The T-Report: Fed Hires Hunt Brothers [tfmkts]

When is a market not a market?

A market is not a market once it has been cornered.

There is growing concern about where rates are headed. That is normal. There is growing concern with the seemingly bizarre trading of the longer end of the curve. That concern is normal too. What isn’t normal is the nature of the bond market today and that goes a long way to explaining what we are currently seeing.

Let’s focus on the 10 to 20 year part of the curve for example. There will be no new issuance in that part of the curve if we count new 10 year bonds as part of the 5 to 10 year bucket. All we get is some small amount of roll down which doesn’t change the argument much.

Of the $221 billion of bonds in that 10 to 20 year bucket, the Fed already owns $93 billion, or 42%. Since the Fed is limited to no more than 70% of any one issue, they could buy up to their max position of $155 billion in under 2 months of QE. If the Fed decided they wanted to push aggressively on the 10 to 20 year part of the curve, they could own 70% of it by the end of March. Is there any reason to assume the Fed wouldn’t do this? Seriously, think about it. This Fed is aggressively trying to manipulate rates both across the curve and across products. They may well do things we never dreamed possible if it suits their policy agenda.

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Ponzi Finance – Ponzi Wealth [tfmetalsreport]

Offically released on Jan 1, 2013 the Boston Consulting Group’s “shock report” by Daniel Stelter and his colleagus on what 3 decades of Ponzi finance has done to real wealth in the developed-OECD group of countries has been available since mid-December but not widely commented. The title says it all: “Ending the Era of Ponzi Finance”


To be sure, equity and commodity markets kicked off Year 2013 with a traditional refusal and rejection of the real world – the financial markets need to drag in more hopefuls, more stupids and more greedies right up to the wire. That is their role and mission and has nothing to do with the economy, it is only a midsize but permanent Ponzi scheme. The BCG report describes what has become, in less than 30 years, a giant Ponzi scheme: the entire economic system of the developed world. It now has literally no choice but change. Real change has to come, not Ponzi-style loose change.

The BCG report details why the biggest threat of all has nothing to do with the world’s balance sheet, but its income statement. It is now crushingly evident that we, in the debtor countries of the formerly wealthy world, do not have enough cash flow to cover either the principal or the interest. Our only hope is that the asset used to try paying down the ever-growing debt bubble – this “asset” is the entire economic system – can grow and will grow faster than the total debt financing cost.

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Bill Gross: Fed Claims To Own Billions in Fort Knox Gold; “With Nothing In The Vault To Back It Up—Amazing!” [bullmarketthinking]

Bill Gross, founder of Pimco, the world’s largest bond fund with over$1.92 trillion under management, penned a new piece entitled, “Money for Nothin’ Writing Checks for Free.” In his editorial, he called attention to the near $10 trillion explosion in global central bank money issuance since 2006, and the impending doom historically associated with a “money for nothing” monetary policy.

His conclusion: The whole charade will soon hit a brick wall. 

Of particular interest were his comments on gold, commodities, and the“Fort Knox Fairy Tale…ie. Fed gold certificate claims on Fort Knox bullion holdings which may or may not actually exist.

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Time To IPO The Fed? [Zerohedge]

Forget Facebook; Bob Pisani would be cock-a-hoop. Imagine the euphoria and excitement from a Fed IPO? What better way for the rich to get even richer than to buy shares in the world’s most profitable hedge fund. And for those saying this is preposterous and that central banks should never trade publicly we bring you exhibit A: The Bank of Japan



We do note that since Abe’s re-election, the BoJ’s share price has risen a magnificent 37% (still think a Fed IPO is bad idea? – just think what fun the algos would have with it?)


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How A Handful Of Unsupervised MIT Economists Run The World [Zerohedge]

Ever get the feeling that the entire global economy is one big experiment conducted by several former Keynesian economists from MIT with a bent for central planning, who sit down in conspiratorial dark rooms in tiny Swiss cities and bet it all on green until they double down so much nobody even pays attention to the game? No? You should. Jon Hilsenrath, of all people,explains why.

From the WSJ:

Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine.

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No Limits [aucontrarian]

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (, 2009)

            The European Central Bank’s latest maneuvers jettison limits to the expansion of its balance sheet. The ECB’s manner of improvisation is reminiscent of Federal Reserve Chairman Ben S. Bernanke’s dismissal of legal restrictions in 2008, when Bernanke talked his way around the law before pliant, ignorant, and frightened politicians.
European Central Bank President Mario Draghi’s abandonment of monetary restrictions would be, in due time, an incitement to unlimited price inflation. This is also true for the United States. However, practical matters (discussed below) will restrict this central bankers’ nirvana. After watching how swiftly opposition to the ECB’s latest decrees melted away, Ben Bernanke may feel reassurance of his freedom to roam. However, he too can only go so far. Maybe he’ll be stoned to death.
So, buy gold, silver, and gold and silver stocks.
It was not just Alan Greenspan. Now, central bankers the world round draw greater devotion than Britney Spears (who, according to Forbes magazine’s 2012 rating, is the world’s sixth most powerful celebrity, demonstrating once again that no matter how egregiously these mystical abstractions behave, they can do no wrong). On September 6, 2012, “Mario Draghi’s press conference was covered as if it were a soccer match. We are told that all across Europe shop stalls and bistros had TVs showing his presentation,” reported Art Cashin at UBS. (Cashin’s Comments, September 7, 2012). Comparisons with the waning of the middle ages are apt.

The Punchline In His Own Words: Bernanke Advocates Blowing Asset Bubbles As The Antidote To Depression [Zerohedge]

If there was one absolutely must see moment exposing everything that is broken with the Fed’s brand new policy of QE-nfinity, it was this exchange between Reuters’ Pedro da Costa and the Chairman. It explains, beyond a reasonable doubt, that the only goal the Fed now has is to reflate the stock market bubble to previously unseen levels, to focus on generating jobs although not for everyone but only for Wall Street, consequences be damned, because by the time the consequences arrive, and they will (just recall that subprime is contained) they will be some other Fed chairman’s problem. Bernake’s term mercifully runs out in January 2014.

From the official transcript:


Stock prices – many people own stocks directly or indirectly. The issue here is whether or not improving asset prices generally will make people more willing to spend.

One of the main concerns that firms have is there’s not enough demand. There are not enough people coming and demanding their products. And if people feel that their financial situation is better because their 401(k) looks better or for whatever reason — their house is worth more — they’re more willing to go out and spend, and that’s going to provide the demand that firms need in order to be willing  to hire and to invest.

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Ron Paul: “Country Should Panic Over Fed’s Decision” [Zerohedge]

Paul’s reaction to more Federal Reserve stimulus:

“It should not surprise anybody, but it is still astounding. To me, it is so astounding that it does not collapse the markets. [Bernanke] said, ‘We are in very big trouble. We are going to do something unprecedented and we believe it will not hurt the dollar.’  And yet the stocks, they say ‘we love this stuff.’ But the dollar didn’t do so well today and the real value of the dollar is measured against gold, and gold skyrocketed from its very low to its highest. It means we are weakening the dollar. We are trying to liquidate our debt through inflation. The consequence of what the Fed is doing is a lot more than just CPI. It has to do with malinvestment and people doing the wrong things at the wrong time. Believe me, there is plenty of that. The one thing that Bernanke has not achieved and it frustrates him, I can tell—is he gets no economic growth. He doesn’t do anything with the unemployment numbers. I think the country should have panicked over what the Fed is saying that we have lost control and the only thing we have left is massively creating new money out of thin air, which has not worked before, and is not going to work this time.”

On potential unintended consequences:

“The biggest unintended consequence is what we need is a restoration of confidence. If the Fed is expressing a lack of confidence and they do not know what to do, it does not do anything to restore confidence. People might restrain from doing anything. ‘Interest rates are low. I do not have to buy my house this year. I will wait until next year. It might be a little easier. Prices might come down.’ So people are restrained and it is the opposite of when you expect that housing prices are going up, and you are afraid interest rates are going up. That is why the market rate of interest is so crucial. The rate of interest should give the businessman, the entrepreneurs, the investors and the savers information. But there is no market to interest rates. That is why there is such gross distortion and why we do not have a market economy. We have a rigged economy through central economic planning by central banking. The system is failing, it was doomed to fail and we have to wake up to that fact.”

On whether the Federal Reserve needs discipline:

“Short of getting rid of the Fed, which is not going to come and I wouldn’t do that overnight anyway, I would say that Congress has the authority to say, do not buy debt. Do not buy any debt. The Congress can yell and scream and pander to the people. They can say the deficits are terrible and terrible. But nobody wants to cut overseas spending or food stamps for the poor. They say, ‘we cannot do it without the Fed. The Fed has to buy this debt.’ That is a moral hazard for the politician. If the Fed couldn’t buy the debt, and interest rates would rise all of the sudden the burden would be on the Congress to get their house in order to restore confidence. Even that would panic a lot of people because live within your means? We do not like that. We like this idea that we can give people anything they want for free, so we can get reelected. Well, all of this is coming to an end.”

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Fed Undertakes QE3 With $40 Billion MBS Purchases Per Month [Bloomberg]

The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.

“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement at the end of a two-day meeting in Washington.

The FOMC said it would probably hold the federal funds ratenear zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

Chairman Ben S. Bernanke is enlarging his supply of unconventional tools to attack unemployment stuck above 8 percent since February 2009, a situation he has called a “grave concern.” The decision provoked a renewed backlash from Republicans, including Senator Bob Corker of Tennessee, who said Bernanke’s policies damage the Fed’s credibility while doing little to spur the economy.

Stocks soared after the Fed’s statement. The Standard & Poor’s 500 Index jumped 1.6 percent to 1,459.92 at 2:24 p.m. in New York. The yield on the 10-year Treasury note rose to 1.78 percent from as low as 1.71 percent.


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Fed Chairman Bernanke benefited from low interest rates to refinance his home mortgage []

By Associated Press, Published: September 7

WASHINGTON — The Federal Reserve’s record-low interest rates have shrunk income for savers but cut costs for borrowers. Chairman Ben Bernanke is among the beneficiaries.

Bernanke’s latest financial disclosure form, released Thursday, shows he refinanced his Washington home in 2011. He took out a 30-year mortgage with a fixed 4.25 percent rate, replacing one taken out in 2009 that carried a 5.375 percent rate.

Both mortgages were valued at between $500,000 and $1 million. The government requires top officials to estimate only ranges for their financial assets rather than an exact figure.

The Fed has held its key short-term interest rate at a record low near zero since December 2008. It’s also pursued unconventional programs to try to lower long-term rates and boost the U.S. economy after the worst recession since the Great Depression.

In his disclosure documents, Bernanke’s assets outside of his home were estimated to range between $1.1 million and $2.3 million. That was unchanged from last year.

Bernanke’s choices for his personal finances run mainly to no-frills investments that emphasize safety such as annuities and U.S. Treasury securities. He did have between $1,000 and $15,000 in a stock mutual fund — the Vanguard International Growth Fund, the filing showed.

As in past years, Bernanke’s largest holdings were two annuities managed by TIAA-CREF. Both are part of a retirement plan he set up while teaching at Princeton University. One is a fixed annuity plan, the other a variable annuity.

An annuity provides an investor with a series of regular payments. With a fixed annuity, the payments don’t vary. With a variable annuity, payments can fluctuate depending on the performance of the underlying investment.

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Fed’s unemployment target is unrealistic [SoberLook]

The Fed’s goals for the US longer term unemployment levels are simply unrealistic and will force the central bank to prolong its easing programs beyond what is really needed for economic growth. This misguided approach will be damaging to the economic growth in years to come.  Here is what the FOMC is projecting for the “longer run” unemployment – a rate that is in the 5%-6% range.

Source: Credit Suisse

As discussed in this post, the Beveridge curve clearly shows that the US had a structural shift in employment dynamics after the financial crisis. What was considered the “equilibrium” unemployment (also called “natural” unemployment) rate needs to be adjusted upward. A more realistic unemployment goal should be in the 6%-7% range, a much more achievable target.


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Federal Reserve has already started QE3, says investor Jim Rogers [Telegraph]

Veteran US investor Jim Rogers believes the Federal Reserve has already launched a third round of quantitative easing, despite chairman Ben Bernanke failing to mention stimulus measures in his Jackson Hole speech last week.


Mr Rogers, who co-founded the Quantum Fund with George Soros, believes that America’s central bank is secretly printing money to avoid “getting egg on their face again” after previous attempts to kickstart the faltering economy with $2 trillion of QE failed.

“I do not know if they [the Fed] will announce it,” he told India’sEconomic Times. “I know they are going to print more money. They already are. If you look at their balance sheets, you will see that something is happening, assets are building on their balance sheets and they are not coming from the tooth fairy.

“They are a little bit embarrassed because they announced QE1 and QE2, and it did not work. So they may try to discuss it. They may just continue to do it without getting egg on their face again, but they are going to print money, they are all going to print money. It is the wrong thing to do, but that is all they know how to do.”

He told the Daily Telegraph: “They probably have learned how to do things off balance sheet. I have nothing to confirm this but everyone else has learned how, so they probably have too. This is just a comment on human nature.”

Mr Bernanke said in his annual speech at Jackson Hole on Friday that the country’s high level of unemployment – it climbed to 8.3pc in July – is a “grave concern” and that the “economic situation remains far from satisfactory”.


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Jackson Hole Kicks Off Fall Policy [Wealth Cycles]

The much anticipated news from the annual meeting in Jackson Hole, Wyoming failed to create much excitement. Everyone knows the Federal Reserve will eventually resume efforts to continue inflating the money supply to counteract the creeping deflation. Bernanke’s speech set the tone for policy as we kick off autumn.

As we have previously surmised, Bernanke checked to Congress, saying that “monetary policy cannot… neutralize the fiscal and financial risks that the country faces.” This means the Fed is not intending to paper over the effects of ignoring fiscal reform.

We believe this sets the tone for what to expect from the upcoming policy dates:

September 6th – European Central Bank (ECB) meeting and conference
September 12th – German constitutional court ruling on joint liability within the eurozone
September 13th – Federal Reserve Bank Open Market Committee (FOMC) meet

Over the next two weeks, with just U.S. manufacturing and jobs data to be released prior, we will receive the last monetary policy prescriptions before the election. We remain sceptical that there will be significant response from the Fed, such as additional quantitative easing, prior to markets acting “as the proverbial ‘attack dog,’ forcing the issue on the political agenda.” In its “attack dog” commentary a few weeks ago, Citibank continued, “we can’t escape the sense that it is probably politically easier to let the markets run loose for the time being to make it apparent that further intervention is needed.”

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Duck Tales Inflation Lesson

Chart Of The Day: With All Of QE3 Priced In, The Only Way Is Down Should Bernanke Disappoint [Zerohedge]

The following chart from Bank of America shows that with a few short hours ahead of the dangling strawman known as Bernanke’s J-Hole address (now that Mario Draghi has more pressing issues to deal with elsewhere), expectations for QE3, in the form of what is actually priced in, just hit an all time high. So is, by implication, the potential for disappointment and that the petulant market, no longer caring about such trivia as fundamentals, technicals, newsflow or frankly anything except what the Chairsatan ate or what side of the bed Bill Dudley woke up on, will not get what it demands. It then begs the question: if the S&P is at 1400 with virtually all of QE3 priced in, what is the “fair value” if there is, gasp, no QE3 announced either today, in two weeks when the FOMC delivers it periodic oracular address to the plebs, or until the post-election FOMC meeting, which will take place on December 12, and just days ahead of the Fiscal Cliff arrival (which will certainly not be resolved by then)?


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Monsters With Ominous Acronyms: From A Nation Of Investors To A Nation Of Fed Watchers [testosteronepit]

People are holding their breath. Fed Chairman Ben Bernanke is to speak in Jackson Hole on Friday. QE3 or not to be, that’s the question. There isn’t a soul in the markets that can shrug off even a single syllable of what he’ll say. And if his answer isn’t a clear and solid yes—with details on how much, by what mechanisms, and until when—market participants, analysts, bloggers, and TV economists will parse his speech down to the last iota and look for commas that they haven’t seen before, and they’ll interpret it and reinterpret it ad infinitum until the desired outcome has been established, namely more QE—regardless of what he says. Headlines have been stirring the excitement. My blood pressure is up, my nails are bitten down to the quick. I haven’t slept in days. I’m ready. Oh dear Ben, I’m praying, let us have more QE.

ECB President Mario Draghi had his moments recently, but his outfit isn’t an omnipotent institution like the Fed, not yet at least. It has been designed as a curiously emasculated place, subject to its treaty-imposed single mandate of price stability and language that precludes any kind of QE. But these aren’t times for normal interpretations, and so the treaties have proven ineffectual in keeping the printing press unplugged. But what’s hampering the ECB in living out its wildest dreams à la Fed? Strong opposition from the Bundesbank. While it only has one vote within the ECB, same as Cyprus, it has a bully pulpit, and it has turned up the megaphone.

Investors are also watching the Bank of Japan, which buys just about anything, including equities, to keep them from crashing further. The Bank of China is now expected to prevent a hard landing, or a soft landing, or any kind of landing, though China’s landing gear is out, and the flaps are extended all the way. There are other central banks we keep an eye on. They all coordinate their moves and hobnob at shindigs, like the one in Jackson Hole, and they whip us into a frenzy with their words. Central planning at its best.

And so we have become watchers of central banks, and we bet on their pronouncements rather than invest in what we think might work economically. Meanwhile, the Fed is pulling, or perhaps pushing, on a variety of strings to accomplish its goals, whatever they may be. It’s setting prices and yields, it’s causing capital to be shifted in the wrong directions, it’s propping up banks. And it works. Central planning has been successful in the past as well.

For example, among the famous German car makers there was, you might recall, VEB Sachsenring Automobilwerke Zwickau. It produced one model, the Trabant. This was in East Germany under the communist regime. It was the best-selling car of all times in East Germany. And just about the only one. It was even exported to other east-bloc countries. Designed in the 1950s and produced without major updates for 30 years, it sold over 3 million units by 1989! Today, 32,997 “Trabbis” are still registered in Germany. Its two-stroke engine, if it runs at all, leaves a toxic cloud of oily smog behind. Despite its tiny size and nearly imperceptible acceleration, it gets a lousy fuel economy. It’s slow, uncomfortable, unsafe, malodorous… one of the worst cars ever built. The proud product of central planning.


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Fed to Crash Markets Before Launching QE3 [beaconequity]

Desperate to print Wiemar-style to fight off the most viscous Kondratiev Winter on record, Federal Reserve Chairman Ben Bernanke may not satisfy ‘inflation trade’ onlookers at the close of his Jackson Hole speech scheduled Friday.  He may, instead, merely allow months of anticipatory front-running of stocks do the work of propping up asset prices for him.

And if investors don’t get the ‘all-systems go’ at Jackson Hole, there’s always the FOMC meeting of Sept. 12 & 13 to get the good news.  That’s when market volatility could move off the charts, maybe extreme volatility to the downside, according some Wall Street analysts.

“With the equity market pricing in a significant chance of QE3, stock prices are no longer as useful a signal to Fed officials. Should the Fed disappoint at its September policy meeting, the risk of a stock sell-off is high,” Bank of America Merrill Lynch analysts wrote in a note to clients, Aug. 21.

“Some in the markets think that the Fed effectively targets equity prices, meaning that to predict Fed policy, one merely needs to track the U.S. stock market,” the analysts add.  “There is a curious circularity to this view, however: the Fed will not launch QE3 so long as stock prices are high, yet the stock market is high because it anticipates QE3.”

The old adage on the Street, ‘buy the rumor, sell the fact’, may be at play here. But if Bernanke plays too-hard-to-get with investors in the coming weeks, a nasty fall could be in store for the Fed chief—a fall that could outright overwhelm the NY Fed’s PPT and result in a stock market plunge akin to the Crash of 1987.  Maybe.

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Central Banks Digging a Deeper Hole [Financial Sense]

Dear readers, first of all, apologies seem in order. An unusual gap between blog posts has appeared on the Schlichter Files this summer. The reason is that I was travelling with my family in East Africa through most of August, enjoying the spectacular landscapes and the fascinating wildlife there, and meeting some very interesting people. Although, admittedly, I travelled in considerable comfort, and East Africa offers today reasonably good internet connections, often even in fairly remote areas, I decided not to read any newspapers, websites or even my emails for a few weeks, and instead tried to take my mind off the depressing subject of monetary meltdown and the destruction of capitalism and the free society at the hands of politicians and central bankers. So here I am, back in London after almost a month in the relative wilderness, slowly and reluctantly catching up with events in the strange world of 21st century finance. My first impression is that I have not missed much in terms of the unfolding crisis. None of the dynamics have changed. If anything, I feel my dire predictions and gloomy outlook again confirmed by recent events.

Where we are

Last month we entered the sixth year of this crisis, although parts of the media seem determined to continue calling it a ‘recovery’. Wishful thinking. We have been in continuous crisis for half a decade. Doses of Valium and Prozac – called QE among central bankers – have calmed nerves occasionally and given the false impression of healing.

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How low will markets go when Bernanke has nothing to say? [ArabianMoney]

There is one question at the back of traders’ minds this week and that is what would happen if Friday’s statement from Fed chairman Ben Bernanke turns out to be a complete dud, without a tiny hint of QE3 on the horizon. That is doubtless something on his mind too this week.

So often in financial markets it is better to travel than to arrive. Over the summer the anticipation of more easy money from the Fed has pushed stocks higher and higher. After all we have seen this magic work before, albeit for a shorter and shorter time period.

Saying nothing

But this autumn, as ArabianMoney has previously argued, the Fed has every reason to keep its powder dry and no reason to push markets still higher as they are already a danger to themselves and an accident waiting to happen. Just look at the world economy out there. It’s spiralling downwards, gently at the moment but that could turn into a Hurricane Isaac very quickly and very soon.

Does Ben Bernanke really want to throw away his last weapon before rather than after this storm hits? It would be madness. But he could still decide to remind the markets that he does have this one last trick up his sleeve. If he does not do that what sort of correction will follow?

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What To Expect From Bernanke At Jackson Hole [Zerohedge]

With the world’s suckers investors (CEOs, politicians, and peons alike) all hanging on every word the man-behind-the-curtain has to say on Friday, Stone & McCarthy has crafted an excellent ‘what-if’ of key takeaways and interpretations ahead of Friday’s Jackson Hole Symposium speech by Bernanke. Will Draghi toe the line? Will China be pissed? and what rhymes with J-Hole?

Via Stone & McCarthy Research Associates

Key Takeaways:

1. We expect Bernanke will reiterate the Fed’s options for providing further stimulus, and its willingness to act “as needed”, but not signal any specific policy action or its timing due to proximity to the September 12-13 FOMC meeting.

2. The case for further stimulus may have weakened since the July 31-August 1 FOMC meeting due to somewhat better economic data, especially for housing. It could be further reduced if the Beige Book does not suggest any substantive deterioration in conditions, and/or the August employment report shows job creation remains about on trend.

Fed Chairman Ben Bernanke will deliver the keynote speech at the Kansas City Fed’s annual symposium at Jackson Hole, WY. He speaks at 10:00 ET, and his topic will be “Monetary Policy Since the Crisis.” He has covered this subject before. His comments will probably offer a few updates since the last time he spoke on a similar theme. Since that time the FOMC has continued its Maturity Extension Program with an additional $267 billion in sales of shorter-term Treasurys and buys of longer-term Treasury notes and bonds. The FOMC has held two more meetings at which communications policy has been thoroughly discussed.

Markets are anticipating that Bernanke will give an indication of more stimulus — the focus is for a third round of large-scale asset purchases or so-called “QE3″ — as he did back on August 27, 2010 when the second Large-Scale Asset Purchase (LSAP) program was signaled. However, at that time the next FOMC meeting was over three weeks distant from the speech, and the FOMC was not scheduled to update its forecast until eight weeks later at the November 3 meeting.




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Lies, Damned Lies, And Pianalto’s QE/Deleveraging Lies [Zerohedge]

We tried to bite our tongue; we ignored some of the sheer hypocrisy of Cleveland Fed’s Sandra’ oh Sandy’ Pianalto (that QE2 was a definitive success in 2010 but now LSAPs require more analysis of costs and benefits); but when she started down the road of praising the US consumer for deleveraging we had enough. In the immortal words of John Travolta: “Sandy, can’t you see, we’re in misery” as while she notes consumers cutting back on credit card debt (due to forced bankruptcies we note), Consumer debt has only been higher on one month in history! Soaring auto loans and student debt should just be ignored? There is no deleveraging – Total US Consumer debt is 0.23% from its all-time high in mid-2008, and will with all likelihood break the record at the next data point. Meanwhile her speech, so full of careful-not-to-over-commits can be summed up by the world-cloud that shows the six words most prominent:’Monetary Policy’, ‘Financial Conditions’, and most importantly ‘Credit Economy’. Here’s the deal: Consumer Debt is Consumer Debt.

Total Consumer Debt – there’s your deleveraging!!!


and the simple analysis of her speech this morning:


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A Flashing Warning On The “Unintended Consequences” Of Ultra Easy Monetary Policy From… The Fed?! [Zerohedge]

The case for ultra easy monetary policies has been well enough made to convince the central banks of most Advanced Economies to follow such polices. They have succeeded thus far in avoiding a collapse of both the global economy and the financial system that supports it. Nevertheless, it is argued in this stunningly accurate paper via none other than the Dallas Fed (and BIS economist William White), that the capacity of such policies to stimulate “strong, sustainable and balanced growth” in the global economy is limited. Moreover, ultra easy monetary policies have a wide variety of undesirable medium term effects – the unintended consequences. They create malinvestments in the real economy, threaten the health of financial institutions and the functioning of financial markets, constrain the “independent“ pursuit of price stability by central banks, encourage governments to refrain from confronting sovereign debt problems in a timely way, and redistribute income and wealth in a highly regressive fashion. While each medium term effect on its own might be questioned, considered all together they support strongly the proposition that aggressive monetary easing in economic downturns is not “a free lunch”. Absolute must read!

As we noted earlier:

Hopefully instead of setting up his own irrelevant strawmen, and then knocking them down with a Fed-dictated script, [WSJ's Jon] Hilsenrath, and his profound financial journalist experience, can at least pretend to tackle the questions noted above…

…well he won’t. So luckily the Dallas Fed will do it for him…


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Guest Post: The Rot Runs Deep 1: The Federal Reserve Is A Parasitic Wealth Transfer Machine [oftwominds]

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The Federal Reserve is a wealth transfer machine, skimming wealth from the productive many and transferring it to the parasitic few.

Today I launch a series entitled “The Rot Runs Deep” that examines the moral and financial rot at the core of American finance, politics and culture. We have reached a unique junction of American history: the confluence of Big Lie propaganda, neofeudalism and the worship of false financial gods.

The Big Lie propaganda machine of corporate media and the Central State has perfected Orwell’s nightmare vision of centralized media and a fascist centralized State which turn lies into self-serving “truth.”

Since the Federal Reserve is once again expected to “save” a crumbling, exploitative Status Quo, let’s use the Fed as an example. The propaganda machine would have us believe that the Federal Reserve, the privately owned central bank of the U.S., has “saved” the Status Quo from financial ruin on numerous occasions by “smoothing out” the business cycle (credit expands and contracts) and by “stimulating aggregate demand” by lowering interest rates and pumping money into the economy (quantitative easing).

We are constantly prompted to worship the Federal Reserve’s supposedly god-like powers to rescue a corrupt and venal Status Quo from the black hole of recession and collapse, and this Big Lie masks its real nature: The Fed is nothing but a parastic wealth transfer machine, skimming wealth from the many and transferring it to the few.

In effect, the Fed is the “enforcer” of neofeudalism in America: the feudal Lords of Finance control the for-sale political system and skim tribute from the 99.5% toiling in the fields below their castles. The Fed enforces this parasitic transfer of wealth by manipulating interest rates to enrich the banks and provides “free money” to the Financial Lords which is then used to buy assets and lend at interest.

The mechanisms of the Fed’s parasitic transfer of wealth are well-known. Here’s one: the Fed “loans” money to the Feudal Lords at 0% interest. the Lords then loan this free money out to peasants, students and other debt-serfs at high rates of interest. The interest “earned,” courtesy of the parasitic Fed, is theirs to keep.

If they can’t find enough debt-serfs who can pay more interest, they can always deposit the free money back at the Fed and earn interest from the Fed itself.

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Whose Interests Will the Fed Always Protect? [Gary North]

Some predictions are easy. Here is mine: “The government of the United States will default on the vast bulk of its debts, which are mainly debts of Medicare, and to a far lesser extent, Social Security and the federal pension system.”

This prediction is easy to make when you have Professor Lawrence Kotlikoff of Boston University doing your research for you . . . free of charge.

He and long-term financial columnist Scott Burns recently wrote an article on the unfunded liabilities of the United States government. The article is based on the figures produced by the Congressional Budget Office. Here is their assessment. Over the past year, the debt of the United States government increased from $211 trillion to $222 trillion. This is the fiscal gap.

The fiscal gap is the present value difference between projected future spending and revenue. It captures all government liabilities, whether they are official obligations to service Treasury bonds or unofficial commitments, such as paying for food stamps or buying drones.

This led to their policy analysis.

Closing the gap using taxes requires an immediate and permanent 64 percent increase in all federal taxes. Alternatively, the U.S. needs to cut, immediately and permanently, all federal purchases and transfer payments, including Social Security and Medicare benefits, by 40 percent.

This sounds good, but neither one will work. I think they know this.

Solution #1 is politically impossible. Even if it were possible, it would create an economic depression. This would not be a fiscal cliff. It would be a fiscal Grand Canyon. This would cut all federal revenues. In a Keynesian-dominated Congress, the government would run a massive deficit. So, a tax hike on this scale is self-destructive. Solution #2 would create a replaced Congress and White House after the next election. Can you imagine Congressmen having town hall meetings after a 40% cut in Medicare and Social Security? They would face a sea of people brandishing canes and shuffleboard sticks.

The authors began their article with this observation.

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The Fed & the Cliff [Dr.Ed-s Blog]

Evel Knievel was an American daredevil, who attempted over 75 ramp-to-ramp motorcycle jumps between 1965 and 1980. In 1974, he failed in his attempt to jump across Snake River Canyon in a rocket. He survived, and died in 2007 of pulmonary disease. Fed Chairman Ben Bernanke may be about to try to outdo Knievel with an even greater stunt: attempting to leap over the fiscal cliff at the beginning of next year.

I think there’s a chance that he might announce during his August 31 speech at Jackson Hole that the Fed will launch an open-ended QE3 program with the hope of turbocharging the economy so that it can leap over the cliff. San Francisco Fed President John Williams, a voting member of the FOMC, was the first to advocate this stunt in an interview reported in the 7/23 FT.

He floated the idea again in an interview reported in the 8/10 issue of the San Francisco Chronicle. When he was asked whether QE3 should be saved to cushion the fall off the cliff early next year, if necessary, he responded: “We want to position the economy to be strong in advance of that. If you are really worried about running out of ammunition, you want to act more aggressively, more quickly and better prepare yourself for that eventuality.”

Boston Fed President Eric Rosengren, who is a non-voting member of the FOMC, seconded Williams’ motion for open-ended QE3 in an interview reported in the 8/7 WSJ. According to the minutes of the July 31-August 1 FOMC meeting, released yesterday, “Many participants expected that such a [QE] program could provide additional support for the economic recovery both by putting downward pressure on longer-term interest rates and by contributing to easier financial conditions more broadly.”

Since bond yields are already at record lows, could it be that Fed officials have concluded that the only transmission mechanism they have left between monetary policy and the economy is the stock market? Recall that the Fed Chairman mentioned stock prices twice in his 11/4/10 Washington Post op-ed explaining why the Fed implemented QE2 the day before: “Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. … And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.”


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