Excerpts follow below from Zero Hedge on Gonzalo Lira’s guest post, which is brilliantly written, an easy read, and an insightful look into US government economic policy, as it relates to the current global financial agenda. This is a letthemfail top pick article:

It is not controversial to say—and indeed, it is widely discussed—that the U.S. Treasury has only two options: Default on Treasury bonds, or debase the currency by way of inflation, so that the nominal value of Treasuries is stable, but their real value decays by inflationary attrition.

We’ve talked about Bernanke playing with matches in a silo filled with Treasuries soaked in toxic asset debt gasoline:

In two previous posts, I essentially said “Yes” to a collective Moment of Clarity, “yes” to a panic in Treasuries. I further argued that such a panic would lead—inexorably—to a flight to safety in actual, physical commodities, which would then result in a massive hyperinflation that would kill the dollar dead. Part I is here, Part II is here. Inevitably, unavoidably: Treasury bonds are bound to collapse, triggering the sequence of events that I have described.

Did recent Chinese media leaks test a Treasury collapse-trigger earlier this week? Check the prior post and decide for yourself.

Lira even invites the Mike Shedlock “U.S. has become 1990′s Japan” comparison (Mish, as we agree, being the consummate deflationary theorist) which he then somewhat refutes, but not quite as pointedly as Matterhorn in yet another recent letthemfail post.

Finally, we submit:

If people no longer trust dollars as a medium of exchange and Treasuries as stores of value, where will they go? They will leave both and go to something else—commodities, as I have argued. And when that day comes, people will do anything to get out of the dollar and Treasuries, and into something that is stable in terms of value storage and medium of exchange.

And that moment of clarity apparently is not yet imminent.

But when it comes you will not only have the IMPLOSION of the ultra-mega bond bubble which off-loaded the mortgage backed security mega bubble (i.e. COLLAPSING ON STEROIDS) but you’ll also have an unprecedented negative feedback loop to convert out of collapsing dollars held as stores of value in pensions, retirement plans, etc… For example, you will not need to worry about our government bailout of Bell, California pensions because they, like all dollar-denominated pension accounts, stuctured annuities, retirement accounts, savings accounts, 401 Ks, IRAs, bags of paper money and paper contracts denominated in dollars, even Social Security benefit dollars – it ALL devalues to less than dog food coupons for at least the next 2 generations of Americans.

DEBT PROBLEM SOLVED — GDP overtakes past debt through hyperinflation. Instant austerity! But not through self-discipline. Rather, through currency collapse. Weimar Republic 1921 results will be acheived through 21st century geo-political, economic “restructuring”.

This article is important. But as we’ve explained before, the ONLY way to reverse direction is for State Governments to take action.

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