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Ben's in a Bind
If you were Ben Bernanke and wanted to prove to the world that the
policy of QE was working you would show this slide. This tracks the
change in the Fed balance sheet and the S&P.
What’s not to like about this? The total US stock market capitalization is up north of $4 trillion
in the past few years. A lot of folks got rich in the process. Millions
of 401k are fatter too. But it is also true that the vast majority of
American’s did not see much from this. Once again, the bulk of the $4T
is in the top 10%. The fellow who sent this to me said, “laying the S&P over the Fed Balance Sheet growth kind of turns one’s stomach”. That’s my reaction as well.
As much as he may like to, Bernanke can’t show this graph.
It will blow up in his face. He can’t show a positive correlation of QE
to higher stocks. If he does, somebody is going to show the next two
charts.
The first tracks the growth in the Fed Balance Sheet and the CRB. This
lines up even better than the stock chart. One look at this and you have
to conclude that QE = Inflation.
The state of housing is still the central issue today. It is much more
relevant to the health of the economy than high PE multiples. How did QE
do for this segment of the economy? Can you say "lousy"?
Case Shiller 20 City Home Price Index Seasonally Adjusted
For the vast majority of American’s QE has been a dismal failure. Stock
gains for the average guy were offset by losses in real estate. There
was no wealth affect there. For those with few stocks and a house it was
anther two-year loss in most cases. All savers lost as interest rates
were kept artificially low. At the same time the cost of everything
(except that IPad) is going up.
Sure the top 5% “fat-cats” got, well, fatter. I’ve always thought that the “trickle down” theory was, well, bullshit.
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From the intro:
"Ben will have a have tough time defending QE."
Now allow me to correct the statement:
"Ben will have a tough time defending QE in the very short term."
With no one to buy treasury debt and the absolute "market" tank that will result when (if, & not likely) you cut the addicts off from the free money drugs, then the masses will come back, kneel down before Bernank, and proceed with the fellatio in exchange for his supply.
He doesn't have to defend a damned thing. If he pulls for even a month, they will beg for a new dose, twice as strong as the last round.
...Ben isn't going to be standing out there in broad daylight doing his QE thing...there is going to be plenty of cover for him between Japan and the ME you can count on something to shortly tank WS for a day or two giving him a reason to point to...
Meanwhile those housing numbers are incredibly bad....they are back to around 1963 levels when there fewer folks here...
I have to agree with Jim Rickerts' (IIRC) recent observation that there will indeed be no formal QE3.
I'm also in agreement with many here that Bernake is trapped, and has to do QE.
So, how to reconcile these two views? Rickerts pointed out that the Fed is now getting cash flow from all of the assets that it has purchased, and a significant amount at that. Therein lies your QE 3. But it won't be called as such.
Have to disagree with Rickerts, the cash flow doesn't matter, especially since with the MBS he is getting principal paydowns, that takes money out of the economy, also with USTs some of those will mature (would be nice for TD to show a maturity chart on the Fed's holdings).
Bernanke has to continue to grow the balance sheet. Look at what happened last spring when he stopped growing it - the economy immediately started to double dip.
But of course printing more leads to other problems.
Choose your poison, but things are going to get worse before they get better no matter what he does, the only decision is who bears the brunt of the pain. Bernanke has sided with his owners, the banks.
This sounds like a most likely outcome, right now. Thanks for summing it up so well.
"Rickerts pointed out that the Fed is now getting cash flow from all of the assets that it has purchased, and a significant amount at that."
This would be very interesting if true. If the big banks actually (and accidentally to be sure) sold some performing assets in their rush to dump everything it would explain some of the chatter about groups looking to repurchase from the Fed.
Obviously they would repurchase on the cheap after unloading at par or better, and it would help recapitalize them. In addition it would help bring down the Fed's balance sheet.
All of this would, of course, sicken me to the point that I would have to drink more than I already do, making me a full blown alcoholic, but it would give them another 12 to 18 months of extend and pretend.
Then the really sickening part, which would drive me to weekly alcohol poisoning, is peoples' faith in the Fed would be bolstered that much more as they pile into everything on leverage over that time frame, at a scale that would make the run up to 2008 jealous, making the eventuality of the guaranteed system crash increase by yet another magnitude of 1000.
Rickert certainly makes sense. Are his numbers right? Is the reinvested cash flow from the existing assets sufficient to keep things propped up? Seems counterintuitive. If the economy needs to continue to expand artificially the amount of stimulus would seem to need to continously increase. But hey, its all blue smoke and mirrors anway.
Umm, that assumption would seem to imply perpetual motion or a tree growing to the sky. How can a process that involves no (real) wealth creation perpetuate wealth indefinitely?
How can a process that involves no (real) wealth creation perpetuate wealth indefinitely?
Actually, it's all about no (real) wealth creation to increase wealth: the wealth of the people who are on the receiving end of the newly-created fiat.
fancy words to legitimize fraud.
Wealth Creation ? What a quaint notion...
I though pumping and skimming were now in vogue....
"How can a process that involves no (real) wealth creation perpetuate wealth indefinitely?"
By creating counterfeit dollars to purchase real private "assets".
But I don't look at common stocks as assets...(as they are next to worthless) so your mileage may vary with my view.
Sacks speech regarding QE SE (silent edition) will perpetually cover roughly 50% monetization, down from 70% presently. The goal is to end QE2 on schedule, risk will correct, re-inflating the bond market (bonds are still risk off as illustrated in the Japan disaster flight to quality) to some unknown degree. Interest rates will fall (for what really should be the last time).
This should give them some room as they try to step away a bit leaving 20% of the $2T per annum in debt to be picked up by other bidders. They can come back after we really get into the mud at the latest end of summer just like in 2010. (Sell in May and go away)
Based on Sack, Rickards, present state of DXY, debt that needs to roll within a 2 year period it seems that what I have written is the goal. However it may not work out at all, rates may get away from them as no one shows up to bid on even $33B/mo
I agree; it does seem very counterintuitive. I have no idea if the numbers are right (it seems rather large), but taken as a whole with all of the other statements and games going on, I think the probability is high that they are going to try it.
I'd also say the "counterintuitive" is a polite term for it. But that would be in line with everything else that they've done.
blasphem.
"supply side" economics is not bullshit. Don Regan hit a 300yd drive down the middle.
It's necesarily complicated. Naturally, it's voodoo to the worker class.
If you mean, by the statement, that "necessarily complicated" = job security, then I agree with you. Your statement made me chuckle because "necessarily complicated" reminded me of another phrase with insidious connotations, "An Inconvenient Truth".
Nothing in life needs to be "necessarily complicated" when honest men have the best interest of others at heart. One only needs to do research into the various laws of this country to see how underhanded and skillfully crafted they are to scare and manipulate the average American into doing things they may not necessarily agree with. I refer to the U.S. census laws as a small example. The whole thing is a farce and the government knows full well that it is. Otherwise you would be receiving a registered piece of mail from the census bureau during this corresponding period. However, the average American is willing to sacrifice private data to the bureau of central planning because they are afraid of a measly 100$ fine. Which, ironically, by the law is not imposed on the citizen but rather on those who are to collect the data when they fail to do so.
The working class needs to smarten up because they are being fleeced at every turn by "necessarily complicated" bureaucrats and "economic guru's". And that my friends, is an inconvenient truth!
£1000 fine here in the UK (around US$1600)
I disagree. He ran up the credit cards while Wall Street sold off America's productive capacity. I think he put a lot of this in motion.
It's also been a total disaster. One would have to stick one's head way, way down that cup hole in order to ignore what it has lead us to today.
Do you really think Benocide gives a fuck about the masses?
Think again.
No he doesn't - but if multiple third world nation's can simultaneously go after their governmnents, so can we. Of course, our country is full of retards, watching dancing with the retards. When thie cable TV bills double, maybe the morons will get interested in economics. I'm very disappointed in my countrymen -a bunch of assholes
"When thie cable TV bills double, maybe the morons will get interested in economics."
Agreed.
But then they'll just ask Congress for a subsidy or a tax credit to compensate for it...seems like we've already seen this movie ;-)
First they take your NPR, and then they take your CSPAN, then...
;-)
Niemoller?
I prefer Churchill in this context;
"The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries."
+1
"When the cable TV bills double, maybe the morons will get interested in economics"
TPTB control the entire propoganda complex.
While they love to profit off of said venture, they won't price themselves out of the market of said brainwashing.
"I'm very disappointed in my countrymen -a bunch of assholes"
+1 (speaking of the majority)
CIA’s ‘Facebook’ Program Dramatically Cut Agency’s Costs
and to make it worse, inflation is now killing the lower 90%.......
food, gas, heating oil, property taxes are all skyrocketing....
but....there is no inflation, right?
No. No inflation. Not a problem. Ben says.
Nice article Bruce
It will be interesting to see what they do in the coming days. I say if Bernanke actually wants to make a case for further QE, a LOT of fear and panic will be dished out very soon! Has to be!
It's hard to see how the Bernank won't QE3. The entire house of cards will collapse if he does. But, yes, I think a mini-crash may be just what the doctor orders. Put some fire in the Keynesian bellies of our 'representatives' when the ES slumps 15%: "Ben, Ben, Save us! QE some more!"
Anybody have opinions of the optimal time (for the Bernank) to do it?
You know what they say:
"There's no time like the present."
Spread a few rumors like last night's about $40-60 billion pouring in so that the few remaining sheep jump in, too; only to be sheared yet again.
It was supposed to be. What do you think they mean by recapitalize the banks? They take taxpayer capital and give it to themselves!!! QE is just another label that the CB's use to communicate that they are taking your/our money!!!!
Excellent article!
<<< Sure the top 5% “fat-cats” got, well, fatter. I’ve always thought that the “trickle down” theory was, well, bullshit. >>>
Well spoken.
Agreed. The problem with "trickle down" is that the money pools at the top and stays there.
That's the idea, duh!
That's right....
trickle, as in drip, drop, mist, inconsequential, next to none, nada, imaginary, pitifully small, negligible, infinitesimal, paltry, diminutive, puny, wee, scant, slight and slender, microscopic, minute, feeble, inconsiderable, petty, tiny and ungenerous.
as opposed to tsunami like, abundant, praiseworthy, plentiful, sizeable, vast, multitude, muniferous, grand and grandiose, big, broad and bulky, colossal, extensive, monstrous, gigantic, galactic and commodious.
Trickle, as in fuck all nothing.
And that's the truth.
It is amazing how people like trickle down and not golden showers when they are one and the same. Is Clint Eastwood the only one smart enough to tell them," Don't piss down my back and tell me its raining?
Here:
http://www.youtube.com/watch?v=_4e8iAofnrw
The Pigmen will always bend the rules and screw the little guy.
Learn it, love it, trade it.
Stock gains for the average guy were offset by losses in real estate.
Change the word average guy to banks and you get the picture of the strategy of balance sheet protection.
Little story about the Federal Reserve. I graduated top of my class in economics in the middle of a recession and tried to get a job at the FED. Young and stupid I know.
I did not get past filling in the forms because my university did not have grades, no not Oxford. The FED drone said he needed a GPA number. I responded, I do not have one, but looks at these written evaluations...top of class, etc.
I need a number....ummm I dont have one, want to see my thesis on FX specualtion impacts on the macro economy. Nope without a GPA I can not process the form.
I think the FED is full of these guys and some make it to the top....I need a net inflation number. Who cares about gas prices, my stated goal is an inflation number.....starving in Africa, USD debasing.... I need an inflation number.
Not to mention, who is going to fund the US debt. No selling war bonds this time, the US consumer has no money and the investor class are putting it where the real growth is happening.
Benocide said:
We have a soldier for the banks as the head of the Fed. We have a Fed that is caught up in performing Keynesian economics meanwhile adding 1 and 0's to electronic ledgers like there's no tomorrow.
Ben is acting criminal. Protecting bankers while exporting inflation (and soon to be importing inflation) is serious cause for concern to the average person. I can't believe people don't see the full scope here: Feed JPM liquidity to manipulate metals down to "show" inflation isn't real, pumping excess liquidity into the markets thereby exporting inflation to starving people allowing the continuation of this ZIRP fallacy domestically.
The guy is an asshole.
Yes
the only thing you can be sure of with Benny is he will lodge his head up the rear end of the Big Bwankers and Washington and has no interest in wider society. Both WS and DC are simply vessels for an elite to rob society. Ben knows his place in these criminal enterprises, to be the consummate crone ..or 'soldier' as you say
<<< Don't hate the gamers, hate the game. >>>
That is ridiculous. The gamers are the problem.
So execute them John or STFU!
Just saying.
Vigilante justice gets you put in a cage, LawsofPhysics. Feel free to go first or STFU!
Just saying.