Dear Friends,

What happens if central banks and investors stop buying any or all maturity offerings?

112-113 on the US 30 Years are the line of no return.

Read Eric’s take below.

Regards,
Jim

Guys,

Here is an unbelievably dangerous chart. T-Bond. The Total Return Index is right on the trend line. Since the test comes as the C-wave advance in gold heats up, I expect it to break. I have been waiting to short the bond market for years. I am quietly nibbling.

The sheer size of the short position accumulating in the 2-year could be coincidental or it could be the warning sign.

CIGA Eric

Click either chart to enlarge both in PDF format

Dear Jim,

Articles like the following provide ongoing proof that the Formula you gave us on September 1, 2006, is and always has been 100% correct. There is a lesson here that I believe newer readers of this site need to understand.

Point 6 of your 12-point Formula stated, "Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities and States as it is for the Federal government."

A linchpin of the Formula was found in Point 2, which stated, in relevant part, "An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101."

For the next two years every Treasury and Fed spokesperson and 90% of mainstream commentators gave us all the reasons that this fundamental economic law would not apply in this instance. It was going to be different this time.

To keep this analysis simple I will not speculate on their various motivations for arguing a new reality would apply. The point is they did, uniformly, and anyone listening to them was left unprepared for the coming reality.

You are now telling us that based on fundamental economic law as proven time and again throughout history, the government’s artificial expansion of the money supply is going to result in a monetary-based inflation. This will happen, as it has throughout history, against a background of poor business conditions.

At the same time, every Fed and Treasury spokesperson and 90% of the mainstream commentators are telling us it will be different this time.

If we were talking baseball few would have trouble deciding who to believe. JSMineset contributors would be batting .850 (let’s be modest, here); the Fed and Treasury would be batting .000, and commentators as a whole would be betting .100. There would be little doubt of the outcome.

As far as I’m concerned the analysis is that simple.

Best regards,
CIGA Richard B.

AP ENTERPRISE: Federal tax revenues plummeting
By STEPHEN OHLEMACHER
Associated Press Writer

The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation’s plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession’s impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government’s revenues were this bleak, the year was 1932 in the midst of the Depression.

"Our tax system is already inadequate to support the promises our government has made," said Eugene Steuerle, a former Treasury Department official in the Reagan administration who is now vice president of the Peter G. Peterson Foundation.

More…