Wednesday, August 26, 2009

Chris Martenson - The Shell Game

Funny, but you get exposure to another shell game, this time on “How the Federal Reserve is Monetizing Debt,” and this one is brought to you by Chris Martenson who did an outstanding job on this article.

Below is Chris’s Executive Summary, instead of posting the article I recommend that you follow the link to Chris’s site and check out his pretty charts and graphics there:
The Shell Game - How the Federal Reserve is Monetizing Debt

Executive Summary

- The Federal Reserve and the federal government are attempting to "plug the gap" caused by a slowdown of private credit/debt creation.

- Non-US demand for the dollar must remain high, or the dollar will fall.

- Demand for US assets is in negative territory for 2009

- The TIC report and Federal Reserve Custody Account are reviewed and compared

- The Federal Reserve has effectively been monetizing US government debt by cleverly enabling foreign central banks to swap their Agency debt for Treasury debt.

- The shell game that the Fed is currently playing obscures the fact that money is being printed out of thin air and used to buy US government debt.

The Federal Reserve is monetizing US Treasury debt and is doing so openly, both through its $300 billion commitment to buy Treasuries and by engaging in a sleight of hand maneuver that would make a street hustler from Brooklyn blush.

This report will wade through some technical details in order to illuminate a complicated issue, but you should take the time to learn about this because it is essential to understanding what the future may hold.

One of the most important questions of the day concerns how the dollar will fare in the coming months and years. If you are working for a wage, it is essential to know whether you should save or spend that money. If you have assets to protect, where you place those monies is vitally important and could make the difference between a relatively pleasant future and a difficult one. If you have any interest at all in where interest rates are headed, you'll want to understand this story.

There are three major tripwires strung across our landscape, any of which could rather suddenly change the game, if triggered. One is a sudden rush into material goods and commodities, that might occur if (or when) the truly wealthy ever catch on that paper wealth is a doomed concept. A second would occur if (or when) the largest and most dangerous bubble of them all, government debt, finally bursts. And the third concerns the dollar itself.

In this report, we will explore the relationship between those last two tripwires, government debt and the dollar…

BTW, Chris dug up a terrific chart from the Fed on Tic Flows:

Yet another parabolic rise and subsequent collapse...