Quantitative Easing Has Been A Monetary Failure; Persistent Deflation Means More Fed Intervention Coming Soon

Tyler Durden's picture

As more and more pundits discuss the spectre of inflation, with gold flying to all time highs which many explain as an inflation hedge, not to mention stock price performance which is extrapolating virtual hyperinflation, the market "truth" as determined by Fed Fund futures and options is, and continues to be, diametrically opposite. In fact, compared to even a month ago, the percentage of market participants who see the probability of the Fed rate as determined by the June 23, 2010 FOMC decision, at 0.5% and/or below is 88.4%, nearly double the 46.2% on October 1. In a little over a month, the inflationists have gone from being a majority to being barely over 10%! Whether this is due to the continued "exceptional" language in the most recent FOMC statement, or due to the continued deflationary deterioration in the economy, is frankly, irrelevant.

Another way to observe just how much credibility Mr. Geithner has with his daily claims of "dollar strength support" is the below chart tracing the convictions of those believing the Fed Fund rate will be at or below the current baseline of 0-25 bps. As one can see the yellow and red line have hit records: virtually nobody believes that even in 6 months the Fed will do anything to increase rates, regardless of how much liquidity they pump into the system, regardless of what happens to M2 and M3, regardless of whether gold or the S&P hits the 2,000 mark (and one or the other very well might).

The most graphic way to visualize this is based on actual Fed Fund futures and options: the below charts demonstrate the path of highest probability determined by actual traded instruments. It is one thing to parade on TV how inflation has gripped the economy and how people should spend, spend, spend or in the worst case speculate, speculate, speculate by buying GE stock that trades with the volatility of a Tasmanian devil on crystal meth.

The rate probability determined by the futures spot curve a year from now suggests a Fed fund rate of about 0.65% (yellow line). The most likely path probability (thick red line) ends at about 0.75% a year from today. The Fed is certain to do nothing to the rate until June of next year.

Yet even expectations may not be reflecting reality, when reality is massaged and doctored courtesy of factually plain wrong or "adjusted" economic releases by the government. The reason why even micro-inflationists may be wrong is that if one takes the Taylor Rule and extrapolates into the future, based on realistic assumptions, the outcome is quite shocking.

The chart below demonstrates what the implied Fed Fund rate should be today based on the Taylor Rule: a whopping -6.15%! In other words, due to the Fed's inability to charge people money to hold monetary assets (negative rates), QE is expected to inflate assets to the point where the deteriorating economic data drowns out the implied negative number. In practice, the Taylor result means that the economy is still bogged down in a deep deflationary slump. One side effect: look for Excess Reserves to keep rising so long as the direct threat of deflation not wiping out trillions of bad debts at bank balance sheets, persists. Another side effect: look for the Fed's "assets" to start growing exponentially quite soon as the deflationary threat truly takes hold.

What few people realize and what is most troubling, is that despite the Fed's QE program, the current Taylor implied Fed Fund Rate of -6.15% is in fact lower than what it was in January 2009: as we discussed at the time, the Taylor implied rate then was a deja vuish -6%. And this was just as Ben Bernanke was finalizing the $1.7 trillion Quantitative Easing inflation/liquification program. It stands to reason that Quantitative Easing has been not only a failure, but has resulted in a monetary environment that is actually worse than it was at the peak of the crisis. That's what central planning intervention will do an otherwise efficient economy.

So what happens if we project into the future? There is no sense in trusting the government to provide objective data: recall that recently the BLS itself stated that it was going to reduce payroll data by over 800 thousand. As a result we perform a hypothetical extrapolation into the future, using David Rosenberg's estimate of a baseline 13% unemployment into 2010. While the number is likely aggressive (yet real unemployment is materially worse: plugging the U-6 number of 17.5% into the Talor equation and you get a ridiculous, and hopefully, unrealistic deflationary number), we believe we are too generous with CPI estimates, which will likely continue being persistently low for a long time, especially with such government subsidy packages as Cash For Clunkers. As a result we get a Taylor implied rate of -4.2% by October 2010.

All this means is that Bernanke is very likely about to unleash Quantitative Easing 2: If the $1.7 trillion already thrown at the problem has not fixed it, you can bet that the Chairman will not stop here. Furthermore, as the Fed has the best perspective on the economy, which is certainly far worse than is represented, the Fed has to act fast before things escalate even more out of control. Which is why Zero Hedge is willing to wager that not only will the agency/MBS program not expire in March as it is supposed to, but that a parallel QE process will likely begin very shortly.

The end result of all these actions, of course, is that the value of the dollar is about to plummet: when Bernanke announces that not only will he not end QE but that he will launch another version of the program, expect the dollar to take off on its one way path to $2 = €1. And when that happens, look for global trade to cease completely. In its quest to continue bailing out the banking system and rolling the trillions of toxic loans it refuses to accept are worthless (for if it did, equity values in the banking system would go, to zero immediately), the Fed will promptly resume destroying not only the US middle class, but the entire system of global trade built through many years of globalization. Look for America to end up in an insulated liquidity bubble in a few short years, trading exclusively with its vassal master: the People's Republic of China.

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FLETCH's picture


i can't believe buffet and gates were telling b-schoolers the opposite today...

anynonmous's picture

F. you forgot to include the sarcasm icon with your post

Sam Clemons's picture

Gotta get someone to pick up the massive amounts of shares they want to unload at prevailing prices.



faustian bargain's picture

Hope I'm not too late to start learning Mandarin. :(

Apocalypse Now's picture

That's heresy, you can't say the D word - only the I word.

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.” - Joseph Goebbels, father of state propaganda

Anonymous's picture

Thanks Kurtz.

How do I know Goebbels wasn't lying when he said that ;-)

I watched an economy crawl along the edge of a straight razor...

Gordon_Gekko's picture

The lie in this case is deflation. The fact that a majority of people believe we are in "deflation" (what they really mean is dollar-deflation) is just a testament to success of the Ministry of Propaganda. It doesn't mean we have "deflation"; in fact, I think it bolsters the case for inflation even further as the majority is usually wrong.

Spitzer's picture

Thats right, monetary deflation is credit contraction. 0% interest rates, credit contraction my ass.

Apocalypse Now's picture


Recall my comments in the fine art of foreplay regarding patience in our approach towards gold, and that we shouldn't "rush to the clit*ris" like it's our first time.  I'm reminded of the story of the old bull and the young bull looking down at the field of cows, the young bull says let's run down and f*ck a cow - the old bull says let's walk down and f*ck them all (sorry ladies for the analogy).  We are both strong gold bulls, and I'm keeping a load of cash in case the dollar strengthens (very short term) to shake out weaker speculators in gold - in that case I will be buying dips and will not prematurely shoot my entire load.

There is no question that the propaganda machine has been terrorizing 401K pensioners with the prospects of hyper-inflation, just ask yourself which one banks want & need - now who owns the media and what have they been saying (peak oil, any excuse to keep prices higher so they can pocket spreads between supply/demand curve - see GS global oil scam article - and their corrupt exchange cost plus price). 

Right now deflation is the contrarian view point but all of the facts state WE ARE IN DEFLATION NOW and the statistics are too numerous to bother repeating as you probably know them.  Bonds, CPI, PPI, Unemployment, Wages and interest rates are pointing to deflation and a depression. In fact, all you have to look at are wages & credit.

In fact the proper historical perspective is that we had massive inflation that started to deflate two years ago with housing prices and equities in a credit collapse.  Clearly we know they are working to reflate the bubble but there is a disconnect between capital markets and the economy as you know, and over a longer time period this could cause inflation again. Read between the lines on the FOMC minutes, no chance of inflation near term although they want it and the banks need it.  You know a housing bubble is forming when housing prices increase at a higher rate than wage growth, it's that simple, and it's not sustainable.

We will have GDII, or Japan's lost decade, and hopefully not Weimar.  If you are of the opinion that we will have a depression and hyper-inflation from printing I could appreciate that might happen in time with a currency collapse of confidence.  In fact, the information on state and federal tax receipts indicate a cash flow problem and the behavior of representatives and government officials may also indicate we are in the midst of a collapse.

My belief is a balanced market requires trying to balance 50% of people into deflation and 50% of people into the inflation camp so that trading continues (liquidity) and assets don't go to zero while gold goes to $1million per ounce (smile).

Not sure if you saw the recent Nine Points interview with Damon Vickers on CNBC last night (father worked as a trader for GS) saying the USD will collapse and usher in the new world currency and the world government.  But a purposeful controlled demolition predicated by dismantling the US industry and exporting it overseas is just crazy conspiracy talk, isn't it?  It could be possible he is a tool and is working toward a collapse by scaring the populace - but it could also be possible that we have reached the point of no return and he is aware of the plan for the world:

"We are grateful to The Washington Post, The New York Times, Time Magazine, and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the lights of publicity during those years. But the world is now more sophisticated and prepared towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries."David Rockefeller


His brother, senator Jay Rockefeller stated the internet should not have been invented!

There is a philosophical war on between the collective and the individual, between freedom and tyranny, between truth and lies, between decentralized and centralized planning, between the life liberty & the pursuit of happiness and death bondage and the pursuit of control, between individual property rights and tyranny of a concentrated group of collusive elites working together to destroy your rights and concentrate their power so they can rule without any resistance.  The conspiracy theorists were right all along.

You are right we will have hyper-inflation judging by the lack of discipline in Washington, the only question is timing and how long deflation lasts.  We're both gold bulls, let's walk down to the physical and gold shares.


lookma's picture

Right now deflation is the contrarian view point but all of the facts state WE ARE IN DEFLATION NOW and the statistics are too numerous to bother repeating as you probably know them.  Bonds, CPI, PPI, Unemployment, Wages and interest rates are pointing to deflation and a depression. In fact, all you have to look at are wages & credit.

What about the most important statistics of them all, the dollar?  Inflation and deflation are not just phenomena of increasing and decreasing credit.   The linear thought process of inflation through credit and deflation via contracting credit is not shared by Mr. Bernanke and many others.

Bernanke believes you can also create inflation through currency depreciation (especially as a net importer/debtor), and that's exactly what they are attempting to do.  Many would argue they have been relatively successful, as they are depreciating the dollar against commodities (see oil and gold) and the debt level.

Of course the Fed funds rate will stay at zero and this is what people expect - the FED cares about its member banks, and they are in trouble.  The banks face the unwinding of the housing bubble.  This looming asset price deflation does not equal deflation.  Bernanke isn't focused on inflation v deflation, he cares about bank health, and people know this, which is why they expect him to keep printing.

Ben is not pursuing the same policies as Japan.  He is trying to depreciate the currency with the expectation he can retain downside control and it won't get out of hand (hyperinflation) as the currency collapses.

Blunt Instrument's picture


Remember, according to Timmy, Benny, and Barry it's a liquidity problem.  Not enough dollars to chase assets results in assets becoming devauled.  Devalued assets used to create phenomenally complex and pervasive derivative contracts means we cannot let those asset values fall or the entire house of cards will fall.  They have no choice but to keep printing.  The falling dollar also helps them as we can increase exports, increase domestic labor demand, increase inflation.  Consumers pay back debts with devalued dollars. They can then increase domestic spending.  We can tax them more - we'll need it to pay the interest on our debt to the rest of the world. 

Not a pretty picture.  But, I don't see how they alter this course now that they have embarked on it.

Apocalypse Now's picture

Ma, look, I understand the predicament and Mr. Bernanke's desire to play chicken with the currency and provide liquidity to member banks.  Remember that we have a debt cap so there are limits to the amount the fed can print - this is an important point in defense of the middle class since the fed would gladly sacrifice the buying power of the middle class for its member banks. 

If you look at the trillions in derivatives, we can understand the scale of the problem and how much printing would need to take place - I also know they are back door "printing" by having banks stabilize asset prices (having the banks buy equities and MBS) by pumping and dumping into the fed (buyer of last resort) and this can be used as collateral to provide more liquidity (and the fed can't be audited, so it is a black hole). They may have learned that housing price performance is roughly correlated to the stock market performance, another reason for ppt activity along with consumer confidence.

There is no money velocity right now, and banks are hoarding money for the rate resets and CRE implosion coming - that means they think houses will be worth less in the near future and that income on loans to americans that will have less wages is riskier than keeping it at the fed earning interest.

We need to address these issues the correct way, to state a short term, medium term, and long term outlook - we are still in deflation, we know it and that is why there will be a second quantitative easing program while the President gives lip service to the concept of cutting government budget deficits (for treasury sales). 

More taxes will kill the consumer, and the combination of more printing and less tax revenues will eventually result in hyper-inflation as the spread between them accelerates. I hope they succeed in their mandate of stabilizing prices and full employment - but they can't do that alone, it will take a coordinated plan including government plans to encourage/incentify entrepreneurs and workers to work harder - not so that they can pay taxes but so that they can better their quality of life.  In short, the oligarchs will have to share opportunity, although it would appear they would prefer to bankrupt us all.

The government should not steal our hard earned money we labored for to give it to bailout the bankers poor investments - that is poor capital allocation.  The bird of opportunity alights on the open hand - not on an iron fist.

Check out Antal Fekete’s deflationist argument concerning the marginal productivity of debt.

TumblingDice's picture

Right now, they are trying as all hell to get inflation. It is hard (deflation otoh, is easy to bring about if they wanted) to do but it is making them money. Whenever inflation becomes easy, the collusion for inflation will halt and they will sacrifice one of their own once again and get an even bigger bailout. There are a bunch of creative and hard ways to buy, to stretch out leverage, but selling is easy and straightforward.

Problem Is's picture

Edward Bernays and Woodrow Wilson are the fathers of state propaganda...

Actually, Goebbels and Hitler raved about and learned their propaganda skills from Walter Lippman and Edward Bernays.

Hitler was amazed at the effective use of state propaganda to manufacture consent for US involvement in WW1 through Wilson's The Committee on Public Information, a National apparatus equivalent in scope and nature to Goebbels' Ministry.

The fascist Wilson was a proponent of the Sedition Act, criminalizing dissent, approved a DOJ domestic spy and snitch program to intimidate any anti war sentiment with both vigilante attack and DOJ criminal charges, essentially a US Brown Shirt force, pre Cointelpro US gestapo reaction to dissent.

Hitler and Goebbels learned from Bernays and the two main US corporate propaganda organs, the US Chamber of Commerce and the National Association of Manufacturers. US corporate power and elite wealth spent hundreds of billions of dollars in the 20th century in well documented forms of propaganda.

The US public are the most propagandized people on the planet by sheer dollar volume and saturation. It shows in the US public's inability to think or analyze effectively.

Cognitive Dissonance's picture

Personally I let my TV think for me. Much less confusing and those 30 and 60 second programs are great.



Problem Is's picture

Yeah my brother-in-law the dickhead contractor gets all of his thinking from those 30 to 15 second programs and CNBC which is just a bunch of 30 to 15 second programs glued together into a stream of consciousness... usually by silicon or obnoxious used car salesman.

It was not the housing collapse that made him a dickhead contractor... he was one in the bubble days as well...

Thanks CNBC for making my brother-in-law a know it all dickhead contractor.

TumblingDice's picture

I remember learning in my macro-econ class in college that inflation=expected inflation. I thought it was the dumbest thing ever at the time but now I am beginning to understand.

waterdog's picture

"the Fed will promptly resume destroying not only the US middle class, but the entire system of global trade built through many years of globalization. Look for America to end up in an insulated liquidity bubble in a few short years, trading exclusively with its vassal master: the People's Republic of China."

Mr. Durden, with all do respect to you, I wish you would stop placing these bits of wisdom at the end of your post. Your clever use of descriptives is one of the attributes that makes this site a joy to read. However, this type of color could be a root cause of the type of comments that Marla is trying to prevent.

Cheeky Bastard's picture

dang !!!

did you come with that all by yourself or did you use the " I make no sense and i have no idea what he is talking about, because I'm not getting this shit; AT ALL " booklet.

Its easy to criticize, try to contribute. Write a piece my good man, and submit it to ZH and IF it gets published your criticism will have some merit. Until then .... Well ....

waterdog's picture

Ok, Ok Cheeky, calm down man, it is not about the issue, it is about color. I just asked to tone it down when suggeting that Americans will be eating Chinese sausage roll every morning,( I would be more graphic but that sting of the whip thing scares me).That is all. I can cut and paste also. I know where to get graphs. I can sure as heck write a high school paper on what I have read. I did say with all due respect. I still do not understand what made you flip out over this. Of all the junk I have posted here, this pushed you over the edge?

Cheeky Bastard's picture

Dude, calm down ... it did not push me over the edge. I'm just saying that, although the tone might be a bit over the top, the line itself is not false. And this I just asked to tone it down when suggesting that Americans will be eating Chinese sausage role every morning,( I would be more graphic but that sting of the whip thing scares me) is your reality; if you don't believe me pull up a foreign reserve holdings data for the $ or just visit you local Wal-Mart. Or better yet ask yourself WHY is the unemployment 17.5%. Hitn, not because of THIS recession is not .... I like your post, and i know what you were saying with your comment, i just want you to know that it has some truth to it. And Im not gonna defend Durden on I can cut and paste also. I know where to get graphs. I can sure as heck write a high school paper on what I have read. <--- this

He can do that all by himself, but if you are able to do what you say you are, how come i don't see nothing written by you. As I said earlier; criticism without merit ....

Also you CAN be  A LOT more graphic, the sting of the whip will not be used. Oh ... look at that ... it looks like you can not write about what you read before (meaning marla post).......

waterdog's picture

Ok. First, I was not talking about Mr. Durden's writing being at the high school level. That comment was directed at what it takes to post content here. And you know exactly what I mean. Not that all people who post here are working on a high school level.

I can be a lot more graphic but it will not get my point across any clearer.

95% of the time I post here I am talking to myself. It is called therapy. It works. The only reason why I responded to your comment is because it was you. I did not mean to suggest that the writer of the post was an incompetent fool. I only wished to remind him that some of us who read his post are.

Anonymous's picture


Headline: "Cheeky whips waterdog into meek submission".

Film at 11. Attaboy Mr. Bastard. Dr. Horace Manure

Anonymous's picture

Perhaps you should stop worrying about the color and start worrying about the truth.

Problem Is's picture

"However, this type of color could be a root cause of the type of comments that Marla is trying to prevent."

Waterdog that is exactly why I have invented the all purpose, generic, over the counter disclaimer to place at the end of any post where I have used the terms:


"idiot"  or

 "Timmay's Aunt Lloyd"...

I protect myself by stating the disclaimer:

"I hope none of the above violates any of Marla's new rules and etiquette crackdown..."

I fear the wrath of Ms. Singer...

G. Marx's picture


The halt and then decline of the globalism we've seen over the past two decades, will reduce the need for a global reserve currency and further undermine any perceived or practical need for other nations having dollar reserves. We will be sliding back to regional economic interaction until this crisis ends and some semblance of reason and market dynamics enters into national and global monetary policies.

Anonymous's picture

But by the time things would have been back to "some semblance of reason", we're going to have accrued another pile of world-altering new technologies anyways.

Things will never go back to the way there were, aside from the whole corruption and idiocy part.

Anonymous's picture

Don't think the Fed can launch QE 2 as you propose. To do so means the price of oil and other imported commodities would go through the roof as the dollar collapsed. The populace would not stand for $3.50 per gallon gas nor $500 one way plane tickets regardless of what the Fed wants to do. I think we are at the end of the line with the dollar's decline and thus, with the Fed's games.

Masked Man's picture

The public didn't storm the Bastille when gas went over $4 a gallon last year. Nor did the truckers descend on Washington like they did in the 90s when diesel went over $2 a gallon.

deadhead's picture

the truckers did protest on diesel and there was an enormous amount of media coverage on it as well as very pissed off Americans on 4 dollar gas. 

there isn't a congress critter alive that wants to see gas at 4 bucks cuz it is a death knell for the party in charge.

one of the reactions as we know to the fed's policy is higher commodities, mainly oil, and it is completely verboten in the usa at this particular time to have gas hit 4 bucks...if it does, the shit hits the fan and the fed will not be allowed to accomodate that.

Assetman's picture

Deadhead is exactly right about his history-- truckers did protest diesel prices when they spiked.  The crossover of $4 gasoline resulted in a more muted outcry from consumers-- but make no mistake-- the rise shifted consumption habits and contributed to the eocnomic downturn in the U.S.

One thing missing from the "cause and effect" from $4 gas prices is the context of the employment situation.  At last year's $4 gas, unemployment was still in the single digits.  Today U-6 is at 17.5% and still rising.   I think it would be even more reasonable to believe that the general public will be reacting much more strongly to $4 gas this time around-- when they can barely put food on the table with an unemployment check as the bread winner.

gatopeich's picture

$4/gallon, bet your <Marla forbids> you'll see it.

In Spain we currently pay 1.2 EUR/litre ~ $6.8/gal. Euro average is probably higher. A lot of it is tax (what an idea!). Before joining the EU, we thought Euro gas was too expensive for us, and (sheeply) believed we would stay apart on that. Big laugh! Inflation here has been so strong since then that government regularly changes PCI formula to keep the official numbers single digits, while real prices doubled in a few years. Not to speak of our housing bubble, still denied by many.

In 2005, when $1 was 1.5€, I was an expatriate in Mass (for a fraction of what americans coworkers made). I found everything there cheaper than in Madrid, while the people apparently made double the money. At that time I thought it must be because the US was kinda looting around the world (Iraq, Af, etc.)... Well, that's enough of my life for today.

For how long do you think the US people will have gas at half of the price in Europe?

Wellcome to Banana Republic! (We already there!)

Anonymous's picture

I understand why you think America is spoiled with cheap gas and should join the ranks of all the rest of the worls and start paying high prices.
Yet for those of us who have lived in US and a bit in Europe we know that the price of gas is not translatable.
Firstofall you will never find Gas in Europe that is less then what was it 98 octans. Mind you we can buy gas here that is what 84 octans per gallon.

Plus Americans travel about 2.5 times more miles per day more then eauropeans just becasue US has a completly different set up.

jm's picture

Can't do it now, but they can after the next demand collapse... guessing oil will drop to $50 bl.  High taxes will keep a lid on discretionary demand.

Following that, the supply collapse is going to make oil and food go through the roof anyway.

They will have nothing to lose then.

anynonmous's picture


Which is why Zero Hedge is willing to wager that not only will the agency/MBS program not expire in March as it is supposed to, but that a parallel QE process will likely begin very shortly.


Even even with long-shot odds I would not take that wager - but the question I have is how will equities respond.  In terms of the inverse relationship between equities and the DXY- will it decouple, moreover will it begin to relate directly as you seem to suggest vis a vis the seize up of global trade?

msorense's picture

Good point - I've been seeking other opinions on this one for some time.  In my opinion, a sudden dollar collapse would cause a huge panic and everyone would want to flee from US paper.  That means the currency, bonds, and stocks.  Just think for a minute what would happen if the prices of everything were to double but your income would stay the same.  There would be mass chaos in this country.  With additional QE and money printing, hyperinflation would be virtually assured.  Therefore, I can't see it being good for the stock market. 

D.O.D.'s picture

Well there's another side you're not looking at Tyler.  If 2012 is real (consider the possibility that the Higgs Boson and Hawkings' Radiation are the same thing), it won't matter. 

The only thing that matters between now and then is keeping the people safely dumbfounded, and Big Ben Bernankes ineptitude is the perfect vehicle.

ElvisDog's picture

You were kidding right? Just in case you weren't, the Mayans used a circular calendar that started from an arbitrary date several thousand years before the peak of their civilization. 2012 means nothing. It's just an odometer rollover. If they had just added one more digit to their date count, we would be talking about the end of the world in 50,000 years or whatever.

Anonymous's picture

it is certainly not an "arbitrary date." the maya were able to calculate the date when the earth and sun align with the galactic center, an eclipse of the milky way, if you will. look it up, its quite fascinating.

Bubby BankenStein's picture

The Globalization experiment will be a fail.  Twenty years from now the USA will be the dominant industrial economy.  What happens from now until then can only be left to the imagination. 

Masked Man's picture

You are joking, right? We outsourced all our manufacturing and manufacturing expertise over the last few decades. Tool and die makers and manufacturing engineers are extinct in the U.S. How could we possibly rebuild our manufacturing base?

Orly's picture

No, Bubby is right.

You can take all the little widget jobs off the former factory floors but those aren't the "industrial" jobs of the future.  Those jobs are going to be in industries that we can't even imagine today.  (I mean, if we could, we would all be at the drawing board right now creating our billion-dollar companies...)  The jobs "lost" to China and India are jobs that the US can shed as passe when looking to the future of innovation.  I really wouldn't believe anyone who says that the US is not the innovator of the future.  We always have been the engine fo the future and we always will be.

By the by, did you see the videos today on ZeroHedge of the massive Chinese shopping mall and the lite article on a town in Inner Mongolia that the Chinese built just to satisfy their GDP numbers?  Fascinating.

In both cases, the town and the shopping mall were virtually deserted.  There was another video on YouTube just a few weeks ago that showed how a factory town that used to boom with people working 24/7, manufacturing everything from designer shoes to tires, was, as well, virtually deserted.  There were rows and rows of jail-style cots for the poor migrant workers to sleep on but now, they were all empty.

The myth of the Chinese taking over has certainly perpetuated itself to its zenith.  The truth about it will soon be drawn out in the wash, so save yourself the Chinese lessons.  It just ain't gonna happen.

Therein is my argument with the conclusion of the article.  The Boyz know they have absolutely no reason to fear the Chinese...but they also still have the annoying problem of all that idle money sitting in banks, not moving, not creating any credit velocity whatsoever.  If it ain't moving, it is going to sink- end of story.

My thinking on this is that it is by design.  (Okay, I am a conspiracy theorist...)  As it stands now, there will be massive deflation in the US of A and there is nothing anyone can really do about it.  There is no possible way, as Bubby says, that the Fed is going to keep trying to reinflate this massive balloon through dumping money.  Certainly, they must realise that, first, it won't work (because the banks still aren't going to lend...), and, second, if it did, the long-term debt would be infathomable even to this hardy cabal of puppet-master elitist oligarchs.

Therefore we see: banks still have not injected money into the system, as they are not lending; the smart money is riding heavily in favor of deflation; and, in general, nothing I see makes a lick of economic sense any more.

Strange things are afoot at the Circle K, that much is true.  But the key and the answers are not held by the Chinaman behind the counter.

He just wants you the hell out of his store.

JamesBrrando's picture

whew. That lies right on point with my own hypothesis and im glad smart money agrees with me.


Spitzer's picture

hahaha, have you ever dealt with a labour union ? No.

Winisk's picture

Globalization is a failure.  Not that clear.  But economies will swing back toward local to some degree especially as protectionist attitudes flourish in a desperate economy.  It's unlikely that the US will be the dominant industrial economy however.  That's wishful thinking.  China, India, and the rest will not slip back into non-manufacturing economies now that they have the capacity to do so.  This may be a process of leveling out.   

P Kennedy's picture

Hey TD, given the dilution of QE2, why would China or ANY other non-dollar buyer finance our deficits? The risk is a buyers' strike, with interest rates simply going vertical in the good 'ol USofA


EconomicDisconnect's picture

I keep hearing how so many other nations are so much worse off than the US, but I try to think about the scale of what the FED/Treasury is trying to do and I am reminded of the classic scene form the film "Jaws":

"I need something in the picture to give it some scale!"

"Scale, my A##!!"