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ZIRP is like financial heroin. It is easy to get into it, it really kills the pain, but it is extremely difficult and painful to withdraw.

Low interest rate regime installed by Fed creates huge problem for retires who depend on interest income. Bernanke might be afraid of deflation but he's flat-out terrified of inflation. Weak firms will instantly go belli up in interest rates became "normal". Bill Gross called this new regime (or mousetrap) "new normal". And it represents some additional dangers for 401K investors as bond bubble creates by Fed and partially deflated in June 2013 demonstrate all too well.

And he's got the perfect smoke screen: unemployment. The FED dual mandate is a convenient shell game. Bernanke and Congress are not fighting deflation – low inflation forever is the goal. If unemployment is kept high (true unemployment at 17%, propaganda at 7.5%) then the Fed can manipulate its true anti-inflation agenda without interference. ZIPR allow to recapitalize banks and get the stock market growing; helps to save the banks' balance sheet by buying up the MBS; and impose a stealth austerity on the retirees.

washunate says:

Well said. Bernanke has been quite consistent, going back to when he was a Bush appointee, that he's willing to do the emergency lending corporate welfare financial bailouts thingy, but that Congress is responsible for evaluating and implementing support for non-financial companies.

So it's all about saving financial elite from its own blunders. As Rodger Malcolm Mitchell noted in his Monetary Sovereignty blog:

Quantitative easing (QE) is economics jargon for a process few non-economists understand. That, after all, is the purpose of jargon. Sadly, few economists understand it either.

To paraphrase from Wikipedia:

Quantitative Easing (QE) is used by central banks to stimulate the national economy. A central bank implements QE by buying long term bonds from commercial banks and other private institutions, thus creating money and injecting a pre-determined quantity of money into the economy.

Quantitative easing increases the excess reserves of the banks, and raises the prices of the financial assets bought, which lowers their yield.

Risks include the policy being more effective than intended in acting against deflation – leading to higher inflation, or of not being effective enough if banks do not lend out the additional reserves.

Utter nonsense on all counts. Fed Chairman Bernanke, being among the nation's experts in the effects of federal finances, is well aware of the following:

1. QE does not stimulate the economy. It depresses the economy. When the Fed buys T-bonds, it takes those T-bonds out of private hands, thereby reducing the amount of federal interest paid to the private sector.

Rather than being stimulative, these money supply reductions depress the economy.

2. Banks neither need nor use additional reserves. They can obtain all the reserves they want, directly from the Fed, at near zero rates. So adding to reserves does not stimulate lending.

3. Reductions in interest rates are not stimulative. In the blog post Low interest rates do not help the economy we show that there is no historical relationship between low interest rates and economic growth. In fact, the opposite is true. Higher rates force the federal government to pump more interest into the economy, which is stimulative.

So why does Chairman Bernanke, knowing the above, institute repeated rounds of QE, and pretend he is doing this to help grow the economy, when he really is depressing the economy? Because it's what his bosses (the President and Congress) want.

This page is designed mainly as a immunization from excessive bullishness and stupidity for myself and other members of 401K crowd. As immense power of brainwashing of Wall Street controlled media plays the siren song "quicker, quicker, get into stocks or you miss the train". The problem is that you might well board the train when the the engine just broke, or instead of the place you expect it goes to the place you never want to visit. But cruise metaphor looks much better. The key question is: are we on the cruise liner with a broken engine? ;-). Also the view of events from a cabin of a cruise liner that does not have a balcony or windows is by definition very limited :-).

In any case this page is designed to raise the level of caution as well as to remind myself (and readers) the complexity of the current situation with very probably "stagflation" episode ahead, long with existing "peak oil" threat. Something like a repeat of 2008 on a new level (possibly with the help of yet another friendly Wall Street bank). And if this page can help to prevent a single stupid reallocation based of some talented hype published in MSM, I think my effort of compiling this it is fully justified... It does help me to ignore Wall Street hype...

Actually we should never ever reallocate a large chunk of 401K in a single operation. Do it in small chunks spreading the planned reallocation for several months.

This page is written by a non-specialist mainly for his own consumption. Like in Soviet Union people were glued to BBC and Voice of America, but generally distrusted any and all information from official media, few 401K investors now trust CNBC, WSJ or other official media channels. The problem is that alternatives are few. Foreign source like Financial Times, Telegraph, etc and domestic financial blogs are better, although far from perfect. Still it's hard for a regular 401K investor to understand what's happening because CNBC divas, corrupt academics/politicians/regulators (aka financial industry shills) each day are shouting that they knew what is happening with the economy and some claim that they know what will happen as well ;-).

The author is a computer specialist, not an economist, so his views of economic events are based on information provided by the Internet and a few books. The main reporting criteria are events which might affect 401k investments. You cannot do good reporting of complex events without some framework and if you do not adopt one explicitly you probably will use the worst available among actively marketed: Chicago school of market fundamentalism. Author personal preferences are with institutionalists. This analytical framework retains the fundamental assumption of scarcity and hence competition from neo-classical economy as well as the related analytical tools of micro-economic theory. It modifies the rationality assumption and adds historicism, the dimension of time. It also views institutions as the constraints that structure human economic behavior. Such constraints can be formal (rules, laws, constitutions), or informal (norms of behavior, conventions, codes of conduct, end, especially, dominant ideology). Voodoo economists (aka "market fundamentalists" and, especially, supply side economists) are just snake-oil peddlers which service rich and powerful.

Please note that the dominant ideology of neoliberalism is especially sticky and has its own powerful enforcement mechanisms. Together they define the incentive structure of societies and economies. See for example Douglass C. North - Nobel Prize Lecture

It is culture that provides the key to path dependence - a term used to describe the powerful influence of the past on the present and future. The current learning of any generation takes place within the context of the perceptions derived from collective learning. Learning then is an incremental process filtered by the culture of a society which determines the perceived pay-offs, but there is no guarantee that the cumulative past experience of a society will necessarily fit them to solve new problems. Societies that get "stuck" embody belief systems and institutions that fail to confront and solve new problems of societal complexity.

The authors views were greatly influenced by John Kenneth Galbraith. He coined the ironic term "Affluent society" to describe the United States after World War II: society is rich in private resources, but poor in public ones because of a misplaced priority on increasing production in the private sector (BMW and Mercedes cars riding filthy roads with potholes and beggars on the sidelines).

Galbraith argued that industrial production was channeled into satisfying non-essential or artificially created needs, in part to maintain employment, and that the United States should shift resources to improve schools, the infrastructure, recreational resources, and social services. The key idea here is to provide a better quality of life instead of an ever greater quantity of imported goods and wasting huge amount of resources. The term has lost its original ironic meaning and is now used simply to indicate the USA-style prosperity with individual autos, McDonalds, etc.

No attempt is made to stay current or post daily. The delay period for quotes can be a week or more: with the exception of particular crisis moments the economic situation is evolving extremely slowly anyway and daily postings are often just a nuisance which complicates seeing the whole picture (information overload in action :-)

In the article High and Low Finance - Inexperience May Feed the Bubbles - the authors stated that

It has long been widely believed - at least among some experienced investors - that it is the inexperienced ones who are most likely to get swept into the euphoria of a bubble and to buy when prices are the most absurd.

This quote fully apples to 401K investors including myself. For 401K investors attempts to benefit from the short-term moves of the market are pretty typical (close to the top buying in case of bubble). But the same danger exists in buying on dips without understanding the larger picture as well as attempts to join "sucker rallies" in case of protracted downturn. Such "impulsive" stock or bond acquisitions when prices are staring to fall from absolute high and suddenly look "cheap" often end poorly (they are called attempts "to catch falling knife" in professional jargon).

The development of economic events is remarkably slow, it always taking longer than one expects. That's why it is really important to focus on the underlying trends and not on short term moves in order to maintain a clear view of the larger picture and proper allocation of assets.

Currently we have eight volumes of this bulletin (2006-2012). They might be a useful tool, helping to get a longer perspective. Please use them... It is very educating and sobering to read what people were thinking let's say in the middle of 2008 or in January 2006 and which trends materialized and which never did.

Pictures From a Monetization

Jesse's Café Américain

The Fed is printing money. Or perhaps more properly, monetizing debt, both public and private, but not efficiently or effectively from the perspective of the broader economy. That money, sometimes euphemistically called liquidity, is flowing directly into the financial system through the Banks as a matter of public policy.

It is not unlike sending aid to a third world country, where it is seized by small groups of powerful warlords for their own use and purposes, with them deciding how much will reach the people.

It is not even sophisticated math. Look at the first chart. It is simple arithmetic.

Granted, the printing is not yet showing up as a pure monetary inflation, but primarily as asset bubbles in financial paper and selective items subject to secular monopoly market and speculative pressure: certain categories of consumer good, medicine, health care, financial fees, perks and bonuses, high end housing and collectibles, and political contributions by large organizations and the one percent for example.

That is because of the 'trickle down' approach of money distribution which the Fed, and the their partners in the government, are pursuing. It manifests in the declining velocity of money, slack aggregate demand, and the stagnant median wage. It has some of the appearance of financial feudalism in which capital substitutes for land.

The games being played in the markets are apparent, heavy-handed, and beneath contempt, operating under the rationale of a 'necessary perception management.' Necessary for whom? It is officially sanctioned theft, pure and simple, however one wishes to rationalize it. The 'new normal' is really the new awful, with a decidedly oligarchic taint.

Please be aware that all the two line charts below are using two scales, one on the left for monetary base and one on the right for the other. The purpose here was to show how the monetary base compares in change, even if the change is not linear, or one for one.

The Fed will not stop expanding its monetary base anytime soon. The economy is on life support.

They can monetize all the private and public debt that they can, but it will not have a positive effect until that money reaches the real economy. For now it is flowing heavily to support a corrupt financial system that has not been reformed, to sustain speculation, and to further enrich those who made outsized gains during the credit bubble.

The government is as culpable and more than the Fed in this. This applies to the Congress, the Administration, and the regulators.

There are a number of ways to repair the damage to the real economy and get it growing again. One way NOT to do it is to look at the landscape through the eyes of the trader or the speculator, and those who serve the financial interests. For the most part they are self-absorbed and blinded by their predatory instincts. They are not creators of real wealth. And they tend to distort the vital avenues of economic activity and discourse.

The ascent to power of the financiers, facilitated by the Clintons in the 1990's, is at the root of the problems of the day. But to be fair, the last three Presidents and the Congress are all a disgrace. And I see little hope on the horizon except for a few points of isolated light amidst a general erosion of stewardship.

My concern is that as the situation becomes worse, the elite will tend to punish the innocent and the weak. This has been their response so far and in a broader swath of western countries than one might have otherwise imagined. It may get so bad, so out of hand, that I can even imagine calls for a 'financial war crimes' trial some day, or worse. Probably worse, since these fellows are shameless, abusers of oaths, and masters of deceit.

So this will probably not end well. But it will end.

Dr. Nikolai Bezroukov

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Old News ;-)

Five years are enough for most people to forget lessons of previous financial crisis ;-)

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"The US economy desperately needs less of our bloated, unproductive and increasingly parasitic banking system … The banking system has become an agent of destruction for the gross domestic product and of impoverishment for the middle class."

David Stockman,
Ronald Reagan's former director
of the Office of Management and Budget.
FT Alphaville

Government by organized money is just as dangerous as Government by organized mob.

FDR, 1936

"The trouble with capitalism is capitalists; they're too damn greedy."

Herbert Hoover

[Aug 07, 2013] Busting The Three Biggest Bullish Beliefs

I feel the invisible hand searching for something in my pockets
Zero Hedge


I frame the debate as fantasy vs reality. The bull arguments are all based on fantasy, backed up by accounting that would land any private citizen in jail.

You can either be a bull living in la la land, or a bear living in reality. Reality isn't very fun, but it is REALITY.

Or are we really to believe that a company that loses millions on billions in revenue is a sound investment.

Try paying bills with that type of a system. Call your bank and tell them that you made $60k but you can't make your mortgage payment because you spent all your money. But instead of cash they can accept shares of yourself. Which are better than money because if your value goes up, the value of their shares will go up. Which will actually be worth more than your original mortgage payment.

The entire stock market system is bullshit. A system engineered to transfer wealth from people of worth to people of no worth.

Why do you buy stock?

So why are the shares worth something?

Answer: Because you believe someone else will pay more for the shares sometime in the future.

But why are the shares worth more? If the company has no profit, how can the company be worth more money?


Myth: U.S. stocks will grow into their earnings expectations as the U.S. economies recover

Im hoping the same for my dick for years.


Stocks will go up until something TBTF (or nearly so) actually does (nearly) fail.
Until that event, the optimistic speculators will keep winning by buying stocks (or houses).

[Aug 05, 2013] Columbia Economist Dr. Jeffrey Sachs speaks candidly on monetary reform

Level of corruption of the system is just staggering...

From the event at the Philadelphia Fed on April 17th, 2013 (04/17/2013) conference segment "Fixing the Banking System for Good" .

[Aug 02, 2013] Trader Describes How Dishonesty Pays in Finance, Big Time

August 2, 2013 | naked capitalism

MaroonBulldog says:

August 2, 2013 at 2:25 pm

I disagree. Traders are a little different, even from the other graduates of the MBA program. For one thing, they tend to be a little smarter, especially when low cunning and numeracy are involved. Second, they tend to have had their consciences dulled by too much uncritical study and acceptance of classifcal economics and finance. And they are more manipulative, or they wouldn't be traders. These are the reasons why they are more dangerous than most. It was for good reason that the Enron expose was named for the traders, "The Smartest Guys in the Room."


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