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Why QE Is Not Working

Tyler Durden's picture




 

Up until now we were a lone voice in the wilderness, with our "dry-humored" Transatlantic colleagues, working for a newspaper funded with Goldman Sachs advertisements, periodically mocking our "misunderstanding" of credit and money creation. We are now delighted that none other than one of the foremost opinions on all topics "shadow" stood up this week, and admitted that indeed, it is Zero Hedge whose view on money creation is the correct one. Behold several absolutely critical observations by Citi's Matt King. The same Matt King who a week before the collapse of Lehman wrote "Are The Brokers Broken" and explained to all those who had heretofore been reading and basing their understanding of finance on the above-mentioned Transatlantic newspaper, why everything they know about the modern financial system is wrong. Lehman filed for bankruptcy 12 days later.

Since early 2010 Zero Hedge has said that for the Fed's QE efforts to be successful in stimulating the economy, and rekindling inflation, it has to focus on not only stimulating traditional bank liabilities but far more importantly offsetting the collapse in shadow bank liabilities. As we observed in July, when the latest Z.1. update was made available, there is still a nearly $4 trillion hole that has to be be plugged on a condolidated basis from the all time "credit money" high of $33 trillion in 2008. Until such time as the Fed's largesse pumps enough to fill this void, the US economy will be mired in deflation.

To wit:

"What is worse is that even when accounting for offsetting traditional bank liabilities, on a consolidated basis, the US total financial sector is still an epic $3.8 trillion below its all time highs, just above $33 trillion. Unless and until this $3.8 trillion hole is plugged, one thing is certain: risk is not going anywhere (also notable is that consolidated liabilities in Q1 declined by $86.2 billion at a time when the Fed was engaged in Twist but that is for Ben Bernanke to worry about, not us)."

In fact, the misconception is so bad, that even the Fed's own John Williams recently confirmed the Fed itself has no idea how money creation in the New Normal, where the bulk of "credit money" exists in shadow aggregates, actually works. We explained this in "Fed's John Williams Opens Mouth, Proves He Has No Clue About Modern Money Creation"

 

The Problem (How Large Will The Losses Be - and can the reaction be contained?):

 

The Impact (Fear of losses mean private sector is running for the exits...):

 

...and TARGET2 (official sector) is forced to pick up the slack...

 

The Band-Aid Fix (print money into traditional banking system):

 

Is NOT Working (global equities range-bound on policy action, economies remain in slump, and money multipliers are broken):

 

Because (they are simply impacting the wrong system):

 

and more and more - funding depends on collateral...

 

and there is only one 'funder' - the collateral-taker-of-last-resort (as unsafe assets can only be funded at Central Banks)...

 

Credit Growth will remain 'stalled' until 'risky' is made safe - by on-boarding 'risk' to infinitely expanded CB balance sheets (credit-easing) with its consequent total and utter break-down of every asset class reality (and bank encumbrance); or a cataclysmic price mark-down and 'creative destruction' allowing the savers to scoop up the assets at 'reasonable' levels.

 

Charts: Citi

 

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Wed, 08/15/2012 - 20:16 | 2708775 vast-dom
vast-dom's picture

It's not only NOT working, but it's DESTROYING ecomomies and individuals!

Wed, 08/15/2012 - 20:28 | 2708802 ACP
ACP's picture

It works, the problem is it works the same way CRACK works. You get high, crash, get high, crash. Eventually, you go into cardiac arrest & die.

Wed, 08/15/2012 - 22:41 | 2709108 Atomizer
Atomizer's picture

http://trimtabs.com/blog/

Bullish Marxist handout mentality vs real world math.

Thu, 08/16/2012 - 01:05 | 2709351 Precious
Precious's picture

Bernanke is a case study in "conditioned reflex".

 

 

Thu, 08/16/2012 - 05:01 | 2709473 macholatte
macholatte's picture

 

..... and Jamie Dimon still gets his $23,000,000 "wages" plus corp jet, food, chaufeur, butler, secretary, office, credit card, cell phone, etc., etc., etc.

 

World's top bankers handed 12% pay rise to average $12.8MILLION... despite profits and share prices plummeting Read more: http://www.dailymail.co.uk/news/article-2164347/Worlds-bankers-handed-12-pay-rise--despite-profits-share-prices-plummeting.html#ixzz23hJdD1NE /

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The CEO took a salary of $1 million for 2009 and gave up bonuses that year and in 2008 after receiving $49.9 million in total compensation for 2007. Dimon and his wife control almost 5.2 million shares valued at more than $209 million as of March 2, when his total holdings were last disclosed.
JPMorgan Awards CEO Jamie Dimon $23 Million Pay Package

http://www.bloomberg.com/news/2012-04-04/jpmorgan-awards-ceo-jamie-dimon...

 

 

Wed, 08/15/2012 - 22:54 | 2709128 km4
km4's picture

The Ben Bernank is The Pusher

http://www.youtube.com/watch?v=rpoEmlxUPeQ

Wed, 08/15/2012 - 22:10 | 2709039 LMAOLORI
LMAOLORI's picture

 

 

Oh but it is working just not for you or Granny

Muted inflation supports more Fed easing

Thu, 08/16/2012 - 00:35 | 2709300 HardAssets
HardAssets's picture

The very cynical among us think that's Exactly what its designed to do . . . so that the next step can be taken in the forced-on-humanity New World Order.

Problem - Reaction - 'Solution'

Meanwhile, how are things going in Iceland. After they threw out the banksters ?

Thu, 08/16/2012 - 08:43 | 2709652 Hayabusa
Hayabusa's picture

HardAssets is correct... this isn't a "we don't know what we're doing scenario", it's carefully planned - we all know the banksters doing this aren't stupid and what are those top tier bankers getting? --- record bonuses to go along whilst things are tanking.  In this game of monopoly the NWO is playing incompetent when they are anything but... they are going "all in"... "Problem - Reaction - Solution"... when the SHTF people will react/be scared and we know what scared people do, they willingly go along with any solution offered - fear mongering works and when you're deep in debt they have you by the balls as anyone knows who has made payments plus interest.  Iceland... I sincerely hope we follow their example and "clean house."

Thu, 08/16/2012 - 01:36 | 2709383 Yamaha
Yamaha's picture

I am happy to just be finishing my safe room vault and food storage. Let the games begin.

Wed, 08/15/2012 - 20:17 | 2708777 centerline
centerline's picture

QE, ZIRP, NIRP, lip service till we are blue in the face has worked just perfect.  Just a matter of perspective.

Wed, 08/15/2012 - 20:18 | 2708782 roadsnbridges
roadsnbridges's picture

Sounds very bullish with our Ambassador now on Mars.

Wed, 08/15/2012 - 20:27 | 2708800 Aziz
Aziz's picture

Hey maybe the Martians will buy some of our ABS?

Wed, 08/15/2012 - 20:20 | 2708790 Jim in MN
Jim in MN's picture

Hey!  Paul Krugman!  Guess what?

The reason your Keynesian solution isn't working isn't because we don't spend enough.  It's because of CORRUPTION.

The same reason an Austrian solution can't work (won't, in Europe's case). 

Corruption has trumped all other issues. 

And what, pray, are all the Nobel laureates on God's green Earth doing about that?

Wed, 08/15/2012 - 20:28 | 2708803 Desert Irish
Desert Irish's picture

Don't fret Mary Shapiro will save us all /sarc.....we are sooooo fucked....

Wed, 08/15/2012 - 22:13 | 2709042 nope-1004
nope-1004's picture

Someone once said:  "Money is at the root of all evil".  No economist can institute a policy to deny that statement.  And to base an economic model or formulas without human emotion (greed or theft) taken into consideration is why economists look stupid now and the financial system is falling apart.

 

Thu, 08/16/2012 - 00:49 | 2709311 HardAssets
HardAssets's picture

The role of intellectuals is to provide the justifications for the criminal rulers to live as parasites off the rest of the population.

In other times & places they were witch doctors & priests. In our current society they are lawyers (wearing black dresses as 'judges' or as politicians) and economists.

Its all voodoo 'magic'. Before you had money in your wallet . . . and Presto . . now you don't.

The intellectuals get a small cut for the b.s. they make up.

Thu, 08/16/2012 - 02:48 | 2709417 boogerbently
boogerbently's picture

....someone?

1 Timothy 6:10

Thu, 08/16/2012 - 03:04 | 2709427 MisterMousePotato
MisterMousePotato's picture

Misquote. In fact, it is the LOVE OF money that is the root. In fact, Paul or Timothy (I can't recall) wrote that it is only one cause or root of evil. Big difference.

Wed, 08/15/2012 - 21:29 | 2708939 centerline
centerline's picture

Unlike any other real profession, economists seem to have figured out a way to live in a place of pure theory.  No other real application of science, social science, etc. that profoundly affects human lives gets away with this.  This shit is paramount to the function of society?  You have got to be kidding me.  

Wed, 08/15/2012 - 22:36 | 2709098 Jim in MN
Jim in MN's picture

If by 'Aliens' one means 'the global financial elites' then...maybe.

Thu, 08/16/2012 - 00:43 | 2709312 DeadFred
DeadFred's picture

Reptilians, everyone of them. (Pretty sure I'm joking)

Thu, 08/16/2012 - 03:08 | 2709434 MisterMousePotato
MisterMousePotato's picture

I once spent a Saturday night looking at the YouTube reptilian shape shifter videos. None were particularly interesting or persuasive, but it was fun.

Only reason I spent an evening doing this, though - to be quite honest - is Henry Waxman (and perhaps another dozen or two if I thought about it).

Swear to God: He and I have no common antecedents. (If you don't know what I'm talking about, google an image of Henry Waxman, come back here, and make a convincing argument that he is, in fact, human.

Wed, 08/15/2012 - 23:04 | 2709137 grid-b-gone
grid-b-gone's picture

People used to understand that when you live above your means using credit, you will have a period in the future when you live below your means to pay for those items. 

This made sense forty years ago when people typically only added credit to buy a house or car. Buying a home "on time" made sense because housing expense is always present for almost all U.S. adults, and the car was needed to get to work.

When people ran out of credit, new ways of extending credit kept being created.

Refinancing came into vogue and eventually the idea that one might never pay off a mortgage.

Marketing based on monthly payment rather than the details of a loan followed.

Leasing, especially vehicles, overtook buying to own as another way to lower monthly payments.

College kids, with zero or near-zero income, were issued credit cards based on probable future income.

With each step that delayed the "living below your means" time to pay down debt, credit grew, but so did risk.

When legitimate creative means of extending credit could no longer be found, the illegitimate means filled the gap. Fraud kept the party going until 2008 and now corruption and outright theft of segregated accounts is being tolerated.

The final phase, the one reaching an end in Europe, is to keep adding public jobs and paying people with over-printed fiat money until the private sector can no longer support the system. This eventually leads to a fiat currency collapse. 

It is easy to vote for growth over austerity, but a period of future austerity is exactly what each of us, and we as a nation, sign up for when we decide to live on credit rather than waiting until we can afford things.

We have reneged on the austerity we originally promised and the market has no choice but to issue its available ultimatums of default, reset,  or collapse.

Many, public and private, will continue, Rumpelstiltskin-like, to use algos, derivatives, QE, or some other deflection move, to attempt to keep the music playing even longer.

All they know is they ran out of credit and if we just had more credit the system would get back to normal.

The part we all miss is that paying back the debt was always the agreed upon price for having things before we could afford them. 

 

Thu, 08/16/2012 - 01:16 | 2709356 HardAssets
HardAssets's picture

They didn't loan anything. The 'credit' is made up out of thin air.

They use those made up 'credits' to steal your real property & the product of your real labor. Their paid whore politicians put in tax laws that encouraged you to buy into various of their bubbles (including housing). Their media convinced you this was 'financially smart.' The public schools you were in taught you nothing about money or economics or any of this.

Through the excess printing of fiat money, they have stolen 96% of the value of your money over the last 100 years through inflation (82% of that since 1971).

People have mass Stockholm Syndrome. They are victims of their irrational public schooling and conditioning. They blame themselves for acting exactly in the manner that the incentives were set up for them . . . just like the tunnels in a rat maze which the rats have no control over.

In Iceland, they seem to have seen through the fraud. They threw the banksters out, repudiated the 'debt', and are doing quite fine now.

Of course, we never hear of that.

In the meantime, people will give up their property & labor to pay the interest charged by the banksters. Stupidity creates their own slavery.

Thu, 08/16/2012 - 03:44 | 2709447 Disenchanted
Disenchanted's picture

 

 

 

Has anyone ever wondered why and when(and who did it) the debt pig was all gussied up by applying the credit word(credit card, credit score, apply for credit, credit limit, etc.) to it as lipstick?

 

But guess what, when the credit word lipstick is all smeared off debt pig is still a debt pig.

Thu, 08/16/2012 - 09:30 | 2709822 acetinker
acetinker's picture

It occured to me the other day that when we "borrow" (i.e; pledge our future labor to conjure digital "credits"), then pay back with actual labor inputs, we are, in fact, money laundering.

Ironically, on the bank's books at least, when we satisfy our obligation, their asset goes to zero.

Given those two statements, it's easy to see how this system was "designed to fail".  Once you reach the saturation phase, the only option is reset.  The question then becomes; Are we there yet?

Thu, 08/16/2012 - 10:15 | 2710173 MachoMan
MachoMan's picture

They didn't loan anything. The 'credit' is made up out of thin air.

Actually, the lending institution directly lending to you did loan money (unless you are able to dip at the discount window)...  it had to borrow from a lender higher up the food chain...  eventually ending at the mothership, where money is created out of thin air. 

They use those made up 'credits' to steal your real property & the product of your real labor. Their paid whore politicians put in tax laws that encouraged you to buy into various of their bubbles (including housing). Their media convinced you this was 'financially smart.' The public schools you were in taught you nothing about money or economics or any of this.

Actually, this is incredibly complicated...  but for the credit, would you even have a job?  Would you even have the ability to generate income?  How would your labor be valued?  I'm not advocating for our credit system, I'm simply stating that it's going to be difficult to find a control in your experiment...  you can't simply eliminate the concept of credit and then cherry pick our prospective existence...  credit does actually serve other functions than control (especially considering PRIVATE LENDING from real capital).

I also take issue with the top down approach...  it stinks to high hell of an external locus of control, but at some point "brainwashing" is a bit...  overstated.  I think the more reasoned approach (given the continuous and cyclical nature of debt cycles) is to say that these creditors merely exploit natural tendencies in the general population, e.g. the desire to live today at the expense of tomorrow.  This phenomenon occurs with or without political, media, or educational instruction.

Through the excess printing of fiat money, they have stolen 96% of the value of your money over the last 100 years through inflation (82% of that since 1971).

Hmmm...  so I get to borrow today and purchase to my heart's desire and then tomorrow pay them back with diluted dollars?  Sounds OK to me!

People have mass Stockholm Syndrome. They are victims of their irrational public schooling and conditioning. They blame themselves for acting exactly in the manner that the incentives were set up for them . . . just like the tunnels in a rat maze which the rats have no control over.

I think it's much more fundamental than that...  the constructs that you're talking about aren't merely a modern phenomenon...  I think people are the victims of their own greed and lack of discipline.  Creditors simply exploit these aspects in people...  much like a drug pusher.  Again, let's party today and worry about the hangover tomorrow.  (this also goes for creditors btw)

In Iceland, they seem to have seen through the fraud. They threw the banksters out, repudiated the 'debt', and are doing quite fine now.

Of course, we never hear of that.

Of course, repudiation is eventually the ONLY choice...  so I don't hold them in some shining nobility (especially after they spent like drunken sailors)...  but they did at least walk the walk...  and I hope they're successful in the long run.

In the meantime, people will give up their property & labor to pay the interest charged by the banksters. Stupidity creates their own slavery.

By your definitions here, the contracting debtors on any debt are merely automatons, incapable of rational thought or having the requisite mental capacity to understand the consequences of their actions...  I'm sorry, but this contemptuous view of humanity is completely wrong...  People are undeniably smarter than this...  Now, overcoming denial is a really difficult thing...  and a collective equity theory sure plays a big role...  however, in the end, this is EXACTLY the type of thinking that breeds the nanny state...  and, consequently, solidifies the regulatory capture you seem to be not so fond of...

 

Thu, 08/16/2012 - 13:32 | 2711181 acetinker
acetinker's picture

Actually, the lending institution directly lending to you did loan money (unless you are able to dip at the discount window)... it had to borrow from a lender higher up the food chain... eventually ending at the mothership, where money is created out of thin air.

The day I see a man walk into a bank, sign some papers and roll out with a pallet of FRN's, I'll agree with your statement.

Regardless, it matters not at which level the fraud is manifested to the average Joe- it's still fraud.

 

Thu, 08/16/2012 - 16:35 | 2712092 MachoMan
MachoMan's picture

false dilemma...  if I roll out with a house...  or I purchase goods with a line of credit...  I've received something of value...  and something tangible to boot.  The fact that it might be something other than cold hard cash is irrelevant.

and yes, it COMPLETELY matters at what level the fraud is...  the average joe has CULPABILITY for his actions...  if he decides to go on a spending spree, that's his baby... 

if the bank that lent to joe did not have any responsibility to repay the loan, then I would be inclined to agree...  just like joe has culpability, so too does the local/regional bank...  or even higher up the food chain...  Unless the party that lends you money created it out of thin air, then I'm having a hard understanding how there is no responsibility to repay...  and, even then, it's a stretch.  The bottom line is that even the first borrower in the chain (e.g. TBTF) is vested with knowledge of how the system works...  and is still beholden to the agreement it makes.

So, free houses, cars, education, etc. for everyone????  Take your free lunch fantasy and shove it.  Average joe AND his creditors should have to go out in the woods and find a switch...  and get bent over the collective knee for their idiotic maneuvers. 

Fri, 08/17/2012 - 11:03 | 2714145 acetinker
acetinker's picture

Take your free lunch fantasy and shove it. Say What?  Your name fits well, I see.  It ain't free, dumbass.

Joe has to work to repay it, see?  I'm not defending Joe.  Quite to the contrary.  Joe is culpable, but primarily due to ignorance.  The same cannot be said of the banking cartel as they know exactly what they're doing.  Big difference there, Mr. MachoMan.

While I'm at it, let me explain how I view fractional reserve banking.  It could actually function quite well, because it is driven by demand.  The reason it currently sucks is b/c all currency is issued at interest.  Never mind that this interest money is never created- that's another topic.  If you'd pull your head outta your ass for at least a minute, you'd realize that it is the borrower who creates the value.  Therefore, charging him/her interest on value that he/she created is not defensible by anyone with the ability for reasoned thought.

Since I'm feeling generous, I'll share with you a thought that will likely not be received well by most ZHers.  The Gold Standard for currency is a terrible idea.  Why would anyone (again with capacity for rational thought) want to base their "wealth" on a currency, which if it is to be expanded, requires digging ever deeper holes into the very planet which sustains them?

Yes, I do know Bill Still.  He can be an ass.  But he's right when he says, "It doesn't matter what your currency is.  What matters is who controls it."

 

Wed, 08/15/2012 - 20:22 | 2708792 Squid Vicious
Squid Vicious's picture

We need MUCH more aggressive QE and fiscal stimulus... load up the Krugman howitzer and fire away! $5 gas will just be a transitory issue until we're back at full employment!!! /sarc off 

Wed, 08/15/2012 - 20:27 | 2708798 Aziz
Aziz's picture

Well the QE has been aimed (among other things) at pumping traditional credit to offset the shadow credit collapse. They just haven't done anywhere near the amount necessary to reinflate, for one thing because they are worried that creditors will be frustrated by debasement, and for another because trying to inflate traditional credit carries significantly more inflationary risk than trying to inflate shadow credit. 

But what are they supposed to do? Try and reinflate shadow credit? However much ABS they buy it's not gonna turn worthless shit into gold. 

They are going to end up having to try a partial debt writedown/jubilee, because nothing else will even begin to offset the deleveraging costs that are keeping the economy (and shadow credit) depressed. It's only a question of how many more years of QE-followed-by-contraction-followed-by-QE bullshit we will have to live through to get there.

Wed, 08/15/2012 - 20:28 | 2708804 Tyler Durden
Tyler Durden's picture

Debt repudiation will never be attempted before a terminal attempt at reflating debt because it guarantees a full global equity tranche wipe out which is where the status quo, i.e., those who control the Fed, store their wealth. With inflation, even runaway hyperinflation, at least the hope of preserving some terminal equity value remains, which is why it will always be the preferred 'deleveraging' solution. (not to mention the whole $1 quadrillion in derivatives thing, which will collapse like a house of cards one even $1 dollar in financial debt is wiped out).

Wed, 08/15/2012 - 20:38 | 2708824 Hype Alert
Hype Alert's picture

So basically wipe out everybody so they can ride assets up with inflation no matter how bad it gets instead of writing off the bad debt.

Wed, 08/15/2012 - 20:40 | 2708825 Dr. Engali
Dr. Engali's picture

Delete double post. Trying to watch spongebob with my four year old and read the Hedge.

Wed, 08/15/2012 - 20:44 | 2708840 fonzannoon
fonzannoon's picture

Sponge bob freaks me out.

Thu, 08/16/2012 - 03:53 | 2709451 Disenchanted
Disenchanted's picture

 

 

 

Sponge Bong Hemppants:

http://www.youtube.com/watch?v=VIPFX6HWyt8

Wed, 08/15/2012 - 20:46 | 2708845 Seasmoke
Seasmoke's picture

me too......SpongeBob is acting bad tonight !

Wed, 08/15/2012 - 21:08 | 2708892 IndicaTive
IndicaTive's picture

Wait for Victorious (8-year-old), or however the hell it's spelled . Spongebob over my shoulder was much more entertaining. Cherish what you can.

 

Thu, 08/16/2012 - 07:58 | 2709587 Quinvarius
Quinvarius's picture

How did this thread degenerate into a Spongebob discussion when just a few posts higher is the key to understanding what comes next?

Wed, 08/15/2012 - 20:39 | 2708826 Dr. Engali
Dr. Engali's picture

"not to mention the whole $1 quadrillion in derivatives thing, which will collapse like a house of cards one even $1 dollar in financial debt is wiped out"

I don't know why the deflationists can't grasp that part.

Wed, 08/15/2012 - 21:42 | 2708970 Hype Alert
Hype Alert's picture

deflation will not be allowed.

Wed, 08/15/2012 - 23:12 | 2709162 bbucks
bbucks's picture

Until the big boys have finalized their golden parachutes and ride off on their gulf streams as their companies implode behind them.

Wed, 08/15/2012 - 20:41 | 2708829 Aziz
Aziz's picture

We'll see — A terminal attempt at reinflating the debt (i.e. hyperinflation) is debt repudiation. Very, very messy debt repudiation.

I think the goal of a significant number of the power elite may actually be global Japan, because that way creditors get paid off without too much of a haircut — but of course having a 20+-year depression sucks for the rest of society.

 

Wed, 08/15/2012 - 20:43 | 2708838 fonzannoon
fonzannoon's picture

You are missing the point with all due respect Aziz. It may end up in runaway inflation. But the goal is controlled inflation that gets tptb along and if it crushes millions of people along the way, so be it. They don't give a shit. George Carlin was so right. If they lose contol then they lose it to runaway inflation and thats a better outcome for them than debt repudiation.

Wed, 08/15/2012 - 21:09 | 2708855 Hype Alert
Hype Alert's picture

That's the message that needs to get out far and wide.  Anyone and everyone that has savings for retirement and/or fixed income receipts will be slaughtered and even more dependent on the government.  To think I once dismissed those theories as out there.

 

It also explains why they will not let the market fall even if it means obvious manipulation.   Be long anything but cash.

Thu, 08/16/2012 - 05:38 | 2709488 Snidley Whipsnae
Snidley Whipsnae's picture

Hype Alert... "Be long anything but cash."

I believe you meant 'Be long anything but paper'...

If you didn't, you should have.

...and, even if one is long all but paper, one need be careful of being scalped by a zillion new fees, taxes, fines, hidden taxes and outright confiscation.

Meridth Whitney was correct on her Muni call. She was off on timing which has happened to all of us. At first slow and then progressively faster infrastructure collapse is going to be a real SOB. The last state/local jobs to go will be state/local cops and their incomes are taking/will take severe cuts.

Excellent post TD/ZH

Wed, 08/15/2012 - 20:58 | 2708860 Aziz
Aziz's picture

Well, hyperinflation does have a big advantage for TPTB over orderly repudiation — the Cantillon effect. Whoever gets the money first (i.e. PDs) receives a transfer of purchasing power with every note printed. 

That said, I think Japan shows pretty clearly that entrenched elites often do not have the cojones to go through with big inflation, and would prefer to only reinflate just enough to keep the debt serviceable, and thus accept only a small haircut. What we are seeing attempted today is global Japan. The fact that this stagnation will hugely damage the real underlying economy (long term unemployment, stagnation of small business and hiring, housing and construction depression, etc, etc) makes this impossible, long term. 

TPTB will eventually have to choose — jubilee, liquidation or hyperinflation — and if they just keep prevaricating Mother Nature will decide for them in a disorderly way.

We'll see. 

Wed, 08/15/2012 - 21:10 | 2708878 fonzannoon
fonzannoon's picture

dup

Thu, 08/16/2012 - 04:40 | 2709465 malikai
malikai's picture

+1 for seeing the endgame.

Thu, 08/16/2012 - 05:55 | 2709494 Temporalist
Temporalist's picture

End game?  There is a big difference from Japan to the rest of the world.  First off they are servile and consider honor and respect to their elders and ancestors.  That is often used against them. 

Most importantly though they don't own guns. 

Thu, 08/16/2012 - 10:39 | 2710386 MachoMan
MachoMan's picture

I think this brings up a good point and uses a historical example to boot.  Kudos.

If you KNOW that reflation will lead to hyperinflation and a critical mass of those whose capital will be destroyed also know this (thanks to places like ZH), then does that affect your decision to move forward with the "plan" in full?  Does the desire for control necessitate a more balanced approach, e.g. "muddle through"?  While inflation/hyperinflation can be used punitively and has done so time and time again, are we at a point of collective recognition that this process simply does not work and that we will not tolerate it?  Is this why the FED has not formally announced QE3?

food for thought...

Wed, 08/15/2012 - 20:47 | 2708850 The Big Ching-aso
The Big Ching-aso's picture

 

 

Someone better reinflate the phucking jobs thingy first.

Wed, 08/15/2012 - 20:57 | 2708867 Desert Irish
Desert Irish's picture

I thought those jobs thingies was one of our primary exports.

Wed, 08/15/2012 - 21:12 | 2708898 techstrategy
techstrategy's picture

Tyler:

First, I have massive respect for all that you do. You are gradually impacting the narrative and forcing people and institutions to challenge the embedded assumptions upon which the system has been predicated. If you ever look to expand the team, I'd love to help contribute.

Now onto the substance. Top down control to generate inflation cannot work, absent a Steve Keen style debt jubilee / QE for the people. Global competition will prevent any meaningful increase in wages. Without wage increases (which tend to be sticky, thus the rise in temp relative to FT employment), consumption will fall dramatically in the face of QE driven commodity/physical asset inflation. That, in turn, creates a negative reinforcing loop, reducing incentive for investment, hiring, etc since any one business is better off having other increase aggregate demand through uneconomical hiring and malinvestment.

Have to run to dinner with wife and kids, so I'll have to flush this out and complete thought later, but fundamentally, competition in the private sector will make wage inflation domestically next to impossible...

Wed, 08/15/2012 - 21:18 | 2708910 Red Heeler
Red Heeler's picture

What you're describing sounds like stagflation. We can still have hyperinflation without a corresponding rise in wages. Wait and see.

Wed, 08/15/2012 - 21:47 | 2708982 centerline
centerline's picture

Actually already happened.  The effects have just been supressed via creative modern finance.  We just have yet to realize that "gravity" actually can't be defied.

Wed, 08/15/2012 - 22:27 | 2709079 Red Heeler
Red Heeler's picture

True. I was thinking more in terms of hyperinflation versus the relatively mild inflation, by comparison, that we're having now.

Wed, 08/15/2012 - 23:08 | 2709158 bbucks
bbucks's picture

Hyperinflation wipes out everyone including the rich and the Federal Reserve.  I can just see it now, Ben Bernanke collapsing the dollar and then packing it up and going home saying it was a good run....yah right. 

Wed, 08/15/2012 - 21:41 | 2708964 centerline
centerline's picture

This is not akin to 70's style US inflation with corresponding wage inflation.  Wage inflation will not - cannot - be created in this environment with structual unemployment so high.  In effect though, this is a buffer against hyperinflation... at least in theory... as money flees areas like the EU.  Maybe well played on Ben's part.  But, just kicks the can down the road anyhow.

 

Wed, 08/15/2012 - 22:24 | 2709070 techstrategy
techstrategy's picture

That's actually my point.  Wages will not increase because businesses will relocate work to optimize total factor productivity.  Now that we've already exported most of our technology and know how to save a couple of ST bucks, labor rates matter (not to mention the harder working and better educated workforces available elsewhere) even in the most technologically advanced areas.  Export drivem economies will likewise weaken currencies as their employment problems are much larger.   So, wages WILL NOT increase with QE.  The decline in real purchasing power from the financial sector front running QE (layperson explanation of Aziz's Cantillion Effect) creates a very powerful negative feedback loop that impacts those with the highest marginal propensity to consume the most.  The net impact is a decline in the effective velocity of money and in the ability of debtors to service debt let alone repay creditors.

 

John/Aziz:  The global context is vastly different today than when Japan ran into the wall.  One player could kick the can.  But, when everyone gets there, it effectively becomes a closed reinforcing feedback loop.  Plus, the cost of energy (not its availability) will seal the deal.  we are pushing the constraints on energy, food production, amongst other things.  a shock anywhere ends these games...

I really enjoy your articles.  great stuff...

Wed, 08/15/2012 - 22:27 | 2709080 Aziz
Aziz's picture

Heh, thanks.

Wed, 08/15/2012 - 22:28 | 2709075 maximin thrax
maximin thrax's picture

I think we already have QE for the people, in the form of federal deficits exceeding $1.3 Trillion annually.

Ever-fewer working-age adults in America actually produce wealth - turn sticks into bats and sheet metal into washing machines. As increased productivity, and offshoring, has taken its toll on the American work force, we have moved as many people out of productive labor as required to keep wages rising.

We have expanded government, extended unemployment, woven ever-wider safety nets, built ever-larger standing armies, filled ever more prisons, and increased the ranks of the disabled by millions - all to keep productive labor scarce and thus of value. Now college has become a reliable resevoir of productive labor getting retrained after losing jobs, knowing graduates will either remain unemployed or replace a current employee when they get back into the workforce.

Each recipient of government money becomes a pass-through for money to be spent into the economy, which is "QE for the masses".That spending both increases GDP and creates an economy ever more dependent on government spending.

This is the Malthusian population principle at work. At the turn of the 20th century we were pretty good at leveraging technology into increrased productivity. But since the end of WWII this nation has not been able to effectively leverage the reduction of man-hours to perform a given task into increased living standard for all, and instead have relied on wealth transfer to raise the living standars of those left out of the prosperity. Now we go into debt giving money we don't have to unproductive citizens at the same time we go into debt to purchase wares from other nations who produce things for us cheaper than we can. And I think it all comes from a cumulative wage inflation that has priced the American worker out of the world market.

 

Thu, 08/16/2012 - 00:24 | 2709284 Taffy Lewis
Taffy Lewis's picture

First of all, some great comments on this thread.

@maximin thrax:

"And I think it all comes from a cumulative wage inflation that has priced the American worker out of the world market."

The worst case scenario is that the American standard living lowers itself to be equal to the countries where the manufacturing has gone. At that point the manufacturing will come back.

Already, I have Indian friends who are moving back to India from Singapore and from the Silicon Valley because the quality of living is becoming equal plus they can live amongst their families and relatives.

In America, I don't think that there's that much to fall if the "employment system" in the U.S. was opened up (e.g. unions, government, minimum wage)

 

 

 

Wed, 08/15/2012 - 21:45 | 2708946 centerline
centerline's picture

Precisely.  Not to rule out limited, but extensive, conflict.  In the end, wealth needs to transfer into the next system... one way or another.

Wed, 08/15/2012 - 21:44 | 2708976 g speed
g speed's picture

debt repudiation will put banking back in the middle ages-where debt repudiation was common. Contracts will not be trusted and credit will no longer exist. Only govts and "court jews" will be in the business. 

Thu, 08/16/2012 - 01:38 | 2709370 HardAssets
HardAssets's picture

'They' may not repudiate debt willingly. Events may do it for them . .  when that moment is reached when there is a complete loss of faith in the current financial & monetary system.

How much better off would several generations of Americans be - - if 96% of the value of their money hadnt been stolen from them through bankster created inflation ?  After the bankster created income tax, its a wonder Americans have anything left to survive. (Of course they needed to go into debt and buy cheap overseas stuff to maintain themselves under the current system.)

Thu, 08/16/2012 - 02:51 | 2709418 Ghordius
Ghordius's picture

excellent article - good theory - I agree this is very likely

I presume a word was missing here "not to mention the whole $1 quadrillion in derivatives thing, which will collapse like a house of cards (one?) before even $1 dollar in financial debt is wiped out"

Interestingly, the status quo on continental europe is different, in part also due to a different "Muppet" wealth composition and exposure to the stock market vs. fully private enterprises, which also explains why the "deflationist path" could have a political support - in a pinch.

from an EUR game theory perspective, if the USD goes hyper, it could even "make sense" for some to have the EUR following the USD nevertheless (i.e. forcing this path). In short: the EZ is less dependent politically from the "health" of the EZ stock markets.

the whole $1q derivatives thing is just a scam on a grandiose scale. I'm quite sure eventually history books will see it as the biggest price cartel ever made, the perfect tool to chain all MegaBanks in one "too big to fail, bail us out" complex.

Thu, 08/16/2012 - 02:55 | 2709422 Jack Sheet
Jack Sheet's picture

@TD:
"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed… hyperinflation is the process of saving debt at all costs, even buying it outright for cash… because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!"
Quote : "FOA"

Thu, 08/16/2012 - 05:43 | 2709491 Ghordius
Ghordius's picture

+1, my brother-in-avatar for the correct source location of TD's thought

Thu, 08/16/2012 - 06:42 | 2709518 Jack Sheet
Jack Sheet's picture

You are very welcome, this is a good post.

Thu, 08/16/2012 - 07:40 | 2709563 Never One Roach
Never One Roach's picture

Good point TD. Faith and trust in the so-called markets is imperative. I remember when The reserve MMF broke the buck by a mere 1 cent in only one of their many funds...yet the whole thing collapsed; namely, people lost faith in the entire Fund and massive withdrawals killed the fund.

 

When Fear sets in, the nosedive/collapse is swift and decisive. Slowly inflating the debt away worked well after WWII when debts were massive and gradually eroded by 5-12% inflation (debasement) over a decade or two. No one will rock the boat with sudden repudiation. The slow silent debasement with expansion of the monetary base (printing) is much preferred.

Wed, 08/15/2012 - 20:46 | 2708818 fonzannoon
fonzannoon's picture

The debt jubilee ain't coming. Not without a revolution. I met with a few people this week that are at the top of the food chain. They are loving this. They are big in real estate and many other areas. They said every agreement they enter into has to have this signed by the other side, and they enforce it.

Confession of judgment is a legal term that refers to a type of contract (or a clause with such a provision) in which a party agrees to let the other party enter a judgment against him or her. Such contracts are highly controversial and may be invalidated as a violation of due process by courts, since the obligor is essentially contracting away his right to raise any legitimate defenses.[1]

Confessions of judgment are permitted in many states. New Jersey[2] and Pennsylvania[3] permit them, among others. Some states, including Michigan,[4] require they be specially labelled or have other procedural requirements. However, according to testimony before an Alaska State Legislature committee, "Confession of Judgment is illegal in Alaska, it's illegal in Pennsylvania in consumer transactions, but not in commercial transactions."[5] A Law Review article distinguishes three groups of state laws, one group comprising seventeen states that make void any agreement to confess judgment entered into before commencement of a suit.[6]

A typical confession of judgment reads, "The undersigned irrevocably authorizes any attorney to appear in any court of competent jurisdiction and confess a judgment without process in favor of the creditor for such amount as may then appear unpaid hereon, and to consent to immediate execution upon such judgment."

Wed, 08/15/2012 - 20:30 | 2708808 bigwavedave
bigwavedave's picture

Where will Matt King go to work next? 

Wed, 08/15/2012 - 20:33 | 2708815 SwingForce
SwingForce's picture

If only I had read Griffen's CREATURE RFROM JEKYLL ISLAND 10 years ago......

Wed, 08/15/2012 - 20:40 | 2708831 AccreditedEYE
AccreditedEYE's picture

I vote for the last one.... we deserve a break.

Wed, 08/15/2012 - 20:41 | 2708832 Squid Vicious
Squid Vicious's picture

Is ben shalom losing control of rates? this could get interesting quickly... 10 year just went from 1.4 to 1.8% faster than he can say: RON PAUL!

Wed, 08/15/2012 - 20:57 | 2708866 mt paul
mt paul's picture

mmmmmm

fermented seal....

Wed, 08/15/2012 - 22:06 | 2709021 bobert
bobert's picture

The rise in the 10 year from 1.4% to 1.8% within a few weeks has to do with me selling a large position in PST a month ago. (Argh...)

Wed, 08/15/2012 - 20:41 | 2708834 buzzsaw99
buzzsaw99's picture

That $4T hole will be filled by Wall Street bonuses bitchez!

Wed, 08/15/2012 - 20:42 | 2708836 Seasmoke
Seasmoke's picture

Moral Hazard is a bitch....... Fuck you DeMarco , while you worry about Moral Hazard, it already has already been let out of the box

Wed, 08/15/2012 - 20:50 | 2708852 reader2010
reader2010's picture

It's not working? Sure, it's not working for the Proles. Everything is supposed to work against the Proles anyway.

Wed, 08/15/2012 - 20:54 | 2708859 bigbucksr
bigbucksr's picture

If they can fake a birth certificate, don't you think they could easily fake some college records?

Wed, 08/15/2012 - 20:55 | 2708863 newengland
newengland's picture

'...with our "dry-humored" Transatlantic colleagues, working for a newspaper funded with Goldman Sachs advertisements...'.

 

Oh, Tyler. You tease. Name names. Publish and be damned. Don't be so coy to name your partner :-)

Wed, 08/15/2012 - 20:59 | 2708869 Tyler Durden
Tyler Durden's picture

They already advertize on Zero Hedge. No need for more free advertising.

Wed, 08/15/2012 - 21:10 | 2708896 tradewithdave
tradewithdave's picture

You charge for advertising?  ZH is a business?  How long is your timeline? 

Wed, 08/15/2012 - 22:18 | 2709053 Jim in MN
Jim in MN's picture

Long enough! 

Cheers!

Thu, 08/16/2012 - 07:07 | 2709538 GetZeeGold
GetZeeGold's picture

 

 

As long as it takes....

 

Wed, 08/15/2012 - 22:09 | 2709018 Muppet Pimp
Muppet Pimp's picture

aville?

Thu, 08/16/2012 - 06:59 | 2709531 Diggintunnels
Diggintunnels's picture

LOL Muppet Pimp - what a great handle! 

Wed, 08/15/2012 - 23:08 | 2709156 Atomizer
Atomizer's picture

Fuck you newengland. Your days of posturing EU Government lifestyle is over. Shortly, you will change or be looking down a barrel of hope. Select your fate, conform or become a depopulation statistic. This comment is not from ZH website. The days of living off your host is over. Society can no longer afford taking care of you. /sarc. It's the only UN humanitarian thing we can do for you. Don't we have to save the earth. LOL

See how easy it is to turn the tables on parasites like yourself?

Wed, 08/15/2012 - 21:01 | 2708876 Dareconomics
Dareconomics's picture

QE does work in the short-term. Markets rise, and some future consumption is brought forward stimulating growth in the present.  The problem is that in order to get the growth we experienced prior to 2008, we have to grow the shadow banking bubble at a faster and faster rate.

In the short-term, the increased money flow from QE and other money printing tricks is able to drive growth, but this does not seem like a good long-term solution. Keep in mind that QE also drives inflation. With the usual Middle East bickering and a poor harvest to look forward to, now is not the time to engage in expansionary policies. 

http://dareconomics.wordpress.com/

Wed, 08/15/2012 - 21:02 | 2708877 joebren
joebren's picture
ZIRP + QE I + QE II *(TWIST) = 1.5% GDP
Wed, 08/15/2012 - 21:11 | 2708897 chump666
chump666's picture

Citi must be loaded up with tail-risk trades from hell.  Good luck to them, they have been consistently the doomer/reality bank on the block.  Gotta respect that.

Wed, 08/15/2012 - 21:22 | 2708926 adr
adr's picture

It is clear to me that QE only helped the boards of publicly traded companies. That was the goal, there is no other explanation. In March of 2009 I would bet that 80% of the Fortune 500 were a month away from bankruptcy. You would have been talking 80% unemployment and a complete cessation of US commerce. Without the massive con job of health insurance, paid by employers, the loans for the $300 million medical centers popping up in every suburb would have been defaulted on.

As they said it would have been a total collapse.

I was attending sales meetings during that time and every buyer I talked to had thier dollars cut to almost zero. Nobody was buying inventory with assets marked to market. The massive buildout of corporate real estate was worth almost nothing, and it was showing up on the books. Unless this loss could be cleared, and a way found to increase earnings, the stock market was toast as well. The 1% would have joined the 99%.

An agreement was made in March of 2009, and mark to market was overturned. Massive Fed stimulus hit the books of banks and they turned around and bought shares of corporations to prop up the stock market. Real estate liabilities once again became assets and the massive inventory overhang was able to be booked as profit. Corporations like Select Comfort that were essentially dead, all of a sudden turned around multimillion dollar losses into multimillion dollar profit in one quarter.

I saw little companies, talking about $10-20 million in sales, get taken over by hedge fund gurus. Within months inventory of their products shot up 1000% or more at publicly traded retailers. There couldn't have been that much demand for the products at the depth of the downturn. Something else was at work. Then these corporations started going public by the dozens, each gaining market caps of a few hundred million. Space that I once had at retail started disappearing, filled up by thousands of headphones and mouthguards. When I asked my buyer how he could buy so much inventory of those products while he was cutting my inventory, with my product actually being the best selling product by volume in the whole store confirmed by EDI reports, his answer was that he didn't make the call to buy that stuff. His boss made the call on it.

It is clear that QE and everything since 2009 has been noting but a con job to cover up the truth. To maintain the status-quo for the men at the top for as long as possible. Reality is that most corporations are broke. They won't hire because employees cost real money. You can paper over losses and make up profit all day long. If the money isn't really there to pay employees, the truth comes out pretty fast.

You also wouldn't believe the turnover at the mid to high levels in corporate America right now. Prior to 2009 I had a senior buyer switch two or three times. Now I see new senior buyers switch every two to three months. If someone can't maintain the status quo, he is terminated before he slips and the truth comes out. If you make one mistake, you are out.

There is one solution though. I can try to get the people running my company to go public and we can all cash out. Seems to be the only way to do business these days. Trying to do business has never been scarier.

Wed, 08/15/2012 - 21:43 | 2708972 mammoth mo
mammoth mo's picture

Thank you - Very well stated.  You need to go public before the crash though.

Wed, 08/15/2012 - 21:57 | 2708998 g speed
g speed's picture

tu =+1

Thu, 08/16/2012 - 03:52 | 2709449 Idiocracy
Idiocracy's picture

I saw little companies, talking about $10-20 million in sales, get taken over by hedge fund gurus. Within months inventory of their products shot up 1000% or more at publicly traded retailers. There couldn't have been that much demand for the products at the depth of the downturn. Something else was at work. Then these corporations started going public by the dozens, each gaining market caps of a few hundred million. 

ADR, can you name a few examples of these little companies that went public?  It would be fun to look at their proxy statements and treasure hunt for muppet bait

Thu, 08/16/2012 - 06:00 | 2709497 Temporalist
Temporalist's picture

I think there are some very specific ccompanies that benefited most and GE is just the first I can think of.

Thu, 08/16/2012 - 06:11 | 2709500 Snidley Whipsnae
Snidley Whipsnae's picture

adr... thanks

Wed, 08/15/2012 - 21:31 | 2708944 orangegeek
orangegeek's picture

Governments fail a lot.  Why? Because they measure success by inputs - how much they spend - how big a budget was approved.

 

The rest of the real world measure by outputs.

Wed, 08/15/2012 - 21:44 | 2708975 Herdee
Herdee's picture

The U.S. Government can always rely on the hundreds of billions that are brought into their financial system yearly from the illegal drug trade.They control the cocaine and heroin trafficking networks that come to the back door via the CIA and avoid the General Accounting Office for any kind of reporting purposes.Easy money with big military and intelligence knowledge backing them up.Nobody stops that.That's the real shadow banking system.$$$

Thu, 08/16/2012 - 06:20 | 2709501 Snidley Whipsnae
Snidley Whipsnae's picture

Herdee... How do you think that 'the company' funded it's private war in Laos while the US Gov was fighting a full blown war in Viet Nam?

IOWs... What makes you believe that the US Gov is receiving 'drug profits' from 'the company'? Unless you are inside 'the company', and at a very high level, you do not know what happens to drug profits...and, if you did know you certainly would not share that info with anyone unless you were tired of living.

You are also wrong about the 'real shadow banking system'... try reading the article and study the charts. TD has it right.

Wed, 08/15/2012 - 21:44 | 2708980 JR
JR's picture

Why is QE not working? All economies ultimately fail if dominated by central planners. After 100 years of pillaging by the Fed, the greatest economic miracle on earth has fallen to her knees. The Fed has created havoc with the economy’s price mechanism steering this great nation into economic serfdom and banker-controlled exploitation.

 “Central Banking directs the corporate pillaging of economies by blazing the political trails necessary for elites to stride above accountability. Before the Federal Reserve, the U.S. had suffered numerous economic downturns, but most of them were very short lived. The free market, left to operate without exploitation by governments or ultra-rich minorities, has an uncanny ability to right itself in due course. After the Federal Reserve was born, though, this natural ebb and flow ended. Within 20 years, the Great Depression arrived, lasting over a decade, after which, the U.S. dollar lost its gold backing, as well as most of its original strength and value. … The Fed has now created the potential for a hyper-inflationary collapse the likes of which could very well dwarf the Great Depression in destruction as well as duration..."  -- Building a Future Without the New World Order by Giordano Bruno (2010)

The magic of price!  Price establishes value—what, how much, where, when and who. No man, no central planner can do that. Price moves and creates product…because people establish the value, and, thus, the supply.  This is the mechanism--driven step by step by market and based on private property--that the central bank, the Fed, takes away. On purpose. The central bankers don’t intend to support the free market. They intend to subvert it. There’s no money in that for its cronies.

Distortion of market pricing by thwarting the people’s desire or ability to pay, creates want, unemployment, production failure, and, eventually, economic collapse. 

Martin Hutchinson said in “At What Point Does the Economy Stop Working?” that to see the economic effect  of non-market share pricing “we should look at the other extreme, the former Soviet bloc of economies, in which all prices were set by the state. It has since been remarked that the Soviet economic system only lasted as long as it did because the Western economies existed alongside it, so state price-setters had some idea of what prices should be in a market economy. Without a free market system to copy, their task would have been much more difficult, particularly for new goods such as computers…”

To minimize, rather than maximize, the role of the price mechanism in America, says Hutchinson, “if not corrected, will impose huge long-term costs on U.S. living standards.”

Hutchinson said that in 2009, and we are there...

Thu, 08/16/2012 - 00:57 | 2709336 bulldung
bulldung's picture

Basic Economics by Thomas Sowell does a great job of explaining the role of price and the harm of central planning.Thanks for your post.This is one of the most content rich threads I have read on ZH.I'll have to reread in the AM to get all the new comments.

Thu, 08/16/2012 - 07:43 | 2709570 Never One Roach
Never One Roach's picture

good post, JR.

Thu, 08/16/2012 - 08:33 | 2709633 Acet
Acet's picture

Why is QE not working?

Here's a little theory:

- Human social systems, just like the human body, are made up of several different components which are in balance and will adjust to external inputs by changing that balance until the influence of the input is cancelled.

For example:

- Cafeine influences the human body by increasing alertness. This happens because certain chemical receptors in the neurons are blocked by cafeine.

- When a person regularly consumes cafeine the body compensates for it by producing higher quantities of the chemicals which hit the receptors that cafeine blocks and even by increasing the number of those receptors. To get the same stimulant effect from cafeine as he/she had in the beginning, a person has to keep increasing the quantities of cafeine consumed.

- Thus the human body adjusts itself to eliminate the effects of cafeine. The end result of it is that, if a person that regularly takes cafeine stops taking the cafeine, his/her body, which had adjusted to a "cafeine rich environment" will now have an inbalance (i.e. too many of certain chemicals and too many receptors for them in that person's neurons), resulting in unpleasant side effects such as sleepiness and headaches until the body adjusts itself to the new situation (it takes about 1.5 weeks to get over cafeine withdrawal symptoms).

 

My point is that QE seems to be working in the same way in our economies:

- The first dose had the highest effect, but subsequent doses have lower and lower effects.

- The boost from QE is temporary. Some time after a shot of QE, it's effects are gone.

- If we stopped taking QE now, we would have to deal with the "withdrawal symptoms" which might be much worse that the original problem. Effectivelly the economy has become QE-addicted.

 

More in general, just like with cafeine, QE just covers up the problems caused by an unbalanced lifestyle, be it not sleeping enough (for cafeine) or an increase in debt that is faster than the increase in producivity (for QE).

 

Wed, 08/15/2012 - 21:49 | 2708984 Yen Cross
Yen Cross's picture

 Quantitative easing, is/was designed to assist recovering economies. This demented form of liquidity, in a debt ridden, contracting GLOBAL GDP, is sheer idiocy!

 Several smart Z/H posters and Tyler have clearly stated, the only answer is a global writedown of debt. Demand can't be forced down the ( global) economic throat! The world is in a state of " OVER CAPACITY" . Quantitative easing causes INFLATION, which in turn reduces demand!

Wed, 08/15/2012 - 22:14 | 2709044 bobert
bobert's picture

Green arrow Yen.

Thanks for speaking out on something other than your fx strategies!

Wed, 08/15/2012 - 21:54 | 2708986 essence
essence's picture

So many of the Zerohedge commenters are so on top of things these days that I usually find little reason to join in. Yet I see even Tyler interjected into this article.  And Why not,   QE (money printing -- sorta) is the goto for the current regime.

Here's what I offer up for speculation concerning the prospects for a debt jublie versus hyperinflation versus Japan-like zombiehood.

The feral government is arming many of its internal organizations big time. Just this past few days we've seen unprecedented orders for arms & ammo going to the National Fisheries, EPA, Social Security .... along with a more than double down ammo order by the homeland gestapo (750 million more rounds to supplant the previous 450 million order).

Whoa, when fish wardens, EPA agents and Social Security clerks need to be heavily armed ... doesn't that shout out that the government soon expects a high probability of desperate people acting against any form of government they come up against?

This development doesn't do much for the debt jublie theory .. far as I see it.
The lengthy-Japan style experience for us?    ... can't see 'mericans exploding in wrath in that scenario.

The hyper-inflation theory ... perhaps. I can see mobs acting against government when their money is near worthless.

By the way, did you all happen to see Turds article for today? Essentially he hit again at the China gold backing its currency theory. That dovetails nicely with the theory of the USD going worthless enough to cause rioting--- and the obvious expectations of the US government (as evidenced by their current spending to Arm themselves heavily).

Follow the money (this would be YOUR money), especially when it's going to buy bullets for the US government). To be used ---INTERNALLY    (against YOU)!!!!

 

 

 

 

Wed, 08/15/2012 - 22:06 | 2709019 g speed
g speed's picture

IMHO its just channel stuffing for the arms sales guys --- lotsa bullets to sit in the crib at the armory. lotsa bullet sales to orgs that will never use them.

Thu, 08/16/2012 - 10:44 | 2710428 11th_hour
11th_hour's picture

They could achieve the same effect (increase sales and backdoor easing) by purchasing new data systems, office furniture upgrades, etc. But...they bought bullets. Think about it.

Wed, 08/15/2012 - 22:16 | 2709049 bobert
bobert's picture

And your source is whom?

Wed, 08/15/2012 - 22:42 | 2709109 Nadaclue
Nadaclue's picture

I guess you don't get out of the internet news sites much. Google any of the agencies he has listed and add ammunition. DHS has ordered 1.5 million rounds in two months. Mostly 40 cal, hollow points, the kind fer killin pepole.

Do the work, reap the reward.

Thu, 08/16/2012 - 07:11 | 2709543 Snidley Whipsnae
Snidley Whipsnae's picture

It's simple enough to find out if it's 'channel stuffing' or not. Simply go down to your local Wal Fart an check with the sporting goods clerk. Ask if he has popular cal ammo in stock.

This action on your part will constitute 'doing the work'... Not checking some web site for reports on gov agency ammo purchases that may or may not be true.

If retail outlets still have popular cals in stock then there is an excellent chance that the ammo manufacturers have not been overwhelmed with gov orders...and, the reverse is true.

Wed, 08/15/2012 - 22:46 | 2709115 Nadaclue
Nadaclue's picture

I saw TF's piece and I agree with you.I'm not sure they can pull off a global currency before they go boom in China.

China has a myriad of their own problems though. This piece is long and a lot of Chinese history but the heart of the matter is China is slowing very rapidly, and when it all goes to crap, he doesn't want to be in china and he tells why.

http://www.prospectmagazine.co.uk/politics/mark-kitto-youll-never-be-chi...

Thu, 08/16/2012 - 00:52 | 2709330 slewie the pi-rat
slewie the pi-rat's picture

I saw TF's piece and I agree with you.I'm not sure they can pull off a global currency before they go boom in China.

riiiight...

Thu, 08/16/2012 - 07:26 | 2709556 i-dog
i-dog's picture

 

"riiiight..."

I agree (for once ;) ... Now only 30—60 days to go, IMO, until "boom" (that's the sound of the farm gates slamming shut on the US iCrap Ranch, [probably] not accompanied by the sound of war). Then ... new paradigm.

Wed, 08/15/2012 - 23:04 | 2709149 bbucks
bbucks's picture

Maybe government is a bit afraid that when the deflationary collapse occurs and the sheeple realize that their deposits at the bank vaporized down a big, dark black hole John Corzine style that they may get pretty freakin angry, especially when they realize that their money wasn't placed in a lock box all these years.  Yep, I smell a deflationary collapse around the corner at the same time bombs will start going off in Iran.   

Wed, 08/15/2012 - 23:56 | 2709253 Whoahthere
Whoahthere's picture

You forgot the FED warning banks to prepare for financial collapse.  Fact.  Not conspiracy.

Thu, 08/16/2012 - 00:36 | 2709305 Arthur
Arthur's picture

Please provide documentation for your assertions.

Are you sure our commie, NRA hating president is arming up?

Thu, 08/16/2012 - 06:54 | 2709526 sudzee
sudzee's picture

DoD outa money. Funding the war machine by scrounging what they can from other dep't budgets?

Wed, 08/15/2012 - 21:58 | 2708990 ekm
ekm's picture

All QE does, is remove something tradeable from the market. QE actually leads to less volume.

 

Money can be created by the Fed only if the Fed buys something already existing.

- Fed buys bonds, hence less bonds available for trading, hence higher bond price, hence less volume

- Primary dealers buy stocks with Fed money, hence less stocks available for trading, hence higher stock price, hence less volume.

 

One must understand closed loop systems. Stocks and bonds have nowhere to go: Either be traded or be stored. Two options only.

If stored, not much to trade, traders get fired. No work for them.

If traded, price has to go down, supply/demand.

Hence, more QE would  mean less bonds  and stocks available for trading. It's counterintuitive, but more QE means less need for traders, hence wall street unemployment.

 

CONCLUSION: UNLESS S&P GOES DOWN TO AT LEAST 1150, NO QE. PERIOD.


Wed, 08/15/2012 - 22:08 | 2709032 Yen Cross
Yen Cross's picture

 Nice post EKM. Hope you're enjoying the summer.

Wed, 08/15/2012 - 22:22 | 2709060 ekm
ekm's picture

I am YEN CROSS. Thx a lot.

Every day is better than the previous day, regardless of what happens. This is my life.

 

How are you treating yourself?

Wed, 08/15/2012 - 22:34 | 2709092 Yen Cross
Yen Cross's picture

 Doing ok. Same as everyone else.  It's hot as hell right now! Thanks for asking :-)

Wed, 08/15/2012 - 22:21 | 2709059 Muppet Pimp
Muppet Pimp's picture

Now that China is a PD, where might their freshly printed Benny Bux wind up?

Wed, 08/15/2012 - 22:34 | 2709093 ekm
ekm's picture

The way I understand it, China is half PD. They can buy direct from Fed like a PD they CANNOT sell direct to the Fed, when they want to sell. They still have to sell them to the official PDs. Not completely sure. I haven't spent much time trying to discover what's happening in that regard.

Benny creates money when he buys from China, if China wants to sell via official PDs. As far as I know, Chinese corporations (all of them are state backed) are starving for dollars since most of their LEVERAGED bets are in USD. They are getting margin calls.

Hence, speculatively, China may sell some USTs to get dollars to meet margin calls for corporations.

Wed, 08/15/2012 - 21:57 | 2708995 oogs66
oogs66's picture

You had writers long ago who wrote about this, transmission mechanisms, too much focus on stock market instead of economy and now it's "breaking" news from citi?

Wed, 08/15/2012 - 22:54 | 2709126 Tyler Durden
Tyler Durden's picture

Perhaps you missed the first sentence where it said Citi finally agrees with our long-held view...

Thu, 08/16/2012 - 01:18 | 2709364 slewie the pi-rat
slewie the pi-rat's picture

i liked the last sentence of the main-page intro

Unless and until this $3.8 trillion 'shadow banking' hole is plugged, one thing is certain: risk is not going anywhere.

works for me in a dog-wag groundhogDay election-year-parade kinda way

<: ...& i would never tell tell paul & bill... :>

Thu, 08/16/2012 - 00:34 | 2709302 slewie the pi-rat
slewie the pi-rat's picture

fuking awesome oogs_666!

i think tyler gave you the greenie for addressing him w/ the proper attitude...?

anywho, you receive the smack-down0'TheDay award;  posthumously, of course

and here it is!

$4 Tril Hole - Miss World

Wed, 08/15/2012 - 23:39 | 2709211 Admiral Douchebag
Admiral Douchebag's picture

Steve Keen's "Roving Cavaliers of Credit" helped me understand some of the dynamics of credit money creation, and why QE is "pushing on string"

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

 

 

Wed, 08/15/2012 - 23:53 | 2709244 Bear
Bear's picture

QE may not be working, but no one told Mr. Market who still hopes for more

Thu, 08/16/2012 - 02:36 | 2709414 slewie the pi-rat
slewie the pi-rat's picture

since everyone agrees on what "mrMarket still hopes for" it must be true, riiiight?

dude or dudette:  where would mrMarket be IF he were simply happy the sytem hadn't blown yet?

what if:  the market is just showing appreciation for stability and keeping the checks in the mail? 

this is right where it would be, bear

mrMarket don't listen to nobody's bullshit but his own

still with the gold touts?  sounds like it!

Thu, 08/16/2012 - 00:30 | 2709294 Flakmeister
Flakmeister's picture

Peak oil is the event when free money cannot increase the oil supply....

The Bernank was hoping and praying that some-one could take those Bennie-Bux and find some new cheap oil like the North Slope and the North Sea.....

Sorry, Knockando...

Thu, 08/16/2012 - 00:40 | 2709304 Yen Cross
Yen Cross's picture

 I'm catching these China ( foreign direct investment) numbers.  Black hole-> worthless pot metal( investments) #'s

    The captcha on Q-4 GDP FROM THE Squid, and Morgue Stanley, bAc ä?

  This story has an end!

 

Thu, 08/16/2012 - 00:46 | 2709318 JR
JR's picture

Hyperinflation? John Williams says there’s no way now to avoid it. QE is to help prop up the still-impaired banking system, a private corporation owned by banks; that’s what it’s been all along, it was/is not to help the economy. Global confidence has been destroyed in the dollar. The Fed and Treasury kicked the can down the road to hold the banking system afloat; now we’re back at the can again. The economy has not recovered from the crash of December 2007; 2008 is a precursor to what’s ahead as the United States heads into crisis that will bring the system down as we know it. All actions that got us into crisis in 2008 have since accelerated the hyperinflation process that could break at anytime. It is now beyond their control. The good news: you can protect yourself.

John Williams of Shadowstats.com Interview: The Next Crash Will Be A Lot Worse!

Published on Jun 26, 2012 by usawatchdog

http://usawatchdog.com/ - Anyone who thinks the U.S. is in recovery should stop listening to the mainstream media and listen to John Williams. He heads up Shadowstats.com, and is one of the few economists who crunches the numbers to give unvarnished true statistics. Adjusted for real inflation of about 7%, Williams says, "GDP has plunged, and we have been bottom bouncing" ever since the financial crisis started. Williams says, "The next crash will be a lot worse (than 2008) because it will push us into the early stages of hyperinflation." He predicts this will happen "by the end of 2014" at the latest. Long before 2014, Shadowstats.com thinks there is a good chance of "panic selling of the U.S. dollar," if the Federal Reserve starts another round of money printing (QE3) to save the system and the big banks. No matter what Williams predicts, "There will eventually be a crisis to bring the system down as we know it. . . . We're on the brink." According to Williams, "at some point, you will see a new currency in the U.S." The founder of Shadowstats.com sat down for a one on one interview with Greg Hunter to talk about the mathematical certainty of a systemic collapse in the not-so-distant future.

http://www.youtube.com/watch?v=seBWlOMt2Tk

Thu, 08/16/2012 - 01:15 | 2709355 Yen Cross
Yen Cross's picture

 J.R. I didn't have a chance to comment on your previous posts   I always appreciate your thoughts.

Thu, 08/16/2012 - 08:01 | 2709595 Never One Roach
Never One Roach's picture

Shawdow Stats is on my top 10 'must reads' also.

Thu, 08/16/2012 - 01:10 | 2709358 mharry
mharry's picture

I don't ever comment on here, because I assume no one will see it. This comment section is the most active of all the websites I visit. You have to be watching it with an Algo computer or something, you guys are nuts. Anyhow, the premise of us not understanding the creation of money is supposed to be a slam against the average person? How can digitized money loaned to someone, loaned to someone else be explained? How can you owe somebody something that never existed? The originator just said it was so and pushed some buttons, they didn't have the dollar they were loaning in the first place. How can you owe someone something that doesn't and never has existed?

Thu, 08/16/2012 - 03:02 | 2709423 slewie the pi-rat
slewie the pi-rat's picture

if ya don't feel like ya belong here after over 2 months, and 10 posts, LEAVE (!)

Tue, 08/21/2012 - 01:08 | 2722851 mharry
mharry's picture

F you, that's not what I said.

Thu, 08/16/2012 - 06:55 | 2709528 blindman
blindman's picture

i think they call that economic slavery
or usury. there is a long history of it's criminal
application and it frequently went unreported
yet noticed by the victims.

Thu, 08/16/2012 - 08:45 | 2709658 Acet
Thu, 08/16/2012 - 03:04 | 2709428 EZYJET PILOT
EZYJET PILOT's picture

That 33 trillion in 2008 was backed by what though? The fact that shadow money is deflating is neither here nor there, it's just rehypothecated garbage. This whole shadow versus M2 scenario is a false narrative, the fact is both categories are worthless. We're seeing the trees again, not the wood. Stand back on the hill, look at the wood and realise that none of it has value, other than that given to it by middle class grind and man hours: tax payer money.

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