Fed's Brian Sack: "The Fed Will Be Embarking On A Tightening Cycle Like No Other In Its History"

Tyler Durden's picture

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bugs_'s picture

Disclaimers on his speech LOL.


Anonymous's picture

...to wit; "...now that we've stolen evrery last dime we can steal and left the taxpayer on the hook, we'll contract the money supply so severely that the homeless, jobless masses will be starving in the streets and then we will control everything".


Anonymous's picture

gold, bitches?

dumpster's picture

sure,, the fed this the fed that ,,

this tightening policy will come over the dead bodies of the political class ,, and not a day sooner ,

mouth opens nose gets longer

buzzsaw99's picture

Lying sack-o-shit.

dumpster's picture

the real skinny

The hype today was that since the Chairman was approved to maintain his position, the Fed re-established its power.

The real story is QE to infinity or the Fed is history.  sinclair

mynhair's picture

In addition, if we communicate effectively, the markets should be clearly informed and well prepared ahead of the exit.

- translation:  GS gets first dibs

DavosSherman's picture

"making toward preparing for a smooth exit from the extraordinary policy actions that were taken in response to the financial crisis.1"

Smooth exit.

Brian "Sully" Sack?

I soooo don't think so.

Nihilarian's picture

Reality: No pain; no gain.

Fed: No pain; no pain.

deadhead's picture

The Fed tightening....that's pretty funny.  More jawboning, lies, bullshit, blah, blah, blah.

A responsible Fed would tighten but this Fed is far, far, far from being responsible.

hound dog vigilante's picture

Jawboning, yes. Lying? No.  This guy just unpacked the tool box and gave EVERYONE a looksie. For those participants who are happy to operate in a rigged market (banks, lenders) these remarks are a roadmap.

These remarks are also an admission... this guy pretty much admits and describes market manipulation and rigged outcomes as part-and-parcel of official Fed policy and operations. So the question in my mind is, "why would any non-lender/shallow pockets "investor" participate in these markets?".

Further, these remarks address assets only. There is no mention of organic economic activity. None. So what makes this guy (and the Fed) believe that ANY of these tools or policies will function as planned in a rapidly deteriorating global economy where productive assets increasingly fall idle (regardless of liquidity) as demand contracts year-over-year?

In an environment where cunsumer & business activity continues to deteriorate, the Fed's tools and policies are largely moot. This guy is describing policy theory and intent in a vacuum that bears lettle/no resemblence to reality.  Note that several of the tools described in these remarks have already been implemented and failed. I assume that no one in the room called him on this fact.

If the Fed does indeed execute per this playbook, we are in for 70's-style stagflation x100... asset deflation/inability to finance coupled with price inflation in fuel & food.

Going Galt will not be a matter of choice, it will be a matter of survival.


Rick64's picture

 What are they waiting for the recession is over. They already saved the economy.

Anonymous's picture

So this will be a tightening cycle like no other in history?

"That's right".

Uh huh. Will you sell the $1.7 trillion worth of overpriced assets you bought and thus destroy that newly printed money?

"Well, we probably won't get around to that in the next few years."

Will you raise the fed funds rate at an aggressive pace, moving several times between scheduled meetings when the stock market gets a little irrationally exuberant?

"Uh, I don't really think that's on the agenda".

Will you go after the hundreds of billions of dollars that have been transferred from the pockets of savers/taxpayers to the balance sheets of big banks via the steep interest rate curve, TALF, TARP, PPIP, etc, etc, etc, and subsequently paid out to executives and traders in the form of massive bonuses.

"Well, we don't really have the authority to do that."

Will you reimburse individuals for the amount they overpaid in their 401K plans after your plunge protection team jacked up stock prices to bubble levels once again? What about homebuyers who overpaid due to your misguided efforts to re-inflate home prices to the previous unaffordable bubble heights?

"We at the fed can't really tell when we're in a bubble."

Well, what exactly do you plan to do?

"Well, we're gonna pay the banks a higher rate of interest on their holdings at the fed."

I see. You're right, this is definitely something new.

Anonymous's picture

Nice touch o' humor!

I needed that.

deadhead's picture

the Trading Desk at the New York Fed has so far conducted 126 discrete operations to purchase Treasury and agency debt, and has managed 292 trading days on which either it or its investment managers have acquired MBS... during those "discrete operations" we've purchased a phucking shitload of eminis on sunday nite and early monday morning and are quite proud that our discretion and surreptitious activity has not been noticed by the markets.  further, we believe our substantial purchase of WFC, BAC, and other bank's common stock has gone off without a hitch and we expect to ease these back into the markets in the next millenium.  Though not a well known "household" name, our trading desk has been very "direct" in its ability to, shall we say, monitor the Treasury issuance market.

Rick64's picture

" we've purchased a phucking shitload of eminis on sunday nite and early monday morning and are quite proud that our discretion and surreptitious activity has not been noticed by the markets.

LOL thats the truth.

Anonymous's picture

I presume the Fed's "Exit Plan" is for all the senior-level Fed guys to move to well-guarded estates in South America.

Anonymous's picture

Wouldn't it be cheaper to store them all in one "well-guarded estate" in Leavenworth, Kansas?

Shameful's picture

Well I do believe it will be like no other in history, in that the fact the "tightening" will be Helicopter Ben dumping money out of his copter while screaming "Deflation! Deflation!"

Anonymous's picture

I think Ben upgraded to a B-52.

And from the ground, "de plane, de plane"


10044's picture

Sack just got sacked!!

Chopshop's picture

actually, the entire point of the speech was to underscore the importance of managing market participants' expectations ... something most market participants entirely gloss over while bitching about facts on the ground.

the point is that managing mkt expectations is priority #1 in effectively affecting any exit strategy.  a great speech with some pretty f'ing clear between the lines inferences to take away.

thanks for another great look, TD.

deadhead's picture

chop...I think I understand what you are saying relative to the "point" of the speech, to wit, the importance of managing expectations.....however, the only managing that they have done is to say that rates will stay zero for(ever) a long time and when they upped the discount (meaningless for all intents and purposes) they were out in full force like a kid caught stealing a candy bar who cries out "i promise i'll never do it again, never, never, never"...frankly, it was such childish behavior that I found myself laughing.

Their point about successful management of expectations is accepted by me (then again, don't all of us try to successfully manage expectations with those whom we interact with?) but the fact is their management actions have shown that they basically aren't going to change things.  all that said, they are phucking up by aiding the banks in stealing the country's wealth, avoiding the historical lessons of a combined bank crises (internationally systemic I note) and unprecedented global debt crises and doing a lot of BS jawboning, obfuscation of facts, hiding their cash flow/asset purchase sausage up their ass and....well, we know the etceteras...... 

assumptionblindness's picture

Dear Fed,

You have NO CREDIBILITY!  Either start tightening or STFU!  We're sooooooooo tired of the bazooka-speak.


"Money on the sidelines"  hee hee


Anonymous's picture

same story and Calculated Risk's headline

NY Fed's Sack: Preparing for a Smooth (Eventual) Exit


Anonymous's picture

Oh dear god why is everything on zerohedge so funny in such a sad way... it's truly me laughing through tears every update.

Fritz's picture

Talk is cheap.

Credibility is nonexistent.

Ned Zeppelin's picture

Sometimes, if you say you're gonna do something - any minute now, when you least expect it -  enough times, people come to believe it, and you achieve your goal without actually doing it.  Management of expectations by statement.  Let's see if the "Direct bidder" slows down on those purchases at the auctions. 

Anonymous's picture

When the price of oil goes down in a big way, we might assume that the "direct bidder" is no longer Ben at his Xerox machine.

deadhead's picture

there is always the Household sector my friend!!!

johngaltfla's picture

I love these economic assumptions. Like oh, I don't know, that the MBS is actually worth 90% of what the face value of the underlying real estate is. Call me crazy but if the Fed buys it at 100, and then the Fed says it's worth 90 then turns around and sells it for 90 to a member bank but the underlying assets are worth 40, are they not monetizing crap or what? This game is not going to end well just because someone "says" XYZ is worth anything. Cash flow don't smoke itself. The insanity just will not freaking end.

Salah's picture

Re-compete the Federal Reserve Contract.  Time for an entirely new bunch of managers in America's most important subcontractor function. 


(first time since 1913)

chinaguy's picture

"like no other in its history"

Ain't that the truth?

AnonymousMonetarist's picture


Hmmm ...tighten.

Synonym: pucker

Yeah, that sounds right.

faustian bargain's picture

smooth exit,


this is pure beavis and butthead comedy gold here.

Anonymous's picture

Not knocking the ZH reporting, but I get tired of reading the burdensome crap. Thanks for the commenter's for insight and distilling for a dweeb like me! Thanks also to ZH!

NullShrub's picture

"As noted earlier, this tightening cycle, when it arrives, will be more complicated than past cycles, as there will be more decision points facing policymakers. With more decision points come more opportunities for the markets to be confused by our actions."

Confused? Welcome to the Matrix is all I have to say.

Anonymous's picture

He trying to say the stock market will be fine. People expect the stock market to plunge when the "historic tightening" happens, but the PPT will make sure things "confuse" the markets.

Anonymous's picture

There is not even an inkling mention that they have plans to start buying again if asset prices start to fall when they stop what has been an average of $20+B per week of incessant buying for the last 15 months.

Anonymous's picture

Because Tyler subjected himself to reading this,
I did too.

My face began to turn sour at about this point:
"We have witnessed a remarkable improvement in the functioning of
short-term credit markets and an impressive recovery in the stability of large financial firms. While a whole range of government actions contributed to this recovery"

"To get to this point, the Trading Desk at the New York Fed has so far conducted 126 discrete operations to purchase Treasury and agency debt, and has managed 292 trading days on which either it or its investment managers have acquired MBS."
Wow. that's a lot of activity. In the old days we used to call people like
this 'movers and shackers' perhaps even 'market movers'.

Thank God for all you reality-based commentors, or I might start to nose dive down the wonderhole with Brian to say hello to Alice.


Anonymous's picture

Don't say he didn't lay it out for everybody.

A)MBS won't be sold

B)There's enough current "premium" in long term yields
to tolerate anything they plan to do on the short end.

Course, one can conclude from this the economy sucks
and Sack will never get a job on the sell side.

rawsienna's picture

The "portfolio" effect theory is idiotic and not relevant.  The main focus of quant ease should have been treasuries with the occasional purchase of MBS when/if spreads widened. All yield would be lower today.  THe spread tightening of MBS will only result in more leverage by weaker market players and a more expensive, disruptive and less flexible exit strategy. There is little doubt that the massive buying of JUST MBS post the first 500bb of QE has dampened vol and resulted in spread tightening in most other fixed income prodcuts but the key question is where would the rates on corps/MBS?etc be if the Fed concentrated most of their purchases in treasuries. We might have a 3% 10 yr and the same rates on these other products with better and broader participation. The fact that 10 yr swap spreads are basically zero tells me something is very wrong. 

Anonymous's picture

Chairman Bernanke described a possible approach for managing the size of the balance sheet. In particular, he indicated that he does not currently anticipate that the Fed will sell any of its asset holdings until the economic recovery is more firmly established and policy tightening has gotten underway. Until that time, the portfolio would shrink only through asset redemptions.

The rest Sach's remarks are all distracting blither. The 'portfolio' will shrink by $5. That's all it's worth.

Who will swap back those MBS's and for what? The securities are garbage and the money paid for them is long gone ... to numbered bank accounts in Liechtenstein, the Caymans, Singapore and elsewhere.

Excuse me while I go and beat my head against the wall. If I was President I would send for the FBI and raid the Goddamned place ASAP. Bernanke and his lap dogs Dudley and Geithner are worth 20 years in the Federal slammer each for money laundering ... what a fucking racket!

Anonymous's picture

Okay, I got something out of it. Sack thinks long yields
have a premium in them and they won't be raising short
rates high enough to send risky assets back to the March
lows. Everybody got it now?

waterdog's picture

The propaganda machine rolls on. I mean, I understand this was all about the Fed  and the banks and had nothing to do with reality, but, why did he not at least mention the vast amount of worthless US currency in the world and how that is going to be mopped up?

It was my impression over the past year that the only reason why the banks have excess liquidity is that they have removed from their books and records worthless assets that have not been charged off and the Fed has not purchased and, the remaining book assets that are worth 10 cents on the dollar are being held on the books at fantasy market values. If these assets were charged off and properly accounted for then there is no excess liquidity for the Fed to play games with. What the Fed is saying through this puppet is that the banks are going to loan to the Fed these excess funds the Fed gave the banks, continue to lie about the worthless assets that are hidden from stockholders and regulators, reduce the size of the Fed portfolio just for giggles, and pretend that there is not a tidal wave of expired government debt heading our way that cannot be refinanced.

This is not what I expected to read about when the story line began with-" When the time comes to tighten monetary policy, the Federal Reserve will be embarking on a tightening cycle like no other in its history." I was looking for hyperinflation or disinflation and how they were going to do it.

This speach is a great plan for the Fed balance sheet, and will probably work very well to meet the target interest rates with very little disruption to the stock market provided the stock market gets on board in a timely manner. It will remove reserves from the banks so the banks will not need to loan anyone any money.

But, it will not fix anything, will it?




Anonymous's picture

Ok. most days my brain is rather cool and dark, like a musty country cellar, but just now I had a flash of insight.
When we rolled into Iraq, we confiscated all the paper dough we had given them and made it go away.
Same with Afghanistan, although there are rumors about pallets of dough going from Afghanistan to Dubai lately?
But whatever. My theory now is that we can invade every single country on earth, confiscating whatever US currency print they have and disposing of it, then charging them appropriate fees to manage and rebuild their country.

I actually read this document about 10 years ago.
The document outlining the above plan.

No really.