Fed Balance Sheet-Firecracker to Great Big Bomb-Karl Denninger

Karl_Denninger_Interview_Financial_Crisis_2012By Greg Hunter’s USAWatchdog.com 

Analyst/trader Karl Denninger thinks the Federal Reserve’s $3 trillion balance sheet could blow up the economy.  The Fed is adding $85 billion to it every month!  Denninger says, “The larger the balance sheet gets, the more powder Bernanke is piling into the brick house.  So, instead of a firecracker, he’s got a great big bomb in there now.”  Denninger asks, “What happens when you have to sell to raise money to pay the interest on the excess reserves.”   The “excess reserves” is money the big banks are holding at the Fed—for now.  Denninger predicts, “The only way Bernanke wins his bet on not getting trapped by this is if we are Japan . . .  that means no economic growth and no recovery.”  Denninger goes on to say, “The only thing that holds this whole ball of string together is the federal government running deficits, and we have this little problem called the sequester.”  Join Greg Hunter as he goes One-on-One with Karl Denninger of Market-Ticker.org.

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  1. justin king


    • Greg

      Justin King,
      I got a dark feeling when he said that. Peace Bro.

  2. art barnes

    Greg, I’m betting the outcome is the “Japan” scenario Mr. Denninger spoke about in your interview. Makes perfect sense, the elite stay rich & powerful, our political leaders continue their game of “its about serving the country and not about me”, and the middle class continues to decline. The term “stagflation” came from Japan’s 1980’s economic pattern(s)and here we go down that path. Think about it, the “Japan option” is the safe play for the players I outlined above, no collapse, no real recovery, just continued bottom bouncing along at the working peoples expense and the country clubs open for brunch at 11:00 a.m. each Sunday.

    • Greg

      Art Barnes,
      That works until there is some sort of “black swan” event. I think we are in a very nasty position. Remember, japan did not go outside its country to finance its debt. Japan had huge savings. The U.S. on the other hand has no savings and $12 trillion in liquid USD assets are held Outside the country. Thank you for your comment.

      • justin king

        Art is probably right with the “Japan Scenario”, because it’s the BEST&SAFEST option for the Elite.- Add YOUR “black swan” events which will most likely be WARS and that will complete a very ugly worldscape.

        • Greg

          I am not so sure we can be Japan. That country financed it’s debt with savings of its own citizens. $12 trillion in liquid USD assets are held outside the country. Whatever the case it is a supreme mess!! Thank you for your comment.

          • Phil MacCraken

            There be the rub.

      • Mark

        There is something that has been confusing me concerning our foreign held debt. If the other countries stop buying our debt, does that mean they will not trade with us? Will any foreign buyer of debt stop buying this debt if they wish to continue to do business with the USA. When/if the debt purchase ceases will this be taken by the USA as an act of war? The USA still has the largest best equiped armed services in the world. This fact most likley will not reverse itself. Is this country in a position that ensures foreign buyers of debt until such time as world war III? Does this ensure the USA will maintain the best equiped armed services in the world?

        • Greg

          All I can say is a weak currency does not make a strong country.

  3. AndyB

    Greg: why do I have the sinking feeling that the economic outcome has long been predetermined, but we have to endure perhaps a few more years for a heavy dose of disinformation, propaganda and, of course, smoke and mirrors?

    • Greg

      Andy B,
      Maybe you are really smart and you got it figured out my friend. I’d trust your “sinking feeling.” It’s probably spot on.

  4. jc davis

    Greg: As I see it the end result will be the sequester of the federal reserve bank, and martial law. So why is there no one leader talking about how this will happen ? I believe the very mention of this would start a run on the banks, and a complete melt down. People often ask what to do? There is only 1 solution, and its not a good one. Thanks again for great interviews. Sound and all was great.
    As to the attacks you have experienced. Michel salvage would say: when your the leading dog in a pack every dog behind you is on your ass.

    • Greg

      Thank you JC Davis for the comment and support!

    • s nichols

      Could you not find a more respected authority to praise Greg Hunter?

      Hunter is a Truth Seeker while Savage is a Hater whose views lead the British Government to declare him a persona non grata.

      s nichols

      • jc davis

        S Nichols: I am not a fan of Savage. However I like to give credit when its due. Savage is where I received it. If Ben Bernanke had said it the statement would no the less be true.

  5. Bob

    “Lenin was correct. There is no surer means of overturning the existing basis of society than to debauch the currency——The process engages all of the HIDDEN FORCES of economic law on the side of destruction, and does it in a manner that not one man in a million is able to diagnose”——John Maynard Keynes

  6. Charles H.

    Hey Greg,

    Where to begin?!?? 1) Good questions and prompting for answers from the source. 2) Karl is probably THE best person in the world to put a real word-picture on the Fed and the US economy- who else ties more things together AND explains how they interrelate and interact. 3) When Mr. Denninger laughs – it’s contagious!!!
    Some of the best reporting on the planet here, Greg. Thanks.

    • Greg

      Thank you Charles H. for the comment and kind words.

  7. Chip

    Excellent interview Greg. Karl is a smart guy, well spoken, and great guest…

    • Greg

      I find he has been spot on regarding this sequester and debt ceiling mess. He’s spot on with plenty of other topics as well. Thank you for your kind words. I am sure Karl would appreciate it.

  8. Chip

    OT but this cannot be said enough…

    I’m sure people have heard it before but it is worth repeating.
    The mainstream media sure isn’t going to.
    Nor will they report that the sequester was the administrations idea.
    Nor that a couple of months ago the president said he would veto any bill that stopped the automatic cuts which he now says will cripple the economy.

    Our media has become the USSR (USSA) propaganda bureau.
    Citizens should be outraged that they are being lied to.

    “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. Increasing America’s debt weakens us domestically and internationally. Leadership means that the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”

    Senator Barack Obama (D-IL)
    Speech Given on U.S. Senate Floor Objecting To Raising Debt Ceiling Limit
    March 16, 2006
    Official National Debt at that time: 8 trillion USD

    • Greg

      Love the comment and the historical info on “O”.

    • BOB D

      America has a trust problem because of the lies of 9-11. Nobody can lead a lawless nation.
      The first lesson a child must learn is about being honest. I don’t know any thing build on a pile of lies that stands the test of time.
      In a lawless land no paper money system, will work. It’s simple the dollar has lost respect around the world.
      9-11 wasn’t a attack on America , it was a attack on the rule of law around the world.
      This is the problem because, for the first time in history the history books can’t be controlled by the few.
      How many people have died because of these lies. It’s a bigger black mark then World war two. Why a bigger black mark, the leaders of all the nations were silent.
      The leaders of the world let the insiders have there lawless war on the little people of the world.
      A lawless world is ripe for slaughter.

  9. scott

    Greg, I didn’t understand Karl’s continued focus on the Fed selling assets to pay interest on bank reserves. The Fed can continue to pay interest indefinitely the same way they purchase assets now–just create the money. Did I miss something?

    For the same reason, the Fed does not fear portfolio losses. Additional “unconventional” tools will surely be discovered and implemented to paper over the problem.

    • Greg

      Karl says the was the Fed is set up they may have to sell assets to raise money to pay interest. That’s the way I understand it.

  10. Bob

    Hope to hear more from Mr. Karl Denninger. Greg Hunter seems to interview some of the most insightful guests. I look forward to each one he brings on.—–Al

  11. Fraser

    Hi Greg, please substitute this comment

    I suspect that S&P was going to downgrade America (as Karl originally predicted), which would have ignited the very problems he discussed. However the threat of a $5 billion law suit quickly made S&P change their minds and instead, they downgraded the UK and are now threatening to do the same to Australia and other countries. This timely “about face” has (of course) strengthened both the American dollar and bonds and has therefore bought a little more time.

    So I think that the Government listens to Karl (closely). For those who say “nonsense, the S&P can’t be bought”, then I ask what the Government’s $5 billion case is all about?

    Also of interest is that Professor Fekete is again warning about the backwardation in gold and silver. The last time he did this was in Dec-2008, at the very bottom of the last big run. The problem now (as then) is that cash incentives to accept paper gold are not working. In other words, money can no longer buy gold, which is a very big problem indeed. His original comments remain valid and are found at http://www.professorfekete.com/articles/AEFGoldFever.pdf

    • Greg

      Good info on backwardation. big money is buying right now, after all, it’s on sale.

      • Fraser

        Professor Fekete also suggests that the “trigger” everyone is looking for will be the “closing of the COMEX gold window” followed by an attempt to settle all contracts with cash. The importance of this is that then all fiat currencies will be on their own, with no convertibility into real money, which he suggests will cause immediate and deep problems. The alternative is to keep the window open (which he says they have been doing with German gold), but this will only lose that gold and only delay the problem by a few months. Furthermore, close watchers (like Harvey Organ) are suggesting that COMEX is in chaos, with huge movements out of and between vaults. So I suggest that the “trigger” may be close and everyone “watch that space”.

        • Fraser

          The question (of course) is how German gold got mixed up in all of this and he seems to be suggesting that:
          (1) Germany is complicit in the arrangement, whereby
          (2) America can use its gold to settle all claims on COMEX, but
          (3) America must then find the gold (over seven years) and return it to Germany, and
          (4) This was America’s condition for German repatriation.

          If it’s only half true, then we’re all in deep poo, soon!

  12. jc davis

    Oboma admin threatens reporter not to report truth.
    Greg this may bring back memories of your days at CNN

    • Greg

      Thank you JC. Obama did move the goal posts. I am not a republican but that is fact.

  13. Fraser

    Greg, contact this guy and get him on (he speaks the truth in an interesting way)!

    • jc davis

      Fraser: I love this guy. He could make some real cuts.lol

  14. Aaron P.

    This got me wondering: if the Fed starts sustaining huge losses on its balance sheet, can’t it just print more money to offset those losses? I realize this is inflationary due to the increase in the money supply.

    I love the site. just trying to understand our monetary system. Thanks.

    • Greg

      yes they can but then there is the rest of the world ready to short the currency and the U.S.Treasury market.

  15. yugosno

    Gods word says in the latter times there will be signs in the heavens and signs on the earth below. There is a spiritual message in the natural to those that are tuned in. The recent (AP) story of the man that lost his life to a sinkhole is to be compared to our currency and our economy. Our problem is too much debt and the federal reserve is now on autopilot creating Quantative easing to infinity,The problem in 08 that caused the crash was too much debt. Our government solved that by doubling down on the debt. This will lead to the death of our country swallowed up in the largest sinkhole of debt the world has ever known. all these woes follow a 7 year pattern, batten down the hatches for the debt sinkhole, it is scheldued to arrive sometime between 2014 and 2015.it will in all probablity take the whole world down with it.

    • Greg

      You need to comment more. This is good stuff! Thank you.


    Hi!, Patrons Of USAWatchdog.com Et Al:

    Thanks Greg & Carl for another great interview. It would appear from your discussions that OUR FED is between a rock & a hard place? Personally, I believe in a Biblical outcome; whenever we follow a biblical outline which in this case would be: “Know the TRUTH & the TRUTH shall make you free!” We all need to accomplish OUR own due diligence, in order to find the TRUTHS which set US FREE. Your programs, Greg, are essentilly & certainly faithfully helpful service toward OUR achieving that mutual goal of KNOWING the TRUTHS that shall set US all Free again. I would like to correlate that view with another very useful Biblical outlook principal which declares: “Ask and you shall receive; that your joy may be full!” As an imperfect Biblical student myself, one way or another I believe that JOY shall eventually reigh supreme over all these present dark, economic evils that assial OUR lives and we will set each other FREE again to live the life of abundance we are offered in His words. Thanks Greg to U and each of your program speakers for keeping US on the strait and narrow roads that lead US all towards the accumulation of the TRUTHS that will set US all FREE again eventually.

    RUSS SMITH, CA. (One Of Our Broke Fiat Money States)
    [email protected]

  17. This guy

    Love KD!

    Great interview as always, Greg.

    But the foundation (as I see it) of EVERYTHING is the fact that our currency is created at interest, period. A debt based currency creates a financial elite beholden neither to law or morals.

    It’s that simple. And sinister.

    • Greg

      This guy,
      Good summation.

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