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Richard Koo Explains Why An Unwind Of QE2, With Nothing To Replace It, Could Lead To The Biggest Depression Yet
Over the past several days, quite a few readers have been asking us why we are so confident that QE3 (in some format: it does not and likely will not be in the form of the Large Scale Asset Purchases that defined QE1 and 2 - the Fed could easily disclose that it will henceforth sell Treasury puts, a topic discussed previously, or engage any of the other proposals from Vince Reinhart disclosed in June of 2003, or worse yet, do what the BOJ does and buy ETFs, REITs and other outright equities) will eventually be implemented by the Fed. Luckily, instead of engaging in a lengthy explanation of the logical, Nomura's Richard Koo comes to our rescue with his latest research piece. While we disagree with Koo on various interpretations of his about monetary theory (namely that the Fed is not in effect "printing" money and thus creating inflation - this is semantics and leads to a paradoxical binary outcome, whereby if there Fed was successful in boosting the economy, the economy would indeed be flooded with the nearly $2 trillion in excess reserves held with reserve banks. And good luck trying to contain this surge by changing the IOER - if the Fed indeed pushed the IOER to the required 5%+ level it would immediately destroy money markets, leading to the same liquidity freeze that marked the post-Lehman days, confirming the "Catch 22" nature of Quantitative Easing that we have observed since its beginning) we do agree with his analysis of what would happen to the economy if either stocks or commodities are in a bubble (and judging by the violent opinions out there, most investors believe that either one or the other has indeed reached bubble territory), should QE2 end cold turkey: "Viewed objectively, the central banks are trying to push up asset prices using quantitative easing and the portfolio rebalancing effect. The resultant rise in asset prices based on this effect represented a potential bubble—or at least a liquidity-driven event—from the start. The question is whether the real economy can keep pace with asset prices formed in those liquidity-driven markets. If it cannot, higher asset prices will be considered a bubble and will collapse at some point. The resulting situation could be much more severe than if quantitative easing had never been implemented to begin with." Bingo.
"In other words, if stock and commodity prices are in fact in a bubble and if those bubbles were to collapse, the balance sheets of the financial institutions and hedge funds making investments with the expectation of higher asset prices could suffer heavy damage, exacerbating the balance sheet recession in the broader economy. an increase in DCF values, either." And there you have it: Bernanke's all in gamble that QE2 would have been sufficient to restore the virtuous circle of the economy has failed with less than 2 months to go under the QE2 regime. As such, and with fiscal stimulus a dead end, the Fed has two choices: watch as the economy collapses in flames to a state far worse than its pre-QE1 outset, or do more of the same. That's all there is. The rest is irrelevant. And since the Fed will choose the latter option, the market would be wise to start pricing in precisely the same reaction as what happened following the Jackson Hole speech...although to the nth degree.
And some other key observations from Koo:
Government borrowing has supported money supply growth
The question, then, is how to explain the modest growth in the money supply at a time when private-sector credit has steadily contracted. A look at Japan’s experience shows that the answer lies in increased bank lending to the government. As long as the government continues to borrow, banks can continue lending (by buying government bonds) even if the private sector is deleveraging in an attempt to clean up its balance sheet.
If the government spends the proceeds of those debt issues, the people on the receiving end of that spending will deposit money with a bank somewhere, leading to an increase in the money supply.
In effect, the money supplies of both the US and the UK are being supported by government borrowing. If the two governments chose to embark on fiscal consolidation, their money supplies would contract.
Portfolio rebalancing effect was primary objective of QE2So what are the actual problems inherent in QE2? Mr. Bernanke has stated from the beginning that QE2 would not lead to an increase in the US money supply.
If so, why did the Fed carry out QE2? The simple answer is that it believed QE2 would result in a portfolio rebalancing effect. The portfolio rebalancing effect can be described as follows. When the Fed buys a specific asset (in this case, longer-term Treasury securities), the price of that asset rises. That prompts private investors to re-direct their funds to other assets, which leads to a corresponding increase in the price of those assets.
Private-sector sentiment may improve as asset prices rise, and if that prompts businesses and households to spend more money, the economy may improve. In effect, the Fed hopes that quantitative easing will lift the economy via the wealth effect. Inasmuch as the balance sheet recession was triggered by a drop in asset prices, monetary policy that serves to support asset prices may also help pull the economy out of the balance sheet recession.
Reasons for divergence of liquidity supply and money supply
The decline in private-sector credit in the US and the UK is attributable to both the unwillingness of banks to lend and the unwillingness of the private sector to borrow. The two factors are rooted in balance sheet problems and are indications that both countries remain in balance sheet recessions.
When a bubble collapses, the value of assets drops, leaving only the corresponding liabilities on the balance sheets of businesses and households. To fix their “underwater” balance sheets, companies and individuals do whatever they can to pay down debt and avoid borrowing new money even though interest rates have fallen to zero. Banks, for their part, are not interested in lending to overly indebted companies or individuals, and often have their own balance sheet problems. With no borrowers or lenders, the deposit-growth process described above stops functioning altogether.
US banks now appear slightly more willing to lend money, although that is not the case in the UK. In neither country, however, are there any signs of greater willingness to borrow among businesses and households.
Unable to buy more government bonds or private-sector debt, investors have few places to turn
In the hope of producing a portfolio rebalancing effect, Chairman Bernanke declared that the Fed would purchase $600bn in longer-term Treasury securities between November 2010 and June 2011. This was roughly equivalent to all expected Treasury debt issuance during this period.From a macroeconomic standpoint, these purchases of government debt meant that—in aggregate—private-sector financial institutions would be unable to increase their purchases of US Treasury securities, because all of the growth in Treasury issuance would be absorbed by the Fed.
The fact that US businesses and households were rushing to repair balance sheets by deleveraging meant that—again, viewed in aggregate—private investors would be unable to increase their purchases of private-sector debt.
With the private sector no longer borrowing and all new issues of government debt being absorbed by the Fed, US institutions found themselves with few investment options.
So funds found their way to equities and commodities
The only remaining destinations for these funds were equities, commodities, and real estate. Real estate had just been through a bubble and remained characterized by heavy uncertainty. In commercial real estate, for example, banks—at the request of US authorities—are engaging in a policy of “pretend and extend” and offering loans to borrowers whose debt they would never roll over under ordinary circumstances. That means that current prices do not accurately reflect true market prices. Housing prices, meanwhile, resumed falling late in 2010.UK house prices have been falling since mid-2010, and the Halifax House Price Index dropped 1.4% in April 2011 alone (the decline was 3.7% on a y-y basis).
The only remaining options for private-sector investors have been stocks and commodities. That, in my opinion, is why both markets have surged since the announcement of QE2.
And the conclusion:
QE2 was Bernanke’s big gamble
When the situation is viewed in this light, we come to the realization that Mr. Bernanke’s QE2 was in fact a major gamble. It was a gamble in the sense that the Fed tried to raise share prices with QE2. If the wealth effect resulting from those higher prices led to improvements in the economy, the higher asset prices would ultimately be supported by higher real demand, thereby demonstrating that prices were not in a bubble.
However, I cannot help but feel that the portfolio rebalancing argument was putting the cart before the horse, in the sense that it is ordinarily a stronger real economy that leads to higher asset prices, and not the other way around.
It might be possible to sustain the portfolio rebalancing effect for some time if conditions were such that investors were totally oblivious to DCF values. But with market participants paying close attention to DCF values, any delay in the economic recovery will naturally bring about a correction in market prices, thereby causing the portfolio rebalancing effect to disappear.
Full report:
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Let Bernank cause an unstable circuit oscillation between __flations. Big whoop.
He's screwed things up so bad, there is no good exit.
Sell USTs - to whom?
Just get the 30yr down to 4 so I can trade TBT again, but, of course, that will be made illegal.
Bernank could have made his plan work, but he failed to see the damage 50 years of Liberalism has done. Too many morons have been daycared through the Libs policies. He was counting on a responsible Goobermint. Fool.
The FED and TPTB will push QE to infinity, they just won't call it that.
They will QE until they cause more civil wars, wars, and maybe even a big fat juicy World War.
Remember Eisenhowers' warning: "Military Industrial Complex"
Citizens and Liberty are secondary or tertiary at best.
What's this I see, an AH breakout for silver? Must mean QE3. The $Clown suffered its first lower high on the 60 and 15 min in quite some time. Cover those paper PM shorts for a spell.
Please tell us more.
A breakout for silver?
Explain yourself mister. The technicals dont look very good. What is AH?
All Hairy.
Asshole Hillary.
or
After Hours.
Another Hope.
Print, baby, print!
they probably stopped spending a month ago - would be pretty silly to play bluff with wall st and the speculators if you told them the game plan -- im guessing they have lots stashed for when they announce that the economy has been doing quite nicely on its own since march -- to reveal everything would be as dumb as telling the enemy that the seals did it , they shot a guy in front of his wife and kids, and then take great delight in talking about it - risking the lives of the heroes so you can fly around in a 747 for another 4 years
What the American government needs to do is call a muligan and decree that across the board all debt is cut in half.
Problem solved. God's law called for Jubilee year. Forgiveness is a good thing. Let the pressure off the population at large and watch this economy blossom.
You must have missed the memo, so I'll reiterate for you:
"Do not eat the brown acid. The brown acid is bad. Do not eat the brown acid."
Fuck the losers that caused these problems. No forgiveness for the wicked!
wait- let me get into a mortgage on a huge, beautiful home in the north bay before that said Jubilee, mkay?
Its going to be the 'big bang' of all bubbles.
The question is one of timing. Do we get QE3 right away? I think not. I think that it would be hard to sell QE3 in the face of 1300+ S&P. I think we need a breather period, during which everything falls and interest rates rise. Then everyone will be screaming for more QE. I think it plays out like 2010, QE3 in the fall, possibly the summer as this time it will be much worse without the money heroin.
I would welcome deflation, hence it won't happen.
I feel your pain. I too would welcome deflation, but now I know that deflation is illegal.
I must have had the same textbook as you guys because I distinctly remember low prices, i.e., deflation, having a good number of positive aspects, such as a more even distribution of assets. Little things like that, ya know.
Fed....
Even if prints another $4 Trillion....will not toch the over $40 Trillion credit evaporation.....
Also.....any notion that printing more money or creating more debt....that is totally unrelated to REAL work and production.....
Is pure academic political hollywood fantasy.....
Its a long way back to LABOR equilibration.....
There are only two things that matter to the ptb.
big bank earnings
big bank balance sheets
the dollar, the debt, the deficits, none of that makes a rat's ass.
they can conjure bank earnings by:
1. bilking taxpayers
2. bilking pensioners
3. bilking foreigners
4. lying
ironically lying also fixes the balance sheet problem. they really do think they can walk the tightrope forever. drive down commodities sufficiently without crashing equities, keep interest rates low with a bag of hocus pocus, and keep the whole thing muddling on as if there is no problem simply by lying about it. The solution is simple, don't overthink it.
Have only read the summary, but Koo explains the situation nicely (though I disagree with the conclusion about commodities being all that was left to invest in as opposed to being an inflation/currency debasement hedge).
But what he forgets is that Bernanke can solve it all in 15 minutes. So, as long as we have, say, 20 minutes (extra margin of safety and to arrange a conference call) notice before the US economy goes into Fukushima Reactor #1 mode, all is well.
http://www.youtube.com/watch?v=zDAmPIq29ro
The two tier economy is gaining steam.
Twice was offered a fridge off the back of a truck so far this week.
Just have a hard time with the fact they were taken from vacant homes.
Pop quiz class!
Name a black on MSLSD.
Why is JPY rising?
The entire Wall Street (and many other's) view of the economic system is just wrong.
I believe that it started back in the 80's though. Every company listed "needed" to hit 6-8% growth per year - or else they would get whacked. The CEO's certainly did not want to see their compensation diminished so they started cheating to make their numbers. They involved others and it continued. Meanwhile - this open secret continued along corrupting everyone that it touched. Apparently no one had the guts to tell the so-called analysts that over the long-term the growth targets were impossible. The companies then started to cannibalize themselves to make the numbers...then we had to have so called "free trade" to make the numbers. Boys and girls - we are in the bowl and going round and round and down.
I sure wish that I saw something ahead to be optimistic about.
Ahhhh, poor Citizen Sunshine, turn that frown upside down!
For the next 18 months, put your frustration behind Herman Cain and watch the fireworks.
Takes the Lib's race card away. Plus, he had good pizza. And a job. And a company. And a life.
Not sure if Cain is any good at basketbrawl, tho.
Y'know - if I believed that it made one bit of difference in the outcome maybe I could "turn that frown upside down". Democrat vs. Republican/Liberal vs. Conservative - it is all b.s. The system has been corrupted for the exclusive benefit of the well-to-do - so enjoy your Porsches/Ferraris/Hamptons/etc. while you can...this gilded era will not last.
Smile :)
http://www.youtube.com/watch?v=INvMl81y1tU&feature=related
Cain was Chairman of the Kansas City Fed. The big question in my mind is, does he still answer to the cartel?
just curious , but what about all of that bogus MBS paper that the FED took in its balance sheet? what about that stuff? didn't they exchange treasuries to the banks so the banks could offload their type 3 assets to the FED?
That toxic MBS stuff will be allowed to see their half lives.
That was part of the failed offload 2 weeks ago?
The Fed will offload that MBS garbage back to Fannie or Freddie eventually, through some intricate double-reverse repo swap secret handshake reallocation scheme or they write them down or sell them, just like any other bank. That's the irony. The Fed has that crap marked to sparkling unicorn dung when in reality it just plain old manure.
Their balance sheet doesn't balance with reality.
No fat women needed:
http://www.sun-sentinel.com/health/fl-hk-no-obesity-doc-20110516,0,33340...
thank you
"Fifteen obstetrics-gynecology practices out of 105 polled by the Sun Sentinel said they have set weight cut-offs for new patients starting at 200 pounds or based on measures of obesity — and turn down women who are heavier.
Some of the doctors said the main reason was their exam tables or other equipment can't handle people over a certain weight. But at least six said they were trying to avoid obese patients because they have a higher risk of complications.
"People don't realize the risk we're taking by taking care of these patients," said Dr. Albert Triana, whose two-physician practice inSouth Miami declines patients classified as obese. "There's more risk of something going wrong and more risk of getting sued. Everything is more complicated with an obese patient in GYN surgeries and in [pregnancies]."
__
inflationary
I hear peeps attributing this kind of thing to Obamacare.
Seems more like market forces at work to me.
You mean your to old to drown in this.
http://www.youtube.com/watch?v=Rf_y09vbuz0
I've known beehives that called out wantingly to a 17 year old :P Your just to old :)
with bibi coming in next week for the aipac conference for 2011 in washington, and since the rhetoric and the internet chatter is off the scale, maybe a new 911 type event will take the sheep minds off of thse financial problems......
Tylers
There are many pages missing from the report reproduced in the link: http://www.scribd.com/doc/55664349/NMA-Koo-May17-2011
fixed
The next big question on the federal debt limit could be whether to start selling the government’s holdings of gold at Fort Knox — and at least one presidential contender, Ron Paul, has told The New York Sun he thinks it would be a good move.
What is this I don't even
If fiat money collapses worldwide and a gold standard is adopted, then the US gold reserves are the only thing that will allow America to have a place in the future.
Is Ron Paul insane, or is he getting senile?
This is the way I look at the situation.
http://www.zerohedge.com/article/richard-koo-explains-why-unwind-qe2-not...
Ron Paul is not insane and may be genius if he heeds the advice of a colleague:
Put the gold in the hands of the American people, where it belongs and develop a gold standard over time. An action by the US to pay debts in gold would cause the metal to soar as it would be tacit recognition by the world's largest economy that it's money, which we all know it is.
Preaching to the choir here, I know, but one can hope.
http://www.youtube.com/watch?v=pAZi-y22gdY
ron paul. the shining beacon of false hope.......
Never. The US has the gold untill someone checks and the US will never allow anyone to check.
The US has ICBM's too im told but know one will audit them either.
The US has what it states untill proven otherwise.
Its the simple and that brutal.
Its all political.
Inflation deflation its all political.
Hyper-inflation is the easy way to pay off debt.
When has the US taken the hard way? When has the US decided to cut administration? Never thats when.
Its all politics its all show its all game.
The easy way is the way of "krull with this axe i rule".
If cops enforce stupid then stupid is the law. What ever stupid law cops enforce is the law. If ever cops grow a brain cell and question enforcement. Then logic, reason and god for bid common sence, stops the ability of stupid and lawful retards to write laws. Its up to the dogs when and how to bark. If only cops cared for more then just the pentions they will have taken from them when they most need it.
"Its all political."
It's all politicized, big difference. Mother Nature doesn't do politics.
If a business dipped into an ERISA governed account, the dipper would go to jail.
Send the thieves to jail.
Only enforcement would allow logic and reason to exist.
Ending QE will cause stock prices to return to March 09 levels, but this will not cause a depression. It will cause a recession. QE3 will eventually cause a depression. We can survive recessions. Recessions usually correct the imbalances in the economy and initiate recoveries. Depressions are caused by continued abuse of the economy, which is what we are doing now, and what we did during the '30's.
To revive the economy, we need to realize that the deficit is not the number one problem. The amount of spending by the most inefficient sector of the economy (the Federal Government) is the cause of the recession. We need to correct the situation the same way it was successfully done in 1920, by cutting Federal spending by 46% over a 2 year period.
2 things to know in business.
1) population.
2) production.
Your smart enough to know that these two (2 for drama, or "to" for 14 century) things cause deflation in the money supply IF the money supply was static.
So that means 2 solutions.
One is PRINT.
The other is DIG.
Since your not digging that must mean your printing.
Nothing but love but everything else is show games.
sorry dude... it's hard to take someone seriously who misspells 'you're'.
that's like, third grade grammar?
"Bernanke's all in gamble that QE2 would have been sufficient to restore the virtuous circle of the economy has failed with less than 2 months to go.."
So the Goldilocks economy hasn't been delivered? ...oh shit!
Say QE1 failed, QE-Lite failed and QE2 has failed (also). Not like there's any example or precedent in history where printing money has actually worked. Bernank was a 'student' of the Great Depression, maybe he could enlighten us where his policies ever worked in human history?
Unless of course central banking and economics (and economists) are all just a bunch of useless jawboners and a complete sham
Unless the real/only matter at hand is not about the country at all, but entirely a simple parasitical monopoly banking/political cartel on money and when the banksters/politcians get in trouble it empowers them to do carte blanche with the money supply to bail themselves out
"unemployment" ...."create jobs" ....."stimulate"...... "the economy" ...."the wealth effect"
does anyone swallow any of these sugar coated turds The Fed had any broader intention to helping anyone out other than the narrow focus of the bankrupt banksters and bankrupt political membership of The Parasite Club?
QE2 displaced the former buyers of Treasuries mainly into corporate bonds.
Money doesn't have to go "into" equities or commodities to drive up their prices. "Into" suggests positive net issuance for equities, and increased production or storage (hoarding) for commodities.
The main reason commodity prices have been going up is that consumption and investment are being artificially boosted. Yes there's some speculative hoarding as well, but that tends to be put on and then yanked off in mini-cycles. It's not a long-term or even medium-term driver, except for precious metals, which are by definition widely hoarded.
Equities have been driven up by stimulus artificially boosting profits, and by companies issuing debt to finance share buy-backs and m&a. Thus we have had negative net issuance of equities - money has been coming out of equities, not going "into" them. That's absolutely typical for a monetary-expansion-driven stock-market ramp. The new money goes into bonds, the bonds finance buy-backs and m&a, reducing the amount of equity in circulation and driving up its price.
First, QE 2.0 stops, QE 2.5(lite) takes over but is later found impotent, there follows the Decent Interval, then signs of potential collapse, then the cry goes out for QE 3, and so it goes. What is stopping them? Nothing. So why not continue? They will. Count on it.
1st, don't believe that all the QE2 "ammunition" has been used up....by any stretch. Why do we assume that all of the 600 Billion has been spent on propping stocks? These guys aren't amatuers.
Basically, prop buying has been sold back when other suckers (whoops I mean buyers) step in. So I think there is a fair amount of time that they can hold the market(s) up after the end of QE2.
They will use this "levitation" to put doubt in the PM holders and try further to sell gold and silver down hard. They have to shame this challenge to fiat money. It is a real threat to the whole system.
Up to a point, it doesn't matter what the economy is doing as they will continue the "polyana" spin.
NOW one big wildcard is this debt reduction thing. Bernake, Geitner and Obama are doing all they can NOT to make major cuts to government spending. WHY; so as not to derail this very, very fragile recover that they believe QE 1 and 2 and other things has birthed. Major government cuts will inflict serious damage to the government demand piece of their solution. That is why Bernake talks in terms of a "plan" for deficit/debt reduction that would take effect in the future.......just not now; please not now.
If big cuts are voted on and if real government jobs are cut and if the economy continues to tank (which I think it is already); then I say sometime this fall, QE3 will take place.
HOWEVER, it doesn't have to be announced or made public! The Fed can do this behind the scenes via national security justification with Obama's approval. And he will. Of course, smart money will know/find out but the general public will be in the dark. The result of that will be more inflation and dollar depreciation. PM physical has to rise.
"If big cuts are voted on and if real government jobs are cut and if the economy continues to tank (which I think it is already); then I say sometime this fall, QE3 will take place."
But why?
I never get an answer to this question.
This isn't 08 when the top 1/10% were caught with their pants down.
QE saved them, not the economy.
They can afford to have deflation now.
Is this not so?
_
But why? you ask--why does any ponzy scheme continue til it cannot?
Because the people running the scheme can cash out now.
Will they?
I do not know.
__
Please don't you see it?
Who was QE designed to help?
The economy?
Joe six pack?
Or was it the bond holders to the TBTFs, the elite?
If the economy would have crashed in 08 who would have been hurt the most?
The top 1/10th% or the bottom 50%?
I am sure you are right Muir...but the populace knows the truth in their gut and with so much riding on keeping up the appearance that the bailouts (including endless the acronym labeled scams ) were the "right thing to do", I think the ponzy scheme will keep on til it can not keep on... like the idea that when a person tells lies they have to keep up the lies with more lies.
The owners of the privately held Federal Reserve Corp and their agents (not "rich people"--uber uber uber rich and exclusively the central bank owners and agents) continue to benefit since the market playbook is written by the President's Working Group ( http://www.archives.gov/federal-register/codification/executive-order/12631.html and see article titled "Move Over Adam Smith--the Invisible Hand of Uncle Sam" here http://www.sprott.com/main3.aspx?id=58 )--and since the largest market players are consulting for this scam of a group, they of course can front run this until there is no one left to front run.
Why do I keep picturing the day when one of these "masters of the universe" suddenly turns to one of their morally challenged brethern and says "You know, what we really right now is a nice global pandemic with a lethality rate of about 40%."?
It's already baked into the cake. Read history. Read religious texts, whatever... It's the natural consequence of hubris. The corporate systems currently operating are brewing up all kinds of nasty byproducts: and if they don't do it, the "defense" sector will do it by way of fucking up while trying to circumvent mass disasters (all of which exist in their paranoid heads). No, there isn't any conspiracy...
"In other words, if stock and commodity prices are in fact in a bubble and if those bubbles were to collapse, the balance sheets of the financial institutions and hedge funds making investments with the expectation of higher asset prices could suffer heavy damage, exacerbating the balance sheet recession in the broader economy. an increase in DCF values, either."
BIG BINGO! I agree, commodities will be sucked down along with these profligate equities, but the first thing to rise from the ashes WILL BE GOLD AND SILVER! There won't be a market for the paper shit, there won't be a market, period. You trolls can besmerch all you want, but I and many others have watched this fucking corrupt, scandulous affair long enough. Yeah, it'll wind up in a depression, WORSE THAN THE FUCKING ONE WE'VE BEEN IN FOR 2-3 YEARS! The stench is in the air, it's just a matter of finding the corpse and burning it. just buy the fucking dip and don't let the Syrene Song betray your gut feeling.
Caution. This isn't some sort of cyclical environment, it's the END of one big cycle, namely, the growth cycle. What goes for "investments" in the future won't be what PM holders (and I count myself in this group) might think.
THE fundamentals are Food, Shelter and Water. At one point there won't be an excess such that people would be willing to part with any of them for something shiny.
GTFO in 2012's OGE Form 278 dated 5/16/11.
http://www.whitehouse.gov/sites/default/files/rss_viewer/POTUS_OGE278_CY2010.pdf
Haven't y'all heard, the debt is just a "cashflow" problem!
Puh-leeez with the big suspense... It's pretty easy: as long as they want to keep Extra Innings going, it'll be QE. When they're ready to turn out the lights and go home (underground?), they'll pull it, jack interest rates to double digits, and that'll pretty much be all she wrote. Or for that matter, he.
Am I missing anything in there?
"Am I missing anything in there?"
Nope.
You have my vote.
So, right now we're banging up against the debt ceiling, borrowing from ourselves instead of from the banksters--gawd that's got to frost their balls.
QE2 is ending.
POMO is ending.
The stimulus bill is ending.
The housing market is shit already and the foreclosures haven't even come home to roost yet.
The federal government is now spending more on unemployment benefits than on salaries and wages for its own employees.
There was so much talk about hyperinflation that I bought into it. Now I think I was wrong. I think I was spectacularly wrong. I think we're going to see implosive deflation.
The inflation we were seeing during the charge of QE2 appears to have been because of cash flow not because of the static flood of money. And it has already snapped. We are not going to see hyperinflation, despite the current CPI. Earnings disappointments, housing disappointments, all the recent news financial news points to a contraction.
Precious metals, commodities, oil, equities, bonds, everything is going to tank in a race to cash. Most of the world is still going to cuddle up with the world's reserve currency, the pathetic and sad US dollar, for "safety" while selling assets.
Cyclically speaking, we are already coming due for another mild recession. The problem is that we didn't recover from the last one. We may now see the Greatest Depression.
Put your 401k into cash. Now. Nothing else is safe.
When it looks the worst as you have stated, expect the Fed to step and do the opposite of what you would expect. Don't fight the Fed. They will inflate.
That could be. It seems like they have to at all costs protect the fragile 'recovery'.
But the stimulus bill running dry is a big deal. As is expiring unemployment benefits. As is the fraudclosure debacle.
The contraction migth be bigger than the Fed. Didn't somebody post in these comments that the Fed's balance sheet is minuscule compared to swaps and derivatives out there in the wild? To paraphrase Vader, The power of Troubled Asset Relief is insignificant next to the ludicrous stupidity of the banksters.
Maybe Benron's churning presses will be as effective at inflating as blowing into a balloon that's split down the side.
[Past] time to go to cash (if you're in equities or paper PMs and commodities). Wait for the reboot. Get back in after QE3 spigot is turned on. I don't think it's merely sentiment, I think the literal flow of money makes a difference. We all saw the end of QE and stimulus coming, yet the inevitable changes didn't get "priced in" in advance, and only now is it tipping.
Of course if you're a physical metal bug, just keep accumulating right through, this is a fantastic buying opportunity.
Tyler.
What happened to the 100W light Bulbs story?
.
Muir, you sure are fun to talk with!
OT,
Attention Tin Hat Brethren:False Flag Green Light -
BiBi arrives in U.s. leaving late next week. Vader departs for Emerald Isle 22nd.
"A man's power to connect his thought with its proper symbol, and so to utter it, depends on the simplicity of his character, that is, upon his love of truth and his desire to communicate without loss. The corruption of man is followed by the coruption of language. When simplicity of character and the sovereignty of ideas is broken up by the prevalance of secondary desires, the desires of riches, of pleasure, of power, and of praise,-and duplicity and falsehood take place of simplicity and truth, the power over nature as an interpreter of the will is in a degree lost; new imagery ceases to be created, and old words are perverted to stand for things which are not; a paper currency is employed, when there is no bullion in the vaults. In due time the fraud is manifest, and the words lose all power to stimulate the understanding of the affections." - Emerson
Yeah, this is all "new."
People still need to understand why these things keep happening. I'd offer that it's because people look for leaders, give up their power, which then, inevitably, leads to the cliff.
Click below to read if DSK was set up--as he claimed he would be--in response to his outspoken policies against the dollar and Fed:
http://thesilvergoldhedge.blogspot.com/2011/05/sdk-had-dollar-banksers-a...
Well let's see, during the massive economic recovery my career has been decimated, then my wife got laid off, then we both lost our health insurance, now im applying for $10hr jobs when I used to make $40 and now my search radius is 10 miles vs. 50 miles because of bullshit gas prices AND I had to get rid of some of my dogs because I can't afford to feed them now. Do you care to guess how mother fucking pissed off I am right now? As far as im concerned---I pray that some event happens that derails any QE3 bullshit and sends us into the tailsping that's going to come anyways and get this crap over with while im still young enough to kick someones ass. I HAVE FUCKING HAD IT!
Big Ben and the rest of our delusionary leaders know that their all of their "bank charity programs" have created more problems than they have solved; hence, there must be QE3 of some form. Since our leaders prefer to disguise the true intention of their actions for fear of a public revolt, expect more unusual occurrences in the near future including volatile markets, wars requiring additional taxes and a fake deficit reduction program all pushed on the Am public in the name of "nationalism" or "save the republic" by the MSM.
Ok. One of you enlightened money guys can tell me: what is the maximun QE number? If they can go to QE 23 so that the Gold mongers are happy, why not QE 46, or QE 460?
What is your end number, bitch persons?
Until the rest of the world says enough, I dont expect Ben to switch his game plan why would he? He would have to admit that everything he was/is doing is wrong I dont expect that. Another QE is likely and he if dosent do it all his boys he helped bail out are fucked. They give too much money to the govt to do that. I hope Im wrong Id rather have the depression to get it over with but I dont think thats gonna happen it wouldnt be very Keynesian
The System works on growth. All this QE crap is pushing on a string. Up until now everyone has believed that there was a way out- there is not. As the casualties mount it will become too apparent that the System is dead, which will pretty much put an end to QE<anything>.
But how far before destruction? 4, 5?
hahaha hold on, no clue if it will 4 or 5 it could be 6
BTW going to go visit Mine Creek battlefield tommorow. I'm going to dream tonight that I am outfitted with the old uniform and weaponary and on the opposing side will be some of the limp wrist faggots that created this mess and go at it. Of course then ill wake up and realize there's a drone overhead dropping something while the formentioned limpwristies are in some mansion with 20,000lb fruitbowls in every goddamn room.
Tyler, you have to comment on this article written by Morgan Kelly ( the respected UCD professor who has called everything correct on Ireland so far) that involves Tim Geitner who vetoed a haicut for Ireland from the IMF!...
"Ireland’s Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: “You are Ireland’s salvation.”The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way"
http://www.irishtimes.com/newspaper/opinion/2011/0507/1224296372123_pf.h... this out!
Good info Brach.
There is no way that Geithner wants to see a trend toward haircutting bondholders, because if that becomes the norm, the game is up.
The only good thing is that such moves are buying people a little more time to get there shit together before the depression smacks us all straight in the fucking face.
Sorry here is the link http://www.irishtimes.com/newspaper/opinion/2011/0507/1224296372123_pf.html
Want to save the US economy?
Cut everyone's mortgage debt in half tomorrow.
The banks are only taking foreclosed homes back at half value already and charging the remaining losses back to Fannie (if applicable).
No justice. No peace.
Peter Shiff on CNBC with Melissa "Ben Wa Balls" Lee:
qe2 ending is dollar positive. but it's not going to end. it can't end. we'll be in worse financial shape than 2008. if qe2 comes to an end, we'regoing to default on the debt because we're not going to be able to make the interest payments. all these major banks are goingto fail again. their balance sheets can't withstand rising interest rates. and interest rates would rise sharply if you take the fed out of the picture.
peter, thanks for your time.
On the other hand...
Jim Rogers in the video below says debt is going to be the ruination of America. Says Rogers: the idea that the US is going to prosper by driving down the value of its own currency is lunacy. Printing has to come to an end… we have to face the problem that we are the greatest debtor nation in the world…everybody knows the dollar is a very flawed currency. Turmoil in the currency markets is going to force change. I am stunned by how little there is in the American press about it… the rest of the world is seriously concerned about how much the US is overextended politically, geopolitically, militarily, economically… this is all going to come to an end and, unfortunately, no country comes out of this without a crisis or semi-crisis. 2008 was bad but wait till the next time around. It’s going to be even worse. China at least acknowledges its inflation; we lie about it, we say there is no inflation...we’re not trying to do anything about it, we’re throwing fuel on the fire.
Video: Jim Rogers Forecasts Turmoil in Currency Markets – BullSource: “’The United States is trying to drive down the value of its currency (through QE),’ says Jim Rogers. He believes this strategy sometimes works in the short term but is a bad policy for the long term. Rogers argues that the US will not prosper by debasing the dollar
“The investor predicts more crises in the currency market, happening as early as this Fall. He thinks this will force America to do something about the flawed US dollar. Rogers says the next crisis will be worse than the financial collapse of 2008.”
http://www.bullsource.com/jim-rogers-forecasts-serious-turmoil-in-curren...
Ron Paul says: “It remains impossible for even the brilliant minds at the Fed to achieve both the depth and breadth of knowledge necessary to enact central economic planning without eventually bringing the country to economic ruin.” – Fed and Inflation - Texas Straight Talk March 21, 2011
Schiff argues that the world will stop accepting dollars if the US continues to print money. “The problem is every time the government stimulates the economy to create an artificial boom to postpone the pain, they make the inevitable bust that much worse.”
http://www.bullsource.com/peter-schiff-more-stimulus-will-destroy-econom...
There was an old farmer had a dog, Bingo was his name O...
B-I-N-G-O...B-I-N-G-O....B-I-N-G-O and Bingo was his name O:
http://www.youtube.com/watch?v=SZKAi5FZEIw&feature=bf_play&list=WL6FBE8C...
ROFL why can't some people get it through their heads?
It's been baked into the cake a long time. None of the last few years has changed anything on this specific front. Unpayable debt collapses and we've only added debt to an already unpayable amount.
If they stop printing, everything collapses. (although how you collapse it can be the difference between real freedom and a new dark age...Glass-Steagall or austerity crash where almost all debt is unpayable)
If they continue to print, it's hyperinflation (and then collapse).[and in a sense we already have been....just over 98 years and not a short period of time]
Since all the fed can do is print, and as soon (give or take) as they stop, everything starts to fall again (no one can pay the level of debt...the structure just ain't kicking ot the bennies for the amount of debt that is first created)....how can ZH be so certain there will be a QE3?
Again.....the default is....they need to print or there is collapse.
The default is....the federal reserve has the reigns....they have one option...print.
ZH is doing a fine job for pointing out what should be the obvious. QE3 is on the way.
It's been the default for a long time, and we got this way, beause of the bubble blown, or serial bubbles blown, from the legal leeway created from first the weakening of, and finally the repeal of, Glass-Steagall. (of course under a federal reserve controlled MONETARY system)
When everything popped, the central banks on the publics dime (not behalf) indebted us more to prop up fraudulent (most) or just regular bad debt (some). As the prices increase, more and more debt is tainted. The federal reserve prints for fraud. That's it.
So....now that we sit here, basically after QE2, and nothing in the structure of the system has changed.....we are still at....everything collapses if we stop printing. Unless the structure changes, the deflation bomb won't go away.
Yes there is a tipping point to hyperinflation, and it may not be all at once, but as part of a series of wild up and down swings. We can go through a time where the dow could be 4,000 then 20,000 then 2,000 then 36,000 hell even 1 million. The low end occurs when the fed stops printing, the high end happens as a result of the subsequent deflation abating money printing.
Now of course this is how the process works, (or doesn't work) but how it will actually go down will be different. Since the fed isn't going to wait until a 4,000 bottom it is going to start printing much sooner than that. The catalysts to stop? Fraiser Bernanke assuming he can let off the presses because he has averted the crisis. We aren't there yet. But at some point, Genocide Ben will screw it up and be oblivious for too long.
ZH has rightly been saying imo that the fed believes it will need to print more, and so rather than say it outright, they will wait for some deflation to crop up, and try to time it perfectly (like a Netflix crash exit) so that there is enough deflation to warrant in the minds of congress QE3, but not enough to damage the 'progress' they've made.
If you think the above is complete bullshit.....I agree. Please forward it to 33 Liberty Street. But you see to these assholes it's all 'psychological'. Yes Fraiser Bernanke is going to let the shit go down in order to make the psychological case for QE3.
In other words, these guys are insane. Playing with fire at a fireworks factory in order to get a bottle rocket (that you won't ever use).
Of course, since this won't work, they are playing with fire for nothing, since QE3, just like QE2, won't work.
So each 'QE' is going to need Fraiser Bernanke to play bullshit with the markets, and at any time they can lose control. Of course at some point the SHTF and people start and stop major finanacial things from going forward like QE4....yes...then say the president says no QE ends (yeah right)...then the market dips hard and it changes to yes...things like that basically although its a bit hard to say what the exact catalysts will be so a 'flip flop' over an already announced QE is an easy default scenario in order for you to get the picture. But at some point, central banks and gov't will be at odds and contradictory. Either against other countries, or their own.
The trend for the swings is to get wider. Higher highs, and lower lows.
Nothing is going up or down based on reality, only free funny money and moral hazard.
Every step away from Glass-Steagall makes the situation worse. QE3, won't lock in the bottom before QE1 as the low, or QE2 lows....it will just distort things more by straying further from reality, while hiding the true nature of the economy and to avert finding the actual bottom...which for derivatives, rmbs/cmbs, and all sorts of other leverage will be zeroed in any actual clearing. The bigger the clearence sale, the more products get caught up in it. So the more the fed sucks up into the 'all in' pile, the more collateral damage there will be.
At this point we're still paying for 0 as something + taking on debt for 0 that we call something, that should be 0, and actually debasing our currency along the way.
Companies are getting screwed by buying at wrong times, and during inflation...getting screwed by paying too much for shit. All of this has taken companies that are profitable and made them shutter for no other reason than the markets themselves. If that's not bad, then you have skyrocketing wealth destruction going on...who happen to be your customers....or were and now aren't....and until deflation starts proper...the end user is paying more and more still.
This is only going to get worse, and many companies who otherwise would be fine, will close, because so many of their customers got screwed and couldn't consume your product/service that they otherwise would have.
It's not hard. It's all about fraudulent debt. Instead of zeroing it out via Glass-Steagall, they're just calling fraud, 'good', and issuing debt (new fraud), to temporarily keep it 'good' (old fraud). But since the structure is all fucked up, and QE whatever only temporarily keeps prices from dropping, we are well past the point where we can get out without a full Glass-Steagall reorganization. Everyday we wait, more of the economy is tainted, and honest wealth destroyed.
When QE ends, all the stuff marked to bullshit, will start heading back to 0 (at whatever pace it does), and the more they levitate it, the more pressure there will be to revert back. Couple that with the ever higher amounts needed to turn it around from deflation to inflation, and what that means debtwise, and the amount of debt in our names has only just begun to register if central banksters lived in a vacuum.
Southwest Airlines is a good example. During 2008, while many of their competitors were buying jet fuel synonymous with $4 gas, they were still paying for it like it was $1.50-$2.XX. Why? They timed it right. Which is rare, as in many industries....NONE of the corps will have timed any of this right.
But again, what has happened? Well Southwest had that fuel hedge/depots on....but now it's refilled and they are paying a different, higher amount. So since everybody wants to avoid inflation...what will happen to southwest if they hedge and park jet fuel at today's prices and then there is a crash? Well this is a bit extreme, but such misallocation is continually happening, and will only grow worse in the higher volatility. Higher volatility = greater (risk of, indvidually) misallocation. In total misallocation only rises, which in turn puts pressure on the markets to have an even wider range.
The longer the levitation occurs the longer the hedges become worthless. 3.50 for fuel while it's 5 looks good, but not when the next month you could refuel it for 1 and be paid for airline tickets like it's 1.
Think of the cotton producers who have been buying their cotton for their goods? My friend is now being asked to pay 300 percent more for the shirts for his clothing line. How much will he lose when Ben, in order to justify QE3, sends cotton prices to 1/5 of what they are? This is all one giant MISALLOCATION. Of course only to sell those off cheaply, until the prices rise, and he has to pay even more and sell them at an outrageous price that no one will buy? Misallocation.
At some point it will stop, which again, will lead to a crash. But what sort of a crash? A Glass-Steagall induced realignment, or an outright debt collapse upon everything?
If you don't push it one way, it WILL be another. That other way (through inflation or deflation) is probably death for billions. Sorry, that's the brass tacks and nipple wax.
Since we have to view things from the fed's perspective (until such time as they are not in control of our money supply), they will error on the side of their one trick pony. Print.
They won't print for something tangible, only for fraud. If they printed for something tangible, monetarism (still wouldn't work) would be one notch less from completely sucky.
It's very simple, there is too much fraudulent debt to pay off. If they don't print, it collapses. The collapse will take down everything, since everyone is indebted in today's dollars/prices, the leverage, the unwind, will destroy not only those with too much debt, but the subsequent price/wage reductions will make every debt unpayable.
The fed can only delay it. Will the drop happen from here or dow 2 million? Either way it's happening. Each up and down has the potential to be 'it', until something changes it. Either fed resumes printing, or the people throw out the fed (and if the austrians take charge, it CAN and WOULD be worse than what the fed has currently spun [not where it can go]). Other than that we're just going to have wilder and wilder swings anyways as the people call bullshit on QEX and the subsequent removal of QE will let shit drop from a higher spot with a heavier weight. The only way to stop the madness is with Glass-Steagall
It's not about printing off for fraud, it's not about letting things collapse due to it. It's about noticing what is fraud, and using your hand to smack it for all to see, rather than believe in some invisible hand.
The fed is antithesis to Glass-Steagall, so they will only print and pause. The austrians will just let stuff collapse and Que Sara Sara. Both ways are unopitmal. You have to actually point out whats crap, and focus on creating something tangible. Too bad we just have Keynesians who want to print, and Austrians who just want to stop printing. No other ideas...just that. Print or No print. Black or white. No other options. Well they are damn fools.
Will the fed do QE3? How can they not? Stopping QE2 initiates deflation, and the ultimate outcome of deflation is the end of the fed. Same with hyperinflation, however the fed believes it can control inflation better than deflation, since that is what the federal reserve was created to do...inflate.
Throwing money at debt will not allow those that constitute the economy to be able to pay the current asset prices that issuance of said debt dictates.
If people can't pay off yesterday's asset prices, how can they afford tomorrow's higher ones (in addition to paying yesterdays off)?
There is no trickle down effect. Economics doesn't work that way. Monetizing yeseterday's (fraudulent) debts will not have that money flow out to the economy to support current asset/commodity prices. What flows on wall street just gets locked up into more of wall street, it does not trickle out or down. In other words, the trickle down effect currently stops at the central bank level, not the big money or corporations/individuals (who promptly dammed it up). Whatever DOES leak out, goes into commodities. (and we all know what that means)
The answer isn't an uncontrolled collapse, it's an ordered one (well as much as what can be) via Glass-Steagall.
Letting it collapse through stopping printing can be just as dangerous as letting it collapse through hyperinflation.
The only way out is to highlight the crap, take it out, and restart it. The market 'forces' CANNOT efficiently cancel out quadrillions in fraud, only Glass-Steagall style principles can. Only Glass-Steagall style principles can haircut legitimate debt to keep pace with what is actually happening. Glass-Steagall isn't something to profit off of. It's a reset, so that THEN you can profit. Every debt needs to be haircut. The fraud to 0, the rest commensurate with how much the dollar is strengthened against commodities via its removal. Of course it isn't perfect and not everything will be the same, but a haircut will have to be applied....otherwise your 200k (yeah I know...that's low) home loan may as well be 20 million if your wages drop in half.
Which is also one reason why during such a scenario I advocate of freezing wages as debt is cancelled/haircut. (because that is a net increase in wage purchasing power)
The answer isn't cutting, nor printing, for fraud. The answer isn't QE3, and it's not cuts to social security or medicare.
The answer is wiping out the fraud. Which is something the federal reserve will not do.
So why will there be QE3?
Because the idiots believe in bullshit, and their bullshit tells them that they can print their way out...and that's all the fed can do.
The sad thing is, if we get an alternative, I fear the alternative is either equal or worse than what we have...because it will still be based on the sophistry of monetarism *cough* Austrians.
Glass-Steagall and there in a very real way (but not 100 percent...since we lived through it) have never been any QE. In our memories? Yes. On the balance sheet? No.
Thank you for the great post jmc. If you don't mind, i have a question:
What would happen if they - as they do right now - artificially keep everything but stocks down via manipulation, to make the sheep flee into the dollar and stocks? Or heck, what if they manipulate EVERYTHING but currencies down? Shouldn't this result in a pseudo-strong currency (despite inflation), but a dead market and economy? So, in principle artificial price fixing? I'm aware that this would kill the economy, but the currency would look good despite the massive influx of cash?
P.S.: Bonus question. How would you in such a volatile market act? Stockpile what one needs in downs to survive the ups? And how would this look like in retail shop prices, considering that there is lag involved? Random flying rainbow pigs all across the board?
holy wall of text batman
Best post I have read in awhile.
Could not have said it better myself.
Glass-Steagall 2.0 could ammend many of our problems.
I need help from those smarter than I. Lets just ASSUME 2 scenerios, 1. The fed announces QE3, what market reaction would you expect, good or bad. 2. fed announces NO QE3 same questions, what market reaction do you expect, good or bad? Because as I always say, money can be made in up or down markets if you figure out the correct direction....Thank you in advance. PS Market reaction = Stock, Bond, Commodities, etc.
At this point, it is not just QE or no-QE. It also is blatant manipulation.
Say they do QE. "Something" will go up. If they wouldn't manipulate, stocks and commodities will rise, while the dollar will go downhill. But lets they they do some more hitjobs on commodities.... then commodities will at least go up slower than stocks. Same in the case of metals.
Say they do no QE. The dollar will be the big winner.... everything else will tank, especially if they - as they do right now - artificially keep metals down.
Then, there in pure theory is a third option.... a balance between both. Adding just enough cash to keep the market overally flat, and then shape into which sectors money goes via manipulation.
So, you see, the only things that are certain, is that if they fuel the market with cash, the debt situation gets worse, and markets will "overally" go up and the dollar downhill..... yet which sectors benefit how much, can be manipulated. If there is no QE, then the dollar will go up, and the market overally will go downhill.
There is something else that while not certain, i consider highly probable. Metals do want to go up regardless of QE or no QE (though stronger in case of QE) - because of the perceived global crisis. Metals also are the enemy of fiat-currencies.... so, i do expect that they will keep on hitting metals..... at least, until supply dries up.... no supply == no sellers == no price == game over.
Id like to call a bottom in silver.
Too early...
My little bro called me about buying Ag with his tax return, I told him to wait until I let him know.
This correction ain't over til' Banana Bernank starts wanking his QE pud!
studying the weeklys and the dailys, there is a bid here
$40 will be extreme resistance but i am going looooooooooong here
All these reasons are meaningless when you realize that the system itself is flawed and so the losses are minimal compared to the impending end if we don't restructure now.
Seeing how everything isn't done until consensus is met (the top 2% say so) then it's wealth transfer, dollar destruction, and economic genocide.
Too reasonable, unpopular and unsponsored.
Catch a falling knife???!!!! Anyone?
Lets see whos right
Well well well.
I was right about the identity of one of the main durden's after all.
I knew he had to be an iconoclast who was either informally blacklisted from his industry or formally proscribed from working in it. That is perfectly fine and I am sure I was the last to know. I am not being judgmental since i made a virtue out of necessity and run my own business too.
Thank god the main durden isnt some type of nerd who has never had a girlfriend and eats his own boogers.
Just a short term bottom thats all if we break 40 the dollar is done.
Dont be surprised if we close above 36 for the week. Then short covering comes in until 40. If you just got short you are fucked pal
I love zero hedge!!!!!!!!!!!!!!!!!!!!!!!!!!
My publix supreme pizza was 4.48 today, it was just 2.50 a month ago!!
Those greedy dogs! I just want my pizza.
This is how revolutions start, lol
When everyone piles on one way or the other you had better watch your ass, silver at 50$ DUH, silver at 32? YESS play the bounce. If you are short, thanks for the money fucker.
Eat some good organic food stop eating nasty ass pizza. your health will improve
I don't have many rights left. I don't need you telling me what my shit should look like.
Dickbag.
Markets up for the next couple weeks. THEN?????????
end of post
It's nice to see good debate again on ZH as people are aware of whoiswho and what are THE consequences of all the "actions" done so far by institutions to "save economy".
Following this mega scam, I understood that Nomura are just another "global" banskter utility. In typical shy japanese way, Koo is just yawning here for QE3 ... begging chairsatan to start presses again.
QUOTE: ... if stock and commodity prices are in fact in a bubble and if those bubbles were to collapse ...
I would compare with statement from one local pop singer who said on record:
If cocaine is drug - than I am junkie!
LOL :-)
"When the situation is viewed in this light, we come to the realization that Mr. Bernanke’s QE2 was in fact a major gamble. It was
a gamble in the sense that the Fed tried to raise share prices with QE2. If the wealth effect resulting from those higher prices led
to improvements in the economy, the higher asset prices would ultimately be supported by higher real demand, thereby
demonstrating that prices were not in a bubble.
However, I cannot help but feel that the portfolio rebalancing argument was putting the cart before the horse, in the sense that it
is ordinarily a stronger real economy that leads to higher asset prices, and not the other way around."
This last sentence is the essence of the bernank's folly. Absent true clearing prices across the economy, QE1 was bound to fail because it was supposed to get the banks "lending again", yet it did not consider to whom, against what assets and at what valuation. Having failed to anticipate this, the dolts at the fed chose, as Koo says to embark on a "major gamble". But given the illogical construct highlighted by Koo, that asset prices can lead the real economy, this gamble will fail with tragic consequences. HIstory will judge this clowns most severely.
Well now....
Let´s ask the real question.....
How many blabbing gurus really understand where the US finances really are......
Let´s keep this very very simple.....
The total economy in the 2006 box contained $1000 in buying power....
The 2012 economy will have $300 or less in buying power.....irrespective of whether or not the FED offers $2 Trillion or $5 Trillion....
Understand yet ......
http://www.ers.usda.gov/Data/FATUS/#monthly
http://www.usda.gov/oce/commodity/wasde/latest.pdf
First read since the rest is speculation.
Stock up kids.
I will read Koo again but what value added service does he truly believe in? Shit that goes boom since his earlier missive on Keynesian believed that aggregate demand latent will balance structual sheet recessions later. No shit stalling for time is quant. The Aussies got there money on the GS shit sandwhich early when the PM came nocking to DC and some sharpy's caught the Fed flushing Fiat Shit Around. Meanwhile the NATO Choir boys are chasing Qudaffy's IMF Gold bars since his Gang Bangers Arab buddies wants to join the reserve cult to dazzle the denizens since the other village idiot failed so he would try. Meanwhile astute dry powder will try to sort this shit out but by then the true brokers who took the Khrushchev serious that will sink the Capalist hegomony cult to the level of America when we catch up and pass you by, we'll wave to you. We will bury you, and I got into trouble with it. Of course we will not bury you with a shovel. Your own cheerfull and usefull idiot working class will bury you since you dumb pricks allowed and relegated your Senate to Local affairs only and the Chinese card to balance affairs blew up in your face, hence history will regard the intellectual core dump as naive. Saving grace is the tailor does not war long with the baker so maybe there is hope with the middle kingdom since the color of the cat does not matter if it catches the mouse.
http://www.youtube.com/watch?v=GHyV9V-37zc&feature=related
UPDATE (see bottom of article) on whether or not DSK was set-up because he opposed the dollar and the Fed:
http://thesilvergoldhedge.blogspot.com/2011/05/SDK-had-dollar-banksers-a...
Finally, someone gets it (Koo), though he leaves out energy and international trade issues. But this was great analysis.
After Australia's latest Federal budget earlier this month, the Govt suddenly slipped in a last minute provision, to increase the Govt's borrowing limit in the new FY, from $200 billion to $250 billion AUD.
They suddenly decided they needed the possibllity to borrow another 50 billion, for potential emergency spending.
They cited natural desasters and GFC as the reasoning for this ... but those were already full budgeted for!
So this 50 billion is for some other emergency purpose.
My guess is a new mortage subsidy scheme to bolster house price slumping is part of it (if I remember correctly the last one totalled to $12 billion).
My second guess is this money is for more direct injections (retail is very sick in OZ) if the economy/financials fall of the cliff again.
The last round of direct stimulus in 2009 cost ~$42 billion AUD (2-payments of about $1040 per payment to each tax payer)
And I think that's the real reasons for the request for access to another 50 billion.
Now if that occurred ... with the current Aust budget deficit projected to be $50 billion ... therefore add in another 50 to 60 billion in emergency spending of that sort, to the existing plans, and you get about $110 billion - easily the biggest deficit ever.
So that's a $110 billion deficit for a $1,300 billion economy ... or a deficit of about 9% of GDP!
Though the currrent NET debt is said to peak at 7.2% of GDP in 2011-2012.
We shall see! If mortgage banterism really does kark-it this year, as seems to be happening, then the deficit and NET debt will grow a LOT higher than was projected.
And that is the top of the slippery slope of mean reversion.