Ouch! The Bundesbank Slaps The Fed In The Face

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Yellen and Cisco lift US stock futures,” the headline read enticingly in the morning. Priceless. Their combined pronouncements were driving up the markets, it seemed. Cisco CEO John Chambers is famous for adding adjectives during earnings calls that cause or predict crashes; his use of “very lumpy“ to describe demand for Cisco products in November 2007 unleashed a round of mayhem. But to everyone’s great relief, he kept any errant adjectives to himself during the earnings call, though he did admit that the “macroeconomic environment” was “challenging” and that “order trends in Europe” were “very challenging.” But not “very lumpy.”

The other spark that goosed the futures, according to the headline, wasn’t a corporate giant, but Federal Reserve Vice Chairman Janet Yellen who is rumored to have a shot at becoming Chairman, if Ben Bernanke decides to abandon ship in early 2014. Her words weigh. So late yesterday, she extended the Fed’s Zero Interest Rate Policy (ZIRP) even further. It had already been extended and re-extended and now is scheduled to run until mid-2015. But she extended it to eternity apparently when she said that she was “strongly supportive” of decoupling rate increases from the calendar and pegging them instead to the unemployment rate.

She followed in the footsteps of Chicago Fed President Charles Evans, who’d proposed to keep ZIRP effective until the unemployment rate dropped to 7%. Minneapolis Fed President Narayana Kocherlakota too had backed that idea, but his trigger would be an unemployment rate of 5.5%! An elusive date is to be replaced by an equally elusive unemployment rate. ZIRP forever!

Yellen also explained that the Fed’s 2% inflation target—based on PCE, so maybe 3% CPI—is not a “ceiling” but a guideline. Or perhaps a floor; a policy that might lower the unemployment rate, she reassured us, would lead to inflation above the guideline. So her plan is clear: wealth confiscation will continue through yields that will remain below inflation year after year until bond investors and savers have been bled dry. And if investors don’t like getting bled dry the slow way, the Fed keeps implying, they need to invest in riskier assets, such as the stock market, in order to re-inflate the bubbles that had been so devastating already.

But by the time the markets closed, the manipulative power of Yellen’s words had dissipated, and the DOW was down 1.45% for the day, at a time when a 10-year Treasury note yields 1.6% in a year! So savers, plow your savings into the stock market. The Fed wants you to.

With impeccable timing, that’s exactly what the German Bundesbank warned about in its annual Financial Stability Report. The “massive monetary and financial policy measures” used to stabilize the financial system “led to an ever greater transfer of risk to the public sector and to the solidification of the environment of low interest rates, the report explained. The side effects of the short-term stabilization could in the medium and long term prove to be “a burden for financial stability.”

It warned that the longer the low-interest-rate environment dragged on, the more irresistible the incentives would be to shift financial means from low yielding, comparatively safe assets to higher yielding, but “more hazardous assets.” And chasing yield has intensified: yields and risk premiums of European corporate bonds have “dropped significantly” despite “clear signs of economic cloudiness and higher risks of default.”

The report pointed out that low yields jeopardized the conservative investment portfolios of life insurance companies. Their products, which offer guaranteed minimum yields, are a popular tool in Germany for building retirement income. To keep their chin above water, life insurance companies were investing in higher risk assets—such as infrastructure projects. In the process, they pushed down those yields further, exposed themselves to more risk, and invaded the turf of banks. It all could ultimately “jeopardize future financial stability.”

It was a resounding slap in the face of the Fed. Which it brushed off by ignoring it publicly.

Republican Party insiders would love to blame their election losses on emerging demographic voting patterns. This excuse does provide cover for some Republican PACs, but Ron Paul eloquently points at other, more powerful reasons, writes Chriss Street. Read.... Romney Would Be President If He Picked Ron Paul As VP.

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Anonymous peon's picture

"But she extended it to eternity apparently when she said that she was “strongly supportive” of decoupling rate increases from the calendar and pegging them instead to the unemployment rate."


The beatings will continue untill morale improves.

q99x2's picture

FED won't care until the US arrests Bernanke and his accomplices. Maybe Texas should arrest them.

nah's picture

the demographic party



Zero Govt's picture

the Welfare State party 

LongSoupLine's picture



I hope Yellen gets hit by a SanFran streetcar with BAC adds on the side of it.


Stupid crooked bitch

Jim B's picture

Hey FED! F YOU from the bottom of my heart!!!!!

Go Tribe's picture

It warned that the longer the low-interest-rate environment dragged on, the more irresistible the incentives would be to shift financial means from low yielding, comparatively safe assets to higher yielding, but “more hazardous assets.”

Equities are nothimg more than useless flotsam trapped in stagnant tidal pools of Fed liquidity.

Zero Govt's picture

"..that’s exactly what the German Bundesbank warned about in its annual Financial Stability Report."

When "stability" requires massive desperate measures/patches year after year you clearly do not have stability

central banking has failed miserably by its own measure, it is time to move on ...let's try a Free Market in money, it couldn't possibly be worse than these monopolists tragically unstable systems requiring patches the size of national GDP's to 'fix'. The failure of central banking is total and complete. Game Over chumps

Ungaro's picture

"Romney would be president if he picked Ron Paul as VP" -- not! I am a big fan of liberty but must constrain myself to what is real. The only way the GOP could have retaken the Oval Office if they ran H. Cain (the pizza guy) against Obama. 93% of the black voters voted for Obama, only 5% for Romney. 

AnAnonymous's picture

Ah, 'americans' and figures:

1994:Clinton 83 pc
1996:Clinton 84pc
2000:Gore 90pc
2004:Kerry 88pc
2012:Obama 93pc

Since 'americans' consider that the slight boost Obama got is what got him elected and re-elected, one could wonder if Gore and Kerry did not get elected because of that or if, more essentially, if Bush got elected due to the US american negro votes.

But hey 'americanism' is as 'american' does so bear with it.

hedgefunddartthrower's picture

The black population in America is less than 13% of the total population. Winning 95 of 13% will not in itself win a presidential election. 95% black would definitely win you a mayoral race in DC or Detroit!

JR's picture

American Mosaic Exit Poll: Romney’s Share of the Vote (edited: 32 categories in all)

Black single women – 2.4%

Blacks – 3%

Hispanics – 23%

Single women – 31.1%

Married Hispanics – 34.9%

Single men – 39.4%

Women – 46.7%

Single whites – 47.5%

All Voters (2 candidate) – 48.5%

Men – 50.5%

Single white men – 50.6%

Homeowners – 54.8%

Married women – 55.4%

Marrieds – 56.6%

White Catholics – 57.0%

Married men – 58.0%

Whites – 58.1%

Chart By Steve Sailer; Exit Polling By Reuters-Ipsos, Sample Size 40,000.


nofluer's picture

Election officials in Philadelphia = -13%

Bastiat's picture

Hispanics voted mostly for Obama too. 

Things that go bump's picture

As did Asians. The only way I can see for middle-aged white men to continue to hold the reins of power is to disenfranchise everybody else.  

Zero Govt's picture

the voting was a MASSIVE fraud

ever seen 60,000 people cue for the Cowboys Football stadium? Now compare that to the static cues at voting stations and the claimed figures of the voter turnout. If we'd had 1/10th the number of voters claimed most cities would be in gridlock

the lie is exposed by watching the cues at places like schools. They'd normally be rammed just at Mum pick-up time. The electoral cheats made voters cue to make it look bizzy but that exposed how slow the voter cues moved and just how slowly they processed voters ..the numbers were actually pitifully low

but 50% of the US elctorate voted they claimed??? It would have been madness if they had, cars gridlocked all over the city, the turnstiles of voters would have had to move faster than the Cowboys stadium on match day, 20 or 30 Cowboys stadium sized booths per city to process the claimed voter numbers

democracy is one HUGE LIE from start to fraudulent finish

Dealyer Turdin's picture

I like your bird's eye clue...  gives me some ideas about how to catch a liar.

LongSoupLine's picture

The "voting"?  WTF!! 


The entire fucking system is broken.  The fact Ron Paul was strong armed out in blatent disregard to rule of law and the Constitution is the real fucking story.  I could give fuck about the "voting process" when you aren't voting for any fucking real choice.

caconhma's picture

R. Paul has proven that the American public election system is a total fraud. The ballot box results are predetermined well in advance. It is not even about money. No. Only outright stupid and blind people cannot see that. Our elections are no better than elections in Putin’s Russia. We are just more lie/fraud sophisticated but the rest is the same.

As a results of it, the changes will definitely come but not through a ballot box. It is that simple.


brettd's picture

Most American High School graduates can't pronounce "constitution" let alone have a conversation about it...good luck.


Manthong's picture

Zero, you are close to the truth, but off a bit because the fraud is not dependent on bodies in a queue (although the morgue does play a part).

In the days of the Constitution when there was a modicum of honesty in  elections, voting was conducted and fraud minimized, with few exceptions, on voting day and it was the with layers of human supervision and vote/voter verification from both parties.

In our modern, post-Constitution era, motor voter and community organizer fraud is given years to grow and blossom, early voter fraud is given weeks and consequently so is “No ID”or “Utility bill ID” voting. The icing on the cake is electronic voting and scanning that removes human scrutiny form the process almost completely.

The dangers of pure mob democracy were checked by the Constitution but that was thrown out the window in 1913 with the 17th Amendment.

At this late stage, most of this does not matter anymore because the system is so warped and putrefied that catastrophe is the only path to a potential Constitutional reconstruction.

Hitting bottom is the only way out and who knows what will happen after that.

But enough of my cheery outlook..

Zero Govt's picture

Manthong  -  I maintain my stance the Presidential election numbers were MASSIVELY RIGGED. 

Look at tapes of the cues at voting stations. If they last an hour count the number of voters processed, it's pitifully low

the electoral frauds were so desperate to show cues for voting they slowed the processing but forgot the flip side, it showed how slow voters were being handled at polling stations.. they dribbled through in slo-mo.

I watched one voting station cue outside a school barely move 3-4 people in 5 minutes. That same school would handle a couple of hundred Mums picking up their kids over half an hour. This school voting post could barely handle 100 in an hour let alone tens of thousands!!!

Now take a look at a football or baseball game and watch it deal with 50-60,000 fans. Times that by 20-30 to get the sort of numbers claimed by the electoral frauds across a city. 20-30 Cowboy Stadiums across a city would cause CHAOS 

instead the voters dribblòed through around town like a few thousand (not hundreds of thousands) zombies looking for a steakhouse

the voter cues were at a near-standstill purely to defraud everyone and provide lots of TV pictures and newspaper photos there was high demand when there wasn't... same con the press used when Saddams statue was brough down, the square barely had 200 people in it but it ws made to look a populist uprising by shooting in the crowd not showing the vast expanses of square empty of people

 ...if 50% of the electorate had voted (110 MILLION people) city's would be in all-out log-jam chaos on the roads and their buses rammed to over-flow with the Govts totally inept transport and road network. The numbers at polling stations were f'king pitiful, it was TOTAL ELECTION FRAUD

Manthong's picture

I actually agree with you but the number of bodies in line will naturally be less with early voting and that also facilitates the fraud.

Lucius Cornelius Sulla's picture

Its all going to fall a part in a massive debt deflation.  The fact that the FED is mouthing off policies like ZIRP forever is proof of it.  They are powerless to stop it.  Yellen can spout off her bullshit all she wants.  The reality is that when inflation kicks in, yields will explode and debt will default en masse.  The FED will be forced to raise rates.  They are not in control and they know it.  It is all a CONfidence game.

Estrella's picture

To quote Agent "K", "Did he say when?"

jayman21's picture

Here are some additional points to think about.


Fool and his money.  Hyper inflation depends on the loss of confidence in a currency.  We have a lot of fools who trust the dollar not just here in the USSA, but worldwide.  This trend probably has a lot more left in it before the great event happens if it happens at all.


The Roman empire abused their currency far longer than anyone could ever image.  It was a default on pensions that created the crack in the dam.  How much longer can we kick the can down the road before the fools realize they are not getting paid?


Fall apart = decentralization - get to know your neighbors.  It will be important if things fall apart.


Food for thought.



topspinslicer's picture

I know my neighbors have obama bumper stickers

jayman21's picture

Ouch...they will be shark food once the sheeple start to panic.

EnslavethechildrenforBen's picture

Confidence or lack of confidence in the dollar will only have a minimal impact on what is sure to be the most massive money printing wealth transfer in history

StychoKiller's picture

When Nimrod start building the tower of Babel, I'm sure that some thought it was a great idea also.