So where are we now? It's a vexing question, and I try to evaluate it somewhat frequently because I am concerned about the situation were in and where were headed. Essentially, these efforts by the fed has added some 3 trillion in debt to the fiscal years deficit. We wont pay it, we cant, were broke. Treasury auctions have been seeing huge "tails" or premium above market to close a transaction, one was as high as 40 basis, some have been 20 basis. But overall there has been something amiss in the treasury markets, I havent been able to put my finger on it until today. The article is a few days old, from the 19th - I just saw it today.
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081019/REG/310209975/1009/TOC&ht
Delivery failures plague Treasury market
QuoteThe latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day).
The outstanding U.S. public debt is $10.3 trillion.
A treasury fail is a failure of the entity selling the treasury of delivering it to the buyer within the identified time. In the "short" sale list, this is called the REGSHO list, and it identifies sellers that are selling something they do not actually have. Primary dealers are selling treasuries that do not exist, the "safest" form of safety is potentially worthless.
There is simply no way this fraud does not end in structural failure.
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So back to the question, where are we? We are illegally printing money with the direct intent to ramp inflation in hopes of offsetting the deflation related to the destruction of money and credit in the current crises. Illegally printing money - yes, I believe so. And for years I have argued with many on this point, that it doesnt work that way, that money is born from debt. It's not the case anymore, they are zooming out 1s and 0s with no bondholder on the other end. Please consider the monetary base:
(http://2.bp.blogspot.com/_nSTO-vZpSgc/SQDn0DNnwpI/AAAAAAAADnM/7JyyALDfOLQ/s400/base-money.png)
Or consider the banking borrowing statistics:
(http://research.stlouisfed.org/fred2/data/BORROW_Max_630_378.png)
Where now? Who knows, their is a good chance of a bond market collapse in the coming weeks, like 70% chance of it. I cant see how anyone would buy any debt now. With or without a US guarentee what good is it if you dont get paid? Assuming we avoid that, we still have the current track of deflation to deal with, and if we beat that then we would have a hyperinflation condition to deal with. Law of unintended consequences is quite upsetting.
Were not through this yet, hell they may still be singing the national anthem before the game really even starts right now.
George H W Bush already told you in 1991 I think--- When we are successful - and we will be.....