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The Fed Has Another $3.9 Trillion In QE To Go (At Least)
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:
- Will The Record Plunge In Shadow Liabilities Impair Current Account "Shadow" Deficit Funding And Guarantee A Double Dip? - July 2010
- The $30 Trillion "Problem" At The Heart Of Shadow Banking - A Teaser - December 2011
- Here Is Why The Fed Will Have To Do At Least Another $3.6 Trillion In Quantitative Easing - March 2012
- On The Verge Of A Historic Inversion In Shadow Banking - June 2012
- Fed's John Williams Opens Mouth, Proves He Has No Clue About Modern Money Creation - July 2012
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:
- 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.
- 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.
- 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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jfc.
First of all everyone needs to calm down.
There was a lot of information in this post.
If I was voting in a highschool superlative, I would vote this post 'talked the most but said the least'
This post did something that really pissed me off. It gave me the option of severe deflation or severe inflation.
If you're gona' spend the time to write something of this quality at least give me your outcome.
Said otherwise. Make a call.
Reread it then. Because the post says the more shadow deflation we have driven by more intervention the greater the probability of out of control inflation. And since bernanke is never stepping off the accelerator the outcome is one.
Of course in a high school superlative one talks first and thinks later
Oh yeah tough guy?
What if no one else steps off of the gas petal?
The value of a currency is relative to that of other currencies in a fiat world. If every CB prints in tandem who loses value?
I print a dollar. You print a Euro at the same time. Which currency get's devalued in a world of dollars and euros?
The fiat system loses value. If that is not clear after reading zero hedge for 4 years then may we recommend Business Insider?
Listen, I loved the post.
I didn't like how it left the possibility of infinity in either direction.
Is it massive inflation...or is it massive deflation?
It seems like this post errs on the side of inflation but also leaves room for massive deflation.
I'm not wired into the BIS so I don't know the outcome and I'm not sure if the BIS knows the outcome.
All I know is that an event will occur in either direction. We will definately have massive inflation, or an episode of massive deflation.
It's massive inflation unless Bernanke raises rates and destroys the economy, which he will not do.
Also, Tyler, answer my comment above about BAC.
And you know what Bernanke will/won't do because....
Because he has a bad addiction and a Princeton degree that instilled inflation is good.
Like most everything else... do the math. Tyler answered your outcome question:
"Because the post says the more shadow deflation we have driven by more intervention the greater the probability of out of control inflation. And since bernanke is never stepping off the accelerator the outcome is one."
Thanks Tyler
Either destroys the economy, and in much the same way. Here is what inflation looks like: http://www.amazon.com/When-money-dies-nightmare-collapse/dp/0718302141 - you can find a free PDF version if you look a bit. Allowing the death spiral of deflation destroys money... Forcing hyperinflation destroys money. We have a monetary system built to collapse.
Yeah, I guess I shouldn't have said destroys the economy when describing deflation. Like most of us here, I think we need deflation and it's not economic destruction but rather the finding of correct market prices, which will look like destruction because of all the malinvestment, debt, and asset bubbles...
We don't need deflation. We need a new economic system that is not based on monopolistic control of a fiat currency loaned into existence through fractional reserve banking. I don't think you speak for "most of us here". I could be wrong, but I don't think that most people here believe "deflation" is some sort of an answer to a riddle.
http://www.goldonomic.com/When%20Money%20Dies.pdf
That depends on whether Bernanke stays in power past 2013, and who replaces him if he foesn't.
Bernanke is a seat warmer. His "knowledge of the Great Depression" was only relevant in the context of selling him to the media/masses.
Deflation is kryptonite to governments and banksters ... so, it'll be avoided at all costs.
in it's death throes, the fiat monetary system will violently spasm, from one extreme to the other, before exhausting it's momentum, and consuming itself.
I print a dollar. You print a Euro at the same time. Which currency get's devalued in a world of dollars and euros?
************
Exactly-they all float and compete-
Where is the peg to hyper inflate against when it's all being done in more or less sync-one is as shitty as the other-
At some point it will matter-when major bond markets start puking-
everyone prints, until it costs more to print a dollar, than it's worth
Maybe you need to write a shadow banking for dummies article. ... With lots of pictures... Preferably in crayon.
Can you add to the links as well this:
This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied - The Sequel
The fed is so scared that the MMF will break the buck so they added the MBR (Min balance at risk)
...Of course in a high school superlative one talks first and thinks later...
lol, what a cute way to describe a spastic knee jerk. Are you listening Swastika Yen and HEil Monedas ?
Did you read the same post I did? Or maybe you meant this comment for another article. Besides the Tylers have been consistent with their inflationary call. You may have noticed their tendency to like PMs.
Severe inflation or severe deflation is a policy decision. The destruction of the currency implied with either option.
Plese tell me that you're a cute furry little troll or a zh foil...
You cant possibly be so naive as to not realize we are getting ready to experience the greatest collapse in financial history
That the crime and fraud ponzi is getting ready to hit a critical mass
That nice polite words like "shadow banking" and "releveraging" really
mean theft and deceit on an epic scale
The only thing you need to glean from this post was said in the very beginning : "the jig is up"
Brace yourselves...This is gonna be a big ONE!
Don't believe me?...Just ask MY MAIN MAN, he'll tell ya so.
got sum gold & silver?
Governments around the world are printing trillions... TRILLIONS... with no end in sight. What in the name of God has the world come to?
A global coup.
dup...flash crash!
re: gold foil around crunchy tungsten nougat ..
I peeled off the outer layer of my FRN and all that's inside is cellulose fibers
There's a certain somberness that is taking over postings on ZH and in the general media. People know that things are becoming serious. El Erian last week said that the Fed's move means one thing -> Inflation for years into the future and we all know what this means for PMs.
The tin foil hat club is now not looking so stupid after all.
the QEorganizer,
can have another 66.6T to go if he wants to..but NOT possible....I say another 100b max.
another 3.9T as ZH says = $200 oil, $12 gasoline, $12 milk, = beginnings of hyperinflation which would make gas & milk = @ least $20.00
Bernanke is beating a dead horse..
Axial Division of Labour
http://www.youtube.com/watch?v=G7tVytjVXS4
odummernomics-rape-o-nomics,
i ain't buying your fecal matter spin bs !!
was watching bloomberg tv for a few minutes = my few minutes FOR THE WEEK..got better things to do...anyways bloomberg tv was saying that:
"odummer suggest romney wants to take US to war over Iran"
really?? just like odummer wanted to take US to war with RUSSIA !! when odummer in 2008 said:
"see instead of keeping 100,000 soldiers in Iraq, we could USE THEM NOW with Russia, bc they are beating up Georgia"....the stupid-nomics fart-nomics wanted to start WWIII with Russia....freaking idiot !!!
STUPIDITY U CAN BELIEVE IN !! ROFLMAO !!!
http://www.bloomberg.com/news/2012-09-23/obama-suggests-romney-wants-to-take-u-s-to-war-over-iran.html?cmpid=wsdemand
Learn how to see through the geopolitical Bullshit spun on your TeeVee.
Semi-Periphery States
cool video but the link has a virus.
There is a chart in this article https://news.fidelity.com/news/article.jhtml?guid=/FidelityNewsPage/pages/fidelity-central-banks-vs-the-economy&topic=economy that shows the price of gold plotted against World Central Bank holdings. There appears to be a correlation of around $105-$115/oz per 1 trillion held by central banks. So just adding this 4 trillion and none of the other central bank printing (as I don't know the amounts off the top of my head), we should arrive at a minimum target of $2000/oz in short order.
Thanks Sharky!
'promptly unwinding them while they still can, and using the proceeds to invest into hard asset for the inevitable T+1 moment.'
This is my biggest gripe: that the Bernank is giving me a 3.9 trillion spike in my future food and medicine bills while he is currently giving his buddies all the loot.
But this article is one of the best of ZH 2012 if not one of the best ever. This is what Actor Maria would not know to ask Dalio about and what Dalio would not tell her if she would have. Dalio nervously thought that the deleveraging could go on for 10 or more years and that the transfer of wealth to the Bernank's buddies was necessary. Anyhow, any number of books could be written using this article as a basis for further research.
I say that the traditional bank liabilities will soon cross the GDP poof intersection shortly either from a war, a bank run, a default, EU revolt or a meteor strike. And that when the two lines cross a war, a bank run, a default, EU revolt and meteor strike will surely occur.
Thanks ZH.
Quite possibly one of the best of 2012. Will never make it in translation to the mainstream media though. Topics like this are just too complex for Joe plumber to understand. I suppose, this is why the evening news always starts off with the latest political news about how Obamney leads or trails in new polling after making a speech about nothing but promises that are mathematically impossible to deliver upon.
I am happy that this Tyler did the writing. Perfectly paranthetical Tyler would have lost me in the first sentence.
thanks good writer Tyler ! Not that the others are evil or even bad, it is just that they seem to amuse themselves (pl.?) with sentences thatdefy structural analysis. When the topic is technical, brevity and clarity are preferred. Save the 'amazing' construction for the novel.
everything is connected in complexity from
debt creation resulting in fungible assets
to employment to hypothecation and rehypothecation
to shadow risk mediation, securitization to
geopolitical policy and resource seizure, confiscation
and taxation. somehow a complex structure emerges
from these things and they support each other in
unknown or unknowable ways resulting in bubbles
with weird forms and shapes; like those balloons
twisted off to be giraffes for the kids at a county fair. (fete)
.
you never know what a failure of one element will
mean in the final shape , maybe the giraffe becomes
a snake or a moth?. or maybe the thing pops? all the
helium escaping/returning to outer space.
but each element supports the others or it wouldn't
be of any relevance or interest, right?
.
also, everyone at the carnival has their own perspective and some just can't afford the balloons or a pretzel
but can enjoy the atmosphere perhaps, till the show
packs up and moves on to another town.
.
so i would guess that the shadow banking system intermediates some risk of inflation while sustaining
a level of inflation by supporting malinvestment
through growth where there is little underlying support
for the speculative "growth" investment, or it justifies or
commodifies fraudulent securitization in a way that
enables the market makers, empowering the central planners and their financial alchemy. or maybe it mostly launders ubiquitous fraud?
.
there may be both inflation and deflation simultaneously.
depending on the individuals perspective and resulting
hierarchy of concern.
that would be like price discovery? that would be a good thing because it would mean that the medium of exchange has a perceived value. the tragic thing is that fewer and fewer people participate in price discovery so the question of inflation and deflation becomes the concern of a smaller and smaller population
of people. (more machines or bigger machines)
it , in the model, goes back to jobs and income. wages
and business if not growth then at least survival.
the question is does the target level of inflation and
price of assets price out the labour and business class
in the economic environment? and does the fed really care? what good is it if growing numbers of the people have no money
to buy food and shelter? does it matter if the shelter is booked at 100k or 300k? if the apple is 50 cents
or 5 dollars? at this point the items just disappear
from that market, apples spoil faster than neighborhoods
though. i guess what bothers me is the system of distribution being dependent on the individuals participation in a ponzi fraud even after the fraud has
been identified and the perp has confessed , yet the
distribution system has not changed one bit. it
does not seem to be right or sustainable in the short to
medium term.
the word used above was "buffer". that is correct imo.
buffer (n.) 1835, from obsolete verb buff "make a dull sound when struck" (mid-16c.), from O.Fr. buffe "a blow;" hence "something that absorbs a blow."
.
is it coincidence that shadow banking became a dominant
form of credit inter-mediation around the time that
prosecution of financial crimes among those parties
went extinct? and at the height of asset accumulation
of the baby boom demographic?
.
What Is a Buffer?
A buffer is an aqueous solution that has a highly stable pH. If you add acid or base to a buffered solution, its pH will not change significantly. Similarly, adding water to a buffer or allowing water to evaporate will not change the pH of a buffer.
?
QE3 Another Fed Give Away to the Banks
Posted on September 23, 2012 by jischinger
http://maxkeiser.com/2012/09/23/qe3-another-fed-give-away-banks/
"HUDSON: QE3 was basically a program for the Federal Reserve to give money to the banks until Beethoven writes his 10th Symphony. There is no connection to employment whatsoever."
.
WHATS GOING ON /MARVIN GAYE
http://www.youtube.com/watch?v=f39Zs0gB87c
Excellent read, this cleared a lot of things up for me.
when a money system is predicted on fraudulent
loans made on real estate you might have a
problem at some point in the life of the loan
or in the money supply? could happen.
Theses Jews must go, they have ruined every country they have gotten their hooks into.
Is Cheney a jewish name?
No but Paulson, Greenspan, Volker, Rubin, Bernanke, Geithner, Dimon, Blanfield most in charge of the money are!
But these guys are the middle men who do the bidding of the real money and has been such for millenia, they are used to deflect the blame away from the aristocracy and this too has been such for millenia, still don't get your point
Instead of the "Printer Friendly version" link in articles - can we have a "Bernanke Friendly" Link?
Fantastic peice, as usual.
For those confused by the deflation - hyperinflation paradox, just remember that hyperinflation is not high inflation, it is a loss of faith in a currency -- a currency crisis. Hyperinflation frequently (perhaps always?) follows deflation, as deflation is extremely toxic to any fraction-reserve based financial system. Just as normal inflation enhances the purchasing power of those with first access to money (banks, both central and otherwise, and governments issuing debt), deflation does the reverse, reducing the purchasing power of those with first access -- which for centrally planned economies means the central planners are losing control.
This is why TPTB freak out so much over deflation. Once control starts being lost, faith is shaken as markets act rationally by reallocating capital to safer destinations (hard assets), and then the comparitive hard asset price skyrockets when priced by the failing fiat.
The key point Tyler is making is the Fed has made the choice we expected them to -- to print -- and due to the deflating shadow banking system, the choice is now a locked-down, committed one. We're past the point of no return. Now, every move the Fed makes has a negative outcome, and all they can hope to do now is balance the mix of actions to prop up the system as long as possible. Based on Tyler's premise, indications that things are getting bad will show up in hard asset price increases and changes in bank liabilities -- both of which are happening, and have been happening, since '08.
EU plans "XXL rescue package": http://www.ftd.de/politik/europa/:griechenland-spanien-zypern-eu-plant-r...
"The euro zone is preparing a comprehensive package for the euro rescue
before November at the latest. Changes to the aid program for Greece,
the planned program for Cyprus and a second auxiliary request Spain 's
could be agreed together and submitted to the parliaments, the FTD
learned on the weekend of Euro-circles."
offtopic, but interesting:
http://ethz.focproject.net:8080/widget
There is no way they can really believe in QE-infinity. 0 interest rates failed, two gargantuan GE's failed and now they pretty much reinflate housing bubble... to save the economy? It's just to keep the boat afloat through elections and possibly to make some kind of arrangments for the crash in time they can buy with this. Maybe real hardcore fascism, with people shot in streets and camps for trouble makers is next step for American Empire?
" people shot in streets and camps for trouble makers is next step for American Empire"
seems like every day i see reports of people being shot in the streets for petty things like a wheelchair bound amputee waving a pen an a cop or some one filching a $5 ride on a train shot in the back while on the ground handcuffed,
what do you think all the FEMA camps are for?
The only thing the Fed can do is print money and hand it over to the too big to fail banks in the form of QE which lead to lower standard of living for all the citizens of a country except for the beneficiaries of the bailouts. The poor people in any country live hand to mouth and do not contribute to tax revenues. The others who earn their living by small businesses or salaries pay taxes at a much higher rate than the rich individuals or big businesses. This is due to the loopholes in the taxation system which enable them to declare maximum profits in countries which have the least tax rates. So effectively in the long run the governments route the money collected as taxes from the middle class of people to the banks so that the bankers can enjoy enormous bonuses. We are in times of privatizing the profits and socializing losses for those who are well connected to the governments and the law makers.
The money which TBTF banks get in the form of QE is used to speculate in currency, stock, commodities and bond exchanges. None of this reaches the main street and hence recovery in the actual economy is not possible through QE. Moreover speculation in commodities like Oil and agriculture products lead to higher prices thus making the lives of the very middle class paying taxes and the poor more miserable.
http://www.marketoracle.co.uk/Article35345.html
www.letstalkmoney2012.in
Thanks Tylers,for most informative series of posts.
No other site(currently)has your kudos.
Cheers!
Second that, awesome and well documented.
And again,this telling it like it is,as most of us here know,is almost completely absent
from the MSM,and therefore unavailable to even the best intentioned sheeperson.
All the more reason then,for continuing to attempt to educate those sheeple,dear to us,
whom we'd not like to see lose everything,simply by being uninformed,and easily (mis)lead.
Thanks again zero Hedge
So when Hank Paulson let Lehman fail so Goldman could take their market share, he screwed Goldman anyway by creating a huge amount of fear in our banking system, thereby triggering the develeraging. He should have just let the whole system crash.
I love these articles on shadow banking. We are fucked aren't we? Yeah we are definitely fucked. 10B or 20B people by the end of this century (depending which source you wish to believe) have been predicted. I'll make you another one and, I think mine will be much closer. Mankind will be lucky if there are 1B people at the end of the century.
Why? The shit that will hit mankind thanks to this great Ponzi scheme system unravelling, the crash (explosion might be a better metaphor) that they are working on now is going to make every financial crises of the last 300 years seem like a weekend exercise of the local boy scouts. After the crash come the suffering and wars and riots and well a lot of bad shit.
I cannot help but wonder if that would also have been the outcome 4 years ago if the CB's and politicians of this world had simply decided to liquidate the bad shit.
It is too late for that now, no turning back, just go on and pray the house holds up, because if it doesn't that 1B will be what has been rebuilt after the devastation of the coming years (Decades) has run its course.
Funny how it turns out to be a virus that annihilates the biggest part of mankind. The parasite that is the root cause of the virus is bankers.
This is a nice compliment to the prior "Shadow Banking" piece and made it all come together for me, and thankfully a lot of the comments were competent, informative and pertinent to the thread (the way it used to be on ZH).
So we "think" The Fed has just under another $4 Trillion to go, great. What I read is the thought here that this takes us for a few more years of QE, and NOT infinity? To me this is good for volatility indexes (see prior VIX thread) no? Everything is basically short now, book your profits and maybe buy hard assets with the short term returns?
I have also read that THE consensus is massive inflation to as high as 50%, although not hyper as that would also break the criminals. My short-term models (6 moths or less) are 1-3%, helped by gold of course (knowing it's paper), add some volatility, play government stupidity and get out as the $3.9 number gets near.
Again, great post and please keep the insightful (and criticisms) comments coming.
That red line "Monetary base" is a good representation of what is actually going on; ie, flooding the world with trillions of dollars more.
Thank you TD.
What would the world have looked like if they had allowed massive liquidation after the dot com bubble collapsed at the beginning of this century. In stead of creating a new bubble trough housing. Twelve years back they could have done it and than introduced a "Tientje van Liefting" style new currency to restart.
I doubt that trick will work now. But to explain. Tientje van Liefting was an operation that the finance minister of Holland exercised after WO II to kick start the finance system again and to cleanse the money in circulation of dubious origin. Everybody received 10 guilders to pay for their expenses for one week during which they had time to exchange old currency for new currency as well as provide an explanation of how one had obtained the old currency exchanged for the new currency. It had a cleansing effect and worked quite well.
In the end it will probably come down to an operation like this. I'm afraid we'll have wars and worse first before that happens.
It would be nice to know who actually wrote this article: 'Mr Anonymous', nice to make your acquaintance ...
Not that there is much wrong with it: 'Mr A' leaves out the decline in worth of residential real estate as well as retail-related deleveraging which together total US$5 - 7 trillions MORE which would have to be replaced with Fed credit ... in order for the Fed to 'catch up' ... for there to be any inflation. The reason the real estate is worthless is because most of it is in the middle of nowhere! To make use of it one must own a car ... both the real estate and the cars are too expensive to operate.
'Use Cost' is a problem the central bank is ill-equipped to manage ... it can only make the problem worse.
'Mr A' labors mightily to cook up an inflation scenario out of banking sector ingredients. With the private balance sheets eroding there is little chance of the slow-moving central banks being able to keep pace.
Even if they could there is no replacement for the private finance which is more granular. The insolvent commercial banks/non-banks are useless as a transmission mechanism for central bank credit. This is what is happening right now in Europe. Collateral falls worthless, all new lending is unsecured, eventually (now) everyone becomes insolvent not just the odd bank here and there.
Deposits escaping ... a reserve system is called a 'bank run' Bank/currency runs are underway in Europe right now. The reason is unsecured lending by the ECB which insist there is no real lender of last resort ... only a cheap fake.
Good for 'Mr A' to point out that hyper-inflation in Weimar -- and the rest of Europe -- in the early 1920s was caused by unsterilized flows of gold into the Continent after WWI. When gold is money ... and there is little gold in circulation ... small changes at the margin have outsized effects.
Meanwhile, the argument for currency/rate depreciation fails when all the major trading partners are seeking to depreciate the same way at the same time. The central bankers have all painted themselves into their own little corners and have nowhere to go, nothing to do to save themselves.
The only possible solution is stringent, extremely dramatic energy conservation measures: reducing fuel imports to near-zero. If folks, do not do so, the outcome is (not will be) stringent, dramatic energy conservation reducing fuel imports to near-zero.
Don't believe me just sit back and watch and see what happens!
Thanks and have a nice day!
This comment is as interesting as the main article.
I have to ask this question.
How do you have hyperinflation or deflation with digital currency.
The Weimer example is not valid because they printed banknotes-currency.
Not so in this case so just as digital money can be created it can be destroyed or fractionalized. Isn't this the plan? Control!!! Not control print, Control of you and me.
That's why guns and gold are the answer and moving to the countryside. You will need a place to ride it out. Your cottage on the lake is useless, it's already mine.
Didn't you guys read 'A Tale of Two Cities" and '1984'. I hate to harp on it but just try getting on an airplane with either of the above G's.
You will not escape.
You are going to have to stand somewhere with your family, with your skills, with your food and water and neighbors.
Honestyly friends Marx was right about capitalism, that doesn't make socialism much better just maybe less violent. The best managed states and currency will prevail. Look for that.
When our currency fails it's gonna come down to stuff you have and the guy with a small clothing store and a grocery store will hire guys with shotguns. People will walk.
Have you traveled in Central America lately, I'm not talking the beaches but the countryside say Guatemala. If not you have alot to learn about life and the price of propane when the wood is gone. Well you can always burn your furnature to buy time.
Think about this, gold, fiat paper and digital. All money but not the same. They do not work the same in the system.
Now put a shotgun shell in your piece, lay it on the table and look into the barrel. Make a P&J sandwitch and start planning.
Run the bank and your 401k.
Advise others to do the same.
We will survive.
Get stuff we will need.
We will work together, tribalism, communism socialism neighborism, anything that co-operates.
Capitalism is dead.
Oh, you don't like it? Good luck, go away.
bill
You remind me of an older guy that used to work for me. By old I mean born around 1910. He always claimed that the biggest problem with this country was that we were as a whole a spoiled throw away society, it couldn't last, and it would eventually catch up with us because we would waste every resource we had by throwing it into the garbage. He was right.
When good guys deleverage, they fire people.
When bad guys deleverage, they kill people.
$3.9 trillion seems a tad low, considering the total derivatives market is now (or, as of 2010, when this article was written: http://www.dailyfinance.com/2010/06/09/risk-quadrillion-derivatives-market-gdp/ ) $1.2 quadrillion.
I maintain that no central bank, or all of them combined can cover even a fraction of that without a bank run becoming too obvious to ignore.
Instead, zero out all derivative bets where EITHER side cannot repay, by law, as I recommended in early 2009, and as Paul Craig Roberts now recommends too. See the latest update here: http://www.opednews.com/articles/A-necessary-addendum-to-Pa-by-Scott-Baker-120606-371.html
Excellent research
I love Zero Hedge