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Bullard Acknowledges Asset Bubble, Yet Fed Policy Will Remain Unchanged As Change Would Destroy Banks

Tyler Durden's picture




 

In a groundbreaking presentation to be delivered on January 11 in Shanghai, "The First Phase of US Recovery and Beyond" St. Louis Fed president and monetary policy decision-maker James Bullard has come the closest to openly refuting Ben Bernanke's claim that no asset bubbles have been created via the Fed's monetary intervention policy during the post-Lehman period. Yet, Bullard notes, there is nothing that the Fed's "blunt instrument" approach can do to pop such bubbles proactively, as "financial institutions would need to be capable of withstanding large shocks to asset prices, as well as other shocks." Of course, the implication is that the day of reckoning for "financial institutions" is merely delayed to the point where further extend and pretend policy action is impossible and the Lehman collapse reaches a systemic contagion phase. In other words, the Fed admits the current course of action it itself has set the country on, is one of self-destruction, courtesy of the fiat banking system's ultimate death spiral. Alas, the disproof of Keynes' dogma will be a Pyrrhic victory as there will be nothing left of the American financial system in its wake.

Bullard provides interesting observations on the duality of interest rate versus quantitative easing policy intervention:

"The market’s focus on interest rates is disappointing, given
quantitative easing. Markets are still thinking of monetary
policy strictly as changes in interest rates—even though the Fed has
been conducting successful policy this past year through quantitative
easing. Markets should be focusing on quantitative monetary policy
rather than interest rate policy.

The kicker:

The main challenge for monetary policy going forward will be how to
adjust the asset purchase program without generating inflation and
still providing support to the economy while interest rates are near
zero.

But wasn't QE supposed to end in March? Not by a long shot. First, consider the facts of QE as highlighted in Bullard's prepared presentation:

  • The Committee announced an intention to buy up to $1.725 trillion in assets by 2010 Q1.
    • Considered successful as quantitative easing.
    • Causing a large and persistent increase in the monetary base ...
    • ... and a medium-term inflation risk.
  • The FOMC asset purchase program does not have a state-contingent character.
  • Main issue: How to adjust the asset purchase program going forward and not generate inflation?

Bingo: the bolded statement is all you need to know about the presumed March end date of the MBS purchase program. Absent a spike in the CPI, PPI, 10 year rates and whatever other doctored and manipulated metrics the Fed evaluates, QE will be with us for a long, long time. This is further observed by the following chart:

Ah, the fabled "extended period" clause. Well, thanks to Bullard's clarification, we now know that this determination defines not an interest rate duration ambiguity, but rather one of the Q.E. program itself. The latter, in turn, is inextricably linked to the $1.1 trillion in excess reserves. So long as that massive overhang exists, and continues growing, any hopes for an end to Q.E., let alone rate increases, are a deluded myth. And all that posturing about extracting excess liquidity and adjusting the liability side of the Fed's balance sheet, well, we'll believe it when we see it. Until then, we, and judging by the dollar's response to this speech, the broader market as well, fully expect another several hundred billion in tack-on MBS and, who knows, maybe even Treasury purchases by the Fed. The dollar carry trade is back, just as it seemed that Japan may regain the dubious distinction of being the supreme annihilator of one's own currency. Sorry Japan, Ben is the man.

But back to asset price bubbles:

Asset price bubbles are a very serious issue for monetary policy,” he
said, adding that this issue has been debated extensively over the past
15 years, and this debate will intensify. “This may mean that monetary
policy should put more weight on asset prices going forward. We need
better analysis of policy issues with respect to bubbles
.

He said the question of “whether ‘easy’ money fuels speculative
investment—causing large and sharp increases and decreases in asset
prices, and ultimately, large costs on an economy—raises two questions
for monetary policy
.” “Can the Fed identify incipient bubbles in real time? When are policy
judgments better than market judgments?
” he asked. “If yes, what should
the Fed do?”

More on the asset bubble mea culpa from the Bullard:

  • Monetary policy necessarily affects asset prices and interest rates.
  • Historically, this did not appear to create prolonged run-ups in asset prices.
  • But changes in the recovery of employment in the past two recessions led the Fed to keep interest rates low for a long time.
  • Both periods featured prolonged increases in certain asset prices: for technology in the 1990s, and for housing in the 2000s.
  • The drag on the economy from the housing decline since 2006 has been especially severe.

Amusingly, to Bullard the expiation of blowing bubbles is validated by the lack of inflation:

  • Inflation has been low and stable through this period.
  • If policy was too low for too long in the 1990s and in the 2000s, why didn’t we see more inflation?
  • Yet, without an increase in inflation, asset price misalignments seem to have caused significant problems for the macroeconomy.
  • This may mean that monetary policy should put more weight on asset prices going forward.

Seriously? Here's a hint Mr. Bullard: as to why we have not seen massive inflation in the past decade - look around you, where are you? Yes, Shanghai, China - the country that gladly funded US purchasing by buying hundreds of billions of US bonds at ever lower rates, and made US consumer cost of capital virtually nil, thereby keeping inflation low, HELOCs generous and the price of Chinese gadgets negligible. As we pointed out earlier, however, the tide is turning, and both China and the US realize the the exporting of inflation across the Pacific will become increasingly impossible. Where would inflation be if the Fed will not have purchased $1.75 trillion in securities by March, Mr. Bullard? That is a rhetorical question.

So Bullard's naive conclusion:

  • Asset price "bubbles" are a very serious issue for monetary policy.
  • This issue has been debated extensively over the past 15 years, but the debate will now intensify.
  • The main problem: It is hard to see what was “wrong” with previous policy, given conventional ideas about what policy is trying to accomplish.

"Hard to see what was wrong?" Well, there you have it in big bold letters - the reason why America is on a path for a hyperdeflationary stagflation followed by unparalleled hyperinflation. And if we are wrong on either count, it is still a path that marks the beginning of the end of the Federal Reserve, whose primary mechanism of enacting monetary policy, the Federal Reserve Note, will soon find its shallow grave, weather by means of a deflationary death spiral, or hyperinflation.

And to add insult to injury, when asked what the Fed's response should be if, on that rare occasion that the Fed does capture a bubble in progress, Bullard says:

“Given the Fed mandates of maximum
sustainable employment and stable prices, plus ensuring financial
stability, monetary policy would be a blunt instrument when responding
to bubbles
because monetary policy actions impact the macroeconomy and
cannot be targeted exclusively at a particular sector.”

He added, “If the asset prices contain reliable information about
future inflation and output, then the Fed might respond to the bubble
using monetary policy, but the focus would not be on responding to the
bubble per se. Another alternative would be to use regulatory,
supervisory and lender of last resort powers for financial stability,
but financial institutions would need to be capable of withstanding
large shocks to asset prices, as well as other shocks.

Yup - the Mutual Assured Destruction which would result from any favorable and dollar-positive intervention, is alive and well, and coming from, you guessed it, Wall Street. Because the implication is that even if we are in a bubble, Wall Street, which is in no way shape or form capable of "withstanding large shocks to asset prices, as well as other shocks" will prevent the Fed from acting appropriately to curtail its interventionist monterey policy.

Lastly, as to the unmistakable bubble in China - well, that is none of the Fed's concern:

“U.S. policymakers are unlikely to react to departures of prices from
fundamental values in other countries,” he said. “It is the authorities
in other countries who must decide how to respond to their individual
country’s departure from fundamentals
.”

After all, the last thing we want is to spook China into believing that their schizophrenic monetary policy is something we care about: please just keep on buying our bonds, making our kindles, and sewing our Lululemon sweatpants. If, in the process, the Fed can package its $8+ trillion of implicitly and explicitly guaranteed MBS (here's looking at you FRE and FNM) into a REIT and IPO them in Hong Kong, well, that would be just really swell.

Our prediction: Q.E., ZIRP, and all other disastrous and bubble-friendly policies by the Fed will remain in place until such time as Wall Street has transferred enough wealth from the middle class at current conditions, at which point debtloads will be inflated through a period of hyperinflationary annihilation of the middle class, or, because we have no certainty the Fed can even print enough FRNs quickly enough without screwing something up, will collapse under their own weight in a deflationary implosion. Either way, the end is now in sight.

 

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Mon, 01/11/2010 - 01:41 | 189631 msorense
msorense's picture

So basically it is your contention that we are about three years behind Zimbabwe?

http://www.profitscore.com/articles/prof_ZimbabweIndustrialIndex.jpg

They should call him Bulltard.

Sun, 06/05/2011 - 20:04 | 1342089 haibop
haibop's picture

interesting... 

Lose Thigh Fat

Mon, 01/11/2010 - 01:46 | 189637 Anonymous
Anonymous's picture

I used to watch horror movies to get scared like this!
Is this really real, are we really going to live through a Germany in the 1920's kind of collapse?

Mon, 01/11/2010 - 04:09 | 189701 faustian bargain
faustian bargain's picture

Exciting, ain't it.

Mon, 01/11/2010 - 04:26 | 189704 merehuman
merehuman's picture

Life is a grand adventure!

Mon, 01/11/2010 - 08:18 | 189737 Winisk
Winisk's picture

The sun is just starting to rise.  My kids are still sleeping, soon to wake up with happy faces and start watching the morning cartoons.  I'm sipping my coffee.  Ah...it all seems so normal.  Yet in my brain I'm contemplating the worst financial disaster in generations, not as some kind of thought experiment, but actually trying to anticipate how much time we have left.  Very surreal living these days.

Mon, 01/11/2010 - 08:49 | 189749 perchprism
perchprism's picture

 

My "kids" consist of 4 kitties.  They depend on me for food twice a day.  I've got plenty stockpiled under the house.  Am I nuts?  At least two years of food for my wife and me.  She thinks I'm crazy, but hasn't actually said so.   I noticed she bought 3 months' worth of her favorite oatmeal. 

Today I should get more gold and silver thru the mail.  I ordered it last Sunday, so it's been over a week.  It's always slow.  I'll dig up the can in the backyard, and add to it.  A few ounces of gold and a little over 200 ounces of silver.  Walking Liberty quarters and Mercury dimes.

Surreal is right.  I remember the Carter years, and they were bad, but this is going to be much worse.  So far, tho, aside from unemployment, it's been a stealth catastrophe, at least in my neck of the woods.  It's like the Iraq and Afghanistan war, almost.  At first, after 9/11, America was "on a war footing", but then, I looked around, and I didn't "feel" like we were at war.  Where's the rationing, where's the flag-waving, and victory gardens, and scrap metal drives I'd heard and read about?  So it's been a stealth war on terror too.  But when it hits, it's going to be too bad because we're just not conditioned for it.  Stupid stupid stupid.

Two homeless people were walking the neighborhood last night.  Man and woman, I assume not married.  The feller they'd been staying with (two houses down), had just kicked them out.  Don't know why.  She supposedly has a job at a Wal-Mart and they'd been living in the woods in a tent behind it, before taking up with the feller two doors down.  I told my wife not to answer the door if anyone knocked.

I think we're all going to see alot more of that soon, and I live in a rural area.  Sorry, no room at the perchprism inn.

 

 

 

 

Mon, 01/11/2010 - 10:02 | 189805 Anonymous
Anonymous's picture

Don't worry about what people think, just do what you
know to be correct.
Years ago, when I started buying guns, ammo, gold,silver
and stockpiling food, everyone thought I was nuts.
After the Lehman failure, and with the appreciation of Au and Ag, no one thinks I am nuts anymore.
Interesting that none of the relatives are buying gold and silver, but they now have guns, ammo and stockpiled food.
Do what you know to be right.
Not only is our financial system riddled with fraud, but
the folks in charge are failures and they "fail up"
Same with our government, best gov't money can buy..
This is truly scary......

Mon, 01/11/2010 - 14:20 | 190075 cougar_w
cougar_w's picture

It won't be anything at all like Germany in the 1920s.

Because whereas Germany back then was a basketcase and BK, we're big enough and entrenched enought to take most of the global economy with us.

So yeah, we're off the edge of the map on this one.

Mon, 01/11/2010 - 02:04 | 189651 BS Inc.
BS Inc.'s picture

Our prediction: Q.E., ZIRP, and all other disastrous and bubble-friendly policies by the Fed will remain in place until such time as Wall Street has transferred enough wealth from the middle class at current conditions, at which point debtloads will be inflated through a period of hyperinflationary annihilation of the middle class, or, because we have no certainty the Fed can even print enough FRNs quickly enough without screwing something up, will collapse under their own weight in a deflationary implosion. Either way, the end is now in sight.

You know, I was never a person to criticize others for making money when there seemed to be some connection to some kind of skill that was being rewarded in the market. I could either buy the product/service being sold to make the money or I could choose not to. But this fucking shit of making money solely off the taxes that I will have to pay one way or the other is complete bullshit.

I'm seriously as pissed as those on the Left who say they don't want their tax money to go to fund the military. Well, I don't want my tax money to fund some hedge fund manager or Goldman prop desk trader. Let them fail for crying out loud.

Mon, 01/11/2010 - 02:10 | 189654 Anonymous
Anonymous's picture

the only thing bullard presented was a groundbreaking bucket of shit. the purpose of qe is not only to destroy the frn and continue decapitalization of america but to consolidate all real estate holdings in the hands of the omnipotent totalitarian fed who will then hand them over to the chinese....colonization of amerika has already begun by new masters....neither a beggar nor a borrower be....

financial terrorist and newspeak liar bullard wins the ben bernanke award for flatulent cesspool construction...

Mon, 01/11/2010 - 02:18 | 189658 Number 156
Number 156's picture

Middle class? What middle class?

Mon, 01/11/2010 - 02:24 | 189661 Kreditanstalt
Kreditanstalt's picture

Oh-oh.  The only things that could save us would be either a strike by bond-purchasers (not likely) or exposure of the man behind the curtain.  I mean that man from the Treasury who is somehow by proxy buying at least bonds and possibly stocks, with printed money...

Mon, 01/11/2010 - 02:31 | 189665 Kreditanstalt
Kreditanstalt's picture

All right, everyone...start your engines!  The GREAT SPECULATIVE RALLY IN STOCKS is underway and will go on and on and on and on...

I'm fully invested/speculated now and see no reason whatsoever to hold ANY USD cash at all, if James Bullard's views represent the kind of brain-dead unthinking wonkish consensus so prevalent today.  I wasn't so much interested in the near-accepting of responsibility for bubbles as I was this type pof statement:

"...monetary policy should put more weight on asset prices going forward."

Full Speed Ahead....!  Then, BUY GOLD.

 

Mon, 01/11/2010 - 02:47 | 189669 Anonymous
Mon, 01/11/2010 - 02:49 | 189672 saturno_v
saturno_v's picture

Tyler

When you wrote your rebuttal about the lack of inflation you forgot to mention the massive manipulation of the way we calculate inflation nowdays which degenerated into a total farce (geometric, substitution, hedonics anyone??)

And the Fed pays attention mainly to the core measure (hint: that basket of goods contains a lot of  Chinese products), moneyprinters do not buy food and gas....

Asset prices should be absolutely included in the complete picture about inflation, it is ridiculous that the Fed even try to debate about that. 

Mon, 01/11/2010 - 08:56 | 189752 perchprism
perchprism's picture

 

I can envision a fed statement 2 years hence in the midst of apocalyptic hyperinflation:

"Inflation has remained flat in the past quarter excluding food, housing, and energy sectors..."

 

 

Mon, 01/11/2010 - 02:53 | 189673 Anonymous
Anonymous's picture

SOME FRIENDLY COMMENTARY BY MR. SOROS - his reply to a general request of posters to "cut down on the jew jokes". Anyone see a problem with this - on this site?

by dark pools of soros
on Sat, 01/09/2010 - 12:03
#188439

um there weren't any jew jokes but since you are dying to hear one - 'how many jews can you put in a VW?'

54

2 in the front, 2 in the back, and 50 in the ashtray

hopefully thats your next captcha

Mon, 01/11/2010 - 12:40 | 189944 Anonymous
Anonymous's picture

Very inappropriate.

Mon, 01/11/2010 - 02:56 | 189674 Anonymous
Mon, 01/11/2010 - 02:57 | 189675 vainamoinen
vainamoinen's picture

"because monetary policy actions . . . cannot be targeted exclusively at a particular sector"

Oh really?

I'm just a dumb Finn mechanic but all that bail-out money didn't seem to be spread too far and wide.

Mon, 01/11/2010 - 02:59 | 189676 JR
JR's picture

Powerful commentary, Durden.  This additional viewpoint on the state of economy:

AMERICA SLIDES DEEPER INTO DEPRESSION AS WALL STREET REVELS

December was the worst month for US unemployment since the Great Recession began

By Ambrose Evans-Pritchard | Janaury 10, 2010

The labour force contracted by 661,000. This did not show up in the headline jobless rate because so many Americans dropped out of the system. The broad U6 category of unemployment rose to 17.3pc. That is the one that matters.

Wall Street rallied. Bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism.

The home foreclosure guillotine usually drops a year or so after people lose their job, and exhaust their savings. The local sheriff will escort them out of the door, often with some sympathy –– just like the police in 1932, mostly Irish Catholics who tithed 1pc of their pay for soup kitchens.

Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's Economy.com expects another 2.4m homes to go this year. Taken together, this looks awfully like Steinbeck's Grapes of Wrath.

Judges are finding ways to block evictions. One magistrate in Minnesota halted a case calling the creditor "harsh, repugnant, shocking and repulsive". We are not far from a de facto moratorium in some areas.

This is how it ended between 1932 and 1934, when half the US states declared moratoria or "Farm Holidays". Such flexibility innoculated America's democracy against the appeal of Red Unions and Coughlin Fascists. The home seizures are occurring despite frantic efforts by the Obama administration to delay the process.

This policy is entirely justified given the scale of the social crisis. But it also masks the continued rot in the housing market, allows lenders to hide losses, and stores up an ever larger overhang of unsold properties. It takes heroic naivety to think the US housing market has turned the corner (apologies to Goldman Sachs, as always). The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of "option ARM" contracts due to reset violently upwards this year and next.

US house prices have eked out five months of gains on the Case-Shiller index, but momentum stalled in October in half the cities even before the latest surge of 40 basis points in mortgage rates. Karl Case (of the index) says prices may sink another 15pc. "If the 2008 and 2009 loans go bad, then we're back where we were before – in a nightmare."

David Rosenberg from Gluskin Sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time. The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus). This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War.

Fed hawks are playing with fire by talking up about exit strategies, not for the first time. This is what they did in June 2008. We know what happened three months later. For the record, manufacturing capacity use at 67.2pc, and "auto-buying intentions" are the lowest ever.

The Fed's own Monetary Multiplier crashed to an all-time low of 0.809 in mid-December. Commercial paper has shrunk by $280bn ($175bn) in since October. Bank credit has been racing down a hair-raising black run since June. It has dropped from $10.844 trillion to $9.013 trillion since November 25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money is contracting at over 5pc.

Professor Tim Congdon from International Monetary Research said the Fed is baking deflation into the pie later this year, and perhaps a double-dip recession. Europe is even worse.

This has not stopped an army of commentators is trying to bounce the Fed into early rate rises. They accuse Ben Bernanke of repeating the error of 2004 when the Fed waited too long. Sometimes you just want to scream. In 2004 there was no housing collapse, unemployment was 5.5pc, banks were in rude good health, and the Fed Multiplier was 1.73.

How anybody can see imminent inflation in the dying embers of core PCE, just 0.1pc in November, is beyond me.

Mr Rosenberg is asked by clients why Wall Street does not seem to agree with his grim analysis.

His answer is that this is the same Mr Market that bought stocks in October 1987 when they were 25pc overvalued on Shiller "10-year normalized earnings basis" – exactly as they are today – and bought them at even more overvalued prices in 2007, long after the property crash had begun, Bear Stearns funds had imploded, and credit had its August heart attack. The stock market has become a lagging indicator. Tear up the textbooks.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/696263...

 

Mon, 01/11/2010 - 03:38 | 189692 GoldmanSux
GoldmanSux's picture

So, no one has picked up on it, so I will ask the obvious question...it's Jan.10th....how do you have a copy of his Jan. 11th speech?

Mon, 01/11/2010 - 04:52 | 189705 Anonymous
Anonymous's picture

'Cause the speech was given in China and is now on Marketwatch.....

Mon, 01/11/2010 - 05:19 | 189709 Anonymous
Anonymous's picture

there is this thing called the international date line GS

Mon, 01/11/2010 - 05:28 | 189712 aus_punter
aus_punter's picture

SOMEONE INVENTED THESE CRAZY THINGS CALLED TIME ZONES !!!! CAN YOU BELIEVE IT ???!!!

Mon, 01/11/2010 - 06:10 | 189714 narlah
narlah's picture

Your comment is posted on 01/11/2010.
Does that answer your question ?

Mon, 01/11/2010 - 03:48 | 189693 Anonymous
Anonymous's picture

Hey, it looks like "DARK POOLS OF SOROS" HAS A LITTLE FUNNY BUDDY, AND HIS NAME IS "MEREHUMAN" - second post down.

Hey, MEREHUMAN, wanna say you're sorry? Anyone else have a problem with this - on this site?

by dark pools of soros
on Sat, 01/09/2010 - 12:03
#188439

um there weren't any jew jokes but since you are dying to hear one - 'how many jews can you put in a VW?'

54

2 in the front, 2 in the back, and 50 in the ashtray

hopefully thats your next captcha

reply
by merehuman
on Sat, 01/09/2010 - 12:29
#188462

How many jews are in control of our administration and finance sectors?

Funny stuff eh?

Mon, 01/11/2010 - 05:23 | 189711 Anonymous
Anonymous's picture

euro time zone

Mon, 01/11/2010 - 07:05 | 189725 Salah
Salah's picture

But, how about all the real estate?

Phoenix alone has 80 million sf of vacant commercial property as of 1/1/10

http://www.azcentral.com/business/articles/2010/01/10/20100110biz-commer...

Mon, 01/11/2010 - 08:30 | 189740 Anonymous
Anonymous's picture

THE HUSH HUSH TAX....

Maybe they are too stupid to know ?

Look there is a rather large segment of the population
that did things right.....they did not overleverage themselves....and saved their money....

That is until there was no income to be derived from interest....

So...the US Govt. sacrifices this whole segment of people.....who did things rights.....and are in effect taxing them 100% by forcing 0% interest.....thus no income to them....in the NMAE AND FOR THE BENEFIT OF FAILED BANKS....

And there is no question that it is not a normal situation to be paying 0% interest on monopoly money....

SOMETHING IS GOING TO GIVE AND IN A BIG WAY....

NOTHING SMELLS RIGHT.....

Mon, 01/11/2010 - 09:09 | 189758 Anonymous
Anonymous's picture

That "Timeline of Monetary Policy" - did the Fed hire the Underpants Gnomes to consult?

Mon, 01/11/2010 - 09:12 | 189760 Anonymous
Anonymous's picture

China's approval of margin is a sure top tick sign that will lead to a cascade of...well, margin calls.

I wonder what a global liquidity trap looks like? lol.

Mon, 01/11/2010 - 09:18 | 189763 Anonymous
Anonymous's picture

Too bad I havn't written an article about that before. I have posted here long time ago expecting just that,and refuting Prechter's believe on the upcoming leg down soon(not The whole concept of an eventual collapse,except not so soon). The logic was fairly simple. Since the original idea of a bad bank for the bad assets on banx balance sheet was ababndoned in favor of QE,then we can have a rough estimate on how much assets QE purchases should involve. In my humble opinion,it should be to the tune of 5-to 8 trillion of MBSs(only a rough estimate on how much those assets are underwater). And since they couldn't come up with that figure from day one for fear of destroying the dollar(and also they didn't want everybody to jump on the stocks wagon,before Wall st. have a chance to double up),hence they are coming up with whole story in small doses. One has to believe that whatever is going on is part of an overall agreement between Wall st. And the FED(or their controllers in London,who also control the UK financial policies). And if there is such an agreement,then it is not going to be about 1.25 trillion,rather about the whole MBS,which probably in Wall st. opinion is extended on behalf of the goverment,therefore it is only fair that the goveremnt rid them of those bad assets. So expect the program to continue untill All the trillion of dollar in MBSs on the books of the largest 19 banx or so,or untill DXY=0,whichever comes first. In the meantime, I still expect to enjoy reading ZH analysis for the froseable future. Guys,if you are in doubt,go with Jim Rogers(back in DEC when everybody thought that deflation is setting on,he was saying "they gonna print so many dollars,that DOJ might get to 70000,but it would be worthless",and even I could not believe what he was saying)....

Mon, 01/11/2010 - 09:34 | 189776 AN0NYM0US
AN0NYM0US's picture

the graph on page 20 is interesting and likley not unintentional as it projects? Traditional Portfolio and Long-Term Assets of the Fed to continue its steep trajectory higher

http://i47.tinypic.com/307q36e.jpg

Mon, 01/11/2010 - 09:51 | 189794 deadhead
deadhead's picture

but financial institutions would need to be capable of withstanding large shocks to asset prices, as well as other shocks.

Gee, anybody think that it might help to retain the synthetic profits made by banks in late 09 as CAPITAL to cover impending losses?  Just because FASB 157 modification allow financial menagerie to become the play of the day does not mean that the falsely marked assets on bank balance sheets are going to magically cash flow or become worth one hundred cents on the dollar again.

I laugh when the Obama group (Romer being another example yesterday, "pleading" for banks to reduce bonuses) talks about banker bonuses.  How about the financial regulators say "guys, we GAVE you big profits as part of our stealth recapitalization plan and the reason for it is to build capital. NOW, it is time for regulators to say PUT THE PROFITS, ALL OF THEM, IN THE CAPITAL COLUMN FOR LOAN LOSS RESERVES.

I add for those unaware that the FDIC has given a complete pass on capital requirement needs for the off balance sheet items coming on Q1 2010 for a period of at least 1.5 years.

Mon, 01/11/2010 - 14:53 | 190124 cougar_w
cougar_w's picture

You may want to consider the alternative which is that banksters are perfectly aware of what they were supposed to do with the synthetic profits, but know already that papering over their balance sheets is a moot point. They are 100% insolvent and will remain so, until they BK and go tits-ups.

This is just looting the wreckage. Everyone is on the way out the door, taking whatever they can grab, and dumping as much garbage on the FED as possible just before the lights go out.

I'd give it until March before the SHTF. By mid-summer, the Big 6 will be BK history (or else 79.9% state-owned) and nobody will know where the money went, including the FED and the FDIC.

cougar

Mon, 01/11/2010 - 10:01 | 189803 crosey
crosey's picture

Many of you are a lot smarter than me about all this.  So let me put this quandry to you, and I welcome all feedback:

The shit hits the fan and TPTB take all measures to maintain control (even martial law)...so where should your money be?

Short ETFs?  Or will they crash with the market, just the same?

Gold or silver?  What if TPTB again make it illegal to own it?

Cash?  It's worthless in a hyperinflationary state.

Treasuries?  They'll be worthless too.

Bonds?  What entities will be able to honor any yield?

Thanks, in advance, for your feedback.

Mon, 01/11/2010 - 10:06 | 189810 Anonymous
Anonymous's picture

Farmland in Argentina?

Mon, 01/11/2010 - 10:11 | 189815 Species8472
Species8472's picture

Own stuff like a farm, machinery, guns. You know, stuff necessary to sustain life.

 

Mon, 01/11/2010 - 10:21 | 189822 perchprism
perchprism's picture

 

I think in a year or two after TEOTWAWKI gold and silver will have barter value, so have some of that.  A shotgun, deergun, and varmit gun is essential, as well as a people-varmit handgun (9mm, w/holster, to carry with you wherever you go), antibiotics antibiotics antibiotics. 

 

 

 

Mon, 01/11/2010 - 10:49 | 189845 Winisk
Winisk's picture

I understand y(our) dilemma. I'm no genius but my thinking lately has been that making money from money, or even storing wealth is a backward thought.  No other animal is able to store wealth beyond the rate at which food perishes. Successful animals control territory.  Digital tokens of future wealth are ephemeral.  Real wealth is about control of resources, that sustain life.  Look after your most basic needs first.  Spend that money on items that you know will be useful years down the road, such as food, tools, fuel, land, etc..  Even then, a more powerful force can take that away.  Build alliances.  Prepare to help extended family and friends.  No one is an island and you may need their good will in case of sickness or injury.  Those are the best investments in my eyes.  The rest of the traditional 'investments' are a gamble because of the inherent risks you outlined.

The way I see it, the US is still very wealthy in that you control territory.  You have the biggest club.  The real problem for you is how to distribute that wealth among your own people.  You are your own worst enemy.

Mon, 01/11/2010 - 14:58 | 190127 cougar_w
cougar_w's picture

Um.

At that point, why are you worried about your money?

Mon, 01/11/2010 - 10:09 | 189813 Species8472
Species8472's picture

hyperdeflationary stagflation

what's that?

Mon, 01/11/2010 - 15:55 | 190207 Abraham Snake
Abraham Snake's picture

My take is that it's a somewhat nonsense phrase of simultaneous extreme opposites coined for dramatic effect, like pastel ultra black or a sweltering deep freeze.

But there is truth in the nonsense. When an economic asset bubble pops, deflation is expected to follow, when the supply of money dramatically increases, inflation results. When the Federal Reserve dramatically increases the supply of money which gets funneled into speculative investments into assets, into bubble blowing, into anything but nation building, expect economic nonsense, expect full blown -hyperdeflationary stagflation-. From the ground, expect crashing prices in bubble items like real estate and stocks while at the same time expect price spikes in oil, gas, retirement, food, etc.

Mon, 01/11/2010 - 10:29 | 189823 BoeingSpaceliner797
BoeingSpaceliner797's picture

As I have continued my quest for as much information as possible regarding the Fed and the problems it poses for the citizenry, I find myself confronted by all kinds of people.  They generally fall into one of five categories:

1)  Zombies/Ostriches.  Still walking around while fast asleep with regard to the Fed and its true impact/grip on our society/country.  These folks are kind of a bummer as they represent the largest percentage of the citizenry.  However, the potential is there in some of them for an awakening/enlightenment.

2)  The Enlightened Infirm.  Aware of at least some of the problems the Fed poses and taking steps to effect personal change, as well as prepare for the worst.  Willing to share information of which we are aware but frustrated at the sometimes impenetrable mindsets of the other types.  Hungry for the opportunity to make a difference on far wider scale than in their personal lives.  (I fall in this category.)

3)  Fed Apologists.  Acknowledge the problems inherent in unlimited power to create anything (particularly money/credit) and the grave risk of unchecked fractional reserve lending but espouse that the Fed always has the citizenry's best interest as its sole motivation.  Also usually among those enjoying the fruits of the Fed's largesse to its friends.  Probably narcissists.

4)  Sociopathic Conspirators.  This type does not need further description, IMO.

5)  Enlightened Fatalists.  Very similar to type 2 but feel that the damage is done, the future is set and, therefore, why should they attempt to effect any change, even in their personal habits/lives.  To these folks I ask the following question:  If a thief has robbed your home, would you then let him/her burn your home to the ground because 'the damage is already done'?

Mon, 01/11/2010 - 11:18 | 189874 Anonymous
Anonymous's picture

Wow. If by 'Enlightened' you mean 'Arrogant' then I totally agree.

Also, you forgot:

6) Paranoid Spokesman: The paranoid spokesman sees the fate of conspiracy in apocalyptic terms–he traffics in the birth and death of whole worlds, whole political orders, whole systems of human values. He is always manning the barricades of civilization. He constantly lives at a turning point. Like religious millennialists he expresses the anxiety of those who are living through the last days and he is sometimes disposed to set a date fort the apocalypse. (”Time is running out,” said Welch in 1951. “Evidence is piling up on many sides and from many sources that October 1952 is the fatal month when Stalin will attack.”)

As a member of the avant-garde who is capable of perceiving the conspiracy before it is fully obvious to an as yet unaroused public, the paranoid is a militant leader. He does not see social conflict as something to be mediated and compromised, in the manner of the working politician. Since what is at stake is always a conflict between absolute good and absolute evil, what is necessary is not compromise but the will to fight things out to a finish. Since the enemy is thought of as being totally evil and totally unappeasable, he must be totally eliminated–if not from the world, at least from the theatre of operations to which the paranoid directs his attention. This demand for total triumph leads to the formulation of hopelessly unrealistic goals, and since these goals are not even remotely attainable, failure constantly heightens the paranoid’s sense of frustration. Even partial success leaves him with the same feeling of powerlessness with which he began, and this in turn only strengthens his awareness of the vast and terrifying quality of the enemy he opposes.

The enemy is clearly delineated: he is a perfect model of malice, a kind of amoral superman–sinister, ubiquitous, powerful, cruel, sensual, luxury-loving. Unlike the rest of us, the enemy is not caught in the toils of the vast mechanism of history, himself a victim of his past, his desires, his limitations. He wills, indeed he manufactures, the mechanism of history, or tries to deflect the normal course of history in an evil way. He makes crises, starts runs on banks, causes depressions, manufactures disasters, and then enjoys and profits from the misery he has produced. The paranoid’s interpretation of history is distinctly personal: decisive events are not taken as part of the stream of history, but as the consequences of someone’s will. Very often the enemy is held to possess some especially effective source of power: he controls the press; he has unlimited funds; he has a new secret for influencing the mind (brainwashing); he has a special technique for seduction (the Catholic confessional).

Mon, 01/11/2010 - 17:22 | 190296 Anonymous
Anonymous's picture

Well, if truth be know, Stalin was planning on attacking Western Europe before his untimely demise in 1953. After the Berlin Wall came down and before Putin rose to power the archives were opened and secret documents were found detailing these plans. Stalin intended to purge his closest advisors and was going to use the ruse of a jewish doctors conspiracy to advance the next echelon of willing and ambitious supplicants. My guess is the west somehow found out about this and managed to bribe either Nikita Khrushchev or the head of the state police force Lavrenti Beria to put an end to Stalin. Of course both had sufficient motive to kill Stalin since Stalin always had the bad habit of murdering his closest advisors especially if he believed they had suddenly become a threat. And during purges close advisors always seemed to find a way of ending up in the Lubyanka prison with a bullet in the back of the head right after signing the confession.

Mon, 01/11/2010 - 10:47 | 189842 Gimp
Gimp's picture

Stock up on MRE's, ammo and fuel. Get close to your God if you have one. Nuff sed.

Mon, 01/11/2010 - 10:49 | 189844 Cursive
Cursive's picture

I really and truly thought the headline read, "Bulltard".

Mon, 01/11/2010 - 11:10 | 189866 Commander Cody
Commander Cody's picture

OK.  Enough of this pot shot taking regarding what our dear leaders are doing wrong.  And, enough of the get guns, ammo, canned goods and be survivalists stuff.  What should this country be doing to correct the problems and proceed with supporting the populace's ability to produce and improve their lot in life, and stop enriching the oligarchs at everyone else's expense?

Mon, 01/11/2010 - 12:17 | 189920 crosey
crosey's picture

CC, it may take a reality-changing event to overcome the socio-economic inertia, and correct the problems, at least for a measure of time.  History is replete with these cycles. 

TPTB know that we've been kicking the problems down the road, for years.

Too bad, but I guess it's just human nature.

Mon, 01/11/2010 - 12:08 | 189913 Anonymous
Anonymous's picture

agreed that everything is a massive bubble now and that it may continue longer with more QE. BUt u really need to stop killing keynes!!! It is clear to me that all over the blogosphere, those who rip keynes apart have never studied or read him before!!! Keynes's theories have NEVER been implemented. Check out Steve Keen's debtwatch: a keynesian who saw all of this coming and focuses on the need to bring down total debt/gdp.

Mon, 01/11/2010 - 13:01 | 189963 Anonymous
Anonymous's picture

You should all be thankful the Fed it printing, QE, purchasing stock, et al. It prevented a full out collapse that you are all expecting in the near future. It gives you time to prepare for when the collapse ultimately comes.

So be thankful.

Mon, 01/11/2010 - 16:24 | 190235 Anonymous
Anonymous's picture

A friend of mine's father who lived through the big"D" in the Carolina's. He said that he walked for a hundred days and did not see a deer!! Many people think that they can revert to a hunter gatherer when tshtf, realize so many are also thinking this that any game animals including the females will disappear rapidly! Frank

Sun, 07/03/2011 - 14:28 | 1422789 haibop
haibop's picture

this could be a big concern the way it goes... thanks for the information! Six Figure Renegade

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