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The Fed Is Losing The "Race To Debase"
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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Oil is traded in all acceptable to the seller currencies every day-there is no need for foreign oil buyers to have USD's to buy oil-
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link?
Can i get a link from you that shows oil is anything but benchmark "priced" in USD's?
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http://globaleconomicanalysis.blogspot.ca/2009/10/ridiculous-hype-over-s...
from wiki:
"Since the agreements of 1971 and 1973, OPEC oil is exclusively quoted in US dollars. This created a permanent demand for dollars on the international exchange markets.[2][3] As of 2005, OPEC continues to trade in US Dollars, but some OPEC members (such as Iran and Venezuela) have been pushing for a switch to the euro."
its not like its a 'law' or anything, but an unspoken rule of global petro trade is that oil should be bought with dollars, lest the us military refresh these agreements with force.
just like us citizens pay taxes out of fear (they are voluntary, right?), the world pays the anglo banking system its tax in oil trade.
the early 70's, when directly backed with hard money turned into indirectly backed by hard bullets...
"A reserve currency, or anchor currency, is a currency that is held in significant quantities by many governments and institutions[who?] as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market, and commodities such as oil, gold, etc.[citation needed]
This permits the issuing country to purchase the commodities at a marginally lower rate than other nations, which must exchange their currencies with each purchase and pay a transaction cost. For major currencies, this transaction cost is negligible with respect to the price of the commodity. It also permits the government issuing the currency to borrow money at a better rate, as there will always be a larger market for that currency than others."
"Since the agreements of 1971 and 1973, OPEC oil is exclusively quoted in US dollars. This created a permanent demand for dollars on the international exchange markets.
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Wiki is generally not a good source-
That agreement was to "price" world oil in USD's-
eg: if oil today was $100 usd's/bbl the Euros would pay at todays exchange rate about 70 EUR/bbl
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http://www.nationmaster.com/graph/ene_oil_con-energy-oil-consumption
The world burns about 83 million bbls/day which would-if USD's were the only currency accepted-be a yearly $ demand of $3,029,500,000,000/yearly--
This below-doesn't show anywhere near that increase in USD demand since 1971/73 time frame-which it would if oil could only be traded in dollars-
http://bit.ly/GZHtwY
http://research.stlouisfed.org/fred2/series/SBASENS
Let's put it this way: Ghadafi did not have to go until he started pushing for an alternative currency for his oil, etc. if Iran has to go, it will not be for a couple of nukes.
Let's put it this way: Ghadafi did not have to go until he started pushing for an alternative currency for his oil, etc. if Iran has to go, it will not be for a couple of nukes.
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It wasn't an alternative paper currency that Gaddafi threatened with-
It was gold-
Chavez holds no USD in reserve-Venezuela sells oil-he simply converts the USD to whatever currency he wants and so can any other oil seller-but most don't-they hold usd's in reserve-likely for a hedge for their other reserve currency holdings-such as the euro or yen or rupee or whatever-
If economic hitmen can't get oil producers to take dollars the jackals get sent in.
How was this for a plan:
1. Sell gold and buy BAC at $5 a few months ago.
2. Sell BAC and buy twice as much gold as you started with tomorrow. :)
Say, that is exactly what the TBTF banks are doing. Except they are also doing it with 0% Fed money.
Brad Pitt's solution is actually sounding good at this point, which was to give every citizen $100,000 dollars. Inflation is already raging, and all the banks are doing is parking the money. So fuck it, why not? Let Joe Six Pack have a few bottles Cristal. There is no 'stimulating' the economy when Joe Six Pack is flat ass broke and tax squeezing has failed.
300 Million time $100K equals $30 Trillion
Bernanke has probably printed more than that already with all the shadow bailouts.
It would probably clear up alot of the riffraff as tens of thousands of people die of a drug overdose, or drink their selves to death. Living it up on the fed's dime.
We're half-way there already ... What's your point?
You guys will love this one. O/T but I couldn't resist with all the talk about oil. Dick Cheney/ Heart Transplant.
This is weird...
http://hosted.ap.org/dynamic/stories/A/AS_OBAMA_MISSING_PRESS?SITE=AP&SE...
WHITE HOUSE NOTEBOOK: Press kept out in S. Korea
When President Barack Obama arrived at the presidential palace in Seoul Sunday, he was missing his constant traveling companions: members of the U.S. press corps traveling in Obama's motorcade.
In an embarrassing bilateral blockade, members of the media were denied entrance to the Blue House. The messy scene resulted in their missing Obama's meeting with South Korean President Lee Myung-bak.
This could be nothing... or this could be big.... we'll see in the next few days/weeks if there was something to it.
state visit?; no surprize prez0's "travelling companions" don't attend all functions, imo
"There is nothing to do, Uncle Ben."
"Nothing to do, nothing to do-----there must be something, I've got it------no, but wait a -----no. Come on , Nephew there has to be sometrhing"
"Nothing to do, Unk-------unless------no, but maybe---------no-----wait---------No, Unk, -----nothing to do is all there is."
Anyone have any better ideas----please time's wasting and TIME IS MONEY---unless you're unemployed om
Its not that I disagree with the author on the hard data.... Its more that there is an illusory tone of nationalism he seems to be buying into. The Fed purports to be a US institution but is it really? In my estimation its a mostly private institution that is more globalized than any other. Where does BOE start and the Fed end? It seems to me they are branches of the same cancer? If they are in fact, or in in equivalency, the same entity how can one lose to the other? The only winners here are the banksters and their owners, and the only losers are nation states and their people.
Never forget it is and was Rockefellers dream to have a stateless world under the thumb of banksters.
A time of chaos is going to be allowed to happen very soon with the expressed intent to reform the last barriers out of the banksters way, and thereby allow these evil pukes to build the world theyve been pining for for centuries; a true global corpotocracy.
Bernanke will print, print and print. Some of it we may hear about, some of it we won't. Some of it we may discover years from now.
The only other option is to throw their hands up and let the shareholders of the Federal Reserve go down in burning flames. With an economy that is no longer growing. The money changers simply have no other option, none, to keep themselves on top of the pyramid (with that creepy eye staring back at you).
The only thing that could save them would be a massive, shallow oil reserve of light sweet crude 10 times the size of Ghawar (the largest oil field in the world). Then, they could start creating more bubbles and save the pyramid for a little while longer.
That's not going to happen though. So it's CTRL-P until the pyramid slips off its foundation.
Their exit plan is war. First, to steal resources they can no longer control through finance, and second, to set up an external enemy to blame when the pyramid comes down.
"Unfortunately, the Fed can't print oil." -Ben Bernanke
Timely article, thanks TD.
I've been skeptical of the GDP numbers for a long time based on Shadowfact mentions of it, but had trouble quantifying the FED noise and how bad things really are. Been thinking Ben was overdue to print. Looks like a domestic politics have slowed him down for now.
What is shocking is how well the contraction has been covered up by the MSM. All is well, no bread lines to see....
ben loses the battle either way....print and print and print and oil prices destroy social cohesion, causing massive economic problems...plunging the country quickly to the depths of the sea of depression..........don't print and same result..........he is desperately trying to hold the line............holding his breath hoping to get by with the status quo............a futile balancing act that won't prevent the countrys fall from the tightrope no matter what.......
It is not Ben's fault he is out on the publicity lecture circuit, he will get those printers up and running after he finishes his tour.
"Fed losing"?...not according to my checkbook and bills I pay every month. Anyone besides me remember when the "deflationists" were in vogue, and looking so prescient? Like Mish, etc.? Where are those arguments now? Even my FUCKING DOG FOOD has skyrocketed in price. Everything has shrunk, too, for far higher costs, like ice cream and paper towels even. Those calling for deflation with a fucking mad printer like Heli-Ben at the helm were playing a cute, counter-intuitive contrarian longshot call, hoping to look like geniuses. Kinda like someone claiming they picked Duke to lose to Lehigh. Now they look like asses. Fucking stupid bastards.......grow up and accept reality. Inflation is here, and here to stay. And you WILL like it. You don't have a choice.
Here is the ONLY thing you need to know about inflation according to the FED: as long as workers do not get real pay raises, there is NO inflation. Got that?
Even door widths have shurnk. Go measure yrou door width...I bet most of them are about 28" if it was built 2004-present so builders can cut costs and make a greater profit from that zero down, no doc house.
When we look at the government bonds of the Eurozone and the USA, surprisingly the country with the most money printing gets the most buyers of its government bonds. http://katchum.blogspot.com/2012/03/replacing-us-treasuries-by-eu.html
Every time you feel the market might crash, remember one thing: the defined benefit plans of the country assume 8% annual returns.
With stocks currently yielding 2.0% and the Barclays US Aggregate yielding roughly 2.5%...
I assumed 6.9% and got 17.5% actual on my fund because it was heavy on LDI type investments ... Those who assumed 8% are coming in closer to zero or negative for 2011 because they were stuffed with equities and money-losing hedge funds.
The FED has a plan, an "exit strategy" – 2009| There has never been an Exit Strategy..
See? Strong dollar policy!
"...the Fed will have to do at least another $1.5 trillion in QE."
I'm ready for it.
The more Bernanke and the fed print the higher oil, food and the rest of commodities.
In addition property taxes and fees spike because localities have costs that increase as well as huge unfunded pensions.
The exit plan occurs when mobs of citizens decend on the Federal Reserve banks to call for it being dismantled it. Until then it's the trashing/demise of the dollar. This occurs when welfare and food stamps don't provide enough food for the masses.
And this is why Precious Metals are doing so well the past ten years.
WOW!! its almost like they are doing this on purpose. Maybe they have another plan in mind just a thought
This whole problem could be licked if you guys were to donate your precious metals & fiat savings to the US Gov.
I wouldn't worry about the fed's last place finish. anyone can have a bad year. I am sure Coach Ben can turn things around by fall.
WHat's the end game to all this printing?
L0L: inTheLongRun...
Slewie, how are you feeling about your Party's big seat gain the Saarland elections?
the germans love to eat
the pirates will munch damned near anything or anybody
we tried to get them to do some walking or something, but they kicked the can and gained bigger seats, too!
Methinks the complete transformation of the free market system, this is the last nail in the coffin
Nassim Taleb: Banks Hijacked Government (BBC video)
http://www.imackgroup.com/mathematics/791361-nassim-taleb-banks-hijacked-us-government-bbc-video/