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The Fed’s Sleazy Idea Of “Transparency”
Note: I can't find the original version of the NY Times article by exploring the links, except the original sentence is on the NY Times page describing the Fed, and in this article in the Boston Globe (potentially the original). Confirming Aaron's observation, Adam Clark Estes, wrote in The Fed Wants More Power:
"The Federal Reserve is preparing to open its kimono a bit wider in order to offer more information to investors, in an effort 'to magnify the power of those actions by shaping the expectations of investors,' The New York Times explains. Reporting on some details from an internal meeting in December that were made public on Tuesday afternoon, Benyamin Appelbaum offers the broad strokes of the Fed's plans 'to publish a forecast of its own actions:
'The change in communications policy is part of a broader effort by the Fed’s chairman, Ben S. Bernanke, to improve public understanding of the central bank’s goals and methodology. …The Fed said that it would now publish information about the expectations held by members of that committee for the future path of monetary policy over the current year and the following two years'..." Keep reading here.
Bruce Krasting covered the likely practical effects of the Fed's plans here (be sure to read, Bruce is funny).
The Fed’s Sleazy Idea Of “Transparency”

Courtesy of Aaron Krowne
[Right: the Fed "jawbones" Main Street (dramatization)]
The Fed announced on the New Year’s Holiday that it is going to start releasing its internal forecasts of short-term interest rates.
Advocates of Fed transparency (I am one) might reflexively welcome this prospect.
However, even the New York Times article (sourced above) is not so naive. At least, this was apparent when it was originally published, as it said in this version of the article (apparently the copy at that location didn’t get changed — try again, guys! ):
In January 2012 the Fed board adopted a plan to publish a forecast of its own actions, inaugurating a policy that is intended to magnify the power of those actions by shaping market expectations.
The article even opens with a comment about the Fed asserting its power to influence the economy through manipulating interest rates and engaging in quantitative easing (asset purchases). Oddly enough, the replacement version of the same article only uses the word “power” to suggest the Fed is powerless… “to address the most important issues weighing on growth, including a lack of demand from gloomy consumers, high levels of debt throughout the economy and the depressed condition of the housing market”.
Poor, poor Federal Reserve. They do try so hard, but they are as helpless as the rest of us! Uh huh.
What the original wording does is accurately reveal the Fed’s immense power of intervention on the bond market and everything connected to it, and accurately point out that increasing its advance reports of interest rates is likely to only magnify that power.
In fact, the phraseology “publishing a forecast of its own actions” (also absent from the updated, propagandized article) really puts it best. It stands to reason that since the Fed is now setting short-term interest rates by fiat, completely controlling the market, all they are “forecasting” is their own eventual actions, not some “free” evolution of market conditions.
Adam Estes at The Atlantic caught on to the original article, and directed me to the NYTimes’ “suspicious” change.
He was also quite critical, but I don’t think even he took the point as far as it needs to go.
The Fed isn’t openly “asking for more power” (like it did when it requested — and received — the new Consumer Financial Protection Bureau); it is asserting even more, under the subterfuge of “transparency”.
What we are talking about here is jawboning — attempting to influence the market by shaping future expectations (especially those of market insiders) with rhetoric and “data.”
This has been a Fed pet peeve of mine for a long time: any time the Fed volunteers more “transparency”, you can be sure that it isn’t doing it to be more accountable, it is attempting to amplify its jawboning facilities to get more effect out of its various manipulations.
This in itself might not seem so bad — after all, isn’t it good for the Fed to achieve more of a result out of bluster rather than through actually intervening (i.e. printing more)?
I think it is evident that this is not the case.
Conceptually, any market influence that is based simply on perceptions is unlikely to be “durable”. Markets always correct to real-world conditions.
But that’s not the main problem with the Fed’s dissembling.
The real problem is that the Fed has, through its vast statutory influence combined with this new policy of jawboning, transformed the market from a “normal” state of bond income-seeking to a speculative state of bond asset trading. And as is painfully evident today, the last thing we need is more speculative trading.
I noticed this transition years ago, when investigating the launch of a credit bubble around 1995, which ultimately became known as the dot-com bubble. But that was only its stock market manifestation — bonds (especially Treasuries) also have rallied more or less continuously since around that time.
Furthermore, it was clear that in 1994/1995, the trading action of Treasuries changed completely. Rather than rallying when the Fed Funds Rate (the Fed’s main policy interest rate) was increased, they started to decrease when rates were rising. Conversely, when the Fed was lowering interest rates, Treasuries would rally, instead of falling, as they used to:
(The chart is a few years old, so only goes up to 2006, but the point is made)
The distinction between investing for income versus for trading profits stands out here: rising interest rates increase the attractiveness of bonds to long-term investors (i.e. Main Street) — especially “risk-free” bonds like Treasuries. But it’s falling rates that interests Wall Street (and other traders around the world), because a falling rate means the bonds you currently hold are worth more if you sell them.
Main Street investors don’t run around selling bonds before maturity very often, so this behavior is of little concern to them. But for Wall Street, it’s a trading bonanza.
Sure enough, around 1995, when Greenspan increased the so-called “transparency” of the Fed by releasing minutes of the Fed’s governing board’s regular meetings, this change took place. And that’s when the traders took over the bond market — attached to a leash that led straight back to the Fed.
Now we can understand why the Fed doesn’t give a hoot about the fact that, thanks to its own policies, short-term bonds are close to zero, and long-term Treasuries yield less than inflation, strangling Main Street. Simply put, the Fed isn’t there to bail out Main Street: priority #1 is bailing out Wall Street, which means traders.
The effects of the Fed’s pro-Wall Street jawboning are even more pronounced when you consider that it conducts its interest rate-setting policy through purchases and sales not to the general market, but to a closed cartel of “primary dealers”. These primary dealers are ensured a profit on these operations (in effect, a subsidy – see here for a specific example), and almost certainly receive other very valuable forms of back-scratching from the Fed (e.g., Goldman Sachs getting bailed out 100% on the dollar through AIG in 2008, worth $13 billion, courtesy of Tim Geithner’s New York Fed).
These cartel banks are best-positioned to profit off the Fed’s fake “transparency.” They know that the Fed’s so-called “predictions” are actually advance policy statements, and dutifully “front-run” the Treasury market. With recent revelations of back-channel communications between Treasury officials and Wall Street players in advance of major bailout decisions, as well as the existence of the totally closed-door Working Group on Capital Markets and the Exchange Stabilization Fund, it is almost certain that they have advance information of these “predictions” even before the Fed has released them. Basically, it just gives them another thing to front-run.
Further proving that this is all a sham, it is an open secret that the Fed’s prognostication track record is abysmal(here’s an entire book on it). If I were the Fed, I certainly would not want to make my internal predictions MORE public in light of this — unless the purpose is not actually to allow the public to “check up on my work,” but to better manipulate the market and do favors for my insider friends.
Finally, we can observe that if the Fed did truly want more transparency, it wouldn’t have resisted genuine efforts by the public to demand it, such as in -
(1) Bloomberg News’ request for information on the bailouts;
(2) Fox News’ request for information on the bailouts;
(3) Ron Paul’s request for general authority for Congress to do full audits of the Fed (along with Bernie Sanders and other Fed critics in Congress — which resulted instead in a more limited, one-time audit; yet even that was quite illuminating).
Remember all this the next time the Fed volunteers that it is going to be “more transparent.” It’s for your own good, of course.
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http://topdocumentaryfilms.com/the-sun/
The Sun
Interesting to note that some stars were visible during the day, until the Industrial Revolution. Too bad...
Interesting but the Fed funds rate rising means a 'bear market' in, at least, short duration 'securities' including Treasuries. I don't see how securities could be "rallying when the Fed Funds Rate (the Fed’s main policy interest rate) was increased". Your graph doesn't show yields or prices but $ amounts of 'securities' purchases.
The Fed is extremely desperate to appear "open and fair" and "communicative". The 99%ers are wandering up and down Liberty Street eying them with suspicion, but not yet with understanding. Ron Paul, their strongest enemy, is gaining in the polls. Should the sheeple awaken and demand answers, the Fed's game is over. Done. Go directly to jail, do not collect $.01
The Second American Revolution is now and the Banksters are shitting sharp edged bricks of fear and experiencing severe rectal bleeding.
This "Transparency" is a PR stunt, not a fiscal policy tool.
(Posted earlier under Bruce's "On Trading Central Tendency")
As long as the Fed's weapons (tanks,firearms,etc) are more advanced and more powerful than those found among the citizenry, they will not be shitting bricks.
They are desperate, because they know that everything they have done is losing it's punch. Like a drug addict, the high isn't lasting as long as the first hit. The market is so manipulated that the old techniques to control can't and won't work. Because a new paradigm has been made in the market and when something like this happens new techniques must be used. And the new techniques might be things you don't want to use.
This will set up the next tranche of transparency, not just interest rate decisions, plans, intentions, and discussions that got to those intentions, but all the way through to the Chairman's dreams as he sleeps at night (in between the Asia open and 0500ET when he can put whatever Euro-mess came up back in the bottle with the ES). Wire up that scalp.
This makes sense to me. The Fed needs to offer these front-running, profit-making opportunities to the Primary Dealers in order for them to buy all of the Treasuries that foreign governments are dumping on the market. Nobody would buy them if they weren't a sure thing! It would be nice if they called it like it really is....just another Fed sponsored Primary Dealer gangbang of the American taxpayer.
A painful, slow death would suit them all well...
whenever anyone starts babbling about transparency it's time to put on your bullshit suit and await an avalanche of crap.....
"I am the great and all powerful Bernank! Pay no attention to that man behind the curtain!"
Why else would they want such secrecy? They know the game they're playing. And Ron Paul just might be the Toto we've been looking for.
until they get the growth tumor removed from their
mouths their words will remain impotent. the growth
thing is murder ! for the environment, the consumer,
and the populations, especially labor. it is great for
the insider masters of fiat lies and the failed "money"
system and that is it. great for usury and its inevitable
wars of depopulation, great for barbarity and debt
enslaved ignorance and crime bosses. great for the fascists
who know nothing but the smell and taste of their own vomit.
like rabid wild dogs these idiots think they can print
class superiority based on proximity to the printing press!
end the fed
before they end you !
christ, they are open air criminals.
don't we have a law against stealing in broad daylight?
counterfeiting laws somewhere? is fraud now the high ideal
and guiding principle of the western world, western civilization
reduced to the idea that there is no law and fraud is a viable
business model, the ideal business model for the influential and
powerful?
don't we have a law against stealing in broad daylight?
counterfeiting laws somewhere?...
But isn't that Timmy's robo signed name on my frn? Surely this thing is legitimate.
that is interesting. why does the secretary of the treasury
have his signature on a federal reserve note? he doesn't work
for that banking cartel. it would make sense if the federal
government backed the debt notes with gold "held" by the federal
government, but that isn't the case anymore. so maybe the secretary
of the treasury should sign upside down or backwards to indicate
that it is the debt of the federal government that is being rep-
resented?
it is legit by decree or some form of "law" but it is only as
valuable or of the integrity of the signature that we read there.
we shall see.
Nice and Sleazy does it every time!
The LTRO in Europe gives the banks a 3 year loan opportunity using trash collateral. Europe is not going to implode.
The FED is attempting to open an objective window in the same fashion with their "transparency". IF rates are guaranteed low, then what behavior can you faciliate with a high probability? First, yield seeking in equities, check. Next, back to the cyclicals in a gold rush.
It's about time for David Tepper to switch back to buy, buy, buy.
Supply chain disruptions will end the Fed eventually. Until then, it is a long slow process of collapse. If you can not physically put your hands on your "investments" then you do not "own" them. Hedge accordingly.
This is our greatest weapon. Sell all paper and buy real assets such that are not taxable. Keep all cash away from the top 10 banks.
Let the HFT and other machines try to levitate the markets with no participation of the 99ners. How long can they last?
A long, long time as long as tax payer dollars (through the PPT) are at play.
Some of my clients have a few tennis ball cans filled with gold eagles that are hidden away for their heirs. Entirely "out of the system" and free from any sort of reporting or estate tax exposure. It's a no brainer. Fuck the fed.
Per IRS:
A sale of a precious metal (gold, silver, platinum, or palladium) in any form for which the Commodity Futures Trading Commission (CFTC) has not approved trading by regulated futures contract (RFC) is not reportable. Further, even if the sale is of a precious metal in a form for which the CFTC has approved trading by RFC, the sale is not reportable if the quantity, by weight or by number of items, is less than the minimum required quantity to satisfy a CFTC-approved RFC.
For example, a broker selling a single gold coin does not need to file Form 1099-B even if the coin is of such form and quality that it could be delivered to satisfy a CFTC-approved RFC if all CFTC-approved contracts for gold coins currently call for delivery of at least 25 coins.
reference http://www.irs.gov/instructions/i1099b/ar02.html