Monday, May 16, 2011

Over the Debt Limit and Over the Edge

Just in case you are like about 98% of American's who will think that nothing of importance happened today, we duteously inform you that today, May 16, 2011, is a seminal date in American history, as it happens to be the day the US government purposely and willfully exceeded the statutory debt limit and began raiding the federal employees' pension fund, specifically, the Civil Service Retirement and Disability Fund (“CSRDF”), in order to keep the federal government operating.

It's all laid out in detail in this letter [PDF] from Treasury Secretary Timothy Geithner to Senate majority leader Harry Reid.

In a nutshell, since Treasury cannot issue any more debt by which to operate the hopelessly bankrupt government, they will take the funds from whatever government agencies have money, with a promise to repay once congress acts to increase the debt limit. In case they don't - and there's ample reason to believe that this current bunch of uneducated, deceptive and uncontrollable legislators may not - then too bad for all those federal employees who thought they had it made in the shade. The government will shaft you first. The rest of the public citizenry will be shafted in other ways, at a later date.

This is pretty serious stuff, and the end-run by Geithner around the debt limit gives the congress until August 2nd to sort things out. But, it's by no means a done deal or even close to it. The Republicans are calling for steep deficit reductions in the upcoming 2012 budget, while the Democrats are pushing for tax increases. In all seriousness, neither idea has any chance of passing, so the obvious alternative is to declare war and issue emergency powers.

What's that? We're already at war? In three different countries? Well, then, no problem-o! Spend at will.

Last week - and in measured ways over the last three years - this blog prepared its readers for calamity of varying degrees to be foisted upon the public, saying that chaos would prevail and with today's action by the Treasury, so it has.

Now we have rigged markets, a rogue government, spending completely out of control and borrowing beyond constitutional limits. The government has commenced paying back debt and paying bills with money collected from federal employees; money that was supposed to fund retirements and payments to disabled workers. And while no current retiree will be affected, future ones may well be. It's all in the hands of probably the worst congress (and that's saying something) ever to be seated. Well, good luck with that.

The stock markets took it in stride, first dipping into the red, then going positive, then the NASDAQ taking a nose-dive, and a final-hour smash-crash which took down the other indices. It was spooky, surreal and and absolutely frightening day.

On top of that, over the weekend, the head of the IMF, one Dominique Strauss-Kahn, was arrested in New York on a range on charges related to his alleged rape and sodomizing of a hotel maid. Since then, Mr. Strauss-Kahn has been denied bail and formally charged.

So, we now have a rogue congress, administration and the head of the world's most powerful and influential financial organization behind bars. Can it get any more ridiculous, any worse? Oh, yes, and it definitely will, shortly.

QE2 ends in a few more weeks, and with the free Fed money spigot about to be closed, expect the ruinous crowd on Wall Street to head for the hills, selling as many stock certificates as they can unload before peeling out the door. One problem may be that there will be no takers for their inordinately over-hyped investments, and they will have to sell them for much less than the levels at which they currently trade. If that occurs, we like to call such events a market crash, and there will be no bailing out this time, no savior from above, like the Fed, because they too are over-leveraged and tapped out. This time it will be for real, and it will not recover.

So, hang in there, buy more silver and gold and hope that your garden vegetables head for harvesting before the wheels fall completely off the federal fiasco and the world ends.

And, if you're scared, worried and/or confused by all this, take heart that you should be and that you are by no means alone. We all stand to lose everything if this doesn't go well.

Dow 12,548.37 47.38 (0.38%)
NASDAQ 2,782.31 46.16 (1.63%)
S&P 500 1,329.47 8.30 (0.62%)
NYSE Compos 8,336.59 35.08 (0.42%)

Declining issues took the measure of advancers, 4744-1843. Just in case more proof of the severity of this unannounced crisis was needed, the NASDAQ provided it in the form of flipping the new highs-new lows metric. Today, there were only 40 new highs and 67 new lows. The NYSE compressed, but did not flip (it will), with 104 new highs and 35 new lows. Volume was fairly pathetic, especially on the NYSE. In coming days and weeks, expect more and more stocks to begin selling off, first, in a somewhat orderly fashion, but as the end of QE2 approaches, in a real rush for the exits. Incidentally, banking stocks fell anywhere from 1/2 to 1% on the day. It's only fitting that the companies that led us into depression will be - again - the worst affected.

NASDAQ Volume 2,071,148,875
NYSE Volume 3,888,652,000

Commodities were a mixed bag. Crude oil slipped $2.28, to $97.37. What's of particular concern, however, is that while oil has slumped 14% over the past two weeks, the price of gasoline in the USA has fallen only ONE CENT PER GALLON. The rule of thumb used to be that the price of gas would rise or fall two to two-and-a-half cents for every dollar per barrel move in oil.

Apparently, now that the kleptocracy has gone full retard, that rule no longer applies. Gas will, from now on, cost whatever the oil cartel believes it can charge whether that price be fair, rational or based upon any measure of supply and demand.

Gold was higher earlier in the day, but now trades $5.40 lower, at $1489.80. Silver continues to be the bankers' favorite whipping boy, losing another $1.70, to trade at $33.60 [ON SALE, BUY MORE]. Under siege from HSBC and JP Morgan Chase, the world's biggest shorters of the commodity, silver should continue to experience weakness and erode down to the upper 20s in price. This is a unique buying opportunity in one of history's most manipulated and currently-undervalued pure forms of money.

It will get even more strange and perverse in global markets. Today was only the beginning.

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