n-Unintended Direct Consequences of Not being Able to Fix US Debt Crisis; Direct Evidence of d:B->I Behaviour

1. Should have seen this coming. The CME is raising haircuts across the board on all sovereigns.

Source: http://www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv11-262.pdf

What does this mean? As Zerohedge points out, the exchange is doing what the rating agencies are hesitating to do, which is to down rate US government debt. See: http://www.zerohedge.com/news/cme-celebrates-americas-ever-nearer-date-insolvency-raising-collateral-haircut-treasurys#comments

2. For those non-initiated to the rites and rituals of the financial markets, you might consider that the EXCHANGE MODEL is the way almost all financial practitioners think of a completely controlled environment, with requirements that its trading members put up initial and variation margins, which in effect create a pool of assets buffeting the exchange as a whole from catastrophic collapse. So, when the exchange, in this case the CME, (where a huge volume of sovereign debt is traded and cleared) says that on this THURSDAY all sovereign margins are going up (and on US T-Bills, by an INFINITE RATE, from ex nihil 0% to 1%), this means an all endearing shift in Market Premise has occurred from pure academic unreal world theory to burning rubber on the tarmac.

3. Relation to Joe's Theory of the Invariance of Default. In terms of the Great Cycles of Default, we are deeply in phase 3 where governments are moving from Bailout [B] to Bailout [B]. In categorical notation, d:[B]->[B], where d is the universal morphism of default. We really don't need the brackets since in the end only the arrows count. So, d:B->B, is a more elegant way of describing the structure. But now consider the CME's act of raising the haircuts on sovereigns across the board. This action is not the signature of a bailout. In fact, it is just the sort of action that the private markets would consider realistic of themselves. The act of the haircut is an idempotent endomap of what we have earlier defined as part of the world of Financial Innovation or [I].

4. Thus, the CME haircut action is indicative of phase 4 behaviour. In category theory notation, d:[B]->[I] or simply, d:B->I. In words, the object-domain of bailout behaviour is being translated into private innovative market behaviour. We are now getting clarification on the meaning of the structure of phase 4. It will mean massive private market reaction. To put it mildly, bailouts cannot continue to be maintained.