QE2 + $600-$1.5 Quadrillion Derivative Market

[seanD]

= a disaster of unheralded proportions, at least in the long term if not the immediate future.

http://www.businessinsider.com/david...hedlock-2010-9

It amazes me that in spite of all the gloomy economic forecasts I read in article after article, I can never find anyone mention the derivative market in that equation. I'm just an amateur, but it really doesn't take a genius to find out that the derivative market, the same market that took down the untouchables (and is still taking down smaller regional banks, as well as crippling the EU), is still around and hasn't changed one iota. I can also figure out that if I'm a billionaire and want to do good in the world, it would be downright stupid for me to give say $100,000 to 1,000 compulsive gamblers standing in a Casino in Vegas. What are the odds that those gamblers are going to use the money for anything good in the world? Or if I wanted to stop crime in the streets, how idiotic and counterproductive would it be for me to give a band of notorious gangbangers loaded A-Ks? Is it just denial, or is that there is enough gloomy news on the horizon about QE2 without considering the derivative market in that scenario?

[seanD]

For those who don’t understand the concept of Quantative Easing (QE) here’s the breakdown.

The Federal Reserve (fed) prints money out of thin air. They then loan the money, at 0% interest, to the banks. In most cases, the fed exchanges the cash for the bank’s toxic assets -- bad loans, MBSs (mortgage backed securities) that have imploded, CDOs thathave imploded (multiple MBSs packaged together), CDSs (insurance coverage on those CDOs), or other derivatives. Sometimes the banks, knowing that the fed is about to engage in this insane activity, will buy government debt by buying up all the treasury bonds it can, and exchange these bonds to the fed for the cash. Imagine I offer to take all your credit card debt in exchange for a bunch of cash that I print up out of thin air. Pretty sweet deal!

The hope is that the banks, instead of sitting on all this fresh crash, will create their own money from this new money out of thin air (Fractional Reserve Banking system, which is a whole nuther subject) and loan out the money in order to make a profit on the interest. With all this new money pouring into the economy, the hope is that this will spur on new growth.

Here’s the kicker. There is a $600 trillion-1.5 quadrillion derivative casino game that no one talks about. So why would the bankers settle for a measly return on a bunch of loans when they can make back 30-1, 50-1, 100-1 in this derivative casino market? This is why a lot of the banks were able to pay back the bailout money (though the majority haven’t paid it back) so quickly, some within just a year, because they were able to jump right back in the game and make a bunch of new derivative deals, thus is how they were able to pay back the bailout with interest so fast, plus give themselves billion dollar bonuses on top of that.

Those who know how all this works wonder what the heck Bernanke is thinking, because when you understand how QE works, and know that this will surely cause hyperinflation at best, it’s basically outright insanity. Obviously the dude is an Ivy League graduate, a professional economist, and an insider. If I, as a complete amateur, know that this derivative market exists, certainly Bernanke knows it exists, and is aware what the bankers will do with the money. So there are only two options we have here:

a) Either Bernanke is part of a dastardly conspiracy to intentionally bring down the global economy.

b) Bernanke is corrupt to the core, and thus being used as a tool by the corrupt bankers so that they can achieve insane profits at the expense of the global economy, in exchange for something that we don’t know.

Unfortunately, those are the only logical choices, and with either option, we are screwed.

[Zombie]

it prolly part of the quest for infinite positive growth/return on investments.

someone pointed out that about every thirty years the usa changes the basis/mechanism of its currency...gold standard to silver to fiat, etc.

guess how long its been since we last changed it up?

and besides, its not gambling if you have a stack of aces up your sleeve.

[seanD]

it prolly part of the quest for infinite positive growth/return on investments.

someone pointed out that about every thirty years the usa changes the basis/mechanism of its currency...gold standard to silver to fiat, etc.

guess how long its been since we last changed it up?

and besides, its not gambling if you have a stack of aces up your sleeve.

You’re right. Deflation = inflated asset value correction back to real asset value. Inflation = asset valued far more than their worth. The former is reality, the latter is an illusion. Bernanke wants to keep the illusion going. The market right now is just being sustained by inflated asset bubbles, which is asset inflation. Deflation means those asset bubbles gradually or even rapidly deflate back to real asset value. But deflation causes pain to both the wealthy and the unwealthy. Inflation causes pain just to the unwealthy. QE naturally keeps the bubbles inflated so that the wealthy will have to endure the less pain and so they can continue to thrive while the unwealthy suffer, which is why the market is still booming while everything else, including the dollar is going to hell. The next problem with QE is the fact that it can’t be controlled, thus can result in the bubbles inflating out of control = hyperinflation. Not only that, but this type of artificial inflation only works in the short term, because in the long term those bubbles eventually will burst and when they do then it becomes total mayhem. There are many smaller bubbles, especially commodity bubbles (food, precious metals, energy, etc.), but the bubbles that are creating the potential global coming crisis is the bond bubble, and the daddy of bubbles, the quadrillion dollar derivative bubble, both of which are global bubbles.

To think that inflated asset bubbles will be good for the economy in the long term, and to think that they’ll even create jobs in the short term is foolish, which is why most people think Bernanke is just dumb or doesn't know what he's doing. But to assume that a professional economist who has degrees at Ivy League schools on economy and business is dumb enough to think this and not see the long term catastrophe doesn't make sense to me. The guy is either outrightly delusional, being used as a lapdog to serve corrupt banking institutions, or he’s being used as a means to a specific end -- a la the conspiracy theories.

[Zombie]

http://www.youtube.com/watch?v=PTUY1...layer_embedded

in animated form!

[seanD]

http://www.youtube.com/watch?v=PTUY1...layer_embedded

in animated form!

"The Ben Bernack"


One other major drawback of QE I didn't mention is how much it PO's other countries, especially China...

http://www.nytimes.com/2010/11/20/bu...html?src=busln

If this leads to an all out currency/trade war with China, we will badly lose. If it then leads to a conventional war, then the world will lose.

[Zombie]

i hope there is not trade/currency war with china, but if there was i think we would win, we would just pay-off their topmost officials and let them worry about their populace.

true an all out war with china would be sad but i cant see how they would win. with a population like theirs so densely packed into small areas we would just bomb them, and their food sources and water sources.
they would have to cross oceans to hit us unless they went the terrorist route.
i think more likely would be a proxy war which the us and chinese fatcats would cash in and the people of say north korea or some african nation will suffer the burden.