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Guest Post: Bank Shot

Tyler Durden's picture



The banking authorities were shocked - shocked - to discover last week that an awful lot of mortgage paper in this country is not quite in order... appears to contain, er, irregularities... seems less than kosher... frankly, exudes an odor like unto dead carp or, shall we say, a heap of dead carp the size of the building at 3900 Wisconsin Avenue, N.W., Washington, D.C. Any day now we will hear that... mistakes... were... made.

Is it indelicate to say that the USA as an enterprise has its head so deeply and firmly up its ass that the all the proctologists alive on planet Earth could not extract the collective cranium from the collective cloacal chamber even with the aid of a Bucyrus-Erie 1060-WX bucket-wheel excavator? Like, where were we the past ten years? Surely not everybody in the nation was doing bong hits while playing Grand Theft Auto, or watching The Real Housewives of New Jersey, or downing tequila shots and Percocets in the parking lot of the Talladega Superspeedway, or cooking meth in the family room, or whacking it to Internet porn, or searching for "excitement" in one of America's 450 commercial gambling casinos.

Did nobody, for instance at Fannie Mae or Freddie Mac, review any of the paperwork fluttering in from places like Countrywide or Ditech and scores of other boiler rooms where mortgages were hatched like Peking ducklings?  There was an awful lot of it, I'm sure, but aren't there a lot of seat-warmers at Fannie and Freddie who collect their salaries for the express purpose of reading mortgage documents? Was nobody the least bit suspicious about the mysterious flurry of "restaurant employees" and "lawn-care technicians" buying million-dollar condominiums with no money down at terms that would make a three-card monte dealer weep with laughter? After all, they had to sort and bundle all these contracts for the likes of Goldman Sachs and JP Morgan and Citibank - the list isn't that long, but you get the picture....

And speaking of these august institutions, didn't anybody in the divisions charged with assembling complex securities composed of mortgages, or composed of bets against bundles of mortgages, or composed of some notion of something dimly related to a rumor of mortgage lending - didn't any of these expensively-educated chaps or lasses pause a moment in their aardvark-like labors of bonus-seeking to withdraw their snouts from the moist ground where swindles pupate and at least goggle in self-admiration at the fantastic legal novelty of their endeavors.

And what of the numberless agencies, federal on down, starting with, say, the Office of Thrift Supervision, or the Comptroller of the Currency, or the Federal Deposit Insurance Corporation, or the Board of Governors of the Federal Reserve, or the chairpersons of a dozen senate and house subcommittees on matters related to finance, or the various inspectors general from sea to shining sea or the attorneys general of all fifty states plus the US Department of Justice, or the countless fiduciary officers of the pension funds who tripped over each other buying all the tainted paper churned out like so much Purina Rat Chow - or, for Godsake, a lonely loan officer here or there with something resembling a conscience?

Nobody in the USA noticed anything the least bit fishy. And now all that epic rot has eaten through the last hanging tendrils of the banking system. And the whole shootin' match is fixing to seize up and blow like a Chevy Big Block Super Stroker 632 engine that some clown has poured karo syrup into.

But, sadly, I can only return to the trope of cranial rectosis. And when your head is in such a dark place, it's hard to see the truth, let alone tell something you can't even see. And sadly too, the truth is that this ghastly mortgage fiasco was a fraud that the whole nation perpetrated on itself in a tragic rush to get something for nothing. Since the failure of authority is complete, it's now up to nature to act as the arresting officer. She's a harsh mistress. She's going to kick our ass.

I'm sorry, but I don't see anyway out of this. With fraud absolutely everywhere in our banking system, like some advanced metastatic cancer, financial metabolism comes to a sickening stop. Nobody can buy or sell property. Nobody can trust any American financial institution. Money can't circulate. Nobody will be able to get any money. It won't be long before that translates into nobody getting any food. We may be a nation of clowns, but as Lon Chaney famously observed a while ago - when explaining his technique of horror movie-making - "...there's nothing funny about a clown in the moonlight...."

h/t Ian

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Mon, 10/11/2010 - 16:13 | Link to Comment Turd Ferguson
Turd Ferguson's picture

And in the midst of all this comes a very late day, 30-point Dow rampjob to eke out a green close for the Nightly News.


Mon, 10/11/2010 - 16:18 | Link to Comment aheady
aheady's picture

That WAS pretty nauseating.

Mon, 10/11/2010 - 16:21 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

There was NO WAY they were going to let this sucker close below 11,000. Christ, they at least want to wear their DOW 11,000 hats on national TeeVee for a few days before this sucker, flushes once again.

Be reasonable Turd. Da boys just wanna have some fun.

Mon, 10/11/2010 - 16:23 | Link to Comment Turd Ferguson
Turd Ferguson's picture

On the bright side, the gold miners index closed above the important 520 level for the 4th time in the last 5 days.

Mon, 10/11/2010 - 18:42 | Link to Comment kornholio
kornholio's picture

this market is not anywhere near a top, this fed induced stock gorge is can continue until gold is 5000 and a loaf of bread is 30 bucks....

Mon, 10/11/2010 - 19:03 | Link to Comment Xedus129
Xedus129's picture

30? Thats a bargain, I'll sell you a loaf of white bread August 2011 future for 50$

Mon, 10/11/2010 - 21:35 | Link to Comment ToNYC
ToNYC's picture

I'd be more impressed with the quality of your argument were you to bid $50. I'll be at $49 in your face, sucka!

Mon, 10/11/2010 - 16:33 | Link to Comment Gromit
Gromit's picture

why complain, just take the free money.

Mon, 10/11/2010 - 17:08 | Link to Comment NotApplicable
NotApplicable's picture

Because "free money" is denominated in dollars?

Mon, 10/11/2010 - 19:07 | Link to Comment Things that go bump
Things that go bump's picture

You can still use them to buy gold.


Mon, 10/11/2010 - 17:27 | Link to Comment homersimpson
homersimpson's picture

..and there's no such thing as a "free" lunch..

Mon, 10/11/2010 - 18:12 | Link to Comment Widowmaker
Widowmaker's picture

Sure there is, you steal someone elses.

...just keep on buyin'

Mon, 10/11/2010 - 16:46 | Link to Comment B9K9
B9K9's picture

I wanted to follow up on your post from another thread where you stated that you believe QE will be in the range of at least $5T. I take a diametrically opposite position, and believe not only will we not see QE, but we will actually begin to see some austerity programs implemented, which of course would be highly deflationary.

Since we've staked out two polar opposite positions, I think it might be interesting to flesh out our various pros/cons. (BTW, I view either scenario as fire/ice - under no condition do I see a 'recovery', so it's really just a matter of semantics of how we experience our collective denouement.)

I'll go first:

  1. The power-elite have nothing to gain from hyper-inflation. Moderate inflation drives organic loan growth, while deflation triggers asset repossession. Hyper-inflation just reduces debts in real terms. In your example, if the $5T+ was cycled into the economy @ some velocity multiplier, people might be able to purchase their homes outright and end up being the holders of last resort, not the Fed.
  2. The GOP has nothing to gain from helping out cities, states or with their legions of WIC/SNAP dependents and unionized public sector employees. On the contrary, they have everything to gain from going medieval. In addition, the GOP has nothing to gain from attempting to make union pension funds invested in worthless MBS whole. On the contrary, they have everything to gain simply by doing nothing; that is, let the legal process actually work its way through the backlog.

So, to summarize, my position is supported by historical cases where the boom is lowered on those no longer able to continue servicing loans. In addition, it fulfills certain political objectives, that depending on the degree of TEA party infiltration, can be achieved by implementing broad based austerity measures.

As many know, I'm completely agnostic about this situation, so I'm completely open to someone providing a persuasive case in favor of how/why QE would be engaged.


Mon, 10/11/2010 - 16:59 | Link to Comment Shameful
Shameful's picture

Reposted from another thread.



Why do you look at the Fed as an organic entity?  It's really a tool.  It's real owners wield it for power and influence.  In this way it has the same imperative to survive as a hammer.  Sure the hammer may be extremely resistant to harm but it will do what it's master uses it to do.

A currency crisis is baked into the cake now.  Should they do as you suggest and have interest rates at 20% with a full default the dollar will no longer be the reserve currency.  The Fed will lose it's exorbitant private of being able to print to infinity.  So the "rational" choice leads to a massive loss of power for the Fed.  The other option is to simply become the buying of first and last resort.  To take advantage of the reserve status of the dollar and flood the world with dollars while buying any and all asset classes.  Now this will destroy the reserve status as well, and the Fed.  However under this scenario the owners o the Fed can move the performing assets out the back door, mob style (Good Fellas).  And for the kicker they can use these very same assets to buy off political figures to take over the next central bank of the US. 

In you scenario the Fed lives, with a crippled balance sheet and no longer having a reserve currency.  Under mine the Fed no longer exists but it's masters greatly profit and with a little skillful play can use the gained assets to start the ball rolling all over again.  So tell me how my version makes no logical sense?  The Fed is a tool, look to the hand that wields it.

Having said the above I do not think they will announce QE2 at least not Nov 3.  It can be done without the announcement so why spook people.  After all it's not like we will ever see their balance sheets so long as they are a going concern.  The printing will be in full force to loot while the opportunity to loot exists.

So either way the big boys have a dollar that won't be worth spit when either case happens.  So to me I'm looking for what aggregates the most wealth for them.  They pretty much would clear out most remaining assets in this country and use the dollar overseas as well to fund acquisitions.  Sure you claim that people will be able to afford their homes, and? That was a bubble, a house is where you live not some magical wealth asset.  And the meteoric rise in housing will be followed by a corresponding tax increase. Jobs are hard to come by in the hyper inflation and the state can just take the property back via tax lien.  After all if J6P owns the house he is responsible for property taxes.

Mon, 10/11/2010 - 17:05 | Link to Comment Mako
Mako's picture

The job of the Fed is to get the stupid lemmings into believing there are helicopters coming to save them.  This way the system goes to it's greatest height before collapsing and liquidating.   The collapse and liquidation have always been know, why?  Because it's unescapable in the system you have in place, the only real question is how high you fall from. 

I would say the Fed has done a great job in it's mission.  You should see how many people think the Fed helicopters are going to save them.   Unfortunately for the stupid lemmings, there are no helicopters coming to save them. 

The Fed can never make 1+1 = 3, they certainly are good at convincing stupid lemmings that it does.  Real fun watching this up on the chalk board every day.

Mon, 10/11/2010 - 17:07 | Link to Comment tmosley
tmosley's picture

No-one thinks helicopters are going to save them any more than they think a bullet to the back of the head is going to save them.

Your thought process is mostly ridiculous.

Also, I hate to tell you, but the helicopters are already dropping cash, and they are doing so on a weekly basis.  The amount dropped has yet to fill the hole, but the hole is of finite depth, unlike the amount that can and will be printed.

Funny that you keep saying that people think helicopters are going to save them, even as you cling to paper assets like they are going to save YOU.  "Hyperdeflation", you say!  What a joke.

Mon, 10/11/2010 - 17:19 | Link to Comment Mako
Mako's picture

Helicopters are not dropping cash.  Where is it at?  Sorry buddy you have no idea how the system works.  I mean you seem to be admitting that helicopters are not going to save you then slamming me for saying it.  Funny stuff. 

"even as you cling to paper assets like they are going to save YOU."

Not only are you an idiot but you are liar as well, never said I cling to paper assets.  Never said any such thing, you say that to make yourself feeling better.   Really what you are is very scared, because you don't want to admit you are going to be fucked.  Oh, yeah your silver is going to fend off the bad spirits.  Sorry buddy you are in for a rude awakening. 

I bet you would hold up those coins to an metorite coming down thinking your silver God is going to save you.  Good luck with all that, I hear it's good against werewolves as well.  Let me know how that all works out.

I bet you wake up every morning to see what your gold and silver is trading at in DOLLARS every day.  Denial comes to mind.  Good luck and all, oh you don't need it, you have some coins.

Mon, 10/11/2010 - 17:32 | Link to Comment tmosley
tmosley's picture

Stock, bond, and commodity markets aren't enough for you, I guess.  You have to actually see money dropping fro helicopters.

Whatever.  You are either saying to hold onto dollars (because you claim hyperdeflation is coming), or you are saying everyone is going to die next week (EVERYTHING IS WORTHLESS OFMGCOPTER).  There is no way to tell, because you have never not even once actually defined your terms.  Either way, your a fucking moron, though.

Mon, 10/11/2010 - 17:39 | Link to Comment Turd Ferguson
Turd Ferguson's picture

As long as we're dropping things from helicopters, it is my duty to offer this:


Mon, 10/11/2010 - 17:52 | Link to Comment tmosley
tmosley's picture

Thanks for that.  Mako's incessant defeatism just gets me riled up.  He calls it fear.  I call it identifying the problem, and finding a solution.  People that vaguely realize there is a problem, and fail to quantify it, much less seek a solution, yet go about blathering on about it ignorantly, piss me off.  If he didn't do part three, he would just be a regular sheep.

Mon, 10/11/2010 - 19:59 | Link to Comment Mako
Mako's picture

Defeatism, sorry you lost the war before ever begun.  There is no defeating the Truth.  Humans have been trying to defeat the Truth for thousands of years and always fail. 

No you are not looking for a solution, the solution is going to happen whether you are looking for it or not.  You are actually running from the solution, that is why you hold your coins up like a Cross like that is going to stop what is going to occur. 

Good luck. 

Mon, 10/11/2010 - 21:56 | Link to Comment Bringin It
Bringin It's picture

Mako - if you have a story to tell, just spill the beans.  Resource wars?  Is that what you're getting at?

Tue, 10/12/2010 - 00:08 | Link to Comment Calmyourself
Calmyourself's picture

I would like to know what your story is as well..  Yeah, umm we got the part about compound interest being unsustainable, there is no solution, its all going down hard, yada, yada

So where is the beef little shark?  Do you have a story of some sort to tell or just dropping in to once again inform us we are all going to die horrible deaths, do you ever expand on that?

Tue, 10/12/2010 - 08:40 | Link to Comment Mako
Mako's picture

Use your brain, you don't need me to tell you what is going to happen, you already know, all you have to do is listen to yourself... you have most of these answers.

Tue, 10/12/2010 - 08:56 | Link to Comment Calmyourself
Calmyourself's picture

Fine, humor me, I like your writing style and doomer scenarios are always fun to game out, zombie apocolypse and all..

Seriously, you expect the credit system to fall so hard and so fast that all JIT deliveries will just stop: starvation? Everyone who has a stake in the system (everyone) will just lay down and die. Perhaps, the coal mines will stop digging and we go into the Malthusian Luddite die off that Greenies love so much..

How do you see it coming down, I would like your complete perspective here.  Instead of the constant drumbeat always stopping short of the doomer porn we all love so much, elucidate fully, strip it bare. Because frankly, the blanket statement, we are all going to die, is getting old..

Mon, 10/11/2010 - 19:55 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

Since we're talking about the Fed, I was expecting the Scarface helicopter scene...

Mon, 10/11/2010 - 20:39 | Link to Comment Big Corked Boots
Big Corked Boots's picture

I'm thinking more like the Apocalypse Now helicopter scene.

And the middle class is on the ground.

Mon, 10/11/2010 - 21:25 | Link to Comment El Hosel
El Hosel's picture

   "Helicopters are not dropping cash.  Where is it at?"

    its all in the hole.

Mon, 10/11/2010 - 22:05 | Link to Comment trav7777
trav7777's picture

Idiotic.  Helicopters ARE DROPPING CASH.


They are dropping it to the tune of TRILLIONS onto the favored, elite, political class.  THEY are being made nominally whole while the inflation eats the net worth of everyone below them.

A bag of freaking potato chips costs $4 now.  Real cost of living has gone UP for normal people while income goes down.

THIS IS INFLATION.  As it proceeds and gets worse, the elites' incomes WILL keep pace, as the helicopters drop them cash by the metric assload.  The ordinary people WILL NOT.

This is how austerity LOOKS, a decline in REAL income!

Tue, 10/12/2010 - 02:35 | Link to Comment scaleindependent
scaleindependent's picture

Excellent post Trav


People do not understand that it is not only free money for the elite, but austerity for the rest. That way inflation is delayed.  More importantly, the margin between elite and pawn increases.

Maybe this Captcha will exemplify:

What is?:

Elite + QE + free loans (Fed discount window)+ political impunity + less taxes  >  citizens - (austerity + inflation + political encroachment...)


Answer: Yo fucked bitch!

B9k9, imo the elite do not mind inflation as long as their ROI per annum is a multiple of the inflation rate and as long as the inflation is greater than the rate of decline of the commoner's income.

Tue, 10/12/2010 - 07:15 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Inflations is a really hard one to see when it creeps.

When I left India in 1995, a few hundred rupee notes, a few 50's, some 10's in yoru wallet, you were rich. Credit cards were the stuff of fantasy and envy.

Came back in 2006..... 3 rupee coffee costs Rs. 15. 

Look into the wallet. A few thousands, a bunch of 500's, some 100's and a fifty if lucky.

Yet, everyone is feeling richer and blowing cash left, right and center.

Dressed up right, inflation is a sweet drug. Masterful illusion of wealth.



Mon, 10/11/2010 - 21:21 | Link to Comment PlausibleDenial
PlausibleDenial's picture

@ TMosely Citation:

Mon, 10/11/2010 - 17:20 | Link to Comment Shameful
Shameful's picture

So you are seriously telling me it's a safer fall from here then to hyper inflate up?  Seriously?  When Zimbabwe Ben can kick this pig into overdrive and delay the inevitable crash but make it worse, but your saying he won't, why?

And the Fed cannot save anyone save their masters.   The Fed can consume all the bad debt and products and transfer the cleansed assets to it's master.  The Fed is a gigantic sin eater of debt.  You seem to think the big boys will be liquidated as well.  They built the system and have survived worse, the Fed is their tool.

Explain to me why the Fed will not act in a way to benefit their masters and destroy the masses?  For if they were to actually not print more it would end with liquidation but would be less ruinous then the hyper inflationary alternative.

Mon, 10/11/2010 - 17:27 | Link to Comment Mako
Mako's picture

"Explain to me why the Fed will not act in a way to benefit their masters and destroy the masses?  For if they were to actually not print more it would end with liquidation but would be less ruinous then the hyper inflationary alternative."

If the Fed had all the power you claim they do, we wouldn't even be talking about this right now.  Things would just be super duper right now. 

There is no alternative.  The system will peak, collapse then liquidate.   Only thing the Fed does is try and see if the lemmings have one more shot at escaping the unescapable. 

"The Architect - Denial is the most predictable of all human responses. But, rest assured, this will be the sixth time we have destroyed it, and we have become exceedingly efficient at it."

The unfunded liabilities will be liquidated in mass, eventually a low will occur from which a new base can be formed so the scam can be recycled once again... we have become very efficient at liquidation.  Humans always seem to want a bite of the Apple.

Mon, 10/11/2010 - 17:36 | Link to Comment Shameful
Shameful's picture

So your telling me the Fed didn't stock up on MBS in 08?  That the Fed is an illusion that cannot print dollars into existence?  How did you arrive at this conclusion?  And why would things be super dooper?  When they kick up the main event it will be good until the spike hits and then all hell breaks loose.  For some reason they have not triggered that stampede yet.  The hyper event causes a crash regardless it's just a rapid wealth aggregator vs the slow chain that has been happening.

When did I say the system would not collapse?  It will but the big boys will wipe their feet with the masses first.  Do you really think the mega rich will be roughing it with us post collapse?  No good sir they will have legal total and be totally debt free.  The Fed is a tool, and will be used in it's dieing to protect it's owners.  And when the system starts the very same people will be in charge.

We agree on the collapse but I don't understand why you can't see that the Fed can use it's printing press to shield it's owners.  But hey hope your right, I would prefer them not to be able to gobble up a ton of assets pre crash and then further aggregate post crash.

Mon, 10/11/2010 - 18:03 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

If the Fed balance sheet is the driver of it's ability to print dollars, and that balance sheet were to, say, suddenly look really, really fucking ugly on account of that 1.2 trillion dollars notional in MBS holdings that's actually worth more like, oh, absolutely nothing, then yeah, they're going to have some issues executing a monetary solution to the deflationary collapse.

Mon, 10/11/2010 - 18:20 | Link to Comment traderjoe
traderjoe's picture

IMHO, their balance sheet is irrelevant. They can print no matter what. Just a click of the mouse...

Mon, 10/11/2010 - 18:23 | Link to Comment Shameful
Shameful's picture

Why would the balance sheet really matter?  The ability to print is divorced from that.  Even if it wasn't it's not like we can get a 3rd party audit of said balance sheet.  It is what they tell us it is.  Enron was more transparent.

Mon, 10/11/2010 - 19:58 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

Sinclair will be proven right. Forget the timeline, that's just a totem for the haters to cling to. The point is it will happen, and the answer to when is too soon.

Mon, 10/11/2010 - 17:38 | Link to Comment tmosley
tmosley's picture

You are so stupid that you can't tell the difference between "kicking the can down the road" and "fixing it".  

The can is being kicked as we speak, with printed money.  You don't fucking get it.  This is not a god-damn solution, and no-one but a fucking retard thinks it is.  It's shooting the economy in the back of the head instead of the front.  You can't see it coming this way.  The guy with the gun walks behind you, and you think he's disappeared!  

Yes, the unfunded liabilities will be liquidated, but what the fuck do you think the currency will be that those transactions will be settled in?  Here's a hint:  It's been money for 6000+ years, and can't quintuple in supply overnight.

Oh, but sure, nothing can ever work, and we're all going to die next Thursday.  Mako said so.

Tue, 10/12/2010 - 00:09 | Link to Comment i-dog
i-dog's picture

"You don't fucking get it. This is not a god-damn solution, and no-one but a fucking retard thinks it is."

Excuse me chipping in here! ... but I don't think either B9K9 or Mako are suggesting that the Fed (or their masters) are attempting a solution! They are simply stating "what is" and "what will be". However, I could be wrong.

"Oh, but sure, nothing can ever work, and we're all going to die next Thursday."

I think "all" is an overstatement, and "next Thursday" is probably about a year and half earlier than planned. Therefore, if you don't wish to be part of the "all", I would respectfully suggest that you plan accordingly.

IMO, the charges on the support columns have been set, the planes have already been "hijacked", and only those who have left the building, or are on the ground floor ready to leave as they see/hear the planes on final approach, are going to get out of the WTC* alive this time around. Those on the upper floors will definitely die (or serve out their very limited remaining life on the plantation). Just sayin'.

However, there is still hope for all of us. The Architect also told Neo: "The first matrix I designed was quite naturally perfect, it was a work of art, flawless, sublime. A triumph equaled only by its monumental failure". Complex systems have a way of coming up with "unintended consequences" -- particularly when clever and well-heeled rebels are working hard on thwarting the controllers.

Let's hope the revolution will be televised!


* WTC = World Technical Collapse = IMF control of a world currency

Mon, 10/11/2010 - 17:29 | Link to Comment Assetman
Assetman's picture

I completely agree with you on the why's and how's of how the fed SHOULD refrain from further QE.

Perhaps where I differ is that I truly believe that certain members of the Fed (Bernanke, Yellen, Dudley, etc.) are simply too blinded by ideology at this stage of the game-- and will do everything in its power to avoid the deflation bug.  Given the experiences with QE 1.0, the Fed sees they can do more monetizing-- as long as they keep the majority of the QE benefits within the banking system.  That means keeping an eye on velocity and make sure it's a flatliner.

If the powers within the FOMC are persuaded by QE-- that's exactly what will transpire... whether it ends in utter destruction or not.  At question is whether Bernanke is more of a "political beast" or an "academic".  I think he's pretty much spent most of his political bullets to get re-nomination... and the academic in him will keep policy on the same insane course he initiated in March 2009.

I sure hope that you are right on the mark, though... 

Mon, 10/11/2010 - 18:00 | Link to Comment B9K9
B9K9's picture

Thanx for the reasoned reply. I agree that Ben might be an economic ideologue, but his justification/rationalization for QE was never simply debt monetization. He knows that straight-up printing has absolutely no effect other than to ratchet up all commodity input prices across the board.

Rather, as a dyed-in-the-wool supply-side monetartist, his goal was merely one of attempting to re-energize organic loan growth. After all, organic loan growth is the holy grail of all fractional reserve lending. While some may promote demand-side Keynesian spending and others supply-side monetarism, the end objective is the same to all adherents of centralized command economies.

Absent the ability to re-engage organic loan growth at our current level of indebtedness, the best course of action is perhaps to retrench. If we experience the mother of all depressions, it does not necessarily mean the Fed will be finished. Better to live with the $USD enact and possibly able to loan again another day (in this case, at least one whole generation), rather than to purposely explode one's valuable franchise.

One other point I think is important is that while most of us have a fairly realistic opinion of our current state of politics, it is not extremely unlikely that real, meaningful change could occur.

Recall that since 1776, we have had two national scrips and three central banks. The point being that the Fed is running on borrowed time. Bernanke has to be aware that he cannot make unilateral decisions in a vacuum. From my perspective, the notion that Ben will single-handily decide on some incredibly risky program without first giving due counsel to, or properly recognizing the authority of, Congress simply doesn't pass the laugh test.

When the status quo is under fire, sometimes it's best to just wait out events. In this case, waiting out events is highly deflationary. It also just happens to fit perfectly with the TEA party's respective platform(s).

Mon, 10/11/2010 - 18:33 | Link to Comment Assetman
Assetman's picture

Absent the ability to re-engage organic loan growth at our current level of indebtedness, the best course of action is perhaps to retrench. If we experience the mother of all depressions, it does not necessarily mean the Fed will be finished. Better to live with the $USD enact and possibly able to loan again another day (in this case, at least one whole generation), rather than to purposely explode one's valuable franchise.

I decided to highlight the above, because while your response was very well reasoned, these few thoughts encapsuate the decision process in a nutshell.

I'm not sold on organic growth as being the sole reason for the Fed's policy of ZIRP/QE-- but it certainly is one of many.  And while monetization for monetization's sake is admittedly a poor reason to extend a strategy-- the reality is that the Fed has been attempting to: (a) fund the ongoing deficit hole Treasury at low coupon and extended duration; (b) entice organic loan growth, which has been a major fail; and (c) provide broad support for asset prices, underlying the hope that supported prices would translate into improving consumer (and investor) confidence.

Perhaps the more dovish of the Fed members are coming to that conclusion.  I certainly hope they are, because the recent comments coming William Dudley in particular-- not only defy logic, but his conclusions lay the groundwork for some ugly unintended consequences.  Either the FOMC becomes pragmatic in a very big way real soon-- or they keep on driving off the cliff-- in the misguided belief that "mo is better".  Keep in mind, since 2008, our Congress has given the Fed a lot of leeway in taking unilateral actions... it's been an effective way for the sleazeballs to pass the buck and delay the inevitable.

One note in your quote above really strikes at the heart of the matter, though: retrenching would be a very painful exercise but it provides the best chance of keeping the $USD intact.  That shouldn't be overlooked (and hopefully isn't by FOMC members)-- because once the $USD crosses the panic threshhold, the risk the Fed disappears as a central bank entity goes up exponentially.

I think that it's great that you're doing this thought exercise now.  My hope was that the Fed would cycle between reflation and deflation as a means to slowly right-size the financial system-- but yet-- keep the $USD intact.

You apparently have more faith in those smart-@$$e$ than I. 

Mon, 10/11/2010 - 18:42 | Link to Comment traderjoe
traderjoe's picture

I'm going to side with the QE's. The system is imploding as we speak - which seems to be a basis for agreement. The question at hand seems to be whether the final currency collapse will come from deflation or hyper-inflation. It's an important, but also in some ways superfluous debate, because it might prove problematic to plan for anything but the 'other side' since the inflection point would be extremely difficult to time. 

Following a CD discussion deep into a thread over the weekend, I believe BB and the FedHeads are level 1 or maybe 2 operatives (in a level 5 world). The system was designed to retain people that believed in the power of the Fed, it's independence, blah, blah. BB et all, aren't in on the end-game, they might actually on some level believe what they are doing is 'helping'. What better way to get plausible deniability than to hire academics whose belief structures fit into the progression to the eventual end game?

This current iteration of the Fed will go out in a blaze of glory 'trying to fix the economy'. They could NOT simply stand by and watch the destruction of the system through deflation. It would destroy the public perception of their status as an agent of the government and an institution that works on behalf of the public. 

They will do QE 2, 3, 4, etc. They will become the buyer of last resort for any number of assets. This will benefit the banks for as long as possible. There's only a 5% chance to re-start the system, but deflation/austerity has 0% chance of working. 

Hyper-inflation will benefit the Fed's impaired assets, and the elite's real investments like land, gold, etc. Sure, it will benefit the "little debtors" (small households), but it will wipe out the merchant class - the lower upper-class, savers, etc. that are net savers, but aren't in on the game (no gold, no farmland, no real assets, just bonds, CD's, bank accounts, even stocks). It'll wipe out the bond-holders, the pension funds (leaving no retirements), etc. In other words, it will wipe out any rivals to the Fed. It will benefit the little people somewhat, but they will struggle with daily living so much that they will be easily moveable. 

Hyper-inflation will leave those in the know (hard assets) well protected, with rivals destroyed, and the masses struggling AND the Fed will have appeared to be proactive. The back-story can be written favorably. At least they tried. Next time, "we'll learn from our mistakes" - not revealing that the system was destined to collapse from the start. Rinse and repeat. 


Mon, 10/11/2010 - 19:15 | Link to Comment Miss Expectations
Miss Expectations's picture


Since you mentioned the merchant class, I am attaching the most recent missive from Martin Armstrong.  Plenty of nuggets concerning Goldman Sachs, too.

The Athenian Real Estate Panic & Banking Crisis

Mon, 10/11/2010 - 21:37 | Link to Comment ToNYC
ToNYC's picture

...certain members of the FED... enablers of fraud, meaningless cippher4s you'd do best not to embody.

Mon, 10/11/2010 - 21:38 | Link to Comment ToNYC
ToNYC's picture

..."certain members of the Fed"... enablers of fraud, meaningless cippher4s you'd do best not to embody.

Mon, 10/11/2010 - 17:36 | Link to Comment Turd Ferguson
Turd Ferguson's picture

B9: Admittedly, a $5T number is hyperbole and conjecture and I don't offer the number as some potential, November 3 headline: "Fed to purchase $5T in MBS assets".

I do agree, however, with the argument that trillions of MBS are, for all intents and purposes, worthless even though FASB is allowing banks to carry them on their balance sheets at par. The FASB ruling has allowed the banks to "buy time", up to 25 years in some cases. Over those outlying years, the banks can "earn' enough billions to cover their future losses by doing the Fed's bidding...borrowing at the discount window and buy treasuries at auction.

Now comes the MERS/foreclosure/documentation mess. This scandal has the potential to end the "time buying" right now. The worthless paper will be shown to be worthless, regardless of what price-to-maturity matrix you use.

Left with no choice but to keep banks solvent today, the Fed will begin a program of outright MBS purchases, at par, from troubled banks. This will effectively monetize the entire stock of outstanding, worthless MBS. Not in one fell swoop but perhaps in $1T increments. Either way, trillions of fresh $ will be "printed" in order to maintain the current system...fortifying the power of the Fed, Congress and the major banks.

The real interesting, revolutionary shit will be what follows. As the trillions of new dollars eventually find repose in all dollar-denominated assets, what will follow will be extreme, cost-push inflation. Look around. Its already started. Corn is at $5.00/bushel. Beans are $12. The price of cattle and hogs may initially decline as ranchers are forced to sell stock that has become too expensive to feed but then the prices will skyrocket. You and I and all with jobs and middle-level incomes will, most likely, be able to handle the rapidly rising costs of food. But what about the 17.1% (one in six!) of Americans who comprise the U-6? How will they respond when they can no longer feed themselves, much less their families? And what about the third world where most folks try to survive on $1/day? What are those billions of people going to do? And many in the third world live under oppressive, despotic will they react?

No, B9, something quite wicked this way comes. No amount of "austerity" can prevent it.


Mon, 10/11/2010 - 18:24 | Link to Comment B9K9
B9K9's picture

Fire or ice - yes, austerity doesn't really "fix" anything, just alters the path to destruction.

I guess I'm revealing my base naivete in that I really think at some point the citizenry will act through its representatives in Congress. I just can't see Bennie & the Fed either acting unilaterally OR given the green light to explode the $USD.

From a geo-political strategic stand-point, QE of any meaningful magnitude makes absolutely no sense. While we could possibly handle 100-150 million people on WIC/SNAP resulting from a deflationary collapse (under a farm nationalization & food distribution scheme), under no circumstances can we afford a disruption in our military control of foreign oil resources. That means the $USD reserve status is paramount to all other considerations.

I think we're 99% in agreement with the underlying situation. You appear to believe Ben has the power; I think (the new pending) Congress and the MIC are in control at this point in the game. GS, JPM, the Fed and the whole gang of Wall St criminals had their 2 years. The party is over - fire or ice.

Mon, 10/11/2010 - 18:34 | Link to Comment EscapeKey
EscapeKey's picture

Unlike Keynesianism, austerity does actually have a track record with successes. Denmark and the Netherlands stand out in recent times, but there are plenty of examples.

Mon, 10/11/2010 - 20:07 | Link to Comment Turd Ferguson
Turd Ferguson's picture

It would seem to me that austerity (federal budget tightening) programs only have a chance at success when you have a manageable debt-gdp ratio, which we do not.

The problem now is the exponential, parabolic nature of our public and private debt. The total debt, in practice, can now only be serviced by corresponding, exponential growth of tax receipts (gdp) and money supply. "Austerity" only serves to constrain gdp growth so austerity measures actually are counterproductive to debt service. We are left with money supply growth as the only feasible option.

Thus qe2, qe3, qe4, qe5.......

Tue, 10/12/2010 - 00:03 | Link to Comment MachoMan
MachoMan's picture

The FED was never designed to "succeed" in any real sense of the word.  It is merely a tool for pillage and plunder.  I've outlined my thesis in too many posts, but at this stage in the game, austerity provides the path that increases life of the FED the longest, which in turn allows there to be more pillage and plunder.  This is literally as simple as the decision gets.  Further, it coincides with all political winds and it appeases the masses (even though they haven't figured out the war is over, they lost, and they're fucked either way).

If a large QE 2.0 is announced, then the herd will be spooked and we're in uncharted waters.  This is another reason for austerity.  Joe and some others think that QE is a foregone conclusion, and to some extent it is, but it will not be in the form of one large burst, it will be in the form of successively smaller infusions...  e.g. food stamps, unemployment, money to a few states, etc.  But, it will not be as large in a single burst nor in total amount as the first go around.  We're at the end of our monetary policy rope.

This all ends in hyperinflationary depression.  Period.  End of story.  The only question is how do we get there?  The answer is whatever prolongs the pain the longest, which is austerity.  Make no mistake about it, we will either outright default on the debt or repudiate it (when we grow some balls), which will be the proverbial nail in the coffin.  But we need to describe the playbook between now and then, and everything I see leads me to believe austerity is the name of the game.

Also, as an aside, the FED will implode.  This is a certainty...  it was always living on borrowed time.  Its only purpose is to enslave the masses who are too undisciplined to live within their means.  This is just about everyone.  The FED desires an orderly changing of the guard, whereby the 1% are going to unmask themselves and become our outright slave owners.  In a nutshell, this means austerity with a spritzing of QE...  or, in other words, a controlled demolition.  As the state and local governments and eventually federal government succumb to deflationary pressures, the power vacuum will be filled by the principal actors of this whole fiasco.  The wealth gap will be utilized and converted into hard assets which will be the chains that bind the rest of us for as far as the brain can see.  This was the point all along...  It's simply the inevitable conclusion of the battle between capitalists and collective bargaining.  They pushed a drug upon us in which we could not refuse...  simple as that.  They do it every time...

If we have a sudden hyperinflationary crescendo, they simply cannot control what happens...  there is no order to that...  they are people who crave control and there is no control in that situation...  there is chaos.  Maybe some other place could survive that, but not america...  we will have complete and total chaos.  They will seek to avoid this at all costs...  it's a difficult tightrope from which they will eventually fall, but not before trying austerity.

Mon, 10/11/2010 - 18:23 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

Food stamps take care of that issue pretty well.  You can buy a suprising amount of cheap, delicious crap with the money they give you.  Even if food prices triple, they could simply add a couple of zeros to the EBT card, problem solved.  And that EBT card is going to be usable at a lot more places soon (boost the service sector by letting you use it at Taco Bell).  Honestly (no joke) it's only a matter of time before Yum! Brands is a government contractor.   

The real issue is what we have to pay in the way of personal freedom in exchange for this government dependance.  That's the endgame here, dependant serfs and oligarchs.  And it will all be so easy.  We'll still have cable TV, cable interwebs, and all the cheap, delicious crap you can eat.  All you have to do is sit there and not bitch about it.  Sounds pretty fucking tempting to the vast majority of us. 

Mon, 10/11/2010 - 19:07 | Link to Comment Xedus129
Xedus129's picture

But, but, but, I was looking forward to the FEMA camps.  wtf

Mon, 10/11/2010 - 20:13 | Link to Comment Turd Ferguson
Turd Ferguson's picture

Not so fast, my friend. Perhaps you can simply hand out more food stamps in Detroit and Los Angeles but how are the poor of Pakistan, Indonesia, North Korea, Syria, Yemen et al going to eat? How about the new "middle class" of China and India? How do you affordably feed them?

The world is like a bag of firecrackers left over from last year's 4th of July. The bag is lined with C-4 and its sitting in a little boat that's floating on a pool of gasoline. OK. Lousy metaphor. But I'm tired so cut me some slack. I think you get the idea.

Mon, 10/11/2010 - 18:36 | Link to Comment puckles
puckles's picture

B9K9, it appears you assume that the power elite a) actually know what they are doing, and can effect exactly what they want--a tall order, under any circumstances, and b) the GOP is a monolith.  It may well have been at some point in the distant past, but not in my life experience, and I was born in 1954.  Especially since the donkeycrats' move to the extreme left, after Clinton left office, it has been an utterly fragmented coalition, adding much to its decline. There is exactly one Congressman, Ron Paul, who expresses my opinion on the Republican side.  How good is that?

Mon, 10/11/2010 - 19:08 | Link to Comment Xedus129
Xedus129's picture

+infinity RON PAUL

Mon, 10/11/2010 - 21:30 | Link to Comment SpeakerFTD
SpeakerFTD's picture

Some historian will eventually note with interest that capital markets during this period, across almost all asset classes, became betting parlors on the psychology and motivations of a handful of unelected men.

It's a good discussion, even if it is a terrible way to allocate capital.  I would add one thought to the discussion.   Assuming at least some of our brighter leaders can see the same basic Ponzi patterns so obvious to ZH readers,  there must be some concern about the way the end game plays out, and in that regard, I think they choose deflation over hyperinflation. 

The reason is quite simple. 

In a collapse, some portion of the population, however small, will be driven over the edge and resort to weapons with more firepower than Typepad.   In a deflationary collapse, the government can blame any number of outside actors and even present itself as a savior.   Moreover, it is a slow, grinding collapse, more likely to sedate people with daily exhaustion than incite them.  In a hyperflationary collapse, on the other hand, it is virtually impossible for the government to redirect fault on other parties, and the collapse is fast, energetic and chaotic.

In hyperinflation, a few someones, somewhere in America will harness their feverish misery and decide that Ben Bernanke personally needs to pay.  In deflation, they might curse his name, but that will largely be the end of it.

I have to think that in doing the calculus of the end game, there are plenty of players adding their personal estimate of the value of their necks to the calcuation.


Mon, 10/11/2010 - 23:34 | Link to Comment Saxxon
Saxxon's picture

Yes; whichever way it goes they need to keep it slow and make sure the cable stays on and the fast food joints stay open and accept food cards.  Oh, and that the peeps four walls around them.  Teen employment is at an all -time low today.  How big a deal was it to have a job or two when you were in High School?  It was to me.  No sports or music classes either.  What a terrible shame upon this country.

Yes, the slower the better.  They won't wake up.

Mon, 10/11/2010 - 22:02 | Link to Comment trav7777
trav7777's picture

I'll take this one up, because i believe you are in clear error about most of your suppositions.

The elites are the most highly-levered.  They have the most to gain by inflation.  They will have access to credit and will accumulate productive assets. 

Secondly, the government itself will default in the case of deflation; the system of debtmoney makes this a mathematical inevitability.

In fact, hyperinflations have occurred all over the globe, in nations that have had even more entrenched elites than we.  Did Argentine elite benefit?  Yes.  Did Brazilian?  Absolutely.

The true elite have political connections and will be ahead of any hyperinflation.  Think about it.  If they get tipped off, they can position into asset classes which preserve value then scoop up everything with hard currency during the devaluation. 

Austerity comes AFTER the currency collapses; it always does.  That is when the claim tickets get paid.  For the government to continue to function after such an event, they are "forced" to sell national assets and implement crushing austerity going forward.  Why?  Because their currency now lacks real purchasing power.  They can no longer bargain and trade with paper.

You appear to have GROSS misconceptions about how hyperinflation works, and you would be wise to study its occurrences in other nations before talking about "ordinary people" somehow buying their houses for lower real value.  That won't happen; it never has and never will.

Ordinary people are going to be crushed by rising REAL cost of food, gasoline, power, etc.  They will be forced into effective default irrespective of the nominal value of their currency.

This type of hyperinflation works for the elites because only THEY can command a rising income!  The effect will be a reduction in living standard for all those further down the trough.

Hell, man, look at 1933...did the US elite suffer in FDR's devaluation?  Hell no.  The Federal Reserve had all their gold already.  Those with political cover were unharmed by it.  What BETTER way to destroy the system than by rendering the value of the asset class MOST owned by the little people, cash, worthless? 

Mon, 10/11/2010 - 23:53 | Link to Comment Assetman
Assetman's picture

I'll take this one up, because i believe you are in clear error about most of your suppositions.

The elites are the most highly-levered.  They have the most to gain by inflation.  They will have access to credit and will accumulate productive assets. 

Professionally, sure, the elites are using other people's money as cheap float and levering it up in a big way.  That's what I call the "llc" level wealth, or wealth the public sees..

As far as personal/private wealth?  From what I am hearing, they are hedging their bets, either in dollar heavy, metals, or inverse-related trades to their more public fortunes.  I know about some of this because I talk to family office investment guys, there's a whole lot of "hedging/preservation of wealth" talk going on among their highest wealth clients (+$100m).

That doesn't mean that the elite in general is not levered up-- they are.  But they are doing so with as much limited liability as possible. 

I guess that's why they'll still be rich well after the rest of us are in soup lines.

Tue, 10/12/2010 - 13:31 | Link to Comment tamboo
tamboo's picture

from the 10/12/10 report @


No QE2?

As we've been wondering (even predicting for subscribers) the QE2 that has jazzed the markets in here is hardly an accomplished fact as so many newsletters have been yelling.  Why, between the "Gold's going to $2,000 any minute" and the even more dire "Dollar is crashing!" people have been whipped up into what always - or so it seems - turns out to be the wrong move at the wrong time.


The reason for the 'reality check' was not so much what Fed Vice Chair Janet Yellen said in Denver so much as why she said it:

"Vigilance to threats of systemic financial risk must also inform the conduct of monetary policy. We have seen that the eruption of a financial crisis can have severe economic consequences, compromising the ability of a central bank to attain its primary macroeconomic objectives. Monetary policymakers should also be aware that the decisions they make in pursuit of price stability and full employment could, in some circumstances, affect the development of systemic risk. For example, if compensation incentives in the financial sector are misaligned, low interest rates might heighten the ability and desire of financial market participants to reach for yield and take on risk.


Our goal should be to deploy an enhanced arsenal of regulatory tools to address systemic risk, making the financial system far more robust. That way, monetary policy can concentrate on its long-standing goals of price stability and maximum employment. Supervision and regulation must serve as the first and main line of defense in addressing systemic risk. We have at our disposal a tool kit of regulatory instruments that are well adapted for this purpose. Monetary policy cannot be a primary instrument for systemic risk management. First, it has its own macroeconomic goals on which it must maintain a sharp focus. Second, it is too blunt an instrument for dealing with systemic risk. All the same, I cannot unequivocally rule out the possibility that situations could emerge in which monetary policy should play some role in reining in risk-taking behavior. I will return to this point later. "

So what most Fed watchers are taking this as is the position that while lower rates (approaching zero, as in Japan, are possible, the reality is that the Fed (rightly, in my view) believes that a quantative easing now (QE2) might operate in the interests of stabilizing the market now, but could, in effect, light a fuse on the much larger issue of global financial crisis in the future.


To put it plainly, QE2 was - and seems to remain - a kind of 'last bullet' to be fired only when things are really, really dire.  And, they are not there yet. 

Tue, 10/12/2010 - 23:43 | Link to Comment Assetman
Assetman's picture

We should all hope that QE2 is used as a last bullet... very well said.

At the same time I wouldn't confuse Yellen's comments as suggesting that monetary policy (QE2) wouldn't be employed to meet macroeconomic goals.  While it doesn't seem well justified, the doves in the group been pointing to persistently high unemployment and near zero inflation to support more accomodation.

In other words, it's hard to take ANY of these folks words at face value.

Tue, 10/12/2010 - 19:17 | Link to Comment Marla And Me
Marla And Me's picture

Looks like B9K9 has a point.  Austerity has been made mainstream, and that is no accident:

If you own all the debt (banks pilling on t-bills with all that free money), why not jack up the interest rates... they don't really care about the principal anyways.  It's all about keeping the coupons going and cash flow flowing...

Tue, 10/12/2010 - 23:53 | Link to Comment Assetman
Assetman's picture

I agree that B9K9 makes a solid point...

But to your point, I'll throw something out there for consideration-- someone is responsible for paying the interest on those higher coupon notes.  If our own U.S. government can't even meet interest maintenance requirements on it's mounting debt burden-- you know, because interest rates spiked higher by 200 basis points-- it's game over.

The more that China and Japan pull away from the table, the more the Fed will need to monetize the debt to keep the remaining new issue coupons low.  If you want a solid reason why the Fed may pull a curveball on QE2 and lean toward auserity, please consider that one.

Mon, 10/11/2010 - 19:11 | Link to Comment Chemba
Chemba's picture

exactly, Turd.  Most important that nightly news anchors can announce "...and on Wall Street, stocks started the week on a positive note with the DJIA up..."

Mon, 10/11/2010 - 23:16 | Link to Comment 99er
Mon, 10/11/2010 - 16:13 | Link to Comment HarryWanger
HarryWanger's picture

Nobody can trust any American financial institution. Money can't circulate. Nobody will be able to get any money. It won't be long before that translates into nobody getting any food.

Alright let's not get overly dramatic about this. Yes, there are problems with the mortgage mess but it won't bring down mankind. You'll still be able to drive thru McDonald's and get your Big Mac and fries.

Mon, 10/11/2010 - 16:21 | Link to Comment Spastica Rex
Spastica Rex's picture

Revolution comes when the plebes can't get their Big Macs and Dancing with the Stars.

Mon, 10/11/2010 - 16:26 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Thus the reason for QE's 2 thru 10 stacked up like planes trying to land at Kennedy on a wintry Friday afternoon.

Jeeves, we need more linen and ink. The natives are getting hungry.

Mon, 10/11/2010 - 16:30 | Link to Comment HarryWanger
HarryWanger's picture

You are correct and they will continue to receive QE until long after we're gone. This can will continue to get kicked miles and miles down the road until it can't go any farther. I suspect I'll be 6 feet under by that time.

Mon, 10/11/2010 - 16:50 | Link to Comment Mako
Mako's picture

Yes, but you suspected the DOW wouldn't go below 10,000 as well if I remember correctly.

I would not predict the immediate extinction of mankind right here but I would suspect eventually the liquidation process will eliminate quite a few.   The non-performing liabilities won't magically become performing assets at the flick of a switch. 

Matter of fact there is going to be a rapid increase in the amount of non-performing liabilitiest that will need to be liquidated in the future from which a stable platform can be built for rerunning the same scam.


Mon, 10/11/2010 - 16:52 | Link to Comment HarryWanger
HarryWanger's picture

Actually, I thought 1097 SPX was the magic magnetic line for quite some time. Still sort of seems to be too. Might pull back to it again but it's held its positions quite well.

Eventually all these doomers will be correct. But like I said, I'll be long gone by the time that happens.

Why does everyone seem to forget we just had our "doomsday" 2 years ago? How many do you want?

Mon, 10/11/2010 - 16:57 | Link to Comment Mako
Mako's picture

You started the collapse process 2 years ago, you did not have your doomsday.  Collapse will be going on and will not always go in one direction, matter of fact if you are quick enough you can make some so called money.  At some point the amount of needed power to sustain the unsustainable will hit again, collapse will continue then eventually liquidation of the nonperforming liabilities.

Sorry, there is no other way unless you have unlimited power.  Good luck with all that.

Mon, 10/11/2010 - 17:57 | Link to Comment fuu
fuu's picture

Hypertiger is that you?

Mon, 10/11/2010 - 17:22 | Link to Comment AR15AU
AR15AU's picture

That wasn't a doomsday. The Fed played one of their "get out of doomsday free" cards. Doomsday will be when the cards are exhausted.

Mon, 10/11/2010 - 18:02 | Link to Comment tmosley
tmosley's picture

There's only two in the deck, and I'm pretty sure they played the other one back in 1980.

Mon, 10/11/2010 - 19:17 | Link to Comment Xedus129
Xedus129's picture

What happened in 1980? CNN was launched?  Sorry I was born 3^2 years later.

Mon, 10/11/2010 - 20:20 | Link to Comment Misstrial
Misstrial's picture

1980 - Reagan was elected.


Mon, 10/11/2010 - 21:11 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

Actually, he was referring to Tall Paul I'd guess. The fact is they played trump cards in '33 and '71. Internal default followed by external default.

Mon, 10/11/2010 - 19:47 | Link to Comment OldTrooper
OldTrooper's picture

If the pit boss catches you counting cards you'll get thrown out of the gulag casino for good.  Be careful, tmosley.

Mon, 10/11/2010 - 20:12 | Link to Comment Landrew
Landrew's picture

They thought the same thing in the crash of 22, 27,29 and finally the phrase most popular in 1931, Just when we thought it was over it had just begun!

Mon, 10/11/2010 - 23:14 | Link to Comment samsara
samsara's picture

Mako,  First Love your posts.  But this statement.

 ....liquidated in the future from which a stable platform can be built for rerunning the same scam.

I disagree.  There will be NO running the scam again in ANYWAY similar this one. 

Two words.

Peak Oil.

We are in a Global Depletion of 2% - 4% of energy output for ever from a Petroleum perspective.

This is The END of Growth as Humans have come to know it.

There will be no rebuilding until our Global Pop. is down below 1 billion or so. 

Word of advice, before anyone Junks me,  Read the Robert Hirsch Report, or Spend a couple of months reading the Geological reasons why.  This is IT kids.

Cantarell - In decline

Bergan - In Decline

US - In Decline (since '71)

North Sea - In Decline

Ghawar - In Decline (Most Likely)


No Recovery,  No Rinse and Repeat.

This is THE End Game and THEY know it.

(If you think Peak Oil has anything to do with Financials, Please don't junk, get educated first)




Tue, 10/12/2010 - 02:33 | Link to Comment Bringin It
Bringin It's picture

Well said- Samsara.  The wheel turns back to the future.

Mon, 10/11/2010 - 17:07 | Link to Comment Buzz Fuzzel
Buzz Fuzzel's picture

I suspect the Mayan King said something similar but we will never know because there was no Mayan King when Columbus landed, the empire had vanished.

Happy Columbus Day!

Mon, 10/11/2010 - 22:10 | Link to Comment Bringin It
Bringin It's picture

The Mayans are still around, with a fairly intact culture.

Tue, 10/19/2010 - 19:10 | Link to Comment Buzz Fuzzel
Buzz Fuzzel's picture

I have been there.  I've seen it first hand.  They may look like Mayans and speak a language which is not Old World but the Mayans are gone the same way the Romans are gone and the Persians are gone and the Babylonians are gone.  Civilizations do collapse, sometimes suddenly and completely.  Instead of driving 70 miles and hour down the freeway in air conditioned comfort while being entertained by the latest hit music the survivors are riding donkeys and living with pigs and chickens in the front yard.

Mon, 10/11/2010 - 17:36 | Link to Comment reading
reading's picture


Even if they do QE to infinity, it won't help the market at this point.  Look at Japan.  It will just be a slow grind lower and lower -- sure opportunities to trade the upside but their won't be a sustained up trend.

Mon, 10/11/2010 - 16:37 | Link to Comment FEDbuster
FEDbuster's picture

The collapse will come first, when the middle class says, "fuckit":

I do enjoy James Kunstler's way with words.

Mon, 10/11/2010 - 16:43 | Link to Comment SheepDog-One
SheepDog-One's picture

I think most middle class people are at the 'fukit' stage now, I know a bunch of people not paying their mortgages although they could. They know theyll have to start over anyway so theyre spending what they have on other things rather throwing it to the crooks. Most of these people always played by the rules, and just refuse to play now with criminals.

Mon, 10/11/2010 - 16:54 | Link to Comment HarryWanger
HarryWanger's picture

Wow, that's something. I consider myself and social circle middle class and I don't know a single one of them who are at the "fukit" stage. Not even close. 

Mon, 10/11/2010 - 17:12 | Link to Comment snowball777
snowball777's picture

You must be friends with Charlie Gibson's "Middle Class".

Mon, 10/11/2010 - 17:38 | Link to Comment reading
reading's picture

Ask around, you'd be surprised.  I was shocked at how many people I "knew" who had decided not to pay.  

Mon, 10/11/2010 - 18:58 | Link to Comment HarryWanger
HarryWanger's picture

In 2008/2009 I personally knew 11 people who had lost their white collar jobs - good jobs. Within 9 months all had been rehired for more money than they were making prior. 

2 couples recently bought houses. All the rest that had been laid off didn't miss payments or get behind. 

Now add that to all the other folks we know that retained their jobs and had no problems with payments. So, no, I don't personally know anyone, even those who were laid off, that said "fukit". Probably because they bought homes with big down payments in an area that wasn't a bubble. In other words, they did the responsible thing. 

Mon, 10/11/2010 - 21:15 | Link to Comment Big Corked Boots
Big Corked Boots's picture

Good for your 11 friends... I lost mine and have to settle for a position as an ineffective, hated, poorly paid government bureaucrat. Of course being in the construction industry doesn't help.

As far as "fukit" goes, I have seen that trend start from those who had little to lose - the lower class, but not so low as to be permanent wards of the state - and spread to the skilled workers of the construction trades, who were in short supply 4 years ago. These folks were salt-of-the-earth middle class and they're hurting.

They are not revolting. They are bypassing every constraint they can find; some government, some legal, some ethical or moral. They are doing what they can and trying to do it without scrutiny or even the view of government at any level. Barter and cash are the new mediums of exchange.... no tax revenue on either.

Mon, 10/11/2010 - 22:37 | Link to Comment traderjoe
traderjoe's picture

There's no question the economy has its bright spots. Unemployment in S.D., N.D, and D.C. is very low. Work near one of those defense/NSA sites is fantastic. 

My area was late to the downturn, but things are accelerating to the downside. 5% of houses in my neighborhood are for sale, and they sit, month after month...

Mon, 10/11/2010 - 17:51 | Link to Comment FEDbuster
FEDbuster's picture

We have crossed over to "Trickle up Poverty".   "Fuckit" will be coming to a cocktail party near you soon.  Here in AZ, the same people who in 2005 were talking about how their house had almost doubled in price, have packed up their U-hauls for parts unknown. 

Mon, 10/11/2010 - 17:53 | Link to Comment Vernon Wormer
Vernon Wormer's picture

The wife and I are sick that we made our October payment. We will not make the November payment.

Mon, 10/11/2010 - 19:04 | Link to Comment cbxer55
cbxer55's picture

Me too Harry. I know a lot of people, and work with a whole lot of folks. Not a one of them has given up, in fact, most think things are peachy keen. I know no one who has foreclosed, no one who is defaulting, no one on food stamps.

In fact, my wife and I were both long-term unemployed in 2008/2009, her for 8 months, me for 11. We never missed a payment or got behind. We both now have good paying jobs, more than the jobs we lost, no credit card debt, no debt for anything except one vehicle and the house.

Things are peachy-keen, for the time being. I know it can all come tumbling down overnight, and am afraid of exactly that happening. But I have had that fear for a long time, and it aint happened yet.

Clocks ticking.

Mon, 10/11/2010 - 20:15 | Link to Comment Landrew
Landrew's picture

I am considered upper middle, by income not social skills:) Neighbors of both sides said FUCK-IT and mailed their keys in. Middle class IL.

Mon, 10/11/2010 - 23:41 | Link to Comment Saxxon
Saxxon's picture

I'll never be at fuckit but my trust of any elected leaders from dogcatcher on up, ANY of them, will never be reclaimed.  I consider the seeking of power over others to be a disease.

Mon, 10/11/2010 - 17:26 | Link to Comment Fearless Rick
Fearless Rick's picture

Excellent post by Kunstler. Ah, the lyricism, the irony and now, the denials:

Mon, 10/11/2010 - 22:16 | Link to Comment Bringin It
Bringin It's picture

Ask him about transfer payments to Israel like I did during 'Cast Lead' and stand by for Krakatoa.

Phoney Baloney crockodile tears IMO.

Mon, 10/11/2010 - 16:31 | Link to Comment Big Ben
Big Ben's picture

Yes, but after the Fed has finished liquidating the system, your Big Mac may end up costing $100.

Mon, 10/11/2010 - 16:33 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

By then they will be long gone. Only the patsies will be left when the peasants storm the castle walls. This is an old script they're playing out, updated where needed.

Mon, 10/11/2010 - 18:01 | Link to Comment 1100-TACTICAL-12
1100-TACTICAL-12's picture

Sorry, junked you by accident. I agree this scenario has played out over & over throughout history. Maybe what baffles one's mind is it only to us a couple of hundred & four scores to fuck it up. Has to be a world record....

Mon, 10/11/2010 - 18:03 | Link to Comment tmosley
tmosley's picture

FYI, you can remove a junk by clicking on it again.

Mon, 10/11/2010 - 18:07 | Link to Comment 1100-TACTICAL-12
1100-TACTICAL-12's picture


Mon, 10/11/2010 - 20:20 | Link to Comment Landrew
Landrew's picture

CD, This system, I understand is already in failure negative feedback loop, no problem understanding that. What I don't understand is what system can survive with the onset of peak oil in 05? I see no way 7 billion (2011) can feed themselves without cheap energy.

Mon, 10/11/2010 - 21:17 | Link to Comment LeBalance
LeBalance's picture

They are not going to survive.

Things are going to get messy.

Mon, 10/11/2010 - 22:07 | Link to Comment Incubus
Incubus's picture

Life's a big joke: you'll claw and kick every moment of the way, but in the end, it was all for naught.

The problems we face are all problems created by people: humans rules, human systems.  If everyone said tomorrow, "Fuck it, I'm done chasing carrots." And focused on improving the quality of life individuals had while spending their time on this floating rock, we'd be better off for it.  But that's just wishful thinking: we'll step over one another for status in this ephemeral system. 

And if you can't look back and have a laugh at the silliness of all of our existing human systems, you're doing it wrong. 



Mon, 10/11/2010 - 22:18 | Link to Comment Bringin It
Bringin It's picture

If everyone said tomorrow, "Fuck it, I'm done chasing carrots." And focused on improving the quality of life individuals had while spending their time on this floating rock, we'd be better off for it.

My sentiments exactly.  One can hope.

Mon, 10/11/2010 - 16:35 | Link to Comment cossack55
cossack55's picture

I gave up trusting any scumbag with a D or R after their fraudass name a long time ago.  Life has been much better since then and I can't wait to attend the hangings.

Mon, 10/11/2010 - 16:16 | Link to Comment unwashedmass
unwashedmass's picture


and CNBC is wondering why people are buying gold.

Mon, 10/11/2010 - 16:39 | Link to Comment cbaba
cbaba's picture

Yeah, Benny Shalom Bernanke also doesn't understand why Gold price is increasing .. he said so...

Mon, 10/11/2010 - 16:16 | Link to Comment dbradsha
dbradsha's picture

All this just makes me laugh. America 10 years ago might have cared. Now not even the broadsheets want to touch something that might once have raised a "Pulitzer prize." Ben aided by Obama, Bush and the rest are just destroying America and the average American isn't aware or if they are they dont give a sh**.

Mon, 10/11/2010 - 16:17 | Link to Comment RobotTrader
RobotTrader's picture

Kunstler is hilarious.

Unfortunately, he's another one who is pulling his hair out.  Grossly underestimating the power of the Fed and PigMen.

Here's Rasputin's comment...

Oh James of little faith.
- Mon, Oct 11, 2010 - 03:59 PM

James Howard Kunstler, that is.

In his latest missive, found here:

...the perma-screeching JHK rips into the various Thugs, Pigmen,
clueless regulators and other criminals who allowed/encouraged the
current McMortgageGate crisis to brew for years.

Finally, James--once again, for the umpteenth time--screams:

"This is IT!" We're scroomed!" I really, REALLY mean it this time!" which Ras replies:

"Relax and take a chill-pill, dude. Uncle Thug will institute yet
another of his now-to-be-expected epic takeovers of the entire
McMansion/McMortage space and will institute Rasputin's three-step
program to sort out this mess:

1. Uncle takes over all outstanding mortgages

2. Uncle declares all previous McBox titles 'null and void'

3. Uncle issues new titles.

Problem solved."

(Ras Conclusion): As with all perma-screechers, poor Kunstler sees
"scroomage" when other observers see "Pigman
Opportunity", because surely GoonMan Sachs and the other hogs will be
hired by Uncle to administer his Thugocratic takeover of yet another

And life will go on as if nothing ever happened.

Just like all the other times in the last forty years the poor,
hapless scroom-screechers have shouted:

This is IT!"

Kunstler can be compared to some of Rasputin's former
"Man-Gods", including:

1. Howard Ruff

2. Jerome Smith

3. Doug Casey (mentioned in an earlier post)

4. Martin Weiss

5. Harry Browne

6. Harry Schultz

7. Harry Figge

8. Prechter

9. The Daily Reckoning gang

10. Mogambo Guru

11. Jim Willie

12 Jim Sinclair

13. Jim Rogers

14. Jimmy Pup

15., strike that. Wrong guy.

16. Richard Duncan

17. John Rubino

18. James Turk

19. David Tice

20. The Comstock Boys

...and at least a dozen other doom and gloom bloggers, Websites,
and other sundry screechers.

Many of these guys have been warning of our "Impending Doom" for
more than thirty years.

In a row.

And Rasputin used to hang on their every word.

Right up until March, 2009.

At least JHK screams "Scroomage!" with some panache and


Mon, 10/11/2010 - 16:19 | Link to Comment SheepDog-One
SheepDog-One's picture

Robotrader when and why did you turn so gay?

Mon, 10/11/2010 - 16:27 | Link to Comment Ragnarok
Ragnarok's picture

He's just pointing out through Rasputin that there are real opportunities for those with influence to either gain more power and/or make more money off this crisis.


Ask yourself this, did the perptrators of the financial crisis make or lose money in the last 2 years?  What would be different during the foreclosure crisis?

Mon, 10/11/2010 - 16:27 | Link to Comment SheepDog-One
SheepDog-One's picture

'Money', what is that?

Mon, 10/11/2010 - 21:16 | Link to Comment tomdub_1024
tomdub_1024's picture

"Ask yourself this, did the perptrators of the financial crisis make or lose money in the last 2 years?  What would be different during the foreclosure crisis?"

--good point!

Mon, 10/11/2010 - 16:44 | Link to Comment SheepDog-One
SheepDog-One's picture

Thanks for junkin my post robotrader, means a lot to me.

Mon, 10/11/2010 - 20:25 | Link to Comment Landrew
Landrew's picture

Dude, Robotrader is a woman. There really is no need for that kind of disrespect.

Mon, 10/11/2010 - 16:23 | Link to Comment Shameful
Shameful's picture

Ride the wave till it crashes I guess.  I'm personally waiting for the 401k looting before I call for the end.  Won't end till there is nothing left to steal.

Mon, 10/11/2010 - 16:28 | Link to Comment Ragnarok
Ragnarok's picture

Won't end till there is nothing left to steal.


Post of the Day!

Mon, 10/11/2010 - 16:54 | Link to Comment espirit
espirit's picture

+1 Agreed.

Mon, 10/11/2010 - 17:59 | Link to Comment FEDbuster
FEDbuster's picture

401 K looting currently being worked on in Congress.  Could be a lame duck surprise:

Mon, 10/11/2010 - 21:22 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

Pitchfork Nation...

Mon, 10/11/2010 - 16:57 | Link to Comment A Nanny Moose
A Nanny Moose's picture


Mon, 10/11/2010 - 18:06 | Link to Comment 1100-TACTICAL-12
1100-TACTICAL-12's picture

The one bright spot is the so called public servants will be the 1st to be looted....

Mon, 10/11/2010 - 16:30 | Link to Comment SheepDog-One
SheepDog-One's picture

However, ask any Banzai Pipeline or Jaws surfer if riding the wave till it crashes leads to fun times or more often leads to being pummeled and cheese grated to death on the shallow razor coral there...often way better to bow off that big wave early.

Mon, 10/11/2010 - 16:39 | Link to Comment Shameful
Shameful's picture

Exactly, there is money to be made playing the game and going with the flow of the Fed.  But it can turn around on a person in an instant and totally wipe them out.  When the crash happens have to be first to the door, and that seems unlikely with current HFT structure.  Take the ball and go home or play with the big boys at their game.  Personally, except for a long position in a gold/silver miner (not much of my total assets and freely acknowledge it's gambling) I'm sitting with all my chips outside of this game.

Mon, 10/11/2010 - 17:13 | Link to Comment The Iconoclast
The Iconoclast's picture

But you can't keep your chips outside the game... can you?  They are pummeling the value of your money whether it's on the sidelines or not.

Mon, 10/11/2010 - 17:23 | Link to Comment Shameful
Shameful's picture

Well unless they go all Hudson Hawk on me I'm safe.  With peak gold they can only get so much more out of the ground at a time.  With the global currency debasement it's not likely that I lose in nominal terms on what I have.

Mon, 10/11/2010 - 16:37 | Link to Comment cossack55
cossack55's picture

I figure the last looting in Q2 2011.

Mon, 10/11/2010 - 22:22 | Link to Comment Bringin It
Bringin It's picture

In September, John Williams said 9 more months.  That would be June 2011.

Mon, 10/11/2010 - 16:28 | Link to Comment HarryWanger
HarryWanger's picture

That "3-Step Program" is dead on. Another doomer black swan that turns into a pigeon.

Mon, 10/11/2010 - 16:41 | Link to Comment Jake Green
Jake Green's picture

last year h1n1 was gonna kill everyone, this year its mortgages

go figure

Mon, 10/11/2010 - 16:47 | Link to Comment HarryWanger
HarryWanger's picture

You left out: volcano eruption, BP oil spill, GS investigation, etc., etc.

It's been a big year for "this ain't gonna end well" situations. All of which we somehow managed to make it through. Imagine that.

Mon, 10/11/2010 - 17:51 | Link to Comment RECISION
RECISION's picture

unfortunately I have to agree with you. This shit happens like snow melting, it breaks down so slowly and incrementally you never even notice it happening. In other words, this is going to just drag on and on and on, and there won't ever be the big bang a lot are expecting.

Mon, 10/11/2010 - 19:01 | Link to Comment HarryWanger
HarryWanger's picture

You hit it on the head. It will be a long slog muddling through tough times until the US is a much smaller world player. Most won't even notice but about 20% will feel it get tougher and tougher as the years go by.

Mon, 10/11/2010 - 20:49 | Link to Comment RockyRacoon
RockyRacoon's picture

...and then a big piece of the glacier breaks off.

Rare but devastating.

Lituya Bay, July 9, 1958

Mon, 10/11/2010 - 21:09 | Link to Comment HarryWanger
HarryWanger's picture

Yes, and it's 2010 and life goes on. 

Tue, 10/12/2010 - 01:40 | Link to Comment i-dog
i-dog's picture

The H1N1 scare was just a way of transferring some loot to big pharma (particularly Roche) through national purchases of hundreds of millions of flu shots (which I -- and the WHO -- knew were useless, and I suspect may also have contained other nasty things we don't want to know about). Don't ever let the bastards stick a needle into you or your kids, no matter how runny your nose gets.

Mortgages will get sorted by the gubmint, but the sorting won't see anyone getting a free house. Again, I suspect the 'solution' will contain other nasty things we don't want to know about. (Well ... we at ZH will know, but the masses won't have a clue).

Tue, 10/12/2010 - 02:44 | Link to Comment Bringin It
Bringin It's picture

Don't ever let the bastards stick a needle into you or your kids ...

i-dog - you have some great posts.

Full disclosure - I make exceptions for acupuncture with the right practitioner.

Mon, 10/11/2010 - 17:01 | Link to Comment Segestan
Segestan's picture

The west has been in decline for 40 years.. no surprise that others have attempted to sound an alarm. Hacks like 'ole ras' will be proven wrong and naive.

Mon, 10/11/2010 - 17:30 | Link to Comment Fearless Rick
Fearless Rick's picture

21. All the dildo homeless guys walking around with warning signs. (They're everywhere and they're actually FBI).

Mon, 10/11/2010 - 17:37 | Link to Comment A Man without Q...
A Man without Qualities's picture

Rasputin fails to understand the complexities of property ownership laws or securities laws - there is no quick and easy solution.  

I would ask him one question, re  point 1: if the government buys all mortgages that it doesn't already own, what price do they pay?

It isn't to say the government is powerless to fix this, I just can't see how they can fix it to let the banks off scott free, from a technical perspective, nor from a political perspective...  They must sense the mood in the country and they are not going to be able to ram a bailout through like last time.  Also, given size of the problem, the economic value to the banks probably exceeds the numbers involved last time.



Mon, 10/11/2010 - 21:05 | Link to Comment StychoKiller
StychoKiller's picture

US Homeowners, in default or not, are just the tip of this iceberg -- there's a lot of CDS's waiting for those CDOs/MBSs to punji-stick themselves.

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