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What Is A "Liquidity Trap" And Why Is Bernanke Caught In It?
Submitted by Lance Roberts of Street Talk Live blog,
I have spoken, and written, much lately about the fact that the Federal Reserve is beginning to realize that they are caught in a "liquidity trap." However, what exactly is a "liquidity trap?" The following is one definition:
"A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels."
Let's take a moment to analyze that definition by breaking it down into its overriding assumptions. First, is the Fed pushing cash into the private banking system? The chart below shows that that answer is "yes". In September of 2008 the excess reserves of major banks was just $9 billion. After the Lehman failure excess reserves have now skyrocketed to $2.07 trillion. That is roughly an increase of $400 billion in excess reserves annually.
However, has the increase in liquidity into the private banking system lowered interest rates? That answer is also "yes." The chart below shows the increase in the Federal Reserves balance sheet, since they are the "buyer" of bonds which in turn increases the excess reserve accounts of the major banks, as compared to the 10-year treasury rate.
While, in the Fed's defense, it may be clear that since the beginning of the Fed's monetary interventions that interest rates have declined this has not really been the case. I would venture to argue that, in fact, the Fed's liquidity driven inducements have done little to effect the direction of interest rates. I say this because interest rates have not been falling just since the monetary interventions began - it is a phenomenon that began three decades ago as the economy began a shift to consumer credit leveraged service society. The chart below shows the correlation between the decline of GDP, Interest Rates and Inflation.
The ongoing decline in economic activity has continued to be the driving force behind falling inflationary pressures and lower interest rates. It is hard to attribute much of the recent decline in interest rates to monetary/accomodative policies when the long term trend was clearly intact before these programs began. The real culprits behind the declines in economic growth rates, interest rates and inflation is more directly attributable to increases in productivity, globalization, outsourcing and leverage (debt service erodes economic activity).
However, the real question is whether, or not, all of this excess liquidity and artificially low interest rates is spurring economic activity? To answer that question let's take a look at a 4-panel chart of the most common measures of economic activity - Real GDP, Industrial Production, Employment and Real Consumption.
While an argument could be made that the early initial rounds of QE contributed to the bounce in economic activity it is important to also remember several things about that particular period. First, if you refer to the long term chart of GDP above you will see that economic growth has ALWAYS surged post recessionary weakness. This is due to the pent up demand the was built up during the recession that is unleashed back into the economy. Secondly, during 2009 there were multiple bailouts going on from "cash for houses", "cash for clunkers", direct bailouts of the banking system and the economy, etc. However, the real test for the success of the Fed's interventions actually began in 2010 as the Fed became "the only game in town". As shown above, at best, we can assume that the increases in liquidity have been responsible in keeping the economy from slipping into a secondary recession. With most economic indicators showing signs of weakness it is clear that the Federal Reserve is currently experiencing a diminishing rate of return from their montary policies.
Lack Of Velocity
The definition of a "liquidity trap" also states that people begin hoarding cash in expectation of deflation, lack of aggregrate demand or war. The 4-panel chart below shows that both individuals, and corporations, have been stock piling cash since the beginning of this century. As the "tech bubble" eroded confidence in the financial system, followed by a bust in the credit/housing market, cash has become a "sacred cow." In turn this has pushed monetary velocity to the lowest levels on record as the economy continues to weaken as deflationary pressures persist, the demand for credit remains weak and consumption remains constrained by stagnant wage growth.
The issue of montary velocity is the key to the definition of a "liquidity trap." As stated above:
"The signature characteristic of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels."
The chart below shows that, in fact, the Fed has actually been trapped for a very long time.
The problem for the Fed has been that for the last three decades everytime they have tightend monetary policy it has led to an economic slowdown or worse (as shown by the vertical dashed lines). The onset of economic weakness then forced the Federal Reserve to once again resort to lowering interest rates to stabilize the economy.
The issue is that with each economic cycle rates continued to decrease to ever lower levels. In the short term it appeared that such accomodative policies did in fact aid in economic stabilzation as lower interest rates increased the use of leverage. However, the dark side of those monetary policies was the continued increase in leverage which led to the erosion of economic growth, and increased deflationary pressures, as dollars were diverted from productive investment into debt service. Today, with interest rates at zero, the Fed has had to resort to more dramatic forms of stimulus hoping to encourage a return of economic growth and controllable inflation.
No Escape From The Trap
For the Federal Reserve they are now caught in the same "liquidity trap" that has been the history of Japan for the last three decades. With an aging demographic, which will continue to strain the financial system, increasing levels of indebtedness and poor fiscal policy to combat the issues restraining economic growth it is unlikely that continued monetary interventions will do anything other than simply foster the next boom/bust cycle in financial assets. The chart below shows the 1-year Japanese Government Bond yield as compared to their quarterly economic growth rates. Low interest rates have failed to spur sustainable economic activity over the last 20 years.
As I stated recently in "What Inflaton Says About Bonds & The Fed:"
"The real concern for investors, and individuals, is the actual economy. We are likely experiencing more than just a 'soft patch' currently despite the mainstream analysts' rhetoric to the contrary. There is clearly something amiss within the economic landscape and the ongoing decline of inflationary pressures longer term is likely telling us just that. The big question for the Fed is how to get themselves out of the 'liquidity trap' they have gotten themselves into without cratering the economy, and the financial markets, in the process. As we said recently this is the same question that Japan is trying to figure out as well."
Should we have an expectation that the same monetary policies employed by Japan will have a different outcome in the U.S? More importantly, this is no longer a domestic question - but rather a global one since every major central bank is now engaged in a coordinated infusion of liquidity. The problem is that despite the inflation of asset prices, and suppression of interest rates, on a global scale there is scant evidence that the massive infusions are doing anything other that fueling the next asset bubbles in real estate and financial markets. The Federal Reserve is currently betting on a "one trick pony" which is that by increasing the "wealth effect" it will ultimately lead to a return of consumer confidence and a fostering of economic growth? Currently, there is little real evidence of success.
Are we in a "liquidity trap?" Maybe. Of course, no one recognized Japan's problems either until it was far too late.
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"Are we in a "liquidity trap?" Maybe."
Given the impact of that shattering climax, Lance, perhaps you should consider screenwriting.
At first I thought this was a trick question.
It is not...
Time for some Friday Humor.
Thae last 5 minutes of today's S&P is all the Friday Humor anyone needs.
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?
*sigh*
Beer-thirty cannot come quick enough today.
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.
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.
Liquidity trap is the roach-coach motel: the bugs check in, but they can't check out.
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.
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.
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?
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.
Depends where all the nukes explode...
It's always 5 o'clock somewhere...
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 ?
Re: The only question is, why isn't Bernanke aware of all these issues like the rest of us
Either
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.
1. No
2.No
3. Defer, defer, defer...
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.
>>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...
http://market-ticker.org/akcs-www?singlepost=3216019
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
http://beforeitsnews.com/economy/2013/06/central-banks-sell-record-sums-...
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
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.
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.
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.
"...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?
Yes. It only took 10 seconds to count it out. You obviously need to change financial institutions...
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!
http://www.youtube.com/watch?v=kBpY52xigH4
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 ...
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.
Sum Ting Wong?
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
Sometimes I have a liquidity problem, nothing a little Pepto-Bismol won't take care of.
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.
oh but ben does fly over main street. hes armed with a SAW inside an apache ripping holes through the 99%.
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.
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.
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
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.
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!
Banks and the government are one in the same. Its been that way for many, many years.
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.
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.
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).
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.
Re: it is not a gift to banks.
I guess the question is: Would the banks be around without it?
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.
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.
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.
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.
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!!!
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!
he's not defending fraud. cool it and reread a few times you will learn something
The private banks control and own the currency. Nothing 'dwarfs' that.
While Ben Bukakke may be caught in a liquidity trap by needing to keep providing it. The banking industry is caught in a solvency trap. Their balance sheets, derivatives, and loan losses are deteriorating much faster than assets are appreciating. Another shock to the system is all that is needed for TSHTF or Feral reserve having to drop their next load of trash, I mean cash.
I think before they let the system implode, they nationalize it.
Not sure how that would look in application but we are very nearly there already when you think about all the bail-outs to date. And who knows what kind of fishy stuff is going on behind the scenes.
Let's see. Probably they form a national "bad bank" for each industrial nation and sell that bank the broken assets of the world at par, and then let them unwind their positions over 100 years funded by 200 year duration treasuries.
Something like that.
So what are world populations doing during all this monetary vaporization when everyone sees their savings disappear?
Just asking.
They won't like it one bit. But as a rule they don't have any way to change their situation that doesn't involve placing themselves up against a line of police armed with automatic weapons.
Somewhere, a computer model is suggesting that in the run-up to peak oil we can't feed those people anyway.
Two birds. One stone.
It is -- as they say -- regrettable.
I'm sorry, but do people really foresee a future 10-20 years from now where governments are running banks and/or mines?
Empires collapse long before we see that shit, IMO.
It took the Roman empire 200 years to fully collapse once the systemic rot had set in.
In modern times a similar collapse will certainly happen faster than that. But I think 10-20 years of "adventures in Fascist economic centralization" on a national and global scale will easily fit into the time frame allowed for the collapse of the world financial systems.
In a word... yes. Who runs GM? Who runs AIG? Who runs Fannie & Freddie? It's not hard for TPTB to take over any bank, mine, or industry on the guise of TBTF. The die was cast with TARP which was bastardized over and over to do just that by destroying traditional bankruptcy laws. The result was de facto nationalization of private capital enterprises. Welcome to the new Fascism, brought to you under the guise of "protecting" you. The same logic is being used to have the NSA spy on you, the IRS to extort money from you, and the DHS to stockpile billions of rounds of ammo in case you don't submit to the NWO. There is nothing TPTB won't do to Extend and Pretend to Infinity and Beyond to enlarge their power and wealth at the expense of creating slaves of the citizens.
"There is nothing TPTB won't do to Extend and Pretend to Infinity and Beyond"
Well sure. They aren't about to give up a 100-years-long racket without putting up a fight first.
I mean, there is the risk someone might you know reenter the middle-class or something if this goes down.
That's the point. Their goal is to destroy the middle class. In their world there are only 2 classes. Master and slave. They have no incentive to create a new middle class. It's the only conclusion you can reach as to why everything they do is ass-backwards in creating a thriving economy. That's because your vision of a thriving economy includes a middle class that has the means to control assets and materials, protected by a free press and democratic security system. Start thinking like a banker or goverment master and it all becomes clear. They mean to control all assets and materials, and are taking steps to control communication and security to insure that not only can't they be challenged by the masses, but can extort the masses. Their Eutopia is a feudal system, and they will stop at nothing to achieve it. The only way Feudal systems have ever collapsed is by revolution by masses that have become so desperate they have nothing to live for under the current tyrany so they rebel. We are a LONG way from the masses being that desperate IMO.
Serf's UP!
Being retired, I just go to the beach. Obviously not an option for everyone, however. Probably many check the balance on their EBT cards, and when it falls to zero they just watch Dancing With the Survivors, or something like that.
Having said that, I'm sure Barry's minions have decided the beach is too good for me and have prepared a nice, comfy place for me in some camp. Hope they have internet access and haven't blocked ZH.
I do the same. I won't go to camp. Molon labe!
TPTB release a deadly germ only they have the antidote to.
Monetizing is a form of nationalizing. The Fed is nationalizing both public amd private sector debt. Pretty soon, it will own us all.
A liquidity trap is being trapped without the correct supply of liquids, such as beer, on a friday, and the local store has closed up for the night.
A terrible crisis, surely.
how can we get out?
raise interest rates to 4%, stop all QE.
let the markets crash and then let them heal on their own :)
The markets might crash yes.
But before that happened the crushing weight of outstanding soveriegn debt would ignite and consume all the money in the world in a firestorm.
Re: let the markets crash and then let them heal on their own
That would wipe out much of the scam class too. The top 20% has done quite well running these debt fuel financial scams for the last 50+ years.
It wouldn't be just "the banksters" wiped out. It would be people that own and operate the society.
Which means it can't be done.
This confirms what I've said all along: The FED is ineffectual. They are stuck. Bernanke is retiring because he sees no fame coming his way for "turning things around". He's basically continued the loser policies that Greenspan embarked on post Volcker.
Do we need to wait 25 yrs like Japan before we acknowledge massive financial dysfunction? C'mon guys..... this economy is a joke. Let's introduce a system that actually works.
Re: Do we need to wait 25
Yes, why would we wait less than the maximum possible time?
Re: acknowledge massive financial dysfunction
No-one can admit the bullshit they believed in was wrong.
Re: Let's introduce a system that actually works.
This is the only system possible.
And where is our friend Dr. Krugman? No alarm bells? I guess he's still writing about this at the Times but he's "optimistic about the future." You know, I have to admit, a gram IS better than a damn.
Krugman: "This cocaine is a helluva drug! Man! Things are looking up! Time to write a column!"
Savers will put up with zirp to no end....why
Trannies, industrials, bonds-notes and international ETFs aren't buying this rally, and indices DJIA, SPX and VTI for example, all still stopped at 2 month double tops, may be telling a topside story:
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=vti&insttype=&freq=1&show=&time=8
Zero gravity economy
Water flows uphill
Nice illusion of a lush world full of money, profit and opportunity. And Ben still thinks he can walk on water. I prefer Saint Hillary: "What difference does it make?" Seriously, this is all going to end badly, so no difference, none at all.
As the Titanic went down someone probably said "this is going to end badly for everyone."
But it only ended badly for the people who couldn't afford a seat on a lifeboat. Those who could lived to sail another day.
Those who are going to survive the current catastrophe already know who they are.
Point taken. However, the overall effect, writ large, was that even if you survived the Titanic, your cruise did not entirely go according to plan. If survival is the best we can hope for... I assert again, things are going to go very badly.
Oh yes we are going back. It will go very badly for modern technology and our current way of life. Nobody is going to escape unscathed.
You probably cannot imagine someone living on a hilltop in a stone house, surrounded by dirt fields and vineyards and the huts of peasant serfs working the fields and forests, as having The Good Life. But compared to the peasants that will be pretty posh.
Note: will be
My prediction is it will be more like Soylent Green than what you envision. At least in the cities.
At least the crew of the Titanic (Olympic?) had the decency not to confiscate the lifeboats for its own use. Can't be certain what the crew in DC will do if the ship of state starts to sink.
Ben, do you want me to start pounding the pre-ejaculated media press releases awaiting the final bald headed LIESman benny hill head slapping beat down? Tag, your it!
Mr. Watanabe 'swaffels' the Eccles building as we speak. 'Swaffle' is a soft beating on a subject with a half hard dick and put it on youtube. And you thought the Japanese are weird.
So should I google/duckduckgo that at work?
Go ahead, dare me.
Try it. The JPM vault. I'm not joking. Supporters of one football club swaffel the stadium of their upponent in Holland. It's a bit 2012, but it's the only thing left. Hah, lmfao, you have access to google? Have some fun, beat them at their own game.
http://www.urbandictionary.com/define.php?term=swaffelen
Amerika is afloat in a constipated liquidity trap which is rapidly pushing the world into an insolvency trap (we are already there but shhhhh). Lost decades ahead or big global "bang"? Minski moment, Bitchez! Keep stackin'. Keep truckin'.
Lance, growing wealth inequality->lower interest rates->greater speculation in financial risk assets->more wealth inequality->lower interest rates->bubble->financial collapse->government bailout of markets->repeat.
The only way to exit the cycle is to even out wealth inequality, either by refusing to bailout financial assets, via taxes, or by a brainwashing program that gets wealthy people to spead money.
rapid inflation or deflation and mass default would also do the trick.
I'm guessing "deflation" but they'll probably launch a war before they let that happen.
Jubilee is the only way. It happens either in orderly fashion or disorderly.
A debt jubilee will never happen. Just look at the EU. Time after time they had the chance to pull an Iceland, and everyone punts. TPTB (banks & govts) are addicted to debt. Hence they will protect it all costs. The only thing TPTB fear is a French Revolution 2.0. That's why they are raising a police state (NSA, IRS, DHS) to protect them from the citizens. The end will only come in a disorderly fashion... through war and revolution. But that is probably decades in the future, since it will take that long for the sheeple to become desperate (hungry) enough to battle the police state and their tanks and planes. No, it's extend and pretend. Dole out just enough crumbs to the slaves to keep them docile while the masters get fat. We have a long way to go.
Get rid of everyone involved in this prolonged death trap.
Any reasonable person would hold their hands up and say ' i fucked up ' but not these scum. They would hang on until they brought down the whole show.
Ever stop to consider that maybe TPTB actually want to bring down the whole show? Why bother dealing with the 99%? Just keep a few on the plantation to grow the food, make the gadgets, etc.
Re; Any reasonable person would hold their hands up and say
That's why there are so few reasonaly people around. Most people believe the bullshit of the guy in the mirror.
What would the Germans say? kaputt
This is not a hard problem to solve. Load the Fed up with all the debt and then blow it up. Then have the treasury make the fake money. Its not a gold standard but it would be debt free money.
A lot of evidence is pointing toward this very outcome. Though I think they will call it something different than "blow it up" you know like "Monetary Issuance Equalization Act" or something else totally ghey.
Re: Its not a gold standard but it would be debt free money.
Who would be the winners and losers (other than the usual dumbasses, I mean) in that scenario?
When Ben entered the bond market, others walked away, and THE FED BECAME THE MARKET. Now, IF he decides to sell any, who is he going to sell them to? That is liquidity trap defined!
In defense of the Fed, remember that M x V = GDP. As you state, if V decreases, maintaining GDP is a function, and solely a function, of M.
But how could V be increased without any Fed action? Well, one characteristic of liquidity trap may be low interest rates, but another is an inability or uninterest in borrowing, i.e. an excess of debt. Remove the debt = increase V. For example, look what removing the debt did for GM, Greece, Iceland, etc. Remarkably reinvigorating. So the solution to the global Keynsian excessive debt buildup is for a debt jubilee/forgiveness. Start with student debt, move onto mortgage debt. Unfair to creditors? OK. But consider which is worse - a billionaire losing 10% of his money or thousands of families being thrown out of their homes, a reinvigorated economy, and the fact that the billionaire's other investments will probably double?
If debt is the problem (and nobody would really dispute it), then getting rid of the debt is the solution. We can disagree on the method, but it must be done.
Re: and nobody would really dispute it
The "Keynesian" would dispute it. The top 20% that has gotten rich off running the debt scams would dispute it. The 20% that are expecting to retire on the "earnings" inflated by the debt scam would dispute it.
No, this would badly affect the top 20%. It's not JUST the top 1% that would get hit.
The problem with debt forgiveness is that it drives up the cost of lending. Default, on the other hand, reduces it by placing collateral in the hands of lenders and increasing lender confidence.
Instead of preventing default, the Fed should have encouraged orderly default much like thr RTC process.
At best, low interest rates are a very short term fix. Again, the issue is behavioral. Low interest rates create an expectation of a continued low rate environment. Whrn rates rise, borrowing stops until rates fall back into the expected range
I guess that you more or less agree with my proposition - only its means. My main point is that the anchor of debt must be dealt with. You can inflate it away, default, forgive, whatever. Take student loans: Is any debt less rational, moral, whatever, than lending $100,000 to music majors? Change the law to allow it to be dealt with in bankruptcy.
My second point is that such a rebalancing requires a determination between the costs and benefits with the most benefit to the most people, and the most damage to the least people. Seems to me that most of the people hurt during the current regime are those least able to afford it, while the few people to be benefited need it the least.
My third point is that if a debt "readjustment" were to take place, GDP would pop 10% the first year, 7% the second year, and so on.
The only way the Fed can participate is through inflation. It's other job - as it is owned by the banks - is to protect their assets. Clearly, an elimination of debt is contrary to this so it won't be done. Banks, and the Fed, do everything possible to make their assets bulletproof, so clearly fiscal or other forces are required.
Until these things happen, welcome to the new normal.
According to CIBC World Markets:
The world remains a place where enormous amounts of debt just keep stacking up. Paying this debt back is constantly believed to be less of an issue given the crucial assumption that economic growth rates in the order of 3% to 5% will return AND will be sustainable. Even if it does, it must be noted that “total payback” of the debt could be unlikely to ever be achieved. At some US$18 trillion of total debt in the U.S., it would take 14,400 million ounces of gold or some 160 years’ worth of annual global gold mined supply (at the current price of some US$1,240/oz. and at current global output of some 2,800 tonnes per annum) to pay this down. At the same time, gold production is about to take an almighty knock and we won’t be surprised to see as much as 25% less gold output in the next five years.
Still, much of this precarious (let’s just stop the debt load from growing) position is critically dependant on very low interest rates being maintained – once rates start moving higher, debt repayment schedules quickly blow out, while the value of bonds, in particular government bonds, starts to decline. The current dramatic decline in the value of government bonds will already see banks’ balance sheets shrinking again, with possible resultant liquidity squeezes across the globe. Euro sovereign debt costs are already up dramatically and Italy is seemingly also sitting with an apparent +30 billion euro loss in the derivatives market…
This could very quickly turn out to be a very bad scenario, but the point, as far as we are concerned, is really that it does not even need to get to this for the markets to start realizing that currencies will have to depreciate much further – we believe this to be a crucial mechanism for delivering lower sovereign debt levels long term. Gold will be the currency that continues to benefit in the longer term. So, making a positive case for the gold price is not too difficult – particularly if inflation becomes a problem much sooner than everybody currently expects.
The real problem, unfortunately, is that all of this argument is dependant on data that will only become apparent much later down the line. Right now, nobody is willing to go against the Fed. That simply means bonds and gold are both getting the “chop” because the Fed is signaling a return to stronger economic growth – leading to a stronger U.S. dollar.
How can he seriously say "productivity has increased" over the past 30 or so years??
If you count costs - particularly cost of labor - as one measure of productivity, the US economy exhibits DISMAL levels of competitiveness & productivity.
We don't PRODUCE much anymore, at least not affordably.
It's telling how stupid the writers are when they are pushing the fallacy of a "liquidity trap".
Duh, can you be more specific? I thought it was excellent.
Low rates don't accelerate demand. Demand is money & velocity driven. Keynes's liquidity preference curve (demand for money) is a false doctrine. There's no such thing as a liquidity trap.
Real-gDp has only risen by .03% since its peak in Oct 2007 @ $13,326 trillion -> vs, $13,626 trillion today (i.e. over 4 years).
Today (vs. 1998), small savings deposits have declined from .33% of total savings deposits to now just .07% of total savings deposits. That's wealth transfer (from the "have nots" to the "haves").