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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: r.edwards who wrote (386729)	5/27/2009 10:28:56 PM
From: r.edwards	Respond to of 436258

Recently, you could put your money in T-bills and get zero yield. “An extraordinary thing…” said Warren Buffett – so extraordinary that he was “not sure [you’d] see that again in your lifetime.” The US Treasury market is in a bubble. Like all bubbles, it will pop. On the numbers, the US government is the worst credit risk in the world. You determine a man’s creditworthiness by looking at his balance sheet. Add up his assets and subtract his liabilities. Do that to the federal government and you get a very big number with a minus sign in front of it. Even if they were to sell off the Capitol building and all the federal lands west of the Mississippi, the feds would still have a hole in their finances larger than any other in the entire world. While the balance sheet looks awful, the cash flow is worse. In the current year, the feds will take in about $1.9 trillion in taxes and spend $3.6 trillion. In other words, the feds aren’t just living beyond their means…they’re not even on the same planet. Who in his right mind would lend to a spendthrift whose outgo exceeded his income by nearly 100%? The only way any loan can reasonably be repaid is from income. Income must exceed expenses or there will never be money for debt repayment. Lending to a corporation or an individual, the lender expects the borrower to earn his way out of debt. Otherwise, it’s a fool’s game. The debtor is soon kiting checks and going deeper in the hole. He borrows from one lender in order to pay off the first lender… In effect, he operates a pyramid scheme – depending on fresh suckers to keep giving him new money – until the whole thing comes crashing down. The federal government doesn’t even pretend that it is going to earn its way out of debt. It presumes that there’s an endless supply of money it can borrow…and new suckers born twice a minute who are willing to lend. But this is exactly where all Ponzi schemes crack up. The fed’s pyramid will fall in the same spot; where it runs out of new money. Mr. Obama says he plans on cutting the budget deficit in half by the end of his term. Let’s see…that’s four years out. If he’s true to his word, that will mean deficits averaging about $1.5 trillion a year…or about $6 trillion total. Where will that money come from? What sucker has that kind of cash? America’s savers are putting their backs into it. They’re saving about 4% of GDP currently, which could rise to 5%. They typically only put less than one percent of their wealth into Treasury paper; but let us imagine that they use every penny to buy it. Over Obama’s term that could be as much as $2.4 trillion. The other big buyer is the Chinese. If they were somehow able to continue buying at the same rate that they have for the last 6 months, that would add $2.8 trillion more. So even if both these Hollywood endings should come to pass, the show would still be a horror. There would still be $800 billion worth of Treasuries left unsold. , ' "above quote from Bill Bonner "