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Atlantic Capital Musing On Radical Money Policies And The Radical Adjustments That Must Follow

Tyler Durden's picture




 

Atlantic Capital Management submits the following extended report on recent developments in the monetary arena: "The Federal Reserve System operates monetary policy as if economic activity during the asset bubbles was representative of true economic potential. To the Fed, the Great Recession has pushed economic activity so far below that potential it can stimulate with zero interest rates and quantitative easing well into the future, even after two years of it already. We believe the Fed is mistaken for the reasons contained in this report. Chief among them is that The Great Recession actually brought the economy back down toward its true potential. Further than that, it is likely that the current weak recovery is still running above true potential, and that is leading to a wide array of problems. Inflation pressures are the biggest."

MONETARY POLICY GOES “ALL IN” ON A WEAK HAND:

Radical Money Policies And The Radical Adjustments That Must Follow (pdf)

April 2011 Special Report

 

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Wed, 05/04/2011 - 22:27 | 1241758 gwar5
gwar5's picture

Is Bill Gross now the CEO of Atlantic Capital, too? Atlantic better beware the Bernanke. And Timmah...

Wed, 05/04/2011 - 22:32 | 1241775 km4
km4's picture

MONETARY POLICY GOES “ALL IN” ON A WEAK HAND

Spot f*cking on ;)

Wed, 05/04/2011 - 22:42 | 1241785 Dr. Acula
Dr. Acula's picture

>it is likely that the current weak recovery is still running above true potential

GDP is growing according to the government's manipulated data. But in reality GDP has been negative, in accordance with people's common sense: http://www.shadowstats.com/alternate_data/gross-domestic-product-charts

This isn't a recovery, but rather a slow grinding decline into poverty.

And the true potential for the economy is much worse: a massive contraction and forced austerity.

The Treasury and Fed have grossly distorted the structure of production through their monetary pumping and socialist TBTF redistributions. The result is massive malinvestments that need to be liquidated. Likely, government motors needs to be liquidated as it is an engine of wealth destruction. Unfortunately, capital is not homogeneous, liquid, and fungible. Capital is tied up in partially finished projects, completed buildings and factories that should not exist, etc. Unwinding this mess and returning to a sane structure of production will prove to be extremely expensive.

Wed, 05/04/2011 - 22:49 | 1241817 Caviar Emptor
Caviar Emptor's picture

They came so close to just saying the word....Biflation. It's all that they're describing and trying to communicate, put into a single word. 

Wed, 05/04/2011 - 23:37 | 1241903 AccreditedEYE
AccreditedEYE's picture

You have called this from the very start and been spot on Caviar. They keep thinking that more money will fix the problem, but really they amplify the hurt we will have. You cannot have real recovery without real demand. This ends in tears: The Fed has painted itself into a corner and we are about to see where interest rates should be ex-fed intervention. BEN- YOU CANNOT STOP THE CYCLE OF NATURE.... you studied how to stop it... but you never asked if there was a REASON for it. It will come...you can delay it, but not stop its arrival.

Thu, 05/05/2011 - 00:11 | 1241972 Cursive
Cursive's picture

@AccreditedEYE

They keep thinking that more money will fix the problem, but really they amplify the hurt we will have. You cannot have real recovery without real demand. 

So true.  The money is only exacerbating the problem.  If only we weren't collectively worshipping the false god of modern finance at the expense of producitivity and personal happiness.

Thu, 05/05/2011 - 00:59 | 1242050 AccreditedEYE
AccreditedEYE's picture

Amen Cursive. It ends.. as we know it. Life goes on.. but not as we knew it.

Thu, 05/05/2011 - 07:41 | 1242355 Miss Expectations
Miss Expectations's picture

"By disabling self-correction, the Fed has made it impossible to ever unwind its control."

It seems that Dr. Bernanke has done what bad doctors do.  The patient has a fever, diarrhea and a cough.  What we get are fever reducers, kaopectate and cough suppressants.  So, the healing process is derailed and the sick patient remains drugged and bed ridden.

Wed, 05/04/2011 - 22:54 | 1241827 buzzsaw99
buzzsaw99's picture

HOO_EEE!! Thank the Lloyd for those speed reading classes! I could write a blog post on this paragraph alone:

Chiefly,ZIRP itself has allowed banks to reduce their overall balance sheets while maintaining profitability. Because the yield curve is steep(pinned at the short end by Fed policy) banks can make more money on a smaller asset base...

True, but they would love to make fees from selling junk securities if only there were still buyers. Also, much of their "asset base" is off balance sheet for good reason.

And while default rates on consumer credit and mortgages have fallen recently, they are still extremely high relative to pre-crisis levels. This makes riskier loans in the low interest rate environment unappealing to lenders. Risk is so mispriced and banking so distorted that risk-takers only search for yield within the sovereign debt class rather than move beyond it...

Hoisted by their own petard. Artificially hold rates down to elevate asset values, sell the losers to the fedres and fedgub agencies, then gripe because they aren't being compensated for holding risk on the balance sheet. tsk tsk What's a poor banksta to do?

Wed, 05/04/2011 - 22:58 | 1241833 buzzsaw99
buzzsaw99's picture

As for malinvestment that rather depends on which slice of the bonus pool-pie you happen to be eating from.

Thu, 07/28/2011 - 07:47 | 1500588 khabmj
khabmj's picture

We will see rampant Inflation, Interest rate hikes and wage increases if an economy is strong. Strong economies will retain their standard of living, whereas standards of living within weak economies will decline rapidly.No wonder we are going to the DOGS.

 

the best pills

Wed, 05/04/2011 - 23:09 | 1241854 DOGGONE
DOGGONE's picture

I'm in agreement with much/all.  'They' hide the inflation-adjusted past to fool the sheeple.  Please see this 3 days ago OpEd:

PAGE 1
http://homepage.mac.com/ttsmyf/the_durango_herald_20110501_E01.pdf
PAGE 3, continuation
http://homepage.mac.com/ttsmyf/the_durango_herald_20110501_E03.pdf

 

PLEASE get these charts ongoingly in the faces of the people!!!

Thu, 05/05/2011 - 04:34 | 1242219 Lord Welligton
Lord Welligton's picture

Interesting analysis.

Wed, 05/04/2011 - 23:13 | 1241874 trav7777
trav7777's picture

throw some dollars at Ghawar

Wed, 05/04/2011 - 23:29 | 1241899 ThirdCoastSurfer
ThirdCoastSurfer's picture

Adam Smith would be very proud of this article!

"the quantity of money has no effect on real demand" 

"how money flows is more important than quantity"

"a dollar is nothing more than a means of exchange"

 

 

 

Wed, 05/04/2011 - 23:44 | 1241929 candyman
candyman's picture

+1

Thu, 05/05/2011 - 00:07 | 1241962 slewie the pi-rat
slewie the pi-rat's picture

malinvestment; socialist redistributions; biflation.

capital which was meant for investment was stolen by means of fraud, via leverage, lying and bonuses.  when the smoke cleared, the political decision was made to leave these assholes in charge, rather than to face the crimes and the losses. 

now, after trillions of FRNs, the "economy" appears to be slowing, even in terms of inflated "sales" in nosediving "dollars".  maybe bullwinkle can cheat and pull a rabbit outa his sleeve...that damned hat is $3 tril in the hole, here! 

and full of monsterZ!

Thu, 05/05/2011 - 00:31 | 1242009 strannick
strannick's picture

Malinvestment, exactly. And also, those who get to use the newly inked FRNs first, the banks, get the biggest bang for the buck. By the time Elmer Fudd's using that same note to buy his Nachos at the 7-11, the jig is up and everyone recognizes the note for the wheelbarrow liner that it is.

Thu, 05/05/2011 - 00:20 | 1241993 strannick
strannick's picture

Thank you ZH. Truth doesnt need a reason.

Thu, 05/05/2011 - 00:33 | 1242005 TwoShortPlanks
TwoShortPlanks's picture

For about a month now I've been saying that the Fed intends on allowing a Flash Fire to run through the system via a US$100B/mth Credit Contraction (QE end). This will lead to a Credit War on the open market and crash the remaining Real Estates Bubbles where sellers refuse to mark-down to clearing mechanism prices, also burn-offs of speculation within Equities and Commodity Markets will re-set markets to lower than correct levels...good opportunities to BTFD post fire.

We will see rampant Inflation, Interest rate hikes and wage increases if an economy is strong. Strong economies will retain their standard of living, whereas standards of living within weak economies will decline rapidly.

PMs, PMs, PMs, PMs, PMs, PMs, PMs, PMs, PMs, PMs!!!!!

Price is of no concern, only amount of physical has any meaning.

Thu, 05/05/2011 - 00:43 | 1242027 Questan1913
Questan1913's picture

Dr. Acula in a few words describes our present condition with exceptional accuracy.  Anybody listening?

Thu, 05/05/2011 - 01:16 | 1242075 michigan independant
michigan independant's picture

preaching to choir on mal bi decent

Thu, 05/05/2011 - 01:20 | 1242079 vainamoinen
vainamoinen's picture

"Organic Demand"

It's what's missing both in China and the US.

Do foie gras geese die of natural causes or are they butchered at just the right time?

Either way they end up dead - - -

Thu, 05/05/2011 - 01:23 | 1242085 Shell Game
Shell Game's picture

Tyler,

Not the first to suggest that the 'flag as junk' button does more harm than good here.  Too many intelligent comments offering a, perhaps, contrary opinion are junked.  It seems beneath ZH to tolerate or embrace this confirmation bias phenotype by offering a junk button but no 'agree/like/props' button.

My 2 cents..

Thu, 05/05/2011 - 01:34 | 1242101 Bringin It
Bringin It's picture

It's just more information.  Deal with it.

Thu, 05/05/2011 - 01:43 | 1242109 Shell Game
Shell Game's picture

Here's some information:  small-minded folk fall in line with bias.  Deal with it.

Thu, 05/05/2011 - 07:18 | 1242315 Bringin It
Bringin It's picture

Well then try not to be small minded.

Thu, 05/05/2011 - 13:49 | 1244100 Shell Game
Shell Game's picture

I try, every day I try, amigo..

Thu, 05/05/2011 - 01:51 | 1242118 JW n FL
JW n FL's picture
by Shell Game
on Thu, 05/05/2011 - 01:23
#1242085

 

Tyler,

Not the first to suggest that the 'flag as junk' button does more harm than good here.  Too many intelligent comments offering a, perhaps, contrary opinion are junked.  It seems beneath ZH to tolerate or embrace this confirmation bias phenotype by offering a junk button but no 'agree/like/props' button.

My 2 cents..

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

You are correct.. 100% correct.. but here at zero the mass.. is beyond par in multiples.. whether anyone cares for the language or structure is another topic..

but the mass here, is like the mass out there.. that is it will run over anything it wants when it wants..

now the biggest suprise to me (forgive me for taking the long way around) was that after everyone had good information.. that should have banded us all together as Brothers with a Cause to Right Our Beautiful Country.. be hero's even!

Instead we got fragmented and yelling matches.. with the facts palinly laid out by some fan-fucking-tastic writters! God Bless them ALL! but none the less, spit ball fights!

I fear we are doomed, the like or dis-like button is a lie.. we would like to believe that reason, logic and dare I say fact may reign supreme.. like a Huge Soft Taco with 10% meat and lots of sour creme'! but alas! twas not to be!

Thu, 05/05/2011 - 05:42 | 1242253 goldfish1
goldfish1's picture

Not to concern yourself with junks unless you're a shill. I don't pay any attention to them for the most part.

Thu, 05/05/2011 - 06:04 | 1242259 EvlTheCat
EvlTheCat's picture

Not bashing you at all for your suggestion, but it seems to me people place to much importance on junk.  I have only been here a short time and over the course of those months I just stopped looking at the stupid thing (unless I am drinking) and pay attention to the comments.

All right I lie, I love looking at how many times Robo and Harry get junked.  Even though Harry is MIA.

To many trolls are just coming into each thread as they are released, and mass junking for no other reason then to be douchebags. I like the junk system never the less, because if you don't take it seriously, it makes for one hell of a drinking game on the weekend.

I have never stopped myself from reading a comment because it has been junked 32 times.  Have you?  On the contrary, it's human nature to stop and look at the horrific accident on the side of the road.

Keep it, get rid of it, it should not matter,  it's the content that counts.

P.S. It has never stopped me from reading your fine comments.

 

Thu, 05/05/2011 - 06:31 | 1242269 SamuelMaverick
SamuelMaverick's picture

I junked you for crying like a little girl. Toughen up puppy dawg, this is fight club.  Oh yeah , do not forget that some of the readers here are 15 year olds trying to be big boys . 

Thu, 05/05/2011 - 01:49 | 1242114 Bear
Bear's picture

FED goes all in on a weak hand ... you bet there were bluffing all the time anyway

Thu, 05/05/2011 - 01:55 | 1242125 Double down
Double down's picture

Really good read.  Thanks

Thu, 05/05/2011 - 02:11 | 1242137 JW n FL
JW n FL's picture

Facts:

1. http://research.stlouisfed.org/fred2/series/BASE

Base money has tripled in 3 years.

2. M1 has continued to increase to its highest level in history.

http://research.stlouisfed.org/fred2/series/M1

3. Same goes for M2

http://research.stlouisfed.org/fred2/series/M2

 

My Favorite STOLEN Post of someone else's!

Thu, 05/05/2011 - 02:54 | 1242171 pcrs
pcrs's picture

I'd say that with 20% un/under employed, it can't possibliy be right that the economy is at it's true capacity now.

Like Molyneux says:people do not have a job, because they would get a gvt gun on their head if they took one. Their marginal productivity is below the minimum wage so their job is made illegal. When you see something strange, always look for the gun in the room.

Thu, 05/05/2011 - 06:12 | 1242261 proLiberty
proLiberty's picture

When the major central banks support each other, even from a distance, with swaps, loans and "credit facilities", what we have is coordinated money creation.  As long as they all increase their respective money supplies at roughly the same rate, the FX cross remains roughly unchanged and many of the commonly used alarm bells in the investor community and elsewhere remain silent.  However what happens is that the nominal prices of real things produced elsewhere tends to rise, and thus we see commodities shooting upwards. 

I call this collusion "co-inflation". 

Thu, 05/05/2011 - 07:57 | 1242386 living on the edge
living on the edge's picture

+1

Thu, 05/05/2011 - 06:44 | 1242279 critical_mass_soon
critical_mass_soon's picture

yen just broke 80......woooooh! watch out for the tidal wave of fiat coming your way!

i mean this more than ever BTFD while its down 20% or more!

Thu, 05/05/2011 - 07:45 | 1242364 apberusdisvet
apberusdisvet's picture

This is a great piece that certainly justifies any physical PM accumulation, although we may have to wait a while for the rocket shot.  The main point; that is all about dollar debasement, whether perceived or actual, is the telling argument for a transfer to sound money.

Thu, 05/05/2011 - 08:09 | 1242412 Bartanist
Bartanist's picture

Forget reality, we need growth at any cost. What good would it do to have happy one wage earner families living in modest houses if the bankers, CEOs and politicians could not get wealthy and consider themselves elite? We need growth to accelerate looting and make it not as noticeable.

Wed, 06/29/2011 - 02:51 | 1410878 jimmight
jimmight's picture

Nothing new. US fraud, banks fraud, Greek fraud, Spain fraud. Let's print a bit more and forget about it. Just the new normal routine.
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