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Deflationists Take Note: Bernanke Succeeds In Offsetting Shadow Banking Collapse

Tyler Durden's picture


The biggest piece of news in Thursday's Z1 statement was not that consumers continue to deleverage, that corporate cash levels are at $1.9 trillion (of which $1 trillion is financial and half of the rest is held offshore: maybe instead of copying Zero Hedge charts, the WSJ could have actually focused on the story behind the headlines) or that the stock market continues to be the only manipulated delta in household net worth (even as wealth in real terms is dropping). A far more relevant and important data highlight has to do with the only thing that actually matters for the reflation of the monetary bubble: namely the fact that the contraction in the shadow banking system is continuing. Or so was the conventional wisdom. As of September 30, Bernanke has successfully stopped the net decline of monetary aggregates even when including the massive shadow banking system.

As we have long claimed, every action by the Fed, every attempt at reflation, every bond purchase directly, and ES purchase indirectly courtesy of Citadel, have had the sole goal of counteracting the impact of the the collapsing shadow banking liabilities. Compared to shadow liabilities, which topped out at $21 trillion in March of 2008, all other monetary aggregates are irrelevant: this includes both their representation in bank balance sheets, such as traditional banking liabilities and the broadest representation of money stock tracked by the Fed, M2 (since as of 2006 M3 is no longer tracked due to the egregious costs of keeping track of this data). And the biggest, and so far most credible, argument that deflationists have had, is that the shadow banking system, and its reconstructed M3 proxy is plunging far faster than Bernanke is reflating other parallel aggregates. Well, that is now over. As of Q3 2009, the sequential change in shadow and traditional bank liabilities was net positive by $3.8 billion: this is the first time this number has posted an increase since December 2008! This fact should send a wedge of terror into the hearts of all those, both deflationists and inflationsts, who realize the significance of this inflection point: it appears that Bernanke has finally succeeded at offsetting the drop in the shadow banking system.

Up until now the one and only defense that those who anticipate continued asset price declines was that on a net basis, the monetary system was still contracting. That is now no longer the case. And now, ironically, all that remains is for a very much cornered Ben Bernanke to convince people that the economy is getting better, resulting in a surge in net borrowings, and a spike in monetary velocity, and... hello Weimar.

But don't shoot the messneger: here are the facts.

Evidence A: total shadow banking system liabilities:

Evidence B: sequential change in actual components to shadow liabilities:

Evidence C: comparison in levels of traditional and shadow bank liabilities.

Evidence D: Overlay of M2 and Shadow Liabilities

Evidence E: most importantly, the sequential change in the combined liabilites represented by both the shadow and traditional banking system. As the arrow indicates, it is now positive to the tune of $3.8 billion: this is probably the most important fact for monetary policy in the past two years.

Of course, all of this is possible only because the state is now the ultimate backstopper of all risk. And now that the monetary inflection point has been reached, and the negative convexity event has passed, we expect that the debasement of the US currency will now start in earnest.

Source: Federal Reserve Flow of Funds and H.6 Statements


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Sat, 12/11/2010 - 17:34 | 799116 living on the edge
living on the edge's picture

Doesn't matter, gold is the place to be invested.

Sat, 12/11/2010 - 19:25 | 799302 Winterland
Winterland's picture

"Sure, we will have to pay more interest to the other bondholders, but the offset by the Fed refund will subdue this worry. If we are our largest debt holder, and we can finance this debt at zero by holding it at the Fed, many of the apocalypse scenarios loose credibility."

In what world does the above make sense?

Sat, 12/11/2010 - 19:29 | 799312 Red Neck Repugnicant
Red Neck Repugnicant's picture

Are you aware that the Fed refunds interest receivables on Treasury holdings back to the Treasury at year end, minus relatively small costs?

When the Fed holds Treasury debt, we are effectively financing our deficits at zero.   

Sat, 12/11/2010 - 19:33 | 799319 Winterland
Winterland's picture

So, under that premise why even bother to hold Treasury auctions? The Fed lends money directly to the Treasury at zero cost.


Or am I missing something?

Sat, 12/11/2010 - 19:46 | 799337 tmosley
tmosley's picture

His premise boils down to "We can print money!"

Prove me wrong, Republicunt.

Sat, 12/11/2010 - 20:52 | 799392 dnarby
dnarby's picture
"If a country could simply buy its own debt with zero downside, I say we should have been doing this all along." - Greg Hunter,
...I'm sure there will be no consequences of note to what the Fed is doing.  All is well, nothing to see here, move along...
Sun, 12/12/2010 - 00:10 | 799627 QuantumCat
QuantumCat's picture

Linear projections always work... just like the housing recovery.  Oh, wait...

Sun, 12/12/2010 - 14:27 | 800251 flacon
flacon's picture


The hyperinflation/hyperdeflation and destruction of the US Dollar has already happened. It occurred on August 15th, 1971 when US Dollars were no longer considered by the market as having the quality "Paid In Full" (that is the meaning of gold - "Paid In Full"). The deed is already done - Bernanke has no power to change what happened in 1971 because he can't undo history. 


US Dollars are today monetary terrorism. I hope some day to not pay any taxes by stopping working, growing my own food, and bartering, and not buying anything with terrorist US Dollars.


Read FOFOA. 

Sun, 12/12/2010 - 14:32 | 800253 flacon
flacon's picture


...or you could just understand history.

Because of the excess printed dollars, and the negative U.S. trade balance, other nations began demanding fulfillment of America’s “promise to pay” - that is, the redemption of their dollars for gold. Switzerland redeemed $50 million of paper for gold in July. France, in particular, repeatedly made aggressive demands, and acquired $191 million in gold, further depleting the gold reserves of the U.S. On 5 August 1971, Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against foreign price-gougers. Still, on 9 August 1971, as the dollar dropped in value against European currencies, Switzerland withdrew the Swiss franc from the Bretton Woods system.

The shock

To stabilize the economy and combat runaway inflation, on August 15, 1971, President Nixon imposed a 90-day wage and price freeze, a 10 percent import surcharge, and, most importantly, “closed the gold window”, ending convertibility between US dollars and gold.

Oh, and if Nixon believed that "Gold is a barbarous relic" then why not just let the Swiss and French and everyone else trade their "far superior US paper dollars" for that nasty yellow metal?! 

Sun, 12/12/2010 - 14:50 | 800294 EscapeKey
EscapeKey's picture

Since it's out of the shelf, I'll throw in another quote from this excellent book (a passage describing the late 60'es):

"Hard money countries, such as West Germany, France, and Switzerland, increasingly balked at accepting the importation of dollar inflation, and began to accelerate their demands for redemption in gold. Gold increasingly flowed out of the United States and into the coffers of foreign central banks."

- The Mystery of Banking, Rothbard, pg 251

Western Europe is upset with the importation of inflation, questions Bretton Woods, and starts redeeming in gold. It's worth remembering currency exchange rates were fixed at this point in time. Shortly thereafter, Nixon closes the gold window, currencies float, and gold spikes (nominated in USD).

Now, consider China at present. They import inflation from the US, have a USD fixed exchange rate, and gold imports are going through the roof.

Sun, 12/12/2010 - 10:24 | 799972 SWRichmond
SWRichmond's picture

tmosley said:

His premise boils down to "We can print money!"

Yes, but he dressed it up in a lot of pretty banksterese lingo that made it sound so...doable.  And his premise is also based on another old argument, capital controls, money having nowhere else to go besides fiat currencies: "Our fiat sucks less than everybody else's, so our fiat is going to be OK!"  But capital DOES have somewhere else to go, and is going there: it is hiding in the precious metals markets where it is safe from debasement.  It will keep hiding there until it is once again safe for it to come out to play.

The quickest way to make it safe again would be to close all the central banks worldwide, reissue national currencies, take the TBTF banks into receivership, and lower tax rates.

Sun, 12/12/2010 - 10:44 | 799989 kaiserhoff
kaiserhoff's picture

Amen.  The massive losses on this fraud will show up when they try to unwind the toxic waste purchases, if not before.  When any public figure opposes a full and complete audit, you know he is a crook and shovelling smoke.

Sat, 12/11/2010 - 20:03 | 799357 EscapeKey
EscapeKey's picture

They're not allowed to do so, except for during wars.

Sat, 12/11/2010 - 20:28 | 799378 Red Neck Repugnicant
Red Neck Repugnicant's picture

We're doing it right now.


Edit in:  After re-reading my post about how the Fed can control inflation, I forgot to mention that the Fed can - at any time - simply increase reserve requirements.  

The inflationary push of all that cash sitting at the Fed in those billion dollar reserve accounts of Wall Street banks can be manipulated in "15 minutes."

You have no idea what the Fed can do.

Sat, 12/11/2010 - 20:40 | 799404 EscapeKey
EscapeKey's picture

No, we're not. The Treasury sells bonds at auctions to PDs, and the PDs sell the bonds to the Federal Reserve during POMO's.

The Federal Reserve is not buying directly off the Treasury.

Sat, 12/11/2010 - 20:47 | 799412 Red Neck Repugnicant
Red Neck Repugnicant's picture

Yes.  You're right. 

I misunderstood your brief post.  I thought you were saying that the Fed could only purchase treasuries in times of war. Instead, you were saying they could only purchase directly from the Treasury during times of war.

My misunderstanding of your post   ...and my apologies.

Sat, 12/11/2010 - 20:50 | 799414 EscapeKey
EscapeKey's picture

No worries, and just because I've gone and located the quote, I'll add it here:

"If the Fed were to finance new Treasury bond issues directly, as it was only allowed by law to do for a while during WW2, this step would be wildly inflationary." - The Mystery of Banking, Rothbard, pg 174.


Sat, 12/11/2010 - 22:04 | 799521 hungrydweller
hungrydweller's picture

Tell me what the difference is:  The PDs buy treasuries and then 1 or 2 weeks later sells them to the Fed at a profit during POMOs.  Looks only slightly removed from purchasing them directly.  So instead of "wildly inflationary" its only "very inflationary".

Sat, 12/11/2010 - 22:44 | 799557 cocoablini
cocoablini's picture

OMG I junked you with my fat thumb, sorry!
The FED 's plan I assume is to keep the dead body functioning until retial suckers start flooding back in the market to take the stocks and bonds off the Primaries.
Its been a great hologram- and everyone thinks tthe FED is in 100% control which makes me think we have a year or so before it all goes to crap again.
Bernanke will start getting his God complex.
Obama will start thinking he's FDR.
Apple will be at 500
Retail players and greed will convert the markets back into a natural ecosystem and it will all crash for good at that time.
Yes, the FED is quite successful because it is a HUGE buyer that does not abide by the laws of the market- which is too make a profit.
The FED deliberately loses money on trades, and screws up the entire eco system.
See Soviet Union, circa 1986. Control hologram economies can only exist so long

Sun, 12/12/2010 - 07:44 | 799898 Troy Ounce
Troy Ounce's picture


Red Neck, you can print all you want and point out technicalities.

But you can't print "trust".

Sun, 12/12/2010 - 10:02 | 799962 Widowmaker
Widowmaker's picture

I trust Bernanke is a fraud, bailing out failure and criminal TBTF cartels and cashing all the checks of the future.

Nothing but facts.

Sun, 12/12/2010 - 11:01 | 800004 centerline
centerline's picture

+1.  The heart of the matter.  Internally, hundreds of millions of people really could care less about printing, it is the effects of that printing they care about.  If there were no consequences - then okay.  But, there are consequences.  Of course, externally there are consequences as well - with all sorts of other nasties associated.  Combine the two, and situation gets potentially explosive.

Sun, 12/12/2010 - 11:47 | 800035 Red Neck Repugnicant
Red Neck Repugnicant's picture

Yes.  Indeed, trust is everything. Our currency is backed by a trust in our government's ability to protect our sovereignty and that our currency will still be legal tender whenever that bond you're holding expires. 

That being known, how do you have a conversation about trust with a bunch of hyper-paranoid wingnuts who have enough ammo hidden in their bunkers to blow the moon out of orbit?  How do you discuss trust with people who believe that 9/11 was a false flag event?  That's a knife fight with a hemophiliac.  

Through my comments, I hope to show some of the lunacy in believing that the great apocalypse is upon us.  It's not.  Things may be really fucked up, but the wheels on the bus go around and around.  

If someone from say 2004/05/06 was given the opportunity to see into the future, into the events of October 2008, that person would have packed up all their belongings and moved to Mars.  It would have been utterly unfathomable to believe that the world could have withstood the dominoes that were unwittingly being aligned and set to fall.  

Instead, the Fed and our Treasury, were able to draft immediate rescue plans that went far beyond anyone's imagination.  And as fucked up as everything is, the Earth is still rotating, and no one has bought land on Mars yet. 

When/if inflation begins to creep out of the bag, I have faith that the Fed will conjure equally unfathomable policies that will smash inflation immediately.  Just like the person from 2004/05/06 could never have imagined the policies in 08/09/10, I have a similar inclination to believe we cannot fathom today whatever the Fed may use in the future. 

Again...the wheels on the bus go around and around...

When you get to a point that you have 500 cans of green beans under your house and your neighbors stop inviting you to their holiday parties, you may want to consider that your beliefs about trust are highly skewed.  


Sun, 12/12/2010 - 11:53 | 800048 DaveyJones
DaveyJones's picture

how do you argue with someone who is the only fan of their humor

Sun, 12/12/2010 - 11:57 | 800054 Clinteastwood
Clinteastwood's picture

Hey I got an idea.  Let's fight inflation by inflating the currency.  Yeah, that's it, yeah, yeah, that's it! .

Sun, 12/12/2010 - 12:47 | 800102 chopper read
chopper read's picture

RNR, is the same monkey who has continuously insulted everyone for owning gold.  In a strange about face the other day, he then said he will be a buyer at $1,000.  ha, ha. 

could you imagine having "Faux News" as your photo icon while at the same time being a worse trader than Glenn Beck himself?!!!    ha, ha, ha, ha, ha, ha, ha, ha!!!!!!!!!!

Glenn Beck owns gold and RNR does not!!!!    ha, ha, ha, ha, ha, ha, ha, ha!!!!

too funny!!!!!!

Sun, 12/12/2010 - 13:15 | 800131 Red Neck Repugnicant
Red Neck Repugnicant's picture

holy. fucking. shit  

Had I known that your level of intelligence and wit skims near zero like an asymptote, I would never have wasted my time with you.

too pathetic...  


Sun, 12/12/2010 - 14:37 | 800270 fiftybagger
fiftybagger's picture

I junked you just because

Sun, 12/12/2010 - 14:40 | 800276 chopper read
chopper read's picture

me thinks thou doth protest too much.  just admit it when you buy gold at $2,500.  okay, monkey?

Sun, 12/12/2010 - 20:37 | 800685 dnarby
dnarby's picture

Rather he admits it when he buys at $10,000.

Sun, 12/12/2010 - 14:17 | 800245 barbage
barbage's picture

I seems the winds of change are already upon us. According to the article below Switzerland is in 1st place in the world economic ratings. The US has slipped to 4th. The trust already seems to be dwindling. The group that came to these conclusions however are based in Geneva, so it could be a bit of self glorification.

Sun, 12/12/2010 - 14:19 | 800248 Hero Protagonist
Hero Protagonist's picture

Forget Apocalypse bashing and forget focusing on the world coming to an end.

You use the word "trust" a bunch and then "faith" once.  I want to focus in on "Faith" while trying to forget the religious ramifications of the word.  

You stated accurately "Just like the person from 2004/05/06 could never have imagined the policies in 08/09/10, ..."

The reason they couldn't of imagined it and I believe many here also believe is because the recklessness of doing so balanced against the objective sanity of letting the market correct, as painful as that correction would have been, is obvious.

The FR and Treasury with the approval of the US government and Financial System, have removed every pressure valve so that we are now left with relying on's binary at this point.  That is where the frustration is...why remove checks and balances and just fall back on the faith that everyone will stay on your bus.  It didn't have to be this way but now it is.


So, I'll put it to you, if the Faith that you have comes to an end for a meaningful measure of the financial markets in 2013 (arbitrary year)  would you have said now that it was "unfathomable"?





Sun, 12/12/2010 - 15:18 | 800320 Bring the Gold
Bring the Gold's picture

You and Bigus Dickus Jr. should start your own comedy troupe. Black comedy, surreal interpretations of reality, hubris, cluelessness and blind trust in power. The two of you capture the comedic zeitgeist like no other. 

Sun, 12/12/2010 - 13:18 | 800155 Ripped Chunk
Ripped Chunk's picture

The PD involvement is a charade. Just sticking to the process that has been in place for decades to provide an illusion that short term liquidity markets are operating normally. Oh and with every transaction, there are fees/spread. Would not want those poor folke to go broke now would we?

Sun, 12/12/2010 - 17:25 | 800464 caconhma
caconhma's picture

<You have no idea what the Fed can do.>

Certainly, it is impossible to predict what mad, stupid, and/or incompetent men can do. However, regardless of what they do, they are not Gods and Laws of the Nature will always prevail.

Sun, 12/12/2010 - 04:03 | 799795 AnAnonymous
AnAnonymous's picture

So, under that premise why even bother to hold Treasury auctions? The Fed lends money directly to the Treasury at zero cost.


Or am I missing something?


Maybe to expand the participating base.

Maybe to keep pretending. Debt is a hot issue as it seems more and more that debt will not be repaid other than in nominal terms.

All in all, what you are asking is why set up dummy companies...

Sun, 12/12/2010 - 13:14 | 800145 Ripped Chunk
Ripped Chunk's picture

Kabuki Theater

Sun, 12/12/2010 - 01:34 | 799695 AndItsGone
AndItsGone's picture

Are you aware that when a snake's head eats its own tail, it's effectively providing calories to itself at no cost?

Sun, 12/12/2010 - 02:00 | 799713 delacroix
delacroix's picture

no it loses its ass

Sun, 12/12/2010 - 02:18 | 799729 chopper read
chopper read's picture

hilarious.  :)

Sun, 12/12/2010 - 08:26 | 799920 TheProphet
TheProphet's picture

That's damn funny.

Sun, 12/12/2010 - 08:26 | 799921 TheProphet
TheProphet's picture

That's damn funny.

Sun, 12/12/2010 - 10:14 | 799965 SWRichmond
SWRichmond's picture

...and winds up eating shit

Sun, 12/12/2010 - 11:45 | 800041 DaveyJones
DaveyJones's picture

...and argues in a circle

Sun, 12/12/2010 - 20:41 | 800693 dnarby
dnarby's picture

...And collapses into a singularity.

Either that, or it just dies.

Sun, 12/12/2010 - 21:11 | 800731 UncleFester
UncleFester's picture

Burning calories to (re)consume calories it already consumed before is at no cost...who knew?

Sun, 12/12/2010 - 10:49 | 799996 SamuelMaverick
SamuelMaverick's picture

Yeah, if you have a partial understanding of reality. We are not financing the debt at 0, we are financing it off the backs of the American people by making one dollar worth less and less, while their paychecks remain the same. Granny has 200k in the bank making less than 1%, while all of her expenses are shooting thru the roof. Yeah, all is well, move along people.

Sun, 12/12/2010 - 13:01 | 800126 Idiot Savant
Idiot Savant's picture

@Red Neck Repugnicant:

Wow, sorry to see you got junked so much. I appreciate opposing viewpoints, especially well thought out ones. It's sad to see that so many ZHers don't appreciate differing opinions.

What happend to your original post??

Regardless, I have a question for you. Let's assume the FED can fight inflation and raise rates without choking itself. It would seem then that the end-game is when the rest of the world rejects dollars. What happens if/when oil is traded against a basket of currencies, or is that where our military comes in to play?

Sun, 12/12/2010 - 17:32 | 800472 tmosley
tmosley's picture

If I post disappears after it has been replied to, that means it accumulated too many junks and got deleted by the board software, I believe.

Sun, 12/12/2010 - 18:33 | 800544 caconhma
caconhma's picture

Idiot Savant, I have a bad news for you. Specifically, "where our military comes in to play".

Let me explain.

First, little bid of the history.

In 1917, a group of Jewish thugs and terrorists led by Lenin and Trotsky was sent to Russia by the USA and the Great Britain to destroy the country. After all, the USA and the Great Britain purpose of the WWI was to destroy Germany and Russia. Both countries were about to emerge as new world superpowers ready to challenge American and British world domination.

The plan was that Lenin, Trotsky and their thugs would leave Russia after bringing it down. However, Lenin and Trotsky concluded that they would not last long leaving Russia. They just knew too much. So, they decided to stay in Russia using all means keeping the power. Well, Lenin did not last long. He died from a syphilis shortly after. After Lenin's death, Trotsky lost a power struggle to Stalin, was exiled, and later killed. Lenin and Trotsky associated still hoped to move to the West. They hated USSR. This is why Stalin purged/liquidate almost all "old Bolsheviks" since they they were "Soviet 5th column."

Stalin transferred the Soviet Union into a nuclear superpower with an intention to destroy both American and British Empires. In 1953, he was killed. The Soviet Union new leaders opted for a coexistence with the American-British axis.

This situation lasted for almost 30 years before Gorbachev destroyed USSR and sold it to America, got his money, and moved to live in America. Yeltsin has played by the American "rules". America became the only superpower. The entire world was at American mercy.

President Yeltsin appointed Putin as a new Russian President to protect his ass since Putin was/is a very corrupt and ruthless thug with strong security apparatus connections. Putin was an American puppet. This is why GWB looked into Putin eyes and "liked" what he saw. Putin and his people were destroying Russia, stealing billions of US$ and depositing the loot into Western banks.

So far, so good for America but, from time to time, Putin likes to be treated as an equal to the Western leaders. His ego creates some frictions with his American bosses. And here comes Wikileak telling Putin that Americans consider him who he really is: a mafia thug. Furthermore, Putin understand that, if he leaves Russia, he would not be treated as Gorbachev. His money could be seized and he can be treated as Saddam Hussein...

Now, both Russia and China are nuclear power. In a future, the both are ready to use their military/nuclear muscles. Consequently, presently American military options become very limited.

Sun, 12/12/2010 - 20:01 | 800641 Bring the Gold
Bring the Gold's picture

Great geo-pol post. Very interesting. Not sure Putin is on the leash, but perhaps fenced in as you pointed out. Putin seems to act like a free agent now and then IMO. Good stuff however.

Sun, 12/12/2010 - 21:04 | 800713 dnarby
dnarby's picture

Putin is an expert at Judo.

The central principle of Judo is to turn your opponent's energy against him, typically by getting him to commit to a move, and then quickly getting out of the way while adding as much energy as you can to drive them into the ground.

Think about it.

Sun, 12/12/2010 - 21:04 | 800710 dnarby
dnarby's picture

I appreciate opposing viewpoints, especially well thought out ones.

...And that's why all the junks.

Mon, 12/13/2010 - 07:47 | 801197 Al Gorerhythm
Al Gorerhythm's picture

When the Fed holds Treasury debt, we are effectively financing our deficits at zero.

So why then am I forced to pay taxes?

Sat, 12/11/2010 - 19:46 | 799336 Sean7k
Sean7k's picture

What is not being said is that the money is then spent, therefore the debt grows larger and larger as a percentage of GDP. This puts all dollar denominated debts at greater risk and higher CDS rates. You cannot accumulate ever increasing amounts of debt without debasing the dollar and affecting other parts of the economy.

Sat, 12/11/2010 - 20:04 | 799359 kaiserhoff
kaiserhoff's picture

You are obviously encumbered by a functioning brain. Let me explain the new world order.

Dear Leader Ben promises that he is NOT printing money.  The Fed is an investor, like any other investor.

Ben also assures us that the Fed NEVER loses money on its investments, presumably because it can print all the damn money it wants.  Got that?

Therefore, no American will ever again have to work, pay taxes, or live without a shiny new Cadillac.  Ben has the Midas Touch, or maybe it's the Madoff Touch.

          So why does this not fill my heart with everlasting joy?

Sat, 12/11/2010 - 19:52 | 799324 DaveyJones
DaveyJones's picture


Sat, 12/11/2010 - 19:43 | 799329 tmosley
tmosley's picture

How, exactly, does one make a profit by selling mortgage backed securities that are full of nothing but defaulted mortgages for a profit when they were bought at par value?

Even if everything magically got better tomorrow, that crap would still be totally worthless.

The rest of your post consists of nothing more than playing games.  It will solve nothing.  You can bet the farm on that, and I have.  If we have to raise rates, it will be by at LEAST 5%, not some fraction of a percent.  That will crush the US, no matter how rosy your outlook.

Quick, blame the Republicans!

Sat, 12/11/2010 - 20:05 | 799360 nmewn
nmewn's picture

Everyone knows it's Bush's fault...somehow ;-)

In Faux's world, "money" to buy bonds (that are no longer backed by any semblance of a tax base) is just a click away.

It's a wonderful world inhabited by statists, riding unicorns, issuing promises of a 42" flat screen in every home & an EBT card in every wallet...LOL.

Sat, 12/11/2010 - 20:16 | 799375 Red Neck Repugnicant
Red Neck Repugnicant's picture


You have a very peculiar habit of falling on your face every time you make a post.

How, exactly, does one make a profit by selling mortgage backed securities that are full of nothing but defaulted mortgages for a profit when they were bought at par value?

The purchase program for Agency Mortgage Backed Securities were not purchased at par.  The link below states that the Fed paid auction prices for those securities, not par.  There is some debate on whether the Fed actually bid in an auction for those securities, or if the price was assigned arbitrarily, but, whatever the pricing mechanism was, it did not equate to par.

Furthermore, the securities that were purchased where not the ones that imploded and created this entire mess in the first place.

Please do some homework before you attempt to debate me.

Sat, 12/11/2010 - 20:26 | 799387 tmosley
tmosley's picture

I guess you missed the NPR experiment where they bought MBS' and lost their asses.  Those securities are now worth ZERO.  No-one would ever buy them for the 70%+ of face value that the Fed paid.  Whether the haircut is 9% or 99% is up for debate, but it hardly matters, as they will never sell them, as that would prove to the world their foolishness.

You are the only one who thinks I "fall on my face" when I make a post.  Everyone else around here, even the liberals, see you for what you are, an arrogant fool.

Sat, 12/11/2010 - 20:42 | 799408 Red Neck Repugnicant
Red Neck Repugnicant's picture

Once again, I proved you wrong and now you're doing as you always do: back-peddling. 

Don't try to divert this conversation into something about a NPR experiment.  That's just a strawman argument that has nothing to do with the trillion dollar programs at the Fed.

First, you clearly said the Fed paid par. Now your saying the haircut was 99% or 9%.  Then, you follow it up with it hardly matters

It absolutely matters. 

The Fed didn't pay par.  And you clearly have no idea what you're talking about. 

How is it possible that you would post such highly opinionated comments on a subject matter that you're utterly ignorant of? 

Sat, 12/11/2010 - 20:54 | 799419 tmosley
tmosley's picture

It's funny that you can't tell the difference between the "price paid" and "the price they get when they sell".

Look, shit for brains, the fact is that the Fed paid WAYYYY too much for those MBS'.  Further fact is that similar securities (we are NOT privy to the exact makeup of what the Fed bought) bought by NPR were shown to have degraded to zero value VERY QUICKLY as the underlying mortgages defaulted, or were otherwise found to not hold the mortgages they claimed to.  I quote NPR because you are a rabid liberal and love anything said by NPR (just like everyone else here apparently loves everything Glen Beck says).  

The reason it "hardly matters" what they are worth on the open market is exactly because the Fed will never sell them (learn to read, moron).  The Fed won't sell them because they don't want to look like fools because they overpaid.  They would rather just take whatever income they can get by holding to maturity.  Of course, the income is likely ZERO because everyone and their mother stopped paying their mortgages almost a year ago.

But hey, feel free to go get raped by a rainbow shitting unicorn in fantasyland.  Maybe they'll pay par for your stupid bullshit there.

Sun, 12/12/2010 - 00:31 | 799637 Red Neck Repugnicant
Red Neck Repugnicant's picture

Hey Gilligan - you're hanging upside down, trapped in a potato sack. Give it up! You've had more false starts in this discussion than those hapless chaps in a Cialis commercial. 

To my utter astonishment, every single post of yours is a direct contradiction of your prior post - amazing!  


With the hope that this conversation can proceed with clarity and some degree of coherence, can you please select one (only one!) of the following answers:

The Fed bought mortgage securities, and paid:

A. Par

(your first post)

B. 9%-99% of par

(your second post. Big range, there.  lol)

C. Doesn't matter what they paid

(very curious for you to say this, because it totally crushes the underpinnings of your argument)

D. Wayyyy too much

(your third post which conflicts with doesn't matter what they paid...)

E. even exchange for chickens

(I can only assume this would be your next claim, as every numeral on number line has already been used by you)


Quite frankly, I've never seen anyone slip on more banana peels in one short discussion than you.  You barge into this conversation, horse-prance around this thread wearing nothing but an over sized dunce cap and tassels hanging from your nipples - then fall on your face, again and again and again and again.

Because I care for your health, I've provided a link to the face transplant team at the Cleveland Clinic.  If you're going to fall on your face this many times, you might as well familiarize yourself with your surgical options. 


Sun, 12/12/2010 - 00:46 | 799652 Tyler Durden
Tyler Durden's picture

Is your argument that the Fed bought agencies below par? Luckily, post last Wednesday we now know what price the Fed paid for all its MBS monetizations. To wit (for the 5% GSE coupon):


Sun, 12/12/2010 - 02:20 | 799731 Red Neck Repugnicant
Red Neck Repugnicant's picture

Oh captain, my captain...

No.  I never said the Fed paid par.  I kept saying that the Fed didn't pay par, but very deliberately never specified over/under. I only used "par" since it was his word, and I was trying to goad him into the conversation.  As soon as he answered my multiple choice questions, I was going to post a link to a chart very similar to the one you posted, except I was going to show the market value for agencies. I figured this would totally blast him out of the water.  

As you well know, the market for agencies during that time frame was setting records, due to the government's involvement in the market.  This is the exact opposite of what tmosley was suggesting.  He was saying the market was basically worthless, and those agencies were worth zero. While there are lots of deadbeats currently defaulting on their mortgages, I would assume that the percentage of defaults on mortgages issued in 09/10 is exceptionally small.  House prices and rates are cheap and underwriting standards are strict.   

The 5% coupon is a little spooky, but paying a premium over par for them is reasonable.  Those in that pool will find it increasingly detrimental to refinance as rates rise off the lows, so there is not much risk in having paid the premium. 

Thank you for the chart, even if it interrupted my plan. :)

By the way, anytime you think I'm being too hostile or antagonistic with my posts, please let me know. I will humbly respect your domain. The spirit behind my posts is just humor and entertainment, even if that is not readily evident. 


Sun, 12/12/2010 - 02:39 | 799749 chopper read
chopper read's picture

politicking bootlicker. 

Sun, 12/12/2010 - 10:22 | 799969 Everyman
Everyman's picture

No need to get fancy, he is just an asshole.  And an arrogant and mis informed one at that.

Sun, 12/12/2010 - 12:01 | 800058 DaveyJones
DaveyJones's picture

comment of the week award 

Sun, 12/12/2010 - 11:17 | 800011 tmosley
tmosley's picture

Wow, you don't even know what "par" means.  Here, let me help you:

Paying more than par means you are guaranteed to lose money.  Paying precisely par means that you are making a zero interest loan.  The amount you pay under par is what you stand to gain if you hold until maturity, assuming there is no default.

You clearly have no idea what you are talking about.  The Fed wasn't buying NEW MBS' (at least not exclusively), they were buying the old, shitty ones from the height of the bubble!

I love how when you see someone post something that proves your argument wrong, you purposefully misconstrue it as support of your argument.  How could anyone be so stupid?

Sun, 12/12/2010 - 12:23 | 800062 Red Neck Repugnicant
Red Neck Repugnicant's picture

Paying more than par means you are guaranteed to lose money.  Paying precisely par means that you are making a zero interest loan.  The amount you pay under par is what you stand to gain if you hold until maturity, assuming there is no default.


Try again, Gilligan. 

What about the interest collected for 30 years?


Clearly, you have no fucking clue what you're talking about.  Please stop, for the love of God.  You're just digging yourself further and further and further into a hole.

Use today to research face transplant surgeons.  Stay off the blogs, or, if you insist on staying, do your face a favor and wear a hockey helmet while posting.  


Sun, 12/12/2010 - 12:49 | 800109 chopper read
chopper read's picture

RNR, is the same monkey who has continuously insulted everyone for owning gold.  In a strange about-face the other day, he then said he will be a buyer at $1,000.  ha, ha, ha, ha!

could you imagine having "Faux News" as your photo icon while at the same time being a worse trader than Glenn Beck himself?!!!    ha, ha, ha, ha, ha, ha, ha, ha!!!!!!!!!!

Glenn Beck owns gold and RNR does not!!!!    Glenn Beck is a better trader than RNR!!!!    ha, ha, ha, ha, ha, ha, ha, ha!!!!

too funny!!!!!!

Sun, 12/12/2010 - 13:10 | 800137 Red Neck Repugnicant
Red Neck Repugnicant's picture

...and you have the balls to copy/paste this same witless post over again?


If you want to engage in a war of wits with me, you're going to need to bring more to the table than Nerf darts and stink bombs. 

Sun, 12/12/2010 - 14:27 | 800258 tmosley
tmosley's picture

Any war with you is not a war of wits, but rather a war of twits.

For a war of wits, both sides must have wit.  You have none.  Sorry :(

Sun, 12/12/2010 - 14:48 | 800288 chopper read
chopper read's picture

think about it.  RNR readily admits not being in the trade of the century.  he is an exceptional moron, especially given that he is presented with facts daily on these message boards.  its entertaining to witness his meltdown.  he spews venom because his arrogance has caused him to be left behind in the most obvious trade in the history of money.  no wonder he is belly-aching and throwing his toys out of the pram.  His mummy told him that he was a little genius and this fallacy is colliding with reality.  no gold!!  ha, ha, ha, ha, ha!   His punishment is that he is himself!   I love it!!  :)

Sun, 12/12/2010 - 14:11 | 800232 tmosley
tmosley's picture

Bankrupt securities don't pay interest, moron.

If you think MBS' are such great investments, might I suggest you go all in? 

Sun, 12/12/2010 - 12:13 | 800069 DaveyJones
DaveyJones's picture

"By the way, anytime you think I'm being too hostile or antagonistic with my posts, please let me know. I will humbly respect your domain. The spirit behind my posts is just humor and entertainment, even if that is not readily evident."

humility is your greatest asset.  Did the junk numbers and comments prompt your last sentence? You learn quick  


Sun, 12/12/2010 - 14:13 | 800237 tmosley
tmosley's picture

No, he doesn't learn.  He knows he is wrong, and he fawns like Smeagol before anyone with any power.  Typical liberal cowardice.

Sun, 12/12/2010 - 21:08 | 800725 dnarby
dnarby's picture

The spirit behind my posts is just humor and entertainment, even if that is not readily evident.

Annnnd...  That's a FAIL.

Sun, 12/12/2010 - 01:42 | 799702 tmosley
tmosley's picture

I see there is no point talking to you, as you are purposefully confusing buy and sale prices, but hey, lets give it a try.

A. This is what the Fed Paid, as illustrated so gracefully by Tyler.  If I am reading the chart right, they actually paid ABOVE par.  I don't know how that can be right, but that appears to be what happened.

B.  This is what those securities are worth NOW (you know, as opposed to then)

C.  "It doesn't matter" what the market value of the MBS is because they are never going to put them on the market.

D. They paid WAAYYYYYY over market value, even when assured of 100% repayment on these loans.

If you don't get it by now, you are just being stubborn.

Sun, 12/12/2010 - 02:39 | 799750 chopper read
chopper read's picture

pearls to swine. 

Sun, 12/12/2010 - 02:46 | 799758 Red Neck Repugnicant
Red Neck Repugnicant's picture

Actually, the correct phrase is pearls before swine.

Additionally, it is not surprising that someone of your mentality would quote passages from the Bible.  

Since you can't get the passages correct, I can only assume that your Bible spends more time on your sleeve, than open in your lap.

Hey...but whatever saves you...  

Sun, 12/12/2010 - 03:29 | 799785 faustian bargain
faustian bargain's picture

You really are a dick aren't you. I'm glad I don't have to be around you in real life.

Mon, 12/13/2010 - 04:39 | 801138 Hephasteus
Hephasteus's picture

I don't even know why you bother reading his posts. I read the first 4 or 5 words and then stop. I haven't read an entire one of his posts in 4 days.

Sun, 12/12/2010 - 04:32 | 799819 chopper read
chopper read's picture

i've never been opposed to referencing some of the wisdom in the assembled bible. 


p.s.  be honest about it when you finally buy into gold at $2,500.  okay, RNR? about missing the trade of the century.  ha, ha.  

Sun, 12/12/2010 - 14:35 | 800264 Bring the Gold
Bring the Gold's picture

I humbly submit that gold was the trade of the decade 2000 to 2010, for 2011 to 2020 it shall be silver. The trade of the century will likely be trading silver and gold for RE and equities at the inflection point. Just my $0.02 90% copper so more like my $0.04. :D

Sun, 12/12/2010 - 14:50 | 800292 fiftybagger
fiftybagger's picture

+20 million ounces

Sun, 12/12/2010 - 14:59 | 800296 chopper read
chopper read's picture

splitting hairs as it relates to the overall thesis.  i'm long both, and will be until there is blood in the streets (so-to-speak), then RE and equities.  agreed.

p.s.  1982 pennies and before are 95% copper.  1983 up till now are 97.5% zinc.

Sun, 12/12/2010 - 15:23 | 800324 Bring the Gold
Bring the Gold's picture

Touche' and indeed I was splitting hairs. You are so right about hard assets now (and 95% copper whoops thinking 1963 quarter's silver content). Pendulum will swing again as I know you know. Loved your Central Banking blog by the way "plot to enslave" not sure if you caught my comment in your other thread.

Sun, 12/12/2010 - 15:30 | 800328 chopper read
chopper read's picture

not yet, i'll check it out. thanks for the feedback, BtG. 

Sun, 12/12/2010 - 10:17 | 799968 Calmyourself
Calmyourself's picture

RNR's first post above was the machiavellian approach to finance, print your own money buy your own debt the rest of the world and oil producers will say, wow, great idea can we have some more dollars?  Now he would like to lecture us on our Bible reading habits.  Typical liberal, inch deep..  Have you found Bammys grades yet, or perhaps a paper he wrote as President of the HLR?  Why is this relevant?  If your analytical skills are such that you voted for this fraud prior to vetting those two questions, said skills are worthless..

Sun, 12/12/2010 - 12:08 | 800065 Blankman
Blankman's picture

Repub v. Dem

Voting for the president is a fools game as the presidency is not a popularity contest as much as most of you want it to be. Two words: Electoral College

Sun, 12/12/2010 - 17:09 | 800443 Calmyourself
Calmyourself's picture

Two words: Executive orders, okay three: bitchezz

Sun, 12/12/2010 - 12:52 | 800117 chopper read
chopper read's picture


RNR, is the same monkey who has continuously insulted everyone for owning gold.  In a strange about face the other day, he then said he will be a buyer at $1,000.  ha, ha. 

could you imagine having "Faux News" as your photo icon while at the same time being a worse trader than Glenn Beck himself?!!!    ha, ha, ha, ha, ha, ha, ha, ha!!!!!!!!!!

Glenn Beck owns gold and RNR does not!!!!    Glenn Beck is a better trader than RNR!!!!    ha, ha, ha, ha, ha, ha, ha, ha!!!!

too funny!!!!!!


Sun, 12/12/2010 - 11:10 | 800009 Robslob
Robslob's picture

While there can be zero doubt of RNP's hyper-intelligence one has to think about how many other HIs have been completely blown out of the water when everything didn't go exactly as planned...

Sun, 12/12/2010 - 01:35 | 799698 chindit13
chindit13's picture

What you two gents might be able to agree upon is that the Fed paid a price higher than anyone else would have paid for those $1.25 trillion in MBS.  Otherwise the sellers would have sold to someone else.  You might also agree that the prices of the MBS prior to the Fed's purchases were inflated above otherwise fair market value because every single player in the market knew the Fed was going to come in and buy $1.25 trillion of the stuff.  Thus, with limited downside coming into each purchase, the prices would have been above the level they might have been had not a trillion dollar buyer announced his intentions.

From there you two might disagree as to the current and future value of those MBS.  I will suggest that since the housing market has not improved since the Fed purchases, nor has employment and the population's ability to service its existing debt improved, the market value of all those MBS could be expected, with a reasonable degree of confidence, to be lower than what Ben paid (on our behalf).  Yes, there are peculiarities in MBS pricing in times of rising rates due to the decreased possibility of refinancing, but on balance events subsequent to Ben's purchase point toward a marked to market loss, and perhaps complete wipeouts on some bonds due to default.

Sun, 12/12/2010 - 02:45 | 799757 chopper read
chopper read's picture

well-reasoned.  this is exactly how each event has unfolded and a great indication of what is in store. 

Sun, 12/12/2010 - 13:21 | 800158 kaiserhoff
kaiserhoff's picture

Clear and sensible as always.

As a long time fan of Taleb, I try to avoid predictions, but the Fed has had one remarkable success.  At a time of massive debt and financing needs worldwide, they have created the mother of all asset bubbles in bonds.  When long rates spike, and they will, the Fed's balance sheet will look like it was audited by Edward Scissorhands.

Sun, 12/12/2010 - 15:01 | 800306 chopper read
chopper read's picture

When long rates spike, and they will, the Fed's balance sheet will look like it was audited by Edward Scissorhands.

exactly.  its going to get VERY ugly. 

Sat, 12/11/2010 - 21:01 | 799430 mtomato2
mtomato2's picture


You were once very gracious to me when I was in need, and for that I am eternally grateful.  I find that I disagree with pretty much everything you post, but that one time where you offered me whatever you had that I might need stuck with me, and has helped me remember that, after all, we are all pretty much trapped here on spaceship earth, together, like it or not.  So:  thank you for that time.

Having said that, and openly confessing that I am not the sharpest knife in the global financial drawer,  please help me understand why what you have posted here isn't basically akin to trying to propel your sailboat with a fan mounted in the stern.


Most sincerely,



Sun, 12/12/2010 - 02:47 | 799759 chopper read
chopper read's picture

he just cannot forgive himself for not owning physical gold, so he goes to great lengths to justify his colossal misstep.  it is very sad to watch indeed.  

Sun, 12/12/2010 - 11:21 | 800019 tmosley
tmosley's picture

His is a classic case of escalation of investment.  In his case, he is invested in the notion that I am an idiot, and everything I say is wrong.  This is not a good course to take against some people.  It would be like going against the Turd on PMs, or against Tyler in general.  You might find something wrong every now and then, but the vast majority of the time, you're just going  to look like an idiot.  

Sun, 12/12/2010 - 12:58 | 800125 chopper read
chopper read's picture

RNRs photo icon is "Faux News" and he does not own gold.  Glenn Beck owns gold.  Glenn Beck is a better trader than RNR.  The irony is nothing shy of hilarious.  I get a good laugh about this every time I see RNR post.  He IS our village idiot.  

Sat, 12/11/2010 - 21:20 | 799453 fallst
fallst's picture

Why were these not availiable to me?

I am very interested in purchasing these CDO squareds. But the Bernake outbid everybody else.

Truly a Score.

Sun, 12/12/2010 - 10:58 | 800001 SamuelMaverick
SamuelMaverick's picture

+1 tmosley.  Redneck is definitely comic relief for those with a functioning brain.  All points of view welcome in fight club, but be prepared to be punched in the face by your opponent.

Sun, 12/12/2010 - 03:11 | 799464 Calculated_Risk
Calculated_Risk's picture

Goldman (and others) were paid in full for it's failed mbs with cdo's via the fed pumping money into AIG. While it's not considered a direct purchase of the mbs securities, they still paid for them via the insurance. 

And, if the purchased mbs were ones that did not implode. Then why purchase

them in the first place? That was the original argument, was it not? If they were so great then the open market would have purchased them. The fact is they were shit. Hence "Toxic Assets", and the much later bullshit term "Legacy Assets", as they tried to throw shit on the wall and call it art. Nobody knew which mbs would fail or not because they were all jumbled. Now, that the feds can see which are performing and which are not, the feds are selling the good ones back to the banks, an keeping the toxic.


Sat, 12/11/2010 - 22:54 | 799569 revenue_anticip...
revenue_anticipation_believer's picture


It should be clear, too, WHY PIMCO, is buying NOT PAR Agency Mortgage Backed Securities - PIMCO, on their very  own site provides the assumptive framework WHY THIS IS REALLY CLEVER, and timely NOW...

Sun, 12/12/2010 - 09:42 | 799954 Raynja
Raynja's picture

ummm your link shows they paid an average of 101.98, i guess you are right they didnt pay par ......

Sat, 12/11/2010 - 19:56 | 799349 tickhound
tickhound's picture

So go long printing presses, helicopters, and apple pie? Wasn't too long ago that just suggesting the Fed does or will buy treasuries was considered conspiratorial. Your post fails to address the true "backing" to our short term ponzi and the most important support all fiats need... confidence. Otherwise why hold auctions? Why ever produce anything real at all? Unless one considers fancy financial products "real"

Sun, 12/12/2010 - 04:19 | 799803 AnAnonymous
AnAnonymous's picture

Why ever produce anything real at all?


People who "produce" anything real are not asked their consent. Never forget that for the US, through the USD, the wealth extracted from the rest of the world matters more than the wealth extracted from the US.


About confidence: you should review currency debasement  historical data.

The loss in confidence in a debased currency starts when the providers of essential goods to a standard of life begin to reject the currency. They prefer to hoard their production/collection rather than put it on the market.

At this point, people using the currency experiment the very fact that their currency no longer buy what they need. Therefore a confidence crisis.

A confidence crisis, a loss in faith can not happen as long as people experiment the very fact that their currency buys something. USD buy commodities all around the world and will keep doing so. A loss of confidence is impossible in this context. 

Sun, 12/12/2010 - 20:13 | 800657 tickhound
tickhound's picture

"A loss of confidence is impossible in this context"

Holy shit your faith is near religious.. seems the rest of the world is not so convinced. If this decade has taught us anything... "impossible" should be removed from most economic formulas.

Sat, 12/11/2010 - 20:01 | 799354 jules from aus
jules from aus's picture


simplistic beauty - I love it... and never knew the interest was refunded each year-end - thanks +1

Sat, 12/11/2010 - 20:24 | 799388 Red Neck Repugnicant
Red Neck Repugnicant's picture

Last year, the Fed returned $77B in interest receivables back to the Treasury, which was around 40% of all interest paid out by the Treasury.  

Sat, 12/11/2010 - 20:40 | 799405 Winterland
Winterland's picture

Fine, then why bother even having Treasury auctions if they can essentially borrow at zero from the Fed?

Is it just window dressing now?


Sat, 12/11/2010 - 20:54 | 799418 EscapeKey
EscapeKey's picture

This zero-rate bank lending is actually turning out to be an issue for other reasons.

There are multiple stories about banks who want to "discourage" customers from depositing their money, as to the banks, it's far cheaper to just get reserves straight from the FRB.

Absolutely insane.

Sun, 12/12/2010 - 09:59 | 799959 squidward
squidward's picture

Insane is right.  The Fed has smoked the Keynsian crackpipe long enough the paranoia of "the paradox of thrift" has taken over and now they are systematically assasinating savers. 

Besides dollar devaluation, QE2 is about punishing savers and bond holders and forcing them into riskier investments or spending it. No body is jumping off the sidelines to borrow just because QE2 dropped rates by a few more bps.


Sun, 12/12/2010 - 12:54 | 800121 steve from virginia
steve from virginia's picture

Peeps give the Fed way too much credit.

TD sez Bernanke has refloated shadow banking. What next?

Is SB functioning? No. It's just a blown- up corpse.

M2 increases are a consequence. Bernanke okays moral hazard and the traders borrow from Bernanke via Goldman- Sachs to buy gold futures swaptions or whatever the bezzle of the moment happens to be.

The Fed's once- (relatively) pristine balance sheet is now a morass of worthless mortgage= backed securities and other crap taken in the 'Pawnshop' trade of trash for cash. No wonder the Fed needs to buy longer Treasuries: it's insolvent!

Even if it doubles the size of its balance sheet its MBS and other trash will still leave it underwater. Bernanke needs to go to Congress hat in hand and beg for TARP II so as to recapitalize the Fed.

Good grief!


Sat, 12/11/2010 - 20:56 | 799421 EscapeKey
EscapeKey's picture

That's not a good thing. If it were, the FRB could buy $10tn worth of bonds, collect the interest, and send MANY TIMES $77bn to the Treasury.

Sat, 12/11/2010 - 23:06 | 799577 IQ 145
IQ 145's picture

 Specifically, the problem is; "collect the interest from whom?"

Sun, 12/12/2010 - 01:56 | 799709 StychoKiller
StychoKiller's picture

My guess:  everyone with a valid SocSec#.

Sat, 12/11/2010 - 22:57 | 799570 revenue_anticip...
revenue_anticipation_believer's picture

red neck

i think you actually KNOW something...keep going

Sun, 12/12/2010 - 15:12 | 800314 Crisismode
Crisismode's picture

He knows something alright -- and he knows it very, very well.

He knows bullshit -- as if every cell in his body was permeated with it.

Sat, 12/11/2010 - 23:45 | 799611 Billy Shears
Billy Shears's picture

I mean if they (the Fed) could pay back double, sort of like soft dollars, for all the business were throwing their stamps-like we could pay off the national debt lickety-split.

Sat, 12/11/2010 - 22:07 | 799522 MrBoompi
MrBoompi's picture

"no where close to default"



Ringing endorsement there...


We should  But as you know, we won't.  The wealthiest country in the world has not been bled compeletey dry...yet.


Ben has only talken from our grandchildren.  Our great grandchildren are next.

Sat, 12/11/2010 - 22:10 | 799524 goldsaver
goldsaver's picture

Lets say you are right. I have been thinking along these lines. What if the bernank buys ALL US debt? It would, in effect, turn the fiat money into sovereign money since the fed returns most of the interest back to the Treasury. How will that impact imports and the trust overseas of the dollar? After all, every currency but the dollar is backed by reserves from other countries. If the given country falters, the other economies represented in the reserve portfolio give credibility to the faltering currency (similar to gold reserves).

So, if the US dollar is only backed by the US economy and the economy remains in the can, why would other countries continue to use the dollar as the reserve currency?

As it is now, they have their hands tied because they hold US debt. So dumping the dollar destroys the percentage of their balance sheets held in dollars. But if they don't hold dollar debts anymore, there is no reason why remain in the dollar.

Sun, 12/12/2010 - 01:59 | 799712 StychoKiller
StychoKiller's picture

As someone else already asked:  Where does the interest come from, Unicorns and "My Little Pony"?

Sun, 12/12/2010 - 05:19 | 799809 AnAnonymous
AnAnonymous's picture

So, if the US dollar is only backed by the US economy and the economy remains in the can, why would other countries continue to use the dollar as the reserve currency?


Quite easy. Around the world, some of the other countries need USD to access the commodity world market. No commodities access, no possible support to their society, turmoil, domestic unrest. They will keep the USD as a necessity.

The other countries, the ones providing commodities on a world scale, are all unilaterally in debt to the US in USD. Anytime, the US can recall their debt and push those countries even closer to the brink. The US have always shown its determination to extract up to the last USD to any debt scheme they hold in this kind of countries.

Using USD  is not a choice, it is not the result of a decision. Get real about that.

Sun, 12/12/2010 - 10:37 | 799985 SWRichmond
SWRichmond's picture

So are you arguing that the currency system can go on forever, or at least through the current crisis, after which we will learn our lessons, correct our imbalances and create a better system?  What is your point?

Sun, 12/12/2010 - 13:10 | 800139 AnAnonymous
AnAnonymous's picture


No. When the crisis started, I felt that the US would deal with the crisis the way they are doing right now so I ran a few computations.

With generous safeguards, they gave out 50 years (so now 48 years)

The US can keep the same scheme for 48 years at least.

 I doubt the US will correct the imbalances as the imbalances strongly favour them.

As to a better system, one could state this one is pretty good already: getting for free real wealth is usually a good bargain and never paying for what you buy allows to afford a lot.

Sun, 12/12/2010 - 16:24 | 800374 SWRichmond
SWRichmond's picture

Published anywhere?  I'd love to see that.

Sat, 12/11/2010 - 22:32 | 799545 revenue_anticip...
revenue_anticipation_believer's picture

Red Neck

you were junked, by whomever, mostly those insufficiently literate to actually write some sort of reply...

the wall of worry appears worth climbing, NOW, but BEWARE, getting out the door with actual 'realized gains' is where the 99% of time/effort must be focused..

all those 1999's, who made money, easily, also just as easily lost every bit of the gains in 2001...easy come easy go...

Sun, 12/12/2010 - 04:34 | 799774 chopper read
chopper read's picture

he is junked because he is an idiot.  replying to him is like throwing pearls before swine. ha, ha. 

he does not even own gold.  I rest my case.  ha, ha. 

Sun, 12/12/2010 - 04:27 | 799817 revenue_anticip...
revenue_anticipation_believer's picture

YES...we will..

"but just a little to demonstrate to the world that this utterly obnoxious fiscal mess that we're in is manageable. A quick glance at the CDS market will confirm that America, with all of its problems, is no where close to default or insolvency or whatever doom/gloom you wish to believe this particular weekend"

Economics and Finance appear to be a simple matter of 'numbers' is mathematically self evident, debt is increasing at a faster RATE than THE RATE OF ASSET growth.. something like that...

it was OBVIOUS, in 1945 that Japan was ruined on land and 99% of its commercial ship fleet,, too, much of China wrecked by the Japanese, and Philippines Manila...and Europe Germany ALL of it every city ruined...and USSR the first 1000 miles eastward destroyed by the Germans...and quite a bit of collateral damage to France, mostly by the Americans in D days +90...  and South American  Argentina bet with the German side.. ETC ETC

even American, having gone thru 10 years of Depression bankrupcies, housing/farm mortgages unpaid...etc...and THEN the WARTIME cost of 24/day three shift production, using WOMEN to fill ou the workforce...

some companies, Montgomery Ward in particular assumed that the whole world would return to DEPRESSION, but worse yet.... and that Europe would take 50 years to rebuild....and so forth...

the numbers, the financial numbers meant bankrupcy for the World, Germany hadn't even paid off ifs WW1 debt, and NOW...from 1945-1948 there was NO OFFICIAL GERMAN CURRENCY AT ALL...just blackmarket American cigarrette cartons, acting as money, and personal notes of credit...etc...and blackmarket American dollars...same for Italy by the way..pretty much..

i was 'stationed' in Germany in 1964, just 19 years after 1945...THERE WAS NO SIGN THAT THERE EVER WAS A WAR, ANYWHERE (not so in East Germany, of course)..

Economics is about People, a Social Science first...and MONEY is NOT about something you can carry is about facilitating PRODUCTION/HOUSING/CONSUMPTION....the money is just as imaginary as the concept of CREDIT, belief/faith in the future...

.todays Credit Money is what enabled the recovery in think the Marshall Plan did it? not enought cash to rebuild was the Base Money, the core from which credit could expand, matching one for one each new building, each new factory....

We, the USA, Europe, Far East, got through the genuinely DANGEROUS time(2006-2008), before the Public even knew....and NOW, that the Public knows all...its an accomplished fact...the financial structure has been more than patched it is ready for a World of 6 billion middle class peoples

Yes, i know some Malthusians DONT LIKE THIS, and WANT to see a mass thinning of the herd, and use such terms as WE CANT ALL LIVE LIKE AMERICANS...the world has not enough room, not enough resources, etc....

Wasn't it the 1930's to be RICH  the roads clear of people, the wide open spaces, the obedient masses, respectful of their 'betters'....such a time...

Well, India, China, Russia, and Yes Japan will make it fine...

Europe/Usa ..... will have to earn their keep, no more exploitive colonial 'taking from others'





Sun, 12/12/2010 - 15:04 | 800308 jdrose1985
jdrose1985's picture

Wow, nice post.

Too bad it has collected 3 junks so far!

Sun, 12/12/2010 - 08:11 | 799912 TheProphet
TheProphet's picture

The fed is already the largest holder of Treasuries? Is this correct? I thought I recently read that in these pages... that they are, or will within days be. They hold more than $1T.

The fed has sold hundreds of billions in assets, and used the proceeds to... monetize more debt. What makes you think they will stop?

Things are far worse than we're being told in the weekly barrage of phony numbers. Otherwise, explain the unprecedented monetization of debt by the Fed.

And, maybe the world won't buy Krones, but surely they can buy Renminbis.

Short term, the real danger is not default. It is our loss of dollar's status as the world's reserve currency, and the inflation that would be caused by things like oil markets being denominated in something else. This would devalue the dollar something fierce.

Still, I am not sure the world trusts the Chinese with this role. But the US being the least bad of several bad choices is no path to long term success.

As for the CDS market, Ireland was no where close to default six weeks ago. Things change. Fast.

Sun, 12/12/2010 - 11:31 | 800023 tmosley
tmosley's picture

The Fed became the largest owner of Treasuries sometime in the last month, I believe.

I mostly agree with you, but the one nit to pick is that the Fed does not monetize debt by selling assets, but by buying them.  When they sell assets, they take money out of the system and burn it.  When they buy things (like treasuries) they credit the PD with money that previously wasn't in anyone else's account (ie out of thin air).

Otherwise, I agree.  Appearances can turn 180 in what seems like a heartbeat these days.

Sun, 12/12/2010 - 13:04 | 800132 bankonzhongguo
bankonzhongguo's picture

The model is pretty clear what will happen to America and its Citizens.

One need only look to the Banks/IMF/World Bank in terms of their debt offerings/relationship/restructuring that was been foisted upon Central America, Africa and the like "developing nations."  America has been engineered as the newest Banana Republic and will be treated so going forward in no uncertain terms.  The impending "tax cuts" and other special riders are but the next iteration of Corporate Welfare/Wealth transfer on the backs of working Americans. 

Moral Hazard? 

Try Moral Apocalypse.

The rising relative risks traditionally weighted in terms of interest rates/yield will be offset by asset sales from the US to large Corporations and the Banks; mineral rights, water rights, rights to reduced taxation/profit repatriation, etc.  Who is to say the US Navy won't be selling mothballed naval vessels to JP Morgan. 'World finance ministers met today aboard the floating extra-territorial sanctuary NS Marcus Goldman.' 

After the "austerity" in Greece and Ireland is it any wonder the Banks will bargain for more than just money going forward from what is left of the US government.

Many years ago (2002?), Bono and former Treasury Secretary O'Neil made an attempt at African debt relief.

After Ireland's recent turmoil, where is Bono's publicly reported insight on bailing out the banks?

Sun, 12/12/2010 - 13:14 | 800146 AnAnonymous
AnAnonymous's picture

One need only look to the Banks/IMF/World Bank in terms of their debt offerings/relationship/restructuring that was been foisted upon Central America, Africa and the like "developing nations."


If you look at it indeed, you'll notice a shift in the economic policy, strangely enough more and more pronounced as the risks of having to apply the policy to some western countries.

The austerity plan applied to Ireland has nothing to do with the other austerity plans that were applied to lets say SE Asia during their banking crisis in the 80s. Nothing at all.

Sat, 12/11/2010 - 17:37 | 799120 Atomizer
Atomizer's picture

Appears that the State Media has turned into a conspiratorial source of news information.


Sat, 12/11/2010 - 20:43 | 799410 Eternal Student
Eternal Student's picture

Hmm. I think you grant this article a bit too much credibility. This is really old news. Bernake has been trying to prop up the Shadow Banking System since late 2008, and succeeded quite some time ago. This really isn't news, and really has little effect on the overall deflation risks.

The real concern is the global wide derivatives market, the known component of which is at least over $600 Trillion, and is most likely well over $1 Quadrillion. The Shadow Banking System is just a very small subset of this.

There's really nothing Bernake can do to keep this propped up, when it does come down. The most he can do is to kick the can down the road, like he has been doing.


Sat, 12/11/2010 - 17:38 | 799125 chistletoe
chistletoe's picture

I haven't the vaguest idea of how you can get enough

accurate information to plot graphs of shadow banking assets.

But I still know a double-inverted when I see it.

Thanks for Abigail ...

Sat, 12/11/2010 - 18:35 | 799231 AUD
Sat, 12/11/2010 - 18:38 | 799233 AUD
AUD's picture

I actually made that link up but I'm sure the Fed has a website you can look at, with real statistical data on it!

Sun, 12/12/2010 - 02:01 | 799714 StychoKiller
StychoKiller's picture

Real?  Maybe, but accurate?  Not so much.  I have ZERO faith in the US Govt or the Fed wrt supplying data.

Sat, 12/11/2010 - 20:53 | 799413 Eternal Student
Eternal Student's picture

I believe you are thinking of the global derivatives market, and not the Shadow Banking System? The latter is better known. The former is only partly known and is much, much larger than the SBS.

The known parts of the global derivatives market are published by the BIS. However, they don't cover everything, and both the known and unknown market is estimated to be over $1 Quadrillion. Personally, I suspect that's conservative, but no one really knows.

Sat, 12/11/2010 - 17:41 | 799129 tmosley
tmosley's picture

Finite liabilities, meet infinite money printing.  

The train just hit the watermelon.  Bits of JDRose are flying everywhere.  Looks like tmosley will be walking away with her life savings.  Thanks!

Sat, 12/11/2010 - 21:07 | 799436 mtomato2
mtomato2's picture

t-mos is a chick?  I never knew!  And also:  what is the thing on your avatar?

Sat, 12/11/2010 - 21:50 | 799489 Calculated_Risk
Calculated_Risk's picture

Yeah, wtf is that avatar? Kinda looks like an octopus eye..

Sat, 12/11/2010 - 22:10 | 799493 tmosley
tmosley's picture

tmos, a guy, will be walking away with jdrose's (a girl) life savings via wealth transfer--ie jdrose is expecting dollar deflation, so when high or hyperinflation comes, all her purchasing power is trnsferred to those who hold PMs.

The thing in my avatar is Homunculus, the dwarf in the flask, who tricked the king of an ancient city-state into sacrificing the population of his country to attain immortality.  He betrayed the king, and stole the lives of all in the nation, including the king, and gained immortality and vast power for himself.  It serves as a commentary on the bankers (though that was probably not the intent of the creators of the show).

Here's a larger version:

The interesting part is that he had absolutely no power on his own.  The king and his men did the grunt work of slaughtering people at specific points throughout the country to form the blood crest required to create the philosopher's stone that would grant immortality.  Similarly, without the government's guns, the banks would be powerless.

Sat, 12/11/2010 - 22:43 | 799553 Irwin Fletcher
Irwin Fletcher's picture

Interesting. In philosophy / early neuroscience, the Homunculus was the little guy in your head that was responsible for your inner thoughts, your humanity, perhaps your soul. I wonder if there's a connection, or if that's just coincidence. Maybe the idea is that your body is powerless without that little, abstract guy to control and observe its actions. 

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