The "Price" Of Record High Markets: $10 Trillion In Seven Years

Tyler Durden's picture

By now everyone, even CNBC, admits that the only reason stocks are where they are is due to the G-7 central banks. What many may not know, however, is how we got here, and where we will be at the end of this year. The answer, as provided by JPM Asset Management CIO Michael Cembalest in the chart below, is at the dot in the top right. This will represent the addition of $10 trillion in liquidity, or alternatively the conversion of the "planetary nebula" of central bank balance sheet expansion, in the past seven years. And considering that, as we explained yesterday, there is another $10-11 trillion in scarce "quality collateral" that has to be injected into the financial markets via central banks collateral transformations, the number in yet another 7 years will be at $20 trillion if not exponentially higher, or higher than where US GDP will be.

Cembalest's take:

The planetary nebula of central bank balance sheet expansion (last chart), which we expect to hit $10 trillion later this year, is still the most important factor underpinning an uneven global recovery. It makes sense to have some patience right now. Global equities are up 8%-9% year to date, which is a pretty good return for a time when the profits expansion is slowing, global growth is closer to 3% than 5%, Chinese growth continues to cool down despite rapid increases in the use of credit, and when it is practically impossible to disentangle how much central banks are affecting asset prices. I read a research report that showed that returns on consumer staples stocks are now correlated 75% with the returns on Treasury bonds, by far the highest level since 1929. Usually, the correlation is close to zero.... Note to Fed: uh, congratulations?

Luckily, nothing bad happened in 1929.

The difference this time, as is now very obvious, is that in the event the central banks fail at preserving the perpetual growth of what may truly be the final bubble (yes, a preposterous assumption), the central banks are already all in, unlike all previous credit, risk-asset, and housing bubbles. So who becomes the "bad bank" to the central banks when confidence in the "lender of last resort" finally gives way?

Full note here

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ziggy59's picture

..and then, BOOM goes the dynamite!

Say What Again's picture

What "blows me away" is that all these dumb ass central bankers actually believe they're making thing better.  I know they have PhDs and shit, but what am I missing?

ParkAveFlasher's picture

You don't know that it's unintentional.  Stop spreading that.

Say What Again's picture

I can't tell if you're trying to funny / sarcastic or not.   But, I did not imply anything was "unintentional."

Quite the contrary, I believe the actions taken by the central bankers are very intentional. What I cannot figure out is how they believe their actions will be for the better.  What is their logic?

ParkAveFlasher's picture

Again, you are assuming that they believe their actions will be for the better.  That's a leap of faith that I don't believe is a safe one to make.

Mojeaux18's picture

The answer is better for who? Why do ppl assume it's for us?

Pairadimes's picture

The central banksters are not pursuing this path for the putative desired results. Even a moron can see this for what it is, if they only cared to understand. This medicine is being administered to the world's economies strictly for the side effects of enriching the wealthiest asset owners, a group of which they are members. Nevermind that these bastards and their hired bureaucrat and politician arm-breakers have created the economic context for this massive fraud.

When the smoke eventually clears, this will one day be understood by our descendants as the greatest act of fraud and corruption in the history of the world.

W T F II's picture

You know who...?? EVERYONE...!!

Variance Doc's picture

Exactly!  Still not enough real assets to cover the paper, though.  Not by a long shot.

Get out of the system!

Bearhug Bernanke's picture

Damn you, Calvin Coolidge!

prains's picture

damn you akak! <unsee  unsee  unsee> dude i can't find the unsee button on my keyboard

Boston's picture

So who becomes the "bad bank" to the central banks when confidence in the "lender of last resort" finally gives way?


Sill question---WE DO. When all of our deposits get Cyprused.

Cognitive Dissonance's picture

"We've only just print." - G7 central banks drinking song.

Jekyll_n_Hyde_Island's picture

I got a third of the way through that video before my ears started bleeding.


 Don't do that again.  Now I've got to leave my office and go drink to get that shit out of my head.

max2205's picture

Global Devaluation and haircuts coming to accounts far and wide

NoDebt's picture

It's occurred to me recently that "far and wide" doesn't cover enough territory.  It implies there's still somewhere left to hide.  I think it's one of those things like "The Big Bang" where it happened everywhere simultaneously.  There was no place that you could stand and watch it happen from "outside".

new game's picture

10 seconds

drive a 10d thru that one...

Cognitive Dissonance's picture

Well..........most of the G7 central bankers are in their 50s and 60's. :)

<Would you like that 10d galvanized or not?>

debtor of last resort's picture

"so who becomes the bad bank when confidence in the lender of last resort finally gives way?"

I guess that will be the debtor of last resort.

insanelysane's picture

Let's see, Fed spends $85B/month X 12 months = $1T.  US tax receipts are about $2T.  Cut taxes in half tomorrow and you have instant recovery.

We can't have that because the power wealth would be distibuted outside of Banksters and Politicians. 

Cognitive Dissonance's picture


Widowmaker's picture

Politics is dead.  There are no politicians, only friends of power.

Perform fellatio during campaign season, get a presidential post on merit.    Merit with nothing to do with anything but money.

NoDebt's picture

No, then you'd have TWO trillion a year in deficits so the Fed would have to do TWICE as much QE.

Er..... um...... wait a minute.  Oh, I see what you did there.  OK, you win.  Let's do that.

Jekyll_n_Hyde_Island's picture

  Just waiting for a group of investors to pull from the equities markets, the algos kick in and recover the stocks with false money -- the world gets wind of it and yanks all its money from the markets and we get a collapse.


  When that happens I fully expect the Durdens to publish a news feed that reads, "I told you so" in size 96 font.

Dr. Richard Head's picture

That will be the day that ellicits the biggest smile from me ever. 

Solon the Destroyer's picture

Took, what, 15 years of printing and 2-3 asset bubble collapses before the big one blew in 1929?  We lost one major country along the way to hyperinflation before the industrialized world got its deflationary takedown...

Wonder how long it will take these students of economic history, these ivory tower academics, to actually pick up a history book and "discover" that inflationary printing actually causes unemployment?

But then again The Big Bernankster never met a string he wouldn't push.

Solon the Destroyer's picture

Apologies for the long quote...

From Andrew Dickson White's Inflation in France, p. 1896 (that's how long we have known about this shit):


The government now began, and continued by spasms to grind out still more paper; commerce was at first stimulated by the difference in exchange; but this cause soon ceased to operate, and commerce, having been stimulated unhealthfully, wasted away.


Manufactures at first received a great impulse; but, ere long, this overproduction and overstimulus proved as fatal to them as to commerce. From time to time there was a revival of hope caused by an apparent revival of business; but this revival of business was at last seen to be caused more and more by the desire of far-seeing and cunning men of affairs to exchange paper money for objects of permanent value.  As to the people at large, the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes was reduced. Soon the great class living on wages felt it even more sadly.


Prices of the necessities of life increased: merchants were obliged to increase them, not only to cover depreciation of their merchandise, but also to cover their risk of loss from fluctuation; and, while the prices of products thus rose, wages, which had at first gone up, under the general stimulus, lagged behind. Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed. As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor—the daily wages of the laboring class—went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency.


The mercantile classes at first thought themselves exempt from the general misfortune. They were delighted at the apparent advance in the value of the goods upon their shelves. But they soon found that, as they increased prices to cover the inflation of currency and the risk from fluctuation and uncertainty, purchases became less in amount and payments less sure; a feeling of insecurity spread throughout

the country; enterprise was deadened and stagnation followed.


New issues of paper were then clamored for as more drams are demanded by a drunkard. New issues only increased the evil; capitalists were all the more reluctant to embark their money on such a sea of doubt. Workmen of all sorts were more and more thrown out of employment.  Issue after issue of currency came; but no relief resulted save a momentary stimulus, which aggravated the disease. The most ingenious evasions of natural laws in finance which the most subtle theorists could contrive were tried—all in vain; the most brilliant substitutes for those laws were tried; "self-regulating" schemes, "interconverting" schemes—all equally vain.  All thoughtful men had lost confidence.  All men were waiting; stagnation became worse and worse. At last came the collapse and then a return, by a fearful shock, to a state of things which presented something like certainty of remuneration to capital and labor. Then,and not till then, came the beginning of a new era of prosperity.


Just as dependent on the law of cause and effect was the moral development. Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all business men, gamblers. In city centers came a quick growth of stock-jobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of  satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So came upon the nation the obliteration of thrift. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in: this, too, spread as a fashion. To feed it, there came cheatery in the nation at large and corruption among officials and persons holding trusts. While men set such fashions in private and official business, women set fashions of extravagance in dress and living that added to the incentives to corruption. Faith in moral considerations, or even in good impulses, yielded to general distrust. National honor was thought a fiction cherished only by hypocrites. Patriotism was eaten out by cynicism.


Thus was the history of France logically developed in obedience to natural laws; such has, to a greater or less degree, always been the result of irredeemable paper, created according to the whim or interest of legislative assemblies rather than based upon standards of value permanent in their nature and agreed upon throughout the entire world. Such, we may fairly expect, will always be the result of them until the ñat of the Almighty shall evolve laws in the universe radically different from those which at present obtain.


And, finally, as to the general development of the theory and practice which all this history records: my subject has been Fiat Money in France; How it came; What it brought; and How it ended.


It came by seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.


It progressed according to a law in social physics which we may call the "law of accelerating issue and depreciation." It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and those following was practicallyimpossible.


It brought, as we have seen, commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer. It ended in the complete financial, moral and political prostration of France—a prostration from which only a Napoleon could raise it.

(Final emphasis mine)

Pool Shark's picture



No apologies needed.

Should be required reading for all school students,... and central bankers...


mkarolusa's picture

Execellent repost :-)  Those who do not learn from History... God save our children!

Edward Fiatski's picture

The current Roaring Twenties are coming to a close.

I find this historical correlation most fascinating; nothing ever changes, even today the biological lifespan of one generation remains 70 years.

Keynesian Mess's picture

No, no, no.  It's different this time.  The Krugidiot says MOAR debt is not a problem.

101 years and counting's picture

bush's fault.  jk.  its all clintons.  seriously.

Bunga Bunga's picture

C'mon, no new conspiracy theories here, it's just a coincidence.

ParkAveFlasher's picture

We are now in August, 2008, and we are going to $18T on this chart in the coming months.

Waterfallsparkles's picture

Just WHO is going to pay for this?  Unfortunatly, the least of us all.  The Middle Class thru their Income Taxes and eventual austerity.

Cognitive Dissonance's picture

"You can pay me now or you can pay me later. Doesn't matter much to me cus you're gonna eventually pay." - Overheard in the GS executive washroom.

Poetic injustice's picture

Who is this "middle class" guy you are talking about?
Have not met one in years...

Bunga Bunga's picture

Tax is an interest payment you can't avoid.

Keynesian Mess's picture

... and what they don't tax, they will "Cypress".

Alpha Monkey's picture

Depends how long it takes for us to take to the streets... and I don't mean in our designated protesting zones, I mean in the fucking streets.

Dr. Engali's picture

As you can see the numbers all go up to 11 ....What we do is if you need that one little push over the cliff we go to 11.

Cognitive Dissonance's picture


On the other hand they are just rock and rollers. Bankers do it much better because they can go to 100 Quadzilliondillion. :)

Dr. Engali's picture

I hope we don't have to wait that long. 

Cognitive Dissonance's picture

"You're gonna wait and you're gonna like it Damnit." -

FoeHammer's picture

That clip always makes me laugh