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The Fed Is Now Boxed In - Dislocations Ahead: The Ratchet Effect, Stick-Slip And QE3

Tyler Durden's picture





 

Submitted by Charles Hugh Smith from Of Two Minds

Dislocations Ahead: The Ratchet Effect, Stick-Slip and QE3 

The Fed has galloped into a box canyon with no escape; no matter what it does, QE3 will "disappoint" the markets.

I think we can safely predict that "Quantitative Easing 3" (the next round of fiat money creation) will "disappoint," triggering stock and bond market mayhem. Last week I noted that the U.S. economy is now addicted via the ratchet effect to unprecedented levels of Federal borrowing and Federal Reserve fiat/credit creation and manipulation.

In other words, the status quo is now completely dependent on the Federal government borrowing 40% of its expenditures ($1.5 trillion a year) and on the Federal Reserve printing fiat money and buying $1 trillion in Treasury bonds every year.

Now that Central State spending and intervention have ratcheted up to those levels, any reduction will destabilize the staus quo of zero-interest rates (ZIRP), unhindered entitlement and military/Security State spending, etc.

Thus we have politicos proposing $35 billion in "cuts" to a Federal budget ($3.8 trillion for fiscal 2011) which has leaped up by hundreds of billions of dollars in a mere decade.

Two other concepts which I have been discussing in my "weekly musings" (also covered in the Survival+ critique) may apply here as well:

1. Stick-slip phenomena, which I have previously suggested may shed conceptual light on the housing market's phase shifts.

An earthquake is an example of this phenomenon: the pressure on two adjacent plates of the Earth's crust rises without apparent consequence until the plates suddenly "slip," triggering a devastating earthquake.

2. Punctuated equilibrium, a concept from evolutionary biology based on the observation that the stasis (stability, equilibrium) which dominates the history of most fossil species is disrupted (punctuated) by short periods of rapid evolution.

Systemic change--rapid changes in climate and ecology--pressure organisms which had adapted to other circumstances to either experiment (via mutations) and evolve to suit the new environment or go extinct.

The stock and bond markets now depend on massive injections of free money (via the Fed's POMO) into equities and the purchase of newly minted Treasury bonds. This is the ratchet effect on a large scale: any attempt to ratchet down the Fed's interventions will cause uncertainty and doubt about the consequences, for no one seriously believes that private demand is just aching to jump in and replace the Fed's trillion-dollar buying sprees in stocks, bonds and mortgages.

Beneath the surface of illusory stability, pressures are mounting. A stock market which is now entirely reliant on monthly injections of $100 billion of "free money" from the Fed's "quantitative easing 2" program is a market that is exquisitely vulnerable to any reduction in that stimulus.

The same can be said of the bond market, which globally is groaning under the demands of sovereign states borrowing trillions of dollars annually in new bonds from now until Doomsday (roughly 2021, last time we looked, though many see 2012 as the end-game).

If the Fed stops buying Treasuries, then rates--already rising on the long end--will move decisively higher, bollixing the Central State's entire game plan of rescuing the insolvent banks and goosing a "recovery" with low interest rates and unlimited liquidity.

The Fed and Treasury are now boxed in by the ratchet effect. Any reduction in the Fed's unprecedented intervention, no matter how modest, will trigger an earthquake of uncertainty: the apparently "sticky" stability will slip in a dislocation.

The problem with expectations is also a reflection of the ratchet effect: they only go up.

Rather than adapt and evolve, the Central State and its proxy the Federal Reserve simply moved into a higher state of vulnerability. The global financial crisis which finally broke through all the Central State defenses in 2008 punctuated the illusory stasis/stability of the financial status quo. The opportunity to evolve was tossed aside in favor of extend and pretend, denial, and the transfer of risk and liabilities from the now-insolvent parasitic financial Elites to the taxpayers (profits were private, losses are now public).

In effect, the Fed moved into an even more precarious ecosystem, in which the "free markets" of stocks and bonds are now totally dependent on massive Fed manipulation to maintain their current stability. Yet the levels of Fed intervention are so enormous that they are inherently unstable. the illusory stability of the present has been purchased by increasing the systemic levels of instability.

Add these factors up and predicting the Fed's next round of "Quantitative Easing" (QE3) will "disappoint" expectations is easy. The reason is straightforward: the only way the Fed can avoid disappointing lofty expectations is to ratchet up its fiat creation/market manipulations another tooth. Even keeping QE3 the same size as QE2 will "disappoint" those who fear it isn't enough to "stimulate self-sustaining growth" (i.e., an economy which doesn't depend on borrowing 11% of GDP every year and the monetiziation of 2/3 of all new Federal debt via Fed purchases).

Political resistance to the Fed's headlong gallop into the box canyon of monetization and stock market manipulation is rising. The Fed's policies have enriched the top 10%--those who directly own enough stocks to experience a "wealth effect"--and enabled Wall Street to gorge on "free money profits" unleashed by the Fed's diversion of national income to the banks via zero interest rates. But politicos are increasingly aware that the Fed's lifeboats have only saved these Elites, while the passengers in steerage--the bottom 80%--are watching the Titanic sink lower in the water from the tilting deck.

The Fed is boxed in: by expectations of continued massive intervention and by political pressure to cease or curtail these very same interventions.

Ironically, if the Fed flouts political pressure and ramps up its manipulations via a monumental QE3 program, that may well disrupt the markets as much as a policy of diminished intervention, for the markets would soon grasp that the Fed would be guaranteeing a political firestorm of resistance if the Fed's manipulations didn't spark a hiring/jobs boom by the 2012 election season.

And we all know the Fed's QE3 will not spark a hiring boom, for the Fed's policies are designed to serve one goal: preserve and enrich the financial sector's Elites. Now that they're safely in the lifeboats, the failure of the Fed's policies to "trickle down" to the steerage passengers is increasingly evident.

Recapitalizing the "too big to fail" banks has not yet been accomplished, despite the Fed's gargantuan channeling of national income into Wall Street and the TBTF banks. So the Fed is triply boxed in: its unprecedented efforts to recapitalize the TBTF banks and restore Wall Street's swollen profits are only partially complete, yet it is already encountering stiff political resistance.

Even worse, the interventions have had to be ratcheted up to maintain their effect, akin to an addiction or insulin resistance. The vulnerabilities have not been erased, they've only been masked. The pressures on the financial faults beneath our feet are increasing, and the tremors will soon give way to sudden dislocations of expectations, risk and price.

 


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Mon, 02/14/2011 - 11:30 | Link to Comment NOTW777
NOTW777's picture

the facts wont stop obama from lying through his teeth and touting cutting the deficit in half. how many more lies can be tolerated

Mon, 02/14/2011 - 12:11 | Link to Comment InconvenientCou...
InconvenientCounterParty's picture

and how many myths, half truths and newspeak will it take to right this once free nation and turn the spigot of gravy back to it's rightful beneficiaries.

Mon, 02/14/2011 - 12:19 | Link to Comment william the bastard
william the bastard's picture

Why wait for QE3 for the mayhem to begin? Rule 1 of "project mayhem" is don't wait to hear rule 2.

Mon, 02/14/2011 - 12:33 | Link to Comment NOTW777
NOTW777's picture

at this point the MSM is even more guilty than the lying politicans.  they communicate with the general public and they are talking of recovery, improvement and now,

so-called responsible politicans allegedly cutting the deficit

Mon, 02/14/2011 - 13:06 | Link to Comment Thomas
Thomas's picture

I disagree. They said Karen Ann Quinlan would die if taken off the machines, but then they unplugged her and her quality of life did not diminish a bit!

As to the notion of stick shift, one of my favorites is from Silas Marner...

"The lapse of time during which a given event has not happened is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent."

Mon, 02/14/2011 - 21:39 | Link to Comment Bringin It
Bringin It's picture

The MSM is where the guilty congregate.  The Sheeples are tied down by the MSM.

 

Mon, 02/14/2011 - 11:33 | Link to Comment HelluvaEngineer
HelluvaEngineer's picture

Oh please.  Did everyone remember to BTFD today?

Mon, 02/14/2011 - 11:44 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

Netflix to the moon.

Seems we will have a month of no down days (between the Dow and s&p)

Mon, 02/14/2011 - 11:47 | Link to Comment Rogerwilco
Rogerwilco's picture

@helluva

You buy the little dips, I'll buy the BFD. The end game is near muchachos.

Mon, 02/14/2011 - 11:54 | Link to Comment HelluvaEngineer
HelluvaEngineer's picture

We'll see which lasts longest: the rally, my trading account, or my liver.

Mon, 02/14/2011 - 12:34 | Link to Comment Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Trading account, rally then your liver in that order.

 

(I'm giving your liver the benefit of the doubt).

Mon, 02/14/2011 - 11:34 | Link to Comment NOTW777
NOTW777's picture

the guy who has been using americas credit card nonstop for 2 years now wants the public to believe he is responsible

Mon, 02/14/2011 - 12:35 | Link to Comment NOTW777
NOTW777's picture

really. theres still obama worshippers out there? what does he have to do - cut off your head?

Mon, 02/14/2011 - 15:08 | Link to Comment holmes
holmes's picture

$5.00 at the pump and he's a one termer.

Mon, 02/14/2011 - 13:01 | Link to Comment ebworthen
ebworthen's picture

Him and the Republicrats.

The majority of the political class on both left and right are prostitutes of Wall Street and the central banks of the world.

Politics is the distraction.

 

Mon, 02/14/2011 - 13:57 | Link to Comment Sancho Ponzi
Sancho Ponzi's picture

The United States is for the most part uninvestable, and Bernanke is making things worse. According to Wikipedia, the US ranks 135th of 145 contries in Gross Fixed Investment as a percentage of GDP, and that was in 2008. 

http://en.wikipedia.org/wiki/List_of_countries_by_gross_fixed_investment_as_percentage_of_GDP

Bernanke's QE madness kills capital investment as companies hoard cash to weather the next crash rather than purchase machinery and equipment. QE and ZIRP also add to the cost of doing business by increasing commodity costs and keeping office and plant leasing expenses artificially high.

 

Mon, 02/14/2011 - 21:49 | Link to Comment StychoKiller
StychoKiller's picture

Hmm, let's see:  The voters threw out the Republicons in 2008, then they threw out the Decepticrats in 2010.  Now come 2012, who is there left to give power to?  I say, fsck them both and bring in the Libertarians and other 3rd party candidates, but when the Ignorati STILL rationalizes voting for the likes of Maxine Waters, John McCain, Barney Frank, and Harry Reid, I throw up my hands in despair!

Mon, 02/14/2011 - 11:36 | Link to Comment NOTW777
NOTW777's picture

someone slap harwood - before obama is even off the stage talking cuts, harwood aplauds his increased "investment" spending

Mon, 02/14/2011 - 11:44 | Link to Comment AN0NYM0US
AN0NYM0US's picture

One of the benefits of having a rubber face is that a slap has no effect. Try turning off CNBS and instead tune into Bloomberg.

Mon, 02/14/2011 - 11:55 | Link to Comment NOTW777
NOTW777's picture

bloomberg is worse.  on the asia version at night they run short headlines that read like campaign slogans.

i usually mute cnbc but someone gave me an almost new hdtv yesterday but forgot the remote so i have to get up

Mon, 02/14/2011 - 13:33 | Link to Comment c-rev with a twist
c-rev with a twist's picture

Bloomberg claimed on their site that this was Obama's attempt to move back to the center.  WTF?  How is a 1.5 trillion deficit back to the center?  Are they fucking nuts?

Mon, 02/14/2011 - 11:39 | Link to Comment Turd Ferguson
Turd Ferguson's picture

I find it funny that some folks actually use the word "IF" when discussing QE3.

The Fed has no choice. Without their constant intervention, there is no bid for treasuries, at least not at this rate level. Higher rates ensure the near-term unravelling of The Great Ponzi and can therefore not be allowed. QE to infinity is the only option.

Mon, 02/14/2011 - 11:43 | Link to Comment vas deferens
vas deferens's picture

Turd great blog, thanks for all your work!!  Hope the littlest turd is feeling better.  Do you really live in your parents basement?

Mon, 02/14/2011 - 12:19 | Link to Comment william the bastard
william the bastard's picture

The gold pimp has a john

Mon, 02/14/2011 - 11:46 | Link to Comment SayTabserb
SayTabserb's picture

Exactly right, IMHO. All the stuff about "supporting the recovery" and the rest are baloney. The reason The Bernank shakes and sweats when he talks is because he knows that a return to historic means for Treasury rates, say 5% for the 1-year, is a game over situation for the Federal budget. And if things get really dire and Treasury has to start paying 10% on what it borrows, then the stark math gets clear in a hurry. Box canyon, indeed. The Bernank was as unrealistic about a recovery and increase in tax revenues as he was about the housing bubble. A very impractical man in way over his head in the real world.

Mon, 02/14/2011 - 11:53 | Link to Comment buzzsaw99
buzzsaw99's picture

without constant interventions banker bonuses would suffer. That is all they care about.

Mon, 02/14/2011 - 12:11 | Link to Comment TradingJoe
TradingJoe's picture

Turd

in today's "world" Infinity is a LIMITED COMMODITY! There is only "this much" that"goes", beyond that its light's out!

Mon, 02/14/2011 - 12:21 | Link to Comment Boston
Boston's picture

Remember 2008.  There's another way to get a massive bid for Treasuries. 

Scare the shit out of everyone in risk assets. 

Sure, this effect will only be temporary, but it can be very powerful.  Look at the 10 year yield in 12/08, almost hitting 2.00%.

Mon, 02/14/2011 - 14:42 | Link to Comment Saxxon
Saxxon's picture

+1 Boston.  Amazing, just amazing that we are discussing our leadership as if they were Long-Con artists - the stench from Washington DC is historic.

Mon, 02/14/2011 - 21:42 | Link to Comment Bringin It
Bringin It's picture

Some a-hole that doesn't write like you stole your avitar.

Mon, 02/14/2011 - 12:25 | Link to Comment trav7777
trav7777's picture

The Fed and the world in general, are caught in an interesting paradox.

There is very little demand for credit in the aggregate, which would suggest low interest rates (the price of credit).  However, the governments' demand for credit is voracious, suggesting a higher price.  There's also this matter that they will never be able to repay, suggesting that the notion of "risk-free" yield has gone out the window.

Bankers *should* be offering YOU lower rates to entice you to use credit, with higher rates to sovereigns.  This is the ultimate "yield inversion."  We have achieved a liquidity trap where lenders want high yields to cover their asses into a future of declining ability to cover the coupon, but there simply is no demand for credit at seemingly any price.

If I were to borrow at 0%, I'd buy certain commodities.  Collective point of recognition will be when the yield inversion flips and everyone starts borrowing for this purpose.  In fact, this is EXACTLY why the Fed has been feeding bubbles for so long.

In a true sense, there is insufficient private credit demand (the big elephant) to support a yield sufficient to cover the risk of sovereign lending.

Mon, 02/14/2011 - 12:43 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

@Trav

Its very simple in one respect , capital has gone on strike - it is not in the game of creating capital anymore - it can only profit from commodities - debt money needs to be revalued downwards via a movement out of commodities and into the monetory metals.

Then oil in gold can get back into some rational ratio again.

People criticize Roosevelt for confiscation but his devaluing of the dollar relative to Gold was needed after the credit boom of the 20s - the reason why the depression lingered was that he did not devalue it enough.

Mon, 02/14/2011 - 15:20 | Link to Comment equity_momo
equity_momo's picture

Your trade idea to borrow at zero and purchase commods is exactly what is happening with primary dealers , hedge funds and certain sov states like China.   PDs are getting freemoney through pomo and investing in finite goods , filtering all the way down to stocks (finite to a point) . Hedge funds are employing leverage to invest in the new carry trade : borrow dollars and buy resource stocks,commodities etc, and China is using its ability to buy real assets : land , oil , copper, gold etc.

At some point though when the free money tapers off (watch the US bond market for the tell) this trade swings back violently the other way. I think theres been enough FRNs , but not too much ,  printed that we arent at system implosion just yet : ironically , i think an end to QE will see a bond market RALLY as the market violently swings to the old truism of "flight to safety" and the re-allocation of capital flees perceived "risk"into perceived "safety".

Youll see the dollar rally , USTs rally and the Dow an all those high beta , highly leveraged reflation bets get blown to pieces. This is the only way the Fed can keep the game going - artificially creating booms and not-so-artifically creating busts. The busts are as important as the booms , to drive money into buying US Debt.  There is no indication to me YET that the investment World and Sov Govns are willing to cut the US adrift - they are all interwoven and have too much to lose , its game theory.   

I dont know how many more booms and busts the Fed can perpetuate before capital allocation says "no mas" but i sense theres at least one left in the tubes.

If you arent sure , 50% FRNs 50% Precious metals , both in ones ownership , is the most straightforward and simple way to try to stay solvent and retain purchasing power.   And i think keeping it simple is a very under-rated strategy.

 

The Fed are the push-me pull-me masters. It will all end in tears but when , who knows.

(real estate is clearly not responding to Fed easy money , thats primarily due to the need of excess leverage and expanding wages that the private sector needs to get in order to generate traction in real estate. This is not going to happen , ergo , dont look for housing to re-enter a bubble buying frenzy this side of the Black Hole event - and Bernanke will give up on worrying about real estate weighing on the solvency of Banks - with mark to fantasy and fraud now a wholesale industry practice ,you will not see anyone worry about off-balance sheet exposure to housing - that is not going to be what takes banks down)

 

ps: and i agree with Cork , capital allocation has given up on trying to find growth or investment opportunities in the sense of capital formation , it is purely chasing the safest place to hide , which , ironically enough , is creating capital gains out of the herd like nature of markets. As we have seen throughout history , thats how bubbles and busts work. With the exception of  Oil , and to an extent soft commods  , the resource sector (stocks and industrial metals basically like copper) are going to experience a monumental crash as we double dip like an elephant trying to dive off the 25m board. 

M+A is in full swing again - another sign of a top of the cycle. Companies cant create organic growth , they know there is no organic growth this side of Black Hole event , so they are buying profits in an attempt to appease shareholders a while longer. Synegies means more job cuts and greater damage down to the US employment picture. The wild eyed optimisits talk about technological advancement - the only technological advancement we need is a cheap , reliable replacement to oil , not new ways to build obsolete cars more efficiently so we can fire more workers. We have reached the point Marx referred to when capitalism eats itself.

Mon, 02/14/2011 - 16:24 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Yes the ride is getting wilder with every turn - this particular joy ride has some very peculiar characteristics  , the inflation of the 70s was obviously driven by monetory mechanisms but this was transmitted to workers in the west which drove unsustainable consumption via their wage growth , Greenspan has created a matrix that has avoided this tar pit and has bypassed this almost completly for monetory capital - given that workers have no wealth other then credit which kept the illusion of wealth long enough before the plebs knew what was happening - there is little incentive to invest in this area and it is best to invest in areas of NEED such as oil and food etc - creating great profits without the need for capital growth - a truely amazing feat.

Mon, 02/14/2011 - 11:41 | Link to Comment vas deferens
vas deferens's picture

QE to the moon, silver gold food and guns bitchez....

Mon, 02/14/2011 - 11:46 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

Don't forget heavy machinery. You need something to scoop up them ferraris.

Mon, 02/14/2011 - 11:58 | Link to Comment NOTW777
NOTW777's picture

trucks - check CMI and WBC

Mon, 02/14/2011 - 11:41 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

The damage was done before QE via epic malinvestment - QE is simply the medicine if you believe the dollar is money , nothing can stop the dollar unless the Euro loads up  deposits on its balance sheet - creating a massive surge in Gold.

Mon, 02/14/2011 - 11:41 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

its not just the Fed. its american foriegn policy, both political parties and the economy.

 

the whole system is in a box. i dont trust the events in the middle east and pakistan.

Mon, 02/14/2011 - 21:45 | Link to Comment Bringin It
Bringin It's picture

... its not just the Fed. its american foriegn policy, both political parties and the economy.

I believe you are on to something.

Mon, 02/14/2011 - 11:42 | Link to Comment High Plains Drifter
High Plains Drifter's picture

QE will never end. It is written. 

Mon, 02/14/2011 - 21:55 | Link to Comment StychoKiller
StychoKiller's picture

It could end, IF the Govt would cut something like $1Trillion from the Federal budget.  Chance of this happening, given the clown posse in D.C.:  1%

Mon, 02/14/2011 - 11:45 | Link to Comment Sudden Debt
Sudden Debt's picture

Just cut:

Social security: Just send them to extermination camps.

Education: HA!

Army: Let them fund themselves. LOOT THE MIDDLE EAST GOLD RESERVES AND OIL FIELD! NO MORE FREE FIGHTING! JUST GO MIDIEVAL!!

Mon, 02/14/2011 - 11:50 | Link to Comment SayTabserb
SayTabserb's picture

That was the Roman system for the army. Loot and pillage, then recruit what was left into the Legions. Sort of what we've been doing, in a way.

Mon, 02/14/2011 - 12:57 | Link to Comment cougar_w
cougar_w's picture

The value of all the gold in the entire world (~10B ounces) would not fund the US military for much more than a year. And you would still have to find a buyer for the bullion in a way that didn't drop the price, unless you paid vendors in physical.

I wouldn't count on all the oil left in the ME to do any better, even assuming they have any left which they might not.

That is how expensive our military (and their various wars) has become. You can only fund the US military with fiat money and a Ponzi economy at 100x leverage. Period.

Mon, 02/14/2011 - 14:05 | Link to Comment SWRichmond
SWRichmond's picture

The value of all the gold in the entire world (~10B ounces) would not fund the US military for much more than a year.  That is how expensive our military (and their various wars) has become.

It's also a very reliable indicator of just how undervalued gold is.

Mon, 02/14/2011 - 14:09 | Link to Comment cougar_w
cougar_w's picture

Agreed. But on that note, if the US military needed your gold to fund their operatons I doubt very much that they would bother buying it from you.

Charity begins at home. Or at least that is how they will justify after-the-fact what they must do anyway.

Mon, 02/14/2011 - 11:43 | Link to Comment jakethesnake76
jakethesnake76's picture

So you are saying there is some kind of Collusion bgoing on between the Fedster and the Bankster , oh nevermind they are the same.. On a lighter note my buddy who is a Lib and therefore a bull right now is saying things will be great this year due to the cycle of the 4 year presidentual cycle, as in things Will Never Change ...:)

Mon, 02/14/2011 - 11:43 | Link to Comment 99er
Mon, 02/14/2011 - 11:46 | Link to Comment H. Perowne
H. Perowne's picture

Hand fused to the throttle, burning in!

Mon, 02/14/2011 - 11:52 | Link to Comment BennyBoy
BennyBoy's picture

QE33 or BUST!

 

Mon, 02/14/2011 - 11:52 | Link to Comment fragrantdingleberry
fragrantdingleberry's picture

If the Fed were to halt its asset purchases, the banking system and, by extention, the entire credit based, Ponzi fiat dollar scheme would fail. Many on this site believe that will happen anyway and the Fed is simply kicking the can down the road. As John Mauldlin explains, we are in the end game. 

Mon, 02/14/2011 - 12:46 | Link to Comment equity_momo
equity_momo's picture

We are so far passed Event Horizon , the curious thing about Black Holes is that time becomes distorted.  Event Horizon can be breached and yet it feels like youre never going to be sucked into the vacuum. But once you are , its over in a nanosecond.  I have no idea when this system finally implodes into nothing but i do know we have no way out and the great vacuum sucking fun is still to come and is absolutely unavoidable. You may aswell follow Charlie Sheens investment advice and spend what you have on blow and hookers. Everything will be vapourized and the odds on coming out the other side with anything of value are slim. If you're a baby boomer you're lucky , you rode the gravy train and should have something of tangible value and lived through an unprecedented time of peace relative to the historical norm.

If you're the short side of 40 , bringing up kids , you're screwed. Simple as that. The piper wants paying and he will take his payment through blood , sweat and tears. He doesnt care how.

Mon, 02/14/2011 - 14:11 | Link to Comment SWRichmond
SWRichmond's picture

If you're the short side of 40 , bringing up kids , you're screwed.

Agree, but with a caveat: I still maintain we're all screwed.  My kids are young adults and will spend what could otherwise be the most productive and exciting time of their lives fighting a piss poor economy and a political system that is hell bent on maintaining the status quo and refusing to allow any correction to occur, no matter how desperately needed one might be.  Young kids at home are at least young enough still to see some hopeful signs in their young adult lives.  We'll almost certainly have met the singularity by then and improvement should have started.

Retirement for most Boomers is a non-starter.  There will be no retirement for practically all of us.

Mon, 02/14/2011 - 21:51 | Link to Comment Bringin It
Bringin It's picture

BI cashed in his chips and retired at 45 ... eleven years ago.

Everyone needs to change their notion of what it takes toget off of the eternal hamster wheel.

Don't feed the Ponzi.  Starve the Ponzi.

Mon, 02/14/2011 - 22:04 | Link to Comment StychoKiller
StychoKiller's picture

Looks like my Daughter has a long future of training others in self-defense, and lopping off heads with her Katana.

Mon, 02/14/2011 - 11:52 | Link to Comment Hernando
Hernando's picture

Obummer is the worse president since Hoover.  However, the hidden elite love him.

Mon, 02/14/2011 - 12:20 | Link to Comment Bob
Bob's picture

The elite seem still ambivalent--they're patiently, though doubtfully, waiting to see if he can overcome his socialist hostility to business [sic].

What a punk bitch.

Mon, 02/14/2011 - 12:17 | Link to Comment Rogerwilco
Rogerwilco's picture

@Hernando

Please don't insult the name of Herbert Hoover by comparing him to Obama. Hoover was an accomplished businessman and diplomat, not a clueless, feckless, parasite like the current occupant of the oval office.

Mon, 02/14/2011 - 11:55 | Link to Comment buzzsaw99
buzzsaw99's picture

They aren't boxed in. The fed's only purpose is to enrich their owners. A scam a minute with those criminals.

Mon, 02/14/2011 - 11:56 | Link to Comment kaiserhoff
kaiserhoff's picture

Ben's window is closing fast.  Real estate is finally in free fall across a wide stretch of the nation.  Put that in your Monte Carlo simulator and see what happens.  Obummer's Depression is on.

Mon, 02/14/2011 - 12:24 | Link to Comment Confucious 222
Confucious 222's picture

Was the Baroke Obummer Depression ever off?

Oh, yeah, that's right, the MSM just refused to call it the name-that-could-never-be-named.

Time to go Dancing With The Stars!

 

Mon, 02/14/2011 - 11:56 | Link to Comment partimer1
partimer1's picture

it was the debt that buried Lehman, it was the debt that leads to this deleveraging of consumers. it was the debt that causes the burst of housing bubble. Bernank didn't want AIG/GS/ML/C/BAC to go down, and transfer their debt to the US gov. and now its the debt that threatens US gov.  Its funny that the debt just doesn't go away.  you HAVE TO die before going to heaven. 

Mon, 02/14/2011 - 11:59 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

It can be argued that base money is not debt so therefore if that is correct BB actions are rational.

Mon, 02/14/2011 - 13:04 | Link to Comment partimer1
partimer1's picture

well, that's why it is the Gov. the sovereign debt that is in trouble. Nobody is talking about the AIG/GS/C.. etc anymore. BB volunteered generously on behalf of our taxpayers to take on the burden, and now its the same burden that will bury the Gov.  

Mon, 02/14/2011 - 13:15 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

I used to think that if the shadow bank sector was destroyed the value of the remaining paper would rise - but now I am not so sure.

If the yield on holding up the paper matrix was somehow drastically cut then the opportunity cost for holding this paper would diminish - everybody would run to gold and give up yield chasing , the efforts of the last 3 years was to keep enough balls in the air to keep the madness going.

Mon, 02/14/2011 - 11:59 | Link to Comment Cdad
Cdad's picture

Very well said, Mr. Smith.  It is unavoidable.  All things that rise must converge, especially when those things rise as a result of the violation of every financial rule, law, or common thought.  A free market can rise indefinitely as long as the value can be seen through the windshield.  Right now, I dare say that no one involved in this market can see beyond the next Fed headline.  With no forward reality-based vision, the only thing that remains is for the day to turn from greed to fear.

Hat tip, sir.

 

Mon, 02/14/2011 - 12:09 | Link to Comment SheepDog-One
SheepDog-One's picture

We get the same phenomenon here in the spring, wild bamboo shoots to the sky and people marvel at it but it grows too fast in shallow weak soil and they all crash over when the first storm hits. Oh well, bamboo to the sky, bitchez. Until suddenly not.

Mon, 02/14/2011 - 13:42 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

And a hat tip for the Flannery O'Connor reference, Cdad.

Mon, 02/14/2011 - 14:56 | Link to Comment Cdad
Cdad's picture

Ned,

There was a day when I was charged with the task of pointing out such things, things such as the conflict between right and wrong, suffering the noise, the clatter of divergence.  In those days, I was alive and well in a similar struggle.  Always, the human struggle is that of truth.

And here I am again, much less alive for the nature of my endeavor, but again trapped between truth [economic] and the chairman of the Federal Reserve Bank.

There is no singular truth [save for the one that hung on the cross], nor is there any such thing as a one way trade.  Gravity, sir Ned, has not been repealed...but only interfered with by manipulation.  We all know the underlying truth behind human creations.

The dampening wave has come, and all that remains is for that event that sets the wave in motion again...and for things to converge again, the clatter of greed and fear.

Mon, 02/14/2011 - 12:00 | Link to Comment Sean7k
Sean7k's picture

Crash the market, require 401k's to go to bonds- especially the new 50 and 100 year bonds(the people will love that and GDP bonds if the market crashes), bring the international profits home via a tax break(to create jobs, Ha!) now that the biggest companies have built up cash reserves through stock and bond offerings. QE3 and 4 will be needed to create jobs- not that they will. The possibilities are endless, just as the wealth transfers are.

Mon, 02/14/2011 - 12:01 | Link to Comment monopoly
monopoly's picture

There is no rush to short this market. I think most of us know this is not a sustainable recovery. Just buy until it stops. It will get ugly.

Mon, 02/14/2011 - 12:02 | Link to Comment bunkermeatheadp...
bunkermeatheadprogeny's picture

Half a QE, half a QE,
  Half a QE onward,
All in the valley of Death
  Rode the S&P 500.

Mon, 02/14/2011 - 12:27 | Link to Comment Rogerwilco
Rogerwilco's picture

LOL -- best post of the day sir!

Mon, 02/14/2011 - 15:05 | Link to Comment bunkermeatheadp...
bunkermeatheadprogeny's picture

Thank you, sir.

I call it "Charge of the Slight Brigade."

Mon, 02/14/2011 - 21:56 | Link to Comment Bringin It
Bringin It's picture

They were not to reason why.

They were just to lift the SPY.

Mon, 02/14/2011 - 12:05 | Link to Comment papaswamp
papaswamp's picture

It's like 1929 and I'm feeling fine.

Mon, 02/14/2011 - 12:11 | Link to Comment Mark Beck
Mark Beck's picture

The end of ARRA will have an impact also. What little growth was produced through government backed programs (stimulus), not including defense, is completing its feed through effects. The timing is interesting in relation to QE2 termination because it seems we could see a dropout in government backed growth in termination of both stimulus and QE2 (that is if QE3 is not enacted quickly).

Also, a large driver for economic activity is defense. Although not all domestic in its scope. So we wonder when there will be a forced pullback in defense. Really just another form of targeted stimulus. As soon as there is a bond crisis, defense will be ripe for the chopping.

----------

The FED being boxed in implies there is no escape. But in ending QE2 what exactly will happen?

Well we will play what I call the Treasury squeeze play. A move and delay expenditure game to try and keep Treasury cash flow positive. Threasury accounting will degenerate into a morass of hidden losses (accounting games), in order to keep the checks flowing.

The only question is what the time frame will be for the slack to be drawn out of the system.

We shall see.

Mark Beck

Mon, 02/14/2011 - 12:14 | Link to Comment arkady
arkady's picture

So the question that everyone is dying to know, will QE3 be implemented or not.  This is really at the heart of the inflation/deflation debate.  The article correctly points out that a lack of QE3 will cause an implosion because existing prices cannot be sustained by private demand - yet not doing so will essentially make everything Ben has done useless.  Damned if he does, damned if he does not.  To save face and humiliation, logically speaking, he will continue - no?  I am trying to understand what forces will actually prevent him from changing course other than the possible danger of losing our reserve currency status. 

Mon, 02/14/2011 - 12:23 | Link to Comment Bankster T Cubed
Bankster T Cubed's picture

perhaps they want to destroy the current system beyond all hope of repair

Mon, 02/14/2011 - 12:30 | Link to Comment trav7777
trav7777's picture

the debt money system is simple - their goal is to make it grow, as it has to, forever.

the system now is the Fed offering credit at below sovereign rates, to try to cause "people" to borrow from them and then lend to the gov.  It doesn't matter if the things are gonna crash eventually, just like houses or .coms.  The system requires growth and the Fed is doing what it knows how to do.

In times where they cannot inspire people to borrow at 0%, they do it for them.

Mon, 02/14/2011 - 12:32 | Link to Comment arkady
arkady's picture

I suppose you are describing the nature of the Ponzi scheme, it simply has to continue, one way or another.

Mon, 02/14/2011 - 12:41 | Link to Comment Rogerwilco
Rogerwilco's picture

Outside the cloisters of DC and Wall Street, there is still a reservoir of rationality in this country, much of it well-armed.

Mon, 02/14/2011 - 13:09 | Link to Comment ebworthen
ebworthen's picture

QE3 Will be implemented.

The bubble must be maintained.

CPI is manipulated so there "is no inflation".

Mon, 02/14/2011 - 15:40 | Link to Comment holmes
holmes's picture

$5.00 bucks at the pump might stop him.

Mon, 02/14/2011 - 15:57 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Not if he can recycle this back into New York banks - its called a petrodollar for a reason Holmes.

Mon, 02/14/2011 - 21:58 | Link to Comment Bringin It
Bringin It's picture

Re. $5 at the pumps.

I think the poster refers to the political and/or street response to same.

Mon, 02/14/2011 - 22:20 | Link to Comment StychoKiller
StychoKiller's picture

The Bernank is fighting the $200Trillion+ gravitational pull of the black hole (CDS's) with around $2Trillion+ of QE thrust.  Time slows down due to relativistic effects on the event horizon.  In space, no one will hear our screams!

Mon, 02/14/2011 - 12:20 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Whether by intent or not, the US economy has drifted toward central planning and control. It began gradually over 4 decades ago as the sun began to set on US industrial hegemony. It was seriously stoked by the stealth subsidies of the 1980s (read "supply-side tax cuts" and expansive monetary and fiscal policy). But it accelerated as a result of the crises of 07-08. 

As I've been pointing out, China and US are destined to resemble each other more and more as a result. As China becomes more market oriented, US will reluctantly drift toward state control. 

Bernanke's QEs did indeed get the patient addicted to sugar highs. But those addictions have been growing for a long time. And since he and the monetarists at the Fed have consistently  regarded the stock market as the ultimate gauge of health of the economy (and have said so as far back as Volcker), that makes him boxed in, irrevocably committed to maintaining stimulus through expansive monetary policy no matter what new name they give it. I think they won't call it 'QE3', to make the spin sound better. 

Mon, 02/14/2011 - 13:48 | Link to Comment cougar_w
cougar_w's picture

Your comment re China v-v the US becoming similar is probably correct.

But I think in claiming that, you have doomed them both. China cannot survive as a captial system because Capitalism will create class structures and social unrest that will strain the fabric of their county until it tears apart. And the US? Our venture into State controls was to privatize profits and socialize losses. That was the very best we could do, and all it does is set us up for bloody riots and civil war.

China and the US will converge, pass right through each other, and be annihilated.

Mon, 02/14/2011 - 12:21 | Link to Comment Bankster T Cubed
Bankster T Cubed's picture

the "market" will react to QE3 exactly as planned

market....yeah....whatever -- the whole thing is a sham

 

Mon, 02/14/2011 - 12:34 | Link to Comment MarketFox
MarketFox's picture

There is a solution to US economic woes....but it will not happen....

 

1) The government has to get a lot smaller...and entrepreneurship a lot bigger....

 

This means that the tax take cannot exceed 10% ...and has to be in a VAT format...no individual or corporate taxes...

 

The US is now learning that a stock exchange can be anywhere...in that an exchange is just software....The exchange will eventually be in the best tax domicile with the least red tape....

 

If one does not think that efficiency rules the game....just ask the NYSE....

 

Oh well....the US will have to learn the hardway....minus a lot of manufacturing and ...even its exchanges....

And JUSTICE ?  Not in the US.....$Trillions missing ....no one accountable.....whereby the costs are ponied on the unborn middle class children....

The white collar crooks embedded in the FASCIST govt. system even get to slap the middle class public by even selling them their "personal" books....

At least Egypt citizens grew some balls....and woke up to their cherade...

 

Mon, 02/14/2011 - 12:28 | Link to Comment Hedgetard55
Hedgetard55's picture

"2. Punctuated equilibrium, a concept from evolutionary biology based on the observation that the stasis (stability, equilibrium) which dominates the history of most fossil species is disrupted (punctuated) by short periods of rapid evolution."

 

     A theory that came about to paper over the fact that there is no evidence at all of evolution in the fossil record. All body types appear fully formed, exactly as you would expect if the fossils were the result of a cataclysmic Flood.

Mon, 02/14/2011 - 12:32 | Link to Comment trav7777
trav7777's picture

huh?  A worldwide flood?  Surely you are joking, right?

Your statement is in error about the fossil record, btw.

Mon, 02/14/2011 - 14:55 | Link to Comment Sean7k
Sean7k's picture

Thus, the tard part of his avatar.

Mon, 02/14/2011 - 12:46 | Link to Comment Hubbs
Hubbs's picture

I really liked this article...one of the best posted because of analogy to evolution and plate tectonics, and the clarity of it's statement. As far as fossil record,  even a few gene mutations can result in dramatic structural / physiologic changes. A numbers game fossil research is. The fact that one has long periods of stability means that one is more likely to find those fossil records because there are so many more of them, while the very few "transition" species will be less likely to be discovered.

Mon, 02/14/2011 - 12:36 | Link to Comment Hubbs
Hubbs's picture

What's with this BTFD guys? Be consistent. If the FED has us flying into a box canyon, it won't be BTFD...it will be BUY THE F'ING CRASH!

No way I will ever get back into this market unless it first burns to the ground. Until then I split my time between learning about farming , animal husbandry, and self-sufficency

Mon, 02/14/2011 - 12:36 | Link to Comment nevadan
nevadan's picture

"its unprecedented efforts to recapitalize the TBTF banks and restore Wall Street's swollen profits are only partially complete,"

If the TBTF ever get to where they feel sufficiently recapitalized it will be Katie bar the door.  At that point a crash would be looked on as a good thing since they will then be able to step in and pick up the pieces for pennies on the dollar.  The ultimate payday where the banks own everything.

Mon, 02/14/2011 - 13:12 | Link to Comment cougar_w
cougar_w's picture

I don't think the Fed can be stopped. Von Bernankstein will wave the MAD flag like Paulson did, and will have even more credibility than Paulson, not less. He will say:

"Look fuckers, you sat around while I monetized $2T of your spending so you could look good at the polls, and now you want to rein all that in? What do you think you are ... fucking populists now? No, you are scheming jack-offs. Here's how it plays out, pay attention I'm not saying it twice: I give away free money to my buddies in banking and finance, and you sit on your fat butts and talk about guns and gays and terrorists and all that other useless drivel. And if you want to trim a couple billion from the budget go ahead, I drop that kind of money on the street everyday paying cab fare. What you will not do is bring any heat on The Fed or the TBTF or any God damned thing that looks like monetary policy. Because if you do I'm on the next jet to Geneva, our freinds at the banks empty the vaults and close their doors, the Treasure gets a failed 10 year auction, and you've suddenly got no money, no food, no military and no personal future that doens't involve a tree and a rope. Are we clear?"

Of course, some day he'll be on that jet anyway. But in Washington it's all about buying time for as long as it can be bought. Nothing more, nothing less.

Mon, 02/14/2011 - 13:40 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

well said.

Mon, 02/14/2011 - 13:41 | Link to Comment A Texan
A Texan's picture

Cougar - anyone saying that (or anything similar) - and I mean ANYone - should be led away in shackles, preferably in front of cameras.

 

Any pol or any other person that was the least bit interested in doing their job or, in the event that they are motivated by a love of life, anyone of them interested in not perishing at the end of a rope, should make sure that such happens.

 

Sure, then the plug would be pulled on the QEs and the entire system of Ponzi Schemes that has become our alleged economic system, but we all know that the day of reckoning is coming anyway, no matter what anyone actually does (because there will NEVER be any voluntary agreement to reign-in the governments of this country).  So let's do it NOW, let's get it over with and start rebuilding while there's still the oil and physical inventory of equipment, as well as the intellectual inventory of knowledge among workers and scientists to actually do it - because if we wait a few years there will be that much less of all of them available - and many more hungry/desperate people who will gnaw away on the remains of our system like carrion.  If we wait too long, we'll enter into a very long Dark Age, from which no one alive today will emerge.

 

But at least jail a few of those who are responsible - it solves little, except to get a little revenge and to slow down some of the others doing similar things.  It might give us a little more time to come to our senses.

Mon, 02/14/2011 - 13:56 | Link to Comment cougar_w
cougar_w's picture

I understand your sentiment. Truely.

However in the Heartland of America, you will have a hard time finding people who are willing to lose their current standard of living and way of life in exchange for the spectacle of Bernanke being paraded around in an orange jump suit. Most of them (meaning something like 95%) don't know who Bernanke is, don't know what a Central Bank does, have no idea where inflation comes from, and don't care.

Everyone is in on the fix. Ben is just playing the field. This has a way to go before it stops. Of course it will stop someday, but that expectation is cold comfort right now.

Mon, 02/14/2011 - 15:56 | Link to Comment Sean7k
Sean7k's picture

I find more people in the "Heartland" of America that understand what is going on than anywhere in California. They would love to see Bernanke in a orange jump suit and the FED abolished. Look before you leap Cougar...

Mon, 02/14/2011 - 16:41 | Link to Comment cougar_w
cougar_w's picture

I meant "Heartland" more in the sense of core America, not as an actual geographical region. It's a big country and I don't get around much. And anyway I'm a fringe character in all this (see my collected works). As such I probably have no right and less reason to speak to either the real or metaphorical Heartlands.

All of which is a long way of saying: We shall see.

Mon, 02/14/2011 - 15:00 | Link to Comment Sean7k
Sean7k's picture

Surprised more people do not understand this. Well put.

Mon, 02/14/2011 - 14:13 | Link to Comment proLiberty
proLiberty's picture

And don't ever forget who the owner of the Federal Reserve Corporation is: the "member" financial institutions in proportion to their capital.  So, to the extent some action will not bring political retaliation from Congress, the Fed listens to the banks first.

 

Mon, 02/14/2011 - 14:48 | Link to Comment AldoHux_IV
AldoHux_IV's picture

don't fight the fed?
fuck the fed
fuck em for the imbalances they helped create
fuck em for the social class genocide they wholeheartedly engage in
fuck em for the idiocy of their hubris
fuck em for the hubris of their idiocy
fuck em for making things harder for the generations of tomorrow
fuck em for reckless abandon
fuck em for lying to America
fuck em for promoting greed and coericing through fear
fuck em for their lack of morals
fuck em for being a tool for slavery
don't fight the fed?
well then fuck you too

Mon, 02/14/2011 - 14:49 | Link to Comment Robslob
Robslob's picture

End game was simply put earlier...recapitalize banks so they can buy everything back on the cheap or with deflation dollars nobody else has...

Do you honestly think these guys are going to let gold or silver tell them what to do?

Net effect is the wealthy get wealthier and the poor are foocked...

Mon, 02/14/2011 - 15:38 | Link to Comment London Banker
London Banker's picture

Written 27/12/2008 on Roubini:

The monetary antics we are observing are worse than rearranging the deck chairs on the Titanic. They are refolding and relaying the lap blankets on the deckchairs for the comfort of first class, while the engine rooms and steerage compartments steadily immerse in the cold, dark waves of credit implosion and housing collapse/unemployment reality.

The central bankers are racing each other to see who can lay the most blankets, tucking them securely around the knees of their lard-assed bloated banks to keep them comfortable. Meanwhile the waters are inexorably rising, and the blankets will not provide lasting security when the decks flood.

Regulatory and fiscal measures are going to be needed before this disaster finishes playing out. The sooner politicians and regulators start focusing their attention below decks on the pumps, repairs and evacuations that could actually save the economic ship and many more of its passengers, the better for us all.

Monetary measures cannot fix a non-monetary problem. They can only delay adjustment. Monetary laxity will prove harmful if other, needed measures are not pursued because the banks, politicians and others assume the central banks have things under control so that they can carry on “business as usual”.

http://www.rgemonitor.com/blog/roubini/255995/#158110

 

Mon, 02/14/2011 - 21:58 | Link to Comment zaknick
zaknick's picture

Great website, man!

www.londonbanker.blogspot.com

Mon, 02/14/2011 - 15:48 | Link to Comment Robslob
Robslob's picture

As I said therefore I am trapped.

I cannot buy stocks as I do not believe in the ponzi...I cannot buy gold because I believe the Central Banks are smart enough not to lose control of something they have "worked" so hard for...control of our money.

There is no end game...

Mon, 02/14/2011 - 16:22 | Link to Comment jmc8888
jmc8888's picture

Charles Hugh Smith says the Fed is backed in....good thing America can call the bullshit with passage of Glass-Steagall.

Glass-Steagall and wipe all fraudulent debt away.  17 trillion in seconds, the world's monetary system shortly thereafter.

 

Mon, 02/14/2011 - 16:42 | Link to Comment ShowMeTheTime
ShowMeTheTime's picture

You hit the nail right on the head!

Mon, 02/14/2011 - 18:10 | Link to Comment Narcolepzzzzzz
Narcolepzzzzzz's picture

Wow, this is a rarity.

100 good on-topic comments, and no trolls.

Have I logged into ZH's old blogspot by mistake?

Mon, 02/14/2011 - 20:18 | Link to Comment Captain Kurtz
Captain Kurtz's picture

Why did the fed willingly go into the box?  That's the real question.  Any takers?  I would be much obliged to discuss hypothesis of MAD fetishes or perhaps power delusions.  Anyone?

Mon, 02/14/2011 - 20:20 | Link to Comment Captain Kurtz
Captain Kurtz's picture

Why did the fed willingly go into the box?  That's the real question.  Any takers?  I would be much obliged to discuss hypothesis of MAD fetishes or perhaps power delusions.  Anyone?

Mon, 02/14/2011 - 20:20 | Link to Comment Captain Kurtz
Captain Kurtz's picture

Why did the fed willingly go into the box?  That's the real question.  Any takers?  I would be much obliged to discuss hypothesis of MAD fetishes or perhaps power delusions.  Anyone?

Mon, 02/14/2011 - 20:25 | Link to Comment Captain Kurtz
Captain Kurtz's picture

Why did the fed willingly go into the box?  That's the real question.  Any takers?  I would be much obliged to discuss hypothesis of MAD fetishes or perhaps power delusions.  Anyone?

Mon, 02/14/2011 - 20:25 | Link to Comment Captain Kurtz
Captain Kurtz's picture

Why did the fed willingly go into the box?  That's the real question.  Any takers?  I would be much obliged to discuss hypothesis of MAD fetishes or perhaps power delusions.  Anyone?

Mon, 02/14/2011 - 20:25 | Link to Comment Captain Kurtz
Captain Kurtz's picture

Why did the fed willingly go into the box?  That's the real question.  Any takers?  I would be much obliged to discuss hypothesis of MAD fetishes or perhaps power delusions.  Anyone?

Mon, 02/14/2011 - 20:25 | Link to Comment Captain Kurtz
Captain Kurtz's picture

 

Why did the fed willingly go into the box?  That's the real question.  Any takers?  I would be much obliged to discuss hypothesis of MAD fetishes or perhaps power delusions.  Anyone?

 

Mon, 02/14/2011 - 20:26 | Link to Comment Captain Kurtz
Captain Kurtz's picture

Sorry if i double posted, all

Tue, 02/15/2011 - 17:47 | Link to Comment Geoff-UK
Geoff-UK's picture

Please, for fuck's sake, stop posting shit by Charles Hugh Smith.

Do NOT follow this link or you will be banned from the site!