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The Fed Has Another $3.9 Trillion In QE To Go (At Least)

Tyler Durden's picture


Some wonder why we have been so convinced that no matter what happens, that the Fed will have no choice but to continue pushing the monetary easing pedal to the metal. It is actually no secret: we explained the logic for the first time back in March of this year with "Here Is Why The Fed Will Have To Do At Least Another $3.6 Trillion In Quantitative Easing." The logic, in a nutshell, is simple: everyone who looks at modern monetary practice (as opposed to theory) through the prism of a 1980s textbook is woefully unprepared for the modern capital markets reality for one simple reason: shadow banking; and when accounting for the ongoing melt of shadow banking credit intermediates, which continues to accelerate, the Fed has a Herculean task ahead of it in restoring consolidated credit growth.

Shadow banking, as we have explained many times most recently here, is merely an unregulated, inflationary-buffer (as it has no matched deposits) which provides the conventional banking credit transformations such as maturity, credit and liquidity, in the process generating term liabilities. In yet other words, shadow banking creates credit money which can then flow into monetary conduits such as economic "growth" or capital markets, however without creating the threat of inflation - if anything shadow banks are the biggest systemic deflationary threat, as due to the relatively short-term nature of their duration exposure, they tend to lock up at the first sing of trouble (see Money Markets breaking the buck within hours of the Lehman failure) and lead to utter economic mayhem unless preempted. Well, preempting the collapse in the shadow banking system is precisely what the Fed's primary role has so far been, even more so than pushing the S&P to new all time highs. The problem, however, as we will show today, is that even with the Fed's balance sheet at $2.8 trillion and set to rise to $5 trillion in 2 years, it will not be enough.

Before we begin, we urge readers new to this topic to read some of the more pertinent posts we have written on the issue of shadow banking, as it is not a simple subject. Some of the more relevant ones:

For those who are somewhat familiar with the topic, but not quite, we believe a useful visualization of how traditional bank liabilities (defined simplistically and easily recreated using the Flow of Funds report using total liabilities at U.S.-Chartered Depository Institutions, L.110, plus total liabilities of Foreign Banking Offices in the US, L.111, plus Total Liabilities of Banks in US Affiliates Areas, L.112) which serve as the backbone of the entire US fractional reserve banking system, compare to US GDP is in order.

More than anything the chart above, which shows the amounts of traditional bank liabilities and GDP on the same Y axis, confirms one simple thing: economic "growth" is only and nothing more than an increase in systemic credit, aka money creation (just as Ray Dalio observed a few days ago). The problem with traditional bank liabilities is that for the most part they have corresponding money aggregates in the form of M2, which in turn is primarily fungible deposits, as an opportunity cost. And, as Germans living in the 1920s recall all too well, putting meaningless theory aside, deposits, when escaping the fractional reserve system and used to pursue hard assets, are the primary driver of such unpleasant monetary events as hyperinflation.

The nuisance that are "deposits" is also why the banking system is desperate to prevent bank runs, which are not so much a threat to systemic liquidity: any central bank can and will step in and guarantee all the banks' viability overnight if it has to, as it did at the peak of the financial crisis, but an asset allocation decision to shift out of an asset equivalency system built upon faith, and into a mode of hard asset ownership, based on lack of faith in the system (it also explains why the Fed hates when you use your cash to buy "worthless" and cash-flow free hard assets as gold, silver, copper, crude, etc). Of course, what happens with asset prices should $9 trillion in deposits suddenly exit bank vaults and seek to purchase "stuff" would make even the Hungarian hyperinflationary episode, in which prices doubled every several hours, seem like a walk in the park.

So how to fix this? How to ensure economic growth without the threat of inflation at any corner should a central planner make a false move leading to an uncontrollable bank run and deposit outflow? Simple: create a representation of money without the actual money, i.e., M2 equivalents, whether currency in circulation, or even electronic deposits.

Enter the shadow banking system, which is simply the traditional banking system however without the deposits and without the threat of monetary redemptions from the banking system (and the threat of a collapse of fractional reserve banking): it is quite simply, the essence of bank transformation funded by "faith", or a system in which credit money is created, but without an offsetting money equivalent unit. It is a system in which assets and liabilities are essentially the same concept, interwoven in a daisy chain of rehypothecated ownership claims, and in which every incremental layer of credit money creation serves to ultimately boost the nominal quantity of credit money in circulation.

What this does is it allows for near infinite credit-money expansion within a financial system, without a threat of inflation. It does, however, not prevent the threat of a deflationary collapse should faith in this same system be shaken, and counterparties demand to be made whole on their exposure, which incidentally peaked at  $21 trillion in 2008.

But by far the biggest threat with shadow banking, which perceptive readers have already grasped is nothing but the greatest ponzi scheme ever conceived, is that it works brilliantly in an environment of increasing leverage, but should deleveraging commence, is an asset price black hole, as the entire Schrodinger Asset/Liability Function collapses in on itself upon the realization that there are no real asset at the end of a rehypothecation chain. In other words, the moment a liability is accelerated, due to maturity, request for deliverable or any other inverse "faith" transformations, the jig is up.

As the second chart below shows, one of the primary reasons for the surge in US capital markets beginning in 1980 is not so much the "great moderation", which was certainly a necessary but not sufficient condition for Dow 36,000, as much as that starting in roughly June of 1982, when shadow liabilities crossed the $1 trillion line for the first time and never looked back, the US shadow banking system became a more and more prevalent form of credit money creation, until it overtook traditional liabilities in 1995 in terms of total notional. While traditional liabilities have historically matched GDP dollar for dollar, when one throws shadow liabilities into the mix, one can see a distinctively different picture: the one below.

But where did all those extra trillions in credit money created via Shadow intermediation end up if not in the economic growth of the US? Why in its capital markets of course! This, ironically, makes sense from a symmetrical point of view. Recall that shadow liabilities, by their nature, are not inflationary as they do not have matched monetary aggregates: the US Stock market is also, at least according to the US government and the economic canon, is ot viewed as being part of any inflationary measurement, even though all it really is deferred purchasing power: for example, if everyone is long AAPL and if everyone manages to cash out at the very top, when the market cap of AAPL is $1 quadrillion (for illustrative purposes), all that cash would then exit the capital market and compete with other former AAPL shareholders for physical goods and services. It is in this sense that the S&P merely is a conduit to the latent inflationary build up that infinite credit money creation can lead to. Implicitly, and as a rational benchmark, this boils down to creating infinite purchasing power based on "faith" in a world of very finite goods and services. Not to get cute about it, but when an infinite purchasing power meets an immovable and very finite universe of goods and services, what one gets is hyperinflation. But that is irrelevant in the topic at hand: we will write more on that in a different post.

As noted above, it all worked great for nearly 30 years... and then Lehman brothers hit. What happened next can only be classified as an epic collapse in shadow banking as all the faith in the system had been extinguished and counterparties, unsure if anyone would be standing tomorrow, demanded an acceleration on their credit, liquidity and maturity transformed liabilities, irrespective of what state or what penalty such acceleration would entail. And this is where the Fed comes in.

The chart below shows the total amount of shadow liabilities broken up by constituent parts since the 1960s. What is obvious is the exponential surge in notional, hitting a peak of just shy of $21 trillion in Q1 of 2008, and then going straight down.

More important, however, is the sequential change in liabilities within this "shadow" system: having grown every quarter for decades until June 2008, things changed rapidly with the end of Lehman brothers, and much to the chagrin of the Fed, have not improved 4 years later. In fact, as the chart shows, the peak draw down in one quarter was a stunning $1.5 trillion in credit money deleveraging in one quarter! This is an amount that all else equal, would have caused an epic collapse in either US GDP or the stock market, as trillions in credit money were taken out of the system. Remember: credit money is fungible, and 'fractionally reserved.' All said, there has been over $6 trillion in deleveraging within shadow banking since the Lehman collapse.

Which brings us to the point of this post.

In Q2, as per the just released Flow of Funds report, the deleveraging continued. In fact, between money market funds, GSEs, Agency Mortgage Pools, Asset Backed Security Issuers, Funding Corporations, Repos, and Open Market Paper, also collectively known as "shadow banking liabilities", in the second quarter the US saw another $141 billion in deleveraging take place, following the $164 billion in Q1, or a total of over $300 billion year to date.

This took the total amount in shadow liabilities to $14.9 trillion for the first time since 2005. It also means that as of right now, the shadow banking system, which continues to deleverage, and the traditional banking system's liabilities, which continue to grow primarily due to reserve creation by the Fed during periods of unsterilized QE (such as right now courtesy of QEternity), and which amounted to a record $14.9 trillion as well, have reached parity.

This is a historic inversion point for three main reasons:

  1. As the shadow banking system delevers, the Fed has no choice but to relever traditional bank liabilities, via reserve injection to keep the system at least at equilibrium, if not leveraging at the consolidated level. In both Q1 and Q2 the Fed failed to generate the all critical credit releveraging, as first $110 billion in Q1, and then $58 billion in Q2 credit money exited the closed system via maturities without being rolled over, redemptions, conversion into hard assets, etc.
  2. Paradoxically, it is precisely due to its action, with which the Fed continues to remove faith in the US financial system as a standalone entity and one that can function effectively without a central bank backstop at every corner, that the ongoing deleveraging within the all critical shadow banking system - the one monetary conduit which as noted above is the closest thing to a inflation-free lunch due to the lack of immediate inflationary threats - continues. As noted above, so far in 2012 there has been $300 billion in deleveraging here alone.
  3. Completing the Catch 22 loop, the Fed, which is cornered, will continue to do what it does, reflating traditional liabilities, creating reserves, deposits, and currency, all of which have an exponentially greater inflationary propensity that the circular liabilities continued within shadow banking, and which eventually will breach the dam door of inflationary expectations leading to an epic surge in priced in and/or concurrent inflation.

Visually, this can be presented as follows:

The chart above shows what the consolidated deleveraging - combining shadow and traditional banks - since the Lehman collapse. All told there is still a $3.9 trillion hole that need to be plugged for the 'market' to simply return back to its 2008 peak credit levels. But what is truly a slap in the face of the Fed, and what confirms that the more the Fed "acts" the more it shoots itself in the foot, is that the last time we did this analysis, the hole was "only" $3.6 trillion. In 6 short months, the Fed's relentless intervention in markets, managed to force the deleveraging of over quarter of a trillion in additional credit money!

It also explains why the Fed knew long ago, that it would have to engage in a relereving program that offset at least the continuing deleveraring in shadow aggregates: first $40 and then $85 billion a month sounds about right, and is an amount that will at best keep the system at its current state as opposed to actually growing it.

And while one does not have to be a rocket scientist to have grasped by now that all the Fed does is self-defeating, what the above analysis does do is provide a primer to all those Economy PhD's who still fail to grasp how the modern economy works, specifically why so far the inflationary surge has been deferred.

In short: the more the Fed actively relevers using conventional conduits that spur the threat of inflation, and the more that shadow conduits delever, the greater the risk that inflation will finally come to roost. Because that $3.9 trillion in incremental reserves (and recall that already both BofA and Goldman, following our example, determined that the Fed will need to do at least another $2 trillion in QE, which means much more in reality) that will be created to offset the ongoing shadow deleveraging will simply pump up various asset classes, until the hard asset spillover finally hits, and no matter how much SPR jawboning, no matter how many CME margin hikes, no matter how many Saudi rumors of increase crude production, prices of hard assets will finally explode.

We can at this point say that an inflationary surge is an absolute certainty if not for one thing: if somehow the deleveraging in the shadow banking system is finally offset (and with the GSEs now in runoff mode this is a virtual impossibility), and Bernanke can take his foot off the gas, then there may still be a chance. However, as noted, 4 years in, this has not happened, and it will not happen for one simple reason: at its core, the market, which despite all of Bernanke's attempt to the contrary, realizes that a centrally planned system is ultimately unsustainable, and quietly, behind the scenes, those who have shadow credit relationships are promptly unwinding them while they still can, and using the proceeds to invest into hard asset for the inevitable T+1 moment.

The bottom line paradox here is that the more forcefully the Fed intervenes, the greater the implicit loss of confidence in the system, the greater the shadow deleveraging, and the more definitive is the ultimate destruction of the capital markets as we know them. Of course, there is still a chance that Bernanke will step back and realize what he is doing. However, since all Bernanke is, is a pawn of those whose wealth is conserved in the US equity tranche, it means that it is now, and has been for the past 4 years, impossible for him to stop.

And in not stopping, Bernanke has sowed the seeds of not only his, but everyone else's destruction.

* * *

Finally, and confirming the above observations have some basis in actual reality, is the following chart from Citi's Matt King, who implicitly summarizes everything said above as follows: "Much credit growth was based on collateralized lending." Well, the collateral has now run out.

And the "wrong horse" is precisely what all those who come up with convenient, three letter goal-seeking theories to justify an ideological bent, are focusing on. If instead of reading 1980s textbooks, all those "modern market" thinkers were to grasp just what it is that drives the market, we might still have a chance. 


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Sun, 09/23/2012 - 20:41 | 2823114 transaccountin
transaccountin's picture

Or about 4 more years of QE - enough for O's 2nd term.

Sun, 09/23/2012 - 20:53 | 2823137 Jendrzejczyk
Jendrzejczyk's picture

No amount of Qe will ever be enough.

Assume the crash position and kiss your ass goodbye.



Sun, 09/23/2012 - 21:09 | 2823150 Precious
Precious's picture

... Only limited by how many trees are stlll standing.

Sun, 09/23/2012 - 22:02 | 2823258 nope-1004
nope-1004's picture

Shadow banking deleveraging is hugely deflationary.  But ironically it is this deflationary squeeze that the Fed finds itself in that will cause a complete hyperinflationary outcome.

And that is why anyone with an ear to the ground can 'feel' something is not working right in the economy.


Sun, 09/23/2012 - 23:04 | 2823334 Ying-Yang
Ying-Yang's picture

Thank you Tyler, a hell of a lot of work to put this information out. I can't believe I read it on a Sunday night but you make it very clear how this is going down.

Kudos for your work and patience in explaining this.

Sun, 09/23/2012 - 23:10 | 2823350 Shocker
Shocker's picture


Problem now is, we keep pumping money into the system but the results are not there.

The economic siutation is still not great, to say the least



Sun, 09/23/2012 - 23:55 | 2823420 derek_vineyard
derek_vineyard's picture

just one more drink....funny how the last round repeats itself over and over

Mon, 09/24/2012 - 00:29 | 2823440 economics9698
economics9698's picture

I like your work Tyler but there are different ways to see the same thing.  Good research and this will be a epic fail.  Still laughing about how you explain this crap.  Let's see, 3 years, 10 months, say 2013 or 2014?  In there somewhere.

I like looking at the $2.8 trillion and the almost 100% correlation to the drop in the M2 velocity.   Scares the shit out of my students. 

Maybe I will rip off your work and do a thesis on it.

Mon, 09/24/2012 - 00:55 | 2823466 All Risk No Reward
All Risk No Reward's picture

9698, we need a thesis on Debt Money Tyranny and how it is engineered to bankrupt its host society to those few people who control debt based money.

Debt Money Tyranny money flow chart (PDF)

Please share th elink so others can undersant the con-game being played on all Debt Money Tyrant victims and we have to identify the Debt Money Tyrants and put an end to their crimes.

Sun Tzu, Art of War

"War is all about deception."

"The best warriors NEVER have to fight."

"If you have to fight a war, end it quickly or you will bankrupt the nation."

-- Corollary: "Anyone selling a nation a never ending war has, as one of its prime objectives, a the goal to bankrupt the nation."

Mon, 09/24/2012 - 02:53 | 2823543 derek_vineyard
derek_vineyard's picture

3 trillion, eight hundred ninety nine thousand, nine hundred ninety nine bottles of beer on the wall 3 trillion, eight hundred ninety thousand thousand, nine hundred ninety nine bottles of beer; take one down,  pass it around...............

Mon, 09/24/2012 - 06:41 | 2823669 Bobbyrib
Bobbyrib's picture

In the future it will be 3 trillion, eight hundred ninety nine thousand, nine hundred ninety nine peices of fiat currency on the outhouse wall.

Mon, 09/24/2012 - 07:27 | 2823714 markmotive
markmotive's picture

Clearly the Fed hasn't learned the lessons from the past decade.

Perhaps a refresher is needed?

Peter Schiff's raw interview footage from "The Bubble":

Mon, 09/24/2012 - 12:27 | 2824673 All Risk No Reward
All Risk No Reward's picture

I think it is you who have not learned the lessons of thousands of years of history!

The Trojan Horse Fed is doing what it was engineered to do - saturate a nation with unpayable debts.

They lead you to believe they will destroy the currency so you don't get too mad at this militarized debt campaign because you don't see the end result of destitution that awaitys your community.

The debt is a rope that is being placed around you neck.  You think the Fed will cut that rope, that's not the plan.  Th eplan is to hang your *ss.

No way the Money Power, that controls the Fed, wipes out the dollar while they own trillions of them and trillions more in debt holdings.  JP Morgan isn't giving out 3.5% 30 year loans because Jamie Dimon is promoting hyperinflation as a BOD on the Fed.

QE is about transferring the cash from society to the banksters while transferring the bankster debt back to society.

That's tying the knot on that rope around your neck.

The Fed controllers want to impoverish you, not themselves.

That should be self evidenct.  The Fed IS NOT run by government lackies that are stupid.  It is run by the most wicked, diabolical international banking cartel the world has ever known.

As we speak, they are offloading their worthless 2nd mortgages onto the Fed's balance sheet.  When the losses are recognized, the tax payer will be on the hook.  The banksters are getting paid in full for worthless chit...  and they are stupid?

No, society is stupid.  Everything they do is about ripping off society's faces... not bailing out debtors with hyperinflation.

They will hyperinflate, but only after they've stolen almost everyone's chit first.

Mon, 09/24/2012 - 10:58 | 2824220 LMAOLORI
LMAOLORI's picture



Shocker "Problem now is, we keep pumping money into the system but the results are not there.The economic siutation is still not great, to say the least"

That's only a problem for the segment of society who obviously do not count.

When your neighbor loses his job it's a Recession when you lose yours it's a Depression (sarc)

Federal Reserve policies favor the rich

On a more serious note I get this the Fed said they would be sQEasing us until pretty much they can't get away with it anymore.

In about-face, Fed official eyes low rates for years


I know Lehman an investment bank was over leveraged, I understand it was Reserve Primary (a money market mutual fund also part of the shadowing banking system) that originally broke the buck and I know we are still at risk of that very same thing happening again at anytime. I also understand the ramifications. Since many pundits are now saying the Fed did not need to do this what I would like to know is WHO caused the actual meltdown (the run) to begin with and why our government never answered that question? 

Wall Street’s Collapse to Be Mystery Forever: Jonathan Weil


Excellent Article btw Tyler thanks for the explanations through out the comments you helped simplify it a great deal.


Mon, 09/24/2012 - 00:32 | 2823439 Harbanger
Harbanger's picture

"Assume the crash position and kiss your ass goodbye."

Not necessarily, some welcome it.  It all depends on who you are, and how you prepared.   You are either part of the solution or part of the bitch club¿  I live in the US and we WILL restore our Constitution. 

Mon, 09/24/2012 - 04:27 | 2823603 CompassionateFascist
CompassionateFascist's picture

Charts & Grafs, lotsa chartz and grafs. Not in this wee small hour. Put it this way: US economy has been ravaged by 20 years of cheap labor-insourcing and good job-outsourcing. Only way to keep up any semblance of demand is to issue debt then monetize same. It'll work until it doesn't. And that'll be: when the first oil tanker goes down in the Straits of Hormuz.        



Thu, 10/18/2012 - 06:46 | 2900377 RafterManFMJ
RafterManFMJ's picture

Go to bed, old man!

Mon, 09/24/2012 - 00:42 | 2823464 vast-dom
vast-dom's picture

no amount of Fed accounting will be accountable. no value in Fed's numbers. no correlation between Fed and reality. just throw any number out and it will be twisted and made to make sense in this nonsensical ponzi amongst ponzis.

Mon, 09/24/2012 - 02:55 | 2823545 Rogue Trooper
Rogue Trooper's picture

Brother(s), you got some change?

lloyd blankfein

Mon, 09/24/2012 - 03:17 | 2823566 Colonel Klink
Colonel Klink's picture

"Assume the crash position and kiss your ass goodbye"


No thanks, I'll take the gold or silver parachute and get the fuck out of the plane!


See ya sheeple!

Mon, 09/24/2012 - 07:05 | 2823693 jekyll island
jekyll island's picture

The fall of Lehman Bros. caused the daisy chain to break.  Counterparty risk was balanced in that if nothing else both sides of the CDS could be zero'd out with no winner, no loser, just one very relieved and one very pissed off participant.  Now there are big winners and big losers and there is no solution.  The time is now to make your move to protect yourself from the collapse in both the banking system and the stock market.  Bullish for gold.  

Tue, 10/16/2012 - 15:19 | 2895825 Urban Redneck
Urban Redneck's picture

Seize the 5 banks.

Sun, 09/23/2012 - 21:11 | 2823161 Stackers
Stackers's picture

Got tungsten biatchz ?

Sun, 09/23/2012 - 23:56 | 2823423 derek_vineyard
derek_vineyard's picture

was watchin ice road truckers on tv and one guy wuz haulin' 1 mil in tungsten

Mon, 09/24/2012 - 03:00 | 2823550 Rogue Trooper
Rogue Trooper's picture

Someone was ahead of the curve.  Should have been long tungsten earlier... all about timin'

This is getting more bizarre by the hour.

See you all in hell ZH BitChez

Mon, 09/24/2012 - 06:32 | 2823662 petolo
petolo's picture

Any QE,s there?

Sun, 09/23/2012 - 21:12 | 2823162 neidermeyer
neidermeyer's picture

When the music's over
When the music's over, yeah
When the music's over
Turn out the lights
Turn out the lights
Turn out the lights, yeah

When the music's over
When the music's over
When the music's over
Turn out the lights
Turn out the lights
Turn out the lights

For the music is your special friend
Dance on fire as it intends
Music is your only friend
Until the end
Until the end
Until the end

Sun, 09/23/2012 - 23:41 | 2823396 lasvegaspersona
lasvegaspersona's picture

45.88 months using 3.9 T and 85 B/ month fed activity

Sun, 09/23/2012 - 20:46 | 2823120 vmromk
vmromk's picture

End the Fed NOW, Bernanke belongs in PRISON.

Sun, 09/23/2012 - 21:28 | 2823152 SHEEPFUKKER

Agreed, but I'm quite sure prisons are also owned by bankers. 

Sun, 09/23/2012 - 22:46 | 2823311 tickhound
tickhound's picture

Crime does pay when you pack cells for profit.  Corrections Corp of America (CXW) at NEW HIGHS BITCHEZ! 

Is that your gum???  WELL PICK IT UP!!!

Mon, 09/24/2012 - 00:11 | 2823437 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

I love the story where states are trying to sell off prisons to private companies...but the companies have asked for a gov't guarantee of 90% occupancy

Nice. The government now has a financial incentive to put people in prison. Growth baby!

Mon, 09/24/2012 - 03:13 | 2823564 Rogue Trooper
Rogue Trooper's picture

HAL I'd go further and try to see this from Krugman's angle.

Why not let the 'occupants' out say, three months in and three months out, that way they can go out and 'break some windows', etc.  This will all be GDP positive.  You could put those ankle bracelets on them and track them back to ensure they go back to Prison and keep the 90% occupancy metric intact. Everyone wins!

I'm a fuckin' Keynesian geninus, where's my Noble Prize BiTChez!

Mon, 09/24/2012 - 04:34 | 2823607 Clashfan
Clashfan's picture

And increasingly, more and more people get shot before even making it to prison, like this double amputee in a wheelchair:

Sun, 09/23/2012 - 20:49 | 2823127 walküre
walküre's picture

Buying billions in toxic waste from banks at face value is NOT improving the economy. It improves the banks so they may jerk the people around a bit harder because they're now liquid again, compliments of the Fed.

Destroy the debt, burn it up, cut it down to zero and let people RESTART. Everything else is bullshit lipstick on a pig.

Sun, 09/23/2012 - 21:31 | 2823201 TonyCoitus
TonyCoitus's picture

The Fed says they are buying $4o billion a month in agency MBS. I assume this means new origination mortgages from Fannie and Freddie.

Why are you assuming the Fed is buying toxic mortgages from banks?

What am I missing?

Sun, 09/23/2012 - 21:47 | 2823237 Bay of Pigs
Bay of Pigs's picture

Nothing. Bennie Mac has the situation handled nicely. LOL.

Sun, 09/23/2012 - 23:08 | 2823345 delacroix
delacroix's picture

are $40 a month in new mortgages being originated, in the current economy? or do the banks sell their crap to fanny/freddie first, and then it's purchasable by the fed?

Sun, 09/23/2012 - 23:18 | 2823351 delacroix
delacroix's picture

my suspicion, is that the fed will purchase the worst fraud laced crap, with the potential to expose criminal activity on the part of member banks

Mon, 09/24/2012 - 07:22 | 2823709 Winston Churchill
Winston Churchill's picture

Damned right.The bondholder law groups are slinging lawsuits around with

trillions of potential costs for TBTF.That before the LI(E)BOR ones.

Don't think the Fed can print a big enough 'rug" to hide it.

Sun, 09/23/2012 - 23:12 | 2823355 AGuy
AGuy's picture

"this means new origination mortgages from Fannie and Freddie. hy are you assuming the Fed is buying toxic mortgages...."

The GSE are hold Toxic mortgages. Although, Perhaps there is a little more to this story. For instance, China owns a lot of GSE Debt. Perhaps China has decided to dump their GSE debt, cash out and use the money more constructively.

FWIW: QE3 is 85 Billion a Money, 40 Billion in GSE and 45 Billion in Gov't debt.

Sun, 09/23/2012 - 23:19 | 2823367 walküre
walküre's picture

When twist is done at the end of 2012, the Fed only buys MBS. Unless of course they announce more gov't debt purchases. But Tylers put here in chartology that there's a limit as to how much the Fed can twist before they run out of twistable paper.

Crap shoot. Whatever they're doing.

Sun, 09/23/2012 - 23:53 | 2823419 andrewp111
andrewp111's picture

The unlimited Congressional guarantee of Fannie and Freddie expires at the end of 2012, and it may not be extended. By buying GSE MBS, the Fed is creating a bid under these assets and providing a way for China (and others) to sell their holdings. Without a Congressional guarantee or a Bernanke bid, Fannie and Freddie would go poof almost immediately. I mean, what investor in his right mind would buy crap mortgages without a Government guarantee??

Mon, 09/24/2012 - 11:25 | 2824409 AGuy
AGuy's picture

"When twist is done at the end of 2012, the Fed only buys MBS. Unless of course they announce more gov't debt purchases."

Since when did the Fed Gov't not announce or even hinted they will stop? In fact the language for QE3 is now open ended with no date nor cap on future purchases.

"But Tylers put here in chartology that there's a limit as to how much the Fed can twist before they run out of twistable paper."

The Fed will simply switch to buying short term debt again.  Rinse - Repeat, You know the drill by now. Also consider that the bulk of new debt (to cover the +1 Trillion deficit) is purchase by the Primary Dealers, who borrow from the Fed to by Govt' Debt. This is why Bernanke dictates that Interest rates will remain low into 2015 so the Dealers go on buying Gov't debt and borrow from the Fed.





Sun, 09/23/2012 - 23:25 | 2823378 walküre
walküre's picture

Please! Do yourself the favor and DO NOT ASSUME anything when it comes to any actions by the incredibly untalented Mr. Bernanke. He is doing whatever it takes to save his banking buddies asses. Nothing more and certainly nothing less!

The details surrounding the MBS purchases are murky at best. Ben pulled the number of 40 billion straight out of his ass. One could almost suspect that the Fed isn't doing SQUAT but their announcement sure lifted the markets and got a few more suckers excited. Without a Fed audit, nobody knows what the Fed is holding, purchasing, selling, twisting, exchanging etc.

In the end this whole campaign could turn out to be fluff.

Tue, 10/16/2012 - 15:24 | 2895852 Urban Redneck
Urban Redneck's picture

September 7, 2008

Sun, 09/23/2012 - 20:49 | 2823129 GOSPLAN HERO
GOSPLAN HERO's picture

Mr. Bernanke, we have reached the far country.

Sun, 09/23/2012 - 21:14 | 2823167 neidermeyer
neidermeyer's picture

‘Never get out of the boat. Absolutely goddamn right. Unless you were goin’ all the way. Kurtz got off the boat. He split from the whole f***in’ program.’

Sun, 09/23/2012 - 20:51 | 2823132 aint no fortuna...
aint no fortunate son's picture

There are no assets at the end of a rehypotecation chain... but, but, what about tungsten?

Sun, 09/23/2012 - 21:06 | 2823151 Jack Burton
Jack Burton's picture

Tungsten? Where is it mined? Whatever country has the most must need liberation and democracy. Whoever controls the tungsten controls the world.

Are not tungsten producing nations threatening their own people? A humanitarian NATO bombing is in order.

Sun, 09/23/2012 - 23:03 | 2823329 LithiumWarsWAKEUP
LithiumWarsWAKEUP's picture

And I thought it was all about the Lithium deposits of Afghanistan...  

Sun, 09/23/2012 - 21:18 | 2823171 Long-John-Silver
Long-John-Silver's picture

2,000 years from now Archaeologists will find and open the Ft. Knox Vault and find it filled with Gold plated Tungsten. Theorists will conclude that it was a ceremonial burial site that was filled with ceremonial Gold bars as offerings to the God Keynes and his Demon Ponzi.

Sun, 09/23/2012 - 21:36 | 2823217 aint no fortuna...
aint no fortunate son's picture

Actually, I think there will be a gold plated business card in an empty vault saying "Tyler was here"

Sun, 09/23/2012 - 21:38 | 2823224 Whoa Dammit
Whoa Dammit's picture

They will also conclude that the Federal Reserve buildings were where the rulers selected average citizens for human economic sacrifices in order to appease the gods.

Mon, 09/24/2012 - 03:19 | 2823569 e-recep
e-recep's picture

almost spat my coffee on the monitor.

Sun, 09/23/2012 - 23:09 | 2823346 barroter
barroter's picture

Am I Paranoid? Perhaps tungsten found it's way into the chain, to frighten and dissuade one part of the hard asset market?  Make you all  think twice before you jump in...and in doing so, keeping paper assets.

"The coyote is beautiful. He moves through the desert delicately, aware of everything, looking around. He hears every sound, smells every smell, sees everything that moves. He’s always in a state of total paranoia and total paranoia is total awareness. You can learn from the coyote just like you learn from a child. A baby is born into the world in a state of fear. Total paranoia and awareness. 

-Charlie Manson.


Sun, 09/23/2012 - 23:49 | 2823417 lasvegaspersona
lasvegaspersona's picture

I am suspicious about the 10 oz PAMP bar story. Why does a guy hammer a nail into a bar when he could have found it was not homogeneous with ultrasound. He now would have to have the bars resmelted if they were 'good'. I must wonder if this was indeed a way to scare folk...though even current stacker use coins and 1 oz bars I suspect. 

Mon, 09/24/2012 - 02:23 | 2823521 UGrev
UGrev's picture

When you're fucking loaded, drilling one bar isn't going to make a stink. Except when you drill and you see gray. Then shit gets real. 

Mon, 09/24/2012 - 11:47 | 2824502 RazvanM
RazvanM's picture

When you're fucking loaded you are that way because you are not plain stupid. The drilling is for artistic impression only - if you have resources to do a non-invasive check.


I wonder what are the reasons for such a show.

Sun, 09/23/2012 - 20:52 | 2823134 OMG
OMG's picture

Ah gravity is a bitch, as the volume increases the swirling action also increases then the draining speeds up. SO as we circle the drain the pressure they put on the top at the surface, the drain hole increases and drains ever more at even higher speeds.  So good luck to the Bernanke he's gonna need it, he is putting pressure on the global system & there is always a chance the plumbing can not handled the pressure and the volume, when one of the global economic pipes break, it will be epic.

Sun, 09/23/2012 - 21:21 | 2823170 oddjob
oddjob's picture

Gravity is a plumbers best friend and it works for free.

Sun, 09/23/2012 - 23:40 | 2823394 Yes_Questions
Yes_Questions's picture



And a cool swirling motion to boot!

Sun, 09/23/2012 - 20:55 | 2823140 Snakeeyes
Snakeeyes's picture

Depends on how bad the tax tsunami by Democrats nukes growth.

Sun, 09/23/2012 - 21:00 | 2823143 fonzannoon
fonzannoon's picture

just prior to QE infinity ZH was  putting out the idea that the fed was actually unable to do more qe  so i am completely confused

Sun, 09/23/2012 - 21:09 | 2823158 Tyler Durden
Tyler Durden's picture

You are probably referring to "The Scary Math Behind The Mechanics Of QE3, And Why Bernanke's Hands May Be Tied" in which it was said:

Monthly supply of conventional 15yr, 30yr and 30yr GNMA has averaged about $85-90 billion over the past year and the Fed is already buying about $25 billion. The Fed might be able to buy another $40 billion without disrupting the market. Assuming that the Fed does a $600 billion program with 75% in MBS, it would need to buy $450 billion in mortgages, so in our estimation the program would need to last nearly a year.

The Fed announced what? $40 billion in MBS per month.

The other issue: "the Fed owns all but $650 billion of 10-30 year nominal Treasuries" ... Twist 2, aka QE 3.5 is already absorbing all of the long end supply. And herein lies the rub. To quote UBS: "Taking out, say, $300 billion in long-end Treasuries almost certainly would put tremendous pressure on liquidity in that market....Ploughing ahead with a large, fixed size QE program could cause liquidity to tank."

The Fed did not plough ahead with a large, fixed size QE program: instead it continued Twist, for now, which is essentially monetizing all long-dated gross issuance.

Furthermore, since you missed the point of the above post, you also missed the point of this one: The Fed Now Owns 27% Of All Duration, Rising At Over 10% Per Year. What was said here, is that with every passing year the Fed will control another 12% in 10 Yr equivalent adjusted duration of the bond market, putting an organic lid on how much debt the Fed can effectively buy, without it becoming the market. Naturally this assumes the US government does not launch a borrowing frenzy which would see it hit $2+ trillion annual deficits merely to provide legroom for the Fed's monetizations.

To summarize: the Fed has no choice but to monetize, it however has a natural ceiling how much it can monetize, at least before it gives up all pretense of prudent intervention and starts buying stocks. At that point we can only hope you and everyone else have enough hard assets.

Sun, 09/23/2012 - 21:14 | 2823164 Ned Zeppelin
Ned Zeppelin's picture

Got it.

Mon, 09/24/2012 - 11:24 | 2824401 _underscore
_underscore's picture

Me too. If we assume the Fed/Bernanke & their backers aren't stupid (..and I think it's stupid to assume otherwise..), the frightening (but galvanising) thought for me is that hyperinflation is viewed as the best outcome, which they know already. It begs the question as to what was the worst outcome they could predict/envisage if hyperinflation is the 'nice' option.

Sun, 09/23/2012 - 21:18 | 2823172 cosmictrainwreck
cosmictrainwreck's picture

"before it gives up all pretense....." LOL.... Nailed it, Tyler. The BS is already so deep, but not yet infinitely deep

Sun, 09/23/2012 - 21:22 | 2823184 Schmuck Raker
Schmuck Raker's picture

You know, some assumptions just don't help me sleep any better at night. Like this one:

"Naturally this assumes the US government does not launch a borrowing frenzy which would see it hit $2+ trillion annual deficits merely to provide legroom for the Fed's monetizations."

["War! Hoo! Good God Ya'll.....What is it good for?]

Sun, 09/23/2012 - 21:26 | 2823189 fonzannoon
fonzannoon's picture

That was exactly the post i was referring to and i appreciate you taking the time to clear up my confusion. 

Sun, 09/23/2012 - 22:44 | 2823307 Atomizer
Atomizer's picture

Tulips of Stone -- written in 2004



Sun, 09/23/2012 - 23:11 | 2823342 Ying-Yang
Ying-Yang's picture

Great points. I believe the government will continue to run up large debts. They will spend more and more because they know they have to maintain their status quo. Sad to say.

Sun, 09/23/2012 - 23:47 | 2823411 AGuy
AGuy's picture

"...the government will continue to run up large debts. They will spend more and more because they know they have to maintain their status quo."

The will have to, to fund the title wave of entitlement redemptions. To 100+ million boomers now reaching retirement age. To close the gap, the gov't would have to raise the payroll tax from about 15.4% to about 35% to 45% over the next five years. Considering the number for workers leaving the work force, probably by 2020 there will be less than two workers for every person collecting gov't entitlements. Perhaps much less if Wealthfare asistance is included.

Sun, 09/23/2012 - 23:18 | 2823366 illyia
illyia's picture

TD - this was a very informative article. Thank you for it. I am still having a time visualizing the "Shadow Banking" thing. I nearly have it and then - Poof! it disappears. Apparently I need some visual aids.

I feel like it's ten years ago and I am trying to understand options...

Could you and your friends possibly do a piece on what exactly "Shadow Banking" is made of. A sort of "Shadow Banking for Dummies"?


Sun, 09/23/2012 - 23:56 | 2823422 lasvegaspersona
lasvegaspersona's picture



Sun, 09/23/2012 - 23:36 | 2823388 AGuy
AGuy's picture

" "the Fed owns all but $650 billion of 10-30 year nominal Treasuries" , "Owns 27% Of All Duration, Rising At Over 10% Per Year"

There is always the Muni Market. That will be next on the list for QE3.5 or QE4, or whatever they call it.  When Major Cities can no longer afford to pay, the Fed will step in to rescue them. Perhaps that what the Fed means when it has more tools at its disposal, its Muni QE.

"at least before it gives up all pretense of prudent intervention and starts buying stocks."

I think when it gets to that point, inflation will be double or triple digit. The Stock market will rise on its own, as inflation drives stock prices higher, but at a real rate below inflation.

"At that point we can only hope you and everyone else have enough hard assets."

The question is what hard assets will be permitted for private ownership? Its likely that capital controls via hard assets will be put in place, such as either to put 95% tax on asset  (PMs for instance) sales or to make ownership illegal. The Federal gov't has already put in some capital controls which prevents americans from moving capital overseas (via Tax evation policies). To say that other measures, that further restrict the movement of capital, in the future is not an exaggeration. Deperate times will call for desperate acts by TPTB.

"the Fed has no choice but to monetize, it however has a natural ceiling how much it can monetize"

Not really, since it can print money without QE, and it does not just have to limit it self to Federal gov't debt purchases (Muni, Corp. and Consumer Debt, for example). Also the Federal gov't is still running a deficit of $1 Trillion per year which provides sufficient room to expand its book by buying it all, which it may have to do once the world looses faith in the US dollar.




Mon, 09/24/2012 - 04:46 | 2823611 CompassionateFascist
CompassionateFascist's picture

"...and starts buying stocks" Fed is doing so now, via the TBTF NY branch-banks. Different sets of "books", but its all the same cybermatrix, 1's and 0's zipping around at lightspeed.  

Mon, 09/24/2012 - 09:26 | 2823803 WhiteNight123129
WhiteNight123129's picture

Well in 1819 the Bank of England failed to tell the Government not to repay their debt, result was a 30% plunge in price... Of course the Fed has to print, until capital owners are so mollified that they spend their cash...

As for shadow banking with unreserved, well, if you look at the Balance Sheet of teh BOE in 1819, the good stuff was the circulation emitted against commercial bills. That stuff was in a dull state and shrinking (just like today) THe problem with money market is not that are not banked and directly issued to consumers (maybe the liquidity of redemption should match the liquidity of the instruments though). The problem is that they contain maybe some European crap, that is all. If the liquidity is matched and crap is removed, than there is nothing wrong with it actually. The mismatch of maturity is as always the biggest flaw in any instrument.

Now that does not take away the fact that there is a dull state of issuance, the Fed is doing the right thing. The BOE in 1819 was neither preventing the repayment of the Government s debt, not counteracting the dullness of the commercial bills issuance. The Fed does have indeed to increase the money pritning to offset that. It is the right thing to do, right on target Tyler.

One should therefore watch the 30 years yield and what is going on with shadow banking as far as the Gold trade is concerned.


And by the way, do not confuse price rise due to over-excitement of trade during a leveraging phase with conversion of monied capital into circulation, those are two different things. We want the second which you would probably call ~inflation~ while it is quite different from an over-excitement of trade during a leverage phase. THe second type is melting up of monied capital back into circulation. That produces a rise in circulation (purely nominal) in relationg to debt, which what we want. That wacks capital owners, so be it. Get out of the long bond before the process starts. People only know the clock-wise way of economic functioning, there is a dark side of the economic machine.... At some point the economy stops and start to turn counter clockwise, everything is reversed, the nominal growth exceeds leverage growth, the borrowing from corporations drives up the long bond instead of the long bond driving down the corporate cost of borrowing, and finally the GINI index shrinks, it sucks to be a capital owner, and share of capital to GDP shrinks. That is called deleveraging, why on earth people assume that deleveraging = leveraging, it is the OPPOSITE!!!


Mon, 09/24/2012 - 10:15 | 2824131 centerline
centerline's picture

Get what you are saying about hard assets - but I think it would be difficult to say when being forced out of position, corporations won't find ways to do everything possible for the sake of thier survival.  Yeah, it might slam circulation along the way - but would also be heading out the door.  Simple good money versus bad money axium.  Plus, slamming velocity as it leaves might actually be an even worse outcome in the end....  but, at least with high unemployment there is something of a short-term buffer.

What is not mentioned though is the net effect of foreign money rushing home.

Sun, 09/23/2012 - 21:14 | 2823165 exartizo
exartizo's picture

Ummmm... not sure if you noticed but The Bernank recently Changed The Rules Of The Game my friend.

Sun, 09/23/2012 - 21:26 | 2823177 Dr. Engali
Dr. Engali's picture

I don't know that the Hedge said they couldn't. As far as I can remember the Hedge has been pretty consistent about the effects of the shadow banking system. The Hedge did say Ben would have a problem with QE due to the fact they would take all the liquidity out of the market due to the amount of the market Ben would buy up.

Sun, 09/23/2012 - 21:21 | 2823180 kito
kito's picture

It does, however, not prevent the threat of a deflationary collapse should faith in this same system be shaken, and counterparties demand to be made whole on their exposure, which incidentally peaked at  $21 trillion in 2008........


oh no!!!! those flat earther thoughts can NEVER be uttered here on zh!!! heaven forbid even the thought of a deflationary collapse where every asset that money has flooded into gets CRUSHED, including....gasp....GOLD!!!............. 

Sun, 09/23/2012 - 21:31 | 2823205 Dr. Engali
Dr. Engali's picture

It's Ben's fight with deflation that will eventually cause hyperinflation. My belief is we will have another big deflationary event followed by a hyperinflationary currency collapse. The dollar will go out like a supernova.

Sun, 09/23/2012 - 21:35 | 2823214 fonzannoon
fonzannoon's picture

i used to think that deflationary event would be a huge bank/investment firm going under. they are not going to let that happen. kyle bass said the plan is to kill the dollar. i am prone to believe him.

Sun, 09/23/2012 - 21:45 | 2823235 Caviar Emptor
Caviar Emptor's picture

The bastard child of this monetary policy is biflation: where deflationary forces meet inflationary ones and, for now, balance out. That's why the numbers look so tame.  But a peek under the hood is not tame at all: margins are eroding and consumer buying power is too. And so you have a vicious cylce feeding in itself where more monetary stimulus actually erodes end demand and contributes to over capacity

Sun, 09/23/2012 - 21:55 | 2823246 fonzannoon
fonzannoon's picture

it's true caviar, and earnings back that up. but no one cares about earnings anymore. any miss just gets bought in a hurry.

Sun, 09/23/2012 - 22:28 | 2823284 kito
kito's picture

oh fonz, i would say this is all happening precisely because tptb care very much for their earnings ;) ............

Sun, 09/23/2012 - 22:23 | 2823277 lasvegaspersona
lasvegaspersona's picture


Bass actually said they would 'let the dollar go'. I believe in the more passive expression because even stupid politicians can just watch. If they tried to kill the dollar they'd just fuck THAT up. Remember politicians are good at getting elected....NO OTHER SKILLS REQUIRED

Sun, 09/23/2012 - 23:42 | 2823403 andrewp111
andrewp111's picture

If there is a deflationary event, I think it will have an external cause/trigger. Something like an Israel-Iran war that makes oil spike to $300. This would kill the stock market and make an awful lot of financial institutions go bust overnight - and probably not the ones most people expect to go bust either. The surprises are always the most devastating because the Fed isn't prepared for them.The Fed will be bailing like crazy, but won't be able to keep them all afloat. If a deflationary event happens, then the printing presses go into hyperdrive and the inflation blows up the entire system. TPTB might try some kind of last ditch patch to prevent hyperinflationary blowout or the deflationary collapse that must preceed it. I am of course thinking of the "Mark Of The Beast" all-electronic global currency prophesized in Revelations here.  Some kind of totalitarian all-digital currency so that TPTB can prevent both deflationary and inflationary outcomes. This last ditch patch could be the most devastating thing of all, and even worse than the disaster it is designed to prevent.

Sun, 09/23/2012 - 22:32 | 2823292 kito
kito's picture

doc, as was pointed out by this article, it takes just one moment for a massive loss of confidence to surge, a sudden collpase, overwhelming even bens efforts...and allowing for the complete collapse of the shadow banking sector before price increases are allowed to seep out into the general economy.....i dont understand why people cant see this as a very realistic scenario....there are people like david stockman, not exactly a slouch, who are calling for this event..................

Sun, 09/23/2012 - 22:42 | 2823302 Dr. Engali
Dr. Engali's picture

I think where you lose people in your argument is thats it's a strictly deflationary argument . Maybe you should clear up whether or not the currency survives and if it does, will it buy what it could before the loss of confidence. I believe that there are a lot of people who believe like I do( I'm sitting in cash to buy more PMs when the deflationary event happens. But then I believe there will be massive hyperinflation after that. Maybe you should clear up what you think will happen after the deflationary collapse. ... I didn't junk you btw.

Sun, 09/23/2012 - 22:53 | 2823316 Freebird
Freebird's picture

Maybe Kito's had a rough month. Called QE incorrectly & metals. None of us can be right all of the time.

Sun, 09/23/2012 - 23:27 | 2823383 delacroix
delacroix's picture

slowly at first, then all of a sudden

Mon, 09/24/2012 - 08:16 | 2823762 Winston Churchill
Winston Churchill's picture

Gold less than the other assets.Relative to the others it will INCREASE in value.

That why gold is a hedge in both inflation/deflatio enviroments.

Please think thru' your posts.

Mon, 09/24/2012 - 09:12 | 2823921 WhiteNight123129
WhiteNight123129's picture

Are you a Japanese consumer to confuse redeemable and irredeemable money?

Sun, 09/23/2012 - 21:01 | 2823145 Jason T
Jason T's picture

The bottom line is we better learn to hunt squirrels if we plan on eating once this bernanke experiment blows up.

Sun, 09/23/2012 - 23:07 | 2823339 LithiumWarsWAKEUP
LithiumWarsWAKEUP's picture

.22 cal works best, w/scope of course. Aim for the head. Gutshot are so,,,dirty.

Sun, 09/23/2012 - 23:14 | 2823359 Ying-Yang
Ying-Yang's picture

Squirrel the other dark meat... and it tastes nutty!

Mon, 09/24/2012 - 00:16 | 2823444 Elmer Fudd
Elmer Fudd's picture

JT, squirrel tastes good, but wabbit is better!

Mon, 09/24/2012 - 04:52 | 2823613 CompassionateFascist
CompassionateFascist's picture

Long pig...yum! And there'll be lots available. Food of the Gods.  

Mon, 09/24/2012 - 08:23 | 2823775 Ricky Bobby
Ricky Bobby's picture

My great uncle ate them for sustenance during the last depression and he called them "Limb Kittens". I always used to laugh at that.  I was  growing up in the center of American excess but that message stayed with me, may he rest in peace.

Sun, 09/23/2012 - 21:02 | 2823146 exartizo
exartizo's picture

Great work Tyler.

The German example of money printing for 8 years before the proverbial "wheel barrow of deutsche marks for a loaf of bread" looks to be intact by your analysis.

We are now at roughly T-48 months and counting by this model before TSHTF.

Sun, 09/23/2012 - 21:17 | 2823163 Ray1968
Ray1968's picture

Then we shall all be millionaires! Isn't that the goal? To make us all rich?


Mon, 09/24/2012 - 00:18 | 2823446 Calmyourself
Calmyourself's picture

4 years, we are supposed to worry about 48 months hence...  Thanks for the efforts Tyler they are truly appreciated but 4 years..  Hell, global warming could kill us all by then the ocean has raised .002 cm... 

Mon, 09/24/2012 - 02:17 | 2823517 Raymond Reason
Raymond Reason's picture

This collapse seems more epic than the various currency collapses we've witnessed or read about in recent history.  This approaching collapse could be the end of the 300+ year epoch of fractional reserve banking...and the dawning of a new age where wars are not so easily financed. 

Of course there is no shortage of war bucks today. 

Sun, 09/23/2012 - 21:06 | 2823153 Peter Pan
Peter Pan's picture

QE in any form is a failed concept but for the sake of satisfying my morbid curiousity and in the interests of equity, does Mr Bernanke think it might be worth distributing the next round of QE to the bottom 25% of the population just to see if trickle up economics works better than trickle down economics?


Sun, 09/23/2012 - 21:07 | 2823155 max2205
max2205's picture

If they can hold off the cross like 1996 then we got a chance for a 96 to 00 run. What did I say

Sun, 09/23/2012 - 21:12 | 2823156 Ned Zeppelin
Ned Zeppelin's picture

Funny how people equate Ben's insanity, actually desperation, with things that Demoncrats have done, such as Obama, without noting the equally complicit role of the Rethuglicans in getting us to where we are today. 

When you "get it," that both work for the same boss, you'll be able to grasp all this a bit more clearly.  Until then, you are a very useful and helpfully distracted pawn.

Sun, 09/23/2012 - 21:15 | 2823168 Robot Traders Mom
Robot Traders Mom's picture

...shadow banking liabilities (defined as the total shares outstanding in money market mutual funds, the total liabilities of GSEs, total pool securities in the GSE mortgage pool, the total liabilities of ABS issuers, the total amount of securities loaned by funding corporations, the total liabilities of Repo markets, and total outstanding Open Market Paper: all of these can be found in the Z.1)


From one of the old articles on ZH, TD posted. A fairly concise definition...



Sun, 09/23/2012 - 21:35 | 2823215 Hulk
Hulk's picture

Hey Mom, when does Robo get off restriction so that he can post again ???

Mon, 09/24/2012 - 00:24 | 2823450 Captain Benny
Captain Benny's picture

I think between NFLX and FB, he has finally been suicided

Sun, 09/23/2012 - 21:23 | 2823185 RiskAverseAlertBlog
RiskAverseAlertBlog's picture

Excellent post. Per some matters I would argue differently, but still, the degree to which the shadow banking system proved instrumental in building an historic debt trap, while its [inevitable] unwind guarantees that trap's ugly consequence is a matter of contemporary reality not a lot of people understand. An appendix to your overview might detail who most benefitted from the fraud-rife capital market perversion the shadow banking system facilitated.

Sun, 09/23/2012 - 21:22 | 2823186 devo
devo's picture

Bullish for figure 4 deadfalls.


Sun, 09/23/2012 - 21:27 | 2823193 logicalman
logicalman's picture

Every accountant on the planet shoud realize that they are unemployed.

The rules of accounting no longer apply.


Mon, 09/24/2012 - 00:32 | 2823447 Radical Marijuana
Radical Marijuana's picture

However, there may be a bright short-term future in control frauds?

I find this kind of article complicated, and hard to understand, because it seems to me to be like Alice debating the Red Queen ... EXCEPT we are still going down the rabbit hole, and I have no clue how deep that tunnel of deceits goes ...

The established financial system makes money out of nothing, while that money can also disappear to nothing, and so, we all have to watch the banksters keep juggling everything, very carefully, to try to preserve the Goldilocks' just right balance of the creation out of nothing, and the destruction to nothing, so that we get just enough more net money, so that everything works out O.K. ??? (Yet, with that delicate balance biased just so, towards the benefit of those banksters, and their buddies.)

Meanwhile, ordinary accountants are used to the basic arithmetic ideas of the conservation of money. Ordinary accountants never have to deal with the problem of their money simply appearing out of nothing, or disappearing to nothing, UNLESS there is a crime of some kind to investigate.

Ordinary accountants do not have to wrap their heads around them having the power to legally counterfeit, and therefore, how much to do that.  Ordinary accountants do not have to worry about money just disappearing to nothing, unless there was some embezzlement, or whatever!

However, the Central Banksters, and all of those who share in the rights and responsibilities of being able to legally counterfiet the money supply, who also have to worry about the things that make fiat money disappear, have problems that no ordinary accountant ever faces.

I believe I find this kind of article to be difficult to understand, because it is discussing something which IS CRAZY!

Ordinarily, conservation and preservation principles make the world around us appear to be intelligible. Ordinary accountants operate within an apparently sane world, where there are principles of the conservation of money, and preservation of information about where that money came from, and where it went to ...

Central banksters, and those who have the right and responsibilities to create fiat money, out of nothing, as debts, (and therefore, also to worry about that money disappearing to nothing, when things go wrong) do not operate inside of a world that appears to be intelligible ... EXCEPT as a tunnel of deceits and frauds, that keeps on getting deeper and deeper, and more twisted up and paradoxical!

Everything is discussed using a quite surreal language, where the ordinary common sense ideas regarding the conservation of money, and the preservation of the information of where it came from and went, have been divorced from the fundamental basis of the whole system itself.

The whole system looks magical, in the sense that it is based on triumphant runaway frauds, which were made and maintained through organized crime taking control of governments, while perfecting their ability to be professional liars and immaculate hypocrites regarding that entire process!

THERE IS NO REAL MAGIC! However, the system IS based on being able to make money out of nothing, and having that money able to return to nothing, and therefore, having to perform a magical juggling act to try to balance those illusions out, while nevertheless, they still remain connected to the real world, in the sense of using that money to pay for labour, or to earn wages, and so on and so forth, to buy and sell things which actually exist, and which NEVER get made out of nothing, NOR disappear to nothing.

The rules of accounting no longer apply ... ??? except the laws of nature still apply, in the sense that the conservation of energy and momentum, still continues ... since THERE IS NO REAL MAGIC.

The banksters and their buddies are more like show business than any other businesses. What they are doing is more like how politics or religion are also show businesses. Our money system is way more like a religion, than anything else, since we have a totally faith based money.  Fiat money is a crazy cult, that has become our state religion.

The banksters are like carnival barkers, or high priests inside of their banking temples, putting on an elaborate show, to entertain the masses with endless tricks. However, the main difference is that everyone is FORCED to be inside that show. Everyone is FORCED to use that money to pay taxes, and so on and so forth. Thus, that crazy cult of being able to make money out of nothing (and allow it to also be destroyed to nothing) is ENFORCED as our state religion. We are FORCED to accept the puppet shows being put on for us by the politicians, while we may be presented with fake choices to favour one puppet or another, but we can NOT vote for there to be no more of that insane puppet show, that flagrantly violates the basic laws of nature (except to the extent that real violence, still obeying the laws of nature, backs up its triumphant lies, which do not have to) ...

We are a captive audience, within an increasingly insane state religion, based on faith in those who appear to be able to make money out of nothing, to be responsible to make just enough to balance out when some of that fiat money disappears to nothing instead. I believe that any such "REALITY" must be god damn hyper-complicated!!!


But nevertheless, the entire economic system has become an awesome performance art of illusions, stacked on illusions, as we travel through and through the tunnels of infinite deceits, that privatized fiat money inherently creates.

We are obliged to have faith in fiat. In order to live in the real world, we are obliged to use the going legal tender to buy our food, and must obtain that from participating inside of the organized systems of fraud and robbery that are run by the government, as controlled by the banksters.  We are watching their house of cards grow exponentially, and yet, have no choice but to still play their card game. Ordinary people, doing ordinary accounting, can not make their cards out of nothing, and can not make their cards disappear to nothing. HOWEVER, THE BANKSTERS CAN, AND THEY CAN FORCE US TO PLAY THEIR GAME.

Mon, 09/24/2012 - 08:41 | 2823812 kridkrid
kridkrid's picture

Fantastic post! This is going to get lost in a thread that is going to quickly move away. Copy and repost it from time to time. The real economy that is trapped inside the pretend world of our monetary system is going to get trampled. There will be all sorts of finger pointing, but very few will ever point towards the real culprit.

Sun, 09/23/2012 - 21:26 | 2823195 stinkhammer
stinkhammer's picture

I hate the federal reserve corporation with all my soul. I wish every person in china would shove a rock down Benjamin Shalom Bernanke's neck, today, half an hour ago in fact.  Hate is too subtle a word in fact.

Mon, 09/24/2012 - 00:56 | 2823469 intric8
intric8's picture

Remember when everyone was aghast that the fed would burn 700 billion in 2008? The fed res is in the process of conditioning us that any limit is acceptable because we have to restore the economy at any cost. This should leave us all mortified, but the general public just doesn't understand the implications or doesn't care already. We are powerless against this. They got the police involved with occupy wallstreet, came up with all kinds of dirty tricks to quelch that movement and broke everyones spirit. Sucks to be us.

Mon, 09/24/2012 - 05:01 | 2823617 CompassionateFascist
CompassionateFascist's picture

Sucks to be you. OWSers were a Soros, both-sides-against-the-middle, standard scam. Good riddance. And this is a great and exciting time to be alive: an entire economic, cultural, and political collapse is upon us. Mere birth pangs of a New Order.  

Mon, 09/24/2012 - 07:43 | 2823721 intric8
intric8's picture

It may have eventually degenerated as a movement where it became "both sides against the middle",  and i am expecting the worst like you libertarians are, problem is, your contingent has gone and bought up all the good shotguns already. The coming total anarchy and end of this system of things as we know it.. you're right, sucks to be us, great to be you, pal.

Mon, 09/24/2012 - 10:44 | 2824235 Zwelgje
Zwelgje's picture

I think you mean upcoming Chaos as opposed to Anarchy.

Anarchy is about mutual aid really but the word has been raped.

Peter Kropotkin was a real anarchist.

Sun, 09/23/2012 - 21:31 | 2823203 Catflappo
Catflappo's picture

It's a shame that measuring inflation isn't like measuring a temperature.   Far from being a specific science, it is something that can be highly manipulated (and let's face it, has been for many years).

So, we can all look forward to the day when fuel prices are going up 5% a month but we are still 'assured' that annual CPI/PCE are 'well in the band, at 2.1%"



Sun, 09/23/2012 - 21:32 | 2823208 fonzannoon
fonzannoon's picture

when twist ends in dec do they do another 40 bil a month in lsap to fill the void?

Sun, 09/23/2012 - 21:50 | 2823240 Dr. Engali
Dr. Engali's picture

That's a good question. Theoretically the answer should be no( tax reciepts will be coming in),but the government is going to need the fed to fund the deficit at some point in time so they might continue just for the illusion that they aren't monetizing the debt. The problem the fed runs into us having enough short term debt to sell. They will have to start selling the middle of the curve.

Sun, 09/23/2012 - 21:55 | 2823245 Freebird
Freebird's picture

If not mistaken, 85B a moth to yearend & 40B a month thereafter, openended until the world is in full employment - whichever comes first

Mon, 09/24/2012 - 00:29 | 2823455 Catflappo
Catflappo's picture

Perhaps the plan is to keep on increasing QE programs and this will mean loads more traders, loads more sales, loads more back-office, loads more um everything....

... and that is how unemployment can come down REALLY meaningfully.

Sun, 09/23/2012 - 22:02 | 2823229 LeisureSmith
LeisureSmith's picture

Note to self: buy more precious.

Sun, 09/23/2012 - 21:46 | 2823236 Caviar Emptor
Caviar Emptor's picture

Gold will preserve your buying power

Sun, 09/23/2012 - 21:47 | 2823238 Freebird
Freebird's picture

Classic ZH, TDs - tx

Sun, 09/23/2012 - 21:49 | 2823239 Meesohaawnee
Meesohaawnee's picture

why is crude moving almost a buck down? an election?

Sun, 09/23/2012 - 21:54 | 2823242 logicalman
logicalman's picture


Private James Frazer


Sun, 09/23/2012 - 21:53 | 2823243 devo
devo's picture

Tyler, isn't a "shadow bank" just a private, unrelgated bank (i.e. a non-traditional bank/corporation that lends but gets money via investors rather than depositors. Such as Countrywide, etc)?

If that's the case, wouldn't it be wise to buy a stock like BAC since the FED will purchase every asset from their shadow banking division (i.e. Countrywide) and try to create a market for that crap? I realize when this all blows up, holding bank stocks or buying the assets the FED wants to sell us (e.g MBS) would be a bad move, but until then it should be a good source of profit and little risk due to the FED.



Sun, 09/23/2012 - 21:55 | 2823248 logicalman
logicalman's picture

The 'SYSTEM' sucks

Stay outside.


Sun, 09/23/2012 - 22:18 | 2823271 Dr. Engali
Dr. Engali's picture

BAC's equity would be wiped out. If you wanted exposure to BAC then buy the senior debt. Frankly I believe BAC has set themselves up for a collapse when they put 75 trillion worth of derivatives on the bank holding side.

Mon, 09/24/2012 - 00:39 | 2823453 Captain Benny
Captain Benny's picture

The only stock advice that the Tylers give are that you shouldn't need stock advice, because you shouldn't be in the market.  The simple fact that you're asking for advice on trading a market after reading this article may mean that you just don't get it.  Lets say for example your theory pans out and then you "get out" of BAC at the "perfect time":  Then you transitioned out of a claim on company ownership and now hold a bunch of Federal Reserve notes, do you have any idea what those notes at worth relative to the world around you?  The things necessary to survive and thrive will have gone up in price when denominated in such debt obligations from the private bank.  In this scenario, you make peak $, but in reality you're losing wealth as now you've failed to outpace money printing (aka inflation which is society's lack of interest in holding Federal Reserve notes) as hard assets soar all around you.

You will never win against the Fed when you use their fiat currency to fight your battle.  Your only chance at winning is hard assets.

Mon, 09/24/2012 - 00:50 | 2823252 EscapingProgress
EscapingProgress's picture

If VoM goes vroom it's all over.

Sun, 09/23/2012 - 22:11 | 2823264 km4
km4's picture

QE3 Another Fed Give Away to the Banks

Michael Hudson: Shoveling money to the banks not meant to create jobs, it’s a way to give banks even more speculative capital and prepare them for another meltdown

Michael Hudson is a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971).

Sun, 09/23/2012 - 22:13 | 2823266 JohnKozac
JohnKozac's picture

Euro zone to boost bailout fund firepower to 2 trillion euros: report


BERLIN (Reuters) - Euro zone states are preparing to allow the bloc's permanent bailout fund to leverage its capital in the same way as its predecessor so it can reach a capacity of more than 2 trillion euros and rescue big countries if necessary, Der Spiegel said on Sunday.


I am reiving my forecast for silver; I now agree with John Williams overat Shadow Stat that silver will hit (or surpass)  $200 oz.


Sun, 09/23/2012 - 22:22 | 2823276 jimmyjames
jimmyjames's picture

for example, if everyone is long AAPL and if everyone manages to cash out at the very top, when the market cap of AAPL is $1 quadrillion (for illustrative purposes), all that cash would then exit the capital market


The cash hasn't changed--one in-one out-

Sun, 09/23/2012 - 22:40 | 2823303 Tyler Durden
Tyler Durden's picture

There was a second part to that sentence

Sun, 09/23/2012 - 22:57 | 2823322 jimmyjames
jimmyjames's picture

There was a second part to that sentence


Yes but how would the trade change the behaviour of the sellers compared to what the buyers were doing prior-with the same cash?

Sun, 09/23/2012 - 23:03 | 2823331 Freebird
Freebird's picture

Yes & the remaining sentence makes sense, but still we have new buyers of the stock, so the point made above was it becomes a net net result no. Equal out equal in.

Sun, 09/23/2012 - 23:11 | 2823353 Tyler Durden
Tyler Durden's picture

No. It means a surge in hard, non-dilutable assets and a collapse in the David Stockman defined "Antyhing Ben Can Destroy" class

It may be odd to the new generation of traders but the stock
market can also go down

Mon, 09/24/2012 - 07:44 | 2823371 Freebird
Freebird's picture

EDIT: note to self, must not reply to a Tyler after having one glass of plonk too many

Mon, 09/24/2012 - 06:56 | 2823685 dannyboy
dannyboy's picture

"the stock market can also go down". I lol'd. 

Thanks for this article! Was amazingly well written, not so much new information for those of us that read you guys day in and day out, but it sort of tied everything together really well

Sun, 09/23/2012 - 22:24 | 2823279 yogibear
yogibear's picture

The US is on QE3 or QE4. Japan is on QE8 or  QE9. How did it work out for Japan? And their and island with limited land and resources. 

Sun, 09/23/2012 - 23:04 | 2823330 devo
devo's picture

Japan doesn't have reserve currency, though, and the citizens had a high savings rate. I think the end game will be much worse for the US. Especially if the FED et al can't use propaganda to engineer a soft landing. Their most valuable tool is them having most people (a) believe they're in control or (b) not even knowing the FED exists.

Sun, 09/23/2012 - 22:30 | 2823288 ebworthen
ebworthen's picture

You can't treat a cankerous boil with more cankerous boils.

Do they really receive PhD's for this bullshit?


Sun, 09/23/2012 - 22:30 | 2823289 gwar5
gwar5's picture

Western Central banks are synchronizing the race to the bottom for a big reset with a global currency. Race is to do it before China gets enough gold to have any real leverage at the IMF table.

Rickards figures China will need at least 4000 tons of gold, we know they may be getting close. Still, it is nothing but a suicide mission for all our fiat currencies which are being flushed to make us all global citizens.


Sun, 09/23/2012 - 22:37 | 2823297 web bot
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