"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Monday, April 25, 2011

How To Fleece A Bunch Of Idiots That Are Too Distracted With Sex, Acting Cool, and Not Increasing Intelligence

In the world of increasing exposure and influence of garbage music and movies the intricacies of financial markets are taboo and beyond the comprehension of the general public.  Many are worried about their image, their associations, what they "like", where they hang out, what they drink, what team they root for, whatever.  In the meantime another group has been working diligently on complex interactions of mechanisms that support what we understand as financial markets.  This is how a group of people, who stay away from the mainstream crap, can work you to serfdom without you ever knowing....

Let us assume the Fed is actually doing exactly what it plans to do: Crush the dollar, buy bonds, sit back and collect returns in a risk-free environment.
Ideally any investor who wants risk-free returns will buy Treasury's that have a high yield, relative to the group.  The only way to increase rates on the Treasury's is to make the market supremely dependent on a single buyer or a central bank (The Fed anyone?).  Once the supply is slopped up the rates begin to drop again. Now rates are low so the single buyer or central bank (Fed anyone?) stops purchasing Treasury's (cancel QE2).  When this happens, the world biggest bond fund dumps the risk free asset with the expectation of a depreciating face value and an increasing yield (PIMCO anyone?).
Those left holding Long-Term Treasury's are losers as rates increase, unless they are Treasury Inflation Protected Securities, TIPS, provided the baseline inflation expectation is not criminally manipulated lower than it actually is.  Calibrated Confidence posted previous that MIT cancelled its Online CPI measure for individual countries in the effort to combine them into one "World Inflation Index".  Also note that the same post referred to the Cleveland Fed manipulating CPI measures to achieve lower annual rates.  Hmm.....

Once rates jump and face values drop on Treasury's, the single buyer or central bank (Fed anyone?) buys up the bonds.  Remember face values drop when the Supply is larger than the Demand.  Every month, like clockwork, the Treasury must auction billions of dollars worth of bonds, $10bn to $100bn, and without buyers the price drops as less money chases more bonds in an environment with depreciating face values.  The bonds must be sold and without the central bank buying them, prices drop.  Sure someone else could buy them, like the Chinese with their reserves but they know the value of the currency is falling in the US so why would you buy something denominated in USD that will be worth-less when you go to sell it?  The Europeans have no money to buy T-Bonds and as last reported the Middle East has its own problems to currently worry about.  So the last option is that once rates are controlled higher, the buyer steps back in. 

Now for the infamous Rabbit Hole:
Once rates choke out the economy like they did in the late 70s and early 80s, people starting complaining about spending and ask the Federal Gov't to stop spending so much.  Austerity reduces the bonds supply and rates decline, boosting the face value of the High-Yield debt from earlier.  To service debt costs, taxes are raised on the remaining productive societal members.

The Con is to strip the public coffers, impose higher rates and austerity, purchase debt with the cash taken from the public, and sit back & collect risk-free returns as taxes are increased on the remaining idiots left out of the loop.  Essentially the Elitists own the revenue stream of the Federal Gov't and the taxpayers.  In "saving our financial system" the public borrowed trillions, transferred it to the Elites, who bought the public debt with the money taken from the taxpayers.  Each year, in the form of interest, the public transfer more money.  The power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.  

And that is how you con the public into serfdom without them even being able to see it.