Caveat Emptor

from LeMetropole cafe

I cannot emphasize this enough. The collapse in the U.S. Treasury’s financial condition is accelerating much faster than I thought would happen. While everyone is worried about higher taxes, the exact opposite is occurring. Personal and corporate tax receipts are plummeting. Corporate profits have vanished faster than any time in American history; profits are not coming back any time soon. With continuing claims hitting new highs, with commercial and residential foreclosures hitting new highs and with credit card delinquencies hitting new highs, it is simply not credible to believe that there will be any improvement in the financial condition of the U.S. consumer anytime soon. U-6 unemployment has gone from 9.1% to 15.6% in one year. Consumers continue to deleverage and banks refuse to lend to anyone with less than stellar credit. Meanwhile, social welfare payments and financial institutional bailouts are accelerating. Last week Goldman raised financing needs of the Treasury to $3.25T for this year.

The Federal Reserve’s response of monetizing the debt is something I predicted. This is accelerating as fast as the deficit expands. This is what happened in the Weimar Republic (no political will to raise taxes yet a political decision to accelerate spending to keep the labor force from rebelling). I have been expecting a currency collapse for more than a year. I was early on my prediction of the Internet Bubble collapsing and the housing market collapsing also. In the end the fundamentals mattered. The most important emerging trend which I can identify currently is the collapse of the condition of the U.S. Federal Reserve’s Balance Sheet and the cash flow requirements of the U.S. Treasury. IMHO Operation Green Shoots is a concerted and intentional effort spearheaded by Larry Summers (Harvard Behavioral Finance) to convince everyone that the worst is over. In essence he is attempting to start the third bubble of the decade. They have encouraged banks to report fraudulent earnings by forcing a change in FASB. Operation Green Shoots is based on spin and not reality; therefore, it sprouts will wither shortly. Caveat Emptor!