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$440 Billion Drop In Shadow And Conventional Banking System Liabilities In Q4 Gives Bernanke Carte Blanche For QE3
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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looks like silver investors just applied the old axe handle elbow drop to the blythester.
Why do we bother looking at news and fundementals. The powers that be will never let the market fall again.
Yup - the stock market is merely a function of Fed supplied liquidity. As I explained in a previous comment a bit lower down, this Bernanke Fed intends to have the markets flush with liquidity - even when they embark on a so called "tightening" cycle. So - under no circumstances will the Fed ever again allow a freeze up of liquidity ( ala 2008).
blythe's new take on eric burdon: we gotta get out of this trade if it's the last thing we ever do.
long and hard silver.
Gold+Silver are the assets of Gods and Kings
Eric Sprott is the man!
I LOLed.
'Cause girl there's a better life, for me and you.
qe 3 4 5..... one day it will end & end badly watch out below everything goes even your precious gold & silver
It most likely will end badly, but the PMs will be one of the best things to have when that happens.
On verge of Nuclear Meltdown. Century first.
http://dawnwires.com/politics/red-alert-japan-declares-emergency-as-nuclear-plant-may-meltdown-anytime-century-first-nuclear-disaster-on-hold/
holy cow market rallying on japan induced QE3
“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.” -- Tyler
The consequences of Fed policy over these many years are here today. The massive loss in personal wealth, the continued slippage of financial freedom, and the lockdown of political and financial tyranny - all envelope our daily lives. To continue suggesting that our private, aggressive monstrous rulers need to continue their onslaught is becoming too much for me to bear. Please let us stop saying, even in jest, that the Fed “has no choice.”
The Fed is bottling up an explosive all over the world. It is iniquity under a financial mask.
Why?
There is no risk in these markets, and governments aren't pouring every keystroke into interventionism today.
In other words, whatever you see happening today in any market is an organic, natural process, and you can rest assured that markets have it correct.
/sarc
america will say no QE3, the bernanke will say ok, but watch what happens, market crashes, the bernanke says i tell you so, can i print now, america say ok
it's sureal - if only symbolic
japan burning and markets all green
Short the Long Bond Contract, basis June; right now; right where it sits.
as the article sez: REflation ain't happenin.
whatever tf "credit" is doing, overall, it seems to be expanding overall, maybe not, but 4 sure: less private, more public debt. households and businesses are shedding debt, getting into cheaper debt, acting like homo econ, trying to get and stay solvent.
the goobermint is borrowing and spending and hiring and guaranteeing, but the peeps and businesses which have gone to cash are just staying in banks, money markets, and there seems to be less reluctance to participate in commercial paper. digital dough seems quite attractive to the "private" sector, when low or "managed" ROI from "investing in REflation" does not seem to have quite the emotional sizzle as "tech IPO's" and "flipping freaking houses"...
it seems to this pi-rat that as the cash increases in the productive world, the debt increases in the goobermint realm, which also seems to be pumping a shitload of FRN's, USD's, $$$'s, "money", or whatever you wanna call benjamin's benjamins---into the pokes of the "private".
so here's all this cash, and here's all this debt. the peeps with cash wouldn't buy a Treasury instrument if you paid them. which you are. well, aren't they missing something? yeah. sleepless nights and lack of cash.
slewie like to keep things so moronically simple that even he can think thru them. i mean, if cash still talks and bullshit still walks, the peeps and the businesses are gonna be talkin, and the "till debt do us part-ers" will be exiled to their own "bad" banks in a location formerly known as "coventry".
i know. 2 simple!
CASH = TRASH!
I broke the law... at a Campaign for Liberty rally.
I literally set an Abe (5-note) IN FLAMES!
^^^That is against the law^^^
now, tell me you didn't inhale!
you don't look like yer young enuf to be illegal, any more.
try playing the $5 slots, sometime, ok? if you win, call me!
So, we're good then..... more extenze and pretenze.
No Premature Defaultulation for America. No siree.
Yep....and we're already seeing the hyperinflation starting (while other things are starting to re-collapse)[and jobs never got out of the ditch...of course after 40 years of outsourcing/budget cuts/capital expenditures drop, etc.
Inflation AND deflation at the same time. Of course, the hyperinflation is what everyone will see and pay, while the deflation is of what you own, your job, your wages. Hyperinflationary crash. TONS of money, controlling what you pay, but NONE of it trickles down to YOU. Once it does, the numbers will be big, but buy you 100x less.
Can't stop printing, because everything crashes
Print, and you get hyperinflation *and the hyperinflation is already present*
So WTF is Gov Walker doing given this reality? Obviously pissing people off, being fascist, traitorous, AND ALL WITHOUT A BENEFIT. What a fucking moron. What Walker has done is basically build a mansion on the japanese coast. Sadly though, unlike Japan, THIS DIPSHIT, has all the signs showing him what he is doing doesn't amount to anything, but he's too stupid or fascist or corrupt (or all) to notice. Dumbfuck is a disease as rampant as malaria.
End it all OVERNIGHT
Enact Glass-Steagall (only one country needs to do it, in order to bankrupt the entire system)..but we can solve our problems overnigh, or over a weekend with a bank holiday. I wonder if that's ever been done?
Sadly most people would actually think like that. These things can be done?
You mean we don't have to PRINT OR CUT? We can remove the catalyst for either of those paths by enacting Glass-Steagall? It's been done before? It worked?
Oh yes, and what a greek tragedy it is. Gov Walker became a traitor, because he is an idiot, who doesn't know his history. I don't know who is more stupid Ben Bernanke or Gov Walker. They're both as idiotic as one can get. Both are idiots of history. Both refuse THE AMERICAN WAY. (although they LOVE to pretend they are doing this for America/Wisconsin).
If Gov. Walker WAS the patriot, DIPSHITS THINK HE IS, why isn't he telling the banksters to kick rocks? Why isn't he advocating for Glass-Steagall? Why doesn't he realize that when the hyperinflation in earnest hits, the few million he's 'saving' won't matter when we switch over to a new system? BECAUSE HE'S A FUCKING CORRUPT IDIOT. A BANKSTER...TRIED AND TRUE. A real patriot will tell fascist Walker to fuck off. Only FAKE patriots support Walker. What side are you on?
Glass-Steagall ends this madness and saves us from MAD people.
Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy. The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that’s 1,000 trillion dollars.3 How is that figure even possible? The gross domestic product of all the countries in the world is only about 60 trillion dollars. The answer is that gamblers can bet as much as they want. They can bet money they don’t have, and that is where the huge increase in risk comes in.
Credit default swaps (CDS) are the most widely traded form of credit derivative. CDS are bets between two parties on whether or not a company will default on its bonds. In a typical default swap, the “protection buyer” gets a large payoff from the “protection seller” if the company defaults within a certain period of time, while the “protection seller” collects periodic payments from the “protection buyer” for assuming the risk of default. CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to increase profits by gambling on market changes. In one blogger’s example, a hedge fund could sit back and collect $320,000 a year in premiums just for selling “protection” on a risky BBB junk bond. The premiums are “free” money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims.
http://www.webofdebt.com/articles/its_the_derivatives.php
gee, this chart on shadow inventory more accurately resembles m3, shows decreasing money supply. This article is confusing, because we all need to critically think about what a liability is to a bank, salaries, taxes... THE DEBT THEY CREATE ARE ASSETS ON THE BALANCE SHEET....i believe this article would be more accurate if it replaced every "liability" with "asset".
THESE ASSETS ONLY BECOME LIABILITIES WHEN THE COUNTER PARTIES CAN'T PAY
++++++
Economic funnies:
what is the hedge fund colateral? can they disapear before BBB victim colapses and they become liable? who is controlling their work? do they report all CDS transactions to someone and who is that divine institution which can manipulate whole world later on?
how can I open a hedge fund for CDSs?
:-)
ME turning to shit, Europe in financial shambles, China cooking books to beat the band, largest Japan earthquake in nearly a century............and the US stockmarket is GREEN!
FUCK THE US GOVERNMENT AND THE JOOZ DESTROYING IT!!!!!
Don't forget to fuck yourself while you're at it.
A gem from Nathan’s Economic Edge this morning:
“Retail sales were reported on consensus, rising 1.0% in February which is up from .3% in January. As you read the non-thinking report from Econoday, keep in mind that Retail Sales are measured in dollars. If real inflation is 12%, then it would take a 1% monthly rise to mean the REAL sales are even. Also remember that this report contains huge errors due to substitution bias - that is that it only measures sales at stores that have been open for 12 months or more, those that have gone out of business are simply tossed aside. This is the same exact error that causes people to think that STOCKS rise over the long haul when in fact stocks on a whole do not rise in the long run – they live through a life cycle and eventually die. It is only the indices that rise, and that rise over the long haul is ONLY due to substitution bias…”
http://economicedge.blogspot.com/
In a Tyler-vein, Nate concludes today’s market update:
"My thoughts on the market are admittedly turning dark. I no longer value technical analysis because I know how subverted the markets have become with the ‘Fed’ and large banks directly playing with them – they ARE the markets as they comprise the vast majority of transactions. Thus the markets are not real, they are simulated and manipulated devises run by the powers who create money from nothing. I think it’s going to wash all that false paper away – unfortunately, I can’t tell you when and believe that you should ignore those who think they can. All I know is that the math is impossible, and thus in the big picture it won’t be too long.
"I wish I cold drag those playes out of OUR markets; if I could I would. I know that it’s fruitless to shout GET THE HELL OUT, but that’s exactly how I feel. Collectively we all need to act, at some point there’s going to be a triggering event that stirs us all into action. In the mean time, this tsunami and the interference in the market has me feeling…
Pink Floyd – Comfortably Numb"
Hello?
Is there anybody in there?
Just nod if you can hear me.
Is there anyone at home?
Come on, now,
I hear you're feeling down.
Well I can ease your pain
And get you on your feet again.
Relax.
I need some information first.
Just the basic facts
Can you show me where it hurts?
There is no pain you are receding
A distant ship, smoke on the horizon.
You are only coming through in waves.
Your lips move but I can't hear what you're saying.
When I was a child I had a fever
My hands felt just like two balloons.
Now I've got that feeling once again
I can't explain you would not understand
This is not how I am.
I have become comfortably numb.
The patient "comfortably numb" – on Dr. Fed’s heroin recovery.
people starving, dead people, earthquakes, nuclear threats, money printing junkies, overvalued markets, no POMO, no insider buyers, no cash at mutual funds....no PROBLEM:
Markets ramp into the close anyway.
This stock stuff is totally awesome I tell you. It never really goes down!
critical that they take out yesterday's peak at 12041.60, so the algos don't get confused
those bastards.... they had to take out the 12080, too. brazen little pricks, ain't they? why am I still surprised? what an idiot I am
There are two sides to a trade. Pick yours! If you don't like your ATM charges, hit a shareholders meeting with your dividend check!
hey, YC: i don't think it is necessary to "trade" to "take a side".
for example, i am familiar with many peeps who have neither ATM charges, nor div. checks, yet are "fully invested".
There are a lot more people trading today vs yesterday, so, you know...it's all organic stock buying by true investors.
/sarc
If The Bernank won't come to the mountain, the mountain done come to The Bernank.
QE infinity FTW
And at first, the elite thought the web was their friend.
An apple will always be worth an apple, but the value of a bj always goes up and down.
It is a tough call here Tyler. Your previous arguments about the degree of margine in the system and the increasing lack of cash makes me still believe, at least in the case of silver, given the historical patterns, that short of an explicit and near term statement of QE3, there could easily be a large scale across the board drop in stock market prices, causing the mother of all squeezes and cascading the stock market and silver lower. When you couple this with exogenous events such as Japan and other problems in the Middle East I think it is possible that we could have a sharp correction in the coming weeks and months.
This does nothing to change my continued very bullish long term view of silver and gold but I believe it is likely that we may see a healthy correction of up to 20% or more in the coming months and for those who trade vs. the long term buy and hold (a great idea for silver in my opinion) I don't think I would choose now to buy more silver and I am taking profits today.
Ultimately 3-10 years, I still believe silver goes to over $500 based purely on the inventory, supply and demand and the growing number of applications for silver. But all those margined traders are likely to get shaken out if the stock markets suffer the 20% type of correction that they can without clear and present near infinite QE in my opinion.
I am not convinced that the shrinking shadow banking liabilities is a sure bet as far as making the markets perception of QE 3 a sure bet and this is especially true given the political anti-fed and anti-QE climate in Congress now. I agree it will likely happen but I still think that the politics of the situation may delay it just long enough to cause a market crash and then the Fed will have the political cover to "Ride to the Rescue" with more QE.
Thoughts?
Duffminster
Great post.
I await others input as well :)
Max Keiser told Alex Jones $500 dollars per ounce.
"...with exogenous events such as Japan and other problems in the Middle East" ... if anything these type of events will bolster the PMs. I also think they will pause before QEIII to allow the more conservative/libertarian politicians to grandstand and get a small "win" for their electorates, but then it will be back to printing again after the tanking goes on for a few months.
Per pdf page 67 of the Z.1, total credit market debt is $52.2 trillion. Tyler's graph of Shadow BL vs. Traditional BL shows traditional BL of about $13 trillion (BL = bank liabilities). Thus shadow credit could be a maximum of about $39.2 trillion, yet Tyler's same graph shows shadow BL of only about $16 trillion.
So it'd be nice to know why Tyler picks those particular components of credit (MMMFs, GSEs, Agency mortgage pools, ...) to arrive at a shadow BL figure of $16 trillion.
Another question is why he shows a traditional BL figure of $13 trillion, but when looking at the St Louis Fed FRED graphs, total bank credit (TOTBKCR) is only about $9.2 trillion.
I'd also like to know what caused the massive shift of money out of Agency Mortgage Pools and into GSEs, and what it might represent.