The Fed Panicked

Econophile's picture

This article originally appeared on The Daily Capitalist.

Here is the Fed Open Market Committee's announcement of November 25, 2008 announcing the implementation of QE1, a $600 billion bond purchase program:

This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

On March 18, 2009, the Fed announced a second phase of QE1, expanding the program by another $750 billion to bring the Fed's total to $1.25 trillion for the QE1 program. The Fed noted that:

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth. ...

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. ...

On November 3, 2010 they announced another round of quantitative easing called QE2 in which they purchased another $600 billion of longer term Treasurys:

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters. ...

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.

On September 21, 2011 the Fed announced Operation Twist in which they extended the maturity dates of $400 billion of their Treasury portfolio in order to drive down interest rates and to "support a stronger economic recovery". The Fed's reason:

Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

Recall also that the Fed has kept the Fed Funds rate at almost zero rates (ZIRP) since the beginning of the 2008 crash.

Today, the Fed announced an open-ended purchase of "agency" mortgage-backed securities of $40 billion per month at least until the end of the year, which along with its Operation Twist purchases, amount to $85 billion of such purchases each month. Again they wish to "support a stronger economic recovery". Their justification was:

Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.

This time the Fed added some significant wording:

... If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. ...

The bottom line is that the Fed panicked. It is extraordinary that the Fed would announce an open-ended "we'll print as much as it takes, as long as it takes" policy. Chairman Bernanke is sending a signal to the markets and to government that the economy is bad and getting worse and that the Fed will do its part as everyone expects them to do. This is a clear signal to the markets and the world that the Fed stands for monetary inflation. They don't know what else to do.

As we have long been telling readers, unemployment is the key to Fed policy and they have formally made it their policy linchpin. As far back as May, 2011, on Fox Business News I said that Mr. Bernanke has no other real alternatives other than QE and that with rising unemployment, he would be pressured to "do something."

One may ask why none of these policies have led to economic recovery. Why didn't QE1 work? After all they told us then that it would promote "sustainable economic growth". By the time QE2 was released we heard much of the same thing: it would "promote a stronger pace of economic recovery". Had QE1 worked as they said, why did they need QE2? Now the Fed tells us again that another round will "support a stronger economic recovery".

That begs this question: If QE1 and QE2 and Operation Twist didn't work, why would QE3 work?

The quick answer is that it will fail like its predecessors.

I discussed this at length in my February 14, 2012 article, "Is This Recovery." In that article I anticipated that the following things would happen:

1. The economic “good news” is largely based on fiat money steroids and will not last without continuous injections of new fiat money into the economy.

2. The last injection of fiat money (QE2) is already wearing out and money supply is most likely declining.

3. A declining MS will result in further economic weakness (stagnation) and flattening-to-increasing unemployment.

4. This is likely to occur in Q2-Q3 2012.

5. As soon as unemployment goes up again, the Fed will announce QE3.

6. The dollar will continue to be weak.

7. It is likely that price inflation will continue to be “modest” (as the Fed sees it) in light of ongoing real estate related asset devaluation. This depends on the amount of QE.

The article thoroughly discusses the reasons why the economy is stagnating and why further rounds of quantitative easing will not change it. One of the charts from that article (shown below) attempts to show that each round of QE has been less effective at boosting nominal GDP. The vertical bars show the dates of QE1 (orange) and QE2 (light blue), the money supply (TMS2- aqua-blue line), and GDP (thin black line with its own scale [left]). The result is that economic growth measured by nominal GDP has been largely illusionary.

The truth is that GDP is not a very good measure of economic growth, at least when the Fed increases the money supply through QE. Since GDP measures spending, if new money is injected into the economy, there will be more spending and thus GDP will increase. The second point is that "printing" money never creates organic economic growth. In fact it never has at any time in history.

What can we expect the consequences of QE3 will be?

1. Money steroids will give a temporary boost to the financial markets as evidenced by today's euphoric response to the Fed's announcement.

2. The impact on organic economic growth will be nil even though it may slightly increase GDP by Q1 2013.

3. Unemployment will remain high.

4. Economic growth will stagnate, if not decline, through the remainder of 2012 as money supply growth declines (TMS2).

5. Post Q1 2013, economic activity will again stagnate, assuming there are no policy changes or political changes (Romney is elected).

6. Europe and the rest of the world's economies are in decline which will further depress the U.S. economy.

7. Price inflation is a guessing game. My guess is that it will remain within the Fed's parameters. The key to price inflation will be credit creation through lenders and, while lending has shown some life (mainly the big banks with big companies), it is likely to flatten again as the economy stagnates, thus inflation will remain "Japanese."

8. Interest rates will remain around their historic lows. While the housing market is showing some signs of life, its recovery largely depends on job growth which will remain subdued.

9. How much QE is a good question. I cannot see that any Fed chairman would print endlessly to a point of high price inflation. That would require much greater amounts of QE-type monetary stimulus plus it would require banks to lend, which means businesses would be willing to borrow, thus expanding credit and money supply to much higher levels. QE is not an efficient way to price inflation, and in a stagnating economy, borrowing will remain flat.

If you are a true believer and feel that the Fed is correct, you have to ask yourself hard questions about your assumptions since the Fed has been consistently wrong in their forecasts and policies. Now they insist on pursuing the same failed policies. Why would they work now?

The Fed continues to follow the same wrong policies as it has since the beginning of this depression. We now have one of the longest depressions in history that has been caused by the Fed and the fiscal policies of the Bush and Obama Administrations. They are devaluing the dollar, destroying capital, thwarting growth, and cheating savers out of their hard earned money. It is a cruel blow to the 23.1 million un/under-employed in the U.S. who need economic growth to create jobs. We need a new direction.

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cgagw's picture

5 days ago – Half an hour after anon table is a section of allowance REPLICA OAKLEY SUNGLASSES and ends of a meal, Yang Ningsu looked at not just accommodated blackout if the array ...

Westcoastliberal's picture

Seems to me at about this point we the people need to push back against this rampant give-away by the Fed, essentially buying MBS at par (which if marked to market, the real value would be somewhere around 50%), and sticking us, our kids & grandkids with the bill.  The net result of this spending is more huge bonuses for the Banksters and Wall St.  It solves zero problems on Main St.

$80 Billion a month invested in a "Rebuild America" infrastructure program, on the other hand, would put millions of Americans back to work, which would in turn result in sprouting 100's of 1000's of new jobs in small business as the RA workers spend their newfound incomes.  At the same time it would take millions of Americans off the welfare and snap rolls, so the real cost would not be $80 Billion a month.  Couple this with new legislation reversing the tax advantages multinational companies enjoy from outsourcing jobs to foreign lands, and maybe going a step further, a tariff on imported goods from such operations.  I believe we would see the pendulum swing back toward increased manufacturing in America.

Long term, we as a country would enjoy a stronger, safer, more productive country with a better infrastructure and much better economy.

Too bad we're not hearing anything close to this in any campaign speeches. 

boiltherich's picture

They don't call him helicopter Ben for nothing you know!

YouAreBliss's picture

You are all missing the most important NEW economic formula:

When the exponential growth rate on the Fed's balance sheet earnings (which get remitted back to Treasury - minus a small haircut) exceed the exponentially growing US debt/GDP ratio we have the economic crisis solved  - forever! With no cuts -except in tax rates!

The only question is when do we hit the cross-over - I say around 2015.


Then the only question will be - what to spend this infinite source of wealth?


I say another dozen $100 Billion dollar Aircraft Carrier Battle Groups - just in case these ME riots get worse. And a $1 Trillion space based laser defense to protect those vulnerable Nimitz ACs.

And free food for EVERYONE!  (and well a free P90X DVD set - in case this weight thing gets out of hand - we do need a few hotties around).

TrulyStupid's picture

This is yet another banker bailout, taking their bad mortgages and putting on the public books. Now the TBTF banks can pay out huge bonuses to themselves and make more bad loans for profit.

Widowmaker's picture

Let's call a spade a spade.  Bernanke and the fraud-Fed is bailing out Washington writ large.  This has EVERYTHING to do with politics and zero with the common good.  It is elite self-dealing their own preservation.

All matters of politicial partisanship are purely circus as everyone with fucking matter in their skull can see that D's and R's are just as culpable with the rotten stank of the USA.  

I'm glad I'm not young -- those under 40 don't stand a chance of anything other than fascist servitude.  Their children?  FUCK THE CHILDREN, THEN EAT THEM!  No opportunity unrevoked.

Banks and 1% are gutting the country, and there ain't shit you the reader or anyone else can or will do about it.

Eat shit, 99!

ebworthen's picture

Ben goes "all in" with a pair of deuces.

geno-econ's picture

Econophile---So, specifically,  what is the new direction that we need so desperatly ?



  Cut spending drastically--- both entitlements and defense?

  Increase taxes?

  Allow banks to fail?

  Devalue US$?

  Wage and price control ala WWII?

Everything else is same old, same old and will lead to eventual collapse

De minimus's picture


But then that makes it impossible for our betters, our managers, to get what they want. Ultimately they want to own us and our children and live off what they can siphon from what remains of a once productive economy.


Widowmaker's picture

EXACTLY!  You get the smartest comment award.

Freedom is "unmanagable."

Anything "unmanagable" is not fiscally responsive to manipulation, thus oppressed by every power and incorporated media outlet known.

Shizzmoney's picture

“Let them eat stocks and housing”

We have low household formation due to young adults facing high unemployment, low paying jobs with generally short job tenures, and heavy student debt burdens. On top of that, we have generational headwinds as boomers hit retirement age and want or need to downsize. Keeping money on sale is not going to induce banks to lend more if they can’t find enough qualified borrowers. And the consumer deleveraging story is not as positive as the statistics would lead you to believe. A lot of it is involuntary, meaning driven by foreclosures. In addition, retirees also curtail their spending thanks to the fall in interest income they’ve suffered under ZIRP.

But another big issue is that the Fed looks to have painted itself in a corner. Is the US going to have 3.5% mortgage interest rates forever? If the central banks does manage to create a bit more inflation, how does it think it will exit? A mere 1% increase in interest rates, from 3.5% to 4.5%, increases mortgage payments on a 30 year fixed rate mortgage payments by 13%. That will translate into a meaningful dent in housing prices. And where does the Fed go if a financial crisis or other shock occurs?
dolly madison's picture

The petrodollar is about to fall apart.  It's no wonder the Fed is panicking.

WhiteNight123129's picture

They are not PANICKING, THEY WANT THE CORPORATIONS TO PANICK ABOUT THEIR CASH HOARD AND SPEND IT ON ANYTHING, BECAUSE BERNANKE IS GOING TO SHOOT THOSE. Good job Bernanke, the corporations will be forced to employ people on something, whatever thing, but use the cash.


SokPOTUS's picture

Pfft.  Executive Bonuses.  Share Buyback Programs to make Executive Options more valuable.  Special Dividend declarations.

Anything but ramping up hiring to do make work projects.

Government hires people to do make work projects, not corporations.  That's a sure way to get your ass canned.


They may indeed burn through the cash, but it won't be on wages.



nofluer's picture

You forgot one. They could pull an Arnault. Only do it with the entirel company. This would be an option until the NWO is firmly installed and once that happens, they'd need to get clear off the planet.

goldinpenguin's picture

The way I see it the big mortgage banks are sitting on huge numbers of shadow inventory REO homes that they need to unload, Ben Shalom needs to create a huge pool of low cost,readily available funding so the banks can offload these properties without creating a price plunge (a plunge that would lead to more strategic defaults in areas already hardest hit).

The banks may be hiding their shadow inventory and not accounting for non performing loans or writing down these values. They can stick their heads in the sand about everything but the cash flow aspect of these bad mortgages, thats the squeeze that will force the sales. Bernanke's chatter about jobs is a smokescreen the prior QEs had little impact on jobs and this will have even less, any labor increases due to new home construction are way down the road - and the soaring commodity costs will largely offset minor additional savings in borrowing costs for new home buyers but there is no commodity cost element for existing home buyers, the price spread between new and existing (similar) homes will increase - how many new jobs does that create?

nofluer's picture

But there's a little problem with the MBS houses... most of them have no marketable and transferable title. In an orgy of "cloud" type thinking, MERS threw them away. They said they didn't NEED them anymore. And besides - that way they didn't have to pay taxes to all those counties on the title transfers every time the MBS was sold to a new holder.

Which is probably one of the main reasons they HAVE that shadow inventory - in many States they can't foreclose and they can't legally get RID of the turkeys at ANY price. (Didn't you ever wonder why they didn't just sell them at fire-sale prices and write off the losses from their taxes? ie what changed from the Old Days to now?)

Fort's picture

Bankers will get their Christmas Bonus again. What else is new?

The Dutch election circus and media coverage achieved the desired result. The wrecking of the Economy can happily continue. Nothing new here, which compares well with the US elections.

Middle men in the developed world are getting it up the a**. This is nothing new and will continue until just 2 classes remain the have all and the have nothing.

The Fed and the ECB in a neck to neck race to get the most f*****-u* currency. You can still place your bets on the winner. The looser is a forlorn conclusion. That is the middle men and the next generation. Nothing new here either.

The € a big success is allowed to muddle through. Children born in NL prior to the arrival of the € had a net worth of about $20K. Those born today have a net debt of $35K, but with exchange rates changing that might change. Guess those babies born today literally are born losers.

The only surprise is that the house of cards is still standing and apparently is going to be build higher. It makes one wonder is this another babel tower and will the gods of money one day feel challenged and blow it to pieces.

God knows I don't. All is very bullish that is obvious.

TuesdayBen's picture

I almost never see any TV. Don't recall having ever seen the Fed Chair speak. But caught Bernanke tonight doing his spiel, and the fucker looked and sounded nervous. Disconcertingly so. Did anyone else sense that? Is the guy always jumpy like that? Or is he perhaps freaked out trying to conceal his awareness that he is trying to ride a tiger at the edge of a cliff?

SokPOTUS's picture

The Bernank is a cloistered academic.  He is a *horrible* public speaker.  These new news conferences are clearly his own idea.  No media consultant would *ever* advise that he put himself out there like that, with his demeanor and persona.

He needs to hire a smart and slick press secretary to come out and do the public dirty work and keep himself in the shadows, other than the required, scripted Humphrey-Hawkins.




sharky2003's picture

He always sounds like that. I actually think he sounded less nervous than usual yesterday.

mrdenis's picture

reminded me of his  interview on 60 min .......he has more info than he's telling us .....I think he knows we already  jumped off the cliff 

mkhs's picture

It is really simple.  It is the broken clock method.  Eventually, the economy will improve, and QEnth will be hailed as the saving grace.

boiltherich's picture

I gave you a green arrow for your clever and probably correct theory, but a broken clock will not point to the right time even twice per day if the hands are broken off and the case is smashed. 

None of the QE's have passed the smell test but this one, QE3+ is really stinking of madness and some sort of covert last ditch looting, I am thinking that the December 21, 2012 end of the world theories are right.  You do not care how hard you gouge the planet financially or how obvious that looting is when the people that might get fed up and fight back do not exist in 2013.  Or some variation upon that theme. 

nofluer's picture

I read that the Mayan prophecies do NOT say "end of the world" - but rather "End of the ERA"... Makes me nervous.

Humanity has been tried and found wanting...

Hohlick's picture


Maybe I am wrong, but all of you, americans, are on the hype. I mean debt hype and affluenza. You making debt so easy, like drink water. You cannot even suggest how to live without debt. Tens of credit cards, mortgage housing, car loans. Debt is a one driver of your economy. The only way to get something is debt (=banks=FED). I don't sure, may be even Coke you buy on credit. It sounds so strange sometimes... I've made only one loan in my life, 15 yrs ago, for a 6 months. It was quite enough to understand that debt = drugs. Now I have 100m2 apartments, 2 cars (for me and my spouse), and zero debt. ZERO. I've just worked, that is all. I use debet card (you know what does it mean, I suppose)

Banksters made all of you a junkers, dope-fiends. Buy-buy-buy. Can't buy now? Make debt! It is so easy, so fast and relaxing. Look - there is a new house! Your father worked for his house for years, you can "buy" it right now!!! Easy, fast and so much fun! Faustian deal.

Just remember, is there are so much college loans or, may be, housing loans, 60 years before? Oh, sorry, economical growth... yes-yes-yes. It is Ponzi world at all.

So I can't grasp, why you worry about new debt, new fiat money, new QE?.. Nobody cares about pay it back, BTW. Just another one dose, new bing. Go ahead.


geno-econ's picture

Whenever you live beyond your means and go into more debt in order to maintain a life style ,it eventually catches up.  That is why Alexander I sold Alaska to America and Greece is willing to sell off their Islands. Bojhe Moi ! Would you like Alaska back ?

Hohlick's picture

Ok, may be $7.200.000 will be good price? ))

boiltherich's picture

"...may be even Coke you buy on credit."  Dude, coke is like $100 per gram and dealers now have square now so of course people buy it on credit cards, probably deduct it on taxes returns as well as a business expense. 

You in Russia are catching up fast to western capitalism as far as consumer values go, as well as oligarchic banksters, so try not to get too smug OK?  There actually are a lot of people here that manage to get by on cash alone, though I admit they usually are older and have paid off the loans they took for houses and cars and such.  Lending and borrowing are not necessarily a Ponzi if conducted in other than a fiat currency and are self extinguishing over time.  It becomes a type of Ponzi when borrowers are allowed to repay loans with other borrowed money.  It can only happen where accounting and fraud enforcement standards are permitted to fail, and that, not debt in and of itself are what most here point to as a collapse in ethics, because it is addictive and self feeding to the point of insanity such as Bernanke announced yesterday, and which Draghi is doing on an even larger scale. 

I would like to be critical of Mr. Putin but at least he has directed the BOR to buy gold.  Pozdravliu if my memory of Russian is any good. 


Hohlick's picture

Thank for comment!

There is not so much smugness in my post, just a bit pity about how it looks from outside. We in Russia followed your democracy, your values (all of imperfections included), but first ten years was terrible, and now we are going to get all repercussions (oligarchic banksters, money outflow, oil needle, etc). Actually, all your problems become our problems very fast and double sized, thats why I am so interested on studies on what going on and how do not repeat your (America's) mistakes. Most of my post was about "collapse in ethics", of course.

Here in Russia still very difficult to buy housing without mortgage (housing costs are very high compared to earnings), and mortgage rates are about 12-14% per annum (thats why we call that people are enslaved for years), but when I thinking about what will going on when rates become too  low, I have a good example of US housing crisis. People are people even in Russia, and "live now - pay later" is popular slogan.

Buying gold is good, but the best that Putin can do for Russia is elimination of currency board regime of BOR. But it is not so good for US, i think. Here we have a bill draft, issued by pro-Putin deputies, called sometimes "nationalisation of central bank", and, with all of its imperfections and weaknesses, and even stupid proposals, this is a sign.

SokPOTUS's picture

Great post Hohlick, from a newbie.  Faustian deal.  Man, you nailed it.

fijisailor's picture

QE is not failing its intended purpose which is to render valuless all of the malinvestment made by the big banks via inflation.  My girlfriend is Bolivian and went through hyperinflation there is the 80s.  She says buy fixed assets and also when the real inflation hits any mortgages you are paying for wiil rapidly be paid off with wheel barrow loads of worthless fiat.

q99x2's picture

How can the FED prove they are effectively manipulating reality?

With the Department of Homeland Security.

SafelyGraze's picture

precious moment from the Nank speech:

q: so, is it maybe just a teeny bit political that bankKandidate2 said he'd fire you, and so you announce endless issuance of dollarness two months before the re-election of bankKandidate1?

a: I'm glad you asked that. check me out: as proof of how not political I am, and by the way I'm way too busy with my job to even think that far ahead, heh heh heh, well anyways, it is evidence of my NON-POLITICAL NON-ELECTION-TIMING that I worked really hard ALL YEAR LONG not to do what I'm now announcing I will do.

get it? the proof of how non political this is: I waited until now to spring it on you! all those months that I DIDN"T ANNOUNCE MORE DOLLARNESS up until elections are at hand? credit them to my trustworthiness account!

boiltherich's picture

And yet there are people here that will vote Romney for no other reason than to get rid of Benny B at the Fed, and who will Mittens replace him with?  I will laugh my ass off if it turns out to be Krugman!  Chances are it would be someone more conditioned to taking orders from the WH though, Geithner? 

ejhickey's picture

where are al the smart guys whosaid we would never get QE3?

SAT 800's picture

Guilty as charged; I'm a smart guy and I said he wouldn't do QE3. "I'm shocked, schocked, Rick, to find out tht gambling is going on here". IMO it's 100% political; If Odumbo doesn't win Magic Ben loses his job; and his magic; that's a powerful motivation. It's alos disgusting; and yes, shocking. This will not end well.

onebir's picture

I think that's it. No QE -> crash -> Obama win less likely -> Ben Job less likely.

Today's IP number a perfect excuse.

He's behaving like a rent-seeking politician, not a central banker. (Not even one with a dual mandate). So who needs an 'independent' central bank? Just let the govt set the interest rate...

As for front-running a war - suggested below - doesn't that risk leaving you with no/inadequate 'ammunition' when the war breaks out?

As for 'predicting' yesterday's QE in May 11, well that's a touch early, dontcha think?

new game's picture

guilty too.

went against the majority...

we all(majority of econ idiots) get what we deserve.

but, my pm voted for me - and a welcome to that.

as i see it, since wages flat and inflation eating us like a chineese drip, well

ya need a 20 percent return somehow.

pm saved the day.  how big is your nut? 20 percent of what-sustainable? hehehe

liven a month at a time. and oh yea inflate that mortgage away- hehehe again-what job?

pay the payment with housing subsidy from gubmnt? fenced pigs i say. 50 percent on wagon.

who is pullen - ben the one horse printer. hmmm

day will arrive for most paycheck to paycheckers will be doing the unthinkable...

plan your statagy

small comunity and plan to take a stand or go nocturnal and roam like a wolf...

thanks ben and ruleing bwankers; have a nice day at jersey or caymen.

hope dat fiat is worth something, all 20 t of it.

best be buying something tangible with that loot...

we are!

oh and thank again for that boost y-day, much appreciated.

good day.

chump666's picture

Look I'm thinking Bernanke is f*cking nuts back to front.  But, a war trade could be priced into the Fed MBS buy up, unlimited money print.  If all out war breaks out, Israel gets he green light, Iran blows taking out the Saudis, South China sea blows up. China goes bananas on Japan/Philippines/India.  Their will be a massive liquidity squeeze, funding will be drained out of USTs, USD will be bid and equities will be punished to hell.

The Fed, bless their maniacal inclinations, could be front running a war.

Just saw some massive short positions on various indexes light up.

TuesdayBen's picture

Could be front-running a *world* war. Interesting notion.

lasvegaspersona's picture


more likely is that they recognize the dollar must ultimately fail and a better system could be prepared. The optimistic view is that with dollar failure we get a more even playing field (due to the elimination of the advantages of US reserve currency status). The Euro's structure has been in preparation for just this event and its use of gold, not as an asset that backs the Euro at a fixed rate, but at a market rate, will mean that the Euro can function as a reserve currency (not tied to one nation thus eliminating part of Triffin's Dilemmea) yet constrained from inflating because that would increase the Euro cost of gold which would cause upset to Euro holders. If this becomes universal then fiat currencies could exist in some harmony with the financial system because they would all be constrained to at least limit inflation somewhat, or the currency will find it difficult to get imports for the usual reason that inflating currencies do. If this systememerges, and I believe it will, we could ultimately have a better fairer world financial system.

cynicalskeptic's picture

Is it remotely possible that Bix Weir is right?  - that they're TRYING to crash the whole financial system to 'reset' it free it from the grip of evil banksters?


'cause there's no other rational explanation for what's going on......   

Darth..Putter's picture

I wonder if Keynesianism swirls in the opposite direction in the Southern Hemisphere?

SAT 800's picture

Don't know mate; but we're sure circling the old plug hole.

GlobalCtzn's picture

I have my eyes peeled, focused on the horizon, looking for QE4...........

andrewp111's picture

Since QE3 is permanent, QE4 will be Bernanke's final bullet - when he prints money to buy gold. He will shoot his IOR bullet first.