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Chart Of The Day: Worst. Loan Creation. Ever

Tyler Durden's picture


For all the endless talk of a recovery during the past five years, there is a very tangible reason why for most people this is nothing but spin, propaganda and lies: when one strips away the retroactively adjusted GDP, the seasonally adjusted (and politically mandated) counting of temp jobs, the constantly upward revised jobless claims, the Fed's $4+ trillion balance sheet of course, and even the declining (yes, declining) real disposable income per capita, what one is left with is the lowest loan creation out of a recession (or depression) in history, and is at indexed levels last seen during the Lehman collapse over five years ago!


Why is loan creation important? Because in traditional economics (not their "New Normal" equivalent, where central planning decides everything), loans - i.e., money created by commercial banks - ultimately leads to GDP growth. It also has a direct bearing on the steepness of the bond curve and thus, inflation expectations. Conversely, lack of loan creation ultimately means the government is forced to adjusted the definition of GDP to make it seem as if there is growth, or to rely on an inventory stockpiling boost to "growth" and all other recently seen gimmicks to force the conviction of "growth."

There's more. As the charts below show, there is a direct link between loan demand (and thus creation), and EPS growth, Industrial Production, Employment and CRE development. Obviously, the lower the loan creation, the worse all of these will look.


But how is it possible that banks continue to function in an environment in which there has been zero loan creation for the past 5 years? Simple: the banks' excess deposits (a liability) has been pumped higher by about $2.5 trillion thanks to the Fed's excess deposits:


... and instead of lending out reserves, which banks don't do (for those still confused about this, read the following primer from S&P), banks instead use them as initial and maintenance margin for risk-chasing trades as JPM so kindly explained over a year ago.

... which is also why once excess deposit creation, i.e. "flow", slows down, halts or is put in reverse, watch out below.

Furthermore, as long as the Fed creates reserves, and excess deposits, banks have no incentive to force loan creation.

In other words, as long as QE continues, and the Fed injects however many tens of billions into the commercial bank balance sheets each month, all talk of an economic recovery will be bullshit, simply because all of the Fed's money makes it only into capital markets, resulting in asset inflation, but not into the economy, where it is up to commercial banks to create loans, and the resultant money that then leads to an increase in money velocity and ultimately, if allocated carefully, growth.

In the meantime, there will be no economic growth, period, as long as the loan creation in the top chart shown above refuses to move higher, and any talks of an economic recovery will be merely lies, propaganda and yes - more lies.

Charts: Barclays, JPM, Zero Hedge


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Fri, 12/27/2013 - 10:20 | 4278883 new game
new game's picture

so a tad of inflation on tap? had to happen eventuallty...

Fri, 12/27/2013 - 10:23 | 4278896 Shocker
Shocker's picture

People are tapped, they can't spend like they used to.

Current Job Situation:


Fri, 12/27/2013 - 10:44 | 4278934 pods
pods's picture

Debt saturation.  Either people won't, or cannot expand the amount of credit.

That is why the has been deficit spending on anything and everything.  As well as the huge push to go back to school (non dischargeable loans).

This system requires debt to expand at an exponential rate.  

I really hope that when this blows, because it has to, that people do not rush into the next bankster scheme to separate us from the fruits of our labor.

Think about how hard you work, and how much more productive you have become.  Then think about who is realizing the gains from all that productivity increase.

Give you a hint, he wears presidential cuff links.

Skimmers, burn them all.


Fri, 12/27/2013 - 11:23 | 4278991 TeamDepends
TeamDepends's picture

On topic (the banksters literally view us as the enemy):

Fri, 12/27/2013 - 11:38 | 4279002 Popo
Popo's picture

Our current system is so much worse than serfdom.  That's what people don't understand.

Under serfdom, the "lord" would take a percentage of your crops in return for you living there.

Under our current system, the banks take a percentage of your earnings for 30 years.

But at least the lord 'had' the land to lend you.  In our current system, the banks have nothing to lend.  They take a percentage of your 30 years of labor,  but they shift the risk of the loan to the government.  Which means back to you, indirectly via taxes and inflation.  The banks have a win/win scenario.  They cannot lose, and you cannot win.  Basically, no matter what you do (even if you don't buy property) you're paying the feudal lord one way or another.    But because the process is so diabolical, so invisible and so difficult to explain to people (Most people think banks actually 'have' money to lend, and lend their own money) that the serfs shuffle on, not realizing that they are supporting a class of wealthy parasites.   The theft is disguised behind concepts which are designed to fool you.  "Loans" (as if money was "lent"),  "taxes" (which are presented as a 'moral' obligation) and "inflation" (which is portrayed as a natural phenomenon, like the weather).  But all of these are acts of theft -- so massive that the mind often rejects the truth:   That you,, all of us.. are caught in a web from which there is little hope of escape.

Fri, 12/27/2013 - 11:57 | 4279082 MachoMan
MachoMan's picture

All you're asking for is that the bank be the government proper...  of all the things to complain about...

Fri, 12/27/2013 - 12:40 | 4279210 Popo
Popo's picture

With severe limits on leverage, a hard currency, rules against structured financial products, a return to rules which separate banking from investment, and a forced single-entity of loan originators and loan holders.  Yeah.  That would about do it.

Fri, 12/27/2013 - 12:49 | 4279236 MachoMan
MachoMan's picture

None of which was actually stated in your original post, but I'm sure those things would help...  the problem of course is that laws nor regulators control the world...  which are essentially just demands to keep out the tide.  Humans behave on an independent, individual level...  and your suggestions would likely yield a bit more longevity, and maybe even fairness, to the system, but they will not cure it.  Steps in the right direction, for sure, but they ultimately just treat some symptoms.

PS, you could probably shorten the list if you'd just put "let failed institutions fail"

Fri, 12/27/2013 - 15:38 | 4279822 The-Dirty-Scurd
The-Dirty-Scurd's picture

Nothing stops what is happening. We have been doomed to repeat the same cycles of dominance from wickedness in high places and principalities because we, in general,  turn from the one thing that can and will save us. There is only one escape we have; that is God manifest in the flesh as Jesus. Anything else will prove futile as it always has.  

Fri, 12/27/2013 - 11:49 | 4279045 graspAU
graspAU's picture

"That is why the has been deficit spending on anything and everything.  As well as the huge push to go back to school (non dischargeable loans)."

Well said. This was observable to anyone who had a clue very soon after fall 2008 by looking at the Fed Z1 report (fed debt skyrocketing to cover reductions in debt in other areas).

Fri, 12/27/2013 - 12:09 | 4279126 dick cheneys ghost
dick cheneys ghost's picture

Amen brother pods, Amen

''Only the very intelligent understand the mathematical inevitability of usury.  The stupid simply see the rich getting richer without working while the poor work harder and harder and go backwards.  Institutional Usury lets money "make" money without work and it INEVITABLY bankrupts the poor and stupid...this is why it and its purveyors have been reviled as con artists throughout history.''

trav7777 ZH 2010

Fri, 12/27/2013 - 11:30 | 4279006 Oldwood
Oldwood's picture

Its a blessing. They have papered over our shrinking economy with debt for years allowing us to dig into a bottomless hole. All markets today are based on future earning and the farther in the future the better. If there is any salvation from this, the current lending paradigm has to stop. Nobody knows where and how this will end if continued, but we all know it WILL end and it will be ugly. we will have a real economy when we do not have to rely on earnings 20 years hence to survive a day.

Fri, 12/27/2013 - 11:48 | 4279049 CrazyCooter
CrazyCooter's picture

I have been deleveraging for years now and am almost done. Despite being a professional engieneer (professionally employed), I was up to two part time jobs at one point.  All that is left is a small balance on one credit card. I finally gave the house keys to the bank (I couldn't sell it). We can argue over how much I pay them back after they clear it at auction.

Everything else is paid off or paid in cash.

I like to joke that banks are going to love me as much as my grandfather, because I will never borrow another damn dime the rest of my life.

Fuck em.



Fri, 12/27/2013 - 12:28 | 4279191 El Vaquero
El Vaquero's picture

I'll second the Fuck'em sentiment.

Fri, 12/27/2013 - 12:57 | 4279261 InjectTheVenom
InjectTheVenom's picture

Third !

Fri, 12/27/2013 - 13:19 | 4279337 holdbuysell
holdbuysell's picture

I hear ya CC. My great grandparents, who went through the Great Depression, gave the life lesson early on: never borrow.

While I followed the advice for the most part, it's only been the last decade that the concept of borrowing truly became revulsive.


On another note, this whole insidious, destructive, decrepit and complex system reminds me of the story: Castle in the Sky. If you haven't watched the animae, it's a great story and a great watch over the holiday.


Fri, 12/27/2013 - 13:48 | 4279476 Bob Sacamano
Bob Sacamano's picture

Well done.  If everyone would just not borrow money. 

I thought the decline in lending would be viewed postively on this site.   I want less borrowing / lending.   Less is better for the borrower and hurts the lender.   Debt is a large part of how we got in this mess.

Fri, 12/27/2013 - 16:37 | 4279993 Things that go bump
Things that go bump's picture

People who lived through the Great Depression learned that lesson well and even with the FDIC many still didn't trust their money to the banks afterwards. Even now, I'll bet, small businesses who deal in cash, such as bars, restaurants, beauty shops, etc. siphon off a high percentage of that cash and it never sees the inside of a bank. One couple I knew 30 years ago owned a bait shop. He ran it. She babysat for me for cash. Once I walked in to pick up my kids unexpectedly and their whole kitchen table was covered in stacks of bills they were counting. My kids said they hid it somewhere in the basement. I thought it was stupid to be so indiscreet as to let small children know such things or allow random neighbors to walk in on you, but I couldn't fault them for it otherwise. That's a bank that will never fail and abscond with all of your money or leave you to wait on the pleasure of the FDIC (which will never be able to cover all the deposits it insures). It will never hand your funds over to a government or creditor who thinks it belongs to them, and it will never send an accounting to a government that demands a third of it in tribute. A very small neighborhood restaurant I sometimes pick up takeout from has a cash register on the counter, but she's never used it that I could see, and I've been going there for 15 years at least. She uses a calculator on the counter. I pay in cash for everything that I don't buy off the internet. My dentist, the woman who cuts my hair, the guy at the liquor store all appreciate it. If I need work done on my car I know a mechanic who does work on the side out of his garage and I pay him cash. I know a plumber, a carpenter and an electrician too. 

Fri, 12/27/2013 - 13:13 | 4279283 ZH Snob
ZH Snob's picture

ironic, is it not, that in the midst of the largest credit orgy in the history of the world the true economic engines and creators of wealth can't be assisted by any of it?

this doesn't appear to be accidental at all, does it?  the overwhelming greed and fear for their self-preservation is obvious, but what puts my paranoia into overdrive is the possibility that they are simply stealing whatever they can before scuttling the ship.

Fri, 12/27/2013 - 13:12 | 4279306 tarsubil
tarsubil's picture

I'm not sure about inflation. I am sure about a lower quality of life.

Fri, 12/27/2013 - 11:00 | 4278902 Colonel Klink
Colonel Klink's picture

FUCK YOU CENTRAL BANKERS!  No one wants your criminality and slavery.

EDIT:  Welcome to ZH Janet.  Get use to it.

Fri, 12/27/2013 - 10:33 | 4278912 Heroic Couplet
Heroic Couplet's picture

Lack of loan creation only affects banks, not the government. And who cares?

Fri, 12/27/2013 - 10:31 | 4278913 Tyler Durden
Tyler Durden's picture

Lack of loan creation only affects anyone who uses money.

Fri, 12/27/2013 - 11:16 | 4278979 TimmyM
TimmyM's picture

"Furthermore, as long as the Fed creates reserves, and excess deposits, banks have no incentive to force loan creation."

Banks don't force loan creation. Banks are continually in the business of selling credit. It is there core business line. Aggregate credit growth is dependent on loan demand.

We do not have loan demand because of decades of Keynesian/monetarist credit promotion schemes. Artificially created credit growth has forced us into peak credit. There is no more credit growth possible until the population and economy limp forward and grow into the huge overhang. That is the best case scenario. Accidents could happen as we'll. The fiat ponzi may not survive.

Fri, 12/27/2013 - 12:12 | 4279115 MachoMan
MachoMan's picture

We don't have loan demand because everyone doesn't have access to the discount window...  presently, the interest rate on what we can borrow is greater than the return on any investment we might partake, when accounting for risk...  In other words, they can't get anyone to take the money if they wanted because it's a losing endeavor...  (that some desperately try to make up on volume).

Of course, the rate of return on investments will follow the lending rate on down, but I digress...  we'll let krugman figure that one out. 

Fri, 12/27/2013 - 12:57 | 4279253 andrewp111
andrewp111's picture

If wage-price inflation could be kickstarted by a doubling of the minimum wage coupled with massive Federal stimulus, existing mortgages and car loans could be inflated away, and the sheeple would become creditworthy enough to borrow more. At least this is the Obama Regime plan. To execute this plan he has to recapture the House of Representatives while retaining the Senate, though.

Fri, 12/27/2013 - 14:02 | 4279534 MachoMan
MachoMan's picture

So you think employment numbers would stay the same with a doubling of the minimum wage...  or that employees would work the same number of hours if they could make twice as much per hour.

We're in a cost push inflationary spiral...  the inflation that you're talking about is on a completely different cycle, one that would be monumentally difficult to get to from here...  I'm not sure that the process wouldn't be inflation neutral anyway, in that the money handed out would just go to extinguishment of debt...  see generally, what happened when bush handed out $300/$600 before the economy tanked.  We'll see what happens with japan, but for the foreseeable future, we're planning on muddling through.

Fri, 12/27/2013 - 11:40 | 4279022 NotApplicable
NotApplicable's picture

"I like money."

Fri, 12/27/2013 - 12:33 | 4279201 Oldwood
Oldwood's picture

So the only money that exists is that which has not been created yet?

Fri, 12/27/2013 - 12:48 | 4279232 gdogus erectus
gdogus erectus's picture

Tyler, I'm starting to wonder if all of these "excess" reserves as well as shadow RE owned by the banks are all by design for the bankers to scoop up assets in a white-hot fabricated deflationary period. Or during the reshuffling of the reserve currency deck, the FR/BIS gives the banks' reserves a special one time higher exchange rate with the new devalued dollar.

During the dollar collapse, scoop up all the houses for pennies on the dollar to add to their already healthy stash of homes and come out in the open to rent them out to us poor citizens that need the banks. NEED them I tell you! Please help us! Vignette over. Renter Nation.

Fri, 12/27/2013 - 13:15 | 4279320 Ghordius
Ghordius's picture

dear Tyler, imho with this comment and the other

"Why is loan creation important? Because in traditional economics (not their "New Normal" equivalent, where central planning decides everything), loans - i.e., money created by commercial banks - ultimately leads to GDP growth."

you are citing from the New Normal (Financialization) gospel already

what is "traditional" (economics) about GDP growth as the only measure, without care about how (much debt this involves)?

to put it bluntly and perhaps too simply, capital ain't money. a cow that gives milk or a factory that churns out goods is capital, a gold coin is money

GDP calculation only adds all recorded transactions, without consideration to real capital, or the level of leverage applied to it

real traditional economics focused on production. and production is what ultimately pays the bills, including debt service

sorry, I have the impression that here you have one eye blinded by ideological fervor and a financial industry background bias

Fri, 12/27/2013 - 10:51 | 4278955 Dr. Engali
Dr. Engali's picture

First of all, fuck the government , and secondly what do you think happens when the banks start making loans and money flows through the economy? When economic activity starts to pick up, so does your precious government's tax revenue. Like it or not, in a credit based fractional reserve system  the lack of loan creation affects everybody.

Fri, 12/27/2013 - 11:19 | 4278980 disabledvet
disabledvet's picture

Well...there are Government Banks...and those loans have moved strongly higher in this recovery (Fannie, Fred.) it might not matter in the "banister scheme" of things...but if this is the basis for another asset bubble...and it sure looks like an massive asset bubble to me...then you can have a repeat of the 2008 collapse...only this time (as usual) with the banks piling in right at the high and "a theory of bailouts on the table again." Again this is light trading this time of year...I would take any moves in the markets with more than a degree of skepticism. This includes any "moonshots."

Fri, 12/27/2013 - 13:24 | 4279367 nightshiftsucks
nightshiftsucks's picture

The next time the economy goes down it will be the last.The Federal reserve has just begun to print.

Fri, 12/27/2013 - 13:26 | 4279366 piceridu
piceridu's picture

Pretty simple in a fractional reserve fiat money Ponzi scheme:

Money = Debt

No Debt, No money and conversely; No Money, No Debt.

Fri, 12/27/2013 - 11:41 | 4279028 Wyatt Junker
Wyatt Junker's picture

Lack of loan creation only affects banks, not the government. And who cares?


Lack of loan creation is the very product of government.  Its what government sells... UST.  

And the Bernanke buys UST propping up the government.  He is the condom for government when they screw you in the ass.

And this is why there is no private loan creation.

The governmet needs the Bernanke put.

Fri, 12/27/2013 - 12:04 | 4279114 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

My government never uses condoms. Spreading STDs is one of their most coveted responsibilities.

Fri, 12/27/2013 - 10:36 | 4278920 Atomizer
Atomizer's picture

If we can get the pheasant to shore up one more stimulus program, we can create another artificial growth cycle. / laughs 

Fri, 12/27/2013 - 10:41 | 4278927 all-priced-in
all-priced-in's picture

It must be time to change the way loan growth is calculated.


Fri, 12/27/2013 - 10:43 | 4278931 Stuck on Zero
Stuck on Zero's picture

My problem concerns where the loan money goes.  It used to buy factories, equipment, land, facilities, and raw materials to stoke the fires of industry.  Today, borrowed capital goes to buyouts, stock puchases, speculation, and foreign investment.


Fri, 12/27/2013 - 10:45 | 4278940 Tyler Durden
Fri, 12/27/2013 - 11:43 | 4279036 666
666's picture

Whaddya mean there's little loan creation? Then explain to me why I keep hearing people say "I'll gladly pay you Tuesday for a hamburger today"?

Fri, 12/27/2013 - 10:52 | 4278957 youngman
youngman's picture

I dont have a problem with Foreign Investment....that is where the growth is....and if you are a carmaker say...and you want to sell cars in Brazil or have to build them there...and you have to tie with with a local company...I think most emerging markets have got this figured out..if you want their have to give them half or more of the company....

Fri, 12/27/2013 - 12:18 | 4279148 MachoMan
MachoMan's picture

What about foreign investment when china is outpacing the world at money printing?  Do we end up like hawaii, where all the locals live in slums due to being priced out of the market for everything? 

As for the car example, does that have anything to do with increased energy (transportation) costs?  Nationalism?  "business ethics" (goodwill)?  [japan still won't let us build some critical components because we're not worthy...]

Fri, 12/27/2013 - 10:54 | 4278959 NoDebt
NoDebt's picture

You hit the nail on the head.  Is there a PRODUCTIVE use for the borrowed money?  Looks like both individuals and businesses are not finding many.  Car loans, student loans and share buy-backs seem to be about it right now.

Fri, 12/27/2013 - 11:51 | 4279062 Wyatt Junker
Wyatt Junker's picture

You get two distortions during financial repression.  

1) Corpies get increasing EPS due to buybacks.


2) Government gets expanded balance sheet(debt) because the CB holds it.


after awhile, as long as the CB continues holding UST in ever greater amounts, government will continue to expand its balance sheet and will not stop.  This, in turn, will create even further private capital strikes which will leaden the economy even more in a viscious cycle. 

But the real danger here is that if this goes on for too long, 'the people' will get used to big government as the imovable object it now is as state wards, trained to be dependents, and the UST will have to be even further bought to prop up the fantasy.

This cannot continue.  

Debt is not the problem.  Training serfs to be serfs is.  Training minds to be compliant wards of the state is very difficult to throw off.  Tyranny via dependency is the best way to create loyalty.  

Fri, 12/27/2013 - 12:47 | 4279228 andrewp111
andrewp111's picture

There is global overcapacity in every type of manufacture. Why the fuck would anyone borrow for industrial investment? What the world needs is a global war to destroy the overcapacity, and eventually that is exactly what we will get. It's all proceeding according to plan.

Fri, 12/27/2013 - 12:56 | 4279247 gdogus erectus
gdogus erectus's picture

Exactly. And have you noticed that as the Chinese race to keep up with us on the money printing front, that they actually build/buy shit with the created bucks? Factories, resources, hell- even land banked ghost cities are better investments than drones, DUMBs and dummers.

Fri, 12/27/2013 - 10:47 | 4278939 Patriot Eke
Patriot Eke's picture

"money" velocity is at an all time low too.  If currency is not moving, there can be no recovery.

Fri, 12/27/2013 - 10:50 | 4278947 Tyler Durden
Tyler Durden's picture

Velocity of money is the direct consequence of loan creation. Loan creation, i.e., inside money, is the basis of EVERYTHING.

Fri, 12/27/2013 - 10:57 | 4278962 NoDebt
NoDebt's picture

Which is why when the worm turns on this (IF it turns- just ask Japan how long it can go on).... we're going to have a WHOLE NEW SET OF PROBLEMS to deal with.  Very different than the current problems.

Fri, 12/27/2013 - 13:32 | 4279400 nightshiftsucks
nightshiftsucks's picture

Don't forget that Japan did it with a rapidly growing world economy.

Fri, 12/27/2013 - 12:14 | 4279132 monad
monad's picture

The morloch wannabes substituted QE for loan creation.
Day is done, gone the sun,
From the lake, from the hills, from the sky;
All is done, the end is nigh, obey and die.

Fri, 12/27/2013 - 12:17 | 4279136 VD
VD's picture

correct. and that is why the M2V chart would be nice inclusion to above article. it jives perfectly with lack of loan creation, more at Fed induced destruction.

Fri, 12/27/2013 - 11:59 | 4279081 CognacAndMencken
CognacAndMencken's picture



The velocity of money chart has been extremely distorted by the $2T in excess reserves sitting at the Fed.  You cannot look at that velocity chart and extrapolate the same conclusions as you could pre-QE. In fact, QE has rendered that chart basically useless.   

Fri, 12/27/2013 - 10:50 | 4278948 youngman
youngman's picture

I think people are afraid to take out a loan.....My father lived in the great depression..and he never had a loan..he never trusted banks...and saved everything....jelly jars you name it....always planning for another great depression...

Fri, 12/27/2013 - 11:36 | 4279018 Winston Churchill
Winston Churchill's picture

y parents were children/adolescents during the Depression.

The family house would  put any modern day prepper to shame/

Fri, 12/27/2013 - 11:58 | 4279085 monad
monad's picture

...which is why the marxist criminals who have infiltrated and taken over your government execute undeclared war against the family, the church and the community.

Fri, 12/27/2013 - 10:51 | 4278954 JimmyRainbow
JimmyRainbow's picture

open fraud by politics and banks with a look away note in msm

thats what i call money making the smart way.

have to stitch bitcoin on forehead and trade them with a handy app at mainstation for fiat and a fee

Fri, 12/27/2013 - 11:02 | 4278967 GVB
GVB's picture

It ends when people need 'credit' for their basic needs. That's where we are right now. It is the result of (1) too much of everything (2) exponentials (3) dumb people. You could say 'nature' is taking care of it ;)

Fri, 12/27/2013 - 11:13 | 4278977 Colonel Klink
Colonel Klink's picture

People are already needing credit for basic living expenses, as well as government assistance.

Fri, 12/27/2013 - 11:32 | 4279011 disabledvet
disabledvet's picture

You can still gat a bank failure. Talk about a "pump and dump scheme." If the Government pulls back from car lending then obviously it's kaput for the industry save Tesla (those cars requires cash up front. Probably what it costs to make the car actually.) More than likely you get another Detroit...Illinois, Hawaii...those are not very good credits. Two of the worst actually. Interestingly so is Alaska...although with all that oil it's hard to figure out why. Also for those who are in deep on inflation trading you have to watch out for Buffet's Mid-American Energy. They're going to build out a massive wind turbine energy infrastructure in Iowa... that juice well under a penny a kilowatt peak I might add. Throw in Solar Cities and obviously you don't want to be Illinois.

Fri, 12/27/2013 - 11:26 | 4278993 muleskinner
muleskinner's picture

Oil equals money, plenty of it.

As long as the oil flows, the market will remain irrational.

Absence of oil means instant insolvency.

88 million barrels each day sloshing all around the planet, and then, it's gone. There it was, gone.

Same thing the next day. It's Ground Hog Day for oil.

If you wonder where the money goes, it's oil.

You gotta take out a loan to buy the stuff.

Fri, 12/27/2013 - 11:31 | 4279004 I Am Not a Copp...
I Am Not a Copper Top's picture

Yuck Fellen

Fri, 12/27/2013 - 11:57 | 4279076 Colonel Klink
Colonel Klink's picture

Nice word play.

Fri, 12/27/2013 - 11:35 | 4279010 Atomizer
Atomizer's picture

My grandmother would always drill this phrase into my infant noggin. She often spoke of the depression era. I reget not asking more questions back then.

Penny wise and pound foolish!

Fri, 12/27/2013 - 11:54 | 4279067 the not so migh...
the not so mighty maximiza's picture

the good old days when pennies were made out of pure copper

Fri, 12/27/2013 - 11:35 | 4279013 ChaosEquilibrium
ChaosEquilibrium's picture

ALL by design....Bernanke does NOT give a FUCK about employment---Ben is still BAILING out INSOLVENT US and EURO Banks!!!


The American people would never accept a complete the tune of 30 the FED, ECB, BOJ, IMF, BIS orchestrate a 'backdoor'!


Fuck them and FUCK is your money paying those salaries and bonuses!


Bernanke is CRIMe Boss.....ame as the last Boss!

Fri, 12/27/2013 - 11:46 | 4279044 flow5
flow5's picture

Between 1942 & the intro to the payment on excess reserves (not required), the CBs minimized their non-earning balances.  Now with a remuneration rate that exceeds all short-term money market wholesale funding rates, the banks are paid not to lend or invest.  The IOeR policy is a credit control device.  The problem is that the Fed doesn't know the difference between money & liquid assets, i.e., savings which are transferred through the non-bank sector never leaves the commercial banking system as anyone who has applied double-entry bookkeeping to the CB system should already know.

Fri, 12/27/2013 - 12:41 | 4279208 andrewp111
andrewp111's picture

IOER is necessary to prevent deposit interest rates from going far below zero and inducing small depositors to withdraw all their meagre savings in cash. A paltry 0.25% interest rate from the Fed only suppresses loan growth if there are no creditworthy borrowers. The only way to bail out the system is high wage-price inflation, and right now there is no wage inflation.  That is why the Obama Regime is so desperate to double the minimum wage and spend more stimulus so inflation can be kickstarted. The existing overhang of mortgage debt must be inflated away to save the system.

Fri, 12/27/2013 - 14:17 | 4279574 itstippy
itstippy's picture

I gave you +1 because that may be the strategy (it reeks of Krugman).  If so, it's critically flawed.  There will never again be wage-driven inflation.  Ever.  It's over.

Automation has eliminated the need for millions of workers.  In the next few years it will eliminate the need for millions more. 

Meanwhile, distribution systems (think container shipping) and global trade/finance agreements have opened up a labor pool of 3 billion+ potential workers currently living on < $3 per day.

My labor isn't worth spit now, and it'll be worth less next year.  No one needs my capital (savings) either - they just print it now.  $85 billion per month represents the earnings of over 10 million Tippys, all done by an all-powerful bearded man pressing a button.

Sat, 12/28/2013 - 01:10 | 4281114 lewy14
lewy14's picture

+1 to both of you. Dead on.

Capital doesn't need Labor.

Raw Power doesn't need either one.

Fri, 12/27/2013 - 11:55 | 4279066 Conax
Conax's picture

Even with ad block and so on, I got a pop down ad -

Get a cash loan Now!

It had a buxom girl in a tight red blouse waving a big fan of cash while giving me a big thumb's up. 

I couldn't pay it back, but Missy Big Tits doesn't give a damn, borrow this lettuce!

Fri, 12/27/2013 - 11:55 | 4279075 itstippy
itstippy's picture

"... recently seen gimmicks to force the conviction of "growth."

That's what's setting us up for a potentially catastrophic collapse.  The Powers That Be are all Keynesians, convinced that they must assure the sheep-brained consumers that all is well even if it isn't.  They must do whatever it takes to keep the "animal spirits" from getting, uh, dis-spirited. 

The Treasury, Federal Reserve, President, Congress, Bureau Of Labor Statistics, Mainstream Media, National Association Of Realtors, etc. - all the powers that be - are committed to releasing nothing but positive news about the economic recovery.  Spin, data manipulation, and outright lying are accepted and encouraged so long as they provide evidence of economic recovery and growth.  It's a matter of National Security.

Five straight years of Quantitative Easing, massive deficit spending, ZIRP, mark-to-model accounting, etc. should be a very clear sign to the sheep-brained consumers that the economy is a disaster.  These extrordinary measures are obviously not "stimulating" a fucking thing, but instead only providing life support to an economic model based on endless exponential growth that no longer works.

Prosperity for all in an "ownership society" based on a "service economy".  What a crock of shit people bought into.  We'll all be comfortably well off as our 401K stock funds and our home equity both gain 8%-10% per year forever in an endless summer of exponential growth goodness, while we all go around happily "servicing" each other.  Wowser. 

Fri, 12/27/2013 - 12:31 | 4279196 andrewp111
andrewp111's picture

This is why Obama's Democrats are desperate to double the minimum wage. They have to create wage-price inflation by any means necessary, and right now the economy isn't cooperating.

Fri, 12/27/2013 - 12:00 | 4279094 drbill
drbill's picture

Prior to our 3rd Central Bank (aka the FED), instead of taking out loans, people (and companies) would actually save (gasp!) money and then use this money for growth. Of course the only ones hurt by this were bankers. Naturally they had to do something about this so they created the FED. How do you make people take out loans rather than save money? Simple you cause inflation i.e. inflate the money supply, and thus make saving less attractive than borrowing. Once you do this the bankers can always take their, "piece of the action". Who will care if such a small percent goes into the pockets of the banks with every transaction? Apparently no one, at least for a hundred years or so. But eventually even these tiny cuts will cause the healthiest economy to stumble and eventually fail. Welcome to eventually...

Fri, 12/27/2013 - 12:02 | 4279096 I Write Code
I Write Code's picture

What are you even babbling about?

Big companies are flush with cash so they don't borrow, little companies have no prospects so they don't borrow. 

Loans don't create demand or are you suddenly going all Keynesian on us?

Fri, 12/27/2013 - 12:18 | 4279156 markar
markar's picture

Big companies are parking their cash offshore to avoid taxes. Borrowing cheap for stock buybacks, bonus. No CAPEX or job creation.

Fri, 12/27/2013 - 12:42 | 4279211 Colonel Klink
Colonel Klink's picture

Reward them by ceasing to do business with them as much as possible.  Stop buying their crap!

Fri, 12/27/2013 - 12:08 | 4279119 Fix-ItSilly
Fix-ItSilly's picture

With a demographically aging population with its population bulge entering retirement, loans will understandably be less used.


With a US Govt that has not enforced normal, and understandable, free trade rules that ordains import tariffs on predatory imports from a slave labor, currency manipulating environmentally polluting country, investment and jobs will go to the manipulating exporter.


In a crony capitalist society that did not allow the market to cleanse during a recession, a normal strong upswing in post recession loans won't occur.  Some of the loan growth was subsumed in the crony protection period.

Fri, 12/27/2013 - 12:14 | 4279137 flow5
flow5's picture

There are not 5,844 commercial banks as the FRB_STL's data base reflects; rather there are another 1,271 S&Ls, 7,094 CUs, & 361 MSBs which are also technically, commercial banks and are insured by the FDIC (i.e., they have the capacity to create new money).

The 1980 DIDMCA legislation gave these institutions the power to create new money when they permitted the new instrumentality of negotiable order of withdrawals -NOW & automatic transfer services -ATS, accounts.

Today the Fed's technical staff treats these institutions IBDDs, not as money, in for example, their H.6 release, but as correspondent balances (reserves).


Fri, 12/27/2013 - 13:21 | 4279248 evernewecon
evernewecon's picture





Markets Can Be Process Informed (Generally

Need It--Perfect Info/Entry Implies 0

Profit (Recall From 1st Wee

101?))  Monopoly Is The Opposite Extreme.

Control For Health Reasons (A semi-Legalization of Marijuana

(with a Public Health umbrella, for intance,)

Would Be Only Modestly State Controlled But Market Benefited.) 

What's Relevant Today Is 

Privatizing Whole Markets Under Market Pretenses.

That's The Logical Extreme Of Puppets Privatizing

Profits And Socializing (ONLY) Cost (And Risk.) 

That's The Very Opposite Of Why One Would Privatize From State

Control, Namely, Of Course, To Increase Competition.



Where a system's privatizer centric, 

the only way to retain democratic 

principles, if a 

population knowingly thinks a privatizer's

needed, is WITH an ombudsman.,

which is precisely the opposite of what

America's masters of political puppets



Canada Post

Exists Under The Thumb Of

The Office Of The Ombudsman

Of Canada Post--Simple

Enough, Eh?



Where privatization exists absent democratic

process (essentially feudalism,) it becomes

a Ponzi scheme where it's a net loser to 

a given economic system.



Then the really telling charts will

reflect essentially a hanging Ponzi

scheme.   What this column may be

reflecting, though of course our 

bankers are hoping the primary economic

engine drivers will keep coming back for

more, even as their parents' retirement

nest egg incomes have been appropriated 

in the cause of free reserves for the 

banks (really, that's a bail in.)


This relates to Istanbul.


If Americans and Turks were both democratic,

we'd do what's best for both full populations.


If we feel division from them, here in the 

U.S., then privatizers can actually serve

Washington's interest inasmuch as Turkey's

corrupted leaders then advance dollar



Of course our own leaders today are 

shafting wages and the currency to 

underwrite privatization.  Democratically

grounded economics is alien to them.


Where the leaders of both partake of 

privatization at the expense of each other's

respective populations, then, they 

mimic the royals and hob nob in Davos

disinterested in "nations" and only 

themselves.   But, back at home, they'll

accuse dissidents of being anti-national,

and they'll trumpet divisions to justify

their privatizations.


This part of Turkey's privatizations 

is obviously what finally struck too close

to home for many and looks very much

connected to its government's 

Pandora's Box.











Fri, 12/27/2013 - 15:42 | 4279355 MollyHacker
MollyHacker's picture

Abating the feds euphemism of assuredness for Quantitative Easing; Congress remains quietly detatched of the truth to promote a real robust (domestic) infrastructure spending. 'Stagnation & full stall economy' it just the stall charts blaring

Fri, 12/27/2013 - 15:17 | 4279775 Herdee
Herdee's picture

"On The Spot".Kitco's Daniela Cambone speaks with Steve Hanke Professor of Applied Economics,John Hopkins University.

Fri, 12/27/2013 - 17:56 | 4280235 flow5
flow5's picture

Short-term rates won't go negative & saver/holders won't hide their cash under a mattress.  No one is going to accept negative real rates of return (less than inflation) for long.  And if the remuneration rate is revoked, then the bankers will buy short-term obligations thereby increasing the money stock, & inflation, & inflation expectations.

Fri, 12/27/2013 - 18:46 | 4280360 flow5
flow5's picture

Total increase in the volume of securities held outright on the Fed's balance sheet: H.4.1 since Oct 6, 2008 = $3,270,714 trillion dollars.  Note this increase in SOMA securities is related to quantitative easing or the purchase of Treasury & MBS securities (or the reinvestment of maturing securities), by the FRB_NY's "trading desk" (our Central Bank).


Total increase in bank accounts included in M1 & M2 (less currency) since Oct 6, 2008 = $2,334,700 trillion dollars. 


So bank money, relative to POMOs, grew by only .71 percent of all open market operations of the buying type.  Whereas prior to Oct 3, 2008, any one dollar increase in excess reserve balances (due to POMOs) resulted in the multiplier (required reserves), expanding CB credit by 208 times.


Commercial bank credit (all loans + investments), increased by $1,074 trillion dollars during roughly the same period (from 7/30/2008 until 12/18/13).  I.e., lending/investing by the CBs involves the creation of new money somewhere in the commercial banking system.

Fri, 12/27/2013 - 20:11 | 4280508 tom
tom's picture

actually that S&P primer is misleading. individual commercial banks can and constantly do lend out reserves. but those reserves usually just get transferred to another bank, and so the total volume of reserves held by the banking system doesn't change.

reserves only leave the banking system when people withdraw banknotes. (for completists - they also leave when non-banks with fed deposit accounts, eg treasury, accumulate balances, and re-enter when non-banks with fed deposit accounts deplete balances, but usually those balances merely fluctuate within a range, so they can be ignored for most purposes).

for example, when you make a bank-issued credit card purchase, the transaction is settled by:
 - your bank credits itself with a loan to you under your credit card credit line
 - the fed docks your bank's reserve account
 - the fed credits the seller's bank's reserve account
 - the seller's bank credits the seller's commercial bank deposit account

from each participant's perspective:

 - you borrowed currency from your bank's supply of reserves and spent it. you now have whatever you bought and a bigger debt to your bank.
 - your bank lent out currency from its supply of reserves and delivered them to the seller's bank. your bank now has more loan assets and fewer reserve assets.
 - the fed executed a transfer of currency from one commercial bank to another. the aggregate sum of currency held in fed reserve accounts has not changed.
 - the seller's bank received a payment of currency into its fed reserve account on behalf of a client, and credited that client's deposit account. the seller's bank now has more reserve assets and more deposit liabilities.
 - the seller sold something and received a payment into his commercial bank deposit. he now has more commercial bank deposit assets.

the money-multiplier theory actually worked like this:

 1 - the fed adds reserves to the banking system by purchasing financial assets
 2 - since banks earn nothing on reserves, whichever banks have reserves in excess will lend them out or spend them to purchase income-earning financial assets
 3 - the more that banks lend, the more bank deposits are created
 4 - the more bank deposits are created, the more reserves banks will be required to hold
 5 - the more that banks lend and the more bank deposits are created, the more economic activity there will be
 6 - the more economic activity there is, the more people will want to hold currency in banknote form
 7 - the increase in lending and resulting increase in bank deposits and required reserves, and the resulting increase in currency held by people in banknote form, will continue until excess reserves are drained.
 8 - the ratio between the amount of reserves added and the resulting increase in bank deposits is called the money multiplier

this theory actually worked in practice quite well in the US until 2008, when step 2 stopped working. step 6 has also been gradually breaking down for a long time.

btw the 2008 breakdown was not really expected by authorities, who initially undertook considerable efforts to absorb or sterilize excess reserves, including setting IOR initially at 1% and having treasury accumulate big balances.

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