This page has been archived and commenting is disabled.

Guest Post: Why The Fed's "Silver Bullet" Won't Kill The Beast

Tyler Durden's picture


Submitted by Lance Roberts of

Why The Fed's "Silver Bullet" Won't Kill The Beast

10yr-interestrate-gdp-092211Yesterday Fed Chairman Ben Bernanke pulled out the last bullet in his arsenal reaching back almost 50 years in a hope that just maybe this "silver bullet" will kill the vampiric drain of excess debt on the economy.   Unfortunately, silver bullets don't kill vampires.   

There is more to this analogy than just the approaching Halloween season.   Our problem isn't low interest rates - it is excess debt which literally drains the demand for more credit.  The recent release of the NFIB Small Business Survey showed this as businesses stated that acces to credit is not an issue.   "Poor sales" are their number one concern and the lack of demand on their businesses do not warrant adding on more leverage.  The number of businesses currently thinking this is a "good time to expand" is at some of the lowest levels on record.  Likewise, consumers, are trying to pay down debt as worries about job security, rising food and energy costs and stagnant wages reduce their desire to consume and make debt reduction a priority.  The excess debt that has been accumulated over the last 30 years as interest rates were in a steady decline, lending standards were reduced and massive pools of available credit were supplied has now begun the inevitable unwinding process.  

10yr-interestrate-debt-092211Ben wrongfully believes that by lowering interest rates on longer dated maturities it will cut long-term interest rates boosting investment in both housing and business.  The reality is that interest rates are already at levels twice as low as they were the last time "Operation Twist" was implemented and if the lowest rates in 50 years aren't spurring a demand for credit in the economy - it is doubtful that a further decline will do the trick.  

During the previous "Operation Twist" the economy was experiencing a increasing trend of growth.   Interest rates were also steadily rising as stronger economic growth allowed for higher rates of interest to be charged.   Debt, as a function of GDP, remained well constrained at low structurally manageable levels.   However, beginning in 1980, and as we have discussed in many past blogs, the economy shifted and interest rates began a very steady descent.  This decline of interest rates led to a massive expansion of debt which ultimately sowed the seeds for slowing rate of growth in the economy.

The issue how is that we have entered into the "Japan Syndrome".  Almost 30 years ago Japan experienced their own real estate/credit bubble bust.  Japan has attempted virtually everything the Fed has tried from lowering interest rates, liquidity injections and currency deflation in order to restart their ailing economy - it has all failed.  As a result of these monetary experiments Japan has remained in a protracted economic slump.

The process of attempting to lower interest rates in a highly indebted economy is doomed to failure before it starts.  The are only a couple of things that will work to restart the economy at this phase of the game:   1) Significantly lower tax rates and simply the tax code, and; 2) drastically reduce regulations on businesses.   Even these steps won't see an immediate return to economic strength as consumers must continue the deleveraging process of their own balance sheets and increase personal savings before they can return to historically stronger consumptive patterns.   In turn, higher personal savings rates will lead to productive investment which will foster economic growth.  Unfortunately, this isn't being allowed to happen.

Today we are not only watching the Fed duplicate earlier failed policy, we are also witnessing President Obama unveiling another $457 billion "stimulus" that will raise taxes by more than $400 billion and add at least another half-trillion to our nation's already massive $14.5 trillion debt.  No one, that has the slightest bit of intelligence, believes that is the real answer to the problems that we face.  

In reality, while the Fed still clings to failed Keynesian policies and the White House to failed "spend our way to prosperity" measures - the average American is slowly being sucked dry by declining wages and rising inflation.   Those same policies combined with regulatory reform acts that are yet to be written, threats of higher taxes, poor sales and political turmoil have pushed businesses and entrepreneurs into defensive positions.   Unfortunately, those entities and individuals also happen to be the only ones that actually have the ability to create jobs - not the government.  

It is time to drive a stake into the heart of our problems - debt.   The reality that we face today is not one of a monetary nature - it is purely fiscal.   A credit induced boom has led to a massive period of malinvestment.   We must now begin to realize that this is not a normal economic recession but rather a balance sheet recession.   We must now do what is unthinkable for this administration - get out of the way and let the system clear the excesses.   The process won't be easy but eventually dawn will come, the vampires will fade into the mist and economic life can and will resume.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 09/22/2011 - 11:47 | 1697259 flacon
flacon's picture

Silver? Bullets?

Thu, 09/22/2011 - 11:49 | 1697274 BrocilyBeef
BrocilyBeef's picture

double check and double check.

Thu, 09/22/2011 - 12:07 | 1697369 spiral_eyes
spiral_eyes's picture

Bernanke has lots more bullets left. Abolishing IOER could unleash a $16 trillion inflationary flood. Then there's the global dollar flood — lending to foreign banks at zero interest. Then even more QE.

Then there are the MMT hordes who even Krugman says are too keen on the printing press. Their solution is directly printing money to buy government debt.

And as equity markets tank, Bernanke is loading up the minigun ready to spray, bitchez.

Good news for gold (and silver and canned meat) bugs, bad news for everyone else.

Thu, 09/22/2011 - 12:14 | 1697411 TzaristBondHolder
TzaristBondHolder's picture

Maybe art will take off now?

Secrets of Art Funds and Art Investing

Thu, 09/22/2011 - 12:24 | 1697469 flacon
flacon's picture

Silvercorp up today. Glad I held on because that is my only GREEN today. :)

Thu, 09/22/2011 - 15:11 | 1698289 ElvisDog
ElvisDog's picture

Their solution is directly printing money to buy government debt.

Don't be ridiculous. Directly printing money to buy government would have a half-life of about a week. All private lending would immediately cease. All foreign capital would immediately flee the country. In other words, you would have instant hyperinflation. If they printed money to buy the debt on any meaningful scale, they would very shortly have to buy all the debt. It would be suicide for the Fed and they know it, so they won't do it.

Fri, 09/23/2011 - 02:03 | 1700047 bid the soldier...
bid the soldiers shoot's picture


I know you're smarter than I am on this subject, but I disagree with you and will share some of my ignorance with you.

"All private lending will cease.". And what private lending are you referring to? The only serious lending I see is going for the completion of 9 figure projects that were halted mid stream in 2008 when the first poop hit the fan.  The lenders are probably getting a piece of the project in return and a huge tax write off if it doesn't fly.

"All foreign capital would immediately flee the country." Didn't we just see Der Schweiz hang out a sign saying "Foreign Capital Not Welcome?"
G 20 countries are taking their currencies down in lockstep. Foreign capital can run, but it can't hide. So it might as well say here.

When the dust from this volcano of debt settles, exporting will be the name of the game for years to come.  And exporting countries have seen the Chinese fortune cookie that says "Get fiat low; get high at nite."
American consumerism will be gone for quite some time.  Depending on how much recoverable oil there is left on the planet.

Do you like Ben Bernanke or do you want to bite his ankle?


Fri, 09/23/2011 - 01:09 | 1700015 myne
myne's picture

I've recently started reading Minsky's "Stabilising an unstable economy"

I'm not far into it, and already his explainations of what the Fed did in 1974/5 is strikingly similar to today.

The key difference, I suppose is simple. As the editorial states, debt is a lot, lot higher now.

Thu, 09/22/2011 - 11:57 | 1697339 DormRoom
DormRoom's picture

better sell your silver, and buy real bullets.  Gold & Silver crash in the next few weeks.

Thu, 09/22/2011 - 12:23 | 1697456 Pants McPants
Pants McPants's picture

Some sound analysis here.  Please, whenever possible, share with us more of your keen insight.

Thu, 09/22/2011 - 12:55 | 1697638 Prometheus the ...
Prometheus the Jester's picture

Paper Gold & Silver crash in the next few weeks. There fixed it for you.

Thu, 09/22/2011 - 19:02 | 1699209 Rhodin
Rhodin's picture

Selling (or shorting) paper silver was indicated when it failed to exceed the August high early this month.  I chose to buy FAZ instead.  If it turns back, or if i begin to worry about my counterparty or his bank, I'll sell the FAZ and buy physical silver with the profits.

Silver is likely to test the May - June lows in the $32-33 range.  It could go lower. But whichever way this crashcade continues, faith in digital and paper instruments is likely to crumble, leaving the field to the PMs. 

re bullets:  I don't understand the need, presuming you allready have some hunting ammo and a combat pack or two for your rifle(s).  Who is after you?  Got body armour?  Without getting into tactics, how much incoming do you think you can survive?  If you do survive, won't there (in most cases) be unused bullets and weapons to acquire from those who did not?  If you have watched the reports from conflict areas, there is usually so much ammo around that people blow it off to celebrate whenever something good happens.

Thu, 09/22/2011 - 12:00 | 1697353 TzaristBondHolder
TzaristBondHolder's picture

Talking about Silver, why is it 7% down today???????????????????

Thu, 09/22/2011 - 12:10 | 1697394 r101958
r101958's picture

deleveraging of massive paper shorts?

Thu, 09/22/2011 - 12:12 | 1697403 TzaristBondHolder
TzaristBondHolder's picture

shouldn't it then go UP?

Thu, 09/22/2011 - 12:18 | 1697434 SilverRhino
SilverRhino's picture

Give it time and it will.  PM's are the ONLY thing that is retaining value over time.   The idea that a 10 year bull market just ended based on the FOMC proclamations is total bullshit. 

Ride this dip out and pick up physical on the cheap.   Right now people are shitting themselves in the paper market.  Who gives a fuck? Physical is ALWAYS worth something and trades outside the banks just fine.    

Thu, 09/22/2011 - 12:27 | 1697485 DormRoom
DormRoom's picture

heard the same line during the real estate bubble: "don't worry. nationally, real estate prices have never gone down in unison. real estate is a great store of wealth".

gold & silver bubble is popping.. get out while you can.

Thu, 09/22/2011 - 12:38 | 1697564 escargot
escargot's picture

Bah ha ha!  Yeah, sure, you heard that from Bernanke of course, among others.  The same ones saying that gold isn't money now.


Thu, 09/22/2011 - 12:41 | 1697578 trav7777
trav7777's picture

Get out and into what?  FRNs?  ROTFL

Thu, 09/22/2011 - 12:59 | 1697654 SilverRhino
SilverRhino's picture

Damn you're fucking stupid.   I'm going to abandon a position with 100% yield YoY for a single day's downturn.

Into WHAT? Paper?  Yeah right. 

Thu, 09/22/2011 - 14:17 | 1698000 Panafrican Funk...
Panafrican Funktron Robot's picture

FYI, gold at or above $1500/oz by end of year = +8% yearly gain.  Meanwhile, the S&P has to hit 1350 for the same gain.  Does this seem likely to you?  Yeah, that's what I thought.

Thu, 09/22/2011 - 14:46 | 1698151 Obaminator
Obaminator's picture

The ONLY way Gold and Silver "crash" is if we enter a protracted secular DEFLATION period. Which simply wont happen with a fiat US dollar policy.

Tell me this, except for the 1995-2003 Below Fair value in Gold and me One...ONE 10-yr period where the price of a gold necklace, or gold coins, or silver jewelry cost less that it did 10 yrs prior....


You CANT. Gold and Silver NATURALLY maintain their Purchasing power of durable goods and real services over any given period of time. in 10 yrs from now when a gallon of milk costs you a $20 bill, Gold will be woth 4-5X as much as now.

1 US dollar now buys you what 3 cents would buy you in 1930. However 1 oz of gold buys you roughly the same amount of stuff, as you could have purchased with i oz of gold in 1930. Look at the history.

perhaps gold and silver came up too fast, and maybe there is a correction, but they are not going back to $400/$8 / oz on ANY ongoing basis.

Thu, 09/22/2011 - 12:27 | 1697488 JohnG
JohnG's picture

Look at a chart.  SSDD.  The twin 4:30, 8:30 AM beatdowns by new shorts, lets the manipulators cover old shorts at a better price.  It's JPM.  If they can't cover those shorts before 9/27, then they are forced to buy, and they die.  It really is that simple.

It's manipulation, and it will not last very much longer.

Thu, 09/22/2011 - 12:17 | 1697425 donsluck
donsluck's picture

Liquidation to cover margin calls. Gold and to a lesser extent are money, very liquid, easy to sell. Once again, nothing has really changed as we move from a debt based economy to a savings based economy. Buy the dip, brother.

Thu, 09/22/2011 - 13:08 | 1697702 Hearst
Hearst's picture

Silver / commodities sell off?  I'd be betting it has something to do with this


CFTC compromises of parts of speculative curbs


They basically gave these crooks the green light to keep stealing.

Thu, 09/22/2011 - 19:13 | 1699246 Rhodin
Rhodin's picture

Paper longs cutting their losses?  Automatic stop loss sells?  Margin calls?  And don't forget trend followers jumping on the down escalator!

Thu, 09/22/2011 - 12:43 | 1697583 trav7777
trav7777's picture

Read this and understand:  in a climate of aggregate economic contraction, ANY aggregate debt is TOO MUCH DEBT because the credit in the future WILL NOT BE created to pay today's interest.

Understand that.  Debt requires growth.

Thu, 09/22/2011 - 12:50 | 1697614 Don Birnam
Don Birnam's picture

"Vampiric drain." Fine imagery.

Enter the Chairman...

Thu, 09/22/2011 - 13:15 | 1697732 DCFusor
DCFusor's picture


Lead: 11.34

Silver: 10.48

Gold: 19.30


Gold makes better bullets.  Silver's not even as good as lead (but a percent helps harden lead nicely, though it's an expensive way to do it).

You local gunsmith reminds you, the denser the projectile, the less rifling twist is needed for stabilization and the more efficient the projectile is ballistically.  The man with the golden gun had it backwards (which is why I originally looked it up).

Thu, 09/22/2011 - 14:37 | 1698115 pazmaker
pazmaker's picture

yes but it's so dang messy digging those gold bullets out of peoples flesh .......

Thu, 09/22/2011 - 11:48 | 1697267 -Michelle-
-Michelle-'s picture

Likewise, consumers, are trying to pay down debt as worries about job security, rising food and energy costs and stagnant wages reduce their desire to consume and make debt reduction a priority.

I blame Dave Ramsey.  He is obviously an enemy of the state.

Thu, 09/22/2011 - 11:50 | 1697282 BrocilyBeef
BrocilyBeef's picture

I don't think he or his wife killed their daughter.

Thu, 09/22/2011 - 11:52 | 1697280 Cognitive Dissonance
Cognitive Dissonance's picture



It is time to drive a stake into the heart of our problems - debt. The reality that we face today is not one of a monetary nature - it is purely fiscal.

For TPTB to admit this is to willingly surrender their (illusion of) power. It - will - never - happen.

"Full speed ahead into the iceberg number one."

Thu, 09/22/2011 - 12:46 | 1697595 trav7777
trav7777's picture

Pure bullshit.  It's geophysical...oil supply has peaked.

All the money in the world cannot make net production rise past this point.  Look, it's been motherfucking TRIED a ZILLION times by oil companies on individual wells, fields, and in entire countries.

You cannot print oil.

The OP's claims about Japan?  Horseshit.  Japan is FINE.  Look, what can you say about them?  SLUMP?  Ok, they haven't fucking GROWN.  That is NOT a slump!  Everything they built is still there, there's just not more more more more more.

Our basic premises and assumptions need adjusting for what reality is now.  Circumstances have changed; aggregate growth is presently not possible.

Thu, 09/22/2011 - 17:11 | 1698211 bid the soldier...
bid the soldiers shoot's picture

I agree with all your posts here.

If oil supply has peaked (and it certainly has), why wouldn't TPTB, who have a lot more riding on this game than you and I, WHY WOULDN'T THEY CRASH THE GLOBAL ECONOMY TO HALT DEMAND FOR OIL?

Or do you think they prefer to go over the lip of the event horizon sooner rather than later?

Thu, 09/22/2011 - 11:50 | 1697281 SDRII
SDRII's picture

But Koo says a balance sheet recession means you need to firehose the economy with more and more stimulus?

Thu, 09/22/2011 - 11:57 | 1697329 DormRoom
DormRoom's picture

Koo argues for fiscal stimulus, not monetary stimulus. 

Thu, 09/22/2011 - 12:47 | 1697603 trav7777
trav7777's picture


Debt is fatal if you don't grow.  Fiscal stimulus will beget monetary stimulus because there WILL BE no growth!

As long as the decline in oil production erodes our economic activity out from underneath us, there is ZERO percent chance that we can grow into the necessary credit creation to pay TODAY's interest!

Thu, 09/22/2011 - 13:22 | 1697772 DCFusor
DCFusor's picture

"Debt is fatal if you don't grow."  Yup, one of the better things you've said, trav.  And the entire basis of the system is co-dependent on growth and inflation on a finite planet.


No debt of any kind since 1972 - I've learned to live without it.  Total cash basis for everything.  For the longest time, people asked me how I could live like that, while I thought "How can you live like that?  Well, not for long."  Seems I was right, not that it makes me specially happy to see others in pain -- even if it is self-inflicted.  I just got lucky early, got in trouble with plastic, and said "no more, not ever" once I got out of that.  It's only been marginally harder to live that way, which makes me think no bank is TBTF in reality - it will only kill the stupids, who we can more or less do better without.

Thu, 09/22/2011 - 14:21 | 1698020 Panafrican Funk...
Panafrican Funktron Robot's picture

Yeah, I got my stupid out of the way and cleared up by age 24.  I consider myself very lucky, even though my early 20's were REALLY stressful.

Thu, 09/22/2011 - 14:02 | 1697924 Gold Man-Sacks
Gold Man-Sacks's picture

Geez, you believe in Peak Oil?  Don't tell me; An Inconvient Truth is also your favorite movie, right?

Thu, 09/22/2011 - 19:33 | 1699304 Rhodin
Rhodin's picture

Peak Oil Production happened.  Not from lack of reserves, but because of Peak Debt causing demand destruction.  It was inevitable that it happen in some way.  Sure, the Powez That Were wanted to "manage" an early Peak, to milk for profit, that's why refinery capacity was limited.  Looks like they outsmarted themselves.  


Thu, 09/22/2011 - 11:51 | 1697289 buzzsaw99
buzzsaw99's picture

the bernank is only concerned with diminishing banker bonuses.

Thu, 09/22/2011 - 11:51 | 1697291 carbonmutant
carbonmutant's picture

Starve the Beast.

Thu, 09/22/2011 - 14:32 | 1698078 bid the soldier...
bid the soldiers shoot's picture

Starve the Taxpayer

Thu, 09/22/2011 - 11:52 | 1697293 DormRoom
DormRoom's picture

uh.. It's because FISCAL stimulus is the remedy.  Monetary stimulus works during inventory-cycle recessions.  But not during a deflationary death spiral.


It'd some kind of wonderhurt how the Republicans will not pass any fiscal stimulus bill, which will likely mean more suffering for millions of American.


But heck, if you're a youth/independent disenfranchised with the sytem, you wont' come out to vote, like you did in '08, helping Obama win.  Republican win.  The Union loses.


Thu, 09/22/2011 - 11:57 | 1697332 pods
pods's picture

The Union was lost way back in the 1860s.  Replaced by the corporate United States Of America, per the act of 1871.


Thu, 09/22/2011 - 12:22 | 1697453 SheepDog-One
SheepDog-One's picture

Then there was also the 'Emergency Banking Act' cant remember the exact date but late 1930's, where the US Corporation was declared insolvent and in receivership...most americans have no idea what they live under today.

Thu, 09/22/2011 - 13:11 | 1697719 greenbear
greenbear's picture

From Wikipedia link below:

The sense of urgency was such that the act was passed with only a single copy available on the floor and most legislators voted on it without reading it.[1]

Sounds familiar.

Thu, 09/22/2011 - 11:54 | 1697304 Smiddywesson
Smiddywesson's picture

Actually, I favor the Frankenstein analogy.  The Fed and the Administration keep trying to stitch together failed iniatives from the past and hope that the patient will somehow come to life.  If their ideas didn't work in the past, how can you reanimate anything other than a monster?

America has become Frankenstein's monster.

Thu, 09/22/2011 - 11:56 | 1697328 carbonmutant
carbonmutant's picture

+10 Bernanke as the

Thu, 09/22/2011 - 12:48 | 1697607 Shameful
Shameful's picture

You know I can see him in a darkened room muttering to himself about "freshness".

Thu, 09/22/2011 - 15:25 | 1698354 PaperPauper
PaperPauper's picture

Starring Ben Shalom Bernanke as the Bernaminator!

Thu, 09/22/2011 - 11:55 | 1697313 hedgeless_horseman
hedgeless_horseman's picture

...we are also witnessing President Obama unveiling another $457 billion "stimulus" that will raise taxes by more than $400 billion and add at least another half-trillion to our nation's already massive $14.5 trillion debt. No one, that has the slightest bit of intelligence, believes that is the real answer to the problems that we face.

Stimulus?  Somebody else said it here earlier.  This is just The Bernank's way to transfer more shitty mortgages from the banks' balance sheets to the taxpayers' par FTMFW!!!

Thu, 09/22/2011 - 11:56 | 1697315 baby_BLYTHE
baby_BLYTHE's picture

I still predict QE3 early 2012. It will come about around the same time Greece officially defaults. As many around here including TD have hypothesized, the FED needs a really good excuse to expand its balance sheet again. A clean hard drop in equities, not down to the 666 low but somewhere well south of 1000 (800 sounds good ). The amount of QE will most likely exceed the amount printed during QE2 but fall short of what they undertook during QE1. Anything over one trillion would risk the bottom falling out from the dollar, even if we get well north of 80 on DXY before the next round commences

January 2012 is also when the Bush Tax Cuts expire and might even be the time the Buffett Tax is implemented (pending the legislation is passed). Benocide and the FOMC no doubt figure this into their calculations hoping the tax increases will yield more tax revenue for the government from the money they print and also soften the blow of the double-digit inflation QE3 would produce. It won't work as intend of course just as the other QEs but it has never stopped them.

Thu, 09/22/2011 - 11:59 | 1697349 fdisk
fdisk's picture

"(800 sounds good )"

So you know, S&P 500 yields now about 4%, lower it's goes higher
the div are. Compare Today Div to 2008 (almost none), and comeback with more realistic number than 800.

Thu, 09/22/2011 - 12:28 | 1697498 pazmaker
pazmaker's picture

Also Buffet Tax will not be implemented.

Thu, 09/22/2011 - 12:38 | 1697560 JohnG
JohnG's picture


Thu, 09/22/2011 - 13:31 | 1697600 baby_BLYTHE
baby_BLYTHE's picture

"S&P 500 now yields about 4%", wonderful! It was never about that. QE is all about the attempt to protect asset prices and keep the banks solvent... as per Ben's thesis 'the FED failed to act during the Great Depression allowing cascading banking failures...'. They are not about to let three years go to waste and let it all crumble now. It doesn't matter whether it hasn't worked so far they have never cared about the real economy.

Thu, 09/22/2011 - 13:07 | 1697699 Serfs Up
Serfs Up's picture


What are you smoking?  Some of those tasty 'forward yields'?

The current dividend  yield of the S&P 500 is 2.15%

But don't let easily locatable facts get in the way of your delusions.  Carry on.

Thu, 09/22/2011 - 13:32 | 1697827 baby_BLYTHE
baby_BLYTHE's picture

yeah, that 4% didn't sound right to me either

Thu, 09/22/2011 - 14:24 | 1698034 Panafrican Funk...
Panafrican Funktron Robot's picture

Because dividends always stay the same, even in market crashes.

Thu, 09/22/2011 - 12:06 | 1697381 gnomon
gnomon's picture

They have to do QE3 now, if they want it to have any momentary effect.  The real economy is already grinding down and accelerating worldwide. The overall consumer/investor psychology of the current situation is devastating and certain to kill all interest in both sectors, if allowed to fester.  We are going over the lip of the Event Horizon right now.  They won't be able to pull it back this time, if they wait for further market reaction and the inevitable bankruptcies/failures. 

Thu, 09/22/2011 - 12:50 | 1697615 trav7777
trav7777's picture

If you look at the absolute destruction of the Bovespa and the stunning moves in the BRIC-related FX crosses, you can deduce that there will be widespread acceptance of such a QE.

The unwind of dollar carry is doing more destruction to foreign economies than a weaker USD ever could.

Thu, 09/22/2011 - 13:24 | 1697788 DCFusor
DCFusor's picture

I like the way you think, babe.  Of course, rationality seems not to do as well as snark around here.

Thu, 09/22/2011 - 14:47 | 1698170 AlmostEven
AlmostEven's picture

I thought they'd print this time around. You come up with some good reasons why they decided to wait, but can they wait as long as you say? (I tend to think not just because of the condition of the banks, here and abroad.) Ben said The Fed can't do it alone...maybe this "controlled" mini crash is his way of pressuring Congress for some fiscal stim. If that happens, will we get coordinated fiscal/monetary actions?


Thu, 09/22/2011 - 11:55 | 1697316 fdisk
fdisk's picture

My only question to the FED, why they use WORDS like
"Significant downside risk", knowing only those few words will
cost trillions to world-wide markets? Is this is political sh*t
to put pressure on Congress or they intentionally flash the Markets
so everyone start to begging the FED for additional Stimulus?
Usually FED is more optimistic than a wall street or the main street.. Trying to figure out what's this all about?

Thu, 09/22/2011 - 13:26 | 1697799 DCFusor
DCFusor's picture

It's about fsck the fed, fdisk.  You need to upgrade opsys.

Thu, 09/22/2011 - 11:55 | 1697319 Eagle Keeper
Eagle Keeper's picture

Gov still says there is no inflation.....

Thu, 09/22/2011 - 12:01 | 1697355 fdisk
fdisk's picture

When every asset class declining in value that calls Deflation,

Thu, 09/22/2011 - 12:19 | 1697436 Vincent Vega
Vincent Vega's picture

Bought any food or fuel lately? BTW...U.S. Treasuries are through the roof in price.

Thu, 09/22/2011 - 14:31 | 1698072 Panafrican Funk...
Panafrican Funktron Robot's picture

The best yielding treasury bond you can buy directly matures 8/15/41 with a 3.75% coupon at a price of $120.285, for a net yield to maturity of 2.75%.  Meanwhile, Discover Bank is offering a 10 year CD at 2.96%.  Treasuries = full retard.

Thu, 09/22/2011 - 14:57 | 1698192 Vincent Vega
Vincent Vega's picture

Completely agree PF. However, my response was not to treasuries being a good or bad asset; only that they have increased in price/value. The bond you reference, cusip endingQS0, is up about 8 points in 3 days ($80.00 per thousand) and $20 points since issuance last month (as you point out). DXY is also up but is another asset I have no desire to own. I was merely pointing out that not 'all assets are down' as the previous poster had lamented.

Thu, 09/22/2011 - 15:09 | 1698278 Panafrican Funk...
Panafrican Funktron Robot's picture

Right, I think I wasn't clear as far as intent in adding that information, it was merely to support your point that treasuries are through the roof.  Just to further the conversation, the fact that 30 year is this far out of whack suggests to me a sharp pullback in the near future that can only be achieved through further easing.  Put more simply, I think this is a manufactured dip to be resolved shortly after the initial reporting of 3Q GDP in late October.

Thu, 09/22/2011 - 15:19 | 1698302 Vincent Vega
Vincent Vega's picture

Thanks for you response. I don't want to own stocks or bonds at these levels. You are likely correct that this is a dip but as usual the question is how high will it bounce and when. I'm happy mostly on the sideline except PM's and a few muni's. Best of luck to you.

Thu, 09/22/2011 - 15:33 | 1698399 Panafrican Funk...
Panafrican Funktron Robot's picture

I've been liking long dated municipal zeroes as of late for the bond portion of my holdings.  Other than that I've been doing some option trading on the weeklies selling deep OTM puts and flipping anything that comes due to into covered calls.  Boring but it's helped me stay slighty in the green YTD even as of today.  

Thu, 09/22/2011 - 11:55 | 1697321 PulauHantu29
PulauHantu29's picture

"The decline in debt/GDP from this level is a signal that we are headed for another period of apprehension about investing, apprehension about borrowing, apprehension about the markets and apprehension about the direction of the country.

Extended periods of apprehension, disinvestment and caution lead to deflation and deflation is much worse than inflation or disinflation because the economy, if history is our guide, will enter a severe recession or depression. Prices going down and the consumers waiting to buy is treacherous for the economy."

Read more:
Thu, 09/22/2011 - 11:57 | 1697335 SheepDog-One
SheepDog-One's picture

I dont agree that theres any risk we'll enter a severe recession or even depression, because we're already in it.

Thu, 09/22/2011 - 12:31 | 1697521 donsluck
donsluck's picture

Incorrect. Under the gold standard, steady increases in productivity led to slow steady deflation, the most democratic way to share the benefits if increased productivity. The FED was created to bleed off that benefit through lending money into existence, siphoning off the productivity increases into private banks. But this led to the enevitable debt revulsion, where people don't borrow at any cost.

We are living in a transition period where the debt based economy evolves back into a savings based economy. Very painful but un-stoppable.

Thu, 09/22/2011 - 11:56 | 1697325 bigwavedave
bigwavedave's picture

So you expect Obama to announce that he will not be running for a second term? LOL

Thu, 09/22/2011 - 11:58 | 1697343 SheepDog-One
SheepDog-One's picture

No, I think we'll see Obama as the C.O.G. Continuity of Govt/martial law perpetual president.

Thu, 09/22/2011 - 12:52 | 1697622 bid the soldier...
bid the soldiers shoot's picture

Petreaus 2012

Thu, 09/22/2011 - 13:15 | 1697736 bid the soldier...
bid the soldiers shoot's picture

All 535 Members of Congress + the Supremes + 50 Governors must be removed from office With Prejudice and be replaced by recent graduates from the High School of Music and Art.

Thu, 09/22/2011 - 11:57 | 1697340 LongSoupLine
LongSoupLine's picture

Well, there you have it.  Time's up, checkmate, zero hour...time to print our way to the promised land.

Silver...physical, guns...shot variety, food...canned/MRE.

Thu, 09/22/2011 - 12:00 | 1697354 SheepDog-One
SheepDog-One's picture

Yea its only a matter of time...days weeks months who knows but this is all going down we're at the endgame. 

Thu, 09/22/2011 - 12:34 | 1697542 donsluck
donsluck's picture

No endgame. Typical Christian perspective, deeply rooted in our culture. Life has no beginning or ending, just cycles. Just change, the natural structure remains, the human illusion changes. Don't borrow, don't worry.

Thu, 09/22/2011 - 12:49 | 1697612 bid the soldier...
bid the soldiers shoot's picture

Not hours. It's good to know that. Thanks.

Thu, 09/22/2011 - 21:11 | 1699430 Rhodin
Rhodin's picture

I would say that it is collapsing NOW.  Unknown is how long till average person catches on.  My guess: weeks.

Further guesses:

Chance they can revive and restore "system that was":  ~ 0%. 

Chance they can "put off the evil day"  six months to a year or longer ~10%  Take with a grain of salt, they have surprised me before!

Chance they establish a "sucsessfull" replacement Command Economy that can last more than a year or so:  ~ 15%.   Such a beast might include labor camps, "employment works" collective farms etc.

Chance we are headed somewhere new :  ~ 85%  Chance we can get there peacefully (ie without significant violence in or between current nations) ~2%

Good luck!

Thu, 09/22/2011 - 11:59 | 1697346 whoisjohngalt11
whoisjohngalt11's picture

Very Nice Analogy....

Thu, 09/22/2011 - 11:59 | 1697350 GoldmanBaggins
GoldmanBaggins's picture

Nonsense! The Fed, as corrupt and foolish as they are still have control of most of the worlds economic transactions. We tend to think everyone thinks like the readers and contributors of ZH. No bazooka has been pulled out by the Fed... yet. When they do it will be coordinated with massive directed calamity and government salve to calm the remaining population. It will be massive! We are a long way off. The fed is just trying to pull the training wheels right now. Maybe they put them back on, maybe they don't. They are waiting to see what happens. I can tell you this for sure. Big money is buying the commodities being dumped by the chicken littles today. And if they get the chance they will buy more for as long as prices fall. That's why they are big money and thats how they will stay big money.

Thu, 09/22/2011 - 12:02 | 1697362 SheepDog-One
SheepDog-One's picture

Just reading in the Australian media, they say the FED is over, that theyve lost all credibility to 'fix any mess'...theres no more money, and everyone knows printing money is only further disaster and doesnt work at all.

Thu, 09/22/2011 - 12:05 | 1697372 GoldmanBaggins
GoldmanBaggins's picture

At a time like this you can be sure all mainstreem media in the devoped world is following the pre approved talking points. I would love to see the fed fail. I just don't think were there.. yet.

Thu, 09/22/2011 - 12:10 | 1697392 SheepDog-One
SheepDog-One's picture

$1.5 Quadrillion Western World unrepayable debt, try to print your way out of that. The FED was established to fail, everything else would fail along with it, and the Banker 1 world govt then arises from the ashes, as planned. People REALLY think this was just all some unfortunate string of mishaps that got us HERE? Total nonsense. Seriously read 'The Creature From Jekyll Island' sometime. (Soon)

Thu, 09/22/2011 - 12:59 | 1697656 besnook
besnook's picture

printing money does work, just not for the 99%ers.

Thu, 09/22/2011 - 12:06 | 1697375 SheepDog-One
SheepDog-One's picture

'The corrupt and foolish'....yea corrupt certainly, but certainly not foolish. Read 'The Creature from Jekyll Island' sometime....this was all planned, in 1913 upon charter of the FED, the plan was they would be DONE within 100 almost to the date just a year ahead of time before their prediction of when they'd have all the wealth transfered to themselves and crippled the world for their 1 world govt. Only thing left is the great WW3 to bring it all down.

Thu, 09/22/2011 - 12:13 | 1697406 GoldmanBaggins
GoldmanBaggins's picture

I have read Jekyll Island. I agree with the premis. But we all know what can happen to the best laid plans. My idea of foolish and yours may be different. Just because they impliment their plan does not mean it's not a fools errand. Thats my point. Too much of the worlds wealth is still held by regular folks in the developed world for today to be the day. Or this year to be the year for that matter.

Thu, 09/22/2011 - 12:17 | 1697430 SheepDog-One
SheepDog-One's picture

Well my point is theyve basically got all the wealth transfered to themselves as theyre going to get! And that was their plan. So now people think they want to rebuild the western world economies which theyve purposely destroyed? Or 'keep it going a bit longer' for what reason? I dont follow.

'Too much wealth still out there'....where, in 401K's? That can be seized overnite. What other wealth besides their $1.5 quadrillion, a few gold coins? Chicken feed. Theyve already got the wealth transfered...theyre not going to pinch for pennies when theyve robbed quadrillions.

Thu, 09/22/2011 - 12:21 | 1697454 GoldmanBaggins
GoldmanBaggins's picture

Robbing the world of qudrillions in paper illusions seems like a fools errand to me. Your right though, they could seize the retirement wealth overnight. That would be an accepable signal that the end is nigh. Until then there's plenty of money to be made.

Thu, 09/22/2011 - 13:36 | 1697842 DCFusor
DCFusor's picture

My wealth is "tied up" in 50 acres of productive land, with 4 artesian springs on it, brand new cars, a machine shop, 4 dwellings on campus, a complete solar system, stored food, gasoline, and an amount of guns and ammo that would justify an armory tax.  And that's just the "physical".  Everyone in my neigborhood is a friend and "owes me one".  And I have skills even the government can't steal without killing me, having built up all this in the first place, not using debt.  Hell, I can even write, and sing, and play many instruments, program computers (only 4 decades practice at that).  Oh yea, I have a little fizz too...but those darned boating accidents...

None of that is going to be easy for anyone to take from me.  It's enough for my family, but not enough to be worth the effort to take by a government.  Without me, willingly doing what I do, it's just some land and some junk, not a solution to their or the bank's problems.

I didn't do this because I was worrying about the end of the world as we know it.  I did it because for me, a world worth living in had ended already, as I was originally a city boy, working for intelligence agencies in jobs that really sucked, around people who I'd rather not be around.  I did it to be free, externally as well as internally.

This is just the accidental (or adventitious) payoff of a long held world-view.

Thu, 09/22/2011 - 12:03 | 1697365 shazbotz
shazbotz's picture

Face it, the FED has no answers or magic pill to fix the global economic crash that is forthcoming


Buckle up those seatbelts, the ride is about to get wild!

Thu, 09/22/2011 - 12:05 | 1697366 kahunabear
kahunabear's picture

Bingo! Right answer. They just don't get it. Artificially manipulating interest rates is acedemic Tom Foolery and wrong headedness at its worst. The correct dynamics of the price of money and its effect on savers, investors is ONLY understood by the free market!

Here's one for you. Say you are an older potential retiree with substantial savings. In a free market you would probably quit your job and live on a fixed income opening up at least two jobs for the unemployed. Uh, not gonna do that with rates a 2%!!!!

Thu, 09/22/2011 - 12:06 | 1697378 LetThemEatRand
LetThemEatRand's picture

No mention in this article about one of the critical reasons consumer and public debt rose so far so fast, e.g., the gutting of the Middle Class by off-shoring and the replacement of real income with debt spending to sustain a (false) living standard.   The author calls for fewer regulations on business as a solution?  It is the lack of any meaningful regulation including a trade policy that doesn't favor off-shoring that allows giant companies to make ever increasing profit margins and pay ever larger CEO bonuses by hiring slave labor in China and elsewhere while Western economies implode.  Welcome to serfdom.  "Hey serfs.  The King needs fewer rules and we need you to contribue more and the King less.  You good with that?  I thought so."

Thu, 09/22/2011 - 12:30 | 1697508 newworldorder
newworldorder's picture

You have hit the nail on the head. The productive part of our economy has been gutted during the last 30 years. There are too few meaningful private sector jobs being created by which the average American can earn a livable income. This has led to massive unemployment, inability of the younger generations to form households, -if for no other reason than consumption.

A lot of people are currently living on a minimum wage paycheck to paycheck cycle. Other than getting by, they cannot contribute to the greater good of the overall economy. The current political class (both parties,) are clueless. With the exception of a few, every Congressional incumbent needs to leave office. Unfortunatly the voting sheeple are stuck at the republican/democrat crossroad and have stopped thinking beyond political slogans.

Thu, 09/22/2011 - 12:35 | 1697544 Pants McPants
Pants McPants's picture

I  know you are a troll, but I'll bite.

Unemployment in the US is a direct result of .gov meddling in the economy.  Absent any kind of wage and price controls (and let's not kid ourselves, both exist in the US) the market would set a clearing price for everything, including labor.  Regulations encourage corporatism - or fascism if you prefer - while the free market encourages innovation.  In the long run your 'logic' implies support the very thing you despise.

Now that I think about it, it is impossible to completely address your comment without first establishing a definition for money.  But I'm too lazy to erase what I've written above.

Thu, 09/22/2011 - 13:42 | 1697813 LetThemEatRand
LetThemEatRand's picture

Yes, I'm sure that if we eliminated all environmental, wage and labor regulations that large companies would not monopolize and destroy less cut-throat competition, hire children at slave wages to work 16 hour days in factories, and destroy the environment.  Then again, we know that would happen because that's exactly what occurred during the beginning of the industrial revolution.    But I'm sure somewhere in your Rand playbook you'll find a way to blame government for that too.  Simple logic tells me that if you believe that Party A is bribing and corrupting Party B in order to achieve an undesirable goal that affects Party C, the answer is not to eliminate Party B.   Rather you find a new Party B that won't take bribes and you create laws that make it much harder for Party A to bribe without consequences.  I think most Randaid drinkers actually know that, but they perform crazy mental gymnastics to try to disprove it because they selfishly think (usually wrongly) that they will rise to the top and be Party A in the no-Party-B scenario.  

Thu, 09/22/2011 - 15:23 | 1698346 Panafrican Funk...
Panafrican Funktron Robot's picture

Rands ideas are great if you actualize the absence of "initiation of force".  The fact that "initiation of force" naturally arises from several different properties of "being human", the rest of the ideas pretty much fall apart.  

Thu, 09/22/2011 - 12:47 | 1697604 Golden Receiver
Golden Receiver's picture

In my previous life as a small company CEO, I resisted off-shoring as long as I could and I did everything in my power to avoid it.

I explained the situation to my employees. I told them I would give them any amount of technology, assistance, and help they needed but in one year we needed to improve our productivity by 20% or I would be forced into out-sourcing their jobs. Nothing happened. They didn't care. So I sent 30 jobs to China. Productivity doubled, error rates plummeted, and my total cost went down 67%.

A few months later I tried to hire back some of the best I had to let go. They told me they were better off unemployed and no thanks.

Thu, 09/22/2011 - 13:35 | 1697821 LetThemEatRand
LetThemEatRand's picture

Yeah, I'll bet it went down just like that.  Were you running a Unicorn meat processing plant?  As an aside, I love the Rander contempt of the working class.  The workers want too much so fuck 'em and let someone in India have the job who is willing to work for a bag of rice.  Thanks for proving my point about the free market and the end-game of the Rand philosophy.

Thu, 09/22/2011 - 12:58 | 1697655 RSloane
RSloane's picture

The American Middle Class consumer leveraged cheap labor abroad for decades. Did they think they could do this endlessly and not roll the dice with their own jobs?

Thu, 09/22/2011 - 15:36 | 1698356 Panafrican Funk...
Panafrican Funktron Robot's picture

Right, because the consumer decides what's produced, at what is sold at what price.  Oh wait, they don't.  

The only difference between a traditional command economy and what we experience currently, is that private entities are subcontracted to run the beaurocratic function.  Think through this statement.  The "free market" is and always has been an illusion.

Thu, 09/22/2011 - 12:13 | 1697405 The Deleuzian
The Deleuzian's picture

The Fed has plenty more 'bullets'...Seems like they can do whatever the hell they want to do...Just waiting for an excuse and congress will beg for it...What a bunch of totally corrupt people...Seems like the end of days with leadership like that!!

Boy! Talk about a bubble... The PM's have nothing on the 10-yr Treasury...30 years and counting...Sheesh!!!

Thu, 09/22/2011 - 12:19 | 1697437 SheepDog-One
SheepDog-One's picture

OK lets say youre right, and the FED were to print $4 trillion today...then what? The western world is imploding and no one believes in printed up fake currency anymore, 2009 is far in the rear-view mirror. Europe told Geithner to piss off with his 'solution' they print more.

Thu, 09/22/2011 - 12:15 | 1697417 Where My Dawg At
Where My Dawg At's picture

Interesting read but who uses a triple space?

Nobody, that's who!

Thu, 09/22/2011 - 12:19 | 1697439 Sizzurp
Sizzurp's picture

I agree that debt is the problem, however I am not convinced that we will be able to overcome it with conventional means.  Bernanke's timidness has pushed this economy over the cliff. Low interest rates will not be enough to spur growth, we need outright devaluation.  The quickest way to accomplish that is to re-value gold much higher and pay down debts with devalued gold backed currency. While this would be inflationary in the short term, the resultant liquidation of debt would allow a reset that, in combination with other fiscal and tax reforms, would allow us to begin growth again.  To do otherwise is a sentence to perpetual recession.

Thu, 09/22/2011 - 12:25 | 1697474 GoldmanBaggins
GoldmanBaggins's picture

Right. a nice 5x or 10x reval would do the trick and keep the $ as reserve currency which when you think about it is alot easier than introducing a new currency no one will use.

Thu, 09/22/2011 - 12:56 | 1697643 CapitalistRock
CapitalistRock's picture

A revalue of gold simply means expanding the money supply. Print more dollars. Gold doesn't change much in value. All other assets and currencies are what you see changing.

Thu, 09/22/2011 - 12:27 | 1697495 Temporalist
Temporalist's picture

Do they make an umbrella that is strong enough to protect against falling banksters on Wall St?

Thu, 09/22/2011 - 12:33 | 1697534 BrocilyBeef
BrocilyBeef's picture

a you talking about more of a pole or target for their body?

Thu, 09/22/2011 - 12:54 | 1697627 CapitalistRock
CapitalistRock's picture

Bernanke has spent his life writing papers on exactly this problem. You better believe he has an entire arsenal ready to use for robbing you blind. Just read his own words.

If he can use that arsenal then you damn well better be in gold if you aren't already. If he does not use that arsenal, then the author above is correct.

I'm betting that helicopter Ben will live up to his name. He just needs another good crisis as justification, and he's about to get it.

Thu, 09/22/2011 - 12:54 | 1697630 Dick Darlington
Dick Darlington's picture

I agree, we MUST clear the system, it's the only way. Head of europonzi, mr Rehn, on the other hand think quite differenly.

That's all these plutocrats know. Debt debt and more debt. I hope they get what the deserve when the time runs out.

Thu, 09/22/2011 - 12:55 | 1697641 besnook
besnook's picture

he gets the problem correct but not the solution. the problem is debt bu t the debt that is the problem is baby boomer debt. baby boomers have entered the no more debt phase of their lives. getting them to take on more debt is not possible. the population in the debt phase of their lives are working at chinamart and mickey dees, the 21st century factory job(at half the pay). they have no money. college grads are saddled with enough debt to keep them poor for years if they can find a job worthy of their degree.


so what to do? a thousand years ago, in a rant against bean counters, a friend said, " these fn idiots have foregotten that nothing happens until something is sold". people need money to buy something. so the solution to the problem is getting more money to the people who are in the buying  crap and going into debt stage of their lives. increased wages is the only way. wages are increased when jobs are scarce. jobs are scarce when times are good. times are good when the economy is growing. the economy grows when demand for goods and services grows. demand for good and services grow when the population who need those goods and services grows.  there is not much that can be done for the usa economy but i would certainly appreciate a helicopter drop of 5000 dollars/person to inflate my debt away in the meantime.

Thu, 09/22/2011 - 13:27 | 1697801 PulauHantu29
PulauHantu29's picture

"We see a vicious downward spiral operating here. The commercial private sector is not investing, or borrowing, because it does do not see increasing demand for goods and services, broadly speaking. Quite the reverse; in fact, they fear declining demand and, as a result, are sitting on record levels of cash. So why are we surprised that they are not hiring!! The consumer sector sees a stagnant or declining job market and is retrenching and repairing its balance sheets. State and local governments will have to continue to retrench (read: lay off additional staff) and that will add to the unemployed." I agree with those above who say: 1. Debt is Fatal; and 2. No growth = no resolution.
Thu, 09/22/2011 - 14:23 | 1698030 Bastiat
Bastiat's picture

Bernanke to Boner:  "Kneel and kiss the ring."

Fri, 09/23/2011 - 00:32 | 1699977 Uncle Keith
Uncle Keith's picture

Lower payroll taxes to 11% - aggregate maximum exposure - on folks making less than $65K/year.

Rewrite our trade agreements - NAFTA; CAFTA; Most Favored Trading Nation Status vis a vis China - and, guarantee a full employment economy.


Rewrite the tax code and make taxes PROGRESSIVE. Make sure no one is born a Billionaire/Multi-millionaire. That means steep inheritence taxes on estates worth more than $7 Million.


Reduce military spending specific on unneccessary, duplicate projects (our favorite form of social welfare spending in the U.S.) and weapons systems.

Turn the U.S. back into a meritocracy - ending the sychophantic relationship the wanna-haves (you know who you are...) with the haves.


Tort reform. 

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