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Gold Explodes After Bernanke Gives QE2 Green Light: "Sees Case For Further Action" (Full Gospel Included)
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More broken gospel from the Central Bank of faith and hope, as gold surges, despite what anti-gold bugs out there preach day in and out:
- Fed's Bernanke says sees case for further action with too low inflation
- Fed's Bernanke says Fed could buy assets, alter statement
- Fed's Bernanke says hard to determine pace, size of any purchases, must weigh costs, benefits in deciding how aggressive to be
- Fed's Bernanke says Fed has tools to ease when rates near zero, earlier bond-buying was successful in lowering long-term rates
- Fed's Bernanke says risk deflation is higher than desirable, unemployment clearly too high
- Fed's Bernanke says at current rates of inflation, short-term real interest rates are too high
- Fed's Bernanke says unemployment to decline slowly, prolonged high unemployment would pose risk to sustainability of recovery
Full speech:
Chairman Ben S. Bernanke
At the Revisiting Monetary Policy in a
Low-Inflation Environment Conference, Federal Reserve Bank of Boston,
Boston, Massachusetts
October 15, 2010
Monetary Policy Objectives and Tools in a Low-Inflation Environment
The topic of this conference--the formulation and conduct of
monetary policy in a low-inflation environment--is timely indeed. From
the late 1960s until a decade or so ago, bringing inflation under
control was viewed as the greatest challenge facing central banks around
the world. Through the application of improved policy frameworks,
involving both greater transparency and increased independence from
short-term political influences, as well as through continued focus and
persistence, central banks have largely achieved that goal. In turn, the
progress against inflation increased the stability and predictability
of the economic environment and thus contributed significantly to
improvements in economic performance, not least in many emerging market
nations that in previous eras had suffered bouts of very high inflation.
Moreover, success greatly enhanced the credibility of central banks'
commitment to price stability, and that credibility further supported
stability and confidence. Retaining that credibility is of utmost
importance.
Although the attainment of price stability after a period of
higher inflation was a landmark achievement, monetary policymaking in an
era of low inflation has not proved to be entirely straightforward. In
the 1980s and 1990s, few ever questioned the desired direction for
inflation; lower was always better. During those years, the key
questions related to tactics: How quickly should inflation be reduced?
Should the central bank be proactive or "opportunistic" in reducing
inflation? As average inflation levels declined, however, the issues
became more complex. The statement of the Federal Open Market Committee
(FOMC) following its May 2003 meeting was something of a watershed, in
that it noted that, in the Committee's view, further disinflation would
be "unwelcome." In other words, the risks to price stability had become
two-sided: With inflation close to levels consistent with price
stability, central banks, for the first time in many decades, had to
take seriously the possibility that inflation can be too low as well as
too high.
A second complication for policymaking created by low inflation
arises from the fact that low inflation generally implies low nominal
interest rates, which increase the potential relevance for policymaking
of the zero lower bound on interest rates. Because the short-term policy
interest rate cannot be reduced below zero, the Federal Reserve and
central banks in other countries have employed nonstandard policies and
approaches that do not rely on reductions in the short-term interest
rate. We are still learning about the efficacy and appropriate
management of these alternative tools.
In the remainder of my remarks I will discuss these issues in the
context of current economic and policy developments. I will comment on
the near-term outlook for economic activity and inflation. I will then
compare that outlook to some quantitative measures of the Federal
Reserve's objectives, namely, the longer-run outcomes that FOMC
participants judge to be most consistent with its dual mandate of
maximum employment and price stability. Finally, I will observe that, in
a world in which the policy interest rate is close to zero, the
Committee must consider the costs and risks associated with the use of
nonconventional tools when it assesses whether additional policy
accommodation is likely to be beneficial on net.
The Outlook for Growth and Employment
The arbiters across the river in Cambridge, the business cycle
dating committee of the National Bureau of Economic Research, recently
made their determination: An economic recovery began in the United
States in July 2009, following a series of forceful actions by central
banks and other policymakers around the world that helped stabilize the
financial system and restore more-normal functioning to key financial
markets. The initial upturn in activity, which was reasonably strong,
reflected a number of factors, including efforts by firms to better
align their inventories with their sales, expansionary monetary and
fiscal policies, improved financial conditions, and a pickup in export
growth. However, factors such as fiscal policy and the inventory cycle
can provide only a temporary impetus to recovery. Sustained expansion
must ultimately be driven by growth in private final demand, including
consumer spending, business and residential investment, and net exports.
That handoff is currently under way. However, with growth in private
final demand having so far proved relatively modest, overall economic
growth has been proceeding at a pace that is less vigorous than we would
like.
In particular, consumer spending has been inhibited by the
painfully slow recovery in the labor market, which has restrained growth
in wage income and has raised uncertainty about job security and
employment prospects. Since June, private-sector employers have added,
on net, an average of only about 85,000 workers per month--not enough to
bring the unemployment rate down significantly.
Consumer spending in the quarters ahead will depend importantly
on the pace of job creation but also on households' ability to repair
their financial positions. Some progress is being made on this front.
Saving rates are up noticeably from pre-crisis levels, and household
assets have risen, on net, over recent quarters, while debt and debt
service payments have declined markedly relative to income.1 Together
with expected further easing in credit terms and conditions offered by
lenders, stronger balance sheets should eventually provide households
the confidence and the wherewithal to increase their pace of spending.
That said, progress has been and is likely to be uneven, as the process
of balance sheet repair remains impeded to some extent by elevated
unemployment, lower home values, and limited ability to refinance
existing mortgages.
Household finances and attitudes also have an important influence
on the housing market, which has remained depressed, notwithstanding
reduced house prices and record-low mortgage rates. The overhang of
foreclosed properties and vacant homes remains a significant drag on
house prices and residential investment.
In the business sector, indicators such as new orders and
business sentiment suggest that growth in spending on equipment and
software has slowed relative to its rapid pace earlier this year.
Investment in nonresidential structures continues to contract,
reflecting stringent financing conditions and high vacancy rates for
commercial real estate. The availability of credit to finance investment
and expand business operations remains quite uneven: Generally
speaking, large firms in good financial condition can obtain credit in
capital markets easily and on favorable terms. Larger firms also hold
considerable amounts of cash on their balance sheets. By contrast,
surveys and anecdotes indicate that bank-dependent smaller firms
continue to face significantly greater problems in obtaining credit,
reflecting in part weaker balance sheets and income prospects that limit
their ability to qualify for loans as well as tight lending standards
and terms on the part of banks. The Federal Reserve and other banking
regulators have been making significant efforts to improve the credit
environment for small businesses, and we have seen some positive signs.
In particular, banks are no longer tightening lending standards and
terms and are reportedly becoming more proactive in seeking out
creditworthy borrowers.
Although the pace of recovery has slowed in recent months and is
likely to continue to be fairly modest in the near term, the
preconditions for a pickup in growth next year remain in place. Stronger
household finances, a further easing of credit conditions, and pent-up
demand for consumer durable goods should all contribute to a somewhat
faster pace of household spending. Similarly, business investment in
equipment and software should grow at a reasonably rapid pace next year,
driven by rising sales, an ongoing need to replace obsolete or worn-out
equipment, strong corporate balance sheets, and low financing costs. In
the public sector, the tax receipts of state and local governments have
started to recover, which should allow their spending to stabilize
gradually. The contribution of federal fiscal stimulus to overall growth
is expected to decline steadily over coming quarters but not so quickly
as to derail the recovery. Continued solid expansion among the
economies of our trading partners should also help to support foreign
sales and growth in the United States.
Although output growth should be somewhat stronger in 2011 than
it has been recently, growth next year seems unlikely to be much above
its longer-term trend. If so, then net job creation may not exceed by
much the increase in the size of the labor force, implying that the
unemployment rate will decline only slowly. That prospect is of central
concern to economic policymakers, because high rates of
unemployment--especially longer-term unemployment--impose a very heavy
burden on the unemployed and their families. More broadly, prolonged
high unemployment would pose a risk to consumer spending and hence to
the sustainability of the recovery.
The Outlook for Inflation
Let me turn now to the outlook for inflation. Generally speaking,
measures of underlying inflation have been trending downward. For
example, so-called core PCE price inflation (which is based on the
broad-based price index for personal consumption expenditures and
excludes the volatile food and energy components of the overall index)
has declined from approximately 2.5 percent at an annual rate in the
early stages of the recession to an annual rate of about 1.1 percent
over the first eight months of this year. The overall PCE price
inflation rate, which includes food and energy prices, has been highly
volatile in the past few years, in large part because of sharp
fluctuations in oil prices. However, so far this year the overall
inflation rate has been about the same as the core inflation rate.
The significant moderation in price increases has been widespread
across many categories of spending, as is evident from various measures
that exclude the most extreme price movements in each period. For
example, the so-called trimmed mean consumer price index (CPI) has risen
by only 0.9 percent over the past 12 months, and a related measure, the
median CPI, has increased by only 0.5 percent over the same period.2
The decline in underlying inflation importantly reflects the
extent to which cost pressures have been restrained by substantial slack
in the utilization of productive resources. Notably, the unemployment
rate remains fairly close to last fall's peak and is currently about 5
percentage points above the rates that prevailed just before the onset
of the financial crisis.
In gauging the magnitude of prevailing resource slack and the
associated restraint on price and wage increases, it is essential to
consider the extent to which structural factors may be contributing to
elevated rates of unemployment. For example, the continuing high level
of permanent job losers may be a sign that structural impediments--such
as barriers to worker mobility or mismatches between the skills that
workers have and the ones that employers require--are hindering
unemployed individuals from finding new jobs. The recent behavior of
unemployment and job vacancies--somewhat more vacancies are reported
than would usually be the case given the number of people looking for
work--is also suggestive of some increase in the level of structural
unemployment. On the other hand, we see little evidence that the
reallocation of workers across industries and regions is particularly
pronounced relative to other periods of recession, suggesting that the
pace of structural change is not greater than normal. Moreover, previous
post-World-War-II recessions do not seem to have resulted in higher
structural unemployment, which many economists attribute to the relative
flexibility of the U.S. labor market. Overall, my assessment is that
the bulk of the increase in unemployment since the recession began is
attributable to the sharp contraction in economic activity that occurred
in the wake of the financial crisis and the continuing shortfall of
aggregate demand since then, rather than to structural factors.3
The public's expectations for inflation also importantly
influence inflation dynamics. Indicators of longer-term inflation
expectations have generally been stable in the wake of the financial
crisis. For example, in the Federal Reserve Bank of Philadelphia's
Survey of Professional Forecasters, the median projection for the annual
average inflation rate for personal consumption expenditures over the
next 10 years has remained close to 2 percent. Surveys of households
likewise show that longer-term inflation expectations have been
relatively stable. In the financial markets, measures of inflation
compensation at longer horizons (computed from the spread between yields
on nominal and inflation-indexed Treasury securities) have moved down,
on net, this year but remain within their historical ranges. With
long-run inflation expectations stable and with substantial resource
slack continuing to restrain cost pressures, it seems likely that
inflation trends will remain subdued for some time.
The Objectives of Monetary Policy
To evaluate policy alternatives and explain policy choices to the
public, it is essential not only to forecast the economy, but to
compare that forecast to the objectives of policy. Clear communication
about the longer-run objectives of monetary policy is beneficial at all
times but is particularly important in a time of low inflation and
uncertain economic prospects such as the present. Improving the public's
understanding of the central bank's policy strategy reduces economic
and financial uncertainty and helps households and firms make
more-informed decisions. Moreover, clarity about goals and strategies
can help anchor the public's longer-term inflation expectations more
firmly and thereby bolsters the central bank's ability to respond
forcefully to adverse shocks.4
The Federal Reserve has a statutory mandate to foster maximum
employment and price stability, and explaining how we are working toward
those goals plays a crucial role in our monetary policy strategy. It is
evident that neither of our dual objectives can be taken in isolation:
On the one hand, a central bank that aimed to achieve the highest
possible level of employment in the short run, without regard to other
considerations, might well generate unacceptable levels of inflation
without any permanent benefits in terms of employment. On the other
hand, a single-minded focus by the central bank on price stability, with
no attention at all to other factors, could lead to more frequent and
deeper slumps in economic activity and employment with little benefit in
terms of long-run inflation performance.
Recognizing the interactions between the two parts of our
mandate, the FOMC has found it useful to frame our dual mandate in terms
of the longer-run sustainable rate of unemployment and the mandate-consistent inflation rate.
The longer-run sustainable rate of unemployment is the rate of
unemployment that the economy can maintain without generating upward or
downward pressure on inflation. Because a healthy economy must allow for
the destruction and creation of jobs, as well as for movements of
workers between jobs and in and out of the labor force, the longer-run
sustainable rate of unemployment is greater than zero. Similarly, the
mandate-consistent inflation rate--the inflation rate that best promotes
our dual objectives in the long run--is not necessarily zero; indeed,
Committee participants have generally judged that a modestly positive
inflation rate over the longer run is most consistent with the dual
mandate. (The view that policy should aim for an inflation rate modestly
above zero is shared by virtually all central banks around the world.)
Several rationales can be provided for this judgment, including upward
biases in the measurement of inflation. A rationale that is particularly
relevant today is that maintaining an "inflation buffer" (that is, an
average inflation rate greater than zero) allows for a somewhat higher
average level of nominal interest rates, which in turn gives the Federal
Reserve greater latitude to reduce the target federal funds rate when
needed to stimulate increased economic activity and employment. A
modestly positive inflation rate also reduces the probability that the
economy could fall into deflation, which under some circumstances can
lead to significant economic problems.
Although attaining the long-run sustainable rate of unemployment
and achieving the mandate-consistent rate of inflation are both key
objectives of monetary policy, the two objectives are somewhat different
in nature. Most importantly, whereas monetary policymakers clearly have
the ability to determine the inflation rate in the long run, they have
little or no control over the longer-run sustainable unemployment rate,
which is primarily determined by demographic and structural factors, not
by monetary policy. Thus, while central bankers can choose the value of
inflation they wish to target, the sustainable unemployment rate can
only be estimated, and is subject to substantial uncertainty. Moreover,
the sustainable rate of unemployment typically evolves over time as its
fundamental determinants change, whereas keeping inflation expectations
firmly anchored generally implies that the inflation objective should
remain constant unless there are compelling technical reasons for
changing it, such as changes in the methods used to measure inflation.
In recent years, the Federal Reserve has taken important steps to
more clearly communicate its outlook and longer-run objectives. Since
the fall of 2007, the Federal Reserve has been publishing the "Summary
of Economic Projections" (SEP) four times a year in conjunction with the
FOMC minutes. The SEP provides summary statistics and an accompanying
narrative regarding the projections of FOMC participants--that is, the
Board members and the Reserve Bank presidents--for the growth rate of
real gross domestic product (GDP), the unemployment rate, core
inflation, and headline inflation over the next several calendar years.
Since early 2009, the SEP has also included information about FOMC
participants' longer-run projections for the rates of economic growth,
unemployment, and inflation to which the economy is expected to converge
over time, in the absence of further shocks and under appropriate
monetary policy. Because appropriate monetary policy, by definition, is
aimed at achieving the Federal Reserve's objectives in the longer run,
FOMC participants' longer-run projections for economic growth,
unemployment, and inflation may be interpreted, respectively, as
estimates of the economy's longer-run potential growth rate, the
longer-run sustainable rate of unemployment, and the mandate-consistent
rate of inflation.
The most recent release of the SEP was in June, and I will refer
to those projections here, noting that new projections will be released
with the minutes of the next FOMC meeting, in early November.
The longer-run inflation projections in the SEP indicate that
FOMC participants generally judge the mandate-consistent inflation rate
to be about 2 percent or a bit below. In contrast, as I noted earlier,
recent readings on underlying inflation have been approximately 1
percent. Thus, in effect, inflation is running at rates that are too low
relative to the levels that the Committee judges to be most consistent
with the Federal Reserve's dual mandate in the longer run. In
particular, at current rates of inflation, the constraint imposed by the
zero lower bound on nominal interest rates is too tight (the short-term
real interest rate is too high, given the state of the economy), and
the risk of deflation is higher than desirable. Given that monetary
policy works with a lag, the more relevant question is whether this
situation is forecast to continue. In light of the recent decline in
inflation, the degree of slack in the economy, and the relative
stability of inflation expectations, it is reasonable to forecast that
underlying inflation--setting aside the inevitable short-run
volatility--will be less than the mandate-consistent inflation rate for
some time. Of course, forecasts of inflation, as of other key economic
variables, are uncertain and must be regularly updated with the arrival
of new information.
As of June, the longer-run unemployment projections in the SEP
had a central tendency of about 5 to 5-1/4 percent--about 1/4 percentage
point higher than a year earlier--and a couple of participants'
projections were even higher at around 6 to 6-1/4 percent. The evolution
of these projections and the diversity of views reflect the
characteristics that I noted earlier: The sustainable rate of
unemployment may vary over time, and estimates of its value are subject
to considerable uncertainty. Nonetheless, with an actual unemployment
rate of nearly 10 percent, unemployment is clearly too high
relative to estimates of its sustainable rate. Moreover, with output
growth over the next year expected to be only modestly above its
longer-term trend, high unemployment is currently forecast to persist
for some time.
Monetary Policy Tools: Benefits and Costs
Given the Committee's objectives, there would appear--all else
being equal--to be a case for further action. However, as I indicated
earlier, one of the implications of a low-inflation environment is that
policy is more likely to be constrained by the fact that nominal
interest rates cannot be reduced below zero. Indeed, the Federal Reserve
reduced its target for the federal funds rate to a range of 0 to 25
basis points almost two years ago, in December 2008. Further policy
accommodation is certainly possible even with the overnight interest
rate at zero, but nonconventional policies have costs and limitations
that must be taken into account in judging whether and how aggressively
they should be used.
For example, a means of providing additional monetary stimulus,
if warranted, would be to expand the Federal Reserve's holdings of
longer-term securities.5 Empirical
evidence suggests that our previous program of securities purchases was
successful in bringing down longer-term interest rates and thereby
supporting the economic recovery.6 A similar program conducted by the Bank of England also appears to have had benefits.
However, possible costs must be weighed against the potential
benefits of nonconventional policies. One disadvantage of asset
purchases relative to conventional monetary policy is that we have much
less experience in judging the economic effects of this policy
instrument, which makes it challenging to determine the appropriate
quantity and pace of purchases and to communicate this policy response
to the public. These factors have dictated that the FOMC proceed with
some caution in deciding whether to engage in further purchases of
longer-term securities.
Another concern associated with additional securities purchases
is that substantial further expansion of the balance sheet could reduce
public confidence in the Fed's ability to execute a smooth exit from its
accommodative policies at the appropriate time. Even if unjustified,
such a reduction in confidence might lead to an undesired increase in
inflation expectations, to a level above the Committee's inflation
objective. To address such concerns and to ensure that it can withdraw
monetary accommodation smoothly at the appropriate time, the Federal
Reserve has developed an array of new tools.7 With
these tools in hand, I am confident that the FOMC will be able to
tighten monetary conditions when warranted, even if the balance sheet
remains considerably larger than normal at that time.
Central bank communication provides additional means of
increasing the degree of policy accommodation when short-term nominal
interest rates are near zero. For example, FOMC postmeeting statements
have included forward policy guidance since December 2008, and the most
recent statements have reflected the FOMC's anticipation that
exceptionally low levels of the federal funds rate are likely to be
warranted "for an extended period," contingent on economic conditions. A
step the Committee could consider, if conditions called for it, would
be to modify the language of the statement in some way that indicates
that the Committee expects to keep the target for the federal funds rate
low for longer than markets expect. Such a change would presumably
lower longer-term rates by an amount related to the revision in policy
expectations. A potential drawback of using the FOMC's statement in this
way is that, at least without a more comprehensive framework in place,
it may be difficult to convey the Committee's policy intentions with
sufficient precision and conditionality. The Committee will continue to
actively review its communications strategy with the goal of providing
as much clarity as possible about its outlook, policy objectives, and
policy strategies.
Conclusion
In short, there are clearly many challenges in communicating and
conducting monetary policy in a low-inflation environment, including the
uncertainties associated with the use of nonconventional policy tools.
Despite these challenges, the Federal Reserve remains committed to
pursuing policies that promote our dual objectives of maximum employment
and price stability. In particular, the FOMC is prepared to provide
additional accommodation if needed to support the economic recovery and
to return inflation over time to levels consistent with our mandate. Of
course, in considering possible further actions, the FOMC will take
account of the potential costs and risks of nonconventional policies,
and, as always, the Committee's actions are contingent on incoming
information about the economic outlook and financial conditions.
References
Barnichon, Regis, and Andrew Figura (2010). "What Drives Movements in the Unemployment Rate? A Decomposition of the Beveridge Curve," Finance and Economics Discussion Series 2010-48. Washington: Board of Governors of the Federal Reserve System, August.
Bernanke, Ben (2007). "Federal Reserve Communications," speech delivered at the Cato Institute 25th Annual Monetary Conference, Washington, November 14.
Bernanke, Ben (2010a). "The Economic Outlook and Monetary Policy,"
speech delivered at "Macroeconomic Challenges: The Decade Ahead," a
symposium sponsored by the Federal Reserve Bank of Kansas City, held in
Jackson Hole, Wyo., August 26-28.
Bernanke, Ben (2010b). "Monetary Policy Report to the Congress," statement before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, July 21.
D'Amico, Stefania, and Thomas B. King (2010). "Flow and Stock Effects of Large-Scale Treasury Purchases," Finance and Economics Discussion Series 2010-52. Washington: Board of Governors of the Federal Reserve System, September.
Dickens, William T. (2009). "A New Method for Estimating Time
Variation in the NAIRU," in Jeff Fuhrer, Jane S. Little, Yolanda K.
Kodrzycki, and Giovanni P. Olivei, eds., Understanding Inflation and the Implications for Monetary Policy: A Phillips Curve Retrospective. Cambridge, Mass.: MIT Press, pp. 205-28.
Dowling, Thomas, Marcello Estevão, and Evridiki Tsounta (2010). "The Great Recession and Structural Unemployment (1.3 MB PDF) 
," in International Monetary Fund Country Report, 10-248. Washington: IMF, July, pp. 4-13.
Fleischman, Charles, and John M. Roberts (2010). "A Multivariate
Estimate of Trends and Cycles," unpublished paper, Board of Governors of
the Federal Reserve System, Division of Research and Statistics, May.
Fujita, Shigeru (forthcoming). "Economic Effects of the Unemployment Insurance Benefit (196 KB PDF) ." Federal Reserve Bank of Philadelphia, Business Review.
Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack (2010). "Large-Scale Asset Purchases by the Federal Reserve: Did They Work? " Staff Report No. 441. New York: Federal Reserve Bank of New York, March.
Hamilton, James D., and Jing (Cynthia) Wu (2010). "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment (615 KB PDF) ," working paper. San Diego: University of California, San Diego, August (revised October).
Kuang, Katherine, and Rob Valletta (2010). "Extended Unemployment and UI Benefits ," Federal Reserve Bank of San Francisco, FRBSF Economic Letter, 2010-10, April 19.
Lindner, John, and Murat Tasci (2010). "Has the Beveridge Curve Shifted? " Federal Reserve Bank of Cleveland, Economic Trends, August 10.
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"Outside of food and energy, core consumer prices were unchanged."
It is asinine that food and energy are not part of core CPI. Real world inflation is increasing as it takes more dollars to fill up the tank and the grocery cart. The fact that an ipod cost 3% less year over year isn't a good measure of inflation. More government lies posing as statistics.
Hi there!, It's Vinnie w/ Sham Wowsa, yes CPI was unchanged.
Unless you do not eat, nor own a vehicle.
Then CPI is 15%.
I could strangle these LYING SOB'S.
Just the FOUR top commods, have increaded an avg of nearly 50% in the last 6 mos!.
I was paying 15-25% more for food LAST year.
CPI is just another tentacle of this clustefoxtrot,independent my ass.
While gold and silver are now down, it certainly can use a cooling down break, but I can't but help believe they are just trying to clear out some weak hands here. JPM's shorts must be hurting (and I mean that in both ways...)
Bennie just stated we're greesing up the press and turbo charging it, ... for that time to add to existing positions, and perhaps go in a little heavier than normal.
This is just beyond idiotic...
JPM's shorts must be hurting (and I mean that in both ways...)
I hope their thongs are squeezing painfully tight.
Good Morning, my thoughts exactly....
I will probably get junked for saying this, but I have been rethinking ZH conventional wisdom about the 'cabal' controlling PM's recently... I know, I'm a Philistine.
Example: Silver has rocketed up around 40% in 2 months... if there were massive short positions by JPM, HSBC, etc, and I mean massive enough to shift the entire world market as is often claimed, wouldn't these positions be absolutely destroying these entities now?
The only thing that makes sense to me is if part of our recent rise in PM's is these very entities unwinding said short positions on a huge scale... but if true, then they have far less ability to push the market down at will since their shorts have been massively scaled back, plus far less incentive for doing so... just a thought.
No Junk for You.
Valid point... I do think they have spent considerable time unwinding, and cleaning up the stalls as it were, they did report better than expected numbers (cough-enron accounting-cough)
I spent enough years working at banks to know that they can be some very creative little shits, but I do still think there is a major effort to discredit, distort (or even distill- ery) the metals... you can not annouce that we will print from here to the moon and have metals go down. It just doesn't work like that.
But both metals have had a major run up, everyone and their half cousin's step sister is front loading now, jumping in the day before (I did with aapl) loading up on stocks,options, futures because of the cause-effect factor. ... sprinkle in some profit taking.
I'm legging in and regularly legging out to book profits and ride it.
It doesn't destroy them when they are able to take other people's gold and silver from GLD, SLV, and the COMEX to cover their shorts. This is why the expected outcome for me is a great spike upward in price followed by a rather rapid decline to zero.
The arbitrage here is to go short GLD and SLV, and use the proceeds to go long physical gold and silver. The net should be zero, but it isn't. You also get the minor upside of the management fees from GLD and SLV to cover your carrying costs.
Greatly admire your commentary here TMos, so I ask this respectfully because I may be missing something- per your point above "The arbitrage here is to go short GLD and SLV, and use the proceeds to go long physical"... what proceeds would you have from these shorts if GLD and SLV are rising steadily and strongly for 2 months? I get the idea that this model could work in a sideways market, creating artificial and temporary volitility, profiting to the downside then buying physical with the proceeds, but I cannot see how this would have worked over the last 2 months during PM's spectacular run-up.
Either way, I agree with your eventual "rapid decline to zero" prognostication. And when the price of paper gold plummets, just try getting physical... if this happens, ZH'ers holding the real thing may be the next Oligarchy. A fun, yet frightening thought.
You have physical gold and silver you can liquidate when you get your margin call, in that case. If you are forced to cover your shorts, you just sell some physical--no big deal as you don't actually lose any money.
After you cover your shorts by selling physical, just repeat the process. If GLD and SLV dive at some point while physical stays up, you win. The only way you really lose is if the premium for physical disappears, and I just don't see that happening.
This may seem far fetched but I wouldn't be surprised if at some point, we get word that the COT numbers for the past X weeks/months were misstated and previous reports will be revised to show that the commercials were covering their shorts during this run up in PM prices. This allows them to cover their short positions without anyone seeing it each week.
What's the penalty for making an error on the weekly COT reports?
Unrealized losses can be hidden for a while. Foreclosure freezes, however, have triggered the inevitable. JPM is on fire and losing altitude......
Dollar is on a tear here.
Bullish sentiment at 3% according to Prechter & co....... for Elliot Wavers, this means reversal time. :D
You can see on the hourly chart that large traders have stopped selling:
http://finviz.com/futures_charts.ashx?t=DX&p=h1
One thing is for certain. There is no way in hell I am giving any of my door stops
to Karl Denniger.
We are still swimming in bubble gum
JPM should be in prison with their CTFC mates.
When Ben speaks you literally feel the floor boards of gravity start to wobble.
Something wicked this way comes.
Bernanke promises to print more dollars. Result? The dollar has an erection, gold drops $15 in minutes....go figure.
QE2 already priced in, profit taking by hedgies and the market is mostly wrong?
If this IS profit-taking by hedgies, it will be over soon...so let's see if gold returns to the $1375-80 area quickly or not...
no accident
no accident
Don't think for a second that the Fed can't announce more money printing while simultaneously signaling some of it's crony banks sell a few tonnes of gold to push the price down and keep people guessing. Don't scratch your head...it's a head fake.
$144B is much too low.
Also part of the speech:
Fed's Bernanke says Feds have decided to expand their study of the human species to include broken down middle-aged white people.
Fed's Bernanke says Feds will be accepting human skin donations for their collection back home.
Fed's Bernanke sticks out his lizard tongue at the residents of Planet Earth.
Damn, that's funny!
signed
~Broken Down Middle Aged White Person
Looks like a massive rotation occurring.
Everyone is going to dump gold and bonds and find some beaten down junker sector to buy.
Looks like the mortgage insurers and disk drives are getting all the love this morning.
Money never leaves the casino, it just moves from one table to the next.
Again words of wisdom on a 5 minute time horizon.
"Again words of wisdom on a 5 minute time horizon" which are pertinent only in hindsight.
I keep suggesting Ritalin for RobotTrader's ADD, but he/she seems to be perpetually too busy jumping from one stock screen to the other, like Jim Cramer on crack (well, more crack) to notice.
GOLD CANNOT BE MANUFACTURED OR MASS PRODUCED.
THE DOLLAR IS NOTHING BUT MASS PRODUCED WORTHLESS PAPER THAT THE FEDERAL RESERVE SAYS HAS VALUE.
THE MASSES SIMPLY NEED TO QUIT USING THE WORHTLESS PAPER AND START BARTERING WITH ITEMS THAT HAVE VALUE.
$1 HAS NO VALUE. BENNY PROVES THIS EVERY DAY BY DESTROYING THE VALUE OF IT WHILE WE HOLD ONTO IT. SIMPLY GET RID OF THE $1 BEFORE EVERYONE ELSE DOES.
Disintermediation is a nifty trick...
We need money -- which form of money is the question...
Please speak up we can't hear you
Yes, we know. No need to scream, thanks
I like the FEDEYE mind trick....price stability actually means sustained inflation.
What the fjuck were these guys doing for price stability and the consumer balance sheet when consumers added $3T debt over three years?
Oh yeah they raised the fed funds rate 300bp and it didn't slow any debt accumulation. You think the consumers give a fjuck about minor interest rate moves when they are jacked up on a bubble? Or you think they are going to start spending like crazy based on a few basis points?
HELLO there is so much cash in the system and rates are so low I have to pay the bank to keep a cash position.
How exactly does QE improve employment? Can you measure the results?
OK whining over? How can I get into get a 100 year note?
So long as the Fed was extracting profit via the banking system, so long as banking ITSELF in the aggregate is profitable, there will always tend to be inflation as yields are chased.
That's the nature of a credit money system. In fact, as profitability wanes, and leverage is used to make up the difference, inflation in credit should accelerate. I mean, it's really the nature of the beast. Exponential curves work this way
Move to Mexico?
I am not from the US but its simple math since the US$ has declined at least 10% over the past few months and many or most commodities going to the moon in the same period, Foward inflation is clearly over 10% now over the following year, The FED should be tightening NOW to tame the inflation that even I can see, The Feds mandate is stagflation and its going to be a very hard landing.
Looks like a case of buy the rumor, sell the news to me. Gold will now base for a while and then return to its grinding uptrend, unless NYC gets n-u-q-u-e-d.
Thank you, RobotTrader, for that look through the wrong end of the binoculars.
Hmmmm..
Someone in the pits got the message backward. Either that, or JPM/HSBC et.al. are piling on a shitload more shorts [invisible silver and gold]. We'll see how long they can pound on PM's before the real money comes-a-looking for real metal.
.
Its all about the Dollar. Keep your eye on the DXY. Didnt budge too much
It did at first, but the defenders or should I say enablers came in.
I would like to have fully open markets, where all buyers and sellers are identified or they required to identify who they are buying/selling for.
Basic problem further QE equals Higher energy and operating costs at every level which equals GD2 or Great Depression 2.
not if they hand out free money to buy it. Then it just means gold old fashioned raw inflation.
The real problem that everyone should grasp is that organic credit demand is declining because the profitability of net new economic "activity" has gone negative.
There's no future for credit money in this climate. The interest ON the money begins to eat the money supply. Japan went through this when their economy peaked out in the late 80s. So, in order to prevent their money supply from collapsing, they have to essentially forgive certain debts. This is what QE is.
GD2 is not a matter of money. And...higher energy costs are coming as a function of the Oil Peak. These higher costs' having worked their way through the production chain are what have driven aggregate profitability negative.
Hmmmm..
Someone in the pits got the message backward. Either that, or JPM/HSBC et.al. are piling on a shitload more shorts [invisible silver and gold]. We'll see how long they can pound on PM's before the real money comes-a-looking for real metal.
GOOG +60
Wow...
Must be a robot trader buying it...no sane individual would dare to speculate with such a manipulated, overbought and over-hyped stock...
You have lost all credibility. I can only hope someone actually stole your ID...cause wow you've really lost it.
"Fed's Bernanke says at current rates of inflation, short-term real interest rates are too high"
Tell that to my grandparents who are trying to live off of Social Security and the interest from their savings, you sorry sack of shit.
So whats the plan Mr. Ben 'let them eat credit' Bernanke? Keep rates near zero and run inflation to 6% returning real interest of negative -6%? Punish the savers? Continue the myth that the US economy can be based on consumption? You'll be smokin' a turd in Hell for this, Ben.
Your GPs are trying to live the ponzi life where they can have money make money on money.
compound interest is an evil that has led us to where we are.
Sorry for your GPs but there is nobody willing to borrow their money at 6%. This is going to be a huge shock going forward, that your money can at best earn simple interest, and that you only have saved what you have saved.
Recalculate your retirement at 0% interest because if nobody wants to borrow your money at anything higher, that is what you will receive. All this backward-looking bullshit about how if you can earn 8% you only need to put your money "to work" for a long time and you'll be rich...that is over now.
lord bernanke speaketh thusly:
"there appears to be a case..."
that should spook the market. had he said:
"the case is irrefutable..."
the market would rally. if he had farted during his speech the market would have definitely crashed and burned.
Might wanna update this post seeing as how quickly the explosion in GC turned to shit
Just remember things ain,t bad they,re ballistically bad.LBMA and COMEX in deep shit,can,t get enough physical for options,trade war imminent,currencies all over place in race for bottom,foreclosure crisis,inflation building day by day,deficits ready to default,derivatives,take your pick the list is endless.Whatever Gold and Silver do in the short termis nothing compared to whats coming,
There is no inflation. --BB
Rant #2 on:
Why do you need inflation after a huge debt driven asset bubble. Wouldn't getting back to the long term average mean some deflation over a period?
Do it fast, like ripping off a band-aid.
Get assets back to income levels and people will spend again.
Sorry banks you are fjucked but you should have looked at what you were buying and known that insurance (CDS) companies fail. Any re-insurance companies come near AIG?
Of course the biggest bank (FED) doesn't want to hear this.
correction , sell the news over.....BTW, read Karl Douchnigger today, he says he's been trading gold for years all of a sudden.
Looks like Karl junked you.
Douchinger's been beating this fuckin drum FOREVER.
WTF does HE suggest? Fucking FRNs? Has it not occurred to him that the government will tax ANYthing and EVERYthing?
INCLUDING your precious "productive land" or whatever fucking compound these madmaxers like him think they can hole up in? Hell, the gd govt can decide to tax you on POSSESSION of things, including AMMO and GUNS. We already have a CAR tax in VA.
All the government has to do is pass ONE law requiring national gun registration and then they can issue you a TAX BILL on however many guns you own! Then, who is the bitch, wtf is Douchinger going to do? Run around with illegal guns? Who the fuck can he trade with?
He has a fetish with "the law" as he feels it should be applied; I guess it's never occurred to him that the lawmakers might have a different conceptualization. I love how he puts up the strawman of taxation to "refute" gold's utility, while assuming no taxation on any of his favorite safety asset classes. Moronic.
Zerohedge is not an HFT, but a HFPGP "High Frequency Provider of Gold Propaganda"
And you my friend are a banknote collector.
That's a bit below the belt. Please no swearing.
on this kind of news, if the metals actually do go down (which is just insane) i'll be all to happy to add to my positions.
I bought calls on aapl yesterday, and with this pomo/google spike, means i can get a few more bars of shiny stuff.
Can't we all just fast forward to the executions. I've seen this movie already.
dip buyers are saying "bring it on bitchez!"
Yes we are.
Since most small companies are more in touch with reality, the tend to look for real customers rather than more bank loans, so in order to distract the attention from that I am always going to mention "credit" in the same sentence as "small business".
We are trying to make these suckers lend as much as possible, so I am now trying to reinforce the story that they have been refusing to lend but are now giving in.
One annoyance I always have when I wake up is that banks still check creditworthiness of borrowers, this limits the expansion of debt to what can be afforded. This practice has to end, which is why we silently endorse robo-signing as well as aggressive sales tactics to push borrowers to borrow more and more.
Let me now distract you from the money supply and talk about myopic way to describe price changes through a deceptive index.
Generally speaking, prices of commodities are skyrocketing, but we do not include commodities because everyone needs then.
I am saying so-called because you are probably too stupid to know what an index is so I will dumb this down really slowly. This index is as broad as possible in the sense that it includes all those prices that we do not indirectly censor from the index. As most observers know that food and energy are the most critical expenditures, we leave them out. This will add to the mystery and distraction. I will use the fancy word volatile to plug this intellectual hole.
Since I must adhere to Keynesianism I have to talk about aggregate demand, as if any kind of demand was acceptable. The fact that previous malinvestments have wrecked the structure of the economy, problems that will persist for decades, cannot be mentioned because it would expose the fatal flaws of too low interest rates.
I know Taleb would not like this because he thinks forecasts are bogus, however he is not invited to the Q&A so I can get away with claiming that we can forecast anything.
Since policy can be changed at any time, it is better to keep the public's eyes on the most volatile and vague aspects of the information flow, rather than stuff that we can not or do not want to discuss, which changes slowly, such as who owns the central bank, where the money comes from, who the bidders are, our counterparties, the amount of physical currency backing and M3. But let's go back to the fedspeak.
To ensure that those who do not save and take out debt are rewarded, we cannot let prices fall, unfortunately sometimes industry can keep up with our currency debasement, such as in the computer industry, but these are temporary exceptions and ultimately these prices will also have to go up, hahahaha.
It is more important what our committee members think than what the policies actually creates. A centrally planned system with a PhD elite is preferable to autonomous free market agents in any case.
I have to say this just to ensure that people are scared of deflation, but I will not mention what circumstances and why, because that would expose the flaw in my reasoning. It is usually better to scare people with fear, uncertainty and doubt rather than explain why.
Yours,
Bennie
Nice translation, well done :-)
Another day,another desperate shake of the tree,another midnight oil delivery to the Banksters and the Fed.
Did they just down gold to buy gold?
There seems to be a growing number of people who are suspecting that Benny Boy is bluffing about QEII and it won't happen,at least not as big as people expect and that he is playing mind games with the people and the markets to try and scare them into spending. I think this is far too complimentary to the madman.He has stated his intentions and I fully expect him to carry them out.He is mad,he thinks -sorry,he is convconvinced he is right,and he thinks he is doing the right thing for America.
There are no mind games,he is still on course for the destruction of wealth and the resetting of the currency to zero so the banksters can start all over again,party like it's 1913 bitchez.
7
Well, all that really happened was a big-ass volatility wave that took out stops in both directions and ended up back where we started. Did you think gold/risk/USD was going to go up? You were right, then wrong. Did you think gold/risk/USD was going to go down? You were wrong, then right, then wrong again.
Heads they win, tails you lose.
Tyler, Imma waitin' for dat gold assplosion. All I seen today is a gold bein' buttraped.
I know, right? It's been buttraped all the way back to...the day before yesterday! Never, in the history of the world, has anyone seen such a reversal!
My gold stocks are DOWN ~2%! WTF?!!
That guy's just an asshole. And I rarely use that word. BBisanasshole.
GS rec spot on SELL!
And after gold begins spiking on news of QE to infinity and beyond, it suddenly cracks and heads lower in extremely volatile trading...
Let the FED's psychological mind games with precious metals continue!
" A step the Committee could consider, if conditions called for it, would be to modify the language of the statement in some way that indicates that the Committee expects to keep the target for the federal funds rate low for longer than markets expect."
The world has gone bonkers.
Why have you not updated that chart tyler???????
The way gold is jumping around you might wanna wait to the end of the day. The manipulators are piling it on, the moment they take a break....gold is become like a cork in the ocean.
Why have you not updated that avatar?????
Back in the 70's
The reason for the increase in inflation was geneally unknown
I learned it was the Gov's printing press form Harry Browne "How to profit from the Coming Devaluation" Written in 68 and a best seller in 72, after the devaluation.
This lack of knowlege by the average person gave a big opening to polititians. The Whip Inflation Now campaign, and the creation of the Energy Department to prevent the increase in oil prices because of our dependance on foriegn Oil. (not the increase in $$$)
The fact that the Government was creating too much money just was not debated or even acknowledged.
Now it is
So that is a good thing.
Government spending is the root of the problem. And the reluctance to tax to pay for this spending causes inflation.
Inflation is the hidden tax, but the proceeds go to the government non the less.
The government overspends on foreign policy -- wars --and domestic policy. The golden rule --- he who has the gold (inflated money in this case) rules.
Whenever government spending balances with revenues and money creation is lowered --- prosperity results --- at least for a while.
It is not a coincidence that the personal computer age (MSFT) developed in the 80's --- after Volker brought down inflation (gov printing) an Reagan lowered taxes so private industry could keep it's money.
But this was not possible until inflation and Nixon's devaluation of the dollar rebalanced America's currency and economy with the rest of the world.
Why did the American economy become inflationary
Why did spending so out weigh regular taxes
One reason is the Veitnam War --- or America's second war after Korea with Communist China. Back then China was exactly like North Korea is today ---- totaly nuts. Only much larger and much more aggressive. So America stopped their expansion into Malaysia. The domino theory that never happened.
So by rebalancing and exporting our inflation to the rest of the world we continued on in relative peace and prosperity.
How else is a free eonomy supposed to meet the real threats by Centrally controlled societies that create money on a regular basis with no accounting. Nazi Germany, Soviet Union, Red China,
Once the nation mobilizes for a foreign struggle --- the progressive liberals think that the American people really like to be herded for a common cause. So they create causes ---- Wilson Roosevelt after WW1, LBJ after WW2, Carter after Vietnam---- but they are very mistaken.
No one but the American public decided that peronal computers would win. Why? because they give indiviual freedom to individuals. Something progressive liberals think is a great danger.
And so in closing I hope we can once again export our inflation
But this time I hope the Banksters get burned
Well-stated for the most part, but 'progressive liberals' dig at the end is a bit like pulling your pants down after a nice piano recital.
Were those damn liberals in favor of...
...spending on the Vietnam War?
...using MMbb of oil?
...reducing our conservation of energy?
And many of them MADE the personal computer industry you claim provides you freedom (Hi Carnivore!).
Bernanke et al must have anticipated a jump in gold after his remarks about more accomodation. Obviously had some agency reinforcements lined up to counterrattack the gold bump up. It just takes a little time (minutes) to figure out how to deploy. A weekend perhaps? Talk of further accomodation, prolonged low interest rates, etc not as provocative as a baseball-bat-in -your -face announcement of huge QEII, and gives Bernanke time to effectively allocate his ever diminishing "reserves."
"Democracy is the worship of jackals by jackasses."
H.L. Mencken
"Democracy is nothing but the political weapon of Big Capital"
Oswald Spengler
"Democracy is the worst form of government, except for all those other ones that have been tried."
Winston Churchill
"I have a belly button"
That kid from Big Daddy
Is it not curious that the mass-murdering drunkard born in Blenheim palace would have such a high opinion of democracy?
In fact he despised the plebs and the idea of plebean rule was to him abhorrent. He knew however that the best slave believes he is free, so he kept the illusion going.
10 out of 10 plutocrats love democracy.
You're entitled to your opinion, so no junk from me.
Having said that, you're not fit to lick his boots.
I take you believe you are free. Thank you, you made my point, Mr Democrat.
Wrong, on all counts.
No, he's absolutely right. Democracy is the best form of government, no two ways about it.
If you must have a government, then a democracy is the way to go. It exerts the least amount of force on its citizens.
Of course, if you want true freedom, you've got to abolish government altogether. This is what I personally believe in. Let the people rule themselves, and the markets will make full use of the abilities and resources of all to meet everyone's goals in line with the importance they place on them. I believe it was Ludwig von Mises that wrote the book on the stateless society, and how it could function. I read it a long time ago, and was instantly convinced, and switched from being a libertarian (for a minimal government), to being an anarcho-capitalist (someone who believes in natural rights and the Non-Aggression Principle).
Pure Democracy is as bad as it gets.
It's MOBOCRACY.
A Republican Form of Democracy(which we're supposed to have is the best,but alas, we lost it).
"In the long run we are all dead." - John Maynard Keynes
drop baby drop!!! daddies got fiat burning a hole in his pocket!!!
Bernanke really IS insane!
You'd think a higher rate of inflation would pass on a higher interest rate charged to consumers..? maybe if deflation was expected, the banks would be more keen to lend, to businesses. if it caused a stronger dollar, the US could swap crops with Europe. ..it's just that if unemployment is this high then why would one take a risk with kickstarting inflation especially with these unexploded bombs everywhere. Well, pleasantly surprised..
What are the effects of inflationary expectations of the value of foodstamps?
Can I apply for foodstamp futures to hedge?
I love days like this - metals and miners blue light special!!!! I've been 50% PMs & miners and 50% cash of late. Today I bought 2000 of SIL (down ~2%). I hope the miners keep dropping because I hat holding cash and am loading the boat. Gold and Silver bullion already constitute 35% of my portfolio.
Gold is Money
Silver is Money
Fiat is Trash
Bennie's like a dog chasing rabbits in his sleep while the barn burns down.
nice little dip today. bought more physical. thanks ben
Yep, PMs came back strong when the DX failed to hold 77.
Look, they are painting this and driving the hedgies to sell gold and buy equities, in order to make it look like regardless of what BennieB says, all is well. Same as it ever was. But the secular trends will remain intact.
Really this is a great post from an expert and thank you very much for sharing this valuable information with us.
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