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As The Shadow Banking System Imploded In Q2, Bernanke's Choice Has Been Made For Him
With the FOMC meeting currently in full swing, speculation is rampant what will be announced tomorrow at 2:15 pm, with the market exhibiting its now traditional schizophrenic mood swings of either pricing in QE 6.66, or, alternatively, the apocalypse, with furious speed. And while many are convinced that at least the "Twist" is already guaranteed, as is an IOER cut, per Goldman's "predictions" and possibly something bigger, as per David Rosenberg who thinks that an effective announcement would have to truly shock the market to the upside, the truth is that the Chairman's hands are very much tied. Because, all rhetoric and political posturing aside, at the very bottom it is and has always been a money problem. Specifically, one of "credit money." Which brings us to the topic of this post. When the Fed released its quarterly Z.1 statement last week, the headlines predictably, as they always do, focused primarily on the fluctuations in household net worth (which is nothing but a proxy for the stock market now that housing is a constant drag to net worth) and to a lesser extent, household credit. Yet the one item that is always ignored, is what is by and far the most important data in the Z.1, and what the Fed apparatchiks spend days poring over, namely the update on the liabilities held in the all important shadow banking system. And with the data confirming that the shadow banking system declined by $278 billion in Q2, the most since Q2 2010, it is pretty clear that Bernanke's choice has already been made for him. Because with D.C. in total fiscal stimulus hiatus, in order to offset the continuing collapse in credit at the financial level, the Fed will have no choice but to proceed with not only curve flattening (to the detriment of America's TBTF banks whose stock prices certainly reflect what a complete Twist-induced flattening of the 2s10s implies) but offsetting the ongoing implosion in the all too critical, yet increasingly smaller, shadow banking system. And without credit growth, at either the commercial bank, the shadow bank or the sovereign level, one can kiss GDP growth, and hence employment, and Obama's second term goodbye.
As the two charts below demonstrate, the economy's ongoing inability to create any growth in the shadow banking system, primarily as a result of the complete shut down of the securitization machine, has been and continues to be, the biggest threat to the Fed. Specifically, after hitting an all time high of $20.9 trillion in March of 2008, this all too critical source of "credit money" has collapsed by a whopping 25%: since the peak $5.5 trillion of credit, and not just any credit, but shadow, and thus non-regulated credit, has evaporated! And as Q2 demonstrated, after almost bottoming in Q1 following a decline of just $57 billion, or the smallest Q/Q decline since Q2 2008, the drop has picked up again, with a one year high $278 billion plunge in Q2.
Among the liability components of the Shadow Banking system's credit money abstractions, we look at:
- Money Market Mutual Funds: at $2.6 trillion, a decline of $41.6 billion Q/Q
- GSE and Agency Paper: at $6.5 trillion, a decline of $73.8 billion Q/Q
- ABS Issuers At $2.2 trillion, a decline of $80.4 billion Q/Q
- Repos at $1.2 trillion, a decline of $49 billion Q/Q
- Open Market Paper at $1.1 trillion, a decline of $50 billion Q/Q
- and these declines were offset by a tiny increase of $17 billion to $726 billion at Funding Corporations
Altogether, added across this amounts to a massive $278 billion in the second quarter, and explains why GDP, when the manipulation from the Census Bureau is eliminated would have probably declined. What is worse is that should this decline continue without an offset, there will be no economic growth guaranteed.
So where can said offset come from? Well, just as there is a shadow banking system, so there is a traditional commercial bank system with listed liabilities. To be sure, for the duration of collapse in the shadow banking system, this has been the only offset, although granted one that is not nearly doing a good enough job. Specifically, total liabilities of Commercial Banks in Q2 were $13.4 trillion, an increase of $238 billion in the quarter. Alas, this is nowhere near enough to offset the decline in Shadow Banking, having grown by "only" $2.6 trillion since Q2 2008, even as shadow liabilities declined by double this amount. Yet there was a brief saving grace came in Q1 when the spike in Traditional liabilities more than offset the drop in Shadow, as the cumulative total rose by $337 billion, the most since 2008. Too bad, however, that adding across these two categories (second chart below), we once again witnessed a decline in Q2, amounting to $40.1 billion. This explains not only why QE2 could only do so much, but why GDP growth has rolled over and is now almost certainly negative.
What is most important to keep in mind, is that Traditional Commercial Bank assets only grow courtesy of QE. And with Shadow banking continuing to implode, Commercial Banks have to pick up the slack or else... Which in turn means Bernanke has to keep pumping reserves. Whether banks use these to lend out, or to buy shares of Netflix is irrelevant: remember - America, and the entire developed world, is a credit driven system. Take away credit growth and it is game over.
Which explains why tomorrow's decision is a formality: Bernanke has no choice but to continue offsetting the relentless contraction in shadow liabilities, which as of Q2 collapsed at an annualized rate of over $1 trillion. Incidentally this, +$1, is the very minimum that Bernanke will have to bring into reserve circulation to offset the relentless deleveraging of the once biggest contributor to American growth, which ironically is now the biggest adverse factor.
That reversion to the mean sure can be a bitch.
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It might end in Hyperinflation....but that is just the start of the problems..
The start of the problems will also be the start of the solutions.
"What is most important to keep in mind, is that Traditional Commercial Bank assets only grow courtesy of QE. And with Shadow banking continuing to implode, Commercial Banks have to pick up the slack or else... "
Bank assets only grow when bank business grows along with business in general, when banks make loans.
QE effects bank reserves which effects BANK liabilities (as during bank runs) not SYSTEM liabilities which only disappear when reserves run out (there is no lender of last resort) and institutions fail.
Help us all: we've had too much of lender of last resort already!
Fat chance anyone would actually 'fix' a structural problem with finance such as too many criminals walking around outside.
Shadow banking was a 'petty cash drawer' for the investment banks and cash-rich corporations, it never made a loan to anyone or financed anything useful (subprime mortgages?). That's why it's gone unlamented and never to return.
Unlamented as in 'who cares'?
The Fed can expand its own balance sheet but cannot do anything to effect net system liabilities. Nada, zilch, zero.
Wrong. The Fed can and will monetize debt and the reserves flow upstream to commercial banks. As was noted in the post. What the banks do with these reserves is irrelevant. According to the Census Bureau, buying Netflix stock is somehow GDP accretive. Obviously that is idiotic, but that is what your government wants you to believe. As for saying that shadow banking credit is not money equivalent, just ask how much real money Euro and Asian banks lost when they invested in trillions of off the books CDO squareds.
'According to the Census Bureau, buying Netflix stock is somehow GDP accretive. Obviously that is idiotic, but that is what your government wants you to believe.'
Ding! Ding! Ding! We have a winner. It's that icy cold sanity that I come here for. Please, carry on...
We have all believed and or assumed that the Bernanke would have to continue with QE. The question is, can he delay it further or must he at all costs start up the printers tomorrow?
It was stated many times over that without QE the stock market would tank, yet we havent had QE and the stock market hasnt tanked.
So will QE be delayed yet again or is it hell or high water time?
yet we havent had QE and the stock market hasnt tanked.....Yet!
The market still has a woodie because the naked QE X.xx girls are still showing their stuff in the windows New Orleans style. At this point it's all just promises that have the Wall Street guys staining their underoos.
http://en.wikipedia.org/wiki/Underoos
M2 says QE is and HAS been here ALL ALONG!
http://www.federalreserve.gov/releases/h6/hist/h6hist11.pdf
or..
M2 for dummies.
http://seekingalpha.com/article/294772-money-growth-inflation-and-the-economy
or..
from Jim Rogers..
http://www.zerohedge.com/news/jim-rogers-explains-bob-not-cheerleader-pisani-why-he-short-stocks-long-commodities-and-wants-e
Correct. Everyone on ZH said IMMEDIATELY after QE ended bonds would tank because nobody else would buy them. And stocks would tank because QE recycling into stocks was the only thing holding that up.
A little more humility would be nice (but not expected) around here.
Re-Post.. becuase you dont deserve a new post, Bitch.
Ben-O-Cide is ALREADY PRINTING!
Release Date: September 15, 2011Release dates | Historical data | About
Historical Data
See announcement
Table 3: Components of Non-M1 M2 (SA) <---------------------------------- there you go!!ASCII | PDF (22 KB) | Screen reader
Table 9: Components of Non-M1 M2 (SA) <---------------------------------- there you go!!ASCII | PDF (59 KB) | Screen reader
Yes, but the chairsatan still has some more time for foreplay. Nothing changes until greece is dealt with, it will become the model for all moving forward. As always we appreciate the sanity.
Tyler,
If there's going to be any significant interjection of stimulus, it will come on the fiscal side of the ledger, and not the monetary policy side (the banks now are sitting on 1.7 trillion in excess reserves that the Fed has to pay interest to them on, and it just sits and sits and sits there), so Obama can at least claim that he's trying to help Main Street (where his key support among independents has absolutely cratered, and without which saving he can't possibly win re-election).
Bernanke even has been harping on the fact that monetary policy has its limits, Congress with its purloined purse strings needs to do more, and that - gasp!- inflation is at the upper end of the Fed's target zone.
So, Bernanke's been dropping hints like mad to the Hopium Addicts that no more sugar is coming absent a massive crisis that approaches the size of 2008, but they're junkies who refuse to listen (or are gaming their last gains before the ask the pit boss to be cashed out).
Color coming in.
There. Is. No. Fiscal. Stimulus. Coming.
I agree. Fiscal stimulus is far less likely than monetary. Obama needs Congress which has no chance in hell of passing the $447 billion thingy. Bernank already has the support of the voting cast...and that is all that is needed. Bullets? No one has any and that's the problem. No LSAP: Big Problem. LSAP: Big problem.
Houston. We. Have. A. Problem
Houston. We. Are. Fucked.
Yes. There. Is. That's the whole point of the awful fantasy financial fiscos (yes I like alliterations) - and you can (ir)rationalise all you want and pick Bernanke's statement apart to show there is no stimulus coming tomorrow, but there will and the big boys are bound to say so. That's the new reality. Look, we'll know for sure tomorrow after 2pm, but I predict it's going to be a day of green +ves all round. At least 0.5% up - Dow, S&P, Nasdaq - no matter what is happening with the EU, IMF, or wtf. That's the script. I don't disagree with reality, far from it, but the markets are driven by politics and behavioural science. Nothing else.
You might want to check out this odd headline on the WSF for fun and irony: U.S. Alleges Full Tilt Poker was a Ponzi scheme
http://online.wsj.com/article/SB10001424053111904106704576582741398633386.html?mod=googlenews_wsj
Did you miss the part where it said "fiscal"
Apparently I did. All I saw was "no stimulus" and off I went. Obama did his fiscal-break-dance already with the help of lofty Warren, so I see no need for another dance from old Bernanke. Saw your other posts on the page, and it's a ditto.
Fiscal AND monetary stimulus come from the same place, which is the government, via Congress, appropriating funds (whether surplus or borrowed).
When the federal reserve buys the bonds that really equal money borrowed and spent by congress, it's monetary policy (with stimulative implications).
The funds received from these bond sales are then used to pay federal employees, repave roads, buy military equipment, etc.
In fact, in many ways, fiscal and monetary stimulus overlap.
What I and many others are saying is that the ultimate recipient(s) of appropriated (and borrowed) monies are not going to be the same parties as we've seen for the QE1, QE2 and QE2.5 periods, at least not in anywhere near the same amounts.
And besides, with 1.7 trillion in excess reserves on their balance sheets, and a joke of accounting rules whereby mark-to-market is dead and buried, why push those reserves up higher?
They may at some point, but only if mark-to-market valuation standards are imposed again, and banks are forced to realize losses.
Monetary stimulus comes from a room of 13 people with a token vote in which 3 dissenters is considered a scandal.
Fiscal stimulus comes from a deadlocked congress in which the majority wants to make the president look like an idiot and will never vote to let him get one cent for any project through the end of his tenure.
Point being, the path of least resistance (literally) is the Fed. And the Fed knows how to do just one thing.
That may be the reality of the central bank & Congressional dynamics as they decide upon what to do and when, but the funding mechanism, and the origin of the funds themselves (i.e. the money) starts in the same place, through the same process.
There's not a bond the federal reserve can monetize unless Congress has approved the borrowing and spending of the money first.
Did you miss August 4? Because $2.5 trillion in bond issuance was just approved. Of that $2.5 well over half is non-discretionary.
Edit - I just now realized that the portion of spending you referenced above is the 'stop gag' period, since the Executive Branch & Legislative Branches are still tussling over the budget, and this is the debt ceiling increase stop gag measure, so it's quite likely that a higher % of this money has been spent on discretionary matters than would or will be over the entire fiscal year (with non-discretionary spending smoothing out to be roughly 76% of the entire annual budget; mainly via spending on defense, medicare and social security.
The deficit is fiscal stimulus. Will there be more and will it be called "stimulus" -- maybe not. But in the end, that rival political force gave in to Obama and agreed to cut nothing until after the election.
Entitlements will go nowhere but up. And Obama can cook up any number of phoney wars to increase spending, and thus phoney GDP. The deficit and it's stimulus effect will go up and up.
Money Printing is already here.
Of course they will print more money.
They are printing $1.40 (roughly) for every $1 of income they receive right now, just to keep try and maintain some semblance of the status quo.
What Rogers, as smart as he seems (and many others) doesn't appear to get is that it's not a zero sum game, and that for every incremental increase in inflationary forces (due to money printing), there is a corollary (but not proportional - so be it) decrease in spending, especially in a system where credit-dependant assets (e.g. houses) are falling in value, and where real wages are falling (along with rising unemployment, underemployment, etc).
The Bernank hasn't been able to keep up with deleveraging, even after helping the U.S. print so many trillions (the same is true of the ECB and other central banks), because demand is being destroyed as a result of inflation (a large proportion of which really is speculatively induced), which in turn is killing the demand for labor (and the ability to demand higher, let alone stave off lower, wages).
The question isn't about whether they will or won't keep printing: It's about consequences, offsets, recipients, etc.
I will call the box that The Bernank is now in 'Bernank's Razor.'
Bernank's Razor = The faster he prints, the more aggregate demand is destroyed, the more deleveraging is needed, the worse the employment and wages and government deficits/debt crisis becomes (and then repeat, continuously).
The only thing that can improve the situation is dramatic gains in employment and real wages, which will boost aggregate demand for goods and services, stop the deleveraging, and boost government receipts (allowing them to deal with deficits/debt crises).
Nothing else will improve the situation, let alone stop the deleveraging, unemployment and government deficit/debt crises.
*I also think Rogers is going the be ultimately humilated on his China 'bull case,' and Chanos will be vindicated on his China 'bear case,' but that's a topic for a different day of debate.
You missed my Point.
Ben-O-Cide is ALREADY PRINTING!
Release Date: September 15, 2011
Release dates | Historical data | About
Historical Data
See announcement
Monthly Historical Money Stock TablesTable 1: Money Stock Measures (SA and NSA)
ASCII | PDF (14 KB) | Screen reader
Table 2: Components of M1 (SA)
ASCII | PDF (13 KB) | Screen reader
Table 3: Components of Non-M1 M2 (SA) <---------------------------------- there you go!!
ASCII | PDF (22 KB) | Screen reader
Table 4: Components of M1 (NSA)
ASCII | PDF (14 KB) | Screen reader
Table 5: Components of Non-M1 M2 (NSA)
ASCII | PDF (22 KB) | Screen reader
Table 6: Other Memorandum Items (NSA)
ASCII | PDF (20 KB) | Screen reader
Weekly Historical Money Stock TablesTable 7: Money Stock Measures (SA and NSA)
ASCII | PDF (36 KB) | Screen reader
Table 8: Components of M1 (SA)
ASCII | PDF (38 KB) | Screen reader
Table 9: Components of Non-M1 M2 (SA) <---------------------------------- there you go!!
ASCII | PDF (59 KB) | Screen reader
Table 10: Components of M1 (NSA)
ASCII | PDF (40 KB) | Screen reader
Table 11: Components of Non-M1 M2 (NSA)
ASCII | PDF (59 KB) | Screen reader
Table 12: Other Memorandum Items (NSA)
ASCII | PDF (44 KB) | Screen reader
Historical M3 TablesTable A: M3 and Non-M2 M3 - Monthly (SA and NSA)
ASCII | PDF (36 KB) | Screen reader
Table B: Components of Non-M2 M3 - Monthly (SA and NSA)
ASCII | PDF (38 KB) | Screen reader
Table C: M3 and Non-M2 M3 - Weekly (SA and NSA)
ASCII | PDF (59 KB) | Screen reader
Table D: Components of Non-M2 M3 - Weekly (SA and NSA)
ASCII | PDF (40 KB) | Screen reader
Release dates | Historical data | About
Statistical releases
http://www.federalreserve.gov/releases/h6/hist/
plus
I look across all markets today, and see equities up over 1%, commodities down....I dont see the insiders knowing and trading a great QE gift is coming tomorrow in anything.
After all the shit that's happened the DOW is still 11500! It's hard to imagine that's not some front-running. It's like magical levitation.
watch the nasdaq to know all
I don´t know what he is going to say...but it will be a 300 point day either way....I think he has no room to move...its politics now...they have teken over..and have done nothing...lets pass a trade bill...now...you know ..do something..interest rates are low..what is another .25%.....nothing...housing sucks and will for another two years...can´t "fix" it..it just has to runout...employment is going to be high from here on out..until we accept thrid world rates.....the GM deal does not help...they just priced themselves out of the world...add in the Euro problem...where they might..no they WILL be involved for another trillion somehow....he is screwed..
'Bailouts' is about the most politically unpopular thing imaginable today. Bernank and all the others know its not 2009 with plenty of wiggle room anymore, do they want to send their boy into political season with $5 gas? I dont believe so.
The choice is $5 gas or recession. Neither seems like a good thing for an incumbent. But these guys have always opted for inflation. Why would they change now?
$5 gas = economic heart attack = recession on steroids.
Try again.
Handing GM $5,000 per employee "signing bonus" and guaranteed wage increases are master strokes of Lunacy. Just this weekend Eric Smidt th CEO of Google said workers need to aize down and accpet lower wages for the USA to move forward......doesn't look that's gonna happen if the gubberment is handing out Fat Bonuses to everyone instead of downsizing.
We've been accepting lower wages my entire life.
It's called buying votes; worst president in history; by a wide margin. Ignorant and tiny minded he thinks he can do Chicago style fraud on a national level; very bad.
Why not? It's worked for over a hundred years and counting. As for the national level, well, that too has been going on for a while. He's just giving it a different gloss. They all want to give it their own gloss.
Taxpayers still own GM. This is a pay to vote O for union support. And it's disgusting
And if he, Ben, doesn't try to offset it? Wear hard helmets because you'll need 'em.
Would someone answer this for me, what happened to the Trillions the Fed already handed out? Who is holding it? Are we going to experience a big dump suddenly. Also, what is the impact of those hippie baby boomers retiring? All the money is 401k, IRA and pension funds is going to be taken out soon.
I am not 100% sure on this, but here is what I believe, based on ZH posts over the past few years, has been happening. Please someone correct me if I am wrong.
Fed prints money and "lends" it at 0.0025% to its Primary Dealers. The PDs then purchase bonds at auction, hold for two weeks, flip back to the Fed, and take 3-4% proceeds. This money is used to gose the stock market through prop desks.....I mean trading desks. Equities move up to pull in the pension fund momo chasers. As chasers purchase equities, PDs file out orderly with upside profits, and front-run all momo trades through HFT algos, and pay out Christmas bonuses.
That money has run out from the Fed faucet, but the sludging of funds back and forth is what is keeping this going to some degree, but with greater volatilitiy.
I could be wrong, but don't care as I don't play in stocks anymore.
Very succinct! Thank you.
Dick,
Who is considered a PD? Is that BOA, Wells Fargo, etc?
Thanks.
I hear ya, its a brick wall and we're going full speed right into it.
Nope. Sorry guys--this one is wide of the mark, completely overlooking the political ramifications of what would happen if Ben came out tomorrow and said he's turing the presses--would be disastrous for Obama given public sentiment toward QE and inflation. NO QE WITHOUT EURO PANIC/CRASHING STOCK MARKET/GREEK DEFAULT. Period. Will eat all the crows in Kansas if I'm wrong. Tomorrow you get OT and more oblique promises. "We will be closely monitoring the situation, yada, yada..."
Free markets ? - my ass
................print
................no print
what's it going to be fighter's?
We need AUSTERITY!!!
We need the lights to go out!!!
Physical Solar BITCHEZ!!!
Don't know if it will be this round or not, but I'm expecting the printing to become politically impossible, and he's going to pull a Volker one of these times.
Personally, I'm not so sure it matters one way or the other at this point. Bad things are going to happen, and we're all going to have to deal with them as best we can.
Long WWIII.
Brother Prometheus418 ,
Medicine.
Ammo.
Ammo. (yes I siad it twice, shoulda said it three or four times)
Silver (purifies water).
Gold.
Physical Solar + Hydro + Wind + Batteries.
Food.
and then enjoy the show, try to help when you can and remain the good human being that you are in the face of whatever happens.
Thats all any of us can realy do.
God Bless You and Yours.
Re. pull a Volker
Relax. Look into it. He can not.
If a large new "elephant" comes on line, it's time to queue for the exits. But the elephants may have gone the way of the woolly mammoth.
Volker could jack the cost of finance w/o killing the patient because the cost of energy collapsed when the North Slope and North Sea reached their run rates. Oil went from $30/bl to $10/bl.
Not gonna happen this time, IMO.
Conclusion: The American economy is going to beat-up the Bernank and steal his lunch money.
He could wait until November. That's what credit seems to be signalling.
The Chinese are not liking this one bit. So what you say? I think we're going to find out pretty quickly. Talk about ugly.
Replacing credit money with base money. Inflationary times 2.
Buh buh buh Bennie and the feh yea yea yeds, Bennie bennie....
Vintage ZH post on Paul McCulley, the man who coined the term "shadow banking" (in 2007) and outlines the system here:
http://www.zerohedge.com/article/pimcos-mcculley-discusses-ticking-3-trillion-shadow-banking-time-bomb-defends-fed-head-regul
Funny Quote of wayyyyyyyyy back when!
Wed, 05/12/2010 - 16:13
Timestamp 3:05 PM eastern standard time:
There won't be any more monetary easing from Bernankincide with the possible exception of operation Twist/Torque, which will amount to a wet fart, as it's already baked into the grossly overvalued equity market cake as of now.
Ben Bubbles&BananasBernank's mission now is to delicately sweet talk Hopium Addicts of Wall Street & the TBTF Princes of Banking that he is still considering buying them that shiny new Corvette Z06 for their 16th birthday, even though political and fiscal realities dictate that they may be riding the bus or car pooling to high school, in an effort to turn what could be a stock market collapse into a more orderly decline.
If The Bernank spikes the commodity markets yet again, he shoots the global economy in the head, and robs it of whatever little life now remains (and ensures even more political instability, while planting the seeds of trade wars and other ugliness).
Also, incumbents in BOTH U.S. political parties (even though they really work for the same boss) really, really hate rising gasoline/heating oil/utility prices in election season (from already elevated levels).
I hope he saves a bullet for me. ha.
I agree, plenty of room for more foreplay.
Also known as 'The Bernank dry humps Wall Street & TBTF Banks,' while whispering into their ear that he's wearing a thong and fishnets under his off the rack suit.
Not a pretty picture you paint.
What is fuck is going with silver. Why is silver up .15 cents and why the fuck is gold up 24 dollars.
It's obviously Gold bitchez
What just killed the Nasdaq????
re-fuking-cession
Did you ever see stocks run prior Earnings and Drop even after
beating expectations? This called "Buy the rumor, SELL the news"
Happens all the time. Unless Bernank
blow out of the water everyone with something like 3 trillion $$$
stimulus, you can bet Market will tank hard after FED, for sure.
99.5% probability, heck it's already tanking..
QE3 may help the stock market but will be terrible for the real economy. Because of QE2, inflation is now at 6%. QE3 may double that. Are you ready for $5.00 dollar a gallon gasoline and food prices sharply increasing. US stagflation and the overthrowing of more governments around the world, get ready, here comes Bernanke.
There is no loan demand because when a business man surveys the existing opportunities there are no viable uses for available funds. The Fed at its last meting basicaly indicated that there will be no growth in the economy for two years. Households are witnessing their neighbors lose their jobs and homes, incremental revenue will be used to sure up there balance sheets and fund an emergency fund in case they are next to lose their job. So twist away!
This is BULLISH!
And why Market it's tanking now at close? Cause 80% Idiots thinking
that FED announcement is at Market open 9:30AM, believe it or not.
Or, cause 80% of those in the market (idiots or not) know damn well there isn't going to be any LSAP announcement and that since OT is about as useful to equities as it would be for Bernank to spit watermelon seeds in a bowl (Anyone? Anyone?) the sell off begins tomorrow.
the story of this age is expressed in graphics, like hieroglyphics, strange language that tells you the truth of the financial world and its ineluctable trajectory, like a shooting star falling to ground. Each graphic tells you we are going the wrong way. But nobody is there to read the story to change the course of destiny except those who have no sway on the course of events; nonentities like us.
Lucid but unable to change the course of history in the making we are like strange spectators to Caesar's games in the Coliseum. Neither thumbs up nor thumbs down we watch silently the damning trace of a world advancing blindly into deepening agony. Sometimes the innocence of bystander is a bane in a world requiring active participants in the game. Its an eternal dilemma, to be or not to be; its the heavens that decide the fate of generations not the participants themselves, thrown into the den of lions against their best instincts gone sterile and impotent. Hubris and Nemesis. One feeds the other. Until one dies and the other survives. In the end it is always virtue that wins as entropy finishes by emptying the well of misfortune and teaches men to return to modest virtue; but intemperate vice holds the fort for many a long day and its reign is a sufferance to all men of goodwill. All the more so that it wears the clothes of hedonistic purple so enticing for the people. Bunga, ponzi oligarchs deserve to die hung by the necks from a chord on a dark bridge in the city center for all to see...metaphorically speaking as all is symbolic in the multimedia age.
The Part I don't like is that GOLD also looking down.
Still cannot break that 4H downtrend line since September 6.
Okay, one, two, three times is a trend - no, the heck with it, an economic law. ;) So behold!
Call it the Bernanke-in-a-Cessna model:
Once the momentum that got you up there has dissipated, you're headed down to a sustainable altitude no matter what.
DISCLAIMER: I know nothing about anything.
"And without credit growth, at either the commercial bank, the shadow bank or the sovereign level, one can kiss GDP growth, and hence employment, and Obama's second term goodbye."
Don't ever overlook the efficacy of The False Flag! (Just ask Slick Willie)
I believe a heard a stat that no president has ever been re-elected with more than 7% unemployment.
"DISCLAIMER: I know nothing about anything." M. B. Drapier
Are you, perchance, considering applying for Bernank's job?
Well all the momo stocks outside Apple and Priceline that were up big all day are now down in the red. Lulu, Soda, GMCR, FOSL, etc.
Algos booking gains? Really doesn't make sense that a company could look good enough for a 3% gain at noon and look terrible enough for a 2% loss at 3.
There really aren't any fundamentals are there? The funny part is Netflix is up slightly from the low this afternoon during the point the other stocks tanked.
Bernank better print at least 1 trillion $ to make loud
speech.
Tyler:
Fantastic piece, thank you!
The thumbnail for the shadow banking sub-components is erroneously linked.
Thanks again!
Tyler:
Fantastic piece, thank you!
The thumbnail for the shadow banking sub-components is erroneously linked.
Thanks again!
Since currently money is credit, debt, liability etc. Isn't this is hugely deflationary? Or just an excuse to print?
We live in surreal times.
Tyler says "Because with D.C. in total fiscal stimulus hiatus...."
The US government spends over $1T more per year than it collects. If that's not stimulus, what is?
That spending is the only thing keeping this boat afloat.
Won't curve flattening decrease banks profits from lending? If their potential profit is lower won't that curtail lending to higher risk borrowers since there is less profit cushion to cover the occasional losses?
If so this is self defeating. The austrians may be right that there are only two alternatives to excessive credit expansion, inflation or deflation, no middle ground.
Yes. 2s10s collapsing is the worst possible news for the banks, unless of course they can make up for the losses by levering up long on NFLX stock and creating another massive short squeeze.
AAPL looks like quite the squeeze to my blind eyes as well.
Think of the US dollars in China reserve as paper gold derivatives. They have the same effect.
Only the non-thinkers are beholden to China.
They want to drop $2T into an over-saturated market.
Politicians can only create jobs for politicians. Under socialism, everyone is a politician.
Also BULLISH!
in no way shape or form does this have to be done with monetary policy. there are way around this. tie the credit card rates to the prime rate/ doscount window. stop paying reserves on bank money at the fed, capitial controls so borrowed money is spent at home, raise margin requirements. Look the big banks know that by withholding credit from society they can get the fed to give them money with no constraints. after all they have done this so many times. to engage on these programs, or have low interest rates in the setting of a flawed structure does nothing except increase the big boys bonus money (they know this and want it this way). fix the structure of the system before you engage in thee policy. otherwise we would be better off getting some return on our savings so we can pay down our credit. No the fed does the worst of all, engage in easing into a flawed structure that the lay public has oo access to, and not give us a return on our savings. Hence we get poorer, and poorer. Not hard to figure out why this crap doesn't work. the fed just makes it harder andn harder to catch up, the policy goes into asset purchases, increasig inflation, making the public even poorer, so they have no need to even try and borrow.
the system is rigged for the banks, and only for the banks.
Rock (QE3): Higher inflation & following political consquences
Hard place (No QE3): bank implosion
Knives produting from hard place: higher umemployment, market crash, negative GDP prints & following political consequences.
IMHO: Fed flattens against rock and pumps more credit (print money), tomorrow at 11.
Don't buy the hype.
There was no threat of a global financial meltdown in 2008 and there is no such threat in 2011.
Printing more money to buy ones own debt is NOT going to solve anything.
It's been tried 2x since 2008. It's no longer popular. The people aren't scared shitless as they've learned how they've been duped and how the banking cartel has helped themselves to a nice paycheque.
It's all bullshit anyway.
Bernanke prints at this juncture and he will be the deadest man walking in the US.
Mark my words.
Tomorrow is looking more and more like D-Day for all financial markets. Gold is at a major inflection point technically and looks to make a major move one way or the other.
ES and Dow are ripe for disappointment. I don't know how much QE n.n version x is baked into the market, but my sense is Weimar Ben has to do something really surprising to keep the markets up.
Historically, when the Fed wants to send a "clear" message of their intentions, they do it about 1 hour before the open in NY. Hoping to catch traders by surprise, the markets totally melt-up in reaction. It makes their comments at 2:15 pm a moot point.
If we get what the markets are looking for, i.e. more QE of some sort, gold above 1900 in very short order.
Coincidence? Did this article have anything to do with today's sell off? 2:33 pm.
http://blogs.wsj.com/deals/2011/09/15/meet-the-ubs-rogue-trader-kweku-ad...
ok boy. what happened to all that money ?
$100 Trillion just went "poof" - either the bankers can successfully mobilize to replace all that "money" - or they can't.
TBTF banks are insolvent and getting too close to the cliff for (bankster) comfort. Bankster concerns (and a big one here...SOLVENCY) come before voter/taxpayer concerns (namely inflation...so boo-f'king-hoo to all of us). Greenspan and the Bernank held their positions across changes of administrations, so it's unlikely Bernank's primary concern is Obama's re-election. Bernank prints, we all bitch and elect a Republican, life goes on for the Fed. That's my guess.
The charts illustrate our industrial decline, and the rise of consumerism.
Post 1963 there was a need to push Mom's out into the workforce to induce consumption via more disposable income.
In general, consumption was pumped to increase profits.
Thus, by the 1970's U.S. Automakers were engineering failure into their parts (planned obsolescence) to drive repairs and or new purchases.
This continued until U.S. manufacturing was slowly gutted, shipped overseas.
Then, there was a need to pump consumption as real jobs and incomes deteriorated; enter the home equity loan and easy money.
Surprise, surprise, surprise.
This is a 50+ year bubble that is only being blown bigger.
REMEMBER THIS LITTLE INCONTROVERTIBLE FACTOID: WHAT THE FED IS DOING IS ILLEGAL.
http://www.silverbullion.co.za/the-paper-gimmick.html
I will continue to buy physical silver. I don't care what Bernanke pulls out of the hat (or his fly!) tomorrow.
Before going ahead w/QE2, Bernanke asked for input from the Wall street gang and at that time Goldman suggested a 4 Trllion$ QE; but the Bernanke did only 600 mill,
Now he probably regrets that decision.
So tomorrow we find out wether he's still just a student (of the great depression) or a mega manager!!
Goldman wanted $2 trillion. Instead it got $900 billion (total gross QE2 in flow terms) and another $200 billion in fiscal stimulus via the first Payroll tax cut. It also got a near record bonus season. Not a bad deal.
I'll take the bonus pool; you guys can divy up the stimulus, QE, pension, profit sharing and health insurance.
Bonuses. This should play out in such a way that the bonuses are not threatened.
Should as in 'most likely', not should as in moral/wholesome, ie. you should brush your teeth.
...just a quick update, case anyone wishes to know, that tropical storm headed for Fukushima area in Japan is now CAT 4 Typhoon. http://www.nasa.gov/mission_pages/hurricanes/archives/2011/h2011_Roke.html
1.3 Million asked to leave http://www.msnbc.msn.com/id/44594003/ns/weather/
PRINT OR FUCKING DIE......THAT'S IT. What (or why) the fuck are people surprised, perplexed or debating this??? What is the practical alternative???? And don't say "let the free market reign". We know that ain't happening with Heli-Ben at the wheel. Sad....but true.
I'll say it once more (loudly; I'm not an expert, but this is basic fact):
OF COURSE THEY WILL PRINT. THEY HAVE TO PRINT JUST TO KEEP THE LIGHTS ON. IT'S NOT WHETHER THEY WILL PRINT OR NOT; IT'S ABOUT HOW MUCH THEY WILL PRINT, HOW FAST THEY WILL PRINT, HOW MUCH DELEVERAGING TAKES PLACE WHILE THEY PRINT (AND, IN FACT, PARTIALLY AS A RESULT OF THE PRINTING, AS INFLATIONARY EFFECTS OF PRINTING DESTROYS REAL PURCHASING POWER), WHAT THE AFFECTS ON DEFICITS/DEBTS FOR THE GOVERNMENT WILL BE, AND WHO WILL BE THE NET-NET BENEFICIAL RECIPIENTS OF THE PRINTING.
Yep. Run on French banks (see Reggie Middleton), systemic problems rearing big ugly head in financial sector, ECB bailing water desperately while infighting endlessly, Germany and Austria unable to convince their citizens to keep bailing out PIIGS, BofA sinking fast and perhaps already dead, major lawsuits piling up against US banks, Geithner unable to bring Euro leaders in line...The Bernank doesn't have the cajones to slow-play this any longer...he'll print, print, print, print...in one fashion or another (in fact, he already started via Euro/dollar swaps).
How does a shrinking money supply result in inflation?
Is velocity going up faster?
Also if for example I pulled out 10K in cash and put it in my mattress wouldn’t the fractional reserve system force a 10x reduction, 100K reduction in the total money supply?
What does exchanging cash for PM do to the money supply?
Bernank will disappoint with no more smack for Wall Street's junkies but in a shocking and savvy gesture to Main St., will announce that SNAP cards will now include 2 free Netflix rentals and a 20% discount on NFL logo wear.
He will quote CPI at a low rate which leaves room for an extension of reinvesting security maturities into US treasuries. 2400 gold by years end
QE with bush was QE1
first QE with obummer was QE2
then, there was QE light (QE3)
we found out there was a massive $16T bailout for europe (QE4)
tomorrow will be QE5 by my count...
did i miss any other QE's ? (other than tax credits, bank bailouts and debt-holes)
This is such crap.. To think that everything before 1991 (where shadow banking was below $5T) was empty and worthless is ignorant. All this fear mongering about outcomes that are assumed to be more destructive and detrimental than anyone knows is just that, fear creation. Don't fear the unwinding of the beast that, at most, benefited a favorite few. That spike in the chart? It's a fuckin' bubble...
Make no mistake - the pundits don't understand money & central banking. And they flunked accounting. And they flunked math, etc.
IOeRs alter the construction of a normal yield curve, they INVERT the short-end segment of the YIELD CURVE – known as the money market.
The 5 1/2 percent increase in REG Q ceilings on December 6, 1965 (applicable only to the commercial banks), is analogous to the .25% remuneration rate on excess reserves today (i.e., the remuneration rate @ .25% is higher than the daily Treasury yield curve 2 years out - .18% on 9/20/11).
Today, IOeRs are impacting the non-banks (& shadow banks), - the most important lending sector in our economy — or pre-Great Recession, 82% of the lending market (Z.1 release, sectors, e.g., MMMFs, commercial paper, GSEs, etc.).
The remuneration rate is the tipping point at which the FED is forced to offset the resulting deleveraging, refinancing, asset liquidation, & consumer rebalancing in the economy.
I.e., IOeRs are contractive; & cause dis-intermediation (an outflow of funds from the non-banks, i.e., the financial intermediaries). IOeRs stop (or retard), the flow of savings into real-investment. IOeRs induce & hasten, debt deflation.
IOeRs serve as the functional equivalent of required reserves and have been used to offset Bernanke’s liquidity funding programs (expansions, e.g., QE2), on the asset side of the FED’s balance sheet.
If they weren't constrictive, the deposit-taking money creating financial institutions would buy Treasury's (as in a healthy economic recovery).
Lending by the CBs is inflationary ceteris paribus (it expands both the volume & velocity of new money). Lending by the non-banks (shadow banks) is not inflationary ceteris paribus (it results in the turnover of existing money).
The “tipping point” is determined by the relative growth rates in Reserve & Commercial bank financing, as compared to the growth rates of the financial intermediaries (non-bank lending sector).
Only as monetary savings are routed thru the non-banks, rather than be impounded within the CB system, will payrolls rise sufficiently to erase the current “debt overhang”. IOeRs will protract the problem.
here's the japan weather map: http://www.weather-report.jp/com/home/kishomap/fusoku/japan.html tho not sure the link w/work as java has invaded from my new poker-playing club!
want to thank t.d. for a nice piece and doing some blog-work here to slow down some of the misunderstandings. maybe even a hi-"IQ" like trav can figure out who tf wrote this, soon...?
i don't claim to understand 'shadow' banking and how the "deep pools" work or don't work, but i do understand some of the securitiZation and how the "unregulated" credit can function via "bundling, bonuses, and bullshit"
now, with the net down-turn in "credit abstractions", (paste): should this decline continue without an offset, there will be no economic growth guaranteed.
and, as i said last Spring when the double-dip was grinning thru the lies, bullshit and accounting fiatscoes: so what? if credit is "bubbling" and the "GDP #" is neither real nor sustainable, maybe zero or slightly negative growth is the "medicine" we need for what ails us
break up the TBTF's. cut the pork. stop the "growth" of the pig-men and the financial tumors. also: anybody still think we're gonna get the balance sheets straightened out by "reflation"?
liquidate. take the losses. put the nannies on welfare, even the excess "peace officers". decriminalize victimless crimes. enforce the laws against predators: legal, illegal, and the remote-controlled airborne types. re-set. give peace and the folks under 30 a chance. or wish we did...
The Z1 says total nonfiancial debt is up 3% (seasonally adj).
Consumer continues to fall.
Business ticked up.
State & Muni falling.
US Govt up BIG.
Reconciling this with the net liabilities, looks like financial sector leverage must be decreasing.
Either that, or there is a significant foreign component that is throwing the numbers the other way.
End all war ? What gibberish ! Life is war ! Did your dichondra lawn sign a peace accord with your neighbor's crab grass ? Grow up ! Embrace war and life ! Has the human crab grass stopped multiplying ? Greed is good ! War is extasy ! Death is peace ! Monedas 2011 Picture Michael Moore feeding on Audrey Hepburn's carcass !