Richard Koo Explains Why An Unwind Of QE2, With Nothing To Replace It, Could Lead To The Biggest Depression Yet

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Tue, 05/17/2011 - 18:13 | 1284934 NOTW777
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Tue, 05/17/2011 - 18:37 | 1285016 NotApplicable
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Yeah, but it was the cure for the Greenspasms.

Tue, 05/17/2011 - 18:45 | 1285058 NOTW777
NOTW777's picture

partially agree but the toxic mushroom cloud is mostly ben's

Tue, 05/17/2011 - 19:14 | 1285153 NotApplicable
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Meh, it isn't like he had any choice.

I'd blame Montagu Norman and Benjamin Strong first. Which isn't to say I'm supportive of anything The Bernank has done, I'm just saying he's merely another tool in the shed, not a master carpenter. His choices were defined well in advance of his arrival.

Tue, 05/17/2011 - 19:28 | 1285201 NOTW777
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what about the choice to level with the american people - particularly when he s under oath.  I dont believe there was no other choice.  it started with paulson - he could have said no.  there would have been pain but primarily for those who started the mess 

Tue, 05/17/2011 - 21:03 | 1285474 10kby2k
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My wife should be named head of the Fed: she can stretch a dollar further than anyone.

Tue, 05/17/2011 - 21:45 | 1285672 jeff montanye
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bingo indeed.  long before 5%, as john hussman demonstrates, if short rates increase to 1/2%, consumer prices rise 40% in less than a year unless the entire liquidity pump of qe2 is reversed and liquidity drained.  makes a nice combo with overvalued assets and austerity. 

Wed, 05/18/2011 - 02:49 | 1286239 Sudden Debt
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HAHA! :)

I know that feeling, mine can say she spends 100 euro's but she needed 500 euro to do so :)


Wed, 05/18/2011 - 10:44 | 1286988 Urban Redneck
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In the US case- monetary, fiscal, and regulatory policy are the three heads of the cerberus which prevent the US from escaping finacial hell.

Tue, 05/17/2011 - 18:39 | 1285027 Chris Jusset
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Dick Koo says:

"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."

This is why QE3 is absolutely guaranteed ... and why QE4 and QE-Infinity will happen up until the point of total collapse.  The devastation wrought by popping bubbles is far worse than if QE had never happened initially.


Banana Ben has created the mother of all bubbles, and now he has no choice but to keep the bubble inflated lest a depressionary collapse ensue.  Ben is a total fucking idiot.

Tue, 05/17/2011 - 18:55 | 1285083 NOTW777
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i think everyone should seriously question if QE3 is even doable.  dont give ben too much credit.  ponzi schemes always come to an end

Tue, 05/17/2011 - 18:56 | 1285087 NOTW777
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bens chambermaid could be right around the corner

Tue, 05/17/2011 - 19:08 | 1285142 Big Corked Boots
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While it is true that ponzis always end, they also seem to last far longer than anyone expects. In the meantime, the ups and downs of manipulated markets serve the manipulators well... they are rubbing their hands together as we speak.

As for Ben's chambermaid, eventually everyone gets discarded.

Tue, 05/17/2011 - 19:16 | 1285165 NotApplicable
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As long as "someone" accepts the paper, Ben will QE4EVA.

BTW, that someone is you (albeit via proxy).

Tue, 05/17/2011 - 19:27 | 1285206 NOTW777
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at this point in the ponzi who is that "someone?"

Wed, 05/18/2011 - 09:14 | 1286631 snowball777
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every person with a job who isn't paid under the table.

Tue, 05/17/2011 - 19:43 | 1285240 Quixotic_Not
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Debt-based Ponzi inflation in place - check!

Dumbed-down to succumb 'MeriKan "electorate" in place - check!

Continued price suppression of PMs in place - check!

Trend supporting monetary collapse in place - check!

Got Ag?

Wed, 05/18/2011 - 05:13 | 1286324 Popo
Popo's picture

Everyone keeps looking at internal factors for signs of QE3.   The situation is IMHO, entirely dependent on the economic (and political) fate of China, emerging market economies and the Mideast.

The ball is not in our hands.


Tue, 05/17/2011 - 21:46 | 1285674 contagiousNY
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Ahh hope is eternal, but this time it will be the bellboy

Tue, 05/17/2011 - 19:04 | 1285125 Chris Jusset
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Yes, all Ponzi schemes eventually collapse.  But Helicopter Ben will fight until his last breath to keep the bubble inflated ... to keep he house-of-cards intact ... to keep the plates in the air.  Ben is cornered, and he's running out of options.

i think everyone should seriously question if QE3 is even doable.

If the choice is between (a) QE3, and (b) a total deflationary collapse of unprecedented dimensions, Ben will go with QE3.

Wed, 05/18/2011 - 00:52 | 1286078 donde1
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10 yard penalty for over using puns....2nd down. 

Wed, 05/18/2011 - 09:12 | 1286626 snowball777
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Objection! His toe was clearly in the piddle.

Tue, 05/17/2011 - 22:13 | 1285758 mayhem_korner
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Ponzi schemes always end from the periphery - never from the origin.

Also, I don't buy into Ben being an idiot.  He either believes in what he's doing (overdosed on Keynesian Kool-Aid) or he realizes there's no choice for him but to row with the tide.  I think one thing to watch for would be his stepping down...could be an ominous sign of a tipping point.

Just food for thought...

Tue, 05/17/2011 - 22:30 | 1285793 bigdumbnugly
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i agree with that, mayhem.  so i agree with your duplicate post too.

Wed, 05/18/2011 - 00:50 | 1286081 donde1
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Tue, 05/17/2011 - 22:14 | 1285760 mayhem_korner
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double post - sorry

Tue, 05/17/2011 - 19:32 | 1285216 chet
chet's picture

I buy the basic scenario of the end of QE2 leading to a correction, forcing a QE3, but what I'm starting to wonder is:

What if QE3 doesn't work?  What if the market doesn't respond like it did to previous quantitative easing?

I mean, everyone knows it's bullshit.  If they do it again, even the MSM will start reporting on how it's artificially pumping the market.  It can't work forever can it?

Tue, 05/17/2011 - 20:11 | 1285310 Quixotic_Not
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Yep...3 strikes and you're out!

Real growth has been studily at -10% to -15% since 2008, and short of a collapse of wages and creation of massive productive output, there's no digging out of this scenario.

The only other possible recovery mode for the U.S. is to start massive acquisition of resources by military force.

Ready for WWIII?

Tue, 05/17/2011 - 20:21 | 1285331 Baptiste Say
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The only solution to a real term depression is a war?


Look buddy, just as Keynesianism doesn't work military Keynesianism also doesn't work. Killing and destroying capital will never lead to net growth.

Tue, 05/17/2011 - 20:39 | 1285342 Quixotic_Not
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The goal is to capture more capital than you destroy!

It's the only way the (D) & (R) Free Shit Empire™  dystopia can possibly keep the Ponzi on long-term...

You do know the function of an empire is imperialist expansion and theft of resources, right?

Besides, it'll keep all those young unemployed sheeple off the streets!

(You gotta know this a politeer/bankster wet dream)

Pentagon says Afghanistan might have world's largest lithium deposits

Tue, 05/17/2011 - 20:48 | 1285411 Baptiste Say
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"The goal is to capture more capital than you destroy!"


I follow you now. When I read WWIII I thought you were suggesting a few cities needed to be bombed to allow a make work rebuilding program.


I don't think resources need to be 'captured' with force at all. We have a market which allows resources to be captured at a price but unfortunately the chicken hawking war mongering nutcases in your countries capitol are not of the same opinion as I.



Tue, 05/17/2011 - 22:16 | 1285765 robobbob
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"your countries capitol"

you say that like Amerika in this on our own. We didn't set fire to Egpyt and Libya to help our resource supplies. And last check, the Nabucco pipeline is NOT slated to transit or terminate in North America. just saying. Iraq/Iran might be about oil, but it isn't destined for our shores.

So, if you happen to be in any western country, don't think your hands are clean. The phrase should be "our" countries capitals. We're just doing the heavy lifting when someone tries to say no to the deal you can't refuse.

Tue, 05/17/2011 - 23:18 | 1285920 jeff montanye
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imo rational economic aggrandizement explains only some of war (and of peace, re: individual and collective "free market" economic decisions).  

ideology and emotion are hugely powerful.  

for instance zionism, not really a profitable idea long-term, especially for the u.s., is at least as useful an explanation for the current wars as anything else.

Tue, 05/17/2011 - 20:51 | 1285430 Seer
Seer's picture

You got it!  Wars are about resources, always.  If everyone had everything they could ever want then there wouldn't be any need for war.  That's not to say that some wouldn't try just for the heck of it, but there really wouldn't be much support, most aggression would fizzle before it even got anywhere (even religious ideologies couldn't work up enough froth).

Wed, 05/18/2011 - 03:24 | 1286274 Mad Cow
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Power is the reason for wars. Resources are just a nice bonus.

Wed, 05/18/2011 - 03:38 | 1286282 Rynak
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Power is control. Control of....... what?

Wed, 05/18/2011 - 06:47 | 1286288 Mad Cow
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It's all just an illusion. Control only lasts a short time. This time though, they'll burn the planet in the attempt.

Tue, 05/17/2011 - 21:48 | 1285681 contagiousNY
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Tue, 05/17/2011 - 21:26 | 1285596 Fiat2Zero
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I saw a statistic that showed about a 12% efficiency. That is, for every 8 dollars of stimulus (i.e. POMO) we got out 1 dollar of gain. I didn't look too closely at the gain, but it would have to be asset prices (e.g. stock market).

While the measurement may not have been perfect in absolute terms, what it did show was that over time the efficiency was going way down. Consider the POMO amounts at the beginning, and the ones at the end (the size of the penultimate ones was multiples of the first). There are a variety of reasons for rapidly decreasing efficiency such as malinvestment (e.g. causing inflation).

So if and when QE3 kicks in, I'm going to hazard a guess and say that it will be in response to an (expected) shock. The shock will be what Ben needs as the excuse. His Wall Street buddies will all cry "save us Ben" in the usual media orifices. Hank Paulson may go down on one knee and beg again again (he's such a fucking giant that the visual oddity this produces is enough to make one relent).

There would have to be a decent size rush of capital to stabilize the patient, after which whatever injections are done would have to be sizeable. They might initially have better purchase as I'd think they'd try something different. Don't forget, Ben is king of the "we're going to have to get a little unorthodox this time" approach, at least based on the things he's written.

Eventually things would stop working. Just like when hyperinflation and currency collapse stop working in the last phases.

Tue, 05/17/2011 - 21:41 | 1285656 masterinchancery
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And that is exactly how we get hyperinflation.

Tue, 05/17/2011 - 21:55 | 1285695 contagiousNY
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Inflation is tracking the equity rise closely, once PMs stalled the market echoed that.

Tue, 05/17/2011 - 22:24 | 1285785 Hard1
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Totally agree with Koo.  The problem is how do you trade this:

-Bonds in a bubble

-Equities in a bubble

-Commodities in a bubble 

Maybe short term cash, but medium term cash is trash.

Tue, 05/17/2011 - 22:43 | 1285838 mayhem_korner
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Think it through.  Pop them all and what is the absolute, definitive counterbalance???


And so, if you sit in Ben's chair, the landscape calls for unabated fuel for the bubbles.  This is why QE absolutely will continue.  All that's happening now is a charade of misdirections.

Tue, 05/17/2011 - 20:29 | 1285352 The Feds Connection
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All this doom. I watched max keizer show on 24france yesterday. Taped on 28 oktober 2009 in which he sayd financial catastrophe would hit again in in 6-9 months. How long can this be stretched?

Tue, 05/17/2011 - 21:00 | 1285458 Seer
Seer's picture

Are you figuring that this will be televised?  Based on how you spell I'd figure that you might not be in the US and are therefore not able to see up front how many people are walking financial zombies.

At the point that it's all on the MSM (assuming that the MSM can even operate at that point) will be when it's too late to prepare.  No problem with me if people don't prepare, as it just means that I've got a better footing than those who haven't prepared: less competition for preparing.

But on the flip side would be those claiming that catastrophe isn't possible.  Clearly these folks are wrong.

Tue, 05/17/2011 - 21:02 | 1285466 A_MacLaren
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How many zeros can Ben digitally create? 

Start with:  i2 = [(1+(i1/n1))^(n1/n2)-1]*n2


i1 = zirp to 0.25

n1 = duration of Alphabet Soup initation thru QE2 terminus

i2 = Risk adjusted ROI on Ben's Treasury Puts, given infinite creation

Just rearrange the equation and solve for n2

Tue, 05/17/2011 - 21:42 | 1285649 francis_sawyer
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Naw... Ben has far simpler methods... Here's a sample of his work...

Wed, 05/18/2011 - 06:53 | 1286382 Salinger
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Tue, 05/17/2011 - 21:03 | 1285487 baby_BLYTHE
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I too await that answer, my friend. All I know is reckless money printing throughout history has always lead to absolute disaster to whom ever attempts it.We will most definitley pay. The question is, ' in what way '

Tue, 05/17/2011 - 22:16 | 1285767 Fed Supporter
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Trav7777 Co-worker.

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