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Goldman Fires The Second Shot Across The QE3 Bow: "Successful Fiscal Consolidation Needs Monetary Policy Help"

Tyler Durden's picture


Yesterday, when we presented the Bloomberg interview of Princeton economist and former Fed vice chairman Alan Blinder, we speculated that his statement that "more easing is necessary" was the first shot across the QE3 bow. Today, Goldman's Sven Jari Stehn has fired the second one in a paper just released titled: "Fiscal Adjustment without Fed Easing: A Tall Order" in which he basically takes our conclusion from the Blinder interview to the next level. As Blinder said previously, in order to improve the once again deteriorating labor picture, more fiscal stimulus would be necessary. That, however, is impossible, especially in a Congress where everyone is now promising $4 trillion of deficit cuts over the next few years. The only difference is how this cutting will be achieved: republicans want spending cuts, while democrats are demanding tax hikes for the richest. While neither approach will work in the US without the shock of a bond-crash induced austerity, Goldman conducts an thought experiment in which it evaluates the effectiveness of a tax-based and a spending-based fiscal consolidation. While finding that on average spending based deficit reduction is more effective, it only truly works in parallel with assistance from monetary policy: be it an interest rate decrease (impossible due to ZIRP) or further Large Scale Asset Purchase (QE) program. In other words, the only thing that can prevent an economic contraction in the next 2 years of semi-austerity, will be more monetary easing.

Furthermore, Goldman also openly admits that in either fiscal case, the drag on economic growth will be substantial. "A number of studies have shown that adjustments focused primarily on spending cuts (“spending-based consolidations”) tend to be notably more successful at delivering such large consolidations than revenue-based ones. Building on work done by the IMF, we identify two reasons for this difference. First, spending-based consolidations are usually more persistent, as they are often combined with structural reforms. Second, spending cuts tend to be less damaging for growth than tax increases...A key factor behind this difference in success, however, is the response of monetary policy. While spending-based adjustments are typically accompanied by monetary easing, tax-based ones often see monetary tightening. Using a counterfactual experiment which “shuts down” the interest rate response, we show that the difference in growth damage between spending and tax-based adjustments narrows sharply..With the funds rate close to zero, our analysis implies that both spending and tax-based consolidations are likely to act as a significant drag on growth. Nonetheless, spending-based adjustments might still be the lesser of two evils, particularly if combined with entitlement reform and fiscal rules that come with a strong enforcement mechanism." Translation: the economy will slow materially regardless, but without monetary easing it will crash. Next up: cue an enjoinder by the New Jersey installment of the Ivy League, and the balance of Wall Street, all of whom realize that their bonuses are suddenly at steak.

We said yesterday that "we believe that with this the opening salvo for more cash demands, which will be met with staunch opposition in D.C., thereby kicking the ball back to the Fed (which already is doing everything in its power to deflate all commodities as rapidly as possible - a trend which will sooner or alter engulf risk assets as well) the only alternative is monetary. Aka more quantitative easing. And when that becomes apparent, and when Goldman's Jan Hatzius is firmly on board, the full court press for another round of easing can begin." Well, Goldman just got on board. Look for the cries for more monetary intervention courtesy of a Congress which can't make up its mind about a debt ceiling hike for 4 months to escalate over the next 2-3 months as the economic reality turns aggressively south. At that point the Chairman will be faced with a daily barrage of "experts" who are screaming "deflation... or printing." We have a guess which one Ben will chose.

From Sven Jari Stehn of Goldman Sachs

I. Fiscal Adjustment without Fed Easing: A Tall Order

The US needs a very large fiscal consolidation as we expect a primary (ex-interest) deficit of 7.7% of GDP this year. Stabilizing the debt stock eventually requires the primary budget to be close to balance. Although some of this deficit is cyclical, the structural deficit (defined here as the primary deficit adjusted for the cycle and one-off accounting changes) currently stands at 6% of GDP. Moreover, this is the  very minimum adjustment needed as stabilizing the debt stock at current levels—or even returning the debt ratio to pre-crisis ratios—would require a much larger fiscal consolidation.

Ingredients for a Successful Consolidation

A number of studies—going back to Alberto Alesina and Roberto Perotti in 1995—have identified factors that determine the “success” of a  fiscal consolidation,  which is typically defined as a sizable and lasting reduction of the deficit or debt ratio.

The key result of these studies is that spending-based consolidations tend to be much more successful than revenue-based ones. There are two suggested reasons for this result. First, these studies argue that spendingbased consolidations are usually more persistent because they are often accompanied by structural reforms. Also, spending-based adjustments tend to be politically more difficult and thus signal stronger commitment to continued fiscal consolidation than tax increases. Second, these studies find that spendingbased adjustments are less detrimental to growth—and indeed can boost growth. The better growth outcome eases the consolidation burden both directly (through higher tax revenues) and indirectly (because it makes it easier to sustain the adjustment).

Recent work by the IMF, however, suggests that these conclusions should be re-examined. First, the IMF has shown that all consolidations—whether spending or revenue-based—tend to act as a drag on growth when we look at intended consolidations (or consolidation efforts) directly instead of the resulting changes to the structural deficit. In particular, the IMF argues that existing studies “stack the deck” against finding significant adverse growth effects. By using the cyclically-adjusted budget deficit to identify fiscal consolidations, the earlier studies include episodes that were not genuine periods of adjustment but rather one-off accounting changes. Moreover, even when such one-offs are removed, the change in the structural budget deficit is often a poor proxy for deliberate changes in fiscal policy because it fails to detect attempted fiscal adjustments that result in sharp downturns and are therefore reversed quickly. Second, the IMF study suggests that monetary policy plays an important role in shaping the consequences of fiscal adjustment. Specifically, spending-based adjustments have a less detrimental growth effect than tax-based adjustments because they are, on average, accompanied by monetary easing while tax-based adjustments usually see monetary tightening. This suggests that the success of a consolidation in reducing the deficit or debt ratio might depend importantly on the monetary policy response.

Finally, the new IMF dataset allows us to explore to what extent intended adjustments actually result in expost improvements in the fiscal situation. That is, the dataset enables us to take into account that a consolidation attempt might have been so badly designed or implemented that

Spending Adjustments Are More Successful...

In an initial look at the IMF data, we organize the dataset into consolidation episodes. Specifically, we define a consolidation period as one in which policymakers intend to consolidate by at least 1% of GDP in the first and last periods. This definition produces 29 episodes of consolidation.

We then split these episodes into the five consolidations that produced the largest and smallest improvements in the primary balance.  Exhibit 1 shows how effort and success vary across those two groups. Exhibit 2 lists details of these episodes. The two exhibits offer a number of interesting insights.

First, the required US adjustment is comparable only to the largest three consolidations in the dataset. Only Denmark starting in 1984, Sweden in 1993 and Ireland in 1982 have achieved consolidations in excess of 9% of GDP. Moreover, the most successful efforts were much more persistent than the unsuccessful ones (6 years on average versus 1 year).

Second, there is notable slippage between the adjustment effort and the actual improvement in the primary balance. During the least  successful  consolidations, the average adjustment effort (an average 1.5% of GDP) resulted in no improvement in the primary balance (Exhibit 1). But even for successful consolidations, the average adjustment effort (13.1% of GDP) was quite a bit larger than the reduction in the primary deficit (8.9% of GDP). One source of slippage is that the consolidation effort is only partially passed through into  improvements in the structural deficit—most likely because some consolidation efforts were aborted before the fiscal outlook actually improved (e.g. Japan in 1997).

Another reason for slippage is the effect of the consolidation effort on growth, as discussed below.

Second, the exhibits confirm earlier  studies that successful consolidations rely much more on spending reductions (around 72% of the adjustment) than unsuccessful ones (37%).

Finally, we see that the most successful consolidations, on average, saw no decline in growth while the least successful ones experienced a sharp 2.7 percentage point (pt) drop. At the same time, however, the top adjustments were accompanied by notably more monetary easing than the failures. During successful consolidations policy rates fell, on average, by 5.5pts while they only declined by 1.1pts during the least successful consolidations.

… Mostly Due to Monetary Policy

Given this very different response of monetary policy, we now explore the extent to which this drives the differences in success. To do so,  we estimate a statistical model for the 15 countries between 1980 and 2009 that explains the joint dynamics of the IMF’s measure of intended consolidations, real GDP, the primary balance and the monetary policy rate. Once estimated, we use the model to trace out the effects of an intended consolidation on growth, the primary balance and the policy rate. To distinguish between the effects of spending and tax-based consolidations we estimate two additional models and plot the results alongside the average consolidation.

Exhibit 3 shows how the primary balance, on average, responds to an intended fiscal consolidation. Consistent with the evidence above,  our estimates imply that a 1% of GDP consolidation effort typically improves the primary budget by only half that amount. Moreover, Exhibit 3 confirms that spending-based adjustments tend to be notably more successful in raising the budget surplus than tax-based ones. The reason is twofold. First, spending-based consolidation efforts tend to be sustained for longer than tax-based ones. Specifically, a 1% of GDP spending adjustment effort is usually followed by an additional spending cut effort of 0.4% in the year after, while a comparable revenue adjustment is only followed up with another 0.1% of GDP tax raise. As a result, spending-based adjustments raise the structural balance by almost twice as much after five years than tax-based adjustments (not shown).

Second, spending-based adjustments are less damaging for growth (Exhibit 4). Consistent with the IMF study we find that a 1% of GDP consolidation effort, on average, reduces real GDP by around ½% after two years. The composition of the adjustment, however, matters crucially: the GDP hit is much larger for tax-based consolidations (around 1½%) than spending-based ones (¼%).

A notable difference between spending and tax-based adjustments, however, is the response of monetary policy (Exhibit 5). The former are accompanied by monetary easing, while tax-based adjustments typically see monetary tightening in the first year (followed by some easing in the second year). The IMF shows that the initial monetary tightening is driven by interest rate hikes in response to indirect tax increases. A likely explanation is that central banks are worried about second-round inflation effects from increases in indirect taxes.

Consolidating Without Monetary Policy

Taken at face value, these results suggest that spending cuts are an overwhelmingly more attractive option than tax increases: they tend  to be more  persistent and less damaging to growth (although they don’t raise growth as suggested by some previous studies). Applying this conclusion to the required US adjustment, however, would be naïve because the  above results likely overstate the success that can be expected from spending-based adjustments relative to tax-based ones in the current environment. With the funds rate close to the  zero lower bound, a spendingbased adjustment could not be accompanied by monetary easing unless the Fed decided to adopt another asset purchase program (which we think is  highly unlikely). Moreover, the Fed would most likely see through any indirect tax  increases—were they to occur—and probably not raise interest rates in response to a revenue-based consolidation.

In a counterfactual analysis we therefore attempt to “shut down” the interest rate response to get a better sense of the implications of the choices the US currently faces. Such an experiment is fraught with difficulty as it requires an estimate of how changes in the policy rate affect output and the budget deficit. To obtain such an estimate we proceed in two steps. First, we use quarterly data to estimate the  effect of shocks to monetary policy on growth and the primary pioneered by David and Christina Romer. Second, we transform these estimates into annual data and apply them to the cross-country results above to construct the “no monetary policy” scenario. Given these steps, the uncertainty surrounding the resulting simulation is substantial. Moreover, allowing no monetary policy response is an extreme assumption as Fed officials could adopt additional unconventional policy steps to support a spending-based adjustment if they chose to do so.

With this in mind, Exhibits 6 and 7 suggest that the difference in success between spending and tax-based adjustments is less pronounced when there is no monetary policy response. In particular, the hit to GDP is now more similar during the first two years, at 1-1½% for tax and spending-based adjustments. After the second year, however, spending-based adjustments are still quite a bit less damaging to growth. As a result, the achieved improvement in the primary balance is now also more similar across spending and tax-based adjustments during the first two years. A 1% of GDP consolidation effort now improves the primary deficit ratio by half that amount after two years regardless of the composition. Spending adjustments, however, remain more effective at reducing the deficit persistently.

Spending Cuts are No Panacea, but Necessary

Our analysis implies that even spending-based adjustments are likely to be challenging in the current environment. This is because without  a monetary response, both spending and tax-based consolidations are likely to act as a sizable drag on growth.

That said, our analysis suggests that spending-based adjustments are nonetheless likely to be the lesser of two evils. First, the difference in growth damage between spending and tax-based consolidations narrows sharply without monetary policy but remains noticeable three or more years after the start of the adjustment. Second, spending adjustments tend to lead to more persistent deficit reductions than tax increases. This is probably because such consolidations often involve entitlement reform and not just one-off reductions in discretionary  outlays.  More broadly, this highlights the desirability of multiyear fiscal rules that come with a strong enforcement mechanism.

Meanwhile, barring another round of asset purchases, the best the Fed can do is keep monetary policy on hold to cushion the growth drag from the fiscal  consolidation—independently of whether it comes through adjustments in spending, revenue or both. As a result, the looming fiscal adjustment should reasonably be expected to see policy rates—and probably longer-term rates too—at lower than normal levels for an extended period.


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Fri, 05/13/2011 - 21:07 | 1273468 NOTW777
NOTW777's picture

LOL another summer of recovery - millions of obama jobs - trust us

"deteriorating labor picture"  what - thats not what steve liesman said

Fri, 05/13/2011 - 21:12 | 1273478 Creed
Creed's picture

I've been cautious, not buying the dip here...


Fri, 05/13/2011 - 22:05 | 1273586 Al Gorerhythm
Al Gorerhythm's picture

I read something interesting in Tyler's post,

One of his asides; "If there is one margin hike we approve of it is for the CME to hike the margin to 1000% cash in trivial common sense BS." struck me as prescient.

Are the CME hikes a reaction to the possibility of $US default, rather than a COMEX default? There is a possibility that it could be both, which means that all  gold and silver will sell for full price, possibly immediately.

Think of the implications if Ron Paul becomes president as well! He has an open agenda to end the FED and abolish the IRS. He is going to have battles with giants who have a lot of people reliant upon the status quo. 

All of these issues are directly related to the PM complex. I think that if the US defaults, gold and silver/ US dollar ratio will be re-rated until their true valuation of paper is exposed.

Silver is the only commodity in the world that you can still buy at a discount to its 1980 peak. Every other commodity has left their 1980 paper price behind, in this bull market.

Silver is on fire sale, thanks to the selling pressure of major parties, who have an economical interest in keeping it low. What metric you use to establish fair value is the hard question to answer. Whatever your metric, the nominal  paper equivalent is stratospheric.

Jump in, the water's fine! 

Fri, 05/13/2011 - 22:06 | 1273595 traderjoe
traderjoe's picture

Argh...Ron Paul will never be allowed to be President. It's much more likely that he is controlled opposition. He's been in Congress for over 30 years. Think about that. 30 years. 

Everybody wants a savior. There are no saviors. There is no cavalry. 

"We" are our only hope...

Fri, 05/13/2011 - 22:23 | 1273621 Careless Whisper
Careless Whisper's picture

Chairman Bernanke confronted by a real journalist; refuses to answer questions at party. Politely tells journalist to fuck off.


Fri, 05/13/2011 - 23:22 | 1273699 jeff montanye
jeff montanye's picture

imo the most amusing part of the whole charade is the current hand wringing over the deficit that now must be cut during the first end of credit cycle deflationary depression in eighty years.  

that would be the same deficit that most of the administrations of the twenty five year expansion (1982 to 2007, with precious little exception) increased during a time of relative prosperity.  

got to laugh to keep from crying.

Sat, 05/14/2011 - 00:29 | 1273773 tarsubil
tarsubil's picture

That kid is going to disappear.

Sat, 05/14/2011 - 01:03 | 1273812 traderjoe
traderjoe's picture

He's not even a pimple on their ass. 

Here's my personal favorite BB moment:

Sat, 05/14/2011 - 01:48 | 1273845 dark pools of soros
dark pools of soros's picture



they are all in love with the debt is money banking system to even think about prior economies

Sat, 05/14/2011 - 09:38 | 1274088 falak pema
falak pema's picture

Oh well, here we go back to the Gen. Jackson Days....with a vengeance...

Sat, 05/14/2011 - 05:43 | 1273929 anvILL
anvILL's picture

Wow. A must see.

Sat, 05/14/2011 - 00:55 | 1273803 Troll Magnet
Troll Magnet's picture

what a moron this guy is. he corners bernanke and the only question that comes to his mind is some conspiracy drivel bullshit?
idiots like this are totally counterproductive and make every sane person who objects bernanke's actions look bad. shut the fuck up and get a real job, you fucking retard!

Sat, 05/14/2011 - 02:22 | 1273857 Al Gorerhythm
Al Gorerhythm's picture

I take issue with your assessment.

This kid has the balls and the gumption to walk up to a high powered "official", got off his ass and confronted him over issues that he felt important. He took action and all you have is a basement generated statement, deriding his questions. If you have other questions that you would like to have answered, get off you fat, condescending ass and go out and do the same. You will come up with some excuse, no doubt. 

Good on the kid. He is a patriot and a trier. It shows that the young folk aren't all asleep. That is heartening. You however need to pick up your game. 

What are your questions that you would ask of Bernank. List them big shot. Gutless cunt that you are will only take pot shots at the guy from behind a soubriquet.

I've got two more things to say Go Kid and Fuck You. Someone else is doing your dirty work and you give them a broadside. Fuck you. 

Sat, 05/14/2011 - 09:44 | 1274095 Bobbyrib
Bobbyrib's picture

If anything this kid is weakening the fight against Ben. His questions were not well thought up at all. As I said in my other response: this dumbass makes himself look like a toolbag when he tried to act smart.

Sat, 05/14/2011 - 09:41 | 1274089 Bobbyrib
Bobbyrib's picture

Thank you for sayin this. I agree with you. My favorite part of the video was :58 when security starts pushing him out the door. You could see the Bernank roll his eyes at the kid after he asked he asked about the 2008 Bilderberg meeting. Also he asked about what Ben has done to the economy. IMHO, he should wait one to two years when the real inflation kicks in to ask Ben that question.

Stupid people look like total toolbags (backward Yankees cap) when they try to act smart and rant about topics they know nothing about. Nothing will happen to this kid, if I were Ben I would hire this kid to ask me stupid questions to make it look like the Tinfoil Hat Brigade was getting anything done.

Sat, 05/14/2011 - 12:16 | 1274300 Al Gorerhythm
Al Gorerhythm's picture

Oh yeah, Right. We should all wait for a few years and watch the world as we know it burn. Another go getter. Let me say this in the nicest possible way.......Fuck you too, champ. Dear oh dear, he had his hat on backwards!

Sat, 05/14/2011 - 11:08 | 1274189 Farcical Aquati...
Farcical Aquatic Ceremony's picture

I don't subscribe to his theories either, but at least the kid is doing something, which is more than our sorry asses have done this week.  Good for him.  Glad to see young people getting it, even if they don't have it figured out 100%. Inspiration, to me.

Fri, 05/13/2011 - 23:29 | 1273711 vipobviously
vipobviously's picture

People say a vote for him is like "throwing away your vote" because he "cant win." I say voting for the lesser of two evils is still voting for evil. Thats throwing away your vote IMHO.  If everyone disregarded all the crap spewed from one of our six news empires that own every station and voted for the candidate they wanted to have represent them, its possible we could restore this republic without the bloodshed inevitable in a "walking dead"democracy

Sat, 05/14/2011 - 00:30 | 1273772 DaveyJones
DaveyJones's picture

I say never vote for either party ever again. Destroy them before they destroy us. Well said trader

Sat, 05/14/2011 - 00:23 | 1273771 tarsubil
tarsubil's picture

This is the most cynical and from my experience rings true. Little by little I'll prepare for what now seems inevitable. What a wake up call this is going to be for people.

Sat, 05/14/2011 - 11:15 | 1274205 knowless
Fri, 05/13/2011 - 22:27 | 1273625 in4mayshun
in4mayshun's picture

Silver on sale! If only I could get me some zirp FED money

Fri, 05/13/2011 - 23:19 | 1273689 Quixotic_Not
Quixotic_Not's picture
Successful Fiscal Looting  Needs Fed Monopoly Policy Lies!
Fri, 05/13/2011 - 22:03 | 1273591 rocker
rocker's picture

I almost put a heavy short on today. But in the grand scale of things I don't trust TBTB. Everything is so manipulated at this point. I think I will just buy more PM's from Apmex instead. At least it is real and we do have a pull back. Can't believe reality says they are a good buy and cheap at these levels. Ben needs to print and keep GS bonus's high. Since the integrity of GS is less than Bernie Madoff at this point.  Will someone please make Lord Blankfien and Bernie room mates. 

Fri, 05/13/2011 - 22:11 | 1273600 traderjoe
traderjoe's picture

IMHO, Apmex premiums have gone up significantly. Tulving (if you can get past the minimums) are more reasonable. And there is always the local coin shop (good to develop a relationship with them)...

Fri, 05/13/2011 - 22:52 | 1273660 rocker
rocker's picture

@traderjoe  If you come back to this and I will check. May I assume that you have done business with this company. Have not ever heard of them. Price is what it is all about as long as everything is up to honest standards.

Trust is most important with precious metals.  Thanks for the tip. Am checking out tonight.

Fri, 05/13/2011 - 23:13 | 1273685 Quixotic_Not
Quixotic_Not's picture

Here are two more PM dealers that are 100% trustworthy:

Fri, 05/13/2011 - 23:47 | 1273726 traderjoe
traderjoe's picture

Yes, I have purchased from them a few times. They seem sort of mom-and-pop, but they deliver promptly and I've never had any problem with them. 

And just as an FYI - never do business with Northwest Territorial Mint. 

Sat, 05/14/2011 - 02:13 | 1273853 rocker
rocker's picture

Thanks much to both. 

Fri, 05/13/2011 - 21:09 | 1273469 Eireann go Brach
Eireann go Brach's picture

QE3 is a certainty because Obama will never let the economy sink back into recession while 2012 election year is around the corner, so yes it is 100% possible that one selfish bastard can put his own individual re-election needs ahead of the needs of 350 million citizens, because when shit truly hits the fan in a few years, he will be doing book deals and getting paid $200k a pop to show up and read from a teleprompter on the after dinner speech circuit!

Fri, 05/13/2011 - 21:51 | 1273568 rocker
rocker's picture

This is not about Obama. Please leave politics out of it. This is about the FED and Goldman Sachs. Read the fukn article. Goldman fires the second shot. If you want to put politics in it. Try this. Goldman donated more to Republicans. Enough said on that point. Is Bambi another Puppet, yes. Just like Bush was and all the others. Bush gave medicare a big bonus without paying for it. Bush pumped the phony war without paying for it. His tax cuts provided how many jobs. Was that 6 million. Are we not told that Tax cuts create jobs. LOL. Leave politics out of it. Even Ron Paul is softing on the FED. Hmmmmm.   

Reality is, this is about the banking cartel called the FED devaluating the dollar again. The hidden tax on the middle class and the poor. Which will put us in a real depression one way or another at this rate.

Fri, 05/13/2011 - 21:56 | 1273579 Jack Burton
Jack Burton's picture

+ infinity!

It is about the banking cartel that rules America. Political parties are a pupptet show. Does anyone seriously believe that Democrat versus republican crap?

Fri, 05/13/2011 - 22:55 | 1273662 rocker
rocker's picture

I do not. I think both parties are whores for the puppet show.  Those who run the show accomplish what they want.

Divide and conquer the sheeple.

Sat, 05/14/2011 - 00:45 | 1273795 DaveyJones
DaveyJones's picture

You got it Rocker but it seems even worse. There is not one area of the economy not one industry that is not ruined due to corruption and capture. We are a second rate country with third world principles and first world weapons.

Sat, 05/14/2011 - 10:08 | 1274120 Oh regional Indian
Oh regional Indian's picture

Priceless, though as a Third Worlder, I take offense at being compared to America.

We are rather principled, with-in our own moral code, if you know what I mean. ;-)

Well said though. We are all in the same boat. Regulatory capture, fiscal capture and belief capture...they've pretty much got 98% of the global capitalist "Economy", macro by the short hairs...


Sat, 05/14/2011 - 17:22 | 1274693 slewie the pi-rat
slewie the pi-rat's picture

careful, there, ORI!  don't let that neo-colonial third world thingy take over, ok?  LOL!  it might detract from you overall advertising message, here!  old chap...

Sat, 05/14/2011 - 12:44 | 1274318 whstlblwr
whstlblwr's picture

Jack Burton say: "It is about the banking cartel that rules America. Political parties are a pupptet show. Does anyone seriously believe that Democrat versus republican crap?"

Or is it about Big Oil cartel.

Fri, 05/13/2011 - 22:05 | 1273589 bmwm395
bmwm395's picture

All good points. But you can't take politics out. It's a big piece of the puzzle.


Fri, 05/13/2011 - 22:15 | 1273605 I am a Man I am...
I am a Man I am Forty's picture

both wrong, this is about congress, they are the ones with the power, they give the fed their power and are the ones who have to raise the debt ceiling

Fri, 05/13/2011 - 22:41 | 1273640 Bay of Pigs
Bay of Pigs's picture

Get real. Congress? Those pathetic bastards were bought off decades ago. Of course they will raise the debt ceiling. Where ya been? Since WWII, 80 times and counting...

Sat, 05/14/2011 - 00:06 | 1273755 tickhound
tickhound's picture

Congress?  Government is the sideshow

Sat, 05/14/2011 - 17:51 | 1274738 Arius
Arius's picture

does that mean i should not write my congressman to goddamn fix it....or else ?

Fri, 05/13/2011 - 23:19 | 1273698 NOTW777
NOTW777's picture

rich - you tell him to leave politics out of it and then spew your politics

if you want to parrot the bumper sticker that "every politician is the same" that is your trite choice.  likely you cant come to grips with your vote for obama

its naive to think politics plays no part

Sat, 05/14/2011 - 00:09 | 1273760 TheTmfreak
TheTmfreak's picture

The common assumption that seems to be made is "they are all in on it." I think an appropriate way to look at it is "they're all trying to be the one who comes out on top." 

Just like mafia families. And when someone is no longer useful, they'll throw them under as well.

Sat, 05/14/2011 - 08:16 | 1274011 Almost Solvent
Almost Solvent's picture

++ Perfect Analogy 

Sat, 05/14/2011 - 03:05 | 1273876 Clowns on Acid
Clowns on Acid's picture all about Obama...and GS contributed more to the get your facts straight, and then come back and give a humble opinion....if you can.

Sat, 05/14/2011 - 10:42 | 1274154 GeorgeHayduke
GeorgeHayduke's picture

You point out the usual Republican trick and the disillusioned sheep still junk you because they can't accept that the two party system is a scam. They just love hating those other guys so much because it has to be them causing all of the problem.

Good points about Bush. He had a Republican house and senate for 6 of his 8 years in office, yet the seething Reich-wing radio pundits STILL blamed Dems and "Liberals" for eveything and anything bad that happened. Obama promised to end both stupid-assed wars, close Gitmo, etc...and here we are with no change whatsoever. How much more evidence do we need that neither party has any agenda beyond that of their owners?

BTW, you point out the #1 Rethuglican issue that makes me pick on them much more than the non-rethugs: hypocrisy. Rethuglican arrogant hypocrisy and their inability to see it knows no bounds. I always love how they claim to be the party of fiscal responsibility when their trick, since Regan, has been to lower taxes, borrow and spend more (at interest), and shove the whole mess off on the next administration and future generations. Then, they act as though they are morally superior for doing so! And their sheep buy it!! HAHAHAHA! Sure the Dems are as bad, but at least they don't give you all this religiously righteous, arrogantly superior, morallity bullshit as they rob you blind.

Okay Rethug sheep, you may now junk away. I's easier than thinking or looking in a mirror ans actualy seeing.

Sat, 05/14/2011 - 12:42 | 1274331 whstlblwr
whstlblwr's picture

It's right both party fucked up. Stupid GOP go back to same issues where they lose, because they make money with it in primary. Money out of politics is most important issue. I don't want government in personal life. If GOP believe less government, why they legislate abortion, or give tax money to rich oil? I laugh when Boehner weep that gas price high because need to drill in US park. They raise money from BIG OIL when say that.

Some of you on here at ZH could run for office this election without money, and we elect you. There are enough of us to beat the money. You run, we help you win. You won't compromise.

Sat, 05/14/2011 - 12:52 | 1274342 InconvenientCou...
InconvenientCounterParty's picture

When you've reduced the world, and yes it's a big complex world, into a binary; "us" and "them". You've been captured and are a slave.

bad sheep

Sat, 05/14/2011 - 10:20 | 1274106 Urban Redneck
Urban Redneck's picture

QE3 is a certainty at some point in the near future because if the US public debt, which is currently financed at near 0% for the majority of the balance and which lies predominantly at the short end of the curve, had to be refinanced at a 0% real interest rate, then the nominal amount of interest payments on the existing public debt would rise hundreds to thousands of percent, and collapse the house of cards. 

Fri, 05/13/2011 - 21:09 | 1273471 NoBull1994
NoBull1994's picture

you must have written this at dinner time:  "all of whom realize that their bonuses are suddenly at steak."

Fri, 05/13/2011 - 21:07 | 1273472 NOTW777
NOTW777's picture

please, give us a chart to show how well Q1 and Q2 worked and correlate it to food fuel and PMs

Sat, 05/14/2011 - 12:58 | 1274354 InconvenientCou...
InconvenientCounterParty's picture

Discretion nonwithstanding, My equity and PM holdings have more than doubled my net worth in a few short years.

I guess wealth transfer depends on your perspective? Zero taxes bichez....

Please join me and hoardes of others as we rally together to stamp out the evils of collectivism once and for all! ROALMFAO!!!!!!

Fri, 05/13/2011 - 21:11 | 1273477 NOTW777
NOTW777's picture

"pioneered by David and Christina Romer"


yes, lets consult the mentally ill

Fri, 05/13/2011 - 21:24 | 1273510 Re-Discovery
Re-Discovery's picture

Please tell me they didn't procreate.

Fri, 05/13/2011 - 21:40 | 1273539 nmewn
nmewn's picture

Unfortunately, all across the globe.

Sat, 05/14/2011 - 10:05 | 1274113 Urban Redneck
Urban Redneck's picture

Funny that fascists love sterilizing all retards, except the fascist retards- but I guess that would decimate the world's supply of fascists over time.

Fri, 05/13/2011 - 21:12 | 1273479 silberblick
silberblick's picture




If you haven't seen it yet, click on the next link to watch a hilarious animation telling you why you should buy physical silver:



Fri, 05/13/2011 - 22:40 | 1273644 Bay of Pigs
Bay of Pigs's picture

I asked you politely to stop posting this over and over again.

Now you can just fuck off.

Sat, 05/14/2011 - 05:23 | 1273920 Angelic Upstart
Angelic Upstart's picture

<<If you haven't seen it yet, click on the next link to watch a hilarious animation>>

About as hilarious as genital warts.



Fri, 05/13/2011 - 21:10 | 1273485 I am Jobe
I am Jobe's picture

Shovel ready Jobs, so where are they again?


Butt Fucked with no vaseline from what i can tell and yet folks want to take vacations and send kids to college. Save yourself and say no to Colleges. Another Ponzi Scheme.

Fri, 05/13/2011 - 21:15 | 1273491 FOC 1183
FOC 1183's picture

Goldman should leave the gedanken's to Einstein, not to mention avoiding IMF data.

Fri, 05/13/2011 - 21:16 | 1273493 uno
uno's picture

let's make it a quadrillion- 1,000,000,000,000,000 that should work till end of year bonus


Fri, 05/13/2011 - 21:19 | 1273498 silvertrain
silvertrain's picture

Just one more hit and I swear I will quit after this one....One more will do it, we would hate to look back on this and think that we left something on the table or that we should have went for just a little bit more to get us over the hump..We are so close to being right on track, Even Biden said soon we will start putting 500k jobs a month on the tape..Please just one more hit and we will go to rehab after this, you can drive me there...

Fri, 05/13/2011 - 21:26 | 1273513 vocational tainee
vocational tainee's picture

Rehab won`t be sufficient this time...

Fri, 05/13/2011 - 21:30 | 1273519 NOTW777
NOTW777's picture

this time we'll have to put u down

Fri, 05/13/2011 - 21:22 | 1273499 Re-Discovery
Re-Discovery's picture

Pathological.  Sociopathic.

Fri, 05/13/2011 - 21:24 | 1273503 Misean
Misean's picture

The only thing that fails HARD with the end of this Keynsian idiocy is the FIRE ebubblemy. Oh, and the gargantuan institution of theft and looting that thrives off of it. Hardly armagedon from my perspective.

Fri, 05/13/2011 - 21:47 | 1273557 Caviar Emptor
Caviar Emptor's picture

Think they'll sequester themselves inside a walled city with palace guards and Cossacks. They'll own the available land and real estate and we'll be leasing for life. Being a chauffeur will be considered a plum

Sat, 05/14/2011 - 03:34 | 1273884 cossack55
cossack55's picture

They haven't called me yet. Are there lifetime benefits?

Sat, 05/14/2011 - 10:36 | 1274148 Oh regional Indian
Oh regional Indian's picture

I suppose that depends on how you define life and time eh, cossack?



Sat, 05/14/2011 - 10:38 | 1274159 Hulk
Hulk's picture

You will get to eat...

Fri, 05/13/2011 - 22:15 | 1273558 Caviar Emptor
Caviar Emptor's picture


Fri, 05/13/2011 - 21:27 | 1273509 Smartie37
Smartie37's picture

Next up: the inevitable comparison to a failing EU, when the EU refuses to bail out the sinking dinghys next week !


We don't want to be like the EU now, do we, if we can save our dinghy with another TRILLION pieces of paper !  

Paper weight will sink the boat too !  



Sat, 05/14/2011 - 00:03 | 1273749 vipobviously
vipobviously's picture

Is'nt it about time to bail out California again?

Fri, 05/13/2011 - 21:24 | 1273511 NOTW777
NOTW777's picture

LOL note the new terminology


Fri, 05/13/2011 - 21:30 | 1273518 jaffi
jaffi's picture

Kinda like "irrational exuberance".  

Sat, 05/14/2011 - 00:02 | 1273746 knukles
knukles's picture

Or your new 3 a.m. Pelosi wake up call; "Serfs up!"

Fri, 05/13/2011 - 21:33 | 1273512 jaffi
jaffi's picture

Double dip (as if this has not been one LONG dip) to come going into the end of June/early July, then QE3 starts going into autumn.  

Normally, I would expect an announcement of QE3, but they must spook-off the commodities market with a plunge and dollar strength (keynesians love their market psychology).  Nope, I see a laying-off on monetization after the end of QE2 to shake loose the hangers-on, then they will reinstitute monetization after the crash.  In their mind, they will think that Americans will see the Fed as a savior in this effort.  But, for those of us that have seen it before, it is just business as usual.  

It's all PR boys and girls.  Meanwhile, commodities will keep their trend, and the real economy will be all that much more encumbered.  

If I wanted dollars, I'd buy dollars.  But, it just so happens that my commodities can purchase anything in the world, and at par no less.  

Fri, 05/13/2011 - 21:56 | 1273573 Ned Zeppelin
Ned Zeppelin's picture

A "Decent Interval," then QE resumes.  The flogging of commodities just permits som cash stashing to help TBTFs to tide over during the interval period. 

Sat, 05/14/2011 - 00:07 | 1273753 vipobviously
vipobviously's picture

If your buying silver, in any form, then you are buying dollars, because the definition of a dollar is 27.059 grams of pure silver.

Sat, 05/14/2011 - 01:38 | 1273835 blunderdog
blunderdog's picture

Keep that shit quiet, asshole.  The day they start asking for 41 grams of silver for a 24oz can of Bud is the day I'ma have to sober up.

Fri, 05/13/2011 - 21:34 | 1273522 zen0
zen0's picture

I really had no idea that people in power would actually destroy their own country simply to enrich themselves.


And I thought I was a cynic.

Fri, 05/13/2011 - 21:37 | 1273530 jaffi
jaffi's picture

If you were a real cynic, then you would have presupposed such action.  

Fri, 05/13/2011 - 21:39 | 1273544 zen0
zen0's picture

Exactly. I have to step my game up.

Sat, 05/14/2011 - 00:22 | 1273764 knukles
knukles's picture

The oligarchs live right here, in River City.
Presuppose all of the worst, most conspiracy oriented, believe nothing, assume naught.  Not believe, merely presuppose, just as you'd presuppose anything else.  For what is secret is shouted from the rooftops.  What is hidden is seen in the sunlight of clarity.  Motives....  It is not your job to prove the exception to others.  Your role is for them to prove the status quo to you.
"Ah hah!", say many, but to do so I must challenge the system!
No grasshopper, simply watch and listen.

Observe the Hegelian Dialect in every conversation.  Review the world presented as a veneer, look at (not for, but at) the sale, the PR, the Perceptions Management.
Nothing is as it seems.

Quiet reflection, internal strength, knowing and accepting one's self is perhaps the most powerful tool of man.  Accepting the world as it truly is, neath the extraneous noise is power.  Doesn't mean you'll like it or approve, it simply is what it is.
And your only means to undersatnd it is thorugh Character.  Changing it comes through example.  Faith without works is dead.  Character.

Sat, 05/14/2011 - 01:48 | 1273841 DoChenRollingBearing
DoChenRollingBearing's picture

Very nice, especially your last paragraph.



I hope that -23 is the CAPTCHA, wow all those minuses...

Sat, 05/14/2011 - 10:36 | 1274149 Oh regional Indian
Oh regional Indian's picture

Well said knuckles.


Fri, 05/13/2011 - 21:37 | 1273540 Selah
Selah's picture


It has been done countless times.

It's not any different "this time"; it's just human nature when presented with enormous power and lotsa money.


Fri, 05/13/2011 - 21:44 | 1273550 jaffi
jaffi's picture

Lotsa money?  You mean the ability to create lotsa money.  Yes, that does change the dynamic, but it is not as if this has not been the common procedure for about 1000 years.  Sure, paper makes it much easier, but even when coin was en vogue, the kings debased the currency.  

The only difference is that now it is "scientific" debasement.  They truly think that they can control an economy.  This is getting worse than the Soviet Union (IMHO).

Screw the "intellectuals/intellistensia", that's what I say.  

Fri, 05/13/2011 - 21:52 | 1273564 Caviar Emptor
Caviar Emptor's picture

Right. It goes on all around us and we always assume it could never happen here. 

Fri, 05/13/2011 - 21:59 | 1273584 jaffi
jaffi's picture

That is what every empire thought just before their collapse.  Only ours will be far more projected and will probably piss a lot of other nations off (primarily those that had invested in us).   

Fri, 05/13/2011 - 21:37 | 1273528 RECISION
RECISION's picture


Who wuda thunk...?

Fri, 05/13/2011 - 21:39 | 1273536 jaffi
jaffi's picture

Oh, not me...  Never in a million years would I have thunk that....  Never, for it is blasphemy to the church of the Bernank.


Fri, 05/13/2011 - 21:38 | 1273534 NOTW777
NOTW777's picture

"spending-based adjustments might still be the lesser of two evils"

ah yes - check to GS, JP, unions, new black farmer programs, new obama/obiden roads rebuilding liberal america program, check to CA, MA and Chicago, GM and detroit fund, rapper development etc.

Fri, 05/13/2011 - 21:54 | 1273577 gwar5
gwar5's picture

Exactly. Our genius in the White House has already elevated structural spending by 25%, and they say Paul Ryan is 'out of touch.'

Naturally, the first thing I think of doing when I find myself in the, "Greatest Financial Crises since the Great Depression" is to lard on a gravy boat of the biggest entitlement program in the history of the world (Obamacare) and blatantly lie about the cost of it to make it seem more palatable over the objections of 200 million screaming Americans.  

Fri, 05/13/2011 - 21:39 | 1273535 Caviar Emptor
Caviar Emptor's picture

Been sayin' all day: QE3 is in the bag. CPI and PPI reports clinched it.

First of all they provide a perfect cover story for the Fed to say "There's no inflation". CPI shows real wages have fallen 1.7% yoy (the Fed's version of "true" inflation is wage-inflation which would spook their overlords). And they have "proven" that non-core PPI inflation from energy and raw materials was "transitory"! Certainly gonna be transitory in a recession with demand-destruction.

So we'll slump our way into the summer: slumping macro data and stock market correction. We may even get a spooky flash crash in case the Fed isn't moving fast enough. 

But keep in mind that every QE round only worsens biflation: raw materials will not return to baseline and spikes will be sharper, and import prices will rise in our import-dependent economy just as developing economies are facing inflation too, jacking up their costs. And WE will never reverse wage deflation or housing deflation, only make it worse. 

Fri, 05/13/2011 - 21:42 | 1273541 jaffi
jaffi's picture

PPI is quite robust in the inflation category, but CPI is shallow.  Apparently, they aren't getting a hang on the "sticky wages", so why not just boost all prices and see what happens?

Man, I cannot stand how Keynesians and NeoClassicals are so retarded when it comes to prices and the market clearing mechanism.  They're like children.  

Fri, 05/13/2011 - 21:48 | 1273560 booboo
booboo's picture

"clearing mechanism"? This market needs a high colonic.

Fri, 05/13/2011 - 21:55 | 1273580 Caviar Emptor
Caviar Emptor's picture

They're supply-siders, not classical Keynesians. They have been acting accordingly. Wage destruction was part of the plan as was offshoring. Trickle down magic was supposed to take care of the rest. 

Fri, 05/13/2011 - 22:04 | 1273593 jaffi
jaffi's picture

No, they are mutants of the synthesis.  Supply side is only one portion of that period of dullard-filled mess that we call modern economics.  Trust me, there are no limits to the idiocy that they can reap, just look at the bailouts; none of that came from any school of economic thought, it was just shooting from the hip (mainly the "I'm a politician and have promises to keep" hip).  

Now, they are just swimming up chit's creak without a paddle.  

Fri, 05/13/2011 - 22:17 | 1273616 Caviar Emptor
Caviar Emptor's picture

They made it up as they went along, and they also threw away what they claimed to be defending: free markets

Fri, 05/13/2011 - 22:34 | 1273630 Fred Hayek
Fred Hayek's picture

No one is a classic Keynesian.

if you are, you're supposed to advocate running a budget surplus as the normal circumstance so that you can deficit spend in bad times if you're a true Keynesian.  They're like true Marxists.  They don't exist.  Did any of the fools like Krugman ever advocate having a federal budget surplus?  Of course not.  He only wants his candy.  He never wanted to eat his broccoli first.  (And to look at the guy, there's probably a lot of truth in the literal version too) 

Fri, 05/13/2011 - 23:15 | 1273679 jaffi
jaffi's picture

Shoot, Krugman egged on the whole housing bubble.  Sure, he denies it now, but his words are forever pasted in the annals of internet history.  From what I understand, Krugman is an MMT proponent, and thus does not see the effect that inflation has on both the structure of prices, and the effect of those prices on the capital structure.  All he care about is that the numbers continue to go up, no matter what numbers that they are (government or private).  

The economy is not about numbers or charts going to the positive, it is about real productivity, real investment, and real effects upon quality of life.  This is where econometrics gets far to much into the realm of mysticism.  Perception of the world around you and the improvements of such is what really matters, not some number on a piece of paper.  

Economists these days study in order to control and influence the markets, not to understand them.  They are nothing more than bureaucratic controllers, who use their intellectual learning in order to attempt to control and influence markets.  Their only purpose today is to provide policy recommendations of which the government readily acts upon in order to influence action.  50 years ago this would be shunned as communism/socialism, but today it is hailed as the epitome of the economist's craft.  Today we have 5/10/20 year plans in the US.  Today we have intellectuals to control aspects of our economy.  This is frightening in retrospect.  

The market is buyers and sellers of goods (any good) coming to agreement upon a price.  But, the increase of the money supply necessarily distorts this natural mechanism, and never allows the market to clear.  A market that does not clear is a market whose path must necessarily take upon itself a tangent; what tangent this is is unclear to anybody.  The only thing that we can be sure of is that the current economists will recommend further money injections.  I don't understand this action, because it only suites to further increase the distortions, it only suites to further disrupt the clearing mechanism of the market.  In fact, the most prominent effect of this action is to increase the wasting of economic capital that is required to further increase production.  At the same time, it also decreases the real wage of both labor and capital intensive projects.  

The only thing that further inflation of the money supply does is increase the perceived wealth of those most closely associated with both the central bank and the government.  To increase the wealth of these entities only seeks to increase the power of the State itself.  While the laymen is most assuredly ignorant to these consequences, he does not shy aways from his proclamations and idolatry in favor of the State and its actions.  He never realizes his folly, but rather is mesmerized by the false notion that he is in charge of the actions forthwith.  In the end, we all suffer dearly for the acts of the majority, the ignorant.

Allow people to exchange their wares, goods, services and products without State intervention, and prosperity will be had by all.  The injection of the State, with its politicians, intellectuals, technicians, and bureaucrats only seeks to control the actions of men.  This control is never in the service of the people, no matter what one may believe, because such action must necessarily be in the interest of those in power.  

Get the State out of the economy, and the economy will proceed on a path that will eclipse anything that the State, or its proponents could ever have imagined.  Progress can only be made when people are free to construct things and ideas outside of the hitherto accepted norms.  The only environment that allows such a field is that of liberty in a free and unhampered economy. 

Fri, 05/13/2011 - 21:46 | 1273555 gwar5
gwar5's picture

"...Pioneered by Mr. Ponzi -- and Ms. Romer" ... Romer's vaunted Keynesian multiplier didn't work this time around because there's now too much debt in the system. If Mr. Ponzi were still around he could have told her that...

And Goldman Sachs did so well helping Greece get into the EU, too, we should all just do what they want. GS is just good folks who got them qualified to be a member of the EU just in time to go belly up and surrender to the banks.

What GS wants, they will get. The mothership has spoken.

Sat, 05/14/2011 - 00:29 | 1273774 knukles
knukles's picture

There exist only rigorous mathematical analyses which conclude the Keynesian Multiplier rests somewhere between Less Than Zero all the way to a Negative Number.

To wit, increased governmental spending with the single exception of infrastructure, is a net drag on economic growth and generally inflationary when accompanied by anything even beginning to assume a loose monetary policy.

The work is documented, in the public domain.

Sat, 05/14/2011 - 10:01 | 1274110 falak pema
falak pema's picture

"all the way between less than zero to a negative number..." What math scale is that?

"...To wit, increased governmental spending with the single exception of infrastructure,...."

Now there's an interesting affirmation in the domain of that exact science called macro economics...I think one would have to contextualize it in the economic growth cycle. Keynesian demand side stimulation is great to get out of a depression ONCE you have the economic markers in place to relieve the rot created by the  de-de-regulation, like cleaning out the structural debt pyramid, and with honest markers and watch dogs in place. Will we ever get back there without major social upheaval in the the relevant question nowadays...Either internally induced, or worse, extraneously...which means the internal body politic is dead...Now that would be the worst possible news for Main Street USA.

Fri, 05/13/2011 - 21:49 | 1273561 buzzsaw99
Fri, 05/13/2011 - 21:49 | 1273563 cognus
cognus's picture

well, an unlimited digit-creation machine is certainly "big",  but we'll see if 

its big enough to halt profit-taking, capital preservation, life-preservers, et al

Fri, 05/13/2011 - 21:51 | 1273566 Ned Zeppelin
Ned Zeppelin's picture

Is it me or this a huge pile of horse shit? Funny how "fiscal consolidation" is a euphemism for "recovering from the ass-reaming that the country's beleagured taxpayers just suffered at the hands of TBTFs like Goldman."

Can these guys ever shut the F up? Take your advice, Sven, and go back, or crawl back under, where you came from. 

Jesus, they're like the cockroaches of economists. 

Sat, 05/14/2011 - 17:44 | 1274725 slewie the pi-rat
slewie the pi-rat's picture

have an election;  new guys get elected;  japan;  economy slows down, too;  just when timmah & ben, our rock stars, were hoping the $4 tril. might be enuf. 

so, the new guys in DC want to address the spending, thank goodness.  sven can only conceive of this going out to his clients, bosses, and the world of zeroHeads, as fiscal consolidation.  this fukhead is too smart to piss directly into the wind, so he turns to direct his spray and make the damnest case i've ever read for QE III. 

i think the banksters are doing pretty well with the bailouts, nationalizing their losses, and the QEs.  just freaking offhand, ok? 

you think they want this to stop?

Fri, 05/13/2011 - 21:51 | 1273569 razorthin
razorthin's picture

Can't believe anyone ever doubted this.

Fri, 05/13/2011 - 22:16 | 1273612 jaffi
jaffi's picture

I don't think that anybody doubted it, it is just crazy to hear their rationalizations for it.  I'm not one to put up with BS.  But, it is even more insulting to have somebody put off their BS as some kind of economic insight.  

We all knew it was coming, we just didn't expect it to be in such an a-hole fashion.  

Fri, 05/13/2011 - 22:03 | 1273574 Robslob
Robslob's picture

The GamePlan:

Talk, talk, Talk, talk, Talk, talk, Talk, talk, Talk, talk, Talk, talk, Talk, talk, Talk, talk,  QE

Meanwhile in Farmville enter Depression.

Then right before Christmas Fed induces QE infinity...Party like its 1999.

Obama wins 2012 re-election = Hyperinflation!

Harry Carry from the Grave shouts:

Gold Bugs Win - Silver Bugs Win - Gold Bugs Win - Silver Bugs Win the 2012-2025 Global Economic Destruction World Series!

Sorry, been drinking...and it ain't koolaide...





Sat, 05/14/2011 - 00:32 | 1273779 knukles
knukles's picture

Some do seem to like the "Flavorful Hemorrhoid" Kool Aide

Fri, 05/13/2011 - 22:04 | 1273588 Caviar Emptor
Caviar Emptor's picture

The schism between main street and Wall street will deepen. That's a key effect of QE: the stimulus gets channeled through Wall Street and the secondary benefits are supposed to trickle on down. But they're only reflating securities. Wage deflation, real estate deflation will continue on as they did through QE1, 1.5 and 2. In fact accelerate. There will be no "reinvestment" through Capex spending. Money and jobs will simply flow offshore as they have been at an accelerating pace. Banks won't lend. So Main Street will deflate as Wall street inflates. The net result is Biflation

Sat, 05/14/2011 - 11:31 | 1274229 Tonesvette
Tonesvette's picture

Biflation. Yes. I get it now.

Sat, 05/14/2011 - 12:35 | 1274323 Bicycle Repairman
Bicycle Repairman's picture

Dirty little secret:  Main street America doesn't matter anymore.

Fri, 05/13/2011 - 22:06 | 1273590 RobotTrader
RobotTrader's picture

Sounds like Dan Norcini has thrown in the towel for now.

Not expecting much in commodities for a long time.


Fri, 05/13/2011 - 22:08 | 1273599 Hulk
Hulk's picture

Or until the next soverign default(s), whichever comes first...

Fri, 05/13/2011 - 23:48 | 1273734 Careless Whisper
Careless Whisper's picture

well, gold never defaults.

Sat, 05/14/2011 - 00:12 | 1273759 GoinFawr
GoinFawr's picture

counterparty risk free for 10,000 years!

Fri, 05/13/2011 - 22:05 | 1273594 RobotTrader
RobotTrader's picture

Here's one guy who had enough.  Sold all his PM's.

Can't blame him.  Too tough to fight Uncle Gorilla.

Enough. I'm getting out!
TheTaoOfJonze - Fri, May 13, 2011 - 12:50 PM

I'm out! I've liquidated everything.

Even with the sharp drop in silver, I still have a small profit, which I want to protect.

No more of these crazy PMs for me!

Fri, 05/13/2011 - 22:36 | 1273597 jaffi
jaffi's picture

And????  Let me guess, he bought his metals at Midas or Goldline.  

Gotta give more than some random bloke who sold his stash and still made a profit.  

I've been buying metals for about 10 years, and I have never made a loss.  I bought roughly half of them in the gold souks of Dubai and Bahrain.  Paid about $500 an ounce for gold, and $5 an ounce for silver.  The other half of my holdings have come from auction purchases over the years, which were almost always within $1 of spot for silver, and $3 for gold.  

Metals aren't a trading game, they are buy and hold.  I don't know when this guy started, or what price he paid or when he paid it.  All I have is a post by you that is unconfirmed.  But, those of us who have been playing PMs and other commodities for the medium to long term have all made money.  And, I would be willing to bet that most of us don't have any debt, and own our land and homes free and clear.

When I want to buy a car, or invest in a company, I don't need to get a loan, I just sell a few kilos and make my move.  That's what metals allow me to do; to keep my savings strong over the long term.  If you're buying metals to make a profit in the short run, then you are in the wrong game.  You buy metals to hold the value of the profits that you have already made and/or to keep your savings at par with the PPM of all of the world's currencies.  Luckily, it just so happens that the increased productivity and efficiency over time tends to allow for a small profit (roughly 5% in real terms).  

You buy PMs to hold value over time, not to make a profit.  Plain and simple.  If you're buying PMs to make money quick, then you're an F-ing idiot, and do not understand markets, money or economics.  If you're buying and selling on daily/weekly/monthly movements, then you might as well gamble in equities.  PMs aren't a gamble, they are a store of value over time and exchange.

Fri, 05/13/2011 - 23:23 | 1273702 NOTW777
NOTW777's picture

are the Dubai souks reliable - i mean real stuff

Sat, 05/14/2011 - 00:30 | 1273757 jaffi
jaffi's picture

The souks are more reliable than any firm selling paper.  You can hold it, you can feel it, and (due to arab culture) you can fiercely haggle for it.  That is the one thing that I always loved about buying ANYTHING in Arab lands, that the price listed is never the price that you pay.  I've spent upwards of an hour arguing, cajoling, throwing in combination deals, etc in order to get things for half the price paid in the US.  I bought my first iPod in Dubai for half the price that they were selling for in the US (though, it was thrown in for a spot purchase on gold bars).  

Now, I am a bullion buyer.  But, at the souks, you only pay spot price.  That means that if you want to buy some crazy, elaborate piece of jewelry, you don't pay over the spot price of whatever metal it is made of.  In other words, you can haggle down to the spot price, and thus do not have to pay for the workmanship of the jewelry-maker's effort (whatever metal it is made from).  

I bought my first Rolex (YachtMaster Gold) at a gold souk in Dubai; paid $4k in 2004 when they were going for $10k in the states (also picked up a Wittnauer and a Tag).  And, I confirmed the serial number with Rolex in Switzerland, it's the real deal (with wax stamp and all).  And, of course it has the Rolex "movement".  It never needs a battery, it runs on kinetic energy.  

I don't know what Dubai is like these days, because I haven't been there for at least 5 years.  But, if you're looking for jewelry then it is the place to go.  When it comes to bullion, you pay whatever the spot price is.  The biggest difference on bullion is that they only charge about 1 or 2 Dirhams on a tael.  I don't know what the Dirham to Dollar exchange is today, but back then it was like paying a few cents (if you were paying in UAE Dirham).  Though, I do believe that the Dirham is tied to the dollar.  Back then the exchange was about 3.5-3.6 to a dollar.  It's similar if you go to east-asia.  You only pay about 60¢ over spot for a tael of gold, or about 20¢ over spot for a tael of silver.  It's so abundant there that it is like getting a piece of the action from selling a hotdog.  

Sat, 05/14/2011 - 00:41 | 1273793 knukles
knukles's picture

There be a place in cities such as Riyadh where's called "Chop Square" to remind one and all that you don't fuck with your brother.
Yes, if they say the gold's 24K, it's 24K, no BS.

And for the uninitiated, Chop Square takes its name from the "chopping off" of hands, arms, ears, heads and the like for the verisimilitude of infractions under Sharia Law.

Years ago, westerners used to be pushed to the front of the crowd to observe the punishments first hand.  Has pretty good effect with respect to criminal activity within the broad populace.  No fucking anti-psychotics, benzodiazepines or group therapy.

Sat, 05/14/2011 - 03:05 | 1273877 jaffi
jaffi's picture

Yep, they DO NOT fuck around.  Dubai is a little more westernized, but Bahraini souks are definitely more hard-core.  If they try selling you something other than what you thought, you can complain.  Chances are that they will give you whatever you want rather than have an appendage hacked off.  It's that serious.   

Sat, 05/14/2011 - 08:21 | 1274017 Almost Solvent
Almost Solvent's picture

And western nations' prisons are overflowing

Sat, 05/14/2011 - 08:24 | 1274019 ibjamming
ibjamming's picture

They also have a bad habit of blowing people up who disagree with their "values"...there are no Utopia's.

Sat, 05/14/2011 - 10:27 | 1274133 falak pema
falak pema's picture

You have to hold your breath and blink twice when you hear supposedly rational westerners approving Sharia Law methods; to alleviate a perceived fear created by the growing risk of Main Street 'herd indiscipline', moral break down, in USA. As the economic noose inexorably tightens under the Oligarchy's iron hand. I think Main street USA must start having the inkling of a dawning new perception : the perfect role model for the years to come in Western Oligarchic lands (USA/EU/Japan) is th ME model. The Saud kingdom which has it all to be a perfect feudal oligarchical paradise : Oil, a restricted, princely aristocracy, and a Sharia based code of law for the sheeple. Can't beat that combination, with watered down democracy and this "fallacious" idea whose wrong initial premise is now very apparent amongst the sheeple : that of 'the pursuit of happiness'. It is now a receding pipe-dream. It's strictly reserved for the guys with villas on the dream 'Palm Island' in Dubai and its future replicas. Sweat! You new population of Apaches whose wealth disappears like its body fat! Wow! the mantra becomes clearer every day!

Fri, 05/13/2011 - 22:26 | 1273620 Caviar Emptor
Caviar Emptor's picture

hehe. Robo (and many others who will lose) only understand PMs as a get-rich-quick scheme. Just like stocks are supposed to be. But a moron taking an elevator ride down the Empire State Building would think that the building is rising. PMs are a get rich slow scheme: a way to reliably protect your savings and wealth from the inevitability of destruction of buying power with anything paper based. There have been bumps, but the 12 year trend for gold is intact. So is the deflating buying power of the dollars that you trade stocks in for. 

Fri, 05/13/2011 - 22:43 | 1273652 Bay of Pigs
Bay of Pigs's picture

Your an asshole for even posting this worthless shit.

You have no shame for your ignorance, stupidity and ridiculous postings.

Fri, 05/13/2011 - 23:16 | 1273690 jaffi
jaffi's picture

Looks like Robo is making more friends.  Haha.

Sat, 05/14/2011 - 00:46 | 1273798 knukles
knukles's picture

Now now, for every seller there must be a buyer, and I'm sure he made somebody quite happy.

Sat, 05/14/2011 - 21:48 | 1273713 Quixotic_Not
Quixotic_Not's picture

So glad to see the day traders aka flippers getting scared and folding their pathetically weak hands...

Been in this game since 2002 and seen plenty of bluffs, but the trend remains intact (exponentially so with QEXXX et al.):

Fraudulent inflation of global monetary systems will cause ALL  financial instruments to rise on the floodplain -- But once the flood waters recede, only REAL wealth will remain.

If one wants to make paper gains off corrupt markets and nervously trade based upon this maxim, more power to them!

At some point in the near future, it'll be ALL about return of capital, not return on capital.

Of course, most won't be able to comprehend, plan and prepare for a multi-generational correction, and it make me glad to think you'll be among the leechfucks washed away on pastures of ignorant bliss...

Bleet on sheeple!

Sat, 05/14/2011 - 12:39 | 1274329 Bicycle Repairman
Bicycle Repairman's picture

If your time horizon is 3 months and you feel you can trade mano-e-mano with the big boys, then by all means, sell your PM.

Just keep in mind that you'll be back. 

Fri, 05/13/2011 - 22:09 | 1273596 Ignatius
Ignatius's picture


'Nuff said.

Fri, 05/13/2011 - 22:11 | 1273598 Boston
Boston's picture


Yet another reason to be long Treasuries. 


Fri, 05/13/2011 - 22:08 | 1273601 RobotTrader
RobotTrader's picture

Not really sure what this guy at Goldman is thinking.

Most retail stocks have had the biggest runs of all time, as if they were already pricing in an economic boom of massive proportions.

What more could you ask for?  You expect these stocks to double again next year?  Fat chance.

The consumers have been on a spending binge for 2 years without making mortgage payments.  They need to take a break.

Fri, 05/13/2011 - 22:35 | 1273631 lizzy36
lizzy36's picture

Didn't the exact same thing happened to tech stocks 2000?

Didn't the exact same thing happen in Oct 2007 to all the indices?

This time isn't different. It never is.

Fri, 05/13/2011 - 22:38 | 1273639 Caviar Emptor
Caviar Emptor's picture


That's what you would have said in 1995, 1997 and 1999. And you woulda been wrong all the way as stocks went bonkers. IPOs rising 600% on the first day of trade. Over 500 IPOs each year (675 in 1996!). The December 14th, 1999 edition of Smart Money had an article: "HO-Hum. Another 500% Gain on Opening Day". Companies that went public in 1999 had an average first day gain of 165% (!). And you didn;t need any demand from consumers: most of the companies with the biggest gains were money-losers with few customers. Most were penny stocks within 18 months like TGLO. 





Fri, 05/13/2011 - 23:41 | 1273721 Quixotic_Not
Quixotic_Not's picture

Most morons will be standing agape in awe of the event horizon, totally dumbfounded by its power and impact -- Try not to come in your pants lil' leech, cause it'll just mean your dick will be the first thing to freeze when you get sucked into the vortex...

Fri, 05/13/2011 - 23:54 | 1273743 Careless Whisper
Careless Whisper's picture

@ Robo

Not really sure what this guy at Goldman is thinking.

He's busy thinking about ways to avoid the process server. Lawsuits flying all over the place with Goldman's name on 'em.

Fri, 05/13/2011 - 22:14 | 1273602 Rusty Shorts
Rusty Shorts's picture

Phew, thank god we're almost out of the woods.



Fri, 05/13/2011 - 23:27 | 1273706 NOTW777
NOTW777's picture

LOL yes they've worked hard to save us but i think its paid off

Sat, 05/14/2011 - 00:15 | 1273763 GoinFawr
GoinFawr's picture

no they've worked us hard to save them, but I think it's paying off... for them.

Fri, 05/13/2011 - 22:16 | 1273606 gwar5
gwar5's picture

Of course, the interest payments to the banks due to the QE aren't more indebtedness, or anything, are they?

We should do a spending  consolidation of the Fed, and tell them to take a hike. Give them $240 Billion, in 1913 dollars, which is the equivalent of their current $2.5 Trillion stake. It's their own fault the USD got so small.  We started them out with a perfectly good one.

Fri, 05/13/2011 - 22:17 | 1273607 slewie the pi-rat
slewie the pi-rat's picture

i'm wondering if tyler ate: 


slewie's hot bisquits & pnutbutrnjam are gonzo!

coffee & bongzo!
