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How The Fed Holds $2 Trillion (And Rising) Of US GDP Hostage

Tyler Durden's picture


When it comes to the real measure of a nation's economic output, one can rely on "flexible", constantly changing definitions of what constitutes the creation of "goods and services" as well as transactions thereof, goalseeked to meet the propaganda of constant growth no matter what (and which it appears will now, arbitrarily, include intangibles such as iTunes), or one can go to the very core of "growth" (just ask the anti-Austerians for whom debt and growth are interchangeable) which is and has always been a reflection of the increase (or decrease) in broad and narrow liquidity or money supply, which in turn means how much money is created through loans, either via commercial banks or the central monetary authority, also known as the Federal Reserve.

This is best shown by the following chart which shows the near unity (on the same axis) between US GDP and total liabilities in the US commercial banking system (traditionally the primary source of loan creation) as reported quarterly by the Fed's Flow of Funds statement (combining statements L.110, L.111 and L.112)

The chart above implies one simple thing: if there is loan creation, and thus injection of liquidity in the system, there is growth. If there is no liquidity injection, there is no growth, at least growth as defined by GDP-tracking economists.

And here we run into the problem.

A quick look at just loan and lease creation in the US commercial bank system reveals something very troubling: at $7.290 trillion as of the week of April 17 (a decline of $12 billion from the week before) there has been exactly zero loan creation in the US commercial bank sector, conventionally the primary locus where money demand translates into new loans as the Fed itself defines it in Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion, since the failure of Lehman brothers. Specifically, in October 200/ total loans and leases outstanding in the US were $7.323 trillion. This means that loans, historically the biggest asset on bank balance sheets by far and whose matched liability is deposits, have been responsible for negative $30 billion in GDP growth in the past five years (source).

And yet, as the first chart above shows, total US bank liabilities have grown by $1.6 trillion since the failure of Lehman (from $13.6 trilion at December 2008 to $15.3 trillion as of the end of 2012) which means bank assets have also grown by a comparable amount, resulting in a matched GDP growth of roughly $2 trillion. How is this possible if commercial bank loan creation has been dormant at best, and in reality - negative, and no incremental matched liabilities could have possibly been created?

Simple: Presenting "Exhibit A" - the Federal Reserve, which has created $1.8 trillion in incremental reserves since the failure of Lehman, bringing its total balance sheet to $3.3 trillion.

The chart above shows that far more than merely goosing the market to record levels based on nothing but hot potato chasing by Primary Dealers loaded to the gills with record liquidity, and momentum-escalating High Frequency Trading algorithms, the Fed's "out of thin air" created excess reserves (a liability for the Fed) have come home to roost on the balance sheets of banks in the US (including foreign banks operating in the US) as positive carry (at the IOER rate) assets.

It also means that the Fed's excess liquidity, at least from an accounting identity standpoint, has manifested itself purely in the form of consumer and corporate deposits held at US banks ($9.351 trillion as of April 17), which as the chart below shows, used to track loans on a one to one basis, until QE started, and have since then surpassed total loans by just about the amount that the Fed has injected into the system.

Of course, the sad reality of what happens to the economy when the Fed pushes not only reserves into banks, but forces "deposits" into the hands of consumers and corporations, is precisely the one we have witnessed for the past four years: no real growth apart from the propaganda, with occasional spurts of growth driven by confusing the surge in the stock market (which is more than happy to absorb the record liquidity and where JPM and other banks use the excess deposits over loans to buy stocks and other risk assets) with a push higher in the economy. In the meantime, the middle class evisceration continues, the real unemployment is 11.6% or unchanged since 2009, US households on foodstamps are at a new record high every month, core CapEx spending is imploding to a pace not seen since 2008,  corporate earnings and revenues are stagnant at best, while companies continue to get stigmatized for daring to keep excess cash on their books instead of investing it (that the rate of return on such "investments" would be negative according to the corporate executives themselves is apparently entirely lost on the propaganda media and political talking point pundits).

But at least the S&P is at record highs, and corporate and sovereign yields are at record lows.

Sadly, since there never is a free lunch, what the above data tells us is that due to the persistent refusal of banks to take over from the Fed as lender (and money creator) of main resort over four years into the "recovery", that $2 trillion of the $16 trillion in US GDP is now held hostage by the Fed. In other words, if it wasn't for the Fed's "narrow liquidity", "low power money", whatever one wants to call it, creation, US GDP would be 12% lower, or at June 2007 levels. It also means that virtually every incremental dollar of US GDP "growth" comes solely courtesy of Ben Bernanke's narrow money spigot.

And since the US has to "grow", since US GDP has to be spoonfed to the masses as increasing at a ~1.5% annualized rate every quarter, and since US banks continue to not lend (and in fact their eagerness to not lend is further cemented by the far easier returns they can generate courtesy of the Fed in chasing stocks, and not take on NPL risk in exchange for meager 4-5% annual returns, which means a feedback loop is created where more QE means less bank lending means more QE means less bank lending), can all trivial and absolutely meaningless discussion over whether the Fed will halt QE (now or ever) finally end? It absolutely never will, until everything one day comes crashing down.


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Sun, 04/28/2013 - 12:22 | 3507547 buzzsaw99
buzzsaw99's picture

If the big banks would go back to making shoddy loans everything would be just peachy. [/sarc.]

Sun, 04/28/2013 - 12:35 | 3507563 McMolotov
McMolotov's picture

Exactly! Where's the next bubble that will "save" our asses? Seems like everything's going directly into the market, which helps almost no one but the people at the top, and they'll get out before it goes pop. It makes for good headlines and that's it. That retard who said the other day that Krugman had "won the argument" looks like a complete jackass in light of the facts presented above.

Tyler has pooped the debt=growth party with this article. Ending QE translates to pulling the plug at this point. That means the patient effectively dies, but I'm ok with that because the patient isn't worth saving.

Sun, 04/28/2013 - 13:04 | 3507623 Ham-bone
Ham-bone's picture

but I thought we were having a discussion of how the Fed exits QE and normalizes its balance sheet?  Not self sustaining recovery?  No escape velocity?  Green shoots, no?  Animal spirits, dis-spirited?  Housing recovery, manufacturing rebirth, energy game changer???  We're not winning?

Sun, 04/28/2013 - 14:59 | 3507922 Jack Napier
Jack Napier's picture

There is no next bubble when the current bubble is the currency itself. It's different next time, but of course never this time.

Sun, 04/28/2013 - 17:03 | 3508155 LetThemEatRand
LetThemEatRand's picture

It is important to remember that Ben and virtually everyone who has a chance of taking over when he leaves the Fed believe that WWII was the ultimate cure of the depression.  When your model depends on endless growth, it is necessary to prune the tree from time to time.  This is how they think, and most of the people who run the show could give a rat's ass if a few hundred million people have to die to reset the system that is at the root of their power and wealth.

Mon, 04/29/2013 - 05:42 | 3509279 world_debt_slave
world_debt_slave's picture

aka cannon fodder

Sun, 04/28/2013 - 14:59 | 3507924 ratso
ratso's picture

All of this is not exactly correct.  Much of the Fed's money is going to shore up the losses in the shadow banking sector that are still being unwound and will continue to be unwound for years.  The seemingly excess funds keep the bank sector functioning during a time when it would be contracting if the funds were not there.  The Fed is essentially preventing a financial contraction and deflation while the economy is correcting.

Sun, 04/28/2013 - 15:44 | 3508005 TreeTrunk
TreeTrunk's picture

Ratso--that is the best explanation for the current condition of the world economic system ever articulated.
It is remarkable that TPTB have been able to hold the system together as long as it has.
Many of us expect a violent reset aka the Fourth Turning. Others hope for a controlled and civilized unwinding and a sensible reset.

Sun, 04/28/2013 - 16:12 | 3508046 francis_sawyer
francis_sawyer's picture



No it isn't... It's the fucking stupidest, weasly, excuse for THIEVERY ever articulated...

Here is the CORRECT statement [from above]

"There is no next bubble when the current bubble is the currency itself."

Which, when the Jeckyl Island crew got together, probably KNEW was the eventual destination... I doubt that even THEY could have ever imagined the ponzi could go on for this long...

But now it's over... & they know it's over... So right now they're just printing themselves joobux for free & skimming physical goods off the top while the public stays distracted with bread & circuses, & junking francis_sawyer comments [because he said joobux], whilst keeping the system alive for extra nanoseconds because they're Y-chromosomes make them so fucking greedy that they can't resist the temptation to even leave a zinc penny to get flattened in peace on the pavement by the oncoming steamroller...

Sun, 04/28/2013 - 16:36 | 3508108 TreeTrunk
TreeTrunk's picture

Well sure Francis. Except for that, it is the best description articulated.

Your explanation sounds much more rational.

Thanks for the sound effects DV.

Sun, 04/28/2013 - 16:53 | 3508132 disabledvet
disabledvet's picture

your welcome. here's the musical variant: for all us mathematically challenged folks.

Sun, 04/28/2013 - 17:03 | 3508139 francis_sawyer
francis_sawyer's picture

Let's dissect it, shall we?


"Much of the Fed's money is going to shore up the losses in the shadow banking sector that are still being unwound and will continue to be unwound for years.  The seemingly excess funds keep the bank sector functioning during a time when it would be contracting if the funds were not there.  The Fed is essentially preventing a financial contraction and deflation while the economy is correcting."

I actually agree 100%... technically... with the comment... That's EXACTLY what's happening [so on that plane of existence, you're correct]... But it conveniently steers itself around the reason as to WHY it is being done [& who benefits from that ~ which is another way of saying "Who is responsible for orchestrating & profiting from all this bullshit"]... If you don't have the balls to ask that question, you're a BLUE PILLer...

In the end ~ It's just one of those 'half truths' designed to provide controlled opposition [for the lazy]... READY TO BE BROADCAST TO THE SHEEP ON THE EVENING NEWS... Together with:

- "Stocks are OFF THEIR LOWS" [cue applause]

- The 'Terrorist bombing suspect' is showing no signs of remorse

- A scary 5th grader brought a Swiss Army Knife [A SWISS ARMY KNIFE I TELL YOU] on a camping trip and was rightfully suspended

- Bad Palestinians threw rocks [ROCKS I TELLK YA] over a wall in the Gaza strip

- Barry & Moochelle had a cozy 'date night' at a local bistro at a Boston Beanery [owned & operated by a fallen soldier]...


While avoiding the summary of:

- Obama sent a drone strike which killed 100 women & children at a wedding, but the suspected leader of a terrorist cell was taken out [yay team ~ pray for our HEROES]...

Sun, 04/28/2013 - 23:44 | 3509023 NoDebt
NoDebt's picture

"- Bad Palestinians threw rocks [ROCKS I TELLK YA] over a wall in the Gaza strip"

We'll all be reduced to that soon. 

Or so goes the big threat.

Bitch all you want, but nobody is calling the banking sector's threat on this one.  If we let them sink we'll be living in caves and beating eachother over the head with rocks.  No matter the consequences of current policies they have to be better than THAT, right?

Everyone who matters has bought in on this premise.  They don't even care if you figure out what they're up to.  They will continue to do it anyway.  This will not end until it runs to it's natural conclusion.  Nobody on the "inside" is going to change it by stepping up and calling a spade a spade.  The emperor DOES have clothes on, you're just not imagining hard enough.


Mon, 04/29/2013 - 05:09 | 3509257 disabledvet
disabledvet's picture


Sun, 04/28/2013 - 17:20 | 3508194 MiltonFriedmans...
MiltonFriedmansNightmare's picture

FS, you,re one pretty fucking smart dude.

Sun, 04/28/2013 - 20:20 | 3508569 Tyler Durden
Tyler Durden's picture

Actually, while largely accurate (and the unwind of Shadow Banking has been a theme we have covered for years), your statement is not exactly correct. As the chart below shows, absent subsequent revisions in the Z.1., total shadow liabilities in the US grew for the first time in years in Q4, even if by a de minimus amount.

Sun, 04/28/2013 - 22:06 | 3508811 ratso
ratso's picture

Perhaps the 85 Billion/month is not enough.

Sun, 04/28/2013 - 22:24 | 3508841 Charles Nelson ...
Charles Nelson Reilly's picture

It's not and they will have to print moar, even if that means the Fed hawks wake up with a horses head in their silk sheeted beds.

Mon, 04/29/2013 - 05:16 | 3509261 disabledvet
disabledvet's picture

This article is like reading (yet again) the purile fantasy of a twelve year old. It is so far gone the it's really hard not to want to swing your arm around the young man and say "young man, let me tell ya something." GROW UP will ya????! There is no "special key that unlocks the secrets of the of the universe" okay? Sure...studying them is fine...but you really do have to "get in the game" to understand how everything is functioning and the world (I agree COULD have...probably SHOULD have) did not end. This incessant screaming of "your in big trouble Mister" would be sad if it weren't so hilarious. In any case...onto greener pastures America! We are invincible!

Sun, 04/28/2013 - 17:01 | 3508146 Saint Pitbull
Saint Pitbull's picture

For all of you funsters out there that like economics, start reading the Hoisington Quarterly Reports (These guys run the Wasatch-Hopisington US Treasury Fund).  Yeah, they talk their book, but there's also tons of good stuff in their reports.  The 1st Qtr 2013 says the Fed can control Money Velocity no better than it can control anything else at this point.  I know, big surprise.  Also, in this "race to the bottom" and a delationary time period, they are telling their clients to get into "non risk" assets (if there is such a thing anymore).  Specifically long-term US Treasuries.  I think that they are slightly amiss.  There is some deflation, but there is plenty of inflation in the items that we NEED (i.e., food).  You might also like listening to John Hussman in his recent talk .

Sun, 04/28/2013 - 13:08 | 3507632 TeamDepends
TeamDepends's picture

Not sure if it qualifies as a "bubble" but you can bet your sweet behind that the Obama Financial Goon Squad will be coming after your 401k real soon.  And the Krugmanites will be squealing:  It's for the children/common good!  The end-game of the Rothschild ponzi is upon us:  Lend them paper and yet more paper 'til they can't see straight then demand/confiscate/foreclose gold!  When the time comes, give 'em both barrels boys!!!

Sun, 04/28/2013 - 17:06 | 3508160 disabledvet
disabledvet's picture

the "Plan" is not coming from the Government but from Wall Street and it IS (as in the Plan has been effected...not some future thing) to create the biggest inequality this country has ever known. "this will pay for everything" (while paying handsomely for those that have effected said atrocity.) the more we fight against it the more we are drawn in. still...there are surprises "on the Road to Valhalla" (or is it Perdition?) those interest rates plunging was never part of the plan for example...

Sun, 04/28/2013 - 13:17 | 3507663 Go Tribe
Go Tribe's picture

But they tell us buying silver and gold at these levels is insane.

Mon, 04/29/2013 - 06:24 | 3509303 resurger
resurger's picture

but, i thought they will trickle down some of that wealth before it pops...nvm maybe am wrong





Sun, 04/28/2013 - 12:35 | 3507566 mikla
mikla's picture

The funniest part is how bad this is, even using fraudulent data:

(a) GDP double-counts and mis-counts "production", no, it's not even close to correct

(b) Bank liabilities are "hidden" through off-balance sheet transactions, failure to mark-to-market, fraudulent accounting, and no loan-loss-reserves

Even with go-to-jail fraudulent data, it's a disaster.

Sun, 04/28/2013 - 12:37 | 3507572 spankthebernank
spankthebernank's picture


Sun, 04/28/2013 - 12:51 | 3507596 Abraxas
Abraxas's picture


Sun, 04/28/2013 - 14:33 | 3507858 master of the u...
master of the universe's picture

BUT IT'S A 'FREE' MARKET... no, really, it is...

Sun, 04/28/2013 - 13:22 | 3507670 Go Tribe
Go Tribe's picture

Or at least make FRNs convertible to gold and vice versa.

Sun, 04/28/2013 - 15:03 | 3507936 jekyll island
jekyll island's picture

They are convertible. Just take them to your local coin dealer, he will show you how to do it. It's easy, I did it last week online.

Sun, 04/28/2013 - 16:47 | 3508127 auric1234
auric1234's picture

Yup. They even offer you a huge discount. I hear the Fed is sponsoring all gold purchases by artificially lowering their price and forcing miners to sell on the cheap.

Clearly, we shouldn't hate them so much.


Sun, 04/28/2013 - 12:39 | 3507576 McMolotov
McMolotov's picture

In other words, we've been Weekend at Bernie-ing for years without most people knowing it.

Sun, 04/28/2013 - 15:13 | 3507953 pods
pods's picture

I like to think of it as the New and Improved Depression (hedonically of course).


Edit: Long Febreeze

Sun, 04/28/2013 - 13:52 | 3507763 ejmoosa
ejmoosa's picture

The GDP is simply not the important measure of the US economy.  Double GDP without doubling profits and you have nothing.

BTW, year over year, profit after taxes turned negative for the fourth quarter of 2012.  Do we hear that anywhere?  No.

Just the constant harping over GDP.

THe USSR had GDP without profits as well.  Didn't work out so well.



Sun, 04/28/2013 - 15:41 | 3508001 nofluer
nofluer's picture

One of the biggest frauds around is that government spending and Fed money creation count as part of the GDP. Since the government creates nothing, makes nothing, how can it contribute to GDP? To arrive at true GDP, you must subtract all government and FED activity from the "given" number.

Sun, 04/28/2013 - 14:27 | 3507834 markettime
markettime's picture

I am calling it right here and now. The largest financial scandal in history will be the Fed has printed more money since 1913 than we ever thought possible.  And there is a lot less gold and silver than we have been led to believe because someone has stolen a big chunk of it and has taken it out of the system decades ago. Where is my tinfoil hat? 

Sun, 04/28/2013 - 15:33 | 3507982 tango
tango's picture

You have it on unless you can present more "facts" than mere opinion.  The FED has screwed up royally (by becoming a completely political tool for central planning) but we need hard facts on the disappearance of gold and silver.,,and not a You Tube video with scary music.  Where's the proof that "someone" has stolen it.  Most likely, all gold and silver that ever existed still exists but it is so mired up in the slosh of trading and redistributing debt (the main economic global activity) that it can't be identified.

Perhaps it's like a quantum indeterminacy  - you can measure either the momentum or the position but not both.  We may can calculate the location of gold yet not know how long it has been there or if it will be there in the next second. 

Sun, 04/28/2013 - 15:45 | 3508006 nofluer
nofluer's picture

Where did the gold go? The little green men were seen loading gold into their flying saqucers... that's where it went.

Sun, 04/28/2013 - 16:47 | 3508124 auric1234
auric1234's picture

Sounds an improved version of Krugman's wet dreams. Alien invasion and gold confiscation at the same time!


Sun, 04/28/2013 - 16:50 | 3508128 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Tango = tool

Sun, 04/28/2013 - 22:55 | 3508899 nmewn
nmewn's picture

mikla is 100% correct.

(a) GDP double-counts and mis-counts "production", no, it's not even close to correct

(b) Bank liabilities are "hidden" through off-balance sheet transactions, failure to mark-to-market, fraudulent accounting, and no loan-loss-reserve

Sun, 04/28/2013 - 12:39 | 3507577 Kayman
Kayman's picture

When McDonalds and Caterpillar had to run to the Fed to make their payrolls in 2008, why would any sane company not keep a stack of "cash" on hand.

And for small/medium sized companies that got a slap upside the head while the crooked, slimey bankers that were the central cause of the 2008 collapse were rescued with taxpayers money, why borrow when you know the entire system is Ponzi cubed ?


Sun, 04/28/2013 - 15:38 | 3507994 tango
tango's picture

Because modern economics is based on efficiency and the most efficient way of meeting payrolls and expenses is not through selling shares, etc but via credit flows.  What few realize is that in 2008 we were days from a catastrophe since the stores would be empty because deliveries were not made because fuel or salaries were unpaid because credit froze.  It's not Ponzi - it's the way things work and it works well except in times of crisis.  Note that corporate cash means nothing if oil and gas are not available to buy. 

Sun, 04/28/2013 - 16:51 | 3508131 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Perhaps I was wrong, perhaps Tango = Krugman, fucking annoying.

Sun, 04/28/2013 - 17:26 | 3508220 Being Free
Being Free's picture

What few realize is that in 2008 we were days from a catastrophe since the stores would be empty because deliveries were not made because fuel or salaries were unpaid because credit froze.

Did you read the article?  There is no fucking "credit" to the real economy it's been frozen for years...days from catastrophe, indeed, brought to you by TPTB.


Sun, 04/28/2013 - 18:48 | 3508390 Kayman
Kayman's picture


Huh ?  What ?  Payrolls are paid by cash or credit. Try running a business. When payday comes, selling shares would never be an option.

And most people realized what a catastophe we were in. Just most people did not expect the cure to be saving the disease.

"corporate cash means nothing if oil and gas are not available to buy"- Huh ?  I didn't know oil and gas production collapsed when Lehman went broke . How about that.


Mon, 04/29/2013 - 01:19 | 3509140 adr
adr's picture

My business makes payroll from the money that comes in from invoices paid. Not from a bank credit account. We don't have shares for sale. If we don't do enough business to cover payroll, well that's that. We also don't buy production on credit.

That is called running a business. It is also called how to stay in business.

Our problem is publicly traded business runs on credit. That bankrupt corporations can be extended nearly unlimited credit because some rating agency claims they are solvent, and some analyst claims worthless sheets of paper are worth a few billion dollars. In reality, there is no cash for payroll, but why do you need cash and real sales when people are more than happy to trade stock certificates and hand you real money.

The collapse of Lehman and the credit freeze didn't threaten real commerce, it threatened the stock market that can only exist on the continuous expansion of bullshit.

Mon, 04/29/2013 - 21:49 | 3512196 TheProphet
TheProphet's picture

Two things to try to explain why you're wrong:

-One, cash on delivery is impraticable at the grand scale it would be required to keep shelves full and gas stations pumping. The entire society operates on net 30 payment terms, and would not operate even remotely as efficiently without it.

-Two, in 2008, a credit freeze was absolutely imminent, and if it had occurred, all counter-parties would have simply held the cash they had, INCLUDING THE BANKS WHERE PEOPLE AND BUSINESSES KEEP THEIR MONEY.

The problem is, once you make a deposit, you're just another counterparty for that insolvent bank, insured by an FDIC that would pay you your dollar equivalent in dollars of rapidly falling value. And the speed at which the Fed can repay you that money (that you will no doubt want to withdrawal immediately) is limited to the speed at which they can print it.

The FT wrote just a few weeks ago that despite the printing presses at the Ft Worth, TX Fed printery running 24x7 for the last five years, the number of $100 bills in circulation has increased by only 42%.

It is clear that the Fed has engineered this precise outcome outlined in paragraph 2, only the Fed did so over a handful of years, and avoided the pesky shut downs, complete loss in confidence in institutions, and the civil insurrection.

And the political class has certainly protected their friends on Wall Street. No fucking doubt about that whatsoever.

Mon, 04/29/2013 - 04:13 | 3509239 Acet
Acet's picture

Doing business relying on credit to pay for predictable recurring expenses is horrible business management:

- When you use credit you are in effect sharing your profits with the bank (since you have to pay interest). The only business case that can be made to share one's profits with the banks is if there is a business opportunity that can be only be picked-up using credit and the added profits of that (versus normal operations) are such that they outweigh the interest costs.

For expenses such as payroll, the only time a business case can be made for paying interest costs on top of payroll costs is if new people have to be taken in for a new business opportunity. There is NEVER a business case to be made to pay interest costs on top of the regular, predictable payroll costs since it's always cheaper to plan for it in advance.

Any businessman who owns their own company knows this. Overpaid (CxO) administrator types who never have a cent of their money on the line either don't know or don't care.


Sun, 04/28/2013 - 12:47 | 3507586 Fuku Ben
Fuku Ben's picture

Sadly they already have eased lending requirements. But it is making no difference in the overall picture except to continue the illusion that everything is ok in the land of OZ.

Economy Forward! Right off the faux fiscal cliff. Brought to you by financial traitors and terrorists both foreign and domestic from both sides of the aisle. Which reminds me I need to finalize that second passport.

Sun, 04/28/2013 - 15:02 | 3507935 disabledvet
disabledvet's picture

does GDP include all those CLO's, CDO's, CDO's squared etc that are now back En Vogue? sounds to me like lending has never more profligate actually..."just not available to you an me." oh look! a baby T-Rex has just hatched in the back forty and it's leaving it's nest!

Sun, 04/28/2013 - 13:10 | 3507638 Miffed Microbio...
Miffed Microbiologist's picture

Actually, this may be a dumb question, why don't the banks go back making the shoddy loans? If they are backstopped by the Fed what does it matter? Or are some big banks more equal than others?


Sun, 04/28/2013 - 13:19 | 3507652 buzzsaw99
buzzsaw99's picture

Actually they do make shoddy student loans and loans to the gubbermint. They make shoddy mortgages and keep the origination fees while pawning off the trash on fannie mae. Anything with zero risk to them that ensures a welfare state bankster bonus like clockwork.

Sun, 04/28/2013 - 13:40 | 3507723 Miffed Microbio...
Miffed Microbiologist's picture

Thank you, you are correct. I guess my ignorance is based in the fact I don't participate in that fraud so it's hard for me to see and experience. I forget many people do. Part of me is so torn by this. If there is a jubilee and all those so heavily indebted are released from said loans then the joke is on me for not participating. However, if the banks remain in control and continue their stranglehold on people caught in their web, I have a better chance of survival by not participating. Doesn't seem to be a middle ground.


Sun, 04/28/2013 - 15:13 | 3507956 pods
pods's picture

But Miffed, one way lets you sleep comfortable at night.

Don't underestimate the value of that.


Sun, 04/28/2013 - 16:59 | 3508141 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Miffed, the odds favor Stalog 13 over a Jubilee by several orders of magnitude. Keep stacking.

Sun, 04/28/2013 - 17:48 | 3508261 Miffed Microbio...
Miffed Microbiologist's picture

Well, if history is a teacher, the descent into poverty, transfer of power and wealth to the elite, loss of liberties, and atrocities against those who oppose the State seem to be the usual outcome. For the life of me I can't seem to come up with a time when there was a different result. Even when you consider the French Revolution which,in the beginning, seemed to punish those who were truly at fault. However, it quickly went to the slaughter of innocents and the renewed grab for power. Must it always be so? Sometimes I get a bit jealous of those who can numb out using TV, drugs, alcohol, junk food,sports. Not having to stare at a slow moving tsunami barreling down on them must be quite blissful ignorance.


Sun, 04/28/2013 - 15:48 | 3508012 Everybodys All ...
Everybodys All American's picture

Most if not all of those shoddy loans are still on their balance sheets. Underwater and if they can unrecognized by the financial regulators.

Sun, 04/28/2013 - 13:18 | 3507666 Go Tribe
Go Tribe's picture

Auto, education, mortgage loans now being given away and hypothecated. Next stop Willoughby!

Sun, 04/28/2013 - 13:57 | 3507774 venturen
venturen's picture

It would be better than what is occuring. Now they lose on nothing....everything is protected by the taxpayer and their children! They just keep stealing everything that is put into the system....ever bigger bonuses...ever bigger trades...ever bigger derivatives. 

Sun, 04/28/2013 - 14:07 | 3507799 tttan
tttan's picture

i noticed that the Fed has stopped publishing data about bank's positions on mortgage, corporate bond and tips.. wondering why ? sound fishy and perhaps trying to hide bank's positions on overall holding of debt paper ..  very fishy.

Sun, 04/28/2013 - 14:08 | 3507800 tttan
tttan's picture

i noticed that the Fed has stopped publishing data about bank's positions on mortgage, corporate bond and tips.. wondering why ? sound fishy and perhaps trying to hide bank's positions on overall holding of debt paper ..  very fishy.

Sun, 04/28/2013 - 12:27 | 3507549 TeamDepends
TeamDepends's picture

There is a free lunch insofar as our great-great grandchildren will be paying for it.

Sun, 04/28/2013 - 12:37 | 3507573 max2205
max2205's picture

Why, here, does it all have to come crashing down'?   

Most things just decay.  

Thisis another long emergency.  GltaI

Sun, 04/28/2013 - 13:33 | 3507704 Professorlocknload
Professorlocknload's picture

I don't really think our great grand kids will be indebted by all this. That is, if the implication is this can all be carried forward into their futures.

Rather, the Fed will do what all central bankers do in these situations. Print until it all implodes, negating all debts.

Our great grand kids will most likely be starting with a clean slate, if Fascism doesn't lock 'em all in the gulag.

Sun, 04/28/2013 - 14:09 | 3507804 daveO
daveO's picture

If it could all be carried into the future, then Gadafi wouldn't be dead, for turning his back on the Petro Dollar. Iran wouldn't be trading oil for gold. People don't like being cheated in a transaction. Saudi Arabia is the key. If they go down, so does Bernanke's house of cards.

Sun, 04/28/2013 - 16:44 | 3508119 auric1234
auric1234's picture

They won't. Our great-great grandchildren may well inherit a completely devastated economy, but as far as the debt itself is concerned, they're just going to default on it.


Sun, 04/28/2013 - 12:25 | 3507551 JPMorgan
JPMorgan's picture

The continuous growth paradigm is not sustainable, period.

Sun, 04/28/2013 - 16:31 | 3508097 Supernova Born
Supernova Born's picture


Sun, 04/28/2013 - 12:28 | 3507556 j.tennquist
j.tennquist's picture

Higher interest rates would fix as much or more then it would destroy and a little creative destruction is just what we need right now.

Pity that no one in power has the stomach for it. 

Sun, 04/28/2013 - 12:34 | 3507558 Fuku Ben
Fuku Ben's picture

Theft by any other name would smell as sickly sweet

Just ask those that want their gold back and can't get it

Sun, 04/28/2013 - 12:36 | 3507562 Pimp Juice
Pimp Juice's picture

This is why DHS is buying so much ammo. It takes a lot of fire power to hold so much GDP hostage.

Sun, 04/28/2013 - 13:20 | 3507665 yogibear
yogibear's picture

DHS - millions  and millions of rounds of ammo served to US citizens when the banksters are threatened.

Likely more than the 1.6 billion rounds on hand and ready to go when it implodes.

Sun, 04/28/2013 - 12:38 | 3507567 Aeternus
Aeternus's picture

GDP Creates Itself, Just Add INK.  EasyPrintOven©


Sun, 04/28/2013 - 12:38 | 3507570 RSDallas
RSDallas's picture

The only troubling and scary aspect of this is that we already know via Japan that this can go on for at least +-30 years. 

Sun, 04/28/2013 - 12:44 | 3507585 McMolotov
McMolotov's picture

Our position as world reserve currency will likely hasten our demise. I doubt most countries will tolerate our exporting inflation for 30 years. With the right confluence of events, the whole thing could go tits up faster than most people can imagine.

Sun, 04/28/2013 - 12:56 | 3507604 RSDallas
RSDallas's picture

Good point.  We know that the idiots in charge in the US will continue this as long as they can.  So the rest of the world either strips us of our reserve status or we go to war, not Aphgan style, but rather world wide style, or both.

Sun, 04/28/2013 - 13:00 | 3507614 dick cheneys ghost
dick cheneys ghost's picture

will WW3 be the final QE?.....................WqeW3

Sun, 04/28/2013 - 14:06 | 3507792 Professorlocknload
Professorlocknload's picture

My Ouija Board says; (And some Kentucky Windage)

Yes, the "reserve" status of the dollar, when it goes, puts this all at warp speed. October, after a 4 year delay, is the tentative release date of the new c-notes, after 4 years of printing and stockpiling.

Bet ATM's will be loaded to distribute Ben Franklins as well.

My guess is government "workers" and military might be paid in cash about then, as in the Great Depression, to "get 'er circulating." Combined with threats of depositor confiscation ala Cyprus, to send folks down to the ATM's.

Add talk of a Vat tax to stimulate demand for cash in alt market transactions, and it's on.

I look for a Big Bazooka in October. One Keynes would be proud of. Add Con-gressional elections in '14 and it's not too tinfoil a prediction.

Don't suffocate in the paper drifts!

Sun, 04/28/2013 - 12:45 | 3507588 Kayman
Kayman's picture

Japanese stoicism vs. American impatience ?  I don't think we will slide for 30 years.

Sun, 04/28/2013 - 14:45 | 3507893 hooligan2009
hooligan2009's picture

its been five years already..passed in blink of an eye..what's another 25 years of ummmm..nothing...25 times zero = zero after all

Sun, 04/28/2013 - 16:39 | 3508114 auric1234
auric1234's picture

The Roman Empire took 5 centuries. Go figure.


Sun, 04/28/2013 - 13:21 | 3507668 yogibear
yogibear's picture

Oh, it will be sooner than that. 

The US want's to eliminate the debt clock.


Sun, 04/28/2013 - 12:43 | 3507580 williambanzai7
williambanzai7's picture


Sun, 04/28/2013 - 13:52 | 3507764 venturen
venturen's picture


Sun, 04/28/2013 - 14:43 | 3507890 hooligan2009
hooligan2009's picture

ah hah!! i recognize faster than speed of light travel opportunities when i see them! 

if that means the fed can go back in time, it can buy every security that goes boom before bust (WCOM, JDSU, GLD, AAPL)...but that would be cheating, so I am sure they wouldn't do it :>)

Sun, 04/28/2013 - 12:43 | 3507581 CheapBastard
CheapBastard's picture

Moar zero-down mortgages and 97-month car loans piled on $1 Trillion student loans.....


Looks peachy.

Sun, 04/28/2013 - 12:42 | 3507584 moneybots
moneybots's picture

"Higher interest rates would fix as much or more then it would destroy and a little creative destruction is just what we need right now.

Pity that no one in power has the stomach for it."


I don't know that the average person has the stomach for it. 

Sun, 04/28/2013 - 14:23 | 3507823 daveO
daveO's picture

The average debt slave has no stomach for it, neither do their banking masters. They've boxed themselves in. Either kill the dollar or raise rates and kill themselves.  

Sun, 04/28/2013 - 16:27 | 3508091 disabledvet
disabledvet's picture

we're all debt slaves now. gold is just a salve on a sucking chest wound.

Sun, 04/28/2013 - 12:45 | 3507587 Skin666
Skin666's picture

Superb article

Sun, 04/28/2013 - 12:52 | 3507597 virgilcaine
virgilcaine's picture

The only thing left we manufacture.. debt and  2.5 % "Gdp" no.s

Sun, 04/28/2013 - 17:31 | 3507599 kindape
kindape's picture

this post says it all. credit allows us to pull resources forward in time. Until we can't

Sun, 04/28/2013 - 12:58 | 3507609 maskone909
maskone909's picture

May 1st buy fuckin silver

Sun, 04/28/2013 - 12:58 | 3507612 John Law Lives
John Law Lives's picture

"Specifically, in October 2009 total loans and leases outstanding in the US were $7.323 trillion. This means that loans, historically the biggest asset on bank balance sheets by far and whose matched liability is deposits, have been responsible for negative $30 billion in GDP growth in the past five years (source)."  -  ZH

I believe that date should be October, 2008.

Sun, 04/28/2013 - 13:01 | 3507617 ISEEIT
ISEEIT's picture

What about being a "progressive" though?

Are you shittin' me?


Sun, 04/28/2013 - 13:01 | 3507620 observer007
observer007's picture

War between the economic-political world and financialbanking interests


The current period is a typical example where an impressive number of explosive factors are combining: new financial bubbles inflated by massive injections of public money, worldwide geopolitical instability, currency wars, political the beginning of the political war against “financial terrorism".

Sun, 04/28/2013 - 13:02 | 3507621 RiverRoad
RiverRoad's picture

If I'm invested in equities and my bank deposits are invested in equities.....what am I invested in?????

Sun, 04/28/2013 - 13:07 | 3507626 IridiumRebel
IridiumRebel's picture question.

Sun, 04/28/2013 - 14:40 | 3507881 hooligan2009
hooligan2009's picture

exactly swaps (currency, equity, interest rate and gold)

and as cyprus discovered, there is a look through if the bank invests in junk, like greece, japan, us and uk

Sun, 04/28/2013 - 14:06 | 3507789 Bobportlandor
Bobportlandor's picture

You're invested in Inflation, Money printing, and eventually asset Devaluation.

One way or another assets will be valued at whatever people can afford no matter what bernac pegs them @.

So as the dollar increases in number, as apple shares rise, chicken mcnuggets increase, sooner or latter barter will determine the value. All the paper wealth will go poof.

So the only question is what assets will give you the best hand?

This is how I see it, Inflation Panic and POOF!

Sun, 04/28/2013 - 20:15 | 3508561 devo
devo's picture

Savers should be getting "dividends" rather than "interest"

Sun, 04/28/2013 - 13:10 | 3507631 PUD
PUD's picture

Damned if you do and damned if you don't. Fed stops qe and everything goes kaboom in a hft nanosecond. They keep doing qe and oil goes to $200 food stamps explode to 100 million and everything goes kaboom.

Good thing you goldtards are "stacking' your 'precious'

Sun, 04/28/2013 - 13:09 | 3507634 IridiumRebel
IridiumRebel's picture

But what are your thoughts on gold?

Sun, 04/28/2013 - 13:11 | 3507640 PUD
PUD's picture

I'm glad you asked that question.....


Sun, 04/28/2013 - 13:12 | 3507646 IridiumRebel
IridiumRebel's picture

Oh Lionfuck, I do respect your resolve, but I disagree. Can we all just agree to disagree? 

Sun, 04/28/2013 - 13:19 | 3507669 PUD
PUD's picture

You (goldtards) are my enemy. I wish to destroy you. 

Sun, 04/28/2013 - 13:39 | 3507721 Hulk
Hulk's picture

Orchid Boy, AKA son of Master Bates...

Sun, 04/28/2013 - 14:01 | 3507781 maskone909
maskone909's picture

Pud i know an attention whore when i see one. U must know this debt based monetary system is exponentially worse for the environment than a gold backed ect... If you were genuine in your sentiments, u would be endorsing stacking. U remind me of my fucking sister in law. Naive and narrow minded. A true simpleton for all the wrong reasons

Sun, 04/28/2013 - 14:02 | 3507788 Diogenes
Diogenes's picture

That is easy. Just get the government to turn honest. No one would think of buying gold as an investment if our currency was free of inflation and you could put your money in the bank and take it out 25 years later without losing buying power. If the investment markets were not rigged and a prudent man could invest his money carefully without being blindsided by a scam or a bail in.

There was a period of time, mid thirties to 1970, that the US dollar filled the bill. You could go through the investment literature for that period with a fine tooth comb and find nothing at all about investing in precious metals. Nobody had any interest in them. The US dollar was better than gold because it was more convenient and it was backed by gold.

The British pound in its day, the Swiss franc are other examples.

You don't even have to get all governments to turn honest. One would be enough.

Sun, 04/28/2013 - 14:30 | 3507857 daveO
daveO's picture

FDR devalued the dollar 75% vs. gold, overnight in '33.This time, it's taken 5 years in a 'rigged' market for the same thing to happen. They're making it easier for us to get out of dollars than back then. At least, until they lose control and create the Crack Up Boom. 

Sun, 04/28/2013 - 16:17 | 3508065 howenlink
howenlink's picture

PUD, we all know you hate gold and goldbugs.  But, seriously, what do you offer as an alternative?

Sun, 04/28/2013 - 16:31 | 3508094 IridiumRebel
IridiumRebel's picture

I love my daughter more than I love you, Lionfuck. It's nothing personal. Destroy is a harsh word. Makes you like mercury. Try "reeducate" or "teach". You attract more flies with honey than vinegar. Don't be so mercurial.

Sun, 04/28/2013 - 16:37 | 3508105 auric1234
auric1234's picture

By posting the same shit repeatedly in a forum?

I have to admit most of your comments are disgusting, but not to the point of me wanting to commit suicide. And after a while, they lose effect (much like QE).

Anyway, keep trying. Everyone has a purpose in life.


Mon, 04/29/2013 - 00:06 | 3509057 TheMeatTrapper
TheMeatTrapper's picture

You're such a little pussy. Whatever.

Sun, 04/28/2013 - 15:10 | 3507945 Alpo for Granny
Alpo for Granny's picture

Ben Bernanke is a major cause of child poisoning in Africa.

Sun, 04/28/2013 - 15:21 | 3507969 PKF
PKF's picture!

you cannot come close to this Italian dude!

Sun, 04/28/2013 - 13:15 | 3507654 I am Jobe
I am Jobe's picture

Where is WFC in this - Launder Currency Bitchezzz and keep the ethical standards going.




Sun, 04/28/2013 - 13:19 | 3507661 NoWayJose
NoWayJose's picture

Some say the Chinese hold (or held) a trillion in Treasuries, and some say they have been reducing those holdings. I actually believe the Chinese are still holding this amount or close to it - not for any great returns or profit, but rather as leverage when negotiating with the US. Every time the currency manipulator talk arises, it only gets so far and then stops. There is nothing like the threat of a trillion dollar treasury dump as a bargaining chip. Of course, the Fed now has its own two trillion dollar trump card if Congress gets too frisky...

Sun, 04/28/2013 - 14:07 | 3507796 Diogenes
Diogenes's picture

China stopped buying treasuries a couple of years ago and has been slowly divesting. They have also been buying up mines, oil wells, farm land and other assets around the world.

If they have been buying them on time payments with the payments in US dollars, they are hedged against any loss in their treasuries. What they lose on the treasuries, they will make by paying for hard assets in inflated dollars.

Sun, 04/28/2013 - 14:35 | 3507870 daveO
daveO's picture

Most importantly, they are making trade deals with Australia, Russia, South Africa, Brazil, etc. to trade w/o dollars. These coutries are mining countries. They're voting w/ their wallet.

Sun, 04/28/2013 - 14:35 | 3507872 hooligan2009
hooligan2009's picture

china has slowed the rate of treasury accumulation but continues to increase its holdings

Sun, 04/28/2013 - 13:19 | 3507664 piceridu
piceridu's picture

Tyler, this excellent post should be a direct response to Mark Dow and Michael Sedacca's piece: Everything you think you know about the Fed is wrong.

Sun, 04/28/2013 - 13:22 | 3507674 Tyler Durden
Tyler Durden's picture

Everything you think you know about Fed sycophants and apologists is absolutely correct.

Sun, 04/28/2013 - 15:39 | 3507996 negative rates
negative rates's picture

So where does corruption enter the picture?

Sun, 04/28/2013 - 23:07 | 3508930 Rusty Shorts
Mon, 04/29/2013 - 12:17 | 3510314 matrix2012
matrix2012's picture


thanks for the tube link, Rusty


*****What I have been afraid to blog about: THE ESF AND ITS HISTORY (Part 1-5)*****

June 3, 2011 by Eric deCarbonnel

After months of work, the video series on the Treasury's Exchange Stabilization Fund (ESF) is finally finished! 

Why you should watch these five videos: 

It is impossible to understand the world today without knowing what the ESF is and what it has been doing. Officially in charge of defending the dollar, the ESF is the government agency which controls the New York Fed, runs the C1-A's black budget, and is the architect of the world's monetary system (IMF, World Bank, etc). ESF financing (through the OSS and then the C1-A) built up the worldwide propaganda network which has so badly distorted history today (including erasing awareness of its existence from popular consciousness). It has been directly involved in virtually every major US fraud/scandal since its creation in 1934: the London gold pool, the Kennedy assassinations, Iran-Contra, C1-A drug trafficking, HIV, and worse... 


"About 13 years ago Catherine Austen Fitts wrote about this in her blog. She was once a member of POTUS cabinet, Asst Head of Dept of Housing:HUD, and although the ESF was NOT mentioned, the C1-A Drug-trafficking-for-profit in the inner-cities and introduction of AIDS by the Govt was "suggested". It was shocking to me then, and this video is further "food for thought" along those lines." - scorpiocat69 The Solari Report Blog | Catherine Austin Fitts


Sun, 04/28/2013 - 23:20 | 3508956 Shell Game
Shell Game's picture

Where doesn't it?

Sun, 04/28/2013 - 16:33 | 3508099 auric1234
auric1234's picture

You just made me puke.


Sun, 04/28/2013 - 13:23 | 3507677 yogibear
yogibear's picture

The only way out is to print, with no way of stopping,

The Admin wants to shut down the US debt clock.

That in itself should be another red flag, besides the 1.6 billion rounds for DHS.

Sun, 04/28/2013 - 13:23 | 3507678 RaceToTheBottom
RaceToTheBottom's picture

There is no problem with bubbles, until they stop.

Sun, 04/28/2013 - 14:33 | 3507865 hooligan2009
hooligan2009's picture

......pop...there fixed it for you

Sun, 04/28/2013 - 13:23 | 3507679 The Dancer
The Dancer's picture

And the real real real bottom line is....the FED  now has two trillion more of debt to hang over the heads of the politicians to threaten the economy and their political futures with...sounds like too much power to allow one group of thugs to have...but, guys, ya' gotta' admit that these white shoe gangsters are incredibly smart and shrewd....they have been sharpening their financial skills over these  hundreds of years and have parlayed everything into this push for world dominance...and the other side is, do you prefer the chinese, the jew of the orient, to be holding that gun to your head instead...the choice is yours! 

Sun, 04/28/2013 - 16:41 | 3508115 disabledvet
disabledvet's picture

pretty much...

Sun, 04/28/2013 - 13:29 | 3507694 tuttisaluti
tuttisaluti's picture

Best would be if foreign countrys would stop accepting US Dollars.

Sun, 04/28/2013 - 13:46 | 3507744 yogibear
yogibear's picture

A good old-fashioned currency crisis will occur eventually. Their printing up until that occurs.

Sun, 04/28/2013 - 13:34 | 3507710 The Dancer
The Dancer's picture

Now we should all know that this has to end in war...the world is sitting here with all these arrogant and neurotic leaders with economies that are faltering and there's an exit door with a blinking light over it...and it's NOT a blue light special!!!

Sun, 04/28/2013 - 14:40 | 3507882 daveO
daveO's picture

Gadafi was killed two years ago. It's an ongoing war. Next? Syria. To get at Iran. 

Sun, 04/28/2013 - 13:42 | 3507732 polo007
polo007's picture

According to Bank of America Merrill Lynch:

Macro viewpoint

Easy in, easy out

- Review: The choppy slowdown continued into April, with better jobless claims but weak regional manufacturing surveys.

- Preview: The April employment report will be a good test of whether the March weakness was a fluke or a sign of sustained weakness. We look for a sub-consensus 125,000 increase.

- Hot topic: With persistently sub-2% inflation, the case for continued QE is building. When the Fed does finally head for the exit, the key question for investors is the same as it has been in the past: if inflation is low, it will be a soft landing; if inflation is high, buckle your seatbelts.

Sun, 04/28/2013 - 14:27 | 3507842 Rip van Wrinkle
Rip van Wrinkle's picture

"When the Fed does finally head for the exit,...."



Sun, 04/28/2013 - 14:35 | 3507864 hooligan2009
hooligan2009's picture

i still have had no explanation as to why the Fed can't just cancel the 1.8 trillion in treasuries it has boughtso far (going up 40 billion a month with 45 billion for agency mbs) and exchange letters of comfort (mutual masturbation) with the Treasury.


Sun, 04/28/2013 - 16:26 | 3508090 auric1234
auric1234's picture

They can, but they need to maintain the pretense of a Treasuries market made of "investors" who lend "capital" to the government.


Sun, 04/28/2013 - 16:36 | 3508107 disabledvet
disabledvet's picture

i don't have a problem with the Fed flooding the entire financial system with the excess reserves. Monday sounds like a good day to start actually...

Sun, 04/28/2013 - 17:38 | 3508248 bombdog
bombdog's picture

It's all about saving face. The fed can never reduce its holdings so it amounts to the same thing as cancelling the debt. The interest payments are recycled back to the treasury anyway so there is no difference between holding a bond and cancelling it. As the debt matures the treasury can roll it over and the fed will buy even more. That's how I understand it. Of course all the "Positive Money" type people want to cancel the bonds and have the government print the money directly, like that's a solution.

Sun, 04/28/2013 - 13:46 | 3507748 GreatUncle
GreatUncle's picture

I know it is not soley an American issue but here is the thing. It is not the USA that goes tits up if the QE is stopped the rest of the world does too. The problem with globalisation was the "cross contamination of the financial model" as capital flowed across borders.

Bailout / QE and achieve growth in the article is the only game left but bear in mind the bailout money is borrowed from the future never the past. The past is reserved for depositers and those with savings.

Sun, 04/28/2013 - 16:26 | 3508085 auric1234
auric1234's picture

On the contrary, if QE is stopped we've finally sorted out the groundwork for real growth.

You need to burn down the leeches before any sustainable recovery can be implemented.


Sun, 04/28/2013 - 13:55 | 3507765 unununium
unununium's picture

"The chart above implies one simple thing: if there is loan creation, and thus injection of liquidity in the system, there is growth."

No. Look at 1989-1992. No loan creation, steady growth.

The economy actually started to grow with less dependency on financing. Nothing could be scarier for the banks.

Was it any coincidence that soon after this Alan Greenspan divorced money supply growth from GDP growth? TPTB had a lot of catching up to do.

Sun, 04/28/2013 - 14:27 | 3507844 hooligan2009
hooligan2009's picture

maybe its economic cycle to 1991 was post crash and entry into recession

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