As Fed Creates Russell 2000-Based "Wealth Effect", It Tells Banks To Prepare For 11% Unemployment Stress Test

Tyler Durden's picture

One would think that the S&P doubling from the March 2009 lows would be indicative of a mission accomplished for the Fed's market manipulation, aka Open Market Operations, team. No such luck. In fact, while the abominable Dr Chairsatan and Messrs Frost Sack are spouting garbage about economic recovery to anyone retarded enough to listen (oddly they have found a great audience in Congress) behind the scenes they are telling banks to prepare for a stress test recession scenario in which unemployment is 11%. And since current unemployment is about 23%, and we continue to be in a Depression, we assume this means that the Fed is actively preparing to make sure banks will be able to handle the explosion in economic growth and, oh yeah, hyperinflation, when the $1.7 trillion in excess reserves as of June 2011, finally flood the market. Although since this statement may be sufficient to get Zero Hedge to issue "unsolicited" opinions on the state of the Great Ponzi, we will go with the party line here... Which we find confusing: why would the Fed force US banks to undergo another stress test: aren't they all massively overcapitalized? Wasn't that the whole point of the first fraud of a stress test back in 2009 which had he same credibility as the upcoming European one? And why not cut to the chase and conduct a Ponzi unwind stress test? So many questions...So many more lies.

From Bloomberg:

The Federal Reserve ordered the 19 largest U.S. banks to test their capital levels against a scenario of renewed recession with unemployment rising above 11 percent, said two people with knowledge of the review.

The banks stress-tested the performance of their loans, securities, earnings, and capital against at least three possible economic outcomes as part of a broader capital-planning exercise. The banks, including some seeking to increase dividends cut during the financial crisis, submitted their plans last month. The Fed will finish its review in March.

“They’re essentially saying, ‘Before you start returning capital to shareholders, let’s make sure banks’ capital bases are strong enough to withstand a double-dip scenario,’ ” said Jonathan Hatcher, a credit strategist specializing in banks at New York-based Jefferies Group Inc. Regulators don’t want to see banks “come crawling back for help later,” he said.

Crawling back to whom? The next crash won't have the Fed as a backstop - the Fed will be done, as will all central banks. So unless Jefferies envisions Marsians with bags full of cotton plated tungsten Ber-nanks landing some time in 2012 and being dumb enough to bail out the criminal banking syndicate, we fail to see what the dilemma is here.

The Fed’s adverse economic scenario included a 1.5 percent decline in gross domestic product from the fourth quarter of last year through the end of 2011, said the people, who declined to be named because the Fed hasn’t made the details of the review public. The scenario assumed growth resumes, with output rising 4 percent over the fourth-quarter 2010 level by the end of 2013. Unemployment would peak at more than 11 percent by the first quarter of 2012 and drop back to 9.5 percent by the end of 2013.

Instead of engaging in stupid tests which will be gamed by everyone involved, perhaps the Fed should announce to the broader public that it will conduct Ponzi unwind tests: it would be far more interesting to discover what happens to stock markets and the hollow, yet massively "inventoried" US economy, when the Fed finally admits that America has become one big Bernie Madoff Securities Holding Company. We are confident that alone will be sufficient for stocks to perform another massive flash smash. And worst case scenario (should one be able to track down the appropriate people at DTCC): one can always eat their stock certificates. Granted, these being mostly cellulose, their nutritional value is exactly zero, but who cares about fundamentals any more.

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Translational Lift's picture

We are now four months into QG2 and the daily POMO is having little or no affect.  Let me see....what was the definition of insanity again??

umop episdn's picture

QE 3, 4, 5, ad infinitum? Listening to the Bernank, and believing the lies? Watching a reality show while the country collapses around you? Is this a trick question?

Triggernometry's picture

Einstein's quote on insanity came before the formulation of quantum theory, by which we now know a different result becomes increasingly inevitable as repetitions increase. Maybe Benbabwe is running the world's first quantum-quantitative finance super computer; as such actions by the FED clearly show some understanding of Heisenberg's uncertainty principle.

Translational Lift's picture

"we now know a different result becomes increasingly inevitable as repetitions increase".

Sounds like a principle Goebbels could have used........but then he came before quantum theory.........

hbjork1's picture

T. L.,

Quantum Theory was well developed enough to be called "Theory" by the mid 1920s.  An the folks that developed it, except for Einstein, who was principally responsible for the name and who made it to the US, most were heavily impacted by the war. The theoretical hypotheses developed during the period were important in the development of the A-bomb.  

Gobbels was a misfit that later attached himself to the Nazi cause.

Translational Lift's picture

I am quite familiar with Goebbels and his "cause(s)" somehow I don't think he ever associated with Planck's endeavours.  Forgot to use (sarc)....thanks....


midtowng's picture

The disconnect of the stock market and the general economy is complete. So is the GDP, and most other economic indicators.

Zero Govt's picture

Face facts we're not data points in Benbabwes calculus, here's his theory:

QE+QE1+QE2+QE3... +QE16 >insert> WS Bankrupts + NYSE = Wealth Effect

That's it! There's no economy, no employment or you and me in there. How could there fuking be, the 'Wealth Effect" is cut straight into bonuses for WS Bwankers to feel better about themselves

jus_lite_reading's picture

Dr. Deficit is going Kamakazi. I'm just saying...

Cleanclog's picture

And since the bailouts of the TBTF banks were the most enormous transfer of wealth ever as they were GIVEN taxpayer money and then allowed ZIRP which was essentially free profits to "recapitalize with", while savers were screwed with itsy income, add in the POMO profits for bank PDs, again for no skill required, so more massive bonuses may be awarded to the chosen people - the banksters . . . all I can imagine is that despite all the wondebar news for banks they really are going to implode again - - - and now they're bigger than ever and deposits etc are more concentrated in the TBTFs, so here comes another bailout.  Infuriating - but that doesn't matter either.  

When do we storm the Fed, Treas, and big banks?

tsx500's picture

i'm ready when you are . . . . .

ginunn's picture

I assume giving notice means they will have time to buy shredders, delete backup tapes from email servers, finish stuffing the crap they have created since the last test into off-balance sheet vehicles and generally clean house. I'm surprised the Fed didn't assign them their scores in advance too. Maybe that was in a separate memo.

thedrickster's picture

"In fact, while the abominable Dr Chairsatan and Messrs Frost Sack are spouting garbage about economic recovery to anyone retarded enough to listen"

Shriveled Teste Boy qualifies.


alien-IQ's picture

this is just fucking ridiculous.

jus_lite_reading's picture

As I have been saying for weeks now, for every tick higher these fake markets go, the more gold and silver I buy. Just managed to talk my partner into bartering me some silver EEagles for some worthless toilet paper...

jobs1234's picture

Well Evans thinks that inflation will be below 2% until the end of 2013. Apparently every commodity and PM on the face of the planet earth disagrees.

Translational Lift's picture

The rate we are going....there won't be a 2013.......

Cognitive Dissonance's picture

Has anyone considered that the hype about 12-21-2012 will be leveraged by the powers that be to enact draconian measures. The more things come apart, the more people will connect it to the myth of 12-21-2012 (with the help of the compliant MSM) the more TPTB can use that to their advantage to crack down and impose stifling monetary, political and military measures.

Self fulfilling prophecy.

alien-IQ's picture

meanwhile in Wisconsin...13,000 people storm the Capitol and the mainstream media promptly ignores the story...which is, luckily for us, cover by...Russia Today...(the irony here is beyond thick)

Cognitive Dissonance's picture

That's because these things don't actually happen in America, only in third world countries and banana republics where the elite and powerful control the populations.

This was just an unruly line for food stamps. Same ole same old. Not "news" worthy.

jus_lite_reading's picture

Amazingly, I have seen/heard very little about this monumentous event outside RT and other "rogue" sources. Funny thing is, our main stream media has become the rogue source!



It's on like Donkey Kong!

EvlTheCat's picture

Its front page news on just a blurb on  Not that I care about either sources.

jus_lite_reading's picture

With talk about perpetual bonds, they must think us idiots. I love this quote, must read:

Basically, we can consider that the events in Tunisia and Egypt have acted as a double trigger violently uprooting the entire Arab world (and the Middle East) of the world before the crisis, a world characterized by the omnipresence of a guardian power, the United States, managing the imbalances in this region with only two concerns: to control the price of oil and ensure Israel's security…

Jason T's picture

$1.65 trillion deficit and a -1.5% GDP growth?  How is this not hyperinflationary? Remind me, what is backing this Ben Confetti from Washington?

lsbumblebee's picture

I can understand this. If unemployment drops to 11% consumers might start borrowing again.

Canuckistan Al's picture

I think the 11% is a typo. The "zero" key on the Bernanke's keyboard is worn out from all those extra zeros he's added to the money supply. He meant to type "Unemployment would peak at more than 110 percent by the first quarter of 2012"

Seems a more likely scenario to me.

bugs_'s picture

sounds like this is the "stress test" thats going to get me

lunaticfringe's picture

Gawd I love ZH. Without you guys, I'd go nucking futs. Check out this headline...I'm not sure it gets any better than this...

Cognitive Dissonance's picture

Ships Captain (The Bernank) to passengers: "Nothing to worry about. The leak has been contained and we will dock in New York on schedule."

Ships Captain to crew: "Lock everyone except first class below deck and then abandon ship."

lunaticfringe's picture

No shit. He who panics first, panics best.

optimator's picture

Bankers, women and children, and those on the "Fly now, pay later" plan into the lifeboats.

buzzsaw99's picture

"Fly now, REDUCE-ALATOR" [/bewitched]

jus_lite_reading's picture

Ship's Captain to musicians: "Keep the happy music playing."

Cognitive Dissonance's picture

I think they went down with the ship. None of them were first class.....except as musicians.

101 years and counting's picture

The Fed is trying to gauge how much QE3 should be when another 12-15 million people lose their jobs due to current inflationary pressures.


lieutenantjohnchard's picture

yes, exactly. why the stress tests, pomo, glass jaw economy talk if the economy is strong? of course, the red pill folks are keenly aware of the lies and deception.

jobs1234's picture

And the AAII survey provides some more laughs, look at some of these responses, even stock market participants are starting to laugh at the BS


Here is a sampling of what AAII members said about the current lack of volatility:”

  • “Although it is very encouraging, I continue to have a low level of anxiety.”
  • “It’s not a false sense of calm, but more an illusion of calm. There is still some serious deleveraging going on in the economy.”
  • “It’s a false sense of security. Everybody is once again believing in the miracle.”
  • “It’s justified…Too many positive developments nationally and internationally with mid-term implications to ignore.”
  • “I believe the lack of volatility signifies that many people may believe the good times have arrived again.”

This week’s AAII Sentiment Survey results:

  • Bullish: 46.6%; down 2.8 percentage points
  • Neutral: 27.9%; up 4.2 percentage points
  • Bearish: 25.6%; down 1.3 percentage points

Historical averages:

  • Bullish: 39%
  • Neutral: 31%
  • Bearish: 30% 
ghostfaceinvestah's picture

Believe me, the Fed knows what is going to happen when QE ends.

jobs1234's picture

Seriously, the more Evans talks, the more I want to buy every PM and commodity not nailed down to the floor:

Fed's Evans says boosting inflation expectations 'appropriately' in the short-term is consistent with Fed's mandate

Rainman's picture

The real audience for this show be the elected Critters. This test is a faux demonstration of Fed ability to bring restraint to the bankster pigmen....none of it is suitable for an intellectually mature audience.

The Bernank knows Ron Paul and his disciples of reason must be neutralized.

AccreditedEYE's picture

This is what happens with an academic at the wheel.... we test. He will not take action, he will not allow the system to take its medicine. Stall, delay and measure... and pretend that the world doesn't really see what's going on and really believes in what you are doing rather than know the truth: everyone is waiting to run to the exits at the last moment... kinda like school kids with their coats on waiting for the final bell. Bernanke is a tool.

hbjork1's picture

IMO, don't just blame the academics.  There are academics that have been shouted down and because their disipline did not please the public, they became silent. 

IMO, Greenspan did what he did because he thought he would beeplaced by someone who was less astute than he was who would have kept the party going.  And, truth to tell, the Volker disipline was not too popular with the public.  

We all loved the stock market of the 90's didn't we.

NOPOMO's picture

Tickle me POMO.

It is obvious that Ben believes he can create the well effect.   All Ben is doing is letting the culprits have more time to steal from the markets before it all collapses.  Obviously he does not have them trapped in a chokehold.  Instead he has put the middle class in his cross hairs. 


bob_dabolina's picture

Joe Cassano can replace Tim Geithner now.

Orly's picture

"So unless Jefferies envisions Marsians with bags full of cotton plated tungsten Ber-nanks landing some time in 2012 and being dumb enough to bail out the criminal banking syndicate, we fail to see what the dilemma is here."



Atomizer's picture

The QE gift that keeps on giving.

tmftdoyle's picture

Russell within 2.5% of all time high from 2007!

oklaboy's picture

buy on the dips! buy on the dips!!!