bradhicks Writes The Best Pessimism Porn

[nebris]

"The Dollar is doomed. The news media have been full of reports that "the dollar is up" against foreign currencies, as if you're supposed to be reassured by this. If you are feeling reassured by this, let me clarify something for you. Know anything about how the national debt works? The federal government buys money by issuing fixed-length bonds called T-bills, which they auction off. They offer to sell anybody who wants to bid, oh, let's say $100,000 in 10 years: how much will you pay them for it now? Annualize the interest rate on that, and that's the interest rate on the national debt. Still with me? Because they're fixed-term bonds, some of them come due every couple of weeks. And we're obviously not paying off those bonds; the US government hasn't paid a principal payment since the dot-com bubble, when Clinton (wisely) chose to use the capital gains taxes on the churn in inflated dot-com stocks to make payments rather than give Newt Gingrich the tax cuts he demanded. So what they do instead is they sell another bond, and use it to pay off the one that just expired. Now, the news part: about a month ago, so few people showed up to bid that the auctioneer wasn't getting what the government considered an acceptable interest rate. If we kept paying that rate at every auction from now on, our interest rate would have at least doubled, and interest on the national debt is the 3rd largest line item in the federal budget, just barely behind military spending and Social Security. No way we could pay that. So Federal Reserve chairman Bernanke announced that if not enough people were showing up to bid, the Federal Reserve Bank would buy up to $3 trillion (three million million) in T-bills itself. Where does the Federal Reserve get that money? They invent it. This is the reality behind the symbol "running the printing presses." How much is $3 trillion? Well, US GDP is about $10 trillion, so it's about 30% of this year's GDP. Since the GDP is going down, not up by 30%, this means that relative to any actual goods, the value of the money in your pocket just dropped 30% ... if Bernanke has to go through with it. So far he hasn't had to spend the whole $3 trillion to keep our interest rate pushed down, so far he hasn't inflated his way out of our national debt. But he means to, and that is what's behind China's panicky calls for an alternate global reserve currency. What this means for you: 30% inflation, across the board."

from Blowing Rainbows Eat first, so you can kill yourself on a full stomach.