This page has been archived and commenting is disabled.

Bernanke - I'm Slowing Down the Ship

Bruce Krasting's picture




 

A full trading day after the release of the Fed minutes has brought us some reasonably significant changes in market levels. S&P –1.5%, Gold – 3.5%, Crude –1.5%. Apparently, the confirmation that it is on hold surprised the market. (link)

.

 

I’m not surprised. Bernanke understands that  upping the anti with more QE would send the price of crude through the roof. The deflationary effect on the consumer economy of another dollar increase for gas would far outweigh any positive consequences that another LSAP would have produced.

Some random thoughts: (Warning, I stray from side to side on this.)

.

-I see that the Fed has been put in check by the global price of crude. While this is not checkmate, it forces the Fed to move to the defense. The language from the Fed meeting confirms it. For the past four years, the Fed has been on the offense. It has had no opposition from the markets. The subtle change in the Fed’s position is a major change in its strategic advantage. To me, this represents a significant change of events.

+

-While this represents an important strategic change, the reality is that the short-term monetary consequences are negligible. ZIRP will linger on for at least another year. As as a monetary stimulus, ZIRP has much greater consequences to the global economy than do QEs, TWISTS etc. It's as if the Fed has shifted from fifth gear down to fourth. It's still speeding ahead. The shift to fourth is more about gaining some additional traction over a rough spot, not about a change in velocity.

.

+

-Bernanke has said that if there were to be a new TWIST, the operation would be “sterilized” by reducing very short-term cash liquidity (2-14 days). The Fed would have to do that because they have no more medium term paper to swap against long-dated paper. It is faced with an operational constraint to extending TWIST. The result is the necessity to drain short-term liquidity to complete the swap.

I think the sterilized swap is a stupid terrible idea. Yes there is a lot of cash around.  But if Ben thinks he can suck up $800b of cash and not have a consequence, he is mistaken. The financial markets have been running on dirt cheap money (0.1%) the past few years.

I wonder if some folks with white spats haven’t whispered to Bernanke, “If you quit on QE we will be okay. But whatever you do, don't give up on the high-octane liquidity!”

 

+

-IMHO if the US economy is buying up 15m cars (annually) it is not in crisis, and does not need emergency monetary measures. I’m not ignoring high unemployment. I’m saying the problem is structural. Hot money can't fix this problem and hot money is causing other problems. The question is, “Is the Fed thinking like this too?”

The Fed has a dual mandate: Price Stability (PS) and Maximum Employment (ME). If Bernanke had been asked the question at any time over the past three years,

 
“Between the two mandates, how are you allocating your efforts?”

Bernanke would have answered:

 
“99% to ME and 1% to PS.”

 

What would Bernanke’s answer to this question be today? Would he say:

 
“95% to ME and 5% to PS.”

 

Or would he say:

 
“We’re back to 60 - 40”.
 

Answer:  It isn’t 99 - 1 any longer, and we’re still a long way from 50 – 50. But the needle has moved on this measure. This too is very subtle, but not insignificant.

.

+

-As Bernanke withdrew one card from the deck, he has inserted two jokers. These jokers can be played by Ben anytime he likes it.  He just needs an excuse. I wholeheartedly agree with the sentiment that all it would take was a 20% correction in the S&P and we would have QE3 in a NY minute. 

Think about that. It’s insane, but it’s also true. The economy can’t expand unless the S&P steadily rises. What was once cause and effect is now effect and cause.

.

+

-Bernanke has a bad sense of timing. He iniated QE2 in response to an “invisible wall”. He launched Operation Twist in response to a slowdown he (and others) thought was coming last summer. Neither of those “slowdowns”  actually happened. It was just the New Normal ebb and flow of the economy. Bernanke missed the signs.

I wonder if Ben is suffering another bout of bad timing. He is sailing a big ship and it is on fast forward. He is sending out signals that he going to slow the ship down. Definitive evidence that the ship is slowing will come when/if the Fed announces that it will not extend Operation Twist. (The White Spats folks are insisting it’s coming in June).

If the Fed does not renew TWIST, then the history books will say that this was the turning point of a move away from monetary accommodation. Those books may compare the timing of the Fed's transition to the fateful tightening steps the Fed made in 1936 that precipitated the second leg of the Great Depression. Funny thing about those history books.

.

+

-Absent a blow up in the stock market, I don’t think that Operation Twist will be renewed. That will be a big surprise to the folks with the spats. The likes of Morgan Stanley and PIMCO are loaded up for a new MBS TWIST. I believe that the deep thinkers on Wall Street are missing the political angle on this. Bernanke’s hands are tied by the election. If he comes forward in May with a New Twist program that will last through November 15th, the Republicans will (rightly) call foul. Bernanke does not want to take the resulting flack. It would tarnish his and the Fed’s image.

.

+

-There will be no more QEing or TWISTING until after Christmas. By then, the fiscal time bombs that are set to go off on Jan. 1 will make any steps the Fed takes irrelevant.

.

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 04/05/2012 - 13:50 | 2319965 magne13
magne13's picture

The FED has plenty of bullets and will operate in buying MBS and will announce as soon as next month, take a look at the US treasury curve especially the 10yr sector as yields stagnate to a bit higher all the time the same OTR 10yr is getting murdered, meaning MBS is being bought at the expense of 30yr and 10yr cash, hedged with a bit of front loaded futures.  This pattern will no doubt play out soon as FED ends US treasury purchases and puts money back into end user hands like insurers and pension funds who hold MBS.  The FED realizes that lower rates in the treasuries will be a byproduct of world risk and that MBS is a more direct affect for stimulating further equity purchases and stabilizing housing.  THis is their last effort and they know it, get the jobs back or risk further collapse.

Thu, 04/05/2012 - 14:24 | 2320027 walküre
walküre's picture

I think that's still part of OP Twist.

Thu, 04/05/2012 - 14:18 | 2320017 Straying from t...
Straying from the flock's picture

They are grasping at straws.  The collapse is mathematically certain.  Here is what I am doing:

http://strayingfromtheflock.org/2012/04/05/an-open-letter-to-my-friends/

The writing is on the wall.

Thu, 04/05/2012 - 13:31 | 2319922 walküre
walküre's picture

So, we're to believe he (Bernanke) is "slowing" down the ship are we? You know how I interpret that? He is saying to his friends and cronies to get out of Dodge now while the market is perceived strong. They can't accuse him later that they had no warnings when DOW and S&P drop back to March 2009 levels or lower. Yes, once the juice is removed from the pump market all equities will be in freefall.

More plainly would be to say that Bernanke has run out of bullets. Remember those magic "tools" in his toolbox he was referring to last year? Well, that was last year when QE1 and QE2 were succeeded by OP Twist. Everyone knows that more of the same is only going to dilute the currency further. More of the same is already priced in.

You hear that crashing in the woods? That is the commodity sector going down the tube at a time when everyone was buying heavy into resource and commodity based companies. It's a crap shoot.

Ben is out of bullets. There are no more magic "tools" left. Markets will crash this year before the election. The panic will scare Obama's voters to rethink their decision of sitting this election out and they will come out in droves again to ensure Obama's 2nd term. Obama's voters are the dumb and poor Proletariat and the young and hopeful. The panic will bring desperate people to accept that only a bigger and better funded government can keep prices low and offer secure employment. That is Obama's platform. The oligarchy signs Obama's paycheques and they can only remain in power if he keeps the prols in check.

Ben cannot raise rates at this juncture and he cannot inject more liquidity either. But he can pull the plug on the markets and fuel money out of stocks into treasuries. That is the only logical choice and for me at least, the only logcial explanation of what he did when he did it and what he's going to have to do from here on out.

Depending on the reaction, he can blame it on Spain or Europe in general. See how the narrative is changing and focus is back on Europe again? Markets are ripe for a correction. There is no more mystery or magic about what is going to happen.

Thu, 04/05/2012 - 13:48 | 2319959 skepticCarl
skepticCarl's picture

The only bullet upon which the Fed is short is the zero interest rate policy.  All the other bullets like buying Treasuries ad infinitum are still available.  As Walkeure and Mr. Krasting point out, it may be counter productive to use that ammo, but like in a military war, the generals always keep throwing more lives and ordnance into the fray, to the bitter end, even after the tide has decidedly turned.

Thu, 04/05/2012 - 14:22 | 2320024 walküre
walküre's picture

buying Treasuries "ad infinitum"

The Fed is holding over 60% of UST paper. That's a relative number and has to be put into context where DEBT/GDP is and the debt number as a whole. We're past 100% DEBT/GDP and subsequent debt ceiling hikes haven't been enough. That is reality. The Fed can and will buy debt but there is no plan to keep buying debt on their own. They need additional buyers of debt to keep the story going. If the only buyer of a nation's debt is that nation's central banker, then the nation is virtually bankrupt. Not the people itself but the government machine which only keeps turning with the assistance of the fiction that there is money to support it.

No, certainly not "ad infinitum".

I like the war strategy analogy though. Ben is fighting war on too many fronts. He will have to retreat, regroup, restack and recapitalize. He cannot win on all fronts, nobody can. But he can strategize to give up the gains in one field and even benefit from the losses.

Thu, 04/05/2012 - 13:24 | 2319904 Westcoastliberal
Westcoastliberal's picture

Don't worry.  The Galactic Federation of Light, Ashtar Command is now in control and will round up all the criminals in Finance, Government, and on Wall St.  All is well.  The lizard king will reign for 1000 years to come!

Thu, 04/05/2012 - 12:21 | 2319721 onlooker
onlooker's picture

 

Bruce says---"Some random thoughts: (Warning, I stray from side to side on this.)"

Bruce, I do not always agree with what you say but if you post, you are my first read because you dont try to double speak.

------------"I believe that the deep thinkers on Wall Street are missing the political angle on this. Bernanke’s hands are tied by the election. If he comes forward in May with a New Twist program that will last through November 15th, the Republicans will (rightly) call foul. Bernanke does not want to take the resulting flack. It would tarnish his and the Fed’s image."

Then at times you are a child with wide eyes. There is nothing, absolutely nothing that will not be done to win the election. Tarnish is not a problem that is worried about. Win at any cost is the mandate. The image of the Fed is a heap of ash, burned to the ground.

 

Thu, 04/05/2012 - 18:49 | 2320691 citta vritti
citta vritti's picture

While I agree that TPTB (including TBTF bankers) will do anything to win the election, I disagree that they will act against their interest in undermining the goose that lays their golden eggs (or their electronic debits or however it is what passes for money these days is turned into real assets and power).

B.S. Bernanke is a sincere devotee of Central Banking and cares deeply that the Fed not go down on his watch. His balancing act is between the so-called mandates imposed by Congress, and the unspoken third mandate of preserving the Fed despite all. So far, both sides of the political aisle (as if there were a difference in Congress, a Sodom & Gomorrah-type, small number aside) and respective supporters have already received ample (unprecedented?) Fed funds with which to play out the election, transition and generational continuity, whatever else happens. 

Of course, if circumstances change -- war, earthquake, flood, famine, pestilence, etc., in U.S. or elsewhere -- the Fed will only burnish its prestige by doing all it can, yet again.

Thu, 04/05/2012 - 13:49 | 2319962 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

I just think it's pathetic that our entire system relies on a criminal banking cartel, where we have to study the nuances of their pronouncements like Kremlinologists. Who got airbrushed out? Who's standing next to whom?

Having said that, nice work Bruce. You picked out the nuances beautifully. Brezhnev was standing next to Andropov last time and he wasn't wearing his Five Year Plan medal...

Thu, 04/05/2012 - 12:05 | 2319648 Quinvarius
Quinvarius's picture

QE cannot stop because it is propping up government spending which cannot be supported by our economy and tax base.  I don't know why there is even a debate. 

Thu, 04/05/2012 - 14:15 | 2320011 Thisson
Thisson's picture

I agree with this.  The US isn't going to balance its budget.  Instead, debt will keep increasing until bond vigilantes strike, and then the Fed will be forced to fill the gap with QE.  This will either lead to surging inflation due to money-printing, or deflation as a de-facto default in bonds due to monetization is finally recognized by the market.

Ross Perot wasn't elected when he cautioned us about the need to balance the budget.

Ron Paul won't be elected this time.

America will never voluntarily make the painful choices needed to balance the economy (e.g. cutting entitlements, ending military spending, cutting public pension).

Thu, 04/05/2012 - 11:51 | 2319610 the grateful un...
the grateful unemployed's picture

thanks for your Lewis Carroll read on the Red (Fed) Queen. "First the sentence and then the evidence.." We've thought for some time the economy followed the stock market and not the other way around. Bob Prechter has said that for years. Put aside the shock that goes with recognizing Feds efforts to reverse engineer a recovery (with employment and consumer spending for all) and just try to figure out how can he do it using the old tools, interest rates, and liquidity. nothing will happen without the mass destruction of asset values across the entire class. if the wealthy people sitting on those notional assets are allowed to redeerm them two things happen, the money does not go to consumers, and you get mass inflation across all segments of society, a very unfair outcome.

but here's the other problem if it becomes obvious that the encumbent will not, or should not win reelection, Bernanke will shift his flag to the new regime in order to save his miserable bureacrat hide. this sort of courtly intrigue is a possibility anyway. remember Reagan screwed Carter by dealing with the Iranians for the hostages before the election. keep your eye on the sparrow.

Thu, 04/05/2012 - 11:49 | 2319598 Hal n back
Hal n back's picture

as already pointed out how will the 2 trillion deficit be funded? Is Canada going to buy Treasuries nobody else wants?

 

or wil lgovt say its cutting social security, medicare, medicaide, prescription drugs, welfare, food stamps, interest paymnets defence and the salaries and benefits on federal employees?

 

 

Thu, 04/05/2012 - 11:12 | 2319490 Maybe-Not
Maybe-Not's picture

Overthinking this maybe? This is a political gamble to bring down oil prices for the administration. A gamble because it may bring stock prices down with it. But more of the current administrations constituants use oil than stocks so I guess it's a gamble worth taking?

Thu, 04/05/2012 - 11:08 | 2319469 eddiebe
eddiebe's picture

It's not the lack of oil that will do us in, it is the lack of political will to start implementing alternatives.

Thu, 04/05/2012 - 14:58 | 2320093 Thisson
Thisson's picture

We dont need political will.  When it costs $10,000 to gas up your SUV, people will switch to bicycles.

Thu, 04/05/2012 - 11:02 | 2319440 JamesB
JamesB's picture

Bruce,

Great post as usual.  You are the gem in the Zero Hedge Rough.

 

It looks to me like the end of QE is pretty predictable.  QE was happening when debt/money destruction was happening in the banking system.  QE stopped when the debt/money destruction stopped. 

 

Every time Fed assets were flat for a time and money supply growth fell to the 2% or lower, Ben would start QE.  This time, Fed assets have been flat for 8 months and money supply growth has been 8%.  That means leverage in the banking system is starting to increase again.  No need for QE if the banking system is expanding rather than contracting. 

 

Eventually, the banking system expansion will be inflationary all by itself, without any twist or QE, and Ben will have to raise interest rates to slow that down.  Then we will really see if he will hold inflation to a low level - or if every cynic (every person?) at Zero Hedge is correct, and hyper-inflation (>10%) follows.

Thu, 04/05/2012 - 15:00 | 2320098 Thisson
Thisson's picture

Banking is only expanding because none of this mess has been marked to market.  Eventually, there will be a failure of cash flows required to support all the bad debts in the system, and then the expansion that looked so good on paper will be booked as a contraction. 

Thu, 04/05/2012 - 10:46 | 2319375 geoffreys7
geoffreys7's picture

More like going down with the ship!

Thu, 04/05/2012 - 10:29 | 2319319 Hedgetard55
Hedgetard55's picture

Ben cares about one thing, saving his banksta buddies asses so he can get a 7 figure job after he retires. He will never make it there, though, shit will get too real way before then.

Thu, 04/05/2012 - 10:24 | 2319305 slovester
slovester's picture

"ZIRP will linger on for at least another year."

That is the oddest spelling of lifetime that I have ever seen...

Thu, 04/05/2012 - 10:51 | 2319395 tempo
tempo's picture

As long as Foxconn pays $1.25/hr, there will be ZIRP. W/O ZIRP, unemployment in the West would zoom higher. Ben and the rest of the West is caught in an corner w no way out. How many years can the US run trillion dollar deficits w/o higher rates and inflation? Now ZIRP has been checked by oil prices, the next check may be rates or food inflation. Ending the Bush tax rates going into 2013, having to set a much higher debt ceiling, Fukushima radiation, Spain/Italy rioting, growing power of the Muslin Brotherhood....all make investing much more risky going into the end of 2012.

Thu, 04/05/2012 - 10:08 | 2319262 Optimusprime
Optimusprime's picture

Upping the "ante"!

Thu, 04/05/2012 - 09:14 | 2319050 tony bonn
tony bonn's picture

"Answer:  It isn’t 99 - 1 any longer, and we’re still a long way from 50 – 50..."

you have your percentages double wide ass backward.....bernanke didn't give one flying fuck for employment - he is in bed with the banksters whose only concern is prices - and they have been jacked up all the way around his neck and higher...

Thu, 04/05/2012 - 15:02 | 2320108 Thisson
Thisson's picture

Well we could have just said his priorities are weighted 99% to the top 1% representing the financial elite, and 1% to the 99%ers.  Hehe.

Thu, 04/05/2012 - 09:10 | 2319045 csmith
csmith's picture

Scene: Marriner Eccles building.

First Orderly: Well, sir, your subtle message about putting policy on "hold" for a little while has not been particularly well received. Europe is tanking again, and the foreclosure machine is cranking up to evict another 1.3 million Americans thanks to the end of the robosigning mess. I do have to compliment you though on the finely parsed phrasing of your message to almost, maybe, a-little-bit, grudgingly back off the printing for a short while...

BSB: You said the Dow was down HOW MUCH???!!!

Second Orderly: 1800 points so far this month sir.

BSB: Fu$k it...get back in the basement NOW!!!

 

Thu, 04/05/2012 - 09:02 | 2319027 DeltaDawn
DeltaDawn's picture

Ran into a friend of my husband. Asked him how things were going. He said he had cut his travel down to only his biggest customer and fed meetings. My husband asked,"how is that going?" he said, "it is fun. I am learning a lot." My head almost exploded when I heard the word fun.

Thu, 04/05/2012 - 08:57 | 2319008 ptoemmes
ptoemmes's picture

Just to "comment" on one of the analogies to an extreme while offering no other value other than perhaps - a big perhaps - a chuckle:

 "It's as if the Fed has shifted from fifth gear down to fourth. It's still speeding ahead. The shift to fourth is more about gaining some additional traction over a rough spot, not about a change in velocity."

Let's say you're crusing along at 100mph in fifth and then just downshift to fourth.  You could overrev your engine and she might blow before you slow down any at all.  Plus, if the traction is iffy you might just loose control.  

Now, there are times - in racing as an example - you  would do this without, say, using any brakes, but I doubt the FED is driving a finely tuned race car...a WB7 image of an oil burnin' heap-o-trash bald tire jalopy might be appropros here.

 

Pete

 


Thu, 04/05/2012 - 08:19 | 2318913 Snakeeyes
Thu, 04/05/2012 - 07:59 | 2318884 stacking12321
stacking12321's picture

"He launched Operation Twist in response to a slowdown he (and others) thought was coming last summer. Neither of those “slowdowns”  actually happened."

bruce, get with the program!

bernanke is a HERO.

it's precisely because of bernanke's swift and decisive action through operation twist, and other measures, that there was no slowdown of the economy.

and now, unemployment is down to 8.3%, s&P is up to 1400, and the recovery is getting back into full swing.

all thanks to bernanke and the fed!

Thu, 04/05/2012 - 08:00 | 2318883 Widowmaker
Widowmaker's picture

"The Fed has a dual mandate: Price Stability (PS) and Maximum Employment (ME)"

100% bullshit propaganda, Bruce.

You know as well as I do that any so-called mandates of the Fed went in the trash with the rule of law to save financial racketeering and bloody the youth/elderly (those most vulnerable) to pay for central-fraud INC.  There is no honor in banking -- none!

Nice try buddy 

Thu, 04/05/2012 - 07:43 | 2318864 eddiebe
eddiebe's picture

Ok, anybody here really think the fed gives a fuck about their mandate??

Thu, 04/05/2012 - 11:05 | 2319455 rosiescenario
rosiescenario's picture

Madoff had a mandate....as did Stalin, Hitler, etc.

 

Mandates = camo...........they are the wizard's curtains.

Thu, 04/05/2012 - 07:30 | 2318848 Watauga
Watauga's picture

"-Bernanke has a bad sense of timing."

Wrong.  His timing is impeccable.  The Fed is manipulating the system to ensure that its leadership and their cronies make a ton of money out of it all.  There is NO DOUBT in my mind that alot of insiders (Friends of Ben Bernanke--FOBBs) made a ton of money yesterday shorting gold, stocks, and crude.  They KNEW to go short, went short, and made money.  The FOBBs will know when to go long, too, as BB and the Fed leadership will ensure that they are told precisely when BB will pump up the markets with another announcement.

 

Thu, 04/05/2012 - 06:59 | 2318820 Sathington Willougby
Sathington Willougby's picture

 

The failures didn't fail so analysis fails.  

Logic and proportion have fallen sloppy dead.

This is the part of the pillage where everyone who's still around and halfway sober gets a hard taste of senselessness.

But don't point to the fires burning, realism is taboo.

Thu, 04/05/2012 - 10:01 | 2319226 GeezerGeek
GeezerGeek's picture

Sounded better when Grace sang it. Best played at a volume setting of 11.

http://www.youtube.com/watch?v=WANNqr-vcx0

 

Thu, 04/05/2012 - 05:51 | 2318765 rufusbird
rufusbird's picture

I am personally getting tired of all this endless B. Bernanke watching. On the ground here were I live and watch every day, nothing much has changed in the past two years, despite all the gnashing of the teeth. Many more houses have been foreclosed or are finally empy and some sold and refurbished, and are now for sale or rent. The stock market is higher. That's it. Ben this, and Ben that, and the stocks are higher. So big deal. That doesn't have any effect on me anymore, and a hundred million more like me. Maybe that is why all the people I complain about don't know and don't care. I am about ready to join them. Beats talking about Ben B. today, and tomorrow, and the next day, and the day after that , and on, and on and on. I quit. No more Ben B. watching for me. I don't want to hear or read another word!

Interest rates are eventually going higher and he can't stop it. Were fucked.

 

Thu, 04/05/2012 - 08:06 | 2318895 krispkritter
krispkritter's picture

How's the weather in the Land of Unicorns and Skittles? So 100 million and one people aren't seeing their purchasing power decline, food prices rising, gas going to $4 and beyond? How's that home value? Tax rates? Where is this place, I wanna move there!  Put your head back in the sand, or whatever dark place you want.  If you're not keeping your eye on the puppets, you'll never see the end of the play coming...

Thu, 04/05/2012 - 08:26 | 2318925 infotechsailor
infotechsailor's picture

You two sound like the daily conversations that I hear between two halves of my brain.

Thu, 04/05/2012 - 04:26 | 2318730 theprofromdover
theprofromdover's picture

Benny will resign within a month (health reasons).

You watch when the pressure really starts on him. Yesterday's man-made wobble was just the start. He has finally realised he can't print forever, but the reptiles have another idea. They like the idea of ZIRP for them forever, doesn't mean zirp for the peeple's loans, just for their savings.

Thu, 04/05/2012 - 08:04 | 2318892 Widowmaker
Widowmaker's picture

You are absolutely right -- savings crucified.

Loot the savers (retired) through inflation, fuck the youth with debt.

Record faggot bonuses!!

Thu, 04/05/2012 - 04:28 | 2318729 max2205
max2205's picture

Fed is the market. If you don't want to get burned by Bens front running pals, stay out.

Bruce if everything is running smooth in the economy, why is Govt 60% of the GNP and why is the Feds balance sheet still growing

Don't fool yourself that you know what and why and the effects of ANY Fed action. They are worse criminally than the Govt stimulus programs (think GM and solar )

Thu, 04/05/2012 - 04:08 | 2318720 barliman
barliman's picture

 

Forgive me, in advance, for the following:

Still awake, checked for the latest comments here ... and had a flashback, so to speak

Back to the Carter years when incompetency was writ large and if there was "The Plains Way" of doing things it probably involved your father and your sister in the barn.

Arthur Burns & G. William Miller were Bernanke's predecessors at the Fed and as worthless a pair of specimens to serve at the Fed as any others. Their trembling hands at the tiller brought us to know and hate the term stagflation - which, ironically, seems to be where we may be headed now. I personally think the Fed has lost control of the Treasury curve thanks to ZIRP & Twist. We have an abundance of liquidity, a President who is known to be a weakling on the international front and a surplus of international financial problems in addition to our own.

The cherry on the top of this piece of shit pie is the massive indebtedness incurred as intentional policy over the past 30+ years. (I was no fan of Reagan's back in the day).

Perhaps, my sense of deja vu is just my pharmacological indulgences of the 70's coming back to haunt me, but I would swear we are poised to begin a massive inflationary run that will make the 18% interest rates for money market funds of the early 80's look like the sub-par returns of the Treasury curve of the last three years.

Any thoughts, conjectures, ideas of a technical nature to bring me down from the bad trip? 

(NO conspiracy monkeys - this is not a request for your rants about Jews, the Illuminati, various European banking families, etc, etc, etc)

barliman

 

Thu, 04/05/2012 - 14:14 | 2320006 skepticCarl
skepticCarl's picture

barliman, the stagflation of the 70's was the result of many factors, only one of which was Fed policy.  The costly, but unpaid for, Vietnam war and the Great Society social programs were by far the principal culprits.

Earlier commentators made a valid point, that the Fed in general and Bernanke in particular get too much attention.  It is our overspending society and government.  The Fed gets into the mix, because the private and government debt gets so out of hand, and we, the people, and our government, won't take any steps to correct the situation.  Instead, we task the Fed to do the heavy lifting, with it's (fairly new) mandates of PS and ME.  The enemy is us, the lazy sheep of the U.S., who turn obscure bureaucrats into rock stars.

Thu, 04/05/2012 - 09:41 | 2319161 Bruce Krasting
Bruce Krasting's picture

You fear an outcome of 18% inflation? I don't see this in the cards for the next year. I don't see it longer term either. I think we would blow up before we got close to 18%.

I see CPI in the 3-4% range over the next 18 months. That sounds tame. But not when we also consider that interest rates are 0. We have negative interest rates adjusted for inflation.

It scares the hell out me that we have negative returns for money.

Thu, 04/05/2012 - 10:55 | 2319416 chdwlch1
chdwlch1's picture

IMO, the Fed is making an investment by buying up > 50% of newly issued Treasuries and by buying the longer term paper.  They will leverage their massive Treasury holdings when the time comes to "negotiate" away from the dollar as the reserve currency, effectively holding the US hostage.  If the US doesn't go along with the plan, they raise rates and "tighten the rack" until the public pain is so palpable, we're forced into relenting. Long live global government and the SDR!!!

Thu, 04/05/2012 - 10:33 | 2319332 ViewfromUnderth...
ViewfromUndertheBridge's picture

Bruce,

Could you please elaborate on the fiscal time bombs set to go off Jan 1...and what you would expect the knee-jerk political response to be?

I bet Bernanke resigns post election btw, ftw written in lipstick on the rear window of his limo as he drives away.

Thu, 04/05/2012 - 10:10 | 2319267 GeezerGeek
GeezerGeek's picture

CPI in the 3-4% range? That may be true, except for necessities like food, insurance, property taxes (if one is a property owner) and gasoline. Even dirt at your local home improvement center is no longer "dirt cheap".

Thu, 04/05/2012 - 10:28 | 2319314 DaveyJones
DaveyJones's picture

beat me to it. Yes, if we keep changing the definition of the CPI, I bet we can make it any number we want

Do NOT follow this link or you will be banned from the site!