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Can The Fed Ever Exit?

Tyler Durden's picture


We have extensively discussed the size (here - must read!) and growth (here) of the Fed's largesse in soaking up massive amounts of the primary and second Treasury (and now MBS) markets with the ongoing theme of 'what about the exit strategy?' among other things. The onset of QEternity likely means the Fed's balance sheet will grow to over $4 trillion within the next year and, as UBS notes, although the Fed has suggested that it will not begin an exit strategy until 2015, the magnitude of the excess balance sheet argues for considering whether the Fed has the ability to unwind their balance sheet. We, like UBS, believe that the Fed will find it far more difficult to exit than they have found it to enter given the limitations of the exit tools frequently cited. There are three main tools for reducing the Fed’s balance sheet: asset sales/maturation (bad signaling), reverse repurchase agreements (size constraints), and interest on reserves (inflationary).


Via UBS:

  • Asset sales/maturation. The portfolio shift to a longer average maturity means that the Fed is unable to reduce its balance sheet only by letting securities mature. There would be no material reduction until at least 2016 and even then the reduction would likely be under $250bn. Outright sales face a different problem – expectations. Unlike purchases where announcing a certain amount of purchases reinforces the Fed’s goal of lowering rates via expectations, any sales would likely result in the market pricing in a fully normalized balance sheet. As such, an initial sale program of just $200bn would not be credible as the expectation would be that the sale announcement signals a desire to return to normality requiring an addition $2.5tn in sales at some point.
  • Reverse repurchase agreements. This tool is swamped by the magnitude of the drain required. At present money fund assets are roughly $2.5 trillion, $200 billion less than the excess balance sheet we anticipate by the end of 2013. However, this statistic does not tell the full story as reverse repurchase agreements only make up just over 20% of money fund assets, or just $500 billion. The other primary counterparty the Fed would rely on, the Primary Dealer community, are unlikely to be able to participate in anything close to that size. While these figures do not prevent the Fed from using this tool, they do suggest it can only be a part of the overall solution.
  • Interest on reserves. Although interest on reserves theoretically creates a floor on rates in the interbank market, it does not prevent banks from using funds to make loans. Loans eventually end up as deposits somewhere and, as such, the overall level of deposits at the Fed provide little guidance as to whether the funds are circulating in the economy. The only way to prevent lending would be for the Fed to raise this rate sufficiently to make banks prefer depositing the money at the Fed to lending to their client base.

QE3 and QE4, if enacted and continued until the end of 2013, will leave the Fed with excess balance sheet of roughly $2.7 trillion.


Fed Treasury holdings by coupon maturity date (2013-2042) expected at the end of Operation Twist at the end of 2012.


Money fund assets have been falling and the total amount of repos done by money funds does not appear sufficient to allow the Fed to rely solely on reverse repos from this financial segment to drain liquidity.


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Sat, 10/06/2012 - 17:42 | 2863483 surf0766
surf0766's picture

NO. Next discussion. !

Sat, 10/06/2012 - 17:43 | 2863484 Careless Whisper
Careless Whisper's picture

The Careless Whisper INTERESTING STORY OF THE DAY & Threadjacking

Today's "interesting story" starts out rather ehhh, but upon digging deeper there's something there that I think ZH readers will find interesting. Our story starts with "Good Morning America" weatherman Sam Champion (he was born with that name), announcing his engangement to Rubem Rubierb. Rubem Robierb is an artist/photographer. He's from Brazil, and is. of course. hot. All Brazilian men and women are. That's the way it is. Here's the official press release and photo;

This is a photo of Mister Rubierb from his web site:

Well, legally blonde (I call her that affectionately because she is damn smart) Ann Romney is guest-hosting one morning next week on GMA and now people are speculating that she may feel "uncomfortable" with gay Sam Champion. ppffft. Amateurs. She will sieze this opportunity to be inclusive, as she has already supported responsible stem cell research, and can certainly think for herself. Okay, now the interesting part for ZH people. It seems Mister Rubierb had an art exhibit earlier this year. It was called "Show Me The Money", and before any of you say, that's art? Let's remember that good art inspires thought, and I maintain that these works of art are certainly provocative;'S%20VOICE.JPEG





Sat, 10/06/2012 - 18:27 | 2863561 economics9698
economics9698's picture

Fuck this shit.

Sat, 10/06/2012 - 18:30 | 2863567 AnonymousAnarchist
Sat, 10/06/2012 - 19:29 | 2863649 CrazyCooter
CrazyCooter's picture

Does that mean China gets our squids-and-ships when we go tits up?



Sat, 10/06/2012 - 21:31 | 2863799 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture


Sat, 10/06/2012 - 18:28 | 2863565 ratso
ratso's picture

What, if any, are the reasonable alternatives to the Fed's present course of action?

Sat, 10/06/2012 - 20:03 | 2863691 Zero Govt
Zero Govt's picture

Ratso -  the use of the word "reasonable" when considering the Feds actions is extremely unreasonable

we're talking about loonatic Bubble Ben here, from Planet Uranus (an Ivy League University), not some capable and professional business manager balancing his budget for the month 

Sun, 10/07/2012 - 07:39 | 2864221 machineh
machineh's picture

When Bernanke unveiled QE1, he promised it would be withdrawn in due course. But the next year, he announced QE2 -- so much for good intentions!

Here's the skinny: the Fed will NEVER reverse QE, for two reasons: (1) It would crash the economy; (2) E-Z money KongressKlowns would react by abolishing the Fed's hybrid structure and making it a full federal agency under their control, with some smart-mouthed jerk such as Barney Frank in charge.

Like every politician, Bernanke fully intends to leave his reeking monetary Augean stables behind for the next Chairsatan to shovel out.

I hereby nominate the Bernank to the National Hall of Shame, to take his deserved place alongside his mentor and co-conspirator Greenspan (not to mention previous Chairstooges such as Arthur Burns and G.William Miller). LOSERS!

Sun, 10/07/2012 - 11:47 | 2864645 LMAOLORI
LMAOLORI's picture




Unless Ben is shown the door by Romney nothing can Stop the Bernanky Panky.  Congress could end the Fed but they won't because they love the money and the power


Fed New Accounting Change Means its Impossible for the Fed to go Bankrupt!


Hot! Fed hides major Accounting Change


Sat, 10/06/2012 - 19:26 | 2863644 CrazyCooter
CrazyCooter's picture

I am missing the jist of this threadjacking. Usually, it's relavent content.

That art is crap. I am so sick of modern art. Look, the quick and dirty political statement stuff, fine. Is there a skill there? Of course. But the things, in my life, that really get my goat, are things I can look at ... FOR YEARS ... and still have an infatuation with. The list is very short, but when I see 'em, I buy 'em (if I can afford). The list is short, but great art is timeless.

Often, people who have a "life of art" are funded from other sources and do not "survive" on their creativity.

Maybe my bar is too high. Or maybe I am annoyed that he made TX too small. Take your pick.



Sat, 10/06/2012 - 22:18 | 2863868 Chuck Walla
Chuck Walla's picture

Call me when rubberbum gets one to look like Jesus.  Or Ben sucking Keynes...



Sat, 10/06/2012 - 17:46 | 2863486 CH1
CH1's picture

They don't care.

The Primary Dealers - aka, the owners of the Fed - have been skimming from every dollar of debt created.

When it all goes down, they'll run up a new banner, ride in to the rescue, and start over.

Sheeple will be suckers, again.

Sat, 10/06/2012 - 18:25 | 2863558 economics9698
economics9698's picture

I would bet people figure it out, some people, and hang them.

Sun, 10/07/2012 - 01:21 | 2864051 Clashfan
Clashfan's picture

How charmingly Quixotic. I'll take the other side of that bet and win every time. I don't think there are any examples in history of such stuff happening, really.

Sun, 10/07/2012 - 08:06 | 2864247 economics9698
economics9698's picture

WWII, it was done frequently. 

People forget when the fiat dies everyone will learn about banking and who was responsible for the collapse. 

When America is sacked and burned by central banking the public will figure it out.  

All those ex-government employees eating oatmeal everyday...they will grow a brain sooner or later.

Sun, 10/07/2012 - 11:53 | 2864678 kaiserhoff
kaiserhoff's picture

The French Revolution?

The German response to France and their Jewish bankers?

Iceland if it had come to that.

Sat, 10/13/2012 - 03:45 | 2884119 Clashfan
Clashfan's picture

The so-called "French Revolution" was a Templar construct from start to finish.

Sat, 10/06/2012 - 18:06 | 2863524 rotagen
rotagen's picture

The Rothschilds of the world  won't "exit" until you kill them.  They would gladly kill you first.

Sat, 10/06/2012 - 18:26 | 2863559 economics9698
economics9698's picture

I agree, we need to kill them.  And by we that means we who understand who they are.

Sun, 10/07/2012 - 00:08 | 2863988 Radical Marijuana
Radical Marijuana's picture

Yeah, there is no feasible plan for Fed's privatized fiat money runaway frauds to "exit."  Those behind that achievement have an advanced agenda to deal with the world's real problems, their way! The supreme organized criminals that controlled our governments, in order to legalize counterfeiting of our money supplies by them, already have well-developed plans in place for the future. I think those plans are insane, and will go horribly out of control, but nevertheless, that appears irrelevant, and will certainly not change anything that matters.

The "exit strategy" for the people who set up the Federal Reserve Board is genocidal world war, and democidal martial law. They plan on going for broke. They have built a global electronic fiat money fraud system, backed by atomic bombs. They have no intention of backing out. They have no exit plan other than to wipe out the majority of the world's population, and then, they hope to mop up afterwards.

Therefore, I am forced to agree with rotagen.

Tragically, I believe that almost all of us going to lose. They will continue to try to kill us, before we kill them, and that will go out of control, and almost everyone will be killed instead. Hence, the real future will be as utterly unpredictable as total war with weapons of mass destruction! I can not see any plausible way to prevent that from happening. The established systems are ALREADY runaway electronic frauds, of making more and more "money" out of nothing, as debts. That debt slavery has ALREADY become debt insanity. There is NO sane exit left! There is only the old-fashioned insanity of starting a war abroad, and using that excuse to impose martial law at home. Both of those things are practically guaranteed to go wildly out of control, very fast, after they get to a critical point of craziness. The trillionaire mass murders that control our current civilization are going to attempt to consolidate their power, using their tried and true traditional means, of backing up bigger lies with more violence. However, those bigger lies are now electronic frauds, and more violence means weapons of mass destruction.

Of course, I still WISH that I did not believe that!  I still WISH I could believe that some series of political miracles would save us instead.  However, in practice I see no possible "exit strategy!" The Fed is the runaway triumph of Fraud, backed by Violence. It has no possible exit, other than political miracles, OR the insane mass murder of most of the human population. There is no real contest between the probabilities of those two options, since, when the use of weapons of mass destruction goes out of control, and the imperatives of militarism take over, then the "kill them before they kill you" situation thoughout human history gets astronomically amplifed by science and technology, in ways that kill just about everybody.

Sun, 10/07/2012 - 01:23 | 2864052 Clashfan
Clashfan's picture

I was thinking of posting a list of great ZH screen names, potential ones.

Right now, for example, I'm wishing my sn was Bertha Champagne. It just has a ring to it, you know?

Still don't know why you didn't go with Radical Reefer.

Sun, 10/07/2012 - 05:05 | 2864140 Radical Marijuana
Radical Marijuana's picture

Yeah, I should have!

It has a nice alliterative ring.

The reason behind the name I use is that I inherited the name "Marijuana Party" when I officially became the "leader" of a registered Canadian political party called the "Marijuana Party." That party was originally created by young radicals, that deliberately liked that name, and picked it precisely because they KNEW the history behind the word "marijuana."

"In the beginning was the word, and the word was a lie."

That is, the original English word for that plant was hemp. The Latin name was cannabis. Both the words "marijuana" and "pot" come from Mexican Spanish slang, due to the history of the propaganda campaign that rebranded hemp as "marijuana," in order to assert that "marijuana is almost as bad as murder," since most people back then would not understand nor recognize that making marijuana illegal was criminalizing all cannabis, and therefore, hemp industries would be put out of business ...

Anyway, in 2004, the Canadian election laws were changed in ways that deliberately burned that little Marijuana Party to the ground and bulldozed it over. I became party "leader" because nobody else was willing and able to. In fact, everything since then has gotten much worse here. Canada always has followed after the USA, and in 2012 Canada adopted the American style mandatory minimum prison sentences for cannabis crimes, and our the current Canadian government is doing everything it can now to wipe out the medical marijuana programs that it was forced to allow due to a series of Canadian court decisions. Since everything is ACTUALLY getting worse, faster, I am actually the "unleader," in retreat, of Radical Marijuana in Canada, as an officially registered political party name, through Elections Canada.

"Radical Marijuana" is a phrase which is deliberately analogous to "Crazy Nigga."  In fact, there are deep isomorphic analogies between human races and different breeds of marijuana plants. The resin on the marijuana flowers is similar to the pigments in human skin that protect from Ultra Violet light. That is, melanin in human skin protects from sun burn, while the THC on the marijuana flower is highest in concentration around the bracs, that protect the immature seeds from too much UV light. Therefore, pot plants that evolved in the high altitude tropics evolved to produce lots of resin when they were flowering, while lower latitude, lower altitude pot plants did not evolve to do that so much. Pot plants have the genetic variability to get sun tanned like people do. Pot plants that naturally grew in areas like the Ukraine produced very little psychoactive resin. They were analogous to the human beings that migrated to live beside the glaciers, and therefore turned "white" or Caucasian, because they needed more UV light to be absorbed, so that their bodies could produce enough vitamin D (which is actually not a vitamin, but a hormone.) Pot plants that grew at lower latitudes or higher altitudes, like for instance in northern India, evolved to produce lots of resin, to protect their seeds.

Therefore, medical marijuana is "black pot" that is accepted because it comes wrapped in a white lab coat. While industrial hemp, which is forced to have less than 0.3% THC, in the few countries where that is legally allowed, is "albino pot."

That is also the history behind why the scientific names for that plant are wrong. Cannabis is actually one species, like human beings are one species. The distinctions between Cannabis indica (hemp from India) and Cannabis sativa (useful hemp) were scientific mistakes. The hemp plant is ONE SPECIES, the same as Homo sapiens is ONE SPECIES. The racism that asserted that black people were not human (as exemplified by the Dredd Scott case decided by the US Supreme Court in 1837) was similar to the historical mistakes that said Cannabis was a genus, instead of one species. In fact Cannabis should not be capitalized, because it is NOT a genus, but rather cannabis should be the name for a species.

Anyway, the entire history of the names for that plant were totally screwed up, due to the history of prejudice, that was actually worse than the prejudices between different human beings! Human beings have become profoundly insane, due to the triumphs of the biggest bullies' bullshit being able to dominate our culture so totally! The insane attitudes that human beings have towards plants are actually MORE INSANE than the attitudes that some human beings have towards other human beings. The word "marijuana" illustrates that, and the legalized lies, backed up by legalized violence, in the form of the marijuana laws, are the single simplest symbol, and the most extreme example, of the general pattern of social facts that EVERYTHING is controlled by huge lies, backed up with violence ... LIKE THE MONETARY SYSTEM, as dominated by the Federal Reserve Board.

Therefore, there was a history behind why I ended up using the name "Radical Marijuana." ... I like to think that name may be like a judo technique? That is, one does not try to use one's lesser strength against one's opponent, but rather attempts to channel the opponent's greater strength to end up acting against them. I have the same idea with respect to the fascist plutocracy that was made and is maintained by the trillionaire mass murders, like the people that were able to make and maintain the Federal Reserve Board. It is NOT possible to stop the fascist plutocracy. However, it MIGHT be possible to push it beyond where it would have otherwise stopped? ... In a sublime way, that is another answer to the question of whether there is any exit strategy for the Federal Reserve Board. ... Of course, that appears like me merely day dreaming about some implausible political miracles, like I typically do, since the there is NO reasonable hope for the future, and therefore, irrational hopes might be better than no hope at all?

Sun, 10/07/2012 - 08:00 | 2864239 machineh
machineh's picture

In 2012 Canada adopted the American style mandatory minimum prison sentences for cannabis crimes.

Another legacy of Steven Harper, the Canadian George Bush who just won't go the fuck away till he's wrecked everything.

Sat, 10/06/2012 - 20:58 | 2863759 glenlloyd
glenlloyd's picture

No, there will never be a FEXIT..

Sun, 10/07/2012 - 12:12 | 2864719 ToNYC
ToNYC's picture

Apocalypse Fed:

The back-fires the Fed will build to halt the raging fires of rising interest rates will be something to watch away from the debris field in the cities.

Sat, 10/06/2012 - 17:44 | 2863485 Skateboarder
Skateboarder's picture

The sign at the entrance of the dead mountain in Lord of the Rings is the best analogy I can think of.

"The way is shut. It was made by those who are dead, and the dead keep it. The way is shut."

Of course it can never exit. It was designed so!

Sat, 10/06/2012 - 17:59 | 2863513 Urban Redneck
Urban Redneck's picture

you passed the best analogy on the way in here

l'enfer c'est l'autres (le FED, les banques)

welcome to eternity

Sat, 10/06/2012 - 18:29 | 2863568 economics9698
economics9698's picture

The Fed will exit when starving masses are told there is tons of gold at 33 Liberty PlNew YorkNY 10038.  Let then try stopping a few thousand rioters and a few snipers backing up the rioters.

Sat, 10/06/2012 - 17:46 | 2863490 Clever Name
Clever Name's picture

I have a very simple solution.


Vaporize it! Debt crisis solved!

Sat, 10/06/2012 - 17:47 | 2863493 lolmao500
lolmao500's picture

Maybe they gonna end up selling all that crap to the pension funds...

Sat, 10/06/2012 - 17:48 | 2863494 Xibalba
Xibalba's picture

Debt jubilee!

Sat, 10/06/2012 - 17:50 | 2863497 Atomizer
Atomizer's picture

My post has an indirect correlation, you'll understand soon.


What is the problem with evaluating group dynamics under the current foundation of social networking platform?

About Group Relations Conferences 

  • Ad saturation with diminishing effects
  • Alter egos
  • Role playing
  • Someone who wishes to become a follower
  • A EBT dependent’s doped up on Medicare drugs prescribed by a Doctor
  • The list goes on. 

Listen to me very closely, your another cut into our budget. You can wince all you want, its coming! Please fight with Big Bird on who stands in line first. 


Sun, 10/07/2012 - 11:42 | 2864660 Atomizer
Atomizer's picture

Glad my point was made. [-6] just shows the fear and denial of awareness.

Sat, 10/06/2012 - 17:52 | 2863502 Peter Pan
Peter Pan's picture

Can the FED exit? Well Ron Paul was willing to show it the exit.

The real question however is, HOW MUCH DEEPER WILL IT GO?

Sat, 10/06/2012 - 18:27 | 2863563 saints51
saints51's picture

Ron paul wanted to audit the Fed and open the Fed to competition eventually making the Fed end itself. I may be wrong here but that is how I understood it.

Sat, 10/06/2012 - 17:52 | 2863503 topspinslicer
topspinslicer's picture

Power corrupts... why would they exit?

Sat, 10/06/2012 - 18:00 | 2863508 razorthin
razorthin's picture

No.  It's purpose now is to swallow up all of our debt then evaporate.  Problem solved.


Sat, 10/06/2012 - 18:03 | 2863520 brak
brak's picture

How many BTUs do those digital 1's and 0's put out?

Sat, 10/06/2012 - 18:12 | 2863534 Skateboarder
Skateboarder's picture

Negative. Each bit stored uses energy, as opposed to providing it like paper would. Using digital money expends more energy than it generates, I'm guessing.

Sun, 10/07/2012 - 03:41 | 2864116 StychoKiller
StychoKiller's picture

Flash memory chips only use energy to read/write data, not to store it.

Sun, 10/07/2012 - 07:50 | 2864230 GMadScientist
GMadScientist's picture

They're called watt-hours; most mainframes still use a bunch.


Sat, 10/06/2012 - 18:07 | 2863522 Urban Redneck
Urban Redneck's picture

forget being worth less than shit, @ 12.7 btu a dollar would be worth less than a fart...

(i needed some toilet humor to wash away the satre stench)

Sat, 10/06/2012 - 18:01 | 2863516 Poor Grogman
Poor Grogman's picture

Two possible exit strategys occur to me.

1. Eventually own everything ( nothing more to be said)

2. Eventually backstop/ own all financial liabilities then just Corzine them away.

Is there something I'm missing?

Sat, 10/06/2012 - 18:42 | 2863583 you enjoy myself
you enjoy myself's picture

#1 is really the only way, isn't it?  as mentioned in the piece - "...the sale announcement signals a desire to return to normality requiring an addition $2.5tn in sales at some point" - everyone would rush to dump on an epic scale at the first hint of selling.  hasn't all non-Fed buying over the last 3 years been solely for the price appreciation and not the yield?  virtually no one plans on actually holding to maturity when the yield is a negative real rate - the dumping would be NFLX-like and we'd have 20% interest rates instantly.  so yeah, i bet you the Fed's balance sheet just gets permanently inflated.

Sun, 10/07/2012 - 01:57 | 2864074 misnomer00
misnomer00's picture

Well, theoretically, inflation will never come if the Fed official policy is to be the last buyer of bonds and speculators will front run the Fed on each and every issuance of new paper. (as Gross did with MBS). Interest rates will go lower in that case and the inflation that the Fed wanted will never come.

Shit will hit the fan once there is a big supply shock (war, tsunami, earthquake) disrupting supplies and at the same time increasing demand for goods. That time the same speculators will frontrun the Fed on the sell sde of bonds and this time there will not be a single buyer. And boom - the whole system falls within a couple of months..

Sun, 10/07/2012 - 02:14 | 2864085 misnomer00
misnomer00's picture

Look at Japan. Decades of money printing and debt and inflation still does not pick up. Little do they know that once the inflation that they so badly want does come, it will be like the trunk of the giant redwood sequoia up their tiny little pinprick of an asshole.

I had expected the bif tsunami and nuclear power shutdown to bring the supply shock that I was talking about but the fucked up state of growth in the world has actually helped them keep inflation down. If war with China on the islands does ensue, its over.

Already Japanese exports have started to decline and CPI has leveled off. I am going to be looking at Japanese prices (currently at 117.8 in terms of Jan-83 prices of 100) to cross 123 levels as my indicator for the inflation scenario to materialize. (Prices peaked at 123 in 1998).

Buying USD/JPY will be the winning trade in that scenario.

Sun, 10/07/2012 - 02:21 | 2864088 misnomer00
misnomer00's picture


Sat, 10/06/2012 - 18:13 | 2863521 q99x2
q99x2's picture

I mentioned that in 2008 when tje gang of treasonous banksters, financial terrorists if you like, went and met with, a more than willing president and threatened him with marshall law and the collapse of society as we know it if he didn't sign where they told him to and whereafter the banksters also told him, "and by the way we can't stop the meltdown from eventually happening" and where then he responded, "how much time do we have to bring the DHS TSA HomeLand Security and military both foreign and domestic up to snuff=ing out any decent citizen that might complain, and whereafter the banksters replied, "we can't be certain but if you give us Leon Panetta to help us take over the United States, the we can probably give you as much time as it takes." that is when the gang of treasonous vermin first knew.

This article lets us know that the time when the collapse takes place is much closer than in 2008.


Sat, 10/06/2012 - 18:17 | 2863546 falak pema
falak pema's picture

a cabal that can kill its own legit president like it did in 1963, having once tasted of own regal, annointed blood, can then keep going on as its serial killer strain has become affirmed and therefore is now the elitist norm; Don Corleone is home and dry.

It will only end when the system implodes due to popular fervour and insurrection from within or from external pressure of events. It will never reform from the top as a serial killer is too addicted to power and the blood lust to relinquish power.

2008 is a repeat of 1963 but this time imposed on the people in their daily lives.

Sat, 10/06/2012 - 18:07 | 2863525 vinayjha
vinayjha's picture

The day fed will have to pay interest they will come to know how much they have thrown the money in junk.

Sat, 10/06/2012 - 18:07 | 2863526 reader2010
reader2010's picture

"You've got to dance when music is playing."

Sat, 10/06/2012 - 18:36 | 2863528 Bob
Bob's picture


Unless we eat their shit for the rest of our lives, natural and otherwise. 

There's math on the one side . . . and, one would hope, our self-respect on the same side. 

Fuck the Fed. 

Sorry, I just can't shake this feeling they work for the banks.

Actually, maybe even More Than a Feeling . . .

But that doesn't make the alternative any less retarded. 

Sat, 10/06/2012 - 18:08 | 2863531 tony bonn
tony bonn's picture

the fed is hopelessly wedded to qe and there is no turning back or unwinding until a butterfly flutter in fukushima causes the entire fraudulent house of cards to collapse.....

the fed MUST continue to debase in order to keep its portfolio marginally afloat....if truth be told, the fed is insolvent and upside down on its crapulent portfolio of corrupt liar loans, criminal mortgages and a whole host of other crap...

in addition to keeping bankster bonuses in rarified air, the other main reason for the fed's raping and pillaging of america is to pay banksters to keep housing inventory off the fears for some reason a real estate crash - poor little jamie dimon and other crooks might go kaput......especially since the former is knee deep in ir swaps which are continuing to decay at a nice pace - the half life is not as long as some think....

yes, banksters are being paid to keep real estate off the market and funds are being funneled to them with the childish hope that the market will recover and property can be withheld until more favorable times.....well i got news for these fucktards - real estate is like produce - it is not fine wine which ages with time unless it is occupied and maintained with financially stable tenants.....

this fraud is not going to end well - even a few banksters will be taken to the cleaners - but not before they have their money buried away in a swiss security was breached to make room for the real crooks of wall street....

Sat, 10/06/2012 - 18:49 | 2863595 Bob
Bob's picture

The prayer is for a soft landing (with a lotta intricate hocus-pocus) in a better position.  For the thieves, of course.  (IMO, it's getting redefined as "liberty," but I doubt that's gonna be definitive when real shit hits real fan.) Nice analysis, tb.  The real world seems to be getting further and further from honest financial accounting . . . so we've got shelf-life of genuinely real assets balanced off against people who need a fucking place to live. 

I think this shit has gotta give.  It's absurd on its face. 

Sat, 10/06/2012 - 18:10 | 2863538 ozziindaus
ozziindaus's picture

What if the FED was to exit and a new currency is introduced? What happens to existing loans? When the D-Mark was replaced with the Euro, everything was practically halved (nominally) including wages......everything but the cost of living which essentially doubled (most restaurants just changed the symbol). Over time and with inflation, the Euro is worth what the D-Mark was and salaries have returned to their nominal levels. 

If this was to happen in the US, the banks would essentially double your debt instantaneously.   

Sat, 10/06/2012 - 18:41 | 2863582 saints51
saints51's picture

I think when the endgame happens here in the USA, banks and debt will be the least of our worries for a very long time. I even wonder if the endgame started today, we would ever see the outcome good or bad. I think it will last that long due to civil unrest like never seen on Earth. Welfare recipients will be once again a kink in recovery because they will want reparations even though all of us struggled keeping civil unrest at a high level. Just my 2 cents and its why I not only prepare by holding PM's but stock guns/ammo,food and teach my children how to survive on their own with nobody there to help them. Not even me.

Sat, 10/06/2012 - 18:56 | 2863606 RiverRoad
RiverRoad's picture

Yup, and on a long enough time line........

Sat, 10/06/2012 - 18:36 | 2863572 Everybodys All ...
Everybodys All American's picture

The exit strategy at the Fed involves limousines and helicopters and more than likely a third world nation with no extradition agreements.

Sat, 10/06/2012 - 18:37 | 2863573 ekm
ekm's picture

Whoever understands a Pyramid Scheme, can easily conclude that EXIT is impossible mathematically.


The Fed has the become the sucker-of-last-resort.


Sun, 10/07/2012 - 08:03 | 2864243 machineh
machineh's picture

At least we can dream about it ... on the yellow brick road to FEXIT!

Sun, 10/07/2012 - 11:15 | 2864623 ekm
ekm's picture

The only thing that Fed can do is: BUY/SELL.

Any bank that is FORCED by the government to buy shit, piss and vomits from other banks (primary dealers), is a dead bank.

The Fed is Dead. It owns only corpses. Who's going to buy corpses from them?

Sun, 10/07/2012 - 14:19 | 2865269 Mountainview
Mountainview's picture

Ponzi-Madoff-FED... Only the FED can come out of it by Dollar dilution=massive devaluation

Sun, 10/07/2012 - 16:51 | 2865840 ekm
ekm's picture

Congress only can make money out of nothing.

The only thing the Fed can do is BUY what congress creates out of nothing.


The Fed has become the main buyer of every crap, but nobody to sell to. Typical sucker case.

Sat, 10/06/2012 - 18:47 | 2863593 RiverRoad
RiverRoad's picture

Da Fed is da WHALE and they'll exit just like da Whale did.

Sat, 10/06/2012 - 18:48 | 2863597 ekm
ekm's picture

You forgot................PERIOD.

Sat, 10/06/2012 - 19:04 | 2863614 divedivedive
divedivedive's picture

I'm not an economist but I do get these bi-weekly emails telling me when the Federal Reserves data changes on their website.

The data they posted on the 4th has the "St Louis Adjusted Monetary Base" at what looks like the lowest level since 2011 (looks like under 2.6 trillion).

How's that possible with this new Qe3 in effect ?


Here's a link[1][id]=BASE

Sat, 10/06/2012 - 19:35 | 2863652 GreatUncle
GreatUncle's picture

I look at it this way...

Take Japan, 200% GDP of debt same problem whereever you want to hide it.

How will Japan pay this off if it is to be done through exports to reap the cash bonanza? Go on how if so how long?

They ain't got a chance one it hits this kind of level. So what woul happen if Japan now tried to remove some of its injected liquidity without being able to cover it through exports? Crunch and their economy contracts so they are stuck.

Unless Japan can find an export market to exploit to fabulous riches suggesting nobody else can do it anywhere else in the world they have driven into a dead end and there is no reverse gear.

Now go and substitute USA, UK, EU, EZ into the above as following the model of Japan. Realising it don't work they continue because for now it keeps them in the lifestyle they are accustomed too "it didn't go bust".

Extend it one step further, because Japan was a solitary country on this now the rest of the world catches up. First up secure the banks now means secure those with money because the banks don't go bust until the day arrives when they pull the plug.

Think the last bit is a work in progress ... soon to be complete.

Note:- If the banks went bust right now those with money lose and not just the poorest once secured only the poorest are crushed. Get it???

Sat, 10/06/2012 - 19:52 | 2863674 are we there yet
are we there yet's picture

The fed is always looking for a bigger fool .... or a few hundred million of them (ie. us) to pass the baton to as it exits.  We are the FED EXIT.

Sat, 10/06/2012 - 20:01 | 2863690 max2205
max2205's picture

The bigger they are the harder they fail....I mean fall

Sat, 10/06/2012 - 20:25 | 2863714 hawk nation
hawk nation's picture

When the fed issued the unemployment number friday they officially IMHO declared the USA a banana republic willing to tell any lie no matter how absurd since there is no checks and balances. Just think what is actually on the feds books that they are not showing

My hope is they overplay their hand and invade Iran and China and Russia collapse our dollar giving us a chance to reboot 


Why does the fed need an exit strategy when they know the whole system with collapse?

Sat, 10/06/2012 - 20:27 | 2863715 Perdogg
Perdogg's picture

Schrodinger's wallet Can it be full and empty at the same time?

Sat, 10/06/2012 - 20:50 | 2863748 Greenhead
Greenhead's picture

Why in the world would they need to exit?  They paid nothing for the "assets" they acquired, they used magic digital money from their computer and as long as there is power to the building they can digitze as much as they want.  In the old days they printed, now it is a computer entry but same same game.  They only need to exit if they want to extract liquidity from the market which I guess they might want to do at some point.

Don't confuse real money with digital money, different set of rules.


Sat, 10/06/2012 - 21:59 | 2863836 Diggintunnels
Diggintunnels's picture

Just follow Japans lead, it has worked out so well for them...

Sat, 10/06/2012 - 22:52 | 2863911 blindman
blindman's picture

The Peril of Obama’s “Man Crush” on Geithner is exposed by the Debate

Posted on October 5, 2012 by Devin Smith
.."Note the depth of their contempt for the American people. The American people did not want any executions of banksters, much less their murder in “a dark alley.” Geithner, Clinton, and the author cannot even consider the compelling evidence that accounting control frauds led by the banksters drove the crisis. They have no understanding of accounting fraud, justice, or the damage caused to a nation when elite frauds can grow wealthy (and massively destructive) through fraud. They have no conception of what any competent regulator, economist, criminologist, or attorney would understand about a “Gresham’s” dynamic. If cheaters prosper, then bad ethics drives good ethics out of the marketplace and fraud can become endemic.

The “price” that results from allowing elite frauds to become wealthy with impunity is endemic fraud, recurrent financial crises, grotesque economic inefficiency, and the perversion of markets and democracy through the descent into crony capitalism. Geithner will not bear this “price” – America and Americans will. We were not informed of this price or asked whether we were willing to bear it. There was no legitimate need for us to bear the price because Geithner’s grant of impunity to the elite frauds was unjust and harmed the economy and nation. The banksters are the most undeserving recipients of a U.S. government bailout in history. The odds are strong that the banksters will eventually share a portion of the massive bounty they received from the U.S. due to Geithner’s policy recommendations with Geithner. They may hire him, arrange for him to run an international organization, or give him Larry Summers-level (massive) fees for speeches on the wonders of faux “stress tests.” There are numerous ways for a senior government official to cash in.

No regulator would ever believe that leaving fraudulent CEOs in charge of banks produces economic stability. While Geithner, as President of the FRBNY, was supposed to be one of the nation’s top regulators he, by his own admission, refused to regulate. Like Clinton, Geithner was a strong proponent of the financial regulation that helped to produce (with a huge assist from Bush) the intensely criminogenic environment that caused the crisis. Geithner and Clinton would be two of the last individuals in the world that one would ever select to create an effective program of regulating or prosecuting banksters." ... wkb

[KR350] Keiser Report: Mr. Gold vs Chump ‘Economists’
We demonstrate the effects of money printing and Central Bank madness with a hyperinflationary chicken. They also discuss the Securities and Exchange Commission losing its mind as it sues the one rating agency NOT on the payroll of Wal Street. In the second half of the show, Max Keiser talks to Professor William K. Black about Deferred Prosecution Agreements, the Financial Conduct Authority and London as the capital of fraud.

Sun, 10/07/2012 - 09:57 | 2864556 pherron2
pherron2's picture

I'm skeptical of your assertion these politicos like clinton, do not understand accounting fraud. Rose law firm was nothing but an accounting fraud. The fact that clinton is walking around breathing free air as a millionaire informs me of the fallacy of that assetion.

Sat, 10/06/2012 - 23:07 | 2863921 dolph9
dolph9's picture

It's not just the Fed, people.

There are two, and only two, exit strategies, for any of us:

1)  retirement

2)  death

And the former is very hard unless you have a shitload of hard assets locked up, as even bank accounts and bonds (the traditional income generating assets) are unsafe.

Although, I must admit that gaming the mortgage, disability system and food stamps can be a calculated exit strategy of sorts, if you conclude that America will try to save face and won't let masses of people go without shelter or food.

Sat, 10/06/2012 - 23:36 | 2863960 aldousd
aldousd's picture

Huis Clos

Sun, 10/07/2012 - 00:14 | 2864010 Joy on Maui
Joy on Maui's picture

Fourth option:


1) Nationalize the Fed, temporarily.

2) Nationalize all 401(k) s and IRA and similar vehicles.

3) Swap  Fed's holdings of UST with assets seized as part of 2) to recapitalize it as a matter of "National Security"

Individual's retirement accounts subsequently consist of US debt, for their own "safety"

Problem solved!


Sun, 10/07/2012 - 00:17 | 2864013 mikeurl
mikeurl's picture

The only place this is discussed in on ZH and the "ZOMG HYPERINFLATION" echochamber.

The Fed has had considerable impact on the size of the money supply since about 1914.  Since the early 1970s the Fed began to exercise absolute and complete control.  The only reason it looks like they can't do something is because they act deliberately and slowly.  They do that on purpose.  Unlike bloggers that just type and hit submit the Board of Governors actually agonize over every decision.  They bring together the best information they can and use it to guide the money supply where they want it.

But make no mistake, it is not a question of whether the Fed can withdraw reserves--it is a question of when they decide to.  There are simply no limits on Fed power and there have not been limits for at least 30 years.  Oh, what's that?  They can't exit this?  Are you sure about that Tyler, I mean 100% sure?  Because it is really an idiotic assertion.  At the next FOMC meeting they could raise the RRR to 40%.  What would that do to all those excess reserves?  Too timid?  They could go to a 100% RRR.  Done.  Close every bank in the United States overnight.

There are real issues out there but this notion that the Fed is somehow now unable to control money supply is absurd.  it is easily proven to be absurd.  Yet ZH keeps pimping it over and over and over.  Just stop already.  If the ZOMG hordes need something to worry about just discuss the inevitable reversal of the current account deficit.  That is something we actually can't avoid.  It is a real issue with real implications for inflation and real wages. On that issue we are backed into a very treacherous corner.  On the issue of the Fed's ability to control the money supply that is a non-issue.  Yes, i get talking the book but at least find some memes with substance.  There are plenty that don't make you look so foolish.

Sun, 10/07/2012 - 01:14 | 2864048 blindman
blindman's picture

speaking of foolish ....
when the fed raises interest rates you and i will
be either dead or dead, pick one. oh, and i don't
know or care to know how old you are. can you imagine
the enormity of the figure 1 trillion? the answer
is either "no" or you are a liar. commodifying grains
of sand or molecules of hydrogen dioxide will not do.
or maybe that is the plan? never mind,
one cannot reflate fraud without suffering the loss
of the genuine article and that spells doom in the
real world. virtual worlds of machines can satisfy
a limited aspect of the full spectrum that humanity
depends on, needs, and culling of populations does not
solve the problem, not that you implied that, but they do.
money supply is a function of the feds monetary policy
but is absolutely dependent on the populations ability,
prerogative and sense of market prices regarding those
goods relating to their needs and wants. complex.
decisions. to go into debt, to pay back principal
and interest for a want and a need? complex. requires
a degree of introspection and cognition heretofore
unimagined. .... etc.
the new, new world order.

Sun, 10/07/2012 - 11:51 | 2864675 mikeurl
mikeurl's picture

There are good points here.  The true reality of the quantity of money supply is a multifactorial variable and it is indeed complex.

I don't mean to reduce it to a simplistic model--it isn't.  However, my point is that on the very simple issue of whether the Fed can reduce the size of the money stock--that is question with an easy answer.  Yes, of course they can.  Now, whether they will do what is needed to do so is a different question and a much harder question to answer.

I'm not entirely sure where you are going with virtual worlds but I have often thought that America's best path forward is to eliminate the "car culture" by encouraging people to be happy staying in their homes.  Telecommuting, home entertainment, etc.  Most of the wasteful energy used in the US is spent pushing around 6000 lb cars carrying a 150 lb person to a job they could do from home.

Sun, 10/07/2012 - 13:56 | 2865226 blindman
blindman's picture

thanks for the reply.
the fed will do whatever it can to reflate
any bubble regarding the money creation mechanisms,
credit creation. either that or the system fails.
they really have no choice is the point. they
could as you say refuse, technically. but that would
be the end of federal spending and the end of the
full faith and credit of the money system. in
my opinion, debt based fiat money, to be paid back
principal and interest in a full saturated debt
economy just cannot legitimately find the dollars
to pay back because they do not exist and cannot
be created due to saturation of debt and a lack
of credit. this charade has been going on for decades.
consider the no credit check loans become securitized
with the architects of such buying credit default
swaps on these. it is outright theft and scandalous
yet here we are. of course the fed will print and
buy fraud securities on properties on mars if that
is what it takes to create new legal tender.
your right about the cars and computers too, imo.

Sun, 10/07/2012 - 03:06 | 2864107 cranky-old-geezer
cranky-old-geezer's picture



Can the Fed ever exit?

No, no way. 

Running the presses and buying depreciating securities from nearly insolvent Wall Street firms (and the government) is the future as far as anyone can see.

They're doing nothing to fix the economy, so it will  slide further into depression (than it already is).  As the economy gets worse, the value of paper assets on Wall Street drops too, continually pushing Wall Street firms toward insolvency, requiring bailouts over and over again.

The Fed has become the bad bank of last resort, printing currency and buying up trillions of dollars of depreciating paper to keep the bond market going and keep Wall Street going (and keep the government going).

It can't stop.  If it did, the bond market would collpase and Wall Street would collapse it should have in '08.

Sun, 10/07/2012 - 10:57 | 2864605 anomalous
anomalous's picture

Agreed, no exit. Might as well hit the accelerator so we can fix it sooner (after the hard stop), introducing a competing currency here domestically ought to do it. PM's regarded by gov as real money - not as commodities.

Sun, 10/07/2012 - 06:51 | 2864187 chistletoe
chistletoe's picture

Wow ... humanity been looking everywhere, for centuries, 

for the one person who can fairly judge, for all time, what is art and what is not,

I am sooooo glad that you have finally made your appearance ....

Sun, 10/07/2012 - 08:25 | 2864360 northerngirl
northerngirl's picture

I have to wonder if the majority of the US population could function with limited government and the federal reserve kept in check?  No more special treatment for those that find themselves at either end of the financial spectrum:  The very rich and the very poor.

Sun, 10/07/2012 - 09:41 | 2864535 toomanyfakecons...
toomanyfakeconservatives's picture

You can't keep an evil empire and a ocean of lies 'in check'. The Constitution has been getting raped for the longest time. It would take a return to real money, a financial reset/revaluation, and the arrest of thousands of bankster-politicians to set things straight...

Sun, 10/07/2012 - 09:03 | 2864501 Bogdog
Bogdog's picture

I just threw up in my mouth a little.

Sun, 10/07/2012 - 09:45 | 2864542 toomanyfakecons...
toomanyfakeconservatives's picture

The FED can swallow those shit-flavored MBS without puking.

Sun, 10/07/2012 - 09:43 | 2864539 pherron2
pherron2's picture

One of my favorite Samuel Clemens quotes; "It's easier to stay out, than get out", simple genious.

Sun, 10/07/2012 - 19:41 | 2866206 RealityGuy
RealityGuy's picture

This is an excellent post, thank you.  We need much more discussion on what the logical ramifications of an irresponsible FED are going to be and what is likely to happen as a result.  Bernanke has really painted himself into a corner.  He will only be able to unwind his holdings by selling the assets at market price which will be much less than he paid for them.  Of course, this results effectively in an escape of 'printed money' which is truly inflationary long term.  The more he collects on his balance sheet, the higher the ultimate escape of printed money will be.  We have not seen the ramifications yet due to still being in the depression but certainly will at some time in the future.

Mon, 10/08/2012 - 10:35 | 2867536 Papasmurf
Papasmurf's picture

It's easy.  Distribute everything on the fed balance sheet to the taxpayers.  They are the ones who paid for them in the first place. 

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