To Congress: Your Loan Has Been Called

Karl Denninger
Market Ticker
Dec 16, 2009

Leaders are considering a hike of roughly $300 billion to the nation's $12.1 trillion deficit, though the final figure has not been nailed down, congressional aides said on condition of anonymity.

Democratic leaders had previously hoped to raise the limit by at least $1.8 trillion, enough to take care of the government's debt needs through the November 2010 congressional elections.

What was your first hint the former $1.8 trillion increase attempt was a bad idea? Perhaps this?

Or was it China buying a literal zero of Treasury debt in October?

Or was it the TIC report this morning (which I'm sure you had "early") that showed a near-zero appetite for foreign funding of our idiotic spending proclivities?

Or was it the fact that this morning PPI numbers came in hot, especially in crude goods, strongly implying that we're in for a nasty bout of either cost-push price inflation or collapsing corporate profits?

Perhaps it is the numerous anecdotes of "seasonal help" already being laid off, stacks of "Black Friday" merchandise still in the stores, and Best Buy's earnings report this morning in which they disclosed margin compression in the 4th quarter - which promptly hammered their stock for 7.2%.

None of this should be a surprise.

We have fixed nothing in the last two years. We have not forced bad debt to default yet worse, despite the incessant pumping and attempted "forcing" of credit into the system via government borrowing the pump has now officially failed, as the new Z1 data shows.

Note that despite all the Federal Deficit spending - $1.4 trillion last fiscal year (ending in September) and $300 billion more in the last two months - approaching two trillion dollars - the total credit outstanding in the system - including the new Federal borrowing - went negative in the third quarter of this year.

The bottom line:

Your attempt to play "pump prime" over the last two years has FAILED.

For the first time in the modern era you have run into the mathematical realities of too much debt for the amount of payment capacity in the private sector.

You can either stop now, or you can stop when the government's ability to borrow is cut off forcibly by radical increases in the bond interest-rate curve.

You WILL stop gentlemen. The only question remaining is whether it will be voluntary or whether the market will force an involuntary cessation of Treasury Coupon issuance.

Attempting to avoid this by monetizing debt, as Bernanke has done while being your handmaiden (while lying about his actions to The American People AND in sworn testimony before Congress) forced currency devaluation which in turn (as expected) cuts off foreign debt demand.

That in turn, as you are now seeing, causes the coupon increase to happen anyway.

You're trapped folks, exactly as I predicted you would be two years ago.

I stand impressed that you got away with this for as long as you did, but I also stand behind the view I expressed in 2007 - that the root problem is an excessive level of debt in the system at all levels, a level of debt that exceeds capacity to pay, and as a consequence any and all attempts to restart the credit-driven consumption economy would fail, and if pressed too far the government will fail.

The evidence strongly suggests that you are getting awfully close to your last chance to stop being stupid before the market hands you a lesson that has the potential to destroy both our economy and government.

You would do well to listen.

Dec 15, 2009
Karl Denninger

source: http://market-ticker.denninger.net/archives/1731-To-Congress-Your-Loan-Has-Been-Called.html

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