The Strange Case of the Disappearing Debt

Every day, we think we see more clearly where this is going. And every day, we are staggered by it.

Our mind boggles. Our knees buckle. We hold our breath and reach for a caipirinha: For the first time ever, central banks are printing more money than governments can use.

That’s right. After central bank buying, net government debt sales will be NEGATIVE.

Yes, governments will still run deficits. Yes, they still will borrow trillions of dollars. But after central banks finish buying their debt this year, there will be less government debt on the open market at the end of the year than there was at the beginning.

Government debt will vanish … as miraculously as the central bank funds that appeared to buy it.

Is this a wonderful system or what?


vanishingCue fear strings …

(Jon Partridge)


Chic, Confident and Young

Last night, we had dinner at a sidewalk café. The scene resembled Delray Beach, Florida, without the old people. A corner bar spilled its patrons out onto the street. Men and women, in groups of two … three … four … walked down the streets, well dressed, but casual. Occasionally, an automobile revved its engine as it rolled by the restaurant.

As in South Florida, young men and women are very aware of their bodies. Men work out at gyms and wear shirts that reveal their bulging biceps. Women wear tight, formfitting pants to show off their toned legs and sculpted derrieres. Chic. Confident. Young. That is the Itaim Bibi neighborhood of São Paolo.

“Don’t mistake Itaim Bibi for Brazil,” cautioned a colleague. “This area may be like Los Angeles or London. Most of Brazil is much poorer.”

The average income nationwide is about $10,000. That puts it at about one-third to one-quarter of the average US income. (We are suspicious of facts with crisp numbers in them. Once you’ve adjusted for purchasing power, employment levels, inflation, taxes and social charges – the numbers melt.)

Brazil is young. And compared to the US, it is poor. That gives it two advantages: It can grow up. And it can catch up. It is the “country of the future,” wrote Austrian novelist Stefan Zweig in 1941, before overdosing on barbiturates.


Stefan ZweigAustrian literary genius Stefan Zweig “Fate is never too generous even to its favorites. Rarely do the gods grant a mortal more than one immortal deed.”

Photo credit: Süddeutsche Zeitung


The Beginning of the End

Back in the Land of the Past, old people, central banks, governments, the financial industry, zombies and crony capitalists all struggle to hold on to what they’ve got. They are all desperate to keep the status quo. And the status quo now depends on more and more credit.

Naturally, they want to keep the credit bubble expanding in the worst possible way. What’s the worst possible way to keep a credit bubble expanding? You guessed it – print money!

You should sit down for this, dear reader. Comes word last week that central banks are now printing enough money to cover more than 100% of governments’ borrowing needs.

What we think we see now is the beginning of the end. When central banks print enough money to cover MORE than 100% of government borrowing needs, the end begins to come into focus. You remember the bond vigilantes? You don’t? Well, why should you?

That was a long time ago when Bill Clinton was president. His campaign manager, James Carville, remarked:


“I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”


Bond traders intimidated politicians because they could “just say no” to government bonds. If inflation increased, the bond vigilantes would ride to the rescue, forcing the feds to raise interest rates to bring inflation under control.

But the vigilantes haven’t been spotted in many years. They probably died and have come back as President Obama’s advisers. And now the feds no longer have anything to fear. They don’t need the bond market. They can borrow all they need from the central bank.

The bonds go onto central bank balance sheets. There they stay. No need to worry about “retiring” the debt. No need to think about “unwinding” QE. And no need to concern yourself with mounting government debt. In fact, the more money the central bank prints to finance government deficits, the less the government (effectively) owes.

Now debt really doesn’t matter! Almost too good to be true, isn’t it?


james carvilleFormer Clinton campaign manager James Carville, who eerily resembles Gollum from “Lord of the Rings”. We wonder if he still wants to be reborn as the bond market? Chances are he would sport a negative yield to maturity …

Photo credit: JD Lasica/


The above article is taken from the Diary of a Rogue Economist originally written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.




Emigrate While You Can... Learn More




Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • No results available

Support Acting Man

Austrian Theory and Investment


The Review Insider


Most Read Articles

  • No results available

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


Mish Talk

    Buy Silver Now!
    Buy Gold Now!