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Guess Who Is A Shocking Fan Of Austrian Economics

Tyler Durden's picture




 

The statement below, coined by Friedrich Hayek in his 1931 "Prices and Production", is well-known by any fans of the Austrian school of economics (and by implication, loathed by all Keynesians):

“There can be no doubt that besides the regular types of the circulating medium, such as coin, notes and bank deposits, which are generally recognised to be money or currency, and the quantity of which is regulated by some central authority or can at least be imagined to be so regulated, there exist still other forms of media of exchange which occasionally or permanently do the service of money. Now while for certain practical purposes we are accustomed to distinguish these forms of media of exchange from money proper as being mere substitutes for money, it is clear that, other things equal, any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper, and should therefore, for the purposes of theoretical analysis, be counted as money.”

One may usually find it in letters of the few renegade hedge fund managers who dare to call out the Chairsatan for his utter bubble pumping insanity, in the writings of those who have not been indoctrinated into the fallacies of the Keynesian pseudo-religious dogma, and generally discussed by those who actually do understand real credit and thus, monetary creation.

One will certainly not find it in the mecca of Keynesian ideology - the US Treasury - where the dominant thought paradigm these days appears to be that sovereign debt is, in fact, an asset, that record debt will be cured with more record debt, and that the only thing that matters when accounting for money is M1, maybe M2, but certainly not M3, and where nobody has even heard of shadow money (the same reason why we predicted - correctly - over a year ago why the Fed will continue to monetize debt long before QEternity was announced).

Or won't one?

We were quite shocked to find precisely this fragment in its entirety not in some fringe economics department of the Sorbonne, but on page 86 (of 126) in this quarter's refunding presentation by the Matt Zames (JPMorgan)-chaired Treasury Borrowing Advisory Committee to the US Treasury, specifically in the appendix to the presentation we showed last week explaining just why the US has an $11.2 trillion asset shortage, why Bernanke has trillions more of monetization left to go, and why all conventionally-based understanding of monetary theory - any that ignores shadow money - is and has always been 100% wrong.

That's right: it would appear that the long hand of Austrian economics has penetrated deep into the narrative offered by the JPM and Goldman-chaired TBAC.

But... if that is the case, and if indeed the Treasury's advisors are fundamentally at heart, Austrian, then that would diametrically change the entire ballgame. Simply because it would mean that whoever wrote the TBAC's most recent slideshow understand perfectly well that the path the US has set off on is not only not going to have a happy ending as the Keynesian borg Kolhoz claims (courtesy of the endless monetization of debt), but will, naturally, end in tears.

So, one wonders: is that precisely what JPM and Goldman (the two heads of the TBAC) have had in mind all along?

And if so, one also wonders just how they really feel about gold...

 

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Wed, 05/08/2013 - 16:04 | 3542356 NotApplicable
NotApplicable's picture

Well, of course it is.

Don't have to be a weatherman to know which way the wind blows.

Wed, 05/08/2013 - 16:04 | 3542361 Pinto Currency
Pinto Currency's picture

 

 

Many bankers are aware of Austrian Economics and utiilize it to understand what is going on.

Keynes is the trash they feed us to keep us huffing and puffing on their treadmill.

Wed, 05/08/2013 - 16:06 | 3542369 THX 1178
THX 1178's picture

Sure. I think the guys in the banking sector are generally Austrian in understanding and Keynesian in practice cuz tey get som much profit from it. The govt on the other hand is Keynesian thru and thru. I've said it before, the bankers are evil, not stupid. The government is both.

Wed, 05/08/2013 - 16:12 | 3542399 NotApplicable
NotApplicable's picture

Then there's always the old adage, "You can't fight City Hall." So, like the rest of us, they muddle-through despite the incoherence of their short-term actions.

Just think how disconcerting it must feel to get out of school only to find your entire education is not applicable, thanks to the ponzi in progress.

Wed, 05/08/2013 - 16:17 | 3542427 Dr. Richard Head
Dr. Richard Head's picture

I was thinking the whole "Don't piss on my back and tell me its raining" type of attitude.

Wed, 05/08/2013 - 16:19 | 3542436 Pinto Currency
Pinto Currency's picture

 

Either way, we clearly need more debt to resolve the debt bubble that we are in.

Oh, and bonds are a safe haven and gold is risky and volatile.

Wed, 05/08/2013 - 16:27 | 3542444 ZerOhead
ZerOhead's picture

It will end in tears alright...

Tears of JOY for the bankers... who with the only access to trillions in fresh Fed credit will eventually own every tangible asset left.

 

Wed, 05/08/2013 - 16:27 | 3542467 Manthong
Manthong's picture

Maybe someone is confusing Austrian with Austere-ian policy implications

Wed, 05/08/2013 - 16:40 | 3542495 economics9698
economics9698's picture

Keynesian economics was always bull shit designed to feed the masses crap.  No serious banker ever believed it.

Wed, 05/08/2013 - 16:57 | 3542547 SafelyGraze
SafelyGraze's picture

"the US has an $11.2 trillion asset shortage, why Bernanke has trillions more of monetization left to go"

tens of trillions

when you print 10T to "bail out" the TBTF, the 10T is then used as collateral to borrow 100T

 

Wed, 05/08/2013 - 17:24 | 3542614 Manthong
Manthong's picture

"You can't fight City Hall."

some guys that pledged “lives, treasure and sacred honor" might have differed with that opinion.

Wed, 05/08/2013 - 17:29 | 3542625 Pinto Currency
Pinto Currency's picture

 

Soros was a student of Hayek's in London. 

His investing inights are not related to Soros' special ability.

Wed, 05/08/2013 - 17:46 | 3542695 James_Cole
James_Cole's picture

What should be pretty obvious by now to anyone with a brain is these people (and a good deal of most on planet Earth) will be / say whatever is most opportunistic to them in the present circumstances.

Wed, 05/08/2013 - 23:49 | 3543589 FiatFobia
FiatFobia's picture

"When it becomes necessary, you have to lie"

 

   -European technocrat

Wed, 05/08/2013 - 16:29 | 3542471 francis_sawyer
francis_sawyer's picture

True dat ~ But I still got my my money on Johnny Pitchfork...

~~~

After all... It's one thing to be a douchebag tribe... wiggle your way in to a money printing franchise... saddle the world with debt [based on that concept]... Then, harvest all the paper titles...

It's QUITE ANOTHER THING... To lord over that when the sleepy aspect of human nature wakes up...

Wed, 05/08/2013 - 16:39 | 3542482 ZerOhead
ZerOhead's picture

You lost me at "Wakes up"...

Besides... when this Shitstorm hits people will have the more immediate needs of survival and security of future on their minds rather than the luxury of seeking vengence...

It will be epic.

Wed, 05/08/2013 - 16:46 | 3542510 Rubicon
Rubicon's picture

There's Bitcoin in there them hills

Wed, 05/08/2013 - 16:51 | 3542523 francis_sawyer
francis_sawyer's picture

"Wakes Up" = Imminent Survival Face Slap... [whereby the 'learning curve' is rather fast ~ & which is an aspect of human nature that I fully believe in]...

~~~

Trouble is... It's ALSO a human nature to 'cram for exams'...

Wed, 05/08/2013 - 18:33 | 3542833 Jack Napier
Jack Napier's picture

... and forget it all the day after.

Wed, 05/08/2013 - 17:21 | 3542603 auric1234
auric1234's picture

Some humour today: According to Bloomberg, natural gas is the new safe haven:

http://www.bloomberg.com/video/is-natural-gas-the-new-safe-haven-commodi...

 

Wed, 05/08/2013 - 19:18 | 3542931 GoinFawr
GoinFawr's picture

Aieeeeee! NOOOOO0000000000ooooooo......... . .   .   .       .              .

Wed, 05/08/2013 - 20:12 | 3543090 Diogenes
Diogenes's picture

Until the methane hydrate mines and wells come on stream. Apparently there is enough of this stuff to last 1000 years at present rates of consumption.

http://www.energybiz.com/article/13/03/japan-rocks-energy-world-successf...

Wed, 05/08/2013 - 20:45 | 3543174 Doubleguns
Doubleguns's picture

 any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper, and should therefore, for the purposes of theoretical analysis, be counted as money.”

Sex is a money substitute so the FED cant run out of money cuz we are gonna get a whole lot of fucking from them. Frankly their money supply appears endless. 

Wed, 05/08/2013 - 17:18 | 3542594 qualityhardware
qualityhardware's picture

And the .gov has guns. Lots and lots of guns.

Wed, 05/08/2013 - 16:07 | 3542374 Pladizow
Pladizow's picture

"So, one wonders: is that precisely what JPM and Goldman have had in mind all along?"

YES!!! order out of chaos.

A NWO will not rise out of peace!

Wed, 05/08/2013 - 16:19 | 3542437 McMolotov
McMolotov's picture

Paraphrasing Jim Morrison:

"Blood will be born in the birth of a NWO."

Wed, 05/08/2013 - 18:02 | 3542755 BoNeSxxx
BoNeSxxx's picture

Have you seen the murals at the Denver airport?  I mean, not in some crackpot Youtube video or tin foil hat conspiracy article... I mean just looked at them on their own with nothing to color your judgement?  

That is some creepy shite... It's as big a WTF moment (or was for me when I took the time to visit them).

Anyway, your JM paraphrase brought them immediately to mind...

Wed, 05/08/2013 - 18:22 | 3542802 TeamDepends
TeamDepends's picture

Yes, yes we have and you are right.  What, in God's name, is a death/stormtrooper and apocalyptic scenes complete with dead children doing in a public airport?  Did you ever see the blue (dead) horse with glowing red eyes (not making this up) on the approach to the terminal?  They are taking it down!  Is this another sign the end is near?

Wed, 05/08/2013 - 19:36 | 3542985 formadesika3
formadesika3's picture

it was foretold on the day he crushed his creator that the donkeys would never win the Super Bowl again until Blucifer is repainted white with an orange mane.

Wed, 05/08/2013 - 20:06 | 3543069 Doctor of Reality
Doctor of Reality's picture

Georgia Field Stone

Wed, 05/08/2013 - 17:10 | 3542569 Groundhog Day
Groundhog Day's picture

So what is the outcome of plugging the 11trillion hole.   Gold at 5k or 10k

Wed, 05/08/2013 - 16:09 | 3542388 Moe Hamhead
Moe Hamhead's picture

Showing your age there NA!

Wed, 05/08/2013 - 16:14 | 3542405 Harbanger
Harbanger's picture

Like a politician who plays to a changing trend.  While they fleece us with more keynesian debt.

Wed, 05/08/2013 - 16:16 | 3542417 prains
prains's picture

I think the Sach and JPM are hoping gold can stop bullets and won't burn

Wed, 05/08/2013 - 17:36 | 3542645 GeezerGeek
GeezerGeek's picture

It is true that you don't need a weatherman to know which way the wind blows. 

It is also true that you don't need a Goldman to know which way the gold flows.

Wed, 05/08/2013 - 18:31 | 3542828 El Oregonian
El Oregonian's picture

"Well, of course it is.

Don't have to be a weatherman to know which way the wind blows."

 

Unless , you're weatherman Bill Ayers, then of course, it blows up...

Wed, 05/08/2013 - 18:48 | 3542868 El Oregonian
El Oregonian's picture

.

Wed, 05/08/2013 - 16:04 | 3542359 Tinky
Tinky's picture

Can they mention this to the IRS, while they're at it?

Wed, 05/08/2013 - 16:04 | 3542360 Pinto Currency
Pinto Currency's picture

 

-

Wed, 05/08/2013 - 16:04 | 3542362 johnlaw1971
johnlaw1971's picture

Zerohedge Rocks!

Wed, 05/08/2013 - 18:47 | 3542873 HeavyShadow
HeavyShadow's picture

...follow the yellow brick road...

Wed, 05/08/2013 - 16:05 | 3542367 Dareconomics
Dareconomics's picture

The single most important factor in the financial and economic spheres is central bank money printing.  Eventually, the world will adjust to this attempt to game the system, but not today.

 

http://dareconomics.wordpress.com/2013/05/08/around-the-globe-05-08-2013/

Wed, 05/08/2013 - 16:06 | 3542373 youngman
youngman's picture

Don´t worry..the big boys in JPM and Goldman have lots of Gold...the real stuff too...and not in CONUS....safe offshore somewhere..they know value and how to protect it..

Wed, 05/08/2013 - 16:07 | 3542378 IridiumRebel
IridiumRebel's picture

Shocked, SHOCKED, that JPM isn't all Austrianed Econ'd out like the sentient Mr Zames.

Wed, 05/08/2013 - 16:09 | 3542383 Ness.
Ness.'s picture

I bought the highs on the close today woohoo!! - I was worried I would never see these prices again /sarc.

 

 Full fucking FUBAR.

 

 

Wed, 05/08/2013 - 16:19 | 3542385 Shell Game
Shell Game's picture

Amazing catch, Tylers!   Another brick laid down to pave the path..

 

'..one also wonders just how they really feel about gold...'

Wed, 05/08/2013 - 16:09 | 3542386 Charles Nelson ...
Charles Nelson Reilly's picture

Krugman just slit his cats throat!

Wed, 05/08/2013 - 16:13 | 3542403 Bastiat
Bastiat's picture

How sad: it was the only pussy he could get close to.

Wed, 05/08/2013 - 22:54 | 3543472 Keynesian Mess
Keynesian Mess's picture

He's just cranky that he didn't have the credibility to be asked to offer his "wisdom" to that elite group. Perhaps the boobs on CNBC will listen to him instead.

Wed, 05/08/2013 - 16:09 | 3542390 Renewable Life
Renewable Life's picture

BUT BUT Nixon said "we are all keynesian now" as he so famously destroyed the gold standard!

Little did that short dicked motherfucker know, just how visionary that statement really was!!!  If you can find one person in Government other then Ron Paul in the last 20 years, who opposed this bullshit,  i'd like to know!

Wed, 05/08/2013 - 16:18 | 3542429 Bay of Pigs
Bay of Pigs's picture

I believe Milton Friedman, Richard Nixon and John Connelly all said that phrase.

Wed, 05/08/2013 - 16:09 | 3542391 Sudden Debt
Sudden Debt's picture

the FED has more than enough assets.
It has "loaned" them all out and when need be they'll just ask for them back.
People "loaned" the FED's assets with notes of debt so what will stop them?

any gold and silver bought onlie, with a credit card of which required a ID to buy will be claimed back.

Wed, 05/08/2013 - 16:16 | 3542419 espirit
espirit's picture

...but what about those tragic boating accidents?

Wed, 05/08/2013 - 16:18 | 3542432 LostPolarBear
LostPolarBear's picture

Good luck claiming it back after all these boating accidents people seem to be having :)

Wed, 05/08/2013 - 17:27 | 3542622 yogibear
yogibear's picture

Nice try. Let them try and get them back.

People are a lot wiser these days. Just claim you were robbed and it was stolen.

Lots of valid reasons.

 

Wed, 05/08/2013 - 18:06 | 3542765 BoNeSxxx
BoNeSxxx's picture

I call BS on that... no way.  Ain't happening - in this lifetime or any other.

Wed, 05/08/2013 - 22:59 | 3543483 Keynesian Mess
Keynesian Mess's picture

They can pry my Maple Leafs from my cold dead fingers after they've dodged a full magazine of 9mm lead.

Wed, 05/08/2013 - 16:09 | 3542392 Peter Pan
Peter Pan's picture

The current policies make no sense unless the purpose is to blow up the whole system, or to wait for China to blow up first so there is a scapegat or to simply gain some more time to make preparations.

Then again this world is so crazy that I half expect Ben to receive a nobel prize for Economics.

Wed, 05/08/2013 - 16:11 | 3542397 Sudden Debt
Sudden Debt's picture

a new currency will be a great tool to unite against "the enemy" which isn't using the new currency and which is cleary the enemy.

Wed, 05/08/2013 - 16:25 | 3542462 shovelhead
shovelhead's picture

Yuan't kidding.

Folks are getting tired of paying a tax to use Dollars for trade. They might keep a few for the odd Snickers bar that turns up....

Wed, 05/08/2013 - 16:15 | 3542414 Bastiat
Bastiat's picture

Ben's only chance, like Obama's, was to get the Nobel before he actually did anything.

Wed, 05/08/2013 - 17:15 | 3542583 auric1234
auric1234's picture

Then again this world is so crazy that I half expect Ben to receive a nobel prize for Economics.

Rest easy. There's no such thing as a nobel prize for Economics :-)

 

Wed, 05/08/2013 - 16:16 | 3542406 francis_sawyer
francis_sawyer's picture

Everyone... to a man... pulls out the 'AUSTRIAN' card on their deathbed [in the hopes that they won't be a garbage collector in their next lifetime ~ even though they spent the entirety of THIS lifetime in brothels snorting coke]...

Wed, 05/08/2013 - 16:14 | 3542410 SheepDog-One
SheepDog-One's picture

What are these 'Economics' you speak of? Everyone knows the only factor in economics is a shadow banking system printing money and giving it to themselves.

Wed, 05/08/2013 - 16:15 | 3542411 Hohum
Hohum's picture

Neither Keynesian nor Austrian has any clue how to create growth without adding even more debt.

 

The Keynesians are wrong--as ZH tells us every single day.  Now what would the Austrians do?  Slash government spending, slash taxes, go to a gold standard.  And then what is the result: 2% unemployment; 5% GDP growth; no additional debt, public or private.  Everyone is free and happy.  But just who are the geniuses that will transform the economy under "Austrianism?  The traders on ZH? Dream on, fellas.

Wed, 05/08/2013 - 16:20 | 3542442 Charles Nelson ...
Charles Nelson Reilly's picture

what would result is what should have happened in 08'.  The liqudation of debt where the overleveraged bankers would lose everything they had and hopefully end up w/ their brains splattered against the wall.  Politicians would be reigned in an not allowed spend money we don't have or can't tax.

the gold standard is not perfect, but it sure as hell beats the annihilation we're gonna have in the not so distant future. 

Wed, 05/08/2013 - 16:26 | 3542465 Bay of Pigs
Bay of Pigs's picture

LOL. Are you really that ignorant of what the Austrian school is all about?

Wed, 05/08/2013 - 16:49 | 3542489 FreeMktFisherMN
FreeMktFisherMN's picture

Apparently he is that ignorant. Austrian economists respect the individual and acknowledge that, and explain why, central planning always fails. The above guy doesn't get that there shouldn't be someone to 'run the economy.' I run my own economy. That's the origin of the word, economy, going back to Latin  oikonomia, or household management. Each individual has his or her own subjective preferences.

Wed, 05/08/2013 - 17:07 | 3542558 Hohum
Hohum's picture

Oh, I get it.  The individual above all.    I said nothing about the need to run the economy by central planning. What I don't get is your delusion about Austrian policies benefitting millions of people.  I see ideology here but not any analysis as to how Austrianism would work.

 

I think you say, well, if the individual is above all, then it will work.  Because my ideology says so.  But you assume that many people are wealth creators (not just increasing activity for GDP).  Most here at ZH aren't, most people aren't, Ben Bernanke isn't, and Mitt Romney isn't either.

 

If a politican runs on an Austrian platform, how does he sell it to the electorate?  If you fail under my policies, fuck you?  He won't get elected.

 

So FreeMktFisherMN read a little more closely, k?

Wed, 05/08/2013 - 17:35 | 3542640 Bay of Pigs
Bay of Pigs's picture

"What I don't get is your delusion about Austrian policies benefitting millions of people"

Again, you have proven you understand very little about the Austrian school. Luckily, most here see right through this statist and collectivist trash.

Wed, 05/08/2013 - 17:38 | 3542653 FreeMktFisherMN
FreeMktFisherMN's picture

Not sure I follow through all your tangents. I simply am for capitalism/voluntaryism/liberty. Indeed many people are wealthy not through real wealth generation but rather parasitism/rent-seeking/usury using .gov as a means to achieve the wealth. Certainly no disagreement there. And yes, sadly, 'when the public learns it can vote itself the treasury...', was indeed a prescient (and obvious, actually) statement. 

All government can do is is confiscate and redistribute wealth. The Austrian platform is to tell the people that they ought to be free to run their own lives, and that the siren songs of 'security' via welfarism and warfarism pushed by the establishment parties always ends in tears. 

Wed, 05/08/2013 - 17:40 | 3542666 smacker
smacker's picture

A sideways look at this...

In my life I have worked hard, been employed, run a small business, earned good money, spent a lot of it and saved quite a bit too. This has been despite the size and cost of government getting ever larger, raising taxes, borrowing and spending like there's no tomorrow in accordance with their belief in the Keynesian economic religion.

Just imagine for one moment if government growth, taxes and spending had remained static for 50 years. Do you not think I would have a much bigger bank account and would have spent a lot more money and invested a lot more? Perhaps expanded a business, employed more people, added more overall prosperity to society?

These measures form part of the Austrian model of economics.

It has long seemed to me that the issue is not really Keynesianism -vs- Austrian School economics because the former has been a complete disaster and is destroying the global economy and society along with it. It is how to transition from a failed system to one that works, given the political elites, central bankers and PhD economists are so deeply committed to the former.

Wed, 05/08/2013 - 19:42 | 3543009 HeavyShadow
HeavyShadow's picture

All anyone ever wants is a level playing field...not a fixed result... pretty fucken simple really...everyone should get a fair crack at the game...if you're shit, tough...innovate, come back stronger...

Today, why would you even bother trying...?

Austrian school doesn't talk in utopias...but, there will be a place for everyone to have a go...shit hot or not...

Wed, 05/08/2013 - 19:43 | 3543010 Not My Real Name
Not My Real Name's picture

"But you assume that many people are wealth creators (not just increasing activity for GDP). Most people aren't."

With all due respect -- that's bullshit.

You'd be surprised how many more people would end up becoming wealth creators here in this country, but they're too busy sucking from the government teat to know any better. Usually because they're constantly being told by statists that they can't make it on their own without government help.

Wed, 05/08/2013 - 16:42 | 3542503 Thisson
Thisson's picture

Those geniuses are called "entrepreneurs."  Ever heard of them?  When you don't burden the system with subsidies, taxes, and wealth transfers, they can do their thing.

Wed, 05/08/2013 - 17:09 | 3542563 Hohum
Hohum's picture

Yes, Thisson, I have heard the spiel.  How many of those entrepreneurs will actually contribute to wealth building?  Not most of them.  See, the problem is that the machines don't pay for themselves.  You always need more credit.  Why don't you explain how the magic entrepreneurs will get the machines to pay for themselves?

Wed, 05/08/2013 - 17:54 | 3542726 Herd Redirectio...
Herd Redirection Committee's picture

When people's debts are declared null and void, you might be surprised how much investing the avg person can do.

Wed, 05/08/2013 - 20:25 | 3543122 Diogenes
Diogenes's picture

The machines do pay for themselves.

Suppose a contractor borrows $1,000,000 to buy earth moving equipment. He then goes out and builds roads, digs foundations etc for a contractor building a subdivision.

He does $500,000 worth of work the first year. Pays out $350,000 in wages, fuel and oil, repairs, etc. plus $50,000 interest on the loan, all out of earnings. And has $100,000 for himself and his family.

So did the guy who hired him lose? He did not. He got the work done that he needed, on the way to building 100 houses worth $250,000 apiece = $25,000,000 worth of houses.

How about the house buyers, did they lose? NO they got a house worth what they paid for it.

So who lost NOBODY because the investment went into making something worth MORE than they put into it. The interest was a small expense.

Productive work is quite different from blowing money on clothes, vacations etc.

This is the part so called economists, politicians etc. don't understand, take for granted or gloss over.

Thu, 05/09/2013 - 00:15 | 3543634 MeelionDollerBogus
MeelionDollerBogus's picture

It's not magic, it's how we always did things without debt in the way. Debt can't gain you a thing unless what you have works without debt first. Debt always DETRACTS from production. If you are in debt 3% and profiting 3% net of debt you'll profit 6% without debt. The debt is always negative. Machines always pay for themselves: how you can to the inverse conclusion is fucking impossible.

Machines that are so useless they can't pay for themselves don't get made a second time. Cars, hammers, wrenches, presses, textile weaving machines ALL pay for themselves.

Wed, 05/08/2013 - 16:15 | 3542416 Charles Nelson ...
Charles Nelson Reilly's picture

One of the things I've wondered all along is if the Fed, JP Morgan, GS, et. al. front run the purchasing of gold by China, Russia, etc. and re-institute some sort of gold standard and peg the dollar to it? Monetize & revalue at $7k an ounce and avoid the BRICS doing with their newly formed currency?  Just a thought. 

Wed, 05/08/2013 - 19:32 | 3542972 Herd Redirectio...
Herd Redirection Committee's picture

Even then, if the BRICs were planning on a gold-backed currency, it would still come online.  And then it would be a competition of seeing whose currency is 'more backed', or if there is arbitrage, or other advantages to one currency over the other.

Wed, 05/08/2013 - 19:51 | 3543024 koncaswatch
koncaswatch's picture

TwoShortPlanks wrote a a very cogent comment http://www.zerohedge.com/news/2013-04-04/cyprus-shock-turns-anger#comment-3410842 about the comming "network". I believe your comment has merit; these guys are not dumb and Keynes has been proven dumb.

Wed, 05/08/2013 - 20:31 | 3543141 kayl
kayl's picture

Very good view of the framework!

Keynes and the UCC do work perfectly together to keep up appearances.

Wed, 05/08/2013 - 20:28 | 3543134 Diogenes
Diogenes's picture

But if they were tied down to a gold standard how would they finagle the pieces of paper? And if they can't finagle the pieces of paper how do they pay themselves multi million dollar bonuses? Do you expect them to go to work?

They went to a lot of trouble to get rid of the gold standard, they aren't going to let it come back.

Thu, 05/09/2013 - 00:13 | 3543626 MeelionDollerBogus
MeelionDollerBogus's picture

Jim Rickards has said this several times in the last 2 or more years.

Wed, 05/08/2013 - 16:16 | 3542418 Dre4dwolf
Dre4dwolf's picture

Everything is money, Bannas, Apples you exchange apples for money and money for apples, thus apples are atleast as valuable as money.

Money lasts longer than apples,but apples have real value.

 

That goes to say, all the money in the world isn't worth as much as one apple in a time of need.

Wed, 05/08/2013 - 16:21 | 3542447 espirit
espirit's picture

That must make ammo rehypothecated money, as it will get you moar money and ammo.

Wed, 05/08/2013 - 16:17 | 3542425 EmmittFitzhume
EmmittFitzhume's picture

Yeah and fucking Greenspan was a fan of Ayn Rand....

Wed, 05/08/2013 - 16:20 | 3542438 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

The older they get the more authortarian they get. That has been true for a long time. To many old authortarian farts are pulling the key power levers. Time for a house cleaning.

Wed, 05/08/2013 - 16:18 | 3542431 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

You clean out all the 45 and over crowd things will swing back more Austrian and libertarian in general.

Wed, 05/08/2013 - 16:32 | 3542479 Dyhana
Dyhana's picture

hmmm, i'm over 45 and know of no one in my age range of co-workers, acquaintances, and friends who are NOT austrian and libertarian leaning. If anything, I find the 35-45 age range opposite of those philosophies. Maybe someone should do a nationwide poll on that.

Wed, 05/08/2013 - 16:38 | 3542492 Bay of Pigs
Bay of Pigs's picture

Thats laughable. the only people I know who support Austrian and Libertarian principles are well over 45, not under. They dont even teach this stuff in public schools anymore.

Might be different here at the Hedge as many of you are younger than the silver haired dinosaurs like myself.

Wed, 05/08/2013 - 16:44 | 3542508 Thisson
Thisson's picture

There are plenty of those that have both Austrian and Libertarian leanings.  But you're right, this stuff is not taught in schools!

Wed, 05/08/2013 - 20:30 | 3543137 Diogenes
Diogenes's picture

"If you aren't a liberal at 20 there is something wrong with your heart. If you are still a liberal at 40 there is something wrong with your head"

Thu, 05/09/2013 - 00:11 | 3543621 MeelionDollerBogus
MeelionDollerBogus's picture

The only people I know of who even begin to question what's going wrong and what real money is are under 40. A few exceptions for some on youtube I "know" but not in person. My typical experience is those over 40 believe "banks don't go bust and the government has your back"

Wed, 05/08/2013 - 17:09 | 3542562 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

You are right someone should do a poll. I am basing it on my personal observations. When they fuck things up bad enough and the FED and government will fuck em up real good, people are going to be looking for answers and when the Austrian economic, Libertarian minded types are still standing and not breaking too much of a sweat because they didn't ignore fundamentals, the rest of masses are going to want to know why. That is when the pendulum swings in a major way.

Wed, 05/08/2013 - 18:48 | 3542869 Village-idiot
Village-idiot's picture

I don't think so! It's the younger age groups who've been indoctrinated into socialist claptrap thinking.

It's the over 45s who are keeping the western economies going. Don't believe me? Next time you're driving on the highway take a look at the truck drivers coming toward you. The average age of a truck driver these days is well into his 50s. They are there because of drug and sobriety tests, and criminal background checks.

To tell you the truth, I don't trust anyone under 50. Most of the younger people have mostly got an entitlement mentality and also have been taught to not believe in absolutes. In other words, it's not really stealing if you take someone elses food (if you're hungry).

I'm lucky that I'm mostly surrounded by seniors who still grow veggie patches, as I do. But there are a few lazy types in their 20s and 30s around here who I KNOW I cannot trust.

Wed, 05/08/2013 - 19:33 | 3542976 Herd Redirectio...
Herd Redirection Committee's picture

Don't turn this into an us against them, young against old.  Its a very old divide and conquer gambit, and neither the young or the old win.

Wed, 05/08/2013 - 20:36 | 3543149 Doctor of Reality
Doctor of Reality's picture

I just turned 40 and I agree with you, but also disagree. I'm an optometrist, and I have quite a few patients from teenagers on up, who are fully awake. They KNOW what's going on; but the percentage of those who are awake, decreases with one's age. 

Wed, 05/08/2013 - 16:20 | 3542445 Hubbs
Hubbs's picture

Another day, another S&P record.  Tyler, it's times like these that try the Zerohedgeiets' souls.

Wed, 05/08/2013 - 16:24 | 3542460 espirit
espirit's picture

You just have to understand the "Rules".

aka "CalvinBall".

Wed, 05/08/2013 - 16:35 | 3542485 prains
prains's picture

the "higher" it goes the closer <it> gets.

 

have a buddy who works homicide and is one of the decent dudes in the world of police, my zip code is obediently civil so any unrest has never been on the radar. SO. he's my canary in the coal mine......when he gets the notice to "train" for civil disobedience well ahead of any unheard of civil unrest I'll know it's come down the pipe from .gov and it's time to bug.

Thu, 05/09/2013 - 00:08 | 3543617 MeelionDollerBogus
MeelionDollerBogus's picture

q: what if your zip & those around it are all civil & no one gets the call to training, but all the ones FURTHER out get the call?

Wed, 05/08/2013 - 16:24 | 3542459 besnook
besnook's picture

FUCK! i hope .gov doesn't read it. they will try to figure out what all the substitutes and complements of money are and tax them all with an excise tax on implied economic activity such as your neighborhood potluck barbeque.

Wed, 05/08/2013 - 16:28 | 3542470 espirit
espirit's picture

They tried that on us.  We had barbecued taxcollector that day.

Wed, 05/08/2013 - 18:35 | 3542835 Village-idiot
Village-idiot's picture

I hope not! The only really decent meal I get is the seniors' monthly pot-luck dinner.

 

I can see pot-luck dinners becoming part of the underground economy.

Wed, 05/08/2013 - 16:31 | 3542476 ebworthen
ebworthen's picture

JPM and Goldman Sachs are head of the Treasury Borrowing Advisory Committee?

Why am I not surprised?

Pay attention muppets!

Wed, 05/08/2013 - 16:32 | 3542480 samsara
samsara's picture

That proves that things are going EXACTLY AS PLANNED.   They KNOW what they are doing, 

Bankrupting America is proceeding as planned.  Right on course.

That's right  "IT'S INTENTIONAL"

Wed, 05/08/2013 - 19:35 | 3542982 Herd Redirectio...
Herd Redirection Committee's picture

Some people just have an easier time believing its all due to incompetence and stupidity.  And believe me, a lot of it is.  But thats because the big boys like to make use of useful idiots.  A lot. *cough Obama Bernanke Geithner cough*

Wed, 05/08/2013 - 16:36 | 3542487 DrkPurpleHaze
DrkPurpleHaze's picture

Robert Wenzels invitation and subsequent speech last year to the NY Fed stating the accuracy of Austrians and the folly and ignorance of the Fed (within their own halls mind you) is epic and worth a read if you have never done so.

http://www.economicpolicyjournal.com/2012/04/my-speech-delivered-at-new-york-federal.html

Wed, 05/08/2013 - 16:39 | 3542493 Skin666
Skin666's picture

Keynes is the blue pill.

 

Mises is the red pill.

 

Wed, 05/08/2013 - 16:39 | 3542494 Kirk2NCC1701
Kirk2NCC1701's picture

Zis is becos zey hav seen zee future, and zee future is ruled by LMTs -- Liqvid Metal Terminators!  

Now vee are all Austrian.  We are all into golden LM, or vee get Terminated.

-- Arnold

Wed, 05/08/2013 - 16:46 | 3542512 polo007
polo007's picture

http://www.cnbc.com/id/100720823

The stock market, which hit new all-time highs on Wednesday, could experience a crash within two years, bearish economist Nouriel Roubini said on CNBC.

"It could go on for another year or two," he said, speaking from the SALT Conference in Las Vegas.

I see frothiness going to end up in nasty boom and bubble in asset prices, followed by crash and a bust, not this year, not next year, two years from now."

On "Fast Money," Roubini cited a couple of factors: "Growth is slow. Earnings growth is also slowing down. Top line and bottom line are not as good as they used to be, but margins are high. They could correct somehow over time.

"But you have the gravitational forces of a slow economy leading eventually to correction, but then the levitational forces of QEs, zero policy rates, more money coming in the market, not just from the U.S. but other economies, is going to levitate asset prices."

Roubini said that those conditions could lead to "a generalized credit and equity and asset bubble next year or two, followed by a crash."

But, he added, "as long as the economy grows between 1½ to 2 percent and you have easy money, this market can go higher."

Wed, 05/08/2013 - 16:49 | 3542514 polo007
polo007's picture

http://www.cnbc.com/id/100718505

The bond markets will crash once global central banks stop buying debt, triggering a financial crisis much worse than the one seen in 2008, strategist David Roche told CNBC.

Roche, who has previously warned that "safe haven" government bonds are the most dangerous place for investors to be in, said Wednesday: "Yes it [a financial crisis] will happen and yes, it will be bigger [than the credit crisis]. Once you re-price the burden of the world's debt... the ugly truth will be revealed."

According to Roche, president of Independent Strategy, once the expansive quantitative easing programs initiated by Western central banks come to an end, sovereign bond yields, including U.S. Treasurys, German Bunds and U.K. Gilts, will spike significantly prompting a crash.

Yields on U.S. 10-year Treasurys have fallen more than 200 basis points over the past five years and are now around 1.8 percent. Meanwhile, U.K. 10-year Gilts and German 10-year Bunds were also trading near record lows on Wednesday at 1.8 percent and 1.29 percent, respectively.

"As long as the central bankers print money, the only way to have to distribute it is [for governments] to buy 70 percent of new bond issuance in these safe haven bond markets. As long as they go on doing that, the yields won't go up, and the day they stop, the yields will go up by so much we will have a financial crisis on our hands," he said.

Roche said the impact of a crash in the "safe haven" bond markets will be catastrophic for financial markets worldwide.

"You are looking at a massive capital loss on a mark-to-market basis for a lot of financial institutions in the world and for people who have put their savings into those bonds, which will hit demand and hit the real economy, because if wealth goes down people's optimism about the world economy will fade," he added.

In recent years, major western economies have embarked on expansive bond buying programs in attempt to prop up flagging growth following the credit crisis. But speculation over whether the U.S. Federal Reserve will end its expansive bond buying program, has risen this year. In the Fed's latest minutes, it emerged that several committee members were concerned over the risks of continuing its asset purchases for too long.

The end of QE has prompted concerns over how markets will cope unsupported.

Wed, 05/08/2013 - 17:32 | 3542634 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

That is all the more reason to be in them unless you are chasing yield. Rule number 1 if some talking head on CNBC says go left do the opposite. Only caveat is don't park your money in long term bonds unless you want to gamble.

Wed, 05/08/2013 - 16:50 | 3542519 Catullus
Catullus's picture

I think you're still doing fairly pioneering work on the subject, ZH. Even Rothbard included in the Great Depression analysis an increase in S&L AND the cash surrender liability for life insurance. And this they had to create Austrian Money Supply as the sum of all cash held at banks, demand deposits, savings deposits, shares in S&L, time deposits and redemption value of CDs, total policy reserves of life insurance companies, and savings bonds at current rates of redemption.

Rothbard warned that when you include all this, you need to net out what's held has reserve by the banks. But you're never going to know that with any precision. It's a known limitation of the money supply calculation.

So even under the rehypothecation scheme, it seems like its impossible to know how many times the same asset has been pledged as reserve. You can't know how much to net out.

I have one brain fart: why don't I just treat swaps as timed deposits?

Wed, 05/08/2013 - 16:51 | 3542521 kragsquest
kragsquest's picture

And can we finally be rid of Jodi Arias after tomorrow?

Wed, 05/08/2013 - 16:54 | 3542532 yogibear
yogibear's picture

China and others are betting against the Bernanke and Federal Reserve printing and US debt.

They realize the way to take down the US is not militarily, but economically.

The US dollar will crash, it's just a matter of time.  Countries are backing away from the US dollar.

Bet against the US dollar.

 

Wed, 05/08/2013 - 18:42 | 3542858 Herd Redirectio...
Herd Redirection Committee's picture

The biggest bubble of our time is not the real estate bubble, the tech bubble, the tulip bubble, it is the dollar bubble.  The fiat reserve currency bubble.

Ask yourself how many people have gold or silver.  Now ask, how many have dollars or receivables (amounts owed to them, denominated in USD), pension promises, and the like.  Yeah.

Wed, 05/08/2013 - 16:55 | 3542538 Seize Mars
Seize Mars's picture

There is an old saying: "the Devil himself will quote the Scripture if it helps him make his point."

Wed, 05/08/2013 - 18:17 | 3542794 Kirk2NCC1701
Kirk2NCC1701's picture

And "believers and saints quote the Devil when it suits them".  Believers are also infamous for quoting science when it suits them, but ignoring the bulk of it because it does not.

So let's leave Believers, faith and (other) works of literature and fiction out of this.  And focus of verifiable facts, reason and logic.

Wed, 05/08/2013 - 18:35 | 3542837 Seize Mars
Seize Mars's picture

Ok, let's focus on verifiable facts, reason and logic, since you don't seem to understand allegory.

Matt Zames is a scumbag liar thief. He knows Austrian economics, because it is the truth, and actually explains the capital structure of the economy and the relationship of interest rates to that.

 

Wed, 05/08/2013 - 18:40 | 3542849 Boxed Merlot
Boxed Merlot's picture

So let's leave Believers, faith and (other) works of literature and fiction out of this. And focus of verifiable facts, reason and logic...

 

Having faith in faith is absurd, I agree.  However, having faith in a self existent, self sustaining and eternal being is the epitome of logical reasoning.  Nothing else makes sense.

The belief that this being is in need of human "belief" in order to exist is ludicrous, this Being does not need me / us, but I / we need the Being.  Otherwise, where would this desire to "focus of verifiable facts, reason and logic" have originated from?

Thu, 05/09/2013 - 00:04 | 3543610 MeelionDollerBogus
MeelionDollerBogus's picture

LOTS else makes sense, like self-assembling chemistry and like creation of atoms from smaller things like quarks, which we can observe, and like energy never being destroyed or created, also observed. That makes way way more sense than any fictional story about creation by some singular living spirit thing that dominates all time and all the universe. That story actually looks like utter nonsense.

Thu, 05/09/2013 - 01:00 | 3543685 Seize Mars
Seize Mars's picture

Dipshit, my remark was allegorical.

Wed, 05/08/2013 - 16:57 | 3542546 woodbutcher
woodbutcher's picture

Only Fools Think the Fed Has Real Options.   Our Debt Death Spiral is Here. 

Many Americans have no idea what is happening to our country’s financial condition and what it ultimately means to their finances.    People should be outraged at the twilight zone economics perpetrated by the Federal Reserve (the Fed) these last 5 years.   These are experimental economic actions that the Fed is implementing.  I will focus on one action that is easiest to understand, and the most destructive, Quantitative Easing (QE).  The Fed calls QE a “tool”.   The consequences of using the QE “tool” will be catastrophic for nearly every American. 

QE is the making of money out of thin air.     The Fed can create money in their computer accounts that are attached to all the major financial institutions in the world.  Yes, they can fill their “checking account” with unlimited amounts of money that never existed, with keystrokes on their computer.  They can essentially do whatever they please with it.   In early 2013 they are creating $85 billion of this thin air money a month to buy US Treasury debt and Mortgage Backed Securities as we speak.  In the name of using tools to help our economy create jobs, they have created $2.4 trillion in thin air money since the crisis started in 2008.   There is no end in sight to this money creation.  This money creation is not wealth, nor is it money created based on productivity of man or machine.  It is dilution of our US dollar.  The Fed is doing this because it believes it has no other choice.

Nothing I have read seems to have really summed up with simplicity where we are going to end up economically from the Fed’s actions of the last several years.   We are on the road of no return.  I felt compelled to boil it down in this article.  Without giving all the background of things like wealth being based on productivity and energy inputs, or the ownership or control of the Fed I will just explain the obvious.  I will insert clarity to the situation.

 I will boil down what the Fed is doing without having to discuss the many canards that lie in wait.  These canards confuse most people as to what the correct conclusion is regarding the Fed’s massive QE.      These canards also keep our politicians and most Americans completely delusional about our state of affairs.  A canard is a false or misleading story or explanation.  Too many people go down the path of listening to these canards.  An example of a canard related to this is that the high stock market indexes right now show we are fine and the Fed must be doing the right thing.    Watch financial media daily, like CNBC, and any number of things they point to keeps most people from actually understanding the path we are on.  Small canards are delivered constantly by the steady stream of CNBC guest carnival barkers.  All adding up to delusion for the majority of Americans.

Financial Complexity Turned to Simplicity

Our national and world financial situation is extremely complex.   More complex than it has ever been.  Tomorrow will be more complex than yesterday or last week.   Really though, to have clarity and understand our complex financial system, we have to look at the obvious and use math to project real outcomes rather than pie in the sky desired outcomes.   The mathematics of what the Fed is doing does not add up.      The Fed is breaking simple laws of financial math.  Can you imagine someone saying that Einstein’s E=mc2 does not apply anymore because we are in unusual financial circumstances?    Complex becomes simple by understanding that math gets you the answers.    Complex subjects can be summated, as Einstein did in physics with E=mc2.   The theory of what the Fed is doing now is even simpler:

E = FKeep Buying      

Where E = Endgame for the US Dollar and FKeep Buying means the Fed cannot stop buying. 

Using the math within our  financial universe and knowing that there are constants, it is obvious what the mathematics of our situation are.  Our economy is dependent on the Fed’s massive QE.   The Fed will never be able to stop creating thin air money unless they are willing to let the US and the world take severe economic pain to get through this.  They have not showed that they are even aware that is an option.   Maybe they think it will be so bad with the no QE option that it is untenable to even table.  However, what they are doing will make the outcome even worse.  There is an ultimate financial catastrophe Endgame to our pretending that we can go on like we used to.   We have been using government spending and QE in the name of keeping our economy going.   This will end sometime, and it  means we are in what I call the US National Debt Death Spiral.  

The Reason for QE and the Effect of QE

The US Treasury is the entity that collects our federal tax dollars.  It is also the entity that spends federal money.  They spend all the treasury receipts (tax revenue) and spend more than taxes provide by issuing treasury debt securities.  Each year since 2008, the US Treasury has spent over $1 trillion more than it took in.  This yearly number is the annual deficit.  The total accumulated debt from all these years is called our Federal debt.  Currently, as of April 14, 2013 it is about $16.8 trillion.

We also know the numbers that the US Treasury gives us are on a non-GAAP basis (Generally Accepted Acounting Principles).   The federal government is not accounting for all the money committed in the future, thus it is running even larger real deficits than we are told.   Let’s get something straight about the reported annual Federal deficit and the actual annual Federal deficit that the US Treasury reports.  The actual annual deficit spending is much higher than reported due to things like Medicare and Social Security.   The US Treasury is using collected tax dollars some of which are supposed to be for Social Security and Medicare in the future but using them for current normal Federal spending.  However, even with the phony non-GAAP accounting and ignoring entitlements, the system will be blown up just by normal treasury debt.   Yes, the stated annual structural deficit piled on year by year to our total federal debt will wreck the system.   We do not even need to confuse everybody and play a shell game as to what the problem is right now!    No need to introduce the canard of the real problem being the entitlement promises.    Focus on one thing, the most pressing thing, and understand the math!   The Federal debt that we add to each year even in the phony amount the Us Treasury reports will destroy our financial system before entitlements ever will.  Thanks to the Fed.

Are we living in experimental economic times?  You bet we are.

When the Fed started buying US Treasuries and continues to buy them in large amounts since 2008, it sent a signal to congress: We condone your massive debt spending.   The Fed is and has been buying treasuries to manipulate the interest cost of the Treasury lower, because it knows it has to.  The debt spending by congress is out of control and is also structural, in other words, built into our economy.  The Fed knows that the economy needs government spending to continue at high levels to prevent a severe contraction in our economy.  To help cushion the blow of potential lower government spending into the economy the Fed has to lay a bid for all durations of treasuries to keep the interest cost down for the US Treasury.    By doing this, the Fed continues to condone the debt spending of congress.     The Fed buys treasuries because if the US Treasury had to issue and refinance our annual and total debt at real market rates the cost of interest would explode the annual deficits even higher.  The Fed thinks there is not a  better choice in our economic situation!  What the Fed has done has initiated the financial end game for the US Dollar as it currently exists.   (Yes, there will be a US Dollar after the end game, but of a different value).                               

It is the start of the 9th inning now.  There are only two options for the Fed.   

Option #1:   Keep Buying

Option #2:  Stop Buying

Option #1.   If the Fed keeps buying they risk the long term value of the dollar value against all commodities, and eventually CPI problems.    Inflation is an obvious, simple and an easy conclusion by anyone who understands economics.   However, this appears to be their best option and the option they continue to use, even stepping QE up in December 2012 to $85 billion per month from $40 billion per month.  It has no short term negative shock value as stupid Americans are too dumb to see it and speak out and stop it.  However, we couldn’t stop it if we wanted to.  Rick Santelli screams about it to deaf ears.  This is the frog in the pot option.   Just cook us slowly.   This is inflating our way out of the debt, in a backdoor way.  At some point people will come in the front door and there will be a recognition that money from the Fed is not free.    The US dollar will have a huge adjustment in value, downward, against real things like oil, gasoline, diesel, metals, and all food commodities leading to massive consumer inflation.   

The Fed knows that there is one positive to the keep buying option:  After the dollar adjustment, the Federal deficit would be much less burdensome as the value of the dollar at that time will be much less.  This is inflating away the debt.  Outcome of option #1:  The dollar is destroyed.  The national debt is minimized.  Wealth is disintegrated for most of us.

Option #2.  If they Stop buying, interest rates on treasuries rise.  Likely rapidly, but just normalizing to interest rates of 4% to 5% would be a huge problem.    The real problem with the Fed halting buying Treasuries and MBS is the US Treasury have to to do current financing and also constant refinancing  at the higher rates.  Interest cost on the Federal debt will explode the annual deficit further.  As our annual debt goes higher rates will rise further from simple supply and demand economics.   Over several years all the short term debt that is coming due has to be refinanced/sold at the higher rates.   The normal Federal monthly deficits and a large portion of the existing debt that comes due will in a matter of a few short years have to be financed at higher free market rates.

The US Treasury is running deficits of over a trillion dollars annually with an average interest cost of 2.2% in the first half of 2012.  When average interest rates on all treasuries go to 4.4% then the interest expense doubles.  You see the math.  What about 8.8%?  That would not work for whoever is the Treasury Secretary.   Talk about exploding the annual deficit and piling more debt on the stack!

This is a straight up interest rate death spiral.  There is no good way out.  Wait, there is a way out.   It is the same outcome every time.  With option #2, the Fed would have to step back in and buy everything.  That leads them back to option #1. They could step back in with thin air money, get interest rates to just about zero, like they are doing now.   Remember, bond yields are set by the price of the bond.   The Fed puts bids under every treasury or debt security, or for S&P Futures for that matter.  They just bid the amount for every duration of treasuries to yield zero, or for the longer durations what they can get away with trying to make it look reasonable.    The Fed can thus get the treasury’s interest cost on the Federal debt to any number it wants.  Even zero.    Outcome Option #2: Fed comes in and has to do option #1 and keep buying.  We know the outcome of option #1.  If they stop buying they will inevitably have to step back in and keep buying.  That is option #1.  They have set in motion an outcome that they cannot stop making thin air money.

The Fed is taking option #1 and will continue to do so.  It will talk of option #2, and all the CNBC crowd will blather about the Fed’s coming exit strategy .  It is all talk.   These fools talk of an exit strategy and the Fed is not even done buying!  There is no exit strategy because the Fed cannot exit!  They even know it.   If they don’t, they are delusional.  The world is delevering.   In our old economic times there would be a point where the economy gets over the hump and starts growing so the deficits get smaller as economic activity increases.  Not this time.  Our feeble and hollowed out economy will not get over that hump.  Option #2 is a pipe dream.  The Fed will not and cannot stop buying treasuries and other debt to attempt to keep our financial system alive.

Why is this Happening? 

The reason why the Fed has to do this is because our economy/financial system is boxed in by our stagnant economy and ever rising structural annual Federal deficits. The economy is weak because it was wrecked in the fiasco we just had,  but also from by the hollowing out of the manufacturing sector we had over the last 30 years.  It is not coming back like it was.   Our 30 year debt and consumption spree is over.    Government spending cannot be cut in any meaningful way, especially when the Fed is essentially condoning the spending by buying treasuries.  The US Treasury will not stop spending in any meaningful way because it does not have to.  We are boxed in on the budget deficit.

 GDP= Consumption (70%) Business Investment (16%) Government Spending (20%)  Net Exports (-6%)

Key Point:  The above is a simple equation of what GDP consists of with rounded numbers.  Government spending is part of GDP.  In the situation we have now, government spending is actually 23%.  Take out 10% of that spending by an across the board cut and the GDP  is missing 2.3%.  To cut spending 10% across the board the economy would be in contraction.  A recession and no growth is the outcome.  According to our government’s numbers, real GDP growth in 2012 was 2.2%.   In 2011 it was 1.8%.   Don’t even get me started on the GDP deflator.  Meaningful spending cuts put us in recession.  Government spending cannot be cut in a meaningful way.  We are in the debt death spiral, just as Greece is.

 

Key Point:  No growth or falling GDP results in less economic activity and therefore less tax revenue for the treasury, which causes higher deficits.  See Greece for the best example.  They are in their debt death spiral just months ahead of us.  GDP is shrinking so they bring in less money which forces more cuts in government spending resulting in even less GDP.   That is a debt death spiral, and there is no escape for Greece, and there will be no escape for us.

 

Meanwhile, back on Main Street. 

If the Fed backed off buying treasuries, yields would rise and money would be pulled from the stock market.  All money managers worth their salt would rebalance their bonds/stocks.  That means the stock market gets hit.  Further chaos as the boomers protect what they have by selling stocks and buying the 5% treasuries or whatever yield they have at the time.  Pension and retirement funds for everyone take a hit from lower stock prices. 

When people retire, they start using their saved retirement money.   These funds are put into the economy in all forms of the GDP, but mostly as consumption.  When stocks are low people perceive they have less financial wealth and they will cut back spending.   Further damaging GDP.  Which is it then for the Fed, save the stock market by buying treasuries, or risk losing the control of the US treasury’s interest costs?  Or, put a bid under the stock market to create the wealth effect?   The answer for the Fed remains option #1.  The Fed cannot lose the stock market.  It has to buy treasuries.

The Fed is boxed in.  Creating money from thin air does real damage to the dollar and their policy is unsustainable.  They know that but have no other option.   In concert, thin air money is being made by all central banks, and the dollar is not appearing to have damage.  On this basis the Fed is hoping the dollar stays strong enough for as long as possible so we can pay the piper as late as possible.    Obviously this is part of their thinking.

The outcome is profound and obvious.

In conclusion, the mathematics of our national debt situation in the USA are causing the Fed to use massive QE  by creating thin air money (not printed Federal Reserve notes).  This Fed action shows how bad our Federal debt situation is.  We, the United States, are bankrupt now and just in denial.    Congress people talk about the US being bankrupt sometime in the future.   Pretending to not be bankrupt by using the Fed’s thin air money is a sham!  The horse is out of the barn and trying to close the barn door with thin air money will not accomplish anything but more destruction.  With the path we are on, our deficits will continue and the Fed will keep buying even until the point at which the world pukes up nearly all the treasuries to the Federal Reserve’s bid. 

 The Fed will try all the way to the end to keep the US Treasury’s interest costs as low as possible.  It could go on for years like this.  At some point the world’s financial markets will see this.  It will be clear as a bell that we are bankrupt.  That is when we get a restart.  It will be plain to see in massive inflation and poverty here in the USA.    The end game will be an involuntary reverse capitulation by the Fed.  The Fed will be the buyer of any and all securities that need price support.  Money will also flow out of treasuries by investor to all other assets.   The Fed will be there with unlimited thin air money to fill the gap.   They will use thin air money to support any asset price that needs a bid.   The world will have become wiser at this point and will understand that dollars are much less valuable than they were before.  It will take many more dollars to buy what you need to survive.   The US Dollar will be at a value that is yet to be determined.  Destroyed by the stupidity of the Fed.

 

Wed, 05/08/2013 - 18:11 | 3542781 smacker
smacker's picture

 

Option #3: US Default (The Big Reset) ?

Wed, 05/08/2013 - 18:52 | 3542883 Herd Redirectio...
Herd Redirection Committee's picture

Option #4: Worldwide jubilee

Sat, 05/11/2013 - 16:57 | 3552075 MedTechEntrepreneur
MedTechEntrepreneur's picture

Bookmark for later...

Wed, 05/08/2013 - 17:00 | 3542550 Ban KKiller
Ban KKiller's picture

When the bullet entered his brain he loved Big Brother as he just knew that 2 plus 2 was five and always was. 

Wed, 05/08/2013 - 17:24 | 3542611 tip e. canoe
tip e. canoe's picture

currencies

Wed, 05/08/2013 - 18:58 | 3542894 Herd Redirectio...
Herd Redirection Committee's picture

Competing currencies, some backed by the tangible, convertible into silver, or gold, for example.  Others might be backed by land.  Probably even a place for a currency backed by cryptography. The options are unlimited. 

Hell, shares in a company could trade as currency.  If they start issuing scrip and telling you to spend it at the company store... Well, we have come full circle, and its time to start using one of the competing currencies.

Wed, 05/08/2013 - 17:16 | 3542585 smacker
smacker's picture

 

Perhaps the madness and obvious failure of Keynesian economics is dawning on some of those with influence. Their collective problem is how to switch over to the Austrian model without anybody spotting it. Occasional references to Austrian theories and opinions may be their way of slipping it in quietly.

Wed, 05/08/2013 - 20:36 | 3543150 Diogenes
Diogenes's picture

Money printing is not a failure if you own the printer.

Wed, 05/08/2013 - 17:28 | 3542600 yogibear
yogibear's picture

The run on dollar  has already begun. The Fed, with the help of some  other central banks are trying to avoid it.

Germany want's it's gold back. The US must be close to the end game. Within a couple of years. The IMF members know it.

See Japan's debt  spiral out of control first.

Wed, 05/08/2013 - 17:22 | 3542608 100pcDredge
100pcDredge's picture

I don't know... Arnold Schwarzenegger maybe?

Wed, 05/08/2013 - 17:26 | 3542620 Stuck on Zero
Stuck on Zero's picture

JPM and Goldman have probably acquired 8000 tons of gold by now and feel it's time to return to a gold standard.

 

Wed, 05/08/2013 - 17:47 | 3542700 W T F II
W T F II's picture

TYPO..?? Don't you mean 80,000 tonnes..??

Wed, 05/08/2013 - 17:46 | 3542691 W T F II
W T F II's picture

Does he believe it, or is he just trying to seem intelligent and worldly..??

Wed, 05/08/2013 - 18:01 | 3542701 honestann
honestann's picture

Neo-Keynesian "theory" and soundbites are, and always have been, just a cover-story and rationalization for doing what the predators-that-be want to do, namely "continuously steal productive folks blind", "convert generations to come into debt-slaves", and "enslave mankind".

Anyone who imagines that anyone at the federal reserve, or in government, or their well-known apologists actually believe Neo-Keynsianism is good for an economy (or remotely ethical), is naive.

Those predators aren't that dumb.  Not even close.

Wed, 05/08/2013 - 18:12 | 3542784 TahoeBilly2012
TahoeBilly2012's picture

The supposed Kenyesian's at the top of the pile are Austrian's. They know gold is money, that's why they have worked so hard to make paper money, THEIR paper! This isn't hard to see. Print and use paper to extract all the world's wealth and control the peoples of the planet. Well their paper and maybe a little Disney Channel thrown in...

Wed, 05/08/2013 - 18:19 | 3542796 Village-idiot
Village-idiot's picture

After reading this article I can only assume that the idiots-in-charge are purposely destroying the western economies. They know that Keynesianism is twaddle, but continue to pay it lip-service to benefit themselves.

Get yourself prepared. (I planted my potato patch this last week.)

Wed, 05/08/2013 - 18:28 | 3542821 Common_Cents22
Common_Cents22's picture

Don't worry, our bright elite in DC have told us "we can make it up on volume."

Wed, 05/08/2013 - 19:02 | 3542902 NeoLuddite
NeoLuddite's picture

Yeah, we had a an electronics outlet here in Calgary during the eighties - Crazy Crazy's .

TV adverts loudly and frequently proclaimed that they "lost" money on every deal, but made it up on volume.

Wed, 05/08/2013 - 18:42 | 3542857 Devotional
Devotional's picture

Keynes = Canes = Caning = Sodomy = Sadist = Bernanke = Draghi = Abe = Carney = Timmy!

Wed, 05/08/2013 - 18:55 | 3542886 Oldwood
Oldwood's picture

I hate this shit the same as I hate stupid horror films. You always know when someone's going to die. You can scream at the screen telling them not to go into that dark room or the multitude of other stupid things. My wife says I just don't know how to enjoy them because I'm too busy analyzing the plot (what there is of it). Our world economy has become the same thing. We can see the disasters waiting us but no one will listen, they are oblivious to the dangers in wait. And I really don't think there will be much satisfaction for any of us in saying "I told you so" in the end. It will be monumentally ugly.

Wed, 05/08/2013 - 19:18 | 3542929 orangegeek
orangegeek's picture

Road To Serfdom is a better Von Hayek creation.  It's the socialist playbook - explains all this big government crap nicely.

 

Amazing that he wrote this in the 1940s.

Wed, 05/08/2013 - 23:06 | 3543503 USGrant
USGrant's picture

Does Shadow Banking constitute a money substitute? I don't think so. It can not be spent directly to discharge a debt.

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