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Charting The US Fiscal Catastrophe

Tyler Durden's picture


With little fanfare, the November budget deficit of $150.4 billion was reported, which happened to be the worst fiscal November in the history of the US, and just out of the top 10 of worst deficit months ever, including the traditionally weak seasonal months of December, April and September (indicatively, the worst deficit month was the February 2010 $221 billion). The deficit was a major surprise to all those who had expected a pick up in income tax revenues. And as the charts below demonstrate, while there was indeed a modest pick up in tax collections, it was nowhere near enough to offset the surge in government outlays (even with interest payments still at near record low levels). What was also not broadly appreciated is that the cumulative debt issuance over deficit funding has hit a new all time high of $1,735 billion since our October 2006 starting point (4 fiscal years ago). And what is a bigger concern, is that the debt issuance continues to remain at almost exactly 50% over the deficit. Additionally we know that courtesy of Obama's latest stimulus for the wealthy (and everyone else) the latest projection for the 2011 budget deficit will hit $1.5 trillion (after it was just $1.1 trillion a few months prior). What this means is that should the US Treasury continue to issue 50% more debt than total deficit needs, by the end of fiscal 2011, the US will have issued another roughly $2.25 trillion in net debt. Granted this is a rule of thumb. But what it means is that the $900 billion in notional (not market) value of bonds to be bought back by the Fed through June will be woefully insufficient, and that as a result we expect that Ben Bernanke will be forced to monetize another $1.2 trillion in debt to continue with his course of monetizing every dollar of deficit spending, as he has been doing since the advent of QE2. It also means that unless something dramatically changes, through October 31, 2011, total US debt will be $15.9 trillion, up from the $13.9 trillion as of the end of last month, and will mean that the debt ceiling will have to be raised not only once, but likely twice in the next 12 months. We are now truly a banana republic you can believe in.

Chart 1: Cumulative US Individual Income tax revenues and debt issuance. Since the failure of Lehman, through November 30, 2010, the US government has issued $3.8 trillion in debt, and collected $3.6 trillion in tax receipts. Uncle Sam continues to fund over 100% of every dollar received from taxes with his own credit card, which is somehow still stuck at an APR of about 2%.

Chart 2: The same as above, but also showing the cumulative differential between the two metrics. We fail to observe any green shoots, or any improvement in the cumulative delta.

Chart 3: While the debt to tax collection metric is deplorable, what is far more scarier, and has very profound implications for future US debt, is that the cumulative debt over deficit differential not only continues to rise, but has hit an all time high. Forgive us if we laugh in the faces of all those who claim that rising tax revenues are a certain indication of economic improvement. Nothing could be further from the truth: the only "improvement" is short-term economic stimulus (with an ever declining half life), purchased on Uncle Sam's credit card. Should the recent acceleration in interest rates higher persist, we expect that very soon the Uncle Sugar APR will no longer be quite as attractive as it has been during this period of drunken sailor borrowing.

And if you are not scared enough by the above figures, here is Bill Buckler of the Privateer fame's condemnation of what anyone with half a brain realizes is pure, unadulterated fiscal lunacy (dictated in no small part by the same people at Goldman who are now in charge of monetary policy as well):

Before fiscal 2008, the US Treasury had only run an official deficit above the $US 400 Billion level once - in 2004. In the three years between 1998 and 2000, the Treasury had even claimed to have run budget SURPLUSES, even thought its debt climbed throughout the period.

  • In fiscal 2008 - the official Treasury deficit was $US 438 Billion
  • Ten weeks into fiscal 2009 - the Fed cut its controlling rate to 0.00 - 0.25 percent
  • In fiscal 2009 - the official Treasury deficit was $US 1.42 TRILLION
  • In fiscal 2010 - the official Treasury deficit was $US 1.29 TRILLION
  • White House projections for fiscal 2011 are for an official Treasury deficit of $US 1.5 TRILLION

In fiscal 2009 and early fiscal 2010, the Fed directly monetised an official $US 300 Billion of US Treasury debt. Between November 2010 and June 2011, the Fed plans to buy another $US 900 Billion worth. Nobody, including the Fed knows what will happen after that.

When looking at these figures, it is wise to remember that what is being “produced” here is the reserve currency of the world. This is why the US government has gotten away with this borrowing as long as they have. And it is also why the Fed has been able to accommodate them with non-existent official interest rates for as long as they have. But for how much longer?

That is the 64 quadrillion dollar question.


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Sun, 12/12/2010 - 15:36 | 800332 TheGreatPonzi
TheGreatPonzi's picture

I've never seen a precise and accurate answer to the following question.

What prevents a government to lend itself money through its central bank? In other words, why does the US Treasury continue to organize auctions on its debt, when everyone, from Bernanke to Red Neck Repugnicant, says QE is not inflationary?

I don't want an answer such as "it creates inflation". I know it is supposed to create inflation, but I've seen absolutely nobody - including top economists - managing to explain the actual mechanism leading to inflation.

As the money lended by the central bank is repaid, and thus destroyed, there should be no more inflation created than through international auctions, where the money used to purchase this debt has usually been created out of nowhere too thanks to the magic of fractional banking.

Sun, 12/12/2010 - 16:13 | 800361 zenon
zenon's picture

The money lent by the central bank is not destroyed. Unless you believe the gov. will start running surpluses.

Sun, 12/12/2010 - 16:14 | 800362 Sean7k
Sean7k's picture

The US treasury has lent itself money before. During the Civil War, Lincoln had the treasury issue "Greenbacks" which were used to pay northern debt and pay soldiers. These bills were in circulation until approx. 1995. They were debt without an interest payment. 

They suffered the same problem of inflation. Dollar inflation is a result of debasement of the currency. In this case, there was no specie to provide value to this currency. Consequently, it was dependent upon "The full faith..." clause. When this faith floundered or where people began to discount it's value, because banks would not redeem in specie, dollar inflation reared it's ugly head.

Enter the present day, the continued creation of monetary substitutes are valued against our reserve wealth. As this wealth continues to transfer out of country (emerging economy investments), hoarding (savings),  offshore accounts, etc. , as our production capabilities are hollowed out and intellectual property is diminished, the value of the dollars are reduced. 

The continued expansion of substitutes has a smaller and smaller specie redemption versus the supply of money being fabricated through QE. This debases the dollar and makes it less valuable when attempting to buy goods denominated in other assets. Thus, we experience dollar inflation. 

Hope this helps.

Sun, 12/12/2010 - 19:49 | 800630 slyhill
slyhill's picture

GP. So the question is: how does "our reserved weath" get valued?

Sun, 12/12/2010 - 20:23 | 800664 Thomas
Thomas's picture

It's not just faith. Supposedly the ancient Sumarians understood the debasement of currency. Certainly Romans learned it not just from their clipping and debasement of their metal coins but also from sending their slaves into the mines to get more gold; both caused caused inflation. There is a brilliant essay on inflation from the 13th century. Inflation is as old as money. It doesn't require a conscious loss of faith; it just happens.

A particularly poignant example of inflation is the game Monopoly. You start the game thinking $100 bills are worth something. By the end, everybody has malinfested in gobs of real estate, the only bills that matter are the $500 bills, and everybody starts blowing up to end the game. This all occurs simply because people relentlessly go around the board and collect $200 every time they pass go. Of course, the money all came from the friggin' banking system. 

Sun, 12/12/2010 - 21:31 | 800750 HungrySeagull
HungrySeagull's picture

Sometimes the surviving sharks.. er players emptied the bank in the Monopoly forcing one of two things to happen. Game ends or bank is kept on a ledger pad and repaid.


I have a feeling that the United States is keeping a one hell of a Ledger Pad.

Sun, 12/12/2010 - 23:36 | 800921 jakethesnake76
jakethesnake76's picture

Yep thats what i was gonna say 100 become dollars almost equivelent as 1dollars and you must keep track at the end cause bank is broke then what really matters is how much you have relative to the other players .

Sun, 12/12/2010 - 23:35 | 800919 Clancy
Clancy's picture

The ancient masters of currency manipulation were the Ptolemies.  Ptolemaic Egypt used worthless copper coins whose value was established by fiat.  It was illegal for any other coinage to be used inside Egypt and outsiders trading at Alexandria had to convert their gold and silver to worthless Egyptian currency first.


That and the fact that they used the rest of Egypt as a tax farm guaranteed that they were financially fuxored by the time Rome came banging on their door.

Mon, 12/13/2010 - 09:50 | 801302 goldfish1
goldfish1's picture

Talking about war as in the Afghanistan War, although

Sarah Palin in Haiti is Page One,

Nothing on this: Richard Holbrooke critically ill after heart surgery

Also, SFChronical has it in the "Business" section.

Black Swan?



Sun, 12/12/2010 - 16:18 | 800365 Red Neck Repugnicant
Red Neck Repugnicant's picture

tick tock

tick tock


It's not inflationary, at all.  Those bonds that the Fed purchased from the banks (QE2) were the same as cash to those banks, anyway.  If the banks had wanted to convert those bonds to cash and diffuse/lend it into the economy, they could have instantaneously

The money supply stays the exact same! And if the cash reserves that those banks hold at the Fed begin their inflationary push, the Fed can simply increase reserve requirements to stop that cash from diffusing into the system - in 15 minutes.

Hey!  I've got another question for everyone with less than 45 cans of green beans hidden under their porch...

When the Fed buys over a trillion in agencies, where does all the interest yield on those securities go?


Sun, 12/12/2010 - 16:41 | 800394 dnarby
dnarby's picture

The money supply stays the exact same!

Really?  I'm not convinced

And if the cash reserves that those banks hold at the Fed begin their inflationary push, the Fed can simply increase reserve requirements to stop that cash from diffusing into the system - in 15 minutes.

And what do you think the banks will have to do to raise reserves?  They will have to SELL ASSETS.  Who's buying?  The Fed?


Sun, 12/12/2010 - 17:00 | 800424 Red Neck Repugnicant
Red Neck Repugnicant's picture

Well, I suppose the Fed could buy assets since it already does.  

Or the banks could simply borrow funds from each other to keep their reserves at required levels. 

Whatever path they choose, when reserve requirements are increased, less cash is being diffused into the system.  

But, to your point, the banks are sitting on mountains of cash.  It's just sitting there.  Doing nothing, except waiting for the economy to slowly turn and anxiously waiting for yield. And it's also waiting to be used against more write-downs, which will be taken at the appropriate time. 

As the economy turns, that cash begins to seep out into the system, finding better yield than treasuries.  When the Fed thinks that too much cash is pouring out, it can shut the spigots.

Don't fuck with the masters of the universe.  You'll loose, even with your ammo.

Another question:  If there are over $10 trillion in asset write downs still not accounted for, and the Fed pumps $2 Trillion into the system, is this indicative of an economy facing inflation or deflation? 

Sun, 12/12/2010 - 17:10 | 800445 pcrs
pcrs's picture

The government has created a huge amount of make work jobs out of thin air. These people are paid 'real' money, fresh from the FED. They will buy stuff with it and it will be deposited in a bank. This money is not directly stolen from productive tax slaves, but borrowed from the FED, who created it from thin air (indirectly stolen from the human resources). 

I can not imagine the gvt ever running surpluses to pay back debt. If history is guide debt will always increase. The dollar lost 95% of its purchasing power since 1913, something must have been inflating. They will move your income to a higher tax bracket.

Sun, 12/12/2010 - 17:26 | 800466 dnarby
dnarby's picture

Either he can't get it, or he does get it, and is intentionally obfuscating the issue.  Probably another Harry Wanger alias...

Sun, 12/12/2010 - 20:23 | 800665 WaterWings
WaterWings's picture

Cass Suntein's hotseat goombas.

Sun, 12/12/2010 - 23:45 | 800930 jakethesnake76
jakethesnake76's picture

Plain truth is money is labor whether that is used to buy a product or pay more labor, so if we lived in a big co-op and each labored and traded our currency whatever it was (doesn't matter) and some banker  whether Government or not just started making  money without coming over and trading you or me labor for it the he or it is STEALING no different than if some punk started making it in his basement. Tell me thats wrong ? 

Sun, 12/12/2010 - 18:10 | 800513 call me ahab
call me ahab's picture

"And it's also waiting to be used against more write-downs, which will be taken at the appropriate time."

the appropriate time???  When should that be?  Maybe all business should have the the luxury of altering accounting rules to stay solvent and then change them again-  when convenient (or in your words- at the appropriate time)-

what a buffoon 

Sun, 12/12/2010 - 18:40 | 800553 Red Neck Repugnicant
Red Neck Repugnicant's picture

the appropriate time???  When should that be?

It will be done gradually over time, so the entire banking system doesn't go instantly insolvent.

I'm not saying it's fair, nor comparable to real world business.

It just is what it is.  

Sun, 12/12/2010 - 19:16 | 800594 revenue_anticip...
revenue_anticipation_believer's picture

"Either he can't get it, or he does get it, and is intentionally obfuscating the issue.  Probably another Harry Wanger alias..."  

Red Neck, i think DOES get it...his comments have a depth of understanding, and breadth too...Agenda?  

Not that definition.... enough on the Ad Hominem analysis, the question is MERIT...there is important value added, at a high standard worth pondering, rather than a mere knee jerk rejection of themessage and the messenger...

We need to have some Devils Advocates here on ZH, not a mere syncophant members of the choir..

Sun, 12/12/2010 - 20:02 | 800643 Calmyourself
Calmyourself's picture

Many of these troll commenters have patterns. TPTB are afoot, a nudge here and a nudge there..  The leftist press is very, very coordinated same phrasing same nudging into group compliance within existing paradigms or gradual movement into another.  Saw a throw away article in Slate about abandoning the $100 bill a few days back, preparing the sheep for a new pattern of compliance..

Sun, 12/12/2010 - 21:45 | 800768 Double down
Double down's picture

He is right.

The issue is: what does the position mean?

He describes the mechanics of the public-private obfuscation, the critique of which is one of ZHs' strength.  I for one think he is correct.

I have few questions given the mechanics of this slight of hand. 

What are the costs, and where are they / when will they be recognized?  Can they be deferred indefinitely or can capital controls (raising the reserve requirement of primary dealers) place a ceiling on the money multiplier once the economy truly recovers?

I think we have to consider the fact that printing money in this manner may not lead to sustained inflation and that the FED may in the end be the sole owner of all US liabilities.  We know what country has done that before. 

Through the continuum of realization that this is the destiny of the custodian of the reserve currency the real question becomes what positions do other other players assume? 

If US liabilities are realized to be merely an accounting plug this fossilizes the treasury debt markets.  Considering the alternatives that seems to be a an acceptable option for the American status quo. 

Given there is no unit of measure for trust nor for credibility I know what I am doing.




Sun, 12/12/2010 - 16:41 | 800396 IQ 145
IQ 145's picture

 If it's not inflationary, why is he doing it? Is he just going to do it until he needs glasses? He seems to think it is inflationary; that is what he has stated; maybe you should explain to him where he went wrong ?

Sun, 12/12/2010 - 17:06 | 800438 blunderdog
blunderdog's picture

Here's an oddball idea:

It's kinda like Reagan's approach of outspending the evil commie Russkie empire.  Pump so much money all over the planet that eventually, the other economies with any difficult-to-sever financial dependence on the dollar (thus the entire industrialized world and all the developing exporters) break first.

Then when other governments break under the strain of a dollar-driven global inflation, propose the "solution" of a new currency, maybe even gold-backed.

Sun, 12/12/2010 - 17:13 | 800450 pcrs
pcrs's picture

I think they print money for the same reason every other counterfeiter prints money: to spend what they have not earned

They just have more eloquent people to present it.

Sun, 12/12/2010 - 17:30 | 800470 IQ 145
IQ 145's picture

 Yup. That's why governments have these fiat systems; it's all very simple, really.

Sun, 12/12/2010 - 17:43 | 800486 blunderdog
blunderdog's picture

Nah, not buying that.  If the government itself were doing the printing, I'd agree.  But the Fed is made up of BANKS. The entire shadow-banking infrastructure only existed to protect the holders of vast amounts of money in the first place.

The owners of the banks had more money than anyone else on Earth.  I guess if you want to say they went on a crack binge and blew it all gambling and now need more, I see the case.  But I don't think it's sufficient explanation. 

I think the whole thing is a Hail Mary pass.  It's so crazy it just might work.

Sun, 12/12/2010 - 23:29 | 800907 flacon
flacon's picture

Politicians and bankers know they do not have what it takes to make it on their own merits, which is why they created such an obfuscated, elaborate scheme that keeps their pockets lined and the voters "happy" (by providing lots of "social programs for free"). 


Just look at Joe Biden, do you think he is even capable of holding a McDonalds job? Of course not. He's a total dunce. 

Mon, 12/13/2010 - 00:32 | 800988 Golden monkey
Golden monkey's picture

I'm far from being sure that Biden can even hold is cock up...

That's just another goldless headless chicken.

Sun, 12/12/2010 - 18:23 | 800527 breezer1
breezer1's picture

i agree. people will welcome global governance over destitution. those who don't will be called terrorists and dealt with accordingly. all hail the nwo.

Sun, 12/12/2010 - 18:30 | 800538 A Man without Q...
A Man without Qualities's picture

It doesn't actually sound that oddball.  The Fed has a big trump card, which is the reliance on short term Dollar funding, which they control both through interest rates and the desire to lend in the first place.  They flood the world with liquidity, generate inflation, then they withdraw it, causing massive defaults.   Then they go round buying up assets on the cheap.  It's the oldest trick in the book.

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."


Thomas Jefferson (attrib.)

Sun, 12/12/2010 - 19:33 | 800613 revenue_anticip...
revenue_anticipation_believer's picture

nothing odd ball about it....back in 1982, just as the South American bust, repudiation of debt payment to the THEN 7 big banks BANKRUPTED ALL THOSE BANKS in 1984....

it was just last year, one of the members of the 1984 Fed, now working for Nouma Japan, revealed just THAT, in 1984 the FED and those banks covered up the bankrupcy, re-funded the their reserves, and THAT debit to the fed wasnt paid off til 1991....

Meanwhile, the excess wealth effect did indeed finally 'break' the USSR, broke their military spending program, broke their ability/will to resist the physical breakup of the UNION into the various 'East Block' countries, including East Germany (the DDR, remember)...

yes, it HAS already been shown, that when 'panic waves' 'risk off' occurs, the flight is BACK TO THE USA has already been shown that China, Japan, others that have surplus funds from World Trade, they end up with DOLLARS....

and the excess DOLLARS, in China...just as in Japan 1988...the FEAR THAT THEY WILL YANK, will cash in....etc...never happened in 1988 by Japan, nor will happen by China 2010...

Yes, " when other governments break under the strain of a dollar-driven global inflation, propose the "solution" of a new currency, maybe even gold-backed....."    that currency of trade/commercial activities will be the USA dollar WORLD WIDE.

Money = DEBT,  now we All KNOW THAT!  and who has the absolute most debt = money....?? the USA...and who can control all the REST of the World money via debt swaps, etc 'notational amount $600 trillion'  and how much of the forex 3 trillion/day is effectively DOLLARS or dollar-tied, in actuality..





Sun, 12/12/2010 - 23:15 | 800890 Bolweevil
Bolweevil's picture

Nice work.

Mon, 12/13/2010 - 00:47 | 801001 blunderdog
blunderdog's picture

Ok, on the third reading, I'm beginning to follow.  I have some more digging to do.

Much obliged, sir.

Mon, 12/13/2010 - 08:40 | 801230 blindfaith
blindfaith's picture

all good points  revenue_anticip...
, but there is one point that is off.  "Meanwhile, the excess wealth effect did indeed finally 'break' the USSR" , what did the USSR in was $8.00 oil not excess wealth (or Ronald Reagan), but the lack of incoming profits from oil.  Oil sales kept much of their economy going and the $8.00 a barrel pulled the plug on everything.

Sun, 12/12/2010 - 17:01 | 800432 Everyman
Everyman's picture

Not quite asshole (RnR).

Look at the price of Gas, Milk, food, etc.  All that is "price inflation" and it PREcedes "dollar inflation/defaltion".  However you want to argue, the money is worth less, and it costs more to buy shit will shitty fiats.  Welcome to the new "this time it is different".

No matter what you call it, it is all the same: crooked, corrupt, contemptable and just palin wrong.

You are another asshole out there with no answers and just gets by on his blatant arrogance.  You offer nothing to the discussion at all except for mental instability.

Sun, 12/12/2010 - 17:07 | 800440 Red Neck Repugnicant
Red Neck Repugnicant's picture

If QE2 is inflationary, can you explain why the DXY has increased since QE2 commenced?

Increases in commodity prices is due to the dollar carry trade. 

Increases in gold/silver is due to worldwide currency paranoia and debasement (not just US$), fear, rumors, speculation and short squeezes.

Sun, 12/12/2010 - 17:26 | 800465 tmosley
tmosley's picture

You're on a real streak, aren't you?  Using the DXY to measure inflation is like using a fast melting stick of butter as a ruler.

Why EXACTLY is it that you think that the dollar carry trade came into existance?

Sun, 12/12/2010 - 17:27 | 800467 dnarby
dnarby's picture


Sun, 12/12/2010 - 17:49 | 800493 Red Neck Repugnicant
Red Neck Repugnicant's picture

Why EXACTLY is it that you think that the dollar carry trade came into existence?

Because our cost of money is near zero. 

Listen lady...

In the past 24 hours, I've put you on a rotisserie, smeared you with barbecue sauce, fired up the flames, and stuffed an apple in your mouth.

For you to continue questioning me from thread to thread is totally ridickerous. Quite frankly, I've never seen someone repeatedly fall on their face like you - you must be some sort of full-time masochist furiously typing away while your dominatrix runs to PetSmart to buy you food. 

There wasn't one part of that conversation about agencies, par and interest income that you got right, and yet you kept going, and going and going. 


I'll start answering your questions as soon as you explain why paying 2%-3% over par is a "guaranteed loss" of money.  And don't tell me that all those agencies are worthless, either.  If that was the case, I'd suggest you start buying default swaps on million dollar mansions in Newport, because PIMCO would be insolvent.    

Sun, 12/12/2010 - 18:09 | 800514 tmosley
tmosley's picture

Pfft.  Sure, you were right in everything you said, and I was wrong in everything I said, but only if you substitute your false perceptions about what I was saying.  Remember, when you didn't know the difference between price paid and current market price? 

The only way you "win" debates is by shoving words down other people's throats, and pretending like the comments and positions YOU ascribed to them really were theirs.

Also, you now seem to be under the impression that I am a female.  Again, this shows your extreme lack of reading comprehension.

Sun, 12/12/2010 - 18:34 | 800546 Red Neck Repugnicant
Red Neck Repugnicant's picture

Remember, when you didn't know the difference between price paid and current market price?

WTF are you talking about? 

Listen lady, I'm done with you.


Sun, 12/12/2010 - 18:40 | 800554 tmosley
tmosley's picture

Best find yourself another website then, Illiterate.

Sun, 12/12/2010 - 18:51 | 800572 Everyman
Everyman's picture

Csan you explain a 25% increase in Gasoline in one month???  How is that NOT inflation ass gas?

You are a disaster as a fiscal, monitery, or economic analust.  YOu have NO standing and your facts are like those of "the Bernake" and I really hope somebody romoves that asshole and others like him from our planet.  YOU included.


Ass gas.

Sun, 12/12/2010 - 19:11 | 800590 Red Neck Repugnicant
Red Neck Repugnicant's picture

Csan you explain a 25% increase in Gasoline in one month???

I'm not aware of gas increasing by 25% in one month. 

But that doesn't matter.

Just because the price of something rises, does not mean that it is inflation, or the fault of Bernanke or the policies of Obama. 

During the month of November, pumpkin pies increase in price.  During the month of February, roses increase in price. The market value of a one year old Toyota fluctuates all year long. Lots of things are seasonal, while other things are just responding to temporary supply/demand dynamics.     

Not every price increase is Bernanke's fault, even if the exact cause of the price fluctuation is unknown to you or me.

By the way, you're very angry and extremely emotional. Are you ok?


Sun, 12/12/2010 - 19:16 | 800596 tmosley
tmosley's picture

I see.  So December is suddenly the peak month for gas usage.  That's your excuse?

Why don't you get back to sucking Bernenke's dick?

Mon, 12/13/2010 - 00:15 | 800960 Bring the Gold
Bring the Gold's picture

Why don't you get back to sucking Bernenke's dick?


I see no evidence to suggest he ever stopped.

Sun, 12/12/2010 - 19:23 | 800600 Everyman
Everyman's picture

They are defninatly benny's fault if it is bacause of currency debasement.  ALL the charts are showing that, and that is the monster he has created and will engulf all.  The QE's don't matter anymore because you simply cannot keep printing money to pay for the previous debt.  Hell what we on here 3 or 4 or 5 bailouts now with all the QE's and POMOs?

It is currency debasement and morons like you don't get it.


Go tap dance in a box of broke glass you asswipe.

Sun, 12/12/2010 - 21:46 | 800770 Herd Redirectio...
Herd Redirection Committee's picture

There comes a time where you want to give someone the benefit of the doubt, and there comes a time where you just have to admit some people are paid Internet trolls.

Red Neck and Harry Wanger are paid internet trolls, disinformation providers, agents provocateur.  Hope they are paying you a lot to do a below average job!  Not to mention you are selling out humanity, congratulations. 

Red Neck, did you ever see 'They Live' where its explained "Most people just sell out right away"???  They were talking about you.

PsychoNews: Filtering through the Disinformation every day.

Sun, 12/12/2010 - 22:08 | 800793 Everyman
Everyman's picture

True, most do sell out right away.  "They Live" is one of my favorite flicks.

The sellout

The Revelation

We are now at the revelation of our finacial economic system. 
"They Want".



Mon, 12/13/2010 - 01:18 | 800989 G-R-U-N-T
G-R-U-N-T's picture

Hm...Sun glasses that see reality. I like his sarcasm "It figures it would be something like this"...a reaction that I would probably have.


Sun, 12/12/2010 - 23:27 | 800904 DaveyJones
DaveyJones's picture

has anyone told whoever hired RNR they're not getting their money's worth?

Mon, 12/13/2010 - 17:59 | 802781 RockyRacoon
RockyRacoon's picture


Funny.  I think he's on probation and working extra hard.

Sun, 12/12/2010 - 20:03 | 800649 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Obama blamed Bush in every breath for everything during the campaign so he could get elected.

Obama is responsible for everything and anything that occurs while he is POTUS.

Or do you not believe an African American is capable of responsibility?

Are you a racist?

Sun, 12/12/2010 - 23:33 | 800915 flacon
flacon's picture

LOL! You give Obama too much credit. He is actually just a puppet and can't think or write books by himself. I wouldn't be surprised if JP Morgan was the guy writing the teleprompter messages. 



Sun, 12/12/2010 - 22:15 | 800800 Crisismode
Crisismode's picture

You are a hideous relic of a time that has sadly passed you by.

Your presence on this forum is an insult to all the people here with an intellect greater than that of a shrew.

Please begone.

Mon, 12/13/2010 - 01:28 | 801046 Red Neck Repugnicant
Red Neck Repugnicant's picture


If only you truly knew how absurd your comment is. 

Think deeper. 

When it comes to money and investing, when was the "crowd" ever right?

Sun, 12/12/2010 - 20:02 | 800646 Calculated_Risk
Calculated_Risk's picture

Liberals love re-defining words to fit their argument... I was debating one moron whom tried changing the meaning of ironic, by the time he was done pretty much the entire websters dictionary had to be re-written. What a waste of breath that was! Fucking idiot still didn't have a clue.

Sun, 12/12/2010 - 18:44 | 800557 clymer
clymer's picture

Oh, redneck, this is just plain weak.. "you must be some sort of full-time masochist furiously typing away while your dominatrix runs to PetSmart to buy you food"


weak. This reads with all of the maturity of an adolescent.

Sun, 12/12/2010 - 20:05 | 800652 Calmyourself
Calmyourself's picture

It uses what it has..

Sun, 12/12/2010 - 20:26 | 800675 Everyman
Everyman's picture

It uses what it has..

I almost pissed myself on that one.  "It rubs the lotion on it's skin."


Sun, 12/12/2010 - 21:22 | 800745 Calmyourself
Calmyourself's picture

Ha, I almost used that but thought it too snarky..  "It rubs the inflation on it's skin or it gets the hose"...

Sun, 12/12/2010 - 22:23 | 800811 Everyman
Everyman's picture

"It get's the hose."


It is sick that some on here are apparently as warped as I.

Sun, 12/12/2010 - 21:57 | 800781 Fearless Rick
Fearless Rick's picture

Hey,  Redneck, STFU. I've seen some ignorant trolls around here, but you're just off the chart stupid.

Sun, 12/12/2010 - 22:19 | 800803 Crisismode
Crisismode's picture

The fact that Tyler Durden allows him on here is an indication of how much TD wants to bait you all, and watch your reactions like rats in a maze.


Go for it, boyz!


Sun, 12/12/2010 - 23:24 | 800902 Bolweevil
Bolweevil's picture

Didn't you just call him a relic? Did someone hijack your account?

Mon, 12/13/2010 - 00:20 | 800966 Bring the Gold
Bring the Gold's picture

So Tyler Durden would be more aptly named "Zeke Hawkins" the William Baldwin character opposite Sharon Stone? It's a fun thought experiment and heck it could even be true. Funny regardless.

Mon, 12/13/2010 - 01:11 | 801026 blunderdog
blunderdog's picture

Never forget, this whole ZH thing is just a CIA-sponsored honeypot to lure in the fringe thinkers and potential future assets....have you been contacted by an old college friend yet?

Mon, 12/13/2010 - 18:01 | 802785 RockyRacoon
RockyRacoon's picture


Sun, 12/12/2010 - 23:29 | 800906 UninterestedObserver
UninterestedObserver's picture

When inflation (real inflation, not CPI bs ) is higher than 2-3% then you are guaranteed to lose money - not a difficult concept...

Sun, 12/12/2010 - 17:49 | 800494 EscapeKey
EscapeKey's picture

What you neglect to say is that the DXY is weighted vs a basket a currencies, consisting of EUR, JPY, GBP, CAD, CHF and SEK.

The Euro's been hitting the skids as of late.

The JPY hasn't been performing well either.

The GBP has been fluctuating, the market's still waiting for the verdict in terms of their austerity.

CAD, CHF, SEK have been performing relatively well, but their impact on the basket is only marginal.

So, overall, the Dollar has been doing well, because every other currency has been doing worse.

Sun, 12/12/2010 - 18:29 | 800536 Red Neck Repugnicant
Red Neck Repugnicant's picture

I'm in total agreement. Movements in the DXY are predicated on many, many variables.

But if the Fed suddenly enters the market with a $600 billion (supposedly) inflationary program, that would have an undeniable affect on the DXY.

The simple fact is: QE2 is not inflationary. It's simply a way to for the Fed to start accumalating government debt, so if/when rates rise, the net cost to the Treasury is zero. 



Sun, 12/12/2010 - 18:44 | 800559 EscapeKey
EscapeKey's picture

The only reason why QE2 theoretically isn't inflationary, is because the banks aren't lending, and thereby not growing the money supply. But that IS changing. M2 is in positive territory, the velocity of M3 (SGS) is strongly positive. So it comes down to which money supply you consider to be the "true" one.

Additionally, excess reserves have actually fallen for the past 6 months by nearly 20%. Sure, they're still massive, but the 1st derivative is strongly negative.

Sun, 12/12/2010 - 19:16 | 800595 Red Neck Repugnicant
Red Neck Repugnicant's picture

If the bank wanted that bond to become cash, they could have exchanged it for cash instantaneously in the open market. Basically, a bond note is a cash note. 

The fact that the Fed exchanged it for them means nothing in the conversation of inflation. If the bank wanted to increase it's lending against that asset, it could have done it easily, anyway.


Sun, 12/12/2010 - 19:19 | 800598 tmosley
tmosley's picture

The only way it would be the same would be if they were selling to conterfeiters.  When the Fed buys treasuries, they do it with money created out of thin air.

Why are you even here?  You're not going to convince anyone.  The people here are too smart for you to fool with with your lame assed convolutions.

Mon, 12/13/2010 - 00:22 | 800973 Bring the Gold
Bring the Gold's picture

Indeed, I come to Zero Hedge to feel dumb. Unbelievably bright people here aside from a handful of idiots and a legion of trolls and folks with agendas.

Sun, 12/12/2010 - 19:33 | 800604 EscapeKey
EscapeKey's picture

When selling the bond on the open market, the cash included in the transaction already exists. But the Federal Reserve prints the money, hence their (the PDs) reserves are increased, and this increase is then levered when loaned. That's from where the inflation will arrive.

Mon, 12/13/2010 - 01:16 | 801033 Red Neck Repugnicant
Red Neck Repugnicant's picture

But the Federal Reserve prints the money...

No.  This is not correct.  I've said repeatedly:  the Fed is not printing money in QE2.  The Fed is simply moving money from the member banks' savings accounts to their checking accounts, thereby lowering the rate of interest that a bank receives on that money; cash earns X% while bonds earns (X + a little more)%.  The money in circulation is not changing, nor is there any additional assets being added to the economy. This is an electronic transaction out of thin air, and has absolutely no impact on the printing presses. 

The point of this is threefold:  

1. To allow our government to spend money interest free.  if the Fed rebates interest income to the Treasury at year end, the US government can spend money interest free.

2. To reduce rates on bonds in general, making the potential returns on lending money in the private sector more attractive for banks.  

3.  To lower the interest income on member banks' accounts at the Fed.  Banks make less money on cash reserves than they do on bond notes. The idea is that banks will become more inclined to loan that cash to find better yield. 

The future threat to inflation is pretty much as you say.  If (or when) the member bank decides to put that cash to use, then all the so-called evils of fractional banking are in play.  Right now, though, the velocity of money is basically nothing.  If there ever becomes any indication that too much money is being diffused through the system, the Fed truly can turn the spigots off in - you guessed it - 15 minutes. Rates can go up. Reserve requirements can rise.  The movement of money can be adjusted in the blink of an eye. Don't fuck with the Fed.  

The threat is deflation, not inflation.  

Mon, 12/13/2010 - 04:23 | 801131 EscapeKey
EscapeKey's picture

Well, I think we're adults enough to realize that printing money isn't actually physically printing the money in today's world, and that was quite obviously not what I was talking about. It is adding a few digits to an account, kept with the FRB, end of. This reserve account can then be converted into Federal Reserve notes, if they ask for it. But ignoring this, adding to this account = adding to reserves. And those reserves are the basis of the fractional reserve money multiplier.

Mon, 12/13/2010 - 10:10 | 801330 Red Neck Repugnicant
Red Neck Repugnicant's picture

I respectfully disagree, EscapeKey.  This is a very important distinction - paper and digits.  

Everyone here thinks that QE2 is a massive money printing operation, in which Bernanke drops cash from his helicopter onto the American economy. They think money supply is increasing by $600billion, and hyper-inflation is right around the corner.  

This is simply not true, and speaks to a very important distinction.  

By making a digital adjustment in a computer, the Fed is doing nothing other than extending a line of credit to the member banks' checking accounts.  This is a line of credit they currently don't need nor want, and that is why they are against it - cue 23 Republicans to write an open letter to the media against QE2.  

If you take your house and convert it to a line of credit, are you any wealthier?  Have you changed your assets?  

If you move money from your savings account to your checking account, are you wealthier?

I do agree with you that once the banks begin to request cash for that line of credit, all arguments regarding fractional reserves deserve merit.  But that's not happening anytime soon, and Master Bernanke can instantaneously adjust reserve requirements when he wishes. He can remove that line of credit that he just created - in 15 minutes. 

Very subtle, yet very big distinctions here.  By the way, you have my respects - obviously, you've got a good grip on this stuff, and I appreciate the level-headed discussion.  Many of the others around here are just fucking freaks, which explains my occasional antagonistic tone.



Mon, 12/13/2010 - 12:48 | 801696 Max Hunter
Max Hunter's picture

You are right that QE is not causing inflation in the way that our government measures it. But keep in mind, the artificial demand for debt created by the FED is not having the desired effect. Interest rates are climbing.

Additionally, the notion that this money created by the FED could, at some point, hit the economy (much to the Bernanks chagrin) and have the effect many fear IS causing speculation in commodities (food, energy) and PM's ultimately proving to be inflationary to 80% of the population whose spending ability is profoundly affected.

Theoretically you are correct, but this is simply another model that will prove a failure much like the false increase in home (asset) prices in the 5 years prior to 2008.

Mon, 12/13/2010 - 15:06 | 802144 Red Neck Repugnicant
Red Neck Repugnicant's picture I finally have someone that might agree with me.

Now, let's go a step further...

If misfounded speculation about inflation from QE2 is erroneously pushing the cost of commodities, would you argue that this spike will correct as investors realize the inflationary forces are not really there?

Banks aren't lending because people don't want debt. You can give the banks a $10 trillion dollar credit line; it doesn't matter if velocity is zero.  So long as this is the trend, the fear of inflation is the wrong boogeyman. 

Once lending picks up, and public confidence resumes, the Fed can (and will) adjust "credit lines" as necessary.  Right now, the Fed is giving the banks unlimited credit, and rightfully so.  

Mon, 12/13/2010 - 17:00 | 802602 Max Hunter
Max Hunter's picture

I agree to a point that commodities could fall if the "fear" is not present. But, in order for confidence to pick up the credit will be needed for economic activity. You can't have your cake and eat it too..

Sun, 12/12/2010 - 22:59 | 800739 Sancho Ponzi
Sancho Ponzi's picture

I could go on forever, but will keep my comment brief. First, please learn the difference between it's (it is) and its as it reduces your credibility. There are structural problems in the economy that cannot be healed by ZIRP, QE1,2,3,4,5, etc. Here are a few:

1) Percentage wise, there are fewer people employed in the private sector supporting a growing number of people who are either unemployed or working for fed, state, county or city governments. Tax revenues won't be increasing significantly for years.

2) The two largest manufacturing related industries are residential/commercial construction and automobile production. The auto industry is on life support, and construction has flatlined.

3) Entitlements are not fundable and must be slashed 

4) Any attempt by the Federal government to spend and take the slack out of the economy is offset by layoffs and cutbacks by state/county/city governments.

This game has already been played in Japan. There was no recovery in Japan, and there will be no recovery here. Low interest rates and massive deficit spending are not conducive to sustainable economic recovery. Such an economic policy has one purpose, and that is to keep the tanks off the streets, keep the big banks and financial institutions solvent, and facilitate big, fat bonuses for financial management, i.e., keep TPTB in power.


Mon, 12/13/2010 - 01:25 | 801041 Red Neck Repugnicant
Red Neck Repugnicant's picture

True. It has been played in Japan.  And what the fuck happened after their version of quantitative easing?

Wild inflation?  


You had a momentary jolt to the markets that lasted a year or so, and then everything continued on its downward deflationary trajectory. 

If you truly know anything about Japan, you should see the true threat: deflation.


Sun, 12/12/2010 - 23:40 | 800924 flacon
flacon's picture

Where does the money for FOOD STAMPS come from? What about unemployment insurance - or paying the soldiers, or all those hundreds of thousands of government employees? ALL of that money is FRESH, CRISP, STINKY dollar bills that have magically sprung into existence and are spent at FACE VALUE for the FIRST TIME by government "workers" who PRODUCE NOTHING.  Where do those dollar bills come from? From the purchase of TREASURY BONDS, that's where. DIRECT HYPERINFLATIONARY MONETIZATION.


Just don't want you to forget about our inflationary friend "government spending". 



Mon, 12/13/2010 - 00:04 | 800954 Dollar Damocles
Dollar Damocles's picture

You are absolutely right.  The focus should not be on the banks and consumer or business loans.  The focus should be on the fact that the US gov and all it's economic dependents are multiples larger than the US productive economy can support.  Check out my previous posts earlier in the feed.  I think you will agree.

Mon, 12/13/2010 - 00:24 | 800975 Bring the Gold
Bring the Gold's picture

+1, Great post flacon. This isn't talked about enough.

Sun, 12/12/2010 - 18:16 | 800522 KickIce
KickIce's picture

Fair question, but my guess is you would be singing a different tune if the Euro wasn't tanking.


Sun, 12/12/2010 - 17:12 | 800448 blindfaith
blindfaith's picture

it would be nice if you did a bit of homework before you do all these offense Red Neck.

The Treasury has been paid the "cash" by the banks from selling the bonds to the banks.  The banks sells the bond to the FED to get the money back.  Easy and they make a cool 10% for doing it.

The Treasury then takes that cash (it got from selling the bond to the bank) and funds the government with money that was not existing before.  That new money dilutes the cash in circulation, thus you have inflated the money supply. 



Why do I get the idea you are employed by FOX or Newscorps?

Sun, 12/12/2010 - 17:52 | 800497 Violetta (not verified)
Violetta's picture

I'm glad I'm not the only one here who has yet to understand the details!

Are you serious, 10%?

I am still confused by what the banks are doing with this profit, and how it is "juicing" the stock market.  Someone else wrote that the banks take the profits from the POMO auctions, and invest in the stock market. How do they do that?

Sun, 12/12/2010 - 18:05 | 800510 Red Neck Repugnicant
Red Neck Repugnicant's picture


Your post has some errors:

The Treasury then takes that cash (it got from selling the bond to the bank) and funds the government with money that was not existing before..

Not true.  When the Treasury got the cash from the bank, the Fed had NOT entered the picture yet.  That cash absolutely already existed.

That new money dilutes the cash in circulation, thus you have inflated the money supply.

That cash already existed.  It never increased the money supply.

Follow this:

1. Bank buys bond from Treasury

2. Treasury gets cash from bank

So far, no money has been created nor destroyed. That money goes to fund government programs, and the Fed hasn't been part of the equation.

Enter the Fed...

3.  Fed buys bond from bank.

4.  Bank exchanges bond for cash.

Now, the bank has the original cash it had before.  No difference.  The only difference is that bond becomes interest free since the Fed will rebate all interest income back to the Treasury. 

No change in money supply.  It's simply a change on the bank's accounting ledger, and they collect some profit for the transaction. 


Sun, 12/12/2010 - 18:26 | 800523 EscapeKey
EscapeKey's picture

The inflation doesn't set in until the bank, which now have additional reserves, via fractional reserve banking lends this amount, say, 10x.

But the interesting bit here is - against which money supply do you measure this? 

And once, as you say, yields elsewhere will be higher than government bonds, who exactly but primary dealers will buy these bonds, considering the government relies on perpetually low yields?

IF Ben then decides to choke inflation via higher interest rates, then it follows the yields on the treasuries must follow, and hence the debt will be more expensive in terms of interest - which is a serious issue, as the amount of treasuries rolled on an annual basis is significant. And that also doesn't consider all those in the private sector who rely on cheap financing, who will go bankrupt as a result of higher interest rates.


Sun, 12/12/2010 - 18:20 | 800525 KickIce
KickIce's picture

Yet we have an entirewarehouse full of unusable $100 bills.


Sun, 12/12/2010 - 18:53 | 800574 clymer
clymer's picture

Redneck.. You can't honestly believe that this ponzi can perpetuate ad infinitum. How many times can the debt ceiling be raised before those selling for petro dollars start l(o)(o)king for an alternative? The rapidly decreasing faith in fiat has precisely everything to do with how the masses are increasingly feeling about the "masters of the universe".

Not everyone is a cowering, kowtow and even mighty Ben has conceded that this ponzi will eventually end.

Sun, 12/12/2010 - 21:34 | 800752 Calmyourself
Calmyourself's picture

Too many folks think the tipping point is the banks lending out the money Ben keeps shoveling in, it is not.  The tipping point is the psychological point of the truth being realized by the masses.  When that happens true hyperinflation ( a loss of psychological confidence in the currency) can happen in days.  The reason our propaganda is so well synced among different outlets is to keep the faith in the Government through coordinated messaging, once that is lost, it is over.  The Truth is the tipping point, thank God most will never get perceive it as such.

Sun, 12/12/2010 - 21:57 | 800782 Double down
Double down's picture

The key for the FED at this juncture is to convincingly rationalize the schizophrenia: Shortage of cash in the real economy and "ample liquidity" in the financial world.  It is this problem they are working to unwind while controlling the negative side effects on credibility.  I add that this is a fundamental problem with Socialism. 

Sun, 12/12/2010 - 22:02 | 800787 Herd Redirectio...
Herd Redirection Committee's picture

I was recently at a grocery store that is being taken over by new owners, so part of the transition is to sell all the current inventory, and then restock.  Primarily accounting reasons, and simplicity in the transaction. 

BUT... To go in and see empty storeshelves is a real shocker.  And I can only imagine if you went to the store and what you were looking for is out of stock (bread, milk, eggs) you would become very distressed, in a very short period of time.

Those are the moments where things can really accelerate, and things quickly escalate from people hoarding goods/emptying the entire shelf, to outright theft within a space of 48 hours.

If food producers or oil producers start asking for precious metals in payment (one 1kg of lamb for 1 oz of silver), (1 oz of gold for 20-25 barrels of oil), hold on to your hats.  I don't know why they aren't doing that already, unless you are being threatened not to by the Empire!

Sun, 12/12/2010 - 20:25 | 800672 chubbar
chubbar's picture

Not true RNR, the bank ends up with NEW cash from the FED, not their old cash that now resides in the gov't.

I might also add that the gov't spends 100% of the cash it raises from selling bonds, it isn't stuck in some reserve account. The banks are only a conduit for the FED to print money to fund the gov't spending in excess of tax receipts.

In the transaction you desribe above, the gov't sells the bond for cash from the bank (say 1 billion). The bank then sells that bond to the FED for 1 billion. The Fed ends up with the bond. The banks now has a new billion in cash from the FED and the U.S. gov't has a billion cash it got from the bank. That's two billion in cash now in existence from the 1 billion in existence prior to the transaction. How the fuck do you conclude that nothing has changed in the money supply???

Sun, 12/12/2010 - 22:05 | 800791 Herd Redirectio...
Herd Redirection Committee's picture

He lives in a pretend world where the Fed remits ALL earnings back to the Treasury, and the increase in cash was really just in the 'reserves' of cash the Fed holds for the banks.  That all this money is created out of thin air is of no concern to him, because you see, the Emperor DOES have clothes on, we just aren't smart enough to see them like Harry and Red Neck do.

Mon, 12/13/2010 - 01:55 | 801066 Red Neck Repugnicant
Red Neck Repugnicant's picture

the bank ends up with NEW cash from the FED, not their old cash that now resides in the gov't.



No. Sorry. You're wrong. There is no new cash being printed, and there are no new assets in circulation.  

There is simply a movement from the banks' savings accounts (bonds), to their checking accounts (digital cash). It is nothing but an activity on a ledger, a digit on a screen.  

Here's the exception:  That digital cash could be printed into new cash if the banks wanted to convert that digital entry on their ledger into a loan into the private sector, but right now that is not being done.  There is no demand for loans, at all. That cash (paper and digital) is just sitting there waiting to find a place to go.  When it sits, it is not inflationary. 

I might also add that the gov't spends 100% of the cash it raises from selling bonds, it isn't stuck in some reserve account. The banks are only a conduit for the FED to print money to fund the gov't spending in excess of tax receipts.  

I agree.  The only money "stuck" in reserve accounts are those belonging to the member banks. Some of it is in paper cash. Some is just digits on a screen.  

I never said that Treasury bonds don't get spent. 

Sun, 12/12/2010 - 23:49 | 800934 centerline
centerline's picture

Hmmm... perpetual motion machine.  Nope.  That one hasn't worked out either.  

Nonetheless, some great posts here tonight - my head hurts now.  Ouch.  I think a couple of brain cells just committed suicide.

Mon, 12/13/2010 - 02:15 | 801081 cranky-old-geezer
cranky-old-geezer's picture

When treasury sells bonds the money comes from people who have money or the Fed creating money out of thin air.  A bank intermediary doesn't change anything.

When newly created money received from the Fed via an intermediary bank is spent by government it enters the money supply, increasing the money supply. 

This is simple enough a third grader can understand it.  Why you can't seem to understand it is beyond me. More likely you don't want to understand it.

Whether you respond or not is immaterial, I don't care what you think, your opinions aren't determining what's happening now nor in the future, just like my opinions aren't determining what's happening now nor in the future, nor am I into debate, I usually express my opinion and let it go at that.

And your ad hominem attacks merely get you labeled an adolescent troll here, irrespective of your actual age or status elsewhere.

Mon, 12/13/2010 - 08:18 | 801211 blindfaith
blindfaith's picture

I am sorry Red Neck, I am not going to bother reading your stuff anymore.  You are working for someone trying to get a twisted point of view on the table.  You mix just enough correct with incorect information to sound ( somewhat) believable.


To quote you "That cash absolutely already existed."  Then according to you, all the cash in the USA has been there all along.  No boubt hidding under the porch with all those cans of green beans you talk about.


enough with you, I have been had and had enough...any good points you have made are lost in the BS.


Sun, 12/12/2010 - 18:17 | 800524 Old Europe Avan...
Old Europe Avant-Garde's picture

Your description of the PD's job brings Dire Straits song ("Money for nothing ...") to my mind.

Sun, 12/12/2010 - 21:26 | 800748 Calmyourself
Calmyourself's picture

CNN, MSNBC would be a better fit for the nonsense he is trying to peddle.. QE to infinity buy, buy, buy don't be left behind.  I get the whole two parties same path just different speed to hell thing but really we can ascertain the differences in our propaganda.

Mon, 12/13/2010 - 04:10 | 801128 John_Coltrane
John_Coltrane's picture

I bet RNR believes you can reduce the entropy in a system (amount of disorder) without without doing any real work (i.e. expending energy) too.  Wealth is only created via work, savings, and productivity-the central tenet of the Austrian school of economics.  The counterfeiting/ponzi analogy given by others to the FEDs QE2 methods is the exact financial analogue of my entropy example.  (By the way, the purpose of human life is to reduce the entropy in our finite closed system-the earth.  However, nature and thermodynamics wants to increase the disorder-so as zero hedge states:  on a long enough timelife death, actually heat death, is the only possible final state!) 

Sun, 12/12/2010 - 17:22 | 800457 Sean7k
Sean7k's picture

The FED purchased the bonds from Treasury- not the banks. They purchased new debt that had not existed up until that point with new debt that had not existed up until that point. This debt is then positioned on a balance sheet we have no access to, but is guaranteed by the taxpayer.

The bonds could be cashed, but not necessarily for the same amount of cash and depending on how many were redeemed, could seriously diminish the value of all bonds.

The money supply may remain the same, but the credit supply has not and that has ramifications to bond values. Reserve requirements cannot be changed willy nilly. This is why mark to market was suspended. 

Finally, the interest goes to the treasury as profit, but the debt remains with the FED and this debt is guaranteed by the taxpayer. This debt still exists. If this debt overwhelms the faith in the dollar- the effects will be immediate.

Sun, 12/12/2010 - 17:54 | 800499 Violetta (not verified)
Violetta's picture

What about the PDs? I thought the Treasury sold the bonds to the PDs, who then sell them to the Fed.

Sun, 12/12/2010 - 20:29 | 800677 hardcleareye
hardcleareye's picture

They purchased new debt that had not existed up until that point with new debt that had not existed up until that point.

Can you expand on this sentence?

This debt is then positioned on a balance sheet...

The bank's balance sheet or the Fed? 

The money supply may remain the same..

Can you explain....

What is the  "...the debt remains with the FED and this debt is guaranteed by the taxpayer"?

What is the current "debt that remains with the FED"?

Has anyone put together a flow chart?

Were can I get info to explain in detail how this works????

Sun, 12/12/2010 - 22:21 | 800805 Sean7k
Sean7k's picture

The FED is creating new money by pyramiding on top of securities it holds. Then, it buys bonds issued by the treasury. It can pyramid upon these bonds as well. They are positioned on their balance sheet. The treasury receives money for the bonds it can now spend (and does) while this debt accumulates on the FED sheet. It doesn't disappear- it is held as a debt against the future earnings of the citizens of the US.

The money supply has different ways of being measured. The actual money supply may not grow, but the debt accumulated by the system does.

All debt acquired by the FED is payable through taxation. That's you and me.

Try Murray Rothbard, for various titles regarding the FED.

Sun, 12/12/2010 - 18:49 | 800570 Troublehoff
Troublehoff's picture

It's not inflationary, at all.  Those bonds that the Fed purchased from the banks (QE2) were the same as cash to those banks, anyway.  If the banks had wanted to convert those bonds to cash and diffuse/lend it into the economy, they could have instantaneously

The money supply stays the exact same! And if the cash reserves that those banks hold at the Fed begin their inflationary push, the Fed can simply increase reserve requirements to stop that cash from diffusing into the system - in 15 minutes.


If any other investor had purchased these bonds from the banks then the money to pay for them would have come from the existing money supply, which, I agree, would not be inflationary. However, as the FED created new dollars to purchase these bonds, the money supply has increased.


I'm sure that part of the cash received from these bonds is currently chasing commodity prices higher.

Sun, 12/12/2010 - 19:23 | 800601 DosZap
DosZap's picture

Until someone can furnish an M3 frigure, no one knows.

Maybe thats why WE never see it anymore.

Sun, 12/12/2010 - 20:25 | 800670 Thomas
Thomas's picture

When the banks sell the bonds into the market, it is monetarily self sterilizing. When they sell them to the Fed it is not. 

Sun, 12/12/2010 - 21:17 | 800740 SaulA
SaulA's picture

Right on brother!

Sun, 12/12/2010 - 21:18 | 800742 SaulA
SaulA's picture

Right on brother!

Sun, 12/12/2010 - 21:39 | 800758 Stares straight...
Stares straight ahead's picture

One could instead ask what is the motivation of the Fed if they now own so many of the worthless mortgage backed and RE related securities that they purchased to free up the PD's banks' reserves?  Obviously, they would not want these securities to lose value in a deflationary spiral.  So ipso facto, anything the Fed would do, would be with inflationary intent.  

As purchasers of treasuries, they have muted the bond vigilantee effect.  But now they are check-mated to a degree:  Higher interest rates in the future mean poor performing investment in the treasuries they purchased today, so your question of "where does all the interest yield on those securities go?" is not all that potent, as they might be losing money rather than earning it on this investment.  Their main motivation is inflationary.

Canned baked beans have a more favorable calorie/volume than canned green beans, BTW...

Sun, 12/12/2010 - 16:35 | 800388 dnarby
dnarby's picture

You know, me neither.  However...

"If a country could simply buy its own debt with zero downside, I say we should have been doing this all along." - Greg Hunter,

Which makes you wonder why all countries simply aren't buying their own debt.  They aren't, so why not?

Clearly there is a downside to this somewhere.

My understanding could well be wrong, but let's walk through it TTBOMK as I understand it to be quite simple:  Fed prints dollars, which the US gov't spends (promising to pay the Fed back w/interest at some point). 

These dollars are used to purchase real things in the real world, e.g. energy, materials, labor.

These dollars then circulate, raising the amount of dollars, and reducing their purchasing power (inflation).

So, there you have it.  That's how it causes inflation.  They are simply printing money.  Anyone feel free to correct me here.


While the rest of the world may go along with this for some time as they have a great deal invested in dollar-based assets (treasuries and other bonds), not to mention the utility of the USD as a reserve currency (it is handy that way), I personally think the big risk is eventually pissing off the rest of the world to the point where they repudiate the dollar, leading to a hyperinflationary melt up (everyone dumps dollars and dollar-based assets).

Either that, or they look for more stable ways to store value other than treasuries, which eventually become worthless (dollar devalues in a managable, 'orderly' decline per Soros)...  Gee, what could that value store be...  Hm...

Personally, I think the endgame is known, and now it's just a matter of the various actors trying to jockey for position and game it so they can profit the most off the collapse of the system, much like jackals trying to get as many chunks off the corpse of a wildebeest before the giant crocodile shows up and ends the party.

Sun, 12/12/2010 - 16:43 | 800404 IQ 145
IQ 145's picture

 I don't know how to make the most off the collapse of the system; I plan to be content with the results of holding all my savings in Silver Bullion; that should be "good enough".

Sun, 12/12/2010 - 16:49 | 800413 dnarby
dnarby's picture

You may want to consider swapping some of that silver for gold as the GSR drops.

Sun, 12/12/2010 - 17:25 | 800463 IQ 145
IQ 145's picture

 No, thank you; I'm happy with the results of my research.

Sun, 12/12/2010 - 17:29 | 800469 dnarby
dnarby's picture

I'm happy with mine as well, but I see no reason to stop researching, especially when new information presents itself...

Good luck.

Sun, 12/12/2010 - 18:02 | 800507 LeBalance
LeBalance's picture

Some analogy concerning horses slaking their thirst at a water source that you encouraged them to be next to.

Sun, 12/12/2010 - 21:39 | 800759 HungrySeagull
HungrySeagull's picture

While the hard sun of debt dries it up forcing the Fed (Horse Owner) to have a bank loan to lay a pipe line from a lake to keep his horses watered; while hoping to get it all paid off before interest starts to rise or the horses he makes a living off dies.

Sun, 12/12/2010 - 18:25 | 800528 DoChenRollingBearing
DoChenRollingBearing's picture

Dnarby is pointing out that PM diversification is a good thing.  I am even happier with my Au, Pt, Ag and Pd (in decreasing order).

Silver may indeed have a bigger % jump, but NO ONE knows the future, not even someone with an IQ of 145.

Best have some gold too.

Sun, 12/12/2010 - 20:59 | 800714 WaterWings
WaterWings's picture

I have a lot more copper-plated lead than anything else.

Sun, 12/12/2010 - 22:24 | 800814 DoChenRollingBearing
DoChenRollingBearing's picture

Indeed I did forget to mention that Pb moving at a high enough velocity is also a precious metal, thanks for mentioning that!

Disclosure: owner of guns & ammo.

Mon, 12/13/2010 - 01:06 | 801020 WaterWings
WaterWings's picture


That's kind of cheesy. Otherwise...fuck yeah.

Sun, 12/12/2010 - 17:41 | 800482 breezer1
breezer1's picture


Sun, 12/12/2010 - 17:05 | 800414 TheGreatPonzi
TheGreatPonzi's picture

When someone purchases a credit for a house from his bank, the money is printed out of nowhere by the order of the bank. This is an aberration, but so be it. This is fractional banking. So every credit is inflationary by nature.

Then, if every credit is inflationary, why doesn't the US Gov do the same directly with the FED, instead of paying interests to foreign banks?


Sun, 12/12/2010 - 18:16 | 800520 AnAnonymous
AnAnonymous's picture

Which makes you wonder why all countries simply aren't buying their own debt.  They aren't, so why not?


I read the whole comment. Quite some disturbing assertions.

That one for example. The stuff could work for one country at the exclusion of all others.

Your point is like "if stealing from others while never be stolen from makes you richer, why all the others simply not adopt the trick?"

Rather silly. The US is in a position to perform a trick that no other countries can perform because one peculiar feature: the USD is the entry ticket to the world commodities market. Achieved mainly through reserve currency status and military network bases all around the world.

You have  your answer on why the other countries can not performed the trick the way the US is.

And other countries are not in USD because it is convenient for them. But because they are compelled to. Any attempt to withdraw from the USD is interpretated as a Casus Belli by the US as through accumulation, it would remove the specificities that allows the US to perform the trick.

Sun, 12/12/2010 - 19:11 | 800589 kaiserhoff
kaiserhoff's picture

Yes, but for how long?  The dollar is becoming less "special" every day thanks to Traitor Ben.

Sun, 12/12/2010 - 20:44 | 800697 revenue_anticip...
revenue_anticipation_believer's picture

because the USA $ is the World Currency, de facto

you can USE Gold Clauses in contracts, but the actual payment/unit of measure will be the USA dollar....New York is the financial center of the World...

LAND, the USA also owns LAND....lots of land has yet to be distributed, to have liens, to be a foundation for more 'highest and best use' industry...USA can create lots more DEBT that has some credibility of being, in some manner, 'asset backed'. 

USA has the effective military power and economic power, to RUIN any country out there that doesn't see that BASICALLY, the "legal tender law" of the Dollar is in-effect already, de-facto..the devaluation of the USA currency has been about 20 times since 1913,  4.5% per year...another way of looking is that in 16 years there will be TWICE the amount of USA dollarsregardless if twice the actual asset HAS worked, it will took TWO world wars to subordinate the REST of the World, and a long long COLD WAR...too....

And Propaganda....since 1950's the USA has invited Foreign Students to our University...a vast number of 4+ years of propagandized young people, along with the USA style movies produced, dubbed in the local language...further 'americanization' of idea/thought patterns..

Oh, yes, THEY come back to their home countries, not only thinking Western, but speaking/reaking English - the effective/defacto World Language..

ITS not the end of the World by any means...but a whole new world, not necessarily the protletarians of the USA will benefit, much..but the REST of the world blue-collars, new market consumers will benefit, vastly.. 

It is all going according to plan, perhaps? no?







Mon, 12/13/2010 - 02:57 | 800927 Rusty Shorts
Rusty Shorts's picture

So, the United States is set to gain the whole world, yet will lose its own soul?



Sun, 12/12/2010 - 16:55 | 800425 trav7777
trav7777's picture

it won't be so long as the money is taxed out of existence.

Tally sticks or PURE fiat are not inflationary.  That is when government and government alone controls issuance and distribution of money.

the Fed's purchases will only be inflationary at the margins, aka, the deficit portion that is *not* taxed back by the sovereign.  That cash stays out circulating.

Insofar as the interest component keeps exponentiating, this game will end in massive inflation.  To prevent that, the money must be divorced from debt.

Sun, 12/12/2010 - 22:45 | 800841 Double down
Double down's picture

That is why taxes are so unbelievably important and why inflation is needed in the real economy.

All the discussions about the non-inflationary effects of QE assumes that cash is being created, it is, but like you say, not remotely close to expectations. 

A normal treasury auction remain on the balance sheet where the Treaury exchanges a risk free t-bond for a line a credit with the PD.  Against this line of credit the government transacts with third parties in the real economy.  The problem is that the third parties have obligations that require cash settlement, meaning the corporate treasuries can only game government account receivables for so long. 

During QE the fed "buys" treasuries from PD by electronically writing up the balances in the PD reserve accounts.  This is just an expansion of the PDs credit capacity, the potential for bad ass money creation.  However, it is against this capacity the treasury establishes the government reserve so the potential for increased government spending goes up.  Note that this has no positive effect on the government's ability to settle its AP with the real economy.  It needs tax revenues to do that. 

The only link from the financial economy to the real economy are interest rates and they still do work.  


Sun, 12/12/2010 - 16:57 | 800428 Shameful
Shameful's picture

The money supply increases as the Treasury takes the printed money from the Central bank and spends it into circulation by paying for bureaucrats, banker bailouts, welfare transfers, and money to mil-industrial complex.  Increase money supply is textbook inflation.

Now if the debts were retired/repaid and the money taken back in that would in turn be deflationary.  However, no governments have no interest in repaying the debt.  Merely trying to manage it's growth to the level the serfs...err citizens can keep paying on it. 

Sun, 12/12/2010 - 17:06 | 800436 TheGreatPonzi
TheGreatPonzi's picture

You're not answering my initial question. It was not: does money printing without paying back create inflation? (It is obvious that it does).

It was: why borrowing to strangers with an interest rate, when you can borrow to your central bank at no interest rate?

There are only two possible explanations: either borrowing from strangers is useless and thus the result of a conspiracy by bankers who get paid interests that should not be due, either borrowing from  strangers is useful, and there must a missing piece in the puzzle.

Sun, 12/12/2010 - 17:19 | 800452 Shameful
Shameful's picture

The strangers cannot legally print the money and expand the money supply.  If China wants to buy Treasuries they don't rev up their presses and print Dollars to buy them with.  They must take their currency (RMB) and use that to buy dollars, then use those dollars to buy treasuries.  Foreigners buying treasuries puts a bid under the dollar because they must buy the dollar.  It gives the fiat dollar a value because it is desired in this way.

Now if the Fed is buying all the Treasures why would there need to be a bid for dollars from these strangers?  The Fed has dollars and no reason or ability to bid for those dollars with anything but freshly created dollars.  Why would China put in a bid for dollars to simply hold them?  Why would a person use their savings or capital to bid for dollars to store them in Treasuries?  Perhaps they might buy some to transact with, but with modern banking the holding period for holding those dollars need not be long if they are not buying dollar backed assets.

The central bank funding a nations debt is basically an admission that no one wishes to use their value (labor/resources/capital/etc) to bid at the currency and use that currency to invest in debt denominated in that currency.  It's a question of value.  Non central banks must create value and savings to invest into a security like a Treasury.  The central bank creates no value and just dilutes the existing value to buy.  So when a central bank is funding a nation purely with dilution this is ruinous, the currency and the Treasures cease to have value at the end of the line.  However when individuals or even foreign entities buy these securities it's a transfer of value.  This transfer of value creates a perception of value into the market.  It's all about value, the value of work and savings, and the dilution of value.

That answer your question?

Sun, 12/12/2010 - 18:30 | 800541 Terminus C
Terminus C's picture

This assumes, of course, that the Chinese (or any other central bank) is not just printing up their own currencies to purchase USTs.  I think that even this is inflationary (foreign CB's buying each other's debt) however the money pool is significantly larger over the world instead of just a country.

I am not disputing your point, just adding that foreign debt purchase is still inflationary, just at a slower rate.

Sun, 12/12/2010 - 19:07 | 800586 Shameful
Shameful's picture

We are in a global race to the bottom.  All the fiats will end in the same way, a molten pile of slag.  The dollar in specific, and the fiat system in general, is the worlds largest religion.  There is no religion on Earth more widely believed in, prayed to, and defended with more vigor.

In our modern era our money is ruled by faith.  Faith in an imaginary store of value.  And like all faiths when one loses their faith the religion goes up in smoke.  In some ways all fiats must print now.  If they all go down at the same time it will appear to the casual observer that none of them are.  Look at the round robin debasement of the Euro and Dollar.

Sun, 12/12/2010 - 22:27 | 800819 DoChenRollingBearing
DoChenRollingBearing's picture

... a molten pile of slag.

Well said Shameful!

Sun, 12/12/2010 - 23:51 | 800938 Terminus C
Terminus C's picture

All money is a matter of belief.


Adam Smith

Mon, 12/13/2010 - 00:30 | 800977 Bolweevil
Bolweevil's picture

Method Man

Sun, 12/12/2010 - 17:17 | 800453 blunderdog
blunderdog's picture

I think you'd be correct to say that there's no meaningful difference in today's scenario.  However, the founding principle was that the "market" would determine how much it cost you to borrow, serving as a check against a completely profligate print/spend policy.

But when the "market" consists of the Fed maintaining ZIRP, that control factor is lost.  I think the banks were supposed to watchdog against goobermint on this, but they already destroyed themselves, and now don't care what the goobers do as long as it helps delay the collapse of international finance.

Sun, 12/12/2010 - 19:33 | 800614 DosZap
DosZap's picture


" It was not: does money printing without paying back create inflation? (It is obvious that it does)."

Key here, is PRINTING, the Fed is not printing, M3 stats are not known.

Until FRN's are physically printed, and put into circulation, where is the Inflation?.

Adding Zero's on a friggin computer sheet, never sees the streets,so  until the number (actual notes are into circulation), how can this be inflationary?.


Sun, 12/12/2010 - 19:45 | 800628 TheGreatPonzi
TheGreatPonzi's picture

Actually, with credit cards and wire transfers, money does not need to see the streets to be spent.

Sun, 12/12/2010 - 19:52 | 800632 Shameful
Shameful's picture

I have to disagree.  Simply summoning the money into existence is enough assuming that it is used, the physical printing is near meaningless.  How many people in the modern world deal with cash?  I daresay the majority run all transactions electronically, and the money was printed in a format they use, electronically.  Cash could disappear and most people would not miss it.

The printing may just be numbers in a computer but it still acts like money.  Transferring digits in a computer still confirms transactions.  If the Fed deposited 1,000,000,000,000 into your personal account you could still spend it electronically, and have one hell of an Amazon order!

Besides if they have to print it in physical dollars they can do like noted inflationary luminaries of the past and just print out a super huge bill.  The Trillion dollar bill, which I still hope they call the Tricky Dick.  See a Dicky Value menu at McDonalds.  Toilet humor, sure but got to have a little fun when looking into the void :)

Sun, 12/12/2010 - 23:58 | 800948 UninterestedObserver
UninterestedObserver's picture

November deficit was 150 BILLION - the money came from somewhere (or actually nowhere)

Mon, 12/13/2010 - 01:17 | 801034 A_MacLaren
A_MacLaren's picture

Perhaps you should review Steve Keen's work on Why Credit Money Fails.

Physical printing need not occur for prices to rise, as Ponzi Dynamics will drive price level increases creating the instability that leads to the collapse regardless of physical or digital creation.

Sun, 12/12/2010 - 17:59 | 800503 LeBalance
LeBalance's picture

"What prevents a government to lend itself money through its central bank?"

I would say that your thesis statement contains misunderstanding of reality.

The Federal Reserve Bank is not and has never been part of the US goverment.  So it is impossible for the government to "lend itself" (1st use of possessive) money through "its" (2nd use of possessive) central bank.  The government loaning to itself was implemented by 2 Presidents, Lincoln and Kennedy, both shot, of course.

The "money" is not destroyed because the loan is never paid back.  The US is in receivership and so the creditors are first in line for any payment.  They then loan the US the same amount as the payment.

The debt service cost on all these loans is massive.  That service is never paid as well.

The total amount of debt never decreases it just increases.  Only in government (from the Greek: gubernatio [control] AND ment [mind], so its mind control) fairy tale documents do you ever see such a hilarious concept.


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