Bernanke's Legacy Problem

Bruce Krasting's picture




The surprise of the week was not the goofy ending to the cliff. It was the minutes from the Fed.


The meeting in question took place on 12/12, just 23 days ago. Some very major announcements came as a result of that meeting. A new, and much more aggressive Fed policy was revealed. For the first time ever, the Fed set a target for when monetary policy would change.


The Fed said it would keep its foot on the monetary gas pedal until unemployment fell to 6.5%, and maybe even lower than that. The economic forecasts that the Fed released showed a consensus estimate for unemployment staying above the magic 6.5% until at least 2015. So that set a bar for any changes in monetary policy years into the future.


The Fed backed up its new long-term commitment to boost the economy by doubling up with QE4 – another $45b a month of POMO buys. In December the Fed set the “needle” for monetary steam at the same level that existed during the dark days of 2009. All in, the last Fed meeting was a precedent setting commitment to extended monetary easing. At least that is how I read it.


And then we get the minutes from the meeting where all these dramatic steps were taken. The minutes read completely different. What the hell happened? I have the sense that there was a conversation that might have gone like this:



Okay, we will go forward with QE4. This is our last chance to do anything for a long time to come. There will be no more QE on my watch as head of the Fed.



But, but Ben…..We just promised…..



You’re kidding? I love it! But I don’t understand. What’s up?



I’m looking at the calendar. I’m outta here it 18 months. Before I leave, and turn the keys over to the next guy, I have to “regularize” monetary policy. So that means we end the LSAP’s this year.



But, but, Ben, the markets will be disappointed. The S&P could fall, interest rates might rise. We wouldn’t want that, would we?



Yeah Ben, we don’t want to upset the apple cart just at the time we have it righted. Remember 1937?



I’ve made up my mind. I will not leave the Fed with a policy that is still in an extreme position. I want to give the new guy a fighting chance. Greenspan did the same thing for me before he handed over the reins.



I’m very sad. I thought we would be able to have fun goosing markets for another two years. Now you’re taking away the punchbowl much earlier than anyone has thought. How will we be able to communicate this to the market? It will be a big shock if we just come out and say that QE is over.



We can control the markets; I’m not worried about that. We’ve being doing it for years now, we should have no trouble doing it for another year.



Gee! What happened to my plan to target monetary policy to unemployment? I thought we agreed to that! Now you’re doing a 180 on us.



I'm not suggesting a 180. We will not reverse any QE. I'll leave that up to who ever sits in this chair next. I would like to bring policy closer to neutral.

We will just have to manage the news flow. We can, and will, control that. We will use our usual sources, guys like Hilsenrath, to help introduce this slowly. After all, we don’t want any knee jerk reactions.


We will sanitize the minutes of this meeting. We can introduce the possibility of a change in policy with the words we use. We just have to vague about it...plant a seed. Yes, we will cause some confusion, but that can’t be helped. Most analysts are so confused at this point, I doubt that too many will take the suggestion we are changing direction seriously.



But, but Ben….this is all coming as a surprise. I’m very disappointed.



(Sobbing) So am I!



Well, all I can say is tough! I have a legacy at the Fed, and I want to preserve that legacy. I will not allow my term at the Fed to end with a policy that must be reversed by someone else on the first day he takes over.


Unless something very significant happens over the next half year, "my" Fed is going to move toward a neutral monetary policy by 2014.


We will continue to drop hints for the next few months, and I will make my final speech in August, at Jackson Hole. I will use that opportunity to confirm what we have agreed to today.



But, but, but Ben….



Drop it Janet. My mind is made up. Meeting over.




Okay, I’m kidding a bit. But this is not so far fetched. Why would the Fed send one signal on December 12 and quite a different one on January 4? When it comes to the Fed, there is always a motive for its actions. The motives are not always clear.


I do believe this development is connected to the “legacy” issue. Bernanke’s term at the Fed will set many historical precedents. To a significant extent, history will judge Bernanke on what he did while chairman of the Fed. But the books will also look at what happened after he left.


I believe that Bernanke would very much like to leave his successor with a Fed that had policy choices. As of today there are no options left. Just more useless QE. I doubt that Bernanke wants to exit with the Fed’s foot planted firmly on the gas pedal. The next guy does deserve a cleaner plate than now exists.


Is the Legacy factor influencing Bernanke? I think it has some sway in his thinking. Consider what Greenspan did before he left. After years of soft monetary policy he ratcheted up the Federal Funds rate 17 times in 22 months. He took the funds rate from 1% all the way up to 6%. Part of that rapid increase was driven to get monetary policy "neutral", so that Bernanke could do as he wished. Not long after Bernanke took over, he took the funds rate down to zero.




Clearly, Greenspan tried to get monetary policy back to neutral before he left, I don’t see any reason why Bernanke would think differently. Are we watching a repeat of history? At a minimum, his legacy, and where he wants the Fed to be when he leaves, is part of Ben's thinking today.


Readers may conclude that I’m all wet with this. That Bernanke’s Fed will never end the easy money policies. And the idea that his legacy has anything to do with current policy is just gas. Readers might be right in that observation. But those who think that the legacy issue is not a factor, have to answer the question, “What the hell happened at that meeting? Why are we getting hints of a change in policy at this time?”

If there is another excuse for the Fed’s apparent change of heart, I would love to hear about it. I can’t come up with anything else. Something has changed, and it isn't the economy. So what is the motivation?



Reading the Fed’s tealeaves is a bit of a fool’s game. The chances of being right are about 50-50. But for the sake of discussion, assume that the Fed was telling the truth this past week. Monetary policy will change over the course of the year. It will go from 4th gear and full gas, to “neutral”.


When I say neutral, I mean that the monthly QE programs would come to a gradual end. It’s even possible that there could be some very small backup in the Federal Funds rate early in 2014. To me, this sets up a very interesting scenario.


There are two schools of thought on the Fed’s QE activity:


- All of the Fed Governors (specifically, Bernanke and Yellen) have stated their belief that it is the size of the Fed’s balance sheet that matters when it comes to measuring monetary stimulus. The vast number of folks who opine on the Fed, also believe this is the case. So the markets, and the Fed believe that “neutral” means that the Fed’s balance sheet remains static.


- A small, but vocal minority, lead by Tyler Durden at Zero Hedge, see it differently. This group believes that it is not the size of the Fed’s balance sheet that is the issue. It is the daily, weekly, monthly flows that the Fed creates with QE that is the critical metric when measuring monetary policy.



The two different views are remarkably divergent in their conclusions. And only one camp will be proven right.


I happen to agree with Durden. It’s the flow, not the size. We have a capital market that has a $20B “bid” in it every week. With each POMO buy, the primary dealers have cash money in their pockets, and they have to spend it. So they buy “stuff”. The stuff they buy with the loot from QE ranges from Treasuries, to junk, to equities. I believe that the constant demand from the Fed is the gas that makes these transactions happen. I believe that when POMO stops, so does the merry-go-round.


The Fed will not stop QE abruptly. There will be a 3-6 month wind-down of the POMO buys. We have been here before, with QE1. Well before the Fed stopped buying, markets started to react to what was then perceived to be the end of the QE party.


To a significant extent, this question, and how the markets answer it, will resolve the fate of the markets, the broader economy and Bernanke’s legacy. So this is a very big deal.


The view of the Fed, that it is balance sheet size not flow that matters, is supported by 95% of the market today. So when Steve Liesman tells you that the Fed is moving to “neutral”, and that’s not a big deal, be wary. The "consensus view" is rarely right in these matters. I think the Fed’s neutral is going to feel as if we are in reverse, and moving backwards pretty fast.


Note: I have long felt that Greenspan's rapid reversal of the Funds rate in 2006 led to the collapse in 2008. Alan tried to "regularize" what he did after the Dotcom bust. Bust went to bust as a result.



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NIETSNEREM's picture

Given the fact that when it comes to the Fed, the best credo to follow is "watch they do, not what they say", what if the Bernank says he wants to go back to academic life but actually signs on for another stint as the Chairman?

andrewp111's picture

If the Bernank stays on, we will know that the shit won't hit the fan for 4 more years. Bernanke will get out of Dodge if he smells big trouble coming, just like Greenspan took a powder when he saw that the housing bubble was going to implode.

alfbell's picture

It's all baked into the cake... increasing deficits, higher taxes and inflation. It's unstoppable. The Fed will continue to add to their balance sheet and print and Congress will continue to borrow and spend in order to keep things afloat... until the boat finally sinks. (Same for Japan and Europe.)

If you know the fundamentals and axioms of economics, and know economic history, and can remain uninfluenced by the MSM, false statistics and the errant spoutings of economists... you know how this is going to end.

The only burning question is WHEN will the boat sink.

TerminalDebt's picture

The Bernank will be able to add another title to his name.

The Bernank - Chief Moneymaker

bilejones's picture

This made me smile:

"So when Steve Liesman tells you that the Fed is moving to “neutral”, and that’s not a big deal, be wary."


If Liesman told me the sun rises in the East, I'd be wary.


The prick is that other euthenism, a tool.

kaiserhoff's picture

Ben ran out of options years ago.  If he lets up on buying, interest rates will spike, housing and bonds will collapse and the public hangings will begin.  That's a choice?

Joebloinvestor's picture

I want to see Ben end up like Junior did in the last episodes of the Sopranos.

That is the only way he will dodge his conscience (if he even has one) over the way he FUCKED the US.

Mercury's picture

The view of the Fed, that it is balance sheet size not flow that matters, is supported by 95% of the market today. So when Steve Liesman tells you that the Fed is moving to “neutral”, and that’s not a big deal, be wary. The "consensus view" is rarely right in these matters. I think the Fed’s neutral is going to feel as if we are in reverse, and moving backwards pretty fast.

In a nutshell:

Neutral policy definition:

STOCK CAMP: Stop buying securities in the open market but don't sell any either
FLOW CAMP: Continue with current pace of QE or even add on incrementally just to keep things stable

Policy reversal definition:

STOCK CAMP: Stop buying and start selling (unwind the Fed balance sheet)
FLOW CAMP: Stop buying

The "Flow" camp theory also implies that an actual balance sheet unwind is essentially impossible. The combination of the market axe going from bid to offered, the sheer size of the numbers involved and the vicious cycle of higher interest rates and the pain that would result for everything currently dependent on low interest rates - would all be too much to bear.

The distinction between the two camps lies in how dependent one thinks the markets and economy in general are on the government these days. If you think that Keynesian intervention has saved the day and smoothed out what would otherwise have been a nasty transition from down to up in the business cycle then the "Stock" camp could be right. 

But the "Stock" camp includes a lot of Steve Liesman types who would probably concede that yes, government is now a bigger percentage of GDP and its visible hand in healthcare, the auto and energy industries and economic life in general is not only the new normal but evidence of real "progress". 

So, the  "Stock" camp either wants it both ways or doesn't appriciate that it's a different world now: claiming that the market economy is (or can be) healthy enough to fly on its own  (as it has been in the past) even though recent developments resulting in more centralized control have fundamentally altered the way the market economy works.  The apple is now an orange and the history of apples in similar situations is no longer the best model and the expectation of future, apple-like behavior much less likely.



Cult_of_Reason's picture

On Friday, Fed's Bullard (voting member in 2013) explained as to why the Fed has become more hawkish (and it is not because of Bernanke's legacy).


I think unemployment will continue to tick down through 2013. If you look at the last three years – about seven-tenths per year on the unemployment rate – if we got that this year, we'd be down at 7.1 percent by the end of the year, something like that. That would probably be substantial improvement, and the Committee could think about removing accommodation on the balance sheet side of the policy at that point.

If you got down close to 7 percent, then you're within a half a point of your 6.5 percent on the interest rate side, and I think clearly the intention is to pull back balance sheet policy sometime before you would start thinking about raising the rate.


And Plosser hinted the same:

Fed’s Plosser Says Lower Unemployment May Prompt QE’s End

Federal Reserve Bank of Philadelphia President Charles Plosser predicted a drop in the U.S. jobless rate to 7 percent or lower by year-end, which he said could lead to a halt to the central bank’s asset-purchase program.

Lucius Cornelius Sulla's picture

The irony is that the FED follows the manipulated BLS numbers.  Do you really think they believe their own concoction has any semblance of reality?  It reminds me of the inflation figures for housing.  Using rental equivalents instead of the inflating prices allowed the government to under report inflation for years.  Then deflation was not even reported in the figures as prices came down due to the same formula.  Now we have under reporting of unemployment that the FED will use to signal a change in policy.  I think most would agree that it is a train wreck in the making.  I am more and more convinced with each passing year that just about any area of the economy that the government involves itself with is FUBAR.

Quinvarius's picture

I think a lot of people are reading a lot into the Fed notes that simply is not there.  Only a person with an agenda would try to tell you infinite QE is not infinite QE because of a government document.  They announced two infinite QE programs and somehow this is being twisted into the end of QE.  WTF?  Get real.  There is no trade here.  Infinite money coming at you.  Peter Schiff was right. If you want to say infinite money is bad for the stock market, make that argument.  But don't even try to tell me QE is ever going to end after raging for 60 years at an ever increasing rate.

mnzcme's picture

Just a minor point...Bernanke term ends Jan 2014, so one year from now, not 18 months...

the grateful unemployed's picture

Bernanke has more endurance than ZIRP(by political reasoning ). is the current Fed chief a one trick pony, if they want to raise rates do they have to find a new guy. is Bernanke's policy cyclical or secular to use the economic terms, is he a perma-zirper??)

Bicycle Repairman's picture

The #1 job for any central banker is obfuscation.  It is the easiest and 'cheapest' policy they have.

Should Bernanke replicate Greenspan's 2004-2006 policy, he'll get Greenspan's 2008 result.  Since Washington has been safely re-elected for at least another two years, it's time for "unpopular, but necessary" policies. LOL.

Have there been any other preparations made for unpopular policies?

MeelionDollerBogus's picture

"The Fed is locked in and out of tools (can't stop easing ever)."

Then why did Greenspan go the other way before he left?

Simple question, complicated conclusions. Bernanke can do whatever he wants, rational or not, as he's heading out the door. If he cares more suddenly about his personal reputation than propping up the market it is the next guy's problem and that's that.

Element's picture



Ha, yeah, because the official unemployment stats are so representative of reality.

No, really bruce, its because of the recovery.

But seriously, I think derbanke's 'legacy' was always going to be colored by his "this technology", within his infamous helicopter speech.

DeadFred's picture

Despite all the comments saying the Fed HAS to keep printing the question remains why the minutes are so, so out of whack with the announcement. Weird things come in bunches so beware of your assumptions.

alfbell's picture

Man how we all just sit around and speculate and dream up scenarios, and try to figure out what our "great leaders" are truly thinking and strategizing. What a waste of time. All this energy and thought being put out is enough to create a new country, constitution and government.

The Fed is locked in and out of tools (can't stop easing ever). Same for Congress. The accelerator is stuck on the floor. None of this stops until the train hits the wall. I just hope that we have a lot more train track to cover because I don't have my portfolio or net worth up to a point where it will carry me through my aged years.


jonjon831983's picture

So... get ready to BUY BUY BUY!!! ?

torabora's picture

The 'target' being 6.5% means nothing will ever change for the better. The target might as well be 0%...that makes the same kind of sense. Savers get screwed. Thiis is hollowing out the middle class. It's working perfectly.

Sambo's picture

Taleb is right. The plane is being flown by an idiot who knows not which button to press or which lever to pull. I get the sinking feeling that plane is not going to touch down on asphalt...

Moe Howard's picture

Become your own Central Bank. Back yourself with silver and gold.

I am Jobe's picture

Nation of Laws bitchezz. Nothing will happen in the so called Corrput, Incestuous USSA. Enjoy the ride

dumpster's picture

the zero hedge posters flights of fancy and making shit up as if they knew any thing

along with the bruce ..

the printing of fiat must go on.. if it quits then all hell smashes the market , smashes the lkittle pointed headed policticians ..






AGuy's picture

"the printing of fiat must go on.. if it quits then all hell smashes the market"

There cannot be a backtrack.  The US is insolvent and the insolvancy grows every day, with no way out. Printing is the only thing delaying "Judgement Day" for America.

Dr. Sandi's picture

If "Judgement Day" is near, I say let's bribe a few judges and get on with it.

alcervik's picture

Think u got this completely wrong.. Your presumption that for bernanke,
His legacy is job one seems completely at odds with everything I have seen and read for his entire term. This is a monetarist to the core, and the lower and lower thresholds for each incremental QE screams of an unswerving faith in higher asset prices being the catalyst towards achieving real economy growth.. Why would be suddenly sacrifice that belief and jeopardize this process and the higher asset prices that drive everything else, ESPECIALLY if he is concerned with his legacy. Nonsense..
The explanation to me is that the other governors continue to be surprised by the lower and lower bar for each QE and are expressing their belief that bernanke has gone too far without demonstrating sufficient cause for these programs. Those minutes demonstrate a means of appearing to retain something close to neutrality while bernanke implements a panicked experiment in the face of an economy that clearly doesn't need it

Earl of Chiswick's picture

"Why would the Fed send one signal on December 12 and quite a different one on January 4?"


Put another way, why did the Dec 12 statement not capture the sentiment expressed in the Dec 12 minutes (that were released on Jan 4)

Dec 12 minutes

Dec 12 Statement


Peter Pan's picture

Ben is no Einstein but his nemesis is the Federal Government which continues to spend beyond its means. Politicians believe you can compensate for lack of real fiscal policy settings by overcompensating with monetary policy.

The whole situation is like a hot air balloon. The government keeps on piling debt into the basket and Ben at the other end keeps pumping more and more hot air into the balloon to take the extra weight. We all know the ending to that system.

Lucius Cornelius Sulla's picture

Central banks the world over will have a crisis of confidence when the BOJ implodes.  

Sambo's picture

BoJ has no answer to the L - shaped economic crisis that Japan got into since the late eighties...

That is twenty five long years. Something is seriously long....I mean 'wrong'.

urwright's picture

What's the problem?  You actually think you understand the COST?

RhoneGSM's picture

make all the guesses you want but in the end the Fed is going to print till the market takes the press away. there is a recession ongoing and will get worse. they are going to print.


bombdog's picture

It was just so they could bomb gold for a another day or two. Keynesian Zero Bound Endpoint bitchez!

Winston Churchill's picture

PM's will be under pressure until options day.

Whoever programmed the Algo's hasn't much imagination.

Overlay the daily price action to options expiry days.

Only days the Bernanke speaks break the pattern.

Now use it to make some filthy lucre.Two can play this game.

spinone's picture

Since no one else said it:


Fuck you Bernanke!

MeelionDollerBogus's picture

ok well I'm not American, not in America, so I'd like to thank the Bernanke for getting me discount metals prices & then giving me big profits on them when I want them.

Go on, tell me that's not how it is.

Go on, I'm listening.

If you're fond of boating accidents, it's hard NOT to consider who's been helping you out all along.

ekm's picture

The board of the Fed is irrelevant.

Bernanke has the power and he operates on the President's orders, whoever is the president, Obama in this case.

Who is behind Obama is the one making the policy, since we know Obama has no clue about this stuff, same as Bush.


There will be unwinding, it is inevitable. That money that primary dealers have has caused SHORTAGE OF CRUDE OIL by buying and storing crude oil, thus starving the economy for energy.

It is inevitable, absolutely inevitable and it will be by Obama's executive order.

MeelionDollerBogus's picture

really? So somehow there's all this pent-up demand for more gas & oil if only the prices were low enough? To do what? Go to work more? Start your own business? Shipping what?

See, the economy's many things tied together. Employees are starved of wages, the population is starved of jobs and while actual currency is aslosh in parts of the system the population has better access to additional CREDIT than additional CURRENCY & even that's fairly limited now considering how tapped out they are.

That doesn't look like higher energy prices or demand to me. I'm no brilliant economist (my hat says it all!) but demand for more oil & gas, a need for more supply to come online which is being "coked off" from us, held back deliberately, implies we have more stuff to sell, to make & someone to buy it, somewhere to ship it. Do we? Where might that be?

ekm's picture

Sir, thx for the remarks.


You have this upside down, as most of people.

To say that there's no demand for energy, is like saying 'there's no demand for air to breathe'

MeelionDollerBogus's picture

there's demand but I'm not seeing the pent up demand for MORE. There's demand for air but I'm not seeing people say they must stock up on scuba tanks in case we run out above ground & the waterline.

A little scarcity, rather than absolute impoverishment, is the only incentive ever needed for innovation, reducing real energy costs, furthering in some marginal way our quality of life. It will come.

Many of the principles we'll return to were from the 1800's for heat re-capture & therefore reduction of fuel usage for the same net benefit.

chart_gazer's picture

Watch what they do not what they say.

QE and unemployent have as much to do with each other as Kim Kardashian and rocket science. The mumblef__k is to convince the layman that doing QE is good for them and not to bail out banks and facilitate deficit spending.

Those words were to try and scare people out of commodities. He knows the QE $ are going to prop up the stock market but they will also inflate commodities and he will try every trick he can to avoid 2008 commod inflation.

QE3 will continue until they have all the bad MBS taken from the banks. The market knows this, thats why banks have been on a run.

The only way to keep interest rates suppressed is to dominate the auctions. The only way to do that is to keep printing (creating) new money. QE4 is their vehicle to do this. QE4 will be expanded because $45B/mth isn't enough to buy the gov debt that will be issued. Since they buy 70-90% of new issuance (because other buyers have dried up) and the deficit spending this year will still be $1T after the obsurd cliff deal. 

Haven't seen it discussed yet but I believe we may also get QE5 soon which will resemble Operation Twsit. $200B (have seen different numbers on this) of short term debt must be rolled over this year. There is no funding source to do this.  

The size of the FED balance sheet doesn't matter. Its what their holdings are. The only problem source could be the MBS holdings. They could loose $ and those losses would be passed to treasury compounding the deficit problem. They have been unloading their weird stuff (GM stock, AIG stock etc.). Monetizing the debt is the biggest circle jerk/ponzi scheme on the planet and I have felt for a long time their strategy is to get as much of the US debt on their balance sheet and then say "poof", it is gone. If you understand the mechanisms of the gov issueing debt, the PD's, and the fed printing you know how this is possible.

Despite all the doubters, the fed has managed to manipulate every market  and get away with it. Not saying its good, just don't fight the fed and BTFD has worked longer than most imagined.  



Ned Zeppelin's picture

The Fed is the financial Yucca Mountain for all of the bad MBS, and there are trillions out there that will need to be acquired and safely entombed.  I laugh out loud every time a Fed policy or pronouncement is announced for the purpose of alleviating unemployment.  Only a child or a fool would believe such a thing.

The Fed has to monetize the debt - there is no other buyer of sufficient size or inclination to absorb the issuance, especially at the trivial rates which are negative after inflation anyway.  It also needs to monetize the dollars "trapped" in the MBSs, i.e. monetize Paulson's toxic assets (funny how ole Hank knew immediately and exactly what the problem was, and the enormous sums that would be required to bail out the banksters. A crook who so far has gotten away with it. ) I agree these minutes as a minor example of their power to jawbone the market in order to "control it," which, by the way, is what they believe they can do, evincing the monstrous arrogance grown in their petri dish of almost absolute power.

But why? The flow of government spending sustains the "economy."  The flow of goverment spending depends on issuing debt, or "creating dollars from thin air."  No one in power has any interest in taking a chance on grooming or creating the conditions for a relatively free market, with a diversified, self-sustaining, "organic"  (or in Taleb's terms, "non-fragile") economy.  Theirs is a synthetic economy - think about what derivatives are, after all.  The goverment and monopolistic cronies would all lose their jobs, their control, their power, and their wealth in the Great Readjustment that would be required.  One can only conclude that the TBTFs, and the US Government, are conjoined twins at this point. Flow is King, for without flow it stops.  The balance sheet of the Fed is completely irrelevant - think of as the US Dollar's Event Horizon - once the asset is traded for freshly printed dollars and is put on the shelf on the balance sheet, it no longer matters anymore.  The Fed and the US can always make "side deals" to refi the debt held by the Fed to eternity.  As for the potential for loss of faith in the US currency in the wake of such insane policies, one only look to the vast belief (true or false, it does not matter) enforcement mechanisms they own and control. 

The supremacy of this system will be enforced at gunpoint.  Paulson's threat of martial law back in 2008 wasn't about a system collapse, it was about what would happen if the US Congress failed to do their bidding.  I suppose I would have been scared too, but I wish I could have been a congressman then; I'd like to think I would have told him and his bankster buddies to go f_ _ _  themselves and start talking about letting the banks fold and start anew.  

Fantastic claims or conclusions? I don't think so.   I think it is a unrecognized reality that lurks here. In many ways, I think it is game over, and has been since 2008 and the TARP vote. Regrettably, I would bet on the Empire, not the rebels.

Lucius Cornelius Sulla's picture

History is replete with the same story.  From Rome debasing their currency to France's foray with John Law and the Mississippi bubble, the USA's crash of 1837 created by the 2nd Bank of the USA and the cotton and land bubble they created; the bankers have defrauded the masses over and over again.  The ending is always the same.  A massive crash and depression.  Once that happens, its anybody's guess what will come out of the ashes.  Napolean? Hitler? Foreign occupation? Civil War?  Who knows?  The allure of easy money cannot be eradicated from the human genome.

DR's picture

"the fed has managed to manipulate every market  and get away with it"


With the zerobound fed funds rate, the Fed can't influence the markets with interest rates changes so it has turned to buying/selling financial assets to affect the pricing. This is how the Fed will be conduct policy in the future because it can't raise short rates without blowing up the TBTF derivative markets.



BlueCheeseBandit's picture

I agree. This announcement was to scare off commod inflation. The fed must know that any serious pull back would bankrupt the treasury. Rising interest rates with this much debt outstanding don't mix.

Like the Japs, the US's only hope now is to plot a middle course. Too much money printing gets you hyperinflation. But too little also gets hyperinflation by bankrupting the gov thru interest rate spikes on a mountain of debt.

The problem with this strategy is the longer it goes on, the narrower the middle road. Inevitably, you fall off.

Cursive's picture


You may be right, but I think you have the players wrong.  Bernake would never stop QE on his watch.  Remember, he is the man who would save us all from the horrors of a repeat of the Great Depression (coincidentally giving us the horrors of the Great Repression).  No, I think a few hawks like Fisher, who think that their legacy is not necessarily tied to Bernake's view, may have decided to become more vocal about any misgivings that he/they have about the efficacy of QE.  Afterall, once Bernanke is gone, one of these hawks may rise to the seat of chairman and, having done some soul searching, these hawks may have decided that mankind and history will treat them more favorably if they end these ruinous policies.

SlowMoney's picture



OK..will you or someone out there explain to me how the primary dealers have 80 B to spend every month??

Yes, I understand about them getting commissions and the diff. between the bid and the ask. I also understand that they can hold US treasury's on their books and then use them for the purpose of repo agreements to get cash...however, the FED Reserve is now funding 80% of the 2013 budget deficit..this money must end up at the US treasury to pay the bills that other wise would not be paid.

So....almost all of the money-created out of thin air by the Fed. Reserve ends up paying the bills- at the treasury- and the Fed. Reserve holds the bonds on their balance sheet. this correct?? .....So how is it that the primary dealers end up spending 80 B a month???

Getting Old Sucks's picture

The future of the American people rests in the hands of our military. 

They are our only hope.