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Bernanke: Tap Lightly
Jon Hilsenrath at the WSJ has been THE mouthpiece for Bernanke for the
past few months. Bernanke has been telling him what is on his mind and
Jon prints it. That the debate on monetary policy is being conducted
like this has been one of the big mistakes at the Fed this fall. Today
Hilsenrath has leaked more of the maestro’s thinking. This time it is a
big shocker to me. Bernanke has apparently heard all of the opposition
to his mega QE-2 plan, and he has changed the scope of QE-2 as a result.
From the Journal today:
The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months.
A few hundred billion? What happened to the $2 trillion that Goldman
thinks might be the result? To prove that Bernanke is having second
thoughts on a major expansion of QE he gave this quote to the WSJ:
Mr. Bernanke has used the analogy of a golfer with a new putter: Unsure how it will work, he finds best strategy is to tap lightly at first and keep tapping until the golfer figures out how best to use the putter.
A putter? Does Mr. Bernanke think this is a game he is playing? He is
saying that he has never putted before, has no clue how to do it, so it
it is best to tap lightly? What kind of monetary policy is that? "Learn
as you go", does not make me feel that there is much hope.
I warned
of a possible QE-2 Mini recently. The opposition to a broader program
from other Fed members and the huge public outcry against currency
manipulation (QE is currency manipulation) has forced Ben to back off.
The market will be very disappointed should we get a QE Mini. A program that says, “We’re going to buy 200b in two months and then see”, will do nothing favorable to the markets. I would argue that the markets could be sadly disappointed by this.
The Fed has tried to manipulate both markets and public sentiment with
its leaks of strategy. They got the world to believe that something
massive was coming and now we will learn that it’s a “No big deal”.
They Fed should shut up. They should not leak more disinformation.
They set us up for a monetary program that would have tipped the scales.
Now they have to back up because they realize the scales would not be
tipped, but broken. The consequence is going to be for a bursting of
expectations. Risk Off.
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The first QE wasn't sprung all at once either, but implemented over many months. Right? Is this really materially different? Or just a change in how it is being described?
Sounds like if he implements what he is describing without a good exit point, we'll still be looking at $1 trillion plus within a year.
It's a tough call. I agree that a risk-off stampede after the official announcement is much more likely than a risk-on stampede.
Putting aside the question of how much is perceived to have been priced in, $100b of QE a month is actually a very big risk-on tilt. If it's all in Treasuries and on top of the roughly $25b a month the Fed is already buying, that takes out the entire net issuance. Anybody else who still wanted to accumulate Treasuries (eg China) would only be able to do so by taking others out of their positions. The power of that scale of displacement up the risk curve should not be underestimated.
Ultimately what any kind of fiscal or monetary stimulus does is increase the likelihood of a private investment paying back in financial terms (without, of course, changing the likelihood that it will succeed in real terms). $100b of QE a month pays for a lot of that kind of "risk on".
If Ben announces say "only" $50b a month of QE or less, markets will likely sell on that. But that would likely be only a short-term move, as actually, $50b a month of QE is by no means small. Net issuance of Treasuries is about $120b a month, and the Fed is already taking about $25b/month to replace its maturing agencies. The Fed taking another $50b/month chunk is a big crowd-out of other traditional Treasury accumulators. Since the easiest to displace are probably the least likely to switch to accumulating cash, there's probably a diminishing "return" (in terms of higher inflation, especially of assets) as the scale of QE is increased.
Agreed.
If they shoot the entire wad, and it doesn't stick, their really fkd.
By POMO in incrementalism, it shows "restraint", to a degree.
And, unlike a HUGE turd, a smaller one draws less flies(public infuriation).
This just makes sense for THEM, it D_R_A_W_S it out, and gives them more time.
They know whatever they do will not help,but J6P does not, and it buy's them time, and that allows them to milk us for more,not piss off Ching Dow as much as a major dump.
If they had half a brain, they would send thousands of dollars to consumers directly.It would hit the markets, and economy like a sledge hammer,might not last long, but it would buy time,and time is what they do not have.
Plus it would damn sure STIMULATE what needs stimulation.
Red herring. Tap lightly is a feint. It might roll that way to start, just to see what happens, but it will ramp to $2T within 90 days of the "tap".
This fucker is baked into the cake. They will not let the economy fail on too light a QE2 hammer. No god-damned fucking way. To the moon, and let the devil take the hind-most.
This could be the head fake of the head fake.
He needs a crisis if he is to Ease with grandeur. Foreclosuregate will do it. So now is the waiting game. It will not be until after the election that the ball is dropped.
Or, if Foreclosuregate is somehow stemmed by bureaucratic mazes and marking to anything but market, and how long could that be, then Ben will leak QE like an old bladder. His old bladder will only work for so long, maybe a month. Maybe....
Remember Nixon's "Peace with Honor" nonsense? This could be dubbed "Easing with Honor."
Excellent!
It seems several things are working against massive QEII:
1. The Chinese, either they agreed to make some changes or we blinked, not sure which.
2. Political pressures - the people are not happy with the endless spending. Since the Fed is viewed as a government entity (which of course is not true), when they start talking trillions they become front page news. The Fed is VERY concerned that a new Congress starts holding hearings and asking for an audit.
3. Effectiveness - it has become all to clear to many that the US economic problems cannot be solved with easy money, and in fact may be made worse by a QEII scenario. Maybe Ben decided to retreat and fight another day. If he goes all in now, and it fails, he is out of a job.
4. Attention - the Fed does NOT like to be the center of attention, even though Bennie likes the limelight. Someone may have gotten to Bennie and asked him to slither into the background again for a while.
5. Commodities - it had to be surprising to many how stocks, oil, food and gold reacted to this pre-announcement of QEII. Oil at $100 is the death of the US economic "recovery" and insures scrutiny of the Fed like never before.
The Fed will remain nimble and behind the curtain until someone begs them to be the hero and save us all from the deflationary bogeyman. Expect low key POMO like actions to keep the markets in a "narrow" range.
sschu
Announcing a huge QE2 will create hyper-inflation. No QE2 and we'll have deflation. So they'll just do a drip. (If you can really call 100 billion at a time a drip). The problem will be when and how to get off their money addiction. There is no end to this circus in site. They will kick this down the road so the baby boomers can coast into their graves. When my generation hits retirement age we'll be in the hurt locker.
My opinion is that we take our spaking now and let some deflation happen. That way we can see what a country with little manufacturing left really looks like and then things might actually change.
Simply put, shipping jobs to slave labor countries might be good for the individual corporation but when everyone does it we're fucked.
We baby boomers won't be coasting into our graves, Juicy. Many of us will be lucky to be able to afford a grave. You can take heart in knowing that we too will suffer.
For those who still trust in the system and believe main stream media and have their money in mutual funds (the majority) I think they will be propped up. Like DOW 14,000 in 2012. That won't help your retirement? I mean, if they successfuly kick the can down the roand for another decade or two?
The problem is a Zerohedge reader doesn't trust in the system (and rightfully so) and therefore we don't know what the hell to do with our savings.
Off Topic ..
Was watching Bloomberg this early Am. Real early ( couldn't sleep) !
So this guy comes on and says that some EU company that makes "LOCKS" (house type ) is doing real well and this can ONLY mean that housing is picking up since new houses need new locks.
I almost fell off the couch that he said it with a straight face.
lol - Yeah, it couldn't possibly be that people are getting foreclosed on and the banks are switching out the locks; or that due to financial stress divorces are up and one or the other spouse is locking the other one out.
Nope...must be recovery...puff...puff...pass...
You don't need to spin like that:
A putter? Does Mr. Bernanke think this is a game he is playing? He is saying that he has never putted before, has no clue how to do it, so it it is best to tap lightly?
This is one of the tools in his arsenal, the media.
A few weeks ago, announced QEII (trillions),
the crowd went wild.
Today, he announces no QEII (a couple hundred billion is effectively none)
watch what the crowd does.
A few months back Ben said he did not understand gold prices - he lied. Gold price have more to do with emotion generated by words rather than facts generated by performance.
And people wonder why there is uncertainty in the market?
"Fed should shut up. They should not leak more disinformation."
central banks only have two tools:
1. the printing press
2. slinging bullshit
you are suggesting that they stop using tool number 2 ...
(Reuters) - Dollar issuance by the United States is "out of control," leading to an inflation assault on China, the Chinese commerce minister said in comments reported on Tuesday.
http://www.reuters.com/article/idUSTRE69P3QW20101026
JBII, Jaw Boning II, extend the illusion of QE. Walk up to the tee, take a couple manly swings with your Big Bertha, then pull out the putter and then politely tip the ball off the tea? High score wins!
Unfortunately (or perhaps fortunately), deleveraging regimes occurring on an economy-wide, indeed world-wide scale, are not common enough events for central bankers to have their tried-and-true 'Dummies Guide to Dealing with Deleveraging" open on the desk next to them. The alternative to "using the putter" is to just hack away with the driver to see how best to get the ball away from where it is now. Problem with pulling out Big Bertha and just having at it is that whole point of the game is to get the gallery (all the rest of us duffers) to watch, not run for cover.
Death by a thousand papercuts. Should be fun.
So I guess that's why he is short bonds? not...
Well here you have it the insider has spoken .
From ransqwauk:
Pimco's Bill Gross says Fed announcement likely to signify end of 'great 30-year bull market' run; bondholder negativeBruce,
This is a great read, and something I've been thinking personally for a couple weeks: QE2 might in fact, be DOA. But the thing that keeps nagging me is that we know the TBTF banks are 'insiders' when it comes to foreknowledge of Fed moves. If QE2 is indeed a dud, then we must assume that the big boys already know this.
So, are Goldman's 'projections' of a multi-trillion dollar QE package just more misinformation like their forex calls? Are they shorting into this upcoming surprise? Is anyone seeing any evidence that the big players are not in fact pricing in QE2?
Popo:
I think you're right. The massive backup in the 10yr over the last week or so is evidence in your favor. I also think BSB faces a lot of internal opposition inside the Fed for a giant QE2. He has to maintain at least the facade of a "consensus".
Using the manipulated markets to paint the Fed and Critters into an easing/stimulus corner is a time tested ploy for the boyz in control. It is reasonable to assume that it's happening again. But this time the headwinds of scrutiny are strong, since a flagrant crisis has been muted and the Fed is in a fight to keep its clothes on with the upcoming SCOTUS appeal.
As usual, a good post, Bruce.
They are playing the herd . GS may be playing this with Bill gross and the WSJ journalist . Everybody comes out this week and says QE2 is a no go, people sell off and Pimco/GS etc. buys the lows knowing full well in the end risk on . Maybe ???
I think theyre all playing with their weenies while insiders dump to the FED at 2,000:1 ratio. This is the endgame upon us!
Bernanke playin with his putter, yea thats about it.
zactly, only a few hundred billion? sniff...
The good news is essential commodity prices should come down if this is true .(I don't worry about the price of gold or silver because they will always essentially buy the same number of bread loaves minus a global catastrophe of course) .
The bad news is I am now thinking "hundreds of billions" is like how I used to think of "hundreds of millions " when they are light years apart .
On a final note, maybe Ben has come to the conclusion someone has to lose in order for this economy to ever move forward again . So who is going to collapse first ?
The elderly/fixed income savers and prudent will collapse first. They have been utterly crucified.
Failure is only rewarded, the rest is buying time for the above to die and perps to walk.
Bank of America looks to be in the middle of the shitstorm. I would think they are a prime candidate for a Bear Stearns type takeover.
Putter! - Ben wants so badly to pull his Big Bertha driver out of the bag and start swinging like Rodney Dangerfield.
Sooner or later he's going to go for it.
So?
So, let's dance!
Only if his leaked plans get favorable reviews.
He's like a little kid trying to learn how to play chess. He moves a piece to a spot without taking his hand off it so that he can try to gauge the reaction of his opponent.
+ "your move."
What about the elections?
You don't think the ramp job since the beginning of September has had anything to do with them?
We were tanking at the end of August and everyone was getting ready for the dreaded Double Dip.
Now, at least, Obama and the Democrats can't blame the Fed or the markets for the outcome Tuesday. The last two months in the markets have leveled that playing field - if not tilted it towards them.
Yea Alex I think all this 1,300 points pumped into the DOW and everything else had EVERYTHING to do with a directive for 'happy joy feelings' for an election to save their Wall St Presidents bacon, and that didnt work.
I dont see any playing field tilt, approval numbers are all the same (crappy) and pumping markets didnt impress anyone, probably just made unemployed bankrupt america more angry.
So now theyll just keep it where it is and continue daily magical meltups as if everyones too stupid to know its all a total farce? I think a lot of people are living in a fantasy world!
Politics at the Fed? I'm shocked.
Stickin feathers up your butt does not make you a chicken, Bernanke!
"What happened to the $2 trillion that Goldman thinks might be the result?" pff, to say GS owed the fed a favor is the understatement of the decade. They say anything Bernanke wants them to...lies, that's the only way it makes any sense. Lies from the start, and i say good for them!
Why listen to 'teh politicons?' You know they will lie! I will watch what they actually do, which is far more important. As far as I can tell, the first QE (moneyprinting) is still going on, and will continue to do so. If they stop, the shambling leviathan economy will quickly lose bodyparts.
"the shambling leviathan economy will quickly lose bodyparts"
Monty Python - The Black Knight
http://www.youtube.com/watch?v=zKhEw7nD9C4
"It's only a flesh wound ..."
I recognize that the absolute amounts in question here are not very large. But won't the impact on markets be substantial if the purchases are open ended or conditions-based (like until unemployment is under 8%)?
Well i believe the metric that the fed is looking at is DOW under 10,000, i agree with you to the extent that an open ended program, keeps the market as a whole, bid.
Deflationary vortex spawns in 10...9...8...7....
Bingo
Gold down $13 on news 1054 tonne reserves China wants to buy more like the 8133 tonne USA reserves
http://www.bloomberg.com/news/2010-10-27/china-should-buy-more-gold-to-d...
Hmmm
I think China won the staredown and won't get a nasty, currently postponed, currency war letter from congress.