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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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Sat, 11/09/2013 - 19:17 | 4139278 cossack55
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.

Sat, 11/09/2013 - 19:23 | 4139289 Pladizow
Pladizow's picture

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

Sat, 11/09/2013 - 19:26 | 4139292 g'kar
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.

Sat, 11/09/2013 - 19:28 | 4139299 Pladizow
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.

Sat, 11/09/2013 - 19:53 | 4139351 This just in
This just in's picture

*cough* *cough*


Sat, 11/09/2013 - 20:14 | 4139389 Pladizow
Pladizow's picture

Tens of Trillions cant go into gold.

Sat, 11/09/2013 - 20:26 | 4139406 mjcOH1
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.

Sat, 11/09/2013 - 20:40 | 4139436 The Alarmist
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?

Sat, 11/09/2013 - 21:44 | 4139533 Pladizow
Pladizow's picture


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.

Sat, 11/09/2013 - 22:20 | 4139575 Stackers
Stackers's picture

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

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


Sun, 11/10/2013 - 01:14 | 4139770 HardlyZero
HardlyZero's picture

Yes, but it is 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.

Sun, 11/10/2013 - 13:20 | 4140580 Vampyroteuthis ...
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.

Sun, 11/10/2013 - 21:54 | 4141785 akak
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.

Sun, 11/10/2013 - 22:10 | 4141826 Harbanger
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.

Sun, 11/10/2013 - 23:10 | 4141944 chubbyjjfong
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!! 

Sun, 11/10/2013 - 23:41 | 4142016 Harbanger
Harbanger's picture

You go it, stagflation.  Inflation without money velocity.

Sun, 11/10/2013 - 23:13 | 4141951 All Risk No Reward
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:

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

Sun, 11/10/2013 - 23:36 | 4142004 Harbanger
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.

Sun, 12/01/2013 - 21:29 | 4205001 All Risk No Reward
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?

Sun, 11/10/2013 - 21:48 | 4141763 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

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

He did call it a shell game.

Sun, 11/10/2013 - 11:43 | 4140345 Winston Churchill
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.

Sat, 11/09/2013 - 20:29 | 4139413 NoDebt
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.

Sun, 11/10/2013 - 23:17 | 4141962 All Risk No Reward
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

Sat, 11/09/2013 - 21:01 | 4139466 BooMushroom
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.

Sun, 11/10/2013 - 00:23 | 4139709 exonomic halfbreed
exonomic halfbreed's picture

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

Sat, 11/09/2013 - 20:24 | 4139402 IllusionOfChoice
IllusionOfChoice's picture

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

Sat, 11/09/2013 - 20:11 | 4139382 alphamentalist
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.

Sun, 11/10/2013 - 06:46 | 4139994 new game
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...

Sun, 11/10/2013 - 06:54 | 4139997 new game
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...

Sat, 11/09/2013 - 19:42 | 4139301 VD
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.

Sat, 11/09/2013 - 19:46 | 4139331 dryam
dryam's picture


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. 

Sat, 11/09/2013 - 20:01 | 4139363 Poor Grogman
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

Sat, 11/09/2013 - 23:15 | 4139637 JohnnyBriefcase
JohnnyBriefcase's picture

Those germans didn't have plastic...



Sun, 11/10/2013 - 01:12 | 4139767 Mr. Magoo
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

Sun, 11/10/2013 - 14:57 | 4140848 Seeking Aphids
Seeking Aphids's picture

Note to self: buy shares in wheelbarrow company.

Sun, 11/10/2013 - 07:35 | 4140016 caShOnlY
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.

Sun, 11/10/2013 - 11:40 | 4140335 the 300000000th...
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.

Sun, 11/10/2013 - 21:36 | 4141728 caShOnlY
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.  

Sat, 11/09/2013 - 19:52 | 4139349 max2205
max2205's picture

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

Sat, 11/09/2013 - 23:16 | 4139641 JohnnyBriefcase
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.

Sat, 11/09/2013 - 20:14 | 4139390 IllusionOfChoice
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.

Sun, 11/10/2013 - 01:17 | 4139772 HardlyZero
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.

Sat, 11/09/2013 - 20:27 | 4139409 disabledvet
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.

Sat, 11/09/2013 - 21:05 | 4139467 Oldwood
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.

Sun, 11/10/2013 - 12:37 | 4140480 beentheredonethat
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 


Sun, 11/10/2013 - 14:04 | 4140698 nostromo17
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.

Sun, 11/10/2013 - 14:16 | 4140743 Winston Churchill
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.

Sun, 11/10/2013 - 23:25 | 4141984 All Risk No Reward
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.

Mon, 11/11/2013 - 02:14 | 4142163 emersonreturn
emersonreturn's picture

end the fed!  charge the board with fraud.

Sat, 11/09/2013 - 19:43 | 4139322 starfcker
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

Sat, 11/09/2013 - 19:50 | 4139342 fonzannoon
fonzannoon's picture

The thing that many on here and most elsewhere will unfortunately come to realize is that as long as pladizow is right about big money not having an alternative, the markets don't have to crash. We want to believe the market has to crash to validate what is happening to the middle class. But what seems to be the underlying truth is thanks to automation etc the middle class is becoming less relevant. Most of us will implode quietly without the market making a sound in the background. It's already been happening for a while.

Sat, 11/09/2013 - 19:58 | 4139358 Mordenkainen
Mordenkainen's picture

It'll crash the day after I finally say "fuck it" and decide to buy stocks. I'll let you all know in advance so you can hedge accordingly.

Sat, 11/09/2013 - 20:22 | 4139400 kito
kito's picture

i look forward to the day when the earnings of 99% of all listed companies miss estimates by the proverbial mile AND stocks continue to skyrocket. then we will see something truly remarkable.

right now, the economy is treading water, and there is still enough to keep the mirage of "recovery" going. but when the true barometer of the economy, corporate earnings, starts to fail miserably---and it will (as the fed is learning about the laws of diminishing returns),  markets wont be levitating. not going to happen unless the fed suddenly begins to buy up the entire stock market.

confidence in the u.s. and the fed has been slowly eroding for some time. every day there is another market participant waking up to the truth. and all it takes is one event to expose the fragility and weakness of an ecosystem that has been subject to major erosion. 

the next major leg down in the terminal decline of america begins mid decade. prepare now. it will be tumultuous. 

Sun, 11/10/2013 - 23:33 | 4142002 All Risk No Reward
All Risk No Reward's picture

Biggest Finance Capital has already baked a stock market collapse into the cake.

The difference between them and everyone esle is that...

1. They know the collapse is coming.

2. They possess the trigger mechanism.

3. They will step out of the way fo the collapse and increase their relative wealth and power.

4. Frankly, they will enjoy the pain and suffering they cause everyone else.

Sat, 11/09/2013 - 20:16 | 4139392 IllusionOfChoice
IllusionOfChoice's picture

That's an easy one, money buys votes. Or voting machines.

Sun, 11/10/2013 - 08:14 | 4140003 Ghordius
Ghordius's picture

"don't forget europe was supposed to crash. it didn't. the fed is propping it up."

two myths in one. yes, they did a Big Swap maneuver. yet it has been reversed. And I doubt the simplistic narrative behind it. Who was helping who? Remember which currency was in high demand and why

Or just remember how many US Treasuries have been held by foreign central banks, since 1946, and why

Sun, 11/10/2013 - 08:32 | 4140060 starfcker
starfcker's picture

ghordius, i'll plus one you on that, but don't forget globalization is an american, or possibly anglo-american project. think about how many times we have all thought various european countries were going to roll over, default, leave the euro, and so on. hasn't happened. nine times out of ten they just invent some new bailout, and here we are. the goldies are very smart, and seem to learn very quickly. hank paulsen was right, these are liquidity issues in the short run, and they know how to deal with that now. it's ugly, it's not fair, but nothing is caving in. we're not going to see hyperinflation for the same reasons  we're not going to see 2500. gold. they know how to keep those things in check, and they're doing it.

Sat, 11/09/2013 - 20:04 | 4139369 Quinvarius
Quinvarius's picture  Turn off your TV.

Sat, 11/09/2013 - 21:20 | 4139499 Hohum
Hohum's picture

This week's ECB rate cut shows that the central banks are scared shitless of deflation. It's not going to be about hyperinflation--wages won't go up significantly.

Sat, 11/09/2013 - 22:09 | 4139565 rubiconsolutions
rubiconsolutions's picture

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

Do you ever go to the market or does your mother do it for your while you are playing Xbox in the basement? My grocery expenses have gone up 20% year over year. There is inflation even if the government isn't measuring what real people utilize. You know, like food and stuff.

Sat, 11/09/2013 - 19:18 | 4139282 lolmao500
lolmao500's picture

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.

And every time that shows up in the news, most people say : see? The FED's program is working!! And every time, I nearly give myself a concussion when I do a facepalm. 

Sat, 11/09/2013 - 19:20 | 4139283 CunnyFunt
CunnyFunt's picture

"The Great Recession put the fear of God into savers worldwide." The author should have qualified it to "savers of fiat".

Sat, 11/09/2013 - 19:22 | 4139287 LetThemEatRand
LetThemEatRand's picture

If the increased money supply is kept by the bankers and not lent out to the useless eater masses, one would expect a rise in price for high end cars, yachts, and mansions, but widespread poverty among the masses.  Anyone see that car that went for $27.5M the other day?

Sat, 11/09/2013 - 19:23 | 4139290 fonzannoon
fonzannoon's picture

Obummer is going to get the min wage up to $20/hr by the time he is outta here. He will get the inflation party started before his term is up. We just won't see it in the bond market.

Sat, 11/09/2013 - 19:31 | 4139296 LetThemEatRand
LetThemEatRand's picture

Maybe he'll try (more likely he'll just say he's trying), but an amazing number of people have been convinced that high wages for blue collar work are a sin because we cannot be competitive with our slave labor trading partners.  I think Congress will defeat any attempt, and that the Zero will try solely to appeal to the Blue Team base and continue feeding the illusion that the Blue Team cares about the middle class.

Even the Blue Team politicians and press these days tend to repeat the mantra that the problem with our economy is that global corporations pay too much in wages and taxes.

Sat, 11/09/2013 - 19:38 | 4139314 fonzannoon
fonzannoon's picture

Yeah you are correct. This will just go on and on. The only thing I have to look forward to is the day bitcoin is considered real money by everyone on here. That happens when the price gets taken down 40% off it's highs and then gets smashed down 2% every morning.

Sun, 11/10/2013 - 01:34 | 4139798 starfcker
starfcker's picture

no question rand, blue team hit the jackpot with clinton's third way. imagine a world where you could shovel tax money to the bigs, and the bottom feeders love you too. money, and votes.  you don't have to worry about those pesky middle class private sector taxpayers, half of them were born team blue and have a hard time facing the new reality. and you can expand the roster of the FSA with imports. not a hard sell, stay here in shitaholia and eat bugs, or come to america and get free rent, food, iphone, bmw, gambling money, and never lift a finger. just don't forget, vote blue. red team can't believe they got checkmated, and got stuck with all the people who want accountability, and have to choose between doners and voters.

Sun, 11/10/2013 - 07:20 | 4140004 Ghordius
Ghordius's picture

"...high wages for blue collar work are a sin because we cannot be competitive with our slave labor trading partners"

solution: *moar* free trade................/s

Sun, 11/10/2013 - 14:07 | 4140711 g'kar
g'kar's picture

You are correct. We'll down to about 20 hour work weeks by then too.

Sat, 11/09/2013 - 19:22 | 4139288 fonzannoon
fonzannoon's picture

"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."

Yup because wall street is not aware of this right now. What a ridiculous statement.


Sat, 11/09/2013 - 21:17 | 4139492 Imminent Crucible
Imminent Crucible's picture

Yup, fonz--for a smart guy, Kotlikoff makes a bunch of odd statements:

"When the Treasury prints bonds and sells them to the public for cash"  and by "public", we mean "the primary dealers".

"the Fed hands that interest and principal back to the Treasury"  Uh, not quite.  First, the Fed deducts all costs of operations; Office space, countless employees, Chivas Regal, hookers, etc., and ALL shareholders of the 12 regional FR banks get a 6% cut of everything in the form of a no-matter-what dividend.  And by "shareholders", we mean "the primary dealers".

"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."

Heh. Wall Street IS our true fiscal condition.  And by "Wall Street", we mean "the primary dealers".  PIMPCO is not a PD.

I could go on, but what's the point?

Sat, 11/09/2013 - 19:28 | 4139297 GVB
GVB's picture

Debt restructuring = breaking the bond market

Inflation = financial carbon monoxide

Wealth confiscation (à la IMF) = enraging society


What will it be? In Europe, financial repression tactics are not working, disinflation all the way... IN US and Japan, print, print, print. They destroy people's savings. OK to say this system is coming to an end?



Sat, 11/09/2013 - 19:39 | 4139308 LetThemEatRand
LetThemEatRand's picture

The middle class is coming to an end.  We are returning to the model of Lord and Serf, though it won't be completely obvious for probably decades.  There will be another crises, then another one after that.  Each time, the solution will be more power to the State and more money to the bankers.   Remember that TARP was sold as completely necessary to "save" the financial system.  And the Patriot Act and NSA were necessary to protect us from guys in caves with box cutters.   Ask 10 people on the street if they believe these last two statements to be true and 9 will say yes.  

Sat, 11/09/2013 - 19:51 | 4139347 prains
prains's picture

.....and the evolving set of crisis's that churn through individual freedoms will ALL be orchestrated, funded and implemented by the gathering of Oligarch's into a coherent base.

Sat, 11/09/2013 - 22:16 | 4139573 AGuy
AGuy's picture

"The middle class is coming to an end. We are returning to the model of Lord and Serf, though it won't be completely obvious for probably decades."

Yeah, The middle Class is going extinct, but it will take out most of the leadership too. The Mass will riot and torch anything connected to money and power when masses have not else too lose. Either there will be a new reign of terror (aka French Revolution) or there will be a grand nuclear war to make all of mankind extinct, or a combination of both.


Sun, 11/10/2013 - 01:48 | 4139814 prains
prains's picture

that was very romantic on so many levels, sure hope i can read the fictional account of this in the future, maybe you should start a magazine now so you're BRANDED with a commodified image after the reset......



dude, the only ones losing in all of this is YOU,ME and OUR KIDS and THEIR KIDS


it's already priced IN, do the CHARTS !!!!! LOL

Sun, 11/10/2013 - 14:40 | 4140810 Seeking Aphids
Seeking Aphids's picture

Meanwhile....the US just launched its latest aircraft carrier.........hey, guy, this empire is not going down without a took the Roman Empire hundreds of years to self-destruct....why will the US empire be any different? They can keep this game going for a lot longer than you and I can keep breathing.......although external forces could cause a rapid change (Fukushima....), I don't see the good citizens rising up with pitch forks any time soon, sadly.......on the other hand, I always enjoyed those 'change of state' experiments in high school....maybe we just need a catalyst?

Sat, 11/09/2013 - 19:33 | 4139306 Ned Zeppelin
Ned Zeppelin's picture

This is all wrong. Wall Street will never blow the whistle on Ben. QE fuels infinite unearned rents. He has a free pass, and more than that, their stern warning that he'd better continue or else.

Ben knows QE does nothing for employment or labor participation rates. Once everyone strips away the twin mandate pretexts we'll see this thing for what it is: a Wall Street. bank for profit enterprise.

Yellen is on the payroll and the fix will continue.

Sat, 11/09/2013 - 19:36 | 4139311 fonzannoon
fonzannoon's picture

You guys just wait till wall street finds out about this QE scam. They are gonna be pissed!

Sat, 11/09/2013 - 19:41 | 4139318 LetThemEatRand
LetThemEatRand's picture

Heck, I'll bet Jamie Dimon won't wear his Presidential cuff links for a whole week when he finds out.

Sat, 11/09/2013 - 19:44 | 4139326 fonzannoon
fonzannoon's picture

We need more guys like Jamie (chewing on cigar on the putting green)

Sat, 11/09/2013 - 22:07 | 4139564 MrButtoMcFarty
MrButtoMcFarty's picture

(hanging from the midtown scaffolding)


'Tis to dream....

Sat, 11/09/2013 - 19:43 | 4139324 Mordenkainen
Mordenkainen's picture

Fonz, time to retire the paper bag and get yourself a new avatar. You've earned it.

Sat, 11/09/2013 - 19:51 | 4139346 fonzannoon
fonzannoon's picture

Thanks man but the longer this goes on the more I just want to sit here with this bag on my head.

Sat, 11/09/2013 - 19:52 | 4139348 Stuck on Zero
Stuck on Zero's picture

As long as Wall Street can earn 5x the rate of inflation QE will continue.


Sat, 11/09/2013 - 19:45 | 4139329 Sufiy
Sufiy's picture

China, India, Turkey and Thailand Buying Record Amount of Gold - What Do They Know The Others Don't?

These two charts present the big picture in Gold Supply and Demand the best. When Central Banks are distorting the markets by suppressing the Gold price the increased Demand is overwhelming the diminishing Supply. The Game of Musical Chairs in Fractional Reserve Gold System continues, but it is very close to its logical conclusion with COMEX deliverable Gold being leveraged of 59 times at least.

Sat, 11/09/2013 - 20:11 | 4139383 I am Jobe
I am Jobe's picture

Sheeples in Amerika buys IPHONES and IAPPs to show wealth. 

Sat, 11/09/2013 - 20:16 | 4139384 Himins
Himins's picture

Well, my math puts us in a sustained "recovery" of -4% and all is well.
We tax payers are in a jobless recovery, should be no problem paying this debt back with some of them jobless dollars.

Ya Bernanke, Sorry I was late on the last national debt payment there um..., I would have been on time, but my jobless maid backed my Benz into the fence by the pool while I was on a staycation in the south of France.

Mean while, smile if you are not wearing jobless panties. 
I suppose our Jobless Vets can just settle for some Eagles and eggs for breakfast 

Sat, 11/09/2013 - 20:13 | 4139388 dark pools of soros
dark pools of soros's picture

if Yahoo is talking hyperinflation it is game over

Sat, 11/09/2013 - 20:30 | 4139415 Atlantis Consigliore
Atlantis Consigliore's picture

here's one:  w/  here Obamaphone:



Sat, 11/09/2013 - 20:31 | 4139416 polo007
polo007's picture

According to BMO Capital Markets:

November 8, 2013

In Search of the Mythical Market Correction

Strong Market Performance Has Amplified Correction Chatter

Many clients we speak with are convinced that the market is on the verge of correction. Sure, the stocks have been on an impressive and almost uninterrupted run these past few months, but we believe performance patterns alone are not enough to justify directional market calls. Instead, investors should consider the macro and fundamental backdrop along with risk-taking levels to determine whether or not the performance is justified. From our perspective, the data simply do not support the correction talk and we remain committed to our optimistic market outlook through year-end and into 2014. As such, we believe those investors waiting to “buy on the dip” are likely to be disappointed.

Performance Patterns Have Followed the Script

Despite the fact that it has been over a year since the last major market pullback, recent performance patterns are not totally unprecedented. In fact, the current bull market has already produced as many 5%-10% and 10%+ pullbacks as the prior six bull markets dating back to 1970, on average. The main difference has been the duration between corrections, which has been roughly half the average since 1970 even with the latest correction free period. Therefore, the past year or so can be at least partially viewed as a reversion to the mean since more investors are beginning to accept this market for what we believe it is – the early to middle stages of a secular cycle that has at least five more years of life in it.

Macro Trends Contradict the Correction Talk…

The one thing that almost all market corrections during bull markets have in common is that they are usually triggered by a Fed rate hike or a spike in oil prices. In addition, high levels of confidence, expensive market valuation, and underperformance from Financials are also typically associated with bull market corrections. Fortunately, most of these conditions are nonexistent in the current environment making the probability of any sort of major market correction very low over the near term, in our view.

…As Does the Absence of Excessive Risk Taking

Excessive risk taking has been another common precursor to meaningful market pullbacks based on our experience. However, the risk measures we track suggest no indication of excessive risk-taking by investors.

Sat, 11/09/2013 - 21:36 | 4139518 dark pools of soros
dark pools of soros's picture

obvious trolling for dumb money...  the crash aint too far down the road


Sat, 11/09/2013 - 20:45 | 4139441 holdbuysell
holdbuysell's picture

Need some help here:

If the Treasury sells the bonds to the primary dealers for cash and then the primary dealers sell the bonds to the Fed for cash that goes into the primary dealers Excess Reserves, how do the primary dealers in this three-way arrangement actually increase their reserves parked at the Fed? The primary dealers had to come up with the cash in the first place to buy the bonds from the Treasury.

What am I missing?

Sat, 11/09/2013 - 21:29 | 4139511 AUD
AUD's picture

That the whole idea that the reserves are 'excess' or even 'reserves' is a load of shit.

The commercial banks are monetising government debt & the Fed, as the ultimate arbiter of $ denominated credit, is putting a (high) floor under the debt market with its bid.

Sun, 11/10/2013 - 08:04 | 4140035 Ghordius
Ghordius's picture

leverage. through banks

Sat, 11/09/2013 - 21:00 | 4139464 quietdude
quietdude's picture

Right now you can store two years worth of food for about 2000 dollars.
( rice, wheat, beans, lentils, sugar, and powdered milk ) If you are worried about a crash, why not store food? If nothing happens, you can eat it :-)

Sat, 11/09/2013 - 23:30 | 4139653 edifice
edifice's picture

Yep, I have about 1.5 years stored; 1 year of bulk ingredients, .5 of canned/premade stuff, and it was about $2,000 in aggregate. The big thing though, is water; storable food is worthless without a water source.

Sat, 11/09/2013 - 21:16 | 4139484 Downtoolong
Downtoolong's picture

From Merriam Websters New Online Dictionary:

iro·ny noun \I-ro-ne also I-er-ne\ : A situation that is strange or funny because things happen in a way that seems to be the opposite of what was expected.

Example: The guy who has blown and wasted $3 trillion of the organizations resources supposedly to create jobs still has a job and nobody else does.

Sat, 11/09/2013 - 21:24 | 4139488 AUD
AUD's picture

Kotlikoff's bottom line is wrong, so his conclusion is too. There could be hyperinflation tomorrow but not because he knows what he is talking about, it would be a lucky guess.

The Fed can print as much as it wants while its obligation is 'money good'. It is the quality of the assets the Fed has that determine the value of its obligation. It has nothing to do with amount the Fed prints.

The quality of the Fed's assets have been junk for years, thus the current monetary paradigm is a Ponzi scheme, irrational & unmeasurable. Hyperinflation might be round the corner, on the other hand, the $ could double from here.

Money has powerful effects on human behaviour, notably people always want more of it, which explains why when something approaches 'money' it often keeps going & going, until it doesn't.... cough - bitcoin - cough.


Sat, 11/09/2013 - 21:32 | 4139515 Imminent Crucible
Imminent Crucible's picture

Almost right.  And same for Kotlikoff: "The more money the Fed prints, the more it risks everyone starting to expect and, consequently produce, hyperinflation."

He should have said: "The more people talk about Fed printing and inflation, the more people will adjust their financial behavior to the expectation of accelerating inflation.  Which will bring on exactly what they expect."

It's all about perceptions and psychology, like every confidence game.  The Fed might immediately double base money to $8 trillion, but if it all stayed locked in excess reserves and the public didn't hear about it, it would have little or no effect on prices.  At least, the prices that comprise headline inflation.

Sat, 11/09/2013 - 21:40 | 4139525 AUD
AUD's picture

The 'excess reserves' idea is baloney, there are no excess reserves, it is all 'money' & being used as such - to bid up $ denominated credit.

The idea there is no inflation is ludicrous, hasn't he looked at the S&P lately?


Sun, 11/10/2013 - 11:29 | 4140316 Imminent Crucible
Imminent Crucible's picture

"it is all 'money' & being used as such"

Again, almost true. "Excess reserves" is a fraud, and misleading, but as long as the credit is parked at the Fed, most of it is not being used as money but as phony Tier capital to permit insolvent banks to continue their gambling and stripping operations.  However, credit is fungible, and the use of Fed credit as bogus capital frees up other funds which may be used to pay bonuses, make acquisitions, etc., and thus enter the economy.

And yes, the worst inflation is now evident in stocks and bonds.  But the air is beginning to whistle out of the bond markets. If this represents the beginning of normalization in the Treasury yield curve, it's just about Game Over for the Money Gods.  And not a moment too soon.

Sat, 11/09/2013 - 21:44 | 4139534 eddiebe
eddiebe's picture

As long as they can keep the vast unwashed masses grubbing for pennies, there will be no hyper-inflation. Just like a parasite sucking blood doesnt kill the host as long as it doesnt get too greedy. It seems inconceivable to me that these vampires will be able to keep their greed under control though.

Sat, 11/09/2013 - 21:45 | 4139536 DOGGONE
DOGGONE's picture

Any disagreement with this content, or it's being causative?

Sat, 11/09/2013 - 21:54 | 4139544 bugs_
bugs_'s picture

We had a discussion in the Deflationists Lounge today about filling the Deflationists Moped at $2.83 - what if its $1.65 next year?

Sat, 11/09/2013 - 21:55 | 4139547 q99x2
q99x2's picture

Just look at the history of the dollar. It hasn't reversed course in a hundred years.

Probably don't have many doubters to your article. Hyper-inflation though is a very short time in duration comparative to the gradual inflation of the past 100 years.

The dollars printed won't be able to be dumped fast enough. Its coming.

Sat, 11/09/2013 - 22:05 | 4139560 Paracelsus
Paracelsus's picture

Credit-Anstalt   1933?

Sat, 11/09/2013 - 22:47 | 4139605 TyrannoSoros Wrecks
TyrannoSoros Wrecks's picture

The city of Seatac,WA just passed an initiative to raise the minimum wage to $15/hour.
There is a nationwide push by the progressives to get this enacted everywhere. I figured it was just the usual social justice, revolutionary, living wage bullshit. A Cloward-Piven attack aimed at business.
But now that I think about it, they maybe trying to get us ready for hyperflation.
So maybe its gonna come sooner than we think.

Sat, 11/09/2013 - 23:29 | 4139627 nostromo17
nostromo17's picture


 Trouble is, interest rates have generally been rising, investment remains very low, and unemployment remains very high.

Its pretty clear the Fed monetizing Government debt has little to do with the economy except what is generated by the Government in spending and salaries. Yet we continue to hear warnings about hyperinflation, deflation couched in terms of what Fed monetizing will result in...generally ignoring addressing  "investment remains very low, and unemployment remains very high."

What is to be done about low investment and high unemployment? -Absent the Fed's dry hump with the Government which doesn't create jobs or spur anything but delusional inflation of the price of stock markets; what is to be done?

The conversation even when it criticizes Fed debt monetization never leaves the dialogue of debt monetization and remains sterile because of it. OK the Fed is only operating to keep our failed monopolistic banks afloat in a sea of already bad debt. But banks don't create jobs first of all and banks that don't lend money surely don't create jobs and why should anyone lend money at paltry current rates that don't compensate for the risk in loans?

Has anyone noticed that most consumer credit is student and car loans? Does that mean no one bought anything else? Really stuck in "the Fed this Fed that" dialogue one is missing that we are already in a deflationary spiral.

Basically consumer buying is slowing if not stopped, the return on investments does not keep up with inflation, prices are inflating despite the fact that they should be going down - because no one is buying.

The job situation remains abysmal. Forget there is no job creation, consider that many people that have jobs have jobs that don't pay enough for them to buy extras - see EBT Food stamp population some of whom might actually be working too.

So step outside your Fed this Fed that omphaloskepsis that really can't see past the stock market and the false bond and repo market and the banks and our currency which all exist in a Mondo Universe of anti-money where the banks are the Fed the Fed prints money and the government stays afloat and that is the only economy working the MONDO FEDGOVBANK.

Step outside breath some fresh air and consider the real world as >> the rest of the economy. FREE YOUR MINDS FROM FED MONDO CRAP talk and thinking, the Fed has never been more irrelevant.

It seems no one is buying anything in the rest of the economy,  the "real economy," and so there is no reason to invest in anything nor is there the excess profits from sales to invest.

No one is buying anything except a few better off people who buy APPLECRAP or LUXUROCRAP which spews propaganda over the MEDIACRAP as if the world had an economy when it only has MONDO CRAPCONOMY.

The rest of us buy nothing because in their wisdom the capitalists have created workers so poor they cannot afford to buy the MONDOCRAP and NECESSITIES these MONDO CAPITALISTS would sell if they could. And so prroducers produce less and charge more trying to capture the diminishing pool of "RICH PEOPAL DOLLAHS" in a self defeating, whats that called? "DEFLATIONARY SPIRAL" until,


 The answers are raise rates to reflect loan risk, create jobs that pay well because YOU HAVE TO HAVE CUSTOMERS WITH MONEY, and when you make a profit INVEST IT OR LEND IT at a presumed profit. Self interest and self preservation should motivate these actions if one remembers to live outside the MONDO Universe.

Resume the relationship between money,value, risk rates and profits. (The latter might be hard to understand for some youngsters out there who have no concept what those worlds actually meant in a former non-Mondo Universe called "the past.")

CLOSE the MONDO UNIVERSE, Close the FED printing press, DESTROY BOA et al, open some banks with a notion of credit risk...these latter actions will curtail excess government spending naturally (because there will be no MONDO MONEY to spend) and will put some of the bastards on the government jobs government military industrial spending dole, out with the rest of us. -- On food stamps and maybe then  the Mondo-majority won't relect the MONDO UNIVERSE CONGRESS OF THE FEDGOVBANK...maybe. This would be the only hope. Sadly.

The other hope is a more certain hope  or inevitability it all will end in destruction as we tip over the horizon into the black hole Mondo Modality completely and irreversibly and what is left of the rest of the economy gets swallowed and destroyed like so much yesterday's used toilet paper.

END THE MONDO ECONOMICS UNIVERSE NOW BEFORE ITS TOO LATE - IF IT ISN"T TOO LATE ALREADY? Don't believe in MONDONOMICS, do not let your thought and conversation get sucked into and stuck in the MONDO VOID.

Remember there used to be real jobs and real investing and real economies in the times before the i-phone before the i-anything the I-Mondenema. MONDO is the enema of the people it must be crushed before we drown in a bigger shit pile than the one we are already in...

God save the queen. Broaden your minds look past the MONDO UNIVERSE HORIZON remember what reality can be like and aspire to act in the real world and destroy the MONDO FEDGOVBANK. One enema deserves another - don't you forget it. 


Sat, 11/09/2013 - 23:49 | 4139670 exonomic halfbreed
exonomic halfbreed's picture

Being that I am a nubie, could i ask a few questions and get some advice?  As cental banks have sold off the peoples gold from western economies for quite some time, whom do you think bought this gold?  Perhaps the friends of these banksters and surely not the masses.  Thoughout history the center of finance has moved from one place to another and I am told that it has moved again in the last 15 years.  Does the data indicate that this empire is expanding or contracting? If there were a parasitc, intelligece gene sequestering tribe gaming for the destruction of the old empire working from within it, what would be the indicators of such?  As the end result of fiat currency and fractional resrve banking comes to its mathamatical inevitable end, is it not evident that those with hard assets of all sorts would be able to call the shots in whatever new system that arrises?  Much discussion on this forum has been focused on money supply, its velocity and various statistics which are very likely manipulated along with inflation data.  We have lived with unconscionable inflation for a very lomg time, but hyperinflation is not due to a rapid change in currency supply but due to a relatively sudden loss of confidence.  I see this coming soon due to the masses awkening to the absolute corruption in their so called masters being more and more obvious by the day. Please set me staight if you think I am for off base.

Sun, 11/10/2013 - 13:53 | 4140644 nostromo17
nostromo17's picture

I like your view of hyperinflation applied to deflation. Few have a clear concept of deflation. Hyperinflation is a late stage of deflation. Deflation, the value of money appreciates such that it is not worth producing anything to make money and the supply of purchase-able goods diminishes...then money starts chasing the few goods produced and hyperinflation ensues. Deflation seems active now U.S. low rates so not worth investing or lending, stagflation or "creeping price inflation" subliminally active, no one purchasing much, production should shrink, economy shrinks in real terms. Shriveing and dying. The mixture of factors is because there are two economies the GOVFED economy and the rest of us partly GOVFED when on dole otherwise broke when not GOVFED. Ultimately as production shrinks no one can buy what doesn't exist to be bought then hyperinflation. "Roughly sketched out." GOld doesn't really matter if there are no produced goods or commodities. Governments serving the wealthy instituted low inflation policies to protect the unproductive wealth that is stored away in "savings" ruining the relation between risk reward and investment and creating a deflationary bias to economies destroying the normal lend invest profit cycle and ultimately destroying the non-productive wealth of the wealthy too since there is no return at low savings rates which do not keep up with GOVFED inflation.

Sat, 11/09/2013 - 23:53 | 4139675 yogibear
yogibear's picture

Yellen and her Fed PhD stooges increase QE in the coming year.

Rinse and repeat until there is a currency crisis.

Sun, 11/10/2013 - 00:35 | 4139715 TwoHoot
TwoHoot's picture

All the liquidity the FED injects stays at the banks so we don't have much inflation. Why?

I think the answer is that it will continue to stay there until the banks unrealized loan losses (difference between market value and what they are carried on the balance sheet) are covered. Only then will we see FED money spill over into the general economy and cause inflation.

I saw some figures several years ago that indicated the big bank unrealized losses were about $9 trillion when QE started. They may be higher or lower now, I don't know. My GUESS is that the FED can inject at least another $5 trillion before inflation takes off. Until that happens, the danger is deflation, not inflation (think Japan).

Overlay that with runaway government deficit spending (from local to federal and even international) that is being financed by the FED leads to the conclusion that deflation is more likely than inflation. To stay ahead of the deflation devil, the FED will have to do an Abe5.

As a retired person living on fixed income, deflation would be great for me personally. Except it will drive my kids and grandkids into the back bedroom, storage shed and barn. We will all starve together as one big miserable family because the FED can't print tortillas.(/black humor)

That is just food for thought and discussion. It is not verified fact.

Sun, 11/10/2013 - 03:24 | 4139896 Poofter Priest
Poofter Priest's picture




I agree with this guy.


They will keep pumping the money (er...or pimping the money) until the banks have covered their bad loans.

Then they will allow hyper inflation and those with still existing mortgages will be forced to readjust according to the 'new' value of the dollar.

For the

Sun, 11/10/2013 - 01:49 | 4139816 damicol
damicol's picture

Youa re Yellen and I claim my $5

Sun, 11/10/2013 - 08:33 | 4140064 sgeorgiev
sgeorgiev's picture

In Weimar Republic it tooks 9 years of money printing to came to an hyperinflation. I made a short article on it. Google Commodity Prices Weimar Republic.

Sun, 11/10/2013 - 11:37 | 4140329 Imminent Crucible
Imminent Crucible's picture

Depends on how you define "hyperinflation".  During the war years, the mark lost about 3/4 of its purchasing power because the German govt decided to finance the war via the printing press instead of selling bonds.  Then the French govt demanded and enforced reparations, and the real party got underway 1919 to 1923.

That said, if the USD lost 75% of its purchasing power (think gasoline at $10-$12 gal) in the next couple of years, it would definitely change people's behavior with respect to hoarding dollars. I still remember the 1970's clearly. By the middle of the Carter years, people couldn't get rid of dollars fast enough.

Sun, 11/10/2013 - 12:40 | 4140487 sgeorgiev
sgeorgiev's picture

Yes, you are right, it all comes to the definition of "hyperinflation".

Sun, 11/10/2013 - 10:23 | 4140207 all-priced-in
all-priced-in's picture

If the net impact of QE is - the government getting CASH and the FED getting treasury bonds -

Why do the banks end up with excess reserves?

If - as the article states - 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.

What am I missing?  





Sun, 11/10/2013 - 11:42 | 4140341 Imminent Crucible
Imminent Crucible's picture

The article is in error. The public is not involved in the money creation process.  Treasury sells bonds, primary dealers buy them, Fed prints credit & purchases bonds from PDs. Banks have their money back plus a markup, Fed adds bonds to base money portfolio.

What's changed is the debt has expanded by the amount of new Treasuries in existence, and the money supply has expanded by the new credit issued by the Fed.

But there is no change in the sum total of available goods and services.  That's why QE fails; It purports to add purchasing power to the system without adding anything new to purchase. Thus, all you get is higher prices.

Sun, 11/10/2013 - 12:02 | 4140384 all-priced-in
all-priced-in's picture

I understand all of that - my mental block is -

If the bank (primary dealer) takes some of its cash  - buys newly issed treasury debt - then turns around and sells the treasuries to the FED - it would have (if I ignore the small spread it earns) the same cash as it had before the transaction.

How does QE increase bank reserves?

All I can come up with is - bank borrows from the FED discount window (at close to zero %) - which increases its cash - uses the money to buy UST - then sells them to the FED -

The increase in reserves happens before - when the bank gets free money from the FED. ???








Sun, 11/10/2013 - 18:04 | 4141232 RMolineaux
RMolineaux's picture

The Fed puts new money into the reserve accounts of the banks from which it buys the bonds.

This is done during the settlement period for the bond issuance.  Effectively, the primary dealer banks act as a broker between the Treasury and the Fed. 

Sun, 11/10/2013 - 12:18 | 4140425 Pareto
Pareto's picture

+1 Ding ding ding!  Succintly, well said.

Wed, 11/13/2013 - 16:29 | 4151413 MeelionDollerBogus
MeelionDollerBogus's picture

Once the government's excess money as received funds (borrowed) and received interest (Fed to treasury) then you'll see a massive over-spending by US gov on various items of nonsense.
THEN you'll see inflation go bazonkers as measured by price increases, just like increases in commodities followed the 1st round of QE stealth bonuses to every bankster on Earth.

The higher prices you are expecting will not stop. They will keep pushing harder & higher and confidence will be lost in the USD currency and that is all that's needed for hyperinflation.

The article is not in error.

Sun, 11/10/2013 - 10:26 | 4140212 Mario55
Mario55's picture

"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."

If excess reserves result from the purchase of Treasurys by the Fed from the public, the bank B/S liabilities corresponding to their reserves excess assets are customers deposits which already are in M1. 

Excess reserves can diminish and change in nature in M1 (from deposits to currency) only if the depositors demand to transform their bank deposits in paper bank notes and coins. This is an extreme case of loss of confidence in the banking system and/or fear of capital control.

If not, the only way for bank reserves to disappear is for them to be exchanged for Treasurys by the Fed.




Sun, 11/10/2013 - 12:08 | 4140396 theprofromdover
theprofromdover's picture

They think they can continue to get away with printing money because they think they can keep it out of the people's hands.

They will continue to pay interest to the banks, and then they will reduce the leveraging limits, forcing the banks to hold the cash.

They have no plan to resolve this mess, they are quite happy that the banking sector is syphoning off all that wealth as a price worth paying. They think they can stall forever, until the day dawns that organic growth starts happening by itself. They pray that China will stick with the greeback, but why on earth should it.

If the banks are not torn down, that day of natural growth will never come, unless the world's population drops to 5 billion. (and someone has made a plan for that all right)

Sun, 11/10/2013 - 12:27 | 4140447 Vincent Cate
Vincent Cate's picture


If you want to understand how hyperinflation works, please check out my Hyperinflation FAQ:

Sun, 11/10/2013 - 14:57 | 4140847 Loophole
Loophole's picture

The entitlement state demands money. The Fed is creating almost 30% of it, I recently read. True inflation is worse than the govt is reporting, and the massive money printing and other things the govt is doing are destroying the real economy, a fact that is keeping prices from accelerating into the stratosphere immediately. The only thing politicians can do to keep buying votes is to have the Fed print more and more money. They will not stop printing money until the dollar completely collapses.

At that point, the only liquid assets around that can constitute capital will be precious metals.

Until that day arrives, the printing-stealing will continue to escalate.

Sun, 11/10/2013 - 16:37 | 4141044 Mcat
Mcat's picture

Sorry, I just can't see the hyperinflation argument. Holders of US debt will sell their bonds sending interest rates higher. This will act as a brake on inflation. The only way I see hyperinflation is if a new currency alternative arises which means the need to hold US dollars/bonds diminishes significantly.  

Sun, 11/10/2013 - 17:18 | 4141134 Vincent Cate
Vincent Cate's picture

Right now in Japan people are selling their bonds but it is not sending interest rates higher.  The reason is that the central bank is buying up bonds at high speed to keep the bond prices up and interest rates down.   They are buying with new money so fast that they are increasing the base money supply by about 1.6% every 10 days.   This is not a "break on inflation".   You do not need an alternative new currency for an existing currency to go down in value.  We will see high inflation in Japan.  Watch and learn.

Sun, 11/10/2013 - 17:54 | 4141206 RMolineaux
RMolineaux's picture

I doubt that there are many in the business who will agree with you in the notion that inflation can be controlled by higher interest rates when there is already an unprecedented amount of excess reserves at the Fed.  If interest rates rise only slightly, the banks will use these excess reserves buy higher yielding assets.  By controlling the interest rate paid to banks on their excess reserves, the Fed will be effectively switching to this method of limiting bank lending away from its former influence on the Federal Funds rate - the rate at which banks lend their excess reserves to each other.  Price inflation requires cost push and/or demand pull.  Neither of these are evident currently.

Wed, 11/13/2013 - 16:23 | 4151398 MeelionDollerBogus
MeelionDollerBogus's picture

a higher rate on bonds but NOT on savings acounts will have the opposite effect of what you predict.

Sun, 11/10/2013 - 22:42 | 4141884 Notarocketscientist
Notarocketscientist's picture

one of the reasons we do not have hyperinflation is because the global economy is just so much worse than we are lead to believe by the MSM bullshit.

we truly are on life support - QE/ZIRP simply keeps the blood moving enough to register a pulse - nothing more

Mon, 11/11/2013 - 00:35 | 4142089 BigSpruce
BigSpruce's picture

Fuck you Bernanke and for good measure Jamie Dimon and Lloyd Blankfein.

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