Holy Credit Bubble Batman

The US Government added about $500 of debt per American in July.

http://thehill.com/leading-the-news/deficit-grew-by-181-billion-in-july-2009-08-09.html

Now Geithner wants Congress to approve raising the Federal Debt Limit, so that the Government can put the Average American still farther into debt.

http://online.wsj.com/article/SB124970470294516541.html

Here is a chart of the Total US Credit Market Debt as a Percent of US GDP. The chart only runs through March 2009. Notice the spike that drove the “Reagan Revolution”, the spike from 1994 – 2000 that drove the “Clinton Miracle”, the vertical ramp under Bush 42 and the vertical continuation under Team Obama.

Does anybody in their right mind think this is sustainable? You know how politicians think and that they won’t stop until the markets force them to. So the only issue is how big does this number get before it implodes?

Do you see the spike back in 1930 that followed “The Crash”? It is interesting how a vertical expansion of Credit did not cause that Crash. The Government reversed their loose money policies, the chart collapsed and the “Great Depression” extended into 1937-38.

I mention this, because the Fed and Bernanke keep telling us that they will not make the same mistake of tightening credit that was made in 1937. So how high will they launch this number?

If you believe Bernanke, he wants to grow “Aggregate Demand” (the denominator). So this ratio could fall as the economy expands. But we all know that the only thing keeping the economy from collapsing is that the Government printed $2.5 trillion of new money. I believe that the only ways the Government is going to get this ratio back in line is by increasing the GDP via inflation and a falling US Dollar.

If you look at this chart, you see that the real value of money has to be cut by 67%. **** me…

The Bond Market
The mechanism for controlling the idiocy of the Government is the markets. The market for controlling this idiocy is the Bond Market. The Fed decided that it would strategically purchase Bonds in an effort to manipulate this market. This practice is called Quantitative Easing.

Every couple weeks, the US Treasury raises money by selling newly created bonds, bills and notes. The sale of this paper effectively sets Interest Rates. The more bonds the Fed has to buy, the more the market is telling it that rates are too low. Rates should be higher to reflect either risk of default or inflation.

Here is an amazing piece from Chris Martenson. It is he shows that the Fed is rigging the Bond Auctions. We all know that the Fed is buying Treausries. However, what they are also doing is getting the major Brokerage Firms and Banks to buy the bonds at auction, to make it appear as if there is demand for them – so that rates don’t have to go higher. But then a few days after the auction, the Fed buys these newly created bonds from the banks! It is just blatant manipulation. But it allows the Fed to declare that the auctions were a "success".

http://www.chrismartenson.com/blog/fed-buys-last-weeks-treasury-auction/23880

It is just a matter of time until US Treasuries collapse and the US Taxpayer is left on the hook with Trillions of Dollars of newly-refinanced Mortgages and newly-created US Treasuries. The seeds have been sown. This is Indian Summer for the markets. This is the “heyidiot.com” rally on a broad market scale. It will go up and the creation of credit will go up until it doesn’t any more and then it will all implode. Or you believe that the same geniuses who got us into this mess (and got rich doing it) will be the same ones to get us out of it…