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Exclusive: In Q1 Bernanke Spurred Inflation By Successfully Offsetting The Ongoing Collapse Of The Shadow Banking System

Tyler Durden's picture


While the rest of the economic world was staring transfixed at the ongoing collapse in American home equity disclosed by the most recently Z.1, we were busy analyzing the as always far more important liability side of the ledger. After all, the quarterly Z.1 update provides the only undisputed update of the state of the Shadow Banking system, or more specifically, Shadow Liabilities. Not only that, but it also fully exposes the periodic changes in the "overt" Commercial Banking system's liabilities. The results as always hold some very dramatic surprises, although those who read and understood our recent expose on the surge in foreign-banks' cash courtesy of the Fed spike in reserves, may have a sense of what is coming. In a nutshell, and not very surprisingly, Shadow Liabilities dropped once again, and for the 12th consecutive quarter (or 3rd year in a row), although the $81 billion decline was the smallest since the $604.9 billion rise (the last one recorded) in Q1 2008. The drop since then is now a total of $5.1 trillion, and the total now stands at $15.8 trillion, a far cry from the all time high of $20.9 trillion just before the 3 years of consecutive declines. That the shadow system continues collapsing is no surprise: after all with the securitization machine dead, and the nationalized GSEs (with $6.6 trillion in liabilities) unable to relever there is little marginal debt that can be accrued to the shadow banking system. Yet oddly enough, despite drops across most other shadow liability verticals, there were some very strong performers, with Open Market Paper seeing the biggest surge since Q2 2007 at $74 billion. Though what was most surprising (or least, considering that it is Bernanke's only role now, as we have said since last July, to reflate the conventional banking system liabilities, and thus assets, through QE) is that traditional liabilities of Commercial Banks exploded by $424 billion in Q1, more than offsetting the drop in the shadow banking system, and leading to a $343 billion jump in the liabilities of the consolidated financial system. To all those wondering, here is your answer where the inflation in Q1 came from. Yet the biggest stunner in the data set is just where the biggest jump in commercial bank liabilities came from. Jumping from $19.4 billion to $232.4 billion over the quarter, accounting for two thirds of the Q1 "inflation" was... interbank liabilities due to foreign banks. And there you have that foreign bank smoking gun again...

First, we present consolidated shadow banking by segments since 1960. As noted above, we have just completed the 12th consecutive quarterly decline.

Spreading the actual sequential changes in the 6 shadow liability components:

But more importantly, here is the comparison of the shadow and traditional bank liabilities: even as the shadow debt is plunging, conventional liabilities have just hit an all time record of $13.2 trillion.

And the most important chart: consolidated financial liabilities (total credit money) and the sequential change. Note that in Q1, courtesy of QE2, we have just experienced a jump in this series of a whopping $343 billion. Absent this jump the economy would have plunged into a deflationary collapse... And Ben Bernanke knows this.

And the megabonus - as mentioned above - can be found on Line 23: Net Interbank Liabilities to Foreign banks of L.109 (page 71) of the just released Flow of Funds report. Go ahead, look - the link is here. In Q1 foreign banking offices in the US transferred $210 billion in cash to their host headquarters (ergo recording a liability on the US hosted entities' balance sheets). Keep in mind that this is data as of March 31, 2011. Were one to extend this to Q2, or whatever the most recent comparable H.8 report is, we would be willing to wager that this $210 billion number increased by at least another $300 billion as the bulk of the cash was transferred offshore, with the only asset remaining being"Reserves at the Federal Reserve" which increased by $430 billion in the quarter. But of course, those who read our previous expose on the topic of where the "money" from QE2 went will know this data well in advance.

What are the implications of this data: more or less the same as before. With the shadow banking system continuing to be in freefall primarily due to the ongoing crunch at the GSEs which are no longer relevant debt-creating entities, with Money Markets hounded by the administration, and every attempt made to transfer capital held there into equities and bonds, with ABS issuance dead, or at best comatose, there is no hope that the bulk of unregulated credit money can awake any time soon.

Which leaves just one option: the Federal Reserve... Whose ongoing boost in excess reserves (its Liability) for the pendancy of any monetary easing episode, results in an increase in Reserve assets at Commercial Banks (their asset), but more importantly, a boost in Commercial bank liabilities, be they US (which is not the case) or (foreign) which we have now proven twice is what is happening. Simply said, absent the ongoing transfer of credit money liabilities, so critical to keep the economy growing, from the Fed to private institutions, there will be no marginal growth in the consolidate financial system's liabilities. Which in turn means outright deflation.

And you can bet your bottom fiat piece of linen and cotton that Ben Bernanke knows this all too well.

With QE2 ending just as Q2 ends, we are convinced that the next Z.1 report, due out in early September, will show another massive jump in liabilities... And that's it. It's all downhill from there. Unless, of course, the Fed comes up with another Fed to Commercial Bank liability transfer program, which the Fed can call it whatever it wants. The point is: it is critical for it to materialize soon or else, the economy, without a marginal source of new debt, will plunge in the deflationary abyss that the $5.1 trillion plunge in shadow liabilities would have created had it not been for Ben Bernanke.

Our prediction, as it has been from January 2011, expect more of the same, as the only thing more nightmarish to Ben Bernanke than hyperinflation is hyperdeflation.


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Mon, 06/13/2011 - 23:17 | 1366783 sellstop
sellstop's picture

How did I ever live without ZeroHedge?


Tue, 06/14/2011 - 00:41 | 1366919 jeff montanye
jeff montanye's picture

so true.

Tue, 06/14/2011 - 06:06 | 1367162 goldfreak
goldfreak's picture

yeah but

Tyler couldn't you put out the main point of the article within the first few sentences?


Tue, 06/14/2011 - 08:51 | 1367322 TheTmfreak
TheTmfreak's picture

How did I ever live without ZeroHedge?

This is really simple to answer.

You weren't.

Tue, 06/14/2011 - 04:03 | 1367096 phungus_mungus
phungus_mungus's picture

I vote we all have a fat-finger moment around 4:15 or so this Friday... two or three extra "nauts" each outta do it.... see just how fast the plunge protection team can get their private jets back on the ground! 

Tue, 06/14/2011 - 05:17 | 1367133 Highrev
Highrev's picture



Tue, 06/14/2011 - 07:10 | 1367192 max2205
max2205's picture

Gun + Mouth= Smoking

Tue, 06/14/2011 - 05:16 | 1367134 Highrev
Highrev's picture

How did I ever live without ZeroHedge?

Hear hear.

Tue, 06/14/2011 - 07:03 | 1367187 Reptil
Reptil's picture


Tue, 06/14/2011 - 08:05 | 1367255 I am more equal...
I am more equal than others's picture

... like living without the wheel.

Mon, 06/13/2011 - 23:21 | 1366794 Re-Discovery
Re-Discovery's picture

Like any good magician. 

You look 'here', I mess with crap there.

Mon, 06/13/2011 - 23:29 | 1366820 Quinvarius
Quinvarius's picture

Sounds more like an upper decker.  You watch the bowl flush.  But, you can't figure out why the smell never goes away and the water stays brown.

Mon, 06/13/2011 - 23:37 | 1366831 Re-Discovery
Re-Discovery's picture

ahhh memories of college.  good times.

Mon, 06/13/2011 - 23:20 | 1366798 PicassoInActions
PicassoInActions's picture

So Big Ben is the savier right?

Tue, 06/14/2011 - 00:56 | 1366937 BigDuke6
BigDuke6's picture

Fucking Ben Shalom and his buddies.,0,7226362.story

Orlando police say they violated a city ordinance restricting the feedings.

Create dodgy financial products and become a millionaire. Set up a soup kitchen and get arrested.

The US looks more and more like the mirror image of the USSR.

As long as we think its a good idea to spend trillions on wars that do nothing for us we will continue on the path to ruin. The real problems will start when we start to break up in the same way as the USSR did and for the same reason... an expensive industrial military complex that adds nothing to the standard and quality of life of its population

Tue, 06/14/2011 - 07:05 | 1367190 Reptil
Reptil's picture

then add a war like Afghanistan and another Chernob.... oh wait

Tue, 06/14/2011 - 08:22 | 1367283 Vagabond
Vagabond's picture

Short term savior, long term disaster.

Mon, 06/13/2011 - 23:22 | 1366802 Crab Cake
Crab Cake's picture

Oh joy, let us herald the coming of the deflationary abyss; (coinciding with drastic austerity) so that our banker overlords may buy up all things of value with their well timed exit and Fed provided fiatscos... or sdrs as the situation allows.

Just imagine, one beautiful world irrevocably indebted to one beautiful all world nation crushing bank. It's.... it just hits me right here, you know? So many really good people have worked on this for so long. I'd like to thank the academy, and the media, oh and the Congress and Senate... We couldn't have done it without you guys. Thank you every one!

My fellow Americans, it is time to tear some shit up. Resistance might very well be futile, but I for one will not go quietly into that good night. Burn it down, it is time for project Mayhem.

Mon, 06/13/2011 - 23:26 | 1366810 GeorgeHayduke
GeorgeHayduke's picture

A little Monkeywrenching is needed you say? I agree. We will see if the mainstream folks can catch onto the idea or if they instead will embrace their new complete peon status.

Mon, 06/13/2011 - 23:26 | 1366811 Fancy Bear
Fancy Bear's picture

Oh, how so much has changed in the last 10 years.

Let's burn this bitch down and start over.

Mon, 06/13/2011 - 23:54 | 1366865 TomGa
TomGa's picture

"Was it over when the Germans bombed Pearl Harbor?"


"Stop it, he's on a roll."

Tue, 06/14/2011 - 01:58 | 1366991 swissbene
swissbene's picture


will not find peace on the streets

until each gentleman armed with a piece

fuck police corporation-states

/tupac paraphrase


Tue, 06/14/2011 - 07:23 | 1367206 j0nx
j0nx's picture

It was so obvious from the start that hyper inflation would never be allowed to happen and was almost comical that some people thought it would end that way. Silly rabbits. Tricks are for kids. Hyper inflation leads to people being able to pay off their debts overnight and own all of their assets after paying the bank back with worthless fiats. The banks will never allow that when they can hyper deflate and scoop up everything of value for pennies on the dollar (POD) instead. That and they drive up the price of commodities as well to make sure there is no extra slack floating around in the middle class able to buy up anything except for commodities, which the banks already own of course. It's the same old once a century or two scam that they pull and the masses suck for it every time. Only this time they are much more brazen than they used to be. Probably because the population is much more useless and retarded than ever before.

Mon, 06/13/2011 - 23:25 | 1366809 DoChenRollingBearing
DoChenRollingBearing's picture

Tomorrow is the day everyone has been talking about (June 14, "do not play").

A great day to buy some gold, guns, rice...  Pay in cash!

Mon, 06/13/2011 - 23:30 | 1366815 Alcoholic Nativ...
Alcoholic Native American's picture

No shit, he basically took the budget off the books, you know, like the Pentagon.   QE1 never stopped, I wish you retards would stop giving these extensions other names QE2 QE3, wtf shut the fuck up, that too is propaganda, the FED is free floating the ENTIRE WORLD FUCKEN ECONOMY  you fucken reatards.

Mon, 06/13/2011 - 23:34 | 1366826 Quinvarius
Quinvarius's picture

And it was going on for Bush's entire 2 terms as well.

Mon, 06/13/2011 - 23:48 | 1366849 Coke and Hookers
Coke and Hookers's picture

Yep, the Fed is printing/devaluing money for the entire world now. It's economic warfare against the global serf class and the Fed is the arsenal used for the killing. When someone resists, he's branded a tyrant and a 'revolution' arranged. If that doesn't work, NATO is sent into action. After that, the serfs can happily accept freshly printed fiat via the IMF - like this:

Just wait until the EU countries integrate their 'national budgetary policies' and the ECB can really start up its printing press - then we'll see some heavy shit:

Tue, 06/14/2011 - 07:45 | 1367212 Reptil
Reptil's picture

Awesome... so.... the solution for total FISCAL INCOMPETENCE and CORRUPT CRONYISM is .. more of the same but then on a bigger scale? Right!

Whatever Trichet has been smoking, I want it, I need it, I gots to have it! It's delusional to assume the dream can be saved by transferring power to exactly those that created the problem in the first place.

The problem of the EU is NOT the economy breaking down, it's the decade of corruption in the unholy marriage between power hungry politicians and banks that stop printing only when they run out of ink. Austerity will only WRECK the economy, thus making it impossible to grow out of the debt.

Here's a letter of the EU budget accountant office, who refused consequently for years to sign off on budgets with more holes and disappearing money than a swiss cheese (or Edammer, whatever you prefer) It's long and boring, but I summarise their conclusion: "Your budget sucks, we won't sign."


And now... finally, the politicians are doing an 180, and are on ramming course with the EU and ECB.

phew... that's a relief? they smarted up? like the Pakleds in Startrek TNG ep 143?

Our representatives realised the danger of throwing money into an insolvent financial system, just in time?.......

NO just a year too late. That's our money you suckers spent, in 2010, by throwing it in artificially created black holes.

I think we have a bright future ahead of us, apart from CERN where they bump things that boink in the night, we have another interesting phenomenon to study, the black hole singularity that is Brussels. Maybe we can ask G. Papandreou to pilot an experimental craft in there, reportedly he's been there and came back... <insert curseword here>


Mon, 06/13/2011 - 23:52 | 1366856 Bay of Pigs
Bay of Pigs's picture

No need to sugar coat this...

Go ahead, tell us how you really feel.

Tue, 06/14/2011 - 04:16 | 1367103 PY-129-20
PY-129-20's picture

Just don't eat a banker. Their lifestyle doesn't sound healthy with all these drugs and stuff. But if you really want to cook a banker, you can try this recipe...

  • 1/3 cup Dijon mustard
  • 1/4 cup honey
  • 2 tablespoons mayonnaise
  • 1 teaspoon steak sauce
  • 4 skinless, boneless banker breast halves
  1. Preheat the grill for medium heat.
  2. In a shallow bowl, mix the mustard, honey, mayonnaise, and steak sauce. Set aside a small amount of the honey mustard sauce for basting, and dip the banker into the remaining sauce to coat.
  3. Lightly oil the grill grate. Grill banker over indirect heat for 18 to 20 minutes, turning occasionally, or until juices run clear. Baste occasionally with the reserved sauce during the last 10 minutes. Watch carefully to prevent burning!
Tue, 06/14/2011 - 04:39 | 1367109 OldPhart
OldPhart's picture

You forgot the best part.


First, shoot a banker in the head.  You don't want to eat the brain anyway. 

Then slowly slice large segments of flab grown during the bailout/bonus era.  (It's the most bitter part.)

Mon, 06/13/2011 - 23:38 | 1366828 SparkyvonBellagio
SparkyvonBellagio's picture


Stop the give aways and get the USA boots off of foreign soil.


We'd probably have a Friggin Surplus then!

My God this is simple.

Phuuuuckin' idiots in Washington.


We have more than enough Coal and Natural Gas to fuel our energy needs for 200-300 years.  We don't need foreign oil. We have enough. If we need anything extra our NAFTA partners Canada and Mexico could most likely help out.

Mon, 06/13/2011 - 23:37 | 1366832 blindman
blindman's picture

Activists to Occupy Financial District’s Liberty Park Until Demands Are Met – Operation Empire State Rebellion Begins
June 13th, 2011
"beauty is the antidote to fear." gerald celente
The Financial Road to Serfdom:
How Bankers are using the Debt Crisis to Roll Back the Progressive Era
By Michael Hudson
June 13 2011 "Information Clearing House"
.."This is what today’s financial warfare is about. At issue is the financial sector’s relationship to the “real” economy. From the latter’s perspective the proper role of credit – that is, debt – is to fund productive capital investment and spending, because it is out of the economic surplus that debts are paid. This requires a financial regulatory system and tax system to maximize growth. But that is precisely the fiscal policy that today’s financial sector is fighting against. It demands preferential tax-deductibility for interest to encourage debt financing rather than equity. It has disabled truth-in-lending laws and regulations to keeping interest rates and fees in line with costs of production. And it blocks governments from having central banks to freely finance their own operations and provide economies with money. And to cap matters it now demands that democratic society yield to centralized authoritarian financial rule." ..
"But the tables are now turning, from Icelandic voters to the large crowds gathering in Syntagma Square and elsewhere throughout Greece to oppose the terms on which Prime Minister Papandreou has been negotiating an EU bailout loan for the government – to bail out German and French banks. Now that nations are not raising money for war but to subsidize reckless predatory bankers, Jean-Claude Trichet of the ECB recently suggested taking financial policy out of the hands of democracy.

But if a country is still not delivering, I think all would agree that the second stage has to be different. Would it go too far if we envisaged, at this second stage, giving euro area authorities a much deeper and authoritative say in the formation of the country’s economic policies if these go harmfully astray? A direct influence, well over and above the reinforced surveillance that is presently envisaged? …

At issue is sovereignty itself, when it comes to government responsibility for debts. And in this respect the war being waged against Greece by the European Central Bank (ECB) may best be seen as a dress rehearsal not only for the rest of Europe, but for what financial lobbyists would like to bring about in the United States."

Tue, 06/14/2011 - 08:00 | 1367249 Reptil
Reptil's picture

"beauty is the antidote to fear." gerald celente


Michael Hudson's article also good. But perhaps a bit long for the iPad generation.

Mon, 06/13/2011 - 23:41 | 1366834 Raymond_K_Hessel
Raymond_K_Hessel's picture

Can anyone dumb this down for me?  Are we actually heading for deflation?

Mon, 06/13/2011 - 23:44 | 1366843 holdbuysell
holdbuysell's picture

I think the point is that without intervention, yes, because the money supply (read: credit/debt) is shrinking. This is the classic definition of deflation: contracting money supply.

Mon, 06/13/2011 - 23:49 | 1366855 Raymond_K_Hessel
Raymond_K_Hessel's picture

I guess this is where I'm getting hung up.  If credit/debt is still shrinking, and all of the money the Fed is printing up is really going to fill this massive hole that was created during the 2008 crisis, is the printing really inflationary?  I mean, it seems like it is, don't get me wrong, but this article, and the one recently about how all of QE2 went to Europe really made me start to question how inflationary all of the QE has been so far.

Tue, 06/14/2011 - 00:47 | 1366924 i-dog
i-dog's picture

I believe (gut feeling) that they are strangling liquidity and reducing the money supply to the productive economy -- just as they did to cause the Great Depression -- but, to be honest, I don't have a fucking clue what all those technical terms, virtual money-printings and convoluted transfers between entities (Fed, PDs, CBs, IBs, etc) mean to be able to confirm my belief. I just rely on Tyler and the commenters to [occasionally] make sense of it for me.

Tue, 06/14/2011 - 00:53 | 1366930 OldPhart
OldPhart's picture

I'm sorta dense too.  I would expect the printing to be inflationary also.  If banks are pushing paper to foreign banks, that puts the inflation temporarily at arms length.  The flood of dollars isn't here where we would see the water rising.

However it would still have an effect, I believe, on everywhere else as the prices worldwide jumped...similar to what we saw earlier in the year with commodities.  That spike would create rising prices here, not falling, right?

So are we to have price inflation with monetary deflation until the foreign banks send the cash back to purchase assets?

This is confusing as hell.

Tue, 06/14/2011 - 01:03 | 1366945 blindman
blindman's picture

the fed makes base money. not the multiplier.
the economy is supposed to created the bulk of the
credit money thru loans. it refuses as there are no incomes
to justify prices and entrepreneurial expectation. and there are
tonnes of legacy costs and transitional demolitions that
are staring us in the face. and taxes and misallocations
to satisfy the ignorati bent on ongoing stupidity, destruction,
miseducation and random acts of violence via war.

Tue, 06/14/2011 - 05:08 | 1367129 falak pema
falak pema's picture

By making this base money the FED, lead financial instrument of world oligarchy play, encourages the multiplier and, more importantly, allows the PDs to direct it where they want it to go; for their own good (this term is a misnomer as its for decreasing their big, mega infested, ever simmering, putrefying mountain of toxic bad).

Meanwhile, we all bean count the disaster from outside ...with a time and knowledge lag that ZH tries to fill in remarkably... the hidden, festering shadow banking/obsessively mad derivatives playing shell called (WS + surrogate dark pools +subservient bourses around the world), hooked on USD/Euro/Yen fiats pumped with steroids.

Horror movie that even the most zany of Hollywood moguls would not have imagined in its wildest dreams (WS- Gordon Gekko is chicken shit in comparison) and would now love to produce for sure if he is still solvent after the collapse. I bet we can count on that, but here in ZH we're getting a preview of the film in near real time that main street will be seeing in two years time...

Conversely, I'm sure BB and his oligarchic elite have probably convinced themselves, in their head-in-ass or 'dugout in the bunker' approach, that they are doing "God's work" defending "western values" like Leonidas at Thermopylae. Alone, against all comers from the invading barbaric eastern horde who are waiting in the aisles of history in the making to take over the whole shooting match. 

Tue, 06/14/2011 - 06:08 | 1367164 macholatte
macholatte's picture

Oh bartender!

I'll have one of whatever he's drinking. Uh, make that a double.

Tue, 06/14/2011 - 07:56 | 1367239 falak pema
falak pema's picture

its called oligarchical vodka on the rocks...enjoy...before the caviar bar closes...If you knew how to sing in russian you would sing the soviet national anthem while breaking your glass over your shoulder...tovaaaarich!

Tue, 06/14/2011 - 04:46 | 1367122 ZackLo
ZackLo's picture

to sum it up fed prints dollars foreigners buy dollars and then the inflation comes through other countries printing They're local currencies to countereffect those dollars and the inflation comes through those said countries buying hard goods in their local currencies equating to rising prices here because it created a higher deman for those goods and we import 50-60% of goods from other countries and the shitstorm doesn't really start till all of those foreigners all try and get all their money at once creating a run on all of the liabilites accrued through fractional lendig drawing down the money supply? correct me if I'm wrong murray N rothbard pretty much sums up the evolution of fractal lending in this lecture...from wild cat banks in the 1800's to the great depression assets will never match liabilities and thats when the deflation comes in... It's only an hour and 30 minutes but definitly worth your time was a great economist and historian probably the greatest of the 20th century by far...


Tue, 06/14/2011 - 13:56 | 1368229 FreeNewEnergy
FreeNewEnergy's picture

Thanks for the link, ZackLo. Best hour and 38 minutes of listening in a long time. Rothbard had such an easy way of deciphering complex issues. Of course, completely a lost art in the hands of current economists and other worthless talking heads.

Highly recommended listening.

Tue, 06/14/2011 - 08:11 | 1367262 Reptil
Reptil's picture

The question can be answered, if you know the following:

Is there going to be a settlement for that debt? If so, who will be on the recieving end? What will be exchanged to settle?

Mon, 06/13/2011 - 23:42 | 1366836 holdbuysell
holdbuysell's picture

If oil goes to $200 in this otherwise deflationary environment, does that spur printing?

Mon, 06/13/2011 - 23:49 | 1366850 Alcoholic Nativ...
Alcoholic Native American's picture

It sure as hell doesn't spur growth.  But in the new normal DOW 30,000 is right around the corner, like the end to the wars.

Mon, 06/13/2011 - 23:43 | 1366848 blindman
blindman's picture

witness the end of exponential growth as a
distorted virtual image in a cracked mirror. stay calm, many minds will be blown
all around. someone needs to relax just to so
we all don't stop breathing at once.
" it's only money ", remember when people
used to actually believe that?

Tue, 06/14/2011 - 00:27 | 1366908 Oh regional Indian
Oh regional Indian's picture

Well said Blindman.

I'm doing my bit to relax "for" the world. :-)


Tue, 06/14/2011 - 00:46 | 1366917 blindman
blindman's picture

@ ori,
you the man!
but i wanted to edit that to this.

witness the end of exponential growth as a
distorted virtual image in a cracked mirror. stay calm, many minds will be blown
all around. someone needs to relax just so
we all don't stop breathing at once.
" it's only money ", remember when people
used to actually believe that?
@"dumb it down.. " ? impossible but ...
money, 95%, in this privately created fiat
debt based money system that the world adheres
to in a fractional reserve regime is created
out of an expectation. borrowing, credit, debt.
the federal reserve notes are mere tokens of debt. the
digital entries on the computers are virtual,
imaginary, wealth pinned to their places by
power supplies and physical laws that apply to
silicone wafers and little else, but i digress.
the money generation dynamo is predicated on
expectation of growth and return on activity
and investment. return, as in satisfaction of some
kind, financial. as long as there is collective
expectation of return you have the basis for a market
and potential bubble. you have interest! activity.
but, there comes a time.
when people get old and the magic is gone, along with
the illusions of returns and further growth, and all
you are left with is the bill for the funeral.
the shadow banking system and derivatives, like potentially
infinite flower arrangements, only fill the room with the scent
of the garden and only for a short while and to a limited
degree. you must realize the nature of growth, its trend,
has changed and it is time for a transition or transmutation.
there seem to be actual solutions available but they, to be
realized, will have to be demanded as power is never given
up freely. it demands people stand up, knowingly, to face
it and to take it from those who would make them slaves.
or dead..
but, deflation. when people will not flood the economy
with borrowing, for whatever reason and there are many,
the system, to continue to pay the built in debts and
legacy costs(think infrastructure, time, evolution of
technology, etc.) must come up with some liquidity to
stave off insolvency. growth works for a while. then
subsidy, then speculation and securitization. then
collapse and deflation. and central planning because
no sane individual will have any part of it of their own
free will. and if you don't have the collapse and deflation
and no one wants to create credit or borrow because the
environment is loaded with risk then the sovereign must
or die trying. along these lines.
there, i have ruined the thread !
the complaint with ben is he is not the sovereign.
the people did not elect him to be the person who will
decide whether they eat or starve because of his monetary
policy. he was not appointed to bailout european oligarchs
and banks(and who knows who else?) because they screwed up
with their euro financing, as far as i can tell. that is not the
responsibility of the treasury of the usa or the american taxpayer.
"we are the world, we are the children "?
the private fiat money system is failed, good.
let's move on and no one has to die or starve because
the end of the system has played itself out.
and ppss.. the real ugly thing here is the distribution
mechanism that is being deployed to satisfy the illiquidity
/(insolvency) problem. it is fascism, that is an ongoing
problem as the banksters have this tendency as history
does show.

Tue, 06/14/2011 - 01:08 | 1366942 i-dog
i-dog's picture

"the private fiat money system is failed, good.
let's move on and no one has to die or starve "

That's it, in a nutshell. It's just a has to die just because the rules made no sense from the beginning.

I'm sure most of Africa has no fucking clue that all this is playing out as a game show in the western media! Neither do they understand that they will probably be starved to death (along with us) because of some paper chase being played out by a few madmen using very pointy sticks to prod us into joining in!

Just disengage and tell 'the State' to fuck off!

Tue, 06/14/2011 - 01:05 | 1366947 blindman
blindman's picture


Tue, 06/14/2011 - 01:40 | 1366981 Oh regional Indian
Oh regional Indian's picture

Well said all around again BM.

The game is up. No doubt on that. Rule books are being torn up and thrown away as we type. No blame to be apportioned either.

In cycles and grand super cycles, we just happen to be lucky enough to be alive and sentient (mostly) at a huge inflection point of not one but many of them.




Mon, 06/13/2011 - 23:50 | 1366853 JMT
JMT's picture

Inflation is 'happening' -- lets see how soon prices fall since oil & other commodities have all dropped from their peak prices...


Pigs may fly first.


BTW, I got a post flagged as junk when I responded about debt being the problem how I got a $70,000 + aggregate credit balance down to about $14,000 this year -- this done not having to file for bankruptcy, whine about the economy nor be part of the 50% of people taking gov't handouts.

Tue, 06/14/2011 - 08:40 | 1367307 LoneCapitalist
LoneCapitalist's picture

Are you sure about the gov. handouts? Who makes up the difference on the tax liability?

Mon, 06/13/2011 - 23:53 | 1366857 sasebo
sasebo's picture

All of Bernanke's actions seem insane to me. Are we sure this guy isn't suffering from some mental disorder? A mental case? A fruitcake in a business suit? 

Mon, 06/13/2011 - 23:53 | 1366862 jomama
jomama's picture

he's just following orders.

Tue, 06/14/2011 - 00:31 | 1366900 Coke and Hookers
Coke and Hookers's picture

Look at it this way: The 'real economy' doesn't matter anymore to Bernanke. If you were to subtract money printing and foreign borrowing from the US economy I suspect that you would discover that there has been no growth in the US for 10 years or more. The entire economy has become a forgery and debt is what has been used to forge it. Now the (deindustrialized) economy is in such a deep hole that it can't be saved. So what they are doing is increasing the level of economic forgery and to do that they need to create more money. This money creation is completely dissociated from the real economy - it only takes place within the financial system. Why? The nation has simply run out of collateral for more debt. All that's left are retirement funds and other morons investing in the current equities bubble - and they'll lose all their money when it bursts. So, to keep the fiction of prosperity going, Bernanke and the international financial system needs to create massive amounts of debt all over the place. That's what they're doing. They don't even think about jumpstarting lending to real companies creating real wealth because it won't matter. Do you see the real economy creating what's needed to plug the gap in the next 5 years or so? Not a chance. Everything the Fed and their international henchmen (the IMF and the World Bank) do is peddling as much debt as they can, one way or another, to continue the economic forgery - which is now global. The debt has the added bonus of sucking real wealth from the debtors and into the coffers of the financial elite. Bernanke is acting quite rationally from his masters' point of view.

Tue, 06/14/2011 - 00:53 | 1366928 FlyPaper
FlyPaper's picture

Well said!  

Tue, 06/14/2011 - 03:37 | 1367062 zhandax
zhandax's picture

The 'real economy' doesn't matter anymore to Bernanke.

Bingo.  This is all about 'saving the banks'.  That's all that matters.  Yours, mine, Europe's, all of them.  Bertwinkie has put on a good show so far, because he wants to make a place in history as doing this better than Japan, but ultimately, the Dow can go to 400 and stay there for 20 years as long as he saves the world's banks.  The article on where QE2 ultimately went underscores this point.  The risk and the fear at this point, since Japan has been the test dummy, is what happens when some corporation fucks up so bad as to kill off a big chunk of the productive population.  What happens when there is not enough cashflow to cover the debt that is already outstanding?  That's what has Ben, Jean-Claude, and Masaaki shitting their pants trying to craft a fast way to paper over while trying to keep all the other holes in the dike plugged.

Tue, 06/14/2011 - 08:10 | 1367267 falak pema
falak pema's picture

Where is the light at the end of the tunnel? Geithner published budget data, official,indicating that US debt/GDP ratio would go to 700% over the next few decades! This is the official estimate of the US treasury under the seal of the USA!

So why are be blaming BB? He is just carrying out that mandate to the best of his ability. These people have lost all sense of proportion...and as they do not want to retreat to firm ground and admit temporary defeat they expect the world to follow the USD Ponzi trail...Up to 700% of GDP! 

Official US statistics....

Mon, 06/13/2011 - 23:59 | 1366867 Village Idiot
Village Idiot's picture


Tue, 06/14/2011 - 00:01 | 1366872 Seasmoke
Seasmoke's picture

why do i get an awful feeling that the banks are going to swoop in and buy everything on the less than cheap

Tue, 06/14/2011 - 06:06 | 1367163 The Profit Prophet
The Profit Prophet's picture

...and they will smile when they do it.......with newly created digital dollars.

T.E.I.N. everyone!

Tue, 06/14/2011 - 00:04 | 1366875 Kiwi Pete
Kiwi Pete's picture

So if all the $600bil from QE2 went to foreign banks what bid up the commodities? Those same damn foreigners?

Tue, 06/14/2011 - 00:19 | 1366892 SilverDosed
SilverDosed's picture

Dont worry americans, the petrodollar is tied to every other currency/central bank in the world so all this exported inflation won't catch up with us until... until... probably until QE2 ends and real deflation kicks in. When is that again?

Tue, 06/14/2011 - 00:22 | 1366901 kito
kito's picture


Tue, 06/14/2011 - 00:30 | 1366906 Oh regional Indian
Oh regional Indian's picture

Same issue. When everything is floating against each other, it's easy enough for manipulators to shift the ballast around.
And the ballast is weightless but the impact on the real world is real enough.

There is no such thing as price discovery anymore. The word valuation is an oxymoron. It's not an apples/oranges thing either. It's that the Apple in your hand, if a tradable good, it is floating too.

Point being, POMO or not, shadow system or otherwise, it's all talk because in this 'we're all floating" world, it's all relative.


Tue, 06/14/2011 - 00:27 | 1366907 TheGoodDoctor
TheGoodDoctor's picture

I hope someone considers you for a Pulitzer sometime Tyler. Thanks!

Tue, 06/14/2011 - 02:14 | 1367010 LudwigVon
LudwigVon's picture

"Hope no longer, I consider him fit for the prize." -Appreciative

Tue, 06/14/2011 - 03:06 | 1366946 CD
CD's picture

Just listened to Krugman and other 'esteemed' economists hash it out on Charlie Rose on NPR. Didn't really know whether to laugh, cry or pull over and throw up. Main points that made it through the descending red haze of my selective perception:
- QE3 is a lock
- the rest of the world are whining assholes to complain about USD devaluation
- structural reform of taxes / entitlements / critical infrastructure / productive economy would be nice, but right now WE NEED TO BOOST CONSUMER SPENDING/DEMAND
- Fed should really target 4% inflation
- new, even bigger stimulus program is needed
- commodity price highs are 'transitory'
- WPA should be reinstated

I put off buying more physical due to other things I needed to do today, but getting at least a few rolls of Morgans tomorrow.

Tue, 06/14/2011 - 01:05 | 1366948 putbuyer
putbuyer's picture

Great work ZH, but all that matters is the noose tightening on Greece.

Tue, 06/14/2011 - 02:33 | 1366960 swissinv
swissinv's picture

Sorry no real news - Actually this is just what Bernanke keeps telling us and the reason why he's not disclosing M3. As far as I see, the remaining 15 trillions should mainly reflect Fannie and Freddy et al. Time for higher interest rates and MTM accounting to get Q3.

Tue, 06/14/2011 - 01:34 | 1366979 Problem Is
Problem Is's picture

+5... Nice analysis Tyler...

The Bernank must be asking himself:

"What's a cornered lip quivering bald fuck to do?

Go to Jackson Hole for vacation..."

Tue, 06/14/2011 - 02:27 | 1367012 Yen Cross
Yen Cross's picture

  Looked @ the charts, and have one answer.


                   RIPLEYS  bullshit or NOT?

   I'm also going into Mortal Combat with a 3 foot Raccoon that thinks he has hands!

     Don't pump and dump my apricots.

Tue, 06/14/2011 - 02:28 | 1367021 Mediocritas
Mediocritas's picture

Yep, ZH is right on this. We will get more of the same, we will get QE3+, there is no choice.

Every POS 'asset' sitting on the books of investment and commercial banks will get swapped to the Fed in exchange for cash. The Fed will sit on all that shit and imagine an inflated valuation for as long as it takes for the real economy to show signs of life and allow repurchase of said assets at the original (or close to it) price.

In the real world that translates into people defaulting on their loans and squatting in homes indefinitely because, although the Fed may be Johnny on the spot with regard to injecting reserves where needed, the rest of the system (legislative & fiscal) is slower than a narcoleptic tortoise on a cold day due to being enthralled by the financial system. Never mind all the other structural problems that have destroyed the US private sector.

Without some major innovation up high and some big balls (not going to happen) Zombie USA is here to stay.

Tue, 06/14/2011 - 03:35 | 1367036 blindman
blindman's picture

You do not talk about Fight Club if you do not notice Fight
Club: Inattentional blindness for a simulated real-world
speaking of inattentional blindness..
did you ever notice that the fed and all of
its spokes-persons always disregard politics.
when asked they refrain from offering any opinion
or political consideration, it is official policy.
i think a law even. ya know why?
because if they had one iota of political consciousness
they would instantly realize they are a
FUCKING FASCIST organization / tool.
that's why.

Tue, 06/14/2011 - 03:00 | 1367050 Rhetoric
Rhetoric's picture

Holy crap. I ♥ ZH.

The fed is hijacking us. The president is driving the getaway car.

Congress is running the safehouse, and the media is the planted rat giving misinformation to the authorities (the public).

Soros is an a**hole. Why do I get the feeling soon, there will be statues of him in DC?

Tue, 06/14/2011 - 03:50 | 1367086 squexx
squexx's picture

I'm afraid you may be right! After all, we live in a time and place where an absolute degenerate pig of a man like Teddy Kennedy was buried in Arlington! Not to mention our illegal president getting a Nobel PC Prize. What a joke!

Tue, 06/14/2011 - 04:12 | 1367099 Yen Cross
Yen Cross's picture

 That was so sweet!


       Some ASS CLOWN   Batman #1 Jack Nicholson JOKER  mockup.

Tue, 06/14/2011 - 03:23 | 1367081 blindman
blindman's picture

Regional Bank CEO Writes A Huge Takedown Of "The Big Six" Wall Street Banks

Read more:
Problems he sees with "The Big Six:"
"The largest and most profitable bank holding companies have moved away from traditional lending and come to rely on speculative trading in all types of securities, derivatives, credit default swaps, mortgage-backed securities and other, even more complex and exotic financial instruments -- many of them associated with high leverage."
"Outsized, bonus-based executive pay."
"To pay for the cost of [operating The Big Six under the FDIC, Treasury, and the Federal Reserve], legislators and regulators have forced thousands of Main Street banks like the one I run to absorb a larger, more expensive set of regulatory costs, including higher capital and liquidity requirements. This threatens to deny small-business owners, entrepreneurs and innovators the credit they need and on which the economy relies."

Tue, 06/14/2011 - 03:58 | 1367095 nicopatterno
nicopatterno's picture


Tue, 06/14/2011 - 04:15 | 1367101 michigan independant
michigan independant's picture

The Fed has nothing to fear. The bathrobes brigade have a 24 hours attention span and the senate has enough lobby money so they will have  avarice for counteless decades. As we are warned the Consumer is the final arbiter and with that reality time is truly on there side unless the natural economy supercedes all tacit planned realities. The irony will be total structual collapse from .gov smothering actual upgrades that support current model to the asset stripping debt cycles they are pushing. The plan is simple as the emerging and post economy's will be subject to grinding poverty as the deciders shower there paradise through there fingers to the gratefull unwashed masses again. The master told us there will always be the poor. Also, to be wise and discerning in what we teach to whom so we are not wasting our time. Since both are the same you will never see a penny more than needed to fuel bulldozers to push the agenda, good or bad, and even that will be waste. They will never allow you escape. Truly we have reaped what was sown long ago again because the price of democracy was not maintained. As stated if the consumer will not decide the point, and fiat is thin air since you are a slave as am I. Election's do matter as they play the harlot, as they sentence you and me one day at a time. I am slowly walking away and it stalks me still. Justice is more than death and passes to the future in hope of Liberty to men of the letter if they exist. Today they do not in large numbers. Excuse an old fool...

Tue, 06/14/2011 - 06:49 | 1367182 topcallingtroll
topcallingtroll's picture


I just moved a few steps further up the path of enlightenment from a post by a smart guy with mild, perhaps subsyndromal, schizophrenia.

Peace to you.

Tue, 06/14/2011 - 05:38 | 1367145 Mr Kurtz
Mr Kurtz's picture

Terror is only justice prompt, severe and inflexible; it is then an emanation of virtue; it is less a distinct principle than a natural consequence of the general principle of democracy, applied to the most pressing wants of the country. ~ Robespierre.

Time to roll out the Guillotines!

Tue, 06/14/2011 - 06:44 | 1367181 topcallingtroll
topcallingtroll's picture

Would mozillo be the perfect first candidate for a people's tribunal and to test the new guillotine?

Tue, 06/14/2011 - 06:33 | 1367177 topcallingtroll
topcallingtroll's picture

The Fed is the only option.
Ben knows this.

If you look at all the sources of deflation from slowdown in private lending, contractionary world fiscal policy, and the most subtle, depressed animal spirits, then there is no way Ben can make up for everything.

Ben is watching helplessly as the ship sinks and contractionary fiscal policy puts more holes in it. He does not have the balls to do what it would take. Do you really think Ben would add 4 trillion more to the fed balance sheet while the usa government deficit ostensibly appears out of control?

The numbers look so large to attempt to stop the contraction that in reality it cannot be done. Ben would be thought insane and the fed would lose its autonomy. A soft depression is the fed preferred option.

Tue, 06/14/2011 - 06:40 | 1367178 topcallingtroll
topcallingtroll's picture

In order to have a nice, soft depression it will require stunning amounts of fiscal and monetary stimulus.

Tue, 06/14/2011 - 07:34 | 1367213 hardcleareye
hardcleareye's picture

Bernanke did a "hail mary", QE 1&2, hoping the economy would pick up to take the "future" contraction.....  this didn't happen.  I concur, there will be no "nice soft depression"...  question is what's next, we are entering uncharted waters? 


Tue, 06/14/2011 - 08:57 | 1367345 i-dog
i-dog's picture

"we are entering uncharted waters"

They're not's just that the guys with the chart (TPTB) aren't sharing it with the passengers.

Tue, 06/14/2011 - 06:49 | 1367183 nathan1234
nathan1234's picture

Bernanke , Chairman Federal Reserve Bank of Europe posted in the US

Tue, 06/14/2011 - 07:12 | 1367197 j0nx
j0nx's picture

Mention of the word DEFLATION on ZH? Next it will be dogs and cats living together, mass hysteria and people running away from PMs.

Tue, 06/14/2011 - 07:36 | 1367216 overmedicatedun...
overmedicatedundersexed's picture

a heavy black steel ball flying thru the dark night.

Tue, 06/14/2011 - 07:54 | 1367238 the not so migh...
the not so mighty maximiza's picture

The fed reserve should just buy all debt everywhere.  All private US citizens debt and public debt, then declare bankruptcy as a private corporation.   Ben falling on his sword for mankind.   Treasury would then take over. 

Tue, 06/14/2011 - 08:23 | 1367284 EZYJET PILOT
EZYJET PILOT's picture

I'm confused, if QE2 went to european banks why the inflation in the US? Am I right in thinking that QE1 was a bailout of US banks? The final destination for the QE2 bailout does not take away the blame for our economic malaise from the US zombie banks in any shape or form does it, they are just as culpable as always right?

Tue, 06/14/2011 - 09:12 | 1367367 gwar5
gwar5's picture

I think the Fed funnels money to the European banks, and through the miracle of fungiability, fractional banking, and circle-jerking, they funnel the QE back to the US banks. Very cozy.

But it's bypassing the real economy.

Tue, 06/14/2011 - 11:04 | 1367635 blindman
blindman's picture

@"But it's bypassing the real economy."
it is deflating the real economy while
simultaneously extracting from the real
economy, by "virtue" of qe, inflated fuel
and food rents, tax, fees, charges, margins,
levys and other assorted tolls and price
increases. barriers to entry abound.
pump and dump in the field of confidence
and credit, shell game.
if you have to sell it is deflation.
if you have to buy it is inflation.
if you want to hold it is insolvency.
"no one brings anything small into a bar
around here. they all start out with bad
directions." tom waits.

Tue, 06/14/2011 - 10:52 | 1367602 swissinv
swissinv's picture

you just have to be patient until the FED is in a position to print EUR bills

Tue, 06/14/2011 - 08:59 | 1367339 gwar5
gwar5's picture

Clearly, the Fed controls the global economy and can either inflate it, or deflate it, as long as Ben is able to keep printing his way out of the deflationary event horizon that is sucking us all in.

Go that. But since the Fed's only real mandate is to save the banks no matter what, we have to ask how they plan to survive post-collapse, through massive inflation or deflation?

Can the banks survive the Apocalypse with another reiteration of inflated fiat or by owning hard assets and good stuff, perhaps to back a new currency? In deflation cash is king, and they have it all, but their derivatives ponzi also implodes so I don't know.

Any economic war gamers out there think they got the answer?


Tue, 06/14/2011 - 09:35 | 1367400 blindman
blindman's picture

they dump on the government the garbage in exchange
for guarantees, insurance and free "money". then
count to ten and become bond vigilantes when they
want to foreclose on the sovereign for being so
financially irresponsible by doing business with them.
this will not hold the center after all we are not
see irish bank failure backed by government. max.
Financial IED explodes in Ireland: AIB has a ‘credit event,’ otherwise known as DEFAULTS
Posted on June 13, 2011 by stacyherbert
who will watch this and not say we are all irishmen today.
we are all palestinian, we are all eqyptian and greeks !
the common enemy is the privately generated fractional reserve
bank notes lent at interest system that mathematically must
leave in its wake collapse and failure even where there is
none. it is objectively a parasitic disease of a money system.
it did fail, is failing and will fail. even the dullest among
us could do better, very frustrating being talked down to by
criminal and theiving kleptocratic maniacs.

Tue, 06/14/2011 - 09:05 | 1367350 blindman
blindman's picture

Bill Flax
The Courage To Do Nothing
You Call It Inflation, I Call It Theft
.."If inflation succeeded, it would be merely dishonest. But as history proves, it never works. Neither Bush, nor Obama’s weak dollar policies did anything to alleviate the overblown “trade deficit” and much to undermine growth. There is no evidence that inflation fosters exports or employment.

As Washington plunders the value of our property and expropriates the product of our labor, inflation reduces us to servitude. Debasement is a despicable ploy the government uses to rob you blind. Period.

So what do I tell my children?"

Tue, 06/14/2011 - 09:22 | 1367396 EZYJET PILOT
EZYJET PILOT's picture

Thanks Gwar. I was fearful that Tylers article was letting the US banks off the hook but it seems they are ever present behind the looting taking place. 

Tue, 06/14/2011 - 10:30 | 1367543 Orly
Orly's picture

I am still convinced that these actions were the ultimate manifestation of the ideas behind Repo 105/108.

They are pushing "assets" to European banks to shore up their balance sheets, while leaving "liabilities" on the Fed side of the ledger.  Once the Euros all amazingly pass their stress tests and the world can breathe easier and the EURUSD flies to 2.0, then the flow will be reversed and the US banks can pass their stress tests, too.

This is nothing more than the shell game you see on seventh avenue all the days long.


Tue, 06/14/2011 - 11:39 | 1367788 deepsouthdoug
deepsouthdoug's picture

Excellent yet sobering report.

The U.S. economy is the guy tied up.  The guy doing the tying is Blackhawk Ben. 


Tue, 06/14/2011 - 13:30 | 1368158 Imminent Collapse
Imminent Collapse's picture

Deflation or Inflation?  It makes a difference whether we hang on to cash or go to PMs.  Or shift the balance between the two. 

This article would have you believe that TPTB won't allow hyperinflation because their debts would be paid off with cheap money.  But, on the other hand, QE3 and printing continues unabated, which seems to point toward inflation.  Help!

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