The Great Depression Online

Great Depression Online Archive Issue:

Checking the Mirror for Bruises

Great Depression Online
Long Beach, CA
April 14, 2009

Inside This Issue You Will Discover…

*** Quintupling the Previous Record Deficit
*** What’s this Guy Talking About?
*** Checking the Mirror for Bruises
*** And More

Quintupling the Previous Record Deficit 

“The Treasury Department said Friday that the budget deficit increased by $192.3 billion in March, and is near $1 trillion just halfway through the budget year,” reported AP, “as costs of the financial bailout and recession mount.”

Good grief.  At this rate we’ll overshoot the $1.75 trillion budget deficit projected for the year by the Obama administration by a jaw dropping $563.3 billion.  To put this in perspective, the largest previous annual deficit was set last year at $454.8 billion…$1.75 trillion is nearly four times that.  But when you tack the additional $563.3 billion on to the deficit, you’re talking quintupling the previous record annual deficit.

We’re going broke at a rate of $6.4 billion a day…you’d think it would be a heck of a lot more fun.

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All these deficit numbers were bouncing around our empty skulls as we read through the story.  We say empty because we just can’t seem to grasp how the government spending vast amounts of money it doesn’t have is supposed to produce an economic recovery.  We’ve heard all the leading theories on the matter…still, we don’t buy it. 

What’s this Guy Talking About?

Then, reading to the bottom of the same story, we came across this… 

“Lawrence Summers, director of Obama’s National Economic Council, said Thursday [April 9, 2009] there have been no indications that investors are growing worried about the size of the deficits.  On the contrary, he said yields on Treasury securities have been pushed lower by increased demand from investors seeking to hold Treasury bonds as a safe haven in uncertain economic times.”

Upon reading this we paused, scratched out head, and gasped…“What’s this guy talking about?”

For over the last several weeks we’ve come across numerous examples of investors – particularly foreign investors – growing worried about the size of the U.S. deficits.  In fact, leading up to the recent G20 meeting, it was a major point of contention.  We even wrote about it here in the GDO…twice (A New Global Reserve Currency?, One Billion Communists).

What’s more, at the recent U.S. Treasury auction, the demand for government debt was so low the Treasury had to adjust bond yields mid-auction, from 1.8 percent to 1.85 percent, to sell off the $34 billion in 5-year notes it wanted. 

And as for the extraordinarily low yields on Treasuries, we’re on record calling it the Mother of All Bubbles (The Mother of All Bubbles).  We believe the popping of the Treasury bubble – and its ensuing destruction – will make the dot com and housing bubbles seem tame and painless.

Checking the Mirror for Bruises

Looking for leadership from the captains of state these days is like looking for a diamond ring in the Los Angeles Jewelry District…the diamonds – like the captains of state – are in abundance, yet they’re the stuff of shabby imposters.  And where money and politics mix in the hands of the nation’s purse bearers, the bosh multiplies like mushroom fungus on a sodden cow pasture.

By saying there have been “no indications that investors are growing worried about the size of the deficits” maybe Summers means investors have yet to begin dumping Treasury bonds in mass.  If that’s the indication of worry Summers is looking for, it’ll be of little help to those who hold their savings or earn a paycheck in dollars.

Perhaps this nonsense from Summers is the same sort of idiocy that compelled Alan Greenspan back in 2002 – after the implosion of the dot com bubble – to insist he wouldn’t know a bubble if it blew up right in front of him…rather he would have to wait and check the mirror for bruises, that only after the fact could the bubble be detected.

Was it not obvious to anyone outside the Silicon Valley or Wall Street hype that the NASDAQ at 5,000 was just a tad lofty?  Or that 50-year old, 1,000 square foot bungalow homes in California at $750,000 were conceivably a rip-off?

What about 10-Year Treasury Notes?  Is it possible, that just maybe, perchance, 10-Year Treasury Notes yielding only 2.5 percent, while deficits are quintupling, just ‘might could’ be a bit of an unwarranted aberration?

According to the captains of state, you’ll have to wait and check the mirror for bruises for confirmation.


M.N. Gordon
Great Depression Online

P.S.  When the Mother of All Bubbles pops the dollar will be toast.  But with a little present action you could turn this into life changing wealth for you and your family.  Learn about this golden opportunity offered by the Crisis Strategy Alert service here: Crisis Strategy Alert.


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