[Cid_Yama]

$this->bbcode_second_pass_quote('', '[')b]The dollar has fallen 11pc against a basket of currencies since early March. Mutterings of a "dollar crisis" may now constrain the Fed as it tries to shore up the bond market. It has so far bought $116bn of Treasuries as part of its "credit easing" blitz, out of a $300bn pool.

Warnings by the Japan's DPJ opposition party that, if elected this autumn, it would not purchase any more US debt unless issued in yen, is a sign that the political mood in Asia is turning hostile to US policy.

Kyle Bass from the US fund Hayman Advisors said the markets were choking on debt. "There isn't enough capital in the world to buy the new sovereign issuance required to finance the giant fiscal deficits that countries are so intent on running. There is simply not enough money out there," he said.

"The bottom line is that there is no global 'get out of jail free' card for anyone", he said. The US is acutely vulnerable because it relies heavily on foreign goodwill. China and Japan alone hold 23pc of America's $6,369bn federal debt. Suspicions that Washington is trying to engineer a stealth default by letting the dollar slide could cause patience to snap, even if Asian exporters would themselves suffer if they harmed their chief market.

[patience]

What's next, after the US can no longer sell its' debt?
1) Bond market dislocation (nobody but the FED buys US bonds).
2) More "Quantitative Easing" (buy our own $hit sandwiches)?
3) Blatant printing--maybe a Merry Christmas (or sooner) Helicopter drop on Main Street?
4) The the 8 ounce jar of instant coffee I like goes from $6 to about $60?

[MD]

$this->bbcode_second_pass_quote('patience', '.')..
4) The the 8 ounce jar of instant coffee I like goes from $6 to about $60?

[patience]

I have a shovelfull of quarters due to be delivered in a couple weeks, but they are the 90% silver variety. Some dimes too. I won't say that it is the perfect answer, or even a good one, but it is part of my preps, along with a large stock of instant coffee and some other things. Somehow, though, I don't think one can prepare adequately for this.

The Chinese, and others, don't like the way the dollar is going. My guess is, the next couple months will show a clear trend down for the dollar, along with a fresh outburst of BS and "change you can believe in" from the east coast of the US.

[heroineworshipper]

Expect the rest of the $300 billion to be monetized next week & a new $600 billion treasury buyout to begin. China will keep buying them. They'll do anything to keep 100% employment. Gas should cross back over $3 in a few hours.

[wisconsin_cur]

I am buying some car parts for my commuter car. If I still have a job to go to (fair chance) I want to be able to get there and back. Although if imported car part prices do go through the roof it should not be too long before I can pick up a used vehicle for parts... engine parts might be more expensive if diesel (45 mpg) retains a degree of attractiveness to people... but hey, I only have 200k miles on this engine, what is there to worry about?

[Ludi]

$this->bbcode_second_pass_quote('heroineworshipper', 'E')xpect the rest of the $300 billion to be monetized next week & a new $600 billion treasury buyout to begin. China will keep buying them. They'll do anything to keep 100% employment. Gas should cross back over $3 in a few hours.

[gollum]

By conventional standards I save very little outside of my retirement, most of my money goes into guns, iprovements to the house and property, and some silver. Sadly I think savers will feel like fools in the coming years and months.

[Jotapay]

I hope everyone realizes how close this may bring us to Mad Max. China isn't buying them, that's the point. China is shedding long term t-bills and buying short term, as well as gold, copper and other commodities. FCBs are only interested in buying the short end of the bond curve now, eventually it looks like it will just be cash Dollars they are interested in. At that point, it's virtually Mad Max. The last 30-year bond auction almost failed, the Fed was the buyer of last resort. This effect will probably worsen next week.

Unless FCBs start investing in the long end of the bond curve again, we are totally fucked now. Capitulation in the TNX today opened my eyes to how immediate this is upon us now.

[gollum]

As long as investors are willing to go short term, doesn't that hold off the day of reckoning for a while?

[Jotapay]

For a little while. They are abandoning 30yr > 20yr > 10yr > 7yr >5 yr > 2yr and then cash.

30yr and 20yr are already gone. They let the 10yr go tits up today and flooded the 5yr with bids this week. Next time it will be the 7yr going tits up and flooding the 2yr. Eventually it will be all cash demand, which will wreck JIT deliveries and the federal government will be unfunded. Mad Max.

I talked to my dad tonight about this who has a masters in economics from Uni of Pennsylvania. I laid it all out for him. He is a cornucopian. He said, "But higher interest rates will bring investment back into t-bills". Nice classic answer, but too naive. I told him that high yields will still cause a wave of corporate bankruptcies, a dearth of liquidity, and continue to tank the housing market. I told him the only difference between his bleak scenario of depression and my Mad Max hypothesis was the return of FCB investment in t-bills. I told him that there was no momentum in that direction, that t-bill sell offs were accelerating and not reversing. This is the first time he's actually not disagreed with me at the end of a discussion.

The only thing that will save the US government and some level of chaos now in the USA is the return of FCB investment in the longer curve of t-bills.

[AirlinePilot]

I'd say thats a good assesment Jotapay. I'd add one thing your not following through on though. The Government goes bankrupt with this. I do think this is where we are going, almost too late to stop it at this point. That means huge unemployement rates plus pension failures across the board. A complete shutdown of further credit too.

I'd say that at a minimum it will be as bad as GD1 and worst case you could see Mad max a few years after the government fails.

I did not understand nor would I have believed this about a year ago. I've since learned what all this means and I am now a firm believer that what was tinfoil not long ago is reality at the doorstep. Today's bond action is exactly what folks have been screaming about for months to watch for. The bond market has had enough. China realizes they need to buy things with real worth while they can before the Dollar is basically worthless. Smart move if you own lots of dollars right now. Its also another indicator that things are not moving in a positive direction for Mr Bernanke and Mr Gheitner.

[patience]

AirlinePilot,

I've read and respected your coolheaded posts for quite a while, so this sort of pronouncement made a big impression. I think you and Jotopay are right. For a couple days now, Tickerforum has been full of the bond market worries. Across The Curve blog had a sense of panic there, too.

I'm out of the markets entirely, some junk silver is due to ship to me in a couple weeks, but now I have to look for other ways to preserve the value of money. From China's lead, buying metals may be an answer, since I sell steel retail and do repairs with it. That has its' limits of practicality, so what are your thoughts on something more or less liquid to supplant cash/hedge the bond dislocation/currency failure?

Does a means exist to do that? It's not an academic question anymore.

[AirlinePilot]

There are several schools of thought, but as extreme as it may seem, I think the best bet right now is to hoard cash if you have it. Spend as much of it as you can on material objects. Pretty soon I'd bet that real estate will be given away at pennies on the dollar. You hope there that things will come back in some reasonable amount of time though. I'm just not sure about that. Another way is precious metals, but problematically the supply of that has dwindled significantly.

At this point Im paying into the bank of Sealy and Im buying some long term emergency preps. I'm also buying ammunition when and where i can find it. I've also thought about barter goods if you have room to store them. Whiskey, Rum, Vodka etc. Staples like Rice, Flour etc, Cigarettes, basic medical supplies etc. Stuff that might not be readily available if you think like I do for what may be coming. If it gets as bad as I believe it could those will have more value than printed money. I dont think folks will be into trading with gold though. Intuitively I dont sense its going to be practical.

I have been out of the markets since late 07. I still dabble with oil and have sunk a large chunk of my 401k into messing about with USO, and some other short/long etfs and index type funds. That will probably work but even that isnt sure.

I honestly dont have any concrete answers and I dont think many other folks do either. We literally are in uncharted waters. If there is a collapse of the dollar it means pain everywhere, not just here. I do not believe we have the ability to overcome what is happening now, as Karl Denninger puts it so succintly, the math has become the problem and there is no changing that.

I am hoping and praying that any large disconnect of the bond markets and the collapse of the dollar can be avoided, but right now it sure looks like its playing out that way.

[mattduke]

The reason the longer end sells off more quickly than the shorter end is because the cash payments from longer bonds are proportionately farther into the future, and the farther into the future you go the lower the expectation for the dollar becomes. The bond market is effectively telling us that the strategy of owning dollars into the future is a bad strategy.

[TheAntiDoomer]

Jeez, I'm offically not flying Delta anymore, I think AP is manic depressive/suicidal

$this->bbcode_second_pass_quote('AirlinePilot', 'T')here are several schools of thought, but as extreme as it may seem, I think the best bet right now is to hoard cash if you have it. Spend as much of it as you can on material objects. Pretty soon I'd bet that real estate will be given away at pennies on the dollar. You hope there that things will come back in some reasonable amount of time though. I'm just not sure about that. Another way is precious metals, but problematically the supply of that has dwindled significantly.

At this point Im paying into the bank of Sealy and Im buying some long term emergency preps. I'm also buying ammunition when and where i can find it. I've alos thought about barter goods if you have room to store them. Whiskey, Rum, Vodka etc. Cigarettes, basic medical supplies etc. Stuff that might not be readily available if you think like I do for what may be coming.

I have been out of the markets since late 07. I still dabble with oil and have sunk a large chunk of my 401k into messing about with USO, and some other short/long etfs and index type funds. That will probably work but even that isnt sure.

I honestly dont have any concrete answers and I dont think many other folks do either. We literally are in uncharted waters. If there is a collapse of the dollar it means pain everywhere, not just here. I do not believe we have the ability to overcome what is happening now, as Karl Denninger puts it so succintly, the math has become the problem and there is no changing that.

[strider3700]

$this->bbcode_second_pass_quote('AirlinePilot', ' ')Pretty soon I'd bet that real estate will be given away at pennies on the dollar.

[Jotapay]

$this->bbcode_second_pass_quote('strider3700', 'C')ould you explain your reasoning behind this? I'm days away from closing the sale of my house and although I have a few properties I'm interested in I don't have an offer in on one yet. I figured as the dollar drops real estate would become a safe haven assuming the property isn't useless. I'm looking at small acreage/farms

[strider3700]

Ah so you're a hyperinflation or stagflation believer. I can understand the reasoning behind that but I'm not sure it will happen. Massively increased interest rates are likely to be the final nail for the economy in general so I'd assume they will be avoided as long as possible. Of course the collapse of the dollar is likely to wipe out the economy as well. So since in my mind all roads lead to a destroyed economy I'm probably going with option #2

We're preapproved on a 10 year fixed at 4.something which is easily the lowest it's ever been up here and that's as long term as you can lock in in Canada. Covering the mortgage is easy enough on any places we're looking at since my wife is a secure a job as you can get. If her's is gone we're in collapsed government territory and I'm doubting the need to pay mortgage anymore. I'm thinking that productive land and houses that are very inexpensive to heat/maintain are the best bet. If I can grow a good percentage of my food I can save on those costs. Same goes for solar heating/hotwater. Now the only goal is to get in and established before things take that terminal plunge.

[Maddog78]

$this->bbcode_second_pass_quote('strider3700', '')$this->bbcode_second_pass_quote('AirlinePilot', ' ')Pretty soon I'd bet that real estate will be given away at pennies on the dollar.