This page has been archived and commenting is disabled.

Grantham On The Ruinous Cost Of The Fed's Manipulation Of Asset Prices

Tyler Durden's picture


Jeremy Grantham launches into his most aggressive and succinct anti-Fed diatribe yet. He is a man who gets it. 'If I were a benevolent dictator, I would strip the Fed of its obligation to worry about the economy and ask it to limit its meddling to attempting to manage inflation. Better yet, I would limit its activities to making sure that the economy had a suitable amount of liquidity to function normally. Further, I would force it to swear off manipulating asset prices through artificially low rates and asymmetric promises of help in tough times – the Greenspan/Bernanke put. It would be a better, simpler, and less dangerous world, although one much less exciting for us students of bubbles. Only by hammering away at its giant past mistakes as well as its dangerous current policy can we hope to generate enough awareness by 2014: Bernanke’s next scheduled reappointment hearing." Pretty much all familiar topics to Zero Hedge readers.

And for those pressed for time, and unable to read the full 16 page must read letter (attached), here is a bulletized form of all Grantham's key issues of contention with our zombifying chairman.

  1. Long-term data suggests that higher debt levels are not correlated with higher GDP growth rates.
  2. Therefore, lowering rates to encourage more debt is useless at the second derivative level.
  3. Lower rates, however, certainly do encourage speculation in markets and produce higher-priced and therefore less rewarding investments, which tilt markets toward the speculative end. Sustained higher prices mislead consumers and budgets alike.
  4. Our new Presidential Cycle data also shows no measurable economic benefits in Year 3, yet point to a striking market and speculative stock effect. This effect goes back to FDR, and is felt all around the world.
  5. It seems certain that the Fed is aware that low rates and moral hazard encourage higher asset prices and increased speculation, and that higher asset prices have a beneficial short-term impact on the economy, mainly through the wealth effect. It is also probable that the Fed knows that the other direct effects of monetary policy on the economy are negligible.
  6. It seems certain that the Fed uses this type of stimulus to help the recovery from even mild recessions, which might be healthier in the long-term for the economy to accept.
  7. The Fed, both now and under Greenspan, expressed no concern with the later stages of investment bubbles. This sets up a much-increased probability of bubbles forming and breaking, always dangerous events. Even as much of the rest of the world expresses concern with asset bubbles, Bernanke expresses none. (Yellen to the rescue?)
  8. The economic stimulus of higher asset prices, mild in the case of stocks and intense in the case of houses, is in any case all given back with interest as bubbles break and even overcorrect, causing intense financial and economic pain.
  9. Persistently over-stimulated asset prices seduce states, municipalities, endowments, and pension funds into assuming unrealistic return assumptions, which can and have caused financial crises as asset prices revert back to replacement cost or below.
  10. Artificially high asset prices also encourage misallocation of resources, as epitomized in the dotcom and fiber optic cable booms of 1999, and the overbuilding of houses from 2005 through 2007.
  11. Housing is much more dangerous to mess with than stocks, as houses are more broadly owned, more easily borrowed against, and seen as a more stable asset. Consequently, the wealth effect is greater.
  12. More importantly, house prices, unlike equities, have a direct effect on the economy by stimulating overbuilding. By 2007, overbuilding employed about 1 million additional, mostly lightly skilled, people, not counting the associated stimulus from housing related purchases.
  13. This increment of employment probably masked a structural increase in unemployment between 2002 and 2007, which was likely caused by global trade developments. With the housing bust, construction fell below normal and revealed this large increment in structural unemployment. Since these particular jobs may not come back, even in 10 years, this problem may call for retraining or special incentives.
  14. Housing busts also help to partly freeze the movement of labor; people are reluctant to move if they have negative house equity. The lesson here is: Do not mess with housing!
  15. Lower rates always transfer wealth from retirees (debt owners) to corporations (debt for expansion, theoretically) and the financial industry. This time, there are more retirees and the pain is greater, and corporations are notably avoiding capital spending and, therefore, the benefits are reduced. It is likely that there is no net benefit to artificially low rates.
  16. Quantitative easing is likely to turn out to be an even more desperate maneuver than the typical low rate policy. Importantly, by increasing inflation fears, this easing has sent the dollar down and commodity prices up.
  17. Weakening the dollar and being seen as certain to do that increases the chances of currency friction, which could spiral out of control.
  18. In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.

Read the below letter (pdf link) in conjunction with the just released letter from Sprott on how to counteract the Fed's pervasive destruction.



- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 10/26/2010 - 16:57 | 678698 Cognitive Dissonance
Cognitive Dissonance's picture

Only by hammering away at its giant past mistakes as well as its dangerous current policy can we hope to generate enough awareness by 2014: Bernanke’s next scheduled reappointment hearing."

Please don't fall for the trick of focusing on when Bernanke is up for re-appointment because that still leaves the Federal Reserve beast alive. Bernanke would just be replaced with another puppet. Bernanke and the rest of the world (wish to) believe that Baby Ben is in charge. He's not. The agenda is controlled elsewhere. He just has the illusion of control so we peons won't look under any other rocks to see what crawls out.

Bernanke (or any other figure head for that matter) doesn't make the Fed dangerous. The Fed is dangerous. Period! End the Fed. End of story.

Tue, 10/26/2010 - 17:24 | 678787 CitizenPete
CitizenPete's picture

***** !



Tue, 10/26/2010 - 17:40 | 678816 MeTarzanUjane
MeTarzanUjane's picture

Well yes that's a nice thought repeatedly put out there on this channel but it's not in the cards. Most people in this country think the Fed is a branch of .gov.

For once can we get some sound thoughts on; working with, rather than fighting against.

Ps. I like the graphic, very Halloweenish.

Tue, 10/26/2010 - 18:28 | 678928 Clycntct
Clycntct's picture

How long did it take to get that silly idea the earth was round out there?

"For once can we get some sound thoughts on; working with, rather than fighting against." Said the engine to the handful of sand.

Pound it till it's known.

Tue, 10/26/2010 - 21:10 | 679290 Lucius Corneliu...
Lucius Cornelius Sulla's picture

Andrew Jackson understood it for what it was and did something about it.  It can be done again.

Wed, 10/27/2010 - 00:08 | 679690 Cursive
Cursive's picture

Damn right.  And I ain't waiting til 2014.

Tue, 10/26/2010 - 22:45 | 679534 Bartanist
Bartanist's picture

Nice words. However, what do you suggest? The Fed has been around and causing mischief and misery for the past 97 years. It has too much unchecked power. It IS taxation without representation. There is no way to control it. It IS the monarchy or at least how the monarchy manages the US.

The Fed does not listen to anyone because it does not have to. It is above the law. It is "them". Getting rid of it and making money creation and control part of "us" is the only solution.

Tue, 10/26/2010 - 22:58 | 679578 Cecil Rhodes
Cecil Rhodes's picture

taxation with representation ain't so hot either

Tue, 10/26/2010 - 18:04 | 678871 The Rock
The Rock's picture

I agree.  None of this "limit them" to this or that.  The beast of the Central Bank (the Frauderal Reserve) must be slayed completely.  The whole premise of their existence is to rape the system.  Why should we ask them to print our money and pay them back with INTEREST!!  What kind of horse shit is that?  40% of all federal income tax receipts goes toward paying these fuckers just the interest on the printed "money"!!  This is USURY folks, plain and simple.  Add on top of that "fractional reserve banking" on toilet paper (fiat) money.  PERPETUAL USURY ON ABSOLUTELY NOTHING!!!!!

Tue, 10/26/2010 - 18:53 | 679008 masterinchancery
masterinchancery's picture

Yes, it is unrealistic to expect any Fed "promises" to be kept. The only solution is a stake through the heart, preferably accompanied by a silver bullet in the head; otherwise Dracula the bank will be back sucking our blood in no time.

Wed, 10/27/2010 - 00:20 | 679716 Bob
Bob's picture

It's pure insanity.  A license to enslave a nation. 

Tue, 10/26/2010 - 20:20 | 679180 Revolution_star...
Revolution_starts_now's picture


Fold them like a lawn chair.

Tue, 10/26/2010 - 17:24 | 678788 Rasna
Rasna's picture

Amen, CD... Amen

The Fed needs to be abolished


Tue, 10/26/2010 - 17:30 | 678800 the rookie cynic
the rookie cynic's picture

Yes. The Fed's "mandate" has become nothing more than a smokescreen to hide what the PTB have been up to: trading stable, sane, organic commerce for low-interest rate, bubble economics that effectively steal from every possible profit producing segment of the world's economy. The Fed needs a more appropriate slogan: Rob from the middle-class and give to the rich. The Fed, and the powers it serves, is giant sucking parasite that will only stop when it runs out of other people's money.

Tue, 10/26/2010 - 18:41 | 678969 Cognitive Dissonance
Cognitive Dissonance's picture

The Fed is just another component, albeit a very powerful component, of a social control system designed to maintain the illusion that we are happy (wage) slaves that have never seen better times than we have over the past few decades.

My iPhone is proof that life is good.

Tue, 10/26/2010 - 20:23 | 679187 Revolution_star...
Revolution_starts_now's picture

The fed is the head of the snake, it the source of power and financial backing to enslave the Masses. All other things are a symptom, ending the fed will solve the problem. It will give the people 100 year head start at true freedom. It will be up to them to run for it.

Tue, 10/26/2010 - 17:35 | 678803 zaknick
zaknick's picture

ZH is showing up in the MSM.... hmmm.

Tue, 10/26/2010 - 17:37 | 678810 vega74
vega74's picture

'The agenda is controlled elsewhere.'

Could you elaborate more on that comment?

Tue, 10/26/2010 - 18:21 | 678916 zaknick
Tue, 10/26/2010 - 18:28 | 678934 Dismal Scientist
Dismal Scientist's picture

I don't think CD will elaborate, he has stated before in previous posts that even the ZHers are not ready for the final truth...

Or did I misunderstand your comments re 5th level of control, CD ? Am merely curious.

Tue, 10/26/2010 - 18:53 | 679009 Cognitive Dissonance
Cognitive Dissonance's picture

It is my opinion that to continue to focus on who, what, when, where and why regarding the controllers hugely distracts us from the business of becoming emotionally, psychologically and spiritually free. As long as we are distracted by the magician's waving hands and gorgeous assistant, we won't even begin to understand why we willingly submit to the controllers in the first place.

Regarding your specific question about the 5th level of control, what benefit would be derived from trying to explain the 5th level when so many people don't believe there's a 3rd or 4th? Ultimately we are in control. Or we are not in control. No one wrestles power from the individual, the individual willingly surrenders his/her power in exchange for the freedom of the responsibility to properly use, and most importantly not abuse, his or her own power.

Everyone wants someone to do something about this insanity, but no one wants to be responsible for doing something about this insanity. How can we say we are free when we won't even accept responsibility for freeing ourselves? Once we gain the knowledge, wisdom and courage to no longer surrender our power, everything will change. Which means that in order to balance the equation, nothing will really change as long as we continue to surrender our power.

Tue, 10/26/2010 - 21:51 | 679261 traderjoe
traderjoe's picture

RE: the gorgeous assistant - have you seen the Anna Chapman Maxim Russia pictures? I'd surrender to that power... ;)

p.s. As usual - well said. Oh, and did you see the comment on disorganized resistance the other day?

Tue, 10/26/2010 - 21:11 | 679295 bingocat
bingocat's picture

Everyone wants someone to do something about this insanity, but no one wants to be responsible for doing something about this insanity. How can we say we are free when we won't even accept responsibility for freeing ourselves? Once we gain the knowledge, wisdom and courage to no longer surrender our power, everything will change. Which means that in order to balance the equation, nothing will really change as long as we continue to surrender our power.

Well said. But it is important to note that absolute freedom creates problems which people don't want to deal with.

Everyone has to surrender some power in order to get to a middle ground that everyone can accept. As far as I know, there is no precedent anywhere in human history for a society (call it larger than a few hundred people) where people act as independent agents in a peaceful way without surrendering some authority to a 'governing' power. Indian tribes, New Guinean clans, even communal cultures like the Yanomami have a chief. Small villages in the Himalayas have religion. Even marauding gangs have a leader. Every society in history has 'agreed' explicitly or implicitly, to an organizing force. Democracy is supposed to provide a mechanism for 'refreshing' the mandate to lead. Aggressive enough lobbying can cause structural change to the implementation of the organization but still leave the democratic infrastructure in place.

What I am waiting to hear, from anyone who advocates abolishing the Fed because of its inherent flaws, is what the residual should look like, with or without organizational features. It would be refreshing.

It is fine to say "throw the bums out" without finding a replacement, but then you get people like Sarah Palin and Christine O'Donnell to fill the void of discontent (and I don't critique their politics for the purposes of this comment, just their habit of lying to the public).

Tue, 10/26/2010 - 21:22 | 679316 Lucius Corneliu...
Lucius Cornelius Sulla's picture

U.S. Constitution - Article 1 Section 8

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

Tue, 10/26/2010 - 22:01 | 679402 traderjoe
traderjoe's picture

A US Treasury issued currency - issued without debt, like a Lincoln Greenback. Paired with a functioning PM-linked (private or public) currency to introduce competition and make inflation more readily apparent. Link the US Treasury dollar issuance to population growth, or some other hard number and have a mandate for price stability (or even a bit of deflation) so that citizens can store their value/wealth over time - without the need for the parasitic 'money-changing' industry. Just a quick brush...

Wed, 10/27/2010 - 00:11 | 679699 Cursive
Cursive's picture


Well put.  Hat tip to you, sir.

Wed, 10/27/2010 - 01:00 | 679774 bingocat
bingocat's picture

It's a simple idea. Lots of people like simplicity because it means they don't have to think. How does one get from here to there? How do people who are against the economic decisions by fiat of government BECAUSE they are fiat reasonably convince others that the process of getting from here to there is not simply a different version of the same fiat mentality? But let's chase this down anyway...

Issue the new currency into escrow, and then virtually tax all asset holdings and the PV of future employment income to get to a zero debt situation. Then apply an actual tax and net out the difference between what you will deliver and tax. But wait a minute, the net financial assets of 50% of the population are almost zero, which means any tax on PV of future income is effectively putting them deeper into debt. If we make an even more progressive tax, the entire re-jiggering of the system will be financed by a one-time shock tax to the rich (whose assets are more likely to be mobile anyway). The question is who would want to suffer the shock to the system that would entail, and who gets to decide that everyone should suffer that shock? But let's just say that you do and you can decide for all of us...

Fine. Now run the government on a zero deficit basis, with only a very small, and tightly regulated, revenue vs spend buffer, and watch what happens...

Assuming other countries don't do the same, one is subject to forex fluctuations which would make managing a company which had to sell US-costed products and services abroad difficult. And would certainly introduce greater price volatility of foreign-sourced products. Anything which reduced trade flow would reduce income and GDP vs now. Productivity growth (the other driver of real GDP growth) would fall based on inherently higher costs of buffering that volatility.

The 'problem' of trying to introduce structural shocks to capitalist money-flow schemes is that it introduces tyranny of government. SOMEONE decides what is good for everybody. A sudden large tax of those with assets, accompanied by lack of growth AND inability of the government to provide a safety net effectively means the end of incentive to work in the United States.

I think VERY few people would be happy with the result. If anyone had more money or more income than anyone else afterward, those on the lower half would think it was unfair. Anyone on the upper side would think almost any version of this is unfair. Every other country in the world would try to import the wealthy people so that the wealthy could keep their assets abroad and those countries would suddenly gain experienced capitalists with their assets. If you tax everyone down to their skivvies and then grant everyone a cash pile and a stipend, then everyone is equal. But housing and personal non-financial assets would have to be reallocated by lottery too.

I may be unhappy with the state of things, but that is not something I would wish on American society. It would likely be the end of democracy as we know it (democracy does not work well with social policy which allows for egregious economic fiat).

Simple is good. But life is not simple.

The easier way to get this done is by simply introducing a safety net (like universal health care, education), raising taxes on the wealthy (which is happening), and keep government worker count to a minimum (the nice thing about universal safety net systems is that once in place, they are easy to keep track of (they are data-based, not subjective judgment-based)).

How do you do this? Well... count the voters who would benefit vs the voters who would suffer from such a scheme. This should pass with flying colors if it is widely desired, but the fact that it hasn't is because it is not widely desired, and your fiat is not much different than anyone else's.


Wed, 10/27/2010 - 01:51 | 679822 traderjoe
traderjoe's picture

You raise all of the right issues. And the implications of which are: (1) there are infinite solutions which would/will be offered for the next paradigm, thereby vastly complicating its introduction; and therefore (2) the present situation becomes a more powerful anchor, even though it is fundamentally flawed. Better to have the devil you know...most would say. It most certainly is a sticky wicket. And some would say (like Sean7k), with good cause, that ANY central government (and thereby fiat) is inevitable corruptible.

Just to trip down further <my> rabbit-hole - I'd have a complete debt jubilee for individuals, introduce some reforms to the nature of corporations (they provide too much liability protection for individuals), impose a high import duty, bring most/all of the troops home, close the bases overseas, maintain only a small military R/D process (the possibility of a full-scale non-nuclear ground war seems so unlikely), develop energy independence, provide only public financing for electoral races, eliminate gerrymandering, eliminate public sector unions, implement basic universal safety nets with definable limits, cancel the current currency overnight and implement the new one the next day (remember debt jubilee), eliminate the IRS (and the present tax code), have either a national sales tax, or a simple one line corporate and individual tax return, etc. If you could demonstrate how most would be more free, you might have a shot at waking the masses (but not pandering to them either)...

But implementing all of those ideas - my ideas - would be fascist on my part. I would be determining the <better> path for the country. Gathering a national consensus on the 'right' path, in the midst of a then-current power-vacuum, now that's a problem...

It's all a sticky wicket... 

Wed, 10/27/2010 - 02:20 | 679848 bingocat
bingocat's picture

Thanks. Some nice concepts in traderjoetopia there but the shock to the system is antithetical to the anti-fiat philosophy. I personally disagree that 'most would be more free.' I have never seen any economic systemic shock which did not result in corrupted government, whether backward (like Zimbabwe, or Venezuela), or 'forward' (like the former SSRs).

As you say, a sticky wicket... wot?

Wed, 10/27/2010 - 03:04 | 679870 traderjoe
traderjoe's picture

Not sure if you will be back, so I'll be brief:

1. "wot" - is that a specific abbreviation?

2. I'm not anti-fiat, per se. I would prefer a US Treasury issued currency - issued without debt and interest. Allowing private banks to create the currency is an abomination - see the famous Jefferson quote. And to provide a check on this, have a competing asset-backed currency. I believe the monopoly of a currency is also an abomination. Competition allows the people to choose, i.e. freedom. If the goobermint squanders the trust in the fiat, there is a ready alternative for the people. 

3. Many of my thoughts would be a relative dismantling of the current government structures, favoring local control and participation. Hard to express in this forum, but the nature of the economic shock might be relevant to what happens on the other side...

4. Along those lines, I usually don't actually propose solutions, but merely focus on the failings of the current. As I referenced, I think discussing the future is a bit premature, and even sets back the desire to move off the current paradigm (as the eventual solutions bog down progress). It may seem a bit 'whiny' to discuss the problems with the current situation, but I'm trying to ferment discord/disgust first... :)


Wed, 10/27/2010 - 07:19 | 679907 bingocat
bingocat's picture
  1. 'wot' is the British English spelling of adding "what" to the end of a comment asking for implied acceptance of what the speaker has just said. Kind of like the 'znit' at the end of 'it's the shiznit.' Google "sticky+wicket+wot" for more.
  2. I think it's tough to be BOTH anti-private currency AND for a non-monopoly on currency.
  3. Agreed as to reflexivity of shock and what comes out the other side, but I'd wager human nature prevails before we get to universal harmony forever.
  4. Understand. Personally, I think the best way to prompt a nice result is to engage people to think about the solution. If they just think about the dissatisfaction, it means a cathartic, but very ugly, end. In the end, you have to get everyone to the same place, not just to a different place than now.
Wed, 10/27/2010 - 12:07 | 680680 goldmiddelfinger
goldmiddelfinger's picture

All economic intervention is a means to a POLITICAL end.

Wed, 10/27/2010 - 12:14 | 680708 traderjoe
traderjoe's picture

Didn't they used to call it Political Economy (as opposed to economics?)?

@Bingo - I'm opposed to private monopoly fiat currencies. It's the worst of all worlds. I'd love a competing private PM-backed alternative currency. Pretty hard to manipulate those...

Wed, 10/27/2010 - 12:14 | 680710 goldmiddelfinger
goldmiddelfinger's picture

How tiny tiny tiny can the mind  become in this post of unusual narrowness?

Wed, 10/27/2010 - 06:23 | 679934 Dismal Scientist
Dismal Scientist's picture

'Regarding your specific question about the 5th level of control, what benefit would be derived from trying to explain the 5th level when so many people don't believe there's a 3rd or 4th'

Thanks, I'm with you on the 3rd and 4th levels. Hence my interest in the 5th. It would benefit me to hear your thoughts, as you can see I read your previous comments and took them seriously ?

Wed, 10/27/2010 - 06:30 | 679940 mogul rider
mogul rider's picture

CD well said, the average joe is not average at all. He is a slave and is unwilling to accept his freedom because he believes in structure and order. Wihout structure and order he is lost.

So the trade off for Joe is the relinquishing of freedom for hte belief that he will have a safe, structured happy life. That is the true promise of democracy

And it's gretest curse becuase it lets the "matrix" complete control. Control of finance, real politique, armed forces, police, etc.

The fascist corporatist state in return promises the "batteries" a home, kids, a boat, a car, and a hot Bitchez wife.


The trade off can be discussed ad nauseum, but, the Joe likes his place.


Tue, 10/26/2010 - 23:13 | 679604 rocker
rocker's picture

If you have to ask, you will never understand it.  You may even defend it with denial. 

Tue, 10/26/2010 - 21:54 | 679384 greyghost
greyghost's picture

correct...he states all he wants is to ensure there is enough liquidity. don't need no stinking federal reserve for that. that is the job of the u.s. treasury dept...ensure there is enough monies to ensure the conduct of business and the american people. again, the treasury could spend how much money into circulation by making soc. sec and medicare payments alone. CREATE THAT MONEY WITHOUT INTEREST AND DIRECT TO THE RETIREES.  with this alone you could do at least two things....continue to collect soc.sec. and medicare taxes from paychecks and use that to pay down national debt -or- stop collecting those taxes and give the monies to the american people to spend and boost the economy, that would be what "laffer" would do....using the boost in payrolls to pay down the debt. of course you would have to have that computor program to regulate the money in circulation.

Wed, 10/27/2010 - 00:35 | 679746 Coldfire
Coldfire's picture

And the unconstitutional government that protects the Fed is equally dangerous. Taking the republic back must involve slaying that dragon, as well.

Wed, 10/27/2010 - 00:37 | 679747 RockyRacoon
RockyRacoon's picture

The Fed already knows all this stuff.  What now?

Tue, 10/26/2010 - 16:58 | 678710 NOTW777
NOTW777's picture

abolish the fed and hire Neil B to close it down in an orderly fashion.

Tue, 10/26/2010 - 17:14 | 678761 Cdad
Cdad's picture

I believe you will get your wish.  I believe it will happen in the not too distant future.

Ben Bernanke's actions over the last two years have sealed the fate of the Federal Reserve Bank.  The systemic fraud within the banking industry will not go unpunished.

Tue, 10/26/2010 - 21:25 | 679325 Lucius Corneliu...
Lucius Cornelius Sulla's picture


I agree.  The crisis has drawn a lot of attention to the fraud that has been carried out.  People are not only waking up, they are they should be.

Wed, 10/27/2010 - 07:26 | 679972 bingocat
bingocat's picture

I think if housing prices had only risen 5% in the 10yrs to 2007, and GDP growth had been a lot lower over the period, and then housing prices had broadly fallen 10%, with the Fed subsequently lowering interest rates to close to zero, the broad level of unhappiness with the Fed would be different.

Bubbles are not ONLY caused by the Fed. By definition, one gets a lot of people chasing them and its those who buy last who suffer, but democracy says, those people are never wrong.

It is ALWAYS someone else's fault.


Tue, 10/26/2010 - 16:59 | 678712 Waterfallsparkles
Waterfallsparkles's picture

The FED appears to be trying to Manipulate the Election Results by Printing Money.

How many Billions of Tax Payer Money have they printed to influence the Election?

Tue, 10/26/2010 - 16:59 | 678716 NOTW777
NOTW777's picture

"Our new Presidential Cycle data also shows no measurable economic benefits in Year 3, yet point to a striking market and speculative stock effect. This effect goes back to FDR, and is felt all around the world."

and yet, libs will argue the "market" does better under dems

Tue, 10/26/2010 - 17:02 | 678728 Something Wicke...
Something Wicked This Way Comes's picture

When do we start sharpening the guillotines? Can I haz Ben?

Tue, 10/26/2010 - 17:38 | 678814 zaknick
zaknick's picture

I think he's not a very high up scumbag in the grand scheme of things. I think they're actually the hired help.

Tue, 10/26/2010 - 18:17 | 678904 MeTarzanUjane
MeTarzanUjane's picture

Very well put. Remember the deck of cards handed out to troops in Iraq/Afghanistan with the most wanted printed on it?

Time for a new addition to the ZH swag store.

Tue, 10/26/2010 - 18:24 | 678922 zaknick
zaknick's picture

Actually, I'm hoping for a system of government which will persecute and prosecute (lots o' death penalties!) rogue wealthy fascists. The same ones who ruined America and lots of other countries with their unseemly greed passed off to Americans as legitimate national security.

Tue, 10/26/2010 - 20:00 | 679141 Widowmaker
Widowmaker's picture

Don't forget these interests exist under the thick candy shell of incorporation.

Persecute yes, prosecute - no fu**ing way.  They are legally untouchable and any laws unenforceable as the last 30 years have clearly demonstrated with bailout icing numerous times.  

Tue, 10/26/2010 - 20:11 | 679162 MeTarzanUjane
MeTarzanUjane's picture

Jus saying, put their faces on a deck of cards and you will get my business.

Sometimes making things real visible is best way to start the wheels turning.

Tue, 10/26/2010 - 21:42 | 679360 zaknick
zaknick's picture

Did you serve them in Iraq? That would be interesting.

Wed, 10/27/2010 - 08:02 | 679995 Real Estate Geek
Real Estate Geek's picture

Jus saying, put their faces on a deck of cards

Addresses, too!

Tue, 10/26/2010 - 21:39 | 679359 zaknick
zaknick's picture

Legally untouchable? With the present corrupt "courts" yes but not after a cleansing of bankster influence revolution.

Tue, 10/26/2010 - 20:43 | 679230 Revolution_star...
Revolution_starts_now's picture

"start sharpening the guillotines?"

Oh no, not that easy. I say lock him up in prison with a big roomie named Leroy. Then we setup a fund by which we "donate" to leroy to insure old Bennie Bucks gets ass raped on a nightly basis. Post the sessions on youtube, and enjoy with your friends.

I play them for my friends, "you see this part here, this is just the opposite of what  went down the day Bennie fried the shorts 30 minutes before op ex, it was tripple witching. Ohhh, Bennie got some tossed saled on his beard."

Tue, 10/26/2010 - 21:50 | 679373 zaknick
zaknick's picture

I see where you're coming from but I disagree. The idea is to be rid of the evil that permeates every pore of Americans' interface with reality (ZH and others aside).  No more evil crap, period. Guillotined, hung, something worthy of the dignity and solemnity of the situation. This act would be the consumation of faith kept with basic human decency. I know that might not mean much to a person who has grown up inside the MSM Matrix (with all the unseemly, bloodthirsty cheerleading of war) but it's what people are willing to kill and die for.

Tue, 10/26/2010 - 17:08 | 678743 NOTW777
NOTW777's picture

"Lower rates always transfer wealth from retirees (debt owners) to corporations (debt for expansion, theoretically) and the financial industry. This time, there are more retirees and the pain is greater, and corporations are notably avoiding capital spending and, therefore, the benefits are reduced. It is likely that there is no net benefit to artificially low rates. "

savers and retirees get hosed, debtalcoholics and defaulters get rewarded

Tue, 10/26/2010 - 17:10 | 678751 Popo
Popo's picture

Waiting for 2014 is not necessary. End it now. Or end Ben. Either will do.

Tue, 10/26/2010 - 17:17 | 678772 Ted K
Ted K's picture

I think it was the Wall Street bastards that insisted that we not use fiscal policy.  Now we have what Wall Street asked for:Monetary policy which pumps up the stock market and zero fiscal policy for main street.  Quit whining or we'll start thinking of Wall Street traders as a bunch of pussies.

Tue, 10/26/2010 - 17:18 | 678773 whosetosay
whosetosay's picture

My very first post here (so be gentle) but I follow this site religiously. I recently read something about the Federal Reserve charter expiring at the end of 2012/2013. Does anyone know anything about this? I've searched and can't seem to find too much on it. 

Wed, 10/27/2010 - 00:40 | 679752 RockyRacoon
RockyRacoon's picture

Welcome aboard.  Has anyone shown you the secret handshake yet?

Tue, 10/26/2010 - 17:18 | 678774 rawsienna
rawsienna's picture

The dual mandate is a big part of the problem.  Fed never gets it right because the fail to see the causality of their actions when looking at historical data. He is right on the money observing that the structural unemployment rate is probably much higher than the Fed thinks due to the misinterpretation of data from the various bubbles created by fed (employment from 2002-2006 higher than it would have been due to housing was a good example). Getting rid of the dual mandate and focusing the Fed on keeping the inflation rate low and stable is a good first step.

Tue, 10/26/2010 - 17:49 | 678837 traderjoe
traderjoe's picture

The dual mandate was simply a smoke screen for the reason for creating the Fed in the first place. A bank panic was created in order to justify the Fed. But, like the two-party system, it masks the true purpose of the Fed - which is to siphon money from the economy and direct it to the elites. 

Let's not forget that the other issue with the Fed is that in the fractional-reserve banking system, the banks create money out of thin air. In return for this money creation, they receive collateral of productive real property (for the principal) and a claim on the future labor of borrowers (interest payments). 

It's not just the Fed, but the private-bank fractional reserve system that is evil. 

Tue, 10/26/2010 - 18:05 | 678875 The Rock
The Rock's picture


Wed, 10/27/2010 - 07:36 | 679982 bingocat
bingocat's picture

Let's not forget that the other issue with the Fed is that in the fractional-reserve banking system, the banks create money out of thin air. In return for this money creation, they receive collateral of productive real property (for the principal) and a claim on the future labor of borrowers (interest payments). 

There is only a claim on the future labor of borrowers (interest) IF the laborers borrow.

In full reserve banking, either most people cannot borrow, or again, the banks receive collateral of productive real property and a claim on the future labor of borrowers BUT the interest rate is much higher than in fractional reserve banking (no scale merit for administrative costs, and scarcity of money leads to higher rates). All very Dickensian...

Wed, 10/27/2010 - 12:22 | 680735 traderjoe
traderjoe's picture

Again, it's hard to develop a broach economic plank on a web-board...

I believe interest rates can be extremely low or even zero in a full-reserve world. IF there was a paradigm of monetary stability, then there would be no inflation or even a bit of deflation. This would allow savers to preserve wealth over time. Government could provide low interest loans for housing (might be a slippery slope). But in general, I believe the standard of living was in many ways higher when borrowing was less prevalent. Large purchases cost less as a proportion to salary (especially housing). Look at the explosion of college tuition costs now that the government has made loans so available. Colleges have responded by exploding costs. Borrowers no longer make the connection between the immediate cost of tuition because bills are deferred. 

But, overall, it would be a vastly different standard of living, and in my world (a whiff of deflation), the IRS, most accountants, and the entire 'money-changing' (stocks, etc.) get virtually wiped out since no one needs them anymore...

Wed, 10/27/2010 - 13:18 | 680894 bingocat
bingocat's picture

Agreed. Redesigning world economic affairs on ZH comment boards is tough.

I'd argue that Beaver Cleaver prosperity (when borrowing was less prevalent) was really probably a matter of population growth, low rates (allowing for positive yield on housing ownership), and low "real" inflation (look at oil+clothing+food+housing costs as percentage of household income over time from 40s through 70s). Combined with a conspicuous growth in export prices and earnings based on US-sourced production, this was the Golden Age of American Labor (lasting until probably the first few years of the 70s). Since then, it has been downhill and the 'productivity' of American society has increasingly accrued to Capital rather than Labor (the percentage of GDP resulting from ownership rather than wages). I would argue that we have just turned the corner to go in the other direction starting a long downtrend in return on capital and an uptrend in return on labor/life. That's probably why I am more positive on slow change.

Wholesale change would certainly be 'vastly different' but anything resembling a shock to the reserve ratio of the economic system as you suggested elsewhere means wholesale displacement of ALL future expectations regarding economic life. While perhaps not an undesirable result, I think the pain to get there is too large to be clean for the have-nots.

Wiping out 'money changing' (including stocks) means wiping out the economic interest of ownership (including homes, so it would not make sense for the government to provide low interest loans). Anything which is an asset with an intrinsic value not depreciated by use (i.e. something you can expect to earn a gain above and beyond the gain of investing savings in a principal-protected monetary instrument) is a stock. A paper share of stock is simply the representation of ownership, like owning a house which you rent out (prove that you own it without occupying it and you have proven that 'money-changing' exists). In that case, there is no such thing as 'whiff of deflation' because deflation implies measuring the price of an asset as if the price means something. If assets have no resale value, they are effectively all expensed, and have zero asset value once they change hands to their new owner. 

Why do I harp on the details? Because they show how frickin' hard it is to get one's head around the consequences of mind-boggling change of economic regime.

But it's been fun.... Cheers!

Tue, 10/26/2010 - 20:49 | 679248 Revolution_star...
Revolution_starts_now's picture

"The dual mandate is a big part of the problem"

That's a facade, Greenspan told you so when he admitted to talking in circles. All they care about is a handful of banks and they got no problem in making sure they get a life raft and we go down with the ship. Anything else to just total bullshit.

If the fed was given the choice, market recovery or control, they will go with control. Hence the garbage has not been taken out.

Tue, 10/26/2010 - 17:22 | 678776 whosetosay
whosetosay's picture

duplicate- deleted

Wed, 10/27/2010 - 01:48 | 679826 traderjoe
traderjoe's picture

Welcome to the red pill - for better and worse. I think my first (or second) post was a duplicate too. You just have to wait a bit for the comments to load.

Tue, 10/26/2010 - 17:25 | 678780 whosetosay
whosetosay's picture

for crying out loud... I have no idea how my comment was posted 3 times. My apologies.

Tue, 10/26/2010 - 17:35 | 678804 whosetosay
whosetosay's picture

Thank you so much Citizen Pete. I glanced over the last 3 sections. It was one sentence in each. I didn't see anything that outlines the length of the Charter. I did read in the article (that I previously mentioned) that the term was 100 years, which would make it 2013 but then some folks commented on the leap years putting the end of the charter in 2012. I'm just curious if anyone else has heard anything about this or has more information. I'll try to find the link to the story that I read and post it if anyone wants but the gist of it was.... their charter is expiring. They don't give a darn what they do at this point. /<tinfoil hat off>

Tue, 10/26/2010 - 23:35 | 679639 i-dog
i-dog's picture

The only thing I have ever seen is some implied ending date of 2012 based on some notional repayment of gold at 1% a year -- giving a 100% repayment in 2012. Did some searching recently but never did find any authoritative backing for that assumption.

Tue, 10/26/2010 - 17:28 | 678795 iDealMeat
iDealMeat's picture

That CAPTCHA can be a bitch the first couple, 3 times..

Tue, 10/26/2010 - 17:36 | 678806 whosetosay
whosetosay's picture

Amen and thank you for that.

Tue, 10/26/2010 - 17:30 | 678799 TheMonetaryRed
TheMonetaryRed's picture

Blah blah blah. 

Blame the government that operates at least quasi-publicly, while the biggest banks in the world use trillions in derivatives to cheat on their taxes.

Tue, 10/26/2010 - 17:58 | 678859 NOTW777
NOTW777's picture

the fed is not the irs. us could change its tax structure to avoid cheats like GOOG and others but the politicans get their contributions from the same tax cheats.  that said, tax rates in US are too high and encourage off-shoring tricks by major corps.

most of what the banks do, could not be accomplished without the fed, their pimp, giving them free $, concealing their screw-ups, buying their crap, manipulating the market and rates primarily for the benefit of the banks, etc - all at the expense of the us taxpayer.

would be different if there was a full audit of the fed, but there isnt and the fed can do what it wants.  its out of control and has too much power.

Tue, 10/26/2010 - 17:53 | 678848 blindman
blindman's picture

ETF NOW.  ( end the fed ) .  their asset inflation and fiduciary

shenanigans have turned us all into unknowing, hallucinating dollar zombies

and eternal debt slaves.  i can take no more and the children are

better than that, potentially.   we need to seek higher ground.

principle found and founded in truth,  the species is capable of it!

Tue, 10/26/2010 - 17:58 | 678861 1100-TACTICAL-12
1100-TACTICAL-12's picture

What do y'all think about Damon Vrabel? He seems to have a pretty good handel on how it all works.

Tue, 10/26/2010 - 19:30 | 679081 Clycntct
Clycntct's picture

Damn I'm gonna have to get back atyou in a day or so.

Just finished #3 and will work on the rest.

Good stuff.

Tue, 10/26/2010 - 18:01 | 678866 jbc77
jbc77's picture

I've never understood why the fed continues with quantitative easing. Everyday I wonder what helicopter Ben is thinkning. How does monetizing bonds, and propping up stock prices facilitate economic recovery? Retail investors are non-existent so there is little to no benefit to their pockets. QE has not created a single job ever. So the basic question I always ask myself is: why does he keep doing this? What are we missing.

We obviously are missing a piece of the QE puzzle. The fed must be handing money out to entities unknown to the public.

The problem with propping up stocks and other assets is once you start you can't stop without collapsing the asset you've been propping up, you back yourself into a corner and this is now where the fed stands. Keep it up or they crash everything.....



Tue, 10/26/2010 - 18:07 | 678879 Mr. E
Mr. E's picture

I can't believe I haven't seen a single connection between QE II and the mortgage crisis yet.

Let's see - the Fed announces it will purchase trillions of assets - presumably MBS.

A few weeks later, the largest financial scandal in history makes the front page.  Involving MBS.

I just wrote 2,500 words on this strange coincidence for my newsletter.  

The Fed was trying to bail out the banks before this hit the front page.  They could care less about the other 1/2 of the dual mandate.  

Even this excellent Grantham piece misses the big picture on this particular issue.  




Tue, 10/26/2010 - 20:55 | 679266 Revolution_star...
Revolution_starts_now's picture

"The Fed was trying to bail out the banks before this hit the front page.  They could care less about the other 1/2 of the dual mandate"

Ding Ding Ding, no more calls please, we have a winner.

Tue, 10/26/2010 - 18:10 | 678888 erik
erik's picture

So looking at the CFNAI (Chicago Fed Natl Activity Index) it looks like we're in the time zone (+/- 1 month) where we should find a top.  It says nothing about price, just timing.

We are nearly identical to late 2007 in the CFNAI (Oct 2007 was the top). We are at very similar levels right now, with a similar downward trend slope in the data.

Same goes for 2000 top.  We were at very similar levels in CFNAI in Sept 2000 before the selloff commenced.

Of course there was no QE2 on tap in late 2007, so that could distort things.

Tue, 10/26/2010 - 21:31 | 679340 Lucius Corneliu...
Lucius Cornelius Sulla's picture

QE2 is the only trick they have left.  It is a sure sign of desperation and, IMO, a giant bluff.  The consequences of monetizing on a grand scale are too severe.  It will be the death nail to dollar supremacy.  They will do some to play the bluff, but I doubt it will be enough to stop stocks from crashing.

Tue, 10/26/2010 - 19:35 | 679092 Buttcathead
Buttcathead's picture

Benny needs to go to jail.

Tue, 10/26/2010 - 19:36 | 679094 Everybodys All ...
Everybodys All American's picture

The very first thing that should be changed is the tenure of the Fed Chairman. I had no idea this guy would not come up for a vote on reappointment until 2014. My God what kind of destruction to our economy and dollar will this moron do in that time span.

Tue, 10/26/2010 - 19:42 | 679108 Withdrawn Sanction
Withdrawn Sanction's picture

There may be dark forces and all, but a simpler explanation is to accept that BB really does wish to prevent asset price deflation.  When financial assets (stocks or MBS esp.) begin deflating, the entire superstructure of derivatives resting on top of them faces potential collapse.  Any reduction, for example, in value of the underlying MBS (itself reliant on the underlying value of the collateral and the willingness/ability of homeowners to pay) exerts a non-linear influence on the value of CDOs, CMOs, CLOs, and the rest of the securitized menagerie.

The really big question is can he do it?  Can he continue to keep asset prices levitated?  I doubt it, and the difficulty is that troublesome non-linearity.   It's operation is not a function of who owns the asset.

Tue, 10/26/2010 - 20:03 | 679146 Minion
Minion's picture

Simple solution for that simple explanation is to either tear up all OTC derivatives contracts or apply QE to the mortgage payments of underwater homeowners, not bond and stock purchases.  BB, like any good liar, is telling half the truth - asset prices need to be maintained to prevent collapse.  But he's not targeting the applicable assets. 

The even simpler explanation is it's all a power grab like any usery scheme ever was.......  lure the victim in with the prospect of easy prosperity, let them enjoy it for a while, let them get in trouble, then "bail" them out at the expense of their future.........

Tue, 10/26/2010 - 20:41 | 679224 Withdrawn Sanction
Withdrawn Sanction's picture

No, he's not targeting the applicable assets; that's right.  He's targeting the assets he can.  MBS are tradeable, mortgages generally are not (or at least not easily so).   Tearing up OTC derivative contracts, while it sounds appealing, gores a multi-trillion dollar ox.  That might be desirable in the grand scheme of things, but it's unlikely to happen w/o a big and bloody fight.

It also may be a power grab (the usury thing not so much), but my point is that in any event, BB's mkt propping exercise is unlikely to work and neither would direct pmts to underwater homeowners.  The burden of the debt obligations are out of whack relative to the value of the underlying collateral (for a whole host of reasons amply covered on ZH).  Changing who holds the note or who pays on the note will not change this fundamental imbalance.

The only way to restore some semblance of balance is to allow the bad debts to be purged from the system, not merely transferred within it.

Tue, 10/26/2010 - 23:20 | 679618 Minion
Minion's picture

I agree...... perhaps my rhetoric was too subtle.  :)

Wed, 10/27/2010 - 03:47 | 679892 Miles Kendig
Miles Kendig's picture

A stealthy Minion 

Tue, 10/26/2010 - 20:32 | 679203 Miles Kendig
Miles Kendig's picture

All this and climate change too


Tue, 10/26/2010 - 20:44 | 679232 SparkySC
SparkySC's picture

I would limit the FED's duties to handing the sack at the drive thru window.


Not a chance in hell I'd allow the taking of an order or the handling of even rolled coin.



Yo' bearded Dude you phuckin' forgot my double-double again!

What is ya.... ig-nant?







Tue, 10/26/2010 - 21:29 | 679336 gwar5
gwar5's picture

Markets will always eventually find their way but disruptions are going to be severe. Things are pretty screwed up. Get the basic things of life, and store value in something stable, play defense. 

Tue, 10/26/2010 - 21:37 | 679354 rawsienna
rawsienna's picture

The FED's dual mandate is outdated.  

Wed, 10/27/2010 - 03:29 | 679881 The Alarmist
The Alarmist's picture

What, you didn't hear about the Fed's "100 by 100" initiative? 100% depreciation of the USD by the Fed's 100th anniversary.  No need to worry about 2014.

Wed, 10/27/2010 - 07:38 | 679983 Kina
Kina's picture

This talk of limiting the activities of the Fed is dangerous. The Fed is a cancer, slow growing for a century, now fully grown on the verge of metastasising and making the problem incurable bringing the death of the host.

The way to treat a malignant cancer is resection with large margins and chemotherapy.


End the Fed entirely, regulate the legal activities of banks, remove all regulatory bodies and create new ones staffed in some way that reduces the chance of coruption, and with penalities for failure to discharge duty.


Wed, 11/03/2010 - 21:23 | 697951 cheap uggs for sale
cheap uggs for sale's picture

We have all cheap uggs for sale in our website ! You can meet all your needs for UGG hot sale here and will certainly be satisfied with the top quality at low price. All UGGs on sale are made with the 100% genuine sheepskin from Australia and are hand-made in our own factory completely. So you need no to worry about the quality and the cheap UGGs for sale are all to be delivered in free shipping. Enjoy the large discount!
UGG Amberlee
|UGG Kensington
|UGG Elsey
|UGG Langley
|UGG Roxy Short
|UGG Roseberry
|UGG Oliviya
|UGG Raya
UGG Brookfield Short

Thu, 12/09/2010 - 10:27 | 792209 senthil456
senthil456's picture

I love zerohedge policy.
windows vps
cheap hosting
forex vps

Thu, 12/09/2010 - 10:33 | 792233 senthil456
senthil456's picture

I love zerohedge policy.

cheap hosting

windows vps

forex vps

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