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Checkmate – Game Over

Published on October 9, 2013

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Financial analyst Dr. Jim Willie says forget about the government shutdown and the debt ceiling. The Treasury market is the big problem. Dr. Willie says, “What’s going on with the Treasury bond market right now is systems are breaking . . . they broke the interest rate swaps. They are not functioning anymore. . . . Foreigners are dumping Treasuries.” The cost of insuring one-year U.S. bonds against default has quintupled since Sept. 23, according to data from Markit, a financial information company.

Translation – the Federal Reserve, the United States government and New York’s biggest banks are boxed into a corner with a horde of financial vipers closing in on every side. What this means is that no matter what the congress and Obama decide its “game over”. The problem is that everyone is going to join in on a selling spree of worthless paper only to find out that the paper is indeed worthless.

Who is going to buy the bonds that are now being dumped? Its only paper backed by the good faith of the United States, which unfortunately has not acted in good faith when in league with corrupt activities on Wall Street, which Washington made legal—a total betrayal of not only American people but also the peoples of the entire globe. What happens to the value of something when there are no buyers and only sellers?

Dr. Willie speculates about the meeting last week of all the big bankers at the White House saying, “I think it was an emergency meeting because they cannot successfully defend the dollar anymore, not fend off the big Treasury bond sales. Reversal in the Treasury bond market could be a deathblow for these zombie New York banks. These big banks are in danger of imploding. I do not think the Fed is going to taper its bond buying. I believe they are going to double it.”

A U.S. government default will be an economic calamity like none the world has ever seen. Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression.

U.S. budgetary uncertainty is breeding a cloud of fear over global financial markets, the damage of increased risk to markets is already being sown. In such a climate of uncertainty, the psychological maelstrom of fear can build to create a herd-like response with everyone running for the exits at once.

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“If they seriously default on the debt, what we’re really talking about is a depression,” says veteran financial sector analyst Richard Bove, VP of research at Rafferty Capital Markets. In a news video, he explains how the fallout would be a lot worse than the recession suffered in 2008 and the aftershocks would be felt for at least a decade.

The U.S. Treasury Department itself is worried reporting, “A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

Pathetic to have had to listen to the Federal Reserve hint about tapering when they have been under accelerating pressure to buy more because they are the only one left to buy the debt and fund (with funny money created out of thin air) the insane American budget. It is guns or butter after all (basic economics) meaning the United States just cannot afford all its aircraft carriers. The generals have miscalculated building a military establishment that the country nor the world can afford.

Already the situation is morphing quickly with market mechanisms threatening seizure. We keep hearing about the vulnerabilities of the Repo market and all markets dependent on the American dollar and specifically on the value of 10 year. treasury notes for value, all could be ripped asunder from one day to the next.

The winds have changed. Owners of United States treasury bonds are not feeling secure holding mountains of paper that are being threatened with a dramatic loss of value. A plunge in Treasuries would also devalue the dollar, which would instantly make everything we buy more expensive, and in turn destabilize countries and economies all over the world.

Political Rebellion

In America we see a potential rebellion taking place in the Republican Party, which could itself splinter in half if the most conservative elements are not heard. But let’s assume the best case scenario. Next week they raise the debt limit. Then what?

The same thing is going to happen but perhaps a few weeks or months later! The inevitable has arrived. If they pass the bill to raise the ceiling who then is going to buy the bonds to pay for continued bloated spending? Investors and sovereign governments are selling bonds and then the Treasury will begin selling bonds if the ceiling is raised. Who is going to buy them?

When the Fed stands naked in full light seen for what it is and for what it now has to do there will be hell to pay. They have not invented the movie script to describe what will happen to the world’s civilization when the dollar collapses. The American and entire first world and third world with it will be faced with a depression or outright collapse when nothing will work because currencies and banks will fail along with everything else.

“Now you’ve got not only the budget but the debt ceiling and time is running out and everybody knows it, including (the politicians),” said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania. “The longer this goes on, the more the uncertainty, the closer the deadline and the more nervous investors are going to be.”

Conclusion

You can forget about any default in the debt-ceiling crisis.  Former Assistant Treasury Secretary Dr. Paul Craig Roberts says, “The debt ceiling will be raised.  No government wants to lose its power or lose its ability to borrow.  So, if they don’t raise the debt ceiling, it is just a way of Washington committing hari-kari.  It simply removes the United States as a super power.”  Dr. Roberts goes on to say, “If they don’t make a deal, one of two things will happen. . . . The Federal Reserve, on its own authority, lends the Treasury the money. . . . The other alternative, Obama . . . can simply declare a national emergency and raise the debt ceiling on his own initiative.  He could govern as a dictator.” What would happen if the U.S. did default?  Dr. Roberts says, “The danger of default is the rest of the world dumps dollars.  If they dump dollars, the Fed loses control, the whole system blows up.  The banks fail.  The bond market collapses.  The stock market won’t go down 1,500 points; it would be cut in half. ” No matter what happens, there is still an enormous and growing debt.  Dr. Roberts contends, “The situation is unsustainable.”  It will blow up at some point, and Dr. Roberts predicts, “It will be worse than the Great Depression because in the Great Depression, prices fell along with employment.  Now, prices will be rising and employment would be falling. . . . Gold and silver prices will explode in dollar terms.”

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  • 7LibertyForAll

    Well said, Dr. S.

  • anti_banker

    As long as people don’t have any long term savings in dollar, or bond form, or linked closely to dollars there won’t be a problem – if possible cash in your retirement fund and buy gold & silver, or property, or both. Shares are good too, but not as good if the stock market collapses. (stock up on supplies and weapons too – just in case things really get nasty. You can’t eat gold when store shelves go empty anyway. Amazing, it’s not just the “lunatic fringe” saying these things nowadays.. even a blind man can see what’s coming!!!)

  • anti_banker

    Since paper money (bills) is also simply “paper backed by nothing except faith in the government” , it is much like bonds in much the same way.

    This whole “Federal government shutdown” is simply a scare tactic to scare people into accepting an increase in the national “debt ceiling” ‘limit’ (which has never ever really been in any way limited at all by those madmen in congress).

    i.e. “if we dont raise the debt ceiling (AGAIN!), the whole country will encounter an entire government shutdown”.

    So what!!!!!!
    It happens in private industry all the times.
    Everyone cries and watched the belongings go into liquidation, but then the recovery comes. How can the recovery comes when we keep getting deeper into debt and never default – it’s pure insanity!!!! So what if America’s currency looses it’s status as the worlds reserve currency – many other countries are and always have had a currency that was not the worlds reserve currency.

    Let’s get the pain over, like when a woman waxes her top lip – painful for a few hours, but no hair growth for weeks thereafter!!! (and let’s not come up with a payment plan either, tell the bankers to take their national debt and shove it!!!!!)

    • 7LibertyForAll

      Well said! The whole “debt” is nothing but a figment of everyone’s imagination. Nothing but toilet paper was ever “lent” and the whole purpose of such lending has been to vacuum up all the property and any remaining wealth that they are able. Then the countries dissolve as some of the European ones have done and the vampires swoop in and take it all…..ad nauseam.

  • Or, Wall Street and the courts will let Obama seize whatever powers may be needed to stabilize the situation. Republics that build empires have a history of then needing emperors to run them.

    • anti_banker

      Since paper money (bills) is
      also simply “paper backed by nothing except faith in the government” ,
      it is much like bonds in much the same way.

      This whole “Federal government shutdown” is simply a scare tactic to
      scare people into accepting an increase in the national “debt ceiling”
      ‘limit’ (which has never ever really been in any way limited at all by
      those madmen in congress).

      i.e. “if we dont raise the debt ceiling (AGAIN!), the whole country will encounter an entire government shutdown”.

      So what!!!!!!
      It happens in private industry all the times.
      Everyone cries and watches their belongings go into liquidation, but then the
      recovery comes. How can the recovery come when we keep getting deeper
      into debt and never default – it’s pure insanity!!!! So what if America’s currency looses it’s status as the world’s reserve currency – many other countries are and always have had a currency that was not the world’s reserve currency

      Let’s get the pain over, like when a woman waxes her top lip –
      painful for a few hours, but no hair growth for weeks thereafter!!! (and
      let’s not come up with a payment plan either, tell the bankers to take
      their national debt and shove it!!!)

      • Because of the insanity there’s no way to know what the effect of what we post will be, if any. Rationally, Obama can spend whatever congress has already appropriated. It was upta them to reduce expenditures or raise taxes to make it balance, and if they fail to do so, then they logically give Obama the power to borrow the money to spend what they already said should be funded. Logically. SCOTUS gets to decide what will be ‘logical’. Not us.

        • anti_banker

          Not quite, vote independent and punish both democrats and republicans for ruining America!!!

          • I’ve seen both condemned for years with no effect on outcomes. A Gnu Party with an open source platform could help independents get elected without hindering the power to represent constituencies. Dunno why this screen is not already doing that.

    • alison cline

      Love your hat Dale

  • Mike

    I’m
    disappointed in this article. There was no mention of concepts related to armageddon, toxic waste, bloodbaths, wild gyrations, gut-wrenchings, or crushing blows…

    Machine and mechanical references are appreciated but there was a dearth of blown
    fuses, blown gaskets, spun bearings, and head on collisions…

    He avoided the blinding headlights of the political realms of fascism, communism,
    socialism, Darwinism, despots, crackpots and quacks…

    He didn’t use the words: shattered, smashed, obliterated, freefall, meltdown, or
    stampede…

    Or make any reference to weather, like: hurricane, typhoon, tsunami, cyclone, or
    perfect storm, although I give him credit for the earthquake references (aftershocks)…

    He could have given the drama a personal edge with: drawn and quartered, beheaded,
    murdered, butchered, nauseating, jaws clamped shut…

    Or appealed to our fear of the unknown, with: satanic, spooky, weird, bizarre,
    macabre, or soul-crushing, although he did reference hell to pay…

    He could have appealed to young people and hipsters with ginormous, humongous, creepy, yucky, gooey, fubar, snafu and mind-blowing…

    Or gotten a little edgier by using: shitstorm, shit hit the fan, all fucked up,
    fucked up beyond recognition, bloody pulp, bloody mess, dangling eyeballs, guts
    hanging out, gushing blood, kicked in the balls, shredded tongues and crunching
    bones…

    He should have used some more colorful, maybe medieval references: bludgeoned,
    hacksawed to death, meat grinder, water-boarded, fingernails ripped out, while
    puking my guts out, tossing my cookies, firehose vomiting, and being vaporized in a cloudburst of bloodspray…

    He could have gotten huge with planetary events like solar eclipses, solar flares, flameouts, meteorites, black suns, black holes, quantum strings and antimatter…

    I think this article will make people yawn. What is needed to put the fear of God into
    people these days, is perhaps more guttural spiritual references. I would have
    liked to have seen more: satanic, evil, bat-shit crazy eyeballs being ripped
    out, and faces being ripped off (like Goldman Sachs used to do).

    More 10 deadly plagues, seven deadly sins, days of judgment, anti-Christ. deafening
    roars, blinding flashes, crippling blows, brainwashings, satanic ritual pedophilic
    child sexual abuse and CIA mind control. Zombie banks is an overused, lame
    reference.

    You gotta respect your audience. Keep them riveted while their government rapes them.