This page has been archived and commenting is disabled.

Guest Post: Three Times Is Enemy Action

Tyler Durden's picture


Submitted by Daniel Cloud

Three Times is Enemy Action

People seem surprised by the suddenness of the decline in the stock market. It keeps trying to rally, and the rallies keep getting sold. There’s no shortage of worrying circumstances in the real world to explain a fall in prices, and it’s normal for people to disagree about whether they should be going up or down. But the violence of this move has caught many of us by surprise.

I don’t think it should have. I think there are good theoretical reasons, very simple, orthodox economic ones, to expect more of the same, to expect equally dramatic, or even more dramatic moves down, going forward.

Of course, given the fact that I presumably have some sort of bets on the table, anything I say about that belief, like anything any market participant says, should be taken with a very large grain of salt. On the other side, there’s the danger that I’m merely stating the obvious, and wasting the reader’s time. (But then why are so many of us still long?)

Nevertheless, despite the fact that I clearly can’t be trusted, and consequently won’t persuade many people to change their views, and even if there’s nothing startlingly original about what I’m going to say, I think it’s worth laying out what I believe to be the correct explanation of the crash as it’s still happening, so that later on, when we’re tempted to blame various scapegoats – derivatives traders, European politicians, bankers, our neighbors, immigrants, the opposing political party, etc., etc. – we’ll perhaps remember that one of these analyses was predictive of the timing and scale of the event at the time, while the others are invidious reconstructions after the fact.

So let me just tell you why it seems obvious that this market should now continue to move down a lot in a fairly abrupt manner, should finish crashing. As a serendipitous benefit, you’ll also get a rather interesting story about why the economy never really recovered after the crash of ’08.

What market is usually the way world markets are at the moment? If you’ve ever looked carefully at a very long-term chart of the Chinese markets – not Taiwan or Hong Kong, markets on the Mainland, Shanghai or Shenzhen, and a chart going all the way back to the early ‘90’s – you’ll notice that they tend to suddenly move straight up or straight down in what seems like a completely abnormal and un-technical way. The very long-term chart just doesn’t look like any normal chart of any real stock market. Of course, I’m exaggerating a bit – it’s a relative thing – but relative to most stock markets, it has the flavor I’ve described.

That’s because the Chinese government is still practically and ideologically committed to planning the Chinese economy, both in aggregate and in detail. When the market goes up, often it’s not because of some subtle, gradual improvement in the earning power of companies, it’s because everybody knows that it’s the policy of the government that the market should go up now, or because the government is going to renew its commitment to endlessly printing RMB to sterilize its interventions in the foreign exchange market. When the market suddenly and abruptly goes down by fifty or seventy-five percent, it’s because the government has decided it’s too high, or is going to flood the market with IPO’s of failing state enterprises, and everybody knows that. It’s a largely policy-driven market, that’s what they look like.

Of course, this creates uncertainty (that’s why it’s necessary to order the banks to lend) and wouldn’t work as a way of encouraging extensive growth, but when you’re just installing equipment invented by someone else, you can get away with this sort of very aggressive management style for a while, until, as happened in Japan, your economy eventually gets too developed for it to work any more, gets to the point where further growth would only come from encouraging individuals to have their own differing points of view, to be creative.

The Shanghai stock market isn’t one that rewards being in the minority, and being right, the way a real capital market would. It’s a market that rewards marching in lockstep with everyone else, but getting the tip-off just a little sooner, because everyone knows (in a society where the very idea of a level playing field is held to be seditious) that the beautiful people should get the beautiful breaks. Chinese people have had six decades of this sort of treatment, and they’ve gotten pretty good at doing things in unison. (The Cultural Revolution was very good training.) That’s why their market tends to sometimes move up and down in relatively straight lines.

By explicitly targeting our stock market, by adding themselves as a source of net new demand for financial assets with their two quantitative easing programs, the Federal Reserve Bank began the process of making it into that sort of market, they tried to make sheep-like obedience to government directives the new ‘clever’. Trading days increasingly resembled rehearsals of synchronized swimming routines. For the time being, we, too, are a policy-driven market, though the current policy is now, unfortunately, suddenly RISK OFF.

For the last two years, being in the majority, not trying to be too clever, not fighting the Fed, buying every dip, has been what’s paid, but now the Fed has had to back away without accomplishing anything in particular for its money, besides pushing the prices of financial assets into unsustainable positions. In the short term, they really did manage to get market participants all doing what the government told them to do, all buying in unison, all fully long at once. But the market is like a Slinky or a rubber band; stretch it too far, in one direction, and then let go, and it will snap back in the other.

Now some people are trying to sell, still in an atmosphere of only-slightly-perturbed calm, while very few people are still buying, since the Fed’s monetary signal to do so has been switched off, and rallies keep getting sold. It’s possible to identify technical support at various levels, but I’m not sure it matters, it seems to me that there will still be people who have to sell but nobody who has to buy, even at those levels, because people have been conditioned to buy when the Fed is buying, and won’t know they ought to act without that coordinating signal. Policy-driven markets tend to go up and down in straight lines when policy changes, hence I expect a surprisingly savage sell off in this one.

All of this could have been predicted by anyone who bothered to read Charles Kindleberger’s Manias, Panics, and Crashes. If you don’t own it, I suggest you buy a copy. His argument seems complicated, but it boils down to something very simple. Kindleberger argues that bubbles, in the modern world, are often caused by cross-border capital flows, and shows that we can explain much of the history of the last several decades with a very simple model.

If we just assume that every dollar that is brought into a country by foreigners to buy some financial asset, say a bond, from a local, is used by that local to buy another financial asset, say a stock, instead of used to fund consumption (and why should the mere presence of a foreigner change the local’s propensity to save?) then we can easily explain events like the Japan bubble of the late 1980’s, or the American bull market of the three decades prior to 2000, and the series of bubbles since then, as the result of events like yen purchasing after its un-pegging, and the huge net flows of Asian savings into dollar-denominated US asset markets over the relevant period. Asian institutions may have mostly bought bonds, in the US, but the portfolio preferences of American investors weren’t changed by that, or got skewed towards risky assets by the resulting bull market, so even though it was the bond market the inflows were coming into, and we did get a bull market in bonds, it was much riskier assets that went up most in price.

Asia just eventually got too big, without much of a decline in savings rates, for this game to go on forever – by the end, they needed to lend us far more money than we had any actual use for, so we could buy far more gadgets than we had time to learn how to operate, and fight endless wars without any real political objectives. The whole thing fell apart by being reduced to an absurdity, to a system that would have required every American, even the ones working for minimum wage, to buy a mansion full of robots. That couldn’t happen, so the system broke.

All that should be fairly obvious by now. But if Kindleberger’s is the correct analysis of the effects of natural sources of exogenous demand for financial assets, which come on stream gradually and ebb away gradually, what should be the consequence of an artificial source of exogenous demand for financial assets, which switches on like a light, and then switches off abruptly a year or two later?

Well, presumably anyone the Fed bought a bond from, in the course of QE’s 1 and 2, immediately took the money and bought stock, encouraged by the fact that the Fed was publicly putting its credibility behind the notion that stock markets should only go up and can be planned, successfully, in a manner that causes them to only go up, a theory I first heard from a Japanese speculator in the late 1980’s.

So you should get a big bubble in the stock market, just as you would if the source of exogenous demand for financial assets had been capital inflows. This also explains the rather pointless bubble in gold and other commodities. If the Fed really does succeed in manipulating expectations, everyone should become convinced that by getting long anything liquid they’re doing the only safe thing, that people who still see risk are idiots and troublemakers. They’ll all get two hundred percent leverage, and financial institutions will all gear themselves up sixty times again. The VIX will fall to 16. Banks and private savers will arrange their speculations in liquid assets on the assumption than the economy is very much better than their own internal data makes it seem to be, because how could the Fed and all those smart people in the market all be wrong? (Does any of this sound familiar?)

At the same time, nobody will want to invest any money in any real productive activity, or to own anything they can’t sell in a day or two, because the question of the Fed’s exit strategy, and the Federal Government’s exit strategy from a very stimulatory level of deficit spending, will always force them to stay liquid, the more so the more it looks like the economy might recover. (Because they know, from their past experience with this Fed, that any such exit will inevitably be accompanied by a severe financial crisis or market panic which will destroy anyone who isn’t perfectly liquid, that if they get stuck in some productive investment they can’t immediately sell, if they don’t find a chair when the music stops, they may well, if recent history is any guide, end up in jail, or branded a public enemy.) And when the music finally stops, when the pied piper finally throws up his hands and says ‘to heck with those ingrates in Hamelin town’, there will be nobody who’s not fully invested, or who’s short, left to buy from them, nor any investment going on in the real economy, and the bubble will pop quickly and loudly.

The thing that ought to be stressed, about this explanation of the pattern of events we now see unfolding, is its orthodoxy as economics. These are exactly the reasons that have always, in the past, dissuaded the Fed, or any other well-run central bank besides Japan’s (they somehow don’t seem to mind the fact that it has never worked and theoretically shouldn’t work) from ever pursuing any such policy of directly targeting asset markets over long periods of time (other than the market for government bonds, which central banks must manage) and that will dissuade any other well-run central bank from ever emulating the Fed’s current policy in the future.

You see, in economics, they have this idea that prices depend on supply and demand. You economists, all you PhD’s out there, you wise wizards and technocrats at the Fed who keep us safe from unscientific approaches to the management of the economy, may have heard of these things before, though of course they’re mysteries to the rest of us. The Fed, in doing two, successive, large scale ‘quantitative easing’ programs which basically just amounted to buying lots of bonds, temporarily increased the demand for financial assets. Market participants’ portfolio allocation preferences didn’t change, or became less conservative, so even though they were buying bonds, it was risk assets, equities and commodities, that went up in price. (This is not rocket science.)

Eventually, though, the buying would have to stop, when the program ended. That would remove a source of demand for financial assets; one market participants had grown accustomed to and reliant on. With less demand, the prices of financial assets would then fall, in the typical pattern, with equity market weakness and bond market strength. Since the monetary stimulus, by then, would have been huge, its sudden removal would create a huge hole under the market, into which it would ponderously collapse.

Of course, since the stimulus was all fakery, and was the very least the participants in the rave expected from their DJ, while its removal shows us harsh reality, and comes as an unwelcome surprise, every single time you do this, the cost of the exit will be greater than the benefit of the free lunch you thought you were getting during the bubble period. (The Fed has now had two good opportunities to re-learn this – one in 2000, and one in 2008 – but seems to have learned nothing at all, seems even more committed to blowing up bubbles with printed money, though maybe the third time, which we’re presently living through, will be the charm.)

The asset market will go down by more than the amount you pushed it up each time, as everyone tries to exit at once. The decline in GDP from the crisis will be greater than the boost to GDP from the stimulus that caused the crisis to occur. The basic idea of economics is that there’s no such thing as a ‘money machine’, that you can’t get something for nothing, and the practical wisdom of any competent economist tells him that an attempt to try will always leave you worse off.

(I shouldn’t have to say any of this, all professional economists outside the United States know it, but somehow ours have lost their willingness to contemplate the possibility of perverse policy outcomes, though those are what real economics is all about.)

This all seems blindingly obvious, and many other people have said more or less the same thing. The hardest thing to explain is how people could be fooled by the initial temporary increase in demand for financial assets, but the portfolio allocation effect seems adequate to explain that, and we have plenty of evidence that they were, the S&P 500 did double over the course of two years in the face of weak economic performance, a bad housing market and rapidly snowballing public debt.

How much should prices fall now that the artificial demand for financial assets has been removed? With expectations disappointed, it would be reasonable to expect overshooting on the downside. All of market participants’ ‘ill-gotten’ gains, ill-gotten not in a moral but a practical sense, precarious gains, resulting from just doing what the government told us to do instead of thinking for ourselves, should probably be wiped out before much of anyone has a chance to sell, and there should be some further penalty on top of that, because when the music stops there should be a disorderly scramble for chairs. (Given the number of people trying to delta-hedge, I would expect there might be gaps lower, once we really get going.)

Most people, now, are still thinking that the worst thing that can happen to them is a decline, in the S&P 500, to 1020, the lows last year before QE2 was announced. But people always have modest expectations of the extent of a decline when it starts (otherwise they’d already have sold) and this analysis ignores the fact that there was another, more or less identical quantitative easing program before QE2. (Quite how people could forget that, given QE2’s name, still strikes me as mysterious, but never mind.)

Really, perhaps after some hideously destructive rally off of this forlorn hope of support, shouldn’t we give back the ill-gotten gains from the first program as well? (I know we’re used to having them by now, but the market doesn’t care about that.) That would take us below 800. Actually, if we’re going to overshoot where we should be, we should overshoot the 2008 low, which itself was an overshooting of the 2000 low. After all, now we’ve made a lower high, this whole move up from 666 to above 1300 is just a two year long rally in a secular bear market, and in bear markets, successive lows tend to be lower as well.

(The Fed keeps doing this to us, blowing up bubbles and then backing away. Once could be happenstance, twice might be bad luck, but three times is enemy action, so it seems likely that people will recognize what’s being done to them and act to protect themselves more quickly this time, leading to a more severe, or at least more sudden market event.)

That would indicate an ultimate low somewhere below 650 on the S&P, perhaps 600? Anything that takes us below 800 will amount to an effectively complete claw-back of all the policy-driven gains, but it really seems possible that we could make a new low. This is a crazy-seeming prediction, but it’s where reason seems to lead, and even if it’s wrong, developing this sort of contrarian case is a good exercise. Think of it as a puzzle; please, knock yourself out, find a way to make me wrong, I’d love to be wrong.

Well, that, anyway, was my general theory, a few months ago, we’ll see if I was right, so to test it, I bought enough puts on the S&P 500 to hedge my own illiquid investments in real productive activity. I thought a crash was likely to occur, but I had no theory about the detailed mechanism of the panic, which makes me seem rather stupid, to myself, in retrospect.

It should have been obvious that a lot of the money we were printing was actually ending up in Europe, that that was what was being endlessly shoveled into peripheral bond markets by the European banks, it should have been obvious that as soon as QE2 ended there would be a huge hole in the funding system for these quasi-parastatal monstrosities. Naturally that would lead to selling in peripheral bond markets, and naturally that would provoke a run on the same banks by depositors with an accurate conception of how much political interference there’d been with sound balance-sheet management, how much pressure there’d already been and would continue to be, on the banks, to bail out Greek and Italian politicians with the money of German and French depositors. And naturally this run would go all the way, since the sovereigns involved could hardly guarantee bank deposits if they were effectively bankrupt themselves. So of course, what we were always going to end up with, once QE2 stopped, was a classic 1930’s style run on the European banking system, which policy-makers would react to by basically dropping out of sight because they knew the only plans worth articulating, now, were recovery plans for after the crash, that it was pointless to try to prevent it.

I suppose if it really happens, the event I’m describing will leave Europe’s banking system in collapse and the American and Asian ones, aside from a few very weak large institutions, largely intact. Europe’s present regulatory and political institutions are the result of political compromises rather than the test of time, and simply aren’t set up in a way that would permit a successful response to this sort of crisis. They’re the weakest link, because their political system is the most utopian, the most unsustainable, the most fragile, so the destruction of the QE money, and the last decade’s worth of excess Asian savings, is most easily accomplished there.

Because of course, that’s what this sort of event is largely about; a bunch of money corresponding to no existing goods and services has been created out of thin air, and if it can’t be burned off through inflation, hard to do with productivity going up so quickly and so many people joining the global work-force, it has to evaporate in a crash. Someone, somewhere, has to lose that amount of money, has to find out that they can’t actually get it and spend it when they need it, and that describes a stock market crash or a run on a banking system. And there’s always collateral damage, more than the excess, purely imaginary wealth is always lost.

We may have to recapitalize some of the American banks again – from tax receipts, this time, doing it with money borrowed from the banks themselves was never really going to work – but the event should at least scare us back onto the path of fiscal rectitude, and after all, the adjustments we really need to make still aren’t horribly harsh ones. People like me have to pay a little more tax, people who are still fairly young have to get used to the idea of retiring a little later, etc. These aren’t things that will tear our society apart, it’s just that some parts of the existing political class will have to be replaced through elections.

What’s unfortunate is simply that the event is likely to be more damaging, to the world at large, than it would have been without QE2, and the event that would have occurred last summer if we’d had no QE2 would have been worse than what would have happened if we’d had no QE1, and what would have happened if we’d had no QE1 would have been worse than if there’d been no monetary stimulus after 9/11, and what would have happened if there’d been no monetary stimulus after 9/11 would have been worse than what would have happened if LTCM had not been rescued. That was our last real chance to avoid some kind of disaster, small or large. We’ve been in trouble for a long time, now.

The very technical competence of the central bank, its ability to manage markets, is endangering the world economy, and is now apparently threatening to destroy Europe’s banking system. It would be the worst thing in the world for the Fed to launch another iteration of this failed approach, in yet another attempt to avert the inevitable disaster brought on by its last targeting of asset markets.

Of course the Fed needs to act as lender of last resort in a crisis, they’re really good at doing that, but then they never stop acting as lender of last resort, they seem to make no conceptual distinction between the lender of the last resort role and really over-the-top kinds of Keynesian stimulus, and direct, explicit targeting of the stock market (a truly bizarre and self-contradictory policy in the context of the normal, sober behavior of the Federal Reserve Bank of the United States) or else they’re just no good at leaving the limelight. Instead of backing away from the economy after the crisis and letting it equilibrate, they endlessly tease and torture it with their capricious antics, thinking they’ve saved the world by creating this or that new bubble, and then being comically surprised when they stop blowing air in and the air all comes back out.

We don’t really need this huge distorting signal; it’s causing a gigantic flutter in the world economy that’s getting faster and more violent with each cycle. Central banks should probably never target the stock market for any protracted period of time – that’s central planning, not the management of a sound currency, or even protection of the long-term growth trend. After all our protection of full employment by managing markets, over the last fifteen years, how’s employment doing?

And yet that’s what the Fed’s quite likely to try to do, again, not because they really think it will work, it will be clear to them, by then, that QE2 ended up doing enormous damage, but because the political impulse to be seen to seem to be doing something will win out, in the absence of any better option. There isn’t any way to stop that spasmodic action, the only good that can be gotten out of it is to use it to reinforce the lesson, for people outside the Fed, that central banks should never do what they may end up doing yet again, because it only makes things worse in the end. That’s why nobody should be surprised by the violence of this crash; it makes perfect sense that they’ll be worse each time.

- Daniel Cloud


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 08/24/2011 - 19:55 | 1597359 Harbourcity
Harbourcity's picture

One, two, three times a lady...


It seems like a long ramble of nothing... 


Wed, 08/24/2011 - 20:32 | 1597506 russki standart
russki standart's picture

Interesting but conventional in his views..... edit it down by 80% and more of us might pay attention. 

Wed, 08/24/2011 - 20:52 | 1597601 WestVillageIdiot
WestVillageIdiot's picture

He could be a Russian writer with that wordiness.  As a good Russki you should know that.  It would take Dostoyevsky 60 pages to write, "I took a dump".  The only book I've ever read where the movie was 10 times better was "Doctor Zhivago".  The book was like a slow death.  The movie had Omar Shariff, Rod Steiger and Julie Christie.  It actually moved forward. 

I can sum up this article with the following sentence.  "The Fed is fucking us and will continue to fuck us as long as they can." 

Wed, 08/24/2011 - 22:42 | 1597949 rocker
rocker's picture

Geeezzzz. That was long, but I did read it.  The simularities of Japan and China are scary. 

That's why I say. "We are Worse than Japan Now."

As the Bozo on the Floor of the CME said on CNBC. The FED is trying to prevent a Great Depression.  Mission Not Accomplished.

Because they are holding up the main problem. Let the Banks who need to or should have Failed Fail already. GS, BAC, C  and WFC.

TBTF needs to Fail to let the honest ones shine on.  All we have done is make them bigger.  Geeezzzzzz.

Thu, 08/25/2011 - 08:46 | 1598703 A.W.E.S.O.M.-O 4000
A.W.E.S.O.M.-O 4000's picture



Dude, ever hear the words "Executive Summary?"

Wed, 08/24/2011 - 20:50 | 1597590 IQ 145
IQ 145's picture

The last sentence, "There isn't any way----etc.etc.--"; is what I believe is called a "run on sentence"; it certainly would not have gotten by my 11th grade English Teacher. But then Universities are not what they once were.

Wed, 08/24/2011 - 20:53 | 1597604 WestVillageIdiot
WestVillageIdiot's picture

I believe this article is what is known as a run on article.

Wed, 08/24/2011 - 21:59 | 1597832 ZippyDooDah
ZippyDooDah's picture

I ran off from this article.

Wed, 08/24/2011 - 21:07 | 1597651 UGrev
UGrev's picture

no, no, no.. you got it all wrong.. here, let Eddie sing it for you:

Wed, 08/24/2011 - 22:43 | 1597952 JW n FL
JW n FL's picture

+ a trillion oz. of silver.. for old SNL ref.!!!

Wed, 08/24/2011 - 22:57 | 1597994 Newsboy
Newsboy's picture

He said they are going to let all the bubble money go "POOF" in a European banking collapse.

I don't think it will be that easy, since the game is largely being run by European banking.

I could see debt forgiveness for all the European bankers as being part of a banker-initiated plan.

That would make all the depositers and shareholders take losses, and the governments.

I could believe this if the plan would give the bankers control of all the collateral, but absolution from debt.

That would be the ideal position for bankers to run the deflationary game that they used to run before the 20th century.

Bankers make the rules and the plans, for now...

Wed, 08/24/2011 - 19:56 | 1597360 Debtless
Debtless's picture

...brevity. you just don't see it that much anymore...

Wed, 08/24/2011 - 20:34 | 1597518 IQ 145
IQ 145's picture

Not on the "World Wide Waste of time", anyway. talk may be cheap, but electrons are free. And apparently all those girls who were in typing class when I  took it in high school have become philosophers and market timing experts. Simply amazing.

Wed, 08/24/2011 - 20:54 | 1597607 WestVillageIdiot
WestVillageIdiot's picture

"...brevity. you just don't see it that much anymore..."


My wife would wholeheartedly disagree with your statement. 

Wed, 08/24/2011 - 20:03 | 1597364 bankruptcylawyer
bankruptcylawyer's picture

you got me with the 4th paragraph copied below ---in which you tell us your motivation to write a piece of shit is so that you can say "i told you so" ---i stopped reading after that piece of shit paragraph. i do appreciate your honesty so i won't cross you off. when i read a turd that someone introduces as golden, i will never read another word of  their untrustworthy craparoonery. i appreciate your headsup warning me, your reader, to reconsider reading. 



"Nevertheless, despite the fact that I clearly can’t be trusted, and consequently won’t persuade many people to change their views, and even if there’s nothing startlingly original about what I’m going to say, I think it’s worth laying out what I believe to be the correct explanation of the crash as it’s still happening, so that later on, when we’re tempted to blame various scapegoats – derivatives traders, European politicians, bankers, our neighbors, immigrants, the opposing political party, etc., etc. – we’ll perhaps remember that one of these analyses was predictive of the timing and scale of the event at the time, while the others are invidious reconstructions after the fact."


Wed, 08/24/2011 - 22:47 | 1597962 oldman
oldman's picture

S, instead of reading---you did nothing.

That was what I got out of all of this; the Fed ought not to have done a thing more after the initial collapse was softened. I agree with his nearly last paragraph:

"Of course the Fed needs to act as lender of last resort in a crisis, they’re really good at doing that, but then they never stop acting as lender of last resort, they seem to make no conceptual distinction between the lender of the last resort role and really over-the-top kinds of Keynesian stimulus, and direct, explicit targeting of the stock market (a truly bizarre and self-contradictory policy in the context of the normal, sober behavior of the Federal Reserve Bank of the United States) or else they’re just no good at leaving the limelight. Instead of backing away from the economy after the crisis and letting it equilibrate, they endlessly tease and torture it with their capricious antics, thinking they’ve saved the world by creating this or that new bubble, and then being comically surprised when they stop blowing air in and the air all comes back out."

Lender of last resort is fine with me, but to give the banks 'free money" to continue their ignorant and greedy speculation and then to abet them in manipulation of markets---well, this sort of pisses one off, now, does it not?

Anyway, I want thank you for doing nothing; it is a fine example to all of us do-nothing dudes      om

Wed, 08/24/2011 - 19:55 | 1597375 Concentrated po...
Concentrated power has always been the enemy of liberty.'s picture

Good things, when short, are twice as good.  ~Baltasar Gracian


Too bad it wasn't good...

Wed, 08/24/2011 - 19:54 | 1597381 RacerX
RacerX's picture

too much blahblah. get to the point.

Wed, 08/24/2011 - 19:57 | 1597389 LookingWithAmazement
LookingWithAmazement's picture

People seem surprised by the suddenness of the decline in the gold market.

That would be more logical.

Wed, 08/24/2011 - 19:58 | 1597390 magpie
magpie's picture

uh because you aren't allowed to short the Chinese markets ?

Wed, 08/24/2011 - 20:02 | 1597410 gwar5
gwar5's picture

Fed meddling so much in the economy and trying to centrally plan everything seems to say they are desperate. They act as if they must control everything or it will fall apart. It's that behavior that scares me. That, and the fact that only the central banks know what is going on behind the curtain and I'm a pig about to get slaughtered.


Peak Federal Reserve.


Wed, 08/24/2011 - 20:58 | 1597625 WestVillageIdiot
WestVillageIdiot's picture

I have not gotten slaughtered yet but I am definitely in the cattle car.

And look at those futures rebounding from the news about Steve Jobs.  This is getting so boring.  Futures are red at bedtime, neutral during breakfast and greener than a shamrock by lunchtime. 

Bring on that Cat-2 hurricane.  Perhaps it will wipe out the entire fucking set of temples to thievery I see out my window. 

Wed, 08/24/2011 - 21:02 | 1597639 BlackholeDivestment
BlackholeDivestment's picture may want to see what's behind their curtain but, you know it's just crypto fascism devouring life.

Wed, 08/24/2011 - 20:02 | 1597412 Shineola
Shineola's picture

Stocks are a way to loan money to people you don't really know and shouldn't really trust.


Back n the day, there were dividends to compensate you for the risk.

Wed, 08/24/2011 - 20:07 | 1597428 New_Meat
New_Meat's picture

You, Sir, know from where you speak. - Ned

Wed, 08/24/2011 - 20:37 | 1597533 IQ 145
IQ 145's picture

Ah, I remember those days; when a new Chevy station wagon cost 2900 dollars. But that was before our Federal Politicians sold the country to the Chinese.

Wed, 08/24/2011 - 20:05 | 1597421 kito
kito's picture

And yet that’s what the Fed’s quite likely to try to do, again, not because they really think it will work, it will be clear to them, by then, that QE2 ended up doing enormous damage, but because the political impulse to be seen to seem to be doing something will win out, in the absence of any better option.


ben hasnt been doing much of late, printing presses are running cold. its evident that as long as there is no defaltionary collapse or stock market plunge, he might just leave well enough alone....

Wed, 08/24/2011 - 20:06 | 1597426 New_Meat
New_Meat's picture

"Chinese people have had six decades of this sort of treatment, and they’ve gotten pretty good at doing things in unison. (The Cultural Revolution was very good training.) That’s why their market tends to sometimes move up and down in relatively straight lines."

and a great summary of our "Progressive" agenda.

don't cha' know.

- Ned



Wed, 08/24/2011 - 20:06 | 1597427 Galen Slade
Galen Slade's picture

Wow.  I want the 5 minutes of my life back that I just spent reading that, that, what the hell WAS that, anyway?

Wed, 08/24/2011 - 21:01 | 1597632 WestVillageIdiot
WestVillageIdiot's picture


Wed, 08/24/2011 - 20:11 | 1597440 John_Coltrane
John_Coltrane's picture

Nice article.  The author definately "gets it".  Imagninary "assets" can neither be created or destroyed.  Statements like, "8 T$ of wealth was lost in the recent downturn" are just plain silly.  The illusion of wealth as digits on an brokerage account is false.  A very important concept that escapes the financial press outside of ZH.

Wed, 08/24/2011 - 22:31 | 1597929 csmith
csmith's picture

Trane, you nailed it. Wealth is a Boeing 787 or an Apple iPad or a Google algorithm, purchased by a customer of his own free will at a price which makes a profit for the producer. This stream of profit alone sustains the enterprise, and has value in its own right, as some portion may eventually be thrown off. All else is noise.

Wed, 08/24/2011 - 20:13 | 1597446 putbuyer
putbuyer's picture

One of the next American looters. Smell her hand.

Wed, 08/24/2011 - 20:14 | 1597451 Missiondweller
Missiondweller's picture

A long read but very good.

Wed, 08/24/2011 - 20:19 | 1597458 Species8472
Species8472's picture

When the fed buys a bond, what if the seller just buys another bond, that's what the primary dealers would do, they are paid to do that. And since the gov sells bonds as fast as the fed buys, where did the stimulus come from?

Wed, 08/24/2011 - 20:28 | 1597490 Shineola
Shineola's picture

Excellent point!    I felt no stimulation at all from the alleged stimulus.


Wed, 08/24/2011 - 20:53 | 1597591 Juan Wild
Juan Wild's picture

it stimulated a rally in ZH subscribers and molotov cocktail manufacturing.

Wed, 08/24/2011 - 23:31 | 1598063 CompassionateFascist
CompassionateFascist's picture

@Species - via banksters sluicing some of the rake-off on the shell-game wit the bonds into the stock market.

Wed, 08/24/2011 - 20:33 | 1597475 Use of Weapons
Use of Weapons's picture

This wasn't written by a real philosopher - and I will challenge the OP to come forth & engage.

1993 - 1998
Founding Partner, Firebird Fund Management.

1993, 1989/90
Studied at Columbia's School of International and Public Affairs.

1990 - 1992
Equity Analyst, W. I. Carr, Hong Kong.

1983 - 1989
Did various jobs in the People's Republic of China. Learned to speak Mandarin.


Problem is - look at the CV. And I can't find any papers printed since 2006 for him. Nor can I get his PHD from archives. In phd circles, that's a major fucking huge problem.

Between 2006 and 2011 he produced.. what? A fucking E-book. No paper citations. No in-house publications. No presentations at seminars. Apart from this -

And that relies on the other two co-author's specialities far more than his - in fact, I'd say 100%.

Link to Kauffman's work - note the multiple papers:[au]&dispmax=50

Andrecut - note the age / length of CV / papers


5 years - 1 self published "e-book" with no attempt at existing, and a co-authored paper with a couple of people doing all the work. Senior people with major talent / years / investment in the system at that.

So, Mr Cloud -


Who the fuck are you? Because you're wracking up a 99% deviation from the normative model of a philosophy PHD student here. A simple link to your PHD would be nice. Philosophy PHDs are usually poor as shit, desperate to publish anywhere, and don't get teaching positions without extension investment in drudge work for in-house publications & seminars.

You're doing it wrong.




Nailing it:


These are not philosophy papers. These are (at best) political op-eds. Hint: missing about 3000 footnotes, quotations and citations.



Fucking spook.

Wed, 08/24/2011 - 20:40 | 1597545 IQ 145
IQ 145's picture

Dude, it's an internet blog; did you read any of the other crap on here. But, thanks for the investigation; now we know he's a real phoney, and not just another imitation phoney.

Wed, 08/24/2011 - 20:45 | 1597567 Use of Weapons
Use of Weapons's picture

No, it is worse than that.

He claims he has a PHD from an Ivy league - and his "papers" contain lines such as:


"Here's the Black-Scholes equation itself, straight from Wikipedia" - AND HE DOES A FOOTNOTE TO THE WIKI PAGE.


To equate this to the ZH experience, this would be like the new "hot shit young blood" rolling up with a copy of Das Kapital and a Iphone claiming that he was the next Soros, then using his Apple laptop to attempt to trade, whilst using "hip trader language".


It. Is. THAT. Laughable.

Wed, 08/24/2011 - 20:55 | 1597611 IQ 145
IQ 145's picture

Yes, yes. you're right. It is funny. I'm not reading much from Academia these days, but I tend to doubt there are many footnotes to a WIKI page; at least I hope not.

Wed, 08/24/2011 - 21:11 | 1597664 Use of Weapons
Use of Weapons's picture

Now you've got me doubting myself... What if Princeton PHDs are actually this bad.

Wed, 08/24/2011 - 20:44 | 1597564 Galen Slade
Galen Slade's picture

He may be a spook, but your analysis is just plain spooky! (in a good way)  Could you maybe do another analysis like that on a guy by the name of Barry Soteoro/Barack Hussain Obama-  of Columbia/Harvard fame?

Wed, 08/24/2011 - 20:45 | 1597569 Use of Weapons
Use of Weapons's picture

That's above my pay grade.

Wed, 08/24/2011 - 20:48 | 1597584 Galen Slade
Galen Slade's picture

Perfect.  +1

Thu, 08/25/2011 - 01:01 | 1598218 gwiss
gwiss's picture

Why the hell would he submit a philosophy paper to ZH?  Nice try at making your dick seem bigger by pointing out how small his surely must be.  Let me know when TD posts your writing, slick.  In the mean time, you got anything to say about the points he is making?

Crickets.  Thought so.

Thu, 08/25/2011 - 08:02 | 1598589 gsb2118
gsb2118's picture

Schro?dinger's crystal /

  • Author:
  • Title:
    Schro?dinger's crystal / Daniel Cloud.
  • Published:
  • Description:
    ii, 231 leaves, bound.
  • Holdings Information:

    • Location (guide):
      Offsite - Place Request for delivery within 2 business days
    • Call Number:
      LD1237.5D 2006 .C668
    • Status:
      Not checked out

    • Location (guide):
      Offsite - Place Request for delivery within 2 business days
    • Call Number:
      MICROFLM FC32- 15,537
    • Status:
      Not checked out
    • Reproduction Note:
      Microfilm. Ann Arbor, Mich. : UMI, 2006. 1 microfilm reel ; 35 mm.

    • Location (guide):
      Rare Book <Offsite> - Request at Rare Book Lib (Non-Circ)
    • Call Number:
      LD1237.5D 2006 .C668
    • Status:
      Not checked out
  • Notes:
    Department: Philosophy.
    Thesis (Ph. D.)--Columbia University, 2006.
    Includes bibliographical references (leaves 224-231).
  • Material Type:
    Archival/Manuscript Material


Fri, 08/26/2011 - 19:43 | 1599821 Use of Weapons
Use of Weapons's picture

Columbia was being sloppy (see below). If I'd done it right, I'd have listed the following:

Mark Couch
Seton Hall University
Assistant Professor
Dissertation: Functional Explanation: A Case Study

Daniel Cloud
Princeton University
Post-Doctoral Fellowship
Dissertation: Functionalism in Scientific Practice



Bibliographic Record Display
  • Author:
    Couch, Mark Bradley, 1971-
  • Title:
    Functionalism in scientific practice / Mark Bradley Couch.
  • Published:
  • Description:
    v, 192 leaves, bound.
  • Notes:
    Department: Philosophy.
    Thesis (Ph. D.)--Columbia University, 2006.
    Includes bibliographical references (leaves 184-192).
  • Material Type:
    Archival/Manuscript Material


You'd think they'd get it right, but there we go. Only a student for four years, a flash in the pan. The idea of his non-existant PHD melded with the title of his thesis - (I was making an allusion to this btw - there's been a lot of schadenfreude in academic communities over it, and its topical, given the news cycle.

The snark was ex-trader doing philosophy as was noted (poverty is a defining characteristic of most phd students) - what perhaps wasn't was the puntastic title - Schroedinger’s Crystal, which is a semi-pun on the infamous Schroedinger’s Cat. (Alive/Dead paradox). So his PHD is in a state of flux, according to Columbia and...

We have thus justified everything in the above scheme, except the main point, namely, that we wish a molecule to be regarded as a solid = crystal. The reason for this is that the atoms forming a molecule, whether there be few or many of them, are united by forces of exactly the same nature as the numerous atoms which build up a true solid, a crystal. The molecule presents the same solidity of structure as a crystal. Remember that it is precisely this solidity on which we draw to account for the permanence of the gene!...

To the physicist I wish to emphasize that in my opinion, and contrary to the opinion upheld in some quarters, quantum indeterminacy plays no biologically relevant role in them, except perhaps by enhancing their purely accidental character in such events as meiosis, natural and X-ray-induced mutation and so on -and this is in any case obvious and well recognized...

Again, the mystics of many centuries, independently, yet in perfect harmony with each other (somewhat like the particles in an ideal gas) have described, each of them, the unique experience of his or her life in terms that can be condensed in the phrase: DEUS FACTUS SUM (I have become God)

Thus, the title itself lends itself to self-negation -and his research is the origins of life, which traditionally "is doing God's work". The theme was his bio, which states "Cloud’s research interests include problems in the philosophical foundations of evolutionary and molecular biology and evolutionary game theory." 

John Forbes Nash, Jr. (born June 13, 1928) ...Serving as a Senior Research Mathematician at Princeton University during the latter part of his life...,_Jr. 

Nash infamously replied to a question about why game theory was so negative with the phrase that went along the lines 'Well, yes, I was ill at the time and thought they were out to get me' - but his work was used heavily by places such as the Rand institute by... spooks (who were indeed keeping an eye on him later on, although not at the time of his breakdown).


So yes - all a bit up my own arse there, and it didn't work very well. Junks well deserved. Using Wikipedia as a source though - that still should be a hall of shame moment, although the other variety of achievements suggest it won't bother him too much.

Wed, 08/24/2011 - 20:25 | 1597483 buzzsaw99
buzzsaw99's picture

The author can't be talking about the same Ben Bernanke that everyone calls "Helicopter Ben" can he? the bernank is out there. it can't be bargained with. it can't be reasoned with. it doesn't feel pity, or remorse, and it absolutely will not stop ever, until the usa dollar is dead. If it takes driving AMZN to 3000 to keep the market up nominal then that's what will happen.

Thu, 08/25/2011 - 05:41 | 1598464 akak
akak's picture

I'm waiting for the movie --- "The Dollar Terminator" --- in which a cybernetic Bernankster is crushed into oblivion by one of his own printing presses.

Wed, 08/24/2011 - 20:28 | 1597494 navy62802
navy62802's picture

The moral of the story is that our "free market capitalism" isn't, in fact, free at all. Right?

Wed, 08/24/2011 - 20:30 | 1597499 So Close
So Close's picture

You guys are idiots.  This is beautiful the way Pascal's Penses was beutiful.  Nice job Daniel.  I too fear you are correct.

Wed, 08/24/2011 - 20:35 | 1597524 Use of Weapons
Use of Weapons's picture

Ah, so there is an old boy's network.


they tried to make sheep-like obedience to government directives the new ‘clever’. Trading days increasingly resembled rehearsals of synchronized swimming routines


This would be laughed out of any serious philosophy department.

Wed, 08/24/2011 - 20:43 | 1597558 IQ 145
IQ 145's picture

I supose there is such a thing, nowadays, as a "serious" philosophy department; but it's a little difficult to imagine.

Wed, 08/24/2011 - 20:48 | 1597583 Use of Weapons
Use of Weapons's picture

Yes, there is.


If you want to be crude about it, not many make money, but some do. More important is the transmutative elements.

Wed, 08/24/2011 - 21:03 | 1597641 IQ 145
IQ 145's picture

No, no, I don't want to be crude. it's alright if they don't make money; I'm not actually a Philistine. I'm just not a fan of the modern work product; the post-modernisms, and revised-revisionism in the literature dept. for instance. If you have a reading list I'll approach with an open mind.

Wed, 08/24/2011 - 22:05 | 1597845 delacroix
delacroix's picture

the hero with a thousand faces     Joseph campbell, I know he's a mythologist, but it equates well

Wed, 08/24/2011 - 22:53 | 1597982 oldman
oldman's picture

Hey Use.

Did you mean 'transmutational'??

Fri, 08/26/2011 - 19:42 | 1606152 Use of Weapons
Use of Weapons's picture

Kind of - transmuatative was a deliberate pun on transmutational.


I was very drunk, and the entire schema fell through - it was all actually a chocolate box of appreciation to Daniel, which fell apart because I wasn't on the ball. Without being an ass, if you've spent time with PHD philosophers, if I'd coded it properly, he'd have been amused. [see my later disclosures on how Columbia is stiffing him on kudos].


That's assuming he reads ZH!

Wed, 08/24/2011 - 20:37 | 1597532 Shineola
Shineola's picture

Here is how the Bernake can print massive amounts of money without causing immediate hyper-inflation.   All the printied money goes to a few chosen entities.  These chosen ones do not consume food or energy to excess, just because they have a few extra trillion $$ on hand.  They buy "control" and "influence", not food, energy, or commoditites.

Later, when the chosen begin to exercise their newly purchased "control" and "influence", the pain will be felt by all of the unprepared.

Wed, 08/24/2011 - 20:41 | 1597551 magpie
magpie's picture

Inflation will reveal itself in the bribes to politicans.

Wed, 08/24/2011 - 20:58 | 1597616 navy62802
navy62802's picture

I've thought precisely the same thing. The only way we couldn't have inflation from so much "money creation" is if the newly minted dollars were corralled away by a select few ... never to enter the open market. Because if this money did enter the market, it would of course dilute the existing money supply. Therefore the only way to avoid inflation is to keep said moneys out of the general money supply. And the only way to do that is to concentrate it into only a few hands.

The catch being that eventually the newly created dollars will eventually hit the market, sparking inflation. But that'll be after the next election.

Wed, 08/24/2011 - 22:08 | 1597854 delacroix
delacroix's picture

before those reserves are spent, there will be a shortage of paper currency, driving the purchasing power up

Thu, 08/25/2011 - 07:08 | 1598517 Raymond Reason
Raymond Reason's picture

I've read they actually encourage illegal drug trade to expatriate (and thereby soak up) extra paper currency. 

Wed, 08/24/2011 - 22:47 | 1597963 csmith
csmith's picture

Nothing nearly as sinister as that. The banks are holding all the freshly minted dough because they know their existing loan books are so much Swiss cheese, and eventually someone (their depositors and creditors - short term and long term) will come for the money. The Fed is all about making "eventually" never happen.

Wed, 08/24/2011 - 20:45 | 1597570 Manthong
Manthong's picture

artificial source of exogenous hot air

Wed, 08/24/2011 - 20:45 | 1597573 RunningMan
RunningMan's picture

Long/wordy yes, but did describe the current situation very accurately. The recent volatility from Europe seemed to signal a possible trigger event, and then.... Silence. With that silence, a violent surge in equity markets on low volume. It is truly disturbing to witness such an obviously malfunctioning market. People here pick on the bulls ( eg Robo), but they are simply relaying empirical evidence this piece explains: intervention to prop the markets. It is capital misallocation if it does not work, but so far the Fed appears hell bent on it working. Perhaps this is Bernanke's academic background, being intent on avoiding what is an obvious depression (at
least to those of us struggling to sell work).
Is it inevitable that this comes unwound in a disorderly fashion?

Wed, 08/24/2011 - 20:57 | 1597608 TrulyBelieving
TrulyBelieving's picture

To most of ZH's this is pretty much a summary of what you already know, more or less. But to an uneducated mind it could prove most valuable. Every time a piece like this is written and someone gets enlightned, it adds to our ranks and gives us more ammo for the fight. 

Wed, 08/24/2011 - 21:07 | 1597655 Juan Wild
Juan Wild's picture

Well done Daniel. You have more light than anybody past or present from Princeton. That says a lot.

Wed, 08/24/2011 - 21:01 | 1597635 trendybull459
trendybull459's picture

when you visit our blog you will find lots of ideas on who is whom with FED,much alternative from most people and authors view:

Wed, 08/24/2011 - 23:42 | 1598086 CompassionateFascist
CompassionateFascist's picture

I tried...your ex-Russian syntax is difficult to read. And get rid of that header-pic with the guy and the sheep. Use the WP "appearance" template to upload a more interesting/appropriate visual.

Thu, 08/25/2011 - 03:53 | 1598406 bakken
bakken's picture

Yo.  Syntax IS terrible.  I would try to read it again  if you cleaned it up and wrote in decent English.  Yours does need work, but good try.  Try harder. Russians are merciless to foreigners whose Russian language  is poor.  English speakers are actually too lax in not demanding decent linguistic structure.


Thu, 08/25/2011 - 05:46 | 1598467 akak
akak's picture

Wow, you are right!  That blog is positively painful to try to interpret.  It is like reading a direct-from-Chinese-translated product manual for ...... just about anything nowadays.  Spinning is still now my heads!

Wed, 08/24/2011 - 21:07 | 1597653 Bausti
Bausti's picture

I liked the article.  Plan on reading it a few times.  Another way of saying what Mr. Cloud was saying is thus: My dog has four legs; my cat has four legs therefore: my dog is a cat! Central Banks need to stop interfering for the sake of interfering (planned economy) BUT, but; since our political system is so gargantuan that will never happen till the U.S. elects new men and women and that will happen only after the whole economy has utterly crashed.  Not to mention the weak political systems of Europe.  So, CHECKMATE IN 8 MOVES!  There is nothing we can do about it except strap yourselves in for the very bumpy ride.  

Wed, 08/24/2011 - 21:14 | 1597673 Fiat2Zero
Fiat2Zero's picture

You lost me at "rave", and "DJ". For fuck sake edit.

Wed, 08/24/2011 - 21:17 | 1597694 wombats
wombats's picture

Just what was the point of this article?  It rambled aimlessly so much it was impossible to tell what the real point was.  Next time just cut to the chase, state your point and then state reasons.

Wed, 08/24/2011 - 21:19 | 1597700 sasebo
sasebo's picture

How many times did this person loose elections & start businesses that failed before he was elected president & was fairly successful?

Abraham Lincoln

Thu, 08/25/2011 - 10:19 | 1599313 Shell Game
Shell Game's picture

Lincoln? successful?  I suppose if you call destroying States rights, launching an unnecessary war, which killed nearly 700,000 Americans and centralized Federal power 'successful', then yes, he was a smashing success..

Wed, 08/24/2011 - 21:22 | 1597713 rosiescenario
rosiescenario's picture

Wow...a lot of bi-polar reactions to this article.


One point of interest was that markets tend to become more vertically volatile when governments begin playing with them.


Also, it has seemed to me that our current problems really did begin with the bailout of LTCM, of course I am also sure someone here could make a good case for some event preceding that one, such as the start of the Federal Reserve.

Thu, 08/25/2011 - 05:59 | 1598474 Chicken_Little
Chicken_Little's picture

Wow...a lot of bi-polar reactions to this article.

Ha, how true. I think the point was that the more governments and central banks and all central planning intervene, the worst things get.

Wed, 08/24/2011 - 21:23 | 1597716 disabledvet
disabledvet's picture

Wow. The dark side of zh has arisen. Hell hath no fury like a gold bug scorned. I would simplify this as well: everyone is now blaming us for everything. And who are we again? Hell we dont even get PAID!

Wed, 08/24/2011 - 21:32 | 1597735 bid the soldier...
bid the soldiers shoot's picture

Okay, so QE 1&2 weren't about keeping interest rates low as the Fed told us.

But didn't low rates keep our interest payments on the debt low.

Didn't low rates help keep American banks "intact" compared to the European ones?

You should have explained that.

Wed, 08/24/2011 - 21:41 | 1597777 Quinvarius
Quinvarius's picture

Say "gold is in a bubble" and lose all credibility.  Gold is not in a bubble.  It is no where near a bubble.  You just don't understand why it is going up.  But you will.

Wed, 08/24/2011 - 22:18 | 1597891 Rodent Freikorps
Rodent Freikorps's picture

Greenspan agrees with you.

Thu, 08/25/2011 - 12:39 | 1599366 Shell Game
Shell Game's picture

I was at the local coin shop exchanging some of my slow moving Sterling inventory for more liquid forms of silver last week.  My number was 42 and they were calling 22.  It was a long trip to get there so I waited it out.  Every single customer before me was selling gold. Gave me a sick feeling.  I overheard a conversation, "Gold is really going crazy.  I have no idea why.  Oh yes, I think it's going 50-65% higher."  The bold part added to that sick feeling I had, the last part made me laugh..

Wed, 08/24/2011 - 21:42 | 1597781 Hedgetard55
Hedgetard55's picture

Essentially, the author says Ben turned the markets into crackheads, and now the crack is running out, and instead of just
DTs from QE1 we are going to die after QE3.

Wed, 08/24/2011 - 21:48 | 1597799 The Proletariat
The Proletariat's picture

I haven't read something that long without a chart or photo in a long time.....can Banzai edit it?



Wed, 08/24/2011 - 22:01 | 1597836 defencev
defencev's picture

One thing that is so depressing is that whatever idiot Ben does effect all markets not just US. This leads me to paradoxical conclusion: perhaps Paul Krugman is right. The ultimate solution is absolute capital controls in US. Not single dollar printed by Ben should be allowed  out of US! We will then see immediate hyperinflation in US and the rest of the world may enjoy much more pure capitalism... That would accelerate our agony, will show everyone in US that, indeed, Ben is clear and present danger, will lead to total collapse of Keynsian theory and at least save the rest of the world (minus Greece).

Wed, 08/24/2011 - 22:10 | 1597856 Crassus
Crassus's picture

Please stop writing and saying "going forward."

Wed, 08/24/2011 - 23:36 | 1598076 Rodent Freikorps
Rodent Freikorps's picture

That is one bureaucrat phrase that needs to go.

It isn't active voice anymore when it causes people's eyes to roll back in their head.

Wed, 08/24/2011 - 22:11 | 1597860 Blunt Instrument
Blunt Instrument's picture

"Once is happenstance. Twice is coincidence. The third time it's enemy action."

- Ian Fleming, Goldfinger

Wed, 08/24/2011 - 23:22 | 1598052 Cardiodoc
Cardiodoc's picture

My adderall must be working- I read it twice.  A compelling narrative arc for the uninitiated, and a confirmation of the orthodoxy for us confirmed economic dystopians.

Thu, 08/25/2011 - 00:07 | 1598119 socalbeach
socalbeach's picture

Anybody know where I can find the CliffsNotes for this ?

Thu, 08/25/2011 - 00:11 | 1598128 Uncle Keith
Uncle Keith's picture

Very nice article.

It's liptick on a pig, though (yes, that was French...).

On 9/11/01 NYC was attacked - as well as Washington, DC. On 9/12/01 the U.S./NYC Financial Houses ceased being a viable option for International Investors looking for capital (fear that the Nationalist/Moron/Fetal Alchohol Syndrome President that "all real American's" self identified with was going to nationalize foreign holdings).

On 9/12/01, the Sociopaths (Corporate Officers) from Goldman's. etc. - with the help of their (yes, "their" - not "our") Public Policy Facilitators - turned predatory. What is a Plutocrat to do but to dream up a way to enrich themselves off the held wealth of American property owners. They needed a product to attract new investment since loaning money was no longer a way of making money. They gamed the system. They lied. The worlds markets crashed. It was criminal. Oh, and we print money and, pay regressive taxes; "fee's"; etc... to keep The System that enriches a select few at the cost of the lifes work of the many.

This consequence supercedes predicting market behavior and "bubble economics" - with all due respect to Dr Schiller.


Thu, 08/25/2011 - 01:02 | 1598222 Antipodeus
Antipodeus's picture

You left out ...

"On 9/10/01, Donald Rumsfeld told the truth - for the first and only time in his life ..."


Thu, 08/25/2011 - 00:45 | 1598189 JR
JR's picture

Of course the Fed needs to act as lender of last resort in a crisis, they’re really good at doing that, but then they never stop acting as lender of last resort…--Daniel Cloud

How can the Fed be “good at” serving as the lender of last resort in a crisis when it won’t stop?  Answer: the Fed controls the quantity and the rate of the currency – in the beginning, in the middle and in the end, every time, all the time.  To say that it is useful is to say that we need a tyrant.

“All of the money to accomplish these bailouts was made possible by the Federal Reserve System acting as the ‘lender of last resort.’  That was one of the purposes for which it had been created. We must not forget that the phrase ‘lender of last resort’ means that money is created out of nothing, resulting in confiscation of our nation's wealth through the hidden tax called inflation."—G. Edward Griffin

Continues Griffin: “All of the bail outs of previous years pale by comparison to the trillions of dollars pumped into the banks beginning in 2008 in response to the subprime meltdown.  This huge amount of money will not come from the government or The Federal Reserve.  It will come from the American consumers in the form of higher prices.”

Thu, 08/25/2011 - 01:09 | 1598238 Cashboy
Cashboy's picture

I suspect that the Fed is waiting for the Euro to collapse.  It is a great excuse to justify some kind of major financial manipulation.

It seems quite obvious that Greece will not be bailed out by the EC.

Once Greece has gone bust.  Spain and Italy can blame their exposure to Greece debt for also going bust.

This is when some banks will also go bust including UK and American banks.  Again they have this justification on that it was due to bad debts of countries and other banks.

Everyone is waiting for somebody to default big time (banks and countries).



Thu, 08/25/2011 - 03:01 | 1598381 glenlloyd
glenlloyd's picture

It was rather hard to read but I didn't find it objectionable. It could have benefited from a little editing but the message seems more clear than some, and specifically he does bring up the idea that each and every intervention will result in being worse off than before.

Thu, 08/25/2011 - 03:15 | 1598389 praps
praps's picture

The Fed's policies are designed to smooth out the rough times at the expense of the good times. All their policies rely on one massive assumption - that an economic recovery will come and make everything better again.

The problem is there is no recovery coming this time. The huge demographic wave of baby boomers are stopping spending, as is people's won't at their age. They are cashing in their savings. There will be a bear market for the next 10 years due to this.

Thu, 08/25/2011 - 05:54 | 1598471 akak
akak's picture

The Fed's policies are designed to smooth out the rough times at the expense of the good times.

When one's ship is being dangerously buffeted by high seas, the solution to the problem does not lie in pushing it under the waves.


Thu, 08/25/2011 - 12:39 | 1599403 Shell Game
Shell Game's picture

Oh, but pushing the pleeb's under the waves bouys up the crew's lifeboat..  ;)

Thu, 08/25/2011 - 07:44 | 1598552 Escapeclaws
Escapeclaws's picture

Interesting point about the European economies being the most utopian and therefore the most fragile.

One thing that Europe bashers don't seem to realize is that Europeans, by and large do not use credit cards, do not use their homes as ATM machines, and are in general much more careful with money than their American counterparts. The Europeans also do not have a humungous military to nurture and generally do not have expensive wars to pay for. So, on balance, they are not doing as badly as Americans, it could be argued. Rumors of the death of the euro are greatly exaggerated.

Thu, 08/25/2011 - 11:15 | 1599672 gcjblack
gcjblack's picture

Thank-you for an intriguing post.  Long, but worth a read.  To me, it has many merits and well made points, even though it had to use a broad brush on all the complexities.  I agree that we are in for a shit storm unlike anything before seen.  When will it start?  I don't know.  The powers that be are like a wounded bear, thrashing around, unwilling to accept the fate that the hunter is trying to accomplish.  Wounded bears can do a lot of damage; to both the hunter and any innocent bystanders.  Best to stand back, or run for cover until the worst of it is over.

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