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Michael Pento Says Fed Will Buy Stocks And Real Estate In Its Next Attempt To Create Inflation

Tyler Durden's picture


As part of the Fed's latest QE iteration, it has already been made clear that despite initial disclosures that the Fed would stay in the 2-10 Year bound of Treasurys, Ben Bernanke is now also gobbling up the very long end of the curve. For all those who are, therefore, still confused why bonds continue to surge to record levels, don't be: when there is a guaranteed bidder just below you in the face of the Fed, and who you can turn around and sell to at will, there is no pricing risk. The problem, from a bigger stand point, is what happens when the Fed is actively buying up 30 Year bonds with impunity and the much desired (by the Fed) inflation still does not appear? Well, the Fed then, in Michael Pento's opinion, will begin to purchase stocks and real estate. And as all those who enjoy comparing the US to Japan can attest, outright purchases of securities by the Japanese government is a long-honored tradition in the ongoing fight with deflation in Japan. However, and as the recent BOJ (lack of) intervention demonstrated, Japan never could do anything with the required resolve, and bidding up one stock here and there would never achieve anything. Which is why in this interview with Eric King, Michael Pento makes the case that as opposed to the occasional market intervention via the President's Working Group, Bernanke will soon make stock purchases an outright policy of the Federal Reserve as its last ditch attempt to engender inflation before the hundreds of billions of Commercial Real Estate and other bank debt start maturing in 2011/2012. Bernanke is running out of time and he knows it. And once the Fed becomes the bidder of last resort in stocks, all bets are off, as the Central Bank will become the defacto only market in virtually every risky category. And the only safe vehicle, once the market then begins to price in Fed driven asset-price hyperinflation, will be gold.

Pento also provides some perspectives on the Fed's balance sheet, which he anticipates will expand in a "great fashion", but a much bigger concern to the recent Euro Pacific Capital addition, is the possible surge in M2: "That base money can expand, M2 which is currently running around 8.5 trillion all the way up to nearly 25 to 30 trillion dollars of money supply and that's enough obviously to send prices through the roof." All Bernanke needs to do is light the "alternative asset purchasing" match and all those who wonder what left field hyperinflation could come out of, will get their answer.

Of course, it wouldn't be a Pento interview without a requisite smack-down, in this case of Dennis Gartman, whose call to sell gold denominated in euros at the very bottom of the recent gold correction needs no further commentary: EUR-denom gold has jumped well over 10% since Gartman said to get out. Pento adds the following: "There is so much misinformation out there, Dennis Gartman was out there saying gold has lost its inflation hedging properties: this is just ludicrous and insane. I can tell you that gold will never lose its inflation lure, and that's precisely why I've stepped up my purchases of gold., I see what the monetary base is doing, I can clearly see Bernanke's next step to vastly increase the size of the balance sheet and the monetary base. So for me, it's 100% an inflation hedge."

Pento also goes into explaining why housing is facing a "deflationary depression," and a further collapse in pricing, why inflation benefits only those closest to the money, i.e., the banks and the military complex, why it destroys the middle class (we are sure Buffett ca. 2003 could say something about that too... the current, far more senile and captured Uncle Warren, not so much), the impact on discretionary purchases, on unemployment, real incomes, and all other items which tend to "follow the money."

Lastly, Pento concludes with an analysis of what would have happened had the government allowed the deflationary depression to occur two years ago, without the tens of trillions in bank bailouts. We protracted, and elongated the depression. But instead of having the benefit of falling prices, you have rising prices." And if Pento is right, the price rise has only just begun.

Full King World News interview here.


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Tue, 08/31/2010 - 19:09 | 556487 CashCowEquity
CashCowEquity's picture

Gold to a million per oz.

Tue, 08/31/2010 - 20:11 | 556590 tmosley
tmosley's picture

Gold to no offer.

Tue, 08/31/2010 - 21:02 | 556660 JimDesu
JimDesu's picture

Gaah!  That's the most disturbing thing I've read today.

Wed, 09/01/2010 - 07:44 | 557179 Thomas
Thomas's picture

The Fed will probably buy GM stock.

Tue, 09/07/2010 - 14:10 | 567603 Geoff-UK
Geoff-UK's picture

And sell it at a loss to GM union workers, under the "Cash for Clunker-manufacturers" program. 

Tue, 08/31/2010 - 23:48 | 556896 Mad Max
Mad Max's picture

But I am bidding zim$ 1 trillion!  How can there be no offer at 1 trillion zim$????

Tue, 08/31/2010 - 20:59 | 556652 tictawk
tictawk's picture

Is the Fed not already buying bonds and stocks via primary dealers by providing them with unlimited credit?  How is it different if the Fed buys directly?  Also the bond market is many times larger than the equity market and it seems probable to me that at some point Japan and China will dump US debt in a race to the exit. 

Nobody is bigger than the market and any attempt by the Fed prop up the market will destroy any credibility that the Fed currently has.   This kind of intervention will blow up their faces and perhaps rightly so.

Tue, 08/31/2010 - 21:22 | 556688 UncleFester
UncleFester's picture

The Fed currently has credibility...who knew?

Tue, 08/31/2010 - 22:19 | 556754 QuantumCat
QuantumCat's picture

Exactly... their balance sheet, even if doubled from the current $2 trillion would be pissing in the wind of a $500 trillion plus deflation black hole that is gathering steam with each passing day and every default.

Wed, 09/01/2010 - 07:19 | 557155 hedgeless_horseman
hedgeless_horseman's picture
Today's WSJ advert for bigger fools:
Capital Freeze Thaws for Real-Estate Funds

Real-estate funds saddled with tens of billions of dollars of boom-time properties are beginning to get some relief from Wall Street firms and other investors (The Fed) hoping to capitalize on their need for cash.


Opportunistic investors (The Fed) are buying stakes in troubled funds at steep discounts or lending the funds money in deals that give them a steady return and potentially a share in the profit if real-estate markets rebound. At the same time, some funds are succeeding in persuading existing investors to cough up more capital, although this typically is an uphill struggle...

Tue, 08/31/2010 - 22:40 | 556802 Getagrip
Getagrip's picture

uhh. I think that's why gold is at 1248.00. I could be wrong... 

Tue, 08/31/2010 - 23:03 | 556835 themosmitsos
themosmitsos's picture

Michael Pento and EuroPac FTMFW baby [as always]

For the Mother Fucking WIN

Wed, 09/01/2010 - 08:08 | 557208 James Altucher
James Altucher's picture

What the govt should do: 

- allow under water homeowners with FNM loans to refinance at current mortgage rates (currently impossible). 

    Benefits: A) less defaults, B) the govt makes money (lend at 4.5%, borrow at 3%)

- buy S&P futures at the open market between 9:15-9:30

- force the states to sell off all universities and hospitals to raise money to fund their debt (why should the state run a college anyway?)

- give a 20% refund back to everyone who paid taxes in 2009. 

Wed, 09/01/2010 - 08:40 | 557255 DarkAgeAhead
DarkAgeAhead's picture

Good ideas, all...except selling colleges/universities.  While I'm against most things bureaucratic and governmental, the state colleges are one of the few remaining places a middle-class kid can go for a good education that doesn't put him/her/their family underwater for decades.

Eliminate that and you're left to the liberal greed and incompetence that permeates and exemplifies most private colleges today. 

Wed, 09/01/2010 - 11:26 | 557642 bada boom
bada boom's picture

Some states have a lot of land to sell.

Wed, 09/01/2010 - 12:54 | 557863 DarkAgeAhead
DarkAgeAhead's picture

Same with the federal government.  Like 90% of Nevada.

Tue, 08/31/2010 - 19:12 | 556491 LostWages
LostWages's picture

Buyer Benny--Bitchez

Tue, 08/31/2010 - 21:39 | 556704 Shiznit Diggity
Shiznit Diggity's picture

+1 for alliteration

Tue, 08/31/2010 - 21:52 | 556720 midtowng
midtowng's picture

Fed Policy: When in doubt, double-down

Tue, 08/31/2010 - 19:13 | 556495 Tarheel
Tarheel's picture

Well we all know the FED has to buy CRE some time in the next 12 months to prevent a repeat of 2008 (or worse?)

Tue, 08/31/2010 - 19:21 | 556509 Rainman
Rainman's picture

....2008 was batting practice. We're now in the first inning of a long game. In 9/08 the CRE value turndown wasn't even on anyone's radar. It sure is now.

Tue, 08/31/2010 - 20:54 | 556640 largowinch
largowinch's picture

Actually Rainman, some people did short CRE in 2008: :)


June 16, 2008: SAAR @ $15,631 


May 19, 2009: SAAR $8,022


See "Time at last to short the commercial real estate?":!-the-TNT-in-GDP.-(3min.)


PS: The graphs won't embed and/or display. Oh well. :(

Tue, 08/31/2010 - 20:44 | 556621 BlackChicken
BlackChicken's picture

Could not get picture to load...   Any pointers how to do this?

Tue, 08/31/2010 - 22:32 | 556784 THE 4th Quadrant
THE 4th Quadrant's picture

You must be a member of the inner circle to get access to the features.

Wed, 09/01/2010 - 00:54 | 556988 defender
defender's picture

What he means is that only people who contribute articles can do that

Tue, 08/31/2010 - 19:14 | 556496 NoVolumeMeltup
NoVolumeMeltup's picture

Hell, the Fed has said as much.

But Pento is certainly worth listening to, IMO.

Tue, 08/31/2010 - 19:14 | 556497 CashCowEquity
CashCowEquity's picture

doesnt matter, there is NO DEMAND for either !!!

Sellers cant sell it, banks cant sell it. You cant fake demand, its either there or its not. Lmfao !!!

Federal Retards.

Tue, 08/31/2010 - 19:16 | 556499 Yikes
Yikes's picture

Damn, this can't be true.

Tue, 08/31/2010 - 21:57 | 556722 midtowng
midtowng's picture

It's only far.

Tue, 08/31/2010 - 19:17 | 556504 CashCowEquity
CashCowEquity's picture

People dont need houses or stocks to survive. This only works with food stuffs (see greedy hedge funds)

This is an epic fail...

Tue, 08/31/2010 - 19:19 | 556506 Careless Whisper
Careless Whisper's picture

Bernanke will soon make stock purchases an outright policy of the Federal Reserve

he already has.

Tue, 08/31/2010 - 20:54 | 556644 Boilermaker
Boilermaker's picture

Yea, no shit.  If it's direct or by proxy or the buying of futures (indisputable, in my opinion) or directly buying the actual stock or options...this has already been in full force for well over a year.

The only twisty thing (if I'm correct) is that they have to actually declare if they are holding equities or want to buy equities.  Maybe someone else can confirm that.

Tue, 08/31/2010 - 21:19 | 556680 optimator
optimator's picture

Will the FED have to make Cramer's disclaimer, "May have been diseminated prior to their buying" or something like that.  Imagine all the tips they'll be giving their Bankster Buddies.  It'll be a market I'll continue to stay out of.

Tue, 08/31/2010 - 21:26 | 556695 Boilermaker
Boilermaker's picture

Well, they are basically making a $100M per day, every day, even with massive upward and downward, I think they are already 'tipped off' rather well.  That isn't to say they won't swing it plus or minus 500 points now to raped it even worse...but, they are in firm and powerful control already.

Wed, 09/01/2010 - 05:39 | 557118 Shylockracy
Shylockracy's picture

This has always been the true meaning of the expression "primary dealer".

Tue, 08/31/2010 - 19:22 | 556512 Gubbmint Cheese
Gubbmint Cheese's picture

This would explain the 'dumb money' being in bonds. Ugh.. If the fed goes through with this... They are going to hurt a lot (more) people who are just trying to protect themselves...

Disclaimer: I'm long bonds..

Tue, 08/31/2010 - 19:23 | 556516 digalert
digalert's picture

I was with you until you wrote:

"And the only safe vehicle, once the market then begins to price in Fed driven asset-price hyperinflation, will be gold."

Gold is rigged, at least for awhile.


Tue, 08/31/2010 - 19:34 | 556535 faustian bargain
faustian bargain's picture

So is everything else.

Wed, 09/01/2010 - 08:43 | 557262 DarkAgeAhead
DarkAgeAhead's picture

Yes, true.  Including agricultural and water production.

Nevermind the economic bubble.  If and when the ecological one bursts, that's when true pain will be felt.

Tue, 08/31/2010 - 19:40 | 556547 lemonobrien
lemonobrien's picture

I agree; and no one hear is saying that. They're going to take massive profit on gold.

Tue, 08/31/2010 - 20:02 | 556573 Temporalist
Temporalist's picture

They have tried that and have been rebuked time and again.  Their attempted manipulations are having reduced impacts.

And what do they get in return for selling their gold?  The same worthless fiat they are printing anyway.  They might as well not sell the gold then right?

Tue, 08/31/2010 - 20:15 | 556595 LePetomane
LePetomane's picture

Well, not the physical.  But by all means sell (loan) ETF paper doo doo that stands 99.99% pure chance of being confiscate at the first sign of trouble

Tue, 08/31/2010 - 21:09 | 556667 nmewn
nmewn's picture

Well stated Temp.

Tue, 08/31/2010 - 21:11 | 556669 UncleFester
UncleFester's picture

Maybe that was the plan all along.  The curtain pulled back, the Wizard revealed, and all the yellow bricks have disappeared.  In the end they will have the bricks and we will hold but paper.

Tue, 08/31/2010 - 20:13 | 556593 tmosley
tmosley's picture

Can't rig physical without puking it all over the place.  And once it's gone, you lose your power.

Tue, 08/31/2010 - 22:00 | 556727 apberusdisvet
apberusdisvet's picture

The Chinese are "un" rigging it.  The time to talk seriously about gold is after the Chinese New Year (February)

Tue, 08/31/2010 - 22:46 | 556811 Getagrip
Getagrip's picture

It's not rigged on Ebay...

Tue, 08/31/2010 - 19:25 | 556517 RobotTrader
RobotTrader's picture

Looks like the PigMen are already front-running....

New Zealand up tonight...


Note how the banks failed to make new lows during the afternoon smackdown:

I'm watching Comerica, which seems to be holding the best:

And FCX and the emerging markets seem to be outperforming lately.

There is a limit as to how high bonds can go with all the levered trades.

There is a limit as to how low the EUR/CHF can go.

There is a limit as to how bad the sentiment can get, with AAII bulls now at the same levels as March 2009.

We are due for some type of rally.

Just sayin.....

And don't call me "psycho"..



Tue, 08/31/2010 - 19:34 | 556536 Rainman
Rainman's picture

I'll take the gold crown and leave the fish eyes.

Here's a limit for ya' Robo.......10y UST yield at .90....let's go all in like the land of the rising sun. 

Tue, 08/31/2010 - 19:35 | 556538 Spalding_Smailes
Spalding_Smailes's picture

Hope your right.

Bought Research In Motion


Tue, 08/31/2010 - 20:04 | 556583 Careless Whisper
Careless Whisper's picture

@ robo

thanks for the heads up on CMA. if it takes out today's high, i'm in.

and haven't we all had our share of psycho girlfriends?


Tue, 08/31/2010 - 19:52 | 556563 I am a Man I am...
I am a Man I am Forty's picture

That be that crazy runaway bride from GA.

Anyway, the Fed is going to end up owning the entire country and then some.

Wasn't it Thomas J. that said banking institutions were more dangerous than standing armies, and that first through inflation, then deflation they would take all our stuff.  Well we are going through the deflation part right now and they are using taxpayer money to do it.


Tue, 08/31/2010 - 21:43 | 556712 RockyRacoon
RockyRacoon's picture

Anyway, the Fed is going to end up owning the entire country and then some.

Fine.  The sooner the better.  Bringing this thing down will expedite recovery.

I have some left over yard sale stuff that I'd take their bid on.

Tue, 08/31/2010 - 22:50 | 556816 Getagrip
Getagrip's picture

Don't worry, it's not real money.. 

Tue, 08/31/2010 - 23:58 | 556908 UncleFester
UncleFester's picture

Homeless Homies!

Thu, 09/09/2010 - 13:49 | 572218 TJ_is_annoyed
TJ_is_annoyed's picture

"Wasn't it Thomas J. that said banking institutions were more dangerous than standing armies"


It certainly was. 

Tue, 08/31/2010 - 20:03 | 556581 papaswamp
papaswamp's picture

many of the emerging market countries get their loans from the 'old world' countries. What happens when they say sorry we are out of $$? 

Wed, 09/01/2010 - 00:05 | 556919 Honest_Money
Honest_Money's picture

Banana Ben will just add a few digits to his System Open Market Account (SOMA) and loan them some Federal Reserve Notes through the IMF.

Tue, 08/31/2010 - 20:40 | 556624 AccreditedEYE
AccreditedEYE's picture

Robo- Your posts of beautiful women alone make me look forward to your posts. The fact you have helped me make real money is even better... however, I cannot get charged up about this market. We have long time professionals walking away, computers playing games with chart patterns, valuation being twisted and distorted. What about market leaders like INTC, AAPL, CSCO, GS, JNJ, IBM better hold 120. Outside of a few days rally, I think our goose is cooked!

Tue, 08/31/2010 - 21:23 | 556689 Spalding_Smailes
Spalding_Smailes's picture

Dow Futures up 65 & climbing fast ...

Tue, 08/31/2010 - 21:20 | 556685 Reese Bobby
Reese Bobby's picture

Poke my eyes out .. No, suck my henry .. No, poke my eyes out .. STOP. Grab your ankles and we'll figure this thing out...

Tue, 08/31/2010 - 22:00 | 556730 midtowng
midtowng's picture


Tue, 08/31/2010 - 22:15 | 556747 kathy.chamberli...'s picture

ROw BOat you have succumb to stupidness.

just stupid  .......... nesss

your silly

i think i hate you guyz.

Tue, 08/31/2010 - 22:35 | 556788 THE 4th Quadrant
THE 4th Quadrant's picture

M u s t take the good with the b a d

He did introduce you to finviz, no?

Tue, 08/31/2010 - 22:42 | 556806 kathy.chamberli...'s picture

 no i don't, D O  charts

Tue, 08/31/2010 - 22:49 | 556815 Getagrip
Getagrip's picture

Agreed, still some gaps to fill...

Tue, 08/31/2010 - 19:25 | 556518 Hephasteus
Hephasteus's picture


Which will fund the startup crackhouses and meth houses rent free.

Tue, 08/31/2010 - 19:49 | 556559 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

So if Bernanke travels outside the US, will he be arrested as a financial terrorist? What the hell else can you call this?

Tue, 08/31/2010 - 20:04 | 556582 Temporalist
Temporalist's picture

See, they improved the economy after all by contributing to an expanding black market.

Tue, 08/31/2010 - 19:27 | 556524 fat tony slim
fat tony slim's picture

what people say and do is the question. will let the tape remain the source of evidence. if they could control the tape, then why wait? play with fire, you are gonna get burned. how about everyone stop molesting the damn tape. reflexivity gonna rule the day. nothing is going to change that. 

Tue, 08/31/2010 - 19:30 | 556528 AimlowJoe
AimlowJoe's picture

Is the Fed purchasing stocks with vapor money? Yep... intersting concept. Running out of time? 2012 can not get here soon enough. I only hope the Mayans were right.

Aimlow Joe was here.

Tue, 08/31/2010 - 19:31 | 556529 Waterfallsparkles
Waterfallsparkles's picture

I think Bernankie enjoys trading.  He especially loves short squeezes.  Yet, with the Worlds biggest balance sheet, why would he not love trading?  He can control everything and win every time.

Although, it is a sad state of affairs when our Federal Reserve starts to trade stocks to effect change.  That is not really why they were created.

Maybe the Fed should buy up all of the Homes on the Market to help the Housing prices.  You know what is good for the Goose is good for the Gander.  Why prop up stocks and not housing?

Hmmm? Well forget that Housing affects the Middle Class and Stocks affect the Rich.  I get it.

Tue, 08/31/2010 - 19:31 | 556530 mt paul
mt paul's picture

maybe the FED

will buy zero hedge soon ..

Tue, 08/31/2010 - 23:34 | 556874 Homeland Security
Homeland Security's picture

If the Fed wanst to buy it will cost them

4 818 000 USD

Euro: 4 000 000 €, 6 177 bars of gold, 1 377 camels, 3 706 154 beer bottles, or 418 957 bottles of vodka
Wed, 09/01/2010 - 01:05 | 556994 defender
defender's picture

shhhh, don't mention the bars of gold or Tyler might accept the offer

...not that I would blame him at that price

Tue, 08/31/2010 - 19:32 | 556533 Miles Kendig
Miles Kendig's picture

Makes sense that the fed will assume full control of all c/rre paper in an effort to preclude a general unwinding of all the associated (however remote) paper...

Perhaps the fed and the clearing house will one day be left holding the bag without explicit or implicit government backing...

Tue, 08/31/2010 - 19:38 | 556544 Hall 9000
Hall 9000's picture

Wile E. Coyote Government - video

Tue, 08/31/2010 - 21:22 | 556686 AhhhItBurns
AhhhItBurns's picture

The Acme company seems to have some hilarious ties too once you begin to think about it.


Wikipedia Copypasta:

The company name is ironic since the word acme is derived from Greek (ακμ?; English transliteration: acm?) meaning the peak, zenith or prime, and products from the fictional Acme Corporation are both generic and tend to fail.

Tue, 08/31/2010 - 22:40 | 556793 tom a taxpayer
tom a taxpayer's picture

Thanks, Hall 9000. Hilarious, Wile E. Coyote! 

Yes, like the government, one cocamanie scheme after another.

Tue, 08/31/2010 - 23:39 | 556887 Homeland Security
Homeland Security's picture

Treasury thanking Fed for....

Fed - "No, its a picture of the dollars we loaned you at interest."

Tue, 08/31/2010 - 19:49 | 556558 CitizenPete
CitizenPete's picture

Hell ya.  Thanks - I needed that. I think I actually got wood

during John Patitcci's bass solo. 

Tue, 08/31/2010 - 19:37 | 556541 CitizenPete
Tue, 08/31/2010 - 19:40 | 556548 JonNadler
JonNadler's picture

Dennis Gartman ? Who does that punk think he is, spreading lies about gold?....Me? well. I know Jon Nadler, i am Jon Nadler, Gartman, you're no Jon Nadler, ....or JonnyBravo even...OK that's too low a blow

Tue, 08/31/2010 - 19:50 | 556561 Chemba
Chemba's picture

How do I send my MLS listing to Banana Ben?

Tue, 08/31/2010 - 20:23 | 556604 AccreditedEYE
AccreditedEYE's picture

Doesn't The Squid have a direct line to his office? Go ask Lloyd.

Tue, 08/31/2010 - 19:53 | 556566 cjbosk
cjbosk's picture

Head and shoulders isn't just for scalps anymore...hang on, gonna get rough fast!  Vol is too anemic, no volume fits and starts all summer with heavy volume almost exclusively on 90% down days. Had a chance for a mini reverse HS but blew that up yesterday, now for the mutha ship to hit a wall

Keep your pants on until 950 on S&P, then it's time to get naked and take the shorts off:-)+



Tue, 08/31/2010 - 19:55 | 556567 papaswamp
papaswamp's picture

This would be much larger than the faux chinese banker defection. Wouldn't they buy through someone like Pimpco or Blackball...err rock?


Tue, 08/31/2010 - 19:56 | 556570 MichiganMilitiaMan
MichiganMilitiaMan's picture

Sooo, when 30 year treasury yields climb with impending sovereign default the Federal Reserve will make a killer profit when they sell these treasuries? 

Tue, 08/31/2010 - 19:58 | 556572 bughousebuzz
bughousebuzz's picture

Bankers hate the public owning gold, when they hold gold their money isn't in the bank or the market where they can steal it. 

Tue, 08/31/2010 - 20:00 | 556574 THE 4th Quadrant
THE 4th Quadrant's picture

Crude to infinity is the refined, sophisticated, delicate, accurate way to enforce inflation.

Tue, 08/31/2010 - 20:09 | 556588 Rusty Shorts
Rusty Shorts's picture

 - would it not be deflationary? A lack of crude oil (or expensive crude) will mean that, everyone will be broke. No energy, no work, no production = no money = deflation.

Tue, 08/31/2010 - 20:52 | 556642 THE 4th Quadrant
THE 4th Quadrant's picture

Deflationary? No sir.

Pinched, everyone would be pinched.

The sheeple would rise every morning, sigh, get queued up in the maze, jump onto their hamster wheel and expend more energy than is proportionately given back to them.

Rinse, repeat, watch your TV for further instructions about how to optimize your wakefulness and what pills to take to cope.

Tue, 08/31/2010 - 21:19 | 556676 Rusty Shorts
Rusty Shorts's picture

I'm speechless, brilliant retort !!

Tue, 08/31/2010 - 22:35 | 556787 Rusty Shorts
Rusty Shorts's picture

Title:     A Letter to the Secretary of the Treasury
Author: Mark Twain [More Titles by Twain]

Riverdale-on-the-Hudson, OCTOBER 15, 1902.


Sir,--Prices for the customary kinds of winter fuel having reached an altitude which puts them out of the reach of literary persons in straitened circumstances, I desire to place with you the following order:

Forty-five tons best old dry government bonds, suitable for furnace, gold 7 per cents., 1864, preferred.

Twelve tons early greenbacks, range size, suitable for cooking.

Eight barrels seasoned 25 and 50 cent postal currency, vintage of 1866, eligible for kindlings.

Please deliver with all convenient despatch at my house in Riverdale at lowest rates for spot cash, and send bill to

Your obliged servant,

Mark Twain, Who will be very grateful, and will vote right.


Mark Twain's short story: A Letter to the Secretary of the Treasury

Tue, 08/31/2010 - 20:02 | 556578 traderjoe
traderjoe's picture

I don't think this will happen in an overt fashion. They might try some veiled SS reform that allowed the Gov trust fund to buy stocks or RE/CMBS. Doubtful, but some Hail Mary like this might be possible. Or some sort of loan/refi facility like a TALF for CMBS rolls.

But an overt purchase of stocks/CMBS/CRE would smack too closely of the specific/crony intervention that they want to avoid (yes, I think all of the bailouts to date have been cronyism, but they are unpopular as well). Direct purchases of 'private' assets would accelerate a panic, not avert it.


Wed, 09/01/2010 - 09:52 | 557394 Assetman
Assetman's picture

To overtly purchase RE/CMBS/Stocks would probably force the Fed to induce the "exigent circumstances" clause, especially if Agency debt isn't involved.  While the Fed has already tested the legal bounds through the Agency purchases (don't worry, they have government backing), they would be stretching their legal authority way over the line by owning stocks.

Michael Pento appearently doesn't understand the covert role of primary dealers, and apparently who is operationally involved in the Working Group.  As others have stated, the Fed is already endorsing the purchase of CRE and stocks.   And I'm pretty sure those marching orders are coming directly out of a musty corner office at 33 Liberty.  Bill Dudley... where art thou?

As for the overt purchases of Treasuries, the Fed already has its hands pretty full-- and it WILL expand.  Their central priorities are to: (a) ensure that the Treasury can meet all of its financial obligations; (b) minimize the cost of debt issuance for such obligations; and (c) push the principal as far out on the curve as entirely possible.  As long as deficit spending is the norm, and China is out of the market buying Treasury debt, the Fed will be a major player here.  Clearly, this is one area where "whatever it takes" does apply.

In the end, investors worldwide should be trashing the USD-- and remarkably, they are not.  The policies of monetizing debt and covering up the stench of the financial system are certainly well known.  I just don't think it's sinking in that the Fed is choosing to strategically default by debasing its own currency.   Well, except in China... they know full well the U.S. can't possibly pay back all of its debt obligations, and are acting accordingly. 

The next move to expand the Fed's balance sheet via QE -- whether it's $1 trillion or $5 trillion-- SHOULD be countered by currency dumping USD in the international markets.   Domestically, people SHOULD rightly question the faith in their currency when a policy of strategic default though currency debasement is the central strategy.  But it hasn't happened yet... and it may not for quite some time.  We can thank Greece... and most likely now, Hungary... for the temporary international diversion.

Tue, 08/31/2010 - 20:06 | 556586 AUD
AUD's picture

I just don't see how the Fed (or any central bank) thinks they can produce 'inflation' by making a market in goverrment debt. Inflating the currency yes, or a policy of 'inflationism' to quote Mr Noland, but 'inflation' no, at least until the entire government debt market springs a leak.

No, I think they are trying to hedge, inflate the currency while holding 'risk free securities'.


Tue, 08/31/2010 - 20:19 | 556599 Spalding_Smailes
Spalding_Smailes's picture

Wait ....wait ...

Obama is talking about putting the middle class back to work ...


Tue, 08/31/2010 - 20:22 | 556602 papaswamp
papaswamp's picture

All he is doing is reading off the Skynet TelePrompTer....

Tue, 08/31/2010 - 20:42 | 556629 ZeroPoint
ZeroPoint's picture


First he can start by ending all free trade agreements except for maybe Canada.

Then he can start a government bank and offer loans at 1%, so the private banks will have to actually peform banking duties. Free checking and savings too, with no monthly fees, period.

Then he can take 2/3rds of the military budget and provide susidies to anyone going off to college and technical schools.

Oh wait, I forgot. It's Goldman Sachs, AIG, Citi, and BOA that needs saving, not main street.

This country needs to hit the reset button.

Tue, 08/31/2010 - 20:23 | 556606 Leo Kolivakis
Leo Kolivakis's picture

"...what happens when the Fed is actively buying up 30 Year bonds with impunity and the much desired (by the Fed) inflation still does not appear?"

And what prevents them from printing at will and buying corporate bonds and stocks? Answer: Nothing at all. Reflate & inflate -- get used to it!

Tue, 08/31/2010 - 20:26 | 556609 Spalding_Smailes
Spalding_Smailes's picture

Maybe a bounce to 10,700 ?

Tue, 08/31/2010 - 20:37 | 556618 spinone
spinone's picture

The Chinese?

Tue, 08/31/2010 - 20:41 | 556627 LePetomane
LePetomane's picture

Hyperinflation will stop them.

Tue, 08/31/2010 - 21:25 | 556668 THE 4th Quadrant
THE 4th Quadrant's picture

I beg to differ my friend.

The only problem the banks have right now is the toxic debt on their books. If you force inflation to a point that building a house is more expensive than buying a used one from the banks then the banks will get back in the green. The simpleton flip-my-house speculator will rush back.

Then call in the loans. All of them. Drain the swamp and watch the pendulum swing.

Mild inflation brought on by a rise in crude. OIL again takes center stage.

Keep an eye on housing starts. The real numbers. You know the banksters will.

Tue, 08/31/2010 - 21:12 | 556662 Nihilarian
Nihilarian's picture

Leo, if Bernanke offers you $100 for your stool, how does that affect the market value of your droppings? Printing money to purchase your digested excrement of last night's Chipotle dinner ain't gonna make the economy recover.

Why buy stocks? Why not just send $100k to every household?

Tue, 08/31/2010 - 21:13 | 556674 Boilermaker
Boilermaker's picture

Because then you couldn't actually steal it and proclaim you've done something 'for the people'.  The bailouts orchestrated by Hank the skank should have shown you that.  It's about funneling money to the elite under the veil of helping the citizenry.

Wed, 09/01/2010 - 15:18 | 558180 Assetman
Assetman's picture

Alternative Answer:  A dollar collapse could stop just about everything.  The only thing keeping the dollar where it is... is faith.

Well... that and every other global currency going into the tank because of even worse fiscal/mentary issues.  Not to mention that best in the world military of ours keeping the global politicos in check.


Tue, 08/31/2010 - 20:35 | 556617 optimator
optimator's picture

Too bad Joe Stalin didn't think of doing it this way, could have saved himself a lot of time and trouble.  No need for Beria or even getting rid of all those Kulaks.  George Santyana was correct. 

Tue, 08/31/2010 - 21:24 | 556694 Hall 9000
Hall 9000's picture


"Sanity is a madness put to good use."

George Santayana


Tue, 08/31/2010 - 20:43 | 556630 ZackAttack
ZackAttack's picture

Judging from their track record, if the Fed is buying, you should be selling.

Tue, 08/31/2010 - 20:50 | 556639 MiguelitoRaton
MiguelitoRaton's picture

So we will all leave the market to the Fed and HFT computers to duke it out? Wow, that sounds like quite a show! Dow 250,000, it will make all of the unfunded pensions whole again too!

Tue, 08/31/2010 - 21:05 | 556663 Robslob
Robslob's picture

Yup...all 30 stocks left in the DOW will certainly make it run to 36,000,000,000,000,000,000 but then your dead...

Tue, 08/31/2010 - 20:57 | 556649 buzzsaw99
buzzsaw99's picture

Buffett needs the S&P at 1200 therefore Bennie will buy it up past that point because he is the billionaire's bitch.

Tue, 08/31/2010 - 20:59 | 556653 Bluntly Put
Bluntly Put's picture

What if they throw in all your assets, all your portfolio into a "secured" retirement scheme like social security. With IRA's, 401ks being eyed greedily that would not suprise me at all. All your assets belong to us.

Tue, 08/31/2010 - 21:02 | 556661 Boilermaker
Boilermaker's picture

Welcome to Argentina of the north...

Tue, 08/31/2010 - 21:00 | 556656 Smiddywesson
Smiddywesson's picture

Gold to a government mandated $35 per ounce

Gold to a contraband status like cocaine

Paper gold to nothing.

If you have possession of your gold, yes, it will be very valuable.  But let the men with the stinkin badges know you have it, and you are going to go to jail like a dope smuggler.

These people are convinced that the world needs them to save it, and they are utterly ruthless.

Tue, 08/31/2010 - 21:10 | 556665 Hephasteus
Hephasteus's picture

These people are convinced that the world needs them to save it, and they are utterly ruthless.

Then welcome to 7 billion people wearing a name tag that says......

Hi my name is Ruth

Ruthless, Truthless, soon to be toothless.

Tue, 08/31/2010 - 21:01 | 556659 Boilermaker
Boilermaker's picture

Why do I value Mike Pento's observations moreso than Nic Lenoir's?

Tue, 08/31/2010 - 21:13 | 556672 bugs_
bugs_'s picture

the more they try to make inflation, the more deflation they get

Tue, 08/31/2010 - 21:17 | 556677 Boilermaker
Boilermaker's picture

And...thar she blows....futures just doubled to 60 on the DOW in 5 minutes.

The hail mary passes are being hurled like fuck now.

What's the good up 20 handles on the SPX and 200 or so on the DOW?  Or more?

Tue, 08/31/2010 - 21:20 | 556681 RobotTrader
RobotTrader's picture

More front-running....

Tue, 08/31/2010 - 21:25 | 556692 TwoShortPlanks
TwoShortPlanks's picture

That previous picture looked a lot like the old 84mm Carl Gustav (recoilless anti-armour round) I used to fire back in days of old. A prick to carry for 5 weeks straight though.

Tue, 08/31/2010 - 21:32 | 556699 Spalding_Smailes
Spalding_Smailes's picture

Ground Control to UncleBen
Ground Control to UncleBen
Take your pills and put your helmet on

Ground Control to UncleBen
Commencing countdown, engines on ...

Tue, 08/31/2010 - 21:20 | 556683 Spitzer
Spitzer's picture

Dennis Gartman is a loser, he has such a perfect record of calling wrong on gold.

Tue, 08/31/2010 - 21:40 | 556705 largowinch
largowinch's picture

Lol. I agree with Spitzer here.

Wed, 09/01/2010 - 11:28 | 557654 bada boom
bada boom's picture

Isn't gartman just another tool?

Tue, 08/31/2010 - 21:20 | 556684 TwoShortPlanks
TwoShortPlanks's picture

So the Fed - of which a great portion is probably owned by the TBTF banks anyway - might be gracious and willing enough to buy stocks and distressed real estate - at rock-bottom prices I might add (this would be a given) - even though it was the very same Fed (the banks) which stoked the fire of the property bubble and now the bond market bubble, and the stock market bubble, and the DotCom bubble etc.

As the monetary base keeps expanding, the US public will effectively pay for all the purchases in the long-run (as free people or in chains, it matters not). But who will own the assets...will the Fed simply gift away their balance sheet of ill-gotten stocks, bonds and real estate, or will it (the big banks remember) take on the role of the landlord? (Landlord = Lord of the Land).

I'm telling-ya, this smacks of the 'House of Rothschild' !!!

Slavery might really come home to roost; white slaves, black slaves, who cares!!!

This is how the TBTF banks will launder, not money, but real wealth; through the Fed, and drop the bill (chains) into the tax payer's lap, even though it will be made to look like Bernanke, all dressed in shinning armour, galloping in on a trusty steed (the Fed) to rescue the, that's actually a slave trader and the armour is being worn for a particular reason.

...this scam is nothing but a game of Monopoly on steroids; it will end with posses and nooses, I guarantee you.

Tue, 08/31/2010 - 21:40 | 556708 JR
JR's picture

Absolutely excellent! TwoShortPlanks.  And they are doing all this with criminal intent.

Tue, 08/31/2010 - 22:23 | 556761 traderjoe
traderjoe's picture

Actually the Federal Reserve IS owned by the banks - it's a privately-held institution. The 'member banks' own non-voting shares (that earn 6% dividends annually) in the 12 regional banks. 

Tue, 08/31/2010 - 23:00 | 556803 TwoShortPlanks
TwoShortPlanks's picture

Yes, the five greatest moral hazards of them all.

1. Banks which own the Fed printing press and chequing accounts.

2. The sleigh of hand which allows fiat money to be thought of as real.

3. A congress which gets bought-off, and expects it.

4. Banks which are too big to fail, and aren't allowed to because they control/own #1, #3 & #5 in this list.

5. An election system which is more like sticking an employee in the White House.

Every one of these five will need to be liquidated in order to restore balance. Any one of them, in time, will restore the entire group in some shape or form.

In regards to the Fed consisting of "member banks", which are "non-voting"; true, but have you ever pondered that the non-voting element might imply that there is already a control structure in place, therefore negating the need for operation input from the other 11 or so Fed centres and banks. This is like a silent investor. So who's the franchise owner? There is an owner, you can bet on it.

The last list of member banks I saw had 3-4 banks which were originally set-up by JP Morgan...and his grandfather was given his money from the 'House of Peabody' (become Peabody & Morgan)...further back, and Peabody was a actually a non-disclosed trading house agent of the 'House of Rothschild'. So 3-4, perhaps more, of the member banks, have always been agents for the Rothschilds. This is no secret, but it has always been down-played, and agents allow anonymity and conspiracy to mask or allow the average Joe to dismiss concealed intent.

Who controls the Fed...who stands to clean-sweep stocks and real estate across America (and maybe Europe later) as the Fed commences buying-up all the distressed real assets with nothing but ones and zeros in a big banks chequing account...who do you think?!

The very same family which clean sweeped the entire debt of Europe after the battle of Waterloo!

Wed, 09/01/2010 - 05:54 | 557122 Shylockracy
Shylockracy's picture

'Democracy' in action since 1789.

Tue, 08/31/2010 - 21:23 | 556690 Which is worse ...
Which is worse - bankers or terrorists's picture

This is going to be such an awesome decade for trading and people who like resource wars. I'm so bummed it is 7.5% over now. 

Tue, 08/31/2010 - 21:31 | 556698 zaphod
zaphod's picture

"And the only safe vehicle, once the market then begins to price in Fed driven asset-price hyperinflation, will be gold"


So gold will be a safe haven,yes.


What other assets people on ZH think will be safe havens in addition to gold? There are lots of examples from other countries where this happened, what assets in those situations did people find best preserved wealth and what preparation steps seemed to work best?

Tue, 08/31/2010 - 21:43 | 556710 tmosley
tmosley's picture

Silver, food (and that which produces it), and energy (and that which produces it).

Gold and silver are likely to be tops, though.  Food will only be as good as or better than PMs for a brief period, perhaps a few months.  Energy probably won't keep up with any of the above, but it will beat most other assets by a wide margin, as it is globally traded.

Wed, 09/01/2010 - 01:48 | 556998 Quonk
Quonk's picture

oro y plata y plomo y agua y comida y antibioticos...y mucha, mucha suerte.  Oh...and some Kevlar just in case I need to make a run to Safeway.  I know...there won't be Safeways where we're heading...but I don't really expect to make it to the Eli phase of the debacle.

Tue, 08/31/2010 - 22:36 | 556790 AEGeneral
AEGeneral's picture

Tar & feathers will be in high demand for a few months.

Wed, 09/01/2010 - 00:11 | 556933 zaphod
zaphod's picture


Am stocking on chickens (and other various birds) now......

Wed, 09/01/2010 - 13:56 | 557990 Panafrican Funk...
Panafrican Funktron Robot's picture

One that I don't see mentioned much for some reason is liquor/alcohol.  In addition to the obvious value of getting drunk to help forget the misery, it can also be used as a medical disinfectent, can kill the bugs in dirty water, a fire catalyst (important for cooking and improvised weaponry), can make up for a pretty strong caloric deficiency (more calories per unit than carbs or protein), etc., and, it keeps for a long, long time, particularly if you stash it in the basement.  Easily tradable as well, because people have a solid understanding of it's relative value.  You really can't go wrong with it.

Wed, 09/01/2010 - 13:57 | 557992 Panafrican Funk...
Panafrican Funktron Robot's picture

And if the SHTF scenario never materializes, you still end up with a shitload of liquor.  Win-win.

Tue, 09/07/2010 - 16:09 | 567833 Geoff-UK
Geoff-UK's picture

Takes up an order of magnitude more space than PMs; not easily transportable; can lose all value immediately if dropped carelessly.

Buy/store it if you drink it, but don't expect this to be big, barter-wise.  Silver most likely, with gold for larger items.

Thu, 09/02/2010 - 00:23 | 559012 Brooke Lorren
Brooke Lorren's picture

Bullets, a tent, boy scout skills (hunting, fishing, etc.), girl scout skills (sewing, mending clothes, etc.).  A book with information on how to live off the land, etc.  Friends that know how some of the skills you don't.


I don't know about wealth preservation... I'm concerned about survival in the short term.  When it all settles out, I suppose a good set of wealth-earning skills will help build the money back up later.

Tue, 08/31/2010 - 21:45 | 556715 Itsalie
Itsalie's picture

Well a privately owned entity ie the Fed is buying all risky assets to keep its shareholders ie the banksters afloat with money printing, while passing on all losses to taxpayers - maybe this is what the farmers in the east (earning $200 a year) call communism with american characteristic.

Tue, 08/31/2010 - 21:51 | 556719 Buttcathead
Buttcathead's picture

They have been buying not stocks for about two years now.  This is not new news to me.  Good luck finding a buyer.  They call this a market ?  LOL

Tue, 08/31/2010 - 21:54 | 556721 merehuman
merehuman's picture

matches, to burn the damn paper and the bankers who peddle it.

Tue, 08/31/2010 - 21:59 | 556725 Caviar Emptor
Caviar Emptor's picture

We've been talking about the obvious economic insanity which Fed policy will lead to. As I've said for months, real assets deflate, cost of living inflates and the middle class implodes. I've also said the Fed will be relentless, going further and further out on that limb in an effort to preserve the status quo ante-crisis. But there are risks beyond just economic ones, which are bad enough. The dark side of their policy to start buying up every asset in sight is a political risk: the more of the country and the economy they own, the more power becomes concentrated in a few hands. And that, friends, could be the blackest swan of all: a sudden change in the political climate of the US, not through the democratic process but from the top. Just like inflation, once power gets too concentrated and checks and balances no longer work, the road to autocracy is very short. We all need to be vigilant to this risk, because not any amount of money, gold or real estate will protect you from the hazards of being on the political wrong side.

Tue, 08/31/2010 - 23:17 | 556856 AccreditedEYE
AccreditedEYE's picture

Great point.

Tue, 08/31/2010 - 22:10 | 556739 web bot
web bot's picture

... just don't forget Jan Parrson's book Dying of Money.

Eventually when some event occurs on the periphery, which causes a run on the USD and a bout of hyperinflation due to the trillions of dollars looking for yield..., we'll see hyperinflation take off within a few short weeks.

When this happens, we'll be needing to use logarithmic scales to track the price of gold and silver.

I kid you not.

Do NOT follow this link or you will be banned from the site!