Bernanke Goes All In

Bruce Krasting's picture

Bernanke Goes All In

Courtesy of Bruce Krasting

Well, we got an inflation target from the Fed. Basically, thinking at the Fed has been eliminated. The process has been automated. Bernanke has convinced the Fed board to adopt Core PCE as a determinate of monetary policy. So long as CPCE stays below 2%, Ben is going to have his foot planted on the monetary metal. It’s “full speed ahead” according to the Chairman. He's pushed things off until 2014 - a very long time from now.

My question: “Why is the Fed using CPCE versus another measure of inflation?” The very good news is that there is answer, and it comes from a very "reliable" source  – The Federal Reserve. A detailed analysis on this topic was conveniently made public just a month ago.

Alan Detmeister produced a doosey of a report. Ya gotta love the title page:

This beast runs 25 pages, it includes tons of charts and references. It compares the utility of using Core PCE to a dozen other inflation yardsticks. There are easy-to-understand formulas to support the conclusion:

Guess what? Good old Alan makes a compelling argument. Anyone who tries to question the use of CPCE is going to get hit over the head with this report. This is just one of the many charts that prove (according to Detmeister) that CPCE is the only way to go when considering monetary policy:


There’s just one teeny problem with Alan’s work. He did all of that comparing and studying using data from pre-2010. Using that information, CPCE lines up very well as a consistent barometer of inflation. But the analysis falls to shit when you look beyond 2009. CPCE took a nose-dive after 2009 (versus CPI and Core CPI):



Information on CPCE and the other measures of inflation is available monthly. There’s no reason (that I can think of) why the Fed chose to deliberately omit two years of data that would conflict with the “desired’ conclusion. To me, it looks like the authors manipulated the report.

I think the Fed made a mistake targeting inflation. It's now stuck with the choice. It can’t go back on this without looking awfully stupid. The policy of allowing CPCE to determine the direction of monetary policy will last the until the end of Bernanke’s term at the Fed. Then it will be abandoned in favor of more pragmatic approaches to decision making.

I think there is enough monetary juice in the global system for there to be a risk of inflation north of 2%. We shall see. I think Bernanke is going to get his balls squeezed. He deserves that fate, he put them in a vise. As of today, he no longer has choices. He’s made himself a slave to a single dopey statistic.

The markets are the best measures of how people perceived today's announcements from the Fed. The dollar pissed on the Fed in general, the gold market hit Bernanke square in the face with an ingot.


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Clowns on Acid's picture

Great research and interpretation Bruce !

I love the's the same on that Gresham used except he simplified it to" Bad money drives out good, if the exchange rate is set by law".

Helicopter Ben has been "setting" the "exchange rate" of USTs, interest rates, and now even the inflation figures.

Ben and his pack of smirking jackals at Treasury are indeed "all in". Unfortunately, by default, so is the US economy. 


NEOSERF's picture

Never fear, in anticipation of this problem, Alan is working on yet a new better measure of inflation....the Super Core PCE (SCPCE) and it will likely only look at the cost change of chicken droppings and Corning glass prices

tony bonn's picture

"I think Bernanke is going to get his balls squeezed. "

he doesn't have any

w a l k - a w a y's picture

your best banksy tie-in yet, is it real or is it banksy!

we appreciate your contribution and enjoy your writing style.


dcb's picture

tyhe fancy formula's are there because on a philosophical level inflation atrgeting is really bad. it's a way to confuse things. think about it, the fed is committing that no matter how over leveraged the system ever gets they will always print anough to make up for debt destruction. it's a backstop for baking financial assets for ever. that is what it is about.


bernorange's picture

CPCE bounded QE to infinity

asteroids's picture

The FED should have shut its mouth and done absoultely nothing yesterday. It should be DOING absolutely nothing and let this market heal into a new normality.

tradewithdave's picture

You're catching the scent, but don't fail to remember that ancient Chinese proverb... "Where profit is, loss lies hidden nearby."  What Mervyn King has been attempting to assemble for over a year, the Chinese have accomplished in a few months.  Maybe they're working together like they've been since the first opium war.

Zero Govt's picture

the CPCE graph is The Feds hockey stick.. hiding the decline (an inCONvenient truth)

The Feds gone 'all in' alright... all in (global banking) socialism 

Good article Bruce

Sudden Debt's picture

any inflation calculation that uses 4 times Pi in the formula goes a few times into infinity. Sounds about right...


resurger's picture

Anyone thinks buying Yuan is a good long term investment besides Gold and Siver?

Need an answer on that, thanks!

akak's picture

As a long-term investment, it is utter folly to hold ANY fiat currency, as ALL of them, without exception, are not only subject to sudden collapse, but invariably depreciate over any significant timeframe ---- there is not ONE contemporary or historical exception to this rule.  As a short-term or medium-term trade, possibly, but for the long term you would only be throwing (at least a good chunk of) your money away.

resurger's picture

Fuck Paper! But the Yuan is cheap compared to teh worthless USD

I have 20% of my portfolio in physical (Gold And Silver) i want to pump that up to 30%

But see this on Wiki

"On April 10, 2008, it traded at 6.9920 yuan per US dollar, which was the first time in more than a decade that a dollar had bought less than seven yuan"

Now since the chinese are introducing the PAGE which will compete with the COMEX and LBMA expect the Gold & Silver to make huge corrections towards GOLD=$2850 and Silver = $125

so i think 5 years down the line, the CNY will reach a parity with the USD something like USD/CNY= 3.4 or 2.3 so you can have more money to buy Gold And Silver

akak's picture

Granted, that is a plausible scenario, but I would still categorize your possible five-year strategy as a medium-term trade rather than a long-term investment (everyone probably has a slightly different idea of what constitutes "long term", however --- for me, it is at least six to eight years).  But trading currencies is far outside my knowledge base, so I would not even attempt to comment on it further.

Seer's picture

My uneducated take on all of this is that the timeline was written around ARM resets and that they couldn't allow for any interest rate increases until this shit-storm passed.  Well, the devil they thought they knew...

ARM resets with higher interest rates would have crushed valuations, and the mark-to-fantasy measurements that they're now using couldn't then in any way be made to look credible in the face of huge numbers of defaults.

I'm thinking that all that's been done will be stated as "we were doing the best we could," that had they allowed things to properly reset that the heat would have been too great, with people, as people tend to do, accusing that govt/fed/<whatever> isn't doing anything (many people confuse an action of inaction because no change was made, yet, inaction is STILL action, and can very well be intentional and not due to confusion).

You cannot make stink go away by dressing it differently.

gs_runsthiscountry's picture


Note the composition of the formula, specifically, OIL

Not that most don't already know that...but, OIL, just think about that for a moment. It speaks volumes on what makes the world go round...exactly whom controls monetary policy again?

Xkwisetly Paneful's picture

Sorry the tail does not wag the dog even though with a naked eye it may appear that way.

nah's picture

the fed just predicts inflation


the government runs you

vainamoinen's picture

VelvetHog, akak, sampo -

New world Suomalainen - 3rd generation - can't speak the language.

But I love Helsinki in July!!! 

akak's picture

Hey Vainamoinen,

I don't have even a speck of Finnish blood in me, but grew up with a good Finnish friend whose parents taught me a bit of the language --- but I had to really rack my brain to even dredge up that much after all those years.

Seer's picture

I recall landing in Helsinki on the very day that the Finns won their first world cup in hockey.  Was out on the streets that night wading through mobs of people who were climbing on stuff (statues, backs of buses) and breaking beer bottles all over the place (next day you wouldn't know that anything had taken place- spic-n-span!).  The population of Finland was 4 million at the time, with 1/4 of that IN Helsinki.

falak pema's picture

Then : 1995; today 5.3 million, 0.5 million in Helsinki, so its regressed if it was 1 million then!

Imagine having a pastry called : Karjalanpiirakka!

akak's picture

Did you ever get the chance to pick lakka (cloudberries) while you were visiting Finland, or at least the chance to taste them?

I sometimes get them here where I live --- delicious!  A true arctic delicacy.

TheCanimal's picture

Bernanke is only doing what Goldman has directed the US Treasury to make the FED do.

hivekiller's picture

Wheeee! To infinity and beyond!

ElTerco's picture

Bernanke probably reads ZH every night, then kicks back and puts on some Pink Floyd:

"There is no pain, you are receding
A distant ship smoke on the horizon
You are only coming through in waves
Your lips move but I can't hear what you're saying..."

chindit13's picture

A Hong Kong bakery handing out free tickets for mooncakes couldn't produce the same degree of rioting that would happen if the authorities interviewed for the position of Bernanke Ball Squeezer.  A Taser-carrying shopper at a Black Friday Midnight Sale at Best Buy would be heavily outgunned and out run.

By the way, by announcing that he will target inflation, and a contrived inflation measurement at that, Bernanke will prove once and for all how much rates at the mid to long end are controlled by the market vs. the Fed, even with Ben buying up the right side of the yield curve via Operation Twist.  I also believe the Australian monetary authorities are going to learn the same lesson, given that bondholders worldwide are going to step up their search for real yield and flee intentionally negative US rates.

I believe Bernanke has re-awakened the bond vigilantes.

Mr Lennon Hendrix's picture

You think the top in the bond bubble is in?  Join the party.  But it has to settle in first, which means the HFT Machines are going to snatch up the top before letting the cardsd fall.  Look for one month of UST strength before it all goes to hell.

the grateful unemployed's picture

so you're saying that Bernanke will base his policy on interest rates using CPCE, but the government will continue to pay interest rates on TIP bonds based on CPI? what kind of communist BS is this? if the POTUS doesn't fire the man immediately he has no credibility!!

ebworthen's picture

"Domo Arigato, Mr. Roboto!"

The Bernank sings:

"...You're wondering who I am
(Secret secret, I've got a secret)

Machine or mannequin
(Secret secret, I've got a secret)

With parts made in Japan
(Secret secret, I've got a secret)

I am the Modren Man

I've got a secret
I've been hiding
Under my skin

My heart is human
My blood is boiling
My brain IBM..."

barliman's picture


Bernanke has been "all in" since August 2010. The lurch to QE2 two months after his testimony to Congress that "we soon will be able to start drawing down the Federal Reserve Balance Sheet" is when he committed his small stack (i.e. 3 trillion USD or double it to 6 trillion USD - it is chump change over a multi-year period to the global markets casino).  The hand hasn't played out yet. There are still more bets to be made.

Ahhhh, if only I had Mr. Banzai's skills - I'd put together a poster of the Bernanke pointing out like the old WW II posters saying, " I WANT YOU!  To Bet the Rent Money on the U.S. Markets! "

Vis a vis a fairly straightforward analysis of the risk Ben and his Sheep are taking, please read the following:


honestann's picture

Translation.  This is an election year, and they ALWAYS come up with some pile of BS to justify juicing the economy in an election year.  ALWAYS.

Golden Receiver's picture

Hasn't Bernanke been "all in" since 2008? The only difference being he's playing more games at more tables and turning over his bets at an accelerating rate?

working class dog's picture

Bernanke is not getting his balls squeezed the working class american middle class families are getting thier balls squeezed.

Bernanke will sleep well tonite knowing he is doing what he has been groomed for his entire life in an educational system long co-oped by the illuminati.

The co-opted system rewards those who support the federal reserve banking act and all the ammendments to increase it's control over the labor of the US  citizens. Srap the Federal reseve act or at least undo it's powers. Ron Paul will try to do this.

working class dog's picture

Bernanke is not getting his balls squeezed the working class american middle class families are getting thier balls squeezed.

Bernanke will sleep well tonite knowing he is doing what he has been groomed for his entire life in an educational system long co-oped by the illuminati.

The co-opted system rewards those who support the federal reserve banking act and all the ammendments to increase it's control over the labor of the US  citizens. Srap the Federal reseve act or at least undo it's powers. Ron Paul will try to do this.

lesterbegood's picture

Blind nothin' left to lose?

navy62802's picture

Bernanke apparently likes getting his balls squeezed ...

mendigo's picture

I think that, in spite of what is said, the only way they see out of this is with inflation - they need housing prices to rise so the banks can get out from under their reo. Pay no attention to the man behind the curtain.

illyia's picture


De(b)t Meister.... really???

Now that is just ridiculous!

Or is it....

EyeQ's picture

Watch out - it won't be long before the stat  USD / zimbabwe dollar is at par...................ugh!!!

Orly's picture

The EURUSD pair has reached its turnaround zone.  A break and hold on the daily above 1.3185 will spell an outbreak to the upside from this level.  It doesn't look like the Euro will be able to hold it, though.

One possible tell is the Gartley pattern sell-signal forming on the daily AUDUSD pair.  Look for some choppy trading as the pressures of an overbought condition on both pairs gets settled.

A break and hold on the daily EURUSD below 1.3055 will say that the current uptrend has stalled and the next leg down will commence.  Something tells me it could all happen in a flash, so stay on your toes!

Best of luck trading, everyone!