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Desperately Seeking $11.2 Trillion In Collateral, Or How "Modern Money" Really Works

Tyler Durden's picture


Over a year ago, we first explained what one of the key terminal problems affecting the modern financial system is: namely the increasing scarcity and disappearance of money-good assets ("safe" or otherwise) which due to the way "modern" finance is structured, where a set universe of assets forms what is known as "high-quality collateral" backstopping trillions of rehypothecated shadow liabilities all of which have negligible margin requirements (and thus provide virtually unlimited leverage) until times turn rough and there is a scramble for collateral, has become perhaps the most critical, and missing, lynchpin of financial stability.

Not surprisingly, recent attempts to replenish assets (read collateral) backing shadow money, most recently via attempted Basel III regulations, failed miserably as it became clear it would be impossible to procure the just $1-$2.5 trillion in collateral needed according to regulatory requirements.

The reason why this is a big problem is that as the Matt Zames-headed Treasury Borrowing Advisory Committee (TBAC) showed today as part of the appendix to the quarterly refunding presentation, total demand for "High Qualty Collateral" (HQC) would and could be as high as $11.2 trillion under stressed market conditions.

In short, there is a unprecedented "quality" collateral shortage (for more on what the definition of quality is, read on).

And since the topic of HQC scarcity only emerges when market conditions are stressed, one can ignore the TBAC's baseline case of normal conditions, which see a topline of collateral requirements of "only" $5.7 trillion. Needless to say that if not even the Basel III required asset/collateral creation of $1-$2 trillion was a failure, even the base case requirement would never be satisfied.

The bigger picture however is one of an ever-growing asset-liability mismatch, as happened during the Lehman collapse. Since there is a total excess of shadow money and other liabilities already created that may need up to $11.2 trillion in collateral at any one moment for full book netting (which incidentally is based on SFAS-140 accounting rules which are self-contradicting), the only hope for the financial system is to chug along for the next decade without major risks and tremors, and slowly create the much needed high quality collateral.Or such is the hope.

Furthermore, since the private sector still appears to be in a state of shock from the Great Financial Crisis, collateral creation is all but halted. In the purely physical sense this is further aggravated by the lack of private sector CapEx investment, whereby corporations refuse to spend in order to procure hard assets, which may then be transformed into HQE via assorted lending pathways ending up on bank balance sheets indirectly, and then be further absorbed by the financial system providing even more quality collateral.

Intuitively this should make sense: while private sector companies can create unlimited balance sheet liabilities courtesy of the ZIRP-enforced scramble for yield, which means any and all debt can be issued without limits, it is the use of funds that is critical, and it is here that companies have been failing desperately because as also explained previously, instead of investing the newly created cash in CapEx and PP&E due to the Fed's disastrous policies, management teams use the company as a toll, with the cash promptly dividended out or used for buybacks and other short-term shareholder benefiting transactions, not growing corporate assets in any way, and certainly not creating any secured liabilities, only unsecured. Sadly the liabilities thus created are of such low quality that they can not result in HQC replacement, and instead are merely a levered equity extraction out of the private sector which implies an even greater explicit private sector risk without offsetting asset creation (the matching accounting entry is a reduction in shareholder equity which does nothing for system collateral).

As a result of this unwillingness or inability of the private sector to create quality collateral, which could then become someone else's quality asset and so on up the fractional reserve repo chain, it is all up to the Fed.

The TBAC acknowledges as much when it says that all QE is, is a "transformation of non-cash HQC to cash HQC." Stated otherwise, in addition to all its other practical QE roles, such as monetizing the US debt, and enforcing the wealth effect as Primary Dealers repo out QE reserves and use the barely haircut cash to purchase risk assets (instead of engaging in loan creation), what QE is also doing, via reserve transformation through the monetization of Treasury debt and MBS a topic we have also explained previously, is to inject into the financial system, billion after billion and trillion after trillion, the "safe assets" that banks will need to fall back on if and when the risk flaring episode comes, and there is a scramble for quality assets.

An immediate implication is that should the private sector continue to hold back on collateral creation via such "Old Normal" conduits that feed the shadow money system, such as securitizations and repo expansion, it will be up to the Fed to inject up to the $11 trillion in additional HQC before the financial system is proclaimed safe. This means QE will continue for a loooooooong time.

Another implication is that finally, after years of confusion, someone gets it. Gets what? This:

"Effective money = shadow money + M2"

This is precisely the point we have been making for the past three years in all those posts focusing on the relative moves in the US shadow banking system, i.e., shadow money, and which virtually none of the current monetarists (and by extension Keynesians) seem able to grasp since all textbooks on monetary theory appear to be from the 1980s when shadow liabilities, repo and custodian assets simply did not exist. They do now, and certainly did in 2008 when they reached a record of $21 trillion (give or take, depending on one's definition of shadow money), double what M2 was.

Of course, our definition is more granular and is simply the sum of all credit money liabilities held by the traditional banking system, to which we add the money held in the shadow banking system - money that is literally created in a limbo where "confidence" is really the only collateral, and is why the Fed is, more than anything, terrified about what the next market collapse will do to the shadow banking system which unlike 2008, will almost certainly experience a terminal run on the liabilities as there is no effective collateral!

What all of the above means, is that when considering quality collateral, one has to consider the amount of all liabilities in existence - both conventional and shadow! And it is this shadow delta of $15 trillion that is always ignored and/or forgotten by everyone except those who know quite well that any reminder of the massive delta can lead to an instant deep freeze of confidence in the system.

Because what it means is that as the Treasury's own advisor has said, there is a $11.2 trillion undercapitalization gap in the consolidated financial system, a gap which can only be filled by the Fed over a period of years.... an assumption which means that the market has to not only be priced to perfection for years, but that the Fed will not lose control over not only the US market but that the MIT-BIS diaspora will keep the entire G-7 capital markets in check for the duration of this experiment. Of course, it won't be the first time the Fed and the capital markets have made the fatal assumption that a handful of academics with zero real world experience can contain several hundred trillion in unforeseen consequences.

So just what does the TBAC define by "high quality collateral"? Hint: there is no mention of the word gold anywhere so don't go getting any ideas. Of course, for the Treasury and its advisors, even the mere concept that a barbarous relic may have more "quality" than paper-created "assets" is preposterous. We can only imagine the intellectual bloodbath that would result if any of them were ever exposed to the Exter pyramid...

Anyway: here are is how the "very serious people" in the establishment see "HQC"...


Money-like assets, with little credit, duration and liquidity risk.

Anything Bernanke says is a high quality asset (until it isn't of course):


This one is really funny: "an asset not expected to depreciate" - like housing:


Anything that has low haircuts... Just because banks look at where other banks mark them, and a result in 2007 give a 5% haircut on a BBB+ rated CDO tranche just before it blows up with zero recovery.


To summarize:


Now we get to the important part: what is the total demand for high quality collateral? Based on back of a napkin calculations, somewhere between $2.6 and $11.2 trillion!


Demand comes from regulatory requirements such as Basel III (since mothballed, as it became quite clear not even the $1.0 trillion in minimum collateral needed could not be sequestered).


Another demand driver: standardized clearing of derivatives which will require a far higher Initial Margin as well as, knock on wood, the end of collateral rehypothecation. Incidentally the latter is precisely why central clearing as designed will never fly, as rehypothecating what passes for safe assets now is the primary source of incremental collateral 'creation':


Another demand source: bilateral margin requirements for non-central clearing transactions. The reason why up to $4.1 trillion in additional collateral is needed here is precisely why gross is never net, until it is, and one the weakest link in the bilateral chain of counterparties breaks, forcing immediate gross netting without offsets. A fact so simple, that only the smartest people in the room always tend to forget it.

Finally, the most intangible demand source of all: economic uncertainty, and "flight to quality" - or in other words, the fudge factor for the unpredictable. The $1 trillion estimate provided here is very arbitrary, and the real number may be less, but likely will be orders of magnitude greater as the real life example of the Exter pyramid collapse takes place in shadow space:


That takes care of the demand. Now, the far more thorny question: supply. And here is where the Fed comes into play.

Because the safest of safe collaterals in a fractional reserve banking system, in which money creation always falls back to the monetary authority, we have sovereign collateral creation. Yet where would sovereigns be without QE. As the TBAC itself says, in bold, black letters, "QE is a transformation of non-cash HQC to cash HQC" - said otherwise, without the Fed, which is indirectly facilitating the ramping of risk assets as we explained to Steve Liesman before, the Primary Dealers would be unable to buy stocks without the repo transformation of reserves which results in Dealers ending up with risky stocks instead. This is the closest to an admission of the above we have ever seen.


What happens next is the magic of rehypothecation. As the TBAC says, once issued, this sovereign "collateral", aka debt, or assets for the buyer, "35% of this amount is reused 2.5 times." This means that depending on the terms of the rehypo agreement: the haircut, the reuse velocity and other metrics, this could be the sole source of collateral if needed, especially when one adds the Fed in the equation.


One key aspect of central clearing houses and bilateral margin requirements would mean the end of the kind of rehypothecation that send MF Global into a liquidity tailspin. This means that up to $7.6 trillion in supply would be removed. Alternatively, and this is perhaps that biggest punchline: rehypothecation, which is nothing but the paper shuffling of a security from point A to point B to point C and back to point A again, provides up to $7.6 trillion in Schrodinger collateral: or securities which are there but aren't, and certainly not there if and when everybody demands delivery at the same time!

Remember rehypothecation does not mean the collateral is there. It is merely representing a counterparty can have access to said collateral.... eventually... maybe... possibly... in an ideal world in which no other counterparty has claims to the same collateral.


Putting it all together, it means that should the system finally wise up and remove the black box gimmick of rehypothecation which is literally "accounting magic" (and also financial fraud), the Fed and its peer central banks would need to fill a hole as large as $10 trillion!

Still think QE is ending ever?


So now that we understand the fine nuances of the impending collateral scarcity? Well, from a policy standpoint it means that as long as asset prices are rising, there is no fear of a collateral crunch. It is, after all, "procyclical"


Ever heard of the trivial saying "money is whatever people agree it is" - well, that's great. But problems emerge when one assumes houses are money. As the chart below shows, households chose to hold less cash during the last bubble as the "moneyness of houses rose. Sure enough, "when the moneyness fell, cash holdings rose abruptly." Still confused why the Fed is desperate reflate the housing bubble at any cost? Simple: it is the only lever left for the Fed to force households to not only spend, but to ramp up on credit.


So while we are on the topic of money, and in order to tie it all together, let's close the loop and introduce the final variable - Shadow Money. In this context, the TBAC has their own definition of shadow money: the value of outstanding bonds*(1-average repo haircut). In other words, if the repo haircut is zero, the outstanding shadow money stock is effectively double what the Treasury has issued. Confused why bonds sometimes appear like Giffen goods? This is why.


A visual example based on the TBAC's definition: there is now some $30 trillion in total public and private shadow money! Still think M2 is the full story?


And finally, vindication: proof that all those other 'experts' on money creation really have absolutely zero understanding of what money creation truly is. Putting it all together: Effective money = shadow money + M2.  To wit:


The unprecedented amount of shadow money chasing "safe assets" explains one thing: why bond yields are where they are, and why the more bonds central banks issue, the lower yields will go. That is, of course, until the entire shadow world described above comes crashing down.

The one missing link in the above has been the absence of the private sector from collateral creation. The problem is that for the private sector to step up, confidence level has to be so high so as to no longer demand public sector QE-transformed collateral. But therein lies the rub: since the Fed's QE is pushing collateral into the market, not having it pulled, there is little demand for exogenous private sector collateral. And thus we have the close loop where more QE creates demand for more QE, even as the private sector is increasingly more closed out of the marketplace. Of course, for true capital formation, it is the private sector that would be responsible for all collateral. That however would imply risk of failure, and the elimination of a Risk Put, such as the global Bernanke Doctrine. In other words, welcome to the biggest Catch 22 possible (and conceived) in the centrally-planned universe the Fed has created for itself...


The next chart should be familiar to regular readers. It shows that when private sector collateral generation broke following the Lehman collapse, the Fed had to step in:

Yup: those who said Zero Hedge noted precisely this in "The Fed Has Another $3.9 Trillion In QE To Go (At Least)" back in September 2012, are absolutely correct.


And there you have it. All you have about money creation in textbooks, all fancy three letter theories that purport to explain the creation and reality of "Modern Money" are 100% wrong, because while they attempt to explain a theoretical world of money creation, what they all happen to forget and ignore is one simple thing: practical reality.

And practical reality is precisely what the TBAC had in mind when it wrote the above presentation of stark caution, because no matter what one says, there is a $11+ trillion collateral shortfall at any given second. A shortfall that can and will be triggered the second the central banks lose control of the financial system which every single day rests on a thread of stability.

Because the thought experiment we presented earlier can be extended one further: assume tomorrow the real black swan appears and all the liabilities: traditional and shadow, promptly demand collateral delivery. Well, the $11 trillion shortage would mean that risk values of, for example the S&P, would be haircut by a factor of, say, 75%. Or back to the proverbial 400 on the S&P500.

Still think owning real high quality collateral, not of the paper but of the hard asset variety such as gold, is a naive proposition, best reserved for fringe lunatic, tin foil hatters and gold bugs?

Go ahead then: sell yours.


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Wed, 05/01/2013 - 19:35 | 3520350 american eyedol
american eyedol's picture

so what gives someone claimed in a previous post that 10000 ounces of gold were sold today how can this be true if we don't print gold, there is either tons of gold everywhere or we are at the end

Wed, 05/01/2013 - 19:39 | 3520372 Aeternus
Aeternus's picture

High quality collateral = Au and Ag.

Wed, 05/01/2013 - 19:58 | 3520448 knukles
knukles's picture

Unfortunately most collateral requirements for deposits, swaps, etc, including state and local balances, trust accounts, etc., etc., etc., clearly specify some language such as "direct obligations of the United States Government, its federally chartered agencies or obligations rated AAA by at least 2 of the 3 major ratings services."

No iStock, Ag, Au, boogers, hubcaps, coke, hookers, lotto tickies, signed Obama photos, first day of issue stamps or ammo.
This is why if TSHTF, treasuries, Bunds, etc., go to big scarcity value, any port in the storm, buy at any price because you no gots the collateral, you gets liquidated.

Just sayin', that's the way it is, kids.

Wed, 05/01/2013 - 20:06 | 3520467 fonzannoon
fonzannoon's picture

Could you imagine the size of cramers boogers with his nostrils hollowed out from all that coke? My god he could be worth a trillion in collateral himself.

Wed, 05/01/2013 - 20:23 | 3520522 SafelyGraze
SafelyGraze's picture

You Can't Print Collateral!

oh wait.

you *can* print collateral.

Wed, 05/01/2013 - 20:45 | 3520608 AlaricBalth
AlaricBalth's picture

As of 1 January 2013, the Basel III accord recognized gold as a Tier 1 asset from a Tier 3. Now the BIS considers gold a minimal risk asset equal to US Treasuries and can be used for full collateralization.

Wed, 05/01/2013 - 20:50 | 3520616 fonzannoon
fonzannoon's picture

I thought they delayed that, and by delayed I mean never gonna happen.

Wed, 05/01/2013 - 20:54 | 3520627 I think I need ...
I think I need to buy a gun's picture

how many ounce of gold does the average family in india own?

Wed, 05/01/2013 - 21:39 | 3520784 cifo
cifo's picture

I liked that movie too...


Thu, 05/02/2013 - 07:12 | 3521611 markmotive
markmotive's picture

Cash backing cash...sounds like a robust system to me.

If you haven't already, read Ellen Brown's "Web of Debt". It's a great explanation of everything that is wrong with the fiat system of private money creation and fractional reserve banking.

Thu, 05/02/2013 - 08:21 | 3521737 orez65
orez65's picture

"If you haven't already, read Ellen Brown's "Web of Debt". It's a great explanation of everything that is wrong with the fiat system of private money creation and fractional reserve banking"

But she then proposes the creation of one Central Bank per state in the US.

A lunatic idea, to have 50 Central Banks in the US instead of the Federal Reserve.

Whenever you are dealing with fiat money and fractional reserve banking it is FRAUD.

Whether is one or 50 Central banks it is FRAUD.

Wed, 05/01/2013 - 20:59 | 3520636 kaiserhoff
kaiserhoff's picture

Good piece as far as it goes, but every option trader knows the derivative exposure is a couple of orders of magnitude bigger than what scares this Dude, and not that responsive to the Fed's bells and whistles.

In my world, the bid controls value, except that the Fed is more and more often the only bid, so no one knows what anything is worth.  Fuck you Ben, and the horse you rode in on.

Thu, 05/02/2013 - 03:19 | 3521476 zhandax
zhandax's picture

I understand the 'QE converts non-cash HQC to cash HQC' part, but I do not understand how the fed is not exacerbating this problem by taking at least $85B of non-cash HQC out of the system each month with their purchases.  So the banks now have cash HQC.  This cash has zero multiplier effect since, with no loan demand, the only way the banks can use it to further the re-hypothecation scam is to buy collateral on the open market, sucking more non-cash HQC from the market.  How is time or 'market stabilitee' going to resolve this when you monetize one of the few sources of new non-cash HQC each month?

Wed, 05/01/2013 - 21:01 | 3520654 AlaricBalth
AlaricBalth's picture

Basel III is being phased in and as of Jan 2013 the BIS has allowed each country and their respective central banks discretion to treat gold as Tier 1.

Wed, 05/01/2013 - 21:05 | 3520664 fonzannoon
fonzannoon's picture

Alaric you are prob right, it's not my thing. But I remember seing this (Bloomberg from the end of last year)

U.S. regulators won’t hold banking companies to a Jan. 1 deadline they wrote into proposed rules for boosting the reserves lenders must hold against potential losses, they said today.

The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency “do not expect that any of the proposed rules would become effective” at the start of next year, as they continue weighing views expressed during the comment period, they said in a joint statement.

David Stevens, president and chief executive officer of theMortgage Bankers Association, called the delay a positive development that may signal regulators “are going back to the drawing board.”

Wed, 05/01/2013 - 21:39 | 3520682 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

There is  probably not enough high quality collateral  for them to steal to boost their reserves to the required levels even all if the toxic MBS turds sitting on the FED's balance sheet count as high quality collateral. If that shit was high quality they wouldn't have turned it into fungible cash for the banks in the first place.

Thu, 05/02/2013 - 06:37 | 3521589 Urban Redneck
Urban Redneck's picture

There are three prerequisites to creating modern collateral-

1) the asset must be able to be deposited at a CSD (which for all practical purposes means it must be a paper asset, not a tangible asset)

2) ownership of the asset must be transferrable through SWIFT (see #1)

3) some "authority" must be able to assign a numerical rating which (attempts) to quantify risk to the asset valuation for collateral purposes (and ratings agencies aren't cheap whores so that rules out small-scale asset pools)


Wed, 05/01/2013 - 21:10 | 3520688 AlaricBalth
AlaricBalth's picture

I recall that as well. Lots of articles about Basel III implementation. I would imagine the BIS is making allowances due to the scarcity of global safe assets. BIS Working Paper 399 discusses the safe asset subject. I have cited it a couple if times here on ZH.

Wed, 05/01/2013 - 21:30 | 3520759 1C3-N1N3
1C3-N1N3's picture

Time to start inventing and issuing second-tier currencies, and re-value existing currencies in 3...2...1...

Thu, 05/02/2013 - 01:19 | 3521386 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

symbol BTC

Thu, 05/02/2013 - 01:49 | 3521411 putaipan
putaipan's picture

i'll be honest here folks....those new hundreds, without the wrinkles, are scarin'the bejeebus outta me!

Wed, 05/01/2013 - 23:38 | 3521211 Stuck on Zero
Stuck on Zero's picture

CEO opinion on this article: "Who the hell cares what happens in six months. All I want is my quarterly bonus and then it can all go to hell."


Thu, 05/02/2013 - 00:24 | 3521307 RockyRacoon
RockyRacoon's picture

You just gotta chuckle when they use words like "moneyness" and "moneylike".

(Which don't even pass the spell-checker...)

JFC, it's either money -- or it ain't.   And most of it ain't.

Got gold?

Wed, 05/01/2013 - 20:06 | 3520471 FinalCollapse
FinalCollapse's picture

"...and it's gone" - South Park.

Thu, 05/02/2013 - 04:13 | 3521513 Sudden Debt
Sudden Debt's picture

They should make a new episode where the FED is the owner of the United States and says: WE WANT GONE! THIS LAND IS OURS! WE PRINTED IT FAIR AND SQUARE!!

Wed, 05/01/2013 - 20:31 | 3520540 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

"...because you no gots the collateral, you gets liquidated."

They asked me for some collateral

and I pulled down my pants

                                              -Bob Dylan

Wed, 05/01/2013 - 20:42 | 3520591 Al Huxley
Al Huxley's picture

...they threw me in the alley then up comes this girl from France, who invited me back to her house, I went but she had a friend, who knocked me out and robbed my boots and I was on the street again.

Wed, 05/01/2013 - 20:56 | 3520628 fonzannoon
fonzannoon's picture

It's a fuckin brawl in here tonight eh Al?

Wed, 05/01/2013 - 21:06 | 3520668 Al Huxley
Al Huxley's picture

Yeah, no kidding, somebody at the Fed must have went on a little hiring spree, spent the big bucks to set 5 or 6 serial junkers loose.  'That'll teach those fuckers to mock us!  Let's see how smart they feel when they have 5 or 6 down-arrows on their nasty comments.'  LOL.

Wed, 05/01/2013 - 21:12 | 3520683 fonzannoon
fonzannoon's picture

I have a dream Al. I dream that right now Cramer is sitting alone on his couch with his glass of scotch and his handgun and is staring at one of his boogers and thinking "is it really that big?"

Wed, 05/01/2013 - 21:12 | 3520696 Al Huxley
Al Huxley's picture

Fuck, I'm literally laughing out loud right now!

Wed, 05/01/2013 - 21:16 | 3520699 fonzannoon
fonzannoon's picture

That's what it's all about. Always keep the funny Al. Stay sharp, it will keep you sane.

Wed, 05/01/2013 - 21:35 | 3520772 prains
prains's picture


"you've just won a free trip to the bahamas"


whooooooppeeeeee !!!! mutha-trukas.........oh wait

Wed, 05/01/2013 - 21:42 | 3520804 kito
kito's picture

Come on Knucks...when tshtf, the paintings off dimons wall will be deemed fair game for if European overlords have been taking quality collateral...... They are accepting olive trees in Greece to facilitate loans.......the rules always change according to needs......

Wed, 05/01/2013 - 21:43 | 3520808 shovelhead
shovelhead's picture

So are you saying those Greek underwear with skidmarks that Deutschebank is holding are worthless?

This is disturbing.

Wed, 05/01/2013 - 22:51 | 3521060 The Carbonator
The Carbonator's picture

Don't forget the Pb

Wed, 05/01/2013 - 19:56 | 3520438 Unprepared
Unprepared's picture

part-time serial junkers were let out today.

Wed, 05/01/2013 - 20:58 | 3520647 1C3-N1N3
1C3-N1N3's picture

Absolutely. The Tylers struck a nerve with this piece. And the Tylers don't release an article this size unless they gots some serious shit to disturb.

Kudos, TDs!

Thu, 05/02/2013 - 02:28 | 3521419 putaipan
putaipan's picture

hey... i had to go back a year, as suggested, and try to digest the last years' post...and with the help of the peanut gallery/fight club half grocked it. it will take another year's worth of attention to the tyler's and youzzes to digest this one. thanks for posting! (post retro geenies to ekm)


(but.... i am not diggin' on the new firefox unfriendly advertizing launched in conjunction with this post.)

Wed, 05/01/2013 - 19:39 | 3520357 Fredo Corleone
Fredo Corleone's picture

"...This is another in a series of defections on this issue that in the past year has included many Republican politicians, numerous important financial regulators...and, hilariously, the creator of Too-Big-To-Fail himself, former Citigroup CEO and legendary lower-Manhattan raging asshole Sandy Weill. Weill was the man for whom the Glass-Steagall Act was repealed back in the nineties, so that his already-completed Citigroup merger could be legalized."

Thu, 05/02/2013 - 12:42 | 3522875 STP
STP's picture

Fredo, great article and I upped you for providing that.  I think there's definitely an awareness and associated consensus growing among those that take the time to dig into what's going on.

Wed, 05/01/2013 - 19:36 | 3520358 onewayticket2
onewayticket2's picture

Does "Intangible" collateral count?

Wed, 05/01/2013 - 19:51 | 3520411 Zero Govt
Zero Govt's picture

not to the tangibles amongst us

Wed, 05/01/2013 - 20:08 | 3520483 Bear
Bear's picture

Only as long as it is 'fudgeable'

Wed, 05/01/2013 - 19:41 | 3520367 Ignatius
Ignatius's picture

"In short, there is a unprecedented "quality" collateral shortage..."

Enter:  Freegold.

Wed, 05/01/2013 - 20:05 | 3520466 Ignatius
Ignatius's picture

One would think on this forum a very high price for physical gold would be understood and welcome.


Wed, 05/01/2013 - 20:21 | 3520525 Dr. Engali
Dr. Engali's picture

You're not getting junked by the regulars. Most of us are familiar with freegold. You're being junked by the CNBC trolls who just got their minds fried by the complexity of this article.

Wed, 05/01/2013 - 20:39 | 3520576 rqb1
rqb1's picture

What a great article it was, this is why I come to ZH.

Wed, 05/01/2013 - 23:38 | 3521212 dtwn
dtwn's picture

Yes, very good.  Appreciate the thoroughness and way in which the information was presented.  Even though I am still struggling a bit to understand it all and the implications.  Keep up the good work Tyler(s)!

Thu, 05/02/2013 - 00:31 | 3521315 RockyRacoon
RockyRacoon's picture

It's certainly not fodder for the water cooler crowd, but it comforts those who like to know the color of the bus that hit 'em.   I'm not about to try to explain the article to anyone.   They're on their own!

I can sit in smug knowledge while those about me run around with their hair on fire. 

Got gold?

Thu, 05/02/2013 - 01:21 | 3521360 DoChenRollingBearing
DoChenRollingBearing's picture

Have gold, want moar!

My index finger is sore from up-voting yuz guyz above!


Upvote reason: Agree re most excellent article, yes, that is why we visit ZH.

Wed, 05/01/2013 - 21:47 | 3520794 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Yes and next comes confiscation once it reprices high enough that sending in the DHS-multi agency goon squad after all the 'domestic terrorists' becomes feasible. And of course it will be understood that they only need to actually turn in about 80% of what they collect and get to keep the other 20% so they actually want to knock down doors and do illegal acts they might not otherwise consider.

Thu, 05/02/2013 - 01:00 | 3521364 DoChenRollingBearing
DoChenRollingBearing's picture

There are too many of us, armed.  

"Officer (Soldier, DHS Goon), we know where your kid goes to school."

Sat, 05/11/2013 - 05:36 | 3551003 Tompooz
Tompooz's picture

Armed? Martial law will intimidate and disarm the sheeple fast. They come in flak jackets after a bit of shock and awe with the helicopter gunships. Oh,  they will let the people keep their gold. "We are only registering it for our national database" (the new collateral for the currency)  

Wed, 05/01/2013 - 19:40 | 3520378 Major Major Major
Major Major Major's picture

The “High Quality Collateral is…” point #2 needs to be updated to include central bank thievery risk for the cash component.

Wed, 05/01/2013 - 19:43 | 3520388 jmcadg
jmcadg's picture

Musical chairs - 100 people still dancing. Except, the music stopped fuckin' years ago! And the last chair was taken by a man wearing waders.

Wed, 05/01/2013 - 20:33 | 3520546 Bastiat
Bastiat's picture

There's an free traffic cone right over here . . . .

Wed, 05/01/2013 - 19:47 | 3520394 Zero Govt
Zero Govt's picture

"...where... assets form what is known as "high-quality collateral" backstopping trillions of rehypothecated shadow liabilities all of which have negligible margin requirements.."

Hey boys, reading that we're in deep shit in a house made of cards with no toilet yes?

Wed, 05/01/2013 - 20:34 | 3520418 Seasmoke
Seasmoke's picture

I plan on being gold poor , for the rest of my life.

Wed, 05/01/2013 - 19:54 | 3520420 fonzannoon
fonzannoon's picture

I am pretty sure the 17 trillion or whatever it is in retirement accounts is the actual underlying collateral that will be corzined to make sure the banking system stays in place if it all comes down to it.

What interests me is...what if we make it several years with no black swan and the markets stay "priced to perfection"? We QE our way into economic euphoria?

Wed, 05/01/2013 - 20:03 | 3520450 prains
prains's picture

why so many graphs and text to just tell the bitchez " they no pay up, no how, no where, no time"


just put it on bennies amex and lets go home, i'm drunk and fucking tired already

Wed, 05/01/2013 - 20:04 | 3520458 bnbdnb
bnbdnb's picture

It means those aged 16-44 right now will own absolutely nothing.

Wed, 05/01/2013 - 21:19 | 3520710 Totentänzerlied
Totentänzerlied's picture

We already don't. We're just borrowing. Such is life with debt-based money and full-spectrum taxation.

Wed, 05/01/2013 - 22:02 | 3520870 kito
kito's picture

Fonz wake up, we are already in utopia...housing price in a huge upswing.....almighty Dow lush and verdant....interest rates for that new car smell are at all time lows...unemployment heading back to sub 5%......wake up fonz and smell the recovery!!!!!!!!!!

Wed, 05/01/2013 - 22:03 | 3520884 fonzannoon
fonzannoon's picture

where is our bachelor party going to be held?

Wed, 05/01/2013 - 22:19 | 3520932 kito
kito's picture

at the end of the world ZH bunker party....invitation only......user name and password gets you need to check your sidearm at the door........

Wed, 05/01/2013 - 22:18 | 3520938 fonzannoon
fonzannoon's picture

the password is New england clam chowder. But is it the red or the white and do you know what movie that is from?

Wed, 05/01/2013 - 22:22 | 3520951 kito
kito's picture

hold on.....let me google it................ace ventura...............

Wed, 05/01/2013 - 22:26 | 3520959 fonzannoon
fonzannoon's picture

fkin google has all our information.

Wed, 05/01/2013 - 22:26 | 3520962 kito
kito's picture

i just tried to log onto your account....odd....neither red nor white you think tyler will mandate name tags with the avatar???? i was never a big fan of name tags at functions.................

Wed, 05/01/2013 - 22:30 | 3520974 fonzannoon
fonzannoon's picture

I wonder if whoever that guy was who blew a fuse over your lack of comma's had a stroke by now.

Wed, 05/01/2013 - 22:32 | 3520983 kito
kito's picture

hahaha..........ive had a few grammar critics....was it the one who had trustafarian facebook friends in san francisco??.......or was it denver?..................................

Wed, 05/01/2013 - 22:33 | 3520998 fonzannoon
fonzannoon's picture

no clue man. I am heading to bed. I want to be well rested tomorrow when the shit seems like it will hit the fan but does not. Later man.

Thu, 05/02/2013 - 00:36 | 3521328 RockyRacoon
RockyRacoon's picture

Can't wait til Santelli tries to explain this with his magic marker and white-board.  Poor guy can't get a break.

Reminds me of Ron Paul trying to explain why we're all fooked and coming across as a kook. 

It's just not easy, and I think TPTB planned it that way.  All the terminology is now a term of art.

Wed, 05/01/2013 - 23:51 | 3521240 dtwn
dtwn's picture

I'm sure Bennie jerks it to thoughts of economic euphoria, but it just ain't gonna happen.  Homie don't play dat.  I don't see us making it years without a black swan either, just too much chaos and volatility in the world, we're a fuel-air bomb waiting for a spark.

Wed, 05/01/2013 - 19:53 | 3520426 Peter Pan
Peter Pan's picture

It has been known that liabilities exceed assets for quite some time and given the nature of unfunded liabilities, the situation will only get worse if governments persist in "keeping their promises."

The music has stopped but we are all still dancing to the echoes of the music. The smart ones have already taken their golden chairs and run off.

Wed, 05/01/2013 - 19:53 | 3520427 Tippoo Sultan
Tippoo Sultan's picture

I see that the "junking dog" has been unleashed upon this thread.

TD clearly struck a nerve...

Wed, 05/01/2013 - 20:04 | 3520459 fonzannoon
fonzannoon's picture

I was just thinking either I touched a nerve accidentally or the CNBC cast is logging and trying to hide their utter stupidity. I know one of these junks is Liesman. Fuck you you bald fat fuck!

Wed, 05/01/2013 - 20:14 | 3520494 Dr. Engali
Dr. Engali's picture

The CNBC crowd couldn't make it past the first paragraph before their walnut sized brains were fried.

Wed, 05/01/2013 - 20:18 | 3520507 fonzannoon
fonzannoon's picture

I wonder if this is how they worked their way to finding the down arrows.

Wed, 05/01/2013 - 21:06 | 3520674 1C3-N1N3
1C3-N1N3's picture

LOL, I can see that.

+1 to all the regulars.

When the regulars get junked this hard for no reason, you know Tyler just fucked somebody up.

Wed, 05/01/2013 - 21:14 | 3520690 fonzannoon
fonzannoon's picture

I wish they had the balls to speak up.

Wed, 05/01/2013 - 22:03 | 3520877 kito
kito's picture

I confess.......Francis Sawyer did it.......

Wed, 05/01/2013 - 22:09 | 3520904 fonzannoon
fonzannoon's picture

FS isn't taking the bait today. Unusual.

Wed, 05/01/2013 - 22:15 | 3520924 kito
kito's picture

no where to be found lately....hmmm.......let me check the headlines...............


Thu, 05/02/2013 - 06:09 | 3521567 francis_sawyer
francis_sawyer's picture

francis_sawyer was at the dentist... I got a cavity just reading all this sugar...

Wed, 05/01/2013 - 19:57 | 3520439 richsob
richsob's picture

How about this for a future scenario?  The government makes the ownership of gold illegal and has stringent regulations/taxes on the purchase and sale of silver.  BUT they allow the paper form of metals to continue trading.  It's not as farfetched as you might think.  It would play perfectly into the bank's interests and still allow investors to play the commodities game.......on the banker's terms.  If the paper prices of gold and silver what?  They have the physical already locked up.

Wed, 05/01/2013 - 21:16 | 3520711 HulkHogan
HulkHogan's picture

Start a business and claim you are an artist or a jeweler. Those people were allowed to keep their gold when FDR took it away.

Thu, 05/02/2013 - 00:47 | 3521347 RockyRacoon
RockyRacoon's picture

A lot of coins will suddenly become "collectibles".   Become a coin dealer!   I'm already 20 years into the biz and it's fun.

Thu, 05/02/2013 - 00:57 | 3521356 Vooter
Vooter's picture

"The government makes the ownership of gold illegal and has stringent regulations/taxes on the purchase and sale of silver."

The government says that pot is illegal, but I don't see anyone turning in their pot...

Thu, 05/02/2013 - 05:06 | 3521535 Dr. Sandi
Dr. Sandi's picture

If I turn in my pot, what will I have left to piss in?

Thu, 05/02/2013 - 10:50 | 3522375 richsob
richsob's picture

You obviously think it is impossible that gold ownership could be illegal in the future when the politicians have completely lost their senses.  That is assuming some faith in politicians that I don't have.  But if gold ownership is ever illegal you obvioulsy could hide what you have.  But that defeats the purpose of owning it.  "Money" is only good if you can exchange it for something of value.  That doesn't just mean for buying a cup of coffee.  It means being able to freely buy a house, a farm, pay a kid's college tuition.  If gold ownership is ever illegal you won't be able to dig up a couple of coins and use them to buy much of anything because there will also be rewards for people who rat you out.  Then you lose your gold, go to prison and watch the government/politicians use you as an example of what happens to naughty citizens.

Wed, 05/01/2013 - 20:02 | 3520453 Colonel Walter ...
Colonel Walter E Kurtz's picture

It seems the "lenders" are starting to be scared of the promise of future tax collections as collateral. Now they are seeking immediate cash (while it still has some value and they can steal it from the people) and/or precious metals as collateral. Throw in that the US government sees the need to offer adjustable rate notes to try to get people to buy the debt and it seems step by step we are slowly reaching the end of this round of the ponzi game.

Time to reset and start again!


Wed, 05/01/2013 - 23:02 | 3521105 StychoKiller
StychoKiller's picture

Unemployed people don't pay income taxes.

Wed, 05/01/2013 - 20:00 | 3520455 Yellowhoard
Yellowhoard's picture

What could possibly go wrong?

Wed, 05/01/2013 - 20:04 | 3520462 steve from virginia
steve from virginia's picture




@ Zero sez:


"Effective money = shadow money + M2"

This is precisely the point we have been making for the past three years in all those posts focusing on the relative moves in the US shadow banking system, i.e., shadow money, and which virtually none of the current monetarists (and by extension Keynesians) seem able to grasp since all textbooks on monetary theory appear to be from the 1980s when shadow liabilities, repo and custodian assets simply did not exist."


This is total BS, there is nothing on Zero-Hedge but non-stop pimping for 'money printing' by central banks with nothing at all about collateral.


To discuss collateral at all -- including shadow liabilities, repo and custodian assets -- would imply its necessity within reserve banking. This in turn would torpedo the entire GOP/US Nazi Party-driven Zero Hedge waste-based agenda.


Money Printing = Peak Oil denial. Nothing more, nothing less.



Wed, 05/01/2013 - 20:08 | 3520475 Tyler Durden
Tyler Durden's picture

You haven't taken your daily Lithium dose again huh?

Wed, 05/01/2013 - 20:11 | 3520487 prains
prains's picture




Thu, 05/02/2013 - 04:38 | 3520810 Colonel
Wed, 05/01/2013 - 20:08 | 3520484 Dr. Engali
Dr. Engali's picture

Where the fuck have you been? There certainly are plenty of articles about shadow banking and M2. They are some if the most illuminating pieces on the Hedge in my opinion.

Wed, 05/01/2013 - 20:18 | 3520510 TheFourthStooge-ing
TheFourthStooge-ing's picture


Where the fuck have you been? There certainly are plenty of articles about shadow banking and M2. They are some if the most illuminating pieces on the Hedge in my opinion.

The words were a little too big for some people.

Wed, 05/01/2013 - 20:13 | 3520490 Bear
Bear's picture

Money printing, peak oil denial? ... on the contrary, if peak oil is true, My plan to save up as much cash as possible to burn later on should work out well.

Thu, 05/02/2013 - 00:12 | 3521287 semperfi
semperfi's picture

seriously dude?  really?  c'mon - that's good - you had me

Thu, 05/02/2013 - 00:35 | 3521324 RebelDevil
RebelDevil's picture

You're just in denial because this is intellectual hard-core financial shit that takes a MBA in Finance for the average guy to know. This post deserves hours worth of study!

I've only skimmed the surface on this post, but Tyler is proving to us once again that "he" is full of awakened financial geniuses who may or may not have PhDs in Finance and who may or may not have worked at the very institutions we see manipulating the market! - The Tylers have thus proven themselves to be "The Illuminated Ones" if there ever was a benevolent secret society fighting the elite. 

Wed, 05/01/2013 - 20:02 | 3520463 Bear
Bear's picture

Where is Johnny C when he is most needed to forgo his quality assets?

Wed, 05/01/2013 - 20:03 | 3520469 TheMonetaryRed
TheMonetaryRed's picture

At $1500 an ounce? 

Sold to you. 

The author has it right in this sense: Central Banks are the ultimate guarantors of high quality collateral because they have the power to change the numbers in the big bank accounts. In a liquidity crisis, it doesn't really matter how much money is printed so long as it can be soaked up when liquidity returns. Negative real rates on "riskless" assets like government bonds and gold keeps them from crowding out investment in real stuff. 



Incidentally, Gold to $900. 

Wed, 05/01/2013 - 20:12 | 3520497 Bear
Bear's picture

I hope it goes there quickly, I'm buying every day.

Thu, 05/02/2013 - 01:11 | 3521376 DoChenRollingBearing
DoChenRollingBearing's picture


Every month.

Thu, 05/02/2013 - 06:25 | 3521575 GCT
GCT's picture

While some fools hold on to their FRN's Dochen I see it as a buying opportunity to convert my FRN's into a tangible asset as well.

Some commentors need to go study some history.  FDR did indeed make it illegal to own gold, but only 20% of the gold was ever turned into the government.  While the government wants to treat us like sheep 80% of the people that owned gold kept it.

Thanks for this article Tyler's.  I will need to read it twice to understand it, but this is the reason I never miss ZH!!

Wed, 05/01/2013 - 20:27 | 3520538 monopoly
monopoly's picture

Hey MonetaryRed, 

You forgot the one in front of the 9. 

Wed, 05/01/2013 - 20:40 | 3520578 Al Huxley
Al Huxley's picture

I assume you're talking about the paper stuff Comex deals in and not actual gold.

Wed, 05/01/2013 - 21:10 | 3520684 BeanusCountus
BeanusCountus's picture

Don't have expertise on all of the things in the article, but "keeping people from investing in real stuff" is absurd. Real stuff like what? iPads?

Thu, 05/02/2013 - 00:14 | 3521296 semperfi
semperfi's picture

fixed it:   Gold to $9000.

Wed, 05/01/2013 - 20:10 | 3520482 SqueekyFromm
SqueekyFromm's picture

Here is an Irish Poem about re-hypothecation:


In Re:  Hypothecation

Re-hy-pothecation's exciting!

And Lenders might find it inviting.

But, behind the long name

It's an old-time con game

That was formerly known as "check kiting."


Squeeky Fromm, Girl Reporter


Wed, 05/01/2013 - 20:19 | 3520520 TheFourthStooge-ing
TheFourthStooge-ing's picture

...and right on schedule, Squiggy the paperboy feels a craving for attention and regales us with another one of his lamericks.

Wed, 05/01/2013 - 21:02 | 3520655 SqueekyFromm
SqueekyFromm's picture

OH, pooh on you!!! You are just sooo very jealous because you can't write Irish Poems like:


Le Grand Bullevards

After Le Orgie Buy-lateral,

Le World needed more collateral!

A quadrillion or so,

Le Dollars or Euro. . .

WHATEVAH! It's all going splat-eral.


Squeeky Fromm, Girl Reporter

Wed, 05/01/2013 - 21:11 | 3520694 1C3-N1N3
1C3-N1N3's picture

Your tripleted meter is a little off, but I lol'd.

Wed, 05/01/2013 - 20:26 | 3520536 Goldilocks
Goldilocks's picture

The Sting - Soundtrack (3:00)

Wed, 05/01/2013 - 20:23 | 3520523 Downtoolong
Downtoolong's picture

Market Definitions Of High Quality Collateral - 1. Hard Currency Cash...

You know it's already over when they blow the first call.



Wed, 05/01/2013 - 20:23 | 3520530 1C3-N1N3
1C3-N1N3's picture


it is the use of funds that is critical...not growing corporate assets in any way, and certainly not creating any secured liabilities, only unsecured.

It's not just corporate USA doing this. Sounds like consumer credit card debt these days. People using their credit to consume instead of acquire.

This one is really funny: "an asset not expected to depreciate" - like housing

Spot on. I lul't.

rehypothecating what passes for safe assets now is the primary source of incremental collateral 'creation'

This reminds me of a Beavis and Butthead episode where they sell candy bars for a school fundraiser. Beavis has a dollar. He buys a candy bar from Butthead. Butthead then buys a candy bar from Beavis' stash with that same dollar. It goes on, back and forth with the same dollar, until they've eaten all the candy. And when the school asks for the fundraiser money...lulz.

Wed, 05/01/2013 - 20:24 | 3520534 optionsman
optionsman's picture



if i had questions one would be this: some of the TBAC members are from real money (buy side) community. if they helped with the research on the piece for TBAC then they must understand many issues ZH is here talking about such as QE begets QE etc. then the question is why in the world they underweight Treasury duration consistently? is it their contribution to HQC creation? that is usually supported by internal deliberations at their shops on the subject of the Fed exit, QE tapering or whatever just to justify short duration posture.........

Wed, 05/01/2013 - 20:35 | 3520559 Billy Shears
Billy Shears's picture

That is an awful lot of shitty promises,  I.e., toilet tissue. 

Wed, 05/01/2013 - 20:36 | 3520563 kill switch
kill switch's picture

Diane Feinstein’s husband Richard Blum won a construction contract for California’s high-speed rail $985,142,530

Take your fucking guns

Wed, 05/01/2013 - 20:43 | 3520585 Bastiat
Bastiat's picture

Yeah, and she dares get on a moral high-horse about anything?  Shameless pig.

Thu, 05/02/2013 - 01:15 | 3521381 DoChenRollingBearing
DoChenRollingBearing's picture

Nice catch, kill switch.

The hypocritical oligarchy can piss me off but good sometimes...

Thu, 05/02/2013 - 04:13 | 3521512 Floodmaster
Floodmaster's picture

California will be the first state to join the civilised world.

Wed, 05/01/2013 - 20:37 | 3520569 Al Huxley
Al Huxley's picture

That's a pretty long paper, but it seems the gist of it is

- we need 11 trillion in high quality collateral

- Treasuries are high-quality collateral

ergo  - we need to print up 11 trillion in new Treasuries ASAP.


Now, when do I get my PhD and Nobel Prize for Economics

Wed, 05/01/2013 - 20:55 | 3520634 fonzannoon
fonzannoon's picture


Wed, 05/01/2013 - 20:58 | 3520649 Legolas
Legolas's picture



"ergo  - we need to print up 11 trillion in new Treasuries ASAP."


If you had said "we need to hit the reset button"

you would have gotten my vote.

Wed, 05/01/2013 - 21:01 | 3520660 TheFourthStooge-ing
TheFourthStooge-ing's picture


- we need 11 trillion in high quality collateral

- Treasuries are high-quality collateral

You bet your ass they are! They're backed by the highest quality collateral on the planet: Treasuries.

Wed, 05/01/2013 - 21:38 | 3520778 prains
prains's picture


they're over there in the tickle trunk

Wed, 05/01/2013 - 23:12 | 3521141 StychoKiller
StychoKiller's picture

The Bernank be printin', the World be hatin'!

Wed, 05/01/2013 - 23:34 | 3521201 ekm
ekm's picture

No. Congress would have to approve debt ceiling of 11 trillion.


Conceptually, it's congress that creates money out of nothing. The Fed simply monetizes what congress creates

Wed, 05/01/2013 - 22:19 | 3520573 Bastiat
Bastiat's picture

So the problem is created by hyper-leverage.  It's as if there were only so much cloth available and Gov. Chrisite needed more yards than were available to cover his expanding fat ass.  So his clothes get tighter and tighter until there is a catastrophic blowout and we get closer than we ever wanted to an "emperor" moment.

Now imagine four or five Christies (Too Big To Feed) compulsively jamming their faces at a buffet contributing to the fabric demand.  Is the root problem fabric supply?  

Wed, 05/01/2013 - 23:01 | 3521100 prains
prains's picture

no the problem is the wafer thin mint..........

Thu, 05/02/2013 - 06:11 | 3521568 Jendrzejczyk
Jendrzejczyk's picture

Classic Monty reference

Thu, 05/02/2013 - 10:45 | 3522356 prains
prains's picture

fetch me a bucket

Wed, 05/01/2013 - 20:48 | 3520615 Gamma735
Gamma735's picture

You had something to hide
Should have hidden it, shouldn't you
Now you're not satisfied
With what you're being put through

It's just time to pay the price
For not listening to advice
And deciding in your youth
On the policy of truth

Things could be so different now
It used to be so civilized
You will always wonder how
It could have been if you'd only lied

It's too late to change events
It's time to face the consequence
For delivering the proof
In the policy of truth

Never again
Is what you swore
The time before
Never again
Is what you swore
The time before

Now you're standing there tongue tied
You'd better learn your lesson well
Hide what you have to hide
And tell what you have to tell
You'll see your problems multiplied
If you continually decide
To faithfully pursue
The policy of truth

Never again
Is what you swore
The time before


-Depeche Mode

Wed, 05/01/2013 - 20:49 | 3520618 BeanusCountus
BeanusCountus's picture

Very complicated. Embarrassed to say there are a number of items here I need to learn more about. Will do so at work (sorry productivity, more important things to do). But please help me out here hedgies, is Ben really just in a vice? Conclusion is that he has no choice.

Wed, 05/01/2013 - 20:53 | 3520624 Gamma735
Gamma735's picture

Well he works for the private owners of the Federal Reserve Bank, not the people of the United States.   I think a full audit of the Fed and a realease of the names of the owners of the Fed might reveal a different logic behind Bernanke's motives.

Thu, 05/02/2013 - 00:07 | 3521276 AlaricBalth
AlaricBalth's picture

A full audit was tried a few years ago by Ron Paul. He thought he had the votes. But then Congressman (D-NC) Melvin Watt came along and gutted the bill. Yes, the same Mel Watt who was named by Obama today to head
the Federal Housing Finance Agency. The same Mel Watt that has BofA as his benefactor. The same Mel Watt who has allegedly done some shady RE deals in Charlotte with some big hitters. The same Mel Watt who deserves to be scrutinized as deeply as he gutted the Audit the Fed bill.

Thu, 05/02/2013 - 01:17 | 3521385 DoChenRollingBearing
DoChenRollingBearing's picture





Wed, 05/01/2013 - 23:03 | 3520633 prains
prains's picture

sharpen your pencil, and take some home from work, they'll come in handy


hold one in each coat pocket when the DHS comes to "relocate" you, that way you'll look armed

Wed, 05/01/2013 - 20:59 | 3520642 MythicalFish
MythicalFish's picture

Excellent article.

Wed, 05/01/2013 - 21:01 | 3520648 Tirion
Tirion's picture

Quick, UBS! Time to dust off that paper on an official revaluation of gold!

Wed, 05/01/2013 - 21:00 | 3520658 earleflorida
earleflorida's picture

"For Keynes, the main problem was the question of demand -- or'effective demand' -- as he referred to it; for Hayek, the key issue was the question of supply -- in particular of the money supply.  But as Keynes pointed out, 'in the long run we are all dead.'"

"In particular, Hayek argued that it was government interference in the money supply -- eg. through setting interest rates, printing too much money, and encouraging the expansion of credit -- that created bubbles and distorted the market, leading to crisis when the bubbles burst and the boom was seen to be largely based on fictitious capital."      *[as we've seen in the dot-com, housing, and capital markets]

Marx, Keynes, and Hayek were all looking for the 'Economist Holy Grail' aka, 'equillibrium', ie. efficient market's of supply and demand... which they all knew as a contradiction [capitalist - wages - consumer's]?

Henry Ford figured it out, as did Thomas Edison... and even John D. Rockefeller, but along came J.P. Morgan and finance?!

Quotes: 'Say's Law' __ 'The General Theory of Employment, Interest, and money' __ 'Capital'

thankyou Tyler

Wed, 05/01/2013 - 21:19 | 3520726 yogibear
yogibear's picture

How about we ask those folks that create the US superdollars to print us up a few trillion. Do the central bank thing. It will create inflation, just like Bernanke and the Fed want.

Wed, 05/01/2013 - 21:26 | 3520753 ebworthen
ebworthen's picture

Not too many "low haircut" opportunities out there.

Most anything will be getting a haircut when the SHTF.

U.S. Treasuries probably last as the FED will buy them until the bitter end.

Wed, 05/01/2013 - 21:30 | 3520757 FreeNewEnergy
FreeNewEnergy's picture

Sometime over the next four months, I will have maybe 10,000 ripe, delicious, nutritious tomatoes, grown from heirloom seeds, of course.

I understand that these cannot be considered HQC, but, can I rehypothecate them, and if so, how? (this is a trick question, so farmers may have an edge)

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