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Betting On An Infinite Bernanke Put? Not So Fast, Says Fed Governor Kevin Warsh

Tyler Durden's picture


Last week's Op-Ed du semaine was Ben Bernanke's WaPo glowing endorsement of the Fed market put, whose sole purpose was to remind stocks, which ended up drooping on the day QE2 was announced, that Bernanke will stop at nothing to achieve his now primary goal (as loosely interpreted under the Fed's broad, and unsupervisable, mandate) - surging stock prices. This week, however, may likely belong to Fed Board Governor, and former member of the President's working group on capital markets, Kevin Warsh. In an Op-ed just released in the WSJ, Warsh, whose series of accomplishments include being the youngest ever appointee to the Fed BOD at 35, and being married to Jane Lauder of Estee Lauder fame, writes "Lower risk-free rates and higher equity prices—if sustained—could
strengthen household and business balance sheets, and raise confidence
in the strength of the economy. But if the recent weakness in the
dollar, run-up in commodity prices, and other forward-looking indicators
are sustained and passed along into final prices, the Fed's price
stability objective might no longer be a compelling policy rationale
. In
such a case—even with the unemployment rate still high—we would have
cause to consider the path of policy. This is truer still if inflation
expectations increase materially.
" Translation: if gold continues to exhibit a beta > 1 w/r/t ES, then we are screwed, and all Fed policies will have failed. Elsewhere, look for most commodities to open limit up again tomorrow for the nth day in a row as inflation expectations continue to "increase materially" and more and more Fed members understand just what Warsh is saying.

Much more in this surprisingly austere statement by one of the fresher voices at the Fed:

On focusing on the "seller" in the critical economic equation which the Fed now believes is only defined by end consumer demand, a premise that was thoroughly destroyed earlier by Sean Corrigan:

Policy makers should take notice of the critical importance of the
supply side of the economy. The supply side establishes the economy's
productive capacity.
Recovery after a recession demands that capital and
labor be reallocated. But the reallocation of these resources to new
sectors and companies has been painfully slow and unnecessarily
interrupted. We are feeling the ill effects.

On austerity: look for Krugman and fluffer DeLong to go apeshit over this:

Fiscal authorities should resist the temptation to increase government
expenditures continually in order to compensate for shortfalls of
private consumption and investment.
A strict economic diet of fiscal
austerity has greater appeal, a kind of penance owed for the excesses of
the past. But root-canal economics also does not constitute optimal
economic policy.

On consumer deleveraging:

The deleveraging by our households and businesses is not a pattern to be
arrested, but good prudence to be celebrated.
Larger, more liquid
corporate balance sheets and higher personal saving rates are the
reasonable and right responses to massive government dissaving and
unpredictable government policies. The steep correction in housing
markets, while painful, lays the foundation for recovery, far better
than the countless programs that have sought to subsidize and temporize
the inevitable repricing. It is these transitions in our market
economy—and the adoption of pro-growth fiscal, regulatory and trade
policies—that lay the essential groundwork for greater, more sustainable

Stunningly insightful words for a Fed member. They beg the question, however, why was consensual restructuring not on the table when TARP was being proposed? As we have said so many times, the US banks would not have collapsed had their balance sheets been reorganized, even as their operations continued (totally separate from bank liabilities). Now it is too late, which is why a reversion will necessarily require a complete financial reset, and all those who are calling for a methodological process to go back to where we were in the days of late September 2008, when there still was hope, are naive idealists. In this context a return to a gold standard would not make sense at the current price of gold... It would, however make sense, were gold to be priced at around $5,000, or more.

Yet the most stunning tidbit of clarity and lucidity by Warsh is the following:

Last week, my colleagues and I on the Federal Open Market Committee (FOMC) engaged in this debate. The FOMC announced its intent to purchase an additional $75 billion of long-term Treasury securities per month through the second quarter of 2011. The FOMC did not make an unconditional or open-ended commitment. I consider the FOMC's action as necessarily limited, circumscribed and subject to regular review. Policies should be altered if certain objectives are satisfied, purported benefits disappoint, or potential risks threaten to materialize.

Lower risk-free rates and higher equity prices—if sustained—could strengthen household and business balance sheets, and raise confidence in the strength of the economy. But if the recent weakness in the dollar, run-up in commodity prices, and other forward-looking indicators are sustained and passed along into final prices, the Fed's price stability objective might no longer be a compelling policy rationale. In such a case—even with the unemployment rate still high—we would have cause to consider the path of policy. This is truer still if inflation expectations increase materially.

The Fed's increased presence in the market for long-term Treasury securities poses nontrivial risks that bear watching. The prices assigned to Treasury securities—the risk-free rate—are the foundation from which the price of virtually every asset in the world is calculated. As the Fed's balance sheet expands, it becomes more of a price maker than a price taker in the Treasury market. If market participants come to doubt these prices—or their reliance on these prices proves fleeting—risk premiums across asset classes and geographies could move unexpectedly.

The last sentence is the ultimate kicker as it captures precisely what will happen when the realization that things are slipping outside of the Fed's control spill over to Wall Street (and then to MainStreet). As Warsh says: "The Fed can lose its hard-earned credibility—and monetary policy can
lose its considerable sway—if its policies overpromise or under deliver." As the bulk of the world, and the vast majority of the population already have no faith in the Fed, the acknowledgement that this process can capture everyone, including a ponzified Wall Street, whose fortunes are embedded in the proper functioning of the Fed, should be cause for huge alarm. Since if even the Fed realizes that the risk that the world will look beyond the fake price facade created by Bernanke exists, it is only a matter of time before the transition from hypothetical to real is completed.

As Warsh's words resound with more members of the FOMC and Fed BOD, and especially as 3 new hawks join the voting ranks next year, not to mention Ron Paul's new role, all those betting that "EVERYTHING" will go up under QE2/3/4/etc, may want to promptly reevaluate their thesis...




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Sun, 11/07/2010 - 22:45 | 707443 Brokenarrow
Brokenarrow's picture

Uh-huh.....interesting piece.

Now--run out and short the YM all in! In two months you'll be BK.

Whatever Fed officials leak to the public? Do the exact oposite.

Personally, I have been certain that the US equity market would crash for the last 400 s&p pts.

Yeah, Baby! Go all in with your bad self.

Sun, 11/07/2010 - 22:56 | 707463 russki standart
russki standart's picture

The cake is already baked... even if the Fed changed policies overnight, the USD will self destruct since higher interest rates will BK the US government overnight.

Sun, 11/07/2010 - 23:14 | 707469 Turd Ferguson
Turd Ferguson's picture

Exactly! Thank you, Russki, for saving me from having to type the same thing.

Same old Central Bank bullshit. This is nothing more than a response to thids:

All that's left is talk and it's working, at least tonight. Mr. Governor's op-ed got himself a 50bp kick in the USDX. HellyBenny might have to give him a little more sizable Christmas bonus.


Sun, 11/07/2010 - 23:16 | 707501 bigdumbnugly
bigdumbnugly's picture

wait a minute.  less than one week from the QE2 announcement a fed governor is coming out with this claptrap?

what, did he just now awaken from a rip van winkle-like slumber?

i either smell desperation or ass covering.  or both.


Mon, 11/08/2010 - 00:58 | 707618 cswjr
cswjr's picture

Whatever the reason, it's very unorthodox.  As a matter of course, FOMC members don't discuss what occurs at FOMC meetings, at least until the minutes come out.  Not that he disclosed anything material.  Still... odd.  Maybe BB is having some misgivings.

Mon, 11/08/2010 - 02:29 | 707667 dlmaniac
dlmaniac's picture

Just MOPE, bitchez.

Mon, 11/08/2010 - 02:29 | 707666 ebworthen
ebworthen's picture

Ass covering was my first thought; head-fake and obfuscation my second.

This was a very interesting read on why the markets could just keep going up (yes, the man is in jail, but some compelling arguments):



Mon, 11/08/2010 - 09:42 | 707838 NumberNone
NumberNone's picture

Agreed.  Warsh thanks for the insightful analysis after the house is already on fire and burning to the ground.  Would have been fucking nice if you had given this all a bit more thought several years ago.  Frightening that you have to actually see the flames licking up the sides of the building before you realize that it was gasoline you were actually pouring on the fire and not water.  Maybe admiring your Economics PhD kept you busy.

Mon, 11/08/2010 - 11:10 | 707995 RockyRacoon
RockyRacoon's picture

I'm in the ass-covering camp.  He can point back to this when folks say, "We never saw THIS coming!".  Yeah, right.   What they meant to say was, "We saw it but we hadn't finished the looting at that time.".

Mon, 11/08/2010 - 12:08 | 708147 Buddha_Gorilla
Buddha_Gorilla's picture

My $'s on smokescreen.  Carefully orchestrated PR to reinforce the Fed's credibility in public while they undermine it in private.  Of course, my $ isn't worth what it used to be.  :)    

Sun, 11/07/2010 - 23:05 | 707477 Spitzer
Spitzer's picture

Thats right.

The dollar would even have been done in 08 if they didnt temporarily instill some more confidence in it by bailing out America Inc.

Now that everyone has refinanced to lower rates, the gap that bankrupts the banks is even smaller.

Mon, 11/08/2010 - 11:11 | 708003 RockyRacoon
RockyRacoon's picture

I'm about to do my part and move from a 5.25 to a 4.00 rate.

Always glad to pitch in.

Sun, 11/07/2010 - 23:17 | 707502 Dollar Damocles
Dollar Damocles's picture

The (most recent) massive worldwide run on the world bank (FED) that began over a decade ago (visible in the USDX and the Gold's long-term charts) is not going to be satisfied by a mere $5,000 an oz gold.  Ultimately a currency's value will come into balance with the productive capacity of the issuing nation and it's underlying assets.  Wealth follows capital structure (the ability to produce wealth) and so does purchasing power.  Asia is where it is at and they are going to drain western gold like vampires until gold is revalued to a price that will let it function without suppression in the role that it has ALWAYS served - the ultimate settlement and balancer of international trade imbalances.  The USD is toast - $5000 an oz gold, hahaha don't make me laugh.  How about 30k an oz gold in todays dollars, and 1Trillion dollar an oz gold in Bernanke dollars - more realistic.

Mon, 11/08/2010 - 00:49 | 707608 AndrewJackson
AndrewJackson's picture

Yep you are correct. The only thing that is politically acceptable is high inflation. Thus, the bernanke put through QE(Infinity) is well protected. Might as well go buy some longer term pm call options.

Mon, 11/08/2010 - 08:51 | 707778 justbuygold
justbuygold's picture

Exactly correct.  The Fed has no choice but to keep monetizing and buying U.S debt becuase there are no other buyers, they have all evaporated or are now sellers.  The Bernake put is almost infinite and the numbers will only get bigger and bigger which will in turn cause other debt buyers to become more and more on the sell side.  I say " almost infinite" becuase it will end one a U.S  default.


Got Gold ?

Sun, 11/07/2010 - 22:47 | 707445 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

How long before this dissenting voice gets canned for telling the truth?

Sun, 11/07/2010 - 22:52 | 707456 gimli
gimli's picture

Ya know, there could be other reasons for commodities to continue their current trajectory -- this could help a bit:


Sun, 11/07/2010 - 23:01 | 707471 snowball777
snowball777's picture

Addressing the same forum, Israel's Defense Minister Ehud Barak was pessimistic about diplomatic engagement halting Iran's drive for a nuclear weapon. "Based on experience and looking at the example which they (the Iranians) are using, which is probably the North Korean example, you can easily see ... the objective is to defy, deceive and deter the whole world," he said.

Because Israel never defies, deceives, or deters the whole world. And especially not with respect to say the proliferation of nuclear weapons.

STFU, hypocrite.

Mon, 11/08/2010 - 00:18 | 707580 Arthur
Arthur's picture



Barak is just stating the obvious.  Do you think Iran only has peaceful intentions for its nuclear program?     Israel is presumed to have had the A-Bomb for almost 40 years, if they admit having the bomb then everyone in the neighborhood has to have one too.  Israel is coy about the A-Bomb but clearly projects a MADD deterrent policy.   Who thinks Iran wants the an A-bomb for the same reason?  How many countries and terrorist groups are pledged to the destruction of Israel and how many to Iran?



The majority of the Arab countries don't want Iran to have the bomb either.


Mon, 11/08/2010 - 00:54 | 707615 scaleindependent
scaleindependent's picture


Mon, 11/08/2010 - 08:18 | 707759 New_Meat
New_Meat's picture

yah, drunk drivers are dangerous too.

Mon, 11/08/2010 - 08:27 | 707763 Ivanovich
Ivanovich's picture

I'm sorry, why would corn and wheat go up because of this?  Or soy?  or cocoa?  or....

Mon, 11/08/2010 - 11:15 | 708011 RockyRacoon
RockyRacoon's picture

From the article:

Early Sunday, the influential Senator Lindsey Graham (R. South Carolina), member of the Armed Services and Homeland Defense committees, said: "The US should consider sinking the Iranian navy, destroying its air force and delivering a decisive blow to the Revolutionary Guards." In an address to the Halifax International Security forum, he declared "They should neuter the regime, destroy its ability to fight back and hope Iranians will take the chance to take back their government."

Good move, Graham.  I'm sure that destroying half the country would give the man on the street a motivation to do what the U. S. would like to see.   The Iranians would probably "welcome us as liberators" as well.

Sun, 11/07/2010 - 22:58 | 707457 plocequ1
plocequ1's picture

How dare Warsh question the Emperor. We can not have this. The Emperor is displeased. This drama is so fucking obvious, It makes me cringe.  Nice media for all the subduded mass to watch and enjoy while they play with their Ipads.

Sun, 11/07/2010 - 23:04 | 707476 Turd Ferguson
Turd Ferguson's picture

If you think this is genuine dissent, you're f-ing crazy.

This is simply SPIN...a blatant attempt to verbally support the $. Interestingly enough, on a light-volume Sunday night, its actually worked to the tune of 50 bps in the USDX.

No doubt, CNBS will pick it up and SPIN it like crazy tomorrow morning. All the while, the Fed cranks up another $4B in POMO at 11:00. 

Mon, 11/08/2010 - 12:14 | 708156 Buddha_Gorilla
Buddha_Gorilla's picture

+1.  Expect more "verbal inflation" as cover for more monetary inflation.  I'm probably just paying closer attention, but it does seem like we're hearing more and from more board members (and in more prominent places) these days.

Mon, 11/08/2010 - 07:15 | 707727 beanieville
beanieville's picture

It's funny you mentioned "f*cking obvious" when it didn't seem obvious to you that the market would go higher on grounds of quantative easing.

Mon, 11/08/2010 - 07:59 | 707747 johngaltfla
johngaltfla's picture

Exactly. The myth that anyone is going to do anything but go along to get along within the Ivory tower is a myth. The Emperor will simply smite those who dare oppose him.

Sun, 11/07/2010 - 22:53 | 707458 Lapri
Lapri's picture

Warsh still voted yes on QE2.

Seems like his article is to appease those Europeans and Chinese and Brazilians hyperventilating over Ben's QE2.

Good cop, bad cop routine.

Sun, 11/07/2010 - 23:15 | 707495 Walter_Sobchak
Walter_Sobchak's picture

a central banker will always cry out in pain as he cuts you in the jugular.

Sun, 11/07/2010 - 23:19 | 707497 Fred G Sanford
Fred G Sanford's picture

Good point. Warsh's vote for QE2 says it all.

Mon, 11/08/2010 - 08:21 | 707761 Bob
Bob's picture

Pretty obvious spin to me as well. 

Sun, 11/07/2010 - 23:00 | 707467 Nevermind
Nevermind's picture

Warsh is an E. coli in Bernanke's punchbowl...not a Tootsie Roll. 

Sun, 11/07/2010 - 23:07 | 707480 Heh heh
Heh heh's picture

This is the Michael Jackson market. Dr. Bernanke brings it up and takes it down.

Sun, 11/07/2010 - 23:09 | 707486 Charles Mackay
Charles Mackay's picture

Since when do three potential dissenting  members consistute a majoirty on the FOMC, assuming they they actually will dissent?

Sun, 11/07/2010 - 23:25 | 707515 Jim B
Jim B's picture

Agree!  It is suprising to here more than one voice of common sense @ the FED!

Sun, 11/07/2010 - 23:18 | 707504 Leo Kolivakis
Sun, 11/07/2010 - 23:43 | 707543 gwar5
gwar5's picture

She's my favorite vampire

Mon, 11/08/2010 - 01:40 | 707650 Rodent Freikorps
Rodent Freikorps's picture

Here is a tribute to her in latex...with guns.

Underworld - Our Solemn Hour


Mon, 11/08/2010 - 01:34 | 707644 Bob Sponge
Bob Sponge's picture


Mon, 11/08/2010 - 02:31 | 707668 ebworthen
ebworthen's picture

Reminds me of my ex-Wife; it was a good 20 years from 19-39.

Mon, 11/08/2010 - 10:54 | 707960 trav7777
trav7777's picture

reminds me of mine too...didn't get anywhere near 20 lol, just too batshit crazy

Mon, 11/08/2010 - 07:09 | 707724 Djirk
Djirk's picture

Looks like Estee Lauder makeup

Mon, 11/08/2010 - 14:45 | 708892 magis00
magis00's picture

I see what you did here.

Mon, 11/08/2010 - 11:26 | 708045 RockyRacoon
RockyRacoon's picture

You know what they say: 

Somebody, somewhere, is tired of putting up with her shit.

Sun, 11/07/2010 - 23:21 | 707510 Revolution_star...
Revolution_starts_now's picture

Margin Call Bitchez,

sorry I couldn't help it.

Sun, 11/07/2010 - 23:23 | 707511 Nat Turner
Nat Turner's picture

A real Michael Jackson market. Where's my bleach, bitchez!

Sun, 11/07/2010 - 23:28 | 707517 hamurobby
hamurobby's picture

" Translation: if gold continues to exhibit a beta > 1 w/r/t ES, then we are screwed,


Yes, looking for nice new furniture.

Sun, 11/07/2010 - 23:32 | 707521 lolmaster
lolmaster's picture

Krugman and fluffer DeLong


got em.

more generally speaking this is just the last b-boy (hint: not break) to be tasked with creating diversionary cover for the real game plan. 

we are clearly headed to a ron/rand showdown.

Sun, 11/07/2010 - 23:41 | 707538 Cleanclog
Cleanclog's picture

Maybe the Fed wants "us" to think we are enjoying a wealth effect from the S&P going up up up with their QE2, while at the same time fearing inflation and therefore going and making our big purchase items before their prices rise - ala furniture, appliances, vehicles, etc etc.  

Could explain the Schizo talk of Fed board members.

Sun, 11/07/2010 - 23:43 | 707541 zen0
zen0's picture

Its all posing. The anti-Fed forces made enough of a stink to make the necessary pre-emptive rhetoric necessary.

I like the reference to "household balance sheets" as being akin to business balance sheets. The majority of obese and dissolute, irrational and depraved, neurotic and psychopathic households do not know what a balance sheet is.

If they did, they would opt to deal with it sometime tomorrow or the next day, because there is eating, drinking, sniffing, and smoking needs doing right now.

Sun, 11/07/2010 - 23:47 | 707550 honestann
honestann's picture

These statements from a FederalReserve stooge is designed to provide a paper trail that proves they considered these possibilities later --- when all hell breaks loose.  That will then be pointed to as evidence to claim they are also prepared to deal with the next calamity.  Pure fraud.

Sun, 11/07/2010 - 23:48 | 707553 gwar5
gwar5's picture

This guy just now figured this out?? Holy shit!

Across the pond they are not happy campers

The German finance minister is calling bullshit tonight, just in time for the G-20

Seems to me they all said the same thing about it at the last G-20, just not as loudly

It gets curiouser and curiouser




Mon, 11/08/2010 - 02:51 | 707674 Assetman
Assetman's picture

Warsh is an insider.  He figured this out long ago.

We need to file this article under "watch what they DO, not what thay SAY".  Only days ago Warsh gave his unequivocal approval of a plan to add $600 billion to the Fed's balance sheet.

In my opinion, the Fed is trying to control the dollar devalutation process.  It might be easier said than done, as it appears in the early going that this is a highly unpopular strategy.  Of course, the German finance minister is right... its complete BS.

The Fed is going all out on "extend and pretend", it seems.


Sun, 11/07/2010 - 23:49 | 707555 Caviar Emptor
Caviar Emptor's picture

What would kill all existing theories, expert opinions, forecasts, models and giant macro bets? 

Simple. People are either looking for major inflation or a "super-goldilocks" economy to resume. And the Fed is busy monitoring their usual numbers and traditional metrics 24/7.

But what they'll never see coming and not even be able to ascertain using their metrics is biflation, the beast. There won't be big time inflation precisely because they're expecting it and looking for it. If it comes in moderate, they'll pat themselves on the back. There also won't be big time deflation because they're on it too (with QE ad infinitum). 

But they won't recognize biflation just like nobody will recognize the devil until its too late. Because the synergistic and additive effect of deflating assets and incomes coupled with inflating input costs and cost of living can be more lethal to the economy than lots of either one. Their alarm bells won;t go off. Their radar screens won't show incoming bogies. They'll deny that there's a problem all the way to the wall.

But the die has already been cast. It's inevitable. Input costs will inflate, as they already are. And US real estate, incomes and employment will deflate. Both at a modest to moderate pace killing small business and the middle class like putting them on the rack. 

Mon, 11/08/2010 - 05:50 | 707714 Escapeclaws
Escapeclaws's picture


Sun, 11/07/2010 - 23:50 | 707556 straightershooter
straightershooter's picture

The first emperor of China was invincible  until one day he suddenly dropped dead. Invincible ?

The one Ben Bernanke, swore to God that he would defend his honor of his "invincible" theses that he could simply print money to solve all ills of Economy, was assigned a nickname of baby killer after a no name journalist from a no name town of show me state reported babies died from starvation and malnutrition because the single mom could not afford buying now sky-high food price, thanks to Ben Bernanke's money printing scheme, academically disguised as Quantitative Easing.

All hail Ben Babykiller Bernanke, aka, BBB. BBB? Can someone summon Moody's to do a restructuring and upgrading the BBB to AAA, aka, Asshole Asinine America.

Sun, 11/07/2010 - 23:50 | 707557 wreynol4
wreynol4's picture

this is kind of a open ended question but do you think POMO operations going forward will be as effective as they have been the last year?  I have watched thed DOW go from 6500 to 11,500 the past 2 years, but it seems as though through dimenishing returns the likelyhood of this rediculous run the market has been on, especially the last 90 days can't keep up. To put it in perspective outside of the flash-crash there hasnt been a correction since O'bomba came into office.  Just trying to get perspective from what others think, all thoughts welcome.

Sun, 11/07/2010 - 23:57 | 707564 putbuyer
putbuyer's picture

What I am saying is. Is there is a remedy that the  PEOPLE could take up to effect an outcome?

I say there is. If every blogger and blogger reader took up a cause, it would - or could result in massive change. I believe taking down BAC would be the catalyst that takes it all down - GS, JPM, Citi, MS and the rest of it so we get back to mark to market. Result - massive suffering yes, but a new clean slate would emerge to build from. I have seen it in the eyes of so many in the depression from pictures (on tell me the American is unbeatable. We can rebuild.

Mon, 11/08/2010 - 00:11 | 707573 Stuck on Zero
Stuck on Zero's picture

Our founding fathers had the remedy for a criminal government.  All the people have to do is buy gold and hoard it or trade it with each other.  Do not use dollars, do not send your money to Wall Street. 

Mon, 11/08/2010 - 01:01 | 707622 putbuyer
putbuyer's picture

Our best chance right now that the animal is limping. BAC. It to go in quickly and cut off the head of the BAC snake. KILL IT! NOW!

Mon, 11/08/2010 - 00:04 | 707570 schrock
schrock's picture

Morgan Stanley financial adviser escapes felony charges for hit-and-run 'because it could jeopardise his job

Mon, 11/08/2010 - 05:23 | 707711 Djirk
Djirk's picture

He must of read bonfire of the vanities

Mon, 11/08/2010 - 00:06 | 707571 Stuck on Zero
Stuck on Zero's picture

I'm rushing out to buy another 1/4 ounce Krugerrand right away.

Mon, 11/08/2010 - 00:12 | 707575 DoctoRx
DoctoRx's picture

Lower risk-free rates and higher equity prices—if sustained—could strengthen household and business balance sheets, and raise confidence in the strength of the economy.

Artifical interest rates and higher stock prices (which are always temporary) can never truly create wealth.  Lower interest rates are a zero-sum game as there is a lender for every borrower.  And unrealistically high stock prices mostly serve to stimulate "production" of more stock and therefore more malinvestments.

This commentary is basically more Keynesian garbage wherein people are still supposed to be high on their Soma.  But it's never a brave new world.  It's still the same boring, spinning world.  Good spin by Warsh to get TD to post this . . .

Mon, 11/08/2010 - 00:15 | 707576 wreynol4
wreynol4's picture

so your saying you believe POMO will cause the markets to push higher?

Mon, 11/08/2010 - 02:42 | 707671 ebworthen
ebworthen's picture

Very possible.  Read this in the morning; made sense - because the markets going up with unemployment, depression, and debt out the ass didn't:

Mon, 11/08/2010 - 01:02 | 707625 Miles Kendig
Miles Kendig's picture

Don't need to spin well to get posted .. just spit it and see if it sticks

Mon, 11/08/2010 - 00:16 | 707578 ThreeTrees
ThreeTrees's picture

I am totally gonna "friend" this guy on Facebook.

Mon, 11/08/2010 - 00:20 | 707582 wreynol4
wreynol4's picture

look i don't know if your refering to me or not, but im just trying to see what you think on my question, so answer it please.

Mon, 11/08/2010 - 00:43 | 707600 ThreeTrees
ThreeTrees's picture

Nah, I was just referring to the Fed bro who wrote the piece Tyler's quoting.

As to your question:  Yes, in my inexperienced judgement, it probably will.  I mean, we're talking a permanent (for now) shift right of the demand curve for government debt, pumping GDP through the government.  And it acts as an interest rate ceiling, fueling the carry trades.   The real question is: for how much longer?  

Market interventions are subject to the law of diminishing returns, not to mention all the other central bankers be gettin' wise to Bernanke's game. (Not that they haven't known all along, it just hasn't been a pressing issue til now.)

Mon, 11/08/2010 - 00:32 | 707589 Miles Kendig
Miles Kendig's picture

Sounds like Kevin Warsh doesn't want to dine on Ben's banana pancakes forever if it means following Buzz Lightyear and the CME to infinity and beyond.  Too bad he has already strapped the rocket pack on his and our backs while the syrup still runs from the corners of his mouth.  The rest of his insights, while worthy as far as they go, are purely academic since all that happy crappy relating to price stability has followed the 35% illusion right out the window.  Time for some O2...

Mon, 11/08/2010 - 01:36 | 707647 scaleindependent
scaleindependent's picture

Melancholy for our times.

Mon, 11/08/2010 - 05:38 | 707712 Miles Kendig
Mon, 11/08/2010 - 12:00 | 708126 scaleindependent
scaleindependent's picture


Mon, 11/08/2010 - 01:01 | 707621 CounterParty
CounterParty's picture

Sarah Palin:

"I’m deeply concerned about the Federal Reserve’s plans to buy up anywhere from $600 billion to as much as $1 trillion of government securities. The technical term for it is “quantitative easing.” It means our government is pumping money into the banking system by buying up treasury bonds. And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air.

And if it doesn’t work, what do we do then? Print even more money? What’s the end game here? Where will all this money printing on an unprecedented scale take us? Do we have any guarantees that QE2 won’t be followed by QE3, 4, and 5, until eventually – inevitably – no one will want to buy our debt anymore? What happens if the Fed becomes not just the buyer of last resort, but the buyer of only resort?

All this pump priming will come at a serious price.

Mon, 11/08/2010 - 01:05 | 707627 Miles Kendig
Miles Kendig's picture

And the simplicity of Bill Gross's most recent commentary becomes clearer.

Mon, 11/08/2010 - 11:08 | 707992 trav7777
trav7777's picture

the Fed ALREADY IS the buyer of first and only resort.

They took over the goddamned CP market, the money markets, and everything else in 08 and are STILL the market.

Mon, 11/08/2010 - 13:18 | 708435 BigJim
BigJim's picture

SARAH PALIN said that?

Mon, 11/08/2010 - 01:41 | 707651 Rogerwilco
Rogerwilco's picture

They're trying to goose inflation expectations. OK fine, a clever ruse to get the unwashed masses to spend their soon-to-be-worth-less dollars and buy stuff again. But producer costs are increasing, wages are stagnant, and the masses won't stay punk'd forever.

Bernanke is no fool, and he knows there will be a backlash when people realize these gains are illusory. What the he'll is Plan B? Selective defaults? Nationalization of the large banks?

Mon, 11/08/2010 - 02:10 | 707662 zack
zack's picture


At 40, Kevin Warsh is trying to leave a paper/media trail to protect his fledgling career prospects for when Bernanke takes the fall for saving the banks/doing their bidding, and killing the dollar.  

Who could have knowd?  Oh Kevin Warsh did!

I wonder if these guys really understand what evil they abet and incite.  They really are treasonous.

Mon, 11/08/2010 - 02:27 | 707665 GoinFawr
GoinFawr's picture

All this fuss, when the solution is so simple. You just need the appropriate perspective:

"Efficiency and progress is ours once more
Now that we have the Neutron bomb
It's nice and quick and clean and gets things done
Away with excess enemy
But no less value to property
No sense in war but perfect sense at home:

The sun beams down on a brand new day
No more welfare tax to pay
Unsightly slums gone up in flashing light
Jobless millions whisked away
At last we have more room to play
All systems go to kill the poor tonight

Kill kill kill kill Kill the poor:Tonight

Behold the sparkle of champagne
The crime rate's gone
Feel free again
O' life's a dream with you, Miss Lily White
Jane Fonda on the screen today
Convinced the liberals it's okay
So let's get dressed and dance away the night

While they:
Kill kill kill kill Kill the poor:Tonight "

Take a bow Jello Biafra.

Mon, 11/08/2010 - 07:01 | 707723 AUD
AUD's picture

Ahh, many thanks. We were Dead Kennedys fans in high school in the late '80's, though we may have been behind the times down here in Australia! Haven't heard that song for ages.

I will always have a soft spot for American punk, MDC is another favourite; "Pardon me President Reagan...but who are the terrorists now? This isn't a movie we're who are the terrorists now!?".

Mon, 11/08/2010 - 21:55 | 710286 GoinFawr
GoinFawr's picture

Heh, yah 5 years when you're 17 seems like an eternity, but add a few decades and it means you are merely on a different paragraph of the same page.


Mon, 11/08/2010 - 03:23 | 707684 Snidley Whipsnae
Snidley Whipsnae's picture

"Translation: if gold continues to exhibit a beta > 1 w/r/t ES, then we are screwed, and all Fed policies will have failed."

The Fed has run into a brick , or gold, wall that Keynes warned of...The smart money wants out of 'safe' dollars because they are losing purchasing power quickly. The smart money (insiders) are dumping stocks. The smart money is not buying treasuries with QE ongoing and inflation inevitable.

Gold/PMs is forcing the Fed to jawbone about raising interest rates ahead of the G20 meeting. These guys are desperate and are not looking past tomorrow or next week.


"There is the possibility… that after the rate of interest has fallen to a certain level, liquidity preference is virtually absolute in the sense that almost everyone prefers cash to holding a debt at so low a rate of interest. In this event, the monetary authority would have lost effective control."

John Maynard Keynes, The General Theory



Mon, 11/08/2010 - 03:57 | 707692 Fraud-Esq
Fraud-Esq's picture

POLITICS....from inside the Fed. 

Don't be surprised. It's a fine piece of work, for sure. It was translated into German and Chinese before it was written. 

It also offers guidance to Obama, doesn't it, sets up the long term blame game too. If this 600B thing backfires, not our fault, it will be due to fiscal policy mistake. 'we don't do that', but we do foreign policy and currency wars?

As this article makes it clear, they do it all.... or do it in the Op-Ed.  

Mon, 11/08/2010 - 04:02 | 707694 gloomboomdoom
gloomboomdoom's picture

Why the hell do we need a chairman for the FRB when all the geniuses are right here. And to think, all we ever had to do to get out of the recession is just come here for advice.

Printing money is like borrowing money from the future. So what Ben does here, he says, ok, I assumes US economy is on the rise, and in 5-10 years our economy will be better, so much better that it wouldn't mind letting us borrow some money now.
I think he may be right with that assumption, though it may take time, if the economy gets a boost now, it can get on the right track.

Maybe, Ben isn't as dumb as you all think.

One more thing, basically the only western country in the world who wasn't phased by the global recession is Israel, guess who's their federal reserve chairman? Stanley Fischer, Ben Bernanke's mentor, and incharge of the only other economy in the world who was actually printing local currency to buy more USD! So, I'm guessing these two have an idea of what they are doing.

Nothing else is coming, folks. No Great Depression 2.0. Got it yet?

Gold is ready to collapse. Bernanke is no fool. Trust me on this.

Mon, 11/08/2010 - 04:29 | 707698 Snidley Whipsnae
Snidley Whipsnae's picture

"Trust me on this"

You definitely belong on MSM. 'Trust' in the Fed that has blown serial asset bubbles for years?

Gold is ready to collapse?

I suppose all commodities are ready to collapse, when valued in dollars?

Wouldn't common sense advise us that as more dollars are being created out of thin air that the total pool of dollars has LESS purchasing power?

Facts are sometimes nettlesome but here are a few for your perusal;

Corn up 71%, oil up 24%, oats up 106%, wheat up 67%, soy up 44%, copper up 47%, gold up 21%, silver up 48% and all since spring/summer of this year.

Meanwhile the dollar is down 16%

I am willing to listen to reasoned points of view. I trust nothing without a reasoned point of view.

If you believe that Bernanke is an 'expert' on anything I suggest that you read what Taleb has to say about 'experts' in 'The Black Swan'.


Mon, 11/08/2010 - 06:04 | 707716 anony
anony's picture

"...Ben isn't as dumb as you all think".

Never thought he was.  Just serving a cabal of shadow masters instead of the codified goal of the FED.

I lose all respect for guys who got it right like Jim Rogers who then turn around and call him inept.  Either they don't know what nefarious deeds Bernanke is up to, or they are intellectually lazy, not thinking thru what his real goal is: to protect the very wealthy and screw the rest.

Wed, 11/10/2010 - 22:40 | 718560 eworrall
eworrall's picture


Mon, 11/08/2010 - 07:53 | 707743 Fíréan
Fíréan's picture

"...... the only western country in the world who wasn't phased by the global recession is Israel, guess who's their federal reserve chairman? Stanley Fischer, Ben Bernanke's mentor, and incharge of the only other economy in the world who was actually printing local currency to buy more USD! So, I'm guessing these two have an idea of what they are doing."

And might one surmize that their actions are biased to favour the economy which todate has prospered, and also whose banks have not fallen victim to the fraudulent scams of the US banking cartels ?

Mon, 11/08/2010 - 08:57 | 707781 overmedicatedun...
overmedicatedundersexed's picture

hey gloom, what level of debt do you think the

economy can sustain 5 to 10 yrs down the road??

seems like printing a few trillion here a few trillion there will add up?

Ps the fed is a private bank owned co..that might just give you a clue.

Mon, 11/08/2010 - 05:20 | 707710 EscapeKey
EscapeKey's picture

Oh good, instead of one lying Federal sack of shit, we now have two.

But then, recently the market has rallied when Sack-o-Shit #1 has opened his mouth, but it's now priced into the market, so we need inflation in Sacks-o-Shit opening their mouths as well.


Mon, 11/08/2010 - 18:59 | 709869 unununium
unununium's picture

Imagining your avatar saying those words is just what I needed just now.

Mon, 11/08/2010 - 05:49 | 707713 ugmug
ugmug's picture

Walter Matthau as Ben Bernanke

Best part is at the end of the clip.

Mon, 11/08/2010 - 07:15 | 707726 Djirk
Djirk's picture

I am trying to line up a 50/50 now. I put 50% down on an asset and with a 50 year note? Any takers?

Seriously, how long and how much does Ben Lightyear think he can flush into the system? Infinitey and beyond?

With the Yuan pegged to the dollar and 'emerging' markets with low low labor costs, US is competing with the EU and Japan for trade? EU and US are mostly service driven economies? Show me the math how a depressed dollar increase in trade outweighs the purchasing poverty created?


Mon, 11/08/2010 - 11:11 | 708001 trav7777
trav7777's picture

it would benefit everyone greatly to understand the mechanics of debt money.  They require systemic growth.

It's not about what we want, it's about what the math says has to be done to preserve a system.

Mon, 11/08/2010 - 12:16 | 708163 RockyRacoon
RockyRacoon's picture

It's not about what we want, it's about what the math says has to be done to preserve a system.

And how's that working for us, Trav?  Not so well I'd imagine.

You've described what is tritely described as pushing on a string.

Mon, 11/08/2010 - 17:45 | 709645 Geoff-UK
Geoff-UK's picture

Rocky--you mean the Fed's policy will be ineffective at goosing the economy?  I agree. 


Or that they won't do QE again once they discover it's ineffective for goosing the economy?  I strongly disagree.


All the scientific discussion on the fundamentals related to whether we'll have deflation (Mish, VoxDay) or hyper-inflation (Faber, Schiff) is moot when you consider Ben Bernake decides how much paper he'll print (I'm thinking "quite a bit").  And he'll be thanked for taking care of that pesky federal debt by everyone except the Pauls.



Mon, 11/08/2010 - 07:54 | 707744 Ned Zeppelin
Ned Zeppelin's picture

This is all part of the playbook. Send out Warsh to make it seem as though there is some restraint within the Fed so as to keep the outsiders from concluding (accurately) that printing is going to occur until the banks are recapitalized, even if it is with vastly devalued FRNs.  You need to resort to this type of stuff when you announce QE 2.0, 1.0 having failed and 1.5 still running. Same stuff with Hoenig, etc. 

Part of the Fed's game is taking advantage of their "bully pulpit," the ability to cause certain actions to occur simply by suggestion.  Warsh's statements are an example of the same technique employed to "put the brakes" on anyone who might be concluding that QE will never end.  

Mon, 11/08/2010 - 08:00 | 707748 Silversinner
Silversinner's picture

Think it's a coincedent Ireland is under

attact.One Europe country a time will

be sacrificed to keep the dolar up after

money printing action.First Greece,

now Ireland,next Portugal.Whatever

it takes to keep this con game afloat.

Mon, 11/08/2010 - 08:19 | 707760 Humpty Pundit
Humpty Pundit's picture

Last week's Op-Ed du semaine was Ben Bernanke's WaPo glowing endorsement of the Fed market put, whose sole purpose was to remind stocks, which ended up drooping on the day QE2 was announced, that Bernanke will stop at nothing to achieve his now primary goal (as loosely interpreted under the Fed's broad, and unsupervisable, mandate) - surging stock prices.

Since "la semaine" is a feminine noun that should be de la semaine. Du is a contraction of "de le" which is not used.

Regarding bubbles - is it really possible to create a meta-bubble consisting of bubbles in multiple asset classes at the same time by design? They should publish a Microsoft project plan. I wonder what George Soros would say about the effort.

Mon, 11/08/2010 - 08:33 | 707764 Gloomy
Gloomy's picture


Mon, 11/08/2010 - 09:37 | 707832 CitizenPete
CitizenPete's picture

True story:  I bank at a local state chartered bank that holds local mortgages and commercial real estate loans. For obvious reasons I do not bank at any of the Solari "Banking Tapeworm 20" (  


On occasion I will go into the bank for a teller transaction. Two of the tellers have told me that they have their accounts at Bank of America. 


This is one of the many reasons why I give up trying to wake up Sheople.









Mon, 11/08/2010 - 08:37 | 707770 viator
viator's picture

Federal Reserve Bank Rotation on the FOMC - Committee membership changes at the first regularly scheduled meeting of the year. 2011 will be here shortly. "Three regional Fed presidents who are widely considered to be fairly vigilant about inflation risks -- Charles Plosser of the Philadelphia Fed, the Dallas Fed's Richard Fisher and Narayana Kocherlakota of the Minneapolis Fed -- will become voting members on the Federal Open Market Committee at the Fed's first 2011 meeting." The votes may not be quite so unanimous.

Mon, 11/08/2010 - 09:17 | 707798 dehdhed
dehdhed's picture

i think he might be telegraphing a request to the plunge protection team and others.   like, we want to help balance sheets of americans and banks by raising equity prices and make it easier for the banks to raise capital with the higher share prices in order to offest the losses in the housing market.  but if everyone takes this QE bailout and buys commodities then it would cause a negating effect on the equities of the banks and wouldn't have the desired effect and make them re-think their policy.

and then to government, don't raise the level of spending but don't lower it yet either.

basically they won't support commodity prices which will make the policy fail, but if everyone gets in line and supports equities then they can continue.

that's my take on it anyway .. i wonder if they'll get the message

Mon, 11/08/2010 - 10:29 | 707916 Grand Supercycle
Grand Supercycle's picture

My long term indicators continue to warn of USD strength and EURO weakness.

Mon, 11/08/2010 - 11:37 | 708073 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

This is to me just like the three card trick where the dealer(Bernanke) turns his back and his accomplice turns up one corner of the lady thus giving everyone an apparently risk free bet,then after suckering in a few mugs to bet large, the dealer when shuffling the cards,turns up the corners on all three cards!!!Warsh is now confusing everyone by saying the Bernanke put is conditional!!!

If this Warsh is to be believed, Bernanke is going to print money just up to the point where inflation becomes  problem and then "withdraw".Again,if I may create another analogy,that of my mates Catholic family whose parents used the "Rhythm" method of birth (non)control,after repeated withdrawal failure, nine kids later his mom decided to take matters into her own hands and sewed up her husbands pyjamas,this then led to the often repeated joke "a stitch in time saves nine".

Bernanke won't stop until some outside forces(hopefully foreign governments) make his money printing policies completely ineffective and then he will be just destroying the currency and creating further hyperinflation for nothing.

By then,even people like Mish will have realised that inflation is the problem and that the Fed have to have theirs powers seriously curtailed and their activities heavily monitored and regulated by new laws.

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