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Guest Post: A Global Tsunami, Courtesy Of The Fed

Tyler Durden's picture


Submitted by Chris Martenson

A Global Tsunami, Courtesy Of The Fed

The Fed is in a bind.  No matter which way it turns, utter failure is a risk.  Putting more money into the system risks no less than the dollar itself.  Stopping quantitative easing (QE) risks plunging the economy and financial system into another period of turbulent decline.  It looks like they are going to choose the latter.

In a recent report, I made the case that pressure was building on the Fed to end its QE 2 program in June, and that if it did, there would be an enormous rout in the stock, bond, and commodity markets. That analysis still stands.

This new two-part report will analyze the many competing factors, both for and against, that will determine whether QE 2 really is the end of the Fed's efforts at printing up a recovery, or merely the event that precedes QE 3. The factors are numerous and polarized. On the one hand there are many signs of economic recovery - the very best that a few trillion can buy - and on the other hand there's $108/barrel oil and a deeply uncertain future for Japan over the next 3-12 months.

Fed Adopting Tougher Posture

Recently the Fed has trotted out several of its governors to make the case that they are serious about ending QE 2. Strangely, they chose Friday and Saturday to go on a publicity tour -- days of the week normally reserved for news that is being buried, not exposed.

I found the following news snippets odd, not just because of their Friday/Saturday timing, but because they are all versions of the story purporting that the Fed is "thinking about tightening."

Fed’s Fisher Says He Backs Ending Central Bank’s Jobs Mandate

March 25, 2011, 2:45 PM EDT By Vivien Lou Chen and Jennifer Ryan March 25 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard W. Fisher said he supports the idea of dropping the central bank’s congressional mandate for achieving full employment.

Fed's Plosser: Funds rate should hit 2.5% in year

March 25, 2011, 12:38 p.m. EDT By Greg Robb WASHINGTON (MarketWatch) - The Federal Reserve should hike interest rates from current range near zero to 2.5% within a year under a plan unveiled Friday by Charles Plosser, the president of the Philadelphia Federal Reserve Bank. Plosser did not give a specific time when this exit would begin but said it would have to start in the "not-too-distant future." In a speech to economists from the monetarist school on Friday, Plosser laid out an aggressive plan where the Fed would sell $125 billion of assets for each 25 basis point increase in the funds rate.

Fed Policy Makers Should Review QE2 Strategy, Bullard Says

March 26, 2011, 9:00 AM EDT By Scott Hamilton March 26 (Bloomberg) -- U.S. Federal Reserve policy makers should review whether to complete a second round of quantitative-easing purchasing due to end in June because of strong U.S. economic data, Federal Reserve Bank of St. Louis President James Bullard said.

All of these are part of a carefully choreographed PR campaign by the Fed to signal to the market that it is serious about ending QE efforts.

A week later, in another Saturday release (April 2, 2011), Bill Dudley offered up perhaps the clearest view of what the Fed is thinking:

Faster-than-expected payroll growth last month shouldn’t alter the U.S. central bank’s plans to buy $600 billion in Treasuries through June to prop up the recovery, said William C. Dudley, president of the Federal Reserve Bank of New York.

“I don’t see any reason to pull back from that yet,” Dudley said to reporters after a speech yesterday in San Juan, Puerto Rico. Market expectations are for the Fed to complete its planned bond purchases in June and not to announce additional buying, he said. “I don’t view those expectations as unreasonable in any significant way.”


So the messages given a week earlier were digested by the markets, and the Fed decided to sharpen things up a bit by saying that the $600 billion program would be completed, but that's it.  It seems clear they want us to prepare ourselves for a sudden termination of QE at the end of June.

To further drive the point home, the Fed recently conducted a couple of "reverse QE" transactions, a.k.a. 'tri-party reverse repos,' which are nothing more than the Fed doing the exact opposite of QE -- putting Treasury bonds out and taking cash back in.

The scope of these operations was quite small, $1.75 billion in one instance and $0.75 billion in the other. But their true importance lies in their signal to the market that the Fed may someday not only stop the QE program, but reverse it.

Altogether, the Fed is sending out very strong signals that it intends to at least halt QE2 on schedule and not immediately move to QE3. There will be a pause.

What happens if the Fed abandons QE?

The reason we should all be quite concerned about the Fed ending its QE efforts is that the asset markets will take quite a dive if it does, but each for their own reasons.

Let's be clear about what the Fed has been doing with its QE programs: it has been printing up high-powered money out of thin air and exchanging it for Treasury notes (and bills and bonds). This shows up beautifully in the monetary base charts dutifully kept over at the St. Louis Fed:


The monetary base has gone up by some 300% since the start of the crisis. This is the money that has been sneaking out into the commodity, stock, and bond markets.

We can appreciate the scale of this in the amounts that are now being funneled into the capital markets on a near-daily basis:


What we need to consider is what will happen when an average of $4.4 billion dollars per business day are no longer flooding into the markets. Will asset prices be at risk of falling without these massive daily infusions of liquidity? You bet.

And add to this an unexpected threat that's just entered the picture: Japan.

A Disturbance In The Force

The biggest risk here, aside from parts shortages and supply chain difficulties, is what happens when the flood of liquidity that has emanated from Japan over the past two decades reverses course and flows in the other direction. This is a major transition (which I expounded upon more deeply in a recent post for my enrolled members) for which both Japan and the world economy at large are wholly unprepared.

If we add the idea of the Fed terminating QE, which has been enormously supportive of Treasury prices (and therefore low interest rates) to the idea of Japan suddenly becoming a net importer of funds instead of an exporter, we can quickly arrive at the risk of a rather unpleasant period for US Treasuries -- and, by extension, many other government bonds.

Already the governments of Portugal, Greece, and Ireland are paying rates on their sovereign bonds that are way above their nominal rates of GDP growth, which is a certain recipe for financial disaster. It's as if to survive, you need to borrow by using your credit card, even though your rate of interest on the card is several times larger than your yearly salary increases. Eventually that ends badly, and everyone knows it.

Along with that, we have to consider the idea that rapidly rising interest rates in the US Treasury market are destabilizing in other ways, but especially to the $600 trillion dollar derivative market - a significant portion of which is tied to US Treasury interest rates. Who knows what sorts of accidents await in a market that is too complicated to grasp in its entirety?

Of course, the US housing market, still struggling from poor sales, a massive shadow inventory, falling prices, and far too much negative equity, will perform especially poorly if interest rates rise.

If the Fed terminates QE on schedule, then I think a tsunami metaphor is apt. First, all of the liquidity will drain out of the bay, leaving countries, governments, and institutions to flop about in the mud. Then the Fed will panic and resume the liquidity flood, feeding the wave that will rush back in to destroy the lives and portfolios of those who positioned their wealth in harm's way.

The biggest problem with the current situation is that there's practically nowhere to hide. To an unprecedented degree, all of the world's markets and all assets classes are now trading in synchrony. If all of the assets in all the world's markets are moving up and down together, where does one go to sidestep the policy foibles of the Fed?

In Part II of this report, Finding Shelter From the Storm, we delve into specific strategies to consider for preserving wealth during these very turbulent times - as well as offer trading guidance for those willing to put risk capital into play. We explore what is likely to happen to the major asset classes (stocks, bonds, precious metals, housing, commodities) as the Fed attempts to tighten, and what is then likely to transpire if it later throws in the towel and begins printing again.

There are treacherous waters ahead. Liquidity will leave of the system and then come crashing back in. The unwary will lose nearly everything in the process, and so will some of the wary. Beating this current period of financial disruption by preserving your wealth will not be an easy task. Those looking to do so should consider reading Part II of this report  (free executive summary; paid enrollment required to access).



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Mon, 04/04/2011 - 13:09 | 1133033 TruthInSunshine
TruthInSunshine's picture
Go ahead and file the above headline and underlying denial by The Bernank's minions under LULZ or #losing.

First they ignore you, then they laugh at you, then they fight you, then you win.”


-- Mahatma Gandhi


Let me also take the opportunity to use the Nikkei as a prime example of BOJ interventionism running rampant to support the index now, only to find every measure of interjectionism currently undertaken met by two or more steps of reality taking over at some point later (and what could possibly go wrong?; just chart the Nikkei from 1989 to present). And this is what really causes cataclysmic events, much to The Bernank's chagrin.

Mon, 04/04/2011 - 13:23 | 1133140 disabledvet
disabledvet's picture

not bad for a country lawyer.  Gandi that is.  And i see Japan as "at risk of splitting in two" if this "pathology" continues.

Mon, 04/04/2011 - 14:13 | 1133418 Herd Redirectio...
Herd Redirection Committee's picture

We all know how this ends.  It ends with the death of the US dollar.  They want it SO bad, and they are going to get it.

As usual, the folly of man, we don't know what we want.  The public is complicit in all of this, but no one will react until the collapse is under way.   Aah, the wonders of herd behavior.

Check out the latest from the Capital Research Institute "Don't Trust the Frontmen":

At the forefront is the issue of world reserve currency, as the global economic system hinges on it. China sees the Fed printing money, and in general making the rules up as it goes along, and of course, they want to be able to do the same. Who wouldn’t want to be able to print their own money, and make up the rules as they go along??? Unfortunately, that is no basis for a global economic system, as it would quickly degenerate into a world awash with dozens of useless and devalued fiat currencies. No one would use another’s paper currency, knowing it to be intrinsically worthless, and so trade would be very difficult. Doesn’t this seem eerily similar to the world we currently live in? The solution would be for someone to come along and decides to make their paper redeemable in gold, at a fixed rate. As long as gold was redeemable at that rate, confidence, honesty, and trust would be restored...

Mon, 04/04/2011 - 14:59 | 1133668 dizzyfingers
dizzyfingers's picture

It also seems eerily similar to the one we had in the 50s and early 60s, with trade tariffs, labor strikes/murders/bombings, etc.

Has there really been something else in between then and now, or does it just seem to be all the same?

Mon, 04/04/2011 - 15:42 | 1133930 Maniac Researcher
Maniac Researcher's picture

What Herd has linked to [capital research institute] is not analysis. It is simply another rant filled with ad hominem attacks and straw men - sprinkled prodigiously with all-caps derisions. That and it is simply just another goldbug's blog.

Just like "capital research institute," this comment is true to the ZH ethos - whatever is making your life difficult at the moment becomes the biggest problem in the world. a bunch of affluent, mostly white, mostly male, mostly American investors are losing money in a world dominated by corporate finance organizations who don't play fair. Thus, their solution becomes a simplistic and symbolic attempt to rein in the chaos they perceive in their own lives: buying precious metals. Then -- and here is the fun part -- they decide to project this problem/solution construct as *the* pressing issue in the world.

Unfortunately for Herd, "captial research" bloggers, and the rest of the ZH crowd, their own narrow, lazily-constructed view of history - the one that hinges primarily on personal experience rather than empirical research - informs their opinion.

Mon, 04/04/2011 - 15:55 | 1133988 Maniac Researcher
Maniac Researcher's picture

Note: before your little fingers start typing away saying, "HA! Maniac Researcher just created a strawman out of ZH!" - I'd like to cite the context for every one of my comments as evidence that yes, in fact, the ZH crowd *is* in fact, intellectually narrow and lazy. Sorry, but a wider world exists beyond your embittered complaints of Federal Reserve conspiracy theories.

I love the coming response though - it's become such a stock signifier of internet fools everywhere - the "accuse the person who is calling me out on my bullshit of the same thing" method is quite popular on Zero Hedge.

You're the same people who honk at the person they've just cut off in traffic after almost causing an accident.


I just thought I'd jump on and tell you and your friends to go to hell. You *are* the tormentors you lambaste: the bigoted, the selfish, the embittered armchair losers. The banksters you claim to hate are just more powerful versions of yourself.

You couldn't care less about the impoverished, those stricken by disaster, or the historically screwed-over populations. So why pretend to play activist? I'll answer that -- because you need to validate your petty, vicious little life. You only see disaster and apocalypse because it provides you an escape from your impotence. I pity you and all the other ZHers - the foolish regulars and the new Stormfront add-ons. You've got nothing but your misdirected anger. It clouds what little analytical ability you have developed in each of your narrow experiences. Thus, you're simply talking to yourselves because you can imagine few options to improve your lives and/or the world. Feel free to pass on the message and have a nice day.


Mon, 04/04/2011 - 18:58 | 1134788 Landrew
Landrew's picture

Pardon me, you didn't say anything yet again. So what is your point? You don't like what the community has to say? If so, why come here other than to be part of the community that you hate. Strange, you attack as though you said something worth responding to.

 Usually, some one has at least one point in their debate, however at this point I will respond with

he who asserts must prove! You lose and I will now do a victory dance!

Mon, 04/04/2011 - 19:22 | 1134850 Maniac Researcher
Maniac Researcher's picture

let's unpack Landrew's statement now --

A) I did say something and I believe it came through loud and clear: Zerohedge is rife with hypocrisy. You cannot scream for justice while deriding others.

B) I was part of your community for the last two years. I started posting many months ago because I noticed a [steep] downward trend in the quality of commentary.

C) Repeating the falsehood [In this case that I don't have a point] doesn't make it true.

D) Feel free to feel like you've "won." Narrow-minded thoughts tend to boil down to winning and losing in order to protect themselves from the inherent complexity of the world. Hug that winning feeling, little Landrew - let it bring you comfort on those cold nights when things seem less black and white...and careful not piss yourself during your victory dance.

Mon, 04/04/2011 - 20:46 | 1135129 Imminent Crucible
Mon, 04/04/2011 - 21:20 | 1135254 Maniac Researcher
Maniac Researcher's picture

A conspiracy around every corner! So pray tell, what company do you think I work for - this ought to be good...

Mon, 04/04/2011 - 20:22 | 1135052 Herd Redirectio...
Herd Redirection Committee's picture

This is for Maniac:  Do you find yourself projecting much?  The analysis has been done, the system is corrupt, now is the time to inform people.  If using emotion drives home the point more so than logical arguments, then ask is it effective at reaching a new audience, or not?

"world dominated by corporate finance organizations who don't play fair"

The world is run by people, not 'finance organizations'.  There are two sets of rules in the world.  That is a big problem.  Trying to make a better world for my grandchildren (and by extension, all of humanity) is my only goal, please don't project motives onto me.

Mon, 04/04/2011 - 21:26 | 1135263 Maniac Researcher
Maniac Researcher's picture

Right...and you've chosen to "inform" people on a forum that is filled with victim-blaming hate mongering. That's sure to end well.

And since you are currently apologizing for it - I *will* project that conclusion on to your motivations.

Mon, 04/04/2011 - 21:50 | 1135350 Herd Redirectio...
Herd Redirection Committee's picture

What are you doing right now exactly?  Trying to do an ad hominem attack on the entire ZH community? 

There IS some groupthink on ZeroHedge, and there IS also influence from paid posters.  That is to be expected on any sizable forum.  To imply that the forum is then effectively useless is not only a logical fallacy, but a direct insult directed at everyone here who is trying to raise awareness, have intelligent discourse. 

It is possible you are just here seeking attention, so that would not have occurred to you.

Tue, 04/05/2011 - 04:39 | 1135905 Maniac Researcher
Maniac Researcher's picture

Right...ZH has utility in the same way a peace rally is sure to go over well when someone is raped in the crowd.

Actually, I'm here to call bullshit on the assumption that Zerohedge is somehow useful commentary without the inclusion of the bile-filled morons who babble their incoherent conspiracy theories every day. Oh yeah, that and Tyler has been screaming the sky is falling for *years*. When someone can't stop screaming fire in a crowded room, eventually you do want to punch the son of a bitch.

Let me ask you a couple of questions Herd, since we're on the topic of Zerohedge's so-called 'merits' -- how do you manage to overlook the bigotry when you read this blog? Do you think of puppies? Perhaps a small grinning aryan child? Question two: when the collapse fails to come on each predicted date, do you feel pangs of disappointment? Do you pine for food riots, arson, and looting? Feel free to let out your best apocalypse fantasy. All the ZH fans are listening in, lathering it up. They'll climax at your lush imagery of food lines and the killing of innocent passerbys. Let it fly, Herd.

Mon, 04/04/2011 - 19:39 | 1134907 StychoKiller
StychoKiller's picture

You couldn't care less about the impoverished, those stricken by disaster, or the historically screwed-over populations. So why pretend to play activist? I'll answer that -- because you need to validate your petty, vicious little life. You only see disaster and apocalypse because it provides you an escape from your impotence.


Put yer muny where your mouth is, alleviate some suffering:,

then find some smaller paint brushes.

Mon, 04/04/2011 - 20:01 | 1134986 Maniac Researcher
Maniac Researcher's picture

Yes, Stycho. Feel free to repeat your lame solution. I've already pointed out why worldvision is a poor choice for a charity. Aside from being fraudulent to the point where even Oxfam is deriding them, since when is a Fundie charity the only option for activism? You have a pretty narrow conception of such things.

How about putting your time where your mouth is? Try digging through mounds of corporate memos for years on end in order to nail white collar criminals and then call me back, Stycho. You know nothing about the institutions you whine about. In fact, you know less than nothing - at least if you knew you know nothing that would be something. I think that void was probably filled with rosy images of Jesus giving bread to Africans.

You've still got nothing. And you have nothing on me. I'll keep the brushes, thanks - I'll make better use of them than you will.

Mon, 04/04/2011 - 16:12 | 1134070 Thomas
Thomas's picture

I told Dudley to his face he had an inflation problem. He laughed (knowingly, IMO).

Mon, 04/04/2011 - 14:04 | 1133370 Hugh G Rection
Hugh G Rection's picture

Whats the over/under on the Fed's demise? I dont think they celebrate 100 yrs of oppression.

Mon, 04/04/2011 - 14:59 | 1133646 dizzyfingers
dizzyfingers's picture

Are the Chinese buying commodities?

Mon, 04/04/2011 - 13:06 | 1133046 Rusty Shorts
Rusty Shorts's picture

Exactly. Which is why most people I know think they can ignore the math and everything will be okay. They fight the very idea that there is a real decline in quality of life, that it is permanent, and that it will continue to deteriorate.  "Apres moi, le deluge." Everyone else will get screwed but not me, I got mine.

It's a tsunami. Previous paradigms no longer apply.
Teevee, junkfood-addled Amerika could not withstand a currency collapse. The Black Plague made human capital valuable again - in modern application we have tens of millions on the gov't teat with no recovery.

All those 99-weekers waiting for jobs. What jobs? Doing what? The service economy is a fiat lie and our infrastructure is based on a constant flow of cheap oil.
Mortgage? WTF for? Prices are artificially high because of 1) shadow inventory 2) who can say they will be employed in their profession to make payments for 30 years anymore - no man is an island.

Stay nimble. Stay quick. This is no time for white picket fences. Going back to the sad, miserable, drugged-up state of our Nation it ain't a stretch to imagine that the Mandarin speakers are planning to make use of their raw (war) materials and spouse-less young men for "real estate acquisition". Hasn't anyone read a history book around here? The Chi-Coms have openly spoken of how they deserve North America. This kind of scenario isn't discussed because it is the worst-case scenario outside of nuc-bio-chem warfare, and then subsequent invasion.

"Oh, but China needs us and we need them." Bullshit. Everyone is buying time. The Chinese aren't stupid and they know they aren't getting their money back. Some finance guy over there said US bonds are not safe medium and long. In other words "We are trying to buy as much time as possible to acquire tangible assets that matter!"
All the survivalists from the 70's were wrong because they didn't understand the "Nixon" trick/effect of taking us off the gold standard and taking paper money to its extreme utility. It would have been better to face this shitstorm back then. Back when Americans were still eating meals that had real nutrition, no obesity epidemic, actual human interaction, strong infrastructure with less bureaucracy. Today it's all bloated beyond recognition.

When the Fed finally makes a move that has a visible and real effect on Amerika even rationing of supplies won't keep the interurban areas content. We are at the brink of a f.u.n.d.a.m.e.n.t.a.l. shift. Be far away from the millions that require a weekly check for their very survival. Do you think the owners of the Fed care if millions starve?


 - ZH comment

Mon, 04/04/2011 - 13:12 | 1133076 samsara
samsara's picture

Dead on as usual Rusty.

We are at the brink of a f.u.n.d.a.m.e.n.t.a.l. shift. Be far away from the millions that require a weekly check for their very survival

Mon, 04/04/2011 - 13:56 | 1133314 billhilly
billhilly's picture

Excellent comments Rusty!  Thanks.

Mon, 04/04/2011 - 14:32 | 1133541 ColonelCooper
ColonelCooper's picture

If there was such a thing as a "Thunderous Applause" button on this site, I'd be pushing it.  Thanks, Rusty.

Mon, 04/04/2011 - 15:01 | 1133699 dizzyfingers
dizzyfingers's picture

All frighteningly true. No exit. No place to go. No way to "prepare".

Mon, 04/04/2011 - 13:08 | 1133054 Ancona
Ancona's picture

If the Fed stops QE, then who will buy our bonds? With Japan in a position of needing huge sums of cash, their hoard of treasuries might just be on the market soon, requiring further monetization.

It looks to me like we're terminally fucked.

Got gold and silver? You are going to need them in very short order.

Mon, 04/04/2011 - 13:39 | 1133219 alexanderstollznow
alexanderstollznow's picture

when the Fed stops QE, the buyers will be the same people who have been buying UST for some years, but the Treasury will be paying a higher interest rate.  the whole purpose of QE is to lower interest rates further out along the curve, beyond where Fed Funds has any affect.  in this overall regard and purpose, QE is no different to OMO to affect the Fed Funds rate. 

as regards Japan, i must say i think it is a very silly notion to look at the cost of the tsunami, and assume that the Japanese gov will just write a cheque for that amount.  in any case, given that Japan is a prolific JGB seller, i would reckon they would just sell more of their own, rather than start selling UST.

Mon, 04/04/2011 - 13:38 | 1133225 alexanderstollznow
alexanderstollznow's picture

when the Fed stops QE, the buyers will be the same people who have been buying UST for some years, but the Treasury will be paying a higher interest rate.  the whole purpose of QE is to lower interest rates further out along the curve, beyond where Fed Funds has any affect.  in this overall regard and purpose, QE is no different to OMO to affect the Fed Funds rate. 

as regards Japan, i must say i think it is a very silly notion to look at the cost of the tsunami, and assume that the Japanese gov will just write a cheque for that amount.  in any case, given that Japan is a prolific JGB seller, i would reckon they would just sell more of their own, rather than start selling UST.

Mon, 04/04/2011 - 13:41 | 1133230 alexanderstollznow
alexanderstollznow's picture

when the Fed stops QE, the buyers will be the same people who have been buying UST for some years, but the Treasury will be paying a higher interest rate. the whole purpose of QE is to lower interest rates further out along the curve, beyond where Fed Funds has any affect. in this overall regard and purpose, QE is no different to OMO to affect the Fed Funds rate.

as regards Japan, i must say i think it is a very silly notion to look at the cost of the tsunami, and assume that the Japanese gov will just write a cheque for that amount. in any case, given that Japan is a prolific JGB seller, i would reckon they would just sell more of their own, rather than start selling UST.

Mon, 04/04/2011 - 15:29 | 1133841 HubbleBubbleBen...
HubbleBubbleBenLovesTrouble's picture

Problem with too much money in the system, is that you will only get rid of it, when it becomes more expensive. Which is exactly what happens when the Bernank stops buying toilet paper. While the paper will get flushed away, price of money will go up, which will impact our leveraged friends in HF's, which will eventually pull the plug out of the markets, and let's everything fall like a tombstone. QE only postponed D-day...which will come...eventually

Mon, 04/04/2011 - 13:11 | 1133069 raya123
raya123's picture

Buy SDS and DOG.

Mon, 04/04/2011 - 15:09 | 1133735 HubbleBubbleBen...
HubbleBubbleBenLovesTrouble's picture

Buy GUN and DOG

Mon, 04/04/2011 - 13:14 | 1133098 SwingForce
SwingForce's picture

Federal Reserve's Mandate 2011 The first & foremost objective of The Fed is to pump as much money into The Banks as it possibly can. That is the ONLY objective. Once you see this, then failure to prosecute fraud, the phony irritation that the banks aren't lending or lowering interest rates to customers, all this becomes clear. The Fed doesn't care what China does, they care that we pay our old higher-rate mortgage, and our higher-rate credit cards, because that helps The Banks. And bail out The Municipalities? Not on your life, they are not banks. Understand that The Fed is a private corporation owned by The Banks, so why do charity work for The Taxpayers? The Benbernanke has only 1 clear mandate, for as long as he's able to get away with it.

Mon, 04/04/2011 - 13:31 | 1133172 alexanderstollznow
alexanderstollznow's picture

perhaps you could outline exactly how QE 'pumps money into the banks'?

Mon, 04/04/2011 - 14:30 | 1133524 ColonelCooper
ColonelCooper's picture

Are you being serious, or sarcastic?

Mon, 04/04/2011 - 15:06 | 1133709 dizzyfingers
dizzyfingers's picture

Can't understand why he's still above ground.

Mon, 04/04/2011 - 13:19 | 1133103 ak_khanna
ak_khanna's picture


There are only three final outcomes to debt :

Part repayment part default

The FED is trying to solve the problems of excessive debt and leverage by taking on more debt and encouraging additional leverage through their bankster buddies. The ponzi scheme can only go on till the US has someone willing to lend it the money to pay the previous debts. The game stops when the cost of borrowing becomes exceptionally high or there is a shortage of lenders willing to lend.

 Madoff  Multiplied


Mon, 04/04/2011 - 14:21 | 1133450 ivana
ivana's picture

There's one more way out of debt combined with others stated and that one is available only to FED.

Destroy lenders. Destroy competition. Remain as "last bank standing"

Mon, 04/04/2011 - 13:18 | 1133112 TruthInSunshine
TruthInSunshine's picture

Bernie Madoff says:

Bernank's gonna get his shit pushed in, fo sho!

Mon, 04/04/2011 - 13:19 | 1133119 JollyRoger
JollyRoger's picture

"The monetary base has gone up by some 300% since the start of the crisis."


Quick correction:

The monetary base has increased 200%, not 300%.

Mon, 04/04/2011 - 13:20 | 1133129 bania
bania's picture

I'm sticking with the theory the Fed will officially announce the end of QE, but will continue in stealth to monetize debt through the annuities on their massive balance sheet.  Therefore, unofficially, QE in Perpetuity.

(and when the official announcement comes ending QE, this should be a great time to load up on PMs)


Mon, 04/04/2011 - 13:40 | 1133224 poopyjim
poopyjim's picture

+1 This is what I think will happen as well. Even if they actually stop QE, it will be a great buying opportunity for PMs because they will capitulate eventually and turn back to the printing press. Without QE, the Ponzi collapse hastens.

Mon, 04/04/2011 - 13:24 | 1133138 Rogerwilco
Rogerwilco's picture

Aren't we forgetting something? There are over $10T sitting in various pension, 401K, and IRA accounts. That piece of driftwood must look quite tempting to Messrs. Geithner and Bernanke as they flail about in the stormy seas.

Mon, 04/04/2011 - 15:14 | 1133755 pslater
pslater's picture

The Administration has been 'taking' public comments on this for more than 18 months.  Make the only allowable 'investments' in ALL retirement accounts TIPS or a new Series R (for 'retirement') Treasury note.  Bingo, just like that, all retirement assets go to the govt.

Ever heard BHO mention that "...people's retirement shouldn't be subjected to the volatility of the stock market"?  Far better that they should have inflation protected bonds....oh, wait, who caclulates the inflation rate? /sarc off

Tue, 04/05/2011 - 08:59 | 1136251 MrSteve
MrSteve's picture

Some market observers have suggested taking al. your money out of government controlled retirement accounts. Pay penalties if that is required; in order to avoid a change in rules which effectively confiscates your account balance. One of those observers is Robert Prechter, who is one of the unloved (mostly) here on ZH.

Mon, 04/04/2011 - 13:25 | 1133145 ruffian
ruffian's picture

IMHO Martinson is wrong....Fed will not choose rising rates and imploding risk assets. The fed will destroy this country by further fiat debasment via QE whatever # we're on.

Mon, 04/04/2011 - 13:33 | 1133182 TruthInSunshine
TruthInSunshine's picture

At some point, the Fed doesn't get to choose.

As for the theory that a rollover of the Fed's balance sheet can maintain QE in anything remotely close to its current force, the math says it's not possible, and rates are already rising despite full-fledged QE policy for some time now.

Once this not-so-virtuous circle for the Bernank really takes hold, the Fed's balance sheet literally implodes.

What is the Fed going to do? Hold to maturity? Half their balance sheet (almost) is treasuries bought near record low yields.

Maybe an exogenous event like an asteroid hitting the earth will allow them to unload their treasuries for a profit.

Mon, 04/04/2011 - 14:23 | 1133480 ivana
ivana's picture

Not hold to maturity. Buyback at huge discount from distressed lenders begging for some cash

Mon, 04/04/2011 - 14:05 | 1133365 Hearst
Hearst's picture

Ruffian I agree with you.  Additionally, historically, this is what all countries have done.  It is much harder this time because with the internet 'inflation expectations' can circulate the globe in seconds.


I have a few thousand saved if the end of QE is announced, but I'm not holding my breath for it.

Mon, 04/04/2011 - 13:25 | 1133149 disabledvet
disabledvet's picture

I agree with TD.  QE 3 already here.  "Answer" is reverse repo.  "QE is politics by another means."  Move along....

Mon, 04/04/2011 - 14:19 | 1133466 DosZap
DosZap's picture



Of course its here, and its staying.

There is NO way the Fed can stop QE.

IF they did, we have two scenarios.

Default and or Bankruptcy outright.

Either way in the end it will be one or the other.

As soon as the American people start getting $0.10 worth of goods for $1.00, and no raises to compensate...........

We go HyperInflation............0-100 in a nano second.

Mon, 04/04/2011 - 13:29 | 1133158 tallen
tallen's picture

1929 here we go again. 

Mon, 04/04/2011 - 13:31 | 1133171 tony bonn
tony bonn's picture

that rout should have occurred in 2008/2009 and ended late in the latter year....if it had, we would be ambling toward recovery and seeing real green shoots which didn't have the odor of weed....

it is way past time - and probably too late - to purge the bad investment wrought by greedy wall street banksters, arrogant politicians, and sycophantic wards of the state....but mostly the first two....

of course a true rout would ruin the careers of many banksters and bureaucrats who are owned by the former so the chances of an orderly cleansing are miniscule....but physics will not be defied any more than economics...although the japanese have forestalled it for 20+ years with abysmal results....the socialist and tyrannical contagion spread from europe to japan to amerika...

Mon, 04/04/2011 - 13:30 | 1133173 kito
kito's picture

allow me to guestpost on this guestblog:

i think we are treating the end of qe2 like y2k. in the land of the blind, the u.s. treasury market is the one eyed king. it reigns supreme due to liquidity. central banks, especially those of emerging economies, have no other viable place to park their vast reserves. china has openly lamented this fact. additionally, the world central bank cartel knows full well what happens to their holdings and their economies should the purchasing of treasuries come to a halt. just as the cartel came to japan's aid, they would act similarly to avoid mutally assured destruction via treasury purchases.

make no mistake about it--bernanke is shrewd --he would never allow the end of qe2 and NOT have buyers lined up to replace the fed purchases.

markets are forward looking (at least they think they are)--if there was anticipated mass asset destruction on the near horizon, it would have been built in already. so far, no bond vigilantes in sight, and the stock/commodites indices continue to climb.

remember, obama is heading into re-election. as in all the previous third year presidential terms, rest assured the govt will keep the investing masses happy for now.

Mon, 04/04/2011 - 14:40 | 1133568 ColonelCooper
ColonelCooper's picture

So you're saying that The Ben Bernank has "lined up" an average of 4 billion dollars/day in bond purchases from foreign investment, until THE END OF TIME??

Mon, 04/04/2011 - 15:32 | 1133856 Note to self
Note to self's picture

Not bloody likely

Mon, 04/04/2011 - 15:42 | 1133928 ColonelCooper
ColonelCooper's picture

That's kind of what I was thinking.

Mon, 04/04/2011 - 18:40 | 1134735 Another Texan
Another Texan's picture

No, but eventually we must contain the debt and lead a sustainable budget.  I tend to agree that too many here at ZH tend to whip each other into a frenzy.  I agree that what the FED is doing is complete BS, but these guys are not the crazies they get made out to be.  Has the bank cartel made some bad decisions? YES, but none of them want their kids hanging around in a Nation that will be F'ked for the future. 

Caveat - If these guys are crazy assholes bent on world destruction, there is nothing we can do now.  They have full control and we are along for the ride.  The people that are worried are the ones that cant carry their own. 

Mon, 04/04/2011 - 13:37 | 1133205 velobabe
velobabe's picture

i had an interesting exchange this morning around 4 AM with two officers of the law. they both were late twenties, male and female, couldn't have been over five feet tall, both of them. not very intimidating. so i strike up a conversation with them about what they were buying. they told me they were getting lunch. i said you mean breakfast, no lunch they both said. they just bought  crap food of course. then they get into two separate black cop cars. i thought they should both be in one car and act together. i don't think they are very smart. i asked what their biggest problem was facing this city. the HOMEless, is the biggest problem.

Mon, 04/04/2011 - 19:51 | 1134945 StychoKiller
StychoKiller's picture

The homeless might be a concern in Boulder, but the larger problem is the Progressive mentality running rampant there!

Mon, 04/04/2011 - 13:38 | 1133208 fbrothers
fbrothers's picture

Did you say "bubble"?  Just wait 'til they start moving the economic numbers back where they belong.

Mon, 04/04/2011 - 13:36 | 1133211 William Wallace
William Wallace's picture

If you want to know who has the power in a country, look to see who can print money and give it to themselves. Those are the guys who are running the show.  In this country, the ones with the power to do that are the Federal government and the big banks.  Those are the power centers in the U.S.A.

Ben B. has to keep both of these gorillas happy.  The Federal gov't, with its $14 trillion debt, can't handle an interest rate increase any more than the Japanese government can.  So interest rates must stay low.  Ben has to do what it takes to keep Uncle Sam's borrowing costs down.

The banks are leaking money like sieves.  More and more mortgages are going bad.  Phony accounting can only get you so far.  Ben has to print money to keep those gorillas in business too.

Between keeping interest rates low and the banks afloat, Ben still has to print a lot of money.  Call it QE3 or call it "the new strong-dollar policy," call it whatever, say whatever bullshit you like, he still has to print money to keep Uncle Sam and the big banks in business.

Mon, 04/04/2011 - 13:38 | 1133220 PulauHantu29
PulauHantu29's picture

There will be a QE3 but they will call it XY-7 or somehtin glike that. Politicans cannot stomach seeing the population suffer "austerity"...empty malls.....restaurants closures...etc.

Mon, 04/04/2011 - 13:40 | 1133240 wswarrior
wswarrior's picture

I agree with your premise, but after last year's "flash crash," I think that the FED has some behind the scenes plans to keep liquidity flowing.  They won't announce a formal QE3, but they will find a back door method to get the banks the cash they need.  You can't keep a dealer from giving the junkie his fix, especially when there are no cops on the street. 

Mon, 04/04/2011 - 13:48 | 1133264 poydras
poydras's picture

The debt requires monetizing in some fashion.  The three options are QE3, formal devaluation, and shadow purchases


Mon, 04/04/2011 - 13:50 | 1133274 Stuck on Zero
Stuck on Zero's picture

As Thomas Jefferson said: "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

First inflating and then defalting.  The Fed and its banks are trying to own the world.

Mon, 04/04/2011 - 14:04 | 1133366 JollyRoger
JollyRoger's picture

Me likes T Jefferson, and he certainly took a tough stance against the banks, however....

This quotation is often cited as being in an 1802 letter to Secretary of the Treasury Albert Gallatin, and/or "later published in The Debate Over the Recharter of the Bank Bill (1809)."

The first part of the quotation ("If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered") has not been found anywhere in Thomas Jefferson's writings, to Albert Gallatin or otherwise. It is identified in Respectfully Quoted as spurious, and the editor further points out that the words "inflation" and "deflation" are not documented until after Jefferson's lifetime.[3]

The second part of the quotation ("I believe that banking institutions are more dangerous to our liberties than standing armies...") may well be a paraphrase of a statement Jefferson made in a letter to John Taylor in 1816. He wrote, "And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."[4]

The third part of this quotation ("The issuing power should be taken from the banks and restored to the people, to whom it properly belongs") may be a misquotation of Jefferson's comment to John Wayles Eppes, "Bank-paper must be suppressed, and the circulating medium must be restored to the nation to whom it belongs." [5]

Lastly, we have not found a record of any publication called The Debate Over the Recharter of the Bank Bill. There was certainly debate over the recharter of the National Bank leading up to its expiration in 1811, but a search of Congressional documents of that period yields none of the verbiage discussed above.



Mon, 04/04/2011 - 15:48 | 1133954 tj3
tj3's picture


Mon, 04/04/2011 - 13:53 | 1133290 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

It seems we keep discussing the same old arguments here,even if the Fed does not announce QE3,the monetization can still continue behind the scenes.After all,who else in their right mind would buy US treasuries at these yields?

Jim Rickards explains:

Mon, 04/04/2011 - 20:01 | 1134975 StychoKiller
StychoKiller's picture

By their fruits, shall ye know them!

If the following trends/positions continue in the same direction (the short list here!), then it will be safe to assume that QE (in some form) is still operative:

1. No significant cuts to the Federal Budget.

2. The price of Commodites, especially Oil, Gold & Silver continue to rise.

3. Real Estate prices continue to decline.

4. Employment growth remains anemic, at best.

5. Foreign countries struggle to finance themselves (PIIGS).

6. The Dollar index continues to decline.

7. MENA becomes even more unstable.

8. Stock market(s) continue to rise.

Other than that, it's all sunshine and lollipops for everyone!

Mon, 04/04/2011 - 13:55 | 1133317 dick cheneys ghost
dick cheneys ghost's picture

not to worry..........the country is saved........Mcdonalds set to hire 50,000 burger flippers..............welcome to the new reality.....



Mon, 04/04/2011 - 16:41 | 1134252 jkruffin
jkruffin's picture

I never figured people out who work at places like fast food restaurants.  If they want to work for something to do to pass time, great!!!!  But, if they are working there for a living, holy cow, sit at home for 99 weeks or longer for the same amount of money. WTF?  Wake up America!!!!

Mon, 04/04/2011 - 14:02 | 1133348 10kby2k
10kby2k's picture

Get ahead of the curve.....drop QE2 and raise interest rates 400 basis points in an emergency inflation fighting action.

And then via executive order......cut $1 trillion from budget via huge military/entitlement/hubris cuts. 

Then I woke up.

Mon, 04/04/2011 - 14:08 | 1133382 sbenard
sbenard's picture

So the bay becomes a swamp! Great for the gills, no doubt!

Mon, 04/04/2011 - 14:24 | 1133433 web bot
web bot's picture

Algorithms are being tweaked, probablity scenarios have been largely developed... now it's just a waiting game for market signals to start the collapse. I hope your fingers are as fast as millisecond computer trading.

Mon, 04/04/2011 - 14:31 | 1133523 jmc8888
jmc8888's picture

Well since Wall Street is living off the punchbowl....

Mon, 04/04/2011 - 14:44 | 1133590 tek77blu
tek77blu's picture

Silver making record highs, Bernanke/Gov.'t stupidity to drive gold, silver, resources to the moon....

Mon, 04/04/2011 - 16:39 | 1134243 jkruffin
jkruffin's picture

Oh, I see about 700-800 on the S&P without QE.  Probably worse, down to the 500 level if we actually apply reality and fundamentals. Even lower if we apply mark to market.

Mon, 04/04/2011 - 17:03 | 1134369 el-greco
el-greco's picture

If the Fed wanted to see lower commodity prices, Martensen's scenario is one way to do it. In anycase why should the Fed care if commodity prices are high? Agricultural products are a US export, the higher price the better.  High gold prices are also good for the US balance sheet; the US is joint-equally the biggest hoarder of gold together with the european block. Oil prices are beyond the realm of US control. If OPEC wants higher oil prices, the world pays higher oil prices. But withdrawing liquidity as the sole solution accomplishes nothing. It only works if foreign investors perceive it to be part of a master plan to redress the country's finances. They would then be most happy to hold dollars and earn real interest on them. It therefore leaves the matter in the hands of Congress who have to do something about the odd 110 billion per month it costs to run the US economy. There is no logic or benefit in just withdrawing liquidity in isolation of any reform in Congress.

Mon, 04/04/2011 - 18:46 | 1134746 Silver Surfer 1985
Silver Surfer 1985's picture

But, but Paul Krugman says everthing is allright:


Now I can sleep well tonight..........<sarc>

Sat, 04/09/2011 - 22:15 | 1154271 thames222
thames222's picture

Investment markets are collapsing, last night's resolution did nothing to improve conditions for the everyday consumer or investory.  The Fed is a joke.

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