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Adjusted Monetary Base Goes Vertical

Tyler Durden's picture




 

Just in case there was any confusion in the interpretation of the M2 chart, here is the latest just released Adjusted Monetary Base.

A succinct reminder from Mises Institute: "The Adjusted Monetary Base is the one monetary component completely under the control of the Federal Reserve." As we expected a month ago when predicting the end of the SLP program, look for this chart to surge to about $2.7 trillion as the combination of SLP unwind and another $500 billion in UST purchases adds another $600 billion to the BASE. The increase of $142 billion in the last two weeks is the 5th largest Adjusted Monetary Base expansion in history. The ongoing verticalization of this chart may result in some further acuteness of inflationary expectations.

And some other pretty charts:

 

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Fri, 02/25/2011 - 04:14 | 996148 ft65
ft65's picture

Trin, is the comment regarding gold seeding or because Titanium is a rare metal that is  scarce? Or is it part of the HB Gary / MacDill software project testing... GuLP?

Fri, 02/25/2011 - 02:22 | 996162 ft65
ft65's picture

That disclaimer reminds me of one from another place I once frequented GuLP...

Disclaimer: DON'T BELIEVE A DAMN WORD YOU READ ON THIS WEBSITE!
The reader is responsible for discerning the validity, factuality or implications of information posted here, be it fictional or based on real events.

Fri, 02/25/2011 - 00:18 | 995921 Mediocritas
Mediocritas's picture

Sure, I acknowledge that. The only real threat for the US comes from a well organized union of the BRICs refusing to trade in USDs anymore. It's *possible* but I don't see it as highly likely, even though they threaten it at regular intervals in a passive-aggressive kind of way.

The only really feasible alternative IS the SDR (which is what it was originally intended to be anyway), but the underlying basket needs to be expanded.

Fri, 02/25/2011 - 00:42 | 995962 GoinFawr
GoinFawr's picture

SDR still equals same shit different story.

I certainly won't swallow it, what makes you so sure the millions (or billions, I'm not that arrogant) of people smarter than me will? Aside from the western CB's that have been infiltrated by GS alumnis, of course.

I think the numbered days of the USD as THE world reserve currency may have a lot fewer digits in it than you think, my friend. Judging by the demand for PM's, I'm not the only one.

Fri, 02/25/2011 - 00:42 | 995977 Milton Waddams
Milton Waddams's picture

The only real threat for the US comes from a well organized union of the BRICs refusing to trade in USDs anymore.

 

The moment the BRICs and other emerging markets seriously threaten dollar hegemony is the moment their population begins consuming hallucinagenic-laced refreshments, which apparently 8 out of 10 spooks believe to be the cause of political instability.

 

Fri, 02/25/2011 - 00:45 | 995989 GoinFawr
GoinFawr's picture

Aldous Huxley too.

Fri, 02/25/2011 - 01:17 | 996052 Milton Waddams
Milton Waddams's picture

Hey, it worked in America. And the young protesters eventually caused a tide that provided change in the status quo; the complete debasement of the nation's currency and the beginning of the end of labor unions. Of course TPTB began to realize that the change in the status quo was becoming a headwind to their pocketbooks so the implements of change were rescheduled as illegal. Shortly thereafter a new kind of change hit the scene- cocaine, and along with it, its after effects- unrestrained greed.

Fri, 02/25/2011 - 01:22 | 996062 GoinFawr
GoinFawr's picture

Paranoia, arrogance, and impotence too. What a winning combination. MMMM, give me a faceful of that!

What was it R Williams said about Cola,

"Coke turns you into a new man, and the new man wants another hit", or something like that.

 

Fri, 02/25/2011 - 01:00 | 996023 JW n FL
JW n FL's picture

the BRIC's Mortgages... so they could go vertical and enjoy this great run are ALL held by U.S. Nationals... so, the whole idea of the SDR being shifted into? which country is going to... or has the capability to play policeman for the whole wide world is?

 

you are talking poo poo...

Fri, 02/25/2011 - 01:37 | 996094 Mediocritas
Mediocritas's picture

English your first language? 

If you bothered to comprehend (not just read) what I wrote, you'd see that I agree with you. The SDR is the only feasible alternative but as I've said over and over, the probability of things changing in the near term is very low. Translated to poo poo language: "AIN'T GONNA HAPPEN".

And the reason is won't change soon is because America has the biggest stick (military) and isn't afraid to use it.

Fri, 02/25/2011 - 01:41 | 996104 JW n FL
JW n FL's picture

unless America can get a twoffer (quoting / coining my own term) with regard to PR and Oil... America keeps its limp dick in its pants...

 

and I am Pro fucking nukes.. so dont tell me that its my fault..

Fri, 02/25/2011 - 02:22 | 996163 Harmonious_Diss...
Harmonious_Dissonance's picture

So you are heavily in favor of sex with  microwaves?

Fri, 02/25/2011 - 03:21 | 996242 Rodent Freikorps
Rodent Freikorps's picture

All TPTB need to do is subsidize fembots and no male would ever rebel again.

Fri, 02/25/2011 - 04:20 | 996281 ft65
ft65's picture

JW n FL / Trinity / JL how is the weather there down in Floida? Do you not see that most of the world's financial (and other problems) have been caused by those Americans that hav never been able to achieve wood. Good for you being pro nukes, working for the military, that is all I'd expect! You should spend a little more time testing your HB Gary MacDill software at your own forum, we don't need it here. 

Fri, 02/25/2011 - 02:15 | 996146 GoinFawr
GoinFawr's picture

"And the reason is won't change soon is because America has the biggest stick (military) and isn't afraid to use it."

Well, you mean 'isn't afraid to use it on anyone who's military is composed of nothing more than some goat herders wielding actual sticks'; fixed that for ya.

And now we're back to China and Russia again... see how that works?

Fri, 02/25/2011 - 03:47 | 996266 Mediocritas
Mediocritas's picture

Yeah I do, and if you weren't so fucking hostile and determined to pick a fight with me on every fucking thin then MAYBE just MAYBE you'd understand that I agree.

Fri, 02/25/2011 - 02:26 | 996168 ft65
ft65's picture

Come on Bro... GuLP! You know all about social experements. This is just another one, to keep the house of cards up a bit longer. LOP off government, and the problem will soon be solved.

Thu, 02/24/2011 - 23:58 | 995866 Mediocritas
Mediocritas's picture

Exactly. But good luck with that opinion around here. 

The money multiplier is broken.

M0

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=BASE&s[1][range]=5yrs

vs

Reserve balances: 

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=WRESBAL&s[1][range]=5yrs

Banks are just sitting on their reserves as evidenced by the breakdown of the money multiplier (in this case M1/M0):

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=MULT&s[1][range]=5yrs

The whole point of QE1 was to ensure that banks maintained capital adequacy. The Fed simply swapped bad assets for reserves and while those reserves stay where they are (encouraged by paying interest on reserves), then there is no inflation threat. People forget that should those reserves start to move, then the Fed can simply increase reserve requirements massively to stop it quickly. But as we've seen more recently, the Fed is being creative (principal writedowns to eat those reserves).

QE2 is a different story entirely (actually IS inflationary) but is easily sterilized in the future by focusing on short-term US debt and letting it mature. In other words, say hello to austerity measures.

ZH loves to blow the inflation trumpet. Actually the Fed has things under control pretty damn well. Commodity speculation is China's fault (although ZH loves to blame Bernanke). Since when was it the Fed's fault that China decided to maintain a currency peg?
Fri, 02/25/2011 - 00:06 | 995886 lsbumblebee
lsbumblebee's picture

Pretty neat how the Fed can create money and then make it disappear whenever it needs to.

Fri, 02/25/2011 - 00:15 | 995908 jmc8888
jmc8888's picture

Yeah he's a regular fucking Bennie Copperfield.

Look in you're wallet, he also made something else disappear. (along with your job, maybe your house, car, pride, future, health, and safety)

I take it back, he makes David Copperfield look like a rank amateur.

Fri, 02/25/2011 - 00:16 | 995910 Mediocritas
Mediocritas's picture

Someone has to do it. I know Fed-bashing is all the rage around here, that people bemoan the continual inflation that eats into purchasing power over time, but they don't understand that it's necessary.

If the Fed deserves criticism it's for Greenspan's reign. He royally, royally fucked up by maintaining interest rates far too low and conspiring with his Ayn Rand worshipping buddies to eliminate all regulation.

Benny boy is doing a much better job by comparison but still not enough (particularly on the regulation side of things).

Fri, 02/25/2011 - 00:18 | 995915 jmc8888
jmc8888's picture

It's called GLASS-STEAGALL

That's what is necessary. Not your anti-american MONETARY sophistry.

Glass-Steagall; not printing, nor austerity.

Those are the facts.

Fri, 02/25/2011 - 00:23 | 995927 Mediocritas
Mediocritas's picture

Glass Steagall is irrelevant.

The problem was traditional banking being replaced by shadow banking. All Glass-Steagall does is prevent traditional banks from behaving like shadow banks but it does *nothing* to stop the rise of shadow banking and THAT is the problem.

Glass-Steagall would have prevented innocent depositors from being burned by their banks playing in the casino, but, as it turned out, the Fed came to the rescue on that one (although I don't hear anyone saying thankyou).

It's largely irrelevant.

Fri, 02/25/2011 - 00:38 | 995955 jmc8888
jmc8888's picture

NO it isn't.

Glass-Steagall is the standard by which anything relating to banks (on/off balance sheet) have to meet to be considered real and tradeable.

If they aren't, they are put into a unwinding facility and forbidden to be traded. (see derivatives, RMBS, CMBS, all gov't backstops and guarantees, bailouts, etc)

You see, the reason we got here is because we got rid of our firewall, in steps granted, but the final step (and all involved first weakening Glass-Steagall) was repealing it.  So again what would happen if we re-implemented Glass-Steagall? Oh yeah, the firewall that you say 'we need'.  Thus making the shadow banking system irrelevant.

So Glass-Steagall is largely irrelevant? My ass.  (even by your metrics it is relevant)

You know nothing of Glass-Steagall, and are willing to risk revolution, hyperinflation, and a breakdown crisis that most like will throw us into a new dark age......because you believed the sophistry that Glass-Steagall was irrelevant.

You're fucking wrong.  Glass-Steagall is the answer.  Adhering to it's principle always was. 

Fri, 02/25/2011 - 00:42 | 995982 Mediocritas
Mediocritas's picture

You know, if you were right then we should see a radical change in the rate of growth of liabilities of commercial vs investment banks after Glass-Steagall was repealed...

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/shir...

You see how wrong you are now? Glass-Steagall does exactly jack shit to stop shadow banking from blowing us all up. The ship was already sailing long before the repeal in 1999.

Fri, 02/25/2011 - 00:47 | 995993 jmc8888
jmc8888's picture

ROFL, Glass-Steagall is a 1933 law.

I'm not talking about the 1999 watered down rule that was repealed. I'm talking about FULL 1933 law and its full meaning applied to the system.

Glass-Steagall would wipe ALL that shit from existance.  PERIOD.

You're the one who is fucking wrong. Glass-Steagall SEPARATES this shit from the system.  IT CANNOT BE TRADED. PERIOD.

IF YOU CANNOT TRADE IT, THEN WHERE IS THE SHADOW SYSTEM? GONE

By your own measure, and thank you, my point is made.

Fri, 02/25/2011 - 01:48 | 996111 Mediocritas
Mediocritas's picture

Then you should define your position better.

ps: I didn't junk you.

Fri, 02/25/2011 - 02:20 | 996151 jmc8888
jmc8888's picture

I did. It was always clear (why would I or anybody want the weakened down version?).  The original version has so much more teeth, remarkably, right where it mattered then AND now.  For obvious reasons.

Cool. I don't mind junks though.  Overall it's as accurate a method as any model that wall street uses, thus flawed to the hilt.  (But I also don't mind its [junking] existence. It just is. It can be right or wrong. 0 or 1, and at time be entirely subjective.)

Back to Glass-Steagall...

You see once you separate it out from the system, NONE of this stuff effects anything anymore.  Zombified banks will no longer be zombified, and actually have capital available to lend.  (if they still choose not to, we have other options = federal credit issued {not federal reserve notes}).

Now of course this (Glass-Steagall) would immediate collapse the entire world shadow banking system, thus other countries can choose to follow us, or be left holding worthless crap. 

Thus again, Glass-Steagall is very much relevant, and people must start to understand this. No need to print to pay off the fraudulent debt.  No need for austerity to pay off the fraudulent debt.  No need for a combination of both.  We need Glass-Steagall to wipe away the fraudulent debt.  

 

.....So if any Irish people read this tomorrow morning (and understand I wrote it 'last night')....Vote Sinn Féin Tomorrow..Tomorrow...you can make the banksters feel it tomorrow, the collapse of the imperial monetary system might be only a day away. [probably not, but it would be one HELLUVA uppercut Ivan Drago style]
Fri, 02/25/2011 - 01:32 | 996087 Assetman
Assetman's picture

Glass-Steagall would have delineated which entities deserved protection (depository institutions) and those that didn't deserve the safety net (the so-called shawdow banks).

Instead, we have the Fed converting shadow banks into chartered banks-- and rescuing entities that took unbeliveably foolish risks with other people's money.  The problem is that the Fed allowed shadow banks to live after the fact-- plus, they didn't enforce regulation on the shadow banking system before the fact-- wen they needed to.

Little wonder you should hear anyone say thank you to the Fed... unless it's "Thank you for bailing out my shadow bank while they borrow at zero interest (and go to the casino) while  allowing me to borrow at 6%... assuming I can even get a loan".

Putz.

Fri, 02/25/2011 - 01:46 | 996107 Mediocritas
Mediocritas's picture

I'm equally outraged that shadow banks were allowed to eat from the trough of the Fed's discount window and royally pissed that this situation was ever allowed to arise in the first place, BUT a little pragmatism after the fact doesn't go astray.

What should the Fed have done? Just let the shadow banking system collapse? Is that what you would have done if you were in the Fed's shoes? Think about the impacts of the consequential instability; I hope that's not something you desire.

Yes, these goddamn banks need to die, but that death has to be managed very graciously. I'll be pissed if, at the end of this, there is no change and these pricks keep raping us all but it's still too early to judge the Fed/Govt on this given the complexity of the bombs that need defusing. Basel III stipulates the kind of constraints that will prevent this happening again and the Fed WILL eventually enforce Basel III, but it's going to take some time (looks like 2020's weren't chosen out of the blue).

The Fed under Greenspan really fucked up big time and helped cause this mess. Yes, yes, I get that. It all blew up and THANK FUCK they moved fast to try to limit the damage or we'd be in a lot more mess than now. It's like a paedophile saving you from falling off a cliff. You should say thankyou...before you punch him in the face.

Why'd you call me a putz, putz.

Fri, 02/25/2011 - 03:11 | 996228 Crab Cake
Crab Cake's picture

The "instability in the system" as you call it is neither desireable or undesireable; it is inevitable. Complex systems fail, pick your poison reason and call it what you like. Exponential growth in perpetuity is not possible, the Fed's struggle is futile. Shiva must and will dance; it's called entropy.

Chaos is necessary for order, order comes from chaos, 1 & 0 & our reality sifting around in the middle.

One cannot by definition cognitize, articulate, define, rationalize, control, quantify, or even conceptualize the infinite in a relative sense. Only with realization of entanglement, true experiential revelation aka enlightenment, can one attain the wave state and become ONE.

I'm sure you probably don't see what I'm attempting to show you, and you perhaps believe this is unqualified gibberish, perhaps not "economic". You would be very wrong and very right. You are attempting to rationalize, find the reason and solution. There is no causality, there is just is, I am who am.

The sand is in the gearbox, and the binary relative universe is shifting towards the 0, as it does on and on and on, back and forth. Birth, growth, decay, death, birth...

The Fed is not in control, the governments are not in control; there is no control, only appearance/emptiness. It's pointless, one cannot define the indefinite, have fun trying b/c the instant you do... you're wrong, b/c the only constant in this place is change.

I love you, have fun tilting at windmills trying to "explain" the rightness of your logic. You fail to see the peanut butter you're looking for right in front of you, the kingdom is before you. When you grow tired there is a way, I can't show it or even speak it to you, but it is.

But I digress...

Fri, 02/25/2011 - 03:28 | 996253 Rodent Freikorps
Rodent Freikorps's picture

Could you change your handle?

Every time I see it, I get hungry.

Fri, 02/25/2011 - 04:38 | 996297 asdasmos
asdasmos's picture

"

The Fed's reaction will be as predictable as ever.  

We already know that Chairman Bernanke exculpates the Fed for any blame in creating inflation either domestically or abroad. In fact, he refuses to even consider rising food and energy prices in his definition of inflation. Americans could be paying $50/pound for ground beef, but as long as their houses are still losing value, Bernanke doesn't see an inflation problem. Meanwhile, they're eating squirrel for protein while making payments on a mortgage twice as expensive as the house.

 

The truth is that Bernanke doesn't know what causes inflation, so he can't be expected to spot it, much less do something about it. Using the Fed's own history as a guide, Bernanke will view rising commodity prices as a threat to GDP growth and a sign of pending deflation. That's because the Fed is caught up in a 'Phillips curve' philosophy that only equates economic growth and prosperity with inflation. In short, Bernanke believes that slow growth and rising unemployment rates equate to deflation, despite plentiful contrary examples in history.

 

Since he believes rising commodity prices are deflationary and have nothing to do with his own loose monetary policy, the Fed is likely to expand its balance sheet to a greater degree. The fact that the Fed's massive money printing effort is the progenitor of global food riots completely escapes him. As more damage is done, the Fed will use the resulting contraction in GDP to justify a third round of quantitative easing - further harming the GDP.

 

Unfortunately, the vicious cycle of stagflation will grow more acute with each iteration of the Fed's love affair with counterfeiting. Countries that make the mistake of continuing to peg their currencies to the US dollar will suffer more inflation and more destabilization. Since it will be hardest for the US to ditch the dollar, our hopes are dimmer.

"

http://blogs.forbes.com/michaelpento/2011/02/24/arab-autocracies-and-us-...

Fri, 02/25/2011 - 04:41 | 996298 Rodent Freikorps
Rodent Freikorps's picture

Every single thread, dud?

Kind of overkill if you ask me.

Fri, 02/25/2011 - 04:48 | 996306 asdasmos
asdasmos's picture

Fishing for a response to the logic in the quote.

Fri, 02/25/2011 - 09:34 | 996586 tarsubil
tarsubil's picture

Man I love crab cakes. Especially when Legal made them right. Those were awesome. The key is to just let go and be the crab cake in order to achieve wave state equilibrium infinity.

Fri, 02/25/2011 - 03:16 | 996231 GoinFawr
GoinFawr's picture

"Why'd you call me a putz"

It's only conjecture on my part, but I think this may have had something to do with it: "...but that death has to be managed very graciously."

No it certainly does not. There should be a wide range of highly publicized international 'frog marches' and orange jumpsuits to act as a deterrent.

Regards

Fri, 02/25/2011 - 03:51 | 996270 Mediocritas
Mediocritas's picture

I'm down with the orange jumpsuits and frog marches. I'm also down with Lloyd Blankfein sharing a cell with Big Bubba.

What I'm not down with is being financially wiped out in 5 seconds.

Fri, 02/25/2011 - 11:20 | 996850 GoinFawr
GoinFawr's picture

Better get you and yours some real wealth then while you still can, 'cuz sometimes you gotta break a few eggs to make an omelette, 'cous'.

Regards 

Fri, 02/25/2011 - 12:38 | 997106 Things that go bump
Things that go bump's picture

Pragmatic?  You advise pragmatism?  When rape is inevitable relax and enjoy it?  Oh, please, sir, may I have another?  What difference if you're wiped out in 5 seconds or 5 months or 5 years.  You're still wiped out. Like the frog in the water, they hope you wont notice you're being boiled if they do it slowly and then we'll be picking through a mountain of garbage to find something to eat like they do in the worst slums of some 3rd world country.  I'll give you pragmatic.  I just hope I live long enough to see wall street bankers and Fed economists and sundry toady politicians (bad cess to them) dragged kicking and screaming out of their offices full of French antique furniture and strung up on lamp posts. Film at 11:00 on Al Jazeera.  Until that auspicious day, I will take the judenfetzen they pay me with (About half of what I was getting 3 years ago, and what I do get doesn't buy as much), and convert it into tangibles. I'm done.

Fri, 02/25/2011 - 11:34 | 996900 Assetman
Assetman's picture

Because you really are a putz.  But I still like you nonetheless.

What should have been done IMMEDIATELY is have the shadow banking system go into receivership-- and slowly, but systematically-- liquidate whats left of the too foolish to survive and sell those assets to the prudent.  Clearly, nobody at the Fed (of which Bernanke was a sitting governor)-- nor government agencies reponsible for their oversight-- remotely prepared for a contraction in the finanical system.  And incredibly enough, those events are inevitable.

Bernanke was part of the problem running the up to the finanical crisis-- it's not as if Greenspan fucked thing up all own his own.  Once the crisis hit, Bernanke essentially prescribed a liquidity solution for a solvency problem.  The problem with the massive credit the Fed is providing (for the most part) is that capital isn't being put to maximum productive use-- it is being squandered inside the finanical system for balance sheet repair, speculation, bonuses, etc.

The biggest issue at this point is that we are STILL on the road to finanical collapse-- but this time its from an even higher perch.  Big systematically important banks have gotten even bigger-- and some are still taking foolish risks with too much leverage... that's something that even a very recent voting member of the Fed agrees with.

BTW, do you REALLY think Bernanke has had ANY intention of allowing ANY member of the TBTF group to die a "managed death"????  The Fed didn't enforce their own simple rules (on mortgage lending) leading up to this crisis... so what makes you think they will enforce BASEL III... in 2020????

In the end, you're going to have a collapse of the financial system, and I'm sure as hell hope you are prepared for it.  The global trade concepts you so well embrace are being disintermediated by a Chairsatan who wants to export inflation to a well deserved target (China) but is doing more damage (and making more enemies) to countries that are essentially innocent bystanders.  That's not very good trade policy, now is it?

The good news from all this is that financial collapses are nothing new in the annals of world history.  In fact, they're quite common... on the order of 80-100 years.  Despite all your fears that the world is going to end-- it doesn't.  The world resets.  The world creates more credit.  And the world eventually trades with each other again.

It will be no different this time, either.

 

Sat, 02/26/2011 - 03:34 | 999287 Mediocritas
Mediocritas's picture

 

What should have been done IMMEDIATELY is have the shadow banking system go into receivership-- and slowly, but systematically-- liquidate whats left of the too foolish to survive and sell those assets to the prudent.

 

You don't see that this is effectively what has been done? Have to bear in mind here that the authority in question is the union representative of the banks in question. The "managed death" will therefore be more of a gentlemanly role shuffle. "Sir Harold is no longer welcome in this club, see to it that this awkward situation is resolved Jeeves".

This is why banks are sitting on excess reserves. They're already dead. They know it, the Fed knows it. Now they're just trying to come up with a way to liquidate everything as cleanly as possible. The best solution seems clear, as discussed the other day, and as I've been suggesting since November 2008: write down the principal on loans underlying the Fed's horde of MBS paid for by eating into zombie banks' excess reserves.

The market value of said MBS will then take a hit, bit won't be marked zero, therefore allowing it to be honestly marked to market without killing capital adequacy.

We are then well on the way to Basel III.

The spanner in the works is in Washington. Whether or not they try to block Basel III compliance in some retarded way. I expect the Fed will comply.

Another option, not being suggested yet so far as I'm aware, but plausible is that the Fed offers to rent underlying properties to owners who go into default at a level that's similar to the interest charged on a written down principal. The bank will avoid a distressed sale as the Fed will shuffle ownership into some SIV and with a little shenanegans, preserve the loan (with a written down principal), allowing the bank to retain the interest stream that is actually being paid by the rental income via the government.

That's what I'd be selling if I were Obama. Nice and clean, plus popular. "I'll reduce your loan so you can stay in your house. Even if you can't afford it, I'll let you stay in the place and rent it from the govt at a reduced price". Peons will love it.

Wed, 03/02/2011 - 03:28 | 1010457 Assetman
Assetman's picture

Yeah, I understand what you're saying about getting into compliance with Basel III.  It's been a central reason why I've suspected the hoarding of excess reserves to the amount we've already seen.

The only effective way you can get to Basel III compliance is marking the bad assets to true values and forcing the banks to take their lumps-- and some big ones will be insolvent. I personally would have much preferred bank executives get booted much earlier in the process under a receivership structure-- than to allow them a few more years of undeserved bonuses in the $ millions, though. 

I think the bigger problem remains that we haven't hit the bottom on the foreclosure wave, and with that, we don't know how much more the banks will need to absorb. 

Arguably, by the time we closely approach 2020, we are likely to have an even bigger pile of do-do on our hands.  Congress will be under a huge amount of pressure to kick the can around Basel III.  And I'm not too sure the Fed is going mind, since they have their own balance sheet unwinding to do as well.

Keep in mind... neither Obama nor Bernanke will be around to see this thing through.  Basel III implementation is going to effectively be someone else's problem.  Your proposed solutions for unwinding this have some merit,  though.  I'm not sure we're going to make it that far without some serious systemic shocks.

Fri, 02/25/2011 - 00:20 | 995924 GoinFawr
GoinFawr's picture

"Someone has to do it. I know Fed-bashing is all the rage around here, that people bemoan the continual inflation that eats into purchasing power over time, but they don't understand that it's necessary."

Stealing from the poor to give to the rich is not 'necessary', it's unconscionable.

I am starting to develop an intense dislike for you.

Fri, 02/25/2011 - 00:35 | 995946 Mediocritas
Mediocritas's picture

Dislike all you like. Here is the fact that you need to understand:

If trade stops, human specialization becomes impossible and we all descend back to subsistence farming (a very shitty way to live).

Trade is massively enabled by a generic trading entity: money.

If money gains value then it becomes more attractive to hold the money, not trade it, leading to liquidity traps right throughout the economy and killing trades everywhere, aka, economic collapse.

Maintaining 0% inflation doesn't cut it. Optimal trade activity (leading to economic growth) occurs when inflation is ~4%, anything above that is bad, anything below is worse.

4% is the magic number where money retains value long enough to be desired in trade, but also loses value fast enough to cause discomfort if held for too long.

So you can bemoan the 95% loss of purchasing power of the USD since the establishment of the Fed in 1913 all you want, but perhaps you should instead look at the spectacular growth of the economy instead and understand that it wouldn't have happened without a steadily devaluing dollar.

It's only 'stealing' from people dumb enough to sit on a depreciating asset. If you don't like money losing value, trade it for something that doesn't and stop complaining. The best thing to trade for is the thing that mildly devaluing money enables: economic growth.

Dislike me if you want, I don't give a shit.

Fri, 02/25/2011 - 00:50 | 996004 tmosley
tmosley's picture

When did the economy collapse in the US without a central bank again?

Oh right, it didn't.

Guess what, you don't stick dollars or gold into the ground and expect factories to pop out.  You stick steel and concrete into the ground to build those things.  Think about how you get money.  You build things, provide services.  When you refrain from spending your money, does that stop others from using those goods or services you created?  NO!  The real capital you created circulates.  The virtue which comes from your savings (ie, not removing the capital of others from the system) is applied towards increasing productive capital.  It was never the amount of MONEY that made the difference in expanding an economy, it was the REAL CAPITAL.  The STEEL and CONCRETE.  

You mock those who examine the 95% depreciation of the dollar, but you fail to understand what that depreciation represents.  That isn't "just new money" that was created, it was REAL CAPITAL that was removed from the system, and used to build lavish homes for government officials, build highways that no-one needed, and fund wars that killed millions.  You think people who"sit" on those assets are dumb.  Well, I say that YOU are dumb for getting paid in those depreciating assets!

Christ, your arguments remind me of the arguments of the blood cult priests of Aztec and Maya.  "We MUST continue to feed blood and hearts to the Gods, or the Sun won't rise.  It is a small price to pay for economic growth!"

But why bother arguing.  You have been fully indoctrinated into the blood cult of Keynesanism.  There is no saving you now.  All we can do is defend ourselves from those who follow your poisonous ideology, and have brought us to the brink of annihilation.

Fri, 02/25/2011 - 01:32 | 996082 Mediocritas
Mediocritas's picture

What on Earth makes you think I embrace Keynesianism? You like creating Straw Men don't you?

Creating money out of thin air ENABLES capital. 

I've got a great idea, I'm going to put steel and concrete into the ground and build a factory that will employ hundreds, develop a time-saving device and add to economic development. I take a loan, the money comes out of thin air, my factory becomes reality. Without that money, the factory stays in my head, as does the economic development.

That money creation caused the currency to depreciate. So what? My creation makes up for it and once completed frees up further capital that is otherwise engaged or unable to exist yet.

You need to spend more time thinking about this. A static or depreciating currency leads to a static or decaying economy. I'm not calling for insane Zimbabwe style hyperinflation, just for a maintenance of ~4% inflation while there is still room for the economy to grow.

If (when) the world runs out of potential for further economic development, THEN I'll change my mind. That won't be a particularly nice world to live in though.

Fri, 02/25/2011 - 02:11 | 996142 trav7777
trav7777's picture

How the fuck do you explain the spectacular 19th century growth of the US economy on a GOLD standard of all things?

The world HAS run out of potential for economic growth insofar as economic growth always was tied to energy supply

Fri, 02/25/2011 - 03:50 | 996254 Rodent Freikorps
Rodent Freikorps's picture

Too many people. The crumbs from the Elites table don't go as far. The Elite respond with less crumbs. Interesting times.

Fri, 02/25/2011 - 02:18 | 996157 Assetman
Assetman's picture

Creating money out of thin air only enables capital if there is a willingness to utilize it for CAPITAL FORMATION.  In a perfect world, created money gets loaned out, and in return that loan produces something that has utility.  

If the loans are paid off and interest accrues to the investor, I could live in that world and tolerate mild inflation against real assets-- especially if my 'money currency' maintained strength against others in the world sphere.

That is NOT being done to almost ANY extent in this day and age.  But what IS happening that that this expanding credit is bypassing the capital formation process entirely.  In one sense, new capital is working its way for the sake of SPECULATION (i.e. increasing the supply of money increases the demand for the good).  Or in another sense, it's being used to pad the balance sheet of entities that have already made some very foolish bets in the recent past (refer to MBS purchases by the Fed in 2009).  Or in one more sense, new credit is being used to transfer the debt burden from the private sector the the public sector (QE2).  I could go on, but I think you get my drift...

If you can get over the hump that an increased supply of credit would be used EXCLUSIVELY for capital formation, your thesis would have some validity.  But that has NOT been the reality over the past 2 years under ZIRP and QE.

And given the massive running debts our lovely government has accumulated, a good portion of this newly formed credit is ASSURED not to be used for capital formation.... but it will be used for interest maintenance and transfer payments.

Whether you like it or not, those are the facts.

Fri, 02/25/2011 - 03:57 | 996271 Mediocritas
Mediocritas's picture

Absolutely agree. For you to point this out means I didn't write enough words to explain myself earlier.

I can't write a 200000 word thesis every time I want to make a simple point on a web forum. Yes, credit creation is an enabling factor. It can also be a disabling factor. As you say, it depends on the intent.

That's where prudential regulation is SUPPOSED to come in but failed so very badly.

I agree with your facts.

Fri, 02/25/2011 - 11:51 | 996959 Assetman
Assetman's picture

The problem is that you're supporting a position (credit creation) that is being continually abused in current practice-- and it's being abused on a MASSIVE scale.  In fact, the Fed is arguably practicing a policy (flooding the world with dollars) that is disintermediating a global trade process you so well embrace.

And it's not that "prudential regulation" didn't work-- it's that those reponsible for enforcing it simply weren't doing their jobs leading up to this last crisis.  And that especially includes the Federal Reserve. 

And now?  We have created even MORE finanical regulation, and have somehow entrusted the Fed even MORE powers for that oversight.

Yeah, that's probably not going to turn out very well, I think.

Fri, 02/25/2011 - 07:30 | 996411 eddiebe
eddiebe's picture

+ beautiful

Fri, 02/25/2011 - 10:15 | 996681 Calculated_Risk
Calculated_Risk's picture

++ Very nice T.

Fri, 02/25/2011 - 01:04 | 996012 GoinFawr
GoinFawr's picture

Sorry, the Buddhist "That is just the way it be" mantra doesn't apply here.

Oh, and I'm doing fine, but I don't live by the "I'm all right so ef all the rest" religion you're propagating.

As far as the

"look at the spectacular growth of the economy instead and understand that it wouldn't have happened without a steadily devaluing dollar."

well that's just bullshit, and 'spectacular' is an entirely subjective adjective when describing the way the 'growth' has played out. Just because what has happened has happened doesn't mean it couldn't have happened differently, or even better than it did, pal.

It's kind of like saying "Bombing Hiroshima and Nagasaki women and children was grand because as a result we learned so much about the effects of intense nuclear energy on mammals."

Mankiw called for you, he wants his econ 101 'externalities' back.

Trade was going on long before US financial hegemony raped the world, eg the industrial revolution wasn't fueled by inflation, sorry.

Fri, 02/25/2011 - 01:16 | 996049 Mediocritas
Mediocritas's picture

Bullshit, it's spectacular.

You simply take for granted the astonishing amount of time that was required by specialists to create the very technology you're typing on right now. Automobiles, jet aircraft, extension of life expectancy, HUGE progress in a single lifetime and you think it's questionably spectacular? Lack of perspective.

The specialized lifestyles required to develop such technology would not be possible without rapid trade. Rapid trade is impossible without money. Go to the Apple store with some chickens and try swapping them for an iPod. Don't expect that trade to happen quickly.

Rapid growth is facilitated by a rapid increase in trade, which REQUIRES a rapid growth in credit. The industrial revolution required an equally great monetary revolution in order to expand credit and distribute it rapidly enough to service peoples' desires. Yes, it got out of hand leading to mini-collapses on occasion, but the net effect was positive.

Find me a SINGLE civilization that experienced rapid growth with a stable or devaluing currency. America's long period of currency stability prior to the Fed was also a long period of living like a peasant or making use of slaves who you didn't have to pay.

Fri, 02/25/2011 - 02:02 | 996127 GoinFawr
GoinFawr's picture

You're missing entirely that the stage was set for the last century of technological innovations by thousands of years of human endeavour, not by the coincidence of the FED latching itself onto the face of humanity in 1913.

Which, as TMOS has pointed out, likely hindered, not helped humanity to advance; IE we could be farther along today if not for the interventionist policies of theft, greed, hubris, and self interest it has forced down the world's throat for almost a century.

"Making use of slave you didn't have to pay"- wage slavery is alive and well today, as if you didn't know. In many ways it is even less honourable than some of its former incarnations, and that is what you beloved system requires, which is why it must slowly squeeze wealth up from the lower and middle classes to the plutocrats to be considered 'successful'.

So yes, I'll go so far as to grant that the advances in the last century have been 'spectacular', but not because of those you worship, but in spite of them.

Fri, 02/25/2011 - 02:18 | 996156 Mediocritas
Mediocritas's picture

The Fed was simply an agreement between banks to stop sniping at each other, causing economic turmoil in the process. So instead of causing regular small collapses, they got together and caused less regular big collapses. But my point remains that the small collapses were overwhelmed by the general advance, facilitated by a dextrous credit system.

Rapid growth of trade can't happen without credit and it's trade that underpins technological development.

I think we're going to have to just agree to disagree.

Fri, 02/25/2011 - 02:09 | 996138 trav7777
trav7777's picture

JFC, there is so much wrong with your post that it's hard to figure out where to begin.  But here's the first news flash, dipshit - the US became the richest nation on earth WITHOUT an income tax and WITHOUT a central bank.

there is NO evidence that central banking in ANY WAY contributed to our caused the economic growth.  ENERGY did. 

Your notion that the depreciating dollar caused economic growth is specious in the extreme. 

Economic growth is and always was tied to energy supply and marginal slack energy production capacity.

Fri, 02/25/2011 - 03:27 | 996251 GoinFawr
GoinFawr's picture

Heh, Trav you've got a one track mind. I can't deny that it's on track here though...

Fri, 02/25/2011 - 04:08 | 996277 Mediocritas
Mediocritas's picture

Central banks are just unionization of regular banks, that's all. You think there were no banks in America before the Fed? Where did all the credit come from? Newsflash: there were, and they collapsed and caused chaos more regularly than you change your underpants.

Economic growth depends on innovation, trade and consumption all of which finds a way to USE the energy. The energy itself is a passive factor. Cavemen lived in a world with much more oil, gas and coal than us, but their economy sucked balls that were hairier than their own. Fossil fuels, to them, were useless and had no impact on the economy in any way.

And so it might be that something now, something useless now, ends up being an energy source in the future, just as it was for cavemen. Only innovation will get us there and if there's no funding for innovation (which often means extending credit), then it happens a hell of a lot less.

Devaluing a currency doesn't CAUSE economic growth, it ENABLES it under the condition that there is a drive to grow (ie, someone has an idea worth pursuing). 

I got chastised earlier for failing to point that latter aspect out, so I'll be careful to reiterate. The force of growth (good ideas) must not be greatly exceeded by money creation or inflation becomes excessive. Said another way, we shouldn't be funding STUPID ideas with money out of thin air.

That's what prudential regulation is for, defining some of the things that are just plain idiotic.

Fri, 02/25/2011 - 00:36 | 995963 tmosley
tmosley's picture

The greatest accomplishment of the Fed has been to convince the people that it is necessary.  They are the governmental equivalent of an abusive stepfather/husband.  All they do is steal from us and hurt us, but "they love us" and "they can change" or "I deserved it" is what echos in our minds as we hide the bruises.  We have to be strong, and say NO to this menace.

Greenspan abandoned Ayn Rand.  He is a betrayer on the scale of Judas.  Or perhaps a Francisco d'Anconia redux.

Fri, 02/25/2011 - 00:45 | 995990 Mediocritas
Mediocritas's picture

I'm curious what you think the world would look like today if currencies weren't allowed to depreciate. Have you ever actually thought about that before launching into a tirade against the Fed?

Fri, 02/25/2011 - 00:59 | 996024 tmosley
tmosley's picture

Yes, extensively.  The government would be limited to less than 10% of GDP (as opposed to the massive cancerous tumor that is now 40% of GDP and growing).  As such, there would be far fewer regulations.  Without those regulations which drove away our industries, the US would remain the manufacturing capital of the world.  Without the FAA, the numerous attempts at the production of flying cars would never have been stopped.  Without the Department of Energy and the byzantine array of regulation and subsidy on energy production we would have much cheaper energy.  Likely from numerous safe nuclear power plants.  

Cancer and all communicable disease would have been cured (by my own company), as we have discovered a fundamentally new method of killing any type of cell/deactivating any type of virus, but have failed to pursue it due to the vast amount of time and money required, choosing instead to pursue other avenues with "quicker paydays", including medical devices and industrial applications.  

The internet, which has thus far mostly evaded regulation, would be much the same.  You can compare the vast proliferation of information that has come about there to what the world would be like absent government interference.

It goes on and on.  You have Stockholm syndrome.  Sadly, it is fatal.

Fri, 02/25/2011 - 01:08 | 996036 GoinFawr
GoinFawr's picture

Tesla's work might not have been limited to resulting in TV sets, radar, and murder drones.

Fri, 02/25/2011 - 01:22 | 996061 Mediocritas
Mediocritas's picture

What has any of this got to do with the government? We're talking about Central banks. I'll stay on topic and remind you that if the credit system wasn't set up the way it was, then you never have been able to finance your company in the first place because there wouldn't have been enough money floating around to do it and no ability to create it in advance.

If you didn't already have money or couldn't find people to give you theirs, then a static currency system would require you to magically develop your business and sell the output for profit before fresh money would be created to represent your addition and maintain currency value (prevent it depreciating).

But if you want to change the topic to government then fine but why, oh why, do you think I disagree with you? Overweight, centralized government is a very bad thing. Regulation for regulation's sake harms economic growth. Complete lack of a government is even worse. You'll find no disagreement here, so why did you create one?

http://en.wikipedia.org/wiki/Straw_man

Fri, 02/25/2011 - 01:48 | 996109 JW n FL
JW n FL's picture

ok... so, why not a gold standard?

 

production cant keep up with population growth?

 

how about a blended mix of PM's for the new global paper money?

 

as far as people investing in good ideas... with the use of chickens / hamburgers paid for on tuesday after being comsumed today... has been and will always be around, brokers / used car salesmen always find something to sling at the wall.

Fri, 02/25/2011 - 02:00 | 996124 Mediocritas
Mediocritas's picture

Let me ask you one simple question: how do you expand the money supply under a gold standard in order to match the expansion of the economy?

Simple, you don't. You instead create a fractional system under which the difficult-to-mine gold constitutes a smaller and smaller percentage of money over time. Eventually you realize that you don't even need to use it at all and create a fiat currency.

Economic expansion is hamstrung by a gold standard because the mining rate of gold is limited. People like Ron Paul who advocate a return to the standard, sadly, don't get it. Of course a gold standard would be fine if the economy was growing very slowly (slower than gold could be mined at), and the economic authority controlled all mines and private ownership was outlawed, but at this point in history, the flow of new ideas leading to potential growth vastly outpaces mine production.

That's why commodity-backed currencies aren't a good idea. Too inflexible.

Fri, 02/25/2011 - 02:03 | 996130 JW n FL
JW n FL's picture

then we are talking about re-instilling faith in the broader populace...

 

after the debt toppels over on thier heads then?

Fri, 02/25/2011 - 02:14 | 996143 Mediocritas
Mediocritas's picture

Might take an entirely new currency (eg Amero), but basically, yes.

On the issue of debt, it's important to make a distinction between private sector debt and US government debt, they're different beasts. When the US government owes money to the Fed, it's not actually debt because you can't owe money to yourself (yes the Fed and Treasury are one entity, the divide is all smoke and mirrors). That's why Obama moved to not include it in the budget.

US Government debt run up via the Fed purchasing Treasury paper is simply the Fed implementing US fiscal policy by stealth or, from another perspective, the government implementing monetary policy by stealth. Make no mistake, Central Banks captured the worlds' governments a long time ago. Where I differ from most is that I don't think they're doing such a bad job, not from my perspective anyway. I'd probably think very differently if I lived in Africa...

Fri, 02/25/2011 - 02:24 | 996166 JW n FL
JW n FL's picture

the debt issued... printed from thin air... that then "We the People" owe the interest payment on... should be wiped out.. sure.

 

But how do you re-instill the faith lost?

 

Yes the "Ber-Nake" is doing all he can do... which is print, print and then fucking print...

It will take until "The Ber-Nake" moneitizes the whole off all debts everywhere in the U.S. before people realize it was never the answer... but maybe that is in fact part of the playbook already?

 

In the end, who and how will they repair the faith of the people? knowing this enables the little people the power to decide thier own future for a change...

 

How will they manage the populace upcoming? this perplexes me daily, if I could figure it out I would share.

Fri, 02/25/2011 - 02:30 | 996176 Harmonious_Diss...
Harmonious_Dissonance's picture

Populus management is dropping daily from the sky in the form of Nano-Aluminum & Barium Slats. Chill dude, just buy some stocks. Everything is ok, mmkay?

Fri, 02/25/2011 - 02:36 | 996185 JW n FL
JW n FL's picture

gleaning any insite that could be shared to help all be better prepared for the new, new normal onslaught... could help us all in ways not yet dreamed of. 

Fri, 02/25/2011 - 02:34 | 996183 ft65
ft65's picture

LW n FL... Bro, you  know how it's done. They will have to take a GuLP of the Kool Aid, and hit the reset button. All previous civilizations have come to an end the (C2) media are doing their best conntrolling this one. DON'T YOU KNOW! 

Fri, 02/25/2011 - 02:40 | 996190 JW n FL
JW n FL's picture
by ft65
on Fri, 02/25/2011 - 01:34
#996183

 

LW n FL... Bro, you  know how it's done. They will have to take a GuLP of the Kool Aid, and hit the reset button. All previous civilizations have come to an end the (C2) media are doing their best conntrolling this one. DON'T YOU KNOW! 

**********************************************************************

Everyone here knows exactly who I am... I am not hard to find... the fact that you have been tripping over yourself trying to figure it out... just speaks to how big of a fucking idiot you really are.

 

Now if you want to know who I am.. why not just ask me? to, too difficult for you to fathom?

 

so the question realy is... who the fuck are you stupid? someone who wants me to feed them to a gator one fucking knuckle at a time?

Fri, 02/25/2011 - 04:31 | 996289 Mediocritas
Mediocritas's picture

A minor point to make here:

People routinely make the mistake of thinking that we pay interest on debts owed to the Fed. We actually don't in the end.

The Fed returns all money paid by the Treasury as interest on US debt held by the Fed minus some bucks for the Fed's "operational expenses", which is usually a small amount. This is required by law.

So don't worry about US obligations to the Fed, they're irrelevant and should be excluded from all discussions of US debt (but aren't).

A lot of people don't get this and freak out about US debt more than they should.

Fri, 02/25/2011 - 05:31 | 996339 AnAnonymous
AnAnonymous's picture

When the US government owes money to the Fed, it's not actually debt because you can't owe money to yourself

 

You can owe money to yourself. The major difference is default and writing off.

Fri, 02/25/2011 - 05:51 | 996350 ft65
ft65's picture

Quoting JW n FL "re-instilling faith in the broader populace..."

TrInIty, you are the one who knows about PsyOps and the possibilities of reinstilling faith? HB Gary / MacDill software and all. Shouldn't you be tending the farm. The sheep will be missing their shepard by now (or is that wolf?). All here know the game is over, don't assume your own forum (GLP) level of intellegence!

Fri, 02/25/2011 - 02:16 | 996153 trav7777
trav7777's picture

Money was never REALLY tied to gold.  It was always backed by production.  Real Bills Doctrine carried world trade among nations with specie currencies.  The REAL money supply consisted of REAL BILLS.

The notion that a central bank LENDING money into existence is a good idea is IDIOTIC in the extreme.

You talk about needing fucking "money" and expansion of money supply and you seem to not even grasp what Central Banks CREATE!  They create money that is DEBT.  It is LENT.  It is not printed.  They LEND you the money you need to use and charge interest on it.

THAT is the main beef with central banking and you have missed this point entirely.

People who defend central banking do not understand its money nor seem to be able to grasp how world economies ran in their absence.

The US experienced unprecedented growth in the 19th century due to two things- coal and oil.  The Bessemer Process for steelmaking wasn't possible without the power of coal.  The Hault-Heroult process for production of aluminum was impossible without the power provided by these fossil fuels.  In this century, REAL BILLS provided the "money" of trade; gold standard notes did not.

Fri, 02/25/2011 - 02:43 | 996196 baby_BLYTHE
baby_BLYTHE's picture

yep, He's got it! Great work.

Fri, 02/25/2011 - 04:18 | 996280 Mediocritas
Mediocritas's picture

You really think I launch into discussions about the finer points of Money Supply without being aware that the vast majority of money in existence is debt? You *really* think that? 

Clearly.

So it means you've decided I'm an idiot of the highest magnitude and therefore you can dismiss anything I write without actually bothering to even try and understand it. That's a mistake.

We can go to and fro but instead, I'll give you a book recommendation: 

http://www.amazon.com/Rational-Optimist-How-Prosperity-Evolves/dp/006145...

None of what you posit is possible without trade. The point I'm trying to make over and over again is that monetary policy *can* and does enable trade.

And yes, as Asset Man points out, there are situations also where monetary policy can inhibit trade. We saw that clearly in 2008 when international shipping froze nearly to death as a consequence of shippers being unable to secure letters of credit.

People around here blindly criticize and attack everything to do with modern monetary policy without giving credit to the things it gets right. Their suggestions for replacement are routinely unviable. Real Bills is one such unviable suggestion. Ignoring the fact that such models already exists and are routinely practiced between businesses, the primary problem is that such a system inevitably evolves into what we have now. A natural process.

We'd be taking a backwards step.

Fri, 02/25/2011 - 04:28 | 996287 ft65
ft65's picture

Trinity / JW n FL / JL - research tally sticks. You full well know dollar is on the "oil standard", but it has been a corrupt mentality that has caused the Ponzi to collapse. It will happen every time when people are too comfortable. You know all about corrupt mentalities, you continually ban them at your GLP forum.

Fri, 02/25/2011 - 08:12 | 996454 Alienated Serf
Alienated Serf's picture

umm? huh?

Fri, 02/25/2011 - 09:37 | 996594 tmosley
tmosley's picture

It was the central bank that enabled the government to grow beyond 10% of GDP.

Also, if deflation is such a terrible thing, then how is it that the electronics industry has prospered?  Prices on electronics go down every day.  That doesn't stop ANYONE from buying new TVs, or computers, or anything else.

Even under a gold standard, money was easy enough to come by.  You never heard of a bank?  People put their gold in there for safe keeping and a return.  If people can't fund a business through their own savings, they can use other people's savings AND provide just compensation (rather than simply stealing it).

Here, I would suggest you read this: http://freedom-school.com/money/how-...nomy-grows.pdf  It explains how and economy ACTUALLY grows, and does so from first principles.  Don't be fooled by the comic book format, it is both in-depth and accurate.

Fri, 02/25/2011 - 00:29 | 995950 Milton Waddams
Milton Waddams's picture

To a man Bernanke would probably say he doesn't give a shit about commodity inflation as long as 1) the costs can be passed down 2) company level margin compression is not severe enough to broadly weigh on the corporate debt market.

He would say he cares very deeply about the employment rate 1) in so far as there is a sufficiently sized workforce with a couple bucks left over to consume at the retail level 2) it doesn't fall too low as to create labor scarcity, which causes wage inflation- the Fed's primary concern. The Fed, and industry for that matter, absolutely loath prosperity for the rank and file worker. Sure, a little prosperity is okay in so far as it pumps aggregate demand, but the moment those workers' paychecks start cutting to deep into corporate profit growth... they pull the plug on the economy.

Buffett, et al. like to talk about class warfare as it related to tax policy out of DC when in fact the war is being waged, not in the halls of Congress, but in the real economy. And, no surprise, Buffett's class is winning in blowout fashion.

Fri, 02/25/2011 - 02:07 | 996134 Mediocritas
Mediocritas's picture

I think he cares very much about commodity price inflation.

If speculators are chasing gains in commodities then it means they are NOT chasing gains in the downstream businesses that use those commodities as feedstock for value addition. Pushing commodity prices higher kills those businesses downstream.

The vast, vast majority of GDP input, employment and sources for borrowing come downstream. That's why commodities are a buffering force and the current situation leads to deflation, not inflation. High commodity prices kills off consumption, leading to low commodity prices. Bernanke is terrified of deflation, so he's not happy about this commodity speculation, I guarantee it.

Behind the scenes the Fed is very pissed with China because it's China's monetary policy that is mostly to blame for this situation.

Fri, 02/25/2011 - 03:34 | 996255 GoinFawr
GoinFawr's picture

Well, that's you completely discredited. Up to here I actually thought you might have a point.

Game overexposed.

MMT: Magical Money Tap

Fri, 02/25/2011 - 04:26 | 996282 Mediocritas
Mediocritas's picture

You really think Bernanke wants to see commodity price inflation? Perhaps you'd like to explain why he could possibly want that.

Or are you disagreeing with my statement on China? If so, explain how China's currency peg does NOT cause commodity speculation.

MMT? If you mean Modern Monetary Theory, then yes, that is my game. I'm in agreement with Cullen Roche if that helps to make it clear.

I'm also curious as to why you feel the need to junk every post I write like some insecure teenager. I haven't junked a single thing you've said because this is just a conversation. In between the bitchy little comments, there's an actual conversation here. I'm interested in that, just not the rest....bitch.

Fri, 02/25/2011 - 04:29 | 996288 asdasmos
asdasmos's picture

"

The Fed’s reaction will be as predictable as ever.

We already know that Chairman Bernanke exculpates the Fed for any blame in creating inflation either domestically or abroad. In fact, he refuses to even consider rising food and energy prices in his definition of inflation. Americans could be paying $50/pound for ground beef, but as long as their houses are still losing value, Bernanke doesn’t see an inflation problem. Meanwhile, they’re eating squirrel for protein while making payments on a mortgage twice as expensive as the house.

The truth is that Bernanke doesn’t know what causes inflation, so he can’t be expected to spot it, much less do something about it. Using the Fed’s own history as a guide, Bernanke will view rising commodity prices as a threat to GDP growth and a sign of pending deflation. That’s because the Fed is caught up in a ‘Phillips curve’ philosophy that only equates economic growth and prosperity with inflation. In short, Bernanke believes that slow growth and rising unemployment rates equate to deflation, despite plentiful contrary examples in history.

Since he believes rising commodity prices are deflationary and have nothing to do with his own loose monetary policy, the Fed is likely to expand its balance sheet to a greater degree. The fact that the Fed’s massive money printing effort is the progenitor of global food riots completely escapes him. As more damage is done, the Fed will use the resulting contraction in GDP to justify a third round of quantitative easing – further harming the GDP.

Unfortunately, the viscous cycle of stagflation will grow more acute with each iteration of the Fed’s love affair with counterfeiting. Countries that make the mistake of continuing to peg their currencies to the US dollar will suffer more inflation and more destabilization. Since it will be hardest for the US to ditch the dollar, our hopes are dimmer.

"

 - http://blogs.forbes.com/michaelpento/2011/02/24/arab-autocracies-and-us-...

Fri, 02/25/2011 - 04:50 | 996307 Mediocritas
Mediocritas's picture

Even Jim Rogers says: "the cure for high commodity prices is...high commodity prices". Because Rogers understands that the effects of high commodity prices are harmful to economic activity.

Excessively high commodity prices cause defaults, particularly for those already operating on thin margins, which causes deflation. Is Pento saying that this isn't true? He doesn't recognize the role that $160 oil played in the deflation of 2008?

No mention of China's currency peg? No mention of China's ridiculous expansion of money supply which (unlike the US's) has no hole to sink into?

Again, Fed bashing. It's an easy target.

Fri, 02/25/2011 - 05:42 | 996345 AnAnonymous
AnAnonymous's picture

Again, Fed bashing. It's an easy target.

 

Easy how? FED is a tough thing. Very unlikely to crumble, very unlikely to come under a sustantial assault that might cause it to disappear.

China is by all measures a much easier target.

The Fed is a vain target as very few people in the world have the capacity of terminating it. Just like spitting at the moon. But easy, no.

Because Rogers understands that the effects of high commodity prices are harmful to economic activity.

It is nice to get others to yield their commodities at a discount so that economical activity can be maintained at a high level. Yet, in spite of all their willingness to sponsor the US way of life, sometimes, it becomes independent of them to deliver the amount needed to support the wished economic activity.

Expansion is nice as long as there is room to expand.

Fri, 02/25/2011 - 10:27 | 996709 Mediocritas
Mediocritas's picture

There's an incentive for commodity produces to keep pricing low if they're owned by the downstream entities that value-add to said commodities (or owned by the owners). The cost of price suppression is less than the gains made downstream.

Something to consider when people claim price suppression is going on via investment banks maintaining huge short positions. Yep. Probably is. Now go invest downstream where the real gains are to be made.

Different story when the commodity producers have only the price of said commodity to depend on, then it's a matter of walking the line between going for a high price and pushing your buyers out of business.

Your final point is a good one to always bear in mind. This entire economic model is geared for growth. If limits to growth are hit, then the model breaks badly. I don't think we're there yet but that topic is a big one, for another day.

Fri, 02/25/2011 - 08:35 | 996489 Alienated Serf
Alienated Serf's picture

QE/low rates/liquidity and most of the other fed policies plants the seeds of commodity appreciation which leads to speculation, which leads to high commodity prices, which leads to more speculation, which leads to higher input costs and margin compression,which leads to hoarding of commodities and more speculation which takes money out of productive uses into more speculation.  real economic activity craters in the face of prohibitive commodity input prices and then the defaltionary bug bites.  deflation scare, default scare and then the easing starts again.  

rinse repeat.

this is the best we can do? 

Fri, 02/25/2011 - 12:09 | 996910 GoinFawr
GoinFawr's picture

Heh, projection can be such a very humorous neurosis.

I only junk the comments I see as most deserving of my derision, not all. As a favour I'll unjunk yours, there; notice how absolutely nothing seems to have changed much? 

Anyway, don't worry, I won't bother spending an inordinate amount of my time paying attention to your comments, not now that I know you are nothing more than another duped sophist.

Fair Warning: I may still junk your stupider suppositions.

 

PS

Oh, and tell me again the fairytale where the Chinese held a gun to your head and made you purchase that 'dustbuster' made(with 50% more lead) in China, just because it was 50 cents less than the one made in your hometown of Seedsville, Backwater, USA. IE you dug your own grave, and now that you have to lie in it you want a scapegoat to take your place.What you MMT'ers are really angry about that way is that China's peg highlights the egregious manipulation of the USD, not the other way around.  Pathetic, really.

Bonne Chance!

Sat, 02/26/2011 - 03:20 | 999297 Mediocritas
Mediocritas's picture

Look, I have no problem with a currency peg when it is being used in an ethical way to protect a young upstart economy that's emerging from a period of abuse, for example, if Zimbabwe were to overthrow that clown Mugabe and install a functional government I would support a peg for that country.

China fell into the category of deserving support as it's government transformed from isolationism a more liberal state (still some way to go), but the need to retain that peg disappeared a long, long time ago. Maintenance of it to this day* constitutes economic warfare. Had it been abandoned years back, China would still have continued to grow, just slower, while the decay of America would also have been slower. These lesser rates would have provided both economies more time to adjust in a stable manner.

THAT is my beef with the peg. If people prefer to buy Chinese over local, fine, whatever. If the price difference is due to open market forces I'm fine with it. But if the price difference is due to a bullshit currency peg then I'm NOT fine with it. With the peg gone, the yuan would appreciate, making that Chinese product more expensive, perhaps moreso than the local product. True price discovery would function. What we have now is market manipulation by China and it's destroying America. The ethical basis to let this slide disappeared years ago.

That's the MMT perspective.

And yes, you unjunking posts DOES make a difference. It changes my perception of you when I have a discussion with you, making me less likely to treat you with contempt, making the product of the conversation more likely to be worthwhile.

*technically the peg has been replaced by a managed exchange rate. Irrelevant, the yuan has appreciated only 4% against the USD since the change of definition.

Sat, 02/26/2011 - 23:22 | 1000950 GoinFawr
GoinFawr's picture

Look, all  fiat currencies have been/are de facto pegged (managed, manipulated, whatever you'd like to call it) to the soon-to-be-former reserve currency, and nothing makes that more obvious than looking at the exchange rates of currencies of nations who have had their Central Banks infiltrated by GS alumni.

Regards

Fri, 02/25/2011 - 05:44 | 996348 StychoKiller
StychoKiller's picture

If you think that all this dinero is just sitting in some vault, you are delusional!

Thu, 02/24/2011 - 23:52 | 995844 JimboJammer
JimboJammer's picture

can't  read  the  chart..  you  got  stuff  on  the  right  covering  it  up...  fix  it  tyler..

Fri, 02/25/2011 - 00:06 | 995889 mt paul
mt paul's picture

if there is a god 

he'd take one look

at that chart...

 

and crucify the  berrnak

Fri, 02/25/2011 - 01:49 | 996113 JW n FL
JW n FL's picture

God gave all of us free will and a Brain..

Fri, 02/25/2011 - 02:26 | 996170 Harmonious_Diss...
Harmonious_Dissonance's picture

God want's us to nuke shit

Fri, 02/25/2011 - 02:42 | 996193 ft65
ft65's picture

Relying on god-like deities is questionable, when we were all given free will. It's the brains that created this mess. The media that LOP free thought... C2

Fri, 02/25/2011 - 04:53 | 996291 Rodent Freikorps
Rodent Freikorps's picture

The very reason you will be held responsible for your decisions.

The Tester considers the test of life to be individual. It is not collective. Live or die on your own merits.

Fri, 02/25/2011 - 00:08 | 995890 jmc8888
jmc8888's picture

Woo hoo, that chart must mean prosperity! Thanks Benihana! Do you like your bowl of paper freshly printed or not?

As always, some more reality can be found at larouchepac.com

 

Wisconsin Governator's Budget "Repair" Bill Includes New Obama T-4 Agency to Gut Medicaid for 1.2 Million Poor

http://www.larouchepac.com/node/17573

 

Attack On Collective Bargaining: THE NAZI PRECEDENT

http://www.larouchepac.com/node/17588

 

Mass Strike Actions Continue to Spread

http://www.larouchepac.com/node/17580

 

Three Die from Murderous Budget Cuts in Fire Protection

http://www.larouchepac.com/node/17581

 

Gerry Adams Campaigns on the Mass Strike Movement

http://www.larouchepac.com/node/17582

 

Blair's Faustian Pact with Gaddafi Comes Under Attack in the U.K.

http://www.larouchepac.com/node/17583

 

Madman Qaddafi Spelling Out His Own Demise

http://www.larouchepac.com/node/17585

 

With Providence Lay Offs, Obama and Duncan "Live in Infamy"

http://www.larouchepac.com/node/17586

 

Statisticians Who Failed Today

http://www.larouchepac.com/node/17589

 

THE LESSON OF THE FCIC REPORT

http://www.larouchepac.com/node/17591

 

Wow so much fascism from all sides, so little time.  The Suck Koch brothers are the EPITOMY of fascism. Obama too. 

GO SINN FEIN!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Ireland you must choose right, or else you'll still be in the bankster's clutches.  ONLY SINN FEIN will give you the break you need.  NOW SHOW THEM HELL!!!!  Will Ireland destroy imperialism tomorrow? We'll see.  As presented above in one of the articles, look at egypt and realize what your vote means tomorrow, and use it WISELY.  GO SINN FEIN!!!!!

Glass-Steagall

Fri, 02/25/2011 - 06:58 | 996381 StychoKiller
StychoKiller's picture

Only clicked on the last of your links -- WHOA!

Thanks!

Fri, 02/25/2011 - 00:08 | 995894 Johnk
Johnk's picture

Check this out

http://www.imf.org/external/np/g20/pdf/021811.pdf

IMF:

"Some further real effective depreciation of the U.S. dollar would help ensure a sustained decline of the U.S. current account deficit towards a level more consistent with medium-term fundamentals, helping to support more balanced growth."

Fri, 02/25/2011 - 00:11 | 995902 jmc8888
jmc8888's picture

I think we all know they are overestimating the 'trickle down' effect that will go with this 'modest' (hyper) inflation.  Good spot of bullshit though!

Fri, 02/25/2011 - 00:39 | 995969 RockyRacoon
RockyRacoon's picture

"The Adjusted Monetary Base is the one monetary component completely under the control of the Federal Reserve."

...until it's not.

Fri, 02/25/2011 - 00:42 | 995981 Dr. Porkchop
Dr. Porkchop's picture

USD Index 76.98

Fri, 02/25/2011 - 00:46 | 995994 baby_BLYTHE
baby_BLYTHE's picture

Is Rahm Emanuel the new sausage king of Chi-town?

Do we have a 'sleeper' in the whitehouse?

http://truthisliberty.blogspot.com/2011/02/rahm-emanuel-sausage-king-of-...

Fri, 02/25/2011 - 00:55 | 996015 Creed
Creed's picture

So you can bemoan the 95% loss of purchasing power of the USD since the establishment of the Fed in 1913 all you want, but perhaps you should instead look at the spectacular growth of the economy instead and understand that it wouldn't have happened without a steadily devaluing dollar.

 

Bullshit. The USA did just fine prior to 1913 with a gold standard. Savers were rewarded as they should be. Now they are robbed DAILY.

The framers of the US Constitution were right, you statist thieves & thugs are wrong & think you are CONSIDERABLY smarter then you are.

 

Fri, 02/25/2011 - 01:05 | 996034 lawton
lawton's picture

Why is M3 still shrinking (Shadow Stats)? Wouldn't M3 need to expand a lot to have major inflation on things besides speculators driving Food and Energy up with Ben's money ?

Fri, 02/25/2011 - 01:15 | 996046 destroyer of mo...
destroyer of moonbats's picture

the Fed Res is Neo acting like there is no spoon.

Fri, 02/25/2011 - 07:01 | 996383 StychoKiller
StychoKiller's picture

More like Agent Smith trying to remake every Being into his own image...

Fri, 02/25/2011 - 01:19 | 996057 themosmitsos
themosmitsos's picture

Looks Like Charlize Theron walked by this puppy!

Fri, 02/25/2011 - 01:24 | 996060 Broken_Trades
Broken_Trades's picture

Does anyone remember the name of the post or author that showed a scatter plot of how silver prices moved in distinct patterns related to gold?

 

Found it...

 

http://worldcomplex.blogspot.com/2010/09/reconstruction-of-gold-and-silv...

Fri, 02/25/2011 - 01:23 | 996063 chump666
chump666's picture

hahahaha the HFT's are stabilising the market (Asia trading)...nice,  on thin arse liquidity.

 

Fri, 02/25/2011 - 01:24 | 996064 chump666
chump666's picture

hahahaha the HFT's are stabilising the market (Asia trading)...nice,  on thin arse liquidity.

 

Fri, 02/25/2011 - 01:32 | 996084 Caviar Emptor
Caviar Emptor's picture

Saudi youth protest called for Friday in Jeddah. Is this the start?

Fri, 02/25/2011 - 01:49 | 996115 JW n FL
JW n FL's picture

God Willing!!!!!

 

Free Saudi Arabia!!!

 

Free America!!!!

Fri, 02/25/2011 - 02:48 | 996202 ft65
ft65's picture

JW n FL, Please expand how a free Saudi Arabia would unchain America - GuLP! Does your god (?) out rank theirs - or the god of cheap oil? America problems run deeper than Arab middle eastern countries you hate so!

Fri, 02/25/2011 - 03:00 | 996215 JW n FL
JW n FL's picture

how does my wishing all Suadi's Freedom equal hate... you are an asshat, go read and then read some more... then come back and try again. are you a fucking child? your logic is less than an intelligent child could / would demonstrate on a bad day.

Fri, 02/25/2011 - 03:17 | 996235 ft65
ft65's picture

Ja$on / Trinity / JW n FL - I used to post on your forum until you banned me - and many of your paying members. You do not want freedom for Muslim countries, you have expressed that opinion on GLP for years now. Now you have come here and use this forum to promote your woo woo ajenda. That is why I know you are involved with the HB Gary / MacDill project.

 

ZeroHedge do some research on this caracter and his website GodlikeProductions.com

HTTP://www.godlikeproductions.com He is the site owner, and a very dangerous divisive litigious character who promotes Muslim hatred.

 

 

Fri, 02/25/2011 - 03:24 | 996250 JW n FL
JW n FL's picture

once again idiot... everyone here knows my name... except you and its not Jason...

If you would like to know my name you little fucking coward, why not just ask me... like a man?

you may have been banned for being a twit... or a coward... or just childish and ignorant...

once again, if you want to know who I am... why not just ask you little fuck?

Fri, 02/25/2011 - 01:51 | 996116 Dead-eye Odom
Dead-eye Odom's picture

I gotta say that that graph scares me. It looks like a tidal wave of inflation is headed our way. The world population is standing on the shore wondering where all the water has gone. When all of those dollars floating around out there come back towards the U.S.A. it is going to be a bad deal.

Fri, 02/25/2011 - 02:00 | 996129 JW n FL
JW n FL's picture

as long as you have tangibles... PM's which are extemely luquid, like when the mints run out... you havew no worries...

have some physical solar / wind power... food... water source that you control and lots of ammo... for your guns... guns plural.

 

be a boy scout, be prepared... or just say to yourself I need a tinfoil hat, whatever makes you happier... I would preffer everyone here would be safe no matter what happens when this top heavy debt toppels over on all the lil people.

Fri, 02/25/2011 - 02:28 | 996172 Harmonious_Diss...
Harmonious_Dissonance's picture

Chill dude, everythings fine. Buy some stocks and breath alittle. Bennies gunna make it all better, mmmkay?

Fri, 02/25/2011 - 02:56 | 996210 ft65
ft65's picture

Interesting comments. Now I know you practice what you preach (from a forum you own - GuLP!) Many of the people - from another place you know very well - have come over here and bespoiled this comments section. If you think your survivalist attitude is the answer, then I think america is in even bigger trouble!

Fri, 02/25/2011 - 03:08 | 996225 JW n FL
JW n FL's picture

I have asked this question before of you... do you want me to cut you up... knuckle by fucking knuckle and feed you to an aligator... of course you would be alive to watch, until I ran out of little pieces to cut off of you...

Metaphorically speaking of course...

 

everyone here knows who I am, you are the only one lost.

if you want to know so bad, why not just ask me?

Fri, 02/25/2011 - 08:40 | 996495 Alienated Serf
Alienated Serf's picture

i'll do it for him. who are you?

Fri, 02/25/2011 - 14:29 | 997431 JW n FL
JW n FL's picture

if he cant use google to figure it out... he is beyond help, knowing for him isnt the problem... his problem is not being able to know on his own.

Fri, 02/25/2011 - 03:03 | 996219 honestann
honestann's picture

Quotes from Bernanke and FederalReserve predators:

#1: We have nothing to do with rising food prices.

#2: What rising food prices?

Fri, 02/25/2011 - 03:21 | 996241 jimmyjames
jimmyjames's picture

How can M2 be an accurate gauge of money supply?

M2 contains Savings and also has an MZM component-

Savings is skewed by the fact that Sweeps are rolled into Savings accounts nightly from checking accounts and MZM has no bearing on money supply-

Fri, 02/25/2011 - 04:01 | 996258 Rodent Freikorps
Rodent Freikorps's picture

Why not build lots of nukes, and save the oil for only necessary stuff?

Why not end the EU alternative fuel thing, and use that food to help 3rd worlders?

Why are we making ethanol and building windmills instead?

Energy policy in the West is about death and misery.

Windmills are only good for killing birds and brown people.

Fri, 02/25/2011 - 07:30 | 996412 primefool
primefool's picture

The Ideal numbers on the Bloomberg - that makes Americans Feel Good:

1. Tech and Financial stocks up - up and more up

2. Govt Bond Yields at 2-4%

3. Oil - under 80

Dollar? Gold? ( Dont care).

So - there you have Bernanke's marching orders - make the numbers come out right - whatever it takes. remember - we create reality so the rest of youse guys can write history books aboutit ( I think one of the Bushmen said this piece of timeless wisdom).

 

Fri, 02/25/2011 - 07:35 | 996417 primefool
primefool's picture

Just to clarify when I said "Bushmen" - I was not talking about the bushmen of Kalahari - but rather the bushmen of crawford.

Fri, 02/25/2011 - 07:37 | 996422 primefool
primefool's picture

The only people willing be short Crude Oil over the weekend - when anything can happen - will be the "annointed ones" - the "ones that never feel any pain", the "ones that have access to Bernanke's "money" and full compliance from all the accounting "authorities". Who else would be short oil ?

Fri, 02/25/2011 - 07:51 | 996439 ak_khanna
ak_khanna's picture

The credit outstanding worldwide is shrinking at a much faster rate than the rate at which the central bankers are printing money. The money being printed is just being used to roll over previous debts and is not contributing to job or small business creation which can actually cause inflation by giving a large portion of the population an increased purchasing power.  

The money being printed is going into speculation activity in equity, commodities and currency exchanges which is pushing more and more people under the poverty line as they are no longer able to afford the basic necessaties of life.

http://www.marketoracle.co.uk/Article24581.html

 

Fri, 02/25/2011 - 09:15 | 996543 mix
mix's picture

OK , but with a inflation rate at 4%, where is the incentive for a commodities producer to producer , since the price received may under-perform the dollar inflation for good such as corn and metals ( but not lately). Would this not create imbalances?And mis-price other good, and dis-allocate money and credit?

Fri, 02/25/2011 - 12:35 | 997093 omi
omi's picture

Why does it make sense to seasonaly adjust money stock?

Fri, 02/25/2011 - 14:24 | 997411 TheMerryPrankster
TheMerryPrankster's picture

Nice puff piece from Bloomberg. I couldn't figure out if they were being tongue in cheek facetious or were merely clueless when they wrote the final lines of that piece.

"

Told that he was the second policy maker to appear at a Bloomberg Breakfast -- White House chief of staff William Daley was first -- he feigned umbrage.

“I’m so offended that I’m number two,” he said. “You know, the story of my life.”'

Did the author realize that "number two" is common slang for feces? Geithner is a self admitted pile of steaming putrid shit?

 

Nice to see him finally admit it in print.

Fri, 02/25/2011 - 17:32 | 997985 gold_tracker
gold_tracker's picture

Anyone want to guess how this is going to affect gold and silver?

Do NOT follow this link or you will be banned from the site!