Thursday, October 10, 2013

U.S. Government Debt Is THE Biggest Ponzi Scheme In History

The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop.  -Investopedia
First, let me just say up front that anyone who is worried that the U.S. will default on its Treasury obligations because of this grand Vegas stage-show going in DC is a complete idiot.  To begin with, I fully expect Boehner to cave in and come to an agreement that at least temporarily lifts the debt ceiling so that Jack Lew and Obama can continue spending our money at a far greater rate than the incoming revenues.  Second, for all you folks with your head in the sand about what has happened to our Constitution over the last 13 years, the Patriot Act/Homeland Security Acts give Obama the authority to unilaterally print the money needed to service the Government's Treasury Ponzi scheme in case the stage actors don't blink by October 17th - Jack "Yes I'm A Thief" Lew's drop-dead date for cash in the Treasuries drawer.  Ultimately the debt ceiling will be raised by at least $1 trillion and Government spending will not be reduced.  But rest assured that the massive graft and kick-back payments that flow freely all around Capitol Hill will continue unabated.

The Treasury bond market is a Ponzi scheme because the amount of debt outstanding keeps growing pretty much at an accelerating rate:

(Treasury Debt Outstanding)

The reason this is a true Ponzi is because at every Treasury auction, held twice a month, the Government issues enough debt to repay the existing debt that is maturing and issues even more debt in order to fund Government overspending.  That is a Ponzi scheme in its essence.  In fact, Putin was wrong, this is an exceptional country because nature of the U.S. Government  Treasury Debt Ponzi scheme is truly exceptional.

Now that I think about it, The United States' Treasury bond Ponzi scheme is not only the biggest in history but it's the greatest in terms its ability to keep it going.  A typical Ponzi scheme, like Bernie Madoff's, requires new investors putting more money in to the scheme in order to payout the existing investors.  In contrast, if the Chinese and Japanese decide they'd rather not keep putting an increasing amount of money into financing our Governmental spending juggernaut, the Fed can just print money under the orders of the President to keep the gerbil going on the wheel, as it were.  Madoff's biggest problem is that he didn't have his own U.S. dollar printing press.

Worried about the price of gold?  This chart below shows you why you don't have to worry long term:

This chart shows the "exceptional" correlation between the price of gold and the level of the debt limit ceiling going back to 2000, the genesis of the current bull market in gold.  The drop in price since September 2011 shows the "exceptional" degree of Government/Federal Reserve intervention in the gold market - conducted by the Exchange Stabilization Fund as authorized by law and executed by JP Morgan - in order to deflect concern/fear about the increasing levels of Government spending and debt and the exceptionally increasing level of international distrust of the U.S. dollar.

The problem with Government interference in markets is that over time there are natural laws of economics and mathematics that come into play and that can not be avoided, by anyone.  The particular law of nature here is the "regression to the mean."  At some point, sooner rather than later, the price of gold will "regress" back up to its mean level of correlation  with the imminently-to-be-raised Treasury debt limit ceiling.


  1. I watched a report from David Morgan. His math figured that if you took M1 (actual printed money in world wide circulation and divided it by the number of ounces the fed claims, golds price should be $5-7,000 per ounce. When the vaults empty and the Russians and Chinese have the gold that they require, gold will blast off. Only problem, $10 gas and $150 a loaf bread.

    1. "number of ounces CLAIMED" is the key descriptor there. A better metric via Bretton Woods is to take the amount of outstanding Treasury debt of 17 trillion and divide that out by the "CLAIMED gold" and you get $70k per ounce. Or if you want to just go by Bretton Woods specifically, which said all foreign held debt had to be 100% backed, you get $18k per ounce.

  2. Interesting insights. Your mention of the ESF is also very important, as I think far too many underestimate the level of fraud, manipulation in the system.

    There will be no discussion of the facts, because the facts are too painful and will therefore be kept from public view.

    Question: And there's no reason to risk that possibility, continuing to find out whether there's some other universe of currencies to which people could look to and there's no reason to risk having the potential economic impacts we can have globally that provide domestic opportunities for growth and jobs.

    Lew: "I certainly think there's no reason. I would go a little further and say that it is against our interest to invite that kind of discussion."

  3. What happens when we gotta borrow just to cover the juice? At any OTB I've been to, it's finger, wrist or kneecap time when that happens...

    Dead-on post, btw. Ruthlessly efficient. The gold price ain't the only thing that's gonna revert to the mean, which I'm sure you know...

  4. Paul Singer’s Attacks Fed Policy: WSJ Conference [VIDEO]

    In a discussion with WSJ’s Gerald Baker at Heard on the Street Live, Paul Singer of Elliot Management discusses the Federal Reserve’s “tapering,” the possibility of inflation and the markets’ skittishness about it.

  5. Relaxxxxxx, Dave!

    Armstrong assures us with his unparalleled cycles research that the big System RESET isn't till 2037.
    And he would never lie his ass off in public to provide cover for his bankster buddies, right?
    You still got a quarter century to live it up.

    OR maybe not:

    1. I wonder whom Armstrong could be protecting?????????????????????

      Derivatives and the Government Shutdown: Wall Street Bets One Thousand Trillion Dollars of Everybody Else’s Money
      Derivatives Market Worth Over 16 Times Gross World Product

      Given that capitalism has entered a terminal stage of acute and escalating crises, the Dallas editorialists may be right; anything could set off another spasm of financial mayhem in a system that is ever more unstable. However, it is the “markets” – a euphemism for the financial capitalist class – that are the ultimate source of instability, the folks who play Russian roulette 24-7 and have dragged humanity to a place where an actual Armageddon is only a twirl of the chamber away. In this game, everybody’s head is in play.

      It is proper that the corporate press speak of the impending fiscal threat – a minor one, in the maelstrom of crises that beset the system – in gambling terms. An increase of interest rates by a few basis points (fractions of a percent) on trillions of borrowed dollars amounts to quite a chunk of public money, to be paid directly into the accounts of these very same private “markets” that are supposedly biting their nails with anxiety over the budget. The Dallas Morning News and its fellow corporate propaganda spores spread the myth that the “markets” (bankers, hedge funds, etc.) crave stability, when the vital statistics of the real world of finance capitalism scream the opposite.

      The Lords of Capital (the “markets”) are pure gamblers who have transformed the global financial marketplace into a machinery of perpetual uncertainty, in which all the wealth of the world is bet many times over by people who don’t actually own it, in a casino whose operators scheme against each other as well as their patrons, most of whom are not even aware that they are in the game – much less, that it is Russian roulette.

      The notional value of derivative financial instruments is now estimated at $1.2 quadrillion – that is, one thousand two hundred trillion dollars. This statistic is fantastic in every sense of the word, amounting to 16.7 times the Gross World Product, which is the value of all the goods and services produced per year by every man, woman and child on the planet: $71.83 trillion. Derivatives are valued at six times more than the total accumulated wealth of the world, including all global stock markets, insurance funds, and family wealth: $200 trillion.

      The great bulk of known derivative deals are held by banks that are considered too big to be allowed to fail, with the top four banks accounting for more than 90 percent of the exposure: J.P. Morgan Chase, Citibank, Bank of America, and Goldman Sachs.

  6. Bank Examiner Was Told to Back Off Goldman, Suit Says

    After Ms. Segarra joined the New York Fed, she said she examined several potentially controversial Goldman deals. For instance, in 2012 Goldman advised El Paso, an energy company, on its decision to sell itself to Kinder Morgan. Goldman owned a big stake in Kinder Morgan, which angered a number of El Paso shareholders, who argued this gave Goldman an incentive to undervalue El Paso. Goldman, though, maintained it had properly managed the conflicts but was later admonished by a judge, who noted the “disturbing behavior” that led to the deal.

    As the deal was coming together, the lawsuit said, Ms. Segarra urged Goldman to provide her with its firmwide conflict-of-interest policy. But Goldman, the lawsuit said, told her that it had no such policy.

    While Goldman, the lawsuit says, lacked a broad conflict-of-interest policy, individual business units did have some procedures in place. For Ms. Segarra, the absence of a firmwide policy was alarming because it signaled that Goldman lacked the procedures to spot and police conflicts, according to the suit.

    In a March 2012 meeting, a group of examiners at the Federal Reserve Bank of New York agreed that Goldman Sachs had inadequate procedures to guard against conflicts of interest — guidelines aimed at stopping firms from putting their pursuit of profit ahead of their clients’ best interests.

    The examiners voted to downgrade a confidential rating assigned by the New York Fed that could have spurred costly enforcement actions and other regulatory penalties. It is not known whether the vote materialized in a rating change. The former examiner who pushed for a downgrade, Carmen Segarra, now contends in a lawsuit filed Thursday that just weeks after the vote, her superiors asked her to change her findings on Goldman and fired her after she refused.

    The vote to downgrade, which has not been previously reported, could have been a big blow for Goldman.

    “Goldman Sachs does not have a conflicts-of-interest policy, not firmwide, and not for any divisions,” the examiner wrote to Michael Silva, a senior executive at the New York Fed. “I would go so far as to say they have never had a policy on conflicts.”

    In the lawsuit, Ms. Segarra contends she was wrongfully terminated in violation of a federal law that affords protections to bank examiners who find wrongdoing in the course of doing their jobs. Mr. Silva, who is chief of staff for the executive group at the New York Fed, is among the defendants named in the suit.

    In an interview, Ms. Segarra said that when she was fired, her bosses told her they had lost confidence in her judgment. Within the Fed, some people who worked with Ms. Segarra echoed those concerns, according to people familiar with her time at the agency but not authorized to speak on the record. Ms. Segarra, these people said, sometimes developed “conspiracy theories.”

    1. Thanks for posting. If you look at the top 4 reader comments on the article (sorted on Reader Picks), 2 are from industry insiders, 1 says reinstate Glass Steagall (noble but futile since "law" enforced only against some is worse than no law at all), and a 4th points out that the entire investment bank model is DESIGNED to make money from the type of graft described by the article. All 4 are from people who have some sense of how bad the score is.

      Eventually we'll learn that immunizing criminals like GS and JPM from law was no mere nudge and wink, as their fangs are already far deeper into the American corpus than most realize. A new law review article about to be released, for example, discusses the "transformative – but so far unrecognized – change in the banking industry: the emergence, over the last decade, of U.S. financial conglomerates as leading global merchants in physical commodities, including crude and refined oil products, natural gas, coal, base metals, and wholesale electricity."

      Yikes. This won't end well.

  7. May I humbly present the following explanation, Dave, so even the masses can begin to understand it-
    Suppose the government manipulated the price of bread so the price of a loaf of bread was fixed at twenty five cents. Small and medium sized bread makers would shut down rather than lose money. Demand would outstrip supply as consumers here and abroad began buying up every loaf they could find. Eventually the producers of raw materials for bread (wheat and rye growers, flour mills, yeast producers) would stop selling their products. Eventually the demand would so outstrip supply that there wouldn't be any more bread to be had for twenty five cents a loaf, or for any price for that matter. The short and mid term benefit would be wiped out once supplies were gone and new supplies would not come on line.
    For anyone thinking this could never happen in the world, just look back to the days of the Roman Empire. The Romans kept the price of bread low so the plebs were fed and satisfied while those who owned farmland switched to raising olives for olive oil, where the price wasn't controlled and oil could bring a much higher price than wheat. Substitute bread for gold or silver and you begin to understand why owning gold and/or silver right now is so important. (Sorry for any tpos, sometimes my smartphone acts like a smartypants phone)

  8. Committee to Protect Journalists issues scathing report on Obama administration

    Obama's anti-press measures 'are the most aggressive I've seen since the Nixon administration'

    It goes on to detail how NSA revelations have made journalists and source petrified even to speak with one another for fear they are being surveilled:

    'I worry now about calling somebody because the contact can be found out through a check of phone records or e-mails,' said veteran national security journalist R. Jeffrey Smith of the Center for Public Integrity, an influential nonprofit government accountability news organization in Washington. 'It leaves a digital trail that makes it easier for the government to monitor those contacts,' he said."

    It quotes New York Times national security reporter Scott Shane as saying that sources are "scared to death." It quotes New York Times reporter David Sanger as saying that "this is the most closed, control freak administration I've ever covered." And it notes that New York Times public editor Margaret Sullivan previously wrote that "it's turning out to be the administration of unprecedented secrecy and unprecedented attacks on a free press."

  9. India's top bullion bank to work with jewellers to tease out gold hoards

    MUMBAI (Reuters) - The biggest bullion-importing bank in India plans to team up with jewellers for the first time to offer a gold deposit scheme, hoping ease of access and attractive interest rates will tempt people to part with their jewellery and relieve tight supplies.

    Bank of Nova Scotia is in talks with trade group the Gems and Jewellery Trade Federation (GJF) and the Reserve Bank of India (RBI) to finalise details, the head of the bank's Indian bullion operations said.

    Gold imports to the world's biggest bullion buyer have all but dried up after steps taken by the government and RBI to cut them to help rein in a record current account deficit, leaving domestic jewellers scrambling for supplies.

    With demand still strong and expected to rise in the next few months as the festival season starts, the gold industry has turned its sights on the 20,000 tonnes of gold thought to be squirrelled away in homes.

    Soni said he had proposed interest rates for the scheme of 2.5 to 3 percent of the gold price, to be paid in gold.

    Similar schemes run by banks on their own offer lower rates and have not been popular. Indians prefer to hold their gold in ornament form and need strong incentives to give up heirlooms and wedding gifts.


    Scotiabank's plan aims to enlist jewellers to collect the gold, which could make it more accessible in a country where many people use family-run jewellers for generations and banks are few and far between in rural areas.

    Other attractions of the scheme could include more flexibility in the duration of deposits plus tax-free interest.

    Soni said he had proposed a lock-in period for the deposits with Scotiabank of two to seven years, compared with the three to five years in a similar scheme run by state-owned State Bank of India (SBI).

    Indians often use gold as a ready source of liquidity in times of need, making longer-term deposits less attractive.

  10. Tocqueville Gold's Hathaway is getting really mad about market rigging

    Interviewed by King World News, Tocqueville Gold Fund manager John Hathaway is getting really mad about gold market rigging.

    Hathaway says: "“Right now I am focused on this bedeviling issue of the paper gold vs. the physical gold market. Paper gold may be setting the price, but the abuses in the paper market are just staggering to me. For example, on Tuesday we saw 17,000 contracts sold in the space of a few minutes," hammering the gold price. "That's around 2 million ounces of gold. ... These guys don't even have to borrow the gold to sell it. It's probably a couple of bullion banks, and they use their balance sheets to justify the leverage of selling gold they don't possess."

    Actually, it's probably the U.S. government or the Bank for International Settlements, the agent for its central bank members in the gold market, all of whom, being money creators, have access to far more money than represented by the balance sheets of a couple of bullion banks, which are merely masking the intervention.

    Will gold fund managers and gold mining companies ever get mad enough about this to do more about it than grouse to King World News? Late as he is in acknowledging the racket, Hathaway is far ahead of nearly everyone else in his business. An excerpt from his interview is posted at the King World News blog here:

  11. I see the cheese popes are beating down the price of gold and silver again. Apparently we are awash in gold and silver but the supply of fiat currency dwindles.

    1. I will start to panic when I see signs that say"GOLD FOR FIAT PAPER" !

  12. Dave, I have a question. TPTB can hold the gold price down because it has a lot of gold in NY and London. In order to keep the gold price artificially low, TPTB needs to supply additional gold to satisfy the excess demand. That's basicly Econ 101. But how can TPTB hold the silver price down. There is not a large official silver stock. How does TPTB satisfy the excess demand of silver?

    1. SLV. Over the past year, there has been several million ounces of silver that has been moving in and out of the Comex warehouse every week. Every single week.

      Unbeknownst to most, in 2011, the SLV prospectus was amended to enable silver to be "safekept" in NY and not just in London.

      Make no mistake about it, the massive, unprecedented amount of silver moving in and out of NY is directly related to Ponzi nature of SLV and the fact that JPM is using SLV as a source of silver to satisfy physical delivery demands.

      The degree of manipulation and the force of the hits on gold and silver - and especially silver - reflect the fact that JPM is trying to scare people away from silver in order to avoid a complete physical market squeeze.

      That Indians have started importing a record amount of silver in the fact of gold import restrictions is making this problem worse for JPM.

  13. So - who's side you want to be on - the side that matters like the big boys ie Goldmans etc or the broken records crap writers. There r no sides - the "good" guys r on the same side as the bad ones. The former r just useless. All whining about lawlessness is idiotic if you have nothing behind u. What morons.

    1. The side that matters? By that do you mean, the side that manipulates the price and thereby steals from honest producers, consumers, and unrigged and honest investors?

      If by that you do you mean crawling in bed with thieving, lying, cocksuckers?

      In life anonymous, we all decide what kind of men we are going to be. Stand up guys or douche bags. It's never too late to switch sides.

  14. Moscow Exchange Plans Gold to Silver Trading to Broaden Appeal

    OAO Moscow Exchange will introduce trading of gold and silver as early as this month as part of plans to make metals more accessible to smaller banks by reducing transaction costs.

    The exchange will quote gold and silver in Russian rubles per gram, with minimum trades starting at 10 grams of gold and 100 grams of silver, the bourse’s Deputy Chief Executive Officer Andrey Shemetov said in an e-mailed response to questions yesterday. Platinum and palladium contracts will start trading in the first half of 2014, he said. Russia is the world’s largest developing-nation producer of gold after China.

    Most metals trading in the country takes place via the over-the-counter market, which is dominated by Russia’s biggest banks, such as OAO Sberbank. Smaller lenders including Moscow-based Absolut Bank ZAO take on higher costs and risks because they turn to the market makers to close positions, limiting their ability to offer precious-metal trading to clients.

    “It’s a cheaper way of tapping into ruble-denominated gold,” Ivan Fomenko, head of asset management at Absolut Bank, which offers metals accounts to clients, said by phone on Oct. 9. “You will be able to buy, sell, swap easily. It’s awesome.”

    Fomenko couldn’t provide a cost-savings estimate.

    The Moscow Exchange is following Shanghai Gold Exchange in listing precious metals to augment over-the-counter, or OTC, trading and broaden the range of instruments available for hedging and liquidity purposes. The bourse will also introduce swap agreements for the metals that aren’t available on the OTC market, Shemetov said.

    The exchange will quote prices and enable traders to settle contracts via delivery to and from unallocated metals accounts at its National Clearing Center. Banks can deposit or withdraw precious metals in the form of physical bullion bars, and delivery and collection will occur at a nominated Moscow vault, the bourse said. The contracts are also likely to appeal to brokers, producers, jewelers and private investors in the long run, it said.

    “A transparent, exchange-based market will emerge as the best place for determining fair value for Russia’s precious metals,” Shemetov said. “We hope to bring some change to the Russian precious metals market, whose current structure is primarily vertical.”

  15. Another day and another slam in gold and silver prices. For 2.5 years I've read of exponential rise in prices only to see it fall further. If these experts can't call the short-term correctly, then why should I believe the long-term? Yes the prices SHOULD rise but really the price SHOULD be higher today. So what makes me believe that things will be different in the future? Who knows what they have up their sleeze... example... Did anyone really think that in late 2013 prices would be where they are?

    I am really starting to wonder about this "insurance policy" (an insurance policy that I have lost 40% of my value in...nice insurance) while the sheep are rewarded in the stock market for being sheep.

    That said, thanks for your blog Dave. Gives me some hope that maybe SOMETHING will change in the future in this sector.

  16. Well, I received a bit of a slap upside the head for being a complete idiot (ie the opening line of the post) even after reading similar logic that Obama would just raise the limit on his own in the name of National Security, etc. by Paul Craig Roberts a day before your post and realizing he is correct. You are correct and yet the fear is still here and I don't even watch the crap put out on tv. Maybe it has to do with having the reality of the situation faced by my country and how much of a fraud that it has become being shoved in my face from this example. Also, the PMs being held down doesn't help, so that only fuels the worry. Another thing that has me a bit on edge is the upcoming gov't drill for the power grid going down. Not that I think the grid is going to go down this Nov when the drill happens, but that if the gov't is training on it then I think maybe I should focus more of my resources toward prepping for such an occasion. There are numerous examples one could think of that could take the grid down or that show the need for having some level of self-sufficiency. My personal pick is cometary/meteorite bombardment, if looking at the increase in activity as shown by the logs from this site are any indication - Anyway maybe this time is a crossroads of sorts and thanks for posting Dave.

  17. I believe it is time to dump the stock market and buy gold to protect my investment? Do most of you believe that is also true.

    James D Venetti

  18. The government cannot control Deflation or Inflation albeit they are trying to do so. Deflation will cause the stock markets to decrease followed then by considerable inflation which will cause Bond holders to default such as Japan and U.S.

    Now is a good time to quietly consider a safe haven for one's dollars such as investing in a mutual fund of foreign currencies.

    James D. Venetti