The Central Banks Are Fast Running Out of Bullets

Phoenix Capital Research's picture


Yesterday we worked through the illusion to reality for the ECB’s unlimited bond purchases, the end result being that the ECB:


  1. Didn’t announce anything new
  2. Is implementing the same policies it’s tried twice before with no success
  3. Is implementing policies that neither Spain nor Italy will go for


And finally…


  1. Has solved nothing due to the fact that of the two mega-bailout funds, one has only €65 billion in firepower left and the other has yet to be ratified by Germany


Today we turn our attention to the US’s Federal Reserve where the whole world expects the Fed to announce QE 3 at its FOMC meeting this Wednesday and Thursday.


There is a small problem of math with this. The Fed currently owns all but just $650 billion of the outstanding 10-30 year Treasuries. At this point, even a $200-300 billion QE program would create serious liquidity problems for the financial system.


Of course, the Fed could potentially implement another agency/MBS QE program. But that would be a very political move with the Presidential election so close. This, combined with current food and energy prices, makes it unlikely the Fed would want to do this.


Indeed, we’ve seen some striking admissions from the Fed recently. St Louis Fed President James Bullard:


“I am a little – maybe more than a little bit – worried about the future of central banking,” said James Bullard, president of the Federal Reserve Bank of St Louis, in a Financial Times interview at Jackson Hole. “We’ve constantly felt that there would be light at the end of the tunnel and there’d be an opportunity to normalise but it’s not really happening so far.”


The biggest worry on display at Jackson Hole was whether these bureaucrats, sitting at the heart of every mature economy, still have the power to influence demand now that interest rates cannot fall much further. Lurking behind many debates was this question: if central bank policies are so effective, why is the global economy not growing faster?


Here’s a Fed official, not only openly admitting that Fed policies aren’t working, but even calling the future of Central Banking into question. Take note: underlying realities are beginning to be asserted by officials at Central Banks around the globe. They’re running out of bullets.


So where does this leave us? Well, it’s highly unlikely the Fed will actually implement anything major this week. What we could see is a large, but hollow promise for action, much like the ECB’s promise of “unlimited” bond purchases based on certain “conditions” being met (an empty promise if ever there was one).


If this kind of empty promise is made, look for the market to top soon after.


And if the Fed fails to deliver this week… buckle up.


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Good Investing!


Graham Summers


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honestann's picture

No central bank has any bullets, and no central bank ever HAD any bullets.  Not if those bullets were supposed to act to improve the economy.  ALL that central banks can do is shift purchasing power into the hands of people WITH CONNECTIONS who DO NOT PRODUCE and the expense of people who produce real, physical goods.  Overall, central banking is inherently and unavoidably destructive.

On the other hand, if the bullets are SUPPOSED to shift wealth to themselves and their friends, then they have plenty of bullets to destroy mankind... just as they are doing.

Stuck on Zero's picture

The Government isn't out of bullets.  It has billions of hollow point bullets.  Enough to make you all say you're plenty happy with policy.


Random_Robert's picture

The Fed can never run completely out of bullets.


The Fed knows that if things reach critical mass, then all it has to do is....  {drum roll}


Buy Gold

Gloomy's picture

This is such total bullshit! Make up a scenario. Pretend you know what you're doing. Hell, you got at least a 10% chance! If you hit your a genius.

steve from virginia's picture


Unlike a handful of die-hards and dead enders (thanks, Don Rumsfeld) here @ ZeroHedge, most of the people in the world do not want a second Great Depression. There are very few on this planet that do not acknowledge the possibility/likelihood of another depression: they will do whatever it takes to forestall it. If this requires believing the establishment's lies ... they will believe them. They will repeat whatever they must to themselves, to their children, they will live the lies until they are submerged by them.


When the central bankers promise the children that they will save them, the children act accordingly even though the fact of the central banks having to make such promises speaks for itself. When the Fed and the rest are the last line of defense, there really is no last line of defense.


What people don't understand is the nature of our crisis, it is an energy crisis in drag. High real input prices due to scarcity are stranding trillion$ of infrastructure used to waste resources, (sunk capital investment). There is no coming back from this. When capital resources are gone they are gone forever, wasting infrastructure is worthless junk. The process has arrived at the point when the various actors are beginning to come to understand what 'forever' actually represents and that they are confronting it.


The monstrousness of our predicament is almost beyond the ability of the human mind to grasp its scale. We burn up our resources today, there will be no more cars used to burn resources for millions of years. We're it. Apres moi le deluge!


Graham Summers would be on more solid ground by stating the central bankers cannot issue value-on-demand. They cannot offer anything other than symbols for value, items that have worth only under circumstances that do not currently exist and cannot again! They cannot print crude oil, topsoil, surface water, they cannot increase waste-carrying capacity, they can add to the assault on these things by way of their lies and the willing credulity of others. They can only make matters worse, the central banks are at odds with themselves.


As far as it goes, the entire world is in the grip of resource deflation, from which there is no escape. Our voracious machines dig the graves of our grandchildren faster and deeper, capital is destroyed more utterly, what remains becomes unaffordably expensive, at some point the costs are bankrupting ... see 'Greece'.


Greece is all of our futures, our children's futures, our granchildren if they are very, very lucky and can dodge the consequences of our stupidity and blindness. They will live in small villages, they will till what fertile soil they can find,  they will make things by hand they will wish all of us had died before we were born.

techperson's picture

Or they'll just drill horizontal, hydraulically fracked wells for natural gas and oil, drive down energy costs to under $50 a barrel, and party on.

daxtonbrown's picture

Only in the Bernank Universe can you get something for nothing. How could anyone be so stupid as to believe just by typing zeros on a keyboard that Positive change can occur? That doesn't mean No Change occurs, because you get malinvestment and surges in banker pocketbooks. But the whole Central Bank thing is pushing on a string. Fiat currency is pure information and you can't add positive information typing random zeros.

Indeed, simple physics tells you that unless The Bernank is a superhuman genius (no evidence so far), that he cannot add positive information to the system because he isn't smarter than the system.

In other words, this has all been a giant circle jerk from the start. What we have is a Biflationary Depression, mixed inflation and deflation because we aren't going anywhere. GDP = M * V. Increases in M are offset by decreases in V, and velocity has collapsed.

riphowardkatz's picture

What prices are going down as a result of there being less money? Thats right there arent any. It is inflation. More money chasing same number of goods higher rent, higher food higher oi higher gold, higher everything. Stop with the deflation argument already and even worse to conflate to terms into a mongrol is bidehyperinflation next? Inflation is a rising prices caused by more money. Deflation is a falling price caused by less money. There cant be more money and less money. Geez

Hannibal's picture

They can always dip into their hollow point bullets, wasn't that the plan Einstein?

duckhook's picture

I saw the annoucement early ,so read


Paul451's picture

The're gonna inflate like a mofo and screw debt-holders. Works every time.

new game's picture

no qe for now; my prediction.

markets sell off for the correction long over due...

why you ask? tea leaves, time has come to cool the printer down, and most

of all; preception (is a bitch) bitcheeez.

And another reason is the majority (according to bloomberg) of economists (LOL) say qe on.

some pm profits to hedge

rest to the boat

and off we go...

FL_Conservative's picture

That's exactly my belief, but I'm already so loaded to the gills with hedges that I can't stomach the thought of being "surprised" by Bernanke.  Hence I doubt that I will buy more hedges as a trade bet before the announcement.

zoggl's picture

A central bank never runs out of bullets

Meremortal's picture

If you are wrong for years and then your prediction finally comes true, are you vindicated and right all along?

Clowns on Acid's picture

Well they are running out of existing bonds to buy...So... the Fed will have to issue new bonds, print more $$, and then buy up those bonds....easy..
Hey wait a minute.....

Everybodys All American's picture

I think you will be right eventually Graham but it could take quite a bit longer to go under than you are forecasting. When it does go there certainly will be no where to hide because of the all or nothing approach the central banks are pursuing.

mind_imminst's picture

The FED and the ECB will print to infinity if needed. It is fait acompli.

maeg's picture

General consensus whether you like it or not: there will still be QE by year end if there's no QE this month. So the hopium is still high and markets will still hold and not rollover like all bears would have had in their dreams.

kindape's picture

"The Central Banks Are Fast Running Out of Bullets"


So is Phoenix Capital

ForWhomTheTollBuilds's picture

Whats odd is that the "out of bullets" meme has been going on for many years now.  You might say it's, "running out of steam".


Truth is that as long as they have a printing press and a government that will order people to use the money they emit, they can never "run out of bullets" until the populace refuses to use the money even under penalty of imprisonment.


Even then as a group, they just change the plates on the printing press and start over.

Uncle Remus's picture

He said hollow point.

Ned Zeppelin's picture

Graham will be proven correct, it is just the timing that is impossible due to the power of the Fed.   Fed would be smart to not do QE simply because it will reveal its impotence in terms of the so-called "Twin Mandate," which is phony anyway, and because its owners don't really need QE right now (other than the QEs quietly grinding away and monetizing in the background, i.e., the reinvestment of MBS payments and Twist Operations.  They make a "everything is just OK but we'll keep a close on things and jump in if we have to" statement by hanging back.  I think there is a possibility  - but not sure why they would - of a reduction in the .25% rate on reserves and the change of advance guidance on low rates continuing into 2015.  Maybe some other small QE-like thing that is unusual as well. But no big bond buying program.

LawsofPhysics's picture

Bullshit.  ZIRP and NIRP is essentially printing/direct monetization, and since the peasants haven't figured this out, there is no further need for the Fed to do anything.  The sovereign debts are being funded by the savers, taxpayers, 401ks and anyone else sitting in sorvereign bonds.

Gotta keep the corporate bailouts and channel stuffing alive.

stocktivity's picture

They don't have to do QE3...just change one or two words in this months summary and keep the hopium going. It's all Bullshit!

WALLST8MY8BALL's picture

They can call the Social Security Administration - i heard they got alot of bullets recently

Zero Govt's picture

Thought we'd lost you Graham after Spain didn't blow up at the end of summer ..are we extending summer until Christmas?

semperfi's picture

Japan has been living on borrowed time for 20+ years.  So we've got another 10+ to go in the U.S.  Europe has another 5+.   Everyone thinks too short.

Clowns on Acid's picture

Yo semper - Yes, but when Japan was printing the Fed and ECB were not. Now that they all are (have been )printing....the time line begins to approach fiat a exponential rate.

Your straight line projection is slightly flawed.

Zero Govt's picture

Thanks to you both for adding comments though i'm not sure how it relates to my little dig at Graham

Gringo Viejo's picture

Actually, I'm amazed they've been able to keep the wheels from coming off so long. I remember telling my father in 2003 that I thought Greenspan had painted himself into a corner and total collapse was inevitable. My father's now been dead for five years and these jokers somehow keep the pie plates spinning.

stocktivity's picture

...and imagine how many more years they can keep it going.

Paul451's picture

All that's keeping it together is the delusional confidence that it can be kept together. When that is finally seen as delusional and the confidence goes away...

hedgehog9999's picture

financial markets are probably just waiting for grenspan to keel over as a thank you note for the debacle he created.



Zero Govt's picture

the pie plates are still spinning, there's just less pie

aerojet's picture

They have made the thin veneer of civilization just a few thousands thinner, but the thing is, the veneer becomes transparent at some point and then you're in deep trouble.

XitSam's picture

Gee Graham, you were saying that the Fed couldn't do any more QE period. Now you're saying it is unlikely ... "the Fed could potentially implement" ... "it’s highly unlikely" ...

semperfi's picture

The reality is that the FED has to monetize, is monetizing, and has been for a long time now, constantly.  Any one who thinks not has been deceived by Benny Boy.   What they are coming up with constantly is new programs of deception, new ways to lie to us, new words to fools us and distract us with.  Wake up & smell the coffee Graham.

Manthong's picture

"Running out of bullets"

My take on Fed "Communications Policy"..

Blanks can mess you up -

Stick a starting pistol an inch into your ear canal, pull the trigger and see what happens.

aerojet's picture

The "barrel" on a starting pistol is a solid chunk of metal, so you'll just be deafened and have ringing ears.  Don't try this with blanks out of a real gun, however.

Manthong's picture

" just be deafened and have ringing ears"

OK.. it still works as a metaphor for Fed communnications policy.

greggh99's picture

"Running Out of Bullets"

They have a never ending supply of paper bullets. It's just that paper bullets don't work as well as metal ones.

The Trade Group's picture

perhaps it is Graham who is running out of bullets. He said the euro would collaps in May, then June, then July.... he has been consistently wrong for about 3 years..

mrktwtch2's picture

wouyld you shut the fuck up and go away already!! you have been totally wrong for the last 3