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Why QE2 + QE Lite Mean The Fed Will Purchase Almost $3 Trillion In Treasurys And Set The Stage For The Monetary Endgame

Tyler Durden's picture


Recently the debate over when QE2 will occur has taken a back seat over the question of what the implications of the Fed's latest intervention in monetary policy will be, as it is now certain that Bernanke will attempt a fresh round of monetary stimulus to prevent the recent deceleration in the economy from transforming into outright deflation. Whether or not the Fed will decide to engage in QE2 on its November 3 meeting, or as others have suggested December 14, and maybe even as far out as January 25, the actual event is now a certainty. And while many have discussed this topic in big picture terms, most notably David Tepper, who on Friday stated that no matter what, stocks will benefit from QE2, few if any have actually considered what the impact of QE2 will be on the Fed's balance sheet, and how the change in composition in Fed assets will impact all marketable asset classes. We have conducted a rough analysis on how QE2 will reshape the Fed's balance sheet. We were stunned to realize that over the next 6 months the Fed may be the net buyer of nearly $3 trillion in Treasurys, an action which will likely set off a chain of events which could result in rates dropping all the way to zero, stocks surging, and gold (and other precious metals) going from current price levels to well in the 5 digit range.

A Question of Size

One of the main open questions on QE2, is how large the Fed's next monetization episode will be. This year's most prescient economist, Jan Hatzius, has predicted that the minimum floor of Bernanke's next intervention will be around $1 trillion, which of course means that he likely expects a materially greater final outcome from a Fed that is known for "forceful" action. Others, such as Bank of America's Priya Misra, have loftier expectations: "We expect the size of QE2 to be at least as much as QE1 in terms of duration demand." As a reminder, QE1, when completed, resulted in the repurchase of roughly $1.7 trillion in Treasury and MBS/Agency securities. It is thus safe to assume that the Fed's QE2 will likely amount to roughly $1.5 trillion in outright security purchases. However, as we will demonstrate, this is far from the whole story, and the actual marginal purchasing impact will be substantially greater.

A Question of Composition

Probably the most important fact that economists and investors are ignoring is that QE2 will be accompanied by the prerogatives of QE Lite, namely the constant rebalancing the Fed's balance sheet for ongoing and accelerating prepayments of the MBS/Agency portfolio. This is a critical fact, because once it becomes clear that the Fed is indeed commencing on another round of monetization, rates will collapse even more beyond recent all time records (and if we are correct, could plunge all the way to zero). What is very important to note, is that as Bank of America's Jeffrey Rosenberg highlights, a material drop in rates, which is now practically inevitable, is certain to cause a surge in mortgage prepayments of agency securities: "Our mortgage team highlights a 100 basis point decline in rates would raise the agency universe of mortgages refinanciability from currently about half to over 90%." (full report link)

The fact that declining rates creates a feedback loop on prepayments, which in turn results in more security purchases and even lower rates, is most certainly not lost on the Fed, and is the primary reason for the formulation of QE Lite as it currently exists. Indeed, those who follow the Fed's balance sheet, are aware that the MBS/Agency book has declined from a peak of $1.3 trillion on June 23, to $1.246 trillion most recently, a decline of $53 billion, which has been accompanied by $25 billion in Bond purchases, resulting in such direct FRBNY market involvements as $10 billion weekly POMOs. These, in turn, are nothing less than a daily pump of liquidity into the Primary Dealers (who exchange bonds boughts at auction for outright cash) by the Fed's Open Market Desk, which then liquidity is used to the PD community to bid up risk assets.

If we are correct in our assumption that on November 3, the Fed will announce a $1.5 trillion new asset purchase program, the implications of the previous observation will be dramatic. We additionally believe, that unlike QE1, the Fed will be far less specific as to the composition of purchases this time around, specifically for the aforementioned resion. As the Fed adds an additional $1.5 trillion in total assets, and as 10 Year rates, and thus 30 year cash mortgage rates, drop, the prepayment frequency of the Fed's existing MBS/agency book will surge, until it approaches and surpasses BofA's estimated 90% in a very short period of time. And courtesy of its QE Lite mandate, the Fed will purchase not only $1.5 trillion of US Treasurys as part of its new QE2 mandate, but will actively be rolling those MBS and Agencies put to it by the general public. As a result, it is our belief that over the six months beginning on November 3, the Fed will end up purchasing almost $3 trillion in US Treasurys in total. This can be summarized visually as follows:

As the chart shows, while the Fed's balance sheet grows from its current level of $2.3 trillion to $3.8 trillion, it is what happens to the Treasurys held outright by the Fed that is most disturbing: from $800 billion, we expect this number to surge to nearly $3.6 trillion in just over half a year, a massive increase of almost $3 trillion. The implications of this asset "transformation" on the Fed's balance sheet, not to mention those of US retail and foreign investors, and capital markets in general, will be dramatic.

Offerless Bonds?

One of the main problems facing the Fed in indirectly monetizing US Treasurys (keep in mind the proper definition of monetization is the Fed buying bonds directly from the Treasury, as opposed to using Primary Dealer middlemen, which is how it operates currently), is that there simply are not enough bonds in circulation to be bid, under its current regime of operation! Readers will recall that as part of existing SOMA guidelines, the Fed is limited to holding at most 35% of any specific marketable CUSIP. Furthermore, applying the SOMA limit to the $2 trillion in upcoming next twelve month issuance, means that in the interplay of the prepayment feedback loop coupled with collapsing rates, the Fed will need to either change the cap on the SOMA 35% limit, or the Treasury will need to issue far more debt to keep up with the sudden expansion in the Fed's outright, and not just marginal, capacity for incremental debt. Priya Misra summarizes this conundrum facing the Fed best:

We examine the Treasury market to analyze which part of the curve might benefit the most from Fed buying if it embarks on QE2. The constraints will come in term of the 35% SOMA limit as well as current outstandings and issuance profile. Table 5 provides the breakdown of average SOMA holdings and eligible dollar amount outstanding by sector. We estimate that in the nominal coupon universe, there is currently $1.3trillion in outstanding eligible issues for the Fed to buy. We compute eligible number of issues as the amount the Fed can buy without breaching its SOMA limit of owning 35% of the issue size. Considering that the Fed has not purchased 0-2 year securities in either QE1 or the reinvestment program so far, the eligible universe reduces to $935billion. Interestingly, $560bn of this is in the less than 7 year sector.

While the total eligible securities may seem like a low number in the context of QE2, we expect $2.1tn in gross issuance over the next year. Adding 35% of this gross issuance to the total, the Fed will have $1.67tn in eligible nominal outstanding to purchase without breaching the 35% limit. However, depending on the total size of QE2, much of the buying might have to be concentrated in the 2-7 year sector. To the extent that the Fed wants to keep long end rates low, it might have to increase the 35% SOMA limit, or the Treasury could change issuance.

We believe that the resolution to the limited supply question will be found promptly, as the last thing the US government and Treasury need is to be told that they need to issue more debt. We are confident they will obligly handily. From a purely structural perspective, suddenly the entire UST curve, and not just the "belly", will be offerless, as the Fed will now have a mandate of buying up virtually every single bond available in the open market, and then some! What this means is that rates will promptly plunge, and while many have noted the possibility that the 10 Year drops below 1% upon the formal announcement of QE2, we believe there is a very high probability that even the long-end can see rates drop substantially below 1%, while the 10 Year approaches 0%. Keep in mind that this move will not be predicated upon inflation expectations whatsoever (and in fact we believe this is merely the first step to an outright monetary collapse also known in some textbooks as hyperinflation), but merely as a means of frontrunning Ben Bernanke, as the entire bond market goes offerless, knowing full well that the Fed will buy any bond below its theoretical minimum price of 0% implied yield (we leave it to our readers to determine what this means price-wise on the curve). It also means that the Fed will finally cross the boundary into outright monetization, as Bernanke will be forced to directly bid for any new paper emitted by the US Treasury, to maintain the tempo of its purchases.

Asset Implications

As we have noted above, the immediate implication of the vicious (or virtuous if you are Ben Bernanke) feedback loop of collapsing rates, prepayments, and accelerating UST purchases, is that mid-and long-term rates will likely promptly approach zero, as every UST holder realizes they are now the marginal price setter in a market in which there is a bid for any price. The Fed will merely render the traditional supply/demand curve meaningless, and any bonds offered for sale at any price will be bid up by Brian Sack. The implication on stock prices is comparably obvious: to readers who have been confounded by the impact on stocks when there is $10 billion worth of POMOs in a week, we leave to their imagination what the impact on 4x beta stocks will be once the Fed floods the market with $90 billion worth of weekly liquidity, which is what we calculate to be the peak repurchase activity between the months of January and March, as QE2 ramps up to its full potential. In this vein, analysts such as Deutsche's Joe LaVorgna who this Friday came out with a note advising clients not to "Fight the Fed" (link) may take the message to heart. After all, if this last attempt by the Fed to spur asset price inflation, in which Bernanke is effectively telling the consumer that a house can be had for no money down, and for no interest ever, thereby eliminating the risk of price deprecitation, fails, it is game over.

And speaking of game over, we dread to look at a chart of the DXY in early 2011. The dollar will plunge, pure and simple, as the Fed makes it clear that it will not tolerate currency appreciation. Also, don't forget that as a side effect of QE2, another component that will surge in addition to Fed Treasury holdings, will be excess reserves held by the banks. If we are correct in estimating that the Fed's assets will explode to $3.8 trillion, then bank excess reserves will skyrocket by a factor of 150% from the current $1 trillion to well over $2.5 trillion. The immediate casualty of this will be the US Dollar: one needs to look no further than 2009 to see what happened to the DXY when excess reserves increased by $1 trillion, in order to extrapolate what happens when it becomes clear that Bernanke is prepared to put any amount of liabilities on the Fed's balance sheet in its latest reflation attempt. And if anyone had doubts about the Fed being able to successfully absorb $1 trillion in excess reserves accumulated through QE1, all those concerns will be put to rest once the number hits $2.5 trillion, or more.

Which brings us to gold. Needless to say, once the full "all in" realization of just what QE2 means for risk assets and capital markets sets in, gold (and other physical commodities) will promptly go from its current price of $1,300 to a number well in the five-digit range. We leave it up to our readers to provide the actual digits.

In summary, David Tepper may well be right that stocks will benefit from QE2, as will Bonds and as will commodities. In fact, every asset class will explode in a supernova of endless liquidity. To be sure, all of this will be very short lived. Very soon, all those assets denominated in fiat paper, will promptly collapse in the great black hole of reserve currency devaluation, as it becomes clear that the Fed will stop at nothing to win the race of global currency debasemenet. And of course, none of this is to be confused for an actual improvement in the economy, as QE2 will result in a dramatic and irreversible deterioration in the US, and thus global, economy, which, once the initial euphoria from QE2 recedes, will promptly progress to isolationism, protectionism, currency wars and exponentially accelerating monetization of each and every asset class, thereby rendering price discovery irrelevant, as central banks around the world stampede into irrelevant capital market, each buying up as much of everything as their printing presses will allow them, until the ink runs dry.

At this point we refuse to pass ethical judgment on the Fed's actions. The Fed will do this action regardless of what happens on that other fateful event scheduled to take place on November 3. If it does not, asset prices will collapse leading America into a deflationary vortex of deleveraging, and Bernanke is fully aware of this. The only reason the market has found some validation to the September risk asset surge, is the "certainty" of QE2. Were this to be taken away, stocks would plunge, as would all other assets. And since the Fed is uncontrollable, and unaccountable to anyone, it is now impossible to prevent this line of action, whose outcome is what some may be tempted to call, appropriately so, hyperinflation. The direct outcome will be an explosion in all asset prices, although we continue to believe that of all assets, gold will continue to outperform both stocks and bonds, as recently demonstrated. Those who are wishing to front-run the Fed in its latest and probably last action, may be wise to establish a portfolio which has a 2:1:1 (or 3:1:1) distribution between gold, stocks and bonds, as all are now very likely to surge. We would emphasize an overweight position in gold, because if hyperinflation does take hold, and the existing currency system is, to put it mildly, put into question, gold will promptly revert to currency status, and assets denominated in fiat, such as stocks and bonds, will become meaningless.

And while Zero Hedge refuses to condemn what is now openly an act of war against the US middle class and the country's holders of dollar-denominated assets, by Ben Bernanke, who is fully aware what the implications of QE2 will be, we were delighted to read a brief note by none other than Bank of America's Jeffrey Rosenberg, who analyzes the costs of QE2, and comes to a politically correct conclusion which recapitulates everything said previously.

The costs of QE 2 in our view however go beyond the cost benefit analysis Chairman Bernanke highlighted in his Jackson Hole speech. There, the Chairman highlighted two key risks to additional purchases of longer-term securities. First, that they do not know with precision the effect of changes in Fed holdings of securities on financial conditions. On this point we have emphasized on numerous occasions that the main consequences of QE1 to date have been financial asset inflation. Further purchases under QE2 hence in our view would likely be limited in impact to furthering this process of asset inflation. However, the costs of even further asset inflation would likely accelerate the risks associated with what we characterize as conditions conducive to the growth of a credit bubble: low global yield levels, tight credit spreads, and an excess of demand for credit relative to supply. While those characteristics create asset inflation and form the backdrop of our near term bullish outlook on risky asset class performance, the risks of sparking future credit bubbles with their attendant systemic risk consequences grows under a scenario of QE2, in our view.

It’s the (lack of) confidence, stupid

The second risk highlighted in Jackson Hole by the Chairman concerns the confidence effects of Fed’s ability to exit accommodative policy and shrink the size of its balance sheet. While we agree with the notion that the key risk is one of confidence, the confidence impact of greater near term importance may lie less with concern over the Fed’s eventual ability to exit and more with what expanding QE2 says about the Fed’s confidence in its ability to utilize monetary policy to address deflationary risks.

Bernanke acknowledged that fiscal policy needs to be part of the policy response and that “Central bankers alone cannot solve the world’s economic problems.” In our assessment, further liquidity injection beyond some additional marginal transmission mechanism into mortgage refinancing or housing affordability would achieve little impact on the real economy. Much of the liquidity benefit of QE1 for the commercial side of the economy already remains on display in the form of very high rates of corporate refinancing activity. Additional rate declines from QE2 would add only marginally to those trends well underway. For smaller corporates or small business, QE1 did little to expand lending, though QE1 likely did prevent even further declines in lending. However, QE alone appears incapable of leading to expanding lending as the problems today shift from one of supply to one of demand. Chart 5 illustrates the stabilization of lending and how most of the Fed’s expanded balance sheet remains in the form of cash, not loans. Chart 6 shows that even as banks have eased underwriting standards, the demand for loans remains low.

Rather than liquidity – and its potential augmentation from expanding QE - the key issue behind the inability to see credit expansion and the weakness of monetary policy more broadly to affect a more positive economic outlook is confidence. And this leads to our final cost analysis on QE2. Where confidence stands as the key issue for the economy, expanding QE2 may end up doing more damage than good as the confidence loss from a Fed indicating its fears of deflation through expansion of QE2 as well as the follow on loss of confidence from the diminishing impact of further QE leads to a loss in confidence whose costs outweigh those of the benefits of further reductions in long term rates.

Perhaps at this point it is prudent to recall what the first definition of credit is:

1. Belief or confidence in the truth of something.

By that defintion, America's "credit" has ran out.


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Sun, 09/26/2010 - 01:05 | 605138 Alexandre Stavisky
Alexandre Stavisky's picture

Everlastingly men seek to further their comfort in this world.  Best it is done by barter with their fellow man in strict adherence to regulatory law derived from the most fair law.  The garden of creation is defiled when men seek to obtain by fraud or force.  Rather than farm or manufacture, men try to take by sword and rule of rigour.

There is no component of monetary transaction so necessary as morality.  That one agent may completely exchange with another completely, without subtlety, innuendo, winnowing attainder, or smallest reservation.  That both meet, make durable comparison and equal trade, and part, without any further engagement is the quintessential act of perfect trade.

But small men cannot allow such perfect exactitude.  They must find ways to control not only the unit of account, but also must monitor and exact tax upon each and every capability of man that makes a switch that furthers his material comfort.  Small men must control the most perfect commodity used which SHOULD hold indefinitely the summations of his exchange.  And then they corrupt and make fast half-life degradation of it.  Next, they learn the careful ability of holding their fellow (but infinitely duller) neighbors in annual servitude.  This they do by both condemning their fellow by the law if he does not offer up tribute to the state yearly of whatever paltry gains he may make by sweat and blood, also they do so by by issuing (without the citizen's EVERY consent) new bonds of differing duration which claims upon his futurative labour.  This shall be torn from his economic body whether he is ready or no.

The men who seem most readily able for such a mercenary performance are those who are supposed to espouse the highest of high ideal.  These are the men of high state, supposed of purest motives, without personal thought, whose every purpose and, indeed, devotion should be to the betterment of their fellow men.

Too bad that this is a lie.

They seek office for vanity and riches.  They suborn the idyllic laws to obtain that which is not inherently within them.

They promise far beyond their capacity to deliver.  Their promises, built upon broken backs of the yeomen who (ignorant of their treacherous barter) believe in the gilded guiding lights of a constitution or bill of rights, are subtracted from those who virtuously act to better their lives and those under their husbandry.  The malefactors, by their subterfuge, are enriched (but never satisfied) while the good find their stores raided, their ample labour made suddenly unsatisfactory for durable existence.

Those whose existence is pretenced upon stewarding the storehouses of all, and whose earliest nursings were in the mother's milk of Judeo-Christianity, lately seem to spurn the simplest of black law.  THOU SHALT NOT STEAL.  Thou shalt not debase.  Thou shalt not sneak, nor take without equal exchange.  Thou shalt not make uneasy, the populace who depend upon you to safeguard their stores.  Thou shalt not deprive they neighbor of his substance.  Thou shalt not try to mask the insolvency which long arrogance against the laws of GOD and man have brought you to.  Thou shalt not seek to place the want of idleness upon thy industrious neighbor.  Thou shalt not seek to obtain abundance in excess of the possible.

This nation and many of its inhabitants have unwittingly imbibed from a fouled fountain.  That fountain is the same as Sodom and Gomorrah.  Its art and downfall was in taking riches not earned by setting foottraps and snares for the unaware wayfarer.  Making and innocent sin and defile himself against the law in order that the snaresetter may strip him of his goods--and possibly set him wounded in an infrequented road.  This is their art.  This is their means of attaining a marketbasket.  THIS IS AN ABOMINATION TO HE WHO PUT THEM UPON THIS TINY BLUE STONE.

This is the policy and urgent work that the central bankers about the world enact.


Put the balance sheet right.  Liquidate that which must be.  Let the chips fall where they may.

Usury has always been proscribed in all holy literature.  Kick against the pricks as they try, they cannot remake the old laws.

Bankruptcy must be declared.  The wound must be endured.  The healing begins only when the fullness has been suffered.

Otherwise it is maelstrom, limbo, zombification, a world of never movement.

The earth hates a cheat, a tyrant, a liar, a thief.  Yet this is all the financial world is composed of anymore.  In great and small degree.  It is time that those who hope for a higher plane, turn their back and never look back upon a system that has no future and infects all who touch it.

Sun, 09/26/2010 - 02:57 | 605200 Bob Sponge
Bob Sponge's picture

May God bless us all with the ability to live through this and come out the other side with a better world to live in.

Sun, 09/26/2010 - 07:34 | 605302 Bruce Krasting
Bruce Krasting's picture

Unfortunately there is very little prospect that we will get to the "other side" and the world will be better. It is almost certain it will be worse. The problem is that for many of us it will be "worse" for the rest of our lives.

Sun, 09/26/2010 - 08:09 | 605320 MichaelG
MichaelG's picture

Even less prospect of God playing a part unless He starts buying USTs in size.

Sun, 09/26/2010 - 11:49 | 605515 MichaelG
MichaelG's picture

If that was an 'I like God' junk then it is incumbent upon you to elaborate as to how God will help at this juncture.

Sun, 09/26/2010 - 14:24 | 605689 Sudden Debt
Sudden Debt's picture

I wonder how many junks you would have got if you said thing like "GODDAMN" or "HOLY FUCK". My bet... more then 2.

Sun, 09/26/2010 - 15:34 | 605793 Harbourcity
Harbourcity's picture

We're screwed.  God has been dead for a long time.


Sun, 09/26/2010 - 16:47 | 605888 Bananamerican
Bananamerican's picture

actually, if you strip out the Nick Cave verbiage, Alexandre pretty much nailed his Jeremiad.

BTW, I junked ya Harbourcity.

Of course there IS a god (sans penis nor beard...). We wouldn't even be here kvetching about the Drama if there wasn't....We're screwed because MAN has been dead for a long time....We're screwed because Man is an amnesiac with "urges"


Sun, 09/26/2010 - 11:49 | 605516 l1xx3r
l1xx3r's picture

LOL +10

Sun, 09/26/2010 - 08:28 | 605329 Hephasteus
Hephasteus's picture

This is a "gentle" application of bad behavior. Create a crisis, disrupt everyones dreams and plans to reformat and reforge the way the world will be changed to. Like emptying the bank account and buying a boat without talking to your wife it's a power play. No holds barred comes after it doesn't work.

Of course they don't want this to be a horrible hell on earth. They just want you to go back to school pile up a student loan and work 12 hours a day for next to nothing making their new world. You know how to fix a stator on a 50 foot wind turbine. They want to teach you.

Sun, 09/26/2010 - 10:31 | 605405 DaveyJones
DaveyJones's picture

"Central bankers alone cannot solve the world’s economic problems.”  No, but they sure can create them

Sun, 09/26/2010 - 19:57 | 606174 Misstrial
Misstrial's picture

CB'ers controlling currency paper are like muons in the Hadron Collider.


Sun, 09/26/2010 - 12:27 | 605555 alien-IQ
alien-IQ's picture

the effect this will have on food and fuel prices combined with the fact that it will almost certainly fail to do any good for the economy may very well take this country to the tipping point of social order.

quite clearly...the enemy has breached the castle walls and is now among us.

this is gonna get ugly.

Mon, 09/27/2010 - 04:28 | 606716 Bringin It
Bringin It's picture

Among us ... Humungus ... And among us.

Sat, 07/02/2011 - 18:55 | 1421691 cole
cole's picture

After 10 months of your comment I think tienez reason and in Europe beginning to take to the streets in protest of the workers cutting measures. Other countries such as Portugal, Italy and Spain with major problems

Alquiler de pisos - Hipotecas - Fotos de paisajes

Sun, 09/26/2010 - 12:50 | 605590 Ned Zeppelin
Ned Zeppelin's picture

This is an important ZH post. This is the future. This is what is happening.  Few notice, and 98% don't care.

Sun, 09/26/2010 - 13:23 | 605623 masterinchancery
masterinchancery's picture

Which lives, in the event of currency collapse, may well prove nasty, brutish, and shortened.

Sun, 09/26/2010 - 15:31 | 605789 doolittlegeorge
doolittlegeorge's picture

quite a meltdown "engineered at the top" indeed.  of course name a single government phuck who ever respected a work ethic.  "you come to us" is what i was told.

Mon, 09/27/2010 - 04:30 | 606717 Bringin It
Bringin It's picture

I think Cheney worked hard.  He did manage to get himself a bum ticker.

Sun, 09/26/2010 - 03:42 | 605223 anonnn
anonnn's picture

The Free Market

Contract With America

 Financial Innovation

 Fine Print

Edward Bernays* must be so proud.

*Father of modern Propganda [publ.1932]

Sun, 09/26/2010 - 04:56 | 605241 Hdawg
Hdawg's picture

great book ... just reading it

Sun, 09/26/2010 - 15:54 | 605826 Thomas
Thomas's picture

Makes a helluva sauce too.

Sun, 09/26/2010 - 16:25 | 605862 SWRichmond
SWRichmond's picture

Don't be saucy with me, bernaise.

Sun, 09/26/2010 - 06:02 | 605261 nmewn
nmewn's picture

I have no idea why you were junked twice.

"They seek office for vanity and riches.  They suborn the idyllic laws to obtain that which is not inherently within them.

They promise far beyond their capacity to deliver.  Their promises, built upon broken backs of the yeomen who (ignorant of their treacherous barter) believe in the gilded guiding lights of a constitution or bill of rights, are subtracted from those who virtuously act to better their lives and those under their husbandry.  The malefactors, by their subterfuge, are enriched (but never satisfied) while the good find their stores raided, their ample labour made suddenly unsatisfactory for durable existence."

If there are only two ignorant SOB's left lurking here, all has been done that can be done.

Sun, 09/26/2010 - 09:13 | 605347 Sabremesh
Sabremesh's picture

Comments on a financial blog which make constant reference to absurd iron age religious beliefs are junk, by definition.

If you have a point to make, drop the fire and brimstone mumbo jumbo.

Sun, 09/26/2010 - 09:37 | 605357 nmewn
nmewn's picture

First, I did not junk you.

Second, find for me the reference to any religion from the quote I pulled from the post above.

Third, my impression is, your avatar has a distinctly "iron age" feel to it. Why would that be?

Sun, 09/26/2010 - 12:56 | 605599 gmrpeabody
gmrpeabody's picture

They obviously are having problems comprehending what they are reading.

Sun, 09/26/2010 - 10:44 | 605423 fiftybagger
fiftybagger's picture

Science and technology advance.  Right and wrong are fixed.  Hence your delusion...

Sun, 09/26/2010 - 12:55 | 605596 nmewn
nmewn's picture

"Science and technology advance.  Right and wrong are fixed."


I have always found the vehement protesting of any and all references to a religion (particularly the Christian faith) the discussion progresses, the protestor will become...well, quite strident and dogmatic. Exactly the thing he say's he opposes.

It's almost as if they were tied down to a bed and holy water is being sprinkled on them...ROTFL.

To think an entire post on the legal, ethical, moral implications of debasing the currency and what that actually does to real people and pointing out the evil that it really is...deserves to be junked because in the discussion of morality the author touches on religion is absurd.

I'm no shrink...but there is something there to be explored by people smarter than I.

Sun, 09/26/2010 - 14:36 | 605709 JR
JR's picture

Well said, nmewn. There’s a point to be made concerning the discussions here on religion and the junking practice.  This is a financial site and given the financial crisis our nation is now enduring there is one word that some people believe has religious overtones but is a word perhaps more appropriate to the financial crisis and the times we are facing that any other.  And that word is: Usury.  

Yes, it is biblical but it now is current.  There is an avalanche of precious value--realized by everyday Americans working, saving and dreaming of a future--that is sliding into the pockets and estates of financial tyrants.  Their weapon in this transfer is usury-- fashioning laws and regulations and adopting bribery, political blackmail and the lethal force of a superpower to force the transfer.

In addition, in any discussion of economics and markets, there is a definite need to deal with the principles of ethics and morality.  And to suggest that these terms derive from a religious source is to be absolutely correct.  In this country, the source was the Christian beliefs of the Founders who applied in the Constitution the trust that freedom was derived from God and not from man and that freedom created a climate where prosperity and sound money would thrive.  This trust built an American system that prospered on voluntary support by the people of that government and its public officials bound by that Constitution.  Surely, this then forms the basis for operative free markets.

Sun, 09/26/2010 - 15:36 | 605798 doolittlegeorge
doolittlegeorge's picture

let's do something.

Sun, 09/26/2010 - 19:09 | 606106 nmewn
nmewn's picture


Agree and I did want to speak on this now that I have some time.

The thing, the charging of interest (usury) I can find nothing inherently wrong with. It can be dangerous if abused like a lot of things. I look at it like a knife or a baseball bat. Either can be used for good or evil. If we are to be truly free we must be free to make decisions for ourselves and live with the consequences whether they're good or bad.

To charge for the use of excess savings cannot be wrong, I would think, because what you are doing is placing your earned labor in the hands of another. The interest is a form of payment for the amount of time one cannot access ones prior labors (savings) should the need arise. This is all predicated of course on excess savings. I would be interested in your view on this as to it's general morality.

The problem, as I see it, is it's monopoly abuse by the federal government who has the ability (and apparently the will) to devalue the return of your labor plus interest, agreed to by contract between two interested parties, at any given moment, by debasing the currency...the medium of exchange between the two.

And, of course the obvious, there is no savings to be loaning from...LOL.

The attendant problem to all this is the political will to stop spending what they don't have. If a politician knows the fed can just create money out of thin air there is no discipline to not give people what they clamor for...always.

In our real world, if it comes down to food on the table or a new toy for the child most parents opt for food on the table and let the kids scream their heads off...until they get outside ;-)

Sun, 09/26/2010 - 22:44 | 606381 CrackSmokeRepublican
CrackSmokeRepublican's picture

Hey nmewn,


How many times have the Jews been kicked out of a country for

practicing TALMUDIC Usury which is "Sanctified" in their Babylonian Talmud? 


Can you count that high and let us know here...?

Is the number higher than 70?


Like Bernanke or Soros... Jews at the end of the day are not that smart and should not be left to practice their religion on unsuspecting "Goyim" (Cattle)...

Someday, the boot will find your Jew Scamming ass... ;)  ... won't it.


Too bad ZeroHedge doesn't have a "Jew Wise" flag on their board... lol...




Parallels between Talmudic and New York Usury Laws
Bernard J. Meislina
Member of the New York Bar
meislin bj

The two jurisdictions with the greatest volume and complexity of laws dealing with usury are the United States and Israel. England, the wellspring of our common law, and one of present-day Israel's legal fonts, did away with all regulation of interest over a century ago. All of continental Europe contains only two or three jurisdictions which apply legal limits to interest on loans. The communist countries present a special situation since private loans at interest have no official place in the economic system. Islamic countries, like Pakistan, constitutionally frown on interest but it is present in practice, thereby embarrassing the secular authorities. However, the extent of legal experience with loans at interest in all other jurisdictions combined does not rival that wealth of elaborate study which is to be found in judicial decisions and legislative documents in American and Jewish law. It is, therefore, of interest to examine from a comparative standpoint the approach to usury taken by United States' courts and by Jewish legal authorities to see in which respects they differ and are similar.

Mon, 09/27/2010 - 00:24 | 606526 JR
JR's picture

I agree with everything you say, nmewn; it was very well put.  Still, I think the traditional concept of interest paid on money loaned doesn’t mean anything in an age of fiat money with excessive Fed printing and where one side is lying about inflation.  It’s no longer a good deal, dealing with the banks.

Interest on a borrower’s use of a saver’s stored value, i.e., his money, should be worth more than a negative inflation rate. When the banks pay less on your deposited savings than the rate of inflation, I consider that usury.  Under special arrangement with the Fed, the bankers can now bypass your deposited earned savings because they don’t need your money to lend any longer. The Fed is giving them unbacked free money created out of thin air.  Thus, saved earnings backed by value have been pushed out of the picture by counterfeit money bereft of support.  

The end result of a monetary unit that is not backed by a commodity of honest weight is the destruction of a sound monetary system, IMO.

This is not only unfair; it is thievery, i.e., legal plunder, i.e., usury. If I store my money at Bank of America for 1% with inflation running at 8.5% (calculated per SGS 1980 method) as it currently is, and BofA loans that money out on credit for 29.85%, that’s usury; they are taking advantage of me and the borrower.  When the Bible was written, there was no fiat money; it’s a new invention and it’s time, IMO, to redefine usury taking into account the illegal creation of money out of thin air.

As Greenspan once said, the “shabby secret” of paper money is that it is nothing more than a “scheme for the hidden confiscation of wealth.”  Our Founders warned against the temptation to seek wealth and fortune without the work and savings that real prosperity requires.

If there is no free lunch, why should JPM and BofA be able to eat ours...?

Mon, 09/27/2010 - 06:27 | 606771 nmewn
nmewn's picture

I guess you've convinced me.

Not that it's immoral conceptually, but because of the intervention between the two party's (the loan giver/taker) by an alliance between the state & the fed as was warned about by many at our founding as a nation.

I had been of the opinion that (theoretically) there should be no limit one can charge on interest as the market would quickly weed out those who charge excessive interest or fees, provided there is competition...that is, no monopoly.

With this state/private alliance in place there can't be a free market. It is simply Guido or Vito...LOL.

Thanks for your thoughts JR.

I see you and Seer are having an exchange around this topic as well...freedom of religion does not mean freedom from religion.

One wonder's what the words Divine Providence mean to him? ;-)


Sun, 09/26/2010 - 23:28 | 606437 Seer
Seer's picture

"In this country, the source was the Christian beliefs of the Founders who applied in the Constitution the trust that freedom was derived from God and not from man and that freedom created a climate where prosperity and sound money would thrive.  This trust built an American system that prospered on voluntary support by the people of that government and its public officials bound by that Constitution.  Surely, this then forms the basis for operative free markets."

Freedom was derived from "God?"  False. That was not stated that way: it's NOT in any official document.  Feel free to point out your reference.  Further, to speak as though the "founders" were somehow on the same page is, well, wrong.

The "success" of the American Experiment is nearly ALL attributable to the fact that there were untold, untapped riches, "free" for the taking.  This country was built pretty much the way EVERY country was built: through genocide and slavery.  I have to laugh that somehow, after the the thousands of years of mankind's civic-oriented march that somehow, magically, everything "clicked" upon setting foot on the North American continent, that mankind all of a sudden became more civil.

It's awfully convenient to externalize and mythologize.  This story sure has meant success for the few who control the bulk of the ownership society.

Mon, 09/27/2010 - 01:01 | 606568 JR
JR's picture

Seer, “ownership society” is a catch phrase of the Marxists.

I consider the Declaration of Independence the most official and authentic document ever produced in the world.  It signifies and separates the colonies from the mother country.  And if that isn’t an authentic document, I don’t know what is.  The Constitution was an understanding that the Founders were there to forge a new country based on freedom, a foundation that was detailed in the Declaration of Independence.

The Declaration of Independence is just as important as the Constitution, IMO.

As far as the premise that the Founders had the approval of God, there are thousands of pieces of correspondence between them that prove this beyond a shadow of doubt.

Jefferson’s preamble said that the reason for the declaration is that man has certain rights, and we claim those rights, and those rights were given by God.  We fought a war for that reason—because we had rights given to us by God.  That was enough; no more was needed.

The Declaration of Independence was the basis for the Revolutionary War and established the independence of the colonies of America.  It was the line in the sand—a declaration of war; it was the establishment of America.

I’m hoping, Seer, that your are not like Elena Kagan and Obama and are going to dismiss the foundation of America as it was established after the Declaration of Independence—and signed by men representing the people in the colonies.

Mon, 09/27/2010 - 09:50 | 607060 TJ_is_annoyed
TJ_is_annoyed's picture

"The Declaration of Independence is just as important as the Constitution, IMO."

Completely agree.

"As far as the premise that the Founders had the approval of God, there are thousands of pieces of correspondence between them that prove this beyond a shadow of doubt."

Again, completely agree. In recent years, attempts have been put forth to try to show that the founding fathers had no religious preference (or religious thoughts at all).  These vain attempts fall flat when one reads the writings of the founders.

"Jefferson’s preamble said that the reason for the declaration is that man has certain rights, and we claim those rights, and those rights were given by God."

I posted this last week (as you already know), but it's worthy of being posted every week:

The Declaration of Independence uses the word "unalienable".  Don't read the word as "un-alien-able", rather read it as "un-a-lien-able".  Meaning no one can put a lien on the rights that GOD has given us. 

These men should be celebrated as some of the greatest men of history.  Has there ever been 2 documents that gave so much freedom to so many people?


Sun, 09/26/2010 - 15:34 | 605794 doolittlegeorge
doolittlegeorge's picture

i know i couldn't say it any better.

Sun, 09/26/2010 - 15:37 | 605800 Mariposa de Oro
Mariposa de Oro's picture

Nice, nmewen.


Sun, 09/26/2010 - 15:55 | 605828 doolittlegeorge
doolittlegeorge's picture

sorry to respond so tardily.  i saw sleepy bears yawning and "opened up out of season."  don't worry..."science has protein pills for the rest of ya'."

Mon, 09/27/2010 - 06:56 | 606787 Azannoth
Azannoth's picture

"It's almost as if they were tied down to a bed and holy water is being sprinkled on them...ROTFL."

Well if you only knew how holy watter burns on youre face, while being tied to a bed with 2 gay penguins stanind over you chanting curses you wouldnt be making a joke about it

Mon, 09/27/2010 - 07:07 | 606791 nmewn
nmewn's picture

I thought it was funny too ;-)

Off to work.


Sun, 09/26/2010 - 15:33 | 605792 doolittlegeorge
doolittlegeorge's picture

you forgot to junk him.

Sun, 09/26/2010 - 06:55 | 605283 Pondmaster
Pondmaster's picture

I ,also , see no reason for 2 junks . I think you hit a nerve somewhere. Must be Wall St, Fed, D.C. sympathizers lurking . Junk them to exile please. 

Sun, 09/26/2010 - 08:38 | 605335 Katharotes
Katharotes's picture


Sun, 09/26/2010 - 09:20 | 605350 Miramanee
Miramanee's picture

With all due respect, the world doesn't hate cheats and liars and thieves and murderers. All of the research in neuroscience tells us that humans act most often in response to primitive behaviors that preempt the reasoning part of our brain, the pre frontal cortex. QE2 will precipitate another feeding frenzy in equities, even among the self-proclaimed Gandhi's of the world. Why? Because at a most basic neurological level, we are all greedy.

Sun, 09/26/2010 - 09:53 | 605370 MichaelG
MichaelG's picture

We're not all greedy (we're really not), but whether we hate "cheats and liars and thieves and murderers," or don't, we still vote for them, and so my initial proposition becomes irrelevant. (And, yes, the 'rational' part of our brain is to our actions as the appendix is to our digestion.)

Sun, 09/26/2010 - 10:30 | 605402 Miramanee
Miramanee's picture

I agree. We are not all greedy, per se. My point is that we are, more often than not, the product of actions borne not of ratioanl thought, but of primitive emotions and defenses.

Sun, 09/26/2010 - 10:42 | 605417's picture

We're not all greedy (we're really not),

Who do you know who does not wish to fulfill his desires to the fullest extent possible? Even if one desires to live a charitable or ascetic life such desires arise within the self and the motivation to fulfill those desires is selfish.

Greed exists only in the eye of an envious beholder and those whom the envious one would enlist as allies in games of mooching and looting.

Those who condemn greed and selfishness open themselves up to assault by anyone who has less than they do.

Sun, 09/26/2010 - 10:59 | 605441 MichaelG
MichaelG's picture

"Who do you know who does not wish to fulfill his desires to the fullest extent possible?" The only person I can properly presume to speak for: me.

That said, the question was a mere jumping-off point for the rest of your post, none of which I would argue with. However, it's still possible to distinguish between the naturally-greedy & the über-greedy, and it is because of the latter that we are where we are.

Sun, 09/26/2010 - 11:45 | 605500 MachoMan
MachoMan's picture

Everyone acts to maximize their self interest, period, end of story.  (altruism is a myth pushed by academics).  The problem with economic thought is that traditionally, it described the pursuit of self interest only in strict monetary terms, without necessary qualitative analysis...  the maximization of self interest may entail charitable acts, laziness, purchasing items on credit, or purchasing perceived healthier foods, all at the expense of the bottom line or marginally costing more than alternative means to acquire the same goods and/or services.  In short, mother theresa was as selfish as hitler.

Greed rises out of our general, basic desire to maximize our self interest, however it is an incredibly focused pursuit...  The greedy do not have an all encompassing analysis into actions (qualitative and quantitative), but rather pursue very specific ends, pecuniary gain, at the detriment of most all other factors.  For the greedy, the end justifies the means, whereas for the merely selfish, the means actually play a role (have a weight) in the myriad of factors leading to an action.  Greed is the extent an actor will go to in order to maximize his or her self interest associated with pecuniary gain.

In other words, we need not distinguish between the greedy and the uber greedy...  only the greedy from the generally selfish.  Greed is inherently a problem.

Sun, 09/26/2010 - 11:59 | 605527's picture

In other words, we need not distinguish between the greedy and the uber greedy...  only the greedy from the generally selfish.  Greed is inherently a problem.

One need only distinguish between wealth obtained by merit as opposed to wealth obtained by fraud or theft. Apart from this the motives of the holder of the wealth are not important except to those who would use the supposed "greed" of another as an excuse for theft.

Sun, 09/26/2010 - 12:13 | 605541 Miramanee
Miramanee's picture

Again, I am simply asserting that "greed" and "herding" behaviors are to a very great extent an objective neurological response from the primitive quarters of our brains that trump the rational pre-frontal cortical response mechanisms. The overwhelming and growing body of research makes this abundantly clear. The only reason we have "bubbles" is because people jump on the bandwagon, despite such actions being irrational and counter to many individual's sense of fairness, righteousness and morality. In the end, its mostly a story written by the firing of synapses and the release of dopamine, etc.

Sun, 09/26/2010 - 12:36 | 605565's picture

Understood, Mrs. Kirk.

Sun, 09/26/2010 - 12:41 | 605575 Miramanee
Miramanee's picture


Sun, 09/26/2010 - 12:41 | 605577 Miramanee
Miramanee's picture


Sun, 09/26/2010 - 13:05 | 605602 nmewn
nmewn's picture

"One need only distinguish between wealth obtained by merit as opposed to wealth obtained by fraud or theft."

+ $1300 Crockett

Sun, 09/26/2010 - 15:38 | 605803 doolittlegeorge
doolittlegeorge's picture

"we're not bad...but we bare watching."

Sun, 09/26/2010 - 16:30 | 605873's picture

You do bear watching as bare watching implies prurient interest.

Sun, 09/26/2010 - 16:48 | 605894 doolittlegeorge
doolittlegeorge's picture

what purient mean?

Sun, 09/26/2010 - 22:21 | 606353 bulldung
bulldung's picture

Great comment.The economic system that allows a laborer to keep the greatest amount of what he produced is the most moral.

Sun, 09/26/2010 - 17:23 | 605946 Arkadaba
Arkadaba's picture

I agree with your take on charitable acts - the act itself may help the person performing it meet some moral or psychological need thus the actor is maximizing self interest. However, I do think you do see true altruistic behaviours at the tribal level which, in this day and age, is the family. Many parents do and would be willing to make extreme sacrifices for their children (sadly not all) even to the point of giving up their lives for them - isn't that altruism?

Mon, 09/27/2010 - 00:59 | 606564 merehuman
merehuman's picture

i have committed murder to my ego often in order to achieve a long ago set goal of desirelessness.  Frankly, its boring. Without  ambition, curiousity and desire there is no enthusiasm, no positive charge except the large stillness. On the other hand the direction one travels in does matter. I think i am done being human, waiting for the body to catch up.

Mon, 09/27/2010 - 04:48 | 606728 Bringin It
Bringin It's picture

MH - We are alive to learn.  Every instant holds the epiphany.

Do you know Alan Wilson?  He checked out.  A tragedy.

Take a deep breath and realize it's a marvel to be alive.


Sun, 09/26/2010 - 12:25 | 605553 Glaucus
Glaucus's picture

It's not about greed per se; it's about outlets for its fulfillment, there being no "better" outlet for greed fulfillment than the state, which, as Bastiat said, is nothing but the entity by which everybody tries to live off of everybody else.  

Face it, if you grant someone a license to steal -- which is what the power to tax comes down to -- why wouldn't you expect people to abuse it? by its very nature?  Moreover, why wouldn't you expect the greediest among to lust after the license?  And let's not forget, of course, that a license to steal very quickly turns into a license to kill, thus attracting the sociopathic along with the greediest.

Sun, 09/26/2010 - 12:40 | 605573 Miramanee
Miramanee's picture

You make excellent points Glaucus. I assert that these "licenses" and choices are not unique to a certain class or type of person, but that are ubiquitous vis-a-vis our human neuro-pathology. Is there no one among us who does not have the capacity for evil, for rapacious greed? Do we all invest in markets that by their very nature allow us to profit from others' hardship? It takes a great deal of concerted effort in daily reflection, in my opinion, to stave off the primitive human mind that compels us "all" to actions that contradict our rational selves.

Sun, 09/26/2010 - 14:02 | 605663 Glaucus
Glaucus's picture

Miramanee, the coming "devolution revolution" -- -- will first take down nation-states (beginning with this one), ultimately shrinking the number of licenses to the vanishing point, as the Internet -- -- and smart cards -- -- restructure the human world and accordingly reduce greed fulfillment to a purely market phenomenon.

Sun, 09/26/2010 - 15:40 | 605804 doolittlegeorge
doolittlegeorge's picture

Iceland came first but Greece was the real deal so be careful what you ask for, you just might get it.  Clearly Ireland, Portugal and Spain are on the plate.  Are you even in that trade?  I know I'm not.

Mon, 09/27/2010 - 08:16 | 606896 shenandoah
shenandoah's picture

Very interesting references, Glaucus. 



Sun, 09/26/2010 - 23:34 | 606447 Seer
Seer's picture

One can simply toss out the words "cheats," "liars," "thieves," and "murderers" (and whatever else, and replace it with a simple word - "deception."

Nature is all about deception.  Humans are part of nature, are an animal, and are, therefore, still endowed with this trait.

People are using deception to buy their future: some are looking to buy more future; some even in some other "afterlife."  There should be no shame in admitting this.  It's our nature...

Sun, 09/26/2010 - 09:39 | 605359 knukles
knukles's picture

Clarity of thought.

Sun, 09/26/2010 - 09:51 | 605367 Voluntary Exchange
Voluntary Exchange's picture

Theirs  is a system of death. Choose life that you may live. Stop paying all taxes, form groups with your trusted neighbors, give value for value and divorce yourself from all fiat currency. Start growing food where ever you can. We can get through this but we are going to have to refuse to submit to tyranny "cold turkey" and become united in our purpose. Otherwise, start digging your grave or, proclaiming your fealty to your  lord and master.

Sun, 09/26/2010 - 10:49 | 605429's picture

Most people will need to have the rug pulled out from under them before following this route and you will need most people to build a new system. The thing to do now is to prepare for that day and be ready to get things back up and running as smoothly as possible. Create a meritocracy based on the freedom of the individual and when the moochers and looters see your success and come after you have the moral fiber and will to remain independent.

Sun, 09/26/2010 - 23:38 | 606451 Seer
Seer's picture

No, one doesn't wait, one DOES NOW!

I have no idea what you are expecting to get back up and running smoothly.  Certainly it can't be the military-industrial complex, the financial sector, the tranporation-based meme, big Ag etc etc?

No centralized power.  Food, shelter and water.  There, that's it!  There shold be NO instructions beyond this.  It's up to individuals to re-diversify, as only in diversity in thought and action will we be able to discover what will be appropriate.

Sun, 09/26/2010 - 15:42 | 605805 doolittlegeorge
doolittlegeorge's picture

I see no mention of the word "Love" here.  I would highly recommend if this is your belief you start using it.

Sun, 09/26/2010 - 18:25 | 606028 kathy.chamberli...'s picture

"Love" is so 60's it's now gone to the:


Sun, 09/26/2010 - 21:10 | 606255's picture

The Ron Paul brigade put the 3vol in revolution.

Mon, 09/27/2010 - 01:02 | 606569 merehuman
merehuman's picture

Damn, just missed the little chinaman.

Mon, 09/27/2010 - 10:38 | 606833 kathy.chamberli...'s picture


Sun, 09/26/2010 - 10:06 | 605379 taraxias
taraxias's picture

AS, this is a WOW post

Very well done !!!!!

Sun, 09/26/2010 - 12:29 | 605556 ElvisDog
ElvisDog's picture

This article is tin-foil hat style crap. If the rest of the world even got a whiff that the Fed was going to do what was written it would be "game over". And even if the Fed could pull it off, what do you think the reaction of J6P and the U.S. economy in general is going to be to $10/gallon gasoline? You think Obama is going to put up with economic chaos heading into the 2012 elections? The author of this article falls into the common trap of not considering the actions and reactions that would happen if this plan was implemented.

Sun, 09/26/2010 - 13:42 | 605643 RockyRacoon
RockyRacoon's picture

Are you advocating that no alternatives, and their self-evident outcomes, should be considered?  No thought should be made toward looking at the actions of undoubtedly the most powerful agent in the U. S. economy (The Federal Reserve) and deriving a logical course of outcomes?  This exercise is "tin-foil hat style crap"?  What would be a better use of our time and energies?

Sun, 09/26/2010 - 14:28 | 605696 LowProfile
LowProfile's picture

Save it.

He didn't even acknowledge what will happen if they don't do it.

Sun, 09/26/2010 - 14:41 | 605715 Kayman
Kayman's picture


Of course alternatives should be considered but I agree with Elvispuppy that long before Bernanke cranks up QE 2, interdependence, the law of unintended consequences, and Murphy will divert Ben.

The U.S. has a Structural problem, Not a Monetary Problem. All of Ben's Money machinations only serve to delay/exacerbate the real issue- the death of the Middle Class and the self-imposed divinity of the Leech Class.

Sadly, Ben is the Cancer for which he purports to be the cure. Trying to drive the USD into the toilet while all other countries are trying to kill (or peg) their own currencies, simply cannot be accomplished without risking hyperinflation.

 Raising interest rates, encouraging private savings (with concurrent investment), dispensing with the pretend World (free?) Trade lie, and putting the Financial Criminals behind bars will bring America back.

Robbing the middle class savers through ZIRP has transferred trillions out of the pockets of those who need it the most into the pockets of those that need it the least. 

Mon, 09/27/2010 - 04:55 | 606732 Bringin It
Bringin It's picture

There's only a slight, slight chance that enough of the right new faces would appear on 3-11 to efectively oppose Ben.  Slight chance, but last chance as well.

Sun, 09/26/2010 - 15:05 | 605742 Assetman
Assetman's picture

Oh, I don't know, Rocky... I think there has been PLENTY of talk about the Fed doing QE 2.0 and its effects already.  The biggest issue in the article is the mention of QE 2.0 as an "almost certainty".  You're either feeding the beast and/or preaching to the choir gold foiled hat crowd here.

And there's nothing wrong about that, per se.  I've understood the argument-- and certainly appreciate the motivations of the Fed Head in Charge.  Okay?  We all get it... not that we didn't understand it 6 months ago.

There hasn't been a whole lot of talk, however, about the dissention developing within the Board of Governors-- and about any alternatives the Governnors have brought forth.  Is it just Bernanke jamming his opinions forcefully down the throats of his colleagues... and no ideas after that?  Or does Hoenig, or someone even more moderate have alternative views that warrant serious consideration?

My original thought was that the Fed would allow a period of reflation through ZIRP/QE, and then follow through with cycles of asset deflation/reflation to get the economy back to a proper equilibrium.  That process, no doubt, would have been painful (there would be a lot less banks in the future), but it probably would have righted the ship in a decade.

But, alas, Uncle Ben doesn't really see things in that light.   Or perhaps, conditions/fears of futher economic deterioration and price declines in real estate force the issue.  If he continues down the QE road with a high rate of speed-- and he doesn't even bother to change the tires-- or get more gasoline, for crying out loud-- then the exercise from the original post make sense.  And my guess is that the USD devaluation that is expected may get way out of control.   Those are pretty serious consequences, if you ask me.

But what if Bernanke lets this play out for longer than people expect... and just applies QE Lite?  I'm left wondering if there is an acute appreciation that the prior efforts to support asset prices (bonds, stocks, real estate, etc.) through these operations has done to erode and destabilize the underlying market structure?  And if so, does a constant QE to infinity approach obliterate that?

Perhaps the answer here is that we have a really, really ugly October.  But I think the reason for QE Lite in the first place was to have plenty of liquidity to support asset prices throught the midterm elections.  What happens after that... I don't know... are there really any certainties?

Sun, 09/26/2010 - 15:47 | 605813 RockyRacoon
RockyRacoon's picture

Great stuff!  As I have said before you folks are a gold mine (pun intended) of information and solid opinion.  My remark has to do with the seemingly terminal aspect of not pursuing some alternative thought.  All this is not cut and dried; hell, it's not even cut yet.  Not looking at possible outcomes from given sets of data is self-defeating.   Perhaps I read the comment wrong, but calling the article tin-foil-hat festooned is wrong!

Sun, 09/26/2010 - 19:16 | 606115 Crime of the Century
Crime of the Century's picture

Hoenig seems to be out on an island alone at this point. The dove appointees are certainly going to be rubber stamps for Bernanke. Hoenig should go rogue, or renegade - Hoenigade, should the curtain lift on insanity. I agree though, that at this point the political will might be absent beyond a policy of never ending backfill, where treading water is considered victory.

Mon, 09/27/2010 - 05:00 | 606734 Bringin It
Bringin It's picture

Hoenig's brief is cover.  He provides plausable deniablity.

Sun, 09/26/2010 - 15:42 | 605807 masterinchancery
masterinchancery's picture

Obama isn't even smart enough to figure out what is going on--that is obvious. And the "solutions" being pushed by the Regime are creating economic chaos already.

Sun, 09/26/2010 - 23:47 | 606464 Seer
Seer's picture

It is?  No, YOU believe that that's the case.  He is doing everything that TPTB, who are the self-confessed brains of everything, want.

ANYONE who thinks that there is some "solution" is an idiot.  This is capitalism dying- no growth = death.  We'd Ponzi'd our way LONG past any sustainable levels.  Contraction is now firmly in placel; never again will multitudes of people attain levels of living like kings.  The fairy tale is over...  whether Obma (or anyone else) mounts a unicorn or not, doesn't matter.

Mon, 09/27/2010 - 10:37 | 606834 kathy.chamberli...'s picture

your un i corn.

Sun, 09/26/2010 - 15:44 | 605810 doolittlegeorge
doolittlegeorge's picture

"Presidents" as rational actors.  You are a wise man.  I hear "they have advisors" as well.

Sun, 09/26/2010 - 10:11 | 605384 Pope Clement
Pope Clement's picture

Alexandre +++++, IMO you are approaching the polemical power of 'Uncle Ez' in Canto XLV. Thanks for the lift...

Sun, 09/26/2010 - 10:50 | 605432 Kaiser Sousa
Kaiser Sousa's picture

AS -

i for one do not understand why u have been junked...

somewhat disturbing that ur message would receive that treatment here at Zero...oh, well the world is imperfect...Salute

Sun, 09/26/2010 - 19:18 | 606118 Crime of the Century
Crime of the Century's picture

Something about pearls before swine comes to mind...

Mon, 09/27/2010 - 07:42 | 606836 kathy.chamberli...'s picture

M A X    K E I S E R   likes pearls.

Sun, 09/26/2010 - 11:40 | 605505 sschu
sschu's picture

Excellent post, thanks for your thoughts. 

You get junked because the post-modern mind cannot understand the truths that you espouse.  Absolute truth and the never-changing nature of man are at the root of this evil.  The foolishness of the central banker, he who believes he can control others, and steals the sweat of his labor in the process.

Thank you for the post!


Sun, 09/26/2010 - 15:35 | 605796 Harbourcity
Harbourcity's picture

If we can't live a life of "morality" or one of respect of the "other" without the threat of punishment from a "higher being" than we are lost.


We are lost.


Sun, 09/26/2010 - 15:57 | 605830 doolittlegeorge
doolittlegeorge's picture

eh, just get a hooker.   you'll feel much better come Sunday.

Sun, 09/26/2010 - 16:08 | 605843 Jendrzejczyk
Jendrzejczyk's picture

Alex Stav,

Your righting style evokes another era.

Quite an impressive post, and written so quickly as to usurp the top spot from one of us morons pecking out a simple GOLD BITC#%$.

Sun, 09/26/2010 - 16:50 | 605900 doolittlegeorge
doolittlegeorge's picture

so you got moved, too.  a "dynamic editor" this Durden.

Sun, 09/26/2010 - 19:23 | 606126 Jendrzejczyk
Jendrzejczyk's picture

righting-writing; I get smarta everee day.

Tue, 04/26/2011 - 13:28 | 1208262 william.smith61
william.smith61's picture

With just over a week left to the QE2 announcement, discussion over the amount, implications and effectiveness of QE2 are almost as prevalent (and moot) as those over the imminent collapse of the MBS system. Although whereas the latter is exclusively the provenance of legal interpretation of various contractual terms, and as such most who opine either way will soon be proven wrong to quite wrong, as in America contracts no longer are enforced AC Drier

Sun, 09/26/2010 - 01:07 | 605141 Coldfire
Coldfire's picture

Bermonkey really ought to be consulting Madoff at this point. Or perhaps he's channelling him already...

Sun, 09/26/2010 - 08:05 | 605319 maddy10
maddy10's picture

Bermonkey has already sold his caps to the rest of central banks and they have abdicated their throne with glee

Take a look at the head of central banks worldwide: All thoroughly brainwashed in neocon economics

Naom chomsky was right as always! NWO is already here! since 1991 when USSR fell in russia and established itself worldwide under new leaders

Sun, 09/26/2010 - 09:31 | 605353 Hansel
Hansel's picture

They've probably already talked.  This sucks.  Let's just make up some names, give them a value, and print away.  Let's see...

value           name

10^17          bajillion

10^23          fuckyouserf

10^37          eatshitslave

10^68          weareabovethelaw

There, I did the hard part.  We could even go logarithmic with the printing, and only print the exponent.  A 23 is ten 22s, a 50 is ten 49s or 100 48s or 1000 47s.  It'll fuckin' work because keyenesianism and deficits don't matter and fuck the peons...

Sun, 09/26/2010 - 11:11 | 605463 kaiserhoff
kaiserhoff's picture

+ 1 quadrillion

the three trillion note has to be Bahny's Fwank.


That said, you and I are traders.  We can float on this scum, but I'm sure gonna miss air conditioning and deoderant for the great unwashed.  American television..., not so much.

Mon, 09/27/2010 - 05:06 | 606735 Bringin It
Bringin It's picture



Hey that's not the Kaiserhoff almost hanging over the river in Basel is it?

Sun, 09/26/2010 - 15:59 | 605831 doolittlegeorge
doolittlegeorge's picture

i've always wanted a badge.

Sun, 09/26/2010 - 01:37 | 605144 CitizenPete
CitizenPete's picture

I don't think CNBC will repost this on Monday.


Got Au?

Sun, 09/26/2010 - 16:52 | 605904 doolittlegeorge
doolittlegeorge's picture

I hear there are some girls on the CNBC who cut and paste real well, actually.

Sun, 09/26/2010 - 01:19 | 605146 suteibu
suteibu's picture

That's a pretty hefty piece of red meat, there.

Remind me again, does the rapture occur before the apocalypse or after?

Sun, 09/26/2010 - 06:59 | 605285 Pondmaster
Pondmaster's picture

Rapture - Some say before , some say mid  apocalypse ( mid tribbers) some say post Trib - most don't have a clue . I , personally am a preTrib believer. For reasons to deep to be discussed on this board . Can you say " Difference bewteen the Kingdom saints and the church saints " or " Difference between Jew and Gentile after the rapture , and before the cross ."  These are your "blues clues" . 

Sun, 09/26/2010 - 18:04 | 606000 DosZap
DosZap's picture


LOL, junked 5 times by those who do not even understand your truths, and opinions.

This is why the camel can get thru the eye of a needle first.


Mon, 09/27/2010 - 01:10 | 606578 merehuman
merehuman's picture

Egoless, none of us would be here. Its a matter of whos the boss.

the ego  or the spirit you are that enlivens the body

Sun, 09/26/2010 - 17:38 | 605965 Arkadaba
Arkadaba's picture

But in either case you can insure your pets are looked after:

Couldn't resist.

Sun, 09/26/2010 - 01:47 | 605156 obamaphobe
obamaphobe's picture

Call me crazy, but there is no painless solution.  I am not going 2:1:1(gold, equity, bonds.)  I am going 2:1:1(guns and ammo, food, lp.)  I'll pick up the gold when everyone else is cold and hungry.

Sun, 09/26/2010 - 02:12 | 605177 tmosley
tmosley's picture

Good luck with that.  There are lots of guns, and lots of food out there, and plenty of paper to be burned for warmth.  Not much gold, and those that hold are probably the most likely to have the other things stockpiled as well.

Sun, 09/26/2010 - 02:26 | 605185 obamaphobe
obamaphobe's picture

I'll grant you that there is plenty of worthless paper to burn. I am not convinced however that staples are stockpiled.  While most(perhaps not you as you  have your provisions in order) are scrambling to barter for necessities with their krugerrands in hand, I will be scooping them up.  Not too sure if I'll take silver.

Sun, 09/26/2010 - 02:54 | 605204 obamaphobe
obamaphobe's picture

Btw, I had my "shoeshine boy" moment yesterday as I went through the checkout line at Menards. 

The women asked, "Would you like to pay with your Menard's card or how will you be paying for this?"

I replied, "Federal Reserve Notes."

She responded, "We don't take those and isn't the federal reserve bankrupt?"

I shit you not!


Sun, 09/26/2010 - 03:20 | 605216 Hdawg
Hdawg's picture


Sun, 09/26/2010 - 04:33 | 605233 Hephasteus
Hephasteus's picture

LOL. Good thing she has a stupidity umbrella to keep that understanding from soaking in.

Sun, 09/26/2010 - 13:28 | 605632 gmrpeabody
gmrpeabody's picture

Too funny

Sun, 09/26/2010 - 14:31 | 605701 LowProfile
LowProfile's picture

'Wow', indeed.

Sun, 09/26/2010 - 16:06 | 605838 doolittlegeorge
doolittlegeorge's picture

Perhaps you should have said "my name is Rockefeller."  People keep tellin' me names don't matter but what if they're wrong? 

Sun, 09/26/2010 - 18:06 | 606002 DosZap
DosZap's picture

And we thought the sheeple were clueless.(:>

You shoulda said, GOT GOLD?.

Sun, 09/26/2010 - 10:29 | 605401 DaveyJones
DaveyJones's picture

i disagree with the food part. that's why the gun part might get ugly

Sun, 09/26/2010 - 11:39 | 605501 Lednbrass
Lednbrass's picture

With all due respect, any fool can buy a gun, but few know how to use them well- probably under 5%.  Major cities are full of idiots that have something that will go bang when they pull a trigger but would be fortunate to hit a barn outside of 50 feet.  I have urban friends and family that think a Glock pop gun is firepower and going to a 25 yard indoor range a couple times a year gives them weapon skill- but this is only going to help in limited situations.

Up against a guy with 3-500 yard+ 1-2 minute of angle skill, they will be toast at any odds under 20:1 and even then its dicey.  The regions where food is actually produced are loaded with men who have that skill and practice it frequently.  Sure, having a pistol and very short range skill level will no doubt help in the short term during the scenario being discussed and help survive, but in the long run? Not so good.  Going against guys (and some gals) who have been shooting since elementary school and can sneak up on wild animals is way beyond their capabilities.

Their kids are video combat masters- mine pops golf balls at 100 yards for fun without a scope and out in the hinterlands thats not unusual skill.  In urban areas, its unheard of.

I'm in a place where I can produce enough food to get my family through between my tiller and my rifle and neighbors who can do the same, in such a doomsday scenario you might well be able to trade with the likes of us for some of that. Of course, thats if the guy in the hinterlands doesn't just decide to nail you at a third of a mile and take what you have.

Gun ownership and actual skill are vastly different sir. If you own a gun and its nothing but a safe queen (as most are), it wont help you for very long. If you cant dope wind, heat, bullet drop, etc.- well, good luck with that.

Sun, 09/26/2010 - 11:55 | 605524 MachoMan
MachoMan's picture

I agree and so do the people who collect and utilize the skills of our fighting/police forces.  Relatively speaking, many rural americans had no idea of the pains of the great depression...  nothing really changed for them so to speak.  I suspect that this time around will be different and the rural (resourceful) will have many hands to feed or bodies to bury.  The urban areas will become wastelands as the supply chain breaks down and rudimentary needs are not met.  The suburbanites will hit the trail and start heading towards your neck of the woods.  Further, in order to facilitate this process, they'll be carrying the power of the law behind them as executive order after other ridiculous measure gets implemented to get people/the government where the resources are.

The theme of this whole charade is that those who prepare will not be rewarded...  whether it be the relatively debt free...  or those with spam.  This will continue post collapse.  I wish you the best of luck...  many of us will be in the same boat. 

Sun, 09/26/2010 - 13:50 | 605651 Lednbrass
Lednbrass's picture

You may well be correct sir, but I think that there may be one more dimension to this which is regional/cultural. In some parts it would almost certainly be just as you say- the force of law may well be behind those seeking to plunder the outlying areas.

However, there are parts of the country with a proud history of telling the central government to go screw itself and in such areas these are often the same type of people who join the military and law enforcement.  I think that the dynamics behind how such a scenario plays out would would be very different in the South then it would in say upstate New York.  There are drastically different cultures in the US and I think this would factor into how things would unfold.  It wasn't widely reported in the media but after the Katrina gun seizures pretty much the entire South had to pass state laws stating that there would be no gun confiscations under any martial law declarations to keep the populace from flipping out. I didnt see this happening in places like California and New York.

While the military is undoubtedly a factor if we found ourself in a governmental monetary collapse, beyond being soldiers they are individual men and women who are statistically far more likely to not come from the large coastal areas which are the centers of finacial and political power.  The south, midwest, and non-coastal west are the core of the military and also the food production, and should feces and fan finally meet I doubt that most would assist in the plunder of their own people.  The history of the last century shows us that there is an element of humanity that will do anything if commanded by authority, but it is my opinion (or perhaps just sincere hope) that this element is smaller in the US then it is in other areas, and that if something like this occured there would be internal rebellion in the police and military that tried to do this.  The coasties who style themselves as our socio-political elites tend to forget that the trigger pullers are overwhelmingly flyover country types.  In these areas the everyday yeomanry such as myself who have never served in the military still often have military level weapon skills, and where my sort are common I think this alters the equation.

This is of course entirely speculative and I hope that we don't get there, but the utter lack of leadership shown in politics and finance (and so often illustrated on the wonderful resource that is Zero Hedge) gives me little hope that we won't.

Should this occur, best of luck to you and yours also MachoMan. If you aren't already, be sure to invest time at the range as well as your "money" in the key metals of lead, brass, gold, and silver!

Sun, 09/26/2010 - 14:31 | 605703 SWRichmond
SWRichmond's picture

The coasties who style themselves as our socio-political elites tend to forget that the trigger pullers are overwhelmingly flyover country types.

Careful, flyover boy.  Looks like the coasties didn't do too bad against flyover boys.  I think you might be missing something.

?MATCH 500 —— TOMPKINS TROPHY MATCH Aggregate of matches 531 through 540















Sun, 09/26/2010 - 14:49 | 605724 Lednbrass
Lednbrass's picture

I should have been more specific- by "flyover" I'm referring to anything outside of the northeastern and left coast political/financial power centers.

I see alot of southerners and midwesterners there, which goes along with the point I intended to make though may have phrased it poorly by using a rather generalized term which can mean different things to different people and I did not clarify my use of it. My error.

I'm in one of the southern coastal states myself, and am glad to see Georgia out in force.  The geographic proportion of people winning those matches is about what I would expect and I think is in line with my point above.

Sun, 09/26/2010 - 16:54 | 605907 doolittlegeorge
doolittlegeorge's picture

troy lawton, eh?  once upon a time there was a Sgt. Doolittle.  Actually once upon a time there was a GENERAL Doolittle.

Sun, 09/26/2010 - 16:38 | 605882 laughing_swordfish
laughing_swordfish's picture

+ 100

Mon, 09/27/2010 - 01:17 | 606590 merehuman
merehuman's picture

Dress badly, dont shave and remove all signs of obvious wealth. You may find me under a bridge but never the silver i got put aside. Hell, i might not even find it again. But it dont matter to me as i have lived with less than any of you, even when i was doing good. And i got callouses. Yes, that seperates me from the suit wearers. No bankers have callouses. Wrong profile in the near future could get you hung in america.

Sun, 09/26/2010 - 14:06 | 605668 grunion
grunion's picture

Completely fails to address urban combat of which there will be plenty.

I am happy for you that things are squared away in your tiny portion of the world and sad for those without your advantages.

Truth is, the big messes will be urban. Odds are you will never get a chance to fulfill the one shot dream.

Sun, 09/26/2010 - 14:57 | 605733 Lednbrass
Lednbrass's picture

I certianly hope you are correct. I have no dream of shooting anyone, I was only repsonding to MachoMan's observation that such societal unrest could well spill out into the rural food production regions and gave my opinion that people and circumstances are very different in such areas.

Sun, 09/26/2010 - 16:08 | 605844 doolittlegeorge
doolittlegeorge's picture

you sound practiced.  have you been invited into the collective however?

Sun, 09/26/2010 - 22:24 | 606358 spinone
spinone's picture

Buying a piano doesn't make you a pianist.

Most people will have their gun taken away and used against them in a close range self defense situation.

Shooting a paper target is one small part of armedself defense.

Sun, 09/26/2010 - 01:55 | 605159 plocequ1
plocequ1's picture

Well, There it is. God bless the fed for making it easy for the common trader. The feds message to longs? Just buy stocks and i will reward you. The feds message to us shorts? Far be it for me to turn down a fools money. Thanks fed for what you have done to my Google and Apple shares. Bernanke has the power to bend technical charts with his bare hands.

Sun, 09/26/2010 - 01:53 | 605162 Kina
Kina's picture

So would QE2 lead to countries dumping USD as soon as they could while they are worth something? They wouldn't be ignorant to the final outcome of QE2. Things would turn to shit much faster than anticipated. BB might not get too far into QE2 before it all fell apart.

Sun, 09/26/2010 - 09:38 | 605358 Sean7k
Sean7k's picture

I'm thinking this play has a different endgame: total ownership of US debt up to the ten year by a single banking entity. A debt that is impossible to pay for and possibly impossible to tax for. The absolution of US debt held by foreign governments. 

By issuing debt, the bankers can take America over with a payment demand. Supposedly, this was done once before with FDR, who it is postulated, signed over the US lock, stock and barrel in 1933 to the Central Bankers. 

This is a revolutionary demand. Will it result in revolution?

Further, If the FED owns all the debt and 90% of the mortgages (fannie and freddie), the only debt left are the trillions in US dollars floating around. These would be worthless. As would every other currency. Trade isolation is an understatement. Gold wouldn't be an individual wealth protection scheme, it would become the only way to gain imports. 

They can have currency destruction without normal hyperinflation- we would have currency collapse instead. The dollar would function in the US, for US products, but that is all. 

In the ensuing global trade destruction countries would be left to create new alliances OR, new offers of stability and rule through international collective operations managed by an international central banking system. The sign on would be the loss of sovereignty. This would only require the collusion of the elected governments and acquiesence of the component military- easy enough if they are included in the power structure- as all power structures need a police force. 

They never rest or sleep. Their machinations are endless and pointed toward a single goal. Their weakness is our strength: numbers. 1% versus 99%. Their strength is our weakness: resolve and the control of violent retribution. 


Sun, 09/26/2010 - 16:10 | 605845 doolittlegeorge
doolittlegeorge's picture

leave it to a girl to turn the conversation back to something responsible.  can you live up to that face?  she's a legend you know.

Sun, 09/26/2010 - 01:53 | 605163 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

And while Zero Hedge refuses to condemn what is now openly an act of war against the US middle class and the country's holders of dollar-denominated assets


So why the refusal to condemn the actions of Bernanke,that will destroy the savings and pensions of a generation Tyler?

Sun, 09/26/2010 - 02:52 | 605203 Tyler Durden
Tyler Durden's picture

At this point, it is up to you, dear reader, to condemn.

Sun, 09/26/2010 - 09:33 | 605354 RichardENixon
RichardENixon's picture

It is beyond the point where condemnation is of any use.

Sun, 09/26/2010 - 10:12 | 605386 Voluntary Exchange
Voluntary Exchange's picture

Absolutely. Time to shape up and actively create the kind of world you want to live in. Gandhi was right though, in the end all tyrants fall. Imagine that? Do what you know in your heart is right, and let the light show you the way. Say no to the tyrants. If there must be blood let the tyrant strike at you and let the whole world of those yearning to be free see the nature of the beast! But whatever you do REFUSE to go along with the darkness! If the beast is ever going to become a man then we must confront the beast both within ourselves and within our brothers.

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