Sack Sells... Just Kidding - The VP Of The FRBNY's Markets Group Says More, More, More QE Will Actually Do Miracles For The Economy

Brian Sack, head of the Fed's Open Market Manipulation and Intervention Group, speaks. In a presentation he has given in Newport Beach, presumably so that he is close enough to Bill Gross so that Pimco does not even need to leave a trace in calling up the FRBNY, he tells those who care to buy, buy, buy. Well, that's reading between the lines. What he says on the surface is that asset purchasing is an "imperfect policy tool", and yes, he should know - especially as pertain to Amazon and Netflix. He follows by stating that any Fed asset purchase plan should be flexible, while warning that it is difficult to "calibrate" cost, benefit of Fed purchases. Of course, according to him more asset purchases are "unlikely to complicate Fed's exit" - any why would they: there will be no exit at $2.5 trillion, who is idiotic enough to think the Fed will be able to exit at $4, $40 or infinity... Lastly, in a bid to avoid the unemployment line, Sacks says that asset purchases seem to improve financial conditions, and that the economy is "vulnerable to downside surprises." Luckily, as the WGC pointed out earlier, buying gold is the perfect hedge to protect against more Bryan Sack fat finger-type events.

From Managing the Federal Reserve's Balance Sheet, Brian P.
Sack, Executive Vice President (and PPT big boss man)

Remarks at 2010 CFA Institute Fixed Income Management Conference, Newport Beach, California

It is a pleasure to be here today to discuss the
management of the Federal Reserve’s balance sheet. The Federal Reserve
currently holds more than $2 trillion of securities in its portfolio,
making it a key participant in U.S. fixed-income markets. Moreover, the
portfolio is managed in a manner that differs from any other market
participant, as the Federal Open Market Committee (FOMC) has adjusted
the size and composition of the portfolio with the intention of
achieving its monetary policy objectives of full employment and price
stability. Thus, it is important for market participants to understand
the balance sheet decisions of the FOMC and the implementation of those
decisions to fully assess the implications for fixed-income markets.

The evolution of the balance sheet going forward will depend on
how the economic outlook unfolds. The current forecasts of FOMC members
show the economy moving in the right direction, with a sustained
recovery in GDP, a gradual reduction in the unemployment rate over time,
and an increase in inflation towards the level that FOMC members see as
desirable over the intermediate term. However, the anticipated recovery
is relatively tepid and thus delivers only slow progress toward meeting
the Federal Reserve's dual mandate. Indeed, according to their most
recently published forecasts, most FOMC members expect the unemployment
rate to remain above 8.25 percent through 2011 and the inflation rate to
remain below its mandate-consistent level through 2012. In addition,
the economy remains vulnerable to downside surprises that could take
both output and inflation further away from the FOMC’s objectives.

The
sluggish outlook for the economy and the risks that surround that
outlook have raised the possibility of further monetary policy
accommodation. The most recent FOMC statement indicated that the
Committee "is prepared to provide additional accommodation if needed to
support the economic recovery and to return inflation, over time, to
levels consistent with its mandate."

The FOMC has several policy
tools that it could use to achieve more accommodative financial
conditions, as Chairman Bernanke discussed in his speech at the Jackson
Hole symposium in August. My remarks today will focus on one of those
options—changing the size of the Federal Reserve's holdings of
securities. In particular, I will review the FOMC’s recent decision to
keep the size of those security holdings at their current level, and I
will discuss some of the issues to be considered in any decision on
whether to expand them further. As always, the views I express are my
own and do not represent those of the FOMC or the Federal Reserve
System.

Decision to Reinvest Maturing Asset Holdings
The initial decisions by the FOMC to expand the Federal Reserve’s
holdings of securities came at the height of the financial crisis.
Before that time, the Federal Reserve maintained a relatively simple
portfolio of between $700 billion and $800 billion of Treasury
securities—an amount largely determined by the volume of dollar currency
that was in circulation. In late November 2008, in the face of
tightening financial conditions and a deep downturn in economic
activity, the Federal Reserve announced that it would purchase up to
$600 billion of agency debt and agency mortgage-backed securities (MBS).
In March 2009, it expanded the program to include cumulative purchases
of up to $1.75 trillion of agency debt, agency MBS, and longer-term
Treasury securities. The use of the balance sheet in this manner was
spurred in part by the inability to ease further using the traditional
policy instrument, as the federal funds rate effectively reached the
zero lower bound in late 2008.

The asset purchases were carried
out from December 2008 through March 2010 by the Trading Desk (the Desk)
at the Federal Reserve Bank of New York, resulting in a significant
expansion of the Federal Reserve’s portfolio. As the settlement of those
purchases progressed, the amount of domestic securities held in the
System Open Market Account (SOMA) reached a peak of $2.1 trillion in
June 2010. From that point, the portfolio began to shrink because the
agency debt and agency MBS held in the SOMA were being allowed to run
off without reinvestment as they matured or were prepaid.

Against
that backdrop, an important policy decision regarding the Federal
Reserve’s portfolio was made at the August FOMC meeting, when the
Committee decided to halt this run-off and instead hold the size of the
SOMA portfolio steady. To achieve this, the FOMC directed the Desk to
purchase longer-term Treasury securities as needed to offset any
principal payments realized on our holdings of agency debt and agency
MBS.¹

That was not just a symbolic policy decision, but
instead involved a meaningful shift in the path of the balance sheet.
At the time of the meeting, the Desk was projecting that about $340
billion of the Federal Reserve’s MBS holdings would be paid down from
that time to the end of 2011. In addition, another $55 billion of agency
debt holdings would mature over that period. Thus, the total portfolio
was expected to shrink by nearly $400 billion by the end of 2011. The
reinvestment decision therefore amounted to a sizable program to
purchase longer-term Treasury securities.

The effect of asset
purchases on the economy remains a point of ongoing debate, with some
uncertainty about the channels through which such purchases operate and
the magnitude of those effects. My own perspective is aligned with the
view expressed by Chairman Bernanke in Jackson Hole—that the effects
arise primarily through a portfolio balance channel.² Under
that view, our asset holdings keep longer-term interest rates lower than
otherwise by reducing the aggregate amount of risk that the private
markets have to bear. In particular, by purchasing longer-term
securities, the Federal Reserve removes duration risk from the market,
which should help to reduce the term premium that investors demand for
holding longer-term securities. That effect should in turn boost other
asset prices, as those investors displaced by the Fed’s purchases would
likely seek to hold alternative types of securities.

Some research
studies have estimated that the effects of the earlier expansion of our
securities holdings by just over $1.5 trillion lowered longer-term
Treasury yields by about 50 basis points through this portfolio balance
channel.³ These effects on Treasury yields appear to have
been transmitted into lower rates on private credit instruments and
higher asset prices more broadly.

Under this view, the FOMC’s
influence on financial conditions is associated with the size and
composition of its securities portfolio. This perspective provides a
clear rationale for the reinvestment decision made at the August FOMC
meeting. The decline in the size of the Federal Reserve’s portfolio that
would have occurred in the absence of the reinvestment program would
have amounted to a passive tightening in the stance of monetary policy,
as the portfolio balance effect would have gradually reversed. Moreover,
the extent of this tightening was increasing in response to the
weakening of the economy, as lower longer-term yields were leading to
more rapid repayment of MBS. This perverse effect was seen by the FOMC
as working against its efforts to reach its dual mandate.

In
effect, the policy approach that was implemented before the August
meeting acted to mute the amplitude of movements in longer-term interest
rates. As rates declined in response to a weakening of the economy, the
Federal Reserve’s MBS holdings would decline more rapidly, effectively
adding to the supply of duration held by the market.⁴ This
increase in the duration held by the market would tend to damp the
decline in yields. With the change in strategy at its August meeting,
the FOMC no longer lets its aggregate duration holdings flow back into
the market. This approach allows long-term interest rates to adjust
fully to a weakening of the economy, which should act to better
stabilize the economy.

Implementing the Reinvestment Policy
So far, I have focused on the FOMC's August policy decision; however,
you may also be interested in the details of how the Desk has actually
implemented the reinvestment policy.

The instructions from the
FOMC to the Desk, from both the August FOMC statement and the directive
that was adopted at that meeting, were to keep the total face value of
domestic securities held in the SOMA portfolio near their level at that
time. The published size of the securities portfolio just ahead of the
August meeting was $2.054 trillion, so the Desk adopted this level as
the target for the portfolio. This is a notable development by itself,
as the directive from the FOMC now involved two targeted variables—the
target range for the federal funds rate, and the target size for its
asset holdings.

To implement this directive, the Desk has been
purchasing Treasury securities on a monthly schedule. In particular, we
announce a plan around the middle of each month for the purchase
operations to take place through the middle of the following month, once
we know the principal repayments that will be received over that
period.⁵ We are running at a pace of $27 billion in purchases
this month, and we expect that pace to bump up to around $30 billion
for the next several months. Looking further ahead, we currently project
that the cumulative amount of principal payments on agency debt and
agency MBS through 2011 will be somewhat higher than the estimates
provided at the August FOMC meeting.

I should note that the
directive to the Desk is expressed in terms of the overall size of the
portfolio. However, under the portfolio balance model described above,
the effect on markets will be tied to the amount of duration risk that
such purchases encompass. Thus, the composition of purchases across
maturities will be quite important in governing the effects on financial
conditions.

The strategy that the Desk has employed for the
reinvestment program is to follow the pattern of purchases that was
implemented in the earlier Treasury purchase program. The purchases will
be concentrated in nominal Treasury securities with remaining
maturities between 2 and 10 years, but with some purchases also
occurring outside this segment. The average duration of the securities
purchased is expected to be just over 5 years, although the exact
realized outcome will depend on the offers that we receive in our
operations. Under this approach, the purchases will remove a
considerable amount of duration from the market relative to what the
market would have held without reinvestments by the Federal Reserve.

The
reinvestment strategy, of course, also involves a reallocation of our
portfolio from agency debt and MBS into Treasury securities. The FOMC’s
decision to reallocate was based on a variety of factors. However, one
crucial consideration was whether purchasing Treasury securities would
have an effect on longer-term interest rates comparable with that of
purchasing MBS. My view was that the effects would be similar, because
purchasing longer-term Treasury securities removes as much duration risk
from the market as purchasing current-coupon MBS.⁶

The
two approaches differ, however, in that purchasing MBS also removes
prepayment risk from the market. If the market were to begin having
trouble digesting that prepayment risk, the spread between MBS rates and
Treasury yields could widen. A significant widening of MBS spreads to
Treasuries, whether due to this or other factors, could affect
policymakers’ decisions about which assets to purchase. The Chairman’s
speech in Jackson Hole and the August FOMC minutes both indicated that
reinvesting in MBS rather than Treasury securities might become
desirable if market conditions were to change.

Balance Sheet Expansion as a Policy Option
As you can see, the decision to simply keep the balance sheet unchanged
involved a number of considerations and choices. Let me now turn to the
possibility that the FOMC could go a step further and expand the balance
sheet beyond its current levels.

This policy option has been the
subject of intense focus among market participants. Chairman Bernanke
has indicated that any decision about expanding the balance sheet would
depend on the FOMC’s assessment of the costs and benefits involved. Of
course, that assessment is difficult to calibrate. Federal Reserve Bank
of New York President William Dudley discussed many of the relevant
issues in his speech last Friday.⁷

In terms of the
benefits, balance sheet expansion appears to push financial conditions
in the right direction, in that it puts downward pressure on longer-term
real interest rates and makes broader financial conditions more
accommodative. One can reach that judgment based on the empirical
evidence from the earlier round of asset purchases, as mentioned before.
In addition, the market responses to more recent news about the balance
sheet also lean in this direction. The market response to the
reinvestment decision at the August FOMC meeting seemed largely in line
with the estimated effects from the earlier round of asset purchases,
once we account for the size of the surprise and the anticipatory
pricing that occurred ahead of its announcement. And the increased
expectations for balance sheet expansion in response to the September
FOMC statement also generated a sizable market response.

To be
sure, I think it is fair to say that this is an imperfect policy tool.
Even under the estimates noted earlier, the Federal Reserve had to
increase its securities holdings considerably to induce the estimated 50
basis point response of longer-term rates. In addition, there is a
large degree of uncertainty surrounding the estimates of these effects,
given our limited experience with this instrument. Lastly, it is
reasonable to assume that the effects of balance sheet expansion would
diminish at some point, especially if yields were to move to extremely
low levels. Nevertheless, the tool appears to be working, and it is not
clear that we have yet reached a point of diminishing effects.

Some
observers have argued that balance sheet changes, even if they
influence longer-term interest rates, will not affect the economy
because the transmission mechanism is broken. This point is overstated
in my view. It is true that certain aspects of the transmission
mechanism are clogged because of the credit constraints facing some
households and businesses, and it is true that monetary policy cannot
directly target those parties that are the most constrained.
Nevertheless, balance sheet policy can still lower longer-term borrowing
costs for many households and businesses, and it adds to household
wealth by keeping asset prices higher than they otherwise would be. It
seems highly unlikely that the economy is completely insensitive to
borrowing costs and wealth, or to other changes in broad financial
conditions.

In terms of the costs of balance sheet expansion, the
assessment is perhaps even more complicated. I will not attempt a
comprehensive discussion of all of the potential costs of balance sheet
expansion, as that assessment falls to the FOMC. However, as manager of
the SOMA, I will speak about two of the potential operational challenges
involved—one associated with implementing additional asset purchases,
and one associated with exiting from them.

On the implementation
of a program, an important operational consideration is whether Federal
Reserve purchases would strain the functioning of financial markets and
cause an erosion of market liquidity. This consideration would be
particularly relevant if the FOMC decided that a fairly sizable program
was needed to have a meaningful effect on financial conditions and the
economy. This issue was present during the first asset purchase program,
especially when the pace of weekly purchases reached a peak of about
$40 billion in the middle of last year. The pace of those purchases at
times put pressure on liquidity in the MBS market, leading the Desk to
take mitigating actions when possible.⁸

In the current
circumstances, there would seem to be room for the Federal Reserve to
expand its holdings of Treasury securities without creating difficulties
for market functioning. The SOMA currently holds about 12 percent of
the outstanding stock of Treasury coupon securities—a smaller share than
it held before the financial crisis. Moreover, the supply of Treasury
securities will remain ample, as the Treasury is expected to issue
around $1.2 trillion of securities over the next year.

Any
purchase program that the FOMC decides upon, whether aimed at Treasury
securities or MBS, would be designed to support market functioning as
much as possible while still achieving the program’s economic
objectives. The deep liquidity of these markets has considerable value
to our economy, and we should take whatever steps possible to leave this
liquidity intact.

The second operational challenge I mentioned
comes at the other end of the program—the exit. In particular, it is
important to consider whether balance sheet expansion would complicate
the eventual exit of the Federal Reserve from its accommodative policy
stance.

I am confident that our ability to exit will not be
compromised by any further expansion of the balance sheet. The exit
strategy that is ultimately implemented will have to take into account
the size and structure of the balance sheet at that time. However, in
all potential circumstances the Federal Reserve should be able to
tighten financial conditions to a sufficient degree when appropriate.
The ability to pay interest on reserves, in combination with the ability
to drain reserves as needed, will give us sufficient control of
short-term interest rates. On that front, it is worth noting that both
of the Fed’s reserve draining tools—the reverse repurchase program and
the term deposit facility—are already operational, and their capacity to
drain reserves will continue to expand. In addition, the Federal
Reserve could always sell assets to reduce the size of its balance sheet
if it desired.

Designing a Purchase Program
If the FOMC were to move forward with an expansion of the balance sheet,
it would presumably want to take into consideration the perspective
gained from the asset purchases conducted from late 2008 to early 2010.
The FOMC would have to decide the extent to which a new purchase program
would follow the approach from the earlier round of purchases.

An
alternative approach would be to design a purchase program that shares
more of the features of the FOMC’s adjustment of the federal funds rate
in normal times. After all, adjustments to the balance sheet are in many
respects a substitute for changes in the federal funds rate. Both
instruments attempt to influence broader financial conditions in order
to achieve a desired economic outcome. However, the way in which the
FOMC implemented asset purchases differed in important ways from the
manner in which it has historically adjusted the federal funds rate.
With this contrast in mind, I raise a set of policy questions that could
be considered in designing a purchase program.

First, should the
balance sheet be adjusted in relatively continuous but smaller steps, or
in infrequent but large increments? The earlier round of asset
purchases involved the latter approach, which caused the market response
to be concentrated in several days on which significant announcements
were made. That might have been appropriate in circumstances when
substantial and front-loaded policy surprises had benefits, but
different approaches may be warranted in other circumstances. Indeed, it
contrasts with the manner in which the FOMC has historically adjusted
the federal funds rate, which has typically involved incremental changes
to the policy instrument.

Second, how responsive should the
balance sheet be to economic conditions? Historically, the FOMC has
determined the federal funds target rate based on the Committee’s
assessment of the outlook for economic growth and inflation. If changes
in the balance sheet are now acting as a substitute for changes in the
federal funds rate, then one might expect balance sheet decisions to
also be governed to a large extent by the evolution of the FOMC’s
economic forecasts. The earlier purchase program, in contrast, did not
demonstrate much responsiveness to changes in economic or financial
conditions. Indeed, the execution of the program largely involved
confirming the expectations that were put in place by the two early
announcements.

Third, how persistent should movements in the
balance sheet be? An important feature of traditional monetary policy is
that movements in the federal funds rate are not quickly reversed,
which makes them more influential on broader financial conditions. A
change that was expected to be transitory would instead move conditions
very little. For similar reasons, one could argue that movements in the
balance sheet should have some persistence in order to be more
effective.

Fourth, to what extent should the FOMC communicate
about the likely path of the balance sheet? The FOMC often communicates
about the path of the federal funds rate or provides other
forward-looking information that allows market participants to
anticipate that path. This anticipation of policy actions is beneficial,
as it brings forward their effects and thus helps to stabilize the
economy. For the same reason, providing information about the likely
course of the balance sheet could be desirable. In fact, such
communication might be particularly important in the current
circumstances, because financial market participants have no history
from which to judge the FOMC’s approach and anticipate its actions.

Fifth,
how much flexibility should the FOMC retain to change its policy
approach? The original asset purchase programs specified the amount and
distribution of purchases well in advance.⁹ However, the FOMC
would be learning about the costs and benefits of its balance sheet
changes as it implemented a new program. This might call for some
flexibility to be incorporated into the program, providing some
discretion to change course as market conditions evolve and as more is
learned about the instrument.

Conclusion
I hope that my remarks today have offered some insight into the recent
balance sheet programs undertaken by the Federal Reserve. Adjustments to
the size of the Federal Reserve’s securities holdings are a new policy
instrument for the FOMC. That presents challenges, both to policymakers
in terms of determining how to use the instrument and to market
participants in terms of anticipating that usage and understanding its
effects. Given these challenges, I believe it is important for the
Federal Reserve to communicate effectively about the factors affecting
its balance sheet decisions and the implementation of those decisions.

In
my view, the evidence suggests that the expansion of the securities
portfolio to date has helped to foster more accommodative financial
conditions, and further expansion would likely provide additional
accommodation. Of course, whether the FOMC decides to take such a step
will be determined by its assessment of whether the benefits of
additional policy stimulus outweigh the perceived costs of expanding the
balance sheet.

---

¹Reflecting the long-standing practice
of the Desk, principal payments on our holdings of Treasury securities
were already being fully reinvested at Treasury auctions.
²The
Fed’s asset purchases initially had an additional and important effect
on mortgage rates by improving the functioning of the MBS market. As I
have noted in earlier speeches, the use of the central bank’s balance
sheet can be particularly effective when focused on markets in which
liquidity and market functioning have become impaired. The focus here is
whether, in addition to those effects, the size and composition of the
Fed’s balance sheet have a lasting impact on financial conditions in
well-functioning and relatively liquid markets.
³ See, for example, Joseph Gagnon, Matthew Raskin, Julie Remache, and Brian Sack, "Large-Scale Asset Purchases by the Federal Reserve: Did They Work?" Federal Reserve Bank of New York Staff Report
no. 441, March 2010. Several private-sector firms have estimated yield
effects of similar magnitude. In addition, a working paper by James
Hamilton and Jing Wu, "The Effectiveness of Alternative Monetary Policy
Tools in a Zero Lower Bound Environment," finds that changes in the
Federal Reserve’s asset holdings produce considerable yield effects.
⁴
Most of the prepayments of MBS in the Federal Reserve's portfolio are
associated with refinancing activity that will result in the production
of new MBS that have to be purchased by other market participants.
⁵ Details of the Desk's approach were described in an operating statement released by the Federal Reserve Bank of New York: Operating Policy Statement, August 10, 2010.
⁶ The duration of our Treasury purchases are modestly higher than the duration of the MBS that are being produced in the market.
⁷ See "The Outlook, Policy Choices and Our Mandate," October 1, 2010.
⁸ For example, the Desk began to sell dollar rolls to allow for smoother settlement of the Federal Reserve’s purchases.
⁹
Some flexibility was incorporated into the program because the
directives from the FOMC specified the amount of purchases "up to" the
stated thresholds. That flexibility was used to stop the agency debt
purchases at around $175 billion instead of the originally stated
maximum of $200 billion. However, this flexibility was not used more
broadly. 

Comments

[TraderTimm]

I've always wondered what the sound of currency dying was like. I think this speech is the answer.

[Assetman]

Exactly, TraderTimm.  If they want to figure out the meaning of "unintended consequences", they will only need to take a look at the pending dollar collapse.

I'm going to pull a quote here:

Lastly, in a bid to avoid the unemployment line, Sacks says that asset purchases seem to improve financial conditions, and that the economy is "vulnerable to downside surprises".

This line of thinking-- and it goes straight through from Ben Bernanke to William Dudley, and to fat finger lackey Brian Sack-- is simply dangerous, and more importantly, dead wrong.  

Incredibly, we only need to backtrack several years to find evidence of this, as Mr. Greenspan's delusion of keeping interest rates artificially low in the late 1990's resulted in asset price bubbles in the equity markets-- but it did not stop the economy from contracting.  Or from those asset values imploding.

With consumer confidence approaching new lows, I'm going to go out on a limb and hypothesize that the masses are rejecting this "asset bubble was economy dog" as well. 

In other words, it's BS-- and more and more people are clued into it.  I still believe at the end of the day, market valuations will eventually revert back to the cash flows that reflect it.  Once investors realize the cash flows aren't there, they're out.  And many have already come to that conclusion.

I don't think the Fed Heads are stupid.  I think the Fed has an altogether different agenda that is focused on dollar devaluation.  The asset purchasing stuff and the talk that surrounds it is just noise.  My view is that there isn't close to enough justification for QE 2.0, but it will be done anyway-- then we enter the land of unintended consequences.

[traderjoe]

In my opinion, the Fed knows that there will be no recovery. There is not another bubble to blow. Fractional reserve banking is fundamentally flawed. We have reached the end-game. 

They are simply managing the collapse. They are allowing the PTB, their cronies, and the insiders (bankers) time to prepare (and further enrich themselves), and creating a smoke screen for an escape route. In the meantime, they can hope that there is some technological advancement that creates another productivity boom. A hail mary pass if you will.

And since the collapse is inevitable (again, fractional reserve banking with a privately-controlled fiat currency has at least two fundamental flaws), why not throw the kitchen sink at it? At least they can cover their tracks and say they tried (see Hank Paulson's book/victory lap). ZIRP and QE are both traps. There can be no exit (without an exogenous productivity boom). Just for instance, housing prices are boosted by low rates. But if rates rise with growth, housing prices decline (all other things being equal). With rates this low, and so much Federal borrowing, rates can never rise again without causing more budget issues. Budget austerity doesn't work. Stimulus doesn't work. Once budget structures get so out of whack, there is no fix without a massive restructuring (a reset). 

We are at the end of the line, the 'Keynesian' endgame. QE is just slowing the collapse. All it will take to accelerate the decline will be one bank collapse in Europe, one large muni default, one burst in oil prices to $100. Other looming black swans: a collapse of the Mexican government, a violent riot in Europe, a EU default, a German repudiation of the bailouts, a false flag event, a regional conflict, a run on physical gold or silver, the mortgage FUBAR, etc. 

And a slowing/rolling over of the economy will turn consumer optimism into dismay. 2 years of stagnant growth with official 'hopium' will show the wizard behind the curtain is naked and helpless. 

[StychoKiller]

Show me this "Budget austerity" of which you speak -- I see no such thing!

[RobotTrader]

One more down day in the CRB, and it will be back to "Deflation" and the Fed will start panicking again.  Especially after the QQQQ is down 6 days in a row.

[Spalding_Smailes]

Dow falling like a stone ...

Also bankings stocks all down big in the last 15 days. I know basel 3 will hurt them but shouldn't the prospect of Q.E 2 coming soon be pushing them up ?

Update ~ Green Shoots

SAN FRANCISCO (MarketWatch) -- U.S. consumer bankruptcy filings rose 11% in the first nine months of this year, versus the same period in 2009, the American Bankruptcy Institute said Monday, citing data from the National Bankruptcy Research Center.

http://www.marketwatch.com/story/consumer-bankruptcy-filings-climb-11-20...

[primefool]

Basel 3 ( a rerun of Faulty Towers) - is a joke. Shift all the risk on to sovereign balance sheets .. and .. wait for it... keep the risk weighting for sovereign bonds at zero. Cool trick eh?

[sweet ebony diamond]

 I now know what it is like to be teabagged.

[Missing_Link]

Your comment makes no sense.

You somehow try to conflate the criminals in DC with the people in the streets protesting those very criminals?

FAIL

[tmosley]

Liberals/neoconservatives like to redefine terms to force you into false dualities.

Such as, in this case, you are either for more government regulation or you are for the banksters.  This sets the great masses of people against each other, allowing a very few to rule with impunity.  After this, throw in some idol worship, which allows the ruling party to do the exact same things that the last bunch were doing, and make them think they are somehow different from the other guys.

It's sickening.

[StychoKiller]

So, do you swallow or spit it out?

[Buttcathead]

I dont care what that jack ass say, I aint gunna buy nuttin !

[B9K9]

You are wise, oh BCH.

Seriously, does anyone truly believe the Fed is going to embark on some radical policy initiative mere weeks from what is shaping up to be an election with potentially far reaching consequences?

Doesn't anyone here have any experience working in/for large organizations? Anyone? Ferris, anyone? No one takes unnecessary risk; all decisions are carefully evaluated in terms of support. The last two years are a result of the initial go-ahead granted in 3/2009; IOW, Ben got the green light upon Obama's ascension.

But now we are currently in lock-down. Jawboning speeches are just a side-show. I know the MIC gets a lot of flak, but the level these guys are playing at (ie the potential dislocation of the USA) dictates that civilian leadership needs to mind their Ps & Qs.

So, to reiterate, nothing is going to happen until the 112th Congress is seated. Then we're either going to have full blown QE (that is, explicit approval to torch the $USD) or we will begin the process of targeted, strategic defaults, starting first on a national level, then quickly flowing to state/local levels.

[macholatte]

So, to reiterate, nothing is going to happen until the 112th Congress is seated.

Careful. The lame duck session may just change the game. A lot can happen between November and January and none of it likely to be beneficial.

The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.
Alexis de Tocqueville

Suppose you were an idiot, and suppose you were a member of Congress; but I repeat myself.
Mark Twain

Obama's health care plan will be written by a committee whose head, John Conyers, says he doesn't understand it. It'll be passed by Congress that has not read it, signed by a president who smokes, funded by a Treasury chief who didn't pay his taxes, overseen by a Surgeon General who is obese, and financed by a country that's nearly broke. What could possibly go wrong?
Rush Limbaugh

You can lead a man to Congress, but you can't make him think.
Milton Berle 

[Dr. No]

*purchasing is an "imperfect policy tool*  There, they admitted it.  The strongest tool the FED has (purchasing and selling of assets), is imperfect.   No can we just shut them down and be done with them?

[Assetman]

You bring up a good point, Dr. No, and bring up a good question.

The purchasing IS an imperfect policy tool, as it doesn't get to the heart of the issue.  The Fed is trying is best to influence confidence in the economy by linking higher asset prices to better economic conditions.

Of course, we all should know by now this is a major fail-- we've seen this all before.  And we know with less and less retail participation, most of the huddled masses are figuring this out, too.

But what else is the Fed to do?  It appears the most effective policy tool rests with Congress (with a push from Obama in the form of targeted stimulus to tackle the permanently unemployed), and there's been very little done on that front-- save for the extention in keeping the structurally unemployed, well... unemployed and still receiving a check from Uncle Sam.

The Fed knows that Congress is stuck in the "deer in the headlights" syndrome, and is reacting the best way it knows how.  And the Fed is very limited on how it can react. 

So, the answer is "No, we can't just shut them down", because Congress has essentially outsourced stimulative policy to the Fed-- at least until this election cycle comes to an end.  If we get a split Congress, it's going to be even more difficult to get things going.

[cougar_w]

After November elections things are going to tank in a big way. There is no way the mid-terms will improve the current situation in Congress in any direction. And everyone is simply waiting until after Nov to start pulling triggers, to get something for themselves and their cronies and maybe their home towns.

If the Dems manage to keep ahold of things, they might try a final stimulative measure for December shopping -- some silly tax incentive nonsense would be my guess, a new cash-for-clunkers crapper -- but they will take things only thru January at best.

Then I'm afraid the wheels start to come off. Both parties will be frozen in terror, blaming each other in constant and furious media-centric exchanges, presaging the sad and blistering 2 year run up to the 2012 elections and the next Presidency. 24 months of complete and utter melt-down. There might not even be an election if things get really bad.

Oh and stocks will be up. Fuck a duck.

[Reese Bobby]

I was going to make a clever comment, but I've been watching CNBC for 5 hours and it seems to have made me functionally retarded...

[SgtShaftoe]

airboooornnnnne, banksterrrrrrrrrrss

I hear the choppers coming,
They're hoverin' overhead.
They've come to dump the money,
They're coming from the FED.

(chorus)

My buddy's in a foxhole,
Tbills in his bank,
Geithner says they're AAA,
But I know they'll tank

(chorus)

I ran to tell my Senator
About how to help the poor
But when I went to tell him,
He went and started a trade war

(chorus)

And now the printing's over,
hyperinflation from the QEs.
We wanted just to stop it,
But now we're in World War III.

(chorus)

[macholatte]

LMAO!

         Perfect!

                             Tanks!

[Internet Tough Guy]

And the market drops?

[cnbcsucks]

Was there a flash crash in GOOG?  I'm showing a low of 5.21 at 12:10.  Tyler, can you confirm?

[Jim in MN]

The real policy call is to prevent bond haircuts/mark to market.  That is Japanification and leads directly to as many lost decades as we care to protect wealthy bondholders, sheikhs, furriners and OH YEAH granny, life/health and pension insurance and all the rest of it.

That is the dominant factor, leading to (as Bill Gross just said over the weekend), essentially zero real returns forever.  That in turn leads to the need for increased saving and lower spending.  Thus, the deflationary cycle and the liquidity trap.  That is all because of deliberate, but never discussed, Fed policy re: bonds.

All the Fed can do now is further reduce bond yields, while increasing risk because it's all political BS which can snap back any time....thus requiring STILL MORE SAVINGS to make up for the vicious, deliberate attack on savers and fixed income Americans.  In combo with tax increases to come.

Ergo, they can trundle their expanding balance sheet all around the buffet table all they want, and no benefit will result.  Just a lot more gas and a lot less on the table for everyone else.

[Catullus]

Rate setting means nothing any longer. Asset purchasing is the only thong that matters. They're not managing to a target rate of anything. They just buy a wad of whatever and see what happens. They'll start moving into ETFs and derivatives soon enough.

What this speech shows through it's open-ended questions is that the fed has no clarity of thought on implications of their actions. They are totally reactionary and without any real sense of leading to concrete ends.

[Jim in MN]

"Asset purchasing is the only thong that matters."

Sadly, a thong doesn't do a lot in a shitstorm.  Our assets need more coverage than that.

:*)

[Dr. No]

+

[Catullus]

Funny.

But what does that mean?

[Jim in MN]

What we don't know is this: what is the real policy debate about holding the line on bond valuations vs. default/mark-to-market.  Was that the core of the Doomsday presentation brought to Congress by Paulson?  Would the health care system collapse if the invested premium cash (in bonds) vaporized, crippling the main insurers? 

We are watching Kabuki about QE while no one asks, and no one tells, the real story.  We don't even know who is debating it, or what the competing options are.

It strikes me that there may be no debate.  That is, we are hopelessly doomed.  We can't even think.  Rather like the small business/bank lending strike.  No one even frames the goddamn problem.

[hedgeless_horseman]

Sack Sells... Just Kidding

BRIAN SACK, PHD (MIT Economics, fyi) is an anagram for CASH BID PRANK.

Coincidence?

[MsCreant]

Uhhhhh...I thought the Fed was not supposed to be directly buying stuff in the first place. Isn't it illegal?

[Mr Lennon Hendrix]

Ah MsCreant, I love it when you are open ended!

Greenspan Admits Federal Reserve Is Above The Law and Answers To No One:

http://www.youtube.com/watch?v=pVmxQsvj6lo

[Dismal Scientist]

Bloomberg report these words from his speech. 

“Balance-sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be,” Sack said.

They are no longer even pretending that the market is outright held up by they and they alone. Watch out below...

[HelluvaEngineer]

Apparently dude doesn't even know what "wealth" means, unless he thinks the average American is sitting on bullion.

Hey, there appears to be a glitch in the matrix - it appears that stocks are down today, but that obviously can't be correct.

[CulturalEngineer]

"...by keeping asset prices higher than they otherwise would be..."

That pretty much says it all! 

It's all about them picking winners and losers. And guess who the winners are. It's more welfare for the well-off. The same class warfare has been going on for decades.

But I'll give 'em this... it takes a ballsy thief to convince the mark to not only let him keep the money... but get the victim to give him even more with the fantasy that that's going to atone for the crime.

[Mitchman]

How convenient of him to ignore the concomitant LOSS of household wealth from a rapidly depreciating dollar that his actions also bring about.

[DaveyJones]

Govt. asset investing is a lot like govt. asset invading. It may be an "imperfect policy tool" and it's "difficult to calculate the cost" therefore it must remain "flexible" but don't worry, more money in is "unlikely to complicate the exit."

[Robslob]

Just had a nightmare...Fed scares everyone into Gold before "allowing" deflation?

Rich panic, sell gold to Fed to get dollars...then Fed hits the hyper-inflate button...this way they can steal EVERYTHING from EVERYBODY!

[hedgeless_horseman]

Relax.  Everyone will not fit into gold.  It would be like putting an elephant into a thimble.

[Mr Lennon Hendrix]

How many elephants can we fit into two and a half olympic sized swimming pools?

[doomandbloom]

some monday morning conspiracy theories from Ben Fulford regarding the Fed

Did not know that Rahm Emmanuel got a 'dead fish' as parting gift...wonder whats that all about!

http://benjaminfulford.typepad.com/benjaminfulford/

[Hooter Shaker]

I believe the dead fish is a "Chicago-style send off" and not a death threat.

[emil]

QE2 had better work or whatever remaining credibility the Fed has will be lost forever.

[Nihilarian]

Can we just fast forward this charade and elect Chavez for president.

[Jim in MN]

You mean Palin, I suppose.  We'll see.

[MarketTruth]

More QE = Tell fat guy to lose weight by eating more donuts.

[bugs_]

Brian Sack, OMG  (open market group) LOL

[TheGreatPonzi]

Question to Americans: if the Republicans win the majority on November 2, will anything change concerning the POMO, QE and Keynesianism?

[Ripped Chunk]

No. Nothing will change.

Our current one party system with 2 branches does not have a say in economic policy and certainly has no say about what the Fed does.

They strictly take campaign contributions from corporations filtered through lobby groups, then take the wording they get from their controllers and incorporate them word-for-word into legislation that benefits only their controller corporations, which by definition is detrimental to the general public (electorate) that put them in there in the first place

3 or 4 general election cycles where EVERY incumbent is voted out may start to swing things in the right direction which will ultimately causes legislation outlawing all lobbying activity. 20 year sentence for violation of anti-lobbying / influence laws will be required.

[cowdiddly]

Give this man a cigar. Could not have said it better myself. 

[Mr Lennon Hendrix]

There is going to be another "financial panic" for starry eyed investors that believe that the gov can help (the gov never helps).  The question is when.  BS Bernanke does not want that panic to happen yet.  He wants it to be after the election.  This way the Replubs hands are tied and they will go along with the Fed Chair who was appointed by the Prince of the Neo Cons. 

[macholatte]

They are simply managing the collapse. They are allowing the PTB, their cronies, and the insiders (bankers) time to prepare (and further enrich themselves), and creating a smoke screen for an escape route. In the meantime, they can hope that there is some technological advancement that creates another productivity boom. A hail mary pass if you will.

It was worth repeating.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
Henry Ford 

[Ripped Chunk]

Paraguay is where they be headed.

[AC_Doctor]

Here is another blatant example of a Liberal egghead beaurocrat who has never run a business and is out of touch with reality.  We need an extra strength beaurocrat douche for all these types...

AC

[Mr Lennon Hendrix]

BS is in trouble!!!  He had to sell gold today, or rather lease it (he wasn't the only one, London did it too).  It was the only option, other than straight monetizing through POMO (well, I bet he and his Presidnt's Working Group on Financial Markets sold some shares of apple too).  It is a horrible option for him, as equities are lead by the increase in the important asset classes (gold/oil/etc).  Although BS would love to bring the price of gold to its knees, it won't happen.  In order for this to take place, he would need to sell a very large amount of gold over and over again.  If he sells gold, he loses his only asset with any value.  He is a desperate man up against a wall.  We are soon to witness the last acts of a desperate man. 

The Rolling Stones Shattered:

http://www.youtube.com/watch?v=6nULwgHsVqw

[dcb]

POSTED ON NYTIMES (KRUGMAN TODAY) SENT TO THE ft.

cAUGHT IN THEIR LIES BY THEIOR OWN PRIMARY DEALERS!!!

"The goal of quantitative easing is not to get interest rates to the lowest levels possible, it’s to get the expectations that rates will remain at these low levels for a long time to try to change investor behavior and get them investing in riskier assets,” said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG. The firm, which is also a primary dealer, is forecasting more purchases."

http://www.bloomberg.com/news/2010-10-03/fed-bond-buying-s-unintended-consequences-may-mean-higher-borrowing-rates.html

See the goal of quant easing isn't to help the economy. it is to help wall street and the traders, and dealers. follow the logic. not to stimulate lending (you can't force a bank to lend by qe, and we don't make trading more expensive). Notice who is telling you the truth
A primary dealer. This is exactly what I have said. it means the top1% and the banks get the most benefit from QE.  you get lower interst rates on your savings, it increases inflation, it is the worst thing that can happen to the middle and lower class. the great majority of benefit of QE goes to the richest people (they own the most risky assets).

[GFORCE]

Rahm got a dead carp as a parting gift in humour, as he had reportedly sent one to a nemesis previously.

Conspiracy is the word. Pure fantasy. The fed still holds all the cards.

[Fortunes Favor]

Q: why amidst all of this Q.E. POMO action has the financial group sold off? There is a seriously negative divergence growing between the financial group and the SPX:

Stock Market Strategy: Financial Sector Flashes Warning / Reduce Risk, Increase Diligence @ http://rosenthalcapital.com/blog/2010/09/stock-market-strategy-financial-sector-flashes-warning-reduce-riskincrease-diligence/

[Mark Beck]

This speach confirms the goal of FED FOMC, move equities. FED policy success seems to equate to the DOW.

Why?

How did we get here?

Greenspan, his legacy, sacrificing the real economy for a wealth hot button. A superficial ploy for the uneducated?

It seems that economic cause and effect is only a matter of share price. The economic engine of America is unimportant. This inversion of investment is incompatible with growth.

The economy is no longer a priority. The system has lost its foundation, and confidence, upon which it is built, will crumble.

----------

My impression is the FED is basically monetizing away their MBS loss through maintaining a consistant account balance. It really looks like a scheme to hide the loss rate on the MBS holdings through money creation. This MBS conversion program is irresponsible and not within the FED mandate. The one time crisis MBS buy was an emergency plan, that included closure through tightening. To now modify this for over $1T in liquidity without crisis, or review by congress, is an abuse of power. Also, it makes no sense to push down rates from where they are today. They are at new record lows on the 2Y.

Mark Beck

[Johnny Yuma]

"I see, genius. By seemingly embracing the cliches of the west, he is underscoring its excruciating banality."

[Djirk]

I like Plosser's calling out the FED on Q2. He says that the FED should state what the actual goals are and follow up with success metrics or failures.

If indeed lower capital costs and liquidity will stimulate demand, how do they see it working.

If decreased purchasing power via a lower dollar will really stimulate exports, lets see the targets and metrics.

Just saying we have the tools and experimenting is not enough.

They should be transparent on goals and let the markets decide.

[gwar5]

Stand back for the "downside surprises". 

I'm pretty sure Fed has decided an enema will cure morbid obesity 

[gwar5]

Just now:

Neil Cavuto, "Why does the government treat us like kids....?"

Glenn Beck: "Riots and communist chaos in Europe...."

Jim Morrison and the Doors: "This is the end...."