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Tradition Analytics Asks The $64K Question: Has The Fed Run Out Of Options To "Grow" Credit Money?

Tyler Durden's picture


Last week, we presented an equity "valuation" analysis based on Austrian economics, which concluded that the only thing that matters for the economy and for asset prices in general, is the amount of credit money moving one way or another at the margin, ie how active global central banker printers are. Unfortunately, in this economy of record correlations, and in which alpha creation is now impossible, this may well be the only approach to capital markets that works any more. Today, Tradition Analytics takes this analysis from the micro the macro level, explaining why the US, and global, economy is now like a shark - cash has to move (inward) or else the economy will suffocate. Naturally, nothing could make Bernanke happy- according to Tradition, "To sustain the up-cycle banks will have to pump out net new credit probably in the order of about $1 trillion in the coming 8-10 months, even larger than the $700 billion pumped out in the previous 8-10 months." Alas there is a problem with this, very much along the lines of what we discussed last week, which is that the new crude baseline is now a triple digit number, not one in the $30s or even $60s: "it is going to be difficult to sustain this level of credit expansion, not only due to the sheer gravity of the inflation problem that would follow, but also simply due to the fact that it is always increasingly difficult to extend more credit at the margin, and this time into an economy that is already steeped in credit."

Complicating matters is the long-discussed contraction of the business cycle, as volatility swings get ever wilder and with a greater amplitude, courtesy of record central planning encroachment which swings the global economy from one extreme to another with reckless abandon. To Tradition "it would suggest that cycles are getting progressively shorter in the great debt era and this in turn means the potential loss of monetary control, policy overreaction and misdirection, macroeconomic value destruction over time, and the risk of very deep, acute financial and banking crisis." In other words: the Fed is now boxed in a corner (and has been for years, maybe decades, in fact since its inception in 1913), and anything it does will push the pendulum to either one or another extreme. In this light, what consumer confidence does today (whereby consumers are confident because they are confident) is beyond ridiculous. 

The bottom line from Tradition:

  • The US economy, using growth in M2 money supply as a cyclical measure, has now been in a boom phase since the start of 2010.  This 2-year boom is coming to an end.  Credit and money growth has been running at such breakneck speeds that in order for the banking system to sustain the boom it would need to pump out roughly $1 trillion dollars’ worth of loans in the coming 8-10 months.
  • If that were to happen, inflation will quickly become the most import problem for the US economy and the boom would be extended to such a degree as to make not only the inflation threat enormous but the crash risk even bigger at a later date.
  • However it is going to be difficult to sustain this level of credit expansion, not only due to the sheer gravity of the inflation problem that would follow, but also simply due to the fact that it is always increasingly difficult to extend more credit at the margin, and this time into an economy that is already steeped in credit.
  • The resulting bust could be sharp as 2012 unfolds.  By the middle of the year we expect that the slowdown in credit expansion will have forced the productive sector into another liquidative bust phase.  Employment numbers will begin deteriorating and production data will likely suffer again.
  • If we are correct in this outlook then the current US boom phase may last little past 2-2½ years.  This means that since 1991 the three US boom cycles have roughly halved in length from 10 years (1991-2001), to 5 years (2003-2008), and 2-2 ½ years (2010-2012).  The implication of this should not be underestimated.  It would suggest that cycles are getting progressively shorter in the great debt era and this in turn means the potential loss of monetary control, policy overreaction and misdirection, macroeconomic value destruction over time, and the risk of very deep, acute financial and banking crisis.

And another useful observation, looking at the credit impule, only this time from the perspective of credit money:

We must caution that, as with every business cycle, the boom immediately sets in motion the seeds of its own destruction. Credit pumped into the system needs to grow at an accelerating pace or else the production structure will start to adjust once more toward a more consumer oriented one and non-specific factor resources will be bid away from higher order processes quite quickly, causing many of those industrial projects to fail before even reaching completion. In fact it is perhaps not surprising to note that in the most recent month of data producer prices actually fell and have exhibited no upside in h2 2011.


We should also note that such a rapid increase in inflationary credit is historically very difficult to sustain. Below we have adjusted our preferred US money supply measure, M2, into a normalised scale of its 4-month moving average annualised change (smoothed).


It is clear to see that since 1959 (available data) the measure does not typically move more than 2-standard deviations from the mean and when it does these episodes are very short-lived. Remember: with inflationary credit cycles the pace of new credit needs to be increased (i.e. 1st derivative of money supply growth must be greater than zero) for the boom to be sustained. In other words when the graph above is trending lower the bust is being set in motion.

We fail to see what the problem is: the central planning tyrants have always thought they know what is best for everyone, and how to make everyone's life good, at least in their view, if in the process they just happen to make the lives of the uber-wealthy that much better. And at the end of the day, nothing has crashed yet so everything is perfectly sustainable - just ask any economist or Ph.D. bearer. They know.

Full report:

US Boom to Bust Dec2011

h/t Converttrader


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Tue, 12/27/2011 - 11:55 | 2013633 Mr Lennon Hendrix
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The Fiat Ponzi is imploding, bitchez

Tue, 12/27/2011 - 12:39 | 2013796 Sudden Debt
Sudden Debt's picture

I wonder if Obama gets to give it a second try in 2012.
Change it again Sam!!

Tue, 12/27/2011 - 12:52 | 2013842 The Big Ching-aso
The Big Ching-aso's picture



If another ME war starts like lets say Iran, by then credit limit hikes will only apply to just funding the military.   So there'll have to be two sets of credit limit ceilings.  One for military, one for civilian.      Double your pleasure, double your fun.     We don't need E-tickets in this country to get wild rides, baby.

Tue, 12/27/2011 - 16:07 | 2014427 strannick
strannick's picture

Oil, the Loonie and the Aussie buck today are saying they have a few more rapidly multiplying rabbits still up there sleeve

Wed, 12/28/2011 - 00:22 | 2015328 trav7777
trav7777's picture

They have dropped the price of credit to 0.

There are no takers...what does this say about the DEMAND for credit?

Pssst, don't tell it to all the "savers" who think their entitled 5% comes magically as a result of money's existence.

Tue, 12/27/2011 - 13:52 | 2014051 francis_sawyer
francis_sawyer's picture

If the question is "Has the FED Run Out Of Options to "Grow" Credit Money?"... It's an irrelevant question (& really a waste of time & brainpower to contemplate)...

Options = unlimited (because those who have power & work in secrecy, can make up the rules to any game as they go along)

The PERTINENT question is... "Do they have any reason to do so"?... And the answer to that is probably YES... Why?... Because they haven't yet STOLEN every single goddamned penny in front of the steamroller that they even dream they could get their greedy fucking mitts on...

Grow credit money? (even this late in the game)... SURE! WHY NOT?... As long as they can play the kabuki theatre carousel of politicians getting elected in & out of office (on a global scale & with currency arbitrage), why not PRINT UP AS MUCH DEBT AS POSSIBLE (& use the proceeds to extract all the "PHYSICAL" anything needed in the world, stack it all on pallettes in a cave, & wait for a day to pull the plug)...

Jeez... If an a55hole like me can figure that out, it can't be that hard...

Tue, 12/27/2011 - 15:45 | 2014397 kito
kito's picture

bens options are not unlimited. oil is massive thorn in his side. qe3 would send oil to the moon and quickly destroy any "growth". failing to implement qe3 post elections (its not coming before) will send deflation into a death spiral (deflation will occur with qe3, just not as fast)

Tue, 12/27/2011 - 16:40 | 2014546 francis_sawyer
francis_sawyer's picture

"deflation" & "inflation" will BOTH occur at some point... The only question is with regards to the chronological order... It's called PRICE DISCOVERY & it is a component of working markets... Markets WIN (on a long enough timescale)...

Amusingly... This...

Tradition Analytics Asks The $64K Question: Has The Fed Run Out Of Options To "Grow" Credit Money?

Parse out... TRADITION... Then, parse out "GROW CREDIT MONEY"...

Laughingly IRONIC... isn't it?...

"Tradition bitchez"!

Wed, 12/28/2011 - 04:48 | 2015517 Zero Govt
Zero Govt's picture

Deflation and Inflation are happening in parallel...

Property since 2006, banking since 2007 and business has been deflating in the main since 2008.. 

Inflation has occurred in the public sector, the US Govt has continued its spending orgy aided and abetted by Bennys counterfeit wealth fabrication which has also gone straight to the Big (bankrupt) banksters which has seen speculative flows into the stock and commodity markets

But the credit (debt) mountain peaked in 2008, Bennys furious printer has not kept debt and asset values from imploding. Central (monopolist) planners cannot tell a businessman to take on credit/debt and expand his business when he feels the economy is too weak to pay a good return nor push debt down consumers throats

The real economy is choked on debt and has had enough of this 30-40 year long binge. Benny is left to inflate (fake) what asset values he can with his big bankrupt partners in the banks. All they control is mortgages with their hands also in stocks and commodities.

The real economy is deflating, Bumma, Bernank and Blankfein et al are left to jerk around with the rest to make it look like a recovery but as we see with mortgages there's no way out (no private buyers for their over-priced assets). That's why the Fed and US Govt (read US taxpayer) must be the ultimate bag carrier for this crap (or the bill for its discounting back to the private sector)

Tue, 12/27/2011 - 19:54 | 2015002 dsg2003gt
dsg2003gt's picture

I can hear that in a Jean Girard (ricky bobby) voice.



So does this mean to buy more gold?

Tue, 12/27/2011 - 12:00 | 2013650 Irish66
Irish66's picture

take out the word "grow"

Tue, 12/27/2011 - 13:08 | 2013893 midtowng
midtowng's picture

The other key word is "credit". They can always expand the money supply, just not with credit.

Tue, 12/27/2011 - 14:25 | 2014146 pauhana
pauhana's picture

Swap the word "credit" for the word "debt" and this article makes a hell of a lot more sense.  (See, your assets are now liabilities.)

Tue, 12/27/2011 - 12:02 | 2013656 RobotTrader
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Fiat creation is "Infinite"


They can print as much as they need.

Whatever it takes.

The obvious problem is that they are not printing fast enough.

We need a 5% inflation rate at a minimum to erase the debt.

What are they waiting for?

Japan dilly dallied for 20 years and they still have 1% interest rates and deflation, and investors over there are still clamoring for bonds and hate stocks, and there is no growth.

Doesn't Bernanke have a freaking clue?

Tue, 12/27/2011 - 12:11 | 2013692 Cult_of_Reason
Cult_of_Reason's picture

In money printing maniac Bernank we trust.

All our problems can be solved by printing money, and if it does not work after multiple QEs, it means da gangsta Bernank needs a bigger printing press.

I wanna know where da gold at. I want da gold. Gimme da gold. I want da gold.

Tue, 12/27/2011 - 12:12 | 2013697 GeneMarchbanks
GeneMarchbanks's picture

'Japan dilly dallied for 20 years and they still have 1% interest rates and deflation, and investors over there are still clamoring for bonds and hate stocks, and there is no growth.'

Mostly internal buying out of 'duty'. It is cultural. US, not so much. Luckily you have Wen Jiabao. He's an immortal or so I'm told. Endless buying of AmeriPaper, right?

Tue, 12/27/2011 - 12:16 | 2013710 fonzanoon
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Gene in my tiny sampling of people that I associate or conduct business with here in the states I could tell you that if TPTB came out and denounced gold ownership and endorsed owning FRN as a sign of patriotism I believe both requests would be followed by most. I am surprised they have not done this yet.

Tue, 12/27/2011 - 12:23 | 2013739 GeneMarchbanks
GeneMarchbanks's picture

That applies to the blind jingoists who need to be beaten by a mob wielding clue sticks. The big players have already set up 'exit' plans and feel no moral obligation to the land mass between Hockey & Nachos.

'I am surprised they have not done this yet.'

WTF is 'they'?

Tue, 12/27/2011 - 12:30 | 2013764 fonzanoon
fonzanoon's picture

That applies to the blind jingoists who need to be beaten by a mob wielding clue sticks

You are referring to the masses? Because that's who I was referring to. Who was your Japan reference towards? I thought it was towards the masses who loyally buy their bonds.

I was just saying that the same reaction here would not be out of the realm of possibility if it was asked for by our political leaders. Thats WTF they is.  I'm not saying it is the right thing to do. I am saying it is the likely outcome. Who gives a shit about the big players. Like you said they made their plans already.


Tue, 12/27/2011 - 12:41 | 2013804 GeneMarchbanks
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The Japanese have a 'fanatic' devotion to the homeland that isn't always visible. No much animal as the "masses" only mass man, in collective terms 'they' are an abstraction. Many Japanese buy as patriotic obligation.

You give your political 'leaders' too much credit. Mostly they are self-serving clowns that are as vacuous as they look. What you need is a statesman, but too many voters don't even comprehend the word. Is it possible? Of course.

Tue, 12/27/2011 - 12:50 | 2013840 fonzanoon
fonzanoon's picture

The Japanese may buy out of devotion and here we buy out of confusion. most of people's retirement accounts are loaded up with treasury funds. If only because they think it is the last safe haven. If asked to do so out of patriotism imho I believe they would do so as well. But like I said it was based purely on my tiny sample and I could be wrong.

It also seems to make no difference to me whether patriotism or fear is the reason people own the bonds. As long as they get the desired outcome it seems this can go on and on. A spike in rates somehow would turn things upsidedown.

Tue, 12/27/2011 - 13:34 | 2013990 Clycntct
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"You give your political 'leaders' too much credit. Mostly they are self-serving clowns that are as vacuous as they look."

Tue, 12/27/2011 - 12:32 | 2013773 SMG
SMG's picture

They is the Illuminati.

Tue, 12/27/2011 - 13:20 | 2013938 Errol
Errol's picture

My perception of folks here in the US: they'll wave the flag if their social group is watching, but it runs a mile wide and an inch deep.  In other words, as long as killing brown people props up their bloated "standard of living" they're all USA! USA!, but if uncle sugar doesn't deliver at least a credible illusion of prosperity, he won't have many friends...

Tue, 12/27/2011 - 13:24 | 2013955 GeneMarchbanks
GeneMarchbanks's picture


Happy New Year.

Tue, 12/27/2011 - 13:30 | 2013974 fonzanoon
fonzanoon's picture

I would have gone with agree. Correct is not a foregone conclusion.

Interesting that the protestors here are upset with Wall Street. Not big government.  You both seem to think they will run from big government, I think they have and will continue to run to it.



Tue, 12/27/2011 - 13:34 | 2013993 GeneMarchbanks
GeneMarchbanks's picture

It's hard to tell where one begins and the other ends. Grey area. Stay away from both by all means necessary.

Tue, 12/27/2011 - 13:40 | 2014012 fonzanoon
fonzanoon's picture

completely agree with that statement.

Tue, 12/27/2011 - 15:11 | 2014292 el Gallinazo
el Gallinazo's picture

"Interesting that the protestors here are upset with Wall Street. Not big government. "


Maybe they know that the tail does not wag the dog.  Or as Deep Throat used to advise, "Follow the money, Woodward."

Tue, 12/27/2011 - 12:14 | 2013704 Mr Lennon Hendrix
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The Yen is not the reserve currency.  The valuation of the dollar affects all asset prices dramatically.  The dollar has been the pole star of the world for 100 years, and you want to flip the earth on its axis.  Good luck with that.

Tue, 12/27/2011 - 12:24 | 2013743 WonderDawg
WonderDawg's picture

Fiat creation might be "infinite" in theory, but here's the problem: you can't force more debt into a system that is debt saturated. All potential borrowers are already soaked in debt. The subprime mortgage bubble was the last hurrah. Now everyone, down to the last guy who didn't have a job but could sign his name, has been soaked with debt. The debt markets are out of suckers. That's why the "infinite fiat" theory ultimately fails.

Tue, 12/27/2011 - 12:32 | 2013772 pods
pods's picture

Absolutely WD.  They always say that they can "print" to the moon, but in reality, it has to be borrowed into the system.  


Tue, 12/27/2011 - 17:05 | 2014631 Bicycle Repairman
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They can print and simply hand it out. If you "lend" to someone who is never going to pay, that is what is happening. 

The author mentioned "the sheer gravity of the inflation problem that would follow".  Inflation is what they want.  Don't expect that they will ever admit to the desire for inflation or its existance.  That they will never do.

Wed, 12/28/2011 - 00:32 | 2015340 Potemkin Villag...
Potemkin Village Idiot's picture

In reality, it has to be borrowed into the system.

Hell, that's the EASY part... Because nowadays you have entire soverign nations doing exactly that (on your behalf, of course)... That's not big enough for you?... Well - just create entire economic ZONE behemoths (Euro), and get them in on the gig...

Need some 'organic' debt growth? No problem... Elect a black president and get a whole demographic of your population who somehow thinks Michele Obama is Jackie Kennedy & now they need to drive Mercedes around town to keep up the image...

Put all that together in a pile, then lever it up 30x... "The moon" is just a pit stop...

Tue, 12/27/2011 - 13:33 | 2013986 spinone
spinone's picture

That is the fundamental paradox with the fractional reserve system.  To pay off debt plus accumulated interest, more money must be continually loaned into existance.  But if growth should stall and the system become debt saturated (lack of borrowers with collateral), the money won't be borrowed.

The system shifts into reverse, debts are defaulted on and asset values fall, depriving borrowers of collateral. Deflation.  The FED will avoid deflation at all costs.  Ben has been very predictable in his responses so far, telegraphing them well in advance.  Ben has already said what he will do to fight deflation, called the Bernanke Doctrine.  He has acted on several of the 7 points, but not all. Expect him to carry it out:

Tue, 12/27/2011 - 16:42 | 2014554 gatorengineer
gatorengineer's picture

The problem with your analysis is that you assume you need collateral to borrow with.  You could put up greek bonds at Face value as an example with the Fed today..........

Tue, 12/27/2011 - 19:10 | 2014922 spinone
spinone's picture

Correct, but that is an example of Bernanke following his doctrine of inflation.

Tue, 12/27/2011 - 14:04 | 2014084 Straw Dog
Straw Dog's picture

Although the consumer and business may be saturated with debt and therefore they will not borrow "new money" into the system, is it not the case that the Treasury can offer bonds and the Fed will create new money to buy them. Does that not bring "new money" into the system. What limits the Treasury/FED can carrying this on for a very long time?

Tue, 12/27/2011 - 14:26 | 2014152 Return2Sanity
Return2Sanity's picture

Three things that can bring it to an end:
1. Inflation takes hold, and the Fed no longer has a justification to pretend it's not monetizing the debt.
2. People lose faith in US bonds and the currency that backs them.
3. The public gets sick of watching the financial elite get wealthier while they stagnate, and they elect somebody who will end the Fed.

Tue, 12/27/2011 - 17:10 | 2014646 Bicycle Repairman
Bicycle Repairman's picture

Got to disagree.

"1. Inflation takes hold, and the Fed no longer has a justification to pretend it's not monetizing the debt."

They'll never admit to inflation even if it is in your face.  Or they will take their sweet time fixing inflation.  See the 1970s for more info.

"2. People lose faith in US bonds and the currency that backs them."

And then the people will do what, exactly?

"3. The public gets sick of watching the financial elite get wealthier while they stagnate, and they elect somebody who will end the Fed."

Presidents who mess with the FED typically do not serve out their terms.

Tue, 12/27/2011 - 14:04 | 2014085 DalaiLamaInAShark
DalaiLamaInAShark's picture

Robot, you are correct. We're in a classic liquidity trap. We will not see substantial rises in core inflation until we see enough GDP growth to get us past the elbow in the liquidity preference curve.

Fuel costs may spike here and there, but the drag they put on the economy (and growth) will eventually drive down demand for fuel.

Tue, 12/27/2011 - 15:49 | 2014409 kito
kito's picture

robo, ever hear of oil? how much will it be worth per bbl when infinite printing occurs?


btw robo, how is that "stronger than ever" consumer doing? sears closing 100 stores. cant wait to laugh at your declaration when the real numbers come in for the holiday. stick to "hindsight predictions". youre much better at it.

Tue, 12/27/2011 - 17:14 | 2014661 Bicycle Repairman
Bicycle Repairman's picture

Inflation is going to increase the cost of oil and other things.  People won't be able to afford as much.  How did you think the standard of living was going to go down?

Tue, 12/27/2011 - 16:39 | 2014536 tom
tom's picture

Well at least Robo acknowledges the problem of overindebtedness, and at least we know what he's wishfully thinking of as he bores us with his childish stocks-to-the-moon fantasies for the thirty-thousandth time.

More inflation to cure the debt. Yeah that worked so well, ummm, when and where exactly? Reminds me of the old lady who swallowed the fly.

I could also mention that while fiat money creation is theoretically infinite, expansion of broad money is not. It turns out not to be as easy to create price inflation as most inflationists imagine.

Tue, 12/27/2011 - 12:02 | 2013658 PaperWillBurn
PaperWillBurn's picture


A. What is...1 oz of Gold.

Tue, 12/27/2011 - 12:12 | 2013699 JPM Hater001
JPM Hater001's picture

+1 more...I didnt think one really captured it.

Tue, 12/27/2011 - 12:16 | 2013662 GeneMarchbanks
GeneMarchbanks's picture

Notional GDP targeting. So, no they aren't out of 'bullets'.

We're still in the overture...

Tue, 12/27/2011 - 12:04 | 2013664 espirit
espirit's picture

Still waiting on that multi-million dollah loan at 0% APR with no collateral.

Tue, 12/27/2011 - 12:17 | 2013714 JPM Hater001
JPM Hater001's picture

You're not thinking big enough.

Tue, 12/27/2011 - 12:21 | 2013730 High Plains Drifter
High Plains Drifter's picture

all they have to do is give every man woman and child in the united states, one million dollars each and watch as we party like its 1999.

Tue, 12/27/2011 - 12:28 | 2013754 RafterManFMJ
RafterManFMJ's picture



Concur; but I'd like my money 1 month before everyone else gets thiers - ooohhh wait, I'm not one o the Elite Connected. Bummer.

Tue, 12/27/2011 - 12:42 | 2013809 wisefool
wisefool's picture

HPD has got it right. sarcastically or not. give every man woman and child $100,000 USD. Implement a 2% national consumption tax. Enforce the laws on the books regarding debt. No snark. A jubilee without moral hazard. Heck, I'd even be okay with Newt getting another tax payer job as Freddie Mac history to record how I was right all along!

Tue, 12/27/2011 - 13:41 | 2014019 francis_sawyer
francis_sawyer's picture

all they have to do is give every man woman and child in the united states, one million dollars each and watch as we party like its 1999.

That kind of party wouldn't even last until the year 2000...

Case in point... They basically DID that (except they "substituted" EVERY MAN WOMAN & CHILD with every equity owner [ROBOT TRADER] in the 90's, and shifted the math accordingly ~ then they tried their luck with HOUSING)...

All we know, after a decade plus, is that the "half lifes" get smaller...

Wed, 12/28/2011 - 07:18 | 2015591 hamurobby
hamurobby's picture

That about sums it up.

Tue, 12/27/2011 - 12:06 | 2013674 XtraBullish
XtraBullish's picture

Just buy the f___ing dip in the E/S and you will see record highs by June. The North American economy is booming with renewed money velocity as evidenced by the Sentiment numbers. Gold, silver all lower with copper, oil, zinc, lead, and aluminum all screaming higher. The Great Industrial expansion of the New Millenium is now fully underway. Now pass me that LePage's bottle so I may medicate myself...

Tue, 12/27/2011 - 12:28 | 2013675 Dr. Engali
Dr. Engali's picture

Anything that grows too big will eventually collapse in on itself. It's true in nature, think of stars imploding, it's true in government, and it's true in a financial ponzi shceme where debt is money. There is nothing that can prevent it. All you can do is prepare.

Tue, 12/27/2011 - 17:17 | 2014670 Bicycle Repairman
Bicycle Repairman's picture

It will not collapse in nominal terms.

Tue, 12/27/2011 - 12:09 | 2013684 yogibear
yogibear's picture

At the rate we are going we can see a doubling of debt (30 trillion) just to keep the game going. Don't expect restraint from politicians in the US. They will keep the stimulus pedal mashed to the floor until the elections. It will be extremely painful when the US has to deal with the loss of manufacturing, service jobs (to overseas)  and debt  all at the same time. The deficits just keep piling up because the US is spending much more than it's taking in. It's been a great 30 years living off of ramping credit and debt. A some point it comes to a harsh end.

Tue, 12/27/2011 - 12:18 | 2013719 High Plains Drifter
High Plains Drifter's picture

check out the remaining 4 years in the bamster's tenure.............

Tue, 12/27/2011 - 12:11 | 2013687 Cult_of_Reason
Cult_of_Reason's picture


Tue, 12/27/2011 - 12:16 | 2013709 KickIce
KickIce's picture

Wouldn't that be the 64 Trillion dollar question?

Tue, 12/27/2011 - 12:19 | 2013722 High Plains Drifter
High Plains Drifter's picture

possibly. but maybe its time to bring out the  "q" word again now...........trillions just doesn't have the same effect like it used to.....

Tue, 12/27/2011 - 12:22 | 2013738 Dr. Engali
Dr. Engali's picture

Why borrow trillions when you can borrow....billions?

Tue, 12/27/2011 - 12:26 | 2013751 KickIce
KickIce's picture

All you hear is austerity this and austerity that.  Blah, blah blah...  all while yiou hear the hum of printing presses in the background.

Tue, 12/27/2011 - 17:20 | 2014681 Bicycle Repairman
Bicycle Repairman's picture

Oh there's austerity, all right.  And printing presses.  It won't be as bad as Weinmar as it will be well controlled.

Tue, 12/27/2011 - 17:47 | 2014755 KickIce
KickIce's picture

The only reason we aren't Weimar is because EVERYONE is printing.

Tue, 12/27/2011 - 12:27 | 2013748 GMadScientist
GMadScientist's picture

I'd like to formally request a move to scientific notiation to save ink.

Also accelerates the process of adding zeroes.

1e9, no 1e12, no 1e18.

Bring on The YottaBuck (or would that be's the ISI prefix).

Tue, 12/27/2011 - 12:38 | 2013781 Captain Kink
Captain Kink's picture

  + 1 x 10Awesome.

Tue, 12/27/2011 - 12:45 | 2013825 dumpster
dumpster's picture

the 128 trillion dollar question

Tue, 12/27/2011 - 12:16 | 2013712 yogibear
yogibear's picture

Bernanke's money debasing just causes commodities and food to go up. Wages in the US are still flat or decreasing due to global wage arbitration. The more Bernanke prints the less people can afford. Taxes skyrocket to pay for increased fixed costs. Consumers have less discretionary money, so less spending. More businesses close.

Tue, 12/27/2011 - 12:17 | 2013717 High Plains Drifter
High Plains Drifter's picture

is this why many people say that a fiat money system can never last longer than 100 years?   


Tue, 12/27/2011 - 12:19 | 2013721 PAPA ROACH
PAPA ROACH's picture

Lead bitchezzzz!

Tue, 12/27/2011 - 12:21 | 2013733 simone
simone's picture

I thought the previous assertion was that an increasing rate of change of credit was the driver for asset prices, not the amount of credit moving, like this time.  But what's an integral or two between friends?

Tue, 12/27/2011 - 12:24 | 2013742 Snakeeyes
Snakeeyes's picture

I wrote about M1 and M2 yesterday and discussed it on Bloomberg Radio this morning. The Fed is out of ammo.

Tue, 12/27/2011 - 12:25 | 2013744 GMadScientist
GMadScientist's picture

Maybe they'll let me start a bank with fractional gold backing...say 1 oz per $10k in deposits withdrawable as either at your discretion.

Bring on the discount window fallacy!

I guarantee I can't allocate capital any worse than the clowns that be.

Tue, 12/27/2011 - 12:28 | 2013756 JamesB
JamesB's picture

I find this article a little deceptive in one sense.

Almost the entire big increase in M2 in the last two years occurred from May until July of this year - 2011.  The entire rest of the 2 year period saw M2 annualized increases of 5%/year, which is right in the middle of the 10 year average. 

The big increase last spring didn't seem to correlate with anything the Fed was doing, it occurred right as the Fed was finishing its purchase of bonds in QE2.

I would guess the big jump in M2 was driven by money coming back from Europe – as that was about the time the crisis was becoming a big deal. If that is the case, then the big jump in M2 year over year doesn't mean much, and we are on the current 5% annualized growth in money supply we have been on since the 80s.

The economy may be going to hell for lots of reasons, but this doesn't appear to be one of them.


Tue, 12/27/2011 - 12:34 | 2013782 KickIce
KickIce's picture

imo, the big driver for M2 is government borrowing.  They still have to make payrolls, pay entitlements, defense, union pensions and all this has an impact on the money supply.

The fed and the banks on the other hand trade 0 and 1s.

Tue, 12/27/2011 - 17:33 | 2014718 Bicycle Repairman
Bicycle Repairman's picture

THe government will borrow as much as it needs to.  It will "lend" to itself as needed.

Tue, 12/27/2011 - 12:31 | 2013771 bankonzhongguo
bankonzhongguo's picture

You can't fix anything until something like Glass-Steagall is reinserted into the system.

Investment banking must to separated from commercial banking to even begin to have a veneer of financial health going forward.

The fact that Congress has spent years abdicating its capacity to fix this demonstrates the size and scope of the corruption.  This is reflected in Congress members wealth going up 300% while the 99.9% are moving to food stamps.

Banking is not about credit extension anymore, its about rigged casino operations.

Add to that Basel III, and the overreaching idea to absorb half the prime banks and hamstring every other $10 billion asset "mom and pop" bank into oblivion.



Tue, 12/27/2011 - 12:40 | 2013801 KickIce
KickIce's picture

+1  It's to bad any legislation with teeth that is actually restrictive to these bastards get repealed.

Tue, 12/27/2011 - 13:11 | 2013901 MachoMan
MachoMan's picture

It would be a simple start, but I'm not sure how an insolvent commercial bank survives getting cut off from the PD, co-located front running HFT (how many quarters without a day of trading loss? lol), et al, money train.  If you were to actually do what is necessary and increase capital reserve requirements, then the amount that could be made from banking proper would be even less...  practically speaking, you're clamoring for instant nationalization without following through on the implications.

The real start is the prosecution of financial crimes...  including a desire by the enforcement authorities to get as creative with their charges as they generally are with indigent defendants...  this will give them sufficient goodwill and voter support to do about anything, including implement austerity measures, albeit tempered/limited.

Tue, 12/27/2011 - 12:36 | 2013788 BandGap
BandGap's picture

Bubbles can usually expand only so much. Then they burst.

Addictions are cyclical in the same manner as the examples given above.  The user needs more and more because threshold tolereance increases with each dosing episode.  The end for many users is death since they often overdose looking for a "high".


Tue, 12/27/2011 - 12:37 | 2013791 Sudden Debt
Sudden Debt's picture

With 1.5 trillion, the private sector would be able to create 2000 jobs a day. 700.000 jobs per year
This is year 4, so if invested wise, 2.8 million jobs + 7.5 million jobs indirectly.
But that only counts for newly created companies.

All the money is gone, and no real new jobs have been added.
And soon 500.000 soldiers will enter the jobmarket or unemployment line.

The us should have done it the chinese way. Create a government bank, transfer saving accounts of the private into it and let the rest of,the banks go bust.
Invest 7 trillion in the creation of new industries and thus creating 10 million jobs.
How would America look like now if a normal person would have run the country and not some lawyer who's only job was and has been getting the crooks out of jail and crime flourish?

Tue, 12/27/2011 - 12:45 | 2013817 Fips_OnTheSpot
Fips_OnTheSpot's picture

All credit taken to pay interest on older credit - and so on.


THEM Ponzi completly unfolds whereas exponential goes hyperbolic.

Got Ravioli?

Tue, 12/27/2011 - 12:49 | 2013834 Captain Kink
Captain Kink's picture

Ramen noodles!

Tue, 12/27/2011 - 12:53 | 2013846 Fips_OnTheSpot
Fips_OnTheSpot's picture

needs hot water ;-) Just let them kick the can further on, buys ME more time to get even more prepared

Tue, 12/27/2011 - 13:06 | 2013854 earleflorida
earleflorida's picture

"explaining why the U.S. and Global Economy is now like a shark - "

- once a shark stops swimming it dies - the 'Binji Shark's', lack of oxygen is at the precipice of a volatile decompression inverse, whereas the unregulated flammable oxygen will implode at any rest stop -

how do you want your shark fin stewed?

Tue, 12/27/2011 - 13:06 | 2013889 dcb
dcb's picture

the author is wrong regardling at least one statement:

We fail to see what the problem is: the central planning tyrants have always thought they know what is best for everyone, .

the central bany tyrants know, they don't think they know. but the worst part is humanity allowing them to be fooled into believeing it. the job of centra; banks is gto bailout crony capitialists from their maaistakes at taxpayer expense and insure the banking indistry makes money period.

Tue, 12/27/2011 - 13:25 | 2013959 MachoMan
MachoMan's picture

Humanity isn't fooled into believing anything...  humanity consciously disregards the diligence and vigilence necessary to protect its natural rights...  it is simply too much effort...  some degree less than optimal is accepted and everyone moves on.

The problem of course is when there is some unquantifiable threshold that is breached whereby notions of common equity and morality take over and then the push back occurs.  We're now to the point where the pushbacks are smaller and smaller, but the pressure building larger and larger, given the micromanagement of pushbacks...  each pushback gets managed via ever decreasing (not nominally) tribute payments, media manipulation, etc...

Do you really think people are so stupid as to not understand the lesson of the free lunch?  It's called the willful suspension of disbelief...  not some limit to human capacity.  The difference between the haves and the have nots is largely the ability to hold one's nose and drink away. 

Tue, 12/27/2011 - 13:30 | 2013971 besnook
besnook's picture

there is one option left that they will mistakenly realize must be done. there are actually several options if .gov is involved. all of them result in one outcome. inflation. a 20% jolt of inflation while the dollar can still get hard without the blue pill will save the world, the western world anyway.  this can be achieved through printing, buying all the toxic waste on the banks books, debt forgiveness in the form of .gov gaurentees(since wage increases are not in the cards). it would only cost a few trillion more unless .gov declares a yearlong tax holiday for anyone who uses their tax obligation to pay down debt then it would cost another few trillion, still less than the banker bailout. the ultimate option is war. it is still the best option for a complete reset and do over and, historically, looks like the chosen option whether they realize it yet or not

Tue, 12/27/2011 - 13:52 | 2014050 FoieGras
FoieGras's picture

The article is off-base. The Fed can NEVER expand (nor destruct) credit. Only money center banks can. Fundamentally flawed understanding of econ 101.

Tue, 12/27/2011 - 14:23 | 2014141 terryfuckwit
terryfuckwit's picture

many phd's and giants of the mind have ruminated the cause and debaccle of our current financial malaise, concluding the solution is not a loan...Loan is now something banks have entirely disfigured from someones liabilty to someones commitnent.. It is all fresh air money written with outr childrens name on...They will have nothing but the tragedy of paying for our failure to kill our bankers now..

Tue, 12/27/2011 - 14:25 | 2014149 NEOSERF
NEOSERF's picture

Expect QE3 in some form of $1T starting in March which if it lasts 8-10 months would be enough to get Obama his second term...

Tue, 12/27/2011 - 14:59 | 2014255 Stuck on Zero
Stuck on Zero's picture

We need a new measure of money supply.  If would label this Mp for Money Public.  This would be the total money in the hands of the 99% i.e. the public.  From everything I've gathered the enormous growth in the money supply is just among the 1%.  The rest of us are living on a smaller and smaller Mpub.



Tue, 12/27/2011 - 15:59 | 2014435 tom
tom's picture

It's an interesting take and I like the explicitly Austrian analysis. But there's a lot I don't agree with here.

M2 is not a good gauge of private credit expansion. In the first half of 2011, the main driver of M2 growth was the expansion of central bank lending to government. In the second half of 2011, the main driver of M2 growth was a cannibalization of M3 driven by falling interest rates, flattening interest curves and increasing liquidity preference.

As I see it, the peak of the private credit expansion was in the first half of 2011, when expansion of credit to non-financial business was running at an annualized pace of around $500b. That's a fairly high pace, but still well shy of the ~$800b pace of 2007. The pace fell already in the 3q to ~$400b. 

The surge in credit expansion in the second half of 2011 that Tradition thinks it sees is an illusion, created mainly by faulty seasonal adjustment. The sharp contraction in 2h08 led statisticians to build into their seasonality models expectations of greater 2h slowdowns, and thus every 2h since 2009 has been much better than their seasonality models expected.

Also, some business investment, especially vehicles, was pushed from the first half into the second by the quake in Japan, and some business investment was brought forward from 2012 into 2h11 because of an expiring business investment tax credit. The effects of these time-shifts on the data are likewise exaggerated by the seasonality models (every extra truck bought in the 2h might count as ~1.3).


Tue, 12/27/2011 - 17:35 | 2014723 Bicycle Repairman
Bicycle Repairman's picture

At the end of the day fiat currency will give way to fiat government.

Tue, 12/27/2011 - 19:06 | 2014913 non_anon
non_anon's picture

what would be the escape velocity of a fiat money system?

Wed, 12/28/2011 - 10:34 | 2015786 bigerny
bigerny's picture

The level of panic X the amount of cash in hand = size of the shitstorm.

Wed, 12/28/2011 - 00:39 | 2015346 bill1102inf
bill1102inf's picture

Just start giving out 100K credit card limits to peeps with good credit again.  I for one would looooove to have a couple 100 thousand more unsecured credit dollars in which to convert to gold at a moments notice should I choose to abandon the 'credit' market. And I dont even like gold.

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