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Bernankenstein Confirms Monster Experiments
Lee Adler revisits Bernankenstein and his monster. If you missed the first of our interview series, click here and here. - Ilene
Bernankenstein Confirms Monster Experiments
Courtesy of Lee Adler of the Wall Street Examiner
In testimony before the House Financial Services Committee today, Fed Chairman Bernankenstein confirmed in his own words what I have been writing for months. Here’s how Marketwatch.com put it:
Just two weeks after completing a second extraordinary effort to juice the moribund U.S. economy, the Federal Reserve is contemplating more “untested” steps, the head of the central bank said Wednesday.
Federal Reserve Chairman Ben Bernanke says the central bank is examining several untested means to stimulate growth if conditions deteriorate, even though the central bank believes the temporary shocks holding down economic activity will pass.
Here are his exact words:
Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further. One option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels. Another approach would be to initiate more securities purchases or to increase the average maturity of our holdings. The Federal Reserve could also reduce the 25 basis point rate of interest it pays to banks on their reserves, thereby putting downward pressure on short-term rates more generally. Of course, our experience with these policies remains relatively limited, and employing them would entail potential risks and costs. However, prudent planning requires that we evaluate the efficacy of these and other potential alternatives for deploying additional stimulus if conditions warrant.
He also laid out the strategies for reducing the size of the Fed’s balance sheet, including not rolling over maturing securities for starters. These are non starters in my view. The Fed will never be able to reduce the size of its balance sheet. In fact, it will need to begin expanding it soon. Here’s what I have been writing in the Wall Street Examiner Fed Report.
The Fed will announce its POMO schedule for the next month on Wednesday at 2 PM. The purpose of these operations will be to replace maturing GSE paper and MBS paydowns to keep the total size of the balance sheet level at roughly $2.65 trillion. This should translate to operations averaging about $2 billion, per week. That is a drop in the bucket and will put the Primary Dealers, and hence the financial markets, on a starvation diet. The PDs will be left to absorb the bulk of $120-$150 billion in Treasury supply each month with no help from Dr. Bernankenstein. He’s now experimenting with starving his monster to see what happens. It will be ugly.
As a result, the Fed will almost certainly take steps to help the dealers absorb the supply sooner rather than later. QE3 anyone? There are two questions. How long will Bernanke take to react, and what form will that reaction take. This is a man who never tries the same thing twice. It will be interesting to see where his wild, unhinged imagination will take us next.
Based on his Congressional testimony today, it would seem that Dr. Bernankenstein is following the script perfectly.
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The thing that would actually fix it is to make all home loans principal only with no interest. But no. That is too easy and without serious moral hazard. We have to do worthless baloney that will never work because it puts no money in anyone's pockets. No economy = no tax ervenue = debt default = printing.
You have to wonder if permanent recession is the goal in order to keep the bankers wealthy and to keep the money from circulating.
It's like putting band-aid after near-mortal mutilation.
IMHO, getting debtors to forgive some of US debt might have better results.
I think BerNank is 'WINNING' and the Goddess of Tiny Tim is looking a bit shagged out.
I also watched the market go apeshit just after Bernanke started to talk. I also noted gold pushing to a new high. If that doesn't tell us the game is over I dont know what does. Gold 1600 and climbing a certainty as Bernanke puts the printing presses on overtime.
Oh and tonight Moodys is considering downgrading the US credit if a deal isn't worked our shortly. Normally one would think this kind of news is worth at least a hundred point drop in the markets tomorrow but don't count on it. The fix continues to be in.
"It's ALIVE!" ... uhhh ... oh oh, maybe not.
As for Gold ... NO is YES. Pay no attention to the bars behind the curtain.
"It's ALIVE!" ... uhhh ... oh oh, maybe not.
As for Gold ... NO is YES. Pay no attention to the bars behind the curtain.
Gold just popped $5 -- odd this time of day.
The premise is that the US owns all the nuclear hardware, it owns all the RM as they are quoted in USD. So you can QE infinity with these two trump cards; as long as US has big stick and big reserve currency, Bernanke can print away to oblivion. Our money, your problem. Keep moving...
EXACTLY RIGHT.
We have 700 military bases around the world keeping the peace so our banks can loan shark everybody into submission. But its OK because they're going to love it.
The FED won't expand its balance sheet. All other named measures could be taken, but will have no significant effect. Who will buy the treasuries? The people that currently hold stocks/commodities/highyield etc. in anticipation of infinite QE. It's game over, the FED has shot all its bullets and can only talk to keep up the appearance that they are "in control".
Bernanke runs the most toxic hedge fund ever known in the history of finance, and Trichet aspires to be just like The Bernank, and may not only catch up, but beat Bernank in this race to the bottom.
Wrong. EUfinmins of the "payers" (Germany/Finland/Austria/Netherlands) will force a default (but it will be called a debt-swap or something) for Greece. Then other countries like Portugal/Ireland will line up for this "solution" as well. Followed by Spain/Italy in 2012-2013. EU =/= US.
Sometimes I think I must have been dreaming up until now - print print print print ease ease ease ease simply can't be the Fed's answer to every crisis, including one caused by printing and easing. If Bernanke fed a starving child until he recovered his health, and kept feeding the kid until he was obese, I do believe he would double up on the feedings to cure his obesity - after all, "feeding him massive amounts is how we made him healthy."
SO WHY DO THEY CALL IT QE3?! 3!
I know another character who never tried the same thing twice, never tried to perfect previous failed attempts: Wile E. Coyote
Wile E. Coyote: Wile E. Coyote, Supergenius. I like the way it rolls out. Wile E. Coyote, Supergenius.
It was hysterical to watch the Dow go up nearly 100 points in two seconds as the words, "Fed hints at more easing possible" flashed at the bottom of the CNBC screen.
and now we'll start to price in.
And then there will be a reminder that it will take 6 months, and we'll dive.
And then we'll be at month 3 and start pricing in again.
Anybody wants to know the weather report for tomorrow? I do those to.
What an wild experiment...Weeeeee!
Reminds me of when my lab partner mixed elemental sodium with mercury in the college chem lab and almost blew us both up!