Paul Brodsky: Central Banks Are Nearing The 'Inflate Or Die' Stage

Tyler Durden's picture

Submitted by Chris Martenson of Peak Prosperity

 Paul Brodsky: Central Banks Are Nearing The 'Inflate Or Die' Stage

"It's impossible to have a political solution to a balance sheet problem" says Paul Brodsky, bond market expert and co-founder of QB Asset Management.

The world has simply gotten itself into too much debt. There are creditors that expect to be paid, and debtors that are having an increasingly difficult time making their coupon payments. No amount of political or policy intervention is going to change that reality. (Unless a global "debt jubilee" transpires, which Paul thinks is unlikely).

Looking at the global monetary base, Paul sees it dwarfed by the staggering amount of debts that need to be repaid or serviced. The reckless use of leverage has resulted in a chasm between total credit and the money that can service it.

So how will this debt overhang be resolved?

Central bank money printing -- and lots of it -- thinks Paul.

At this point, the danger posed by the instability of our monetary and fiscal house of cards is so great that trying to time an investment program to when this avalanche of printing will occur is too risky, in Paul's opinion. It's time to shift your remaining capital into hard assets and sit on the sidelines to watch the carnage play out.

On The Imbalance Between Debts and Money Supply

We are seeing -- not only in the US but in Europe and in Asia, as well -- separating bank assets and base money. Base money is comprised of currency in circulation plus bank reserves that are held at central banks -- at the Fed or that is at the ECB, the Bank of Japan, so on and so forth. This is how the global economy rolls, as they say.


Bank assets are loans mostly. And the amounts globally are staggering: something approaching $100 trillion in global bank assets. And in the US we think that is somewhere around $20 trillion held in the US and abroad. And the numbers for the monetary base are much, much lower. Specifically in bank reserves -- that is the amount of reserves that are collateralizing, if you will, all of those $100 trillion in bank assets -- something about $8.5 to $9 trillion dollars. So that gives you a sense of perspective as to how much the global banking system is leverage. We are in a baseless monetary system.


The marketplace forces deleveraging, and there are two ways to deleverage. One is to let credit deteriorate on its own in the marketplace. And the other is to manufacture new currency or bank reserves. Those are the only two ways to deleverage a balance sheet.


What policy makers do not want to see is bank asset deterioration. That would lead to all sorts of bad things. You would see banks fail. You would see bank systems fail. You would see debtors fail and it would just feed on itself in an accelerating fashion. And so monetary policy makers have no choice but to deleverage in the other way, which is to colloquially print money; to manufacture electronic credits and call them bank reserves.


And to the degree that that extends into the private sector where debtors begin to fail en masse, that would increase failures of the bank assets in turn. And it would end the mortgage bond securities market, for example, and the leveraged loan markets, and end the private sector shadow banking system. So it does not work for anybody to have credit deteriorate. The only way to deleverage an economy is as we are saying: to create new base money with which to do it.

On The Wisdom of Owning Gold & Hard Assets

The point here is you can either monetize debt or you can monetize (sell) assets. Or you revalue an asset on the balance sheet already of the Treasury or the Fed. And obviously that asset, we think, is gold. And that is the monetary asset that they have always reverted in the past. And that is the one we think that currencies, currently baseless currencies will be devalued against.


And so that we think is the mechanism that is ultimately going to play out whether in the marketplace or through some policy administered devaluation. Currencies are going to be devalued and that is where we sit right now. Timing this is impossible. We think the amount it would have to be devalued by, getting back to your original question, has got to be the amount of or something close to the amount of the gap (tens of US$ trillions) between bank assets and bank reserves. So it is a significant number.


And Treasury ministries, being the ultimate issuers of obligors on the hook for currency repayment, we see them as lending the gold to their central banks so that this mechanism, this asset monetization devaluation can take place. And so we think it is the only way out ultimately. And we will see that happen either in the marketplace or through proclamation at some point. And it is really what has to happen.


nd so there is no physical limitation on the amount of currency that central banks may manufacture. And so this is a completely viable way to deleverage the system -- by purely destroying the currency that we have. It is debt currency, so we are going to destroy the debt in real terms behind them but not destroy them in nominal terms. That is the net effect of all this.

Click the play button below to listen to Chris' interview with Paul Brodsky (44m:37s):

Click here to read the transcript

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Bansters-in-my- feces's picture

Personally I would prefer the Die stage.

francis_sawyer's picture

  "Inflate" or "Die" isn't an "either/or" scenario... It's a BOTH scenario...

DoChenRollingBearing's picture

+ 1

Nice video veyron!


I vote for gold...

ArkansasAngie's picture


Door Number Three Please Vanna.

I pick put the Ponziers in jail.  And yes I want to confiscate those assets that they stole in the first place.

Print or die?  That lesser of two evils is Horse manure

The Monkey's picture

Inflate AND die. Anything big enough to move gold, in a big way, off $1,600, is also going to move crude oil and commodities.

This is getting stupid. The Fed needs to allow a good correction before ramping up stimulus. Action takes impetus off fiscal authorities who need to act and it magnifies the picture of demand via price, creating incentives for greater supply, further distorting markets.

Bernanke knows this.

Oracle of Kypseli's picture

Three guys were caught by an angry tribe in the jungle and were give an ultimatum. Death or bunta. Not knowing what bunta was the first guy said bunta. he was taken behind the bushes and was violated repeatetly.

The second guy the same.

The third guy seeing what happened he just wanted to die, so he chose death. Then the chief said: "Death by bunta" 

Don't think that there is a choice. It's both inflate and die as some already have pointed out.

TrainWreck1's picture

Remember what happened when Al Gore was faced with the 'Inflate Or Die' choice.


FreeNewEnergy's picture

You've gotten the crux of that joke correct, but the punch line is supposed to be:

The chief declares, "he chooses death... but first, a little bunta."

Fixed it for ya.

All Risk No Reward's picture

Exactly right.  Inflating away the debt kills the banks, too.  But that doesn't fit with the narrative, so it is left out.

What else doesn't fit with the narrative?

1. The TBTF banks are giving out 3.6% 30 year fixed mortgages.

2. The TBTF (& Jail) banks control the Federal Reserve by stacking the Board of Directors with their operatives.

3. The TBTF&J mega banks ultimately control the money supply - and whether we see serious inflation right away or if we see a deflationary spiked pit ahead of the ultimate serious inflation.

4. The TBTF&J OWNERS OWN trillions in societal debt and trillions in cash via the front corporation that they control.

5. No moron, let alone human predator geniuses, would zero out their trillions in debt holding and cash while giving out 3.6% 30 year mortgages.

This isn't even a difficult call.

When they are done looting, they will withdraw the money supply, crash the economy and their competition, foreclose on their debt holdings, spend their trillions buying up everything for pennies on the dollar (that's your chit if you are in debt) AND THEN they will "blance their books" via serious inflation...  after they have taken control of the real world.

The debt slaves will not be bailed out and anyone who thinks so simply has NO IDEA regarding the true power structure of the system...  and that's by design.


The Ultimate History Lesson:

The Ultimate history Lesson Commentary:
Doña K's picture

We are selling everything we do not need and only buying what we need and in short supply. The proceeds go to PM's.

BTW: You can actually buy gold and silver coins and have them delivered in several other countries, insured and guaranteed. Find out which ones have no restrictions and no fees.

As soon as I find a list, I will post the link. If anyone already knows please post


DoChenRollingBearing's picture

+ $55,000

Please do, Doña K!

Marco's picture

Personally I think the banks will simply be allowed to fail ... it removes the figure heads to satisfy the public, but leaves the top creditors. Who will still mop up all the loans and thus the collateral as everyone, including the banks, start defaulting.

The banks are simply fronts ... when they stop being useful as a means of theft there is no reason to preserve them. Once you own everything a gold backed currency and minimal government (other than a large police force) becomes very attractive. Feudal governments were pretty minimal ...

All Risk No Reward's picture

Marco, this is a critical point.  The front corporations are similar to chess pieces, NOT the Big Finance Capital chess player.

I don't know the detailed play book, just the general rules the game.

bernorange's picture

Sounds like a tumor.  Grows uncontrollably until it kills the host.

Sudden Debt's picture

I prefer the print stage where my silver and gold go through the roof!

algol_dog's picture

Sudden Debt - Help me to figure out how you get ahead owning gold in light of the above. I can see how the basic necessity's of life will be inflated to high hell, for you have to eat, clothe, drive,etc. to survive and you will chase those things if you have to, but I sure don't need to do that for gold. I can't eat it, live in it, travel on it, etc. What's my, or anybody's interest in chasing the price on that? I would say you'd be better owning real-estate, oil, basic materials, and that sort, than gold.


Go ahead, unleash the dogs on me ...!

HoofHearted's picture

The nice thing about gold (and to a lesser extent silver) is that they are portable and easily traded for other items, i.e. very liquid. Real estate is very illiquid. Oil is hard to carry around with you. Basix materials are a good idea, if you are going to use them. Barter may be hard.

I'd also recommend having a bunch of .22 ammo. It has been usd as currency before. I'm stocked up, as they work well in my son's little plinking rifle, and I have a MP-15 that uses the same stuff. (A good strafing gun for just scaring the hell out of people without really trying to hurt anyone. If they don't get the picture you bring out the bigger brother...)

algol_dog's picture

Ok - I follow you there. On further thought I was thinking that the real danger in printing is the potential crisis of confidence it produces, isn't it? If I have a devalued dollar now, but know it can be further devalued tomorrow, I probably need to buy something "hard" today, don't I? On the same token a merchant will be reluctant to sell something today, for something that will be worth less tomorrow. Vicious circle. Maybe I answered my own question.

Doña K's picture

If you own real estate outright and you are not planning to move anywhere you're good. But real estate also has dangers. Bad neighbors, crime, high taxes, eminent domain take over, can not sell and go elsewhere, high maintenance and god knows what else. 


Freewheelin Franklin's picture

It depends on the type of real estate. If it has some POS McMansion on it, then yes, it is illiquid. But, if it has income generating potential, like agriculture, then it can be very liquid.

yofish's picture

Why would anyone want a MP-15 when you can get a 10-22 for less than half the price? If you just want to feel butch, you can add a 'tactical' stock to the 10-22 and still be cheaper.

And this is one of the dumbest comments ever: "A good strafing gun for just scaring the hell out of people without really trying to hurt anyone."

El Tuco's picture

Gold should be considered a basic material. A lot of folks think of gold as just a hedge but in reality it plays a very important part in the daily lives of billions.

Here is a clip from an article on eWaste.

With respect to gold alone, electronic and electrical products consumed 5.3% (197 tons) of the world's supply in 2001 and 7.7% last year (320 tons -- equal to 2.5% of the US gold reserves in the vaults of both Fort Knox, Kentucky, and the of New York).

In that same decade, even as the world's annual gold supply rose 15% -- from about 3,900 tons in 2001 to 4,500 tons in 2011 -- the price per ounce leapt from under $300 to more than $1,500.


It's use in electronic and electrical products is only going to grow unless of course something else comes along to replace it.

DosZap's picture

but I sure don't need to do that for gold. I can't eat it, live in it, travel on it, etc. What's my, or any body's interest in chasing the price on that? I would say you'd be better owning real-estate, oil, basic materials, and that sort, than gold.


 Simple,heard of underground economy, or black markets?.

Forget the others you mentioned, those will be seized.You think with an illegal fascist state, that people will be declaring sales, and returns?.

Dream on.

They will have to fight, and kill at least 50-60 million Americans alone.

A MULTITUDE of Fed agencies have already been given the powers to do whatever they want in regards to ALL of the things you mentioned.

Sudden Debt's picture

Ps: history shows that in 110% of all cases where the same shit happened, THAT THEY PRINTED!!!!
just bing it or google it and catch up on your history lessons.
so printing it is!

francis_sawyer's picture

110%... really?

So they 'printed', actually more times than they actually had occasion to?

I guess I'll buy that premise (especially if it's on Google)...

All Risk No Reward's picture

Sudden Debt, who is this "they" of which you speak?

Name one case where the MONEY POWER behind the Central Bankers controlled the money supply and hyperinflated away their trillions in debt holdings and cash holdings (through their corporate fronts) and baile dout debtors?

Try none.

The government does not control the money supply in America like in Weimar or Zimbabwe.  The DEVIL truly is in the details.

Guess what?  Weimar and Argentina and Greece, etc...  are DEFLATIONS from the perspective of the money held by the MONEY POWER. 

Stop thinking from a Muppet perspective and start thinking from a Muppet Face Ripper perspective.

Hyperinflation is the end game, but between now and then the MONEY POWER will strip as much physical wealth as they can from society...  and bailing out the indebted IS NOT in their game plan.

Devaluing the money only works in the MONEY POWERS' INTEREST so long as two conditions are met:

1) Their LEVERAGE more than compensates for the devalued currency losses.  IOW< double my money and give me a 20% currency hit any day - I'm still up 60% net and fewer Muppets have faces.

2) Their LOOTING more than compensates for the devalued currency losses.  IOW< double my money and give me a 20% currency hit any day - I'm still up 60% net and fewer Muppets have faces.

What you fail to understand is that these criminals despise the proles and ripping off our faces is a bonus to them, not something they are afraid of.  Given th elevel of Stockholm Syndrome, apathy and incredible ignorance with the proletariat, I can't say their view isn't irrational.  I try to change that every day and it is an uphill battle.


The Ultimate History Lesson:

The Ultimate history Lesson Commentary:
RockyRacoon's picture

"The word patriotism is thick in the air on days like this. But a better word for it is patriautism.

Patriotism is defined by as "a person who loves, supports, and defends his or her country and its interests with devotion." and autism is defined by Wikipedia as being "a disorder of neural development characterized by impaired social interaction and communication, and by restricted and repetitive behavior.

Putting the two together, patriautism can be defined as "a disorder of neural development characterized by a love and defense of your slaveowner or captor often including repetitive behavior such as repeatedly stating that their country is the freest country on Earth despite all evidence to the contrary".

It's sort of a Stockholm Syndrome with flag waving."

Gary Gibson


All Risk No Reward's picture

Rocky, excellent insight.  I spent last week arguing with someone who said I don't know the government was protecting the Big Finance Capital mobsters because I didn't know how hard it was to bring a case.

Admitted Jefferson County bribery (a VP of a company tried to argue that trying to bribe county officials must not be a crime, only accepting the bribe), $10s of billions in Wachovia drug money laundering, 100k admitted perjured documents, insider trading, Libor, stolen private accounts, and on and on and on...  not to mention William Black being blacklisted.

The warm cackles in the hearts of the human predators must just twinge whenever those faceless Muppets rush in to defend their "honor."

People just can't admit it is that bad and their government is the enemey...  The key idea behind the founding of this nation.




verum quod lies's picture

According to Reinhardt and Rogoff ("This Time Is Different") and others, it's roughly 99%+ of the time it's inflate then die vs. deflate (of course there are the head fake deflate, just kidding, then inflation then die). Can you think of the one case of deflate then economic crash? Well that would be the Great Depression from a U.S. perspective. But, of course, we are sooooo different and this "time is different". In short, the norm is Argentina style inflation and crash, not Great Depression U.S. syle cicra 1930s (which by the way had an inflationary spike when gold was confiscated then revalued). In short, only a fool would bet on a repeat of the Great Depression deflation (i.e., from the U.S. not Weimar perspective).


Peter Pan's picture

I hate to spoil the inflate/die/debt jubilee party but we have all overlooked the slight problem of ever increasing unfunded liabilities which ensures that we would still find ourselves in a mess following any or all of the above solutions.

Expectations exceed means so the problem becomes one of priorities and therefore "logistics".

Do we cull expectations, do we cull non-productive ependitures such as military expeniture, do we ban or over tax harmful activities such as smoking and soft drinks etc etc etc?

In short, the greater challenge is not to reduce debt but to find a sustinable level of existence.

Bendromeda Strain's picture

Do we cull expectations, do we cull non-productive ependitures such as military expeniture, do we ban or over tax harmful activities such as smoking and soft drinks etc etc etc?

What a character. Two chances to spell expenditure with a spell check available to boot. "Non-productive expenditure such as the military", huh? All Federal spending is by definition a reallocation of productivity, and as for the states, see below.

GMadScientist's picture

P(WWIII) > P(Jubilee)

And how do you take someone who looks like the Skipper from Caddyshack seriously anyway?

"And it would end the mortgage bond securities market, for example, and the leveraged loan markets, and end the private sector shadow banking system. So it does not work for anybody to have credit deteriorate."

Speak for yourself, paper-pusher.'s picture

I clicked on some of the links in that article and I don't have the slightest idea what those people are talking about. Is a concise, kool-aid free summary available?

Quinvarius's picture

New money creation is for the general economy and banking system is almost zero.  That is very bad for debt based fiat monetary systems.  Ben needs to get mortgage assets off of bank books ASAP.  The bad loans are about to start ramping up again.

They can not let the money creation rate go negative or we risk hyperinflation and bank collapse.  Yes.  Hyperinflation comes from bad debts.

Bendromeda Strain's picture

Some idiot down voted you without proffering an argument? Typical example of how even astroturf paymasters don't get their money's worth these days.

swanpoint's picture

Die Bitchez! DIE!!!

Bansters-in-my- feces's picture

Off topic but....Mmmm  ..mMMMM fITNESS BUM

Der Hund's picture

The Bernank is screwed as he cannot QEIII ahead of the election as he would get kicked straight out by Mittster (who despite having Bernak lovers on his staff will be forced by the Tea Party to get real).  He needs to save up the fireworks for the Cliff face - but does it all come too quick.  Bundesbank is owed E729bln by the social welfare leeches - and Finland is going to leave it to them.  Bank of Japan, Bank of England will all join in the game as Draghi tells the Bundesbank to poke it


Vet4RonPaul's picture

Der Hund, I think you under estimate the strength of Obama over Romney.  The white collar welfare state and those directly or indirectly on the government dole are the majority in the US (and the EU for that matter).  They will vote for the most socialist candidate and while Obama is only slightly more socialist than Romney, he is still more socialist.  Thus, there is political cover for the Bernank to print and indeed doing it before the election will give him the surprise factor he personally and deparately seeks.  We and our children are being transformed into serfs before our very eyes; fucking sheeples.

allocater's picture

> Bundesbank is owed E729bln by the social welfare leeches


That is not what target-2 says. target-2 says: The Bundesbank has printed 729 billion and given it to German Banks. To not feel bad about this, the Bundesbank has - in addition to printing 729 billion - inserted a 'claim' (which really is not a claim, it's an alibi) to collect 729 billion from South Europe. Now the Bundesbank can say: We did not print 729 billion for German banks, because the two accounting lines balance each other out to 0.


What happened in the real world? 729 billion were sent _TO_ Germany. Germany is now 729 billion richer. South Europe in 729 billion poorer. In fact it is exaclty backwards from what you say. The 'social welfare leeches' have sent 729 billion to Germany, not the other way around. And - brace yourself, this is very unusual for these times - the 729 billion that were sent, were JUSTIFIED. It's not a loan, it's not a debt, it is money with which goods, products, machineries were bought. The money will not be returned. The 729 billion will remain in Germany, because they belong to Germany. The target-2 imbalance will stay. It is the evidence of real money flow from South Europe to Germany. There is no 729 billion to collect from South Europe. It already was collected.



Der Hund's picture

are you dreaming?  The banking system doesn't work like that.  here is wiki's version - which though simple is sort of correct Central Bank. In terms of the value processed, TARGET2 is one of the largest payment systems in the world.

A Greek importer, for example, might place an order with a German company. Payments to and from the accounts of the buyer and seller are channeled via central banks, so the German exporter's bank gets a credit with the Bundesbank, which in turn has a claim on the ECB. The Greek importer's bank owes its local central bank, leaving the Bank of Greece with a debit at the ECB.[1]

You sell me washing machines - i send you money from my santander a/c madrid as a retailer/dept store to your DB a/c frankfurt as a mittelstand maker of blah blah.  but santander accounts for this with its national central bank for a foreign transfer...that's where it all gets spicy...happens between Federal reserve banks in US

allocater's picture

Yeah so? That's what I wrote. "gets a credit with the Bundesbank" = Bundesbank printed/created money. "which in turn has a claim on the ECB." = That is the claim/alibi line.

The Mittelstand company in Germany has the euro now. That euro was created in Germany and delete in Greece. Everything is fine. The transfer is complete. What more do you want?

q99x2's picture

They have to print or collapse it now and use military force against the people around the world. Its a judgement call because the longer they wait (the collapse will happen) the greater the opposition to "them."

I vote for October 2012 since that is the favorite month and the natural onset of winter in the Northern Hemisphere. It would also save a lot of people from having to kick themselves later for voting for Obama or Romney.

AnAnonymous's picture

Its a judgement call because the longer they wait (the collapse will happen) the greater the opposition to "them."


Its a judgement call because the longer they wait (the collapse will happen) the greater the support to "them."

US citizens sit on the top of the world and will fight and side with anyone who offers them to maintain the status quo or slow down the decline.

US citizen elite is empowered by US citizen middle class. US citizen middle class is king class in US citizenism.