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Q&A With Jim Grant: Look For "QE 3 Through QE N"

Tyler Durden's picture




 

By now it has been made very clear that Jim Grant is firmly in the (correct, at least according to us) camp that no matter what, the Fed will be forced to proceed with at least one more (and likely many) round of quantitative easing. In his latest must read interview, the author of Grant's Interest Rate Observer further explains, in simple terms, not only why the Fed is boxed in when it comes to monetary policy (an assessment comparable to that by Marc Faber back in March: "We may drop 10 to 15 percent. Then QE 2 will come, (then) QE 4, QE 5,
QE 6, QE 7—whatever you want. The money printer will continue to print,
that I'm sure. Actually I made a mistake. I meant to
say QE 18
."),  but also refutes the fallacy of counterfactual statements that the world would end if the Fed had not intervened to prevent a systemic collapse in 2008, why a gold standard in our lifetimes is coming, on whether he is buying gold currently, on inflation, on corporate valuation, and where (and more importantly when) investors should be putting money to work.

From AP:

A graduate of Indiana University, Grant, 64, was a Navy gunner's mate
before starting his journalism career at the Baltimore Sun in 1972. He
then joined the financial weekly Barron's before starting Grant's
Interest Rate Observer in 1983. He's also written seven books, mostly
financial histories and profiles. His first book was on Bernard Baruch,
the pre-WWI financier and advisor to presidents. His latest is a profile
of Thomas Reed, an acerbic and witty Speaker of House over 100 years
ago.

As stocks were falling last week, Grant visited The
Associated Press in New York to talk about why it's not just stock
investors who should be worried. Below are excerpts, edited for
clarity, from a wide-ranging conversation in which he lit into the
Federal Reserve for our current troubles, warned of 10 percent inflation
and waxed nostalgic for a time when Washington had the courage to let
prices fall in crises rather than goose them up and prolong our agony.

Q: What's your view of the stock market?

A:
The Federal Reserve has unilaterally taken it upon itself to levitate
asset prices. It is suppressing interest rates. When you're not getting
anything on your savings, you are inclined to go out and buy something,
anything, to generate either income or the expectation of capital gains.
So the things that we take as prices freely determined are in fact
manipulated.

A few months ago, (Fed Chairman) Ben S. Bernanke,
Ph.D., the former chairman of the Princeton economics department, stood
before the cameras of CNBC and said that the Russell 2000 is making new
highs. The Russell! He sounded like another stock jockey. He was
taking credit for new highs in the small cap equities index. The Fed, as
never before, or rarely before, is now the steward of this bull market.
One wonders what it will do if stocks pull back significantly.

Q: Are stocks overvalued?

A:
Some big multinationals left behind in the past ten years (like)
Wal-Mart, Cisco Systems, Johnson & Johnson appear to be attractively
priced. But generally speaking, things are rich.

Q: What would you have done in the financial crisis if you had been in Bernanke's position?

A:
Resign. I don't know. I have great faith in the price mechanism, in
the mechanics of markets. I think there should have been much less
intervention and we should have let some chips fall, many chips fall.

Before
the Great Depression, there was a great depression (lower case `g') in
1920-21. Within 18 months, the GDP was down double digits and commodity
prices collapsed. Harry Truman lost his haberdashery in Kansas City.
It was very painful, but it ended. And the Fed, during that depression,
actually raised its discount rate and the Treasury ran a surplus. The
reason it ended was the so-called real balance effect -- that is, prices
came down and people with savings saw things that were cheap and they
invested. That's the fast and ugly approach.

The slow and ugly
approach is to mitigate, temporize and forestall to give us time to work
ourselves out of difficulties. That's the current approach. I think
it's intended to be a more humane approach, but I wonder about its
humanity. I mean these college kids get out of school and they've got
nothing. It's awful -- 9 percent unemployment and going nowhere except
sideways.

Q: But Bernanke has succeeded by some measures. Big
companies are flush with cash, their profits are on track to hit a
record this year and the riskiest among them are raising money at the
lowest rates ever. Who could have imagined this during the depths of
the financial crisis?

A: Let's go back to the previous cycle of
2002-3. Cisco Systems was for 15 minutes the costliest company on the
face of the earth, and digital technology was about to raise every human
being out of poverty. OK, so that cycle ends -- Bang! -- with general
disarray in the stock market. What do we do? Well, we press down
interest rates and we give residential real estate a little helping
hand. What's not to like? Home ownership rates are rising. Stocks are
up. Risky companies are issuing debt at levels never before imagined.

Who
would have dreamt such an outcome was possible after the tech bust? And
that ended noisily and here we are again and our monetary masters have
devised new, even more audacious methods of stimulus. In three or four
years we'll look back and say, `Can you believe we fell for this again?'

Q: You've been warning about higher inflation for a while. How imminent is it?

A:
I've been all wrong on this. I thought that this massive monetary stuff
would generate the conventional kind of inflation that would be
expressed in much higher CPI readings. Not so far. But all things are
cyclical and the seemingly impossible is just around the corner. On
September 30, 1981, the 30-year US Treasury bond traded at 14 7/8
percent and I remember some crank, some visionary, was talking about how
interest rates were going to zero, you watch. Oh, yeah right. And so it
came to pass.

It does seem improbable that the inflation rate
would ever get beyond 3.5 percent, let alone knock on the door of 10
percent. But I'm here to tell you it's going to 10 percent.

Q: Won't policymakers come down hard if we get even 6 percent inflation and try to lower that?

A:
Sometimes they can't control things. We had 6 percent inflation
before. Washington is full of well-intentioned people. Ben Bernanke
keeps saying that what we really need is a little inflation. He says
we'll get 2 percent or a little bit more. You shouldn't even think
that, let alone say it out loud. That's such bad luck to tempt fate by
saying that you can calibrate things like that. You can't do that.

Q: So with inflation ahead, are you buying gold at $1,480 an ounce?

A:
I am not buying it now. I have bought it in the past. Gold is a very
difficult investment because its value is indeterminate. It is the
reciprocal of the world's confidence in the likes of Ben Bernanke. I
think the price will go higher.

Q: When did you first buy gold?

A:
Well, my first misadventure with gold was standing in a queue in front
of the Nicholas Deak currency and coin shop, which was on lower
Broadway. And it might have been January of 1980 at the very peak but if
not then, it was late 1979. I almost top ticked it. That was before I
learned never to stand in line to buy an asset. You always want to go
where nobody else is in line.

Q: Let's talk about the dollar. Washington says it wants a strong dollar.

A:
It's disingenuous when (Treasury Secretary) Tim Geithner says he's for a
strong dollar. What he means to say is the economy stinks and we need
even greater oomph from our exports and for that we would like a much
lower dollar in a measured, managed kind of decline. That's what he
wants, and he wants it by November 2012.

Q: What's wrong with a
weak dollar? Caterpillar recently said it is nearly doubling its capital
spending because the weak dollar allows it to sell more overseas. It
plans to spend much of that on factories in the U.S., paying
construction workers to build them and hiring people to work in them.

A:
Well, that is the Caterpillar story. The whole manufacturing story in
the U.S. is very sunny, and it's in part due to the state of the dollar.
But if (prosperity) were as easy as debasing one's currency, think of
all the countries that would be prosperous that are rather the opposite.
Argentina would be booming. And Weimar Germany would not be a story of
failure but of success.

If the world were to lose confidence in
(the dollar) we would suddenly be in a much less advantageous financial
position. The U.S. is uniquely privileged in that we alone may pay our
bills in the currency that only we may lawfully print. That's our
prerogative as the reserve-currency country. But it has seduced us into a
state of complacency. We never actually pay the rate of interest that
we might be expected to pay -- the real rate of interest -- on Treasury
debts.

It's great for now that we're paying 2.5 percent or
whatever on our public debt. But wouldn't it be better if there were an
accurate price signal that was telling us that we're borrowing too much?

Q: If investors lose their faith in the dollar, what would replace it?

A:
I think there will be a gold standard again in your lifetime, if not
mine. It's the only answer to the question, if not the dollar, then
what?

Q: Where should people put their money now?

A: The
trouble with the present is that nothing is actually cheap. My big
thought is that our crises are becoming ever closer in time. The
recovery time from the Great Depression was 25 years. The stock market
peaked in 1929. It got back there in 1954. We had a peak in 2000, crash,
levitation, then the biggest debt crisis in anybody's memory. The
cycles are becoming compressed. The temptation to become invested at
peaks of these shorter cycles is ever greater.

Perhaps one way to
proceed is to hold cash at the opportunity cost of not much in Treasury
bills. You make nothing, but you want to have this money when things are
absolutely, not just relatively, cheap. This time of full or
overvaluation shall pass. On recent form, it'll pass in a thunderclap
and there will be a panic and it'll seem as if the world's ending. And
that's when somebody who is nimble can get fully invested in a
comfortable way.

It won't feel comfortable, it will feel awful,
but I think that's the way to do it. I mean everything (you could invest
in) is either uninteresting or rich, it seems to me.

Q: What about Treasury bonds?

A:
I think it's useful to imagine how things might look ten years hence.
What will one's children, heirs or successors think about a purchase
today of ten-year Treasurys at 3.25 percent? They'll look back and say,
`What were they thinking?' The (federal deficit) was running at 10
percent of GDP, the Fed had pressed its interest rates to zero, it had
tripled the size of its balance sheet, and they bought bonds? Treasurys
are hugely uninteresting, as is similar government debt the world over.

Q: Any last thoughts?

A:
Because the Fed has coaxed or cajoled people into stocks, including
many financial non-professionals, I think it has moral ownership of the
market in a way that no recent Fed has had. Either the stock market owns
the Fed, or vice versa but they are too intertwined now. If stocks pull
back by 20 percent, how can Bernanke just sit there and say, `I want a
bear market?' I think he has some moral responsibility for the
finances of the non-professionals who bought.

Q: Does this mean the Fed might announce QE 3, a third round of quantitative easing to lower rates and raise stock prices?

A: Yeah, it means QE 3 through QE N.

h/t nobull1994

 

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Sun, 05/22/2011 - 15:00 | 1300285 falak pema
falak pema's picture

QE-3 is like Fukushima with three reactors down...good luck..

Sun, 05/22/2011 - 15:26 | 1300330 spiral_eyes
spiral_eyes's picture

qe infinity is a house of cards. inflating the economy to catch up with crashing equity and real estate prices, and living off borrowed prosperity from china, mena, & the productive world will work out fine, until it doesn't. and then it will sink into the ground like a rock. trust in the treasury ponzi is eroding, as the tidal wave of laziness, stupidity and compound interest crashes down. 

Sun, 05/22/2011 - 16:48 | 1300454 IdioTsincracY
IdioTsincracY's picture

That is bad ... however in the past, wages heve kept up  at least partially ...

now we have big inflation, but wages and benefits are going down (fast!), and unemployment is rampant ...\

wow!

Mon, 05/23/2011 - 12:48 | 1302224 cranky-old-geezer
cranky-old-geezer's picture

... inflating the economy to catch up with crashing equity and real estate prices ...

... inflating STOCKS while the rest of the economy crashes ...

There, fixed it.

... and living off borrowed prosperity from china ...

... and living off PRINTED MONEY from THE FED ...

Fixed that one too.

Sun, 05/22/2011 - 15:58 | 1300379 max2205
max2205's picture

Oops Mish hates us.... :(

Sun, 05/22/2011 - 16:04 | 1300385 Popo
Popo's picture

Nah.  He just called bullshit on Ilene's conspiracy theory crap re: DSK.   

No one with a clue would deny that ZH has been *the* blog for financial news over the past couple years.   I think Mish (and many others including myself) have begun to notice a slide in standards by some of the newer writers that ZH has given posting rights to.

I for one am growing increasingly tired of reading lightweight fluff, half of which is an ad for some newsletter subscription.   Why Tyler gives these people with nothing to say (I'm looking at you Phoenix Capital Research) posting rights is beyond me.

But I still read ZH about 10 times a day.   :)

...and it's still the blog I turn to first.

Sun, 05/22/2011 - 17:01 | 1300450 Dejean Splicer
Dejean Splicer's picture

Everything that that silly bish writes about is 3 day old rehashed ZH articles. (Ilene). Philz stock crap is not a for profit business? Tyler should line them all up (including Creggie Milton), make them dig a deep hole somewhere in the woods and one-by-one shoot them in the in the back of the head. All of them! Except for GW.

Sun, 05/22/2011 - 22:22 | 1300990 DK Delta
DK Delta's picture

Mish is a great complement to ZH

Sun, 05/22/2011 - 16:25 | 1300413 duncecap rack
duncecap rack's picture

I like reading Mish but the article he took exception to was quite good I thought. The reasons for the harsh treatment of DSK  were quite reasonably argued. I bet the article makes it to thingsthat make you go hmmm and Jesses cafe americain. I will be interested to see if it is tn those places.

Sun, 05/22/2011 - 16:46 | 1300449 Atomizer
Atomizer's picture

I'm truly happy that you read Mish too. When flipping a coin & guessing, sometimes it's easier to read the odds.

Rigging French Elections: The “DEATH BY MEDIA” of Dominique Strauss Kahn

I don't endorse this site, just pull needed info to see the next stage of events.

Sun, 05/22/2011 - 18:01 | 1300564 max2205
max2205's picture

IMO JG has drank some kool aid if he thinks Ben controls the market (longterm). I was astounded when he said Ben owes those who bought in some consideration. Flabbergasted

Sun, 05/22/2011 - 16:34 | 1300423 Al Gorerhythm
Al Gorerhythm's picture

QE-3 is like Fukushima with three reactors down...good luck..

So true, it won't be reported on either. I'm guessing all's good, gauging by the silence in the press. 

Mon, 05/23/2011 - 00:43 | 1301164 Tail Dogging The Wag
Tail Dogging The Wag's picture

Like Jim Rickards, I call it Perpetual QE and this is why you should keep on reading...

**********************************************************************

In times of change you need new alternatives and new ideas.

Land in Panama is one of the most undervalued assets in 2011.

PROTECT YOUR CAPITAL. INVEST. SAVE. OWN. LAND.

http://www.thorssoncapital.com/land-portfolio.html

In the event of a sale of land from any of the Thorsson Capital properties to any Zero Hedge reader, the vendor (Thorsson Capital) hereby pledges a donation of 1% of the total sale to Zero Hedge, said donation is to be made within 30 working days of settlement.

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Sun, 05/22/2011 - 15:05 | 1300289 Nevermind
Nevermind's picture

Phi Beta Kappa from Harvard. Princeton Professor. The man who knows more about Central Banking than any other person on earth. He saved the world. Bernanke cannot be wrong. Just ask him. 

Sun, 05/22/2011 - 15:30 | 1300341 spiral_eyes
spiral_eyes's picture

the underlying fundamentals of the american economy are so bad, bernanke has little choice but do what he's doing and fucking pray. the other choice would have been to take the pain in 2008, let the banks fail and the ponzi fall. but bernanke likes his office, dc likes hookers, rent boys and cocaine, the imf, and reits. they're doing all they can to hyperextend their party.

 

zoellick and his faction will be left to pick up the pieces, re-institute the gold standard, and get america manufacturing again. now if only they would let ron paul be president... but they won't go that far.

Sun, 05/22/2011 - 15:06 | 1300296 plocequ1
plocequ1's picture

The fed will print money. I knew that and im a fucking idiot. This phony pro and con bullshit is all fucking theatrics. QE will continue. 

Sun, 05/22/2011 - 15:11 | 1300303 Mountainview
Mountainview's picture

And the Dollar will find it's intrinsic value...the value of paper...

Sun, 05/22/2011 - 15:55 | 1300378 Tunga
Tunga's picture

If it didn't grow on trees it would only cost $5 to dig it out of the ground. 

Sun, 05/22/2011 - 17:37 | 1300523 akak
akak's picture

And the shit is fucking everywhere!

Sun, 05/22/2011 - 15:08 | 1300300 Alcoholic Nativ...
Alcoholic Native American's picture

We need more generous anonymous billionaires buying treasuries.  We can't count on Ben and his shareholder buddies to keep funding us forever.

Sun, 05/22/2011 - 20:51 | 1300869 Max Hunter
Max Hunter's picture

We need trillionaires..

Sun, 05/22/2011 - 15:10 | 1300301 Tense INDIAN
Tense INDIAN's picture

and that means get as much SILVER as possible after this Bear market for silver is over...

 

and gold too..

Sun, 05/22/2011 - 15:20 | 1300326 Sudden Debt
Sudden Debt's picture

When the dollar and the euro will go down to dust, gold and silver will be all that remains.

Any new currency that will be created in the aftermath will not be trusted for years even decades to come.

And to meet the need of money worldwide, that's a lot of gold and silver that will be needed. A lot more than exists today. If the dollar and the euro where to go down, gold and silver will be worth 100 times a much as they do today.

 

Sun, 05/22/2011 - 16:14 | 1300403 Dapper Dan
Dapper Dan's picture
Gold, silver coins now to be legal currency in Utah By JOSH LOFTIN
© 2011 The Associated Press May 22, 2011, 2:59PM

Read more: http://www.chron.com/disp/story.mpl/ap/nation/7576264.html#ixzz1N79DRXpI

Sun, 05/22/2011 - 16:33 | 1300428 Al Gorerhythm
Al Gorerhythm's picture

When does Obama strike?

Sun, 05/22/2011 - 16:56 | 1300463 Dejean Splicer
Dejean Splicer's picture

"Craig Franco hopes to cash in on it with his Utah Gold and Silver Depository, and he thinks others will soon follow.

The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings."

Let me hold your gold and silver, yea right. Mmmmk.

Sun, 05/22/2011 - 15:10 | 1300304 aerial view
aerial view's picture

agree with you Jim about more QE. What other choice do they have that will not crash the economy? With the reserve currency, worldwide military bases and control of much of the world's oil, they can do what they want even though they clearly know that the middle classes' standard of living will continually decline-but hey, an imperialistic govt is here to serve the rich while enslaving everyone else.

Sun, 05/22/2011 - 15:12 | 1300308 TorchFire
TorchFire's picture

The physical fruits of the world are but vehicles for the elite. Constantly on the prowl for their favorite prey to inflate, the tsunami of fiat will flow from TPTB to inflate any victim (tangible matter) they believe can contain the evidence of their crimes for a season.  Stash the paper anywhere and everywhere to justify "growth" at all costs....otherwise the shackled audience of blood dolls will feel the cold steel on their ankles and come to realize the constraints are but a mist.

 

Sun, 05/22/2011 - 15:51 | 1300371 Billy Shears
Billy Shears's picture

poetry, sheer, poetry!

Sun, 05/22/2011 - 17:14 | 1300486 TorchFire
TorchFire's picture

Want poetry?

 

Alas we have come to this

as we peer into the abyss

carved with 10 trillion tears

poured forth for 98 years

 

For behold they did beguile

with their scheming on Jekyll Isle

and with greed they did collude

to establish our servitude

 

With malevolent power dispensed

their tyranny fully commenced

and evil their heirs refined

have made the people blind

 

But look deep in the pit and see

there are legions who WILL breathe free

and Liberty will raise a sharp edge

with the sword of Zerohedge

 

(10 mins of reflection. I could go on and on....)

Sun, 05/22/2011 - 19:07 | 1300679 falak pema
falak pema's picture

good stuff torch..thanks

Sun, 05/22/2011 - 19:31 | 1300715 JR
JR's picture

Really good!! “with the sword of Zerohedge...” And “nobody can deny…and so say all of us.”

TorchFire, ZH’s poet laureate.

Sun, 05/22/2011 - 19:34 | 1300724 JR
JR's picture

“What is the matter, my friend?" Dionysius asked. “You seem to have lost your appetite.”

“That sword! That sword!” whispered Damocles. “Don’t you see it?” …

Sun, 05/22/2011 - 22:38 | 1301015 TorchFire
TorchFire's picture

+1 Nice touch with the Damocles reference!

Sun, 05/22/2011 - 19:59 | 1300768 tired1
tired1's picture

The Razor Edge of ZeroHedge - An Epic of Tyler's Mission

Sun, 05/22/2011 - 15:53 | 1300375 blindman
blindman's picture

!!

Sun, 05/22/2011 - 16:54 | 1300457 Dejean Splicer
Dejean Splicer's picture

"otherwise the shackled audience of blood dolls will feel the cold steel on their ankles and come to realize the constraints are but a mist."

Brovo! More please.

Sun, 05/22/2011 - 15:13 | 1300311 ??
??'s picture

 

Q: So with inflation ahead, are you buying gold at $1,480 an ounce?

A: I am not buying it now.

...

Q: Where should people put their money now?

A: ...Perhaps one way to proceed is to hold cash

Sun, 05/22/2011 - 15:24 | 1300329 Arius
Arius's picture

no comment ??

LOL....

Sun, 05/22/2011 - 15:41 | 1300353 NewThor
NewThor's picture

From an investing perspective, I believe he's right about not buying gold

gold now and being in cash.

It's my belief that with the gap in between QE2 and QE3 everything

will correct down 20-30%.  All stocks and commodities. 

So it'd be much safer now to be in cash, and buy silver over gold.

Yes, Gold is still a brilliant investment as long as the Federal Reserve

is around, but me thinks that you'll be able to pick it up for about

$1100 to $1200 an ounce in the summer.

 

Sun, 05/22/2011 - 16:51 | 1300453 Landrew
Landrew's picture

I don't think I agree. In the recent past two years, the very moment there is any downward movement in equities or commodities the fed introduces the QE trial balloon! At that all assets soar, is that not true? Rates rise the fed buys bonds and MBS. If your talking about what is happening now with small movements of lower equities, I play that move with short term puts on selected high momentum Dow companies. I have bought INTC June 23 puts when INTC moves over 23.50 then sell at 23.25 for a nice dime of return. I see no way to position yourself  without excess risk. Buying a blanket naked puts on high momentum Dow seems as risky with a threat of QE announcement  always a Fri. after market event possible.

Sun, 05/22/2011 - 20:19 | 1300806 tired1
tired1's picture

How about ridding oneself of FRN's moving into a more stable currency?

Sun, 05/22/2011 - 19:41 | 1300732 Saxxon
Saxxon's picture

Agreed New Thor and the guy ahead of you.

I don't have a guess for the price of gold at the nadir of the coming correction; but it is too high now.  Much moreso silver, which I believe will go well sub-$30 per ounce.

Folks, gasoline in California barely 'corrected' to $3.99 in my parts.  $4 ++ gas is slowly grinding the man on the street and our masters know it.  The video-game Osama kill excited the unwashed mass but the present administration needs better than that to lock in 2012.

So, stand by.  My spec positions are bullion and cash and I will need persuading to buy anything other than a leveraged neg ETF.

Mon, 05/23/2011 - 05:30 | 1301279 tip e. canoe
tip e. canoe's picture

avg gas price off the LIE this weekend: $4.59.   that's for the cheap stuff.

Sun, 05/22/2011 - 22:19 | 1300989 DK Delta
DK Delta's picture

thank god somebody saw that

Sun, 05/22/2011 - 15:13 | 1300312 Bazooka
Bazooka's picture

FED will have an "uncle point"....the point at which it's self preservation will prevent furhter QEs.

Public backlashes are already coming out; e.g. ChairSatan, William Banzai images, etc

Political backlashes are increasing against the Fed...Ron Paul and others.

More importantly, the FED is not greater than the market! It does not control the market...it follows it. Once the downdraft comes and we surpass the March 2009 lows, the contempt against the FED will become feverpitch.

Sun, 05/22/2011 - 15:45 | 1300358 Roger Knights
Roger Knights's picture

"FED will have an "uncle point"....the point at which it's self preservation will prevent further QEs."

I agree. It amazes me that more people can't see that the Fed does not have unlimited discretion--not remotely.

Sun, 05/22/2011 - 16:40 | 1300445 Yancey Ward
Yancey Ward's picture

I, too, believe there is an uncle point, but there is always the possibility that the Fed will not be the master of it's own domain.  Politicians may not give a rat's ass about the longer term viability of the Fed.  This intersection of central banking and politics is the real weakness in this belief.

Sun, 05/22/2011 - 16:05 | 1300393 ManOfBliss
ManOfBliss's picture

The Fed actually believes that monetization/QE is "good".

And, history shows, they do it until it collapses. They think that pumping dollars IS saying uncle.

Sun, 05/22/2011 - 22:22 | 1300997 DK Delta
DK Delta's picture

I heard Bernanke checked into GW University Hospital yesterday on complaints of constipation. Would a Dyschezia diagnosis qualify as a deflationary event?

Mon, 05/23/2011 - 01:45 | 1301206 disabledvet
disabledvet's picture

"$6.00 a gallon diesel fuel" so the rumor goes.  QE is done.  Oil did it as it always has.  "Silver got a lick in" though.  "Of course I could be wrong."  Who has a friggin' revolution over silver or gold?  i hear "food is big deal" sometimes.

Sun, 05/22/2011 - 15:15 | 1300315 Sudden Debt
Sudden Debt's picture

What would happen if the FED would go bankrupt?

Can they go bankrupt?

 

I don't agree with the need of QE1 either. They should have just let it all crash and we'd be in a recovery already.

Now it will all crash anyway and take the rest of the country with it. Country I say? The Empire and all the vasal states with it!

 

Sun, 05/22/2011 - 16:43 | 1300446 Al Gorerhythm
Al Gorerhythm's picture

They are bankrupt. Their currency is paper and their security is your labor. Both are in over-supply and losing value. It's just the illusion that shimmers in front of you.

Sun, 05/22/2011 - 17:00 | 1300465 Landrew
Landrew's picture

Fascinating, can the FED go bankrupt? At first thought the answer is no, with the power to print your own way out of bankruptcy how could that be possible. 2.5 trillion in less valuable treasuries and MBS maybe it is possible for the FED to lose money faster than they can print? The power of the purse was to be with CONgress however, I think they have forsaken that right of the Constitution? What is the tipping point really is a topic I find most interesting at a dinner with many bottles of wine. People seem to share their fears when a good glass of Malbec Trapiche or Gascon from Argentina is in front of them ha!

Sun, 05/22/2011 - 18:06 | 1300580 unununium
unununium's picture

Bankruptcy requires 1) insolvency and 2) illiquidity. The fed will be insolvent someday, if assets were marked to market. But uniquely, it will never lack liquidity.

Sun, 05/22/2011 - 18:52 | 1300650 OldTrooper
OldTrooper's picture

But uniquely, it will never lack liquidity

That assumes that FRNs will always be accepted.  It assumes the bottom doesn't fall out of confidence in the reserve currency.  I'm not certain those are safe assumptions.

Sun, 05/22/2011 - 20:24 | 1300821 tired1
tired1's picture

Ha! Imagine someone in a grocery store holding a gun on a cashier to make them take FRN's for payment.

Sun, 05/22/2011 - 23:11 | 1301054 DriveByLurker
DriveByLurker's picture

You laugh, but if you look at the history of fiat, when there was "money" that creditors were obliged to accept as legal tender that lacked value (like the Continental Dollar), and creditors hoped that this was a temporary condition, it was common for creditors to avoid debtors so that the debtors would be unable to tender a handful of bad paper at them. 

John Witherspoon, one of the guys that signed the Declaration of Independence, described that period - "For two or three years we constantly saw and were informed of creditors running away from their debtors, and the debtors pursuing them in triumph, and paying them without mercy." (emph asis added)

Mon, 05/23/2011 - 01:42 | 1301208 disabledvet
disabledvet's picture

"we're sorry, Belgium.  You started it though."

Sun, 05/22/2011 - 15:22 | 1300320 Comrade de Chaos
Comrade de Chaos's picture

http://www.youtube.com/watch?v=I1NdtFFZPUY&feature=player_embedded

 

'^

 

The Anatomy of Financial Crises: A Global Perspective by Professor Carmen Reinhart'

 

 

 

Sun, 05/22/2011 - 18:34 | 1300621 philgramm
philgramm's picture

She is an active CFR member and was an exec at Bear Stearns. That's all you need to know about her "Global Perspective"

Sun, 05/22/2011 - 22:00 | 1300947 Uncle Sugar
Uncle Sugar's picture

I junked you. I have a zero CFR policy.

Sun, 05/22/2011 - 15:23 | 1300324 Alcoholic Nativ...
Alcoholic Native American's picture

What forms do I have to fill out to get access to the FED discount window? I just want enough to put in some solid CD's and make some money every year(not much, I'm not greedy).  I'll even sign a contract saying they can have all of it back after I die.  You can't take it with you anyway.

 

0 loss, stimulus to the economy, win win.  Come on Ben.

 

 

 

Sun, 05/22/2011 - 15:40 | 1300352 Poor Grogman
Poor Grogman's picture

When you find out let me know.

I could use a couple of billion benny bucks interest free.

Heck I could just put them in the bank here just down the road

and live off the interest. sweet..

 

 

 

Sun, 05/22/2011 - 15:20 | 1300325 monkeys.pick.bottoms
monkeys.pick.bottoms's picture

QE3 is rational in the situation we are in. But the situation was created by irrational decisions. Why so much rationality now when there was madness before? I believe to have Ron Paul as president QE must stop and credit must collapse. Therefore I'm rooting for the end of QE. Also, inflating our debts away seems way too easy. All it takes is one black swan, maybe some criminal investigation? Will we have high enough inflation to scare people into thinking with sooo much debt around?

Sun, 05/22/2011 - 15:33 | 1300338 NERVEAGENTVX
NERVEAGENTVX's picture

I'm personally getting a little tired of this QE3 debate. Any person/country/entity that continue holding U.S. treasuries if/when the FED announces QE3 gets what they deserve.

Sun, 05/22/2011 - 15:30 | 1300340 The Axe
The Axe's picture

 

: When did you first buy gold?

A: Well, my first misadventure with gold was standing in a queue in front of the Nicholas Deak currency and coin shop, which was on lower Broadway. And it might have been January of 1980 at the very peak but if not then, it was late 1979. I almost top ticked it. That was before I learned never to stand in line to buy an asset. You always want to go where nobody else is in line.

 

Sun, 05/22/2011 - 15:42 | 1300355 Akrunner907
Akrunner907's picture

We are now at a paradox where any action will lead to the same outcome:  collapse of the economic system as we know it.  If you inflate the money supply and cause inflation you cannot grow out of your debt, because a great portion of the debt is caused from cash flow based on inflation.  If you hold entitlement spending flat, then you risk causing catastrophic collapse in the consumer economy because people are created to be more poor from the very inflation you are creating to lower the percentage value of the debt.  Raise entitlement benefits with the growth in inflation and you continue to expand the debt at the same or higher pace than the inflation you are creating by growing the money supply.  Cut spending and reduce benefits and you create a catastrophic collapse in the economy because of the reduce payments in entitlement spending thereby destroying consumers.

Default on debt and the pension system collapses.  The paradox is that all choices lead back to the same outcome; you have no choice but to hit the reset button and start over.  I am so glad Hillary gave Medvedev a reset button.

 

Sun, 05/22/2011 - 17:08 | 1300475 Landrew
Landrew's picture

I would like you to expand on those thoughts with an article. I really don't think any of us (including myself) really understand there are no options left. Only the choice of larger and larger doses arsenic or falling of the cliff. I used to ask which people would prefer the car crash or the cancer. People always seem to choose the car crash over cancer, why is that? Both could be the end, why the car crash? Really please write this topic, tipping points are most fascinating in any field of science. 

Sun, 05/22/2011 - 15:45 | 1300359 no life
no life's picture

It occurs to me that the band Metallica knew this 'crisis' was coming a long time ago..

Sun, 05/22/2011 - 15:50 | 1300370 blindman
blindman's picture


"..never stand in line to buy an asset." j.g.

Sun, 05/22/2011 - 15:54 | 1300376 buzzsaw99
buzzsaw99's picture

Lose the bow tie and stop bashing treasuries. Otherwise spot on.

Sun, 05/22/2011 - 15:55 | 1300377 JR
JR's picture


Jim Grant is talking his book and when he says what’s not to like, I'll tell him what's not to like: destruction of the economy is not to like.  Bernanke is heading into inflation at 10% with unemployment and housing and construction busts, and the Grants of this world think politicians are going to be fine with that? They’re not. Grant is off the reservation.

Michael Pollard of Monetary Watch in a recent opinion piece on Forbes, Monetary Watch May 2011, QE!!! Courtesy of the Private Banks, introduced the possibility of the Federal Reserve exiting the QE asset purchase business with another option to its ongoing monetary inflation cycle, as has noted bank analyst Chris Whalen. Here’s an excerpt :

Enter…

QE III Courtesy of the Private Banks

First, the Federal Reserve may be ending its current QE II asset monetization program, but it’s not it seems looking to hike its zero to 25 basis point targeted federal funds rate any time soon.  And that means it will more than likely be having to supply at least some base money to the banking system (whether that be through Federal Reserve loans or asset purchases) to keep that federal funds rate in check. So yes, the Federal Reserve will not be juicing the money supply at anywhere near the roughly $75 billion per month rate that we are currently experiencing under QE II, but additions to the money supply there will likely be courtesy of the Federal Reserve.

Second, and far more important, the private banking system will by June’s end be sitting on somewhere between $1.6 and $1.7 trillion in excess reserves, meaning the fuel for the banking system to expand the money supply is in a word explosive.  Indeed, at a reserve requirement ratio of 10% (the most restrictive reserve requirement ratio currently imposed by the Federal Reserve on private banks) the private banking system – if it be willing to lend, or if it can’t find willing/able borrowers at the very least be willing to buy existing securities – is in a position to expand the money supply by a massive $17 trillion.  On a TMS2 metric that as of April 2011 stood at $7.6 trillion, we are theoretically looking at a money supply some 3.2 times higher than today.

Will these private banks do it; that is, create money by pyramiding up their reserves via the issuance of loans or purchase of securities?  As we discussed in last month’s Monetary Watch, maybe.  In fact, the end of QE II, meaning an exit by the Federal Reserve from the longer-dated end of the bond market, combined with still ultra-cheap short term funding rates, may be just what private banks need/want to get them back in the money creation businessTo quote ourselves from last month’s Monetary Watch

What if the Federal Reserve ends its asset purchase program in June, beginning the so-called normalization of monetary policy? Will longer-term rates rise, and rise enough to induce banks to lever up their excess reserves, get them to re-enter the money creation business through the purchase of existing, now higher yielding securities?  Maybe.  With the Federal Reserve’s zero interest rate policy, short term money will still be incredibly cheap, meaning the interest rate spread between long maturities and short-term funds – like excess reserves – will become all the more appealing.  As we posited on previous occasions, ripe for the taking could be higher yielding U.S. Treasuries, even for capital deprived banks.  They’re as safe and as liquid as securities come, carrying as they do a near guaranteed put option via the Federal Reserve’s printing press.

Speculating a bit more, perhaps this is exactly what the Federal Reserve has in mind.  After all, the Federal Reserve is currently financing near 100% of the government’s borrowing needs. And the last thing the Federal Reserve (not to mention the U.S. government) wants to see is a dramatic spike in long-term interest rates if/when the Federal Reserve ends its QE II asset purchase program. Fifty bps, 100 bps, maybe even 150 bps more on the 10-year Treasury may be the least worst option.  The banks take over the money printing duties of the Federal Reserve, help contain the cost of U.S. government borrowing and the Federal Reserve gets some much needed inflation fighting credibility.  Besides, if they’re not going to lend or buy much in the way of risk assets, at least private banking institutions can continue to recapitalize their balance sheets, making them and the Federal Reserve happy. …

http://blogs.forbes.com/michaelpollaro/2011/05/16/monetary-watch-april-2011-qe-iii-courtesy-of-the-private-banks/

Sun, 05/22/2011 - 16:09 | 1300394 tip e. canoe
tip e. canoe's picture

interesting theory...perhaps the reason why Timmy put the ixnay on DSK's Ireland proposal?

Sun, 05/22/2011 - 16:54 | 1300458 Sean7k
Sean7k's picture

Nice find JR. 

They will still need to find a way to have the interest on the debt paid. They are presently unable to raise taxes or cut entitlements much. If this type of monetization is restricted to the purchase of government debt, it will just require additional borrowing. 

I would be even more concerned if they were to use it for the purchase of assets and companies outside the country. Flushing more dollars into the global economy could drain wealth from Americans through a loss in purchasing power- a tax with a foreign face to blame.

 

Sun, 05/22/2011 - 22:23 | 1300992 tip e. canoe
tip e. canoe's picture

" If this type of monetization is restricted to the purchase of government debt, it will just require additional borrowing. "

exactly, it's all about the vig.  forget about the principal, they're already way beyond paying that back, ever.

Sun, 05/22/2011 - 16:54 | 1300459 Al Gorerhythm
Al Gorerhythm's picture

M3? What about it? Oh, that old metric. That's sooooo 2006. Money supply doesn't matter.

Sun, 05/22/2011 - 17:19 | 1300489 davepowers
davepowers's picture

 the private banking system – if it be willing to lend, or if it can’t find willing/able borrowers at the very least be willing to buy existing securities – is in a position to expand the money supply by a massive $17 trillion. 

 

--

The pollard article is nice, but those are pretty big assumptions. FED QE was necessitated, inpart, because the normal printing press (via fractional reserve lending by the private banks) was busted. Is it fixed now so that the FED, with its QE/emergency cooling system, can stand down?

Are there any more credit worthy people/entities that want/need to borrow new funds? Are the bank's balance sheets now substantially free of off and on balance sheet crud?

Would anyone borrow to, say, build a big new housing project? And while they might borrow to speculate in, again say, commodities, there is plenty of credit available for such norrowly focused financial speculation.

And is taking on credit to buy existing securities going to generate money/wages/earnings for the average Joe Blow who will then in turn borrow more to keep the expansion of money supply expanding via frac reserve lending?

Unless the private bank printing press is now going to function again, then how can the FED turn off its emergency credit system?

Sun, 05/22/2011 - 17:25 | 1300498 davepowers
davepowers's picture

also, if the banks were to ask the FED to send them the $1.5 trillion they have in their 'savings' account at the FED, how would the FED preserve its balance sheet?

they could sell assets, but could they sell them (Treasury paper or GSE paper) without a loss or without damaging the market for that paper?

They could print actual currency and deliver it in trucks to the banks, but short of an actual bank run where everybody wanted actual paper (hmmm), no bank alive would want to take delivery of multi colored paper?

They could (and probably will) reborrow money from the Treasury in a restoration of the Supplemental Finance Program once the debt limit is raised. But that's only $195 bn if you use the limit of the SPF in 2010, or at most $550 bn, using the maximum level that SPR ever reached (during QE 1). This would require the corresponding level of added Treasury paper issuance with whatever impacts that would have at a time that Treasury debt issuance will already be problematic.

So exactly how could the FED pay off the liability it has taken on via typing up $1.5 trillion in bank reserves?

Sun, 05/22/2011 - 18:57 | 1300657 JR
JR's picture

Unless the private bank printing press is now going to function again, then how can the FED turn off its emergency credit system? -- davepowers

Good arguments...and Pollard concludes that “if the private banks don’t inflate, a deflationary scare first then another Federal Reserve orchestrated inflationary cycle.  In the end, QE III one way or another.”

However, I believe that if the Fed investment bankers don’t turn off their spigot of illegal printing, i.e., fraud, then the economy is going to turn it off for them.  If unchecked, the economic and political chaos that’s building from these QE gushes of currency destruction will lead to tyranny.

For the past 40 years, America’s central bank has operated absent any restraint on money creation. And now, the piper must be paid. Real economic growth, IMO, won’t return until confidence is restored in the currency.

Everyone’s saying this time it’s different and Bernanke has no choice but to continue counterfeiting.  I say it’s different this time because the people aren’t going to sit still for another Fed-created Depression of 20 years; they have the bankers number right now.  They believe the bankers are the cause of the recession we just went through; and it they don’t have improvement soon they’re going to blame the politicians and the bankers and watch carefully to see what the Fed does about it.

As to whether there’s choice or not, Volcker made a choice. He raised interest rates.  On the other hand, Bernanke and the investment bankers apparently intend to totally wipe out the American people and skip town.

What created the Tea Party was that first $700 billion bailout.  Most every politician who voted for it, the voters nailed and pulled out. 

Yes, Bernanke can do this, the banks can do this, inflating their way to prosperity, but when the symptoms of it start arriving, the people blame the politicians for it.  IMO, America’s revolt will be just Like the revolts in Europe…because the politicians are the ones who made the deals with banks.

As Congressman Ron Paul said May 12 before the House Subcommittee on Domestic Monetary Policy:The only reason we have not experienced hyperinflation so far is that the Fed has managed to keep the monetary base increases in check by paying interest on excess reserves held by banks. If these excess reserves begin to be loaned out, however, all bets are off.”

Sun, 05/22/2011 - 20:52 | 1300864 davepowers
davepowers's picture

I don't disagree w the thrust of your comments, although the timing and exact way that will play out is beyond the power of my crystal ball.

I'd take issue with Cong. Paul's comment. I think the excess reserves have been loaned out via Fed Funds. Those 'loans', however, are as remote being directed into the real economy (ie creating jobs, wages, etc) as the original typing of the reserves was remote from same. But they have been directed into complex financial ventures, which for the last year or so has been the stock market and, especially, commodities. And we've seen some inflationary impacts of those 'lending' operations.

As for the larger issue of whether there is some future unleashing of the reserves to fuel old style bank lending for real economy things (ex - housing projects that provide jobs for the average Joe, allowing him to buy a new truck w/ all the knock on effects), I don't think we'll seen it for a long, long time. There's no profit in 'real economy' activities for all sorts of reasons. 

Plus, the FED won't allow the $1.5 trillion to leave its auspices for mass lending , because that would expose the artificial, fraudulent nature of the reserves themselves. So long as the reserves are retained w/h the closed, fraudulent financial system they will and already are being lent with inflationary impact. 

The notion that paying interest on the reserves allows them to be sterilized and avoid inflationary impact is the FED's argument, which like so much else, is fraudulent. And we'll see the impact on every trip to the grocery store. It's unfortunate that Cong. Paul now repeats the same false defense.

 

 

Mon, 05/23/2011 - 00:05 | 1301123 JR
JR's picture

Convincing argument; I tend to agree. It's a Catch 22 - we're all caught with our foot in the trap.  What a bastardized system...after what America had.

Sun, 05/22/2011 - 20:57 | 1300880 tired1
tired1's picture

Having some difficulty visualizing this. It seems like sticking one's head far enough up one's asshole until you pop out the throat! Or am I missing somthing?

Sun, 05/22/2011 - 23:34 | 1301078 davepowers
davepowers's picture

lol

if you add 'and then doing it over and over again' I think you'd be pretty spot on

 

Sun, 05/22/2011 - 16:19 | 1300410 Atomizer
Atomizer's picture

April 15, 2010

http://www.youtube.com/watch?v=CtvHAqK8P14

How much longer can it go on before it implodes? Will the planners survive, once the playbook of deceit/fraud is found out? Pondering thoughts from my world. winks.

I can see Hollyweird making millions on a new reality show titled, "Next window, please!"

http://www.youtube.com/watch?v=YUhb0XII93I

Sun, 05/22/2011 - 16:23 | 1300417 D1eeeeeNAHHHHH
D1eeeeeNAHHHHH's picture

This guy is an ass.  He copied Marc Faber's CNBC interview.  Faber said something along the lines of QE1, 2, 3, 4, or QE15 just months ago.  Sounds like a lazy copycat who wants to make a fortune on a book.  I don't really care what his past results are, he is clearly a copier.

Mon, 05/23/2011 - 02:17 | 1301057 chindit13
chindit13's picture

Hey, I know what you mean.  I just picked up this CD from some Jersey lounge singer named Sinatra or something.  Fucking guy thinks he's Michael Buble!  What an ass.

Sun, 05/22/2011 - 16:27 | 1300418 Imminent Collapse
Imminent Collapse's picture

If you don't have a year's worth of food in your pantry, you are an imbecile.  If you believe that this will end well, you are fucking crazy.  If you haven't prepared for what is coming, then you aren't paying attention.  There is no good solution and a brick wall fast approaches.  The good news is that once the crash comes, a better system may rise from the ashes.  The bad news is that it may not.  Have a great weekend suckers.

Sun, 05/22/2011 - 16:55 | 1300461 D1eeeeeNAHHHHH
D1eeeeeNAHHHHH's picture

That's what many people thought in Germany.  The slowly people began to see that idea change.  First it was the Jews, no one spoke, then as some people spoke out it was them, they began moving towards pure Germans before it all ended (blonde hair and blue eyed being the purest.)

What we are seeing today is a modified plan.  They are allowing Mexicans and Africans to come here illegally in droves.  They are used to dictators, don't understand what freedom is and there are pushes within their communities, the black community and as well with the media to demonize white men.

La Raza, general african and black stereo types that are spoken, near every TV station having commercials and TV series about a dumb white man who doesn't "get it".

Divorce rules make both a man and woman less well off financially and distracts us from what's going on.

I've lived with and been around these groups that dislike us in general, they tell me I'm different and accept me, however I see the general hatred around other whites and they are the overly rich ones screw over the public always show on TV.

They want to destroy white men's independent thinking and if they don't they know we will be the first to stand up.  They are working to demonize white to the point of the way Nazi's demonized jews. If not, why did 60 minutes last week demonize white constitutionalist groups and patriot movements?

The point is our freedoms are being errorded to the point that a year's supply of food won't matter over the long term if these dictator like rules keep passing into law.

Indianan and the Federal Supreme courts both this last week announced that search and seizures don't require warrants and disclosure that the search happned.  Speaking to anyone about it happening whether you think it's a burgarly or not can and has landed people in jail prior to the court's decisions.

Obama is soon to receive offical perpetual war rights as president.

When the crash comes, you may not be around when the dust settles, your last moments may be in a FEMA camp in the name of national security which would be celebrated by naive black, hispanic and african people as something that was long overdue.

History rhymes, when the SHTF, observe government policies, don't fight it, if anything move if you can and then come back as the dust settles. 

Sun, 05/22/2011 - 16:34 | 1300429 Atomizer
Atomizer's picture

After contracting by 4% in the first half of 2010, total notional amounts outstanding of over-the-counter (OTC) derivatives rose by 3% in the second half, reaching $601 trillion by the end of December 2010. Much of the increase resulted from the appreciation of major currencies against the US dollar, the currency in which the data are reported. Notional amounts outstanding of credit default swaps (CDS) continued to contract, falling by 1% after the 7% decline in the first half. Gross market values of all OTC contracts fell by 14%, driven mainly by the 17% decline in the market value of interest rate contracts. CDS market values shrank by 19%. Overall gross credit exposure dropped by 7% to $3.3 trillion, compared with a 2% increase in the first half of 2010.

Comprehensive explanatory notes in the release define the coverage of the statistics and the terms used in presenting them.

Any queries arising from these statistics can be directed to Karsten von Kleist or Carlos Mallo: e-mail: ibfs.derivatives@bis.org

The BIS expects to release the OTC derivatives statistics for the first half of 2011, no later than 15 November 2011.

 

http://www.bis.org/press/p110518.htm

Sun, 05/22/2011 - 16:34 | 1300430 silberblick
silberblick's picture

Follow the link below to find out why the Hong Kong Mercantile Exchange must be seen and understood as an extension of the Chinese government and its long term goals, and consequently, why it will not help create an equitable or realistic price discovery mechanism for gold. Not for now anyway.

http://thesilvergoldhedge.blogspot.com/2011/05/why-hong-kong-exchange-will-disappoint.html

 

Sun, 05/22/2011 - 16:39 | 1300442 IdioTsincracY
IdioTsincracY's picture

"...but also refutes the fallacy of counterfactual statements that the world would end if the Fed had not intervened to prevent a systemic collapse in 2008"

I do not mean disrespect, but where the fuck were all these contrarian voices at the time ...

thank you for nothing!!!!


Sun, 05/22/2011 - 17:37 | 1300447 falak pema
falak pema's picture

There is a man living in Reactor @1 at Fukushima who has the answer to our global problems. His thesis is as follows :

"If i've survived this thing on my own I know how to solve the world's problems. Here's my pitch :

 

1° Stop QE its useless like the guys pouring water on those rods.

2° Let the USD fall to ground. That's like admitting that Iodine 131 and Cesium 137 are here to stay. Relax. I've eaten deeper shit, Strontium and Plutonium and all that. And I've survived. How did I do it? Here's how...."

I gave them the low down. It caused a shock wave on the Net. Huffington was all in a huff. Fox was going foxy eyed at not being informed, as qualified by principal as 'fascist scum'. Business Insider was peeved as it had no insider news. Only Zero Hedge was gleeful as they were considered so zero competence that the guy felt at ease at telling them all, like he was  DSK in suite 2806. This is what he said :

3° "I contacted this guy MHFT about his derivative plays and he said he was long USD and S&P. So I sold all my personal holdings on Becquerelles. They're out of the graph.  Now I'm long on sparkling pinot Noir in Napa Valley."

4° Then I contacted Orly, the muse. I asked her "Are you having fun trading?"

And she said, "Not really, the EUR/CHF is slow; and its my pet trade both ways, puts and calls and shorts and all." 

"How about naked derivatives. That sounds really sexy!" I ventured.

She said, "No way! With perverts like Soros its a rigged market in Forex."

"So can't I buy you a drink?" I asked.

"No thanks. I don't mix business and pleasure" she said.

"How about pleasure first and business next if you are satisfied with Act 1 of tragedy?"

She laughed and said, "Hey Shakespeare, if your spear is worth the throb I'd be your gal. But your punch line doesn't make me jive."

I noted her point and sharpened mine. "If I can pierce your defenses would you capitulate in check mate?"

"I'd love to feel the breath of impending death before I yielded, yelling, ...take me all over mine!..."

"Amen. I'd feel I'd be witnessing  the treasures of King Solomon's mines" I sighed.

"So where do we go from here?" She looked amused but peeved I was not putting through.

"When I've made my PM play and have both TM and MM yelling at my heals I'll let you know" I said ominously, like a man with a kamikaze plan.

"There is a Rodent whose bugging me about a play on AUD/USD, that his buddy Sun yat Chen  has recommended." She sighed. "What shall I do?"

"Tell him to buy Yens and sell Yuan long" I advised. "I'll keep the chardonnay chilled. In case the night is long."

She got the message. "Do you think you've got me lying in your water bed that's bubbling like a Jakuzi?"

"No, but you're nearly there" I said, non committal.

"I counting on you to take and make that goddam put" she snarled, now all fixed on making a killing. 

"I will to save your skin" I lied. Knowing I'd be calling and not putting. 

"Ok, if you do that I might come into your Jakuzi." She conceded mollified.

"Will you do it naked of all derivatives?" I whispered tauntingly. 

"Yes, I will." Her look was defiant. "If your 'put' yields its promised return". She was ominous like Circe the Siren.

"It will" I lied, like Ulysses now caught in the whirlpool of desire so close to port, but scared silly by the overhanging rock of female disdain if he failed.

It was then that CD called with his ominous news. "All ports on hold. Starboard is tempest. Larboard is Moby Dick".

"What are you gibbering about?" I said now thoroughly rattled.

"It's William Banzai, he says that the squid is squirting the market with its deadly ink. It could kill the market rise like sinking the Nautilus".

"I'm all in, CD. I can't stop my call now" I yelled in yiddish;not knowing if my dialect was making sense to this fish of doubt thrashing out of water.

"Just do what you think best" he gurgled as his lungs filled up with Glen-fiddick. He was on probation from the Pentagon as his oxygen diet was straight malt, undiluted. It was a tradition amongst ancient Seals.

Orly was impressed by my raw material. "Have you commited?" She asked. 

"I have all my money in. One push of the key and Presto its all gone". I didn't tell her I was going contrarian to both CD and Orly. But that was another story. I knew what I was doing, as I was a true survivor. 

On Monday the news came in : I had made a million where Soros and Dimon and Buffet had lost a billion.

Orly was bubbling in the Jakuzi and we were drowned in Bubbly. I thanked my stars that Cesium 137 was bullet proof material against WS shenanigans. Don't ask me how, but I had found the philosopher's stone in Reactor #1 of Fukushima. And a companion for my Jakuzi. 

Eat your heart out you PM bugs!

Disclaimer : Any ressemblance to sizzling avatars is purely fortuitous. They are on star trek and I'm on Super nova ORI.

Cesium 137 makes me immune to junkies.

Sun, 05/22/2011 - 22:58 | 1301038 StychoKiller
StychoKiller's picture

Legal perhaps, but they're NOT gonna circulate until the FRN becomes worthless, far and wide!

Sun, 05/22/2011 - 17:06 | 1300470 mcarthur
mcarthur's picture

"What will one's children, heirs or successors think about a purchase today of ten-year Treasurys at 3.25 percent? They'll look back and say, `What were they thinking?'"

They were thinking that the stock market was 50% overpriced and cash returns zero.

Sun, 05/22/2011 - 17:07 | 1300472 mt paul
mt paul's picture

gimme gimme gimme

raise the debt ceiling ....

Sun, 05/22/2011 - 17:36 | 1300527 PulauHantu29
PulauHantu29's picture

Good stuff.....why I read all the time...gets my feet back on the ground.

Sun, 05/22/2011 - 18:11 | 1300589 geno-econ
geno-econ's picture

Interesting posts and discussions especially related to preventing financial crises and role of Fed.  Hiistory has proven Fed for many political reasons unable to do the job.  In link to Carmen Rienhart lecture , last question asked was what can Fed do to prevent monetany bubbles in future and she replied that something as simple as raising stock margin requirements, which was  not employed by Greenspan. Recently margin on silver was raised but for other reasons. Fed totally ineffective with ties to big bankers

Sun, 05/22/2011 - 18:19 | 1300607 mynhair
mynhair's picture

Bernank can attempt QE3, but it won't last.  What you haven't been told is the heights Cain is attaining.  No political will of the sheeple left for these BS games.  Bernank may try it, but will get crushed before completion.

Plus, Idol Season is over.

Sun, 05/22/2011 - 18:35 | 1300629 equity_momo
equity_momo's picture

This concept that Bernanke can control the stock market is absurd.  Many so called experts will realize the absurdity of this notion only after they are liquidated with every other "investor"

Sun, 05/22/2011 - 18:49 | 1300651 Creed
Creed's picture

go here for 10% off at the best freezedried/dehydrated food company in the business; you're going to love the $4.99 shipping

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Sun, 05/22/2011 - 18:56 | 1300665 ParaZite
ParaZite's picture

We don't need a "God" to create a doomsday scenario. We have politicians, the Federal Reserve and the Bernanke who are doing a damn good job of that as it is. 

Printers gonna Print... banksters gonna profit... tax payers are gonna pay. Rinse, recycle, and repeat until the slaves, I mean taxpayers, get tired of being shit on and wake up out of their "Dancing with the Stars" induced comas. 

Sun, 05/22/2011 - 19:32 | 1300716 SilverDoctors
SilverDoctors's picture

QE to Infinity.....AND BEYOND!!!

http://silverdoctors.com/

Sun, 05/22/2011 - 21:17 | 1300901 blindman
blindman's picture


John Rubino: Get Ready For Accelerating Devaluation of All Fiat Currencies
http://www.chrismartenson.com/blog/john-rubino-get-ready-all-fiat-curren...

Sun, 05/22/2011 - 22:07 | 1300960 DK Delta
DK Delta's picture

Let me just point to something here and let the rest of you draw your own conclusions as to what Jim Grant expects:

 


A: The trouble with the present is that nothing is actually cheap. My big thought is that our crises are becoming ever closer in time. The recovery time from the Great Depression was 25 years. The stock market peaked in 1929. It got back there in 1954. We had a peak in 2000, crash, levitation, then the biggest debt crisis in anybody's memory. The cycles are becoming compressed. The temptation to become invested at peaks of these shorter cycles is ever greater.

Perhaps one way to proceed is to hold cash at the opportunity cost of not much in Treasury bills. You make nothing, but you want to have this money when things are absolutely, not just relatively, cheap. This time of full or overvaluation shall pass. On recent form, it'll pass in a thunderclap and there will be a panic and it'll seem as if the world's ending. And that's when somebody who is nimble can get fully invested in a comfortable way.

It won't feel comfortable, it will feel awful, but I think that's the way to do it. I mean everything (you could invest in) is either uninteresting or rich, it seems to me.

Sun, 05/22/2011 - 22:38 | 1301016 hubbywan
hubbywan's picture

QE is going to continue for one reason only.
And that is "Nobody will buy the US debt". The Fed alone will be left to hold the bag.
(As I write this I ignore with great hope the possibility of "Financial Repression", or the US government forcing pension holders to purchase the debt with even their private pension funds.)

Sun, 05/22/2011 - 23:55 | 1301115 Sherman McCoy
Sherman McCoy's picture

I like Jim, I really do, but he's an analyst not a portfolio manager. The guy's been long Japanes stocks for 20 years thinking they were a better deal than US stocks, and he'd been bearish bonds for a bout a decade. I guess a broken clock is eventually right, but he might allow for the probability that he is totally wrong and we duplicate the Japan scenario: ZIRP for another decade, which limits bond yields to their historic wides at +400 for a ~4% bond. A rational man never argues with carry and rolldown.

Mon, 05/23/2011 - 01:01 | 1301172 Tapeworm
Tapeworm's picture

Quite a long time ago there was a guy whose mama had most of her retirement in LUcent on the recoe of her broker, I filled in her son on the channel stuffing and the bigger deal of vendor financing and suggested that she bail. At the same time I read Grant's coverage of Annaly (NLY) and suggested that the son do DD on same. He swapped out of LU for NLY and his mother was saved. (no kidding) I don't know if Grant still likes NLY, but as of a year or so ago he still did. That swap was worth a million for that woman and the big dividends roll in monthly. The son died eight years ago, but prior to that he thanked me profusely for rescuing his dear old mom from the broker.

Mon, 05/23/2011 - 04:01 | 1301250 Bear
Bear's picture

Funny ... my mother had most of her money in Lucent and when she died in 1998, I inherited about 320,000 from a lady who had been on social security for 20 years ... she had previously bought Whittaker at $5 and sold it at $80.  Where are you Mom when I need you most?

Mon, 05/23/2011 - 01:01 | 1301173 StychoKiller
StychoKiller's picture

Feel free to send the following letter to your CongressCritter of choice:

The Honorable _______
U.S. House of Representatives
Washington, DC 20515

The Honorable ________
United States Senate
Washington, D.C. 20510

Dear Mr. or Ms. _______,

Thank you for your interest in the American Public Trust's Gold Card credit program.  Rest assured your application has been given thorough and careful consideration by the American people.

After reviewing the information provided in your application as well as your credit report, we regret to say that we are unable to extend you further credit at this time.  The reasons for our decision are as follows:

(1) Inadequate income.Our records indicate that your annual income for the 2011 taxable year was $2,170,000,000,000. You have requested a credit limit of $17,000,000,000,000.  These figures exceed the American Public's debt-to-income guidelines for credit issuance.

(2) Excessive spending. The receipts you provided indicate your annual expenditures for the 2011 fiscal year total $3,820,000,000,000, or $1,650,000,000,000 more than your total income for the year. The American Public prefers that its members of Congress maintain a positive or neutral rather than a negative cash flow.

(3) High debt utilization. Your credit report indicates that you have a credit limit of $14,300,000,000,000, and of that amount you have utilized $14,300,000,000,000, for a debt utilization ratio of 100 percent. Consumer banking industry guidelines recommend a debt utilization ratio of no greater than 30 percent for standard creditworthiness, and 10 percent for exemplary creditworthiness. A debt utilization rate of 100 percent meets our classification of "You're *&^%$#@! kidding, right?"

(4) High credit activity. Our records indicate you have credit accounts open with the Federal Reserve Bank of the United States, the Social Security Administration, the People's Bank of China, the Bank of Japan, the European Central Bank, the Bank of the Republic of Burundi, Bank Frick & Co. AG Liechtensteiner Privatbank, Quik-Cash Loans, Three Gold Balls Pawn Shop (Ann Arbor, Mich.), MyFast Loan.com (Antigua), paydayloans-r-us.com (Cayman Islands), Frank the bartender (Old Towne Tavern), and several members of the extended family of Salvatore "Sammy Meatballs" Montigliano of Montclair, N.J. While account activity threshholds vary by lender, your activity exceeds American Public guidelines for further credit issuance.

(5) Multiple recent credit inquiries. Records indicate your credit report has been accessed more than 6,437 times in the past 60 days. Inquiries may be triggered by applications for credit, employment or both and represent one factor in determining an applicant's loan risk to a credit issuer. The Fair Credit Reporting Act (FCRA), as amended, requires businesses to have legitimate grounds for requesting your credit history. If you feel your credit information is inaccurate or has been accessed for unacceptable reasons, you may wish to contact the Federal Trade Commission.

(6) Multiple account charge-offs. Balances left unpaid for more than sixty (60) days may affect your creditworthiness. Your credit report indicates unpaid balances from Operation Iraqi Freedom (Iraq); Operation Enduring Freedom (Afghanistan); the Troubled Asset Relief Program; the American Recovery and Reinvestment Act; the Children's Health Insurance Program Reauthorization Act; the
Cash for Clunkers Extension Act; the Worker, Homeowner, and Business Assistance Act of 2009; the
Healthy, Hunger-Free Kids Act of 2010; and others too numerous to list.

Member of Congress, please understand that the American people's decision was based on information
obtained from a report from one of the following three consumer credit reporting agencies: Equifax,
Experian, or Trans- Union. The reporting agency did not make the credit decision.

You have the right under the amended Fair Credit Reporting Act to request a free copy of your credit report once each calendar year from each of the three major credit reporting agencies listed above. You can order your report from annualcreditreport.com or the Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

You may also wish to contact a consumer credit counseling agency. The National Foundation for Credit Counseling can help you locate a reputable counseling agency in your area. You may also wish to visit the NFCC's website for helpful tips on such subjects as

    •drawing up a budget
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    •steps to take when your finances get out of control

In the event that you can provide documentation of changes to your credit status, we will be happy to evaluate another application for credit from you at that time. We hope to have the opportunity to meet your credit needs in the future.

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