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Fed's Kocherlakota Advocates 50 bps Interest Rate Hike After Q3

Tyler Durden's picture




 

Just out from Minneapolis Fed's Kocherlakota: "A core inflation rate of 1.5 percent is still markedly below the Fed's
price stability objective of 2 percent. Accordingly, an increase of 50
basis points in the fed funds rate would still leave the Fed in a
highly accommodative stance. First, the fed funds rate would be
extremely low—between 50 and 75 basis points.
As well, the Fed's
holdings of long-term assets would continue to provide significant
accommodation. Using estimates from the staff research that I mentioned
earlier, we can conclude that the total monetary policy package of the
two forms of accommodation would be roughly equivalent to maintaining a
fed funds target rate of negative 1.5 percentage points. Such a stance
can only be described as being easy monetary policy—just not as easy
as late 2010." That said, someone please remind us just how many of these so-called hawks voted against the FOMC action at the last meeting? Yeah, that's what we thought. And yes, Narayana, we will be closely watching your vote during the next FOMC meeting, because we can't shake this nagging feeling that you, just like all other Fed presidents, are mostly full of nothing but hot air.

Some Contingent Planning for Monetary Policy
Narayana Kocherlakota - President
Federal Reserve Bank of Minneapolis

Thank you very much for that generous introduction. I am delighted
to have this opportunity to be part of this year's Santa Barbara County
Economic Summit. Over the past 25 years, monetary policymakers all
over the world—including here in the United States—have become more
transparent about their deliberations and their thinking. Speeches like
this one play a huge role in that process. So I thank you for your
invitation to join you here today and for the opportunity to share my
views.

As was mentioned in the introduction, I am the president of the
Federal Reserve Bank of Minneapolis. The Federal Reserve Bank of
Minneapolis is one of 12 regional Reserve banks that, along with the
Board of Governors in Washington, D.C., make up the Federal Reserve
System. Our bank represents the ninth of the 12 Federal Reserve
districts, and our district includes Montana, the Dakotas, Minnesota,
northwestern Wisconsin, and the Upper Peninsula of Michigan.

The Federal Open Market Committee—the FOMC—meets every six to seven
weeks (eight times per year) to set the path of monetary policy. All 12
presidents of the various regional Federal Reserve banks and the seven
governors of the Federal Reserve Board participate in these meetings.
(Right now, there are only five governors—two positions are unfilled.)
However, the actual policy decisions are made by the Committee itself.
It consists only of the governors, the president of the Federal Reserve
Bank of New York, and a group of four other presidents, which changes
annually. Currently, I'm a member of the Committee (along with the
presidents of the Federal Reserve Banks of Chicago, Dallas, and
Philadelphia).

At each FOMC meeting, there are two go-rounds, in which each
president and every member of the Board speaks in turn. The first
go-round concerns current economic conditions and the economic outlook.
The presidents typically say something about economic conditions in
their own district, as well as talk about national economic conditions.
The governors speak about national economic conditions, although they
often focus their remarks on particular slices of the overall economic
picture.

In the second go-round, we each speak in turn about our views on the
current monetary policy choices. However, those discussions often range
well beyond the confines of the next seven weeks. There is no sensible
way to talk about current policy choices without linking them in some
fashion to future policy choices. Hence, meeting participants may
sometimes describe (as briefly as they can!) how they expect (or would
like) policy to evolve over the coming months or even years.

My remarks today will be structured along the lines of an FOMC
meeting. I will first discuss my outlook for the U.S. economy. I will
then move on to talk about the key issues that I see affecting the
FOMC's policy choices over the coming months and years.

Before going further, I should say that my views are my own and not
necessarily those of others in the Federal Reserve System or of others
in the FOMC. This disclaimer is a standard one—but let me provide a
little more detail about what it will mean about the remainder of my
speech. I'm a member of the FOMC this year, and so I vote to determine
the course of monetary policy at each meeting. Given my position, I
believe that it is valuable for the public to know what economists
would term my monetary policy reaction function—that is, my
views about how monetary policy should react to various economic
scenarios. Of course, the FOMC is made up of 10 different individuals,
with 10 highly related, but nonetheless distinct, policy reaction
functions. The ultimate reaction function of the FOMC is a collective
one, and may well differ from that of any given Committee member. My
remarks are only about the nature of my reaction function, and not the collective one of the FOMC.

With that context in place, let me move to my outlook. I'll focus on
the three variables of most interest to us at the FOMC: real—that is,
inflation-adjusted—gross domestic product (GDP), unemployment, and
inflation. My bottom line is that, from the point of view of the
macroeconomy, 2011 will be a better year than 2010.

Recently, the Bureau of Economic Analysis released its advance
estimate for real GDP in the first quarter of 2011. This estimate
implies that real GDP grew at a 1.8 percent annual rate during the
quarter. This growth rate is a bit slower than what we've seen since
the end of the Great Recession: In the seven quarters since June 2009,
real GDP growth has averaged just below 3 percent. This rate of growth
is slow compared with the recovery in real GDP that took place after
the recession of 1981-82. However, it is similar to the recoveries that
took place after the recessions of 1991 and 2001.

Despite this somewhat slow start, I do expect that real GDP growth
will be slightly faster in 2011 than in 2010—something between 3
percent and 3.5 percent. Given the depth of the recession that we
experienced, this rate of growth is disappointing. I do still see two
headwinds in the U.S. economy. The first is that many households will
continue to strive to rebuild their net worth positions in response to
past—and possibly future—falls in residential land prices. As I have
discussed elsewhere,2
I believe that the decline in household net worth, precipitated by
falls in land values, was a key factor in generating the severity of
the Great Recession. It will remain important in the recovery.

The second headwind is related. Many smaller banks in the United
States face ongoing issues with asset quality. For example, the FDIC
problem bank list contains over 800 banks. Problem banks are less
likely to take the risk of lending to small and/or young firms and
other entrepreneurial activities. Instead, they are more likely to
preserve capital ratios by limiting their asset growth and allocating
their lending staff to working out loans to existing borrowers. Indeed,
as the economy improves, I suspect that this headwind will become even
more important. In 2010, our information at the Minneapolis Fed
indicates that small businesses were reluctant to expand because of
ongoing uncertainties about product demand. As a result, their demand
for bank financing remained low. In 2011, as the economy improves, I
expect loan demand to rise accordingly—but banks with poor asset
quality will continue to focus on capital preservation rather than loan
expansion.

Let me turn now to the labor market, where I see conditions
improving slowly. The unemployment rate has fallen from 9.8 percent in
November to 8.8 percent in March. However, unemployment can fall in two
ways: People can find jobs or people can stop looking for work. Along
these lines, it is worth keeping in mind that the
employment-to-population ratio—the fraction of those over 16 with a
job—has improved only slightly since November and remains near
quarter-century lows.

I see the future course of unemployment as being shaped by two
conflicting forces. On the one hand, the growing economy should
generate more jobs and therefore lower unemployment. On the other hand,
the growing economy will also lead more people without jobs to look for
them. On net, I do expect the unemployment rate to normalize at close
to 5 percent within the next five years. However, the immediate
progress will be slow: I expect that the unemployment rate will be
between 8 percent and 8.5 percent by the end of the year.

Finally, I turn to inflation. The FOMC is mandated by the Federal
Reserve Act to keep prices stable. This mandate is typically translated
quantitatively into a 2 percent rate of inflation, or a bit under.
Here, by inflation, I'm referring to headline inflation—that is, the
rate of price increase of a bundle of all consumer goods and
services, including those related to food and energy. The problem is
that monetary policy operates with relatively long lags. Hence, out of
necessity, I view the Committee's price stability mandate as requiring
it to follow policies that will guide the economy toward 2 percent
headline inflation over the next three to four years.

I believe that the Fed can best achieve this medium-term objective for headline inflation by responding on an ongoing basis to movements in what's called core inflation.
Core inflation is a measure of inflation that strips out food and
energy products. I like core inflation as a measure of medium-term
inflationary pressures because demand and supply conditions in food and
energy markets are volatile, and so their prices tend to have
relatively large transitory fluctuations. Responding aggressively to
these fluctuations would lead to bad monetary policy. For example,
increases in energy prices pushed headline personal consumption
expenditure (PCE) inflation, when measured over the preceding year, up
to 4.5 percent in July 2008. With hindsight, we can see that it is good
that the FOMC did not raise rates in response to what proved to be a
temporary increase in headline inflation.

From the fourth quarter of 2009 to the fourth quarter of 2010, core
PCE inflation was 0.8 percent—the lowest annual inflation rate in the
50-plus-year history of that series. Inflation was low—but
disinflationary pressures were still strong as core PCE inflation
trended downward over the course of 2010. Over the last six months of
2010, the annualized core PCE inflation rate fell to 0.4 percent. That
is the second-lowest 6-month core PCE inflation rate ever recorded.

I don't expect this kind of disinflationary pattern to continue in
2011. Core PCE inflation from the fourth quarter of 2010 to the first
quarter of 2011 was 1.5 percent at an annualized rate. Similarly, I
expect that core inflation will be 1.5 percent over the remainder of
2011.

To summarize: I expect real output to grow slightly more rapidly in
2011 than in 2010. Household deleveraging and bank asset quality issues
will remain a drag on the recovery. Unemployment will fall—but more
slowly than we would like. Finally, inflationary pressures are
currently low. I expect core PCE inflation to grow slowly over the
course of 2011, while remaining under 2 percent.

What sort of faith should you put in these forecasts? Well, my
history of making forecasts is short so far, because I only took over
as president in October 2009. However, in February 2010, I gave my
first speech as bank president and offered forecasts about 2010 real
GDP, unemployment, and inflation. My forecasts for unemployment and GDP
ended up being pretty accurate. However, my forecasts for 2010
headline and core inflation were both about a percentage point too
high.

I encourage you to keep this forecasting error in mind as I move on
to what would be the second go-round in the FOMC: the discussion of
policy considerations. I'll first discuss where we are now and then
talk about possible monetary policy changes over the coming year. Just
as is true in many actual FOMC policy go-rounds, you will see that my
discussion will necessarily spill into choices and decisions to be made
over the next five years.

The Federal Reserve currently has two forms of accommodative monetary
policy in place. The first is that the FOMC is targeting a low fed
funds rate of between 0 and 25 basis points. This kind of
accommodation—keeping short-term interest rates low—is an entirely
conventional response to unduly low levels of core inflation and unduly
high levels of unemployment. By keeping market interest rates low, the
policy encourages companies to invest their resources into hiring and
business expansions, and it also encourages households to engage in
more spending.

The second kind of accommodation is less conventional. The Fed has
bought about 2.1 trillion dollars of longer-term government securities,
and the FOMC has committed itself to buying an additional 0.2 trillion
dollars of these securities by the end of June. The thinking behind
this form of accommodation is that the FOMC's holdings of 2.3 trillion
dollars of longer-term securities raises their prices and lowers
longer-term yields. In so doing, more long-term investments—like
building factories or hiring workers—become more attractive to
businesses.

Together, the low fed funds interest rate and the holdings of
long-term government securities provide a formidable amount of monetary
policy accommodation. We can quantify their joint effect using results
in a recent research paper by Federal Reserve staff.3
That paper estimates that if the Fed buys 200 billion dollars worth of
long-term government securities, the Fed provides stimulus to the
economy equivalent to that achieved by lowering the fed funds rate by
25 basis points. This translation implies that, at the end of 2010, the
FOMC's total amount of monetary accommodation was roughly equivalent
to what it could achieve by maintaining a fed funds rate of negative
2.5 percentage points.

This level of accommodation was adopted in November 2010, when the
FOMC committed itself to buying 600 billion dollars of longer-term
Treasuries by June 2011. The decision was nearly unanimous. I was not a
member of the Committee at that time, but I did support the decision.
We had seen a rather sharp fall in core inflation over the course of
2010, compared with what we had seen in 2009 and compared with what I
had expected earlier in 2010. I believed that it was appropriate to
ease policy in response to this fall in inflation. For myself, I would
have preferred to have been able to lower the fed funds rate—but that
option was not available.

Notice that the FOMC could have chosen a greater degree of
accommodation by buying more long-term Treasuries. It could have chosen
a smaller degree of accommodation by buying fewer long-term
Treasuries. My conclusion is that, in late 2010, this level of
accommodation was neither too tight nor too loose, given prevailing
economic conditions.4

But economic conditions change, and monetary policy must adjust to
those changes. Here's a metaphor that may be helpful. We can think
about the level of monetary accommodation as being akin to a gas pedal
on a car and the Fed's dual mandate as being a target speed. Right now,
the car is going too slowly, and so the Fed has its foot on the
accelerator.

There is one tricky part with the metaphor: with a car, a driver can
just keep his foot on the gas until he hits his target speed. Monetary
policy operates with long and variable lags—it's like driving a car in
which the car's rate of acceleration responds 10 to 20 seconds after
the driver adjusts the gas pedal. A driver of such a car will have to
ease up on the gas as he gets closer to his target speed—or he will end
up going too fast. In the same way, the Fed needs to lower its level
of accommodation as it gets closer to fulfilling its price and
employment mandates. Of course, like driving, monetary policy is an
exercise in scenario analysis. If the car starts going uphill and its
speed falls, then the driver needs to put more pressure on the gas.
Similarly, if the economy were to move further from the Fed's dual
mandates over the course of 2011, then the FOMC would need to put more
pressure on the monetary gas pedal and increase the level of its
accommodation.

When I engage in monetary policy scenario analysis, I find it useful
to start—but not finish—with my baseline economic forecast that I
described earlier. When the FOMC adopted its current level of
accommodation in late 2010, year-over-year core PCE inflation was 0.8
percent. My baseline forecast is that, by the end of 2011, core PCE
inflation will be 1.5 percent—that is, 70 basis points higher than in
the prior year. The Fed would then be closer to its price stability
mandate—and so should ease the pressure on the monetary gas pedal. The
standard response to such an increase in core PCE inflation would be to
raise the target interest rate by a larger amount—that is, by at least
70 basis points. For example, the widely known rules associated with
John Taylor of Stanford University would recommend that the response
should be to raise the target interest rate by 1.5 times the increase in
core inflation—that is, by 105 basis points.

Monetary policy should also adjust in response to changes in labor
market slack. These changes are typically hard to measure. However, like
many other economists' forecasts, my baseline forecast is that the
unemployment rate will be at least one percentage point lower at the
end of 2011, relative to November 2010. This kind of fall in the
unemployment rate would generally be viewed as signaling a decline in
slack, as would the increase that I expect to see in core inflation.
This fall in labor market slack would argue in favor of raising the fed
funds rate by even more than the 105 basis points that I mentioned
earlier.

So far, my analysis implies that my baseline forecast should trigger
an increase in the target fed funds rate of at least 105 basis points.
However, there is an offsetting effect that deserves mention. The level
of accommodation provided by the Fed's long-term securities depends on
how long people expect those holdings to last. To take an extreme, if
the Fed were expected to sell all of its holdings in the next day,
those holdings would obviously no longer provide any noticeable
downward pressure on long-term interest rates. Now, the Fed is
certainly not going to sell its holdings tomorrow! But, at the end of
2011, we are presumably one year closer to the eventual normalization
of the Fed's balance sheet than we were at the end of 2010. The staff
research paper that I mentioned earlier provides an estimate of the
consequent reduction in accommodation as being roughly equivalent to a
50-basis-point increase in the fed funds rate.

Now, let's put all of this analysis together. It implies that if PCE
core inflation rises to 1.5 percent over the course of 2011, the FOMC
should raise the fed funds rate by around 50 basis points. Of course, a
core inflation rate of 1.5 percent is still markedly below the Fed's
price stability objective of 2 percent. Accordingly, an increase of 50
basis points in the fed funds rate would still leave the Fed in a
highly accommodative stance. First, the fed funds rate would be
extremely low—between 50 and 75 basis points. As well, the Fed's
holdings of long-term assets would continue to provide significant
accommodation. Using estimates from the staff research that I mentioned
earlier, we can conclude that the total monetary policy package of the
two forms of accommodation would be roughly equivalent to maintaining a
fed funds target rate of negative 1.5 percentage points. Such a stance
can only be described as being easy monetary policy—just not as easy
as late 2010.

Thus, under my baseline forecast, it would be desirable for the FOMC
to raise the fed funds target interest rate by a modest amount toward
the end of 2011. Of course, the FOMC could also reduce accommodation by
shrinking the Fed's holdings of long-term government securities. Such a
reduction could take place in one of two ways. First, the FOMC is
currently investing any principal payments from its securities holdings
into long-term Treasuries. The Committee could decide to stop all or
part of these reinvestments.Alternatively, the Committee could reduce
accommodation by choosing to sell some long-term assets.

These two approaches of reducing accommodation operate on the Fed's
balance sheet. I'm open to these approaches to reducing accommodation.
However, based on what I know now, I would prefer to reduce
accommodation by raising the fed funds target interest rate. I have
more confidence in that instrument of policy, based on our many years
of experience with it. I suspect that this confidence is shared by the
public at large.

I do think that the Fed needs to shrink its large balance sheet. But I
see that as a longer-term mission that can take place over the next
five or six years or so. I believe that this mission should be guided
by two key principles. First, the Fed should commit itself to a viable
path of shrinkage of its asset holdings. Second, that path should be
sufficiently gradual that it will interact little with the
effectiveness of monetary policy. Along these same lines, the FOMC
should offer as much certainty as possible about the rate of shrinkage.

I have been describing how monetary policy should react to one
particular scenario, my baseline forecast. As I noted, my baseline
forecast about inflation was wrong last year, and could well be again
this year. As a policymaker, I need to be prepared for that
possibility. In terms of inflation, there are two kinds of errors to
contemplate. On the one hand, my forecast for core PCE inflation might
well be too high. If core PCE inflation were to fall over the course of
2011 relative to 2010, then it would be desirable for the FOMC to ease
further in response to that decline. I imagine that easing would take
place through the purchase of more long-term government securities.

On the other hand, my forecast for core PCE inflation might be too
low.
For example, core PCE inflation might rise to 1.8 percent over the
course of 2011. But incoming data would reveal such a rapid increase
to the FOMC early in the third quarter of 2011. I would recommend
raising the target fed funds interest rate shortly thereafter.

Let me wrap up. My goal today has been to lay out my outlook for the
economy and give you a sketch of how I believe monetary policy should
react to changes in economic conditions. Under my baseline forecast, I
believe that it would be appropriate for the FOMC to raise the fed
funds target interest rate by a modest amount at the end of 2011.
However, that forecast—like all forecasts—is subject to error. I've
also discussed how my policy choices should and would react to those
errors—that is, I've discussed my policy reaction function.

I began this speech by broadly describing the makeup of the Federal
Reserve System and its policymaking body, the Federal Open Market
Committee, as well as my role on that Committee. I raise this point
again at the end to underscore the independent—yet collaborative—nature
of the FOMC. As I described, each member of the FOMC has his or her
own policy reaction function, grounded in our distinct but related
views. I believe it is our responsibility to describe those views to
the public. In that respect, I hope you found this speech enlightening,
and I am happy to take your questions to provide fuller explanation on
these and other matters. Thank you once again.

 

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Thu, 05/05/2011 - 13:34 | 1244042 HamyWanger
HamyWanger's picture

It's not the first time Kocherlakota says idiot things with no follow-up.

The FED will never raise rates, and that's a good thing. Anything else would harm the global economic recovery. 

Thu, 05/05/2011 - 13:36 | 1244059 Alcoholic Nativ...
Alcoholic Native American's picture

I agree with you. Why do they keep saying they are going to raise rates.  It's obvious that they are not going to do it.

 

 

Thu, 05/05/2011 - 13:41 | 1244077 Calvin Jones an...
Calvin Jones and the 13th Apostle's picture

As Bill over at Calculated Risk says, the Fed isn't going to raise rates till the middle of 2012 at the very earliest.  And probably not until 2013.

Thu, 05/05/2011 - 13:55 | 1244119 nope-1004
nope-1004's picture

This entire week was planned.

1)  Debt ceiling needs to be raised, late last week increase margin on silver.

2)  "Kill" Osama on Sunday, attempt to bring major distraction to the public.

3)  Sunday night hammer Silver.

4)  Mon-Wed raise margin on silver again.

5)  Hammer silver to bring down crude and other commods, as ADP numbers (known before hand) for Thursday will be the worst in many months.

6)  Set up the talk for "weaker than expected economy" and double dip in housing to rationalize QE3.

They need QE3 no matter what.  But how do you convince everyone with oil at near all time highs, silver within a hair of all time highs, and DXY tanking?

It really all makes sense when you look back on it.  Watch next week unfold and then the picture will start to look even clearer.

We are all being lied to and the script is meant to distract the majority.

 

Thu, 05/05/2011 - 13:58 | 1244133 scatterbrains
scatterbrains's picture

they miscalculated taking down silver before the announcement, the short covering alone, once the weak handed throats are slit will rocket silver back to 50. They should have announced QE3 and then hammered silver.. give it that sell the news feel to it.

Thu, 05/05/2011 - 16:41 | 1245093 Franken_Stein
Franken_Stein's picture

Brilliantly observed !

You da man.

Thu, 05/05/2011 - 14:00 | 1244157 Sudden Debt
Sudden Debt's picture

Like Bernanke once said:

WE ALL DO DUMB SHIT WHEN WE'RE FUCKED UP!

 

That's fortune cookie Dailhi Lama Shit man!

 

Thu, 05/05/2011 - 14:56 | 1244422 ElvisDog
ElvisDog's picture

I'm not even sure the Fed could raise rates by 50bp. According to John Hussman's analysis, if they did raise by 50bp they would have to sell something like $1T of their reserves in order to keep inflation in check. Who is going to buy the $1T of crap from the Fed.

Thu, 05/05/2011 - 13:51 | 1244113 reachsb
reachsb's picture

Never put anything past them. At stake is not only the global economic recovery but the need to maintain the USD as the world's reserve currency. There is a behind the scenes global fight going on, wherein; everyone's jockeying to become the next reserve currency (IMF, China, Russia, Euro, etc.). And why not. Having the ability to print the world's reserve currency enabled the Fed to print as much as $20T to back-stop the entire collapsing financial system. How many Central banks around the world would have been able to print that much money and exchange it for absolutely trashy toxic assets with their respective imploding financial instutitions (without the ability to print the reserve currency)?? None!! 

I expect the Fed to tighten this summer/fall to maintain the false facade of fiscal responsibilty and sound monetary policies. It also needs to nip its chief rival (precious metals). Gold and Silver have become the de-facto reserve currencies in the past 6 months. This measure of tightening will only be for show while it can still indulge in other QE like programs to hand out free money to its friends (big banks). Seems like it has learnt from its earlier mistakes and it will be careful to not call such future QE programs by their names (like Easing) but something so convulated that even the financial mavens won't be able to figure it out. For e.g; how many folks know that the USD currency swaps that the Fed performed with the various Central banks around the world in 2008 (during a USD liquidity crisis) were nothing but sheer money printing?

Thu, 05/05/2011 - 14:15 | 1244210 reachsb
reachsb's picture

Also, I would like to add that today's ramblings from Kocher is in continuation of the cabal's orchestrated moves to take out the primary competitor - Precious metals. The chronology of events so far:

  1. Spook investors by dropping the bid on Sunday night (when Asia was closed).
  2. CME and various brokerages raised margins on futures contracts continuously to unheard of levels. 
  3. Parrot out the secondary players (who are part of this game) to announce that they are selling PMs (Soros, Carlos Slim, etc.).
  4. Kocher comes in and says that the Fed needs to tighten.
They will keep doing this till they won't slay the monster. They are not even letting the PMs base.

 

 

 

Thu, 05/05/2011 - 14:04 | 1244162 MrPike
MrPike's picture

0% interest rates encourage companies that operate with a 1% profit margin to exist.  What happens to those companies when the Fed decides to raise interest rates above that 1% mark?  Do you think it will be pretty?  

Thu, 05/05/2011 - 14:18 | 1244212 Imminent Crucible
Imminent Crucible's picture

Kocherlakota: What a gasbag.  The headline should have read

Kocherlakota Advocates 50 bp Rate Hike After QE3, 4

Thu, 05/05/2011 - 13:34 | 1244049 Franken_Stein
Franken_Stein's picture

 

The Fed is a fraud and must be abolished.

If Ben Bernanke decided today, that he wanted to create a trillion dollars at the push of a button and give half of it to himself and the other half to his closest cronies, he can do it, and nobody can stop him from doing so.

It's totally arbitrary, random and unlimited in size.
It's a monetary oligarchy with no oversight or audit.

And all the financial journalists all over the world constantly create and nurture the illusion of officiality and trustworthyness around this fake and criminal private enterprise.

The Federal Reserve is not an institution.

Their issued linen is to the sheeple population what the glass beads were to the Native Indians when in 1492 they traded their gold to the Conquistadores in exchange for it.

Dollar = glass beads = worthless, since abundant and replicable
Gold = gold = valuable, since rare and non-replicable

 

Thu, 05/05/2011 - 13:37 | 1244064 Alcoholic Nativ...
Alcoholic Native American's picture

To be fair, the Pentagon can do this too.  It's a matter of national security, and complete systematic collapse is not acceptable.  The Military and the banking institutions are too big to fail.

Thu, 05/05/2011 - 14:19 | 1244216 Imminent Crucible
Imminent Crucible's picture

Complete systematic collapse is perfectly okay by me.

Thu, 05/05/2011 - 13:41 | 1244076 traderjoe
Thu, 05/05/2011 - 14:20 | 1244223 Shredd the FED
Shredd the FED's picture

Highly agree with you, but in order to fight the FED we need to fight who runs and controls it... Please help with petition...  http://salsa.democracyinaction.org/o/641/p/dia/action/public/?action_KEY...  Zionist that control israel and US as well... You better start believing this that they are NOT friend of the United States... otherwise we will be fighting invisible enemy...

 

Thu, 05/05/2011 - 13:37 | 1244051 TruthInSunshine
TruthInSunshine's picture

Hike the rates, default on the debt, declare that it was all a fat fingered mistake, apologize profusely and send some fruit baskets, chocolates and flowers out, and hit the fucking reset button.

And then have the USAF carpet bomb every building the Federal Reserve Bank occupies.

Thu, 05/05/2011 - 13:36 | 1244053 Sutton
Sutton's picture

And at the next meeting(s) he'll vote for whatever BB wants.

Thu, 05/05/2011 - 14:59 | 1244438 Urban Redneck
Urban Redneck's picture

They all do, they're the Chairsatan's cheerleading BITCHEZ

Free to parrot the propaganda by day, but they all bend over at his command behind the closed doors of Marriner Eccles.

Thu, 05/05/2011 - 13:36 | 1244054 Re-Discovery
Re-Discovery's picture

PR game.  Just trying to get market to position itself on expectation of tightening, i.e. cool commodity speculation.  Then when they do it -- 7 years from now -- they will have recieved the most bang for their buck.

All statements coordinated from center by the Chairistan.

Thu, 05/05/2011 - 13:38 | 1244057 RobotTrader
RobotTrader's picture

Hope a lot of you guys learned a lesson.

Any and all runaway commodity markets can be pushed down with paper contract shorting, margin hikes, or whatever tools are at TPTB's disposal.

Note how the Fed-sponsored, TPTB-supported QQQ remains pinned at 52-week highs.

Meanwhile the "Silver Bitchez" have been decimated.

Never fight City Hall.  Never.

Anyone who wants to trade for a living must follow this rule.  Otherwise, prepare to get wiped out by Uncle Gorilla.

Thu, 05/05/2011 - 13:40 | 1244067 spartan117
spartan117's picture

No person, entity, business, or even government, is bigger than the market.  They can move the PMs in the short term, but intermediate to long term, their actions will result in even higher prices than where we should have gone if they had just stayed out of it.

Edit:  I'm not trading, but I would agree with that part of your premise.

Thu, 05/05/2011 - 13:41 | 1244068 tmosley
tmosley's picture

Hey dumbshit--you have still been outperformed by silver over the last 12 months.  Also, all other timeframes longer than that.

"Uncle Gorilla" is tired.  He's got strength on paper, but the truth is he's got very little staying power, and is unable to overpower real things.

My stack will be growing next week.  And the month after, and the month after that, and the month after that, and so on.  Nothing can be done to stop that.  Nothing short of the finale of this farce, anyways.

Thu, 05/05/2011 - 13:44 | 1244082 camaro68ss
camaro68ss's picture

GOD what was i thinking, i should not have bought so much silver at $25. your right, goverment is always right and will never fail. im going to sale everything and buy Netfix and Apple stocks

 

Thanks Robo for shining the light on me

Thu, 05/05/2011 - 13:43 | 1244090 Re-Discovery
Re-Discovery's picture

What lesson?  To do it again?  My Silver/Gold performance is up 93.7% since September not counting very small positions I continue to hold for shits and giggles.

Stop trying to teach lessons and go beat that performance with your 'top tick' picks.

Thu, 05/05/2011 - 13:44 | 1244092 Tracerfan
Tracerfan's picture

The U.S. is still bankrupt.

Actually more bankrupt today than yesterday.

Fiat and more fiat will be printed.  Go ahead and put your more of your assets in fiat.

I am getting more and more physical with real money (for the past 5,000 years).

Thu, 05/05/2011 - 13:58 | 1244107 Franken_Stein
Franken_Stein's picture

 

I hope they'll hammer silver to $5 / oz. so I can buy even more !

 

I personally know people who have held silver for some 30 years now.

This little dent in the chart is nothing.

 

The sooner the Chinese and their central bank call on the American CRIMEX bluff, the better.

Imagine if the Chinese invested part of their $3 tn sovereign wealth fund into PMs, especially silver at COMEX, and then demanded delivery.

If I were the Chinese, I'd do it.

 

And if they can't deliver, I'd demand a 100% premium in dollars.

Or 1000 %.

 

They could inflict some serious damage on the Manhattan, New York based criminal mafia cartel and to CME group.

 

A-hahahahaha !

 

Thu, 05/05/2011 - 14:19 | 1244168 topcallingtroll
topcallingtroll's picture

ZSL been bely bely good to me. Never made over 50 percent in a single week. I admit it is mostly luck. I am going to play the tortoise for a while and hang out in cash. Does anybody have a better idea? Name and price?

Thu, 05/05/2011 - 14:05 | 1244170 oogs66
oogs66's picture

Yes, extremely tough to trade against the government short term.  But on other hand, their actions tend to be temporary.  Most recent case in point, Yen intervention.  Its almost back to 80.  The intervention worked briefly but has run out of steam and the natural order is taking over again.

Thu, 05/05/2011 - 14:07 | 1244171 SheepDog-One
SheepDog-One's picture

How much does Tyler pay for this ongoing clown act of yours RainblowTrader?

Thu, 05/05/2011 - 14:47 | 1244361 malek
malek's picture

From time to time, you should not look at ticks but widen your perspective to decades.

Thu, 05/05/2011 - 15:06 | 1244470 ElvisDog
ElvisDog's picture

Robotrader has a good point. If you're buying silver with cash (no margin) as a long-term insurance policy, you can ignore price swings. If you are trading or using margin, you have to pay attention to signals coming from organizations that have the ability to manipulate price over the short term. I'm not an expert trader, but I had a moderate position in UNG. Something just didn't feel right and I dumped it on Monday. I'm feeling pretty good about that decision.

Thu, 05/05/2011 - 13:35 | 1244058 spartan117
spartan117's picture

They are trying very hard to kill the PMs.  Wow, they are pulling out all stops here. 

Thu, 05/05/2011 - 14:51 | 1244389 malek
malek's picture

How can they kill PMs?
They can kill paper or the PM day traders. Which is a good thing.

Thu, 05/05/2011 - 13:36 | 1244060 tmosley
tmosley's picture

Yeah, let's stop shooting heroine into our nutsacks after the next hit!

Thu, 05/05/2011 - 13:51 | 1244111 Sudden Debt
Sudden Debt's picture

Tmosley... I like you... but shooting heroine in your nutsack just can't be good for you man!

Better stick with cocaine and also remember: God gave you a nose to use it like he intended it to be used.

 

 

Thu, 05/05/2011 - 14:10 | 1244178 tmosley
tmosley's picture

Maybe my sardonicism radar is off for the day, but I was saying that from the perspective of the Fed.

Like saying "I'm going to lose weight by going on a diet--right after I polish off six buckets of ice cream."

Thu, 05/05/2011 - 13:36 | 1244062 carbonmutant
carbonmutant's picture

This administration and its cronies are trying to find something that sticks...

Thu, 05/05/2011 - 13:40 | 1244071 alexwest
alexwest's picture

###
core inflation rate of 1.5 percent is still markedly below the Fed's price stability objective of 2 percent
###

another ipad eater..
fuck the guy... ship his fucking body down the filthy river of Gang where he belongs

alx

Thu, 05/05/2011 - 13:45 | 1244089 FreeNewEnergy
FreeNewEnergy's picture

Release the Hounds!

Deflate at will!

Give Timmah another Tootsie Roll! He's drooling again.

 

Thu, 05/05/2011 - 13:46 | 1244097 monmick
monmick's picture
Fed's Kocherlakota Advocates 50 bps Interest Rate Hike After Q3

Surely you mean "... after QE3..."!

Thu, 05/05/2011 - 13:56 | 1244141 Drag Racer
Drag Racer's picture

of course, discourage borrowing after you lend it all out. It's just like raising the debt limit after you promise not to spend it.

Thu, 05/05/2011 - 13:59 | 1244144 NotApplicable
NotApplicable's picture

On the other hand, my forecast for core PCE inflation might be too low. For example, core PCE inflation might rise to 1.8 percent over the course of 2011. But incoming data would reveal such a rapid increase to the FOMC early in the third quarter of 2011. I would recommend raising the target fed funds interest rate shortly thereafter.

Thu, 05/05/2011 - 13:49 | 1244099 Law97
Law97's picture

Glad to see here no one else is buying this hawkish Fed jawboning BS.  Actions still speak louder than words.

Thu, 05/05/2011 - 13:57 | 1244146 Alcoholic Nativ...
Alcoholic Native American's picture

I love the avatar.  I'm the one who origionally made it, I had it over on ticker forums before they teabagged me.

Thu, 05/05/2011 - 13:50 | 1244118 Sudden Debt
Sudden Debt's picture

and 55 bps after QE4!

 

Thu, 05/05/2011 - 13:53 | 1244129 Boilermaker
Boilermaker's picture

REITs all the way back, positive, and climbing.

God bless strip malls...at all costs....literally.

Thu, 05/05/2011 - 13:58 | 1244134 jbaressi
jbaressi's picture

Core inflation is BELOW target, and so the Fed must TIGHTEN.

Wow.

To say the least, this guy is reading from a different Econ 101 text book than the rest of us.

Thu, 05/05/2011 - 14:52 | 1244409 alexanderstollznow
alexanderstollznow's picture

perhaps if ZN hadnt intentionally quoted Kochi in a deliberately misleading way, it wouldnt come across like you suggest.  What he actually said is that if core inflation was 1.5%, it would have risen by 0.8% from its current level of 0.7%, and therefore a modest rate hike would be in order, as inflation would have risen.

amazing what you can discover when you read source materials and not someone else's biased edited version.  also shows that there is no point putting the source document in front of ZH readers, as they cant even bother to open their eyes to read it.  too much effort.

Thu, 05/05/2011 - 13:58 | 1244136 NotApplicable
NotApplicable's picture

tl;dr

Once again, I can only feel happiness knowing that a roomful of financial schmucks had to sit through that long-winded sophistry while pretending it was all serious business, instead of the facade that it is.

(thanks for taking the hit for us Tyler, and for bolding the relevant parts)

Thu, 05/05/2011 - 13:59 | 1244140 lsbumblebee
lsbumblebee's picture

Everyone got that? It's the small banks that face ongoing issues with asset quality.

Thu, 05/05/2011 - 14:53 | 1244393 malek
malek's picture

According to who?

Thu, 05/05/2011 - 15:10 | 1244481 lsbumblebee
lsbumblebee's picture

Whatshisname.

Thu, 05/05/2011 - 16:10 | 1244863 malek
malek's picture

You really believe that FED puppet?
Especially as he didn't say the larger banks have less problems with asset quality or something like that.

Maybe you should look at http://us1.irabankratings.com/MoveYourMoney/IRACommunityZip.asp instead.

Thu, 05/05/2011 - 14:02 | 1244154 baby_BLYTHE
baby_BLYTHE's picture

This PLUNGE in Silver is rather depressing...

I was just getting a lot of people here on campus excited about owning and bartering with them.

Feels bad... :(

Thu, 05/05/2011 - 14:16 | 1244166 Sudden Debt
Sudden Debt's picture

July is when it rockets back.

QE3 is the jetfuel BB.

 

Also these margin hikes will soon work against them.

If you pay 20% of spot on a contract let's say with a 40$ target so 8$, what do you think will happen when silver goes to 33$?

They ask for delivery because the contract is still worth 1$.

That's what puts these new contracts almost always in the money.

Imagine the margin goes to 50%, that would mean every expiring contract would go for delivery!

That's a lot of silver to be delivered!

Unless they can suppress the silverprice more than the margin EVERY Q!

So at max, you've got 9 months before they have to lower margins to minimum or the contracts would cost as much at the actual silver. And supply doesn't give them that window.

They started this mess, and now it will take 5 Einsteins to reverse it.

For anybody looking from the outside without intell, this looks to be crashing. But this is the launchpad to 451$

 

When they invented these contracts and set a price to it, they didn't just pick a number. They calculated they safest bet. And when you change the settings, it never ends well.

 

 

Thu, 05/05/2011 - 14:29 | 1244259 Crack-up Boom
Crack-up Boom's picture

+1, and your avator rocks!

Thu, 05/05/2011 - 16:48 | 1245108 Franken_Stein
Franken_Stein's picture

5 x Einstein = Fivestein

Thu, 05/05/2011 - 14:13 | 1244191 legal eagle
legal eagle's picture

I was telling everyone that I expected a Europe event and the end of QE2to cause the PMs to fall, but then by July on a trajectory to hit $60 AG and $1,700 GLD by Christmas.  I still think this is the most likely scenario.  Last year, when silver was $25 and gold at $1065, everyone was panicking then too, most of my friends bolted.  I did not and am still up significantly.  Like Rockerfeller said "successful investors buy when everyone else is selling and sell when everyone else is buying"  Easy to say, hard to do, but over the next month is Definitely the time to buy.  Cute photo baby-BLYTHE.

Thu, 05/05/2011 - 14:16 | 1244205 Sudden Debt
Sudden Debt's picture

the deficits get more problematic all over the world and printing will just go on and on.

Unless you're a daytrader, it doens't matter. Give it 1 to 2 years and you'll be rich.

Thu, 05/05/2011 - 14:22 | 1244229 baby_BLYTHE
baby_BLYTHE's picture

I am not selling any of mine, I just now have to temporarily deal with the novices "I thought you said it was going to go up!" people that don't understand how the markets work.

Thu, 05/05/2011 - 14:39 | 1244323 Sudden Debt
Sudden Debt's picture

Never give people investment advice.

If the tip goes good = They won't have put any money into it.

If the tip goes bad = they went all in

 

And if you give them 5 tips and 1 goes bad = They put all their money in that 1 motherfucker and forgot to spread it.

I experienced all of them. You may give advice, but only once. And let the to the R&D themselves, unless you get paid for it.

 

Thu, 05/05/2011 - 14:11 | 1244193 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

The FED is tightening simply due to the fact that they have acknowledged QEs end. The rate of easing is now broken, it's an inflection point. Want cheaper gas at the pump? The FED is going to give it to you. Watch out for the dollar. After the next recession people can beg for QE3 ...

Thu, 05/05/2011 - 14:17 | 1244209 Life of Illusion
Life of Illusion's picture

 

FOMC meeting, because we can't shake this nagging feeling that you, just like all other Fed presidents, are mostly full of nothing but hot air.

maybe Barney has it right.

limit the lips

http://www.gpo.gov/fdsys/pkg/BILLS-112hr1512ih/pdf/BILLS-112hr1512ih.pdf

Thu, 05/05/2011 - 15:00 | 1244444 alexanderstollznow
alexanderstollznow's picture

maybe... then again maybe not...

what Barney Frank is suggesting is not limiting the lips, but limiting the vote.  that way only Fed governors, who are appointed by the president and ratified by Congress get to vote, and it is more democratic.  supposedly.  of course it is then more politicised, which noone on ZH seems to like, and you all know how the actual Fed governors vote, right?  and noone seems to like that either. 

Thu, 05/05/2011 - 15:03 | 1244456 miker
miker's picture

Deflation all around.  Fed knows it.

Inflation all around.  Fed knows that too; just won't admit it.

Economy tanking for second severe dip.  Fed knows it.

What's a mother to do?

Attack the PM's; float out some nonsense about raising interest rates to help.  Make it clear QE2 will end. 

Then plan on QE3.

I'm averaging down PM's.  I don't know how low they will go but I am positive they are going much higher.  Fed has no alternative than to print.  They're backed in a corner.

 

Thu, 05/05/2011 - 15:36 | 1244639 AldoHux_IV
AldoHux_IV's picture

The fed despite their meaningless rhetoric will manipulate and control pricing via the markets (or at least what was once thought of as the markets) for the presidential election cycle-- TPTB are so happy with the level of nothingness Obama acheived in regards to his promises relative to the blind admiration he now has amongst the populace that they figure they can get away with another 4 years of economic genocide before they have to come up with another shit show distraction to lull the masses into a false sense of unity and then divide them once again on bullshit rhetoric only to repeat the cycle once again.

If the peasants aren't happy with the gas prices-- look for promises to diversify our energy infrastructure-- margin increases-- and a public berating of oil companies.  If the peasants aren't happy that no one involved in the biggest ongoing ponzi we call our financial system/crisis has paid for what they've done or been thrown in jail-- look for jacked up rhetoric and empty promises of reigning in TBTF and setting up special senate hearings looking to investigate into something they have the vaguest understanding of only to look like they're doing what they need to do.

It's the final stretch to woo the peasants into thinking things are better and will be better if they and their children submit to slavery.  So look for the fed to try and reign things in for the little guy all the while killing a market structure that once existed for other things than creating an illusion.

Thu, 05/05/2011 - 16:49 | 1245122 Franken_Stein
Franken_Stein's picture

Excellent summary.

Do NOT follow this link or you will be banned from the site!