Permanent 0% on Road to Ruin
by Jim Willie
Thu, 23 Sep 2010
Japan has proved without confusion that 0% is a permanent stuck position. The United States will repeat the path, but with a vast mudslide. Japan has had the advantage of a strong industrial base, a sizeable trade surplus, and no war budget. Thus it has been capable of funding much of its own deficits. It does possess a big debt burden. But the US has $1 of new debt for every $1 in government revenue. The US war budget is almost as large as its total revenue. The US depends upon foreign creditors, many of whom have been thoroughly alienated. Apart from the structural and foreign angles, the US is stuck with a 0% policy. The USFed has no Exit Strategy at their avail, precisely what the Jackass has stated for over a year. It cannot manage any change, as sharp knives, machetes, and guillotines await on the other side of the monetary doorway. The present 0% road to ruin is fixed, as the USFed cannot change course from it. This is simple to see, with eyes open and mind turning. That excludes the majority of US economists, whose eyes are transfixed on mindless measures like inflation expectations and whose mental gears stopped turning years ago. They are locked in the Keynesian aberrations within the paper money dungeon. They do not comprehend sound money. They do not comprehend legitimate income. They do not comprehend the importance of industry. They do not comprehend the lethal nature of debt burdens. They are fully committed to ruin. They do show signs recently of awakening to their helpless helm devoid of tools, even awakening to the systemic failure they have wrought.
OBSTRUCTIONS FROM THE 0% BOX
A rise in official interest rate would bring about five things, and cause total wreckage quickly. Therefore the present course will be kept, with full political support, expressed banker urgency, reckless vigor, ample justification, and growing desperation. The immediate fallout from moving off the present pathway of 0% money would be a fast falling USTreasury Bond or USDollar. Immediate effects from lifting the 0% rate:
1.Pinprick the USTreasury Bond bubble, loaded with too much short-term issuance
2.Deliver a louder death sentence to the housing market, crippled and falling again
3.Kill off several major banks, all of which are deeply insolvent
4.Send the US stock market into a powerful bear market, even with a PPTeam
5.Light the fuse for a credit derivative explosion, centered upon Interest Rate Swaps.
This is not complicated. The entire concept of an Exit Strategy has caused deep laughter and guffaws at my desk, even louder than from Green Shoots. Nothing even remotely could happen to permit an exit, since the system would implode. The experts call it a Liquidity Trap. The better description is a Tight Box with liquidity running so hard and fast that the entire foundation structure of the castle is dissolved. The box (USEconomy) has lost so much of its capital, such as industrial base, that it cannot walk. When a nation loses the bulk of its industry, in particular its ability to manufacture its own transportation vehicles, it is doomed. The US makers of cars, trucks, trains, and airplanes are in desperate straits. Then there is the decrepit infrastructure. The march to the Third World is clear.