Early Stages of the End Game

Every day that goes by now my conviction grows that the Federal Reserve Note will become absolutely worthless in due time. I thought(and bet) that the UST and FRB would make some play to really put faith in the dollar and get their bounce. Instead, they have gone out of their way to trash it. All of them with their head in the sand sticking to the script.

This feels like we are finally moving into the early(very early) stages of total world economic warfare. The panic is starting, for those that pay attention to this sort of thing anyways. Those that are fixated on the royal wedding and American Idol are quietly sleeping right now without a care in the world. They, with their head in the sands also, will not even see it coming and will think it suddenly happened out of nowhere.

Everyone agreed that derivatives were a major cause of the last melt-down. Yet, I am willing to bet derivatives are bigger than ever and specifically bond derivatives are multiples of what they were in 08.

Just look at gold and silver. Silver has gone absolutely parabolic. No question about it. Granted, it could be some sort of squeeze or some large money moving in. Gold hasn't quite moved parabolic, but is steady higher. Gasoline topped out at about $4.11 national average in 08. We are pennies from that amount today. Now, not only are people paying more for gas but also food. The consumer couldn't afford it then and they certainly cannot afford it now.

On the flip-side, people are going back to work. I don't know many people left who are looking for work and cannot find it. People are getting raises, again. People are getting bonuses, again. People are spending, again. Most have forgotten about our former brush with the financial abyss. We basically are passing through the eye of the storm and everything seems just fine.

So I am on quite a rant and this did have an overall purpose. Here is what is dominating my thoughts lately, "What if the Fed 'forgives' their UST debts?". This would be one desperation move only in the most desperate situation. I can't wrap my head around how its possible. But, something tells me it is. If they haircut everyone, its game over. I get that.

What if this has been the point all along? Default on yourself? Let everyone else keep their full face value. This would make China happy. What if they then turn around and wipe out the excess cash reserves side on the primary dealer banks to wipe out any shred of QE? Maybe even nationalize the banks to make it happen. Investors might get rattled but eventually settle down and buy more USTs. The alternative is much, much worse. Rising interest rates is game over for everyone. Should the world not play along, they can always just go all the way and default on everyone.

Maybe its much simpler and the Fed lets the UST roll all of their debt into 30 year coupons. Turn the entire funding need into the largest time frame possible? Although the debt would remain, it would not turn into a funding crisis. I have little doubt the Fed has already ran each possibility through every possible scenario to determine their best path. They won't go down without a fight.

Just wanted to get thoughts on paper. Something has to give. Silver at $48.28 as I type. How far is this thing going to climb?