The 11 Bone-Chilling Things I Gleaned from Yellen’s Chart

Who says the Fed can’t have fun at our expense?

At the Symposium in Jackson Hole, so feverishly anticipated by the entire world, Fed Chair Janet Yellen gave an even more feverishly anticipated speech on Friday, in which she said the same stuff she’d been saying all along, such as these nuggets:

“And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course.”

“Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy.”

To document this, she supplied the fan chart below, adding this explanation:

“The line in the center is the median path for the federal funds rate based on the FOMC’s Summary of Economic Projections in June.”

“The shaded region, which is based on the historical accuracy of private and government forecasters, shows a 70% probability that the federal funds rate will be between 0 and 3.25% at the end of next year and between 0 and 4.5% at the end of 2018.”


At the Fed, nothing ever appears out of nowhere, except money. So Bloomberg supplied some background on how the chart came about:

The Fed has been struggling to find a way to point out that its dot plot – or its quarterly forecast of its policy rate for the next few years – is just a guess and it’s subject to change due to economic shocks or surprising twists in the data.

A subcommittee on communications submitted similar fan charts to the Federal Open Market Committee in January for their consideration. As usual, committee participants expressed “a range of views,” with some saying the charts might be helpful “in explaining that future monetary policy is necessarily uncertain.”

Fed officials sent the subcommittee back to their cubicles to study the issue some more. They had some criticisms of the charts – one big one was that past forecast errors may not equal future ones.

Here are the 11 bone-chilling things I gleaned from the chart:

1. They have no clue about what might happen next. Their forecasts and “forward guidance” are either figments of their imagination or just efforts to manipulate the markets.

2. They have no clue how to get out of what initially was an emergency treatment of a Fed-sponsored financial system in full and self-inflicted collapse, but is now the “new normal” treatment for an economy buckling under its Fed-encouraged debt.

3. Even the confidence level in their cluelessness is only 70%. What about the other 30%? We’re better off not knowing.

4. NIRP be screwed. Negative interest rates are off the table. In footnote 2 and on the chart itself, Yellen points out the “effective lower bound of 12.5 basis points.” So the bottom in rates, at a 70% confidence level, is 0.125%.

5. NIRP is beyond even the new-normal central bank deviousness. Negative interest rates are so destructive even to Fed-coddled entities, such as the banks, that the Fed doesn’t want to try them.

6. Negative real interest rate policy is in. It has been around for a long time. This is when the federal funds rate and other interest rates, such as bank deposit rates and government bond yields, are negative after inflation. It’s the classic form of financial repression. It surreptitiously rips off savers and other low-risk investors as they can’t see the rip-off on their bank or brokerage statements. Now the favorite tool in the Fed’s insidious tool box.

7. Flip-flopping is now the official Fed policy at a 70% confidence level and will become part of “forward guidance.”

8. They have no clue, but they know how to talk. The chart confirms the Fed’s message: They say whatever they want to in order to inflate financial markets and drive even conservative investors into huge risks without much compensation, and that’s pretty much all they’ll ever do.

9. They don’t give one iota about the real economy. The verbiage about unemployment etc. is just pretext. It’s all about inflating financial markets, bailing out certain bondholders when they get in trouble, enriching those that hold the most assets – the “Wealth Effect,” as Bernanke called it – and serve Wall Street in every way to the maximum extent possible. And to heck with the real economy.

10. Labor is screwed. It doesn’t figure into the chart, except that there needs to be an unlimited supply of cheap labor. Because cheap labor makes bad consumers, the Fed said with this chart that they’ll encourage “cheap labor” to spend money they don’t have and fill the holes in their budgets by borrowing. This way, they’ll be good consumers and prop up the economy, while also enhancing their noble status as debt slaves.

11. They’re trying to make us forget how long this insanity has been going on. Yellen’s chart begins in Q1 2015. But the Fed’s historic craziness began in 2008. So that we can remember for just how long the Fed has inflicted its policies on the economy, I have added to Yellen’s chart the prior six years, for a total of eight years. It shows that they have no clue about how to get back to normal, and that they have instead changed the definition of normal (click to enlarge):


Markets no longer believe that the Fed will ever raise interest rates in any significant way, at least not anytime soon, and with this very public belief, they’re trying to force the Fed not to raise rates. But if the Fed stops flip-flopping for a minute and actually raises rates, markets might throw a big hissy-fit, or so frets the Bank of Japan. Read…  Bank of Japan Prepares for Crash Triggered by Fed Tightening

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  106 comments for “The 11 Bone-Chilling Things I Gleaned from Yellen’s Chart

  1. michael says:


    Based on points 9, 10, and 11 (you numbered that by accident 10 again) what do you recommend we peons do?

    • Wolf Richter says:

      Thanks, Michael, for pointing out the typo.

      What we peons can do is get Congress to…

      – Do a complete audit of the Fed.

      – Transfer all bank regulatory functions from the Fed to the FDIC.

      – Abolish the privately owned 12 Federal Reserve Banks and transfer their functions (if needed) to government agencies, such as the Treasury.

      – Transfer the lender-of-last-resort function to the FDIC. It will get a banking licence to do this. And it will lend in emergencies to solvent banks but at punitive rates, such as 5 percentage points above the rate of inflation.

      – And, and, and…

      Congress has the power to fix this situation. But since the Financial Crisis, Congress has given the Fed even more power. This just confirms that we have the best Congress money can buy.

      • Petunia says:

        You must realize that an audit of the fed will only confirm that all the junk they bought from the banks, and paid top dollar for, is worthless. It will only confirm that they made the rich richer and the poor poorer. Not a good political revelation in these troubling times.

      • Lee says:

        Never happen. EOM.

      • WTFrogg says:

        The Rothschild gang would not be amused with abolishing the Federal Reserve banks OR messing with the Central Banks they own.

        Only the Central Banks in Iran, North Korea and Cuba are NOT run by them….Cuba will be the next to fall.
        Same tactic as with run of the mill consumers…get them indebted to you and you OWN them.

        Follow the money if you want to know who runs the show.

      • RD Blakeslee says:

        Assuming (not much of an “assumption” really) that Congress does none of these things, how does an ordinary wage earner who wants to accumulate genuine long term savings of some kind proceed? Buy raw land, for example?

        • nhz says:

          Due to years of financial repression by central banks, almost everything you could theoretically buy to protect yourself is severely overpriced, or not an effective (inflation) hedge. Of course overpriced assets can become even more overpriced … Only people who are ‘in the loop’ still have some chance to buy assets (e.g. companies) at good prices.

          In general investing in yourself (your own business or education) can be a good strategy. Most other options require lots of studying and preparation. Buying land is an obvious example for this, unlike the people who are selling you probably have no idea what land is worth. I don’t think buying land makes much sense unless you are planning to work the land and know that is going to be profitable.

        • Robert says:

          1. Buy gold (or silver) bullion. Store it yourself
          2.Open a brokerage account, and write out of the money calls on the gold ETF (GLD), or the silver ETF (SLV). You can regard the premium you receive as “savings,” and the rate is a hell of a lot better than any bank will give you.
          If your gold or silver go up in price, you have pocketed the “savings”, and will satisfy having the call exercised against you by selling your bullion, also a profit.
          If the price of your bullion went down, instead of up, you will have to be patient. You will still pocket the premium from writing the calls and can do so again if it goes up later.
          The knock on gold used to be that it paid no interest (neither does a fire extinguisher.) It turns out it can, and what’s more, you don’t have to worry about NIRP.

      • Islander says:

        The Treasury manage our money and credit supply? Ridiculous, how would that ever enrich the elite?! Anyways I have come to very similar conclusions as you, but I would add that stricter tariffs and public encouragement of new or suffering industries would also be very helpful.

        In truth i perceive more danger from sectors becoming mono (or duo) opolized than this funky interest rate environment.

      • JZ says:

        I would agree with abolish the fed based on the founding principle of America. But the economy and globalization has evolved so much that a fed is needed.

        My understanding of the America founding principle is the following
        1. Government should not be functional by breaking it into pieces.
        2. There should be no central banks and any form of money other than gold and silver.
        3. America would trade with the rest of the world, should not make ally’s as and use force against other countries who did not use force against America.
        4. Every citizen should be armed to protect themselves against the danger of government.

        Nowadays, there is only national interest on TV. There is no more national principle. And the entire voter population considers it reasonable to pursue what ever interest without underlying principles.

        Due to current state of globalization and world trade, if America does not have a central bank while other countries do, then America can not trade with them.

        So either the entire world goes without central banks, or America just become “United States” like everybody else which is to have a central bank, government controlled economy and seeking to use force to gain advantages in global trade.

        And it is central banks responsibility to make sure its corresponding country has a better deal in the trade.

        • Graham says:

          “But the economy and globalization has evolved so much that a fed is needed.”

          The need to rent our currency from a privately owned banking cartel is never needed, in fact the simple mathematical truth is that if you do that, some day down the road they will own everything and it will take a violent revolution for the people to take it back again.

          In fact it’s the rental of money that creates the ‘growth’/debt spiral in the first place, a simple treasury issued credit money system is the only way to get a grip on inflation and relegate money to something is should be – an instrument of exchange, trade and taxation – instead of one of power and avarice.

        • Thomas Malthus says:

          “I care not what puppet is placed on the throne of England to rule the Empire, … The man that controls Britain’s money supply controls the British Empire. And I control the money supply.” Nathan Rothschild

          “Once a nation parts with the control of its currency and credit, it matters not who makes the nation’s laws. … Until the control of the issue of currency and credit is restored to government and recognized as its most sacred responsibility, all talk of the sovereignty of parliament and of democracy is idle and futile.” — Mackenzie King, Canadian Prime Minister 1935-1948.

          “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.” – Woodrow Wilson, after signing the Federal Reserve into existence

          “Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive that they had better not speak above their breath when they speak in condemnation of it.” ― Woodrow Wilson

        • RE: …“But the economy and globalization has evolved so much that a fed is needed.” …

          Indeed! But currently the most critical function of the U. S. central bank is the evasion of the Constitutional requirement that Congress can only make gold and silver as money, although this could be silver and gold certificates, or operationally warehouse receipts for gold and silver held at the Treasury. By using Federal Reserve bank notes [a private corporation] and/or computer credits as “money,” which are backed by nothing, that restriction is evaded.

          If fiat money is to be issued directly by the Treasury, a Constitutional amendment will be required. FWIW – such an amendment is long overdue, and maintaining this archaic financial facade is costing the American public dearly as the Federal Reserve Bank continues to exploit this situation to gouge the general public, while aiding and abetting their 0.1% cronies, who are also gouging.

        • Thomas Malthus says:

          If one visits the Fed’s website then one might be forgiven for believing the Fed is needed.

          Except that the world has ALWAYS been run by elites — democracy is BS (other than with respect to stuff like fixing pot holes and gay marriage)

          The owners of the Fed are the current rulers of the world…

          Previously it was a small number of gnarly toothed Brits …

          I have no real problem with the Fed…. they’ve given me a reasonable taste of the spoils…. I could have been born in Libya heheh

        • Robert says:

          Central bankers are a chummy lot (I once read where the Fed issued an invitation to other CB’s(not Joe Sixpack) for a viewing of its art gallery), but how does CB A really know how much CB B is madly printing in his basement? The news is rife with stories of one nation after another (notably Japan) “stimulating” its economy- in other words, giving its citizens the power to buy scarce goods they could not otherise afford. If everyone does this at the same time, it is pure, crazy, incalculable inflation. What the founding fathers had in mind was a system to keep things honest- the gold standard- with real enforcement, and real penalties (i.e., hanging). A functioning Treasury Department. No Central Banks.

        • Sound of the Suburbs says:

          All the big central bankers are directors of the BIS and meet up regularly to coordinate their efforts.

          They are independent of the nations they represent but not from each other.

      • If you’re relying upon Congress we’re in real trouble.

        Captain Smith shouted into his megaphone: ‘It’s every man for himself’.

        The waves are once again lapping at the deck and it’s time to step into a life boat, that is if any are left.

        Please God, it won’t come to that.

  2. RE: … It shows that they have no clue about how to get back to normal, and that they have instead changed the definition of normal …

    Indeed! It appears the central banks/bankers have become obsessed with the orthodox economic ideology/theology of the 1960s (Friedman et al.), even though is it is increasingly obvious this is no longer applicable to the new economic epoch of “Globalization,” and supranational corporations.

    There appears to be two possible outcomes of this mass financial hallucination, neither of which is attractive:

    90% — More bubble gum, racer tape and hay wire fixes will be applied and current trends will continue to completion and the economy collapses. This will be Venezuela on a global scale. (Venezuela has oil, and the U. S. has the [current] global reserve currency. Both can be a “resource curse.”)

    10% — Congress grows a set, enacts legislation to gradually force interest rates back to their historical norms, including “augmented” usury legislation which prescribes minimum as well as maximum APR interest rates and terms for various loan categories.

    This is explicitly intended to force capital away from conspicuous consumption (e. g. 0 down 84 month new vehicle loans) and non-/counter- productive operations/activities such as debt based corporate dividends, stock buy-backs, leveraged market speculation, and monopoly generating / tax evading merger and acquisition activity (e. g. corporate inversions), and back into productive activities. A cheap way to enforce this is to not allow court actions to be brought where the contract/loan terms are outside the “guidelines.”

    While this would avoid complete economic collapse, it will still be very costly/disruptive because of the increased interest rates the government, at various levels, must then pay to “service” their debt. It may well also require the revocation of the charter for the existing Federal Reserve Bank (a relic from 1913) and the creation of a new central bank, better aligned with the current socioeconomic/geopolitical realities, and which has the well-being of the majority of citizens, and thus the Republic, as their first priority.

    • Petunia says:

      –“Congress grows a set” —

      Not likely, based on decades of observation.

      Vote them all out while you still can.

      • WorldBLee says:

        Unfortunately, voting them out only brings in another set of pliable Congressional freshmen–who will immediately need/want to start raising money for re-election and we know what that will entail.

        • Petunia says:

          The point is to vote them all out and keep doing it, so that none of them become entrenched in the system. Let them be real public servants instead, much in the same way as Trump is doing. I always felt he is running because the system is making it impossible for anybody to make money.

        • nhz says:

          In Europe several countries could have dysfunctional governments within 1-2 years, thanks to fast growing ‘populist’ parties that often don’t play the game like the current politicians. A dysfunctional parliament or government is certainly better than the mob rule that we have now …

          Belgium did pretty well in the years that it didn’t have an official government ;-)

          Also, it might become more difficult for the MSM to fool the sheeple with a strongly divided or dysfunctional government.
          In most Western countries the task of the MSM is spreading government propaganda, at least as long as the news fits the American worldview. That might be more difficult with large populist parties that have a different worldview.

        • GSX says:

          Trump an example LOL!!!!!!!!!!!!!! OMG. He is a sad example of a business man and has zero interest in the world he hopes to inherit. He is not a good candidate other than to be a living cartoon.

          He cannot bring back 1 single job much less influence a Congress or his own party that is very much against him LOL. Trump is hardly rational or believable at all. He is a sad excuse for an example of success. He is the master of say it, dont mean it but it sounds great within the upset white bread populace he appeals to. He is pathetic LOL!

          4 bankruptcies and unpaid bills, broken dreams of those who worked for or contracted out by him. Do some serious research about the detritis in his wake. He is an utter joke.

      • Green Rock says:

        The real protest is for millions of US people to stop voting.
        We’re not making a difference. The Diebold machines are rigged. Watch the movie.

        Re prosperity, they don’t own it. It just looks that way. Anyone still in a major bank can blame themselves. I disagree that land is a bad investment….we all have lives to live…..let’s stop letting their game ruin our lives.

      • We’re beyond the point of voting this back to an even keel. America is lost and ‘it’s every man for himself. There’s no going back or turning back.

  3. Mark says:

    I said it so many times: “markets and FED divorced with reality”.
    Only way to stop this is another world war and wheels are in motion.
    I know this is not political site but politics and money shape world as we know it. Sadly we are on the road of no return.

    • George Dickinson says:

      Mark. you posted:

      “…politics and money shape the world as we know it.”

      Not quite right. MONEY shapes the politics . Actually, MONEY totally controls politics which then shapes the world.

  4. Ptb says:

    If the Fed actually started to raise rates the DXY would probably break 100. See how that works on the economy. Including all rate sensitive industries.

  5. BobT says:

    When this madness first started there was much chatter about ‘exit strategy’ if you recall. I have not heard the term for a good few years now which helps confirm that there is no exit, only a very ugly reset which they will delay as long as possible. It worries me that it might be another decade before this comes about.

    Simply put, we are witnessing the death of fiat currency.

    • economicminor says:

      In the end the death of fiat currency may be the outcome but the road to that outcome I can not yet envision. I think the end of the FED will be on that road. I can see many banking crisis along that road and maybe even an end to the supremacy of the US as THE number one world power. There is no clarity to the future in my mind. I have had hope that the veil of irrational stupidity would raise and sanity and civility would become the norm. Although irrational stupidity in US seems to be on the rise. I can only have hope that this is the period of darkness before the dawn.

      • nhz says:

        maybe the FED could not care less about the death of the currency when the current policy means that before long central banks own EVERYTHING: all companies, bonds, mortgages, commodities etc – all paid for with funny money they have produced from thin air.

        • economicminor says:

          Owning everything? Without a viable consumer all they have are buildings and junk… and if the currency is nothing (worthless), what incentive will they give the farmers, maintenance people and landscapers? Do you think the people at the top know anything about refrigeration or plumbing? Or mechanics? Or anything useful?

          In order for a currency to matter, you have to have producers and consumers.. even in a feudal system. This has been the best world for those at the top because they have debt slaves who’s incentive is to continue to get paid in a currency. Yet the lord has no responsibility to take care of the slave…

        • nhz says:

          Most farmers in the West are deeply in debt, so the FED (and ECB etc.) already own them, if they are not owned by the Agri mob. Even if they are not in debt, modern farms needs lots of power, artificial fertilizers, water, pesticides etc. to produce. And if the FED owns most multinationals effectively they have a lot of bargaining power over the average citizen as well, who cannot survive without services like ATMs or credit/debit cards, and food and other goods from the supermarket.

          And I think the plan was all along to decimate the number of consumers anyway, so the elites can live an even ‘richer’ life.

    • BenFranklin99 says:

      Currency based on gold or silver would cause deflation, as the total goods and services would expand faster than the gold / silver supply. You concept is a formula that gives the entire world to those who own gold or silver. It would further impoverish the working class. What deflation does to economies is destroy them, as has been well understood since the Great Depression.

      • Robert says:

        The working class did pretty well 1790-1913 on the gold standard. The entire effect of increased productivity, from Eli Whitney to Henry Ford meant prices would decline- so what? This enabled workers to buy a greater variety of goods and services, and living standards improved.
        Read Charles Mackay’s book Extraordinary Popular Delusions and the Madness of Crowds; there were many “depressions” during this time, all self-correcting, and with none of the Weimar horrors ceated by printing money to paper over massive debt. You would never have seen the national debt go from billions, when Nixon “closed the gold window in 1972, to trillions in 2000, if there were a Treasury Department, a balanced budget, and no Fed.

        • RE: …The working class did pretty well 1790-1913 on the gold standard. …

          While this is indeed true, “things are different this time,” in the tremendous amount of all types of debt [governmental, corporate, personal] now in existence, in novel formats such as CDOs and “derivatives.”

          The huge deflation [operationally making each dollar of debt more valuable] resulting from a return to the gold standard [ 1 $US = 1/1,500 oz gold?] would destroy the “middle class,” which now have about outstanding debt, excluding their house mortgage, of about 1 years annual income.

          The 0.1% would make out like bandits as their dollar denominated net assets soared in real value, and the under-class would not be immediately/directly effected as they have minimal debts/assets. Indeed, their [fixed/unindexed] social safety net payments would become more valuable, at least until “adjusted,” which would require considerable time.

          No one knows how the current N/ZIRP policy [madness] will end, or what viable alternatives exist, but it is clear we cannot go back to a commodity based/valued “money.” Indeed, “money” defined as a medium of exchange, and *A MEASURE AND STORE OF VALUE*, may now well be impossible. Specie and fiat money, both physical and electronic may well be obsolete in the “Brave New World Order.”

  6. Even negative real money rates cannot compensate for an exhausted resource base.

    Yellen should be taken out and shot. Instead she’ll retire and become an ’emeritus’, spending the rest of her days reminiscing about the ‘good ol’ days’ with her banker clients …

    • VK says:

      Yup. It’s only in story books and movies that the good guys “win”. For the most part humans celebrate mass murderers as all conquering heroes.

      ZIRP and NIRP are signalling that the current system is dead in the water. What is needed is a retelling of the narrative, infinite growth on a finite planet is a foolish quest. Humans live on shared stories (inter-subjective realities) and the only way to save civilisation from its own flight of fancy is to re-tell the narrative we tell ourselves.

      • nhz says:

        agree; unfortunately it looks like idiots like the Bernank, Yellen and all those establishment e-con-artists are going to re-tell the narrative, which doesn’t bode well for future generations. Wake me up when the MSM starts explaining to the sheeple how the FED and other central banks are destroying the economy …

    • BenFranklin99 says:

      Yellen didn’t cause this mess. She inherited it. She is trying to prevent disaster with the few tools in her tool box.

  7. Chris says:

    The system is broken. But this is simply the result of having central bankers running the show with to close connections to Goldman Sachs and the other “important” financial players. And as long the voters in the elections are not waking up – nothing will change. If you really want tochangethe system – just vote forthe candidates which don’t get most ofthe money from Wallstreet. at least there would be some hope for a positive change.

    • economicminor says:

      Voters waking up?
      What fantasy world do you live in?

      You only get a choice among the *vetted* candidates. All of which are corrupted or are eliminated due to the manipulation of the system..

      The US is not a democracy in any sense other than you get to vote between the lesser of two evils.

      • polecat says:

        uhh …..the US is (supposedly anyway) a REPUBLIC !…not a ‘democratic’ mob !!

  8. Tom Welsh says:

    “So the bottom in rates, at a 70% confidence level, is 0.125%”.

    A transparent and pathetic attempt to sound like scientists, whose papers are full of statements like this. But scientists (usually) know exactly what they are talking about, and their results can (usually) be replicated by other scientists.

    As the article says, those people are just full of it. They are bluffing, we know they are bluffing, they know we know they are bluffing, and we know they know we know they know we know they are bluffing. If it weren’t so terrifying it would be (almost) funny.

    • nhz says:

      I guess the remaining 30% confidence level includes -5% rates and more funny stuff like that.

  9. Sound of the Suburbs says:

    We rediscover the advantages of democracy.

    If these people were democratically elected they would have been out years ago.

    Eight years on “We’ll just do more of the same”.

    Unelected technocrats you just can’t get them out.

    • nhz says:

      democratically elected, that’s why US Con-gress includes just honest and extremely capable people.

      Oh wait …

    • polecat says:

      Ok …… about all those senators and representatives, who continue to con and grift the public with lies year, after year, after year ??? Just because crooks are ‘elected’ does not make them accountable….. witness today’s disfunctional US government. It’s “Show Me the Money !” all…the…time.!!!

      • Sound of the Suburbs says:

        The US has developed a corrupt, detached elite and they all go to the same Ivy League Universities and mix together. The top politicians, businessmen and financiers are all drawn from the same small pool.

  10. Sound of the Suburbs says:

    Japan had its “Minsky Moment” back in 1989 when its real estate market crashed, it has never really recovered since.

    The US had its “Minsky Moment” in 2008 when its real estate market crashed, the world has never really recovered since as it used derivatives to leverage up its real estate boom and sold them around the world.

    2008 stats.

    James Rickards in Currency Wars gives some figures for the loss magnification of complex financial instruments/derivatives in 2008.

    Losses from sub-prime – less than $300 billion
    With derivative amplification – over $6 trillion

    “It’s nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world” “All the Presidents Bankers”, Nomi Prins.

    A housing boom busting had always been a national crisis before today’s world of complex derivatives and this market is now bigger than ever. Policymakers seem to be asleep at the wheel.

    Back to “Minsky Moments” when debt inflated asset bubbles burst.
    Japan has been in a balance sheet recession since 1989 and has learnt one hell of a lot.

    Richard Koo has analysed this in detail:

    Fiscal policy is what you need with all this unproductive lending weighing everything down. (Bankers lend the vast majority of money into unproductive real estate rather than productive lending into business, leading to “Minsky Moments” as already experienced by Ireland and Spain)

    In another of Richard Koo’s videos he tells how Western experts came along and told Japan to cut Government spending and every time things got worse until they increased Government spending again.

    It was long, hard, painful experience.
    Japan was recovering when 2008 hit.
    Japan was getting better again and the Tsunami hit.

    Richard Koo was more of an observer and could not over-ride the Western experts and their bad advice.

    Central Banks have the power to directly monetise Government debt to allow fiscal policy to be implemented without causing Greek style problems with excess Government debt. This is the monetary policy Central Banks should be implementing.

    Low interest rates do help on paying back all the debt the banks have lent out inflating the price of assets, mainly real estate.

    Asset purchases may also be required to prop. up all the other bubbles around the world and prevent these debt inflated asset bubbles collapsing too in their own “Minsky Moments”.

    All this unproductive lending into real estate has caused problems in the very fabric of society as the next generation cannot afford to buy their own homes or even rent.

    We talk of a demographic cliff now but this will be doing nothing compared to the one that is coming as we have taken away the means of the next generation living a normal life and having families of their own.

    For those that do leave home they will be faced with sky high housing costs that will have to be covered by wages leaving these nations uncompetitive in a global economy.

    We de-regulated banking and bankers do what they do, they engage in financial speculation, asset bubble inflation and avoid productive lending into business like the plague.

    Asset bubble inflation is the road to quick and easy profits and with “TBTF” they have no problems when the “Minsky Moment” hits.

    Securitisation has allowed banks to spread this debt through the system so one institution cannot be blamed for its bad practices. It also allows things like “NINJA” mortgages, where they can just sell off these loans they know will go bad.

    In a world short on growth we could learn from the Asian Tiger economies in their most productive growth phases. They limited private bank money creation to productive lending into business as they knew it was the only way to keep bankers away from their natural habitat of financial speculation.

    As policymakers are asleep at the wheel on derivatives, all complex derivatives should be banned especially CDSs. Complex derivatives multiply profits on the way up for banker bonuses and multiply losses on the way down for taxpayers.

    “That’s what he does. That’s all he does! You can’t stop him” could he be talking about the terminator banker and unproductive lending, killing economies for personal gain.

    • VK says:

      The core delusion at the FED is that the neo-classical models don’t consider debt as a problem. They merely see it as a transfer of purchasing power in time from savers to borrowers. Check out the Krugman vs Keen debates. It’s a huge ideological blind spot. The FED is in effect using the map of New Jersey to navigate the streets of New York!

      If they actually understood reality, they would instantly recognize that private debt is a huge issue and the root cause of the current secular stagnation.

      • economicminor says:

        How can people with zero connection to the reality of working for a living or zero connection to real value added productive enterprise make decision affecting either? When people only talk and walk among their own peers who only see the world thru the eyes of the Power of Positive thinking and all drink the Kool Aid from the same sources there is not a possibility that they could ever understand the real world of the common people. This was the way in Rome of Caesar as it is in the US today. Only a collapse of the underlying system that supports them will finally enlighten them.

      • Sound of the Suburbs says:

        Steve Keen uses realistic assumptions about money and debt in his models and saw the private debt bubble inflating in 2005.

        That numpty, Ben Bernanke, could see no problems on the horizon in 2007.

        • In fairness to Bernanke, Greenspan, and indeed Volker, things are indeed different this time, but not in a good way. The Federal Reserve was founded in December 1913, but that world is gone forever.

          We are rapidly, and increasingly, moving into a “brave new world order” of socioeconomic globalization/integration, supranational corporations, mass migration, and instantaneous communications/capital transfers for a large and increasing fraction of the world’s population.

          While there a large number of significant changes resulting from “the brave new world order,” perhaps the most important for the FRB are: (1) The U. S. no longer domestically generates enough systemic capital to fund its maintenance and expansion, and has not done so for at least a generation; (2) the new supranational corporations are able to engage in “regulatory arbitrage,” avoiding/evading limits on their activities (e. g. Leman and AIG in the UK); and (3) the supranational corporations [and 0.1%] are able to avoid/evade taxes on a massive scale resulting in enormous pools of “black money” in tax haven countries outside the control/oversight of the FRB, while severely impacting governmental revenues at all levels.

        • Sound of the Suburbs says:

          I would say we heading to collapse as the system continues to polarise and destroys demand.

          The rich get richer and the poor max. out on debt.

          In our wonderful new, supply side, trickle down world we have taken our eye off the global consumer.

          How is the global consumer these days?

          1) The once wealthy Western consumer has had nearly all their high paying jobs off-shored. As a stop gap solution they were allowed to carry on consuming through debt. They are now maxed out on debt.

          2) Japanese consumers have been living in a stagnant economy for decades.

          3) Chinese and Eastern consumers were always poorly paid and with nonexistent welfare states are always saving for a rainy day. Western demand slumped in 2008 and the debt fuelled stop gap has now come to an end.

          4) The Middle Eastern consumers are now too busy fighting each other to think about consuming anything and are just concerned with saying alive.

          5) South American and African consumers are busy struggling with economies that are disintegrating fast.

          Why is global aggregate demand so subdued?
          A quick look at the global consumer reveals all.

    • illumined says:

      “Fiscal policy is what you need with all this unproductive lending weighing everything down. (Bankers lend the vast majority of money into unproductive real estate rather than productive lending into business, leading to “Minsky Moments” as already experienced by Ireland and Spain)”

      Japan has been fiscally stimulating their economy to some degree or another ever since the early 1990’s….hasn’t worked. Ever since 2008 they’ve been spending twice as much as they’ve been bringing in causing their already high government debt levels to balloon to almost unimaginable levels. But as Pettis has pointed out some years back, debt needs to be repaid.

      “In another of Richard Koo’s videos he tells how Western experts came along and told Japan to cut Government spending and every time things got worse until they increased Government spending again.”

      Which is a sign of addiction, not recovery. It’s like giving a heroin addict another hit when they go into withdrawal and thinking that’s the cure. If the recovery needs to be propped up with massive government overspending then it’s not really a recovery. Japan has already been experimenting with this for more than 25 years, by this reasoning then wouldn’t they need to keep stimulating their economy effectively forever?

      I like that Japan is now starting to go with helicopter money, they’ve already managed to disprove virtually every mainstream theory about how to get an economy going again so far, now let’s see them disprove this nonsense.

      “We de-regulated banking and bankers do what they do, they engage in financial speculation, asset bubble inflation and avoid productive lending into business like the plague.”

      Given that this bubble has occurred around the world with dozens of often radically different regulatory systems it would be folly to assume that more regulation would have fixed it. We passed more regulation after 2008, now our bubble is the biggest in our history. Sweden in the 80’s was the shining light of socialism, it too had a huge housing bubble. In fact Sweden today, still the beacon of socialist progress has a gargantuan housing bubble with debt loads that relative to their economy vastly exceeds ours. Central bank induced bubbles can happen to any economy.

      “Securitisation has allowed banks to spread this debt through the system so one institution cannot be blamed for its bad practices. It also allows things like “NINJA” mortgages, where they can just sell off these loans they know will go bad. ”

      Except the government wanted those loans to be made.

      • Sound of the Suburbs says:

        Japan messed up very badly with real estate.

        All the graphs are there in the video showing the economy recovering before being blown off course again by 2008 and the tsunami.

        Understanding the theory of these bubbles helps:

        “Minsky Moments”

        1929 – US (margin lending into US stocks)
        1989 – Japan (real estate)
        2008 – US (real estate bubble leveraged up with derivatives for global contagion)
        2010 – Ireland (real estate)
        2012 – Spain (real estate)
        2015 – China (margin lending into Chinese stock market)

        The neoclassical economist thinks the market is rising to a new stable equilibrium.

        2008 – “How did that happen?”

        Irving Fisher looked at the debt inflated asset bubble after the 1929 crash when ideas that markets reached stable equilibriums were beyond a joke.

        Fisher developed a theory of economic crises called debt-deflation, which attributed the crises to the bursting of a credit bubble.

        Hyman Minsky came up with “financial instability hypothesis” in 1974 and Steve Keen carries on with this work today.

        People who are familiar with this work know the market is being inflated by debt and is rising to fall off a cliff.

        How embarrassing, Wall Street did exactly the same thing as it did in 1929, in less than ten years from being freed from 1930s legislation.

        It lent into an asset bubble to inflate prices until it blew up.

        1929 – US stocks (margin lending)
        2008 – US housing

        This time Wall Street had derivatives for global contagion.

        The Government didn’t ask them to leverage up the loans with derivatives to blow up the world.

        2008 stats:

        James Rickards in Currency Wars gives some figures for the loss magnification of complex financial instruments/derivatives in 2008.

        Losses from sub-prime – less than $300 billion
        With derivative amplification – over $6 trillion

        “It’s nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world” (“All the Presidents Bankers”, Nomi Prins).

    • BenFranklin99 says:

      You can’t push a string. Lending money to businesses when the people have no surplus money to spend accomplishes nothing. Who will buy the widgets? Businesses know this, so they don’t even try to expand.

  11. Michael Gorback says:

    Point #12:

    The Fed doesn’t understand statistics. Statistics predict the behavior of groups. If the mortality rate for motorcycle riders is 72 per 100,000 that means for every 100,000 there will be 72 deaths, but you can’t say which individual riders will get killed.

    That’s why I can never understand what the weatherman means when he says there’s a 40% chance of rain today. Well, today it will rain or it won’t. What they really imply is “given a day with these conditions it rains 40% of those days”.

    I imagine Yellen probably was saying “We ran a bunch of scenarios and 70% of them fell into this band”. At least I hope so. Funny how that fan plot doesn’t go below zero, eh? Maybe that’s where the other 30% went. What I’d like to see is something like a gaussian plot of 100% of the scenarios.

    • Petunia says:

      When I look at the trend line it reminds me of Madoff’s trend line, totally manufactured. In the first part the line is flat and static, then it trends up at a steady slope. This can only happen in a manufactured, manipulated, environment. The financial markets are dead and the chart proves it.

      BTW, when I hear 40% chance of rain, I think that it will rain 40% of the time in the region, not necessarily in the same place.

    • RE: …What I’d like to see is something like a gaussian plot of 100% of the scenarios…

      Problem is that most financial data is not well modeled by the Gaussian distribution. Much of it is much more closely modeled by the Lévy or L-stable distribution with much fatter tails, thus using a Gaussian distribution understates the frequency of the “Black Swan” or Minsky Moments. Much of the remaining data is best modeled by a power or Preato distribution, which has even fatter tails or chance of extreme events.

      Mandelbrot in his seminal work _The Misbehavior of Markets: A Fractal View of Financial Turbulence_ ISBN-13: 978-0465043576 examines the distributions of [honest] financial data in detail.

      AFAIK one major omission in all financial mathematical models/analysis is the lack of terms for: (1) market manipulation, e. g. petroleum prices; (2) financial repression, e. g. NZIRP; and (3) overt fraud, e. g. Enron. WorldCom, Health South, etc.

      The most critical problem may well be the “leadership” only heeds the socioeconomic models when these project the desired outcomes, and ignore/denigrates the model results when these conflicts with the goals/whims, which in many cases are driven by ideology/myth, for example “trickle down” or “horse-and-sparrow” supply side economics.

    • BenFranklin99 says:

      That is more or less what the chart is. The center line would equal the mean. Overlay a standard normal curve over the mean, at right angles to it, with the shaded area being the ends of the normal curve.

  12. nicko says:

    Think global, emerging markets is where the big growth is occurring.

    • Meme Imfurst says:

      give me a break, wake up or share the weed. Unless you are referring to Mars or blinded by hype.

  13. News flash.
    Expect a flash crash in the markets. This will cause a flash crash in bond defaults. Then we will have a flash crash in assets such as houses, commodities, assets in general which will be a huge delationary drag on everything else including wages. Physical Cash will be last strong hold left as there is not enough actual currency printed to make it worth reprinting. Your bank statements will be worthless as the FDIC will be bankrupt. RESET.

    • economicminor says:

      You really can not bankrupt the government as it has a printing press.. you can make the currency worthless by helicopter drops of actual currency or massive deposits in the accounts of We the People but the government can not functionally go BK.

  14. Meme Imfurst says:

    Great descriptions of what has happened and where we are…sort of.

    The fact remains he who controls the money controls the economy. He who controls healthcare, controls the people. Now look at who put the last two Fed chairs in office and stuck us with a crippling health insurance mandate. The ‘other side’ was right, and my faith 50 years faith in the Democratic process is in tatters.

    No matter what is discussed, no matter what solutions are listed, nothing will happen unless it benefits those in control. Lets stop kidding ourselves that they do not know what they are doing, the do.

    The only hope for change is when the US military enforces change, and that is no where in site. No president elected, no congress elected, no supreme court elected will change anything unless approval comes from the power behind the curtain.


    • BenFranklin99 says:

      Site is a location. You mean sight. Also, you are a deranged fascist, since you want a coup with some general in charge of the country. Who do you want in charge, the general who ran Iraq, or the general running Afghanistan? They are both brilliant successes, right?

  15. r cohn says:

    There are only two ways for this idiocy to end; either through inflation or through default ,whether de facto or de jure.
    Recently John Williams the President of the San Francisco FED suggested that the Fed consider raising its inflation target to %4 .The question that I would then ask ,what is to prevent the Fed from then raising its inflation target to %5 or %6 or %10 or even %15?The answer is NOTHING,because any inflation target is only derived from plugging numbers in their models which are by themselves flawed.So the FED seems well on its way toward stoking the fires of much higher inflation
    De facto default can be surreptitiously achieved by the government issuing very long term zero coupon bonds ,which are then purchased by the FED .The FED would then write off a certain % each year.
    Central banks around the world have reached a point where they are desperate to find new tools which can justify their existence.Buying private company debt and purchasing stock are some of these . I would challenge any economist be it be Mr Krugman or Mr Keen to show how the BOJ ‘s policy of purchasing large amounts of ETF’s or the ECB’s policy buying debt from large corporations. has any positive effect other than enriching those with the most assets already.

    • economicminor says:

      The FED can raise its inflation target all it wants but it can not create inflation. For effective inflation to start moving up, in other words, a significant rise in GDP over time, it needs prices to go up.. You can’t have prices going up if wages are all you get is shifting. People spend on Health Care and do not spend on house or car maintenance.. Lowered interest rates ameliorated that until they hit bottom (which in itself was deflationary) but that is now no longer an option. Can’t raise wages without having a raise in the demand for labor which then filters thru the system and you get inflation.. What we have today, due to many factors is a glut of labor. So the tendency is towards deflation. The end of this will be a re-setting of both private and corporate debt levels until we hit bottom. Then after a rather long flat to roundish bottom in world wide economic activity and probably a war or two we will start over.

      • nhz says:

        ” You can’t have prices going up if wages are flat..”

        Yes you can … through the miracle of debt. It has worked wonders over the last years and explains why many products and services have rising costs despite stagnant or declining salaries for the average citizen.

        e.g. in my country the NIRP policy of ECB has brought huge savings to the monthly costs for homeowners with a mortgage. They are now using this free money to splurge on other things like new cars, extra vacations or maybe to cover the necessary cost increased of almost everything …

        Just imagine what is going to happen when interest rates go seriously negative, the ECB bankers are already salivating at the prospects of blowing an even more monumental debt bubble, and obliterating savers and pensioners even more.

        I don’t see ANY sign of deflation where I live, not at all. Even the ‘benign deflation’ in e.g. electronics has stopped, many products have been going UP in price in stead of down like we were used to (and as would be normal because of innovation, better efficiency etc.).

    • BenFranklin99 says:

      Japan’s policy is a shell game on the voters. They think the economy is OK, so they keep voting in the people running the shell game.

  16. nick kelly says:

    Many good points larded with the usual paranoia that infects many of these discussions everywhere. Some of it approaches the clinical level.
    There is also a thinly disguised anti- Semitic vein- if describing the Rothschilds as controlling world finance can be considered disguised at all.
    “Only the central banks of North Korea, Iran and Cuba are not run by them”

    If this was true- it would be a heck of an endorsement for having the Rothschilds run your central bank- are we supposed to aspire to the glory of the North Korean economy?

    Oh, and is the German central bank ‘again’ run by Jews? Now THAT would be a comeback.
    I wonder what the author thinks would be the appropriate solution to this Rothschild problem.

    The elephant in the room left out of the blame? Us, the voters.
    At the height of the Greenspan era- it emerged that the Fed’s job was no longer to ‘take away the punch bowl just as the party got rolling”
    (How dated this old advice- punch?)

    Heck no- it was to say: ‘sorry we’re out of punch, how about snorting a line, with a double gin martini chaser.’

    Classical capitalism, the kind that built the US, has always had a tidal nature, a flow followed by an ebb. Good times led to booms, which led to excess, which led to poor allocation of capital, or saw it pissed away.
    Then came recession, which punished same, put capital assets on sale for more prudent operators and it all began again.

    But this period was not as popular as the first: so once the Fed became politicized,or if you like, democratized, it began preventing recessions.
    This began with ‘just’ cutting rates when things slowed, but when there was no more left to cut, all that was left was QE.
    All driven by the basic equation: the administration that allows a recession is doomed- because voters don’t like them.

    I can still remember the announcement in the financial press that the genius of Greenspan had ‘tamed the economic cycle’ and thinking
    ‘this will not end well’

    Back to the paranoia- remember Timothy McVeigh? When he blew up the Federal Building, at the time the largest terrorist attack on US soil ( but one that didn’t lead to a crackdown on his ‘tribe’) he thought he was doing his patriotic duty- because the government wasn’t just inept, it was evil. He had borderline IQ, he was pulled over leaving the scene because his license plate was expired- and his mind was easily poisoned.

    There is a famous scene in history were an English King ( Henry IV?) as usual in conflict with the only other real power, the Church, yells out: ‘Who will rid me of this interfering monk?”
    So his loyal knights go and cut down the Arch-Bishop of Canterbury, at his altar.
    Henry is appalled: ” I didn’t mean that!”

    I just think that with so many nuts of different varieties out there that we
    should be careful in blaming everything on an ‘evil’ Fed

    But it should have taken away the punch bowl.

    • d'Cynic says:

      Too many interwoved threads that I find hard to follow.
      But will comment on that arch-bishop Canterbury.
      Wasn’t the catholic church a parallel power in every land Christendom?
      Wasn’t the church outside of the king’s power, influencing it and sometimes dictating it?
      Was it not given lands, and constituted an supra-national economic power?
      Was Henry II in utter despair before, and fear after the deed?

      Can someone find parallels to it today?

      • nick kelly says:

        The thread attacking the guy’s antisemitism is not interwoven- it’s self contained.
        The Rothschilds (Jews) run Germany-are you f*cking kidding?

        • WTFrogg says:

          @ nick kelly

          1) I never mentioned the “J” word…you did….a person’s religion is of NO consequence to me either way.

          2) Do your homework like I have on the subject……then you would be capable of espousing an “informed ” comment on the subject.
          IIRC it was Old Ben Franklin ( feel free to correct me if I am wrong) who said : ” Better to be thought a fool than open ones mouth and remove all doubt.”

    • BenFranklin99 says:

      Very droll, but if recessions have been ended by the FED, what did we just go through? What do you want, something more extreme than the Great Depression?

    • Jerry Bear says:

      Paranoia? Tish tosh! The question isn’t “Am I being paranoid?” It’s “Am I being paranoid ENOUGH!” This is the 21st Century. Only the paranoid survive.

  17. ERG says:

    Demographics is Destiny.

    As I’ve said before, the problem with Socialism is not that it eventually runs out of other people’s money.

    Instead, it eventually it runs out of people.

    • Nicko says:

      In 2025 we’ll have millions of industrial and domestic robots, productivity will continue increasing.

      • BenFranklin99 says:

        Making what? Manufacturing has been off-shored! Who will buy the stuff made off-shore? Where will they get the money to buy stuff?

        • Sound of the Suburbs says:

          We will need consumer robots with central bank credit cards to keep the whole thing going.

          All the stuff they buy, we can put in storage with all the other surplus stuff from the private sector that no one actually uses.

        • Jerry Bear says:

          Like I said, you are going to need some sort of socialist distribution system to keep a robot economy going. Goods made by humans will be luxuries and under private enterprise.

      • nick kelly says:

        2025 is just 9 years away. Most of the robots then will be doing what they do now- extremely basic repetitive tasks. Their main job will be what it is now- packaging.
        They will also stamp out metal and plastic but will not be able to assemble these except in very simple cases.
        There has not been a qualitative, game changing breakthrough in the robots of 2016 compared to the robots of 9 years ago, in 2007.
        They welded car frames then, but the cars were assembled by humans, using of course power assists. That’s what they do now.
        As for domestic robots. i.e,, one that replaces a domestic (human) these are not in the forseeable future.

        • nick kelly says:

          Whenever I think about this what amazes me is the human.

          A typical day for a domestic of say, the boss in the ‘Devil Wears Prada’ : wake up kids, make sure they’re dressed, make breakfast, drive kids to school, load dishwasher, select gift and card for my mother, prepare menu for tonight
          Schedule oil change, water plants, iron clothes, etc. etc,
          Truly remarkable machines aren’t we?

          And re: the untold advances in the future for memory density: we’ve already hit the theoretical limit in human DNA.
          The genetic code is stored as arrangements of a very few atoms- it takes an electron microscope to see DNA, yet if the double helix (spring) of human DNA could be unwound it would be two feet long!
          It has to be to contain the whole blueprint.
          It is theoretically, not technically, impossible to achieve greater information density.

        • RE: …There has not been a qualitative, game changing breakthrough in the robots of 2016 compared to the robots of 9 years ago, in 2007. …

          True but only if you define “robot” as a humanoid “Robbie the Robot.”

          Massive and rapid, highly disruptive, advances are being made in at least two areas: (1) self driving autonomous vehicles, which has the potential to eliminate the majority of commercial drivers; and (2) “Big Data”/”Artificial Intelligence” which has the potential to eliminate most of the “middle management” and “professional” positions, for example stock/bond/commodity analysts and brokers/traders.

  18. WorldBLee says:

    Good analysis, Wolf. I would put point #9 in at #1, though as that’s the most important thing to keep in mind.

  19. d'Cynic says:

    Overheard conversation at Jackson Hole:
    Helicopter on the roof?
    Plane on the tarmac fuelled up?
    Food and water on board?

  20. Yoshua says:

    World conventional crude oil production peaked in 2005 and so did world crude exports. In 2008 the dollar was weak, the U.S imported 12 mbpd when the oil price spiked at $147 followed by a economic collapse, a stock market crash and a financial meltdown.

    Nothing has been normal since then and never will be again.

    In 2014 when the shale oil industry was in place, the Fed ended its QE program, the dollar strengthened and the oil price collapsed. Today oil producers around the world are going broke while the U.S enjoys an oil glut and low oil prices.

    In 2015 the oil companies produced 34 billion barrels, but replaced only 2 billion barrels in new reserves. The oil companies are now in the process of depleting their reserves.

    • BenFranklin99 says:

      You completely neglect the increased production of natural gas due to fracking. That’s a really big mistake.

      • Thomas Malthus says:

        Natural gas cannot replace oil

        • Wolf Richter says:

          Yes, it can. It is already to some extent, and it will to a much larger extent in the future: electric vehicles.

          We already have vehicles (particularly port trucks, urban delivery vehicles, and urban buses) powered by LNG and CNG. Works great. Old technology. And much cleaner than diesel!

  21. Chicken says:

    I’ve heard so many times till I’m blue in the face and wish I had $0.05 for each time, the FED is out of bullets.

    Okay bullets perhaps, depending on the definition but certainly not bunker bombs.

  22. J P Frogbottom says:

    Yeah 2008. The FED did a lot of silly stuff to ‘insure’ big banks would NOT fail. They didn’t, the American people did.

    Now the FED has loaded up with junk, vastly expanded its balance sheet, printed into the timeless, and still can’t generate a sustainable recovery.

    Any guesses why? Because stupidity was not allowed to get the treatments it deserved. People are not totally stupid, it merely appears so. Big Banks were rewarded with CASH to prevent failure. Not all would have failed, but some alive today would not be. Too bad, maybe….

    • Thomas Malthus says:

      If the banks had been allowed to fail — the people would be in a hell of a lot worse state than they are in now.

      The financial system is the operating system of the global economy — remove it — and you will soon be eating boiled rat for dinner – if you are lucky

      • Sound of the Suburbs says:

        It should have been saved from collapse but after the immediate crisis had passed:

        1) All the top management should have been removed from failed institutions.

        2) All sources of large losses should have been identified and removed.

        3) All sources of criminal activity should have been identified and removed.

        4) The debt situation reassessed and made manageable with bankruptcies and write downs where necessary. Leaving all the debt in place is the problem we have now.

        • Thomas Malthus says:

          “All the top management should have been removed from failed institutions”

          I operate a number of companies… if I were to remove all top managers I’d have to ask someone to save me a spot at the soup kitchen queue….

          Here’s a thought — we did we have across the board problems leading up to 2008? It was not just a few bad apples as we know… it was institutionalized..

          Might I suggest that these activities were not only condoned by the Fed — they were mandated by the Fed…

          Everyone was aware of the nefarious lending practices — for instance everyone knew about Liar Loans…. right to the very top….

          Now why would the Fed do this?

          To summarize on previous posts….

          It was in 2003 that oil prices started their relentless climb…. that kills growth … the housing bubble was simply one of many actions the Fed took to keep the economy growing…. because if they had done nothing… the economy would have imploded…

          This was the beginning of ‘whatever it takes’ — I think we all recognize that the central banks are getting ever more desperate…

          The subprime bubble was nothing compared to the massive bubble across all asset classes that we have now.

          That is the big picture – that most people are not seeing

        • Sound of the Suburbs says:

          With todays very silly economics, capitalism is always heading to a stable equilibrium and so the housing market was just rising to a stable equilibrium.

          Also, todays very silly economics has flawed assumptions about money and debt so they can’t see debt as ever being a problem.

          You see bubbles around the world, they see stable equilibriums, it’s todays silly economics.

          I see bubbles too, and so do many others, but all those at the top are indoctrinated with this very silly neoclassical economics.

    • RE: …Any guesses why? Because stupidity was not allowed to get the treatments it deserved. People are not totally stupid, it merely appears so. Big Banks were rewarded with CASH to prevent failure. Not all would have failed, but some alive today would not be. Too bad, maybe…

      While it is a debatable point that it may well have cost the American taxpayers more to allow the too big to fail corporations that got caught in the 2008 Minsky Moment to fail in the sense of chapter 7 liquidation, there appears to be no justification for allowing the same people that drove the bus off the cliff to remain in charge. In a very few cases in the old manufacturing industries, such as GMC, a mild pro forma purge of the upper management did take place, but as was shown by the resurgence and continuation of chronic problems such as those with the ignition switches, the purge did not go nearly deep enough.

      It would seem to be beneficial to the aggregate socioeconomy if the employment contracts of the officers and directors were automatically suspended as soon as a corporate bankruptcy is filed, and the regulatory agencies automatically and jointly banned their employment in any fiduciary capacity, until such time as they could demonstrate by a preponderance of evidence that they were not negligent or accountable for the insolvency.

      • ERG says:

        That approach would not have made any difference. The financial system was nationalized in 2008/09; it had already been heading in that direction for some time and the 08/09 debacle only hastened and completed the process.

        Washington DC, Wall Street, and the Federal Reserve have effectively become a fourth branch of government – money – and it operates in a closed loop. The Fed creates money for the government and the Fortune 500 corporations and nobody else gets it. The financial system now has as its main purpose the role of substituting itself for permanently lost demand (with no end in sight) while also serving the needs of those in political power.

    • BenFranklin99 says:

      When taxes were used to prop up the banks, the taxpayers should have gotten equity. The equity could have been gradually sold, and justice would have been served AND the economy preserved.

      • RE: …When taxes were used to prop up the banks, the taxpayers should have gotten equity. …


        The general rule should be that what the taxpayer pays for, the taxpayer owns, from equity in the banks (common not preferred stock so they have representation on the board proportional to their “investment”) to the intellectual property generated by governmentally funded research, including drugs and medical devices such as the Epi-Pen. The Epi-Pen auto-injector technology was developed by the DoD to inject atropine as an antidote to nerve gas during the cold war. How was Mylan able to hijack this technology, and then use it to gouge the pubic?

  23. Fred says:

    This is an excellent article, Wolf….I’ve saved it to my desktop.

  24. ambrose bierce says:

    so what would this fan chart look like at the more usual 90 or 95% confidence level? they have pretty much absolute control of rates, don’t they? why the laxity?

Comments are closed.