Monday, October 26, 2009

The U.S. Government's Debt Shell Game

Update: The link to the WSJ article below was broken. I re-linked to the article. I believe the article's content is free which is why I linked to it. If you cannot view the content, go to Google and type in "Preventing the Next Financial Crisis Wall Street Journal" and the article will pop up with full readability. A dirty little secret about the WSJ - content driven by a Google search is often free. If you go directly to the WSJ website, that same content requires a subscription. So, if you know the title of an article on but you don't have a subscription, you can often go to Google, do a search and read the content at no-charge. Obviously there is a reason for that. They are trying to drive Google traffic to

We have written about this quite a few times in the last year. I believe the first time was around last December when we wrote that the government was bailing out insolvent banks and these banks were turning around and bailing out an insolvent government. Most recently we remarked that this dynamic was probably a major contributor to why big banks are not being broken up. That the government needs these big banks to keep buying their debt.

Allan's remarks aren't getting a lot of mainstream traction but this is nothing more than a shell game. In fact, he really doesn't go far enough in explaining the dynamic and its consequences. The mega banks were insolvent and needed a bailout from the government, then the government is insolvent and needs the bailed out financial firms to buy its massive new issuances of debt to fund its wars, stimulus, global meddling, etc. Ha ha ha. (That's a nervous laugh not a jovial laugh.) I think we used to call this a pyramid scheme.

Mega banks serve the needs of the state. Community banks serve the needs of the people and a functioning society. If I draw this as a Venn diagram or write it as Boolean equations, we can logically conclude the state is not serving the needs of a functioning society. What a surprise.

It's good to be the king. Not much longer though.
posted by TimingLogic at 11:25 AM