There Will Never Be A Failed US Treasury Auction... Until There Is

[cubical]

Think about that.

Do you think the US will always and forever be able to pay for our over-bloated military-industrial complex and our wars of choice?

Do you think the federal housing agencies will always and forever be able to subsidize the real estate industry with money losing, non-economic mortgage loans?

Do you think the government will always and forever be able to pay on the promises they've made regarding Social Security, Medicare and Medicade?

Do you think the government will always and forever be able to extend debt-enslaving, subsidized student loans to anyone with a pulse?

Do you think the fiat ponzi central planners at the Fed will always and forever be able to manipulate the Treasury curve to whatever levels the Oracles of Delphi decide?

If you answer yes to the above, ask yourself this: how would all of these things be affected if the average interest rate paid by the US was to rise to 5%? At today's debt level of $15.6 trillion, the interest expense would be approximately $780 billion or about 35% of total government revenues. Welcome to the United States of Greece. Next stop, bankruptcy.

Housing will collapse as mortgage rates approach 8%. Every aspect of federal, state and local government spending will have to be slashed. Police, fire, schools, medical services, mail delivery, trash delivery, road maintenance and every other kind of social service will be cut dramatically as capital is diverted to pay interest on our debt.

And these sudden rate rises can happen brutally fast in our uber-connected global ponzi. Just ask Italy. 4% rates and it was bunga bunga time. Rates jump to 7% a few months later and suddenly the Vampire Squid has to send in one of their own to "save" the day. You get the idea.

I think it's no exaggeration at all to say that keeping US rates low, ZIRP low, for the foreseeable future (ie, forever) is key to maintaining the semblance of stability in the current global fiat ponzi. Nearly every major financial player on the planet is counting on this being an a priori piece of knowledge.

And there's your trade. Everyone is betting on this one idea - that the Fed will never lose control of interest rates and the US Treasury will never have a failed auction. The same way nearly every major financial player on the planet was willing to bet that US real estate could never fall for an extended period of time.

And we all know how that trade worked out.



Read the rest here

http://www.zerohedge.com/news/guest-...on-until-there

[Black Flag]

So, when the Auction fails to attract buyers at 1% what are the choices?

1) FED buys the T-bills @ 1%, triggering high inflation
2) FED does not buy T-bills and government defaults (government do not go bankrupt).

The will do #1, until inflation approaches 20%, then they will do #2.

The government will begin a staggered default - renege over here, pay over there. It will not be systemic.

The political battles will rage around who will get stiffed and who will not.

Bet on the geezers/welfare/tax-eaters to get stiffed - they do not pay taxes.
Bet on the youngsters/tax payers to win - they do pay taxes.

The Centralized power of government will collapse - politics will become regional and local - city politics will become central to the People's lives as all social problems - law (police), fire protection, welfare, and social services are ultimately a local issue - they all involve your neighbors.

If you agree, then the focus should be preparing the foundations of becoming civic politically involved ... now.... while no one is looking.

[legion]

Don't worry about the government. The Treasury can always tax more, seize assets, sell assets, print money, etc. You'd be foolish to bet against the Treasury for as long as the US Military is still obeying orders from the US Government.

[cubical]

Don't worry about the government. The Treasury can always tax more, seize assets, sell assets, print money, etc. You'd be foolish to bet against the Treasury for as long as the US Military is still obeying orders from the US Government.

That is why I told all of my friend that lived in Zimbabwe to load up on Zimbabwe bonds. As long as the government take seize assets and print money, they are fine.

[Cowlesy]

The 10-year is at what, 2.04%? While I agree that someday a Treasury auction could fail, it doesn't appear to be anytime soon.

[Domalais]

You will always be able to shit.

Until you can't.


Don't bet on being able to shit.