Sunday, January 3, 2010

The New Treasury Note

December was a busy month for me therefore I didn't get much posting done.

However, I feel this piece is fitting as we bring in the New Year with an idea of what's to come in our country.

Ever since we terminated the Bretton Woods agreement and severed the ties the dollar has with gold, our nation has struggled to convince the rest of the world that the dollar is actually worth something.

Committing ourselves to a strictly fiat currency, we assured the world that the value of the dollar would be the labor of the citizens themselves. The government would tax our labor and pay back it's debts to the world. That works great as long as people have jobs and the Gov doesn't spend more than our labor can possibly pay for. Which is of course the case today for all thinking men to see. The governments debt obligations are greater than all the world's combined GDP's. A couple of times over. Labor wasn't cutting it. They needed to add more to the pot to sweeten the deal.

Next, we started acquiring rights to the world's oil vis a vis our large oil corporations with the backing of the US Military. You know, those people dying in foreign lands to secure oil for us so we can gas up our Hummers in order to hit Taco Bell at 3:00 A.M. in the morning. Brave souls, thank you so much. But I don't eat fast food...the iPod's great though!

This was bitter sweet for the whole world, hard for them to swallow. By the time we were well into the 70's and moving on into the 80's, fiat currency had a strong foot hold on the economies of the world. Our military was not to be reckoned with, nor was our oil. So our dollar had new value, labor and oil and a little bit of arm twisting here and there; like Bruno would do.

But the government kept spending. And now it appears that as unemployment is rising and the worlds largest oil fields are declining in production the world is starting to question whether or not the US government will be able to meet all of it's debt obligations. We know this is happening because of the declining purchase of Treasury notes by foreign entities. They require more value. When the labor force is diminished and the oil is drying up, what else have you got? Gold? Nah, we most likely leased all that out and besides, we printed up so much money that the price of gold would go so high, governments of the world would have to jump through rings of fire to get people to use the stuff again.

Hey! We've got land! We've got lots and lots of land that those pesky, foreign creditors might be interested in. Only one problem. What to do with it? And oh, there's so many houses on all that land. Wait, wait, light bulb moment! The value of the currency comes from labor and taxes and oil (we could probably add opium from Afghanistan but I'll leave that alone). If the government could figure out a way to add all the homes in America (or most anyway) onto their balance sheet, they wouldn't have to worry about the value of Treasuries anymore, you could just sell stock in Fannie Mae and Freddie Mac because that's an excellent revenue source for the government. So as foreign governments buy less Treasuries we can entice them with something that actually has value, homes. A tangible asset unlike a Treasury which is simply a promise.

So as your children were nestled all snug in their beds, while visions of sugar-plums danced in their heads, Congress confirmed mortgages were dead and the move they made next, filled me with dread.

They passed a bill on Christmas Eve, when NO ONE in the world was watching, that would back stop an unlimited amount of bad debt written off by Fannie and Freddie. Being that the Gov seized both companies in 2008, if your note is held by Fannie or Freddie, you are now another revenue source for the Gov. If you lose your home, the Gov now owns your home. That is until they can sell it again to another revenue source in proper commie pinko fashion. And that person will never pay their mortgage off because the Gov will make sure you lose your job in x number of years and force you to foreclose, keeping that asset on their books forever more.

I'm going to list the article here in it's entirety lest Bloomberg decides to pull it, which they've been known to do....


U.S. to Lose $400 Billion on Fannie, Freddie, Wallison Says

Dec. 31 (Bloomberg) -- Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.

The U.S. seized the two mortgage financiers in 2008 as the government struggled to prevent a meltdown of the financial system. The debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks grew an average of $184 billion annually from 1998 to 2008, helping fuel a bubble that drove home prices up by 107 percent between 2000 and mid-2006, according to the S&P/Case- Shiller home-price index.

The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted.

Lax regulation of Fannie Mae and Freddie Mac led to the mortgage companies taking on too many risky loans, Wallison said.

“It turns out it was impossible to regulate them,” he said. “They were too powerful.” He said no one knows how much will be needed to keep the companies solvent.

From 1990 to 1999, Wallison served on the board of directors of MGIC Investment Corp., the largest U.S. mortgage insurer, including a stint on the audit committee, according to Bloomberg data and company filings.

The continued government support of Fannie Mae and Freddie Mac makes buying their debt a good investment, Wallison said.

“It was always safe to buy these notes,” he said. The U.S. government was always going to stand behind them. They’re as good as Treasury notes.”

To contact the reporter on this story: Matthew Leising in New York at

So this guy, Wallison, former counsel for the Treasury, says the Gov was always going to stand behind them (Fannie and Freddie) even though at one point in time they were privately held?

Sorry but does anyone else here smell a set up? This appears to be years in the making.

What can we take from this? Well, it seems evident to me that the Federal Reserve is anticipating either a significant decline in the purchases of Treasuries or they are expecting to need a whole lot more money to fund their deficits. You see, as the trade deficits shrink throughout the world as Americans buy less, foreign governments have less money to buy Treasuries with. But if they can entice the average investor and large institutions to invest in equities like Fannie and Freddie, maybe, just maybe they can make up for the difference in revenue.

Moral of the story, Treasuries are dead. If you have 'em, sell 'em. The only real question here is, to what extent are the Treasuries dead? And here's something to watch out for and you heard it here first.

Will the Gov wipe out the existing share and bond holders in order to compensate current Treasury Note holders with Fannie and Freddie stock once the Gov defaults on them and crushes the currency? Seems to be heading that way in my thinking.

Protect yourselves from these madmen. It's the four B's time. Bullion, bullets, bible and beans.

At the very least, prepare yourselves for the Treasury Tidal Wave coming our way. Get some silver and gold to protect yourselves from the devastating hyperinflation coming our way. Nearly guaranteed at this point.

Good luck in 2010.

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