Staggering Deficits In A Depressionary Economy

Posted: March 14 2009

Our Treasury secretary Timothy Geither on Wednesday warned that the global recession was deepening and urged strong actions by all major nations. That must mean we are in depression.

Federal individual tax payments fell 64% yoy, and withholdings fell 16% yoy. This is a disaster – revenue is totally collapsing. That $2 trillion shortfall fiscal loss for 2009 could be $2.5 to $3 trillion.

We believe the Fed started buying new Treasury instruments directly from the Treasury about four months ago. Recently Fed Chairman Bernanke put us on notice that he was going to use all the tools available to revive economic growth. We believe there will soon be news that the Fed is officially buying US Treasuries from the Treasury.

That means overnight loans between banks will range from zero to 0.25%. The US will almost triple its debt sales this year to over $2.5 trillion. Perhaps next year bonds will be a great short or maybe even later this year.

We are hearing more and more about digital gold as a private-bank solution to potential devaluation of fiat currencies. The May/June issue of the CFR’s, Foreign Affairs magazine, Brenn Steil a senior fellow and director of International Economics, who has been on loan from the parent Royal Institute in London since 1996, says digital gold, “although a niche business at present, gold banking has grown dramatically in recent years in tandem with the dollar’s decline.â€