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.
There IS definitely an emergency...for the TBTF banks. If the LT interest rates rise too much they will lose TRILLIONS in the derivative swap market. The FED will never let this happen. We and our children will be debt slaves to these parasites until the central bank system either implodes or is overthrown by the starving masses.
“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered..” Thomas Jefferson 1802
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.
LOL! Let's ask the investors shall we?
The high in bonds was late August. Compare TIP to TLT on a 120-day relative basis.
TLT -14%. TIP -0.68%.
Ditto, just in case Mr. Sack does read this. These guys need to know there are people who can explain the what, why, and who of any upcoming collapse. There are citizens (such as those speaking out on ZH) determined to hold them accountable.
Of course higher long term rates are a good thing .. that's why 40, 50 & 100 year paper is under consideration, again.
... Gotta move quick to lock in this low introductory offer on all account transfers.
Before we know it Brain Sack will be announcing the addition of Daniel Sadek to head up his in house team on MBS.
Brucie
What are the "basic laws of economics" you understand? Is it "Print Money = Inflation". So when Benny the Bean Counter doubled the Feds balance sheet in 2008 why in 2009 did the entire CPI drop its pants, surely CPI should have done the opposite and gone through the roof ?
Are the basic laws of economics a bit like fundamental investing? Namely they don't work. They cannot predict the future. Nor can fundamentals even explain change after the event. Which is why the profession of economists are as useful as a microwave to predict the weather tomorrow!!
Anyway regards Mr Sack he's undoubtedly talking a sack of white noise. I'm guessinmg he is an economist on the Fed payroll.
"why in 2009 did the entire CPI drop its pants, surely CPI should have done the opposite and gone through the roof ?"
You, like many, completely disregard the asset destruction taking place at the same time. Add the "paltry" money creation of the Fedcreature to the destruction of about 6.5Trillion in real estate assets/debt and you should understand completely why deflation was and is the meme; the destruction of debt vastly overwhelmed any BennyBux being printed.
Inflation is not a rise in prices of a few things; it's a general increase in the money supply, which INCLUDES credit. Remember that whole debt=money thing they forgot to teach you in Econ 101 ? Yes, it matters.
What we're seeing is price increases in food and oil, and price decreases in everything else.
Ok name them: please don;t include deflators, etc. please include things not there and apportion things to their amount of GDP. for instance healthcare is under represented. also who give a fuck about deflation in things that aren't needed for living.
education up, etc.
try looking at shadow stats, or read ackman's piece in the times. really you should have a better understanding of how the us alters the data to suit it's needs.
no rational person can actually make the claim you are making if you know the methodology, etc.
Skipjack - i agree with your entire post, did my writing give you any other idea? I'm just waiting for Brucie here to explain what "basic laws of economics" he thinks Mr Sack is disregarding because I think it's safe to ignore all the basic laws because they don't work... economists are a field of the clueless and tool-less despite 300 years to practice their trade!!
Well, he's got the confidence part right. Only this is confidence that monetary expansion, ie taxing savers to subsidize borrowers, will continue long enough for short-term investors and speculators to cash out.
Slightly off topic, but did anyone else see when Bernanke was asked about Chinese holdings of Treasuries and got the figures totally wrong (he said 25% as it was about $2 trillion) He really looked like he was about to break.
Hi my name is Brian Sack, the major banks in the United States are insolvent, there is too much debt in the system, We can't admit we screwed up royally in our regulatory mission, or that we are completely captured by the industry. You honestly don't expect us to do what we should and put in danger the millions of revolving door money we can make from wall street do you?
Therefore, in order to cover up our gross incompetence, negligence, and fraud we are going to create enough inflation to drive the debt away and ensure the banks can profit from front running the government. We will do this with any means required. Massaging data, telling lies to congress and in the press, having accounting rules changed, keep changing what we said the purpose of QE is, etc.
Sincerely,
Mr. Brian Sack
New York federal reserve
for all you of limited means, this is the plan, this was the plan, this will be the plan. it was clear from the start, it is just now you are starting to see the effects
Thanks for your insightful comments again, Bruce... you seldom disappoint. And yeah, Brian Sack is a lying sack of fecal matter. But he's also a very good soldier.
I highlighted the above because you make a great point about QE-- it was orignially designed to be an emergency tool, a means of saving the economy from impending doom. QE 1.0 and ZIRP were viewed as necessary evils, because of the perceived consequences involved if nothing got done. To that extent, it "worked"-- though most people (rightly) grumbled about the moral hazard involved.
Now QE has appeared to become normal monetary policy for totally unsupportable reasons. QE Lite as well as QE2 were simply not necessary actions in a pure economic sense, given the track of positive GDP growth and corporate profit expansion. Essentially, we are providing emergency prescriptions in a time of a clear recovery.
So... what's going on then? If you really think about it, NONE of the QE programs have performed close to the Fed's stated purposes. QE 1.0 came in as an emergency tool to enable, as Genocide Ben stated at the time, to "get banks to lend again". Banks had absolutely no intention of lending anything anytime soon. All that happened is that the Fed took on some very bad assets and paid for them at very bad (inflated) prices and temporarily took the yield curve down to help re-inflate real estate.
As for QE-Lite and QE 2.0, these were intended tools for keeping interest rates (and more importantly mortgage rates lower). Of course, the real-world effect of these programs have been to inflate asset prices, perhaps with the hope that manipulated and inflated markets would bolster consumer confidence and influence people to (foolishly) spend more money. Or to get businesses hiring again.
I don't buy it, because neither of the above has happened. My sense is that these are all lies are being made to the American public to hide and uncomfortable truth. Despite all the reasoning, the Fed continues to orchestrate the biggest transfer of wealth the world has ever seen. With QE 2.0, the Fed is still allowing the banking system to accumulate very easy profits at the expense of savers and taxpayers, and the Federal goverment is getting a free pass on massive deficit spending.
One nasty consequence from all this is that a vast majority of Americans are getting their standards of living squeezed each and everyday that QE, ZIRP, and profilgrate Federal spending remain in place. Stagnant or lost incomes are running head on into higher commodity and healthcare costs, while the banking system continues to get bailed out via a steep yield curve,reserve stuffing, and OMO windfalls to the primary dealer network.
Additionally, the more recent (blantant) Fed monitization of Treasuries has given our irresponsible representatives in Washington carte blanche to continue spending double of what they take in receipts. Just in time for Obama to spend another $40 billion for a train that goes to nowhere.
As a saver, it's tough. The Fed is encouraging very wreckless behavior, providing incentives to enter the riskiest and longest duration portions of the market-- while discouraging low risk, lower duration alternatives. The result has been a very low participation rate by the public, despite CNBC's new market highs summaries. Fewer and fewer people want to participate in a market ripe with intervention and price discovery distortions.
Slowly but surely, more people are losing faith in the Fed as an institution. None of this happens overnight, but I find it interesting how quickly people linked (albeit indirectly) the Fed's ultra loose policies to food riots in Tunesia and Egypt. I don't think we will see food pressures nearly as acute as the third world-- but persistent rising oil and healthcare costs could be big touch points here in the U.S..
In any event-- sooner or later-- more and more of the huddled masses will put together the link of how their cost of living is being destroyed in order to keep the Zombie Twins of America (the banking system and Federal government) alive.
Until that time, the Fed has no other choice than to lie-- because they have crossed the rubicon and cannot return without serious consequences (like them admitting to being flat out WRONG). Same goes for the Federal government and the Obama administration. All efforts will be made to show inflation doesn't exist (it does and it's vastly understated), and that employment is improving-- but not improving quite enough to keep QE off the table.
All the while, banks can continue to make very easy profits, and the government can continue to spend away without having to tax the masses. Why tax directly when when the Fed can willingly finance goverment debts and tax the public indirectly through inflation?
I personally don't think it's a good plan-- but it's a plan that's working for the right interests.
Good to see you writing at length Assetman
Very good post, Mr. Assetman. Congradulations.
I have a small but important addition/comment:
This is NOT WEALTH. This is a group of electrons on bank's hard disk drive.
Fed, White House, Congress etc. have established electronic world of trust between chosen banks (via electronic accounts, correspondent accounts). The rest of the people call it "wealth". But this is an illusion.
On some very sunny, bright day all electronic accounts will be claimed VOID. This will happen after or in the midst of great electronic money inflation (already started) with the corresponding cash money inflation (will start soon).
If the people will not do it (abort all electronic accounts), then God will do it (by asteroid coming, and/or flood, or whatever). Taking into account the volume of electronic money on the banks' on-balance and off-balance (CDO) accounts, there is (almost) no way to re-establish trust relationship in this society.
Bruce wrote: "I think the problem is they are too stubborn to admit that they made a mistake."
That's an interesting observation. It has the same characteristic of how most Ponzi schemes start, especially Bernie Madeoffs'. Namely, someone makes a mistake, fudges things a little in the hope that the future will allow him to correct it. But the future never does, so they fudge things a little more. And this cycle keeps repeating until things get out of control and blow up.
Everyone would have been better off, including the perpetrator, had he simply owned up at the start. But something always prevents them from doing so.
God help us all.
That would be a pretty good description of fiat currency in general. Except the 'mistake' is deliberate.
And very well understood and never explained to anybody but a few.
I have a question: Who is going to "announce" QE3? The Bernank? Obama? ball-Sack?
Is it not political suicide for any politician who allows it to happen? Or does that not mean a lick considering the Fed is a quasi-private monopoly on my tax dollars?
When the f*ck are the people going to rise up and tell the Bernank to high-tail it out of here? Probably never, cause they're too damn stupid to even kno who the Bernank is, or what the Fed is doing to the country. But someone with more experience politically and economically please tell me how the news of more QE will be leveled on the people.
Cause the impression I have, is that the stop-the-f*cking-spending constiuency is growing in size, and making a Ron Paul for President more likely...hell, maybe they'll "target" the Bernank next....
Easy! Just announce that if QEn is delayed, the 'recovery' will be at risk.
Captain, I think the state of affairs in the U.S. is even more slanted against the people than you think. Most poeple definitely have no clue, but even if they did, I hardly think they could change the way things are run at the voting booth. Those machines are made and operated by the men in black.
The only way Ron Paul could become President is if he turned into a copy of Bush/Obama. In fact, if I was he, I would be very careful and make sure my family lived in a monastery in Switzerland.
Sadly, QE3 will be an easy sell. Scare the sheep and they'll accept anything, rather than watch their 401Ks decline.
The game of "save me today, we'll blank-out the effects on tomorrow" has massive inertia in America, and none of the popularity contest winners will go against it. (Well, Ron Paul excluded.)
QE3, 4, and 5 are headed our way.
Knock the S&P 500 down 1,000 points... and I think QE 3.0 would be an easy sell.
QE 2.0 was the toughie-- and the Fed managed to pull that off as the equity markets were hitting new highs and yields were already very low. They really had no good reason to pull the QE lever again during an economic recovery-- but they were able to fool just enough people into belieiving that deflation was real-- when it wasn't.
I'm sure the Fed would love to announce QE 3.0 under similar benign circumstances. But make no mistake-- they can "create" conditions bad enough to where all off us will be begging for more QE. If it ever gets that far.
"What you are doing will ruin this country."
Hope & Change.
Odd how Ob*mas little ass boys around here disapper like cockroaches when something besides a Leo, GW lib rant is posted.
The article is about Fed policies but somehow you manage to spin this as confirmation that GW's postings are lib rants. Nice going, dickhead.
Stupid troll is stupid.
Stupid troll is so stupid he can't even focus on a reason for being stupid.
(BS == Bull Shit == Brian Sack)
==
(BB == Baghdad Bob == Ben Bernanke)
Did you say "biblical amounts"?
Oh, no, this is slightly incorrect: King David & Solomon family business of trading chariots and horses + salary (666 talents of gold, approx. USD 1 billion per year) accounted ONLY about USD 100 billion of all revenues during 40+ years.
Wealth and Abundance in the Biblehttp://ezinearticles.com/?Wealth-and-Abundance-in-the-Bible&id=724325
http://www.blurtit.com/q104382.html
"The upward movement in longer-term interest rates in large part reflects the greater optimism among investors about the outlook for economic growth"
I had to study theories about what determines the term structure of interest rates in my past, and not once do I remember a theory that stated rates went up because of "optimism".
Decades of interest rate theory out the window, I guess Brian Sack knows more than guys like Irving Fisher, Marty Liebowitz, Oldrich Vasicek, John Hull and Alan White, and David Heath, Robert Jarrow, and Andrew Morton. Yup, interest rates rise due to optimism.
Good point.
A simple test that might fit w/his "theory" would be given the sell off at the long end (hence the rising long rates), is the money thus captured by the bond sales being placed into long-term physical investment? IOW, is it showing up as significant growth in property, plant, and equipment (and not just hedonically adjusted computer and sw sales and inventory accumulation)? Given the scope of long bond sales, we ought to be seeing an investment boom if Mr. Sack's optimism thesis is even remotely correct. We arent.
Oh, except I forgot, there's that pesky relationship that higher interest rates tend to impede investment not promote it. Nice try at the Spin-o-rama, Mr. Sack. Care to try again?
Very good comments, ghost.
I find the confidence comments by Brian Sack interesting, if not a bit contradicting. If, indeed, investors are pushing yields higher due to investor confidence on economic growth prospects-- then QE 3.0 simply isn't needed. Hell, finishing QE 2.0 could be debated.
As it stands, the higher yields are investors way of saying inflation expectations are rising. And are rising enough to overwhelm the Fed's interventions in the Treasury curve. Sure, one can make a case that increasing confidence on the economy and higher inflation can go hand-in-hand. But sometimes inflation is just a byproduct of bad monetary policy (stick that in your sack, Brian).
The Fed was able to effectively lie about needing QE 2.0 by fanning unjustified fears of deflation-- when it simply didn't exist. QE 3.0 will be a tougher sell in a benign environmnent-- but can also a surprisingly easy sell when the market is in panic mode.
Bravo Bruce: The low volume in the market suggests that others have voted with their feet as well.
+1
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.
No, there's nothing to worry about and that's not a tumor under Mr. Market's pants.
He's just happy to see me...
Take a little issue with your writing, though good as usual.
I do not think QE is an emergency measure any more, I think it is the replacement of the overnight lending rate. Emergency is the new state of equilibrium and to turn off QE will be akin to turning off life support to the economic recovery illusion. From now on the US will proceed like the Japanese where QE is a foregone conclusion where only the quantity is debatable.
Until it ends
Here is a beautifuly detailed and annotated follow up in The Oil Drum, to the Wikileaks about Saudi oil reserves being vastly inflated. Yep, beautiful decade by decade maps and graphs of Ghawar pumping more and more, and more, and now mostly, salt-water. This is the root fact that doesn't much care what the con men conjuring promisary notes do. 2008 George W Bush quote on-the-record (off script?) from 2008 is telling.
http://www.theoildrum.com/node/7465#more
Ive been watching m and a. It is clear the mood has changed. There is a real optimism in the air and you better load up on risk assets. The right risk assets.
There are two kinds of economists in the world of economic cause and effect. One accepts effect and wants to get it over with. The other tries to delay effect and maintain the status quo.
US needs to roll and create about $5T annually ($3T rolling over and $2T new issuance) in treasuries. That is $100B a week. Fed "only" has $900B Jan through June w/ POMO and rollover (that's bout $50B a week). Who's going to buy the other $50B / weekly now through June...and then??? And at what rate? There are Trillions the second half of '11 and $5T+ missing in '12 at anything like these rates to keep this going w/QE3 or interest rates (and interest payments) going substantially higher (like $750B at long term average of 5%).
Can't do QE3 without making the world burn w/ inflation but can't not do QE3 without interest rate explosion eating 1/3rd of all tax revenue. Something bigs gotta be coming??? Again, obviously I've completely missed something here??? Either we're t-minus 4 months from interest rate shock or an impending March or April QE3 and attendant complications either way???
Ultimately interest (on new debt) can only be paid from growth in the economy. Growing debts compounded by rising interest costs will hit the wall.
I think we are seeing the last hurrah as the banking criminals and their apologists squeeze the last drop from the American turnip.
All the so-called money on the side-lines (off shore) will remain offshore, as was always the plan.
Ahh... gentle woman you knew I was a snake...
Exactly. You are not missing anything. Add to that possible state and municipality bankrupties/default. Does anyone believe that the Fed or the clowns in DC will have to political will to NOT bail them out. Can imagine the heat and the headlines ("Billions for Bankers and Nothing for Teachers and firefighters"). what politician wants that headline?
The fed's got their tit in the wringer and they least painful path is to continue until there is collapse.
The fed's got their tit in the wringer and they least painful path is to continue until there is collapse.<<<<<<Thats a mammogram!
Good post. There is no way out and the Power Elite are simply going to steal till they can't steal no more. Then what happens? I'm not sure, but it's looking like we are going to be finding out the hard way.
Bruce...have you considered the possibility that the intent of the Fed and it's current policies is to create a state of emergency?
As you have clearly stated, they are not stupid.
The Fed aren't the only ones fear mongering.
“In some ways, the threat today may be at its most heightened state since the attacks nearly 10 years ago,” Janet Napolitano, the secretary of homeland security, told lawmakers.
http://www.nytimes.com/2011/02/10/us/politics/10terror.html
Working in classified government work a few decades ago, I concluded that some strange things occur because group or department heads must justify their budgets. The Department of Homeland Security may need some "threats" to work on with no other intent whatsoever.
I noticed that.
No coincidences in this world.
Federal Reserve has a mandate to control inflation? Judging by results, they have failed miserably. They are just financial terrorists, robbing people of their wealth. Sackmo is just one of them.
It's not inflation anyway, it's just a temporary bubble. There is no upwards pressure from wages. So, we all get poorer, but only temporarily. They can't stop the Big Deflation from happening.
Oil above $100 = deflation dead ahead, and down will crash all commodities again, including precious metals.
Good time to buy the dollar and govt debt.
If the politicians had permitted the big banks to fail, that would have been deflationary (loss of money due to non-repayments of debt). But they allowed these banks and other businesses to be TARPed, QEd, and whatnot, which means they created more debt (that's inflation) to prop them. In my mind, they will continue to inflate (creating money, not yet earned, thru debt). And that started when they went off gold and silver backing of our currency long ago. It is not temporary.