A Paralyzed Fed Defers Decision On Monetary Policy To Primary Dealers In An Act That Can Only Be Classified As Treason

Tyler Durden's picture

As if there was any doubt before which way the arrow of control, and particularly causality, points in America's financial system, the following stunner just released from Bloomberg confirms it once and for all. According to Rebecca Christie and Craig Torres, the New York Fed has issued a survey to Primary Dealers, which asks
for suggestions on the size of QE2 as well as the time over which it would be completed. It
also asks firms how often they anticipate the Fed will re-evaluate the program, and to estimate its ultimate size.
This is nothing short of a stunning indication of three things: i) that the Fed is most likely completely paralyzed due to the escalating confrontation between the Hawks and the Doves, and that not even Bernanke believes has has sufficient clout to prevent what Time magazine has dubbed a potential opening salvo into a chain of events that could lead to civil war: in effect Bernanke will use the PD's decision as a trump card to the Hawks and say the market will plunge unless at least this much money is printed, ii) that the Fed is effectively asking the Primary Dealers to act as underwriters on whatever announcement the Fed will come up with, and thus prop the market, and, most importantly, iii) that the PDs will most likely demand the highest possible amount, using Goldman's $2-4 trillion as a benchmark, and not only frontrun the ultimate issuance knowing full well what the syndicate of 18 will decide in advance of what the final amount will be, but will also ramp stocks on November 3 to make the actual QE announcement seem like a surprise. This also means that the Primary Dealers of America, which include among them such hedge funds as Goldman Sachs, such mortgage frauds as Bank of America, such insolvent foreign banks as Deutsche, RBS, UBS and RBS, and such middle-market excuses for banks as Jefferies, are now in control of US monetary, and as we explain below fiscal, policy.

It also means that the Fed has absolutely no confidence in its actions, and, more importantly, no confidence in how its actions will be perceived by the market which is why it is not only telegraphing its decision to the bankers, but is having its decision be dictated by them, an act so unconstitutional it would be seen as treason in any non-Banana republic! This is the last straw confirming that the only ones left trading the market are the Fed and the PDs, passing hot potatoes to each other, and the HFTs, churning the shit out of everything else to pretend someone is still trading.

And the saddest conclusion is that this is the definitive end of US capital markets: not only is the Fed's political subordination a moot point, but the Fed, and the middle class' purchasing power via the imminent dollar destruction that is sure to follow as the PDs seek to obliterate their underwater assets by raging inflation, is now effectively confirmed to be a bitch of Lloyd Blankfein and his posse.

The official explanation for this unprecedented incursion by the banking crime syndicate in US monetary policy is as follows:

Avoiding Disruption

Treasury officials say they want to avoid any disruption to the $8.5 trillion market in U.S. government debt, the world’s most liquid, as the Fed weighs restarting large-scale asset purchases. The Treasury also doesn’t want to give any impression to investors, particularly those based overseas, that it might be coordinating with the Fed to finance the national debt.

“Treasury debt-management decisions are designed to deliver the lowest cost of borrowing over time and are entirely independent from monetary-policy decisions made by the Federal Reserve,” Mary Miller, assistant secretary for financial markets, said in an e-mail to Bloomberg News yesterday. Before joining the Treasury last year, Miller was head of global fixed- income portfolio management at T. Rowe Price Group Inc. in Baltimore.

The Treasury is scheduled to hold its quarterly meetings with bond dealers tomorrow, ahead of the department’s Nov. 3 refunding announcement.

Fill in the blank: the Fed has essentially given PDs the option of $250BN, $500BN or $1 trillion in monetization over six months. It is now absolutely clear that the PDs will pick the biggest number possible... which incidentally amounts to $2 trillion per year, and is precisely what Goldman's downside case was, as we presented previously.

The New York Fed surveyed primary dealers required to bid in U.S. debt auctions. It asked dealers to estimate changes in nominal and real 10-year Treasury yields “if the purchases were announced and completed over a six-month period.” The amounts dealers can choose from are zero, $250 billion, $500 billion and $1 trillion.

Of course, since a $2 trillion purchase over 1 year means the Fed will have to monetize every single bond issued, the SOMA limit will have to be raised, another prediction we made months ago:

The Fed is unlikely to buy up the entire supply of new securities, although it may adjust its internal guidelines of how much it can hold of any given issue. The Fed limits itself to owning no more than 35 percent of any specific security it holds in its System Open Market Account, or SOMA.

“Our Treasury strategists point out it could also cause pricing distortions along the curve, if, for example, the Fed continues to target a 40 percent purchase concentration in the 6-10 year maturity bucket, as it has in its recent purchases,” analysts at JPMorgan Chase & Co., including Alex Roever, wrote in an Oct. 22 research report. The report predicts the Fed will buy about $250 billion a quarter during the easing campaign.

How about $500 billion?

And, incidentally, since the "independent" Treasury will be forced to issue more debt to fill all the demand for $2 trillion over the next 12 months, as there is not enough debt in the pipeline to fill $2TN worth of demand and prevent the entire curve pancaking at zero (i.e., the 30 year yielding precisely 0.001%) it also means that the government will be forced to come up with more deficit programs, which also means that primary dealers will now also determine US fiscal policy.

Which begs the question, why is anyone pretending that the political vote on November 3 matters at all?

Below are the 18 banks that, in a completely separate vote, will henceforth rule America, regardless of what particular puppets end up in the Congress and Senate:

BNP Paribas Securities Corp.
Banc of America Securities LLC
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
RBC Capital Markets Corporation
RBS Securities Inc.
UBS Securities LLC.


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Mercury's picture

Wow. Just wow.

Hi, Morgan? It's Ben, I'm thinking of a number...

Why doesn't Ben also ask which cusips the PDs would like him to buy too?

66Sexy's picture

satan laughing, spreads his wings.


howz about, 666 billion... or 6.66 trillion.

Cruel Aid's picture

I relate, nice custom lefftie Tony's playing.

chopper read's picture

treating people just like pawns in chess

wait till their judgement day comes!


belsebub's picture

Jesus (Anti)-Christ!!

G-R-U-N-T's picture

Hey, at least Fraudzilla according to the Treasury is No "Systemic Risk" It's Official!




chopper read's picture

A Treasury Department official said "there is no evidence of a systemic risk" from potential repurchases of flawed mortgages by U.S. banks.


theXman's picture

Time to give them a bona fide disruption -- END THE FED!

scaleindependent's picture

**** NEWS UPDATE 11/4/2010 *******




1. 401k's to be discharged by owner at age 70.

2. Dissolution of Welfare.

3. VA benefits to be cut in half.

4. Grand Canyon National Park to be sold to Las Vegas Sands, Inc.

5. Medicare rates to physicians, hospitals and health care workers to be cut by 35%

6. No payed sick leave.

7. No maternity leave.

8. The dissolution of the following US govt. services;  EPA, secretary of health and human services, Education, Veterans Affairs.

9. Pentagon budget to increase by 30%

10. National Guard budget to increase by 100% in urban areas to protect the peace.

11. The SCOTUS will hereby be named the MTOTUS.

12. Free Ipod Shuffle to all Americans!


13. Fill in the blank...


goldfish1's picture

13. A Tyson breaded GMO "chicken" fillet in every pot.

Freewheelin Franklin's picture

4. Can we get the Vegas Sands over here in AC to buy this monstrosity formerly known as Revel Entertainment, first?





SheepDog-One's picture

This is now advanced to the stage that actions must be taken to stop this entire operation, the whole damn thing must be brought down.

downrodeo's picture

Sweet, i think people are starting to get serious about this. December 7th, 2010





iconoclast63's picture

"If you choose not to decide, you still have made a choice."

deKevelioc's picture

Money for nothing and the chicks are free.


deKevelioc's picture

Money for nothing and the chicks are free.

Randall Cabot's picture

checks. It checks for free, not chicks.

aldousd's picture

"Hi, Morgan? It's Ben, I'm thinking of a number..."

Party-line like it's 2008.

NumberNone's picture

Picking a number out of the air worked for Paulson and Goldman Sachs before to the tune of $700 Billion.  Why lowball now?  Shoot for the freaking moon!  

william.smith61's picture

Air Fuel Ratio Sensor SWR, I followed your comments over at KD's site and found I usually agreed with you. That was a prescient article especially for it's time. 2 trillion stands on the Fed's balance sheet currently, add another $4 trillion and we do in fact arrive at $6 trillion. But that is most likely a low estimate, they will in fact be forced to further devalue the dollar, probably until it just snaps one day in a crisis of confidence. Again, you have stated this over and over in KD's site. Kudos.

joe.schmuck's picture

Thomas Jefferson is spinning in his grave, sigh.

flaunt's picture

Finally got my zerohedge account approved!  Yay!

What I really wanted to say was I don't think TJ or any of the founders would be at all surprised were they alive today.  They wrote about what would inevitably happen while they were still breathing.  No, if you woke them out of their sleepy graves and told them what was happening they'd say, "what the hell did you expect," roll over, and go back to sleep.


Howard_Beale's picture

It's not like this is the first time this has happened. Good read: 13 Bankers

packman's picture

It's not like this is the first time this has happened. Good read: 13 Bankers

Haven't read it, but based on commentary - it's junk.  Its base premise is the same faulty premise made by those that created the Federal Reserve in the first place - that the corruption in the financial industry is the fault of free market capitalism; with the conclusion that it's up to government to keep the industry in check.

Well - we see now how that worked out.  Not so well.


packman's picture

It's ironic, BTW, that on the actual website of the 13 Bankers book, it presents the airline industry as an efficient example of how an industry should be managed by the government:

Over the last 50 years, the FAA, the airline manufacturers, and the airlines worked together to make a highly complex air travel system more efficient and much safer. If you’ve ever wondered why, in contrast, our financial regulators and banks made our financial system less efficient and much more dangerous, you should read this book.

Yet this is quite counter to one of the book's primary recommendations:

The alternative is to confront the power of Wall Street head on, which means breaking up the big banks and imposing hard limits on bank size so they can’t reassemble themselves.

(emphasis in original).

Hmmm - I'd be curious then to see Johnson and Kwak (authors of 13 Bankers) produce a list of what were the original larger airlines that the current airlines were split up from.  I'm not aware of such forced breakups.

In other words - size is not the issue at all.  Influence is.


Geoff-UK's picture

Yeah, I subscribed to their feed until the weird feeling I got going there erupted into an "aha" moment of recognizing--wait a minute, these guys aren't free market, they're just arguing about who should be in charge!  Maybe they're sending out a copy of their resume with the book as they mail it to Ben Bernake...


"I can't stand this indecision,
Married with a lack of vision,
Everybody wants to rule the world..."

i-dog's picture

"presents the airline industry as an efficient example of how an industry should be managed by the government"

WTF?!  The US airline industry as a whole has NEVER made a profit since its inception!! The taxpayer subsidises it to support government's military objectives. JFC!

Kopfjager's picture

Well, maybe more than "what the hell did you expect."  More like, "and you just sat there and let it happen?" 

Dave's picture

Hamilton may be suprised. He finally got what he wanted after all

those years getting his ass kicked by TJ and Madison.

Charlie Bravo's picture

Uh oh.

Charlie Bravo

The LD's picture

Banana Republic...Confirmed!

ebworthen's picture

If only, if only, the masses, the sheeple, would know the truth.

Chito Campo's picture

All that we see or seem is but a dream within a dream.

goldfish1's picture

And what would "the people" of limited intelligence and education, do with "the truth"?

Cognitive Dissonance's picture

What are "we" here on ZH doing with "the truth"?

i-dog's picture

Hopefully, spreading it to as many family, friends and colleagues as will listen! (And even those who don't want to listen!). The depth of info here gives enough ammunition to answer the usual objections raised by the ignorant.

"From a tiny acorn, a mighty oak tree grows".

Dangertime's picture

That will not help much.


Even during the revolutionary war, less than 10% of the citizens actively fought against the British.


Even if we were to wake up 10% of the population, which is probably a fairly accurate count at the moment, they would never be able to overcome the rest of the voters who "just do not get it".


Open revolt is the only solution.

Cognitive Dissonance's picture

Even during the revolutionary war, less than 10% of the citizens actively fought against the British.

But that doesn't mean that only those 10% were awake or aware of what was going on. And the comparison is useless anyway because there was a clear, and nearly equal, divide in the citizens between those who saw themselves as loyal British subjects and those who felt they were no longer bound by British law since they weren't represented in the making of British laws.

Even if we were to wake up 10% of the population, which is probably a fairly accurate count at the moment, they would never be able to overcome the rest of the voters who "just do not get it".

Please describe to me what you mean by "wake up" because even here on ZH there are plenty of people who are not "awake" to all that's going on. Don't judge ZH by the comment section when less than 8% of the people who read ZH comment on ZH.

I arrive at this percentage based upon the number of "reads" (as a contributor I see the "reads" number) of an article, which doesn't filter out people who return repeatedly to the article so the "reads" number is over stated, and the number of unique comments left. There might be 200 comments, but that doesn't mean there are 200 unique comments. Many people leave multiple comments.

Besides, people "just don't get it" because they don't wish to get it. They sleep not because they are ignorant, but because they are willfully ignorant. BIG difference.

chopper read's picture

Please describe to me what you mean by "wake up" because even here on ZH there are plenty of people who are not "awake" to all that's going on.

Besides, people "just don't get it" because they don't wish to get it. They sleep not because they are ignorant, but because they are willfully ignorant. BIG difference.

in the end, there are three types of folks:

1. those who wish to be ruled, and prefer not to think about whether or not their overlords will lead them to their own extinction. 

2. those who wish to rule, believing that this is their only way to survive long-term.

3.  those who do not wish to rule or be ruled, wishing only to improve their probability for peaceful long-term survival without deliberately murdering the competition in the process. 

perhaps #2 is most realistic, but #3 is most ideal where it is even possible.   

I've always said that my belief in liberty extends to my own child in this way:  if she is smart and hard working then she will do great.  if she is smart and lazy then she will do fine.  if she is dumb and hard working she will be fine.  if she is dumb and lazy, then she has failed humanity and should not expect to be rewarded with liberty or survival at someone else's expense.  Smart folks bring good ideas.  Hard-working folks pull their weight and more.  This is peaceful progress; any alternatives are unjust, in my mind. 

RockyRacoon's picture

CD, since I only have 12 hours a day to devote to ZH I have to be finicky about what I comment on, even though I read nearly every article.  Your points are well taken, but I think the 8% may be skewed since there is no breakout of the "regulars" who post comments and those who read only.   Anyhow, thanks for your observations.

chopper read's picture

since I only have 12 hours a day to devote to ZH

+1.  :)

around here these are part-time hours. 

Dburn's picture

33 Million Americans would listen to the explanation long enough to comprehend it?

Lets get some PowerBall tickets. The odds are much better. 

SheepDog-One's picture

Actually only about 3% fought in the Revolution.