Wednesday, January 11, 2012

The Debt Limit Ceiling and Insanity

"Insanity is doing the same thing over and over and expecting different results."  - Ben Franklin, Albert Einstein, et al...
The debt spending by the Government - and even worse, the acceptance of it by Taxpaying Americans - is completely insane - by any definition of the word.  But first I wanted to comment that yesterday I had speculated that the cost of Bernanke's housing market support proposals sent to Congress a week ago would cost Taxpayers in the range of $500 billion to one trillion dollars.  Barclays is out today saying that Bernanke's Fed alone is likely to spend $500 - $750 billion buying mortgages.  But Bernanke is also asking for Obama to chip in Taxpayer money.  It remains to be seen just how much QE + deficit spending will total on this next round of economic "stimulus," aka big bank bailout confetti.  Here's the report from Bloomberg this morning:  LINK

I don't know about anyone else, but the situation surrounding the latest request by Obama to raise the debt ceiling had me a bit confused.  I had thought that the deal reached in August ultimately raised the ceiling to $16.4 trillion.  So I researched it a bit because the media is making it sound like what Obama is asking for is in addition to what was done in August.  So here's how it works:  In Feb 2010 the debt ceiling was set at $14.294 trillion.  On August 2 it was raised to $14.694 trillion so that the Government didn't have to shut down until a new ceiling was reached. Then in September, a deal was reached that put the ceiling at $15.2 trillion but would ultimately take the debt ceiling up to $16.4 trillion, contingent on budget cuts.  So right now the Treasury is at the $15.2 trillion limit and Obama has to get Congressional approval in order to utilize the final $1.2 trillion of capacity. 

What's getting lost in all of this is that since August 2, the Government has borrowed $200 billion per month ($15.2 - $14.2 divided by 5 months).  This is insane.  The debt limit agreement in September was intended to take the Treasury thru 2013.  Theoretically by then the Government was supposed to agree on massive budget cuts.  I would bet my last silver eagle the budget cuts will never happen.  In the meantime, the Government is borrowing at a record rate, spending at a record rate and tax revenues - the ultimate indicator of economic health - are coming in lower than was forecast when the fiscal 2012 budget was proposed. 

Just think about this number for a minute:  the Federal Government is borrowing at a rate of $200 billion per month right now.  That's $278 million per hour in a 30 day calendar month.  That is insanity.  Based on that, the math from the original debt limit deal is tragically wrong and Obama and his happy Government spenders will run out of borrowing capacity by the end of June 2012.  That's insane.  California is a great microcosm and reflection of the fiscal insanity at the Federal level.  Yesterday an hour and a half after the stock market closed, California announced that its current fiscal budget deficit is $2.5 billion wider than was forecast 6 months ago.  I honestly don't know how California's Government stays open.  Here's the LINK

The situation in California can easily be extrapolated to the national level.  Despite the smoke and mirrors being used by the Government number crunchers and readily reported by the mainstream media, this country will not stop borrowing to spend until the rest of the world no longer accepts the dollar.  You are insane if you don't think that can happen - just ask anyone who is familiar with the collapse of the German mark in 1923...

Ron Paul had a very impressive showing in New Hampshire.  He finished 2nd with 23% of the votes.  In 2008 I think he had something like 2% of the votes.  Romney was expected to runaway with the NH primary anyway.  Despite the "Live Free or Die" slogan  on the NH license plate, it seems that voters in NH love insanely corrupt free-spending liberals masquerading as Massachusetts Republicans.  That's insane too. 

Gold and silver are putting on an impressive recovery from their post-MH Global manipulated collapse in December.  Yesterday I mentioned that Jim Sinclair stated in an interview that "something is going on behind the scenes that is not yet evident" and that it was being reflected by quiet buying in the gold and silver markets.  I would concur with this analysis and right now every sell-off intra-day in gold and silver is being bought. 

If you don't think that the Government and the Fed are going to have to print a lot more money in order to feed the $278 million per hour borrowing - and to prop up the de facto insolvent banking system - you are crazy.  If you don't start moving as much as can into gold and silver (and the extraordinarily undervalued mining stocks), you are insane.


  1. How To Get Ron Paul Elected! Step by Step! Democrats Please Help.

    Ron Paul: People Call Me ‘Kooky’ Because They Can’t Defend Themselves Intellectually

    Ron Paul gave a good account of himself this morning in a series of interviews following his second place finish in the New Hampshire primary. One interview in particular stood out as Paul defended his foreign policy from claims that it is “kooky”.

    In a somewhat bizarre change of subject during an interview with Fox & Friends, host Gretchen Carlson seemed embarrassed, stating “Congressman, excuse me for saying this but do you believe some people call you kooky… for your foreign policy only? Is that the reason why?”

    Paul responded “They use those terms because they can’t defend themselves intellectually.”

  2. "The debt spending by the Government - and even worse, the acceptance of it by Taxpaying Americans - is completely insane - "

    Contrary to your statement, many "Taxpaying Americans" (like myself) do not accept what is going on. However, trying to get the attention of anyone in government (Congress or the White House) is like spitting in the wind. Since I'm not a rich donor to any campaign, my letters and/or emails are either ignored or responded to with the typical "thank you for writing, blah, blah, blah."

    Short of taking to the streets with a gun in my hand, I'm not sure how to get anyone's attention - and then I would just wind up in jail labeled as a "nut case" or a "terrorist". In fact, with the NDAA now in force, I would probably just be "disappeared".

    Joining the "Occupy" movement seemed like a good idea until it dissolved into a leaderless, rudderless, no direction mess that has, at least for now, vanished into the ether.

    Even when "Occupy" was at its height of activity, you may have noticed that virtually no one inhabiting the halls of government gave one moment of credence to the citizens of "Occupy". The deafening silence from Wall Street was even more obvious. The "Powers That Be" simply called out their black-suited enforcers and essentially stamped out the protests.

    Bottom line, no one is listening to those of us out here who see the handwriting on the wall. Sad to say, even pundits like yourself can scream bloody murder all you want - but you're having no more effect than I am.

    If there were somewhere else in the world I could go to escape this madness, I would. Unfortunately, this insanity has become a world-wide phenomenon that will sweep us all into the maelstrom. :(

  3. I hear ya Sam. And the people who read blogs like mine are not the ones at whom the comment was directed. But if Americans don't accept deficit spending then they should be voting for Ron Paul in the primaries. The only votes Romney should be getting would be from Mormons, retards who are registered and senile voters who get wheelchaired to the polls by Romney supporters.

    This country is still largely indifferent to the way it's being run. The evidence of that is the tv ratings these bullshit reality tv shows get and the fact that media makes so much money reporting garbage like anything related to Kim Kashardian.

    If people in this country cared, the Occupy movement would expand and grow everyday and transform into something meaningful and organized.

    1. Dave, quoting from your original posting, "Ron Paul had a very impressive showing in New Hampshire. He finished 2nd with 23% of the votes."

      Actually, Ron Paul got only 5% of the New Hampshire primary vote. Yes, 5% of the people got in their cars, went to the polling place, got a pen or pencil and WROTE IN RON PAUL. That was the New Hampshire Democratic primary, in which Ron Paul got second.

      From this post, "... they should be voting for Ron Paul in the primaries."

      Dave seems to live in Colorado, a caucus state. Those fortunate to live in a caucus state can simply attend the free caucus for a couple hours (Colorado evening of Feb 7) and the influence of your one person will be magnified about 1000x. Really.

      Please consider going to caucus to:
      1) vote for Ron Paul in the non-binding just-for-fun preference poll
      2) vote for the Ron Paul supporters to get to the next level - or for you to get to the next level


  4. "On August 2 this year it was raised to $14.694 trillion so......."

    You mean, on August 2 LAST YEAR.

  5. Physical only here Dave sick and tired of the mining share manipulation.

    If this is a double post please disregard

  6. "The evidence of that is the tv ratings these bullshit reality tv shows get..."

    I'm old enough to remember watching Walter Cronkite deliver the news back when the news mattered. Now we have gushing bimbos like Diane Sawyer delivering pablum to the viewing audience. I gave up watching ABC for that very reason and the other "news" programs aren't much better. It's obvious to those of us who pay attention that the mainstream media has been turned into a tool of TPTB. "1984" is closer than you think. (Oh, wait a minute - you're not supposed to think anymore.)

    "If people in this country cared,..."
    You've hit the crux of the problem, Dave. Those of us who really care are a distinct minority lost in a wasteland of uncaring, unseeing morons. It brings to mind Aesop's "The Grasshopper and the Ant". Those of us who have been paying attention (and preparing) are the Ant. The rest of the sheeple are Grasshoppers who will continue to dance and play until their world collapses around them.

  7. Re:""Yesterday I mentioned that Jim Sinclair stated in an interview that "something is going on behind the scenes that is not yet evident" and that it was being reflected by quiet buying in the gold and silver markets. I would concur with this analysis and right now every sell-off intra-day in gold and silver is being bought.""

    Dave, does the above explain the high PSLV premium going to approximately 30%?
    Thanks for all you do.

  8. Ted, I think the high premium in PSLV is a short-squeeze in the stock. I wrote this in the comment section the other day:

    re PSLV. The only thing that makes sense to me that there is a vicious short squeeze that is going on where hedge funds are trying to hang to an arb on the premium spread between PSLV and SLV. I remember I looked into short CEF vs. going long GLD a long time ago when CEF had a 20% premium but there was no borrow on CEF. Hedge funds maybe be shorting PSLV in the hopes of catching it short when Sprott announces a new deal and then get they caught in a squeeze when they can't settle the borrow.

    The premium will get spanked once Sprott announces a deal, but only to the extent that it alleviates the squeeze.

    Who the hell would pay a 34% premium for something you can buy from coin dealers for a small premium to spot or take delivery from the Comex at spot?

  9. Jim Sinclair - Hathaway Correct, Gold Shorts to get Squeezed

    When asked about John Hathaway’s call for a short squeeze in the gold market, Sinclair replied, “I think John is absolutely correct. It’s highly technical, it has to do with the lease market and the swap market. It also has to do with the recent setup of the line of swaps between the Federal Reserve and the ECB, the ECB and the European banks and the European banks and the European bond market....,_Gold_Shorts_to_get_Squeezed.html

    oh look...

    CFTC adds protections to customers' money

    CFTC Republican Jill Sommers was the lone vote against the measure. She expressed concern the CFTC was taking "a piecemeal approach" to consumer protection by giving special treatment to swaps customers, but not those involving futures.

    The rulemaking drew similar skepticism from Congress.

    "Today's actions will do little to reassure the many farmers, who have lost their own property, that efforts to mitigate another MF Global are being factored into new rule changes," said House Agriculture Committee Chairman Frank Lucas.

    What do you think Andrew Dice Clay would say?:)

  10. Financial Frankness Is a Bad Dream for a Bank: Jonathan Weil

    Today Regions has a $6 billion market capitalization, slightly more than its $5.6 billion of goodwill, and trades for 44 percent of book. So the goodwill supposedly was worth almost as much as Regions itself, which makes little sense because goodwill isn’t salable.

    Yesterday after the markets closed, Regions said it would take a $673 million fourth-quarter charge to earnings, mostly due to elimination of goodwill, after agreeing to sell its Morgan Keegan investment-banking unit to Raymond James Financial Inc. (RJF) for $930 million. You have to wonder if Regions should have known a lot sooner that the business wasn't worth as much as its balance sheet said.

    UniCredit was willing to take something of a hit to the intangibles on its books and use the chance to raise cash in hopes of saving the company. It’s doing the right thing, relatively speaking, and its stock is down 74 percent in the past year. Regions did the three-card monte, and its shares are down just 34 percent during the same period.

  11. "Bottom line, no one is listening to those of us out here who see the handwriting on the wall. Sad to say, even pundits like yourself can scream bloody murder all you want - but you're having no more effect than I am."

I have to disagree-- the majority may not be listening but that does not mean that Dave is not making converts or waking a few people up. I am proof of that as I have gleaned an awful lot of awareness and knowledge from both Dave and the people who make submissions to this blog. 

There is no way to wake up the brain dead-- they eat the pablum without questioning, they get the results they deserve. Sadly for some it will only be that they never saw or sought out the right information in time. For most, the handwriting is on the wall and they choose through desired ignorance or blind faith in the nanny state to ignore it. I do not think you can truly teach good critical thinking. People either have it or they do not and if they do then a good teacher or mentor knows how to bring it out in those they teach/ mentor. No matter how you slice it, the average human is a glorified sheep waiting for slaughter. Sad but true.

    Sadly you are right Sam-- this is now global and there are very few places to escape what is happening/ coming. Maybe that means we are all in this together and when the time comes the right movement could ignite the world against the power-elite thieves-- maybe just a pipe dream? All I know is I have educated and warned any who are willing to listen of the impending doom without thinking I am crazy and there are many who are prepared and many who are zombies/ walking asleep. Time will tell how this all shakes down-- I just know I am prepared to help my neighbors and vice versa should (when) the s**t hit the fan. Good people will survive the maelstrom.
    Justin from Canada

  12. Dave...I am gonna be rich!! I am turning Corzine into the I.R.S.!!

  13. Dave,

    It's time we face the facts:

    The American people, including their "leaders", are, for the most part, little more than goddamn fools.

  14. @conway....and sheep?

    Fox News’ Christmas Card Tells the Story: They Think Their Viewers Are Sheep

    Curiously, instead of being pulled by sled dogs or by reindeer which would be appropriate for the season, all four sleds are being pulled by… sheep. It’s just another example of how the mainstream media’s disdain for the American public continues to grow by the day. And what’s truly remarkable is, they don’t even try to hide it any more.

  15. A possible “black swan” event that could trigger a sharp gold rally:

    To achieve the EW target of $4,500 on the next upward move will require something to trigger substantial new buying of gold. What could that event be? By definition, it will be a surprise to all market participants, a “black swan” event. That doesn’t prevent us from making a guess.

    One likely area from which problems could emerge with very large numbers are derivatives. The Bank for International Settlements produces a list of outstanding derivatives twice a year. The latest report can be found at: This reveals that the total notional value increased from $601 trillion (with a “t”) at December 2010 to $707 trillion at June 2011. Nearly all of the increase was accounted for by interest rate contracts which now have a notional value of $553 trillion, some 78% of the total.

    As we discovered in 2008, derivatives are benign until losses occur. Once losses emerged from credit default obligations, it was game on for the GFC. Interest rate derivatives protect banks from interest rate rises. Most banks borrow short but have large loan books at fixed rates for long periods. Thus a big rise in interest rates could trigger claims on these derivatives.

    For the time being, rates seem to be locked at virtually zero in the USA, but this is not the case in Europe. Europeans are learning the lesson that rates rise when investors become concerned that the borrower can’t repay the amount borrowed, let alone the interest on the capital. When we drill down further into the BIS statistics at we discover that $219 trillion of the interest rate derivatives are denominated in Euros, compared with $170 trillion denominated in US Dollars.

    If just 10% of the interest rate derivatives in Euro’s produce losses, the world’s banking system would be looking down the barrel of a loss of $22 trillion. That is enough to bankrupt the entire world’s banking system, something that the politicians of the world could not tolerate. What would a bail out of $22 trillion do to financial markets? What would it do to the gold price?

    If it is not interest rates, there are $64 trillion of foreign exchange derivatives and a “mere” $32 trillion of credit default swaps outstanding that could produce “black swan” surprises.

    Alf Field

    12 January 2012

  16. Really how could they when they were transferred to someone else's estate?

    MF Global general estate may not cover customers

    (Reuters) - The trustee liquidating MF Global Holdings Inc's collapsed brokerage does not believe the brokerage will have enough money left over after paying back creditors to close any shortfall in customer accounts.

    The roughly $290 million in general estate funds -- that is, money reserved for creditors that are not MF Global customers -- may not be enough to make customers whole, James Kobak, an attorney for trustee James Giddens, said at a customer meeting in New York on Thursday.

  17. Trouble for 'Big Crony'

    The players are national politicians, regulators (to include central bankers) and the world's biggest banks.

    For a primer on this arcane world consider the Basel rules - so called because the international regulators have convened in Basel, Switzerland, since 1988 - where they set liquidity and capital standards for the big international banks. In so doing they determine the pecking order for bank investments with rules that specify how much capital (equity) banks must set aside against specific kinds of assets.

    In 2008, the Basel rules required 8 percent against corporate debt, 4 percent against mortgages, 1.6 percent against mortgage backed securities (MBS) and 0 percent against sovereign debt. The not-so-subliminal message from regulators was that sovereign debt, Greek, Spanish or otherwise was "risk free."

    For leveraged institutions like banks these are wide spreads which greatly favored and encouraged investment in MBS and sovereign debt. It was an invitation to load up and load up the banks did. This was a great arrangement for those at the top - for sovereign politicians who garnered easy access to sell ever more debt, for the banks seeking greater profits on finite capital and for the regulators who owe their tenure to sovereign politicians. But then it stopped working and panic reigned.

    Looking back through the carnage of 2008 and 2011 the connection is clear. At the heart of these crises is a gross overinvestment and subsequent meltdown in MBS (2008) and sovereign debt (2011) - the two "lowest risk" asset categories in the Basel rules.

    At the grassroots, savers have been understandably perplexed at the subsequent turn of events. At a time when cash was most precious to banks, savers saw their participation in the economy via CDs and money market funds pay next to nothing. Such price distortion can only occur when the banking system is functioning not as an intermediary between savers and borrowers, but as a crony cartel.
    The free market doesn't convene in Basel, Switzerland, or Davos or in the salons of K Street. The free market doesn't convene at all.

    Free markets are bottom up - crony capitalism is top down.