Bonus Babies

The administration handed out vast amounts of taxpayer money to bail out the banks in the aftermath of the Lehman meltdown, and also abolished mark-to-market accounting so the banks could hide their true condition. The banks immediately seized this opportunity to assert that they were now making money, and this justified handing out all the taxpayer money (and then some) in bonuses to officers and employees, stripping the banks of capital intended to allow them to survive.

However, even though the public may have been taken in, the markets have not been fooled by this chicanery.

This is your reality. Not inflation, or hyperinflation. And not a flight FROM US Treasuries and the US dollar, but a flight TOWARDS them. Yes, gold is higher; a totally predictable knee-jerk reaction. Once the bank stocks lose another 10%-20%-30%, which could happen in a manner of days at the rate we’re going, that will change too.

That is because the plummeting bank stocks represent the vanishing into nothingness of what I’ve named “zombie money”. In other words, it’s not a matter of people, investors, talking their money out of one place, asset, and into the other, it’s instead a matter of -virtual- money disappearing. That will take down the price of gold. An important issue to wrap your brains around. More about that later.

As zero hedge points out, it’s not that US debt is any miraculous panacea any more than Japanese debt under similar circumstances. It is just the least bad option.

Where else (besides bullion) can one put it? It’s not as though the money managers regard Treasury Bonds, Notes and Bills as the ultimate safe haven, though. To the contrary, they can see just as easily as you and I that the U.S. is headed for financial disaster. Even so, Treasury debt still looks like a good bet to be the last major asset class to collapse. Perhaps. But by how many days?

Good question. This inquiring mind is watching carefully. Very carefully.

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