The Fed Is Losing The "Race To Debase"

Tyler Durden's picture

As we pointed out about a month ago, in "While You Were Sleeping, Central Banks Flooded The World In Liquidity" as the world was focused on headlines whether or not the Fed would step up as it always does when the market is sliding, and unleash the monetary floodgates, it was not Ben Bernanke, but eveyrone else that hit CTRL+P and took the place of the Fed, of note the primary central banking peers among the Final Four - the ECB, the BOE and the BOJ. And why not: after all the hope was that since electronic money is electronic money, and can be moved from point A to point B at the push of a button, it would be used primarily to reflate stocks around the world, but mostly where the path has least resistance - the US. What was not accounted for was that money would also be used to inflate commodities such as oil - a key factor when delaying further US-based easing in an election year. However, more than even record for this time of year gas prices, there was one even more important outcome from this chain of events. As the following chart from Willem Buiter shows, in its fake attempt to show monetary restraint, the Fed has gone straight into last place in the "race to debase." Needless to say, in a world with $25+trillion in "excess" debt (debt which would need to be eliminated simply to reduce global debt/GDP to a "sustainable" 180% per BCG), last is a very bad place to be...

Of course, our frequent readers will note that this is the same chart that we have presented, however in the form of the main correlation chart for 2012 as we have dubbed it - i.e,  the ratio between the size of the ECB and the FED vs the EURUSD. What is probably also quite disturbing is that the Fed is "losing" even after expanding by a massive 232% in the past 5 years, a number that is only topped by the Bank of England. To quantify, the Fed is now responsible for "only" 20% or so of US GDP, compared to 30% for the ECB and BOJ. To further quantify, to get back to first place in the race to debase, the Fed will have to do at least another $1.5 trillion in QE.

Also, having become a buyer of last reserve for credit money, it is easy to see why one should be outright skeptical of US GDP "numbers" - from 6% of US GDP, the Fed now accounts for a whopping 19% - this is "growth" that would not have happened unless the Fed, via debt monetization would have allowed it. Said otherwise, net of Fed deleveraging (if it ever unwinds its balance sheet of course), US GDP would be a 13% lower

Not only that but as the chart above shows, global GDP has about $6 trillion in "one-time, non-recurring" growth factored in.

... Only, and let's not fool ourselves here, it is not one-time, and certainly not non-recurring.

As shown here before, the biggest problem for the world right now is the disappearance of "money good" assets, and the redirection of investing capital from worthwhile growth activities such as R&D into shareholder placating pursuits such as dividend issuance (and overall cash hoarding), and job dilution -a practice which as described yesterday may have well killed the virtuous cycle. As such any future global "growth" will be exclusively a function of further "nominal" improvements, achieved only through further currency dilution.

And now that the economy has once again hit a downward inflection point (with 12 of 14 economic indicators coming in negative), and since the Fed has some serious catching up to do to get back to the front of the race to debase, it is only a matter of time before it becomes clear that Obama reelection be damned, it is Bernanke's turn to hit CTRL+P. Because in a world in which only currency devaluation matters, a 10% debt/GDP handicap is most certainly a nominal aggression that will not stand...

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Golden monkey's picture

Printer is damn slow.

BoNeSxxx's picture

Classic Tortoise and the Hare... they don't call him Helicopter Ben for nothing.

francis_sawyer's picture

In the Marines, they give you a CODE RED for fallin' back on runs...

francis_sawyer's picture

You can't handle the truth!

Son, we live in a world that has walls, and those walls have to be guarded by men with PRINTING PRESSES

Who's gonna do it? You BERNANKE? You, lieutenant Weinberg?

I have a greater responsibility than you can possibly fathom. You weep for the 99%ers, and you curse the FED. You have that luxury. You have the luxury of not knowing what I know - that the deaths of thousands of 99%ers, while tragic, probably saved [elite] lives; and my existence, while grotesque and incomprehensible to you, saves [elite] lives.

ratso's picture

it is heartening to note that the Federal Reserve is the most prudent of the large central banks.

AnAnonymouses's picture

US citizenses act like US citizenses, send their dollar around world to create death and destruction just as US citizenses always do.

The end coming for the US citizenses.

TruthInSunshine's picture



"Because in a world in which only currency devaluation matters, a 10% debt/GDP handicap is most certainly a nominal aggression that will not stand..."


Did ZH mean to write "a 10% deficit/GDP..." instead?

I ask because U.S. official debt is 100% of GDP and more accurately (according to David M. Walker, former Comptroller General of the U.S., 400% of GDP (although former Reagan Economic Advisor Laurence Kotlkoff claims it's really 1300%).

10% deficit spending (versus aggregate debt which is all accumulated deficits) on an officially claimed GDP of some 15.5 trillion would equal 1.5 trillion.

Vampyroteuthis infernalis's picture

Hint, the last to debase means that the short term inflationary effects will be lesser than those ahead of the pack. Once every assset has been bought by the CBs and there is no one left to borrow, the resultant deflation during defaults will also be less. It is just delaying the economic implosion of the US beyond rest of the developed world.

Pinto Currency's picture


More than central bank balance sheets indicate debasement.


See the debasement of the M1, M2, M3 monetary aggregates:






derek_vineyard's picture

Here we go...........near zero interest rates 4 ever (ala Japan) with deflating home prices, decaying personal income and forced to 'eat' the commodity inflation of finite planet earth.  

If long term rates ever go over 5% its immediate game the meantime its going to be a slow death

DaveyJones's picture

Nice post. As the currency wars intensify, all the money crowds denser and denser to the front end. Everyday, necessary stuff goes through the roof, long term stuff keeps falling. God knows how high gold will end.  

exartizo's picture


I think the opposite is true.

Remember the U.S. was the first to print (debase) and thereby export inflation to places like the middle east etc.

The fact that we are now dead last in debasing means that inflation will come back around to roost in the U.S. FIRST... not last. 

TruthInSunshine's picture

I have no problem being junked and actually wear it as a badge of honor in most cases, but in this instance, it would be nice if someone let me know where my statement (or question) above was somehow flawed or errant.

StychoKiller's picture

A little bit of this for ALL US citizenses:

(Me live you long time!) :>D

[EDIT:]  Love what you've done with the avatar (Papa's got a brand new bag!)

TheFourthStooge-ing's picture

AnAnonymouses said:

US citizenses act like US citizenses, send their dollar around world to create death and destruction just as US citizenses always do.

The end coming for the US citizenses.

Made me raugh. Made me raugh out roud.


rocker's picture

The amazing part to all of this is how TPTB have manipulated the direction the excess cash goes to. 

They are taking banking and home builder stocks, (PUKE), up while pimping Oil with them.

Meanwhile, all the white metals, coal, grains, softs and fertilizers are going down. Something does not add up here.

AldousHuxley's picture

They take turns debasing

metals are used by China. China uses dollar. 2011 ECB printed while China pulled back.


G8 told BRIC to slow down their  GDP growth so western consumers can get jobs to consume their products once again.

johnu1978's picture

This is just getting nuts!


Primitive Skills Classes - Wild Edible Tours

qqqqtrader's picture

something has to give, gold/oil can't just keep going up forever... can it?

francis_sawyer's picture

"priced in dollars" (per your chart since 1970)...

Are you FKme?... What's going up?... My guess is that FIAT is going down...

francis_sawyer's picture

& YES... Fiat can go to zero (as it has numerous times in the past)...

noob's picture

monetized faith +/-

...less any significant BTU(s)

A Nanny Moose's picture

hooker with VD

Hooker with AIDS?

Choose wisely.

OpenThePodBayDoorHAL's picture

Maybe Tyler can read the IP addresses...and see if this is getting through to Mariner Eccles or Maiden Lane. Be nice to know if our team even knows they are falling behind. C'mon bitchez, fire up! Team America, F*uck Yeah! We're the best at bestness!

The Big Ching-aso's picture



If we melt through the bottom will we reach China?   

AldousHuxley's picture

but they got the Olympics infrastructure projects this year.


UK is nothing without her colonies.


Britain by itself has no value.

JustObserving's picture

Britons curtseying to a parasitic and inbred royalty has high comedic value.  God save the Queen - the devil take the rest.

TruthInSunshine's picture

London, a city dependent upon wealth-shifting and wealth-destroying financial 'engineering,' is the archetype of how fractional reserve banksters, working on behalf of an allegiant-to-no-nation international cabal of those who literally control the volume of the global fiat money supply (and hence can bring about inflation or deflation at their discretion, thus making entire citizens 'harvestable' and 'liberated' of their real assets), is a pox on the U.K., and New York is its sister city, running on the same racketeering scheme.

Buckaroo Banzai's picture

PC load letter? PC LOAD LETTER??!?

Seditious Blasphemer's picture

Oh, the irony!

Printer ink is SO expensive to purchase, but without the ink the printer is unable to print the money needed to buy the ink with which it needs to use to print the paper to buy the ink!

Sweet sweet irony.

Curt W's picture

The word you were looking for is not irony but paradox.

noob's picture


WonderDawg's picture

How about, the paradox is laced with irony?


exartizo's picture

I think the words you guys are looking for is "Catch-22"

Gully Foyle's picture


Hey now Jimmy, obviously you don't comprehend the strategy laid out in Zeno's paradox of Achilles and the Tortoise.

"In the paradox of Achilles and the Tortoise, Achilles is in a footrace with the tortoise. Achilles allows the tortoise a head start of 100 metres, for example. If we suppose that each racer starts running at some constant speed (one very fast and one very slow), then after some finite time, Achilles will have run 100 metres, bringing him to the tortoise's starting point. During this time, the tortoise has run a much shorter distance, say, 10 metres. It will then take Achilles some further time to run that distance, by which time the tortoise will have advanced farther; and then more time still to reach this third point, while the tortoise moves ahead. Thus, whenever Achilles reaches somewhere the tortoise has been, he still has farther to go. Therefore, because there are an infinite number of points Achilles must reach where the tortoise has already been, he can never overtake the tortoise.[8][9]"


And let that be a lesson to all you naysyers and second guessers!

BoNeSxxx's picture

You want to talk about paradoxes?

Dick Cheney just received a heart.

How's that for a paradox?


JustACitizen's picture

Anyone want to make a bet on who is paying for that heart, the operation and recovery? (Even though old Dicky boy has plenty of cash...) Remember - "Deficets don't matter" - God, I love that quote.


Urban Roman's picture

Prolly had five or six dox. A transplant is a pretty technical thing.

Schmuck Raker's picture

Who said anything about a transplant?

Doctors finally gave him a heart.

Floordawg's picture

Was it a human heart? If so that piece of shit better not miss a dose of his rejection medicine.

Bastiat's picture

The Cheney family expresses its profound gratitude and condolences to the family of the young Komodo dragon tragically struck down in its prime.

AldousHuxley's picture

Cheney wanted young Afghanistan boy's heart, but his body wouldn't take any heart except from that of a pig.

BoNeSxxx's picture


Post of the day.

I am honored to have teed that one up for you Al.  

11b40's picture

The unanswered questions have to do with the source of the heart & circumstances of the donor's death.