Rathbun: Is Bernanke pulling a Madoff?Written by Gary Rathbun | | GaryRathbun@PrivateWealthConsultants.com
Governments and central banks around the world are quickly reaching the point where they are going to violate the golden rule of financial scams: Make sure your inflows are greater than your outflows.
Say what you will about Bernie Madoff, but the guy sure knew how to keep a scam going. For years, he ran one of the largest Ponzi schemes in history without being caught. Ultimately, of course, it all imploded but he had a good time while it lasted.
Now, all over the world, including in the U.S., we are seeing essentially the same thing happen. Countries and central banks are having their outflows exceed their inflows in that the new debt and the previous debt maturing is much greater than what the investors are willing to take on.
Several debt auctions have failed in the past few weeks due to declining demand, causing interest rates to increase and making the death spiral spin faster and faster. Politicians are resorting to more desperate measures.
Like any good Madoff wannabe, governments are appealing to the masses first; all over Europe they are creating new marketing campaigns to pull on the patriotic heartstrings of citizens. It is now their patriotic duty to buy their bonds. Spain actually issued debt instruments titled “bonos patrioticos” or “patriotic bonds.”
Japan recently created a bond that, after you purchase a certain amount, you will receive a gold coin in addition to the interest. If the value of gold continues to rise, this actually makes the bond fairly attractive.
Ireland is issuing “prize bonds” which pay 0 percent interest but bondholders are entered into a weekly lottery contest. I didn’t ask where the lottery winnings come from or how they are funded.
Italy is using sports celebrities to encourage citizens to purchase their bonds. I trust they don’t pay the celebrities in bonds.
Great Britain is reaching banana republic status and just this week announced the formation of the Collateral Term Repo Facility to deal with “shortages” of the sterling.
One can only wonder what Federal Reserve Chairman Ben Bernanke will come up with to get people to purchase our debt. We haven’t quite reached the point where no one is buying, but the day is coming.
We have already seen him raid some of the government employee pension plans to keep the scheme going. It is only a matter of time before all pension plans are subject to purchasing government debt to stay qualified.
Maybe we can get Magic Johnson to encourage people to buy bonds; magic and U.S. bonds have an interesting correlation. For kids, we could have “Smurf bonds,” where you wait until you are blue in the face to get paid back.
We could have the “Volt” bond; with each $100,000 you get a free Chevrolet Volt. The fact that they run a while and then burst into flames seems appropriate. How about the Pelosi bond, where you have to buy it before you know what interest rate and maturity you’re going to get.
If only those greedy millionaires and billionaires would give a little bit more, everything would be all right.
Desperate governments do desperate things. Add some additional credit downgrades and things start to get really desperate. We need to prepare and protect ourselves now. Our economy is circling the drain and it gets very dark before you come out the other end.
Gary L. Rathbun is the president and CEO of Private Wealth Consultants. He can be heard every day at 4:06 p.m. on “After the Bell” with “Brian Wilson and the Afternoon Drive,” and every Thursday evening at 6 on “Eye on Your Money,” both on 1370 WSPD. He can be reached at (419) 842-0334 or at firstname.lastname@example.org.