The Problem Explained In 110 Words

Tyler Durden's picture

It took the Fed 7 years, countless white papers, Congressional testimonies, economist reports, and goalseeked narratives explaining why QE should work, before the St. Louis Fed finally realized and admitted one month ago that QE, in fact, does not work (which is almost as ironic as the Davos World Economic folks explaining "Why we shouldn’t borrow money from the future"... which is great if only it hadn't come some $200 trillion too late). It took the Fed only $4.5 trillion in balance sheet assets, and making the rich richer beyond their wildest dreams, to admit what we said all along.

And yet, there are still those who say keep kicking the can: if QE3 didn't work and a rate hike is now off the table, just do QE4, or NIRP, or both, or even better: just paradrop the money in - someone has to inflate the above mentioned $200 trillion in debt. Surely that will work, even if it means the beginning of the end of the "status quo" financial system and the cargo cult of neo-Keynesian economics.

Well, here is the biggest problem - or the central bankers' paradox if one wishes to call it that - and it is explained so simply even a 5 year old, aka the intellectual equivalent of a tenured economist, will get it.

... the challenge is that ongoing flow of QEs prevents rationalization of excess capacity (in turn created through the process of preceding three decades of leveraging) whilst also precluding acceleration of demand (both household and corporate), as private sector visibility declines. Hence declining velocity of money requires an ever rising level of monetary stimulus, which further depresses velocity of money, and requiring even further QEs. Also as countries compete in a diminishing pool by discounting currencies, global demand compresses, as current account surpluses in these countries rise not because of exports growing faster than imports but because imports decline faster than exports. This implies less demand for the global economy.

Incidentally, Yellen now gets it, and the moment her epiphany struck is shown on the photo below.

Source: Macquarie Research: "Equities – irrational exuberance"

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bigdumbnugly's picture

'Barack Obama' is two words.

So is 'Janet Yellen.'

And 'Ben Bernanke.'

And 'George Soros.'

So is  'Etc. Etc.'

Took Red Pill's picture

It’s about time there was some justice! Busted bankster! David Drumm arrested in Massachusetts.

“Bailing out the failed bank that Drumm ran  cost taxpayers around €30bn, close to one-fifth of Ireland’s annual output. It was seen as the heart of a banking crisis that forced Ireland itself into a 2010 international bailout. In July an Irish court sentenced three former employees of Anglo Irish Bank to between 18 and 36 months in prison, the first bankers to be jailed since the country’s financial crash.”


Now if we could only put away Jamie Dimon

Nenad's picture
Nenad (not verified) SuperVinci Oct 11, 2015 11:46 AM

Obama will not finish his second term! Current Events Linked to Ancient Biblical Prophecy!

Oh regional Indian's picture

Actually it can be said better and more intelligently and more to the point with less words:

QE would work if banks were not incented by the FED to hoard QE monies by giving them FUCKING INTEREST on it....

22 words...

Usurious's picture

one word.............FUCK USURY

Bokkenrijder's picture

Chris(tine) is always one of the boys!

Pure Evil's picture

I think Yellen's realization is the fact that the boys like Umpa Lumpas and not frumpy old hags.

4 wheel drift's picture

LOL !!



that would be TWO words....


you must be an ekonomist....    hahahahahahahaha

AlaricBalth's picture

This FRED chart I have posted will show exactly what a daunting problem the the US and the Federal Reserve is being forced to deal with. I have overlaid the Labor Force Participation Rate with M2 Velocity of Money, each beginning in 1960. M2 velocity refers to how fast money passes from one holder to the next. The labor force participation rate is a measure of the share of Americans at least 16 years old who are either employed or actively looking for work. If money demand was high, which it is not, it would be a sign of a robust economy, with the usual corresponding inflationary pressure.

As you can see, each peaked around 1997-98 and have been in slow decline ever since. Unless the Fed has a plan to increase the LFPR, people are not going to be spending money they just do not have. Demographically, this is not going to happen. Baby boomers will still be retiring at a rate of 10,000 per day and manufacturing is never coming back to the US until we are a third world country with a cheap labor force.

Bay of Pigs's picture

Great comment and chart.

It really is the worst of all worlds because inflation is not low. Not the bogus lowball gov't numbers anyway. Pretty sure that inflation has run at least 6-8% a year since 2009, if not higher. That has a significant impact on consumer spending.

mrdenis's picture

How does that go .....Inflation on things you need ,deflation on things you already have ......

Al Tinfoil's picture

In far fewer than 110 words:  "It is not wealth that is trickling down."

tc06rtw's picture

 …  Ergo,  it will be  blood  which is trickling down.

turtle's picture

Biflation... supply & demand working exactly as it should

Kayman's picture

But using the Hedonic yardstick of our government overlords, when you get one bowl of cornflakes out of a box that used to contain 10 bowls, you will damn well appreciate it more. Ergo, deflation not inflation.

If only the Weimar Germans had the tools available in the 1920's that our criminal overlords have today.

translator zero's picture

Using the gubment's own methods prior to voodoo economics, price inflation has been averaging around 8% since the dot-com bubble. 


Of course, the old school definition of inflation is more useful. 

Omen IV's picture

The LFPR hasnt finished going down - women entered primarily in the mid 70's into the labor force so it went from 61 to 67 at a time when unions were at their peak (1974) and therefore manufacturing the strongest and needed new supply and office work changed to computer heavy focus - with TPP in place the white collar will be dramatically affected as H-1b restrictions are reduced, local rules are changed under the Tribunals and manufacturing continues it downward trajectory

velocity fo money  today is not the same as in the 60 - By early 80's LBO's came on big -  and garnered increasing allocation of bank financing - accelerated in the 90's - before 1982 the average Fortune 500 leverage was much less than 30%. Loans went for real tangible investment rather than financing  intangible goodwill consolidations

so the velocity ratios today are much lower than they appear as applied to tangibles - i dont think they can get the velocity higher even with NIRP


The future will be very difficult



Very astute comment, but USA manufacturing has to be brought back whether anyone likes it or not. We are on the precipice of World War Three and the good old US of A is woefully unprepared in terms of their manufacturing base. Instead of helicopter drops of cash into the lowest level of the populous we should invest wholesale into major manufacturing installations in all US states, and CANADA too. There is literally no other way to proceed in order to infuse a floundering regional economy with the needed infrastructure to maintain some semblance of middle class economic fundamentals. Honest banking, full employment, no usury, or we will all perish slowly but surely. In brief, end the FED, and end TBTF.

dogbert8's picture

Just how will we bring manufacturing back to this country?  We can't force companies to build/manufacture in this country.  If we get to the point where we can, we won't like the country we're living in.


Incentivise through taxation breaks to manufacturers that build within America. Disallow stock buybacks and force manufacturers to invest in re-tooling, infrastructure, and labour. In brief, rebuild from the ground up all over again, that's how.

TuPhat's picture

Hitler would approve of your plan.

. . . _ _ _ . . .'s picture

A little longer than 110 words, too.

SuperVinci's picture

well duh, I said "explained much better". OF course there's more words. I'd recomend that those who dont like logic, many words, common sense, and a lack of conspiratard stuff stay away.

. . . _ _ _ . . .'s picture

Calm down; I was just offering a 'heads up'.

Oh, and btw... Occam's razor.

Buckaroo Banzai wins.

Bay of Pigs's picture

I read until he started quoting Summers, Greenspan and Krugman. Thanks, but I've had enough of their bullshit economic theories and pathetic explanations on topics like interest rates, employment and inflation.


SuperVinci's picture

Ahh...unable to read something you don't like...the hallmark of an open mind and a student searching for answers as opposed to a mind already made up.

Bay of Pigs's picture

What are you talking about? I've read hundreds and maybe even thousands of quotes from those worthless fuckers.

Open mind? How about seperating the lies, deception and bullshit those guys spew from the actual truth?

SuperVinci's picture

Who are "those guys"??

wtf are you talking about?


Fofoa is one person. 

MsCreant's picture

Summers, Greenspan and Krugman's logic got us to where we are. I do not blame BoP for being skeptical. At least Greenspan knew the value of gold at one point. Otherwise, those folks enabled the rape of the world.

Buckaroo Banzai's picture

110 words?? How about four words:





nickels's picture

I grow potatos, you catch fish. We trade our excess product and both eat chowder. Bankers starve.

MsCreant's picture

Nice. I will peel and scale, happily, if you decide it is worth your while to include me in on the chowder. I also grow lots of herbs  and some veg which would be good in the stew and would love to compost the remains of the fish and peels for my garden if you are not using it for your garden.

knukles's picture

I would gladly sit and supervise.  Why, my elucidatory elocution and pontification has caused many a long tedious day to pass with frivolous rapidity.

MsCreant's picture

You would be fun to have to dinner, just because...some folks really are that good as company!

. . . _ _ _ . . .'s picture

Looks like Yellen is suffering penis envy... vis a vis Lagarde. Or maybe it's just another stroke.

bigdumbnugly's picture

he said penis... ehe hehe  ehehe  hehehehe

yeah, ehehe... and stroke...  ehe  hehehe  hehehehehe.


MsCreant's picture

Psst...not the kind of stroke you want for your penis.

DetectiveStern's picture

It's nothing to do with QE she just let one rip thinking it would be silent but alas no, the thunderous boom for her arse sent the others into fits of laughter.

MsCreant's picture

Farting. Is that how she gets ready to print?

CarpetShag's picture

"Macquarie" - isn't that a liqueur?

bigdumbnugly's picture

no, i think it's a stupid yuppie dance.

. . . _ _ _ . . .'s picture

Anybody seen this yet?

The Mujahedeen e-Khalq (MEK): The US Prepares to Back a New Terrorist Army in Iran, Prelude to a Wider War?

o r c k's picture

My jaw is getting tired of dropping.

hound dog vigilante's picture

Jack Lew serving as US Treasury Sec. is an absolute embarrassment.  He's a career political operative.

And JL is not brown or female... so how the hell did he become BO's Treasury Sec.?  I thought Biden was the token whitey..., so maybe JB is the token WASP and JL is the token Jew?  I guess that make sense in Obama's bizarro world...

Batman11's picture

Let's check out the global consumer:

1) The once wealthy Western consumer has had all their high paying jobs off-shored. As a stop gap solution they were allowed to carry on consuming through debt. They are now maxed out on debt.

2) Japanese consumers have been living in a stagnant economy for decades.

3) Chinese and Eastern consumers were always poorly paid and with nonexistent welfare states are always saving for a rainy day. Western demand slumped in 2008 and the debt fuelled stop gap has now come to an end.

4) The Middle Eastern consumers are now too busy fighting each other to think about consuming anything and are just concerned with saying alive.

5) South American and African consumers are busy struggling with economies that are disintegrating fast.

No wonder demand is collapsing.