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Chris Martenson Answers How Long The Party In Stocks Can Last

Tyler Durden's picture




 

Submitted by Chris Martenson

How long can the party in stocks last?

The headlines are screaming at the top of every financial media outlet tonight:  The Dow Closes Above 12,000 For the First Time in Two Years!

What's going on here?  Is the recovery well and truly underway?   And, if it is, why is the Fed dropping hints again that "QE3 may get discussed" at future Fed meetings, as Kansas City Fed President Thomas Hoenig said on Feb 1st?

Given the raft of good economic news lately, one might be forgiven for wondering what the Fed has in mind here.  If everything is so economically rosy, why are they already dropping trial balloons about more Quantitative Easing?  What are they seeing that we are not seeing, that justifies more than $100 billion in thin air money each month, and why won't they just tell us what it is? 

Here's how ChrisMartenson.com member dbworld put it earlier today:

I thought I heard CNBC state the other day that there was seen an inflow into the US Equities market which hasn't been seen in a while. I didn't catch the details, but I'm hoping that Chris has a read on this and an explanation on why the US stock market is so strong.

While it's true that retail investors have only very recently begun moving more money into stock funds than they have been removing, reversing a 33-month-long outflow, this is focusing on the wrong element in the equation.  Retail investors provide only a minor amount of the rocket fuel used to elevate the stock market over the past several months.

Look at the amounts here, and also pay attention to the timeframe:

 

Over a 36 week period spanning from May 2010 to the end of January 2011, there was only one instance of 'investors' putting more money into stock mutual funds than they withdrew, and that one ,outlier was well under a billion dollars.  Over that 36 week period, over $100 billion was removed from the markets by investors.  Even when money started moving back in over the past two weeks, I want you to note the scale; the combined total is $6.7 billion.  Keep that figure in mind.

Instead, we should first focus on the massive injections of raw, potent, thin-air money (a.k.a. "credit easing") by the Fed into the financial system.  Sometimes this is referred to as "liquidity," which it is.  But that's too narrow a definition, because it is much more; it also happens to be high-powered base money (a.k.a. 'Wall Street rocket fuel').

Here's the stock market story over the past eight months:

 

Note that QE II began in early November of 2010 and that the stock market is up 20% since the end of August.

As an aside, I used to track the Fed's thin-air money programs very closely, and if you had told me as recently as three years ago that the Fed would have been running 11-figure POMO operations each and every month, I would have told you it was unthinkably impossible.  But here we are, that is exactly what is happening, and I am largely numb to the process, which worries me somewhat, as it means that my baseline has shifted.

At any rate, the point here is that from those August lows to now, retail investors have taken out far more money from the stock market than they've placed back in; a total of around minus $38 billion.

But over that same period, the Fed has placed nearly an entire order-of-magnitude more thin-air money, some $350 billion dollars, into the hands of financial institutions, some of whom consider the stock market their personal playground.

Here's a chart of the cumulative POMOs by the Fed from the end of August 2010 to now:

 

Should we consider the injection of more than a third of a trillion dollars and a stock market that is up by 20% to be a coincidence?  No, not in the least.  The stock market has become, if anything, a liquidity gauge first and a discounting machine second.  The fundamental that matters most is how much money is flowing into the machine.

So it is my view that the trillions of dollars of thin-air money and deficit spending are finally finding their mark (asset prices) and doing their work, just as I predicted they would.  Where some called for deflation to be the irresistible force that would drag us all down, I've consistently leaned towards the side of inflation.  Although, to be fair, I have always hedged that view somewhat, with a 70/30 split held for nearly 5 years that was recently amended to 80/20 (in 2010 shortly after QE II was announced).

On a Tear

Unfortunately for the rest of the world it's not simply the stock market that is the lucky beneficiary of all this Fed largess.  Thin-air money, once released into the wild, tends to have a mind of its own.

Commodities are now setting new records almost daily.  Where the stock markets still have some catching up to do, commodities are exploring virgin territory.

 

This is serious business, folks.  The future is not going to arrive 'someday.'  For the billions of people who spend a huge portion of their income on food and fuel, it has already arrived.

Looking at the above chart of the past 12 months, what we see is that everything, from metals to stocks to bonds to grains to energy, has experienced profound price increases. That pretty much covers everything you need to live on and the bulk of the paper universe.  Such a chart is a historical rarity for any one country, yet it currently happens to apply to the entire world.  You are living in historic times, which certainly belabors the obvious.

Your Lying Eyes

On the flip side, the story we are being told almost daily is that inflation is very low -- too low, even -- in a worrisome sort of way.  I am reminded here of an old Richard Prior skit where his wife walks in on him in bed with another woman.  To her increasing agitation, he denies that he has been cheating on her, finally shouting, "Who are you going to believe, woman?  Me, or your lying eyes!?"

Well, my lying eyes see something very different in that chart above from what I am being told; instead of worryingly low inflation, I see rapidly rising inflation that is very close to slipping out of control.   

I spend as much time on this subject as I do because the decisions you make based on whether you are protecting yourself from inflation vs. deflation are as different as to whether you grab an anvil or a life raft on your way out the door when facing an emergency. 

I do my best to let the data do the talking, and right now it is saying inflation.

How long will it last?

The old saying is, Don't fight the Fed.  That's good advice.  I have dutifully been following the developing story by watching what the Fed does, not what it says, and by letting prices tell me which way the wind is blowing.  It's a regrettable position to be in, because it's nearly impossible to make any long-range plans when you have no idea what the Fed is going to do next.  But here we are.

How long the stock market rally will last is therefore unknowable, but stocks and bonds and commodities will remain elevated in price for as long as the Fed continues to dump hundreds of billions of thin-air money into the markets.  The only problem is that there's no clear exit strategy for the Fed.

Putting money into the markets is a very easy thing for the Fed to do.  Letting rope let out under full sail is easy; tugging it back in is difficult.

The Fed faces a similar asymmetry.  Market participants are always eager to take fresh money hot off the press.  An infinite number of things can be done with that money almost instantly.  But coming up with money to give back to the Fed for Treasury of MBS paper?  All sorts of difficulties arise.

"Wait, we'd have to sell a lot of things to free up that kind money and what, exactly, are you proposing to hand us in return? Treasuries? Um, no thanks, not right now. Agency debt? Uh, no, that doesn't fit our portfolio needs right now either.  Perhaps next week?"

Further, when the Fed goes to get its money back from the marketplace, that action will drain liquidity, creating ripples throughout all sorts of markets, especially and including knocking the stock market down.  Very few people complain about adding thin-air money; a crowd roars its disapproval for the reverse.

Too Late

The bottom line is that by the time the Fed becomes institutionally aware that inflation is raging across the globe - and I often wonder when they'll finally awake to the threat - it will be too late.  Inflation will have the momentum, and it will take a vast overreaction on the part of the Fed to restrain it.  They'd have to drain enormous amounts of liquidity and tolerate vastly higher interest rates to be able to do that, and I doubt they have the courage for such bold action.  I think they will hesitate, equivocate, and ultimately be late.

History suggests that inflation is best tamed early, but the Fed is already late and demonstrating a remarkable callousness by doing the exact opposite of fighting inflation.  While we cannot know what it is that the Fed sees, or which demons it is fighting that provide the internal rationalization for risking a hyperinflationary outcome, we can only conclude that these threats are more spectacular than the alternatives.  

Unfortunately, these events conform to the main themes that I have been writing and advising about for the past several years.  Sadly, they are not a surprise at all; the only mystery to me so far is how they have managed to carry on as long as they have.

Events of the past few weeks - unrest in Tunisa/Egypt/Jordan, skyrocketing food prices, Dow cracking a 2-year high, dropping dollar with rising bond yields - make me even more confident in the conclusions of my recent report on How This Will All End (published January 12) in which I derive a calculated estimate of when a final fiscal deterioration will overwhelm even the best of intentions. While the money-printing-induced high we're currently on may feel fun today, the unavoidable inflationary smackdown we'll experience tomorrow most certainly will not. 

 

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Wed, 02/02/2011 - 13:30 | 927883 jus_lite_reading
jus_lite_reading's picture

Fact- the EU/UK/US empire is insolvent. What the Fed is doing is simply buying time. So far, they bought 2 years, 5 months. Little did they know, 2 years, 6 months is the limit of time. End of story.

Wed, 02/02/2011 - 14:15 | 928066 Josh Randall
Josh Randall's picture

@jus Here, Here great assessment! They are buying time until all their cronies have their golden parachutes ready and then the permanent answering machine message will be on at the Fed while the world burns and no one is seemingly at the throttle. Thats my prediction 

Wed, 02/02/2011 - 15:18 | 928278 jus_lite_reading
jus_lite_reading's picture

Have we met before? ;)

Wed, 02/02/2011 - 20:05 | 929254 Oracle of Kypseli
Oracle of Kypseli's picture

Waiting for the five year statue of limitation? late Nov 07 to late Nov 12? 

Wed, 02/02/2011 - 15:49 | 928395 Slim
Slim's picture

edited

Wed, 02/02/2011 - 17:53 | 928830 bunkermeatheadp...
bunkermeatheadprogeny's picture

+1

Wed, 02/02/2011 - 16:03 | 928456 Larry Darrell
Larry Darrell's picture

I've almost convinced my dad to get his assests out of the game.  It has taken me longer than I ever dreamed to get this far.

I finally laid it on the line last night, as he asked me the same question posed by the author: "How much longer can it last."

I told him when oil hits $120/barrel, this round is over.  Deflation kicks in.  More last ditch programs. Rinse, repeat.

We had dot com.  Housing bubble gave us 6-7 years before the bust.  This bubble has given us almost 3 years already.  When oil hits $120 it blows again.

Notice the bubble half life getting shorter.  We've seen this with currency interventions around the world.  Half life is shorter and shorter.

Wed, 02/02/2011 - 13:06 | 927769 BORT
BORT's picture

We need the old Volcker rule.  It will hurt everyone that was not short or in cash

Wed, 02/02/2011 - 13:10 | 927785 66Sexy
66Sexy's picture

perhaps the 2008 regulatory capture insures a permanent melt up condition for stocks?

Wed, 02/02/2011 - 13:07 | 927774 Jack
Jack's picture

What the fed sees is that the US government is bankrupted.  They can't fight inflation because they must monetize debt in order to keep the government financed.  For as long as it lasts.

Wed, 02/02/2011 - 13:24 | 927865 gold mining ceo...
gold mining ceos are idiots's picture

They cannot raise borrowing costs as the interest component explodes and to top it off, it destroys any and all hope for the big banks to ever recover the enormity of their balance sheet losses.

 

Not sure why Martenson need so many lines to state the obvious.

Wed, 02/02/2011 - 13:48 | 927953 SheepDog-One
SheepDog-One's picture

Good article, but yes 1 paragraph could have sufficed stating all the FED has is lies and massive injections of fake money so they can live to pump the BS again tomorrow.

Wed, 02/02/2011 - 15:18 | 928277 RockyRacoon
RockyRacoon's picture

How much fun would 1 paragraph have been?  A fella can't catch a break around here!

Too much info -- or too little.  

I thought it was just right!

Wed, 02/02/2011 - 17:05 | 928629 DaveyJones
DaveyJones's picture

thank you Goldilocks

Wed, 02/02/2011 - 19:42 | 929191 RockyRacoon
RockyRacoon's picture

Thank you for bearing with me.

Wed, 02/02/2011 - 18:11 | 928648 milbank
milbank's picture

"How long the stock market rally will last is therefore unknowable, but stocks and bonds and commodities will remain elevated in price for as long as the Fed continues to dump hundreds of billions of thin-air money into the markets."

Wow!  I never would have guessed. 

As usual with Martenson, he uses a lot of words to give me an answer I already know or tell me in a long-winded article that he doesn't know the answer to the question he proffered he had an answer to.

Thu, 02/03/2011 - 13:42 | 931456 Eman Laer
Eman Laer's picture

Suggestion: Don't read Martenson. That way you won't have a reason to make posts like the above.

Wed, 02/02/2011 - 15:49 | 928401 Popo
Popo's picture

The Fed probably sees very little.  Religious zealots never do.

 

 

Wed, 02/02/2011 - 13:07 | 927775 NOTW777
NOTW777's picture

"by the time the Fed becomes institutionally aware that inflation is raging"

they know now - this isnt a matter of becoming "aware"

Wed, 02/02/2011 - 16:17 | 928503 redpill
redpill's picture

Exactly, I don't understand how CM doesn't see this. The Fed knows there is inflation, and more coming. Even if they wanted to stop it, they couldn't. Raising rates substantially is not an option.

They will print until the current dollar dies, and their Wall Street buddies will use all the increasingly worthless paper money to run up stocks and suppress PM prices until the eleventh hour when they finally bail into commodities and gold so they have a stake in the new dollar. Everyone else is fucked, of course.

Wed, 02/02/2011 - 17:18 | 928671 sushi
sushi's picture

They would have to rotate out of 350 billion plus of equity investments. Who are they going to offload that to?

Foreign investors? I think what is taking place is more visible from outside the US than within it.

Public? The same folks who face stagnant incomes, declining home equity, lack of credit, and higher living costs? These folks are going to snap up 350 billion in equities?

Pension funds? These are still trying to come to grips with the utterly fantastic quality of the MBS they purchased.

My sense is the TBTF are plowing into equities as they have no other outlet for the cash. They aren't lending. And when they attempt to exit they all know 350 big ones will not fit through the narrow exits all at once.

So what is the exit plan. I don'tthink they have one. This is just mindless improvisation with no concept of how it will play out. It is Wile E Coyote out over the canyon, feet churning like mad, trying to get to the non existent other side.

 

Wed, 02/02/2011 - 13:07 | 927777 Racer
Racer's picture

The Fed are trying to build a barricade with a house of leaves to fool everyone into thinking that if they can't see the tsunami of debt approaching it doesn't exist and won't cause any problems... until.... like a tsunami.....

Wed, 02/02/2011 - 13:09 | 927781 dick cheneys ghost
dick cheneys ghost's picture

no inflation in iceland................hmm, wonder why

Wed, 02/02/2011 - 13:12 | 927795 EZYJET PILOT
EZYJET PILOT's picture

There is no recovery, show us one without the aid of QE, then it's a recovery. Stocks are going up but so what, you're spending power is down to the same magnitude. The fed is still a fraud and the crooked banks are still profiteering from the collusion with POMO.

Wed, 02/02/2011 - 13:13 | 927799 Johnny Lawrence
Johnny Lawrence's picture

Bernanke & Obama know the stock market is their only hope to keep power.  Obama even led off with a stock market reference in his SOTU

Wed, 02/02/2011 - 14:19 | 928078 crosey
crosey's picture

IMHO, they have already lost their power, but are riding the bomb all the way to the ground. 

http://www.youtube.com/watch?v=wcW_Ygs6hm0

They've painted themselves into a corner in which neither has either the brains or will to admit, and remediate.

 

Wed, 02/02/2011 - 20:48 | 929401 LooseLee
LooseLee's picture

Well, this manipulation of the stock market is a fom of COMMUNISM! It is immoral and against EVERY tenent this country was founded on! I cannot believe the sheeple of the USSA tolerate it. We mock the Egyptians and ohers who stand of for what is right and just. We have become the Russia of the 60's and 70's and the HYPOCRITES of the modern age with our crony capitalism. The banksters, traders, money managers and others who participate in this ponzi lack integrity and have no business calling themselves an American. Heads off for any and all who support this communist policy in the USSA!

Wed, 02/02/2011 - 13:15 | 927808 thepigman
thepigman's picture

What demons the fed is reacting to?

Lack of loan growth at the TBTF bankster

level....increased debt has launched every recovery

in the past 30 years. This time the debt is too massive

to go higher, so Benron has been feeding the TBTFs

 speculative stock gains while hoping for loan

growth. Forget about it. It's over.

Wed, 02/02/2011 - 13:18 | 927827 thepigman
thepigman's picture

The demon is that the TBTFs are now so

big they can no longer feed themselves

and are going to starve.

Wed, 02/02/2011 - 13:49 | 927959 SheepDog-One
SheepDog-One's picture

Yes exactly correct I believe.

Wed, 02/02/2011 - 13:16 | 927812 Quinvarius
Quinvarius's picture

They will print until the banks become solvent.

Wed, 02/02/2011 - 13:23 | 927857 thepigman
thepigman's picture

Actually, he won't print beyond QE2

because inflation kills banking, and

banking is Benron's master. The bankster

herd must be thinned more dramatically

for banking to survive and this what keeps Benron up at

night.

Wed, 02/02/2011 - 14:26 | 927967 SheepDog-One
SheepDog-One's picture

'Too big to fail'...man Ive been hearing that from these assclowns for 2 1/2 years and you can believe how I want to punch their teeth down their throats every time I hear these ivory tower bastards say it. Too big to fail...bunch of rotten dirtbag suits, while they see 320 million people as nothing but useless eater interest payment slaves. We'll see how it all works out, pensioners not able to afford a scrap of food and Egypt riots right here!

Wed, 02/02/2011 - 14:48 | 928184 Nels
Nels's picture

Inflation kills banking?  Maybe the small town banks, but not TBTF banks.  Inflation benefits those who get to handle the new money first, and that's the big banks.  As long as they get 3% on the Fed/Treasury arbitrage, why should they fear inflation?

Wed, 02/02/2011 - 13:32 | 927893 LostWages
LostWages's picture

"They will print until the banks become solvent."

So true...also until the pension funds aren't underfunded.  Stealth bailout with market gains.

Wed, 02/02/2011 - 13:53 | 927974 SheepDog-One
SheepDog-One's picture

And in doing so, theyll have their vaults full of totaly worthless dollars, pensioners can still get their check, maybe, but that wont matter since gas will be $15 a gallon and food will be so high no one can afford anything.

Wed, 02/02/2011 - 13:17 | 927818 LongSoupLine
LongSoupLine's picture

Hmm, NatGas the only big underperformer and it's announced BP is now under investigation for NG price supression.

 

Other than that...silver beotchez! 

Wed, 02/02/2011 - 13:56 | 927986 I am a Man I am...
I am a Man I am Forty's picture

price suppression??  n

Wed, 02/02/2011 - 13:18 | 927819 alexwest
alexwest's picture

i dont understand either im fucking smart, or rest of is fucking stupid..

# "QE3 may get discussed" at future Fed meetings, as #Kansas City Fed President Thomas Hoenig said on Feb 1st?

why everybody think QE is gonna stop??? does anybody understand that sole purpose is QE_nnn is monetize debt or FINANCE US FEDETAL DEFICIT..

does this idiot 'Chris Martenson' undeRstand anything about federal budget AKA real money not bullshit meaningless stats from BEA\BLS\etc..

US GOV SPEND 2 $ FOR EACH 1$ IN TAXES.. PEriod.. its that simple... or basically US GOV is bankrupt , and no matter what FED/COngress/Treasury do in 2,3 eyars
its gonna BE HYPER INFLATION .. 20-30-50% per year..

NOBODY CANT PRINT 100% OF REVENUES W/OUT 'CONSEQUENCES.'

no matter what stats fo GDP/BLS/ are.. this hole cant be digged out.. even doubling all taxes wont balance budget..

so my point is WHY to be SURPIZEd.. ???

alx

Wed, 02/02/2011 - 13:39 | 927921 Commander Cody
Commander Cody's picture

Actually, we're all fucking stupid for letting this happen.  Too bad.  You have it correct, in my opinion.  The Fed will not stop printing until the great implosion, wherein, we are all screwed, except for the the very rich.  They'll have their PMs and exhorbitant amounts of worthless fiat to tide them over.  They'll even have the support of the military, for a while.  The government has been bought - lock, stock and barrel by the TBTFs, and, has been creating the socialist state of their dreams while totally ignoring the cost.  Greed has brought us to this point in time.  Fiscal reality will one day dawn on this "market" and then it will not be greed that drives it, but fear and survival.  Are you prepared?

Wed, 02/02/2011 - 14:33 | 928142 alien-IQ
alien-IQ's picture

When you socialize the losses and privatize the profits, that's not called "socialism" that called FASCISM!

Wed, 02/02/2011 - 17:06 | 928631 Commander Cody
Commander Cody's picture

The government has been bought - lock, stock and barrel by the TBTFs

Agreed - we have a fascist government; however, entitlements galore for the common folk = socialism.  So, it must be a hybrid: fascist/socialist.  Certainly not democratic or federalist or a republic.

 

Wed, 02/02/2011 - 13:54 | 927979 ATM
ATM's picture

20-30-50% per year???

Try per day or hour then maybe it makes more sense. When it hits people can't spend every dollar they have fast enough. It will all come flooding in and prices shoot up by the second until no one will accept a worthless dollar for a real thing.

 

Wed, 02/02/2011 - 13:18 | 927820 Johnny Lawrence
Johnny Lawrence's picture

I like this line:

Very few people complain about adding thin-air money; a crowd roars its disapproval for the reverse.

This is the shit I've been telling my clients on a daily basis. It's like dealing with retards.

Wed, 02/02/2011 - 13:50 | 927962 gravitas
gravitas's picture

amen to that.

Wed, 02/02/2011 - 13:56 | 927987 SheepDog-One
SheepDog-One's picture

Well Ive been complaining about adding thin air money all along. I dont know about the crowds roars of disaproval for the reverse, well those ones will be starving retards pretty quick.

Wed, 02/02/2011 - 14:09 | 928036 kornholio
kornholio's picture

+111111111

Wed, 02/02/2011 - 15:28 | 928311 Seer
Seer's picture

Pulling the tit away should be pretty easy to explain.  If you want difficulty, try getting people to understand the dynamics of "economies of scale" in reverse.  I've been trying to push this out there for quite a while.  I think that if people take a minute or two they can come up with the visual on what this means... but, everyone's been so brainwashed into believing that it all goes on forever.

Not only does the Fed NOT have an exit plan, but the System doesn't as well.  That which cannot go on forever, won't.  The question that people need to ask is: do you have Your own exit plan?

Wed, 02/02/2011 - 13:18 | 927826 Blindweb
Blindweb's picture

The Fed is fully aware of the inflation they're creating.  The fed knows this is the end game for the current system.  Survival is all they care about. 

Wed, 02/02/2011 - 13:21 | 927844 financeguru500
financeguru500's picture

+1. You are absolutely correct. It is now a game of musical chairs and they plan on being in front of a chair when the music stops.

Wed, 02/02/2011 - 13:56 | 927989 ATM
ATM's picture

I'm not so sure it is survival they care about but destruction. I think the Fed is trying to destroy the current world political structure so that something else can take it's place. I shudder to think whose side the Bernenk is really on. I suspect it isn't mine.

Wed, 02/02/2011 - 14:23 | 928098 SheepDog-One
SheepDog-One's picture

Right ATM, people assume theyre working to fix it all when what theyre really doing is ensuring total collapse of it all. They want 1 world govt, cashless slave society, and far less useless eaters who are prone to uprisings. Its all been written about extensively on Zerohedge over the months. Anyone thinking the FED policies are to get the middle class of the world back on its feet is swept up in delusion.

Wed, 02/02/2011 - 15:36 | 928339 Seer
Seer's picture

I've pushed the idea that the Fed is being set up as the lightning rod, the balast that will be dumped, all our bad debt WOOSH!  The govt quits doing business with the Fed.

The end was always going to occur.  Some either did or did not understand this, but all appear not to have a clue as to how to deal with it.

And, I don't believe that anyone is going to escape.  Oh, maybe for the short time that all heck breaks out, but sooner or later they, and anyone else trying the "let's hole up and wait it out" strategy will have to come out into the light and learn to live by their own (direct) labors; and This is what they are scared of- having to actually dig in the dirt with the writhing masses...

Wed, 02/02/2011 - 14:24 | 927992 SheepDog-One
SheepDog-One's picture

I dont believe this line the FED is the only ones unaware of the world inflation theyve created, theyre quite aware of it and I think it was the planned outcome all along. The world bankers want the world to fall apart, many useless eaters culled away, and theyll control it all in a cashless society money wotn matter when you own all the resources.

Wed, 02/02/2011 - 15:41 | 928361 Seer
Seer's picture

The Status Quo NEVER wishes for change!  Thinking that they want to kill the very system that maintains their power is flawed thinking/logic.

The only real resources that matter are those associated with Food, Shelter and Water.  As much as "they" may want it all, it ain't going to happen.  One always has to have "slaves" to do Their work, and history tells us that this is a poor strategy.

Wed, 02/02/2011 - 13:21 | 927836 EZYJET PILOT
EZYJET PILOT's picture

Jack, so you prescribe permanent QE to stoke inflation even more, how much longer will China be interested in treasuries then? The fed will ultimately buy all the government debt, then what? By that stage inflation will be through the roof and no amount of debt issuance will be enough. They may as well reinvent the wheel and just say inflation is not allowed in the US, it's allowed everywhere else but not here, even if it exists it doesn't, ok?

Wed, 02/02/2011 - 13:23 | 927858 financeguru500
financeguru500's picture

China will continue to support the Fed's printing as long as it allows China to continue growing. When it gets to the point where inflation in China is too much to handle, that will be the point in which they will have to do something. Until then it's full speed ahead. They are buying up commodities and building infrastructure while the U.S. buys cheap plastic goods that fall apart shortly after purchase. Whose the more intelligent country?

Wed, 02/02/2011 - 15:43 | 928375 Seer
Seer's picture

Yup!  This is the key to watch.  I suspect that China's time is quickly running out, which means ditto for the US.

Wed, 02/02/2011 - 13:21 | 927840 RunningMan
RunningMan's picture

Banks can't make loans, even at exceptionally low interest rates. Why? Customers don't want more debt, however cheap. The Fed needs a speculative bubble to stimulate growth... they give you the stock market and commodities as evidence of the recovery. Where the money is NOT going is into new business development and hiring. Moreover, the money that got pumped in (presumably) has to come out at some point. What happens then?

Egyptians built the pyramids with lots of slave labor. China is building empty malls and entire cities. The US is building a black hole of debt. It is all the same.

Wed, 02/02/2011 - 13:25 | 927867 thepigman
thepigman's picture

+100

Wed, 02/02/2011 - 17:57 | 928386 Seer
Seer's picture

Yes, all the same... only, this time it's global.

Our growth media has run out.  This is what the end of growth is like.  It plays out like a slinky going down stairs (where the landing is no one knows).

Wed, 02/02/2011 - 13:22 | 927843 Cognitive Dissonance
Cognitive Dissonance's picture

Anytime someone can't see what is readily apparent and as obvious as a city bus about to run you down, one must conclude that the seemingly blind person doesn't wish to see. In other words, it's not a matter of then not being able to see but rather of being unwilling to see.

In individuals, this usually comes about either because this "new" information is so upsetting to their world view that they have convinced themselves that greater (psychological) harm will come from seeing the bus than by actually being hit by the bus. This could be seen as temporary insanity because death is always worse than living hell. Or they are conflicted and willingly blind in order to satisfy a perceived greater need.

The Fed has a greater (and hidden) need which is in direct tension to "we the people". Guess who loses in this equation. 

Wed, 02/02/2011 - 13:26 | 927869 jus_lite_reading
jus_lite_reading's picture

No better person to know about this condition than the man whos alias is CD!

Best wishes!

Wed, 02/02/2011 - 23:42 | 929879 NoClueSneaker
NoClueSneaker's picture

Indeed, CD has the courage to adress so called "offtopics",

and he brings them to the audience without trumpets, showing eloquence and mastery. Thumbs up ...

Best wishes!

 

Wed, 02/02/2011 - 14:01 | 928007 SheepDog-One
SheepDog-One's picture

Denial is a very strong thing indeed. Earlier this morning discussing with another poster our Baby Boomer parents, who no matter what refuse to believe the dollar will ever be anything but a stable world currency and gold and silver are just trinkets. These people cant face the reality that their whole lives really has just been an illusion.

Wed, 02/02/2011 - 22:17 | 929655 Mr.Really.Fed.Up
Mr.Really.Fed.Up's picture

death is preferable to living hell

denial is an easier path than change

Wed, 02/02/2011 - 13:22 | 927850 youngman
youngman's picture

And watching the riots in other countries today...Obama can´t cut anything..in fact he will propose like Kuwait...to buy everyones food for a year soon....or some other program like that....just to keep the people from rioting....43 million on food stamps...will soon be 80 million....debt to 40 trillion...

Wed, 02/02/2011 - 14:02 | 928012 SheepDog-One
SheepDog-One's picture

43 million food stamps, but what does that really mean? Families of 4 or 5 or more on each food stamp or 150 million or so only eating to govt handouts? Sick.

Wed, 02/02/2011 - 20:16 | 929310 naughtius maximus
naughtius maximus's picture

It also means that there are 43 million people that have no money in the bank at all, probably next to no income of any importance, no real assets. We are 2 meals away from revolution.

Wed, 02/02/2011 - 13:25 | 927863 system failure
system failure's picture

Ben said it himself on 60 minutes, that they could change Fed Policy in as little as 15 minutes to tame inflationary concerns. There is nothing to worry about now. Ben had no intentions of chaging their inflationary policy.

Wed, 02/02/2011 - 15:26 | 928303 RockyRacoon
RockyRacoon's picture

He's got about 3 minutes left...

tick...tock...tick...tock....

Wed, 02/02/2011 - 21:05 | 929451 ToddGak
ToddGak's picture

Help me out here...

"Taming inflation" would mean a withdrawal of liquidity from the system, correct?

Withdrawal of liquidity is a euphemism for selling the crap the Fed has on its balance sheet, i.e. treasuries, MBS and whatnot?

Since they bought all that stuff at "par", would they not have to take a big loss on those assets if they sold them?  Otherwise who would want to buy them?  Seems like a big disincentive to "withdraw liquidity" for the Fed then...

Any flaws in that logic?

Wed, 02/02/2011 - 13:24 | 927864 jus_lite_reading
jus_lite_reading's picture

I am 100% certain (like BEnron is) that the Fed knows the real inflation rate; they also know the end game for fiat money is here so this is the last ditch effort. This period of extend and pretend buys them time to carve out bunkers in the mountains and store supplies for whatever they feel is coming. Too bad, because they miscalculated the end day. It's fast approaching.

Wed, 02/02/2011 - 20:18 | 929314 naughtius maximus
naughtius maximus's picture

Like another poster said here: evenutally the supplies will run out and they will be forced into the light.

Wed, 02/02/2011 - 13:28 | 927874 EZYJET PILOT
EZYJET PILOT's picture

Can we all agree, it all revolves around helping out the banks, nothing more, nothing less. It really is that simple.

Wed, 02/02/2011 - 13:32 | 927894 jus_lite_reading
jus_lite_reading's picture

That conclusion was reached on ZH in early 2009. We already knew that.

Wed, 02/02/2011 - 14:16 | 928064 AccreditedEYE
AccreditedEYE's picture

+100 LMAO  Ezyjet, welcome to ZH... might I recommend the search button @ top right of the page?

Wed, 02/02/2011 - 15:25 | 928297 jus_lite_reading
jus_lite_reading's picture

I am 100% serious when I say that "they" know the final outcome is total collapse. The point of no return came and went last year.

There is no possible scenario that can repair the damage- it is a mathematical impossibility!

Their only option is to pretend for as long as possible- that is the Fed's mandate.

 

Wed, 02/02/2011 - 16:00 | 928438 AccreditedEYE
AccreditedEYE's picture

jus_lite, of course they do! (I agree too) I also agree there is no way out other than default. We've created way too much debt and all we have done is move it from one balance sheet to another. I believe the market knows this, it's just playing chicken to see how much further we can go. The world will not allow the Fed to continue this madness. Our military is strong, but not strong enough to fight the entire world. The banks game will be over and then, hopefully, they will start to have real problems. (read: angry mob justice.lol)

Wed, 02/02/2011 - 13:29 | 927875 Robslob
Robslob's picture

On that note are Silver Maples better than Eagles (they seem to have more pure silver)?

Same question for gold?

 

Thanks

Wed, 02/02/2011 - 13:48 | 927950 Commander Cody
Commander Cody's picture

Buy the pure stuff.  It'll make you feel even better.  Works for me.  Costs a bit more, though.  That's irrelevant, however.

Wed, 02/02/2011 - 14:25 | 928106 Lndmvr
Lndmvr's picture

Used to be Krugs were cheaper than Maples. Seems like there all within a couple of bucks now. Oz of gold is an oz of gold, doesn't matter the filler.

Wed, 02/02/2011 - 16:49 | 928590 Devout Republican
Devout Republican's picture

I wanted to say something and then I was like nah.

Wed, 02/02/2011 - 19:13 | 929123 Snake
Snake's picture

maples are softer than krugs, they scratch easier ("24" carats)

Wed, 02/02/2011 - 13:29 | 927876 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

This is a great read.

As usual, I'll come at it from a bias.

No one in the political spectrum can stand up against free trade or free markets (the rhetoric). No one can tell US Corporations that they have to hire more Americans and onshore jobs. No one can or will say it because the end game is to export stuff to a world which is wealthy enough to buy that stuff. One surefire way would be to debase the USD to the point where the world can by more stuff, and offshoring is not cost effective. I'm not saying categorically that this is the goal, but I would say that it fits very nicely with what is currently going on.

For Emerging Econmies who foot a hefty food bill, those with large current account surplusses will in the end do much better to subsidize food and let their currencies actually float up versus the dollar. In this view, QE n is a stick to whack mercantilism with. Does an evens Stevens approach arise in its wake? Hard to tell what is going to arise.

In favor of the US? You betcha. In favor of the US consumer and middle class? Not in the short run with inflation rising here and job growth anemic. My wager is that you will not see robust and sustainable job growth based on a current account deficit with vendor financing from abroad since that model is broken. But just as you have seen headlines about WS profits back to new highs, you can also see that Americans are spending more and that money is leaking back to EMs. How far does the FED take this madness? The political repercussions are enormous around the globe. However, it still beats a hot war. In the end, rebalancing needs to happen. And it will, since US Consumption as the first and last resort is finished. It's a simple numbers game.

Wed, 02/02/2011 - 14:34 | 928145 gorillaonyourback
gorillaonyourback's picture

obama and the fed imply debasing the currency as their goal,  but when you have china india and brazil with avg household income in the thousands( say $6,000/yr) that a huge wage deflation just to get competitive.  my guess we will have a REVOLUTION then severe nationalism with very high import taxes on goods coming from beyond our borders.  If our borders are the same as they r today, cuz balkinization of america is a distinct possibility, WHY well what do i in southern california have in common with some state in the bible belt?

Thu, 02/03/2011 - 08:54 | 930415 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

The Russians came out with a piece on this about a year ago. I would personally not bet on it. Americans are far too wealthy materially to undergo such foolishness.

If arms were turned on certain segments of the population for a short spell, that might be something different.

Wed, 02/02/2011 - 16:01 | 928445 Seer
Seer's picture

I wouldn't say that the US has the upper hand.  If you're basing all of this on trade then you've got to look at trade balances.  Last I looked the US is still well in to the negative category; and, over 40% of this is due to energy imports.  Try increasing production without increasing energy consumption.  It's a catch-22.

The ONLY way would be for the US to collapse labor costs and deplete its own resources for export.  Clearly this is a strategy of "strength through exhaustion" (quote from Dr. Albert Barlett), it ony hurries the depletion of resources.

"you can also see that Americans are spending more and that money is leaking back to EMs."

This needs to be properly qualified.  Are we talking inflation adjusted dollars?  And, is this money that's essentially being pulled from the future?

ALL of it is based on perpetual growth.  Because we're on a finite planet growth WILL stop.  At some point all this pumping will exhaust what we have, fail to keep things going forward, and then a big reversal (refer to my comments about the dynamics of a reversing of "economies of scale").

Thu, 02/03/2011 - 08:51 | 930410 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

The US has an upper hand in the tattered fragments of freedom still embedded in this society and enshrined in the constitution.

A US citizen is not only a consumer. I think that the entire notion of life as consumption and perpetual growth based on debt is also coming to an end.

What comes next, that's the tricky part. If you are not a consumer first, the world looks to be a very different place.

Wed, 02/02/2011 - 13:29 | 927879 Ace Ventura
Ace Ventura's picture

The Fed is reacting to the demons who control global finance, themselves well represented within the Fed cabal itself. It is their interests alone which the Fed exists to serve.

Right on schedule, the IMF (member of the same demonic horde) is poised and ready to 'assist' the people of Egypt. In exchange for, say a controlling stake in the Suez and a 'token' tribute incorporated within the national tax system?

These guys make foul gutter-dwelling-slime-slathered-parasitic-vampire-maggots look positively sexy by comparison.

 

Wed, 02/02/2011 - 13:31 | 927888 Hugh_Jorgan
Hugh_Jorgan's picture

 

In my simple mind, the combination of:

"Commodities are now setting new records almost daily.  Where the stock markets still have some catching up to do, commodities are exploring virgin territory."

and

"It's a regrettable position to be in, because it's nearly impossible to make any long-range plans when you have no idea what the Fed is going to do next.  But here we are."

says " "Stagflation", not simply "Inflation".

 

In fact it wouldn't surprise me if a new term like "Hyper-Stagflation" may be coined at some point in the future to illustrate the results of liquidity madness on this massive scale.

Wed, 02/02/2011 - 13:31 | 927889 thepigman
thepigman's picture

Note from Martenson's figures, there's

nobody to sell stocks and commodities to when the banksters

want out. $38 billion came out and

$350 billion went in....there's no way for them to get

without killing each other.

That should keep Benron up at night

as well.

Wed, 02/02/2011 - 13:38 | 927915 thepigman
thepigman's picture

Imagine a market of a few hundred

players, and all of them clones of Cramer.

LOL

Wed, 02/02/2011 - 13:44 | 927936 thepigman
thepigman's picture

Roach Motel with Bernanke as the

doorman. Go ahead, go on

in. LOL

Wed, 02/02/2011 - 13:54 | 927978 RunningMan
RunningMan's picture

Pigman - if they are all in it for themselves, then why haven't we seen them all head for the exits a couple times on the way up to cash out? Are they afraid they'll get kicked off the island if they don't follow the rules?

Wed, 02/02/2011 - 14:07 | 928027 SheepDog-One
SheepDog-One's picture

Sure runningman the banksters are at the party, looking at their portfolios which in theory are 'up', but theyre all keeping an eye on that escape door and the rush for it will be sudden and bloody!

Wed, 02/02/2011 - 14:09 | 928034 thepigman
thepigman's picture

I think it's greed, believe it or not. The hedge funds won't bolt until they wake up one day to find the banksters have not ramped futures overnight with fed money. The futures are much more
controllable than the larger market and
the hedge funds always think they can
get out on that signal. But it's nuts.
It's a MAD strategy.

Wed, 02/02/2011 - 14:05 | 928021 SheepDog-One
SheepDog-One's picture

Exactly! Ive been saying since the start of the great stock pumping excersise that its a 1 sided ride, who do they expect to dump the pump to? Theyve got nothin except a coming zombie fest amongst the banksters themselves as they devour each other.

Wed, 02/02/2011 - 16:16 | 928495 Seer
Seer's picture

Exactly!  And with this further concentration of the players we just get bigger swings as the big fish flop around.

I'm thinking that at some point the few remaining players will get together and decide to share the pie (yeah, it's already been happening, but at some point there will be an official declaration by the govt).  This, however, will require the rest of us to give up retirement money, as it's based on growth, growth which is no longer in the cards.

Yeah, how to break it to the big players that they cannot play king of the castle anymore, and break it to the people that retirement is no longer possible (no such thing as living off of interest in the future).

I think that this crap can really haunt some of these folks.  Because no one will believe that the grow-or-die system can no longer grow, they have to do things that appear (and are) absurd.  It's similar to Bush/Cheney invading Iraq over drummed up BS, knowing full well that they were only doing so to buy a bit of time, to stave off the looming energy crisis (the real threat to "The American Way of Life").  Yeah, desperate people do desperate things.  But... as most here understand, "solutions" don't always require "action" (in-action, or not interfering, can often be the best route; but people are so conditioned to believe that someone else has to "do something!").

Wed, 02/02/2011 - 13:36 | 927907 Bluntly Put
Bluntly Put's picture

How does the fed unload it's toxic assets? Who are the buyers of last resort? We are, the taxpayers! Suddenly all the congress critters will get the great idea of printing up non interest bearing treasury notes and buy all of the fed's "valuable" assets!

 

<dancing banana>

Wed, 02/02/2011 - 14:18 | 928030 SheepDog-One
SheepDog-One's picture

Well so what? Thats simply a theory, pass of debt to bankrupt people with no jobs? What the hell does that accomplish? Worse than a drunk magicians tricks at a kids birthday party.

Wed, 02/02/2011 - 13:43 | 927935 Humpty Pundit
Humpty Pundit's picture

Maybe the Fed should have just bought commodities and stocks directly with all the money they printed so they would have something to sell that somebody wanted later on. Of course like someone said in a post above they are probably really printing to keep the government afloat and spending us into oblivion. QE? Maybe FP (Fiscal Printing) is a better term and stock market gains are a way to buy off and corrupt millions of people that know it cannot end well. I am starting to believe like some others around here that they are trying to create hyper-inflation so everything resets and starts over again. They can then start a new long term cycle to do all the same things again unless we end up with a gold backed currency or some other way to put a stop to the theft.

Wed, 02/02/2011 - 13:46 | 927943 william the bastard
william the bastard's picture

CM is right and the FRB should quit QE now. The tranche ending in Feb should not be re-upped. But then again we'd not be in this mess if The bearded clam had begun cutting rates in 2007-instead of late 2008 so let's see if he's sleeping through this fire also.

Wed, 02/02/2011 - 13:51 | 927948 Zero Govt
Zero Govt's picture

"".. instead of worryingly low inflation, I see rapidly rising inflation that is very close to slipping out of control."

If you want accurate stats on inflation visit JohnvWilliams, Shadow Govt Statistics website. Your eyes are not deceiving you, inflation has been running at up to 10% while the US Govt reports 5%.

"I do my best to let the data do the talking, and right now it is saying inflation." 

 Precisely what 99% of economists do, which is why they never see a trend change until months after the data is in, which is why 99% of economists are bloody useless! Do you drive (often) by looking in the rear view mirror as you 'read' economics?

Take a look at Shadow Govt Stats' figures post-2007 you'll spot a collapse in the CPI in 2009, even the Govts inflationary CPI got kicked between the legs. It took over a year for the '07 deflationary Credit Crunch to impact retail prices. 2007 was deflation in a nutshell though 99% of nutters (economists) haven't even called it such.

When Credit Crunch II hits it'll be even bigger and even harder on everything in the economic landscape. More deflationary implosions in all asset classes and on all prices. Maybe a 2nd smack in the face will teach economists to call the Credit Crunch what it really was: Deflation baby, deflation 

Wed, 02/02/2011 - 14:51 | 928210 MachoMan
MachoMan's picture

If so, a better term would be to call Credit Crunch II "Default".  Or, in the alternative, a "repudiation of the currency as a meaningful medium of exchange".

Wed, 02/02/2011 - 13:48 | 927951 Diogenes
Diogenes's picture

The last time inflation got out of control it took 18% interest rates to stop it. But that was in the 70s, we won't get off so easy this time.

Wed, 02/02/2011 - 16:30 | 928540 Seer
Seer's picture

Just stirred something up in my head...

18% interest, just think of that!  18% to borrow worthless money!  Ain't it really telling you that you really don't want it?  This is taking bad currency and making it cost MORE!

No, this isn't going to turn out well.  I think that the "solution" back in the 70s was really a fluke, and that it wouldn't work this time: US "consumer" wasn't swamped with debt back then, and the world still contained a fair amount of resources to exploit (return to the days of happy motoring).

Wed, 02/02/2011 - 13:55 | 927982 Stuart
Stuart's picture

The Fed's hands are tied else they make the US Federal Debt unserviceable all that much sooner.  

Wed, 02/02/2011 - 13:55 | 927983 thepigman
thepigman's picture

Hmmm...now that no one else is

participating at nosebleed market levels

other than hedge funds and banksters,

they each have to pay UP to each other

to ramp it higher. I just don't see this

working out well and that's an understatement.

What hath the Benron wrought?

 

Wed, 02/02/2011 - 14:17 | 928045 SheepDog-One
SheepDog-One's picture

They all deserve to be in their sinking boat, they wanted it and celebrated TARP and all the rest of the free money FED programs for temporary lift and certainly none of them could take a haircut! Now theyre all on a leaky boat with no life preservers on it, its about to get real interesting!

Wed, 02/02/2011 - 14:12 | 928054 topcallingtroll
topcallingtroll's picture

I am mostly in... for now, and so are a bunch of little people like firemen, teachers, etc.  Unlike them I can pull out.  Time may be getting close.  We shall see.

Wed, 02/02/2011 - 14:28 | 928115 thepigman
thepigman's picture

Little people depending upon a little

man (the Bernank) I don't like the odds.

Whatever happens, Benron's in a position

to deny culpability.

Wed, 02/02/2011 - 15:53 | 928412 Sausagemaker
Sausagemaker's picture

Ahh the ol' rhythm method... hope you don't get f*cked. 

Wed, 02/02/2011 - 13:58 | 927993 system failure
system failure's picture

oh yes, abuse of the fiat leads to no use of the fiat eventually, and this fiat is almost dead. We can easily guage this process by examining current silver/gold stockpiles with dealers. Bernanke is definately showing everyone around the world what the Fed thinks of the US dollar. Its as trashy as the paper they print it on with its own, "Federal Reserve Note." Fucking worthless indeed....

Wed, 02/02/2011 - 14:00 | 928005 New Revolution
New Revolution's picture

Big Shit.   I could have written that,... a lot of people could have.    The question is, when does it end.   Or are you teasing everyone so they go spend a nickle with you to find out?    Personally, I think your full of shit.   If you had anything worth while to say you'd say it, but I get the feeling you want someone to pay you to open your mouth,... at which point we'd all probably want our money back.    Stuff yourself.

Wed, 02/02/2011 - 14:43 | 928170 ConfusedIdiot
ConfusedIdiot's picture

TU, NR. I followed the link to the inevitable "subscribe here to learn more". I learned enough at that point. CI

Wed, 02/02/2011 - 14:03 | 928015 buzzsaw99
buzzsaw99's picture

the bernank is not the fed. the tbtf are the fed and they all have a metric shitload of debt. they don't care about anything but continued looting operations. follow the money. bonuses, insiders cashing out. That is what the whole thing is about, buying time for the rats to loot the ship. "the fed" doesn't give a damn about anything but "the fed".

Wed, 02/02/2011 - 14:08 | 928024 topcallingtroll
topcallingtroll's picture

the assumption that..by the time the fed realizes inflation has taken hold it will have a life of its own and will require excessive measures to control it that will also hurt the economy...well...we all have opinions.  However it would be  better if he had some data to support that.  Unfortunately the data about changes in velocity of inflation, "stickiness," relationship of qe2 to future inflation, well.... none of that is well quantified.  I really like the quant articles on zero hedge because they give us data to work with.  Opinion pieces are simple.  Data articles take work.  One piece of data I would like to see is someone calculate the net short dollar position of all world financial liabilities.  It is clear there is a huge de facto dollar short going on.  It is also now the carry trade currency.  I don't think the fed can print fast enough to to stop what will eventually be the equivalent of a bunch of short dollar margin calls.  Basically the world economy is in a megaphone pattern and the fed is trying to tamp down the amplitude before it ends badly  Right now fed data and experience suggest they must keep their eyes on the core and the treasury spread.  They can't be distracted by fluff, and neither should we.

Wed, 02/02/2011 - 14:10 | 928026 uhb
uhb's picture

Have You guys thought about who on earth

would buy shitty US T-bills, if it wasn't the fed?

I know i wouldn't buy T-bills, not even at 13%.All the bernank can do is buy the treasuries *because there is no-one else left to buy them*. Not at the rate they are being printed now. The bernank is just shuffling paper around, waiting for the end. And it won't take another 3 years until the dow is at 38000 and gas is at 12$ per gallon.

Wed, 02/02/2011 - 14:15 | 928051 SheepDog-One
SheepDog-One's picture

TBill purchases are insane for an outsider, unless the purchases are so huge the real intent is to end up owning america! Other than that, only a lunatic would be buying treasuries which guarantee a payout in soon to be totaly worthless FRN's.

Wed, 02/02/2011 - 16:48 | 928588 Seer
Seer's picture

I'm sure that there will be an attempt to "encourage" people to buy US T-bills.  It'll come in the form of "great opportunity to trad your PMs (else they will be confiscated)."

PMs will be demonized.  The folks that have been dumped out on the streets (believing that their masters had their best interests at heart) will be programmed to attack PM holders as the ones responsible for the (inevitable) collapse.  The rats come out when people are hungry...

Wed, 02/02/2011 - 14:11 | 928043 Stuck on Zero
Stuck on Zero's picture

How can the Fed raise interest rates?  With the debt at 100% of GDP an interest rate at 10% would require 10% of the GDP when all the notes turned over. 

Wed, 02/02/2011 - 14:14 | 928061 SheepDog-One
SheepDog-One's picture

Raising interest rates even .5% is completely impossible. All they have is ZIRP and free air dollar injections daily to keep it going 1 more day. We're in total insano world now.

Wed, 02/02/2011 - 14:23 | 928095 treemagnet
treemagnet's picture

Totally agree sheepdog, but am I the only one growing weary with the grind higher and higher - eclipsed only by the sheeples full faith and credit in the ponzi?  Words like "imminent" mean nothing to me anymore!

Wed, 02/02/2011 - 14:24 | 928101 brodix
brodix's picture

The last time the Fed "brought inflation under control," the Federal deficit went through the roof. 

 What is the difference between the Fed selling bonds to reduce the money supply and the Treasury issuing new ones? Nothing, except that the Treasury sells far more than the Fed and uses the money to prop up other sectors of the economy, which has a multiplier effect on the private demand for capital. Paul Volcker didn't cure inflation, David Stockman did.

 By the Fed's own logic of selling debt to reduce the money supply, excess capital is in the hands of those with an excess of capital. Do you think the PTB want to hear that?

Unfortunately for them, even capital is ultimately subject to the law of supply and demand. After thirty years of supply side economics, the world is awash in liquidity and insolvent. There is lots of supply and little viable demand, as even the worlds largest governments are sucked dry. 

Capitalism is not the same as free markets, as a market needs a medium of exchange and if a private party is providing that medium, the rest of the market becomes captured by that party. Capitalism amounts to rule by the banks. If they understood what was happening, they wouldn't be completely destroying their environment of viable debtors, because top predators are endangered by a collapsing ecosystem.

Wed, 02/02/2011 - 14:26 | 928112 cdskiller
cdskiller's picture

What do you suggest we do with our cash?

Wed, 02/02/2011 - 14:57 | 928226 MachoMan
MachoMan's picture

Keep enough liquidity for your other bets to pay off.

Wed, 02/02/2011 - 15:46 | 928345 RockyRacoon
RockyRacoon's picture

Keep enough paper money on hand to make that quick run to the grocery store or Sam's Wholesale to buy supplies for a couple of months.   Keep enough junk silver on hand to swap for fresh veggies at the next farmer's market.   Otherwise, stash silver and/or gold coins for the long haul.   Don't forget to drop by and pick up some extra ammo on the way home.   Grocery store shortages won't be immediate and final so watch for the warning signs such as some empty shelves or stock that is spread out one can deep.  Hand written pricing labels is also a good indicator since keeping up with changing prices with every case of string beans that comes in will get tedious.  At the wholesale outlets buy up an extra quantity of one or two items that will be good for trading, such as ladies hygiene stuff, toilet paper, Neosporin, band-aids, energy bars, that sort of thing.  Those will be as good as your silver for making trades for stuff that you may have need of.  Besides, you might not want to tip your hand to "some people" that you have precious metals on hand.  I bought up quite a few coffee sticks for trade, little tubes that have instant coffee, sugar, and creamer in one package.  They are handy and great for trades and they are cheap at the local dollar store in packages of 10 or 12 for a buck.  If all turns out well (insert snicker here) then I can at least use them for camping or road trips.

Wed, 02/02/2011 - 14:27 | 928113 michigan independant
michigan independant's picture

Stay focused on the real economy definition. Natural World... Water, Wheat, and the real Consumer Utility, as defined what puts as ease. Not for some time. Do not relever. The sheep will never change. You must... For some time I was looking for ETF instabilities and that crossroad it bears on Emerging markets. Remember what the ruble did guys. Since deflation is what i will not buy and inflation is what you must buy and the sick joke is they do not care.

 

Wed, 02/02/2011 - 14:30 | 928127 newworldorder
newworldorder's picture

I have been a long time reader and now a 1st time poster to Zerohedge. I have been amazed at the high level of financial knowledge and logic that most of you are contributing. On a personal level, for me it is a great learning experience.

As to the question of; How long with our current financial situation last? - Please consider a political answer and not a financial one.

This will last as long as the majority of our trading partners and world governments find it necessary to allow us to continue as the country that provides for their survival.

Given our financial evolution since the end of WW II, if the US did not exist, the world Banking and Finance entities would invent it. Consider ........

1. The US military provides the military muscle that allows for world stability and thereby insures the orderly, uninterupted flow of world energy.

2.  The FED in alignment with the IMF, BIS provide a similar function in financial matters as the US military provides in world security matters. The FED has become the lender of last resort and a backstop to the world banking system.

3.  Given the flow of invested capital going into the worlds markets, the US on its worst day is the place one wants to be at, when the "you know what, hits the fan." The world elite will buy a US passport when they have to. The lessons of fascism, communism and the destruction created as a result of both world wars have not been lost on the financial elite.

For these as well as a number of other reasons, our reward will be the continued "winking" by world governments and the banking interests, as we spend our way to oblivion.

There is nothing capable of stopping this at the present time. It will continue until it is no longer sustainable.

Wed, 02/02/2011 - 14:49 | 928191 thepigman
thepigman's picture

I know what you're saying but offer

up this: There is a political class and

a banking class. The banking class

ultimately will not allow the political

class to spend to oblivion because it

destroys the bankster franchise.

History will bear me out except for one

instance...the Weimar Republic when

the political class actually got control

of banking. I don't think we're quite

there yet.

 

Wed, 02/02/2011 - 15:56 | 928421 Popo
Popo's picture

I question that the banker class won't allow this.

Yes, inflation is destructive of currency -- but it is not destructive of other assets.  Bankers can become fantastically rich while currencies are being debauched.  

Your theory that "spending to oblivion .. destroys the bankster franchise" is not so certain imho.   Banksters have poured their wealth into risk assets, which are rising vs. the dollar.   Where is the destruction of the bankster franchise?

The political class and the banker class are in total alignment right now. 

The only weapon capable of defeating that edifice is public opinion.  Americans still aren't angry, and still aren't unified in their screams to see bankers heads roll.

Once they do though -- we'll see the rise of a very different political animal.  (It won't necessarily be "good".  It might be terrifyingly bad).   But once public opinion recognizes the existing political establishment and the banking establishment as their single unified enemy -- then we're all Egypt.

 

 

Wed, 02/02/2011 - 16:08 | 928472 brodix
brodix's picture

Keep in mind that bankers and soldiers are not the same. When the bankers do crash the system, they are at the mercy of their security services. Bankers have survived and prospered the last several hundred years by playing various nations and armies off against one another. If this game ever blows up, there will be a lot of dead bankers.

Wed, 02/02/2011 - 15:57 | 928426 brodix
brodix's picture

It's not wise to have the politicians in control of the money supply, but now it doesn't work to have the bankers in control of it either, since their constituency gets too greedy eventually as well.

 An interesting analogy is that government is the central nervous system of the nation, while finance is its circulatory system. Possibly we could have complimentary public governing and monetary systems. The alternative is that we go back to a time when the banks are responsible for the stability of their own currencies. This system of having the currency as a public responsibility and the profits from managing it be private only invites corruption. If the blood is public, the veins and arteries need to be public as well.

Roads are conceptually similar and  while cars, houses and businesses are private, the roads connecting them are public and no one cries socialism over that. Money is a public contract and its only value is trust in that contract.

Wed, 02/02/2011 - 20:37 | 929371 naughtius maximus
naughtius maximus's picture

I am Jack's monitary circulatory system.

Thu, 02/03/2011 - 11:32 | 930811 RockyRacoon
RockyRacoon's picture

Your arteries are clogged.

Wed, 02/02/2011 - 14:58 | 928222 michigan independant
michigan independant's picture

http://www.bartleby.com/2/3/

The Meditations of Marcus Aurelius

 

From Apollonius I learned freedom of will and undeviating steadiness of purpose; and to look to nothing else, not even for a moment, except to reason; and to be always the same in sharp pains, on the occasion of the loss of a child, and in long illness; and to see clearly in a living example that the same man can be both most resolute and yielding, and not peevish in giving his instruction; and to have had before my eyes a man who clearly considered his experience and his skill in expounding philosophical principles as the smallest of his merits; and from him I learned how to receive from friends what are esteemed favours, without being either humbled by them or letting them pass unnoticed.

Wed, 02/02/2011 - 15:06 | 928244 dark pools of soros
dark pools of soros's picture

'a man without an answer is like a bird with broken wing..

..all wrapped up in his misery, forgetting how to sing..'

  -D.R.I  Man Unkind

Wed, 02/02/2011 - 15:00 | 928233 AAPL_Short
AAPL_Short's picture

I disagree. The US is extremely dependent on other countries. Our standard of living would be cut 90% overnight, if there were serious hickups to our imports.

Wed, 02/02/2011 - 15:02 | 928238 dark pools of soros
dark pools of soros's picture

..and they have no problem causing 'disruptions' to reinforce the need for their overloadship

Wed, 02/02/2011 - 15:57 | 928418 RockyRacoon
RockyRacoon's picture

Thanks, NWO.  Your further thoughts are welcome.

As for your item #2:

The FED has become the lender of last resort and a backstop to the world banking system.

I wouldn't be so upset if the Fed actually were the lender of last resort.  The problem is that they have made U. S. citizens those lenders -- and I'm not happy about that.  My money has been taken from me, recycled (laundered) thrice, and turned over to people to whom I would not give the time of day, let alone my money.

Wed, 02/02/2011 - 16:54 | 928602 gwar5
gwar5's picture

Welcome. Good thoughts.

I think American Empire is exhausted. NWO power and banker elites are ushering a unipolar USA world, and it's uppity middle class, into a Soviet style demise. Smothering us in debt and shutting down our energy resources would do it. They're just being polite about it because we still have lot of nukes. Printing our way into oblivian is the least disruptive and they can pick the carcass. The globalists are already comfortably in China.

They don't need us anymore with a huge growing Asian middle class. Seems clear they are insisting resources shall  go East. I think they prefer our silly ideas of individualism and freedom to just go away and be forgotten. They just get in the way.

Wed, 02/02/2011 - 17:11 | 928642 Seer
Seer's picture

But... the "financial situation" has no real connection to reality.  Reality is physical resources.

Yes, US military force can "take" resources by force (think oil), but this, as has been demonstrated over in Iraq, isn't as simple as it may sound.  Even if "successful," given that there's an over all decline in nearly every resource, this shift doesn't INCREASE supply.  If trading partners have reduced access (now that the markets have been disturbed by military force), then US exports will suffer.

It's a Catch-22.  Without global growth, which is totally dependent upon cheap and plentful energy (as well as other resources), no one can stand alone.  And stretching "protective" forces away from the "homeland" will only further expose the "homeland" to reprisals.

No, politics cannot stem the tide (as seen in Egypt).

People need to start approaching all of this from a balance sheet point of view.  Something cannot exist on one side of the ledger without being offset on the other.  Trying to just mess with one side isn't a solution, but rather a deception.  Reminds me of a popular phrase by former Soviets: they pretend to pay me, so I pretend to work.  You can imagine how this would turn out (how are you going to feed yourself?).

Wed, 02/02/2011 - 17:52 | 928822 sushi
sushi's picture

1. The US military provides the military muscle that allows for world stability and thereby insures the orderly, uninterupted flow of world energy.

This assertion is not supported by the evidence:

1) The people of Tunisia and Egypt staged revolts which did not require the use of single weapon other than their refusal to continue with the imposed bs. The military were powerless in this situation. What are you going to do? Kill your entire population to save your ruler? What is he then going to rule over? The people called the charade out for what it was and the guy behind the curtain is throwing fits trying to squeeze the toothpaste back in the tube.

 

2) A bunch of sheepherders went mano a mano with the best equipped most technologically advanced military the world has ever seen. After 10 years we still cannot tell who is winning. Ten years of conflict and you still cannot be sure you are winning? I love the smell of bs in the morning. It smells like, like . . . victory? Get real.

 

The US military is a source of world instabilty. The folks who are selling oil have to sell it in order to buy stuff like food. As long as they need to eat they will need to sell.

 

But there are all those nasty, evil people who hate our freedoms. Well, then stay home. You are not and have not exported any freedom at any time. You cannot give someone their freedom. They have to decide to take it as the people of Egypt and Tunisia have done. The US attempts to impose a world order favourable to itself. What Bernanke is doing is for the benefit of the US TBTF; the rest of the world can go screw. The rest of the world is going to turn around and demonstate the real love of freedom vs couch potato channel surfing pastic craptastic lifestyle that America calls "freedom." You are Benron's serfs. Get used to it. The only other option is to read the New Hampshire state flag. and then make a choice.

 

Thu, 02/03/2011 - 02:22 | 930206 Milestones
Milestones's picture

I like the way you think. Your last sentence is dead on.      Milestones

Wed, 02/02/2011 - 14:30 | 928131 SDRII
SDRII's picture

The only leg of the information campaign left is to feign hike as in 25bos which is functionally meaningless and hope the "protesters" dispense.

Wed, 02/02/2011 - 15:19 | 928282 10kby2k
10kby2k's picture

Food and energy is what 20-30% of CPI? Housing is 40% and that is dropping. Wages sure aren't rising. Lotsa numbers for the media to fuck around with to support their case.

I get my cues from the 5 year TIPS---negative yield!!!

In real money term no-one is expecting to make anything in the next 5 years. Its almost 2 am. Last round, bar is closing. Maybe you can pound down 3 more QE's before its over.

Wed, 02/02/2011 - 15:27 | 928308 10kby2k
10kby2k's picture

Last call!!!!!!   Come buy stock shares from me...heres your paper certificate. Read the disclaimer on the back that the corporation issuing said stock doesnt give one rat fuck about you.  Party likes it QE99

Wed, 02/02/2011 - 15:36 | 928341 Invisible Hand
Invisible Hand's picture

We need to face facts: Denial is the new black.

Everyone who is anyone believes more debt equals fiscal responsibility, inflation equals growth, and printing money is frugality.

It will not end until the entire financial/governmental system collapses.  No one outside the system can gain enough power to effect change.  No one inside the system is willing to allow change.

Can we recover?  I recently read a a comment that the US had survived the Civil War, the Great Depression, WWII, etc. and we could survive this.  However, in response to each of those challenges we lost part of the national character that helped us survive.

For example, can anyone imagine today two of the sons of a wealthy, politically connected, Washington-insider family seeking out combatant positions.  One was killed after volunteering for a (virtual) suicide mission.  The other was almost killed and suffered permanent injury in combat.  Obviously, this was the Kennedy's.  Not my favorite family but compare the young Kennedy's of today to those of 70 years ago.

I don't think the coming crisis is any worse than previous crises.  I do fear that our ability to overcome it is less because we are not as tough, capable, honorable, etc. as our fore-bearers.

Just my thoughts.

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