Santelli On QEternity: "Deflation Vacation Or Inflation Gestation"

Tyler Durden's picture


With gold being horded in Iran and hitting 2012 highs this morning, CNBC's Rick Santelli addresses the 800lb gorilla in the Fed's room - the threat of inflation. Critically noting that the hyperinflation of Weimar Germany "did not happen overnight" but was gestated quietly until it was unstoppable by currency debasement; the question remains of what exactly the Fed thinks it is doing. Santelli makes the important point that if we look at 'printing money' as any type of solution then why not take it to the extreme - "if we just print a million dollars for every man, woman and child and handed it to them, wouldn't that fix everything?" As he adds "if it was that easy there would be no need for economist, no need for even CNBC, but it isn't that easy," Reflecting on Evans' earlier inability to quantify any metrics for whether QEternity was working, Santelli notes that the Fed man falls back to 'confidence' (animal spirits) but worries that inflation is a lot like soybeans; need sun, water, and time but eventually will grow rapidly.


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Mon, 10/01/2012 - 13:36 | 2845709 Abraxas
Abraxas's picture

Selective inflation is most likely.

Mon, 10/01/2012 - 13:41 | 2845720 Stackers
Stackers's picture

$1million X 300million people = $30 trillion. Drop in the bucket for a central bank

Mon, 10/01/2012 - 13:41 | 2845723 azzhatter
azzhatter's picture

your math is not very good but I get your point

Mon, 10/01/2012 - 13:43 | 2845737 Stackers
Stackers's picture

300 trillion, my calculator doesnt have commas so all the zeros started running together, lol

Mon, 10/01/2012 - 13:47 | 2845755 redpill
redpill's picture

Inflation nation

an Obamanation

If you white you better atone

If you black enjoy your new phone

Mon, 10/01/2012 - 13:54 | 2845787 ZeroAvatar
ZeroAvatar's picture

Yeah, get the new 'Monkey-Spank' app.   Sit around all day, spanking the monk.........

Mon, 10/01/2012 - 14:14 | 2845881 idea_hamster
idea_hamster's picture

     "if we just print a million dollars for every man, woman and child and handed it to them, wouldn't that fix everything?"

Perhaps not, but it would have done more than printing a million dollars for every man, woman and child and handing it to Goldman Sachs.

Mon, 10/01/2012 - 15:10 | 2846150 Taterboy
Taterboy's picture

Obama just found out about Bernanke printing money and replied,"But I thought money comes out of a unicorn's ass."

Mon, 10/01/2012 - 18:21 | 2846695 3rdgrader
3rdgrader's picture

If we just printed a Million and gave it to each middle class person, that would be better than our current system. Currently they just print a Trillion and give it to each wealthy person, who in turn buy up all the homes and commodities with it. Class warfare to the hundredth power.

Mon, 10/01/2012 - 17:33 | 2846588 Antifaschistische
Antifaschistische's picture

 "if we just print a million dollars for every man, woman and child and handed it to them, wouldn't that fix everything?"

National Store Chains, being the large slow moving machines that they are would probably get cleaned out immediately because they could not react quick enough to the price changes.

Goods would not be efficiently allocated as the early spenders would clean the shelves.

Smarter more nimble vendors would immediately increase their pricing to the point that would supress the shelf clearing demand.  

Prices would remain at 20x yesterday's price but incomes would be lagging.   When income catches up you'd get a 4x raise to counterbalance the 20x prices.

Wealth would be demolished as people shift from productive behavior to "save my ass" currency trading behavior.  Tens of millions of junior fiat currency traders running around trying to figure out how to keep a bowl of oatmeal on the table for their kids when just a week ago (before the million dollar Keynesian holiday giveaway) their family was living a very comfortable life.

Destabilizing currency destroys wealth...printing money creates value give aways from the Fed in any form (even the discount window) creates a less productive and poorer society.  (score one for the bankers, screw all others)

Mon, 10/01/2012 - 18:03 | 2846656 blunderdog
blunderdog's picture

Not very convincing.

I'd expect that not much would change LONG-term, but SHORT-term it would be pretty wild.

It could grant small groups the opportunity to completely re-adjust their living situations, and the labor market would go through a massive reorganization as retirement became a possibility for so many older workers. 

It's funny to see you saying that the big store-chains would be cleaned out.  It's not likely true (what do they sell that are in such great demand which isn't met elsewhere?), but even if it is--that's not a *problem.*  There's not much use for those organizations these days anyway--they're only still around because of tradition.  They're a lousy business model in a world of high energy costs.  Killing them would be mostly good news.  Killing them with a massive fire-sale would be the least painful way to go about it.

Mon, 10/01/2012 - 19:23 | 2846824 SeattleBruce
SeattleBruce's picture

"I'd expect that not much would change LONG-term, but SHORT-term it would be pretty wild."


Now what if they concluded that the $1M pp just isn't enough and they just starting doing it every day, for about a year, adjusting exponentially during the process...there that oughtta just about imitate the hyperinflation of a Wiemar...

Mon, 10/01/2012 - 14:46 | 2846074 SokPOTUS
SokPOTUS's picture

SEC approved....

Mon, 10/01/2012 - 14:04 | 2845828 lemonobrien
lemonobrien's picture

the phone is the new chain; easier to track a nigga with a phones, ans the poor can do no iphone.


oh, ans you on the list red pill.

Mon, 10/01/2012 - 13:50 | 2845768 Crtrvlt
Crtrvlt's picture

definitely something the fed can handle

Mon, 10/01/2012 - 13:59 | 2845804 exi1ed0ne
exi1ed0ne's picture

You needed a calculator for that?

Mon, 10/01/2012 - 14:06 | 2845832 smlbizman
smlbizman's picture

todays my 2 yr anniversary...closer to 3 but that was the second toughest captcha question i ever met...

Mon, 10/01/2012 - 15:04 | 2846126 Ayn NY
Ayn NY's picture

Should we start looking for calculators that add up to quadrillions yet?

Mon, 10/01/2012 - 13:42 | 2845729 azzhatter
azzhatter's picture

you're getting closer

Mon, 10/01/2012 - 13:58 | 2845802 kaiserhoff
kaiserhoff's picture

He needs a calculator for 4th grade math.  There's the problem.  Great higgly piggly.

Mon, 10/01/2012 - 20:49 | 2847010 jerry_theking_lawler
jerry_theking_lawler's picture

no joke....was at very good businessman's house discussing some business opportunities and had to multiply 15 x 1000.....he pulled out his calculator.

Mon, 10/01/2012 - 13:42 | 2845731 wagthetails
wagthetails's picture

might want to recheck that.  not that i think the Fed would still be afraid of $300T. 

Mon, 10/01/2012 - 14:49 | 2846082 Overpowered By Funk
Overpowered By Funk's picture

For the sake of keeping the math straight, I'm ok with a hundred grand.

Mon, 10/01/2012 - 13:50 | 2845767 jekyll island
jekyll island's picture

Santelli is right, there is no further need for CNBC

Mon, 10/01/2012 - 14:29 | 2845984 Idiocracy
Idiocracy's picture

Santelli is the hedge for CNBC.  When economic apocalypse finally arrives, the "news" director will be able to cover his ass and deflect public rage by pointing out "but, but, we ran Santelli all the time, go throw a brick through some other window"

Mon, 10/01/2012 - 14:50 | 2846087 SokPOTUS
SokPOTUS's picture

You've out-cynic'd me.

Mon, 10/01/2012 - 15:38 | 2846233 Arcturus
Arcturus's picture

The reverse of Nadler.

Mon, 10/01/2012 - 13:39 | 2845718 RSBriggs
RSBriggs's picture

Sounds like a good solution to me.  Wake me up when they start mailing out the million dollar checks...

Mon, 10/01/2012 - 13:58 | 2845803 ncdirtdigger
ncdirtdigger's picture

"Sounds like a good solution"


It depends on your place in the line.

Mon, 10/01/2012 - 14:27 | 2845976 exi1ed0ne
exi1ed0ne's picture

I've thought a lot about this, and while there would be some inflation I don't think it would be pronounced.  Treasury prints greenbacks or Fed created, but it has to be non-debt encumbered fiat - say $250K, or average mortgage outstanding.  Some people would look at their debt load, shrug, and then use the money for vacations, toys, etc.  This would boost the demand side.  Some would pay off/down their debt instantly destroying the newly created money, provide additional spending capacity, and cause chain deflation in the money supply due to fractional reserve banking.  Some would bid up safety assets/food/fuel - aka gamble.

Who gets screwed under this scenario?  The deeply indebted (if they use the new money to pay down all or most of their debt with little left over), and savers (in the inflation spike), and fraudsters (mbs/credit packaging same asset multiple times).

The question is though would the debt destruction deflation be enough to off set the new money spent into the economy?  Not that I ever expect to find out in my lifetime, but it is an interesting thought experiment.

Mon, 10/01/2012 - 15:32 | 2846183 MachoMan
MachoMan's picture

So you thought about this and didn't come to a very quick conclusion that it would be incredibly inflationary?  Look at it this way, how could the net money supply decrease if you printed money and then used all of it to extinguish debt?  (+1-1=0).  So, if ANY of the money is not used to pay down debt, then it would necessarily expand the money supply and, thus, be inflationary.

Mon, 10/01/2012 - 16:02 | 2846314 exi1ed0ne
exi1ed0ne's picture

Think about the reverse.  For each $ borrowed, about 10X that amount is created due to the nature of fractional reserves[1].  It stands to reason that for each $ of debt destroyed, 10X that amount would also go bye bye in the deflation spiral. So the thought experiment is would the ratio be 1 debtor out of every 10 paying down debt, which would have a neutral impact?  2 debtors would be deflationary while 1 out of 20 would be inflationary, not accounting for velocity or mattress stuffing.  I also based this on a 10 to 1 ratio for reserves, which in the US varies from institution to institution.  Regardless, as another poster mentioned below it would have been a better place for the $ to go then the usual bunga-bunga and powder bank bonus fests.



Mon, 10/01/2012 - 17:16 | 2846547 MachoMan
MachoMan's picture


$1,000,000 x 300,000,000 americans = $300T.  Total outstanding household indebtedness is what, $11-12T?

Ok, so if we're levered 10:1, then you've managed to account for 1/3 of the freshly printed dollars.  Now what?

You're overthinking this.

This is also without taking into consideration the effect on velocity...  overall velocity is nil, but that's because it's a weighted measure (composed of billions sitting in banks).  Billions sitting in the hands of J6P tends to be a little more...  mobile and used a bit more freely.

Mon, 10/01/2012 - 21:30 | 2847130 exi1ed0ne
exi1ed0ne's picture

I said 250K, or average mortgage, not 1 mil. That's 3/4 of debt outstanding at 10:1, which would leave some credit money in circulation. However, make it any number you like - remember this is a thought experiment! This would also side step the legal issues, and derivative consequences, of a jubilee I see advocated by some on this board.

Totally agree about velocity, but I think the effect would be muted. Don't get me wrong - I think printing money is a horrible idea, but if its going to be printed then solve the problem of too much debt.

What we have going on now doesn't solve anything except generate commissions for those advocating for more debt. Inflation comes with that too, but the benefits are concentrated to a select minority.

Tue, 10/02/2012 - 09:43 | 2848067 MachoMan
MachoMan's picture

The problem is that you have massive amounts of americans without a pot to piss in.  This means not only do they not have a dollar to their names, but they likewise have little, if any, liabilities.  Essentially, for millions of people, you'd be giving them a massive amount of cash even if you forced them to pay off all liabilities with it.  I think the 'real' velocity number would show its ugly face if this were to occur (meaning, money actually in circulation is turning over a lot, whereas this is being offset in the aggregate figures by billions sitting in electronic depositories).  I think this would occur regardless of the amount helicopter dropped, except for a de minimis amount (see G.W.'s $300/$600 attempt at a helicopter drop).

Essentially, Ben has contemplated this thought experiment and come to the only conclusion possible, that any drop directly to the populace would force his hand and bind him from further easing.  Granted, allowing the debt serfs out of the dungeon is not one of his goals, but his hands are tied either way here.  In order for the FED to remain in power, there must be a constant need for its supervision/services (which is obviously done mostly through its "independent" funding of the deficit, but I digress).

In the end, the amount of freshly printed dollars would exceed the amount destroyed, despite the leveraged fractional reserve system...  remember, as an inherent measure, people demand to receive today and promise to pay for it tomorrow.

The monetary policy is clearly punitive for all but a select few.  The problem is that in order to fix it, you have to stop the moral hazard...  you cannot fix moral hazard with moral hazard.  The thought experiment was dead from the start.  There is no free lunch.  [NOTE: external creditors have not been contemplated...]

Mon, 10/01/2012 - 14:05 | 2845826 Sofa King Confused
Sofa King Confused's picture

Ha Ha mail out checks to the indentured servants..Bernanke has much bigger things to do.  He needs to buy a whole bunch of shitty MBS from the banks so the banks can use that money to buy new treasuries so they can clean up their balance sheet and stay afloat and fund more govt debt so it doesn't look like the fed is the buyer of last resort

Mon, 10/01/2012 - 15:40 | 2846251 Arcturus
Arcturus's picture

think of all those stamps. The USPS would be solvent for a couple of months.

Mon, 10/01/2012 - 13:39 | 2845721 QE49er
QE49er's picture

The Fed could have handed out $40,000 to each person in the US since QE1!  That's a lot of gold I could have bought.  Where's my Obama Gold?

Mon, 10/01/2012 - 13:42 | 2845730 RSBriggs
RSBriggs's picture

Or sent a $250,000 "rebate" to anyone that actually paid any texes.

Mon, 10/01/2012 - 13:48 | 2845758 wagthetails
wagthetails's picture

you make a good point.  The Federal debt is obvioulsy only deferred taxes....and with barely half of us paying taxes....we should be calculating the debt based on debt/tax payers.  that may wake a few people up. 

Mon, 10/01/2012 - 13:55 | 2845788 RSBriggs
RSBriggs's picture

68 million in the labor force / 310 million = 22% of the people paying taxes.  And steadily decreasing.

Mon, 10/01/2012 - 13:56 | 2845795 A Lunatic
A Lunatic's picture

More like 20% of us paying taxes once you add taxpayer subsidized jobs onto the 40 odd percent of freeloaders.

Mon, 10/01/2012 - 14:00 | 2845812 EINSILVERGUY

I think you are forgeting the people that pay taxes on investment income and taxes on social security income.

Mon, 10/01/2012 - 14:11 | 2845864 RSBriggs
RSBriggs's picture

No, if you're married and at full retirement age, you don't pay taxes on social security unless you make over $44,000 per year.

Mon, 10/01/2012 - 15:56 | 2846295 ATM
ATM's picture

You don't pay taxes on Social Security. It is simply a refund of excess payments made by the government. It's means testing.

Mon, 10/01/2012 - 14:20 | 2845932 Common_Cents22
Common_Cents22's picture

Who would have invested that money more wisely?  Individuals investing their own money? or the government?      Clearly obama thinks he is a better investor than each one of us.   Look at his successes in GM and the solar business!  haha

Mon, 10/01/2012 - 13:40 | 2845722 azzhatter
azzhatter's picture

they want inflation for existing homeowners but not for new buyers. can't have it both ways

Mon, 10/01/2012 - 13:43 | 2845734 lesterbegood
lesterbegood's picture

"the threat of inflation" lol

Been to the grocery store lately?

Mon, 10/01/2012 - 13:45 | 2845749 RSBriggs
RSBriggs's picture

Ahh - but you forget...  They took food prices and gasoline prices out of the inflation calculation, so grocery store prices don't count anymore. 

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