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OK guys, new plan. Print money so fast that everyone loses track of how much we've spent.



November 25, 2008 – Comments (9)


It's funny, the government is printing money so fast that the article that Barron's ran about the Federal Reserve's ballooning balance sheet just a few days ago is already obsolete. 

At the time it was printed, the Fed's had leveraged its assets 53 times, causing its capital ratio to fall below the 2% threshold that many consider to be a flashing warning sign for normal banks. 

Then yesterday the Fed, in conjunction with the Treasury department bailed out Citigroup with a potential price tag of $306 billion. 

Today the Fed announced a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities.

I told you that Bernanke and friends were going to continue to print money until we are eventually able to inflate our way out of this mess.  The Fed's balance sheet is growing at an astronomical rate.  It's certainly levered much more than 53 times right now.  Less than a year ago it was levered 25 times and it had a 4% capital ratio.  The Fed's holdings of Treasuries not already lent to dealers has fallen to its lowest level since 1980.

In the current environment, people would be running away from any other financial institution that was levering up like this faster than turkeys from pilgrims, yet people seem to be flocking to treasuries and the U.S. dollar.  The recent strength of the U.S. dollar is a complete illusion.  For the life of me, I can't understand why anyone would buy treasuries at this point.  Sure they might go up in value slightly if the Fed cuts rates all the way to zero and we are currently battling deflation, but the chickens are eventually going to come home to roost. 

Heck the government needs inflation to get us out of this mess.  There's no way that we are ever going to be able to pay off the massive debt that is being accumulated without it.  The burden on the American taxpayer would be too massive.

It doesn't matter if the massive leverage that the government is employing can't keep pace with the deleveraging of investment banks and hedge funds if foreign countries lose confidence in the U.S. dollar.  How that hasn't happened already is beyond me.  If I was a country like China, at the very least I would want to diversify my reserves or take advantage of the recent surge in the dollar to sell them to fund domestic stimulus projects.

This whole mess disgusts me.


9 Comments – Post Your Own

#1) On November 25, 2008 at 10:27 AM, johnw106 (< 20) wrote:

Being a gold bug you better hope no one dumps a few thousand tons of gold on the market.....say the federal reserve? Or perhaps GS dumps a few thousand ounces here,a few thousand ounces there.... but then again whos counting?

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#2) On November 25, 2008 at 10:36 AM, JeanDavid (79.44) wrote:

Somebody is dumping gold bars on the market, and it must be the U.S. government, because it is of low purity (about 90%), the same as the purity of the gold coins melted up after Roosevelt confiscated in in the 1930s. That is probably why the price is as low as it is. How much of that gold is left to dump?

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#3) On November 25, 2008 at 10:41 AM, TMFDeej (97.93) wrote:

Thanks for reading, John.  Despite my bearishness on the U.S. dollar, I am far from a gold bug.  I can see why one would be one, but I personally prefer resources that are consumed like oil to gold.  I do not currently own any gold and have no plans to buy any.


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#4) On November 25, 2008 at 1:24 PM, martynanasi (95.25) wrote:

Good blog. Have to disagree with you on the gold though. As you mentioned the fed is printing money like wildfire. The result will be hyper inflation at some point and a devaluing of the US dollar. Both these are mainstays for gold appreciation. The gold markets may be manipulated currently but market forces will always prove true regardless of interference.

I am a gold bug and have been since the US stepped into Iraq...I liked oil then too which I do not now till the economy turns. Gold though will move higher regardless since everything is on its side.

Just a quick note since I have been saying what you have been saying for more than two years and it has proved me right up to this point.



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#5) On November 25, 2008 at 1:57 PM, ikkyu2 (98.55) wrote:

There are a number of ways to estimate M3.  Some of them show the supply dropping drastically over the last 6 months as 'deleveraging' occurs and trillions of dollars in bad assets (bad debts) are written off due to counterparty insolvency.

Check out for a more reasonable take than shadowstats'. 

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#6) On November 25, 2008 at 2:21 PM, TDRH (96.58) wrote:

Great graphs, thanks.   With the rise in the money supply I do not see how it can be anything but inflationary.     Dollar based commodities gold and oil should rise, at least in my humble estimation.    


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#7) On November 27, 2008 at 3:15 PM, cbwang888 (25.71) wrote:

Great blog. Thmub up!

Gold held relatively better than others like commodities and energy resources in the wave of massive asset liquidations by financial institutions. Even with US dumping gold from its governemt to institutions, someones oversea are accumulating them.

Now the FED's move is to print more money into the systems and forget about the inflation. This is a really really bad news for people who lost their fortune in their 401K and equity investment. As unemployment rise, the wage continue to stay low.

When we are seeing home price stablized, it must be the cause of falling dollars, not the rising average income of US households...

Home price is not the root cause of this crisis, it is that US has uesd excessive credits and leverage on many bad investments (home, cars, consumer goods, foreign oils, ...).

It is just like one max out his margins borrowing on his investment and see his investment went down 30~50%. Instead of admitting being totally wiped out, US wants to print more money to triple down.

I don't feel that working hard is the key for being financially rewarded anymore in this environment. US is going down, financially and morally...




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#8) On December 02, 2008 at 2:32 PM, jester112358 (28.19) wrote:

The cartoons were great and the graphs very useful.  I nearly fell off my chair laughing at the turkey one.  The essential aspect of good humor is a huge dose of truth.  As a inflation hedge, it gold (Au) seems good but useful essential metals like platinum (Pt) and rhodium (Rh) might be better still and they can be purchased and stored in even a smaller volumn.  They are essential to almost all catalytic processes such as crude oil refining, catalytic converters etc. and have no substitute.  There is likely hoarding of these materials going on right now as they are strategic metals required for any future wars (over resources, say).

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#9) On December 17, 2008 at 8:35 PM, SuperPicks (28.43) wrote:

if you have any say, please here this out (though not on subject)

Important CAPs feature now gone?  **Best players in tags**

Clearly one of the coolest features on the CAPs website is the value added by players like you and me, however a big component of that seems to be missing.

When navigating to Tags today, none of them indicate best players within those tags!

Where did that go?


The insane value it added to CAPs:

The big picture on CAPs is about beating the market.  Outperformance is essentially captured by big calls on sector or industry calls, the players calling these REALLY provide added value.  For example players that green-thumbed commodity plays before run up and red thumbed them before they imploded.  Or players that called the banking industry crash, or the airline industry crash, or the players that green thumbed the short ETFs back in September.  

Seeing the best players in tags clearly provided a good perspective on those who likely add more value than other players or certain mastery over a certain industry/group. 

Where did that go?


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