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Guest Post: QE2 Will Sink Us
Submitted by Gonzalo Lira
QE2 Will Sink Us
Ben Bernanke and the Federal Reserve are preparing for QE2—a second round of Quantitative Easing.
The
rationale is that the United States’ economy is circling the
deflationary drain—something Bernanke and the Fed are absolutely
terrified of. Certainly deflation is hitting the U.S. economy full bore,
but it’s yet to be proven that this deflationary trough has twisted
itself into a self-reinforcing vicious cycle. I would argue that the
chances of the U.S. economy twisting into a deflationary death spiral
has yet to be made. But be that as it may, it doesn’t matter if the
economy is in a deflationary death spiral—Bernanke and Co. think that that’s the imminent danger. And they're the ones with their finger on The Big Red Money-Making Button.
Some
people are claiming that the first version of QE was not enough. Like
Paul Krugman whining that the stimulus package wasn’t big enough to
restart aggregate demand, the aggregate asset crowd—the monetarists—are
bitching that Bernanke didn’t really open the monetary flood gates with
the first version of QE.
These people conveniently forget that the Fed more than doubled its balance sheet, in order to carry out QE v.1.0. This interactive chart
tells that story better than words can—from less than a trillion
dollars, to $2.2 trillion in under 60 days. Clearly, Bernanke now owns
the land speed record for monetary expansion. And to any talk that
Bernanke is contracting the Fed balance sheet too quickly, let’s just
say that a shrinkage of less than $30 billion from a peak of $2.333
trillion is not exactly “drastically reducing” the balance sheet.
Still,
with all that liquidity the Fed has been making available, the banks
aren’t lending—they’re too weak to lend, their balance sheets too
precarious. So banks are hoarding their cash (or carrying out the
Treasury’s stealth monetization program). So asset prices are falling
(even with over a trillion dollars’ worth of MBS’s shovelled onto the
Fed’s balance sheet). So deflation. So monetarists are freaking out: And
the Fed is dominated by monetarists.
with all that liquidity the Fed has been making available, the banks
aren’t lending—they’re too weak to lend, their balance sheets too
precarious. So banks are hoarding their cash (or carrying out the
Treasury’s stealth monetization program). So asset prices are falling
(even with over a trillion dollars’ worth of MBS’s shovelled onto the
Fed’s balance sheet). So deflation. So monetarists are freaking out: And
the Fed is dominated by monetarists.
Hence,
QE2—another go-around of massive monetary expansion, to both prop up
asset prices, and prevent a (supposed) deflationary death spiral. And
Benny’s not gonna screw around: If Bernanke does a for-real QE2—a
no-fucking-around, damn-the-torpedoes, full-steam-ahead! quantiative
easing—he’ll expand the Fed’s balance sheet from $2.3 trillion to at
least $4 trillion, if not $4.5 trillion.
QE2—another go-around of massive monetary expansion, to both prop up
asset prices, and prevent a (supposed) deflationary death spiral. And
Benny’s not gonna screw around: If Bernanke does a for-real QE2—a
no-fucking-around, damn-the-torpedoes, full-steam-ahead! quantiative
easing—he’ll expand the Fed’s balance sheet from $2.3 trillion to at
least $4 trillion, if not $4.5 trillion.
Here
is my fearless prediction: If Bernanke does QE2 for-real (which is not a
sure thing yet, but likely), then this monetary expansion will become
the hyperinflationary kindling—but not the spark.
is my fearless prediction: If Bernanke does QE2 for-real (which is not a
sure thing yet, but likely), then this monetary expansion will become
the hyperinflationary kindling—but not the spark.
The
spark will come from someone selling a big position in Treasuries. The
obvious culprit could be China. China’s economy is tanking—and China has
a whole lot of Treasuries, which they will need to dump so that Beijing
can prop up its own asset bubble. China’s the likely candidate, but
hell, it could be Bill Gross.
spark will come from someone selling a big position in Treasuries. The
obvious culprit could be China. China’s economy is tanking—and China has
a whole lot of Treasuries, which they will need to dump so that Beijing
can prop up its own asset bubble. China’s the likely candidate, but
hell, it could be Bill Gross.
Regardless: The
Fed has been buying up mortgage backed securities from the Too Big To
Fail banks, in order to bail out the banks. The TBTF banks have in turn
used the cash to soak up all those Treasuries the U.S. Government has
been emitting to finance its stimulus spending. China’s sale of
Treasuries—to prop up its homegrown asset bubble—will need to be
purchased by someone: The U.S. cannot allow its debt to tank.
Fed has been buying up mortgage backed securities from the Too Big To
Fail banks, in order to bail out the banks. The TBTF banks have in turn
used the cash to soak up all those Treasuries the U.S. Government has
been emitting to finance its stimulus spending. China’s sale of
Treasuries—to prop up its homegrown asset bubble—will need to be
purchased by someone: The U.S. cannot allow its debt to tank.
Enter
QE2, stage right: QE2 will be used to prop up Treasuries—and this will
spook the markets. People will realize that Treasuries are as vulnerable
as Greek euro-bonds—which they are, of course. So people will want to
get out of Treasuries.
QE2, stage right: QE2 will be used to prop up Treasuries—and this will
spook the markets. People will realize that Treasuries are as vulnerable
as Greek euro-bonds—which they are, of course. So people will want to
get out of Treasuries.
So the Fed will be
forced to defend Treasuries—with QE2 cash. Instead of buying up mortgage
backed securities, they’ll be forced to buy Treasuries. It’ll be 2008,
only Treasuries tanking, rather than MBS’s.
forced to defend Treasuries—with QE2 cash. Instead of buying up mortgage
backed securities, they’ll be forced to buy Treasuries. It’ll be 2008,
only Treasuries tanking, rather than MBS’s.
This
will light the hyperinflationary fire. People will lose faith in the
dollar, and try to get out of it—at all costs, all at once. As I've
written in other posts, hyperinflation is not the economy overheating,
like regular inflation—hyperinflation is when nobody wants to be caught
dead with a currency.
will light the hyperinflationary fire. People will lose faith in the
dollar, and try to get out of it—at all costs, all at once. As I've
written in other posts, hyperinflation is not the economy overheating,
like regular inflation—hyperinflation is when nobody wants to be caught
dead with a currency.
This is how deflation
will trip over into hyperinflation. And this will happen within 24
months, perhaps as soon as this coming autumn. And even if QE2—by some
miracle—does not bring about hyperinflation, then in 18 months or so,
Bernanke and the Fed will do QE3: Their rationale will be that they did
it “successfully” with QE in 2008 and QE2 in 2010, so why not QE3 in the
fall of 2012?
will trip over into hyperinflation. And this will happen within 24
months, perhaps as soon as this coming autumn. And even if QE2—by some
miracle—does not bring about hyperinflation, then in 18 months or so,
Bernanke and the Fed will do QE3: Their rationale will be that they did
it “successfully” with QE in 2008 and QE2 in 2010, so why not QE3 in the
fall of 2012?
If your only tool is a hammer,
then every problem looks like a nail. Bernanke and the Fed will bring
about hyperinflation—obviously. They are so irrationally terrified of
deflation—and they are so committed to defending aggregate asset prices,
regardless of what it takes—and since their only real power is monetary
expansion—that they will let loose the QE spigot until they break the
back of the Demon Deflation. And in their zeal, they will kill the U.S.
economy.
then every problem looks like a nail. Bernanke and the Fed will bring
about hyperinflation—obviously. They are so irrationally terrified of
deflation—and they are so committed to defending aggregate asset prices,
regardless of what it takes—and since their only real power is monetary
expansion—that they will let loose the QE spigot until they break the
back of the Demon Deflation. And in their zeal, they will kill the U.S.
economy.
But hey, I’m probably wrong. BTW,
that gold necklace you’re wearing—you wouldn’t be interested in selling
it, now would you? I got me some freshly minted dollars . . .
that gold necklace you’re wearing—you wouldn’t be interested in selling
it, now would you? I got me some freshly minted dollars . . .
»
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TD, please re-insert your picture of the deer in the headlights.
Timmy and Benny won't announce anything new or unusual today. They know that they are at the end and are terrified to do anything. No QE2 (yet). Not today.
2:16pm
we'll see but, if I'm right, please re-post the picture as it would be the only plausible explanation as to why they did nothing.
probably they expect war soon...which is why they will not do anything..that will sort everything out.
D&B,
I believe this to be the case of also. And it is true not only for this strange behaviour in finance. Here in India, they are selling things with such poor after sales service, that it makes me suspect that they know they will not need to service them much longer. Everything is being built with poor materials, like it is okay for it to have a short life-span.
And GOM is a classic example of in-your-face-ness.
And this line, is a classic...
If your only tool is a hammer, then every problem looks like a nail.
ORI
http://aadivaahan.wordpress.com
Tyler, whats ur favourite...QE or not QE
irrelevant. it is lose lose. no QE means deflation. yes QE means commodity price explosion and plunging margins.
Whos trading what and why at 7:15BST??? Answers on a postcard... you could even write them here and it would save you all a whole lot of trouble.
Gonzalo Lira, writer and film maker? Uhm, what are his qualifications for this prediction Tyler? I mean, don't we deserve a little credibility here?
You in the Fed camp that only PH.D's in economics have the capability to understand complex issues?
I think Gonzalo Lira's articles have been about the most astute I seen. He nicely summarizes the issues and opposing camps and makes a convincing case for his conclusions.
Keep on posting G.L. even if you're doing it in your pajamas from Santiago.
Thank you.
And FYI—I'm writing from my air-conditioned dungeon in Abu Dhabi, which I built out of solid 420 oz. gold bricks, smoking the finest Thai stick while typing, completely naked . . . except for my cock-ring.
No wonder your article makes so much sense.
Ok, that really was TMI. But love the articles, however they are written/inspired.
"hyperinflation is when nobody wants to be caught dead with a currency" - about the best, pithy explanation I've seen, ever.
I've downloaded a dozen different "deer in the headlights" photos ready to be posted once the call goes out.
I'm kinda liking this one:
http://aslcdn.celebuzz.com/images/deerinheadlights.jpg
Bring on the "sink".
You really mean bring on the "suck"....
QE = lead swim fins. Functionally intended to help us survive in an ocean of debt, but executed in such a way that hastens the inevitable.
In this context, who is "Us"?
I know it will sink me, a lot of people I know - but will it sink "them"?
who says deflation is bad. please tell me that paying down debts or defaulting and flushing debt out of the system is bad. deflation is like giving the labour force a big fat raise, and which of us would turn down a big fat raise. the big banks on the other hand - it is a death sentence. so once again, the interests of the tbtf will be the only focus for the fed corrupt.
Our money is Debt! To destroy debt is to destroy our money, and without money moving through the money changers hands they can't skim off interest or increase the amount of fractional money they have in the system.
So to summarize deflation is very, very bad to TPTB because they cannot accumulate vast wealth of the productivity of others.
Essentially true, but let's keep the context. This whole thing is a side show. There is nothing inherently bad about a depression or hyperinflation. Either could be the cure to an otherwise incurable disease.
The problem is that government and health care have grown too large to be supported by the real economy. How do we restore that balance? Without some major financial shock and a reset of all prices, I don't think it can be done. As you point out, the thugs in Washington won't even try.
Be of good cheer. One way or another our side is about to win a few rounds. Ponzis always collapse of their own weight. As to the trigger I agree with Joseph Conrad. "The unexpected always happens."
Seems that only a few of us have been screaming DEFLATION IS WONDERFUL. And, in fact, deflation is utterly NATURAL, as people learn more efficient ways to produce goods, and as computers and robotics perform more and more processes faster, better and cheaper than humans can.
Yup, deflation simply means "you can buy more for your money". That is GOOD.
Now it is true that no matter WHAT changes, there are some people in a situation that the change makes worse for them (if they are stubborn). For example, if machines are getting better at doing your job, your salary will eventually fall [faster than general prices], lowering your standard of living. If you're stubborn and irrational, you bitch, moan... and suffer. If you're realistic and rational, you look at current trends, then switch to some new productive activity that is more efficient.
Really, only the self-serving LIARs say "deflation is bad" (FederalReserve, government, mainstream parrots). The ONLY reason the predators-that-be class say "deflation is bad" is because the fed IS a cartel of banksters, and they will do ANYTHING WHATSOEVER to make their current banking paradigms pay off, no matter how much it harms everyone else. For the FederalReserve to pretend they are looking out for "the economy" or "the people" or anything but their own dishonest criminal scams - is a total lie, and the fraud of the century.
@honestan
There is an ugly side to deflation, and that is its marginal effects on lending and investment. What rational lender or investor would hand over money if they believed asset prices will be lower a month, a quarter, or a year from now? This is what keeps Bernanke awake at night.
A complete melt-down and debt wipe out would clear the system, but a slow, grinding, deflationary death spiral is a torture no sane person wants to experience.
So why do some continue to invest in innovative companies like Apple? Is the plant, and machinery used to manufacture products ( all depreciating, deflating assets ) not worth the yield? I think continuous lending for malinvestment is the key. Out govt does this all too well.
@gabadoo
I specifically used the term "marginal". AAPL is not a marginal performer, and it doesn't sit at the margins of lending and finance. Its access to funding is not in jeopardy. I was thinking about the smaller companies, banks and investors, they are the ones that would suffer from the effects of a deflationary environment. There are many more of them in the economy that the AAPLs, BACs, or GEs.
The most consistently prosperous time in U.S. history, in the 19th century, was during a time of more or less continuous deflation. Deflation has one great benefit, and that is you know your money will hold (or gain) its value over time. It makes it very difficult to plan for your retirement if you don't know what money will be worth when you retire.
ElvisDog,
Spot on.
Chris Martenson has also pointed out that for over 100 years in the USA (I forget the exact period but I think it was from the 1700s to mid 1800s) it was possible to put $100 in a container, pass it on to one's heirs and it would still have $100 purchasing power.
Not something the Fed's been able to do since 1913...
DavidC
Sorry Elvis, that dog don't hunt. The 1800s saw many boom and bust cycles punctuated by depressions and massive bank failures. Oh yeah, we also had a minor hiccup called the Civil War. It was a period of industrialization, and some fabulous fortunes were created, but one could hardly characterize it as a century of general prosperity.
So...the emergence of the middle class wasn't a sign of prosperity?
Your thinking is dangerously twisted. Booms and busts in the 1800's in the US weren't nearly as large or scary as they have been over the last century. The average length of a non-central bank or fiatsco-printing related bust was something like 6 months. The damage that Lincoln's printing during the Civil War lasted for 20-odd years, but it was no-where near as destructive as the Great Depression.
That's what "leverage/asset price ratios" are for. If we are deflating, I'll lend you 60% of the price of your home, instead of 90% and so on.
You present the ugly side of deflation as a lack of willingness to lend money? Seriously? You gotta think bigger than that. As governments of all sized in the US deleverage, who fills the power vacuum? Who has control of the resources to facilitate cannibalization of power? You gotta think about the end game...
a decreased willingness to lend is already here... whether it be between banks or from banks to end consumers. Further, even if all the money in the world was offered, people don't want to nibble... who gives a shit. Lending an investment are largely dead with the collapse of credit (and cannot be shock paddled alive)... pick a new boogey man.
Funny, I thought that lending money was the problem... not the solution.
I'm with ya on this one.
Prior to the creation of the Federal Reserve, there was a seemingly irreversible trend in American business toward financing capital projects using PROFITS rather than loans. Indeed, the bankers feared this trend so much that they risked treason charges to create the banking syndicate.
There is no ugly side to deflation--it only starves the unproductive (bankers, financiers). Imagine how rich the world would be today if all of the money that ever went toward paying interest was instead invested in capital projects.
+100.
Yup, exactly so.
Furthermore, just imagine your decision making process when you decide to develop or expand a business --- or not --- when the investment comes out of already-earned profits AKA "your own physical gold in your safe". Yup, when someone is risking his life savings, he thinks very carefully first... and searches for the best opportunities he can find. Today, when most or all inventment is borrowed, the attitude is more like, "let's give it a shot". They know the lender loses when the endeavor fails.
This is another reason the HUGEST mistake ever was to legalize general purpose "fictitious entities" (corporations), then keep expanding their powers until today they have vastly more legal power and influence than REAL entities.
Deflation affects the public sector most because their revenues are based on economic activity (sales tax) and asset values (property tax). In short, deflation affects government's ability to make payroll.
Bingo. This is the hyperinflationary collapse you're looking for... not the one where benron attempts to print us into some magical paradise.
Deflation is an untaxable increase in the standard of living of the people. Therefore, it can't be allowed to happen.
The Banks ALWAYS Win, wash, rinse, repeat... The Banks ALWAYS Wins....
Until WE kill them. Literally or figuratively. I'll take either at this point.
Good stuff Gonzalo. Agree.
This is the sort of junk that people who don't understand basic accounting identities write.
China cannot sell its dollar holdings without simultaneously eliminating its trade deficit with the U.S.
China's policy of export led growth (to U.S. consumers) depends on accumulating dollar assets. No other way about it.
See Michael Pettis blog if you want to understand these undeniable principles, which debunk junk like this on the blogoshpere.
Here's a hint--you can't grow your economy simply by trading your goods and services for little pieces of paper. They tried this in "It's Always Sunny in Philadelphia", with predictable results.
Their economy has grown, but not because they have been giving crap away for free to the US. It is because they have liberalized their economic policies. If the US can't afford their stuff any more, they can simply take it and dump it in the ocean and bring back little strips of paper for their reserves. The effect is the same, so long as China sits on those reserves.
Of course, they won't do that forever, and they likely never planned to. They will simply wind up either buying everything that isn't nailed down in this country, or attempt to corner multiple commodities markets at once. The latter seems more likely, and they are already making steps in that direction.
Japanese QE2(a while ago now) didn't sink the Yen, nor did it dissuade the Chinese from lately abandoning Yuan denominated assets for Yen-denominated assets.
I get the feeling that Yuan convertibility is having problems, so when they're done swapping Yuan for Yen, they'll swap Yuan for dollars.
I think the dollar is on a final down wave (e) on a very long term trend started in 1985.
stockcharts.com(may require membership)
http://stockcharts.com/h-sc/ui?s=$XJY:$USD&p=M&st=1980-01-01&en=(today)&id=p26579836264&a=181133547&listNum=2
Shooting yourself in the foot isn't always fatal, either. The difference is, the US is an enormously fat diabetic. The leg is going to have to come off.
"if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here."
"if the stock market continues higher it will do more to protect the wealth of high net worth individuals than any other measure we have discussed here"
Who do you think the Fed works for?
http://en.wikipedia.org/wiki/High_net_worth_individual
THE JIG IS UP
http://williambanzai7.blogspot.com/2010/08/running-on-empty.html
Define "us".
Everyone thinks they will survive; goldbugs; banksters; Prechterites; Bill Gross bondbuyers. Someone is going to get killed.
like the middle class?
Isn't the elephant in the room the countless IRA, 401k and 457's that continue to stockpile treasuries?
Anyone know an actual number on this or how much it "feeds the beast?"
I think those numbers are under the "Household" category of ownership of US debt, which also includes London and other foreign based shadow organizations reporting to the Fed (through an all-but untraceable web of offshore and "trust" entities), which funds their operations via freshly pixelated cash in order to accomplish stealth monetization of at least a significant portion of the current debt issuance and to maintain low rates.
I can only imagine the frenzed activity before each "auction" to try to get advance commitments at a certain rate, cut the side deals with Primary Dealers about buybacks and guarantees if the Ts cannot be offloaded elsewhere, and then decide how to secretly monetize the remaining balance.
The aim is not to print spending money, it is to devalue dollars against gold. Whether QE or QE 2.0 are successful depends on this alone. Ther owners of gold shop currencies the way you shop for groceries -- all that concerns them is getting more purchasing power for their gold.
Interesting response, Chuck.
If this, indeed, were the case I would think that TPTB would be accumulating gold at every turn.
I would also think that there would be some pronouncement by our wonderful government to restrict personal gold possession among the huddled masses.
Perhaps I just think the government is too much an instrument of inherent evil. I'll try to lighten up a bit.
What is baffleing to me is that we have been told again and again like we are children, that the Fed will NOT monetize deficits.
What is all this talk about QE 2.0?????
4 second response:
http://www.youtube.com/watch?v=j4XT-l-_3y0
The ability to think beyond one dimension to solve a problem is severely lacking with the Ivy League educated bureaucrats running the show. Sit back and enjoy the show, group think is in control.
It seems that you have answered your own question which is why Bernanke will NOT do QE2. He is a Keynesian Clown, but not a fool.
You seem to think just because he wrote a thesis about dropping money from helicopters that he would blow up the Federal Reserve, The middle class of America and America itself. He did not get a almost perfect score on the SAT's and teach himself calculus at 15 because he is dumb.
He knows his first QE experiment was a failure as would the second one. He knows he has enough time to let the Republicans and Dems fight it out and then the US Sheeple wil blame CONgress when it all collapses rather than the Fed come late Fall. early winter. And I predict it will be a cold winter.........
And did he chop down a chewwy twee with his widdle hatchet, too? Seriously, Ben hasn't got a good track record.
March 28, 2007: “The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”
May 17, 2007: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”
Feb. 28, 2008, on the potential for bank failures: “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”
June 9, 2008: “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”
July 16, 2008: Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.”
These statements can't be held against him -- these are considered required lies that has to be stated to keep the calm. You bet he knows otherwise.
The problem here is that no one reads Ben's paper on his PANIC model for banks, nor do they understand his employment theories. Ben theorized that the last Great Depression did NOT end until wages DECREASED. He believes at that point, employers began to hire more people and this helped pull us out of the Depression. This is crudely stated, alneit. the problem is that he specifically says he does not understand WHY this "caused" us to pull out of a Depression.
Nervous yet?
" . . . the US Sheeple wil blame CONgress when it all collapses . . . "
They didn't in 2008. They gave the party in control of congress a much bigger majority and a president to sign all their crap.
the sky is falling..watch out.
the sky is falling..watch out.
Today's decision will impact the mid-term elections. Will the powers behind the Fed want to change the political landscape in November, or try to maintain the status quo? I'd certainly welcome a little good old-fashioned gridlock right now.
Actually, there will be a high amount of turnover... no matter what happens. The Fed may be influential at the margins, but we are heading toward gridlock anyway. There's really nothing (besides a low probability black swan event) that would change the political outcome.
+1.... Midterms are all about slowing Barry & Co. down.... delay the inevitable...get down on all fours and pray for Divine Intervention..
"China's economy is tanking"
Stop right there...if I read another clueless moron here, I will explode in a tirade! WTF are you basing this on?!? (Hint: Check out ER from Chinese solars!!!) And get ready for another massive liquidity rally, compliments of Bubble Ben. Bring on QE 2.0!!!!!!!!!!!!!!
We're basing this on reality. On what we call fundamentals. The largest credit bubble in the history of the world is unravelling.
Leo, you should have been a bankster; all you care about is your bankroll. People are suffering and the price of chinese solars won't do anything for them.
We need a sound monetary system, not a new bubble for rich jerks.
You can bitch & whine till you turn blue, but you can't fight the system. Accept this and you will save yourself a lot of aggravation.
40 million on food stamps, a vanishing middle class, rising prices and vanishing jobs. Setting aside whether you care or not (you don't), how long do you think this can go on? The system is failing.
I do care but don't waste my time fighting the banksters. They got us by the balls. That's the brutal reality, and whether or not you choose to accept this, doesn't make a difference.
There is a reason they keep the Gulfstream fueled, Aussie bank accounts and a house in Costa Rica. They know something you don't.
Your both right.
The problem is Leo's world is collapsing. He wants to profit while he can. He is a bankers' "model citizen". But he will be cut in two as soon as this megadeath choo-choo train comes round the bend if he doesn't have a plan X for system ejection.
Cypher: You know, I know this steak doesn't exist. I know that when I put it in my mouth, the Matrix is telling my brain that it is juicy and delicious. After nine years, you know what I realize?
[Takes a bite of steak]
Cypher: Ignorance is bliss.
Yes. And add dropping wages in the real economy, bankrupt states and municipalities, real estate prices that are still near bubble highs... What part of this is sustainable? There is no confidence in the future and no "consent of the governed" for Washington. The last time that happened, things got messy.
Leo cares naught about anyone other than himself. He would sell his parents into slavery and his wife & children into prostitution if that would enable him to enrich his portfolio.
Leo has all the empathy and conscience of a Spanish Inquisitor.
.
stick with the pin-ups leo..
Leo, you and all of your pension plan clients will suffer mightily because of your incurable hopium addiction
Leo, you have become a hairy wanker masterbaiter nadling your bullshit
not sure about the hyperinflation part. love the comment from pragmatic capitalist:
"The new hyperinflationist theme has become a story of “if this, then this, then THIS!” – the ludicrous 3 step investment thesis that the economy will become so fragile that the government will pile on with more stimulus, which will worsen matters and force them to stimulate further which will then result in hyperinflation and/or default. Most investors have enough trouble predicting what the next event will be – connecting the dots two or three steps down the line is not only ill-advised, but is hardly even worthy of consideration…"
can be found here in a wonderful article: http://pragcap.com/quantitative-easing-the-greatest-monetary-non-event
The prag capitalist is a first rate idiot. If recollection serves he espouses there is no such thing as debt (US). A complete shill fit for printing on Blodget' s rag
haha very likely. thats the only article by him i have read. its a good article though. it talks about what QE is. Mostly people don't have a first clue about what it is. since most of my readers are private stock investors i actually linked to it on my site.
This is not the weimar overnight hyperinflation you are looking for.
And yes, with all due respect, we will pick the opinion of Albert Edwards, Dylan Grice, David Rosenberg, Marc Faber, Jim Grant and Bob Janjuah over that presented above.
ultimately, there are three solutions, one is hyperinflation, the other default and the third the abolishment of USD and being replaced with something else. Hugh Hendry decided to combine two of those, deflation then hyperinflation. But the possibilities seem to be within set constraints. Oh I forgot, maybe we stop spending. *Scratches Head* - Oh shit, QE starts all over again.
Actually the dude over there was saying that QE will most likely not work, and he is probably right. I just liked the way he expressed what I quoted. :)
EDIT: Add Van Tharp to that list. After all he has been saying this for about 4-5 years now.
I can't wait to watch an attempted transition from the dollar. Safely in my bunker via satellite. When the screen goes black I pop the Dom Perignon!
LMAO, Please share your address, I will gladly join you, and we can bitch about the good days!
There is only one possible solution and it is fairly (highly?) unlikely. It is presently undisputed that additional, successively larger QEs will not aid the situation. To continue on such a path (possibly in the very near term/immediately) would mean hyperinflation. This possibility is out... not going to happen.
They WILL try austerity, which in a nutshell means defaulting on domestic creditors and fellating international creditors. The problem with this approach is the ensuing feedback loop. A lack of tax collections eventually presents a problem with paying international debt. At that juncture is when the dollar is both prone to divestment of reserve currency status AND prone to divestment as any viable medium of exchange... either of which would likely cause hyperinflationary collapse.
This is all a long ways down the road as we attempt austerity and *gasp* fiscal responsibility in the short and medium term. After the bloodbath in November as incumbents are booted to the curb, I suspect we'll have a great deal of gridlock on the issue (if not agreement for austerity)... which, in a nutshell, means no more QE.
Since taxes are the foundation of the strength of the dollar, we are in trouble.
Simple analogy: I've loaned my neighbor a few hundred bucks since he has a great job, a Mercedes, a ski boat, a lovely wife and some curtain climbers all decked out in the latest i-Gear. When he loses his job, the loans stop! Simple as that.
Yeah, the cool part about it though, corporations, as a result of the credit boom, ended up being as fat and worthless as the government. A bunch of bears that had found a dump. They've managed to survive this long on just trimming the fat... probably have a ways to go too... the government will be similar, except 324329048329043290 (exact figure) times worse. Even our government is so fat it's got teh diabeetus. We'll live off the fat for a long time before running into bone. Black Knight or bust. That's the plan anyway...
On the dot there. But in terms of your earlier post, regarding hyperinflation. It is very likely long term we will get there, I just cant help to think that deflation is the immediate threat. I have been thinking about this for a long time, and partly why I have expected a double dip in equities for a long time.
Absolutely deflation is the immediate, short, and medium term threat... It's a bear sitting on your chest. Denial isn't a river in Egypt.
Our hyperinflation isn't going to come from continued printing, it's going to come from everyone throwing their hands up and declaring the currency worthless because we have no fucking clue how to be remotely disciplined with our financial affairs, despite our best efforts at a pound of cure. In short, the feedback loop will likely eventually kill us as default/repudiation becomes a mathmatical certainty (it's only a highly probable event at this juncture... or maybe that's too kind and a result of my own denial).
Stagflation.
DavidC
If we end with that, I will sleep with my 70 year old neighbour. She is at least a woman.
What I find interesting is that no one can really gauge how committed the Fed is going to be at protecting the USD and its reserve currency status. One would logically assume that would be important, but a neo-classical monetarist nutjob may well think differently.
You are right, it is so hard to predict the commitment. I think that Big B will keep the dollar within a set target with all the money it will take simply to secure his massive pension. Who cares what Big B the second will have to face?
QE2, the QE to end all QE.
Completely guessing and may eat my words later today, but I think something more like QE lite just to get us through election season then the real printing can begin.
.
After November, anything is possible.
China "only" hold about 2.4 trillion in debt. So if they dump that, Benny B. will also have a plan for it.
Do you really think 2.4 trillion will be a problem after he goes for 4.5 trillion in expansion?
This is the sort of junk that people who don't understand basic accounting identities write.
China cannot sell its dollar holdings without simultaneously eliminating its trade deficit with the U.S.
China's policy of export led growth (to U.S. consumers) depends on accumulating dollar assets. No other way about it.
See Michael Pettis blog if you want to understand these undeniable principles, which debunk junk like this on the blogoshpere.
Mainstream perspective Duck, but one I find interesting.
Question:
Does the tenet of
"China's policy of export led growth (to U.S. consumers) depends on accumulating dollar assets. No other way about it."
still hold if the PRC aggressively promotes domestic consumption? Do you really think the Chinese are totally satisfied with the status quo?
IE What makes you so certain that the PRC are not in an absolutely excellent position to alter their policies any way they see fit?
Regards
The above essay reads like:
Steal underpants
?
Profit
The Chinese economy is not "tanking". Even if it were what makes you think the Chinese are stupid enough to dump their treasuries faster than the market can absorb them?
What's Phase II?
They'll use Obama as their front man puppet, as the Fed will not be seen as the ones behind this devaluation of the currency (at least not directly in this case). It'll come off sounding like, on CNBCBSABC as BHO and the Dems look like they are trying to help the hardworking little sheeple by dropping money from helicopters via QE2.
Count of it.
The fact is, the Fed ILLEGALLY purchased Fred/Fann devaluating paper and now need to be rescued from the over $1,200 billion of paper junk they are holding. Since the Fed CAN NOT allow loss on this, as remember they bought this junk illegally, the Fed is basically bailing out themselves via front man BHO doing QE2. So they'll say they are helping those with Fred/Fann loans, yada yada yada, etc to help the little sheeple out.
If the Chinese dump Treasuries, the yuan would soar. That would be suicide for a mercantilist. Also, the Chinese would get pennies on the dollar for their Treasuries. The greater liklihood is that the Chinese will devalue just like everyone else.
From the ashes of mercantilism rises free market capitalism.
Saying one thing or the other is going to happen is predicting the actions of a few party officials, which is impossible. Same with trying to predict the behavior of the Fed. You assume these people are rational, when they clearly aren't. It's like trying to predict which way a monkey will fling his offal. You'll end up covered in it eventually.
For some odd reason, when Gonzalo speaks of a selling spark for a rush to exit, I think of a dozen plus morbidly obese ladies at a Weight Watchers meeting trying to fit through a 3-0 door to reach the siren song of the ice cream truck outside. Not pretty...
SP500 important chart update :
http://stockmarket618.wordpress.com
http://i38.tinypic.com/13z0qv5.jpg
Last night i was about to give that goodnight kiss to my four year old daughter when i was suprised to find she was sleeping with a voodoo doll of Bernanke.Even more disturbing was her usual bedtime companion a cuddly little bear was smoldering in the fireplace.
http://4.bp.blogspot.com/_l3yFESBjlgM/SdPFZCBWZlI/AAAAAAAAAFA/CkHZSKPNGt...
Once Ben initiates QE2 i'll be heading into the toolshed and handing my sweet little daughter some 6 inch nails.
http://static.businessinsider.com/image/4c1b84fb7f8b9a3c529e0000/bernank...
Yes,i know Ben it hurts.
Do we know for a fact that is what is going on, or do we just think that is what is happening?
not any more than we know they are providing money to surrogate banks to put a bid under the Treasury auctions, we don't know because there is no transparency, and there is no transparency because if people knew what they were doing they would disband the FEd, but mostly unscrupulous traders would front run there activities. They're in pickle, they can't reveal their real actions, and when they hide behind a curtain no one trusts them.
Keep reading ZH. As Thoreau put it, "some circumstancial evidence is very strong, as when there is a trout in the milk."
the horror! I can't imagine the Fed would offer the Chinese new Treasuries for old, and the Chinese would buy that shell game. Besides with nothing to sell the Chinese why would they want UST or USD, if you offered them hard cash, which apparently they did at one time several years ago when this problem first arose. If BB expands the Feds balance sheet with worthless pastries, someone is gonna break the window and take them all, just for the flour and the sugar. OF course the Fed is authorized to do this, it's in their charter. Then can also buy hard assets, like cars, boats, and homes. Remember a house is just a pile of sticks on a dirt lot, and its the dirt lot that matters. Since there is really plenty of that, buying homes isn't the answer either.
To Quease or not to Quease.
You know, the Fed could speak the honest-to-gods truth and say that we are entering global deflation, and thus must take appropriate measures like QE2 and negative repos.
...never mind.
eventually the free market will take them down, and that will be cause to celebrate, however painful and difficult it seems at the time
i am surprised not more attention was not given to the US now holding more UST than the chinese:
http://www.bloomberg.com/news/2010-08-09/americans-biggest-buyers-of-treasuries-as-savers-support-record-low-rates.html
is this the fist signs of the US becoming the next Japan!?!....lost decade???
the strongest economy outside northern Europe "is tanking"?!?! This guy Gonzo has gone full retard.
China's a totalitarian regime—never forget that. They may claim they're expanding, they may claim they're going great guns. But to get a real sense of their economy, you have to look at the ground numbers, and dismiss what the CCP is saying.
For instance, 2,000 factories closing so as to "save energy"? That's what a Chinese CP official is saying, per the following article:
http://www.nytimes.com/2010/08/10/business/energy-environment/10yuan.htm...
Shutting down factories to "improve energy efficiency". Right—like when I was in grade school, and "the dog ate my homework".If you don't believe me regarding China's looming implosion (right now, they seem to be where the U.S. was in 2007—peaking right before the fall), check out this speech by Jim Chanos, who sure as hell knows what he's talking about when he talks about China:
http://www.youtube.com/watch?v=99HNFCn5RP8&feature=player_embedded
Do you think someone has stated this at today's fed meeting?
"You got us into this mess and you can't get us out 'cos
you don't know where the hell you're going, do you ?
Do you, you son of a bitch, you fuck !"
We know what happens after that...
(Quote from Apocalypse Now, Chief)
The horror, the HORROR!
Welcome to The Zombie Economy. Not just for banks anymore. It's an economy no longer just guided or influenced or "juiced" and "cooled" by the Fed, but where the entire structure can rise or fall with every policy decision or change. That's what happens when a large percentage of national wealth is tied up in underwater debt, when foreign powers hold large amounts of currency and bonds. But it's not just a balance sheet issue anymore. That's because economic policy over the last 3-4 decades has placed nearly all the eggs in one basket, stripping and outsourcing the productive economy in favor of a FIRE sector servicing for the most part itself. It's also what happens when tax policy (aka "supply-side") favors capital accumulation over income generation, sucking out much needed productive capital which disappears into deep pockets.
Correct. The industrialists wholeheartedly adapted this FIRE economy as they made more money in capital gains than in direct compensation. So far nothing has been done to change this and few understand just how destructive low taxes and capital markets can be.
The Fed will never intentionally put us on the road to hyperinflation. When all you have to sell is money (to paraphrase Denninger) why would you willfully destroy the value of money. I think Bernanke and Co. are more than happy to tolerate a small amount of deflation, enough to keep the sheeple carrying on. Any QE2 will be intended to control the rate of deflation IMHO.
don't be so sure
central banks have opted for hyperinflation countless times over the centuries, burning their gov'ts/nations down in the process
ever wonder why?
So, when all curves start requiring the Tangent of 90 degrees to compute where we're at, how wrong/hard can the calculations possibly be? </sarcasm>
I agree... but perhaps controlling deflation is much harder than its made out to be. If it is, how much QE is too much QE?
I can see some very large "unintended consequences" here.
Yep. The entire monetarist experiment, starting in the 1970s and 1980s, has had some major unintended consequences which we're paying for today. We've reached a point of diminishing returns and they know it. They're trying extend and pretend to keep their own party going, or else they'll be relegated to the ash heap of history. However there are big risks to "Re-Flation": they have noticed how it only caused commodity prices to rise while real estate, employment and incomes continue to deflate. Serious risks.
Good point ElvisDog.
DavidC
We are already sunk. Extend & pretend will continue when armed bands are roaming the streets.
If the armed bands make it to the streets it's gonna be hard to keep up the pretending.
We'll just have to blow up the system, let the monetarists rot, switch to the American Credit system.
This system is going to crash, we either live with a crashed system, or tell them to go fuck off and that their derivatives are worthless, and we're switching to a CREDIT SYSTEM.
All of this can be done, at least here in America. But as LaRouche has said many times (and is correct), all you need is the U.S. and a couple other countries to agree to a switch, and it's doable. That's his Four Powers plan. Hell I bet you could get U.S., Russia, India, China, and Germany on board. Any small country no going to join in? The Queen of England maybe not, but that's not our problem. Perhaps that's the final straw in her monarchy.
So QE2 probably will sink us, but then again we're sunk without it too. That's the point, we're ALREADY sunk.
But how long we are underwater is ALL UP TO US.
That said, if we can't get this done in the next few weeks, odds are it will be very hard to do AFTER the crash without many important things closing. (once the lights go off at places it's hard to turn them back on)
QE2 if enacted, won't save the banks, it'll just allow them to pass the 2+2 test that currently is our accounting standards. That and raise prices already past a level people cannot afford.
Ahh yes, if people only realized if measured in pre 1994 terms we have at least 8 percent inflation, and when accounted in other ways 13 percent. If only they realized that M3 was dropping.
Impeach Obama, pass glass/steagall in it's 1933 form, put all debts and derivatives up to the glass/steagall standard, and if they don't meet it, wipe them out of existance. Then behoove other like minded realists around the world that they need to do this with THEIR banking systems. Pass HBPA of 2007.
Then we can embark on actually growing out of our great depression, infrastructure, science, space, nuclear, fusion. We can either let the monetarists siphon it, or we can achieve it. The alternative if we don't achieve it, is death. Up to us. I think it's an easy choice. A rich life, or death.
It doesn't matter what policies you recommend--only what Goldman Sachs wants.
Feudalism's back, baby.
whatever the fed does or says, their objective is to strengthen the relative position of the big banks (and the owners of them) v. the rest of the world
if that means burning the USA to the ground so that they can buy it back cheap and with fewer "useless eaters", then they're fine with that
We will see a reversion to the recognition of the supreme capital. That is not a D6 Cat with drying seals and compromised hydraulic lines, engineered for pretty much a single purpose.
The supreme capital reserve is gold. Contractual debt, as offered by banks, is failing in plenty of ways. Indestructible monetary capital is gold. The alleged 150,000 tons ever mined is still around, and will outbid a D6 Cat anytime.
We wait for the recognition and deployment against a sea of fraud, and a game that has come to its mathematical end time. Freeing the slaves (Lincoln and others), and promoting the illusion of freedom in a fractional debt carousell, cannot be fixed by whips. Whips are an inferior system to control by delusion.
I think tbf/fed would QE but china wont just sit back, this talk of QE looks a classic BS talk and nothing more to prop up asset prices and devalue the dollar without any more QE Its doing a good job, The wheels need to come off then QE 2 3 and 4 will begain in earnest,
The wheels are wobbling but still on so maybe in a few months or years but not yet for me.
If you don't think the Chinese can "extend and pretend" longer than everybody else just watch. Beauty of a totalitarian system is you make up all the rules, numbers and statistics. Who is going to know the truth? (Wait, this sounds familiar)
some great post here. I agree with above statements this is an attempt at a control crash. the banks have been bailed , their sitting on their cash from their bonuses. As deflation kicks in those with the wealth will pick up assest at pennies on the dollar. look we here know what the outcome of hyperinflation is so do to the wealthy. this game will continue till just before the point of hyperinflation. then they will crash it clean the slate and start over again.
Just to be accurate, the crash would likely cause hyperinflation too... just a difference of time between competing strategies.
And the cycle all centers around being shed of unwanted regulation and collective bargaining provisions. There is no reason to "wipe the slate clean" except insofar as our ability to dictate their whips on our backs. The wealth gap has already been accomplished... the burglary largely over (although it will continue until forced to do otherwise). Now we wait around to be eaten. Hopefully, I'm last. Best of luck to you.
Benny promised to buy treasuries now, let's see how many are selling.
QE2 then QE3 then QE4 until the currency war is "won" by forcing foreign defaults before ours and a massive rush to the "safety" of the only reserve currency. In a world where major sovereign defaults are a certainty, being the last to default is the goal.