Guest Post: Fed-Covert Money Printing Alert

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Sat, 11/21/2009 - 13:28 | 138209 deadhead
deadhead's picture

Thanks much for the summary Don!

I have just this morning contacted both of my US Senators (Schumer, Gillibrand) asking them to vote against the Bernanke reappointment, support Audit the Fed, as well as for them to join those calling for Secretary Geithner's resignation.

I hope others do the same. An email and follow up phone call is the best approach in my view.  The more noise they receive on this matter, the more likely that they will be forced to pay attention.

Sat, 11/21/2009 - 21:17 | 138461 Anonymous
Anonymous's picture

i contacted my congressshits when his appointment
to chief financial terrorist was announced by
kenyan born barry soetoro some months ago....

Sun, 11/22/2009 - 01:20 | 138571 knukles
knukles's picture

And oh whoopoliedoop, enter Laurence Summers as Mucketie muck of the Great Monetary Temple in the sky, a academic  schooled in fiscal policy, deluxe.  And to be overseen even bigger time by Barney, Timmy, Chris, Nancy and the Messiah.

Damned if we do, damned if we don't. 

Don't cry for me Zimbabawe...

Sat, 11/21/2009 - 13:36 | 138214 You Cant Handle...
You Cant Handle the Truth's picture

Excellent work Don.  

Sat, 11/21/2009 - 14:38 | 138238 Assetman
Assetman's picture

I concur... this is very good work, Don.

Do you think the Fed will end MBS purchases when the authorization runs out?  Or are we looking at a new program in 2010?

Sat, 11/21/2009 - 17:35 | 138332 Cognitive Dissonance
Cognitive Dissonance's picture

Since the Fed, Treasury and the White House have all unequivocally declared that "failure" is not an option (what exactly is failure?) it seems to me these programs will continue endlessly and even escalate (either covertly, overtly or both) until they succeed or there is a total collapse. I'll let you define "succeed" because it's certainly open to interpretation.

While we all seem to understand that this strategy will never bring us back to "normal" (which for our purposes will be defined as the world as viewed during the middle aughts or 2003-2007) what economic state will this bring us too?

There are too many variables involved to make any sensible predictions, particularly considering my favorite saying, the always popular "desperate men do desperate things". But I would suggest we study other extremely complex highly engineered devices that subsequently failed for more insight.

Personally I believe we all willingly participate to some extent or another in the false hope that utter collapse won't happen simply because any alternative view is too horrible to entertain. 

The two space shuttle "disasters" are for me particularly enlightening because they involved a potent mix of technical wizardry, deliberate and focused blindness, hubris and the ultimate killer, group think combined with peer pressure.

I just spent 4 hours re-reading some articles about the (first shuttle) Columbia "accident" and what was clearly obvious in hindsight was anything but obvious leading up to the accident. Most everyone felt they had a good grasp of the engineering issues and probabilities of disaster and it was felt those were very small. While there was a minority view to the contrary, the consensus was no problem, full speed ahead. I suspect the Fed and friends feel the same way today.


Sat, 11/21/2009 - 17:47 | 138339 Anonymous
Anonymous's picture

Debt has exceeded economy wide carrying capacity. Defaults in residential and commercial real estate are largest variables which will make overleveraged banks insolvent. The excess debt has been assumed by sovereign government that exchange impairments for much higher than market value with Treasuries. These bailouts and backstops are compounded by much higher federal expenditures for counter-depression responses. This add'l welfare, backstopping, interest payments, crashing tax revenue, exponentially increasing retirement and healthcare obligations surmount any potential to pay for them. The last several decades of unceasing growth has stopped. It is crashing and cannot be resumed, only dampened by monetary and fiscal responses.

Borrowing needs of the USA surpass any potential of all the world (at highest participation) to fund. Only monetization can fill the shortage gap. Monetization dilutes the currency for the world to see. Raising interest rates to subdue monetization must crash equity markets and sovereign debt markets worldwide, leading necessarily to further crashes in real estate and corporate markets.

Therefore the options which have the ultimate same outcome are: (a) Monetization to correct arrears due to deficit spending (b) Raise interest rates to increase demand for debt issuance which draws crowds to Treasuries and crashes everything else.

Strong currency, destroyed markets. Weak currency, feeble reinflation and market support.

BUT. China!
China may have lost confidence in the USA. Loss of faith in its leadership and ability to correct its financial position of peril. Loss of faith in the integrity of US lead metals market because of counterfeiting.

If that loss of confidence has fused with a belief of being double crossed, and China wishes its revenge and to secure as much recoverable value from their rapidly corroding relationship....
They will gather precious metals in earnest. They will dump their dollars which will join with the existing money supply to destroy the US currency. The gold management team which uses primary dealer commercial banks to hold short positions on Gold will be forced to cover at terrific losses driving the price astronomically.

Remember that these banks are so weakened at present that only fantasy accounting (allowed by rule changes) and having tacit backing of full faith and credit keep them from rolling over. They are well over 25:1 leveraged not including their disastrous forays into CDS derivatives.

Outcome? Potentially the collapse of US dollar and economy. The worst global depression on record. Complete meltdown of credit, banking, and currency relationships. End of globalism.

Sat, 11/21/2009 - 18:07 | 138351 Assetman
Assetman's picture

Comments from both of you (anon and Cognitive Dissonance) are very much appreicated.

Sat, 11/21/2009 - 18:26 | 138359 JR
JR's picture

Interesting comment in the current Barron’s Letter to the Editor column from David Edler: “We need to be able to make things, otherwise we will be overtaken by countries that do, while they laugh at us trying to sell insurance to each other.”  Case in Point, the following article:

Chinese financial institutions may buy US banks

Cash-rich Chinese banks have been scouring the world for investment targets.

Chinese and US regulators have started to negotiate on how to allow Chinese financial institutions to buy into small and medium-sized banks in the United States.

A pact may be decided between the US and Chinese governments after Chinese bankers complained it had been difficult for them to set up branches or invest in banks in US, partly due to strict approval processes for financial deals.

Industrial and Commercial Bank of China is now the world's biggest bank by market value, while Citigroup Inc in the US, is now only worth as much as a second-rung commercial bank in China.

Chinese investment bankers and financial advisers may be invited to look at several potential investments in US banks, especially those that are mostly in financial trouble.

A Sino-U.S. Memorandum of Understanding to encourage Chinese banks to invest in US lenders is being formulated by the Obama administration, which has found it needs more capital to take over troubled lenders.

Sat, 11/21/2009 - 19:16 | 138386 Orly
Orly's picture

Hmmm.  Reminds me of the Japanese in the '80's buying 30 Rock.

Looks like the Chinese "miracle" economy is topping here.

Sun, 11/22/2009 - 03:33 | 138599 Anonymous
Anonymous's picture

You should be thankful we didn't have economists running NASA, otherwise instead of raining dollar bills over our heads, Ben the chopper would have satellites falling over our heads every other day. imho, we must be really crazy to entrust our children's future in the hands of economists.

Sat, 11/21/2009 - 17:59 | 138344 Anonymous
Anonymous's picture

Diseases desperate grown, by desperate appliance are relieved, Or not at all.

Check kiting has run its course. Creditors view in full fury the irremediable insolvency of their debtors. They are about to proceed by over and covert means to strip him of any value to satisfy incompletely his obligations.

Even a caveman can see the inevitable and imminent collapse.

Sat, 11/21/2009 - 13:55 | 138221 SilverIsKing
SilverIsKing's picture

Awesome work Don.  Thank you.  This analysis is another shining example of how valuable Zero Hedge, with all of its contributors, truly is.

Sat, 11/21/2009 - 16:04 | 138274 Enkidu
Enkidu's picture

Agreed - the site is awesome and the contributor articles - as well as in-house work.

Sat, 11/21/2009 - 14:02 | 138224 AnonymousMonetarist
AnonymousMonetarist's picture

The truths you hold to be most dear are lies told to you by liars : credit-default swaps were the problem before they weren't the problem


You're beautiful more beautiful than me
You're honorable more honorable than me
Loyal to the Bank of America

It's a sign of the times

Enemy sighted, enemy met, I'm addressing the realpolitik
Look who bought the myth'

'Am I supposed to be a man, am I supposed to say, "It's OK, I don't mind, I don't mind"? Well, I mind! I mind big time!' -Wayne Campbell 

'Did you ever see that "Twilight Zone" where the guy signed a contract and they cut out his tongue and put it in a jar and it wouldn't die, it just grew and pulsated and gave birth to baby tongues?' -Garth Alger

WSJ Editorial
November 20, 2009

TARP Inspector General Neil Barofsky keeps committing flagrant acts of political transparency, which if nothing else ought to inform the debate going forward over financial reform. In his latest bombshell, the IG discloses that the New York Federal Reserve did not believe that AIG's credit-default swap (CDS) counterparties posed a systemic financial risk.

(Ex-Squeeze me? -AM)

For the last year, the entire Beltway theory of the financial panic has been based on the claim that the "opaque," unregulated CDS market had forced the Fed to take over AIG and pay off its counterparties, lest the system collapse. Yet we now learn from Mr. Barofsky that saving the counterparties was not the reason for the bailout.

In the fall of 2008 the New York Fed drove a baby-soft bargain with AIG's credit-default-swap counterparties. The Fed's taxpayer-funded vehicle, Maiden Lane III, bought out the counterparties' mortgage-backed securities at 100 cents on the dollar, effectively canceling out the CDS contracts. This was miles above what those assets could have fetched in the market at that time, if they could have been sold at all.

The New York Fed president at the time was none other than Timothy Geithner, the current Treasury Secretary, and Mr. Geithner now tells Mr. Barofsky that in deciding to make the counterparties whole, "the financial condition of the counterparties was not a relevant factor."

(Baking Powder? -AM

In April we noted in these columns that Goldman Sachs, a major AIG counterparty, would certainly have suffered from an AIG failure. And in his latest report, Mr. Barofsky comes to the same conclusion. But if Mr. Geithner now says the AIG bailout wasn't driven by a need to rescue CDS counterparties, then what was the point? Why pay Goldman and even foreign banks like Societe Generale billions of tax dollars to make them whole?

Both Treasury and the Fed say they think it would have been inappropriate for the government to muscle counterparties to accept haircuts, though the New York Fed tried to persuade them to accept less than par. Regulators say that having taxpayers buy out the counterparties improved AIG's liquidity position, but why was it important to keep AIG liquid if not to protect some class of creditors?

Yesterday, Mr. Geithner introduced a new explanation, which is that AIG might not have been able to pay claims to its insurance policy holders: "AIG was providing a range of insurance products to households across the country. And if AIG had defaulted, you would have seen a downgrade leading to the liquidation and failure of a set of insurance contracts that touched Americans across this country and, of course, savers around the world."

(Crickets chirping .-AM)

Yet, if there is one thing that all observers seemed to agree on last year, it was that AIG's money to pay policyholders was segregated and safe inside the regulated insurance subsidiaries. If the real systemic danger was the condition of these highly regulated subsidiaries—where there was no CDS trading—then the Beltway narrative implodes.

(I think I am going to hurl. -AM)

Interestingly, in Treasury's official response to the Barofsky report, Assistant Secretary Herbert Allison explains why the department acted to prevent an AIG bankruptcy. He mentions the "global scope of AIG, its importance to the American retirement system, and its presence in the commercial paper and other financial markets." He does not mention CDS.

'Well, you know what you can do with your show? You can take a flying... 
[a passing jet liner mutes out most of what he says] 
...till the handle breaks off and you have to get a doctor to pull it out again!
' -Garth Alger

Sat, 11/21/2009 - 16:00 | 138272 D.O.D.
D.O.D.'s picture


Sat, 11/21/2009 - 14:05 | 138227 Anonymous
Anonymous's picture

Exactly. Geithner formally requested that Congress raise the $12.1 trillion statutory debt limit in August, saying that it could be breached as early as mid-October. There would have been no health care debate in the House if the Senate was debating increasing the debt limit. This is why the Senate needs to vote on the health care bill pronto because right after that vote, we run out of every trick to keep the debt limit under $12.1T

Sat, 11/21/2009 - 14:23 | 138233 Rainman
Rainman's picture

Bingo. The debt limit is like the crazy aunt living in the basement. All the Dems know she lives down there, but nobody wants to talk about her....especially since she's a distraction to the healthcare lovefest going on above ground.

Sat, 11/21/2009 - 16:49 | 138300 Anonymous
Anonymous's picture

Note for you foaming at the mouth Republicans that love to dig on those evil tax and spend Republocrats.

I seem to recall a borrow and spend fiesta that lasted a good eight years under GWB. New figurehead, same policy.

Sat, 11/21/2009 - 18:18 | 138357 Anonymous
Anonymous's picture

So, what's your point? Democrats should get health care through because Republicans should shut up and sulk in the corner to avoid being seen as hypocrites.

Sat, 11/21/2009 - 18:29 | 138360 Anonymous
Anonymous's picture

Yep. This is both a Rep & Dem problem. ALL politicians lie & do what is politically expedient to stay in power.

But if you think what the idiot Reps did under W was ANYWHERE near what O & this crowd of thieves are doing to MY UNBORN GRANDCHILDREN'S future, you are either intellectually dishonest or you just ain't paying attention.

Check it out in graphic form straight from the CBO.

Sat, 11/21/2009 - 21:24 | 138464 Anonymous
Anonymous's picture

a gigantic fuck you, nancy

amerika has taxed and spent since hoover-roosevelt....
it has not stopped once regardless of party....

the only party is to rape tax payers and citizens....

Sat, 11/21/2009 - 14:09 | 138228 duckweed
duckweed's picture

it won't end with without a revolution.

Sat, 11/21/2009 - 16:48 | 138299 Hephasteus
Hephasteus's picture

Good thing one is scheduled.

Sat, 11/21/2009 - 19:27 | 138391 Anonymous
Anonymous's picture

"Meet the new boss. Same as the old boss."

Sun, 11/22/2009 - 19:54 | 138861 Hephasteus
Hephasteus's picture

Unless of course the necessary conciousness is created to completely destroy bossing technology.

Sat, 11/21/2009 - 14:18 | 138230 Rainman
Rainman's picture

After reading this, I am now desperately trying to change my vote to " OVER " on the spot price of gold.

Nicely done summary, Don.

Sat, 11/21/2009 - 14:38 | 138237 Anonymous
Anonymous's picture

Could be higher than 2000.

Sat, 11/21/2009 - 14:24 | 138234 Kayman
Kayman's picture

Solution:   President Obama has a national television address telling the American people that he was tricked by Hank Paulson last fall (Hank wanting to save Goldman) into believing that the New York money cartel needed to be saved first- a mere $700 billion for Hank's friends.

And Obama apologizes for bringing Goldman's men into his cabinet and he has decided to fire Geithner and Summers forewith. He will ask Helicopter Ben to resign. He will ask for clemency for Dubya and forgiveness for Greenspan.

And after being slapped upside the head during his China trip our president has reached the inescapable conclusion that unless there is true two-way trade with any and all nations, that American markets will be closed to one-way streeters, and currency manipulators.

 President Obama has decided to fund the weakened regional banks and withdraw all current and future support of the New York cartel starting with  Goldman.  And an independent investigation of commercial and criminal conflicts of interest that have defrauded the American people, will immediately be launched against the New York cartel.

In a Lincolnesque statement our President will tell the American people that he and they have been the victims of the big lie perpetrated by a crowd of self-appointed gluttonous money changers that have perversely turned JFK's beseechment in to " ask not what you can do for your country, ask what you can do to manipulate and steal from your country".

And finally, President Obama tells the American people the simple but solid truth that  there is no free lunch- that you cannot borrow yourself in to prosperity. That we are in a hell of a mess brought on by hollowing out the American economy by gutting out the American middle class manufacturing jobs (the very basis of America's previous solid economy).  American jobs will be created by repatriating "outsourced' jobs lost to one-way streeters and currency manipulators.

I have a dream....sigh.... is there an uncorrupted leader out there ?

Sat, 11/21/2009 - 14:33 | 138235 Anonymous
Anonymous's picture

History shows that, with very rare exceptions that tend to be overemphasized in retrospect, those with supreme power in a society will let that society burn down rather than give up their power. I think Obama would be assassinated before he could give that speech. Not that I believe for a moment he'd want to give it in the first place.

Sat, 11/21/2009 - 19:32 | 138397 Anonymous
Anonymous's picture

"Those with supreme power in a society will let that society burn down rather than give up their power."

If anything, that's a complete, total understantment.

The was a Roman Emperor who made a deal with the Barbarians to let them in, if they would dispose of his enemies.

I'd say that those in power will not stop at anything, and I mean anything, including actively destroying society, rather than give up power.

That is the lesson from history. We either need to learn it, or repeat it until the lesson sinks in.

Sun, 11/22/2009 - 00:25 | 138558 slick
slick's picture

The sad fact is that people in power do not look back at history because they only live in the present and as to the future they don't give a damn because they will not live in it!

Sat, 11/21/2009 - 14:42 | 138239 Daedal
Daedal's picture

That's what he should have done on the first day in office. He had 90% approval rating, and the prior administration was hated. He could've easily blamed the prior administration and correct the imbalance (painful as that would have been). Instead, he still blamed the administration, but then proceeded to extentuate the failed policies at an exponential degree - cheap credit, bailouts, more stimulus, escalating another war, etc. He even re-appointed Bernanke. The only 'change' was an enhancement of the same tried and true failed policies. Obama continues to dig a hole -- now using a bulldozer instead of a shovel.

Sat, 11/21/2009 - 14:48 | 138242 Rainman
Rainman's picture

Proof that the banksters had all their bases covered. Obama was guzzling those campaign contributions. That " CHANGE " theme had a nice ring to it. Big Bucks to the Boyz and small Change for the sheeple. 

Sat, 11/21/2009 - 15:55 | 138270 Daedal
Daedal's picture

Good point. I think that will be the impetus for real change; when people realize that when Geitner says "no one cares more about the health of our economy more than me", that it doesn't mean shit when he's restraining you while Bernanke pilfers your pockets for loose change. Our government has been reduced to a gang of merry men prancing around the virtues of quantitative easing and the redistribution of material goods and services. It's time to dethrone the prince of theives.

Sat, 11/21/2009 - 16:17 | 138280 D.O.D.
D.O.D.'s picture

Does anyone else find it quite odd, that a junior senator like obama received all that national air time, even prior to the primary race beginning.  I remember the first story I saw run about him; "Who is the brash young senator ready to shake up the DNC?", and he was running across a parking lot, with a local news camera man following him, and he challenged another contender to a debate, and I was thinking to myself, who the hell is this?!? Of course this "random" act of boldness made it to national news.

Air time is no accident, and everyone knows; even bad press is good press when you are an unknown. 

No, obama was hand picked, the campaign strategy meticulously designed to make him appear as the under-dog, a fantastic Hollywood story.  Other than budwieser and football, what do Americans love more then an under-dog saves the day story.  Unfortunately, here in the real world, the story goes on long after the "happily ever-after"

obama is nothing more than a puppet in a show, and until America decides they want to know who the real puppeteer is (I think most of us here already know...), Americans will continue to be mesmerized by the shadows on the cave wall, and will kill anyone who calls the performance a deception.

Sat, 11/21/2009 - 17:19 | 138321 SilverIsKing
SilverIsKing's picture


Sat, 11/21/2009 - 19:23 | 138389 Orly
Orly's picture

Obviously, it goes much deeper and much further than that, DOD.  And it is all coming to a head.  The fourth turning is upon us.

These next ten years are going to be something else.

Sat, 11/21/2009 - 22:10 | 138485 geopol
geopol's picture

These next ten years are going to be something else.


Let me foist upon you a grim analysis::: Forget ten years,,,10-24 Months..





Good open Soil


300 Cords wood

10,000 gallon fiberglass tank buried filled with diesel

Just to begin with!!


We won't make two years sorry to report

Sat, 11/21/2009 - 19:30 | 138395 Anonymous
Anonymous's picture

The Manchurian candidate?

Sat, 11/21/2009 - 21:00 | 138454 D.O.D.
D.O.D.'s picture

Technically they are all (...ok mostly...) Manchurian candidates.

Sat, 11/21/2009 - 21:30 | 138466 Anonymous
Anonymous's picture

barry was selected c. 1991 to be
was "ommon" knowledge in russia....his
time at u of chicago is the telltale sign that
he was a rockefeller selection....

and why would an "exemplary" student like
barry have every single record of his sealed up
like a witch's hole? for the same types of
reasons that the fed wants its records sealed
to all....there is more there than his cia operations
in pakistan and his kenyan birth......

soetoro is a rockefellerite through and through....

Sat, 11/21/2009 - 23:00 | 138512 D.O.D.
D.O.D.'s picture

+100 troy ozs of Gold!!!

Sat, 11/21/2009 - 21:53 | 138476 Mad Max
Mad Max's picture

+1 Sextillion (Pengo) Fiatscos

Obama is the most obvious puppet in american presidential history (his predecessor might have been 2nd).  The sooner people realize this, the sooner useful things can be done.

Sat, 11/21/2009 - 23:55 | 138541 Burnbright
Burnbright's picture


I like the Socrates reference. Actually I think that was the first proper use of his analogy, I didn't really get it till you just used it now.

Sun, 11/22/2009 - 16:22 | 138791 D.O.D.
D.O.D.'s picture

WOW! That's a very nice complement, thank you!

However, the Allegory of the Cave is written in Socratic Dialogue, where Socrates is the main character, and is part of a collection called the Republic [The title of the Republic in Greek, politeía, literally means the order or character of a political community, i.e., its constitution or regime type. -WIKI], which was written by Plato.  A little confusing I know, as Socrates is the main character in the work.

Sun, 11/22/2009 - 15:57 | 138782 Anonymous
Anonymous's picture

"Air time is no accident." Obama got coverage on all the majors, good coverage. It reminded me of the rise of GWB, the man we supposedly wanted to have a beer with. I can hardly wait for the next puppet show. Will the public fall for it again, or will it even matter?

Sat, 11/21/2009 - 19:29 | 138394 agrotera
agrotera's picture

Awesome Kayman! 

I didn't vote for Obama, but after his election, i prayed that my vote was wrong.  And for three weeks after his inauguration, he paused about "what to do about the economy" and he and Geithner stayed closed mouth--until one week when they came out and declared FULL SUPPORT OF THE PAULSON BERNAKE PLAN...that was the week that China gave a stern warning to our country about protecting their treasury investment and the UN declared that it would recommend to the world to move away from the dollar as the worlds reserve coincidence on these statements happening right after Obama reveals he is a puppet to the privately held federal reserve machine that runs our country.

And, when all is said and done, a country's currency is a reflection of it's INTEGRITY, and the day that Obama announced that he would back the paulson/bernake plan was the day he became accomplice to the crimes committed on all of us, and the world knows this, there is no keeping it under wraps. 

You are right, if Obama became honest and stood with honest actionable moves to put down the evil machine that is in place, we could possibly have honest hope for our country's integrity and currency to have value again.

Obama needs to ask Patrick Byrne to be his economic and integrity advisor.

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