I was born and raised in New York City, on the east side of Manhattan (with a brief intermezzo in the long Island Suburbs (1954 – 1957) though I have lived upstate, two hundred miles north of the city, for decades since. I go back from time to time to see publishers and get some cosmopolitan thrills. One spring morning a couple of years back, toward the end of Mayor Bloomberg’s reign, I was walking across Central Park from my hotel on West 75th Street to the Metropolitan Museum of Art when I had an epiphany.
Which was that Central Park, and indeed much of the city, had never been in such good condition in my lifetime. The heart of New York had gone through a phenomenal restoration. When I was a child in the 1960s, districts like Tribeca, Soho, and the Bowery were the realms of winos and cockroaches. The brutes who worked in the meatpacking district had never seen a supermodel. Brooklyn was as remote and benighted as Nicolae Ceausescu’s Romania. The Central Park Zoo was like a set from Riot in Cellblock D, and the park itself was desecrated with the aging detritus of Robert Moses’s awful experiments in chain-link fencing as a decorative motif. Then, of course, came the grafitti-plagued 1970s summed up by the infamous newspaper headline [President] Ford to City: Drop Dead.
Now, the park was sparkling. The sheep’s meadow was lovingly re-sodded, many of Frederick Law Olmsted’s original structures, the dairy, the bow bridge, the Bethesda Fountain, were restored. Million dollar condos were selling on the Bowery. Where trucks once unloaded flyblown cattle carcasses was now the hangout of movie and fashion celebrities. Brooklyn was a New Jerusalem of the lively arts. And my parents could never have afforded the 2BR/2bath apartment (with working fireplace) that I grew up in on East 68th Street.
The catch to all this was that the glorious rebirth of New York City was entirely due to the financialization of the economy. Untold billions had streamed into this special little corner of the USA since the 1980s, into the bank accounts of countless vampire squidlets engaged in the asset-stripping of the rest of the nation. So, in case you were wondering, all the wealth of places like Detroit, Akron, Peoria, Waukegan, Chattanooga, Omaha, Hartford, and scores of other towns that had been gutted and retrofitted for suburban chain-store imperialism, or served up to the racketeers of “Eds and Meds,” or just left for dead — all that action had been converted, abracadabra, into the renovation of a few square miles near the Atlantic Ocean.
Nobody in the lamebrain New York based media really understands this dynamic, nor do they have a clue what will happen next, which is that the wealth-extraction process is now complete and that New York City has moved over the top of the arc of rebirth and is now headed down a steep, nauseating slope of breakdown and deterioration, starting with the reign of soon-to-be hapless Bill de Blasio.
Mayor Bloomberg was celebrated for, among other things, stimulating a new generation of skyscraper building. There is theory which states that an empire puts up its greatest monumental buildings just before it collapses. I think it is truthful. This is what you are now going to see in New York, especially as regards the empire of Wall Street finance, which is all set to blow up. The many new skyscrapers recently constructed for the fabled “one percent”— the Frank Gehry condos and the Robert A.M. Stern hedge fund aeries — are already obsolete. The buyers don’t know it. In the new era of capital scarcity that we are entering, these giant buildings cannot be maintained (and, believe me, such structures require incessant, meticulous, and expensive upkeep). Splitting up the ownership of mega-structures into condominiums under a homeowners’ association (HOA) is an experiment that has never been tried before and now we are going to watch it fail spectacularly. All those towering monuments to the beneficent genius of Michael Bloomberg will very quickly transform from assets to liabilities.
This is only one feature of a breakdown in mega-cities that will astonish those who think the trend of hypergrowth is bound to just continue indefinitely. It will probably be unfair to blame poor Mr. de Blasio (though he surely can make the process worse), even as it would be erroneous to credit Michael Bloomberg for what financialization of the economy accomplished in one small part of America.
Activist Post: Government of the Rich, by the Rich and for the Rich: It’s Time for ‘Militant Nonviolent Resistance’
John W. Whitehead
“[E]verywhere, “time is winding up,” in the words of one of our spirituals, “corruption in the land, people take a stand, time is winding up.”—Martin Luther King Jr.
We now live in a two-tiered system of governance. There are two sets of laws: one set for the government and its corporate allies, and another set for you and me.
The laws which apply to the majority of the population allow the government to do things like sending SWAT teams crashing through your door in the middle of the night, rectally probing you during a roadside stop, or listening in on your phone calls and reading all of your email messages, confiscating your property, or indefinitely detaining you in a military holding cell. These are the laws which are executed every single day against a population which has up until now been blissfully ignorant of the radical shift taking place in American government.
Then there are the laws constructed for the elite, which allow bankers who crash the economy to walk free. They’re the laws which allow police officers to avoid prosecution when they shoot unarmed citizens, strip search non-violent criminals, or taser pregnant women on the side of the road, or pepper spray peaceful protestors. These are the laws of the new age we are entering, an age of neo-feudalism, in which corporate-state rulers dominate the rest of us, where the elite create the laws which can result in a person being jailed for possessing a small amount of marijuana while bankers that launder money for drug cartels walk free. In other words, we have moved into an age where we are the slaves and they are the rulers.
Unfortunately, this two-tiered system of government has been a long time coming. As I detail in my book A Government of Wolves: The Emerging American Police State, the march toward an imperial presidency, to congressional intransigence and impotence, to a corporate takeover of the mechanisms of government, and the division of America into haves and have nots has been building for years.
Thus we now find ourselves at a point where, for the first time in history, Congress is dominated by a majority of millionaires who are, on average, 14 times wealthier than the average American. Making matters worse, as the Center for Responsive Politics reports, “at a time when lawmakers are debating issues like unemployment benefits, food stamps and the minimum wage, which affect people with far fewer resources, as well as considering an overhaul of the tax code,” our so-called representatives are completely out of touch with the daily struggles of most Americans–those who live from paycheck to paycheck and are caught in the exhausting struggle to survive on a day-to-day basis.
Indeed, although America is supposed to be a representative republic, these people– who earn six-figure salaries and inhabit a world exempt from parking tickets, where gym membership is free and health care is second-to-none, where you only have to work two, maybe three days a week and get 32 fully reimbursed road trips home a year, travel to foreign lands, discounts in Capitol Hill tax-free shops and restaurants, free reserved parking at Washington National Airport, free fresh-cut flowers from the Botanic Gardens, and free assistance in the preparation of income taxes–neither represent nor serve the American people. They have instead appointed themselves our masters.
While Congress should be America’s representative body, too many of its members bear little resemblance to those they have been elected to represent. As Dan Eggen reports for The Washington Post: “The new figures underscore a long-standing trend of wealth accumulation in Congress, which is populated overwhelmingly with millionaires and near-millionaires who often own multiple homes and other assets out of reach for most of the voters they represent.”
Many of our politicians live like kings. Chauffeured around in limousines, flying in private jets and eating gourmet meals, all paid for by the American taxpayer, they are far removed from those they are supposed to represent. Such a luxurious lifestyle makes it difficult to identify with the “little guy”–the roofers, plumbers and blue-collar workers who live from paycheck to paycheck and keep the country running with their hard-earned dollars and the sweat of their brows.
The unfortunate but simple fact is that the rich sit perched at the top of the government. As Joseph Stiglitz writes for Vanity Fair:
Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift–through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price–it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.
Sadly, electoral politics have been so thoroughly corrupted by corporate money that there is little chance, even for a well-meaning person, to affect any real change through Congress. Whether it be the Oval Office or the halls of Congress, the road to the ballot box is an expensive one, and only the wealthy, or those supported by the wealthy, are even able to get to the starting line.
Just consider the 2012 presidential election cycle. Both parties spent $1 billion each attempting to get their candidate elected to the presidency. This money came from rich donors and corporate sponsors, intent on getting their candidate in office. Once in office, these already privileged wealthy bureaucrats enter into a life of even greater privilege, unfortunately at the expense of the American taxpayer. It doesn’t even seem to matter whether they’re Democrats or Republicans–they all take full advantage of what one news report described as “a mountain of perks that most Fortune 500 companies couldn’t begin to rival.”
Even President Obama’s closest advisers are millionaires, including those on his 15-member cabinet. It is not unusual for some of them to own vacation homes, such as Kathleen Sebelius, secretary of Health and Human Services, who owns a “summer home worth more than a million dollars.”
And then there are the lobbyists, the source of much corruption and exchanging of money in Washington. With an estimated 26 lobbyists per congressman, it should come as no surprise that once elected, even those with the best of intentions seem to find it hard to resist the lure of lobbyist dollars, of which there are plenty to go around.
This lobbying is in turn buoyed by a congressional lifestyle which demands that our representatives spend the majority of their time fund raising for campaigns, rather than responding to the needs of their constituents. In November 2012, the Democratic House leadership offered a model daily schedule to newly elected Democrats which suggests a ten-hour day, five hours of which are dominated by “call time” and “strategic outreach,” including fund raisers and correspondence with potential donors. Three or four hours are for actually doing the job they were elected to do, such as attending committee meetings, voting on legislation, and interacting with constituents.
When half of one’s time is devoted to asking for money from rich individuals and special interests, there is no way that he can respond to the problems which pervade the country. Even well-meaning Congressmen face a Catch-22 where they are pushed to fundraise to secure their seats, but then once in office, it is basically impossible for them to do their jobs. The full ramifications of this are laid out by Rep. Brad Miller (D-NC):
Any member who follows that schedule will be completely controlled by their staff, handed statements that their staff prepared, speaking from talking points they get emailed from leadership… It really does affect how members of Congress behave if the most important thing they think about is fundraising. You end up being nice to people that probably somebody needs to be questioning skeptically… You won’t ask tough questions in hearings that might displease potential contributors, won’t support amendments that might anger them, will tend to vote the way contributors want you to vote.
What we are faced with is a government by oligarchy–in other words, one that is of the rich, by the rich and for the rich. Yet the Constitution’s Preamble states that it is “we the people” who are supposed to be running things. If our so-called “representative government” is to survive, we must first wrest control of our government from the wealthy elite who run it. That is a problem with no easy solutions, and voting is the least of what we should be doing.
“What they don’t want,” noted comedian George Carlin, is “a population of citizens capable of critical thinking. They don’t want well-informed, well-educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interests.”
A population of citizens capable of critical thinking? That’s a good place to start, and it’s a sure-fire way to jumpstart a revolution. As Abraham Lincoln said, “Wise men established these great self-evident truths, that when in the distant future some man, some faction, some interest, should set up the doctrine that none but rich men, or none but white men, were entitled to life, liberty and the pursuit of happiness, their posterity should look up again at the Declaration of Independence and take courage to renew the battle which their fathers began.”
Inspiring words, but what do they really mean for those of us laboring under the weight of an overreaching, militarized, corrupt government that grows increasingly so with each passing day?
How can we change this state of affairs? The government is too big, too powerful, and its overlords too entrenched to willingly give up any of its power or wealth. The wisest option is to employ the tactics of past protest movements such as the Bonus Army, the Civil Rights Movement, and the 1960s anti-war movement, all of which used sleep-ins, sit-ins and marches to oppose government policies, counter injustice and bring about meaningful change.
For example, in May of 1932, more than 43,000 people, dubbed the Bonus Army—World War I veterans and their families—marched on Washington. Out of work, destitute and with families to feed, more than 10,000 veterans set up tent cities in the nation’s capital and refused to leave until the government agreed to pay the bonuses they had been promised as a reward for their services. The Senate voted against paying them immediately, but the protesters didn’t budge. Congress adjourned for the summer, and still the protesters remained encamped. Finally, on July 28, under orders from President Herbert Hoover, the military descended with tanks and cavalry, beating some protesters senseless and setting their makeshift camps on fire. Still, the protesters returned the following year, and eventually their efforts not only succeeded in securing payment of the bonuses but contributed to the passage of the G.I. Bill of Rights.
Similarly, the Civil Rights Movement mobilized hundreds of thousands of people to strike at the core of an unjust and discriminatory society. Likewise, while the 1960s anti-war movement began with a few thousand perceived radicals, it ended with hundreds of thousands of protesters, spanning all walks of life, demanding the end of American military aggression abroad.
What these movements had was a coherent message, the mass mobilization of a large cross section of American society, what Martin Luther King Jr. called a philosophy of “militant nonviolent resistance” and an eventual convergence on the nation’s seat of power—Washington, DC—the staging ground for the corporate coup, where the shady deals are cut, where lobbyists and politicians meet, and where corporate interests are considered above all else.
It is no coincidence that just prior to his assassination in April 1968, King was plotting “to build a shantytown in Washington, patterned after the bonus marches of the thirties, to dramatize how many people have to live in slums in our nation.”
King’s advice still rings true: “We need to put pressure on Congress to get things done. We will do this with First Amendment activity. If Congress is unresponsive, we’ll have to escalate in order to keep the issue alive and before it. This action may take on disruptive dimensions, but not violent in the sense of destroying life or property: it will be militant nonviolence.”
The balance of power that was once a hallmark of our republic no longer exists. James Madison’s warning that “the accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elected, may justly be pronounced the very definition of tyranny” has, regrettably come to pass.
Clearly, it’s time for a mass movement dedicated to change through “militant nonviolence.” If not, the shadow of tyranny that now hangs over us will eventually destroy every last semblance of freedom.
“We know through painful experience that freedom is never voluntarily given by the oppressor,” Martin Luther King Jr. warned in his “Letter from a Birmingham Jail.” “It must be demanded by the oppressed.”
The theme of both the robot-ization of the global workforce and the populist desire for a hike in the minimum wage have been popular and ongoing ones here at Zero Hedge. However, never has it been more clear just where the future lies than this chart from BofAML’s Michael Hartnett… As he says, “we are long robots, and short human beings.”
Of course – from Applebees to Jamba Juice and now fast-food restaurants, the robots are coming and cries of millions of minimum-wage-hike-demanding union workers will do nothing but encourage it… (oh and the Fed’s financial repression)
Corporations Have Record Cash: They Also Have Record-er Debt, As Net Leverage Soars 15% Above Its 2008 Peak | Zero Hedge
There is a reason why activism was the best performing hedge fund “strategy” of 2013: as we wrote and predicted back in November 2012 in “Where The Levered Corporate “Cash On The Sidelines” Is Truly Going“, US corporations – susceptible to soothing and not so soothing (ahem Icahn) suggestions by major shareholders – would lever to the hilt with cheap debt and use it all not for CapEx and growth, but for short-term shareholder gratification such as buybacks and dividends. A year later we found just how accurate this prediction would be when as we reported ten days ago US corporations invested a whopping half a trillion in buying back their stock, incidentally at all time high prices.
Putting aside the stupidity of this action for corporate IRRs, if not for activist hedge fund P&Ls, another finding has emerged, one that was also predicted back in 2012. Because in addition to still soaring mountains of cash, corporations have quietly amassed even greater mountains… of debt. In fact, as SocGen reveals, net debt, or total debt less cash, has risen to a new all time high, and is now 15% higher than it was at its prior peak just before the financial crisis!
US corporates do indeed hold lots of cash, which is currently at record levels, but they also hold record levels of debt. Net debt (so discounting those massive cash piles) is 15% above the levels seen in 2008/09. The idea that corporates are paying down debt is simply not seen in the numbers. What is true is that deleveraging has occurred through the usual mechanism of higher asset prices (no doubt an aim of central bank policy). This is the painless form of deleveraging. It is also the most temporary, for a simple pull-back in equities and rise in volatility will put the problem back on centre stage.
And while it would be excusable if this debt had gone to prefund future growth, it is a travesty that the only thing companies have to show for it is that it has simply made a few already rich hedge fund managers even richer.
Neil Young’s comparison of Fort McMurray and the oilsands to Hiroshima has stirred up plenty of criticism. But is it accurate?
Judge for yourself.
The decision in parliament, taken suddenly by a show of hands, caught the opposition off-guard [EPA]
|Ukraine’s parliament has passed a new set of legislation in an apparent bid to suppress protests against President Viktor Yanukovych.
The laws, backed by 235 out of 450 lawmakers on Thursday, made blockading public buildings punishable by up to five years in prison and protesters wearing masks or helmets will face a fine or an administrative arrest.
The legislation also simplified a procedure to prosecute lawmakers.
Dissemination of slander on the Internet was also banned and would be punishable by a fine or corrective labour of up to one year.
People and organisations who provided facilities or equipment for unauthorised meetings would be liable to a fine of up $1,275 or by detention of up to 10 days.
The sweeping legislation caused an outcry among opposition leaders who fear that the government would use the new legislation to prosecute them and break up the protest movement.
“The regime of Viktor Yanukovych and the Regions Party have completely destroyed state power in Ukraine,” said Arseniy Yatsenyuk, leader of Batkivshchyna (Fatherland) party.
“This is nothing else but an overthrow of the constitutional system and a power grab in Ukraine.”
Last month, hundreds of thousands took to the streets in the capital, Kiev, and western Ukraine after Yanukovych decided to scrap key political and trade agreements with the EU.
The protests have since dwindled but the opposition maintains a protest camp on Kiev’s central Independence Square known locally as the Maidan.
Opposition politicians regularly use a stage in the square to broadcast messages of support to the protesters and the law, assuming it is signed into force by Yanukovich, would clearly make such action illegal.
The decision in parliament, taken suddenly by a show of hands which caught the opposition off-guard, followed a court ban on protests in Kiev, boosting opposition fears of an imminent police crackdown.
We have long held that Africa is a crucial region of the world in the near future because there is no more incremental debt capacity at any level: sovereign, household, financial or corporate – in any other region. As we noted previously:
without the ability to create debt out of thin air, be it on a secured or unsecured basis, the ability to “create” growth, at least in the current Keynesian paradigm, goes away with it. Yet there is one place where there is untapped credit creation potential, if not on an unsecured (i.e., future cash flow discounting), then certainly on a secured (hard asset collateral) basis. The place is Africa, and according to some estimates the continent, Africa can create between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral.
Africa is precisely where the smart money (and those who quietly run the above mentioned “power echelons”), namely China and Goldman Sachs, have refocused all their attention in the past year precisely because they both realize that Africa is the last and only bastion of untapped credit growth and capacity.
Africa in geographical perspective…
So it is perhaps unsurprising that China’s current arch-enemy Japan – and its apparently bottomless well of printed money – are taking aim also…
Submitted by Shannon Tiezzi, via The Diplomat,
As tensions between China and Japan multiply, there is an increasing battle for influence in other states. For example, in his recent article in The Diplomat, Jin Kai noted China and Japan’s global media war. There has also been an upswing in more traditional diplomatic wrangling, with Japan seeking to increase its influence in ASEAN as an attempt to reduce China’s sway in the region. With both China and Japan seeking to assert their leadership over the Asia-Pacific, it makes sense that both countries would woo ASEAN. It’s a bit more surprisingly to see China-Japan diplomatic competition supposedly pop up in Africa.
Recently, China’s Foreign Minister Wang Yi and Japan’s Prime Minister Shinzo Abe both visited the African continent. Abe left on January 9 for a week-long tour of the Ivory Coast, Mozambique, and Ethiopia. Meanwhile, Wang was in Africa from January 7 to January 11, visiting Ethiopia, Djibouti, Ghana, and Senegal. Given the current chill in China-Japan relations (and the tendency for both countries to snipe at each other in the media), the two trips quickly morphed into a sign of ‘competition’ over Africa.
Both countries rejected the idea that they were competing. When Chinese Foreign Ministry spokesperson Hua Chunying was asked to comment on the idea that Wang Yi’s visit to Africa “is directed against Japan,” she responded that anyone harboring this idea “is not so acquainted with the past and present of China-Africa relations.” Indeed, as Hua pointed out, it’s traditional for Chinese Foreign Ministers to visit Africa as their first overseas trip of the new year. Hua praised China “sincere and selfless help” for Africa, and warned that trying to stir up a rivalry in Africa is “a wrong decision which is doomed to fail.” This comment was likely directed at Japan, but could just as easily apply to the United States and other countries seeking to increase their influence in Africa.
Japan also denied that Abe’s visit to Africa had anything to do with China. Hiroshige Seko, a deputy chief cabinet secretary, was quoted in an Associated Press article as saying that competing against China is “not our intention at all.” Seko added, “As far as the African nations are concerned, they are important regardless of China.” African countries are important to Japan for the same reason they are to China — a wealth of natural resources as well as ample opportunity for foreign investment. The New York Times pointed out that increasing ties with Africa is just one aspect of Abe’s diplomatic strategy, all of which is designed to support “Abenomics.”
In a speech in Ethiopia, Abe reaffirmed Africa’s importance. “A considerable number of Japanese believe that Africa is the hope for Japan,” he said. His speech focused almost entirely on the potential for a positive relationship between Africans and Japanese companies — including how Japanese management strategies can benefit African people. “When Japanese companies that value each and every individual come to Africa, a win-win relationship in the truest sense can emerge,” Abe said. By contrast, his vision of the Japanese government’s role in Africa seemed like an afterthought. Abe did discuss his wish for more cooperation with the African Union, and offered to increase Japans’ assistance and loans to the continent, but he spent far less time on this point than on extolling the virtues of Japanese businesses.
Japan’s strategy, in other words, is economically focused. It’s clear that Abe’s pursuit of a relationship with Africa is closely connected with Japanese businesses. China, on the other hand, constantly emphasizes the “friendship” between its government and those of African nations. Though Chinese companies do big business in China, Beijing almost never alludes to this fact in its official remarks. When joint projects (such as roads or government buildings) are brought up, these projects are always a sign of China’s friendship towards Africa.
Accordingly, in his speeches Wang Yi focused on the government-to-government relationships between China and African nations. In Senegal, Wang called for both countries “to firmly support each other’s core interest[s] and major concerns.” In Ghana, he spoke about the need “to promote practical cooperation through strengthening traditional friendship.” China’s relationships with African countries are focused not just on business opportunities (although of course that’s an important aspect) but also on gaining African diplomatic support for China’s policies.
Whereas Abe seems content to have Japanese businesses make profits, China is actively pursuing soft power on the continent. This is nothing new for China. A 2013 study by Gustavo Flores-Macías and Sarah Kreps of Cornell University found that, since the mid-1990s, China has been quite successful at parlaying its trade relationships in Africa and Latin America into tangible foreign policy support. Japan doesn’t seem to be seeking this sort of influence (at least, not yet). Instead, Abe is more openly concerned with increasing economic interactions. While China and Japan may look like they’re competing in Africa, the two countries are actually playing different games.
Bernanke’s Legacy: A Record $1.3 Trillion In Excess Deposits Over Loans At The “Big 4” Banks | Zero Hedge
The history books on Bernanke’s legacy have not even been started, and while the euphoria over the Fed’s balance sheet expansion to a ridiculous $4 trillion or about 25% of the US GDP has been well-telegraphed and manifests itself in a record high stock market and a matching record disparity between the haves and the have nots, there is never such a thing as a free lunch… or else the Fed should be crucified for not monetizing all debt since its inception over 100 years ago – just think of all the foregone “wealth effect.” Sarcasm aside, one thing that can be quantified and that few are talking about is the unprecedented, and record, amount of “deposits” held at US commercial banks over loans.
Naturally, these are not deposits in the conventional sense, but merely the balance sheet liability manifestation of the Fed’s excess reserves parked at banks. And as our readers know well by now (hereand here) it is these “excess deposits” that the Banks have used to run up risk in various permutations, most notably as the JPM CIO demonstrated, by attempting to corner various markets and other still unknown pathways, using the Fed’s excess liquidity as a source of initial and maintenance margin on synthetic positions.
So how does the record mismatch between deposits and loans look like? Well, for the Big 4 US banks, JPM, Wells, BofA and Citi it looks as follows.
What the above chart simply shows is the breakdown in the Excess Deposit over Loan series, which is shown in the chart below, which tracks the historical change in commercial bank loans and deposits. What is immediately obvious is that while loans and deposits moved hand in hand for most of history, starting with the collapse of Lehman loan creation has been virtually non-existent (total loans are now at levels seen at the time of Lehman’s collapse) while deposits have risen to just about $10 trillion. It is here that the Fed’s excess reserves have gone – the delta between the two is almost precisely the total amount of reserves injected by the Fed since the Lehman crisis.
As for the location of the remainder of the Fed-created excess reserves? Why it is held by none other than foreign banks operating in the US.
So what does all of this mean? In a nutshell, with the Fed now tapering QE and deposit formation slowing, banks will have no choice but to issue loans to offset the lack of outside money injection by the Fed. In other words, while bank “deposits” have already experienced the benefit of “future inflation”, and have manifested it in the stock market, it is now the turn of the matching asset to catch up. Which also means that while “deposit” growth (i.e., parked reserves) in the future will slow to a trickle, banks will have no choice but to flood the country with $2.5 trillion in loans, or a third of the currently outstanding loans, just to catch up to the head start provided by the Fed!
It is this loan creation that will jump start inside money and the flow through to the economy, resulting in the long-overdue growth. It is also this loan creation that means banks will no longer speculate as prop traders with the excess liquidity but go back to their roots as lenders. Most importantly, once banks launch this wholesale lending effort, it is then and only then that the true pernicious inflation from what the Fed has done in the past 5 years will finally rear its ugly head.
Finally, it is then that Bernanke’s legendary statement that he can “contain inflation in 15 minutes” will truly be tested. Which perhaps explains why he can’t wait to be as far away from the Marriner Eccles building as possible when the long-overdue reaction to his actions finally hits. Which is smart: now it is all Yellen responsibility.