“The bond market is the backbone of the US Ponzi Finance system. When it goes – and the day is not far in my opinion – the whole enchilada will come crashing down. Any type of financial asset that has a counterparty – which is pretty much all the paper assets in the world – bonds, futures, any and all derivatives and yes, even the paper currency – will crash. What will they crash against? Yes, that’s right – Gold.

All the world’s capital – trillions, perhaps quadrillions of it – will come rushing into the very tiny physical (NOT paper) Gold market. Remember, the world’s real physical capital – real assets such as land, oil-refineries, mines, infrastructure, etc. will not vanish, only it will be re-priced in terms of Gold and its ownership transferred to those who hold it. Since everything stays on this planet, it is a zero-sum game and the winner will be Gold. In other words, an ounce of physical Gold will command a lot more in real purchasing power than it does today. Just like a national currency is a claim on goods and assets within that country, Gold will be a claim on global goods and assets worldwide.”

According to Jesse @ Cafe Americain:

…to my knowledge no private corporation has the right to engage in contracts that encumber the US gold reserves, not the Fed nor the Banks, and not even the President or Treasury alone. Only the Congress, with the knowledge of the people, may allocate and distribute such a sovereign asset. If swaps and contracts and leases are being made on the US gold reserves, the people then are the subjects of a monumental theft and fraud. And if the US is writing or guaranteeing CDS in gold, then most likely it is doing so as a means of rescuing those who have already gone hopelessly short the gold market, and need to arrange a ‘back-door’ bailout.

A guy walks into a bar and starts getting hammered.

He randomly says ”ALL BANKERS ARE ASSHOLES!!!”

Suddenly, some other guy at the other end of the bar says: ”HEY! I resent that comment!”

The other guy says… ”WHY? Are YOU a BANKER???”

He reply’s…”NO WAY! I’M AN ASSHOLE!”

This article is all about failure. I don’t really know where to begin with these charts. They pretty much speak for themselves. I have annotated them slightly to demonstrate that there are some interesting correlations between who specifically failed and who specifically got bailed out. When you begin to look at these charts as a representation of the industry as a whole, you can see that the financial system is in no way any better today than it was a couple of years ago.

First up is AIG’s chart. This is one for the history books: A textbook example of failure in its purest form. From this day forth, AIG shall be known as the sacrificial lamb of the financial sector for taking the role of the ‘financial fall-guy’. There really isn’t much to be said other than: the global financial markets fell apart, AIG couldn’t pay out their derivatives contracts to Goldman Sachs (and others), they failed miserably, and the taxpayers were called upon (robbed) to bail out the beneficiaries of said derivatives contracts.

mmmm banker brains!

We are experiencing the dawn of a new era (dawn of the dead anyone?): One in which zombie banks walk amongst the living. Wikipedia defines a zombie bank as: “a financial institution with an economic net worth that is less than zero, but which continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support.” I think AIG fits the bill quite well, don’t you? In today’s financial industry, the new banker mantra should be: “Every bank dies – Not every bank truly lives,” and AIG exemplifies the start of the zombification process. For all intents and purposes they are now undead.

The Sacrificial Lamb of The Financial Sector

Another winner of the epic failure contest was/is Citigroup. I bet you that Saudi Prince Alwaleed Bin Talal is extremely happy to have invested in this company! The chart look quite similar to that of AIG’s …almost to the point where one can make a baseless guess that AIG probably wrote too many credit-default-swaps for/against Citigroup…and well, one thing led to another and both went kaput. It sure is a good thing we bailed these guys out too!

Zombies are everywhere, better get your shotguns ready.

Citigroup Failure

Yet another epic failure is Bank of America. Although the magnitude of failure is not as severe as the previous two charts, it is still pretty close. Have a look for yourself (mmm brains). Bank of America got enough of a bailout to survive the zombie-apocalypse…only slightly. They are definitely half-dead. I would venture a guess and say that Bank of America shouldn’t have been underwriting credit cards for illegal immigrants, among other things… This chart also demonstrates how taking on a failing company such as Merrill Lynch will cause you nothing but trouble. It is my personal, and purely speculative prediction, that Bank of America will officially fail or be broken up in the coming months or years ahead.

Bank of Failmerica

The next chart is that of Wells Fargo. This chart is so crazy volatile that I don’t even know what to say. In my opinion it looks like an insane pump-and-dump scheme. For most of early 2008, the stock was trading around $27.00 However, by September of 2008 the stock was flying high over $37.50 per share. In six months it was down under $8.00 (nice 80% dump). This is an epic failure if I’ve ever seen one. By May of ’08 the stock magically soared back up to ~$27.50 and has been hovering around there ever since. Chalk up another undead bank on the list please! Can you smell the bailout? If you cannot, I labeled it for you in clear red lettering on the chart.

Oh The Wells Fargo Wagon is A Failing

The Financial Crisis

JP Morgan is yet another company who was coincidentally lucky enough to receive heaping spoonfuls of bailout when the shit hit the fan. These guys took over Washington Mutual and basically gave Chase instantaneous access to the entire West Coast of the United States in the blink of an eye. Before the meltdown, Chase was predominantly an East-coast brand. I used to bank with Wamu, and I specifically recall predicting their failure to many of my coworkers. Once the FDIC announced that JP Morgan Chase was taking over, I breathed an enormous sigh of relief. These guys are THE BANKING ESTABLISHMENT. Nothing, and I mean nothing will ever take down JP Morgan Chase. They are just as bad as any other bank, but at least I know they are one of the apex predators in the financial food chain. Look at their chart, it shows you that failure is not something that JPM will accept (even if that means robbing the American taxpayers). Notice the $USD (dollar index) starts going negative at the same time JPM gets their bailout. Although correlation does not always equal causation, in this case I’d be pretty certain that the printing presses at the FED/Treasury had everything to do with the reflation of JPM stock.

JP Morgan Chase Bailout

So there you have it folks. Interpret this as you should so desire, and hopefully don’t lose your money in the process.

Why would you ever invest in the GLD etf when it has this written in its prospectus:

Gold bars allocated to the Trust in connection with the creation of a Basket may not meet the London Good Delivery Standards and, if a Basket is issued against such gold, the Trust may suffer a loss. Neither the Trustee nor the Custodian independently confirms the fineness of the gold bars allocated to the Trust in connection with the creation of a Basket. The gold bars allocated to the Trust by the Custodian may be different from the reported fineness or weight required by the LBMA’s standards for gold bars delivered in settlement of a gold trade, or the London Good Delivery Standards, the standards required by the Trust. If the Trustee nevertheless issues a Basket against such gold, and if the Custodian fails to satisfy its obligation to credit the Trust the amount of any deficiency, the Trust may suffer a loss.

This sounds like fraud to me.

I almost choked on my drink when I read this. I could not believe that this guy is out there pulling the same stunt in front of the same people yet again. Honestly, how dumb do these bankers have to be to believe this guy?

If I were Japan or China I’d be clamoring to get out of my dollar holdings as quickly as possible. This charade has been going on long enough, but I guess the Japanese and the Chinese take Tim Geithner’s words at face value:

TOKYO — U.S. Treasury Secretary Timothy Geithner said Wednesday that maintaining a strong dollar is “very important” for the country’s economy, sticking to his mantra on foreign-exchange policy as the U.S. currency continues its broad downtrend.

“I believe deeply that it’s very important for the U.S. and the economic health of the U.S. that we maintain a strong dollar,” he said at a roundtable discussion with Japanese reporters. “We bear special responsibility for trying to make sure that we are implementing policy in the U.S. that will sustain confidence not just among American investors and .. savers but investors around the world” that the U.S. will fix its budgetary problems as its economy improves.

One word for you: BULLSHIT!

Take a look at this point and figure chart of the US Dollar Index. I have annotated it so that the Japanese and Chinese bankers can better understand the meaning of Mr. Geithner’s rhetoric:

Strong Dollar Policy

As you can plainly see, it’s backwards day at the treasury…every single day. It’s no wonder there is so much chatter about creating a new reserve currency. On top of that, it’s no wonder gold is currently trading at $1,121.00 Just take a look at this annotated gold chart as well:

2009 Gold Price Chart

It’s also no surprise that countries such as India and China are buying gold like it’s going out of style. I think India’s reasons for buying gold have more to do with the fact that the India SBI Prime (Prime lending rate of the State Bank of India) is up around 11.750% and less about diversifying reserves, however, this is merely conjecture.

I have written about our now infamous “Strong Dollar Policy” before. Additionally, I have written about the Global Experiment in Zero Interest Rate Policy that we are currently living through. Not only that, but I have also written about the Death of The Dollar. All of these pieces of the puzzle are intertwined.

If things keep up the way they are going, our dollar may look something like this:

Zimbabwe $100 Trillion Note

Lucky for you, I have saved the best for last: Tim Geithner’s comments are quite hilarious towards the end of the WSJ article. I will first present you with the his quote, and then I will translate it so the Chinese and Japanese bankers can understand it:

“I don’t want to say more than what I’ve said in the past, which is that China has laid out this very broad direction of reforms’ to invigorate domestic demand, Mr. Geithner said. “It’s a very complicated mix of policy changes. As part of that, they’ve recognized that it’s in their interest over time to move to a move flexible .. exchange rate.”

Those reforms being undertaken by China “take time,” he said.

What Tim Geithner is really saying goes something like this:

“I’m going to keep my mouth shut about how screwed the US Dollar happens to be. If anyone asks I’ll just reply with ‘strong dollar policy’. If I say it enough maybe they will believe me. On top of that, China has been kind enough to tell us that they are going to systematically destroy our economy. Since the Chinese have agreed to do this slowly, this gives us the opportunity to feel the pain over what could possibly amount to many long years.”

Courtesy of Jane Wells’ column @ CNBC

The Lloyd’s Prayer

Our Chairman,
Who Art At Goldman,
Blankfein Be Thy Name.

The Rally’s Come.
God’s Work Be Done,
We Have No Fear Of Correction.

Give Us This Day Our Daily Gains,
And Bankrupt Our Nearest Competitors,
Just As You Taught Lehman And Bear A Lesson.

And Bring Us Not Under Indictment.
For Thine Is The Treasury,
The House And The Senate
Forever And Ever.
Goldman.

The American economy is in the deepest economic depression since man started keeping track of artificially created economic events. I am pretty sure that I am not the first to tell you that the economy is not getting any better for your average person. Consequently, there are not enough retail investors who are both ready and able to prop up the markets. These same retail investors are the ones who took a hit in their retirement accounts on the way down to the print-of-the-beast: 666 on the SP500. So where is the money Lebowski?

One word, seven letters, two syllables: Bailout

I am a strong believer in the notion that the bailout money has been put to good use by propping up the markets since early March. The sad fact is that the bailout money is our money, yet it has gone to the banksters. It’s a pretty simple racket if you ask me. A bank such as Goldman Sachs, JP Morgan, Bank of America, or Wells Fargo goes to The Fed, trades some worthless collateral (mortgages, toxic assets, business cards, legal pads, office supplies) for dollars to shore up their reserves, and also uses the money to invest directly into the stock market. First they dial in some leverage at some ridiculous level…maybe 30:1 or higher like Lehman or Bear? Next, they buy low, tell all their analysts to lower their estimates, create a blitz of earnings that outperform said estimates, and then they sell high. The same stocks. Again and again. Maybe they use vector-vest for their investment advice, but I doubt it. So who are they selling the stocks to? Gullible retail investors who finally feel like the market is safe again, that’s who, and maybe some lucky foreigners too, although I think the world is waking up to the charade.

Well folks, this trend is unsustainable. In an era of throwing around buzzwords like “sustainability,” the financial industry knows not the definition of such a word. Let’s examine our trusty long-term chart of the Spider ETF (SPY) and see exactly why we’re in for some puzzling times. Ladies and Gentlemen, may I present to you: “Bernanke’s Conundrum”

Bernanke's Conundrum

We begin our charting adventure in 1994. Something happened and the market took off. They call this something “the tech bubble,” and what a bubble it was. The Spider (SPY) went from roughly 50 points to 150 points in the span of six years. Not bad, eh? A meager 200% gain in under a decade. A glance at the chart below will show you a clear picture of the tech bubble, AKA the first economic top.

SPY 1993-2009 First Top

If you will also notice, I have drawn a line from the start of the bubble to the top. The cool thing about my charting application is that it will draw these really neat little “fibonacci fans,” and sometimes they can be downright scary.

You can see that the second uptrend, which began in 2003 and topped out in 2007, coincided perfectly with the 61.8% fibonacci fan-line. It’s not really much of anything in retrospect, but it is pretty uncanny how the market oscillates along very natural and predictable patterns.

SPY 1993-2009 Second Top

We all know and love this second bubble. We love it the same way we love redheaded stepchildren. Apparently the dotcom crash was too much for The Fed to deal with and they decided it would be best to peddle adjustable-rate-mortgages to people with no prospects of ever repaying the banks who originated these loans. What a great idea that happened to be. Housing Crrrrrrrrrrash!

So here we are. We have come full circle, so let’s talk about what has happened in the last three years and try to understand what lies in store for the future. Have a gander at the chart below:

SPY 1993-2009 Support and Resistance

This final chart is Bernanke’s Conundrum. Interest rates are Bernanke’s conundrum. Inflation, Stagflation, and Deflation are Bernanke’s conundrum. This man is between a rock and a hard place that can be summed up with a Sheakspearian question that I have translated into financial-speak:

To inflate, or not to inflate: that is the question.
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous inflation,
Or to take arms against a sea of deflation,
And by opposing end them? To go into bernankruptcy.

Based on history, The Fed has let the dollar weaken for something along the lines of 97 years. To no surprise, this also happens to be the entire history of The Fed’s existence. That’s not a bad track record for an organization whose mandate is to control inflation and maintain price stability. In essence, they are doing a wonderful job. Inflation is always there, but it’s a controlled incline, so all is well. Additionally, prices are quite stable too. As long as stable means constantly increasing over time, then yeah, The Fed is a winner. They have always chosen inflation. They live, eat, sleep, and breathe inflation. Inflation is the lifeblood of the Federal Reserve.

With that being said, if you have been reading my blog for any amount of time, you will know that I absolutely love support and resistance studies. As I have mentioned before, you do not really need much more than a good support and resistance study to come to any kind of conclusion about the state of a given security and/or market. The beauty of support and resistance is that it tells the entire story in a few simple lines on a chart, so let’s examine Bernanke’s Conundrum via the SPY ETF:

I have chosen the SP500 for this study because it is a fantastic representation of the American economy. First look at the red line. That is a visual representation of the upper limit of the American economy over the last 15+ years. We hit a peak in 2000 and we crashed to the green line (around 800 on the SP500). In 2007 we hit the economic top yet again, and we collapsed to the previously established major support zone, albeit with a tiny (and scary) breakdown to 666.

Between the red and the green lies an orange line of uncertainty. This line is the neckline of the greatest double-top the world has ever seen, and it is the defining line in Bernanke’s conundrum with regards to inflation. If Bernanke decides to continue to inflate our way out of this, and the economy picks up, we will see the SPY go up-to, and possibly past this resistance line as the market breaks out above the 200 day moving average (the wide gray channel in the chart). I personally believe that if we see the kind of inflation that pushes the market higher than the orange line, it will be hyperinflation, and nobody likes that. There is no way that the Dollar can get stronger and the market go any higher. They are inversely correlated at this point in time, and when one gets weaker, the other gets stronger, and vice versa.

On the other hand, if Bernanke decides to land his helicopter and casually deflate this mess, look to the green line for support. Should he choose the deflationary route, the market will collapse to the lows at the $80.00 price level. Should the $80.00 level break down, you better put your head in the sand because the next major support level is slightly under $50.00

In addition to the inflation and deflation outcomes, Ben Bernanke can also keep the markets deadlocked between the green and orange zone ($80-110). This could happen considering he has only one real weapon left in his inflation-assisted-arsenal: rate hikes. I would venture to guess that he will not hike rates until the market surpasses the neckline in the chart.

In conclusion, the key issue here is not if we will test these support/resistance levels, but rather, when we will test them. It’s all a matter of time. I personally believe that this scenario will pan out at some point in the next 3 years. With a long-term strategy in mind, I prefer to simply pick a side and hedge it with an inverse ETF. I generally like to hedge 50% of my investment at the bare minimum. As the market changes, I can dynamically add-to or subtract-from either side of the trade and skew my bias towards one trend or another and take advantage of profit-generating opportunities as I see fit. How would you trade this? What do you think is going to happen? Leave a comment.

Ladies and Gentlemen, please make sure you are seated and in a well ventilated area! This article may be hazardous to those suffering from heart problems, the elderly, or those who are easily angered by irresponsibility.

Let me show you some wonderful charts I found yesterday while tinkering around on economagic.com:

The first chart should be titled “the giant sucking sound…” as in: the giant sucking of our hard-earned tax dollars swirling down the financial drainpipe into the reserves of the very criminal organizations which created this mess. As you can see in the picture, quite a bit of money has gone into the reserves at these banks. Of course, if you were a criminal banker, you too would shore up your reserves considering that you’re on the brink of insolvency.

Our Tax Dollars Hard At Work

This next chart is entitled “Hit em where it hurts.” The chart really needs no further explanation and will most likely be the only chart to make you feel quite good about seeing the banksters suffer:

Hit 'em Where It Hurts

Here’s a little lead-in for the final series (Quoted from Fed Governor Mishkin, Apr. 2007):

In a democratic society like our own, the ultimate purpose of the central bank is to promote the public good by pursuing a course of monetary policy that fosters economic prosperity and social welfare. In the United States, as in virtually every other country, the central bank has a more specific set of objectives that have been established by the government. This mandate was originally specified by the Federal Reserve Act of 1913 and was most recently clarified by an amendment to the Federal Reserve Act in 1977.

According to this legislation, the Federal Reserve’s mandate is “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Because long-term interest rates can remain low only in a stable macroeconomic environment, these goals are often referred to as the dual mandate; that is, the Federal Reserve seeks to promote the two coequal objectives of maximum employment and price stability.

Last, but not least, are my favorite two charts in the series. I call this series “End The Fed” for reasons which are pretty damn obvious:

End The Fed

In this first chart you can plainly see that the Federal Reserve has failed at the first part of their “dual mandate” of price stability. Although, some would argue that they have succeeded in maintaining a stable increase in prices over the last 60 years. Who are we kidding here? These guys are a criminal enterprise and should be abolished.

END THE FED

In the last chart you can plainly see that the fed royally screwed the pooch this time. Interest rates can’t save the unemployment situation now. Welcome to a decade or three of lost productivity. Don’t listen to me. Listen to the good people at CNBS who tell you that we’re in for a “jobless recovery.”

Before you start reading this article, please turn on your stereo or mp3 player and queue up Kenny Loggins’ “Danger Zone,” or just watch this youtube video in the background.

In 1971, the value of the dollar index was roughly 120. By 1981 the dollar index had seen a decline to about 85.0 This means that in the span of a decade, the dollar lost 29% of its value. Pretty harsh, eh? Well, from 1981 until about 1985 the value of the index went from 85.0 to a stunning 165.0 …a gain in value of 94% in four short years. Pretty impressive, eh? By the mid 1990′s the index gave it all back and hovered at a low of around 82.0

From 1995 until 2002 the index rebounded off these lows to a high of 120. It’s been a downhill ride ever since, and this brings me  to my latest technical analysis study:

This is what a six-month chart of the dollar looks like when the dollar gets inflated by Ben Bernanke while simultaneously being shit-on by the international community:

US Dollar Index (Six Months)

And this is what a one-year chart of the dollar looks like as much of the same happens:

US Dollar Index (Twelve Months)

According to Brian Swint and Mark Deen at Bloomberg:

U.S. Treasury Secretary Timothy Geithner said on Oct. 3 that it is “very important” for the U.S. to have a strong dollar.

Let me translate that for you:

U.S. Treasure Secretary Timothy Geithner said “Fuck you” to the central bankers of the world, and then he smiled.

And this is what three years of “Fuck You With A Smile” looks like:

US Dollar Index (Three Years)

The dollar has done some amazing things in the last three years. We have seen a decline from 86.0 to 71.0, a full retrace and then some to 88, a dump to 77, a retrace to 89 and an all-out dump to 75. So what’s next after this? Let’s have a look at some more charts and see what we can deduce:

US Dollar Index Support and Resistance Study (3 years)

The first thing I like to do in any technical analysis, whether it be for a stock, commodity futures contract, index, forex, etc… is to do a high-level Support and Resistance Study. This always gives me a clear picture of where things have been and where they could go. Additionally, I can get a good idea of where the bulls and bears are going to fight the hardest.

As you can see, just like in the movie “Back to the Future”, 88 is the magic number for resistance. Break through 88 and we’re going back in time, however, as Doc may have said, “Where we’re going, we don’t need dollars!”

Moving right along… you will see, in this case, there is intermediate support at 74.0 on the Dollar index. Major support is at 71.8 We are almost at the big dollar support fight. So, who wants a strong dollar?

“We all note with considerable attention the statements made by American authorities as regards their support in favor of a strong dollar,” Trichet said in Luxembourg yesterday. “We want a strong dollar; we need a strong dollar,” French Finance Minister Christine Lagarde said today. (Bloomberg)

Allow me to translate the words of Mr. Triche and Ms. Lagarde into something you might understand:

Where is our reacharound? Eh Timmy? Have some courtesy.

This chart shows you why these guys are begging for a reversal. If the dollar doesn’t find support at 74, it’s a quick slide to 72, and that’s where the real trouble zone happens to be. You see, the dollar index has never been lower in its history. When the floor gives way, there’s no stopping the fall. The index would be literally moving into uncharted territory. With that being said, the next question is: If the strong dollar policy continues, how low will the dollar index go?

Let’s have a look at another couple of charts to find out:

US Dollar Index Pitchfork Study (Three Year)

In this technical analysis of the dollar, the blue lines are an Andrew’s Pitchfork, aka a Median Line Study. According to Investopedia, an Andrew’s Pitchfork is:

A technical indicator that uses three parallel trendlines to identify possible levels of support and resistance. The trendlines are created by placing three points at the end of identified trends. This is usually achieved by placing the points in three consecutive peaks or troughs. Once the points have been placed, a straight line is drawn from the first point that intersects the midpoint of the other two.

You can clearly see the strong dollar policy in action in this chart. Assuming the slope of the devaluation keeps steady, we could see the dollar index floating near 66 by 2012. However, as demonstrated in the next chart, if the floor gives way in the near term, things might be a bit more drastic.

US Dollar Index Median Line Study (Three Years)

If the downtrend remains in the channel, we could see the dollar index at 63 or lower in the span of about a year. I know there are a ton of economic factors that play into all of this, however, the picture painted by the charts is one of economic warfare. We are witnessing a battle royale between the central banks of the world and the United States via Federal Reserve/Treasury.

By now I bet you’re asking yourself “How do I make money off this?” Well, if one was to believe that the dollar is going to continue to slide, one could purchase shares in the UDN etf, or go long Euros, Swiss Francs, Yen, or just about anything that isn’t Dollars. I like gold personally, but that’s for different reasons altogether.

Conversely, if one were to believe that central bank intervention is on the way, one might choose to purchase shares in the UUP etf, short some currencies such as the Euro, GBP, or Swiss Francs, or maybe even sell some GLD or SLV (how dare you!).

So there you have it folks, the global battle royale of the century is unfolding before our eyes and I don’t think the dollar is going to win this one.

According to Wikipedia (which isn’t really a great source, but it’s a good place to look for some understanding):

The zero interest rate policy (ZIRP) is a Keynesian macroeconomics scheme for economies exhibiting slow growth with a very low interest rate, such as contemporary Japan and since, December 16, 2008, the United States. Under ZIRP, the central bank maintains a 0% nominal interest rate. The intended effect of a ZIRP is to encourage investment throughout the economy by making capital purchases more financially attractive. Whether ZIRP succeeds in achieving this goal is a matter of much debate.

So here we have it… nine economic powerhouses all with Zero Percent Interest Rates. What a conundrum.

A global experiment in zero interest rate policies

I came across a very interesting little PDF on the Dallas Fed’s website while I was looking up the effects of Zero Interest Rate Policy (ZIRP). The document is entitled “Monetary Policy in a Zero-Interest-Rate Economy” which is based on a presentation from 2003 by Evan F. Koenig, Vice President, and Jim Dolmas, Senior Economist, Research Department, Federal Reserve Bank of Dallas.

I personally believe that at least as far back as 2003, the Fed was well aware of what was about to happen to the American economy and was planning for it accordingly. The interesting thing is that I do not believe they were expecting such a global economic cluster-fuck, but then again, maybe they were.

It’s quite entertaining to read this in 2009 and see which approaches have been taken and whether or not they have been effective. These quotes are fantastic. I have added some whimsical translations at my leisure.

If short-term interest rates fall toward zero, it may be necessary for the Fed to re-think how it conducts monetary policy.

We’ve never really been down this road before and the Japanese aren’t exactly a good example to follow, so we may have to change the rules of the game

The U.S. Great Depression is the textbook example of what can go wrong if policymakers are slow to respond to a deteriorating economy and falling inflation.

We’re going to do exactly the opposite of everything we did back in the 30′s and hope it works.

Recovery didn’t begin until 1933, when the Roosevelt administration suspended gold payments and allowed the dollar to depreciate. Inflation rose well above the nominal interest rate, turning the real interest rate sharply negative.

Roosevelt decided to bend over our creditors as well as our own citizens by both suspending gold redemptions and confiscating gold from honest Americans. Furthermore, he did not even have the common courtesy to give anyone a reacharound in the process. **Interesting side note*** Now that the Dollar is no longer backed by anything, it will be interesting to see what happens.

…recent declines in industrial output have raised concerns that the U.S. economy may be stalling out. With the nominal interest rate so close to zero that conventional open-market operations are of doubtful effectiveness, what policy options are available to the Fed, should further stimulus be required?

We don’t think this charade can last much longer. We’ve let all of our tricks out of the bag. What can we do to keep the up the fraud known as the American economy?

Among these more workable approaches are strategies that require the coordination of Fed policy with that of other actors–either foreign central banks or domestic fiscal policy-makers–and strategies that the Fed can follow unilaterally.

We can take this scam to a global level (see the chart above..lol).

By coordinating with fiscal policy, the Fed could even implement what is essentially the classic textbook policy of dropping freshly printed money from a helicopter.

This previous quote is just absolutely hilarious. It needs no translation. HELICOPTER BEN to the resuce!!!

The scale of operations entailed by this approach would be large–to monetize government spending equal to 1% of GDP, for example, could mean increasing the monetary base (the sum of currency and bank reserves) by as much as 15-20%. Though trite to say, it is nonetheless true that extreme times could require extreme measures.

We may have to inflate the shit out of the money supply in order to make this work, and it’s probably going to backfire on us, but we should give it a shot anyway.

The next quote even has a picture to go with it…this one needs no explanation.

The Federal Reserve Act does impose restrictions on what type of domestic securities the Fed may or may not buy through open market operations. These are detailed in Figure 6.

Federal Reserve Act Limitations

What if the assets in the ‘not allowed’ column were ‘allowed’, though? This point is not moot, since aggressive use of the discount window–under certain emergency provisions in the Federal Reserve Act–can allow the Fed to sidestep, to some extent, the restrictions which apply to open market operations.

Even if the legal constraints were not present, however, it’s not necessarily desirable to have the Fed acting in markets for corporate debt or mortgages. Whatever benefits there might be from such actions would have to be weighed against the cost of putting the Fed in the business of allocating private sector credit–a task for which the Fed has no particular expertise, and which would likely subject the Fed to unwelcome political pressures.

Technically, we don’t have the power to do what we want, however, desperate times call for desperate measures. We make the money and you better damn well believe we can make the rules too. To add fuel to the fire, since we don’t know what the fuck we’re really doing, we will simply use Enron’s fraud strategy as our basis for perpetrating these rule changes and the public will be none the wiser. (Read up on Maiden Lane LLC 1,2, and 3) We could, however, find ourselves angering the proletariat and that could lead to pitchforks and torches.

If standard policy options are exhausted, the Fed’s quiver is by no means empty. But the arrows that remain are less familiar and, perhaps, not quite as straight as the ones that have already been fired.

If we run out of options, we’ll just change the rules to give us more options. Who cares if they are borderline illegal?

So there you have it folks. Let’s see how this saga unfolds in the coming months, years, and decades to follow.