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$440 Billion Drop In Shadow And Conventional Banking System Liabilities In Q4 Gives Bernanke Carte Blanche For QE3

Tyler Durden's picture


When we last updated on the size of the shadow banking system, the financial "system" that is far more important to the economic prosperity of the US economy than the traditional liabilities held by conventional banks, we observed that after declining for 9 consecutive quarters, having hit a peak of $21 trillion in 2008, the shadow banking system had reached an inflection point and had posted a very modest increase at around $16 trillion in total liabilities in the third quarter of 2010. Well, following yesterday's Z.1 release, it seems the bulk of the data was revised, and it appears that not only was last quarter's upward pre-revision data a fluke, when in reality it was another decline of $191.7 billion, but the Q4 data further reinforced the negative trend, with shadow liabilities declining by an even greater $206.4 billion. The components responsible for the decline were ABS Issuers whose liabilities declined by $94 billion, securities loaned by funding corporations declining by $40 billion and lastly repos, which dropped by $79 billion. In other words, speculation that the Fed had achieved its goal of stimulating an organic reflation in the shadow banking system at which point it would be able to end QE and hand off releveraging over to the private sector were premature, and recent data confirms that the Fed has no choice now but to continue with its quantitative easing process, as it does more of the same: take capital from the public sector and proffer it to Primary Dealers in an attempt at ongoing asset reflation, which will, the theory goes, be matched by a comparable hike in liabilities.

So far this theory has been a massive disaster with 11 consecutive quarters of shadow banking liability declines. And where it gets far worse, is that after 5 consecutive increases in traditional bank liabilities which hit a record $13.1 trillion in Q3 2010, this number declined by $231 billion in Q4 to $12.8 trillion. Thus the combined move in Shadow and Traditional Banking liabilities was a whopping $438 billion in Q4!

Unfortunately, while events from Japan this morning may or may not be a catalyst for further QE, the biggest clue as to what the Fed will do is in the charts below.

Shadow banking subcomponents:

Sequential change in shadow banking liabilities:

Combined shadow and traditional bank liabilities:

Sequential change in shadow and traditional bank liabilities:

Botton line - Bernanke has once again failed to spark a "virtuous leveraging cycle" even with QE2, which after all is the fundamental goal of the Fed, far beyond even getting the Russell 2000 to 2000. Which means that the Fed will have no choice but to continue "printing" money, and monetizing bonds, as it (in conjunction with the Treasury of course) continues to be the only incremental source of leverage, and thus money, for the world's biggest economy.

Source: Z.1



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Fri, 03/11/2011 - 11:02 | 1040422 TimmyM
TimmyM's picture

Revenge of the liquidationists.

Bernank-demand for credit is not a toy!

Fri, 03/11/2011 - 11:05 | 1040431 bankrupt JPM bu...
bankrupt JPM buy silver's picture

QE, its the silver bullion gift that never stops giving.

Fri, 03/11/2011 - 11:22 | 1040474 bonddude
bonddude's picture

In Sonoma the QE never stopped until the bank closed.

Dirty bankers gave the bank away to this guy Bijan Madjlessi

who busted out INDYMAC and several other banks for $400 Million +++ a NYTimes paper about to drop another bomb.

SIGTARP, FBI, IRS all cleaning up up after the FDIC. The latest bribery

outlined for you.

Fri, 03/11/2011 - 12:11 | 1040635 Careless Whisper
Careless Whisper's picture

why does everyone keep calling it QE whatever? most people don't know what that means. isn't it just "the printing more money plan" ? anyone who has a good name for it please post.


Fri, 03/11/2011 - 13:28 | 1041051 bonddude
bonddude's picture

Who is Hower and what did he contribute to Sonoma Valley Bank and Charter Oak Bank's


Fri, 03/11/2011 - 14:08 | 1041320 IQ 145
IQ 145's picture

 cute. chuckle. chuckle.

Fri, 03/11/2011 - 11:49 | 1040567 B9K9
B9K9's picture

It's too bad TD booted Mako - he was referencing the Z1 before most people had even clued in. That guy, along with Trav, had this whole thing figured out from the beginning.

Once again kids: when speaking of our "economy", there is simply nothing that compares to the pure heroin rush of credit money instantly being created when John & Jane Q. Sheep sign on the bottom line.

But what compels the sheep to sign such a fateful document that reduces them to a lifetime of debt peonage? Riches, dear readers, riches. Ah, the age old dream of the prospect of easy returns. Hence the great 'con'; gotta get the sheep believing it's all gravy from here on out.

That's what QE has always been about - gin the markets & hit them with the biggest propaganda campaign in living memory. Convince them to 'get in on the bottom' or be 'priced out forever'! Ben has always known there's no way the Fed or any institution can actually offset (ie print money) the credit component of the credit-money system when credit aggregates comprise around 95% of the total.

So the game has always been to get the sheep moving yet once again. The problem is, nothing has yet appeared or looks like likely to appear to get those good ole' animal spirits flowing again. Perhaps it has to do with people 50+ pretty much set in their ways? Um, that would be boomers who are done participating in the 'consumer economy'? Or, perhaps there simply isn't enough (cheap) raw material in which to fuel another mad binge (hint: oil).

The true cynics believe the insiders alway knew this to be the case, so they merely exploited both & Fed policy to maximize their escape loot. Well, we shall see if they actually manage to get far enough away.

Fri, 03/11/2011 - 11:51 | 1040576 equity_momo
equity_momo's picture

Mako got booted? Why and when?  My time reading this blog ebbs and flows but i found him thought provoking. What did he say that required a boot?

Fri, 03/11/2011 - 14:00 | 1041274 jdrose1985
jdrose1985's picture

his blog


world darkest days


also check out hypertiger


hypertiger wisdoms


google is your friend


mako definitely had it right and knew his shit about debt and lack of standing to foreclose. he was definitely getting close to the root. i doubt he knew about private copyright law and the power associated with it.....

Fri, 03/11/2011 - 16:10 | 1041887 Rick64
Rick64's picture

Have to agree that Mako knew what was going on before most and really educated me on the bigger picture. I don't think he got booted, probably just grew tired of people not understanding.

Fri, 03/11/2011 - 17:19 | 1042122 equity_momo
equity_momo's picture

People are prepared to believe in the Afterlife , heaven and hell , religious stuff , Aliens , Britney Spears.  But they arent prepared to believe in cold , hard math.  I find that incredibly depressing.

Ive given up talking to friends , family and colleagues about it. I have managed to open the eyes of 2 people fully. Maybe 1 , as 1 is my wife and i think she just trusts my judgement but doesnt really comprehend why.  Even friends and colleagues i know who are relatively intelligent dont want to go the whole way and get to grips with our future governed by the law thermodynamics.


Sat, 03/12/2011 - 02:48 | 1043564 Rick64
Rick64's picture

 I think many people especially on ZH can relate to that, I know I can.

Fri, 03/11/2011 - 17:24 | 1042145 tarsubil
tarsubil's picture

Holy uber doomer batman. Man, wow.

Fri, 03/11/2011 - 17:40 | 1042202 centerline
centerline's picture

LOL.  Hypertiger is quite a read for sure.  Mako was too - until he "got frustrated."  I do miss reading his posts.

What really stinks is that these guys are most likely right regarding the bigger picture.  I'm talking the picture beyond the details of the current fiat circle jerks, asset bubbles, daylight bank robberies (by the bankers of course), etc.  So I suppose it is with some degree of irony we here are glued to watching the train wreck in such detail, considering that we are passengers on said train.


Fri, 03/11/2011 - 17:26 | 1042152 Double down
Double down's picture

Read his blog, Mako is insightful, but he was also a shrill whiner who always knew best.  Smart but disagreeable.  Everybody has a past and intentions are always suspect.  No shit people here come from somewhere and may have motives. 



Fri, 03/11/2011 - 11:54 | 1040581 ColonelCooper
ColonelCooper's picture

Good post.

Fri, 03/11/2011 - 13:38 | 1041122 Cash_is_Trash
Cash_is_Trash's picture

Blew my mind away. Really good stuff.

Fri, 03/11/2011 - 13:55 | 1041251 Muir
Muir's picture



I've said it before here.

In this economy credit = money.

Destruction of credit = destruction of money.

Therefore, destruction of credit = deflation.



Fri, 03/11/2011 - 14:53 | 1041576 Arthor Bearing
Arthor Bearing's picture

Yeah the bugs seem to forget about those hundreds of billions of dollars in derivatives exposure, literally an off switch for the economy which would send the value of paper dollars through the roof- bank runs, massive deleveraging, people scrambling every way for cash. This is a better outcome for banks which are net creditors. Watch yourselves

Fri, 03/11/2011 - 15:27 | 1041730 clymer
clymer's picture

Doesn't matter - PM's protect in inflation, and hold their value in deflation (in nominal terms); in a deflationary collapse you would get less dollars for your gold, but you would get more fuel, clothes, food for your dollars.


Either way, you're likely wrong on this, as a deflationary even of any real magnitude would prove even more damaging to the FED's already failed credibility; at least most of the lib's are supportive of the FED currently, as long as they believe the spigot will remain open. Once it stops, Ron Paul gets more bi-partisan ammo to shed light on the temple, because congress cannot ignore constituents shivering in the dark (as much as they would like to)

Fri, 03/11/2011 - 15:54 | 1041844 impending doom
impending doom's picture

Bravo on all except the RP BS. He is a distraction. Notice how he berates Bernanke on CSPAN, yet no perp walk or better yet guillotine walk...

Fri, 03/11/2011 - 16:48 | 1041978 clymer
clymer's picture


What can he do? He is one against 434

Fri, 03/11/2011 - 17:08 | 1042077 impending doom
impending doom's picture

Sad that we leave the fate of the free world on the shoulders of a 70 year old man. I can only shout this so loudly at my office mates w/o attracting attention. I thought it might go over better here.

Fri, 03/11/2011 - 17:27 | 1042162 clymer
clymer's picture


76 years old.. He'll make a great president.

Fri, 03/11/2011 - 17:31 | 1042176 impending doom
impending doom's picture

Why, because they'll kick his cane to the side and give him a boot party? No offense, i agree with his tenets, just think it's more kabuki for the faithful...

Fri, 03/11/2011 - 17:58 | 1042282 clymer
clymer's picture



We're short on options. For example, I don't think the likes of a Scott Brown in my home state of the peoples republic of MA has the sack to stand up to the machine (not that I hold his sluttines against him, as i'm kind of a slut myself). Who else do we have? we're freaking doomed

Fri, 03/11/2011 - 18:21 | 1042379 impending doom
impending doom's picture

How about you? Or me? Or any of us? Get out of the lazy American mentality! The means are in front of us right now. I'm trying in my community, what are you doing? If you're waiting for a savior, only Mussolini will come.

Sun, 03/13/2011 - 03:47 | 1046110 pyite
pyite's picture

Double Eagles have a $20 face value too, in case you are really desperate for a couple of cases of Busch Lite or something.


Fri, 03/11/2011 - 15:20 | 1041706 cosmictrainwreck
cosmictrainwreck's picture

thanks for posting....I've missed yer jugs

Fri, 03/11/2011 - 16:40 | 1041962 Muir
Muir's picture


Fri, 03/11/2011 - 17:27 | 1042156 tarsubil
tarsubil's picture

I don't care what you say. You're awesome.

Fri, 03/11/2011 - 17:37 | 1042191 Double down
Double down's picture

With respect I disagree.  Paying for something with credit does not confer ownership even if the credit risk is assumed by a third party.  Currently, FRNs are the only things net of default that can extinguish debts.  Their value lie (among other things) in the anxiety of the payment plan of the encumbered.  This is why cash is valuable and always in short supply.  As long as the level of debt of all the encumbered appear to be manageable there will be value to cash.


My 5 cents    

Fri, 03/11/2011 - 13:47 | 1041195 A Man without Q...
A Man without Qualities's picture

"The true cynics believe the insiders alway knew this to be the case, so they merely exploited both & Fed policy to maximize their escape loot."

I had this conversation in March 09 with a senior exec at one of the TBTFs.  He was more candid than ever before or since, and said he thought they would try to reflate the bubble one more time, but it wouldn't work and the next bursting would be the point at which they'd recognize they need to change the system.  He said the problem was nobody was able to lend, I said the problem was nobody who could pay back wanted to borrow - we were probably both right.

My take for the last decade is the US economy is actually the biggest disaster in the global economy, for all the issues with Europe, Japan or China.  I don't believe much of the official data, especially GDP and inflation and the only thing staving off collapse was the exponential growth in credit or M3.  

As for personal wealth, the people in charge aren't willing to pay people decent wages, as they need all the money themselves, so a housing bubble and equity bubble are the best way of distracting the middle classes away from noticing how badly they are being screwed.  The only problem with bubbles is they keep on popping.  We continue to mistake a solvency crisis for a liquidity crisis and the banking system is too leveraged to be able to withstand realistic write downs, so we continue pumping air in to the tire without trying to mend the puncture...

Fri, 03/11/2011 - 14:02 | 1041292 Muir
Muir's picture

nice post...

Fri, 03/11/2011 - 15:29 | 1041746 cosmictrainwreck
cosmictrainwreck's picture

nice jugs

Fri, 03/11/2011 - 14:23 | 1041396 prophet_banker
prophet_banker's picture

OR maYBE the banks and consumers who make and take the loans[new money creation] share this in common "don't really think it could be paid back in this economy"; confidence is everything in the con game, we agree on that




-thus money supply shrinks

Fri, 03/11/2011 - 11:50 | 1040568 DaveyJones
DaveyJones's picture

a "carte" is what we'll need

Fri, 03/11/2011 - 17:12 | 1042090 4shzl
4shzl's picture

no, a tumbrel ;>)

Fri, 03/11/2011 - 11:53 | 1040582 masterinchancery
masterinchancery's picture

There is no such thing as a "virtuous leveraging cycle." Just bubble-blowing.

Fri, 03/11/2011 - 17:21 | 1042130 covert
covert's picture

why does the federal reserve have any ties to the federal govt? isn't it just another banknote printing company?


Fri, 03/11/2011 - 11:02 | 1040424 The Axe
The Axe's picture

Political situation will not allow Q3, as the growing number of voting and non-voting members of FED..against Q3...not going to happen...

Fri, 03/11/2011 - 11:11 | 1040449 unwashedmass
unwashedmass's picture


i sincerely doubt that. the last year, if nothing else, should have showed you that we are peasants -- no one gives a damn about how you feel about this, or how exploited you are....

come on, the Congress is in the pocket, the CTFC....well, all you have to do is look at what's happening at the Comex today to get a drift of where they stand.

we're a banana republic with an unelected dictatorate -- the big banks and Ben.

Fri, 03/11/2011 - 11:16 | 1040459 MachoMan
MachoMan's picture

We will desire austerity up until the time it actually affects us...  It's going to be the same merry-go-round we always have...  key vote coming up, support withdrawn to spook the herd, money gets appropriated.  Are you suggesting that the debt ceiling will not be raised and we'll be budget neutral/surplus in perpetuity?

There will be much jaw-boning and posturing before the debt ceiling is raised.  There will be some austere conditions imposed, but they will be a far cry from anything reasonably necessary to make a fruitful dent in our obligations.  Once we are fearful of falling off the cliff again, we will capitulate on additional QE.  Further, this approach presupposes that QE will be announced and in the public eye...  successive QEs will be more and more steathily crafted...  but, will be stimulus/hand-outs/theft none the less.

I agree that the political situation presents constraints to further printing, at least in form...  and, prospective QE may be successively smaller in size...  but, that does not mean QE will be eliminated.  In the end, there has been no organic recovery and, as a result, we have to be willing to accept the full pains of deleveraging should QE be removed.  I have sincere doubts about our resolve in this regard.  I suspect we will end up borrowing til bust and then repudiating.

Fri, 03/11/2011 - 19:03 | 1042537 Lord Koos
Lord Koos's picture

Rest assured that the austerity will be imposed on those who can afford it the least.  That's how the IMF fucked the third world & that's how it will happen here too.

Fri, 03/11/2011 - 11:19 | 1040466 Rogerwilco
Rogerwilco's picture

I agree, they can't continue QE in this climate. If the Fed allows the USD to fall any further, all will be lost. The ball is now with the politicians and they need to find/beg/borrow/steal enough to fund the circus. Extend and pretend options yet untried are:
1) a new war (annex "failed" Mexico?)
2) forced repatriation of corporate profits via punitive taxes on cash "hoards"
3) a raid on private retirement accounts
4) nationalization of the banks

Fri, 03/11/2011 - 11:37 | 1040529 nathan1234
nathan1234's picture

All is already lost.

Only those who recogonize this can survive.

Fri, 03/11/2011 - 12:11 | 1040634 Rogerwilco
Rogerwilco's picture

The Fed deals in dollars. It makes no sense for them to allow the complete decimation of their only line of business. Bernanke will permit a certain range of movement in the DX as he balances the various demands, foreign and domestic. He will not allow dollars to become worthless.

Fri, 03/11/2011 - 12:36 | 1040692 GoinFawr
GoinFawr's picture

They already are worthless.

What you mean is 'they', along with all the other central banks 'they've' infiltrated worldwide, will do whatever 'they' can to maintain the illusion of comparative value of the USD amongst all (fiat) currencies, because that is all they can really do. The perceived value of any fiat relies solely on the issuers ability to force people to accept it and use it; guess what is waning when it comes to the USD.

But all fiat currencies are falling in perceived value compared to counter-party-risk-free assets; which always happens eventually. Unless you think it's different this time?

You seem to be operating under the misapprehension that the USD operates in a sort of hegemonial vacuum. It doesn't, at least not anymore.


Fri, 03/11/2011 - 12:26 | 1040698 BigJim
BigJim's picture

I like your thinking viz previous suggestions for US options. After all, Mexico is 'failing' to end the paramilitary violence on the border, killing our law enforcement agents and endangering our children with evil ganja!

But ultimately, the Fed is less concerned about the US government's finances than it is with the profitability of its owners - the big commercial banks. So I can see the US government pulling all those stunts, and the FED indulging in further QEings.

I understand your concern with the USDX, but the Euro is the main alternative at the moment and look what kind of shape that's in.

The politicians will do what they're told by the money power. They'll posture and wheeze but eventually enough of them will fall in line. That is, after all, what they're there for.

Fri, 03/11/2011 - 16:17 | 1041902 impending doom
impending doom's picture

Maybe we should stop supplying them with automatic weapons...

Fri, 03/11/2011 - 16:40 | 1041965 Calmyourself
Calmyourself's picture

What and cut the ATF budget, get a hold of yourself man..  We will be needing them to burn people to death soon I am sure..

Fri, 03/11/2011 - 17:13 | 1042101 impending doom
impending doom's picture

You're right. What was I thinking?

Fri, 03/11/2011 - 23:48 | 1043292 GoinFawr
GoinFawr's picture

"We will again be needing them to burn people to death soon I am sure.."

fixed that for ya

Fri, 03/11/2011 - 14:22 | 1041393 IQ 145
IQ 145's picture

 This is a reasonable comment; and analysis; and for that alone it will cause you problems with the people who analyse only in one liners and buzz words, and who desperately need a drama to emote to. The problem I have with the article is that I believe the reduction in the shadow banking system is acceptable; it was a very inflationary economy, after all; and the available evidence suggests that this is so.

Fri, 03/11/2011 - 15:32 | 1041756 AccreditedEYE
AccreditedEYE's picture


Fri, 03/11/2011 - 19:36 | 1042674 Lord Koos
Lord Koos's picture

When it takes 1400 of them to buy a small gold coin they aren't worth much IMO.

Fri, 03/11/2011 - 11:20 | 1040470 Larry Darrell
Larry Darrell's picture

Political will is a NON factor.  He will print because he has no choice.

Aside from that, if he doesn't print, things will unravel so fast (especially with failed treasury auctions) that the pols will beg him to commence with the priniting again so their constituents don't put their heads on pikes.

He will print.

Fri, 03/11/2011 - 11:29 | 1040499 skohiu
skohiu's picture

@LarryDarrell.  +1.  Economics (i.e. banksters) drives politics, not vice versa.  zimBENwe will do whatever the hell he wants and CONgress will not do sh!t to stop him. 

Fri, 03/11/2011 - 11:37 | 1040526 MachoMan
MachoMan's picture

The question is not whether he has to print, that's a given, the questions are how much and when... 

Fri, 03/11/2011 - 11:45 | 1040555 Larry Darrell
Larry Darrell's picture

Well, we know that the US Deficit will run between 1.5 and 2.0 trillion this year, and they announce the treasury auctions, so it shouldn't be too hard for us to figure out if we want to do the math.

Personally, I don't.  I know the trend, and it is all I need to know.

Fri, 03/11/2011 - 12:39 | 1040771 BigJim
BigJim's picture

I'm wondering, though, if the Fed won't fire a shot across the pol's bows before reopening the spigots.

It's in the pol's interests to puff and blow against the Fed's actions, because i) the public like it, and ii) it means they can extort more out of the banksters to buy their votes.

It's in the interest of the Fed to shut off the money for a while, because, in the ensuing collapse, their (already warned) owners - the commercial banks - will be shorting. Then when the public is clamouring for relief (thus giving the pols an excuse to 'allow' the Fed to loosen), they'll turn on the taps once more... but only after the banks have been informed so they can go long again.


          I believe that banking institutions are more dangerous to our liberties than standing armies. If
          the American people ever allow private banks to control the issue of their currency, first by inflation,
          then by deflation, the banks and corporations that will grow up around [the banks] will deprive the
          people of all property until their children wake-up homeless on the continent their fathers conquered.
          The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

                                                                                                         - Thomas Jefferson (supposedly)

It seems to me this is the ideal opportunity for our masters to engineer a collapse in equity (and everything else) prices. The point is, how do the rest of us play it? I'm tempted to cash everything out in May, except core PM holdings, because I think practically everything will drop in value if/when people buy the idea the Fed will end QE.


Fri, 03/11/2011 - 13:07 | 1040905 MachoMan
MachoMan's picture

If a natural disaster or some other outside event does not trigger a flight to quality, one will have to be conjured.  It will remain until every last resource has been squeezed and profits maximized and then the FED will turn on the spigots and go the other way.  The time period can largely be affected by "perception" rather than actual fed action, i.e. the market may get out in front of the FED before QE 2 even ends if it thinks QE 3 is not going to happen...  given the expectation of QE 3 is largely baked in (but yet treasuries and the dollar can still catch a bid).

If you want to try and time the market while being outside of the club, that's your business.  I would suggest reducing leverage and purchasing assets without necessary counterparties.

Fri, 03/11/2011 - 21:17 | 1043001 freedmon
freedmon's picture

I have to agree with your analysis. I've liquidated all my stocks, paid all my debts, and bought some PMs. I plan to keep a little money in the brokerage account in the event of a crash, because it will represent a buying opportunity. Whatever else we see happening, if the powers that be have proven anything thus far, it's that they are in overall control of the markets. Crashing the stock and property markets at once would force widespread liquidation, allowing the TBTFs to buy it all up at rock bottom.

Fri, 03/11/2011 - 11:38 | 1040533 karzai_luver
karzai_luver's picture

Never a doubt, there maybe a "pause that refreshes" the "will" but in the "right before whenever" end , he must print and he will print.

There is no other way for the bankers who matter to proceed.

You either reflate(nope sorry) or die trying.


Keep in your mind the paddles on the chest of your breadwinner, you will not stop until the body is fried or the fuses blow(again).


Fri, 03/11/2011 - 11:52 | 1040570 Bob
Bob's picture

Agreed, political will against it will dissolve under the consequences of not printing if he makes such a gesture.  For The Printer, it's a go . . . merely a matter of timing. 

Fri, 03/11/2011 - 11:24 | 1040482 bankrupt JPM bu...
bankrupt JPM buy silver's picture

okay then...if it wont happen the market will go to zero, then it will happen.  So it will happen like 2008 panic happened, or happen to happen, now im just writing the word happen again b/c QE3 is inevitable.

Fri, 03/11/2011 - 11:27 | 1040494 skohiu
skohiu's picture

PTB will allow a 1 point down day in the Dow, and it will spook CONgress and sheeple into demanding QE3, and 4, and 5. 

Fri, 03/11/2011 - 11:32 | 1040510 Josh Randall
Josh Randall's picture

The Bernak makes the rules around here Boy, don't you hear good ?

Fri, 03/11/2011 - 13:17 | 1040961 MrBoompi
MrBoompi's picture

You forgot that, at least in this case, it's the cart that drives the horse.

All you have to do is tell the politicos that the entire world economy will crash unless they go along....and they'll go along.

Fri, 03/11/2011 - 11:03 | 1040426 sabra1
sabra1's picture

does all this mean larger riots?

Fri, 03/11/2011 - 11:40 | 1040537 DaveyJones
DaveyJones's picture

and smaller stomachs

Fri, 03/11/2011 - 11:04 | 1040427 LawsofPhysics
LawsofPhysics's picture

Ouch.  This could be problematic.  But isn't "deleveraging" a good thing?  We all know that the debt is fraudulent, why not let deveraging and debt-deflation occur?  At this point, we all know the world currency is coming.  Fuck it, let the haircuts commence!

Fri, 03/11/2011 - 23:30 | 1040648 GoinFawr
GoinFawr's picture

Simple rule to use when trying to predict future policies: look at which course of action is best for the ruling class and compare that with what would be best for everyone else; now ignore that last part and voila,  you can see clearly which path will invariably be taken!

And, to my knowledge, this is one of those rare rule sets where there are absolutely no exceptions, so I suspect that it is more of an immutable physical law type thing.

case in point:


Fri, 03/11/2011 - 14:28 | 1041434 IQ 145
IQ 145's picture

 "some" deleveraging and debt-deflation is occurring. There's quite a different end result between the case of releasing some air from the neck of the balloon; and simply sticking a pin in it. In the second case, you don't have a balloon any longer. The Fed's policy is intended to prevent a sudden deflationary crash; there is no world currency on the visible horizon; for the best of all possible reasons; it benefits no one.

Fri, 03/11/2011 - 11:05 | 1040428 Cleanclog
Cleanclog's picture

Tsunami and hungry angry people will be proven to have more power than Bernank's printing press.  QE3 Fail!  Might be able to medicate S&P, but doubt the "wealth effect" will help anything but paper statements.  Not gonna quell bigger forces now.

Fri, 03/11/2011 - 11:04 | 1040429 Long-John-Silver
Long-John-Silver's picture

We are Zimbabweans

Fri, 03/11/2011 - 11:55 | 1040588 Joe Sixpack
Joe Sixpack's picture

Ich bin ein Zimbabwean!

Fri, 03/11/2011 - 11:07 | 1040432 Wynn
Wynn's picture

Any idea when the Fed might declare their decision?

Fri, 03/11/2011 - 11:06 | 1040434 Robslob
Robslob's picture

Not until the banks are capitalized to own ALL of the U.S.A. including Corporations, Property, Unborn Children and last of all...your soull

Fri, 03/11/2011 - 11:08 | 1040441 LawsofPhysics
LawsofPhysics's picture

Then we revolt?  I say fuck it, let the debt deflation occur, we know the "world currency" is coming.  Let the financial sector and elite take the haircut and stop messing with my buying power.  Got PMs?  You better.

Fri, 03/11/2011 - 11:47 | 1040557 SME MOFO
SME MOFO's picture

They can have it, I never use it anyway

Fri, 03/11/2011 - 11:07 | 1040439 Debtless
Debtless's picture

Shadow banking system seems to imply that the real banking system is somehow basked in sunlight. 

Fri, 03/11/2011 - 13:52 | 1041221 NotApplicable
NotApplicable's picture

Illuminated, one might say.

Fri, 03/11/2011 - 11:19 | 1040440 Won_Over
Won_Over's picture

It has already began, Wall Street pressuring for a NEW QE3 as QE2 slowly coming to its end in June. Markets significantly down and comparisons made on MSM with August (which was the time when QE2 was not yet announced) — Hint, hint Wall Street wants QE3 and will get it.


Data such as unemployment, housing and oil shocks and revolutions in the Middle East will all add to the ‘worsening market conditions which require further easing’ (taken by Bernanke speech July 2011). Yesterday we learned that the big bond dog, Bill Gross (not seeing QE3) had moved completely out of government bonds being the first one pressuring for QE3 if government wants its debt bought by someone else than themselves (Fed).


Always like that, as soon as the market feels the QE3 is guaranteed people will come back… Pretty much the market needs its continuous shot as it cannot sustain by itself, and as the market sees ahead then they see no QE3 (not known at this time) and start moving out one by one…leaving the sinking ship.

After the market has moved down 10-15% or more and situation is still horrible, then a QE3 will not be opposed much when it comes… It will be the savior we needed so much, and at the same time commodities god knows where they will be, as the dollar is in the process of destroying itself (actually we are doing it ourselves in the name of growth).



Fri, 03/11/2011 - 11:16 | 1040447 AccreditedEYE
AccreditedEYE's picture

You can't get Shadow Liabilities back to near peak because the environment they were being manufactured in was toxic. In fact, I'd be interested to see a study of how unrealistic the rate of growth has been for SL's as it will require years of sub-par lending to revert to at least the mean. Ben, you suck!!

Fri, 03/11/2011 - 11:14 | 1040452 john_connor
john_connor's picture

The Fed is killing themselves and will only create further expectations of a dramatic mispricing of an assumed "risk free" (lol) asset.  The more they buy, the more they set up for either 1) a massive supply dump, or 2) a loss in the faith of US treasurys leading to hyperinflation, or both. 

Fri, 03/11/2011 - 11:17 | 1040463 AccreditedEYE
AccreditedEYE's picture


Fri, 03/11/2011 - 11:15 | 1040455 TradingJoe
TradingJoe's picture

Politics will not be a problem for QE3, as all politicians are corrupt and won't deny

themselves another PIE! The only real question here is will it be a pause between

QE2 and QE3 or will it be a seamless transition? I think there won't be any pause!

"Keep the Momentum" Ben, hit the iron as long as it still is hot!

Buy Physical PMs, Agro Stuff, Real Estate/Farmland and Oil on any dip, forget the Dollar, it is dying already!

Fri, 03/11/2011 - 12:06 | 1040456 M.B. Drapier
M.B. Drapier's picture

So this would be the third time since 2008 that the Fed has managed to reverse (or nearly reverse) deleveraging, only to see it return with a vengeance one or two quarters later (graph from December)? Score one for the deflationists, I presume. Three times is of course a trend, ;) so here's my radically uninformed prediction: these days, reversed deleveraging is more likely to signal a sharp increase of deleveraging than a sustained return to credit expansion. The private sector debt looks like an aeroplane without enough engine power to fly level: it really, really wants to go down, so whenever Bernanke gets the nose up it it just causes another stall. Of course, that's what happens when you fly your aircraft so high that your upward momentum carries it above its maximum cruising altitude.

(Bonus question: have a look at the second deriviative on that chart of total banking liabilities. Credit almost always increases, at a relatively steady (though increasing) rate, up to about '98. Then from '98 to about Q1 '03, credit is also always expanding, but the rate at which it is expanding whipsaws up and down pretty wildly. So that period from '98 would be Great Moderation, Phase I. Then in Great Moderation, Phase II credit does the full Ponzi and increases at a rapidly increasing rate. The rate of increase in credit reaches a plateau in Q1 '06, but doesn't really slow again until Q4 '07, at which point we're in modern times, folks. What's the story behind all that, especially the really striking difference between Great Moderation Phase I and Phase II?)

Fri, 03/11/2011 - 13:15 | 1040955 Hubbs
Hubbs's picture

I read this through about 10 times. So banks are building up their larder rather than lending, in anticipation of stocks eventually tanking, at which point they can scoop up assets on the cheap?

In phases I and II, with Ponzimetrics in force driving asset prices up, if you deleverage, you(banks) lose. But now that the Ponzi driven asset appreciation has collapsed, the banks want to do the reverse...and build up cash reserves for the after shock drop in equities, and then buy them up on the cheap,and then get rich as these assets appreciate in the new cycle.


In other words, the banks have a selfish, greedy, incentive to set us up for as hard a fall as possible...but not before they have gotten a chance to refill their balance sheet with Bernank bucks.

Fri, 03/11/2011 - 13:47 | 1041184 M.B. Drapier
M.B. Drapier's picture

So this would be the third time since 2008

Duh, the second time of course. I need to brush up my finger-counting skills. Still a trend though. ;)

Fri, 03/11/2011 - 11:16 | 1040458 Spalding_Smailes
Spalding_Smailes's picture

But, but, but .....what about John Williams ..... Hyperinflation ?

Fri, 03/11/2011 - 11:16 | 1040462 Tyler Durden
Tyler Durden's picture

What do you think QE3 will do to faith in the dollar? And QE4 after that? And QE5, and so on....

Fri, 03/11/2011 - 11:25 | 1040471 Spalding_Smailes
Spalding_Smailes's picture

Will see if QE 3 is coming. When does the shadow deflation stop .... ? How deep is the black hole ?

I thought it was massive hyperinflation that was coming ... So this thing could play out for years and what market is liquid enough for all the treasuries / obligations already in service, not China with the currency controls and how is the EU looking with her one rate gang bang ....


You might need another thread soon ...


 The Japanese Government are warning their people of an imminent earth quake stronger than the 8.9.

- [link to


Fri, 03/11/2011 - 11:33 | 1040506 Larry Darrell
Larry Darrell's picture

This argument will continue to be circular if people don't define what the consider as sound money.

If you consider the dollar to be the basis, then we will have hyperinflation as more and more dollars are printed

If you consider gold/other hard commodities to be the basis, then we are in fact having deflation and will continue to do so.

Everything is relative to what the basis of "money" is.  There WILL BE hyperinflation with respect to the dollar as people lose faith in it.  This DOES NOT MEAN that the deflationary collapse is responsible for this printing in the first place.  If you price the banking sector relative to hard commodities, there is no denying that we are experiencing deflation.

Fri, 03/11/2011 - 11:41 | 1040546 DaveyJones
DaveyJones's picture

well said

Fri, 03/11/2011 - 11:54 | 1040547 Spalding_Smailes
Spalding_Smailes's picture

The velocity does not change within the money supply unless the new money is spent on something. Credit does not do this it sits waiting nor new treasuries.... Treasuries do not effect the money supply in regards to new money being spent.

Not inflationary until it pushes the velocity of dollars already being uses around the world. They banks are sitting on tons .... 

People losing faith, no other currency can take the place of the dollar now. China's a total corrupt mess with capital controls ( Chinese Yuans to 1 USD ---- 6.574 ) and the EU is a mess 27 countries under one rate .... Your talking many year for any type of transition or a reset or a basket with the dollar being a big part of this basket.


---------- Sept. 22 (Bloomberg) -- The Federal Reserve has started talks with bond dealers about withdrawing the unprecedented amount of cash injected into the financial system the last two years, according to people with knowledge of the discussions. Central bank officials are discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That’s where the Fed sells securities to its 18 primary dealers for a specific period,temporarily decreasing the amount of money available in the banking system.

Fri, 03/11/2011 - 12:04 | 1040602 Larry Darrell
Larry Darrell's picture

The velocity does not change within the money supply unless the new money is spent on something.

Well, the government is spending the money from the treasuries that are being sold, and the banks are doing something with the money they are making from the flip that bond program.  I would say the new money is definitely being spent.  And I think the whole point of the hyperinflation scenario hinges on those TONS of cash on the sidelines.  With all of the extra "liquidity" being put out by the Fed, what happens whan that sideline cash decides to get in the game?

As for faith in the dollar, I fail to see how faith in the dollar is affected by whether or not another currency is available to take its place. There doesn't have to be a viable alternative to lose faith in something, and just because there are other alternatives, that doesn't mean you have to pick one.  There are lots of religions around the world, but when I lost faith in Catholicism, I didn't move to another faith.


In response to your added edit, I will just say they can TALK all they want about reverse purchases.  I will continue to pay attention to what they actually DO.

Fri, 03/11/2011 - 12:23 | 1040667 Spalding_Smailes
Spalding_Smailes's picture

Are the new bonds affecting the velocity if its filling a massive hole in the shadow banking system ?


All other fiat is built upon the dollar, so we are talking a total global meltdown, reset. Now this can happen sure, but you will not be going to work, you will have global chaos .... I don't think the governments , any of them want this. So they keep the status quo until they come up with plan b. Maybe a basket of fiat, the dollar, euro, yuan , maybe gold makes up 10% , not sure about all of that and how it breaks down ...

Fri, 03/11/2011 - 12:36 | 1040756 Larry Darrell
Larry Darrell's picture

I agree they are trying to fill the massive black hole in the shadow banking system, I just don't think they can control where ALL of the money ends up - unintended consequences.  So I do believe some of that velocity is escaping their control.  Is it happening fast enough to cause hyperinflation??  Obviously not yet, but it is my opinion that it will.

I also agree that the governments of the world don't want global chaos from a meltdown/reset, but "The best laid plans o' mice and men...."  Human beings are unpredictable, and I just don't think TPB will succeed.

And I guess we'll leave this discussion at this for now.  We can agree to disagree.  I have a job which bids this afternoon, and I need to make sure I haven't left out any of my costs........=)

Fri, 03/11/2011 - 12:49 | 1040816 Spalding_Smailes
Spalding_Smailes's picture

Hey, I don't like the system as is .....

I search for a easy way out of this mess and I can't find one .... All your points are good ones.

Fri, 03/11/2011 - 17:26 | 1042150 ColonelCooper
ColonelCooper's picture

"All other fiat is built upon the dollar, so we are talking a total global meltdown, reset."


Fri, 03/11/2011 - 12:37 | 1040731 Spalding_Smailes
Spalding_Smailes's picture

Well, the government is spending the money from the treasuries that are being sold, and the banks are doing something with the money they are making from the flip that bond program.

  • The New York Fed announces a tender for $X billion of certain issues of U.S. Treasury debt.
  • The primary dealers (20 banks which are required to bid for U.S. Treasury debt at auction and to thereafter make markets in that debt – see the end of this note for a list of the PDs) submit offers to sell those certain issues to the New York Fed.
  • The New York Fed purchases the Treasury debt from the primary dealers at the lowest possible price using newly created bank reserves.
  • The newly created bank reserves show up as assets (“cash”) on the primary dealers’ balance sheets where previously the Treasury debt was listed as assets on the primary dealers’ balance sheets.
  • The amount of bank reserves available for borrowing and lending in the Fed Funds market increases by the amount of the New York Fed’s purchase. [Edward here: this is irrelevant because banks lend to creditworthy borrowers irrespective of the amount of reserves in the system]
  • Interest paid by the Treasury Department on the debt purchased/sold accrues to the Fed instead of the primary dealers (the Fed returns most of it to the Treasury at the end of the year).

  • Interest rate risk on the Treasury debt (i.e. the risk that rising interest rates lower the present value of the purchased/sold Treasury debt, creating a loss in the event the holder wanted/needed to sell before maturity) is borne by the Fed instead of the primary dealers, although a recent rule change puts the Treasury Department on the hook for any losses. The Treasury Department would put future Fed profits toward returning the Fed’s negative liability position to zero. That means that the Treasury is pledging the future interest paid on its own debt as collateral for any principal (mark-to-market) losses on its own debt held in the Fed’s portfolio. The net effect is to weaken the barrier between the Treasury and the Fed which of course lessens the independence of the Fed. More importantly, it gives Federal Reserve Notes (what the Fed and everybody else erroneously calls “money”) debt-like properties and gives Treasury debt money-like properties. That means that the Treasury has moved one step closer to becoming the de facto monetary authority while the Fed has moved one step closer to becoming the de facto fiscal agent. (Dick Eide, a friend of mine who trades and writes for bond dealer Pierpont Securities, has written a hilarious piece on the recent Humphrey Hawkins testimony that I can send to you if you like. It addresses some of these issues.)

  • Unlike the “cash” that is made available to a bank’s customer when they’ve taken out a loan (“Bank Money”), the “cash” that primary dealers receive in exchange for Treasuries in a quantitative easing transaction is those banks’ assets and not their liabilities. No Bank Money has been issued, and the Fed Money that has been issued merely swells the pot of Fed Funds that banks lend and borrow amongst themselves. The liability side of the banks’ balance sheets does not change and the banks’ capital levels do not change.

    The primary dealers (which remember are banks) will not want to hold the non-interest bearing cash on their balance sheets because there is a cost for funding those non-interest bearing assets no matter how trivial that cost may be (~20 basis points probably). Therefore, they are likely to turn around and buy some combination of (interest bearing) Treasury debt and other risky assets which promise a risk-adjusted return that justifies the cost of funding. Given that the cost of fundingis so low and given that the PDs need to net acquire more Treasuries for the next QE tender suggests that the bulk of the proceeds from a QE transaction are plowed back into Treasuries. Indeed, the below chart suggests that this is precisely what is happening. If primary dealers weren’t plowing the proceeds of QE transactions back into Treasuries, they would have to meet the New York Fed’s demand for them out of existing inventories and that would see net holdings decline – not flat-line as they have done since QE2 began in mid-November. 

    The primary dealers are therefore merely facilitators – middle men – in this process. The “cash” from the QE transaction, which is functioning as a financial asset and not as “money” in the real economy sense of the word, passes to the net seller of Treasuries or to the issuer itself – to the Treasury.

    ...........  " The fact that the primary dealers are recycling most of their cash back into Treasuries tells you fears that U.S. interest rates would shoot up if China stopped buying Treasuries are entirely misplaced. That won’t happen. What could happen is that the dollar tumbles against floating rate currencies. The Chinese would be forced to either appreciate their currency or buy up other U.S. assets. On the other hand, the primary dealers are not recycling ALL of their cash back into Treasuries. And this is where the tinder for speculative excess and a buildup in leverage resides.' ....................

    Fri, 03/11/2011 - 12:48 | 1040811 Larry Darrell
    Larry Darrell's picture

    As I mentioned, I need to go, so I will look into this more later

    But at a quick glance, it will be hard for me to swallow your thesis just because of this

    The New York Fed purchases the Treasury debt from the primary dealers at the lowest possible price using newly created bank reserves...(emphasis is mine)

    We know that they do NOT in fact purchase at the lowest possible price as Tyler has repeatedly shown.

    It comes down again to what do they DO, not what do they SAY.

    Fri, 03/11/2011 - 16:53 | 1042007 chet
    chet's picture

    Right, the newly printed money(debt) is passed through to the Treasury who are spending it at a rate of hundreds of billions per month.  Some is going towards interest but most is going straight out as entitlement payments and pay to federal workers.  That's newly printed Fed bucks going out to the real economy.


    If your main point is that banks aren't holding onto much of it and therefore can't be speculating, then maybe that's true.  Don't know the data.

    Fri, 03/11/2011 - 16:24 | 1040804 GoinFawr
    GoinFawr's picture

    tip o' the hat to Larry Darrell.

    Not to dilute your win, but you have to take into account that generally any argument with the SS leaves his opponent as 'winner by default' anyway.

    Fri, 03/11/2011 - 11:25 | 1040485 falak pema
    falak pema's picture

    Tyler, do you have any idea of shadow banking liabilities in EU zone?

    Fri, 03/11/2011 - 17:10 | 1042086 Kayman
    Kayman's picture


    The choice is simple. Ya gets ta pick the least Ugly Sister.

    Fri, 03/11/2011 - 11:22 | 1040461 TradingJoe
    TradingJoe's picture

    Politics will not be a problem for QE3, as all politicians are corrupt and won't deny

    themselves another PIE! The only real question here is will it be a pause between

    QE2 and QE3 or will it be a seamless transition? I think there won't be any pause!

    "Keep the Momentum" Ben, hit the iron as long as it still is hot!

    Buy Physical PMs, Agro Stuff, Real Estate/Farmland and Oil on any dip, forget the Dollar, it is dying already!


    Sorry for the double post, my bad!

    Fri, 03/11/2011 - 12:17 | 1040664 Azannoth
    Azannoth's picture

    I think they will do 2-3 months of uncertainty just to get gold/silver 20% lower and buy them selves some breathing space

    Fri, 03/11/2011 - 11:19 | 1040467 lieutenantjohnchard
    lieutenantjohnchard's picture

    anybody else buy the silver dip?

    Fri, 03/11/2011 - 11:32 | 1040507 Long-John-Silver
    Long-John-Silver's picture

    Electronic fiat currency "appeared" in my Bank account yesterday. Upon the receipt of an automated e-mail confirmation of that event, I immediately converted it to generic Silver Rounds to be delivered to my place of state property taxation. I care not if it was a dip because, at this point, yesterday was always the dip.

    Fri, 03/11/2011 - 11:37 | 1040524 lieutenantjohnchard
    lieutenantjohnchard's picture

    hey, i like that. hoist a few for me after 5 o'clock tonight.

    "yesterday was always the dip."


    Fri, 03/11/2011 - 11:32 | 1040511 nathan1234
    nathan1234's picture

    Just held on to and keeping my position.

    I dont have the leverage Ben's owners have.

    Fri, 03/11/2011 - 11:38 | 1040532 lieutenantjohnchard
    lieutenantjohnchard's picture

    good job. hold it tightly.

    Fri, 03/11/2011 - 13:13 | 1040938 slewie the pi-rat
    slewie the pi-rat's picture

    anybody else buy the silver dip?

    yeah, blythe!

    Fri, 03/11/2011 - 11:23 | 1040476 falak pema
    falak pema's picture

    This does not include the shadow banking liabilities in EU zone...

    Fri, 03/11/2011 - 11:28 | 1040497 william the bastard
    william the bastard's picture

    Guess Pimco didn't get the memo.

    Fri, 03/11/2011 - 16:46 | 1041981 ivana
    ivana's picture

    think it was deeper than that. Bill probably tried to get himself a deal and surprisingly found out that he belongs to 2nd or 3rd league of utilities!

    Than he got offended and shared with us pain in rare example of MSM honesty.

    Anyway, I am sure he knows the game and short-mid term play.

    Fri, 03/11/2011 - 11:29 | 1040500 lieutenantjohnchard
    lieutenantjohnchard's picture

    i guess my philosophy is that if sholly wants to destroy the currency i can choose to not go down with the ship.

    Fri, 03/11/2011 - 11:30 | 1040502 plocequ1
    plocequ1's picture

    Sounds good. Ipad 2 for all

    Fri, 03/11/2011 - 11:35 | 1040513 Long-John-Silver
    Long-John-Silver's picture

    I prefer the Android Tablets with Flash support.

    Fri, 03/11/2011 - 11:30 | 1040503 nathan1234
    nathan1234's picture

    Great Job Shalom Ben You have done what you were asked to do. I am waiting for the grand finale.

    Fri, 03/11/2011 - 11:33 | 1040508 props2009
    props2009's picture

    This is what happened last time when the Kobe quake hit

    Fri, 03/11/2011 - 11:34 | 1040512 ciscokid1
    ciscokid1's picture

    QE is done until we get through the next round of deflation.

    Fri, 03/11/2011 - 11:40 | 1040520 pauldia
    pauldia's picture

    Now it becomes clear why TPTB put great effort and resources into demonizing and labeling the Tea Party movement. The mood has shifted and the election of 2010, now Wisconsin's conservative Gov and legislature have said no to Keynes and corrupt money laundering. Next Ohio,and other States move to limit the laundromat circle jerk of taxpayer-->-->public sector union-->Democratic party-->public sector union. The climate for QE3 is definitely colder. Tarring those as racist and dangerous has not worked, & Obama soon to go to the streets via Jesse Jackson, SEIU, & other tools. Witness the use of outside agitators and White House involvement in Wisconsin. also see yesterday's statement by Jackson of "So they're going to escalate the protests -- you will either have collective bargaining through a vehicle called collective bargaining or you're going to have it through the streets. People here will fight back because they think their cause is moral and they have nowhere else to go."

    A catalyst needs to be crated for QE3. Is the Japan earthquake enough? Or, is a collapse in the markets needed first. Look for more orchestrated protests, racial politics, & fear on the near horizon. Or is an attack on Iran in the cards? THe deck is being shuffled and which card is going to be dealt is the only remaining question.The toadies i.e. WASHPO, NY Times, NBC have already shot their load crying "birther", racist" tin foil hats" etc., however Ron Paul is strengthened and Gov Christe has won. The bankers and globalists wll push and will not be denied. Get your popcorn ready.


    Fri, 03/11/2011 - 11:47 | 1040556 karzai_luver
    karzai_luver's picture

    action - a world where the bottom 99% are being raped I would not long for the application of even more force to the acts.


    You are about 10 years behind events.


    Your popcorn is going to blow up in your face.


    Don't wait around for it.


    Fri, 03/11/2011 - 11:45 | 1040550 Misean
    Misean's picture

    Well, the earthquake ought to unwind a few $B in positions.

    Fri, 03/11/2011 - 12:30 | 1040553 baby_BLYTHE
    baby_BLYTHE's picture


    Great to see gold up and everything else collapsing today! ;)


    I am ready for French Revolution 2.0!

    I hate (with burning passion!)... TBTFs and Hedge Fund Hyenas!

    Fri, 03/11/2011 - 12:16 | 1040558 TruthInSunshine
    TruthInSunshine's picture

    The Bernank Haiku

    Print, print, day & night,

    Monetize the debt, indeed!

    Taxpayers will drown

    Fri, 03/11/2011 - 11:46 | 1040559 6 String
    6 String's picture

    Okay, this isn't about economics anymore ZH. It's about power. Of course, you are right, re: there will be another QE. And you're equally right that it comes down to the greatest transfer of wealth in human history...

    But you're missing the broader point now, the great power struggle. Benny isn't going to do QE on his own volition, at least that is what he will give public appearance to.

    He is going to wait it out, until it really starts to unravel. He's already confirmed his intentions at dinner with Jamie, Ken,  and Llyod what he's up to. Which is no doubt the reason Blythe has been give full carte blanche to up the silver short.

    In other words, it's gonna be a orchestrated deflationary pounding until Congress and the ultimate puppet of all, Obama, cry uncle, and bonds go bidless...

    In comes Helicopter Ben, whom will of course help the country even though he'll warn the dangers of debt monetization, as it of course will be Congress' fault, and he'll pull the trigger on QE3.

    It's happening right now.

    Fri, 03/11/2011 - 12:50 | 1040572 baby_BLYTHE
    baby_BLYTHE's picture


    His office phone has Rothschild on line-one! (doesn't that make you sick?)

    We the taxpayers pay for this!

    Greenspan still laughs about causing Great Depression 2.0, just as Bush laughs about torchering American citizens, so too will Obama about starting World War 3!

    We are all doomed.

    Fri, 03/11/2011 - 14:01 | 1041294 NotApplicable
    NotApplicable's picture

    Don't forget Bill Gross and his $46B Hoover. He is gonna suck up ALL of the crumbs with that kind of purchasing power.

    Then there's Buffet, or will today's quake hurt his cash position?

    Fri, 03/11/2011 - 11:50 | 1040571 Josh Randall
    Josh Randall's picture

    I am starting to surmise the whole motivation for QE is monetary war with China so that we dont have to face them in a great war. Their books are cooked worse than ours , Ghost cities and all. When their billions start marching because of plastic rice and super high prices, they will know its because of The Ben Bernak's printing press. New Normal = a combination of money printing, social media, and intelligence operatives will replace bombs when the big guys fight (US, China, Russia, Euro) 

    Fri, 03/11/2011 - 11:56 | 1040593 Gimp
    Gimp's picture

    QE 3 will happen if the banksters want it to happen. F*** the people as far as they are concerned.

    Fri, 03/11/2011 - 12:02 | 1040605 TruthInSunshine
    TruthInSunshine's picture

    Word has it that the guy in the video below is looking for operators skilled in assymetrical warfare, English speaking, stealthy and knowledgeable about telecommunications, switches, routers, hubs, electronics and code, for he is putting a hunting squad together, and there are many like him:

      An Irishman abroad tells it like it is
    Fri, 03/11/2011 - 12:12 | 1040638 mendigo
    mendigo's picture

    sorry guys - i'm lost

    i thought is was one of the stated goals of qe to relieve all the connected of thier undesirable liabilities

    please help

    Fri, 03/11/2011 - 12:32 | 1040700 TruthInSunshine
    TruthInSunshine's picture

    The Bernank, aka ChairCreature, aka ChairSatan, really wanted to produce mass consumer and business consumption (and the necessary taking on of additional debt to consume), by projecting the illusion that such consumption would be rational and even responsible, as judged by hindsight.

    Businesses and consumers laughed at The Bernank all the way, by not only eschewing taking on any additional debt, but getting rid of existing debt to this day.

    The Bernank failed to stimulate any real demand for debt.

    Not only that, but even if they wanted to take on additional debt (which they don't, which is paramount), there isn't much supply of credit to finance such debt based consumption.

    The Bernank now is the front man for the world's worst (in history) asset management fund, with no credibility left whatsoever.

    The Bernank = A truly epic failure of a man, economist and soul, by any historic metric.

    Fri, 03/11/2011 - 12:41 | 1040778 mendigo
    mendigo's picture

    i think i understand the point that he was trying to alleviate a credit crunch stemming from a lot of bad loans - right

    but at the same time he's spewing credit, our government is sponging it up

    meanwhile about half of consumers can't refi because thier morgage is underwater and banks are offering usuary terms on unsecured credit

    it is my understanding that the bulk of consumer deleveraging is a result of foreclosure/bankruptcy

    Fri, 03/11/2011 - 13:34 | 1040843 TruthInSunshine
    TruthInSunshine's picture

    but at the same time he's spewing credit, our government is sponging it up

    Correct, The Bernank, as chief representative and agent of The Federal Reserve, is loaning money to the United States of American, nearly (as Bill Gross himself stated yesterday) dollar for dollar of the deficit spending the U.S. is now engaged in.

    So, he's monetizing the debt, despite his assurances to Congress that he would never do this.

    The thinly veiled scheme he is using to do it, which many still contend is illegal, as it is illegal for The Federal Reserve to directly loan money to the United States, is via the fact that The Bernank (through The William Dudley) is buying the U.S. debt not directly from The Timmay Geithner, but in secondary markets, through the very blessed and well-compensated Primary Dealers.

    But he has also allowed big banks and even sovereigns to borrow money from The Federal Reserve (discount window, swap lines, and a variety of other mechanisms) for extremely low interest rates, and use that money for a variety of purposes, some benign and much of it destructive (destructive to average citizens of the globe who need to eat, drive and heat their homes).

    Fri, 03/11/2011 - 13:18 | 1040981 baby_BLYTHE
    baby_BLYTHE's picture

    "failure of a man". LOVE it!

    His pay is limited by law, but he is a billionaire anyways.


    Fri, 03/11/2011 - 12:21 | 1040679 Captain Willard
    Captain Willard's picture

    M-1 and M-2 are growing, so why is this decline in "shadow" liabilities so meaningful?

    Velocity has begun to rise again, as it typically does even in a weak economic recovery. The impact of rising velocity can trump the shrinking of "shadow" liabilities.

    Ceteris paribus, the liability decline would be meaningful. But things are changing.

    I agree with Tyler's conclusion about the inevitability of QE3, but it doesn't necessarily follow from the "shadow" banking statistics he cites.

    Fri, 03/11/2011 - 14:45 | 1041538 IQ 145
    IQ 145's picture

     My conclusion also. I don't agree that QE3 is inevitable; I do agree that it certainly doesn't follow logically from the shadow banking numbers.

    Fri, 03/11/2011 - 12:24 | 1040694 primefool
    primefool's picture

    Lets not forget that when the Fed decides to "tighten" policy - it will in effect be printing up even more money. Huh?

    Yup. Ben has taken pains to acquire the right to pay interest on bank reserves. he has telegraphed to all that will listen that when time comes to raise rates - given the impossibility of actually draining 1.4 Trillio in excess reserves out of the system , HIS idea is to simply start paying increasing amounts of interest on those reserves - which , as he correctly points out, will result in money market rates going up.

    However, what sems to have bypassed folk's attention is - he will have to print 100s of Billions of fresh money to pay the interest on rreserves. So he will be providing even more freshly printed cash to the system when he decides to "tighten". Diabolical. HEEEEE HEEEE.

    Fri, 03/11/2011 - 15:13 | 1040708 baby_BLYTHE
    baby_BLYTHE's picture

    He is a theiving criminal...largest counterfiater in the history of the world!

    People are starting to wake up!

    ^^^Even the football fans (and players!) get it!^^^

    You cannot make this stuff up!

    Fri, 03/11/2011 - 12:26 | 1040702 Catullus
    Catullus's picture

    So on this: is it possible for bank liabilities to contract without a deflation of the total money supply? Theoretically, don't bother with data quite yet. You could have a shadow monetization of fiat or account ledger placeholders into the commodities complex or someone holding on to an incredible amount of cash. In other words, decapitalization of the banks.

    Would the above look any different than a slow motion bank run?

    Fri, 03/11/2011 - 12:29 | 1040713 css1971
    css1971's picture

    You guys all just misunderstand Dr. Bernanke. He's really on your side.

    Here's the plan:

    1. Q.E. - > ~60 Trillion or so.
    2. Simultaneously increase the capital reserve requirements until banks are again just the third party intermediaries they should have been.
    3. Gradually convert all private debt into public debt owned by the Fed.
    4. Revolution! Largest default in history.
    5. Americans are free and clear. => USA 2.0

    The banks just want to do the right thing, the last 100 years has all been a big mistake & uncle Ben is here to help.


    Fri, 03/11/2011 - 12:34 | 1040744 primefool
    primefool's picture

    Broadly speaking - a reasonable investment theme could be the following:

    The US "owes" many Trillions of dollars to the rest of the world - for oil and cheap labor imported over the decades.

    There are trillions of US Dolars floating around the world.

    The US cannot possibly "redeem" these paper claims in real goods and services. has no intention to.

    Therefore, all those Trillions will be made to go away, evaporate, dematerialize. How?

    Oh - use your right brain - the possibilities are endless. Currency deval, inflation, selective defaults at opportune times. In a more heavy handed vein - capital controls, freezing bank accounts of " people not like us", freezing bank accounts of "people who hate our way of life", taxation of foreign ownership of US assets etc etc etc.

    Fri, 03/11/2011 - 12:41 | 1040773 baby_BLYTHE
    baby_BLYTHE's picture

    "foreign ownership of US assets"?

    You mean like Goldman Sachs buying the Internet via Facebook. (Zuckerf*ck never needs to take it public). Banks like sack have no nation. They just recycle their ill gotten gains in non-US banks so they don't have to pay US taxes.

    Facebook is like a weapon. I used to make death threats on there (even got arrested for it when I was 18!).

    They know where you live, folks. Google is a great info weapon, if you know how to use it!

    Fri, 03/11/2011 - 12:41 | 1040772 lieutenantjohnchard
    lieutenantjohnchard's picture

    very nice gap fill on silver after the vertical suplex takedown.

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