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The Botox Fix for a Sovereign Debt Burst

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The Botox Fix for a Sovereign Debt Burst

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How Large is the Outstanding Value of Sovereign Bonds?

How can a country be sovereign if their government must borrow money to pay their bills? Worse yet, in order to create money the State must go to the central bank and pay interest for every new currency that is created out of thin air. The two key elements that explain the absurd foundation of the global debt pyramid are simple, 1) Fractional Reserve Banking. 2) Legal Tender Laws.

Central Banks are owned and controlled by private interests. The interest they charge governments needs to be paid with new money that is created into existence by an accounting entry, again at additional interest. It is a mathematical impossibility to pay off all the debt under this malevolent system. Government has added to this duplicity by enacting laws that force every citizen and even the State itself to honor fiat currency as the only legal tender acceptable for transactions and debt repayment. Is it any wonder that the economic world is ready to collapse under a mountain of counterfeit debt?

With little fanfare, China is challenging the Western banks. "Relying on a "brand new system" that penalizes countries for high levels of indebtedness, and which seeks to correct the perceived biases of its Western competitors, Dagong granted higher marks to an overpopulated, communist China than to the US, France, Britain, South Korea and Japan." "Dagong rated US government debt 'AA' with a negative outlook, warning that the US, along with other debt-laden developed countries such as Britain and France, could struggle to raise more money if they allowed government debt to get out of control. According to the Wall Street Journal, Dagong warned that unless government deficits were controlled, "The interest rate on debt instruments will run up rapidly and the default risk of these countries will grow even larger".

However, the Asian tiger is not immune to the sinister mechanics of creating debt obligation notes. Satyajit Das, author of Traders, Guns & Money and former derivative trader offers a keen insight into the sovereign debt time bomb. Mr. Das coined the term Botox Economics. "The world is currently taking the "botox" cure. A flood of money from central banks and governments -- "financial botox" -- has temporarily covered up unresolved and deep-seated problems. The surface is glossy and smooth, the interior decayed and rotten." In a CNBC interview he expands, "Just as China practiced capitalism with Chinese characteristics, developed economies discovered socialism with Western characteristics."

The European meltdown clarifies the global epidemic. Das proceeds,

"A problem of too much debt was being solved with even more debt. Deeply troubled members of the Euro-zone were trying to bail out each other. Given that all have significant levels of existing debt, the ability to borrow additional amounts and finance the bailout remains uncertain.

The need for governments to raise the required amount risks "crowding out" other borrowers as well as increasing the cost of funding. In order to avoid the risk of inflation, the ECB proposes to sterilise payments by issuing bonds to soak up the additional liquidity created. The entire plan resembles a money shuffling exercise between European sovereigns.

Cognitive dissonance ensured that excessive debt levels and the unsustainable nature of debt-fuelled growth were ignored. Governments merely transferred the debt from private sector balances sheets onto public balance sheets. The Global Financial Crisis ("GFC") has morphed into a Global Sovereign Crisis ("GSC") as sovereign governments now face difficulty in raising money. Stock markets and asset prices have tumbled. Credit markets are exhibiting an anxiety not seen since late 2008/ early 2009. The year of wishful thinking has run its course."

Satyajit Das continues, "Borrowing can only be repaid by the sale of assets, including those funded by the debt, or by redirecting income, perhaps generated by the asset purchased, toward repayments. Unfortunately, in many cases, the current value of the assets won’t cover the outstanding debt. The level of income and cash flow generated is insufficient to cover interest costs or amortize the amount borrowed. The GSC (Global Sovereign Crisis) focused attention on the excessive level of debt and how it was used."

According to Das, where does this all end? In the words of David Bowers of Absolute Strategy Research: "It’s the last game of pass the parcel. When the tech bubble burst, balance sheet problems were passed to the household sector [through mortgages]. This time they are being passed to the public sector [through governments’ assumption of banks’ debts]. There’s nobody left to pass it to in the future."

Understanding the reason why sovereign debt is not secure and is like any, other form of a paper promise obligation is integral, to the musical chair dance, which is the international financial deception. Damon Vrabel on Max Keiser’s Rigged Market Capitalism also says the central bankers will own the world. "We long ago lost the free market envisioned by Adam Smith in the "Wealth of Nations." Such a world would require sovereign currencies, i.e. currencies that are well regulated rather than floating, and an asset rather than an interest-bearing debt. Only then, could there be a "wealth of nations." But now we have nothing but the "debt of nations." The exponential math of debt by definition meant that countries would only lose their wealth over time and become increasingly indebted to the global central banking network."

There is a solution to the central banking control of sovereign governments. Take their botox scam away and remove the illusion that nations cannot issue their own currencies. The U.S. Constitution Article 1 Section 8 to coin money and the Coinage Act of April 2, 1792 defines coinage. President Andrew Jackson was the torment of the National Bank criminals. The Federal Reserve Act of 1913, since it is an association of private banks, is an abomination and a violation of the supreme law of the land. The Federal Reserve guarantees national bankruptcy.

The international community is a syndicate of plutocrats that hold on to the fig leaf of legitimacy while practicing domestic control over their populations. Any country is able to create and sell government bonds directly to the public. There is no rational and moral reason to give clandestine central banks a license to create money and charge interest back to any government for the privilege to use a fiat currency that comes from nowhere. Global financial insanity stems from this absurd process of thievery.

All the debt in the world is beyond human capacity of servicing, let alone retiring. Even with a virtually zero interest rate policy, the only way to make amortization costs is to borrow additional funds and increase the debt level to make former loan payments. The debt will never be repaid, but the banksters do not want their toilet paper specie back, they want real assets and complete control of your economic lives.

The World Bank, International Monetary Fund and Bank for International Settlements dominate global financial banking and discipline countries that will not or cannot comply with their economic dictates. Loans are merely the means to shape domestic policy of debtor nations. With China’s downgrading of credit rating for major economies, the cash rich communist conglomerate is looking to replace "The House of Rothschild" Western Banking monopoly.

Rolling over debt was a fine art. Today, the race is on who will be the first to default? As national paper money becomes worthless, governments will substitute new instruments for their repudiated cash. The exchange, will in effect, write off the vast majority of the purchasing power of the debt that can no longer be paid. However, as long as the central banks retain their cartel of creating fictitious money and loaning back to governments, the economic transfer from a global burst will benefit the same banksters who originated the universal fraud.

Sovereign states can stops these financial elites by enforcing their legal tender claims with the introduction of pristine debt free national currencies that replace the fiat notes of central bankers. A derivative expert like Satyajit Das knows the old game is about up. The replacement system will be proportional to who retains real political power. If the global financial manipulators are still able to control national governments to the degree they presently make policy, only the shape and color of future currencies will change. The current botox fix only distorts the malicious side effects of the new look of governance.

SARTRE – July 18, 2010

“Their warnings were more than tardy when it came to the Enrons and the Worldcoms of ten years past, and most recently their blind faith in sovereign solvency has led to egregious excess in Greece and their southern neighbours. The result has been the foisting of AAA ratings on an unsuspecting (and ignorant) investment public who bought the rating service Kool-Aid that housing prices could never really go down or that countries don’t go bankrupt”.
Pimco’s Bill Gross on rating agencies

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