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Everything You Know About Monetary Policy Is Wrong... And Why This Is Very Bad News For Europe

Tyler Durden's picture


For over a year we have been cautioning that even more than a "liquidity versus solvency" debate, the biggest unspoken factor (though slowly gaining prominence) not only for Europe, although manifesting itself there most prominently, but all across the developed world is the quality of the (deteriorating) asset base, thanks mostly due to the Fed's influence over corporate cash misallocation, and courtesy of the fact that the bulk of credit money creation in the past decade has come via the shadow banking system, broad asset collateral. Last year MF Global taught us that it is this shadow collateral which exists merely in ledger entries between fractional reserve entities (mostly broker dealers and hedge funds), that is now extremely scarce and has to be pledged and repledged in daisy chains of ultra rehypothecation, and which just like robosigning exists until it is actually called for delivery, when the entire collateral<->money linkage falls apart. It is this intersection of traditional monetary liabilities and new shadow aggregates that is completely undiscussed by conventional economic literature, and is why traditional monetary theory is completely helpless in coming up with credible and effective means of returning the world to a growth state. In other words, the Krugmans of the world are absolutely unable to explain how shadow banking should be accounted for when explaining something as simple as the leverage collapse, first in Europe, and then in the US (we have covered the collapse of shadow banking repeatedly, most recently here).

We are delighted that one entity - Aitken Advisors - has put together a presentation for all those who take their Econ 101 as cannon, and explained why everything most people know about traditional monetary policy is not only out of date but hopelessly wrong.  We urge everyone to read this simple yet exhaustive explanation cover to cover, because only by understanding what it says, do we have any chance of properly addressing the fundamental problems that are affecting the developed world. Sadly, as anyone who will read this presentation will also comprehend, the one immediate implication is that the European Monetary Union is finished in its current iteration. Whether this EMU unwind will also lead to the collapse of all modern financial institutions remains to be seen but is certain unless the proper underlying cause is addressed and fixed, instead of merely treating the symptom: excess leverage...with even more leverage which guarantees a terminal collapse of everything modern society has fought hard to achieve over the millennia.

Below we summarize the key thoughts in a bulleting even Nobel prize winning economist can understand:

  • In a financed financial system, collateral is money
  • Large banks and dealers use and reuse collateral pledged by nonbanks, which helps lubricate the global financial system
  • Post Lehman, there has been a significant decline in the source of collateral for the large dealers that specialise in intermediating pledgeable collateral
  • This decline in financial lubrication likely has an impact on the conduct of global monetary policy
  • ...but remember ‘subprime is contained?’ Why?
  • New classical, new Keynesian, DSGE models: the crisis was not supposed to happen. Indeed, it could not happen.
  • These models rule out extended economic disequilibria by assumption...
  • ....and pay little if any attention to the factors now commonly believed to have both precipitated the crisis and to have contributed to its longevity
  • Worse, recent regulations aimed at financial stability, focussing on building equity and liquidity buffers, reducing leverage, and segregation of margin will  also reduce financial lubrication between banks and nonbanks
  • -> The EMU is over
  • How did EMU run out of eligible collateral? Where did that Euro 14 trillion of eligible collateral go?
  • Answer: nowhere, and that is the problem
  • Bigger firewalls? OR Creating the right incentives for buy-and-hold credit and fixed income investors to return to peripheral European credits with confidence?
  • How about loosening collateral guidelines even further?
  • The looser the collateral guidelines, the bigger the haircut, the less the bang for the ECB’s buck.
  • New collateral guidelines = credit risk absorbed by national central banks
  • Balkanisation of collateral guidelines across EMU = credit nationalism


  • What should you do?
  • If you think, like me, EMU is slowly and occasionally rapidly disintegrating before your eyes then the question you should be asking yourself every day is this: ‘How do I reduce my gross exposure to European credits and European banks to zero?’
  • In the absence of adequate hedges, the answer is ‘never take the exposure in the first place’.

Alas, for most banks in Europe how fell for the siren song of the LTRO it is now too late.

In presentation format:



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Fri, 05/04/2012 - 14:39 | 2397667 unununium
unununium's picture

Greenspan told Tom Keene this week that equities are the collateral of the financial system, hence that's why they are propped up.  These guys don't even bother lying anymore.

Another tidbit near the end -- Greenspan confronted with his own statements of 40 years ago that gold stands as the protector of property rights.

Fri, 05/04/2012 - 14:40 | 2397679 NewWorldOrange
NewWorldOrange's picture

It won't be long now before even the TRUTH won't be believed anymore, on the rare occasion it can be found at all. The point of no return.

Fri, 05/04/2012 - 14:44 | 2397689 MillionDollarBonus_
MillionDollarBonus_'s picture

I have been shocked and appalled at some of the gross misstatements I have seen about America's economy in the comments sections. There are many inaccurate data providers out there including known liars like John Williams of "shadowstats" dot com. 
Non-governmental sources of data should simply be banned. It is absolutely irresponsible to publish figures that deviate from official government statistics. 

Fri, 05/04/2012 - 14:47 | 2397699 AlaricBalth
AlaricBalth's picture

Come on MBD. I've seen you do better than that. I need some comic relief after getting clobbered on EUR/USD today.

Fri, 05/04/2012 - 14:51 | 2397713 The Big Ching-aso
The Big Ching-aso's picture



Hey things are pretty bad here too.  NASA just announced they're gonna try and land a man on Detroit.   Hope he re-enters with his ass intact.

Fri, 05/04/2012 - 15:29 | 2397823 Colombian Gringo
Colombian Gringo's picture

What is even more funny, as part of NASA's search for intelligent life, they are starting with Detroit.  Any bets on what they will find???

Fri, 05/04/2012 - 15:38 | 2397902 skank
skank's picture

10 bucks on crunchy monkey

Fri, 05/04/2012 - 17:55 | 2398391 RafterManFMJ
RafterManFMJ's picture

Hey things are pretty bad here too.  NASA just announced they're gonna try and land a man on Detroit.   Hope he re-enters with his ass intact.


Well, baby steps. You gotta crawl first. Thus NASA is planning a manned mission to Cleveland.

CAPE CANAVERAL, FL—Hailing the dawn of a new era in long-distance highway travel, NASA officials unveiled Monday the agency’s ambitious plans to put a man on a bus to Cleveland, OH by early 2013.

The complex and dangerous three-day mission, dubbed “Chariot I,” is expected to pass through six states and include two brief transfers in Atlanta and Louisville in both directions, at a reported total cost of $360 dollars plus taxes and fees.

“For almost as long as our nation has existed, man has gazed upon a map of the eastern United States and dreamed of traveling to Cleveland, the largest metropolitan area in Ohio,” NASA administrator Charles F. Bolden, Jr. said at a press conference announcing the agency’s first major initiative since the discontinuation of the space shuttle program. “Until now, the immense physical and psychological risks involved in any manned mission had put that dream sadly out of reach.”

“But not anymore,” he added. “Next year we are going to Cleveland and back.”

Enlarge ImagePotential candidates must be rigidly trained to withstand more than 19 hours of vacantly staring out a bus window at a barren field.

Standing next to a scale model of the vehicle that will make the difficult 1,039-mile voyage—a Motor Coach Industries 102DL3 equipped with extra legroom, power outlets, and a wheelchair lift—Bolden discussed the details of the mission, which is set to carry a payload that includes one change of clothes and a paperback copy of Erik Larson’s The Devil In The White City.

According to Bolden, barring any weather-related delays or the driver not showing up for some reason, the bus will depart from a station in Orlando on a north-northwesterly path following the curvature of Interstate 75 though the inhospitable central regions of Georgia, Tennessee, and Kentucky. Once it reaches Cincinnati, the bus will alter its attitude due east and slingshot around the city, merging onto I-71 for the final 130 mile stretch to Cleveland.

“En route to Ohio the vehicle will pass through some of the most unforgiving environments known to science,” said Bolden, alluding to, among other areas, the barren vacuum of Appalachia with nothing going on for hundreds of miles. “But the dangers aren’t limited to outside the bus—whoever makes the journey will have to contend with a host of toxic smells; loud, unrelenting noises at all hours of the day and night; and highly unstable passengers with whom a lack of eye contact alone does not necessarily guarantee one’s personal safety.”

“And those don’t even account for less predictable difficulties,” Bolden added. “The entire mission can suddenly be brought to a halt by the driver’s decision to pull over for a smoke.”

Candidates for the first Chariot mission have already begun rigorous training at NASA’s Kennedy Space Center in a true-to-life bus simulator capable of replicating the 52 hours of intense jostling they will experience in a threadbare, minimally reclinable seat. The preparation also addresses specific scenarios such as reading on the moving bus without throwing up, using the vehicle’s disgusting bathroom in stop-and-go traffic, and diffusing a conversation with a man who is clearly going to Cleveland to stalk his ex-wife.

Sources said that of the original 48 applicants, more than three quarters have washed out and returned to their respective branches of the military. Those who remain will spend months training for Chariot’s several scheduled EVAs, or extravehicular activities, during which they will leave the bus for a period of time to pick up food and hang out at a highway rest stop.

“The EVA presents the greatest risk for something to go wrong, whether it’s forgetting where the bus is parked or encountering a ridiculous line at the KFC/Taco Bell,” said mission control specialist John Lawton, who will be in constant contact with the passenger via a direct cell phone line. “You’ve got to be ready to improvise on a moment’s notice, grabbing a slice at Sbarro or, in a worst case scenario, a cup of soft-serve TCBY, and then waiting by the bus until people start to come back.”

“Because if that thing pulls away and you’re not on it, it might be days before NASA can mount a rescue,” he added.

Speculating on what future trips might entail, Lawton said that if the first mission is a success, a three-man Chariot II crew could return to Cleveland by bus later in the summer. He suggested that down the line, perhaps with Chariot V or VI, a NASA team may be able to reach Tucson, where research shows there is a possibility of hailing a cab to the Marriott Courtyard.

“Right now we are committed to putting a man on a bus to Cleveland and bringing him back safely, but ultimately Cleveland is just a stepping stone,” Lawton said. “If all goes as planned, we’ll have voyages to the outer reaches of Chicago, Minneapolis, and beyond.”

“And who knows?” he added. “Maybe it will even happen in my lifetime.,28024/

Fri, 05/04/2012 - 21:50 | 2398762 TheFourthStooge-ing
TheFourthStooge-ing's picture

I call bullshit. Everyone knows that you can't send a man all the way to Cleveland. It just can't be done.

And bring him back safely? Do you know how crazy that sounds? Why not send him to the friggin' moon and back? Sure, that's not possible either, but it sounds a lot more believable than Cleveland.

Manned voyage to Cleveland - coming soon to a NASA soundstage.


Sat, 05/05/2012 - 18:06 | 2399969 LongSoupLine
LongSoupLine's picture

It better be a union astronaut...

Sat, 05/05/2012 - 09:46 | 2399152 o2sd
o2sd's picture

That's not MDB, its a clone.

Fri, 05/04/2012 - 14:49 | 2397710 Gazooks
Gazooks's picture

best yet, MDB

Fri, 05/04/2012 - 14:50 | 2397715 carbonmutant
carbonmutant's picture

Be careful MDB censorship is a two way street...

Fri, 05/04/2012 - 14:55 | 2397735 francis_sawyer
francis_sawyer's picture

 "Non-governmental sources of data should simply be banned. It is absolutely irresponsible to publish figures that deviate from official government statistics."



Fri, 05/04/2012 - 14:58 | 2397744 SilverIsKing
SilverIsKing's picture

"It is absolutely irresponsible to publish figures that deviate from official government statistics."

Please explain why this is if the figures are more accurate than government figures.  Thank you in advance.

Fri, 05/04/2012 - 15:23 | 2397793 MillionDollarBonus_
MillionDollarBonus_'s picture

Here's what concerns me:
Many of the views of these data sources and the zerohedge readership are of a conspiratorial nature and an even larger number have a distinct right wing tone, which infringes on their objectivity. In my opinion Zerohedge needs to make people with softer views feel more welcome. Besides, most of the ideologies on this board such as anti-bankerism, libertarianism, anarcho-capitalism and off-the-gridism, have been repeatedly shown to be false by both the media and professors at top academic institutions.

Fri, 05/04/2012 - 15:32 | 2397853 AlaricBalth
AlaricBalth's picture

That's a little better.

Sat, 05/05/2012 - 03:00 | 2399003 Nobody For President
Nobody For President's picture

Give him props for trying - it IS Friday and it was not a great day for many - I was OK on the hedge (TZA) but tubed on most everything else - but I thought he was just a little bit too much this time. 

At best, you can't really be sure he is jiving...

Fri, 05/04/2012 - 16:15 | 2398060 azzhatter
azzhatter's picture

MillionDollarBoner is always good for a laugh. He's a good robot. You can wipe Ben's jizz off your cheeks now

Fri, 05/04/2012 - 16:19 | 2398082 superbroker1
superbroker1's picture

because media and professors at top academic institutions have been right on, right?

Fri, 05/04/2012 - 16:21 | 2398090 wandstrasse
wandstrasse's picture

...both the media and professors at top academic institutions...

too blatant... it is close to impossible that you really mean what you type.

Fri, 05/04/2012 - 16:24 | 2398105 jimmytorpedo
jimmytorpedo's picture

I think i'm in love with MDB

Toes the line and makes me laugh 'til I cry

Perfect wife material

Keep 'em coming MDB!

Fri, 05/04/2012 - 16:24 | 2398106 NemoDeNovo
NemoDeNovo's picture

Its not a "Conspiracy Theory".......its a Business Plan!  Just my 2c


Fri, 05/04/2012 - 16:29 | 2398144 Boxed Merlot
Boxed Merlot's picture

Absolutely.  We need more Kumbayah, campfires and s'mores.

Beyond that, the more the laiety can learn about the dangers repos pose to our fragile financial state the better.  Evidently, the 2 main tri-party repo agents, Mellon and the morgue, would be foolish if they didn't take advantage of the info they have on their clients agreements.  After all, trading on that info only makes the market "solvent", right?

Gone are the days when financial institutions could honestly call themselves trusts.



Fri, 05/04/2012 - 16:54 | 2398163 Bartanist
Bartanist's picture

The issue that I have with your posts is that they come across to me as simply spouting dogma, but offer absolutely no proof. If I wanted that, I could ONLY read outlets that get 100% of their news from Reuters (like all western mainstream media outlets do).

Unfortunately, and I really mean unfortunately, the idea that conspiracy "theory" is a ridicuous fantasy has been replaced by the realization that more and more of conspiracy theory has become documented conspiracy fact. Examples being the nonexistent Gulf of Tonkin incident and the USS Liberty incident, weapons of mass destruction in Iraq, each factually documented to have been very different than those wanting war had claimed.

A little closer to home, lets look at the Bear, Lehman and Merrill collapses, the intentional abuse of the required laws for the filing of mortgages and the MF Global incident, all of which would deserve prosecutorial interest if the people involved were not inside the "conspiracy". Crimes were comitted and documented by several writers and no one was prosecuted.

There are two main trains of thought. The first is that the people who are involved were simply greedy and incompetent, got in over their heads in an attempt to salvage their own income, their company's survival and the wellbeing of the country and the world. If that's the case, then oh well they did bad things and should be prosecuted, just like the guy who stole food to feed his family. The second possibility is that it is all intentional, at least from some level, most likely the lower levels are just ignorant dupes, but it feeds into a much greater and patently evil plan (if good and evil are judged by the actions of someone on others). IMO, both are likely true and people such as yourself either grossly ignorant or or grossly lying to protect your piece of the conspiracy is a subject for amusement.

I am not sure it is possibly to "re-educate" people without first passing through the truth. 

Fri, 05/04/2012 - 17:01 | 2398264 Commander Cody
Commander Cody's picture

MDB: Are you dating Charlie Munger?

Fri, 05/04/2012 - 15:21 | 2397789 lizzy36
lizzy36's picture

Here Here.

Finally someone speaks some sense.

I also thinking that selling stocks should be banned because clearly that is also absolutely irresponsible behav

Central planning:we are doing it for your own good.

Fri, 05/04/2012 - 16:34 | 2398169 Rubicon
Rubicon's picture

Hear, hear

Fri, 05/04/2012 - 15:28 | 2397834 Bansters-in-my-...
Bansters-in-my- feces's picture


I see you had some paid monkeys hit the up arrow for bananas.


Fri, 05/04/2012 - 15:34 | 2397872 TWSceptic
TWSceptic's picture

lol you have to read his comments as sarcasm

Fri, 05/04/2012 - 15:38 | 2397901 Yossarian
Yossarian's picture

MillionDollarBonus: Kirshner in Argentina agrees and likely so does Krugman as he uses the "official" Argentine inflation figures to deflate nominal GDP while making the case for the brilliance of the Argentine economy.  You know, not the "bad" inflation figures put out using real data:  

Fri, 05/04/2012 - 16:26 | 2398126 Chuck Walla
Chuck Walla's picture

Is MDB really David Axelrod or Larry Summers?  Or does he just keep forgetting to end his stuff with /sarc?

Sun, 05/06/2012 - 01:53 | 2400378 MeelionDollerBogus
MeelionDollerBogus's picture

He IS /sarc

That's the joke

Given the opinions & tone I suggest a comparison to Joe Wiesenthal or directly to Paul Krugman.

None of us really know :D

Sat, 05/05/2012 - 00:55 | 2398943 collon88
collon88's picture

I see your shtick still continues to confound many ZH readers.  Keep up the good work, I love sarcasm, especially when nerds don't get it. That means you Sheldon Cooper.

Mon, 05/07/2012 - 05:28 | 2402733 MeelionDollerBogus
MeelionDollerBogus's picture

John Williams? He uses the same input stats as the government.

He just doesn't use the modern equations with fraud components. He uses the honest equations used by the government in past generations.


Fri, 05/04/2012 - 15:16 | 2397779 TheFourthStooge-ing
TheFourthStooge-ing's picture

NewWorldOrange said:

It won't be long now before even the TRUTH won't be believed anymore, on the rare occasion it can be found at all. The point of no return.

We took the wrong step years ago.


Fri, 05/04/2012 - 15:23 | 2397796 battle axe
battle axe's picture

If you are a European bank you are fucked. Lets all pray that the US Banks have really decoupled from that nuke waiting to go off across the Atlantic. But once again I am thinking Bank Of America and CITICORP will royally screw this up, and blow up. They always seem to shoot themselves in the head.  

Fri, 05/04/2012 - 16:28 | 2398134 Chuck Walla
Chuck Walla's picture

Problem is that the US banks use really high powered ammo to shoot themselves with and we are all standing right behind them.

Fri, 05/04/2012 - 15:51 | 2397954 NewWorldOrange
NewWorldOrange's picture

Thanks FourthStooging. Incredible song with amazing artwork.

Stay Gold!

Fri, 05/04/2012 - 14:36 | 2397674 NewWorldOrange
NewWorldOrange's picture

"‘How do I reduce my gross exposure to European credits and European banks to zero?’"

Short the Euro, long gold. Not just a hedge, but a potential (likely) fortune in the making. Opportunity of a lifetime.

Fri, 05/04/2012 - 15:20 | 2397782 BlandJoe24
BlandJoe24's picture

Unless gold first drops precipitously becuase people have to cash it in to meet margin calls...

Fri, 05/04/2012 - 15:42 | 2397909 WonderDawg
WonderDawg's picture

That's kind of how I'm playing it. I expect most asset classes to tank when the margin calls get rolling. That'll be the time to load up.

Fri, 05/04/2012 - 14:40 | 2397675 q99x2
q99x2's picture

Now you're talkin. That's economics.

Scary, "The overall effect may have been a $4-5 trillion reduction in

high-grade collateral circulating in the US financial system"

Fri, 05/04/2012 - 14:43 | 2397681 carbonmutant
carbonmutant's picture

Norway’s sovereign wealth fund (which knows more about the issues in the EU than we do) is cutting it's exposure to European investments for a reason...

Fri, 05/04/2012 - 15:16 | 2397777 The Alarmist
The Alarmist's picture

To be frank, the Norwegians are lousy investors. The oil money has made them fat, dumb, and too lazy to challenge the MPT bullshit their advisors sell them.

Fri, 05/04/2012 - 15:25 | 2397803 carbonmutant
carbonmutant's picture

Well they were smart enough to vote against Greece’s debt swap this year because they disagreed with being subordinated to the European Central Bank.

Fri, 05/04/2012 - 16:04 | 2398010 boiltherich
boiltherich's picture

Cmutant:  That would be a neat trick since Norway is neither a member of the Eurozone nor even of the EU.  Just like you if you owned Irish or other sov debt you could dump it as well, and I suppose that could be called voting with your feet, but they have nothing otherwise to say about the EU/EZ/ESM.

Sat, 05/05/2012 - 01:54 | 2398978 boiltherich
boiltherich's picture

How on Earth could my post have gotten two red arrows for stating plain facts?  Norway is not in EU.  Give that a red arrow retards. 

Sat, 05/05/2012 - 12:13 | 2399374 carbonmutant
carbonmutant's picture

Probably because neither Bloomberg nor I posted anything about Norway being in the EU. Try reading the article... again.

Fri, 05/04/2012 - 14:42 | 2397682 Comay Mierda
Comay Mierda's picture

How do I reduce my gross exposure to European credits and European banks to zero?

cash under mattress and gold in the backyard. and an AK47

Fri, 05/04/2012 - 14:46 | 2397695 mayhem_korner
mayhem_korner's picture



So where's the AK47 stashed?

Fri, 05/04/2012 - 14:48 | 2397702 Ahmeexnal
Ahmeexnal's picture

I would suggest adding rope&lamp post for bankers&politicians.

Fri, 05/04/2012 - 15:20 | 2397785 TheFourthStooge-ing
TheFourthStooge-ing's picture

Always good to have a supply of tar and feathers on hand.


Fri, 05/04/2012 - 16:28 | 2398128 wandstrasse
wandstrasse's picture

for all the fragile, delusional, narcissistic bankers 'showing the instruments' will do.

Fri, 05/04/2012 - 14:44 | 2397686 mayhem_korner
mayhem_korner's picture

Please be sure to distinguish between austerity measures passed and austerity measured implemented.


Great pull-back-the-curtain piece.  Liquidity in the absence of solvency = an unending game of subordination and devaluation. 


Fri, 05/04/2012 - 14:44 | 2397687 LawsofPhysics
LawsofPhysics's picture

If you don't have something people want/need or a tradable skill.  You are insolvent, any questions?

Fri, 05/04/2012 - 15:30 | 2397848 AnAnonymous
AnAnonymous's picture

That is off target.

US citizens have this problem of untradable thingies for their insolvency assessment.

They have stuff others would like but that they cant trade for power clinging causes.

By the way, an extorter/farmer is also as solvent as the extorted/farmed he/she lives off are solvent.

That is another issue that cripples US citizens'solvency.

Untradable stuff, extorted/farmed running out of steam, more the causes to examine than the tradable skills and unedulcorated demand on stuff

Fri, 05/04/2012 - 16:13 | 2398046 Matt
Matt's picture

I was starting to get worried that AnAnonymous' posts were becoming coherant and had a point to them, then along came this post to get things right back on track.

Fri, 05/04/2012 - 21:56 | 2398771 TheFourthStooge-ing
TheFourthStooge-ing's picture

Matt said:

I was starting to get worried that AnAnonymous' posts were becoming coherant and had a point to them, then along came this post to get things right back on track.

He's just like Old Faithful, except with more unedulcoration.


Sat, 05/05/2012 - 05:24 | 2399053 Element
Element's picture

Maybe I can translate:

"Again US citizenism strikes into heart of world peace due to a greed that is exceptional of worthless culture of fully arrogant, so a world is poorer and poorer as US citizenism strangle off civilisation to a bitter end.   Such a liberty runs from all truth to hide of reality to citizenism kills planet for benefit of numbers that lie, as lassie fails to save little boys from hungry grizzly bear in market place, due to citizenizm house that still falls off cliff into deep ravine of isn't employed fails."

That's pretty close.

Fri, 05/04/2012 - 14:44 | 2397692 Governor
Governor's picture

"don't fight the fed" made a lot of money over the past few yrs...

Fri, 05/04/2012 - 14:45 | 2397696 Not Too Important
Not Too Important's picture

And what about food? It's all contaminated with uranium and plutonium:

Can't eat money. What happens when money - even gold - won't buy safe food or water?

Fri, 05/04/2012 - 15:14 | 2397772 Doubleguns
Doubleguns's picture

The problem is your planning to buy. It should have already been stored.

Now placing you on the  "not to important" dead list. Just letting you know in advance so there is no confusion as to what list your on.

Fri, 05/04/2012 - 15:29 | 2397831 Quisat_Sadarak
Quisat_Sadarak's picture

You can't eat money but you can make teeth out of gold and silver!

Fri, 05/04/2012 - 19:35 | 2398550 Elwood P Suggins
Elwood P Suggins's picture

George Washington had wooden teeth.

Sat, 05/05/2012 - 01:47 | 2398975 StychoKiller
StychoKiller's picture

The teeth were Ivory, the gums were wooden.

Fri, 05/04/2012 - 14:46 | 2397697 AlaricBalth
AlaricBalth's picture

As I recall, my ECON 101 class was an indoctrination into neo-classical Keynsian economics via my Paul Samuelson textbook and a grad assistant who worshiped at the altar of Keynes. This was the late 70's and thousands of Economics students across the county were subjected to what was at the time the "mainstream of economic thought." Is it any wonder that our economy is where it is now after so many where inculcated with this swill.  

Fri, 05/04/2012 - 14:51 | 2397717 LawsofPhysics
LawsofPhysics's picture

Right about the time "situational ethics" started being taught.

Fri, 05/04/2012 - 15:34 | 2397864 AnAnonymous
AnAnonymous's picture

US citizen economics lead to that terminal point, no matter what.

You know, for the GD, Keynes was hardly to be blamed.

Peak theft. US citizens look around and see less and less to thieve from non US citizen fellows.

So now has to look at other US citizen fellows.

Fri, 05/04/2012 - 17:11 | 2398300 LawsofPhysics
LawsofPhysics's picture

you are correct, and the real problem is that the chinese have become much better liars and theives.  

Fri, 05/04/2012 - 14:47 | 2397705 Benjamin Glutton
Benjamin Glutton's picture

good thing we re-collateralized the banks so they could pummel our assets.

Fri, 05/04/2012 - 14:48 | 2397706 carbonmutant
carbonmutant's picture

The black market for handguns in the EU must be growing..

Fri, 05/04/2012 - 14:48 | 2397708 GeneMarchbanks
GeneMarchbanks's picture

'Balkanisation of collateral guidelines across EMU = credit nationalism'

Weak. Aitken Advisors = City operation = the hyper-hypothecators. 

Fri, 05/04/2012 - 14:50 | 2397712 SV
SV's picture

Collateral is only as good as you can get at it for collection...

Think of Fly Guy...

Fri, 05/04/2012 - 14:55 | 2397716 ebworthen
ebworthen's picture

Unfortunately the losers will be regular folks without political or judicial cronies.

The individual and the household will be required to surrender collateral, whether it be their property, assets, or entitlements they worked and paid into for 40-50 years.

"Austerity" is just another name for robbing collateral from individuals who never gained from the legerdemain of bankers, corporations, and politicians.

Two glaring indicators that point clearly to citizens being forced to bail out the kleptoligarchy are the passage by the Supreme Court of the following:

  1. Allowing municipalities in league with corporations to steal personal property simply to increase tax revenues (KELO vs. City of New London).
  2. Allowing corporations and unions to finance political campaigns (Citizens United v. Federal Election Commission) thus nullifying the validity of any election.

That is all you need to know; you own nothing and all banker/government debt will be paid via confiscation of what you think is yours.

Fri, 05/04/2012 - 14:58 | 2397742 Seasmoke
Seasmoke's picture

Well then who is more scared the person who owns nothing and has nothing more to lose or the person who has everything to lose.

Fri, 05/04/2012 - 16:19 | 2398006 ebworthen
ebworthen's picture

The person who has been responsible and tried to save.

The more people there are dependent upon the kleptoligarchy the more their power base is assured.

This is why the FED and the banks, insurers, and other corporations are supported by both the right and the left at the expense of the plebians.

The individuals below the 1% lose; the 1% win.  This is why the bailouts were shoved down our throats, and why the ECB and European governments are supporting the banksters along with the Washington/Wall Street cabal.

Being dependent upon an oppresive fascicorprotocracy is not winning, though many are led to believe it.

The dual promise upfront is liberty and choice along with social programs; a mandate doomed to fail - realized by the mammon lusters - foolishly believed in by the naive and somnolent dreamers/idealists.

Incessant and meaningless elections are held with much foaming at the mouth and more promises when in reality the master equivocators relentlessly politic their way to mediocrity and more of the same.

Privatized gains and socialized losses along with the gradual dissolution of the rule of law necessitates the two-headed hydra of continued hollow promises, money printing, theft, currency debasement, stagflation (biflation, hyperinflation), ethereal economic theories instead of principles, data fudging, propaganda, and bread and circuses.

Fri, 05/04/2012 - 14:51 | 2397719 The_Euro_Sucks
The_Euro_Sucks's picture

Lol from the presentation ''2) for investors: keep that collateral in a segregated account''. Hahaha get it out of the banking system or loose it all to the kleptocrats. Amazing that this so called professional still doesnt get it. Cognitive dissonance, hard to break. What a buch of suckers paying for this kind of advise.

Fri, 05/04/2012 - 14:51 | 2397722 suckerfishzilla
suckerfishzilla's picture

The only Euros my balance sheet is exposed to are Silver Euros.

Fri, 05/04/2012 - 14:55 | 2397734 WAMO556
WAMO556's picture

Now that shit is just plain funny!!!

Fri, 05/04/2012 - 14:57 | 2397737 Winston Churchill
Winston Churchill's picture

Repeat of that Lehman moment.

Collateral value in the REPO market.


Fri, 05/04/2012 - 14:59 | 2397749 lolmao500
lolmao500's picture

In a financed financial system, collateral is money

Collateral is liabilities.

Fri, 05/04/2012 - 15:01 | 2397751 halfacanuck
halfacanuck's picture

Finally, a ZH piece that makes economic sense!

For those who want to read more, see Steve Keen in particular. His approach to debt plus a realistic understanding of govt finances (MMR, see Cullen Roche) is the key to being ahead of the herd.

Fri, 05/04/2012 - 15:07 | 2397764 Tyler Durden
Tyler Durden's picture

Actually if you really understood what this piece says, it implies that MMT, MMR and all those other monetary rationalizations of a reserve currency status (which incidentally always ends) predicated by balance of power, are complete garbage. Read the following, which explains what happens in the real world, not in some contrived, convoluted and senseless theory. Alternatively, if you feel like ignoring it, just build yourself a death star for $852 quadrillion and grow the world's economy to super turbo prosperity.

Fri, 05/04/2012 - 15:13 | 2397770 Dr. Engali
Dr. Engali's picture

Words are hard for some people Tyler. They need more pretty pictures.

Sat, 05/05/2012 - 07:17 | 2399078 Element
Element's picture

Some 2010 comments from Edward Harrision of Credit Writedowns ... one of the few economics blogs I can still bare to read ... sometimes ... not for long:


Economic Code Words

Edward Harrison | 22 November 2010 21:00

"I am not going to be cowed into using some PC way of talking about the Fed’s balance sheet expansion and its creation of electronic dollar credits. To me – and to any reasonable layperson – this is printing money, plain and simple. It’s a shambolic farce – even more so because it won’t do anything for the real economy except via animal spirits and leverage."


MMT for Austrians

Edward Harrison | 23 November 2010 17:55

"That’s right, in essence I am an MMT’er in regards to the mechanics of how modern money works…

The question then goes to policy prescriptions where I am not in the same camp as most MMT’ers. I do believe they are coming to see my view of resource misallocation as fundamental – which is more from the Austrian School. I think of my views as a sort of non-ideological Kindleberger-Minsky-Mises blend…

QE is destructive because it pumps up asset prices artificially only to see fundamentals re-assert themselves in a way that is most destructive for ordinary citizens. We are living through a time which is fundamentally deflationary in nature. The monetary authorities will try to counteract this by ‘printing money’ but they will not be successful in stopping the deflationary forces (unless they are willing to go all-in). And yes, I use the phrase ‘printing money’ for a reason; QE will not create jobs. It is destructive – especially to ordinary working people."



But Edward still argues in 2012 for a blending of MMT with Austrian-school economic processes (and let's not forget legal and political processes).  In the final analysis he can't bring himself to accept that fiat dollars are dying and are not the way to go in the post Depressionary phase, so wants to insist that fiat, printing and floating exchange rates are a better option, in comparison to a return to a gold standard.

Oh yeah, he also doesn't want a FED that prints or expands it's balance-sheet, at public expense, or engages in defacto creation of a centrally-planned zombie-state and jobless ekonomi, minus a real revenue stream.

He can intellectually reconcile these positions ... apparently ... but you need MMT ... apparently.

Maybe he needs another bout of 'recession' to fully get there ... you know, that thing that happens if you ever stop printing the next deficit.

Fri, 05/04/2012 - 15:20 | 2397783 GeneMarchbanks
GeneMarchbanks's picture

Probably this one as well: EMT

Increasingly it is becoming obvious that this has become a huge game of Calvin Ball. The plebs are too ingrained in habits and essentially glad to pretend along. The truth is all can quietly put away their 'models', nonsensical analogies using behaviour of sub-atomic particles to demonstrate uncertainty while adding the illusion of intellectual gravitas, Lorenzian theory etc.

When the first shot is fired, it all seems to not matter anyway.


Fri, 05/04/2012 - 15:28 | 2397829 Quinvarius
Quinvarius's picture

It will never be a problem until your local store stops accepting paper money.  And they will only stop when their suppliers stop accepting fiat garbage.  Keep going up the chain.  Right now everyone is satisfied that the problem is at least several links from affecting them.

Fri, 05/04/2012 - 15:38 | 2397896 AnAnonymous
AnAnonymous's picture

That is the point.

And the bottom people wont stop accepting USD because they have the US military commanding them to.

Only when the bottom guys throughout the world, (globalism), run out of fuel (various inputs) to feed the US citizen machine the scenario described might happen.

Wont happen before more than 45 years. Hedge accordingly. Consume as much as you can. Dont conserve.

Fri, 05/04/2012 - 16:27 | 2398123 Matt
Matt's picture

Holy Crap, this is the most eloquent, purposeful post yet! I think I even understand it, and maybe even agree to some extent! Am I going crazy, or is there really such a severe variation in writing from this poster?

BTW, I give it more like 5 years at the lower range and 20 years at the upper range. Once the interest paid on US debt exceeds total tax revenues, things will come unhinged quite quickly, I believe.

Sat, 05/05/2012 - 04:05 | 2399039 falak pema
falak pema's picture

current money printing and debt accumulation points to that very fact; debt slavery means we are running behind the curve individually and those who continue to consume are hooked, lined and sinkered to feed the beast. Its a  catch 22 situation as are all empires; until they fall through unsustainability. 

Fri, 05/04/2012 - 16:23 | 2398099 sunaJ
sunaJ's picture

I think it is the reserve status that we have been tugging on to pull us out of this, not the effectiveness of any real-world stimulus.  Since 2008, there has been a significant drive away from the dollar's hegemony.  Further, the United States is demonstrating that it cannot stop the herd.  The death blow will come with the collapse of oil-priced dollars. 

Fri, 05/04/2012 - 16:34 | 2398165 halfacanuck
halfacanuck's picture

I was referring to the understanding that money is endogenous (M0 lags M2), that the Fed can and does control the entire Tsy yield curve (but not the money supply), and that govt debt is indeed different from private debt in very important ways when that govt is a currency issuer. However, I don't recall saying anything along the lines of "the govt can save us by printing"; I just said most people don't understand how money actually works in today's financial system -- including neoclassical economists, which is to say almost all of them. The best the govt can do is cushion the blow a little during balance-sheet recessions, while keeping an extremely close eye on inflation.

You're getting closer. Keep reading.

Fri, 05/04/2012 - 15:03 | 2397753 MrBoompi
MrBoompi's picture

When economies or countries no longer "make things" and income increasingly comes from simple monetary return on monetary investment, or financialization, capital must become increasingly misallocated.  This is not just happenchance, it is engineered by folks like the Rothchilds or Rockefellers.

Any attempts to allocate capital into more productive, job-producing, endeavors meet with shouts of "wealth redistribution" or "socialist".  As if the financial elites did not become increasingly wealthy due to the very same things.



Fri, 05/04/2012 - 15:06 | 2397763 tmosley
tmosley's picture

All you need to know is that everything you know is wrong.

Fri, 05/04/2012 - 15:09 | 2397766 lolmao500
lolmao500's picture

In a financed financial system, collateral is money

Everything is solved then, just print away!

Fri, 05/04/2012 - 15:21 | 2397787 buzzsaw99
buzzsaw99's picture

How do I reduce my gross exposure to European credits and European banks to zero?

Um, don't put usa clownbux into a Fidelity money market account?

Is this a trick question?

Fri, 05/04/2012 - 15:25 | 2397797 steve from virginia
steve from virginia's picture


Gee whiz ... these Aitken guys have something (important) to say but their presentation is beyond incoherent, why not a comic book?

Come right out and say collateral is puffed up with cheap credit (not so cheap any more): it  isn't worth very much and continuous 'faking it' by finance causes collateral to lose what worth is left. What remains of credit is unsecured (and over-leveraged).

Is it that hard?

The bottom line is the world is becoming a cash market.

BTW, don't blame the central banks for this, they are playing the hands they have been dealt by finance and greedy 'masters of the universe'. All you need to know is that CBs are collateral constrained.

Fri, 05/04/2012 - 15:25 | 2397814 Quinvarius
Quinvarius's picture

The Euro will remain a ghost in the machine long after it is dead.  To let it go up too much or down too much vs other paper means heavy duty derivatives payouts and bank failures.  Central Banks will maintain the relative values of all paper fiat currencies come Hell or high water.  All paper money in the FOREX system is therefore the same exact thing.  And it is all worthless.

Fri, 05/04/2012 - 15:46 | 2397861 Mercury
Mercury's picture

Repowatch is all about collateral daisy chains and the perils of securitized banking.

Dig it:

Who knew that the hole in the fence was a 1989 appeals court ruling said that loan securitization didn't violate Glass-Steagall?

Fri, 05/04/2012 - 15:37 | 2397890 stant
stant's picture

martin armstrong latest says there will be a shocking announcement within the next 60 days. i took that as being from the gov

Fri, 05/04/2012 - 16:33 | 2398162 Matt
Matt's picture

My bet is Declaration of War with the Antares Empire, simultaneously announced by America, EU, China, and Russia.

Fri, 05/04/2012 - 15:42 | 2397914 Eric L. Prentis
Eric L. Prentis's picture

This excellent piece demonstrates ZH’s intellectual leadership, versus academe. INET, eat your heart out.


US finance and economic journals are controlled by the banksters. Publishing anything in US academic journals that disproves economic dogma is IMPOSSIBLE!

Fri, 05/04/2012 - 16:12 | 2398047 Unprepared
Unprepared's picture

Liquidity is now used to rationalize every crime and misbehavior in the markets as if it was the Holly Grail in and of itself.

Fuck liquidity.

Fri, 05/04/2012 - 16:26 | 2398120 Silversinner
Silversinner's picture

Gold is the best and ultimate collaterall.

Would love to see a bi-metallic monetairy system,

with gold used as capital and silver as currency.

Seeing a lot of stupid gold versus silver debate

on ZH.I am glad I own both and acummulate both

while trying to understand their historical role as

mediums of exchange.Still learning.




Fri, 05/04/2012 - 16:42 | 2398194 F. Bastiat
F. Bastiat's picture

The Gods of the Copybook Headings can't be denied for long.

Fri, 05/04/2012 - 20:43 | 2398666 EclecticParrot
EclecticParrot's picture

Not sure precisely why (though I have a hunch), but I immediately thought of the following Kafka aphorism (reproduced from memory, but it’s likely very close) after reading this piece:


They were given the choice of becoming either kings of the couriers of kings.  The way children would, all elected to be couriers.  Thus, there are only couriers who hurry about this world shouting messages that -- as there are no kings -- have long since become meaningless.  They would like to put an end to this miserable life, but dare not, on account of their oaths of service.

Fri, 05/04/2012 - 23:26 | 2398885 andrewp111
andrewp111's picture

Collateral, schmatteral.  Under Francois Hollande's direction, the ECB will monetize all State debt outright. They will monetize until the opressive debt is inflated away.

Sat, 05/05/2012 - 08:34 | 2399106 YHC-FTSE
YHC-FTSE's picture

"In a financed financial system, collateral is money"

No. Haven't we learned anything from MF Global? Your collateral is their gambling money. Commingled, rehypothecated, transferred, and ultimately dissolved in a magic trick that leave clients fighting over ownership whilst the thieves retire to the Hamptons. Better to opt out completely out of the system, leaving no paper trails (If that is at all possible in this world) that leads back to your stash of whatever you deem to be life insurance (Gold, silver, food, guns, ammo) against an uncertain future. 

In a financed financial system, somebody else's uncollectable debt is "money", as well as the ridiculous expectation of productivity sometime in the future by the lobotimised spawn of the fat fucks who who live at McD's, and their even fatter spawn after that who have to be fed, medicated, clothed, "educated", and sheltered on my fucking taxes or the inflation shoving magic money from the banks (Easy loans), which amount to the same thing. It is a system run by the leeches, for the leeches, by the leeches. All sucking the life blood out of this small planet, merrily murdering any poor sods with natural resources, and exploiting the other poor sods who only have their labour to give us. That's capitalism in a nutshell: The exploitation of those below your socio-economic ladder, and I make no apology for successfully exploiting the system at times, but I don't have to like it either.

Sat, 05/05/2012 - 08:49 | 2399118 shovelhead
shovelhead's picture

Guess old Uncle Eb got it right...

"Collateral don't mean nuthin' 'cept when you need to get yer money back."

His qualifications as an economist are opposable thumbs but he might be on to something.

Then again, he doesn't read the NY Times either.

Sat, 05/05/2012 - 13:41 | 2399514 tom
tom's picture

Collateral isn't money. Money is money and collateral is collateral.

When collateralized debts fail, the supply of money and collateral both shrink. The reduced supply of collateral makes people less willing to lend, which suppresses money supply growth, but isn't itself any additional loss of money supply.

Rehypothecation is simply the sharing of collateral by creditors. Multiple credits are secured by one and the same piece of collateral. Hence the higher risk of ending up like MF Global clients holding a short straw. Most of the collateral contraction is a result of hedge funds realizing this risk and banning their primary custodians from rehypothecating their margin collateral.

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