Back in the day, Keyser used to write a lot about the economy. That was when the sky was falling, back in late 2008 and early 2009. Since March of last year, the stock market has regained about 50% of its losses, and seemingly the situation has been stabilized.

Seemingly.

But it’s all madness. Bernie Bernanke has “saved” the leeches at Goldman Sachs and the rest of their ilk by “buying” $1.4 trillion of their bad debts (in the form of shitty mortgages given out recklessly with fake money concocted by the Fed in the preceding half decade or so and of shitty “securities” made up out of such mortgages as a way for GS and the other scum to make more money for themselves knowingly selling this shit, a lot of which the banks wound up with). And of course, when Keyser says “buy,” that’s rather misleading. Normally, when one person buys something, that involves a transfer of funds. But the Fed has absolutely no actually wealth. It just has the ability to add a bunch of zeroes to the end of the account balances of member banks. That is, the debts haven’t been “bought” in any substantive sense of the word. Rather, they’ve been concealed with concocted money.

Oh, here’s another one. The whole purpose back in 2008 for bailing out the banks was that then they’d be able to lend. But of course they’ve done nothing of the kind. Lending is declining, along with many prices (that’s called deflation). Instead, what the banks have been doing is borrowing money from the Fed at fundamentally 0% interest (the ridiculously named ZIRP, or “zero interest rate policy”) and using that money to buy US bonds paying 3% or so. And what does the US government do with the vast amount of money it borrows in that way? Well, one thing is to prop up unsustainable levels of state and Federal government employment. And another is to stick vast sums in the Fed, which, of course, has been lending vast sums to the banks to lend to the Federal government. This must be great work if you can get it, but sooner or later, all this charade of passing non-existent wealth (that is, fiat money that represents no actual value) back and forth has got to hit a wall.

But Keyser speculated a long time ago that perhaps the worst effect of all the deficit spending might get the nitwits in Washington accustomed to the idea of spending vast amounts more than they have. That is, the US government has run deficits for years (with a minor stop in the late ’90s), but it was mainly nickels and dimes comparatively speaking. The debt would inch up all the time, but only incrementally. Now, it turns out that the Federal government can spend more than $1 trillion more than it takes in every fucking year. For a while at any rate. With China and Europe in economic chaos, the US$ seems “safe,” so that helps too. But get this. Back in Ronald Reagan’s day, the entire national debt was $1 trillion. Now they add that much to the total each year. And the other day, the total surpassed the $13 trillion mark (and no one seemed even to notice). How long can that go on? Well, we’ll see, since there seems not to be the least sign that anyone in Washington is willing to do the least bit to reduce that extravagance.

Speaking of which, the housing market is continuing to decline despite the best efforts of the Federal government to prop up the bubble. Used to be that most mortgages in the US were actually put together by that institutionalized source of fraud, Fannie Mae and Freddie Mac. But it turns out that these days the single largest creator of mortgages is the fucking FHA. The what? Why, the Federal Housing Authority. And why’s that, you might ask? Because their standards are even lower than those of the Fannie and Freddie. That is, in order to prop up the market, the Federal government itself is active attempting to give mortgages to people who can’t afford them.

How fucking insane is that?

Oh, well, the “paper of record” (the Nude York Times) had a story the other day about how people who took out loans they shouldn’t have are now practicing “strategic defaulting.” What this means is that they’ve figured out that the banks aren’t too eager to foreclose because doing so means that the loss on the mortgage loan is realized, whereas up until that point, the banks can pretend that the loan is worth more than it is. That is, an unserviced loan looks better on the books, so the banks are dilatory about foreclosing. So the fuckers who bought some home they could never have afforded now figure that it’s okay to stick it “to the man,” so they simply don’t pay anything towards the mortgage, stay in the house, and squander the “saved” payments on vacations, and televisions and other shit! Well, it’s even better than using your house equity as an ATM. This is just flat-out theft.

And how’s all that vast amount the Federal government borrows for “stimulus” doing, anyway? Well, last month, there were 431,000 new jobs supposedly created. But the statistics are simply made up by the BEA on the basis of some sort of formula of theirs and not on actual employment facts, so it’s bullshit to begin with. But even by their reckoning, 411,000 of those were temporary census workers. So absolutely fuck-all is going on the “real” world, where people actually create wealth rather than helping find out how many illegal aliens need to be represented in Congress.

Meanwhile, Europe is totally falling apart. The European Central Bank has “bailed out” the completely irresponsible national spending in Greece with money they don’t have, and are now on the hook for Portugal, Ireland, Spain and Italy. The euro continues to drop, going from $1.31 to $1.20 since the great bailout. And it seems Hungary is now teetering on the brink. And the reason the ECB had to bail out Greece is not because anyone really cares about the Greeks but because all that debt the Greeks took out irresponsibly is actually held by European banks, which are really in terrible shape, but their lack of transparency makes the US situation look clear as day by comparison. This clip is humorous but sadly true:

Fundamentally, what’s going on is that in 1933 Franklin Roosevelt confiscated privately held monetary gold as part of a hare-brained scheme to end the deflation that had been going on since 1929 by devaluing the US$. Under the gold standard an ounce of gold had been worth $20.67, but after a year of playing games with the value, he settled on the tidy sum of $35, a devaluation of something like 40%. On this basis was set up the Bretton Woods system at the end of the Second World War, with the US$ serving as the world reserve currency and being itself backed by the US gold reserves. No private individual had access to this gold, but supposedly foreign central banks did. The US abused this system in the ’60s to issue more dollars than the gold could support in order to fund the Great Society and the Vietnam War on the cheap. Eventually, the French called the US bluff and asked for gold for their dollars. The US didn’t actually have that much gold, and so ended any pretense of convertibility in 1971. Richard Nixon called the French assholes for causing this. But in this instance, if anyone was acting like an asshole, it wasn’t the French.

In any event, since 1971, there has no actual value whatsoever behind any currency. It’s all paper and zeroes made up by central banks across the globe. You know, everyone takes the institution known as the “central bank” for granted, but if any group on earth should be discredited after a record of unmitigated disaster, it should be central banks. Just since 1960, you’d need three times as many dollars to have exactly the same purchasing power. That is, two thirds of the value of the currency has been inflated away in the space of 50 years. That in effect forces everyone to “invest” their money rather than keep it, which of course helps out the boys on The Street, who make money off all these transactions (apart from their ability to make more money through their insider advantage and other manipulations).

So what is the dollar based on? Well, nothing. It’s legal tender, and people have no alternative. But the currency is fundamentally based on an ongoing increase in debt. But debt has to be paid off eventually, or it’s unsustainable. You can’t just go adding on to it in the futile effort to “create” more money to service the debt. This is the basic error of confusing money and wealth. Money is merely a claim to wealth, and money created in excess of the available wealth is in the final analysis worthless.

Do you know what happens when a warship is breached on one side and begins to list? The let in water on the other side as a counterbalance. This is known as counter flooding. Now, if you didn’t do this, the ship would just keep on listing until it capsized. But counter flooding does nothing to solve the underlying problem. It simply gives you time to plug the hole and pump out the water. And if you can’t do that, then the counter flood actually makes things worse, since you’ve now got more water in the ship. It just settles more slowly on an even keel. In the meanwhile, things might seem better to someone who’s merely judging the list and not paying attention tot the freeboard (how far the deck is above water level).

Think of the stock market as being the inclinometer that registers the degree of list. Since spring of last year, they’ve open the sea cocks on the other side of the ship, so the list has decreased.

But how much lower in the water is the ship? And more importantly, will she make it back to port before foundering? There is no way to know, but the situation looks bad. And the bulkheads seem to be giving way.

God help us if they give way.