QE has now become a permanent part of the financial landscape of the United States

MK: Jim Rickards comments are a ‘must read’ these days for those of us who are economics, markets and finance junkies. The first part of this piece covers the QE stuff – and then he gets into; “It is difficult to know the exact maturity structure of all of the notes and bonds” stuff. This is where it gets really interesting. The best way I have to attach an analogy is to imagine the Fed eating a porcupine in the act of expanding its balance sheet. Now imagine the Fed trying to pull the porcupine out – from the same direction it went in. Not a pretty picture. The lie given by Ben B. on the 60 Minutes show is that he can reverse ‘easing’ in 15 minutes and begin ‘tightening.’ But as Rickards keeps hammering home, it’s simply absurd, given the structure of the debt involved to think this is possible. The conclusion is that the Fed is so confident about reversing itself because it plans to NEVER do anything but more QE. Forget ‘fractional reserve banking.’ We’re talking ‘virtual reserve banking.’ Imagine if Zynga and Farmville ran the Fed and you get the idea. As long as there are elections in the universe to monetize and call ‘money’ the Fed’s balance sheet will continue to expand just like the universe itself.

62 thoughts on “QE has now become a permanent part of the financial landscape of the United States”

  3. Fibon11235

    Its scary stuff there is no way out all the way. I keep thinking of Argentina and those women banging pots.

    From what iv read and understand I cant see any other way either you simply cant cut government enough to make any difference. Nope its to infinity. Its going to get a bit rough, something to do with long term bonds loosing viability with all the printing.

  6. Lynne

    This has happened before in history. It was a disaster last time and it will be this time. Max (I think it was Max) recommended the book, “When Money Dies” some time ago. My entire family has now read it. It really shows what hyperinflation is like and how governments respond by printing more and more. Something which I found particularly interesting was that people did not demand a stable currency, but higher wages (which of course led to more printing.) Britain will resume printing soon, I feel sure. Meanwhile, the press (media press, not printing press!) stirs up petty jealousies between groups of people (this too happened in Germany, according to the book.)

  9. MirrorMirror

    @Happy … yes, she and others were reckoning that March 15th +/- 1 week could be critical.

  10. Youri Carma

    They can’t stop QE otherwise the economy will implode. They know that so they will continue with QE in one form or another.

  11. MirrorMirror

    Latest EQ … 4.8 just off Chile 35 Km. deep

    Surrounding Australia : 4.3 5.1 4.7 .. towards the S.Pole : 5.8 4.9
    Russia 4.5

    Looking over the past 14 days, the Earth is covered in large EQs … on the Tectonic Plates and Fault Lines of course.

    FWIW

  12. Happy Dick

    @MM ZeroHedge:

    Nuclear Expert: “Fukushima Has 24 Hours To Avoid A Core Meltdown Scenario”

    The article mentions “Three Mile Island” … I lived 80 miles from that in 1979, it was VERY tense round here. I still think they bled some steam radioactive pressure off that core to buy time and avoid the meltdown.

  13. Happy Dick

    @Youri … “They can’t stop QE otherwise the economy will implode. ”

    Talk about meltdowns … this would wipe majority of most everyones wealth.

  16. Youri Carma

    @Happy Dick

    Rickards says it well: “The Fed is now like a 400-pound man who can eat 5,000 calories per day without gaining weight because his morbidly obese metabolism requires it to function.

    The discussion of QE, QE2 and QE3 has become irrelevant. What we have is permanent QE until such time as the Fed decides to tighten financial conditions.”

  17. Youri Carma

    @Febo

    Because Rickards is sane and actualy uses his little grey cells to analyze what’s happening or what could happen. And he has a sort of inside look since he’s been part of the insiders.

  18. austrian_man

    Imagine, Japan insurance companies were planning to buy the Euro bonds but now the Japanese are stuck in a serious natural disaster crisis situation. This would make the situation of Euro debt crisis very much worse.

    Globally interconnected events and highly unpredictable systems are what we live in.

  20. YoLithos

    “Zynger”. Nice name for a new currency.

    They could “Pull an Euro”. Absorb the dead dollar into a new currency based on nuclear warheads, invaded countries and territories, military-base ocupied real acreage, … military hardware in general. I’m sure computational power and interconnection complexity has to enter that equation – in the modern, er, present world. Anything else?

    The non-military US would be given to the fed in return for cancelling the debt – or reducing it to economically bearable levels. The fed could then start loaning the US back to its “new” citizens. On a rent basis. Wisconsin everywhere scenario.

    The military US would be funded by the fed-eration. In return for services rendered and general retainer. Like Gadaffi’s guys.

    Or, they could go the opposite direction. Loosen – “europeanize” – the Union except for military purposes. Increase its “Federalization”. Its federative nature. Calll them confederated, again. Or “re-districtize” according to present fed regions.

    Each region might then be renamed for the dominant fed player in its region. Oh, dunno. “BP-Land”, for the Southern Coast between Texas and Florida. … and so on.

  22. ronron

    Max blew 400 ounces of silver to find out they never heard of facebook or wikileaks in the middle east and Africa. hahaha. i told him that for free. he had to find out for himself. a true rebel. :-)

  28. ronron

    at first i thought Snoot was the most intelligent women on the planet. he was Frank. hahaha. good old Snoot. i miss ya.

  30. rawnrawn

    yep. old fucking Snoot. hahaha. LOL. told us about the SDR years ago. now Max has said it is written after poopooing Snoot.

  33. Febo

    Jim Rickards wouldn’t say Hey Micheal Moore don’t tread in my territory.
    He’d say Hey Micheal Moore you’re an interesging fellow.

  34. rawnrawn

    fuck. i really loved the things Snoot had to say. so many old comment,rs have left here. this site used to have the most intelligent comments. old WL kept Stacy up all night. i realize now that this is a popularity contest.

  35. ferdinand

    I don’t see how you cover the interest payments. Jim is saying they will roll the interest payments into bond purchases. The math seems strange to me. If you add interest there has to be additional tax revenues added some place. If the economy doesn’t grow then you have to cut expenses and that shrinks the GDP as well.
    Just can’t see

  36. rawnrawn

    i remember Stacy telling Snoot to get her own site. it was classic. as if Snoot could start a site. hahaha. it was cool. there were fake fucking Snoots. like fake gold coins. the real Snoot is golden.

  43. Gordo

    “The lie given by Ben B. on the 60 Minutes show is that he can reverse ‘easing’ in 15 minutes and begin ‘tightening.’ But as Rickards keeps hammering home, it’s simply absurd, given the structure of the debt involved to think this is possible.”

    The fact is “Jim Rickards” lives in the fact free zone.
    Total neo-liberal total neo-CON junk idiot

    Ask Japan how they reversed QE.
    Answer they did not even have to.

    Yes the program is a failure but there is no big problem.

    If you are looking for Economics expertise run away from Jim Rickards as fast as you can.

  52. snoop diddy

    good grief, Max is a big bang/universe expanding believer too.
    to be that you have to believe everything accelerates at a constant rate in a vacuum (w/ever that is) irrespective of mass. After that, physics is just a bunch of loose fitting tools that get the job done and it becomes necessary to invent more tools like gravity, relativity, string theory etc. Doesn’t mean I believe in anything, it just means laws of the universe and laws of physics are not interhangeable imo.
    Feather and Hammer drop:
    http://www.youtube.com/watch?v=5C5_dOEyAfk
    The problem with this is relativity. Compared to the local relation to the moon the mass is not so different and to become a law of the universe you would have to measure it precisely, not just a couple of decimal places. If that is not precise everything after that is a continual adjustment. Quantum theory I believe does give us
    reference points but electrons being in the same place and other quantum weirdness as they like you to suspend reality at this point don’t add up imo.
    *rant ends*

    pure listening pleasure:
    https://www.youtube.com/watch?v=HiPoXh57IAM
    (Gilels)Tchaikovsky Piano Concerto No.1 Mvt I (1/2)
    https://www.youtube.com/watch?v=HiPoXh57IAM

  53. John Q Public

    Jim that is real.
    “The King is dead, long live the King!”
    they alway have another heir.
    “QE is dead, long live QE!”
    at diminished value, but they could create a new heir a new currency.
    Off Topic
    Warning check computer security.
    Just wanted to mention to all bloggers check your Computer Security.On two separate Computer that i looked at the Firewall and Malware Protection was disable. Just a heads up.

  56. snoop diddy

    the problem with universal theories is coming up with an experiment that proves or disproves infinity and working back/forwards from there lol.

  57. Keehotee

    the nice thing about plasma physics/ plasma cosmology is that it is scalable so that benchtop plasma experiments are accurate in describing observable objects/behavior in space.

  58. snoop diddy

    @Keehotee,
    been a long time since I looked into all this and cant remeber most of it. I was inspired by a popular sience doco on string theory ‘The Elegant Universe.’ Very good doco for seeing where quantum physics does run into a seemingly tangle where things get weird and the system breaks down. Like you say, plasma cosmology is easy to relate to big and small.

  59. Mark Lytle

    I have been hearing recently there is a revolt of sorts against string theory. Has too many parameters that are tweakable, and it produces too many possible universes. Some are remarking it is almost untestable, empiricslly

    I think one of the purposes of the Large Hadron Collider is to provide new data that can give Physics some totally new deep data to take us out of the world of endless and fruitless speculation, which is what string theory tends to look like to many…

  60. Keehotee

    String theory is just another untestable, unprovable bit of math wankery- just like black holes, dark matter, dark energy – and an inflating universe. The number of redshift anomalies discovered has now totally disproved the big bang and inflation.

  61. Bev

    QE2

    If I have it correctly, the conclusion is that like Public Banking at the state level, i.e., Bank of North Dakota, QE2 at the national level benefits the Citizens and the City, State, Nation by NOT CHARGING THEMSELVES DEBT. The No-Debt Money can also be nothing but pure fiat.

    from: Bill Still The Secret of Oz, http://www.secretofoz.com/

    Even though the Fed is only halfway through it’s second round of “quantitative easing” it now owns more U.S. Treasury securities than China, and by June, it will have accumulated about $1.6 trillion of Treasury securities, more than China and Japan combined.

    Remember, the problem with this naked inflation is that under the fractional reserve system, this “hot money” can be multiplied by at least 10 times by the commercial banks. Of course, the theory is that these banks would lend some of this into the American economy, but why would they do that — take risks on lending to real people — when they can take that money and go play in the casino economy of derivatives and commodity speculation. If they win, they win big; but if they lose money in the casino, we will surely give them more.

    In total, foreign central banks own $2.6 trillion of Treasuries. In the first half of 2008, the Fed owned only $300 billion in Treasuries.

    from: Ellen Brown, Web of Debt

    from: 
http://webofdebt.wordpress.com/?page_id=939&preview=truehttp://


    The Federal Reserve is finally using its “quantitative easing” (QE) tool to good purpose, and I’m endorsing that, not just for our central bank but for any central bank anywhere that would be so bold. We are trapped in a web of debt devised by an international banking cartel that has hoodwinked us into believing that we have no recourse but to use money created by their banks as loans. We do have recourse. Money today is simply a legal agreement, an acknowledgment of services performed and debt owed.

    Every country can and should issue its own money and its own national credit. This would NOT inflate prices, for reasons I have explained again and again.

    If “money” originates as a receipt for goods and services delivered to the government — rather than in speculative leveraging by banks not attached to real productivity — supply and demand will increase together, and prices will remain stable.

    If the money supply increases beyond GDP, the excess can be taxed or otherwise drawn back to the government. 
…Chapter 40, which is all about Ben Bernanke’s helicopter money, says in part (again this was first published in 2007):
“[I]n a speech he delivered when he had to be less cautious about his utterances, Dr. Bernanke advocated what appeared to be a modern-day version of Lincoln’s Greenback solution: instead of filling the balloon with more debt, it could be filled with money issued debt-free by the government. 


    “The speech was made in Washington in 2002 and was titled ‘Deflation: Making Sure ‘It’ Doesn’t Happen Here.’ Dr. Bernanke stated that the Fed would not be ‘out of ammunition’ to counteract deflation just because the federal funds rate had fallen to 0 percent. Lowering interest rates was not the only way to get new money into the economy. He said, ‘the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. 


    “He added, ‘One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies.’ If the government was inexperienced with the policies, they were not the usual ‘open market operations,’ in which the government prints bonds, the Fed prints dollars, and they swap stacks, leaving the government in debt for money created by the Fed.

    Dr. Bernanke said that the government could print money, and that it could do this at essentially no cost. The implication was that the government could create money without paying interest, and without having to pay it back to the Fed or the banks. 


    snip

    
QE2 is not quite replacing taxes with money printed up by the government, but as I wrote in the article criticized by Mr. North, in our current system it is the functional equivalent and the next best thing. The Fed is funding the federal deficit by buying long-term government bonds with money created with a computer keystroke, and the Fed rebates its profits to the government after deducting its costs, so this funding is nearly interest-free.

    These bonds never have to be paid back, because the federal debt is never paid back. An interest-free debt rolled over indefinitely is the functional equivalent of debt-free, government-issued money. 


    snip


    Virtually all money today originates as debt, and private debts eventually get repaid, so somebody has to be in “permanent” debt to maintain a stable money supply.

    The federal debt serves this role. The federal debt has been the basis of the U.S. money supply ever since the Civil War, when the National Banking Act authorized private banks to issue their own banknotes backed by government bonds deposited with the U.S. Treasury.

    
snip


    Economist John Kenneth Galbraith wrote in 1975: 
“In numerous years following the [civil] war, the Federal Government ran a heavy surplus. [But] it could not pay off its debt, retire its securities, because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply.”


    snip

    
Indeed, that is the secret to adding “money” to the system without inflating prices: it needs to be used for productive rather than speculative purposes. Inflation results when “demand” (money) exceeds “supply” (goods and services). When money is used to “make money” (speculation) without adding to goods and services, prices are driven up. When the money is used to produce goods and services, supply and demand increase together and prices remain stable.


    The issue posed by QE2 is the sovereign right of a country to print its own money, debt-free and interest-free. Whether conservative, liberal, or populist, any true patriot would support that; and we should support it not just for the United States but for all countries. 


    snip


    Gold won’t work and the 100% reserve solution won’t work; in fact they’re very close to the same thing. The Euro system is in the nature of a gold/100% reserve/fixed currency solution, and it has just proved that those won’t work. A public credit system will work, and there are already finer minds than mine working on the details, globally.

    …….

    and Byron Dale on using No Debt Money to add jobs to build infrastructure, agriculture, business.

    http://www.moneyaswealth.blogspot.com/

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