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Guest Post: Alert: QE II Has Lit the Fuse

Tyler Durden's picture


From Chris Martenson

Alert: QE II Has Lit the Fuse

For a very long time I have been calling for, expecting and otherwise anticipating the day that the Federal Reserve would begin openly monetizing government debt. I knew the day would come intellectually, but in my heart I hoped it wouldn't. But with the Fed's recent decision to directly monetize the next 8 months of federal deficit spending, that day has finally arrived. I have to confess, while my prediction has proven accurate, I’m still stunned the Fed actually did it.

In this report I examine the risks that this new path presents, what match(es) may finally ignite the decades-old pile of dry fuel, what the outcomes are likely to be, and what we can and should be doing in preparation.

How is this Quantitative Easing (QE) different from the prior QE?

There are two main points of departure between the two QE programs:

  • The level of global support for such efforts
  • Where the money was/is targeted

Let's take the second point first.

QE I consisted of all sorts of liquidity efforts that went by various acronyms, but the main act was the accumulation of some $1.25 trillion in MBS and agency debt. Some might note that taking MBS paper off the hands of financial institutions, which then bought treasuries with the cash, is little different than the recently announced QE II program because at the end of the day, money was printed and Treasuries were bought. In this regard, they're right.

But let's be clear about something: the first QE effort had the specific aim of repairing damaged bank balance sheets. That is, banks and other financial institutions had made some colossally poor and risky financial moves that didn't work out for them and needed some help, and the Fed was more than happy to oblige by handing them free money to patch up their losses.

Of course they didn't do this outright by saying, "Here take this money!"; they did it somewhat sneakily. But when the Fed hands you huge piles of money (for your dodgy debt) and then let's you park that very same money in an interest bearing account at the Fed, there's really no difference between that and just handing banks free money. No difference at all. If the Fed ever offers you free money that you can then park in an interest bearing account with the Fed, you should take them up on it, and you should do it as much as they will allow.

Indeed, that's exactly what happened. These parked funds are called "excess reserves" and this chart clearly displays the massive program undertaken by the banks and the Fed:

Now, it's also true that the Fed does not pay a lot of interest on this money, just 0.25%, but on a trillion dollars that pencils out to some $2.5 billion a year, handed straight over to the banks. I call this program "stealth QE" because it is nothing more than printing money and handing it over to the banks with a slight bit of complexity thrown in just to put the dogs off the scent. A couple of billion may not sound like much these days, but I raise it to illustrate the many and creative ways that QE I was about getting the banks back to health, and not much else.

So QE I (and the ‘stealth QE’ program) was directly aimed at banks to help them repair their balance sheets and make them whole on their terrible decisions and losses. It turned out, though, that fixing the banks did absolutely nothing for Main Street. The rest of the economy remained mired in a rut, with banks either unable or unwilling to make additional loans. They kept their QE lotto winnings and parked them with the Fed.

QE II, then is about getting thin-air money to the government which, the Fed rightly assumes, will immediately spend that money and push it out into the economy. Here's how the head of the Dallas Fed, Richard Fisher put it in a recent talk he gave:

A Bridge to Fiscal Sanity?

The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation’s central bank will be monetizing the federal debt.

This is risky business. We know that history is littered with the economic carcasses of nations that incorporated this as a regular central bank practice.

There it is in black and white. You might want to read it a couple of times to let it sink in. The Fed is directly monetizing the next eight months of excess(ive) spending by the federal government and is doing it despite being perfectly aware of the extent to which history is littered with the economic carcasses of those who have traveled this path before.

Presumably we are supposed to console ourselves with the idea that the Fed will be successful where others have failed, and sometimes failed miserably. Yes, we are talking about the same Fed that fueled that last two destructive bubbles by keeping interest rates too low for too long, failed to see the housing bubble as late as 2007 for what it was, and which apparently entirely lacked the capability to foresee any of the current mess. That Fed.

The one run by the gentleman who said this to the House Budget Committee on June 3, 2009,

“Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation…The Federal Reserve will not monetize the debt.”

~ Ben Bernanke

In summary, the difference between QE I and QE II is that QE I went primarily to the banks and QE II is going directly to the government. While this may be something of a semantic difference, it shows that the Fed is changing its strategy again. We might ask: why this shift and why now?

How is QE II being viewed outside of the US?

In a word, poorly.

The German finance minster called the Fed's application of US monetary policy "clueless" and argued that the Fed decision would "increase the insecurity in the world economy." 

China was predictably unhappy too, but initially used more diplomatic language:

Xinhua: G-20 Should Set Up Mechanism To Monitor Reserve Currency Issuers

BEIJING (Dow Jones)--China's state-run Xinhua News Agency published a commentary on Tuesday calling for the Group of 20 industrial and developing economies to supervise the issuance of international reserve currencies, and harshly criticized the U.S. Federal Reserve's new round of quantitative easing.

The G-20 should "set up a new mechanism that effectively monitors the issuer of the international reserve currency, especially when it is not able to carry out responsible currency policies," Xinhua said, making an apparent reference to the U.S. as the issuer of the dominant reserve currency.

"Considering the influence of the policy moves in the major international reserve currencies on the global economy, it is necessary for the issuer of the international reserve currency to report to and communicate with the G-20 Group before it makes major policy shifts."

All of the above is loosely coded diplomatic speak for "The US really bummed us out here, they should have stuck to the agreements we thought we had after the Pittsburg meeting. Going off-script like this was really not appreciated. We think an intervention is needed here."

Later, an advisor to the Chinese central bank went further and called the US actions "absurd."

PBOC Academic Adviser Questions Dollar’s Global Role

Nov. 9 (Bloomberg) -- Li Daokui, an academic adviser to China’s central bank, said it could be seen as “absurd” that the dollar remains a reserve currency after the financial crisis.

Here are a few other selected expressions of dismay from around the world:

United States receive criticism from all sides because the decision to print money

U.S. decision to pump 600 billion dollars into the economy has sparked a wave of strong disapproval. World leaders, who are preparing for the G20 summit in Seoul this week, warns that the move will complicate U.S. global economic recovery.

G20 tensions rise over the future of the global economy

The US last week stoked the simmering tensions by unveiling plans for another $600bn (£370bn) of quantitative easing (QE), on top of the $1.7 trillion already in place. The dollar crashed in what is being seen as the latest round of competitive devaluations, as nations seek to debase their currencies to help domestic industry.

Brazil retaliated by buying dollars. Xia Bin, a member of the Chinese central bank's monetary policy committee, branded the US stimulus plan "abusive" and warned it could spark a new global downturn. German finance minister Wolfgang Schäuble accused the US of breaking the promise made at June's G20 in Toronto, saying he would "speak critically about this at the G20 summit in South Korea."

Just two weeks earlier, G20 finance ministers at the warm-up summit in Gyeongju, South Korea, had pledged to refrain from competitive devaluation and Tim Geithner, the US Treasury Secretary, had promised the US would retain its "strong dollar" policy. At Seoul, the US will be facing accusations of empty rhetoric.

The harmonious language of hope at the Pittsburgh summit has now given way to something brazenly belligerent. The Brazilian President, Luiz Inácio Lula da Silva, has said he will go to the G20 meeting in Seoul ready "to fight." For President Obama, who has just lost a bruising midterm election battle, it will mean another painful encounter.

Greece Hits Out At Money-Printing Nations

Speaking on Jeff Randall Live, George Papaconstantinou warned quantitative easing only serves to stoke up inflation.

"You get inflation. You get a situation that's out of control. People lose their purchasing power. It doesn't get you very far," he said.

In summary, QE II has been described by several major trading partners as "clueless," "abusive," "absurd," and even resulted in a lecture from Greece on the subject of printing. By the time you are getting lectured by Greece on monetary actions it might be time for a bit of self-reflection.

It is not too strong to suggest that something of a tipping point has been reached in regards to how the US is perceived as a leader on financial and monetary matters.

Why this is important

Okay, so the US's international friends are a little upset with the US for deciding to print up the better part of a trillion dollars out of thin air. What's the big deal?

The big deal here is that the OECD countries have a monster borrowing bill set for next year. There needs to be some level of cooperation and fair play is going to be required in order to pull this off:

$10.2 Trillion in Global Borrowing

Next year, fifteen major developed-country governments, including the U.S., Japan, the U.K., Spain and Greece, will have to raise some $10.2 trillion to repay maturing bonds and finance their budget deficits, according to estimates from the International Monetary Fund. That’s up 7% from this year, and equals 27% of their combined annual economic output.


Just ponder those numbers for a bit. The average borrowing across 15 major developed countries is 27 percent of GDP(!). Ask yourself how dependent the entire OECD world is on a smoothly operating financial system in order to merely function next year.

Having the perception out there that the US is being run by clueless (or 'abusive') individuals is not going to help the situation much.

In order for the requisite levels of borrowing to be pulled off in a smooth and uninterrupted fashion, there can't be any hits to confidence and no major disruptions can happen. Everything has to run with clockwork precision. It is against this backdrop that I view the profoundly undiplomatic statements directed at the US as quite a bit more serious than some other observers.


By choosing the path of money printing (instead of austerity like the UK), the Fed has decidedly placed the US on a very risky course. I see the outcomes are almost binary: either this works or it doesn't.

If this gamble works, business will pick up, unemployment will drop, tax revenues will flow again to the states and federal government, the sun will continue to rise in the east and roses will bloom in the spring.

If the gamble fails? There we can envision an enormous devaluation event for the US dollar and the Fed having to choose between defending the dollar (via rising interest rates) or preventing the federal government from a fiscal emergency brought about as a consequence of rising interest rates. And by "fiscal emergency" I mean being forced to slash expenditures by as much as 50% in order to service rapidly escalating interest carrying costs on the short term portion of the fiscal debt load. But that's a death spiral because cutting government spending is the same as cutting GDP (it's practically 1:1) and every cut to GDP leads to lower revenues which will necessitate more expenditure cutting, etc. and so forth until 'the bottom' is reached.

I wish there was some sort of middle ground on this one, but I can't quite see it. Either the Fed's efforts work or they don't. Let's hope for success.

In truth, I‘ve long predicted that the day would arrive when the Fed would monetize government debt, but I hoped that it would never come. Because hope alone is a terrible investment strategy, I prepared for this event years ago by accumulating gold and silver as the core of my portfolio.

But now the rules have changed again, we are on a slippery slope, and gold and silver were always meant to be my "transition elements" put there to help shepherd my wealth through the transition period as the world's fascination shifted from "paper" to "things."

Now that we're "almost there" in terms of the required shift in perception necessary to call an end to one period (the "king dollar" period) and mark the beginning of another, it's time to begin considering the places, timing and ways that these transition elements can be redeployed to take advantage of the second part of this story.

In particular, concerned minds are looking for answers to questions about what might happen next and how to insulate oneself from monetary madness.  These questions are explored in detail in Part 2 of this article (free executive summary, enrollment required to access).


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Thu, 11/11/2010 - 15:33 | 720040 Ragnarok
Thu, 11/11/2010 - 15:38 | 720066 HarryWanger
HarryWanger's picture

That story is dated 11/10. 

Thu, 11/11/2010 - 15:42 | 720079 SheepDog-One
SheepDog-One's picture

My God, it was from YESTERDAY? Cant have that! Means the story is irrelevant, 'old news' or something. BTW hows that ramp job doing? Looks kinda weak to me. They better get the DOW about 100 points green or else the day is a big loss.

Thu, 11/11/2010 - 16:13 | 720186 HarryWanger
HarryWanger's picture

In FX world that story might as well be 3 years old. Look at the EUR in real time right now. That's the point, junior.

Thu, 11/11/2010 - 16:40 | 720259 SheepDog-One
SheepDog-One's picture

Hey Harry hows that ramp to green goin? In FX world real-time I mean of course.




Thu, 11/11/2010 - 17:09 | 720340 Oracle of Kypseli
Oracle of Kypseli's picture

Let me jump the line here.

If by law the fed and or treasury are not allowed to hand money to private companies, a defacto creative hand over, must be against the law also and be prosecutable. If any attorneys here, please weigh in. 

Thu, 11/11/2010 - 17:18 | 720368 Shameful
Shameful's picture

Good luck getting standing.  Supremes have already ruled that the individual taxpayer has no standing when it comes how tax money is spent in his name.  Was a challenge a while ago to the way CIA was handling it's books illegally, US v. Richardson IIRC.  Trust me you won't get justice against Leviathan in the courts, the courts are vastly in favor of the Fed Gov.

Thu, 11/11/2010 - 20:19 | 720761 minus dog
minus dog's picture

Yeah, expecting actual fair and equal enforcement of the law actually requires, you know, the rule of law.  Who'd have thunk it, eh.

Thu, 11/11/2010 - 18:04 | 720448 doolittlegeorge
doolittlegeorge's picture

TARP was illegal.  Period.  This has been acknowledged as such in public by none other than Paul Volcker himself.  Needless to say "he wasn't expecting to be arrested, either."  What do we have here?  "It's not illegal if the government does it."  Period.

Thu, 11/11/2010 - 19:37 | 720653 robertocarlos
robertocarlos's picture

Nixon was a good President.

Thu, 11/11/2010 - 18:50 | 720548 Rasna
Rasna's picture


Don't pay any attention...

Harry drifts in and out when the prevailing wind blows in his direction...

It's not worth it.

Thu, 11/11/2010 - 17:08 | 720343 High Plains Drifter
High Plains Drifter's picture

Green shoots?

Thu, 11/11/2010 - 21:02 | 720466 RECISION
RECISION's picture

By the time you are getting lectured by Greece on monetary actions it might be time for a bit of self-reflection.


They are both democracies, right...

Thu, 11/11/2010 - 21:01 | 720479 RECISION
RECISION's picture


Thu, 11/11/2010 - 15:54 | 720119 Rusty Shorts
Rusty Shorts's picture


Thu, 11/11/2010 - 19:17 | 720610 Winterland
Winterland's picture

God, you're a douche.

Thu, 11/11/2010 - 16:20 | 720210 masterinchancery
masterinchancery's picture

Or...efforts to separate Germans from large quantities of

Fri, 11/12/2010 - 11:00 | 721854 Imminent Crucible
Imminent Crucible's picture

"Either the Fed's efforts work or they don't. Let's hope for success."

Is he kidding?  The Fed's efforts are designed to transfer a $900 billion inflation tax to consumers while paying the banks to front-run the Fed's Treasury purchases.

Let's hope they go down like the Hindenburg.  Maybe then the bankers will swing from lamp posts.

Thu, 11/11/2010 - 15:37 | 720060 Sudden Debt
Sudden Debt's picture

He who lies once...

If QE2 doesn't do the trick. QE3 and QE4 might or at least QE5 will trigger a financial poopoo mess.

Thu, 11/11/2010 - 15:48 | 720095 A Nanny Moose
A Nanny Moose's picture

Fool me once, shame on you. Fool me twice....oh nevermind.

Thu, 11/11/2010 - 15:59 | 720139 trav7777
trav7777's picture

Fool me once, shame me twice...this sucker could go down

Thu, 11/11/2010 - 18:08 | 720457 FoolMeTwice
FoolMeTwice's picture

Some woke me from dead :)

Thu, 11/11/2010 - 16:12 | 720179 Chris Jusset
Chris Jusset's picture

Or, perhaps, QE1 through QE8 are merely preludes to QE9, QE10, and QE11, in which case we should just trust Banana Ben's long-term perspective, and delegate more power to him.  Beginning in 2006, Banana Ben had promised that the Fed's monetary policies would not create any bubbles ... and we should trust Ben in this regard. 

Thu, 11/11/2010 - 15:39 | 720067 Hearst
Hearst's picture

Girard Gibbs LLB Investigates J.P. Morgan, HSBC For Violations of Antitrust Laws in Silver FUtures Trading.

Thu, 11/11/2010 - 16:50 | 720295 -1Delta
-1Delta's picture



PCQ MUB- Cali going under???

Thu, 11/11/2010 - 15:39 | 720071 the not so migh...
the not so mighty maximiza's picture


Thu, 11/11/2010 - 15:39 | 720072 Fraud-Esq
Fraud-Esq's picture

Remember, while this fake Blackrock Deficit Commission rolls out their findings....that shareholders in major industries will not give up anti-trust exemptions and will continue to set prices for Medicare...

The Fed would have NEVER, under any circumstance, monetized debt to feed Americans who were starving to death and dying for lack of food. They will chuck them at private christian and religious charity, as usual. "Feed them!"

The Fed did, however, monetize debt to bail out the TOP of the pyramid, the top .0005%, of which, don't forget, at least, 30% are not American citizens per se. Int'l capital is not American, America is just the current capital, as was London, before it. The capital is where the strongest Navy and military is located, never a value judgment. BTW, that's why nuclear weapons won't due. You need the strongest conventional forces.

Keep that in mind while they monetize...   

Thu, 11/11/2010 - 15:41 | 720074 financeguru500
financeguru500's picture

How about the alternative,

Other countries throughout the world continue to experience troubles similar to greece & iceland while the U.S. maintains its current level of prosperity. We keep printing and borrowing but everything continues on. I think this is a very real possibility.

Thu, 11/11/2010 - 16:12 | 720180 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

As much as I hate to admit, the printing will keep us afloat while other sovereigns are sunk. It is the race to the bottom (or hell) and we have the biggest submarine. It is amoral to the core.

In the end, countries like China are going to be forced to sell UST. It is much easier to default on our own citizens. No international incidences to deal with.

Thu, 11/11/2010 - 17:22 | 720382 LowProfile
LowProfile's picture

Not sure about your reasoning here.

Assuming all fiat goes to zero (global repudiation), then we are left with barter, and I'm not sure the USA has the best barter position.

So really it comes down to "whadda want for that?" and "whatcha got?".

ME has oil.  America has food and some heavy machinery production.  Russia has all of that, but not quite as developed.  Europe has some food, and nice factories.  Japan has nice factories.  SA has food and some oil.  China has a lot of cheap shit factories.

Basically, I want to be anybody but China.

Now, I'm not thinking for a minute we won't come up with some medium of exchange, but it eventually comes to "what are you getting for your XXX and what can you then exchange your XXX for?"

Thu, 11/11/2010 - 18:07 | 720455 doolittlegeorge
doolittlegeorge's picture

we do set up nicely for barter in the USA actually.  The problem of course is "we bailed out the banks."  They won't allow it to work where it really can.  Nice thought, though.

Thu, 11/11/2010 - 22:47 | 721054 Nikki
Nikki's picture

China has more than just cheap shit factories. They have 100% of the factories that make stuff that moves electrons...

Thu, 11/11/2010 - 22:11 | 720988 Calmyourself
Calmyourself's picture

How is this a real possibility?  Are we on some fiatsco island where the world does not matter anymore?  Oil, rare earths, missile launches off Cali, Bueller, Bueller...

Thu, 11/11/2010 - 15:44 | 720075 Cognitive Dissonance
Cognitive Dissonance's picture

In particular, concerned minds are looking for answers to questions about what might happen next and how to insulate oneself from monetary madness.  These questions are explored in detail in Part 2 of this article (free executive summary, enrollment required to access).

What a tease. He's just getting to the climax and bang, pay up sucker. However, in this case, it will money well spent. :>)

On another note, this is a wonderful example of how deep and encompassing denial, bargaining and false hope seeking is for the average Joe, not Chris. Even though Chris as been warning this would come for years, even he admits it's very difficult to accept. And while he has prepared for it financially, it's still emotionally difficult.

Imagine how difficult it will be for those who don't know what's coming.

Thu, 11/11/2010 - 15:44 | 720084 SheepDog-One
SheepDog-One's picture

I guess the first point didnt stick very well...many more 'airplane contrails' soon to be seen across our skies.

Thu, 11/11/2010 - 15:51 | 720110 cougar_w
cougar_w's picture

That's what the Hopi Indians claimed.

Notice that they've already skipped. Crafty bastards.

Thu, 11/11/2010 - 16:22 | 720218 xenophobe51
xenophobe51's picture

Where did the Hopi Tribe go? Last time I was in Arizona they were just doin' their thing over in the four corners area.

Thu, 11/11/2010 - 15:55 | 720122 HarryWanger
HarryWanger's picture

"Money well spent"? Hardly. Martenson has been singing the same tune for years. I kinda think you can figure our "part 2" on your own.

Thu, 11/11/2010 - 16:26 | 720229 InconvenientCou...
InconvenientCounterParty's picture

Prudence can have a pretty wide time envelope. Balancing complex factors in a way that places appropriate action and allocation of resources is very tough given all the spun and inverted information out there. If you are responsible for the lives of others, a large dose of prudence will definitely help you sleep at night.

Thu, 11/11/2010 - 16:04 | 720160 Raging Debate
Raging Debate's picture

When I realized this is a balance sheet recession and what caused it in 2007, I spent the entire summer getting the emotional outbursts out of my system.

Fri, 11/12/2010 - 03:12 | 721464 Bob Sponge
Bob Sponge's picture

I still get them, but better to get it out of your system.

Thu, 11/11/2010 - 16:07 | 720164 Assetman
Assetman's picture

Agreed with the teasing part.  And given where the dollar is heading, it may well be money well spent.

At some point in the process, the Fed lost all confidence in foreign buyers to take up the slack and guarantee a low yield for the Treasury-- but it's of the Fed's own doing.

At one time, I would have expected to the Fed to come in an engineer an correction in the risk trade, as doing so would likely attract flight of quality capital from throughout the world.  It appears their desire to artifically inflate risk assets and give the appearance of 'recovery' trumped any alternatives that would have hinted of austerity.  And the reasoning likely is... that the banks still can't afford to take auterity, maybe ever.

It's too bad, too, because now the Fed has little alternative but to monetize debt-- as the rest of the world (well ones with a credit balance) decides to take their marbles and play elsewhere.  Instead of seeing a more logical cycle of deflation/reflation to set things back into equilibrium-- the Fed appears to be embracing the reflate Govt/reflated banks approach.

What's the real problem here?  It's that a constant cycle of reflation will create massive imbalances in asset prices and invite hyperinflation.  The Fed essentially would need to rely on "self-austerity" measures by the government and by the banks to get things back into balance.  The former is a likely "no" at least in the near term.   And the banks are a 'hell no' as its reliant upon massive bonuses to keep the fat cats happy.  I can't see foreign capital coming back for a long time under this backdrop.

What I do see is a period of denial of the masses... a realization... and then, revolution.

Thu, 11/11/2010 - 18:17 | 720484 Eternal Student
Eternal Student's picture

That's a pretty good summary. I'd take issue with the assumption that the big banks are going to make it out of this. I'd also take issue with the "revolution" part, if by that you mean a successful violent revolution. But other than that, yes, an excellent summary.

Thu, 11/11/2010 - 18:52 | 720550 Assetman
Assetman's picture

Thanks for the kind comments, ES.

I do agree with you that the final result on the Big Banks will result in Major Fail.   In the meantime, you have a Federal Reserve that is doing all it can to pull the big banks out of insolvency.  Problem is, they are also trying to bail out Big Goverment as well-- in BOTH instances, by printing money.

On the revolution part, it will start out peaceful-- and may remain that way for some time.  My hope is that we get to the stage of realization before the 2012 elections, as replacing the corrupt with people more reform minded may help quell the masses.   The process of equilizing these growing imbalances, though, will be painful and invite civil unrest.

Thu, 11/11/2010 - 20:27 | 720778 minus dog
minus dog's picture

People are already quietly putting up with all sorts of shit that, in the past, would have started some heads rolling.   I don't know if that means people will put up with anything, or if they'll get tired of it that much sooner.

Thu, 11/11/2010 - 22:19 | 721004 Calmyourself
Calmyourself's picture

Now there is something I have been waiting for, why?  Supposedly other sovereigns and hedgies etc. been buying our debt and essentially taking up the slack?  Why is the Fed now taking up the slack has the rubicon been passed and there is no further offshore demand for our debt or is there some strategic reason for this and right now?  Newbie question probably but is there any data to support complete foreign dropoff?

Thu, 11/11/2010 - 19:06 | 720580 Agent P
Agent P's picture

"What a tease. He's just getting to the climax and bang, pay up sucker."

No different than getting to the back room and finding out the stripper is also a hooker...looks are free, but touching will cost you.

I'm going to do here what I do there...keep my money, go home, and rub one out.

Thu, 11/11/2010 - 20:36 | 720798 Bolweevil
Bolweevil's picture

One of his first recommendations is to get settled emotionally about disruptions.  I was egotistically resistant until my Ah ha moment.  Chris helped.

Thu, 11/11/2010 - 15:43 | 720078 apberusdisvet
apberusdisvet's picture

How do you say "we are so fucked" in Chinese?

Thu, 11/11/2010 - 15:46 | 720087 Azannoth
Azannoth's picture


Thu, 11/11/2010 - 15:55 | 720121 Sudden Debt
Sudden Debt's picture

Fucky Fucked no lubbel

Thu, 11/11/2010 - 16:03 | 720154 qussl3
qussl3's picture

wo men quan shi ding le

Thu, 11/11/2010 - 16:59 | 720324 Cheesy Bastard
Cheesy Bastard's picture

Sucky fucky five dollar Joe!  My sister she virgin.  Wait...oh sorry, that's Vietnamese.

Thu, 11/11/2010 - 17:52 | 720431 Translational Lift
Translational Lift's picture

LMAO....  :>)

Thu, 11/11/2010 - 18:41 | 720530 1100-TACTICAL-12
1100-TACTICAL-12's picture

Dude i have a cracked rib, you are killin me... LMAO

Thu, 11/11/2010 - 19:56 | 720698 Translational Lift
Translational Lift's picture

LMAO....  :>)

Thu, 11/11/2010 - 17:06 | 720335 TeamAmerica
TeamAmerica's picture

Why would the Chinese say that?  They would say "YOU are so fucked."

Thu, 11/11/2010 - 17:27 | 720392 Byte Me
Byte Me's picture

... We aah so flucked !!

Thu, 11/11/2010 - 15:43 | 720081 Azannoth
Azannoth's picture

"But that's a death spiral because cutting government spending is the same as cutting GDP (it's practically 1:1)" Complete bullshit, it might be true in the extreem short run like a few months but when your Debt to GDP is 90% and you are still borrowing 10% a year it's lights out, it will only take longer because US is soo big, it only took Ireland and Greece 2 years to go bankrupt it might take 10 for the USA but it's fate is now certain

Thu, 11/11/2010 - 15:47 | 720090 SheepDog-One
SheepDog-One's picture

And also when GDP is almost entirely a reading on money manufacturing, it really screws the whole argument. GDP is crap.

Thu, 11/11/2010 - 16:13 | 720189 Max Hunter
Max Hunter's picture

Things have a way of moving faster once the writing appears on the wall..

Thu, 11/11/2010 - 16:42 | 720267 SheepDog-One
SheepDog-One's picture

Indeed things are now moving at a very rapid pace. Personally I think their 6 month QE plan is BS, its already a failure as no one believes in it as the article points out.

Thu, 11/11/2010 - 16:49 | 720290 johny2
johny2's picture

exactly. one thought stands out, even if they manage to push the market up another 30, 40, 50 % as soon as FED stops supporting it, it will crash hard. so, it is QE2INFINITY. or until inflation eats all those 401 k credits outstanding.


Thu, 11/11/2010 - 15:47 | 720091 cougar_w
cougar_w's picture

A binary choice.

American's aren't used to binary choices. We're used to having all kinds of choices, more choice than we can handle. The grocery aisle has 50 kinds of dry cereal, 30 kinds of peanut butter. 100 kinds of toothpaste. In business we have clauses and fineprint. Outs, escapes, twists, spins. Loopholes, exceptions, hedges.

That's the American way.

Yeah it's really stupid. We could have settled for fewer choices early on and kept jobs at home, but no. They make our 100 kinds of toothpaste everywhere in the world, but none of it in America.

So binary choices? R U serious? Are you even listening to America? Listen mo'fo, if you are saying we're got two roads, and one of them ends up at annihilation of the economy, then you must be some kind of Commie. And I don't listen to Commies, mo'fo, because I'm an American. Screw you and your communist binary choices, we're gonna do what's right for America see. And we won't choose, is what we'll do. We'll go along like nothing happened and by not choosing, we win. Two oceans and Canada and we don't have to choose and we win.

Roses will blossom in the east. You damn right they will. If we have to put every god-damned defeatist Commie to the torch, roses will bloom.

That's America. Land of choices. 

Let the games begin.

Thu, 11/11/2010 - 15:48 | 720100 SheepDog-One
SheepDog-One's picture

AH wait theres 1 american made toothpaste! Tom's of Maine, and yes it tastes like ass.

Thu, 11/11/2010 - 15:53 | 720113 cougar_w
cougar_w's picture

Leave it to you ... Fine. Be that way. Tom's of Maine FTW.

Thu, 11/11/2010 - 15:58 | 720135 Rusty Shorts
Rusty Shorts's picture

Does it contain rat poison, uh, i mean, fluoride??

Thu, 11/11/2010 - 16:15 | 720193 Max Hunter
Max Hunter's picture

Actually it doesn't... That's why I bought it..

Thu, 11/11/2010 - 16:21 | 720216 Miss Expectations
Miss Expectations's picture

Yes, they do...except for the kid's flavor.

Thu, 11/11/2010 - 16:57 | 720319 DCon
DCon's picture

They put Fluoride in the tap water in Ireland.

People drink that all the time.


Count yourself lucky you only encounter it in toothpaste



Thu, 11/11/2010 - 19:34 | 720646 Things that go bump
Things that go bump's picture

Been in our tap water since the 50s.


Thu, 11/11/2010 - 19:56 | 720701 Rusty Shorts
Rusty Shorts's picture

HA, our tap water here in the US has been Fluoridated as long as I've been around, and that's a long time.

Thu, 11/11/2010 - 20:40 | 720805 Bolweevil
Bolweevil's picture

Thanks Alcoa.

Thu, 11/11/2010 - 21:19 | 720897 Cathartes Aura
Cathartes Aura's picture

Tom's of Maine is owned by Colgate-Palmolive, and most of their pastes now contain fluoride.

use baking soda - it's cheap, alkalises your saliva (acid eats your tooth enamel), and whitens your teeth.

get it into your stored foods, eh.

Fri, 11/12/2010 - 00:55 | 721327 tip e. canoe
tip e. canoe's picture

didn't know that about tom's being owned by colgate, doesn't surprise me tho.  will add to your baking soda tip to add some garden herbs -- mint, fennel, holy basil, etc, etc, etc.

you can also add baking soda to your dish & laundry soap and then dilute it with water to make twice the amount with the same cleaning power.

we should do a zero hedge home-ec hour.   1st class, more bang for your buck with baking soda.

Thu, 11/11/2010 - 16:09 | 720170 Raging Debate
Raging Debate's picture

Hey I own property in Maine, careful. The lobster and blueberries are to die for. Fortunately, animal husbandry and Snowe and Collins doing a bit of bait and switch of their own means Maine will also still have power to the farms but Tom's can go, it does taste like shit. May as well go back to using soap if one wants to go au natural.  

Thu, 11/11/2010 - 16:04 | 720158 Dr. No
Dr. No's picture

WB7, que the "Animal House" bit about not standing here and listening to you badmouthing the united states of america.

Thu, 11/11/2010 - 23:33 | 721175 Katharotes
Katharotes's picture





hmm, y did ppl jnk u?

Thu, 11/11/2010 - 15:48 | 720097 tony bonn
tony bonn's picture

the purpose of the monetization is to further hasten the economic destruction of america so that the masses will clammor for is all about war baby...until body bags are floating in rivers of blood the plutocrats will be furious....

Thu, 11/11/2010 - 15:48 | 720099 mule65
mule65's picture


Thu, 11/11/2010 - 15:49 | 720102 Tortfeasor
Tortfeasor's picture

Anyone care to theorize: what happens if next year, after QEII, the government decides to default on the bonds held by the Fed?  Just those bonds, no one else's bonds.  The effect then?

Thu, 11/11/2010 - 15:51 | 720109 SheepDog-One
SheepDog-One's picture

I guess the final effect depends on what is on the floor of the canyon under the cliff we're falling off of, jagged rocks or just sand?

Thu, 11/11/2010 - 19:36 | 720650 Things that go bump
Things that go bump's picture

Won't matter if the cliff is high enough.  

Thu, 11/11/2010 - 15:53 | 720116 Shameful
Shameful's picture

Any partial default will be seen as a sign for everyone to get the hell out.  The moment US debt is no longer seen as safe the price will ratchet up.  The options then are more monetization or more defaults do to massive interest burdens.  Or I guess 100% tax rates, whatever's clever.

Thu, 11/11/2010 - 15:55 | 720125 Tortfeasor
Tortfeasor's picture

Wouldn't we just be defaulting against ourselves, not the rest of the world? 

Or maybe a more palatable solution, the Fed just retires/forgives the UST debt owed to it.  For all intents and purposes the Fed balance sheet is irrelevant.  Would the rest of the world really care?  We're suddenly much more solvent than before, and oops, we accidentally monetized the debt, sorry!

Thu, 11/11/2010 - 16:15 | 720194 tmosley
tmosley's picture

If you write yourself a check, are you really rich?

Monetization is nothing more than wealth dilution.  Default makes it irreversible, not that it is really reversible now.

Thu, 11/11/2010 - 17:08 | 720345 Citxmech
Citxmech's picture

"if you write yourself a check, are you really rich?"

Bingo.  All this "wealth effect" crap is just a dog an pony show put on for the naive.  The market is supposed to be about the allocation of scarce resources into productive avenues - it's now just a three card monty game where the outcome is engineered by manipulating the axes on the graphs.  The DXY means nothing when all the other currancies are being jacked around just as much as the dollar.

The "score card" in this game are commodities.  All else are just sliding scales measured against other sliding scales.


Thu, 11/11/2010 - 22:32 | 721019 Calmyourself
Calmyourself's picture

My opinion does not mean much amongst you traders but that  is how I see it, commodities are the scorecard.  The tangible is becoming the way to keep score and most of the people I know, well moneyed people in a mostly UMC area have no clue yet..  It is the 1970's again and we will all be okay, yeah right..

Thu, 11/11/2010 - 16:20 | 720209 Shameful
Shameful's picture

Ok think of it this way.  Would you  buy bonds in a country that printed money, bought their own bonds then forgave their own debt?  There is still money escaping into the system, in addition the nation in question has shown that it is both willing to monetize and default at it's pleasure.  Hardly a good investment place unless getting a killer rate.  I would rather by Irish debt, they can't print directly and there is no mechanism in EU to default.  And having said that I would not touch Irish debt with my own money.

Oh and think on this.  The monetization of debt and the Fed holding it is good for the treasury.  Remember allegedly the Fed kicks back up it's profit to the Treasury, so really in effect the treasury would be defaulting on paying itself that money.

Thu, 11/11/2010 - 16:32 | 720246 DonnieD
DonnieD's picture

Scary thing is we've already done 2/3 of those bad things you mentioned. The last 1/3 doesn't seem that far out of the realm of possibility at this point.

Can you imagine a bank that can create money, selling their own debt to themselves and then claiming they are servicing it on time. This is the theater of the absurd.

Thu, 11/11/2010 - 17:51 | 720425 seadragonconquerer
seadragonconquerer's picture

Imagine a snake eating itself, beginning at the tail. Soon enough the head reaches...the head. Snake dies.

Thu, 11/11/2010 - 18:25 | 720495's picture

The Ouroboros or Uroborus[2] is an ancient symbol depicting a serpent or dragon eating its own tail.

The Ouroboros often represents self-reflexivity or cyclicality, especially in the sense of something constantly re-creating itself, the eternal return, and other things perceived as cycles that begin anew as soon as they end (compare with phoenix).

Fri, 11/12/2010 - 09:25 | 721652 Oquities
Oquities's picture

i prefer the visual of a dog eating its own shit.

Thu, 11/11/2010 - 18:05 | 720400 tip e. canoe
tip e. canoe's picture

"Remember allegedly the Fed kicks back up it's profit to the Treasury, so really in effect the treasury would be defaulting on paying itself that money."

...minus the vig paid to the member banks.

Thu, 11/11/2010 - 16:10 | 720177 DonnieD
DonnieD's picture

I could be asking a dumb question here but how would anyone necessarily know we defaulted on ourselves?


Thu, 11/11/2010 - 16:13 | 720188 Ragnarok
Ragnarok's picture

So just stop paying interest on the Fed debt and everybody just keep quiet about it.... 

Thu, 11/11/2010 - 16:15 | 720195 Fraud-Esq
Fraud-Esq's picture

no point of defaulting to the FRB unless we can report the savings and use it to help us sell future bonds! Like a tree falling that no one hears. Debt reduction is all about bond-buyers hearing it. 

Hey - sovereign nations, we will default to ourselves but never to you! It's dicey any way you cut it.

Thu, 11/11/2010 - 16:28 | 720233 Tortfeasor
Tortfeasor's picture

True, but is it any dicier than QE2 w/o a default?

Thu, 11/11/2010 - 17:38 | 720404 Fraud-Esq
Fraud-Esq's picture

If the banks are our sovereign, then yes could be dicier if not impossible. I think banks are the true sovereign, with the only risk being it CAN change, in theory, with a strong populist political leader who manages to stay unshot. 

Before an American Putin could ever fuck with the banks or oligarchs, he'd have to lock up the capital and be prepared to punish flight and those who harbor it.

Thu, 11/11/2010 - 18:07 | 720456 tip e. canoe
tip e. canoe's picture

don't know bout you, but I am my own sovereign, thank you very much.

Thu, 11/11/2010 - 18:27 | 720502's picture

You said it.

Thu, 11/11/2010 - 18:10 | 720461 doolittlegeorge
doolittlegeorge's picture

if the same set is still in "they'll QE some more."

Thu, 11/11/2010 - 20:05 | 720727 Troublehoff
Troublehoff's picture

why bother to default when we've got POMO QE?

anyway - the UST could roll them back into the market when inflation takes off with a high yield of course :) 

mop up some of that liquidity

Government Junk bonds FTW

Thu, 11/11/2010 - 15:50 | 720107 Shameful
Shameful's picture

Don't need a crystal ball to see how this ends, there are history books.  Nothing new under the sun.  We lie to ourselves and say "No really, this time is different!" and  "We are much smarter now, it won't happen this time"  I've actually head very accomplished professors say that.  Wonder how many German citizens saw the Wiemar episode coming, lucky for us we have access to a lot of information.

Thu, 11/11/2010 - 15:53 | 720115 SheepDog-One
SheepDog-One's picture

Sure, who cares how elaborate the Rube Goldberg machine is this time? End result is the same...21st century mass poverty and starvation sucks just as bad as 19th century poverty and starvation.

Thu, 11/11/2010 - 15:52 | 720112 centerline
centerline's picture



Inflation achieved.  Middle class crushed in the process.


Deflation wins.  Middle class crushed in the process.


Hyperinflation occurs.  Middle class crushed in the process.


Hmmm.  Death by hanging, lethal injection, or electrocution?  Which to wish for?


Personally, my goal is to survive the "death by XXX" thing and hope that whatever is on the other side of this shit storm is better.  Of course, on the other side, there could be an even more grusome way to go!  

Thu, 11/11/2010 - 16:10 | 720172 Ragnarok
Ragnarok's picture

Firing squad. See you on the flip side.

Thu, 11/11/2010 - 18:25 | 720496 CrashisOptimistic
CrashisOptimistic's picture

Why don't you guys get it?

The other side of the storm is a port with no oil in it.  People will return to the land and live idyllic green and organic.  All 1 billion of them (out of today's 7 billion).

Thu, 11/11/2010 - 15:56 | 720127 RmcAZ
RmcAZ's picture

"If this gamble works..."

How is it going to work?

Thu, 11/11/2010 - 19:07 | 720581 rosiescenario
rosiescenario's picture

...that was my thought too when reading the article.

Also, and here's something that is sure to be seen as very politically incorrect on this board, what if the dollar is heavily devalued making most of the unneeded, destined for land fills, trinkets we import so expensive people quit buying them. Longer term is it actually conceivable that a few entrepreneurs in the U.S. might actually launch new businesses to produce the more needed trinkets? We actually used to make things here. With a debased currency that might hold enough of a pricing umbrella to permit some companies to actually start up here.

Needed items we cannot produce here in sufficient amounts, such as crude oil, could have their consumption greatly reduced with little impact on the consumer. Or substitutes (such as CNG in cars) could be actually put into practice.


.....and then again, this is probably just wishful thinking.

Thu, 11/11/2010 - 15:58 | 720134 mule65
mule65's picture

One hour to go ... 80% chance of green finish?

Thu, 11/11/2010 - 16:28 | 720235 SheepDog-One
SheepDog-One's picture

Nowhere near a green finish so far.

Thu, 11/11/2010 - 15:58 | 720136 trav7777
trav7777's picture

they been monetizing debt since 09, wtf.

Thu, 11/11/2010 - 16:03 | 720151 Spalding_Smailes
Spalding_Smailes's picture

+ 17.01 suppressed renminbi


Thu, 11/11/2010 - 16:32 | 720244 Spalding_Smailes
Spalding_Smailes's picture

Thanks for the links ...

Thu, 11/11/2010 - 15:59 | 720140 Assignat
Assignat's picture

Of course, there's also the small matter of the Fed's own solvency.  By some estimates an upward parallel shift in the yield curve of as little as 20 basis points would wipe out its economic capital.  I wonder how Chairman Paul of the House Monetary Policy Subcommittee might respond to that bailout request?

Thu, 11/11/2010 - 16:02 | 720150 Tortfeasor
Tortfeasor's picture

Who would care if the Fed was insolvent?  What would be the real world effect of a bankrupt Fed?

Thu, 11/11/2010 - 16:10 | 720178 Assignat
Assignat's picture

Only that an upside down Fed would only fuel the flames of a potential US debt crisis, since its losses are yet another flavor of our government's massive contingent liabilities.

Thu, 11/11/2010 - 16:21 | 720213 Fraud-Esq
Fraud-Esq's picture

Make the FRB take all the liabilities become the "bad bank", THEN Congress outlaws quantitative easing (you'd need U.S. Marshalls), bankrupt the FRB's shareholders, pass a new Federal Reserve Act, recap the new top-line banks and get new management. hahaha  

Thu, 11/11/2010 - 20:04 | 720719 unununium
unununium's picture

Let's not kid ourselves.  The Fed does not have to ask anyone's permission to bail out others, and it sure as hell need not ask anyone for authority to bail out itself.

Plus, you'll never know about it.  You don't know what the assets are exactly, and even less what they are worth.  It will be a cold day in hell before they mark anything down on their own balance sheet.


Thu, 11/11/2010 - 16:02 | 720152 Jason T
Jason T's picture

Chris built an orchard in his yard... I'm doing the same thing. This guy is mint!

Thu, 11/11/2010 - 16:03 | 720157 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

Could I just pull the author up on one point,the illusion spread by the UK govt that it is goin to cut govt spending.It is not cutting spending,it is merely slowing the rate of increase of spending and borrowing.If the Uk govt did what it is trying to con the rest of the world into believing,the whole economy would implode overnight.They will be spending nearly £100 billion more than they are now in five years time,if this is austerity then I'm a banana.

Like the US,eventually the UK will have to cut its coat according to its cloth,but only after the markets have taught them some very painful lessons.

Thu, 11/11/2010 - 16:06 | 720161 Fraud-Esq
Fraud-Esq's picture

We need discussion about QE1/QE2 in light of 12 Trillion in government loans, bailouts, gifts and guarantees. Doesn't this just protect the fed guarantees? If it goes the other way, isn't the FRB and the gov fucked on their initial '08 bets?  

QE2 is just another play from scrimmage, same game plan. Banks are fascist enterprises, without rules, operating under fraudulent accounting, with the full support and 12T investment by government. Any QE that follows today just supports that investment in the fascist enterprise known as banking/government. 

Thu, 11/11/2010 - 16:10 | 720173 Gimp
Gimp's picture

Okay so let's start taking bets on when WWIII starts or has it already begun?

Thu, 11/11/2010 - 16:12 | 720181 Turd Ferguson
Turd Ferguson's picture

Well, I did it.

At the urging of several fellow ZHers, I've started my blog. Mainly this will allow me to post charts so that anyone can see how I form my opinions.

I look forward to any and all feedback. Thanks! TF


Thu, 11/11/2010 - 16:15 | 720191 HarryWanger
HarryWanger's picture

Thanks, Turd. So far so good.

Thu, 11/11/2010 - 16:20 | 720215 tmosley
tmosley's picture

Awesome!  I will be a regular reader.

Thu, 11/11/2010 - 16:22 | 720217 Shameful
Shameful's picture

Awesome!  And bookmarked.  Glad there is finally be one place I can track follow your your calls on the metals!

Thu, 11/11/2010 - 16:24 | 720224 Arkadaba
Arkadaba's picture


Thu, 11/11/2010 - 16:26 | 720230 Fraud-Esq
Fraud-Esq's picture

Hey Turd - can you consider a focus piece someday on all the Fed "guarantees" in the system (something near 7 trillion?) and how those guarantees interplay with everything and may motivate the current action of the FRB and gov?

That's one area that rarely gets a good breakdown. I would think the current guarantees (future bailouts) are motivating nearly every action today.

good luck w blog! 

Thu, 11/11/2010 - 16:27 | 720231 Common Man
Common Man's picture

Added to favorites list. Thanks TF!


Thu, 11/11/2010 - 16:34 | 720249 Thoreau
Thoreau's picture

Is this the Turdsday surprise we've been hearing about?

Thu, 11/11/2010 - 16:38 | 720255 EscapeKey
EscapeKey's picture

Bookmarked. Keep up the great work.

Thu, 11/11/2010 - 16:50 | 720299 SRV - ES339
SRV - ES339's picture

I'll take Watchtowers for $100 Turd! All in (and bookmarked) on this one my friend... site looks great... Congratulations and Best Wishes!

Interesting chart... could the "steps" be a product of periodic take downs for political (bond sales) and Options expiry, and the inevitable recovery... just a thought.


Thu, 11/11/2010 - 16:54 | 720312 Cheesy Bastard
Cheesy Bastard's picture

Add to Favorites.  Thanks.  We are in the turd world now! (Hat tip: Hulk)

Thu, 11/11/2010 - 17:19 | 720370 Hulk
Hulk's picture

its a Turd world after all
its a Turd world after all
its a Turd world after all
its a Turd, Turd world

Thu, 11/11/2010 - 17:42 | 720412 tmosley
tmosley's picture

Have you heard about the Turd?

Everybody knows that the Turd is the word!

Thu, 11/11/2010 - 18:04 | 720450 Hulk
Hulk's picture

Turd is the word
Turd is the word, is the word that you heard
It's got groove it's got meaning
Turd is the time, is the place is the motion
Turd is the way we are feeling

Thu, 11/11/2010 - 17:01 | 720329 johny2
johny2's picture


Thu, 11/11/2010 - 17:09 | 720339 RockyRacoon
RockyRacoon's picture

Wow, Turd!  You have a nice library as well, although the titles are a bit hard to read.  You know a man by the books he reads.   Can you get new wallpaper for the blog?

Hey, thanks for the focal point on your thoughts!

BTW: I say we rename Swiss Stairs to Turd's Tiers.

Thu, 11/11/2010 - 17:23 | 720381 RobD
RobD's picture

Thanks turd, I will be reading.

Thu, 11/11/2010 - 17:45 | 720417 DCon
DCon's picture

A Saint and a Scholar.

May all your daughters be sons!

Thu, 11/11/2010 - 17:49 | 720419 -1Delta
-1Delta's picture

Well start by posting somethin on MUNIS



Thu, 11/11/2010 - 18:22 | 720491 Vernon Wormer
Vernon Wormer's picture

It's on my favorites bar between Zero Hedge and Harvey Organ.

Thu, 11/11/2010 - 18:26 | 720500 Eternal Student
Eternal Student's picture

Thanks for doing this, TF. I've added it to my bookmarks. I'm looking forward to reading it.

Thu, 11/11/2010 - 18:58 | 720561 saulysw
saulysw's picture

This is very bad. Now I lose another 30 minutes each day reading on the web. I'm starting to run out of time for anything else.

Thu, 11/11/2010 - 19:35 | 720648 puckles
puckles's picture

Bravo, TF.  I've enjoyed what I've read so far, and (nearly) always enjoy your posts on ZH.  Perhaps it takes a village of bloggers to make J6P to wake up and smell the rotten coffee.

Thu, 11/11/2010 - 21:29 | 720909 Cathartes Aura
Cathartes Aura's picture

great news! bookmarked.

Thu, 11/11/2010 - 21:37 | 720927 IQ 145
IQ 145's picture

 I like it. I bookmarked it. Thank You.

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