I thought might be direct toward the likes of Zero Hedge and many of
their contributors (including myself). Sack spoke about the dramatic
rise in long-term yields since the inception of QE2: From the speech:
The rise in yields does not appear to be driven by the concerns expressed by some
that the asset purchase program would unleash a considerable rise in
U.S. inflation and inflation expectations to levels well above those
consistent with the Federal Reserve's mandate.
Sack dismisses the rate rise and basically calls it “a good thing”.
The upward movement in longer-term interest rates in large part reflects the greater optimism among investors about the outlook for economic growth and the gains do not signal greater worry about inflation.
Well it would appear that I have it all wrong. I am convinced that what Brian is doing is a monetary “unnatural act”. These guys are manipulating the bond market three times a week. They are doing this manipulation in biblical amounts.
They have maintained ZIRP for three years. In my way of thinking this
much liquidity pumped into the system has to create steam in the boiler
and that steam has to come out. Yes some of it is coming out in the
bubbling stock market. But where is the fairness in that policy? Some
of the steam also has to come out in the form of higher commodities
prices. To me this is textbook Economics 101. I guess I should get a new
textbook.
Actually I don’t think I am wrong. Mr. Sack can say as he wishes. To me
his credibility just goes out the door when he attempts to sell this
drivel. There are only a few possible conclusions that I can reach.
-Mr. Sack actually believes what he is saying. That there is NO
connection between monetary policy and inflation. This would imply that
he is ignorant as to the basic laws of economics. I doubt this very
much. Sack is no dummy. I would dismiss this one.
-Mr. Sack is doing what he is told to do by his boss. Bernanke used
almost the exact words when he spoke before Congress. So this was just a
setup for the media. Sort of a double dose of “Don’t worry, we have this completely under control”. This is not Fed “spin”. It is propaganda. And a well organized effort at that.
I don’t believe that Sack or Bernanke go to bed at night believing in
the fairy tales that are trying to sell to the American public. At this
point I think they are functionally lying. They are too smart to believe
what they are saying. They are too informed to ignore the mountain of
evidence that proves they are igniting a fire that could end up starving
people.
I think the problem is they are too stubborn to admit that they made a
mistake. Eight months ago Bernanke misjudged what was happening in the
economy. He thought he could be the savior and rescue an economy that
was headed into a double dip. But he was wrong. The economy was just
giving a head fakes. The recovery we are seeing today is not born from
QE. It is born from the fact that 300mm people have to buy cars sooner
or later. They can’t put off needed repairs or even a holiday. Sure
there is a ton of people out of work. There is also 130mm people who are
working. Yes real estate sucks, but a large number of companies are
making very big profits and sitting on mountains of cash.
QE is an emergency tool. There was no emergency in the fall of 2010.
There is none today. If there is an emergency in 2011 it will be that
inflation gets out of control and the Fed has to do a 180 on monetary
policy. That will almost surely bring us another big recession. Should that happen the fault will lie squarely on the Fed’s shoulders.
I hope Mr. Sack does read Zero Hedge and I hope he reads this. If so I have a message for him:
I have been investing money for 40 years. I watch markets every day. I
am scared to death of what you are doing. I vote with my feet. I will
not buy your manipulated yield curve. (I can’t for the life of me
understand why anyone would). You have already raped savers for years.
Now you are going after our food supply. What you are doing will ruin this country.
When that happens those that invented and implemented these polices
will be disgraced. Your only option is to man up and admit that you have
erred. End this madness. Do it now or suffer the consequences of your
actions.
Brucie says, "The next emergency to visit us will be inflation. And the Fed is bring us that at high speed."
You won't answer my questions about what are your claimed "basic laws of economics" but this statement shows your basic understanding is, Print Money = Inflation.
You're in bed with 35,000 other economists who also think inflation will continue down the pipe, only 10 economists worldwide are deflationists, how could they ever be right, right?
Keep leaning on your basic laws of economics, your understanding is about to fail yet again and all 35,000 of you are about to fall over on your backsides
I hope he does too, Bruce. Nice piece.
I'm curious...how many of you have an escape plan? Whether its residency in Canada or an agricultural property away from the cities, how many people here have made the ultimate decision to secure the future of their children by getting the hell out of the way of the starving masses.
My story: I'm in my early 20's, just out of college (studied econ, bit of law, sociology). My mother bought a house in ~1998 in Westchester County, and bless her, she knew she had to sell in 2007 (and no, she hasn't a clue who Sack is, or what the Fed really does), since we could no longer continue to live off the equity. The value of the house more than doubled in the ten years we owned it.
After paying off her accumulated debt, she walked away with ~$260,000 and bought a house in the country side a few hours outside of NYC, mortgage free. It is now my job to make this property of 4+ acres suitable for my mother to retire to. That means food production. I mention this, because my mother cannot understand a lick on this site, but her gut instincts made the sale/purchase of a lifetime. My sibling and I must be some of the luckiest middle-class kids in this hemisphere.
Are we alone? Will we have to protect our land from the starving masses of kids who lived better (beyond their family's means) than we did growing up? We lived in Westchester, but made the sacrifices necessary to do so. No summer camp, no Colorado ski vacations, no new cars, no playing hockey, tenant downstairs for a few years....
My question to all the people 50+....where are you going for retirement? How do you plan to feed yourselves? Trading gold for food? I might take your gold for my carrots and goat's milk, but I might not....ammo will be more valuable. .223 specifically, please.
Full disclosure: Sure, I feel a little smug. My mother, bless her, worked her ass off for her two kids. She raised two highly intelligent kids, practically by herself. But my mother hasn't a clue how the PTB from her generation have grabbed my generation by the nut-Sack. She was lucky....many more will not have that luck.
My question remains....how many of you, who know this sh!tstorm is coming, who have been loading up on PM's and oil, have actually made the real step to get the hell out of the way of the new paupers? How many have committed to the future of their children...i.e. their ability to make/grow things that people really need?
Please join me in the countryside....I don't want to be alone.
If you need to protect yourself from the government, they will get you at their will wherever you are. If you need to protect yourself from each other, you can use family and friends and neighbors to lessen the chance of being attacked. The odds are, with all the empty homes (11% is what I read) and all the empty stores, people will just squat in what's available, if the government has no power to keep law and order. The Russians survived their government breakdown; they didn't kill everybody. Maybe the Canadians will allow some US people with gold or silver or transferable wealth a potential sanctuary. Don't know if they will allow you a bunch of guns. I expect a black market without sales taxes will pop up. Maybe you can get what you need with a few silver coins. Or maybe the states will decide to desolve the Union by seceding, and that will quell the mood. Who knows for sure?
Well done Bruce, as usual. ty
The 3rd and unwritten mandate of the Fed: provide liquidity to maintain the empire.
nice bruce. The short-sighted and simple minded thinking of our lords and masters was and is to save the financial system AT ALL COSTS by flooding the system with money and hope and pray that the trickle down effect will kick in to return things to the status quo. Hence, QE 1,2, etc to buy more time. However, this approach assumed the patient (system) just needed antibiotics rather than an amputation to treat both gangrene legs. Instead of allowing for an orderly bankruptcy to dispose of debt and rebuilding a healthy economy, our masters have decided it is in the world's best interest (mainly theirs) to keep the patient on antibiotics and see what happens; hence the con man confidence game continues as we tell the patient he is getting better and that he will be walking again in no time.
The Fed I think faces a simple choice: die now or die later. Since the choice is always obvious, the next challenge is "how much later can we make it?" So they spin lie and do everything to conceal, with the help of a complicit media, what they are doing.
Bruce - speaking from a country that is possibly half way through (hopefully) a great deflation and depopulation.
Inflation is a funny thing - Central banks use flawed metrics but they generally use a single dollar or single euro as a yardstick against goods.
But wage deflation is also essentially inflation - if you engage in a policey of debt currency protection which also delocalises a economy and the jobs go elsewhere to feed this artificial value such as Volcker's hard dollar America.
I am sure New York did well from this debt artifice but greater America was destroyed.
I am of the opinion now that bernanke's QE 2 rather then QE 1 and is earlier unofficial QEs is a far more honest less corrupt mechanism to inflate out of this mess and restore some balance to world trade - it should have been done in the 80s or earlier but we are where we are - if we try to preserve the value of the western fiat currencies for longer it will merely destroy more physical wealth through the process of decapitalisation to get a yield on essentially a idea of money that is flawed beyond repair.
Mr. Bernanke & Mr. Sack better be looking over their shoulders, cause when shit hits the fan, those people with pitchforks will be after them.
nice points all, QE is an emergency tool, but we have seen how emergency tools become everyday tools. in 87 the government pledged liquidity to the stock market, in an emergency, and they have been doing it regularly since. and you're correct, we all have to go through this economy to buy our goods, cars and groceries. the economy is not a science experiment, policy is what it is a way of regulating the flow to different areas. policy cannot fail, because the participants cannot go outside the market. its very much like complaining about the freeway, or the public utility. you cannot say, this stinks, I'm going to build a highway right next to yours and show you hows it done?
bernanke didn't embrace global trade with China, he didn't advocate the ownership society, he merely comes up with monetary policy which allowed these policies to take hold. that he continues to support them in failure is pretty astounding. and a new Fed chief would probably be more realistic, and less of policy wonk, but the Fed lost its independence under Bush II, (Greenspan quotes, that Bush I wanted it also, but he resisted)
that our system tends to evolve without public debate refutes the notion of a democracy. did we debate the Unitary Executive proposal of Bush II. the gradual expansion of power in the executive office, in defiance the Constituions claim of checks and balances. now everyone, left or right is a statist. Republicans may fight the President on the debt ceiling, but when they control both houses, they spend recklessly. The Fed chief doesn't own the punch bowl,it was nailed down years ago. he's just a the bus boy who keeps filling it.
there comes a time usually where the lower to middle class economy goes underground, goes to cash, swap, barter. happened in the 70's. it is happening again. its a documented fact that people pay taxes according to how fair they feel the system is treating them. right now, probably zero.
Sack said this yesterday. Bernanke made the same testimony in the morning. Kruggles wrote it on Monday. I think some admin shill was pumping this same position on the Sunday news shows a couple of weeks back.
They're all drinking from the same Kool-Aid pitcher and this is a coordinated propaganda campaign.
The immediate reason is that they know the North African riots are largely about food prices and wages and that those are - in some measure - due to QE. They don't want Joe and Jane Chardonnay connecting the same dots and coming to an identical conclusion, because they're going to have to do another round of QE for muni bonds pretty soon.
I believe we still have an emergency, and Bernanke and his bosses are doing their best to cover it up. The "people" don't need his QE, the banks do. They're still hiding worthless assets from balance sheets. Even a minimal exposure to bad derivative bets could bankrupt them out as well. QE is doing what it was designed to do. Starvation and death is just a side effect, in their eyes unfortunate but necessary. Some things can never be admitted in public.
I agree, beneath the freshly paved (full) parking lots in front of your local big box consumer temples is a foundation of recycled paper and sand. The Bernank knows that and is doing what he can to prevent another liquefaction event. The "recovery" we are seeing signs of in the past few months is a mirage.
The Fed is trying to prop up the money system. They continue to loot and ruin the economy.
They continue to treat self created symptoms and not the disease, which is themselves.
End the Fed. Take our gold from the FRBNY and put it in West Point.
We can only conclude that people as knowledgeable and connected to power as these men are, are doing what they are doing because they are being told to. Anyone who believes that there is a rich oligarchy in this country who are directing and controlling what happens is a fool. We haven't had a democracy in this country since the presidential coup of 1963, and people who sneer at this idea are even bigger fools.
Bruce you have been consistent that a Double Dip was not likely to occur but you did forecast an extended period of sub-par growth.
Last July you made this comment:
While I believe the policies and actions of the Fed and Congress have enriched the few at the expense of the many, I am wondering if your argument is a bit disingenuous, specifically your comment above:
Perhaps you could reconcile your two statements.
I wrong In July. So was Rosenberg. So were a lot of others. Most importantly Ben Bernanke.
I change my views when evidence presents itself. Bernanke etal does not do that.
The economy is growing at its long term potential at this point. There is no emergency. The next emergency to visit us will be inflation. And the Fed is bring us that at high speed.
You, Rosenberg and others were probably not wrong about the fundamentals. The FED did QE 1 and sold it as a 1 off deal.
Lots of smart traders kept looking for the shorts as the market marched higher and higher
The essence of it being dollar was sold so a long trade in equities with the flip side being short dollar trade.
Worked once so why not a second time, only the second time the FED was much more prepared, and experienced at managing the public relations aspects.
The actual turn came on Aug 31 when there was a 300,000 EMini SP buy placed right at and just after the market close.
I was short the equity indexes at the time looking for the Dow to break 9950 decisively.
Later that night I read an article by Nic Lenoir who had pointed out the EMini SP buy. I closed my shorts when I read that post. RobotTrader also noted the buy as indicating it as a signal the 'fix' was in and had also closed all shorts, reversed positions and went long 'big'.......Robot's words.
I didn't really believe in the long side either and that was after having seen it work the first time when a friend who follows the FED pointed out the Bernanke 60 Minutes interview announcing to the world that the FED intended to print......signal to sell the dollar.
I didn't get long with conviction until late Nov when the Dow and SP kept finding support at the 1175 and 11,000, although went long OIL in the mid 70s and by year end had closed out.
Currently, I am only trading modest positions looking for 50 to 100 point swings mostly with the currency pairs, and continue to be fascinated by the psycho;ogy of it all, which I am certain the FED brought to the party as part of the grand strategy to push prices higher.
well put, and you just received an uptick in your credibility rating from me.
Thanks for the clarification, when did you get on the recovery bandwagen?
QE is an emergency tool, and the more reasonable conclusion is that the Fed, based upon its modeling, believes we remain in an emergency situation (i.e., on the cusp of a deflationary spiral). In Fedthink, food riots in Arabiastan are better than a US depression -- especially when the circumstances are such that the Fed will be named as authors of the depression, should it hit.
Gotta' love a person who can step up and say that. The ones who can't admit when they're wrong are the dangerous and stupid ones.
I think the fed is correct in how they calculate and look at inflation. To me the definition of inflation is the volatile rise in ALL ASSETS, not just the ones in demand. Education, hard assets, food, good medical care are in demand, housing is not! hence there is no inflation.
Spin the situation all you want, the reality is until housing takes off with all the other assets there is no inflation.
Just my opinion.
Bruce- as always a great read. Thanks for posting the intelligent truth. (The reader comments are as good as the story too.)
It's a sign that they are losing it and becoming desperate. Now, they are throwing blatant lies to the wall and hoping something sticks. You have to asked yourself why.
Why would obviously well-educated and intelligent people say things that were demonstrably false? What is their purpose?
The only thing that makes sense is that they are somehow stalling for time. Until what? Just playing kick the can? No end-game agenda?
Either way, the fact that these things are being said openly, with a serious face and with an earnest desire that they be publicly accepted, should speak to a situation that may have gotten out-of-control of the puppetmasters. That's prolly not a good thing.
agreed 100% particularly the last paragraph. my hunch is they (sack, ben et al) believe exactly in what they implement. i don't. so i have 1 investment, and it shines brightly in my safe. i will win. they will lose.
What consequences? Perpetual bonuses for being a good lapdog for shtadlan reb. shalom bernookystein? Appreciative promotions and a chance to work directly with the hofjuden running the Fed? Or doing more lucrative God's work at the Goldmanstein's temple after a short stink at the Fedstein hq? That's what I want to know.
The consequence I speak of is the historical consequence. The history books will judge this poorly I suspect. I think that matters a great deal to these folks. They don't want to go down in history as having blundered. They are getting very close. And they know it.
Any of TPTB that have any longer-term perspective will sleep well knowing that history tends to forget the roles of anyone more than one step away from the power pinnacle. The history books for the next 100 years might mention their actions as a footnote or an endnote. Five centuries from now, they will not be mentioned at all, as history will look back at us as enjoying bread and circuses as lavish gifts from the public treasury from our lords and masters.
yet they do more of the same. As if being labeled in history books was secondary to a more sinister, perhaps gratifying, present plan. Would you not agree? If "they" accomplish what we are not seeing or comprehending now, "they" will be in a position to write and/or rewrite history as all victors do. Thus no shame; just sizable potential for fame and elitism in the new structure. Would you not agree? Can you speculate what more of the same the Fed is doing these days will result in something that benefits 'them' or 'their' handlers? That's what I want to know.
The SPX and the CRB have been trading lockstep for some time. Bernanke takes smug credit for asset "values" yet asserts that rising commodities prices are driven by emerging markets demand. Right.
Let them eat stock.
Nice article, Bruce, but I'm pretty sure Sackboy was referring to Fisher and Lacker.
You're probably right. That said I think he does take a look at ZH from time to time. If he doesn't, it just proves that he is out of touch with what is being discussed on a daily basis. I did send him this link, I suspect he might read it.
These troglodytes @ The Fed don't even bother to come up with creative lies anymore.
If faith in real legs for anything remotely resembling a vibrant economic recovery were so strong, they'd remove much of the thick layer of juice they have now applied through monetary policy (QE and other programs), and if they were a tad honest, they'd certainly admit that they've failed their principle goal for QE, which was originally announced as to keep yields from rising, since (although Bernanke now wants to change the goalposts, after the fact).
It doesn't have to be the TRUTH, and THEY don't have to believe it. All that matters is that herd is not spooked.
There is a reason why the original Bibles were written in Latin, and it was a mistake to translate them into the vulgate so that commoners could second guess their superiors.
So who are you to second guess our lords and masters? Stop sniveling and get back to work, you bloody serf!
So basic issue both sides consider each other parasites in the order of pecentages only and the honest pay. As it is said a mule has 3 choices looking at two stacks of hay. I marvel at there ability in the division of labor top to bottum not to get it...
Great post Bruce.
I love waking up hearing someone speaking (unwelcome) truth to power.
It's going to be a good day today! More caffine needed...
Bruce, the market cake was destroyed years ago complete with $787 billion in frosting.
Everything left is a mirage to the unwashed and lawless thugs of fraud.
With 40 years of saver robbing double-standards, yourself, watch out for the gold noose. Where were you about saving the country 40 years ago, or 30, or 20? Destroying it is the only plan 40 years thick.
You may have many followers but I see right through you - enjoy your cake.
No denying it. I go both ways. I am an opportunist. I try to make money when markets go up, I do the same on the way down. I short things I don't like. I buy things with leverage that I do like. I use derivatives, regularly. I bet against companies, I bet against countries.
But if you knew me 40 years ago You would have heard me saying the same things I say today. We borrow from the future. For the most part its has worked for the past half decade. But it is a busted concept. It will blow up. The worst part is that what is being done is passing a buck to children that are not yet born.
What generation in history has made the future worse for their children? Mine. I'm not proud of that and have fought it every year.
Thank you for your candid response.
I am not trying to hold any investment against you in any way, but given the apparent top/bottom fraud that seems to be the modern financial system, it's like honey, you can't handle it without getting some sticky on you.
The rest is seeking the genesis of systemic problems (perhaps even generational), and it appears most have sticky fingers.
I'm an optimist too, but I see the best investments on "Main Street," where value is created, not leveraged.
I hear you on that one, Bruce. I've been downright ashamed to be a boomer for many years. I remember well the hypocrisy of the baby boomers was already manifest when they were young. Basically coddled kids rebelling against their "greatest generation" parents. The "me" generation. Tout ça change, tout c'est la même chose. Now they have billions to pamper themselves with. I found the idealism of many to be a smokescreen, though there were obviously good folk among them as well--not to tar everyone with the same brush. But I hated the self-righteous hypocrisy that seemed to be the hallmark of that generation, and still is. Witness the Bernank. As you say, he is incapable of admitting he's wrong.
I dunno ... Bruce might have looked mighty dapper in 1913, wearing a straw hat and railing about the impertinent rapscallions at the Fed.
What happens to gold when interest rates rise? My understanding is that gold is a good investment when real interest rates are negative, so that would suggest that if real interest rates become positive, gold should go down. This question may only apply to "normal" times, however. Since the dollar is being trashed by ZIRP, burp, and slurp, people may be holding gold as a hedge against that, regardless of what rates do.
In reading the excellent cite of the Oildrum by Newsboy above, I couldn't help but think that the Saudi royals are buying gold en masse because they are fully aware that their fields are depleted--they probably aren't too concerned about the yield curve from that point of view.
Fantastic post, thank you Bruce. And great responses everyone esp assetman.
:-)
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm
I wonder if the Fed ever thinks about the following:
1. By Bernanke's own admission , US Dollars are inherently worthless, can be created in any amount at will.
2. By Bernanke's own admission ( yesterday) - the Fed cannot create "one bushel of wheat: - to which I would add - one barrell of oil .
3. By Bernanke's own admission - unemployment will remain sticky - people need to get an education - nuttin the Fed can do aboutit.
4. So - I wonder if all this leads the Bearded One to the ask - what excatly DOES the Fed accomplish.
5. let me offer a few ideas : Moving digits around on a computer has no direct effect on anything in the real world. It cxan however have profound effects on peoples motivations.
6. Therefore the Fed is in the game of managing societoies motivations and values.
7. Humans are hardwired to detect Cheating ( lots of evidence for this). Cheating , condoned by the people with the monololy on violence ( ie. the Govt) - leads people to become very cynical , disheartened and Un motivated.
8. Therefore the Great Bearded One needs to really focus on FAIRNESS in monetary affairs. I would support changing the Fed's mandate to remove the current nonsense and replace it wit "Promoting Monetary Fairness"
9. At the end of the day the Fed is kinda like the Justice Dept - neither actiualy produces anything useful directly - but has a profound influence on the behavior of individuals in society.
10. So -- Mr. Bernanke - Do ya feel like yer policies are promoting Monetary Fairness? Please explain.
Fairness: Hahahahaha!
I have some fairness: Guillotine
Alpentraum.
Very nice Bruce.
If Bernanke would reply that he is driving the emerging world to the brink of disaster by forcing surplus countries to revalue their currencies in order to survive growing inflation, everything would be on a new footing. Oh, and similarly to the classroom exercizes of the 50s, duck and cover, we might come up with some pithy exercize for going hungry.
Feet do indeed speak.