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Guest Post: No Undue Fallout From Money Printing

Tyler Durden's picture


Submitted by Pater Tenebrarum of Acting-Man blog,

San Francisco Fed Chief Sees no Danger

John Williams, president of the San Francisco Fed, yet another noted dove, thinks nothing can go wrong by printing gobs of money. There is no inflation, and there never will be. They have the 'tools' to avert it. Never mind the explosion of the money supply over the past four years – it is all good.

The nuclear bomb aftermath imagery Reuters used in its headline is actually quite apt.

„The U.S. Federal Reserve's unconventional monetary policies have lowered borrowing costs and boosted growth without creating unwanted inflation, a top Fed official said on Monday, predicting the Fed's latest round of asset-buying will exceed $600 billion.


The Fed will want to see sustained jobs gains and a consistent drop in the unemployment rate before it stops buying assets, making it likely the purchases will continue until "well into next year," John Williams, president of the San Francisco Federal Reserve Bank, told reporters after a lecture at the University of California, Irvine.


The U.S. central bank's prior round of quantitative easing totaled $600 billion; its first one was about $1.7 trillion.


The Fed began its third round of quantitative easing, known as QE3, in September, beginning with $40 billion a month in mortgage-backed securities and promising to continue or expand the purchases if the labor market does not improve substantially.


Although asset-buying and other non-traditional monetary policies pose potential risks, "the available evidence suggests they have been effective in stimulating growth without creating an undesirable rise in inflation," Williams said at the lecture. "We are not seeing signs of rising inflation on the horizon."

The policies also have not stimulated excessive risk-taking, he said.”

(emphasis added)

They have not stimulated what? This is a joke, right?

We are struck by the continued refusal by Fed officials to even think for a second about the long range effects of their policies. They see nothing untoward on the 'horizon' because their horizon probably ends at the edge of their dinner plates. One feels fatally reminded of the many premature victory laps, the self-congratulory back-patting and the growing incidence of laughter at FOMC meetings during 2004-2006.

At the time it was also held that the 'great effort' by the monetary bureaucrats to help pump up the money supply by cutting rates to the bone after the Nasdaq bubble had expired had been responsible for producing a sound recovery. In reality it had only produced yet another bubble, this time one so egregious it almost proved fatal for the banking system, which to this day survives mainly by dint of clinging to well over a trillion dollars in excess reserves the Fed has created from thin air.


The Mythical 'Exit'

Williams also relayed what the eventual 'exit' strategy would look like (ha!):

“Once it comes time to exit its super-easy monetary policy, the Fed will target a "soft landing," raising rates and then selling the assets it has accumulated in its bid to push borrowing costs lower, Williams said.” 

The hubris of these guys is jaw-dropping. Hello? What happened to the 'soft landing' in 2008? Guess what, in the run-up to that soft crash landing, the Fed also tightened policy 'gradually'. That's all it took to produce a truly spectacular demise of the faux recovery/echo bubble which it had engineered after the Nasdaq crash.

If the Fed one day begins to sell the assets it has accumulated in the course of 'QE', then there is a good chance that the money supply will actually decline, unless the commercial banks decide to simultaneously engage in a very determined credit expansion. This is not likely to happen anytime soon, given the sorry state of the banks, which is largely masked by dodgy, if these days legal, accounting practices (anyone remember 'mark to market'?). The extra cash assets they now have lying around at the Fed in the form of excess reserves are mainly a buffer for the next crisis. Let us not forget, there has been exactly zero debt deleveraging on an economy-wide basis so far. On the contrary, total credit market debt owed is right at a new record high. Households have defaulted on a lot of mortgage debt, but otherwise there is no sign of 'deleveraging' whatsoever. Corporations have record high debt, while the government's debt has basically gone off the charts.


Total credit market debt owed is at a new record high. There has been no 'deleveraging' at all – not yet, anyway.


Does anyone seriously believe the Fed will ever sell the assets it has bought and deliberately shrink the money supply? A certain bridge in Brooklyn comes to mind. The Fed won't let the debtberg implode voluntarily. The proof is in the pudding: so far it has all been a mad dash of the 'flight forward' sort.

The severity of the eventual 'undue fallout' to borrow the Reuters terminology cannot be ascertained just yet. It will likely arrive with a considerable lag, but  when the time comes, it will probably once again do so with a bang. Those who actually do ponder the long-range effects of massive monetary pumping won't be surprised. Perhaps the Fed should order a few apologias to be drawn up in advance. The last batch was pretty lame as it were (we were invited to pick between 'stupid Asian savers are saving too much' and 'most regulated sector of the economy was not regulated enough'). Maybe they can think of something better next time, but we're not holding our breath.  

In the meantime, money printing continues to undermine the economy. Wealth cannot be generated by increasing the money supply – all that can be achieved by this is an ephemeral improvement in the 'data' even while scarce capital continues to be malinvested and consumed.

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Wed, 11/07/2012 - 15:13 | 2957425 fonzannoon
fonzannoon's picture

Just print the money then and send everyone a check. whats the problem?

Wed, 11/07/2012 - 15:17 | 2957447 Fleecer
Fleecer's picture

ahhhh good ole Tyler's "Friday Humor".


oh wait.



Wed, 11/07/2012 - 15:25 | 2957500 knukles
knukles's picture

These fucking liberals need their heads examined.

Wed, 11/07/2012 - 15:48 | 2957601 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1 knukles

Those of us in the "other 49%" can just accept all of this and work to make ourselves better.  Our country has become the Free Shit Empire, and the permanent demographics make this likely to continue a LONG TIME.  None of our problems are close to being solved.

Obama winning was a surpise for me, I will now re-double my preparations and move even closer to "Going Galt".  I am working to become serene.  Gold helps.  Being ready helps.

Good luck everyone.

Wed, 11/07/2012 - 15:50 | 2957628 CH1
CH1's picture

Likewise, my friend.

Wed, 11/07/2012 - 16:58 | 2957914 bagehot99
bagehot99's picture

Why doesn't the Fed just mail a one million dollar check to every US household? Bingo, we're all rich!! Party over at Jay-Zs place!!

Seriously, it makes as much sense as printing money and buying all the shitty AAA rated MBS debt on the market.

Wed, 11/07/2012 - 17:15 | 2958012 ndotken
ndotken's picture

I just paid $8.58 for a drive-thru hamburger, fries and soda that used to cost $3.99 plus tax. Don't fucking tell me there's no inflation, asshole.

Wed, 11/07/2012 - 21:48 | 2958984 Stuck on Zero
Stuck on Zero's picture

As long as the BLS computes the CPI there will NEVER be any inflation.


Wed, 11/07/2012 - 16:26 | 2957725 Road Hazard
Road Hazard's picture

These fucking CONservatives need their heads examined.

knukles, you are just another tool who sees a difference between democrats and republicans. Hahahahah! Wake up, both parites are one in the same.

Wed, 11/07/2012 - 19:09 | 2958549 Radical Marijuana
Radical Marijuana's picture

Yeah! The problem with creating money out of nothing is that it is a runaway power of the PLUTOCRACY. All the other "isms" are foils and tools to advance that PLUTOCRACY. There are NO liberals, NO conservatives, or other meaningful whatevers!!! There is no meaningful socialism, nor fascism, nor anything else like that which matters. There is runaway PLUTOCRACY, where the plutocrats can make endlessly more money out of nothing, as debts, and force everyone else to accept that! THAT is the central social fact that matters. All of the rest is just bullshit distractions away from that! ... THAT is what this article is about, the ability of those making money out of nothing to offer bullshit justifications and rationalizations of what is simply FRAUD BACKED BY FORCE. That is REALITY.  There is nothing in any of the "isms" that explicitly states that their policies are based on dishonesty, backed by violence, in order to benefit those doing that. Instead, all of those"isms" have carefully crafted and encoded language to enable them to BULLSHIT.  It is NOT Liberals, and NOT Conservatives, that matter.  It is the runaway power of plutocrats to legalize their counterfeiting of the money supply that MATTERS, especially since that is NECESSARILY on an exponential growth curve!!!

Wed, 11/07/2012 - 21:17 | 2958767 knukles
knukles's picture

Road Hazard...

Of course they're one and the same with respect to the Leviathan and the feeding thereto of the peasantry.

I merely cite the liberals as they're the fuckers got their hands on the tiller, has for the last 4 years, and got the next 4.

Ya'll have never heard me rail on the R's when they've been in orifice because we all weren't here on ZH back then.  Or musta missed my thoughts as to how RP was treated by the R's.  Hah ha ha ha ha

Don't worry, I'm a more than equal opportunity principled simple man.  Look at me as God's own anointed bearer of the truth, justice and whateverthefuck I can think of at the moment to skewer those who so elegantly cock things up, royally.

Wed, 11/07/2012 - 15:28 | 2957519 cocoablini
cocoablini's picture

The Money Supply the author is freaking about about is JUST government currency. They can print all they want-money supply is imploding due to asset valuations(wealth effect) and the decline of the shadow banking system and credit(credit is money in modern terms.) AND now, after the election, the government is spraying money on the forest fire call the bond market. DOOM METER is HIGH.

Wed, 11/07/2012 - 16:26 | 2957698 LMAOLORI
LMAOLORI's picture



The Fed has it covered for now no need to worry about them 

Accounting tweak could save Fed from losses


Fed hides major accounting trick

Treasuries Doomsday Is Four Years Away for Vanguard


FOR RIGHT NOW THAT IS because down the line look out not for them but for yourself's


Here's what you have to worry about Debt Slaves!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 


Fixing 'Fiscal Cliff' Will Mean 'High, Higher' Taxes: Gross



Interest on our debt

US Per-Person Debt Now 35% Higher Than Greece


'Fiscal Cliff' Deal Won’t Help US Rating: Egan-Jones


Add the taxes to Rising Food, Heating, Electricity, Gas prices

Consumer Are Shopping By The "Bag" Because They Can No Longer Afford The "Cart Or Basket"



Proposed carbon taxes set to spike energy costs



Fixing 'Fiscal Cliff' Will Mean 'High, Higher' Taxes: Gross



All creatures are not created equal however

For Investors, More Fed Easing

more http://www.cnbc.com/id/49723418


Wed, 11/07/2012 - 16:54 | 2957887 Bicycle Repairman
Bicycle Repairman's picture

If "Bond vigilantes" try to raise interest rates they may find the government cancelling the debt they are holding.

Then they can go to court and try and recover.

Wed, 11/07/2012 - 18:40 | 2958456 Radical Marijuana
Radical Marijuana's picture

It actually does the opposite of what you suggested of Just print the money then and send everyone a check. The biggest problem with electronically generating trillions and trillions of new dollars out of nothing is that it goes through the established flows to make the rich RICHER, while the poor get poorer. The PROBLEM with more and more electronic fiat money is that that was PRIVATIZED! The problem is not the fiat money, itself, but the distortions caused by privatizing the power to make money out of nothing. That effectively delivers the power to rob, and to back that up with murder, to the private banks, since the banks are controlling the government. The people are emasculated down to political idiots, while the banksters profit more and more from killing the system that they are able to become runaway parasitical cancers upon.

I will repeat what I believe are two of the most important quotes about this from American history.

As President Abraham Lincoln stated:

The Government should create, issue and circulate all the currency and credits... By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity. ... The privilege of creating and issuing money is not only the supreme prerogative of government, but is the government's greatest creative opportunity.

The overwhelming majority of Americans have been systematically brainwashed to not be able to understand that, theoretically, American citizens have the privilege of creating and issuing money as THEIR supreme prerogative and THEIR greatest creative opportunity.


History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.

--- President James Madison

The last President that was able to "kill the bank" was Andrew Jackson. He had to miraculously survive assassination attempts in order to be able to do that! The principles and methods of organized crime are what ACTUALLY controls the world. The money changers, the international banksters, USED EVERY FORM OF ABUSE, INTRIGUE, DECEIT AND VIOLENT MEANS POSSIBLE. Politicians are subject to bribery, intimidation, and assassination, if they do not do what the banksters demand. All of the people's champions, that might have otherwise done something, were killed instead, before they could. It does not take a lot of murder to control the system, just enough to ripple out from crucial bifurcation points. However, the basic situation is still the same. Money depends on murder. The banksters were the best organized gang of criminals, that have used the methods of organized crime to take over governments. Their abilities to bribe or intimidate are usually enough, especially since their final back up has been assassination. The established system have become such runaways that there are NO practical choices that the people can make within those established systems. Emperor Obama is obviously a hand-picked puppet of the banksters, and therefore, is going to continue to enable everything to get unimagineably worse! The endless creation of more money out of nothing, as debts, is automatically being channelled through the established social pryamid systems, in ways that always end up making the rich more fantastically rich, while the poor get poorer. Morever, the younger you are, the worse that is for you!


American Dream ~ Poor or Prison

After on calculates US unemployment rates today, in the same way as was done back in the 1930s, then that rate is 23%, which is now HIGHER than the highest back during that depression. Of course, young people are the most unemployed, by far, and, after one estimates the share of the public debts that an 18 year old American has, it is over $200,000 each! There is NO DOUBT that the future is being DESTROYED, and the future for young, and not yet born, is DESTROYED! Many American youths shall be unemployable, and also, they will inherit runaway public debts. Most young people have NO reasonable hopes, unless there was some major political revolution, however, any such political revolution appears to be practically imposssible, until after the established systems drive themselves through their own runaway madness, to their own self-destruction!

Wed, 11/07/2012 - 15:14 | 2957426 JerkOff
JerkOff's picture

What could go wrong?

Wed, 11/07/2012 - 15:28 | 2957520 pods
pods's picture

Not quite positive but that looks sort of like an exponential function?


Wed, 11/07/2012 - 15:38 | 2957569 kridkrid
kridkrid's picture

Yup. It's just math. It's not politics and it's not even economics. It's just math. We have chosen a monetary system through which we conduct our economic interactions that is completely unsustainable. Things look fine on the way up. We create our normalcy bias along with our scapegoats. But it is the system that will collapse, by design. It's just math.

Wed, 11/07/2012 - 18:43 | 2958466 Radical Marijuana
Radical Marijuana's picture

We have chosen that system due to the triumph of the methods of organized crime controlling politics. We have "chosen" the way that someone being robbed decides it is better to be only robbed than murdered.

Wed, 11/07/2012 - 16:38 | 2957790 Leto II
Leto II's picture

"The greatest shortcoming of the human race is our inability to understand the exponential function."

-Albert A. Bartlett

Wed, 11/07/2012 - 15:15 | 2957432 Dealer
Dealer's picture

No risk of that

Wed, 11/07/2012 - 15:15 | 2957434 Bay of Pigs
Bay of Pigs's picture

LONG shovels and caskets

Wed, 11/07/2012 - 15:15 | 2957435 tradewithdave
tradewithdave's picture

Why all the concern about bullets killing people.  Guns don't kill people.  Bullet don't even kill people.  Moving bullets kill people.

Printing money doesn't kill economies.  It's high velocity printed money that kills economies and so far this money isn't moving. 


Wed, 11/07/2012 - 15:25 | 2957496 Bay of Pigs
Bay of Pigs's picture

Oh, okay, now I'm clear on you.


Wed, 11/07/2012 - 15:31 | 2957532 cocoablini
cocoablini's picture

The money would be hgh velocity if it was an ATM card with 10k on it for any purchase for every citizen. The money printing we have is for banks, who hoard it or fake their reserves with it. Maybe they buy a Maserati everyonce and a while. Theres money sloshing around but everyone is too afraid to lend it because 100% losses on your lending for shit yields is not worth the hassle

Wed, 11/07/2012 - 15:54 | 2957642 jdelano
jdelano's picture

guys correct me if I'm wrong here, but the printing also free up bank capital to artificially inflate the S&P....now they raise taxes and mom and pop do some cashing out...viola, inflation.  

Wed, 11/07/2012 - 15:52 | 2957629 HappyCamper
HappyCamper's picture

"It's high velocity printed money that kills economies..."

Correct.  I have an open keg of gun powder. I also have a lit match I'm holding above. So far, only a little tiny match is burning. What could possibly go wrong?

When something bad happens to our pathetic economy, some other black swan event, it will be clear that we cannot even hope to pay back our debt. All of a sudden the velocity of money moves at warp speed because its value is trash and people can't get enough of it to exchange for things of real value.

You want velocity? Just wait.

Wed, 11/07/2012 - 16:00 | 2957654 hapless
hapless's picture

"It's high velocity printed money that kills economies and so far this money isn't moving."

Shit.  Somebody stole my point.

Wed, 11/07/2012 - 15:24 | 2957449 hedgeless_horseman
hedgeless_horseman's picture



The policies also have not stimulated excessive risk-taking, he said.

Hey Old Timer! 

Having a hard time paying the heating bills this winter? 

Furr's Cafeteria Senior Special no longer fits your budget?

My grandma makes BIG $$$$ (huge spreads over treasuries!!!) trading levered ETFs on margin...and you can too! 


Wed, 11/07/2012 - 15:29 | 2957523 knukles
knukles's picture

Sumptin' needs a be pointed out to these folks.
Printin' money takes digits, servers, and all that crap.
That stuff uses electricity.
EDP systems are the biggest single gobbler of electricity these days.
Meaning printing money is bad for the environment.

Hypocritical nonsense that it don't do no damage.

(that should get the Birkenstock folk on board)

Wed, 11/07/2012 - 15:18 | 2957458 GoldenTool
GoldenTool's picture

I don't know these fed guys but they don't seem that bad.  I'd give them the benefit of the doubt, really its been fine so far.  A couple more months and it will all be better.  Sounds good.


operari sequitur esse

Wed, 11/07/2012 - 15:20 | 2957464 Printfaster
Printfaster's picture

The 47%  cannot load capital on their ebt cards.


Wed, 11/07/2012 - 15:23 | 2957485 DaveyJones
DaveyJones's picture

I tell my clients that printing money is just like criminal fingerprints. The more you create, the better.  

Wed, 11/07/2012 - 15:25 | 2957497 meizu
meizu's picture

This has become a tug of war between the people, who are hoarding money over fear of deteriorating economy, and the fed who want to force people to spend and invest their money; in the end feds always win, as people can only hoard a finite amount of money, while fed can print an infinite amount of money.

Wed, 11/07/2012 - 15:27 | 2957508 pods
pods's picture

Well inflation has been a bit subdued (compared to how much printing the FED is doing) here mainly because we export so much of it and we are making up for the shadow banking deleveraging.

Wait till a couple more bilateral trade/oil deals are worked out that jettison the FRN and we will see what happens.


Wed, 11/07/2012 - 15:33 | 2957545 SheepDog-One
SheepDog-One's picture

Also hasnt the tag line for every economic article been 'because its election year'....such as oil is going up....gotta dump the SPR 'cuz its election season'....'gotta hide inflation cuz its election season'...gotta pump stocks cuz its election season!' etc. Well I guess thats all over now.


Wed, 11/07/2012 - 15:39 | 2957578 pods
pods's picture

I may go home tonight and get piss drunk just because I will not have to hear people bitch and moan about "The most important election of my lifetime" anymore.

Next election my ass is gonna be on the beach in the OBX catching some big ass drum.  

To hear the stupid pontificated by JIT critcal thinkers come election is enough to make me tear my hair out.

I literally could not go near groups of people yesterday or today for fear that the stupid MIGHT be some new contagious disease unleashed on us.

I could swear I overheard the saying "yeah, but it's got electrolytes."


Wed, 11/07/2012 - 15:49 | 2957621 Col_Sanders
Wed, 11/07/2012 - 16:01 | 2957666 HappyCamper
HappyCamper's picture

Pods, the next elections probably don't matter. It's game over. The 47% will grow into the 50, then the 55%. Traditional values will be dead. We'll all be trying to steal money out of our neighbor’s pockets via politicians and we will follow the example of Greece.

Wed, 11/07/2012 - 16:36 | 2957772 pods
pods's picture

It's been going on for longer than I have been alive.

Bastiat put it quite well in "The Law."

Legalized plunder.  The 47% that the losing puppet was speaking of was the 47% who pay no federal income tax IIRC.  

Every single holder of FRNs pays the inflation tax.  Hold an FRN in your hand and you can almost feel it burning.

Income tax is more about control and favoritism than actually raising revenue.

If you really want to look at who depends on government largesse, it is basically everyone.

And if you see who is plundered, again, it is basically everyone.

Those who are closest to the newly printed debt money of course are at the top of the heap and not only stay ahead of inflation, they profit from the skim of it.



Wed, 11/07/2012 - 16:43 | 2957819 tip e. canoe
tip e. canoe's picture

very well said mate

Wed, 11/07/2012 - 17:05 | 2957956 gabeh73
gabeh73's picture

upvote for reading "The Law"

Wed, 11/07/2012 - 18:28 | 2958401 DaveyJones
DaveyJones's picture

you're on a roll pods


Wed, 11/07/2012 - 15:29 | 2957514 Dr. Engali
Dr. Engali's picture

Why don't they just buy up the whole private market and get it over with? Buy my business,,,send me a monthly check ,take care of my medical bills, pay my utlities, send me some Friskies for my cat ,and we will call it even. 

Wed, 11/07/2012 - 17:01 | 2957931 Bicycle Repairman
Bicycle Repairman's picture

You'll get Friskies alright.

Wed, 11/07/2012 - 18:31 | 2958409 DaveyJones
DaveyJones's picture

that's like a confession and criminals hate that 

especially those with lawyers on contract

Wed, 11/07/2012 - 15:30 | 2957529 SheepDog-One
SheepDog-One's picture

'No undue effect from money printing' well gee WTF if its so easy and inconsequential then why in the fuck havent we just been doing it as standard economic policy all along? 

I guess the obvious answer is this is totaly false, and every time this has been done its always led to total disaster.

Wed, 11/07/2012 - 16:00 | 2957662 Vooter
Vooter's picture

LOL...exactly. If the solution is to print money, then there shouldn't be any economic or financial problems in the first place...

Wed, 11/07/2012 - 15:34 | 2957549 Bastiat
Bastiat's picture

Equities shrug that off but gold was listening.

Wed, 11/07/2012 - 15:35 | 2957555 Dre4dwolf
Dre4dwolf's picture

OK , like we seen before everytime they come out and say "(fill in the blank) is fine, there is no chance of (fill in the blank) happening" that means we are less than a year from said event happening.

just like housing when burnbanke said "housing is fine, no risk of a bubble"

These people are either A) Fools or B) Tools

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