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

Tyler Durden's picture




 

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 QE2

So 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:

NMA_Koo_May17_2011

 

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Tue, 05/17/2011 - 18:13 | 1284934 NOTW777
NOTW777's picture

bernankeplague

Tue, 05/17/2011 - 18:37 | 1285016 NotApplicable
NotApplicable's picture

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
NotApplicable's picture

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
NOTW777's picture

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
10kby2k's picture

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
jeff montanye's picture

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
Sudden Debt's picture

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
Urban Redneck's picture

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
Chris Jusset's picture

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
NOTW777's picture

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
NOTW777's picture

bens chambermaid could be right around the corner

Tue, 05/17/2011 - 19:08 | 1285142 Big Corked Boots
Big Corked Boots's picture

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
NotApplicable's picture

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
NOTW777's picture

at this point in the ponzi who is that "someone?"

Wed, 05/18/2011 - 09:14 | 1286631 snowball777
snowball777's picture

every person with a job who isn't paid under the table.

Tue, 05/17/2011 - 19:43 | 1285240 Quixotic_Not
Quixotic_Not's picture

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
contagiousNY's picture

Ahh hope is eternal, but this time it will be the bellboy

Tue, 05/17/2011 - 19:04 | 1285125 Chris Jusset
Chris Jusset's picture

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
donde1's picture

10 yard penalty for over using puns....2nd down. 

Wed, 05/18/2011 - 09:12 | 1286626 snowball777
snowball777's picture

Objection! His toe was clearly in the piddle.

Tue, 05/17/2011 - 22:13 | 1285758 mayhem_korner
mayhem_korner's picture

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
bigdumbnugly's picture

i agree with that, mayhem.  so i agree with your duplicate post too.

Wed, 05/18/2011 - 00:50 | 1286081 donde1
donde1's picture

Classic!

Tue, 05/17/2011 - 22:14 | 1285760 mayhem_korner
mayhem_korner's picture

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
Quixotic_Not's picture

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
Baptiste Say's picture

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
Quixotic_Not's picture

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


http://green.autoblog.com/2010/06/14/pentagon-says-afghanistan-might-hav...

Tue, 05/17/2011 - 20:48 | 1285411 Baptiste Say
Baptiste Say's picture

"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
robobbob's picture

"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
jeff montanye's picture

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
Mad Cow's picture

Power is the reason for wars. Resources are just a nice bonus.

Wed, 05/18/2011 - 03:38 | 1286282 Rynak
Rynak's picture

Power is control. Control of....... what?

Wed, 05/18/2011 - 06:47 | 1286288 Mad Cow
Mad Cow's picture

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
contagiousNY's picture

Americaeast?

Tue, 05/17/2011 - 21:26 | 1285596 Fiat2Zero
Fiat2Zero's picture

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
masterinchancery's picture

And that is exactly how we get hyperinflation.

Tue, 05/17/2011 - 21:55 | 1285695 contagiousNY
contagiousNY's picture

Inflation is tracking the equity rise closely, once PMs stalled the market echoed that.

Tue, 05/17/2011 - 22:24 | 1285785 Hard1
Hard1's picture

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
mayhem_korner's picture

Think it through.  Pop them all and what is the absolute, definitive counterbalance???

INTEREST RATES MUST RISE.  THE DEATH KNELL FOR THE FED BUDGET AND THE PONZI.

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
The Feds Connection's picture

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
A_MacLaren's picture

How many zeros can Ben digitally create? 

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

where:

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
francis_sawyer's picture

Naw... Ben has far simpler methods... Here's a sample of his work...

http://4.bp.blogspot.com/_3xVDxOVk67I/SldMb4EPAFI/AAAAAAAAAsM/PguXFr-9_B...

Wed, 05/18/2011 - 06:53 | 1286382 Salinger
Salinger's picture

-

Tue, 05/17/2011 - 21:03 | 1285487 baby_BLYTHE
baby_BLYTHE's picture

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
Fed Supporter's picture

Trav7777 Co-worker.

 

http://trololololololololololo.com/

Tue, 05/17/2011 - 23:43 | 1285962 Rynak
Rynak's picture

A troll accusing others of trolling...... thats almost like malware masquerading itself as anti-malware applications...... or gov/bank sockpuppets masquerading as helpful advisors. Hey, let me guess, its you again wirtschaftswunder/zing/the axe/mogul rider/long juan silver/etc/etc? I could say what made it obvious that it's you, but that would make it too easy, wouldn't it?

Loser.

Tue, 05/17/2011 - 23:59 | 1286001 OldPhart
OldPhart's picture

Fed Supporter

Damn, dude.  Took WAY too long to figure out how to shut that shit off!

Hey, at least Captcha is going easy on me today:

'X' times (-35) equals -350

I think I can handle this one without the calculator.

Wed, 05/18/2011 - 00:34 | 1286049 Lee Marvin
Lee Marvin's picture

+3pic

Tue, 05/17/2011 - 21:25 | 1285589 Baptiste Say
Baptiste Say's picture

6-9 months on from October was roughly the beginning of QE2 iirc. If you don't think that was a catastophe then you really haven't read too many articles/opinions on this site let alone anything from decent economic theorists.

Tue, 05/17/2011 - 21:31 | 1285606 Fiat2Zero
Fiat2Zero's picture

It takes 18-24 months for stimulus to return as inflation. So we are just starting to feel the effects of QE lite (right around the time that WalMart's CEO said "inflation from everywhere is coming").

The captain has turned on the fasten seat belt light as we are coming into some turbulence...

Tue, 05/17/2011 - 18:10 | 1284935 Mark Noonan
Mark Noonan's picture

What are the chances that Bernanke believes his own press releases and thinks the economy is in recovery?  If he does that, we slide down in to recession/depression.  On the other hand, if Bernanke is not only full of it, but knows he's full of it, then he does on another version of QE...and then what happens?  Sure, bubble gets bigger...but bubble has to pop, eventually, right?

Tue, 05/17/2011 - 18:26 | 1284983 johnnynaps
johnnynaps's picture

That's what bubbles do, they pop!

Tue, 05/17/2011 - 18:28 | 1284999 Tyler Durden
Tyler Durden's picture

Alas, that is the last bubble: the entire fabric of modern economics and finance. Yes it will pop, but not before the cornered status quo fights to the death (literally) to defend it.

Tue, 05/17/2011 - 18:33 | 1285012 Votewithabullet
Votewithabullet's picture

Bachman turner over drive " bbbbaby you just aint seen nothin yet"

Tue, 05/17/2011 - 18:41 | 1285036 BobPaulson
BobPaulson's picture

The "literally" part only comes after the riots or war, both quite possible but not certain. They may direct the war effort against the Eurasians or the Eastasians and then the status quo bankers can get other people to die for them (cf. WWI, WWII).

Tue, 05/17/2011 - 18:42 | 1285038 kengland
kengland's picture

"not before the cornered status quo fights to the death (literally) to defend it."

So eloquent. Beautiful words

Tue, 05/17/2011 - 18:45 | 1285048 Muir
Muir's picture

"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..."

 

____

NO, NO and NO!


You are wrong. You are brilliant. You provide the best reporting, bar none.

But you are wrong.


Things can get out of control. Very fast. 

And just what is the FED fighting anyways if not deflation? 

And what of all the money destroyed in 08, or the bankrupt municipalities, bankrupt pensions.


 


Tue, 05/17/2011 - 18:45 | 1285060 Tyler Durden
Tyler Durden's picture

"No" in the sense that the Princetonian will admit he was wrong, resign and hand over the keys to a monetary hawk who has all the blessings of the Wall Street cartel?

Good luck.

Tue, 05/17/2011 - 19:00 | 1285102 Muir
Muir's picture

"No" as in the sense that things spiral out of control quickly.

"No" as in the sense that what is the FED fighting if not deflation?

The bankrupt municipalities, pension funds, these things are real and present.

And, finally, "No" as in maybe, just maybe, the word has gotten out, (thanks to you and other good people like you) and resistance is met.

__

I object to your insistence of this as an inevitability, a probability, yes.


Tue, 05/17/2011 - 20:31 | 1285357 francis_sawyer
francis_sawyer's picture

Pencil me in on the 'inevitability' side of things...

They're already winning the propaganda battle because they've got people wringing their hands WONDERING if there will be a QE3 or not...

All it means to them is a window to short paper contracts for awhile, and maybe scare grannys tea set out of the hope chest in the process...

Wed, 05/18/2011 - 09:25 | 1286658 snowball777
snowball777's picture

No creedence at all to the inflationary aspects of their actions coming back to bite them in the ass and at least force a detente to let the souffle settle a bit and dribble some of their stinky "maiden" assets into the ensuing effluence?

 

Wed, 05/18/2011 - 10:27 | 1286899 BobPaulson
BobPaulson's picture

Granny's Tea Set. Good metaphor. 

All in. No spectators will be tolerated in the final winner-takes-all bonus round.

Tue, 05/17/2011 - 21:35 | 1285630 Fiat2Zero
Fiat2Zero's picture

So you are saying that deflation is a possibility, not a probability.

Just like default is a possibility technically for the US but probably won't happen.

I guess if Ben Shalom loses his paperweight he uses to keep the button on the printing press depressed, and doesn't check the progress in the Boiler Room, then yes, we may accidentally hit deflation.

I've just never totally understood the deflation argument. Aren't we flowing in bucks? Do you really think that people will run out of greenbacks and not be able to buy their big macs? I guess if unemployment spirals out of control. What we have now is price deflation, not monetary deflation (assets are spiraling down in price, but people still have money to buy the big macs).

It's possible deflation could happen, but since Ben is at the helm, isn't the possibility minute?

Asking for a real argument from someone who seems to have thought a bit about deflation...

Tue, 05/17/2011 - 21:49 | 1285683 Muir
Muir's picture

"Asking for a real argument from someone who seems to have thought a bit about deflation..."

1. In a fiat economy credit is money. A lot of credit was destroyed in 08.

(mortgages, credit cards are by far not as easy to obtain. but remember this debt was then sold to other parties, all this is gone poof)

2. What is the FED fighting anyways, if not deflation? 

(They poured trillions and still they have headwinds?)

3. Municipalities, pension systems are bankrupt. Yes, Tyler is correct, you would need QE(n +10) to "solve" these.

(Are you sure that there is a political climate for this? Haven't a lot of people been more educated since 08 on the "printing press?"

4. This is not 08 when the upper 1/10th% got caught with their pants down.

(would they now be hurt?)

__

I can probably make it to 10 reasons, but I'll give it a rest here


 

 


Tue, 05/17/2011 - 22:33 | 1285789 Bay of Pigs
Bay of Pigs's picture

Fair points Muir. But they can, and will, pour trillions more. And then trillions more after that, if need be.

Political climate? You're joking right?

 

Wed, 05/18/2011 - 10:36 | 1286943 BobPaulson
BobPaulson's picture

The headwinds are because the QE money gets short circuited along the path of least resistance and doesn't trickle down one nanometre. So if the narrative is about preventing deflation, in practise it's just about buying bad debt and transferring it to the taxpayer. So, QE will continue until the full assumption of the gambling debts has been undertaken by the middle class. Then comes the punishing collapse of sovereign debt - perhaps to be "bailed out" by your friendly neighbourhood squid...if the terms are agreeable to the pigmen at The Jeckyll Island Reunion.

Wed, 05/18/2011 - 09:37 | 1286687 snowball777
snowball777's picture

"Do you really think that people will run out of greenbacks and not be able to buy their big macs?"

Food-stamp tally nears 40 million, sets record

"I guess if unemployment spirals out of control."

Check...for anyone who doesn't already have a college degree.

"What we have now is price deflation,..."

Filled up recently?

The reckless listing about the Ben seems to call monetary policy has/will result in inflationary effects that are already squeezing margins past the breaking point, there's no chaff left to separate from the payroll at this point, and the people squatting in their foreclosed homes will need to pay rent at some point so....outlook not so hot.

Stagflation ho!

Tue, 05/17/2011 - 20:44 | 1285396 ElvisDog
ElvisDog's picture

I think one thing we can be sure of based on everything that has happened to date is that  Bernanke, Krugman, and all the other Keynesists will never admit they were or are wrong.

Tue, 05/17/2011 - 23:31 | 1285950 Ivar Kreuger
Ivar Kreuger's picture

Bernanke is a Monetarist much more than he is a Keynesianist.

The distinction is important.

Many here don't seem to understand the difference.

But for the Hayekians I guess the distinction doesn't matter.

To me it does.

 

Wed, 05/18/2011 - 09:24 | 1286648 snowball777
snowball777's picture

Well-said, some do still distinguish more than the polarities of laissez-faire carte blanche and centrally-planned communist dictat.

What do you think old Keynes would say about Ben's response? What, if anything, would he have advocated as an alternative to the present course?

I have my suspicions that Keynes would have been more intelligent about targeting actual aggregate demand rather than pissing away billions on attempted "wealth effect" inducement and bailing out the profligate weasels on Wall St.

 

Tue, 05/17/2011 - 18:55 | 1285089 Life of Illusion
Life of Illusion's picture

 

Koo’s contribution via talks in Washington is exactly what transpired.

http://online.barrons.com/article/SB126228908317212353.html#articleTabs_panel_article%3D1

1-04-2010

Barron's: You're visiting Washington a lot these days.
Koo: I'm explaining to the Americans that the disease you've got, is the disease we got 15 years earlier. Most Americans are flabbergasted by the fact that the Federal Reserve has lowered interest rates to zero, flooded the market with liquidity -- and the economy is still going absolutely nowhere. Unemployment is still increasing, people are still retrenching, deleveraging. When the central bank brings rates down to zero, a lot of things are supposed to happen, but there's nothing happening. But that's what we experienced in Japan. The Bank of Japan brought the rates down to zero, did massive quantitative easing, with no result whatsoever. This happens because of a balance-sheet recession.

What do we need to see?
A three- to five-year program, minimum, where President Obama comes out and tells the American people: "Look, we have a different type of disease now." That kind of explanation is essential to get Democrats and Republicans to understand why you need fiscal stimulus. I can assure you if [the government doesn't spend much more], your budget deficit will continue to increase. During the past 15 years, we in Japan tried to cut the budget deficit twice. On both occasions, the economy collapsed, and tax revenue dropped. The U.S. will experience that, too. If you say it's political suicide [to spend], not doing it will be an even bigger suicide.

 

 

Tue, 05/17/2011 - 21:24 | 1285566 JR
JR's picture

…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. -- Tyler

I agree, Muir. That isn’t the choice.  The choice is between creating another bubble and increasing the bubble and setting the stage for bubbles 4 and 5 and 6 after this. That’s one choice.

The other choice is to begin to let the market determine the value of money.  IOW, let the interest rates rise, let the stock market fall, and begin to recover the moral cycle.

The point is, Tyler is describing printing on one hand to retain the status quo (although I argue it is driving us deeper into recession), but then he takes editorial license with the other choice, saying it means that without more QE injections the economy will be in flames.  That is an excessive description, which may or may not happen.  It’s like a push poll where the pollster calls you on the phone and asks: “Would you like to vote for Romney or for that looney, Ron Paul?   He prejudices the choice.  IOW, if you don’t do more QE it’s a flameout. 

As to the three years of deleterious effects the Fed’s failed policy of zero interest rates and quantitative easing have had on the economy, Prophet Without Profit writes this week: “Perhaps the Federal Reserve’s continuous support for the economy through its easy money policy is the cause, not a consequence, of the economy’s weakness.  The Fed has created a dangerous co-dependency.  Analogizing the Federal Reserve’s pathological support of the economy to patients on a ventilator, Brian Pretti found:

…the fact is that the longer a patient remained on a ventilator, the greater the chances they would not be able to be weaned off of the machine.  The body “learns” not to breathe on its own after a period of time.  Essentially a patient would pass a critical window of recovery weaning period opportunity.

“Pretti uses the example of the Japanese economy:

…this analogy is incredibly apt in terms of describing the reality of the sovereign debt fiscal trap.  The longer Japan has been on the artificial zero interest rate “breathing machine” over the last decade plus, the harder it has become to wean itself off.  Although I could spend an entire discussion on Japan alone, I personally believe Japan has already passed the critical “weaning period” demarcation line for zero bound interest rate/monetary policy.  We’re Just Gonna Inflate Our Way Out of It?…Oh Really?

“Current Federal Reserve policy is mirroring the actions of the Japanese central bank.”

Tue, 05/17/2011 - 22:03 | 1285722 contagiousNY
contagiousNY's picture

This describes inertia, as viciously strong as gravity. Only mass velocity movement can break it.

Wed, 05/18/2011 - 00:31 | 1286048 JR
JR's picture

The march to socialism for the bankers and the non-producers  is headed for the wall of debt.  Those two things are coming together for a collision.

Tue, 05/17/2011 - 22:29 | 1285797 mayhem_korner
mayhem_korner's picture

The FED is not fighting anything.  It is perpetuating a fraud - an insolvent economy that is kept breathing only by the illusion of full faith & credit.

As to the deflation-inflation thing, you've got to get this straight.  When the currency collapses, there is massive INFLATION of staple items.  Money velocity explodes (it's dormant now) as sheeple rush to convert burning FRNs for things they need but don't have stored (food, water, toiletries, fuel, cigarettes, etc.)

BUT...durable goods get crushed because money is chasing the staples.  So you are correct that you have DEFLATION of major assets.  But it is subordinate in sequence to the inflation of sustaining stuff.  Once the dust clears, all those deflated assets will be at below fire-sale prices, BUT ONLY FOR THOSE WHO HAD SUFFICIENT CURRENCY TO WADE THROUGH THE INFLATION.  (Water, water everywhere but not a drop to drink...)

Look what's happening now - inflation of commodities flowing through to staple goods while housing, autos, etc. are deflating.  Just move a few pegs down the asymptotic curve and you'll hit paydirt...

And last...unless you've converted your fiat-denominated holdings into hard assets/wealth stores, more money has been destroyed SINCE '08 than during '08. 

Wed, 05/18/2011 - 00:47 | 1286071 JR
JR's picture

Powerful argument, mayhem.  Thanks.

Wed, 05/18/2011 - 10:47 | 1287008 BobPaulson
BobPaulson's picture

"Rime of the Ancient Banker" has a good ring. I can see Bernanke firing that fateful crossbow.

Wed, 05/18/2011 - 17:09 | 1288857 Carl
Carl's picture

mayhem, there are about $960 Billion FRN's in circulation, all the rest is credit, to include all of the easing done by the Fed.  Credit is a promise to pay FRNs and that promise is only as good as the institutions that made those promises ability to survive a collapse of the currency, which is nothing more than a collapse in the perception of value.  There won't be any "burning FRNs" and there won't be any inflation to speak of, simply because there won't be any commerce.  And that's because the whole westernized system runs on digits, which are promises to pay and those promises will be the first casulty in a currency collapse.  Digits Go "POOF!".

Tue, 05/17/2011 - 18:51 | 1285062 JW n FL
JW n FL's picture

it is sad to watch.. to be serious for a second.. no drama, no shrill for the shock and awe of it all..

 

we are watching the un-winding of the best system ever devised by man kind.. becuase of GREED! how could we let the masses be led so astray.. how could we ignore the effects of allowing ignorance to prosper un-hindered?

 

we all will suffer becuase of what we allowed to happen.

 

people wanted austerity.. well they are about to get it.. people wanted others to pull themselves up by their boot straps.. well let’s see how those same feel when they themselves are the ones pulling themselves up by thier boot straps.

 

when the stock market is 6,000.. now 4,000? because of the printing? no one will be the better for it. The ego of man trying to inflict upon another man a way of life.. when the 1st man's cup runeth over? really? well now suffer what you have wished upon others, that is your punishment.

 

anyone that chooses to ignore these words or allows themselves the luxury of denial will be the most effected by thier own actions.. seeing another suffer when you had well beyond what you needed, to only in the end cause yourself strife! Your children will suffer what you forced upon others. This fact you can no longer escape, the world is a different place.. the damage is done.

 

So CONGRATS!!! your childrens quality of life now suffers because of your spoiled egotistical tantrums. May your votes and financial support weigh heavily upon you and yours.

 


The Republican, wanna be conservative dream is here!

 

There will be no help.. for anyone.. for anything.. at any time.. in the foreseeable future. And this damn sure includes you and yours.. so you had better have enough to go around to take care of you and yours!

 

when your cup runeth over, the best you could do was support the demeaning of others? for any reason? it was the best you could do? cause harm, cause less to be available to others? You are a God Send! which God Sent You, I will let someone else help you figure out.

 

 

Tue, 05/17/2011 - 21:19 | 1285546 wirtschaftswunder
wirtschaftswunder's picture

Your answer is "Vote for Obama".  

Weak.

Tue, 05/17/2011 - 21:31 | 1285615 LooseLee
LooseLee's picture

This has all been foretold by the great religious teachers (not the organized 'religions' which are part of the problem.) Boobus-Americanus and his brothers across the world has allowed this to happen. Funny thing; he/she is not aware of his/her ignorance and those who pull the levers are also unaware. Problem is that those who are 'aware' are so outnumbered by 'ignorance' and 'indifference' that it is my contention that nothing much can be done to repair this. Best advise is to be as 'prepared' as you can possibly be and be ready for the 'unthinkable'......... Moreover, TPTB can drag this out much longer than would seem possible; so teach your children the 'facts' of life. Most will not want to hear it, but that is all you really can do. Be a witness to 'what is' and negate that 'which is not' is all the prudent being can do...

Tue, 05/17/2011 - 21:37 | 1285623 Seer
Seer's picture

If it was such a great system then why is it failing?

The amount of denial (and ignorance) is just astonishing.  The System is failing because it's based on growth and growth is stalling out because the System cannot extract a great enough amount of resources to stoke the growth machine.  It was inevitable that this wall was going to be hit.  Had nothing to do with a good/poor/god-sanction/<fill in your own adjective> System, not as long as that System was based on growth.

NOTE: The same basic problems are being encountered EVERYWHERE, in which case this isn't the result of some isolated bumbling govt or system.  Yeah, US policy impacts others, but they are still free to take different approaches.

Tue, 05/17/2011 - 21:42 | 1285647 Fiat2Zero
Fiat2Zero's picture

I agree that the central problem is the idea of growth described as a percentage of the current size (which is exponential).

Now that everyone has bought into it, in places where people are smart and work hard (like China and India), we'll have to find several more small, earth-like planets full of resources.

Sure we might get some breaks from Hedonics (also Ebonics, and other, all around brilliant "onics" type things).

But the problem is our growth was all based on cheap energy.

Tue, 05/17/2011 - 22:15 | 1285763 Seer
Seer's picture

"But the problem is our growth was all based on cheap energy."

Because it was based on extremely dense and highly available energy...

All civilizations pretty much hit the wall when their measure of themselves failed due to the physical limits of the world.  Today's contestants achieved a much greater velocity, and as such will fail much quicker than those of the past.  I think that oil is MUCH harder to kick than heroin...

Wed, 05/18/2011 - 10:46 | 1287019 BobPaulson
BobPaulson's picture

And the cold turkey is nasty. People wouldn't laugh a Cuba so much if they knew it was their future.

Tue, 05/17/2011 - 22:33 | 1285813 mayhem_korner
mayhem_korner's picture

The great system has long since been abandoned, replaced incrementally by an imposter system of power-grabs veiled as a progression of the American idea.

Selah

Wed, 05/18/2011 - 02:57 | 1286244 John_Coltrane
John_Coltrane's picture

So we'll go back to the system we had before the "great society" support system of the 1960's ,eh?  How will we survive (or how did we then)?  No health insurance, but doctors made house calls for a modest fee-one could simply save for any medical costs.  No student grants for college but one could easily put oneself through school with a part time job since without subsidies educational costs were modest.  Can anyone really believe we have a better economy than we did in the 1950s when government was a fraction of its size and there was no Dept. of Education or Energy?   

Tue, 05/17/2011 - 18:55 | 1285092 scatterbrains
scatterbrains's picture

yes but the bernank has to test the  markets collapse potential before begining the next qe, on and on dosn't he ? We don't know that the market will crash until it starts looking like it will. The question is what level of decline launches the next market saving qe no ?

 

Tue, 05/17/2011 - 19:00 | 1285110 Sock Puppet
Sock Puppet's picture

The Fed is damned if the do and damned if thet don't.

Cut the Bernak some slack.

I like the sound of that.

Tue, 05/17/2011 - 19:25 | 1285191 Fed Supporter
Fed Supporter's picture

Finally, someone with some common sense and reasoning abilities.

There is no conspiracy, just Ben trying to serve his country to the best of his abilities. 

May God Bless him.

Tue, 05/17/2011 - 19:37 | 1285237 Rynak
Rynak's picture

Yay! I'm helping! I'm helping! BOOOOOOOM!!!!

Tue, 05/17/2011 - 20:54 | 1285442 WonderDawg
WonderDawg's picture

What a crock of shit. Bernanke is obeying the orders of his masters, and commiting treason as a result. He doesn't make the decisions, just carries out his orders. He's a coward and a traitor to this country.

That's how I feel about it. Throw the bastard in jail, along with the rest of the top level banksters. They are all greedy and corrupt, and they are ruining the country. Period.

Tue, 05/17/2011 - 21:55 | 1285704 Seer
Seer's picture

No, Bernank IS doing exactly what has always occurred.  What is different this time is that there's no next bubble.  Devaluation of the USD has been going on for a LONG time.  Do people really believe that this trend was going to stop and revert?  NOTE: the USD was clearly marked for doom when it got disconnected from gold (this was a given, happens to all nations that end up consuming more than they produce [with oil being the linchpin]).

Tue, 05/17/2011 - 22:07 | 1285735 contagiousNY
contagiousNY's picture

Bingo. Who will be the brave fool to stand in front of the train? Not our Ben for sure.

Wed, 05/18/2011 - 02:58 | 1286253 John_Coltrane
John_Coltrane's picture

Great somment Seer.  The $ fall started in 1913 with the creation of the FED and a national income tax to support the interest on the resulting debt.  Inflation is programmed into the system (simply debasement of the $).  Removing gold convertibility by Nixon in the 1970s simply accelerated the demise.

Wed, 05/18/2011 - 10:52 | 1287034 BobPaulson
BobPaulson's picture

Careful, Trolls are like Gremlins.

Wed, 05/18/2011 - 04:36 | 1286305 Al Gorerhythm
Al Gorerhythm's picture

You will gladly be Ben's chamber maid too, I suppose. His motel will certainly not be 5***** star. I'm guessing that the security measures at his compound, won't be there to keep people out.!

Tue, 05/17/2011 - 19:56 | 1285289 zen0
zen0's picture

Just enough slack so when the noose slams shut, it breaks his fukin neck. Just like that Saddam feller.

Tue, 05/17/2011 - 22:34 | 1285817 Seer
Seer's picture

And you and most everyone else will keep playing the SAME fucking game that always creates such creatures and such outcomes.

Just like killing Saddam did squat, so too would off'ing Bernank.  Zombies don't really die.  Sigh, when people are programmed for propaganda it's hard for them to operate with any real meaning/effectiveness.

Tue, 05/17/2011 - 21:42 | 1285661 Fiat2Zero
Fiat2Zero's picture

Agree to an extent. Jeetner, Bernank, Obummer, they just inherited the no-win scenario. They are the going to be the fall guys.

The real problem is we all bought into exponential growth and the "something for nothing" philosophy.

"It should be reasonable to get 11% growth from safe, no nonsense, diversified equities, and become a millionaire, automatically - why everyone can do it!"

"I want a bullet train and a fancy bridge and good schools. I do not want to pay for it. Totally reasonable."

The politicians were only too happy to set up the self-actualizing ponzi for us.

There's plenty of blame to go around folks.

Tue, 05/17/2011 - 22:35 | 1285801 Sock Puppet
Sock Puppet's picture

Exactly, just playing the hand they were dealt.  Anyone with a business plan from the 1971 hockey stick forward until 2005 looks like a genuis.  It was all monetary inflation and the Tards think they were so smart.  Like it took an ivy league degree to figure that one out.

I will give you a current example.  Charter schools think they have the most excellent teaching program the the most talented teachers.  When in fact the idea of a charter shcool attracts all the bright students and draws them out of the regular public schools.  Then the school admin and teacher sit around and congradulate themselves as to how smart they are.  

 

Problems solved, go fix them now.

Wed, 05/18/2011 - 04:40 | 1286306 Al Gorerhythm
Al Gorerhythm's picture

Bull shit. They're big boys and went in, eyes wide fucking open. The Bernank knows the score as do the rest of the pigs at the trough of wealth. He turned his back on gold and sold his soul to the the easy money regime. 20 bits of silver. Treason is their crime. Treason aginst the constitution and treachery was their crime, perpetrated against those who fought and died to establish this republic.

Here come the judge.

Tue, 05/17/2011 - 21:43 | 1285663 Fiat2Zero
Fiat2Zero's picture

Ben, is that you?

Tue, 05/17/2011 - 23:11 | 1285908 mayhem_korner
mayhem_korner's picture

We don't know that the market will crash until it starts looking like it will.

Umm...what kinda stuff ya lookin' for? 

Tue, 05/17/2011 - 19:01 | 1285105 Caviar Emptor
Caviar Emptor's picture

Yes it will pop, but not before the cornered status quo fights to the death (literally) to defend it.

 

I contend that rather than a 'virtuous cycle' a new vicious cycle has recently gotten underway. I call it the Biflationary spiral: the more we have QE, the more we get biflation and hence we will get our economic depression even if the stock market triples. This is a difficult concept to accept because it's new and never been encountered before. It's an unexpected byproduct of the QE ripple effects: the real economy can tank while Wall Street sails to new highs. Ya heard it here first

Tue, 05/17/2011 - 19:05 | 1285116 Tyler Durden
Tyler Durden's picture

Actually we heard it first in Weimar Germany in 1921.

Tue, 05/17/2011 - 19:25 | 1285188 Caviar Emptor
Caviar Emptor's picture

Except that Weimar's economy was less "globalized" then ours. I think it reverberates that we have so many dollars in so many hands

Tue, 05/17/2011 - 20:27 | 1285247 Quixotic_Not
Quixotic_Not's picture

It's actually not "so many dollars", it's dollar-denominated debt.

Minus reserve currency status, liquidity collapses and so does the ability to meet debt obligations.

Please do try to keep up...

Tue, 05/17/2011 - 20:55 | 1285413 PhattyBuoy
PhattyBuoy's picture

... which explains dsk's timely neuter.

Tue, 05/17/2011 - 19:57 | 1285280 cdskiller
cdskiller's picture

Exactly! They have already fought to the death and won. The death of millions is now guaranteed. Death has already been priced in and hedged. End game began in '07.

The idea that the real economy will be able to keep up with the stock and commodities bubbles is delusional and insulting. The Bernank won't admit he was wrong any more than Krugman will or Geithner did. He will simply blame the devastation on someone else until he can write a book and say that he misunderstood the depth of human depravity, or the powerlessness of hope.

Tue, 05/17/2011 - 21:24 | 1285567 wirtschaftswunder
wirtschaftswunder's picture

Yes, you are in fact a worthless amoeba life form with no brain, consciousness, no gender. 

 

So why not......... BEAT IT!!!... Jess Beat it!!!

Tue, 05/17/2011 - 21:50 | 1285685 Fiat2Zero
Fiat2Zero's picture

A little extreme.

I heard a talk about hyperinflation. One point: hyperinflations end. They have to end, as do all exponential phenomena. Be glad hyperinflation is exponential, because it means it will be over relatively quickly (a few years at most).

It's not going to be a fucking zombie attack (with those fast moving aggressive zombies that spew toxic blood onto you). But it might suck at first figuring out how not to starve (understatement intended).

System [RESET] in 10...9...8...7...

Tue, 05/17/2011 - 21:24 | 1285586 Mactheknife
Mactheknife's picture

This is where Koo misses the boat. Japan didn't have the world's reserve currency, we do. Unfortunately, there are 7 trillion dollars sitting around the world used to conduct business. At some point the world is going to want to get rid of those dollars and we will be flooded with them. Oil might cost 500 a barrel or much more if we can even find someone that will take dollars for it. Weimar here we come.

Tue, 05/17/2011 - 21:50 | 1285676 Fiat2Zero
Fiat2Zero's picture

The dollars will "come home to roost."

Wed, 05/18/2011 - 04:46 | 1286307 ViewfromUnderth...
ViewfromUndertheBridge's picture

as they do the balance of payments month by month will look healthy...so, at first, many will be deceived and the cheer squad will be going wild.

Tue, 05/17/2011 - 21:45 | 1285669 Fiat2Zero
Fiat2Zero's picture

Enough with the biflation already. It's just called hyperinflation. Yes, you could buy a city block in Germany with a few ounces of gold. The gold was worth a lot, but the city block wasn't. Hyperinflation.

Tue, 05/17/2011 - 19:09 | 1285129 kito
kito's picture

off with the head of the junker!!!

Tue, 05/17/2011 - 21:02 | 1285469 Cynthia
Cynthia's picture

And when Helicopter Ben's QE bubble-making machine runs out of steam, look to see The Wall Street Gambling House go up in Smoke -- on the Water, of course:

http://www.youtube.com/watch?v=arpZ3fCwDEw&feature=related

 

 

 

 

 

 

 

Tue, 05/17/2011 - 22:56 | 1285873 topcallingtroll
topcallingtroll's picture

It will pop eh?  I will remember that.

Tue, 05/17/2011 - 18:15 | 1284944 Dr. Acula
Dr. Acula's picture

"United States Nears Hyperinflationary Great Depression

High Risk of Ultimate Dollar Disaster Beginning to Unfold in Months Ahead
2014 Remains the Outside Timing for Same"

http://www.shadowstats.com/article/hyperinflation-special-report-2011

 

Tue, 05/17/2011 - 19:49 | 1285254 Quixotic_Not
Quixotic_Not's picture

The only thing hyperinflating is debt and equities...

Tue, 05/17/2011 - 18:14 | 1284949 Robslob
Robslob's picture

Got Gold 

Tue, 05/17/2011 - 21:26 | 1285584 wirtschaftswunder
wirtschaftswunder's picture

Ahh, No.

Tue, 05/17/2011 - 18:41 | 1285043 pazmaker
pazmaker's picture

So while other countries are aquiring more Gold, Ron Paul thinks selling some of ours is a good idea to pay the bills?

Tue, 05/17/2011 - 18:50 | 1285066 NOTW777
NOTW777's picture

maybe he is relying on ben's promise to get rid of inflation - just like that.  i don't think anyone can accurately predict the impact of ben's war on the economy

Tue, 05/17/2011 - 19:24 | 1285194 Caviar Emptor
Caviar Emptor's picture

Once we start selling gold it's over. That's what happened to Great Britain at end of empire. You know what happened since

Tue, 05/17/2011 - 19:35 | 1285231 silverisgold
silverisgold's picture

I don't think any of those, including Ron Paul calling for the sale of gold actually want that. What they really want is an audit of the gold, which would be necessary before any sale.

Tue, 05/17/2011 - 19:44 | 1285244 Poor Grogman
Poor Grogman's picture

All gold must be eventually removed from central banks back into the hands of the people.

They either sell it to the people now, Or people will just take it when shtf.

Remember the golden rule, "Who has the gold makes the rules".

Eventually the sheeple will wake up and forcibly take back what they already rightfully own.

Get yours now while it can still be purchased with electronic ones and zeros.

(c'mon people) learn to love the ponzi....

Tue, 05/17/2011 - 21:40 | 1285603 Idiot Savant
Idiot Savant's picture

Eventually the sheeple will wake up and forcibly take back what they already rightfully own.

 

At what point will the masses wake up and forcibly take back that which they rightfully own? With the passing of The Patriot Act? When the TSA conducts imaging and invasive physical searches? When we're held hostage on airplanes without adequate supplies? And if we forcible leave said airplane, we're prosecuted with federal crimes of the highest order. When the high court rules it's legal for law enforcement to search your house without a warrant?

http://www.newsmax.com/US/Indiana-FourthAmendment-search-warrant/2011/05/16/id/396570

When a Sheriff endorses house-to-house, warrant less searches, adding "he felt people will welcome random searches if it means capturing a criminal".

http://www.mikechurch.com/Today-s-Lead-Story/in-sheriff-if-we-need-to-conduct-random-house-to-house-searches-we-will.html

My prediction is that we'll just complain and whine on chat boards like this, while the government continues to encroach on our personal freedoms. We've shown that we won't revolt as long as we have full stomachs/internet/alcohol/tobacco/air condition/pharmaceuticals/illicit drugs/porn/netflix/playstation/dancing with the stars, etc., ad nauseum.

I believe we need a grass roots effort (think door-to-door) to speak with, and educate, our neighbors on the loss of our freedoms. Said organization must not be affiliated with, or endorse, any political party, religion, or moral persuasion.

I'll leave the bright ideas to the intellectuals in the forum. Something must be done though, and we need to get started before it's too late. 

Tue, 05/17/2011 - 22:00 | 1285713 Poor Grogman
Poor Grogman's picture

The Internet is waking people up

Monetary Inflation will cause the hunger (as it always does)

The system is already dead, and the life support system that has been keeping it going is under great strain.

At this point its anyone's guess what happens next.

I do think that The federal reserve building could make a good monetary museum / education center for the next generation to learn about the "Great Ponzi Scheme" and the suffering that it caused to so many.

 

Tue, 05/17/2011 - 22:10 | 1285749 contagiousNY
contagiousNY's picture

Keep typing!! Enjoy what freedoms still exist.

Tue, 05/17/2011 - 22:19 | 1285766 nyquil762
nyquil762's picture

Great post!

Wed, 05/18/2011 - 00:18 | 1286028 efiniti
efiniti's picture

Yes, but sell it back to the American people.  

Wed, 05/18/2011 - 06:49 | 1286380 Poor Grogman
Poor Grogman's picture

Why not just divide it up and give every citizen their fair share?

Just coin it, count it, and deliver it.

It would stimulate the economy, distribute the wealth, and get rid of the useless relic  once and for all.

C'mon Uncle Sugar show some REAL leadership.

Tue, 05/17/2011 - 19:04 | 1285114 JW n FL
JW n FL's picture

“Selling off the gold is just one level of crazy away from selling Mount Rushmore.”

 

Tue, 05/17/2011 - 18:17 | 1284963 YHC-FTSE
YHC-FTSE's picture

...And what would you like? Constipation or Dysentery?

Tue, 05/17/2011 - 18:38 | 1285020 NotApplicable
NotApplicable's picture

Both please!

Tue, 05/17/2011 - 18:47 | 1285057 AbandonShip
AbandonShip's picture

horrible yet terribly accurate analogy

Fri, 08/12/2011 - 03:35 | 1553509 mediahuset
mediahuset's picture

airstream trailers

Interesting post. I have been wondering about this issue,so thanks for posting.

Tue, 05/17/2011 - 19:49 | 1285266 blunderdog
blunderdog's picture

This reminds of something from my youth...

I was briefly a Boy Scout.  (Sorry, I was young.)  Anyway, I remember being on a campout for a few days in the woods in NW Mass., and one of the packmembers had collected a bunch of local medicinal herbs.  He had some nuts which caused pretty serious constipation, and some berries which caused diarrhea.  He had gotten the bright idea that if he ate both in similar quantities, he'd stay "well balanced."

He ended up with the most severe intestinal cramps and diarrhea I've ever seen in my life, and had to be hauled out of the woods on a pallet and delivered to the hospital.

It seems funny, now.  'Course, I was young.  It seemed funny then, too.

Wed, 05/18/2011 - 01:54 | 1286167 OldPhart
OldPhart's picture

I am a Scouter.  We have campouts were cooking contests are held.  The most creative attempts are when challenged to cook up "Diarrhea Delight"...an undescribed dish that is left to the boys' imagination.

 

It is a great introduction to the concepts of sanitation, moderation and necessary planning and preparation for any extended stay in the woods.

 

(BTW, I'm not the most politically correct Scouter.)

Tue, 05/17/2011 - 18:18 | 1284968 GeneMarchbanks
GeneMarchbanks's picture

Dow 20,000!! Coming 2012. What a year of prosperity it'll be. Gulag Casino, Max Keiser said it.

Tue, 05/17/2011 - 19:30 | 1285192 scatterbrains
scatterbrains's picture

The Bernank sat through a flash crash and wild  stock gyrations before launching QE2.  Equities fell apprx. 15% before he press the red button.

How much will he let the market fall this time ?  I suspect we fall more then 15% this time mostly because he will want to crush every last pm bull out there..

Tue, 05/17/2011 - 19:46 | 1285249 chet
chet's picture

Yep.  He won't have to justify QE3.  People will be begging HIM for QE3.

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