Where is Debt Being Stuffed? Minyanville

Thanks Mr. Practical. On top of this i suggest to read the latest from Hussman An Irrelevant Fed: Thimbles of Water in a Forest Fire .

Besten Dank Mr. Practical. Ergänzend empfiehlt sich das letzte "Werk" von Hussman An Irrelevant Fed: Thimbles of Water in a Forest Fire

Thanks to Jim Borgman

Where is Debt Being Stuffed? Mr. Practical / Minyanville

As the markets seem to want to be relieved that global central banks have the “liquidity” problem under control, let us Minyans remind ourselves of the magnitude of the problem.

I have described just how central banks inject “liquidity” into the markets when they need it. Essentially central banks encourage debt creation, for people to borrow money, so that they buy things (consumption) to spur the economy. But due to too much debt, financial engineering has had to create new and better places to stuff more and more debt.

You may have seen this chart before. It shows the results of that financial engineering. Central banks can only affect the bottom two parts of the chart, high powered money and M3. M3 the Federal Reserve is growing as fast as it can in order to indirectly support the much larger problem of securitized debt and derivatives.

These two phenomenal pockets of debt are supported by asset prices: when asset prices (which act as collateral) decline, liquidity gets sucked out of the system. So the purpose of pumping new debt into the system is to keep nominal asset prices up to protect collateral values of the real problem of leverage in the system that the Fed cannot directly control. It takes more and more debt to do this because people are having huge problems servicing the debt they already have.

So we have two huge forces fighting each other right now: central banks desperately attempting to re-flate (create more debt) and the market grudgingly but purposefully attempting to deflate by paying back (which the bureaucrats are trying to help with) or more likely destroying (write-offs) that debt. We have extremely high volatility as these two forces fight it out.

Looking at the chart, which do you think will win?

>If you are still not convinced i urge you to read Straight Talk on the Mortgage Mess from an Insider via Herb Greenberg. One of the best i´ve seen in months. It looks like the "Hope Now Alliance" will become a running gag during the coming years.....

>Solltet Ihr immer noch Hoffnung haben das alles gut werden wird empfehle ich dringend Straight Talk on the Mortgage Mess from an Insider via Herb Greenberg zu lesen. Mit das Beste was ich in den letzten Monaten zu lesen bekommen habe. Es sieht so aus als wenn die "Hope Now Alliance" zum Running Gag in den nächsten Jahren werden dürfte......