Archive for July 2012

InfCession, InfPression, DeriviPlosion   Leave a comment

“The U.S. federal government,…has reached a stage
where forty cents of every dollar spent at the federal level is borrowed,
and a lot of that money has been printed.”

the Fed has become a significant buyer of debt,
purchasing some 75 percent of US Treasuries last year
because there were no other buyers.”


“the notional value of all OTC derivatives
is in excess of ONE QUADRILLION DOLLARS globally.
The vast majority are related to interest rates.”

“According to the Comptroller of the Currency report, as of December 31, 2011,
JPMorgan Chase held $70.2 trillion in derivatives
and only $136 billion in risk-based capital.
…the bank’s derivative bets
are 516 times larger than the capital that covers the bets.
Goldman Sachs has $44 trillion in derivative bets
covered by only $19 billion in risk-based capital,
resulting in bets 2,295 times larger than the capital that covers them.”

If rates rise
JPMs & GSs variabl rate payout on ‘Interest Rate Swaps‘ could rise abov
the fixd rate recd fr their counterparty + fixd rate recd fr their bond hedg
resulting in *major* losses.
Meaning derivitive mkt disaster
affecting the US financial system.
[Even now, considering real rates, they are a wasting asset, incurring loss.]

So printing *must* continue
so the Fed can continue to purchase US Treasury instruments
to maintain low rates.


“The Real Numbers,
(as opposed to Bogus Official Statistics)
show inflation in the U.S.,
is already…at 9.3% annualized per”
“since January 1, 2000, US dollars have lost…26% in purchasing power.”

ie. Printing/liquidity is causing price inflation in food, gas, medicine, education, etc.

BUT despite the price inflation:

“Since 2008 the money (M2) multiplier has dropped from slightly under 9 to 3.7.”
“Velocity has also dropped sharply in the last few years.”

“Household debt has now declined for the last 16 quarters…
It still has a long way to go in order to reach the 66% level of 2000,
let alone the 60-year average of 55%.
Since this reduces the demand for goods and services,
businesses have little reason to hire new workers or increase capital expenditures.
Since household spending accounts for 70% of the GDP,
the negative effects are felt throughout the economy.”

“Recently we have seen lower-than-expected results or actual declines in
GDP, job growth, retail sales, income growth, core capital goods orders,
vehicle sales and initial unemployment claims.”

So, the prognosis appears as
economic recession or depression
with price inflation,
ie. the US dollar still losing value.
InfCession or InfPression,
with the Damocles sword of derivitive implosion,

Lean toward hard assets ?