This page has been archived and commenting is disabled.

Up, Up And Away (Part 2)

Tyler Durden's picture


...But before people begin panicking that the radioactive printer plant housed in the Marriner Eccles building has melted down and is now releasing radioactive money straight into the liquidity system, recall that $195 billion of this is simply from the unwind of the Supplementary Financing Program, which feeds into the Adjusted Reserves, which together with currency in circulation feeds into the Adjusted Monetary Base. Therefore, with the unwind of SFP completed, we expect this growth to taper off materially, although by the end of June the Adjusted Reserve balance alone will hit $1.7 trillion, implying another $200 billion or so in growth, although at a slightly slower pace.

The chart below once again (since we show it each week), shows the cumulative change in Excess Reserves and Fed Assets since the start of QE2. In an ideal world these two should offset each other (ideal in as much as banks don't lend out Excess Reserves and simply keep the fungible monetary electrons as substitutes for Discount Window access), and other change means a migration in(+) or out(-) of currency in circulation (inflationary or deflationary). While until February excess reserves lagged securities held dramatically, this has since flipped, assisted in part by the SFP unwind, which pushes the scales in the excess reserve balance favor. In other words, there is another $150 billion or so before equilibrium is reached, all else equal. Keep a close eye on this cumulative (in)quality as it is the most direct indicator of marginal monetary pressure imbalance (Fed assets less net currency) in the system currently.

Or, in English, the cumulative differential plunge recently is hella inflationary (as the imminent subsequent reversion to the mean means money going out of reserves and into currency).



- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 03/31/2011 - 21:32 | 1123702 Yen Cross
Yen Cross's picture

It's a large flying reptile Mix . AKA ( Pterodactyl) The Fed...

Thu, 03/31/2011 - 22:27 | 1123824 SparkyvonBellagio
SparkyvonBellagio's picture

Vote for Ron Paul / Rick Santelli 2012

Thu, 03/31/2011 - 22:20 | 1123832 SMG
SMG's picture

God help us...

Fri, 04/01/2011 - 00:39 | 1124123 Manthong
Manthong's picture

Not to worry, it'll hit resistance at about a quadrillion.

Fri, 04/01/2011 - 02:17 | 1124233 American Dissident
American Dissident's picture

OK - What Now?  SO- You must prefer the current slew of innumerate nutless luciferians feigning public service.  Clarity at alast!

Fri, 04/01/2011 - 07:02 | 1124371 Mentaliusanything
Mentaliusanything's picture

The Identical flight plan of Icarus (with the identical fault)
wax on wax off.
My goodness, if you can't see it you have the brains of a smash crab

Thu, 03/31/2011 - 21:31 | 1123705 ParaZite
ParaZite's picture

Damn it Bernanke... you weren't supposed to use the viagra in the printing press.


Thu, 03/31/2011 - 21:32 | 1123707 Robot Traders Mom
Robot Traders Mom's picture

If you flipped the chart upside down, it would look like AAPL and the shitty tech sector over the next 6 months.

Looks like the slide continued today for AAPL...I miss the days when Robo would post his yahoo finance charts on Apple his business teacher would email to the class and he would use on ZH.

Thu, 03/31/2011 - 22:59 | 1123909 TWORIVER
TWORIVER's picture

You're so hot.

Thu, 03/31/2011 - 21:32 | 1123710 tj3
tj3's picture

Keep watching the repo's that's the headline message. I hope ZH will see other parts of the deleveraging puzzle...whether it's true or really happening, or not.

Thu, 03/31/2011 - 21:35 | 1123711 Cash_is_Trash
Cash_is_Trash's picture

Respect the orders of magnitude. L' inflatzione puttana

Thu, 03/31/2011 - 21:37 | 1123721 Number 156
Number 156's picture

Next stop, Weimar Republic part Deux.

Thu, 03/31/2011 - 21:44 | 1123741 Long-John-Silver
Long-John-Silver's picture

I can't wait till I'm heating my home with a truck load of US Dollars I purchased with a single 1oz silver round.

Thu, 03/31/2011 - 23:30 | 1123974 NidStyles
NidStyles's picture

Screw that, get some flame retardant epoxy and made wall's of the stuff. Nothing like cotton to keep you warm at night.

Thu, 03/31/2011 - 21:38 | 1123722 dan10400
dan10400's picture

Does the unwinding of the SFP account for the big ramp from January '11?  Or is (yet) something else going on? 

Thu, 03/31/2011 - 21:47 | 1123723 tom a taxpayer
tom a taxpayer's picture

Can't touch this: Adjusted Monetary Base.

Thu, 03/31/2011 - 21:42 | 1123727 bbq on whitehou...
bbq on whitehouse lawn's picture

Everyone with a brain, knows this is going to go bad. Question is who is going to take the fall for it?


Thu, 03/31/2011 - 21:46 | 1123744 knukles
knukles's picture

You, me and Joe Sixpack.

Fri, 04/01/2011 - 01:09 | 1124170 werealldoomed
werealldoomed's picture

I was going to wait.. But since you called me out, I might as well come clean.


This whole thing is my fault guys. I should have never loaned Big Ben my printer.

Fri, 04/01/2011 - 09:12 | 1124688 LawsofPhysics
LawsofPhysics's picture

Everyone holding that paper.

Thu, 03/31/2011 - 21:41 | 1123731 Long-John-Silver
Long-John-Silver's picture

It looks like the Silver chart from the time the Hunt Brothers started buying Silver until now....

Thu, 03/31/2011 - 21:43 | 1123736 Spitzer
Spitzer's picture

The more the printing the worse it will be for the dollar when confidence is lost

Fri, 04/01/2011 - 04:48 | 1124332 malikai
malikai's picture

Confidence? Where? Who has confidence in the dollar?

Thu, 03/31/2011 - 21:45 | 1123739 Elliott Eldrich
Elliott Eldrich's picture

This increase in the adjusted monetary base is going to spark serious inflation once the velocity of money picks up. My big question is, will the Fed eventually step up to the plate and jack interest rates sky-high (ala Volcker) or will they instead allow the Dollar to inflate to nothing? Personally, considering how vital the Dollar is to the global economy, my money is on the Fed eventually stepping up to the plate and defending the Dollar with high interest rates. However, I don't see that actually happening for quite a while.

Thu, 03/31/2011 - 21:48 | 1123749 Long-John-Silver
Long-John-Silver's picture

They must kill the Dollar before they can implement a one world currency.

Thu, 03/31/2011 - 22:25 | 1123845 spankthebernank
spankthebernank's picture


Thu, 03/31/2011 - 22:49 | 1123889 JohnG
JohnG's picture

Nope.  It's a race to zero, and Ben's winning.

Hard times ahead.

Fri, 04/01/2011 - 09:15 | 1124694 LawsofPhysics
LawsofPhysics's picture

The Fed can not raise interest rates, it will push the government into default.

Thu, 03/31/2011 - 21:46 | 1123742 A Lunatic
A Lunatic's picture

Wouldn't launching Patriot missiles soak up a lot of excess dollars?

Thu, 03/31/2011 - 21:54 | 1123764 Long-John-Silver
Long-John-Silver's picture

Patriot missiles are used to shoot down incoming missiles. Tomahawk's are the missiles that contain 14Kg of unrecoverable Silver.

Thu, 03/31/2011 - 21:56 | 1123773 A Lunatic
A Lunatic's picture

Then couldn't we launch Tomahawk's at ourselves and then just shoot them down with Patriots? That makes the most sense.

Fri, 04/01/2011 - 06:36 | 1124363 Snidley Whipsnae
Snidley Whipsnae's picture

Nothing uses up commodities faster than war... Except a big earthquake plus tsunami plus nuke power plant melt downs.

The Fed/gov is jealous of mother nature.

Thu, 03/31/2011 - 21:55 | 1123774 Ahmeexnal
Ahmeexnal's picture

In the new crop of made-in-China Tomahawks, engineers replaced silver with credit cards.

Fri, 04/01/2011 - 00:00 | 1124052 Vernon Wormer
Vernon Wormer's picture


Thu, 03/31/2011 - 21:47 | 1123743 CheapKUNGFU
CheapKUNGFU's picture

look, its easy...

All your monetary base are belong to us, MAKE YOUR TIME!


Thu, 03/31/2011 - 21:52 | 1123748 Ahmeexnal
Ahmeexnal's picture

Yet if you show this simple undeniable evidence to the sheeple, you will provoke in them the same stare as the one from a bovine about to be striken by a high speed freight train.

As to why their response to imminent danger is denial, you only must but to look at the japanese and their now set in stone fate.

TEPCO will soon announce that along with the crippled reactors, thousands of highly radioactive corpses -and the highly radioactive "Fukushima fifty", some of them still alive- will be all entombed in a huge pile of concrete the size of Mt. Everest.


Thu, 03/31/2011 - 21:52 | 1123766 Caviar Emptor
Caviar Emptor's picture

They're coming. Wage and price controls. Commodities futures limits. You heard it here. 

Thu, 03/31/2011 - 22:00 | 1123786 A Lunatic
A Lunatic's picture

And shortly thereafter you will not be able to buy those twenty pound sacks of rice or beans at Costco any longer.

Thu, 03/31/2011 - 22:22 | 1123835 Dr. Porkchop
Dr. Porkchop's picture

The 'evil speculators' will be arrested comrade citizens! Line up for your bread! They have soup too, citizens!

Thu, 03/31/2011 - 22:27 | 1123850 Misean
Misean's picture

Well, boiled muddy water and scrappings from used vegetable bags, but it reduces the hunger pangs and it's cheap. You get a $1 bill as a napkin. Cotton and linen are very high brow, you know.

Fri, 04/01/2011 - 00:42 | 1124127 cossack55
cossack55's picture

Methinks you are correct, Sir.

Thu, 03/31/2011 - 21:54 | 1123772 alien-IQ
alien-IQ's picture

yet another chart busting through resistance...this is like...TOTALLY Bullish...totally.

rally on dude...

Thu, 03/31/2011 - 21:58 | 1123788 Rob Jones
Rob Jones's picture

Perhaps I am not understanding correctly. I thought that excess reserves represented money that was effectively out of circulation, so that an increase in excess reserves would tend to be deflationary. While Fed Assets represented money that the Fed has injected into the system, which would be inflationary. So wouldn't having excess reserves larger and growing faster than Fed assets be deflationary?

Of course, I am seeing evidence of increasing inflation everywhere now, so something must be wrong with my analysis above. Could someone please explain?

Thu, 03/31/2011 - 22:13 | 1123807 bullandbearwise
bullandbearwise's picture

It's very simple. There is no inflation. Price increases are being offset by hedging and discounts.

Thu, 03/31/2011 - 22:45 | 1123877 Matto
Matto's picture

Banks need reserves to lend or speculate. Commercial bank reserves are currency in the safe + reserve account balance with central bank so central bank reserves aren't neccessarily currency per se. Commercial bank reserves are only portionally in circulation through currency out of the bank at the time, a mere fraction of reserves and broad money. Banks reserves are ramping and its used in balance sheet expansion rather then lending hence inflation while lending slows.


Hope that helps

Fri, 04/01/2011 - 06:55 | 1124367 Withdrawn Sanction
Withdrawn Sanction's picture


If banks hold reserves, by definition, they are not lending.  One cannot hold reserves (or currency) and lend it out at the same time, ask Marie Antoinette.  Once a loan is made, the (former) bank's excess reserves are transferred to the receipient of the loan proceeds (or more likely, his/her bank account) through interbank reserves transfers or currency disbursement (unlikely).

While it is true, that banks need (excess) reserves to lend or speculate, the motivation for holding reserves is the deposit base (its liabilities), not its loans or securities (assets).

This difference is not merely semantic or technical, but goes to the heart of the Fed's problem:  it can pump liquidity into the system to its heart's content, but it cannot force banks to lend, and it certainly cannot force households and businesses to borrow.  This latter point is the principal reason the money multiplier is moribund.

The credit (lending) channel is clogged and pouring more liquidity into it does no more good than pouring more water into an already-clogged sink.  (The clog by the way are the masses of bad loans, which continue to grow to the extent they are not cleared and borrowers do not recover their ability to repay and their willingness to borrow.)

Thu, 03/31/2011 - 22:59 | 1123908 JohnG
JohnG's picture

"Or, in English, the cumulative differential plunge recently is hella inflationary (as the imminent subsequent reversion to the mean means money going out of reserves and into currency)."

Mean reversion is a bitch.  That bites.

Thu, 03/31/2011 - 21:59 | 1123791 lynnybee
lynnybee's picture

 ....... oh dear.   even i know that is not good.   i'm trying to explain things to my friends & family ~~ no one believes me & thinks i'm nuts.    the other day i got yelled at by a family member telling that everyone is sick of my "doom/gloom" .    it's not doom/gloom ....... it's the facts.    now, i just stack silver in private & have hide my foodstuffs so they don't laugh at the 200 lbs. of rice & 50 cans of chicken. ..... someday they will respect me .

Thu, 03/31/2011 - 22:27 | 1123847 Mr Anderson
Mr Anderson's picture

Make sure they apologize before your share your rice. Also, make them read an Econ 101 book before they get any chicken.

Thu, 03/31/2011 - 22:47 | 1123888 Matto
Matto's picture

Theres some good videos at its UK centric - but the banking finance system is the same around the world so it might help people get the message. Actually Chris Martensons Crash Course videos are A+ and simple to follow for showingh others.

Thu, 03/31/2011 - 22:56 | 1123897 Dr. Porkchop
Dr. Porkchop's picture

Don't underestimate your own ability to understand when you're being screwed. Your friends and family that aren't believers will be soon enough. Their common sense has been numbed by years of media onslaught. TV is like meth for the brain. Once they are able to see the hologram, and be aware of it, they will be able to see through it to the rotten core of the truth.

Stronger minds like yours have seen that something is wrong. Others aren't ready to be 'free of the matrix'. Eventually hunger will reveal the truth.

Thu, 03/31/2011 - 22:54 | 1123901 Bad Asset
Bad Asset's picture

I find it's easiest to break it to family members with select doom/gloom articles from fox news and cnn, as those are usually the only "credible" news sources to them.  I think the silver bears work too.

Thu, 03/31/2011 - 22:06 | 1123797 Forgiven
Forgiven's picture

If you follow the line in that graph you'll see it ends topped by a beautiful fireworks explosion.  :eyespoppinout:

Thu, 03/31/2011 - 22:12 | 1123806 Bansters-in-my-...
Bansters-in-my- feces's picture

Isn't "money"...good...?

Oh,right,thats toilet paper you'all talkin.

Thu, 03/31/2011 - 22:17 | 1123819 Bansters-in-my-...
Bansters-in-my- feces's picture

Hang in there lynnybee,it's your family and friends are nuts.

They are programed,and don't even know it.

You are obviously the normal one.

The Fuck Head Cartel,play a good convincing game that all is well.

Thu, 03/31/2011 - 22:18 | 1123825 Reese Bobby
Reese Bobby's picture

So in other words, the depository banks security holdings at the Fed are now lagging the security holding of the Fed, and the difference equals a potential 11X the differential increase in the money supply in the fractional reserve banking system?  I think?


Sometimes you should dumb this stuff down even more for people who aren't monetary system experts like yourself.


And for many of these commentators I think cartoons would be helpful...

Thu, 03/31/2011 - 22:24 | 1123842 Misean
Misean's picture

Close enough when you're pissing around 100's of Billions of Benny Bucks.

Thu, 03/31/2011 - 22:19 | 1123826 Rick Blaine
Rick Blaine's picture my beautiful balloon?

Thu, 03/31/2011 - 22:19 | 1123827 Yen Cross
Yen Cross's picture

You, Ladies and Gents can beat me up on this tread. I'm studing propulsion anyways. Short the EURO.

Thu, 03/31/2011 - 22:27 | 1123851 CheapKUNGFU
CheapKUNGFU's picture

Yen Cross, I am short EU at 1.4202 - I think the party is just about OVER for EuRoLaNd (see I used a little bonzai7 there... heh)

All your Up, Up, and Aways are belong to us, make your time...

muhfuggin shits gonna blow soon!

Thu, 03/31/2011 - 22:30 | 1123856 Misean
Misean's picture

I know the Rustock bot net used comment sections to communicate.

What are you up to?

Fri, 04/01/2011 - 00:47 | 1124135 JohnG
JohnG's picture


Thu, 03/31/2011 - 22:33 | 1123858 chump666
chump666's picture

ECB will have to lift rates soon...otherwise a contagion of riots will hit on food and oil costs (probably happen anyway)

rumor on a rate hike coming

Thu, 03/31/2011 - 22:21 | 1123828 Misean
Misean's picture

Yippe Kai Yay! Mother Fuckers!

Absolute desperation. Soak that liquidity up and collapse. Let 'er rip and game over for the dollar. Interesting times in friggin' dead.

Thu, 03/31/2011 - 22:27 | 1123846 chump666
chump666's picture

It's a bad joke...

Money that goes straight to trading decks, the FED also is responsible for narrowing CDS spreads in Asia, so they can borrow more and throw that into the market.

Totally out of control.

C'mon on sleeping dragon (China)...time to get pissed as a massive wave of inflation  will hit you around about now.


Thu, 03/31/2011 - 22:28 | 1123852 chump666
chump666's picture

look at the f***ing AUD/JPY...crazy.  Ah oil...keep going up baby, cushing? nothing to do with that Asia. 

Thu, 03/31/2011 - 22:34 | 1123859 Yen Cross
Yen Cross's picture

It's real money end of month flows. Remember repatriation was in place with exporters before the QUAKE.

Thu, 03/31/2011 - 22:31 | 1123853 Yen Cross
Yen Cross's picture

Missean, I respect your thoughts. China is on the edge of implosion!

Thu, 03/31/2011 - 22:37 | 1123865 Misean
Misean's picture

Ever since the real estate bubble popped.

Thu, 03/31/2011 - 22:30 | 1123855 chump666
chump666's picture

Then there is TEPCO crying out for a Japan will go into a inflationary depression


*Spreads on Tokyo Electric Power’s outstanding bonds continued to widen this week. By Thursday, the EUR1bn 10-year due 2014, Tepco’s biggest offshore bond, was still quoted at between 92 to 93, while the spread widened to Libor plus mid-400s from last week’s mid 300s. The longer SFR300m 7-year due 2017 was trading in the mid-80s with spreads at L+343bp/240bp (last week: asset swaps plus 266bp and Z-spread of plus 300bp). The shorter SFR300m 2012 was trading slightly lower at 96/80, compared to last week’s 98.50, on L+458bp/423bp.

Thu, 03/31/2011 - 22:37 | 1123868 Adavenditure
Adavenditure's picture

Basic question: Fed prints money, or Treasury Dept. prints it? Have gotten opposite answers from diff. experts.

Thu, 03/31/2011 - 23:12 | 1123927 JohnG
JohnG's picture


Neither actually, or both sort of.  Treasury issues debt (money) that the Fed sells as bonds, and bills.

But wait theres more:

It is imagined.  The Fed types in some numbers on a computer and offers the electrons as "bonds" at auction.  These are "bought" with some more typed in numbers, and thus money is "created."  It's a debt-money system.  Debt must be "created" into money.

And I am not being at all facetious, this is what actually happens.

It's like Disneyland.

Thu, 03/31/2011 - 23:13 | 1123937 AmazingLarry
AmazingLarry's picture

The Chairsatan himself, he understands it better than anyone:

But no, the Fed would never print physical money, they're a private corp. They outsource to the public sector (US Treasury) for that. 

Thu, 03/31/2011 - 22:44 | 1123878 reader2010
reader2010's picture

We need a Top Kill for this.

Thu, 03/31/2011 - 22:52 | 1123885 Atomizer
Atomizer's picture

"The Federal Reserve will not monetize the debt."


"Looks Like Magic"

1988 - Somethings never change >>

Ministry - The Land Of Rape And Honey

Thu, 03/31/2011 - 23:03 | 1123920 blindman
blindman's picture


Max Keiser on Inside Story: UK March for an Alternative March 29th, 2011 by stacyherbert

bailout = cover up of banking fraud. 

end the fed

Thu, 03/31/2011 - 23:18 | 1123921 TruthInSunshine
TruthInSunshine's picture

One of the writers on Zero Hedge should take the time to explain the mechanics of how the Federal Reserve's actions, especially of the past 20 months or so, have been inflationary.

Before anyone leaps to thrash me for committing the sin of defending Federal Reserve Policy, please note that I am not. By contrast, I believe that the Fed's policies have genuinely sparked a rush into speculation in everything from equities to commodities (though I attribute this far more to ZIRP than any other aspect of Fed policy), which has actually stoked inflation and inflationary expectations going forward, and that at this time in American Economic History, this inflation is incredibly destructive from a household balance sheet perspective (since wages are sticky, unemployment is very high, organic economic growth is weak, yet the cost of living is rising at a pace that is damaging to household wealth).

However, it's one thing to insinuate that The Federal Reserve is directly increasing the money supply, with said excess money causing inflation, and an entirely different thing to show the mechanism as to how this is happening, and how it increases the rate of inflation, proving it by elemental facts.

This is the type of thing that drives me crazy with some of Marc Faber's proclamations, also. He says Bernanke keeps printing and will always print, but when one looks at the best evidence available, Bernanke is not actually printing...he's utilizing the Federal Reserve's Balance Sheet to absorb as much as 70% newly issued treasuries, which does have the effect of bringing down yields on treasuries at the margin (as rates would presumably have to head higher to attract buyers other than the Primary Dealers - who know in advance the Federal Reserve will purchase these treasuries from them).

One could make an argument that the government would be more constrained in its ability to deficit spend if it did not have an entity such as the Federal Reserve guaranteeing a 'take down' of as much as 70% of newly issued treasuries at auction, as more market oriented participants at such auctions would demand higher yields before buying these same debt issuances, but I'm not convinced that this is necessarily true, either.

As far as the charts above are concerned, there were critical changes made to the policy of dealing with "excess reserves" in 2008, via Section 128 of The Economic Stabilization Act of 2008, and I won't argue whether these "excess reserves" are or are not inflationary when they are at high levels, because there really is good faith debate about that (I guess someone here could sucker me into that debate if they tried hard enough, though I am somewhat agnostic on the issue, since the amount is de minimis compared to the overall economy and total money supply), but I will hasten to add that these "excess reserves" are very volatile, and as one example, they stood at 800 billion at the end of 2009 but shrunk to 600 billion a mere 2 weeks later.

Again, I do not wish to defend the calamity that I believe Federal Reserve Monetary Policy has become.

I think credible attacks on Federal Reserve Policy should focus on its demonstrable error, which in the case of inflation, inflationary expectations and malinvestment of capital (leading to speculative bubbles and so forth), is far more attributable to Zero Interest Rate Policy (or close to it) than "excess reserves."

By focusing on the wrong lever of any alleged cause, when attempting to demonstrate correlation, one may lose credibility before they ultimately settle on a much more logically appropriate causative factor.

"Excess reserves" as a catalyst of inflation or inflationary expectations is a far weaker causative corollary than ZIRP, IMO.

The rate of change of excess reserves from month to month or quarter to quarter (or even YoY) is necessarily somewhat moot if my assertion above is factually correct.

To the degree it matters, I am extremely bearish on the economy mainly due to the lack of job growth or wage growth (in fact, I would argue we are going to see a re-acceleration of job losses by Q3 of this year).

Those pundits obsessed with the dismal state of the housing markets should recaliber their energies and engage in discussion about the sad state of job creation and wage growth in the U.S., as housing is merely a derivative of these factors, and not a means and ends unto itself.

That Bernanke is still maintaining ZIRP, and at least not setting the table for rate hikes in the near future, given that ZIRP is NOT an effective monetary policy tool at this time, but rather, ZIRP is very likely to cause a further retrenchment by consumers when it comes to discretionary purchases, which will slow the economy much further (negating any arguable beneficial effects, on balance, and by a wide margin), is a real cause for concern.

Thu, 03/31/2011 - 23:25 | 1123959 Matto
Matto's picture

My theories here if they help:


1. Deficits financed via new money creation are inflationery to the money supply.

2. Reserves are not as volatile as the credit leveraged off it, they are the base.

3. Extra reserves bring down the cost of lending as the banks borrowing is to 'make good' its reserve ratios after the fact.

4. Reserves can be used to speculate rather than lend - hence you can have banks using their reserves while the lending ratios diminish.

5. I'd argue that even a small amount of reserve usage for base commodity speculation could highly inflationary - the ability to move the core costs of living via a relatively small investment in the futures market could give the banks a big bang for their bucks.

6. The percieved money printing to build reserves has the effect of dropping the value of the USD which causes domestic prices to rise along with prices for goods quoted in USDs. It can also speed up repudiation of the USD which has been steadily pouring into 'inflationery sink holes' for near on 100 years, and this is where the real danger lies.


Thu, 03/31/2011 - 23:32 | 1123979 Matto
Matto's picture

7. QE2 proves the systems is fucked. Everyone knows there is no way out, inflation expectation + + +

   > Same goes with ZIRP, ZIRP being the canary in the coal mine, QE being the lights going out.

Thu, 03/31/2011 - 23:37 | 1123992 bullandbearwise
bullandbearwise's picture

They're not real excess reserves. The banks are expected to take down the Fed's balance sheet when they start performing again. Hope springs eternal with these eggheads.

Thu, 03/31/2011 - 23:41 | 1124005 Matto
Matto's picture

Yeah that's the line. As we know it can't happen as QE can barely stop without a crash, let alone a reversal where the fed sells back its assets.


Like you say below - its open market deflation being countered by outright money creation leading to the devaluation of said money.

Fri, 04/01/2011 - 00:09 | 1124074 bullandbearwise
bullandbearwise's picture

But it's not outright money creation because it's not being used. So the original state, deflation, remains in effect and, is in fact, getting worse as the non-borrowed reserves continue to build.

The other term for this is liquidity trap. And trapped the Fed is. Which may be why it may not get to see its 100th birthday.

Fri, 04/01/2011 - 00:14 | 1124089 Matto
Matto's picture

'Selective money creation' - make the banks good but hang everybody else.



Fri, 04/01/2011 - 00:31 | 1124104 TruthInSunshine
TruthInSunshine's picture

Basically, that's what Bernanke is doing, IMO (with a kicker that he got stocks bubbly, again - feels so good until it reverses, the virtuous circle become vicious).

Bernanke is out to save the asses of what are now TBTF banks & financial actors that he claims still present a systemic risk to the U.S. economy.

I echo your sentiment. It's bullshit.

From an organic growth and free market perspective, he's essentially damning what could be far more growth and opportunity by far more participants, because he's subsidizing the past, present and future sins of a few that he has deemed TBTF.

Hardcore capitalism really would have allowed AIG to fail. So what if Goldman & JP Morgan would have lost massive cash or would have failed due to their counterparty risk?

The free market would have sorted it out.

We're waaay too reliant on financial services in the U.S. Sorry, Chuck Schumer, this is a competitive disadvantage, not a comparative advantage.

Fri, 04/01/2011 - 00:33 | 1124114 bullandbearwise
bullandbearwise's picture

I'm afraid to say if they had been allowed to fail, there'd be tanks in the streets now. Given an option between tanks in the streets and pretend and extend, which choice would you, in their position, have taken?

Fri, 04/01/2011 - 00:36 | 1124119 TruthInSunshine
TruthInSunshine's picture

I don't agree.

I know that Congress was allegedly threatened with some type of doomsday, Martial Law scenario, but c'mon, do you really believe that a) many of them didn't report this in an attempt to cover this ass for voting for TARP, or b) anywhere close to as many banks (as a %) would have fallen as they did back in 1933?

It was all a dark sales pitch to get TARP through and to bail out AIGs counterparties, and to give a massive cushion to some deeply derivative exposed actors like JPM and GS.

I firmly believe that raising FDIC limits on deposits would have been more than enough to stem the crisis, as the crisis being sold was "a run on the banks."

Fri, 04/01/2011 - 00:50 | 1124140 Matto
Matto's picture

Unfortunately it wasn't a run on the banks, it was that their assets fell below their liabilities and then all trust was lost between them which shut down the interbank lending markets and meant they couldn't access the reserves needed for the leveraged positions they had gotten into.


A depositors run as we think of it won't happen now as the fed will just swap the electronic bank credit for cash and you'll be on your way. It may take a bank holiday while they order the cash but when they re-open the cash will be there.


Fri, 04/01/2011 - 00:52 | 1124143 Matto
Matto's picture

wow. long sentence. sorry.

Fri, 04/01/2011 - 00:44 | 1124132 Matto
Matto's picture

The kicker in maintaining equities is that it keeps the sheeple napping. They won't wake up while markets appear to be doing the right thing so the looting continues unabaited.


For me it all become clear when i realised that the fed's shareholders are primarily JP morgan and GS amongst a few others. these are number 1 'friends of the fed' - the regional banks allowed to collapse indescriminantly arent. These guys always get the kicker and come out on top - this is where the real money is made, not at the fed itself. the fed is the tool of its shareholder TBTF banks and as such operates in their interest while maintaining a semblance of market stability to allow the looting to continue.


Unfortunately if the system collapses we are likely just to reinstate the same one or something even worse in the hope of security - thats the real problem with media concentration - zero descent & zero real information. Letting them fail in this system will be unlikely to fix anything as our 'capitalism' is esentially a racket operated for the big guys at the top of the pyramid, so you can change the players but without changing the system nothing different will arise.


bring back a gold standard along with full reserve banking,, and end the fed while you're at it!




Thu, 03/31/2011 - 23:43 | 1124006 Matto
Matto's picture

Yeah that's the line. As we know it can't happen as QE can barely stop without a crash, let alone a reversal where the fed sells back its assets.


Like you say below - its open market deflation being countered by outright money creation leading to the devaluation of said money.

Thu, 03/31/2011 - 23:43 | 1124016 TruthInSunshine
TruthInSunshine's picture

"Excess reserves" are actually a liability, as they're deemed unproductive cash or cash equivalent assets, because they are not required to be held according to capital standards promulgated by The Federal Reserve.

So, essentially, they just sit around, doing nothing.

I hate guessing, but if I had to, I'd venture a hypothesis that the reason why "excess reserves" are at the levels they are, in reality, is because the banks holding them are in deep trouble given their ongoing and relentless exposure to losses in real estate backed paper.

Thu, 03/31/2011 - 23:30 | 1123969 chump666
chump666's picture

he is In simple terms the FED floods the world with USD's, in every way you can imagine.  UST buying monetizes the debt, swaps and the like spread the love.  POMO is intrusted via investments banks/brokerage firms etc.  Hedge funds buy up block trades in USD denominated stocks. A FED supported inflation hedge trade eg sell USD buy stocks

What Faber says for the small fry trader/s is stay long stocks, as long as the FED prints, which they have to do forever because of UST interest rates have to stay low (re: unrealized losses).  Until the system collapses and resets back to a zero.

The question is how will the system reset?  It's looking like a war, from an extremist protectionism to actual conflict.  Trade collapses etc


Thu, 03/31/2011 - 23:38 | 1123997 TruthInSunshine
TruthInSunshine's picture

If the Federal Reserve has been monetizing 70% of U.S. deficit spending (via purchases of U.S. Treasuries), these debt denominated assets accrue on the Federal Reserve's balance sheet at the end of the day, and are captured there, no?

Time will tell what happens to the Fed's balance sheet, but it's neither here nor there that Bernanke wishes for scenario A or B, because once the Federal Reserve buys that Treasury Note, it either sits on its balance sheet until maturity, or is sold off into the open markets, and as far as I know, the Federal Reserve has not been selling of the Treasury Note portion of its balance sheet.

Thu, 03/31/2011 - 23:46 | 1124022 Matto
Matto's picture

If the fed sells the treasuries back on the market it represents taking surrency out of the system - the exact opposite of what they are trying to achieve. We have massive deflationary forces at play that the financial system cannot handle so its print baby print!


The treasuries get captured on the feds balance sheet but the money used to purchase them is out and in the markets - inflationary difference between deficts funded by savings and deficits funded by fed purchases.

Fri, 04/01/2011 - 00:10 | 1124051 TruthInSunshine
TruthInSunshine's picture

First, the Fed may very well lose USDs (in other words, USDs will be destroyed) in the process of unwinding their UST holdings. This will happen if their respective yields rise on the same maturity date issuances.

Second, even if the Fed makes a profit unwinding this portion of its balance sheet, it has to remit all profits to the United States Government annually, minus a statutory dividend of 6%.

Fri, 04/01/2011 - 00:17 | 1124097 Matto
Matto's picture

A. Why unwind? The market can't handle it as it is, can't imagine that will change anytime soon.


B. Why does the fed need to make a profit - they control the money supply so who really cares about a profit here or a loss there? Its about power and control, not making $$ on trades.

Fri, 04/01/2011 - 00:28 | 1124109 Matto
Matto's picture

Correction - its about maintaining the system that allows the stripping of the productive capacity of nations, along with the associated power and control that includes, not making $$ here or there. The units of currency don't matter so much as the maintenance of the system.

Thu, 03/31/2011 - 23:34 | 1123983 bullandbearwise
bullandbearwise's picture

The entire episode is basically a side car operation. The Fed took in bad paper in exchange for bank reserves the banks can't use. The banks will gradually use the non-borrowed reserves to buy back the bad paper, hoping that it somehow starts performing.

This is massively deflationary and, in fact, effective bankruptcy.

Fri, 04/01/2011 - 07:14 | 1124375 Ghostbusters
Ghostbusters's picture


if they woulda failed some time ago (AIG, C, MS, GS, WFC, etc.) then there woulda been tanks in the streets, ok?  Now you say the banks are effectively bankrupt so then are they going to fail or are we to continue the nationalization or internationalization, if you will?  you dont have the answers but i thought it a bit contradictory, no? If the tanks came to the streets would this be a good sign or a bad sign and for who?

I think we oft forget about the things that have occurred aside from QE like you said the FED taking bad paper off the banks' books, the guarantees, mark to model, 0.25% rates, etc.  The system is so fatally flawed the sooner the people say no, bring tanks to the streets, or find other means to effect real change the better.  The system is effectively suffocating the middle the class, subsidizing the poor, and enriching the elite or did I miss something?  The Tank Sgt is probably underwater too so will he side with the people or the Corporatists?  Patriotism is one thing but stupidity is another and I think believing in recovery in the wake of past events is ridiculous.  Recovery for who?  How much longer can people stand to pay on an underwater, overvalued, incorrectly priced, manipulated mortgage?  Why would you continue to pay on a mortgage that was fraudulently created by F'in chairsatan and his gang during the 'good ole days?' 

Now we have another war(oil), Japan is disabled for the foreseeable future(int'l suppply chain), and Europe is still insolvent(hmmm not good).  This all the government, cororations', and banks' fault but the leaders havent taken a hit yet?  Why would a logical person, the minority, continue to pay taxes into the world's greatest ponzi or to the banks?  You get taxed twice everywhere you turn taxes, commissions, fees, and this is ok?  What do you receive in return?  If the government is for the people by the people then when will the people take it back?  If there is a recovery as some like to espouse then raise rates and take away the bandaids...we dare you! 

Fri, 04/01/2011 - 10:27 | 1124995 bullandbearwise
bullandbearwise's picture

Ghost, I agree with everything you say. But put yourself in the shoes of someone in charge, like the Fed Chairman, Treasury Secretary, Congressman or President. Are you going to take action to sink the system or push the problem forward?

Fri, 04/01/2011 - 07:44 | 1124391 plocequ1
plocequ1's picture

What the fuck is there to explain about the fed? They press the button and the market goes up. Its really not that hard. Zirp, H&S, Charts, M2, The Deficit... Who cares?

Thu, 03/31/2011 - 23:12 | 1123929 ThirdCoastSurfer
ThirdCoastSurfer's picture

  1.  ...for (about 12,000 depository institutions) reserve maintenance periods beginning January 8, 1991, depository institutions with net transactions deposits less than about $135 million are moved from the first group to the second... 
  2. ...Finally, the aggregate reserve adjustment magnitude is calculated for each week (or reserve maintenance period) by summing the individual reserve adjustment magnitudes across all depository institutions in the first group. Nothing is included in RAM for depositories in the second group."

Thu, 03/31/2011 - 23:35 | 1123981 Matto
Matto's picture

Been getting waves TCS?

Thu, 03/31/2011 - 23:34 | 1123980 chump666
chump666's picture

But Faber (who i have a hell of respect for as he travels the world and gauges the market very well) mentioned that their would be a major overbid of equities via massive market monetisation eg Japan...then war.

We could be in that cycle now...even if QE3 is delayed, the USD swaps will continue as will increases money supply from other central banks.

The conflict trigger is oil...if Obama puts troops on the ground in Libya, should cause China to flip

Fri, 04/01/2011 - 00:00 | 1123996 Arkadaba
Arkadaba's picture

Edit: Missed that someone else posted this above. 

And love this too:

Thu, 03/31/2011 - 23:45 | 1124015 PaperWillBurn
PaperWillBurn's picture

Reference Point Revolution


How can the $ remain the global reference point when it's supply grows so rapidly?


Thu, 03/31/2011 - 23:49 | 1124030 TruthInSunshine
TruthInSunshine's picture

Look at how quickly China's Central Bank is printing currency, or a myriad of other nations, for that matter.

Wait and see what happens with Japan (on top of what they've already done).

Then, there is that whole issue of exports. Where they end up. The USD is still the reserve currency because there's not a single developed nation (and nary a developing one) that would be able to withstand the alternative.

Fri, 04/01/2011 - 00:06 | 1124060 chump666
chump666's picture

yeah Asia is printing, Thai floods recently etc.  All central banks are feeding into a inflation loop now.  What is interesting is the FED will support these money print effots, or course feeding the inflation monster as the USD is tanked. 

Totally FUBAR is you think about it, Asia doesn't produce oil it's a net importer.  USD goes down oil up, inflation riot/turmoil.

The mind boggles.  As far as traders, what the hell you hedge.  Tight puts on USD, calls on high yielders and long stocks.  Overbidded market though

Fri, 04/01/2011 - 00:05 | 1124064 chump666
chump666's picture

One theory is that if we get a mid yr correction China goes down the toilet say in June.  They start printing like crazy and then there is a mega dip buy, after double diget % correction.

Fri, 04/01/2011 - 00:16 | 1124095 CitizenPete
CitizenPete's picture

This chart is totally misleading. As you can see it is seasonally adjusted.  Everyone know this is the season for monetary expansion, so you can just ignore the increase. The Bernake has got it under control, he can stop inflation in 5, 10 or at the most 15 minutes. 


OH look, silver spot is up again. 

Fri, 04/01/2011 - 00:57 | 1124151 Money Squid
Money Squid's picture

Is there anyway to get a fix on the true budget - OMB balloney plus all the money for the black programs of the intellegence and military programs and the economic warfare programs? The money borrowed by the Treasurey, plus officially printed by the fed, is tracked (to some degree), but is there anyway to get a decent estimation on the total amount the US acually spends, therefore the total amount of money the US acutally borrows and the true deficit and national debt?

Fri, 04/01/2011 - 01:13 | 1124175 TruthInSunshine
TruthInSunshine's picture

As you know, debt and deficit are two vastly different things.

Deficit = annual amount spent by government that exceeds revenue of government.

Debt = accumulated past deficit spending of government.


Best guess estimate of deficit spending is pretty close to government's projection, so it's what...1.8ish trillion this year?

Debt estimates vary wildly. U.S. says it's 14 trillion. David Walker, former Chief Comptroller of the U.S, says it's 60 trillion. Laurence Kotlikoff says it's 202 trillion (Walker & Kotlikoff incorporate future entitlement spending into their measures, while U.S. Government basically disregards these mandatory expenditures for future years).

Fri, 04/01/2011 - 01:36 | 1124202 Money Squid
Money Squid's picture

If 2.3T of money can dissapear so easily, how much of the money for black programs, which is not even in the official budget just goes straight into secret bank accounts, and is there anyway to figure out how much money is actually being spent and printed into existence each year? Or, is there a separate set of books, or even a need for a separate set of books, to keep track of all the "money"?

Fri, 04/01/2011 - 02:11 | 1124226 chump666
chump666's picture

just in...nice Japan's crappy leaders want to the Japanese taxpayer to bail out the zombie company Tepco

*WSJ: The Japanese govt is considering financial aid to the troubled Tepco, through an injection of public funds or debt guarantees. "Unless the govt takes such a step it will be difficult for Tepco'' over time to secure necessary capital, Masayuki Sudo, a spokesman for Nuclear and Industrial Safety Agency, said in an interview. Tepco's viability is crucial for the safety and economic security of the residents.

*NKS:Tepco shares tumbled at one point, the stock was down 14%, sliding below Y400 for the first time since Jan16, 1952

Fri, 04/01/2011 - 06:00 | 1124352 StychoKiller
StychoKiller's picture

Why throw good yen after bad?  TEPCO is toast!

Fri, 04/01/2011 - 09:21 | 1124723 Bastiat
Bastiat's picture

The Chinese see that chart too and have for some time.  They will buy all the silver and gold that can be delivered.

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