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The Federal Reserve's Nuclear Option: A One-Way Street to Oblivion

Tyler Durden's picture





 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The Fed cannot create a bid in bidless markets that lasts beyond its own buying.

We all know the Federal Reserve (and every other central bank) has one last Doomsday weapon to stop a meltdown in the global financial markets: creating trillions of dollars out of thin air and using the cash to buy assets that are in free-fall. This is known as "the nuclear option"--the direct monetizing of stocks, Treasury bonds, commercial real estate mortgages, student loans, corporate bonds, non-U.S. sovereign bonds, subprime auto loans, defaulted bat guano securities, offshore loans denominated in quatloos--you name it: The Fed could print money and buy, buy, buy to create and maintain a bid in bidless markets.

The idea is to stop a cascade of panic by buying assets in quantities large enough to staunch the avalanche of selling. The strategy is based on one key assumption: that no more than a small percentage of the asset class will change hands in any day or week.

Thus a low-volume sell-off in the $20 trillion U.S. equity markets can be stopped with large index buy orders in the neighborhood of $10 - $100 million--a tiny sliver of the total market value.

But in a real meltdown, popguns will no longer conjure a bid in suddenly bidless markets, and the Fed will have to become the bidder of last resort on a massive scale in multiple markets. We need to differentiate between loans, backstops and guarantees issued by the Fed and actual purchase of impaired assets.

After poring over all the data, the Levy Institute came up with a total of $29 trillion in Fed and Federal bailout-the-financial-sector loans and programs. The GAO found the Fed alone issued $16 trillion in loans and backstops:


The heart of quantitative easing and ZIRP (zero interest rate policy) is the Fed's direct purchase and ownership of assets: residential mortgage-backed securities and Treasury bonds. The Fed has been operating not as the buyer of last resort but as the bidder who buys interest-sensitive securities to keep interest rates near-zero (known as financial repression).

The Fed's purchases of impaired mortgages has also made its balance sheet "the place where mortgages go to die:" the Fed can hold impaired mortgages until maturity, effectively masking their illiquidity and impaired market value. We can see these two major purchase programs in this chart from Market Daily Briefing:

Despite all the talk of "tapering," the Fed's asset purchases on a grand scale continues:

Such a handy word, "taper:"

The Nuclear Option rests on another questionable assumption: markets only go bidless in brief panics, not because the assets have lost all value. The basic model of Fed emergency loan programs and asset-buying is 1907--a financial panic that erupts out of a liquidity crisis.

In a liquidity crisis, the underlying assets supporting loans retain their market value; the problem is a shortage of credit needed to roll over short-term loans on those still-valuable assets.

But what the world is finally starting to experience is not a liquidity crisis: it is a valuation crisis in which assets and collateral are finally recognized as phantom. I explained the difference between liquidity and valuation crises in In a Typhoon, Even Pigs Can Fly (for a while) (January 30, 2014).

Let me illustrate why the Fed's Nuclear Option is a one-way street to oblivion.

What is the market value of a defaulted student loan that has no hope of ever being repaid by an unemployed ex-student debtor? The answer is zero: the "asset" has a value of zero and will always have a value of zero. It is not "coming back."

What is the market value of a commercial mortgage on a dead mall that has no hope of ever being repaid by an insolvent mall owner? The answer is zero: the "asset" has a value of zero and will always have a value of zero. It is not "coming back."

The New York Times recently published an article that nails the core issue in the entire U.S. economy: the top 10% is the only segment able to support additional consumption:The Middle Class Is Steadily Eroding. Just Ask the Business World     (Yahoo news version)

"The Biggest Redistribution Of Wealth From The Middle Class And Poor To The Rich Ever" Explained

This raises an obvious question: can the excess consumption of the top 10% support every mall, strip mall, premium outlet and retail center in the U.S.? Equally obvious answer: no. Most dead malls cannot be repurposed; the buildings are cheap shells, and while the land might retain some value for future residential housing, the coming implosion of the latest housing bubble nixes that hope: WARPED, DISTORTED, MANIPULATED, FLIPPED HOUSING MARKET (The Burning Platform).

What is the value of a company's shares if that company has lost any means of earning a profit? Answer: the book value of the company's assets minus debt.Given the staggering debt load of the corporate sector, the real value of many companies once their ability to reap a real (as opposed to accounting trickery) net profit vanishes is near-zero.

How about the value of Greek sovereign debt? Zero. The value of mortgages on empty decaying flats in Spain? Zero. And so on, all around the world.

This leads to a sobering conclusion: Should the Fed attempt to create and maintain a bid in bidless markets, it will end up owning trillions of dollars in worthless assets--and the market for those assets will still be bidless when the Fed stops being the bidder of last resort.

Let's assume the Fed's leadership will feel a desperate need to stop the next global financial meltdown in valuations. Offering trillions of dollars in liquidity will not stop sellers from selling nor magically create value in worthless assets. The Fed can only stop the selling by becoming the entire market for those assets.

The list of phantom assets the Fed will have to buy outright with freshly conjured cash is long. Let's start with hundreds of billions of dollars in defaulting/impaired student loans. Once the debtors realize the system is swamped with defaults and can no longer hound them, the flood of defaults will swell.

The Fed can buy as many defaulted student loans as it wants, but it will never raise the value of those loans above zero. The market for worthless student loans will remain bidless the second the Fed stops buying.

The same is true of all the defaulted, worthless commercial real estate (CRE) mortgages on dead malls, decaying strip malls and abandoned retail centers: no amount of Fed buying will create a market for these worthless assets.

Dead Mall Syndrome: The Self-Reinforcing Death Spiral of Retail (January 22, 2014)

The First Domino to Fall: Retail-CRE (Commercial Real Estate) (January 21, 2014)

There is no technical reason the Fed cannot create $10 trillion and buy up $10 trillion of worthless or severely impaired assets; the Fed can become the owner of every dead mall and every defaulted auto loan in America should it wish to.

That would of course render the Fed massively insolvent, as its assets would be worth a fraction of its liabilities. But so what? The Fed can simply assign a phantom value to all its worthless assets and let them rot until maturity, at which point they vanish down the wormhole.

The point isn't that "the Fed can't do that;" the point is that the Fed cannot create a bid in bidless markets that lasts beyond its own buying. The Fed can buy half the U.S. stock market, all the student loans, all the subprime auto loans, all the defaulted CRE and residential mortgages, and every other worthless asset in America. But that won't create a real bid for any of those assets, once they are revealed as worthless.

The nuclear option won't fix anything, because it is fundamentally the wrong tool for the wrong job. Holders of disintegrating assets will be delighted to sell the assets to the Fed, of course, but that won't fix what's fundamentally broken in the American and global economies; it will simply allow the transfer of impaired assets from the financial sector and speculators to the Fed.

Anyone who thinks that is the "solution" should read QE For the People: What Else Could We Buy With $29 Trillion? (September 24, 2012).

The Retail Commercial Real Estate Domino with Gordon T. Long and CHS:

 


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Wed, 02/05/2014 - 09:58 | Link to Comment Temporalist
Temporalist's picture

But CNBS says the money on the sidelines is just dying to come in...there is money on the sidelines...the sidelines damn you!

Wed, 02/05/2014 - 10:01 | Link to Comment knukles
knukles's picture

Even the 1%ers and idiots get frightened

Who remembers portfolio insurance and a bevy of other bid less fuckups?
Hah ha ha ha ha

Wed, 02/05/2014 - 10:09 | Link to Comment Richard Chesler
Richard Chesler's picture

Bag holder of last resort, you.

Fooorrward!

Wed, 02/05/2014 - 10:22 | Link to Comment HyBrasilian
HyBrasilian's picture

Paper Changers can buy anything they want. But I draw the line at granny's tea set. They got nothing I want.

Wed, 02/05/2014 - 10:29 | Link to Comment kaiserhoff
kaiserhoff's picture

The point isn't that "the Fed can't do that;" the point is that the Fed cannot create a bid in bidless markets that lasts beyond its own buying.

Excellent.

First principles well and cleanly stated.  This should be shouted from the roof tops.

Wed, 02/05/2014 - 10:33 | Link to Comment HyBrasilian
HyBrasilian's picture

Forget about the markets... I don't even want their fucking currency...

Wed, 02/05/2014 - 10:44 | Link to Comment Four chan
Four chan's picture

Mortimer Duke: Turn those machines back on!

Wed, 02/05/2014 - 11:22 | Link to Comment kralizec
kralizec's picture

I'll take "Don't give a fuck" for $500, Alex.

Wed, 02/05/2014 - 11:14 | Link to Comment PT
PT's picture

It's like a Monopoly game - you know, the one where one player has all the properties and all the money.  Tell me again, what is the next move?

Wed, 02/05/2014 - 11:29 | Link to Comment Bastiat
Bastiat's picture

Monopoly game where the banker has a color copier and a pair of scissors.

Wed, 02/05/2014 - 11:46 | Link to Comment PT
PT's picture

... and you are entitled to borrow $200 every time you pass Go.

 

 

... and the prices are actually 50 times the number written on the board.  The number written on the board is the down payment.  But the rents are the same.

 

Old Kent Road now goes for one dollar.  But comes with $17000 in property taxes, and doesn't rent out because it has been burnt to the ground.  Every time you visit jail, you have to pay the police to get rid of the squatters.

Wed, 02/05/2014 - 13:32 | Link to Comment Lost Word
Lost Word's picture

Selling junk to the Fed gets rid of something worthless,

and getting (almost worthless) money into the economy.

Better some money velocity than zero money velocity.

Wed, 02/05/2014 - 13:47 | Link to Comment SDShack
SDShack's picture

Exactly like Monopoly. That's what the author misses. His whole point is that the Fed is bidding on assets that have no value, thus destroying the true price discovery mechanism. He acts like there is still a functining market! WTF? Doesn't he realize the Fed is using PAPER FIAT that has no value to buy said assets that have no value? It's the perfect circle jerk by design! Using the author's own logic, he should see the ENTIRE financial system is a sham! There is no spoon! Instead, he treats this like some term paper where he is trying to point out a solution to the bankers.

Jesus Christ, can't anyone put themselves in the mind of a sociopath banker and see where this is going? The short term goal is too keep the lid on at all costs using printed money to depress interest rates to monetize the debt. This allows goodies to flow to the FSA, and the corporate welfare pigs as the govt keeps spending. Again, all in an effort to just keep the lid on. Short term, it is all about Flow, nothing more. Flow keeps the wheels turning and not falling off. Long term, it is all about the Nuclear Option. It has to be because if you take short term flow to infinity, you get the Nuclear Option by default... literally by default... and the ensuing bailouts that TPTB will organize. Will it work? Hell no. We all know it won't work and why. We just don't know when or how it will all fall apart. But that doesn't mean these sorry sociopathic bastards aren't going to try it. They have NOTHING else to try. This is all they do because it is all they know. They will never stop until it either all crashes down around them, or they control the entire world and everyone is a serf.

Wed, 02/05/2014 - 11:22 | Link to Comment TahoeBilly2012
TahoeBilly2012's picture

Funny no on ever suggests that these Zionist Marxists might actually "want" to own everything in one "Central Bank". Isn't that the essence of total control? .

Wed, 02/05/2014 - 11:59 | Link to Comment PT
PT's picture

Yeah - "See, we bought it all fair and square.  It's not my fault that no-one else could afford to buy it.  It's not my fault people borrowed too much money and couldn't afford to pay it back.  If people would live within their means then we would not have had to get bailed out. ..."

Wed, 02/05/2014 - 13:26 | Link to Comment SDShack
SDShack's picture

They're called sociopaths.

Wed, 02/05/2014 - 12:34 | Link to Comment q99x2
q99x2's picture

How bout if they bundle it into a CDO and lend it to the Chinesers and then loan the Chinesers money against it.

For example: Q99X2 has been dying to use student loan money, which he hasn't taken yet, to buy a house with, while he goes to UCLA to get a degree with, so that he can then move to Thailand as a refugee from the United States of America.

He believes that GS and God's work will one day provide financialization to allow him to do this.

Banksters just did the mortgage scam AGAIN so why not keep doing it with ever increasing financial innovation and creativity typical of the .0001%ers.

And further:

Banksters recycle FED shit into Bankster shit and the FED recycles Bankster shit into FED shit in the same way that plants recycle carbon dioxide into oxygen and people recycle oxygen into carbon dioxide.

 

Wed, 02/05/2014 - 11:24 | Link to Comment TheReplacement
TheReplacement's picture

If the Fed printed and bought everything (or half the stock market as stated in the article) then wouldn't they (the private corporation that is the Fed) own everything?  Perhaps that is the point.  Socialism via capitalism - buy everything and then nationalize it.  Perhaps they (the statists) are working on this from multiple angles in case one or another fails to get results.

Wed, 02/05/2014 - 11:34 | Link to Comment IPA
IPA's picture

Funny you should say that, looking at the graphs the first thing i though was dam, getting closer to privatizing the country. If the fed owns everything? 

Wed, 02/05/2014 - 12:27 | Link to Comment sfisher
sfisher's picture

Perhaps what is happening is exactly what they want to happen.  They print money at zero cost and buy everything.  Eventually, the money printed finds its tangible worth, the Fed (privately owned) holds title to $20-$40 trillion of assets (pre crash value, worth a bit less post-crash) and everyone is now a debt slave and can relocate to environmentally low impact areas to be subjects of the State. 

Or perhaps the Fed actually has good motives which are hard for us to appreciate.

 

 

Wed, 02/05/2014 - 13:47 | Link to Comment SDShack
SDShack's picture

Fascism at it's finest giving way to the New Feudal World Order.

Wed, 02/05/2014 - 10:01 | Link to Comment Sudden Debt
Sudden Debt's picture

well... it's already taking them 7 years to do so... so they're FUCKING SLOW... or SO OLD THEY MOVE IN MINIMETERS!

 

Wed, 02/05/2014 - 10:04 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

My Ra......put your IRA to work....and wave buh-bye to it.

Wed, 02/05/2014 - 10:04 | Link to Comment kliguy38
kliguy38's picture

its dying alright, but suicide isn't in its best interest and it knows it.........Fed will announce 150B QE by May

Wed, 02/05/2014 - 13:35 | Link to Comment Lost Word
Lost Word's picture

Or sooner, if the markets continue sinking.

Wed, 02/05/2014 - 10:15 | Link to Comment negative rates
negative rates's picture

I think they said they were watching from the comfortable sidelines. Because what else is there to do after you 've built something, but to watch over it. 

Wed, 02/05/2014 - 10:38 | Link to Comment SheepDog-One
SheepDog-One's picture

So it's like I said at the beginning of The Great FED Experiment....sure the Fed can buy it all up, but can't pass off the pump. Kill the Golden Goose to get all the eggs now, and wonder why the dead goose won't produce anymore. Simple Aesops Fables shit.

Wed, 02/05/2014 - 11:26 | Link to Comment moneybots
moneybots's picture

"But CNBS says the money on the sidelines is just dying to come in"

 

With the stock market dropping, money in the stock market is on the sidelines, looking to come into other assets.

Wed, 02/05/2014 - 11:29 | Link to Comment doctor10
doctor10's picture

All that is happening is that the owners of the FedReserve are buying the world with paper. 

At the end of the day-they have no intention of the "useless eaters"getting in their way.

I'm sure they've prepared their "humanicide"

Wed, 02/05/2014 - 13:39 | Link to Comment Lost Word
Lost Word's picture

If the Fed is buying the world with paper dollars,

those who receive the paper dollars presumably can also buy something else with their paper dollars.

Like China buying the USA.

Wed, 02/05/2014 - 13:41 | Link to Comment moneybots
moneybots's picture

"At the end of the day-they have no intention of the "useless eaters"getting in their way."

 

Three bankers down in the last week.

Wed, 02/05/2014 - 11:31 | Link to Comment The Dunce
The Dunce's picture

It always seems darkest before the dawn.  So I've been told.  Now I'm going to calmly walk down to my underground bunker and start counting my gold.  Bitches.

Wed, 02/05/2014 - 14:52 | Link to Comment Clowns on Acid
Clowns on Acid's picture

No...it's always darkest just before the lights go completely out...

Wed, 02/05/2014 - 11:45 | Link to Comment Canadian Dirtlump
Canadian Dirtlump's picture

Yeah the 2 narratives at CNB.O. are:

 

1) there is about 1.6 jodeciquillion dollars on the sidelines.

2) mom and pop got back in here in some measure, and they don't use leverage so don't worry about margin calls on dow drops because the chart which shows record margin is actually a drawing by a soothsayer who was channeling ashtar from the intergalactic federation of light.

 

The reality is, the Fed is the financial garbage dump. Where pieces of engineered financial feces go to die. People much smarter than I said that no small part of QE was to buy worthless MBSs off the banks for 100 cents on the dollar to recapitalize them. How one can't see this as the case is beyond me. I find a certain charm in believeing in Santa Claus et al, but to believe in these guys ( which most have ) is gonna end up costing the world dearly. That being the case, come quickly please.

Wed, 02/05/2014 - 12:21 | Link to Comment John Law Lives
John Law Lives's picture

Strange that money on the sidelines is not being used to buy junk from JCP or RadioShack.

FUBAR.

Wed, 02/05/2014 - 13:40 | Link to Comment Lost Word
Lost Word's picture

Why sell junk to buy junk?

Sell junk to buy something valuable.

Wed, 02/05/2014 - 16:15 | Link to Comment John Law Lives
John Law Lives's picture

Brick-and-mortar retail in the US faces some tough sledding ahead.

Wed, 02/05/2014 - 10:01 | Link to Comment Sudden Debt
Sudden Debt's picture

I say they should go for it!

 

Wed, 02/05/2014 - 10:00 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Excellent Exposition CHS

Wed, 02/05/2014 - 10:03 | Link to Comment Ancona
Ancona's picture

I thought I heard that Mom and Pop were jumping back in to BTFATH?

Wed, 02/05/2014 - 10:03 | Link to Comment spinone
spinone's picture

I've said it for 3 years:  the Fed is the bad bank.

http://en.wikipedia.org/wiki/Bad_bank

Wed, 02/05/2014 - 10:03 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

It's a collection of bad banks actually......and not just a few unsavory characters as well.

Wed, 02/05/2014 - 11:29 | Link to Comment moneybots
moneybots's picture

"I've said it for 3 years:  the Fed is the bad bank."

 

A very bad bank.

Wed, 02/05/2014 - 10:05 | Link to Comment youngman
youngman's picture

Watch the 10 year..that is where the tidal wave will start....when people...countries start dumping that..it will be the canary in the coal mine

Wed, 02/05/2014 - 10:07 | Link to Comment BandGap
BandGap's picture

Agreed, that was part of the scenario presented a few years back. First the flight to "safety" in Treasuries, then the panic getting out.

Wed, 02/05/2014 - 10:12 | Link to Comment Boston
Boston's picture

People, especially the experts, have been saying the same thing about JGB's starting about 20 years ago.

In the meantime, the Japanese 10yr yield has collapsed to 0.6% today.

Someday, the US Treasury market may very well crack, but you might be dead before that happens.

Wed, 02/05/2014 - 10:16 | Link to Comment negative rates
negative rates's picture

Only blind faithed people put their money into the 10 year anymore, It's a 2 year bondy or even worse, a high interest 2 month stint world now.

Wed, 02/05/2014 - 13:54 | Link to Comment SDShack
SDShack's picture

You don't think the Fed undertands the risk that the 10yr exposes them to? They have gamed the system this way for a reason. It's why their long term goal HAS to be to corner the Treasury market. It's the only way to eliminate the risk you so aptly identify. Start thinking like the Fed thinks if you want to know where this is going. And don't underestimate their ability to do exactly what they HAVE to do. They already control about 1/3 of the treasury market. Getting to 51% from here isn't that hard with a few more engineered crisis. Then it's game over for the bond vigilantes and on to stage 2 for the Fed... which is long term asset redistribution from the masses to the elites.

Wed, 02/05/2014 - 14:51 | Link to Comment Clowns on Acid
Clowns on Acid's picture

youngman - actually the 2 to 10 yr swap rate will be the real canary...

Wed, 02/05/2014 - 10:05 | Link to Comment LawsofPhysics
LawsofPhysics's picture

All of this is very old news.  The nuclear option has been activated for quite some time.

Wed, 02/05/2014 - 10:20 | Link to Comment tarsubil
tarsubil's picture

Exactly what I was thinking. Hey, hasn't this been going on for a while? And you can make defaulted student loans worth something. Drop 100K from a helicopter into the kid's lap.

Wed, 02/05/2014 - 10:40 | Link to Comment SheepDog-One
SheepDog-One's picture

Drop a free credit card into the kids lap....THEN you've got something!

Wed, 02/05/2014 - 10:47 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Kleptocrats trying to maintain a status quo using linear equations to "fix" exponential problems/liabilities.  This will turn out as it always does.  Hedge accordingly.

Wed, 02/05/2014 - 10:36 | Link to Comment forwardho
forwardho's picture

5 long years and counting.

I remember comming to the shocking truth of where we were, and what had been done. I knew it was over.

Went into hyper-preservation mode.

That was then, to this day I cannot believe They have been able to forstall reality for as long as They have.

Staggering, The mind reels at the orders of magnitude worse things are now.

Wed, 02/05/2014 - 12:41 | Link to Comment aphlaque_duck
aphlaque_duck's picture

People are still just waking up. It's great that 0H keeps repeating the basics along with the latest news.

Wed, 02/05/2014 - 10:06 | Link to Comment Downtoolong
Downtoolong's picture

The Nuclear option will simply allow the transfer of impaired assets from the financial sector and speculators to the Fed.

And when the reactor finally goes super critical and blows the TBTF Bank Shareholders will develop at least ten reasons why they really don’t own the Fed after all (they just pretend they do by collecting dividends every year), and once again We The People will have to eat the losses, one way or another.

Wed, 02/05/2014 - 10:49 | Link to Comment cro_maat
cro_maat's picture

I think you vastly underestimate the evil that is the Fed. These toxic assets were purchased with the click of a button. They did not hand over their Barbarous Relic (this was stolen long before). Now they are in the end game to grab all resources / assets in the U.S. When the real SHTF scenario is executed they will declare the U.S gov unable to pay the $20 Trillion in debt. They will promptly IMF them as they have every other 3rd world nation. All that Federal land locked up in national parks will be acquired by the Fed along with mineral /energy rights.

Oh and don't forget that the Chinese will take their pound of flesh as we'll.

Wed, 02/05/2014 - 11:26 | Link to Comment TahoeBilly2012
TahoeBilly2012's picture

Like I said.

Wed, 02/05/2014 - 10:09 | Link to Comment Cacete de Ouro
Cacete de Ouro's picture

so what is the Solution?

a global Bretton Woods type conference with currency resets to gold and debt and derivative offsets ?

Wed, 02/05/2014 - 10:14 | Link to Comment spinone
spinone's picture

The Fed is stuffed to the gills with junk, and the dollar is debt saturated.  Both are destined for the glue factory.  Unless there is a jubilee.

Wed, 02/05/2014 - 10:56 | Link to Comment kaiserhoff
kaiserhoff's picture

Yes, that's the obvious question.  The Fed has solved nothing, only delayed problems by hiding the junk in its own balance sheet.

The rational solution is a taper and sell off of Fed assets, to gradually let free markets resume.

The political pressure against that will be huge.

Wed, 02/05/2014 - 11:45 | Link to Comment Mike in GA
Mike in GA's picture

IF a conference were to be held and IF it came up with a solution to worldwide indebtedness, there would have to be a massive writedown agreed to by all participants.  That is not going to happen.  Writedowns at this point by political players would necessitate reduced budgets and the dreaded austerity.  Doesn't win elections.

Therefore, the markets in fx will have to blow up on their own without adult supervision.

That is all.

Wed, 02/05/2014 - 12:07 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Yes, and just like before, it will lead to world war.

hedge accordingly.

Wed, 02/05/2014 - 10:07 | Link to Comment Elliptico
Elliptico's picture

Buzzkill image: Janet Yellen, thong.

Wed, 02/05/2014 - 10:29 | Link to Comment F em all but 6
F em all but 6's picture

One up ya. HillBillary Clinton / Yellen in thongs. What do you suppose that vaginal discharge would smell like??

Wed, 02/05/2014 - 14:48 | Link to Comment Clowns on Acid
Clowns on Acid's picture

Gevelte fish...

Wed, 02/05/2014 - 10:13 | Link to Comment Mad Mohel
Mad Mohel's picture

It's like your cousin with the lazy eye. They're so busy planning their birthday party, and you know nobody is actually going to show up. You feel so bad knowing, but you don't have the heart to tell them. They are so excited and so looking forward to it, but no one is coming. They are going to be so hurt and embarassed. Horrible.

 

But in this case, it's the Fed, so who gives fuck!

Wed, 02/05/2014 - 10:12 | Link to Comment buzlightening
buzlightening's picture

Bring on the crashcading.  lil scamBO says MyRa safe, government guaranteed, and I can keep my own soon to be worthless IRA; 401kill plan.  One lying sack of puke.  GOT YOUR ECONOMIC LIFE BOAT PACKED?  WE'RE SHOVING OFF.  "Rather die standing than on my knees."  George Washington

Wed, 02/05/2014 - 10:15 | Link to Comment ZeroPoint
ZeroPoint's picture

Here's another option:

If they are going to print that much anyway, cut every U.S. citizen a check for 250,000. Garnish all back taxes, bankruptcy settlements, mortgages, and liens right out of the check. Banks will get their money, municipalities will get their taxes, and consumers will become unshackled again.

The public would like this kind of 'reset', and politicians would not have to worry about losing their seats or their heads.

 

 

 

 

Wed, 02/05/2014 - 10:42 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

If you were going to print to oblivion anyway, handing out the checks at the place where the rubber meets the road, the citizen, would have made the most sense.

It would have introduced a moral hazard at that level, but at least the wheels of capitalism would still work. 

Now you have corrupted the wheels of capitalism while killing off the middle and lower classes.

Wed, 02/05/2014 - 10:56 | Link to Comment Chief KnocAHoma
Chief KnocAHoma's picture

This is the best plan I have heard. So simple and to the point. It heals the consumer, fills the government coffers, and the lending institutions are leveled too... at least on the leverage they acknowledge.

So why wouldn't this plan be adopted? 

Either 1 - TPTB know the deritative monster must be fed or it will eat us all.

or 

2 - TPTB are greedy fucking ass sucking maggots who care not about humanity but only about saving their own balance sheets.

Up vote for 1

Down vote for 2

Wed, 02/05/2014 - 13:57 | Link to Comment SDShack
SDShack's picture

2 - TPTB are greedy fucking ass sucking maggots who care not about humanity but only about saving enlarging their own balance sheets by stealing every asset from the masses.

Fixed it for you. #1 will never happen because it allows the masses to pay off their debts and become true masters of their assets. That is completely 100% opposite of what TPTB want.

Wed, 02/05/2014 - 10:50 | Link to Comment LawsofPhysics
LawsofPhysics's picture

"consumers will become unshackled again." - I don't think you understand how slavery works.  ignore "money", this is about power and control over real resources, including the human kind.  Always has been.

Wed, 02/05/2014 - 20:23 | Link to Comment messystateofaffairs
messystateofaffairs's picture

Zeropoint for Fed president, taking up collections for a yarmulke.

Wed, 02/05/2014 - 10:23 | Link to Comment Dr. Engali
Dr. Engali's picture

There is only one solution and they know it, but are either to scared or not ready to got that route yet. In th end market forces of one type or another will win out. Which market will be the first to break? Who knows? My bet is on the currency market.

Wed, 02/05/2014 - 11:52 | Link to Comment PT
PT's picture

At this point, I don't think it is driven by math.  It is driven by people.  Sooner or later, one of TPTB will be about to lose his fortune but he will be in a position where he can fight back.  Find that guy and all will become clear.  JMO.

Wed, 02/05/2014 - 10:15 | Link to Comment AynRandFan
AynRandFan's picture

Unless and until people stop trusting the USD, the Fed can prop up all markets.

Wed, 02/05/2014 - 10:22 | Link to Comment buzzsaw99
buzzsaw99's picture

that's the flaw in ch-s thinking. the fed doesn't have to buy ALL the crap assets. they only have to buy crap assets held by their friends corzine, dimon, blanckfein, et al under the table. he is right in saying that most stocks are nearly worthless though.

Wed, 02/05/2014 - 10:19 | Link to Comment buzlightening
buzlightening's picture

Print agenda or QEternity over.  fed fud taper says we the sheeple peeps buying the USBonzi debt.  MYRA.  What better way to stampede the masses into MYRA's than fear factoring the herd in a panic sell off.  Reverse repos of 2.3 trillion as of 12/11/13 to present,   http://www.newyorkfed.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE,  say the fed fuds pulling liquidity like there's no tomorrow.  Bidless it shall be soon!

Wed, 02/05/2014 - 10:22 | Link to Comment Spastica Rex
Spastica Rex's picture

From the referenced Business Day piece:

“Those consumers who have capital like real estate and stocks and are in the top 20 percent are feeling pretty good,” said John G. Maxwell, head of the global retail and consumer practice at PricewaterhouseCoopers.

That fits very well with what I observe where I live. I've always felt like the "1% vs the 99%" was wildly inaccurate. The 1% have a lot of supporters.

 

Wed, 02/05/2014 - 10:47 | Link to Comment falak pema
falak pema's picture

If your lawn had a sculptured swimming pool and a vineyard and its gardens had pine, olive, peach and plum trees and the odd pomegranate bush; If the pool had a heated pool house and built in Jacuzi and the barbecues you gave made hamburgers and hot dogs like the best delicatessens; you would be very popular; you might even end up like the Great Gatsby : floating in your pool turned green from the envy of the passing stranger who couldn't contemplate such beauty and not feel like a looser with a glock to squeeze singing "sweet mercies, may you sleep with the fish".

There is much to be said for simplicity. Never add a Jacuzi where your invitees turn green with envy and if you have to swim in the nude to an emerald mermaid make sure that no hot dog floats by your drive way. 

Hey Spastica ...that's out of the book you read...n'est-ce pas? 

Wed, 02/05/2014 - 10:49 | Link to Comment Spastica Rex
Spastica Rex's picture

You bet.

Wed, 02/05/2014 - 10:22 | Link to Comment Spungo
Spungo's picture

Maybe we can stop global warming if the fed prints 85 billion per month to buy carbon credits.

Wed, 02/05/2014 - 10:23 | Link to Comment all-priced-in
all-priced-in's picture

DUH. We need a shooting war to get the sheep to focus on something else.

But first we must have the Olympic games as a sign the world is united.

 

   

Wed, 02/05/2014 - 10:31 | Link to Comment mayhem_korner
mayhem_korner's picture

What is the value of a company's shares if that company has lost any means of earning a profit?

 

Remember, way back in the year X B.C. (Before Central Planning) when this was a cupcake question?  Before "hope valuation" levitated the likes of faceplant and other profit-less concerns to stock stardom?

Any valuation integrity has been exterminated by CB intervention.  All that remains is for reality to come home to roost.  The interim is just TPTB steering the out-of-control ship.

Wed, 02/05/2014 - 10:26 | Link to Comment F em all but 6
F em all but 6's picture

Am I missing something here? lets do it. Print the cash and have the fed buy everything. And then nuke the fed and destroy the currency in one fell swoop. Its going to happen anyway. All debt disappears. Massive reset. Oh, that wouldnt work out so well for the 1%. My bad.

A better idea. Lets continue to print and spend. Raise taxes to the nth degree. 50-80% unemployment. Works wonders for tax reciepts. Massive inflation leading to unimaginabe civil unrest and eventual civil war when the entitlement sytem implodes. Banks foreclose on everything leaving the middle class homeless. Transfer that property at fire sale prices to the the upper 1% while continuing to prop up that1 percenters with casino money backed by the full faith and credit of the now homeless/jobless taxpayers. When the carcass is stripped clean, the 1 percenters can jump on their private jets are evacuate while the rest of the country is rounded up and placed in FEMA camps for their own saftey.

Wed, 02/05/2014 - 11:48 | Link to Comment cro_maat
cro_maat's picture

That's a plausible scenario. How about this one: "Print the cash and have the fed buy everything." Call all UST holders (Fed, China, Japan et al) as well as the Secretary of the Treasury to a summit in Boca Raton (just cause it is the Rat's Mouth). Then issue a statement that the debt cannot be serviced and all Federal resources are now collateral on the UST loans. Or just pass TPP and allow any multi-national corporation to bypass all US laws (minimum wage, environmental regs., capital standards, human rights, etc.) as long as they do business in USD. Then they can keep the casino open for another 10 years. Of course all sane, producive, creative, intelligent and AWAKE US citizens will leave the US before the rot fully sets in.

Wed, 02/05/2014 - 10:26 | Link to Comment ghostzapper
ghostzapper's picture

Duhhhhhh.  They have been tipping their hand fellas.  They will try to act as a parachute if you will and the printing will continue to let this thing collapse (hopefully from their standpoint) in the slowest and easiest way possible.  I am not saying they can control it just saying they are trying to control it.  Print until defaults are routine and the market does not recognize the USD.  It shocks me people don't see they are actually giving you a chance to prepare.    

By the time this happens a new infrastructure and platform will be in the process of taking over.  Hedge accordingly.  

Wed, 02/05/2014 - 10:50 | Link to Comment Spastica Rex
Spastica Rex's picture

I bet The Masters of the Universe would like to see as many of the bottom 80% spared as much suffering as possible. Seriously. In the same way, I don't try to run over squirrels when they're crossing the road; I may even apply my brakes, or adjust my steering wheel. Squirrels don't have to cross the road in front of my car, and the bottom 80% could all learn to code smartphone apps.

Wed, 02/05/2014 - 10:31 | Link to Comment TheBird
TheBird's picture

While this piece has some good charts it also has a lot of b/w hyperbole such as :

"What is the market value of a commercial mortgage on a dead mall that has no hope of ever being repaid by an insolvent mall owner? The answer is zero: the "asset" has a value of zero and will always have a value of zero. It is not "coming back.""

 

That statement is almost always false.  The underlying land has value and future use of the property may be more valuable than trying to resurrect the "dead" mall.   

Wed, 02/05/2014 - 12:33 | Link to Comment PT
PT's picture

The point he was making is that, as a financial instrument, the value of the land is zero.  First you have to get rid of the debt overhang.  Then you have to spend $$$ renovating the land into something of "value".  It won't be shops because the customers won't be rich enough to provide the cashflow to pay all the bills.  It won't be farmland because there is too much bitumen everywhere that needs to be dug up for a large cost - cheaper to go farming elsewhere.  It won't be housing because, again, people won't be able to afford to buy houses that are on that particular piece of land.  I guess you might be able to chuck a couple of power points on there and rent it out to tent-dwellers???

The land is effectively worthless.

When no-one has a job, no-one has money, no-one can buy anything ... the surrounding land is financially "worthless".  You could grow food there if you can dig up the asphalt, but that costs money and is hard work, plus there are probably taxes associated with that land.  Better to grow elsewhere.

JMO. 

Wed, 02/05/2014 - 10:33 | Link to Comment gwar5
gwar5's picture

Fed can taper and kill the banks or print and kill the dollar. Can't do both.

 

Naturally they'll save the banks because they are the bank(s), which are SIFI designated already and immune from their own deceit.

The Fed is the conduit centralizing the purchasing of all the misallocated, toxic, and worthless paper assets so they can be dumped on the public. Because, you know, they are an official government agency full of really smart guys dedicate4d to working hard to help the masses and such, so they know best.

Obamacare-IRS is the money extraction jackboot. 

 

 

 

 

 

Wed, 02/05/2014 - 10:34 | Link to Comment JailBanksters
JailBanksters's picture

Will they buy my worthless Silver & Gold ?

Funny, Gold and Silver are the only things in the USA that are under valued.

Wed, 02/05/2014 - 10:37 | Link to Comment grunk
grunk's picture

I've got a rusted-out wheelbarrow I bought new about 10 years ago for 30 bucks.

I tried to sell it on Craigslist for 30 bucks but I got no takers. People said it was worthless.

I'm so happy that Janet Yellen will cover my 30 dollar price.  

Wed, 02/05/2014 - 10:36 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

This article hits the real issue on the head:  There is no value management in any of the "markets" of any assets.  There cannot be, otherwise the game is over.

That is why Accounting had to be debased and will continue to be debased.

The weakness of that thought is how do you stop?  How do you let real price discovery take place?  WS has lost any fear in a few short years.  The damage has been done. 

The reinstatement of value based thought processes will take a generation to come back.  And basically you have decimated the middle class to save a bunch of Banksters who in the end will come out on top.

This might be the biggest driver of GOLD, people just saying "I want no part of it"

Wed, 02/05/2014 - 10:43 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

If you buy a piece of worthless shit, you're stoooooooooooooooooooopid!.......

Wed, 02/05/2014 - 10:46 | Link to Comment GOSPLAN HERO
GOSPLAN HERO's picture

A debt Jubilee is needed.

Wed, 02/05/2014 - 10:51 | Link to Comment HRamos_3
HRamos_3's picture

Bullis... Waaaaaa?

Wed, 02/05/2014 - 10:52 | Link to Comment Sufiy
Sufiy's picture


CNBC: Thomas Demark Calls For Risk of 60% Crash In S&P

Thomas Demark is calling that the next two - three days will be critical and if the markets go down they can unravel very quickly. If today's ADP can be taken of any guidance the coming up Jobs Report can be weak as well. We think that his call is very extreme, but Taper Pause is becoming the reality with every sell off in the market. Thanks to Bernanke, Janet Yellen has her FED Chair Crisis right at the start of her reign.

 

http://sufiy.blogspot.co.uk/2014/02/cnbc-thomas-demark-calls-for-risk-of...

Wed, 02/05/2014 - 10:51 | Link to Comment AdvancingTime
AdvancingTime's picture

Whether by design or merely as a byproduct of globalization we have weaved a web of financial transactions that circle the globe. Over the last several years as money was printed by the central Banks it was not contained in the countries where in was printed. This money flowed across borders influencing and distorting markets and prices across the world. Now that we have wound up and distorted prices we are facing the great unwinding which may prove very painful,

contagion as an event may be described in several ways, most likely as a collapse or a re-alinement but in reality it is the recognition that our path was an unsustainable illusion. Some people have been calling for a "world currency" for years. the saying "one should never let a good crisis go to waste" means a meltdown with high levels of fear would present a perfect opportunity and catalyst to advance this agenda down the field. Remember many people with agendas have a lot to gain when a major shift in the currency markets takes place. More in the post below,

http://brucewilds.blogspot.com/2014/02/contagion-may-lead-to-new-world-c...

Wed, 02/05/2014 - 10:54 | Link to Comment yogibear
yogibear's picture

What is the market value of a commercial mortgage on a dead mall that has no hope of ever being repaid by an insolvent mall owner? The answer is zero: the "asset" has a value of zero and will always have a value of zero. It is not "coming back."

The Federal Reserve banksters can bull-doze the malls or have Obama create jobs by doing the same as the Chinese. Refurbish and create ghost malls.

It's extend and pretend forever.

Mark to fantasy accounting for the fed's balance sheet. Get out out of the US dollar fiat while you can.

Wed, 02/05/2014 - 10:55 | Link to Comment Bryan
Bryan's picture

Somehow, the Fed has determined that it will not allow another "Great Depression" as happened in the 1930s.  However, that is not their purpose, and they cannot do it anyway even it if was.  Depressions are natural and useful ways to purge stupid decisions/people from the investing and business landscape.  Once the stupidity is purged, we can then build again on a new foundation until the next stupidity crisis occurs, and the next depression begins.  I don't know why this natural cycle is so abhorrent to politicians.

Wed, 02/05/2014 - 11:05 | Link to Comment yogibear
yogibear's picture

"Depressions are natural and useful ways to purge stupid decisions/people from the investing and business landscape. "

Precisely! The Fed thinks it is the economy. A group of 12 egotistic economic academic PhDs doing a grand experiment. If they fail they can flee and hide in a think-tank where they can write economic papers about the incident.

Wed, 02/05/2014 - 12:03 | Link to Comment forwardho
forwardho's picture

Lets hope this one is not used to purge people from the world in general.

 

Wed, 02/05/2014 - 11:32 | Link to Comment aerojet
aerojet's picture

The stakes are far higher because of the Boomer demographic.  They all have to retire and the stock market is only designed for investing, not for divesting.  It's all done, it's been all done since 2008.  The die is already cast.

Wed, 02/05/2014 - 11:59 | Link to Comment forwardho
forwardho's picture

aerojet, precise comment!

So glad you have been awake, We have all been given precognition on this situation. Hope all have taken advantage of knowing the unpleasant future for the last 5+ years. It has been bonus time well spent.

Wed, 02/05/2014 - 11:47 | Link to Comment slightlyskeptical
slightlyskeptical's picture

"I don't know why this natural cycle is so abhorrent to politicians."

 

It's because the politicians know they are the stupid that would be cleansed.

Wed, 02/05/2014 - 11:01 | Link to Comment halfawake
halfawake's picture

yeeesh no need to go all negative nancy on us. cranky pants.

Wed, 02/05/2014 - 11:44 | Link to Comment forwardho
forwardho's picture

Plus they really, really don't like the "N" word at the Natural Secretary Agregate

Wed, 02/05/2014 - 11:01 | Link to Comment rsnoble
rsnoble's picture

If it won't fix anything then bet your ass that's what they'll do. LMAO.  Anything to keep the green lights flashing of course 75% of the country that ends up in tent fucking city won't have a tv to watch the crap.

The only thing around here that needs to be nuked is the FED.

Wed, 02/05/2014 - 11:08 | Link to Comment yogibear
yogibear's picture

Here's a fix, eliminate the Fed and bull-doze down their buildings.

Wed, 02/05/2014 - 11:12 | Link to Comment Pareto
Pareto's picture

The FED can change what things look like, but, it can never change what things are (J. Grant, Dec '13)............gonna keep saying it till I'm blue in the face.

Wed, 02/05/2014 - 11:11 | Link to Comment SMC
SMC's picture

It may be a one way street, but their tactics have been extend and pretend. Bailing out the "Just Us" crowd by purchasing their worthless alleged assets under some patriotic sounding program at mark-to-fantasy valuations for this "political donation" season would not surprise me.

Wed, 02/05/2014 - 11:16 | Link to Comment Last of the Mid...
Last of the Middle Class's picture

Something that is deadly here is the ratio. The amount of money that will need to be injectec instantaneously into the market is far more than one could possibly print. In fact creating massive amounts of money electronically and getting it to the right places in time might be tough given that we've essentially been doing that fore years bailing out the TBTV. The ratio of the amount of $$ created to the individual worth of the bulk of the population living below the now missing middle class line will be horrendous. Everyone in that group will instantantly be forever paupers. That is the effect the fed's massive printing spree of the last few years will have on most people. Everyone you know will be on medicaid/medicare or some goverment program just to survive day to day. And of course this speaks nothing of where all the plowshares will disappear to

Wed, 02/05/2014 - 11:23 | Link to Comment My Days Are Get...
My Days Are Getting Fewer's picture
We are talking about massive deflation:    The present market value of a no-bid asset is zero.   The Fed makes itself more bankrupt by purchasing assets from friends at par, when the market says the value is much less.  

 

Many necessities will go bidless in the market place because the purchase price is beyond the means of most people.  For example, my water well pump in Vermont died last week (24 years old). The replacement cost was $1,100 ($800 for the pump and $300 for labor) - on a COD basis.  Price out a replacement boiler or furnace for your house.
Wed, 02/05/2014 - 14:46 | Link to Comment Clowns on Acid
Clowns on Acid's picture

My Daze - get a grip. "We are talkimng massive deflation.." No we are talking massive deflati9on in the VALUE of the USD.

Necessities will NOT go bidless.... they will be bidless in terms of USD because no one will want a valueless piece of Fed tribe paper. The seller of the water well pump will gladly look at bids that are backed by gold or silver. 

Wed, 02/05/2014 - 11:38 | Link to Comment Spungo
Spungo's picture

"All debt disappears. Massive reset. Oh, that wouldnt work out so well for the 1%. My bad."

Not true. We usually think of ordinary people as being borrowers and rich people as lenders. The exact opposite is true. Bonds are held by ordinary people who don't know anything about investing. People are told to hold mostly bonds in their retirement fund. Rich people have it the other way around. A guy like Bill Gates keeps most of his net worth in equity instead of bonds. Lots of rich people even go as far as borrowing tons of money to buy more equity. Rich people would be thrilled to borrow trillions of dollars at 0% to buy real estate and metals and then..... 

Wed, 02/05/2014 - 11:40 | Link to Comment slightlyskeptical
slightlyskeptical's picture

I have never seen evidence of exactly which MBS's the Fed is buying. Are they buying the no value defaulted crap or are they buying the newly minted one's from freshly made mortgages?

I always believed they are buying the newly minted ones almost exclusively. I also think the taper is simply the effect of not having enough supply of new mortgages rather than any kind of  tightening.

Still think they should have bought all mortgages and just made Uncle Sam the mortgage lender of the masses, leaving the banks as originators and servicers only. Pull Social Security into the lending mix and Social Security can actually earn profits from other means then taxation. Perhaps they are doing this in a back door kind of way as Fed profits are suppose to filter down to the Treasury. Should amount to 300-400 Billion a year with the current balance sheet.

They could have also repriced all mortgages to a break even level and given homeowners hundreds of dollars off their mortgages each month which would have provided an excellent source of economic stimulus. Instead they leave us all in the clutches of the bankers. 

With all the lack of transparency it is difficult to know exactly what is going on.

Wed, 02/05/2014 - 18:29 | Link to Comment Bazza McKenzie
Bazza McKenzie's picture

Which MBSs did the big banks need the Fed to buy?  The "newly minted" ones or the crap?  There's your answer.

Wed, 02/05/2014 - 12:43 | Link to Comment wcvarones
wcvarones's picture

That's why the only way out is to devalue the debt.

Wed, 02/05/2014 - 12:47 | Link to Comment bozarking
bozarking's picture

Or the Treasury can take IOU loans from the Myra "accounts" and the charade can continue for a few more years...It worked so well with the social secuirty trust fund.

 

As stated by Jesus Christ himself:

https://www.youtube.com/watch?v=rCdgv7n9xCY

Wed, 02/05/2014 - 13:40 | Link to Comment Kyloe114
Kyloe114's picture

The tool that will be utilized at the appropriate time to further the illusion of value will be the algo's. Simply design a program that will learn its target audience and poof instant real time media delivery in any media form to inform and control the message while personalizing and furthering reality into the virtual world of manipulation, lies and distortions. The options are virtually endless as long as the power stays on! 

See the recent personilized videos facebook just released for 1.2 billion users and you can see the test results are going to be very positive.

Wed, 02/05/2014 - 14:30 | Link to Comment teslaberry
teslaberry's picture

hyperinflation exists and has existed. so ...this article is wrong. the fed can accomplish a royal screw up if it so desires. it is in fact 'possible'.

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