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

Submitted by Tyler Durden on 10/28/2010 00:23 -0400

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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Thu, 10/28/2010 - 08:21 | 682869 economists_do_i...

This stuff makes me literally sick to my stomach.

How about they ask everyone on welfare how much they should get paid while they're at it? WTF?!?

I finally figured out why they arrested Madoff... Who better to run a Ponzi scheme on such a grand scale?

Thu, 10/28/2010 - 08:21 | 682870 Brokenarrow

Yep. The US govt is scum. Wall St is worse. I despise them.

At sp 1250 we can join hands and sing kum ba ya.

Where are the Tim McVeighs?

Thu, 10/28/2010 - 08:42 | 682910 jus_lite_reading

Remember Andrew Stack?

This is what revolutions are made of. And we all can do it without firing a single shot-- everyone should immediately stop making credit card payments and mortgage payments. It is as simple as that. But in order for it to work, EVERYONE must do it. The corrupt system would crumble, and a new system with people of justice and liberty would once again start over.

This time, politicians do not get paid fat salaries but rather work out of love for fellow man. This time, CEO's and execs will get paid for their accomplishments and achievements and NOT for taking risk with other people's money. This time, no golden parachutes at the cost of stakeholders. This time, the US won't stick its nose into every global conflict and spat. This time, "making money" is about keeping the jobs in America and not exporting jobs for the sake of saving a buck to fill CEO's fat pockets. This time, it will be illegal for Capital Hill to have ANY connection with Wall Street or corportations. This time, conflicts of interest, are resolved immediately and violators are banned from have positions of power.

Sounds too much like utopia? This is how the founding fathers wanted it to be, but we have gotten so far away that we can't even imagine it being that way...

Thu, 10/28/2010 - 19:27 | 684785 Geoff-UK

We had the civil war too early, and for the wrong reason (slavery).

Too bad slavery wasn't abolished in 1776, and the North tried pushing universal health care in 1861.

Thu, 10/28/2010 - 08:23 | 682874 jelyfish

My stupid arse didn't put QE2 together with US govt. spending.

Thu, 10/28/2010 - 08:24 | 682875 yabs

cbaba

where did you get that the rothchilds own the bank of england?

they are scum who control many banks but I wasn't sure about the bank of England

it was created by a scotsman and was made public years ago

its easy to follow the FED to its private ownership but the BOE is a different matter

Thu, 10/28/2010 - 08:26 | 682877 jus_lite_reading

The Fed's actions are tantamount to treason and simply astonishing- I don't even know where to begin. My mind is spinning in a daze of confusion and angst. Is this surreal? Am I living in the US of A or did communist China just take over my country? I may need to turn off the computer and watch some MSM on CNBC and fill it with mind numbing "everything-is-great" propaganda, followed by back to back re-runs of Dancing With the Stars and Jersey Shore until my mind becomes a bowl of gray soup- at which point I will vote for Obama's democrats and return to my section 8 home to collect my welfare/foodstamps.

-OR-

I could use this information as a tool, to properly prepare for the coming collapse of the corrupt financial system, from the top down, and continue with stockpiling my survival surplies, including a cove filled with shotguns and ammo as I await the battle cry.

Until then, I will stuff my stomach with cheap microwaveable pizza and Corona light...

Good day.

Thu, 10/28/2010 - 08:36 | 682900 Zeddicus

This kinda sounds like... "Last call - bar is about to close", no?

Thu, 10/28/2010 - 19:29 | 684787 Geoff-UK

ou'll need the tools for survival
And the medicine for the blues
Sweet treats and surprises
For the little buckaroos

It's last call
To do your shopping
At the Last Mall

--Steely Dan, "Last Call"

Thu, 10/28/2010 - 08:41 | 682917 EZYJET PILOT

So when the Fed invents money or types numbers on a screen, what then does the treasury do? Do they have to issue bonds even though the money is going directly to the banks? Does the treasury have any role in this QE process, because thats how I see taxpayers getting affected directly.

Thu, 10/28/2010 - 08:52 | 682938 Cruel Aid

You should use Wikipedia. They have answers to all of these questions. I have had to use it many times in the last year + for direct answers.

Thu, 10/28/2010 - 08:46 | 682929 youngandhealthy

As a foreigner, this, if true, puts an end to my trust in the authorities of the USA.

Maybe the great emigration of the 1900 century should be reversed?

Thu, 10/28/2010 - 09:00 | 682936 gimli

Thu, 10/28/2010 - 08:54 | 682943 firstdivision

This is absolute lunacy. Wow, so the PD's didn't already fuck us enough? As I recall, PD's were the reason for the Great Depression, now the Great Depression 2, so I guess we get to look forward to the Great Depression 3 (even though 2 never ended). Way to go Ben!

If I do not hear calls for Ben's resignation now, I will know that everyone (including Ron Paul) are complacent in this act of the down fall of the US.

Thu, 10/28/2010 - 09:02 | 682956 youngandhealthy

The TBTF have just dropped the first T. Now its just BTF and they are obviously using the back-door of FED.

Thu, 10/28/2010 - 09:04 | 682963 CurrencySpider

"Don't talk about decency and ethics in a monetary system, we cannot afford it." Federal Reserve 1913

Thu, 10/28/2010 - 09:05 | 682966 mark mchugh

I don't know if anyone will ever see this, this far down in the comments, but here's the thought:

The Treasury auctions are fraudulent. Nobody is really buying US debt. The money has already been printed and the bogus purchases made.

QE is nothing more than the process of recognizing that money printing. What the Fed is asking the PD's is "How much of this shit do YOU think we should tell people about?"

Thu, 10/28/2010 - 11:58 | 683463 Walter_Sobchak

Or what if everything is just a giant distraction for intelligent people. What if there is no mortgage crisis, no fed, no nothing, just entertainment in the matrix? How different is your life really from two years ago? Sometimes this sort of cognitive dissonance bothers the fuck out of my puny primate brain.

Thu, 10/28/2010 - 09:21 | 683001 tom

No, Tyler, you don't get it at all. This is a private betting pool for overpaid Fedologists. Fedology is like a dumbed down version of Kremlinology. The Fed decision is already made. Now the "top" Fedologists have to compete to show how well they've interpreted the Fed's obvious signals. Winner gets six months of free martinis.

The first question is so easy. Only choices are $250b, $500b or $1t in the first six months? $1t in 6 months is at least 30% more than net issuance. Why not just nuke the FX markets? $250b would sound small at this point. It's gotta be $500b in 6 months.

I bet most of us here could ace this quiz. Too bad Bloomberg isn't sharing the other questions.

Thu, 10/28/2010 - 09:19 | 683002 chinaguy

The banks will certainly do what is in the best interests of the nation.............

Ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha!!

Thu, 10/28/2010 - 09:23 | 683008 MGA_1

And the hyperinflation begins...

Thu, 10/28/2010 - 09:29 | 683017 Skeebo

You know, there is also the outside chance that the banks reply back with the largest number and that effectively kills QE2? From Ben's perspective, if the banks think that QE2 won't be effective without going $2T in a year are the downside effects of doing nothing no worse than the downside effects of $2T in QE2.

You gotta bet he's praying that they come back with the smallest number.

Thu, 10/28/2010 - 09:29 | 683018 tmosley

I love waking to the smell of crumbling empire in the morning.

Thu, 10/28/2010 - 10:03 | 683092 jus_lite_reading

Unfortunately, the crumbling of one great empire will lead to the crumbling of all empires. Welcome to globalization. We can only prepare and do the best to survive.

Thu, 10/28/2010 - 09:43 | 683040 ugmug

The last one into the QE2 pool isn’t PD…..PD is now similar to VD.

Thu, 10/28/2010 - 09:45 | 683047 bania

"Bernanke Writes Blank(fein) Cheque to Wall Street"

Thu, 10/28/2010 - 09:47 | 683055 threefingerscam

Take away here is that Mr. Bernanke has cold feet and with this survey is looking to be absolved from the outcome since he didn't set the size and schedule of the QE.

Mr B.B. says "my bad, but what could I do, it was THEIR numbers".

Thu, 10/28/2010 - 09:47 | 683058 Spigot

Good God!!

If you have not yet exited this system then you're too late. Next 2-3 months tops.

Thu, 10/28/2010 - 09:52 | 683068 ussa

The Constitution of the United States, Art. III, defines treason against the United States to consist only in levying war against them, or in adhering to their enemies, giving them aid or comfort. This offence is punished with death. By the same article of the Constitution, no person shall be convicted of treason, unless on the testimony of two witnesses to the same overt act, or on confession in open court.

The private Federal Reserve and its owners are conducting a financial war against the American people depriving them of their property, their liberty, and their long term security.

Recommend that Zero Hedge compile a list of intolerable acts that support this argument.

Fri, 10/29/2010 - 10:45 | 685700 honestann

sufficient: printing and foisting fiat debt-based non-money.

Thu, 10/28/2010 - 09:53 | 683072 shushup

Shocking!

And Sooooo stupid as to let the rest of the world know that they know that they do not know what they are doing.

Thu, 10/28/2010 - 10:43 | 683098 jus_lite_reading

Wait until China realizes that they've been had... by the US, the EU and the UK.

Thu, 10/28/2010 - 11:15 | 683333 br0930

I think a small correction might be needed:

"... insolvent foreign banks as Deutsche, RBS, UBS and RBS ..."

I'm guessing one of those RBSes should be an RBC; they are foreign, although I am less sure that they are insolvent than some of the others listed.

Also, a quick thank you for writing posts like this, and bringing matters like these to my (and all your readers') attention. This is a mind-blowing development (I love how TPTB still manage to do totally unexpected things ... I wouldn't have dreamt up this scenario in a million years ... to publicly consult with their masters?!) that likely would have passed totally under my radar if not for ZeroHedge. Thank you.

Thu, 10/28/2010 - 13:11 | 683513 michigan independant

Upton

St. Joseph Headquarters
402 State Street
PO Box 490
St. Joseph, MI 49085
Phone: (269) 983-1144
Fax: (269) 983-6765

Portage Headquarters
6794 S. Westnedge, Suite C
Portage, MI 49002
Phone: (269) 978-8224
Fax: (269) 978-6847

I conveyed Does Congress have the guts to support our Constitution.

http://www.militaryvotingrightsusa.org/

Thu, 10/28/2010 - 12:24 | 683560 Vagabond

We should get some End the Fed protests going at all Fed branches November 3rd.

Thu, 10/28/2010 - 12:37 | 683580 michigan independant

I asked him directly by E-Mail. No short cuts. Waiting for the form letter reply....

Thu, 10/28/2010 - 13:46 | 683814 liberal sodomy

Got judefetzen?

Look a billionaire. http://www.dp.ru/images/article/2008/07/21/eba2afb4-fbee-420d-ba1c-e7f64b32cefc.jpg

Thu, 10/28/2010 - 13:48 | 683829 Slipmeanother

Banks take in money and through the magic of fractional reserve loan out 9 times what they take in. The actual interest differential between what they pay and what they get is huge, no need to starve the retiress

Thu, 10/28/2010 - 17:37 | 684611 cocoablini

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This is the end
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Thu, 10/28/2010 - 21:22 | 684939 swanpoint

try (no charge):

http://www.marxists.org/archive/lenin/works/1916/imp-hsc/ch02.htm

Thu, 10/28/2010 - 21:24 | 684943 swanpoint

http://www.marxists.org/archive/lenin/works/1916/imp-hsc/ch02.htm

Thu, 10/28/2010 - 22:07 | 685017 Diggintunnels

When is this nation going to wake the fuck up and get behind Ron Paul to audit these criminal bastards and end this BS once and for all.

Fri, 10/29/2010 - 10:43 | 685692 honestann

What should be obvious to everyone with 3 or more functional neurons is, an audit of the FederalReserve and Treasury (and its co-conspirator corporations) will do nothing whatsoever --- unless it is done in the context of a RonPaul administration. Why? Because... open your eyes! Millions if not billions of obvious massive crimes have been perpetrated by predators in these organizations, and a grand total of zero charges have been brought.

The predators-that-be run the so-called justice department, so only a 100% brand new [from top to bottom] justice department would actually do anything, even if the required audits were performed.

The entire predator-that-be network must be purged, and that won't happen without a complete takeover by some group that is not part of the existing military/industrial/banking/republican/democrat system.

Frankly, I doubt RonPaul is aggressive enough to carry out the required purge, unless he fills his administration with folks with strong, "damn the torpedoes, full speed ahead" attitudes.

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