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The Great Reflation Experiment

Tyler Durden's picture


Must read from The Boeckh Investment Letter:


hat tip SunSurfer


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Fri, 07/31/2009 - 18:07 | 21326 Anonymous
Anonymous's picture

"the Chinese will keep driving their export machine at full throttle, continuing to flood the world with high-quality, inexpensive goods"

High-quality? Has the TV beating You Tube guy seen this report?

Fri, 07/31/2009 - 18:42 | 21377 D.O.D.
D.O.D.'s picture

"...the TV beating You Tube guy..."


Fri, 07/31/2009 - 19:15 | 21411 Anonymous
Anonymous's picture

The Chinese can GIVE their goods away. Demand is collapsing.

Fri, 07/31/2009 - 20:39 | 21502 Anonymous
Anonymous's picture

“The Chinese can GIVE their goods away. Demand is collapsing”

The Chinese HAVE to give their goods away, otherwise the Party will lose control.

They have $2 to spend on social control. After that the leaders of the Peoples Republic Of China are bankrupt.

This game is over. A New One has begun.

Sat, 08/01/2009 - 01:58 | 21695 Anonymous
Anonymous's picture

If our creditors are to go bankrupt, do you honestly expect the US to be immune to social unrest?

If anything the Chinese government is in a better position, as most chinese are used to lower living standards while most Americans don't have the comprehension to understand "living within ones means", this means that government programs, school grants, pensions etc would have to be cut.

Sat, 08/01/2009 - 12:41 | 21852 Anonymous
Anonymous's picture

They not only have dollars in reserves they have our treasuries...if things get outta control there do you really tthink they give a shit about "dumping the dollar or bonds?" or the impact it will have on the US?

People do CRAZY things when their back is up against the wall...if you don't think so look at the last 9 months...yea there has been no "food lines" like the depression but I can assure you this is no 'recession' just bullshit.

I think the students at Peking University said it best....well they didn't actually say anything, they laughed in TTT face. (Not really something the Asian culture does- which in my mind is ominous)

Keep believing that the money in your pocket is safe and the US is holding the cards because it is the Chinese who will determine our fate not us Americans.

Fri, 07/31/2009 - 18:10 | 21331 Anonymous
Anonymous's picture

This bubble machine needs a replacement for credit. A new scheme. Something that Barney Rubble could get excited about.

Fri, 07/31/2009 - 19:15 | 21412 Anonymous
Anonymous's picture

And you will get it too, honey. Just study what Dr. Schacht did for Uncle Adolf.

Fri, 07/31/2009 - 20:11 | 21459 Cheeky Bastard
Cheeky Bastard's picture

i don't know the tone of this sentence you wrote, but what Schacht did for Germany, is one of the best arguments for keeping manufacturing and industry as a paradigm for economic growth and stability of a country, and Schacht was probably one of the best, if not the best, central banker in history ..

Fri, 07/31/2009 - 22:40 | 21585 Anonymous
Anonymous's picture

nice picture Cheeky, you Cheeky Bastard you!

Fri, 07/31/2009 - 23:17 | 21616 Cheeky Bastard
Cheeky Bastard's picture

i cant see my new improved pic ... i know what it is ( hippie Bernanke ) but i still see that Japanese symbol ... tyler, marla, wake the fuck up, i want to bask in the motherfucking glory of my AVATAR

Sat, 08/01/2009 - 00:09 | 21650 aldousd
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clear your browser cache.

Sat, 08/01/2009 - 07:28 | 21750 Cheeky Bastard
Cheeky Bastard's picture

fankoo d00d .. that helped instantly ...

Sat, 08/01/2009 - 15:51 | 21916 Anonymous
Anonymous's picture

If by "best" you mean colluding with NAZIs to give them power - thereby leading to worldwide havoc and premature death to millions of innocent civilians, well then, yes, I'd have to say he was the best...

Fri, 07/31/2009 - 18:11 | 21333 ghostfaceinvestah
ghostfaceinvestah's picture

Subpar report, I thought.  According to these guys, all we had to do is print and spend money, and we will have a nice slow recovery that could be a bit jagged at time.  We won't have inflation in the near term, but deflation, but buy gold.

They are all over the map.

Sat, 08/01/2009 - 03:32 | 21713 speculator
speculator's picture

Yeah, I was not impressed. Sounded like Mauldin himself wrote this.

Such BS to say that the govt saved the day.

Fri, 07/31/2009 - 18:16 | 21344 Anonymous
Anonymous's picture

Ther's not escaping this this time, we've gove over the edge just don't know it yet, like the Coyote in the Roadrunner cartoon.

The amount of debt 14 Trillion + 24 Trillion in liabilities, will mean almost 1 Trillion a year in Interest only.

No matter how high the GDP goes ther's no going back to prosperity, we face decades of diminishing quality of life and total servitude to International Bankers who will grow even more fat as we grow poorer..

Fri, 07/31/2009 - 18:18 | 21348 Anonymous
Anonymous's picture

Tony baloney gimme some macaroni. The Chinese will continue to flood the world with high quality low cost goods, and the US will continue to flood the world with high quality low interest toilet paper.

Fri, 07/31/2009 - 20:12 | 21464 Cheeky Bastard
Cheeky Bastard's picture

high quality low cost goods " LOL on both high quality and low cost thing

Fri, 07/31/2009 - 18:20 | 21353 Anonymous
Anonymous's picture

Fri, 07/31/2009 - 18:23 | 21356 Anonymous
Fri, 07/31/2009 - 18:27 | 21362 Anonymous
Anonymous's picture

double fail?

Fri, 07/31/2009 - 18:29 | 21365 Anonymous
Anonymous's picture

can't seem to get images working here ;-)

Fri, 07/31/2009 - 18:25 | 21359 Anonymous
Anonymous's picture

I think he is right but he violent nature of the move will shock will happen faster than you can act on it...that is why you have to be positioned for the collapse...if not but when...that is the question and the TRILLION dollar question...I don't know perhaps we can get a link in to SIGMA X and find out...

Fri, 07/31/2009 - 18:26 | 21360 Anonymous
Anonymous's picture

When are these banks going to start dumping the higher quality real estate that they are holding onto(off the books)?

Do they really think that The Great Reflation Experiment will work?

Is Goldman going to corner the oil market and force US inflation with $8 unleaded and $13 diesel?

--Lots of questions with no answers.

Fri, 07/31/2009 - 18:32 | 21368 Anonymous
Anonymous's picture

Goldman Government and Saudis are all in one boat, the only ones to loose out are We

Sat, 08/01/2009 - 02:35 | 21704 sunbringer
sunbringer's picture

The extent of the reach of Goldman´s tentacles is insane. Tyler you now have a forum and an audience that will support project mayhem. Even a cursory search for golmanites in power leaves one enraged and wondering how anything will ever change.

Fri, 07/31/2009 - 18:46 | 21383 Anonymous
Anonymous's picture

"Higher quality real estate"? Does that exist any more?

Fri, 07/31/2009 - 19:14 | 21408 Anonymous
Anonymous's picture

Of course, you Silly Billy. And right now, guess what? It's 70% off!

Sat, 08/01/2009 - 00:15 | 21653 agrotera
agrotera's picture

soon everything will be off books!  Enron lives on in the banks!  Oh yea, in case you didn't hear me say it every day for a month, the Federal Reserve hired an x-Enron lobbyist in May per fitting.

Fri, 07/31/2009 - 19:17 | 21413 Anonymous
Anonymous's picture

This CRE dumping isn't going to happen. The Feds are preparing a mix right now to clean it up. Do you really think they are going to let the bonds go belly up? It's the next mondobailout.

Sat, 08/01/2009 - 00:17 | 21655 agrotera
agrotera's picture

I don't think there will be another mondobailout-that is, if that discussion gets any traction, that will be the day that people will start a sit in, in Washington.

Fri, 07/31/2009 - 18:44 | 21381 Ags Nightmare
Ags Nightmare's picture

Looks like we are being used as lab rats again by Helo Ben and his pals after Uncle Al's two decade long  economic lab experiment blew up in his face.  We went from Grandpa Munster running our economy into the ditch to Mr Peabody and Sherman's ( Timmy's) fascination with the Great Depressions Way Back Machine. 

They can probably stretch this out a little longer but each bubble is bursting in narrower time frames. Just when you think things might get better and the proper medicine will be taken to extract the rot from the system, they think up of something loonier. 

I guess they think that we can lie our way to prosperity again. Wouldn't surprise me if we see them drop 50 billion more into the cash for clunkers gimmick since the morans in congress have found something that actually gets the herd to spend money on a depreciating asset. What the heck...make it 100 billion.




Fri, 07/31/2009 - 18:51 | 21388 LuisvonAhn
LuisvonAhn's picture

Too much emphasis is placed upon GDP. I didn't read anything about the trade balance. The trade balance is the true measure of economic strength.

Sat, 08/01/2009 - 02:44 | 21705 sunbringer
sunbringer's picture

Barry addressed this:

My question is: without the 11% increase in gov spending what exactly would GDP have been? What I mean is that the basic premise of Keynes is right, isn´t it? Without this increase in gov expenditures we would be even more screwed. By the way, Keynes emphasized uncertainty and human nature or psychology in markets. Doesn´t anyone else think that they should incorporate some measure of behavioral aspects in their models? 

Fri, 07/31/2009 - 18:55 | 21392 phaesed
phaesed's picture

Good report, however it glosses over the near term dangers of deflation due to malinvestment, sticking with the paradoxical mandate of "remaining invested". Whoever thought that idea up must be a hero to the Federal Reserve and the banking cartel.

Fri, 07/31/2009 - 18:56 | 21396 jimbo
jimbo's picture

tyler, or anyone else,

do you know of any website where returns

on dow/s&p, etc can all be reclaibrated basis

index members as of say 1980 or so...

bankrupt entities not being replaced, and the full

effects of their loss of mkt value being reflected in the index.




Fri, 07/31/2009 - 23:44 | 21638 phaesed
phaesed's picture


Go to, register and look for the historical divisor ratios. It's there, just gotta poke around a bit, it's a lot of work re-engineer the past 30 years but I managed to do it in order to determine the effect of the banks on each of the crashes. It's also a good way to find out how the DJ became so heavily financial weighted, the DJ can also be time indexed to several different legislations that were passed during the 80's and 90's.

A good example is the crash that occurred up till march 31st 1980 when Jimmy Carter signed an important piece of legislation into place increasing the amount of leverage financial companies could use.

Sat, 08/01/2009 - 00:11 | 21652 Anonymous
Anonymous's picture

This site had an index just as you described using total market cap + dividends. Unfortunately Nate has had some data issues, but I am hoping it is back up shortly.

It was telling and disturbing - if you go back 100 years most of the companies in the dow (all but one) are no longer on the dow because their stock prices dropped. Many are bankrupt. Likewise, the active versus passive investment manager argument is a con after fees because in any given year there will be managers that beat the indexes however they are seldom the same managers each year (only a few exceptions).

Fri, 07/31/2009 - 19:12 | 21406 Anonymous
Anonymous's picture

Don't confuse reflation--which occurs in some little fascist minisphere--with inflation. Economic activity is declining, taking demand down with it, and demand is taking prices down with it.

Fri, 07/31/2009 - 19:19 | 21414 Anonymous
Anonymous's picture

Jimbo, look at the guy who called out jeremy siegel for his cherrypicking of historical data to make his thesis of stocks for the long run work.

Fri, 07/31/2009 - 19:25 | 21421 Anonymous
Anonymous's picture

Disagree with Boeckh Brothers blah blah blah research as usual: Great Reflation my Fanny Mae.

Inflationary monetary policies and deficit fiscal policies in place since at least 1913. Andrew Jackson the only President to pay off all Treasury debts and enjoy a surplus with lower taxes: One year. The bankers impeached him after the assassination attempt failed when he beat his two pistol assailant with an old hickory stick.

There is absolutely no real inflation, none whatsoever, unless you use government skewered methodologies.

Gold is down -6% below highs, the 1980 style CPI is down over -7%. The old M-3 shadow money supply contracted -11%, bonds are -16% below highs, stocks -54% below highs.

Contrary to BB argument, the USD is 10% above its lows.

If BBs believe the dollar is going down, why would they want to own notes?

In fact, the money the Fed created to more than double their balance sheet did not find its way anywhere beyond big bad banks here and abroad. And the Fed, with more than 20 to 1 leverage, was at great risk of going out of business as their assets continued to fall more than 5%. Perhaps that is why they resist full audit.

The Federal Funds giften at 0% are sitting on Bad Bank balance sheets as reserves or in bonds to keep their cash flow and net capital passable.

When mark to market is restored, or bonds no longer have a positive carry or return due to higher interest rates reflecting scarcity of real capital, that money may disappear back whence it came.

We have a money multiplier less than one thanks to fractional reserve banking run amuck.

Every dollar the Treasury borrowed to create and prolong moral hazard with bailout, bubble and stim is one less dollar consumers have to save or spend.

Savings are the only real source of investment for real productivity. Government cannot create wealth. It destroys wealth when it does not protect it. Next government may be having a fire sale on assets like Federal lands and Strategic Reserves to survive.

Borrowed government usury money always eventually contracts the economy because the interest (currently the fourth largest budget item) compounds faster than the economy and overwhelms the ability to repay.

Add insolvent Medicare, Medicaid, a raided Social Security Trust and Defense spending, and we suffer the recipe for default and deflation, not reflation.

Our economy is almost three quarters consumers, 20% of them out of work with more accurate methodology. Politicians and friends lining their pockets with cap & trade, clunker, healthcare or infrastructure taxmoney hardly put a bump, dent or pump to the economy.

We are not in peacetime BB. We suffer a two-front war the current administration increased in Afghanistan. And foreign policy mistakes may lead us to war with Iran and North Korea and their sponsors China and Russia.

Wars have a long history of killing people and destroying economies, from the Revolutionary and Civil Wars (more than 10 year declines each) to World Wars I & II to today. Hoover and FDR's alphabet big government programs delayed recovery in free markets 25 years.

BB et al's biggest mistake is to call a depression a recession. A contraction over 4 quarters greater that 10% is a Depression.

It is easy to repeat shibboleths and lose money. It is harder to exercise creative intelligence and the courage to prosper during the winter of our discontent. Cash is king...

Fri, 07/31/2009 - 20:39 | 21501 Anonymous
Anonymous's picture

"Every dollar the Treasury borrowed to create and prolong moral hazard with bailout, bubble and stim is one less dollar consumers have to save or spend." I am not sure why that is. When the Fed buys bonds from the Treasury, how is that taking a dollar away from consumers?

Fri, 07/31/2009 - 23:38 | 21632 Anonymous
Anonymous's picture

It is taxpayer's money that will pay the loan which is 1 dollar plus a lifetime of interest to infinity.

Sat, 08/01/2009 - 03:41 | 21716 speculator
speculator's picture

It also dilutes the value of existing dollars, so it is a stealth tax on savings.

Sat, 08/01/2009 - 03:49 | 21717 agrotera
agrotera's picture

I think what that means is that every dollar that is printed and borrowed from the world, is one less dollar (and credit) available to our country for true needs because eventually, our country may run out of good credit.

Fri, 07/31/2009 - 21:44 | 21555 IE
IE's picture

Did you used to have a blog?  The writing style (& content) are very familiar...

Sat, 08/01/2009 - 00:33 | 21665 milkum bilkum pc
milkum bilkum pc's picture

I thought that he was saying that for the next year or so, the dollar will be held up by other countries.

Sat, 08/01/2009 - 00:55 | 21671 agrotera
agrotera's picture

Hey Anony, please register so your moniker is easily identified.

Thank you!

Sat, 08/01/2009 - 03:40 | 21715 speculator
speculator's picture

Well said.

Sat, 08/01/2009 - 11:05 | 21806 zeropointfield (not verified)
zeropointfield's picture

'Government cannot create wealth. It destroys wealth when it does not protect it.'

I have always had issues with this. Of course, it all depends on how you define wealth. Care to share your defition with us?

Sat, 08/01/2009 - 11:38 | 21828 I need more cowbell
I need more cowbell's picture

Truly excellent post ( because these are my thoughts nearly exactly- hah! ). I agree cash at present is king, my only question is in what flavor? Certainly not the Euro, but what are your ideas on yen, Aussie, or Canuck? Could buck devalue relative to other fiat currencies?

Sun, 08/02/2009 - 20:14 | 22593 ghostfaceinvestah
ghostfaceinvestah's picture

Your post is awful, long and rambling and making no sense:

"And the Fed, with more than 20 to 1 leverage, was at great risk of going out of business as their assets continued to fall more than 5%."

The Fed has zero leverage, they can always print more dollars.  The Fed can't go out of business.

"we suffer the recipe for default and deflation"

Since the Fed can print dollars ad infinitum, we will never default.  Instead we will secretly default through monetizing the debt.

This is not the 1930s, something you deflationists still can't seem to understand, even after trillions of dollars have been created by the Fed (many of which are undisclosed).  Our currency is backed by absolutely nothing.  We will never run out of something that we can create infinite amounts of.

Fri, 07/31/2009 - 20:03 | 21456 Anonymous
Anonymous's picture

Not to mention at least $200 T left in US Bank 1% or nothing down unsecured illiquid OTC derivatives held off the balance sheet overseas...

Fri, 07/31/2009 - 20:16 | 21469 Anonymous
Anonymous's picture

Oil down -53% and needs a whole lotta reflatin'...

Fri, 07/31/2009 - 20:16 | 21470 Anonymous
Anonymous's picture

I'm going to buy commodities!!!

Fri, 07/31/2009 - 20:17 | 21471 Anonymous
Anonymous's picture

Commodities down -61% from highs...

Fri, 07/31/2009 - 20:19 | 21474 Anonymous
Anonymous's picture

I know.That's why I think they are worth buying now.

Fri, 07/31/2009 - 21:03 | 21519 Anonymous
Anonymous's picture

enjoy talking to yourself?

Fri, 07/31/2009 - 20:28 | 21491 topshelfstuff
topshelfstuff's picture

I hope everyone keeps in mind, everytime we hear the words "Chinese Manufacturing & Exports" used, that much of the Manufacturing is Foreign Ownership, mainly the US---you all do remember all the Manufacturing, and All the Jobs, the Corp. America shipped overseas [China the main recipient].

Fri, 07/31/2009 - 21:18 | 21532 Anonymous
Anonymous's picture

Relax, the US will come out ahead by letting inflation take care of the debt problem. Inflation is a curse (tax) but it is going to be generously shared by foreign holders of $ instruments. Celebrate globalization.

Fri, 07/31/2009 - 23:53 | 21645 Anonymous
Anonymous's picture

oh yeah, great idea - we dont need to have any sort of trade with the rest of the world

Fri, 07/31/2009 - 21:51 | 21560 Anonymous
Anonymous's picture

said a wise man

This illustrates how fucked we are. Please take 1 hour of your life to listen to this

Fri, 07/31/2009 - 22:01 | 21564 Anonymous
Anonymous's picture

Politics is the last refuge of a scoundrel

Fri, 07/31/2009 - 22:04 | 21566 Anonymous
Anonymous's picture

This lecture was in 2007.

Fri, 07/31/2009 - 22:25 | 21576 Anonymous
Anonymous's picture

Here's more:

Pity the fools who do not see the fraud

Sat, 08/01/2009 - 00:22 | 21660 agrotera
agrotera's picture

I just don't like that he says it will take 30 years to stop the Fed.  That makes the task seem impossible. 

It only takes one vote by Congress to revoke the Federal Reserve Act.

Sat, 08/01/2009 - 09:06 | 21770 Anonymous
Anonymous's picture

I think he meant it will take 30 years to unravel the damage caused by the Fed.

Fri, 07/31/2009 - 23:11 | 21606 Anonymous
Anonymous's picture

Buy and hold is dead??? I bought POT and MOS 5 years ago and I'm still up by multiples! You guys are nothing more than perma bears. The world population is growing which increase demand for many services. The economy is reaching a new level of output which will be lower than we are used to, but it isn't the end of the world. Computers are becoming faster and communication more efficient which will continue to fuel growth.

You guys keep pointing to the debt, but guess what everyone complained about that crap since the 1960s... the only real challenge I see is our fossil fuel supplies, but our debt problem is easily solved by slowly devaluing our dollar.

I enjoy the articles on this site, but the negative bias in almost every post sure gets old after a way, loosen up a bit will you?

Also the people who are bitchin about greenshoots are those that are losing money... just stfu and cover!

Remember the market doesn't give a shit what you think!

Sun, 08/02/2009 - 20:18 | 22598 ghostfaceinvestah
ghostfaceinvestah's picture

Probably not bad plays.  Any company that sells global commodities will do well when the USD craters.

Fri, 07/31/2009 - 23:38 | 21630 Crude Oil Trader
Crude Oil Trader's picture

If you truly still hold a position in POT and MOS you have not made a penny if you have not sold it. Please sell it and come back and tell us that you made money. Paper gains are no different then paper loses.

Fri, 07/31/2009 - 23:43 | 21635 Anonymous
Anonymous's picture

So you plan to hold POT and MOS for years and years, come hell or high water?

That is what buy and hold means.

It doesn't mean you sell off POT and MOS moments before the crash we have in mid 2010 when all the wheels are officially off the cart and the situation is far worse due to Obama and Bernanke's impossibly wasteful meddling.

If you sell those stocks the next market plunge you are just a trader like the rest of us.

Sat, 08/01/2009 - 00:37 | 21667 milkum bilkum pc
milkum bilkum pc's picture

I think POT may be good next year or so.

Sat, 08/01/2009 - 01:13 | 21680 calgaryschmooze
calgaryschmooze's picture


Maybe his plan is to roll his position into POT paper and then let some of it go up in smoke?  Might be a better choice to anticipate his munchies and buy up some salty snack companies.  Then again, he's expecting the highs to continue for a long time so one might worry that this might simply be a gateway to riskier choices in the future.  Oh well, he probably will have a hard time remembering this conversation anyway.

Sat, 08/01/2009 - 01:19 | 21681 Anonymous
Anonymous's picture

I wish I had your stock picking abilities. If I only bought just 2 stocks like you and hold it for 5 years. Then I too could conquer the stock trading world!!!

Pure genius you douchebag!!

Sat, 08/01/2009 - 11:27 | 21823 Anonymous
Anonymous's picture

Think about this for a minute. He says he's held them for 5 years? That means he rode POT from $241 to $47 and MOS from $163 to $30.

I know people who do that sort of thing and they never come out ahead in the end.

Nice post, dipshit. Go back to Yahoo, pronto.

Sat, 08/01/2009 - 07:30 | 21751 aus_punter
aus_punter's picture

"Buy and hold is dead??? I bought POT and MOS 5 years ago and I'm still up by multiples! You guys are nothing more than perma bears"

Do you understand the pointlessness of your post ? If not I am happy to shed some light on why you are so wrong

Sat, 08/01/2009 - 10:43 | 21798 ph012
ph012's picture

"Too much oscillation between peaks and valleys..."  where has this guy been?  Up until last year, the big macro question was what caused the Great Moderation of the last 20 years.  Lesson: never buy an investment letter.  It's just hot air!

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