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Nomura FX: "Mr. Bernanke: You Are Trapped!"

Tyler Durden's picture




 

From Nomura's Brent Donnelly

Mr. Bernanke: You are trapped!

The way the data and psychology has turned down just as QE2 is ending is no coincidence – just like it was no coincidence when the same thing happened at the end of QE1. To use the Fed Chairman's preferred term these days – the impact of QE is transitory. Much like fiscal stimulus, QE has a temporary impact but as soon as the extraordinary intervention ends, the patient begins to wither again. This is the trap that Bernanke fully understands and it seems like the endless monetization prophecies of Zerohedge and The Daily Dirtnap are at risk of coming true.

Without the promise of QE3 from Bernanke yesterday, markets are sad. With no major data on the docket and nothing promised  from the Fed (Evans also seemed to shy away from hitting the panic button yesterday), we may be in for some creative destruction for a while.

I have not been able to stick with a coherent equity view over the past few days as there are two offsetting factors at play in my mind : 1) the bear case is playing out perfectly as QE ON or QE OFF continues to be the only variable determining asset prices and multiple bearish cyclical factors kick in (sell in May, end of presidential cycle, etc)… But 2) stocks appear very oversold as we are in the 6th straight down week for the S+P and the market seems fully cognizant of the deceleration in US growth at this point.

I guess things can stay oversold for longer than one might expect especially after we have just rallied 100 percent in less than two years. It is probably reckless to buy equities until we get some sort of huge blowoff day. The slow motion car crash we are  witnessing since May 2nd is remarkably orderly. Too orderly.

AM/FX usually contains a trade recommendation but right now I am flat. Bearish fundamentals + very oversold market = be  patient.

Watch for significant barrier madness in USD/JPY at 79.50. Finally, for those keeping score at home: EUR/USD was trading on a 1.19 handle on this day last year.

 

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Wed, 06/08/2011 - 09:36 | 1350446 Cognitive Dissonance
Cognitive Dissonance's picture

This is the trap that Bernanke fully understands and it seems like the endless monetization prophecies of Zerohedge and The Daily Dirtnap are at risk of coming true.

I wouldn't consider something with a 90% or greater chance of occurring as a 'prophecy' when it is discussed. Only the willfully blind couldn't see this coming. And that is what Ben and company are engaged in, the willful blinding of the general public.

Wed, 06/08/2011 - 09:44 | 1350471 CPL
CPL's picture

Agreed, "phophecy" requires a random guess, perhaps a dead chicken and some fire walking forthe vision to occur.  We just have to have a rudimentry understanding of 7th grade math involving percentages, time, compounding and debt is a negative number.

Wed, 06/08/2011 - 10:04 | 1350564 Fish Gone Bad
Fish Gone Bad's picture

A new term will come from all this: Bernanked - A term used to describe the fucking over of a country by a banker. 

Wed, 06/08/2011 - 10:07 | 1350609 hedgeless_horseman
hedgeless_horseman's picture

Wed, 06/08/2011 - 10:16 | 1350655 Cognitive Dissonance
Cognitive Dissonance's picture

Nice look for Pelosi on the left. Did she do something with her hair after her latest face lift?

Wed, 06/08/2011 - 10:35 | 1350754 Cognitive Dissonance
Cognitive Dissonance's picture

Speaking as an old fart it's simply amazing what you can find on YouTube. I have gone to the well dozens of times with just a few words in the search engine and I've never been disappointed.

Random word searches are my favorite thing. :>)

Wed, 06/08/2011 - 12:26 | 1351277 merehuman
merehuman's picture

i will google "old fart" curiousity compells me

Wed, 06/08/2011 - 13:44 | 1351577 Mec-sick-o
Mec-sick-o's picture

You will be surprised if you ask several people to google the same "old fart" phrase.

All of you will get different answers.  Welcome to the "openness" of internet:

http://www.ted.com/talks/eli_pariser_beware_online_filter_bubbles.html

Wed, 06/08/2011 - 10:48 | 1350808 kumquatsunite
kumquatsunite's picture

Ha Ha! Good job.

That said, what do you want? Why is Bernanke the "whipping boy"? You do realize that without the endless, unwarranted, unneeded, simply-to-juice-the-system immigration of the last twenty years that the housing bubble couldn't/wouldn't have happened. Under the guise of "diversity" this country has been turned into a flophouse for third worlders and gutter trash from failed countries. (Read Pat Buchanan or watch Judge Judy; the foreigners you'll see don't jive with that, "they are such good people" thingy...)

Oh yeah, I'm sooo not "compassionate", with "compassionate" being interchangeable with "self-genocide" which is something no other country in the world has agreed to do. Just what was wrong with this country in, say, 1980 when the roads were open, the air was still clean, and there was plenty of water?  When we didn't cringe just because we said something jingoistically American? 

Just when is enough "diversity" diverse? What kind of a priori decision was made about that and who made it? And is it not enough now that there are 160 languages in the Los Angeles school system; now that California is a barrio; now that Washington State has been sold to China; now that one-half of the physicians in the United States...in some odd way that had to be deliberately jury-rigged...are foreigners. Combine foreign docs (non-native English speaking, not steeped in a Christian western culture and who have an undeniable hatred of America and whites and Oboma's death panels, and your days are numbered. Ah sure, kumquats, read the Oboma care bill and shudder in fear if you be: white (the government been stuffed with foreigners to hide the immigrats from Americans so we don't "feel" the real numbers), disabled (you go first!), or over fifty (Oboma hate the older ones...they remember how this country is supposed to be!) Or, interestingly enough, a black American. An add on television just a few moments ago had about fourteen people in it, one-half of them were Chinese; no blacks; no hispanics. The Chinese are looking for their "satellite state" until they can invade. These people are their initial invasion force. They are grooming you via advertising.

Destroy the memories of the older ones, the memories of how it should be; the memories of American as a great country for a great people has been pounded into the ground; the coast is clear for Communism to reign!

Wed, 06/08/2011 - 11:29 | 1351001 Cognitive Dissonance
Cognitive Dissonance's picture

You are supposed to end with <rant off>.

BTW I think you missed a few stereotypes, but great effort none the less.

Wed, 06/08/2011 - 13:19 | 1351468 kridkrid
kridkrid's picture

Not only stereotype laced, but the narrative to usher in the next phase in our fascist transformation.  The theme I'm seeing more of today... mob violence... the need for a strong police state... but the ant-immigrant thing will be easy to blend in, soon enough.

Wed, 06/08/2011 - 12:34 | 1351296 merehuman
merehuman's picture

you imply its the foreigners who created the derivatives(trillions) and robbed the people to save the insolvent banks..too funny , thanks for your opinion

Wed, 06/08/2011 - 10:52 | 1350811 Weisbrot
Weisbrot's picture

 

cant be her, she's wearing white

 

Wed, 06/08/2011 - 11:32 | 1351009 Cognitive Dissonance
Cognitive Dissonance's picture

Actually she's wearing semen beige from all those thousands of hours whoring around the Congressional club.

Wed, 06/08/2011 - 14:09 | 1351682 faustian bargain
faustian bargain's picture

lol, blech

Wed, 06/08/2011 - 11:18 | 1350957 anti Oligarchy
anti Oligarchy's picture

My smile for the day from ZH - this site has the best base of users.

Wed, 06/08/2011 - 10:11 | 1350598 That Peak Oil Guy
That Peak Oil Guy's picture

Who needs prophesy when you have history:

"At that time the opponents of paper had prophesied that, once on the downward path of inflation, the nation could not be restrained and that more issues would follow."

"France was now fully committed to a policy of inflation; and, if there had been any question of this before, all doubts were removed now by various acts very significant as showing the exceeding difficulty of stopping a nation once in the full tide of a depreciating currency."

"The first inflation bills were passed with great difficulty, after very sturdy resistance and by a majority of a few score out of nearly a thousand votes; but we observe now that new inflation measures were passed more and more easily and we shall have occasion to see the working of this same law in a more striking degree as this history develops itself."

"The great majority of Frenchmen now became desperate optimists, declaring that inflation is prosperity. Throughout France there came temporary good feeling. The nation was becoming inebriated with paper money. The good feeling was that of a drunkard just after his draught; and it is to be noted as a simple historical fact, corresponding to a physiological fact, that, as draughts of paper money came faster the successive periods of good feeling grew shorter."

From Fiat Money Inflation in France.

http://mises.org/books/inflationinfrance.pdf

TPOG

Wed, 06/08/2011 - 10:24 | 1350694 binomial
binomial's picture

Fantastic reference -  Thanks!

 

 

 

Wed, 06/08/2011 - 11:44 | 1351098 Saxxon
Saxxon's picture

+1 d'accord.

Wed, 06/08/2011 - 10:29 | 1350726 GeneH3
GeneH3's picture

Fiat Money in France is a great monograph. It not only catalogues the inflation but also the lengths to which a government will go to enforce wage and price controls (hint: it starts with a "g" and ends with decapitation).

Wed, 06/08/2011 - 10:58 | 1350859 kumquatsunite
kumquatsunite's picture

Come'on. Ag and Au are not sacrosanct. There is absolutely nothing about them that can'be be watered down: add another metal to, purportedly, strength the Ag or Au; make the piece smaller but say it stands for the same amount...what's the difference. The looming problem if this were implemented is two-fold. One, gold has some real problems in the not too distant future (won't go into them but I don't care to own gold)...let's just say it is all "fool's gold". And as to silver, very heavy if you care to buy, say, a couch. In the old days most of the exchanges were via bartering such as a chicken for a bushel of peaches. Thus, silver was used only for very limited purchases. It's pretty clear that those who have squirreled some of this stuff away are hot for this idea, the rest of us, not so much. Frankly, in a digital world, the real gold and silver is: land which is not overburdened with humans (see: China, India), fresh air (all that weather manipulation, that's a bad bad thing), and food...which actually means fresh water because without fresh water...nothing lives. Nothing lives, and that means your children, your grandchildren. 

Wed, 06/08/2011 - 11:14 | 1350938 Bay of Pigs
Bay of Pigs's picture

No quick way to answer all those blatant errors. 

Wed, 06/08/2011 - 12:36 | 1351327 merehuman
merehuman's picture

i junked you  for your ignorance and short sightedness. You need do more research and suffer a bit so you may gain true understanding and get to know yourself. You, are a mere human who thinks he has a soul.

try being a soul and have your human better educated. thank you for reading.

Wed, 06/08/2011 - 11:12 | 1350945 augie
augie's picture

Late president and professor of history at Cornell University.

I think that guy knew what he was talking about.

Wed, 06/08/2011 - 14:11 | 1351689 faustian bargain
faustian bargain's picture

Zut alors! C'est un piège!

Wed, 06/08/2011 - 14:37 | 1351804 Danks18
Danks18's picture

"It is probably reckless to buy equities until we get some sort of huge blowoff day. The slow motion car crash we are  witnessing since May 2nd is remarkably orderly. Too orderly."

That is the only way that the BTFD crowd will stop.  The Pavlovian response is being unlearned.

Wed, 06/08/2011 - 09:39 | 1350449 hampsterwheel
hampsterwheel's picture

seems like July will be the month to go long Silver and Gold by my calculations..

 

Wed, 06/08/2011 - 09:51 | 1350513 GetZeeGold
GetZeeGold's picture

 

July will be the time to already be in the metals.

P.S. If he really is trapped. Send in the dogs to finish him off. It's the way we hunt down south Dixieway.

 

Wed, 06/08/2011 - 09:39 | 1350452 Caviar Emptor
Caviar Emptor's picture

 the impact of QE is transitory....

and not! Bernanke is feeling trapped because more QE also would mean higher global asset prices and raw material prices across the globe at a time when the real economy is sagging big time, unable to get traction, stuck in a depression that actually worsens with QE. 

Wed, 06/08/2011 - 09:58 | 1350551 GetZeeGold
GetZeeGold's picture

 

Throw some QE bucks at taking down commods...which no one believes....so we can wheel out QE3 to support equities....which nobody believes either.

What to do?

 

Wed, 06/08/2011 - 09:40 | 1350459 Note to self
Note to self's picture

The slow motion car crash seems to be tightly controlled - major indexes decline in nearly identical percentages each day.  Almost as if it were algorithmically governed . . . . 

Wed, 06/08/2011 - 09:53 | 1350504 Mec-sick-o
Mec-sick-o's picture

Yup, just enough to trigger some support levels and turn traders' chartology a nightmare daily whack.

Wed, 06/08/2011 - 09:37 | 1350462 Cdad
Cdad's picture

Bearish fundamentals + very oversold market = be  patient.

True, in the broadest sense.  However, if one is not making an index bet, there are plenty of stocks out there for which patience has already been extended to the size, scope, and magnitude of the pyramids of Giza.

Plenty of things to sell now and for the rest of June.  Retail leadership stocks, for example...those which are major components of the XRT.

Wed, 06/08/2011 - 09:47 | 1350492 SheepDog-One
SheepDog-One's picture

Whats the 'fair value' for all this crap. Im just being generous and saying S&P 600, DOW 5,000. I dont see any justification for anything higher for any of it.

Wed, 06/08/2011 - 09:53 | 1350524 Cdad
Cdad's picture

Can't answer your question, Dog.  I have given up trying to value or time the turn in the bogus indexes due to the ridiculous HFT issue, and because of the manipulation of the index or sector ETF funds.

One needs to seek out individual issues to sell now...such as the patently absurd king of $30 t-shirts and assless chaps...aka Abercrombie and Fitch.  Just now, the CEO did a whoopsies on the coming quarter after completing "Operation Billionaire."

Wed, 06/08/2011 - 10:14 | 1350632 SheepDog-One
SheepDog-One's picture

So get rid of assless jeans stocks and $12 rice burrito stocks...CHECK!

Wed, 06/08/2011 - 10:28 | 1350719 Cdad
Cdad's picture

Correct Dog.  And there are others.  The GROSS misallocation of funds into the consumer discretionary sector is vast...in essence, Wall Street's ultimate denial of the deteriorating economy.  

Some have already corrected, some have already corrected and are beginning their next leg down, and some of them are wearing hockey helmets and standing in the center of the room clapping for themselves.  The last group is my very most favorite.

And now comes confession time...that always FUBAR moment when criminal syndicate Wall Street capital misallocators express concerns about their previously dumbass expectations.

Next up, misallocators will be suddenly "surprised" about the rising costs of streaming movies, America's second favorite dinner menu item after iPads, of course.

Never has the "smart money" been in such a grand and glorious position to reveal itself as "herd money" instead.  Sell when the ETF manipulation is high, marked by a high RSI and the vomiting of said target shares into curiously tall volume spikes.  

As for Abercrombie...a good time to sell it is any time it is above its 100 day sma...to be followed by any time it is above its 200 day sma.

 

Wed, 06/08/2011 - 11:32 | 1351011 TruthInSunshine
TruthInSunshine's picture

We're in a secular bear market.

The RoboMomos of this earth won't/can't utter that fact, but it's fact nonetheless.

Although no one has a crystal ball, pulling up a chart of the Nikkei, beginning in...oh, I don't know...1990 or so, is one ugly chart made possible by secular bear market-san.

Wed, 06/08/2011 - 11:54 | 1351140 Cdad
Cdad's picture

Brother truth,

I would not argue your point at all.  Instead, my magic charting abilities are less impressive than my ability to understand valuations...along with being able to spot ridiculous magic HFT lifting, insider millionaire creation schemes.

And considering just how hard a certain CEO of a certain fast food chain [with the ambiance of the inside of a warehouse] has been selling the crap out of his shares, I think I have another one spotted.

As well, and for the same reasons, and for the obvious "surprise" just around the corner on hidden costs and how they are about to "unexpectedly" appear in a place where streaming American dinners are served up, I think I know of another place to sell.

And I could go on, and you may well outperform me in the near term with a leveraged play against the bogus indexes during this clearly secularish bearish truth telling time...but I need to be in places where I have conviction.  This being my only point, really.

I agree...the entire market is entirely mispriced due to serial criminal syndicate Wall Street banking capital misallocation.  So enjoy the Screaming and Plunging trades, whatever they are, brought to you by the Summer of our Recovery, a wholly owned subsidiary of the Summer Doldrums.

Wed, 06/08/2011 - 12:26 | 1351258 TruthInSunshine
TruthInSunshine's picture

We're in agreement, although our time frames will make one of us closer to on-time, and one of us early or late.

We agree that when the band-aid is removed, it will rip the stitches in the jugular out.

Wed, 06/08/2011 - 20:57 | 1353163 StychoKiller
StychoKiller's picture

Make that a carotid, much more dramatic!

Wed, 06/08/2011 - 14:29 | 1351773 Goldtoothchimp09
Goldtoothchimp09's picture

Used to be the investing class would purchase a stock if they could make back their investment via dividends in 10-12 years.  Apply that math to stocks that barely pay divide bds!  Why would anyone own stock they don't pay substantial dividends?! 

Wed, 06/08/2011 - 09:41 | 1350469 hampsterwheel
hampsterwheel's picture

I believe we are making too many assumptions here - do we really know  that Bernake wants a stronger more independent America? An economically strong America isn't good for the UN or the NWO types - better to drop us like a prom dress and swoop in aka Greece .... if that is the end game: the establishment of a single fiat currency run by the IMF/UN we are right on track and Bernake is doing an excellent job. They made money running up the market - now they're short and will make it on the way down -

 

I believe people's assumptions on what the Fed wants are all wrong - they want what they are doing - we sit around and scratch our heads and cannot understand the logic - when in fact it makes perfect sense when you watch what they do - not what they say - everything is going to plan - we are right where they wants us because they put us here -

Wed, 06/08/2011 - 09:49 | 1350475 SheepDog-One
SheepDog-One's picture

Too bad most wont see it till a boot heel is stomping their skull, soon.

Wed, 06/08/2011 - 10:01 | 1350547 Reptil
Reptil's picture

watch what they do - not what they say -

+1

Wed, 06/08/2011 - 10:04 | 1350573 DaveyJones
DaveyJones's picture

Ben wants to pay back an unpayable debt with a weaker dollar. He wants to lie about that fact. He wants to time his easings and pull back just enough to let the ignorant catch a glimpse of reality, make the ignorant scream for more assistance, then play the white trash night and start the process all over again.

Unfortunately for Ben many people and many countries are on to this game and are also taking the pain that we should be feeling with high interest rates and other pleasures. China is done being our vendor financer and is busy buying hard assets. Others will say two can play this game and start to do things to ease their currencies. We've never had a show like this before. The final act will have some cannons.   

Wed, 06/08/2011 - 10:12 | 1350637 SheepDog-One
SheepDog-One's picture

Right, who of any significance or importance is Bernank fooling anymore? The bankrupt can pay off a mountain of debt, with just a little tweek here and there? Farce.

Wed, 06/08/2011 - 10:03 | 1350585 TorchFire
TorchFire's picture

I would tend to agree that the Fed is doing precisely what they set out to do.  They have NEVER had an interest in a strong America...it was just that the US represented the best host for their voracious need to feed.  A sort of nation state dairy cow or blood doll. Now they may be building the machine to make the world their prey.

I only wish Bernanke was "trapped". Gnawing his leg off or dying of thirst in the trap.  ..or perhaps a choice such as the last scene of Mad Max.

Wed, 06/08/2011 - 10:14 | 1350628 i-dog
i-dog's picture

"we are right where they wants us because they put us here"

Exactly! The only two things they are actually concerned about are:

  1. Ensuring that the middle class has been sucked completely dry; and,
  2. Ensuring that the control grid is fully in place, before pulling the final plunge.

My guess is that they are targetting another 12 months of these games, so QE3 is a given.

Wed, 06/08/2011 - 11:01 | 1350865 madmax1965
madmax1965's picture

I agree Hamsterwheel.  Could not have said it better. The Bernak is doing his fudiciary duty for the shareholders of the FED and that most certainly is not the citizens of the United States.

Wed, 06/08/2011 - 09:44 | 1350470 SheepDog-One
SheepDog-One's picture

So basically QE prevents total collapse on an ever shortening timeline each time its tried. Very much like a heroin addict needing more and more smack just to prevent getting totaly sick, and when his smack is cut off in any way better get out the drop cloths and puke buckets!

Wed, 06/08/2011 - 09:53 | 1350521 A Man without Q...
A Man without Qualities's picture

Do you know the story from Awakenings, by Oliver Sachs.  The patients had been in a comatosed state for years until treated with L-DOPA.  The problem was that the effect of the drug diminished each time, until they required dangerous quantities or it would have no effect.  Eventually, they decided there was no point continuing.

So QE is the L-DOPA for the comatose economy....

Wed, 06/08/2011 - 10:01 | 1350545 Dr. No
Dr. No's picture

I would like to see williambonzi7 do a FED-"Trainspotting" bit....

Wed, 06/08/2011 - 09:50 | 1350489 hampsterwheel
hampsterwheel's picture

The Fed knows what it is doing and everything is going very very well - all according to plan - just that the media assumes their plan is helping America - it is not - they are a bank - beholding to their owners - not the American people -

Wed, 06/08/2011 - 09:47 | 1350491 John McCloy
John McCloy's picture

Ben wanted 80.00 oil without the markets having to be taken down but OPEC couldn't deliver. Then we could have had QE3 a little easier.
QE3 with 110 oil is not happening.

Wed, 06/08/2011 - 09:49 | 1350499 SheepDog-One
SheepDog-One's picture

Unfortunately theres a war raging across the mid east. Tough to have cheap oil.

Wed, 06/08/2011 - 11:22 | 1350978 Cdad
Cdad's picture

John,

And neither can QE3 happen with such a depressed US studman dollar.  A disorderly decline in the dollar from here would consume any QE3 impact almost immediately.  As such, the dollar will enter a bullish move that "no one can see coming."

Those assets that require the perpetual dollar decline in order to maintain positive ballast will be taken to the woodshed in the coming summer of doldrums.

These things, in my book, are a given.  And as such, observe and behold how the BlowHorn [CNBC] highlights its role as the Kingdom of Irrelevance under the threat of the removal of advertising dollars [by criminal syndicate Wall Street firms] if enterprising BlowHorn anchors, who may or may not have even one ounce of journalistic entegrity left in their bones, dare to even try to be relevant with their mind washing program segments.

Wed, 06/08/2011 - 14:28 | 1351763 Bay of Pigs
Bay of Pigs's picture

Very good posts my friend. Please keep them coming...

Wed, 06/08/2011 - 09:47 | 1350494 Atomizer
Atomizer's picture

Bernank is between a rock and a hard place.

Wed, 06/08/2011 - 09:48 | 1350498 TruthInSunshine
TruthInSunshine's picture

Bernanke has no out.

This really is not complicated, and is predicated on basic math.

He can choose between several courses of action that lead to the same result.

He is stuck between pushing on a string and a liquidity trap.

He can:

a) Do nothing more,

b) Add more liquidity via multiple methods,

c) Withdraw liquidity.

 

None of these actions will foster consumption, because Bernanke can't create jobs, or jobs of any quality or permanence. The 'structural' impediments that Dudley mentioned only yesterday in a speech he gave is all about the fact that monetary policy by the Federal Reserve can't possibly resolve the structural job(lessness) issue.

Robust job creation (and real wage increases, not decreases) are needed increased consumption.

Increased consumption is needed to foster demand for new debt.

Demand for new debt is needed in order to grow what is an entire economic structure that inherently depends on increasing levels of debt/credit issuance for growth.

 

Bernanke & The Federal Reserve, assuming they ever thought their monetary policy of the last three years could hope to achieve jobs and demand for issuance of new debt/credit, basically wanted to create an environment whereby banks would issue loans to blind men with 22 DUI convictions and no drivers' licenses or insurance in order to purchase commercial tractor-trailers.

Wed, 06/08/2011 - 09:50 | 1350507 SheepDog-One
SheepDog-One's picture

Their goal, the 3rd worlding of the US and largest wealth transfer in world history, is almost complete Brother Truth.

Wed, 06/08/2011 - 09:53 | 1350522 hampsterwheel
hampsterwheel's picture

Truth - your making a fatal flaw in your logic - check your premise - Bernake has no out in his GOAL is to improve America - but why do you assume that is his goal? It is not his goal (he is only the spokesman so I use the term "he' as a plural) he has lots of options -- don't worry all is going to plan; he is sleeping very very well -

Wed, 06/08/2011 - 09:55 | 1350538 the not so migh...
the not so mighty maximiza's picture

It would have been better just to write blank checks to tax payers instead of banks.

Wed, 06/08/2011 - 10:17 | 1350577 TruthInSunshine
TruthInSunshine's picture

I agree that there was no real intention of helping Americans, when Bernanke & Paulson (and others) implemented the insane monetary and fiscal policy of the last three years.

I just wanted to address those who somehow believe that such an intent actually did exist, and I will add this to my prior statement:

The 1st option (do nothing more)...well, it speaks for itself.

The 2nd option (add more liquidity via multiple methods) merely hastens the debt crisis and draws the default/implosion/end nearer.

The 3rd option (withdraw liquidity) merely hastens the reality of our true economic situation and draws the medicine and inevitable treatment nearer, which would mean a financial reckoning and realization that the TBTF banks need to be cut off, that many banks need to be let fall, that government spending needs to decline by a minimum of 25%, that the military be cut down to size and restored to a primarily defensive force, and that the 60 year pattern of episodic periods of economic expansion via chasing Federal Reserve influenced (heavily) or created (in entirety) process of chasing larger and larger bubbles needs to end, and a real economic cycle of production and consumption of goods and services at a level consistent with the natural demand-supply curve be returned to (this would involve an initial large contraction in the economy, and then lower growth going forward than what Keynesians deem optimal).

Choosing the 3rd route is really the only true way out, that avoids a total collapse, but it would at least allow Americans to preserve their sovereignty, and could even involve strengthening the USD (over time) which would offset some of the effects that a slower growing economy - it even could potentially allow the U.S. to return to a way of life whereby one income households can afford a quality home, health insurance, food, transportation and education, as once was the case, while actually being able to save 3% to 5% of their income each year! What a concept!

(But the interest-feeding & tax-gorging beasts would have to be slayed for good in order for this to be possible)

Wed, 06/08/2011 - 10:47 | 1350787 Spastica Rex
Spastica Rex's picture

it even could potentially allow the U.S. to return to a way of life whereby one income households can afford a quality home, health insurance, food, transportation and education, as once was the case, while actually being able to save 3% to 5% of their income each year!

Think about what Americans would have to give up to make this happen. Americans love their tinsel and rhinestones - they're worth it. An economy not based on the never ending consumption of trinkets and baubles? That's inconceivable!

Wed, 06/08/2011 - 09:53 | 1350503 djcando
djcando's picture

QE 3 will come in a disguise, but will come.  The governing factor will be the mounting difficulty in selling Treasuries.  When others refuse to buy our paper at the low rates we are trying to impose, we will have to continue to buy them ourselves if we are not determined to "kick the addiction".  My bet is on the weak spine of the politicians and Fed.  Stay liquid!

Wed, 06/08/2011 - 10:02 | 1350576 paulbain
paulbain's picture

WHY QE3 IS INEVITABLE

======================

 

DJCando wrote:

 

 

QE 3 will come in a disguise, but will come.  The governing factor will be the mounting difficulty in selling Treasuries.  When others refuse to buy our paper at the low rates we are trying to impose, we will have to continue to buy them ourselves if we are not determined to "kick the addiction".

 

 

 

DJCando, you are correct. I agree completely. Dunno why this is not obvious to others.

 

-- Paul D. Bain

paulbain@pobox.com

 

Wed, 06/08/2011 - 10:17 | 1350667 SheepDog-One
SheepDog-One's picture

But paulbain I have slight disagreement, your statement assumes Bernank's plan is to keep things going. The plan all along has been transfer the wealth from americans to the central bank to '3rd world' america, for the next step which is north american union and 1 world govt. Theyre almost done.

Wed, 06/08/2011 - 19:27 | 1352931 MoneyPowerWomen
MoneyPowerWomen's picture

Hey Sheepdog - what about the possibility all the Bernank wants (all anyone in power really wants) is to make sure the sh!t doesnt hit the fan on their watch.

It is a pattern you see through every single layer of society/discipline/level of management - why would it not be the same pattern at the top?

Wed, 06/08/2011 - 10:10 | 1350607 TruthInSunshine
TruthInSunshine's picture

This 'Japan Syndrome' that you speak of would require that the U.S. citizen become the primary (and in many cases, completely involuntary) holder of the overwhelming majority of treasuries, at a level never before seen in our history, and it ignores the fact that the U.S. does not have the domestic savings rate, as did/do the Japanese, to even make this possible.

Wed, 06/08/2011 - 10:46 | 1350799 djcando
djcando's picture

It's not our savings rate that is the issue, it's our propensity for taking on debt and the fact that more and more citizens are looking to the government for the answers to their problems (and finding an addictive handout)

Wed, 06/08/2011 - 11:02 | 1350873 the not so migh...
the not so mighty maximiza's picture

addictive handout is no longer a theory.

Wed, 06/08/2011 - 09:57 | 1350523 Seasmoke
Seasmoke's picture

i dont see a soft landing on this trip from hell

Wed, 06/08/2011 - 09:58 | 1350534 Event Horizon
Event Horizon's picture

Prior to the Fed,

Paradigms were worth 20 cents.

Today 2 cents.

Zero paradigm rapidly approaching... 

Where do you kick the can when you run out of road..

 

Wed, 06/08/2011 - 09:58 | 1350535 gigeze787
gigeze787's picture

BERNANKE = MULTI-TRILLION $$$ POKER ADDICT....

...with a losing hand who keeps doubling down. The next time he will triple down (QE3) and the American people will lose everything.

Wed, 06/08/2011 - 10:21 | 1350654 Dr. Richard Head
Dr. Richard Head's picture

I would say the poker game Nebraska (a great match the pot game) is what the Bernank is playing right now.  He keep's losing, having to match the pot with every hand he loses, and then he has to play the next hand because he is already all in.  he is now doing what the Chinese call saving face.  I call it being a fucking moron.  He should fold with a .38 to his head and those of the Federal Reserve Board.

Aside from poker, it seems monetary and fiscal stimulus of the past would at least buy some time and paper over things to give us a few years.  Now the time bought is only for the duration of the policies enacted.  When the program ends, the absence of the support is immediately felt – intentionally or not.

I just wonder how far the Fed lets asset and equity prices fall to scare the shit out of the about-to-retire baby boomers, allowing for a populist call for continued Quantitative Fuck Youing.  People are bold when the feel the "Wealth Effect" in their digital statements of paper debt wealth, but whimper when those statements reflect reality.

Wed, 06/08/2011 - 10:57 | 1350834 Weisbrot
Weisbrot's picture

 

Nationalize the Fed and Erase the Debt

 

 

Wed, 06/08/2011 - 10:57 | 1350855 Urban Redneck
Urban Redneck's picture

Bernanke is a roulette addict with the American taxpayer's card.  He is on the loose in the Wall Street casino, with the crazy notion that a matingale on GREEN is going to pay off before he bankrupts the US.

Wed, 06/08/2011 - 09:59 | 1350537 augie
augie's picture

Put a gun in my mouth and paint the walls with my brains.

http://finance.yahoo.com/blogs/breakout/market-sell-off-nope-bernanke-sa...

Wed, 06/08/2011 - 09:57 | 1350542 RobotTrader
RobotTrader's picture

Poor General Jim got it all wrong.

Gold stocks are crashing with equities again, just like 2008.

He should have rooted for Dow 15,000 and a booming recovery.

 

 

Wed, 06/08/2011 - 10:06 | 1350595 Bastiat
Bastiat's picture

As you were, Private Pissant.

Wed, 06/08/2011 - 10:50 | 1350805 Spastica Rex
Spastica Rex's picture

I really prefer the the first-wave new wave acts: early Talking Heads, Television; stuff like that. However, Gary Neuman's androgynous, aloof synth-pop did have an appealing coldness and mechanical quality.

Wed, 06/08/2011 - 09:58 | 1350548 r101958
r101958's picture

Markets oversold? LOL.    And......cheap oil is history.

Wed, 06/08/2011 - 10:01 | 1350549 Temporalist
Temporalist's picture
THIS Is The Chart That Worries Bernanke The Most

http://www.businessinsider.com/bernanke-is-worried-about-the-long-term-u...

 

Wed, 06/08/2011 - 10:18 | 1350673 Tyler Durden
Tyler Durden's picture

There is absolutely no need to link to BI when Zero Hedge put the chart up (and that is certainly not what worries the Fed most - Lloyd's UBS Private Wealth account... that's a different thing) first:

Two charts that confirm that the US economy is, and has been for the past 3 years, in nothing short of a depression.

And average duration of unemployment which just hit 39.7 weeks. Another record. (chart courtesy of John Lohman)

Wed, 06/08/2011 - 10:28 | 1350699 Temporalist
Temporalist's picture

I knew it looked familiar...

Wed, 06/08/2011 - 10:32 | 1350721 SheepDog-One
SheepDog-One's picture

What worries Ben the most is one time he'll look out his window and see mobs of pissed off pensioners with pitchforks and torches.

Wed, 06/08/2011 - 13:17 | 1351459 dbTX
dbTX's picture

There may be a few AR 15's in the crowd as well

Wed, 06/08/2011 - 14:46 | 1351836 Thisson
Thisson's picture

That's what he has the helicopter for.  When he sees the mob outside, he'll just fly off.

Wed, 06/08/2011 - 10:31 | 1350724 Highrev
Highrev's picture

I wish I knew of a time efficient way to find archived ZH articles.

I've been trying to locate a recent post regarding why bond holders, and the very rich in specific, stand to lose the most with more monetary debasement. (Google with key words + zerohedge just isn't getting the job done.)

Is there something I'm overlooking?

TIA

 

Wed, 06/08/2011 - 10:39 | 1350753 Temporalist
Temporalist's picture

You can try a date range too.  Also if you posted on it try using your nickname.  Perhaps there was a specific company (Pimco) or person (Meredith Whitney) that was also in it.

Wed, 06/08/2011 - 11:53 | 1351135 TruthInSunshine
TruthInSunshine's picture

Highrev - do a google search using your user name + Zero Hedge + some other terms that were contained in the article headline or body.

Wed, 06/08/2011 - 14:22 | 1351730 WaterWings
WaterWings's picture

The ZH on-site search box has always done me well.

Wed, 06/08/2011 - 10:56 | 1350831 Overflow-admin
Overflow-admin's picture

Woah thats significant. Too bad there is no data for 1900-1948 :(

Wed, 06/08/2011 - 10:05 | 1350569 GeneMarchbanks
GeneMarchbanks's picture

"Without the promise of QE3 from Bernanke yesterday, markets are sad."

Just... wow. That seems to insinuate that the "markets" depend on the foul nonsense spewed daily by Bernanke and Trichet nothing else. Nomura as trapped as the Bernank is you are even more so. You sad sad sap...

 

Wed, 06/08/2011 - 10:23 | 1350677 SheepDog-One
SheepDog-One's picture

'When Bernank did not show up with Hefty garbage bags full of crack rocks to hand out, the market crackheads were sad'

Aw thats a shame.

Wed, 06/08/2011 - 10:05 | 1350574 Poor Grogman
Poor Grogman's picture

The global debt monster is eating the QE money as fast as Ben creates it.

His neat trick will be to modulate the amount of new money to match the global debt monsters appetite.

When this happens the markets flatten out, then you just increase QE a little bit extra to get that gentle inflation that all central bankers crave. (at least in principle)

Lets face it gentlemen the creature cannot be killed without killing the host.

Just count the debt subtract the QE and decide if the figure is positive or negative then place your bets accordingly.

As long as these boys are allowed to create electronic credit ticks as money then there will be no end to this.

The power will rest with money printers, they are the only ones legally authorized to stave off a deflationary global crash.

NOW THAT IS REAL POWER!

Love that ponzi.....

 

 

 

Wed, 06/08/2011 - 14:10 | 1351688 Larry Darrell
Larry Darrell's picture

"Just count the debt subtract the QE and decide if the figure is positive or negative then place your bets accordingly."

 

Your equation looks like this:

Desired outcome is Growth = Printing - Destruction

where Bernanke is trying to solve for Printing where Growth is an input of his choosing.

 

While there is a nice simplicity to your assessment, there is one little (in other words, HUGE )piece of information missing.  And it is, and has been the essence of the whole fractional reserve system.....

 

What is the LEVERAGE amount to input in the equation which makes the money priniting slightly greater than the debt destruction.

 

I think this more closely reflects the equation:

 

Growth = Leverage * Printing - Destruction

 

This is why I think Ben will lose control of the inflation.  At some point, the greedy (and to borrow a phrase from Cdad) criminal wall street banking syndicate will run wild with horrible lending standards in a chase for return.  After all, return is their whole purpose; but there is no return on treasuries, stocks are dead, and carry trades which have worked wonders in the past sit upon the precipice daily as Europe implodes and Japan is decimated.

 

So Ben will print an amount to balance the equation as you stated.  But where he plugs in leverage = 10:1, they will eventually redeploy the money at leverage = 20+:1.  Then his "Growth" gets bubbly, but he can't raise the interest rates to soak up liquidity without bankrupting the Treasury.

 

 

Wed, 06/08/2011 - 18:07 | 1352657 Poor Grogman
Poor Grogman's picture

Yes agreed, a good assessment, and this is where he needs some "additional tools" such as more direct involvement in the commodities/metals and share markets. In order to ensure that the leverage is forced into the correct area's.

After all he wouldn't want anything like the Ultimate bubble to get started now would he?

ul·ti·mate (ult? mit)     adjective

  1. beyond which it is impossible to go; farthest; most remote or distant
  2. by which a process or series comes to an end; final; conclusive
  3. beyond which further analysis, division, etc. cannot be made; elemental; fundamental; primary

It all comes down to trying to accomplish what is impossible, "Centralised control of the financial system".

The Central Banks are already hedged against their own failure, thus their gold holdings!

 

 

 

 

Wed, 06/08/2011 - 10:03 | 1350581 oogs66
oogs66's picture

who's policies are causing more harm?  Ben's or Trichet's?  and why do these 2 have so much unilateral power in this day and age?

Wed, 06/08/2011 - 10:24 | 1350674 Temporalist
Temporalist's picture

This day and age?  The Fed has been around for almost 100 years.  Woodrow Wilson was ashamed he'd placed the power over so many in the hands of so few.  Eisenhower warned of accumulated power too.  It's not new it's just been in the shadows.

Wed, 06/08/2011 - 10:26 | 1350692 SheepDog-One
SheepDog-One's picture

100 years is half a second even in human history. Yes, how indeed is it even POSSIBLE 1 person has such total control with no question?? Even Kings of old if they stepped out of line there were mechanisms in place to have them taken out! Alexander the Great didnt have such widespread unquestioning total authority over so much. Its pure insanity is what it really is.

Wed, 06/08/2011 - 11:24 | 1350985 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

They have no power.  They are puppets of the megacorporations and international banksters!

 

Tuco

Wed, 06/08/2011 - 10:08 | 1350583 Caviar Emptor
Caviar Emptor's picture

One thing QE succeeded at: it raised stock prices, but unfortunately in the face of a declining dollar and declining purchasing power of those dollars. So a large part of the increase was only to tread water and keep up with these losses. It was a huge cost in terms of debt and credibility and hurt the real economy big time. Stocks may not crash but as a source of value from here the picture is gloomy. Ben's feeling that the ceiling has been hit. Hence gold will continue to outshine. 

Wed, 06/08/2011 - 10:29 | 1350710 TruthInSunshine
TruthInSunshine's picture

Stocks will crash. It's baked into the historical cycle and cake.

Bernanke's gift of higher equity markets (still lower than they were 5 years ago and about where they were 12 years ago - even ignoring all the equities that have been 'blowtorched' to $0, and simply removed from the indexes) will be one of a transitory nature when all is said and done.

Wed, 06/08/2011 - 10:07 | 1350588 apberusdisvet
apberusdisvet's picture

That the FED has an agenda of wealth accumulation by its masters to the detriment of the sheeple, is too obvious.  That the US military is the enforcement arm to enable the asset stripping of sovereign nations is less so.  It is intellectually difficult to rationalize how the progressives/marxists and the corporate fascists are seeking the same end game, but is becomes clear when you understand it is all about totalitarian control.

Wed, 06/08/2011 - 10:06 | 1350596 agNau
agNau's picture

It is hard for those of little mind to understand the great one. His logic and plan will make little sense to those that have not studied and realized the mistakes made during the last depression! Sit back, observe, and learn, as a master works. "When I can snatch the Gold from your hand grasshopper...."

Wed, 06/08/2011 - 10:07 | 1350613 Diogenes
Diogenes's picture

Here is how I figure it. The plan for Obama's re election and the continuation of the Great Ponzi.

1) QE2 ends. The government steps back and lets the economy collapse.

2) Due to overwhelming demand, the government steps back in with QE3 or the equivalent in late 2011 or early 2012.

3) Thanks to their generous boost the economy booms in 2012. Plus free givaways for every voter.

4) In November Obama wins re election by a landslide while millions cheer.

It isn't that hard to figure. That is how they do it every time.

Wed, 06/08/2011 - 10:24 | 1350682 the not so migh...
the not so mighty maximiza's picture

Your leaving out allot of unknown outside influences.

Wed, 06/08/2011 - 10:25 | 1350685 TruthInSunshine
TruthInSunshine's picture

Fed monetary policy has not helped the economy. In fact, a very solid argument can be made that, by boosting inflation while retarding job growth and consumption in the larger realm that is the organic economy, it has severely damaged the economy, while highlighting and bringing more focus to the U.S. fiscal crisis and government incompetence.

More QE or any remotely similar form of monetary policy will not produce any "economic boom in 2012."

Further, more QE fuels the inflation and wreaks more havoc on the economy, consumers and savers, which is the primary reason Obama has fallen so low in opinion polls in such a short time frame.

Bernanke may or may not proceed as you suggest, but if he does, it hurts Obama and the economy, and no "economic boom" of even a transitory nature will be seen or felt.

Wed, 06/08/2011 - 11:05 | 1350921 Diogenes
Diogenes's picture

You are right but so what? All they have to do is engineer some kind of temporary boom for 6 months and the past 3 years are forgotten.

Obama gets re elected and the big boys don't have to break in a new teleprompter reader.

The voters cheer because.... THIS TIME IT'S GOING TO BE DIFFERENT!

But it will be the same old scene except the big boys will be able to rip and tear for 4 years because they know Obama gets only 2 terms  so they don't care if he  goes down in flames.

In 4 years they will have a new patsy.

Wed, 06/08/2011 - 11:16 | 1350953 i-dog
i-dog's picture

This ship is going down long before "4 more years". I doubt there will even be an election next year (though there will be an election campaign ... until there isn't).

Wed, 06/08/2011 - 11:56 | 1351149 Diogenes
Diogenes's picture

I don't see it happening that way. No Mad Max, more like Bulgaria in the fifties. The country will slowly go down hill until you have a typical third world country with a few billionaires at the top, a tiny middle class of bureaucrats and 90% living in poverty.

Wed, 06/08/2011 - 20:55 | 1353168 i-dog
i-dog's picture

It won't be 'Mad Max' ... it will be a very tightly controlled police state. If you can't see the rapid progression already, then I can't help you.

Wed, 06/08/2011 - 10:24 | 1350695 SheepDog-One
SheepDog-One's picture

'Election' blah blah completely meaningless.

Wed, 06/08/2011 - 10:10 | 1350624 earnulf
earnulf's picture

I'm reminded of the Road Runner/Coyote cartoons, Bernake is the Coyote and every plan, using every method, only ends in failure of some cosmic sort.     

The cartoons were funny, this is not.

Someone said 7th grade math shows why this ACME plan is also doomed, no matter what plan it is.    That is funny sad.

Wed, 06/08/2011 - 10:17 | 1350643 Jim in MN
Jim in MN's picture

Bernanke needs some Xanax to become stronger willed (i.e. more psychopathic).  All they have to do is declare victory and begin to hike rates, just a little.  The surge in the dollar will kill oil prices (and some other things).  Then, oops, we needed that QE3 after all. 

Kind of tricky timing with the presidential election and all, probably best to drag it out a bit so the drug is working in the summer/fall next year.  So some foot-dragging, victory this fall, rate hikes/dollar surge/commodity-real estate-employment Armageddon into the winter, 'crisis' into the new year 2012 (perfect for the end of the worlders), QE3 roughly in April-June next year.

Events may beg to differ but that would be my evil plan.  Bastards.

Wed, 06/08/2011 - 10:23 | 1350693 Bastiat
Bastiat's picture

Asset deflation is a hard thing to stop when it starts -- by April-June next year the US economy will be a smoking hole in the ground.

Wed, 06/08/2011 - 10:28 | 1350704 SheepDog-One
SheepDog-One's picture

Exactly, which is why the above posts about 'elections' are nothing but boob bait for the morons....theyll never make it that far.

Wed, 06/08/2011 - 10:26 | 1350690 Highrev
Highrev's picture

QE was a "revolutionary" idea at 666 SPX that no-one believed and/or comprehended at the time.

Going QE cold turkey now is an idea that no-one believes and/or comprehends?

Could it be that the fledgling recovery swimming in an ocean of liquidity just might be able to make it to full fledged status by 2013 without further help?

 

Wed, 06/08/2011 - 10:26 | 1350714 SheepDog-One
SheepDog-One's picture

Its not 2008 anymore, no ones that stupid anymore, and the economy lay in ruins with great depression level real conditions. 'Fledgling recovery' LMAO!

Wed, 06/08/2011 - 10:29 | 1350728 TruthInSunshine
TruthInSunshine's picture

Jobs.

Nothing else - literally - matters.

Or stated alternatively:

Jobs.

Everything else - literally - depends on them.

 

Liquidity, money supply, monetary base, inflation, yield curve, blah blah blah blah; all irrelevant without real jobs that are created based on real demand and real power of consumption (and this is the real virtuous circle, not the one Bernanke fraudulently sets forth).

 

Jobs.

Wed, 06/08/2011 - 10:35 | 1350751 Highrev
Highrev's picture

The implication is that jobs are coming next.

Commodities down.

Bonds steady.

Stocks higher (after a bear trap sell off).

That's what happens when capital flows into productive assets at the expense of non-productive assets.

That's the route that I think Bernanke is "telegraphing" us.

 

Wed, 06/08/2011 - 11:11 | 1350927 TruthInSunshine
TruthInSunshine's picture

What jobs?

Where?

We'll be bleeding jobs soon, again (there's a very strong case to be made that using better analysis, we already are).

All the rocket fuel Bernanke so quickly and profusely burned up, even with the government gaming the numbers via highly defective (and politically motivated) BLS scorekeeping measures (think birth-death adjustment, as just one example), allegedly produced measly job creation, with many of those McJobs or of suspect quality, and we're sinking back down again even by the BLS' own statistical offerings.

 

Wed, 06/08/2011 - 10:31 | 1350735 Dr. Engali
Dr. Engali's picture

Ask Zimbabwe or the Wiemar republic how "revolutionary" the printing of money is.

Wed, 06/08/2011 - 10:39 | 1350770 WonderDawg
WonderDawg's picture

Could it be that the fledgling recovery swimming in an ocean of liquidity just might be able to make it to full fledged status by 2013 without further help?

No. There is no recovery, in case you haven't noticed. It seems you've been sipping the Kool-Aid.

Wed, 06/08/2011 - 10:41 | 1350746 djcando
djcando's picture

Consider this chart and think about where we are headed    http://macromon.files.wordpress.com/2011/03/treasury-flows-short-term.jp...

 

 

 

Wed, 06/08/2011 - 10:34 | 1350749 Greenhead
Greenhead's picture

QE3 will come in some form or fashion.  If not, interest rates will climb due the the ongoing need to sell treasuries (raising the debt ceiling issue is a kabuki play).  High interest rates will put the already very sick real estate market totally in the tank and expose the banks' balance sheets weakness.

The FED's job is to protect the major banks.  It cannot afford to have RE go much lower.  Granted FASB and mark to market are pretty much gone but there will bedemands for exposure and some truth telling about the banks' balance sheets if RE gets much worse. 

Plus, it's kind of a nice benefit to have the folks' 401k's look good before the election.

Wed, 06/08/2011 - 11:06 | 1350900 TruthInSunshine
TruthInSunshine's picture

2 minor quibbles:

1) The Fed's balance sheet is the most toxic of all, by far, and will be declared a Superfund Toxic Waste Site when interest rates rise (they will rise, as there is no 'Japan' solution possible for the Fed); this doesn't even take into account the incredibly toxic MBS the Fed is holding in its esteemed Maiden Lane I through XXXVI funds).

2) Bernanke won't be able to stop the equity market correction. Look at how much political and economic capital Bernanke has expended (and lost) in getting QE1 and QE2 done, and look at the consequences - he's balkanized the U.S. economy. Throw in the very real constraints he's faced with going forward, and add the law of diminishing marginal returns, and I think he's pretty much going to end up pancaked to the tracks or he'll choose to step out of the way, but he's not going to be able to stop that locomotive. THe Greenspan 'put' failed, as did Bernanke's last one, circa-2007.

Wed, 06/08/2011 - 11:28 | 1351007 Greenhead
Greenhead's picture

Truth, the Fed's balance sheet's toxicity isn't important.  They took "magic money" and acquired quality assets and then traded them for the junk.  It doesn't really matter how the junk performs.  If necessary, they can make more "magic money" and acquire more of the good stuff.

I agree that there are some constraints, mostly it's the belief we have in the relative value of the "magic money". 

Wed, 06/08/2011 - 11:50 | 1351096 TruthInSunshine
TruthInSunshine's picture

I agree that the Fed basically allowed to swap financials/banks to swap toxic waste for better assets, through TARP, TALF and QE.

However, this process really can't continue, even by the admissions of the most fervent Keynesians. Taking into account inflation, distortions to the interest and credit markets, perversion of the demand-supply curve, not to mention the intense political backlash (I'm not speaking of the electorate, though that will have some implications as November 2012 draws nearer, despite some thinking voters are wholly irrelevant), Bernanke & Dudley are already prepping the ground for some sort of exit or at least major modification of policy, as they've begun to speak quite loudly about monetary policy having little to no effect in resolving structural problems (i.e. joblessness and underemployment).

Some claim these are just words of appeasement for political reasons at this time. While I'd argue that it's true that monetary policy of the type Bernanke has been pushing fails utterly, with extremely high collateral damage, at addressing structural issues such as unemployment/underemployment, is propelling a wholesale rethinking of additional measures.

Besides, on a more basic level, QE3 is such an obvious play at this point that it's become a cliche, and isn't just about everyone really expecting it (asian central bankers are literally banking on it, and I think that puts the voodoo on it, to put it mildly)?

Who knows, though?

Maybe the Fed really will be dissolved, its balance sheet given as a 'gift' to U.S. taxpayers (who already really own the underwater portion, anyways), and a new and even more sexy sounding private banking entity will be formed to take its place in the noble goal of intentionally creating boom-bust cycles in the U.S. and around the globe.

Wed, 06/08/2011 - 11:39 | 1351053 11b40
11b40's picture

"The FED's job is to protect the major banks.  It cannot afford to have RE go much lower".

Do you really think the FED can do anything at this point to keep RE from falling further?  I don't.  Where are the buyers?  Private industry is creating too few jobs and wage rates are declining.  The government at all levels is reducing the public workforce, and we are early into this trend.

This morning, I heard Meredith Whitney say she is looking for an additional "double-digit" decline in housing prices.

With interest rates about as low as they can go, please explain how the FED can magically support housing prices when there are few buyers?

Wed, 06/08/2011 - 12:08 | 1351189 Greenhead
Greenhead's picture

They can't.  All they can do is to keep rates low and continue to provide liquidity. 

If monetary policy is too much under the microscope they will try for fiscal stimulus.  Granted there is political pressure to reduce the fiscal side but who knows how that will play out before the election. 

Wed, 06/08/2011 - 10:39 | 1350758 djcando
djcando's picture

Here's another one looking out over the maturity curve  http://macromon.files.wordpress.com/2011/04/fedownershiptreasury3.jpg

Wed, 06/08/2011 - 10:45 | 1350790 TexDenim
TexDenim's picture

Without the promise of QE3 from Bernanke yesterday, markets are sad. With no major data on the docket and nothing promised  from the Fed (Evans also seemed to shy away from hitting the panic button yesterday), we may be in for some creative destruction for a while.

 

Indeed, this is the test. Are you serious, Zimbabwe Ben? Will you REALLY allow S&P to tank?

 

We'll know soon. I'm betting that he isn't. Plenty of crack still sitting in the basement of the Marriner Eccles building on Constitution Avenue. Jamie Dimon practically asked for a fix in public at the meeting yesterday.

Wed, 06/08/2011 - 10:58 | 1350864 dcb
dcb's picture

the analysis is not correct.

the forward indicators have been turning for a while. Qe at first provides stimulus, but then as it wears on and drives up commodity/input prices it becomes a net negative as oil rises. same pattern each time he has added liquidity three time now. at start of finacil crisis drive oil up to 147, then boom, second time did same, third time qe two did same. Ag/ oil goes up ends up cause more problems.

But Qe is not designed to be a stimulus. it is to help out the banks by making sure their isn't deflation on their bad loans and to inflate the debt away. It has nothing to do with his public ststements.

Wed, 06/08/2011 - 11:07 | 1350925 Cone of Uncertainty
Cone of Uncertainty's picture

Help, what does this mean???

I don't understand, I thought I lived in a fiat based utopian fantasy world that promised unlimited riches and cheap money, ad infinitum, what the fuck is happening?

 

Feri ranks the creditworthiness of the United States down
von Harald Weygand Harald Weygand
Mittwoch 08.06.2011, 08:56 Uhr Wednesday, 06.08.2011, 08:56 clock

Bad Homburg, 8. Bad Homburg, 8 Juni 2011 – Die Bad Homburger Feri EuroRating Services AG hat als erste Ratingagentur das Kreditrating für die USA von AAA auf AA herabgestuft. June 2011 - The Bad Homburg € Feri Rating & Research AG downgraded the first credit rating agency's credit rating for the United States from AAA to AA. Feri-Analysten begründen den Schritt mit der anhaltenden Verschlechterung der Bonität des Landes infolge hoher Staatsverschuldung, unzureichender Maßnahmen zur Haushaltskonsolidierung und schwächerer Wachstumsaussichten. Feri analysts justify the step with the continuing deterioration of the creditworthiness of the country due to high public debt, inadequate fiscal consolidation measures and weaker growth prospects.

„Die US-Regierung hat die Folgen der Finanzmarktkrise bisher in erster Linie durch eine Ausweitung der Staatsverschuldung bekämpft. "The U.S. government has combated the effects of the financial market crisis has so far primarily by an increase in government debt. Wir sehen nicht, dass hier ausreichend gegengesteuert wird“, sagt Dr. Tobias Schmidt, Vorstand der Feri EuroRating Services AG. We do not see that here is sufficient countermeasures, "said Dr. Tobias Schmidt, CEO of Feri Rating & Research AG €. „Unser Rating-System zeigt eine Verschlechterung eindeutig an, daher ist die Herabstufung des Kreditratings der USA die logische Folge.“ "Our rating system shows a deterioration in unique, so is the downgrading of the credit ratings of U.S. natural fit."

Wed, 06/08/2011 - 11:31 | 1351008 11b40
11b40's picture

This market is for traders only, not for investors, and John Q. Public knows it. 

CD nails it above when saying the FED is engaged in the willful blinding of the general public....or the 'attempted' willful blinding.  Problem for the financial class is, the public vision is becoming more clear as time goes by.  You know, as in you can fool some of the people all of the time, and all of the people some of the time, but you can't fool all of the people all of the time.

This is all about jobs, or the lack thereof.  Jobs give people money, and money creates demand for things beyond life's minimum requirements.

I think most here would agree that America, and indeed, the rest of the developed nations, have been gradually sliding downward as multinational corps take over the globe and the middle class is slowly gutted as the goal of labor "equalization" is relentlessly carried out.

I knew as soon as I heard the stupid idea of "trickle down" that we were headed for disaster.  From the Forest Gump school of common sense, "Stupid is as stupid does".  Even a mentally challenged individual knows you can't build a house from the roof down, so please explain how you can grow an economy from the top down?  I know all about the Laffler Curve (Laughter Curve would prove to be a better description)....what a freakin' dingbat.

2 lessons from Econ 101.

First, supply follows demand. 

It seemed simple enough when I learned it 45 years ago, then along come the political charlatans who started talking up some thing called 'supply side' economics.  Trickle down & supply side.  What grand ideas!

Second, it's EITHER guns or butter, NOT guns AND butter.  No nation can fight wars without paying for them.  War ='s sacrifice.  Period, end of story.  Not only did we refuse to pay for Afghanistan & Iraq, we had huge tax cuts and said go to the mall and shop your ass off - why shit, boy, go on down & buy a big new SUV.  We will even give you a tax break if you do!

Our foolish leadership has indeed sold us all down the river....but you can take this to the bank - the sacrifice may have been delayed, but the payments are coming due sooner now than later.

Wed, 06/08/2011 - 12:07 | 1351180 gwar5
gwar5's picture

The longer that Der Bernank can extend and pretend with QE, the longer the banks can plunder the low hanging fruit by just having the fiat printed and handed over to them to hoard and buy up hard assets at our expense.

The draconian controls on society that are being put in place are an excellent stealth indication of expectations of a future collapse and crack up. They are incrementally establishing acceptance and authority for future crackdowns. Remember, they also have to condition the troops to follow the orders, too. Eventually they'll be in position to confiscate private property the hard way when their fiat is no longer valuable or accepted. 

Today on Drudge: A federal swat team was sent by the US Department of Education  to break into a home and terrorize a man and his three small daughters because the ex-wife had defaulted on her student loan.  She did not live there and the guy was a working man and with no criminal record whatsoever. The man was held for six hours in the back of a Federal car while they searched his home. It's clear they did not break into the house by mistake. This was a federal action from the DOE. Only a single Stockton, CA local police unit was onsite, called in just to be an observer.

 

Wed, 06/08/2011 - 13:08 | 1351443 mt paul
mt paul's picture

dehydrated Quantitative easing 

just add ...

fiat monetization 

and simmer...

Wed, 06/08/2011 - 13:20 | 1351491 dbTX
dbTX's picture

What happens July 1st when QE2 ends and the money that's kept all the state and federal union folks on the pay roll dries up?

Wed, 06/08/2011 - 13:27 | 1351521 mt paul
mt paul's picture

dried up  =dehydrated

very deflationary..

Wed, 06/08/2011 - 14:14 | 1351687 huggy_in_london
huggy_in_london's picture

You're printing this drivel?

Thanks for stating the obvious tell this guy.  

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