This page has been archived and commenting is disabled.

When The Fed Has To Print Money Just To Print Money

Tyler Durden's picture


While the topic of net Fed capital flows, and implicit balance sheet risk has recently gotten substantial prominence some three years after Zero Hedge first started discussing it, one open question is what happens when we cross the "D-Rate" boundary, or as we defined it, the point at which the Fed's Net Interest Margin becomes negative i.e., when the outflows due to interest payable to reserve banks (from IOER) surpasses the cash inflows from the Fed's low-yielding asset portfolio, and when the remittances to the Treasury cease (or technically become negative). To get the full answer of what happens then, we once again refer readers to the paper released yesterday by Morgan Stanley's Greenlaw and Deutsche Bank's Hooper, which discusses not only the parabolic chart that US debt yield will certainly follow over the next several decades, but the trickier concept known as the Fed's technical insolvency, or that moment when the Fed's tiny capital buffer goes negative. In short what would happen is that the Fed will be then forced to print money just so it can continue to print money.

From Crunch Time: Fiscal Crises and the Role of Monetary Policy, first the big picture:

Departures from the baseline, such as large-scale purchases continuing past 2013, or a more rapid rise of interest rates (a distinct possibility given the analysis presented in Section 3) would saddle the Fed with losses beginning as early as 2016, and losses that in some cases could substantially exceed the Fed’s capital. Such a scenario would at very least present public relations challenges for the Fed and could very well impact the conduct of monetary policy.

And more to the point, what happens when the Fed's Net Interest Margin goes negative. For the sake of simplicity, in the section below "creating new reserves" means quite simply "printing money" (purists will argue it is low-powered, base money, but realists will respond that since all money is fungible and a dollar is a dollar when buying a share of AMZN, as we have shown previously, it doesn't matter one bit how money printing is defined).

What would a negative remittance from the Treasury to the Fed look like? That is, if the Fed’s net income fell below zero, how would it fund its interest payments on reserves, and its operating expenses? Would it have to draw down its capital or take out a loan from the Treasury, asking the Treasury to issue new debt to do so? No, under the Fed’s new accounting practices adopted in January 2011, when net income available for remittance to Treasury falls below zero, this does not eat into the Fed’s contributions to capital or threaten the Fed’s operating expenses. Rather, the Fed would create new reserves against an item called the Fed’s “deferred asset” account on the asset side of its balance sheet. For example, to pay interest on reserves, it would simply credit the payee bank’s account at the Fed with the interest being paid, thus creating new reserves. The deferred asset account being run up in the process would serve as a claim on future earnings or remittances to the Treasury. The idea is that when the Fed subsequently returns to earning a profit, rather than return that profit to the Treasury, it would use the funds to run down the deferred asset, and the extra reserves having been created in the process would be run down as well.

Ok: so the Fed can't technically go broke - after all it can print money all it wants right, or as the paper says "create new reserves" (just so it can go back to its baseline operation since 2008 which is... creating new reserves)? Well, not really.

The Fed's (low-powered) money is good and accepted by banks only as long as these banks deem it appropriate and profitable to onboard the Fed's liability on their balance sheet. And to do that, the Fed will have to offer ever higher and higher rates on excess reserves. To wit:

In the present environment, when the demand for excess reserves is infinitely elastic, the creation of new reserves would not be a problem. But in the baseline exit scenario we are discussing, short-term assets have a positive yield and the demand for reserves would not be infinitely elastic. To persuade banks to hold a higher volume of excess reserves in such an environment, the Fed would need to increase the interest rate paid on excess reserves, otherwise the new reserve creation could, on the margin, become inflationary. It should be noted that this reserve creation is a second-order effect of the selling of assets by the Fed with the aim of running down excess reserves (and raising longer-term rates) in our baseline scenario. The capital losses incurred in this case would push up the deferred asset account enough to offset only a relatively small part of the intended reduction in reserves. However, even if the Fed were able to create additional reserves with no effects on the interest rate on those reserves, a cessation of  positive interest payments from the Fed to the Treasury for a significant period could bring Fed policy decisions under greater public scrutiny, potentially leading to controversy that could even threaten central bank independence.

In other words, as the MS and DB strategists put it so tongue-in-cheekly, once it becomes public knowledge that the Fed itself is broke in all but one technicality, and the resolution to said technicality is to go fully Weimar retard, the only hope the Fed will have to keep demand for dollars is if it gets caught in a closed loop of hiking rates ever higher just so banks keep onboarding reserves allowing the Fed to preserve the myth it is solvent, in the process pushing its NIM even lower, and needing to create even more "new reserves", rinsing and repeating.

Or, said otherwise, print more money just to be allowed to print more money.

In simple terms: a positive feedback loop which starts once rates begin ratcheting ever higher, and which ends, well, once the dollar loses it reserve status, and the initial goal of the Fed - to inflate away some $40 trillion in global excess debt is attained.

Ok, but this who knows when this happens right?

Well, yes and no. 

As we showed last week, the rate at which NIM goes negative and the above feedback loops begins would be at approximately 4.5% on December 31, 2013. The "breakeven" rate unleashing the inflationary cycle would then decline by about 1% each year assuming the Fed's balance sheet continues rising at a pace of $1 trillion per year.

So the good news for all those who have been wondering just how much longer the Fed can continue doing more of the same while providing a free lunch for all is that we now know there is a temporal bound: the longer the Fed does nothing to change the status quo, the lower its "rate buffer."

Of course, there is a resolution: the Fed simply begins to sell its assets, and in doing so, destroys the reserves created when said assets were onboarded on the Fed's balance sheet. But there lies the rub: because the second the Fed enters open deleveraging mode, everyone will sell everything they can to lock in the profits generated from the past 4+ years of Fed balance sheet expansion. Furthermore, at that moment, the market will begin pricing in the unwind of some or all of the $15 trillion in central bank liquidity which is the only reason the S&P is where it is today. The result would be a market crash so epic it would make the market response to Lehman and AIG's failure seem like a walk in the park by comparison.

Which is where you come in dear retail investor, and the whole myth of the "Great Rotation." Because unless there is someone who will start providing a bid into which the banks can offload their securities in exchange for cold hard cash, as was explained earlier, the entire stock market ramp of the past 4 years will have been for nothing. It is also why day in and day out the media bombards everyone, as it has in the beginning of every year for the past three, that the time to enter the market is now, and there has never been a better time (ignoring that the market is now more expensive on a forward multiple basis than it was at the last market peak in 2007). Of course, one of the amusing tangents here that the media and the Fed hope and pray everyone forgets is that the Fed is monetizing debt not equities: and that to do what the Fed does one should be buying the 30 year, not some Div/0 P/E stock.

Either way, unless the greater fool comes in and is once again willing to become the bag holder of last and only resort for the smart money, then all those firms, such as the abovementioned Morgan Stanley and Deutsche Bank, whose chief strategists penned the paper referenced above, will start getting nervous, and asking themselves: how much time is there before everyone else appreciates the risk of the D-Rate and sells first.

Because while as a ponzi scheme works on the way up as long as there is at least one more marginal buyer, the inverse is far more troubling, and it is here that the old bastardized Prisoner's Dilemma comes into place: "he who sells first, sells best."

And the biggest irony is that soon it will be the very act of the Fed continuing to expand its balance sheet at the current breakneck pace of $85 billion per month (or more), that is what will make banks ever more and more nervous.

Could it be that we are finally approaching the end of the lunch, and suddenly the realization that it was never free hits everyone at the same time?


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 02/23/2013 - 22:00 | 3270708 fiftybagger
fiftybagger's picture

MOAR silver

Sat, 02/23/2013 - 22:15 | 3270738 flacon
flacon's picture

MC Escher depicted the incestuous relationship between the Fed and the Treasury - it's still an optical illusion and a paper trick:

Sat, 02/23/2013 - 22:24 | 3270764 MrX
MrX's picture

No Honour Amongst Thieves:

Sat, 02/23/2013 - 22:35 | 3270801 disabledvet
disabledvet's picture

and here's some music for my comment down below "because i think i'm finally getting a handle on this whole new media gig" that the creators have...truly in amazing fashion...created:

Sat, 02/23/2013 - 23:00 | 3270852 flacon
flacon's picture

Khan Academy educates on

"Prisoners' Dilemma and Nash Equilibrium"


Sun, 02/24/2013 - 00:48 | 3271009 Matt
Matt's picture

Beautiful example of how theory and real life are drastically different. In real life, snitches get killed, so both sides denying is generally what will happen.

Sun, 02/24/2013 - 01:34 | 3271047 markmotive
markmotive's picture

Money, money everywhere but not a drop to drink...

Chris Martenson interviews Eric Sprott (Feb 23):


Sun, 02/24/2013 - 07:23 | 3271209 GetZeeGold
GetZeeGold's picture



We can stop using heroin at any time......we just choose not to right now.


I would point out that is almost always the case.....which is what makes it fairly normal.

Sun, 02/24/2013 - 08:43 | 3271250 kill switch
kill switch's picture

This is what will happen when the sheeple realize whats been going on.

Sun, 02/24/2013 - 10:48 | 3271344 NotApplicable
NotApplicable's picture

War is coming to an unsustainable society near you.

Sun, 02/24/2013 - 12:09 | 3271487 natronic
natronic's picture

Sheeple will not realize what is going on until it's crumbling down around them.

Tue, 02/26/2013 - 15:01 | 3278525 dadichris
dadichris's picture

the sheeple may notice the crumbling down but they will never see or acknowledge the root cause, blaming a scapegoat instead, thus perpetuating the same power structure

Sun, 02/24/2013 - 03:19 | 3271098 Buck Johnson
Buck Johnson's picture

Of course not, the game is about to end and they know it.

Sun, 02/24/2013 - 09:29 | 3271283 Parabolic
Parabolic's picture

If you combine MS and DB, you get MDB--the conglomeration of the farce that is the financial state of today.  As Tyler always says, "he who defects first....defects best...."....i will add: he who defects first....defects best....bitchez!

Sat, 02/23/2013 - 22:25 | 3270767 diogeneslaertius
diogeneslaertius's picture

that incestuous feedback loop is the fraud engine itself


and for those with the power to create and switch-over real value onto the simulation, power and control over the planet and its life


the hologram fraud engine is actually kind of impressive and i almost admire the cold-blooded cunning (not intelligence) behind it - but only because one must know one's enemy and have respect for him.

Sat, 02/23/2013 - 22:25 | 3270773 diogeneslaertius
diogeneslaertius's picture

if everyone got up tomorrow and took one ounce of physical metal off the market it would expose the rigging

Sun, 02/24/2013 - 12:28 | 3271531 Dingleberry
Dingleberry's picture

I love PMs, but looks to me like the Brent vigilante is more real than the gold one.  We now know there was never really a bond vigilante.  That was all a scam. Ben proves it.  

Inflation has got to be north of 5%, judging by the bills I pay and things I recently bought that have risen in price and/or shrunk (again).

But don't tell the Fed.

Sat, 02/23/2013 - 22:05 | 3270718 Ignatius
Ignatius's picture

"the Fed will be then forced to print money just so it can continue to print money"

That's about as good of a definition of hyperinflation as I've heard today.

Sat, 02/23/2013 - 22:13 | 3270745 fonzannoon
fonzannoon's picture

This article was also authored (unless I am wrong) by the same Fred Mishkin that was blasted apart in the previous link. what am i to make of that and why was he not mentioned as an author here?

Sat, 02/23/2013 - 22:19 | 3270755 ekm
ekm's picture

Mishkin is not stupid. Actually he's extremely smart.

The problem is that does NOT want to remain unemployed, if he speaks the truth.

Sat, 02/23/2013 - 22:33 | 3270796 Tyler Durden
Tyler Durden's picture

Neither Mishkin's insight (who was the 4th author out of 4 and thus completely irrelevant), nor that of MS or DB is relevant: as noted what the paper said is what ZH has said for 3 years now.

It is common sense.

What is relevant is that two of the biggest banks: MS and DB, are finally voicing it. These banks never put pen to paper on anything that is counter to the prevalent, nonsensical (such as any thought experiment that sends the Fed's balance sheet to infinity +1, which in the process also destroys MMT and other socialist theories of money which sadly are unable to put the concept of reserve currency into mathematical equation format) and very idiotic groupthink unless they have a very specific purpose to do so.

As for Mishkin, he is a very discredited Columbia professor. His name was merely added as a courtesy.

Sat, 02/23/2013 - 22:46 | 3270819 francis_sawyer
francis_sawyer's picture

Print [the COUPON] til it hurts bitchez!...


The longer it goes ~ the more of granny's tea set you scare out of the cupboard...

Sat, 02/23/2013 - 23:24 | 3270895 ekm
ekm's picture

As long as Mishkin's bank account gets larger and larger, I don't think he really cares about being discredited.

Sun, 02/24/2013 - 00:27 | 3270989 Oh regional Indian
Oh regional Indian's picture



Sun, 02/24/2013 - 06:44 | 3271159 All Risk No Reward
All Risk No Reward's picture

They don't "print money," they issue credit.

There is a big difference.

I get that some versions of QE disassociate the debt from the cash for a period of time, but there is a link.

When the losses on the Fed's books are revealed, the establishment will come to society and demand to be repaid.

The Fed speaks and everyone calls them liars.  The Fed speaks and everyone giggles and repeats "print, print, print."

The trick is - when is the Fed lying, when are they telling the truth and how do you know?

Some lies are obvious, but others not so much.

A debt laden society hopes for hyperinflation on a deep emotional level.  If the Fed is setting up a deflationary spiked pit to asset strip society, they'd lie about it to set up their play.

Why are the corporate banking fronts lending 30 year money at 3% if they plan to hyperinflate?  Isn't that financial sucide?

Is that a contradiction that belies the stated objectives?

The people with trillions in looted cash and trillions in USD debt holding aren't going to hyperinflate their wealth away and bail out debtors.




The end game is likely serious to hyperinflation, but it will happen on a Big Finance Capital time frame and they will be "all in" on hard assets by the time the do it.

Sun, 02/24/2013 - 08:17 | 3271226 Winston Churchill
Winston Churchill's picture

And that is the bonus to them in keeping PMs down by rigging the

paper market.They don't care how much fiat they lose on naked shorts.

Its only fiat,and they realize its transitory.

Sun, 02/24/2013 - 08:23 | 3271234 Bicycle Repairman
Bicycle Repairman's picture

"The end game is likely serious to hyperinflation, but it will happen on a Big Finance Capital time frame and they will be "all in" on hard assets by the time the do it."

What keeps them from being "all in" right now?  How much warning do they need?

Sun, 02/24/2013 - 11:01 | 3271356 Tyler Durden
Tyler Durden's picture

All money is credit.

Most money is formed when banks create loans. When banks don't create loans, such as now when total commercial loans as of the week ended February 13 is $7.247 trillion or lower than when Lehman filed (whether it is a supply or demand issue is irrelevant), and when the shadow banking system's liabilities are contracting at a pace of over $150 billion per quarter, the Fed has no choice but to create money, i.e., reserves, i.e., a liability of the Fed, and the matched "asset" is the monetized debt of the US.

And yes, this is the reason why we warned that "purists" would not comprehend that all money, base money, low-powered money, inside money, whatever you want to call it, is perfectly fungible.

Sun, 02/24/2013 - 11:52 | 3271439 KickIce
KickIce's picture

Not when it's issued without cost. Ben is creating imaginary money and these bankers are buying real assets with os and 1s.  This is the biggest scam of all time as they are buying the world with computer generated money.

Sun, 02/24/2013 - 17:50 | 3272266 francis_sawyer
francis_sawyer's picture

EXACTLY!... [which is WHY the 'print the coupon' game will go on for the duration of the time that everybody has their head in the sand ~ OR, what's liely to come first, OTHER printers challenge them at their same game]...


Things are going to accelerate...

Sun, 02/24/2013 - 18:19 | 3272323 Tango in the Blight
Tango in the Blight's picture

"Gold is money. Everything else is credit."

-- John P. Morgan


Wed, 02/27/2013 - 03:49 | 3280980 All Risk No Reward
All Risk No Reward's picture

Hi TD, coins are legal money but not credit, but that's a clarification that has minimal impact because coinage as a percent of the total is minimal.

I'm sure you know that, but I'm clarifying for others.

The point still stands, though.

Money isn't "printed" - that gives a false mental construct of what is actually occurring  No doubt, the criminal Debt Money Tyrants push this false narrative in order to hide the fact they will eventually turn around and demand all this debt be paid back with interest - and society is not TBTF&Jail.

Please use correct terminology going forward in order to minimize confusion - money is issued as debt with the expectation that it be paid back with interest.

In a debt saturated society, everyone is psychologically lusting after inflation (money supply "printing" inflation that cheapens every dollar, as opposed to a debt based system that creates mutually exclusive claims on the very same underlying asset - claims that will be extinguished en masse at some point), so it is an easy sell.

The Debt Money Tyrants (DMTs) don't want people to fully fathom what deficit spending truly means...  debt slavery for eternity if the DMTs have their way.

Debt Money Tyranny

This is the Machiavellian incarnation of the 4th Reich - and I'm serious as a heart attack.  That is not hyperbole - it is WHO and WHAT the Debt Money Tyrants represent.

"War is all about deception." Sun Tzu, Art of War

Deflation is the zeroing out of the excess claims on the limited underlying assets.  That means that, for example, if there are 100 claims on a single assets, 99 will walk away with nothing and only 1 will actually get to keep that asset.

Once the power structure lifts the needle off the record and the music stops, after they have taken all the seats, of course, then they will likely hyperinflate in order to balance their books.

But by then, society's claims on assets will have been extinguished and we will truly enter what Bush referred to as "The Ownership Society."  Double entendre, bitchezzzzzz - that piece of trash wasn't as stupid as he led you all to believe.

"Pretend to be weak, that he may grow arrogant."  Sun Tzu, Art of War


Tue, 02/26/2013 - 16:38 | 3278998 Pseudolus
Pseudolus's picture

"When the losses on the Fed's books are revealed, the establishment will come to society and demand to be repaid". 

I agree. Theyre not hiding the fact either - it's vintage Krugman: - "It’s true that printing money isn’t at all inflationary under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public."

You think the plebs will swallow the debtload or go all out for OPPT? Of course they'll be lap it up...

Wed, 02/27/2013 - 03:56 | 3280986 All Risk No Reward
All Risk No Reward's picture

I'd say the erection of the police state, the 2 bilion bullets worth of purchase orders, the NDAA American citizen on American soil assassination claim, the full on effort to disarm anyone with a "battle rifle," the creation of Army re-education camps and the "how do you feel about firinig on American citizens" question provides enough insight into what the Debt Money Tyrant Establishment is expecting.

The time to address these issues is the here and now - that's why I cringe when people simply repeat whatever false narrative the system throws their way.

JP Morgan IS NOT loaning 30 year money at 3% ahead of a hyperinflation that will be caused by the very people that own and control JP Morgan.

They know this facade is gonna collapse - they engineered it to collapse.  The collapse is the mechanism by which they snatch all the physical wealth created during the bubble FOR THEMSELVES!

This operation is easy to identify - just run a basic cost / benefit for the dElites and it comes out the same way every time.

Sat, 02/23/2013 - 23:40 | 3270928 holdbuysell
holdbuysell's picture

The table's set. When a real and needed good becomes scarce, even in perception, M2 will flood into it, driving up its price. Next substitute goods will feel the M2 flood as well. And so on.

Hoarding will exacerbate the situation.

The drought of last year may very well have created this checkmate situation, but we just don't know it yet.

Time will tell.

Sun, 02/24/2013 - 00:51 | 3271011 flacon
flacon's picture

Maybe we'll run out of time, a very important commodity. 

Sun, 02/24/2013 - 05:36 | 3271158 aleph0
aleph0's picture


“The bureaucracy is expanding to meet the needs of the expanding bureaucracy.”
-Oscar Wilde-

Sat, 02/23/2013 - 22:04 | 3270719 km4
km4's picture

The key nugget of your post

the second the Fed enters open deleveraging mode, everyone will sell everything they can to lock in the profits generated from the past 4+ years of Fed balance sheet expansion.

Furthermore, at that moment, the market will begin pricing in the unwind of some or all of the $15 trillion in central bank liquidity which is the only reason the S&P is where it is today.

The result would be a market crash so epic it would make the market response to Lehman and AIG's failure seem like a walk in the park by comparison.

Bingo !

Sat, 02/23/2013 - 23:29 | 3270908 buzzsaw99
buzzsaw99's picture

which is why it will never happen. There will be no deleveraging, there will be no bond crash. It is all the same hot air blather I've been reading for the past ten years and will have to endure for another ten. Total bullshit.

Sun, 02/24/2013 - 10:04 | 3271308 kaiserhoff
kaiserhoff's picture

Just so, Buzz.  There is no exit plan.  This will end when they are hauled out feet first.

Love that deferred asset thingy.  No one blows his trust fund in Vegas.  He creates a deferred asset, which will take the charge as soon as he inherits more fucking money.  Yeah, that works.

Sun, 02/24/2013 - 11:13 | 3271377 Deacon Frost
Deacon Frost's picture

As far as I can tell, the Fed can run their ‘Balance sheet’ to infinity and carry it as an ‘asset’ as long as no one calls them on it. Your ‘asset’, that is, the green dollar bills in your pocket, get reflected as a liability on the balance sheet at the Fed.











Sun, 02/24/2013 - 11:59 | 3271458 KickIce
KickIce's picture

Self interest always prevails, The bad news is the world is being run by a bunch of power hungry sobs, but that's also the good news because one of these days one of these sobs will attempt a hard takeover.  Could even be Obama, sob wants to be a dictator so bad it's not funny, I don't think he relinquishs power so easily.

Sat, 02/23/2013 - 23:42 | 3270934 ISEEIT
ISEEIT's picture

Almost as if it was all planned huh? Kinda weird huh?

Almost like one of them conspiracy theories or something...Creepy:)

Sun, 02/24/2013 - 13:06 | 3271619 putaipan
putaipan's picture

like there was some super secret meeting with false names on a secluded island somewhere ....

Sun, 02/24/2013 - 05:57 | 3271174 All Risk No Reward
All Risk No Reward's picture

You haven't figured out that QE looting isn't about saving the economy yet?

They are looting us and the saving the economy is the false narrative.

JP Morgan said a man has two reasons to something - the good reason and the REAL REASON.

They tell you the good reason, NOT THE REAL REASON.

If they collapse the economy, the TBTF&Jail banksters will survive it, by definition.  Their competition will get wiped out and they will buy up society for pennies on the dollar.

Once they suck the nation dry, they will likely hyperinflate at that point.

They aren't giving out 3% loans for 30 year loans because they are going to hyperinflate.  That's a contradiction that is left unaddressed.

Perhaps the biggest contradiction to the "straight to hyperinflation" meme is the trillions in USD cash and the trillions in USD debt holdings controlled by the people who decide the future of monetary policy - and it ain't government.

If you were sitting on those trillions would you hyperinflate?  Or would you get eveyrone long in paper and pull the rug out while your assets are protected?

The Rothschilds pretended to sell in England after they lied about the French beating the British.  Come on, people, these people are liars, liars, liars.

They are setting you up.  They are setting us all up.

Remove the 3% 30 year mortgages and the trillions the dElites have to lose contradictions and then you can lay down an argument based on logic - not the word of liars.

Sun, 02/24/2013 - 08:28 | 3271240 Bicycle Repairman
Bicycle Repairman's picture

"Once they suck the nation dry, they will likely hyperinflate at that point."

So we aren't sucked dry now?  What's left?

Sun, 02/24/2013 - 22:36 | 3272876 Diogenes
Diogenes's picture


"So we aren't sucked dry now?  What's left?"

Granny's retirement. As soon as they talk you into throwing her under the bus, they are done.

Mon, 02/25/2013 - 09:45 | 3273628 Bicycle Repairman
Bicycle Repairman's picture


Sun, 02/24/2013 - 08:32 | 3271243 LawsofPhysics
LawsofPhysics's picture

Almost, but not quite. This is all about power and control of resources. Tell me, what is the price of something you need to survive, but that is not available or that I refuse to sell?

Sat, 02/23/2013 - 22:10 | 3270722 JustObserving
JustObserving's picture

Let's call it what it is:

The Fed has to print money to keep from going bankrupt.

And it could be more than a trillion dollars, should bond yields rise quite a bit.

So then the Fed will be printing for both the Treasury and for itself.  Fraud always results in more fraud.

Probably, the Fed will be printing $2.5 trillion a year in less than 5 years.


Sat, 02/23/2013 - 22:29 | 3270784 tickhound
tickhound's picture

The Fed has to print money to keep from going bankrupt???  "Bankrupt" is just a word... Analogous to "Outerspace." 

The title is beautiful, actually, in its simplicity of the problem.  The Fed has to print money to perpetuate its relevance AS AN INSTITUTION.  Like ANY institution, it will protect itself to the end.

And don't think any significant majority of the public will "call it what it is".. to suggest they would even understand.  We've been dumbing down this nation on such a grand scale in only one man's lifetime.

Assuming ANY truth to Darwin... We reward and incentivise the weakest of our species.  We DISCOURAGE fertility in the best and brightest.  We STRIVE for women to be EQUAL.  So much so we ask our brightest to postpone marriage... Postpone pregnancy, we have artificial shit for that... you can get a loan for it.  She may have one kid, TFG.  It takes TWO to support a household.  Unless you're our weakest.  Then it takes NONE. 

The Fed can potentially play this game FOREVER... Mathmatically speaking anyway.  The FIX has to be REAL.  It must be significant.  It must be different.  It CAN'T be ANYTHING RELATED TO GROWTH in any other way than for our species.

Sensitivity in the human race is a trait to be rewarded and incentivised.. a foundation for nonverbal communication and vital to our advancement as a species.  But its viewed as WEAK in a system that REQUIRES hamsters run in perpetuity without question. 

Last I heard the Death Star was still on the table.  AMAZING the lengths to which humans will travel to justify a ponzi growth model.  Follow the lead antelope over the cliff like good little bitches.

Sat, 02/23/2013 - 23:09 | 3270867 eclectic syncretist
eclectic syncretist's picture

Hey Bernanke, Dimon, Blankfein, and the rest of you little bankster money-changing bitches, get your sorry asses over here and read this shit!  We're gonna fuck you up!  You think your vote should count for something more than mine because you can print FRNs to burn.  Fuck you jackasses!  We're taking our country back you worthless pieces of maggot shit!

Sat, 02/23/2013 - 23:51 | 3270944 holdbuysell
holdbuysell's picture

"you little bankster money-changing bitches"

Recently noted someone at the highest levels of a corporation calling investment bankers, 'spankers'. No joke.

Using a bit of artistic freedom with the two, 'spanksters' fits well.


Sun, 02/24/2013 - 06:17 | 3271182 All Risk No Reward
All Risk No Reward's picture

If you want 1 chance a million, you better start educating your community on...

1.How to think systematically and rationally (web search "trivium education" "trivium binder" "gene odening podcast" - grammar (gather, examine the data), logic (ID and remove contradictions and fallacies), rhetoric)

2. True history (web search "The Ultimate History Lesson John Taylor Gatto", " Tragedy and Hope", " None Dare Call It Conspiracy", "Renaissance 2.0" "Debunking Money Full Length", "Poverty Debt is not a Choice", "Secret of Oz", " Bernays Propaganda", " The Impact of Science on Society"

If you don't want to read the books, search for quotes online and the juicy ones shold come up.

"There are three ways of securing a society that shall be stable as regards population.  The first is that of birth control, the second that of infanticide or really destructive wars, and the third that of general misery except for a powerful minority." (pps. 103-104)
"Sir" Bertrand Russell

"...most civilized and semi-civilized countries known to history and had a large class of slaves or serfs completely subordinate to their owners.  There is nothing in human nature that makes the persistence of such a system impossible.  And the whole development of scientific technique has made it easier than it used to be to maintain a despotic rule of a minority.  When the government controls the distribution of food, its power is absolute so long as they can count on the police and the armed forces.  And their loyalty can be secured by giving them some of the privileges of the governing class.  I do not see how any internal movement of revolt can ever bring freedom to the oppressed in a modern scientific dictatorship." (Page 54)
"Sir" Bertrand Russell

Sun, 02/24/2013 - 19:38 | 3272505 steve from virginia
steve from virginia's picture




Just keep something in mind ... the central bank (ours) is not insolvent. It's the country that is insolvent.


Just keep that in mind at all times.

Sun, 02/24/2013 - 21:19 | 3272707 Liberty2012
Liberty2012's picture

Steve, I disagree. If you consider that the country is the people doing the work that creates value and the Cental Bank is the entity with a government monopoly fraudulent debt money system, then the country will be fine even after the fraud is laid to rest. As long as people trade their work freely, peace and prosperity will prevail, regardless of whatever shenanigans come into play.

Sun, 02/24/2013 - 13:13 | 3271636 jerry_theking_lawler
jerry_theking_lawler's picture

things will unravel when, the Fed institution actually interferes with the Government institution (the actual real people .gov is suppose to represent). This will happen when inflation/hyperinflation ensues and food/fuel inflation is unbearable. For the .gov to save itself, it will try to throw the .fed under the bus. Which one will actually win, who knows?

Sat, 02/23/2013 - 22:08 | 3270725 nmewn
nmewn's picture

A picture, of a picture, of a picture, of a picture (etc) of someone cutting out paper dolls. Where in this layer of pictures, does your reality start & end?

It's always good to know ;-)


Sat, 02/23/2013 - 22:14 | 3270733 Hedgetard55
Hedgetard55's picture

Talk of FED "gains" or "losses" is absurd. They are 100% "nominal", and 0% "real". The real part of any losses applies to the poor fools holding dollars who financed the FED's money printing through currency debasement. You, nmewn, are one of the few here smart enough to understand this.

Sat, 02/23/2013 - 22:28 | 3270780 nmewn
nmewn's picture

We both know its a control mechanism for the elite.

You can never absorb "a loss" while having the ability to counterfeit your way out of any loss by law...with the emotional appeal of "starving women & children" why, its an almost fool proof economic-fiat belief system.

Until the people stop believing it's possible.

It says it right there, backed by the full faith & credit of the it must be so, for them ;-)

Sat, 02/23/2013 - 22:50 | 3270829 tickhound
tickhound's picture

Speaking of "for them."

This company I do business with is no longer issuing paychecks.  Nor does the auto deposit go into your checking account.  All employees now recieve their pay direct deposit to a VISA card.  NO SHIT.

This chick that works there likes it cuz its "so convenient."

On a different note... and more to something we can all appreciate.  I went to the Wizards Nuggests game last night.  "Check-in" was just like the airport.  I got shaken down.  So I said, "the rest of u stay in formation like good little girl scouts."  Had the place ROLLIN'.

Sat, 02/23/2013 - 23:21 | 3270888 nmewn
nmewn's picture

I made the decision to quit putting my earnings into a 401k for the company to match it with cash Jan 2.

The announcement of the company change from a cash match to a stock match came last month.

Prescient & rollin baby ;-)

Sat, 02/23/2013 - 23:56 | 3270950 holdbuysell
holdbuysell's picture

Curious: can they withdraw cash from said card?

Sun, 02/24/2013 - 14:45 | 3271871 tickhound
tickhound's picture

Forget that question and continue the thought experiment further down the line...

Just a short time ago everywhere accepted cash.. it was a BONUS if they accepted credit, then which credit, then debit.

Eventually, as the trend is obvious, the BONUS will be cash acceptance, VISA WILL GO EVERYWHERE "YOU WANT TO BE."

And we're to the point anyway where it doesn't even matter to "these" people.  They don't use cash.  To "them" it would defy orthodoxy.

The same Wiz/Nuggs game... I took the metro in.  I parked my car in the metro.  To exit the metro, I MUST have a SMARTCARD.  The auto-toll does not take cash.  No card, no exit.  I could have a $trillion in stacked $100 bills and it WOULDN'T MATTER.

Now, the MACHINE that spits out the SMARTCARD takes credit/debit and cash... in $1's, $5's, and $10's.

It HATES $20's, $50's and $100's and refuses to accept them as payment. 

Cash is spare change.  Freedom is permitted in small denominations only.

Sun, 02/24/2013 - 16:13 | 3272082 holdbuysell
holdbuysell's picture

That's where I thought this was going. The late Aaron Russo discusses electronic everything using RFID, whereby a simple flip of an electronic bit would cut someone off from being able to perform any transactions. In the hands of sociopaths, that could be very dangerous.

Video here:

America: Freedom to Fascism

Sun, 02/24/2013 - 08:38 | 3271249 Bicycle Repairman
Bicycle Repairman's picture

I never did bars with polo shirted goons.  When the "Check-in" appears, I "Check-out" permanently. 

Sat, 02/23/2013 - 22:21 | 3270759 diogeneslaertius
diogeneslaertius's picture

Ghost in the Machine

Sat, 02/23/2013 - 22:12 | 3270730 ekm
ekm's picture

I think that Obama has already given the order for halting QEs.

Fed members will "debate" it during the march meeting. The one in march 2013 will have a Bernanke press conference.



Sat, 02/23/2013 - 22:13 | 3270742 Hedgetard55
Hedgetard55's picture

So, Barry Choomboy has given the order to crash the stock and bond markets? Interesting thought but hard to believe - unless, of course, it is all part of his plan to take control of the country through a coup/emergency powers.

Sat, 02/23/2013 - 22:16 | 3270750 ekm
ekm's picture

He has simply no choice, just as Bush in 2008. There was no energy going into the real economy. Crude oil went 140.

Crash is mandatory and inevitable. The only thing obama cares about is 'blame'.


Who's to blame? Maybe Berlusconi if he wins, maybe Boehner for the sequester or gov shutdown, but we are very close, extremely close.

Sat, 02/23/2013 - 22:27 | 3270765 fonzannoon
fonzannoon's picture

EKM if the only thing that stopped the S&P from freefalling through 600 four years ago was printing money what will stop the freefall this time when printing money has been acknowledged as part of the problem. Now you end up with america in a massive depression and still owes 17 trillion in debt. 

Sat, 02/23/2013 - 22:29 | 3270782 ekm
ekm's picture

Correct and incorrect at the same time.

QEs caused S&P to rise, but how?

By giving money to primary dealers in exchange for all kinds of bonds, hence primary dealers used that money to buy basically all S&P.

Since S&P 1000, primary dealers have simply sold same batch of stocks to each other IMO and in theory can continue to do that indefinitely. The issue is: No need for a trading market now that S&P is wholy owned by primary dealers (basically indirectly owned by the government since primary dealers are all insolvent and rely on the gov to stay alive)


Hence, S&P will be made to collapse so wall street jobs survive.

Sat, 02/23/2013 - 22:36 | 3270804 fonzannoon
fonzannoon's picture

well two things there. first does the S&P collapse back to 1000 in your scenario? That is rough, but survivable. I imagine the real crash, should qe ever stop, taking the S&P where it was heading in 2008...which was far below 1000. 

Second...there still is a lot of 401k money out there getting added into equities every pay period. A lot of this is PD's flipping, but there is still are some suckers being born every 2 weeks.

Sat, 02/23/2013 - 22:41 | 3270813 ekm
ekm's picture

I'd say it stops at 400 hence flushing out the weakest.


As far as 401k, that is your idea which I have taken extremely seriously.

I don't think there's enough 401k money to hold the bag. Moreover, the gov is trying to seize that money.


Sat, 02/23/2013 - 22:47 | 3270822 akak
akak's picture


I don't think there's enough 401k money to hold the bag. Moreover, the gov is trying to seize that money.

While I have read much casual discussion of this possibility (something which I would not put past the sociopaths who rule over us in the USA), I have to wonder exactly HOW such a scenario would play out, as 401ks are not held as MONEY, but generally as stocks.  So if the federal government wanted to "confiscate" those funds, they would first have to confiscate the stocks held in them .... and then what?  To whom do they sell all those (now plunging) equities?

Sat, 02/23/2013 - 22:56 | 3270836 ekm
ekm's picture

Thx a lot, akak.

Correction: There's not much CASH in 401k to hold the bag.


As to seizing stocks from 401k, extremely good question. I have no answer.

However I do know that the gov owns chrysler and gm, owns boeing and lockheed martin.


Sun, 02/24/2013 - 00:04 | 3270959 holdbuysell
holdbuysell's picture

My sense is that there would be a required percentage of contributions put into US tsys. So, anything currently in stocks would not be affected.

Sun, 02/24/2013 - 00:16 | 3270965 francis_sawyer
francis_sawyer's picture

 "So, Barry Choomboy has given the order to crash the stock and bond markets? Interesting thought but hard to believe"


Barry Buttfuck doesn't have the power to do anything his money printing jew overlords don't tell him to do... You people are wasting your grey matter speculating about scenarios...

Y'all are like people trying to find the safest stairwell exit from a high rise building when a fucking meteor the size of Rhode Island is hurtling towards the planets atmosphere at 70 km/sec...

Sun, 02/24/2013 - 00:32 | 3270992 holdbuysell
holdbuysell's picture

FS - people here get the big picture (meteor) and general direction, but 'the devil is in the details' expression is not in vain. The question is details on 'how' and 'when'. Those details are the tough part, especially in a game where 'close enough' such as in horseshoes and handgrenades may not be good enough.

If you have a crystal ball on the exact how and when, please discuss, as sweating details and inches really does matter.

Pacino says it best:

Sun, 02/24/2013 - 07:44 | 3271212 francis_sawyer
francis_sawyer's picture

There will never be a universal or quantative answer to the dilemma...


It requires individual reflection [and is wholly based on the people you feel responsible for]... It obviously starts with the individual, then scales upwards through family & community... So ~ if you're trying to project the unknown, but also stay functional in the here & now, you're a bit overburdened... The 'piece by piece' approach [which was in the video link], is probably the best...

In the end [in the movie] ~ all those guys ran out of the locker room with their hair on fire... Then what happened?... They got the opening kickoff run back for a TD on them... Pacino says.. "Well ~ I didn't say we were gonna win by a shutout"...

What happens next?... Their aging QB leads a TD drive [but ends up with a concussion]... The owner comes in the locker room at halftime & demands a QB change [which was already implemented]... & what happens?... First play of the 2nd half results in an interception... On the final drive, [which, itself was set up by a 4th down stop which winds up getting their best player wheeled off the field on a Gator cart], the winning TD is called back by a penalty flag, & the play that winds up setting them up for what finally turns out to be the winning score is a playground/schoolyard play called 'Comanche'...

My point is... The game NEVER unfolds the way you plan it... [& that idea applies as well to these 'would-be' overlords... The Masters of the Universe who think that can control the destiny of humanity because they can print money]...

Last time I checked, I wasn't wearing a toga...  

Sun, 02/24/2013 - 12:13 | 3271500 holdbuysell
holdbuysell's picture

Well said...great perspective.

Sat, 02/23/2013 - 22:56 | 3270843 fonzannoon
fonzannoon's picture

excellent link ekm and excellent question akak. i would take it a step further. if they grab the 401(k) and IRA money forget S&P 400. that would not only be the end of the stock market as we know it, but would cause bank runs up the ass. would you keep your NQ brokerage account if your 401k/ira just got skanked? it's cold hard cash and precious metals at that point. It will also be riots in the streets time. Ironically the occupy wall street crowd will be taunting wall street as they sit in at zucchini park. 

Sat, 02/23/2013 - 22:59 | 3270850 ekm
ekm's picture

They already did it in Hungary 2 years ago.

Sat, 02/23/2013 - 23:04 | 3270857 fonzannoon
fonzannoon's picture

i would not put it past them to do it, that is for sure.

Sun, 02/24/2013 - 13:45 | 3271752 nightshiftsucks
nightshiftsucks's picture

Do the Hungarians have as many guns as  US citizens.

Sun, 02/24/2013 - 22:43 | 3272887 Diogenes
Diogenes's picture

What are you going to do, walk into a bank, start waving your guns around, and demand your 401K back? Good luck with that.

Sat, 02/23/2013 - 23:05 | 3270858 ekm
ekm's picture

By the very theoretical definition of inflation, too much money chasing too few goods, S&P is in hyperfinflation since not much left to buy and trade.

Sat, 02/23/2013 - 23:09 | 3270868 fonzannoon
fonzannoon's picture

theoretically, trillions of "cash on the sidelines" that we always hear are sitting in money markets could come into the market. Their orders would be filled right? when you say there is not much left to buy, i kind of look at it more like there are just not many buyers left. 

Sat, 02/23/2013 - 23:14 | 3270872 ekm
ekm's picture

I am actually saying that primary dealers US based and foreign plus major euro banks basically own almost the whole S&P or whatever stocks were left floating.


There are no more stocks floating freely, just primary dealers selling the same stocks to each other giving the appearance of floating.

Sat, 02/23/2013 - 23:27 | 3270903 ekm
ekm's picture

The orders can never be filled since primary dealers are the ones owning the stocks and having the cash on the sidelines simultaneously, hence trading with each other.


The cash on the sidelines is excess cash that can be used for nothing.

Sun, 02/24/2013 - 03:50 | 3271116 verum quod lies
verum quod lies's picture

Like many people with money supply and the Fed, you are over thinking this one. When governments get desperate it is the object of their desperation they care about not typically second or third order effects. So when a Hungary or Argentina or U.S. or whoever requires funds it will certainly look for funds anywhere it can get them; and if monetary policy/money printing is no longer an option then it will be wherever they perceive them to be accessible (e.g., retirement accounts) with little or no consideration for the second order effects (e.g., stock market level). The second order effects can be dealt with after they get their fix and power is remorselessly being consolidated.

Sun, 02/24/2013 - 05:28 | 3271156 kareninca
kareninca's picture

The OWS crowd will be too hungry and scared to be taunting.  Just like most of us.  If they have any sense they will be making their way en masse to anything resembling a functioning farm that they can find.

Sun, 02/24/2013 - 00:20 | 3270980 Pseudo Anonym
Pseudo Anonym's picture


they would first have to confiscate the stocks held in them .... and then what?

and then what?  you ask?  they put loyal party members on boards of directors and run the enterprise into the ground - just like in the soviet union.  and then they seize natural resources, become oligarchs and go shake hands with russian oligarchs (i.e. abramovich, etc.) in uk.

Sun, 02/24/2013 - 08:43 | 3271252 Winston Churchill
Winston Churchill's picture

True value is closer to 150.

Thats my only re entry point.

Sun, 02/24/2013 - 17:10 | 3272181 ekm
ekm's picture

May God fulfill your predictions.

Sat, 02/23/2013 - 23:30 | 3270911 ekm
ekm's picture


Fresh from Zerohedge twitter to make my points

Sat, 02/23/2013 - 22:39 | 3270808 ekm
ekm's picture

The problem with the ongoing QE is that money is going to winning counterparties of losing bets of primary dealers. Bets were and are CDS bets and interest rate swap bets.


That money is buying the real stuff like crude oil and commodities and is leaving not much for the people to consume or even for primary dealers to own something real.


Hence, new money has not much left to buy and own. It is this simple. It makes no sense any longer to print money, since not much left to buy.

I call this 'robinson crusoe money'.

Sat, 02/23/2013 - 22:18 | 3270754 JustObserving
JustObserving's picture

With US debt rising $1.2 to $1.3 trillion a year and unfunded liabilities rising at $6.9 trillion a year, there is no way in hell that the Fed can stop anytime soon. QE is the crack fueling the US economy that has become addicted to virtually free money.

If they stop for a month, GDP will go negative by several points.

But Obama can dream of a America with no QE.  Maybe, he will even dream of a world with no drones. But it will never happen.

Sat, 02/23/2013 - 22:22 | 3270761 ekm
ekm's picture

You are making what I call the 'extremely stupid comparison' (no offense)


You are saying that: QE = Fuel. This is wrong, utterly wrong.

Crude oil is fuel, electricity is fuel, coal is fuel, but not QE.


GDP is for suckers. Nobody really cares about GDP, it is just a propaganda number. Goebels would have been proud of it.

Sat, 02/23/2013 - 22:26 | 3270772 fonzannoon
fonzannoon's picture

it is not fuel it is morphine given to a guy with a bullet wound to buy him another 5 minutes.

Sat, 02/23/2013 - 22:30 | 3270786 ekm
ekm's picture

Again, money is good when it buys something.

Sun, 02/24/2013 - 12:57 | 3271604 spinone
spinone's picture

Its more like giving a guy with a gaping bullet wound and IV without treating the bullet wound.  You can keep pumping saline into him, and it will keep flowing out.  You can keep his blood pressure up for a little while, but its unsustainable.

Sun, 02/24/2013 - 22:48 | 3272893 Diogenes
Diogenes's picture

I prefer to think of it as a drug. They call it "stimulating the economy" just like you can stimulate someone with a shot of drugs. Eventually, he can't function without the drugs. Finally you reach the point where if you cut off the drugs he collapses, if you continue the drugs he dies. That's where the world economy is today.

Sat, 02/23/2013 - 22:30 | 3270781 JustObserving
JustObserving's picture

You are so one-dimensional in your interpretation of the word fuel.  Perhaps, this dictionary meaning will clarify.  But I will not surprised if it doesn't:

Fuel  - Something that maintains or stimulates an activity or emotion:

QE sustains our economy so it is the fuel of our economy.

Sat, 02/23/2013 - 22:34 | 3270788 ekm
ekm's picture

LOL. Correct. I'm using the world fuel only as far as energy is concerned.


Again, new money is good when it buys something. The Fed soon will have a Robinson Crusoe problem.


Roby had a lot of money in the deserted island, problem is, it was not worth anything, it could buy nothing.

He had to learn hunting.


Sun, 02/24/2013 - 00:46 | 3271001 Pseudo Anonym
Pseudo Anonym's picture

pfft, the fed, aka roby, in your example

He had to learn hunting

the fed, aka roby, wont have to learn anything, let alone hunting.  dont forget roby had his sidekick friday at his disposal.   roby, the owner of the fed, has you, his slave friday, already doing the hunting for him.  do you not pay taxes and give the fed, er.. roby,  a large portion of your labour?  you bloody slave?  dont you know you (friday) are hunting for roby already and will continue to do so until you finally get off your ass and kill roby to free yourself?


Sun, 02/24/2013 - 19:40 | 3272504 WmMcK
WmMcK's picture


Sat, 02/23/2013 - 22:24 | 3270766 ekm
ekm's picture

Money is good when it buys something. When there's not much in the market to buy, money is no good for anything.

Sun, 02/24/2013 - 00:41 | 3271000 tango
tango's picture

The beauty of capitalism is turning unneeded wants into wanted needs.   There is ALWAYS something to buy - land, stocks, bonds (on either side), failing businesses, natural resources.  I doubt that we will ever have a "normal" rise in rates without s caveat.  Otherwise the FED would be monetizing the interest on the debt it is monetizing (writing that down makes it seem almost plausible).

Sun, 02/24/2013 - 02:09 | 3271078 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Barry doesn't give orders, he reads a script. You give him much more credit than he deserves.

Sat, 02/23/2013 - 22:13 | 3270735 reader2010
reader2010's picture


Immanuel Wallerstein on the end of Capitalism


Living in the End Times According to Slavoj Zizek


Sat, 02/23/2013 - 22:13 | 3270743 New_Meat
New_Meat's picture

your basic positive feedback loop


- Ned

Sat, 02/23/2013 - 22:21 | 3270757 diogeneslaertius
diogeneslaertius's picture

as long as the pressure from your controllers is greater than the pressure to go rogue


stealth deleveraging will work if accentuated by burning dead wood


also, this helps keep the rest of the conspirators in line

ahhh the perils of living in a decoupled hologram - we will feel the maximum amount of pain possible without going into uncontrollable, genuine revolution (see: all other countries on earth) the slaves can always bleed more

Sat, 02/23/2013 - 22:21 | 3270762 Sutton
Sutton's picture

Remember the solution to the dying Lehman was " good bank, bad bank"
Let's do good bernank, bad bernank and stuff Janet

Sat, 02/23/2013 - 22:25 | 3270774 Silver Garbage Man
Silver Garbage Man's picture

The silver bomb is getting primed.

Sat, 02/23/2013 - 22:31 | 3270790 disabledvet
disabledvet's picture

Here's a question for all the wannabe genius's out there: "QE is to money what the Postal Service is to mail." Now i demand in answer in QUESTION format as per the rules cuz

Sat, 02/23/2013 - 22:32 | 3270792 Kirk2NCC1701
Kirk2NCC1701's picture

Only The Fed can blow up and still suck.

Sat, 02/23/2013 - 22:34 | 3270800 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

..In short what would happen is that the Fed will be then forced to print money just so it can continue to print money...

At that point is that where they take all those MBS they've been twisting off the banks balance sheets and try to use that as collateral against future printing? They'd be good for a couple years and a couple of trillion dollars more in keeping the scam up. Banks shifting those securities to the FED allows the same securities to keep the FED on life support at that time.  Obviously this takes into consideration some serious assumptions here concerning lack of politcial intervention or a mob lynching.

Sat, 02/23/2013 - 22:37 | 3270806 davidsmith
davidsmith's picture

It doesn't seem realistic to believe that "banks" (the criminal conspiracies which go by that name) would ever stop onloading from the Fed.  

Sat, 02/23/2013 - 22:49 | 3270824 nmewn
nmewn's picture

Until you realize the Fed has no real money to give the Treasury for its debt.

If someone is saying the Fed has assets totaling 122 trillion dollars (or even the popular 16 trillion dollar debt notion) to back the currency already issued, digital or otherwise, I'm calling them a liar on this ponzi right now.

Sun, 02/24/2013 - 09:23 | 3271279 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

But they do, they have all those MBS securities which are deeds to land at the end of the day. Forget about the houses or people on said land. Hand over the deeds to the Treasury they basically own everyone's ass who lives on those lands. Serfdom here we come in the name of socialism. Kill the banks and turn the poor into serfs for the state.

Sat, 02/23/2013 - 22:38 | 3270807 besnook
besnook's picture

all they have to do is lie about it. the only reason they announce what they do is because they think they are maintaining or building confidence. who was it that said you have to lie when things get seriously bad? does anyone really know what they are doing, anyway? the ministry of bullshit just has to up their game.

Sat, 02/23/2013 - 22:40 | 3270810 NoDebt
NoDebt's picture

You expect the Fed to adhere to the rules if things turn south?  Not likely.  They have NO fear of printing money just to print money.  None. 

They are there to monetize the federal budget deficit and keep the TBTF banks afloat.  Period. 

The "how" is just a matter of which line they put it on the balance sheet.  In fact, I can see inherent in this a way the Fed could have a huge claim agaist the Treasury (all the bonds they bought) while their NIM account (losses on those bonds) grows to equal that so they just zero it out (poof!  gone!).  How's that twist your noodle?

Where the SHTF is if they ever need to choose between those two masters.  Then it's game-on.  But since the TBTF banks are, for all intents and purposes, branches OF the government now, that is a very unlikely scenario.


Sun, 02/24/2013 - 00:34 | 3270994 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

I remember when the Fed started buying MBS, people were pointing out that the they had gone from backing the money with gold, to backing it with sovereign debt, to backing it with absolutely worthless private debt that everyone knew would never be repaid. 


It was said to be like the Fed buying one of those blue leather couches from the 80s that once-single men are allowed to keep in their basements, for $1 trillion.  The Fed might well have an ""asset" to back the new money but the market would punish them for sure since the difference between the real value and the price paid was obvious Weimar style money printing.


Things didn't seem to blow up on them then, so I don't see logically why the Fed *must* fall on this hurdle either.  Not that it won't happen at some point.

Sat, 02/23/2013 - 22:54 | 3270841 Catullus
Catullus's picture

I'm still not understanding how the Fed can go bankrupt. If it purchases assets, any asset, it needn't mark anything to market. Why can't they buy a Treasury and hold it to maturity? The coupon is paid by the treasury to the Fed and the Fed remits the interest "profit" back to Treasury. Sure the assets could fall in price and the books will not balance, but then the delta is the permanent increase to the money supply. Meaning the amount at which the fed would not be able to recover if they sold their assets back to the banks.

It's only a game that the individual banks have accounts with the Fed. It's not as if the Fed is really going to redeem its fed reserve notes back in exchange for treasuries.

And I think there might be 1,000 people (100 of which frequent ZH) that are going to get this.

Sun, 02/24/2013 - 00:05 | 3270960 tarsubil
tarsubil's picture

"...but then the delta is the permanent increase to the money supply."

Isn't that the point? Isn't the point that the increase will accelerate? The dam will have a leak that will slowly begin to grow and ultimately flood the land with money.

Sun, 02/24/2013 - 06:49 | 3271193 rufusbird
rufusbird's picture

Say they hold roughly 2 trillion dollars worth of MBS's. How much of that will they actually get back? There is a lot of bad paper in there.

Sun, 02/24/2013 - 09:25 | 3271281 Winston Churchill
Winston Churchill's picture

Real NPV is maybe 7.5% of face value on  the crap RMBS they are buying..

The FedRES is already bankrupt,but as long as they can create money,they can

always pay the bills as they fall due.

Bankrupt but solvent.

Sun, 02/24/2013 - 18:14 | 3272314 Clowns on Acid
Clowns on Acid's picture

Easy reply - printed money is ignore this fact. 

Sat, 02/23/2013 - 22:58 | 3270849 besnook
besnook's picture

just to repeat my current meme. this is another reason war is imminent. the game is not working. kicking the can down the road betting upon recovery any second now did not work. ironically, walmart just reminded the bankers of the only solution there ever was in this collapse, the only solution that would save the system and all the participants. the people should have been bailed out, not the banks. forgiving debt and a tax holiday for everyone on their first 100 grand of income would have worked while creating some bullshit accounting mechanism to keep banks technically solvent would have worked.

so, now, the dumbasses will initiate the time honored tradition of starting a massive capacity destruction event as cover for a reset to zero with the preordained result of fucking 310 mil americans.

Sun, 02/24/2013 - 22:52 | 3272901 Diogenes
Diogenes's picture

Imminent? Imminent? You have at least 4 wars going now, you have been at war for more than 10 years, how good do you want it?

Sat, 02/23/2013 - 23:06 | 3270862 Siouxwestern
Siouxwestern's picture

Love ZH but this seems like a big nothing. With an annual deficit of a trillon bucks, coupled with the Fed monetizing by buying tens of billions of $ each month to prop up the market, it seems a stretch to think that the appearance of a new line item of $10 millon or even $1 billion of costs to "fund Fed operations" would be a blip on anyone's radar.

If no Congressman will balk at rasing the debt ceiling or all the other insanities, why will they balk at funding what are categorized as some Fed admin costs?

It is an interesting technical observation, sorta like pointing out that the Titanic was, in retrospect, in technical violation of the lifeboat regulations; but I don't see it as having any predictive value.

But maybe the technical mavens and traders will see it differently.

Sun, 02/24/2013 - 01:15 | 3271031 JustObserving
JustObserving's picture

the appearance of a new line item of $10 millon or even $1 billion of costs to "fund Fed operations" would be a blip on anyone's radar.

The Fed has printed $3.6 trillion and bought Treasuries and Mortgage-Backed Securities.  It is printing $85 billion a month now.  If interest rates go up, the Fed could easily lose $500 billion or even a trillion on its securities.  

So it is not $10 million or $1 billion that we are talking about here.  It is as high as a trillion.

Sun, 02/24/2013 - 01:22 | 3271038 Siouxwestern
Siouxwestern's picture

OK well $500 billion will garner some attention.


Sun, 02/24/2013 - 22:53 | 3272904 Diogenes
Diogenes's picture

I can remember when a trillion dollars was a lot of money.

Sat, 02/23/2013 - 23:08 | 3270864 Atomizer
Atomizer's picture

Not my option, but observation.

Economy : Global Financial Crisis


Sat, 02/23/2013 - 23:21 | 3270865 socalbeach
socalbeach's picture

Pretty sure this isn't right. Breakeven rate would go from 4.5% to 4.04% to 3.8%, and never drop below 3.1% given assumptions in previous article:

"As we showed last week, the rate at which NIM goes negative and the above feedback loops begins would be at approximately 4.5% on December 31, 2013. The "breakeven" rate unleashing the inflationary cycle would then decline by about 1% each year assuming the Fed's balance sheet continues rising at a pace of $1 trillion per year."

Sat, 02/23/2013 - 23:22 | 3270891 yogibear
yogibear's picture

Bernanke, Evans, Dudley and Yellen will all realize they failed when the Fed looses control of the dollar fall and rates shoot to the moon. Until then they will continue their US dollar trashing.

Sat, 02/23/2013 - 23:25 | 3270897 holdbuysell
holdbuysell's picture

For the last time, no. Those in the know are not interested in holding the bag for Wall Street.

If that holds true, en mass, then the process of destroying a horcrux comes to mind as what will happen to Wall Street.

Sun, 02/24/2013 - 19:30 | 3272486 WmMcK
WmMcK's picture

But you can't hide what you don't have (e.g. a soul).

Sat, 02/23/2013 - 23:28 | 3270905 theondoxazo
theondoxazo's picture

Now THAT is a piece of work!  Congratulations on the seminal thots!

Sat, 02/23/2013 - 23:39 | 3270924 tony bonn
tony bonn's picture

can you say assignat, deutche mark, continental, greenback, dollar? i knew you could, bitch. just read gideon gono's lips and you can say worthless fraud with the greatest fluency....

we are on the cusp of the mother of all financial disasters with the dollar leading the way....the great satan - i mean bernanke - is preparing the final act on the dollar's bloviation and immolation....he should be burned at the stake for economic terrorism and fraud......i count him as sinister as adolph hitler and pol pot....

fuck you beranke....


Sat, 02/23/2013 - 23:46 | 3270939 Peconic Bay
Peconic Bay's picture

If the Fed controls the interest rate they pay on reserves, can't they just manage the duration and runoff in their asset base so the the NIM remains positive?  I don't pretend to know a lot about central banking, but it seems like they can control all the variables to prevent this from becoming a problem.

Sun, 02/24/2013 - 00:14 | 3270968 Atomizer
Atomizer's picture

Useless– Brain Dead Bubble Bernanke

Sun, 02/24/2013 - 00:17 | 3270973 Crash Overide
Crash Overide's picture

Yes, $237 BILLION was PRINTED for “recovering” European banks; atop the $85 BILLION the Fed prints each month for “quantitative easing”… Andy Hoffman

It's like watching Jabba The Hutt eat himself.

Sun, 02/24/2013 - 00:19 | 3270978 holdbuysell
holdbuysell's picture

On the topic of money, has anyone taken the pulse of premiums over spot on AG lately? APMEX is at $3 for random year and 2013's. This is roughly 15% over what it typically has been ($2.60 or so). Specific years are at $4.5 or more.

What caught my eye was junk silver with a premium of ~$2.20. In fairly recent times over $1.00 was considered rich. Local markets were at $0.60 over but recently bumped it to $1. Locally, ASE's are unavailable for a couple weeks.

I can imagine this type of increase and lack of supply in rising price markets, but in a declining price market, it just doesn't make sense. Why would premiums continue to elevate?

Something just doesn't feel right.


Sun, 02/24/2013 - 01:20 | 3271035 Siouxwestern
Siouxwestern's picture

In a declining market, retailers are already taking a loss on their inventory held for sale. (Their basis is $30 but market price is $28.50). So the jack up the spread to mitigate that loss.

That would seem to be the Occams Razor answer.

Sun, 02/24/2013 - 10:46 | 3271342 NotApplicable
NotApplicable's picture

You are comparing two different markets, paper and physical.

Do NOT follow this link or you will be banned from the site!