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The Myth of the Fed’s Exit Strategy
The “Exit Strategy” the Fed’s Bernanke is contemplating is nothing less than a total, unadulterated myth. This is the fairy tale you read to your young children at night where the government cuts back its spending and the Fed shrinks its lending. The private economy then picks up the slack, and the rest of us live happily ever after.
Unfortunately, this time there will be no Prince Charming riding in on a white horse. In 2009, the US ran an unprecedented $1.5 trillion budget deficit, financing the shortfall by issuing Treasury bonds. The Fed happily obliged by soaking up this tsunami of paper, either directly, or indirectly through mortgage purchases.
This boosted its own balance sheet from $800 million to a mind boggling $2 trillion in the process, or about 14% of GDP. Were there any other takers of new government debt? China bought $100 billion, and another $200 billion went to a hodgepodge of assorted foreign central banks and sovereign funds, barely 20% of the total.
Back out the Fed as the buyer of last resort, and where are we? The private demand isn’t there, especially if the Fed plans on raising interest rates at the same time. I can already hear the excuses the foreign buyers will be fobbing off on Tim Geithner; I’m sorry, but I’ve got to rush off to a Peking duck dinner; it’s Ramadan; I have a date with my mistress; the dog ate my homework; etc; etc; etc;. The $3.8 trillion budget Obama proposed for this year, with another kick in the groin, $1.6 trillion deficit and $1 trillion in tax increases, isn’t encouraging me to back off from this ledge.
There are only two possible outcomes to the greatest financing gap in history. Interest rates have to soar to unimaginable levels to attract recalcitrant investors, or the plunge in spending sends us into a postponed Great Depression II.
Let me know which one it is, will you? I’ll be hiding out in my camouflaged underground bunker in the desert. And if you do come calling, be a peach and bring me some MRE’s, a five gallon bottle of water, and a case of 9 mm ammo, will you?
For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily. You can also download past interviews with industry heavyweights on Hedge Fund Radio.
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I'm starting to wonder if I could massively spike demand for some obscure cartridge by posting here and saying it's the best thing ever and to get them while you still can. Hmmm, should I claim 7.65 Argentine, 7mm Mauser, or 9.3x62?
+1
Whatever it takes to get people into gunshops. Their greed will subside after they realize the employees there get a laugh. Let the education begin.
I'm a .223 guy myself, although 9mm sidearm always helps. Nevertheless, I share your sentiment.
Gold, ammo, and Cheerios. Feels like it's going to be a Jim Bowie moment at the Alamo
Yea who uses 9mm? If you have to use a handgun at least grab one that requires S&W 40. I agree with the riflemen from above.
Cocoablini:
Thanks for your posts here on ZH. I find myself learning something new everytime I hear your voice of reason amidst whatever clutter surrounds it.
People are getting confused with rising nominal prices and inflation and deflation. Lower prices are a symptom of deflation in the early stages with high supply and shrinking demand. Once inventories are rebalanced, sellers have to charge more to compensate for less sales. They are still losing growth and this is called supply destruction.
Deflationary symptoms change from crashing asset values to supply squeezes and lowering money supply by debt issuance.
The only way to keep asset prices high is to squeeze supply(deBeers diamond model as used by USG in stock market purchases) or fullscale monopolistic takeover( as seen by uSG purchases of most real estate.)
everyone wants the same old money for oil,stocks, real estate,food.
If price discovery in the marketplace is not allowed, then purchases slow down and that's deflation. Historically deflations force hoarding of cash and money in the forms of gold and silver.)Thats how it works- and how it worked in Rome, Japan,the 30's and pre and post Civil War.
If people want to charge MORE for a service or good, they will sell less and that slows money turnover. That creates a supply issue which begets more high prices. And if people cannot put that on their VISA cards, then it's a deflaionary recession. If this was inflation, prices would be going up because there was competition for goods a services because people had too much "money."
similar symptoms can be found in both hyperinflation and deflationary death spirals. It always hurts the people in the end. Either through debt slavery or destruction of purchasing power.
Amen brother, amen! Why is it so hard for people to understand when the value of equities and property fall more than the rise in commodity prices that is still deflationary?
How's this for bullish -
http://jessescrossroadscafe.blogspot.com/2010/02/why-is-blackrock-broadl...
You say "There are only two possible outcomes to the greatest financing gap in history. Interest rates have to soar to unimaginable levels to attract recalcitrant investors, or the plunge in spending sends us into a postponed Great Depression II."
What a bullshit comment worthy of a Yahoo message board. There are myriad possible outcomes of which you've provided the two extremes. Do you really believe your own line of shit, or do you just post it to see if others do? I don't, and I'm losing patience with you. Marla, you're better than this. Seriously.
Anonymous aren't allowed to have patience meters, so suck it.
"In the marketplace I am seeing deflation. The stuff on the racks are going down in price."
Don't know where you are shopping. All the basic essentials are going up in my area. Only things going down are real estate and non-durables.
So madhedgefundtrader is no longer Bullish? Oh wait that was Leo K...nevermind.
49/70.....
Thank you....
If you choose to make a trip over the grade or ride over the top of The Valley, come and visit Corral De Tierra or San Benancio... Desert retreat indeed. heh
Miles, i looked and its not a place to survive. Neighbors are far away enuff that you dont know them , so they are not your friends and they get hungry too. Try Oregon, half our homes are hidden by forests . You could drive right by a community (gated) and never know. Plus mostly retired, unlikely to riot and a lot of hunters. Plus we love it here so its a given we would stand together to protect our own. Many of us actually know one another. Also being older, many of us are stocked up even in good times and i have noticed awareness of our reality is filtering in at last in 2 out of five folks. I have made it a personal point of honor to inform all i meet during the day with the wonderful condition our condition is in. LOL No Fear here, just pragmatic action. Its still a wonderful world, new horizons are on the way as well as a higher state of conciousness due to the humbling we are about to experience. In the end its all good and i am so glad i am alive in this time of GREAT ADVENTURE.
Having family and personal roots in the Willamette Valley, Bend, the coastal counties and especially Jackson & Josephine counties I fully appreciate the qualities Oregon brings to any discussion of residence. My suggestion was simply an acknowledged appreciation of another area with deeper roots for the author and myself... Chances are that I will at some point once again call Oregon home.
You're a brave SOB. The last thing I want is a bunch of cidiots coming out to my neck of the woods to be safe so my neck of the woods will remain a secret. Cidiots are the problem. That's why in this part of Texas the shotgun is always loaded and handy.
And as Gary P. Nunn says; "Get your chili ready" because before we know it, it's gonna be tomorrow night.
A little north....like that bottom stretch of Alaska is more like it!
If I were to go in that direction there are some fine areas between Dawson Creek & White Horse... As there are between Hope & Dawson Creek. Or were last time I visited. Although I must say as someone that has had many wonderful times boating the from the San Juan's north the chain of Islands between Vancouver Island & Alaska is another word for heaven to me. Especially with fond memories of time spent on Hornby Island.
Duplicate
Hyperinflation reared it's monsterous head today. It is going big. So I say, go big or go home.
In the marketplace I am seeing deflation. The stuff on the racks are going down in price.
Does anyone know of a fiat currency that died by deflation?
CCCP
Does anyone know of a dead fiat currency that was created by a private bank via a government debt obligation?
No matter the scenario a currency crisis is coming. Gold will protect you along with your weapon of choice.
The Fed will start posting $100k cheques to every family before they allow hyper-deflation.
well when the guy in charge of printing the money is nicknamed' helicopter ben'. i would imagine he would do exactly what it says on the tin. imho
Or its just a wet dream facade for those in debtors prison!
I'll believe it when I see it!!! i.e. after the bank cashes the check and I walk out with a bag full of money!
Sigh; the Fed is not all powerful.
Whatever power & influence both the central bank and federal government had peaked Jan 19, 2010. When the history of this era is examined, a consensus will form that while the MA election was not the beginning of the end, it was certainly the start of the end of the beginning.
While Nov '10 won't bring fundamental change (eg eliminating the Fed), it may well be the point where the end of the beginning reaches critical mass. Without an unbridled ability to print & spend, the deflationary tsunami which has been temporarily held back will finally be unleashed.
I'm a big fan of tells, so let me point out another factor to consider: If Hillary bails after Nov '10, you know the pace of the SHTF is gaining momentum.
If you are going thru 9mm ammo, you are letting the roving bands get too close. You need to expand your perimeter, create more buffer zone. At handgun range, it's a skills match with too much luck thrown in. At long gun range, you can deal with untrained shooters easily and are more likely to be able to deal with several attackers simultaneously. (This post is an indicator of my pessimism today).
I don't come to ZH for gun advice, for much the same reason (though unbelievably, amplified even further) that I don't go to gun forums for investing advice.
No offense to smalltownlawyer who is basically right, but most of the gun comments here sound like 12 year olds who watched Rambo too many times and don't have even half of their first clue.
We can't all be Mad Max
:)
Mad Max didn't seem to know much about guns anyway. That whole Australian thing.
Anyone who is seriously interested in learning about firearms, in an accurate and responsible way, take an NRA "Personal Protection in the Home" course, which is offered regularly all over the US and in fact in many states is a course allowing you to obtain a concealed handgun license. It's a 1.5 day course, cost is around $150 and it's taught by credentialed instructors who actually know what they're doing and (for the most part) won't repeat hollywood or gun store stupidity and pretend it's fact.
Jeez man, seriously? What are you talking about? Mad Max was proficient at every weapon he could get his hands on. And what Australia thing?
http://www.youtube.com/watch?v=-TC2xTCb_GU
The NRA? Those political sellouts?
http://www.nrawol.net/
Well your NRA instructor is going to give you the same personally biased information on firearms as any gun shop employee - anyone that takes advice as gospel without doing their own research to confirm, well, it goes without saying.
If you are serious enough to take more than a day's worth of classes you need to head to an academy like Thunder Ranch or Front Sight were they actually teach you how to use your weapon and don't talk down to you as if you've watched too many movies.
Mossberg Persuader - at "handgun range" it takes the luck out of it...
+22LR
http://en.wikipedia.org/wiki/.22_Long_Rifle
While WaterWings' advice is excellent, there's a reason for the old saying "A handgun is for shooting your way to your rifle..."
Considering overall weight and versatility the .22LR is fantastic! <$20 for 500 rounds and very, very lightweight. It's poor conceal-ability, shorter range, and weaker power are mere details for a resourceful, watchful individual that avoids conflict at all costs.
In a post-collapse(ing) scenario conflict avoidance will help you beat the law of averages when it comes to meeting your maker. Rather than having the mindset of killing a potential attacker one would be more concerned with scoring the first hit to ruin the assailants day and promptly getting the hell out of there! When you spray an attacker with pepper spray you don't hang out to see if they are okay!
Although, if you are skilled, a .22LR to the thoracic cavity will be curtains for someone that would choose to initiate force against you or loved ones:
Training for throat-to-forehead shots will also defeat attackers wearing personal body armor, which also will be in wide use. Shot placement is far more important than caliber - repeated studies have shown this. With very little kick it is not intimidating and can be employed by teenagers, the ladies, and the elderly. You'll feel like a marksman in no time! Although saying "I play for keeps" from 400+ yards with a scoped rifle or battle rifle is quite nice:
http://www.militariapress.com/miva/graphics/00000001/S0022.jpg
What are you going to do with a .22, shoot squirrels? Get something that perforates properly: http://en.wikipedia.org/wiki/M1A
Hah - I was just watching the excellent HBO series "The Wire" last week. Snoop from Baltimore knows more than you (having seen a lot of people shot). An HV .22LR will bounce around in a body creating unrepairable wound channels. A higher caliber with stopping power will often simply break a bone. The .22 is also associated with professional assassins. I dare say I wouldn't want to take a CCI Quik-Shok 1600+ fps frag bullet under the armpit of my vest. Check the path(s) at 45 seconds in on this video:
http://www.youtube.com/watch?v=IO_TLCXNCro
the problem with a .22 is that it doesn't have much ability to penetrate to start with and loses what it does have quickly. so, yes if you can get the bullet to the body then it can do a lot of damage, but anything in the way, some bamboo, saplings, a railing, a car door, and it probably will not get there.
even though a large caliber rifle is likely to pass straight through a body, its often the hydrostatic shock that incapacitates and sometimes kills the target.
I'd say this is an unrepairable wound channel:
http://www.youtube.com/watch?v=k-Zip_b-5RQ
You're right about assassins. The IDF has been doing it for years:
http://www.haaretz.com/hasen/spages/1128403.html
There'd be buyers for the junk at the appropriate price. Factor in the default risk and supply overhang and you're talking haircut, and not the kind you want to be seen on the street with, but the kind the dog would hide under the end table after getting.
madhedgefundtrader, you really need to get your own island and use hard-line, 3G or Satellite Internet (speed rated as best, better and just ok). Other options are some really beautiful non-USA beaches in the world. No need to hide out in the USA when you can relax in comfort within your own island or sea shore paradise. Enjoy great weather all year around, pristine beaches and water. You'd be amazed how far a few ounces of gold goes in other parts of the world. Who cares if the USA melts down when the fraud and Ponzi scheme called the Federal Reserve Note (aka United States Dollar) finally loses its faith status and goes to its intrinsic value of the utter nothingness that backs it.
Jesse Ventura and others have been leaving the USA and having a great time. Even Sammy Hagar has a nice lil place...
I have thought about doing this since the summer of 2007 (Costa Rica was 1st choice, Chile 2nd and Panama 3rd).
I have decided to stay in America. I am sure it will not be pleasant. I don't stay for a flag or what it once symbolized. I am more or less free as my kids are close to out of the house.
I have been searching for a rational, altruistic reason but I have merely come to one conclusion: This is my home. My America. End of story, or perhaps I should say near beginning of a bitter-sweet adventure. Maybe it is the Slav in me.
I love it--yes it is a myth and it just makes me so furious how the myth is perpetuated by all the "so called" main stream pundits!!!
How can the privately held federal reserve exit from their monumental bank heist when they pumped so much directly into BLACKHOLEBANKS (pundits and the cartel legislator accomplices call them the TOOBIGTOFAIL) where the momentum of the scam created such a sucking of value for so many years by the leverage and subsequent bonuses and payments that went to these houses for years while the innocent depositors and taxpayers sat back, watched Glass Steagall get revoked and watch our government support the privately held federal reserve cartel suck away their future earnings and past savings?
Our government has become a corrupt political machine that makes Huey Long look like a little tiny street corner bully.
agrotera - Huey was simply the sum total of the policies implemented post reconstruction just as our current financial system and the governments that have made themselves subservient to them are the sum total of these same policies with a nitrous injection of the Bank of England. Keep at it pal! Peace
Hello MK! You said it so very well !!!
I see wage deflation and consumer inflation as being essentially the same economic phenomena since both events reduce the spending power of consumers.
In the 70s you had strong unions so wages increased with the rising cost of consumer items
Now there is weak unions + more globalisation so you have lower wages with stagnant consumer goods for now
But the energy dynamics are much worse so once the feds money gets into the money supply you will get a vortex of declining wages with massive increases in vital goods and services and the continuing decline of asset prices with the exception of PMs
The 1970s stagflation is beginning to look like a pleasant dream