Karl Denninger: The End Game Approaches

Note: chart is from the 1929 DOW crash showing some of the fake moves in the market toward the bottom.
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We're about done here folks.

By "done", I mean done with the government's ability to screw around with markets, game the outcome and hide the sausage, if you will, at least to any sort of positive effect.

Today we heard from The Fed that their threatened program to start buying the long end of the Treasury curve will begin tomorrow.

[This was likely prompted by people selling in the Treasury market while the stock market was also dropping.] That's not supposed to happen, but it did. It denotes selling - on a day when people should have been moving into Treasuries, not out of them. This compelled Ben to stomp on this trend lest he be seen as a toothless tiger, and that just won't do for Sir FedsALot.

Who's selling into Ben's "expectations" and producing this? Good question. I don't know, but Ben does - he has real-time Fedwire information that he doesn't release. I'm willing to bet it is NOT domestic holders, and is likely foreigners - including perhaps, central banks and their minions (Heeeeelllloooo China!)

This "acceleration" is a major problem, as it appears that Ben is losing control - rapidly. If foreigners are selling into the market we are literally nothing more than market recognition away from Armageddon in the bond market.

Do not for a second believe that the fact that the stock market rallied has defused the underlying problem. It has not.

The underlying problem is not the stock market. It is the credit (bond) market - that is, the underlying reality that there is too much debt out there in relationship to GDP, it cannot all be serviced, and as the economy contracts it feeds a vicious spiral where a default produces unemployment which drops both spendable income (and thus income available debt service) AND tax revenues, giving it to the credit market in all orifices. This is "deflationary destruction" and it is inevitable when government pushes off the normal cyclical cleaning out that recessions do, as our government has.

The problem with this is that once he owns all the long-term Treasuries he can't sell them without collapsing the price, and now the solvency of our government rests with the ability to roll over short-end debt. See, that which The Fed buys and Treasury sells is a funding circle-jerk, effectively removed from the float and thus the government's funding base.

Anyone care to take the bet on whether the selling pressure will move down the curve?

If it happens, we're done - and neither Bernanke or Obama has the ability to prevent it.
I further believe the American Public is getting damn close to the breaking point. The tone among people I interact with daily and among what I see online and off is shifting from hope and faith to anger with each passing day, and each revelation of another 10 billion here or there that get funneled through some conduit to an offshore bank just raises the pressure another notch. The people now want blood, and I believe the minimum they will accept are thousands of indictments, prosecutions and prison sentences along with forfeiture of these men and women's fortunes. Madoff didn't satisfy, it further enraged.

The government is running a very real risk, as I have noted in the past, of being declared by the people as "the felon" instead of "the cop," and if that happens I don't want to be anywhere near the angry mob that makes that decision.

So for now, enjoy the general upward to sideways trend in the market, but prepare. While the spring may bring hope and summer one of discontent, I believe there is a very high probability that come fall, the peak of Hurricane Season, a very ill wind will be blowing both in New York and Washington DC.
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