Jul 222013
 
 July 22, 2013  Posted by at 10:24 am Finance
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Ever wonder what Bernanke is saying? Well, it boils down to this: at the same time that Jimmy Carter says the US doesn't have a functioning democracy, Ben Bernanke says the US doesn't have a functioning economy.

Unfortunately, people understand what Carter says, though they may not agree with him, but they do not understand what Bernanke says, and that has nothing to do with agreeing with him or not. Moe likely it has something to do with the illusionary oracle qualities once attributed to his predecessor Alan Greenspan, whenever no-one had a clue what he was saying. In reality, Ben Bernanke will turn out to be the biggest scourge on American society since the same Alan Greenspan, but that's not how he's seen; instead, just like Greenspan, he's idolized. What's wrong with this picture is that Bernanke's words and actions are interpreted in the press exclusively by people who live in the part of society that stands to profit from them, let's call it "the financial world". That they are but a very small part of society easily gets lost in translation.

Greenspan was and still is mostly regarded as a miracle worker of super-human intelligence, even though he ran the US straight into the recession/depression/crisis we've now been witnessing since about the day when Bernanke took over the Fed, February 1 2006. Greenspan set the American economy firmly on the road to ruin through his support of the Glass-Steagall repeal and various tax-cuts, as well as his insistence that the newly blossoming derivatives trade needed little or no regulation. Certainly in hindsight, it should be obvious that Alan Greenspan served the interests of Wall Street, not Main Street.

All Ben Bernanke has done since succeeding the Oracle is continue where the former left off. Not that you would know it from the picture the media paint of him. Or the president, for that matter. Just about everyone agrees that he saved the US from something like a Great Recession II. In reality, what Bernanke has done over the past 6.5 years is being a prominent player in aiding and abetting Wall Street banks in hiding their losses through the violation of accounting standards, declaring them Too-Big-To-Fail, and then handing them trillions of dollars in public funds, most recently through QE programs, thus enabling them, the very same banks that would no longer exist without public funds, to once again play the casinos and come up with near record profits and bonuses.

This is the great little scheme that is presented to you through the media as "saving the US economy". It has done no such thing. It has been, and still is, enormously harmful to the economy. But as long as you continue to believe that what's good for Wall Street is also good for Main Street, the trick will continue to be played on you; Ben Bernanke is giving free money (well, actually, credit) away to those whose interests he represents, the banks, and taking it from those he doesn't, you. What Bernanke has saved is bankers' bonuses, not the economy. And if there is a direct correlation between the two, it's not the one you're being tempted to think it is. Which is how you should interpret Bernanke's insistence before Congress on July 17 that "We're very focused on Main Street": it may be true, but not in the way he wants you to believe it is.

Here's how Bernanke said the US doesn't have a functioning economy: by choosing to continue QE, he would reveal how weak the US financial system is. He already has, obviously, first by starting up QE in the first place, and again by his recent backpedaling on the conditions for tapering. The worst wet dream of the big banks is that they wouldn't get their black jack chips for free anymore, and they manage to convince everyone that the real economy would go down if they can no longer play. Regardless of the details: if it needs free money, the financial system can't stand on its own two legs.

By choosing to halt QE, on the other hand, Bernanke would reveal how weak the financial system is just as much. The slight rise in available credit that has allowed Americans to add yet more debt towards home and automobile purchases, giving the economy a fleetingly rosy glow in the process, would be over in a heartbeat. The banks would sit on their QE free excess reserve giveaways parked at the Fed even more than they already do. And then use it as security for more leveraged high-risk wagers. That's where the money is, not in consumer loans. Don't worry, says Ben, we'll keep interest rates low for the foreseeable future. Hossanah, sings the entire choir. But interest rates for whom? Only the big banks, that's for whom. Rates on the street, not so much: he has no control over those.

Here's an example of Bernanke's effect on Main Street: debt has been rising, not falling, since debt plunged the markets into that deep dark pit. A graph I picked up here at Zero Hedge:

 



The US may not look like the worst horse in the slaughterhouse, but in absolute numbers it probably is. Debt has risen by some 40% of GDP, and that does not yet include financial corporations and the Fed.

Is the new and additional debt at least put to good use for American society? The answer is a resounding "no". Just take a look at the diminishing productivity of debt in the US. Which, as is evident from these two graphs, will soon turn into negative territory, if it isn't already there.

 



 



The huge amounts of debt the Fed (and government) policies are adding will result in hardly any GDP growth. What does seem to be there in growth or recovery, moreover, comes from individuals taking on additional debt for home and automobile purchases. Bernanke, even if he would be trying to help Main Street, would be pushing on a string regardless. And I have no qualms about suggesting that he knows all this, which leads to one possible conclusion only: he is not trying. If he were, he'd adopt totally different policies. QE is not helping Main Street; it's killing it. Not today perhaps, but we should broaden our view beyond today, and consider what happens tomorrow.

Here's another example of how Bernanke is killing Main Street, courtesy of Chris Turner at Zero Hedge:

Savers And The 'Real' $10.8 Trillion Cost Of ZIRP

The good news behind the bottom 85% of close-to-retiree status Baby Boomers that participate in the “markets” via sub $50,000 retirement money is that at some point, the voters might actually get smart and get mad at how much money has been siphoned from them.  Consult the chart below to see a historical relationship between total savings and amount of interest income earned on the savings.

 


 

Note that prior to 2001, as savings increased (blue line), interest income received increased (red line) proportionally.  However, after 2001, the interest earned stopped increasing.  The green line shows the effective interest paid on interest bearing accounts.

Scaling into the shaded area representing 1986 to present, the following chart depicts the actual Fed Funds rate determined by FOMC.

 


As savings increased when Fed Funds rate remained around 5%, interest income continued to rise.  However, post 2001, the interest income received stopped growing at the same rate.  With the exception of 2005 to 2008 when rates went back to “normal” in the 5% range – the interest income earned has remained stable at just under 1 trillion (Ben Bernanke is so smart).

Let’s apply some thought experiments and make a couple calculations – what would happen if the FOMC were removed and the Fed Funds rate “floated?”  Using average historical rates from the 1920’s for the 10 year note– the mean rate would sit around 5.82%.  With a floating Fed Funds rate, banks would be competing for money and providing responsible savers with some interest income.  Voila, a calculation is borne:

 


 

By calculating the estimated interest income from historical ratios (orange shaded area), we can see that as of July 2013, approximate interest income would be just over 3 trillion (1/5th of GDP) on savings of 6.8 trillion (using the left scale).  Whereas the actual interest income reported by NIPA remained at 1.1 Trillion, the difference in interest received and lost interest equals roughly 2 Trillion.  Remember, this is interest income to SAVERS forever lost since 2001.  By aggregating the entire shaded orange area, SAVERS have missed out on a whopping 10.8 Trillion in earned interest usage. 

The final chart above makes a loud and clear statement toward the beneficiaries of the low interest rate environment.

"Very focused on Main Street" indeed. It's where (through QE) newly found and fangled bank profits come from. As per the very first – Change in Debt – graph, household debt has gone down (though that's largely due to falling real estate prices, in other words, a double edged coin), but so have savings. And not a little bit either. Americans lost $10.8 trillion. And counting.

So how does the Oracle 2.0 explain it all? From Bloomberg, July 10:

Bernanke Supports Continuing Stimulus Amid Debate Over QE

"Highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy," Bernanke said yesterday in response to a question after a speech in Cambridge, Massachusetts.

The numbers don't add up to that. If it's what's needed for the economy, that economy is in very bad shape, and has been for a long time despite the same highly accommodative monetary policy. If the economy is the goal, it makes no sense to keep going or even double down. What Bernanke's saying he's aiming for is not what's needed for the economy, but for the financial system.

…….. the minutes showed many Fed officials wanted to see more signs employment is improving before backing a trim to bond purchases known as quantitative easing.

The fear of course is that the very moment they ease bond purchases, stock markets plummet and, with a short lag, unemployment will start rising again. Any positive effect of QE on employment is not backed up by numbers, other than people believing the illusion that it makes the economy better. But that's a fleeting illusion which depends on both their belief and continuing QE. Take either of the two away and you're holding an empty bag.

Bernanke said the central bank is trying to communicate its plans for two different policy tools. With bond purchases, the Fed is "trying to achieve a substantial improvement in the outlook for the labor market in the context of price stability. We’ve made progress on that but we still have further to go," he said.

The Fed wields another policy tool with its benchmark interest rate, which it reduced to close to zero in December 2008. Officials have said they won’t consider raising the main interest rate until the unemployment rate falls to 6.5 percent, as long as long-term inflation expectations don’t exceed 2.5 percent.

We're approaching nonsense territory here. We've already seen that years of low interest rates and bond purchases have not raised the velocity of money in the US economy. For the US economy and labor market, QE has been a total and unmitigated disaster, and a hugely expensive one to boot. For the financial system, though, it's been an unbelievable behemoth of a windfall.

Sure, unemployment has fallen a little, because most people still believe that a higher stock market is positive for the economy. But if it rises only if and when promises are issued for more and continuing free giveaways for the banking sector, that can then remain in accounts with the Fed and not get into the real economy, then a higher stock market is perhaps a symptom of an increasingly sick economy, not a healing one. It's like banks announcing great profits, that directly reflect nothing but those same giveaways. A profit would seem to indicate something has been sold for more than was paid for it, because of added value. That is obviously not the case here. Without free credit, there would be no "profits" in the banking sector.

"It may well be sometime after we hit 6.5 percent before rates reach any significant level," Bernanke said. "So again, the overall message is accommodation."

Well, no. If and when only, at best, one in every 7 dollars in QE has any influence on the real economy at all (the estimate is 86% is in banks' reserve accounts with the Fed), then QE is a failed policy. From the perspective of the economy, at least. For the banking sector, it's an entirely different story. People keep on thinking that what is good for the banking sector is good for the economy as a whole, but the recent graphs prove that this is not true. That should be end of story for QE, but Bernanke's oracle talk apparently still is too convincing; the general optimism bias trumps reality. Bernanke claims he's accommodating the economy, but he's not, he accommodates Wall Street.

The 59-year-old Fed chief said the FOMC may opt to hold interest rates near zero even after unemployment reaches 6.5 percent due to the possibility of low inflation.

And, apparently, he'll keep on accomodating Wall Street, even if enough waitressing, greeting and flipping jobs that don't pay enough to feed yourself let alone your family, but still count towards official jobs numbers, can be created to lower the unemployment rate to 6.5%. Why? Deflation. Or as he euphemistically calls it: low inflation. Bernanke paves the way for endless QE (breaking his own former promises, but he's leaving anyway). Why endless QE? Because without it, the US banking sector AND economy would collapse in a heartbeat. That's what it means when markets rise as fast as they do just because Bearded Ben announced what he did. It means there are no other prospects for profits. Or that the banks don't have to go looking for other prospects as long as the free stuff keeps flowing in.

Now, whatever powers one may think they do have, it should be clear that Bernanke and the Fed have no control over : 1) Treasury yields and 2) Velocity of money. As for the first, Ambrose Evans-Pritchard has some numbers:

Can the world cope with a trigger-happy Fed?

After weeks of utter confusion, the result of Fed taper talk is clear enough. Long-term borrowing rates are much higher across the world regardless whether the underlying economies are in any fit condition to absorb this shock. The rise in 10-year sovereign yields by basis points has been: Japan (25), Germany (35), France (62), UK (63), Norway (63), Australia (66), Korea (66), Spain (70), US (70), Italy (74), Poland (120), Mexico (122), Turkey (131), Brazil (135), and Indonesia (170).

As you can see, the emerging market bloc has suffered the worst hit, especially those countries caught when the tide went out with big current account deficits – the CADs as they are called in the trade. Basically, the whole world has just suffered a credit shock, even as the global economy weakens and the IMF downgrades its forecasts. What a mess.

A rate rise of 70 basis points or more is nothing short of catastrophic for Italy, Spain, Portugal, all in the grip of nominal GDP contraction, and all at risk of surging debt ratios as the denominator effect does its worst. The ECB must take action immediately to offset this "passive" tightening.

Can the US deal with higher yields on 10-year Treasuries? Well, better than Spain and Italy, obviously, but when yields are higher than real GDP (nominal+inflation, perhaps some 2.5% combined today), debt continues to rise. Yields are there already. Add a little deflation and what will the Fed do? QE on steroids probably, a.k.a. more debt. As Ambrose put it:

What struck me about Bernanke's testimony was his comment that the Fed would have to monitor the risk of "outright deflation" closely. "If needed, the Committee would be prepared to employ all of its tools, including an increase the pace of purchases for a time", he said.

The US will be the least worst horse in the glue factory, but only by the grace of Europe, Japan and China doing even worse. That will not save it from a combination of rising yields and falling inflation and GDP growth, however. And that is a lethal combination.

No risk of deflation, you think? Ben Bernanke does:

Bernanke Says Fed Bond Purchases Not on 'Preset Course'

Some sources of declining inflation "are likely to be transitory" and expectations for future price increases "have generally remained stable," he said in his prepared remarks. At the same time, "very low inflation poses risks to economic performance – for example, by raising the real cost of capital investment – and increases the risk of outright deflation." [..]

[..] Bernanke said in his testimony the Fed could keep buying bonds for longer if "financial conditions – which have tightened recently – were judged to be insufficiently accommodative to allow us to attain our mandated objectives." Responding to a question, he said the policy makers have succeeded in reducing market volatility that has greeted the Fed’s discussion of tapering. "Markets are beginning to understand our message, and the volatility has obviously moderated," he said.

Well, no. Volatility fell because of the promise of more free money. And that's all she wrote.

Policy makers have tried to assure investors that the Fed will hold down the benchmark interest rate after ending bond buying.

Well, no again. Chances are very real that when the Fed ends its bond buying, yields will rise so fast the Fed will lose control of the benchmark rate.

As for No. 2 above, the Velocity of Money, here's once again my favorite graph so far this year. It's so important in understanding the American economy today, one can't repeat it often enough:

 



Money isn't going anywhere in America. The banks sit pretty on their QE excess reserves, and the little that consumers do spend is what they can borrow. The velocity of money is a crucial element in any true understanding of what inflation really is, and this graph screams deflation. To which Bernanke (or his successor) will react with QE on steroids, but as we can see, that won't help Main Street one bit. It’ll help Wall Street, though …..

Everyone in America who doesn't work on Wall Street should be very worried when stock markets go up as soon as Ben Bernanke suggests more free credit is available for the world's biggest banks, because everyone who doesn't work on Wall Street will end up paying for it. Instead, everybody's celebrating it. Still, all it is, is a clear and simple sign that the markets are not well. At all.

Americans should demand that Bernanke discuss how he intends to speed up the velocity of money. This should be his no. 1 priority, because without it there will be no recovery, but he doesn't even mention it.

Wall Street banks post huge profits again, and pay huge bonuses. Does that mean they're healthy? No, it doesn't. It only means that they can use excess reserves provided by Bernanke's QE to increase high-risk wagers. Take away QE and then you'll see how healthy they are. And it goes, of course, one step further: Banks can (and will if there's a profit in it) take the advantages provided by the QE excess reserves and use them to bet against exactly what Bernanke purports to aspire to for the real economy. And he'll play innocent, like he never could have seen that coming.

I'm not saying that Bernanke wouldn't like to help out Main Street as well, I'm just saying that it's not his priority, and that he'll gladly help out Wall Street at the cost of Main Street. And will gladly lie about it too.

Ben Bernanke has spent 6 years and change dragging America deeper into the debt swamp, and just about everyone thinks he's brilliant. He must be quite the magician indeed. But as Chris Turner says above: The good news [..] is that at some point, the voters might actually get smart and get mad at how much money has been siphoned from them.

 

Photo top: Marjory Collins "Service station in Mechanicsville, Md." July 1942

Last but not least: a wonderful podcast interview featuring Nicole Foss at From Alpha to Omega:

 


Home Forums What Ben Bernanke Is Really Saying

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July 22, 2013 at 10:24 am #8369

Raúl Ilargi Meijer

Ever wonder what Bernanke is saying? Well, it boils down to this: at the same time that Jimmy Carter says the US doesn't have a functioning democr
[See the full post at: What Ben Bernanke Is Really Saying]

July 22, 2013 at 7:23 pm #7993

Ken Barrows

That’s going out on a limb saying that the end of QE leads to disaster. I think big banks realize that the Fed may pull the plug when it feels right. They also realize, though, the QE can come back if needed. The backstop is there, always. It’s only not there if inflation rears its ugly head. And that’s not happening. Now if the price of oil gets out of hand, then things will get interesting.

QE is a huge redistribution program, but I don’t think it’s really siphoning funds from the 99%. It’s overpaying for the collateral and giving the 1% a greater proportion of claims to wealth, which neither the Fed nor most of us creates.

July 23, 2013 at 12:00 am #7994

p01

What Bernanke is really saying 😆 :

July 23, 2013 at 1:15 am #7995

Professorlocknload

Ilargi, excellent run down on the mess our great men have made. Thanks!

Seems Central Planners profess to know more than all the markets and market players.

First there was TARP. QE is the second phase. 200,000 tons of $100 notes, in 3 wire bales, falling from the sky, accompanied by a $25,000 tax rebate, is the last. (Or something as absurd…new currency, devaluing the old at 2 to 1?)

Humm, and I remember when I was called “off Balance” for suggesting the Fed would buy MBS trash?

In between, expect manipulation of public perception, extraordinaire. At all costs, these Machiavellian Princes must keep natural Human Action at bay.

First of all, the very numbers the “authorities” are using as targets are phony. Mandating 2.5 % “inflation” (CPI?) using an index that is concocted and tweaked in house, is nuts.

Not to mention the maniacal suggestion that inflation (devaluation of the currency) is what the economy “needs.”

Then, targeting unemployment, in an environment where there is rapid decline in workforce participation, coupled with underemployment, is deceitful at best. Hell, just instruct Social Security to issue Disability grants to all who are not working, and unemployment falls like a rock.

Imagine using GDP as a target, then simply start a war and voila, target bulls eye. Forget the Broken Window Fallacy, it’s the missile and tank production used to achieve such goals that count. Besides, all the broken windows will be “theirs” “over there.”

Goal Seekers, all!

Maybe they should take over engineering the outcome of each game in the NFL, if they’re really that good at micro-management 😛

July 23, 2013 at 1:28 am #7996

toktomi

I just had the same thoughts a day or so ago, what Bernanke is really saying.

I had about the same title but slightly different words to go with it.

What I hear Bernanke saying is this:

We don’t know what we are going to do in the near term regarding QE and, perhaps, to a lesser degree interest rates. There are a number of critical processes that are maturing and nearing completion. The exact schedules of these processes are impossible to predict at this point. If these projects do not progress as expeditiously as intended, then tapering will not be implemented as quickly as was intimated.

If, however, as very likely may be the case, certain projects are completed without additional delays, tapering will begin as previously described. It is expected that the markets will respond in a more orderly manner having been previously introduced to the the possibility. It would be disastrous to begin tapering QE without it having been previously introduced.

In other words, maybe the Fed will begin tapering and maybe it won’t. It depends of a number of very big factors. You’ve been notified.

As an aside, from my point of view, anyone that believes that the Fed is inept and has not been doing a Herculean job of maintaining the growthless, dying global economy by administering extraordinary financial life support has not been paying attention. What Ben is saying now is that the Fed may begin the withdrawal of that life support as early as “late this year”.

Well, there’s my WAG.

July 23, 2013 at 1:48 am #7997

p01

This is what Bernanke is REALLY saying 😆

July 23, 2013 at 6:55 am #7998

rapier

In 07 as some Mortgage Backed Securities started to blow up I imagined that every night Bernake would go home and curl up in a fetal position. I am sure he didn’t of course. Fully confidence in the Feds ability to instill confidence with liquidity, from which all good things economic growth wise would follow. Some are now suggesting he has lost faith but I am not so sure.

We can be sure his replacement will have the faith, otherwise they won’t take the job. Those possessing the requisite faith for the most part have to be considered dumb. The rest, Larry Summers, are so full of ego and hubris nothing will alter their faith.

July 23, 2013 at 9:49 am #7999

toktomi

p01 post=7730 wrote: This is what Bernanke is REALLY saying 😆
http://youtu.be/R-tgpzixe3M?t=56m6s

Well, ya, that is the subject matter, I reckon, but the message is slightly different in that this time it will be an orchestrated event with lifeboats for the very privileged few, eh?

July 23, 2013 at 9:51 am #8000

toktomi

rapier post=7731 wrote:
We can be sure his replacement will have the faith,

I am having difficulty in seeing that far down the road.

July 23, 2013 at 12:10 pm #8001

davefairtex

I’m in relatively complete agreement with everything Ilargi is saying. Bernanke would be happy to help main street if he could – but he works for the banks, and so that is who gets the love.

For a good chunk of the move up it has been about improving earnings driving equity market prices higher. However at this moment, with companies disappointing on earnings and top-line sales numbers dropping, it seems clear that QE and the promise of more to come is responsible for continued upward movement, and as Ilargi suggests sucking volatility out along the way. The VIX (the “volatility index”) is currently down around 12, values common during the period 2004-2006.

John Hussman thinks this equity market behavior is primarily a faith-based self fulfilling prophecy trade; his thesis being, people think QE causes stock prices to rise, therefore, they rise because people buy because QE is happening. Converse is also true; the absence of QE or these days, even TALK about QE slowing down is enough to cause the market to drop.

The day will come when the promise of the current level of QE is no longer able to encourage the faithful to bid up equity prices. Once this occurs, it is likely that the jig will be up, and we will see a brisk correction no matter what Bernanke says. I have no idea what will trigger this; perhaps its a economic shock that happens in spite of Fed bond buying, due to currency market moves or interest rate moves, etc. Perhaps the end of the current housing mini-bubble. There are lots of candidates.

As for when this happens, who can say? We can only watch market prices and let them tell us. Hussman also suggests that during conditions like this, which he calls overvalued, overbought and overbullish, topping can be a long multi-month process with each rally back up to the peak increasing the complacency for the longs (and frustration for the shorts).

John’s article here

July 23, 2013 at 1:28 pm #8003

TonyPrep

Sorry about the off-topic but, from the podcast, I see that Nicole has finally gotten away from New Zealand. I’ve been waiting for her last talk in Auckland (just up the road) TBA but I see that won’t happen now. 🙂 Could you delete the details about the A/NZ tour? Thanks.

July 23, 2013 at 2:13 pm #8004

TonyPrep

Nicole said, in the podcast, that oil prices are going to crash. Really? Natural gas prices crashed in the US, because of shale gas hype but I don’t think they crashed around the world. Oil is much more transportable than natural gas and there is a much narrower band for the price of similar grade oil around the world than there is for natural gas. We’ve had shale oil hype for long enough now, and with a real rise in US output, that we can see the effect it will have on oil prices. It may be that oil prices would have been higher without all the hype but I very much doubt a crash in prices now, purely because of shale oil hype.

July 23, 2013 at 5:34 pm #8005

Golden Oxen

It would seem Ilargi that you have acknowledged the effect of QE on creating a stock market orgy and finally concede that it might continue for a while longer. May I suggest that much of the rally in Gold was related to such endeavors as well, and we shall witness another bull run in the precious yellow as a result of the recent blabberings from the Princeton scholar. Just a guess of course; reality could always appear at any moment.

By the way, any ideas on what buffoonery we might hear from a Janet Yellen, or Summers?
Sorry I even mentioned it, have to run out and acquire more Gold and silver at just the mention of those two.

July 23, 2013 at 6:54 pm #8007

FrankRichards

I agree. I admit to being wrong. What I thought was a 2 year horizon from the fall of ’07 is now at 6 and counting.

I am still extremely concerned, and this fall looks to be another minefield for the financial system. However, my best guess is now for a slow motion trainwreck kind of collapse, kind of like the Roman Empire except in decades rather than centuries. This calls for a significantly different set of preps for my declining years.

TAE started out looking at a 2 to 5 year, 7 at the very most, denoument. And it hasn’t happened.

I strongly suggest that I&S would do themselves as well as their readers a great favor by sitting down, looking at what did and didn’t happen, and coming up with a revised guess at the next decade or so.

July 23, 2013 at 7:18 pm #8008

ted

I too thought the crash would be sooner somewhere in 2012 but I was wrong as well…still I am amazed if we will get through 13′ without any crash…Natural gas is climbing up oil is climbing up both lead to inflation…Also why is the dollar not any stronger against other currencies like the Euro, if it is the last horse in the glue factory….

July 23, 2013 at 7:24 pm #8009

Raúl Ilargi Meijer

We have long since conceded that we underestimated the extent to which people would take abuse lying down, so why should we address that yet another time? I think we have made clear enough we’re not here to help people make money, but to prevent them from losing even more.

As for advice for the next decade – and beyond -, it hasn’t changed. The only sensible thing to do still is to try to get out of the way of the storm, and certainly not to think that you can now feel safe to play the game a bit longer.

What’s positive about the prolonged Wile E. moment (and it isn’t anything else) is that it allows a few more people a bit more time to get out of the way with grace. I say a few more people because the majority will not listen no matter what we say.

If you understand to what extent Bernanke et al. are driving your children into debt, how can you not do all you can to make sure they will be able to take care of themselves, that they will have access to basic necessities? You’re not going to do that with gold or silver or stocks, it’s going to take a whole different sort of investment.

July 23, 2013 at 8:50 pm #8010

p01

The only ones taking abuse were those who did not take on any debt during this period. The rest, at least did have some fun. The fact that we artificially stayed at the top for this long all but guarantees that even those who did not take on any debt will not have a chance because the crash will be much too profound. Personally I’m not blaming anyone else, because I had the same frame of mind, but now I don’t see any good coming out of it, even for those without debt and with some cash/treasuries/gold/whatever stashed away from the system.
The road ahead starts looking like “The Road”, or like those guys from Easter Island cutting the last tree, because, well, it did not matter anymore.
Oh, well…it was the only thing to try and hope for, but I’m afraid it won’t help anymore.

July 23, 2013 at 10:01 pm #8011

Variable81

“The Road”

Well, here’s to hoping you’re wrong p01…
That’s about as depressing as it gets.

July 23, 2013 at 11:04 pm #8012

jal

We do not need to believe the central bankers. We can access and verify almost all information.

There have always been controllers and manipulators/scammers of the financial systems.

When was the last time you used carbon paper?

Computers and the web are the modern version of carbon paper for dissimilating information.

Here are some basic info., from wiki., that anyone can access.

http://en.wikipedia.org/wiki/Asymmetric_information

Information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. In contrast to neo-classical economics which assumes perfect information, this is about “What We Don’t Know”.[1] This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure in the worst case. Examples of this problem are adverse selection,[2] moral hazard, and information monopoly.[3] Most commonly, information asymmetries are studied in the context of principal–agent problems. Information asymmetry causes misinforming and is essential in every communication process.
Several Nobel Prizes in Economics have been awarded for analyses of market failures due to asymmetric information.

http://en.wikipedia.org/wiki/Credit_(finance)

Consumer debt can be defined as ‘money, goods or services provided to an individual in lieu of payment.’ Common forms of consumer credit include credit cards, store cards, motor (auto) finance, personal loans (installment loans), consumer lines of credit, retail loans (retail installment loans) and mortgages.

http://en.wikipedia.org/wiki/Money

A failed monetary policy can have significant detrimental effects on an economy and the society that depends on it. These include hyperinflation, stagflation, recession, high unemployment, shortages of imported goods, inability to export goods, and even total monetary collapse and the adoption of a much less efficient barter economy.

The control of the amount of money in the economy is known as monetary policy. Monetary policy is the process by which a government, central bank, or monetary authority manages the money supply to achieve specific goals. Usually the goal of monetary policy is to accommodate economic growth in an environment of stable prices.

In the US, the Federal Reserve is responsible for controlling the money supply, while in the Euro area the respective institution is the European Central Bank. Other central banks with significant impact on global finances are the Bank of Japan, People’s Bank of China and the Bank of England.

Governments and central banks have taken both regulatory and free market approaches to monetary policy.

http://en.wikipedia.org/wiki/Federal_Reserve_System#Central_banking_in_the_United_States

When the shit hit the fan … the rules and guide lines were the first to go.

So here we are today. The system is still operating.

The road ahead starts looking like “The Road”, or like those guys from Easter Island cutting the last tree, because, well, it did not matter anymore. Oh, well…it was the only thing to try and hope for, but I’m afraid it won’t help anymore.

Here hope for you.

Find social structures that are operating without using the banking system.
(cough, cough … the poor in every country)

July 23, 2013 at 11:26 pm #8013

ted

I don’t think Ben is doing this on purpose…I think he really does believe he is helping the system…his son has a huge college debt to repay and he does have family. To think all his actions a of a dubious nature gives him more credit and dis credit for that matter. If he really knew what he was doing I think he would have stopped a long time ago…but then again what choice did he have..? He thought he was saving the system not realizing that the system is morphing into something else..

July 24, 2013 at 12:10 am #8014

backwardsevolution

Ken Barrows – “QE is a huge redistribution program, but I don’t think it’s really siphoning funds from the 99%.”

Did you even read the article? As Ilargi said, if interest rates were allowed to “float,” we’d have a whole different ball game, wouldn’t we? Bernanke IS siphoning funds from all those who have savings. That is a fact.

And how about the money the banks end up getting in the “fair” (ha!) trade for their MBS? It’s not all sitting in reserves. It’s being used to juice up the stock market, allowing all of the elite to get their money out at high prices.

The banks (Morgan Stanley, Goldman, J.P. Morgan) are also hoarding commodities (aluminum, copper) in huge warehouses, driving up prices and, yes, that is siphoning funds from the 99%. (And they’re doing the same thing with oil).

Bernanke has put a bottom under house prices (got to keep those assets up). The insolvent banks (which should have gone tits up) were able to, with the help of FASB, hold inventory off the market, skewing supply and demand.

So if it’s “going out on a limb saying that the end of QE leads to disaster,” how about we give it a try. What do you think they know that you don’t?

July 24, 2013 at 12:24 am #8015

backwardsevolution

Ted – “If he really knew what he was doing I think he would have stopped a long time ago…but then again what choice did he have..? He thought he was saving the system not realizing that the system is morphing into something else.”

You assume he doesn’t know what he’s doing, using words such as “he thought”, “not realizing”. But what if he DOES know what he’s doing? What if this has all been done on purpose? Can you wrap your mind around that?

He works for the banks, Ted. If some of us happen to benefit from his policies, purely as a side effect, that’s all good with him, but that’s not his primary goal.

This is why he’s able to continue – because too many people give him the benefit of the doubt. And they’ll continue to do this until it’s too late.

July 24, 2013 at 2:09 am #8017

OldEngineer

I’ve followed TAE for a while now, but first post:

From the standpoint of almost total ignorance, I’m having trouble interpreting exactly what we’re being told by the Velocity of M2 / Monetary Base graph, although it looks very dramatic. The L.H vertical axis is marked ‘Ratio’ (range 1.5 – 2.2). Ratio of what to what?

I read that GDP = Money supply x Velocity, so can it be that ‘velocity’ of a particular category of money supply is estimated by measuring the ratio of GDP to the total amount in circulation? If so, I imagine that the rapid fall in the ‘Ratio’ trace towards the end has more to do with the rapidly expanding money supply number than a fall in GDP. But then I read that, out of the 3.5-fold increase in the monetary base from $800+ billion to $3 trillion in the last 5 years, only about 14% of that additional amount found its way into circulation, the rest presumably staying hidden away in deposits.

So is the ‘money supply’ figure used in these calculations based on the raw number (i.e. currently $3T), or is the relatively small ‘M2 in circulation’ number used? Any guidance on the subject gratefully received.

July 24, 2013 at 4:18 am #8018

Ken Barrows

backwardsevolution,

I think we’re talking about the same thing here. I guess I differed with “siphoning off” because I think what the Fed does is a little different from government spending favoring certain groups. Deficit spending doesn’t create something from nothing: you got to sell the bonds to raise the cash. The Fed does create something from nothing.

But you’re right, it is not very different in the end. That’s why I mentioned QE as a “redistribution program,” as much money on the War on Poverty or for defense contractors. Indeed, we’ll eventually see what happens when QE ends. I suspect, though, that it is a “permanent” policy tool until society collapses.

July 24, 2013 at 9:26 am #8019

ted

Backwards evolution……did you read the article? It is already too late…the train has left the station…the question is not if the crash will occur it is when. But I don’t subscribe to the theory that the “government is out to get us all” ….I think you give them too much credit….they are not the brightest of the brightest out there, otherwise they would not want to be the captain of a sinking ship…people believe what they want to believe and they don’t want to hear that there is a huge problem coming….

July 24, 2013 at 12:03 pm #8020

Raúl Ilargi Meijer

OldE,

The money supply is not rapidly expanding (M1, or narrow money, is plunging, M2 rises somewhat). The monetary base is. They’re not the same. A useful table to tell M1 from M2, MZM etc. is available here at Wikipedia.

As I wrote in QE, The Velocity of Money And Dislocated Gold (see graphs there):

“The monetary base is the sum of currency circulating in the public and commercial banks’ reserves with the central bank. The money supply – money stock -, on the other hand, is the sum of currency circulating in the public and non-bank deposits with commercial banks”

In other words, the monetary base includes a lot of “money” that doesn’t count towards money supply, since it is not available for circulation.

The ratio used for the velocity of money is, simplefied, GDP/money supply. This is very crude, though, I would specifically include aggregrate transactions, for something like this:

V = ( P * Q ) / M

V = money velocity,
P = aggregate price level,
Q = aggregate quantity of goods and services,
M = money supply

Or you can say:

M * V = P * Q;

Note: P * Q equals nominal GDP.

That makes it much clearer that the aggregate quantity of goods and services (Q) is a determining factor.

July 24, 2013 at 3:51 pm #8021

Raúl Ilargi Meijer

Declining velocity of money in action:

Richmond Fed Index Shows Mammoth Fall In Retail Sales

Retail sales contracted this month, leaving the index at −22, twenty-three points below last month’s reading. Sales of big-ticket items declined slightly, while shopper traffic dwindled. The index for big-ticket sales slipped to −5, a point lower than the June reading, while the index for shopper traffic tumbled twenty-two points to −16. Inventories declined more slowly than last month, with that index settling at −12 compared to −22. Retailers were doubtful about sales in the next six months; the expectations index dropped to −29 from June’s reading of 11.

July 24, 2013 at 4:07 pm #8022

OldEngineer

Ilargi,

Thanks for your prompt response.

It sounds from what you say that the numerator and denominator used for the calculation of the M2V curve in the graph may not be as simple as nominal GDP and M2 values. But, as US GDP has increased by about 80% since the M2V peak around 1997/8, I take that to mean that some measure of M2 has increased by about 150% in the same period, much of that post-2008.

It will be interesting to see where the curve goes from here!

July 24, 2013 at 5:07 pm #8024

SteveB

“By aggregating the entire shaded orange area, SAVERS have missed out on a whopping 10.8 Trillion in earned interest usage.”

That’s not necessarily a bad thing, and is probably a good thing considering the environmental impacts of consumption. The “missed out” framing is specious when viewed in that context.

So (before we further distracted) what’s the real concern?

July 24, 2013 at 5:33 pm #8026

Raúl Ilargi Meijer

Maybe a bit more than 150%:

July 25, 2013 at 4:10 pm #8029

Nassim

OldEngineer,

I like to think of it as being a bit like the lake behind a dam. When this water does not go downhill through the turbines, it counts for little. The power released when it goes downhill is proportional to the volume per second multiplied by the height it drops.

Right now, the bankers are making sure that little of it goes through the turbines. One day, the water might find a path through the dam wall – and only then will we have hyperinflation.

July 25, 2013 at 10:44 pm #8032

Professorlocknload

What the Fed is really [strike]saying[/strike] doing.

At a controlled burn for now, until the wind comes up…http://www.zerohedge.com/news/2013-07-25/whats-inflation

Don’t need calculus to figure out less groceries go in the basket and less fuel in the tank on a c-note these days.

Political math wonkery and economist bafflry aside, all J6P understands is ever rising costs, but he is locked down by phony .gov CPI illusions (read manipulations), unless he is in gumnut or a protected sector of it.

Could be, a combo package of devaluation and jubilee are in the works. For sure, the former goes without saying. The latter will be a bone thrown for political purposes. Atlas (the conventional saver) is just odd man out.

Seems the catbird seat here might be leveraged to the max or all-in invisible assets, or both. Maybe equally, to make the “hypothetical” balance sheet read zero?

As the .gov’s of the world crack down on rational behavior, it’s going to get interesting.

August 1, 2013 at 2:07 am #8063

Gravity

Soylent green shoots are still made from people.

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