Financial Fire Hoses and Helicopters

“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.” – Ben Bernanke

Modern finance ultimately comes down to managing serious crises and transitions in a way that is profitable for policy makers and elite. The inevitable chaos, like the death of a fiat currency and the return to a real market price equilibrium, is much more dramatic.

History will only report the extremes. But we are now living through “in-between” times, watching it all unfold amid the bungling of sociopath leaders. Economic theory and practice is borrowed extensively from the future.

When we enter a state of economic emergency, the need to keep funding the present eclipses completely any hope for a future.

In this pregnant moment we have colossal debt forcing its own absurd kind of austerity. Consumers stop spending – not out of prudence, but because they simply cannot.

The irony is painful.

The system breeds massive debt allocation from the top, where low interest rates make it foolish ‘not’ to take on more debt, where it trickles down to the gadget-addicted and largely brainwashed mainstream consumer feeding off the constant bread and circus after circus.

Money is sent back to the financial service debt, instead of flowing in to the real economy. At the end of the day, it is worse than a Ponzi. It’s a scam that artificially inflates the asset at the top of the basic hierarchy of needs – the home…

Whether rented or owned.

Again, it is the gradual revelations we see before us, stacking up to create an avalanche like nothing seen before.

The fact is the financial system, like the shark, must be constantly flowing to survive. If the machine begins to stall, all of the peripheral mechanisms begin shutting down.

No one understands the complexity.

Even the regulators, if they weren’t already totally captured, could not unravel the issues.

When we freeze again, we will be politically positioned to unleash all that we understand, such as:

  • Interest rate reduction.
  • More outright balance sheet expansions.
  • Incentives that either step in to assist or indirectly force banks to lend to the consumer.

We thought QE was large; just wait until it grows exponentially.

Nationalization will look benign in comparison.

Dollar reserve currency status

The U.S. dollar reserve is slowly being painted as a pariah. A statement which is meant as a preparation.

A way of talking down the dollar as Europe implodes and safe haven money flows bid treasuries.

It’s nothing new that calls for the end of dollar hegemony have been ubiquitous, here are a few headlines from the recent past:

Nothing Lasts Forever; World Bank Ex-Chief Economist Calls For End To Dollar As Reserve Currency

Russia Holds “De-Dollarization Meeting”: China, Iran Willing To Drop USD From Bilateral Trade

China’s Official Press Agency Calls For New Reserve Currency, And New World Order

Canadian Billionaire Predicts The End Of The Dollar As Reserve Currency; Warns “It’s Likely To Get Ugly”

And the real kicker is this one:

Obama’s Former Chief Economist Calls For An End To U.S. Dollar Reserve Status (Originally posted as an Op-Ed at The NY Times – of all the carefully concocted places.)

 “….new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.”

If that were not enough…try this one on for size and consider how far we've come since 2014 with this:

It begins: “Central Banks Should Hand Consumers Cash Directly”

“Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.”

And so here come the helicopters.

However, even nearly three years ago, the problems with Helicopters and adding liquidity were obviously apparent. 

From "A Printer And A Prayer" - The Three Problems With The Fed "Liquidity Coverage Ratio" Plan:

“…..this whole “macroprudential” scheme crashes under the weight of its own illogic, is when one considers that the source of the funding of any one bank’s debt issuance proceeds are other banks and financial intermediaries, all part of the same group of chain-linked counterparties, which hold on their shoulders over $200 trillion in notional derivatives, and where even one collateral chain breach means net becomes gross and the derivative exposure collapse into the singularity of the next bailout. Basically stated, bank X will be selling debt to bank Y in exchange for cash, thus boosting bank X’ capital line item, while depleting bank Y’s. And when the moment comes to rescue the liquidity depleted bank Y, what then?”

In other words, not only is this latest window dressing too little to make a dent, or that there simply isn’t enough of the high quality liquid collateral needed to pre-fund a disaster fund, but at the end of the day, all that is happening is a circular pickpocketing where liquidity is simply rotated in a circle without any exogenous funds entering or leaving the banking sector. And as everyone knows, it isn’t any one bank that is insolvent: it is the entire banking sector in total, confirmed quickly when one recalls that Hank Paulson “forced” all the banks to accept TARP funding to restore confidence in the U.S. banking system: not a piecemeal bailout.

Fast forward to today. Here we are, skating across the thin ice without a (collective) care in the world. This is also the reason the financiers eventually must turn to government to continue spending.

No real spending constraints apply to government. And politically acceptable by the majority increase in spending — which will put more pressure on the velocity of money — the transfer mechanism being the government.

Officials are preparing, paving the way for the eventual storm. They are making these official statements, while the market “looks” the other way.

But the market can’t look the other way forever. How long is anyone’s guess.

It’s like waiting for the next big earthquake.

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