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Guest Post: The Boxed-In Fed

Tyler Durden's picture




 

Submitted by Pater Tenebrarum of Acting-Man blog,

Exit, shmexit…as our readers know, we have always been among those who have argued that the Federal Reserve will never truly 'exit' from its 'unconventional policies'. At least not for any appreciable period of time – which is to say, we have occasionally held that it might try to reduce or stop 'QE' or similar programs due to a misguided impression that the recovery has become 'self-sustaining' (we are using all these quote marks because we think the entire mainstream phraseology in this context either makes no sense or is slightly Orwellian). However, it would then immediately be forced to reinstate the policy again, as the long-delayed liquidation of malinvested capital would undoubtedly commence with little delay. This continues to be the situation, so we were only moderately surprised that 'QE to Infinity' was not even 'tapered'.

We sometimes discuss individual Fed board members in these pages, as there is a variety of views represented, especially among the district presidents. Of course the money printers have a huge majority, so that the handful of doubters regularly gets outvoted when it is their turn to have a vote. In addition it should be noted that their protests are usually of a token nature: they may dissent once or twice, and then they become quiet again. The sole exceptions to this rule are currently Jeffrey Lacker and Esther George, whereby Lacker is holding views that make one wonder why he even wants to be part of this abominable central planning organization. Over the past decade or so he seems to have gradually realized what enormous economic damage it is doing.

 

One of the regional presidents we once held in comparatively higher regard is Narayana Kocherlakota. It may be recalled that Kocherlakota once was among those dissenting with the Fed's incessant money printing due to his analysis of the labor market. We commented favorably on his views at the time – contrary to most of his colleagues he seemed to have realized that there is no such thing as 'the labor market', i.e., he acknowledged that labor isn't a homogeneous blob.

He was quite correct of course: when a major bubble unwinds, very particular problems will emerge while the economy restructures to better reflect the actual state of consumer demand and the available pool of real savings. Many workers will lose their jobs and it will be found that there are numerous mismatches between the types of labor actually demanded in the market and the skill sets on offer. Obviously, following the collapse housing bubble, all sorts of labor connected to the building industry, the mortgage credit industry, real estate agent services and so forth were surplus to requirements. In the meantime however, demand for specific labor in other sectors of the economy could not be met (for instance, railway equipment makers could not find enough skilled welders for a time). Kocherlakota concluded that money printing could do nothing about this skills mismatch. It simply takes time for these imbalances to be absorbed.

However, it did not take long for him to make a complete U-turn. We have never understood what made him change his mind, but he moved from being a 'token hawk' to becoming the most vocal supporter of more money printing.

 

The Lunatics Take Over the Asylum

Yesterday, Kocherlakota once again made his new views known and this time he went completely overboard. It is quite ironic that the political left – the people who allegedly speak for the working class, the poor and the downtrodden – immediately came out judging Kocherlakota's call for massive additional monetary inflation 'brilliant'.

Of course the people that continue to be hurt the most by the Fed's crazy inflationism are precisely those the political left purportedly speaks for. It is testament to the fact that decades of propaganda have put erroneous economic theories almost beyond the pale of debate – it is simply taken for granted that central planning and inflationism will 'work'.

What is so amazing about this is that even if one has little idea of the theoretical debate, the people making these assumptions are completely unswayed by the evidence to the contrary that has amassed after decades of ever greater boom-bust cycles. After all, they have have finally landed us in the 'worst economic environment since the Great Depression'. Do they believe this situation just fell from the sky, unbidden? Why are they unable to  recognize the glaringly obvious: namely that it is the end result of the very interventionism they are pining for?

It should also be noted here that such evidence has not only accumulated in recent decades: it has been accumulating ever since the first major experiments in modern paper money inflationism were conducted by John Law in France in the early 18th century.

Here are a few key points from Kocherlakota's allegedly 'brilliant' speech:

One of my main points today is that this conclusion of monetary policy impotence is at odds with the behavior of inflation. To understand this point, it’s useful to look at the behavior of personal consumption expenditure (PCE) inflation over the past few years. Just to be clear, this is a measure of inflation that incorporates the prices of all goods and services, including food and energy. Since the beginning of the Great Recession in December 2007, the PCE inflation rate has averaged around 1.5 percent. This is noticeably below the FOMC’s target inflation rate of 2 percent per year. And the outlook for future inflation is similarly subdued. Thus, earlier this year, the Congressional Budget Office projected that PCE inflation will remain below the FOMC’s target of 2 percent until the year 2018.

 

These low levels of inflation tell us that monetary policy can be useful in increasing the rate of improvement in the labor market. Here’s what I mean. At a basic level, monetary stimulus increases the demand for goods among households and firms. This higher demand for goods tends to push upward on both prices and employment. Hence, the downside with using monetary policy to stimulate employment is that, when employment is near its maximum level, further stimulus can lead to unduly high inflation. But the data show that over the past few years inflation has been below the FOMC’s target of 2 percent. It’s expected to remain below desirable levels for years to come. These low levels of inflation show that the FOMC has a lot of room to provide much needed stimulus to the labor market.”

(emphasis added)

And here we thought this kind of nonsense had been thoroughly excised in the 1970s. No less than eight papers debunking such 'Phillips curve' type thinking have won Nobel prizes in economics. Of course one can push up employment artificially as long as prices rise faster than wages, i.e., as long as real incomes decline. In fact, what improvement there has been in the labor market to date is probably mainly due to the fact that real incomes have plummeted.

As we have pointed out in our discussion of the 'forced saving' phenomenon, the Weimar Republic's hyperinflation period demonstrated this principle nicely. In 1922, Germany's unemployment rate fell below 1%! The problem was only that this achievement was accompanied by capital consumption on a massive scale and a constant diminution of real wages. Eventually, when the currency finally began its headlong plunge into oblivion, workers woke up and began to insist that their wages be adjusted to reflect the loss of purchasing power. So one year after unemployment had declined to below 1%, it soared to 30%.

As an aside to all of this, if employment for the sake of employment is the main goal to be pursued, no matter the consequences for the economy or society at large, the simplest way of going about it would be to erect a full-scale totalitarian command economy. Those always have zero unemployment. They also produce nothing consumers want and have no liberty, but why should central planners care? They will after all be members of a privileged class.

As an aside, much of the political left's pining for central planning can probably be explained by this: they don't care that if their ideas were fully implemented, the economy would become a stagnant shadow of its former self, since they all hope that they will become members of the ruling class and not suffer any of the deprivations others will have to become accustomed to. The 'real socialism' of the Eastern Bloc in fact demonstrated this nicely. Its ruling elites had command over luxuries common citizens could not even imagine

Kocherlakota then compared the current situation with that the Fed faced in 1979. What he was trying to convey by this is mainly that 'there is a problem, and forceful enough monetary policy can solve it'. Of course the two problems –  a huge decline in money's purchasing power after decades of inflationary policy on the one hand, and high unemployment on the other hand -  are of a completely different nature, so this comparison really makes no sense.

A central bank can jack up interest rates and stop printing money if it is serious about wanting to arrest a decline in money's purchasing power (as long as it is willing to endure the political fall-out). Combating high unemployment by inflating the money supply on the other hand is only certain to create an enormous boom-bust sequence. At the end of it we won't simply be 'back at square one' either – we will be far worse off (this should be crystal clear from what occurred after the Fed fought the post Nasdaq bubble recession with massive monetary pumping).

Kocherlakota then took a leaf from Mario Draghi's cook book and asserted that the Fed “must do whatever it takes” to bring unemployment down. And then he specified what 'doing whatever it takes' actually entails:

“Doing whatever it takes in the next few years will mean something different. It will mean that the FOMC is willing to continue to use the unconventional monetary policy tools that it has employed in the past few years. Indeed, it will mean that the FOMC is willing to use any of its congressionally authorized tools to achieve the goal of higher employment, no matter how unconventional those tools might be. Moreover, doing whatever it takes will mean keeping a historically unusual amount of monetary stimulus in place—and possibly providing more stimulus—even as:

 

  • Interest rates remain near historic lows.
  • Economic growth rises above historical averages.
  • Per capita employment begins to rise appreciably.
  • Asset prices rise to unusually high levels, leading to concerns about “bubbles.”
  • The medium-term inflation outlook rises temporarily above 2 percent.

 

It may not be easy to stick to this path. But I anticipate that the benefits of doing so, in terms of employment gains, will be significant.”

There may be temporary 'benefits in terms of employment gains' if the Fed creates an even more gigantic echo bubble than it has already done. We are willing to grant that much. Kocherlakota apparently believes these days that there should be no limits whatsoever to the Fed's monetary pumping. 'Inflation' targets? Forget about it! Asset bubbles? Who cares!

It is as if the past 20 years had not happened – as if Kocherlakota had simply erased the whole period from his memory. Does he really believe that pumping up another giant bubble will have more benefits than drawbacks? Where does it all end?

As noted above, the problem is of course that the policy has already boxed the Fed in: as soon as 'stimulus' is but decreased, the markets are throwing a fit. So onward it is, and damn the torpedoes!

However, this ultimately means that the central bank will have to go down the very path Rudolf Havenstein's Reichsbank and John Law's Banque Generale in France went down: it will never be able to stop, as stopping the stimulus policy will immediately lead to a worsening of unemployment and various data measuring 'aggregate' economic activity.

However,  there is no such thing as a free lunch, and there cannot be an 'eternal boom' by simply continuing to print, as once envisaged by Keynes. All that will happen is that the ultimate disaster will be even greater. In fact, is seems ever more likely that the next disaster will be the last one of the current monetary system.

 

US-TMS-2

Broad US money TMS-2 (via Michael Pollaro) – not enough inflation yet? - click to enlarge.

Real Personal Income Less Transfers Per Capita and Real Final Sales Per Capita-

Real per capita personal income less transfers and real final sales (via B.C.) – click to enlarge.

 

kocherlakota

Minneapolis Fed president Narayana Kocherlakota – we need more of the same. Much more.

 

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Sun, 09/29/2013 - 14:44 | 4003682 Kirk2NCC1701
Kirk2NCC1701's picture

They're not boxed in.  We The People are.  Roll the Guillotines already!

Sun, 09/29/2013 - 15:05 | 4003702 Landotfree
Landotfree's picture

That is correct, once the equation is used there is no out, or at least one that people are going to want to hear.  Eventually, the system will not be able expand once again and the collapse will start once more... the liquidation process will go on for many decades.

Sun, 09/29/2013 - 15:50 | 4003783 smlbizman
smlbizman's picture

his neck seems to be about a 6 and 1/2......so 14 foot of rope will be needed...

Sun, 09/29/2013 - 16:01 | 4003807 kaiserhoff
kaiserhoff's picture

ZIRP is in many ways a worse distortion than the Fed Balance Sheet,

  and crazy and criminal as Ben is, he's right about one thing.  It's not really printing until they cancel the debt, which they have no way to do.  That's the real box they are in.  Now if the TREASURY starts to print, it's full retard Zimbabwe.

Sun, 09/29/2013 - 21:19 | 4004416 Errol
Errol's picture

kaiserhoff, Ben B may be neither crazy nor criminal.  Its possible he's well aware that the end of cheap energy (due to decreasing net energy due to depletion of easy sources) means that all the promises made to the middle class (social security, pensions) CANNOT be kept.  His intent is to buy Treasury paper indefinitely; the federal gov't will use the money for social security & SS Disability, SNAP, supporting pension funds by pumping the stock market, etc.  While people will not be receiving current value for their promised benefits, the intent is to at least pay the nominal amount.  The intention is to prevent riots and/or insurrection.

Mon, 09/30/2013 - 00:26 | 4004719 andrewp111
andrewp111's picture

Obama's Treasury may have no choice but to mint trillion dollar coins if the debt ceiling isn't raised. We may see Obozo holding a nice shiny proof platinum orb with Nixon's face on it before the end of the month.

Sun, 09/29/2013 - 16:18 | 4003830 xamax
xamax's picture

Cool message

Sun, 09/29/2013 - 19:04 | 4004140 bank guy in Brussels
bank guy in Brussels's picture

And here is a cool bit of trivia to know and digest

The above article bashes old Communist Eastern Europe and its 'ruling elites' with their privileges, speaking about Communism as a failure

But the fact is, all across Eastern Europe in the EU in Poland etc. ... the older folks who lived under Communism and remember it, would vote to have Communism back

They believed it was better, fairer, less stressful and kinder to people, than the shock-therapy crony capitalism that succeeded it ... for older Eastern Europeans, the lower political freedom of the Communist era, was offset by the fact that common people had a modest but secure existence ... whereas since then it has largely been worry and insecurity, and some very rough times ... but yeah, you can start another political party now and wave its flag in the street

So under Communism there were 'ruling elites with special privileges' ... as if that is different under bankster oligarchy?

Sun, 09/29/2013 - 19:43 | 4004219 orez65
orez65's picture

"But THE FACT is, all across Eastern Europe in the EU in Poland etc. ... the older folks who lived under Communism and remember it, would vote to have Communism back"

Have you lived under communism?

You are a fucking shit head idiot!

I've lived under communism and know what a hell hole that is!!

Why don't you try North Korea for a while.

Shit head!

Sun, 09/29/2013 - 21:57 | 4004521 Banjo
Banjo's picture

In what country did you live under communism? What position did you hold? Where did you get your education from? What year did you get away from communism? What do you do now compared to before?

 

These types of questions will directly influence an individuals perception of how good or bad a system is. That is how much did you or did you not benefit compared to before. It's no secret lots of people are longing for the good old days of communism and capitalism for that matter.

 

 

Sun, 09/29/2013 - 17:17 | 4003962 max2205
max2205's picture

The problem with America is no Americans run America anymore

Sun, 09/29/2013 - 16:43 | 4003869 DormRoom
DormRoom's picture

The Fed creates credit to genereate/sustain a credit boom, where people can borrow, and pay for goods/services now, from future cash flow.  However, the consumer society doesn't, on average, allocate that credit in productive ways, but that's for a later discussion.  The Fed needs the government to creates jobs/incentives to get people back to work/retrained, which his why they have been buying up Treasuries, to reduce the borrowing cost of the US government.  This is the basic accounting identity behind Dahlio's Beautiful Deleveraging. Government "New Deal" policies, and money printing are needed to offest deflationary, and inflationary intra-forces within the economy.  However there is a problem:  The US government is dysfunctional, which undermines the beautiful deleveraging model.

 

The dysfunction of the US government prevents it from enacting poilicies to address the structural unemployment problem, and/or wealth distribution.  Thus, the Fed needs to continue to print more money, else the US economy falls into a great deflationary cycle.  However, the longer the US government remains dysfunctional, the longer the Fed has to print.  The Fed cannot print ad infinitium, else it distorts the Treasury market (The Fed already owns a large percentage of Treasuries), and other markets.  Thus there is a inflection point that we are near, or currently at.

Hank Paulson, has described the Great Financial crises in terms of the pop corn model, in which the external environment was overheated to a condition in which entities (kernels) within the closed-loop system begain to fail (pop), contrary to the domino effect, which assumes a root cause.  This is what has been happening to the global financial system, since the bail outs.  QE by all the Central Banks has created massive malinvestments, and incentived dysfunctional institutions (Congress & EZ) to not deal with structural reform, while we rapidly approach an environment in which everything is overheated (unsustainable), and at the cusp of another crisis.

 

 

Sun, 09/29/2013 - 21:19 | 4004417 Diogenes
Diogenes's picture

"That is correct, once the equation is used there is no out, or at least one that people are going to want to hear.  Eventually, the system will not be able expand once again and the collapse will start once more... the liquidation process will go on for many decades"

Sure there is an out. The boom - bust cycle has been replaced by the boom - bailout - boom cycle. The banksters and their cronies can't lose. The only losers are the public, and they are used to being losers.

The boom - bailout - boom cycle can continue until the last dollar is squeezed out and whole country is a burned out ruin but by that time the important people will be kicking back at their beach houses with billions in their Swiss bank accounts.

Sun, 09/29/2013 - 15:06 | 4003705 Sudden Debt
Sudden Debt's picture

you can never have enough gold and silver, at whatever doscount value it currently sells.

Sun, 09/29/2013 - 17:17 | 4003935 fockewulf190
fockewulf190's picture

It is incredile how hard that message is to pass on. Trying to tell people not to worry about the price is almost impossible when you have been brainwashed by fiat your whole life.

Marc Faber said at the recent Sprott roundtable that he does not place a fiat value on his gold. I dare say that a majority of stackers do not think this way...although they probably should. Many have saliva running into overdrive when they hear predictions of $10K gold and so on. What $10K will buy you when gold is that high is anyones guess.

I stack because I want to be able to transit the Great Reset, which will be hell on Earth for most people, as painless as possible. Hopefully, something from my stack will be left, if and when, a new and stable monetary system is established. If practible, I will invest it.

Sun, 09/29/2013 - 17:17 | 4003961 kchrisc
kchrisc's picture

Reject and guillotine these bastards.

Sun, 09/29/2013 - 15:21 | 4003691 Tinky
Tinky's picture

Jim Grant:

 

“In a meeting a couple of months ago, I happened to be in the audience with one of the Fed governors, Jeremy Stein.  And at the end of his talk I said, ‘Governor Stein, can you help us understand the substantive difference, not the legal difference, but the substantive difference between the Fed’s manipulation of the federal funds rate, and the yield curve, and it’s talking up of the stock market -- the difference between that on the one hand, and LIBOR rigging in the private sector on the other?’  


That was my question and I thought it was a pretty fine question....

 

Governor Stein hemmed and hawed, and he said, ‘There’s no (pause), it’s not the same thing.  It’s a criminal activity, these LIBOR riggers, and we are going to bring down the force of the law on their heads,’ or words to that effect.


So as corrosive as the alleged manipulation of the LIBOR rate might have been, it is nothing compared to the federal program of substituting price administration for price discovery.  At the heart of the Fed’s regime is the subordination of freely discovered prices, to policy goals."

 

 

Sun, 09/29/2013 - 15:25 | 4003728 Atomizer
Atomizer's picture

Libor was beta grounds for the upcoming grand theft auto plan. Many people don’t understand, when you place your money into a Federal Reserve Bank.. your money is considered as a unsecured creditor to the bank. The FDIC only guarantees up to $250K on lost deposit funds. If the Bank collapse’s, your bank holdings will be pennies on the dollar.

Sun, 09/29/2013 - 15:54 | 4003789 smlbizman
smlbizman's picture

who the fuck is stien calling riggers?.....what?...oh never  mind....

Mon, 09/30/2013 - 05:14 | 4004863 SnatchnGrab
SnatchnGrab's picture

If push comes to shove, I wouldn't bet the farm on the $250k either. Cough bail-in cough.

Sun, 09/29/2013 - 15:51 | 4003782 Femme Meatwad
Femme Meatwad's picture

Some of us have been making exactly the same point as Grant, the second the Libor "scandal" hit the news wires. The Libor "scandal" was a red herring designed to distract others from the real crimes: the market manipulations by the Fed/FOMC and the government. This modus is nothing new - look around you for other such distractions.

Sun, 09/29/2013 - 16:00 | 4003799 Tinky
Tinky's picture

Congratulations on your economic awareness, but – and this may come as something of a surprise to you – more people are likely to pay attention to Jim Grant than those who post under the elegant nom de plume "Femme Meatwad".

Sun, 09/29/2013 - 15:54 | 4003787 29.5 hours
29.5 hours's picture

 

Jim Grant is always so clear, even I can understand him.

"What's the difference between LIBOR riggers and the Fed?"  Good one!

 

 

Sun, 09/29/2013 - 18:03 | 4004034 kchrisc
kchrisc's picture

"It’s a criminal activity, these LIBOR riggers..."

Translation: "Our crimes are different." LOL and a "guillotine eligible" admission, I believe.

Sun, 09/29/2013 - 21:21 | 4004424 Diogenes
Diogenes's picture

What we are doing is different = the fix is in.

Sun, 09/29/2013 - 18:44 | 4004097 Seal
Seal's picture

Isn't that called Communism?

Sun, 09/29/2013 - 22:17 | 4004555 zjxn06
zjxn06's picture

"And at the end of his talk I said, ‘Governor Stein, can you help us understand the substantive difference, not the legal difference, but the substantive difference between the Fed’s manipulation of the federal funds rate, and the yield curve, and it’s talking up of the stock market -- the difference between that on the one hand, and LIBOR rigging in the private sector on the other?’  "

Jim Grant audio interview from which the above quote was taken:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/9/29_James...

Sun, 09/29/2013 - 15:00 | 4003693 Professorlocknload
Professorlocknload's picture

Great, employment will skyrocket in the form of hiring line standers at the grocery store, to dispose of rapidly depreciating dollars, by those who can't afford to leave work.

Sun, 09/29/2013 - 15:01 | 4003694 Sufiy
Sufiy's picture


Jim Rickards was right on the spot that FED can't taper and here is why:

Jim Rickards: Why FED Can Not Taper, Currency Wars and Gold


"Jim Rickards, author of the best-seller Currency Wars, sees the world's central banks embroiled in a "race to debase" their currencies in order to restore -- at any cost -- growth to their weakened economies.

In the midst of the fight, the US Federal Reserve wields oversized power due to the dollar's unique position as the global reserve currency. As a result, actions by the Fed create huge percussive ripples across the battlefield, often influencing events in ways little understood by the players -- and especially by the Fed itself.In Rickards' words, the policymakers at the Fed "think they are dialing a thermostat up and down, but they're actually playing with a nuclear reactor -- and they could melt the whole thing down".

http://sufiy.blogspot.co.uk/2013/09/jim-rickards-why-fed-can-not-taper.html#

Jim Puplava: Jim Rickards on Currency Wars End Game: Gold And Oil. GLD, GDX, MUX, TNR.v

 
"Jim Puplava talks with Jim Rickards this week on the Currency Wars End Game - Inflation and its implications for the US Dollar, Gold and Oil. Jim sees that deflationary and Inflationary forces are compensating each other at the moment. FED very badly wants Inflation and printing money. Inflation is not coming yet and so they are printing more, but once Inflation comes it will run away again like in 70s. Gold and Oil will go much higher in this case.    Another very important trend is the accumulation of Gold by BRICS countries and, particularly, by Russia and China. Jim mentions that they are preparing to the end of US Dollar as the reserve currency. As Pail Volcker has put almost 50 years ago: "If people have confidence in US Dollar, nothing can destroy it. If they have lost this confidence, nothing can save it."

Sun, 09/29/2013 - 15:48 | 4003721 Haole
Haole's picture

The cool thing is, some of what Rickards' commentary refers to as an "insider" (to a degree) and what we (as ZH'ers et al in the "red pill" community) have been opining for years seem to be playing-out... 

 

Sun, 09/29/2013 - 15:04 | 4003700 Sudden Debt
Sudden Debt's picture

actually it's america that is boxed in and all the countries who use the dollar liquidity stream that goes along with it... alias... everybody...
The next 5 years will be a lot worse that the last 5 for sure

Sun, 09/29/2013 - 15:14 | 4003713 I am Jobe
I am Jobe's picture

heck it might be more like 10 to 15. Hunker down and enjoy the ride. 

Nevermind NFL season is almost here to keep the sheeples happy and spend money on useless things

 

Sun, 09/29/2013 - 22:47 | 4004616 Bro of the Sorr...
Bro of the Sorrowful Figure's picture

a) it's the 4th week of the NFL season, you goddamn european

b) professional sports, and sports in general, are a great american pastime and not to be ragged on as though they were some MSM propaganda

c) if you want to point your finger at the cause of the sheeple's sheepleness why dont you point it at the government, banksters, our education system, the MSM, hollywood, or tv in general. much more responsible culprits than the nfl.

d) as addicted as i am to this site and reading the comment section and as much anxiety as the impending doom of the US causes me, i thank god there's stuff like the NFL (and petting my small stack of shiny) to take my mind off of all the criminal activity in our once great republic. something's gotta fill the void from not getting laid. you think girls in their 20s like hearing about the gold standard, QE, tower 7 etc? the answer is no.

e) on a somewhat related note,  i often wonder what will happen to professional sports during the big reset. hopefully ill get the opportunity to punch david stern in the face for allowing the miami heat to happen

 

 

Sun, 09/29/2013 - 23:15 | 4004654 Tijuana Donkey Show
Tijuana Donkey Show's picture

A.) Stop watching pro sports

B.) Get cooking on learning better skills that everyone who watched Pro sports should have learned. If you need to be distracted, get some books.

If you want to know what a society in decline looks like, and what happens to sports, look here http://en.wikipedia.org/wiki/Chariot_racing

 

Sun, 09/29/2013 - 15:11 | 4003712 Yen Cross
Yen Cross's picture

  The Fed. is boxed in. They know it. When you cage rats together what happens? They eat each-other...

  The Fed. and other central banks will "eat each-other" through MOAR fiat printing. Real inflation(food ,clothing,shelter,fuel) will go ballistic, and the system will cave in...

Sun, 09/29/2013 - 23:17 | 4004657 Tijuana Donkey Show
Tijuana Donkey Show's picture

Like JP Mourge and Goldman Sucks? Zombie banks rot from the head....

Mon, 09/30/2013 - 08:20 | 4004997 Professor Fate
Professor Fate's picture

They are boxed in...without question.  But what if...they really are too stupid to know it.  What if these Krugmanesque acedemic whackos really do believe everything will be fine if we come up with "just the right Keynesian equation".  It is so clear to see how each and every Fed or Federal Government "fix" (in their eyes) creates a greater series of ultimately negative effects.  It is crystal clear to any one with rational thought capabilities.  The Fed is now overrun with the economic "undead".  Keynesian "creatures of the night".  If you see one, throw a Cliff's Notes copy of Wealth of Nations at it and watch it howl.  

Fate the Magnificent
"Push the Button, Max"   

Sun, 09/29/2013 - 15:24 | 4003727 Waterfallsparkles
Waterfallsparkles's picture

I think the problem is that with Stocks at all time highs and some like priceline over $1,000., it costs more and more to keep them going up.

Sun, 09/29/2013 - 15:28 | 4003730 Waterfallsparkles
Waterfallsparkles's picture

Reminds me of a helium ballon.  You keep pumping more and more helium into the ballon to get it to go higher and higher and eventually there is no more room.  To force more helium into the ballon it will pop and drop immediatly to the ground.

Sun, 09/29/2013 - 15:31 | 4003731 Winston Smith 2009
Winston Smith 2009's picture

Found this interesting artcile at the Acting-Man blog pointing out why gold confiscation in the US is unlikely:

http://www.acting-man.com/?p=25795

Conclusion:

"Could the US government grab the gold as they did in 1933? Anything is possible. I make no political predictions. One thing is certain. If they grab gold today it will not be for the reasons they did it in 1933. Those reasons are no longer applicable."

Sun, 09/29/2013 - 16:31 | 4003861 Tinky
Tinky's picture

The author of that blog (and quote) is excellent. However, there will be no confiscation of gold in the U.S., and the reasons are rather strightforward:

 

  • Logistical nightmare
  • No chance of confiscating foreign-stored gold, of which there is plenty
  • Immeasurably easier to tax the piss out of profits from sales (and raid 401ks, etc.)
  • High concentration of ownership amongst patrons of the very same politicians who make the rules: Cui bono?

 

Mon, 09/30/2013 - 00:21 | 4004716 andrewp111
andrewp111's picture

There isn't enough gold in the US to be worth confiscating. (India is a different story.) But I'll bet US politicians are salivating to confiscate retirement funds. They have already proposed bills to do this during the depths of the 2008 crash, and if when there is another crash, they will dust those bills off and propose them again.

Sun, 09/29/2013 - 15:31 | 4003743 Kirk2NCC1701
Kirk2NCC1701's picture

Quantitative Easing explained -- for avg. person:  http://www.youtube.com/watch?v=PTUY16CkS-k (6m 49s)

Sun, 09/29/2013 - 15:38 | 4003760 NoWayJose
NoWayJose's picture

Japan will likely beat us into financial collapse, but it won't happen in time to save the US. We are too far down the same path. All it really means is that Japan will start first and the rest of the dominoes will quickly follow. The huge difference with 1979 is that inflation was much higher but total debt was much lower. When real inflation hits in 2014 the solution of raising rates is no longer possible. That means checkmate.

Sun, 09/29/2013 - 15:45 | 4003773 Femme Meatwad
Femme Meatwad's picture

Kocherlakota == "Justice" Roberts. Both were liekly paid a visit by the corrupt arm twisting mob to help them change their minds and assert their "power" accordingly. 

Both Kocherlakota and Bullard produce laughable cartoonish graphs and slides to show how their socialist central planning regime ought to work - except it doesn't work that way. The aim always was to ingratiate the handlers benefitting at the expense of every one else.

Sun, 09/29/2013 - 15:47 | 4003776 Peter Pan
Peter Pan's picture

So if inflation does exceed 2% and unemployment still has not budged, what does Kocherlakota suggest then?

The major imbalance in the economy is the disproportionate percentage of GDP going to banks, lawyers and finance in general at the expense of manufacturing,

This is the challenge which is largely ignored.

Sun, 09/29/2013 - 15:47 | 4003777 NIHILIST CIPHER
NIHILIST CIPHER's picture

STOP PRINTING NOW you insipid morons.  They have never been boxed in. It will be much much worse for us if they keep printing,but THEY DON'T CARE.

Sun, 09/29/2013 - 21:27 | 4004442 Diogenes
Diogenes's picture

If they stop the Ponzi collapses. What happened when they threatened to taper even a little, scared the crap out of them.

If they stop it collapses now. If they don't stop they may have the chance to skip town before the whole thing blows sky high.

Sun, 09/29/2013 - 22:58 | 4004625 Bro of the Sorr...
Bro of the Sorrowful Figure's picture

more like insidious geniuses. everything is going exactly according to plan. QE can't stop won't stop.

 

https://www.youtube.com/watch?v=xkU9oVGr1KE

Sun, 09/29/2013 - 16:13 | 4003815 dizzyfingers
dizzyfingers's picture

Keep it up, you bastards. There'll be a point when the 99% will do "whatever it takes".

http://www.freemansperspective.com/resources/FreemansPerspectiveSpecialReport-TheGreatCalendar-Final.pdf

Sun, 09/29/2013 - 16:12 | 4003823 TrustWho
TrustWho's picture

In good ole USA, a USA T-Bill and T-Bond is worth more to a USA Bank than cash, because these debt instruments are ASSUMED to be RISK-FREE. USA banks are REQUIRED to buy at treasury auctions. If USA creates ANY default risk and people's RISK-FREE assumption is questioned, all the mathematical equations that support all equity and credit markets become unstable.

The USA Fed will have to buy all USA treasury debt that enters the market to maintain the validity of the RISK-FREE assumption. The leverage that this RISK-FREE collateral supports makes the $17 trillion USA debt look like chump change. We can see the light at the end of the tunnel, but few recognize the light is on a super long freight chain running at the speed of light with such mass and speed nothing can stop it. If you know your physics, you can start to understand the end game.

The PhDs on the Fed believe private demand for debt should be approaching infinity at ZIRP--it may in the financial world but DOES NOT IN THE NON_FINANCIAL WORLD. The Fed fails to understand the pyschology that debt consumption in the real economy must have an historic rate of return and this rate in non-financial opportunities HAS NOT changed; therefore the negative financial environment the FED creates drives loan demand for non-financial investment opportunities to zero. The Fed's liquidity should increase the opportunities that entreprenuers can invest; however ZIRP and negative interest rates create such fear, that non-financial opportunities approach zero!!!!!!

Basically, the real economy has decoupled from the financial market. Wall Street has forgot its purpose to exist--to grease the real economy so efficiency of asset allocation approaches 100%-- as they have been so entangled in their mathematical models that their point of existense is lost. There is a Nobel Prize winning paper buried in this simple argument that the Fed PhDs would understand if they had ever run a business.

Sun, 09/29/2013 - 16:19 | 4003828 yogibear
yogibear's picture

The Fed keeps printing until the dollar crashes. Then they'll say they never saw it coming. An easy out for all these Fed heads. 

Mon, 09/30/2013 - 00:15 | 4004713 andrewp111
andrewp111's picture

Or they keep on printing faster and faster until something crashes, but they don't know in advance what will crash. It may or may not be the dollar.

Sun, 09/29/2013 - 16:22 | 4003842 Mike in GA
Mike in GA's picture

Keynesian end point coming to an economy near you soon.  I don't know the timing but the pace of events sure seems to be picking up. 

Sun, 09/29/2013 - 16:26 | 4003851 xamax
xamax's picture

I dont want to hear all these catastrophe scenarios.

I expect TSLA to hit 300 and NFLX 500 until end of the year. Then I am willing to make nice xmas presents and stimulate the economy.

Sun, 09/29/2013 - 16:48 | 4003899 cape_royds
cape_royds's picture

Good piece, but I dislike the casual Keynes-bashing.

Keynes was much smarter and more knowledgeable than the second-raters who currently occupy positions of authority in our system of political economy.

Take a quick glance at Keynes' book on "General Theory" and you find passages such as these:

"But if the quantity of money remains very deficient for a long time, the escape will be normally found in changing the monetary standard or the monetary system so as to raise the quantity of money, rather than in forcing down the wage-unit and thereby increasing the burden of debt. Thus the very long-run course of prices has almost always been upward. For when money is relatively abundant, the wage-unit rises; and when money is relatively scarce, some means is found to increase the effective quantity of money."

In other words, Keynes is telling you exactly what the above blog entry is telling you: No Taper!

Keynes was aware of the problem of malvestment:

"Thus at the outset of the slump there is probably much capital of which the marginal efficiency has become negligible or even negative..."

You also find tantalizing passages in Keynes which, although made offhand and in passing, apply to conditions of demographic aging/decline:

"If, for example, we pass from a period of increasing population into one of declining population, the characteristic phase of the cycle will be lengthened."

Or how about this one, which foresees the possible paradoxical effect of ZIRP or QE:

"Nevertheless, circumstances can develop in which even a large increase in the quantity of money may exert a comparatively small influence on the rate of interest. For a large increase in the quantity of money may cause so much uncertainty about the future that liquidity-preferences due to the precautionary-motive may be strengthened."

i.e. Keynes was able to understand that huge increase in money-suppy could nevertheless be accompanied by people continuing to hold huge quantities of cash. If only the guys at the Fed or BoJ had bothered to go re-read Keynes.

Keynes, when he was writing "General Theory," was concerned principally with the economic crisis of his time. Nevertheless he was smart enough to consider, at least in passing, sets of circumstances which would be much different than those which prevailed at the time of writing.

Sun, 09/29/2013 - 16:55 | 4003915 Randoom Thought
Randoom Thought's picture

IMO, the Fed is boxed in right where it wants to be. Guessing where this is going ...

1. The Fed will create another "impossible to foresee" crisis in 2015

2. People will be outraged and by 2022 the Fed will be abolished, creating an even deeper crisis

3. 2029 will see the emergence of the world government/financial syste run by technocrats to the rescue .. coincidentally at the same time we are being held hostage to the possibility that Aphophis will hit the keyhole and come back to destroy us in 2036.

Why?  Well first one has to understand the game. The world is planned to go through another trasnition from the Luciferian cult to a "good" one, ostencibly with Christ as the new "master". The Luciferians apparently do not like this and are trying to maintain their control past their delegated time. Hence, trying the acceleration of technology, the degradation of humanity (in the name of testing) and the increased control systems/spying etc. If they win, we got the dark-side for a long time to come. The whole Fed thing is just a play for people's bemusement.

Why the Apophis threat ... because they have the technology and they have their own bunkers. Why else would they be moving their spying capability and such out west to Utah and New Mexico? It just fits together too well to not have some truth in it.  As for the rest of the world, one has to assume that all of the world's leaders are in on the conspiracy... and there is no place safe.

Sun, 09/29/2013 - 16:57 | 4003918 Randoom Thought
Randoom Thought's picture

BTW

2001, 2008, 2015, 2022, 2029, 2036. It is the plan asforetold.

Sun, 09/29/2013 - 17:25 | 4003971 lotsoffun
lotsoffun's picture

very well written article, i appreciate greatly both the clean prose and the ability to state one's thought clearly.

Sun, 09/29/2013 - 18:29 | 4004079 gdpetti
gdpetti's picture

Reminds me of something I read today:

"Andrew Lobaczewski wrote in his seminal work, Political Ponerology:

"Germs are not aware that they will be burned alive or buried deep in the ground along with the human body whose death they are causing."

Applied to the topic of this essay, the saying is not just a metaphor; it is deeply and frighteningly accurate. Imagine a world that believes in global warming that is hit by the sudden onset of an ice-age."

from: www.sott.net/article/266858-The-Global-Situation-Has-Taken-a-Turn-For-th...

 

They are just psychopathic germs, who, using the biblical saying, "know not what they do." Mother Nature will clean up our collective mess soon enough.

Sun, 09/29/2013 - 21:35 | 4004453 khakuda
khakuda's picture

Kocherlakota's argument really does not hold water and Paul Volcker himself wrote in the NY Times a couple years back warning that eventually money printing leads to calls for excess money printing, a prediction Kocherlakota has now fulfilled... http://www.nytimes.com/2011/09/19/opinion/a-little-inflation-can-be-a-dangerous-thing.html?_r=0

The issue with the Fed is that they believe money printing can affect inflation/deflation and create jobs.  On the first part, they are correct.  But, I have yet to see compelling evidence how excessively easy policy for long periods of time creates anything more than temporary jobs related to the bubble caused by the excessively easy policy.  Yes, you can create day traders, dot coms, brokerage house and real estate jobs for a while as a result of the capital misallocation you've caused, but real sustainable jobs?  I think not.

If creating a vibrant economy with lots of jobs were as easy as printing money and leaving rates at zero, everyone would be doing it all the time.

This should be obvious from basic logic and historical evidence.

Also, a must read:

http://econclubny.com/events/Transcript_VolckerMay2013.pdf

 

Sun, 09/29/2013 - 23:23 | 4004667 mcgoverntm
mcgoverntm's picture

Ludvig von Mises predicted the result of unrestrained creation of money and credit in the 1920s.  You can read about it in an essay written by Thorsten Polleit here:http://mises.org/daily/4016#ref4.

The last line of that essay states, "The more the money supply grows, the more likely it is that there will be hyperinflation and a potential breakdown of money demand: the unfolding of a crack-up boom."

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