The $4T Hole
From Tyler Durden at Zero Hedge:
Since early 2010 Zero Hedge has said that for the Fed’s QE efforts to be successful in stimulating the economy, and rekindling inflation, it has to focus on not only stimulating traditional bank liabilities but far more importantly offsetting the collapse in shadow bank liabilities. As we observed in July, when the latest Z.1. update was made available, there is still a nearly $4 trillion hole that has to be be plugged on a condolidated basis from the all time “credit money” high of $33 trillion in 2008. Until such time as the Fed’s largesse pumps enough to fill this void, the US economy will be mired in deflation.
Conversation in the comments mentions a debt jubilee. From Tyler:
Debt repudiation will never be attempted before a terminal attempt at reflating debt because it guarantees a full global equity tranche wipe out which is where the status quo, i.e., those who control the Fed, store their wealth. With inflation, even runaway hyperinflation, at least the hope of preserving some terminal equity value remains, which is why it will always be the preferred ‘deleveraging’ solution. (not to mention the whole $1 quadrillion in derivatives thing, which will collapse like a house of cards one even $1 dollar in financial debt is wiped out).
I find this interesting given the thundering hooves of Austerians I hear coming our way. It’ll be fun if Romney wins because I wonder, being a .01 percenter, if he isn’t a closet Keynesian. Of course, if he loses, then the attempt to fill the hole will continue. I bet no matter who wins the election, the Fed and Treasury will be allowed QE as necessary.
