effort to revive the economy, declaring it would buy as much as $300 billion of long-term U.S. Treasury securities in the next few months and hundreds of billions of dollars more in mortgage-backed securities.

The Fed had already cut its benchmark interest-rate target to near zero. Unable to go lower, the central bank now is essentially printing money to raise the supply of credit and thus push down the longer-term rates paid by families and companies on mortgages and other key loans. The impact was immediately felt.

All told, the Fed will pump as much as an extra $1.15 trillion into the economy via bond purchases. The Fed will buy as much as $300 billion in long-term Treasurys in the next six months. It will increase the ceiling on purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to $1.25 trillion, up from $500 billion. The Fed also is doubling potential purchases of their debt, to $200 billion.

So what happens if half of that $2 trillion is no longer "money" from foreigners - it is a circle-jerk from The Fed and Treasury?  You can basically remove it, that's what.

Now look at that chart - you can't remove the "net interest" (about $250 billion), because that has to be paid.  "Other spending", that is, other than defense, interest, and social programs, is about $700 billion.  Defense is also about $700 billion.

If we find ourselves unable to sell debt to actual investors with actual money, and are circle-jerking ourselves; to balance this budget we would need to contract spending to roughly $1.0-1.5 trillion in total.

Since the interest payments are inviolate, that leaves us $1.25 trillion for everything else.  Assume we can cut half of the defense budget, and we've got $800 billion left.  Cutting "other spending" (that is, all other programs) by 50% would leave us with about $500 billion net-net for social programs - forcing a reduction of about sixty percent in Social Security, Medicare and Medicaid - all at once.

In short this would wind up costing us roughly a 50% across-the-board cut in every program within government on an immediate basis.  That in turn would force further reductions in GDP, which would further shrink tax revenues.

You can see where this leads, I'm sure, and it's not pretty.

Ben Bernanke may think he can extricate The Fed from this outcome before it happens.  But I must ask - exactly why would anyone believe that? He hasn't been able to extricate himself from anything he's tried thus far.

The danger here is that this really is "the last bullet in the gun."  If it fails, our currency and political system would appear to many who read this to go down the toilet in a hyperinflationary detonation.

Not so fast grasshopper.

See, if he fails, it won't be simply a United States phenomena.  Quite to the contrary.  That failure will in fact be global - Bernanke has guaranteed it by tying The Fed to every other major central bank in the world via his "unlimited swap lines."  We may be a cheap $5 hooker in the bar, but of the hookers, we've got crabs and everyone else has AIDS!

....

The nightmare scenario that is staring us in the face, right here, right now isn't hyperinflation.  It is in fact a collapse of monetary systems driving demand for dollars through the roof in a crescendo of attempted redemptions into collapsed ("no bid") asset prices - a demand that Ben will not be able to meet, as the collateral backing those dollars will have all been exchanged for toilet paper.  Whether Bernanke holds all this trash on his balance sheet or manages to scam Treasury into exchanging it for T-bills, the result is the same - there is no collateral behind Bucky and as employment collapses no production to replace it with either.