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Bill Gross On Bernanke's Latest Helicopter Flyover, "Money For Nothing, Debt For Free" And The End Of Ponzi Schemes

Tyler Durden's picture





 

Back in April 2012, in "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement" we first explained how despite its best intentions (to boost the Russell 2000 to new all time highs, a goal it achieved), the Fed's now constant intervention in capital markets has achieved one thing when it comes to the real economy: an unprecedented capital mismanagemenet, where as a result of ZIRP, corporate executives will always opt for short-term, low IRR, myopic cash allocation decisions such as dividend, buyback and, sometimes, M&A, seeking to satisfy shareholders and ignoring real long-term growth opportunities such as R&D spending, efficiency improvements, capital reinvestment, retention and hiring of employees, and generally all those things that determine success for anyone whose investment horizon is longer than the nearest lockup gate. Today, one calendar year later, none other than Bill Gross, in his first investment letter of 2013, admits we were correct: "Zero-bound interest rates, QE maneuvering, and “essentially costless” check writing destroy financial business models and stunt investment decisions which offer increasingly lower ROIs and ROEs. Purchases of “paper” shares as opposed to investments in tangible productive investment assets become the likely preferred corporate choice."

It is this that should be the focus of economists, and not what the level of the S&P is, as it is no longer indicative of any underlying market fundamentals, but merely how large, in nominal terms, the global balance sheet is. And as long as the impact of peak central-planning on "business models" is ignored, there can be no hope of economic stabilization, let alone improvement. All this and much more, especially his admissions that yes, it is flow, and not stock, that dominates the Fed market impact (think great white shark - must always be moving), if not calculus, in Bill Gross' latest letter.

From PIMCO:

 

Money for Nothin’ Writing Checks for Free

 

It was Milton Friedman, not Ben Bernanke, who first made reference to dropping money from helicopters in order to prevent deflation. Bernanke’s now famous “helicopter speech” in 2002, however, was no less enthusiastically supportive of the concept. In it, he boldly previewed the almost unimaginable policy solutions that would follow the black swan financial meltdown in 2008: policy rates at zero for an extended period of time; expanding the menu of assets that the Fed buys beyond Treasuries; and of course quantitative easing purchases of an almost unlimited amount should they be needed. These weren’t Bernanke innovations – nor was the term QE. Many of them had been applied by policy authorities in the late 1930s and ‘40s as well as Japan in recent years. Yet the then Fed Governor’s rather blatant support of monetary policy to come should have been a signal to investors that he would be willing to pilot a helicopter should the takeoff be necessary. “Like gold,” he said, “U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

 
Mr. Bernanke never provided additional clarity as to what he meant by “no cost.” Perhaps he was referring to zero-bound interest rates, although at the time in 2002, 10-year Treasuries were at 4%. Or perhaps he knew something that American citizens, their political representatives, and almost all investors still don’t know: that quantitative easing – the purchase of Treasury and Agency mortgage obligations from the private sector – IS essentially costless in a number of ways. That might strike almost all of us as rather incredible – writing checks for free – but that in effect is what a central bank does. Yet if ordinary citizens and corporations can’t overdraft their accounts without criminal liability, how can the Fed or the European Central Bank or any central bank get away with printing “electronic money” and distributing it via helicopter flyovers in the trillions and trillions of dollars?
 
Well, the answer is sort of complicated but then it’s sort of simple: They just make it up. When the Fed now writes $85 billion of checks to buy Treasuries and mortgages every month, they really have nothing in the “bank” to back them. Supposedly they own a few billion dollars of “gold certificates” that represent a fairy-tale claim on Ft. Knox’s secret stash, but there’s essentially nothing there but trust. When a primary dealer such as J.P. Morgan or Bank of America sells its Treasuries to the Fed, it gets a “credit” in its account with the Fed, known as “reserves.” It can spend those reserves for something else, but then another bank gets a credit for its reserves and so on and so on. The Fed has told its member banks “Trust me, we will always honor your reserves,” and so the banks do, and corporations and ordinary citizens trust the banks, and “the beat goes on,” as Sonny and Cher sang. $54 trillion of credit in the U.S. financial system based upon trusting a central bank with nothing in the vault to back it up. Amazing!
 
But the story doesn’t end here. What I have just described is a rather routine textbook explanation of how central and fractional reserve banking works its productive yet potentially destructive magic. What Governor Bernanke may have been referring to with his “essentially free” comment was the fact that the Fed and other central banks such as the Bank of England (BOE) actually rebate the interest they earn on the Treasuries and Gilts that they buy. They give the interest back to the government, and in so doing, the Treasury issues debt for free. Theoretically it’s the profits of the Fed that are returned to the Treasury, but the profits are the interest on the $2.5 trillion worth of Treasuries and mortgages that they have purchased from the market. The current annual remit amounts to nearly $100 billion, an amount that permits the Treasury to reduce its deficit by a like amount. When the Fed buys $1 trillion worth of Treasuries and mortgages annually, as it is now doing, it effectively is financing 80% of the deficit for free.
 
The BOE and other central banks work in a similar fashion. British Chancellor of the Exchequer (equivalent to our Treasury Secretary) George Osborne wrote a letter to Mervyn King, Governor of the BOE (equivalent to our Fed Chairman) in November. “Transferring the net income from the APF [Asset Purchase Facility – Britain’s QE] will allow the Government to manage its cash more efficiently, and should lead to debt interest savings to central government in the short-term.” Savings indeed! The Exchequer issues gilts, the BOE’s QE program buys them and then remits the interest back to the Exchequer. As shown in Chart 1, the world’s six largest central banks have collectively issued six trillion dollars’ worth of checks since the beginning of 2009 in order to stem private sector delevering. Treasury credit is being backed with central bank credit with the interest then remitted to its issuer. Should interest rates rise and losses accrue to the Fed’s portfolio, they record it as an accounting liability owed to the Treasury, which need never be paid back. This is about as good as it can get folks. Money for nothing. Debt for free.
 

Investors and ordinary citizens might wonder then, why the fuss over the fiscal cliff and the increasing amount of debt/GDP that current deficits portend? Why the austerity push in the U.K., and why the possibly exaggerated concern by U.S. Republicans over spending and entitlements? If a country can issue debt, have its central bank buy it, and then return the interest, what’s to worry?
Alfred E. Neuman for President (or House Speaker!).

Well ultimately government financing schemes such as today’s QE’s or England’s early 1700s South Sea Bubble end badly. At the time Sir Isaac Newton was asked about the apparent success of the government’s plan and he responded by saying that “I can calculate the movement of the stars but not the madness of men.” The madness he referred to was the rather blatant acceptance by government and its citizen investors, that they had discovered the key to perpetual prosperity: “essentially costless” debt financing. The plan’s originator, Scotsman John Law, could not have conceived of helicopters like Ben Bernanke did 300 years later, but the concept was the same: writing checks for free.

Yet the common sense of John Law – and likewise that of Ben Bernanke – must have known that only air comes for free and is “essentially costless.” The future price tag of printing six trillion dollars’ worth of checks comes in the form of inflation and devaluation of currencies either relative to each other, or to commodities in less limitless supply such as oil or gold. To date, central banks have been willing to accept that cost – nay – have even encouraged it. The Fed is now comfortable with 2.5% inflation for at least 1–2 years and the Bank of Japan seems willing to up their targeted objective to something above as opposed to below ground zero. But in the process, zero-bound yields and their QE check writing may have distorted market prices, and in the process the flow as well as the existing stock of credit. Capital vs. labor; bonds/stocks vs. cash; lenders vs. borrowers; surplus vs. deficit nations; rich vs. the poor: these are the secular anomalies and mismatches perpetuated by unlimited check writing that now threaten future stability.

Ben Bernanke has publically acknowledged these growing disparities. “We are quite aware,” he said in November 2011, “that very low interest rates, particularly for a protracted period, do have costs for a lot of people… I think the response is, though, that there is a greater good here, which is the health and recovery of the U.S. economy... I mean, ultimately, if you want to earn money on your investments, you have to invest in an economy which is growing.”

That growth now is to be measured each and every employment Friday via an unemployment rate thermostat set at 6.5%. We at PIMCO would not argue with that objective. Yet we would caution, as Bernanke himself has cautioned, that there are negative consequences and that when central banks enter the cave of quantitative easing and “essentially costless” electronic printing of money, there may be dragons.

Investment conclusions

Investors should be alert to the longterm inflationary thrust of such check writing. While they are not likely to breathe fire in 2013, the inflationary dragons lurk in the “out” years towards which long-term bond yields are measured. You should avoid them and confine your maturities and bond durations to short/intermediate targets supported by Fed policies. In addition, be aware of PIMCO’s continued concerns about the increasing ineffectiveness of quantitative easing with regards to the real economy. Zero-bound interest rates, QE maneuvering, and “essentially costless” check writing destroy financial business models and stunt investment decisions which offer increasingly lower ROIs and ROEs. Purchases of “paper” shares as opposed to investments in tangible productive investment assets become the likely preferred corporate choice. Those purchases may be initially supportive of stock prices but ultimately constraining of true wealth creation and real economic growth. At some future point, risk assets – stocks, corporate and high yield bonds – must recognize the difference. Bernanke’s dreams of economic revival, which would then lead to the day that investors can earn higher returns, may be an unattainable theoretical hope, in contrast to a future reality. Japan we are not, nor is Euroland or the U.K. – just yet. But “costless” check writing does indeed have a cost and checks cannot perpetually be written for free.

William H. Gross
Managing Director

 


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Thu, 01/03/2013 - 08:54 | Link to Comment tooriskytoinvest
tooriskytoinvest's picture

Peter Schiff: Congress Sells America Down the River to Avoid the Fiscal Cliff

http://investmentwatchblog.com/peter-schiff-congress-sells-america-down-the-river-to-avoid-the-fiscal-cliff/

Thu, 01/03/2013 - 08:56 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Peter Schiff ain't afraid of no NDAA.

Thu, 01/03/2013 - 09:18 | Link to Comment JPM Hater001
JPM Hater001's picture

There's a special FEMA camp just for Peter..."re-education of people to the economic values of the American System" and all that jazz.

Thu, 01/03/2013 - 09:32 | Link to Comment IvyMike
IvyMike's picture

"If we suspend taxation, borrow to fund the government and then keep rolling in the interest payments into the debt, our total obligation as a fraction of the economy will keep falling every year over the 30 year horizon."

You heard it here first.

Thu, 01/03/2013 - 10:01 | Link to Comment Enslavethechild...
EnslavethechildrenforBen's picture

They're transfering real estate ownership from the citizens to the Bankers. You have the right to remain silent and pay rent.

Slave Bitchez

Thu, 01/03/2013 - 10:52 | Link to Comment IvyMike
IvyMike's picture

Capitalism is the biggest wealth transfer scheme ever invented.

"[The Native Americans] didn't have any rights to the land ... Any white person who brought the element of civilization had the right to take over this continent."

~Ayn Rand, US Military Academy at West Point, March 6, 1974

Thu, 01/03/2013 - 15:26 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Capitalism has left the US for a long time. We have crony capitalism in the form of Oligarchy troll.

Thu, 01/03/2013 - 10:42 | Link to Comment Landotfree
Landotfree's picture

Billy is just a big hypocrite.   He has sucked from the ponzi scheme millions of times what he has actually produced in his life, then as the end result of using of the equation becomes into focuse he blames the very thing that gave him what he has.   Billy should STFU.  

Thu, 01/03/2013 - 12:14 | Link to Comment WhiteNight123129
WhiteNight123129's picture

Short 30Y Treasuries STRIPs BITCHEZ!

 

Thu, 01/03/2013 - 12:00 | Link to Comment Diogenes
Diogenes's picture

"If we suspend taxation, borrow to fund the government and then keep rolling in the interest payments into the debt, our total obligation as a fraction of the economy will keep falling every year over the 30 year horizon."

Mathematically correct. If you borrow at 0% when growth (or inflation) is running at 3% the real cost of money is less than nothing. You can pay back what you borrowed in 30 years, 100 cents on the dollar, for about half.

It's magic!

The only flaw in the plan is who is going to lend you the money knowing they are going to make a guaranteed loss?

They have already taken care of that. Now that there are no more lenders willing to buy US government bonds they just print them up, send them over to the Fed, and the Fed exchanges them for dollars!

Problem solved!

Thu, 01/03/2013 - 12:55 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

I like monetary policy articles like this.  People need more understanding of how monetary policy is being used to kep financial markets flying high when the real economy is shrinking.

It is this that should be the focus of economists, and not what the level of the S&P is, as it is no longer indicative of any underlying market fundamentals, but merely how large, in nominal terms, the global balance sheet is.

PhD economists climbing on the the Wall Street bandwagon is more proof how academics have no principles, selling out to whomever writes the biggest check, prostituing their degree to the best pimp, Wall Street bankers in this case.

College doesn't teach principles anymore.  People come out of college with degrees and no principles, no morals, prostituting their degree to whomever writes the biggest check.

Bernanke is doing it.  Prostituting his PhD to Wall Street.  Krugman is doing it.  Prostituing his PhD to Wall Street.  Other PhD economists are doing it.  Prostituing their PhD to Wall Street.

That's the first thing you have to understand befoe we discuss policies they support.  You have to understand (a) they have no principles, and (b) they sold out to somebody, and (c) it's Wall Street in this case.  

How do we know they sold out?  Simple.  Policies they support now are completely contrary to what they learned in college. 

College economics teaches monetary restraint.  Maintaining the value of the currency by restraining printing.

Bernanke knows this.  He said it publicly in 2002.  It's quoted in this article:

“U.S. dollars have value only to the extent that they are strictly limited in supply..."

Yes, that's what Bernanke said in 2002.  He said printing must be restrained to maintain the value of the currency, exactly what he learned in college economics.

Krugman learned the exact same thing.  Printing has to be restrained to maintain the value of the currency.

Volker, Greenspan, and every other Fed chairman learned the exact same thing in college economics.

Now they all support open-ended printing.  Why?  What changed their thinking?  

Wall Street changed their thinking.  Bankers changed their thinking.   Bankers who write big checks to buy off PhD economists ...just like they write big checks to buy off congressmen and anyone else they wana buy off.

They know PhD economists have no principles, no morals.  They'll gladly sell their PhD to the highest bidder.  So they write the biggest check.  Very simple.

Bernanke, Krugman, all those PhD economists know printing debases the currency, stealing wealth from everybody using that currency.  They learned it in college economics.  They know it.

But they never talk about it.  Bernanke doesn't talk about it.  He avoids it like the plague.   Krugman doesn't talk about it.  He avoids it like the plague.  None of those other PhD economists talk about it.  They avoid it like the plague. 

Bernanke is debasing the currency, stealing wealth from everybody using FRNs.  He knows it.  But he doesn't care apparently.  Krugman doesn't care apparently.  None of the others care apparently.  Obama knows it too, but he doesn't care apparently.   Everybody in congress knows it, but they don't care apparently. 

Nobody in a position of power seems to care, and they never talk about it. 

But it's THE thing that will destory America's power sooner or later.  Inflation, then hyperinflation, then loss of reserve currency status, then currency collapse.  When it happens, America's power is destroyed, no longer a superpower.

They all know it.  Bernanke knows it.  Krugman knows it.  All those other PhD economists know it.  Obama knows it.  Everybody in congress knows it.

 

 

Thu, 01/03/2013 - 08:58 | Link to Comment realtick
realtick's picture

The Manufacturing Workforce - Debt Growth Correlation http://chartistfriendfrompittsburgh.blogspot.com/2013/01/the-manufacturi...

Thu, 01/03/2013 - 09:05 | Link to Comment jplotinus
jplotinus's picture

I think the article is excellent and its observations, and ZH's earlier in time similar claims, are true, good and wise.

However, the timing of the posting of the article here at ZH carries a perception risk. We look a bit like a finder of "sour grapes" and/or sore losers here. After all, the russell2k is at an all time high and Obama delivered us from evil, could we but admit it.

Sometimes, it is appropriate to give credit where credit is due.

One of those times is right after a previously warned of disaster has been averted.

Thu, 01/03/2013 - 09:07 | Link to Comment SheepDog-One
SheepDog-One's picture

So Obammy done saved ye? Stock markets up, and that's all that matters even if we're all destroyed as long as the media headline says you've been rescued? Meh...I'm not thinking the same way myself.

Thu, 01/03/2013 - 09:21 | Link to Comment Dr Benway
Dr Benway's picture

The Venezuelan stock 'market' rose 300% in 2012. Or check out this 2006 article about the Zimbabwean stock 'market':

http://www.guardian.co.uk/business/2006/apr/25/Zimbabwenews.internationa...

"It's quite embarrassing because the exchange is supposed to mirror the reality of the economy," said Emmanuel Munyukwi, the institution's chief executive. "We have benefited from the distortion of the market."

The world has become the plaything of Chavezes and Mugabes. Disgraceful.

Thu, 01/03/2013 - 09:32 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Yeah....but remember.....we're America.

Sat, 01/05/2013 - 01:46 | Link to Comment awakening
awakening's picture

I didn't junk you, but whoever did must have been jealous of your avatar (refined gold bricks, nice).

Thu, 01/03/2013 - 11:05 | Link to Comment hawk nation
hawk nation's picture

The US stock market is a form of fixed asset that people purchase as a hedge against dollar devaluation and is allowed to go up. Just think where the price of gold would be if it were allowed to move in a free market scenario

Suppy or lack of supply will at some point drive the price of pm's upward and no paper manipulation will prevent it 

Thu, 01/03/2013 - 09:35 | Link to Comment Widowmaker
Widowmaker's picture

Anyone prosecuted for banking crimes under Obuttfucks DOJ?   Nope.

Retirees and savers crucified with ZIRP? Yep.

Inflation on everything you buy from homes to food to energy to education?  Yep!

Artificially reduced purchasing power of every dollar you have earned and every dollar you will ever earn?  YEP!

Cost free your ass.  Justice abortions, theft from the prudent/fiscally responsible, and totally broken markets (no true price discovery) are few examples of the REAL cost of fraud Inc, dumbass.  Perhaps you should ask the right questions instead of ignoring the obvious all around.

END THE FED-- CUSTODIAN, CHAMPION AND HOST OF USA FASCISM!

Thu, 01/03/2013 - 11:41 | Link to Comment yogibear
yogibear's picture

Eric Holder 's last name is a good indication. Another useless cabinet place holder.

 

Thu, 01/03/2013 - 09:20 | Link to Comment JPM Hater001
JPM Hater001's picture

"Obama delivered us from evil, could we but admit it."

Yes, Obama delivered us from evil...to dark evil.  There I admitted it.

Thu, 01/03/2013 - 09:23 | Link to Comment AynRandFan
AynRandFan's picture

Disaster has been averted? No, we just got another drug fix.

Thu, 01/03/2013 - 10:35 | Link to Comment asteroids
asteroids's picture

Thanks to the FED and banksters irrational fear of deflation. We now have a zombie financial system and zombie economy. They people in charge are afraid to let things die off. Death is a natural part of life, denying it is evil. The FED with its moral hazard, therefore is evil.

Thu, 01/03/2013 - 11:41 | Link to Comment yogibear
yogibear's picture

Just delayed.

Thu, 01/03/2013 - 09:27 | Link to Comment jcaz
jcaz's picture

Wow- with enough dupes like you, Barry and crew can pull off their cu....

The Russell 2000?  THAT is your measure of success?  Wow.....

Good luck with that teacher's pension you're in-  pay no attention to the fact that most of it has "disappeared",  it's a GO, yeah sure......

Thu, 01/03/2013 - 10:04 | Link to Comment retiringteach
retiringteach's picture

my pension? it is adjusted for inflation and after 44 in nyc my teacher's retiremnent account is s e v e n figures and earns 7%-forever. if it ends in 5-10 years, well i'll likely be dead-but it won't

Thu, 01/03/2013 - 10:13 | Link to Comment fonzannoon
fonzannoon's picture

Your fuckin pension earns nowhere near 7%. My taxes pay your pension. Amazing you teach people and yet still can't understand 1st grade math. But guess what. I am probably moving soon. Along with anyone else with half a brain. Good luck.

I wish my taxes paid into ZH's pension because I learned more here in 2 years than all my years shooting spitballs.

Thu, 01/03/2013 - 12:15 | Link to Comment AGuy
AGuy's picture

"it is adjusted for inflation and after 44 in nyc my teacher's retiremnent account..."

No wonder why the US Public Education system sucks! With teachers like you, students are guarenteed to fail! I leave with a quote that is most approprate for you!

"It is difficult to get a man to understand something , when his salary depends upon his not understanding it!" -Upton Sinclair

Thu, 01/03/2013 - 09:28 | Link to Comment Ookspay
Ookspay's picture

Uh no, nothing was diverted only postponed. The doctor wanted to amputate the little toe, but now it will be necessary to remove the entire leg...

Thu, 01/03/2013 - 09:35 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Could have saved him with a Breathalyzer. Dammit Jim....I'm a Congressman....not a doctor.

Thu, 01/03/2013 - 09:19 | Link to Comment SheepDog-One
SheepDog-One's picture

So basically you can't have your heroin and shoot it too? Anyway, looks like the latest mainline of full-retard dosage is wearing off already.

Thu, 01/03/2013 - 10:04 | Link to Comment jplotinus
jplotinus's picture

"So Obammy done saved ye? Stock markets up, and that's all that matters even if we're all destroyed as long as the media headline says you've been rescued? Meh...I'm not thinking the same way myself."

The point revolves around consistency in expression. Please keep in mind the tone and tenor of ZH commentary on the fiscal cliff in the weeks, days and hours prior to its resolution. A fair summary of that commentary was that disaster was assured and the sky could not be maintained in its place, no way no how. And, it was all Obama's fault, with a little blame left over for the congress and the political faction that one favored least.

Now, the same vitriol has moved on to another iteration of the same issue.

That is not progress. That is merely an example of one being stuck in one's own agenda, whatever it may be.

The level of discussion of matters of public finance depend on putting them in a proper perspective. Sometimes it is necessary to give credit where it is due in order to have some semblance of balance rather than imbalance.

Earth to ZH:

The fiscal cliff was averted.

Deal with it.

Thu, 01/03/2013 - 10:20 | Link to Comment SheepDog-One
SheepDog-One's picture

I'm sorry youre so fuckin stupid its not my problem Neandersheeple.

Thu, 01/03/2013 - 12:41 | Link to Comment Captain Kink
Captain Kink's picture

"Neandersheeple"  --  I love that.  I will definitely use that. 

Thu, 01/03/2013 - 10:22 | Link to Comment centerline
centerline's picture

Not averted.  Just postponned.  60 day extension.  lol.

Each iteration of the "fiscal cliff" gets uglier and uglier.  Heck, it was never called a "cliff" until recently... ever wonder why?  Unless you are a supreme dumbass, you are missing the point.  This is the process of the politicians being turned into scapegoats for the inevitable.  It's all part of the script.  Is about the lack of ability on behalf of government to correct a situation that cannot be corrected without profound pain.

Thu, 01/03/2013 - 09:10 | Link to Comment Benjamin Glutton
Benjamin Glutton's picture

The Fed's asset kiting scheme is nothing more than an effort to make bad money good while shielding criminality and maintaining the status quo for the power elite.

 

Fuck You Milton Friedman and disciples.

Thu, 01/03/2013 - 09:24 | Link to Comment Widowmaker
Widowmaker's picture

Damn right.   Where are the Linda Greene's?

 

Thu, 01/03/2013 - 09:31 | Link to Comment Chupacabra-322
Chupacabra-322's picture

@ Benjamin Glutton,

These people are Criminals and treasonist. They're protecting a global criminal economic bankster enterprise system that controls the world's Governments and politcians. It's a criminal cabal based on shadow CIA/Mossad/MI6 etc.. intelligence, murder, espionage, blackmail, rackertering, bribery, threats, drug trade, human trafficing. It's a Global Criminal Cabal based on Evil Lucerferian belief system.

The rest is just political therater for consumption by the masses.

Thu, 01/03/2013 - 09:14 | Link to Comment JustObserving
JustObserving's picture

When the Fed buys $1 trillion worth of Treasuries and mortgages annually, as it is now doing, it effectively is financing 80% of the deficit for free.

There is no other choice.  The debt is too large to be serviced at normal interest rates.  So it must be artificially managed.  Yet, US debt is rising at $1.5 trillion a year.  And unfunded liabilities are rising at $6.8 trillion a year.  It is the end game of a fiat currency - desperate measures are needed to manage the situation.  

Perception  is reality now.  Bernanke is desperately trying to manage perceptions by boosting stocks and bonds and managing gold and silver.  It is a matter of time before this collapses.

Thu, 01/03/2013 - 09:17 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

"There is no other choice."

Default and reset with new people in charge.

Thu, 01/03/2013 - 09:33 | Link to Comment XitSam
XitSam's picture

I'm thinking it might go: Painc, Controls, Bailouts, Chaos, Starvation, Default, Dictatorship. Gonna need to wait and see.

Thu, 01/03/2013 - 09:25 | Link to Comment TotalCarp
TotalCarp's picture

Largely agree with what you are saying, but getting tired of pronouncements of an "end game" that are way too frequent here. "End game" is more popular on ZH then "green shoots" used to be on CrapNBC

Problem with "End game" is that it can last 6 months or can last 10 years. Noone seems to be able to provide any sensible commentary on what is the gonna be the straw that breaks the camel's back (and why will the policy makers fail to kick the can down the road at that point yet again)

Thu, 01/03/2013 - 09:55 | Link to Comment Ookspay
Ookspay's picture

Make no mistake this is the "end game". The Fedgov and congress knows it, thus the need to pass NDAA, it will be needed when it all comes crashing down. I believe they are simply waiting for an event to blame the collapse upon; Europe implosion, Japanese collapse, Mideast war, could be anything, they're working on it.

Thu, 01/03/2013 - 10:25 | Link to Comment Dr Benway
Dr Benway's picture

You want an exact date for the crash? Most people on ZH don't subscribe to economic models that claim perfect predictive power for such things, unlike the banksters who with infinite arrogance think they know it all, despite abundant evidence to the contrary.

Thu, 01/03/2013 - 10:39 | Link to Comment TotalCarp
TotalCarp's picture

- Ookspay & Dr 

Yes - this all makes sense and i wholeheartedly agree. I think Japan is indeed a perfect example - the flow has in fact turned. i believe its well over a year that the savings institutions have become debt sellers. The debt levels are unsustainable. The demographics are dire - i love the Kyle Bass anecdote about sales of adult diapers exceeding baby diapers (mind you all 3 are worse then in EU or US at the moment at least). Yet its been "afloat" and no reset has occured (yet).

I think we are all in agreement that the situation is unsustainable. However do not underestimate the Ponzi masters' ability and wiligness to keep it going. Also the "flows" argument is interesting in itself as now what we have is debt monetization to infinity. So what flows are we talking about?

Economic models are bollox. But economic decisions of a rational individual (which most here on ZH aspire to be and not to be influenced by media propaganda) will be very different depending of you "event horizon" view - if its 2 yr for Japan 5 years for US - or 5 times that. 

Thu, 01/03/2013 - 10:49 | Link to Comment Dr Benway
Dr Benway's picture

"So what flows are we talking about?"

Flows to spend, i.e on real stuff like adult diapers.

Generally I agree with you though, the crash could take decades or more, with the unfortunate sideeffect that the longer it takes the worse it will be. I read another commenter here, can't remember who, making the point that when you awake and realize the unsustainability of the ponzi, it's easy to think it must fall soon.

Thu, 01/03/2013 - 11:07 | Link to Comment TotalCarp
TotalCarp's picture

To be clear i do like your comments - and no i am not looking for a date of the crash - although if you do find out - pls let me know.

The way it seems to be playing out at the moment is quite interesting - very Japan like in fact - is what we are seeing is a creeping stagflation - where the ~flation part does not indicate some government statistic but the loss of purchasing power in the west. This can take years and slow deterioration of the economic situation (as we have seen in last few years contrary to what MSM will tell ya) all the while stock market can be doing swimmingly well in nominal terms - as you have pointed out above on Zimbabwe and Vene. And sharp deterioration is a very different occurence then the current grind.

I have heard Soros (and i do loath the man) say a clever thing once - if you see a bubble (ponzi) dont go against it but go with it as it may last well longer. Sadly we are all living this scenario.

Thu, 01/03/2013 - 09:12 | Link to Comment SheepDog-One
SheepDog-One's picture

Nevermind all that folks....looks like we've now come full circle back to 'Greece needs a new bailout'! One emergency cycle to the next.

Thu, 01/03/2013 - 09:14 | Link to Comment rsnoble
rsnoble's picture

Now according to the finance pages "the rally has stalled" LMAO. As if the fucking tards are expecting a string of +300 moves for days,weeks and months on end.

This market is fucked and I guarantee there's a big monkeyfuck going on behind closed doors and it all coorelates with gun control, etc.

Thu, 01/03/2013 - 09:15 | Link to Comment economicfreefall
economicfreefall's picture

Interesting read: The Value of Silver

On Money supply, GDP, salaries etc. VS silver. It got me convinced to buy a few extra Silver Eagles!

Thu, 01/03/2013 - 09:15 | Link to Comment TotalCarp
TotalCarp's picture

The fun will continue for a while longer I am affraid to prognosticate. This is starting to look amazingly Madoff-like.. is going to go on and on and on until 1 day...

The biggest problem with a Ponzi is once you start a Ponzi you can never stop. Fed will never be able to cut its balance sheet. Rates can not go up. Western free market (or as close as we ever got to it before) is surely D-E-A-D

 

Thu, 01/03/2013 - 09:25 | Link to Comment SheepDog-One
SheepDog-One's picture

Just as soon as the point of diminishing returns is reached....I think it already has, but they just have cold feet now.

Thu, 01/03/2013 - 09:34 | Link to Comment TotalCarp
TotalCarp's picture

SheepDog - i think the problem of most of us here is that we still have a faint hope that policy makers will at some point do what "is right" rather then what "is easy". QEternity is a perfect example.. its basically certifiably NUTS... after we have proven as you say that the point of diminishing returns have been passed.. they choose to just print a new huge pile of cash. 

As long as they can keep the ponzi going they will keep going. Sadly i dont know enough history to provide good enough analysis but surely all this has played out before. And either a spectacular military defeat or a natural disaster have undone plenty of card house empires.

For anyone who trades tho it makes it awfully difficult to time.

Thu, 01/03/2013 - 09:51 | Link to Comment SheepDog-One
SheepDog-One's picture

Oh I don't think 'policy makers' will EVER do what's 'right' at all, their only job is to churn it all and follow their orders until the next false flag attack which provides cover and entrance into W3 or whatever.

Thu, 01/03/2013 - 09:53 | Link to Comment retiringteach
retiringteach's picture

difficult? - bcause you're like all the other fools who trade based on what they imagine the world to be-trading the stock market means only looking at the stock market-it's easy, not difficult-the trend is up-more and more stocks are resolving 3/6/9 month bases to the upside-it's easy!!

Thu, 01/03/2013 - 10:19 | Link to Comment fonzannoon
fonzannoon's picture

Spoken like a true clueless asshole. In your fantasy land your pension earns 7%. Your health insurance is free because all health insurance is free for everyone right? Guess what, you are complicit to a scam more evil than wall street. You live off of everyone around you, and you got greedy. People around you are hurting because of you. You should wake up everyday and go do chores for real working people and have their bubble bath ready when they get home. I pray everyday for the coming reset so dumb fucks like you can finally see reality that you have managed to avoid.

Thu, 01/03/2013 - 10:23 | Link to Comment SheepDog-One
SheepDog-One's picture

retireingteach probably only fantasizes about all this 'trading'...or more likely just has a pension that he's feeling all warm and fuzzy about....he'll soon be kornholed big time.

Thu, 01/03/2013 - 10:27 | Link to Comment fonzannoon
fonzannoon's picture

He should stop trading and come finish my leaves. I have a few piles in the corner I never got around too. Just a heads up I saw my dog drop a duece in there retiringteach.

Thu, 01/03/2013 - 10:43 | Link to Comment TotalCarp
TotalCarp's picture

Thanks for the insight. now go s*ck Bernanke's cock.. sounds like you'll like the taste.

Sat, 01/05/2013 - 18:35 | Link to Comment spinone
spinone's picture

Right for whom?

Thu, 01/03/2013 - 09:16 | Link to Comment dirtyfiles
dirtyfiles's picture

Hey jplotinus
Less Bad?
Like Fukushima in Japan.The radiation is all over the place and just because you are not allow to mention publicly how bad that place is that doesn't make that place any better.
That seems to be new normal approach to the problems.Let manipulate the social psychology using media etc.instead of fixing the real problems.How is that less bad?

Thu, 01/03/2013 - 09:24 | Link to Comment rsnoble
rsnoble's picture

I think the real problems are spiraling out of control and this approach you mention is just a survival response from the gov't.  They know it's not working but without it we'd already be plunged into chaos.  Just another can kicking avoid the inevitable exercise to buy time so they can figure out how to save their own sorry asses and get all of us under control(or dead).

Thu, 01/03/2013 - 13:38 | Link to Comment jplotinus
jplotinus's picture

"Hey jplotinus
Less Bad?
Like Fukushima in Japan.The radiation is all over the place and just because you are not allow to mention publicly how bad that place is that doesn't make that place any better.
That seems to be new normal approach to the problems.Let manipulate the social psychology using media etc.instead of fixing the real problems.How is that less bad?"

Good query.
This is a situation where a distinction has to be made resulting in comparing apples with same, not with oranges.

The market new a time high in apparent response to the apparent cliff resolution is a political reality in a political context.

That is something in and of itself. That is what I'm suggesting should be acknowledged before we go on carping about the manipulation, the fraud, the lack of real solution and such like.

I think I may have been a bit misunderstood. 39 downs and counting is a bit much. You'd think I was caught saying the US political system is working well, or something. I'm not saying that. I'm saying a set of circumstances that were presented concerning 12/31/12 were satisfactorily dealt with solely in terms of that circumstance.

I'm also saying, temporary fixes to problems that have no solution short of tear down and resulting dire consequences is a proper exercise of responsible leadership.

Kicking the can down the road for 60 days was likely the best that could have been done, short of bringing on collapse, default and reset.

When it is no longer possible to "can kick" we can carp about how best to replace the faulty capitalist system that has brought the USA to this point of catastrophe.

Thu, 01/03/2013 - 09:20 | Link to Comment FishHockers
FishHockers's picture

Mark Zandy say's don't worry be happy. Liesman confirms it.

Thu, 01/03/2013 - 09:22 | Link to Comment youngman
youngman's picture

For Me..... Gross is another in a longer list of business leaders that are gettting it......they have seen behind the curtain so to speak....and they are speaking about it...the truth is coming out as it will...the Fed..Politicians can only hide so much....the train crossing the Canadian border 26 times is just one of the games...on the other hand the last quarter will have huge tax revenues...because of the cliff dance...so watch the political chickens cluck about how great everything is from the revenues....they will spew "look at all the capital gains taxes paid (last quarter) even though we raised capital gains taxes(this quarter)"....they willl lie..oh well....we have become a joke...Goldman gives mooney to Obama...say that want higher taxes..then gives themselves 65 million at the last moments of 2012 to beat the tax increases.....I just love a Liberal

Thu, 01/03/2013 - 10:15 | Link to Comment centerline
centerline's picture

Is interesting to see certain people call it what it is and at the same time are talking thier book.  Not many in that boat.  Got a feeling they will do a little better than most up to the point that no one can do any better (relatively speaking).

Thu, 01/03/2013 - 12:57 | Link to Comment DR
DR's picture

Gross is not a businessman, he is a rentier. Of course he is pissed off that interest is rebated back to the Treasury instead of his pocketbook.

Thu, 01/03/2013 - 09:28 | Link to Comment SheepDog-One
SheepDog-One's picture

Now the 'saves' only have a lifespan of about 1 day.

Thu, 01/03/2013 - 09:41 | Link to Comment Monedas
Monedas's picture

Schiff on the Cliff !    A goose steppin', lock stepped Ponzi Platoon of CBs .... eyes left .... marchin' over the Cliff .... they'll keep pumping their legs untill they splatter on rocks and crashing surf below .... a la lemming mass suicide ! I'm glad I dropped out 20 years ago .... don't feel like I missed a thing !

Thu, 01/03/2013 - 09:39 | Link to Comment SDRII
SDRII's picture

Time to reporst the article on Swiss being armed to teeth...

 

GENEVA (AFP) - A gunman has opened fire in a village in southern Switzerland, killing three people and wounding two others, police said on Thursday.

The man, who had reportedly been drinking heavily before the shooting and was armed with an assault rifle, launched the attack in the village of Daillon late on Wednesday.

As police rushed to the scene to stop the attack, they exchanged fire with the gunman and wounded him, police said.

"Three victims died at the scene. Two other people were wounded and hospitalised," said police in the canton of Valais, which borders Italy and France.

Thu, 01/03/2013 - 09:53 | Link to Comment SheepDog-One
SheepDog-One's picture

Dang Swiss rednecks with all their guns and whatnot why cant they be more like the Europeans??

Thu, 01/03/2013 - 09:53 | Link to Comment Dr. No
Dr. No's picture

Maybe you shouldn't bring me every little piece of trash you happen to pick up.

Thu, 01/03/2013 - 10:32 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Time to reporst the article on Swiss being armed to teeth...

 

Counterpoint.

 

Some guy finds a naked guy in his home trying to kill one of his dogs.....so he kills him.....with a gun. Hallelujah and amen.

Thu, 01/03/2013 - 09:50 | Link to Comment jack stephan
jack stephan's picture

Homer: There's three ways to do things. The right way, the wrong way, and the Max Power way.

Bart: Isn't that just the wrong way?

Homer: Yeah, but faster!

Thu, 01/03/2013 - 09:52 | Link to Comment Debugas
Debugas's picture

zero interest rates are not the cause of lack of investments in tangible productive investment assets

the real cause is lack of payable demand

Thu, 01/03/2013 - 09:53 | Link to Comment diogeneslaertius
diogeneslaertius's picture

boot strapping the majority was Never this easy

 

Thu, 01/03/2013 - 10:16 | Link to Comment casaananda
casaananda's picture

Ir's Hell investment wise. Sure, I have gold and silver, but it's been suppressed and I can hardly imagine when it will be reflective of all the money printing. What's to like. I just am flat out of answers.

Thu, 01/03/2013 - 10:26 | Link to Comment RiverRoad
RiverRoad's picture

Don't worry about jobs returning anytime soon; as long as they keep that loot out of the hands of the Sheeple there's no inflation.  With a nod and a wink the 1% pass the play dough around amongst themselves.  They can play this game forever.

Thu, 01/03/2013 - 10:27 | Link to Comment proLiberty
proLiberty's picture

Given the percent of Treasury paper that is being purchased by the Federal Reserve Corporationo and given the percent of federal spending that is financed by the issue of paper and given the percent of federal spending that is going to fund people who are dependent upon government, what percent of sales and profit of many S & P 500 consumer-products companies are paid for by air-backed money?  And should the Federal Reserve Corporation take the punc bowl away and stop printing new air-backed money, what would the level of sales and profit flla to?  In other words, what percent of P & G's current share price is due to pure air?

 

Thu, 01/03/2013 - 10:28 | Link to Comment Seer
Seer's picture

Bill Gross is just another rich elitist whining in an attempt to squeeze out more "profits."  I have no problem with this, but let's get real here.  Someone this high up and influential cannot spot what's really happening?  This all has "exponential function" stamped on it- time is speeding up; that is, the time-slices between events is shortening up; this is why computers are increasingly becoming the only traders.

You wanted growth, Bill, now live with the consequences.

Thu, 01/03/2013 - 10:32 | Link to Comment Orange Pekoe
Orange Pekoe's picture

How can anyone afford anything when they're paying so much money for money?! Bankers and politicians know this, duh! They are charging everyone up the wazoo.

Thu, 01/03/2013 - 10:42 | Link to Comment Downtoolong
Downtoolong's picture

“We are quite aware,” he said in November 2011, “that very low interest rates, particularly for a protracted period, do have costs for a lot of people...there is a greater good here.....ultimately, if you want to earn money on your investments, you have to invest in an economy which is growing.”

Who they f^&ck is Bernanke to decide this for hundreds of millions of people who still have a few assets that haven't been stolen by Wall Street and the Government. Suppose someone insn't interested in investing or yield, and just wants to save their money and spend it later? This is no longer permissable without penalty in Ben's Wall Street version of a healthy economy.  

Thu, 01/03/2013 - 10:43 | Link to Comment WhiteNight123129
WhiteNight123129's picture

Short Treasuries BITCHEZ!!!

Thu, 01/03/2013 - 10:43 | Link to Comment proLiberty
proLiberty's picture

The creation of money from nothing is theft of the wealth that the holders of that currency have stored in it by dilution.  It is like when the bartender dilutes the liquor.  It is another form of embezzlement. 

Thu, 01/03/2013 - 10:45 | Link to Comment orangedrinkandchips
orangedrinkandchips's picture

I love the "MO'S FAMILY FEEDBAG' episode of The Simpsons......much, much like my kids and everyone really these days....they want it now!!!!

 

MO: I can flash fry a buffalo in 45 seconds!!!

Homer: BUT I WANT IT NOW!

Thu, 01/03/2013 - 10:54 | Link to Comment Downtoolong
Downtoolong's picture

the inflationary dragons lurk in the “out” years towards which long-term bond yields are measured. You should avoid them

Another way of saying the Fed has effectively turned T-Bonds into a risk asset too. Nice job Ben. Remind me again, how many $trillions of them you are buying for all of us to hold?

Thu, 01/03/2013 - 10:58 | Link to Comment khakuda
khakuda's picture

The tough part is knowing when the jig is up.  The late 90s bubble in equities lasted 5 years and when it popped, Greenspan pumped liquidity to mitigate the return to reality.  In the process, he fed a new bubble in real estate and stocks never got absolutely cheap, they stayed pricey and have marked time ever since.

This time is scary.  The Fed is doubling down and using all its powder and then some 4 years AFTER the decline.  They are patting themselves on the back, pushing stocks ever higher and once again ignoring the risks that are building.  The game will probably go on longer than most think, but the decline is invevitable, will be epic and hard to stop.

Thu, 01/03/2013 - 11:12 | Link to Comment jplotinus
jplotinus's picture

" It's all part of the script. Is about the lack of ability on behalf of government to correct a situation that cannot be corrected without profound pain."

Thank you for your call for bringing on profound pain. I do not think your call will find much favor in official circles.

Postponement of pain in circumstances where pain cannot be otherwise alleviated is a viable and proper strategy.

If you are a proponent of a more exacting cure, calling, say, for a balanced budget by eliminating Medicare and ending social security and food stamps and by more corporate and personal tax cuts, please also consider answering the question:

How's that working out for you?

Thu, 01/03/2013 - 12:10 | Link to Comment OhOh
OhOh's picture

We await Gandalf to save us. Could be worse. Watch out for Gollum lurking to steal his precious back.

Fri, 01/04/2013 - 03:59 | Link to Comment Lord Of Finance
Lord Of Finance's picture

The 'bond king' knows what's up, and what will eventually being going up, way up.

                                                                                                                      Interests rates, that is.

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