[Editor’s note: the following article first appeared on the website Bullion Bulls Canada on May 15.]
With towns, municipalities and even states across the U.S. teetering on bankruptcy, and essentially shut-out of credit markets due to the high risk attached to their debt, once again the “free enterprise” government of the U.S. is stepping in to totally manipulate a market (see “Treasury plans help for muni bond market”).
The same U.S. government which intends to intervene and insure state and municipal debt has also announced it intends to “pressure” (so-called) credit-rating agencies to give U.S. states and municipalities higher ratings. This bears an eerie resemblance to Wall Street's multi-trillion dollar Ponzi-scheme, where U.S. banksters “pressured” credit rating agencies (with money) to rubber-stamp the fraudulent feces they were selling as “AAA” - and then the investors victimized by Wall Street watched one “toxic” investment after another implode.
Apparently, the U.S. government has decided that the scam worked so well the first time (at least, at first), that they should start up their own Ponzi-scheme in the municipal bond market. Expect the corrupt and servile ratings agencies to meekly submit to these pressures.
However, merely creating another, huge Ponzi-scheme does not guarantee a new supply of foolish victims – ready to throw away their money based on false promises of “security”. Another news item today reported that a large Singapore investment fund, Temasek has dumped all of its Bank of America shares – absorbing roughly a 75% loss in the process.
How many people will be fooled if California's “single-A” credit rating is jacked-up, when they hear the state's governor wondering out loud whether he should close the prisons or the schools. Gutless politicians at all levels of government refuse to take the necessary action to avoid their own bankruptcy: raising taxes.
Instead, these leaders are abdicating their responsibility and submitting “initiatives” to voters – asking them to approve tax increases. If the initiative passes, then political “leaders” can escape the wrath of voters already squeezed by collapsing asset prices and falling wages – by blaming the voters, themselves.
If voters refuse to authorize tax increases, placing these governments in imminent danger of bankruptcy, these same spineless “leaders” can then scurry to the federal government and beg for help, claiming they did “everything possible” to avert bankruptcy. After all, if the Bernanke printing press can supply $10 TRILLION in hand-outs and pledges for the U.S. financial crime syndicate, then surely “Helicopter” Ben can print up another trillion or so to bail-out towns and states.
The same U.S. government which believes it can solve all its problems through manipulating markets and printing infinite amounts of money is trying to simultaneously convince its previous scam-victims that the U.S. economy is now “stabilizing”, and its bonds are risk-free.
The same U.S. government which has promised “transparency” in its financial products to investors – at home and abroad, is now eagerly embarking on another scheme to remove transparency in the municipal bond market by attaching “AAA” rubber-stamps to its municipal bonds – rather than allowing the market to assign realistic credit-ratings to these high-risk bonds.
Keep in mind that potential investors are facing two categories of risk here. First there is the direct risk of default. Once almost negligible, such risks are now substantial – given that several municipalities across the U.S. have already declared bankruptcy.
The second risk faced by all investors purchasing any asset denominated in U.S. dollars is the huge currency-risk. Despite being burdened with more debt than the rest of the world combined, despite recklessly printing money at record rates, and printing up hundreds of billions of dollars “buying” its own bonds, the U.S. dollar has been propped up to an absurd level.
Indeed, without a dramatic devaluation of the U.S. dollar, the U.S. government will be crushed by its own mountain of debt – in a Soviet Union-like implosion. The scheme (and scam) is to try to use the temporarily high value of the U.S. dollar to lure in trillions more from already-burned foreign investors, and then to let the U.S. dollar crash.
While I have consistently underestimated the stupidity of market-lemmings, I would suggest that most of those lemmings have already plunged off a cliff – leaving far too few “chumps” to soak-up the trillions in scam-bonds, which the U.S. government needs to flog.
This article was written by a member of the Stockhouse community.
To read more work by Jeff Nielson, visit Bullion Bulls Canada.