Up until now we were a lone voice in the wilderness, with our "dry-humored" Transatlantic colleagues, working for a newspaper funded with Goldman Sachs advertisements, periodically mocking our "misunderstanding" of credit and money creation. We are now delighted that none other than one of the foremost opinions on all topics "shadow" stood up this week, and admitted that indeed, it is Zero Hedge whose view on money creation is the correct one. Behold several absolutely critical observations by Citi's Matt King. The same Matt King who a week before the collapse of Lehman wrote "Are The Brokers Broken" and explained to all those who had heretofore been reading and basing their understanding of finance on the above-mentioned Transatlantic newspaper, why everything they know about the modern financial system is wrong. Lehman filed for bankruptcy 12 days later.
Since early 2010 Zero Hedge has said that for the Fed's QE efforts to be successful in stimulating the economy, and rekindling inflation, it has to focus on not only stimulating traditional bank liabilities but far more importantly offsetting the collapse in shadow bank liabilities. As we observed in July, when the latest Z.1. update was made available, there is still a nearly $4 trillion hole that has to be be plugged on a condolidated basis from the all time "credit money" high of $33 trillion in 2008. Until such time as the Fed's largesse pumps enough to fill this void, the US economy will be mired in deflation.
To wit:
"What is worse is that even when accounting for offsetting traditional bank liabilities, on a consolidated basis, the US total financial sector is still an epic $3.8 trillion below its all time highs, just above $33 trillion. Unless and until this $3.8 trillion hole is plugged, one thing is certain: risk is not going anywhere (also notable is that consolidated liabilities in Q1 declined by $86.2 billion at a time when the Fed was engaged in Twist but that is for Ben Bernanke to worry about, not us)."
In fact, the misconception is so bad, that even the Fed's own John Williams recently confirmed the Fed itself has no idea how money creation in the New Normal, where the bulk of "credit money" exists in shadow aggregates, actually works. We explained this in "Fed's John Williams Opens Mouth, Proves He Has No Clue About Modern Money Creation"
The Problem (How Large Will The Losses Be - and can the reaction be contained?):
The Impact (Fear of losses mean private sector is running for the exits...):
...and TARGET2 (official sector) is forced to pick up the slack...
The Band-Aid Fix (print money into traditional banking system):
Is NOT Working (global equities range-bound on policy action, economies remain in slump, and money multipliers are broken):
Because (they are simply impacting the wrong system):
and more and more - funding depends on collateral...
and there is only one 'funder' - the collateral-taker-of-last-resort (as unsafe assets can only be funded at Central Banks)...
Credit Growth will remain 'stalled' until 'risky' is made safe - by on-boarding 'risk' to infinitely expanded CB balance sheets (credit-easing) with its consequent total and utter break-down of every asset class reality (and bank encumbrance); or a cataclysmic price mark-down and 'creative destruction' allowing the savers to scoop up the assets at 'reasonable' levels.
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End of the Road - How Money Became Worthless
http://m.youtube.com/watch?v=mx4xogHI-kQ
The new film "End Of The Road" has just been released for public viewing, featuring GoldSilver.com CEO Mike Maloney alongside Peter Schiff, Jim Rickards, Jim Puplava, James Turk, Eric Sprott and more. The link for viewing this excellent movie is right here:
http://100thmonkeyfilms.com/endoftheroad/watch/*
This film was not made by GoldSilver.com, we are helping to spread the word of its release for the Australian producer Tim Delmastro.*
In 2008 the world experienced one of the greatest financial turmoils in modern history. Markets around the world started crashing, stock prices plummeted, and major financial institutions, once thought to be invincible, started showing signs of collapse. Governments responded quickly, issuing massive bailouts and stimulus packages in an effort to keep the world economy afloat.
While we're told that these drastic measures prevented a total collapse of our system, a growing sense of unease has spread throughout the population. In the world of finance, indeed in all facets of modern life, cracks have started to appear. What lies ahead as a result of these bold 'money printing' measures? Was the financial crisis solved, or were the problems merely 'kicked down the road?'
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It all began in December of 2007, when the United States Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank (ECB) and the Swiss National Bank took coordinated action to address the developing credit crisis.
Bailout Acronyms:
TARP, TALF, TSLF, PDCF, AMLF, TAF, FSP, PPIP, PPPIP, CPFF, QE1, QE2 & Operation Twist 1 & 2. One Bailout After Another.
Libor, $800 Trillion and $300 Trillion were Swaps.
The World Derivative Markets, $700 Trillion - $1.5 Quadrillion. The
total debts and exposure in the United States is approaching $500 trillion according to the balance sheets of JPMorgan, Wells Fargo, Bank of America and Goldman Sachs.
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41 Years After The Death Of The Gold Standard, A Look At "How We Ended Up In This Economic Purgatory"
Why QE Is Not Working - It's not only NOT working, but it's DESTROYING ecomomies and individuals!
