Bagehot & Deflation: Interview with David Kotok

rcwhalen's picture

Last week, I published two articles, on Zero Hedge and Breitbart, respectively, that highlight the issue of “financial repression” via low interest rates. Below is an exchange with my dear friend and mentor David Kotok, Chairman of Cumberland Advisors. We discuss the question of whether the current policy of the Federal Open Market Committee is feeding deflation via low rate policy. This question has great significance since the stated goal of FOMC policy is to raise inflation to ~2% annually and boost employment. From my perspective working in the housing sector, the combination of current Fed policy and new regulatory strictures such as Dodd-Frank and Basel III are clearly thwarting efforts by the FOMC to reflate the housing sector and the wider US economy. --- RCW

Whalen: David, I really appreciate your comments on the ZH article last week, “Default, Deflation and Financial Repression.” In particular, your focus on ultralow interest rates, Federal Deposit Insurance Corporation premiums and the flow of cash from the banks to the Federal Reserve System is very illuminating – and disturbing. As you know, I have long maintained that the FDIC’s fiscal need to fund the deposit insurance scheme is a separate matter from monetary policy, but when we have near-zero interest rates, the average FDIC premium of 7-10bp does become significant. Can you talk first about what is happening in the US money markets from your perspective?

Kotok: You wrote a very important article last week, especially the part about the Fed taking billions out of the economy and away from savers in order to subsidize the banking industry. But there is another and more nuanced part of the puzzle that we need to consider. We have a Fed Funds target of 0-0.25% in place presently. The Fed is also paying 0.25% per annum on excess reserves. This means the reserve rate is higher than the actual Fed Funds rate while the lower bound is maintained at zero. The GSEs, who are large sellers of Fed Funds, cannot legally deposit directly with the Fed. So, they sell Fed Funds, and the banks buy them and redeposit the cash with the Fed. The FDIC levies an asset-based fee on each bank and that includes the reserve deposit assets which are under their FDIC jurisdiction. So the actual Fed Funds rate, inclusive of the FDIC insurance levy, is below the gross (0.25%) reserve deposit rate. Some larger, riskier banks pay even higher FDIC fees than the average and are effectively losing money on this trade. Meanwhile the US subsidiaries of foreign banks, which are not subject to the FDIC levy, have an advantage in the short-term markets.

Whalen: So your basic point is that the fact that rates are so low in absolute terms is distorting the US money markets, in part due to structural costs like the FDIC insurance premium? The nineteenth-century economist Walter Bagehot maintained that in order to prevent bank panics a central bank should provide liquidity to the market at a very high rate of interest. Yet today the neo-Keynesian tendency that controls the FOMC believes that the fact the Fed has the virtually unlimited ability to temporarily expand the money supply refutes Bagehot’s dictum. In today’s terms, Bagehot was warning us against keeping rates too low for too long because real money would flee from financial repression.

Kotok: Antoine Martin of the Federal Reserve Bank of New York, in his important 2005 paper “Reconciling Bagehot with the Fed’s Response to September 11,” argues that Bagehot had in mind a commodity money regime in which the amount of reserves available was limited. Thus, keeping rates high was a way to draw liquidity, that is gold, back into the markets. Bagehot also understood that low interest rates fuel bad asset allocation decisions – what we call “moral hazard.” In the age of fiat money, however, economists have taken the opposite view, namely that an unlimited supply of reserves obviates the need to attract money back into the financial markets.  Remember that Martin’s paper was written two years before the start of the subprime crisis.

Whalen: His timing was impecable.

Kotok:  Bagehot’s classic text advocated a penalty interest rate secured by good collateral. He was envisioning a form of discount window mechanism similar to what central banks used in the pre-QE era. That mechanism has been mostly replaced with QE, which is a policy that we are still in the early stages of learning about.  More recent Fed papers have delved into the impact of QE on otherwise neutral interest rates. It certainly lowers them for a while and in the early stages of QE. Other researchers have noted how the central bank’s remittances to the Treasury alter the fiscal authority budget balance. And others have focused on the potential methods for terminating QE and getting to a neutral position. Still others are trying to solve the mystery of how to reduce the impact of QE and restore a more neutral policy. Lastly there are the inflation hawks, who forecast an inflationary outcome of QE. They may eventually be right, but after five years the evidence suggests that excess reserves are not by themselves very inflationary. It takes an acceleration of growth to turn post-crisis disinflation force around,.  That means rising demand is needed to obtain  rising price pressures. So far, we haven’t seen much of either in the course of our grand experiment with QE. My colleagues and I have written about these various research papers, and the links can be found on our website,

Whalen:  Well, the 2001-2007 period certainly suggests that Bagehot’s concerns about low interest rates fueling moral hazard have not been refuted. The FOMC’s aggressive easing of interest rates, combined with deregulation of the financial markets and the FDIC's safe harbor with respect to bank asset sales between 2000 and 2010, fueled a speculative binge that nearly destroyed the western world. When Lehman Brothers failed, we had created some $60 trillion in toxic assets that were not supported by the $13 trillion asset US banking system. Now almost seven years since the bust, a large portion of that pile of crap has yet to be remediated.

Kotok: Very true, but the past is past. We must focus on the future. Whether or not you believe that a flexible reserve system like the Fed's addresses Bagehot’s concern about attracting liquidity back into the markets, the fact is that very low interest rates do distort money flows. That is why your point about the Fed taking $100 billion per quarter out of the hands of savers is so important. But what do the banks do with that money? They deposit it with the Fed. And what does the Fed do with that money? They pay the banks 0.25% and then invest in US Treasury debt and mortgage-backed securities (MBS) at a higher rate, and thereby generate what they call a “profit.”

Whalen: So your point is that the $100 billion per year that the Fed is taking from the hands of consumers, meaning savers, is actually passing through the banking system and going to the Treasury via remittances from the Fed?

Kotok: Precisely. The practice of the Fed calling the spread they earn on their nearly $3 trillion portfolio of securities “profits” is a monstrous distortion of the word. What they are doing is feeding deflation in the real economy by reducing savers' income while pushing down the federal budget deficit. Between budget sequestration and the spread arbitrage created by the low interest rate paid on excess bank reserves, US government policy is clearly operating with a deflationary bias. As you and I have discussed for several years with respect to the higher FDIC deposit insurance premiums, we need to take a holistic view of government policy. The whole playing field gets level if the Fed’s excess-reserve deposit rate is set higher and thus eliminates the false profit they now recognize via remittances to the Treasury.

Whalen: Well, you are assuming that the banks would actually lend out the additional profit that they earned in higher rates on excess reserves. Wouldn’t we need to also raise the target for Fed Funds to say 0-1% from the current 0-0.25% in order to give some of the benefit back to savers of all stripes?

Kotok: As we wrote last week in our Market Comment, in the Fed there are those who argue that the rate should be lowered or maybe go to zero. It is currently 0.25%. Others argue that the rate should be raised or that the amount of required reserves should be changed, thereby changing the excess reserves composition. All sides of this debate are passionately argued by skilled agents in monetary economics. But the real question the FOMC needs to ask is, what are we going to do if inflation continues to fall? That is, if we find ourselves in a deflationary trap. Many commentators argue that we are in one or near one. I am worried about it.

Whalen: It is perhaps not surprising that commercial bankers are against lowering the rate paid on the $2.3 trillion plus in excess reserves sitting on deposit at the Fed.  That is 20% of the assets of the entire US banking sector, again another sign of deflation.  Given the sharp drop in net interest margins in the US banking industry, the Fed may need to boost interest paid on reserves just to keep the industry from imploding.  Just as in the 1930s the Fed fueled deflation by not making credit available, today the opposite seems to be the case – low rates are fueling deflation and impeding the creation of credit to support the economy.  Where are you on the issue of when FOMC policy is likely to change?

Kotok: At Cumberland we believe the short-term interest rate will be kept low for a long period of time, which we measure in years, not months. We do not expect the Fed to deliberately shock the economy by any action that would cause another recession. The June press conference has served to chasten members of the FOMC. Some members of the Fed are already worrying about the possibility of recession. There is evidence of deflationary and/or disinflationary forces at work now. That evidence has raised the eyebrows of some policymakers and commentators. We are among those who worry about this issue. We do not think Japanese-style deflation will happen, but we worry that it could happen. We keep watching commodity prices and oil prices. Oil is especially important because it flows through so any sectors of the economy. And changes in the oil price quickly translate to gasoline prices, and that means a consumption tax increase or decrease. At an annual rate, a 1-cent change in the gasoline price adds up to about $1.4 billion in raised or lowered consumer expenditures.

Whalen: That is a big change. Let’s get back to the deflation issue. For the past year and more I have been writing about the deflationary impact of Dodd-Frank and Basel III, which are effectively offsetting the low rate policy of the FOMC in terms of consumers and households. Companies and leverage investors benefit from low rates, but the sharp drop in mortgage loan origination volumes is a huge red flag regarding deflation in my book. Imagine what the debt and equity markets will do when we see a negative print on the monthly Case-Shiller Index? Our friend Michelle Meyer at Bank America Merrill Lynch says that Q2 2013 was the peak in home price appreciation in this cycle. I agree and think a big part of the reason that housing is now slowing are the excessive regulatory constraints on lending.

Kotok: You are right to worry about housing and the banks, as usual. Many observers look only at the price level, and they miss the fact that it is the rate of change that counts at the margin. That said, the key piece of the puzzle we need to make people understand is the deflationary effect of low rates. If the FOMC increased the target for Fed Funds gradually, say a quarter point per quarter to 1%, and likewise raised the deposit rate for excess reserves, I think that move would go a long way toward curtailing the deflationary threat we now see building. The Fed could do this by widening the band from 0.0% bottom and 0.25% top to 0.0% bottom and 1.00% top. Then raise the reserve deposit rate to 0.50%. That would allow the markets to clear after the distortion of the FDIC fee. It would also allow a slightly positive numerical interest rate to be attached to REPO and to large deposits. Right now, the very large depositors are actually paying a negative rate cost to have their money in the bank. Your point about low-rate policy hurting consumers is right on target, but look at the short-term funds markets for these large institutional folks. Very low rates and structural impediments such as the FDIC insurance premium are preventing the markets from clearing and functioning in a normal fashion. We cannot rebuild the short-term funds markets until the FOMC allows rates to rise. And the longer we wait, the more painful and dangerous the adjustment process will be.  And we haven’t discussed added cost such as those coming from the FDIC’s Orderly Liquidation Authority.  I believe that public release is due soon.

Whalen: Well, if you had a 1% overnight Fed Funds rate, the 7-10bp FDIC insurance premium would be irrelevant. If we translate the fundamental concerns of Bagehot into today’s terms, he probably would agree with your view that low rates are preventing the efficient flow of capital in the markets. But our friends at the Fed just don’t seem to understand their own limits and how policy decisions create future crises. The members of the FOMC led by Janet Yellen believe that they can manipulate interest rates and the economy to a satisfactory income, but in fact the current policy mix may be leading us to another crisis – just as the FOMC did between 2001 and 2007.

Kotok: I’m not as harsh on the FOMC members. Janet Yellen knows the difficulties, and she will use her skills and experience to try to manage the transition from QE at $85 billion a month to something less and eventually to zero. A target for Fed Funds is of no significance in terms of monetary policy when we are at a zero boundary. You can make the target 0-1.00 instead of 0-0.25, and I would do that at once if I were in the decision chair. But it makes no difference until the FOMC neutralizes its balance sheet by raising the rate paid on excess reserves and by reaching a neutral position on QE. Remember that they may also have to term out the reserves to show the markets that they can manage the eventual decline in balance sheet size. Market agents are very skeptical about that. Sometimes I wonder if our colleagues at the Fed don’t really listen to comments from outside of the temple – from the markets and from private economists and market pundits. The FOMC missed a very valuable opportunity in September to slowly begin to change policy and to start the process of adjusting market expectations. The Fed believes they can eventually manage a gradual transition from the current, extreme policy stance to something more moderate and stable. The market reaction to the unwise June 19th press conference by Chairman Ben Bernanke suggests otherwise. In September, the markets had adjusted to an expectation for some tapering. The Fed had a free shot to do something. They failed to take it.

Whalen: Look at the carnage that the Bernanke press conference caused in the mortgage market. Many banks, non-banks got slaughtered in the TBA market for mortgage financing. PennyMac Mortgage Investment Trust (PMT) missed their hedging for mortgage funding by 16% and lost half of their gain-on-sale margin. The Q3 2013 FDIC data also suggests huge hedging losses by commercial banks. The reference securities in the housing market moved 2-3x vs. the 10-year bond. As you noted earlier, only about 1% of the audience actually understands the utterances of central bankers. Obviously this does not include bond traders or most economists, who were caught flat-footed in June and then wrongly predicted tapering of Fed securities purchases in September. So David, if you were on the FOMC, what would you recommend to your colleagues?

Kotok: First, I would strongly reject the idea that lowering the interest paid on excess reserves is a viable option. Fed remittances to the Treasury are $100 billion per year and rising. If the FOMC takes interest paid on excess reserves to zero, remittances to Treasury will rise unless tapering of bond and MBS purchases resolves and ends completely and abruptly. That would shock markets and weaken the economic recovery, which is still fragile. The FOMC must be very careful here. Even if they could simply stop quantitative easing, remittances will rise since the Fed will not sell and must run off the portfolio over a number of years. The Fed could raise the reserve rate paid to 50bp for a start. That clears the FDIC fee hurdle and allows banks to earn small arbitrage on GSE cash. It also allows markets to clear above zero by a small amount, and that restores repo to neutrality. My guess is that bond yields would fall if the bond market saw this action by the Fed. Market agents would accept that the Fed’s QE would peak in 2014, and the process of discounting a return to a more normal neutral Fed could therefore commence.

Whalen: Agreed. A more enlightened FOMC would be issuing bonds to individual savers with the old 6% coupons of Series E bonds to help blunt the impact of financial repression instead of handing the supposed profit to the Treasury. Issue the bonds in $1,000 increments, with a $100,000 limit and make them non-transferable. So we both agree that the folks clamoring to reduce the rate on excess reserves don’t get it?

Kotok: I do not expect any quick return to 6%. Not even close. I guess the US Treasury could issue a small saver bond with a limit but I doubt it will happen.  Chris, we are at a zero boundary for the cost of funds in the US markets, so the only way to go is up. We are also at the near-zero bound in most of the rest of the developed world. That means the global clearing system of interest rates is distorted. Forcing an imposed negative policy under these conditions is very dangerous. Positive incentives are usually a better policy prescription than are negative rules. If we raise excess reserve rates and get the financial system to clear, we start to relieve financial repression. Savers gain; hence, consumers gain. Some banks and non-banks start to rebuild earning assets. Poorly managed banks fail or are merged by regulators. You and I both know some of these banker players. They bear shame for launching new banks a decade ago and then watching the erosion of their investors' capital by as much as 90%. The managements and boards of these banks own some of this outcome. They point fingers at the regulators or the Fed. Meanwhile they haven’t been fired, and they haven’t paid a penalty, and few have been jailed for fraud.

Whalen: No argument here.

Kotok: Chris, your focus in your writings over the past year on falling net interest margins for banks is crucially important here. Now, if you had a counterparty as a prosecutor and if the board-management policing mechanism didn’t protect the embedded imbeciles who ran their institutions into the ground, you would really have a team approach to addressing these issues. If I were czar, excess reserve rates would be higher and terming out. The zero boundary for rates makes the US economy dysfunctional. And the longer we are in it, the worse it becomes. Japan is the proof.  And lastly, I would use Singapore law to regulate our politicians and our financial services.

Whalen: Thanks David

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carlin401's picture

Yep, just more fucking bullshit.

The QE has kept the housing from collapsing, which would have caused city's to collapse for lack of property tax.

Bond's would have collapsed cuz the BOND's are backed by worthless housing.
The entire ponzi is kept full of hot-air by QE ( FED EASY MONEY ),

Soon we'll all be billionaires, ... bad news is that a loaf of bread will cost you a million bucks.

Humans are insane? Well at least the majority.


Fuck this bullshit, all you need to understand is folks dump their shit they don't need and that causes 'deflation' the stuff everybody need's goes up cuz the 'money' is worthless.

Unemployment goes up cuz nothing needs to be made.

We have been in 'deflation' for years with folks dumping their shit to get pocket money.

On the other hand shit folks need, like FUEL, FOOD, and MEDICAL skyrockets, ... all this is to be predicted


Everything else is just distraction and bullshit.



Solution? Take what money you have and go live in a place that has cheap food, and medical, and allows you to walk or ride a bike year round, ...


Let the USA fuck itself to death, and those too stupid to leave.

geewhiz's picture

Wow. Thanks for that. All I can say is duh and drool. I can't even tell if I have been baffled by bullshit or just completely out if my league.

Son of Loki's picture

These last few articles by the author (Whalen) have been excellent education for me in understanding the complex picture right now of a mixture of deflation and inflation. For example, my health insurance is rising again 18% this year yet I can buy a $40.00 shirt for $6.50....and CPI at 1.5% yet foiod soaring 30-50%...and so on.


Thank you!

HardAssets's picture

This guy is full of shit.

Another of the Keynesian & Chicago school b.s. artists (academic types).  He should read "America's Great Depression" by Rothbard. A lack of bank printing didnt cause that 1930s depression.

'Economics' blabber nowadays is nothing but propaganda. The banks are stealing from the rest of the populace and impoverishing them. Many people don't have jobs and many retirees are eating up their life savings in order to survive off zero returns. (Or risk what they have on an artificially pumped up stock market. That may be o.k. if youre 30 - - - not so attractive when youre 70 and anything you lose won't likely return.)

Does this guy have his head in the clouds? Does he know nothing about the money sent overseas to prop up foreign banks ? Doesn't he know about the 'plunge protection team' ? Didn't he ever hear Greenspan's interview where he gleefully said that his 'Fed-speak' filled with nonsense was basically a scam ?

In a past age guys like this were priests or medicine men who used 'religion' to justify why their employer, the king, ruled by Devine Right.  Now theyre economist or finance types.

flow5's picture

"the Fed may need to boost interest paid on reserves just to keep the industry from imploding"

This quote is prima facie evidence that the author doesn't understand money & central banking period.  Never are the CBs intermediaries in the savings-investment process.


flow5's picture

And the introduction of unlimited FDIC insurance coverage induced dis-intermediation as well.  That's why I called for a stock market "zinger" on Dec 16/2012:

I commented on 12-16-12, 01:50 PM #1 flow5

"We’re close to seeing the real power of OMOs. R-gDp is likely to accelerate earlier & faster than anyone now expects. The roc in M*Vt before any new stimulus is already above average. With low inflation (given some deficit resolution), Jan-Apr could be a zinger"

The Fed doesn't know a bank (which creates new money whenever it makes loans or invests), from a non-bank (the turnover of existing money), i.e., doesn't know money from liquid assets (Keynesian confusion).

Expanded FDIC insurance coverage induced dis-intermediation within the non-banks (resulting in a de facto tightening of FOMC money policy). What caused M1 money growth to surge was that customers transferred their balances between deposit classifications - from savings/investment type accounts (interest-bearing without reserve requirements), to transactions based accounts (non-interest-bearing with reserve requirements).

M1’s growth rate simply represented both an indifference on the part of depositors/savers given historically low yielding assets, & a preference for reduced risk (saver/holders received 100% unlimited FDIC insurance in the deposit classifications where they moved their money).

Stocks current moves are PROOF:

Scaling back coverage will partially reverse prior trends. Prior reductions in RETAIL sweeps to MMDAs, & reductions in COMMERCIAL sweeps to money market instruments (T-Bills, Euro-Dollars, & institutional MMMFs), will also contribute to a higher future velocity of money & collateral.

The precise effect is hard to measure as contrary forces were at work. I.e., Operation Twist ended Dec 31st 2012 having re-infused short-dated "safe-assets" into the money market (facilitating shadow-bank lending or money velocity).

But savings that were formally impounded within the CB system will again be released & flow back through the intermediaries (intermediaries between savers & borrowers), where they are "put to work" (matching savings with investment). I.e., savings held within the CB system are "lost to investment" resulting in a leakage in National Income Accounting. Contrary to all economists, CBs do not loan out existing deposits, saved or otherwise.

As savings flow back thru the intermediaries it will boost the markets/increase real-gDp. It should also re-balance the EUR/USD exchange rate (as currencies will be converted), because it will stimulate growth in the unregulated, prudential reserve, money creating, Euro-dollar banking system.


flow5's picture

It's like a conspiracy of dummys.  The countercyclical increase in bank capital cushions (from Basel III re-orientation), destroys the money stock while further adding to (releasing), a new volume of excess reserves. 

flow5's picture

Higher interest rates are both a cause & an effect of higher rates of money velocity.  Higher & firmer interest rates produce a steeper yield curve, higher net interest margins, & lower loss from bad debt.  I.e., it stimulates AD.

Alexandre Stavisky's picture

Mission creep.  When central banks and their operatives make anti-capitalistic moves in markets, whether to act as LLR or to smooth business cycle or to stop global financial implosion, they impose upon the currency carrying population.  Especially when they ignore Bagehot or any wise lender's perennial advisement: (1) Lend ONLY on excellent collateral (2) at punitive rates to discourage moral hazard.  Even if by intervention in all minor and major crises, the Fed and its players take on a few percentage of the economy, it is exponentially guaranteed to one day surpass the carrying capacity of free market/command and planned economies.  At a certain point, they break the productive back.

At what point do they, either literally or by debt creation, gain super-majority control of the company called nation?  All that remains thereafter is the economy of maintenance of their system as they lord over the serfs.  When the smallest new and innovative idea or creation appears on stage, it is pounced upon and acquired.  Used as fuel to satiate the machine.  It is globally franchised now and debt supersaturated and money creation and distribution must continue in defiance of all traditional routes to keep any deficiencies at bay which would immediately bankrupt huge swathes.

Any true shock unmitigated by policy intervention (getting larger and more unstable) would savage the economic landscape.   As was often said in the 30's, "the structure is so rotten, just kick in the door, and it all will come tumbling down."

flow5's picture

Do people actually think the Fed doesn't control the price level? Inflation is one mandate that everyone agrees the Fed should control, & is capable of controlling.

And inflation is the most important factor determining interest rates (operating as it does through both the demand for & the supply of loan-funds). Inflation expectations largely determine minimal long-term interest rates. Investors won't accept negative real returns for any length of time (nominal interest rates that are less than the rate of inflation).

If the Fed has to drive interest rates that low ("0 to -2%"), then it has already failed its longstanding mandate (i.e., despite the current suppression of real-rates of interest via the Fed's bloated balance sheet). 

Krugman's also flown over the KOO KOO's nest. Japan's Central bank simply bought assets that no one else either wanted or was offered.

But 2 of the world’s largest creditworthy customers (the Fed & the Treasury), still maintain strongly priced bid-to-cover ratios, i.e., Treasury auctions & the new FRAP auctions are always oversubscribed.

Indeed successful indirect & direct buyer-holders take down trillions of dollars in coveted (indeed scarce) “specials” – inside & outside the parameters delimiting the short-term segment of the whole-sale funding money market (i.e., under the umbrella of the remuneration rates’ inverted yield-curve).

Consider too, the new added demand coming out of the Dodd-Frank Tile VII act that legislated centralized clearing of OTC derivatives & new Swap Execution Facilities.

The payment of interest on excess reserve balances (but not required reserves), simply induced dis-intermediation within the NBs & forced slippages in the base's expansion coefficient. Whereas prior to remunerating excess reserves (between 1942 & Oct 2008), the CBs always minimized their excess reserve balances by buying t-bills.


flow5's picture

Bankrupt you Bernanke should have seen the recession coming:


POSTED: Dec 13 2007 06:55 PM |

10/1/2007,,,,,,,-0.47,,,,,,, -0.22 * temporary bottom
11/1/2007,,,,,,, 0.14,,,,,,, -0.18
12/1/2007,,,,,,, 0.44,,,,,,,-0.23
1/1/2008,,,,,,, 0.59,,,,,,, 0.06
2/1/2008,,,,,,, 0.45,,,,,,, 0.10
3/1/2008,,,,,,, 0.06,,,,,,, 0.04
4/1/2008,,,,,,, 0.04,,,,,,, 0.02
5/1/2008,,,,,,, 0.09,,,,,,, 0.04
6/1/2008,,,,,,, 0.20,,,,,,, 0.05
7/1/2008,,,,,,, 0.32,,,,,,, 0.10
8/1/2008,,,,,,, 0.15,,,,,,, 0.05
9/1/2008,,,,,,, 0.00,,,,,,, 0.13
10/1/2008,,,,,,, -0.20,,,,,,, 0.10 * possible recession
11/1/2008,,,,,,, -0.10,,,,,,, 0.00 * possible recession
12/1/2008,,,,,,, 0.10,,,,,,, -0.06 * possible recession


flow5's picture

2006       jan          ,,,,,,,       45496    ,,,,,,,       0.04

,,,,,         feb         ,,,,,,,       43084    ,,,,,,,       0.01

,,,,,         mar        ,,,,,,,       41242    ,,,,,,,       -0.02

,,,,,         apr         ,,,,,,,       42920    ,,,,,,,       -0.03

,,,,,         may       ,,,,,,,       43648    ,,,,,,,       -0.02

,,,,,         jun         ,,,,,,,       43278    ,,,,,,,       -0.01

,,,,,         jul           ,,,,,,,       43328    ,,,,,,,       -0.03

,,,,,         aug         ,,,,,,,       41162    ,,,,,,,       -0.06

,,,,,         sep         ,,,,,,,       40865    ,,,,,,,       -0.08

,,,,,         oct          ,,,,,,,       40088    ,,,,,,,       -0.08

,,,,,         nov        ,,,,,,,       40543    ,,,,,,,       -0.06

,,,,,         dec         ,,,,,,,       41461    ,,,,,,,       -0.07

2007       jan          ,,,,,,,       43113    ,,,,,,,       -0.11

,,,,,         feb         ,,,,,,,       41214    ,,,,,,,       -0.09

,,,,,         mar        ,,,,,,,       39159    ,,,,,,,       -0.11

,,,,,         apr         ,,,,,,,       41072    ,,,,,,,       -0.09

,,,,,         may       ,,,,,,,       42699    ,,,,,,,       -0.05

,,,,,         jun         ,,,,,,,       42034    ,,,,,,,       -0.05

,,,,,         jul           ,,,,,,,       41164    ,,,,,,,       -0.08

,,,,,         aug         ,,,,,,,       39906    ,,,,,,,       -0.07

,,,,,         sep         ,,,,,,,       40460    ,,,,,,,       -0.07

,,,,,         oct          ,,,,,,,       40161    ,,,,,,,       -0.04

,,,,,         nov        ,,,,,,,       40331    ,,,,,,,       -0.04

,,,,,         dec         ,,,,,,,       41048    ,,,,,,,       -0.04

2008       jan          ,,,,,,,       42398    ,,,,,,,       -0.07

,,,,,         feb         ,,,,,,,       41070    ,,,,,,,       -0.05

,,,,,         mar        ,,,,,,,       39731    ,,,,,,,       -0.04

,,,,,         apr         ,,,,,,,       41642    ,,,,,,,       -0.03

,,,,,         may       ,,,,,,,       43062    ,,,,,,,       -0.01

,,,,,         jun         ,,,,,,,       41616    ,,,,,,,       -0.04

,,,,,         jul           ,,,,,,,       42083    ,,,,,,,       -0.03

flow5's picture

Bankrupt you Bernanke confessed:

"Like most crises, the recent episode had an identifiable trigger--in this case, the growing realization by market participants that subprime mortgages and certain other credits were seriously deficient in their underwriting and disclosures. As the economy slowed and HOUSING PRICES DECLINED, diverse financial institutions, including many of the largest and most internationally active firms, suffered credit losses that were clearly large but also hard for outsiders to assess. Pervasive uncertainty about the size and incidence of losses in turn led to sharp withdrawals of short-term funding from a wide range of institutions; these funding pressures precipitated fire sales, which contributed to sharp declines in asset prices and further losses"

Bankrupt you Bernanke was entirely responsible for the decline in housing prices. Bankrupt you Bernanke was the sole cause of the Great-Recession (regulatory malfeasance notwithstanding). Bankrupt you Bernanke completely destroyed the housing market (by literally draining legal reserves for 29 consecutive months (the rate-of-change in the proxy for inflation in every single month was negative, i.e.,below zero), i.e., from Feb 2006 until July 2008, i.e., based on our means-of-payment money supply 30 days prior).

During the last days, from March 2008 until March 2009, Bankrupt you Bernanke drove the dollar up by 24% - thereby decimating the commodity markets (by forcing a contraction in money & safe assets), whereas reflation should have been the appropriate goal. See:Trade Weighted U.S. Dollar Index: Major Currencies

Then, just as gDp was contracting, Bankrupt you Bernanke introduced the payment of interest on excess reserve balances (which induced dis-intermediation within the non-banks, but left the member banks unaffected). I.e., with the short-end segment of the yield curve inverted, the non-banks shrunk by 6.2 trillion dollars, which the FOMC tried to offset by expanding the commercial banking system by 3.6 trillion dollars, etc.

I.e., the "administered" price level would not reflect the "asked" prices (esp. housing), was it not “validated” by monetary flows or MVt, i.e., “validated” by Bankrupt you Bernanke.

flow5's picture

The payment of interest on excess reserve balances demonstrates that all economists don't understand the difference between money & liquid assets, between money creating depository institutions & their customers: the financial intermediaries (the conduits between savers & borrowers which provide an outlet for savings by matching savings with investments).  It's simple accounting.  The source of all savings/time deposits to the CB system is other bank deposits, directly or indirectly via the currency route or thru the CB's undivided profits accounts.  Remunerating excess reserves induces dis-intermediation (an outflow of funds or negative cash flow).  This is where the non-banks shrink, but the commercial banking system remains unaffected.

During QEs & Operation Twists, the FRB-NY's "trading desk" purchased virtually all of the securities now held (or reinvested), in its SOMA portfolio -> from the CBs, - not from the NBs. If the Fed's counterparties had been with the NBs, then both the (1) money stock, & (2) excess reserves, would have expanded simultaneously (as always occurred coming out of all previous recessions between 1942 & the Fed's new policy, i.e,. during reflation or open market operations of the buying type).

But since all the purchases were concentrated with the CBs - the resultant transactions were just an asset swap (expanding only excess reserves & inducing dis-intermediation exclusively among the NBs).

This distorted the distribution of excess & required reserve balances within the commercial banking system (principally favoring the TBTF institutions), but esp. with the foreign bank branches that don't have to pay the FDIC deposit fee.

This mal-distribution & mis-allocation of credit at the taxpayer’s expense was completely unnecessary.

Trampy's picture



Is the current Panopticon now so powerful that it can prevent one inmate from being contacted by others? I never imagined that an open-air prison such as the present day could be the virtual equivalent of solitary confinement, but if nobody here will reply to me “knocking on the pipes” with the Morse code international call of distress, then yes, it sure does seem so.

Are the people here afraid to answer, or is it that maybe they're just indifferent, like the crowd of New Yorkers who stood by as Kitty Genovese was murdered in broad daylight?

Under maritime law, it is a serious offense to ignore an SOS. Likewise, it is a serious, but lesser, offense to abuse the SOS protocol. Does everything here think that someone else will do the right thing, as with Ms. Genovese? Or does everyone here think that this is just a prank, or worse?

Very sadly, not one person has replied with sincerity. I don't bite and always try to be a good person. And I love cats and I don't lie. Yes, it's very difficult living in this world surrounded by zombies. All of these here highly-educated, high-income males who live alone, and not one of them has answered my plea. WTF! Have all the decent people of the world been killed or made too scared to email a decent stranger who is clearly in need?

It's really not that difficult to extract my email from the PGP key posted here. And it's OK if you can't or don't want to use PGP. I've been told previously that plenty of people here actually do know how to use PGP and could do so, but that it seemed senseless, and off-putting, for me to be using it for something so “harmless.” Really! This person, who will of course remain nameless because I don't gossip, told me it seemed silly. Astounding! Don't people realize that the world would be a much safer and more private place if all the non-zombies of the world again used PGP for the most trivial of correspondence, as was the case with me and my peers in late 1990s? Or, has what may be a limited hangout from Snowden served to scare even the cognoscenti from “drawing attention of the authorities”?

And I really don't care what your handle here is, because I'd like to move a discussion out and away from the overt hostility and braggartry that rules ZH. Try wait, maybe some think that it's me who is doing the intimidating because I, like almost everyone else, shows off my knowledge. But that's the whole Fight Club meme, and ZH has always been very uncollegial, or, as they say, “Fight Club” per the eponymous movie, from the very beginning. So that is a very good reason to not tell me your ZH handle.

Let's try this again, please. And I'll keep at it until I get at least one genuine response. I'm not just repeating the exact same post over and over again. This urgent plea will keep changing and it will be continually reposted until I get at least a few civil answers so that the hoped-for discussion could be taken off-line from here. Mahalo!

Inmate of open-air prison run by lunatics and populated almost entirely by zombies is desperately seeking a pen-pal ... because Aldous Huxley gave someone to Winston Smith.

For mutual support in these trying times, am seeking fellow non-zombie intelligent, open-minded, and well-informed inmate for discussing topics of mutual interest, such as:

  1. Both actual and notional nuclear accidents, and nuclear technology of all sorts. Is nuclear safety always an oxymoron? I'd love to find a fellow atomic scientist here, as in Bull. Atom. Sci.;

  2. Same as it ever was. “Kill the man, kill the problem,” Joe Stalin. Change is a process, not an event. And the Hunt brothers truly believed in the inflation-wracked 1970s that the only way to preserve their wealth against monetary inflation was to buy silver. The Hunts did not foresee Paul Volcker. Today's stackers are no different. And George Orwell's intended title for his most famous book was originally “Nineteen Forty-Eight,” its year of completion, but that was too incendiary a title. Strange as it may seem to those too young to remember the 1960s and 1970s, it was probably more common to see the intelligent writers back then saying that we were (back then) living in the new “Nineteen Eighty-Four” world system than is seen in today's writings, when it's so much more obvious than it was back then when we didn't yet have the technology to do all the things described, but the mechanics of the social control system required time to brainwash multiple generations of us. Only time will tell what the future will bring;

  3. Same as it ever was. Bankers v. The People is nothing new. In 1833 Andrew Jackson took on and succeeded in killing the Second Bank of the United States. In 1963 JFK took on the Fed and was killed. The bankers will do “whatever it takes” to keep it going as long as possible;

  4. Same as it ever was. Historical Revisionism of WW1 and WW2 as a battle of valiant truth-telling historians versus the plush OSS/CIA myth-telling “historians” as waged notably by the largely, and very sadly, forgotten Harry Elmer Barnes, 1889–1968. Many brave souls such as he have seen history through the lens of Historical Truth is First Casualty of War and lived to tell the tale, or at least published before their death. Big Mahalo to the CIA for renaming the quaint (and hifalutin) pre-JFK historical revisionism into the much more catchy (and contempo) conspiracy theory.

    I've never seen it mentioned anywhere, and am familiar with all the “usual suspect” websites, but there is a most fantastic book in my hands now which might very well be the single most enlightening book I have ever had the pleasure to read. This slim paperback explains, in the post-WW2 period going up to Viet Nam, how an entire generation (and now three?) of historians since 1937 have been brainwashed into mindlessly repeating statist propaganda that is patently false, in order to justify what is usually called The Good War. Barnes explains why WW2 was entirely unnecessary and could have been avoided if Churchill had not succeeded in conniving with FDR to wage war against Hitler on provocation and false pretenses, just as Hiroshima and Nagasaki were unnecessary to win peace with Japan, and just as Wilson's entrance in WW1 was unnecessary … where, in all three cases the U.S. war-making was done even though there was no threat to the domestic national security. Barnes is the most powerful advocate for peace I have ever beheld, yet outside of university history departments seems to be totally unknown, and yet for very good reason, because he exposes most of them as hacks, frauds, and overall tools of interventionist state propaganda. His books and those of the other “revisionists” he summarizes have been suppressed very effectively by what he calls “powerful minority advocacy groups,” which is an obvious reference to the Pro-Slander Legion, which he seems afraid to name, for good reason. Honest academic historians have been denigrated as kooks or worse in what he calls the blackout and then the smearout. Historical revisionism has been totally suppressed per what Barnes called The Bible of his then [1950s and 1960s] current times: Nineteen Eighty-Four. Get the below book while you still can! It is well worth any price. Forces of Evil wish it could be eradicated:

    Harry Elmer Barnes, Historical Revisionism: A Key to Peace, and Other Essays, With a Foreword by James J. Martin, CATO Paper No. 12, CATO Institute, San Francisco, CA, 1980.

  5. Cognitive Dissonance, Optimism Bias, Normalcy Bias, Denial as first stage of Grief, Herding, Societal Psychosis, Mob Rule, Kangaroo Courts, Blame the Victim, etc. And has anyone noticed that when their formerly “aware” friends have children for the first time they will always zombie-like start to shun their former acquaintances in order to protect their children from the “dangerous ideas” that they used to discuss dispassionately. Are they trying to protect those young minds or do they feel guilty about bringing them into this world?;

  6. as an island of sanity, albeit very sadly wholly lacking in collegiality; and, most importantly,

  7. weaknesses in the open-air prison system which might allow its escape and/or subversion, because a mind is a terrible thing to waste.


RobertMugabe's picture

NSA, start following this guy 

the grateful unemployed's picture

all this fidgeting about the interest on reserve rates has no meaning. its like the french arguing over what color to paint the maginot line after ww1 there are two ways to improve the economy and both involve allowing the market to set interest rates [that the fed wants rate controls in the 21st century is an abomination, and has created lots of old fashioned robber barrons, thanks but no thanks]. time to liberate paris  

HardAssets's picture

Some of these fools actually still think its all about 'economics'.

They'd do better studying psychopath criminology.

QQQBall's picture

If you raise the IR paid on excess reserves, wouldn't that suck more money into the FED from the bamks? The banks have a greater disincentive to make traditional loans, since they have an increased return on excess reserves which would be safer?


6%... 100-year notes? You'd see alot of retirement money driving for 6% UST yield.  $2T would be $120B extra in amnnual DS for the USG?  How about we taper the FED into abolition? You cannot tweek here and tweek there, b/c the worls is not static or linear. 


Thanks for the interview... 

Randoom Thought's picture

The Fed opened a bank for spoiled child-like adults, called Malinvestments R US.

At some point they will decide that it is time to do a cleansing, but I suspect it will be part of their greater goal to create a completely depedent global society where they have life and death control over everyone and everything (Psychoathic Megalomaiacs R Them). They can't allow primitives to exist because primatives have no need for banks or useless parasites ... so they must find a way to murder all primatives (non-technologiclaly dependent/fiat money dependent humans) before they create the "unforeseeable" crisis to end all unforeseeable crises.

Nothing happens by accident.

moneybots's picture

"Just as in the 1930s the Fed fueled deflation by not making credit available, today the opposite seems to be the case – low rates are fueling deflation and impeding the creation of credit to support the economy."




The boom causes the bust.  Creating the bubble, causes it to burst and deflate.  Inflating the current credit bubble, is fueling deflation.  Inflating a credit bubble in the 1920's fueled deflation in the 1930's.  The FED fueled deflation by making excess credit available, not the other way around.

Extreme low rates are impeding savings, which is where capital comes from, to support the economy.  Capitalism, not creditism.  The economy is choking on credit, when people are in debt up to their necks.   Someone who is in debt up to their neck has no room to borrow, even at 1%.

the grateful unemployed's picture

if anything is in a bear market its credit, in a credit based economy when credit has no value thats deflation

lynnybee's picture

just wake me up when normalcy has returned to this country.   the way things used to be, the way things were when my parents were in their prime years..... a 15-year mortgage that was paid off in 10-years; a savings account that really paid interest on savings, the norm!   My grandparents, my parents & i used to have money in a bank that paid interest & we were all just fine.   we could handle life & the bills.    Z.I.R.P. is criminal, yet no one speaks about it.   the Fed is criminal, yet no one dares mention it.    I used to carry around silver coins in my pocket when i was a kid, & if i wanted to purchase something, first i had to work to earn the money.   IT WAS SHAMEFUL to ask for credit..... if one asked for credit it meant that you were poor & couldn't afford to purchase cause you had no money.   


RaceToTheBottom's picture

Just curious, why do you think that "normalcy" will ever return to this country?

lynnybee's picture

who even knows what normalcy is anymore; i can't play that game.   let's call it STABILITY & PROSPERITY, then.    i do remember when citizens in this country worked very hard, were grateful for their homes & would refuse charity & credit...... my dad was a truck driver, his very best friend since grade school was the richest man in town, president of a local bank & attorney.   they were the best of friends.   my dad was proud to be a truck driver because he was supporting his family & worked hard sun-up to sun-down.   & he saved his silver coins & paid himself first every payday, 10% saved in a savings acc't.   he didn't owe people anything, he was the rich person.    i'm old & the gov't & banks don't like people like me, they want me gone, Obamacare & Z.I.R.P. are genocide to the elderly who remember.... but, little did we know even in the 1950's that there was a subversive & treasonous force bent on destroying all of us.   & don't even get me started on the young people in this country, targeted & currently abused thru student loans.    no one in their right mind would ever have allowed me unlimited credit at such a young age.   BANKS EAT IT.   BANKS TAKE RESPONSIBILITY FOR HARMING ALL OF US.

the grateful unemployed's picture

someone noted that only about 20% of the business which the firms who were bailed out in 2008 is banking. the other 80% is speculative hedge fund activity. the real banking is this country has moved on, why are we holding these firms up? good question [if you let them fail you would be amazed at how little damage was done to the economy]

HardAssets's picture

'we' were ignored

and then Paulson and the gang scared 'we' into thinking the world would come to an end if certain fat cats didn't make their annual bonuses - - - -"martial law, troops in the street, blah, blah, blah"

All lies.

ssm's picture

Allright, since the endless argument over the definition of inflation will rage till we are left with nothing and don't have time to argue about 'price levels' or 'money supply', etc. let's get to calling a spade a spade -

If there is any entity or person with the power to create currency out of thin air and use that currency to purchase stuff they are stealing pure and simple.

When stuff is stolen, the decisions pertaining to that stuff's allocation are taken away from the rightful owner.

Our system is largely based on mechanisms of theft. This will not end well.

LawyerScum's picture

I'm no economics whiz, but many of these arguments seem akin to being on the deck of the Titanic and arguing about what the definition of an "iceberg" is...

WhiteNight123129's picture

The reason why Bagehot advocated higher-rates is ignored in that post, it was also to separate the wheat from the chaff and let the bad bank fails. Small potatoes would be ok because of the law which banned the 1 and 2 pouds bill. In other words, small amounts would be circulated in  Gold coins (no risk of failure). The policy of BoE to ban the small bank note was that in case the bank would fail the small guy holding gold coings (because teh small notes would be banned) would be ok and the imprudent bankers and imprudent merchants would be wiped off as they should. The prudent saver could benefit from high rates by re-investing his gold or BoE notes (except in 1825 when the BoE almost failed). The high interest rates would be the violent purge needed to weed-out pseudo-entrepreneurs and pseudo capitalist, the saver would benefit from cheaper price. Are things cheaper in the US? The only "deflation threat" right now is not on prices but that junk bonds and crappy stocks stop moving up, but preventing those to go south does not help the economy.

We have too much debt (finanical assets) to GDP (present goods including goods and services, consumable commodities, Gold).

The Financial asset/ GDP ratio will be restored.

Either way, by bankruptcies (shrinking the numerator) or rising prices fast (denominator moving up), this ratio will be restored.

Assets = Liabilities

That works for the Fed too.

Assets = US Treasuries, CMBS = Crap (1)

Liabilities = Base money = USD (2)

US Treasuries, CMBS = Liabilities = Base Money = USD

Combining (1) and (2)

USD = Crap 



RaceToTheBottom's picture

The numbers mentioned here are so staggering and the basic fact is that the theoretical outcomes are so staggeringly opposite.

Would an airplane industry exist if we could not prove that lift raises planes?

Cause that is what we are talking about here. 


Randoom Thought's picture

I suspect it would exist if they could get the people that they want to murder to ride the planes.

WhiteNight123129's picture

Kotok got it completely backward:

"Savers gain hence consumers gain"..

Kotok come the f*** on, since when the consumers have net assets? They have net debt.

The guys sitting on their large bond funds hate the repression, for sure, but if you are in debt, you like debasement of currency. Try to type in Household debt to GDP US in google and check for images, there is a piece of data from SocGen. Consumers are knee-deep in debt. That is the recipe for real trouble.

mess nonster's picture

Right on Whalen, baffle em with bullshit, and then find someone to agree with you so that you sound like you're making sense. Rentiers produce nothing. They are a drag on any real economy. They make money by restricting access to the one thing everyone needs to survive- space. What we call investing is a sad caracature of real investing. An old time investor saw a productive enterprise (or a rapacious colonial rape machine) and put some money into it hoping that the productive capacity of the operation would pay him back. Who does that any more? Who looks at fundamentals? 

FFS, I've said it before. Raising interest rates will be a disaster. If you think suppressing interest rates is causing deflation, just wait until they go up five or six percent. When that happens, the debt implosion will wipe out your savings like a giant whirlwind. If you're smart, you'll withdraw what little money you have and buy productive farmland with acess to water.


the grateful unemployed's picture

you're repeating Fed speak, the most direct way to cancel debt is to inflate it away. most personal savers have their assets in short term notes, or TIPs, or gold or property. inflation would also solve the pension entitlement liability, since inflation destroys the value of these payments. Congress can always grant COLAs to low income SSN retirees, something they havent done in a while, or if they do grant a COLA they take away on the medicare side. so which do you want, stealth inflation, and no COLAs and zero bank interest, or real inflation, with COLAs and higher bank rates? right now the game is rigged against us. its phony as they come, the debt implosion will hurt a lot of people who are maxed out on their CCs, not the savers. lnflation hurts the savers and we have it now, its just liars inflation

BandGap's picture

This is all a show. More noise to slow and confuse the masses. A vain attempt to "explain" what is going on.

Let's start with "there are no more savers". Fuck, that includes me. This gobbledeegook just generalizes a "theory" or "viewpoint" so that we can all sit back, scratch our chins and go Hmmmmm. Really, is this complicated at all?

Turtle49's picture

What a lot of words to tell me -- a retired saver -- that I have been and am being robbed.  I know what I should have earned in the way of interest income in the past 12 years and what I could have done with that money in the way of improvements to my house and a new car.  The improvements have not been done and I still have my 2005 car.

RafterManFMJ's picture

Retired Saver-You were being robbed your entire working life; I'm a little confused why you think it would be any different, now?

-Signed, Working and Being Robbed As We Speak

BandGap's picture

As an unretired saver at 52 years of age I concur. You are not the only person that has been robbed. Some of us are being robbed still.

I point no fingers but please don't bitch.

Turtle49's picture

Please don't bitch? Since when is telling the truth bitching? 

What is wrong with pointing a finger at the fools that ruin the show?





BandGap's picture

If I read you correctly, you are a baby boomer. So am I. There is a certain ire here on ZH that finds boomers "greedy" and that this presumed greed ruined their chances at The Good Life.

The fools that run the show have meat puppets like taking part in the discussion above in order to rationalize the maelstrom they have created. Personally, I could give a shit what these assholes think. The time is past for explainations.

mess nonster's picture

Boomers aren't greedy. Greed requires a certain awareness of relative lack, and an acute awareness of a limited opportunity to get more. Taking a giant handful of M&M's out of your Grandma's coffee table candy bowl is greedy. You knnow you don't get M&M's as often as you'd like, and there they are, so get 'em while you can.

No, Boomers are more pathetic than that. Boomers have a truly sad and pathetic sense of entitlement, and a world view that obscene wealth and creature comfort is their birthright. They only take what they think is their rightful share... it's fucking pathetic to hear them whine about losing their "savings". Whah. Wake up and smell the roasted dandelion roots you dug up out of your front yard to substitute for the coffee you no longer can aford to buy. Fucking Boomers make me sick.

BandGap's picture

Thank you for your insight, asshole. I'm sure you're making the most of your opportunities in life.

This boomer has paid over 1.1 miilion in federal and state taxes, and almost 200K in social security so far in his life. Easy come, easy go. 

fonzannoon's picture

Kotok: Chris, your focus in your writings over the past year on falling net interest margins for banks is crucially important here. I highly recommend you continue going on CNBC and blatantly tug on Larr Fink's nuts while buffing Jamie Dimon's ass so that it glows like the sun.

tradewithdave's picture

Or can you definitively say how long the coastline of Britain is?

Winston Churchill's picture

Neap high/low tides or  just regular ones.

No simple answrers to anything ,its all in the definition.

tradewithdave's picture

If fractal deflation is a myth then why are we able to continue down the Mandelbrot set of "halving of the halving of the halving" while never reaching Woodford's zero lower bound?

LawsofPhysics's picture

What garbage.   Deflation is a myth.  No society/currency has ever collapsed/died because their purchasing power was too strong.

Yet another scared paper-pusher who's labor is of no real value.

mess nonster's picture

Man in 1932:

"Damn! I can't believe it! The purchasing power of the money I DONT FUCKING HAVE has skyrocketed! Boy am I lucky to live in a deflationary economic cycle! if I had a dollar, or even a dime, I could actually buy more! But... the fact is that deflation also decreases the amount of money in the system, as well as reduces the velocity of that money to almost zero... so, I don't have any money, and I can't buy anything, like FOOOOOOD, so I am going to lie down and starve to death."

Whalen and You.. both idiots.

LawsofPhysics's picture

You simply make stuff up (lie), yet I am somehow the idiot.  I don't think so.

This is NOT 1932 moron, remind us, what's happening to the money supply again?  yeah, it's been growing exponentially.  There are 7+ billion (and growing) all competing for a better quality of life (something that requires calories - that cannot be created out of thin air), so there is plenty of demand.