Another look at Cadillac Ranch...

Run on the U.S. Dollar ....Soon

Nov 30, 2009 - 04:33 PM

By: DailyWealth


Porter Stansberry writes: It's one of those numbers that's so unbelievable you have to actually think about it for a while...

Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion.


Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?

How did we end up with so much short-term debt? Like most entities that have far too much debt – whether subprime borrowers, GM, Fannie, or GE – the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. As they say on Wall Street, "a rolling debt collects no moss."

What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt... at ever shorter durations... at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.

When governments go bankrupt, it's called a "default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists – Alan Greenspan and Pablo Guidotti – published the secret formula in a 1999 academic paper. The formula is called the Greenspan-Guidotti rule.

The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world's largest money-management firm, PIMCO, explains the rule this way: "The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support."

The principle behind the rule is simple. If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.

So how does America rank on the Greenspan-Guidotti scale? It's a guaranteed default.

The U.S. holds gold, oil, and foreign currency in reserve. It has 8,133.5 metric tonnes of gold (it is the world's largest holder). At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether... that's around $500 billion of reserves. Our short-term foreign debts are far bigger.

According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we've been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months – an amount far larger than our reserves.

Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.

So... where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we're still going to come up nearly $3 trillion short. That's an annual funding requirement equal to roughly 40% of GDP.

Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or Russian central banks, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.

So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.

One thing they're not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None owns even 1% of its total reserves in gold.

All of this is going to lead to a severe devaluation of the U.S. dollar... Which I expect to happen within 18 months. I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry's Investment Advisory, which was published last week. Coincidentally, America's paper of record – the New York Times – repeated our warnings (nearly word for word) last weekend. Word is getting out.

If you haven't taken steps to protect yourself from the coming devaluation – like owning gold and silver bullion, foreign real estate, and farmland – make sure you do it soon. The dollar rout is coming.

Good investing,

Porter Stansberry

http://www.marketoracle.co.uk/Article15449.html

http://kunstler.com/blog/2009/11/wic...ides.html#more
Wickedness Abides
by James Howard Kunstler
on November 30, 2009 7:12 AM

"While Dubai is not big enough to set off financial repercussions outside the Middle East, the main fear is that investors could flee risky markets all at once in search of safer havens for their money." -- The NYT, Vikas Bajaj and Graham Bowley, reporting.



Apart from the stark self-contradiction in this quote from The New York Times, you have to love the fatuous 'it's all good' self-assurance where global banking is concerned. No problemo y'all! A mere overdraft incident, a cash-flow hiccup... and yet "the main fear" [among whom?] is that investors [where and in what? Like, everywhere?] could flee risky markets all at once in search of safer havens for their money [WTF?]. Gosh, well, as long as they don't flee the New York Stock Exchange, the Hang Seng, the FTSE.... And, hey, do you suppose anybody bought any credit default swap "insurance" on the deals that financed scores and scores of super-giant condominium skyscrapers and hotels amounting to the greatest spec construction folly in the history of the world?

Snapshots of the stupid ****ing work-in-progress have been circulating around the Internet for five years, the disbelief was so monumental. I confess, when I first saw the Palm Island I was impressed at what a superb air-strike target it presented. And then, when the real estate assemblage of artificial islands arranged like a map-of-the-world came along, I could only imagine the megalomanical glee rising in the throat of a jet bomber pilot (nationality unspecified) as he closed in on it.

Whom the gods would punish, they first make completely crazy. That includes us, here in the USA, by the way, but pound-for-pound Dubai is the current champeen. The monstrosity they built in their waterless convection-oven of a city-state makes Las Vegas look like a mere strip mall in comparison. Throw in a few other affronts to nature, such as an indoor ski "mountain," a beach cooled by an under-the-sand refrigerated pipe network, golf courses that have to be hosed down with acre-feet of desalinated sea-water, and forget about "the gods" -- one begins to see the monotheistic hand of "Old Scratch" himself working the levers of the construction cranes out there.

Frankly, I have no idea whether the Dubai fiasco will send seismic ripples thundering through a global banking establishment that is already crippled in more ways than you can count. But it does remind those in thrall to the dazzlement of "green shoots" that debt comes a'creeping, and runs so far, deep, and wide through the broken system of mutual assurances constituting international finance, that Ben Bernanke and his counterparts in central banks 'round the world could drop helicopter loads of paper cash on every rooftop, intersection, parking lot, field, forest, and camel raceway and never make a dent in the fatal web of false obligations we have woven for ourselves.

But you do wonder what was going through their minds as this ridiculous organism took shape on the horn of the Persian Gulf, just as one wonders at loathsome aspirations that Las Vegas presents in our own so-called culture -- essentially a wickedness that exceeds the wildest fantasies of the most demented clergymen, be they closeted sado-masochistic Southern Baptist teleministers, Vatican-approved child molesters, or mullahs dispatching suicide bombers to the marketplaces frequented by housewives and their children.

Lately, the much-repeated aphorism has circulated around the Web that civilizations build their most extreme monuments at the very moment of collapse. If this is true -- and it is hard to argue with the historical record -- then it's time to organize a new Third Party for the 2012 election with Jared Diamond and Cormac McCarthy heading the national ticket (and Roland Emmerich for EPA chief). By then, if we don't stop lying to ourselves about the destruction we have induced, every other suit-and-tie wearing authority figure in America, from the county clerk to Barack Obama, will take on the aura of the archetypal Evil Clown from a Stephen King yarn. Imagine living in a country where absolutely nobody in a leadership position is credible. This is the kind of country we're becoming and it will not keep running that way for long.

The markets will begin digesting the Dubai news in earnest today, making for a holiday season of possibly momentous thrills-and-chills. The big debate going into Thanksgiving was whether the dollar would continue its downward trajectory, leading to some kind of currency failure, hyper-inflation, take your pick... or turn briskly around as investors bailed out of risk vehicles for the conventional safe-haven paper parking lot of US Treasuries. This debate between the inflationists and deflationists has defied resolution all year. Personally, I side with the deflationistas these days, though I believe our ultimate destination, in a year or so, is destruction of the dollar.

In keeping with the wickedness theme, isn't it interesting that our society now vests all its hopes and wishes for thriving -- indeed survival! -- on a yearly ceremony we have come to call Black Friday. I was raised in a religion-free household, but I confess the signs are just everywhere that we've taken some turn to the Dark Side. I'm a little surprised that "consumers" were not caught on video wringing the necks of chickens in the WalMart parking lots the other day in the hopes of winning supernatural favor for that race down the aisle to the flat-screen TV loss leaders. The cinemas are full of blood-sucking teenagers. Grown men swarm in the unemployment offices wearing sideways hats and butt-crack trousers. Why not just tattoo a message on your forehead that says: "Moron For Hire"?

Dickens of a Christmas...Day 2...

Lots of folks out spendin that cash and having a good time!
Good for the city!...

Dickens on the Square this weekend!...

Cadillac Ranch...

"The Cadillac Ranch, located along the tatters of historic Route 66, was built in 1974, brainchild of Stanley Marsh 3, the helium millionaire who owns the dusty wheat field where it stands. Marsh and The Ant Farm, a San Francisco art collective, assembled used Cadillacs representing the "Golden Age" of American Automobiles (1949 through 1963). The ten graffiti-covered cars are half-buried, nose-down, facing west "at the same angle as the Cheops' pyramids."

Playing with off camera flash!

http://kunstler.com/blog/2009/11/cou...sion.html#more

Courting Convulsion
by James Howard Kunstler

How infantile is American society? Last night's CBS "Business Update" (in the midst of its "60 Minutes" program) featured three items: 1.) The New Moon teen vampire movie led the weekend box-office receipts; 2.) Cadbury shares hit an all-time high; 3.) Michael Jackson's rhinestone-studded white glove sold at auction for $350,000. Some in-house CBS-News producer is responsible for this ****ing nonsense. How does he or she keep her job? Is there no adult supervision at the network?

Meanwhile, over at The New York Times this morning, Paul "Nobel Prize" Krugman writes:

"Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts; the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence."

Disclosure: I'm not one of the economists that Mr. Krugman talks to (nor am I an economist). But it's sure interesting to know that the ones palavering with Mr. Krugman imagine that that the US can possibly return to an economy based on the fraudulent securitization of reckless debt. Does Mr. Krugman think that the production housing industry can resume paving over the nether exurbs with half-million-dollar houses (to be bought with no money down loans by the sheet-rockers working inside them)? Does he think all those people receiving cancellation notices from their credit car issuers are in a position to flash their plastic at the Gallerias this Friday? Or ever will be again? Is he perhaps misusing the term "recovery?" After all, that is generally taken to mean resuming a prior state, which is, in turn, presumed to be a healthy prior state. Is that what the economy of the past decade was? And, incidentally, what exactly is a "consumer?" And why, at the highest levels of journalism in this land, do we refer to citizens that way? As if the American people have no other purpose except to buy things? Or is that that the only way an "economist" can imagine them?

I'm sorry to burden the reader with so many questions, but the idiots running the mainstream news media in this land are not doing it and somebody has to.

If a "recovery" is not in the cards, then what exactly is going on out there?

What's going on in the US economy is a slow-motion convulsion from which we will emerge as a very different nation with a different economy. The wild irresponsibility of the media in pretending otherwise is only going to make the convulsion worse, more painful, more socially and politically destructive. The convulsion can be described with precision as one of compressive contraction. Historic circumstances are requiring us to change our behavior, to make new arrangements for everyday life in all the major particulars: capital accumulation and deployment; food production; commerce; habitation; transport; education; and health care. These new arrangements must be organized at a smaller and finer scale, and on a much more local basis.

The main "historic circumstance" mandating these changes goes under the heading of "peak oil." We've come to the end of our ability in this world to increase energy inputs to the global economy. The routine "growth" in industrial activity and production that has been the basis of our financial arrangements for 200-odd years is no longer possible. Offsetting this decline in oil energy "input" with "alt.energy" is a dangerous fantasy because it distracts us from the urgent task of making new arrangements for trade, food production, et cetera - the very things that would provide jobs and social roles for our citizens in the future.

We are seeing a comprehensive failure of leadership in every sector and every level of American life - in politics, business, banking, education, news media, medicine, and the clergy. All are determined to pretend that we can somehow continue the habits and behaviors of the pre peak oil era. They are all unwilling to face reality, and are all engaged in mutually supporting each other's dangerous fantasies.

If we don't attend to the transformation of American life by downscaling our activities and changing the way they are carried out, and re-localizing them, we will see our society disintegrate - and I use the word "dis-integrate" with purposeful precision. Everything will come apart - our political arrangements, our households, our health and well-being.

At the moment, banking is disintegrating. It's happening because the end of regular, predictable, cyclical, industrial growth means the end of our ability to generate credit without limits, and in fact we passed this point by stealth some time ago leaving the banks in "Wile E. Coyote" suspension above an abyss, where they have lately been joined by government at all levels and the indebted citizens of the land. The profound nausea spreading through the offices of America is the somatic recognition of exactly where we are in all this: off the cliff.

It's important to remind readers that so-called "capitalism" is not to blame. Capitalism is not an ideology. It refers to a set of laws governing the disposition of surplus wealth. There is going to be surplus wealth somewhere in the years ahead, even if our living standards fall substantially, even under the strictures of peak oil. All the communist experiments of the 20th century produced some kind of surplus wealth. All of them were subject to the phenomenon of compound interest. What matters in the disposition of capital are the rules created for accumulating and deploying it. In the USA the past two decades, we ignored the rules, repealed some of the critical laws, and failed to enforce the existing ones so that, when faced by the historic circumstances of peak oil, we allowed fraud and swindling to run wild - just at the moment when we should have taken the most care. That is why our money system ran off the rails.

We're now seeing worldwide a kind of race between the assertion of peak oil and the failures of capital management as to which will provoke a widespread convulsion first. They are obviously related and whichever gets us in the most trouble fastest, our destination is the same: the absolute necessity to reorganize how we live. Among the many elements of this is the fact that "globalism," in the Thomas Friedman sense of the word, is over. The urgent need to re-localize economies makes this self-evident. As a practical matter for us, this means committing to import replacement - making things we need in the US, probably much more regionally. "Globalism" now joins the many other fantasies that we can no longer indulge in.

At the moment, going into Thanksgiving 2009, America's leadership has dedicated itself to worst action it could take under the circumstances: a campaign to sustain the unsustainable. This is what's embodied in the foolish term "recovery." The way we try to explain things to ourselves matters, if we don't want to be crushed by history. Go back to the top of this blog and look at the things we pay attention to. Aren't you ashamed?

Pictures from Groom, Texas...
The sculptured bronzes in the Stations of the Cross are life-size...