heard various views. From Kocherlakota who suggested that interest rate
should rise by the end of the year, to Dudley who made it pretty clear
that he thinks it would be a mistake to back off the gas pedal anytime
soon.
None of those speeches matter much. The only thing that counts is Bernanke. The Fed will end up doing what he wants. There
is no true debate at the Fed. All the speeches are show ponies to
demonstrate that there is open thinking at the Fed. I don’t believe a
word of it. But I do believe when Jon Hilsenrath echoes Ben’s thinking. I believe the Ben/Jon duo was at work in this WSJ article today. The critical words from Ben’s lips: (link)
a $600 billion program of Treasury bond purchases known as quantitative easing looks likely to run its course as planned in June. This will effectively mean the Fed is moving to a neutral stance of no longer easing while not beginning to tighten policy.
Mark Ben’s, Jon’s and my words. This is what the future will bring us. QE will end in June. But the policy of ZIRP will be with us for a long time to come.
There are so many factors at play in the big capital markets these days.
The Fed is just one element in the equation. But if you focused on just
their effort you would have to conclude that the end of QE but never
ending ZIRP will bring us the following:
-Long end yields are going higher. I think the Fed moves have set
us up for a 5% long bond and a 4% 10-year. Long bonds are a sucker play
when the Fed continues to pour on the gas.
-ZIRP is good for stocks. We shall see about this. One can’t deny that equities are a better place to be than in cash that has a negative return.
-The dollar is going to get crushed. The Yen is a wild card that
is influenced today by the uncertainties of Fukushima. We could see more
weakness there. But the rest of the currencies of the world are going
to have to move higher. I see the Euro over 1.5 the Pound pushing 1.7
and the CHF at around 85 to the dollar. The C&A dollars will be a
good place to hide as well.
-PMs have to move higher. We will maintain a policy of cheap money and dollar debasement. How could the metals not respond?
-Inflation is going to roar. The food and energy component of the
puzzle that Bernanke refuses to consider is going straight up in my
opinion. I wouldn’t be at all surprised to see the non-core CPI up by 5%
by the end of the year. We could easily see $5 gas in six months.
I think this is an insane next step for monetary policy. We will all pay
a very dear price for this. I think it is also insane to have monetary
policy conducted through speeches, innuendo and newspaper leaks.
and further a market that relies on Larry Kudlow's "whoop" is a weak market indeed
I think though, Bruce, the chairsatan will stop QE2 and be forced after a week of precipitous drops in the market and in credit, move to Quantative Fission.
The welfare case stock markets are so hooked on crack they will go through withdrawal. Gold and silver will take an Armstrong smash IMHO.
That's Ok though, cause I have freighter booked to back up to the coin shop when that day comes along with 3 billion chinese citizens.
Thanks Bruce
This "flation" we live in today is certainly not your daddy's "flation".
This is our grand pappy's "triflation".
Inflation in what we need
Deflation in what we want
Reflation in my rear tires
Retroflation in my hairdo
etc etc etc
Rates, left to their own devices, would be going throught the roof, so irrespective of the wishes of Bernutty, he will have to keep hammering them down or the ponzi implodes.
Everyone talks of cheap money chasing yield in this POMO'd ZIRP environment. I disagree. Interest rates are mostly negative. They are chasing wealth preservation, or purchasing power preservation. That preservation means < rate of depreciation NOT >=0.
This means there is no capital formation, as no one is "investing" in anything. Investments that occur are a blind squirrel's accorns. This, of course, means 0 to negative real growth. GDP measures transactions poorly, and in an environment where the measure is rapidly shrinking, so delta's in GDP numbers are largely irrelevant, and as they give no stock to capital nor profit, are dangerous if given much credance.
So it all comes down to games. Bernutty wants badly to be proven correct. He wants to back off his hell bent for leather policy and have self-sustaining growth. So, he wants to back off on monetizing the treasury's debt and just barely indirectly, propping the 401K market...erm...stock market. The banksters want their easy money monolpoly profits. No QE3 is bad for that. Expect extreme bullying. Then there are the geo-political RISK players, a truly uninspiring lot of mediocre muddle heads, who have a lot of power.
The long end of the curve tests higher. Duration mismatch occurs. Game players push their agenda. Then the ponzi destabilizes, game players pick up their chips and assess their wins/losses and QE3 rolls out. Because at the end of the day, they are nothing without the ponzi.
Completely agree. Like the name. Thanks for the post.
I fully agree with you.
The timeframe for this to occur IMO is three weeks, if Ben actually stops buying up everything in June.
Damn well said. Ben can shuffle and jive for a month or two, but without more QE interest rates climb toward the market, and the Ponzi dies.
330 Million people against one mad man...
and he's winning ,what a sick country.
You have the numbers wrong.
329,975,000 are against. 25,000 are for.......
Bruce, NYC used to have like 40k "folks" paying 1/2 of the city's taxes. Then the "burn the bonus" movement started until the coffers were, like, challenged.
So is it now 25k in NYC? 25k in US? (that's gotta be more), certainly not world wide.
Second order effect of the "kill the banksta's"
- Ned
The truth hurts.
Yes I junked you for shitting in the swimming pool without saying why you are different than the very people you admonish.
Come out and play...
PUD
Hey,when I hear you US citizens have hung Bernanke by the neck in a nice public place,like where world trade building# 7 stood,I will believe yous have finally had enough.
Until then....
Suck it up buttercups.
And your contributions thus far have been?
Reveal your success and let us all learn from your experience.
Share the knowledge.... or STFU
PUD
More ZIRP = much higher taxes. BENdover
Whatever Ben does count on him missing the mark by a factor of 2 - 5
""Congress are the Goons...Bankers are the Mob""
http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/04/congress-are-goonsbankers-are-mob.html
How can the Fed maintain ZIRP without taking more on its balance sheets? That is impossible if US debt is rejected.
What it does look like is that the FED is ending the eating of garbage, eg. Fannie/Freddie, and the end of outright POMOs of treasury debt.
What it does mean is that POMOs turn into TOMOs after QE2, and the Fed churns under the surface of the financial sea.
The FED is twiddling knobs and their titties with TOMO. Sterilizing a measly 5 bill here and there to show the world they know how to masterbate.
I agree with people who say they will monetize( illegally) more toxic waste and the weekly trash if they have to keep liquidity.
And if the congress passes the debt ceiling again and they masterbate in a circle, more bonds will be printed and QE starts again. It has to.
Though, It could be that Ben illegally monetizes traded in toxics, cash dumps the banks for their garbage and they go pretend the US bond market is rambunctious that way instead.
US bond market will be saved no matter what- but if the long bond goes parabolic- its just because the bond churn and cankicking is getting more frequent with shorter notes.
Ben will rig this so he can print dollars using something. If he can't do it politically with QE, he will trade toxics for bonds that he owns and monetize the same bonds over and over again.
Toxic trade in for a US bond. Bank takes bond and sells on market. FED steps in and trades that bond for cash. Banks go out and goose the stock market- or maybe they go buy some other bonds. They sell that on the open market- get more cash from the FED. Maybe they buy more tocks, maybe they pimp oil, maybe they buy more bonds or the same bond.
The FED legally should only be able to monetize what the US Treasury releases the first time.
But these guys are all crooks, crackdealers and sociopaths on a derivatives binge.
ZiRP is any easy money policy, but as we have been seeing, easy money has not encouraged oeople to borrow on credit. The housing market is finished for decades.
Even with price inflation skyrocketing, people have less money because of overleverage and jobs and debt stress. So, who is borrowing all this ZIRP?
I can get a dirt cheap loan anytime now- who the frack wants the money? I know if I borrow 100,000 and my salary doesn't increase it will take a long time to pay it.
Price inflation is a technique to push money into the system by forcing people to lose their savings. Its socialism- in a sick way. If you won't borrow or spend, they are going to STEAL your money and dehoard you. You are not allowed to save and hence why ZIRP exists. No yield, no incentive to save except to protect your money
Bang. And the awareness that disquising massive, long-term theft as "rescue" might become Federal Reserve and Treasury and White House job requirement #1 permeated the air in the room on the weekend in March, 2008, when the Fed chose to bail out Bear Stearns. The decision to fully commit to that theft, by whatever means necessary, for as long as necessary, was made in September of 2008. Trillions in losses take an enormous amount of time to unravel. If the unravelling is done slowly, it can take a decade or more. That's what we are experiencing. The slow, torturous process our leaders chose to subject us to in order to protect investment banks and their hedge fund couterparties.
QE will continue. They just won't talk about it anymore than they talked about the trillions they gave out in the crisis. They were doing QE for 8 years before the crisis. They will be doing it for 28 years more.
And imagine the 'risk on' and other disruptive behavior and mal-investment that would ensue following each new announcement that QEx will be undertaken when the current QE expires in 3 or 6 or however many months. Hard to believe that so much consideration is given to whether BenHubris has any choice other than to deny QE continuation, and when the time comes, that he has any other choice but to announce the new continuation.
Participating in this charade makes one a party to the crime. Seems to me...
You're missing one thing, Bruce.
Not only does a 'neutral' stance mean ZIRP, it also means that the Fed's balance sheet will not decrease for a long time. The only way for this to happen is to continually roll over the Fed's assets, which is in and of itself inflationary. Aside from this rollover, the Fed will also continue its seignorage policies and cause inflation that way.
As the Fed will not be sterilizing its assets under a "neutral" policy, their strategy will actually be more aggressive than simply ZIRP.
Correct. There will be no contraction of the Fed BS as a result of ending QE2. It will stay at the very blown up level that it is. Call that neutral?? But as far as ZIRP goes we are still in high gear. Ergo my conclusions.
They will use sterilzation as a Marketing tool,. Hooray! We deprinted 4 billion today!
In the meantime, the FED holdings are going to increase no matter hell or high water. This is Japan, the ponzi death spiral.
I only see massive price inflation with monetization out of thin air- which Ben will do. Thats not because of ZIRP. You can't force people to borrow money.
Real inflation happens during an economic expansion- as credit and increase in money supply and derivatives race around. Thats not happening. The banks get the cheap money, lose it or game the system and make more. Nobody else has access to ZIRP or even free cash handouts.
But, QE3, with a Zirp will just cream us with price inflation and hence the FED just robbed us again.
Thanks for article and research Bruce!
Why do you think the Euro will rise? They have there own huge problems. Sure China looks like a winner if all those who are asserting China is in bubble mode are discounted. One thing we do know is that China does not want its currency to rise vs. the dollar.
I agree with the basic premise that dollar is in trouble but the real question is where to hide if one wants other currency. Denmark and other Nordic counrtries, AUD, Brazil, CA? I think the USA is ultimately in a better position respond to current challanges than the multi-headed EU but I am certainly not bullish on the dollar.
Keep trading off things you hear on TV and see how that works out for you. The dollar has been and always will be the weak sister. The problem countries in Europe don't have the power to print money. We do. There is no connection between the failing sovereign debt and the Euro. Those countries could have taken those debts out in dollars. If Portugal owed dollar based debts and defaulted, would that weaken the dollar? No. Euro fluctuations were caused by US interventions and manipulation. They stopped when China publicly backed the Euro and started taking the other side of US trades. Look at the chart of the dollar and its "alleged" strength in 2008-2009. It was barely even a blip up. It was much hyped, but it barely registered.
Why would a debt crisis in the US among those who cannot print money have the opposite effect of debt crisis in Europe among those who cannot print money? Are US muni defaults going to weaken the dollar? Not unless we bail them out. Neither will Spainish or Portugal defaults because they don't have control of the printing press. What remains is the weight of the bailouts we have been doing in dollars to fully sink in.
That being said, as long as all the central bankers cooperate, all paper currency is fungible. There is no difference between a Euro and a Dollar if all the bankers are constantly jumping in the markets and printing everything back into ratios they prefer. It is all going down and making a currency bet that does not involve gold is like bending over to pick up a nickel in a Turkish bath.
Then YOU would be a "whole nickel" richer! Far better you than I.
Unless europe can print as fast as we can, the euro will be stronger. They cannot by law "print" collective bonds and oush out more euros. So euro is more deflationary currency.
Even if the eurozone collapses, they need a currency. That will be the euro for decades.
And if greece ireland et all default that is LESS money in the money supply and deflationary. The europeans sometimes need US to print dollars o loan them to print Euros. Using us dollar printed as collateral for euro currency increase. The fiat system, its all fiat and so theres no where to hide except gold and maybe silver.
The Swiss Franc maybe as its essentially gold-backed and a nice boutique currency.
...what benefits US Transnational Corporations no longer beneftis US Citizens...
and that is the crux of the matter!
They pit us against each other... right/left ... private/public ... and what not.
The reality is not that the world is running out of money... 'only' 90% of us are ... the others are having the best time ever!
Agreed. The government kleptocrats in this fascist state have pandered too long to the large corporate interests at the expense of our whole existence (Who's gonna pay for the deficit?). Corporate welfare, tax breaks and free trade have resulted in large bonuses for the transnationals and fewer jobs with subdued pay for the rest of us. The Fed further feeds the corporate oligarchy with cheap money for speculating causing inflation that hurts everyone but the very wealthy. End the Fed, institute protectionist trade policies to bring back jobs, simplify the tax code to end tax-dodging breaks to the oligarchs, allow a free domestic market to exist thereby ending TBTF: That is what is needed to correct the huge imbalance of power and wealth in this country. Painful, yes. Utimately needed, yes. Question is: When and how?
Oh, and end the imperialism. We need to take care of ourselves and not the offshore interests of self-serving transnational oligarchs.
Why bother suggesting remedies? Obviously if the plutocrats thought they were necessary they would implement them. When you suggest solutions, it's as if you're saying that there is hope.
Any politician who ran on this platform wouldn't survive Ohio primaries.
His plane (GE engines) would just fall mysteriously out out the sky.
Well said, Commander!
Absolutely. All for it. But, first, break up the banks and pass a Constitutional amendment that says corporations are not people and that elections need to be publically financed. Raise the top marginal tax rate to 75% to recoup some of the billions stolen during the go-go years of the OTC market. Designate credit default swaps as insurance instruments, subject to capital reserve requirements, and require lenders to hold on to a 25% skin on the money they lend.
Oh, yeah, and then legalize marijuana.
Or fill all currently elective offices by a drawing at random from the pool of qualified jurors.
These policies would NOT drive me to drinkin'.
And more and more americans would be able to afford a hot rod lincoln!
:)
Nice Commander Cody reference!
http://www.youtube.com/watch?v=F9QpDvhshOQ&feature=related
Sez it all...
Bill Gross went to cash- because bonds are going to stall if not outright fall apart. I dunno what his investment strategy is since he is stuck with bonds except wait for the bond market to crash.
ZIRP doesn't mean inflation. Japan has been zirping for years and no inflation there. ZIRP is trying to lure borrowers- but like Japan it just becomes a carrytrade for sleazy speculators.
The inflation scenario( price inflation not true inflation which is money supply and credit supply because credit adds more money that printing) will ramp up if QE3, POMO permanent ponzi perpetual motion machine continues. I fear the market is like a crackhead- looking for the free money handouts. Zirp is zero interest. QE is free money handouts.
No handouts, no market rally,market may tank, bonds may move up again in fear trade, more race to cash.
So, to keep the real ponzi mechanism rolling Ben will have to QE3 or find more ways to monetize bad credit and give it away like booty bags at a 7 year olds birthday party. And the banks love their free money- and will tantrum without it.
Living in Fiatastan, several things have always remained constant.
One is that the FED causes recessions. Pretty much every one.
Your analysis is excellent as usual Bruce. I've been simplifying views into 2 teams, call it the inflation bowl :
1) Dave Rosenberg -- QE ends, Liquidity is retracted, Risk Off. Bonds rally, yields drop, equities sell, commodities sell, USD rallies. This could cause a recession. QE3 waits in the wings. Political will to endure another recession vanishes, QE3 emerges.
Moral of the story : Buy bonds, PMs, now.
2) Bill Gross -- QE ends, Bonds sell w/out POMO bid, yields back up, equities, commodities rally, USD weakens with inflation. As yields back up or normalize, bonds are bid, the long end flattens, inflation is hopping we move into a recession.
Moral of the story : short bonds, buy everything else, short USD.
A recession is coming, it has to because the FED will make it so. It's just a matter of when and when is where the marbles are made, not what. That's for speculation.
The bigger difficulty is structural and that's for life.
What's left out of most debates on monetary policy is the strategic side. Is US Monetary Policy a geo-political tool? Without a doubt. Are screws being turned versus global imbalances, namely surplus / mercantilist / pegged economies? Absolutely. The inflation that the FED is NOT causing (their view) has destabilized an entire region and counting. It has many in power severly nervous. Is this a way to "nudge" the Chinese off of the peg? If so directed, they are still attached.
At a certain point, what benefits US Transnational Corporations no longer beneftis US Citizens and that point is the current jobs picture. At 20% unemployment, corporate balance sheets can be pristine and profits fantastic but the foundations of civil society are weakening. The jobs that the transnationals have offshored are probably not coming back for the most part.
So, where do new jobs come from? How does the US reign in it's strucutural current account deficit, mostly oil, then cheap manufactured goods? A normalization of the labor gradient is one way, but that remains quite a number of years off ...
For the moment I think Libya has become a bridge too far for US Military policy and commodity inflation needs to cool off. I don't think that the Bernank actually runs his own show at that point. So QE2 ends. However, there is the major problem of housing which has also always been THE transmission mechanism for monetary policy, especially if yields back up too quickly. For housing, lower yields would encourage more buyers but the catch-22 of unemployment then rears its head. We are living in a dilemma.
The FED does not need to exit ZIRP for markets to take the Rosenberg path, only suspend QE ops for the time being. A pause that refreshes?
You go for months on ZH wading through the slush of single-issue obsessives and conspiracy theory tangentialists and you wonder why you keep coming back, then you see the coverage of Fukushima and you realize that through ZH you know more about what is really happening than 99.95% of people who watch/read the news.
Then you read commentary like BK's article and now dollarbill's posting and you think, I can live with the loonies because this is the meat and potatoes. Excellent post!!
Glad to be of what little service I can ...
Dollar Bill Hiccup...
Your reasoning is brilliant!
Do I know you? You may have to step up and be more vocal both inside and outside of ZH.
Such clarity and simplicity of thought should be amplified throughout our lands.
Kudos to my new best buddy.
Looking forward to meeting again, if not in this life then ...
Why be so limiting? You say that political will to endure a recession is not there.
Is there political will to do ANYthing?
My god. We're going to have a deficit more than $1.6 Trillion this year and there's not political will to cut more than 6% of that from the budget. That's insane cowardice.
That's a tough one. My personal preference would be to vote every incumbent out of office, save for the few who do stand up occasionally. Mortgaging our children's future is absolutely as you say it, insane cowardice.
these douches do not legislate on the citizens behalf
the deficit is in place to kill the dollar in conjunction with an establishment of a world electronic slave system
the political will is to bring in the King despot, and to put you out of business
it really is pretty simple
the monetary system is the matrix, a grand illusion to keep the people occupied until they can bring in their King