What Is A "Liquidity Trap" And Why Is Bernanke Caught In It?

Tyler Durden's picture

Submitted by Lance Roberts of Street Talk Live blog,

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Tinky's picture

"Are we in a "liquidity trap?"  Maybe."

Given the impact of that shattering climax, Lance, perhaps you should consider screenwriting.


Say What Again's picture

At first I thought this was a trick question.

It is not...

Time for some Friday Humor.

FieldingMellish's picture

Thae last 5 minutes of today's S&P is all the Friday Humor anyone needs.

NotApplicable's picture

Well Lance, I was with you right up until "the Federal Reserve is beginning to realize that they are caught in a "liquidity trap."

Anybody who thinks they understand what the Fed Board thinks based upon the propaganda they spew is a total fucking idiot.

Why does everyone insist upon treating the script as gospel? Exactly who does this benefit again?


Beer-thirty cannot come quick enough today.

Fukushima Sam's picture

The half-life of these monetary events is getting incredibly short and I sense panic more than usual in the action of those in charge.

Get ready, peeps, it's coming.

cougar_w's picture

The half-life of a global war -- including a post-conflict recovery from all the damage -- is probably 20 years.

Playing out the clock in one game, before they start the next. I think they know exactly what they are doing.

FL_Conservative's picture

Liquidity trap is the roach-coach motel: the bugs check in, but they can't check out.

SimplePrinciple's picture

The Fed is not CAUGHT in the liquidity trap.  The Fed created the trap on purpose to avoid hyperinflation that would result if banks lent like they used to.  The Fed has WANTED a way to buy Treasuries and fund the debt without causing a moonshot in M1 and M2.

All Risk No Reward's picture

Bernanke works for the mega banks that control the Fed and whose execs and lackies sit on the board.

The Fed does what it is told, it doesn't try and control the mega banks.

You are correct, though, the Fed orchestrated the bubble / loot society dry / bust (coming soon to a planet near you) to asset strip society of most of its physical wealth.

Spoiler Alert!

The mega banks and their front corporations bankrupt or bomb every nation state into poverty and destroy national sovereignty in all but maybe the name.

They will not hyperinflate away their wealth to the benefit of the indebted Muppets.

I can't believe that so many people believe they would do the absurd given they are so greedy.

Oh, and those indebted in dollars can't "lose confidence" in the currency any more than they can lose confidence in their own dollar denominated debt which, by the way, sums to more than the available dollars to pay it off.

The world is being driven into receivorship via Sun Tzu Art of War Deception.

Incubus's picture

First dark ages, religion brought about.


Dark ages 2.0, brought to you by owl-worshipping hypercapitalists that run the system.  When you make the rules, who says you have to play by them?

glenlloyd's picture

liquidity is not solvency...you can have liquidity but still be insolvent. I might have $5 in my pocket (or more) but that doesn't mean I can meet my obligations. Most (if not all) sovereigns cannot meet their obligations...technically.

Borrowing more, in the end, won't make the situation any better and in fact will make it much much worse.

BeagleOne's picture

Depends where all the nukes explode...

BeagleOne's picture

It's always 5 o'clock somewhere...

Nothing but the truth.'s picture

 The longer all these Bernanke bloopers are allowed to continue, the bigger the correction crash will be.

The only question is, why isn't Bernanke aware of all these issues like the rest of us ?

NOTaREALmerican's picture

Re:  The only question is, why isn't Bernanke aware of all these issues like the rest of us


1) he's really smarter than we are.

2)  He believes the economic bullshit

3)  (which somebody on here said 3 years ago)   Image you were offered the option of taking a punch from Mike Tyson now, or - waiting for one year to work out "the problem" - and taking two punching from Mike Tyson if you didn't work out "the problem".   What would you do?

I'd try anything not to get punched by Mike Tyson. 

BeagleOne's picture

1. No


3. Defer, defer, defer...

FreedomGuy's picture

I think that Ben probably believes his own BS and even if he has doubts he will act on them out of pride and commitment. He will not change until there is a crash and it would still be a 50-50 shot that he would admit any error.

This is the very real human side of letting elitist self-proclaimed geniuses rule you. They have a set of theories and come hell or high water you are going with them into the abyss. When people are free and power is dispersed not everyone will follow the same ruinous path.

All Risk No Reward's picture

>>The only question is, why isn't Bernanke aware of all these issues like the rest of us ?<<

He knows.  Don't be so naive.

Ben Bernanke is a criminal that knowingly broke Section 2A of the Federal Reserve Act which PROHIBITS taking debt exponential to GDP, which is exactly what Bankster puppets Greenspan and Bernanke did.

Take a look at the first two charts...


Do you think Bernanke is too stupid to know the difference between "commensurate with" and "exponential to?"  The dude allegedly scored near perfect on SATs and the typical 5th grader knows the difference.

He's a liar.  A cold, blooded liar who sees people who can't tell he's lying as several levels below his "club" on the evolutionary chain.  If you aren't fit enough to figure this out, well, you might not make it - or so Ben thinks.  Does your conscience bother you after you step on an ant?  Bernanke's doesn't get bothered, either.

In addition, Bernanke is a kept man.  If he grows even a little bit of a conscience say, like Kennedy, he knows what will happen to him and it won't be pretty.

The mega banksters know time draweth near.

Look at the third chart down... organic GDP is contracting $500 billion a quarter and falling at a rate faster than it fell leading into 2008.  Organic GDP is real GDP once the marginal debt issuance games have been removed.

At the current rate, it looks like it will take 2 years to the point organic GDP hits the level that cracked up the credit markets in 2008 - a $1.2 trillion quarterly contraction.

My bet is we can't take it that low before the wheels come off again, but I could be wrong.

Now, going into this organic GDP collapse - even with $85 billion a month of your enslavement credits being shuffled to the mega banks - the Central Banks sold American debt at record levels IN ORDER TO DRIVE RATES UP!

Central banks sell record sums of US debt


The gullible believe that Bernanke had no idea what all the other central banks were doing selling all that American debt...  but the reality is the mega banksters are orchestrating an Art of War take down of the nation state economies and their criminal front man isn't about to expose their plot to f* you and yours up.  BTW, it is irrational to think the criminal would tell you of his crime.  You do know that, right?

Learn to garden.  Square Foot Gardening is a good program to learn.  Youtube it and get the latest book.

Oh, and these cirminals always run up stocks before they collapse the mofo - so one should expect a good solid run up before the bust draws serious blood.  I learned that one the hard way, but I learned it

Crime of the Century's picture

That is a very interesting prediction. 7 years after 9/11 we get Lehman, and 7 years after that we get Fed breakdown? Get used to saying "THE FALL OF '15" (coming to you in the Fall of '15). I do disagree though, hyperinflation will naturally result from the eventual revulsion of the dollar. You seem to posit that USD is the one fiat that proves immune through the ages. I disagree - freely emitted paper backed credit always reverts to its intrinsic value. ALWAYS.

At the current rate, it looks like it will take 2 years to the point organic GDP hits the level that cracked up the credit markets in 2008 - a $1.2 trillion quarterly contraction.

All Risk No Reward's picture

Hi CotC,

The organic GDP chart has to stay on its current path for the prediction to continue to hold water.  Also, I don't think we make it to $1.2 trillion in contraction per quarter again.   I think things come unglued somewhere between $500 billion and $1.2 trillion, but I don't know where inbetween.  We live in interesting times.

We agree that inflation / hyperinflation is the end game - so there is nothing to disagree about there.

What I posit, and I am convinced of this, is that there will be a deflationary "spiked pit" that occurs before said iniflationary collapse.

Why?  Easy.

Private banksters control trillion in debt paper and trillions more in real paper.

Would you inflate your paper wealth to zero?

Yes?  Oh, no, you wouldn't.  That would be stupid, right?

Would be giving out 3.5% 30 year loans (now 4.5%) ahead of this imminent hyperinflation?

Remember, they CONTROL the issuance of currancy.  They would have to DECIDE to destroy themselves.

They won't.

They will bust the little guy/gal, asset strip them and then hyperinflate to balance there books.

The banksters don't want worthless money, they want your slave labor, your assets and your soul.

Once they have those things...  sure, they'll balance the books by disassociating debt from money and giving everyone the hyperinflation they expect.

But not before.

lunaticfringe's picture

LMAO. Lance is seems has an overwhelming grasp of the obvious. 

So Ben becomes quite predictable. The Fed can't even mention the word taper or the whole house of cards collapses. Pass the Karmelcorn, please.

emersonreturn's picture

"...cash has become a sacred cow."


has anyone gone into a bank and asked for $1000 cash?  they have send out for it...it takes time to find cash...days, not to mention bank holidays...   cash?  what's that?

BeagleOne's picture

Yes. It only took 10 seconds to count it out. You obviously need to change financial institutions...

Crime of the Century's picture

No kidding - try a credit union, pal. The ATMs also still spit thirty $20s all day every day where I'm at.

Don't worry - they'll print more!



neidermeyer's picture

Maybe Bernanke should just realize once and for all that Keynesian policies don't work.  This isn't a liquidity trap ,, it just DOESN'T WORK ...

NOTaREALmerican's picture

Re:  This isn't a liquidity trap ,, it just DOESN'T WORK ...

We're still here.   It worked for 60+ years.   We wouldn't have Big-Military, Big-Road, Big-Airport, Big-Water, Big-Ag, Big-Ed, Big-PoliceState, Big-Health, Big-OldFart, Big-Energy and all the rest of the scams that many of us have gotten rich off of for the last 60+ years if it didn't work.

It used to work.    Nobody stops doing what they saw working their entire lives.  

Fish Gone Bad's picture

With an aging (Japanese) demographic

This statement looks to be true, except that the real truth is Japan is a DYING demographic.  Japan is constantly getting irradiated and it is NOT going away in anyone's short lifetime.  All this constant fallout is odorless, tasteless, and isidious.

I have seen three family members give everything away when they were close to the end.  Japan will do the same.  I give the "lucky" Japanese eight more years

ZippyBananaPants's picture

Sometimes I have a liquidity problem, nothing a little Pepto-Bismol won't take care of.

FieldingMellish's picture

Ben's helicopters only fly over Wall Street. If he had flown over Main Street instead, people might have actually spent some of that cash but, of course, that was never really the point of QE.

kito's picture

oh but ben does fly over main street. hes armed with a SAW inside an apache ripping holes through the 99%.

cougar_w's picture

I wonder if that is about to change.

They really have run out of options. The dreaded "let them eat cake" moment may have arrived for the central banks.

Herd Redirection Committee's picture

If they really want to help the economy, they will let us spend Carlos Slim, Warren Buffett and Bill Gates' money.  And by us, I don't mean the Federal Gov't.

disabledvet's picture

definitely true in Europe. definitely not true in the USA. crimeny the guy just moved treasuries, gold, equities and the dollar with nothing more than an "i do"... (or was it an "i don't"?) "Houston we have a go." http://www.youtube.com/watch?v=kgHYGw9OL7c

FL_Conservative's picture

They're such academics, that they really have NO clue.  Ben's comment regarding being surprised by the bond market's reaction to his initial comments confirms my point.

alphamentalist's picture

so tired of this the fed gave-all-the-money-to-the-banks clap trap. follow the money. where did it go? USTs maybe? propping up our corupt political class and their patronage machine? transfer payments (and/or lower taxes) to the entitlement/tax program beneficiaries? GSE paper? lower mortgage rates to the american home owning public? the fed saved the US government and the over-levered american public! did the banks see some (temporary) MTM on their books during the ride? yes. have they seen an influx of cheap deposit funding that they can punt as much ES as their RWA will allow? yes. but they were not the principal beneficiaries. the longer this lie goes on, the deeper the cancer of government's roots will plunge into our national soul... banks were--and remain--part of the problem. but they are dwarfed by the government. wake up!

FieldingMellish's picture

Banks and the government are one in the same. Its been that way for many, many years.

GeezerGeek's picture

All the financial machinations can't overcome the simple fact that the US is suffering from regulatory strangulation. Who wants to start or expand a business when the Federal government tells you who to hire, how much to pay them, what benefits must be provided, what the working environment must be, etc. The government has been as destructive to economic activity as it has been to political activity (think IRS suppressing the Tea Party), and as long as Big Government is dominant both economic well-being and individual liberty are shrinking. Given a choice, I'd prefer the government to be afraid of the people rather than the opposite.

Ben may be able to keep the economic sh*t afloat a while longer, but he can't make the economy expand as long as the boot heel is on the individual's neck.

cougar_w's picture

The banks have $2T in excess reserves stored at The Fed. Don't try to tell us they earned all that money from ATM fees over the last 4 years.

That is CB money -- $US reserve currency -- given out by The Fed to the banks. A fraction of it went into Treasuries, the rest is collecting interest at .1%.

Not one penny of it will ever see the light of day, ever enter the real economy. The Fed will never ask for it back.

Herd Redirection Committee's picture

Until the banks have to pay interest on deposits...

Then they will have to lend at least some of the reserves, in order to earn interest (and hence, pay the interest on the deposits).

alphamentalist's picture

remind me which Q the banks booked $2t in profits again? that is not their money! it is the banks parking uninvested deposits at the fed to earn something more than the nothiing it would earn sitting on their books. again, the cycle is money from the fed to govt, then on to its patronage, then into the bank deposits of the american public, and back to the fed becasue the banks have no where else to put it. it is not a gift to banks. 

NOTaREALmerican's picture

Re:  it is not a gift to banks. 

I guess the question is:  Would the banks be around without it?

alphamentalist's picture

the banks were saved by the AIG bailout. the american political class and their voters were saved by QE. see any soup lines? that is the differance between the 30s and today. QE prevented the public from getting smashed by their misdeeds. if you don't beleive me scrape the QE benefits into two buckets and compare. banks have benefitied by maybe a few 10s of billions at the bottomline (and i am being generous) and most of that is etheral MTM gains (or at least loss avoidance). the other trillions (yes, trillions, with a t) went to others, and by others i mean govt and its peeps. are banks too big? yes. is bernanke a monumental jackass? yes. but QE is not about banks. it is about propping up the broader system. ask a politician about QE being just for the banks and they will clap you on the back for seeing the "truth" about the evil banks while smugly marveling that no one has figured out their scam yet.

NOTaREALmerican's picture

Re: yes. but QE is not about banks. it is about propping up the broader system. ask a politician about QE being just for the banks and they will clap you on the back for seeing the "truth" about the evil banks while smugly marveling that no one has figured out their scam yet.

Gotchya.  Yeah, it's not directly about the banks.  

But, if QE failed the banks (and lots of of other financial scammers - including the government) would be wiped out.   

The top 20% - which includes Ben, and me, and lots of other people  -  are relying on the debt scam to keep going.  

The top 20% have been running the scam on the dumbasses for 50+ years now,   we need QE. 

alphamentalist's picture

if the object is to extend and pretend, then, yes, we need QE. 

however, if we want to avoid doing permanent damage to our financial plumbing, giving your 20% the chance to play this game again and again, then the QE turd has to taper and then drop into the bowl this year. we've gone from supported prices, to excessive prices, to a bubble, and are well on our way up the slope of THE bubble (how close to the top is the million dollar question, of course).

the end of QE--temporary as it will be--will, of course, reintroduce this long-forgotten aspect of free markets/societies called consequences. the government will not have as much candy to hand out. the people and businesses that run on candy will shrink, and some will collapse. pain at the banks (and the other levered financials) will follow. if there is an election in the middle of this then--shock--some of the candymen will get clipped. at which point consequences will go back out of style as quickly as they came back in and the QE will be back badder than ever. 

we will probably rinse and repeat this cycle until it destroys our empire.  

NOTaREALmerican's picture

Re:  we will probably rinse and repeat this cycle until it destroys our empire.  

We have no other choice.   There is no "reset" button.  

The history of humanity is the smart-n-savvy and the sociopaths screwing the dumbasses for EVERYTHING they've got until there are very few unscrewed dumbasses left.   Then the mob turns on the few remaining winners and a new set of the sociopaths and smart-n-savvy people emerge and start the game over.

That's the only system that exists.    I personally think we've got a ways to go.   The top 20% still need to be FscrewedK by the top 10%, and then them by the top 5%, etc...    Hopefully, I'll be dead before they get to me.   

Abi Normal's picture

Major flaw in your argument there brainiac...

There are no breadlines to see because of EBT and SNAP.

there fixed it for ya...there are only 48 million people on foodstamps, a paltry sum yes?

The banks park the reserves at the Fed sure, but the carry trade is where they make their money, which illegally enriches them AND props up the stawk market casino...

Oh, I wonder where all of the balances of .95 cents on all those gift cards ends up?  hmmm

Fraud is fraud, stop defending it alpha!  we have the longest soup lines in history but you're too blind to see it...the Fed saved no one!  It is an illegal entity period...if you don't think so, try auditing it LOL!!!!  That and Fort Knox...alas, who pays the $170 TRILLION in debt and unfunded liabilities?  You have no answer, cause there is none!

But you are correct in the collapse will happen! But I am on your side, this IS fight club!!!

alphamentalist's picture

If you go back and read carefully--emphasis on the carefully--you'll see I am saying we have no soup lines (like we would without QE) because the money is flowing from the fed to the govt to the entitlements. So again, not a bank bailout as much as it is a political bailout and social program enablement. This is fight club. And it is starting to show. Many of you have been hit in the head way too many times if you are struggling this hard to understand how this works. Keep your fists up and protect your heads!

Free Wary's picture

he's not defending fraud. cool it and reread a few times you will learn something