The Beginning Of The End
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Quantitative Easing Worked For The Weimar Republic For A Little While Too

Wheelbarrow of MoneyThere is a reason why every fiat currency in the history of the world has eventually failed.  At some point, those issuing fiat currencies always find themselves giving in to the temptation to wildly print more money.  Sometimes, the motivation for doing this is good.  When an economy is really struggling, those that have been entrusted with the management of that economy can easily fall for the lie that things would be better if people just had "more money".  Today, the Federal Reserve finds itself faced with a scenario that is very similar to what the Weimar Republic was facing nearly 100 years ago.  Like the Weimar Republic, the U.S. economy is also struggling and like the Weimar Republic, the U.S. government is absolutely drowning in debt.  Unfortunately, the Federal Reserve has decided to adopt the same solution that the Weimar Republic chose.  The Federal Reserve is recklessly printing money out of thin air, and in the short-term some positive things have come out of it.  But quantitative easing worked for the Weimar Republic for a little while too.  At first, more money caused economic activity to increase and unemployment was low.  But all of that money printing destroyed faith in German currency and in the German financial system and ultimately Germany experienced an economic meltdown that the world is still talking about today.  This is the path that the Federal Reserve is taking America down, but most Americans have absolutely no idea what is happening.

It is really easy to start printing money, but it is incredibly hard to stop.  Like any addict, the Fed is promising that they can quit at any time, but this month they refused to even start tapering their money printing a little bit.  The behavior of the Fed is so shameful that even CNBC is comparing it to a drug addict at this point...

The danger with addictions is they tend to become increasingly compulsive. That might be one moral of this week's events.

A few days ago, expectations were sky-high that the Federal Reserve was about to reduce its current $85 billion monthly bond purchases. But then the Fed blinked, partly because it is worried that markets have already over-reacted to the mere thought of a policy shift.

Faced with a choice of curbing the addiction or providing more hits of the QE drug, in other words, it chose the latter.

So why won't the Fed cut back on the reckless money printing?

Well, as Peter Schiff recently noted, Fed officials seem to be convinced that any "tapering" could result in the bursting of the massive financial bubbles that they have created...

The Fed understands, as the market seems not to, that the current "recovery" could not survive without continuation of massive monetary stimulus. Mainstream economists have mistaken the symptoms of the Fed's monetary expansion, most notably rising stock and real estate prices, as signs of real and sustainable growth. But the current asset price bubbles have nothing to do with the real economy. To the contrary, they are setting up for a painful correction that will likely be worse than the one we experienced five years ago.

As I have written about previously, the Federal Reserve is usually very careful not to do anything which will hurt the short-term interests of the financial markets and the big banks.

But at this point the Fed is caught in a trap.  If it continues to pump, the financial bubbles that it has created will get even worse.  If it stops, those bubbles will burst.  But as Doug Kass noted recently, it is inevitable that these financial bubbles will burst at some point one way or another...

"Getting in was easy. Getting out—not so much. The Fed is trapped and can't end tapering or else the bond and stock markets will blow up. The longer this continues the bigger the inevitable burst."

In essence, we can have disaster now or disaster later.

But most Americans don't care much about what is happening on Wall Street.  They just want economic conditions to get better for them and for those around them.  And to this day, the mainstream media continues to sell quantitative easing to the American people as an "economic stimulus" program by the Federal Reserve.

So has quantitative easing actually been good for the U.S. economy?

Not really.

For example, while the Fed has been recklessly printing money out of thin air, household incomes have actually been going down for five years in a row...

Real Median Household Income

What about employment?

Don't more Americans have jobs now?

Actually, that is not the case at all.  Posted below is a chart that shows how the percentage of working age Americans with a job has changed since the year 2000.  As you can see, the employment to population ratio fell from about 63 percent before the last recession down to underneath 59 percent at the end of 2009 and it has stayed there ever since...

Employment-Population Ratio 2013

So where is the "employment recovery"?

Can you point it out to me?  Because I have been staring at this chart for a long time and I still can't find it.

So if quantitative easing has not been good for average Americans, who has it been good for?

The wealthy, of course.

Just check out what billionaire hedge fund manager Stanley Druckenmiller told CNBC about quantitative easing the other day...

"This is fantastic for every rich person," he said Thursday, a day after the Fed's stunning decision to delay tightening its monetary policy. "This is the biggest redistribution of wealth from the middle class and the poor to the rich ever."

"Who owns assets—the rich, the billionaires. You think Warren Buffett hates this stuff? You think I hate this stuff? I had a very good day yesterday."

Druckenmiller, whose net worth is estimated at more than $2 billion, said that the implication of the Fed's policy is that the rich will spend their wealth and create jobs—essentially betting on "trickle-down economics."

"I mean, maybe this trickle-down monetary policy that gives money to billionaires and hopefully we go spend it is going to work," he said. "But it hasn't worked for five years."

Sadly, Druckenmiller is exactly correct.

Since the end of the last recession, the Dow has been on an unprecedented tear...

Dow Jones Industrial Average

Of course these stock prices have nothing to do with economic reality at this point, but for the moment those that are making giant piles of cash on Wall Street don't really care.

Sadly, what very few people seem to understand is that what the Fed is doing is going to absolutely destroy confidence in our currency and in our financial system in the long-term.  Yeah, many investors have been raking in huge gobs of cash right now, but in the long run this is going to be bad for everybody.

We have now entered a money printing spiral from which there is no easy exit.  According to Graham Summers, the Fed has "crossed the Rubicon" and we are now "in the End Game"...

If tapering even $10-15 billion per month from $85 billion month QE programs would damage the economy, then we’re all up you know what creek without a paddle.

Put it this way… here we are, five years after 2008, and the Fed is stating point blank that the economy would absolutely collapse if it spent any less than $85 billion per month. This admission has proven just how long ago we crossed the Rubicon. We’re already in the End Game. Period.

Most Americans don't really understand what quantitative easing is, and most don't really try to understand it because "quantitative easing" sounds very complicated.

But it really isn't that complicated.

The Federal Reserve is creating gigantic mountains of money out of thin air every month, and the Fed is using all of that newly created money to buy government debt and mortgage-backed securities.  Over the past several years, the value of the financial securities that the Fed has accumulated is greater than the total amount of publicly held debt that the U.S. government accumulated from the presidency of George Washington though the end of the presidency of Bill Clinton...

The same day that the Federal Reserve's Federal Open Market Committee announced last week that the Fed would continue to buy $40 billion in mortgage-backed securities (MBS) and $45 billion in U.S. Treasury securities per month, the Fed also released its latest weekly accounting sheet indicating that it had already accumulated more Treasuries and MBS than the total value of the publicly held U.S. government debt amassed by all U.S. presidents from George Washington though Bill Clinton.

To say that this is a desperate move by the Fed would be a massive understatement.  We have never seen anything like this before in U.S. history.

And look at what all of this wild money printing has done to our money supply...

M1 Money Supply

In many ways, the chart above is reminiscent of what the Weimar Republic did during the early years of their hyperinflationary spiral...

Hyperinflation Weimar Republic

Just like the Weimar Republic, our money supply is beginning to grow at an exponential pace.

So far, complete and total disaster has not struck, so most people think that everything must be okay.

But it is not.

In a previous article, I included an outstanding illustration from Simon Black that I think would be extremely helpful here as well…

Let’s say you’re at a party in a small apartment that’s about 500 square feet in size. Then suddenly, at 11pm, a pipe bursts, starting a trickle into the living room.

Aside from the petty annoyance, would you feel like you were in danger? Probably not. This is a linear problem– the rate at which the water is leaking is more or less constant, so the guests can keep partying through the night without worry.

But let’s assume that it’s an exponential leak.

At first, there’s just one drop of water. But each minute, the rate doubles. So by 11:01pm, there’s 2 drops. By 11:02, 4 drops. And so forth.

By 11:27pm, there’s only six inches of standing water. Yet by 11:31pm, just four minutes later, the entire room is under nearly 8 feet of water. And the party’s over.

For nearly half an hour, it all seemed safe and manageable. People had all the time in the world to leave, right up until the bitter end. 11:27, 11:28, 11:29. Then it all went from benign to deadly in a matter of minutes.

Are you starting to get the picture?

What the Federal Reserve is doing is systematically destroying the U.S. dollar, and the rest of the world is starting to take notice.

Why should they continue to lend us trillions of dollars at super low interest rates when we are exploding the size of our money supply?

It is simply not rational for other nations to continue to lend us money at less than 3 percent a year when the real rate of inflation is somewhere around 8 to 10 percent and reckless money printing by the Fed threatens to greatly accelerate the devaluation of our currency.

When QE first started, the added demand for U.S. government debt by the Federal Reserve helped drive long-term interest rates down to record low levels.

But in the long-term, the only rational response by all other buyers of U.S. government debt will be to demand a much higher rate of return because of the rapid devaluation of U.S. currency.

So QE drives down long-term interest rates in the short-term, but in the long-term the only rational direction for long-term interest rates to go is much, much higher and in recent months we have already started to see this.

The only way that the Fed can stop this is by increasing the amount of quantitative easing.

Right now, the Fed is buying roughly half a trillion dollars worth of U.S. Treasuries a year, but the U.S. government issues close to a trillion dollars of new debt and must roll over about 3 trillion dollars of existing debt each year.

If the Federal Reserve eventually decides to buy all of the debt, then interest rates won't be a major problem.  But if the Fed goes that far our financial system would be regarded as a total joke by the remainder of the globe and we would reach hyperinflation much more rapidly.

If the Federal Reserve stops buying debt completely, the financial bubbles that they have created will burst and we will rapidly be facing a financial crisis even worse than what we experienced back in 2008.

But almost whatever the Fed does at this point, the rest of the world will probably continue to start to move away from the U.S. dollar as the de facto reserve currency of the planet.  This move is just beginning, but it is going to have major implications for us in the years ahead.  This is a topic that I will be addressing extensively in future articles.

Most of the debate about quantitative easing has focused on the impact that it will have on the U.S. economy in the short-term.

That is a huge mistake.

Of much greatest importance is what quantitative easing means for the long-term.

The rest of the world is losing confidence in the U.S. dollar and in U.S. debt because of the reckless money printing that the Fed has been doing.

But we desperately need the rest of the world to use "the petrodollar" and to lend us the money that we need to pay our bills.

As the rest of the planet starts to reject the U.S. dollar and starts to demand a much higher rate of return to lend us money, the U.S. economy is going to experience a tremendous amount of pain.

It is hard to put into words how foolish the Federal Reserve has been.  The Fed is systematically destroying what was once the strongest financial system in the world, and in the end we are all going to pay the price.

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  • MichaelfromTheEconomicCollapse

    Do you all think that the comparison between the Federal Reserve and the Weimar Republic is fair?

    And for those that are interested, I appeared on the Power Hour with Joyce Riley the other day. You can find the audio of the interview right here…

    http://archives2013.gcnlive.com/Archives2013/sep13/PowerHour/0918133.mp3

    Michael

    • Jimbo

      Most people I speak to have no idea what QE is. The impression they have it that it is just a numbers game, an accounting gimmick that can be undone with an entry in a different column. I liken QE to a second credit card used to pay down the debt acquired on a main credit card. It works for a while but when the second card gets maxed out paying down the first card you need to take out a third card to keep it going. The third card will max out faster again as it is now paying down 2 other cards. You either stop and go bankrupt but owe less or keep it going with a fourth card and hope for a miracle. The Fed told the world last week that it has chosen the 2nd option so Weimar Republic here we come.

      • mountainaires

        Yep. The key word is exponential. Math is unassailable; numbers don’t lie, though politicians always do. You can only fudge numbers for so long; at a certain point–coming soon–reality bites.

      • Tony

        Operationally, quantitative easing is nothing more than an asset swap. It’s neither a stimulus, nor is it printing money, contrary to what Mark Faber, Perter Schiff or Jim Rogers claim. There are no additional net financial assets created as a result of QE.

        When QE occurs, the FED removes an asset – for example, a US Treasury – then swaps it out with dollars (reserves) within the banking system.

        This actually deprives the private sector of interest it could have
        earned on US Treasuries, which is more than it would earn as cash
        balances.

        The FED profited 88.9 billion last year and turned it back over to the
        Treasury. This profit was a direct result of its asset purchases. This
        is income which could have been earned in the private sector if it had the chance to purchase these securities and bonds.

        Lastly, the FED actions (QE) have REMOVED a massive amount of money fromour economy. The Federal Reserve has removed around $100 billion more income than the total aggregate net increases in salaries and wages
        since the inception of QE and other asset operations.

        • the Vicar

          That’s nonsensical. The only way you could claim the Federal Reserve is removing money from our economy would be if those MBS (Mortgage-Backed Securities) they are buying were all then written off and the debt forgiven.

          An asset is an asset, regardless of whether Wells Fargo owns it or the Federal Reserve owns it. They’re on the books, and are not being removed.

          The only difference is, Wells Fargo (or whoever the seller of the MBS is) is a little bit more liquid than it was prior to selling asset, and that liquidity is provided via brand-new money in their Reserve account.

          Yes, the Fed really is printing that much money. Or rather, it’s giving that much made-out-of-thin-air money to the seller of asset. Whether it gets physically printed onto paper or not is a different question entirely.

          • Jimbo

            I take it there are two Tonys?
            I agree with the 2nd Tony in that the “asset” exchanged for printed money has been created out of thin air by the Treasury. The Treasury are not allowed to print money so they sub contract that job to the Fed. The Fed receive a purchase order (US treasuries) and the Treasury never pays the invoices. Treasuries exchanged this way are nothing more than unpaid invoices. Technically an unpaid invoice is an asset to a business but it is still an unpaid invoice nonetheless.

          • Tony

            There’s just one Tony, lol.

          • Tony

            There isn’t an increase in the money supply with LSAPs (Large Scale Asset Purcahses).

            The FED creates electronic credits and swaps them out for existing financial assets assets. In the event the FED purchases US paper, it’s basically trading one federal liability for another, effectively swapping out a demand credit for a government sector asset.

            Where do you think money comes from? The
            government basically spends by crediting private bank accounts. It’s inherently nothing more than a balance sheet operation.

          • Gay Veteran

            LOL, using your theory then the Fed could just “print” gazillions of dollars and it wouldn’t matter. FAIL

          • Tony

            I never said the the government can spend endlessly. The deficit is simply a reflection of the private sector’s desire to save in US financial assets. In other words, it represents the total savings of the US economy. You should view public debt as private wealth and the interest payments as private income.

            The government is only constrained by inflation. However, given our high unemployment numbers and excess capacity, there’s no chance of inflation. If we were at full employment, and the economy was at full capacity, then I’d be worried about inflation. Full employment should be on the agenda, not obsessing over something as trivial as the deficit.

          • Gay Veteran

            riiiiiight, we have no inflation.
            Full employment? Doing what? The Baby Boom is retiring, and thus demand is going down

          • TonyS

            The worst mistake national governments have made in the post-Depression
            space is the abandonment of full employment as a policy goal. The whole
            idea has

            been dropped for God knows what reason and replaced the NAIRU neoliberal garbage. I also blame the Monetarist propaganda
            wave the reared its head in the 1980s and their almost religious belief
            that markets miraculously self-regulate and reach equilibrium.

            As a matter of fact, a Job Guarantee would increase GDP in a
            considerable fashion since some of the tax cuts will be lost to savings.
            I’d surmise the marginal propensity to consume of those wages under the
            Job Guarantee would be higher than national averages. Most of this is
            very elementary macroeconomics, yet it’s largely ignored by our policy
            makers.

            In my opinion, most

            conservatives in the United States hate the idea
            that the public sector can easily employ workers that the private sector
            can’t hire and get them working on public and community works projects.
            These projects tend to build lasting legacies which infuriates them
            even more.

            Ironically, these people, such as , Rand Paul, Ron Paul, Paul Ryan, Ted Cruz, the President (Wall Street
            neoliberal) and others, that constantly talk about the beauty of the
            market forces, actually project their fears of letting market forces do
            their thing when it comes to providing

            employment opportunities to
            disadvantaged workers in our society.

            The whole idea of the Job Guarantee and creating a national buffer stock
            is very powerful. Think about it. The government hires from the bottom
            rather than the top. This means there’s zero chance of inflationary
            pressures, none whatsoever.

            By the way, the domestic private sector can employ the Job Guarantee workers any time they wish. It’s fairly simple: all they have to do is offer a better opportunity and the market should take care of the rest. This would create some dynamic efficiencies because the incentives wouldbe there in the domestic private sector to improve productivity, as
            well as on-the-job-training to enure that any salaries paid were in fact
            profitable.

          • TonyS

            Lastly, What we’re taking about is creating a national buffer stock through a
            reserve of public works and services. We also have to acknowledge that consumer demand is a huge component in reaching and maintaining full
            employment. This can be reached through the employer of last resort
            model, but over saving is a real possibility, which could drive down
            demand. The employer of last resort can create an infinite elastic
            demand for labor which isn’t dependent of profit models of business.
            There should be a minimum wage or floor so to speak.

            There’s various
            models that have been pushed around regarding the job guarantee and
            employer of last resort.

          • Gay Veteran

            Repeal “free trade” laws (which have resulted in MILLIONS of American jobs being shipped overseas) and bring back tariffs. Unemployment problem solved.

          • TonyS

            Modern capitalists economists aren’t structured to handle full employment.

          • the Vicar

            In response to your question:

            “Where do you think money comes from?”

            I will respond with your own response:

            “The FED creates electronic credits.”

            I would additionally quote the 2nd sentence in your final paragraph, except for the fact that it’s incorrect. The government doesn’t credit private bank accounts, the Federal Reserve does.

            In essence, except for that one mistake, you’ve answered your own question and I fail to see the point you’re trying to make.

            Additionally, if your argument is true, namely that the Federal Reserve hasn’t added any money to the economy with QE, then I would ask you to kindly illuminate me as to the actual cause of the increase in M1 since that policy began.

          • Jimbo

            Tony, again, not meaning to be rude but you seem to grasp some aspects of economics yet fail to understand the basics.

            Read the book again and next time start from page one.

        • Gay Veteran

          and did the Fed pay 100 cents on the dollar for the mortgage backed securities? many of which are worthless

    • mountainaires

      It is ABSOLUTELY appropriate to compare Weimar to Bernanke’s Fed. People do not know the most basic facts about their government; they are shockingly ignorant about economics. They are looking at a future filled with misery and poverty. They are clueless. I feel pity for them, but I also feel contempt for them–they are too lazy to take the time to READ the economic blogs, to avail themselves of the mountain of info that is free, easy to read, and understandable, and which are all flashing red.

      • Tony

        No, it’s not. Weimar had its industrial capacity wiped out and had its debts denominated in Sterling, so other countries had direct control over her output. When they printed, it wasn’t being offset by an increase in real goods and services. Hyperinflation is much more than a monetary issue.

        Secondly, the US has its debt denominated in dollars, so it can always service it. US public debt represents the total savings of the US economy. It essentially reflects a desire of the private sector to save in US financial assets.

        • the Vicar

          1) “Hyperinflation is much more than a monetary issue.” — Tony

          2) “Inflation is always and everywhere a monetary phenomenon.” — Milton Friedman

          I think I’ll pick door number 2, thank you very much.

          • Tony

            That a fallacious appeal to authority.

            Friedman’s QTM is largely regarded as a joke by most serious economists. He even said there were problems inherent in QTM. I can get into detail if need be.

    • TooLittleTooLate

      I’m not sure, Michael. The comparison is fair in the sense that we’re doing the same thing.

      The difference lies in our position in the worlds finances vs. Germany’s at the time they inflated.

      We’re the petro-dollar and we’re the reserve currency.

      Some think that a crash in the stock market could crash equities and bring massive deflation. In that scenerio cash is king and gold and silver prices would drop with everything else. But, it would be relative to the cost of other things.

      Personally, I don’t know or claim to understand it all.

      I stack PMs with what I can. I haven’t cashed out my 401k but, probably should.

      I wonder if hyper-inflation could happen here because if it does, what will the rest of the world look like while that’s happening because of our status in the world??? For that to happen, will we have the petro-dollar while we’re hyper-inflating?

      I suppose one thing that could trigger hyper-inflation is losing reserve status. That would do it. Or a massive sell off of our foreign held debt. That would do it too.

      Too many things to ponder.

      • GSOB

        I feel you.

        I am at present , struggling, internally that is, with this thought of yours….

        “I haven’t cashed out my 401k but, probably should.”

    • Curious Bob

      On your Gold Mark vs Paper Mark chart, where do you think the US would be in a chart like that. IE 1 gold dollar vs 1 paper dollar?

    • GSOB

      Great talk radio Michael!

      Folks, this is great stuff. Michael explains it well and I’m still listening to it.

      It has a time slider so the good stuff starts at 8:15 into it.

      Then there is is a break at 20:00 to 24:10

      Got to get back to it now…

      • GSOB

        Excellent information Michael!

  • RICHARD

    I have said it before and i will say it again i believe we are the 3rd Reich of the 21 century, and it isn’t going to end well. I still believe that we will crash by the end of Oct. even thought they didn’t cut back on QE which i expected to happen.

    • razorbacks

      Why the end of October?

      • Jimbo

        I think it will happen soon because the Fed told the world last week that it had lost control over the economy. Bernanke had given forward guidance for months hinting at a $10-15 billion taper and then failed to deliver. Fed forward guidance is now meaningless. If you held UST’s and Dollars would you feel safe right now? China and Japan hold trillions.

        • Joe Kleinkamp

          Depends on which guidance you choose. Remember his data driven guidance of 6.5% unemployment and 2% growth as taper triggers? Handicapping the Fed’s moves is every bit as speculative as horse racing or sports betting. Their moves are like yesterday’s weather – we’ll only know for sure after it happens.

          • Jimbo

            The Fed decided not to taper because they were worried about fueling an interest rate increase in the mortgage market. This is why the Fed are stuck in a hole. Any reduction in bond purchases would see UST yields rise but a continuation of QE would erode confidence in the US Dollar and the economy. My betting is that the Fed will increase the rate of QE.

    • Hammerstrike

      3rd Reich citizenry had the right to keep firearms, Hitler trusted his people much more than Obama, McCain and David Cameron trust theirs.

  • MrApple

    Financial collapse, EMP event, and pandemic are my central reasons for stocking up on my “bullets, beans, and band-aids.”

    • Sparky Manowski

      But no beer?

      • MrApple

        I don’t tell all my secrets.

  • Tatiana Covington

    Paper money is effectively carbon-based money. Carbon is the 4th most abundant element in the universe: about 1 atom in every 28 is carbon.

    Gold money is another story. Gold is quite scarce because of the way it is made inside exploding stars. Only about 1 atom in every 20 billion or so is gold.

    So, unless and until we learn how to transmute elements safely, quickly, cheaply; or start large-scale asteroid mining…

    gold will be very rare on Earth for eons to come.

    Go argue with nuclear physics.

    • Hammerstrike

      What is funny is that the Earth´s surface even have gold.

      With the Earth being a mostly molten mass, gold should have sunk to the Earth´s core a long time ago, with the center of it being consistued of the heaviest elements.
      There is a natural transmutation process going on, which made other elements into gold, since the Earth´s crust formed.

  • http://www.mycbn.com/ FaithDefender

    Buy gold and silver now (canned food, water, and ammo would not be a bad bet, either).

    • mountainaires

      Yeah, we’ll you should have bought years ago, but better late than never, I guess.

    • Ralfine

      If the world would end tomorrow, I’d plant a tree today.

      No idea who said that, but gold and silver doesn’t help much in survival.

      My measures are finally bearing fruit. Got the lowest energy bill in years.

      Now I can use the monthly savings to bunker food and water.

      • Rodster

        Totally agree Ralfine regarding gold and silver. I would NEVER discourage someone from buying PM but in a global economic meltdown scenario a can of tuna would be of more value than an ounce of gold to someone who was starving. Bartering and living off of stocked supplies would also help.

        Where PM would come into play is after the dust settles.

        • Lester

          If the starving has PM, he will buy the tuna.

          • Ralfine

            Who will sell tuna, if the prospect is starving?

      • MeMadMax

        I make my own water… I don’t like the taste of stored water lol

        • squashpants

          Yeah, we are already drinking only from our Berkey. Water tastes great, and it will be seamless changing over when the SHTF.

      • Hammerstrike

        The end of money-based economies.
        Soon replaced by skills and ressources-based economies.
        It will be the beginning of a new world, one of sufferings for the unproductive masses but also one of evolution and imrpovement, instead of stagnation and rot.

      • Katy

        Martin Luther said it.

      • goldengates

        What state do you live in?

        • Ralfine

          England. But what does it matter?

          The price per unit is rising, but I got the total price down, by using less without sacrificing comfort too much.

    • krinks

      Sorry but Taiwan tried the gold and silver route. Without a sound currency to give it value they found out in the post war collapsed economy that gold and silver was worthless as well. The only valuable commodity was food.

      • ArigatouGozaimas

        The Dollar is not worthless….. yet. That is why dealers will sell gold for money. The polar opposite question is why do so many dealers want to buy scrap gold from households?

        As for paper currency. It’s hard to deny that what can be bought with a dollar has been drastically reduced over time. Prices do spasm up and down, but the long term trend is that the currency loses value. (Consistently so I might add) Gold and silver will fluctuate in value, you can’t eat precious metals, but they are a form of currency that can not be digitized or printed. Thus there is no risk of monetization of gold, no real inflation of the value gold.

        Gold and silver have merit, consumer commodities have merit, and the acquisition real knowledge has merit. I wouldn’t be hasty to dismiss those strategies. It is a good idea to have some exposure to precious metals. At the same time, don’t value gold and silver above all things because it alone will not save you.

        As for me, I’ll put my first trust in the holy spirit to help me navigate whatever times may be ahead.

      • Jimbo

        Dealers use currency as a medium of exchange for gold. It doesn’t mean that they hold the currency once they receive it.

      • FlaSwamps

        Sound currency backed with gold? Sounds like the US dollar before it had “federal reserve note” added to it. Unfortunately the next worlds reserve currency will most likely say BRIC

    • MeMadMax

      Buying gold and silver is good if you assume that there will be some kind of economic structure left after the collapse…

      I’m placing my bets on food, water and ammo…

      • squashpants

        I will have some junk silver coins (I figure those will be practical to use for exchange after the SHTF. Also, we are stockpiling barterable stuff (batteries, liquor, OTC meds, etc.).

      • GSOB

        Think post collapse… gold and silver and precious stones will be the sign of wealth, which will bring can restore confidence and hopefully, prosperity.

    • FlaSwamps

      1st Water, 2nd food, 3rd a means to protect it, then Silver & Gold

  • Syrin

    Funny how all those graphs took a turn for the worse in 2008. What happened then? Oh yeah, the greedy no information hopium addicted GARYS voted in a child who promised them a new American dream of permanent welfare, unemployment, disability and food stamps. There is no mathematical way to recover from this. Witness Detroit, the shelled out carcass of decades of unchecked liberalism, coming soon nation wide with martial law and FEMA camps. The sheeple are about to get handed the bill for what they voted for.

    • Jimbo

      For what it is worth, either party would have gone down the same route but only to a slightly lesser or greater degree. The populace are so used to welfare that any politician trying to get elected on a welfare slashing agenda would not get into office. This is a worldwide problem. The lines are so blurred between left and right now that it is hard to see the difference between the contenders. The UK and Australia are examples. The Australian right is actually called the Liberal Party? Go figure!

      • FlaSwamps

        Two party system, smoke & mirrors, nothing more nothing less. America has been taken over by foreign banks with the assistance of the privately owned federal reserve bank

    • Gay Veteran

      Playing the same old song. It was the corporations that shipped the jobs out of Detroit and the rest of the U.S. to Mexico, China, India, Vietnam, etc.
      What happened in 2008? Bush’s Treasury Secretary (formerly of Goldman Sachs) said there would be tanks in the streets if we didn’t bail out the banksters.

  • xander cross

    Six months from now, the economy probably will not collapse and Michael will still say that economic collapse is immediate. It’s like the boy who cried wolf.

    • NOt me

      So 16 trillion dollar debt and printing money like toilet paper is ok?

    • Jimbo

      The boy who cried wolf was Bernanke when he cried “taper in September”

      • Hammerstrike

        All those years we where told of the bright future brought by globalis, multiculturalism and neo-liberalism.

        Everything would just turn out fine.
        But it didn´t, no end of history, rather, we see the end of the beginning…

        • Gay Veteran

          don’t forget neo-conservatism

          • Hammerstrike

            Indeed.

            The israel firsters are free to convert to judaism, move to the promised land and join the IDF, take bullets and IEDs for the choosen people.
            No waite, they won´t and neither would the israelis allow them to short of a fleet of miles-wide Swastika-marked UFOs.

    • Rodster

      I failed to read where Michael said 3 months. Where did he say that? There are many experts who say this is unsustainable and it defies the basic laws of mathematics.

      So eventually there will come a time when it’s GAME OVER ! It could next week a year from now or 15 years from now. Who knows but eventually this will end badly. And the longer it goes on it will only make it worse.

    • mountainaires

      The little boy who cried wolf, when no wolf came, made the people lazy and complacent. The day the wolf finally DID come, they were napping, snug and smug in their beds. The wolf ate them.

    • Nexusfast123

      The Fed is in between a rock and hard place. The outcome will be a systemic failure of the financial system. The only thing we don’t know is what the trigger will be and when.

      The banks have been doing the same as they were prior to 2008 and more of it.

    • TooLittleTooLate

      Michael is simply pointing out that when you create 212 years of debt in 5 years, something bad is bound to happen.

      We also know that when bad things happen, the power brokers come together and change the laws and rules so they don’t apply to the current situation and, that will go on for some time too. We all know that… mark to market and cyprus bail in’s… John Corzone and MF Global’s stealing of depositor’s money for example.

      You can sit smugly and point out that the entire economy hasn’t imploded yet and be correct but, to think that this is all going to be ok is way naive and could be even dangerous for you.

      The Ben Bernakes of the world will keep all the balls in the air until the day that they can not. I’m not sure when the wheels will come off and, I’m not certain that they will all come off at once but, to think that this country is doing fine is beyond me.

      Inflation is already here if you buy gasoline or food. Gas supplies are at an all time high and usage is at an all time low. If you believe in supply and demand this doesn’t make sense unless you look at how we’ve already inflated our money supply.

      Before we get to a crisis, we may see all the world’s big economies inflate their currencies causing the price of everything to skyrocket…. that could bring on all sorts of other things to worry about… war always seems to be in play in those circumstances, much as it is now in Syria.

      If you think that going after Syria has anything to do with chemical weapons, you’re more naive than I thought.

  • Rodster

    This is why the World is headed for WAR! It has in the past except this time we have p*ssed off too many Nations. We started this crap and they have nukes.

    So when politicians such as Lindsey errr I mean Lady Graham and Sen McCain decide we need to bomb Syria and go into Iran which have NOT threatened the US it will escalate.

    That area is loaded with Nukes and the Russians won’t back down. This whole Syria BS has much to do with the petrol dollar.

    “Trade Wars, currency wars, WORLD WARS. When all else fails they take you to War”

    -Gerald Celente

    • markthetruth

      How many times are you going to Leave the same Message on all Michael’s Posts !

      the end…

      • Rodster

        Words of truth never get old.

        • markthetruth

          There is no Fact or Reality that Syria has to do with Pretrol Dollars, only speculations.

          the end..

          • Rodster

            Since the Govt continuously lies about everything it spews then YES it is ALL speculation and that SPECULATION comes from experts in the KNOW. They also say it has much to do with the gas pipeline in Syria and the US wanting to destabilize both Russia and China with radical Islam.

            Has that for SPECULATION?

          • GSOB

            Like chess

          • Highlander

            Bull pucky! It has all to do with it. Both Qatar and Saudi Arabia need a compliant Syria to fulfill the economic attack on Russia! That attack is all about the petro dollar and regaining profits from Europe.

          • GSOB

            Russia and Syria are allies…

            I’m I missing something?

          • FlaSwamps

            Ever questioned why Qatar & Saudi Arabia have invested billions into the so called Syrian rebel movement? Fact is, it was a move to bring down Assad because he refused their plans to build a pipeline thru Syria to the Mediterranean Sea. That sir, is all the reality the world needs

          • Lerenzo Palmer

            you are so rite hommie

          • frank

            How many times are you going to say the end?

            the end..
            ;P

      • das

        When will you stop saying ( the end…)

        • Gay Veteran

          LOL

      • kdcescers

        A little jealous of Rodster getting more vote ups than you, huh?

    • Kent Harris

      Isaiah 23 speaks of economic collapse then Isaiah 24 speaks of worldwide destruction. It makes perfect sense Germany is recent history so it stands to reason that the US will follow suit. The only thing it will start with us but end with Israel.

  • mleblanc138

    In the Weimar Republic, people literally burned money because it would burn for longer than the firewood it would buy. People demanded to be paid twice daily and had their wives ready to spend their paycheck the second they got it. You would go to a restaurant and the price would have gone higher by the time you got your food.

    The few Germans that held mostly Gold and Silver saw no debasement of their purchasing power. That’s one of the big reasons I hold physical Silver coins.

    • Hammerstrike

      Yep, much harder to print gold and silver.

  • Theodore

    2 points:
    1. What about inflation adjusted bonds? I heard rumors some (long-term) bonds are adjusted to inflation, and thus such debt cannot be simply paid out by printing money… Does anybody know how much of US debt is inflation adjusted?
    2. The Fed may be printing money, but rest of the world may do the same, the USD/EUR/YEN/GBP ration might remain pretty stable. Of course, the price of everything else will explode.

  • Sparky Manowski

    Do you think the new standard could be the Euro or maybe the Dinar?

    • Alex

      everything will go back to gold standard

  • chilller

    Most people I know are clueless what a fiat currency is. Generations have been purposely kept in the dark because the simple math the corrupt Feds do would be easily found out by a fifth grader.

    • kathy k

      Also chiller they have dumbed down the people with words like fiat & trillion so they don’t pay any attention to real meaning.

  • JailBanksters

    I’m looking forward to buying a Trillian US Dollar note, it will go well with my Trillian Dollar Zimbabwe Note.

  • markthetruth

    Con 101……

    Everyone has lied so Much to the People the lies are the truth to the people.. The Con game, Look the Part !!! Dress in an Expensive Suit, Rolex Watch , Drive a Ferrari to get the women, give the Impression you Successful and people envy you and want to be a part of you success , then take there money and when it’s time you Split with no Conscience .

    Example the illusion (pay the homeless to sleep and wait in line at the apple store to make it Look like your missing out and these Fools with no jobs could afford a new Apple when they can afford a real Apple to eat…)

    PS. Shoot the analyst and all the experts as they are part of the Problem not the Solution .

    the end…

  • markthetruth

    ……….ELVIS is in The House !!!……………..

    (the King new)

    We’re caught in a trap
    I can’t walk out
    Because I love you too much baby

    Why can’t you see
    What you’re doing to me
    When you don’t believe a word I say?

    We can’t go on together
    With suspicious minds
    And we can’t build our dreams

    On suspicious minds
    So, if an old friend I know
    Drops by to say hello

    Would I still see suspicion in your eyes?
    Here we go again
    Asking where I’ve been

    You can see these tears are real
    I’m crying
    We can’t go on together

    With suspicious minds
    And be can’t build our dreams
    On suspicious minds

    Oh let our love survive
    Or dry the tears from your eyes
    Lets don’t let a good thing die

    When honey, you know
    I’ve never lied to you
    Mmm yeah, yeah !!!

    the end…

  • markthetruth

    Believe only half of what you see

    and

    nothing that you hear !

    the end…

  • K

    This plan was started long ago, and now we are approaching the end game. The general outline is contained in the Powell memo. They have been building on that outline ever since. For the plan to have the best chance of working. It needs to happen in the Winter. To me the only question is, this Winter, or next Winter? It looks to me like they are trying very hard to make it this Winter. But it may take to next Winter, before all their ducks are in a row. Guess we will all see soon enough.

    • kathy k

      My husband & I have always thought winter also but don’t know why??? Can you explain?

      • K

        Winter is the great controller. When things go down the drain and the rioting begins. They will not have enough forces to control all the cities. They will send most of the forces south. In the Northern 2/3 of the Country, they will either destroy the snowplows, or more likely cut off the flow of fuel. By the second snowstorm the roads will be blocked by ice and snow. By the time the spring thaw comes, many will have frozen to death. Since nothing will be coming or going to these areas, many more will have starved to death. Taking those northern cities in the spring, will be as easy as picking up the pieces. Remember during WWII it was not the Russians that stopped the Germans, it was Winter that stopped the Germans. A single Winter with out fuel or electricity. Turns a Country from too big to control, to fairly easy to control. Once upon a time I would never have believed the Government would be capable of such action. I now believe the Government, is quite capable of anything.

        • kfilly

          I wholeheartedly agree. I live in Wisconsin. We usually get a few -20F days a year (before wind chill). Those days will definitely suck for those unprepared.

        • Curious Bob

          Do you really think that our military is filled with people that would actively seek the deaths of millions of Americans…some of which are their friends and family?

          • K

            They for the most part, will not be here. They will be stranded out of the Country, in what ever Country we attack next. DHS and certain other allied groups will be doing the dirty work.

  • Suzanne

    Has anyone else noticed that there isn’t any paper dollars of any denomination printed since 2009? All the money they are making is literally just spreadsheet entries! They aren’t bothering to print cash! I guess that is so that when people decided to run on the big banks, there won’t be enough cash to go around.

  • Jackie Milton

    This is the same prediction i’ve been making since Clinton thought everyone in the US deserves a house and started loaning anyone that could fog a mirror money to buy one.

  • michael

    Let’s not forget the rest of the world prints money to buy our debt. It’s all fiat.

    • Nexusfast123

      Yes. One gigantic bubble that will probably result in sovereign bankruptcy on a global scale.

  • EllenBernal

    The world is not heading for war, its heading to the end. Eventually the Government will take away any money and create cyber money which is also known as cashless society. The Government most likely under Obama will declare Martial law and will set himself up for life Presidency. He will reign with an iron fist and create a Muslim America. Obama is ideal for the end time scenario because he is of the Devil who is the father of lies. There will no escape. Listen to Obama when he is wounded, he becomes real evil and threatening. Be aware America, get rid of him now.

  • AK

    Great summary of how our financial system is systematically being destroyed.
    However, all of this won’t matter much if we don’t get Fukushima under control. They still don’t have a solution and if the spent fuel rods that are still residing in the elevated cooling tanks get exposed it’s game over for civilization as we know it. Please do some research and spread the word. Life as we know it depends on the international community coming together and taking decisive action in Japan, something the Japanese officials are incapable of.

    • http://granitegrok.com/author/mike Mike Rogers

      One bad nuke is a problem, not the end of civilization.

      Worldwide currency collapse could return us to the dark ages.

  • DJohn1

    It makes sense. If the world is going to end at an indefinite tomorrow(no one knows the time or date) then spending like there is no tomorrow makes sense. You never have to pay back the money!
    The con has been going on for a very long time. The 30s solution was Unions constantly negotiating wages higher. But the currency kept getting weaker so the wages only offset what was happening.
    Until we get some down to earth common sense and put very strict controls on what the government is able to spend it will continue down the same road.
    In other articles, we see a vast system of drones being implemented both here and abroad. At a very expensive tab, those drones are supposed to make everyone safer?
    The government has no intention of ever paying back the money they have borrowed by counterfeiting the currency and overspending on everything.
    So we face bankruptcy.

    By the time that happens, these people will have left town. And they know it. Their money will be safely harbored some where else. They also will be somewhere they cannot be gotten to.

    The rest of us will be faced with NEW dollars to replace OLD dollars. Probably it will be set up so it can only be done through the banks. They of course will take their cut before they exchange your money. Probably it will all be on computer.
    That way they bypass the underground economy and make all transactions transparent to the government.
    We all see the problem. No one sees an answer.

  • Tim

    In a recent interview with King World News, Dr. Paul Craig Roberts said that if the Fed had carried on this kind of money printing spree during the Reagan administration (when Roberts worked in the Treasury Department) that the Dollar would have collapsed. He said he doesn’t know how the dollar has survived this long.

    It’s utterly amazing that things continue as they do. I mean, I started telling others of the coming collapse over 10 years ago when I was working in Washington. I never imagined that we’d last this long. When the last crisis began 5 years ago, I thought for sure that was the beginning of the end. Maybe it was. Maybe we’re in the eye of the storm, as some think.

    • Rodster

      They continue because the USD still holds the world’s reserve currency status and for the 1st in world history all nations are using fiat currency. Our USD is the best of the bunch and that is a sad state of affairs when the Fed is unabashedly debasing it’s currency. It’s another reason why we are seeing so much talk about wars and how the US looks to destabilize other nations.

      When nations become destabilized and the world begins to talk about war, others RUN to the dollar. When the USD no longer has world’s reserve currency status is when the wheels fall off the cart. So yes I agree with Dr. Roberts and others that we are in the End Game.

  • Trailer Park Investor

    After SHTF
    I am betting a 10 year old can of beans will be worth an ounce of gold, maybe more.
    So the future Billionaire will have food & water, not dollars, gold or silver.

    • Jimbo

      True because you can’t eat gold but even in the worst of times, gold has an instantly recognisable value and can be traded. Try bribing a border guard with a tin of beans.

  • Louise in MO

    Glenn Beck explained indepth the Weimer Republic when he was a star of Fox Cable. So, nothing in this article is news to me and many other Beck fans.

    It is worse than most people know and the people are dumbed down so they don’t think it has anything to do with them. Just try to start a conversation about the coming financial crash and they look at you like you are nuts.

    And when things crash they will cry out “why didn’t anyone warn me?” It will be hard to feel sorry for them.

  • El Pollo de Oro

    Some preppers believe that the BRA dollar will be so debased that it will cease to exist. Preppers who are most “optimistic” believe that its value will “only” decrease by 80% or 90% and that it will become a Third World currency equivalent to the Moroccan dirham or the Guatemala quetzal. Whatever scenario one envisions, there is no doubt that the currency of The Banana Republic of America is being brutally debased.

    “Currency debasement, by definition,
    is hyperinflation—and hyperinflation is now in the cards. Peter Schiff agrees.” —Max Keiser

    • Jeffrey Missal

      Guess all that’s left is the hyperinflation part…

    • Tobias Smith

      Quetzalcoatl!

    • Gay Veteran

      exactly! forget about the Mad Max BS, think Argentina

  • Jeffrey Missal

    We are having our industrial capacity whiped out by trade deficits…the result is the same. Further, since the early 1900′s, Congress ceeded the responsibility for printing money to the Fed. The ONLY way the Fed can spend $86 billion a month buying treasuries is to print $86 billion a month. The ONLY way inflation doesn’t occur is to, at the same time, take an equal sum out of circulation; this hasn’t been done. As such, the value of the dollar is reducing. Once the people start buying physical property immediately upon receiving a dollar so as to avoid the inflation “tax” of buying that item later, you will see the exponential devaluation of the dollar….as more and more people do this, hyperinflation ensues.
    All that said, some of us are ahead of the curve.

    • Tony

      Um, no.

      I particularly get all warm and fuzzy when people refer to our trade deficit as an imbalance. This is akin to saying I have an imbalance in my Chase checking account whenever I use my debit card. I use my checking account when I pay my bills, buy stuff off of Amazon,go on vacation, etc. The debits in my checking account are equal to the exact amount of goods and services I purchased, used, and consumed, which boils down to an accounting entry so to speak. My amount of money
      may have decreased, but my supply of real goods and services increased.

      In order for the rest of the world to dump their dollar holdings, they
      MUST exchange them for real goods and services produced by Americans. This means any foreigners would have to take their US dollars and give them back over to Americans who worked to produce the goods and services
      they decide to purchase.

      I’m having a bit of trouble with your argument. First, it seems to me
      that you are making a distinction without a difference. For all
      practical purposes Treasuries held by a primary dealer and deposits at the Fed are identical as monetary base. The dealer can execute a repo any time they want and the Fed will lend with the Treasury as collateral. QE by switching between the two
      technically changes the
      monetary base, but in circumstances where the Fed is pursuing an accommodating monetary policy, the difference is illusory. And with $2 trillion of excess reserves in the banking system, I have a hard time
      seeing how changes in the monetary base cause much of anything.

      Lastly, banks don’t lend out reserves, except to each other in the Fed funds market. They don’t use reserves in any capacity to loan out money. They loan out
      their own deposits (loans create deposits). QE isn’t inflationary, quite the contrary. It actually removes income which could
      have been earned by the private sector.

      • Jimbo

        “In order for the rest of the world to dump their dollar holdings, they MUST exchange them for real goods and services produced by Americans” and therein lies the problem. Any loss of faith in the Dollar will see those Dollars return to the US to buy hard assets such as land, homes, businesses and commodities etc. This will increase competition for assets within the US and spark inflation. It is a simple as all the people you owe money to all knocking on your door at the same time. When you remove the fluff from economics and break it down to its lowest common denominator, it becomes a very easy to understand subject.

        • Tony

          No, it won’t spark inflation. Inflation is more than an increase in the supply of money.

          All the reserve status means is that other nations have dollar holdings in significant quantities as part of their foreign exchange reserves. The benefit, as I’m sure you’re aware, is that the rest of the world has to sell their goods to the US, in order to acquire dollars, since that’s they only way the foreign sector can obtain dollars. And since they need dollars to purchase critical things, such as oil, they’re going to find any way possible to sell their stuff to us, even if it means offering good products for low prices. This is obviously a
          benefit to American consumers. The desire for the rest of the world to hold dollars means very real benefits for Americans.

          It’s critical to understand that only way for the rest of the world to shed its dollar assets is to exchange them for real goods and services produced by Americans. This means every foreigner and foreign country that had an
          dollars would have to literally hand them back over to Americans who produced the stuff they were purchasing. If an Italian exchanged his dollars with an Englishman, who then exchanged them with a Russian,that won’t work since dollars would still be circulating in the world.

          Basically, when all is said and done, that 3 trillion or so held by foreigners would be used on a shopping spree to end all shopping sprees. Our 500 billion dollar trade deficit would be wiped out and we’d end out with a 3 trillion dollars surplus. On the other side, our partners, such as the Chinese, the Japanese and OPEC countries, which
          historically ran surpluses, would start to run deficits of a similar magnitude. While we got the dollars, foreigners would get real goods and services, such as cars, cloths, medical equipment, etc.

          The more complex question is what would replace the dollar? First, you have to understand that whatever currency people around the world decided to save in, if the foreign sector no longer desired US Dollars, that country would have to get used to running current account deficits. They’d have no choice, because that’s the only way the rest of the world could get that currency.

          • Jimbo

            You seem to have an understanding of the complexities of economics but you are lacking in the basics. The Dollar is only accepted in exchange for goods because it has a perceived value. Its value is related to the strength of the US economy divided by the number of dollars in existence. Weaken the economy and you weaken the dollar. Increase the amount of Dollars (including UST proxy dollars) and you weaken the dollar. It really is that simple.

          • Tony

            The dollar is the national unit of account, issued by the US government, as the sole and monopoly issuer. Taxes drive money. The demand for dollars is created since we need to extinguish our tax obligations in US dollars. It the issuing authority that gives fiat its value.

          • Jimbo

            “The demand for dollars is created since we need to extinguish our tax obligations in US dollars.”

            Which is the whole point of this forum. The US does not generate enough tax revenue to extinguish the dollars it creates. Hence the huge debt, the unfunded liabilities and the need for QE.

          • Tony

            First of all, under a fiat system, federal taxes don’t fund the government. The government doesn’t need to collect that back in taxes which it freely issues.

            For a currency sovereign such as the U.S. government, the truth is the opposite of the story normally presented to us. Until the government’s
            money has been created, no taxes could be paid and no government money
            could be “borrowed”.

            The consolidated government sector creates money when it spends or
            lends. Once government money has been created, it becomes possible for the government to receive back tax payments or
            “borrow” back its money
            from the non-government sector.

          • Jimbo

            “Until the government’s
            money has been created, no taxes could be paid and no government money
            could be “borrowed”.”

            That is utter bull.

            FRB creates money when it lends to a business, home buyer or someone spends on a credit card. A proportion will end up with the treasury as taxes.

            Man, get a refund on your education.

          • Tony

            LOL.

            Again, with the risk of sounding redundant, from whom does the the US
            government borrow? The US government doesn’t have to borrow that which
            it issues as the issuer of the currency. All bond purchases and tax payments are made with money that is already spent. If this wasn’t the
            case, there would be zero dollars to facilitate
            purchases of US
            Treasuries to begin with or make any type of tax payments.

            Let’s get down to some real accounting logic so to speak. We’ll use federal taxes as example, because I constantly say that spending precedes any ‘borrowing’ and tax payments. If we extend my statement to include loans from the FED, then I’m absolutely correct. The settlement of bond auctions and taxes paid to the Treasury can only occur through the various banks reserve accounts. The initial source of balances in banks reserve accounts are from past government deficits, which are credits to reserve accounts or actual loans from the Federal Reserve.
            These FED loans can be done through the purchase of private securities, loans, repos or even overdrafts. In order for bond sales to be completely settled or taxes payments rendered, previous government
            spending had to occur.

          • Jimbo

            That is one hell of a lot of smoke and mirrors that you just chucked up there.

            The US Government borrows from anybody who will buy UST’s. Foreign countries, Institutional investors etc. etc.

            The demand for the UST’s sets the yield (being the cost of borrowing for the US Government).

            QE is an attempt to force down yields by creating demand for UST’s (by using the Fed as a buyer).

            Treasuries are sold to fund deficit spending (being that the deficit is a function of spending > revenues).

            Debt is the accrual of deficits over time.

            lack of buyers for new debt = default.

            Buying your own debt with printed money (QE) is a technical default.

          • Tony

            The US doesn’t borrow its own fiat. There isn’t some dollar factory in China. For example, when the Chinese purchase US financial assets, they use dollars. Those dollars are sitting in a reserve account at the FED. The government had to spend those dollars into existence at some point.

            Technically, bonds aren’t even operationally necessary under a fiat system. They’re a vestigial leftover from the gold standard, but the entire process has been hijacked by reactionaries.

            Primarily, binds function to drain excess reserves from the banking system. It

            ‘s fairly simple process.
            It also gives the private sector a place to park there money in risk-free form and accrue some interest.

            Yes, the debt is the accumulation of previous deficits. So what? All that means is the government spent 17 trillion more than it took away from us in taxes. That 17 trillion are assets to the public.

            A budget deficit occurs when the government spends more than it taxes.
            The net result is an overall increase in financial assets held by the non-government. In other words, budget deficits increase net financial
            assets. Budget surpluses do the reverse, and balanced budgets keep the
            level of net financial assets constant.

            Instead of issuing debt, the government could allow the extra
            financial assets to stay as reserves as opposed to securities and pay the target rate of interest on them. This would make is glaringly obvious to the public that there cannot be a funding issuer for the US. Ever. However, the 1%have invested heavily in this debt charade so to speak.
            percent’s real motive in continuing the charade of public debt issuance.

            Last, QE is an asset swap for the umpteenth time. The US cannot default, it’s operationally impossible. It could voluntary default which probably isn’t even legal.

          • Tony

            *bonds

          • Jimbo

            You are unreal. You talk in riddles and contradict yourself constantly.

            I don’t know who you are trying to convince and what you are trying to convince them of but it ain’t working (not for me or anyone else with a functional brain cell).
            Economics is not particle physics and QE is not the Higgs Boson.

            Economics (without the smoke and mirrors that seem to confound you), is a very simple subject.

          • Tony

            This is all very basic. Most of the misinformation is due to the media and various vested interests (the 1%).Like I said, under a fiat system, the whole concept of tax and borrow isn’t applicable, since we’re no longer on a gold. Some of your arguments would have merit if we we’re still on the gold standard, then we really would have to tax and borrow.

            I’m simply explaining the mechanics of modern money. Have a good night.

          • Tony

            *gold standard

          • Jimbo

            Perhaps you ought to learn the “mechanics of modern money” before you start to teach them to people who already understand them.

          • Tony

            I understand basic monetary more than most, especially when people start saying a currency issuer under a fiat system can go bankrupt. I don’t know if you have a background in finance or economics, but I’m going to post some papers for you.

            Here:

            http://www.moslereconomics.com/wp-content/pdfs/MMT-Scott-Fullwiler.pdf

            http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_251-300/WP279.pdf

          • Jimbo

            You are missing the point. For a net importing country to continue to be able to import, it must balance the trade gap with currency. The countries the net importer imports from must be prepared to accept that currency in exchange for goods. If the receiver decides to spend that currency in the issuing economy, then there is no trade deficit as such but rather a gradual transfer of ownership of issuing countries assets to the net exporter.
            The USA has the privilege of issuing the world reserve currency so net exporting countries hold US dollar reserves rather than spend them in the US.
            In the event of a loss of faith in the dollar, exporting nations holding dollars will wish to transfer their dollars into hard assets.
            This would crash the value of the dollar and the US economy with it.

          • Gene Baugh BBA

            QE is an attempt to force down yields by creating demand for UST’s (by using the Fed as a buyer).
            Yes you’ve got it.
            If the economy ate a can of spinach and started going like Popeye they could reverse the policy too; to raise rates and slow the economy.
            The economy is what, 140 million jobs away from that?
            How many are eating tuna casserole and cornflakes on food stamps? How many are homeless?
            The Fed dramatically increased its balance sheet in the thirties too. Did that cause hyperinflation? No. It did not stimulate demand enough to prevent a 90% collapse in the general price level.
            This is not the 70′s. It’s 2013 and we are fighting the K-wave winter.

          • TonyS

            As we know, QE works by the FED creating dollars and buying up various
            assets. They buy mostly bonds, but some other securities as well. Two things happen when these assets are purchased: yields decrease and values increase.

            We can also view this as the FED LIMITING the supply of assets. For example, imagine there’s a fixed amount of assets in any given market – say 4,000 – and the average price is also set at $4,000. The FED steps in and uses dollars to purchase half the assets which doubles the prices. The assets in the market are cut in half and the price essentially doubles. This is simply an example, not what literally a-z mechanics of operationally what occurs.

            Simultaneously, as the asset prices increase, their yields decrease. In our
            example, imagine said assets had an average yield of 4%. After FED purchases, their yield is cut in half down to 2%.

            It’s as clear as day what’s transpired: holders of these assets have seen an
            increase in their net worth since the asset has basically doubled, but incomes have decreased as the amount of their asset yield has decreased.

            In economics, we would say that their stock of wealth has increased, but flows of income have decreased. This is the actual reality of what transpires under QE.

          • TonyS

            Edit to add:

            The original idea behind QE is that it should increase employment and
            investments. None of this has materialized for obvious reasons.

            By any metric, QE is a failure. We should ALL now realize that business is
            demand-led and won’t magically respond to lower interest rates or an increase in the monetary base. If people don’t consume, companies won’t hire and invest.

          • Gene Baugh BBA

            The Fed only lends to banks.

          • Jimbo

            I was responding to Tonys (now known as “Guest”) idiotic statement that the Government creates money. Fractional Reserve Banking (FRB) creates money when it lends to anybody.

          • Jimbo

            Tony is now TonyS.

            While your comment awaits moderation I can’t reply to it so I will reply to myself.
            When you take a credit card into a store and buy something, you create currency. The store has the money you paid but that money did not exist until you swiped your card.

            Same for bank loans, mortgages etc.

            It really is that simple.
            And so are you.

          • Gay Veteran

            “…It the issuing authority that gives fiat its value.”
            WRONG, it is the market that gives fiat its value

          • Jimbo

            Or to put it another way. If the dollar was a glass of beer and China was an alcoholic, you could exchange goods and services from China for beer. If you watered down the beer 2%, China wouldn’t notice. If you watered it down 50% China would notice but would carry on because China is an alcoholic. China may increase its goods to beer ratio (price) to compensate for the watering. Water it down 95% and China would not accept it in trade. It would be painful for China to withdraw from accepting beer in trade but as the beer is so heavily watered down, it is pointless to keep accepting it.

          • Tony

            I previously said that I said foreigners completely are dependent on US domestic credit
            creation so they can fund their desire to hold US financial assets.
            We’re funding their savings through our domestic credit creation. I’ll try a
            more elementary approach.

            Everybody in the currency trade arrangement is happy and content. The
            banks have loans and deposits, so they’re in a good mood. The Japanese
            auto manufacturers have US dollar deposits they want as savings, and Joe
            and Jane have a car and the note they agreed to.

            US domestic credit creation, such as bank loans, have funded the
            Japanese desire to hold US dollar deposits at a bank which we refer to
            as savings. Where’s the alleged foreign capital? There isn’t any. This
            whole notion that the US is dependent on this nebulous and mysterious
            foreign capital is complete bollocks. More to my point, it’s the foreign sector which is totally dependent on US domestic credit creation to
            fund their literal desire to save and accrue US financial assets. This
            is how we fund foreign savings.

            This spreadsheet belongs to the US, and if people want to save in US Dollars, they have to play by the rules on the playground. And what other options does the foreign sector have for their dollar

            holdings? They can’t say or do a thing other than purchase other financial assets and real goods and services from other sellers. And when this is

            accomplished at market rates, everybody is happy and on and on it goes.The buyers get what they desire and need in the form of real goods and services, net financial assets, etc. The sellers get what they desire and need in the form of US Dollar deposits. Imbalances are
            impossible from a sectoral standpoint. And there is zero chance of US being dependent on foreign capital, because there is zero foreign capital involved in this equation.

            There is no reason, except from total and utter
            ignorance about our monetary system by US leaders, that such an incredible benefit would be
            deemed a doomsday
            scenario for the domestic private sector and
            unemployment.

          • Gay Veteran

            “…foreigners completely are dependent on US domestic credit
            creation so they can fund their desire to hold US financial assets….”
            WRONG, Russia and China are using dollars to buy gold

          • Tony

            So what, they’re purchasing commodities? They still buy a ton of US paper. Daily auctions are still oversubscribed.

          • Gay Veteran

            Who is buying? The Fed

          • TonyS

            The FED is precluded by statute from buying US paper directly from the Treasury. They use the primary dealers to facilitate bond purchases.

          • Gay Veteran

            and I’m sure that’s a huge benefit for the banksters who the Fed protects

        • Gay Veteran

          well the Russians and Chinese are using dollars to buy GOLD
          poor Tony just doesn’t have a clue, or is paid not to have one

      • Jeffrey Missal

        I didn’t refer to it as an imbalance…I referred to it as reducing our industrial capacity, which it does.

        • Tony

          We benefit from the trade deficit. The foreign sector sends us hundreds of billions of dollars of real goods and services in excess of what we send them. As long as they want to continue this arrangement, why would we change it?

          Many economists and politicians have these concepts completely
          backwards. These beliefs about imbalances, trade deficits being
          unsustainable, and losing jobs to China, are pure insanity. I can’t
          think of another word to accurately describe these ‘theories’.

          For example, imagine the US forced Japan to send Americans 2 million
          cars per year after WWII. Now let us also imagine that our Japanese
          partners would receive nothing in return. Do you somehow believe they
          are wining some
          imaginary trade war? Americans own the cars, and they
          have an account balance with FED where they keep their dollars.

          We can extend this example to China. Do you think they’re winning some
          trade war? They keep American stores stocked with their products and
          receive nothing in return, except their FED account statement, which is
          denominated in dollars.

          The foreign sector is dependent on domestic credit creation to fund
          their desire to hold US financial assets, plain and simple. It’s a
          situation where domestic credit creation funds the savings of the
          foreign sector. The US isn’t dependent on savings from the foreign
          sector to fund anything whatsoever.

  • Jimbo

    But QE is printing money. The Fed create dollars out of thin air to buy treasuries. The dollars created are used to fund deficit spending. If the Fed create 65 billion to buy treasuries there is a net increase of 65 billion in circulation. It is not an asset swap because no asset existed in the first place. The Treasury created the “asset” by issuing bonds and the Fed created the dollars to buy them. It really is that simple.

    • Tony

      How do you think money is created? Under a fiat system, money creation is ex-nihilo so to speak.The Treasdury spends base money into existence and the FED loans base money into existence. Where to you think those dollars sitting in reserves accounts come from? They had to have been spent into existence at some point before China, the Saudis, or the bank up the block can purchase US treasuries.

      QE isn’t “money printing”. There isn’t an increase in net financial assets. QE only changes the composition of these assets held by the public.

      QE doesn’t create inflation. All the FED does is change the composition and duration of these assets held by the public.

      For example, a Treasury has a duration – two year, five year, thirty
      year, etc. Cash has ZERO duration, so all we’re doing is changing it to alonger duration, shifting those financial assets to a shorter duration.

      This all that occurs and there’s no new creation any type of financial
      assets. What I’m telling you is widely known by Treasury and FED
      staffers.

      Lastly, banks don’t lend out reserves, except to one another in the FED funds market. Banks lend out their own deposits (deposits create loans so to speak). The trillions in excess reserve don’t get lent out to the general public.

      • Jimbo

        But you are confusing a Treasury with an asset. Technically it is an asset but in reality it is a paper promise to exchange for dollars. It is not a block of land or an ounce of gold or a barrel of oil. It is a piece of paper that can be exchanged for another piece of paper after a given length of time. If I gave you an IOU in exchange for $10 then for a while there would be $20 in circulation. The IOU can only be removed from circulation when I honour it by repaying the $10 and then ripping it up…

        • Tony

          I’m not confused. The amount of misinformation on this subject is astounding. It would help to differentiate between real assets and financial assets.

          Federal liabilities, such as currency and bonds, are assets to the public. If you don’t think are, I’ll gladly take that burden of your hands. :)

          One’s financial asset is a another’s financial liability as a matter of basic accounting. For every asset, there is a corresponding assets.

          This gets into why deficits aren’t really a big deal once we understand some basic macroaccounting. Deficits actually create net financial assets.

          • Tony

            Edit to add: type-o

            For every financial asset, there is an offsetting and corresponding financial liability. Sorry. :)

          • Jimbo

            “The amount of misinformation on this subject is astounding.”

            Not meaning to be rude but think about what you are saying and follow it to a logical conclusion. According to you QE is harmless double entry book keeping. So maybe it should be increased so that everybody in the US gets to retire while everybody else in the world produces goods for the USA in exchange for dollars.

            That is what you are saying isn’t it?

          • Tony

            That’s all it is. Here’s some info on sectoral balances to point you in the right direction.

            http://neweconomicperspectives.org/2011/06/mmt-sectoral-balances-and-behavior.html

  • Pavan

    The big question is how long before the collapse. We are lucky that things have held together for so long. How many years do we have left? Maybe 1 or 2, or could things hold together for another 10 years or more? What happens after the collapse. Do we live under Marshall Law? Do the Chi-Comms invade? The cities will probably experience internal race wars. In any event, the most unlikely outcome is a post-collapse Utopia.

    • Tobias Smith

      prepared people: some thrive, some die
      unprepared people: most pass away or live in total subservience.

    • Gene Baugh BBA

      We are lucky it did not start in 1987 when it was due according to the K-wave cycle. It held together pretty well until 2000 when the wheels began to fall off. Unless the stock market starts heading south pretty soon it may be over already. Look at the headlines today. Unimagineable from the perspective of 1998. Millions on food stamps and homeless. This may be the post collapse apocalypse.

  • Jimbo

    Tony. A dollar is an IOU. If I wrote IOU’s to all of my friends in exchange for goods I would have a lot of free stuff. If my friends all came to my house at the same time for repayment of the IOU’s I would be broke. I would not have a current account surplus just because I now hold all of the IOU’s because I am the one who issued them. They are drawn on me. Same thing with the Dollar. If all the dollars came home to the US, the US would be broke. It may hold trillions of Dollars but if nobody else wants them they are worthless. It really is that simple.

    • Tony

      If the US lost its reserve status, nothing would happen. I wrote a detailed post in this thread on my lunch break.

      First of all, in order for the foreign sector shed their dollars, they have to purchase real goods and services from Americans. We’d basically go from having a 500 billion dollar trade deficit to having a 3 trillion dollars surplus.

      On the flip side, our trading partners, such as the Chinese, the Japanese and OPEC countries, which historically have run surpluses, would start to run deficits of a similar magnitude. While we got the dollars, foreigners would get real goods and services, such as cars, cloths, medical equipment, etc.

      Foreigners are dependent on US domestic credit creation so they can fund their desire to hold US financial assets. We’re funding their savings through domestic credit creation.

      Lastly, the US cannot go “broke”. It can’t run out of its own fiat so to speak. It issues the dollar as the national unit of account.

      • Jimbo

        But you are missing the point. The three trillion dollar surplus would be extra dollars within the US economy competing for the same number of goods and services = inflation. Also, if nobody else in the world will accept dollars there will be less goods to go around so there would be more money chasing fewer goods = hyperinflation. It really is that simple.

        • Tony

          No, it’s not that simple. We need to start over. Inflation is more than an increase in the supply of money. As long as there is tandem increase in real goods and services, there isn’t going to be an inflation problem. We can also get into the difference between demand-pull and cost-push inflation if need be.

          Secondly, an increase in bank reserves isn’t inflationary, since bank don’t lend out reserves.

          Hyperinflation is an entirely different animal
          altogether.Historically, hyperinflation occurs when the following things happen:
          industrial capacity is decimated by war (or civil war), high levels of corruption, ceding of monetary sovereignty (foreign denominated debt or a
          currency peg), a general breakdown of the domestic economy and tax
          system and a volatile political environment.

          These were the ingredients
          whether it was Austria, Weimar, Poland, Russia, China, Hungary, Greece,
          Argentina or Zimbabwe. Hyperinflation is always and everywhere MUCH MORE
          than a monetary
          phenomenon. The United States doesn’t meet any of the
          historical criteria for hyperinflation.

          • the Vicar

            I’ll go along with your desire to start over, and state that some of the confusion perhaps is in definition of terms. Price Inflation is not the same as Monetary Inflation. Monetary Inflation is, by definition, an increase in the money supply. Said Monetary Inflation does not necessarily cause Price Inflation, and Price Inflation (such as oil shocks) do not necessarily indicate Monetary Inflation.

            However, there is a strong correlation between the two, and when Monetary Inflation gets out of hand then Price Inflation is sure to happen.

            Currently we have been witness, since 2008, of a massive deflationary cycle, wherein both Money Supply and Money Velocity have fallen, in spite of Helicopter Ben’s best efforts (QE and the corresponding increases in other measures of money, such as M1).

            The concern that I have, and that many others have as well, is that the current deflationary cycle will not last forever, and the money now in the system but not currently circulating (such as that measured by M1) will then start circulating, causing massive Monetary and Price Inflation.

            Is hyperinflation right around the corner? I’m not 100% sold on that. But I’m definitely worried about all the bubbles that Ben keeps blowing, and the eventual outcome of this cycle.

            Also, the United States does look more and more like it might fit the “a general breakdown of the domestic economy and tax
            system and a volatile political environment” prerequisite that you listed.

      • Jimbo

        Your whole argument is reliant on a flawed fact. The Dollar has no real value. It is not directly exchangeable for anything tangible unless the seller of that asset is prepared to accept it in exchange. The Dollar is an IOU. Nothing more. An IOU is only as good as the entity that issues it. An IOU that was good yesterday is not automatically good next week just because it was. People who are prepared to accept your IOU’s today will not automatically accept your IOU’s next week just because they always have.

        Following your logic, the USA doesn’t need to do anything apart from issue dollars because everyone wants them. No need to manufacture anything or export anything. Just create the dollars and exchange them for goods and services from other countries. Hell, why not make everybody in the US a millionaire and they could all retire. In your words “Lastly, the US cannot go “broke”. It can’t run out of its own fiat so to speak. It issues the dollar as the national unit of account”

        • Gay Veteran

          VERY good points

        • Tony

          All money is intrinsically worthless, including gold, which gold bugs can’t seem to wrap their heads around.

          Taxation essentially lets fiat money operate as currency, giving it value through creating demand for said currency in the form of tax liabilities. We must all use US dollars to settle our tax obligations. You can’t use gold, silver, diamonds or Euros. We have to use US dollars. And yes, value is also maintained through production and confidence in the currency. At the end of the day, all money is a social unit of account.

          • Jimbo

            Tony, any unit of exchange (gold, currency, eggs) is a matter of consent between the trading partners. How much of what you exchange is up to you.

            That is of course with the exception of the Dollar (according to you).

            For some reason the US Dollar is immune from the normal rules of economics, physics and basic common sense.

            I feel sorry for you because I think you actually believe this tripe you are spouting.

            Get a calculator, press the 1 then the + then the 1 again. The answer is 2.

            It really is that simple.

      • Gay Veteran

        Idiot.
        If you have $100 and 2 barrels of oil, then the price of a barrel of oil is $50.
        If you have $1000 (due to money printing) and 2 barrels of oil, then the price of oil is $500.
        Again, using your theory, the Fed could “print” $1,000,000,000,000,000 and nothing would happen

        • Tobias Smith

          but wait, he wrote this on his lunch break. maybe it was a liquid lunch

          • Jimbo

            Do they have lunch breaks at CNN?

        • Tony

          Answer me this: where does the dollar in your pocket come from?

          I never said the government could endlessly spend. My problem is you geniuses don’t even understand inflation, basic monetary operations, or even basic accounting identities. You parrot talking point.

          • the Vicar

            That one’s easy. It comes from the Federal Reserve. Hell, it even says so right up on top of the bill: “Federal Reserve Note.”

            Bear in mind that it does not say “Treasury Note” or “Government Note”, which is what you imply in your other comment when you state “The
            government basically spends by crediting private bank accounts.”

            The government neither prints its own bills nor creates digital/ledger money-balances. The Federal Reserve does.

          • Jimbo

            Tony, it is plainly obvious that you have tied yourself up in knots here.

            Answer me this, if the US can’t go broke but can’t spend endlessly at what point must they stop spending to prevent going broke (although according to you they can’t go broke)?

            If the US can’t go broke then it can spend endlessly.

            If it can’t spend endlessly then it can go broke.

            So which one is it? It can’t be both (although according to you it can be and can’t be at the same time).

            Re read your posts.

            They make no sense at all.

          • Tony

            Once we reach full employment – or come as close as possible – and the economy is at full capacity. Full employment was abandoned as a national policy after WWII. The goal should be to utilize any and all productive capacity so to speak.

            Since we’re not at full employment, it a sign deficits are too small currently. The only constraint is inflation, but given all our excess capacity, under the current circumstance, that’s not even a problem at this point. Taxes can always be used to regulate aggregate demand if the economy ever redlines to that extent.

          • Jimbo

            I asked a direct question and you didn’t answer it. That is because you can’t answer it. Instead you go off on a tangent talking about full employment which as far as I can see does not answer the question.

            Again,

            If the USA can’t go bust, why can’t it spend endlessly?

          • Tony

            The only constraint is inflation.Any type of aggregate demand could tilt the economy towards inflation, whether it’s
            consumption, exports, investments or even
            government spending. Deficits are rather trivial to obsess over since they’re part of normal economic activity.

          • Gay Veteran

            no one here is buying your pseudo-intellectual drivel, and I suspect you’re a shill for the Fed

          • TonyS

            I can assure I’m not a “shill” for the FED. I think some of Bernakes’ decisions regarding MBS and supporting the bailouts were horrendous.

        • Gene Baugh BBA

          Not if the banks just keep it in reserves like they are doing now. It only gets into the economy when banks are willing to lend and people are willing to borrow. This condition is why we are not seeing 33% inflation per year for the past three years. The fed is trying to stimulate but nobody is playing along. We just have lower interest rates. Without QE we would have “normal” interest rates and the economy would be worse off.
          In other words you don’t have $1000. The banks have $900 stuck in their mattress and you still only have $100.
          It is weird but true.

          • Gay Veteran

            oh no, another shill for the Fed. Zero interest rates gives the shaft to savers, and those trying to build up capital to form a business.
            Try reading some Karl Denninger (one of the founders of the Tea Party movement).
            The only ones benefiting from the Fed’s actions are the banksters.

          • Gene Baugh BBA

            I’m one of those savers getting the shaft.

          • TonyS

            Why isn’t deflation theft when its committed against debtors? Deflation also imposes a tax on productive firms and people, who have to pay back their debts with
            dollars that have increased purchasing power. There can also be debt deflationary ripple effects. Prices and wages don’t adjust in tandem, despite some of the more laughable theories by the Austrians and Walrasians who believe that perfect price/wage flexibility would magically reach equilibrium for any type of debt deflation or theft imposed on debtors.

          • TonyS

            You have it backwards.

            In terms of savings, well, investments add to savings. There isn’t some fixed pool of savings sitting out
            there in the ether. Our savings are DIRECTLY correlated with national
            income. Since
            government spending stimulates the economy, which
            increases national income and GDP, our savings rate will rise
            simultaneously.

          • Gay Veteran

            “…Since government spending stimulates the economy, which increases national income and GDP, our savings rate will rise
            simultaneously….”
            TOTALLY CLUELESS. Government spending via borrowing does not increase our savings rate because not all fed bonds/notes are held by Americans

          • TonyS

            From whom does the US “borrow”? Again, the US doesn’t borrow its own fiat, that’s propaganda. Yes, it does increase savings rates, because US debt it the total savings of the US economy, which includes foreigners who desire to save in US financial assets. A Treasury is nothing more than a dollar deposit at the FED.

          • TonyS

            *US debt represents the total savings.

          • Gay Veteran

            NO, the proceeds of a Treasury bond or note goes to the Treasury Department, not the Fed.

  • Tobias Smith

    this is way cool, i’m almost ready, hope ya’all are too. prepare and have fun with it!

  • Tobias Smith

    stolen from a previous poster:

    The Fed knows that the U.S. economy is not recovering. It simply is being kept from collapse by artificially low interest rates and quantitative easing. As that support goes, the economy will implode.”—Peter Schiff

    if Peter Schiff says this, then……………………………………………………………………………………………………………………………

  • Gay Veteran

    you’re starting to sound like a paid for troll

    • Jimbo

      I think his name is Frank (from another forum) and I’m not sure if he is a paid troll or just somebody who can’t see the wood for the trees. I know a guy who can pull rabbits from hats and I can’t explain how he does it. All I know is that he hasn’t really pulled the rabbit out of an empty hat. I think Tony would be able to explain that actually a rabbit was pulled from the empty hat and that the magician can continue to do this forever.

      • Gay Veteran

        LOL

    • Tony

      I’m a bond trader. I also have a background in economics. I don’t mean parroting schiff-isms or Paultard-isms, either. I actually put in the leg work.

      • Jimbo

        But you don’t understand simple basic maths. You contradict your own arguments (the US can’t go broke/ the US can’t spend endlessly). You are a fool who actually believes he is not a fool (which is the worst kind of fool).
        There are some nut jobs who post on this site and maybe one or two might rush out to buy bonds after your have convinced them with your “logic”.

        There are also some very well educated and intelligent posters on here and you my friend are not one of them.

        • Tony

          One word: inflation. The only constraint is inflation. Most of you don’t even understand basic monetary operations, yet your going to insult me. LOL. Okay.

          How much did the US rollover in US Treasuries last year?

          • Tony

            *you’re

          • Jimbo

            Rolling over treasuries is just new debt to pay down old debt. Inflation erodes treasury values and reduces debt. Inflation also increases interest rates. Inflating away old debt makes new debt more expensive.

            I understand full well how it works. Do you?

          • Tony

            We paid back (rolled over) over 30 TRILLION in the last 6 months. There’s been zero hyperinflation and interest rates are near zero. Any assertion that we can’t back our debts and we’re broke is pure BS.

            Here:http://www.publicdebt.treas.gov/index.htm

            Google is your friend!

  • mleblanc138

    Let’s not forget what One Trillion Dollars would actually look like in physical Hundred Dollar bills. It would make a tower taller than the Statue of Liberty. Each of the 100 “levels” of this money tower would be made of 100 pallets laid out in a 10×10 grid. Each pallet would have 1 Million Hundred Dollar Bills on it. And since the highest bill the common man normally uses is a $20, 1 Trillion in $20s would be five of those taller than the Statue of Liberty towers.

    • Jimbo

      It doesn’t matter. According to Tony everybody else in the world is falling over each other to get their hands on US Dollars. Maybe they need to print loads more.

  • A D

    The charade will continue until the 1 is ready to make his appearance. The time to find out why you are here is now, for many it will be too late.

  • A D

    Electricity – Mr Oboma has an energy policy based on scarcity. Like he said prices are going to skyrocket, leading to more 3rd world economics in the USA. People watching sports on CHINESE made flat panel tv’s could careless for now…

  • Claudio

    I agree with all this but the US dollar is backed by oil. That’s the difference between now and the 30s and 80s and the Weimar Republic.

    • Jimbo

      Not backed by oil. Traded for Oil but not by everybody and not by law but by agreement. That is coming to an end.

    • A D

      It will end when they say it is going to end.

  • A D

    The dollar is temporary, it will be ‘kaput’ when they get ready to call it quits. Only a fool denies this, it is going to happen and they are setting the stage for it to fail.

  • 2Gary2

    Michael–comparing us to wimeir Germany is disingenuous and lazy. You have to know we are nothing like that. world events and circumstances are completely different.

  • Pete

    The article use the example of exponential growth of a drop of water. I have a better one.

    One cell becomes cancerous in the body. It then divided into two, and each of those two then divide into two, etc., etc.

    All too soon the patient is dead.

    So it will be with QEing to infinity.

  • http://www.facebook.com/people/Digby-Green/1375053789 Digby Green

    The Fed should never have started QE.

    But now they need to start tapering, and take their medicine. Better that than to keep building up that mountain of bonds.

    Some how the western world needs to create more real good jobs

  • FlaSwamps

    Sadly, The United States of America’s tombstone will read “If we only would of demanded our elected officials to abide by our Constitution, you wouldn’t be reading this”

  • Gene Baugh BBA

    I agree with your premise and I might add, “If the banks don’t feel like lending.”
    You made an error in your example though. V does not equal 5 because you went to the store 5 times. Each dollar you spent only changed hands one time. Velocity refers to the number of times the same dollar changes hands in a given period of time. When economists talk about the number of transactions they are refering to transactions of the same dollar being respent over and over.
    Hope that helps your understanding.

  • mayhap

    I would share, but the people who should read this would dismiss this website in an instant. What’s with the crazy design?

  • Gene Baugh BBA

    Interest rates have gone up, that attracts money.

  • Nic

    “the best you can do is to ditch your US passport”

    Department of Scareland Security

  • Jimbo

    Again I don’t get your argument. You are running off at a tangent from the original point that QE could ultimately destroy confidence in the dollar and cause a rush of dollars back to the US and erosion of each dollars value within the US economy. You refute that point based on this hare brained idea that the Dollar is actually an entity that has real value but you offer no justification for your idea.

    You don’t answer questions directly preferring instead to waffle on pretending to know what you are talking about. You post links to papers that don’t support your arguments? You contradict your own arguments.
    You nit pick other posters comments instead of answering questions directly.

    I am done with this. I know my stuff and I will listen to reasoned argument from anyone with a different viewpoint to mine, but your arguments are just a mess based on a half baked understanding of economics.
    Your knowledge and writing skills remind me of someone who posts similar rubbish on Zero Hedge and again on Hidden Secrets of Money (both under different names but both obviously you).

    By all means respond to me but I shan’t be replying again.

    • TonyS

      QE won’t destroy “confidence” in the dollar. I’ve been critical of the program from the out set. It’s a failure, firm haven’t hired, nor have they invested. It was thought the program would increase investments and employment in the real economy. Reduced interest rated were supposed to forced businesses to invest in tangible assets.

      However, all this talk about hyperinflation is a result of ignorance of epic proportions. Since banks don’t lend out reserves, this money doesn’t make it into the hand Joe Sixpack, so it’s crazy talk.

  • Jimbo

    OK what exactly is your point?
    According to you, QE is harmless, the dollar is infallible and the USA can borrow forever without consequence. The Government don’t need tax inflows, Gold is worthless and I don’t understand economics.
    Fair enough, I will throw away my gold based on the sure knowledge that some bloke called Frank or Tony (or whatever you are calling yourself today) says so.
    Thanks for the advice.

    • TonyS

      I never said QE is harmless. It lowers the yield curve which has proven a failure, in terms of stimulating the real economy. However, it’s an asset swap, so it doesn’t create any new net financial assets so to speak. That’s interest that could have been earned by the private sector if the FED hadn’t made those bond purchases.

      Gold isn’t a productive asset,it’s a commodity, nothing more, nothing less.Historically, over the past two centuries, stocks and bonds have done
      considerably better than gold.

  • Tony Lopez-Cisneros

    Since The FEDERAL RESERVE SYSTEM Took Over OUR Money Here In The U.S.A. #1) A CUP OF COFFEE –OR– #2) A LOAF OF BREAD:
    ——
    a.IN 1913 COST 2 COPPER PENNIES (2 CENTS) !
    ——
    b.IN 1963 COST 2 SILVER DIMES (10 CENTS) !
    ——
    c.IN 2013 COSTS 2 “FED-NOTES” (2 ‘DOLLARS’) !
    ——
    & WILL
    ——
    d.IN 2063 COST 20 ‘FED-NOTES’ (20 ‘DOLLARS’) !
    ——
    e.IN 2113 COST 200 ‘FED-NOTES’ (200 ‘DOLLARS’) !
    IF THIS GENERATION X DOESN’T DESTROY THE ‘FED’: THE ‘FED’ WILL DESTROY OUR FUTURE ! ! !

  • Tony Lopez-Cisneros

    Correction: In My Previous Post Where It Was Posted: “b.IN 1963 (Cup Of Coffee & Loaf Of Bread) COST 2 SILVER DIMES (10 CENTS) !”
    -
    SHOULD PROPERLY READ:
    -
    b. IN 1963 (Cup Of Coffee & Loaf Of Bread) COST 2 SILVER DIMES (20 CENTS) !
    -
    Sorry For The “SCRIBNER’S ERROR”.
    -
    Truthfully Honestly, Sincerely Yours And Faithfully Recorded & Submitted,
    -
    Tony Cisneros
    2011 (& Possible 2015) Candidate For City Treasurer,
    City Of Chicago,
    State Of Illinois,
    United States Of America.
    -
    P.S.:THE YEAR 1913 WAS THE BEGINNING OF THE END OF OUR U.S. CONSTITUTIONAL BASED MONETARY SYSTEM ! LET’S MAKE THE TOTAL DESTRUCTION OF THE ‘FEDERAL RESERVE SYSTEM’ THE END OF THE BEGINNING OF THE BANKING BEAST THAT HAS RAPED US ECONOMICALLY SINCE IT’S HELLISH BIRTH-YEAR IN 1913 A.D. — A HUNDRED YEARS OF ECONOMIC BONDAGE TO THE ROTHCHILD$, ROCKEFELLER$ & GOLDMAN-$ACH$ IS ENOUGH — ENOUGH — ENOUGH — BASTA ! — BASTA ! — BASTA ! ! !

  • VIGILAX

    1- The world stop to use the US dollar as a trade currency.

    2- The US dollar loses its value.

    3- No body wants the US goverment debt, the FED continue buying it printing more money.

    4- Inflation boosts, as well as interest rates.

    5- Despite increase of interest rate, nobody wants to buy US goverment debt,with exception of the FED.

    6- Hyperinflation and caos. The FED owns the majority of the US government debt.

    At this point, the US government has a debt that can not ever be paid, and the Fed is the holder of a debt that can not ever be collected.

    Well, in fact actually the US Government has a debt that cannot pay, but major part is in hands of foreign holders.

    All the QEs is implying that the FED slowly is becoming the largest holder of all debt.

    Why is the FED (a private entity) so interested in holding all the debt? A debt that couldn’t ever be paid?

    If Greece is being forced to sell its islands to pay its debt, what will the US government be forced to sell? Don’t forget that the US government debt is the US citizens debt.

    Oh yes there is an exit!!! The entire United States will no longer belong to their citizens, it will belong to the FED.

    This will led into the privatization of the USA government, and all private property will be sequestered. You won’t be a free citizen any longer, you will become a servant of the new power, and you will be forced to do any task in Exchange of basics needs (such as housing, food, clothing, health and directed education, as well as some extra entertainment as a motivation for those who accomplish with their obligations and fixed goals).

    There will no longer exist a President of the USA, there will be an unelected General Administrator of the USA.

    You’ll no longer own anything, and the money will no longer be necessary to buy anything, cause the “Coorporate State” will provide you of anything necessary in Exchange of your forced social services.

    What will happen to those who could not or will refuse to provide their quota of forced social services? they won’t be any longer necessary for the society? They will be dispensable. They will be eliminated.

    At this point, who will care about the value of the U.S. dollar, it will no longer exist.

    WELCOME TO THE NEO-FEUDALISM ERA!!!! A new era of highly productive and free labor force.

    Of course, in order to be accepted such a maquiavelic plan, before the majority of population has to suffer poverty and starving, so all this changes would be welcome.

    Do you think I am crazy??? Do you think it is the screenplay of a new movie or x-box game? Why do you think US government is spying and controlling everyone everywhere?? Why do you think the US government has already built an elite private military force???? Why do you think the US is already promoting the implanting of a chip to all their population?? why do you think the US government has distribute millions of ammo to all their civil offices??? why do you think the US government has already built concentration camps in strategic places along the USA??? Why do you think the US government is so concerned in drones large-scale production (there is no risk they will disobey orders)??
    Have you seen how different cities are going into bankruptcy?
    They are preparing the bankruptcy of the US Government, and when it will happen, the FED will take the control. Well, in fact the FED is the instrument to achieve that goal, and it will be seen as the guilty of all this situation, so another power born in the shadows will be in charge to take the control of it.

  • Math Bear

    Sheesh! You guys are seriously clueless! Have ANY of you noticed how well this fits in with the scenario for the last days of capitalism sketched out by Karl Marx in “Das Kapital”? All the so called “communist” states of the 20th Century were not real socialism but variations on “red Fascism”. Marx made it clear that real socialism in the sense he meant it cannot happen until capitalism collapses of its own contradictions. What follows is either the reorganuzation of human society on a radically democratic basis which is what he really meant by “socialism” or civilization will completely collapse and usher in a new Age of Darkness. Socialism also has to happen world wifde, not just one country. You guys should read a good exploration of Das Kapital (the original is nearly impenetrable for a beginner) and see just how much Mark’s vision corresponds to today’s world. He explains how in the end times capitalists will become obsessed by speculation and what he calls “the creation of fictitious capital or fictitious value”. Isnt that exactly what QE is oor the equally heinous Derivatives? Business and government will get further and further away from productivity which is the source of real wealth. As he grimly prophecies, “On one pole you will have ever increasing wealth and on the other ever increasing misery”. Isnt that what we are seeing? Marx predicted what we are seeing a century and a half ago. Current Nobel Prize winning economicists can’t predicct what will happen 2 months from now. Modern economics has become a vile useless pseudoscience that can only justify the pathologies of capitalism. please check it out Das Kapital if you want to know what is going to happen next. For those of you who laugh at the idea of socialicism keep on laughing as you stare into the open grave that History has prepared for capitalism!

    Marx has been misquoted a lot which distorts the impression people have of him. I thought I would give you some accurate quotations to set the record straaight………..

    “The man who uses unsrupulous means can only accomplish unscrupulous ends!”

    “Religious suffering is, at one and the same time, the expression of real suffering and a protest against real suffering. Religion
    is the sigh of the oppressed creature, the heart of a heartless world,
    and the soul of soulless conditions. It is the opium of the people.”

    “Jesus Christ was not a Christian, Buddha was not a buddhist, and I am not a Marxist!”

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