This page has been archived and commenting is disabled.

The Ever Diminishing Returns Of Central Bank Intervention, Or QE As The Godfather Trilogy

Tyler Durden's picture


To anyone who is still confused about why the Fed is on the fence about QE 3, the chart below, inspired by David Rosenberg's daily note, should explain it all. While we have repeatedly shown that the intervention of central banks in the FX arena gets progressively weaker with each incremental incursion by central planning into formerly free and efficient markets, the same can be said for not only fiscal stimulus (today's bankruptcy of Solyndra being merely the ironic cherry on top of the house of cards), the same is most certainly true about monetary intervention as well, in the form of LSAP or any other form of duration extension. And while many have already explained extensively why QE was a flop, here is Rosie with an angle we had not considered before: movie trilogies: "it's not as if QE2 accomplished anything except a blip on the screen as far as the market was concerned, and it elicited no lasting benefit for the economy either. QE1 did work but that was when the system needed to be saved - the S&P rallied 74% on that program. QE2 was nothing more than a gimmick shrouded in deflation concerns [uhm, this coming from Rosie? we'll let it slide] that never materialized, and during this program the stock market ended up rising just 16%. And so what will QE3 bring except more in the way of diminishing returns and resource misallocation caused by central bankers attempting to play around with mother nature by manipulating asset prices? Call it the equivalent to the Godfather Triology: Godfather I was epic; Godfather II not quite as good but still fine; and Godfather III was a dud." And as for the appropriate visual...


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 08/31/2011 - 20:57 | 1621210 Space BATS
Space BATS's picture

Time to go batshit.

Wed, 08/31/2011 - 21:10 | 1621249 dlmaniac
dlmaniac's picture

GF2 is actually deeper in its content tho imo.

Wed, 08/31/2011 - 21:22 | 1621277 spiral_eyes
spiral_eyes's picture

I think QE is gonna be more like the Alien quadrilogy. Chestbursters, bitchez!

Wed, 08/31/2011 - 21:46 | 1621340 narnia
narnia's picture

Godfather 2 was the best movie ever made.  Even without Brando, it's better than 1.

It is insulting to use the GF series as an analogy to the Fed balance sheet comedy, which is more like Police Academy.

Thu, 09/01/2011 - 10:44 | 1622619 Nascent_Variable
Nascent_Variable's picture

I second this outrage.  Comparing the fuckery and incompetence of central bankers to masterpieces like Godfather I and II is an insult.  Even Police Academy is a stretch.

I'd go with Weekend at Bernie's - a corpse dancing around again and again, while the great unwashed around it have no idea it's dead.

Wed, 08/31/2011 - 21:02 | 1621215 CrashisOptimistic
CrashisOptimistic's picture

Sounds right.  Diminishing jolts to the string which is pushed.

Want more consternation?  Behold the super committee and its fights about to begin.

Behold Brent's spread now enroute to $27, when it was never anything other than $0 in all history prior to about January.

Behold the EU about to re-enter the arena, as avoidance of Labor Day examination of disastrous August-red 401K accounts loses prominence in the algorithms and they return to mulitnational earnings.

Don't drink the Koolaid that equities are anticipating QE3.  Equities were told to rise this week because of fear of the end of August 401K numbers that are leisurely examined during Labor Day weekend.  Never ever forget . . . 2/20 requires money under management.  When it flees, it never returns.

Wed, 08/31/2011 - 21:08 | 1621239 trav7777
trav7777's picture

ZIRP is already a sign that returns in the aggregate have diminished to 0.  The bank cannot even lend money at 0%.  Think about what that means.

QE1 was a bigger bang at any rate in its fundamental structure than QE2 was, so comparing them apples-to-apples is specious.

Wed, 08/31/2011 - 21:42 | 1621331 ??
??'s picture


please do elaborate

Wed, 08/31/2011 - 21:01 | 1621217 potatomafia
potatomafia's picture

QE3, Go big or go home!!! 


WWIII - Earth vs Mars!


Stimulate me damnit!

Wed, 08/31/2011 - 21:03 | 1621227 Space BATS
Space BATS's picture

The bernaks beard does have a purpose.

Wed, 08/31/2011 - 21:02 | 1621223 nmewn
nmewn's picture

So much money much time...


Aug 31, 2011 9:50 AM EDT


Aug 31, 2011 9:50 AM EDT

"RAEFORD, N.C. (AP) - The foreclosure sale of North Carolina's first ethanol plant is drawing an opening bid about equal to the loan guarantees that taxpayers gave as an incentive to develop renewable energy sources.

The Fayetteville Observer reported Wednesday ( ) that the Clean Burn Fuels plant in the works since 2005 brought a $35 million bid from its primary lender during a foreclosure sale.

The plant's owners filed for bankruptcy protection in April. The Raeford-based company said the price of ethanol had not kept up with the surging price of corn."

Perhaps a little less central planning is in order?

Wed, 08/31/2011 - 21:09 | 1621244 CrashisOptimistic
CrashisOptimistic's picture

Perhaps physics is in order.

There are 26.8 megajoules of energy in a kilogram of ethanol.

There are 45 megajoules of energy in a kilogram of gasoline.  And it requires 1 gallon of gasoline to merely produce a gallon of ethanol.  So that 45/26.8 ratio is horribly worse.

I don't give a fuck what Bernanke does.  Physics and Geology win this war.

Wed, 08/31/2011 - 21:15 | 1621261 nmewn
nmewn's picture

And of course, for the legions of humanitarian dupes waking up to the nightmare they have created, corn rests easier on the tummy than gasoline ;-)

Wed, 08/31/2011 - 21:46 | 1621343 ??
??'s picture

corn for feed, corn for sweetner, corn for cereal, corn on the cob

it's all GMO. so better in the tank than the dinner table

Wed, 08/31/2011 - 22:09 | 1621407 Prometheus418
Prometheus418's picture

It's really light on details and specifics, but I'm tired of nothing but terrible news.

Here's to hoping these guys are on to something worthwhile.  Gut feeling is that if it's not just senseless hype, it's a hell of a lot better than burning corn.

Wed, 08/31/2011 - 23:51 | 1621636 FederalReserveB...
FederalReserveBankofTerror's picture

Marty says: "What the hell is a megajoule?!"

Is this a Megajoule?


Wed, 08/31/2011 - 21:11 | 1621250 trav7777
trav7777's picture

did they even fucking ASK the taxpayers if they thought this stupid shit corn ethanol was a good fucking idea?

Corn ethanol is in the aggregate a NEGATIVE ROI behavior.  This is the most utterly batshit stupid thing anyone can do.

I propose that the "taxpayers" give me a guarantee to pump water uphill during the day so that I can release it at night in order to supplement the lack of solar energy after dark.  If corn ethanol makes sense, surely my idea is even better, right?

Wed, 08/31/2011 - 21:32 | 1621305 scatterbrains
scatterbrains's picture

what I like about ethanol is all the clueless yuppies that put their $400 mowers out on the curb after one or two seasons because they don't know why it wont start and they tired of getting gouged by the mower repair guy.

Wed, 08/31/2011 - 21:40 | 1621323 Tijuana Donkey Show
Tijuana Donkey Show's picture

Stabil........... Give me Stabil.....

Wed, 08/31/2011 - 21:59 | 1621383 technovelist
technovelist's picture

Sorry, but that makes FAR more sense than corn ethanol.

Thu, 09/01/2011 - 12:15 | 1622886 Libertarians fo...
Libertarians for Prosperity's picture



Here's your reason why corn ethanol is so heavily subsidized....


Wed, 08/31/2011 - 21:03 | 1621225 mcguire
mcguire's picture

yeah... NIA did a great job on an account of what QE4 will look like..

Wed, 08/31/2011 - 21:08 | 1621242 Space BATS
Space BATS's picture

The U.S is nothing but a margin nation. We live on margins.  We don't produce our own Oil, Cars, Computers, Coffee, etc.

Nothing is made in America anymore, we are forced to live on the margins, so easing should squeeze those margins even more so even more people can be laid off.

When will people get it, the easing of the past 3 years did not create jobs, it destroyed jobs.  In a nation of margins, not one job will have been created when you squeeze the margin.

Wed, 08/31/2011 - 21:56 | 1621375 Bring the Gold
Bring the Gold's picture

Most people are completely economically and financially illiterate. Nobody who understands this stuff thinks it creates jobs. People who understand it think one of three things:

1) It's madness for all the obvious reasons (i.e. the ethical and/or long term thinker outlook).

2) It's great cause they can skim some money out of the market (i.e. the short-sighted selfish ass opinion).

3) It's great because the lower classes are losing everything which can be bought for pennies on the dollar, while their debts are inflated away (i.e. the Banker motto).

Nobody who understands this stuff truly believes it creates jobs.

Wed, 08/31/2011 - 22:07 | 1621403 Everybodys All ...
Everybodys All American's picture

Politicians have bought in to the globilization and free trade garbage and it has in turn wrecked American middle class jobs. No one will do the right thing in DC which is to challenge the status quo. These guys are bought and paid for to continue sending yours and my future wealth overseas. If you remember the last time you heard about this was when Obama was running for president but not a damn thing has been done since to change it. Tariffs need to be put back in place to level the playing field and can't come soon enough.

Wed, 08/31/2011 - 22:37 | 1621478 ManufacturedOpinion
ManufacturedOpinion's picture

Whoooaaa !

Not so fast !!

Actually, the USA still DOES manufacture something





Thu, 09/01/2011 - 09:58 | 1622434 Scisco
Scisco's picture

Don't forget USA's #1 export DEBT! It's an asset.

Wed, 08/31/2011 - 21:09 | 1621246 sellstop
sellstop's picture

Stimulus works when the private sector and individuals have had a chance to save. Sooner or later the stimulus will work. The problem with the last couple years has been that it was too early to work.....


Wed, 08/31/2011 - 21:14 | 1621256 IMA5U
IMA5U's picture

stimulus works when a power hungry socialist is not our president

Wed, 08/31/2011 - 22:34 | 1621468 sellstop
sellstop's picture

I suppose we need one of those power hungry Nazi republicunts.

Wed, 08/31/2011 - 21:12 | 1621254 Medea
Medea's picture

"formerly free and efficient markets"


Sure they were.

Wed, 08/31/2011 - 21:14 | 1621257 dolph9
dolph9's picture

Point taken but Godfather III was actually quite an interesting movie, it's just that it was overshadowed by two of the best movies of all time.

Wed, 08/31/2011 - 21:32 | 1621311 mcguire
mcguire's picture

want to watch a lecture on the nature of reality?  watch this:

Wed, 08/31/2011 - 21:58 | 1621378 PaperBugsBurn
PaperBugsBurn's picture

Thanks, will do.

Wed, 08/31/2011 - 21:21 | 1621269 Hansel
Wed, 08/31/2011 - 21:21 | 1621274 mynhair
mynhair's picture

I don't get it.  Close my EUR short, or double on my USDHUF long?

I hate this decision shit.

Wed, 08/31/2011 - 21:22 | 1621279 alien-IQ
alien-IQ's picture

as was the case with the Godfather Trilogy....part 3 will suck.

Wed, 08/31/2011 - 21:27 | 1621295 Mediocritas
Mediocritas's picture

Well, at least it will be really easy to produce an updated chart in the future following implementation of QE3. Just delete the question mark. Done.

Wed, 08/31/2011 - 21:31 | 1621297 djsmps
djsmps's picture

Bad analogy as far as i'm concerned.

Call it the equivalent to the Godfather Triology: Godfather I was epic; Godfather II not quite as good but still fine; and Godfather III was a dud

Godfather II was as good, if not better than Godfather I. Godfather III sucked. And, honestly, I can't even compare Godfather I and II, because they are both masterpieces in their own right. I stumbled across the Godfather Saga about 15 years ago, which has both movies in chronological order, and added extra footage. That was the best.

But, good post, and I get it. Just don't diss Godfather II.

Wed, 08/31/2011 - 21:29 | 1621299 mynhair
mynhair's picture

Thank you all for being morons.  Closed the short, and doubled the long.  Byte me.

Wed, 08/31/2011 - 22:39 | 1621480 Alpha Monkey
Alpha Monkey's picture

I closed my short months ago and bought gold.  No way I'm taking worthless fiat, no matter how high the stock market rallies.  Oh, and I'm up, even with ever increasingly expensive purchases.

Wed, 08/31/2011 - 21:29 | 1621300 lolmaster
lolmaster's picture

I and II should not be considered as separate movies ... But if one has to choose clearly II is superior...

Wed, 08/31/2011 - 21:30 | 1621302 electronpaul
electronpaul's picture

"Pushing on a string,

Pushing on a string,

no matter how hard you try,

it doesn't do a thing..."

Hit song from 2012-14 depression era.

Wed, 08/31/2011 - 21:36 | 1621314 Subprime JD
Subprime JD's picture

Correlation does not equate to causation. Let's Not forget That qe1 began at the same time when the market was at 14 year lows.

Wed, 08/31/2011 - 22:36 | 1621470 Alpha Monkey
Alpha Monkey's picture

That's what I was thinking too.  If they let the market really drop this time, before re-juicing it, there will probably be a repeat of the 1st round improvements.

Wed, 08/31/2011 - 21:48 | 1621344 mfoste1
mfoste1's picture

this shit aint rocket science no matter how much they make it out to be....... introduction of additional liquidity in a weak market has diminishing effects. Why? cause all the fucking liquidity goes to the banks and they fucking spend it on bonuses and coke/hookers. You want to see a more real effect of throwing a trillion dollars into the "economy"?  better off giving everyone in america a debit card loaded with 10k on it and continue the ponzi scheme. At least give the people some of the money back that has been fucking stolen from them over the past 100yrs due to inflation bs.


damn this buillshit is really getting to me

Wed, 08/31/2011 - 22:34 | 1621469 Alpha Monkey
Alpha Monkey's picture

damn this buillshit is really getting to me

Take a deep breath... Exhale slowly. Now, go buy physical gold and tell everyone you know to buy gold to help bring the financial system down that much faster!  DO NOT BUY PAPER GOLD as this just contributes more profits and system--management-resources (manipulation $$) to the same people we claim to want to be rid of.

If you already have gold, and have already told everyone, smoke a J.

Wed, 08/31/2011 - 21:49 | 1621353 Long-John-Silver
Long-John-Silver's picture

This shit it turning into Rocky Movies to infinity.

Complete List Of Rocky Movies
Wed, 08/31/2011 - 21:50 | 1621356 reader2010
reader2010's picture

If they really wanted to kick start the economy, they would have already done simple things, such as giving each family a new electric or hybid car for free,  for example. Sadly the Fed and the Treasury are only interested in making money for their true Masters at the expense of We the Sheeple.

Wed, 08/31/2011 - 22:00 | 1621386 Long-John-Silver
Long-John-Silver's picture

The main problem we have is giving away free stuff we (tax payers) can't afford.

Wed, 08/31/2011 - 22:53 | 1621517 reader2010
reader2010's picture

We the Sheeple are forced to give trillions to the Masters.  Why can't we give a small fraction of a trillion to our citizens,  so that we can get people back to work?

Wed, 08/31/2011 - 21:58 | 1621381 Cursive
Cursive's picture

I'm very certain that if we do get QE3, violence at the supermarkets, Wal-Mart and gas stations across the country will be frighteningly commonplace.

Wed, 08/31/2011 - 22:07 | 1621393 buzzsaw99
buzzsaw99's picture

What makes you think that QE is a trilogy?





Wed, 08/31/2011 - 22:10 | 1621410 Caviar Emptor
Caviar Emptor's picture

I think it's far worse than 'pushing on a string', or Godfather 3. Those imply little benefit from the law of diminishing returns. 

I think with QE we get Biflation: the worst of all possible economic worlds. 

Why? At the core of it, QE erodes dollar confidence and adds to over-financialization of the economy, which is really a gross misallocation of demand created out of thin air. This toxic brew leads to inflation. And in the context of general economic deflation (from lingering overcapacity and debt-deflation) it doesn't take a lot to make it a heavy dose of rising input costs that squeeze margins and the middle class consumer. 

In the bigger picture, QE short-circuits creative destruction. So the rot in the economy persists and even thrives while competition and new entrants and ideas are stifled. Of course, that's no accident. The intent is to avoid large scale defaults on debt controlled by powerful forces. This perpetuates the debt-slavery under conditions where the inevitable is just agonizingly delayed, not avoided

Wed, 08/31/2011 - 22:23 | 1621452 Captn Morgan
Captn Morgan's picture

Thanks for clearing that up. I thought Biflation was a hermorphidite blow-up doll.   (sarc)

Wed, 08/31/2011 - 22:32 | 1621464 Caviar Emptor
Caviar Emptor's picture


It's the doll formerly known as bivulvia

Wed, 08/31/2011 - 22:11 | 1621412 bluehorsesandal
bluehorsesandal's picture

Where are the negative numbers on the y-axis of the third chart 

Wed, 08/31/2011 - 22:17 | 1621434 oblonsky
oblonsky's picture

well, to be fair the amount of securities purchased in the two QE programs have been of different varieties (MBS vs Treasurys), different maturities, and different amounts. to make a more accurate diagram, you would have to take these variables into consideration when conducting your analysis

Wed, 08/31/2011 - 22:36 | 1621473 Bicycle Repairman
Bicycle Repairman's picture

QE is about destroying FRNs.  So to answer your question: "Will there be more QE?"  I counter with: "Is anybody still accepting FRNs?"

Wed, 08/31/2011 - 22:53 | 1621524 Seasmoke
Seasmoke's picture

i think you better start doing movie reviews of all the Rocky Movies.........there will be just as many QE

Wed, 08/31/2011 - 23:16 | 1621571 zorba THE GREEK
zorba THE GREEK's picture

QE3 to be effective will have to be far larger than QE2 to get the same positive effect. The problem is that the

negative effects of QE3 will be far larger. Ben knows this fact and will only release QE3 as a final, desperate measure.

When QE3 is announced, we will be entering the final chapter of the Last Empire.

Wed, 08/31/2011 - 23:24 | 1621589 TruthInSunshine
TruthInSunshine's picture

QE3 is more akin to what Weekend At Bernie's was to Godfather I or II.

Wed, 08/31/2011 - 23:30 | 1621600 duckhook
duckhook's picture

In fact Qe3 might backsfire almost right away.For the Fed to engage in buying large amounts of securities without an imminent threat of deflation,destroys their credibility.And many people will interpret that to mean that they (the Fed) see something really bad coming soon and want to get ahead of it.Look what happened  after the end of QE@.People panicked into cash and cash equivalents.,stocks tubed and confidence fell.And if Qe involves buying very long dated securities,then the FEd risks huge problems of duration risk

Wed, 08/31/2011 - 23:30 | 1621601 falun bong
falun bong's picture

QE fulfills the Feds mandate: the stability of the banking system. QE1 kept them alive; QE2 kicked the can down the road a bit more; QE3 will be designed to do the same.

Don't mistake the Feds mandate with the good of the country or the good of the people. Liked all privately-owned corporations, all they can do is serve their stockholder's interests.

Wed, 08/31/2011 - 23:38 | 1621612 TruthInSunshine
TruthInSunshine's picture

Those who claim that QE3 will be the giant red flag warning the elite need to pack their bags, and allow them some time to unwind their holdings and move to liquidity, have it closest to correct.

If QE3 is launched as a full fledged and robust policy, look out for you and yours.

Thu, 09/01/2011 - 01:02 | 1621766 zorba THE GREEK
zorba THE GREEK's picture


Thu, 09/01/2011 - 02:22 | 1621882 seoerlin
seoerlin's picture

Ray Ban Sunglasses more of a mental rhythm, he said. I know what Im doing out there. If Ray Ban Sunglasses Outlet take 5 or 10 swings, Im ready to go. Yankees Manager Joe Girardi said that the Yankees would try to ensure Jordan Fusion that Rodriguez was fully recovered before he returned so that he does not aggravate it. We want it to heal, and we Air Max Jordan believe it will heal, Girardi said. It will take a few days, but Ray Ban Sale believe it will heal. The timing of this injury has been particularly irritating to Rodriguez. After missing 38 Nike Air Max games following arthroscopic knee surgery June 10, he had played in only four games before the thumb injury. And in Oakley Sunglasses addition to the thumb and the knee, Rodriguez has also dealt with a shoulder problem this year, and has played in Ray Ban only 84 games. We stand here today to just say no to slavery, to just say no to tar, sands, oil, and no to the Keystone Griffey Air Max 2011 pipeline, the Kill Bill star said before she was handcuffed, CNN reports. The protest was aimed at a massive Jordan 3 Air Max Fusion expansion of a pipeline carrying oil from Alberta, Canada, to the Gulf of Mexico. The State Department is Jordan 5 Air Max Fusion expected to give the project final approval by years end. Making Jordan 11 Air Max Fusion the decision to do Dancing with the Stars was a no-brainer, Artest told PEOPLE at Monday nights live, season 13 DWTS cast Jordan 13 Air Max Fusion announcement in L.A. At first it was not appealing, Artest Oakley Sale confesses. I did not want to do it. I dont dance and all of the dressing up and everything, but my daughter Diamond Ray Ban Online Store was like, Daddy, you should do it.

Thu, 09/01/2011 - 07:51 | 1622151 dcb
dcb's picture

In general I am against the idea of someone being ganged up on and removed. But, tyler perhaps the system can be tweeked so enogh bad comments from troll like above get them banned. I guess it's free advertising, but one I don't think the ZH crowd is the target audience for his wares, and two I think the Zh crowd would refuse to buy just because of the troll behavior

Thu, 09/01/2011 - 07:57 | 1622155 dcb
dcb's picture

OK, the thing i DON'T LIKE ABOUT THIS POST IS THAT it FALLS FOR THE ELITES TRICK OF FALLING FOR THEIR TALKING POINTS. If you watched what happened on QE1, and how it didn't do what it was supposed to, then you knew Qe 2 had nothing to do with what the stated goals are. By addressing the issues raised by the central bankers Rosie falls into that trap. MY initial analysis of any central baqnk action now starts out with: How does this help the bankers?. I consider all the talk about the economy and unemployment to be a smoke screen.

Look I get the game, in the hospital if you wanted something you talked about patient safety. never aqbout what it would do for you. Ever notice how bankers never talk in public of how something makes them mnoney, or a ceo. *It's a joke, and done for media.


Thu, 09/01/2011 - 08:46 | 1622238 Mises
Mises's picture

I think it's going to be more like:


Mon, 09/05/2011 - 09:09 | 1633904 shacai
shacai's picture

Welcome to .Our company was founded in 2004 and was committed to internet marketing businesses in 2006. Replica Handbags are always in a great demand and sells well. Recently, we launched some new and updated them on our website. Here you can find some scarce Cheap Christian Louboutin shoes, which were difficult to find from other websites. sac à main are also always in hotsale.

We have gotten many great comments from our customers and earn a good NFL jerseys reputation in foreign makerts, more than 90% customers are satisfied with our products and service, till now our online members NFL jerseys are beyond 80,000. As of right now, we currently serve customers from over Christian Louboutin 18 countries, and we are still growing. We really hope to expand our business through cooperation with individuals and companies from around the world.

Do NOT follow this link or you will be banned from the site!