Category: zerohedge

The Cost Of An Ultrawealthy Uberclass: $1500 Per Worker

Submitted by mickeyman via The World Complex blog,

Interpretation of scaling laws for US income

It has been remarked that if one tells an economist that inequality has increased, the doctrinaire response is "So what?"

                                          – Oxford Handbook of Inequality

h/t Bruce Krasting

Social Security online has published a full report on income distribution in America.

Two years ago we looked at the distribution of wealth in America. Today we are looking at income.

There were a total of about 153 million wage earners in the US in 2012, which is why the graph suddenly terminates there.

As we have discussed before, in self-organizing systems, we expect the observations, when plotted on logarithmic axes, to lie on a straight line. Casual observation of the above graph shows a slight curve, which gives us some room for interpretation.

I have drawn two possible "ideal states"–the yellow line and the green line.

Those who feel the yellow line best represents the "correct" wealth distribution in the US would argue that the discrepancy at the lower income (below about $100k per year) represents government redistribution of wealth from the pockets of the ultra-rich to those less deserving.

 

Followers of the green line would argue the opposite–that the ultra-wealthy are earning roughly double what they should be based on the earnings at the lower end.

Which is it? Looking at the graph you can't tell. But suppose we look at the numbers. Adherents of the yellow line would say that roughly 130 million people are getting more than they should. The largest amount is about 40%, so if we assume that on average these 130 million folks are drawing 20% more than they should (thanks to enslavement of  the ultra-wealthy), we find that these excess drawings total in excess of $1 trillion. Thanks Pluto!

The trouble with this analysis is that the combined earnings of the ultra-wealthy–the top 100,000–earned a total of about $400 billion. They simply aren't rich enough to have provided the middle class with all that money.

Now let's consider the green line. Here we are suggesting that the ultra-wealthy are earning about twice as much as they should be, and let's hypothesize that this extra income is somehow transferred from the middle and lower classes.

As above, the total income of the ultra-rich is about $400 billion. If half of this has been skimmed from the aforementioned 130 million, they would each have to contribute about $1500.

I expect a heavier weight has fallen on those at the upper end of the middle-class spectrum; but even so, $1500 per wage earner does seem doable. Of the two interpretations, the green line looks to be at least plausible, and we are forced to conclude that those who believe the ultra-wealthy are drawing a good portion of their salaries from everyone else have a point.

But isn't $1500 per year a small price to pay to create a really wealthy super-class?

Paper on causes of income inequality full of economic axiomatic gibberish here (pdf).

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/yRQgOT6Jawc/story01.htm Tyler Durden

There is No Such Thing as a Smooth Fed Exit

 

The primary theme driving US stock markets, is that of whether the Fed will taper or not.

The mere fact that this is the single most important theme for the markets goes a long way towards explaining how busted our financial system has become. Before 2007, the talk concerned whether the Fed would change interest rates. Today we talk about whether scaling back from $85 billion in asset purchases per month represents tightening.”

 

At the end of the day, the fact is that the Fed can never exit its strategies. I realize there are a lot of smart people with smart explanations for why the Fed can exit, but they are missing a critical component: human nature.

 

We saw this in real-time back in May 2013 when the Fed first floated the idea of tapering its QE programs. The Fed had hoped it could float this idea and let the markets get used to it, instead interest rates spiked with rates on the 10-year moving up from 1.5% to nearly 3% in a matter of weeks.

 

 

At the time, the financial media began to write articles about the market’s “taper tantrum” as though metaphorically aligning the capital markets with s spoiled brat explained the reaction.

 

The Fed then did a 180 despite all but promising it would taper QE. Bernanke even went so far as to negate the call for a taper in his July Q&A.

 

Why did he do this? It’s simple. He like the rest of the Fed saw in simple terms that there is no such thing as a smooth exit. The market rebelled at the mere hint of tapering at a time when the Fed is buying $85 billion per month. If the Fed were to actually go ahead and taper what would rates do?

 

Moreover, with the financial system now even more leveraged than it was going into 2007… what would happen if interest rates moved back to their historical averages of 4% on the ten year Treasury?

 

Ka-Boom.

 

So now, there is talk of the Fed tapering in December. Maybe it will, maybe it won’t. I have no idea. No one does. If we were going to try to analyze the Fed’s moves via logic or economic fundamentals, we would have tapered months if not years ago.

 

Instead we’ll get more of the same: talk of taper to talk the markets down, then a surprise decision to not taper so market take off again. The Fed is now managing expectations more than anything. The Fed has acted in 90+% of the months since the Crisis began. This tells us precisely what the game plan is going forward.

 

At some point, and I cannot say when, this whole mess will come unhinged. When it does 2008 will look like a joke.

 

If you have not taken steps to prepare for a market collapse, we have a FREE Special Report that outlines how to prepare your portfolio. To pick up a copy, swing by:

http://phoenixcapitalmarketing.com/special-reports.html

 

 

Best Regards

 

Phoenix Capital Research

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9tBBOMMZk1E/story01.htm Phoenix Capital Research

BTFATH Continues; Dow Opens +70 Points, Oil -1%

An Iran deal that is kinda sorta a deal but really is not a deal is all we need in the new normal to justify adding another few fractions onto the equity multiple valuation tree of hope. The S&P is up 9 points, Dow up 70 points, and WTI Crude is down around 1% on the news. Interestingly, stocks have no support from the almost ubiquitous carry traders as this appears more like a rip through the stop order stack more than another greater fool adding to their position.

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/40OdFTkF1TI/story01.htm Tyler Durden

Greenspan Still Doesn't Get It

Submitted by Tomas Salamanca via the Ludwig von Mises Institute of Canada,

Until recently, Alan Greenspan’s main argument to exonerate himself of responsibility for the 2007-2009 financial crisis has consisted in the claim that strong Asian demand for US treasury bonds kept interest rates on mortgages unusually low. Though he has not given up on this defense,  he is now emphasizing a different tack, as manifest in an article published in the current issue of Foreign Affairs. The article captures key themes elaborated in his latest book on the problem of forecasting, The Map and the Territory. His new tack is no better than the old tack.

Reprising what has lately become a very common refrain in financial commentary, Greenspan points the finger at the emotional side of human nature. This is the side where behavioral economics has recently made a name for itself in formulating its accounts of investor behaviour. Actually, this approach has a much older provenance, most famously conveyed in Keynes’ invocation of “animal spirits” in the General Theory of Employment, Interest, and Money.  On the Keynesian view that behavioral economics adopts, investors do not buy and sell securities by rationally processing all available information and calculating expected returns. Rather, their decision making is distorted by cognitive biases and swayed by the oscillating passions of fear and hope.

In Greenspan’s rendering of the “animal spirits”, investors swing between phases of risk loving and aversion. Greenspan also maintains that “animal spirits” show themselves in herd behaviour. Inasmuch as investors take their cues from others, they tend to be either risk loving, or risk averse, all at the same time.  You know where all this is going with respect to the financial crisis. According to Greenspan, the herd on Wall Street bought up mortgage backed securities while underestimating their risks, and then as soon as those risks became all too clear, everyone headed to the exits simultaneously.

No doubt, an understanding of human psychology is helpful in making sense of economic phenomena. But we have to be precise in distinguishing the role of psychology in economics. As Mises argued, economics is a deductive science. All its conclusions ultimately proceed from the axiom that human beings act by choosing between alternative means to realize their subjective ends. All the psychology that economics needs is the rather obvious proposition that an overriding goal of human beings is the quest to attain a more favorable state of affairs in their lives. Only when the attempt is made to illustrate the operation of economic principles in the real world, as happens when one is engaged in the writing of economic history,  does psychology become illuminating. A psychological analysis might, for example, tell us what goals a particular individual or group are pursuing as well as the degree to which they prioritize considerations of the present over those of the future. Psychology can help economists tell richer stories; it cannot help them derive better economic theories.

Still, this is not the most significant of Greenspan’s errors. Yes, very few people are truly independent thinkers. Not being confident in any opinion unless it is socially confirmed somehow, people are inclined to think as others around them do.  And so, yes, this means human beings are subject to herding behaviour. Yet in order for a herd to develop in favor of some opinion, such as that sub-prime mortgage securities are a great investment, that opinion must initially gain traction. This is what Greenspan’s account is missing. He seems to think that investor herds come out of nowhere, mysteriously emerging more often than would be expected from a bell curve distribution of asset price changes. How, in other words, did sub-prime mortgage trend higher in the first place so as to generate all the enthusiasm it subsequently attracted?

The answer, of course, involves the loose monetary policy that Greenspan himself ran in the 2000′s as chairman of the Federal Reserve. By injecting so much money into the financial system, he supplied market participants with the means of raising the demand for financial assets. By greatly reducing the yields on low risk government bonds, Greenspan shifted that demand towards higher risk mortgage securities offering more appealing rates of return. Yield spreads narrowed between private sector and government bonds. Concomitantly, there was a steady upward movement in the prices of mortgage bonds, which the “animal spirits” then exacerbated through investor herding.

So if Greenspan hadn’t run an easy money policy in the first place, there would have been nothing in the mortgage arena for the “animal spirits” to have latched onto. This is always the case with financial asset bubbles. Excess hope only comes into play after the central bank has set the boom in motion. Excess fear is the inevitable follow-up once the bubble is popped.

Ironically enough, we can appeal to psychology to explain why Greenspan is unable to recognize this point. Human beings are strongly inclined to maintain their self-esteem. Admitting your own complicity in one of history’s greatest financial crises goes against that fundamental drive. Greenspan would be well advised to apply psychology not just to others, but to himself.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/7ihLeqqQiD4/story01.htm Tyler Durden

Greenspan Still Doesn’t Get It

Submitted by Tomas Salamanca via the Ludwig von Mises Institute of Canada,

Until recently, Alan Greenspan’s main argument to exonerate himself of responsibility for the 2007-2009 financial crisis has consisted in the claim that strong Asian demand for US treasury bonds kept interest rates on mortgages unusually low. Though he has not given up on this defense,  he is now emphasizing a different tack, as manifest in an article published in the current issue of Foreign Affairs. The article captures key themes elaborated in his latest book on the problem of forecasting, The Map and the Territory. His new tack is no better than the old tack.

Reprising what has lately become a very common refrain in financial commentary, Greenspan points the finger at the emotional side of human nature. This is the side where behavioral economics has recently made a name for itself in formulating its accounts of investor behaviour. Actually, this approach has a much older provenance, most famously conveyed in Keynes’ invocation of “animal spirits” in the General Theory of Employment, Interest, and Money.  On the Keynesian view that behavioral economics adopts, investors do not buy and sell securities by rationally processing all available information and calculating expected returns. Rather, their decision making is distorted by cognitive biases and swayed by the oscillating passions of fear and hope.

In Greenspan’s rendering of the “animal spirits”, investors swing between phases of risk loving and aversion. Greenspan also maintains that “animal spirits” show themselves in herd behaviour. Inasmuch as investors take their cues from others, they tend to be either risk loving, or risk averse, all at the same time.  You know where all this is going with respect to the financial crisis. According to Greenspan, the herd on Wall Street bought up mortgage backed securities while underestimating their risks, and then as soon as those risks became all too clear, everyone headed to the exits simultaneously.

No doubt, an understanding of human psychology is helpful in making sense of economic phenomena. But we have to be precise in distinguishing the role of psychology in economics. As Mises argued, economics is a deductive science. All its conclusions ultimately proceed from the axiom that human beings act by choosing between alternative means to realize their subjective ends. All the psychology that economics needs is the rather obvious proposition that an overriding goal of human beings is the quest to attain a more favorable state of affairs in their lives. Only when the attempt is made to illustrate the operation of economic principles in the real world, as happens when one is engaged in the writing of economic history,  does psychology become illuminating. A psychological analysis might, for example, tell us what goals a particular individual or group are pursuing as well as the degree to which they prioritize considerations of the present over those of the future. Psychology can help economists tell richer stories; it cannot help them derive better economic theories.

Still, this is not the most significant of Greenspan’s errors. Yes, very few people are truly independent thinkers. Not being confident in any opinion unless it is socially confirmed somehow, people are inclined to think as others around them do.  And so, yes, this means human beings are subject to herding behaviour. Yet in order for a herd to develop in favor of some opinion, such as that sub-prime mortgage securities are a great investment, that opinion must initially gain traction. This is what Greenspan’s account is missing. He seems to think that investor herds come out of nowhere, mysteriously emerging more often than would be expected from a bell curve distribution of asset price changes. How, in other words, did sub-prime mortgage trend higher in the first place so as to generate all the enthusiasm it subsequently attracted?

The answer, of course, involves the loose monetary policy that Greenspan himself ran in the 2000′s as chairman of the Federal Reserve. By injecting so much money into the financial system, he supplied market participants with the means of raising the demand for financial assets. By greatly reducing the yields on low risk government bonds, Greenspan shifted that demand towards higher risk mortgage securities offering more appealing rates of return. Yield spreads narrowed between private sector and government bonds. Concomitantly, there was a steady upward movement in the prices of mortgage bonds, which the “animal spirits” then exacerbated through investor herding.

So if Greenspan hadn’t run an easy money policy in the first place, there would have been nothing in the mortgage arena for the “animal spirits” to have latched onto. This is always the case with financial asset bubbles. Excess hope only comes into play after the central bank has set the boom in motion. Excess fear is the inevitable follow-up once the bubble is popped.

Ironically enough, we can appeal to psychology to explain why Greenspan is unable to recognize this point. Human beings are strongly inclined to maintain their self-esteem. Admitting your own complicity in one of history’s greatest financial crises goes against that fundamental drive. Greenspan would be well advised to apply psychology not just to others, but to himself.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/7ihLeqqQiD4/story01.htm Tyler Durden

Americans Are Finally Learning About False Flag Terror

Painting by Anthony Freda

Governments Admit They Carry Out False Flag Terror

Governments from around the world admit they carry out false flag terror:

  • A major with the Nazi SS admitted at the Nuremberg trials that – under orders from the chief of the Gestapo – he and some other Nazi operatives faked attacks on their own people and resources which they blamed on the Poles, to justify the invasion of Poland. Nazi general Franz Halder also testified at the Nuremberg trials that Nazi leader Hermann Goering admitted to setting fire to the German parliament building, and then falsely blaming the communists for the arson
  • Soviet leader  Nikita Khrushchev admitted in writing that the Soviet Union’s Red Army shelled the Russian village of Mainila in 1939, and declared that the fire originated from Finland as a basis launching the Winter War four days later
  • Israel admits that an Israeli terrorist cell operating in Egypt planted bombs in several buildings, including U.S. diplomatic facilities, then left behind “evidence” implicating the Arabs as the culprits (one of the bombs detonated prematurely, allowing the Egyptians to identify the bombers, and several of the Israelis later confessed) (and see this and this)
  • The CIA admits that it hired Iranians in the 1950′s to pose as Communists and stage bombings in Iran in order to turn the country against its democratically-elected prime minister
  • As admitted by the U.S. government, recently declassified documents show that in the 1960′s, the American Joint Chiefs of Staff signed off on a plan to blow up AMERICAN airplanes (using an elaborate plan involving the switching of airplanes), and also to commit terrorist acts on American soil, and then to blame it on the Cubans in order to justify an invasion of Cuba. See the following ABC news report; the official documents; and watch this interview with the former Washington Investigative Producer for ABC’s World News Tonight with Peter Jennings.
  • 2 years before, American Senator George Smathers had suggested that the U.S. make “a false attack made on Guantanamo Bay which would give us the excuse of actually fomenting a fight which would then give us the excuse to go in and [overthrow Castro]“.
  • And Official State Department documents show that – only nine months before the Joint Chiefs of Staff plan was proposed – the head of the Joint Chiefs and other high-level officials discussed blowing up a consulate in the Dominican Republic in order to justify an invasion of that country. The 3 plans were not carried out, but they were all discussed as serious proposals
  • A U.S. Congressional committee admitted that – as part of its “Cointelpro” campaign – the FBI had used many provocateurs in the 1950s through 1970s to carry out violent acts and falsely blame them on political activists
  • The South African Truth and Reconciliation Council found that, in 1989, the Civil Cooperation Bureau (a covert branch of the South African Defense Force) approached an explosives expert and asked him “to participate in an operation aimed at discrediting the ANC [the African National Congress] by bombing the police vehicle of the investigating officer into the murder incident”, thus framing the ANC for the bombing
  • An Algerian diplomat and several officers in the Algerian army admit that, in the 1990s, the Algerian army frequently massacred Algerian civilians and then blamed Islamic militants for the killings (and see this video; and Agence France-Presse, 9/27/2002, French Court Dismisses Algerian Defamation Suit Against Author)
  • Senior Russian Senior military and intelligence
    officers admit that the KGB blew up Russian apartment buildings and falsely blamed it on Chechens, in order to justify an invasion of Chechnya (and see this report and this discussion)
  • According to the Washington Post, Indonesian police admit that the Indonesian military killed American teachers in Papua in 2002 and blamed the murders on a Papuan separatist group in order to get that group listed as a terrorist organization.
  • The well-respected former Indonesian president also admits that the government probably had a role in the Bali bombings
  • As reported by BBC, the New York Times, and Associated Press, Macedonian officials admit that the government murdered 7 innocent immigrants in cold blood and pretended that they were Al Qaeda soldiers attempting to assassinate Macedonian police, in order to join the “war on terror”.
  • Former Department of Justice lawyer John Yoo suggested in 2005 that the US should go on the offensive against al-Qaeda, having “our intelligence agencies create a false terrorist organization. It could have its own websites, recruitment centers, training camps, and fundraising operations. It could launch fake terrorist operations and claim credit for real terrorist strikes, helping to sow confusion within al-Qaeda’s ranks, causing operatives to doubt others’ identities and to question the validity of communications.”
  • United Press International reported in June 2005:

    U.S. intelligence officers are reporting that some of the insurgents in Iraq are using recent-model Beretta 92 pistols, but the pistols seem to have had their serial numbers erased. The numbers do not appear to have been physically removed; the pistols seem to have come off a production line without any serial numbers. Analysts suggest the lack of serial numbers indicates that the weapons were intended for intelligence operations or terrorist cells with substantial government backing. Analysts speculate that these guns are probably from either Mossad or the CIA. Analysts speculate that agent provocateurs may be using the untraceable weapons even as U.S. authorities use insurgent attacks against civilians as evidence of the illegitimacy of the resistance.

  • Undercover Israeli soldiers admitted in 2005 to throwing stones at other Israeli soldiers so they could blame it on Palestinians, as an excuse to crack down on peaceful protests by the Palestinians
  • Quebec police admitted that, in 2007, thugs carrying rocks to a peaceful protest were actually undercover Quebec police officers (and see this)
  • At the G20 protests in London in 2009, a British member of parliament saw plain clothes police officers attempting to incite the crowd to violence
  • A Colombian army colonel has admitted that his unit murdered 57 civilians, then dressed them in uniforms and claimed they were rebels killed in combat
  • U.S. soldiers have admitted that if they kill innocent Iraqis and Afghanis, they then “drop” automatic weapons near their body so they can pretend they were militants
  • The highly-respected writer for the Telegraph Ambrose Evans-Pritchard says that the head of Saudi intelligence – Prince Bandar – recently admitted that  the Saudi government controls “Chechen” terrorists

So Common … There’s a Name for It

This tactic is so common that it was given a name for hundreds of years ago.

“False flag terrorism” is defined as a government attacking its own people, then blaming others in order to justify going to war against the people it blames. Or as Wikipedia defines it:

False flag operations are covert operations conducted by governments, corporations, or other organizations, which are designed to appear as if they are being carried out by other entities. The name is derived from the military concept of flying false colors; that is, flying the flag of a country other than one’s own. False flag operations are not limited to war and counter-insurgency operations, and have been used in peace-time; for example, during Italy’s strategy of tension.

The term comes from the old days of wooden ships, when one ship would hang the
flag of its enemy before attacking another ship in its own navy. Because the enemy’s flag, instead of the flag of the real country of the attacking ship, was hung, it was called a “false flag” attack.

Indeed, this concept is so well-accepted that rules of engagement for naval, air and land warfare all prohibit false flag attacks.

Leaders Throughout History Have Acknowledged False Flags

Leaders throughout history have acknowledged the danger of false flags:

“This and no other is the root from which a tyrant springs; when he first appears he is a protector.”
– Plato

“If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy.”
– U.S. President James Madison

“A history of false flag attacks used to manipulate the minds of the people! “In individuals, insanity is rare; but in groups, parties, nations, and epochs it is the rule.”
? Friedrich Nietzsche

“Terrorism is the best political weapon for nothing drives people harder than a fear of sudden death”.
– Adolph Hitler

“Why of course the people don’t want war … But after all it is the leaders of the country who determine the policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship … Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.”
– Hermann Goering, Nazi leader.

“The easiest way to gain control of a population is to carry out acts of terror. [The public] will clamor for such laws if their personal security is threatened”.
– Josef Stalin

People Are Waking Up to False Flags

People are slowly waking up to this whole con job by governments who want to justify war.

More people are talking about the phrase “false flag” than ever before.

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/fZ51JtLnuiQ/story01.htm George Washington

Sunday Humor: Truth In Advertising

Photoshopped or not, in a world of constant propaganda and doublespeak, the following ad seen in Egypt is a welcome respite in the world of bigger and bigger lies…

 

(via @SandMonkey)

What we think they meant is  – and perhaps with a nod to this blog (and other non-mainstream media) “the pen is mightier than the sword”

 

Perhaps the Samsung International folks have been watching old SNL re-runs…


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/mymIabW2y40/story01.htm Tyler Durden

Banks Warn Fed They May Have To Start Charging Depositors

The Fed’s Catch 22 just got catchier. While most attention in the recently released FOMC minutes fell on the return of the taper as a possibility even as soon as December (making the November payrolls report the most important ever, ever, until the next one at least), a less discussed issue was the Fed’s comment that it would consider lowering the Interest on Excess Reserves to zero as a means to offset the implied tightening that would result from the reduction in the monthly flow once QE entered its terminal phase (for however briefly before the plunge in the S&P led to the Untaper). After all, the Fed’s policy book goes, if IOER is raised to tighten conditions, easing it to zero, or negative, should offset “tightening financial conditions”, right? Wrong. As the FT reports leading US banks have warned the Fed that should it lower IOER, they would be forced to start charging depositors.

In other words, just like Europe is already toying with the ideao of NIRP, so the Fed’s IOER cut would also result in a negative rate on deposits which the FT tongue-in-cheekly summarizes “depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households.”

If cutting IOER was as much of an easing move as the Fed believes, banks should be delighted – after all, according to the Fed’s guidelines it would mean that the return on their investments (recall that all US banks slowly but surely became glorified, TBTF prop trading hedge funds since Glass Steagall was repealed, and why the Volcker Rule implementation is virtually guaranteed to never happen) would increase. And yet, they are not:

Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors.

 

Banks say they may have to charge because taking in deposits is not free: they have to pay premiums of a few basis points to a US government insurance programme.

 

“Right now you can at least break even from a revenue perspective,” said one executive, adding that a rate cut by the Fed “would turn it into negative revenue – banks would be disincentivised to take deposits and potentially charge for them”.

 

Other bankers said that a move to negative rates would not only trim margins but could backfire for banks and the system as a whole, as it would incentivise treasury managers to find higher-yielding, riskier assets.

 

“It’s not as if we are suddenly going to start lending to [small and medium-sized enterprises],” said one. “There really isn’t the level of demand, so the danger is that banks are pushed into riskier assets to find yield.”

All of the above is BS: lending has never been a concern for the Fed because if it was, then one could scrap QE right now as an absolute faiure. Recall that as we showed recently, the total amount of loans and leases in commercial US banks has been unchanged since Lehman, with the only rise in deposits coming thanks to the fungible liquidity injected by the Fed.

Furthermore, contrary to what the hypocrite banker said that “the danger is that banks are pushed into riskier assets to find yield”, banks are already in the riskiest assets: just look at what JPM was doing with its hundreds of billions in excess deposits, which originated as Fed reserves on its books – we explained the process of how the Fed’s reserves are used to push the market higher most recently in “What Shadow Banking Can Tell Us About The Fed’s “Exit-Path” Dead End.”

What the real danger is, is that once the Fed lowers IOER and there is a massive outflow of deposits, that banks which have used the excess deposits as initial margin and collateral on marginable securities to chase risk to record highs (as JPM’s CIO explicitly and undisputedly did) that there would be an avalanche of selling once the negative rate deposit outflow tsunami hit.

Needless to say, the only offset would be if the proceeds from the deposits outflows were used to invest in stocks instead of staying inert in some mattress or, worse (if only from the Fed’s point of view) purchase inert assets like gold or Bitcoin.

Which brings us back to the first sentence and the Fed’s now massive Catch 22: on one hand, shoud the Fed taper, rates will surge and stocks will once again plunge, as they did, in early summer, just to teach the evil, non-appeasing Fed a lesson.

On the other hand, should the Fed cut IOER as a standalone move or concurrently to offset the tapering pain, banks will crush depositors by cutting rates, depositors will pull their money from banks en masse, and banks will have no choice but to close on a record levered $2.2 trillion in margined risk position.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uEeXenBHu3Q/story01.htm Tyler Durden