Guest Post: Currency Wars: RIP Shadow Banking System, Long Live QEx!

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Thu, 03/17/2011 - 17:56 | 1068525 traderjoe
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Chart-porn - Bitchez!

Bank Holiday in 3...2...1...

Thu, 03/17/2011 - 18:19 | 1068626 IQ 145
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 Absolutely beautiful article. If Zero Hedge never did anything else at all; this would secure them a place as an important and meaningfull resource on the internet. The First chart is a real beauty. 

Thu, 03/17/2011 - 18:30 | 1068668 Sudden Debt
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this evening I gave a brilliant presentation about our economic future with 95% of stuff that I've taken from ZH.

I've really scared the shit out of people this evening and I've got the best questions ever: WHAT CAN WE DO!

My answer: Cut costs to the bone and if need cut the bone and hoard commodities.

I've got 9 meeting request when I left home and a invitation to give a presentation at the biggest entrepeneural network in my country.


Thu, 03/17/2011 - 18:35 | 1068702 IQ 145
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 I understand; but this article is outstanding. bookmarking the website on both browsers. The guy can speak english in whole sentences and he understands what's going on; purrr-fect.

Thu, 03/17/2011 - 19:08 | 1068909 Hacked Economy
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I've given lectures and classes on this very stuff for a while, specifically "cranking up" the frequency since December.  I haven't used much info from ZH in my discussions and articles (yet), but I've been gleaning quite a bit of useful tidbits that corroborate what I already have.  And just like you, Sudden, the people I speak with are aghast once the "aha!" light comes on in their heads.  They begin seeing the world around them in a different, more truthful way than ever before, and they're full of questions of what they should do to prepare for what's coming down the economic pike.

Thu, 03/17/2011 - 22:04 | 1069660 New_Meat
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Your answer==Cal Coolidge's answer in U.S. 1920-21-22 situation. - Ned

Fri, 03/18/2011 - 00:30 | 1070072 LMAOLORI
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As Bob Murphy says "More generally, "disrespectful-punk" websites catering to financial readers, epitomized byZeroHedge and EconomicPolicyJournal, take it as a matter of course that Bernanke has no clothes. The anonymity of the Internet ensures that plenty of respectable Wall Street pros turn to these alternative media to get the real news about the economy — when their boss isn't looking, of course."

Thu, 03/17/2011 - 21:11 | 1069436 Golden monkey
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Very old, extremely smart gentleman.

Will leave us when capitalism crash?


Thu, 03/17/2011 - 18:49 | 1068786 michael.suede
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I disagree with this whole liquidity trap nonsense and the idea that the central bank has to print money or we will run out of it in a deflationary scenario.

There is never too "little" money and deflation is a good thing for savers.

Such notions are Keynesian nonsense.  Prices will adjust downward proportionate to the amount of debt that is liquidated and they will eventually stabilize once all of the bad debt is gone.

Bankruptcy is the slavation of the economy.

Thu, 03/17/2011 - 19:38 | 1069052 stollcri
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You might be technically correct, but there might be some problems holding society together under your scenario.

Consider that I have a mortgage that is well within my budget given my income, but after a certain amount of wage deflation the monthly payments may no longer be affordable. Should I have saved my money to buy my house like my grandfather did? Maybe so, but that wasn't the social contract at the time of my purchase decision.

Younger people would get screwed more in your scenario simply because they have not had the same amount of time to accumulate savings (and the prevailing social contract told them to take on debt that is exempt from bankruptcy to go to college to get the good paying job). I think that is part of the problem in MENA, no?

Thu, 03/17/2011 - 23:13 | 1069884 Slim
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You may disagree with it but this fits with what is experienced in credit crisis/financial collapse.  When velocity goes to zero and you wind up in a debt deflationary spiral, have to push people to invest/do something otherwise everyone keeps going to cash and a fractional reserve system blows appart as everyone simultaneously deleverages the economy as they unwind it to get to cash.  There is a reason they say that the Fed is pathologically afraid of deflation and this is it.  This is what made the Great Depression so bad when they bombed out the banks and were on the gold standard (which they then defaulted on in 1933 so it is no panacea or guarantee that bad things can't happen).


Of course when you look at all the money wiped out by the shadow bank collapse, people would have a hard time justifying a higher price of gold/silver today vs. 2006 on money supply alone (certainly risk premium would figure).  My sense is that a lot of people don't like to talk about this but really this is the issue with gold right now.  If you look at M1 growth, you better buy gold.  If you look at M3 or the net damage to total money supply spun up via velocity and out in the should be down heavily (ex risk premium) and no where near where it is today.  This is the real issue here with gold/inflation/money supply and its odd that it isn't discussed more on this site regardless of which side certain people may be on in the argument.  Actually the fact that it never gets mentioned makes me a little suspicious of motivations.

Thu, 03/17/2011 - 17:56 | 1068530 cossack55
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Tipping Point my ass. I'm already upside down.

Thu, 03/17/2011 - 18:15 | 1068600 umop episdn
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Me too.  ;)

"Nixon...took the US dollar and the world Reserve Currency off the Gold Standard. It unleashed the greatest global debt pyramiding scheme the world has ever seen - or ever will see again."

This is likely true, but Einstein once said that only two things were infinite, the universe and human stupidity; but he wasn't sure about the former.

Thu, 03/17/2011 - 18:36 | 1068712 IQ 145
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 I've been telling people this exact statement for thirty years, but I had to quit; because people look at me like I was just let off by an alien spaceship.

Thu, 03/17/2011 - 17:59 | 1068536 Oracle of Kypseli
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Yes. But, it takes too long to travel to infinity. Too far.

Thu, 03/17/2011 - 18:50 | 1068777 dearth vader
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Imagine, you're part of infinity already.

It's all in the mind, dear.

Thu, 03/17/2011 - 19:00 | 1068854 bbaez
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Infinity and beyond baby

Thu, 03/17/2011 - 18:01 | 1068543 Spalding_Smailes
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Warnings Aplenty From the 'Father' of Securitization

In his first television interview ever, Lew Ranieri did not disappoint. In a candid interview, the "father" of the mortgage-backed security offered important insights on the state of the housing market and the market for securitized commercial mortgages, while also proving willing to accept criticism of the industry he helped to create.

(Lew Ranieri is known as the "father of securitization" because he helped invent the securitized mortgage in 1977 while working for Salomon Brothers. He's even been credited with inventing the word "securitization.")

Thu, 03/17/2011 - 18:02 | 1068547 DrStrangelove
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Infinity is just the beginning

Thu, 03/17/2011 - 18:13 | 1068555 TruthInSunshine
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The collapse of the Shadow Banking is not resulting in the degree of asset deflation you might expect because the assets deflating are what has been referred to as toxic debt. The underlying basis for these instruments is real estate which is correspondingly being stopped from collapsing by the halting of Mark-to Market and other Fed sanctioned accounting gimmickry. Meanwhile the offsetting Money creation by the Fed is flowing into equities and bonds. This is creating the asset inflation that the Fed wants and needs. A major problem for the Fed is not just being able to generate the amount required to offset the Shadow Banking System erosion, but also the rate at which the it can realistically make this happen. The Fed needs to buy more time. Unfortunately there are other major problems that are boxing them in.



Great, great selection of analysis - there.


We're NO WHERE near done deleveraging. Aside from losing a good chunk of its middle class in this rip-your-face-off downturn, the other problem that the nation as a whole faces is that whatever potential for planting the seeds of any recovery there are, government is colluding with the elite in alleged 'private' enterprise to ensure those seeds never grow on U.S. soil - these are now saplings in Mexico & China, soon to be mighty oaks.

We're back in a bubble mentality where people think Apple, Groupon and Facebook will save us, when Apple has 90 employees in China for every 4 they have in the U.S., and companies like Groupon and Facebook aren't and will never be large scale employers, never mind that Groupon and Facebook have shaky business models and they lack proprietary underpinnings (so they're not even guaranteed a long life).


Thu, 03/17/2011 - 18:06 | 1068560 DrStrangelove
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the population growth chart might not have been expected to look like that in 1000A.D.

Thu, 03/17/2011 - 18:53 | 1068805 dearth vader
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Nevertheless, they were in overshoot, even in those days.

Lack of energy from fossil fuels!

Thu, 03/17/2011 - 18:07 | 1068562 plocequ1
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Who cares. I always hated money anyway. Its dirty

Thu, 03/17/2011 - 18:09 | 1068577 Jean Lazard de ...
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then money laundering would come in handy for you... lol

Thu, 03/17/2011 - 18:10 | 1068579 mynhair
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But it has copious quantities of Sheen residue....

Thu, 03/17/2011 - 18:44 | 1068760 Jean Lazard de ...
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and? that´s WINNING

Thu, 03/17/2011 - 19:02 | 1068870 bbaez
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Tiger Blood and Sheenacine

Thu, 03/17/2011 - 18:10 | 1068576 Bearster
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If I were as confused as Gordon T. Long, I would not be writing about economics but frantically studying it remedially.


"...the US dollar is a Federal Reserve note. It is an IOU to the Federal Reserve."

It is a liability of the Fed, not an asset of the Fed.  The possessor of the FRN does not owe anything to the Fed; the Fed owes him something.

The FRN is irredeemable, but still one should be clear on this distinction (and many other erroneous notions in this article)!

Thu, 03/17/2011 - 18:19 | 1068604 TruthInSunshine
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The FRN is an asset of the holder, and a liability of the taxpayer, if one wished to be technical.

But I won't mention that in reality, due to the incredible distortions of Modern Money Mechanics (the playbook for both the London Central Bank & Federal Reserve Bank), what we count as an asset (the FRN) is really not what we intuitively believe it is - because to do so would be to digress.

Thu, 03/17/2011 - 18:19 | 1068628 Bearster
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Actually ... to be technical, the Treasury Bond is the liability of the taxpayer.  The Fed is, by a convenient fiction everyone pretends to believe in, a separate entity with a separate balance sheet.  That way the mutual check kiting scheme (aka "69") between the Fed and the Treasury does not appear to be mere masturbation, but something more...

Thu, 03/17/2011 - 18:25 | 1068653 TruthInSunshine
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While I agree with you, I hasten to add that both each FRN and Treasury Bonds are liabilities.

I agree that it's only through collusion between the Fed and the Treasury that our system can now operate.

Thu, 03/17/2011 - 18:37 | 1068719 Sean7k
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The FRN is not a liability of the FED, it is a liability of the Treasury department and by extension the taxpayer. Treasury issues bonds and notes and in return, receives FRN's and credit notations. 

FRN's are a monetary instrument, being a liability and an asset, depending on how you are using it. For those holding the bonds, it is an asset. For the taxpayer, it is a liability, thus the national debt interest payments.


Fri, 03/18/2011 - 22:42 | 1074287 benbushiii
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It is a liability of the Fed, not an asset of the Fed.  The possessor of the FRN does not owe anything to the Fed; the Fed owes him something.


Actually, this is where the problem with the Bernank becomes evident.  The note is indeed a liability of the Fed, but the Bernank can honor that liability by printing more liabilities.  There is nothing  backing the under-lying liability owed by the Fed.  All of the QEs only perpetuate the myth.

Thu, 03/17/2011 - 18:13 | 1068584 mynhair
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Just put a wooden stake into the TBTF already!  This is getting tiresome.

Big whoop if Soros winds up eating mud pies.

Thu, 03/17/2011 - 18:12 | 1068593 spinone
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Lets stick with the concept of the currency being debt saturated for a minute.

When a debt based fiat currency is debt saturated, game over. 

We do not have the capacity at this time to grow the economy and pay off the debts.

Either the debts are defaulted, or the currency remains broken.

The debts wont be defaulted because they debts are the TBTF assets, and they get mark to market.  The system that keeps the US middle class in debt slavery, and the currency broken, is supported by the system because it is TBTF. 

How long can this go on?  Until a crisis puts it over the edge.  Keep your eyes on Japan ripple effects for the next month.

Thu, 03/17/2011 - 18:35 | 1068706 Meme Iamfurst
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THAT  (Japan) is just the tip of the ice berg.  There will be no place untouched by world events unfolding, Japan is just the headline.

The Forth Turning, five planets in Aries, with Uranus sitting there until 2019...the collective world has no idea what is going to happen, but the status quo is ended.


Thu, 03/17/2011 - 19:00 | 1068859 Creed
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if ASSTROLOGY makes you so omniscient...

why don't you use it to trade the stock market, get uber rich, then come back here and tell us how it's done?


then I'll give you props

Thu, 03/17/2011 - 20:07 | 1069173 LibertyIn2010
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"But, I see the tip of the iceberg and I worry about you."

RUSH - Distant Early Warning

If ZH had a theme song...this is it.


Thu, 03/17/2011 - 18:13 | 1068597 chump666
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On wires now!

*Japan radiation from plant could exceed Chernobyl

*Forum companies evacuating staff

*Tokyo airport gridlocked

Thu, 03/17/2011 - 18:15 | 1068610 mynhair
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Wires.  Let me guess:  AP?

Thu, 03/17/2011 - 18:21 | 1068639 TruthInSunshine
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Well, like I've been saying, there will be a series of crises between now and 8:45 tomorrow morning, and all hope will be restored just in time for market open.

Glow in the dark airline passengers from Japan notwithstanding.

Thu, 03/17/2011 - 18:16 | 1068605 Meme Iamfurst
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can't you just smell the rubber hitting the road?

Murphy's law, it ain't just for you anymore.

Thu, 03/17/2011 - 18:16 | 1068606 decklap
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Is the sky ever *not* falling on this blog?  Seems like you guys can't look out the window without getting the shit smaked out of you with a chunk of wild blue yonder

Thu, 03/17/2011 - 18:19 | 1068622 mynhair
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My 'wild blue yonder'  is populated by Algore's aged (for Libs:  pronounced age-ed)  G-II.

Thu, 03/17/2011 - 18:28 | 1068669 anony
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"A Zebra can't change its spots".   (an original Al-Gore-Rhythm)

Thu, 03/17/2011 - 18:19 | 1068630 TruthInSunshine
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Take the blue pill.

Or are you prepared to make a case for 'green shoots?'

Thu, 03/17/2011 - 18:27 | 1068658 Jendrzejczyk
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Unvarnished reality takes a bit of getting used to.

Thu, 03/17/2011 - 18:51 | 1068795 RockyRacoon
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Truth.  Yep, it's a bitch.

Thu, 03/17/2011 - 19:08 | 1068901 Cynthia
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But unvarnished reality is too painful to handle without being Comfortably Numb:

Thu, 03/17/2011 - 21:28 | 1069495 StychoKiller
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The snow has finally started melting -- enough for us to get most of the XMas decorations taken down.  Soon, the frogs will be peeping in the lake behind our property -- the World WILL continue to spin on its axis, whether Humans still exist to perceive it, or not.

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