“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”Thomas Jefferson

Does this chart portray an economic recovery in any way? Wages have been stagnant since the START of the supposed recovery in 2010. Real median household income, even using the highly understated CPI, is on a glide path to oblivion. You just need to observe with your own two eyes the number of Space Available signs in front of office buildings, strip centers and malls across America to realize we have further to fall. Low paying, part-time burger flipping jobs aren’t going to revive this debt saturated economic system. But at least the .1% are enjoying their Federal Reserve created high. Fiat is a powerful drug when administered in large doses to addicts on Wall Street.

The S&P 500 has risen from 666 in March of 2009 to 1,972 today. That is a 196% increase in a little over five years. During this same time, real household income has fallen by 7%. There have been a few million jobs added, while 11 million people have left the labor market. According to Robert Shiller’s CAPE ratio, the stock market valuation has only been higher, three times in history – 1929, 1999, and 2007. He seems flabbergasted by why valuations are so high. Sometimes really smart people can act really dumb.

The Federal Reserve balance sheet was $900 billion before the 2008 financial crisis. Today it stands at $4.4 trillion. The Fed has increased their balance sheet by 220% since the March 2009 market lows. Do you think there is any correlation between the Fed puppets printing $2.4 trillion and handing it to their Wall Street puppeteers, who used their high frequency trading supercomputers and ability to rig the markets so they never lose, and the third stock bubble in the last 13 years? It’s so self evident that only an Ivy League economist or CNBC anchor wouldn’t be able to see it.



Let’s look at the amazing stock market recovery without Federal Reserve heroine pumped into the veins of Wall Street banker addicts. If you divide the S&P 500 Index by the size of the Federal reserve balance sheet, you see the true purpose of QE1, QE2, and QE3. It wasn’t to save Main Street. It was to save Wall Street. Without the Federal Reserve funneling fiat to the .1% banking cabal and creating inflation in energy, food, and other basic necessities for the 99.9%, there is no stock market recovery. The recovery has occurred in Manhattan and the Hamptons. It’s been non-existent for the vast majority of people in this country. The wealth effect and trickle down theory have been disproved in spades. The only thing trickling down on the former middle class from the Fed is warm and yellow.


The entire stock market advance has been created on record low trading volumes and record high levels of monetary manipulation. Even though the Federal Reserve has driven senior citizens further into poverty with 0% interest rates, those with common sense have refused to be lured back into the lion’s den. They have parked record levels of fiat in no interest bank and money market accounts. They are tired of being muppets led to slaughter.

Quantitative easing was supposed to force little old ladies into the stock market and consumers to spend their debased dollars before they lost more value. The spending would revive the dormant economy just as the Keynesian text books promised. It didn’t happen. The peasants haven’t cooperated. Quantitative easing and ZIRP sapped the life from the middle class as their wages have stagnated and their living expenses have skyrocketed. Mission Accomplished by the Fed. Of course, the CNBC bimbos and shills would declare this $10.8 trillion to be money on the sidelines ready to boost the stock market ever higher. I love that storyline. It never grows old.

The MSM, government and Wall Street continue to flog the story about a housing recovery. It’s been nothing but a confidence game based upon the Fed’s easy money and the Wall Street scheme to buy up foreclosed properties with the Fed’s money. The scheme was to artificially boost home prices by restricting home supply through foreclosure manipulation, in order to allow the insolvent Wall Street banks to get out from under their billions in toxic mortgage loans.

Shockingly, the Case Shiller home price index has soared by 25% since 2012 despite first time home buyers being virtually non-existent and mortgage applications plunging to 14 year lows. How could that be? Don’t people need mortgages to buy houses? Isn’t real demand necessary to drive prices higher? Not when Uncle Ben and Madam Yellen are in charge of the printing press. Housing bubble 2.0 has arrived. I wonder if the Federal Reserve balance sheet increase of 50% since 2012 has anything to do with the new housing bubble.

It seems a similar result is obtained when dividing the Case Shiller Index by the size of the Fed’s balance sheet. The real housing market for real people is worse than it was in 2009. The national home price increase has been centered in the usual speculative markets, aided and abetted by the Fed’s easy money, managed by the Wall Street hedge funds, and exacerbated by the late arriving flippers who will be left holding the bag again. The Fed/ Wall Street scheme has priced young people out of the market and has failed to ignite the desired Keynesian impact. Investors/flippers account for 34% of all home sales. Foreigners with no knowledge of value metrics account for 30% of all home sales. The lesson of history is that most people don’t learn the lessons of history. The 2nd housing bubble in seven years is seeking a pin.

If ever you needed proof of the confidence game in its full glory, the chart below from Zero Hedge says it all. Mortgage rates have been falling for the past year, home builders have been reporting soaring confidence about the future, and the National Association of Realtors keeps predicting a surge in home buying any minute now. One small problem. Mortgage applications are in free fall, new home sales are at 1991 levels, and existing home sales are falling. Home prices have peaked and are beginning to roll over. The Wall Street hedgies are all looking to exit stage left. Young people are saddled with over a trillion of government issued student loan debt and millions of older subprime borrowers have been lured into more auto loan debt. Home sales will be stagnant for the next decade.


Quantitative easing will cease come October, unless Yellen and Wall Street can create a new “crisis” to cure with more money printing. By every valuation measure used over the last 100 years, stocks are overvalued by at least 50%. By historical measures, home prices are overvalued by at least 30%. Ten year Treasuries are yielding 2.4%, while true inflation is north of 5%. With real interest rates deep in negative territory, the bond market is even more overvalued than stocks or houses. These simultaneous bubbles have been created by the Federal Reserve in a desperate attempt to keep this debt laden ship afloat. Their solution to a ship listing from too much debt was to load it down with trillions more in debt. The ship is taking on water rapidly.

We had a choice. We could have bitten the bullet in 2008 and accepted the consequences of decades of decadence, frivolity, materialism, delusion and debt accumulation. A steep sharp depression which would have purged the system of debt and punishment of those who created the disaster would have ensued. The masses would have suffered, but the rich and powerful bankers would have suffered the most. Today, the economy would be revived, saving and investing would be generating needed capital for expansion, and banks would be doing what they are supposed to do – lending money to businesses and individuals. Instead, the Wall Street bankers won the battle and continue to pillage and loot the national wealth while impoverishing the masses.

The arrogance, hubris and contempt for morality displayed by the ruling class is breathtaking to behold. They think they are untouchable and impervious to norms followed by the rest of society. They may have won the opening battle, but will lose the war. Discontent among the masses grows by the day. The critical thinking citizens are growing restless and angry. They are beginning to grasp the true enemy. The system has been captured by a few malevolent men. When the stock, bond and housing bubbles all implode simultaneously, all hell will break loose in this country. It will make Ferguson, Missouri look like a walk in the park. I wonder if the occupants of the Eccles building in Washington DC will get out alive.

“It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.”Henry Ford

Charts provided by Confounded Interest


  1. The coming collapse is so blatantly obvious to me, but I can’t seem to get family and friends to do anything meaningful to prepare. They just sit there like lumps.

    Some of them seem to understand at some level that all is not right, yet they won’t take the necessary actions to blunt the pain. They refuse to stock some food or water. They won’t buy a bug out bag. They see no point in buying some silver coins. Do something, people!

    I just don’t get it. Is this simply normalcy bias taken to an extreme level? Is it total denial?

  2. “The arrogance, hubris and contempt for morality displayed by the ruling class is breathtaking to behold. They think they are untouchable and impervious to norms followed by the rest of society.” – from Administrator’s post above.

    Well, we are better than you. We’ve been elected or selected to rule, we’re among the best and the brightest in society, and we have more money and property than you have. So why shouldn’t we elites regard ourselves as the Masters of the Universe? Why should we be bound by society’s laws when we elites transcend America’s commoners and culture?

    It always amazes me that the mass of Americans, who are wage slaves, who live for sports, drink, and porn, and who have no intellectual interests beyond the lives of celebrities like Robin Williams, think that they’re equal to their betters.

    Let’s face it, we’re Alphas and you TBP readers are barely Betas or, more likely, Gammas.

    You want to improve your lot? Well, no you don’t and that why you’re Gammas.

  3. Steve I feel your pain .I have given up trying to convince anyone we are in a dangerous place as a nation. I have been prepping for myself , my mom and a few more people. No one else seems to give a Damn.This is the reason I think this collapse is going to be bloody. Millions of people will be desperate in just a couple days .After that many will be violent.

  4. Admin, I must say that while your articles are delightful and enjoyable to read, it seems that you have run out of material to espouse the past few months.

  5. On a side note, Irak is an arrogant prick.

    While I somewhat respect some of what you say, surmising that you can break society’s laws simply because you own more property or have amassed more wealth is appalling and a direct reflection of why our nation is in peril.

    What’s the saying, “A fish rots from the head.” …?

    With an attitude like Irak’s, it’s not surprising to see what our leaders have created of our once financially stable and sound nation. Instead of respecting viable financial theory and respecting existing laws, our leaders took us off the gold standard and have since robbed the entire world and nation blind.


  6. Admin, excellent article. Thanks for calling it the way you see it!

    It’s really only an academic or philosophical argument at this point whether there’s going to be a collapse or whether QE really works. The only way it works if is the US creates a global hegemony, which isn’t happening if the news reports are correct. I don’t know how a stalemate impacts the status of the dollar as the world’s reserve currency, but much depends on the production of energy. QE has certainly put the dollar at risk.

    Reality is a bitch, and it remains to be seen whether the US can enforce it’s economic might militarily. It’s not looking too good right now, as we might be seeing the rise of the Ottoman Empire, which could act as an energy broker for the rest of the world. That isn’t too far fetched given the Illuminati temples in Jerusalem, although the royal house of Saud may have something to say about it. Either way, if these militants stop accepting the USD for oil shipments, is it game over? I should say not, there’s other oil and gas fields to exploit. It just isn’t in the nature of the world system to yield in any respect or consideration.

    We have a way to go before any systemic collapse. That’s not to say there won’t be a few shocks along the way. That which is unsustainable will be replaced by that which is. The central issue remains whether that which is will be based upon individual and collective freedom, or coercion through force by the implementation of a police state. We know which god is working where, and I know which one I choose. The alternative is unimaginable, for there is no end to the wickedness or evil thereof.

    “In their case the god of this world has blinded the minds of the unbelievers, to keep them from seeing the light of the gospel of the glory of Christ, who is the image of God.”

    (2 Corinthians 4:4 ESV)

  7. bb, the former Pb, has darn near redeemed himself.

    @Dunce, IraK is one of those posters who posts the opposite of what most regulars would say, for humor or trolling or whatever. Use that as your filter.

  8. “…Foreigners with no knowledge of value metrics account for 30% of all home sales…”

    Ah, another reason? If I were to go to a realtor and plunk down $150k to buy a home, I would have a STACK of paper to fill out telling said broker where the money came from, how it wasn’t illegal and giving the gubment a blueprint to my wealth.

    BUT, thanks to our always looking out for us CONgress, foreigners have NO such restrictions.

    The foreign buyers of our land and assets do NOT have to declare where the money comes from. Nor do they have to open their bank and brokerage accounts to scrutiny, nor do they have to do ANY of the sheiss that we, free, ‘murkins get to.

    Things that go beyond making you think, “mmmm?” right into making me think if I bend over any further I’m going to break my freaking back. And I’m pretty damn flexible for an old broad.

    I love @Non’s optimism that the charade can continue, I truly, really, wish, that I could grab hold of the same.

    Slowly, then all at once. I really hope the “all at once” can hold off another generation. I hope, but don’t believe it.

    Thanks Admin, I just don’t know what I would do without the eloquence of your essays on reality.

  9. “Don’t people need mortgages to buy houses?”

    Apparently not.

    The 4 houses that have sold on our street this year…all cash sales. None to young families.

    Three to retirees and the fourth to a couple employed by the local university.

  10. TE, I wasn’t being optimistic, only reflecting on what might come after, the sooner the better. How we deal with the crash will be deterministic to our future, again, one of individual freedom or coercion through force.

    This determination may be fought with conventional weapons, or not, but whatever the outcome, it will likely signal the upside of 400 years, as in the Jews in Egypt. I think the average person would agree we don’t want to spend it in slavery, or 40 years wandering around in the desert. There are those who will seek to enslave.

    “For we do not wrestle against flesh and blood, but against the rulers, against the authorities, against the cosmic powers over this present darkness, against the spiritual forces of evil in the heavenly places.”

    (Ephesians 6:12 ESV)

  11. “The point is that we are all capable of believing things which we know to be untrue, and then, when we are finally proved wrong, impudently twisting the facts so as to show that we were right. Intellectually, it is possible to carry on this process for an indefinite time: the only check on it is that sooner or later a false belief bumps up against solid reality, usually on a battlefield.”

    George Orwell

  12. Robert Shiller tries to understand why stocks are ‘very expensive’

    “The United States stock market looks very expensive right now.” And with that, Yale professor Robert Shiller is at it again, telling us to worry.

    He’s got plenty of company these days among those who fear this bull market can’t possibly keep going. Shiller’s particularly uncomfortable about the CAPE ratio (cyclically adjusted price-earnings), a stock-price measure that he helped create. He said something similar in June. (Just Google Robert Shiller bubble for more instances of his bubble theories.)

    Otherwise known as the Shiller P/E, the ratio basically takes average inflation-adjusted earnings for the S&P 500 SPX over the previous 10 years. In Shiller’s New York Times article from Saturday, he notes that when he touched on this topic over a year ago, that ratio stood around 23, far above its 20th-century average of 15.21. It now stands at 25, a level that since 1881 has only been surpassed in three other periods — the years surrounding 1929, 1999 and 2007. And we all know what came next after the market peaks in those years.

    Shiller says the CAPE was never intended to indicate timing on when to buy and sell, and that the market could remain at these valuations for years. But given that this is an “unusual period,” investors should be asking questions, he says.

    His question: Given that the ratio shows valuations have been elevated for years, are there legitimate factors that could keep stock prices high for decades longer? He points that his own questionnaire surveys show investors are getting more worried. Other than that, unfortunately there is no “slam-dunk” explanation for these high valuations, says Shiller.

    “I suspect the real answers lie largely in the realm of sociology and social psychology — in phenomena like irrational exuberance, which, eventually, has always faded before,” says the Nobel-Prize winner. “If the mood changes again, stock market investments may disappoint us.”

    Analysts at Bank of America Merrill Lynch said they remain constructive on the S&P 500, which is trading at a forward P/E multiple of just over 15. They said that’s not out of whack with its historical average, though, of course, they don’t address the Shiller P/E.

  13. It’s not just stocks — bonds and housing also pricey, warns Robert Shiller

    It’s not just stock prices that are elevated. Bonds and housing are also looking quite pricey, Yale economics professor and Nobel laureate Robert Shiller warned on CNBC Tuesday.

    Fresh off penning a widely discussed article in the New York Times over the weekend in which he agonized over how to explain “very expensive” stock prices, Shiller reiterated his concern that anxiety over the future may be contributing to potentially overpriced assets.

    Shiller told CNBC that the bond market “is looking expensive.” He said it was strange to see the real interest rate on 30-year Treasury inflation protected securities, or TIPS, at less than 1%, and also noted that the rate was negative as recently as 2012.

    “How can it be that people think we can’t get a riskless return in real terms for 30 years? There’s something bizarre. That looks a little bit like a bubble as well. So the whole thing might correct—both bonds and stocks,” Shiller said.

    Shiller said he’s also been “kind of surprised” by the housing market, which is up around 25% since the 2009 low (and even more in some cities).

    “We’re seeing a sort of boom in the housing market,” he said. “We’ve got stocks and bonds highly priced and now we’re starting to see maybe housing going in the same direction. It’s like everything is pricey.”

    Shiller looped back to his weekend article, which laid some but not all of the blame on the idea that anxiety can actually spur investors to grab on to any available asset, pushing up prices.

    “Worries about the future can actually cause asset markets to be priced highly … When the Titanic was going down, people would pay a fortune for anything that floats. I’m exaggerating, of course, but that might be the situation we’re in now,” he said.

    Shiller’s Times piece focused mainly on his widely cited stock valuation measure, the cyclically adjusted price-earnings, or CAPE, ratio. The CAPE remains far above its 20th Century average of 15.21, clocking in Tuesday at around 26.19.

    Asked if it was fair to argue that a historically high CAPE might be justified by the higher proportion of tech firms and other higher-margin companies in the S&P 500 in the 21st century, Shiller was dismissive, noting that investors have long attempted in vain to come up with “special factors” to negate long-term valuation trends. He referred back to a book by Irving Fisher published in 1930 that argued there were sound reasons for the high valuations of the 1920s. “You can always construct arguments like that,” he said.

  14. @Maddie’s Mom,

    So, cash sales to the only people left getting – and spending – their fiscally impossible to carry on pensions.

    I feel so much better.

    Hopefully, for them, their pensions are always worth lots, and their kids can eke out enough existence to buy the homes on land contracts.

    Sounds just like Michigan’s “Up North” cottages and vacation homes, they are nearly ALL owned by pensioners from the state, local and UAW retirees. A few business owners too.

    Now, they sit empty because, the owners can’t afford to both go to their lake homes, and pay for their lake homes.

    And if the owners decide to sell, they find there aren’t many buyers out there.

    My true hope, cause I am the secretly envious type, is that they are buying the houses to flip ’em.

    That would simply warm my heart.

  15. Yup, TSWHTF again. I think it’s toward the 2016 elections. That’s when it always hits the fan. Think 2000 and 2008, the bubbles popped after the 8 year terms of Clinton and Bush. This is when the bubbles always pop. Yellen is on record saying she’d rather fight inflation then another economic downturn.

    So, it’s likely the price of oil or inflation as the trigger that brings down the Fed’s most recent asset bubbles One thing I know is certain, however. Just like JP Morgan and Goldman unloaded mortgage back paper to anything moving, then proceeded to short the hell out of mortgage paper (see The Big Short by Michael Lewis) on the way down, they will follow this script exactly with the stock market. They will unload their longs and short the hell out of America like they did during the housing crash.

    That’s how they role. They first steal by inflation, then by deflation, then back to inflation. They are the only ones who know when the sequences will come.

    Anyhoo, every expects that QE3 will end the bull. We’ll only know if the mood toward stocks change and if the S+ P 500 falls below 1900, the trend-line for QE3.

  16. @TE,

    All three retiree households are downsizing and have some medical issues. Our neighborhood is very near the hospital and doctors’ offices as well as the lake and park. Very attractive to Boomers. I look for much more downsizing…this Boomer retirement thing has only just begun.

  17. Administrator:

    You are a truth teller most of the time and a very hard working one at that. I very much apreciate your efforts.

    I doubt there will be a stock market or bond market or real estate market collapse prior to the re-set. All risk has been transfered to the currency itself. Western Capatialism is in its dying squirms. Why else would it want a war with Russia. When the dollar goes to zero everything denominated in dollars will be worthless. You won’t be able to buy anything with dollars. If you think you might want a bag of beans or a gallon of gas you should buy it now or convert your dollars to silver coins.

    Thanks for all your hard work. I hope you survive the crash and live to build something new.

    1. WorkingClass

      As a matter of fact I converted some fiat into silver coins yesterday after finishing the article.

  18. The 4th turning has no where near reached its peak its coming. I of course have not lived through other major turnings but I think its going to be the worst in history based on our current conditions.

    When the stock, bond and housing bubbles all implode simultaneously, all hell will break loose in this country. It will make Ferguson, Missouri look like a walk in the park.

    Excellent article as always Admin thanks for taking the time. You teach me something new every time

  19. The Fed hasn’t finished yet. It will double down again. They can keep this baby rolling for a few years yet. 2016 is when the US tight oil will start its terminal decline and take World oil production down with it. At some time in the future the Fed won’t be able to hold the whole thing up; debts will have to be written off and you can be sure that they will use savers money. And why not? The bastards got us into this mess by consuming and procreating more than this Planet can sustain.

  20. “Worst. Recovery. Ever.” Except For Bankers

    Submitted by Tyler Durden on 08/20/2014 10:44 -0400

    For most (practically all) Americans, this is officially the worst recovery ever. As we pointed out previously, wage growth has never been slower in a post World War II recovery. However, not everyone is hurting…


    This comes just weeks after Morgan Stanley announced it would raise junior banker salaries by 25%.

    Things are troubling…

    But not for the bankers… (as Bloomberg reports)

    Goldman Sachs Group Inc. will increase 2015 salaries for junior employees in the U.S. by about 20 percent, according to a person briefed on the decision.

    The raises will apply to employees with the title of analyst across all divisions, said the person, who asked not to be identified speaking on personnel matters. Analysts are typically recent college graduates.

    Morgan Stanley is raising salaries for junior bankers worldwide by about 25 percent, a person briefed on the matter said last month. That change only applied to associates and vice presidents in the investment banking and underwriting units.

    The New York Post reported on Goldman Sachs’s pay increases earlier today.

    * * *

    It appears President Obama’s hopes for ‘fair, livable’ minimum wage is
    being heeded by the banking community – good patriots, they are.

  21. A housing and equity crash are inevitable. The wall street boys are headed for the exits and will get there the second there are enough suckers to take them out. I’m not going for the pepper option. I’d rather be among the marauding horde than the underground mole people

  22. @Admin, seems to me that raises for junior associates preceded the previous blowup. I call that a predicting factor.

    Give the little, indebted to the banksters with non-dischargeable college debt, raises. Gift the little bastards more wages to be figured into the computations of how much we are now forced to pay for health insurance, college-debt and taxes.

    Then, if history is to be my guide, when the blowup occurs, the execs will slash their numbers and pile the work onto those “lucky,” now-better-compensated, juniors.

    Oh the delicious irony of it all.

    And, if that is truly the way Skinny gets to spend the Apocalypse, I’m jealous. Love real Guinness, the ‘murkin regulation kind is nowhere near as nice.

  23. GMO: “There Is No Safe Place To Hide”

    Submitted by Tyler Durden on 08/20/2014 13:24 -0400

    From Jeremy Grantham’s GMO:

    We have been writing quite a bit about why asset allocation today is in one of the toughest investing environments we’ve ever encountered. And it’s not just because we think equity markets are overvalued. No, we’ve seen that plenty of times before over the past decade or so. Remember the technology bubble of the late ’90s? That was challenging, sure, but what got lost in the shuffle was that while U.S. large-cap stocks were outrageously overpriced, it turned out that real estate investment trusts, emerging equities, and international small caps were deliciously priced. And it was perfectly clear to us what we had to do: avoid technology and own the cheap stuff, even though it might have looked a bit unconventional. Then we entered the 2007–2008 credit bubble, and while, yes, virtually all equity markets were overpriced, it was perfectly clear to us what we had to do: hide and wait. And that was not a bad proposition because there were plenty of safe places to hide—Treasury Inflation-Protected Securities, U.S. Treasuries, and a strategy we had developed called Alpha Only—and earn a decent, if not spectacular, return.

    Today’s environment, however, is quite distinct, as seen in the chart below, where we lay out the GMO seven-year forecasts in a volatility (an imperfect shorthand for risk) versus return format for the traditional asset classes, or betas. This beta desert is so challenging because not only are there no asset classes that we believe are priced to deliver 5% real return (the red line), there is also no safe place to hide and wait (the green circle).


    * * *

    Then again, who needs “safety” when the market’s Chief Risk Officer, the Federal Reserve of course, will never allow another market correction and when any wholesale selloff from this endless no volume elevitation will result in a CYNKing of the market, where the entire market is simply halted. Indefinitely.

  24. Don’t Think It Won’t Happen Just Because It Hasn’t Happened Yet: Loss of Faith in the Fed (August 18, 2014)

    Charles Hugh Smith

    Much of the supposedly godlike power of central banks is participants’ faith in their powers to control not just finance but the real world that can be leveraged by finance.

    The Grand Narrative of the global economy since the 2008 financial meltdown has been: whatever the problem, zero interest rates and more credit will fix it. Too much debt? Zero-interest rates and more credit will fix that. Government spending far exceeds tax revenues? Zero-interest rates and more credit will fix that. Economy sluggish? Zero-interest rates and more credit will fix that. Few jobs being created? Zero-interest rates and more credit will fix that.

    Had a bad hair day? Zero-interest rates and more credit will fix it.

    Implicit in this narrative is the notion that there are no hard limits on credit or central bank money creation. If creating $1 trillion in new credit-money and pushing it into the hands of financiers doesn’t do the trick, then push $2 trillion more.

    Equally implicit is the assumption that the central banks repressing interest rates and creating trillions of dollars out of thin air can control any blowback or unintended consequences triggered by the free money for financiers tsunami. The central banks implicitly claim to be Masters of Universe: not only are there no hard limits on zero interest rates or nearly unlimited monetary heroin, there are also no limits on the power of the Federal Reserve and other central banks to bend markets and behaviors to their will.

    These implicit assumptions have fostered a quasi-religious belief in the unlimited powers of the central banks and the freshly created credit they issue.

    In other words: there are no hard limits on central banks or credit creation. If central banks want to keep interest rates at near-zero, they can do so with no limit. If they want to push the stock market higher they can do so with no limit.

    I have discussed what I see as intrinsic limits on manipulating markets in Are There No Hard Limits on Financial Finagling? and Have We Forgotten What an Authentic Market Is?

    My point is that manipulating markets strips markets of price discovery of assets and risk and the feedback that enables markets to recover equilibrium; decisions made when risk and price have both been suppressed or hidden by manipulation are necessarily catastrophically mis-informed.

    But that is only one hard limit on central banks’ supposedly unlimited power to mold the world to their liking with unlimited monetary heroin: there are others. One is energy: central banks can create more credit with which to buy energy, but they cannot create more energy. Stripped of artifice, all central bank credit can do is bid the price of energy up to the point that only those with access to central bank free money can afford it.

    When energy markets tighten up, free money for financiers will only exacerbate the inequalities of energy access and consumption; zero-interest rates and monetary heroin can’t and won’t stabilize access to energy or the extraction of more energy.

    Another hard limit is leverage. Zero-interest rates and free money for financiers can push leverage higher, so every $1 in cash supports $25 in credit and $100 in derivatives, but it doesn’t stop the reverse leverage when the collateral declines in value: if the collateral underlying a bank that is leveraged 25-to-1 declines by 5%, the bank is insolvent.

    As longtime correspondent Harun I. explained in Resolution #1: Let’s Call Things What They Really Are in 2014 (January 15, 2014), the Federal Reserve is itself leveraged 72-to-1.

    Issuing more credit at zero interest does not increase the value of collateral. The only way to keep the value of phantom collateral rising is to inflate asset bubbles, one after another.

    But inflating asset bubbles by injecting unlimited credit into markets is not a game without limits; indeed, recent history has shown that bubbles are intrinsically unstable and they deflate violently due to internal dynamics that cannot be controlled by central banks issuing more credit at zero interest. Reduce complex systems’ feedbacks to a monoculture or single input and you doom the system to collapse.

    A third hard limit is the political loss of faith in the godlike powers of central banks. In the moment, it seems as if central banks have had their way for six years, and there is no reason not to believe they will have their way for another six years, or sixty years.

    Serial bubbles that deflate violently, rising wealth inequality driven by free money for financiers, the crippling of market dynamics, including the markets for energy, risk and capital, the extraordinary increase in systemic leverage based on phantom collateral–any one of these has the potential to push the number of people opting out of “the central bank and state have godlike, unlimited powers” faith above the Pareto Distribution tipping point, where the vital few 4% influence the 64%.

    In other words, much of the supposedly godlike power of central banks is participants’ faith in their powers to control not just finance but the real world that can be leveraged by finance.

    Once this belief fades, so will the powers of central banks.

    As I noted in The Coming Crash Is Simply the Normalization of a Mispriced Market, this line from songwriter Jackson Browne captures the false assumption of those who believe central banks can stave off crashes, not just of assets but of faith, forever: Don’t think it won’t happen just because it hasn’t happened yet.

  25. I guess I picked the wrong website when seeking quotes about central banking.

    I’m glad pompous assholes like yourself are out there policing quote attribution.

    Thanks for your service.

  26. “State a moral case to a ploughman and a professor. The former will decide it as well, and often better than the latter, because he has not been led astray by artificial rules.”

    Thomas Jefferson

  27. You can espouse all the logical conclusions and moral hazards you want, clearly the powers that rule
    Have a leg up on you all. They combine their manipulation of mass psychology with amoral plans for consolidation of power and wealth. On this earth they will win every time unless you stoop to their level, in which case you lose when not on this earth. Think eternal. They will manipulate the end game how they see fit either slow decay, or violent class warfare (not their class), or a new world order with a new world currency (special drawing rights SDR) in a new center of power.

  28. Hopefully they get a delivery the day before the apocalypse. If i have to drink the swill I brew myself I’ll be joining the marauders early

  29. It seems strange that there is no question here of the USA staying in one political piece. My expectation is for various secessions to start prior to the expected federal 2016 political election. But, as is often the case, progress takes longer than is estimated.

  30. The 30 statistics that you are about to read prove beyond a shadow of a doubt that the middle class in America is being systematically destroyed.

    1. In 2007, the average household in the top 5 percent had 16.5 times as much wealth as the average household overall. But now the average household in the top 5 percent has 24 times as much wealth as the average household overall.

    2. According to a study recently discussed in the New York Times, the “typical American household” is now worth 36 percent less than it was worth a decade ago.

    3. One out of every seven Americans rely on food banks at this point.

    4. One out of every four military families needs help putting enough food on the table.

    5. 79 percent of the people that use food banks purchase “inexpensive, unhealthy food just to have enough to feed their families”.

    6. One out of every three adults in the United States has an unpaid debt that is “in collections“.

    7. Only 48 percent of all Americans can immediately come up with $400 in emergency cash without borrowing it or selling something.

    8. The price of food continues to rise much faster than the paychecks of most middle class families. For example, the average price of ground beef has just hit a brand new all-time record high of $3.884 a pound.

    9. According to one recent study, 40 percent of all households in the United States are experiencing financial stress right now.

    10. The overall homeownership rate has fallen to the lowest level since 1995.

    11. The homeownership rate for Americans under the age of 35 is at an all-time low.

    12. According to one recent survey, 52 percent of all Americans cannot even afford the house that they are living in right now.

    13. The average age of vehicles on America’s roads has hit an all-time high of 11.4 years.

    14. Last year, one out of every four auto loans in the United States was made to someone with subprime credit.

    15. Amazingly, one out of every six men in their prime working years (25 to 54) do not have a job at this point.

    16. One recent study found that 47 percent of unemployed Americans have “completely given up” looking for a job.

    17. 36 percent of Americans do not have a single penny saved for retirement.

    18. According to one survey, 76 percent of all Americans are living paycheck to paycheck.

    19. More than half of all working Americans make less than $30,000 a year in wages.

    20. Only four of the twenty fastest growing occupations in America require a Bachelor’s degree or better.

    21. In America today, one out of every ten jobs is filled by a temp agency.

    22. Due to a lack of decent jobs, half of all college graduates are still relying on their parents financially when they are two years out of school.

    23. Median household income in the United States is about 7 percent lower than it was in the year 2000 after adjusting for inflation.

    24. Approximately one out of every four part-time workers in America is living below the poverty line.

    25. It is hard to believe, but more than one out of every five children in the United States is living in poverty in 2014.

    26. According to one study, there are 49 million Americans that are dealing with food insecurity.

    27. Ten years ago, the number of women in the U.S. that had jobs outnumbered the number of women in the U.S. on food stamps by more than a 2 to 1 margin. But now the number of women in the U.S. on food stamps actually exceeds the number of women that have jobs.

    28. If the middle class was actually thriving, we wouldn’t have more than a million public school children that are homeless.

    29. If you can believe it, Americans received more than 2 trillion dollars in benefits from the federal government last year alone.

    30. In terms of median wealth per adult, the United States is now in just 19th place in the world.


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