Wednesday, September 22, 2010

The Brick Wall Cometh - US Starts the Negative Feedback Loop

The brick wall has been found as everywhere bad news pours in -

Today the

The Real Effect
Let's explain this simply:

The common wisdom has held that the dollar has never defaulted, therefore it won't/can't. Therefore a huge amount of foreign equity hoping to avoid overseas turmoil has plowed into the bond market, propping up US bonds and making borrowing for the Federal government easier. Like it always does, the Feds look at this through the 1-2 year goggles and assume they have good times ahead and spend, spend, spend.

Now, we stand at a crossroads -

Our dollar is diving and it is becoming conceivable that the once-great US just might not be able to float this much national debt. When this becomes obvious to all, there will be an enormous capitol flight OUT OF the dollar (bonds) and into something else, presumably precious metals. This will leave the government in the position of being unable to fund their debt at choice rates.

It as at this point that great cuts to services will be done (think healthcare/food) in order to "balance the budget." and "Restore fiscal sanity". Needless to say, many of the bureaucrats will keep their cake.

As I have stated -
However state and local governments don't have the benefit of an unlimited checkbook. Basic boil down - the consumers are broke, this is breaking the states and the Fed will back some amount of state debt. This is and will lead to a Federal debt bubble. This is the last line of defense and when this bubble breaks, all hell will break loose. The question I have is, who's head will be in the noose?

I have already explained what's going to happen, but to reiterate, now we move now from bleeding, to butchering as what's left of the US gets sliced up for the bankers.

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