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We Are Nearing the End Game For Central Bank Intervention

Phoenix Capital Research's picture




 

 

The media and 99% of analysts believe the Fed is and can continue to act aggressively to prop up the markets, the fact is that the Fed has been reining in its monetary stimulus over the last nine months, largely relying on verbal intervention from Fed Presidents to push stocks higher.

 

We at Phoenix Capital Research have known this for some time. But the general public and financial media are only just starting to realize that the Fed, in some ways, is at the end of its rope in terms of monetary intervention. This has become increasingly clear in the Fed FOMC statements.

 

Consider the latest FOMC statement released earlier this week…

 

Fed Signals No Need for More Easing Unless Growth Falters

 

The Federal Reserve is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target.

 

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to minutes of their March 13 meeting released today in Washington. That contrasts with the assessment at the FOMC’s January meeting in which some Fed officials saw current conditions warranting additional action “before long.”

 

http://www.bloomberg.com/news/2012-04-03/fomc-saw-no-need-of-new-easing-unless-growth-slips-minutes-show.html

 

Ignore the verbal obfuscation here. The Fed knows that inflation is higher than 2%. It also knows that US growth is faltering. The above announcement is the Fed essentially admitting its hands are tied regarding more easing due to:

 

  • Gas being at $4 and food prices not far from record highs.
  • This being an election year and the Fed now politically toxic.
  • Growing public outrage over the Fed’s actions (secret loans, etc.) in the past.

 

Again, we are in a process of slow awakening to the fact that the Fed has not solved the problems that caused 2008. Instead, the Fed has exacerbated these problems (excess leverage) and created new problems in the process (inflation).

 

Fortunately for the Fed, the European Central Bank has picked up the intervention slack since the Fed began pulling back in mid-2011. Indeed, between July 2011 and today, the ECB has expanded its balance sheet by an incredible $1+ trillion: more than the Fed’s QE 2 and QE lite combined (and in just a nine month period).

 

The two largest interventions were the ECB’s LTRO 1 and LTRO 2, which saw the ECB handing out $645 billion and $712 billion to 523 and 800 banks respectively.

 

As a result of this, the ECB’s balance sheet exploded to nearly $4 trillion in size, larger than the GDPs of Germany, France, or the UK.

 

This rapid and extreme expansion of the ECB’s balance sheet (again it was greater than QE lite and QE2 combined… in nine months) indicates the severity of the banking crisis in Europe. You don’t rush this much money out the door this fast unless you’re facing something very, very bad.

 

This rapid expansion has also resulted in the ECB obtaining a similar political toxicity to that of the US Federal Reserve. Indeed, those European banks that participated in the LTRO schemes have found their Credit Default Swaps exploding relative to their non-LTRO participating counterparts.

 

The reason for this is obvious: any bank that participated in either LTRO implicitly announced that it was in dire need of capital. As a result of this the markets have stigmatized those banks that participated in the schemes, thereby:

 

  1. Diminishing the impact of the ECB’s moves.
  2. Indicating that the ECB is now politically toxic in that those EU financial institutions that rely on it for help are punished by the markets.

 

In simple terms, the Fed’s hands are tied and the ECB is out of ammo. The End Game for Central Bank intervention is approaching. And it won’t be pretty…  First Europe. Then Japan. Then the US.

 

So if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

 

This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com

 

Good Investing!

 

Graham Summers

 

PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com

 

 

 

 

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Sun, 04/08/2012 - 15:26 | 2326484 Zero Govt
Zero Govt's picture

"..the fact that the Fed has not solved the problems that caused 2008. Instead, the Fed has exacerbated these problems (excess leverage) and created new problems.."

Well said Mr Summers ...if only someone would get Paul 'money tsunami' Krugman up to date (with reality)

Sun, 04/08/2012 - 13:24 | 2326310 Judge Arrow
Judge Arrow's picture

Whatever his provenance, the man is right, if doubling down: the markets are reacting to the printing and devalue those banks that get the juice, while taking a run up with equities as the bonds go south. Ho, hum. Who doesn't see that? The further point he makes is also sound: that because the markets, and indeed even Ma and Pa, see the central banking charade, the printing is at an end point. It will not staunch interest rates because inflation is everywhere to be seen. Anyone not see that?  Graham simply clarifies here to the logical extension: the Fed, the ECB, etc are in game-over mode. They know it, we all know it. The time factor is no longer a factor - it has begun and like a large giant falling down it has the dynamic of slow motion to it.

So any economic recovery now underway will be held in check by inflation and unlike the past, this time, the central bank debt bomb goes off and takes the money off the table. The first to feel it will be local governments in bankruptcy court and massive layoffs in that sector while public unions agitate more and more to keep what they have stolen - so, lots of ugly strikes. The economy is not growing now and will contract further, certainly by the summer as the chimera of job growth, erratic retail sales and a worldwide collapse of durable goods combines into a perfect spiral downward. The well managed companies will maintain for awhile and there may be even some period of false optimism when Romney gets elected, but it won't be enough and the political class will make the current poison feel almost benign - the civil unrest that begins with the media agitating a race war, public sector unions not getting their bailouts from the Feds, new taxes at the state and local level creating more dislocation and inflation steady on, then well, by this time next year the hope that the American consumer will pull a rabbit out of the hat to save the world will be gone - the consumer will hunker down to wait out the political and social upheaval as government services and security collapse around the remora classes in hyper blue model fail mode because the cash will go to pay interest - and that will continue - for years. The only way out may be a jubilee moment to pay down all consumer debt and let the banks rot to hell - short of that, there will be blood.

Sun, 04/08/2012 - 11:35 | 2326146 Neo1
Neo1's picture

A Banksters worst nightmare, Being forced to Return to Real Money=United States Note=Lawful Money. The real reason you pay an income tax, is for the privilege of using a private currency. Also known As A:  Federal Reserve Note, Demand from your bank or brokerage, lawful money and the tax goes away, with a tax exemption on lawful money, all of your money is yours.

http://www.21silver.com/?show=merrill&read=federal_reserve_act_remedy

Tax Exemption: http://stormthunder.com/federal-reserve-act/

Web search these four different phrases: Redeemed in Lawful Money  or  United States Note  or Redeemed in Lawful Money Pursuant to Title 12 USC §411  or deposited for credit on account or exchanged for non-negotiable federal reserve notes of face value  

Sun, 04/08/2012 - 11:30 | 2326132 MGA_1
MGA_1's picture

Well.. weren't we supposed go be in the middle of the dissolution of the Euro Project right now?

No... probably a couple more years to go....

Sun, 04/08/2012 - 11:23 | 2326122 nameless narrator
nameless narrator's picture

The Fed's hands are not "tied".  If *you* tied your *own* hands, then you can easily untie them at your earliest convenience - especially if you merely used "words" to tie your own hands.  

The ECB/EU is not out of ammo.  They have only just *begun* to print.

If you had a printing machine, then you are an alchemist.  It is absurd to think of an alchemist as being bound by accounting *rules*.  So, OF COURSE these governments are not bound by accounting.  duh.  Secondly, if you make the rules, the OF COURSE these governments are not bound by rules.  duh.

I agree that both the ECB/EU end-game looks like a bad break-up.  But, that end-game could be years away.  If you believe it is close at hand, then you should be all-in shorting the Euro.  Are you?  A lot of folks lost a ton of money shorting the Euro based on the obvious truth that it is an inherently flawed currency system and, therefore, *should* blow up.   These EU bastards are the quintisential can-kick social engineering squid-trained crony-socialism/crony-capitalism experts.    Why is that important?  Because the USA will learn from them - learn in a way that allows USA to extend the present fiat system further than the EU will be able to do.

Sun, 04/08/2012 - 09:40 | 2326014 disabledvet
disabledvet's picture

the problem isn't "money printing." it's "print and bail, print and bail." and THAT's what's coming to an end. There is nothing new in this by the way. "The good ol' USA has done it for centuries." What IS different is the staggering size of the bankruptcies that will result from the withdrawal of liquidity. (which is a result of the BAILOUTS coming to an end...not the money printing which has as its sole purpose "keeping interest rates low to zero.")

Sun, 04/08/2012 - 09:19 | 2325980 rsnoble
rsnoble's picture

Ever notice anything you want to buy is expensive, everytime you try selling something it ain't worth shit? LOL.  

I do know people are still spending money on their hobbies because that's how I make my living now.

Sun, 04/08/2012 - 10:33 | 2326061 IAmNotMark
IAmNotMark's picture

"I do know people are still spending money on their hobbies because that's how I make my living now."

You're a drug-dealing pimp?

Sun, 04/08/2012 - 08:14 | 2325916 AndrewCostello
AndrewCostello's picture

Let's be really honest here, most people deserve to suffer a currency crisis.  They have voted in Politicians who have printed money for 50 years to pay for all the crap that they think they are "entitled" too.  Now we are getting to the point where we just can't print fast enough to afford the ever increasing prices and that is all that is happening.

Good on people who can see this for what it is, and buy gold and silver.  Shame on those who think the fantasy can just go on forever.

 

Read this if you want to survive what is coming;

http://www.amazon.com/Simple-Wealth-Mr-Andrew-Costello/dp/1463523017/ref

 

 

Sun, 04/08/2012 - 15:34 | 2326497 Zero Govt
Zero Govt's picture

it's not voting for politicians that matters

..it's continuing to pay taxes that is the base of this ponzi pyramid

Sun, 04/08/2012 - 07:29 | 2325874 mind_imminst
mind_imminst's picture

The FED will print. The only reason they would temporarily pause or slow down is to put the fear of God (GS, lol) into US politicians, then they will get carte blanche permission to print to infinity. So Graham might tout his "correct" forecast in a couple of months, but it will only be for a brief moment.

Sun, 04/08/2012 - 07:00 | 2325856 ebworthen
ebworthen's picture

I pray that the sheeple awaken and sic the dogs of war on their dog masters posing as caretakers.

Sun, 04/08/2012 - 06:50 | 2325850 BeetleBailey
BeetleBailey's picture

Anything "free" is;

1. Usually worthless

2. Usually dead wrong

3. Usually too late to act on what is "promoted"

4. Usually a "loss-leader" to suck the gullible into more worthless shite, to which the promoter of the shite charges for

5. Usually stink bomb worthy, and only worthy if printed, and used for bird cage liner - however, if the bird reads it, he/she may become constipated, and not shit on shite.

Sun, 04/08/2012 - 08:00 | 2325899 Obadiah
Obadiah's picture

OMG does that mean this site is garbage?

Sun, 04/08/2012 - 10:07 | 2326034 BeetleBailey
BeetleBailey's picture

OMG....no.

The key word I used was "usually".

ZH doesn't promote itself as "free", nor does it pander to it's members, shoveling shite. It lets us decide what is shite and what is quality.

Sun, 04/08/2012 - 15:39 | 2326505 Zero Govt
Zero Govt's picture

a reader on Jim Sinclairs website today reported he was paying $60,000 a year to put his daughter through Uni for accountancy ...i couldn't believe it!

i'd buy her 12 books a year (cost approx. $80.00) and make sure some were sharp cookie/practical books rather than the garbage 'education' teaches the kids ..by the end of 3-4 years she'd be light-years ahead of 'qualified' students

Sun, 04/08/2012 - 05:07 | 2325805 Poor Grogman
Poor Grogman's picture

No central bank can ever be " out of ammo"

How can you be out of ammo when you can create unlimited ammo?

This is merely reinforcing the scary deflation meme,

We might well have some deflation but it will be "controlled deflation" which is used for control and propaganda purposes only.

What part of " tHe fed creates money out of nothing" is so hard to understand?

People who swallow the out of ammo argument are swallowing some weird ideas indeed....

Sun, 04/08/2012 - 12:25 | 2326208 James
James's picture

"How can you be out of ammo when you can create unlimited ammo?"

 

 

In Bens haste to reload spent shells he made duds.

Sun, 04/08/2012 - 11:08 | 2326104 realtick
realtick's picture

Ammo is the key word. A global superpower is not going destroy its own currency to the point where the military's fuel budget becomes unaffordable. The armed forces have to buy fuel in dollars just like the rest of us. Use your head.

And the monetary base is contracting:

http://1.bp.blogspot.com/-gE_wExjFYE0/T4BpcOUx0QI/AAAAAAAABQg/_R49HBsu7Js/s1600/120407-F.png

Sun, 04/08/2012 - 15:47 | 2326513 Zero Govt
Zero Govt's picture

Realtick  "A global superpower is not going destroy its own currency to the point where the military's fuel budget becomes unaffordable"

Read-up on the decline of the Roman Empire... and the death of many a nation

Economic wealth is the forerunner to military muscle but very often that miltary muscle is the forerunner to economic decline (war is the most expensive waste of wealth ever devised)

..especially if its leaders are deranged and set-off on too many wars, much like America and Britain


Sun, 04/08/2012 - 13:53 | 2326354 i_fly_me
i_fly_me's picture

"A global superpower" will do exactly what its banks want it to do. The banks will not (cannot) tolerate deflation or wide-spread default.  They will always kill the currency and/or host government to save their system and only have to do it nominally. Remember what happened to another global superpower when they collapsed. Their military was left where they were deployed, with no money to get home, and were eventually absorbed by newly broken-off governments; the banks, however, continued on.

Sun, 04/08/2012 - 14:13 | 2326391 realtick
realtick's picture

"If the American people ever allow PRIVATE BANKS to control the issue of their currency, FIRST BY INFLATION, THEN BY DEFLATION, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."

What part of this is not clear to you?

 

Sun, 04/08/2012 - 15:12 | 2326466 i_fly_me
i_fly_me's picture

Well ... at least you didn't attribute it to Jefferson; I'll give you that much.  The oft-quoted statement is not only inherently unclear, it is not scoped correctly for the current situation.  The continent referenced is no longer isolated economically and the currency is now the reserve currency of the world backed only by a pile of debt our founding fathers could never have conceived.  There is no way to de-lever the dollar politically, commercially or even peacefully without destroying it.

Sun, 04/08/2012 - 15:32 | 2326496 realtick
realtick's picture

To whom should it be attributed?

Sun, 04/08/2012 - 20:56 | 2326936 i_fly_me
Sun, 04/08/2012 - 01:07 | 2325626 ddtuttle
ddtuttle's picture

The timing for this is impossible for anyone to predict, so GS can be excused for persistent calls.

Europe is the bigger disaster, and nobody knows how that's going to turn out.  As long as the US isn't terrible, the Fed just waits until the Euro picture is clearer.  

What is teh "end game"?  The end game begins when the US economy starts going down nominally in spite of their induced inflation.  Then they'll have to up the ante: inflation must always cover deflation.  This is the essence of the hyperintflationary sprial: its caused by governments and central banks that try to stop a healthy deleveraging and its natural consequence, deflation.

 

Sun, 04/08/2012 - 00:51 | 2325605 tenpanhandle
tenpanhandle's picture

If you sprint too early in the race you crap out before the finish line and your opponents breeze on by you.  The fed has to save the big QE3 till close enough to the election that the ensueing QE3 party will be  raging at its height and before the actual consumer gas and food price hikes that will follow take place.  I'd say QE3 party on at mid-September.  That is why, IMHO,  that the fed is holding the line on new announced massive QE.  In the meantime they must keep their heads down below the trench top and snipe a few rounds at targets of opportunity, which unfortunately includes gold/silver bugs such as myself.  

Sat, 04/07/2012 - 23:35 | 2325499 CompassionateFascist
CompassionateFascist's picture

IranWar will begin late August-early September. You all have 150x24 hours to get out of dollars and dollar-denominated paper.

Sat, 04/07/2012 - 22:51 | 2325457 lasvegaspersona
lasvegaspersona's picture

 First Europe. Then Japan. Then the US.

I follow you up to the last line...

could it go Japan, US then Euro?

Japan gets the nod from some observers (Kyle Bass)

then, since much of this is a matter of trust as much as of balance sheets, why not the USA )perhaps the Saudis or the Chinese will simply announce 'enough') poof, Euro..last man standing....

Sun, 04/08/2012 - 00:28 | 2325588 TBT or not TBT
TBT or not TBT's picture

Europe is pre-poofed.   It's the demographics, ergo baked in.   

The extra crappy crappiness of Europe and the US is allowing the US to hang itself higher, and get hung last, with the sickening sounds being a bit more dramatic but no more lethal for it.   The U.S. gets most of the oil it uses from its own hemisphere, which it will continue to control/stabilize whatever happens financially.   Europe and Japan, not so much.

Sat, 04/07/2012 - 22:50 | 2325454 Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

Good riddance to the fiat counterfeiters.

Sat, 04/07/2012 - 22:29 | 2325438 Peter Pan
Peter Pan's picture

The sky IS falling. It just hasn't hit the ground yet and this is what is making people too complacent for their own good. The distance varies on your judgment but also your position. If you have lost your job, home and hope then it already has hit. If you are up in the clouds with massive bonuses, big bank balances and expensive art work in your bathroom, then things are looking mighty fine from Olympus.

Sat, 04/07/2012 - 21:33 | 2325369 slewie the pi rat
slewie the pi rat's picture

And ALL of this is available for FREE

 

+1

Sun, 04/08/2012 - 11:50 | 2326179 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

MINE is free too, and I don't even sell anything!  You can't even donate, bitchez!

"Review of Barron's -- Dated 9 April"

Sat, 04/07/2012 - 21:02 | 2325330 HD
HD's picture

NO mention of China flat out warning the Fed not to print? No mention of the falling demand for T-bills?

Ben is going to have his hands full keeping the bond market in check. The S&P is on its own till at least 2013. Just don't tell CNBC that...

Sun, 04/08/2012 - 00:33 | 2325594 TBT or not TBT
TBT or not TBT's picture

China has a problem, in the same sense of "When you owe the bank a million dollars and you can't pay, the bank has a problem."

Germany has the same problem vis a vis the rest of Europe.

Neither country will be able to "take" what it is owed.   Mercantilism, the ideology of exporting, has its limits, and those limits will be reached.   What cannot go on forever will stop, and often enough, reverse.

Sat, 04/07/2012 - 19:16 | 2325216 narnia
narnia's picture

Show me on the M2 chart where the Fed has slowed down? I'm not sure why Tyler continues to publish your posts... you guys are hacks.

Sun, 04/08/2012 - 02:55 | 2325709 vast-dom
vast-dom's picture

Graham is worse than a hack more at snake oil salesman and more importantly he cheapens ZH.

Sun, 04/08/2012 - 01:47 | 2325656 philipat
philipat's picture

Keep at it Graham, you'll be right eventually. However, as the old saying goes "The markets can remain irrational for longer than you can remain solvent"?

Sun, 04/08/2012 - 11:17 | 2326110 Winston Churchill
Winston Churchill's picture

Even a broken clock is right more often.Timing.

Its coming though.Everyone is now painted into a corner and

the only way out is a "debt Jubilleee".

TPTB will fight that until they meet gravity at the end of a

short rope.

We are very close to the inlection point.

Sat, 04/07/2012 - 21:45 | 2325385 pupton
pupton's picture

I'm with narnia on this one. Graham has been posting his "sky is falling" story for months if not years. Credibility?

And...Just because the Bernank says something does not make it so. He also says gold is not money. He lies. Look at the data, don't believe the BS.

Sat, 04/07/2012 - 21:22 | 2325357 James
James's picture

narnia, it is you that in fact is wrong.

Ben did signal a pullback 7-10 days ago.

You must not have shown up for class that day as Tyler reported as such in a post.

Phoenix Capital is on target

Sat, 04/07/2012 - 22:41 | 2325450 Imminent Crucible
Imminent Crucible's picture

As long as Ben the Printer remains in that embrace with the Zero Lower Bound, narnia will continue to be right.

The Fed is easing right now, massively. Where do you think the primary dealers get the money to buy the current Treasury run rate of well over $200 billion monthly?

Look at the FRED charts. Money stock continues to explode higher.

http://research.stlouisfed.org/fred2/series/M2

Sun, 04/08/2012 - 00:01 | 2325541 James
James's picture

"The Fed is easing right now, massively. Where do you think the primary dealers get the money to buy the current Treasury run rate of well over $200 billion monthly?"

All true.

But has'nt Ben been doing that while also doing an announced QE in the past?

My point is that he is holding off on announced  QE3.

That's what I took from both stated articles.

Sun, 04/08/2012 - 03:48 | 2325756 StychoKiller
StychoKiller's picture

Once, I was in an elevator and someone farted.  No one held up their hand or apologized, even though it was quite foul!  Might have been The Bernank, I don't remember...

Sun, 04/08/2012 - 15:07 | 2326461 Troll Magnet
Troll Magnet's picture

sign up for my newsletter and i'll tell you who farted.

Sun, 04/08/2012 - 02:36 | 2325696 i-dog
i-dog's picture

This article is simply a restating of ZH talking points.

"This report is 100% FREE." ... and so it damned well should be!

Sun, 04/08/2012 - 08:13 | 2325915 Straying from t...
Straying from the flock's picture

"It’s called How to Play the Collapse of the European Banking System and it explains..."

How to PLAY the collapse?  History has shown that those that play with things like food and fuel during a collapse pay the highest price.  People do not take kindly to their futures being used as speculation when they are concerned about finding their next meal.  Right now there are too few that are awake.  The normalcy bias keep us from freeing ourselves from the chains of bondage we were born into.  Go ahead and PLAY with the future of hundreds of millions of people's lives.  They will be sure to hold you accountable.

Sun, 04/08/2012 - 08:44 | 2325950 i-dog
i-dog's picture

WTF has that to do with my comment?

And stop spamming threads with the link to your blog buried in a jumble of words!

Sun, 04/08/2012 - 10:35 | 2326067 boiltherich
boiltherich's picture

NTM accountability is Sooooo 20th century.  If there were going to be anybody held to account over anything financial we already have thousands of speculators and profiteers that could be sent to prison.  Nobody will be held accountable in the collapse and for that matter they will never even admit there is a collapse.  Just as TPTB say we are in a recovery rather than the second stage of the the Second Great Depression. 

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