Sunday, May 17, 2020


That's the signpost up ahead—your next stop, the Twilight Zone!

-          Rod Serling, The Twilight Zone

Call it QE to infinity, modern monetary theory, magic monetary theory (H/T Zerohedge), whatever.  Goldman Sachs has come out with a report; the Zerhohedge headline reads: Goldman Spots A Huge Problem For The Fed.

Ya think?

To summarize, the inflation of the Fed’s (and every other major central bank’s) balance sheet cannot end, as the volume of required Treasury purchases is overwhelming and will continue to overwhelm the market.

My working thesis regarding this corona hysteria is, and has been from the beginning, that financial markets were past the point of requiring a bailout.  I have seen noithing that has caused me to change my view, and this Zerohedge piece fully supports it.

The first signposts were last fall when the overnight repo market interest rate hit 10% - meaning banks were not willing or not able to lend overnight to other banks.  The Fed stepped in to settle things down, eventually.

The corona gave the pretext for what had to happen in any case: the financial system required bailouts to avoid illiquidity and insolvency.  The Fed and its supporters knew that the people wouldn’t go for this scam again (recall the overwhelming pushback in 2008 / 2009), so they needed to do something to scare the hell out of everyone.  Climate change was way too far out in the future – not personal enough.  Enter the corona.

Now this doesn’t mean that there aren't other objectives or agendas.  Forced vaccines, your papers, please, etc.  I can think of a hundred possibilities – so, it is a target-rich environment.  For those who never want to let a crisis go to waste, well, this is Christmas, New Year’s Day, winning the mega-millions lottery, and a twenty-first birthday all rolled into one.

So, what does all of this have to do with the Zerohedge article?  The last few paragraphs tell the story:

"Can governments continue to borrow at such record levels? No," said George Boubouras, head of research at hedge fund K2 Asset Management. "Central-bank support is key in the massive bond buying we’ve seen for now. But if they blink then at some point, in the medium term, it will all likely unravel - with unforgiving consequences for some countries."

Ironically, this also means that an end to the coronavirus crisis is the worst possible thing that could happen to a world that is now habituated to helicopter money and virtually unlimited handouts, which however need a state of perpetual crisis.

"Once there is an end to the crisis in sight, they will be less and less willing to provide support and it will fall more on the street to absorb paper," said Mediolanum money manager Charles Diebel, who’s adding bond steepeners in anticipation of a coming inflationary supernova.

They “will be less and less willing to provide support,” only without a pretext.  Hence, they need an ongoing pretext:

That, incidentally, would be the endgame for the current monetary regime, which is why anyone hoping that officials, policymakers and the establishment in general, will allow the coronavirus crisis to simply fade away, is in for the shock of a lifetime.

Read the last paragraph twice.

If it takes keeping half of the working class in the developed world unemployed (while sending the occasional $1200 check), so be it.  And if it takes a few million or tens-of-millions of hunger-related deaths in the more poverty-stricken regions of the world, no problem.  At the cost of a few hundred billion dollars and a few tens-of-millions dead, the bailouts to the financial system are in the multi-trillions.


So, I expect we are certain to face a second and third wave, or maybe the virus (or whatever it is) will morph into something else, or whatever.  They have already moved the goalposts at least once: from “flattening the curve” to “finding a vaccine.”  They will move the goalposts as often as necessary and as long as they can get away with it.

We are likely facing perpetual crisis mode until a major economic and financial reset is forced upon the inhabitants of planet earth.


  1. "But if they blink..."

    This is the key phrase and it is certain that someone will. It's like the game of Chicken, in which two people speed directly toward each other in their cars, resulting in a head-on collision unless one of them "chickens" out and veers off course.

    Someone will blink at some time.

    A common belief is that this is all being orchestrated by an all-powerful cabal which is certain to achieve its goal of total world domination of the many by the few. They operate in secret and manipulate circumstances to their benefit, springing their traps when they are ready and then move on to the next phase. Like everything else in life, there is some truth to this. But...

    This is a high-stakes game. Winner takes all and everyone who is involved wants to be the winner, so the risks taken become greater and the bets are constantly increased. Sooner or later, it will become too much for someone to handle and he will blink, resulting in the whole sorry mess crashing head-on into the unforgiving wall of Reality and, as in the game of Chicken, we will begin a new game at the starting line.

    Why am I so sure? These people are not infallible. They make mistakes. And, most importantly, I have faith.

    Why do the nations rage,
    And the people plot a vain thing?
    The kings of the earth set themselves,
    And the rulers take counsel together,
    Against the Lord and against His Anointed, [Christ], saying,
    "Let us break Their bonds in pieces,
    And cast away Their cords from us"

    He Who sits in the heavens shall laugh;
    The Lord shall hold them in derision.
    Then He shall speak to them in His wrath,
    And distress them in His deep displeasure:
    Yet I have set My King on My holy hill of Zion."
    [Psalms 2:1-6. (NKJV)]

    Read that last paragraph again. There is no doubt in my mind about it. Someone will blink. God help us all when it happens. We're going to need it.

    1. Roger, whether someone blinks or not, there is a crashing down on heads coming. I don't see a drastic political change coming that could change this possibility.

      Now, what would cause these principalities and powers to blink? This is part of my disappointment (and maybe yours) with the actions of church leaders - they could have forced a blink if they weren't so subservient.

      At some point, will enough people scream "BS" to this nonsense of lockdowns, on and off, for who knows how long?

      And then what will the reaction be of those principalities and powers. Best case scenario? Have you seen the end of the movie "V for Vendetta"? I don't mean the blowing up parliament part; I mean when hundreds of thousands in V masks stood up to the government goons - basically saying, "shoot us all on live television and see if you survive it."

      In the end, I hold to the same faith as you do. Empires have crumbled many times, this one will too. It is impossible to control 100% of everything.

  2. First, a quote from Ralph Musgrave about MMT relevant to this article:

    Incidentally, as MMTers have long tried to explain, government debt and base money are much the same thing. That is, a tranche of government debt is simply base money lodged with government for a period of time on which government pays interest. As Warren Mosler (founder of MMT) put it, government debt is essentially a term account at a bank called “government”.

    Thus the important quantity here is not, strictly speaking GOVERNMENT DEBT: it’s government debt plus the stock of base money, which is sometimes referred to by MMTers as “Private Sector Net Financial Assets” (PSNFA). But I’ll use the more traditional and inaccurate phrase “government debt” or just “debt” below.

    As for what the optimum amount of deficit and debt is, the MMT view is simply that it needs to be whatever brings full employment (or something as near full employment as is possible in a Covid scenario), while keeping to the inflation target. The actual AMOUNT of debt that results from that policy is wholly irrelevant.
    [end quote]

    So what we have here is the private sector wanting to hold more of its wealth in the form of base money. So the Fed accommodates that by allowing the private sector to swap bonds for money. In the future, the Fed can swap back in the other direction. Or not, it doesn't matter.

    In any event, this is not inflationary. This is because for inflation to happen, money has to actually chase goods and services. Here, all we have a change in the portfolio composition of private sector financial assets, i.e., more cash, less bonds.

    Deflation is now our biggest concern. A lot of people went into this crisis with low levels of savings. They're all going to be trying to build up their savings at the same time. Which is not possible. This because of Keynes' Paradox of Thrift.

    1. Ahmed, you do so much better on non-economic topics. How anyone can pack so many economic fallacies in so few words...did you receive an economics PhD from Columbia or Chicago?

      Inflation is the artificial creation of money (currency or digits) or credit. By artificial, meaning not backed by real savings and protected from default by government dictate and force.

      Focusing on chasing goods and services is a trick employed to get people to look at price inflation instead of the theft caused by artificial money and credit creation.

      Any artificial creation is theft - theft by those doing the creating and being the first to spend the units against those who are not so favored.

      The optimum amount of debt is that which is supported freely by savings in the market, tempered by risk of loss and bankruptcy - without being bailed out by central banks or the treasury.

      Deflation is no concern; it favors savers and disfavors creditors. It is one of the healthiest ways to check excess in an economic system.

      Keynes paradox of thrift is stupid.

    2. One of the things about the whole situation which I find amusing is this concept of full employment. When did the FED become the one to make sure everyone is working? Why was that responsibility given to it? What is 'full' employment anyway?

      In a government run economy, full employment means every worker (or nearly all) who can produce laboring mightily in order to fatten the coffers of the State via taxation and to consume whatever is left on purchases which will keep the charade going and the large banks and corporations growing. Anything less than 'full' employment is detrimental to the State. BTW, 'full' employment is determined by the State as a statistic or a number plucked out of the air, say, when 'unemployment' falls to 3% or less.

      In a free economy, 'full' employment would mean everyone who wanted work could find it and was working. Everyone who needed workers could find them. No one would be left out. In a free economy, there would be no need to manufacture 'money' out of nothing or to flood the economy with it just to boost employment. In a state-run economy, this is what it's all about.

      One system enslaves people, the other sets them free.

  3. Bionic,

    Yes, this crashing down on heads is coming and will happen regardless of political change or continuity. We can change direction or we can maintain the course, but nothing will stop the inevitable. Be sure your sin WILL find you out.

    As concerns church leaders, my thought is that they have given us exactly what we demanded--a soft, easy, sweetness and light gospel, when they could have spoken the truth. We preferred "itching ears." They will be held accountable--and so will we.

    Charles Finney can address this much better than I, although he does not lay the blame on the pulpit alone. It takes more than a preacher to make a church.

    “Brethren, our preaching will bear its legitimate fruits. If immorality prevails in the land, the fault is ours in a great degree. If there is a decay of conscience, the pulpit is responsible for it. If the public press lacks moral discrimination, the pulpit is responsible for it. If the church is degenerate and worldly, the pulpit is responsible for it. If the world loses its interest in religion, the pulpit is responsible for it. If Satan rules in our halls of legislation, the pulpit is responsible for it. If our politics become so corrupt that the very foundations of our government are ready to fall away, the pulpit is responsible for it.”

    I have seen the movie and I think the most moving, meaningful moment in it was seeing the masked horde coming and coming and coming. They just kept coming and there was no stopping of them. Incidentally, when the idea that we might all have to wear a mask in order to go out or shop at a store started gaining traction, I purchased a Guy Fawkes mask and fully intend to use it if necessary. As far as I know, there are no specifications about what a mask must be. One is as good as another and Guy Fawkes is good enough for me. For anyone of like mind, they can be had for less than the cost of two lattes.

    1. "...he does not lay the blame on the pulpit alone. It takes more than a preacher to make a church."

      I am with you on this. The people can demand more from their pastors. But all parties involved like the easy way out, it seems. Not at every church, not every member, but many, on both sides of the curtain (if you know what I mean).

    2. Charles Finney was a heretic who caused the Burn Out of the NE US through his psychological manipulation of churches during "revivals".

      It is why Northeastern pietism turned secular near the turn of the 20th century. Just an fyi.

    3. RMB, I will have something on Northeastern pietism posted on Friday. It was written before your comment - although I may have been turned onto the thought by you or someone else here recently (or maybe from somewhere else...I am getting old).

    4. RMB, I don't know much about Finney, but I found this quote at the time I wrote the comment above. It seemed to fit the conversation, so I put it in. Can I assume that you generally agree with the tenor of the quote as it is written? It wouldn't have mattered greatly to me if Karl Marx had said it. I think that's there a lot of truth in it, so I'm not inclined to throw out the baby with the bath water.