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Guest Post: Credit Versus Equity The War Is Waged

Tyler Durden's picture




 

Submitted by Tony Pallotta of Macro Story

Credit Versus Equity The War Is Waged

Bull versus bear. Greed versus fear. Smart money versus dumb money. Depression versus transitory soft patch. Credit versus equity.

In one corner is the credit market, a rather mighty opponent where $1 million defines an odd lot. Credit has spoken loudly.  They have priced in a severe recession, depression whatever you want to call it.

In the other corner stands the equity market and although fierce is smaller than its opponent where 100 shares defines an odd lot (a mere $700 in the case of BAC). Also known as the contrarian equity has priced in a transitory soft patch, the opposite of credit.

Equity hopes to bounce back from a recent loss where they completely failed to price in the 2008 Great Recession. It was a horrible loss for equity as throughout the year they continued to try and price in economic growth only to be knocked back down by economic reality as GDP contracted larger with each passing quarter. Credit on the other hand has put together an amazing string of victories. They have priced in previous economic recession with the utmost precision.

We are now on the eve of yet another showdown. Both corners are far apart and yet only one can be proven correct. The other must accept defeat. The stakes are large and the reward to those on the right side even larger. History will be the judge and time is all it asks.

Aaa Corporate Bond Debt VS SPX - Yields are currently at multi year lows and moving lower each day. Meanwhile equity has begun turning higher. Equity markets would say Aaa rated debt should be yielding 6.5% whereas debt says the SPX fair value is 600.

Baa Corporate Bond Debt - Similar to Aaa debt where rates are not only at decade lows but moving lower. Equity markets would say Baa rated debt should be yielding 8% whereas debt says SPX fair value is 600.

5 Year Interest Rate Swap Spreads - Similar to corporate debt not only is there a divergence but it is growing again.

Corporate Bond Spreads (Aaa / Baa) - Spreads already at multi year lows have begun to turn higher as have equities contrary to their inverse relation. Considering the little room spreads have to move lower it would appear equities have it wrong here and going not only in the wrong direction but also a rather large gap to fill.

Foreign Reverse Repos

This is a chart that has been making the rounds of late. It shows the amount of reverse repurchase agreements among foreign official and international accounts. Notice the trend during this current exponential move higher in deposits versus that of September 2008. Additionally notice the eerily similar price action in equities during both times.

 

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Sat, 09/10/2011 - 18:39 | 1655181 ZeroPower
ZeroPower's picture

We've seen the epic credit vs equity battle in Fall '07

Credit was shit, you couldnt get any decent issues out, and stocks went up on hopium till '08. 

Whats smarter money - a cash-rich conglomerate trying to get out $1Bn worth of bonds, but can't, despite AA credit, because their spread will be 1000bp over last year's issue, and the mgmt (rightfully so) doesnt think its worth it....

Or a shitty tech (sorry, social network) IPO, inlfuenced by greedy syndicate desks, just looking for a window of 1 day to get out a measly $200mm off of 10% of their 'worth' just to show the markets the IPO scene is alive and well.

 

More and more convincing this IS like that year after all.

Sun, 09/11/2011 - 07:18 | 1655876 oogs66
oogs66's picture

equity guys always talk about how important it is to look at credit, but they only do anything about it when credit is going better.  this will end in tears

Sun, 09/11/2011 - 13:39 | 1656614 eureka
eureka's picture

Equity is an illusion - pure expectation - pure subjectivity - pure projection and conjecture - all dependent on tax payer sponsored stimulus - i.e. inherently worthless without continued collective insanity - i.e. illusion.

Sun, 09/11/2011 - 09:19 | 1655953 midtowng
midtowng's picture

Both markets seem pretty dumb, but if I had to chose I would bet against the equity market every time.

The credit market has a much better track record.

That means that the next crash is right around the corner, and I'm betting it has Greek fingerprints on it.

Sun, 09/11/2011 - 10:02 | 1655984 Martin T
Sat, 09/10/2011 - 18:37 | 1655185 CoolClo
CoolClo's picture

Deflationary Depression, Bitchez....

Sat, 09/10/2011 - 22:13 | 1655532 In Fed We Trust
In Fed We Trust's picture

Hands down the equity market will kick the credit market to the curb and fucking knock him down each time he tries to get up.

The corporations took over. They should rename the US the corporations of America.

Investors who bought the US debt all the suckers.

Maybe get Paid in hyper inflated dollars or paid at all?

Sun, 09/11/2011 - 01:56 | 1655773 DoctorMad
DoctorMad's picture

Umm...so you think a mildly retarded ant will defeat the King Kong/Godzilla/Mothra super mutant debt deflation that is coming??? Good luck with that trade!

Sun, 09/11/2011 - 09:38 | 1655965 Are you kidding
Are you kidding's picture

War would fix that...

Sun, 09/11/2011 - 15:41 | 1657019 I did it by Occident
I did it by Occident's picture

Yes, that is part of their "fiscal/economic" toolbox.  It would help with the "surplus labor" problem. 

Sun, 09/11/2011 - 17:39 | 1657401 snowball777
snowball777's picture

No, it wouldn't...misallocation of capital is just that...whether its digging holes and filling them here...or punching them in the terrain "over there".

Sun, 09/11/2011 - 11:04 | 1656057 Landrew
Landrew's picture

I think you're right! People tend to focus on food and enregy cost thinking inflation. The fact that they lose their jobs,home values fall by 40% and return on savings is zero should tell them deflation and depression are here now!

Sat, 09/10/2011 - 18:37 | 1655188 ISEEIT
ISEEIT's picture

As the bull thrashes about wildly, seemingly insane, the bear waits calmly, growling softly knowing the the bull shall soon enough collapse. Expired. The bear shall then have his fill.

Sat, 09/10/2011 - 18:43 | 1655198 agrotera
agrotera's picture

Probably need to add a warning at the of the charts "viewer discretion advised, for mature and healthy audiences only" or  "do not view if you have heart trouble."

Sat, 09/10/2011 - 18:46 | 1655205 nasdaq99
nasdaq99's picture

with the hft, algo dudes running the ranch, the concept of "price discovery" is quaint.  they will run it up until they can't and then run it down until they can't.  equities are a casino and aunt jennie has no where to go with her money except the pillow...........for another few years.  ben bernanke should be jailed along with the rest of the sociopaths running the banking business.

if hft accounts for ~50% of folume these days, then the real volume comparison to 10 years ago is, like 25%.....except in aug when we went off the clifff, now there was some volume...........uh oh!

Sat, 09/10/2011 - 20:31 | 1655413 duckhook
duckhook's picture

more like % 65 of voulume

Sun, 09/11/2011 - 17:08 | 1657284 falun bong
falun bong's picture

The average holding period of a NYSE stock is now: 11 seconds.

Look it up. If you think that's some kind of healthy, capital raising price discovery mechanism, you're nuts.

Best phrase I've heard to describe it: "a gulag casino"

Sat, 09/10/2011 - 23:14 | 1655605 GFKjunior
GFKjunior's picture

Can some of you guys lead me into the direction of HFT techniques and coding? I have a CS degree but am unfamiliar with HFT software, can anyone let me know what big players like Goldman and Sachs uses for their algos and platform? Just trying to learn a little. Thanks

Sun, 09/11/2011 - 01:36 | 1655763 bobzibub
bobzibub's picture

Perhaps you can find a free course at MIT's or another schools' website. Most outfits won't divulge their details. Plus, most here are not quants.

But you probably can get the open source tools and data to build your own model. Then they'll come to you. : )

Sun, 09/11/2011 - 09:13 | 1655946 dcb
dcb's picture

I agree, 100%. past analywiw don't wor anymore.

I keep saying a maret functions based on how it is traded. if 70% are hft, then it's quant, trned lines, etc. every now ane then something happenws to throw things off in the news room, but I have founde that news that "DROPS" THE MARKET HAPPENS WHEN THE CHARTS SAY IT SHOULD. WHY IS THE DEBT ISSUE BIG NOW, NOT BEFORE, BECAUSE WITH IT HANGING AROUND MARETS SHOULDN'T HAVE GONE SO HIGH. THE MARKET MOVING STORY OF THE DAY IS  A LIE TOLD TP THE SHEEP SO THEY THIN THE MARKET FUNCTIONS BASED ON NEWS FLOW.

AND YOU ARE CORRECT, IT'S THE HFT, DOES ANYONE THINK MARET CONDITIONS SHOULD MAE THE 10 YEAR AT A 60 YEAR LOW YEILD, THAT IT SHOULD BE LESS 5THAN AT THE HEIHT OF THE CRISIS. tHAT'S SILLY, IT'S HFT CRAP MARKET

Sat, 09/10/2011 - 18:50 | 1655214 duncecap rack
duncecap rack's picture

I'd like to see an update from the guy who was charting the similarities between now and 2008 with all the key inflection points labled with letters. I have been wondering for the last week or so if we are still following the script.

Sat, 09/10/2011 - 18:54 | 1655222 abaccus
abaccus's picture

amazing.you can just look at the spx graph and say wow thats def an ABC correction move up now off we go to new lows

Sat, 09/10/2011 - 18:59 | 1655225 espirit
espirit's picture

Manipulation of "free" markets.

Political endorsement and collusion with multinational corporations.

Repartriation of profits to US for multinationals by changing the tax code.

Absolute misrepresentation of factual evidence.

Makes me ill to even read the mishaps brought upon the masses by the oligarchy.

Sun, 09/11/2011 - 08:39 | 1655915 RSloane
RSloane's picture

Makes you want to grab a baseball bat and hit the streets doesn't it.....oh wait!

Sat, 09/10/2011 - 19:18 | 1655266 caerus
caerus's picture

we are imo in the middle of an historic equity crash...the big moves take time though and runs like the one in the ES from 8/9 to 9/1 give some people a false sense of security...no pun intended

Sat, 09/10/2011 - 19:15 | 1655271 Rastadamus
Rastadamus's picture

Step back! BITCHEZ!

Sat, 09/10/2011 - 19:27 | 1655303 kito
kito's picture

Nobody knows what the equity market has priced in anymore. Recession with hopes of Qe3? Soft patch with No qe3? Thanks to central bankers, its all alice in wonderland

Sat, 09/10/2011 - 23:26 | 1655623 RockyRacoon
RockyRacoon's picture

Popular media only reports on "the stock market", so there is no benefit for keeping credit markets balanced and pumped.   The goal now is to make equities look good while backstopping debt markets thru the back doors.   This thing has the wheels coming off, but the regular folk will be the last to have the information needed to get off before the wreck.

Sun, 09/11/2011 - 00:24 | 1655701 Doña K
Doña K's picture

Rocky, the regular folk (and for that matter all of us) should not be near any equity market. There are however, hard working people who have entrusted their money in IRA's and mutual funds (professional money managers) s/on

Many of these regular folk have no time to get involved on a daily basis or read ZH and other bloggers to know better. By the time they see their quarterly report it will be too late.

 

Sat, 09/10/2011 - 19:34 | 1655307 Captain Benny
Captain Benny's picture

Bravo to Tony Pallotta, these charts are awesome and really help put it all in perspective.  Like many have been saying: deflation first, then inflation.  I'm still buying up things that I believe I won't be able to acquire during the deflationary ride... those heavy metals known as lead, gold, and silver...

 

kito wrote:

"Nobody knows what the equity market has priced in anymore. Recession with hopes of Qe3? Soft patch with No qe3? Thanks to central bankers, its all alice in wonderland"

I disagree.  While it may seem like Alice in Wonderland things are quite clear and the writing is on the wall.  The people behind the banking system have every intention to sacrifice their cohorts in order to save themselves.  Once friends to eachother, the central banks of the world are desperately trying to stay above water by pushing all their brotheren under.  Eventually one will drown.

Recession? Yes, actually a pretty severe depression looms.  QE3?  Sure, as long as you don't call it that name.  Even in depressions, prices for certain items skyrocket... so as the Turd likes to subtitle his site: Prepare Accordingly.

Sun, 09/11/2011 - 01:02 | 1655745 topcallingtroll
topcallingtroll's picture

As always, people will run to usa dollars and treasurys when the world gets scary.

If bennie plays it right we will still be the hegemon, the undisputed hrgemon, for another good twenty years or more.

We may have another american century as the china miracle follows the jpapnese miracle.

Sun, 09/11/2011 - 09:25 | 1655957 kito
kito's picture

Topcalling--there is only so much debt the world will accept. Benny will not be able to shoulder our debt financing when our debt is 23 trillion in 2015. Yes, as per usdebtclock.org, thats where we will be.

Sun, 09/11/2011 - 09:46 | 1655969 topcallingtroll
topcallingtroll's picture

I agree there is only so much debt the world can accept, but those who get crowded out will not be the americans, at least not right away.

We are likely to be the last to fall, and the last sovereign to fall in a debt crises doesnt, but becomes the source of liquidity for everyone.

Sun, 09/11/2011 - 12:19 | 1656308 Ursa Major
Ursa Major's picture

We may have another american century as the china miracle follows the jpapnese miracle.

 

Yes, and for that matter, the sea may turn to Lemonade, and the Pope perform the Hadj, but I would not want to bet on it...

Sat, 09/10/2011 - 19:53 | 1655355 dcb
dcb's picture

I would say this, except with hft now running the bond market as well, I am afraid it just doesn't work.

Sat, 09/10/2011 - 20:11 | 1655383 max2205
max2205's picture

In this corner, Godzilla weighing in at 5,000 pounds. In this corner, MinnnnnnieMe weighing in at 40 pounds.

Ding ding ding. Opening bell on Monday

Sat, 09/10/2011 - 20:35 | 1655420 Jasper M
Jasper M's picture

Seems to me likely that the opposing "decisions" in each market might very well be the very Same players, hedging their bets. 

"IF we get a recovery, stocks will rocket; if we don't bonds might survive"

Not how I would construct a portfolio, but I am not a pro.

Sat, 09/10/2011 - 20:47 | 1655442 MacroStory
MacroStory's picture

I'm the dude. I was following that comp purely to see if we were topping or not. Thought being topping patterns are more behavioral in nature and thus the comps. Once we began topping we started to lose the comp so I stopped. I was comparing the fall 08 though to recent again due to the behavioral (fall of Lehman, etc).  

Sat, 09/10/2011 - 21:05 | 1655474 Market Efficien...
Market Efficiency Romantic's picture

The wording perfectly puts it in a historic elite context: Similar to Russian civil war or the French vs the British, the Rothschildts created a war, financed it and were the only ones to profit, as they the stood on both sides.

Different take: Look at 'risk on' policies by central banks and governments pushing the people to the equity markets to buy shares from the elite at the peak, when equity has no idea to further increase productivity. The final ponzi scheme or the ultimate IPO.

Sun, 09/11/2011 - 00:36 | 1655715 Doña K
Doña K's picture

The US and Israel did the same thing with the Iran Iraq war. They supplied parts and weaponry to both sides and managed to play it so that the balance of power was even at any given time. Thus making it a ten year cash cow.

Classic. But the masses and the media were arguing trivialities.

Lesson:

Never short military industrial complex companies, unless you have inside info of a project to be scrapped.

Sat, 09/10/2011 - 21:12 | 1655483 rocker
rocker's picture

Reality vs. Bogus

Sat, 09/10/2011 - 22:04 | 1655524 El Gordo
El Gordo's picture

Sell, sell, sell.....no wait

Buy, buy buy.......or is it

 

Bye Bye Bye

 

Sat, 09/10/2011 - 22:15 | 1655536 jm
jm's picture

Forget depression talk for now.  Credit is pricing in no more QE.  Traders are applying a major liquidity discount because they know they can't unwind shit. 

 

 

Sat, 09/10/2011 - 22:34 | 1655564 Shineola
Shineola's picture

Both the credit market and the equity market are selling debt.  Hollow promises to pay at some point in the future.  These markets only work when honesty rules.   Honesty is out of town on an extended stay.  

 

Sun, 09/11/2011 - 00:31 | 1655709 rocker
rocker's picture

Default with Greece, or Extend and Pretend #4.  

Sat, 09/10/2011 - 22:53 | 1655580 Implicit simplicit
Implicit simplicit's picture

Additional evidence of a pending liquidity crisis.

http://pragcap.com/credit-update-chandrasekhar-limit

 

Sun, 09/11/2011 - 11:36 | 1656135 falak pema
falak pema's picture

ty; very interesting read and food for thought. Original.

Sat, 09/10/2011 - 23:03 | 1655589 Yen Cross
Yen Cross's picture

A better interpretation ( May Be) Owning vs renting? Operation twist ( torque) and all...

Sat, 09/10/2011 - 23:38 | 1655641 Petrolia
Petrolia's picture

I'm just a simple being, not an economist.  But even I know that decades of excessive insane debt can't be papered over.  The coming pain isn't what's wrong the illusions of prosperity were wrong.

Love that piece. Poetic even.

 

Sat, 09/10/2011 - 23:53 | 1655661 Yen Cross
Yen Cross's picture

 For the interested without platforms. real time. The numbers will start moving around 3 P.M, N.Y. time tomorrow. The trade times are C.E.S. / one hour Ahead of London. (6) hours ahead of N.Y.

 

http://www.fxstreet.com/rates-charts/currency-rates/

Sun, 09/11/2011 - 00:04 | 1655673 reader2010
reader2010's picture

Just watch the Dow:Gold ratio because all the rest are ground noise.

Sun, 09/11/2011 - 00:31 | 1655708 zorba THE GREEK
zorba THE GREEK's picture

Gold price will surpass Dow price. Mark my words.

Sun, 09/11/2011 - 00:53 | 1655721 Doña K
Doña K's picture

Are the Greeks allowed to buy gold/silver coins? (In Greece) at what commission over spot?

Sun, 09/11/2011 - 00:37 | 1655716 Joseph Jones
Joseph Jones's picture

We love our residence valued about $290k.  We owe $315k.  The bank might combine our two loans into one loan @ 4.2%.  Should we do it or just prepare to walk away and rent? 

Sun, 09/11/2011 - 00:50 | 1655732 Doña K
Doña K's picture

It is a tough one.

Consider futures prices, rent to mortgage delta, upkeep, taxes, marred credit, moving costs, closing costs and many others.

Not knowing what's coming, the calculated bet is to rent for the next 5 years and have the flex to job opportunities elsewhere. But you are the only one that can put value on keeping it. Good luck.

Sun, 09/11/2011 - 00:56 | 1655740 topcallingtroll
topcallingtroll's picture

I will bet that bonds are right.

The central banks and legislators of the world will not monetize and deficit spend to the point necessary to pull us out of deflation. The deflation monster is too big.

Do the rest of you hear him roaring now?

Sun, 09/11/2011 - 01:05 | 1655748 caerus
caerus's picture

years from now, i suspect, we will look back and say, "i traded the great bear of '11" 

Sun, 09/11/2011 - 09:50 | 1655976 topcallingtroll
topcallingtroll's picture

Uuhh.. you have never witnessed an extended growler.

In a bear market you dont trade the bear.

The bear trades you.

Sun, 09/11/2011 - 07:59 | 1655898 eddiebe
eddiebe's picture

Debt deflation yes! Where is most of the debt? In the financials and the sovereigns. Ie. bonds, and the fact that most everybody expects bonds to go higher and equities to go lower makes me think the banksters are about to kick serious ass in the bond market. People will flee into stocks, and the sew saw game goes on. For the banksters it's like shooting fish in a barrel. Great fun for them.

 

Sun, 09/11/2011 - 09:06 | 1655939 Tater Salad
Tater Salad's picture

"Great Bear of '11"?  We started a 20 year bear in 1999 that will last at least 20 years.  These are merely cyclical swings in a greater secular trend.  This time however, it seems way too tradable as technicals have completely taken over which of course worries me as when you get comfortable, you get wrong!

 

Sun, 09/11/2011 - 09:11 | 1655945 Tater Salad
Tater Salad's picture

And for those of us that think money is going to get "forced" into equity due to ever supressed bond yields, think again.  I'm guessing, like the move in TNX from 3-2%, the [even greater] convexity will be felt for those in TNX from 2-1%, big gains for bond holders when that happens.  So until we see a one handle on the 10 year, I'm not going to lose sleep over holding debt or bond/bullion barbell with such a deflationary backdrop.  Fed can't create inflation, been trying and failing misserably every time.

Sun, 09/11/2011 - 10:43 | 1656021 mess nonster
mess nonster's picture

The Central Banks has been trying to inflate out of the trap for three years now, to no avail. All the QE gets devoured, never to be seen again, as soon as it is issued. It's not credit vs equities, it's debt versus everything else, a giant, dark, blob of debt, with only one desire- for retirement, non-existence, the peace of utter annihilation, that stalks the landscape, eating everything alive and beautiful in its ever-growing path.

Sun, 09/11/2011 - 10:47 | 1656026 Downtoolong
Downtoolong's picture

Both corners are far apart and yet only one can be proven correct.

Two markets at odds and at extremes. So, how to play it? If you think one end is going to collapse as soon as you say, I say get into cash or gold and take a long shot bet on both extremes to fail (e.g., deep out of the money puts). You’ll be right on end and farther ahead than you would be holding underlying positions in both.

Sun, 09/11/2011 - 10:48 | 1656029 blindman
blindman's picture

savers verses speculators. the biological core and
the demographics, environmental basis.
.
Bruce Lipton - Biology of Perception 6 of 7
http://www.youtube.com/watch?NR=1&v=CFO741MrkIU

Sun, 09/11/2011 - 10:59 | 1656047 blindman
blindman's picture

that which is toxic cannot be redefined as nutritious,
for the most part.

Sun, 09/11/2011 - 11:02 | 1656051 Atomizer
Atomizer's picture

History always repeats- Sorry for long post..

 

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."

- Thomas Jefferson

 

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."

- President James Madison

 

"I have two great enemies, the southern army in front of me and the financial institutions, in the rear. Of the two, the one in the rear is the greatest enemy..... I see in the future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of the war."

- Abraham Lincoln

 

"If this mischievous financial policy, which has its origin in North America, shall become endurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous without precedent in the history of the world. The brains, and wealth of all countries will go to North America. That country must be destroyed or it will destroy every monarchy on the globe."

- Hazard Circular - London Times 1865

 

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."

- Napoleon Bonaparte, 1815

 

"Whosoever controls the volume of money in any country is absolute master of all industry and commerce... And when you realise that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."

 - James Garfield (assasinated within weeks of release of this statement during first year of his Presidency in 1881

 

"Those few who can understand the system (check book money and credit) will either be so interested in its profits, or so dependent on it favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests."

- The Rothschild Brothers of London

 

"The death of Lincoln was a disaster for Christendom. There was no man in the United States great enough to wear his boots and the bankers went anew to grab the riches. I fear that foreign bankers with their craftiness and tortuous tricks will entirely control the exuberant riches of America and use it to systematically corrupt modern civilization."

- Otto von Bismarck, German Chancellor (1815-1898), after Lincoln assassination

 

"Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits."

- Sir Josiah Stamp, President of the Bank of England in the 1920's, the second richest man in Britain

 

"The actual process of money creation takes place in commercial banks. As noted earlier, demand liabilities of commercial banks are money.."Confidence in these forms of money also seems to be tied in some way to the fact that assets exist on the books of the government and the banks equal to the amount of money outstanding, even though most of the assets themselves are no more than pieces of paper--.", P.3."Commercial banks create checkbook money whenever they grant a loan, simply by adding new deposit dollars in accounts on their books in exchange for a borrower's IOU.", p. 19. "The 12 regional reserve banks aren't government institutions, but corporations nominally 'owned' by member commercial banks.",
p. 27.

- Federal Reserve Bank of Chicago

 

"In numerous years following the war, the Federal Government ran a heavy surplus. It could not (however) pay off its debt, retire its securities, because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply."

- John Kenneth Galbrath

 

"While economic textbooks claim that people and corporations are competing for markets and resources, I claim that in reality they are competing for money - using markets and resources to do so. Greed and fear of scarcity are being continuously created and amplified as a direct result of the kind of money we are using. For example, we can produce more than enough food to feed everybody, and there is definitely not enough work for everybody in the world, but there is clearly not enough money to pay for it all. In fact, the job of central banks is to create and maintain that currency scarcity. Money is created when banks lend it into existence When a bank provides you with a $100,000 mortgage, it creates only the principal, which you spend and which then circulates in the economy. The bank expects you to pay back $200,000 over the next 20 years, but it doesn't create the second $100,000 - the interest. Instead, the bank sends you out into the tough world to battle against everybody else to bring back the second $100,000."

- Bernard Lietaer, Former Central Banker

 

Sun, 09/11/2011 - 11:17 | 1656076 mess nonster
mess nonster's picture

Thanks for the long post. Dismally enlightening, in the ususal sort of way.

So, pardon me for the woo-woo, but I just read something that said the Atlaneans had the ability to transmute base metals into gold. With the power to create gold, Atlantis subjugated the world, since it closely guarded its secret- everyone wanted gold, but only they could make it.

History, even mythical history, is depressingly repetitive.

Sun, 09/11/2011 - 12:24 | 1656335 Moon Pie
Moon Pie's picture

Good long post.  Had read some of those quotes before, but not all of them.  I'll add only one:

"Cry havoc, and let slip the dogs of war." - W. Shakespeare

It's been economic skirmishes for decades.  A modern day financial "Fredricksburg" is before us and we the people don't hold the high ground.

Its not too late.  Abolish the Fed, Congress takes over the issuance of currency, and maybe we have a shot.

Sun, 09/11/2011 - 12:15 | 1656300 PulauHantu29
PulauHantu29's picture

All we need is mo' credit. We'll pay ya later.

Sun, 09/11/2011 - 15:11 | 1656926 Sgt.Sausage
Sgt.Sausage's picture

I will gladly pay you Tuesday, for a hamburger today.

Sun, 09/11/2011 - 15:34 | 1657000 Grand Supercycle
Grand Supercycle's picture

Updated SP500 monthly chart at blog.

My long term indicators continue to warn of significant USD strength and AUD / NZD / EUR etc weakness and these signals have increased since 2009.

Unfortunately the March 2009 equity lows eventually will be breached.

http://stockmarket618.wordpress.com

Sun, 09/11/2011 - 16:58 | 1657246 Highrev
Highrev's picture

Credit has spoken loudly.  They have priced in a severe recession, depression whatever you want to call it.

Your "logic", or "prediction" (as you perfer) is either made or broken by whether what's been priced in is just the beginning, or the end, or somewhere in between.

Yet you're soooo sure.

 

 

Tue, 09/13/2011 - 22:11 | 1666038 moxia19
moxia19's picture

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