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BofA Sees Fed Assets Surpassing $5 Trillion By End Of 2014... Leading To $3350 Gold And $190 Crude

Tyler Durden's picture




 

Yesterday, when we first presented our calculation of what the Fed's balance sheet would look like through the end of 2013, some were confused why we assumed that the Fed would continue monetizing the long-end beyond the end of 2012. Simple: in its statement, the FOMC said that "If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability." Therefore, the only question is by what point the labor market would have improved sufficiently to satisfy the Fed with its "improvement" (all else equal, which however - and here's looking at you inflation - will not be). Conservatively, we assumed that it would take at the lest until December 2014 for unemployment to cross the Fed's "all clear threshold." As it turns out we were optimistic. Bank of America's Priya Misra has just released an analysis which is identical to ours in all other respects, except for when the latest QE version would end. BofA's take: "We do not believe there will be “substantial” improvement in the labor market for the next 1.5-2 years and foresee the Fed buying Treasuries after the end of Operation Twist." What does this mean for total Fed purchases? Again, simple. Add $1 trillion to the Zero Hedge total of $4TRN. In other words, Bank of America just predicted at least 2 years and change of constant monetization, which would send the Fed's balance sheet to grand total of just over $5,000,000,000,000 as the Fed adds another $2.2 trillion MBS and Treasury notional to the current total of $2.8 trillion.

In other words, for once we actually were shockingly optimistic on the US economy. Assuming BofA is correct, and it probably is, this is how the Fed's balance sheet will look like for the next 2 years:

Or, in terms of US GDP, the Fed's balance sheet will have "LBOed" just shy of 30% of all US goods and services.

It gets worse:

Since the Fed is effectively becoming the marginal player in both the MBS and Treasury markets, a very relevant question is how much private market debt is left to sell. Short answer: not much. According to BofA's calculation, the Fed will own more than 33% of the entire mortgage market by 2014.

 That's half the story.

On the Treasury side, in just over 2 years, "Fed ownership across the 6y-30y portion Treasury curve is likely to reach about 50% by end of 2013 and an average of 65% by end of 2014." You read that right: in just over 2 years, the Federal Reserve will hold two thirds of the entire bond market with a maturity over 5 years (which by then will be part of the Fed's ZIRP commitment, yield 0% and essentially be equivalent to cash).

No wonder that David Rosenberg is worried that the Fed will soon run out of securities to buy (well, there are always equities of course, but the Fed will not monetize those until some time in 2015 when hyperinflation is raging).

And speaking of hyperinflation (and our earlier note that nothing "else is equal") the real question is if indeed the Fed will own $5 trillion in "assets" in 27.5 months, what does that mean for gold and crude? The answer is plotted below:

In case it is unclear, the answer is:

  • $3350 gold
  • $190 oil.

Luckily the Fed has already factored all these soaring input costs (and "alternative money" prices) in its models, and there is nothing to worry about. Lest we forget, the Fed can crush inflation cold in 15 minutes cold... somehow. Even when unwinding its balance sheet would mean sacrificing 30% of US GDP and, let's be honest about it, civil war.

* * *

That's it in a nutshell. Those who are interested in the nuances of the BofA analysis, which is a replica of our own, can read on below:

The Fed Bazooka

Given our growth forecast, we expect the Fed to follow up the expiration of Operation Twist with an open-ended outright Treasury purchase plan at the December meeting. We expect the pace could be between $45 billion (which would be equal to the current size of Twist) and $60 billion/month for two years [in 10 year equivalents]. We expect a long program given the slow improvement in the labor market as well as the Fed’s focus on a “substantial and sustained improvement” in the employment situation.

Table 2 compares different asset purchase programs by the Fed in terms of the net notional and duration take-out. Were the Fed to engage in renewed Treasury purchases post the end of Twist (in the same maturity distribution), this could easily become one of the largest programs in terms on monthly 10y equivalent demand from the Fed. Note that even MBS buying takes duration out of private hands, which would put downward pressure on rates

Mortgages: Fed buys most of monthly issuance

We estimate that Fed purchases will take out about 60% of monthly MBS production. However, our mortgage strategists note that historically the Fed has concentrated its buying in 30y conventionals. For example, in August the Fed bought $23bn of conventional 30s, $2.5bn of conventional 15s and $3bn of GNs. This compares with gross issuance at $122bn, which is split into $88bn in conventionals ($66bn in 30s, $22bn in 15s) and $34bn in GNs. In other words, the Fed has concentrated 80% of its purchases among conventional 30y. A similar pattern would suggest that the Fed would buy an additional $30bn in this sector, which could end up being almost 90% of all issuance in conventional 30y. This explains the significant tightening in the mortgage basis, and would argue for the Fed to buy some other sectors as well.

In terms of outstandings, we expect the Fed to end up owning more than 33% of the total market by the end of 2014, which is also significant since many mortgage investors tend to reinvest paydowns. These investors would need to be persuaded to sell MBS to the Fed, which would require tighter spreads.

Treasuries: Fed will own a 45-50% in the long end in a year

Given our growth forecast, we expect the Fed to follow up the expiration of Operation Twist with an open-ended outright Treasury purchase plan at the December meeting. We estimate further what the potential ownership of the Fed could look like in the Treasury market over the course of the next two years. We assume that: 1) Purchase sizes are in the same distribution as Twist, sans the sales; 2) Treasury coupon auction sizes remain constant; and, 3) The Fed does not change the 70% per issue maximum SOMA limit.

Table 3 and Table 4 simulate the Treasury universe during the course of 2013 and 2014. Fed ownership across the 6y-30y portion Treasury curve is likely to reach about 50% by end of 2013 and an average of 65% by end of 2014. Given the current issuance schedule, we believe it is very likely that the Fed changes its purchase buckets through the next round of Treasury purchases. In particular, the Fed will begin to run out of issues in the 8y-10y bucket and will be forced to buy newly issued 10y notes should they choose to maintain the same distribution. We believe this is unlikely, and that the Fed is likely to redistribute its purchases and possibly include the 5y portion of the curve to provide some room.

 

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Fri, 09/14/2012 - 18:50 | 2797332 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Inflation was running rampent before the Fed's QEX issuence yesterday, at a clip of at least 7%, but now it will get much worse.  We all know to spend our dollars, which ironically is exactly what Bernanke wants, so what to spend it on? 

Take control of the money supply?  Buy silver and gold.  Find some piece of mind?  Buy food.  Stay safe?  Buy a gun.  Keep the revolution alive?  Donate to Zero Hedge:

http://www.zerohedge.com/donate

Fri, 09/14/2012 - 18:53 | 2797355 agent default
agent default's picture

This link back some memories, speaking of which, whatever happened to Marla Singer and Travis? They disappeared after the blogspot days.

Fri, 09/14/2012 - 18:54 | 2797362 Thomas
Thomas's picture

What's amazing is that the dotted line in the first figure is actually an accurate depiction given detailed knowledge of the Fed's formula.

Fri, 09/14/2012 - 19:06 | 2797402 economics9698
economics9698's picture

"There is strong evidence to suggest that this is little but false comfort. While we don’t expect material inflationary pressures until the back-half of this decade, the Federal Reserve has increasingly placed itself into a position that will be nearly impossible to disgorge without enormous disruption. Specifically, the U.S. economy could not achieve a non-inflationary increase in Treasury bill yields to even 2% without requiring a nearly 50% reduction in the Federal Reserve’s balance sheet.

This point is easily demonstrated in data from 1947 to the present. The relationship between short-term interest rates and the amount of monetary base per dollar of nominal GDP is very robust, and is widely recognized as the “liquidity preference” curve. We are already way out on the flat part of this curve. Note that Treasury bill yields have never been at even 2% except when there was less than 10 cents of base money per dollar of nominal GDP. There are only 3 ways to get there from the current 18 cents – dramatically cut the balance sheet, keep interest rates near zero for the next decade(assuming nominal GDP growth of 5% annually), or accept much higher rates of inflation than most would consider acceptable."

John P. Hussman

 http://www.hussmanfunds.com/wmc/wmc120910.htm

Fri, 09/14/2012 - 19:14 | 2797432 Stackers
Stackers's picture

Now where did I leave that hockey stick ?

Fri, 09/14/2012 - 19:20 | 2797449 THX 1178
THX 1178's picture

The economy will grind to a halt before oil gets to $190. Has BofA forgotten? 147/barrel... That was BEFORE the economy hit the skids the FIRST time. Now we're in a depression. I feel like we're administered by idiots.

Fri, 09/14/2012 - 19:36 | 2797488 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Tyler posted an article about one and a half years ago that showed world GDP would = 0% when oil was at $180.

If it gets to $180 then we are litterally running on fumes.

Fri, 09/14/2012 - 19:43 | 2797496 nope-1004
nope-1004's picture

Agreed, except Geithner and the other asshats in charge, who publicly lie on a consistent basis, will redefine how CPI is calculated.

I bet when oil is at $190 and gold at $3350, CPI will be 1.2%..... move along people, more QE coming to make you 'wealthy'.

 

Fri, 09/14/2012 - 20:29 | 2797520 Michael
Michael's picture

I heard Ben Swann on AJ's show today and they mentioned Zero Hedge.  I think they read my stuff sometimes.  Thanks Ben & AJ.   

I can get away with saying certain things here on ZH that can't be said in public, so use scruples please.

Reality Check: One on One with President Obama, Why Is The U.S. Supporting Al Qaeda In Syria?

http://www.youtube.com/watch?v=Hrerl8EwqH0&feature=relmfu

In Arabic, al-Qaeda has four syllables. However, the closest naturalized English pronunciations include /æl-ka-d/, /æl-ke-d/ Al-Qaeda's name can also be transliterated as al-Qaida, al-Qa'ida, el-Qaida, or al-Qaeda.

The name comes from the Arabic noun q'idah, which means foundation or basis, and can also refer to a military base. The initial al- is the Arabic definite article the, hence the base.

Bin Laden explained the origin of the term in a videotaped interview with Al Jazeera journalist Tayseer Alouni in October 2001:

The name 'al-Qaeda' was established a long time ago by mere chance. The late Abu Ebeida El-Banashiri established the training camps for our mujahedeen against Russia's terrorism. We used to call the training camp al-Qaeda. The name stayed.


Ben Swann Interview on Alex Jones - 9/14/2012

http://www.dailypaul.com/254858/ben-swann-on-alex-jones-today

Fri, 09/14/2012 - 22:36 | 2797685 Michael
Michael's picture

The Muslims just thought to themselves, after all the USA murderous drone attacks on hundreds of our brown women and children to get a few bad guys, and then said to each other, Why let a good Youtube video go to waste?

Sat, 09/15/2012 - 05:51 | 2798214 jeff montanye
jeff montanye's picture

good points michael.  my thought re the fed's policy:  if the fed is going to buy (nearly) all the treasury bonds, seemingly bullish for prices, bearish for yields, why did yields blow through 3% friday for the first time since may and prices tank?  things that make you go hmmm?

Sat, 09/15/2012 - 07:38 | 2798268 SWRichmond
SWRichmond's picture
http://seekingalpha.com/article/109467-hang-on-to-your-gold Hang on to Your Gold

December 7, 2008

How much new money will Bernanke have to print in order to do this? Early estimates (April '08) of the amount of capital destruction ran in the $1.5 Trillion range. Roubini stopped estimating at $2 Trillion, so let's say that $2 Trillion of capital has disappeared. If that $2 Trillion blew a credit bubble at an average 30:1, you have an approximate estimate for the value of global economic activity, so the scale of this number is probably correct. Now, if $2 Trillion in capital has vanished, and if that $2 Trillion had been lent out to create "credit" at 30:1 ($60 Trillion worth of credit), how much new capital will Bernanke and the rest of the central bankers have to print in order to replace it at 10:1? Answer: $6 Trillion.

The central bankers have already done this "back-of-the-envelope" calculation. Bernanke has already, in two months (September '08 to November '08), expanded the Fed's balance sheet by $1 Trillion, from $1 Trillion to $2 Trillion total. He is nowhere near finished.

Sat, 09/15/2012 - 08:14 | 2798282 IBelieveInMagic
IBelieveInMagic's picture

The possible flaw in this line of thinking is assuming that Feds will keep buying for as long -- I believe the Feds are trying to put fear of inflation and prod savers to get them off their asses and jump into the pool -- buy up underwater homes, invest, consume, etc. or see their savings turn into crap. In short, accelerate the velocity of money.

 

Sat, 09/15/2012 - 09:05 | 2798325 Arnold Ziffel
Arnold Ziffel's picture

QE1 was not stopped early.

QE2 was not stopped early.

TARP was not stopped early.

I see your point but do not think Ben will risk halting this 'stimulus' plan too soon. With unemployment soaring (just take a look at how many people dropped from the rolls recently), Ben is scared. So is Congress. No one wants civil disorder like we see other places. Thus, more printing not only for bankers but for entitlements which will only expand.

http://globaleconomicanalysis.blogspot.com/2012/09/panic.html

 

Sat, 09/15/2012 - 16:47 | 2798588 TruthInSunshine
TruthInSunshine's picture

I may be roundly criticized by many here for writing that which I am about to, but it needs to be written by someone.

I'm receptive to any and all counter-factuals rebuttals.

I do not believe I've ever witnessed a greater divergence in reaction or interpretation between what The Fed, whether through Bernanke or Greenspan (or whomever else) has announced, and the kneejerk reaction of markets and of the media "analysts."

The latest FOMC announcement of MBS bond purchasing was a near-nothing burger for the following reasons:

 

1)  The Fed is buying 40 bln in MBS  (mainly from the GSEs) monthly going forward.  How many have mentioned that the Fed HAS ALREADY BEEN PURCHASING 25 BLN IN MONTHLY MBS FOR QUITE A WHILE?

 

Result? Another 15 billion in GSE MBS purchases monthly.

 

2)  The 45 bln of treasury note purchases the Fed "announced" is already taking place as part of "Operation Twist." These are STERILIZED bond purchases that are made by selling/liquidating existing treasury bonds the Fed previously purchased, and are conversely NOT PURCHASES EXPANDING THE FED'S BALANCE SHEET.

 

Result? Compared to the previous period, none (unless one views a few basis points of possible flattening at the long end of the yield curve significant).

 

3)  Bernanke did a lot of jawboning about somewhat slightly higher tolerance for slightly higher inflation for slightly longer periods of time as part of what some analysts (COUGHweisenthalCOUGH) claim is a broad, revolutionary, sweeping new re-balancing of the Fed's "mandate," when in reality, there's absolutely NOTHING NEW HERE, as The Bernank has made similar remarks MANY times before.

 

Result?  Blah, blah, blah...jawboning, yammering & talking into the wind.

 

 

It is no exaggeration to say I am shocked at just how many people & sources, but more importantly, some people and sources that I consider intelligent/credible, discuss and interpret this latest FOMC announcement as if it were a capital 'B' Bazooka, when in reality, it's far closer to one of the toy pistols with the flag that pops out with "Bang!" written on it.

If one thinks about the actual MATH & NUMBERS that flow as a result of The Bernank's latest scheme, it's not very noteworthy.

If The Bernank's intentions were to provide some additional (but modest) support to the extremely sick GSEs like Fannie & Freddie,*** while TRICKING THE MARKETS INTO SIGNFICANTLY BOOSTING THEIR INFLATION EXPECTATIONS***, he pulled off a master stroke (at least based on initial reaction).

I genuinely believe the 2nd "Big Short" of risk-on assets has now been firmly & deeply set up, with the last one obviously being more focused on the bursting of the housing bubble in 2007 which then caused wider, downstream, adverse consequences, and with the impeding one being more broad-based and of greater duration.

Fri, 09/14/2012 - 21:23 | 2797773 El Tuco
El Tuco's picture

How to brainwash a nation.

For those Interested....a lttle dated but very relevant today.

https://www.youtube.com/watch?v=y3qkf3bajd4

Bezmenov explains how Jewish Marxist ideology is destabilizing the economy and purposefully pushing the U.S. into numerous crises so that a "Big Brother" tyranny can be put into place in Washington, how most Americans don't even realize that they are under attack, and that normal parliamentary procedures will not alter the federal government's direction.

Fri, 09/14/2012 - 21:35 | 2797798 SGS
Fri, 09/14/2012 - 21:55 | 2797808 Michael
Michael's picture

Saw a lot of this guys stuff. We have this stealth propaganda used by a select few on the people these days. We should show this in every high school classroom in the country.

Thanks for the complete link.

Yuri Bezmenov: Deception Was My Job (Complete)

https://www.youtube.com/watch?v=y3qkf3bajd4

Ben Swann on Alex Jones 9/14/12 PART 1 / 5 (Full Playlist Link)

http://www.youtube.com/watch?v=RxLeCznvuyM&feature=share&list=PL8ku0Eenh8xskW2pIW-csHmlPQ2cmoORW

Fri, 09/14/2012 - 21:42 | 2797817 Clashfan
Clashfan's picture

Ha!

There ain't no Russians,

and there ain't no Yanks,

just corporate criminals

playing with tanks!

https://www.youtube.com/watch?v=_kX8lqXAONg

Fri, 09/14/2012 - 23:23 | 2797911 Michael
Michael's picture

Try to get through this video;

(Full Movie) "The Police State" Conspiracy -Jesse Ventura

http://www.youtube.com/watch?v=6Dys3xE2Bnk

Here's a funny short companion video I made;

Representative Steve Cohen AKA Nathan Thurm

http://www.youtube.com/watch?v=AfFwNiY-0xE

Sat, 09/15/2012 - 20:11 | 2799511 L G Butz PhD
L G Butz PhD's picture

+1 for the call

Fri, 09/14/2012 - 19:49 | 2797524 nmewn
nmewn's picture

No kidding...because no one consumes fuel or food, so theres no reason to include it.

Our best & brightest at work...move along peeps, the newest green hedonic i-shit release is next week!

Fri, 09/14/2012 - 20:37 | 2797649 knukles
knukles's picture

Seriously, no worry about food.
What with that new Genetically Modified Crap by Monsanto that's resistant to Price Increases

Fri, 09/14/2012 - 23:03 | 2797919 Eally Ucked
Eally Ucked's picture

I’m not economist and I try to use just logic to explain what’s going on around me. All those LTRO’s, ESF – something, stimuli and so on is just shit to obscure and make hay of your brain and be in state of owe to those big brains who invented it. They will fix everything but a bit later, maybe in 1 year or maybe 3 years, and then in infinity.

The whole thing is very simple to me:

1. USD as reserve currency gives Americans some space, they will be hit at the end of it, unless some rogue countries get out of it fast, looks that way, so time gets shorter,

2. Thanks to #1 everybody delivers to US something for freshly printed paper, they need that paper (for now) to trade between themselves,

3. For every stimulus from FED consumers in US pay more in cost of energy, 18 mln bpd  usage means that 20$ increase 364*20*18mln=131.04 billion/year about 1/6 of current BB plan.

4. Lets say that BB plan have the same impact on food prices ( I don’t have any numbers on it) 1/6 of his plan, it’s feeding on itself,

5. BB plan causes much inflated prices for food and accommodation in third world, revolutions and disruptions, that feeds into prices for domestic and American prices,

6. Cost of pacifying and keeping in line those rogue partners rises,

7. It’s fun to watch FED economy – building housing in desert, more jobs, more energy needs, more materials coming from other parts of world and everything financed with their bills,

8. And most of fun comes with what they will do with 2/3 of stimulus, they will buy all that shit, underwater paper from your friendly banks to improve their balance sheet!

9. Europe is exactly in the same situation except they can’t print freely,

10. The game is to reflate evenly, so nobody notices it. There are some kinks, those pesky Moslems, Hindu, Chinese and others.

11. Who the fuck invented those FX pairs? All those fuckers using the same rules, probably they had some summit to fix them for idiots.

Fri, 09/14/2012 - 23:06 | 2797926 neidermeyer
neidermeyer's picture

That's not much of a prediction if you look at the increases given out in SocSec... of course they'll fudge the number down to 0%. 

Fri, 09/14/2012 - 20:15 | 2797606 Jack Burton
Jack Burton's picture

True, oil at this price will kill the American consumer. Now lets consider the Fed liquidity pouring into commodities and Mid East instability and hope for $190 a barrel as best case scenario!

I can already see the Canadian Tar Sands investors and corporate CEO's cheering the news. They may have got in on one of the great oil plays of the early 21st century. At those prices Tar Sands are a bonanza!

Bernanke will not stop till his money printing has increased asset prices for the 1% and has increased gas and food prices for the 99% to intolerable levels.

Bernanke is simply engaged in wealth transfer. America's middle class is clearly doomed in this type of economic model A model of money printing.

As Marc Faber just said, Bernanke will destroy the world economy and only enrich the 1% who hold most equity positions.

To be blunt, Bernanke an evil force in this world. Yet Obama allows him to continue. How is Obama a socialist when he enforces a a Fed policy that transfers wealth to the 1% while killing the 99%?

 

Fri, 09/14/2012 - 20:50 | 2797681 juangrande
juangrande's picture

When Obama announced his Tres. Sec. and his financial advisers in 2009, it was obvious what was always obvious!

Sat, 09/15/2012 - 20:16 | 2799521 L G Butz PhD
L G Butz PhD's picture

true if you knew that Volker was only window dressing when appointed

Fri, 09/14/2012 - 21:14 | 2797749 Go Tribe
Go Tribe's picture

Seems to me that since bernanke works for a dozen or so banks, his actions would be in favor of banks and their wealthy owners. How is it that the Fed was ever given such power? Can't we make it illegal for the Fed to purchase debt?

Sat, 09/15/2012 - 08:29 | 2798296 jez
jez's picture

"Can't we make it illegal for the Fed to purchase debt?"

 

What difference would it make, making it illegal?

Fri, 09/14/2012 - 23:44 | 2797997 CrockettAlmanac.com
CrockettAlmanac.com's picture

 

How is Obama a socialist when he enforces a a Fed policy that transfers wealth to the 1% while killing the 99%?

 

Socialism grows out of envy. Big government powered by envy efficiently transfers wealth from those who are willing to work for it to those who are the most covetous of it. Socialism is institutionalized sociopathy.

Sat, 09/15/2012 - 05:59 | 2798218 jeff montanye
jeff montanye's picture

so the robber barons were socialists?  they used government power to protect monopolies, most famously railroads but mineral resources as well.  this may make sense to you but i'm not sure it's universal.

socialism may be a kind of institutionalized sociopathy, but, perhaps, not precisely of this sort.  crony capitalism seems more apt but as the bard has it, a rose by any other name ....

Sun, 09/16/2012 - 13:10 | 2800707 CrockettAlmanac.com
CrockettAlmanac.com's picture

 

so the robber barons were socialists?  they used government power to protect monopolies, most famously railroads but mineral resources as well.

Anyone who claims a right to a bigger piece of the pie than they are willing to work for under the guise of that redistribution being for the public good is a socialist.

Sat, 09/15/2012 - 09:09 | 2798329 Arnold Ziffel
Arnold Ziffel's picture

I agree. I see oil at least $150 in six months....maybe sooner depending on "geopolitical" events in MENA and Senkaku area.

Wait until Russia grabs their Southern Kurile islands back from Japan:

http://www.telegraph.co.uk/news/worldnews/asia/japan/8310215/Japan-infur...

Fri, 09/14/2012 - 20:34 | 2797645 asteroids
asteroids's picture

Poverty and famine will return to the US. The lower class plus a huge number of seniors will suffer. Whole generations in misery. Well done FED and POTUS.

Fri, 09/14/2012 - 20:54 | 2797700 Caggge
Caggge's picture

Romney says the middle class makes 200k to 250k. How far out of touch can he be?

Fri, 09/14/2012 - 21:13 | 2797743 topspinslicer
topspinslicer's picture

he is very much in touch -- that is how much we will need to make

Sat, 09/15/2012 - 20:30 | 2799542 prains
prains's picture

min. wage $125 / hr

Sat, 09/15/2012 - 01:54 | 2798126 Harbanger
Harbanger's picture

Its about setting a tax ceiling for the "middle class" after which you're taxed at a higher rate.  It's not uncommon for a small business and/or professional married couple make 200-250K a year, especially in a good economy.  Simply put, Obama would tax these people at a higher rate than Romney.

Sat, 09/15/2012 - 11:54 | 2798583 maximin thrax
maximin thrax's picture

Don't forget props to pols who have shepherded generations into government dependency.

Sat, 09/15/2012 - 07:24 | 2798245 trebuchet
trebuchet's picture

Article says the Fed will own more than 33% of the entire mortgage market by 2014.

OH come on! NO way!!!!    

The banks are just going to create new ones since they can flip to the Fed:

 

New mortgage growth?? + 40bn per month -

"Roll up, roll up get your mortgage on your mortgage here..."

 

 

Sat, 09/15/2012 - 07:27 | 2798257 overmedicatedun...
overmedicatedundersexed's picture

seems like LTCM (look it up nubes) is the inspiration of our PHD econ types at the FED..making the same mistake by becoming the Market, now who will be the counter parties to bring em down?

Sat, 09/15/2012 - 07:31 | 2798262 trebuchet
trebuchet's picture

 

I had said open ended MBS based QE was on the cards in an earlier comment: http://www.zerohedge.com/news/consumer-credit-posts-first-drop-august-2011-following-nonsensical-data-revision#comment-2779589

 

Why is this open ended QE revolving?   

because of the moral hazard problem i outlined above: banks now have incentive to create mortgages and flip to Fed. 

How does Fed stop this? 

1. regulation of banks (yeah right)

2. sell MBS back into the market  (operation Re-Twist :-)  )

 

When will it launch? 

Once house prices are once again on upwards trend and the Sheeple (Fed induced) wealth effect kicks in: Fed expects people to feel richer and start spending at  a faster rate. 

The Fed has now entered the terriotry of managing house prices in the US apart from stock markets. 

Buy those properties NOW.... preferably one that can be easily defended.

 

Sat, 09/15/2012 - 09:16 | 2798341 JohnKozac
JohnKozac's picture

The Fed is going to help the FHA turn all of those houses into low income rentals. The Fed supplies the newly printed money to the FHA and they "buy" all the 'toxic mortgages' from the bankers (after, of course the banks took their profits and bonuses) then they simply convert these houses into rentals for low income people.

So be careful what neighborhood you buy in...check out how many houses are underwater b/c your area may be the next low income neighborhood.

It's called, "progressive thinking."

Sat, 09/15/2012 - 10:17 | 2798437 chunga
chunga's picture

Here's some creepy shit from FHFA...this is like living in a bad dream.

(Chicago Tribune 9/13/2012)

Mortgage cops taking tough stance

Strategic defaulters, beware. The feds are coming for you. And they are not happy. Not the FBI. The Office of the Inspector General at the Federal Housing Finance Agency. The OIG may not have the same fearsome "G-man" reputation as its better-known counterparts at the Federal Bureau of Investigation, but it is every bit as much a law enforcement agency, with the same powers to search, seize and arrest.

 

Special OIG agents are even authorized to carry firearms. The OIG's mission is to seek administrative sanctions, civil recoveries and criminal prosecutions against anyone who abuses the FHFA's programs. And it is pursuing its calling with passion, if not vengeance.

Fri, 09/14/2012 - 19:28 | 2797434 Michael
Michael's picture

US Government was warned numerous times of an attack on 9/11/2001 and even helped it happen.

Heckler brands Tony Blair a ‘war criminal’ over JPMorgan payments

http://www.dailypaul.com/240277/heckler-brands-tony-blair-a-war-criminal-over-jpmorgan-payments

Tony Blair Confronted At Leveson Inquiry

http://www.youtube.com/watch?v=hmKHUjYDqCI

Sat, 09/15/2012 - 00:40 | 2798054 Clashfan
Clashfan's picture

"Helped it happen" isn't nearly strong enough phrasing.

Fri, 09/14/2012 - 18:55 | 2797363 strannick
strannick's picture

Question now is, how will the Imbecilic Academic Govt Progessives like Obama start stealing your wealth after their absolute ineptitude at managing the economy is revealed, and how to prepare against it.

Sat, 09/15/2012 - 09:41 | 2798374 NewWorldOrange
NewWorldOrange's picture

Prepare? For what, pre-revenge? That's about all that's left to "prepare" for. Skynet is here, and about to be all over the globe. The drones raining missiles on Muslim civilians is just foreplay. It'll soon be just like the movie, except that in the movie, the bots were low flying and relatively easy to take down. The Big Collapse may send most of us into a grave or the stone age, but technology will still be here and more used for military and "policing" than ever.

Wake up people. It's too late for any kind of dignified, comfortable life. We're spiraling down now, fast. The Oil Dollar Party is over. Great party, while it lasted. All that's left to the people alive today is an endless littany of every kind of horror. The only sensible thing left to do is get laid. The day will come when you'll wish you'd just sold all that bullion and took a long trip to Amsterdam for some window shopping.

Fri, 09/14/2012 - 22:12 | 2797696 seek
seek's picture

Marla was here for a while, ran radiozero shows and such, then there was some sort of strange event that happened concurrently with a weird update to the sidebar text that only Tyler could bind zerohedge to contracts. So... I'm assuming there must have been some kind of internal conflict that the sidebar update related to.The vast majority of her posts are still here and readable, but some give "access denied."

Probably completely unrelated, but not long before she left she had made a few "enforcement" type suggestions for people to tone down or retract anti-government comments to a few  posters, and shortly after the ZH servers got relocated outside the US. I'm sure there's a really interesting backstory to everything that happened in that time frame, but I'm guessing it's an (understandably) sensitive topic to the Tylers and suspect discretion is the better part of valor here.

Edit: My curiosity got the better of me. Hopefully this doesn't get me zapped, but Marla's disappearance corresponds to within under a day to this communication: http://cryptome.org/0001/wikileaks-zero.htm and distancing ZH from this would go a long way towards explaining Tyler's cryptic contract comment and the relocation of servers outside the US. I'll leave it to the reader to connect the dots, my own conclusion is that the matter related to ZH's ongoing survival, and as ZH is still here, the way things went down was probably a hard but necessary decision the Tylers had to make.

Fri, 09/14/2012 - 22:25 | 2797866 fuu
fuu's picture

Good pull on that letter, I had forgotten about that.

Fri, 09/14/2012 - 23:15 | 2797948 kito
kito's picture

Even more bizarre is that tyler admits to an optimistic outlook for recovery in the economy with ben sounding the all clear by 2014.......i wonder if tylers hyperinflation talk is headline hyperbole, which belies perhaps a more dalio-esqe view of things to come..........

Sat, 09/15/2012 - 09:19 | 2798343 NewWorldOrange
NewWorldOrange's picture

Kito! I think I understand your confusion now! Our "Tyler" is sort of a "Tyler Durden" character, you know, from the movie "Fight Club." The "Tyler" to whom you are referring is Tyler Perry, you know, from the movie "Diary of a Mad Black Woman." Not the same guy Kito. Perfectly understandable.

Fri, 09/14/2012 - 18:54 | 2797360 mademesmile
mademesmile's picture

You can probably afford to donate one silver ounce equilivent, right now $34.68

Fri, 09/14/2012 - 19:46 | 2797514 Daily Bail
Fri, 09/14/2012 - 19:10 | 2797419 ACP
ACP's picture

Exactly. Diversify. Not just gold & silver, but Springfield, S&W, H&K. Might have a wait because a lot of models are sold out. NATO ammo by the can also.

 

Fri, 09/14/2012 - 19:13 | 2797430 FreedomGuy
FreedomGuy's picture

Part of what gets me is that whatever "benefits" there may of inflation essentially bypass middle America. I recall the inflation of the early 80's. Everyone got annual raises of 5% or more and inflations calculations, etc. You sort of calculated it into whatever interest rate you might pay on car and home loans. Essentially, all loans got cheaper over time. There were also a lot more tax deductions for various loans of any sort which seems to bypass the morons in charge right now. They could just bring back the tax deductions and that would be a large help to anyone wanting to purchase. No need to change rates.

This inflation benefits no one but goverment and the government connected. The money stays in financial institutions and to a lesser degree international business. So, gas, food, etc. go up at the same time wages are dropping or stagnant, at least outside of worthless government jobs. So, middle America is just getting the bad side of this trade off. Add to that that this crew only knows how to wreck an economy and the productive class is screwed by bad monetary policy on top of bad business policies by the academic geniuses in charge.

I will hope for Nuremburn trials of everyone connected to the absolute stupidity of what we are doing and those who made fortunes off the manipulation. Just a dream.

Fri, 09/14/2012 - 19:28 | 2797474 Town Crier
Town Crier's picture

An up arrow for your Nuremberg dream, Freedom Guy.

Fri, 09/14/2012 - 19:32 | 2797480 DosZap
DosZap's picture

Forget STAGFLATION, since the rest of 2/3rds of the actual printed dollars OVERSEAS  start getting dumped, it's going to be Hyperinfaltion.

That's when the velocity of money will come into play.

And it is comng fast.

 

Fri, 09/14/2012 - 20:06 | 2797566 Sofa King
Sofa King's picture

So people need jobs, the Federal Reserve is mandated to keep unemployment down and they will do this by buying bad securitized loans from banks. I must be a fucking idiot cause this just seems downright ridiculous to me.

Which bank was about to go under that the Fed needed to do this ?
My money is Morgan Stanley.

Fri, 09/14/2012 - 20:09 | 2797589 centerline
centerline's picture

Funny how even the news dropped the dual mandate thing too.  It's all bullshit of course, but the plain-as-day misleading is reaching epic proportions and no one seems to even notice or care.

Sat, 09/15/2012 - 03:05 | 2798162 FreedomGuy
FreedomGuy's picture

I was thinking the same thing. It is a long and tenuous connection to jobs. The idea is buy the bad loans at full price and put money in the banks while keeping interest rates low. The problem is it doesn't create demand for anything really, including loans. The demand for loans and labor comes from demand for products in the market place.

Sat, 09/15/2012 - 09:41 | 2798380 WarriorClass
WarriorClass's picture


This is just another Bankster Bailout at tax payer (and dollar holder’s) expense. The banks were stuck with a bunch of worthless MBS that they couldn’t sell, or could only sell for pennies on the dollar, so the Fed buys them and gives the banks a profit on their losing bets.

This is THEFT folks. There is no intent to “stimulate” the economy, only bailout the Banksters by stealing from you in the form of taxes and inflation.

Lock & load, people.

Sat, 09/15/2012 - 17:11 | 2799250 FreedomGuy
FreedomGuy's picture

I will only agree halfway. Yes, I do believe there is a bailout aspect. However, banksters and anyone else in the finance community or shadowy conspiracies benefits from a more vibrant and healthy economy. I think they HOPE it will work even if it is a seconday goal. Crushing the economy crushes them at the end.

Fri, 09/14/2012 - 19:33 | 2797485 Randall Cabot
Randall Cabot's picture

$190 crude translates into $9 gas-that should help unemployment.

Fri, 09/14/2012 - 23:36 | 2797989 surf0766
surf0766's picture

$4.00 gas is crushing whatever is left of he economy. It will never get to 9.

 

Sat, 09/15/2012 - 05:26 | 2798209 malikai
malikai's picture

It will get to $100 when those trillions of chickens come home to roost. If anyone will be selling in dollars anymore.

Fri, 09/14/2012 - 19:48 | 2797525 Silver Bug
Silver Bug's picture

Wow, that means really high silver prices. We all knew it was coming. Just a matter of time.

 

http://ericsprott.blogspot.ca/

Fri, 09/14/2012 - 20:06 | 2797581 lasvegaspersona
lasvegaspersona's picture

sorry bug...silver ain't going to make the cut. It may go high with hyperinflation and it will be a valuable industrial metal...but ONLY GOLD will be the monetary metal of the next system...ask what all the CBc have and are rapidly accumulating..it is gold...no silver, no platinum no SDRs.

Fri, 09/14/2012 - 20:53 | 2797694 hack3434
hack3434's picture

CBc have and are rapidly accumulating..it is gold...no silver

 

That is exactly what makes silver the underdog and hence the peoples one hope. FOFOAtards and such will probably win with the gold argument but considering most of the gold is already owned by the elites who really wins? and no, a couple of gold eagles won't make much of a difference.    

Sat, 09/15/2012 - 17:16 | 2799262 FreedomGuy
FreedomGuy's picture

I disagree. The same forces that push gold ever higher will push the others higher, too. I say that gold is the central bank and "big boys" favorite metal because is has a lot of value per ounce. You cannot realistically store the same amount of silver at twenty times the weight. However, silver is the common man's better choice. Imagine asking for change for a $1700 ounce of gold versus a $35 ounce of silver.

Fri, 09/14/2012 - 23:10 | 2797937 Curt W
Curt W's picture

It would seem that a good investment is non-perishable food. I expect prices to jump, buy 2 years of canned and dry foods now, before fuel prices double the price.

Fri, 09/14/2012 - 23:15 | 2797947 Never_Put_Down
Never_Put_Down's picture

Impeach Bernanke NOW!

Fri, 09/14/2012 - 23:18 | 2797957 equality 7 2521
equality 7 2521's picture

This is great. Now that the FED is buying my mortgage with money printed out of thin air, I'll shall pay them in kind. I love the fiat system.

Fri, 09/14/2012 - 18:50 | 2797341 LongSoupLine
LongSoupLine's picture

Silver...$100

Fri, 09/14/2012 - 18:59 | 2797379 buckethead
buckethead's picture

BRING IT!

Fri, 09/14/2012 - 19:46 | 2797519 nope-1004
nope-1004's picture

$100 times what?

I'm referring to when the LBMA and COMEX admit rehypothecating EVERYTHING on their books (but not in possession, cuz there is nothing there) and go running to uncle Ben for more fiat.

Fri, 09/14/2012 - 18:50 | 2797344 spastic_colon
spastic_colon's picture

Fuk B of A

Fri, 09/14/2012 - 18:50 | 2797347 BigMike
BigMike's picture

SILVER...$800

Fri, 09/14/2012 - 19:09 | 2797413 franzpick
franzpick's picture

Silver and gold confiscated, but trading just fine at a nice high price in the upcoming u.s. black market, the dark back alleys of which is where the economy will be heading with dullards and lackbrains like Benron et al attempting to use their nuclear options to prevent a 10-15 year correction of a 3 decade-plus gov't-bank-sponsored worldwide credit binge.

Fri, 09/14/2012 - 19:41 | 2797501 agent default
agent default's picture

Silver and gold confiscation is the one thing you can count on.  And don't rely on a Swiss deposit box either.  The Swiss government is stupid.  One of these days the US will go to them and say open the boxes and give us the gold. And thy will do it.

Fri, 09/14/2012 - 20:03 | 2797565 lasvegaspersona
lasvegaspersona's picture

agent

don't be so sure...the government behaves like a bully now because they have essentially endless funds. With hyperinflation and the loss of reserve status will come a new humility. With oil out of reach, unless the government is willing to part with some of its gold, the military will become immobile...and probably come home. If the government tries to spend gold on staying in power rather than save it for the new currency that must come...well if we don't fight them for that it would be very sad.

Fri, 09/14/2012 - 20:31 | 2797640 CPL
CPL's picture

In this timeframe a government stays in power only as long as the lights stay on.  It's questionable though where things break down first.  Aging water processing or the 80 year old copper grid delivering the energy.

Fri, 09/14/2012 - 19:10 | 2797420 semperfi
semperfi's picture

loaf of bread $100

Fri, 09/14/2012 - 19:21 | 2797454 Bunga Bunga
Bunga Bunga's picture

Don't worry, that wealth will trickle down.

Fri, 09/14/2012 - 20:22 | 2797619 razorthin
razorthin's picture

Wages $0 because food don't count.

Fri, 09/14/2012 - 23:44 | 2798003 SgtSchultz
SgtSchultz's picture

50 round box of 45 ACP ammo - $200 

Sat, 09/15/2012 - 02:26 | 2798150 hedgehog9999
hedgehog9999's picture

Street girl: Good looking one (middle of the road)  $10,000 - $20,000

 

Fri, 09/14/2012 - 19:20 | 2797451 FreedomGuy
FreedomGuy's picture

It is interesting to try and calculate how one does in high and hyperinflation. Yes, the PM's will appreciate stratospherically. But if silver is $5k/oz and bread is $2.5k per loaf...what is the relative value? It is a sort of race. Do not misunderstand, I believe in PM's and real assets. It is just that the whole market could go crazy with daily distortions. So, it is not just about the price of the PM's, it will be about what they can buy. As an alternated currency in short supply I would bet you will get entire homes for an ounce because most will not have enough things to barter. Even good wine and whiskey becomes currency but PM's will be the most liquid.

Fri, 09/14/2012 - 21:39 | 2797807 Diet Coke and F...
Diet Coke and Floozies's picture

Fully agree. A rise in price, not profit, but at least you will have SOME buying power.

Sat, 09/15/2012 - 14:19 | 2798913 Anasteus
Anasteus's picture

An interesting video on JP Morgan silver shortage (GATA's Bill Murphy)

http://www.youtube.com/watch?v=sxVsosT3GAw&feature=related

Fri, 09/14/2012 - 18:51 | 2797350 fuu
fuu's picture

At that rate BAC might actually be worth $10/share.

Fri, 09/14/2012 - 18:52 | 2797356 evolutionx
evolutionx's picture
Obama: Dollar just an Illusion

 

In a sensational interview  President Barack Obama provided some deep insight into the monetary system: "The dollar is just an illusion" - the US currency was actually not worth anything.

http://www.webcompact.net/index.php/news/4468-obama-dollar-just-an-illusion-


Fri, 09/14/2012 - 18:54 | 2797361 Rainman
Rainman's picture

Bernank will be sippin Mai-tais on a faraway island in 2014.....surely he wouldn't be dumb enough to hide out at Princeton. 

Fri, 09/14/2012 - 19:20 | 2797453 AGuy
AGuy's picture

"Bernank will be sippin Mai-tais on a faraway island in 2014"

Only in fairy tales. What island would be full of inhabitants that would NOT want to get "medieval" on him? The Fed is creating inflation virtually everywhere. Its the primary reason for the Arab spring: soaring food prices leading to riots in the Third world.

The only safe place the Benanke can flee to is where he sending commodity prices to: the moon!

 

Sat, 09/15/2012 - 01:57 | 2798129 seek
seek's picture

Nah, he belongs on Galapagos along with the other endanged species.

Sat, 09/15/2012 - 02:28 | 2798151 hedgehog9999
hedgehog9999's picture

He'll be a bunga - bunga casualty then.....probable either way....

Fri, 09/14/2012 - 18:55 | 2797365 Dr. Engali
Dr. Engali's picture

Yeah we aren't getting out of this mess. There is no possible way they will be able to sell back into the market. If we make it to 2015 I will be stunned, I think they are going to be hard pressed to make it to years end.

Fri, 09/14/2012 - 19:22 | 2797428 DormRoom
DormRoom's picture

What happens when the US gets caught in a stagflationary spiral?  Printing won't help the labour market.  They tried to print their way to growth in the 70s.  In the 70s wage inflation was a key variable in stagflation.  It's less so now because of the decline in unions.  But we may see runaway stagflation because of input cost volatilty, as everyone chases hard assets because of fiat dilution from all Central Banks, making businesses reluctant to hire more labor.  And so what does the Fed do to try increase employment? print ++;  Adding fuel to the stagflation fire.

 

And if the world enters stagflation. It is game over. The developed world's balance sheets are too weak to handle a stagflationary crisis.

 

shit got real.

Fri, 09/14/2012 - 19:49 | 2797528 XitSam
XitSam's picture

Get real. They will just implement wage and price controls and that will fix everything.  /s

Fri, 09/14/2012 - 20:01 | 2797557 centerline
centerline's picture

No need for /s on that one.  I think that is the beginning of the end actually.  No other way to stabalize the system when the turd officially hits the fan.

Sat, 09/15/2012 - 05:31 | 2798210 malikai
malikai's picture

Yea, because wage and price controls worked so well in the past. Just like printing fiat.

Which is exactly why they'll do it.

Sat, 09/15/2012 - 16:33 | 2799157 Oldrepublic
Oldrepublic's picture

like king Canute?

Fri, 09/14/2012 - 19:56 | 2797542 AGuy
AGuy's picture

"What happens when the US gets caught in a stagflationary spiral? Printing won't help the labour market."

We are already in a stagflationary spiral. US male workforce partipation is at a 65 year low, food and energy prices are soaring. What comes after stagflation is usually high inflation, as it did in the late 1970s.

 

Fri, 09/14/2012 - 18:55 | 2797368 RobinHood73
RobinHood73's picture

These extrapolations never work. The market will crash way before that level of balance sheet expansion. Witness todays Egan Jones downgrade. There will be more downgrades and the notion of unlimited will be constrained, sooner or later. The ECB's "unlimited" bazooka was equally constrained by the Bundesbank at 190 billion or whatever. The point is . Every central bank has dealt their "all-in".

Current trends are not going to continue much longer before the deflationary crash occurs.

 

Fri, 09/14/2012 - 22:59 | 2797599 JuliaS
JuliaS's picture

Indeed. The market ain't just USD, oil and gold. It is everything.

What about the exchange rates? What about the actions of ECB and other central banks? If they start QE-ing what happens then? Do the dollars flow off shore or back into the US. Foreign USD circulation is still a big market component.

 Dollars are still not translating into wages (and possibly never will), without it, who is going to bid up prices or consume commodities?

Fri, 09/14/2012 - 19:15 | 2797369 buzzsaw99
buzzsaw99's picture

the bernank is gonna keep giving jamie and lloyd bigger and bigger bonuses until starvin' marvin gets a bowl of gruel bitchez

 

would you boyz like some cheesy poofs?

Fri, 09/14/2012 - 18:58 | 2797376 sablya
sablya's picture

If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage backed securities == "the beatings will continue until morale improves"

 

How can such a smart man be so deluded?  Gas prices are already soaring and this is supposed to encourage people to spend?  If it wasn't so damaging, such an obviously retarded move would be truly comical!!

Fri, 09/14/2012 - 19:00 | 2797381 Waterfallsparkles
Waterfallsparkles's picture

Why would the FED want to own all of the MBS in the Country.  Unless they see a collapse and then they would own all of the Real Estate in the Country.

Fri, 09/14/2012 - 19:34 | 2797487 nmewn
nmewn's picture

They might have a claim to it...but they "bought it" with counterfeit currency.

I forsee a Scopes v Ber-Monkey Trial in our future ;-)

Fri, 09/14/2012 - 20:48 | 2797676 Dr. No
Dr. No's picture

As we all know, governments fight the last war.  The FED saw the last boom as driven by housing.  Therefore they want to reinflate the housing bubble.  They think by buying MBS they will boost housing to pre 2007 levels.  If they only looked at the data they would notice the last QEs actually raised interest rates, not lowered them. So one has to ask, what are they thinking?

Fri, 09/14/2012 - 23:44 | 2798002 1C3-N1N3
1C3-N1N3's picture

And if a mass default on mortgages is deflationary then the time period immediately following that would be an opportune time for the banks to do something with all those reserves they've been sitting on -- talk about concentrated purchasing power.

Fri, 09/14/2012 - 19:02 | 2797386 Cult_of_Reason
Cult_of_Reason's picture

Welcome back to 1970s stagflation!

Fri, 09/14/2012 - 19:03 | 2797390 Ineverslice
Ineverslice's picture

Welcome to the Machine.

Fri, 09/14/2012 - 19:08 | 2797409 economics9698
economics9698's picture

USSR 1987.  Not much road left.

Fri, 09/14/2012 - 19:46 | 2797464 Ineverslice
Ineverslice's picture

Man, those Soviets were tough...had nothing and knew enough not to swallow the propaganda.

How will we fare?  

Sat, 09/15/2012 - 16:36 | 2799164 Oldrepublic
Oldrepublic's picture

Soviet propaganda was rather crude, US much more slick and sophisticated

Fri, 09/14/2012 - 19:31 | 2797479 LawsofPhysics
LawsofPhysics's picture

Two big differences, in the 70's, we actually had wage inflation and could rates. Neither is possible now.

Fri, 09/14/2012 - 20:24 | 2797550 Cult_of_Reason
Cult_of_Reason's picture

I suggest you cut down on guzzling CNBC Kool-Aid and educate yourself, instead of blindly like a lemming repeating CNBC nonsense.

Higher wages (or wage inflation) appears later during stagflation (as it was the case during 1970s), after continuous increases in the price of goods (not before, as LiesMan and other morons on CNBC claim) people demanded higher wages and that pushed prices even higher in a vicious upward spiral, as inflation fed on itself.

Fri, 09/14/2012 - 20:30 | 2797638 razorthin
razorthin's picture

Higher wages can't be had.  Thanks to bermonkey, corporations will suffer input cost inflation (already are) in the face of a declining global consumer appetite.  It is a recipe for such a quick crash it will make your eyes bleed, and soon.  I think it will happen before year's end.

Fri, 09/14/2012 - 20:45 | 2797667 Cult_of_Reason
Cult_of_Reason's picture

Contrarily to constant CNBC lies (today this lie was repeated by Scott Minerd, Guggenheim Partners), you can have high inflation + high unemployment (or as they call it, a labor market "slack") both at the same time.

Fri, 09/14/2012 - 21:00 | 2797712 razorthin
razorthin's picture

That is in reality what we have now.  If we were are honest about both the real unemployment and inflation rates it would be plain to see.  Inflation now is entirely a monetary phenomenon and we are locked in.  Market prices and employment/wages will continue to diverge until the masses revolt.

Fri, 09/14/2012 - 20:43 | 2797663 LawsofPhysics
LawsofPhysics's picture

Who is drinking the Kool-aid? Again you ignore the issue of interest rates. There is no demand fool, and there will be a collapse long before anybody demands anything. Totally different situation, the currency is going to die, period. Don't worry the IMF has a plan.

Fri, 09/14/2012 - 20:59 | 2797710 Cult_of_Reason
Cult_of_Reason's picture

You are obviously suffering from a lack of brain power (try to plug to your head an iPhone battery, maybe it will help).

Three ingredients for 1970s stagflation:

1. $3350 gold and $190 oil is high inflation (check)

2. High unemployment (check)

3. Stagnant economy (check)

Fri, 09/14/2012 - 21:28 | 2797751 LawsofPhysics
LawsofPhysics's picture

Dollar demand? Done. I am sure things will turn out just fine.

Fri, 09/14/2012 - 21:41 | 2797809 Cult_of_Reason
Cult_of_Reason's picture

No matter what Bernake does, it will end up in a deep recession.

Either we have it now, or he tortures the country first by creating a 1970s-like stagflation (note, 1970s stagflation was cured with a deep recession).

 

 

Fri, 09/14/2012 - 23:31 | 2797980 LawsofPhysics
LawsofPhysics's picture

And higher interest rates, no way to raise rates now. The dollar is done, not the case in the 70's.

Fri, 09/14/2012 - 20:44 | 2797666 CPL
CPL's picture

That was thanks in part to the strength of Big Steel Unions.  The teamsters were very effective at their tactics co-op or kill.  Corruption was also an undertone in the 70's, rise of cartels, Olly North hocking goods to the Contras and swapping prisoners/weapons withthe Iranians...he wasn't put on "trail" until much later.  Put Reagan in the chair and kicked the front teeth out of Carter.

 

The 70's was wickedly corrupt.  

Fri, 09/14/2012 - 20:49 | 2797673 Cult_of_Reason
Cult_of_Reason's picture

Big Steel Unions in the 1970s = Public Unions and Obama's UAW in 2012

Fri, 09/14/2012 - 21:20 | 2797763 LawsofPhysics
LawsofPhysics's picture

LMFAO! What percentage of the work force is in a union today compared to then? Try again.

Fri, 09/14/2012 - 21:28 | 2797784 Cult_of_Reason
Cult_of_Reason's picture

Over the last three decades, union membership in the private sector has fallen precipitously, from 24.2% in 1973 to just under 7% in 2011. Over the same period, public sector union membership jumped by 14 points, from 23% to 37%.

http://articles.nydailynews.com/2012-08-24/news/33371898_1_union-membership-private-sector-public-sector

P.S. Please plug in an iPhone battery to your right ear and try again.

Fri, 09/14/2012 - 21:55 | 2797829 LawsofPhysics
LawsofPhysics's picture

Nice NY propaganda. None of the people working for our state are in unions.

Fri, 09/14/2012 - 20:38 | 2797584 Cult_of_Reason
Cult_of_Reason's picture

Stagflation in the 1970s

The term "stagflation" -- an economic condition of both continuing inflation and stagnant business activity, together with an increasing unemployment rate -- described the new economic malaise.

Inflation seemed to feed on itself. People began to expect continuous increases in the price of goods, so they bought more. This increased demand pushed up prices, leading to demands for higher wages, which pushed prices higher still in a continuing upward spiral. Labor contracts increasingly came to include automatic cost-of-living clauses, and the government began to peg some payments, such as those for Social Security, to the Consumer Price Index, the best-known gauge of inflation. While these practices helped workers and retirees cope with inflation, they perpetuated inflation.

The government's ever-rising need for funds swelled the budget deficit and led to greater government borrowing, which in turn pushed up interest rates and increased costs for businesses and consumers even further. With energy costs and interest rates high, business investment languished and unemployment rose to uncomfortable levels. In desperation, President Jimmy Carter (1977-1981) tried to combat economic weakness and unemployment by increasing government spending, and he established voluntary wage and price guidelines to control inflation. Both were largely unsuccessful...

...But the most important element in the war against inflation was the Federal Reserve Board, which clamped down hard on the money supply beginning in 1979. By refusing to supply all the money an inflation-ravaged economy wanted, the Fed caused interest rates to rise. As a result, consumer spending and business borrowing slowed abruptly. The economy soon fell into a deep recession.

http://economics.about.com/od/useconomichistory/a/stagflation.htm

 

 

Fri, 09/14/2012 - 19:03 | 2797391 mccoyspace
mccoyspace's picture

The easy solution to such a distastefully high percentage of Treasury ownership by the Fed is simple: massively ramp up government debt!
At 5 times the current debt level the Fed will own a much more modest amount of the total.

Yes, yes, sarc.....

Fri, 09/14/2012 - 19:03 | 2797394 drink or die
drink or die's picture

In before MDB:

 

This analysis is flawed because the market and US economy will obviously be fixed before 2014....

Fri, 09/14/2012 - 19:11 | 2797424 Roandavid
Roandavid's picture

That's good hustle.

Fri, 09/14/2012 - 19:04 | 2797397 ElvisDog
ElvisDog's picture

$5T may be the nominal value, but what is the real value of asset sheet full of shit mortgages that aren't being paid?

Fri, 09/14/2012 - 19:05 | 2797401 zerotohero
zerotohero's picture

Drum roll please - FUCK THIS SHIT IT'S FRIDAY or FTSIF

Fri, 09/14/2012 - 19:07 | 2797405 YesWeKahn
YesWeKahn's picture

The title says it all "5 tons of FED bull shits".

Fri, 09/14/2012 - 19:07 | 2797408 nmewn
nmewn's picture

Still stacking here Louis!

Looking good Billy Ray!

Fri, 09/14/2012 - 19:12 | 2797426 Ineverslice
Ineverslice's picture

Au or Ag?

Why not both!

Fri, 09/14/2012 - 19:26 | 2797466 nmewn
nmewn's picture

lol...both...and rubies, sapphires, jade, diamonds, art...converting it into something of real value is really all that matters at this point.

They are lunatics...and everyday, the Paper Boy brings more.

http://www.youtube.com/watch?v=PwNYqHRHUOQ&feature=related

Fri, 09/14/2012 - 19:15 | 2797425 You Didn't Buil...
You Didn't Build That's picture

Last year the two Biggest Wigs at GS and DB said employment will not improve for 8-10 years. They added that house prices would not stabilize (i.e., would not stop dropping) until employment improved.

Also, most people who want to refinance already did so. Despite continued zero down mortgages being handed out, I don't see many people buying with their incomes stuck at this level:

[The median household income in the United States in 2011 was $50,054, down from inflation-adjusted figures of $54,489 in 2007 and nearly $55,000 in 1999.]

So Ben has lots of work ahead of him.

Fri, 09/14/2012 - 19:16 | 2797438 Martial
Fri, 09/14/2012 - 19:18 | 2797442 amadeusb4
amadeusb4's picture

I don't think the fed is anticipating a 2 year recession. ECRI said that this recessionary cycle is going to be shallower than the 2008/9 recession. Seeing how it has already begun back in the May to June timeframe, THIS is in fact the time to print to avoid a deflationary death spiral of demand destruction. We will likely get past the worst point in Q1  or Q2 of 2013 and printing can ease off for the rest of the year. I don't think anybody is actually contemplating this level of injection into 2014. The problem with giving timetables is that it takes away flexibility going forward or it simply makes the fed look like a flake for saying this and doing that or MORE of a flake, I should say.

Fri, 09/14/2012 - 20:01 | 2797551 SDShack
SDShack's picture

You may be correct that this is what the Fed anticipates will happen. But the real question is what happens if the UNEXPECTED happens? How will this Fed model behave then? Case in point. Hurricane Katrina reducing oil production in the Gulf leading to a spike in oil prices. Drought in the US, causing food price spikes. MidEast War, whether spontaneous or black flag... doesn't matter... there are always unexpected consequences. The list goes on and on. When you are skating on thin ice, and something unexpected happens, there is no margin for error. The Fed is obviously not foolproof. Just look at how they thought the housing bubble was not a bubble. Given this view, bi-flation is what we have, and will continue to have. Deflation of wages and hard assets like housing, coupled with inflation of necessary goods and services like food and transportation.

Fri, 09/14/2012 - 20:22 | 2797621 Pareto
Pareto's picture

"THIS is in fact the time to print"?  Hey Amadeus!  Central planners and money printers do not create employment - MARKETS DO!  And what means "defaltionary death spiral of demand destruction"?  Prices have to fall to attract capital.  Higher prices crush margins as domestic prices rise, and the cost of foreign inputs rise due to depreciating exchange rate from debasing your fucking curency!  Demand destruction arises from higher prices, not falling prices!  And WTF does the ECRI know?  Flaky FED?  Who gives a rats ass?  A zero savings rate is permanently dislocating productive capital to other places that are not so insane as to think we can have a free lunch by papering over debt over debt over debt; all the while the middle class gets fleeced by a coercively imposed reduction in purchasing power.  For just that alone Bernanke should go to jail and while he is in there, you can be his adjutant and reflect on why a wholesale debasement of the currency didn't accomplish a fucking thing but destroy people's lives.

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