8 Miles High


Round the square huddled in storms

Some laughing, some shapeless forms

Sidewalk scenes and black limousines

Some living, some standing alone.

The Byrds

The asteroid is going to miss us but the cosmic tail of the debt crisis is going to be here for some time to come. The massive amounts of debt in the system - and to be rolled over - require a high gearing ratio by the players. The direction of EZ bond markets and folly and hubris at MF Global are changing the game for years to come. Segregated is a term the authorities should not take lightly. Clearing agents are going to demand more in reserve and clients will be justified in not wanting to pony up.

Back in the Dark Ages as the Reagan deficits blew out, the "conservatives" warned of bond market failure. The dis-inflation super cycle was the realm of the lunatic fringe. The technology sector showed an interesting new condition that found its way to financial engineering. Supply creates its own demand. This may well be a bastardization of Jean-Baptiste Say's Law, but the debt markets loved the idea. More directly, "Products are paid for with products." There isn't a bond salesman or Repo desk operator who can't get his hands around that nugget.

"Eight miles high and when you touch down, you'll find it"s stranger than known."

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