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Fed Speak
We get the minutes of the Fed meetings. I think we get the substance of
what is discussed. But I don’t think we get the full story of what is
said. I wonder if any of the conversation goes like this:
I do not see a double dip in the next 18 months I am certain that
growth will be substantially below historic trend. For the economy to
recover and unemployment to fall by a meaningful amount GDP must be at
least 4%. We will not get that. There is substantial risk that 2011
could see average growth of only 1.5%.
economy is unlikely to get any support on the fiscal side. It is a
shoe-in that taxes on income over $250k are going up. The stimulus money
is running out fast. There will be no new stimulus from Congress. All
of the new Governors are going to look at the books and declare an
emergency. Cut-backs in State budgets are a certainty in 2011.
the Fed must shoulder the complete burden of sustaining growth. To do
this we must take unprecedented risks. We must go where no other reserve
currency central bank has gone in modern history. We must monetize an additional 20% of outstanding public debt.
Jeepers
Ben! You’re talking a QE-2 of $1.6 trillion! Think of the message you
are sending! You are debasing the currency by a very meaningful amount!
I’m
supportive of Ben’s shock and awe approach. But let’s agree on one
thing. We can’t announce that we are targeting inflation. We would
create a risk of a run on the dollar that we couldn't control. Okay?
agree to take this idea off the table at this time. But if we do not
see growth I will bring back inflation targeting . It will be the final
arrow in my quiver.
I
agree with Ben in every way! We should commit to a mega program now. If
we do it small we will not be able to do it again. There would be too
much public opposition.
Are we so sure that we can reverse the effect of this? This much liquidity could turn on us very quickly. Ben has said he is “confident” this can be done. I have very serious reservations.
Fiddlesticks!
The NY Fed did a 28-day reverse repo for $5b just last month. The
experiment worked perfectly. That is your roadmap of how QE will be
reversed! Stop being such a worrywart!
There
is no loan demand. Not even for 4% mortgages. Who’s to say if we drive
rates down another 20bp that this will change. The only thing that QE-2
will do is to enrich the banks at the expense of savers. Is that a good
trade off?
will not destroy savers. It will merely force them into buying risky
equities. As for the financial getting fat; that is the plan. The more
money they make, including Fannie and Freddie, the faster they can write
off their lousy loan portfolios. We can’t have strong growth without
strong financials. That is just a fact of life.
Don’t
we just risk another dangerous bubble? If we drive stocks up they will
just have to fall when the process must end. Some of these investments
you are driving people into are trading at 2X’s sales or a 35PE.
point. My response is that QE is not temporary. It is permanent. In
fact I would advocate that the Fed acquire a minimum of 20% of debt AND
agree to sustain it at that level as a % of GDP. As the economy flares
up, we would buy more and more. In that way QE is self-sustaining. We
will never have a business cycle again. Markets will always go up, never
down. Jobs will be plentiful. Unemployment will fall. The economy will
prosper. And I will get my picture back on the cover of Time magazine.
Don’t
we risk some distortions in the bond market if we buy so much? There is
only a bit over $500b of ten year plus paper. And you want to buy 1.6T?
will become necessary for Treasury to guarantee the new debts of a
number of states. When that happens, we will put that paper on our POMO
buy list. In answer to your direct question; yes I will buy short date
paper. I don't care what it takes. I have a snap answer to your every
objection!
Can we do that? I mean can we buy up State debt?
QE
was an appropriate and successful response to the worst recession since
the Great Depression. It was an emergency measure to address emergency
conditions. We are not in an emergency today. Our banks are not failing;
as you say, they are making a bundle. We have to remember that savers
are also consumers. We are taking their income and they are spending
less. Have we really considered the implications of this? Should we do
something much smaller; say a limited program of only $500b? Should we
hold back some of our remaining chips in case we actually have a real
emergency at some point?
Yeah!
I’m for a small program at best. If we do it large we run the risk of
oil going over 100 a barrel in just a few months. What would that do for
us? The trade deficit would explode! Consumers would get squeezed. Bye
bye Wal-Mart if we see $4 gas! We are taking a big risk with this.
Love
that shock and awe! Let’s end this discussion. Ben has the votes he
needs so you naysayers and party poopers really don’t have a choice. It
would look much better in the press if we had only one dissenter for
this important vote. Get on board or else. This is Ben’s World now!
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Machinations, especially of the political type that involve trillions of dollars, have always fascinated me.
Maybe it is my weak spot?
Orly:
"eager to see what happens".
I wish I could share your view - it all gives me the creeps.
But then I tend to run "depressive" this time of year and sometimes lose track - - -
The problem is that Bernanke and company truly don't know how much state and municipal debt is out there. And if he thinks that he will be able to bailout one or two states without the other 48, he better think again. The other states will want a bailout and they will demand it via there representatives and senators, who will force Bernanke to do it. At bare minimum the states debts are close to 1 trillion dollars. And not to mention when this happens, the states will always believe that the Fed will bail them out so they will be on a spending spree.
True. And there you go, too. You can buy up municipal and state debt at the same time as the mortgages, thus heading off a confrontation and have, instead, cooperation between the Fed and Congress.
Rebuild America Bonds.
I'm in.
How about you?
Click here to find out more...
I think that the Fed is going to announce an initiative to basically buy up all Fannie and Freddie paper outstanding, thus putting a Bernanke put under the US housing market for once and for all. All the junk from Wells (now you know why Buffet held on to this turkey...), BAC, etc and down the line.
Bernanke may ask the "new" Congress to get serious about the economy and suggest some new American bond program, all pomp and circumstance-like and pledge to return all the mortgage-backed, formerly-junk, newly-polished property rights (remember, this is really what we're talking about here...) to the economy on a much more sound footing. The Rebuild America Bonds; queue the bunting and the marching band as they assemble on the gazebo in the town circle...
It could be considered the greatest land-grab of all time...because it will be. Imagine if the US Federal Reserve has something sinister going on behind these mortgage buys. What if they have something righteous?
Who can know? The shock and awe tomorrow is going to be people scratching their heads for a few minutes, going, "WTF, yo?" Mortgage-backed stuff is the only market out there for the multiple billions of dollars required to put a floor under this thing. As has been repeated on ZeroHedge for a while now, there is just not enough bonds to cannibalise.
Maybe the USDJPY ramps over the next several months on the news and settles into a more balanced and sustainable level. The move would create an atmosphere of risk-neutral, so what happens to the US SPX after this remains an unknown. My theory is it ramps down in waves, like sharks in the water.
I am eager to see what happens and to watch the immediate effects show up in the foreign exchange. It's gonna be a whopper.
Happy Trading!
:D
The kicker is if the fed will announce replacing price stability with inflation targets now or wait until Q1 to do it...
Highlights at 11
As I said before you deleted my comment, I guess it could go up or down.
If that bothered you you should post some where else
Krugman: You're all idiots, not enough!
I can assume that every Fed move will be to take the last remaining dollar out of my pocket. Plan accordingly.
Why, though?
Who does that benefit?
Not me nor my family, friends, acquaintances, distant relatives, nor you.
That's enough for me to plan accordingly.
The Fed is the TBTF banks, silly. $144 billion in planned Wall Street bonuses vs. 20% unemployment for Main Street is pretty telling don't you think?
THrough inflation, everyone's buying power is "adjusted."
Good job on the exit strategy, or rather the lack thereof, but nothing has changed. None of this flows through to wages or housing, so the policy is doomed. I think the idea of bailing out the states, especially Cali, is where this ponzi will die, if not before. Political kamikaze run.
I can't remember a time when the Fed has been so blatantly pumping up the markets ... and the party in power.
There can be no plausible deniability.
To what end, though? What happens when the Fed itself is shown to be insolvent?
What did Fuld say? Something like you're not actually bankrupt until the market knows you're bankrupt.
What then?!
It's hard for me to believe they're not all high on .... delusions of disproven ideology. I'm in no hurry to see the system collapse, but the frigging lies and disingenuous BS drives me nuts. In August, when Greenspam said strong stock prices would do more to support the economy than anything else it was a pretty clear buy signal - but I remember him testifying before congress and recommending homebuyers and refinancers to get adjustable mortgages. Once the elections are over all bets are off until they're back on.
Signed,
Confirmed Cynic
He can buy all the bonds he wants, but now I'm in a position where he cannot force me to borrow and he will not force me to spend.
I'll spend only if I get a multi-year 6-figure no-cut contract. Since that won't happen, both Bernanke and I will have to live with the status quo.
"And I will get my picture back on the cover of Time magazine"
Good stuff Bruce.
Nicely done, Bruce
I think we need a new poll out on ZH to determine how many readers think this will be a market crash scenario (dollar crushes all other currencies) or a market boom scenario (dollar gets crushed by all other currencies). All eyes on the US Dollar from now on!!!
I believe the dollar is reacting more to the strength of the Yen and Euro than the other way around. Things priced in usd are reacting to its weakness, but thats just my observations and opinion. Watch crude cross $85+ and then we will see what is what.
IMO:
The result will be further inflation, perhaps by a factor of 2 with reduced demand for non essentials. A lot of folks will experience discomfort from the standpoint that expectations will have to be reduced. Food, shelter, basic transportation, communications and medical services are essentials. Entertainment that is reasonable is probably essential but can be developed from within a network of friends at low cost. But, of course, to maintain friends you have treat them with courtesy and have something to offer in your own personality.
When the populace is angry enough to reject movie stars and start hiring (at the polls) people who are plain, smart serious workers, then and only then, will we be back on track. What happened to Michelle Rhee? Who did Washington DC just elect for their Mayor?
During the "good old days" people tended to save everything that could potentially be used. "Victory" gardens were common and home canning of food was common. And the inflation that came immediately after WWII, was at least as bad, if not worse than what we will have ahead.
When you watch old movies, notice how slim many of the people are. Why were they slim? Where are the underweight people today? We have had comment on this site about the obesity of some of the "people of Walmart". I can testify to the obesity of some people of McDonalds. Are times really as bad as we think they are?
Of course, for someone who has lost their home, courtesy of the “deregulation” and drift to fraud that has been proceeding for the last 30 years, the need for shelter is not met.
Salvation lies in our choices in the electoral process.
Kaufman for President!
And, of course;
Thanks again Bruce
QE2 is already priced in.
The election results are already priced in.
The market crash is already priced in.
The dollar collapse is already priced in.
It's pretty much all priced in at this point.
The only trading left is HFT algos pretending to trade with each other.
If this is an algo trading scenario then I would think the dollar has to drop significantly from here. So we get more fun by way of currency wars. It seems to be the open path for TPTB.
I had thought that the election might make a good excuse for a market reset. Using a changing of the guard in congress as an opportunity to start over, but I typically over analyze this $hit.
The market has already priced in the HFT computer's algos and share swapping. ;)
Here's the part I don't get.
Common sense would tell you that the losses already embedded in the Fed's balance sheet from the toxic assets it's acquired exceed the cumulative "profits" it has returned to the Treasury since its inception.
Common sense would also tell you that when (not if) interest rates revert to their historical mean, those embedded losses are going to grow exponentially.
Surely, Obama, Congress, Bernanke, Geithner and everyone else can see that. You don't even need an audit to see that. There can be no plausible deniability on anyone's part.
So why go through with QE2 and just make matters worse? How are more and greater losses going to help?
That question is valid but should have been asked when QE1 came along. The public and market (esp bonds and forex market) were happy to accept money plucked from thin air as the answer to plug banks' losses in their balance sheet, hence it is "logical" they should accept losses on the Fed's balance sheet be plugged by the same money plucked from thin air. As long as people continue to believe, the Ponzi scheme perpetuates.
I see another fearless defender of the truth has arrived. Let us not speak of it as mere "common sense" when we are speaking of "mere wisdom."
Honestly, it would all make more sense if this was one of those bad "asteroid" movies and the gov knew but just wasn't telling us that none of this matters any more.
Devoid of the earth altering event, I can see no way any logical (math driven) person would think anything we are doing helps the economy or average American's.
So then, we must ask
+QE to infinity and beyond...
Former Assistant Secretary of Housing under George H.W. Bush Catherine Austin Fitts blows the whistle on how the financial terrorists have deliberately imploded the US economy and transferred gargantuan amounts of wealth offshore as a means of sacrificing the American middle class. Fitts documents how trillions of dollars went missing from government coffers in the 90’s and how she was personally targeted for exposing the fraud.
Fitts explains how every dollar of debt issued to service every war, building project, and government program since the American Revolution up to around 2 years ago – around $12 trillion – has been doubled again in just the last 18 months alone with the bank bailouts. “We’re literally witnessing the leveraged buyout of a country and that’s why I call it a financial coup d’état, and that’s what the bailout is for,” states Fitts.
Massive amounts of financial capital have been sucked out the United States and moved abroad, explains Fitts, ensuring that corporations have become more powerful than governments, changing the very structure of governance on the planet and ensuring we are ruled by private corporations. Pension and social security funds have also been stolen and moved offshore, leading to the end of fiscal responsibility and sovereignty as we know it.
Fitts explained how when she was in government she tried to encourage the creation of small businesses, new jobs and new skills to compete in a globalized world otherwise the American middle class was toast, only to be forced out by the feds using dirty tricks. The elite instead wanted Americans to take on more credit card, mortgage and auto debt that corporations and insurers knew they couldn’t afford, while quietly moving their jobs abroad in the meantime.
This is a key interview in understanding precisely how the financial collapse was deliberately planned from the outset as a means of eviscerating the American middle class
link?
Welcome to Corporatistan, where the motto is, "We (steal) save the world from itself!"
Reminds me of George Bush Sr. when he uttered the famous phrase: ''Read my lips, what we say goes''. -)
I dunno...I've come to admire the sheer audacity of a brand new entitlement being touted as budget neutral and somehow job creating.
Then there is "shovel ready jobs" that were just hand outs to apparatchiks.
To each their own I guess.
But I'm on a quest to seek common ground, so I'll leave you with this.
W came in as a social conservative and left as a conservative socialist ;-)
Sure is a lot baked in to a giant wedding cake they now seek to call a twinkie.
Well, let's say this Twinkie represents the
normal amount of psychokinetic energy in the
New York area. According to this morning's
PKE sample, the current level in the city
would be a Twinkie 35 feet long weighing
approximately six hundred pounds.
WINSTON
That's a big Twinkie.
I guess I'm jaded. I'm no longer shocked or awed.
Bernanke:QE-2 will not destroy savers.
Bwaaaaahahahah!!!! Got physical gold and silver, because that is one of the main ways to protect wealth.
"In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good and thereafter decline to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as claims on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to be able to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
The above was said by Alan Greenspan, 'Gold and Economic Freedom' in 1966.
i love how ZH tries to handicap what ben's gonna do/say.
they've probably already done it; thus the run up in equities and metals. all these guys meet for Padron's and 30 year and laugh their asses off while we jump around... 'look but dont taste.. taste but dont swallow."
we'll be getting yesterdays news tomorrow... as usual. we'll just get a look at future policy for what they might do, which is meaningless.