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What Fed Exit?

Tyler Durden's picture


Bloomberg's Joshua Zumbrun has released a much overdue, MSM apocryphal, somewhat realistic outlook on the endspiel of Bernanke's central planning: i.e., the unwind of the Fed's balance sheet that from just under $3 trillion will reach $5 trillion by the end of 2014. We say "somewhat" because the conclusion in the article is that there is some hope still for an orderly wind down of the Fed's assets without a complete market collapse. The reality is that there is no such hope.

As we have explained previously, the market now demands roughly $85 billion in ten year equivalent "Flow" per month injected by the Fed: this was what QEternity allowed the market to price in as the basis level for the future and is why we knew with 100% certainty that Twist would be extended the day it was announced on Sept 13, only without the offsetting sale of ZIRP-umbrella securities (which are irrelevant from a 10-year duration standpoint), a forecast that has now been adopted by everyone. In plain English: the market needs the Fed to inject $85 billion each month just to stay level, never mind grow (sure enough, the market highs for 2012 were hit the day after QEternity was announced, confirming the market will need to see even more monthly flow to continue rising).

Anyway, some of Zumbrun's key highlights:

A decision by the Federal Reserve to expand its bond buying next week is likely to prompt policy makers to rewrite their 18-month-old blueprint for an exit from record monetary stimulus.


Under the exit strategy, the Fed would start selling bonds in mid-2015 in a bid to return its holdings to pre-crisis proportions in two to three years. An accelerated buildup of assets would also mean a faster pace of sales when the time comes to exit -- increasing the risk that a jump in interest rates would crush the economic recovery.



The bigger the balance sheet, “the riskier the exit becomes,” Richmond Fed President Jeffrey Lacker said during a Nov. 20 speech in New York. “That is something we need to think carefully about.”


Krishna Memani, director of fixed income at OppenheimerFunds Inc., said a too-rapid sale of assets risks disrupting the $5.2 trillion market for agency mortgage debt.



“They have to find ways of unwinding the balance sheet without dumping all of it in the marketplace,” said Memani, who oversees a bond portfolio of about $70 billion, including about $6 billion of mortgage-backed securities.



“The more they add to the balance sheet, the longer it will take to normalize,” said Hanson, who worked on designing tools that will be used in the Fed’s exit strategy as an economist in the monetary affairs division at the Board of Governors in 2009.

“The exit is going to take a long time,” said Stephen Oliner, a resident scholar at the American Enterprise Institute in Washington and former Fed Board senior adviser. He estimates the Fed’s holdings could rise to more than $4 trillion.


If the Fed were to start bringing its holdings back to their pre-crisis level today, it would have to sell almost $2 trillion over a period of two to three years under its current exit plan. Assuming holdings grow to $4 trillion, asset sales could come to $3 trillion over the same period.
The Fed’s other tool is to extinguish reserves by selling bonds back to dealers. Even a fully-explained plan could push up home borrowing costs as traders account for hundreds of billions of dollars of new supply flowing back into the market.


“We are deep into experimentation at this point,” Oliner said. “It’s understandable that people are worried.”

All relevant and credible insights, which however can be summarized with one simple fact and an even simpler chart courtesy of Stone McCarthy.

The fact: "The measurement of duration risk translates to an average price decrease of approximately 7.65% for each percentage point increase in all yields." In other words a DV01 of well over $2 billion. So much for that total credible Fed "capital" of $55 billion which would be wiped following rates rising by a tiny 32 bps. But where it gets fun is extrapolating, because at the current rate the Fed's balance sheet will hit a 10 Year average duration by 12/31/2014, on $5 trillion in holdings. A DV01 of $5 billion, or $500 billion for a 1% rise in rates!

As for the chart:

The chart shows, without a doubt, that the Fed is now the sole monopolist of Treasury demand expressed in mid-modified duration - i.e., the risk parameter most relevant to the Fed as it attempts to push everyone into higher risk assets (when instead all it is doing is merely allowing everyone to frontrun it). It also shows that in the past 3 years, the Private Sector has had its exposure to US Treasurys grow by virtually a non-existent amount, a simple fact that would make the head of steeped in theory and clueless of actual practice hollow pundits, such as Paul Krugman, explode.

To put it simply, the Fed's QE can not stop as there is no real market, or demand for TSYs expressed in duration terms, a fact the Fed's 4 year meddling in the market has been able to conceal quite effectively. Alas, the Fed knows this. The Fed also knows that in a country which will continue piling up $1 trillion + deficits forever, there will always have to be a backstop funder of the US deficit. Since China is long gone as a buyer of US paper, this only leaves the Fed.

In other words, the simplest reason why the Fed will never exit is because the US will never again run a budget surplus, meaningless discussions over what a token $80 billion a year tax increase (which will fund the US deficit for 2-3 weeks) will do notwithstanding, and the Fed will need to monetize ever more US-sourced paper until Bernanke and his successor after 2014 are the only "market" for bonds left standing.


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Sat, 12/08/2012 - 12:07 | 3045453 Pool Shark
Pool Shark's picture



Can't happen.

Won't happen.




Sat, 12/08/2012 - 12:08 | 3045454 CH1
CH1's picture

It's all BS for the sucker class.

Sat, 12/08/2012 - 13:22 | 3045565 nope-1004
nope-1004's picture

Fed Exit?  LMFAO!!!!!  Impossible, the Fed is the market and has cornered themselves.  They are all in until the end, and they fucking know it.  This is just more MSM misleading bullshit.  Bernanke's a troll who tried to manipulate and stop the natural forces of nature:  Failure!  Now he's stuck in his own toilet.

Ben Bernanke,  Your 15 Minute Man is so full of shit, you gotta be seriously stupid to believe the Feds' lies.


Sat, 12/08/2012 - 15:16 | 3045705 TruthInSunshine
TruthInSunshine's picture

This is what happens, bitchez, when you have batshit crazy level people running monetary policy.

Ben "The Fed Will Not Monetize the Debt" Bernanke & his cohorts, from Yellen to Dudley, have already done the acts that will inevitably prompt future crises.

That these people have done what they've done is nothing less than truly remarkable. It's almost not possible to overstate how badly they've broken all markets.

Anyone who believes that the economy is growing in real terms, let alone not contracting (and then add in the ECB's following in the footsteps of the Fed, and look at growth rates across the EU, with Germany starting to crater now, as well, not to mention a who-can-possibly-know-how-badly-an-even-more-opaque-than-conventionally-thought-of China is doing), or that the Fed's actions have been a massively significant factor in creating a broken economic foundation that will haunt us for many, many years to come, is simply delusional.

I'd love to hear how Krugman, or any other dipshit of his "caliber," living in the types of ethereal air of vacuums they happen to live in,  make their predictions as to the mechanics, timeline and consequences of the Fed "unwinding" its present balance sheet, let alone the even more crammed full of toxic shit balance sheet it's going to have in two year- Krugman has sworn up and down consistently that the Fed's wholesale swallowing up of tnotes for some 32 odd months now has had minimal impact on interest rates, DESPITE what the Fed itself has had to say it's official reasoning for doing so is, and Krugman has said yields on U.S. debt are efficiently priced, essentially (how can anyone consider him to be anything other than a total liar?).

The shit is beyond insane. Anyone who claims there's anything under control with respect to this particular issue is either an absolute moron or an absolute propagandist.

The bottom line for the TL;DR crowd is that the future crises won't be kicked down the road because we're living through them now, and they will only deepen, no matter what is "officially" stated or reported. And yes, that"forward discounting mechanism" that is known as the equity market, which has not such a brilliant track record of getting that "forward" thing right, will be reacqainted with economic reality, regardless as to what the Fed, ECB, BOE or PBOC do or oon't do (see Nikkei since 1990 for a rougly approximate road map for the future).

Sat, 12/08/2012 - 15:19 | 3045747 Mr Lennon Hendrix
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What is crazy is not that this policy is implemented by those who are paid big bucks to learn the fiat science of economics, but that people who live their days as lawyers and docters, as bartenders and plumbers actually believe the Central Planning will work.

Sat, 12/08/2012 - 16:35 | 3045857 negative rates
negative rates's picture

Who needs a ten year when you can't even sell a two year, It's panic time on wall street!

Sun, 12/09/2012 - 07:06 | 3046609 GetZeeGold
GetZeeGold's picture



What do you wear to something like that?


 ...the Fed is the market and has cornered themselves.


After 100 years they finally cry uncle.....and fully admit they're totally open to suggestions.

Sun, 12/09/2012 - 08:46 | 3046650 JPM Hater001
JPM Hater001's picture

Im late to the game here but does anyone else think this may be a CIA plot to bring down the Rothschilds?

Sun, 12/09/2012 - 09:31 | 3046676 GetZeeGold
GetZeeGold's picture



Better late than never I suppose.....but I must warn you those cats have one hell of a headstart.

Sun, 12/09/2012 - 09:58 | 3046693 Muppet Pimp
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Kennedy was killed November 22, 1963 for trying to expose the international banking cabal.  One month later silver was dropped to 40% in our coins.  5 years later no more silver in our coins.  Hmmmm.

(Edited for accuracy, originally claimed silver was removed entirely in 1964)  

Sat, 12/08/2012 - 19:15 | 3046063 Antifaschistische
Antifaschistische's picture

If the FED "built" it's balance sheet with money/debt that it invented/printed/debit-cash-entry.  Then, what does it do with the real money others pay for those assets in an unwind?   Does the FED drop that money in virtual shredder?   Even if it took a huge haircut, who would care?   If you ended up with 20% of 3T.

Not sarcastic...not rhetorical, I'm really not sure how this plays out.

Sat, 12/08/2012 - 19:54 | 3046125 Mr Lennon Hendrix
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I don't know what the Fed's average YTW is but it shouldn't be anything special.  Maybe it is 3%.  But what is important is the flow of money, not the stock (as Zero Hedge drills everyday) and so those payments could not go into the shredder - they are needed to continue the puschase programs.

Sat, 12/08/2012 - 21:09 | 3046228 rocker
rocker's picture

Remember da Bears. BTFD.  The shorts and Prechter followers are broke too. Yes we all know how it ends, but 2014 ?!?

Didn't the Bernanke say we are there till 2016. Who knows. The Reality is this is how the game is and has been played for years.

With the Internet and a smarter generation something has been exposed for all to see for what it is. Devaluation of your Dollar.

The new generation understands that the Wars were on a Chineese Credit Card. They want the bill paid by those who did profit from it.  

Sat, 12/08/2012 - 21:19 | 3046235 CunnyFunt
CunnyFunt's picture

Too fucking right, rocker. I think too many have been burned predicting "the end". For the "illusioned", times are bullish!

Sun, 12/09/2012 - 00:29 | 3046452 old naughty
old naughty's picture

When Ben's wet dream became our reality !

Sun, 12/09/2012 - 04:53 | 3046572 Yen Cross
Yen Cross's picture

Cunny, you remind me of my Uncle Bud/ Mind you Cunny, I'm deep into my 40's... He was recon/tunnel-rat in Viet Nam.

  Anyways/ Uncle Bud had this giant grey "ash tray", that was alive. If his hand went under the ash tray, that was bad news/

  Uncle Bud also had an Attic/ and [ Bert lived in the attic}... Bert wasn't mean, he was always hungry. Uncle Bud used to throw Bert "hot dogs" so he was well fed.

   The point I'm trying to make is, Good people Transend culture, indifference, and most importantly, ( a good hug)

Sun, 12/09/2012 - 08:04 | 3046629 TuesdayBen
TuesdayBen's picture

Spot on, ¥+

Sun, 12/09/2012 - 09:54 | 3046694 Yen Cross
Yen Cross's picture

Thanks Ben :-)

Sat, 12/08/2012 - 22:51 | 3046342 RiverRoad
RiverRoad's picture

It's all about the flow of fiat .....until it isn't.

Sun, 12/09/2012 - 00:09 | 3046433 XitSam
XitSam's picture

+1 for the Freudian typo: pus-chase

Sun, 12/09/2012 - 08:40 | 3046646 ArkansasAngie
ArkansasAngie's picture

And ... we are back to where we started the crisis -- it isn't a liquidity problem is insolvency.  And while some of the 99% are insolvent it is the 1%'ers who are actually wiped out.  Implementing moral hazard is how you solve this mess.


Sun, 12/09/2012 - 00:43 | 3046474 PoliticalRefuge...
PoliticalRefugeefromCalif.'s picture

I'm pretty sure that will signal another lecture from the White House on the necessity of "shared sacrifice" as being the patriotic thing to do.

another cup of water in the soup and no one will notice.

media will handle it. 

Sat, 12/08/2012 - 16:12 | 3045822 ElvisDog
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To put it simply, who is the Fed going to sell its $3-4T of Treasuries and mortgage secturities to under a ZIRP world? Answer: No one. Those who have the money won't buy those securites at near-zero interest rates. And it's not a matter of "the U.S. can print its own money". No one will buy a 10-year bond unless the expected reduction in the purchasing power of the money invested is less than the interest rate. That doesn't work under ZIRP.

Sat, 12/08/2012 - 18:31 | 3045996 TruthInSunshine
TruthInSunshine's picture

The Fed will wither at some point, intentionally, somehow forcing its septic holdings onto the American Taxpayers, and will be reincarnated in the form of yet another fractional reserve institution, only with a more patriotic sounding name, like "The Bank for American Prosperity," or some such nonsense.

You can't kill this thing. It's like an even more resistant-to-everything cockroach. We're on version III of the beast.

Sat, 12/08/2012 - 19:33 | 3046092 Poor Grogman
Poor Grogman's picture

The beast didn't count on the internet reformation.

The beast will die in time,

Does anyone know of a cockroach that lives under a heat lamp for long?

Sat, 12/08/2012 - 23:05 | 3046360 NumNutt
NumNutt's picture

This is the begining of the end game. The beast is starving, and it has now started to consume its own tail to satisfy the hunger. How long you think that can last? 5 years? Something like that, then it is Argentina all over again. Anyone have any hard numbers of how much capital is moving around via EBT cards? 48+ million EBT card holders is a large group. I am beginning to think we have past the tipping point of the source of cash in the system now being generated more from the federal government then the private sector. Obama must be proud.

Sat, 12/08/2012 - 23:37 | 3046400 Big Slick
Big Slick's picture

"Obama must be proud"

I remember 2008: 'Elect me and I will "fundamentally transform our country."'

What did the electorate living in this free, capitalist, representative democracy think we were going to be transformed into?

Just like Al Qeada, he said what he was going to do... and then went and did it.

Sun, 12/09/2012 - 00:25 | 3046445 jeff montanye
jeff montanye's picture

i think he is a less influential person than g w bush, except to the extent he co-opted the democratic party into an undeniable acceptance of bush's revisions of the constitution, multiple aggressive wars, non-enforcement of financial control fraud laws, transfer of government funds to the financial control fraud perps and giving design of the nation's healthcare (and ...) policies to the industries that could most profit by same.  the original wrinkle of executive assassination of citizens is obama's own signature stamp, but hey, he was a professor of constitutional law.

Sun, 12/09/2012 - 11:29 | 3046806 Lets_Eat_Ben
Lets_Eat_Ben's picture

We don't know the half of it

Sun, 12/09/2012 - 10:35 | 3046734 SWIFT 760
SWIFT 760's picture

TIS is correct. However the purposeful debt enslavement wont end with American citizens. The systematic decline will eventually ensalve all global citizens. Then, some bullshit second coming of Christ (martians?) or some such shit will force the masses to follow their new savior. Thus a new currency and global gvt is born. Those who resist are deemed the problem and thusly cleansed.

Debt is name of the game. Debt will force gvts to collpase (Greece, Spain, etc). The insiders will reap trillions and endless power ( ie puts and calls day before 9/11).

The kikenvermin are mainly responsible. So yea, jewbux still suck.  

Sat, 12/08/2012 - 23:29 | 3046346 RiverRoad
RiverRoad's picture

We'll sell our treasuries to whomever at the point of a gun, no doubt.

Sun, 12/09/2012 - 09:43 | 3046688 HurricaneSeason
HurricaneSeason's picture

401Ks and other pensions will be magically tranformed into treasuries at the push of a button too, without a shot fired. They'll take everything down with them.

Sun, 12/09/2012 - 00:24 | 3046444 disabledvet
disabledvet's picture

actually the answer so far has been WALL STREET. And those that have bought have ENORMOUS returns to show for it. but i do agree if the economy doesn't get moving then i think the reserve currency status of the dollar will be tested...and dramatically so. obviously the whole game of chicken over the "fiscal cliff" could test that dollar value as soon as this coming week! hard to see a dramatic move lower vis a vis the yen given Fukuhsima...even with Fukushima that is a pretty spectacular collapse of the dollar still. obviously in Europe the economy has completely tanked...but as with Japan this has been euro positive for some time now. this says to me "the policy is failing." i'm still not bailing on equities...for a multitude of reasons not the least of which is a pretty well worthless greenback...but should there be a "crisis of confidence" in the USA about repayment of said debt i think a "debt cascade" is quite probable.

Sun, 12/09/2012 - 00:30 | 3046455 TruthInSunshine
TruthInSunshine's picture

Good luck sticking with equities based on the belief that the USD that underlies their valuation (even foreign equities are significantly impacted by USD strength/weakness) is weakening.

This is just yet one more reason to believe that the crash is going to be bigger than even many bears expect; the sell-side carnival barkers are preaching the "buy equities because USD weakness is good for exports, blah, blah, blah" when the companies exporting goods are doing so for remittance of payment in USD.

Sun, 12/09/2012 - 12:56 | 3046946 prodigious_idea
prodigious_idea's picture

With employer-sponsored retirement plans (mostly 401(k)) constantly buying bonds to accomodate the investment selection of participants, won't the TSYs get purchased by money managers for those same plans - at least in part?  And isn't that steady in-flow part of the reason for price stability in the market(s)?

Sun, 12/09/2012 - 02:26 | 3046534 Alexandre Stavisky
Alexandre Stavisky's picture

Remember the entire global central bank franchises will backstop all the systemic risks.  All financial instruments will be made whole by printing, and indexes will be supported by printing.  Derivatives and CDS and IR Swaps are all written by the banking syndicate with insurance to counterbalance risk written just by a differing arm.  No defaults will ever be declared and any event which trivially threaten the system will be met with money creation.

Banks have been recapitalized by money creation.  Sovereign bonds have been retired by money creation.  New bonds have been floated at historical lows by money creation.  All federal excess expenditure is funded by money creation.  All entitlements, gov't pensions, military, and gov't employment which exceed receipts will be paid via money creation.  US Dollar will be defended as global reserve currency as another support mechanism.

Hugely inefficient paradigms of gov't sponsored employment and entitlement in the welfare/warfare matrix allow distribution of newly created money.  Insurance companies also distribute through payouts via collection on investments in Ponzi bond market and equity shares in public markets propped with printed money.

Thus huge swathes of compromised paper can be removed from public markets to be sequestered by central bank franchises, interest rates can manipulate to simulate favorable borrowing terms, derivatives will always be backstopped in order that no destabilizing events occur. Etc.,etc.,etc.

In other words, true wealth creation is in serious contraction, but money creation masks the effects.  Multinationals and franchise directed leviathan companies continue to crank out consumer goods as they are equipped to operate in this environment.  Small business, dead.  Independent small professionals, dead.

So the path to hyperinflation is not only possible, it is the ONLY possibility.  Any part of the economy not well connected to the franchise system will atrophy and die taking their goods and services with them.  But money creation and distribution (irrespective of merit) will expand and explode.

System dies with universal access to large sums of money because the creators of the desired goods are exterminated.

We'll see in this ship of state,

Water, water, everywhere,
Tho' all the boards may shrink;
Water, water, everywhere,
Nor any drop to drink.


With throats unslaked, with black lips baked,
Agape we heard the call:
Paper! we for joy did grin,
And all at once our breath drew in,
As they were drinking all.

See! see! (I cried) the ship, she tacks no more!
Hither to work us weal;
Without true breeze, without a tide,
She steadies with upright keel!

The many men, so beautiful!
And they all dead did lie;
And a thousand thousand slimy things
Lived on; and so shall I.

Through collapse, until

We'll go like those that hath been stunned,
And are of sense forlorn:
Much sadder and wiser men
To rise ev'ry zombie morn.



Sun, 12/09/2012 - 12:19 | 3046592 Radical Marijuana
Radical Marijuana's picture

Quite the overwhelming degree of agreement in the Zero Hedge comments on this article. Far more than most other topics! Of course, I completely agree with the TruthInSunshine view: Anyone who claims there's anything under control with respect to this particular issue is either an absolute moron or an absolute propagandist.

The real world is controlled by a combination of lots of fools, tricked by fewer liars. The result is that the whole world is being controlled by huge lies, backed by violence, which can never make those lies become true, but only continue to drive civilization to become more and more insane, because it is more and more controlled by bigger and bigger lies. The obvious problem with being controlled by huge lies is that those are FALSE, and the consequences of continuing to behave on the basis of believing what is FALSE are that the situation must necessarily go out of control.

The current systems are the madness of runaway triumph of the Fraud Kings. The end game of the FED is the deliberate destruction of free markets, not ever, somehow, the return to free markets. Of course, there is no intention on the part of those who control the FED to ever unwind what they have screwed up. Their plan is to continue to twist it and twist it, until it breaks. There is no intention to ever go back to a democratic republic. There is no intention to ever go back to free markets. The intentions of the people that control the FED are to drive the deliberate destruction of America, so that there will be a clear field to impose global government, where the Fraud Kings have complete and total control over everyone. The intentions behind the FED are to deliberately collapse the American economy into chaos beyond repair. Their plan is to replace the democratic republic that they have deliberately destroyed with a global system where they control the whole world's money supply, and control all of the armed forces which back up their financial frauds. I do not think that there is any doubt about those points above. However, there are lots of doubts about whether it will actually be possible to consolidate the hegemony of the banksters into that kind of global government.

I maintain the following axiom:


However, I believe that the only relatively stable and sustainable ways that works is IF there evolves dynamic equilibria between the difference systems of organized lies and robberies, so that there is an overall ecology of those factors, which maintains enough diversity to be sufficiently adaptable. The runaway triumph of the Fraud Kings, as manifested in America by the FED's actions, is creating an insane monopoly, which is extremely unstable, and which cannot be made stable by consolidating those banksters' monopolies on a global scale. Therefore, I do not believe that wiping out the American democratic republic, and assimilating the remains into a globalized system of financial frauds and force, is on any path towards something which will actually enable global control, but rather, will provoke global chaos beyond imagination, which will wipe out the international banksters, as well as just about everyone else too.

However, what I believe is obviously a practically pointless thing. The world is overwhelmingly dominated by fools tricked by liars, and neither group will pay any attention whatsoever to my point of view, nor to most of the points of view expressed by Zero Hedge, and most of the people who post comments here. The world IS controlled by fools tricked by liars. There are no good reasons to believe that will change, except through the destruction of most of the fools, and perhaps most of the liars too? After working on the problems of attempting to persuade the fools not to be tricked by the liars, I have belatedly recognized that everything I have trying to do for several decades was a waste of time. Both the professional liars, and the masses of fools that they trick, are beyond any ability to influence with evidence and logical arguments, since their social habits are simply to totally ignore those, automatically, without even looking. Therefore, the world IS out of control, since it IS controlled by huge lies

Sun, 12/09/2012 - 15:37 | 3047196 Quantum Future
Quantum Future's picture

So you are a quiter.


What a waste!

Brilliant mind gone cold....

Sat, 12/08/2012 - 12:30 | 3045477 rbg81
rbg81's picture

One really wonders if any serious analyst believes there will ever be a FED exit.  Really doubt it--I think most of them are just going through the motions of doing their job.  Which is important these daze as the Fed actions have made the job of Economics "experts" otherwise irrelevant.    Anyone who says that the Fed will ever shed assets or raise interest is either lying or stupid.  And I don't think too many of these guys are fundamentally stupid.  The Fed is all in until the System collapses on itself.

Sat, 12/08/2012 - 12:35 | 3045489 Dareconomics
Dareconomics's picture

When I read the original article yesterday, I knew there would be posts about it today. Up until the GFC, the Fed used interest rates to control monetary policy. After every recession ended, it would raise rates, but they could never raise them to the same levels prior to the economic downturn.

Once intervention is begun, it cannot stop:



Sat, 12/08/2012 - 14:32 | 3045665 rbg81
rbg81's picture

Good article, but mostly confirms what most of us here on ZH already knew.  The Fed is allowing Politicians to take the easy way out.  Rather than being "mean" and taking entitlements away from the poor, they're shafting everybody--except maybe the Super Rich.  But their doing their shafting in a stealth manner which makes it hard to point fingers.  Joe & Jane Sixpack know they're being screwed, but can't figure out the why or how.  The perverse thing is that as the System become more unstable, people will demand MORE Government intervention, which will only make the problem worse. 

Sat, 12/08/2012 - 15:23 | 3045755 economics9698
economics9698's picture

Yep that's the plan.  Germany 1920s.

Sat, 12/08/2012 - 16:15 | 3045828 ElvisDog
ElvisDog's picture

I would slightly disagree. They don't want what happened in 1920's Germany to occur, they think they are so smart ("I'm a student of the Great Depression") that they can print indefinitely while avoiding hyperinflation. That, I think, is the hubris that is guiding Bernanke, et al. in what they are attempting.

Sat, 12/08/2012 - 17:02 | 3045894 hoos bin pharteen
hoos bin pharteen's picture

Thing is, the Germans in the 1920's thought the exact same thing - they didn't set out to destroy their economy and ultimately trigger WWII.  And many of them were far better men than Bernanke.


Sat, 12/08/2012 - 20:26 | 3046172 centerline
centerline's picture

We are locked on course - the Fed is doomed, but built to serve this purpose... no surprise there.  Nothing will compare to the coming liquidation though.  

Sun, 12/09/2012 - 10:38 | 3046740 GetZeeGold
GetZeeGold's picture



They don't want what happened in 1920's Germany to occur


....and you think the Germans did?

Sat, 12/08/2012 - 23:38 | 3046403 fonzannoon
fonzannoon's picture

in the 20's the rest of the world was not trying to debase along with germany. how does global devaluation play into this?

Sun, 12/09/2012 - 00:02 | 3046425 nope-1004
nope-1004's picture

+1.  I agree.  Hyperinflation of one currency means relative to another.  But if all corrupt central banks debase together, then what?  We know the "what", because we are living it now:  Lies about employment, lies about GDP, lies about productivity, "new normal", "better than expected earnings", libor manipulation, precious metals manipulation, MF Global thefts, Peregrine Financial thefts, on and on.  But after this "what" we are in now, the next phase gets interesting.  No doubt, one or more central banks topple.  It has to happen at some point.


Sun, 12/09/2012 - 10:51 | 3046763 centerline
centerline's picture

Given the level of counterparty exposure, when something meaningful finally breaks, I expect the game to get much more serious.  We ain't seen nothing yet!

Sat, 12/08/2012 - 18:30 | 3045995 blunderdog
blunderdog's picture

   Rather than being "mean" and taking entitlements away from the poor,

It's not the welfare programs where the big "entitlement" money is going, tho. 

It's Social Security and Medicare.  Those programs are the BIG bucks, and the main reason is because they're given to everyone who's old--whether they're rich OR poor.

Anyone who can ballpark the Federal "welfare" spending within a 20% margin of error knows full-well that even complete ELIMINATION of stuff like foodstamps and "free phones" isn't going to make a lick of difference to the deficit at the end of the day.

Sat, 12/08/2012 - 23:40 | 3046409 Big Slick
Big Slick's picture

"It's not the welfare programs where the big "entitlement" money is going, tho" - blunderdog

Not exactly correct.  Recent storly linked on ZH showed welfare spending amounted to $1.02 Trillion last year.  No matter... just know it's not going back to you. 

Sun, 12/09/2012 - 21:50 | 3047647 blunderdog
blunderdog's picture

I'm sure there's a way to come up with that number, but it's way high.  (I don't recall the story you refer to.)

Interpreted generously, Federal welfare comes to about $600B/year....  Maybe they included salaries to enlisted soldiers in the "welfare" category?  There's a certain logic to that, anyway.

For sure, it would be better if we had an economy which would enable the stupid and lazy to feed themselves, but obviously that's out of the question.

Sat, 12/08/2012 - 14:33 | 3045666 rbg81
rbg81's picture


Sat, 12/08/2012 - 13:05 | 3045530 Rainman
Rainman's picture

The Big 4 central banks will become as one and buy/sell paper amongst themselves for as long as it takes to absorb the .gov debt juggernaut. This is their only available create a market amongst themselves....not unlike what the HFT and PDs have created with equities. It's all still a ponzi scheme, right ? The ponzi always rhymes....always fails too on a long enough timeline. 

Sat, 12/08/2012 - 15:09 | 3045734 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Probably, but just like in the past they will play musical chairs with the debt and let a bank eat it like Lehman and Bear did.

Who is next?  BAC?  MS? 

Not JPM, GS, or WFC, right?

Sat, 12/08/2012 - 23:47 | 3046415 Northern Lights
Northern Lights's picture

I'm thinking it may be MS that is the next to go.  I work as a hedge fund accountant and a few clients including the client who's funds we strike a NAV for has been slowly moving all of their positions out of MS. 

Sun, 12/09/2012 - 10:20 | 3046714 GMadScientist
GMadScientist's picture

They're going to sell it to Zooropa (or at least US corps "over there, over there") so they can use it as "collateral" for swarthy-zone bailouts or a conveniently tax-advantaged repatriation scheme.


Sat, 12/08/2012 - 13:32 | 3045582 smlbizman
smlbizman's picture

i think i already watched this this the one were ben is driving a city bus and he cant go under 85bil mph or it blows up and they all die?.....

Sat, 12/08/2012 - 18:14 | 3045971 akak
akak's picture

Yes, but in this version, the bomber and the driver are the same person.

Sun, 12/09/2012 - 10:02 | 3046696 Yen Cross
Yen Cross's picture

Akak, you just keep getting better!  You kick ass! I'm so impressed/

Is this the same highly intelligent smart asss i knew 2 years ago?(mispells intended)


Sun, 12/09/2012 - 17:00 | 3047293 akak
akak's picture

Well, not sure about the "highly intelligent" part, but as for "smart ass" --- bingo.

Sat, 12/08/2012 - 20:12 | 3046157 kchrisc
kchrisc's picture

Too funny, too true.

Sat, 12/08/2012 - 19:23 | 3046071 lasvegaspersona
lasvegaspersona's picture

tick tock tick tock tick tock

Sat, 12/08/2012 - 13:17 | 3045563 Silver Bug
Silver Bug's picture

The FED will NEVER be able to exit. They can only print more and more fiat dollars. They have no choice. Once they stop, "THEIR" system implodes. Hold your gold.

Sat, 12/08/2012 - 12:08 | 3045455 Jeep In Mud
Jeep In Mud's picture

Wouldn't the FED selling bonds in 2015 compete with the Treasury selling bonds n 2015?  I thought the FED was the buyer of last resort.  There isn't anyone else except maybe an international organization.  Maybe this is too simplistic a view.

Sat, 12/08/2012 - 14:24 | 3045634 earleflorida
Sun, 12/09/2012 - 10:22 | 3046718 HurricaneSeason
HurricaneSeason's picture

That will allow them to force government pensions and 401Ks to be traded in for treasuires so the American people will be the forced buyers of last resort. They already control those funds with early withdrawl fees and taxes, but they could control them for haircuts too.

Sun, 12/09/2012 - 11:29 | 3046800 earleflorida
earleflorida's picture


forget about 'gdp' as a benchmark...

1) america's [11/30/12] debt held by public ~ $11.6 tn.*

2) intra-gov't holdings [debt] ~ $4.8 tn

3) total debt ~ $16.4 tn. 

summary: * ~ 48% debt of public held by foreigners ~ $5.3 tn.  __ ~$6.3 tn. balance 'total public debt'

final #'s__ ~ $16.4 tn. total debt /3`separate balance spread-sheets __ ~ $ 6.3 tn. public + $5.3 tn. foreign + ~ $4.8 tn. intra-gov't =~ $ 16.4 tn.

now... moving onto america's fiscal budget from 2011 data:

total receipts ~ $2.3 tn. / total expenditures ~ $3.6 tn. =~ $ 1.3 tn. deficit __ Note: deficit's on budget are now perpetual ?!   

Important: Question most should be asking is -- where does the interest [    ] payment on the debt go? [ if only approx. 30%  ~ is paid to foreigners accounts]

ref: prior post


Sun, 12/09/2012 - 16:30 | 3047266 Quantum Future
Quantum Future's picture

if the coupon was a guaranteed 8 % then it would be a good way to invest the wealth of the nation. better than the fubar of the fake market.


Sat, 12/08/2012 - 12:17 | 3045461 vast-dom
vast-dom's picture

i vote for collusive oligopoly as the fed is working on behalf of the TBTF banks.


could this explain it all?:

"Up to 40 per cent of the British population are believed to be infected with toxoplasma and although the vast majority show no apparent symptoms, there is a risk to unborn children if their mothers become infected for the first time during pregnancy."

Sat, 12/08/2012 - 19:51 | 3046126 Aurora Ex Machina
Aurora Ex Machina's picture

Toxoplasmosis is well documented, and more importantly, curable. Just because Mad old ladies with 40 cats don't cure themselves doesn't mean it's a huge issue.


Also, the Indy's stats are total bunk: the USA and France have far higher rates than England (due to all the dog lovers). Check out Reddit - almost a 100% infection rate over there.

Sun, 12/09/2012 - 10:49 | 3046755 GMadScientist
GMadScientist's picture

A nearly harmless parasite that all but the most immuno-compromised (read: junkies and old cat ladies) can fight off with ease.

Pregnant women are already well-counseled to steer clear of catshit.

Sat, 12/08/2012 - 12:16 | 3045464 Downtoolong
Downtoolong's picture

By the time they all figure it out, it will be too late to do anything about it.

I've started selling my treasuries now, at a pace that will liquidate most of them by 2015. If and when the Fed decides to do it, I'll be happy to consult them on how I managed it.


Sat, 12/08/2012 - 12:26 | 3045473 yogibear
yogibear's picture

LOL, the emperor has no clothes. 

Sat, 12/08/2012 - 12:23 | 3045470 yogibear
yogibear's picture

"To put it simply, the Fed's QE can not stop"

Coorect!  It goes on until it's realized.

Then it's dump US dollar time because the US dollar's value is way too high.

Bubble Bernanke the Fed members are just hoping people don't realize it. 


Sat, 12/08/2012 - 19:29 | 3046086 lasvegaspersona
lasvegaspersona's picture

The dollar's value may be way too high but you can stil buy an ounce of gold for only $1700. This sale will not last long, get some now while its on sale!!!

Sat, 12/08/2012 - 12:26 | 3045472 Garristotle
Garristotle's picture

Luckily we have a very unified monopoly on economic propaganda here in the Western World! 

How long before this outright debt monetization by the FED pulls the Petrodollar out from under our feet? 

Sat, 12/08/2012 - 12:27 | 3045475 lunaticfringe
lunaticfringe's picture

Most people don't even know or understand how the Fed is destroying our country. ZIRP, QE? You might as well be talking Latin. 

Then when you mention the eventual outcome...the only outcome...they look at you like you are some depressed doomer. People just hate the fucking truth. They have to find the fantasy in everything.

Sat, 12/08/2012 - 12:32 | 3045481 Garristotle
Garristotle's picture

Obviously you didn't get the memo, the US economy is poised for an explosion of growth.


Didn't you see the Jobs Report? Not even "The Biggest Storm to EVAR Form on Earth Superstorm Sandy" can keep us down! BULLISH!

Sat, 12/08/2012 - 12:38 | 3045496 Bay of Pigs
Bay of Pigs's picture


Cue the Col. Nathan R. Jessup quote..."You want the truth? Son, we live in a world that has walls..."

Unwind it all? LOL. Code Red bitchez...

Sat, 12/08/2012 - 15:05 | 3045728 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Unfortunately for our entertainment Bernanke would suck in the role of Col. Jessup.  I bet if he ever did get grilled he would wet his pants.

Sat, 12/08/2012 - 12:53 | 3045522 JR
JR's picture

“Men will give up anything rather than what they want to believe. And hate you for telling them there’s nothing to believe. And even if you prove it to them, they’ll continue to believe, and hate you for proving them foolish. Sometimes they give up, but they’ll like you no more.” –Louis L’Amour , Over on the Dry Side, 1975.

Sat, 12/08/2012 - 12:54 | 3045525 a growing concern
a growing concern's picture

Yeah, these assholes think that, if the Republican obstructionists in Congress would only get out of the way, their lord and savior Obama could finally realize his potential of being the supreme ruler over all the earth and fix everything.

Sat, 12/08/2012 - 19:27 | 3046077 JohnnyBriefcase
JohnnyBriefcase's picture

All he (or congress) can do is create new laws. Don't we already have a lot of those? Are more laws really the answer? WTF is wrong with people?!

Sat, 12/08/2012 - 19:42 | 3046106 lasvegaspersona
lasvegaspersona's picture

Whats wrong with people? Really want an explanation? OK!

Most people are not like you or me or people who would come here to find out what is really happening. They have average intelligence. They have busy lives. They trust authority. They cannot believe that things could be so bad and that the government would not have told them something was wrong. They are not very curious. They accept that tomorrow will be just like today and that next year will be about the same as last year. They have problems and interests that occupy their minds and time. To most people something horrible will be preceded by an announcement: 'something horrible is about to happen' and it WILL be announced on at least cable TV. Most people do not even know that a bank lends more money than it takes in in deposits. To the average person this coming currency collapse will hit them like a drive by shooting. They will still not know what hit them long after they are financially dead.

Consider yourself very fortunate that you have at least a head start while they are running in the opposite direction.

Buy physical gold. We don't need to agree on the reason for this action, just do it.

Sun, 12/09/2012 - 06:26 | 3046599 Radical Marijuana
Radical Marijuana's picture

lasvegaspersona, I agree with everything you said, except for your last sentence, which is still believing that the fantasy of owning some gold will help ... It is merely a nice psychological crutch to own some gold, as something to do in the face of all the rest of the social insanities which you correctly listed.

Sun, 12/09/2012 - 11:50 | 3046831 Lednbrass
Lednbrass's picture

Well, it is a bet like any other investment.  A person buying gold is betting that when a financial collapse occurs there will be enough order remaining that they will have a means of retaining if not multiplying their wealth once the situation is restored. It is at bottom an optomistic assessment of what will happen when the wheels fall off- it assumes the that the noble in both people and metals will regain primacy.

Personally I expect that the day will be ruled for quite awhile by far baser instincts and metals, so my few small investments are made accordingly.

Sun, 12/09/2012 - 17:58 | 3047370 Quantum Future
Quantum Future's picture

So when you are not rambling on at 50 wpm your true shill nature is exposed. Violence indeed!!!!


Sat, 12/08/2012 - 12:30 | 3045478 PUD
PUD's picture


Sat, 12/08/2012 - 12:33 | 3045487 Stockmonger
Stockmonger's picture

The solution is simple.

Create a Fed II and sell the assets to it.  This will unwind the balance sheet of Fed I.  Mission accomplished.

Sat, 12/08/2012 - 12:42 | 3045502 Garristotle
Garristotle's picture

and name it the Patriot Freedom Reserve, so no one questions it.


Stay by your phone in 2014, you might pick up a job.  I hear one of the best perks is a lavish basement appartment in the Marriner Eccles building, very modern decor with exposed brick accent walls of a former vault!

Sat, 12/08/2012 - 13:04 | 3045540 a growing concern
a growing concern's picture

Just go ahead and call it the Ministry of Plenty and be done with it.

Sat, 12/08/2012 - 18:19 | 3045979 akak
akak's picture

"MiniPlenty" --- has a certain ring of ironic truthiness to it. 

Reminds me of "Good 'N Plenty".

Sun, 12/09/2012 - 00:01 | 3046428 Big Slick
Big Slick's picture

"The solution is simple. - Create a Fed II and sell the assets to it."

But who to architect such a thing?  CALL ANDY FASTOW!!!!

Sun, 12/09/2012 - 03:51 | 3046562 lewy14
lewy14's picture

Europe already did this.

I think they called it the ESM

Sat, 12/08/2012 - 12:35 | 3045491 Heart of Gold
Heart of Gold's picture

Tyler, on a more market-oriented note, do you think the Dow will keep going up as long as the AAPL sell off continues? Friday didn't see a more broad based market sell off yet, as it seems you suspected Thursday. Will this just squeeze the pre-fiscal cliff market selloff into a shorter time frame?

Sat, 12/08/2012 - 12:42 | 3045501 booboo
booboo's picture

There will be no unwind, the most complicated part of the plan is to make people believe that it can be resolved. There are still alot of game pieces to move around on the geopolitical stage before they can calmly walk the sheep into the slaughter house.

Take the "Debt Ceiling" countdown clock on CNBC, it is all about crisis and crisis resolution, make a huge deal out of it, the talking tits run around screaming "something must be done" wear people down and whalla! a deal is struck. Note that this time Obama wants to remove congress from the equation, to give him the power to decide. Congress continues to get marginalized each passing day (yes it's their own fault) The free shit army (I am including Wall Street) will demand it.


Sat, 12/08/2012 - 13:03 | 3045509 Muppet Pimp
Muppet Pimp's picture

Here is my big idea to unite the americas, I need help to implement this:

My wife and I have had a 'bucket list' goal of traveling overland throughout the N, C & S American Continent.  This was put on hold due to the Great Recession.  The Olympics will be held in Rio in 2016.  So between now and then I would like to enlist sponsors and governments to coordinate the facilitation of a massive pilgrimage from all of the Americas to travel overland, ending in Rio at the Olympics.  This trip can be done currently, but crossing all of the borders is chaotic and unpredictable.  Some of our 'friends' in California have put together a website that can be the ground zero on the web to provide traffic updates, fuel prices, etc. I envision a massive movement of the true believers by car, motorcycle, RV, etc. to unite in Rio in 2016 for fellowship with their fellow (wo)man.  Corruption is a huge problem at present to make this trip.  There is no system like what exists in Europe allowing free movement.  Sometimes you have to bribe, sometimes you have to find a nondescript building with undisclosed hours to 'fumigate', sometime you need special insurance, sometimes that insurance is impossible to come up with.  If between now and 2016 we could convice these governments that they will get a windfall of business for their people by working together to create standards that can allow mass movements of tourists (pilgrims?) through these beautiful countries, they will help their people to prosper and that there is more to be gained by ending the corruption and working together.  Logistical challenges would be getting the right infrastructure (road improvements, fuel supply line improvements, logistical challenges, etc.  Major corporate sponsors would jump at the opportunity, and this would have a major positive effect on the region.

Some brainstorming:

- Get Governments on the Route to Rio onboard with the plan (Mexico, Guatemala, Honduras, Nicaraugua, Costa Rica, Panama, Columbia, Ecuador, Peru, Bolivia, Chile, Argentina, Paraguay and finally Brazil)

- Implement a system similar to Europe streamlining the Process of traveling overland country to country (Some sort of Permit or something)

- Build Campgrounds all along the route

- Hire the Greeks to provide Ferry service from Panama to Columbia (the Darien Gap prevents travel overland between Central and South America)  The greeks held the first Olympics and invented Democracy, so seeing as they are the butt of all jokes at present it would be fitting that we would need them to bridge the gap for us.  They have plenty of ferries btw.  This is symbolic IMO.  Currently you have to ship your vehicle by container.

- Security will need to be provided, as some of these areas are somewhat lawless, but the goal is to teach them that they have more to gain by getting honest than trying to extort money.

-  Road Improvements and Fuel Stations

- Techology (Cell Phone towers, traffic reporting, etc.)  Drivetheamericas will need to become a robust one stop site for pilgrimage information and sharing of photographs and experiances. They were pioneers, they deserve this honor.


The goal would be to unite the Americas and promote freedom and free markets, and free movement across borders.  The pilgrimage would be the Maiden Voyage of this new system.

Email me here if you can contribute to this immense project:

I suspect the following types of companies would have an interest: Major Oil Co's, NASCAR, Engineering Firms, Planners, Logistics Experts, Etc.

This will end under the Christ the Redeemer statue in Rio.





OT: CATO institute has a great deal on 10 packs of pocket Declaration of Independence & US Constitution to distribute to your friends.  Get you some!




Sat, 12/08/2012 - 13:05 | 3045543 Pool Shark
Pool Shark's picture



Here's a cheaper, faster, easier option:


Sat, 12/08/2012 - 13:12 | 3045552 shovelhead
shovelhead's picture

Anxiously awaiting your arrival in Mexico.

Sincerely yours,

Los Zetas.

Sat, 12/08/2012 - 17:29 | 3045922 Muppet Pimp
Muppet Pimp's picture

You can hide under your bed while we go have a good time.  Certainly the trip is not for everyone.  But many have done it under current conditions and I have read nothing but good things about all the good people they met and enjoyed fellowship with along the way (corrupt police and border extorters notwithstanding).  We will be making the trip regardless, and I am quite certain we will not be alone.  A system to improve the chaotic nature of all the various crossings would only yield positives for these countries.

Not sure why all the down arrows, everyone I have mentioned this to locally seemed to really like the idea.

Sun, 12/09/2012 - 12:31 | 3046904 Lednbrass
Lednbrass's picture

I will venture a guess on the down arrows- that many consider the idea of a giant traveling road party/camping trip to solve any of our problems inherently ludicrous. It is only an option for people with sufficient money and no responsibility- a junket designed for the leisure class to have a good ol' time under the very thin veneer of self congratulatory social usefulness that appeals to such people.  No doubt you will have company- there are lots of childless urban urbane types with free time and disposable money out there happy to convince themselves that their having fun serves some greater purpose.

Your comment about hiding under the bed was infantile- he merely observed (quite comically to my mind) that sooner or later such a publicized "event" of starry eyed sophisticates will run into hard eyed people with far less high minded motivations in areas where the bubble world of large coastal US cities has no meaning. It is flat out stupid to assert that mocking you somehow equates to someone hding under their bed- indeed I would argue that if one of you is hiding from reality it wasn't the guy with the Los Zetas quip. I think your RV's are as likely to wind up as new meth labs somewhere in the Mexican wilderness as they are ending up in Brazil, but good luck to you all the same.

As far as getting a good local response, I would guess that your locale is heavy with the general type of person I mentioned. How many blue collar types or flyover country dwellers did you ask? Was your sounding board all  degreed urban types with no kids or college students?

Sun, 12/09/2012 - 15:44 | 3047206 Muppet Pimp
Muppet Pimp's picture

I was crushed into a fine powder during this recession, and have very modest resources.  But we have until 2016 to save up to make the trip.  Join us!

BTW, all the way to Panama is pretty much possible under existing conditions.  In SA there would be fuel shortages at a minimum under current conditions if there were a lot of excess traffic.  So lets give em a hand up.  Brazil has huge potential to be the US of SA, that is that they can feed that entire continent.  Brazilians are good folks too, I can't wait to meet them in their home this time (they frequent my area).

Sat, 12/08/2012 - 19:51 | 3046124 lasvegaspersona
lasvegaspersona's picture

By 2016, if things are not in the crapper by then, the USG will have so many capital controls that your problem will be gettin OUT of the USA and not gettin through Mexico.

Sun, 12/09/2012 - 08:26 | 3046638 Snidley Whipsnae
Snidley Whipsnae's picture

The Darien Gap is an ass-kicker... this being a huge understatement.

"The first all-land auto crossing was in 1985–87 by Loren Upton and Patty Mercier in a CJ-5 Jeep, taking 741 days to travel 125 miles (201 km). This crossing is documented in the 1992 Guinness Book of Records. In addition, Upton returned in 1995 and became the first to drive a motorcycle (a two-wheel drive Rokon motorcycle) all on land through the Darién Gap, in 49 days."

To the best of my knowledge no one has traversed the Darien Gap on a Harley. Could be an interesting task to assign to prospects. :)

The Gap might be one of the places in the world that will be least effected by international economic collapse. It would require being on good terms with the native indians of the area... two tribes...Just sayin'...

Sat, 12/08/2012 - 12:50 | 3045515 TomGa
TomGa's picture

Ann Barnhardt - The Economy is Going to Implode (Full Length)

Presentation given Nov. 10, 2012

"The damage is so profound and so far along that critical mass has been reached, and we can't walk it back. There is nothing that can be done now to walk this back."


Sat, 12/08/2012 - 17:31 | 3045927 Muppet Pimp
Muppet Pimp's picture

There is always a way.  Ann means well, and has a right to be angry (as we all should be) but humans have made it this long, and we will get through this one way or another.

Sat, 12/08/2012 - 19:27 | 3046078 imbrbing
imbrbing's picture

I saw that, loved it. Just had to get past her occasional religious rants. She has more cohonys than 95% of the men I know, including myself.

Sat, 12/08/2012 - 19:55 | 3046132 lasvegaspersona
lasvegaspersona's picture

I offered this up as suggested viewing, especially for the religious. I got knocked back by several thoughtful people. Some were offended by the morality rants but the biggest concern was her martyrdom and the suggestion tht others join her. I do not suggest the nonpayment of income taxes. It is an evil we will have to endure for now. After the collapse we can get some sanity back but while the government is in full panic mode I would not piss them off.

Sat, 12/08/2012 - 21:00 | 3046212 css1971
css1971's picture

She's missing some points.

Gold, not a gold standard. Gold is peer to peer money which doesn't require a central authority to function. It's the money which controls the political system. If your money is based on credit entries at a central bank then all the power is centralised.

Ron Paul has been shouting about this shit for years. He's a Cassandra figure though. Nobody listens.

How can GDP grow if debt isn't also growing? Velocity? Get real. Her own chart shows that debt growth is a prerequisite for gdp growth. i.e. a pyramid scam. No, fractional reserve banking is the problem... The concept of growth required for it to function is the problem.

Sat, 12/08/2012 - 12:52 | 3045521 SKY85hawk
SKY85hawk's picture

Is it true that most Mortgage Backed Securities have serious valuation problems?

If true, how will the Fed sell the MBS's in 2015?

Twould be interesting if they audited their holdings and prosecuted  the sellers for Fraud!

Late but better than nothing, eh?


Sat, 12/08/2012 - 13:33 | 3045585 Everybodys All ...
Everybodys All American's picture

I'm sure they do. FHA now in addition to Freddie and Fannie (who have already been bailed out) is looking for a cash infusion (bailout). This is essentially the same securities (mortgage backed securities) that the Fed has been buying from the open market (banks' balance sheet). 


Another article pointing out the FHA balance sheet is levered 41 to 1. What could ever go wrong? 


Sat, 12/08/2012 - 13:55 | 3045603 Winston Churchill
Winston Churchill's picture

Valuation problem ?

No value. so no problems.

Sat, 12/08/2012 - 12:55 | 3045526 Peter Pan
Peter Pan's picture

Of course the FED can exit. It just has to pray that aliens from another world will materialise and buy all that toxic stuff.

The advent of QE in the USA, Japan and Europe will soon happen everywhere and will soon mirror the slide into poverty of more and more people.

Sat, 12/08/2012 - 12:56 | 3045527 Bam_Man
Bam_Man's picture

The "unwinding" of the fed's balance sheet - if it ever takes place at all - will be VERY gradual and the result of their "assets" maturing rather than being sold outright.

By definition, so much of what is on the Fed's balance sheet is garbage and cannot possibly be sold for anywhere near what they paid. Selling (or attempting to sell) this gabage would result in losses so severe that the Fed would have to go hat-in-hand to the US Treasury to be re-capitalized. Not going to happen. They will hold everything to maturity, which means that the "normalization" of the Fed's balance sheet will take at least another decade and probably more.

Sat, 12/08/2012 - 12:58 | 3045529 Tyler Durden
Tyler Durden's picture

Rolloff through maturity implies incremental tightening, which the Fed discovered back with QE1.5 is impossible. The point is that, like a shark, the Fed's flow has to keep moving constantly higher as just staying still kills the market.

Sat, 12/08/2012 - 13:04 | 3045539 max2205
max2205's picture

If your over 50, you won't be alive when the wind down begins

Sat, 12/08/2012 - 14:37 | 3045671 OneTinSoldier66
OneTinSoldier66's picture

Huh? The wind down has already begun. It's called "QE-Infinity + ZIRP-Forever + CTRL-P + All of America's Assests on it's balance sheet, + Market Manipulation + BLS Hedonics + Jawboning + Fiscal Cliffhanger + Debt Ceiling Theatre, etc, etc, etc."

Sat, 12/08/2012 - 15:58 | 3045803 James-Morrison
James-Morrison's picture

To salvage "the many", "the few" will be sacrificed:  savers of existing fiat.

If you don't have savings, you are safe.

Hard assets only, no paper. 

As Dennis Gartman says, "stuff that hurts when it falls on your foot."

Sun, 12/09/2012 - 00:41 | 3046472 hairball48
hairball48's picture

Youy won't be alive for the wind down if you are 1 second old right now.

Sat, 12/08/2012 - 13:08 | 3045545 Bam_Man
Bam_Man's picture

Sure, rolloff as a result of maturities is incremental tightening. Because the Fed's balance sheet is so highly leveraged it's the only kind of tightening that is even remotely possible at this point. Personally, I believe that the Fed's ability to conduct monetary policy in an inflationary environment is already severely compromised.

Sat, 12/08/2012 - 13:10 | 3045551 Insideher Trading
Insideher Trading's picture


The Fed will sell dirty diapers to itself from itself at higher prices if they have to.

There are no more rules or sanity. We have crossed the rubicon.

Sat, 12/08/2012 - 13:31 | 3045581 Ham-bone
Ham-bone's picture

quick math until 2015...?

+ 1 trillion in new issuance annually

+ 3 trillion in rollover annually (assuming 16 trillion in T's at average 5yr duration)

- 500 billion in Fed T purchases

=3.5 trillion in "somebody" else buying that paper

after 2015...?

only possibility for an "exit" would be that the new issuance would need to come down equal to the amount the Fed was buying...($500 billion in new issuance +

+ 1 trillion in new issuance annually

+ 3.5 trillion in rollover annually (assuming 19 trillion in T's at average 5yr duration)

+ 500 billion in Fed T selling

=5 trillion annually in "somebody" else buying that paper at any rate...seems asking a bit much particularly while other C banks would be doing the same...mission impossible?!?


Sat, 12/08/2012 - 13:45 | 3045590 Everybodys All ...
Everybodys All American's picture

Look for the Fed to mandate that pensions and 401k's buy them or you'll lose your tax preferenc? It's happened in Japan.

Sat, 12/08/2012 - 15:32 | 3045775 Ham-bone
Ham-bone's picture

FYI - what did the picture look like 10yrs ago (2002)?

Annual T issuance = 250 billion

Annual rollover (assuming 5 trillion @ 5yr average maturity) = 1 trillion

Fed = neutral

Soooo, net net...$1.25T annually in 2002 @ average 7% (w/ no direct Fed influence) to $5T annually in 2015 @ 2% w/ Fed sales of $500B annually - any "pro" who purports this "exit" strategy is anything but a farce is themself a farce 

Sat, 12/08/2012 - 16:00 | 3045804 WhiteNight123129
WhiteNight123129's picture


Sat, 12/08/2012 - 16:22 | 3045840 Everybodys All ...
Everybodys All American's picture

It's not an exit. It is the next step though. I'd bet anything on that.

Sat, 12/08/2012 - 17:41 | 3045588 Everybodys All ...
Everybodys All American's picture

It's impossible if they want to keep the stock market where it's at for sure, but are you convinced they will not try some tightening at this stage because their short term bonds are for the most part sold. The price of commodities are also signaling a tightening of some sort don't you think?

We'll see for sure with this coming week's FOMC meeting. St. Louis gov Bullard has signaled a smaller 20 bil extension of 'operation twist'. What do you call operation twist when there is nothing to twist? Answer: Monetization.

Sat, 12/08/2012 - 14:13 | 3045605 ekm
ekm's picture

In my not humble opinion, both of you have this wrong.


It looks to me that both Fed and ECB are being currently designed as BAD BANKS and will be forcefully shut down as soon as nothing is left in the market to purchase.

Once the money circulates between Treasury and Fed, hence the PRODUCTING SECTOR HAS NO NEED FOR IT, this is the typical last gasp of a Pyramid Scheme.


USA will have a new Fed, pretty soon, so will Europe have a new ECB soon.

Sat, 12/08/2012 - 14:21 | 3045641 Wakanda
Wakanda's picture

The "new Fed" will be PMs until humans can be trusted to keep promises.

I'm not holding my breath 'til then.

Sat, 12/08/2012 - 14:23 | 3045644 ekm
ekm's picture

I think the Fed and the Treasury will actually merge. Enough with this idiotic farce called "independent central bank".

De facto, they one one entity with two offices.

Sat, 12/08/2012 - 14:51 | 3045701 Zero Debt
Zero Debt's picture

A central banks to end all central banks, indeed.

Sun, 12/09/2012 - 12:37 | 3046915 Lednbrass
Lednbrass's picture

One Bank to rule them all, One Bank to find them/ One Bank to bring them all and in the darkness bind them/ In the Land of New York where the Shadows lie.

Sun, 12/09/2012 - 00:20 | 3046440 1C3-N1N3
1C3-N1N3's picture

Or the FED will have a new USA.

Sat, 12/08/2012 - 19:54 | 3046130 Yen Cross
Yen Cross's picture

Rolling off mature bonds, does not imply cashing out Tyler/  You can roll bonds into shorter durations and the transaction doesn't even show up. Look @ municiple "blond" bond funds. Supposed tax deferred/exempt munis.

Sat, 12/08/2012 - 23:14 | 3046367 RiverRoad
RiverRoad's picture

The Fed will carry this charade on for another 80 years until no one is alive who remembers how all this crap started in the first place, just as the last Depression escapes the sheeples' collective memory.

Sun, 12/09/2012 - 10:49 | 3046751 Yen Cross
Yen Cross's picture

for Tyler / I'm sure he has a better clock ;-) He puts up with our worthless asses.

Student debt is almost 1T

Sat, 12/08/2012 - 13:03 | 3045535 Peter Pan
Peter Pan's picture

The FED will end up buying its own shit as it matures.

Sat, 12/08/2012 - 14:20 | 3045640 ekm
ekm's picture

So, sir, Treasury and the Fed just exchange bonds an money indefinitely.

I thought the system needed money to used as a medium of exchange for goods and services.


What's the use of having both the Fed and the Treasury? There's absolutely no difference between both. If they both merged (hence Fed shut down), nothing would change.

Sat, 12/08/2012 - 15:29 | 3045770 fonzannoon
fonzannoon's picture

Ekm what do the equity/fixed income/commodity markets look like in your scenario? 

Sat, 12/08/2012 - 17:37 | 3045934 ekm
ekm's picture

I don't have a clear imagination of it. That's all we have, IMAGINATION. No imagination, no progress.

Few bits and pieces I could imagine by reading different inputs of different people on the internet, would be that it'd be a RESET. This is quite easy in this electronic age.


Hence, if you have $1000 in a savings account, the assumed 30% reset will mark it down to $700 on the computer. Same thing with bonds and stocks, they would all be marked down.

Hence one thing becomes extremely valuable and I learned this from you during Sandy: ACTUAL CASH. That cannot be marked down, I think.


I think gold will not be of much help at that time because it will be confiscated as it is currently happening. Central Banks buying gold = practical confiscation which increases the price. It has to be sold just before the event. I don't see how silver could be confiscated though, but laws could spring that disallow silver as money.


The piece of paper could be king because it is NOT electronic.

My imagination only, just my imagination.

Sat, 12/08/2012 - 19:49 | 3046122 Yen Cross
Yen Cross's picture

 Listening to Fonz and EKM have a discussion, is refreshing.  That is the way true men should talk/ 

  I can't disagree with either one of you? You both are "brilliant"...

Sat, 12/08/2012 - 20:05 | 3046146 lasvegaspersona
lasvegaspersona's picture


won't happen

The dollar needs to die. All paper assets need to die. There can be no claims against the new system. If the new dollar is structured like the Euro, with gold in reserve but not 'backing' in a fixed weight, that gold must be free of all international claims aginst it. A fresh start is a must.

Sat, 12/08/2012 - 13:00 | 3045533 SpeakerFTD
SpeakerFTD's picture

Two questions...

1)  Doesn't the Fed also have significant neg convexity from its agency portfolio?  Wouldn't duration actually go up quite a bit more than suggested if rates moved up?

2)  Besides its mortgage portfolio, is the Fed an active seller of rates vol?

Sat, 12/08/2012 - 15:18 | 3045746 SpeakerFTD
SpeakerFTD's picture

This is a few days dated, but an interesting data point demonstrating complacency:


Bank of America Merrill Lynch's MOVE index, which measures price swings for Treasuries based on options, fell to 51.7 yesterday in the U.S., the least since May 2007. Volatility in U.S. government debt dropped to the lowest in five years yesterday, according to Bank of America Merrill Lynch's MOVE index. 

Sat, 12/08/2012 - 13:08 | 3045546 AU5K
AU5K's picture

FeXit by Debt Jubilee.

Sat, 12/08/2012 - 13:12 | 3045548 Ayr Rand
Ayr Rand's picture

The unwind is simple:

Wait till the end of 2014, or a propitious time.

Declare all debt instruments held by the Federal Reserve as excess reserve assets null and void. 

The monetary base is reduced by $5T (I actually think this amount will be far greater). 

The public debt is reduced by the same amount. 


The only losers will be the banks who bought these instruments and hold them as excess reserves. Since they bought them with funds ad hoc manufactured for this purpose, there is no net problem with that as well. 


This would be good for the world and good for the US. Therefore, it is a certainty that the banks will quash any attempt to do so.

Sat, 12/08/2012 - 13:39 | 3045586 Non Passaran
Non Passaran's picture

I've seen this idea before (I think in the UK press recently) and although I can't say what's wrong with the idea, it's simply too good to be true.

In case they really do that what would happen with the price of gold? It ought to drop, but that doesn't make sense either.

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