Thunder in the canyons

A recent article from Bloomberg states that the US Government has resorted to buying its own treasuries to support the market, with "The Fed bought 14 of the 25 securities listed for possible purchase".

This means the government is kiting, which would be a fraud if you did it.  It is quite acceptable to Keynesians from Goldman Sachs and Harvard.  Imagine if you were discovered bidding up the prices at an auction where your stuff was for sale.

If you had three bank accounts and wrote a check over the balance of No. 1, you could then cover it with a check from No. 2, but, OMG, you are over the limit there, so you go to No. 3 and write a bad check hoping upon hope that money appears from somewhere.
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UNITED STATES v. NORTON

UNITED STATES of America, Plaintiff-Appellee, v. Lawrence NORTON, Defendant-Appellant.

No. 96-2552.

-- March 03, 1997

Before COFFEY, MANION, and EVANS, Circuit Judges. 

Barry Rand Elden, Chief of Appeals (submitted), Office of the United States Attorney, Criminal Appellate Division, Chicago, IL, for Plaintiff-Appellee.Ralph E. Brown, Michael F. Braun, Schuyler, Roche & Zwirner, Chicago, IL, for Defendant-Appellant.

In a traditional check kiting scheme, a person artificially inflates a checking account balance during the “float” time that passes when a check moves between two or more banks.   Check kiting (assuming the victim is a federally insured financial institution) violates the federal bank fraud statute, 18 U.S.C. § 1344.   But can one violate the statute when only one account at one bank is used in the scheme?   The answer is “yes.”...

You don't even need to have multiple accounts per the Norton case.  On top of the kiting theory, there is the old "watering" of stock crime. Cowboys used to let cows (stock) drink like crazy before selling them by the pound. The SEC was essentially started to stop this fraud.

Government operatives seem to be immune from its laws, so there is no resistance to its everyday fraud.

So, the question becomes, how does the government cover its ass in the middle of a kiting scheme where it is upside down to an extent that numbers no longer are relevant to normal people?

Traditionally, as Hillary says, the govenrment taxes everything, but that no longer is covering the short fall. Taxation will take too long, anyway, as new kiting or watering will be needed, soon, especially, if we are to pay for California and New York as they collapse into the socialist sewer.

The clear answer, and only remaining tool, is for the government to manipulate the dollar with high interest rates, if that doesn't happen naturally.  Deflation is a concern, but it runs afoul of the government's survival at all costs mode.

It seems to me that very high inflation is a necessary target, but an election is coming. So, the rates will be kept low, giving impetus to deflationary trends.  Low rates would be good if the government were borrowing within a sound budget.  However, it has massive debt and wants to add to the liability. This, in turn, will weaken the dollar more making a low interest rate more bizarre. Perhaps, I should say we are in a Ponzi scheme of international scope.

Eventually, investors will start to invest in more attractive places. We are safe here and that is the only thing keeping some of them around right now. At some point, the investors are backing out the door as orderly as possible, to avoid an instant collapse, which comes anyway.

The government has to attract investors in a big way which means high interest rates (to overcome fear) and to cause current obligations to be paid in cheaper dollars (which will incur fear). We are in paradox and the pressures building need to be released, not increased.  But, will the cycle of the economy and history permit the inflation game, again?

There is much talk of deflation and some say we are in it now.  As I noted earlier, one pro is all in and is maxed out on treasury investments; I am so confused by all this that I am not even sure what this fund is doing: keeping dollars in anticipation of deflation or projecting life as normal.  Then again, perhaps, the fund is in inflation bonds.

One indicator of the future is that it costs about $500 an ounce to mine gold; it has a spot price of $1,247 this morning.  Think about it.

I suspect history is of limited use in figuring out what will come.  There are tidal forces in the economy that the Fed is trying to block, not paying heed to the Tao Te Ching. It states it wants a modest inflation and fears deflation.  From my brief time on earth, it seems to me that the tidal forces will win, but if you mess with them, the eventual release of pent up forces will be powerful and the rip tides fierce.  The Mississippi River is so deadly because people have tried to hem in its flood waters.

Perhaps, the revolutionaries want a collapse to happen, some so argue, so they can step in to take control. It is an old communist trick - push the economy in to hell then offer to be the devil.  I don't see this working in the U.S.  While I bemoan the lowering of our ability to reason, we are not stupid and have tasted liberty.  I hope our path is not to arrive at the point of a counter revolution.

Peanut butter.