Larry Kotlikoff Asks "Is Hyperinflation Around The Corner?

Tyler Durden's picture

Authored by Lawrence Kotlikoff, via Yahoo Exchange blog,

In his parting act, Federal Reserve Chairman Ben Bernanke has decided to continue printing some $85 billion per month (6% of GDP per year) and spend those dollars on government bonds and, in the process, keep interest rates low, stimulate investment, and reduce unemployment. Trouble is, interest rates have generally been rising, investment remains very low, and unemployment remains very high. As Lawrence Kotlikoff points out, echoing our perhaps more vociferous discussions, Bernanke’s dangerous policy hasn’t worked and should be ended. Since 2007 the Fed has increased the economy's basic supply of money (the monetary base) by a factor of four! That's enough to sustain, over a relatively short period of time, a four-fold increase in prices. Having prices rise that much over even three years would spell hyperinflation.

The Treasury dance

And while Bernanke says this is all to keep down interest rates, there is a darker subtext here. When the Treasury prints bonds and sells them to the public for cash and the Fed prints cash and uses it to buy the newly printed bonds back from the public, the Treasury ends up with the extra cash, the public ends up with the same cash it had initially, and the Fed ends up with the new bonds.

Yes, the Treasury pays interest and principal to the Fed on the bonds, but the Fed hands that interest and principal back to the Treasury as profits earned by a government corporation, namely the Fed. So, the outcome of this shell game is no different from having the Treasury simply print money and spend it as it likes.

The fact that the Fed and Treasury dance this financial pas de deux shows how much they want to keep the public in the dark about what they are doing. And what they are doing, these days, is printing, out of thin air, 29 cents of every $1 being spent by the federal government.

QE an unsustainable practice

I have heard one financial guru after another discuss Quantitative Easing and its impact on interest rates and the stock market, but I’ve heard no one make clear that close to 30 percent of federal spending is now being financed via the printing press.

That’s an unsustainable practice. It will come to an end once Wall Street starts to understand exactly how much money is being printed and that it's not being printed simply to stimulate the economy, but rather to pay for the spending of a government that is completely broke -- with long-term expenditures obligations that exceed its long-term tax revenues by $205 trillion!

This present value fiscal gap is based on the Congressional Budget Office's just-released long-term Alternative Fiscal Scenario projection. Closing this fiscal gap would require a 57 percent immediate and permanent hike in all federal taxes -- starting today!

Prices will rise

When Wall Street wises up to our true fiscal condition (and some, like Bill Gross, already have), it will dump long-term bonds like hot potatoes. This will lead interest rates to jump and make people and banks very reluctant to hold money earning no return. In trying to swap their money for goods and services, the public will drive up prices.

As prices start to rise and fingers start pointing at the Fed for fueling the inflation, QE will be brought to an abrupt halt. At that point, Congress will have to come up with an extra 6 percent of GDP on a permanent basis either via huge tax hikes or huge spending cuts. Another option is simply to borrow the 6 percent. But this would raise the deficit, defined as the increase in Treasury bonds held by the public, from 4 to 10 percent of annual GDP if we take 2013 as the example. A 10 percent of GDP deficit would raise even more eyebrows on Wall Street and put further upward pressure on interest rates.

What are we waiting for?

But why haven't prices started rising already if there is so much money floating around? This year’s inflation rate is running at just 1.5 percent. There are three answers.

First, three quarters of the newly created money hasn’t made its way into the blood stream of the economy – into M1 – the money supply held by the public. Instead, the Fed is paying the banks interest not to lend out the money, but to hold it within the Fed in what are called excess reserves.

Since 2007, the Monetary Base – the amount of money the Fed’s printed – has risen by $2.7 trillion and excess reserves have risen by $2.1 trillion. Normally excess reserves would be close to zero. Hence, the banks are sitting on $2.1 trillion they can lend to the private sector at a moment’s notice. I.e., we’re looking at a gi-normous reservoir filling up with trillions of dollars whose dam can break at any time. Once interest rates rise, these excess reserves will be lent out.

The fed says they can keep the excess reserves from getting lose by paying higher interest on reserves. But this entails poring yet more money into the reservoir. And if interest rates go sufficiently high, the Fed will call this practice quits.

As excess reserves are released to the economic wild, we’ll see M1, which was $1.4 trillion in 2007, rise from its current value of $2.6 trillion to $5.7 trillion. Since prices, other things being equal, are supposed to be proportional to M1, having M1 rise by 219 percent means that prices will rise by 219 percent.

But, and this is point two, other things aren’t equal. As interest rates and prices take off, money will become a hot potato. I.e., its velocity will rise. Having money move more rapidly through the economy – having faster money – is like having more money. Today, money has the slows; its velocity – the ratio GDP to M1 -- is 6.6. Everybody’s happy to hold it because they aren’t losing much or any interest. But back in 2007, M1 was a warm potato with a velocity of 10.4.

If banks fully lend out their reserves and the velocity of money returns to 10.4, we’ll have enough M1, measured in effective units (adjusted for speed of circulation), to support a nominal GDP that’s 3.5 times larger than is now the case. I.e., we’ll have the wherewithal for almost a quadrupling of prices. But were prices to start moving rapidly higher, M1 would switch from being a warm to a hot potato. I.e., velocity would rise above 10.4, leading to yet faster money and higher inflation.

No easy exit

I hope you’re getting the point. Having addicted Congress and the Administration to the printing press, there is no easy exit strategy. Continuing on the current QE path spells even great risk of hyperinflation. But calling it quits requires much higher taxes, much lower spending, or much more net borrowing (with requisite future repayment) from the public. Yet weaning Uncle Sam from the printing press now is critical before his real need for a fix – paying for the Baby Boomers’ retirement benefits – kicks in.

The one caveat to this doom and gloom scenario is point three – increased domestic and global demand for dollars. The Great Recession put the fear of God into savers worldwide. And the fact that U.S. price level has risen since 2007 by only 15 percent whereas M1 has risen by 88 percent reflects a massive expansion of domestic and foreign demand for "safe" dollars. This is evidenced by the velocity of money falling from 10.4 to 6.6. People are now much more eager to hold and hold onto dollars than they were six years ago.

If this increased demand for dollars persists, let alone grows, inflation may remain low for quite a while. But our ability to get Americans and foreigners to hand over real goods and services in exchange for very few green pieces of paper is hardly guaranteed once everyone starts to understand the incredible rate at which Uncle Sam is printing and spending this paper. Once everyone gets it into their heads that prices are taking off, individual beliefs will become collective reality. This brings me to my bottom line: The more money the Fed prints, the more it risks everyone starting to expect and, consequently produce, hyperinflation.

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cossack55's picture

As long as it has no affect on food and energy costs, its cool.  I collect 100 Trillion dollar bills.  Need to expand my collection.

Pladizow's picture

More water being drained out of the tub then being poured in. Therefore no hyperinflation.

g'kar's picture

Yeah. They export the inflation out of the country and into the stock market. Could be a reason for mushroom clouds sprouting one day.

Pladizow's picture

Hyperinflation occurs where capital has an alternative.

The dollar has historically been that alternative.

There is no present alternative for big money.

Therefore, no hyperinflation.

Pladizow's picture

Tens of Trillions cant go into gold.

mjcOH1's picture

"Tens of Trillions cant go into gold."

 

Because Zimbabwe has shown us the sun will implode before an ounce of gold ever trades for a piece of paper with 12 zeros on it.

The Alarmist's picture

Back to the original question, would that be the hyperinflation that will never show up in the official statistical releases, or the hyperinflation we are on the verge of actually experiencing in the stores, at the pump, and in our electric bills?

Pladizow's picture

@mjcOH1

Zimbabwe had the dollar to flee to!

Additionally, the capital within Zimbabwe is a fraction compared to capital of global assets that are held in dollars.

Stackers's picture

How many lies can one economist fit in a single article ?

The Fed is a "government corporation" ....... ???

 

HardlyZero's picture

Yes, but it is unique...bot private and public parts.

The Fed is not a GSE, but it is also not fully private corporation.

According to the board of governors of the Federal Reserve, "It is not 'owned' by anyone and is 'not a private, profit-making institution'. Instead, it is an independent entity within the government, having both public purposes and private aspects."  The U.S. Government does not own shares in the Federal Reserve System or its component banks, but does receive all of the system's annual profits after a statutory dividend of 6% on their capital investment is paid to member banks and a capital account surplus is maintained. The government also exercises some control over the Federal Reserve by appointing and setting the salaries of the system's highest-level employees.

The division of the responsibilities of a central bank into several separate and independent parts, some private and some public, results in a structure that is considered unique among central banks. It is also unusual in that an entity (the U.S. Department of the Treasury) outside of the central bank creates the currency used.

Vampyroteuthis infernalis's picture

Another hyperinflation article. As long as the Fed prints at the mild rate it is and the debt load keeps building, no hyperinflation will take place. If the Fed picks up the rate (at least 10X like Abenomics) then we will see something. This article is a load of shit. Deflation is the near term threat. Please junk away.

akak's picture

If you believe that we are experiencing deflation, I want to go grocery shopping in the alternate universe which you apparently inhabit.

Oh yes, please scare me again with the 'threat' of deflation --- something which is vanishingly rare in monetary history, and has ONLY been seen under a hard money (i.e., gold-backed) monetary regime.

Harbanger's picture

Haven't you noticed the cost of tolls, taxes, insurance, utilities, food  and public transportation are all going down in price.  No? me neither.

chubbyjjfong's picture

Working class wages are stagnant at best, thats the deflation I see.  The working class just cannot absorb any more of this debt shit.  The more they whip this dead horse the more catastrophic the outcome.  Trouble is, they have already worn the whip down to the handle.  Yeehaa!! 

Harbanger's picture

You go it, stagflation.  Inflation without money velocity.

All Risk No Reward's picture

You guys are missing the real paradigm here that unlocks the mechanics underlying the monetary system.

Money **is** debt, by definition.

In order to get more money, you need more people willing and able to take on more debt.

Right now we are experiencing mild inflation compared to the1998-2007 era as evidenced by the first and second chart here:

http://market-ticker.org/akcs-www?singlepost=3278764

The money supply is inflating according to that chart, however, that chart includes mark to myth so it is actually higher than it should be post 2008 collapse.  Probably by a lot.

The relevant question, then, is how that pile of debt can keep growing given the pressures society in general, including BanksterCare, higher taxes, higher interest rates, a debt saturated private society, an almost debt saturated federal, state, county, city and local government structure and the percentage of people in the workforce stuck flat lining as Europe goes into recession.

If you think the Fed is going to bail out debtors, then you have no idea what the Fed is or WHO controls its actions.

Subtract out the BS and all the Fed is doing is transferring money to the corporate fronts controlled by Biggest Finance Capital and transferring debts to the suckers in society that have no idea what is going on - even those whoe think they do.

The Bankstrer Stream Media is all about promoting false narratives that sound plausible but cover up the real operation.

Hell, JP Morgan laid out the game plan in broad daylight...

A man always has two reasons for doing anything: a good reason and the real reason.
J. P. Morgan

The Bankster financed media is all about spewing the good reason with some controlled opposition to make it all feel real...  like a good cop / bad cop routine designed to fool the victim.

This isn't sutainable.  By this I mean exponentially growing debt.

Since money is debt, exponentially growing money isn't sustainable either.

The question is what happens when unsustainable ends.

There are two views:

1. The people who own and control trillions of dollars and trillions more in dollar denominated debt with sacrifice their wealth at the alter of bailingout those they criminal indebted (really, is that the level of sophistication here at ZeroHedge?).

2. These same people orchestrate a means to bust the debtors, asset strip them, seize control of the nation state's assets (which is one reason why they finance the political class!) and then hyperinflate after they've divested their money and debt holdings into real chit and control of planet Earth.

One shows a complete and utter lack of real economic theory (self-interested people act in their own perceived self-interest) and a toal lack of undestanding into the character of the people who are running this debt based monetary con game on society.

This isn't even a hard call, yet almost everyone gets it wrong.

I get how a debt saturated society thinks they will be bailed out.

A free range chicken likely thinks that the pen fence will eventually be removed, too.

It won't.  Likewise, the debtors will not be bailed out and Henry Ford explained exactly why:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

Harbanger's picture

I'm not going into a long explanation on this short thread.  We can pick it up somewhere else...but as we will find out, the fact is, Money is not Debt.  That's a keynesian/progressive/banker myth.  The Truth is, Debt is Slavery.

All Risk No Reward's picture

Money is lent into existence - so one face is "money" and one face is "debt."

You can quibble with definitions all you want, but that's the intent of people who talk about debt based money.

Debt based monetary systems enslave entire societies.  What do you think is happening all around you?

MayIMommaDogFace2theBananaPatch's picture

How many lies can one economist fit in a single article ?

He did call it a shell game.

Winston Churchill's picture

Hyperinflation is the result of a political event generally.

A total loss of confidence in the leadership of a system.

Money printing per se is not the trigger.

May I present to you,President Obozo.

Say no more.

NoDebt's picture

Plad- the money spout is not directly over top of the drain.  That's a problem for this kind of monetary policy.  If it was, it would work perfect.  But it's not, so there's water running out all over the bathroom floor, going down the floor vents, soaking into the sub-floor and generally causing rot and mildew all over some rather important structural parts of the economy and finance.

All Risk No Reward's picture

NoDebt, the problem in your theory is that you assume the debt will never be called in.

You are wrong.  The Money Power is setting up society so that when the debt is called in, the world will be brought to its knees...  BEFORE THE MONEY POWER'S SUPRANATIONAL MEGA-CORPORATE POWER STRUCUTRE.

Money **is** debt that needs to be paid back with interest.  Don't ever forget that.

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

BooMushroom's picture

Gold is valued at $1288/oz right now, or $42 per gram. There are 165 billion grams of gold above ground. If gold goes to $420 per gram, that's tens of trillions of dollars.

Alternatively, tens of trillions worth of Zimbabwe Dollars go into gold every day. Use your imagination.

exonomic halfbreed's picture

zimbabwe frns will go into anything and everything till no idiot willl accept them.  do you ever study economic history?

IllusionOfChoice's picture

Let's see what happens when the Shanghai Gold Exchange can't stay stocked at the COMEX paper price.

alphamentalist's picture

laying aside discussion about all of the other potential QE-driven trainwrecks (bubbles, busts, etc) I agree there will be no hyperinflation in the abscence of alternatives. the question is will there be alternatives? and how big will they be and when will they be online? i think if you look at the mood of the ex-citizen USD users and look at the structures being put in place to avoid/reduce USD trade/reserves, you will be left to conclude that sufficient alternatives are close enough that we should be worried about this now. if you layer on the old-age entitelment costs and the growing print-as-we-need-it mentality, our day of reckoning could be before the end of this decade. plenty soon enough to be concerned about it now.

new game's picture

we are seeing the move to hard assests in the form of real estate. take notice! ipo's, bond resales to offload risk, much higher prices accross the land. demand catching up to supply with cheap money chasing!

go out there and try to make a logical purchase. i am trying. bank properties that were worth fixing are fixed and sold.  the banks are rushing the new forclosures into the marlket place. friendly transactions are siphoning off the good ones to past customers who are in turn, turning a second round of homes. the shit remains and will be scraped for the true value-land!  how will this end? hmmm, depends on the above flow of these monies. simply put money chases best returns ie; stocks, homes and not gold yet...

if this article comes true, the second housing bubble will be a dousey...

people will be fucked enmass as costs will displace many many plebs with no income rise in years. this is evidents by the amount of wealthy people that are now landlords and never, 5 years ago dreamed of dabbling in this arena. they are learning to fix a faucet in their retirement.

if you think i'm bullshitting you, you should get out from behind that computer and go out and look learn and try to buy with cash as i am. the whole system is aimed at a financed sale. cash! wtf am i going to do with that. i would rather do a contract with 6 percent return - i know as i have a contract paying 6 percent. a hedge, but i see this thing going squirrly yet a-fuking-gain.

and I was a real estate broker for 20 plus years, makes me somewhat of an expert, but i could be full of shit.

now sarc on/ a greater fool has yet to arrive at your front door...

new game's picture

and if you respond and tell me your home aint selling- i got news for you-you are that greater fool that bought a piece of shit in a crappy location. yea there are plenty of those homes for sale.  that isn't even inventory in my estimation. just disstraction homes. the good ones are gone. i supose if you wait long eneough a greater fool than you will show up...

VD's picture

 

Another perspective, though also flawed in its own glaring omissions too:

“The Federal Reserve is printing money”. No statement could be less truthful. The Federal Reserve (Fed) is not, and has not been, “printing money” as defined as an acceleration in M2 or money supply. Just check the facts. For the first quarter of 2013 the Fed purchased $277.5 billion in securities (net) as their security portfolio expanded from $2.660 trillion to $2.937 trillion. A review of post-war economic history would lead to a logical assumption that the money supply (M2) would respond upward to this massive infusion of reserves into the banking system. The reality is just the opposite. The last week of December, 2012 showed M2 at $10.505 trillion, but at the end of March, 2013 it totaled only $10.450 trillion which was an unexpected decline of $55 billion. Printing money? No.

This broad misconception of the Fed’s ability to print money has been widely embraced since the Fed began its massive balance sheet expansion near the end of 2008. It was then that the Fed expanded the monetary base from $840 billion to $1.7 trillion in a matter of months. Further, from the initiation of this misguided program to the end of March 2013, the Fed has expanded the monetary base from $840 billion to $2.93 trillion. The money supply indeed went up (35%) but not in proportion to the increase in the monetary base (249%). Presently, the year- over- year expansion of M2 is only 6.8%, which is nearly identical to its year-over-year growth rate in March of 2008 before the Fed decided to “help out the economy” (Chart 1). In other words, there is no evidence that the massive security purchases by the Fed have resulted in a sustained acceleration in monetary growth; nor is there evidence that economic conditions have improved.

The Fed's Flaw

Not only does the Fed not control money, but it cannot determine velocity (V), the speed that money turns over, either. The great American economist, Irving Fisher, identified this connectivity between money and economic growth with a straightforward formula: Nominal GDP equals money (as defined by M2) times its turnover (GDP=MV). Two flaws exist in the belief that the Fed can create rising aggregate demand. First, they do not directly control M2. Second, velocity is almost entirely outside their control. In order to understand how these two variables prevent the Fed from increasing aggregate demand, it is necessary to become conversant with a few terms: monetary base, bank reserves, and money multiplier. [...]"

 

edit: since it's clear some aren't appreciating:

 

"

The massive reserve injection since 2008 is therefore the primary reason why there has been an elevated fear of inflation since these funds could be loaned. However, the empirical evidence is clear that high- powered money is not causing an increase in M2. Why? A bank’s conversion of reserves into money is called the money multiplier (Chart 2, left scale). At the end of 2007, the money multiplier was 9.0. That meant that the monetary base of $825 billion (Chart 2, right scale) was multiplied nine times to create the level of M2 that stood at $7.4 trillion. At the end of March, 2013 the monetary base had exploded to $2.9 trillion, but the money

multiplier had collapsed to only 3.6, creating an M2 balance of $10.4 trillion. The Central Bank has very little control over the movement of the money multiplier; the actions of the banks and their customers primarily control this variable. This lack of control was evident in the first quarter of 2013 when the monetary base rose by $264 billion and M2 fell because the money multiplier declined from 3.9 to 3.6. Therefore, the Fed’s balance sheet expansion was thwarted."

 

Van R. Hoisington  

Lacy H. Hunt, Ph.D.

dryam's picture

What?

The Fed is printing massive amounts of money to try to keep up with massive credit implosion.  I don't think it's possible to fill the deepening hole.  The Fed is destroying the concept of the USD and currency across the globe.  I have no idea how this is going to turn out, but at some point this game is going to get totally out of control.  We are in completely uncharted waters.  All traditional perspectives of economics are pretty much useless in viewing the current situation. 

Poor Grogman's picture

Note to self.

Buy bigger wheelbarrow with larger wheels with waterproof cover for shopping trips during winter months.

Some German shoppers found that the normal size handcart wheels were no good for curbs and stairs, perhaps there is a marketing idea there?

PS: I made that last bit up

JohnnyBriefcase's picture

Those germans didn't have plastic...

 

bitchez!

Mr. Magoo's picture

In this interview with investor Kyle Bass from Day 1 at AmeriCatalyst 6th of November 2011, in Austin, Texas, Bass discloses his discussion about the economic crisis with a senior from the Obama Administration. According to Kyle Bass the basic solution coming from this senior was: “We’re Just Going to Kill the Dollar”

Need we really say moar

Seeking Aphids's picture

Note to self: buy shares in wheelbarrow company.

caShOnlY's picture

I have no idea how this is going to turn out, but at some point this game is going to get totally out of control.

I have just told my friend the lessons from the history books tomorrow's children will learn is ONE NATION can never, ever be responsible for the world's currency.   In retrospect it controls too much with too much responsibility and the ability to abuse that privelege is too great for any one nation to hold.  Any monies traded globally must be backed by value and not promise.  Promises are meant to be broken.   Lessons are learned by mistakes and the damage from this mistake is coming, all but guaranteed.

the 300000000th percent's picture

And its not just the Fed. Its all of them, ECB,BOJ,...... on and on. They always measure the dollar against the Euro. Thats like a skydiver taking a rock out of his pocket and saying that its not falling.

caShOnlY's picture

And its not just the Fed. Its all of them, ECB,BOJ,...... on and on. They always measure the dollar against the Euro. Thats like a skydiver taking a rock out of his pocket and saying that its not falling.

so very true and good analogy!   I think very soon one (Europe?, UK?, Japan?) will blow out.  That will start the whole game in motion.  Then we will watch that rock hit the ground just a little faster than the skydiver.  

max2205's picture

Peak retirement I. 1 to 3 years...then the rate of increase drops dramatically.....ssi.  not so much

JohnnyBriefcase's picture

Old people more than anyone else should know the value of precious metals. The rest of us have only had a fraction of the time to realise this.

IllusionOfChoice's picture

You may be right about the numbers, but that doesn't mean the Fed isn't 'printing money' to increase its balance sheet. I think the article points out well that the money being printed is being held as excess reserves (and not stimulating the economy), waiting for a decent rate of return to leave the warm den of Fed deposit land.

HardlyZero's picture

This is an excellent article and really shows how and why the money is being held and not circulated into M1 largely, but will or could very soon 4x prices across the board.

Maybe the higher 10-year interest rates and skittish foreign T-bond investors will provide a tipping point.

disabledvet's picture

I look at it from another point of view...namely "debt creation." debt is the opposite of growth...hence "zero recovery." sure...debase the currency....but "money" (as in real cash dollars and cash flows) haven't gone belly up. in fact just the opposite is true. real cash flows (meaning Wall Street) have shot to the moon. Not only that but when you look at the data (the Fed has had a cystal clear policy in my view...QE 1, QE 2, Operation Twist and then...supposedly...."taper"....which didn't happen of course) when the Fed threatened taper, sure...treasuries moved higher...but then gold plunged, oil rolled over and the dollar soared. for some reason this resulted in the Fed Chairman being fired...but the policy...or at least it's "linearity" still looks pretty clear. I'm still unclear as to how much oil they can pull out of NorthDakota or how much fuel can be refined in East Texas and Loiusiana but the numbers don't lie: they're running flat out production wise. Don't even get me started on ethanol....which is VERY expensive to transport. Natural gas is still the interesting play because in theory it can be used as the feed stock for a fuel cell battery. talk about "energy independence." QTTW has been on a wild ride the past few weeks. not saying buy that stock but General Motors did bet the company on this technology. oh and interest rates have already reset massively higher here. Texas is doing the right thing by running a huge budget surplus...bu what it really needs to do in my view is start providing the seed capital for a bank. that would require hundreds of billions of course. in other words "that's a lot of gasoline that needs selling." North Dakota is tough to beat because they don't have a huge debt to service along with railroad access that stretches deep, far and wide into Canada. that Red River flows north... it tends to flood massively as well. in other words "dirt cheap fully renewable base load electricity could be available too." obviously there is no problem with the wind blowing ou that way. wind water sun and heat...sounds like a winner to me.

Oldwood's picture

Because of excessive debt and the constant thirst for Moar revenues more debt is created to pull future incomes into the present. The newest trend of securitizing rental incomes makes this even more apparent. Short of some miracle there will be no revenues in the future. The beauty of this debacle is that vitually all nations are doing the same in one way or another. I think most of us rightly believe it is unsustainable but because the whole world is in on it, when finally the SHTF i believe they will create a single world currency with a single central bank. Then they can print with impunity but of course by then we will all be debt slaves of the Socialist State of the World.

beentheredonethat's picture

simple questions: What is the fed doing then? why are they doing it? 

Serious question - I heard Eugene Fama say the same thing 

 

nostromo17's picture

They don't know what they are doing. But what they are doing is supporting government spending while bailing the banks out of bad loans from mortgage crisis. The FEd is doing nothing for the as important and more important economy which is not FEDGOV. In fact lowering food stamps by %6 this month the Government through the multiplier effect of 2x is affecting business who sell food stamp food. They are reducing the FEDGOV economy but I daresay food should be considered a non-FEDGOV necessity that should be subsidized as the starving cannot work very well vis participate in an economy. It would be far wiser to cut defense budget in half and kill off Homeland Security which are just welfare plans under different names, in order to make it quite clear how the FEDGOV is out of control. Homeland Security and defense are welfare with votes since their welfare recipients will vote to keep themselves on Military and Homeland Security welfare plans. Just more places to put "human garbage" created by a false economy that has made countless workers useless by shipping jobs off to slave third world economes and economically useless since they are workers so poor they cannot spend and make the economy thrive. Isolationism is a proper solution not shipping work to China, Mexico etc.

Winston Churchill's picture

Recapitalizing its owners balance sheets.The basic problem is that TPBF become more

insolvent faster that the FedRes can keep up.Extend and pray is running out of time.

All Risk No Reward's picture

The Fed loans money at interest.

In the case of the mortgage trash, the Fed is giving out $100k cash to insider banks in trade for assets valued at $100k but could only sell for $50k.

While that temporarily looks like "printing money," the people who believe that fallacy are simply too short sighted.

Whatever the losses that will be taken on the balance sheet of the Fed, including the $50k mentioned above, they will be paid by tax payers in blood, sweat, tears, public roads, public water supplies, private ownership of rain water, public power companies...  all transferred to the criminal debt money mafia Money Power crowd that even lacky Eisenhower said was "gravely to be regarded" in his farewell speech (read it).

The system is broken badly - and it was designed, from the ground up, to be a societal asset stripping mechanism...  like an abstract mathematical version of sucking energy from pod people as depicted in the Matrix.

On that level, it is truly an amazing work of Sun Tzu, Art of War art - perhaps the greatest implementation of Art of War ever waged by humans.

emersonreturn's picture

end the fed!  charge the board with fraud.

starfcker's picture

bingo pladizow. don't forget europe was supposed to crash. it didn't. the fed is propping it up. that takes a lot of liquidity. i don't get the idea the snakeheads are stupid. this whole thing has looked really shaky for a long time but it hasn't collapsed. that's not an accident. there are some really smart people figuring out how to buy time. i don't like it, but noone cares. i am fascinated by how ingenius these people truly are. ruthless, yes, but true believers that they can pull this off. we'll see. but i'm not waiting for the crash or the revolution. i think change will be quicker than they think, but acheived through much simpler means. watch the 'r' party next year. we're going to see which counts more, money or votes