Crescenzi On Tracking The Inflection Point In The Radioactive Hyperinflationary "Yucca Mountain" Excess Liquidity Warehouse

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Cognitive Dissonance's picture

"Yeah but........without wage increases there is no inflation."

Steve Liesman

patience...'s picture

He should have said     without wage increases there is no hyper-inflation.

jdrose1985's picture

There is something the author forgot to factor into his reasoning.


The cash dropping helicopter he has spent the last ten years waiting for is still on the ground where it will stay until the bond markets basically starve the USG.

SheepDog-One's picture

OH right, suddenly when the banksters want it there will just be a huge demand for new loans. I see.

umop episdn's picture

And such demand will come from the exact same places that it came from during the housing bubble--people who can't pay back $5 will be more than happy to borrow $500,000. Then, the banksters do their 'wounded birdie' act and get our 'lected LOLz representatives to scroom the taxpayers again.

jdrose1985's picture

The so called subprime loans was just the bankers scraping the bottom of the barrel. US consumers were manufacturing roughly $11B per day. The consumer would have to surpass that number to resume the path to infinity. Do you really think that is going to happen? You are witnessing the slow death grind of the Bretton Woods system. Last time this happened China ended up a smoldering rubble pile along with 90% of the rest of the world. Nothing new is happening.

financeguru500's picture

You are absolutely correct. I find it interested how angry people get on these forums. The U.S. so far has been successfully exporting inflation to other countries, hence the riots erupting around the world.

Interestingly enough China is allowing the U.S. to do this.

I believe the bigger battle is for energy. Right now there is a cold war for oil being fought between the U.S. and China. As long as both parties keep the circus music playing the grabs for resources can continue.

The inevitable end will not be an economic crash but an energy crash. Mark my words. The U.S. will be allowed to keep printing money because it allows China to keep buying resources. If the U.S. economy crashes then the world crashes which would slow down China from buying up resources.

The only thing that will stop the current path is to have oil consumption rise above production.

bonddude's picture

Man the wheelbarrows. I'm going shopping for a loaf of bread. Here's Hillary Clinton on Sonoma bank fraud-more on u2b

Shareholders lawsuit

Commander Cody's picture

By the way, there is no toxic waste in Yucca Mountain and there probably will never be due to the political deal cut between Harry Reid and BO.  Storage of used nuclear fuel and high-level radioactive waste created by defense activities has now been relegated to the Whim Department by the short-sightedness of the criminals in DC.  Carry on.

JR's picture

January 25, 2011 -- Axel Leijonhufvud argues that political independence of central banks is "impossible to defend in a democratic society":

Shell game: Zero-interest policies as hidden subsidies to banks, by Axel Leijonhufvud, Vox EU: The two pioneers of modern monetary economics – Irving Fisher and Knut Wicksell – were passionately concerned to find monetary arrangements that would insure against arbitrary redistributions of income and wealth. They saw such distributive effects as offenses against social justice and consequently as a threat to social and political stability. 

Fisher and Wicksell thought that price level stability was a sufficient condition for avoiding distributive effects. In this they were in error. A hundred years later, the motivating concern for their work has long since disappeared from monetary economics.

But the error survives. For example:

·         The Fed is supplying the banks with reserves at a near-zero rate. Not much results in bank lending to business, but banks can buy Treasuries that pay 3% to 4%.

·         This hefty subsidy to the banking system is ultimately borne by taxpayers. Neither the subsidy, nor the tax liability has been voted for by Congress.

The Fed policy drives down the interest rates paid to savers to some small fraction of 1%. At the same time, banks leverage their capital by a factor of 15 or so, thus earning a truly outstanding return from buying Treasuries with costless Fed money or very nearly costless deposits.

Wall Street bankers are then able once again to claim the bonuses they became used to in the good old days and to which they feel entitled because of the genius required to perform this operation. These bonuses are in effect transfers from tax-payers as well as from the mostly aged savers who cannot find alternative safe placements for their funds in retirement.

The shell game: “Now you see it, now you don’t.”

The Fed’s low-interest-rate policy has turned into a shell game for the general public who are unable to follow how the money flows from losers to gainers.

·         The bailouts of the banks during the crisis were clear for all to see and caused widespread outrage; now the public is being told that they are being repaid at no cost to the taxpayer.

·         What the public is not told is that the repayments come to a substantial extent out of revenues paid by taxpayers for the banks to hold Treasuries.

·         Both parties supported the bailouts so neither party seems ready to protest the claim that they are being repaid at no cost to taxpayers.

The goals of monetary policy

Present monetary policy achieves two aims.

·         One is to recapitalize the banks and to do so without the government taking an equity stake.

The authorities do not want to be charged with “nationalization” or “socialism.” So the banks have to be given the funds outright. Economists have agonized a lot lately about the zero lower bound to the interest rate as an obstacle to effective policy in the present circumstances. The agony seems misplaced. As long as the big banks are to be subsidized, why not just pay them to accept reserves from the friendly central bank?

·         The second aim, of course, is to prevent the housing bubble from deflating all the way.

In this respect, the policy has had some effect. Homeowners whose houses are not “under water” can often refinance at long-term rates around 5% and sometimes even lower. 

Miscalculation of economic values: Who pays?

Any financial crash reveals a large, collective miscalculation of economic values. The incidence of the losses resulting from such miscalculations has to be worked out before the economy can begin to function normally again. Because the process of a crash is unstable, it cannot be left for the markets and bankruptcy courts to work out the eventual incidence. In the present case, doing so would simply have led into another Great Depression.

This means political choices have to be made to determine who bears the losses from this collective miscalculation. Obviously such choices are terribly difficult. Yet, temporizing can prolong the period of subnormal economic performance indefinitely – as the history of Japan over the last 20 years illustrates. The shell game, as presently played, is in effect an attempt to settle a large part of the incidence problem “under the radar” of public opinion.

The risks of this quiet bank subsidy

Quite apart from its distributional effects, the policy is not without risk.

·         To the extent that it succeeds in inducing the banks to load up on long-term, low-yield assets, a return to more normal rates will spell another round of banking troubles.

If the US were to suffer years of slow deflation, a return to higher rates will be long postponed. At present, strong deflationary pressures are kept at bay by equally strong inflationary policies. If the US escapes the Japanese syndrome, the Fed will sooner or later have to raise rates to stem inflation or to defend the dollar.

Central Bank independence?

For the last 20 or 30 years, political independence of central banks has been a popular idea among academic economists and, of course, heartily endorsed by central bankers. Such independence has not been much in evidence in the recent crisis. But central banks would very much like to restore their independence.

The independence doctrine, however, is predicated on the distributional neutrality of their policies. Once it is realized that monetary policy can have all sorts of distributional effects, the independence doctrine becomes impossible to defend in a democratic society.

Posted by Mark Thoma on Tuesday, January 25, 2011 at 01:08 AM

Dollar Bill Hiccup's picture

As I've said and will continue to say, until I'm Green in the face (I'm Dollar Bill after all) is that the FED does not want the banks to lend. The banks are in the Greenwich Country Day sandbox, sipping champagne, eating caviar and earning a risk free return on US agency and Treasuries, plus the limited Shenanigans creeping back onto trading desks. Recapitalize the banks on the taxpayer's dime is the game. This is buying time since the economy itself needs to be retooled, the latest iteration being an unmitigated disaster (consumer of last resort which nearly consumed itself). The problem remains that the rest of the world not wealthy enough to pick up aggregate demand that the US can no longer sustain. Who is the US going to export to, Chinese peasants who make $2000 a year? The Irish? No, US Corporations are setting up shop in China, or Ireland in order to avoid US Labor costs and taxation. So GM is selling cars in China, but what's good for GM may no longer have much to do with America, unless you own the stock.

Obama's shining future is devoid of substance. Difficult choices need to be made. Powerful lobbies, just like unions, need to be broken. US Corporations cannot simply profit from the US military shield unless they employ those same Americans who they are currently outsourcing. I do not think that BO has the cajones to pull this off. The discontent voiced through the Tea Party is only the beginning of what is required. And by this, I by no means subscribe to the puerile fascination with insurrection. Political insurrection against the yoke of apathy, yes. And insurrection against the apathy that abject materialism commands, even more so.

One can make less, have less and live a better life but one cannot do this with no job and no prospects.

Crassus's picture

Amen. Pissed that the Zimbabwe Trillion note trumped my old Yugo 500 billion dinar.

JR's picture

Thank you for the excellent comment and analysis!   

Yes, Americans have been the consumers of last resort and the taxpayers have been the victims of the first and last resort.  But it can now be said that the owners of the NY Federal Reserve Bank, acting as the thieves of last resort, are playing their final trump cards before the economy turns against them. 

The fellow travelers with the Fed—hedge funds, insurance titans, military-industrial industries and many more—are benefiting greatly by the redistribution of value from American citizens. When the real economy begins to bite back, these fellow travelers will suffer and suffer hard, signaling, IMO, an end to the shell game. A 12,000 DOW versus extreme unemployment and underemployment and a nationwide theft of one of the most valuable commodities to American citizens—their home equity—are proof of the transfer of America’s economic well being to the obscenely rich investment bankers, headed by the Rothschild-controlled NY Federal Reserve.

Non-monopolistic free markets work; socialism and financial tyranny do not.

Geoff-UK's picture

Or we could see a return to serfdom.

Misean's picture

"As I said, when banks begin to utilize their excess reserves to make new loans and create new money rather than store the reserves in “Yucca Mountain,” the case will then grow for the Fed to begin removing the reserves."

Yeah...see, that's gonna be a real problem, because the Feral has only the most overpriced POMO crap that it WAY overpaid for, and toxic sludge that isn't worth a few pennies compared to what the Feral traded for it to "mop up" those excess reserves, should they leak out of the mountain...

Stuck on Zero's picture

The Feds can never raise interest rates.  Period.  Just as in Japan, there is so much Federal debt that raising interests rates would require the Treasury to hand over the entire Federal budget to pay the interest.  It isn't going to happen.  The only way to clear the debt at this point (without bankruptcy) is default and reissuance of a new currency.

Printfaster's picture

The only way out is for the Fed to print faster.

Geoff-UK's picture

If we can just...get...the printing presses up to...88...miles per hour...

hugolp's picture

It was an interesting reading until:

Only Banks Can Create Money Supply

Debasement of indebted nations’ currencies depends importantly upon the excessive creation of money. Today, the deleveraging process is preventing this from happening. This brings us to a critical point: By themselves, increases in the quantity of bank reserves resulting from central bank activities cannot boost the money supply; only banks can create money supply.

Its not true. Government spending financed by monetization is also a way to increase the money supply in the market.

Missing this point is a big mistake.

davepowers's picture

in QE 1 the fed took on MBS/GSE paper onto its balance sheet in an outright purchase. It paid for it by simply crediting the selling banks account at the fed with more reserves. That's how the excess reserves got to where they were at the peak of the chart in March 2010.

So, IF the banks aren't withdrawing the reserves to loan and aren't loaning against them while they are in place (perhaps that's what they're doing?), then where/how did QE 1 amount to printing? Where was the 'inflationary' impact?

Was QE 1 just aimed at gaining collateral benefits (cleaning bank balance sheets so they could raise capital, benefitting banks by giving them an income stream from the interest paid on reserves in place, and probably more)?

To the extent the FED now shifts QE 2 to crediting reserves (vs what they did in 2010 = borrowing the purchase price from the Treasury), how will that amount to printing if reserves still aren't withdrawn or loaned against? 

Further, a system like QE 1 was a closed loop. Basically just an exchange of assets/liabilities on two sets of balance sheets - the banks and the feds. No money left this loop.

But any QE system that acquires treasury paper requires money to somehow leave the loop. Money that the Treasury will use to run the govt. So, as in 2010, no money left the QE 2 loop. The Treasury sold paper that raised money that was given to the FED who bought treasury paper. At most there was a collateral impact (Treasury sold short paper, Fed bought 3-7 year paper), but otherwise it was a $200 billion closed loop.

Since the SFP is seemingly tapped out, presumably the FED will shift to building reserves to pay for more T paper. Where, in that loop, will money be created, found or invented to allow the Treasury to raise money that it can then spend of all its stuff?

flattrader's picture

Wow davepowers!  You ask difficult questions.

Perhaps some of the brilliant minds here on ZH will attempt to post an answer.

But, don't be surprised if all you hear are crickets.

hammel123's picture

>>Was QE 1 just aimed at gaining collateral benefits

banks turned around and purchased Treasuries, in essence, swapping failing private for "still good" public paper. Treasury spent the proceeds of debt sales to prop up many more outstanding mbs, gse etc..throwing good money after the bad.

QE 2 is similar, Fed prints money, Treasury issues debt, Fed buys Treasuries with newly created money. Has been happening in Japan for decades. Why? In aggregate, you need income (interest) streams continue to come in to support the outstanding stock of paper. Private sector is no longer good for paying, hence government is taking over.

Rotwang's picture

"Money" is also created by private parties when a "contract to pay" is entered into, secured or unsecured. An example would be a 'land-jobber' breaking up a parcel of land into smaller pieces, and holding some of the financing in his own name outside the bona fide 'banking' system. These debts and payment schedules get serviced with the 'official' bank money.

spekulatn's picture

From the DB,


US Panel Blames Banks for '08 Meltdown, but not Central Banks

Free-Market Analysis: We've often indicated that one of the dominant social themes of thepower elite is "Wall Street did it." When it comes to financial meltdowns and the myriad of other disasters that afflict central banking economies, the best defense is perhaps a finger pointed at fatcat bankers and their firms. It worked after the Great Depression and that's been the playbook ever since.

Now comes yet another attempt at casting blame on Wall Street for the 2008 financial crisis (see article excerpt above). Featured yesterday in both the New York Times and The Wall Street Journal, the conclusions of the Financial Crisis Inquiry Commission are right out of the elite playbook. No matter what the economic destruction, the mechanism of central banking must not be blamed. And apparently the Commission has managed to avoid doing so.



Nine Pies's picture

Could the banks, with their digitally increased reserves, simply have invested in Treasuries, thus "earning" a higher return than they owed on the reserves borrowed from the Fed?  If so, there's your loop exit.

davepowers's picture

But the reserves are analogous to your holding a passbook savings account. The money just sits there, an asset to you and a liability to the bank. A dribble of interest is paid thereon.

In order to invest in Treasuries you would need to withdraw money from the savings account, yet per Crescenzi and all the data I've seen, the banks didn't withdraw the excess reserves.

I don't now if this is possible, but could one bank borrow $ from another using the in place reserves as collateral, then purchase treasuries, in effect leveraging their excess reserves. That might provide a loop exit and via the magic of FRL amount to printing.

BUT, the data Crescenzi provides show that bank lending continues to sink albeit at a slower pace.

Or perhaps QE is all collateral or side effects, with little real 'printing.' The biggest collateral impact, maybe the FEDs greatest power, is psychological. People think, assume, believe that the FED is printing and react accordingly.

Like the Wizard of Oz, before the curtain parted.