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Doomed If We Do, Doomed If We Don't
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Even if we used a 10:1 fractional reserve ratio, the Fed’s $85 billion per month QE was creating $10 trillion per year in liquidity.
The point to understanding the Status Quo financial system is doomed is not to revel in the doom but to understand why we have to look past the current corrupt, predatory, parasitic system to a better arrangement. That's positive.
Longtime correspondent Harun I. submitted this quote from John Ing and a commentary on simple arithmetic. In “We Are Nowhere Near The Chaos That I Expect", John Ing observes the consequences of deleveraging a highly leveraged system:
"We have already had $3 trillion in stock market capitalization wiped out. It is amazing that just a $20 billion tapering has been enough to cause all of this chaos around the globe.”
Harun then explained why it isn't amazing at all--it's entirely predictable:
Simple arithmetic will do. The Fed is leveraged 72:1. For every dollar it removes, it actually removes 72. The product of 72 and 20 is 1,440. The Fed has actually removed nearly $1.5 trillion of liquidity with its $20 billion tapering.
It is a mathematical certainty that this geometric progression of debt growth will end (remember, for everything that is growing geometrically, that upon which the growth is dependent is contracting at the same rate). The contraction (deleveraging) must necessarily be as geometric as the expansion (leveraging).
The Fed can try to keep interest rates at zero but there will be dire consequences. The Fed can try to “taper” but there will be dire consequences.
What I find amazing is that even if we used a 10:1 fractional reserve ratio, the Fed’s $85 billion per month QE was creating $10 trillion per year in liquidity.
The World Economic Forum reported in 2011 that $100 trillion in new credit would be needed for world growth going forward. How long does anyone think tapering will last?
Over US$ 100 Trillion Additional Credit Needed to Support Global Growth (World Economic Forum)
Trying to force simplistic results out of complex systems inevitably generates unintended consequences. Liquidity and credit expansion act like pressure in a closed system; central planners look at the site of the last financial break and see no leaks, so they assume they've got the system under control.
But the next failure in the system will occur where no one is looking--the points in the system that everyone assumes are "safe."
The system is doomed if central banks continue creating trillions of dollars in new leveraged credit and liquidity to keep the system from imploding, and it is also doomed if they cease creating new leveraged credit (i.e. taper their geometric expansion of credit). Doomed if you do taper, doomed if you don't taper.
Here's the Fed balance sheet. If you get a magnifying glass, you might discern some tapering.
Geometric expansion of credit is visible throughout the system. Never mind the infamous shadow banking system--look at the insane expansion of credit/debt in student loans:
Of related interest:
Resolution #1: Let's Call Things What They Really Are in 2014 (January 15, 2014)
The Federal Reserve's Nuclear Option: A One-Way Street to Oblivion (February 5, 2014)
Want to Reduce Income/Wealth Inequality? Abolish the Engine of Inequality, the Federal Reserve (January 28, 2014)
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its a taperadical paradox
Then lets drink up!
Tylers: Please post a corresponding chart of Obama's popularity!
At least with the "NO TAPER" doom....you get to ride the Carry Trade Rollercoaster up......until you can't anymore. Gives the .01% enough time to fleece just a little bit more and then secure their positions before the Grand Exit.
If you take "TAPER DOOM".....then it unravels quickly and messy.
Also gives Homeland Security enough time to buy even MORE ammunition when the elitles call them up for personal protection from the masses. After all.....in the Fascist States of America Homeland Security is simply another Private Security agency.
And that's exactly what Homeland Security is doing!
Looks like they're only out for Zombies so not to worry..
http://www.infowars.com/homeland-security-to-purchase-141000-rounds-of-s...
We are liberating many countries and fighting for their freedom and democracy that we are falling off the charts in homeland freedom.
http://rt.com/news/world-press-freedom-index-662/
Klein's bottle type liquidity
Imagine Yellen inside one of these and can not get out
http://www.youtube.com/watch?v=E8rifKlq5hc
At the end it looks like it turns into a mobius strip
"The system is doomed if central banks continue creating trillions of dollars in new leveraged credit and liquidity to keep the system from imploding"
There is no out there is only in. The system requires exponential growth or it collapses and liquidates the unfunded liabilities... the liabilites in the present system are walking and breathing hairless monkeys.
What does this mean? The Fed is not trying to stop the collapse only prolonging the time till the collapse happens.
All the hairless monkeys on this floating rock are going to learn.... don't do the crime if you don't want to do the time.
"Geometric expansion of credit is visible throughout the system."
Whoever wrote the article needs help... the credit system is not expanding at alll... it's dangerously close to going negative again.
Monumental steps are being taken to get "growth" going again. The student loan bubble is a great example. But, it is not enough and it too will pop. The question here is what will be the next attempt to pump credit in order to buy more time.
But, it is a loosing battle - simply by the nature of the system. Organic growth died long ago. Credit stepped in along with leverage to create synthetic growth - which really just masked reality. Now that synthetic growth (recursive profits) is wearing thin, there just isn't anywhere else to run.
You know what is crazy? I would also like over 141k rounds of 308. (I'm not paying $1.20 a round for the stuff, but...)
Alex Jones should really FIRE Paul Joseph Watson (or at least NEVER allow him to write about anything to do with firearms or ammunition).
That article is a nonsensical piece of crap, both in regards to ballistics and training for precision shooting.
But since Alex is based in Austin that might explain the limp wristed grasp of weapons...
In the end, dire consequences will be confined to a certain subset of the greater population. For the rest, SAVED!
It's the MARKET!!!!
gordian noose
Exponential money system overlaid on a natural growth (innovation, adoption, saturation) economic system. Something has to give and always does.
Cancel the debts.
Housing will always be less affordable when the buyer has to actually pay for it.
C'mon Janet, zero QE and long term rates at 6%, I dare you.
And send me my tax free $3 million already, you're five years late.
Sooo, should I keep watching the olympic crotchcapades or not?
Free skate is on, gotta run.
This is what you call a conundrum. Somewhere, somebody is going to have to take a HUGE bite of a shit sandwich and pay for all this printing. Question is where you be when the music stops and there aren't enough chairs? Play on! The water isn't over the gunnels yet!
I expect that when the shadow banking system begins to unwind again, we'll see the Great Un-Taper, and we will be left with QEULTRA®
I am Doom!
I donno.... My TBTF financial institutionNNNNN is planning for a record month in auto bling loans.
Seems like the peasants are pretty happy.
(Plus, there are more pregnant females waddling around work lately, that show signs of optimism - or stupidity, who knows).
I realize that I am just a crotchety old man but every time I look at a pregnant woman or one with one or more little tykes whining their way through the grocery store aisles I can't help but think "It's gonna cost you $250,000 just to get that little ball of snot to age 18. And precisely what are you gonna get for all that money?"
IMO you have to be both stupid and delusional to have a child these days. As Elvis said - what was I thinkin of?
As I said, I know I'm just a mean old guy, but really ....
Correct me if I'm wrong, QE goes to banks, Bank buys stocks and bonds makes profit pays FED. Who's buying the FATH ? Banks!
There's no such thing as buying the FATH because everybody who is above average knows tomorrow will be the real FATH.
Exponential equations are a bitch. If you really want to piss yourself, just throw a chart of historic human population growth up here.
if I were tyler I would ban the space hog.
looks like he did.
but getting back to the post, why can't people see that we are mathematically screwed, if nothing else?
Most of the Ignorati have trouble with long division, and YOU expect THEM to even know what "exponential" means?
Is it just me or is Harun's math and logic completely retarded?
Yes.
I'm a big fan of CHS, but he has this one wrong on the Math. Base money has indeed grown a lot. But Velocity has collapsed at the same time.
But he could still be correct directionally, in that QE has doubtless encouraged a lot of leverage abroad and plenty of derivative exposure here in the US that is hard to capture in the nominal debt statistics of the financial system.
i'd have to go with retarded. especially the "for every dollar it removes, it actually removes 72" part. to state the obvious, tapering isn't removing; it is slowing the rate of adding. just exactly what this person means by saying "the fed has actually removed nearly $1.5 trillion of liquidity with its $20 billion tapering", other than he is a retard who warps reality to fit his teotwawki goldbug prepper fantasy, is lost to me.
by this "logic", the fed purchasing of $85B/month ($1,020B/year) in QE3 is actually $73,440B, or $73 trillion in a single year. wow... seriously? i mean, sure we throw around the word "trillion" like it's nothing these days, but $73 trillion new liquidity added last year? come on dude. it's approximately three times the market cap of every stock exchanges on the planet. seriously, get real.
http://www.zerohedge.com/sites/all/modules/blockquote/images/menu-leaf.g...); position: absolute; height: 9px; width: 9px; bottom: -5px; right: -5px; background-position: 100% 100%;">There is no "doomed if we do or don't."
Not "printing money", having a good interest rate (which supports investments and return on investments, a strong currency, protects against inflation, keeps gas/oil prices lower, etc), not selling out to the banksters and or the government and not giving free handouts would be the step in the right direction. Add reduce deficit spending, etc. and while there be short-term "pain", it would be much better longer-term then this UTTER DISASTER FAILURE the various central banksters and governments around the world are currently engaged in.
There..what's so complicated?
Umm, the "pain" part! (Pain for whom exactly?)
CHS is reading my mind (or this blog); I said yesterday on the House Vote thread:
"The economic consequences of a drop in Federal spending?
(1) A quick, short collapse, followed by a reset on debt, loss of "surplus population", world depression / famines / widespread death & destruction, followed by
(2) A long, slow, protracted rebuilding of what is absolutely essential to survival, with nothing left over for trivia, political correctness, ecomadness, waste, fraud & abuse; reduced Federal power / drag on the economy (what's left), less / ignored regulations, barter for a while, agriculture renewal and slow recovery
The economic consequences of a continuation of Federal spending at current levels?
(A) A long, slow, protracted and painful default process, currency collapse, slow starvation and loss of industrial activity, followed by
(1) and (2) above.
How do you like your chaos, hot or served iced with pain and suffering? "
Echo - Echo - Echo .....
It seems odd to me. All this time I thought Gross product expansion would fail due to materials constraint. Now it seems the world will contract due to currency constraint. Strange. No??
There are a few conceptual errors in this article. I am referring to these passages:
Simple arithmetic will do. The Fed is leveraged 72:1. For every dollar it removes, it actually removes 72. The product of 72 and 20 is 1,440. The Fed has actually removed nearly $1.5 trillion of liquidity with its $20 billion tapering.
Even if we used a 10:1 fractional reserve ratio, the Fed’s $85 billion per month QE was creating $10 trillion per year in liquidity.
All of this is purely theoretical and has nothing to do with what actually happened, since there has only been very little inflationary bank credit growth. One must properly contextualize the theoretical backdrop with what is actually happening.
The 'taper' is not removing any liquidity, it is adding to it, only at a slower pace than before. What is going to happen as a result is a slowdown in money supply growth, as 'QE' inter alia creates additional deposit money directly (in addition to bank reserves). Since the banks never pyramided new credit atop their excess reserves, the 'reverse multiplier' won't kick in until all excess reserves have been removed (i.e., 'never'). However, even a mere slowdown in money supply growth will suffice to trip up all the currently extant asset bubbles, so nothing changes in terms of the ultimate conclusion.Lorde’s Suppressed Grammy Award acceptance speech (Full Transcript) 26 January 2014
Someone must be having their ass handed to them over Nat Gas longs?
Time for a bailout?