Sunday, 21 September 2008

US Bond Default imminent? 2008-06-21

Sunday 21st September 2008 6:24 pm: US Bond Default imminent?

Well, no emergency measures came this weekend from the Fed or the Bank of England, since they need to rest after spending most of last week on last weekend's emergency measures! Note that the emergency last week lasted from the previous Friday to the next Thursday, almost one full week.

The post-bailout stock market rally then came on Friday, thereby postponing the collapse for at least ... one more day.

Dow Jones Industrial Average Technical Chart ^DJI XC0009694206 Yahoo! Finance UK

FTSE 100 Technical Chart ^FTSE GB0001383545 Yahoo! Finance UK

In fact, the rally was pathetic, because all those rule changes barely manged to erase the losses of the previous 4 days in the week, let alone all those in the previous weeks and months! What rules can they change to save them next week?

Thanks to Yahoo! for providing us all with indispensible charts. Clicking the links above will take you to the 5-day chart, current to the day you are looking! The above charts are what was displayed this weekend and will be gone by Monday 22/9/2008. So might the banking system.

The newspapers and TV have trumpeted Friday's rally as a positive record event, failing to mention that it happened only because many of the rules of share trading and banking have been changed overnight. It is basically a large short-covering rally, since much of short selling has been banned altogether on a huge number of (financial) stocks in a bold fascistic move that Hitler or Mussolini would have been proud of. (Actually, I don't think that Hitler would have been proud of such a move. He certainly would have had something to say about a bunch of bankers running the Fatherland!) It is at times like these that we need to take a breath and compare last week's events to other momentous ones in history.

At any rate, we witnessed the end of free markets in the Western world last week. They were already highly manipulated anyway by a fascist/socialist alliance of government, central banks and some highly favoured private banking corporations. Now at least that truth is more or less out in the open. It is done for private gain in the boom and the socialisation of losses in the breakdown (i.e. the bankers gain in the good times, then the taxpayer pays for any losses). Isn't that fascism? Please someone tell me if it isn't.

I feel it in my bones that the USA will default on its sovereign debt and may do so soon. Perhaps the pre-inauguration period may be a suitable time to do this. So to my list of 10 items in the previous post I might add:

11. USA receives a credit downgrade and/or defaults on its sovereign Treasury debt, with all the consequences that it entails.

See the excellent charts by Clive Maund at these two links:
US TREASURY BONDS - major reversal believed imminent...
THE BAILOUT PLAN - what does it mean? - especially for gold and T Bonds...
I just love those Dojis candlesticks!
Introduction to Candlesticks -

I also saw Rick Ackerman's commentary about Friday's rally. He doesn't think much of it at all:
614-Point Rally A Patent Fraud (with a telling chart)
Why Mega-Bailout Is Destined to Fail

Since the US financial system is so incestous, it is unlikely that anyone inside the USA will downgrade US debt until it has already defaulted, either through (1) Outright failure to pay default or (2) Hyperinflation and currency devaluation Zimbabwe style.

To think that Zimbabwe knocked 10 zeros off all its banknotes! The highest value banknote was 100 billion Zimbabwe $ (which would buy a loaf of bread or thereabouts) and that became 10Z$.

Bringing this to reality would mean that, if you were a BILLIONAIRE and you stored your money under the mattress for the last 5 years, you would have come out with 10 cents!

Maybe you could buy a stick of chewing gun with that.

I was actually thinking of outright US default (i.e. 'can't pay, won't pay') as the outcome. I am not sure that the convenient way will occur.

The best situation for the USA is to have very high inflation to allow it to make a gradual default on the debt. The next best is to have outright hyperinflation with no actual formal default (i.e. debts technically paid but in extremely depreciated dollars) and the worst humiliating case would be actual default, the failure to pay interest on bonds issued. This could happen if there is a run of US bonds and the yield (interest rate) spikes very high. A run of US bonds could collapse the currency too and result in default and then hyperinflation due to the consequent US$ devaluation, which would be the famous double whammy.

No-one would want the interest on the debt then, because the US$ would be worthless anyway and no-one would want to receive US dollars at all, in exchange for anything. That is the time that some oil exporters might demand gold payment from America for oil and we might all find out at last how much gold, if any, is actually in Fort Knox - or whether it has all been leased out to suppress the gold price to give the impression of a strong US dollar in the last decade or so, as GATA bravely claims.

If the US were to issue a new currency to pay for its oil imports, a full audit of US treasury gold would surely be demanded by its creditors.

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