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Shadow Bank Liabilities Plunge By $700 Billion In Q2, $2.1 Trillion Year To Date

Tyler Durden's picture


Continuing the analysis of today's Z.1 report, we next focus on recent developments in the shadow banking system. And it's a bloodbath: total shadow bank liabilities dropped by $680 billion in Q2, and a massive $2.1 trillion YTD. If one wonders why Ben Bernanke (yes, it's technically TurboTim) continues to print trillions and trillions of debt, and it is still doing nothing (yet) to stimulate the system, here is your answer.

As credit will only exist if i) it is needed and ii) there are cash paying assets (or at least the myth thereof) to support its existence, the latest plunge in the shadow banking system is merely the most recent confirmation that the deleveraging in America is only just beginning. In fact, from the peak of the credit bubble in Q2 2008, through Q2, total bank liabilities (shadow and traditional) have plunged by $2.6 trillion, from $32.1 trillion to $29.5 trillion. Yet it is the collapse in shadow banking that was responsible, with shadow liabilities falling by a stunning 20% from $21 trillion to $17 trillion in just over two years even as banks have benefitted from the transfer of cheap government cheap on their traditional lending books (think Fed intervention and QE, leading to record low interest rates).

What this means is very clear: the shadow banking system is collapsing, period. Yes, the rate of collapse is slower than in Q1, but the total plunge was still a whopping $4.2 trillion annualized for 2010. And the delta between Shadow Banking and Traditional liabilities has collapsed from $10.7 trillion at the peak in March 2008, down to under $4 trillion. This is a record amount of "money" being removed from the system, and explains why, for now at least, the velocity of money is nothing faster than a crawl.

That said, if and when this indicator plateaus and recommences climbing, will be a very "sensitive" moment for all deflationists and inflationists as it will mark the inflection point from credit contraction to renewed credit creation. Alternatively, the Fed can merely force credit into traditional bank liabilities, which banks can then proceed to use and purchase stocks and commodities, at a zero cost of debt. What that will do to select asset prices, we leave to our readers' imagination.

Chart 1: Total sub-components of the shadow banking system

Chart 2: Comparison of shadow banking and traditional commercial bank liabilities

Chart 3: Consolidated shadow and commercial bank liabilities and sequential change


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Fri, 09/17/2010 - 20:16 | 588868 MiningJunkie
MiningJunkie's picture

Superb observation. Thanks.

The "Long Gold Short ES" trade is flat now. Thank God I am triple-long Gold.

"Never underestimate the replacement power of equities within an inflationary spiral."

"Ain't no fever like gold fever".



Fri, 09/17/2010 - 21:04 | 588949 GoldSilverDoc
GoldSilverDoc's picture

Holy mother of Gold. 

Find all you can.  As soon as you can.  Not much time left.

Sat, 09/18/2010 - 05:10 | 589348 Oh regional Indian
Oh regional Indian's picture

Holy mommy of Silver is where it is at GSD. Gold, long hold will get old. Quickly.

On a related/unrelated note, any whiners looking to become warriors? 

American readers, may I suggest you visit

You might "make" or better yet, "make back" more money than you can imagine.

I wish I knew this when I was a US rezzi-dent!





Sat, 09/18/2010 - 07:58 | 589390 THE 4th Quadrant
THE 4th Quadrant's picture

20 years in a federal cage. Nice advice, Indian.

Sat, 09/18/2010 - 09:02 | 589419 Oh regional Indian
Oh regional Indian's picture

Takes Cajones to play 4th.

Easy to be a compliant complainer rather than an active resistor.

The darkness is closing in and you might be amongst the ones who will be soothsaid to sleep.

It takes courage to be awake in a world full of those walking with eyes wide shut.

No pain no gain? ;-)


Sat, 09/18/2010 - 09:29 | 589426 THE 4th Quadrant
THE 4th Quadrant's picture

The actions of your superhero will be ruled upon by a Federal Judge. Get it?

Incarceration will prevent his final blog posting. Which should be title: "Stupid is as stupid does".

You seem intelligent to me but you may want to work on your poor judgment. There are better ways. That poor misled man may have gotten back $17k but in doing so with his continued baiting and challenges will in my estimation loose in excess of 3 - 4 times his temporary gains via penalties, fines, and legal costs.

*edit* That is; if your superhero is infact not a shill for the author or character created to increase sales. *endedit*

When you step inside the casino you WILL obey the rules of the establishment. Enforcement is trivial and potent.

Sat, 09/18/2010 - 09:45 | 589432 Oh regional Indian
Oh regional Indian's picture

Every change cycle takes a few brave men/women along and crushes them under the wheels/in the mill etc. Inevitable. I'm sure Jay is aware of consequences.

Of course the establishment rules with an iron fist, question is will you rise up and face it or cower back?

The Tao Teh Ching is replete with advice on matters such as these.

The soft will overcome the hard etc. 

I feel Jay's work, if well informed and meticulously done, is non-violent resistance.

To paraphrase Jack London, "I'd rather be ashes than dust"...


Edit: Read your edit... if you read deeply enough into the man's writing, you can see he is no shill, but a broad-spectrum truth seeker. 

Sat, 09/18/2010 - 12:38 | 589615 Orly
Orly's picture

The Dao is replete with vague bullshit worse than anything Michel de Nostradame ever came up with.

Most of the teachings can be summed up fairly easily by noting that, "Stupid is as stupid does."

Sat, 09/18/2010 - 12:56 | 589637 Oh regional Indian
Oh regional Indian's picture

Orly, seeing that you are such a deep philosophical genius (wiser even than Lao Tzu, wow!), writing with such grace, fluidity and panache, I'll indulge you.

Study a geological feature called the grand canyon.

It is in the United States.

It was made by water wearing down rocks.

The soft wins over the hard, ultimately, every time. And spectacularly.

Shame on the committee who gave your your PhD.

Honoured to have shared words with your august, erudite and graceful self nonetheless..




Sat, 09/18/2010 - 13:46 | 589698 Kayman
Kayman's picture

Uh... ORI

I love the philosophy, but....

comparing the human condition to geology is a chasm as wide as the uh...

Grand Canyon.

Dang, dern it I forgets my mantra, and I falls asleep.

Sat, 09/18/2010 - 21:44 | 590187 Oh regional Indian
Oh regional Indian's picture

Hey Kayman, as above so below you know.

As every pattern watcher knows, it's a fractal world.

There is a human condition because there is geology.

I hope you can make the further connects.


Sat, 09/18/2010 - 13:47 | 589700 Fish Gone Bad
Fish Gone Bad's picture

The soft wins over the hard, ultimately, every time. And spectacularly.

Fantastic claims require fantastic proof.  Let's take a look at the moon, it is rather hard.  Let's take a look at space, it is rather soft.  So the vacuum of space will dissolve the moon?

Being clever with words does not make you a poet or an artist, but it can certainly make you a politician, or friendless.

Sat, 09/18/2010 - 15:14 | 589843 JR
JR's picture


Old Chinese proverb, “With time and patience, the mulberry leaf becomes satin.”

Old Japanese proverb, “Fall seven times, stand up eight.”

H. Jackson Brown quote, “In the confrontation between the stream and the rock, the stream always wins- not through strength but by perseverance.”

ORI: “The soft wins over the hard.”

Or, Winston Churchill, “If you are going through hell, keep going.”

Sat, 09/18/2010 - 21:35 | 590174 Irish Virus
Irish Virus's picture

Or, as the famous Roman philosopher put it, "Semper ubi sub ubi," which can be roughly translated as, "Always wear underwear."

Sat, 09/18/2010 - 21:52 | 590193 Oh regional Indian
Oh regional Indian's picture

FGB, wearing down required friction. Space is known to be resistanceless, as we currently understand resistance anyways.

And if a heavy dose of sarcasm delivered to someone who says the Tao Teh Ching can be paraphrased as "Stupid is...etc." loses me a friend, I feel lighter already! 

Also, clever? Don't like. Wise (ancient wise-dom), anytime. 



Sat, 09/18/2010 - 09:18 | 589427 Hulk
Hulk's picture

Don't forget the "lube"

Sat, 09/18/2010 - 18:28 | 590024 carlosschw
carlosschw's picture

QEII will be the first attempt by the US to replace dollar for dollar the "money" dissapearing from the system due to this deflationary deleveraging. It is unlikely that they will succeed. What can go wrong? If they don't create enough it will be unsuccessful. It is likely that in the current environment even if they match or slightly exceed, it will be usuccessful. If they overshoot or the world's creditors think they might, they will demand an inflation premium on US long paper. (Start of Greek-like spiral and probable check-mate). Most likely scenario, a crash in risk accompanied by a sharp sellof in precious metals as people try to turn whatever they can into dollar bills. Cash in the mattress will be the best investment. When metals crash, buy with both fists until they can get the choppers off the ground laden with cash.   

Fri, 09/17/2010 - 21:50 | 589018 Getagrip
Getagrip's picture

Is it too late to pull my FRN's out of the Shadow Bank's or should I buy the pullback?? 

Fri, 09/17/2010 - 20:16 | 588869 unununium
unununium's picture

Look at the outflow from money markets alone.  Er, wasn't that the cash on the sidelines?

Fri, 09/17/2010 - 21:55 | 589023 Getagrip
Getagrip's picture

Yep..went into PM's..

Fri, 09/17/2010 - 20:18 | 588876 AccreditedEYE
AccreditedEYE's picture

deflation bitches.

Fri, 09/17/2010 - 21:07 | 588953 nope-1004
nope-1004's picture

+1 bitch (on sale)

Fri, 09/17/2010 - 20:27 | 588892 Mitchman
Mitchman's picture

Am I reading this right?  Did the GSE's go through the ceiling?

Fri, 09/17/2010 - 20:47 | 588922 Tyler Durden
Tyler Durden's picture

It was a reclassification from GSE liabilities to mortgage pools. The two should net out

Fri, 09/17/2010 - 20:49 | 588923 Mitchman
Mitchman's picture

Thank you.

Fri, 09/17/2010 - 20:28 | 588893 Carl Marks
Carl Marks's picture

Long term actuarial models suggest decoupling of equity and credit markets along a sideband equilibrium distribution which would bode well for commodities.

Fri, 09/17/2010 - 22:06 | 589031 Terra-Firma
Terra-Firma's picture

in plain language, what did you just say? Thanks in advance.

Sat, 09/18/2010 - 12:38 | 589613 Eternal Student
Eternal Student's picture

To put it simply: Gold, B*tches!

That's a translation of what CM said. Translating the chart and report is something else; words don't do it justice. But it's similar to watching the Towers fall on 9/11.

Fri, 09/17/2010 - 23:31 | 589128 RockyRacoon
RockyRacoon's picture

Sure.  Markets will act according to the laws of physics? 

That would be nice.  Should make charting a lot easier.

Sat, 09/18/2010 - 18:56 | 590051 Orly
Orly's picture

I know, right?  Where do I sign up?

Fri, 09/17/2010 - 20:28 | 588896 frankTHE COIN
frankTHE COIN's picture

Don't get caught long. Something wicked, this way comes.

Fri, 09/17/2010 - 20:33 | 588902 VK
VK's picture

The wicked ben of oz!

Fri, 09/17/2010 - 20:54 | 588934 Miles Kendig
Miles Kendig's picture

The actions by authorities to date clearly demonstrate where the primary focus of the losers cum winners is to be found...

Fri, 09/17/2010 - 21:00 | 588945 Yes We Can. But...
Yes We Can. But Lets Not.'s picture






Fri, 09/17/2010 - 21:11 | 588959 traderjoe
traderjoe's picture

I don't know how anyone could look at these graphs and not realize two things: (1) our expansion, especially from 2001 to 2008 was nothing more then an unsustainable debt-fueled binge; and (2) there is one hell of a hangover coming. 

And I add, imho, that the end of the ponzi, fractional reserve fiat system is certain, planned. Don't know dates, and times, but my guess is soon. 

Fri, 09/17/2010 - 21:23 | 588977 Eally Ucked
Eally Ucked's picture

Probably end is very close because american consumer decided to take on new loans like there is no tomorrow:

Fri, 09/17/2010 - 23:11 | 589114 the grateful un...
the grateful unemployed's picture

hey that's good. the consumer chickens coming home to roost. actually i was going to suggest this was the fallout from the obama healthcare plan, people forced out of the system putting that cancer operation on their credit card. 

Fri, 09/17/2010 - 23:56 | 589155 RockyRacoon
RockyRacoon's picture

Whoa there big fella.  Please go back and read your linked article.

The dramatic increases [in consumer
loans] over the past few months have
been caused by a new reporting
requirement issued by the Financial
Accounting Standards Board.

Look at figure 3 for the real picture.  There is NO consumer credit increase!

Sat, 09/18/2010 - 07:08 | 589375 Ned Zeppelin
Ned Zeppelin's picture

Of course not. There is still some belief out there as part of the money on the sidelines nonsense that consumers are ready, willing and able to resume borrowing at a frenetic rate if just a few things would change. Reality is the consumer is tapped out, leveraged up to the hilt, and it will take years of debt paydowns and income increases to achieve a renewed appetite for credit. What the economists call the savings rate increase (as if people are wisely stashing cash in their bank accounts) is really a measure of monies directed at debt pay-downs which are non-discretionary, and the cash available for doing anything else is going there. 

Sat, 09/18/2010 - 11:08 | 589515 RockyRacoon
RockyRacoon's picture

You nailed it.  As I understand it, the "savings rate" is calculated as the simple difference between wages and "consumption" numbers.  As if whatever is left over is saved.  It is going to deleveraging as you point out.

One of my pet peeves is people reading headlines or bold text and making assumptions as to the theme or focal point of an article.  The linked article above was NOT READ and its headline was put forth as its thesis.  Many ZH articles are skimmed only and the reader goes on to the comments to get embroiled in debate which wanders off topic, sometimes into tin-foil hat fringes.   Oh, the humanity!

Sat, 09/18/2010 - 14:06 | 589733 Kayman
Kayman's picture


Perhaps Eally Ucked was referring to the transition point in the fall of 08. I don't know.

I, for one, cannot keep up with all the ZH material, since I have another life.

I think, most ZH'rs read and understand the substance of most things they comment to.

It is the things in the shadows that are the most perplexing.  Derivatives in the shadows, off balance sheet liabilities including guarantees and contractual commitments hang like a guillotine. 


Sat, 09/18/2010 - 14:20 | 589754 RockyRacoon
RockyRacoon's picture

Well, no.  He just didn't read the article link he posted.  It is a short .pdf and quite clear.  Not any more complex than that.

Sat, 09/18/2010 - 14:06 | 589734 Uncle Remus
Uncle Remus's picture

into tin-foil hat fringes

You say that like it's a bad thing...

Sat, 09/18/2010 - 14:22 | 589756 RockyRacoon
RockyRacoon's picture

Oh, hell no.  Some of my best friends are of the tin-foil hat persuasion.  They are a lot of fun to debate.  I love 'em all.

Fri, 09/17/2010 - 22:00 | 589030 frankTHE COIN
frankTHE COIN's picture

I feel in my heart that the Fed knows it's inevitable that we are going much , much lower. They just want to slow the fall down as much as they can. They know they can't stop the inevitable, they are working against a crash.  To me, it looks like a crash is unavoidable.

Sat, 09/18/2010 - 04:07 | 589332 StychoKiller
StychoKiller's picture

E = mv^2, when a large mass under a large velocity undergoes a sudden de-acceleration, a LOT of mass gets converted to energy to balance the equation (BOOM!) 

Sat, 09/18/2010 - 11:21 | 589525 trav7777
trav7777's picture

uh, no it doesn't.  Mass is always conserved except in nuclear reactions.

Sun, 09/19/2010 - 18:42 | 591042 Athena
Athena's picture

Actually, for non-relativistic kinetic energy, E = mv^2/2.

Fri, 09/17/2010 - 22:23 | 589050 Eternal Student
Eternal Student's picture

Indeed. This is the kind of information that I'm looking for.

As for who could look at this and downplay it? Oh, I suspect the Gonzo economists could.

Fri, 09/17/2010 - 21:20 | 588973 Forgiven
Forgiven's picture

I'll tender an earlier guess as to the date:  April 8, 2012.

Sat, 09/18/2010 - 11:46 | 589556 Rich_Lather
Rich_Lather's picture

Why Easter?

Sat, 09/18/2010 - 15:09 | 589835 TheGoodDoctor
TheGoodDoctor's picture

Jesus is coming back!

Fri, 09/17/2010 - 21:36 | 588999 bugs_
bugs_'s picture


Fri, 09/17/2010 - 21:41 | 589007 HitTheFan
HitTheFan's picture

Uh oh, shit on the way next week.


This guy is good...

Get short sharpish!!

Fri, 09/17/2010 - 22:15 | 589040 Brutlstrudl
Brutlstrudl's picture

There ain't enough trees to make the paper.

Sat, 09/18/2010 - 05:59 | 589358 Al Gorerhythm
Al Gorerhythm's picture

They'll just add zeros. Sigh.

A fitting end to the "legally valid book-entry settlement" v gold (or anything you can lay your hands on) as settlement argument, as postulated by TheMonetaryRed; Jonny Bravo, Masterbates, Peter Peter, and Tim Giethner etc.  .

Fri, 09/17/2010 - 22:26 | 589053 partimer1
partimer1's picture

The sad truth is there are a lot more to come out. All those phony balance sheet and those mortgages still are there. They are buying time to prolong their life.

Fri, 09/17/2010 - 22:27 | 589056 RobotTrader
RobotTrader's picture

You guys who are long gold and short ES are going to get killed.

I was bearish on gold last month, but this week's weekly breakouts in GLD, SLV, CEF, means risk assets are all on the move.

That includes stocks, gold, the AUD, and the CRB components.

If oil ever turns back up and the oil stocks get moving, then all you short sellers better move out of the way.

Fri, 09/17/2010 - 22:54 | 589085 UncleBen
UncleBen's picture

The wildebeest schtick is played out, douchebag. There is no herd or real buyers in this fake fuckin' sham of a market - just the Fed's PD fags and the HFT bots in their never ending circle jerk. I hope you lose your shirt, Robo-dick 

Sat, 09/18/2010 - 12:04 | 589577 doolittlegeorge
doolittlegeorge's picture

are you really Ben Bernanke?

Fri, 09/17/2010 - 23:03 | 589102 the grateful un...
the grateful unemployed's picture

if oil ever turns back up? if oil ever turns back up? what is the premium to spot here? Natgas is at pennies, if OIL EVER TURNS BACK UP?? where do you live?

Sat, 09/18/2010 - 03:13 | 589303 taraxias
taraxias's picture

"I was bearish on gold last month"


There, fixed it for you


"I was bearish on gold last month as I have been every month in the last two years and I continue to get fucked but hey, I'm hoping I'll be right one of these days"

Sat, 09/18/2010 - 06:06 | 589360 Al Gorerhythm
Al Gorerhythm's picture

thanks bot. I'll sell my physical on your advice come Monday. Thank the stars that your in depth analysis arrived so fortuitously or I would have been trampled by Tuesday..

Sat, 09/18/2010 - 10:29 | 589475 Hulk
Hulk's picture

and filling in for Johnny Bravo, we have RobotTrader whose past achievements include selling Au right before a major runup and concluding that there is no such thing as PO due to the presence of an oil gusher leak in the Gulf...LOL!

Sat, 09/18/2010 - 10:29 | 589477 reading
reading's picture

By killed do you mean in a 5 minute time horizon or do you have some sort of underlying fundamental analysis that leads you to believe that all risk assets will now go up?  How and why?  Perhaps if you offer that info we could all have a meaningful and insightful debate rather than looking at your pictures.

Sat, 09/18/2010 - 11:02 | 589507 Hephasteus
Hephasteus's picture

Good deal. I'm suicidal homicidal fungicidal and genocidal.

Let's get it ON.

Sat, 09/18/2010 - 11:08 | 589514 Hulk
Hulk's picture

You are scaring the children Hep....

Sat, 09/18/2010 - 11:35 | 589541 Hephasteus
Hephasteus's picture

Well they were scared before I even got here and said anything. Or else they wouldn't be running around repeating this mantra about gold going to plummet, etc etc. If gold plummets prices plummet, if gold goes up prices go up. It's simply a way to avoid getting stolen from, nothing more nothing less.

If gold drops to 250 bucks who cares. New cars will sell for 8 thousand bucks again and food will cost me 50 bucks again every trip instead of 120 bucks.

They know it's coming.

Sat, 09/18/2010 - 11:40 | 589550 Hulk
Hulk's picture

LOL, great response...

Sat, 09/18/2010 - 11:04 | 589509 Tyler Durden
Tyler Durden's picture

Robo, please highlight where in all of modern literature is gold considered a risk asset.

Sat, 09/18/2010 - 11:24 | 589528 Hephasteus
Hephasteus's picture

Ya this one time in history. They ran a bad money for good money scam and when all the good money was gone they faked having good money with tungsten core bars of gold and stayed rich for centuries using magic SDR's and Carbon Credits. Oh sorry I was channeling Alen Greenspan again.

Sat, 09/18/2010 - 12:24 | 589597 doolittlegeorge
doolittlegeorge's picture

i agree "the Fed will not raise interest rates in anyone's lifetime."  does it then follow that credit must become more availible and at a lower rate then?  your arguments have trouble holding water as well except to say "when it ends, it's gonna end bad."  The "it" (a gold standard) ended a long time ago in my view.  governments have solutions to every problem--gold hoarding included (perhaps the government could simply order an audit of GLD?.)  some solutions, however, aren't pretty. (gold fillings anyone?)  i don't care if "it's a bond bubble" myself--but this is true only from a certain and "pre-Lehman what used to be very NARROW point of view."  is it a view you all share?  are you sure?  the fact that a bond bubble may very well be at least empirically true...only means "the holding cost of gold (and other risk assests as defined by entities deleteriously impacted by a gross and sudden rise in real interest rates of course) suddenly rises."  yes, yes?  of course "agricultural commodities are different."  they are perishable and "have to be grown."  just an observation. or you can argue "interest rates suck and we're all dead."  i do like simple truths, too.  saves my fingers from tappin' on the keyboard i guess let alone "fixing a hole where the rain gets in that stops my mind from wandering."

Sat, 09/18/2010 - 14:20 | 589750 Kayman
Kayman's picture

dl george

With ZIRP, the holding cost of gold, is ZIP.

If our geniasses at the FED crank up the cost of money, then get the hell out.

If the masses had good paying jobs and surplus income that they were saving, the Fed's ZIRP policy might entice them to spend. Right now ZIRP is only saving the carcasses of the criminal banking elite by creating a floor under otherwise worthless paper assets. 

But "if" is a mighty big word.

Sun, 09/19/2010 - 06:05 | 590408 MrTrader
MrTrader's picture

Risk assets are on the move for 2 weeks. BOJ gave it a booster intervening. I "smell" some  JPY institutional longs and some macro hedge funds are "sweating". Hopefully for them this rally will end on Monday or there will be a major "short squeeze" desaster..;=)

Best Regards


Fri, 09/17/2010 - 22:29 | 589059 bobert
bobert's picture

Please excuse my ignorance but why is a reduction in bank liabilities a bad thing?

And is this chart not rather dated? The downturn started in 2007 and the last chart entry appears to be in 2009.

Time is speeding up from my viewpoint, however, I believe this is September 2010. Where is the current data?

Fri, 09/17/2010 - 22:43 | 589071 PolishHammer
PolishHammer's picture

It means there's no growth in credit ergo no growth

Fri, 09/17/2010 - 22:56 | 589091 bobert
bobert's picture



Fri, 09/17/2010 - 23:06 | 589105 Wyndtunnel
Wyndtunnel's picture

Isn't a shrinking tumor generally considered to be good for the patient?

Sat, 09/18/2010 - 13:43 | 589694 Quinvarius
Quinvarius's picture

The patient is the tumor.

Sat, 09/18/2010 - 12:30 | 589599 doolittlegeorge
doolittlegeorge's picture

which of course is a fallacy.  the reality is "government credit is exploding higher" and "effortlessly as well."  for you and me of course "there is credit contraction" and "suddenly there's lots of m&a activity as well as dividend increases" because "what if microsoft can't get any money?(sic)"  in the meantime "you already know what happens when a major corporation runs out of credit because you own it."  they're called GM and Chrysler.  Still not making cars?  of course not.  still making cars you and i can't afford?...yep!

Fri, 09/17/2010 - 23:10 | 589109 Tyler Durden
Tyler Durden's picture

The latest datapoint is June 30, which is the most recent data as of today's Z1, which was also prominently disclosed in the first sentence of the post.

Sat, 09/18/2010 - 01:54 | 589248 Spalding_Smailes
Spalding_Smailes's picture

"No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding."

- Calvin Coolidge December 4, 1928

"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."

- E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928

Sat, 09/18/2010 - 02:20 | 589265 i.knoknot
i.knoknot's picture


so according to today's fashion, simmons started the great-depression (you know, the first one)


Sat, 09/18/2010 - 02:32 | 589276 Spalding_Smailes
Spalding_Smailes's picture

"There will be no interruption of our permanent prosperity."
- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years."

- R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929


Fri, 09/17/2010 - 22:54 | 589077 Spalding_Smailes
Spalding_Smailes's picture

Just had drinks with a friend hes trying to get a loan from MB Financial for 1.2 million that will only span 6 months, his cash  is tied up till end of 4th quarter. The CFO told him they are no longer giving out loans at this point to small & medium sized companies. He has been with MB for 32 years never missed 1 payment...  Manufactures Bank is a very large bank in Illinois ... CFO said loan book was a disaster.


Green Shoots ...

Sat, 09/18/2010 - 01:04 | 589200 Widowmaker
Widowmaker's picture

Green shoots my ass, you meant record bonuses.

Wake me when someone (ANYONE) is fucking arrested.

 laws?  What fucking laws.  See ya tomorrow, cause too big to fail - too big to jail.

Sat, 09/18/2010 - 14:12 | 589739 Uncle Remus
Uncle Remus's picture

Wake me when someone (ANYONE) is fucking arrested.

Rip, is that you?

Fri, 09/17/2010 - 22:52 | 589083 snowball777
snowball777's picture

Mmmmmm....debt deflation loaf.

Fri, 09/17/2010 - 23:12 | 589116 bobert
bobert's picture

And concensus here is that we have inflation coming in a low or no growth economy or even a declining economy?

Or perhaps it's deflation first (in certain asset classes) i.e., a bust followed by hyper inflation?

Sat, 09/18/2010 - 14:29 | 589767 Kayman
Kayman's picture


consensus at ZH ??? The consensus is there is  no consensus.

Fri, 09/17/2010 - 23:41 | 589133 Common_Cents22
Common_Cents22's picture

Credit to small/medium businesses is non existent.  It's a total lock down.  Big businesses are squeezing them hard by extending their own invoice payment terms and playing games like invoice "errors" being investigated for months.  Most of that is pure evil outright lying deception.

Banks aren't lending at all, even tiny amounts on assets. 

Get ready for a surge in receivables financing as that is the only thing left.  Rates from 1.5-3% a month.    We'll become more like Europe, middle east, and latin america in that regard as it is commonplace there.


The big banks are in an incestual embrace with the DC elites.   Able to borrow cheap money from the Fed as bank holding companies and turning right around and lending it back to the government so the DC elites can be the ones handing out the money for political favors.   That has to stop before the whole thing blows as people are tapped out.  We are done tapping the equity out of our homes, nearly done with tapping 401k's and savings.  Once that happens we will have the ultimate recognition point.  People will no longer be in denial because they will literally be out of money.  Nothing left with which to extend and pretend.

Sat, 09/18/2010 - 00:32 | 589185 TheManagement
TheManagement's picture

Your lack of faith is disturbing.

Sat, 09/18/2010 - 01:04 | 589208 heyligen
heyligen's picture

No problem, the notes always said "In God we trust", not "In Fed we trust". He'll be the ultimate lender of last resort...Start ypour prayers right now please.

Sat, 09/18/2010 - 11:59 | 589573 THE 4th Quadrant
THE 4th Quadrant's picture

I believe the next revision to ZH is almost out of v.2 beta.

ZeroHedge(Gods work) will be out by December replete with religious tones that will make you beg for further polymorphism.

Time to get excited and thump yer bibles, rattle yer beads, or put an extra bobby pin in yer kippah.

Rumor has it that Marla is working on the title but has been in a trance for the last 2 months from her own mix tape so productivity has slacked a bit.

Sat, 09/18/2010 - 12:32 | 589602 doolittlegeorge
doolittlegeorge's picture

if you've haven't been praying since day one "you've got some making up for lost time."

Sun, 09/19/2010 - 10:38 | 590528 Common_Cents22
Common_Cents22's picture

Faith? lol, try and deposit some that.   Reality bites.  My faith is having me invest in receivables financing.  There are some opportunities out there but unfortunately they are becoming scarce.   Tell a small business to have faith when their large customers go ahead and double their own terms of payment to 60-90 days.  Or when they find an "error" on the invoice or bill of lading and it will not be paid until resolved with investigations taking 90 days.


Sat, 09/18/2010 - 12:55 | 589634 Goldenballs
Goldenballs's picture

+100.A shitty game leading to desperation.Once people are truly skint,big business will never recover repectability for generations,talk about hate the authorities will learn you can put out a flame but you can,t put out a fire.Outsourcing jobs,piss poor wages,no investment in the country or its workers,politicians doing sweet FA,brought off,huge salaries and expenses for sod all,watching your country burn for an extra 10% on annual profits,rigging markets,cheap worker migration,importing crap,the list is endless.The list is growing at an alarming rate and soon the bill will become due.

Sat, 09/18/2010 - 14:44 | 589792 Kayman
Kayman's picture

While claiming "Country first" our political prostitutes, financial criminals and myopic corporate dinosaurs have enriched themselves.  Walmart, Caterpillar, GE, and Goldman are the poster boys for what has destroyed a good country (the full list is very long).

And Clinton, Bush and Obama are nothing more than well-paid puppets mouthing insincere talking points.

I am watching America (and other countries) being dismantled, melted-down and shipped out to China. And all we have is Tiny Tim (of China is NOT a currency manipulator fame) and a too-late Congress whimpering about holding their collective breaths until they turn blue.

Meanwhile the Chinese Communist Fascists rob all the jobs and capital out of America.  I can guarantee you China would not let the outsourcing and capital plundering take place on their home turf.

Fri, 09/17/2010 - 23:38 | 589135 Veritas
Veritas's picture

This is exactly how Jeremy Gratham said it would play out over the next 5-7 years,unfortunately,we are only in year 2!!!

Sat, 09/18/2010 - 01:46 | 589138 williambanzai7
williambanzai7's picture

I wish to draw everyones attention to this fascinating and informative CNBC expose on HFT

It is a fine example of why I am constantly tempted to switch to CNBC for the real lowdown on how the markets work.

This puff piece on the decline of shadow banking would never be carried by them.


Fri, 09/17/2010 - 23:40 | 589139 Akrunner907
Akrunner907's picture

Who has the popcorn?

Sat, 09/18/2010 - 14:45 | 589795 Spalding_Smailes
Spalding_Smailes's picture

"I am convinced that through these measures we have reestablished confidence."

- Herbert Hoover, December 1929

"We are really on track for a soft landing. There are no balloons popping.”

- David Lereah, NAR’s chief economist, December 2005



Fri, 09/17/2010 - 23:43 | 589140 bobert
bobert's picture

How do you stimulate trust and hope and future vision?

It's not with bailouts, tarps, entitlements, and handouts. With these you create a vast

network of non-productivity and work ethic and dispair among those

who would otherwise continue to be productive.

Our politicians should take a large break. A vacum in ideas from their quarter

would be extremely helpful to our natural economy which without their input

might still be able to survive.

Doesn't seem likely does it?

Fri, 09/17/2010 - 23:49 | 589147 Common_Cents22
Common_Cents22's picture

We have been conditioned that government is the only answer.   We are waiting for a government small business bailout to turn things around.   sorry, epic failure.   Government is a huge anchor that weighs down progress.   Govt must be cut as it crowds out private investment.     DC needs to be dismantled and the elites sent packing.  The answer is restoring states power and shrinking fed govt by about 50% ( a good start).

Depending on a republican sweep and them doing anything is a fools game too.  It can help but is not the real answer.   Smaller limited govt is the answer.

Sat, 09/18/2010 - 00:21 | 589169 Wyndtunnel
Wyndtunnel's picture

Big or small, any government isn't worth a pinch of 'coon shit unless it upholds the rule of law.  Some good ol' fashion hangings in the public square of those who have swindled America and the world would go far in turning things around.  

Sat, 09/18/2010 - 02:42 | 589283 TheMerryPrankster
TheMerryPrankster's picture

I've advocated such a policy since the Savings & Loan scandal of the late 1980's. It does my heart good to see others coming around to what at the time was treated by my circle of friends as complete lunacy on my part.  Without consequences, laws are meaningless.

Sat, 09/18/2010 - 04:17 | 589335 edotabin
edotabin's picture

Almost agreed.

In order for this to work we must first define the word LAW.

Regardless of what tons of dictionaries will tell you, the law is the will of the strongest party at any given time. He than can impose, does so. Nothing more, nothing less.

Big guy makes law, small guy faces consequences.


Sat, 09/18/2010 - 04:15 | 589333 Voluntary Exchange
Voluntary Exchange's picture
@Wyndtunnel:   "The Myth of the Rule of Law":      And don't get the laws of man formulated by monopoly "states" confused with the laws of nature and "natural" law which exits regardless of the actions of man.   What we need is the elimination of the monopoly in adjudication and security services by a monopoly (what some call the "state").  A free market in adjudication and security services worked in Ireland pre-1650 for more than a thousand years and also in other places in history. It is vital that you, the wealth producer and individual, retain your "power of the purse" at all times when obtaining your security and adjudication services.  The monopoly "state" can be counted on to eliminate that freedom as soon as it can and force you into paying "taxes" (theft). Then you are stuck.
Sat, 09/18/2010 - 12:36 | 589606 doolittlegeorge
doolittlegeorge's picture

you mean "trial by jury" in securities law?  i like that!  keep it comin! DEBT HOLIDAY BABY! now PARK THAT GOOGLE RIGHT HERE.

Sat, 09/18/2010 - 12:53 | 589630 Orly
Orly's picture


That actually explains everything about why massive outflows have come by retail investors.  No one can trust the law to work...unless, of course, you're low on the totem pole.  The higher up you go, the less the "law" applies.

The very basis of America is that there is freedom and consequences for all, each how he sees fit.  Equally.  Unfortunately, that ideal has been silenced by a few really bad people.

It'll come back.

There will be justice.

Sat, 09/18/2010 - 13:50 | 589708 Dirtt
Dirtt's picture



Sat, 09/18/2010 - 01:13 | 589212 Widowmaker
Widowmaker's picture

"How do you stimulate trust and hope and future vision?"

You buy Congress.

Never mind, you're from main street.   Get a loan so that someone else can buy Congress.

Sat, 09/18/2010 - 12:37 | 589610 doolittlegeorge
doolittlegeorge's picture

ahh, old timey stuff.  music to my ears.  and they're called "Congressmen" not "Congress."

Sat, 09/18/2010 - 00:35 | 589187 Caviar Emptor
Caviar Emptor's picture

So a stealth credit contraction is what we're seeing. A Japan-style ice age. And we've only just begun. That's because there isn't an underpriced asset anywhere to be found yet. Prices are still artificially kept high  not just because of bailouts and government intervention, but through bluffing and lying like realtors have been doing with fake home sale prices. 

Why do corporations sit on tons of cash? They worry that capital markets are close to seizing again, cutting them off to credit they need to roll debt. Why are individuals pulling money from equities? To pay down debt and cover bills. So there is no individual investor 'cash on the sidelines" because it's been spent and no longer available to return to the market. 

The great bailouts of 2008-2010 succeeded in slowing the rate of deflation, but the trajectory remains intact. US assets will deflate. Unfortunately cost inputs will continue to rise.

Sat, 09/18/2010 - 02:19 | 589264 merehuman
merehuman's picture

underpriced asset= silver , the real thing not the paper.

get some , it helps our community to have silver and gold owners. It keeps real capital in the community.

Community and family should be our first concern.

Sat, 09/18/2010 - 03:08 | 589301 cossack55
cossack55's picture

Too true.  Silver eagles are best since all US minted bullion coins must be derived from US sources.  Idaho and Colorado need the jobs.  I need the silver. Voila!

Sat, 09/18/2010 - 12:37 | 589612 bobert
bobert's picture

Very good thought!!!

Sat, 09/18/2010 - 12:39 | 589617 doolittlegeorge
doolittlegeorge's picture

or "cash is a good asset, too" of course.  "just as good as money" right?  it's not the economy's job to give you a return on cash.  that's your job, right?

Sat, 09/18/2010 - 00:39 | 589190 surfsup
surfsup's picture


Simple and yet elegant piece. 


Tyler: "Alternatively, the Fed can merely force credit into traditional bank liabilities, which banks can then proceed to use and purchase stocks and commodities, at a zero cost of debt. What that will do to select asset prices, we leave to our readers' imagination."

Unless the act of balanced economy were applied so that circulation at all times reflects actual production.  However the irony is un earned gain off interest will always compel there to be disproportionate credit creation vs. production and income.  The creditor and debtor class channel of the Television Broadcast perpetuated at full tilt as long as universal balance is not kept as THE primary objective of the credit creation calculus beyond "personal gain."   

The US Constitution puts the guardianship of this aspect of balance with an elected congress, yet the central bankers clearly promote the idea that politicians cannot be trusted due to interest pedaling!   And thus the black curtain comes out and all folks can do is hit zero hedge and speculate what is on Oz's mind and reflect upon the reality of things like Gravity...  

Perhaps the Constitution was created as a method of making sure the debate about such issues always takes place within a "public context?"  What, you can vote for your president but not the very nature of the economic system nor the very nature of its originative activities?  Blind trust has made many a mess for humanity and an educated people are capable of self government as a starting point for all Constitutional Principle.  This is the massive Genie awakening from Aladan's Lamp as the T-Party as this new essence of a free people is taking frontal fire from establishment media who are attempting a last minute spin of "the awakening" as a typical disfigurement campaign and televised into what's left of sleeping and suggestible people.  

The obliteration of the charade of Cap and Trade should set alarm bells ringing within each person's mere acceptance of any status quo, for in the end, human nature is what it is and greed will always tend to degrade a civilization if enough rope is given to it.

As we look further into inhuman nature with such new films as "Inside Job" we can see regardless of the viability of any system or design, its best to operate in a CONSTITUTIONAL framework -- ie, in the open, and with due review and intelligent participation.  

The beginning of this path dear Neo, is the firm recognition that no such representation exists in our present time.   Until then its a T-party.




Sat, 09/18/2010 - 04:19 | 589337 StychoKiller
StychoKiller's picture

The Age of Kail will be recognized when Kali wakes up and says:  "All right, where's my drink (blood, and lots of it!)?  Ya have any of those crunchy human skulls I like for appetizers?"

Sat, 09/18/2010 - 13:52 | 589717 Kali
Kali's picture

You called?

Sat, 09/18/2010 - 08:54 | 589369 Voluntary Exchange
Voluntary Exchange's picture
@surfsup: .......................................................................................................................................... The Constitutional Principle arises from the Western Mind, often struggling under the cultural aftereffects of the ancient "Divine Right of Kings" as well as the presumption that law originates from centralized divine, semi-divine, or otherwise authoritarian and non-holistic  type sources. Man made law, (to be distinguished from scientific or natural "law" discovered through the study of nature), always exists within the context  of the field of application of that law and the purposes and aims and cultural perspectives of those who have the power to formulate and/or adjudicate the law.  (Please see as a good introduction "The Myth of the Rule of Law": ) .......................................................................................................................................... Now to point out some basic facts about "human" civilization as it relates to your, and peoples Ideas about "state" and Constitution. There is a primary distinction that can be made about the people of this planet who appear "human":  ............................................................................................................................................. There are those who choose to obtain what they want and need through voluntary exchange. ............................................................................................................................................... And there are those who at a particular place and time may choose to obtain what they want and need through deceit and/or force. (The distinction is dynamic and subjective depending on context, time and place).  ............................................................................................................................................... The purposes and aims of these two "groups" in a particular instance are obviously diametrically opposed and in conflict. Thus the problem throughout most of known "human" history  of those who are being productive and wish to live a peaceful, cooperative existence and those who for various reasons, in a particular instance of circumstances, or as a life pattern choose predation. In western civilization we have enough experience to make some useful observations about governments and attempts by these warring strategies of "humans" to survive and flourish. ............................................................................................................................................... If you are able to step beyond  the cultural and conceptual perspectives you may be wedded to you could conclude the following: ............................................................................................................................................... From the perspective of the non-predatory who might form a "government" seeking from it security and adjudication services- any system of adjudication (law) that is administered by only one service provider (a monopoly of adjudication services- what some people think must always be the "state"), will tend to become over time, not a "service" but the tool of the group who controls this power to the disadvantage of all others.  Such a monopoly will also seek to obtain a monopoly of "legal" force to enforce its judgements. And from the other aspect, a monopoly of protection service (force) will seek a monopoly of adjudication power to justify its actions and will become over time not a "service"  put the tool of the group who controls it. You can slow the process down by fractionating the service providers, use elections for service duration limits, limited powers, etc., (US history at the city, county, state, and federal level), but as long as you have a monopoly in play in any particular territorial jurisdiction protected by the power to "tax" (theft/non-voluntary compulsion) and the power to enforce, there will be a pull towards the subversion of the system away from service provision towards centralization of power for predatory purposes.  This is in the nature of things when you force the selection of a service from what is ultimately a source not subject to the checks and balances of "voluntary exchange" (it is a monopoly). You create the seeds for the destruction of a system of voluntary exchange from the seeds of your conception. It always happens and it always will if you make this same mistake.  .................................................................................................................................................. In America we can see the process evolving from the start with predatory personalities such as Alexander Hamilton who successfully was able to circumvent intended barriers, checks and balances to prevent the system from accumulating powers to change the intent from service provision away to exploitation of power with the forming of the first Bank of the United States as an excellent tool for fraud and theft immune under the cloak of franchise granted by the state.  It always happens and it always will (as long as "humans" are predators). .................................................................................................................................................. With the benefit of hindsight, it should be apparent now  how to avoid the problem from the very beginning. Do not form monopolies of adjudication and protection services, moreover always teach the next generation never to make this mistake. Always retain the "power of the purse" by choosing non-monopoly service providers. Never let the "power of the purse" be subverted by letting others overrule the individual's free choice as to what to use as "money" and who they can obtain their services from. There are examples from history you can cite that show this free market solution  such as pre- 1650 Ireland (lasted over 1000 years), ancient Iceland, and others. It is time for the western mind to expand its horizons by stepping outside the box it has created for itself and following the example of other cultures that were able to deal with issues such as crime, predation, murder, conflict, general justice, freedom and well-being in an entirely different, more efficient, and highly durable gestalt: from the "bottom up" if you will, instead of from the "top down".  I would urge you to study the works of Rothbard, Hermann-Hoppe, and others to become better acquainted with the history and the so called "stateless" (free market "state") solution. ................................................................................................................................................. Also check out:
Sat, 09/18/2010 - 12:42 | 589619 doolittlegeorge
doolittlegeorge's picture

or in my case today a "whiskey party"!  now "beer for my horses bartender!"

Sat, 09/18/2010 - 00:55 | 589199 Apocalypse Now
Apocalypse Now's picture

We are Japan, look to it for our future.

Weimar and Zimbabwe are ridiculous comparisons that do not relate to the world's leading military superpower with the world's reserve currency.

Amazing that the US used the Chinese finger trap on the Chinese.  The debt they own is denominated in US currency.  People that state we can not pay back the loans perhaps do not understand that the loans are in paper in US dollars and we have clearly been printing as much as we want. The US is a huge export market for the Chinese so they want to continue having their people remain active, since they haven't cultivated their own domestic market and middle class.

With interest rates extremely low due to uncertainty and a low growth environment, the national debt will increase primarily from principal not interest since it is moving more to short term duration / low interest and it can continue for some time as Japan has illustrated.  With massive debt levels, interest rates must remain low so that interest payments to GDP and total debt to GDP are not distorted.

China and other countries know the key to US power is the reserve currency and paper wealth, and believe that this is the achilles heel - therefore they are pressing for a new world currency standard that is not nation and credit based.  There is a push for hard assets, that is why banks now own more houses than people do.

Understand that the system default is that all assets have liens and become owned by banks.  This is a takeover, and I wish ZH would focus a few articles on who owns what through the use of monopoly money printing presses.  Who now owns the majority of equities, houses, and bonds?  Who cares if technically the banks are bankrupt, if they are backstopped and take ownership of all the assets?  This is it, the end game.

Deflation causes the assets to be foreclosed - ownership transferred to banks.  Once sufficient assets have been transferred, perhaps they will promote hyper-inflation to wipe away debt. 

You ask where will price be and question deflation/hyper-inflation - The future is path dependent based on the actions of the Fed and Congress.  Monetary and Fiscal Policy.  As Charles Lindbergh stated, all deflation and inflation is deliberate.  We do need some mechanism to promote cash in people's hands, not currently jobs, wage inflation, home equity loans, or credit.

Sat, 09/18/2010 - 06:22 | 589363 Snidley Whipsnae
Snidley Whipsnae's picture

2/3 of all homes are owned outright with no mortgage.

Debt levels do not necessarily determine interest rates.

Hyper inflation can only be 'promoted' if people lose faith in the currency.

Promote cash in people's hands. It's been tried and the result was that the people used the cash to pay down debt. Not the desired outcome.

Sat, 09/18/2010 - 14:57 | 589814 Kayman
Kayman's picture

Thanks Snid

I would like to add, "Not the desired outcome, but a desirable outcome."

Sat, 09/18/2010 - 15:48 | 589876 Spalding_Smailes
Spalding_Smailes's picture

...." Man, I see in fight club the strongest and smartest men who've ever lived. I see all this potential, and I see squandering. God damn it, an entire generation pumping gas, waiting tables; slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off "....

(Tyler Durden)

Sun, 09/19/2010 - 12:44 | 590658 ToNYC
ToNYC's picture


Yeah, but it still sounds like TD is whining.

"Anger is the antidote to Thinking."

Sat, 09/18/2010 - 07:17 | 589378 Ned Zeppelin
Ned Zeppelin's picture

A. Now - thinking about your post and I think of China as an unsecured lender lender who realizes his loan book is not backed by collateral in the form of hard assets, with a substantial cushion to reflect a liquidation discount. Once you hit that point, what steps do you take? 

Sat, 09/18/2010 - 15:01 | 589820 Kayman
Kayman's picture

For China, you buy up all possible assets, companies, resources, countries with U.S. dollars while others are willing to take them.

It is happening now and has been for quite some time.

In fact China is working behind the scenes to derail the Potash deal right now. And the Canadian government is too timid or too stupid intervene.

Sat, 09/18/2010 - 15:27 | 589858 TheGoodDoctor
TheGoodDoctor's picture

Exactly. It is almost nightly on the Bloomberg ticker that some Chinese company is buying up more natural resource assets.

Sat, 09/18/2010 - 10:10 | 589459 Waterfallsparkles
Waterfallsparkles's picture


"Deflation causes the assets to be foreclosed - ownership transferred to banks.  Once sufficient assets have been transferred, perhaps they will promote hyper-inflation to wipe away debt."

I agree.  I believe that is the game plan.  Take over as much of the Real Estate as they can.  Throw the people out in the Street and then cause super inflation.  The people will not be able to buy again and will become their Tenants for life.  If you just look at what the Banks are doing with the Modifications it is understandable.  They get the Homeowner to make smaller payments (rent) and then after 6 months to a year they deny their modification and get the House. The year gives the Bank enough time for the property to go up in value and they do not have to take the Markdowns on their balance sheets.

That is why I believe in Rental Real Estate.  It is a great hedge against inflation plus you get an income on your asset.  With Gold you are protected from inflation but you do not get an income from your holdings.  You have a hard time storing a large amount and if in your home it can be stolden.  Hard to steal a House.


Sat, 09/18/2010 - 11:53 | 589568 New_Meat
New_Meat's picture

Howard Ruff returning to the vogue he had in late '70's. "How to prosper during the coming bad times." e.g.

but I don't think that any RE values are coming up over the next year(s?)

- Ned

Sat, 09/18/2010 - 12:46 | 589623 doolittlegeorge
doolittlegeorge's picture

the only thing more disturbing than plans are the people who have the energy to execute on them.  Elliot Spitzer comes to mind.  An effective miscreant if ever there was one...but who serves to only make me wonder "where do you get all that energy from"?  wife, family, congressional testimony,....hookers?  whatever happened to BBQ and reggae?  by the way are you availible WFS's?

Sat, 09/18/2010 - 01:01 | 589202 CrashisOptimistic
CrashisOptimistic's picture

Here's my read.

It's fun to yell at Bernanke and call him an idiot, but he's not.  He'll do whatever he must to prevent 1938.  He will never, ever allow default.  He will never, ever allow currency dissolution.  The dollar will always be the unit of US money, regardless of its "value".

That being said, let's take it a bit further.  In the world of corporate management, there tends to not be all that many morons who make it to CFO.  CFOs for the past 18 months have been salivating at corporate bond yields that are miniscule and they have been borrowing up money by the truckloads.  THIS is why corporate balance sheets are so cash flush.  They grabbed the low rates rather than dilute with new share issuance.

So there you are, a company with enormous cash totals.  What do you do with it?  You do NOT hire.  Instead, you spend it on CapEx.  This is why ORCL and CSCO and MSFT are still making profits.  There is no end user demand, but their customers are not end users.  They are all B2B people, burning their borrowed money on "investment" on anticipation of end user demand in the future.

When that doesn't appear, the borrowed money will have been spent.  Those companies will stop the CapEx flood into ORCL and others.

That can won't have any more road left.


Sat, 09/18/2010 - 03:11 | 589224 Widowmaker
Widowmaker's picture


Sat, 09/18/2010 - 06:25 | 589366 Snidley Whipsnae
Snidley Whipsnae's picture

Exactly right. I hear a lot of blather about 'cash on the sidelines' one talks of the 'debt on the sidelines' that was issued to get the cash.

Sat, 09/18/2010 - 12:47 | 589625 doolittlegeorge
doolittlegeorge's picture

even more interesting.  and clever, too.

Sat, 09/18/2010 - 12:58 | 589629 Eternal Student
Eternal Student's picture

An insightful reply to an insightful post. Well done to you both. Wish we had more of these.

I'd only add that the SF Bay Area has been in la-la land because of it. Home prices still high, and traffic near the dot-com boom levels (not quite that bad, but still way up there). It's really a change when you travel to other parts of the country and see how most everyone else has been impacted. This will change, of course. But right now, tech is high on hopium.

Sat, 09/18/2010 - 14:12 | 589736 Pez
Pez's picture

Yes, don't forget appl. Weren't Cap Expense Depreciation rates favorably changed to benefit Corp tax rates?

Sat, 09/18/2010 - 01:26 | 589232 idoubtit
idoubtit's picture

Listen folks, this is how it's going to go down:

As Tyler said:

"Alternatively, the Fed can merely force credit into traditional bank liabilities, which banks can then proceed to use and purchase stocks and commodities, at a zero cost of debt. What that will do to select asset prices, we leave to our readers' imagination."

Yes.  Commodities will shoot up from this injection of liquidity.  But if you notice a pattern, every time a commodity shoots up to new highs, it comes tumbling down.  Why?  Because for inflation to develop on a sustainable basis, there needs to be credit growth.  Printing money for primary dealers to goose up commodity prices will only produce temporary mini-bubbles that will always fail.  The reason for that is that the end users don't have money to pay higher prices in an environment of deleveraging.  You guys remember the spike in lumber prices a while ago?  It lasted less than a month.

If it costs $5 for a 2x4 and all everybody has is a $1.65 in their pocket, guess what?  That 2x4 will come down in price.  In the previous era of expanding credit, where people had room to increase their debt servicing, people could borrow the money to pay for inflated prices. ie. housing bubble.  But those days are done.  Until we delever to the point we can actually support increased debt servicing, Bernanke can give all the money he wants to banks and squat will happen.

He needs people to borrow.  And people can't anymore.



Sat, 09/18/2010 - 02:29 | 589274 i.knoknot
i.knoknot's picture


"He needs people to borrow.  And people can't anymore."

it's worse, even if folks wanted to borrow, they don't qualify. the banks know what's *really* going on the outside, because of what they see and are being told to do on the inside. they aren't going to part with the few pennies they have left.

you should see the hoops and rule changes that accompany a simple re-fi these days. these banking folks are scared.

low interest rates only matter if a loan is actually consumated. heh.

watch the other hand, folks.

Sat, 09/18/2010 - 11:32 | 589538 trav7777
trav7777's picture


The 2x4 cannot be sold below true cost as denominated in energy.

Sat, 09/18/2010 - 11:51 | 589562 idoubtit
idoubtit's picture

What's true cost?  Are you one of those people that own a house and insist that it's worth more than somebody else wants to pay?  What about the house that sold for $1 in Detroit?  What was the "true cost denominated in energy" then?  That's what many people don't realize.  Assets and commodities have no intrinsic value.  The "value" is derived solely from what people can and want to pay at the current time.

Maybe you can use your "true cost denominated by energy" line when somebody lowballs you when you try to sell your bike on craigslist.



Sat, 09/18/2010 - 12:10 | 589583 Not For Reuse
Not For Reuse's picture

LOL if no one has over $1.65 but it costs $1.66 to produce a new 2x4 then good luck finding one on "craigslist" after extant supply is consumed

Sun, 09/19/2010 - 00:41 | 590333 SnarkAttack
SnarkAttack's picture

I believe GM had a business model predicated on this exact outcome.  They lost money on every sale but made up for it with volume.

Sat, 09/18/2010 - 12:13 | 589585 JackTheOffer
JackTheOffer's picture


The 2x4 cannot be sold below true cost as denominated in energy.

Wrong.  You mean it can't be produced unless the energy cost of producing it is invested.  However, once produced, it can certainly sell for less, with the producer eating the loss.  Should that continue, the producer will go out of business, and production will cease.  You confused sale with production.

Sat, 09/18/2010 - 12:48 | 589626 doolittlegeorge
doolittlegeorge's picture

let alone adding the cost of energizing the 2X4.  of course "they say that's the cheapest part."

Sat, 09/18/2010 - 15:10 | 589837 Kayman
Kayman's picture

Wood is one of the lowest consumers of energy on the planet. Producers that have invested in economies-of-scale have run in to diminishing returns in a shrunken U.S. housing market.

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